MCB Bank Limited (MCB) Earnings Call Transcript & Summary

I'm Murad Ansari from EFG Hermes, and I'm the host for this call today. We have the pleasure of having with us, Mr. Hammad Khalid, CFO, MCB Bank Limited on the call with us. As per the usual format, Hammad will go through a presentation discussing third quarter 2022 results, latest developments and future outlook of the bank. At the end of the presentation, we'll take questions from the participants on the call. Before we start, I would like to highlight that financials and result presentations are available on the Investor Relations section of MCBs website. With that, I ask Hammad to take the call and go through his presentation. Hammad?

Thank you, Murad, and good day, everyone, and thank you for joining in the results release following a [Technical Difficulty] for the continued interest in MCB Bank. As per practice, I'll just quickly run you through the MCB operational landscape. So we are primarily a domestically domiciled bank running pretty much a stagnant 1,430 domestic branches network, which scales up to second largest, 1,600 branch when we plug in with 179 branches run by [Technical Difficulty] providing transactional convenience through the [ back end ] of the channel to a huge customer base of 8.5 million. International presence, pretty much limited to 3 regions, a wholesale banking branch in Dubai, [indiscernible] and Bahrain and 6 branches operating in Sri Lanka. So we have consolidated our net total in Sri Lanka from 8 branches previously to 6 branches as of September 30th, 2022. From a market share perspective, we hold 6.57% of the domestic industry deposits whereas on the advances and trade fund, we hold 5.40% and 5.55%, respectively. Home remittance being one of our strategic brand, approximately USD3.2 billion are channeled through MCBs network every year. And we are -- so we are a key player in this particular business domain and hold around 11.5% [Technical Difficulty]. Our underlying financial strength is evident from the top-notch long-term rating of AAA assigned by PACRA in June 2022. From marketability ratios, the bank has pretty much the highest dividend per share amongst the financial industry of PKR 14 per share for the 9-months period and is credited as one of the [Technical Difficulty]. And moving on to the key highlights for the 9 months, starting with the challenges that we faced on the economic front. So to start off the second quarter, the political instability triggered a financial crisis. However, we observed that by the tail end of the third quarter, [ end of 30th ] September, things seem to be contained on the external front. Month on month improvement was witnessed on the external front with CAD reducing to USD316 million, a drop of approximately 100% when mapped against the preceding month. When mapped against the corresponding quarter last year, a significant drop primarily triggered by a reduction in import side by adopted structural reforms. On the monetary front, a period of pause as the MPS announcements over the last 2 sessions registered a status quo pretty much in line with the management expectations after registering a 525 bps impact within a short span of few months in the second quarter, primarily. Recent CPI readings have overshot the expectations, primarily driven by sales inflation on account of the shortages caused by the catastrophes on account of floods. We expect this number to remain in the shorter term and maybe maintaining these levels over the course of next few years. The volatility that was observed on the FX side in the first, second and part of third quarter has subsided to an extent in the later half of the third quarter. International rating agencies have downgraded the company's ratings on citing external vulnerabilities and the key payment risks tied with the country. On account of industry's perspective, the tax incidence for the third quarter earnings was reduced as the retrospective application based on a specific ADR level was duly reported in the second quarter of 2022. Now coming to MCBs perspective, the third quarter profitability number was the highest level of quarterly profit of PKR 19.1 billion -- profit before tax of PKR 19.1 billion for MCB Bank, meeting our earlier high, which was the second quarter profit before tax by a decent PKR 1.4 billion. 9 months profit before tax number was at PKR 51.6 billion, pretty much what we made for the full year 2021, registered a growth of 35% year-on-year. PAT, however, reflected a different story on account of the reduced tax incidence although diluting the deficit from 25% reporting in the half yearly financials to 12% negative for the 9 months period. This was triggered -- this was actually fueled by a growth of 29% on the net interest margins, which was primarily fueled by the significant accretion in our no-cost deposit rate, which is the current account [ and time we shared ] a majority profiling of our long-term [indiscernible]. Nonfund-based block grew by a significant 41%. This was on account of significant gains reported on the fee and forex side on account of the volatility observed during the close of 9 months. The key structure in MCB, the recovery remained strong during the 9 months period. We have recovered around PKR 1.03 billion on account of the NPLs and written-off loans transferred from NIB Bank during the 9 months period. The growth in revenue and contained FX lines helped us in achieving one of the leading cost to income ratios of 37.32% in the industry. Now moving now to the balance sheet side. So a sound financial position and asset base of PKR 2.076 billion on a standalone basis, depicting a growth of PKR 106 billion in absolute terms. On the asset mix side, gross advances remained flat, a drop of PKR 9 billion deposit when mapped against December 31, 2021 numbers. Prime concentration remains, for the corporate side, around 70% followed by a 15% concentration that were reported by our retail segment. Consumer