MCB Bank Limited ($MCB)

Good afternoon, ladies and gentlemen. On behalf of MCB Bank Limited, I warmly welcome you to today's corporate briefing session. My name is Khurram Saeed, and I will be moderating today's session. The purpose of this session is to present the bank's financial performance for the year 2025 and to highlight the key drivers behind these results. I would also like to extend a warm welcome to our esteemed panelists for today's session. Mr. Muhammad Nauman Chughtai, President and CEO of MCB Bank Limited; Mr. Hammad Khalid, President and CEO of MCB Islamic Bank, a wholly owned subsidiary of MCB Islamic, MCB Bank Limited; Mr. Farid Ahmad, Group Head, Retail Banking; Mr. Mohammad Ali Yafis Gardezi, Group Head Treasury and FX; Mr. Anjum Javed, Chief Financial Officer; Mr. Humza Taimur, Divisional Head Financial Control. Before we begin, I would like to highlight a few housekeeping points. Kindly keep your microphones muted during the session. [Operator Instructions] Please note that this session is being recorded. Thank you for cooperation. Let us now begin today's session. I would like to invite our Chief Financial Officer, Mr. Anjum Javed, to walk us through the financial results and key performance indicators for the year 2025. Sir, over to you.

[Foreign Language] everyone. Let me begin with a brief overview of the group structure. MCB Bank was incorporated in 1947, nationalized in 1974 and became the first bank to be privatized in 1991. The bank maintains the highest credit rating of AAA for long term and A1+ for short term from PACRA. MCB is a flagship entity of the Nishat Group, one of the Pakistan leading conglomerates with diversified interest across textile, cement, banking, insurance, power generation, hospitality, asset management, agriculture, dairy, auto manufacturing and paper products. The Nishat Group is among the largest private sector employers, exporter and taxpayer in the country. The bank entered into a strategic partnership with Maybank in 2008, which currently hold an 18.78% stake. The bank has a controlling stake in 4 subsidiaries: MCB Islamic Bank, MCB Investment Management Limited, MCB Gro Joint Stock Company and MCB Exchange. It also holds a 20% stake in Adamjee Insurance and 30% in Euronet Pakistan. Now moving on to the next slide regarding footprint. The bank maintains a strong domestic and international presence with over 1,400 branches across Pakistan, covering more than 700 cities, towns and villages, along with 8 overseas branches across Sri Lanka, UAE and Bahrain. On a consolidated basis, the bank operates the second largest branch network with 1,724 branches. Now moving on to the next slide, which provides a snapshot of bank customer base and market positioning. The bank serves over 9.5 million customer accounts. In terms of market share, the bank holds 5.53% in deposits, 4.64% in advances and 7.71% in foreign trade of Pakistan. In the home remittance segment, the bank is the third largest player with market share of 10.94%, channeling $4.4 billion in 2025. The bank declared the highest dividend per share in the industry of PKR 36 in calendar year 2025. Now moving on to the digital journey of the bank. MCB Live continues to demonstrate strong traction, reaching 1.9 million users. Digital transaction throughput increased from PKR 1.7 trillion to PKR 3.3 trillion, reflecting an 86% Y-o-Y growth. While the digital transaction mix improved from 72% to 77% in 2025. POS acquiring increased by 12% to PKR 120 billion, e-commerce acquiring by 17% to PKR 29 billion and debit card spend increased by 37% to PKR 98 billion. Now turning to the financial position slide. Total asset increased by 20% from PKR 2.7 trillion to PKR 3.2 trillion. Gross advances closed at PKR 736 billion, declining by PKR 358 billion, mainly in the short-term corporate advances. The reduction is due to the withdrawal of ADR-based taxation, which led to an industry-wide contraction in advances. During 2025, consumer advances of the bank increased by 36%. Asset quality remains strong with the NPL decline by PKR 3.8 billion to PKR 49.8 billion, supported by strong recoveries and charge-off of PKR 2.1 billion. Coverage ratio stood at 92.47%, with an infection ratio of 6.76%. The domestic NPL remained at 5.04% below the industry average of 6.07%. The investment portfolio increased from PKR 1.2 trillion to PKR 1.9 trillion, primarily driven by government securities. Floating rate PIBs increased by PKR 580 billion to PKR 1.2 trillion. Fixed rate PIBs increased by PKR 154 billion to PKR 404 billion. T-bills increased by PKR 36 billion to PKR 113 billion. Portfolio yield stood at 12.32% in 2025 compared to 18.60% in 2024. Weighted average time to maturity of fixed rate PIB stands at 2.28 years, with purchase yield of 12.62%. On the liability side, the bank delivered strong deposit mobilization. Total deposit increased by 18% to PKR 2.3 trillion. Current deposit increased by 19% to PKR 1.2 trillion. Current account mix at period end improved to 54% versus 49% in 2024, whereas average mix improved to 52% from 47%. CASA ratio strengthened to 97.4%. The domestic cost of deposit declined significantly from 9.98% to 4.88%, down by 510 bps year-on-year. Total equity increased by 17% to PKR 316 billion. The next slide covers the summary of balance sheet from 2022 to 2025. Over the last year, total asset increased from PKR 2.1 trillion in 