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Karachi, March 28, 2013 (PPI-OT): A difficult CY12 to be followed by a challenging CY13: CY12 EPS for MCB clocked in 8% higher
YoY at PKR20.7. Net interest income was 8% lower on a YoY basis which was offset by 13% higher non-fund based income and significantly lower provisioning charges.
According to Elixir Securities Limited CY13 is going to be yet another year of struggle for the bank as NIMs will continue to be lower and credit demand subdued in the wake of uncertain political situation. Network expansion leading to deposit growth: Deposit growth clocked in at 11% in CY12 which primarily came from growth in CASA deposits of 16% compared to a decline of 12% in fixed deposits. MCB has opened 106 new branches in the past 3 years which is expected to increase deposits by an average of 13% each year going forward.
NIMs to remain under pressure in CY13: NIM suffered a drop of 135bps in CY12 to 5.91%. Downward re-pricing post interest rate cut during 2HCY12 will likely pull down lending yields by 171bps in CY13 and interest calculation on average savings balances will increase deposit costs by 23bps.
Elixir Securities Limited therefore eye NIM compression of 194bps to 4.0% in CY13. Rising exposure towards government lending: Limited credit demand from the private sector led to a meagre growth of 3.8% in gross loans during CY12. Uncertain political situation and law and order problems will likely keep major capital projects at bay for the time being.
Therefore, CY13 loan growth will also remain low at 6.6% mainly attributable to working capital financing. Investments (96% government treasury securities) increased significantly to 74% of deposits from last year’s 64.5%.
Asset quality becoming even stronger but limited incremental Pand L gains: MCB recorded a reduction of PKR1bn in NPLs which led to an improvement in the infection ratio to 9.7% from 10.7% last year. Curtailed NPLs and strong coverage at 89% will keep provisioning limited to PKR617mn in CY13, though slightly higher than PKR481mn in CY12.
Valuations: MCB is currently trading at CY13E PBV of 1.8x and its ROE is expected to fall to 16% next year from 22% in CY12. Elixir Securities Limited Dec-13 PT of PKR200 combined with a dividend yield of 6.3% offers a total return of 11%. HOLD
A difficult CY12 to be followed by a challenging CY13
CY12 EPS clocked in 8% higher YoY at PKR20.7 for MCB. Net interest income was 8% lower on a YoY basis which was offset by 13% higher non-fund based income and significantly lower provisioning charges. Thereby, CY12 was a difficult year for MCB on the back of interest rate cuts and subsequent drop in banking spreads. Elixir Securities Limited believes CY13 is going to be yet another year of struggle for the bank as NIMs will continue to be lower and credit demand shall stay subdued in the wake of uncertain political situation.
Network expansion leading to deposit growth
Deposit growth clocked in at 11% in CY12 which primarily came from 16% growth in CASA deposits and a 12% decline in fixed deposits. Yet the cost of deposits increased by 36bps during the year owing to a higher effective minimum rate on savings deposits which account for 49% of total deposits for MCB.
The strategy of higher CASA (Dec-12: 85%) to keep deposit costs low is therefore currently in doldrums. MCB has opened 106 new branches in the past 3 years which is expected to increase deposits by an average of 13% each year going forward.