banking growth, the traction that we gained in the first half was muted to an extent in the third quarter. So approximately PKR 4.7 billion added for the 9 months on a quarterly basis, down by PKR 623 million, primarily on account of the suspension of Mera Pakistan Mera Ghar and the challenges faced by the operations on account of -- the operational challenges on account of [indiscernible] opening which is seriously impacting the delivery of the time lines. Coverage and infection ratios of the bank were reported at 85% and 8.37%, respectively. On the investment front, a clear shift of the maturity profiling, where the floating rate PIBs amounted to PKR 134 billion per added [indiscernible] base followed by PKR 48 billion additional prospects at PIBs. There was a corresponding decrease in our treasury bill base by PKR 116 billion. On account of significant pressures on the discount rate side, the yields of investments have improved to [ 11.83% ] versus 8.25% for the 9 months 2021. The PIB side, for fixed rate, the weighted average yield to maturity -- time to maturity is 3.25 years. On the deposit side, working on a defined strategy, the bank was able to add PKR 117 billion out of the PKR 178 billion absolute term to its current account base, thereby improving the current account concentration to 43% on absolute and 41% on average. This resulted in an improved CASA base of 93.73% as of September 30, with prime contributions coming in from the current account. The cost of deposit for the 9 months works out at 5.94%. For Q3, it was 7.19%, primarily on account of the increase that was registered under [ this mandate side ]. Advances, again, corporate doing much of the heavy lifting, PKR 434 billion base followed by a PKR 90 billion base by retail and consumer with PKR 43 billion. If we take 2017 as a base, the gross advances have reported a CAGR of 11.88% and the yields of advances have improved by 337 basis points year-on-year, 7.18% for the first 9 months of 2021, increased to 10.55% for the 9 months of 2022. Pertinent to highlight that the 125 basis point hike registered in July is still to reflect on the advances side, a major portion of the advances side. On the NPL front, a base of PKR 52.471 billion reported as of September 30, a year -- YTD period increase of approximately PKR 2 billion with a quarterly increase of PKR 1.28 billion, primarily on account of devaluation registered on foreign currency-denominated NPLs. With reference to our recovery on the NIB-related NPL stock, the bank recovered PKR 903 million from the NIB-related stock of PKR 29.6 billion, whereas recovery from the written-off portfolio amounted to PKR 130 million. So this takes our total recovery from the NPL stock to around PKR 8.20 billion, which is around 28% of the total NPL base. But if we plug in the recovery from the written-off portfolio, they processed 30% as of September 30, 2022. On the investment front, treasury bills, down by PKR 115 billion; fixed rate PIBs, up by PKR 48 billion; floating rate PIBs, up by PKR 135 billion. On a net-net basis, PKR 66.5 billion added to the base. If you take the repricings due, on the top right, you would see that approximately 66% of the floating rate PIBs and treasury bills due to mature within a span of 1 month and approximately 95% of it within a span of 3 -- 6-months period. Within the PIB segment, the [ comp ] situation has registered a shift over the course of last 18 months. As of December 31, 2020, floating rate PIB concentration was 36%, which has now changed to 66%, whereas fixed rate PIB concentration has diluted from 64% to 34% as of 30th of September 2022. A snapshot of how our retail has performed. So an average growth based on the State Bank between deposits, the industry has reported a dip of 1.33%, whereas MCB on the other hand has increased in domestic deposit base by 6.59% on average. So taking 2016 as a base, the total deposits have grown by 13.1%, whereas the current account and fees is -- CAGR is 15.4%. Our concentration stance improved to 41% on average, 43% on absolute terms. On the P&L side, gross mark-up income ratio of PKR 141 billion, a positive variance of PKR 51 billion. This was primarily driven by a strong growth in the current account and timely decision -- timely shift in our maturity and investment profiling. Mark-up expense, a negative variance of PKR 37 billion. Resultedly, our net mark-up income was up by 13.77%, with [ 29% variance ] year-on-year. So out of the total average increase in deposit base of PKR 149 billion year-on-year, approximately PKR 91.6 billion, which is more than 65% of the increase versus [ respective ] current account base. On the noninterest income side, apart from the fee income, which registered a growth of 13%, primarily on the back of strong performances coming from debit card business, remittances and branch management business. The major contributor was the forex income, which registered a growth of 242% year-on-year, pretty much in line with the industry number on account of the volatility observed in the market. On the operational expenses side, a modest increase of 16%, considering an exceptionally high inflationary scenario and considering the impact of revaluation, the impact of minimum wage being passed on and the increase in our operational and technological expense. In terms of NPL-related recovery, the bank has reversed provision to the tune of PKR 1.9 billion for the 9 months ended 2022. In terms of our overseas operations, the profitability number has improved by 180% year-on-year to PKR 1.6 billion, with reference to Sri Lanka franchise, a growth of more than 400% profit in their profit before tax, followed by a 200% increase reported back during the operations. So despite all the challenges, despite all the macroeconomic situation, particularly in Sri Lanka, the feets are holding on to their floors. On the noncore segment side, the dividend income has grown by 17% to PKR 1.7 billion. On the equity investment