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The above results were achieved amidst many challenges posed by the external market forces, which included excess liquidity, lower credit demand and worldwide decrease in gold prices etc. Despite the strong growth recorded in key core banking income areas such as net interest income and commission income, drop in FX revaluation gains and additional impairment provisioning made against the pawning advances during the period, adversely impacted on the profit growth of the Bank.
Revaluation gain
The revaluation gain on the FCBU’s Foreign Currency reserves, which is reported under ‘Other Operating Income’ of the published accounts, fell below the previous year by Rs. 1.097 b, mainly due to the slower depreciation of the LKR during the year compared to last year and due to the partial conversion of FCBU reserves into LKR, which resulted in a drop in these reserves from US$ 79.8 m as at 31 January 2013 to US$ 19.8 m as of the Balance Sheet date.
Pawning provision
The Bank also booked an impairment provision against pawning advances amounting to Rs. 2,042.8 m during the first nine months of 2013. This provision has been computed taking into account the gold prices that prevailed around 30 September 2013 and against the full amortised cost (capital + accrued interest) of the pawning portfolio.
Accordingly, the provision covers not only the “fallen due” category, but also the performing category as well. In fact, 35% of the above mentioned provision, amounting to Rs. 726 m was on account of the performing pawning advances. Total impairment provision on pawning advances was about 3.48% of the total amortised cost of pawning portfolio of Rs. 58.6 b.
Net Interest Income (NII)
Net Interest Income of the Bank, which is the main source of income from the fund-based operations and representing over 75% of the total operating income, rose from Rs. 8,386.6 m in the first nine months of 2012 to Rs. 11,068.4 m in first nine months of 2013, recording a significant growth of 32 %.
This significant growth in NII was largely due to the high growth recorded by the Bank in key business volumes, namely, Rs. 39.7 b increase in customer advances (18.29%), Rs. 38.95 b increase in total assets (12.62%) and Rs. 33.44 b increase (13.74%) in total deposits during the first nine months of 2013, over the base figures as at 31 December 2012.
Further, conversion of part of the FC Reserves of the FCBU into local currency during the first quarter of the year and higher volumes of FX SWAPs during the year too contributed towards this growth in NII. Facilitated mainly by timely re-pricing of products and effective management of the fund base, the Bank managed to improve the Net Interest Margin (NIM), by 0.33% over the base figures of 4.18% on 31 December 2012.
Commission and Fee based income
Net Commission and Fee based income too recorded a growth of Rs. 285.7 m or 18.3% in first nine months of 2013 over the same period in 2012, as a result of increased turnover in commission and fee based income categories of the Bank. The growth in fee based income was achieved in a backdrop of the negative growth experienced in imports and exports financing volumes in the market.
Net Trading Income
Net Trading Income, which amounted to Rs. 161.59 m for the first nine months of 2013, was a decrease of Rs. 93.4 m against Rs. 255 m achieved during the corresponding period in 2012. The major contributory factor for the said reduction is the decline in forward exchange contract revaluation gains from Rs. 230.1 m in first nine months of 2012, to Rs. 102.3 m in the corresponding period in 2013.
Other Operating Income
Other operating income which significantly contributed to the operating income in the first nine months of 2012 decreased from Rs. 3,347.9 m to Rs. 1,679.9 m in the corresponding period in 2013. The drop of Rs. 1,668 m was mainly due to the drop in the revaluation gains on the FCBU reserves, as commented above.
Operating Expenses
Operating expenses of the Bank which stood at Rs. 6,959 m in the first nine months of 2012 rose to Rs. 7,743 m during the same period in 2013, recording an increase of Rs. 784 m (11.3%). This growth in operating expenses was largely due to increase in staff cadre coupled with salary increments given to the staff with effect from 1 April 2013.
Since the Bank has now adequately covered most of the strategic locations of the country, it expects to have only a moderate expansion to its branch network in the coming years. This will also help to manage the increase in costs.
Loan loss provisions and Provision Cover (as per CBSL requirement)
Though, the Specific Provision Coverage Ratio recorded a marginal decline and stood at 71.55% as at 30 September 2013, due to the recoveries made against the underlining NPLs, this ratio still remained at a healthier level compared to the industry average of 34.2% as at end of the quarter. Together with the general provisions, the total Provision Coverage Ratio of the Bank stood at 75.31 % as at 30 September 2013.
Impairment provision
Impairment provision on individually significant loans recorded a decrease of Rs. 26 m from Rs. 672 m in the first nine months of 2012 to Rs. 646 m in the first nine months of 2013. The Collective Impairment provision however recorded an increase of Rs. 2,225.4 m in the first nine months of 2013 (which included an impairment provision of Rs. 2,042.8 m made against the pawning advances), as against a reversal of Rs. 226.4 m recorded in the first nine months of 2012.
On the other hand, Financial Investments (Treasury Bills and other trading securities) recorded a mark to market gain of Rs. 18.7 m during the period under review, as against a gain of Rs. 93.4 m in the corresponding period in 2012. This drop was largely due to mark to market gain of Rs. 144.2 m in 2012 on the Bank’s Treasury Bill portfolio compared to the gain of Rs. 2.01 m in 2013.
Business growth
The growth rates in deposits, advances and total assets of the bank during the first nine months were 13.74%, 18.29% and 12.62 % respectively, compared to the industry’s growth rates of 11.11%, 5.20% and 13.65% recorded in the respective areas during the period.
Statutory Liquid Asset Ratio
This ratio recoded a marginal increase from 22.40% as at 31 December 2012 to 22.65% as at 30 September 2013. Though this ratio was somewhat above the minimum requirement of 20%, it was not as high as the industry average of around 29.2%, due to the prudent trade-off maintained by the Bank between its liquid and earning assets.
Capital adequacy ratios
The capital adequacy ratios stood at 10.04% (Tier I) and 12.35% (total) as at 30 September 2013, recording a marginal deterioration compared to the levels as at 31.12.2012, mainly due to the payment of dividends for 2012 and the credit expansion during the first nine months in 2013. Nevertheless, they remained well above the minimum regulatory requirements of 5% and 10%.
