One tough quarter has not deterred MCB Bank Limited (MCB) from posting a massive 41 percent year-on-year growth in after-tax profits. The bank continued the expansion of its asset base, as the volumetric growth in earing assets was registered at 11 percent over December 2019. Revival of economic activities in the third quarter, timely reprofiling of assets, and a tight lid on administrative expenses – all contributed to MCB’s healthy bottom-line growth.

The net markup income growth grew admirably despite significantly lower interest rates year-on-year. Better asset reprofiling and proactive duration management of the earning asset portfolio yielded the desired results. The investment portfolio continued to have the lion’s share in the asset mix, with the Investment to Deposit Ratio further increasing to a massive 76 percent by the end of September 2020, over 65 percent as at December end 2019. Investments stood at Rs965 billion, higher by 29 percent over December 2019.

The advances portfolio on the other hand, shrunk by 9 percent over December 2019, at Rs450 billion. MCB’s ADR, as a result stood at a very low 35 percent as at September end 2020.

As has been the case over the years, banks in Pakistan - bigger ones in particular - have time and again yielded significant returns in a declining interest rate scenario, without having to lend much to the private sector. 2020 seems to be no different. The government securities issued at significantly higher rates in yesteryear, provided ample opportunities to MCB and peers to capitalize the gain on sale of securities, and more than make up for any loss in the topline.

While the reduced economic activities amid the pandemic had put pressure on the fee, commission non-core income segment, MCB still did remarkably well to largely keep the income coming, recovering significantly in the third quarter with a 25 percent quarter-on-quarter surge. The real deal was sealed by the gain on sale of securities, as the bank anticipated the yield curve, and adjusted the portfolio accordingly. The capital gains totaled Rs2.86 billion during the period, up from virtually nothing in the corresponding period last year.

Bring in the exemplary control on administrative costs despite continued branch expansion and general inflation, and you have a remarkable improvement in cost to income ratio. MCB stuck to the prudent approach in dealing with the NPLs and provided aggressively in the light of pandemic. The liability side grew higher than the industry average, with the deposit base expanding by 11 percent over December 2019 to Rs1.27 trillion. Nearly half the growth was contributed by current accounts, taking the mix to 37.7 percent and consolidating an already high CASA ratio at 93.2 percent.

There is hardly a thing you want to point out that needs to be addressed in terms of prudence, asset quality, provision, profitability. With economic activities back to near full swing, one expects higher traction in the advances portfolio. Note that MCB would not do well without one, but a slightly higher ADR may well be the case going forward.