Business Recorder
MCB Bank Limited’s (MCB) balance sheet posture remains largely unchanged, with the bank continuing to lean heavily on government securities as its primary avenue for asset deployment. Despite some quarter-on-quarter movement, the broader strategy remains intact, with the investment book still dominating incremental balance sheet allocation and continuing to overshadow private sector lending. Any semblance of rebalancing this quarter comes from the advances side, which grew 8 percent over December 2025. While this lends some support to an advances-to-deposit ratio that had slipped into the high-20s, the context offers little room for optimism. The growth comes off a subdued base and does not materially alter the longer-term trend of credit retrenchment. The late CY24 spike in advances had already raised questions about its quality and sustainability. This quarter’s numbers do not yet confirm a decisive shift back toward risk-taking. Deposits, meanwhile, continue to anchor the earnings profile. The base expanded to Rs2.3 trillion, with current accounts now comprising 56 percent of the mix, up from 54 percent at year-end. This incremental improvement in CASA has translated into a meaningful reduction in the cost of deposits, down to 4.1 percent from 5.5 percent a year ago. In a softer rate environment, this liability-side optimization has played a critical role in supporting net markup income, which grew 9 percent year-on-year. That support, however, did not fully translate to the bottom line. Pre-tax profits declined 9 percent year-on-year, primarily due to normalization in provisioning. Last year’s reversals had created a high base; this quarter’s charge of Rs888 million reflects a return to more typical credit costs. Asset quality remains steady, with the infection ratio improving to 6.3 percent and coverage strengthening to nearly 95 percent, indicating that underlying credit risks remain contained. Non-markup income was broadly stable, though not without pockets of strength. Fee and commission income posted double-digit growth, particularly in cards and consumer segments, pointing to sustained activity on the transactional side. However, the overall non-core income pool saw a decline, suggesting that gains in core fee lines were offset elsewhere. On the cost side, operating expenses rose 9 percent year-on-year, reflecting continued investments in technology, talent, and franchise expansion. The cost-to-income ratio inched toward 40 percent. What remains evident is that earnings resilience is being driven more by funding efficiency than asset expansion. The improvement in deposit mix and the resulting decline in funding costs is doing the heavy lifting, at a time when credit growth remains tentative at best. Until advances begin to show sustained and broad-based growth, the balance sheet will continue to reflect a preference for low-risk, sovereign exposure. For shareholders, however, little has changed. The Rs9/share payout underscores continued confidence in the bank’s capital and earnings position. But beyond, the structural question persists whether incremental improvements in lending are the start of a durable shift, or merely a tactical adjustment within an otherwise unchanged balance sheet strategy.
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