2022 to PKR 3.2 trillion in 2025, reflecting a CAGR of 16%, primarily driven by investment growth. Investment increased from PKR 979 billion to PKR 1.9 trillion with a CAGR of 26%. Deposit grew from PKR 1.4 trillion to PKR 2.3 trillion, reflecting a CAGR of 18%, with the continued strategic focus on the current accounts, which grew at CAGR of 21% to reach PKR 1.2 trillion in 2025. Now moving on to the profitability slide. Net interest income declined marginally by 2% to PKR 146 billion despite a sharp 42% reduction in the average policy rate from 19.38% to 11.29% in 2025. Non-markup income stood at PKR 35.8 billion, down 4% year-on-year, primarily due to the low fee income and reduced gains on securities. Fee income declined by 9%, mainly due to the competitive pressures in remittance, resulting in net income of PKR 3.3 billion during the year. Card income increased by 18%, branch banking fee increased by 13%, dividend income increased by 45%. FX income increased by 11%. Operating expense increased by 12%, driven by compensation adjustment and headcount expansion, along with the impact of minimum wage on outsourced services. Other expenses increased in higher technology expenses, SMS costs and market outlays to support remittance flow. Cost-to-income ratio of the bank reported at 37.7%, significantly below the industry average of 46.4%. On provision, the bank recorded a net reversal of PKR 5.3 billion compared to a charge of PKR 4.3 billion in 2024, supported by strong recoveries and reversal of general provision booked in Q4 2024. Stand-alone profit before tax stood at PKR 115.5 billion and PAT of PKR 54.2 billion with EPS of PKR 45.73 against the PKR 48.62 earned in 2024. Consolidated profit before tax stood at PKR 125.1 billion and profit after tax at PKR 58.8 billion with the EPS of PKR 49.29. Capital gain of PKR 6.6 billion on fair value through other comprehensive income equity securities were recognized directly in statement change in equity rather than in profit and loss account post implementation of IFRS 9. The bank reported a return on asset of 1.82% and return on equity of 23.02%, reflecting strong profitability. The next slide covers the summary of profitability from 2022 to 2025. Over the last 3 years, net interest income increased from PKR 87 billion in 2022 to PKR 146 billion in 2025 with a CAGR of 19%, primarily driven by volume growth in current deposits. Noninterest income grew at a 3-year CAGR of 13%, where the noninterest expenses increased at a 3-year CAGR of 18%. Profit before tax increased from PKR 71 billion in 2022 to PKR 116 billion in 2025 with a CAGR of 17%. EPS increased from PKR 27.63 to PKR 45.73, while dividend per share significantly increased from PKR 20 to PKR 36 with the payout ratio improving to 79%. Now moving on to the next slide of key ratios. NIM declined from 6.2% in 2024 to 5.1% in 2025, primarily due to the policy rate compression. The bank market share of total domestic deposit decreased from 5.7% in 2024 to 5.5% in 2025, where its market share of current deposits improved from 6.5% to 6.6%. CASA mix improved from 49% in 2024 to 54% in 2025. Infection ratio increased to 6.8% in 2025 versus 4.9% in 2024, driven by denominator impact from reduction in gross advances. Cost-to-income ratio rose to 37.7% versus 32.7% in 2024, still well below the industry average of 46.4%. Home remittance market share declined from 13.3% in 2024 to 10.9% in 2025 in competition. However, the bank retained its position as the third largest player in home remittance segment. Now moving on to the operating segment as per IFRS 8. Retail banking profitability declined primarily due to the lower interest rates. Treasury performance improved, benefiting from the balance sheet repositioning. Corporate banking remained broadly stable with some pressure from remittance-related cost. Consumer Banking posted a marginal improvement. International segment saw a slight decline due to the lower interest rates in Sri Lanka and ECL charge in UAE. Now moving on to the capital adequacy ratio slide. The bank maintained a strong capital position, CAR improved from 19.35% to 19.53%, well above the regulatory requirement. Leverage ratio, liquidity coverage ratio and the net stable funding ratio are well above the minimum regulatory requirements. The next slide covers financial performance of MCB Islamic Bank, a wholly owned subsidiary of the bank. MCB Bank demonstrated a strong performance in the balance sheet growth. Deposit increased by 29%, equity increased by 7%. However, the profitability declined by 46%, primarily due to the sharp decline in the policy rate and the implementation of minimum deposit rate effective January 2025. The next slide provides detail of awards. During the year, the bank received multiple recognition, fastest-growing corporate bank in Pakistan by International Finance, Runner of for Best Corporate Report by ICAP and ICMAP and Silver Award from SAFA. The bank also retained its position among the top 25 companies of PSX and remained the third largest player in the remittance segment as recognized by SBP PRI. The next slide provides an overview of the business risks along with the bank framework and governance structure in place to manage these risks. Going forward the bank will continue to focus on maintaining asset quality, strengthen current account mobilization and ensuring cost discipline. Thank you.

