NTB continues resilient performance

Chairman Gihan Cooray and Director/CEO Priyanta Talwatte

Despite the challenging business environment, Nations Trust Bank (NTB) continued its planned ‘K-shaped’ recovery strategy by increasing the loan portfolio by Rs. 20 billion, recording an increase of 10% during the quarter. NTB continued to provide working capital loans under the ‘Saubhagya’ scheme introduced by the Government to assist customers across all segments. 

Understanding the importance of assisting the adversely-impacted businesses for their revival and to rebuild businesses and livelihoods, the bank contributed over Rs. 19 billion new credit facilities under its own revival fund ‘Nations Diriya’ scheme, which is dedicated to extending financial support to key industries, enabling such businesses to recommence and rebuild their business operations. Furthermore, the bank also offered special payment relief schemes and repayment plans for the existing borrowers in addition to the Central Bank-mandated moratorium schemes with low interest rates and restructured repayment plans for some of the identified industries and businesses segments.

NTB raised $ 25 million from IFC during the quarter to support Sri Lankan SME businesses with improved access to critical working capital to continue operations and preserve lives and livelihoods.  Over the years, IFC-NTB partnership has helped create a promising future for many small businesses across Sri Lanka, opening new markets and opportunities and creating new vistas. 

Essential banking services continued to be provided despite some parts of the country being isolated to mitigate a third wave of COVID-19 post-Sinhala and Tamil New Year. During these unprecedented times, the investments made on digital platforms have assisted all key stakeholders to stay connected and conduct business whilst ensuring their safety in carrying out day-to-day banking activities by having access to the bank at their fingertips. In-person meetings were converted to organisation-wide virtual meetings adhering to all safety protocols. 

PCR and Antigen tests for identified staff were undertaken by the bank at regular intervals ensuring the safety of staff and customers. Special staff transportation at concessionary rates were arranged during the pandemic for staff to conveniently commute to work as an additional safety measure. The bank ensured all safety protocols are implemented in close consultation with the public health authorities, across the network.

Despite subdued economic conditions due to the pandemic, the group recorded a profit-before-tax (PBT) growth of 39% for the three months ended 31 March 2021 compared to the previous year.

Net Interest Income continued to decline primarily due to the reduction in the market interest rates while interest rate ceilings introduced by the regulator impacted some business portfolios. Yields on loans reduced by 370 basis points (bps) in line with the fall in AWPLR by 350 bps supporting the loan growth and the economic recovery efforts. A reduction in yields in the FIS portfolio, after the profits taken on the high yielding securities, further aggravated the net interest income decline. However, the improvement of CASA ratio to 35% as of end March 2021 from 29% as of end March 2020 helped partially offset the decline in interest margins during the period. 

Gains on trading FX increased as a result of FX funding swaps with a higher depreciation of the rupee during the current period in contrast to the depreciation during the same period last year. The bank also benefited with trading profits on its fixed income securities portfolio with the fall in market rates.

Suspension or refund of certain charges by the bank, considering the current difficulties faced by customers due to the COVID-19 pandemic, negatively impacted the bank’s fee-based income. Card’s income declined on account of a decrease in card spend due to changes in customer behaviour patterns owing to the restrictions in mobility and overseas travel. A drop in discretionary spend was visible due to these phenomena. However, a positive trend could be seen in trade finance-related income with the increase in some of the trade finance-related activities.

Concentrated focus in underwriting and loan recoveries resulted in positive flows in the past due buckets while bringing the exposures down in most risk buckets. Further, relaxation in directions issued on leasing asset recoveries also supported these efforts.  This is reflected in the one percentage point decline in the non-performing loan ratio and improvement in impairment charges compared to the same period last year, with a year-on-year (YOY) savings of 16%. The bank ensured adequate impairment provisions by introducing changes to internal models to cover unexpected risk factors to reflect current volatile environment together with additional provisions made for the exposures to industries with elevated risks.

The cost management culture entrenched across the organisation assisted to curtail cost by Rs. 186 million, with a 7% saving over last year. Continuation of some of the cost saving strategies and initiatives executed last year along with productivity, efficiency drives and focus on some of the large cost pools were the main reasons for the favourable variance. The bank’s ability to considerably enhance efficiency and productivity through digitalisation and new ways of working improved the cost-to-income ratio to 44.6% as of March compared to 51.4% in the same period last year.

Enhancing the digital initiatives, the bank signed a Memorandum of Understanding (MoU) with the Department for Registration of Persons (DRP) recently enabling the bank to digitally verify the customers’ identity through the information held by the DRP upon obtaining the consent of the customer. The progressive digital customer verification process will take away the cumbersome traditional ‘Know Your Customer (KYC)’ process which includes ID card verification, facial verification and document verification for proof of address.

The Inland Revenue (Amendment) Bill, to amend the Inland Revenue Act, No. 24 of 2017, incorporating announcements implemented by the Inland Revenue Circular Nos. PN/IT/2020-03 (Revised) and PN/IT/2021-01 was gazetted on 18 March. As the Bill has been gazetted and also printed by order of Parliament as of the reporting date, the bank’s management, having applied significant judgment, have concluded the provisions of the Inland Revenue (Amendment) Bill to be substantially enacted, and have relied upon the income tax rates specified therein to calculate the income tax liability and deferred tax provision of the Bank as of 31 March 2021.

Accordingly, the impact stemming from income tax rate differential in the income tax and deferred tax relating to the financial year ended 31 December 2020 have been reversed by Rs. 314 million and Rs. 103 million respectively, using the applicable proposed tax rate of 24%. As a result, the profit-after-tax (PAT) recorded a growth of 88% for the three months ended 31 March 2021.

The Return on Equity before the exceptional tax adjustment stands at 16.3% for the period under review, compared to 12.8% recorded in 2020. The bank declared a final cash dividend of Rs. 2 per share for the year ended 31 December 2020, giving adequate consideration to the capital required to support the growth of the bank.

The financial position of the Group remained strong as its Tier I Capital and Total Capital Adequacy ratios as of 31 March 2021 stood well above the regulatory levels at 13.64% and 16.75% respectively. The Statutory Liquid Asset Ratio (SLAR) for the Domestic Banking Unit and the Off-Shore Banking Unit was at 35.72% and 30.99% respectively, as of the reporting date.

Commenting on the results and achievements, CEO/Director Priyantha Talwatte stated: “while we are aware that we are still operating in a pandemic-related subdued environment with strong headwinds, especially with a probable outbreak of a third wave, the team will continue to adjust well and support the implementation of our revival strategy whilst assisting the Sri Lankan Government initiatives and supporting both customers and the economy for a speedy recovery.” 

He also further reiterated that the bank is geared to steer ahead more responsively to the external environment, prioritising customer requirements, with an extremely focused and involved Nations team, who has demonstrated their agility to deliver value given the challenging environment. 

“The bank is committed to growing a healthy asset book and remain committed to delivering its strategic agenda set for the year to strengthen our balance sheet, and enhance digital capabilities with the ultimate intention of achieving customer convenience, cost and process efficiencies, pioneering innovation and thereby, challenging the norm to deliver an unparalleled banking experience to our customers in a new reality.

“Amidst times of unprecedented change, the team at NTB will continue to create waves of opportunity and positive change for progressive rebuild and growth. We’re focused on increasing the velocity of value to all our stake holders now and in the years to come,” said Talwatte.