MUSLIM Commercial Bank's (MCB's) results in 1995 show that privatisation can make a difference. The bank, which is still carrying a burden of bad debt accrued before privatisation in 1991, is cleaning up its loan portfolio, slimming down operating expenses and increasing earnings. The bank reported a 48 per cent rise in net profits to Rs 371 million ($10.7 million) in 1995.

Analysts say that the rise in earnings can be mainly attributed to lower provisions, which were reduced by 40 per cent to Rs 650 million ($18.8 million).

'The obvious effect of lower provisions on interest income contributed to the rise in net interest margins from 4 per cent in 1994 to 5.3 per cent 1995,' says Nauman Sheikh, senior analyst at Karachi brokers Khadim Ali Shah Bukhari. He adds that MCB is continuing to pursue its aggressive loan recovery programme, which yielded Rs 1,000 million ($28.9 million) in 1994.

The bank is also planning to issue a $50 million global depository receipt this year to improve its capital adequacy. The issue will make the bank more secure, but will necessarily dilute earnings.

Sheikh says that investors can find cheaper banks with better earnings forecasts on the KSE. 'The play in MCB is really in its potential to achieve a clean balance sheet, thus revealing its true earnings potential.. .this will take some time.'

BFP