20000127

MCB likely

to earn around

Rs 744m in '99

RECORDER REPORT

KARACHI: The Muslim Commercial Bank (MCB) is expected to earn around Rs 744 million profit in the year 1999 in a big leaf from Rs 399 million recorded in 1998.

According to a report prepared by Indosuez W.I. Carr Securities, during the consolidation phase, the MCB managed to improve the quality of its loan portfolio by restricting credit growth and focusing on loan recoveries. Although this resulted in slower earning growth, it nevertheless increased effective return on its loan portfolio.

Prior to the induction of the new treasury team, there was no standard mechanism for asset-liability pricing. Moreover, as the treasury operation was virtually decentralised, it was impossible to ensure a standard deposit rate and the lending rate.

MCB branches mobilised deposits at varying rates and lent money accordingly. A new system of asset-liability repricing has now been introduced, whereby all major branches offer uniform deposit and lending rates, as determined by the treasury. This centralisation of treasury operations should benefit interest margin of the MCB as deposit and lending rates are rationalised and as excess liquidity is more effectively deployed in the inter bank market.

The new MCB treasury team is likely to enhance other income through better forex management and timely placement of surplus in the Pakistan rupee on the money market. The fee income from trade transactions is expected to remain at 1.1 percent of the total trade transactions. Similarly, the forex income should rise to 1.25 percent of the total trade transactions by FY 2002 from a low of 0.85 percent in FY 1999.

Despite increase in operating profitability over the last couple of years, MCB's after-tax profits have remained depressed because of restructuring provision. Non performing loans (NPL) related provisions remained high during FY96 and FY97 at 30 percent and 12 percent of net interest income respectively.

As consolidation of the credit portfolio coupled with SBP's eased Prudential Regulations lowered NPL related provisions, the MCB management decided to provide for shortfall in pension liabilities.

According to FY98 annual report, the shortfall in pension liabilities is estimated at Rs 2.9 billion. The management intends to amortize this shortfall along with related interest costs over a five-year period ending FY02. Hence, with the beginning of FY03, earnings growth should be supported by nominal restructuring costs.