MCB Bank Limited (MCB) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Good morning, good evening, wherever you are. Welcome to the 2024 results call for MCB Bank Limited. Once again, we're very pleased to have the Chief Financial Officer of the bank, Mr. Hammad Khalid, join us for today's call. The format of the call will be a brief management presentation, followed by a question-and-answer session. Before we begin, a few housekeeping rules. [Operator Instructions]. With that, Hammad, over to you.

Thank you, Raza, [Foreign Language] and good day, everyone. Thank you for joining in the results release call covering the key financial performance indicators for the year ended December 31, 2024. So again, I'll start off with a snapshot of the operational and financial landscape of MCB Bank Limited conventional side. So on the branches side, we are operating 1,395 branches on the domestic front, thereby containing the growth on the brick-and-mortar side at the conventional front. From the international perspective, we have added 1 wholesale banking branch in Sharjah and 1 representative office in U.K. to facilitate trade and remittance transfers, taking our total -- to 8 as far as international branch network is concerned and 1 representative office. We are proudly serving a customer base of over 9 million through our brick-and-mortar and digital channels. As far as our market share is concerned, we hold 5.74% of the domestic industry deposits as of December 31, whereas based on the performance on the advances side, our share has improved to 6.46% on the domestic advances front. Home remittances remains our key strategic focus areas as we have channeled close to $4.6 billion in the year 2024 through MCB's network, scaling up our share to 13.20% as of December 31, 2024. Now a snapshot of our digital transformation. So if we start off with MCBLive, this was relaunched in the year 2021, till end December 2021. And within first year of operation, we were able to scale up our registered user base from a meager 100,000 customers approximately on the legacy platform to 714,000 customers. As we speak, we have almost doubled our registered user base to 1.4 trillion with financial active customers who have conducted a financial transaction on the digital app averaging around 40%. As far as the throughput is concerned, it is almost 3.5x, PKR 486 billion in 2022 to PKR 1.752 trillion in 2024. So this highlights that there is a gradual slow shift towards the digital in terms of value. Obviously, transaction count is more on the digital front. But when we map it with the OTC values, volumes, it is on an increasing trend. Corresponding to the retail and all-encompassing growth outlook, our debit card spend, POS acquiring spend, e-commerce spend have almost doubled over the course of last 2 years. So the theme here is personalization. We are actively reviewing the spend patterns of our customers, devising value proposition, adding alliances in our campaigns -- through our campaigns. Lastly, ATM acquirings, the forum would recollect that we have, I believe, a couple of years back, replaced the entire fleet with new machines and as we were viewing this as a business opportunity. So acquiring transaction means a customer of other banks using MCB's ATM fleet to withdraw money. Obviously, this has a business case back to it. Apart from that, we are constantly adding services to our ATM menu, thereby moving or aligning ourselves, moving our customers out of the brick-and-mortar branch channels and towards the ADCs. Now coming back to the macroeconomics. So 2024 from a global perspective has been an eventful year with Pakistan being no exception. So the country has navigated through a host of challenges thrown at it, starting off with the hosting of general elections in the first 2 months of 2024. The results of which draw some political noise, which to an extent have subsided. The tapering of high cost, high inflationary environment, good agriculture produce gains, signing up of IMF extended fund facility with a very well-defined structural reform agenda, debt sustainability challenge and last but not the least, the emerging burnout crisis, specifically in the area surrounding our forest products. However, having said that, the country continues to solidify its position against all these challenges while complying with the covenants that we have signed up with the international lender. The softening of inflation from 28.8% last year to 7.2% in the first half of fiscal year 2025, provided the much needed room for monetary easing cycle to start with the Central Bank of Pakistan slashing the rate by 1,000 bps till January 2025. We are of the considered view that this particular cycle has bottomed out, maybe another 100 basis point is what we might see in March. However, the considered view is that is at bottom, we might not see that change in the upcoming monetary policy. From the external and fiscal front, we believe that the challenges that we face are going to keep us on our toes in the times to come. From the revenue side, I believe the dependence of the -- the fiscal dependence of the system on banking companies is expected to continue in the foreseeable future as was evident by the ordinance that was promulgated on 28th of December 2024, where the corporate tax rate for the banking companies was revised upward by 5% for the calendar year 2024. Now from MCB's perspective, considering that the guidance that we gave to the market was we were all set to achieve the 50% ADR benchmark, there was a phenomenal growth in our advances base of PKR 476 billion, taking our base to PKR 1.1 trillion approximately. We continued with our strategy to build no-cost deposit base as we have added around PKR 82 