Thank you for the insightful presentation. We will now move to the question-and-answer session. [Operator Instructions] We have already received some questions in advance, let us begin with those. The first question is, can you please share the breakdown of the bank's PIB portfolio between fixed rate and floating rate instruments?

Within PIB's portfolio, 75% are the floating rate and the 25% are the fixed rate PIBs.

Okay. Thank you. This question was also asked in the chat box, hopefully, this has been better answered. The next question is what is the average yield and average maturity of the fixed rate portfolio.

The fixed rate PIB portfolio carries an average yield of 12.62%, with the weighted average maturity at 2.28 years.

Thank you. The next query related to fixed rate PIB portfolios scheduled to mature during 2026.

PKR 34 billion is scheduled to be mature in July 2026.

The next question is related to the average [indiscernible] on floating rate PIB's over the retail rate.

The bank is earning average 107 bps over the benchmark [ retail rate ].

This question was also asked in the chat box. The next question relates to the deposit growth target for 2026 and what proportion is expected to come from low-cost deposit?

We will continue to build on the momentum achieved in 2025 and expect similar growth level in 2026 with a primary focus on 0 cost credit account. We aim to maintain credit account concentration above 50%.

Thank you. The next question is related to capital adequacy ratio of the bank. With SBP sales the classification of [indiscernible] into the trading book, what would be the estimated [indiscernible] from market risk-weighted assets and capital adequacy over the next 2, 3 years?

MCB has not made any relaxation from State Bank. The bank has already classified our fair value through other comprehensive income investment under the trading book for market risk purposes. So no impact on the market risk weighted asset or the capital adequacy ratio.

