On Thursday, Meezan Bank (MEBL) held a briefing for analyst to discuss/elaborate its 1H2019 financial results and provide future outlook.
The Bank recorded provisions of Rs1.2 billion for the period under review as against a reversal of Rs100 million for the corresponding period last year. The NPL mainly related to Rs583 million on loan books (edible oil industry etc.) and Rs469 million to investments.
Operating expenses were up by 25%YoY to Rs5.8 billion which were attributed to opening up of 76 new branches, inflation and devaluation. The Bank expects similar growth in operating expenses due to aggressive branch expansion in 2020.
The Bank expects NIMs to remain more or less close to last quarter.
On energy Sukuk-II, the consortium led by Meezan Bank has already completed all the prerequisites. However, some bottlenecks still persist at the ministry’s level. The government is expected to issue a letter of comfort in this regard. It is difficult to ascertain the exact timeline at the Government level for completion of its paperwork.
Cost to Income was reported at 46%, which is lowest in the banking sector as compared to 57% in the same period last year. Return on Equity (RoE) of the Bank touched the highest in the history at 33%, the management sees the RoE to remain above 20% in the long run. The management also believes that the RoE is expected to hover in the range of 28-30% in current circumstances.
Capital Adequacy ratio (CAR) improved to 16.2%, from 14.5% in the same period last year as against a benchmark of 12.5%.
The Board of Directors of the Bank has already approved a Sukuk issue for its Tier-II capital, which is expected to be issued in 4Q2019, the amount of the issue will be up to Rs6 billion. This will also support Bank’s CAR.
The Bank’s exposure to government securities is in-line with the sector’s average.
Re-pricing of loans generally completes in 3 to 6 months, while few loans are long term loans which witness a lag of about 12 months. The government Sukuk takes up to 6 months to re-price.
Deposits of the Bank grew by 7%YoY since December 2018 to Rs842 billion. The growth was driven by current account deposits which were up 14%YoY. Deposit growth rate is tracking the country’s economic slowdown.