billion worth of current accounts in that average base. On the operational front, we remain one of the most efficient bank in the industry with a cost-to-income ratio of 32.68%. Stand-alone profitability of MCB Bank was reported at PKR 118.4 billion, reflecting a drop of 5%, whereas consolidated PBT of the group was reported at PKR 131.2 billion, reflecting a drop of 4.6%. Now moving on to the numbers. Starting off with the statement of financial position. The total asset base stand-alone basis of PKR 2.7 trillion reflects an increase of PKR 276 billion. This time around, on the asset mix side, the growth was led by advances. Gross advances PKR 1.1 trillion, reflecting a growth of PKR 472 billion. The heavy lifting on this front was done by the corporate segment, which reflected a growth of PKR 465 billion, primarily the short-term financing side, followed by increase in overseas segment of PKR 19 billion. On the investment front, PKR 1.1 trillion versus PKR 1.249 trillion, a drop of PKR 82 billion. So on the floating rate PIBs, we added PKR 92.4 billion. Fixed rate PIBs, a net addition of PKR 36.7 billion. The reason why I say that it is net of the huge majority of PKR 80 billion that was due in the third quarter of 2024. Treasury was decreased by PKR 278 billion, closed at a base of PKR 76 billion. Yield on investment of 18.60% as compared to 18.37% for the last year. On the liability side, deposits, we reported a base of PKR 1.922 trillion, reflecting a growth of PKR 117 billion in absolute term. Current account increase of PKR 73 billion, taking our base to PKR 944 billion. Saving account increase of PKR 47.88 billion, taking our base to PKR 925 billion. On the equity front, a base of PKR 227 billion, reflecting a 10% growth, 20.59% in absolute terms. Now moving on to our advances. Obviously, as I said earlier, corporate took the lead PKR 903 billion base versus PKR 438 billion increase of PKR 465 billion. Retail, which comprises of small and midsized companies, reflected a drop of PKR 11.6 billion. Consumer, on the other hand, on a strategic note, we have been guiding this to the market that we were focusing to contain the losses considering the high interest rate environment. However, considering where we are, we believe there is some growth potential on the consumer segment for the year 2025. Overseas, PKR 60 billion versus PKR 41 billion, increase of 47%. This takes our MCB domestic advances base to PKR 1.034 trillion, a growth of PKR 453 billion, resultantly, our market share improving by a decent 180-odd basis points approximately. On the NPL side, in accordance with the guidance that we gave earlier, no shocks there. We reduced our base by PKR 331 million on account of the splendid performance done by our recovery team. As you would observe in the loss categorized loans, there is a drop of PKR 2.3 billion. There was some addition in the doubtful category, primarily on account of objective and subjective downgrades, PKR 1.9 billion is the addition in doubtful categories. This is not sector-specific or party-specific where fundamental characteristics of the borrowers reflect some weakening, and we subjectively or objectively downgraded those exposures. Based on the increase of PKR 1.1 trillion or the base of PKR 1.1 trillion for the year 2024, the CAGR improves to 12.26%. Yield on advances drops from 17.89% for the year '23 to 16.87%, reflective of the massive monetary easing cycle that we witnessed during the year '24. As an update on NIB-related recovery, we have recovered another PKR 921 million in the year '24, taking our total recovery to PKR 10.6 billion over a period of, say, approximately 7 years since this was merged with MCB back in July 2017, sums up to a recovery of around 35%, 36%. And hopefully, in the times to come, we will be driving more value out of this NPL base. On the investment front, treasury bills of PKR 76 billion reflects a drop of PKR 278 billion, fixed rate PIBs of PKR 250 billion, floating rate PIBs of PKR 687 billion. So the PIB concentration is around 81%, improvement from 63% that we reported last year, whereas treasury bills a drop in concentration from 28% to 7%. Another major component where we added was shares in listed and unlisted securities, PKR 39.34 billion versus PKR 31 billion, an addition of 27%, 8.3% in absolute terms. Major exposures were in oil and gas, bank and cement industry. The stakes are investment at cost to PKR 1.1 trillion versus PKR 1.284 trillion. Since this was the first year where IFRS 9 was applied and the entire equity investment of the bank was classified as FVOCI. So the related provision was reversed and a corresponding increase in deficit was recorded in the opening balances. However, based on the performance observed at the capital market board, the deficit that we reported last year of PKR 23 billion is now a surplus of PKR 15.7 billion, much of it related to the equity portfolio to the tune of around PKR 11 billion and the balance of PKR 4 billion on our fixed and floating rate PIBs. On the deposit front, the growth in current account has outperformed the CAGR growth and current accounts have outperformed the total deposit growth, so thereby improving our current account concentration around 49% in absolute terms. And on average basis, I believe it would be around 47.5% to 48% for the bank. So a total deposit base of PKR 1.9 trillion, current accounts of PKR 944 billion. So we are striving hard to cross that PKR 1 trillion benchmark, hopefully, when you see the results for the first quarter of 2025. On the saving deposit side, based on a strategic approach, as we guided to the market that there is a negative carry on the saving accounts due to the inversion in the yield curve, we strategy focused