The last question, advance question is regarding the geopolitical situation. How do you expect that trend continue to impact the bank's revenue and margins this year?

I think at this stage, we do not foresee any compression in the revenue or the margin of the bank. However, the inflation may lead to some increase in operating costs and rise in the yield bond will offset the impact the bottom line.

Okay. The one question that is frequently being asked is target cost-to-income ratio for 2026.

The bank cost-to-income ratio of 2025 stands at 37.7%, which is well below the industry average of 46.4%. And we are targeting cost to income ratio below the 40%.

Thank you. The next question, has floating rate PIB reset in Q4 2025?

Yes. The 50% of the portfolio reset in the Q4.

Then CAR growth -- estimated CAR growth for 2026?

I have already responded that we are expecting similar growth level, which we have achieved in 2025.

Okay. Thank you very much. The next question is, what is the current spread on Pakistan Investment Bonds?

For fixed rate, it's 12.62% yield, where the -- if the question is related to the floating rate, we are earning 107 bps above the T-bill rates.

The next question is there any repricing expectation in Q1 2026?

Yes, 50% of the floating rate PIBs will reprice in -- has been repriced in the Q1.

The next question, you have already responded, can you provide guidance for cost to income ratio. This has already been responded. And now, we will take the last question. What is your outlook on interest rates moving forward given the rising of oil prices and ceasefire development.

We believe interest rates have bottomed out and with the potential rate hike possible in the April or June, though yesterday, yield dropped across all tenure by 21 bps to 85 bps, but still yield on bonds are up by 100 bps to 179 bps across all tenure over the past 2 months, which signal that the market is expecting to rate increase in upcoming monetary policy.

What is the target for branch expansion during 2026?

We are targeting 40 to 50 branches in 2026.

And that concludes the question-and-answer session.

Khurram, we have hands raised so we have to unmute them...

Yes, we'll be taking the online questions now.

[Foreign Language] Can you hear me, sir? Hello? [Foreign Language] Hello? Sir, this is [ Hanif ]. Do you hear me, sir?

The next question is from the line of Mr. Muhammad Hanif.

[Foreign Language] Hello.

[Foreign Language]. Can you hear me?

Yes, we can hear.

[Foreign Language] And given the situation that we are in right now, [Foreign Language] from a provision point of view?

[Foreign Language] and we do not expect any increase in the NPL or CARG charging.

Just to add to that, we just reviewed our portfolio in Dubai. No, we don't have any major concerns at the moment. So as Anjum mentioned, there is no more major expectation of any at the moment. However, if the situation reverts to normal...

Okay. And I believe part of this second question was addressed. Given the very volatile movement in secondary market yields, I believe making a decision or taking a view on the interest rate is very difficult. What's the bank's strategy during this time? That will be all for me.

Well, Anjum mentioned that a significant part of our portfolio is floating rate based. So as we [indiscernible] but we are not taking any major positions on the speculative part of the question if there is an angle from that perspective. At the moment, we feel that the Central Bank if ceasefire [indiscernible] not likely in our opinion to move the rates either way. However, going forward, that is something that will need to be seen. But at the moment, the expectation, I think, in the market before the ceasefire [indiscernible] will be increased. We feel that there's -- also there will be less [indiscernible]. Can we move on to the next questions?

It's fine. There is no more at this time. Let me check once again. Mr. Muhammad Hanif, you may ask the question.

[Foreign Language]

[Foreign Language] overall market share, that is on the lower side.

[Foreign Language]

Now we have started focusing on the agriculture. As I mentioned that we have at least 74% in 2025 and we are hoping to gain focus in 2026 as well.

[Foreign Language]

[Foreign Language]

[Foreign Language]

Noted, sir.

And that concludes the question-and-answer session. Before we conclude today's session, if you have further queries, please feel free to reach out to us at [email protected]. The bank will review all submissions and respond accordingly. We sincerely appreciate your participation and engagement. Thank you, and have a great day. Thank you very much.