Commenting on the results, Pierre Guy Noël (Chief Executive - MCB Group Ltd) said:
“Group attributable profits for the quarter ended December 2020 amounting to Rs 1,859 million were in line with those achieved in the previous quarter. Profits for the semester, however, declined by Rs 1,479 million (-28.1%) to reach Rs 3,784 million, a drop mainly due to the increase in the charge for Expected Credit Losses (ECL) compared to the corresponding semester of last year.
Net interest income increased by 1.7%, reflecting higher investment in Government securities linked to the persistently high liquidity situation domestically. The impact of increased cross border lending was to a large extent negated by lower margins due to increased cost of funds. Net fee and commission income grew by 1.2%. Improved performance from regional trade financing and wealth management activities was tempered by lower revenues from MCB Capital Markets Ltd while revenues from foreign banking subsidiaries and cards activities were adversely affected by the downturn in tourism and travel industries. ‘Other income’ declined by 11.4%, primarily on account of the temporary suspension of rental income from COVIFRA following the closure of Club Med amidst the Covid-19 situation and fair value losses experienced at the level of MCB Equity Fund Ltd. As a result, operating income dropped marginally to Rs 10,901 million.
With operating expenses going up by 1.4%, the cost to income ratio increased to 37.2% compared to 36.5% for the corresponding period last year. Impairment charges reached Rs 2,357 million, including an increase of Rs 1,488 million in respect of ECL. The cost of risk, on an annualised basis, stood at 151 basis points of gross loans and advances compared to 184 basis points for the last financial year while the gross NPL ratio declined to 3.7% from 4.2% as at June 2020.
The share of profit of associates declined by Rs 150 million, mainly due to a subdued performance of BFCOI.
The Group continues to be well capitalised with a capital adequacy ratio of 17.6%, of which 16.2% in the form of Tier 1, and keeps displaying healthy liquidity positions, with a total loans to deposits ratio of 65.4% and a total loans to funding base ratio of 57.2%, when including bor rowings. At Bank level, the US dollar Liquidity Coverage Ratio remained well above the regulatory norm at 172% as at 31 December 2020.
Notwithstanding an upgrade in global economic outlook by the IMF on the back of the rollout of vaccination programmes in many countries, the operating environment remains challenging. There is still little visibility on the evolution of the situation going forward, notably in relation to the spread of the new variants of the coronavirus, the duration of lockdowns in some of our key markets and the full-fledged opening of our borders. Against this backdrop, we will continue to closely monitor the situation and maintain a prudent approach.’’