fund, the bank further reported a gross charge of PKR 331 million in the third quarter, taking the overall gross charge to PKR 1.6 billion. However, provision reverse and disposal of equity switch amounted to around PKR 1.1 billion, thereby a net charge of PKR 0.63 billion reflected versus a reversal of PKR 180 million reported for the correspondent period last time. On account of profitability ratios, you would observe RoE dropped from 19.11% for the full year 2021 to 17.02%, with RoA dropping from 1.65% to 1.37%, primarily on account of the significant changes -- significant increase in the tax incidence introduced into the finance side [Technical Difficulty]. Cost to income ratio, as I covered earlier, based on the strong finance on the revenue side and a contained expense base has improved to 37.3% on a standalone basis. Capital ratios for the standalone capital adequacy ratio was reported at 17.6%. So we carry a buffer of more than 600 basis points on top of the regulatory requirement as of today. Tier 1 is 16.5%, whereas Tier 2 is [ 1.11% ]. The higher tax incidence has dented our capital adequacy number by approximately basis points. Resultedly, if the tax incidence changes would not have come into play, our CAR would have been somewhere around 18.7% on a standalone basis. A factor of the dividend history for MCB, you would observe that over the course of last 4 to 5 years, the dividend payment history is averaging around 80%, whereas based on the devaluations opening up the dividend yield has improved to 15.62% based on 9 months 2022 results. A snapshot of our wholly-owned MCB Islamic subsidiary, so we take pride in the fact that we are the only conventional bank running a wholly-owned Islamic subsidiary. It's a small franchise running 179 branches as of September 30, 2020 (sic) [ 2022 ]. You would observe that the franchise goes from 76 to 176 in the year 2018. This is the period where 19 branches were carved out of MCB and passed on to MCB Islamic as one of the synergistic means coming in from the [indiscernible]. So a loss after tax of PKR 1.096 billion reported in the year 2018, as the scheme was structured in a way that along with the transfer of these branches, the related deposit was also transferred and the franchise was vested with the responsibility towards asset base. So over the course of next 2 years, you would observe that we reduced the loss to PKR 244 million, which was eventually converted into profit after tax of PKR 208 million followed by PKR 100 million made in the year 2021. I'm pleased to share that for the 9 months period, the entity has made PKR 847 million profit after tax growing by a massive number when mapped against corresponding period last year and carry a share of around 4% in the profit after tax on [indiscernible] side. So as per the guidance that we have been giving to the market earlier, we expect this share to rise up to 10% in the shorter term, inshallah. So aside of the way forward, we will continue to build our current account base, deepening of our active customer base, focusing more on the dormant relationship where the activity is not there, the deposit base is there, thereto supplement our fee income as well. We will capitalize on the home remittance cash-over-counter conversion and converting the stagnant deposits into current accounts. The bank will continue investing in the branch and technology infrastructure, human resource, retention and induction remains on the top of our agenda. Focusing on cross-sell, we would want some diversification to reflect in our nonfund-based investment streams. We are eyeing multiple avenues to supplement our feed [indiscernible] ahead, primarily coming in from the digital side. We are fairly confident of the risk appetite that we have defined for ourselves. So a guidance to the market, we do not expect [indiscernible] but we are pretty much sure that there will be no significant rectification in our NPL base. The Islamic franchise will grow into a more promising -- more prominent entity, as we said, ahead. Contribution from -- to the group, bottom line, would be significant in times to come. And as per the guidance that we gave earlier, currently, we are trading somewhere around 40% ADR, and we hope to achieve 50% ADR by year end. The quorum had registered that our bank was able to add close to PKR 110 billion to PKR 120 billion of advances in the last quarter of 2021. So it is in the works, and we are fairly confident that we will, inshallah, achieve this 50% ADR target that we have set for ourselves. On the digital side, the digital transformation is in full swing led by MCB Live. So we have launched Phase 1 which primarily cover the retail franchise, and we are gearing our Phase 2 launch, it would be covering the [Technical Difficulty], providing a more safe, stable and reliable experience to our customer base. We are possibly focusing on the user experience and user interface, soliciting feedback from our huge customer base. I'm glad to share that -- we have shared that around 4x of the legacy mobile application platform registered users. So we have 125,000, 130,000-odd active users there, we have scaled up to around 600,000-plus customers on our new platform. On the enterprise transformation initiative, things are in the works. We are the entity and support working on multiple things as we speak today, which primarily covers workflows, process optimizations, VI tools, AI tools. So this would be coming into play as [indiscernible]. There has been some significant traction gained on the POS acquiring side and e-commerce side, a gain of around [ 55% ] on average on both fronts. We would be focusing more on these 2 revenue lines as we tread ahead. Branchless banking has been revitalized. We are relaunching the same product again and with a new zeal, with a new strategy in place, which would make it easier for us to penetrate into the unbanked segment. So this is it from my side, Murad. Over to you for the Q&A. Thank you.