on reducing our monthly payout products. There was an outflow from the banking industry to mutual funds and treasury bills and PIBs in particular. So our saving deposit was reported at PKR 925 billion. Pertinent to highlight that we don't have a single rupee of special rate on the saving local currency domestic deposits. Cost of deposits was at 9.23%, up 59 bps year-on-year, whereas CASA worked out at 97.24% for the year. Now moving on to the performance numbers. Gross markup income, PKR 367 billion, reflects an increase of PKR 39 billion. Markup expense PKR 218 billion, a negative variance of PKR 37 billion. On the net markup income, almost flattish when mapped against last year, PKR 149 billion versus PKR 148 billion. So if I take you through the spread analysis, on the earning asset side, gross advances, PKR 663 billion at a yield of 16.87%, reflects an increase of PKR 46 billion in average volume of advances where there's a drop in yield on average of 102 basis points. So gross markup income advances was up by [ PKR 1.451 billion ] primarily fueled by the volume variance to the tune of PKR 8.2 billion. On the investment front, a base of PKR 1.3 trillion at a yield of 18.6% reflects an average increase of PKR 215 billion increase in spread of 23 basis points. So gross markup income investments was up by 42.46%, primarily contributed by the volume variance to the tune of 39.5% and price variance contributing PKR 3 billion. On the deposit front, PKR 1.9 trillion average volume at a cost of 9.23%, which is up year-on-year by PKR 305 billion in average, increase in cost of 59 basis points. So cost was up by around PKR 38 billion. Out of this PKR 305 billion, almost PKR 82 billion was in current accounts. Resultantly, the spread saw a compression from 7.11% for the year '23 to 6.22%, a drop of 90 bps. On the noninterest income side, a base of PKR 37.43 billion versus PKR 32.92 billion, an increase of 13.7%. The prime contributors to this were fee and the major revenues within the fee segment were cards, trade and cash management services, whereas there was some increase in -- reported increase in dividend and capital gains. Noninterest income -- sorry, on the non-markup expense side, PKR 63.78 billion versus PKR 55 billion reported for the last year period. So despite the inflationary pressures, we reported a base -- an increase of around 18%, thereby containing the increase to 18%, I would say. And the major hedge where this increase was adjusted was compensation expense on account of the human merit cycle adjustment that was recorded for the year 2023 in the earlier part of '24. Along with that, the communication expense had some IT-related expense that contributed to this increase of 18%. Profit before credit allowances of PKR 122 billion versus PKR 125 billion, a drop of PKR 2.9 billion. On the credit allowance side, PKR 4.3 billion charge versus PKR 6.37 billion charge recorded in the year 2023. So a negative variance of PKR 4 billion. So the prime reason for this is this enormous increase in our credit portfolio, Stage 1 charge accounted for. Considering the volatility that we have been observing on the ECL model calculation, there was a policy approved by the Board that we are going to maintain approximately 1% general provision charge for the funded exposure of Stage 1 and 5% for Stage 2. So as a result of that, there was a general reserve of PKR 4.7 billion created for the year 2024. This takes our profit before tax to PKR 118 billion versus PKR 125 billion reported for the last year, a drop of 5%, PKR 6.8 billion in absolute terms. As I covered earlier in the presentation, prior to the year-end, there was an ordinance promulgated where the corporate tax rate for the banking companies was revised upward by 5%, taking it to 44%, plus the 10% super tax, an effective tax rate of 54%. However, the ADR-based penal taxation regime was abolished. As a result of which the bank was able to reverse the provision that it was maintaining for the year -- calendar year 2021, tax year 2022. So a net charge of approximately PKR 2.5 billion reflected in the profit and loss statement. It takes our profit after tax to PKR 57.6 billion, a drop of PKR 2 billion when mapped against last year. On the capital ratio side, Tier 1 of 15.5%, a Tier 2 of 3.9% CAR of 19.35%. So serious buffer -- significant buffer on top of the regulatory requirement of 785 basis points. As far as the leverage ratio is concerned, it's at 6.37% versus the regulatory requirement of 3%, liquidity coverage of 241% and net stable funding ratio of 120% against the regulatory requirement of 100%. Now a snapshot of our MCB Islamic profitability number -- profitability and statement of financial position. So based on the pressures coming in from ADR, the deposits reflect a muted growth of PKR 4.65 billion versus last year. However, advances reflect a decent growth of PKR 32 billion, translating into 35% growth. On the performance side, you would observe a drop in the profit before tax number from PKR 10.57 billion to PKR 9.1 billion, drop of PKR 1.5 billion. This is primarily on account of the increased operating expenses as the franchise has been growing its network. As you look at the graph on the right side -- graph, the number of branches as of December 31, 2024, has scaled up from 224 to 301. This includes the transfer of 39 branches, the demerger and merger exercise that was concluded in November 2024. So going ahead, the strategy on this front is that we'll be scaling up our Islamic banking franchise, containing or reducing our convention banking footprint and complying with the regulatory requirements, which are in place. So this sums up the presentation from my side. Over to you, Raza, for the Q&A. Thank you.

