MCB Bank : Transmission of Half Yearly Financial Statements for the period ended June 30, 2023

a more prosperous and secure future.

Mission

financial solutions to create and nurture long-term relationships with our customers. In doing so, we ensure that our shareholders can invest with confidence in us.

Core Values

The standards and principles which determine our behavior and how we interact with our customers and each other.

Credit Rating

Board of Directors:

Audit Committee:

Branch Office:

M/s. THK Associates (Pvt.) Limited Office No. 309, 3rd Floor,

North Tower, LSE Building,

19-Shahrah-e-Aiwan-e-Iqbal, Lahore, Pakistan.

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Directors' Review - June 2023

On behalf of the Board of Directors, we are pleased to present the financial statements of MCB Bank Limited (MCB) for the half year ended June 30, 2023.

Performance Review

On a standalone basis, the profit before and after taxation for the period ended June 30,2023 together with appropriations is as under:

Through the focused efforts of Bank's management in building no-cost deposits, MCB achieved substantial growth in core earnings, resulting in an impressive 65% year-on-year increase in Profit Before Tax (PBT) for the half-year ending on June 30, 2023, reaching Rs. 53.84 billion. Profit After Tax (PAT) posted a remarkable growth of 140% to reach Rs. 26.69 billion; translating into Earning Per Share (EPS) of Rs. 22.52 compared to EPS of Rs. 9.39 reported in the corresponding period last year.

On the back of strong volumetric growth in current account and timely repositioning of the asset book, net interest income for the period under review increased by 72% over corresponding period last year.

Non-markup income increased to Rs. 14.1 billion (+9%) against Rs. 12.9 billion in the corresponding period last year with major contributions coming in from fee commission income (Rs. 8.8 billion), income from dealing in foreign currency (Rs. 3.6 billion) and dividend income (Rs. 1.5 billion).

Improving customer and interbank flows, diversification of revenue streams through continuous enrichment of service suite, investments towards digital transformation and an unrelenting focus on upholding high standards of service delivery supplemented a broad-based growth of 31% in income from fee commission; with trade and guarantee related business income growing by 62%, cards related income by 45% and income from home remittance by 28%.

The Bank continues to manage an efficient operating expense base and manage costs prudently. Amidst a persistently high inflationary environment, impact of sharp currency devaluation, rapidly escalating commodity prices and continued

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investments in human resources and technological upgradation, the operating expenses of the Bank were reported at Rs. 24 billion (+23%). The cost to income ratio of the Bank improved significantly to 29.58% from 37.46% reported in corresponding period last year.

Navigating a challenging operating and macroeconomic environment, the Bank has been addressing asset quality issues by maintaining discipline in management of its risk return decisions. Diversification of the loan book across customer segments and a robust credit underwriting framework that encompasses structured assessment models, effective pre-disbursement evaluation tools and an array of post disbursement monitoring systems has enabled MCB to effectively manage its credit risk; the Non-performing loan (NPLs) base of the Bank was reported at Rs. 55.2 billion as at June 30, 2023. The coverage and infection ratios of the Bank were reported at 82.99% and 8.58%, respectively.

On the financial position side, the total asset base of the Bank grew by 9% and was reported at Rs. 2.28 trillion. Analysis of the assets mix highlights that net investments increased by Rs. 169.6 billion (+17%) whereas gross advances reported a decrease of Rs. 154.5 billion (-19%) over December 31, 2022.

The Bank continued its focus on building no cost deposits, leading to a robust growth of Rs. 196 billion (YoY: +32%) in average current deposits. The average current to total deposits ratio improved to 52.3% during the period under review from 41.1% in corresponding period last year. Despite the exceptional increase in interest rates during the period, the domestic cost of deposits was contained at 7.93% as compared to 5.48% in the corresponding period last year.

Return on Assets and Return on Equity significantly improved to 2.45% and 29.59% respectively, whereas the book value per share was reported at Rs. 160.24.

During the period under review, MCB attracted home remittance inflows of USD 1,610 million to further consolidate its position as an active participant in SBP's cause for improving flow of remittances into the country through banking channels; with market share improving to 12.5% compared to 11.3% in the corresponding period last year.

While complying with the regulatory capital requirements, the Bank's total Capital Adequacy Ratio (CAR) is 19.46% against the requirement of 11.5% (including capital conservation buffer of 1.50% as reduced under the BPRD Circular Letter No. 12 of 2020). Quality of the capital is evident from Bank's Common Equity Tier-1 (CET1) to total risk weighted assets ratio which comes to 17.07% against the requirement of 6%. Bank's capitalization also resulted in a Leverage Ratio of 5.89% which is well above the regulatory limit of 3.0%. The Bank reported Liquidity Coverage Ratio (LCR) of 245.97% and Net Stable Funding Ratio (NSFR) of 145.29% against requirement of 100%.

The Board of Directors has declared 2nd interim cash dividend of Rs. 7.0 per share i.e. 70%, in addition to 60% already paid, bringing the total cash dividend for the half year ended June 30, 2023 to 130%.

Ratings

Pakistan Credit Rating Agency re-affirmed credit ratings of MCB at "AAA / A1+" for long term and short term respectively, through its notification dated June 23, 2023.

Economy Review

Pakistan witnessed significant economic and political uncertainty in the first half of 2023. Historically high inflation, large budget deficit, depleted foreign exchange reserves, negative GDP growth rate and uncertainty on the IMF program all contributed to the country's economic headwinds. The signing of 9-monthStand-By Arrangement (SBA) of USD 3 Billion with IMF in July-23 is expected to improve the economic landscape considerably.

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