Thank you, Hammad. [Operator Instructions] We have a question on the chat box right now, which is, since bank's investment book is mainly invested in floating rate, does the management expect interest rates to increase further? If yes, then how much increase is the management eyeing?

Well, we don't expect much of an increase on the interest rate side, though, as I covered in the presentation, we do expect the inflation remains high in the shorter term. But we have been earning a negative, we have interest rate sometime now and we expect that to continue in the shorter term also. So we are not eyeing any interest rate hikes in, say, a period of 6 to 8 months from now.

Okay. And in terms of portfolio shifts, so you mentioned that your portfolio has now -- is now more tilted towards floating rate securities. Do we -- should we expect a switch back into fixed rate? And when do you see that point comes when you look at switching the portfolio more towards fixed rate securities?

Absolutely, Murad, it's a dynamic process. So as we speak today, the difference would be that -- it's significant. So with an inverted yield coming into play, a 5-year or a 3-year bond yielding around 13% versus a 14% where we are being repriced maybe on a fortnight, 3-month, or a 6-monthly basis, with a spread of around 70 basis points, it's close to 16%, 16.1%. So there's a huge difference as we speak today. So as and when the time comes, we will see a switch over into the fixed rate side. But currently, as we speak today, we are much more comfortable being placed in the floating rates.

We have a question from [ Fawad Basir ].