[Operator Instructions] Hammad, we don't have raised hands at the moment, but we do have questions in the chat box. The first question -- well, there's a bunch of questions. I will read them out one by one, and then you can take it from there. The first question is from Waleed Rathore. And so the first question he's asking is what growth does the bank expect to achieve for advances and deposits in calendar year '25? And is there an ADR target? If so, what is it?

Well, since there is no regulatory target in place now and the pressures on the ADR side receding, I believe the balance sheet is going to -- is all set to change its course in the next quarter or so. And this is for the entire industry, not specific to MCB. So I believe the advances side, we expect to report a drop in the total base. PKR 1.1 trillion is what we have reported. I believe the normalized number would range between maybe around PKR 700 billion to PKR 750-odd billion. On the advances front, the focus is entirely on the current account side. As we have been sharing earlier that there has been a serious amount of negative carried, which stands at risk as we speak, but the focus entirely is on the current account side, and we expect to cross the PKR 1 trillion benchmark that we have set for ourselves in the first quarter [indiscernible]. So the target that we are aiming to achieve is close to a 15% and 18% growth on the deposit side. but it would be, I believe, heavily tilted towards the current account determination.

Understood. The second question from Waleed is, has the deposit increased to normal levels since the close of the year? I think he's asking about the deposit base, yes.

Yes. Obviously, I can't share numbers since these numbers are not public as of now, but we have achieved a normal deposit number, but the tilt or the shift is towards current accounts. So it's not the similar mix that you observed in the balance sheet as of December 31.

Understood. And there are three questions. I'm going to plug them together. These are also from Waleed. So he's asking about investments. The yield on the fixed PIB investment. Any maturities or repricing that is -- can be expected during the ongoing quarter? And is there an optimal investment mix that you're targeting for '25?

Well, considering where the interest rates are, Waleed, at the moment, I believe the mix is what you have seen in the numbers. We don't expect a drastic or a major shift in the concentration levels of floaters and fixed rate PIBs in this particular quarter. There are no major maturities which are coming our way in the first quarter. As far as the average yield is concerned, I don't have the absolute number, but I believe it would range somewhere around 14.5% to 14.8% for the fixed rate PIBs. And the weighted average maturity for the fixed rate PIBs would be close to 2.7 years.

