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MCB Bank (MCB): 2Q2018 EPS of Rs4, -38% YoY (flat QoQ); DPS Rs 4/share (In line with expectations)

• MCB announced 2Q2018 financial results reporting earnings of Rs4/share, down 38% YoY primarily on back of higher taxation during the quarter. To recall, MCB’s effective tax in 2Q2017 stood at ~8% which was below average on account of tax reversal last year. Profit before tax in 2Q2018 remained flat on YoY basis.  
• Net Interest Income (NII) of the bank improved by 13% YoY to Rs11.9bn and 5% QoQ amid higher interest rates during the period under review. SBP had cumulatively increased policy rate by 75bps during 1H2018 to 6.5% which was further increased to 7.5% in July. This likely to further support NII in 3Q2018.
• Non-interest expense of MCB also increased by 14% YoY to Rs8.6bn, mainly on back of higher admin charge. Cost to income ratio of 52% was in line with average seen during last 3-quarters post consolidation of NIB with MCB.
• Capital gains during the quarter also declined by 65% YoY to Rs400mn, due to lower gains from bonds and equities, we believe. Consequently, non-interest income of MCB dropped by 9% to Rs4bn, keeping bottom-line of the bank in check.
• On QoQ basis, MCB registered flat earnings (PBT +15%) where the bank also booked super tax during 2Q2018. NII posted growth of 5% QoQ on the back of higher policy rate.
• In 1H2018, earnings of the bank clocked in at Rs8/share, down 30% YoY on the back of higher taxation, one off pension cost (booked in 1Q2018) and lower non-interest income.  
• 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.