Sir, I was -- my question's relating to the advances target. Obviously, yes, we want to -- you would want to step away from the tax imposed under the 50% threshold. But more importantly, during this time, I think dating a bit back, you guys have started accelerating on this front from, if I'm not mistaken, 36%, 37%. What are the areas that you guys have gone into? And secondly, what kind of provision headwinds are you guys looking at, given the high interest rate environment to stay, as you said, for, let's say, about 6 to 8 months from now?

Thank you, Fawad, for the question. So if you look at our performance coverage stance of, say, [indiscernible], you would observe that there was a spike in our advances close to the period end last year. And it has somewhat somehow reflected in the books for the 9 months period as well. So it is more of a captive relationship that we look into, the parties that fall within the risk appetite that we have. And obviously, these are the relationships that are working with the bank for the last many years. The working capital requirements on account of the commodity person piece have gone up significantly, and we are focusing on that. Unfortunately, long term financing, also short term financing, the tilt is more towards the shorter term than in finance in particular. So we will continue capitalizing on such avenues. Obviously, the competition is pretty intense, and the borrower actually is the beneficiary of such instances since every other bank is running to achieve a 50% ADR or maintaining a 50% if they are already there. So the competition in intense, the pricing is not very good from a bank's perspective. However, when we plug in the huge tax incidence, it makes sense -- financial sense. So to answer your concern, the focus would remain on the parties that we have on board, maybe a few new relationship, a few new good projects, few new business ventures or business partners onboarded. But the concentration or the focus would remain on the existing portfolio.

And secondly, the asset quality bit, the second part of the question?

Well, we don't expect any further requisition. As I covered in the presentation on the slide, we are fairly confident of the asset quality. So you would have observed that we have been maintaining a decent asset quality. If I take out the NIB-related PKR 30 billion NPL stock transfer out of which we have recovered around PKR 8.2 billion, still around PKR 21 billion, PKR 22 billion is reflected in our NPL base. You take that out, you take the MCBs gross base, you would find our infection ratio of close to 3.5%, 4% approximately, maybe less than that. So we are fairly confident. We don't expect any impact there. From a consumer standpoint, yes, things are pretty alarming, considering the huge uptick that the consumer -- financing guys have seen over the course of last few quarters now. But Mera Pakistan Mera Ghar being a fixed rate kind of a scenario, not much of an impact. Disposable income definitely is impacted for the wallet. But we always plug that in when we are evaluating the particular [Indiscernible]. On the auto financing side, we haven't seen any significant movement on the BPP, which is the base positive portfolio. And we are sure that we will be able to maintain a similar asset quality as we sit here, not much of an impact there.

More questions on the chat box. So any guidance on impact from the floods and also does MCB have exposure to euro bonds how much provided to date?

Well, on the flood side, operationally, yes, we were challenged on a few fronts, a few of our branches were directly impacted. Agriculture financing is a very small segment of our portfolio. So based on our assessment, there is a very muted kind of an impact, we don't expect that to reflect on the P&L eventually. And secondly, on the consumer financing segment or any corporate or SME retail segment that we have in those particular areas which were hard hit by the flood, we have worked out, we haven't found anything significant to be shared with the market so far. So we don't expect MCB to be impacted on account of the [Technical Difficulty] flood. With reference to the second question on euro bonds, yes, we do have exposures in our international franchise around PKR 8.5 billion. Based on the downgrades that we see post 30th September, we have classified them into Stage 2 and the requisite provision has been taken into the accounts of our overseas franchise.

MCBs ADR has slightly dropped from previous quarter and still hovers around the early 40s. Is the management still hopeful for achieving 50% ADR for the year-end?

Absolutely, absolutely. The strategy is in the works. As I said earlier, we are working on increasing our credit growth. We are aiming to add around PKR 120 billion to PKR 135 billion base. Obviously, as I shared earlier, we are simultaneously working on high cost deposit relationships, deposits that offer minimal of stress. And if it is not making financial sense to us, we might just take a [Technical Difficulty]

What's the bank's loan exposure to construction sector? And are banks still liable to maintain loan exposure in construction as previously set by State Bank? And related to this is, is there any update on resumption of Mera Pakistan Mera Ghar scheme?