Understood. Waleed, I hope that answers your question. We have a question from Saqlain from ARN Financials. And your Islamic branches went from 224 to more than 300 in '24, so he's asking if you can provide some guidance for how many more branches do you expect to open in 2025, Islamic versus conventional?

Well, on the conventional side, as I covered, we don't expect to expand our footprint. There has been -- this particular last year has been a year of consolidation. We started the year at 1,437, if I recollect, but we closed the year at 1,395 domestic branches. So obviously, the transfer of 39 branches from the conventional to Islamic took place in the fourth quarter of 2024. So going forward, the strategy is that we are going to contain our conventional increased, brick-and-mortar. And on the Islamic front, we will be increasing our footprint. I believe the shorter-term target that we have inside is, we should be running a midsized Islamic bank operating 500 branches. So for that, we have set a target of 3 years from now. So almost 200 more branches is what we aim, over the course of next 3 years on the Islamic side.

Understood. The next question is from Syed Murtaza in the chat box. And I think you might have answered this, but it might be convenient if you share this again. So he's asking the average yield on fixed PIBs and floating PIBs, if it's possible for you to answer.

Well, on the fixed rate, as I covered, it's around 14.5% to 14.7%. Fixed rate, obviously, it's a function. It's obviously changing based on the maturity profiling of the contracted repricing based on a specific tenure bond. So what I can say is that it would be close to 13.1% to 13.2% based on the current yields.

The next question is from Syed Fawad Basir. And he's saying market chatter has suggested a change in compensation structure on retail level across the sector. Does this impact MCB as well because we believe 2025 will be a race for current accounts?

Yes, absolutely. As I said earlier, obviously, this is a dynamic process. So every other bank is looking at it from a different perspective. From MCB's perspective, what I can share is, yes, there are multiple things that are in play as we speak. This does involve looking at how we categorize branches into different segments. Obviously, categorization of branches involves maybe some perks or some upgraded cards stack to it. Secondly, there are some incentive campaigns that are in play. Thirdly, the KPIs that you mark to the field formations for delivery for the year 2025. So all, I believe, is aligned to generate the growth on the current account side. And that is why I'm saying with confidence that we anticipate that this would be a different year. You would see the concentration level of current accounts improving from where we have reported as of year-end. We reported 49%. The short-term target for us is 55%. Although we are not saying no to those saving accounts, obviously, we are here to serve our customer base, and we will continue to do so. But the strategic focus is current accounts since the impact on the asset side or the yield side has been more pronounced if we map ourselves with last year's same period.

The next question is a follow-up from Saqlain. And he's asking if you can share the impact of removal of the minimum deposit rate on NII, specifically the expected cost of deposit in '25. And I think there's been two things, right? I mean for the Islamic side, there's been -- conventional, there's some relief. So maybe the combined sort of...

Well, for the conventional side, I can speak on behalf of MCB. So the 3 particular categories that were removed from an MDR application on the conventional side were public sector exposure, financial institution and public limited companies. So looking at MCB's franchise, in particular, we have a very small deposit base, which is stacked to these 3 categories. Primarily, we are a retail bank and focusing more on individual deposits, and that's the split that we have been carrying, and that would continue to be a focus area in the times to come. So if we work it out for MCB, it would be less than, I would say, PKR 100 billion, less than 5% of our total saving deposits. And for that, any change on the MDR side is not going to impact the net interest margins by much. So -- and even if you look at the rates that have been published by the peer banks for this saving deposits, after this MDR removal, it's not much different from what we have on the MDR front. Maybe a few selected banks have opted to continue with the MDR. So for MCB, currently, we are offering 9% as the rack rate for these 3 categories. Obviously, it depends on the relationship. If we find value in a particular relationship and if we look at it from a 360, maybe generating some fee income from -- or other income from other revenues, we might actually offer a better rate to those customers. It cannot exceed the minimum deposit rate by any means. So factoring that into the equation, I believe we don't expect much of an impact on the net interest margin side on this front. On the Islamic front, I would say that the imposition of MDR is going to impact their performance numbers in the time to come. Obviously, depending upon a model, depending upon different concentration level that a specific Islamic entity holds. But for MCB Islamic, the impact that we have worked out for this MDR application would be around approximately PKR 2 billion.

