Meezan Bank Limited (MEBL) held its conference call today to discuss 2QCY21 financial results and future roadmap. To recall, the bank announced above expected quarterly earnings of PKR 6.5Bn (EPS: PKR4.6), ↑5/7% YoY/QoQ respectively. Strong performance in both core/non-core income and muted provisioning charge were the major reasons behind the above expected result. However, upwelling admin expenses did limit the overall increase in quarterly earnings. Along with the result, the bank announced an interim dividend of PKR 1.5/sh (1HCY21 payout: PKR 3.0/sh) and a 15% bonus share issue. Key highlights of the call are discussed below:
NII declined by 8% YoY in 2QCY21 as a result of NIMs compression primarily on the back of sizable interest rate cuts last year. On a QoQ basis, NII increased by 7% with the increase stemming from investment income that surpassed PKR 10.0Bn. Moving forward, we expect NIMs to improve on the back of improving CA/CASA ratios and overall balance sheet expansion. Moreover, any interest rate reversal will further jack up NIMs due to the absence of MDR on Islamic deposits.
Following a dismal 2QCY20 marred by COVID-19 outbreak, Non funded income recovered lost ground having shot up by a significant 77% YoY. The surge was backed by sizable turnaround in fee income which almost doubled YoY. Fee income surge was supported by improving trade income (↑39% YoY), debit card fee (↑173% YoY) and branch banking income (↑118% YoY). Furthermore, rising forex income (↑135% YoY to ~PKR 800Mn) strengthened non-core income as the bank secured largest Roshan Digital Accounts related inflows. Going forward, the management expects non-core revenue stream to remain robust on the back of greater financial inclusion and digital platform onboarding.
Admin expenses of the bank remained upwelling having increased by 11.7% YoY however, on a sequential basis the rise was 7.5%. The increase can be attributed to the addition of 20 new branches in 1HCY21 and can be expected to remain elevated as the management seeks to take the tally to 100 by year end.
Provisioning charge of only PKR 148Mn was the major swing factor in the quarterly result against a charge of PKR 1.5Bn in the SQLY. The limited charge was on the back of robust recoveries to the tune of PKR 1.17Bn which related to various exposures that almost offset the PKR 1.23Bn specific provisioning charge while the rest pertained to general provisioning.
The management expects 15% growth in advances this year however, deposit growth is forecasted to settle at 15-18% in the longer term. The management further stated that they do not expect a rate hike in the near term and there would be no specific charge with reference to implementation of IFRS-9.
The management stated that the bank has undertaken 3 major projects in the digital space this year which relate to data analytics, middleware/switching infrastructure and digital platforms.
With regards to individual exposures, the management highlighted that they had a PKR 4.2Bn exposure to HASCOL which has already been fully provided for.
Courtesy – BMA Capital Management Ltd.