Well, no specific updates. What I can share with the forum is that the construction target -- I'm not sure of the exact number as of now, but it was close to 6% -- 6%, 6.5%. And the new mandate that was assigned to achieve a 7% of the private sector credit, I believe, by 31st of December, 2022. However, starting from the third quarter of this year, the target was [Technical Difficulty] where there is no P&L implication tagged to it. The banks were not required to maintain an additional CRR in case they missed the quarterly target on the construction side. As far as Mera Pakistan Mera Ghar is concerned, we haven't heard from the Central Bank regarding the resumption of this particular program. What we can share with the forum is that the additional P&L implications with reference to the CRR that was required to be maintained has been done away, and we have been passed on that [ balance ] by the Central Bank based on the last quarter performance. So I don't think that it would come into play at least within this calendar year.

Question from [ Hasan Azhar ]. Loan book yield appears on the lower side compared to other banks, excluding the subsidized loans, that is TERF and others. What is the weighted average yield on loan book? And when is the next major repricing expected? Is it in 4Q? And by the end of December '22, most of the loan book will reflect the prevailing Kibor rates?

Well, obviously, Hasan, you have to gradually -- it has to gradually reflect into this. It would not reflect in the 9 months considering the fact that we started the year with 6% and it has now gone at around, say, 11.55% based on the 9 months results. So if I take out the TERF and subsidized loans, I believe it would be some -- it would reflect Kibor plus around 100 basis points on a monthly basis. So if I look at the yields for the month of September, it would range somewhere around 16.5% to 16.75% on average, barring the subsidized and TERF-related finances. So the basis of the next repricing, the 185 basis points, that was the increase that registered in the month of July is yet to reflect on the advances side since bulk of -- majority of our advances base is repriced on a quarterly basis. So starting from 1st of October, this is the last quarter, the NIM, there it would reflect eventually. So by end of 2022, yes, most of the loan book will be repriced [ when the book is repriced ].

All right. There's a couple of questions. I think, one, on the euro bonds. Can you please repeat exposure on euro bonds that MCB has and how much has been provided for?

We have PKR 8.5 billion parked in our international franchise. And as I shared earlier, it has been classified as Stage 2 based on the downgrade -- country downgrade [Technical Difficulty] to us by the international credit rating agencies. And based on our ECL [ calculated profile ], the required provision is close to around 3.5% of outstanding.

Question from Umair Naseer. What is MCBs market share in terms of remittances flowing through the banking channel?

Umair, we hold around 11.5% of the total related remittance flow into the country.

Another question, could you please share any update on the FX inquiry initiated by the State Bank?

Well, as is the case with the industrial inquiry was initiated by the Central Bank and the [indiscernible]. We haven't heard back from the Central Bank as of now. As I understand, the inquiry has been completed from MCBs perspective, but we are not aware of the consequences.

Question from [ Ayesha Asir ]. Can you please shed some light on the applicability of MDR on Islamic deposit? What is the possibility and validity of the imposition of such a rate on Islamic banks?

Well, this has been under discussion, Ayesha, for an extended period of time now. We don't -- personally, I don't feel that this would be applied, considering that, obviously, the sharia rulings have to be given prominence. It has to get profit loss distribution mechanism. There would be no difference between a conventional and Islamic if MDR comes into play. So that's my point of view. I don't feel that this would be applied in the shorter term. This has been doing rounds for ages now.

All right. A question again on the chat box. Since export of textile is slowing down, does management expect any stress on loans given to the textile sector?

Not really. We do understand the situation that we have on our hands in terms of the textile portfolio. But considering that, as I said earlier, we have a very refined kind of a risk appetite. The slowdown in exports, the customers that we have, we don't expect much of an impact reflected in their [Technical Difficulty]. So fairly confident of the asset quality. We don't expect any pressure to mount on our textile-related exposures.

Okay. A question from [ Shamsuddin Shah ], he's apologizing he's joined the call a little bit late and maybe these questions have been answered before. But any -- again, an overview on asset quality and the ADR that the bank is targeting by year end?

