NTB’s after tax profit tops Rs. 2 b in 2013

Friday, 28 February 2014 00:40 - - {{hitsCtrl.values.hits}}

Nations Trust Bank Group recorded a profit after tax of R. 2,127m compared with Rs. 1,951 m in the previous year, a moderate earnings growth of 9%. The performance was evenly balanced across the business pillars with results demonstrating good underlying momentum despite industry challenges faced in a subdued macro-economic environment. The modest financial performance recorded by the bank was underpinned by a well-diversified business mix minimising earnings volatility and offsetting economic headwinds seen in multiple areas. The year commenced with weakening credit demand leading to higher liquidity and loan growth falling below anticipated levels in the banking system. The policy rate cuts affected at frequent intervals, to fuel credit growth led to a gradual decline in interest rates as the year progressed. Slower loan book growth led to excess funds being invested in low-yielding liquid assets with banks witnessing a decline in Net Interest Margins. Non Performing Loans across the industry shot up with the slowdown in economic activity also leading to a substantial rise in impairment charges. Across the industry NIMs depleted due to the increase in asset yields not commensurating with the rising cost of deposits. The lack of credit demand resulted in excess liquidity being invested in lower yielding Government securities. As the industry grappled with looking for optimum out lets to channel funds, the Bank looked towards steering high yielding portfolios such as cards, leasing and SME to manage the margin pressure. Bank NII was also impacted further due to a disproportionately high share of customer assets being subject to interest rate caps and penal interest rate ceilings. The bank continuously reviewed its internal pricing strategies to balance risk and rewards on customer assets whilst the mobilisation effort on deposits continued with emphasis given to acquire low cost deposits. The push for CASA growth peaked during the latter part of the year, thereby improving CASA mix and surpassing anticipated growth levels. Continuous monitoring and direction given by ALCO on re-pricing gaps for assets and liabilities assisted in managing NIMs. The faster rate of growth in interest income over the interest expenses resulted in widening NIMs and an increase in net interest income by 33% for the year. Non fund based income recorded a decrease of 13% mainly due to foreign exchange losses. The high volatility that prevailed in the SWAP premiums during the year negatively impacted FX income arising from funding SWAPS. These losses were partly compensated by trading and mark to market gains on the FIS portfolio due to favourable movement in the yield curve. The American Express credit card business related fees recorded a substantial growth of over 25% compared to the previous year. Strategic venturing into the Master credit card business showed encouraging results for the year with an accelerated card issuance contributing modestly towards the top line non fund based revenue in the first year of launch. With the slowdown witnessed in external trade, trade finance income fell below previous year level. Much emphasis was placed to enhance export business volumes to mitigate negative impact on trade business due to drop in imports. Significant investments were made during the year on the execution of lean management concepts and the phased implementation of the core banking project to uplift efficiencies and productivity levels to an unprecedented level over the medium term. This technology enabled transformation would drive operational excellence by enabling collaboration across front-end and support functions of the bank. The bank continued to expand its operations in areas of new markets and geographies, build the Nations Trust brand and launch new products at the same time incurring substantial costs on the lean transformation and other strategic projects during the year. All of these culminated in operating expenses increasing by 23% over preceding year. Nevertheless, cost management strategies adopted across the organisation resulted in maintaining the Cost:Income ratio below 60% thereby partly mitigating the adverse impact of the higher costs incurred on the strategic initiatives to the bottom line. Commitment to drive the cost: income ratio below 50% in the medium term remains a key management focus as the bank transformation through efficiencies continues. Impairment for loans and advances for current year was Rs. 451 m compared to Rs. 432 m for the previous year. The amount attributable to pawning was at a manageable level of Rs. 165 m due to the relatively small size of the pawning portfolio, which is 2.7% of the loan book. The push for CASA growth gathered momentum during the year through the launch of new products and rejuvenated sales efforts. Total deposits recorded a growth of 11% with CASA contributing to over 50% of the growth. Low cost mix improved substantially and reached 25% by end of the year. The Group closed the year with total net advances growing by 12% despite the slump in private sector credit growth which prevailed in the industry though-out the year. The bank’s regulatory capital base stood at Rs. 15.9 b with tier 1 and 2 ratios at 14.80% and 20.02% respectively. Branch expansion continued with 15 new branches being opened during the year in identified key strategic geographies taking the network to 72 branches. The bank strengthened its SME proposition further with the signing of an agreement with Asian Development Bank (ADB) for an US$ 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: “Despite the innumerable challenges faced by the industry we were able to continue on our growth trajectory by recording a modest performance whilst continuing to invest in developing the infrastructure for our long term strategy, led by rapid expansion of our branch and direct banking channels, re-engineering of our business processes and implementing a new core banking system. In that respect, 2013 could be deemed as the cornerstone of the foundation on which the future of Nations Trust Bank will be built. The future holds much promise with many of the Bank’s five year strategic initiatives come into fruition and we are ideally poised to benefit from the Central Bank of Sri Lanka’s roadmap for Sri Lanka’s banking sector for 2014 and beyond.”