Meezan Bank Limited (PSX: MEBL) has reported earnings for the quarter ended September 2024, with a profit after tax of Rs25.77 billion, translating to earnings per share (EPS) of Rs14.36. While this marked a slight improvement of 1.27% over the Rs25.45 billion recorded in the same period last year, the results fell short of market expectations, which had projected an EPS of Rs15.98.
Modest Growth Amid Higher Provisions
Despite the small increase in profit, the constrained growth was primarily attributed to a sharp rise in provisions. During Q3 CY24, provisioning surged to Rs2.57 billion, a staggering 229% increase from Rs781.83 million in the same period last year (SPLY). This significant uptick in provisioning was a key factor limiting the bank’s overall profit growth.
Net Spread Growth Remains Strong
On a positive note, Meezan Bank continued to benefit from robust performance in its core business. The bank’s net return earned on Islamic financing and related assets rose to Rs78.86 billion in Q3 CY24, reflecting an impressive year-on-year growth of 19.96%. This growth was driven by increased financing activities and placements, with profits on deposits and other dues declining by 9.01%, which also contributed to the expansion of the net spread.
Non-Markup Income Shows Steady Gains
Meezan Bank’s non-markup income posted a 5.4% year-on-year increase, reaching Rs6.53 billion in Q3 CY24, compared to Rs6.19 billion in the previous year. This rise was fueled by improved economic activity in Pakistan, resulting in a growing customer base. Notably, fee and commission income saw a robust increase of 27.98%, while dividend income rose 16.22%.
One of the key highlights of the quarter was the turnaround in the bank’s securities income, which recorded a gain of Rs167.9 million compared to a loss of Rs526.27 million in Q3 CY23. However, foreign exchange income took a hit, plunging by 98.2% to just Rs28.34 million from Rs1.58 billion in the same period last year.
Rising Operating Expenses Weigh on Earnings
While income grew, Meezan Bank faced higher operating expenses, which dampened profit growth. Total non-markup expenses rose by 18.83% year-on-year to Rs23.18 billion, driven by a substantial rise in the bank’s operating costs. Operating expenses alone increased by 17.47% to Rs21.68 billion, reflecting the challenges of managing costs in a high-inflation environment.
Dividend and Taxation
Meezan Bank met market expectations regarding its dividend payout, announcing a distribution of Rs7 per share. However, the bank’s tax expenses saw a substantial rise of 29.93% year-on-year, totaling Rs31.86 billion, which further impacted the bottom line.
Conclusion
Despite the growth in net income and a strong performance in its core business activities, Meezan Bank’s Q3 earnings were held back by rising provisions, higher operating expenses, and increased tax payments. The slight increase in profit after tax, coupled with a fall short of market expectations, reflects the mixed signals in the bank’s quarterly performance. While the bank’s dividend payout matched market forecasts, the constrained earnings growth may lead investors to adopt a more cautious outlook in the short term.
