EUR 8.48 For Business Accounts Only

MCB Bank (MCB): 4Q2018 EPS of Rs5.7, +2.3x YoY (+63% QoQ); DPS Rs4/share (Above expectations)

• MCB announced 4Q2018 financial results reporting earnings of Rs5.7/share, up 1.3x YoY, which is higher than expectation. Earnings rose due to 14% YoY higher net interest income (NII), significantly lower total provision (down 69% YoY) and higher income from foreign currencies as well as lower effective tax rate.
• Net Interest Income (NII) of the bank rose 14% YoY due to the lagged impact of 425bps hike in policy rate during 2018.
• The bank also increased its non-interest income significantly, up 40% YoY, primarily due to Rs2.2bn income from dealing in foreign currencies compared to Rs215mn in the same period last year. Moreover, fee income also grew by 33% YoY.
• MCB booked a provision charge of Rs792mn, much lower than Rs2.6bn charge in the same period last year. The bank has booked a hefty investment impairment charge which was countered by significant NPL reversal attributable to the ex-NIB loan book, as per channel checks.
• Non-interest expense of MCB increased by 16% YoY to Rs9.5bn, primarily due to Rs1.4bn charge in other provisions/write-offs. Admin expense growth was restricted to 6% YoY as bank has booked pension charge reversal as per channel checks.
• The bank also booked a tax reversal of around Rs1.7bn which reduced the effective tax rate of the bank to 19%, we believe.
• In 2018, earnings of the bank clocked in at Rs17.2/share, down 7% YoY on the back of pension charge as well as Rs3.4bn YoY lower capital gain.
• Key risks for the company include 1) delay in hike in policy rate, 2) lower than expected advances growth and deposit growth, and 3) deterioration in Pakistan macros.