MEBL senior management held an analyst briefing yesterday to discuss CY20 results and future strategy:

·        The bank posted consolidated earnings of PKR 22.4/share during CY20, increasing 44% YoY led primarily by higher NIMs and Capital Gains.

·        ROE of the bank stands at 35% as at Dec’20 compared to 31% recorded a year earlier.

·        CAR of the bank currently stands at a concrete 17.8%.

·        Capital gains of PKR 683mn during CY20 were primarily led by partial sale of energy sukuk

·        The bank booked general and specific provisioning expenses of PKR 1bn and PKR 7.3bn, respectively during CY20. The management spoke of the bank’s consistent strategy of a prudent and conservative approach towards coverage. Infection currently stands at 2.8% compared to 1.8% as at Dec’19 while coverage currently stands at 128%. The management said that most of the stress in the loan book is customer specific (Hascol), 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.

·        The management targets a deposit growth of 12-16% for CY21, currently bank’s deposits stand at PKR 1.25trn as at Dec’20.

·        ADR is expected to remain at the same level (as at Dec’20: 41%)

·        Dividend Payout is expected to remain same i.e. around 35-40% while ROE is budgeted to be around 20-25% for CY21, by the bank.

·        Current Account ratio stands at 40% and the management expects this to stay in the range of 39-40% in CY21 as well.

·        Assets have been fully repriced in the outgoing year, NIMs are expected to hover between 4.5-5% in CY21.

·        Management expects loan growth to also slow down, targeting a growth in the range of 10-12% for CY21.

·        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 had been requested for deferral of principal payments which forms about 6% of the total portfolio of approx PKR 500bio. Out of this only PKR 11bn is remaining deferred.

·        MEBL has done impact testing of IFRS 9 and doesn’t see any major impact on profitability going forward. Their internal assessment of IFRS 9 shows that their general provisioning of CY20 comfortably covers any ECL charge that may arise as a result of implementation of the aforementioned standard.

·        Management is of the view that branch expansion strategy is likely to continue at the same pace despite customer behavior shifting largely towards digital transactions. Therefore, bank doesn’t see any significant reduction in OPEX in CY21. There has been a 203% jump in digital transaction count and 220% jump in transaction value YoY. Branches currently stands at 815 against 760 SPLY.

·        MEBL expects to maintain CAR above 16%.

·        On the interest rate outlook, the management expects a rate hike in the latter part of CY21 (Q3 and Q4).

Curtesy – AHL Research