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Meezan Bank Limited (MEBL): Analyst Briefing - Key Takeaways

• Meezan Bank (MEBL) today conducted analyst briefing, where the company discussed its 1H2019 financial results and provided a future outlook to investors/analysts.
• The bank recorded provisional expenses of Rs1.2bn vs reversal of Rs100mn. The NPL was mainly related to Rs583mn on loan books (edible oil industry etc) and Rs469mn on investments.
• Operating expenses were up by 25%YoY to Rs5.8bn which was majorly on account of 76 new branches, inflation and devaluation. The bank expects similar growth in operating expenses due to aggressive branch expansion in 2020.
• The bank expects NIMs to remain more or less close to last quarter.
• On energy Sukuk-II, the consortium led by Meezan bank has already completed all the prerequisites. However, some bottlenecks still persist at the ministry’s level. The government will issue a letter of comfort for the said purpose . It is difficult to ascertain the exact timeline at the government level for completion of its paperwork. To note, government Sukuk is CAR efficient.
• Cost to Income clocked in at 46% which is lowest in the banking sector as compared to 57% in the same period last year. Return on Equity (RoE) of the bank reached at highest in the history at 33%, the management sees the RoE to remain above 20% in the long run. The management believes that the RoE to hover in the range of 28-30% in current circumstances.
• Capital Adequacy ratio (CAR) increased to 16.2% vs 14.5% in the same period last year (benchmark: 12.5%).
• The board of the bank has already approved a Sukuk issue for its Tier-II capital which is expected to be issued in 4Q2019, the amount of the issue will be in the range from Rs4-6bn. This will also support bank’s CAR.
• The bank’s exposure to government is in-line with the sector’s average.
• Re-pricing of loans generally completes in 3-6months while few loans are long term loans which witness a lag of about 12months. The government Sukuk takes 6months to re-price.
• Deposits of the bank grew by 7% YoY since Dec-18 to PKR 842bn. The growth was driven by current account deposits which were up 14% YoY. Deposit growth rate is tracking the country’s economic slowdown.
• The bank currently sees no stress despite deteriorating macro-economic condition. However, it is reasonable to assume some stress due to slowdown, going forward.
• IFRS-16 implementation has an impact of Rs315mn (after-tax Rs230mn) on profit and loss account for 1H2019. Going forward, the management eyes a similar impact on its income statement.
• IFRS-9 is expected to be implemented in 2020. The recent impact study of the said IFRS will not materially impact the company’s earnings, as per the management.
• The bank is also focusing on digital banking and currently in talks with 3 Fintechs in payment space.
• Management expects loan book growth to be lower than the bank's historical 15-18%. While going forward, loan growth is expected at 12-13%. MEBL expects to maintain its ADR ratio at 55-60%.