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Friday, 17 October 2014 00:00 - - {{hitsCtrl.values.hits}}
The bank is issuing 20 million rated, unsecured, subordinated redeemable debentures at Rs. 100 each with an option to issue a further 10 million debentures in the event of an oversubscription. Debentures have been rated BBB by Lanka Rating Agency Ltd.
There are two types of debentures for the benefit of investors. Type A Rated Unsecured Subordinated Redeemable 5 Year Debentures carrying a fixed interest rate of 9.75% per annum on the principal sum, payable annually (annual effective rate of 9.75% on the principal sum) and Type B Rated Unsecured Subordinated Redeemable 5 year Debentures carrying a fixed interest rate of 9.5233% per annum on the principal sum, payable semi annually (annual effective rate of 9.75% on the principal sum). Subscriptions open on 13 October whilst the official opening is on 24 October.
Key objectives of the debenture issue to expand and strengthen the capital base of the bank in keeping with its expansion and to maintain the capital adequacy requirements as stipulated by the Central Bank. It will reinforce the Bank’s Tier II capital and facilitate future expansion of operations and the asset base.
The total capital Adequacy Ratio of PABC as at June 2014 was 10.13%, just above the Central Bank’s minimum requirement of 10%.
Perfect timing
PABC Managing Director and Chief Executive Officer Dimantha Seneviratne told the Daily FT that the timing of the debenture issue was perfect for both the bank and investors. “The return for investors is attractive whilst for the bank it is an opportunity to source long-term funds at a competitive rate,” he added.
PABC last had a debenture issue in 2012. It was a five-year instrument with a mixture of fixed and floating rate. The rates ranged between 11.25% and 14.50%.
“We will use the funds to strengthen the capital base in tandem with growth in business, which we have witnessed so far this year and envisage in 2015,” said Dimantha.
Despite the banking industry suffering a difficult time in growing their loan book, PABC has managed to achieve an above industry average 13% growth or nearly Rs. 6 billion in loans and receivables to Rs. 50.48 billion as at June 2014 from 31 December 2013. Total assets grew by 7% to Rs. 69.4 billion.
“We also see a good pipeline of credit demand from our corporate and SME clients,” said Dimantha who joined PABC as CEO in March. He counts more than 23 years of banking experience, of which 15 years with the HSBC Group.
What singles out PABC is the healthy credit growth apart from improved profitability despite challenging market environment.
In 2013, the bank suffered a setback in terms of a sharp decline in profitability due to several reasons including deterioration in asset quality largely on account of pawning portfolio, resultant heavy provisioning and narrow interest margin.
Last year, the pawning portfolio at PABC was Rs. 6.7 billion and it lost over a billion due to the pawning industry crisis. However, in the 2013 Annual Report PABC Chairman Nimal Perera assured shareholders that the bank was confident of recouping this loss in profitability in the months ahead. Interim results for 2014 so far is ample proof that PABC has delivered just that.
Turnaround
PABC in the first half of 2014 had increased its net operating income to Rs. 1.44 billion. This after net interest income dipping by 1% to Rs. 1.25 billion and net fee and commission income up by 3% to Rs. 281 million. Total operating income grew by 6% to Rs. 1.87 billion.
Profit before VAT was down by 3% to Rs. 276.5 million and pre-tax profit was down by 12% to Rs. 189.6 million. However after tax profit was higher by 9% to Rs. 176 million due to a 74% reduction in tax expense to Rs. 13.7 million. The turnaround is more evident in the second quarter which saw PABC bottom line up 755% to Rs. 90 million and pre-tax profit up 47% to Rs. 108 million. Net operating income was up 22% to Rs. 752 million.
The focus in 2014 was cleaning the lending portfolio and the Balance Sheet as well as resolving its own exposure on gold-based lending which the overall banking industry is grappling. “We have also concentrated more on quality lending with prudent risk management,” said Dimantha, whose stint at HSBC largely focused on risk management.
He was the Chief Risk Officer – HSBC Thailand (2011-2013) and Chief Risk Officer – HSBC Sri Lanka and Maldives (2008-2011) as well as Chief Risk Officer HSBC Bangladesh in 2010.
PABC has also reduced the Non Performing Loans (NPLs) ratio to 5.7% from 6.5% previously. Focus is continuing to further reduce it.
SME focus
Focus on the quality SME segment in addition to innovative solutions has helped expand the loan book.
For this, the strengthening of operations in the regions has played a key role as well. “We have expanded by education customers that they could avail themselves of customised facilities than a recurrent overdraft arrangement,” Dimantha said.
Filling some of the key senior positions this year had helped the turnaround as well in addition to hiring two more regional managers. The bank’s staff now amounts to 1,268, up from 1,169 as at end 2013. PABC also introduced a branch grading scheme to incentivise the network.
PABC’s retail and SME push is also making the 78-branch network more invigorated and produce return on investment. Having opened over 30 branches in the past two and half years, PABC became one of the fastest growing. According to Dimantha, all regions (PABC has seven in all) were making positive contributions to the asset growth.
“Apart from SMEs lending, we are also seeing growth in personal banking and credit cards. The leasing business is active too,” he added. Recently PABC opened a Gold Centre in Pettah as a further value addition. PABC has also grown the deposit base, up 5% in the first half to Rs. 56.8 billion with the unique pension product drawing long term funds. Another new product was Champion Saver offering additional benefit. The current and savings account ratio (CASA) of PABC has been boosted from a low 18% to 28% nearing the industry average.
Dimantha acknowledged the support from the Chairman and Board of Directors as well as backing of the shareholders for the turnaround. Return on equity has been improved to 8.58% from 2.89% as at end 2013.
Space for midsize bank
Dimantha’s valuable exposure in areas of corporate banking, retail banking and wealth management, credit risk management, operations and market risk management, internal control, investment banking, debt capital markets and finance, working in diversified cultures under different regulatory and market environments is further strengthening PABC’s prospects.
With industry consolidation likely to dominate in 2015, Dimantha, who has also worked in Overseas Trust Bank Colombo Branch (before it was taken over by NTB), the Saudi British Bank, Middle East prior to the HSBC stint, believes PABC has and will continue to carve out its niche of being the preferred mid-size bank, which he believes can be effective and relevant.
“We will focus on consolidating our branch network in 2015 and drive growth with the existing network,” he added.
A professionally-qualified banker and holding many qualifications in several other disciplines, he strongly believes given the space for a mid-size bank, greater customer education and employee orientation will be key to revitalise an overall credit growth in the market.