[ Shams ], we are aiming to achieve 50% ADR by the end of this year, and the strategy that we are putting in place or which is already in the works is though our credit buffer close PKR 135 billion to PKR 140 billion, with the corresponding strategy to be applied on the high-cost deposit base, so the deposits that are offering minimal [indiscernible], we might take the [indiscernible] off, which is [indiscernible] ADR by the year end. In terms of asset quality, there are no surprises. We don't expect any shocks to reflect in the near term as well. So fairly confident about the asset quality for MCB Bank.

Can you please share the recovery of pipeline for NIB loans?

Well, if you review the presentation, if you look at it, you would observe that we have been recovering close to PKR 1 billion every year, more than PKR 1 billion in a few years, but approximately an average of PKR 1 billion every year. So we have achieved PKR 8.2 billion within a course of 5 years. Pipeline, obviously, you recovered the ones which are easier to get in the shorter term and, obviously, the ones that are left are pretty chronic in nature, most of them adopted legal recourse. So if you are able to tackle them in the years to come, you might see a recovery of close to PKR 2 billion if the legal course related to NPL goes our way. Apart from that, I believe, PKR 1 billion every year is what we are [Technical Difficulty] quarter.

Question, can you please share whether the tax expense provision made during 9 months '22 was based on keeping ADR of over 50% or under 50%?

Yes. There are 2 aspects to it. One was the retrospective application, which covered the calendar year 2021. So the charge for that was around PKR 3.7 billion that was reported in the second quarter. For the year 2022, which obviously would be nullified if we achieved a 50% ADR, the charge that reflects in the book is PKR 2.7 billion.

Question from Hasan Azhar, is there any way that State Bank can force implement Islamic banks to share higher profit sharing ratios from the current profit sharing ratio and still achieve the objective of higher deposit rates imposed for the banks?

Hasan, the only thing that we need to plug into this is the sharia ruling. If you actually define a minimum benchmark, then it becomes a bit difficult to comply with the sharia rules out there. So it has to be a profit or loss distribution mechanism. You take in money, you actually tell the customer what his money would be used for, put it in a particular scheme and then the profit and loss [Technical Difficulty]. This is what I know of the Islamic banking, [ I'm not an expert ]. So I believe it is difficult for it to be implemented.

Any update on retrospective taxation? It was claimed by the previous finance minister that there is no retrospective taxation.

Unfortunately, as we speak today, that retrospective application of tax is still in the play. The banks have adopted a legal recourse. We, along with other major banks, have given ADR ranging between 40% to 50%, ultimately, at Lahore High Court. And we are awaiting a conclusion of that particular judgment. Then we'll be in the best of position to answer this. Although the books have duly provided those numbers. The cash flow impact is not there.

We have no more question at this point in time. I would just want to circle back to asset quality, Hammad. I mean, this year has been fairly good. I mean you still are booking reversals in an environment where growth rates have slowed down, interest rates are high, macro pressures are fairly visible. Going into next year, do you see any areas of stress if this environment persists? And if not, I mean, if you could just share your -- maybe your thoughts around what's helping asset quality sustain around so well in this kind of environment.

Well, all the work that we do before we went out is what is making [Technical Difficulty]. As I've said earlier, I believe we covered the detail, a very refined kind of a risk appetite, very limited kind of an exposure, customers that we are comfortable with. We are working more on the captive business side. That is why we have not seen much of an impact on the international group as well, be it Sri Lanka, be it Qatar. So we have been able to maintain the asset quality across all the regions, working on a very well-defined policy and strategy. So if you ask me what is more concerning to me, it's the consumer financial side. So these are small ticket loans, obviously, on the consumer auto loan side, in particular, [ 25,000 26,000 ] [Technical Difficulty] or an exposure of close to [ 29,000, 30,000 ]. The stress economically is challenging in stressful times that we have right now with disposable incomes being cut for many on account of these taxations, most of our customer base is savvy, is the concern that we had before the upcoming year, and we are pretty much focused. As I shared earlier, there is no increase in the base past due. And since there is not much of a traction there in the third quarter in consumer financing side, the entire team is focusing on the recoveries and particularly making sure that the specified time lines provided to the customers were classifying [Technical Difficulty]. So no problems there as we speak to that.

