Saturday Sep 21, 2024
Saturday Sep 21, 2024
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gradual decline in interest rates as the year progressed. Such measures taken to fuel credit growth did not materialise to anticipated levels as private sector credit growth remained sluggish throughout the period under review.
Slower loan book growth led to excess funds being invested in low-yielding liquid assets with Banks witnessing a decline in NIMs. NPLs across the industry shot up with the slowdown in economic activity also leading to a substantial rise in impairment charges.
Group net interest income recorded a 33% increase over previous period with corresponding NIMs improving modestly. Yields on loans and advances came under stress due to low credit demand which was further challenged by regulatory caps on interest rates.
Deposit costs decline
The gradual decline in cost of deposits coupled with improved spreads on the FIS portfolio with the maturing of lower yielding assets positively impacted NIM movement.
Net fees and other operating income recorded a 22% growth, with an outstanding contribution coming from credit card related fees and commissions. With the slowdown witnessed in external trade, trade finance income fell below previous year level.
Net trading results amounted to a loss of Rs. 310 million for the current year mainly due to losses recorded in FX income which was partly offset by gains attributed to the FIS portfolio. The adverse movement in forward premiums resulting in negative marked to market impact on funding SWAPS resulted in FX losses for the current period. However, this adverse trend reversed towards the end of third quarter wiping out most of the losses recorded in the first six months.
Five year strategic plan
Operating expenses recorded a growth of 23% as implementation of the initiatives identified in the five-year strategic plan took place across the bank. The highest increase over the previous year and the largest contributory factor to the increase in its cost base was on account of one-off expenses incurred in the introduction and execution of productivity and cost efficiency concepts across key areas of the bank.
The bank’s NPLs ratio stood at 4.0% which recorded an increase over 2.8% reported in December 2012 which is in part due to the slower growth in the loan book whilst absolute NPLs also increased similar to the rest of the industry. Impairment charges for the nine months increased by Rs. 219 million over the previous period mainly attributable to the bank’s pawning portfolio.
Loans and deposits grow
Loans and deposits recorded a growth of 6% and 10% respectively for the nine months. These growth levels compares well with industry performance for the nine months of 5% for loans and 11% for deposits. Loan growth slowed down mainly due to the decline in the corporate portfolio which faced stiff rate competition compounded by excess liquidity and low credit demand.
Retail, SME, leasing and cards put up a solid growth despite lower credit demand. The bank continued its efforts to grow low cost balances which reaped good results recording a 22% growth and thereby improving low cost mix.
Branch expansion continued with nine new branches being opened during the nine months in identified key strategic geographies taking the network to 66 branches. With the view of enhancing customer value and productivity, the bank undertook the implementation of lean concepts across the entire organisation, by reviewing high impact, critical processes on a phased out plan during the year.
SME focus
The bank strengthened its SME proposition further with the signing of an agreement with Asian Development Bank (ADB) for a $ 15 million term lending facility. This financing agreement is specifically aimed at funding SMEs, a cause strongly supported by ADB.
The Nations Trust Debit Card was launched during the month of August adding to the bank’s array of products with the view of providing a complete suite of payment solutions to its customers.
The bank also received accolades in various spheres; top amongst the list was becoming the recipient of the award for the “Best HR Strategy in Line with Business” at the Best Employer Brand Awards 2013, held in Singapore.
Commenting on the results and achievements, Director/CEO Renuka Fernando stated: “Amidst the innumerable challenges that befell the industry during the year, our performance has been resilient, consistently demonstrating sustainable returns.
“We are optimistic on a possible turn around in demand for credit as we progress towards year 2014. Our business pillars are ably supported by a sound risk management framework, collection processes and a stable operational platform, so we are confident that we will be able to continue meeting the challenges ahead.
“We also look forward to reaping the benefits of all our efforts this year in moving to lean processes which would see further enhancements to our delivery and distribution capability after we implement our new core banking system in 2014.”