A follow-up question from Syed Murtaza, and he's saying fee and commission income declined Q-o-Q, can you please provide guidance on this?

Well, I believe we touched upon this in the last meeting as well. One of the major factors that is impacting this is the remittance flow. So there the competition on this particular revenue has intensified over the course of last few months. And obviously, it has elements to the FX liquidity that a particular bank has. So on a strategic note, what we are trying to do is ensure that more and more remittances channeled through MCBs. And for that, you have to pass on the rebate that we were earning earlier. So obviously, with the counter parties, the generic revenue-sharing model was around 75-25 which approximately as of now has gone down to 95% or 5%, 5% favoring the bank and 95% for the counter parties to channel more remittances ahead. So that's one particular revenue, which is reflected in the fee income in the previous years, which is not there. Apart from that, as I shared earlier, there are other revenues which are generating good decent traction. And we expect that in the times to come, we will be reporting a decent growth on the fee side.

Hammad, if I may jump in here with a follow-up question. And I know you've mentioned -- you talked about remittances right now. And I think in the presentation, you mentioned a 13.2% market share within remittances. Just wanted to know, I mean, obviously, we've now seen -- or we will see the advent of digital banks in Pakistan, licenses have been given. They are becoming operational. Do you think this is -- they can provide meaningful competition? Maybe on remittances, if we -- I suppose it's early to say, but what about remittances because all this [indiscernible] that they are based in the Middle East. So what do you have to say about that?

Well, Raza, we do expect some challenge on this particular front, particularly the remittance side of it. However, from an overall perspective, since this was in discussion for an extended period of time in the past. Whatever is being offered to the digital banking or tagged with the digital banking license is what a conventional bank with a digital footprint can offer. So there is not much of a difference. So we opted for the digital transformation to take place rather than opting for a digital license in the country. So the challenge on the remittance front in case they are able to structure something which can facilitate the beneficiary in no time and structuring that app to app kind of a transfer, that might create some hurdles or some competition for the conventional banks. However, what I can assure you that the conventional banks are working on similar lines. So they are tying up with other app providers who are operating in particularly in the Middle East and Saudia market to facilitate such transfers. And you will see that happening most probably in a quarter time or so for MCB as well. [Foreign Language]

Understood. The next question is from Muhammad Tahir. And he's asking what is the bank's outlook on the cost-to-income ratio considering the lower inflation in this year -- in 2025?

Well, I believe our cost-to-income ratio would take a hit, but not very significantly. We expect it to dilute to maybe around 35%, 36% on a stand-alone basis. And that's primarily on account of the revenue decrease, not -- nothing very significant plan for the OpEx side for the year 2025. However, as we shared earlier, the effect of the drop in discount rate is more pronounced on the asset yield side. So if you are comparing 2 particular years where an average return of around 16%, 17%, 18% was generated versus a year where the average asset book is going to yield around 12.5% or 13% at max. So there would be some drop on the revenue side, and that impacts our cost-to-income ratio. So having said that, as I shared earlier, the strategy is to build up the current accounts. What I can safely tell you that whatever we have added in the year 2024 in current accounts in totality, we are trying to surpass that target in the first quarter and that too by a distinct margin.

Sure. The next question is from Mustafa Mustansir. In light of revocation of stay order on windfall tax by Sindh High Court, how likely is it that the stay order will be reversed by Lahore High Court? And what could be the potential impact on MCB in case the stay order is revoked by LHC?

Thank you, Mustansir, for the question. I believe the matter is subjudice as far as MCB is concerned, we have a valid stay. Same was the case with all the banks, the banks operating in Karachi in particular, but that stake got vacated last Thursday. And as a result of which there was a tax cash outflow of around PKR 23-odd billion that was reported in the news yesterday and day before yesterday. So from the impact standpoint, the amount stands fully provided in the books of MCB back in 2023. It's just a matter of tax cash flow that -- and I believe that was the case for the entire industry, barring a few exceptions. So no financial impact or no EPS impact in case a similar -- our petition finds a similar fit.

And to be sure, I mean, MCB has booked the associated...

We Did that in the calendar year 2023.

Okay. We have a question from Mohammed Abrar again. He's asking the -- and I think you might have answered this while you were doing your presentation, but he's asking the effective tax rate for CY '24 is 51.6%, although the tax rate for the year should have been 44% plus 10%, 54%. So are there any tax reversals...

