MEBL senior management held an analyst briefing today to discuss 1HCY20 results and future strategy:
· The bank posted consolidated earnings of PKR 8.97/share during 1HCY20, increasing 66% YoY led primarily by higher NIMs.
· ROE of the bank stands at 38.3% on an annualised basis for 1HCY20
· CAR of the bank currently stands at a concrete 20.9%. Risk Weighted Assets (RWA) dropped due to increased exposure in government securities.
· Capital gains of PKR 966mn during 1H were primarily led by partial sale of energy sukuk
· The bank booked provisioning expenses of PKR 3.1bn during 1HCY20. A general provisioning was booked worth PKR 1bn. The management spoke of the bank’s consistent strategy of a prudent and conservative approach towards coverage. Infection currently stands at 2.35% compared to 1.8% as at Dec’19 while coverage currently stands at 129%. The management said that most of the stress in the loan book is customer specific not sector specific. However oil and gas clients indicate stress while textile and cement clients initially showed stress but post lifting of lockdown, have shown good revival. MEBL doesn’t anticipate provisioning being converted into the loss category next year, infact expect recoveries.
· Management indicated the bank will continue to focus on the consumer book with auto financing likely to pick up in the upcoming months
· Effective tax rate expected same, 39%. They don’t expect removal of super tax in coming year.
· Dividend Payout is expected to remain same i.e. around 40%.
· Current Account ratio stands at 38% but the management expects that there will be a slowdown in its growth since business activity has restarted.
· NIMs will likely face suppression going forward due to downward asset re pricing. Management expects loan growth to also slow down.
· Management expects IDR to hover around current level of 69% going forward
· Lower trade related income and exemptions on IBFT related charges contributed to lower Fee income. The management does not expect a strong rebound in fee income due to various SBP measures such as waiver on digital transactions fees.
· A total of PKR 29bn has been requested for deferral of principal payments which forms about 6% of the total portfolio of approx PKR 500bio.
· Investments are up 36% since CY19 due to investments in GOP Ijarah Sukuk, GoP Bai Muajjal and Energy Sukuk II. PKR 51bn, PKR 23bn and PKR 34bn were invested in these instruments respectively during 1HCY20
· Financing mix of the bank comprises of 72% corporate clients and 17% SME/Commercial clients
· Opportunities on the asset side include; financing going up particularly in the cotton sector (seasonal demand) and regular participation and investment in Sukuk via auctions.
· MEBL has done impact testing of IFRS 9 and doesn’t see any major impact on profitability
· Management is of the view that branch expansion strategy is likely to slow down as during COVID, customer behaviour has shifted largely towards digital transactions. There has been a 228% jump in transaction count and 160% jump in transaction value YoY. Branches currently stands at 798 against 678 SPLY. (AHL Research)