Would it be fair to expect that when we go through MCBs disclosures -- annual disclosures, it seems that a lot of the repricing happens at the beginning of the year? That's a bit of a skew and with consumer financing, generally, loans are typically 1-year repricing duration, so would it be fair to say that the entire consumer portfolio hasn't really been impacted by the full rate hike as yet?

You're right. Murad, the mortgage financial side, the revision takes place on the 1st of January and 1st of July. For the auto and [indiscernible] segment, you have to wait for the anniversary. It will be repriced in November since we are actually achieving the quorum so only exposure that we are highlighting would be, which was discussed in the first quarter of this year. So again, it was -- back then it was led by somewhere around 7%, 7.5% or 8%, that will be repriced to [ 12% or 16% ]. So you are right pointing in that, but that's a very small component of the overall exposure. Much of it has already taken place apart from the first quarter...

And what about SME? I mean, no signs of stress over there as well?

Very limited exposure for us, Murad. We have close to around -- the regular portfolio for SMEs, [ PKR 8 million to PKR 8.5 million]. So not much of an exposure there. We are pretty much concentrated on the corporate side.

But even on the SME, in the small exposure that you have, I mean, DPDs and those kind of...

Pretty much in check. No concerns there.

Okay. A couple of questions again on the chat box. Any chance that MCB would report significantly lower tax expense in fourth quarter if 50% ADR is achieved?

Well, as I stated earlier, we have around PKR 2.7 billion of increased tax incidence recorded in the 9-month financials. So if we are able to achieve 50% ADR by the end of this year, which we are fairly confident of achieving, the PKR 2.7 billion charge would be reversed. And obviously, there would be no additional charge for the court process. So we expect -- we anticipate to reflect a PAT -- a slightly positive PAT for the full year.

When do you expect the start of the monetary easing cycle? There are understandably many moving parts, but given how you see the inflation trajectory and other factors as of now, is it fair to assume that the rate reversals will start in somewhere second quarter of next year?

Yes. Yes, pretty much aligned, maybe later half of the second quarter.

Okay. Last question that we have on the chat box. What growth do you expect for foreign currency deposits?

Haven't seen much of a traction there to be honest. So pretty much a consistent base for us, slightly up, slightly down. The rates at one point in time being offered on these dollar deposits -- U.S. dollar deposits were phenomenally high. So we haven't been in that particular cage. So we don't expect much of an equation on the foreign currency deposit side. It's pretty much a stable risk for us and [Technical Difficulty].

And just a last comment that's come in, on the presentation, just to comment, appreciating the presentation but also offering a suggestion, if you could...

It's very easy for us to do it in June and December and since it's part of the disclosure, but we'll try and work it out for every quarter.

I think we don't have any questions at this point in time. So maybe we can end the call. Any closing remarks, Hammad, before we end the call today?

Yes, Murad, considering the political chaos that we see in the country, I believe that should be on the top of our agenda, as a country, as a management. And I hope that this would be settled the next time we have this call again. Secondly, I'm feeling proud to share that we have regained our position as the most profitable bank in terms of PBT on the conventional side, though not by a very decent margin, slightly above, but yes, we have [Technical Difficulty]. And we are strategizing to build up that margin as well as we see tread ahead. So in the times to come, you will see some decent traction on the [Technical Difficulty] [ dramatically ] required low-cost deposit strategy. And secondly, obviously, if we are able to achieve the advances to deposit pressure target for us, similar change would be reflected in the profit after tax as well.

Thank you, Hammad, for your time and thank you, everyone, for participating in this call today and for your questions. I wish MCB all the best for the fourth quarter and for calendar year 2023, and we look forward to having you all on the call again once the fourth quarter results are announced. Thank you, everyone.

Thank you, Murad.

Thank you, everyone. Have a good day. This brings us to the end of the call. You may now disconnect. Thank you, and bye-bye.