As I said, when this ordinance was promulgated on December 20, 2024, the ADR-based penal taxation regime was abolished. So the bank was carrying provision with reference to calendar year 2021. And I believe the entire industry was carrying that provision. You would recollect when this ADR was introduced in June 2022, there was a retrospective application for the last year. So it was challenged by the banks and courts. However, with this ordinance coming into play, that provision was no longer required. So that provision relating to year 2021 was reversed. The additional 5% corporate tax rate was incorporated in the fourth quarter financial and net impact of approximately PKR 2.5 billion tax incidence was recorded on account of these amendments.

A follow-up question from Mustafa Mustansir. Could you please share any plans for IPO of MCB Islamic Bank and any expected time lines for the same?

Well, I don't have a defined time line for that, but obviously, there is some planning, which is underway as we speak. We do understand it's a big activity. We are waiting for the right moment to actually initiate that. But what I can just share with the market is that there is an active discussion on this particular point.

As of this moment, we don't have any questions in the chat box. [Operator Instructions] We've got a couple more questions from -- in the chat box, and I will read them out to you. The first question that we see is from [ Faiz Ul-Sultan ]. Hammad, great results. Congratulations. Just want your thoughts on your entry in U.K. through a rep office. You alluded this is to capture the remittance market. Love to have your thoughts on how you see potential in Western corridor vis-à-vis Middle East markets when there is a lot going on in the Arab region overall.

Thank you for the question, [ Faiz-ul ]. So what we have witnessed over the course of the last few years that U.K. is developing into an active market from a remittance perspective. One of the major remittance partner for us, for MCB in particular, is a vendor or is a party based out of U.K. and it has channeled -- I don't have the absolute number, but I believe it would be close to $1 billion for MCB Bank Limited. So that's where we want to focus on. While we continue to put ourselves in UAE and Saudi markets, that's the major driver from a Pakistan perspective. However, we are in the process of exploring other markets as well. And that opening of a rep office in U.K. is pretty much linked to that move. So in case we are able to see the nonconventional corridors may be helping us in channeling more remittances flow to Pakistan, that provides us more leverage to generate more FX. Plus obviously, as we have been saying that's one of the key focus areas for MCB to convert the beneficiary accounts who take money out as cash to have deposit relationships with MCB Bank Limited. So that's a wholesome kind of a strategy, which is in play. Obviously, the amount of money that we are passing on to our counter parties in the shape of rebate is one of the components. So if you look at it from a 360-degree perspective, it has the potential to operate as separate bank on its own. You can actually channel FX, you can have your deposit base, you can charge fee, you can cross-sell from this particular segment of remittance business. So in the times to come, we will see better results coming from this particular site. We are very much focused, as you know, that we are based out of Lahore, and this remains a key focus area as far as the province of Punjab is concerned. Approximately 70% to 80% of the total remittance book for the country is based off of this particular -- We start off from maybe Gujranwala and we end up at Sohawa between Jhelum and around 70% of the total flows are here. So that's where we want to capitalize. That's what we want to translate into business potential for MCB Bank. I've been saying that for a while now, I understand that. We have done some decent work. The cash over counter transactions, which were almost 65% back in 2019 are now down to 11% based on the latest numbers. So we have converted them into our deposit branches, and we are actively engaged to explore nonconventional markets, nonconventional corridors to channel more remittance through MCB channels.

The next question is from Muhammad Bilal Ahmed from Dawood Investments. So this is a follow-up on -- you said that there's a debate going on with respect to a potential IPO for MCB Islamic and he's asking, what would your motivation be to reduce your stake in MCB Islamic back in the first place? Would it not expose MCB to additional dividend taxation, which may make the move inefficient, especially given that MCB already has very strong capital buffer?

Well, as I said earlier, there's an active discussion. I do understand there are some pros and cons attached with this particular transaction. You see we need to understand that there is a Federal Shariat Court ruling in place. There is a push coming in from the regulator that the entire financial system of the country have to shift to shariat mode. So I can't share specific details on this specific platform. But what I can say is that there are a few options that are being evaluated in detail at the Board and the management level. So you would see results in the near term. Obviously, the decision has to be taken and effectively communicated to all the stakeholders.

