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Nations Trust Bank closed the first six months ending 30 June with a post-tax profit of Rs. 1,157 m, recording a growth of 18% over the corresponding period in 2013.
Core revenue recorded a faster rate of growth over operating expenses, thereby significantly improving operating margins. However, higher impairment charges and introduction of new tax levies slowed bottom line growth over the corresponding period.
Performance for the quarter was up by 27% in terms of post tax profit. The improved performance in the current quarter is mainly attributed to lower impairment charges compared to that reported for the first quarter 2014. The bank also witnessed slow growth in loans and advances particularly in the corporate portfolio.
The lacklustre demand for credit amidst a relatively low interest rate regime prevailed across the industry during the first six months of the year and the banking sector recorded a contraction in loans and advances partly attributable to the significant decline in pawning advances.
Net interest income recorded a growth of 19% over the previous period with improved NIMs. The drop in cost of deposits outweighed the drop in loan yields and contributed to the improvement in NIMs. Higher-yielding asset portfolios such as cards and leasing recorded good growth to ease off pressure on declining yields in other asset classes. The bank continued its efforts to grow low cost deposit balances thereby improving the CASA mix which also assisted in reducing the cost of deposits.
Net fees and commission recorded a growth of 14% mainly attributable to the solid performance demonstrated by credit cards. Predominately fee income generating products and services have been added to the bank’s portfolio in the recent past such as debit cards, bancassurance and remittances which have recorded good growth and contributed towards enhancing fee based earnings for the period under review. The bank endured many challenges during the first six months in growing trade finance income owing to slow growth in corporate assets and import volumes in the economy.
Despite trade income recording a 10% drop over previous year, most recent trends are encouraging. The bank has taken a number of initiatives to revive trade finance business through multiple channels. Net trading income on account of foreign currency recorded losses on funding SWAPs due to the adverse movement in forward premiums.
However, the losses recorded for the current period is far lower than the previous year. Impairment charge for the current period amounted to Rs. 437 m with the higher incremental impact over previous period arising from pawning and credit card portfolios.
Retail and SMEs have shown a significant improvement in portfolio quality whilst leasing book impairment has remained at levels reported in the previous period. Impairment on the pawning portfolio in the 1H of 2013 has been comparatively lower since the sharp decline in the market price of gold began only in April 2013.
Since then, the bank’s exposure to pawning has been managed below 2.0% of the overall loan book whilst the loan to value ratio has been appropriately adjusted to manage the volatility in the market value of gold. As such, the trend in impairment on the pawning portfolio is expected to improve in the 2H of 2014. The bank has also undertaken appropriate measures to strengthen its credit card recovery process to arrest further impairment, thereby stabilising the portfolio in the 2H of 2014.
Operating expenses recorded an increase of 16% over the previous period mainly on account of premises and advertising expenses. Head count increase of 251 during the year has been mostly deployed at branches, sales and collections areas whilst the increase in support functions has been minimal.
Close monitoring of efficiency and productivity indicators established for the key processes of the bank has had a positive impact on lowering its cost income ratio to 54% from 57% reported for the previous year. The bank is firmly committed towards driving its cost to income ratio below 50% in the medium term.
The capital position was sound at Rs. 14.8 b with capital adequacy ratios, despite a drop over December 2013 were maintained at comfortable levels. The drop is mainly attributable to the dividend pay-out impacting retained earnings.
Commenting on the results and achievements, Director/CEO Renuka Fernando stated: “The first half results for our bank demonstrates a resilient performance withstanding multiple industry challenges. We anticipate a possible turn around in demand for credit in the 2H of the year with the positive outlook on key macro-economic indicators. A significant amount of resources and effort across the organisation have been deployed for the core banking upgrade project and much progress have been made thus far. The completion of it will give us the technological capabilities to steer Nations Trust Bank through its next phase of growth in a digitalised environment. Our medium term strategy remains unchanged and we remain optimistic about our prospects for the remainder of the year.”
The bank enhanced its presence in key geographic locations by opening eight new branches and four offsite ATMs thus taking its customer touch points to 112 locations. Regional hubs were established in four provinces for a more cohesive approach to branch banking thereby de-centralising credit and operational functions. New sign ups with remittance partners across the globe took place to enhance remittance market share.
New products targeting various customer segments were launched during the period under review. These include Nations Leasing Plus, Nations Trader, FCY Home Loans, Master Travel card, Corporate Fuel card, Dual Currency deposits and Fx Options. The bank’s leasing arm explored new customer segments with the roll out of its two wheeler product and the tremendously successful Nations Hybrid promotion.
