Pan Asia Bank doubles 1Q net profits to Rs. 177 m

• Bank records strong core-banking operations amid falling interest rates

Pan Asia Banking Corporation PLC (PABC) has posted a net profit of Rs. 177 million for the quarter ended 31 March 2015 (1Q’15), recording a growth of 106% from a year earlier. As a result the earnings per share has improved to Rs.2.43 from Rs.1.18 during the period. The growth in the profit before tax was 231% year-on-year (yoy) to Rs. 270.2 million. The bank has been able to record this commendable performance due to the growth of its loan book coupled with expanding net interest margin. This has also been amply assisted by the cost discipline demonstrated throughout in delivering its services. During the quarter the bank grew its loans and receivable by 10% to Rs. 69.2 billion. This mirrors the pickup in credit growth in the economy in comparison to the much lackluster demand for credit during the corresponding quarter in 2014. Pan Asia Bank closed the 2014 financial year expanding its loan book by 34%, among the highest credit growths by a licensed commercial banks in the country, which continued to 1Q’15 as well. Meanwhile the bank has managed to significantly improve its Return on Equity (RoE), a key performance measure in the banking industry. During the three months the RoE increased by as much as 5.07% to 14.88%. This is considered as a key achievement given the challenge to improve returns to its stockholders by the banking sector when the margins are under continuous pressure and the regulatory capital requirements are increasing. Commenting on the first quarter performance, the bank’s Director and CEO Dimantha Seneviratne said the first quarter performance of the bank is a testament to its prudent management strategies in sustainable asset growth and cost management that provides an ideal platform to reach its financial and other targets set for the remainder of 2015. “During the first quarter the bank successfully migrated in to its new core-banking platform that will provide more flexibility in providing customized solutions and enhanced services to our clients,” Seneviratne further said. Strong core-banking performance Core-banking operations of the bank has fared exceptionally well during the quarter supported by the strong growth in credit and the timely asset and liability management. The top line of the bank measured by the net interest income has grown by a healthy 20% year-on-year (yoy) to Rs. 849.9 million. This has been possible mainly as a result of the sharp fall in interest expenses. The interest expenses has fallen by 15% during 1Q’15 against its corresponding quarter last year due to re-pricing of the deposits at lower interest rates in line with the steep fall in the key market interest rates. Despite the fall in interest rates and the resulting pressure on the interest margins in the banking sector, Pan Asia Bank has successfully managed to withstand the pressure and expanded its Net Interest Margin (NIM). The NIM has edged up to 4.29% as opposed to 3.82% it recorded by the end of financial year ended 31 December 2014. A deeper dig in to the financial statement of the bank demonstrates the bank has converted part of its low yielding short term financial assets to grow its loan book resulting in a higher margin. Nevertheless the bank’s liquid assets stood above the regulatory requirement of 20%. The statutory liquid assets of the domestic and off-shore banking units by the end of 31 March 2015 stood at 24.83% and 24.28% respectively. The higher margins were also due to the management’s continuous efforts to re-calibrate its lending portfolio in to high yielding asset classes/ loan products such as retail and consumer loans. Further the bank is also making conscious efforts to tap in to low cost funding sources. The bank’s Current and Savings Accounts or the low cost funding base currently stands at 31.5% by end March. A growing non-interest income base In a bid to diversify the income sources the bank has made a special emphasis on improving its other income sources. The net fee and commission income has increased by 47% yoy during the quarter to Rs. 202.5 million as a result of strong international trade related incomes. This was further assisted by the strong remittance incomes collected by the bank leading up to the Sinhala and Tamil New Year. Net trading income has however edged down by 4% yoy to Rs.90.8 million due to fall in capital gains made from investments in government securities. Other operating income has mainly been driven up by gains made by non-trading foreign exchange operations as a result of revaluation gains on foreign currency denominated assets and liabilities. As a result the total operating income, i.e. the net interest income and the non-interest incomes has risen by 27% to Rs.1.26 billion. Continuous efficiency enhancements The bank continued its efforts in bringing down its cost to income ratio mainly due to the better performance and close tab on its expenses. The cost to income ratio was improved to 61% by end December 2014 from 69% a year ago. According to latest financials, the bank has further managed to contain the ratio to below 60% due to efficiency improvements. The bank indicates that they are further committed to bringing down the ratio to mid fifty levels by the end of this year closing the gap between the industry average hovering around early fifties. During the 1Q’15 the bank has increased its operating expenses by 22% on a yoy basis to Rs. 697.7 million predominantly due to rise in salaries and emoluments. Personnel expenses has risen by 27% yoy to Rs.332 million. This has been due to the increase in the cadre as well as due to the salary increments which has came in to effect in March 2015. During the 12 months to 31 March 2015 the bank filled key managerial positions by bringing in industry best professionals while the key talent was brought in at all other levels in bid to groom the next level of leaders of the bank as well as to support the growth. Impairments The provisions for possible loan losses declined by 25% yoy to Rs. 224.9 million due to steep fall in the collective impairments. This is because the bank has largely overcome its issues in its pawning portfolio. Balance sheet growth The asset base of the bank has grown by 2% during the quarter to Rs.81 billion mainly supported by the growth in its loan book. The bank targets a Rs. 100 billion asset base by the year end. During the quarter alone the bank disbursed as much as Rs.6 billion loans amid marginal growth in deposits. The gross non-performing loan ratio, the measure of the quality of its asset base has somewhat come under pressure during the quarter. The NPL ratio edged up to 6.42% from 5.73% three months before. The bank has already strengthened its recovery efforts to arrest the situation and to create stability of the loan portfolio. As of 31 March 2015 the Tier I Capital Adequacy Ratio (CAR) and the Tier II CAR stood at 7.72% and 12.56% respectively above their regulatory minimums of 5% and 10%. Looking forward Pan Asia Bank awaits the direction and economic policy of the new government helping to align the bank’s strategies in to the country’s growth and economic agenda. Further the bank will continuously strive to understand the needs of the aspirational society in the making in Sri Lanka to provide them with the most suitable and flexible financial solutions that are required by them. The bank has already implemented its new core-banking system which will enhance its delivery efficiencies and facilitate the diversification in to new financial services. Further the bank will continuously invest on increasing its customer touch points; the branches and the digital banking channels which are gaining rapid momentum in the country in a bid to offer a fast and an efficient service to the bank’s clients.