Got it. We have a question from Muhammad Ali, and he is asking -- Muhammad Ali from AKD Securities, and he's asking the -- your outlook for interest rates and currency, the exchange rate for 2025.

Well, on the interest rate side, I believe the cycle has bottomed out. We don't expect much of a movement from here, though the market consensus based on the inflationary outlook for the month of Feb, hence at 100 basis points slash maybe in the upcoming monetary policy, but we carry kind of a different view where we believe there won't be much of a movement there. On the FX side, with the import bill rising month-on-month, exports being stagnant, although remittance numbers are posing some challenge. But with Ramadan coming in, I believe there would be some traction on this particular front as well. But there is some pressure being exerted on the FX side. So I don't rule out the possibility of some movement, not very significant on the FX side, but it might be around 1% to 2% at max in the shorter term.

Question from Muhammad Abrar. What is MCB's stance on leveraging? And I think they mean balance sheet leveraging, given that other banks have significantly profited in CY '24 by using the OMO window by borrowing heavily from the SBP?

See, if there is an arbitrage to be done, we will actively engage into that. The thing that we are referring to was when you actually borrow at 21% or 22% and invest at around 15%, that's something that you take a call on how you expect the interest rates to actually move forward or shape up as you trade ahead. So for MCB, based on our defined risk appetite, we took an OMO of close to around PKR 200 billion. This is what our appetite allowed, and we did a similar kind of a transaction, not in trillions, I can say, not a specific amount that we had in mind, but obviously, if an opportunity was there, we did invest into that, but not to the tune of what our peer banks have done in the year 2024. So going ahead, in case we find anything which offers us an arbitrage on borrowing and investing treasury bills and maybe gaining out of that, we'll explore that option. But again, as I said earlier, remaining within the risk appetite that we have defined for ourselves. Nothing very extravagant.

Understood. Hammad, if I, at this point, may ask a couple of questions of my own. I think in the presentation, in your spread analysis, you showed that spreads on margins were 7.1% in '23, came down to 6.2% in '24. And assuming interest rates stay where they are, would it be possible for you to give some broad brush guidance on margins or spreads for '25? And secondly -- sorry, go ahead and then maybe I can ask my second question.

Well, Raza, we do expect some compression to reflect on the NIMs for the year 2025, but the strategy is, as I covered earlier in detail that we are focusing on generating more and more current accounts. And working on a cost-to-income ratio of around 30% in case we are able to solicit more deposits by incentivizing our staff, that's a strategy that we intend to follow for the full year. And we are hopeful that we will see some decent traction, that would, maybe to an extent, cover the NIM compression that we anticipate for the year 2025 or maybe outperform the NIM compression and maybe have a better number than what we have reported for the year 2024.

An so the follow-up is actually on your current accounts. I mean they've grown to 49%. Any target in mind for '25? And for banks, is there a theoretical ceiling on current accounts? I mean, obviously, you have to look at the duration of the asset book also? Or is it that as much current accounts, the better? Or is there a point where you think that, okay, we can only increase it to this much, and that's it?

There's no defined ceiling per se, Raza. We can actually scale it up to any level. But the benchmark that we are following or the concentration that we are following for the shorter term is around 55% of the total deposit base.

Understood. Hammad, at this point, there aren't any questions -- there aren't any raised hands or any further questions in the chat box. So given that we're 45 minutes past the start mark, maybe you can make a few closing remarks.

First of all, thank you, everyone, for your continued interest in MCB Bank Limited. So in the times to come, what we intend to do is focus on our strengths, our strength being low or no-cost deposit mobilization and efficient expense base, controlled NPLs, no concerns on the asset quality. But now a new thing coming into play is the digital transformation, which is going to aid our retail franchise as we [indiscernible] ahead. So we are heavily invested in digital and IT-related infrastructure, have been doing so for the last many years now. And we expect that you would see the results of it in the performance numbers in the times to come. So this year seems to be a challenging year, but we are all geared up, strategized everything. And as we speak, there are some decent numbers that we have piled up. Obviously, as I said earlier, I can't share since these numbers are not public, but everything is lined up for a great year [Foreign Language] ahead.

Thank you, Hammad. Congratulations once again on a strong 2024 and best of luck for 2025. Thank you, everybody, for joining us on the call.

Thank you, everyone. Thank you.