Meezan bank crosses 1,000 branches, navigates MDR hit, expects profit rebound

Meezan Bank Ltd. (MEBL) held a corporate briefing Wednesday to discuss its first-quarter results for 2025, with management citing the newly implemented Minimum Deposit Rate (MDR) as a key factor affecting profitability.

The MDR, which took effect Jan. 1, led to payouts delivering only a 70% net yield—below the State Bank’s 75% benchmark—due to associated costs. The shortfall resulted in an approximately PKR 4 billion reduction in the bank’s profit before tax for the quarter.

Meezan posted a profit after tax of PKR 22 billion for the first quarter, down 11% from both the same period last year and the previous quarter. Despite the earnings decline, the bank maintained its quarterly cash dividend at PKR 7 per share, signaling confidence in its financial health.

Management emphasized a cautious approach to branch expansion amid regulatory uncertainty, though 45 new branches were added this year, bringing the total to 1,052.

Rising non-performing loans (NPLs) remained a concern, particularly with the textile sector bracing for potential U.S. tariffs. Under IFRS 9, the bank could not increase general provisions and had to absorb losses directly at the asset level.

Looking ahead, Meezan expects asset repricing—especially for fixed-rate Ijara Sukuks—to take effect in the coming months, following the typical lag after policy rate adjustments.

The bank’s investment portfolio, valued at PKR 2.05 trillion, remains predominantly in variable-rate instruments, with about 80% yielding an average of 13%.

Operationally, deposit growth showed promise, climbing 11% from the previous quarter to reach PKR 2.8 trillion. Management forecasts full-year deposit growth of 20-25%, citing improved clarity after the recent advance-to-deposit ratio (ADR) tax issue.

Card-related fee income declined following the closure of dormant cards, but remittance income surged 400% year-over-year. Meanwhile, the bank marginally improved its cost-to-income ratio to 28.1%.

With a capital adequacy ratio (CAR) of 23.2%—twice the regulatory minimum of 11.5%—and a return on equity of 36.2%, Meezan remains well-capitalized.

As policy rate cuts loom and inflation eases, the bank is betting on a stronger second half to offset its challenging start to the year.