MCB bank eyes low-cost deposits as interest rates drop

Muslim Commercial Bank Limited of Pakistan (MCB) is sharpening its focus on low-cost deposits as the country’s economic landscape shifts following a significant 1,000 basis points cut in interest rates.

During its recent corporate briefing session, the bank’s management outlined its strategy to strengthen current account deposits, positioning itself to navigate the changing financial environment effectively.

Lending and deposits surge

MCB’s gross advances soared by 76% as compared to the previous year to PKR 1.1 trillion, driven by an aggressive corporate lending approach in 2024 that saw a 106% increase in corporate advances, reaching PKR 903 billion. But with the abolition of ADR-related tax, management expects lending levels to normalize moving forward.

The bank’s total deposits climbed from PKR 1.8 trillion in December 2023 to PKR 2.4 trillion by the end of 2024, boosting its market share to 5.7%. MCB aims to increase its current account deposits to 55% of total deposits, up from the current 49%.

Management expects deposit growth to range between 15% and 18% in 2025. This was highlighted during the bank’s analyst briefing for CY24, where the company reviewed its financial results and future outlook.

Investment portfolio and Islamic banking expansion

On the investment front, MCB has allocated 22% of its portfolio to fixed PIBs, while the bulk 67% is spread across T-Bills and floater PIBs.

The bank is also expanding its Islamic banking footprint, planning to add 200 new branches over the next three years. However, profitability in this segment took a hit, dropping 18% YoY to PKR 4.2 billion, primarily due to rising operational costs. The bank is actively evaluating an initial public offering (IPO) for the segment.

Regulatory and market outlook

Despite the monetary easing, MCB remains well-positioned, with a robust Capital Adequacy Ratio (CAR) of 19.35%, significantly higher than the regulatory requirement of 11.5%. This financial strength could allow for an increase in dividend payouts, making MCB an attractive option for investors with its current annual dividend yield of 13%.

The management reiterated that the windfall tax on foreign exchange income would not impact profitability, as provisions had already been accounted for in 2023. The banking sector is already paying 60% of the total country’s tax including the windfall tax, as highlighted by Zafar Masud, President/CEO, Bank of Punjab, during Banking Summit 2025.

The management highlighted that the bank is actively working towards solid growth in its corporate lending portfolio and remains optimistic about future deposit expansion.

The bank reported a net profit of PKR 57.6 billion for 2024 (CY24), reflecting a 3.4% decline as compared to last year, as higher non-markup expenses and credit loss allowances weighed on earnings.

Despite the earnings decline, MCB remains well-capitalized and positioned for future growth, leveraging its expanding deposit base and strong lending performance to navigate an evolving financial landscape.