Nations Trust Bank records steady performance in 1H

Nations Trust Bank closed the first half of the year ending 30 June 2016 recording a post-tax profit of Rs. 1,278 million, a relatively slower growth of 2% over the corresponding period. Narrowing of Net Interest Margins (NIM) coupled with unfavourable impact arising from foreign exchange funding SWAPs slowed revenue growth. NIM impact was partly off-set by loan portfolio growth which saw accelerated traction in the 2Q thereby setting the pace for the year 2016.

Net interest income recorded a marginal growth due to the NIM compression as cost of deposits increased at a faster rate than re-pricing of loans. The resultant increase in interest expense of 39% over the previous period was only partly offset by the increase in interest income of 18%. However, a more positive trend was seen during the second quarter which saw higher growth in NII underpinned by improved NIM and higher growth in loan volumes.  

Core non-fund based income recorded a growth of 13% which narrowed to 4% due to unfavourable impact arising from foreign exchange funding SWAPs. Cards, trade and customer FX contributed well towards the growth in core fee based income. Further, the impact arising from the FIS portfolio on net trading positions was minimal for the period under review.

Impairment charges recorded a 55% decrease mainly on account of individual impairment, with collective impairment also showing an improvement across most of the portfolios. Significant drop in individual impairment is mainly due to a one-off provision made on account of specific facilities in the previous period.

Expenses recorded a growth of 13% as the current period witnessed a higher proportion of investments being made towards technology, people and branding which resulted in the underlying expenses increasing fairly rapidly over the previous period. The bank introduced the Life Cycle Training concept for all managers and banking assistants during the year aiming to enhance their soft skills, ethics, compliance and functional knowledge with the expectation of completing the full training for their respective grade within a period of two years. This initiative will allow staff to acquire necessary skills and competencies to move to the next job grade and a significant amount of resources have been deployed to make it a successes. Cost management initiatives coupled with the implementation of lean concepts across the organisation has assisted in rationalising expenditure and minimising increases over previous year in some of the key cost lines. The increase in the Cost:Income ratio for the current period is mainly owing to the slow growth in revenue as a result of the narrowing NIMs. The Cost:Income ratio is expected to trend down in the 2H of the year with higher revenue growth driven by stabilising NIMs, enhanced volumes coupled with a more evenly distributed operational expenditure base. Bank is committed towards driving its Cost:Income ratio below 50% in the medium term.

SME loan portfolios recorded an impressive growth of 17% for the first half, however contraction in the corporate book coupled with a subdued growth in the leasing portfolio moderated overall loan book growth for the Bank to 6%. The pending disbursements in the corporate book are expected to boost the loan growth in the ensuing quarter. Similarly, in tandem with the loan book growth deposits too recorded a growth of 6%. 

Mobilisation of term deposits took the forefront as CASA growth slowed down with a notable shift from low cost to term deposits seen partly due to increasing interest rates. The bank continued to focus on CASA acquisitions and promotions across the branch network to build volume.

The capital position was sound at Rs. 15.5 billion with Capital Adequacy Ratios both at Tier 1 and 2 maintained at comfortable levels. ROE recorded a drop over the level reported previously due to the narrowing of NIMs. The bank has consistently posted above industry average returns in the recent past.

Commenting on the results and achievements, CEO/Executive Director Renuka Fernando stated, “It has been a very challenging first six months for us, particularly with the narrowing of net interest margins impacting our core fund based income. As we become a larger player in the industry reaching out to a larger market segment, narrowing of NIMs is inevitable. Also as an industry we are now gradually moving to a low NIM environment hence the immediate impact comes as no surprise to us, nevertheless significant when comparisons are drawn against the previous period. We remain undeterred in our quest to build market share on assets, focusing on industries and geographies that we want to become relevant in. With customer centricity at the core of all our dealings we are quite optimistic on achieving our goals set for the year.”