NSB happy with 2012 results amidst challenging conditions

Savings giant NSB has expressed satisfaction over its performance in 2012 amidst challenging market conditions.

“2012 was a challenging year for NSB. For instance, policy changes, such as the credit ceiling on bank lending and rising interest rates on deposits, had an impact on our top and bottom lines.

However, we have continued to sustain growth and extend our support to our customers and the national economy as a whole. The network expansion was limited to nine branches compared to 24 branches opened in 2011, changing the direction from channel expansion to channel optimisation by productivity improvements,” NSB Chairman Sunil S. Sirisena said in a statement.

The bank adopted new Accounting Standards (SLFRS/LKAS) from 1 January 2012. The Consolidated Financial Statements for the year ended 31 December 2012 are the first financial statements prepared in accordance with international accounting standards.

Commenting on the bank’s performance, CEO Hennayake Bandara said: “The interest income of the bank included Rs. 34,289 million of interest on Government securities portfolio and Rs. 18,834 million of interest income on retail lending and other investment portfolio. During the year, the policy rates were increased and the tight market competition also put pressure on the interest rates offered to go up. The interest income increased by Rs. 5,577 million to Rs. 52,673 million from Rs. 47,096 in 2011 while the interest cost echoed the increase in interest rates by rise of Rs. 9,846 millions in 2012. Market interest rates continued to rise and the interest costs increased over and above the increase in interest income As a result, net interest income has dropped by Rs. 4,269 million (24%) making the net interest margin 2.8% compared to 3.9% in 2011.”

He further said the personnel costs were increased in the year under review when collective agreements with employee unions were revised. The actuarial valuation was carried out for the pension fund retirement benefits as at 31 December 2012 and the resulted adjustments were recognised in the accounts. The increase in other expenses was by inflationary effects and the cost to income ratio was maintained at 45.7% from 36.41% in 2011.

“The bank had maintained its long-term stability at the expense of the higher profits during a precarious year in which our internal strengths were tested. The market competition was intense for mobilisation and putting pressure on our interest margins. But we continued to build up skill competencies of our staff and enrich the customer care. Therefore, the bank’s net profit of Rs. 4,331 million which was 29% less than the post tax profit of 2011, was encouraging in light of the many challenges we went through the year,” Chairman Sirisena said.

The bank contributed Rs. 5,900 million to the Treasury by way of taxes and transfers, including a dividend payment of Rs. 2,823 million.

NSB mobilised Rs. 31,126 million deposits compared to Rs. 55,648 million deposits in 2011 and recorded 7.6% growth over its deposit base as at 31 December 2011 against 18% deposit growth of banking sector in 2012. Deposit growth for the year was adversely impacted by rising competition that saw attractive negotiable rates being offered in the market for fixed deposits. The foreign currency deposit base increased by 12.6% this year, contributing 1.2% to the bank’s total deposit base.

The bank’s assets grew by 9.4%, reaching Rs. 509,694 million from Rs. 465,974 million in 2011 against the banking sector asset growth of 18% in 2012. A total of 61% (2011-64%) of the bank’s assets are invested in financial instruments held to maturity, 2.1% (2011 – 2.5%) was invested in assets held for trading and 33% (2011 – 29%) was given as loans and receivables.

With the adoption of SLFRS/LKAS the bank’s investments which were previously classified as investment portfolio and trading portfolio were categorised as assets held for trading, assets held to maturity, loans and receivables and assets available for sale. Government securities and equity securities held for trading purposes are designated as financial assets held for trading. Unquoted long-term investments in equity capital and strategic investments in quoted equity capital are reflected in financial investments available for sale. Investment in Government securities which are held till maturity, are reflected in financial investments held to maturity. The loan portfolio is reflected in loans and receivables to banks and loans and receivables to other customers.

During the year, retail lending increased to Rs. 114,226 million as at 31 December 2012, representing 82% of the bank’s loan portfolio. In its role as a wholesale lender, NSB had Rs. 11,349 million of loans to banks and financial institutions as at 31 December 2012. The bank had also extended loans amounting to Rs. 1,226 million for agricultural purposes and Rs. 10,386 million for housing. The NPL ratio was improved from 3.03% to 2.71% with sound credit evaluation process. The bank provided 9,535 of loans for housing purposes which was a 19% growth and the growth of development project loans was 15% over the previous year.

The bank’s Tier I and II capital remained well above the regulatory minimum of 5% and 10%, notched at 20% and 18.7% respectively, as at 31 December 2012. The statutory liquid assets ratio stood at 69.5%, which too is well above the regulatory requirement of 20%.

As at end December 2012, the Group profit before tax stood at Rs. 6,221 million from Rs. 9,411 million in 2011. Profit after tax decreased by 28.9% to Rs. 4,341 million from Rs. 6,104 million in 2011.

“We, as a national bank, cannot lose sight of the larger picture of overall national development and growth. Therefore, we cannot be hemmed in by a narrow profit focus. Instead, our business operations have always had a wider developmental approach, where we use our expertise to support the national development drive. But, whether this is done by supporting the government finance large development projects, or by supporting a small farmer in rural Sri Lanka through a small loan, we have always maintained the integrity of our operations by ensuring the financial viability of our involvement,” added Chairman Sirisena.

“The bank’s Strategic Business Plan 2011-2013 is very aligned to the external transformations both locally and globally in the economic sphere. This strategic plan sees our success, failures and deviations clearly marked and analysed, which enables us to now start formulating the blueprint for the Strategic Plan for 2014 to 2016. This new plan will form a wider and more in depth scope in adding value to our stakeholders, which will include a focused penetration to improving customer service levels as well.”

Strategic changes have been planned in 2013 in channel management. A more penetrative autonomous regional management system has already replaced the previous zonal management system, which will facilitate to reinforce its longstanding relationship and the strong traditions, ethics and values of its past, intertwined with postal banking, in its journey forward.

Another positive envisaged from this change in structure would be in enabling the bank to hone better inter-personal relationships with the younger generation, which will help it strengthen its presence at grassroot level. School banking units, Ithurum Ayojana Kawa and expanding its loan portfolio through these IAKs will add to the focus. POS mobilisation will form a primal driver in expanding its roots and thus, its branch expansion plan will have the value addition of having more devices in the field as well, to help the bank reach its stakeholders.

“We intend to pursue investment opportunities in strategic corporate entities. This will be further augmented through the facilitation of more project loans in diversified industries which would in turn give good rates of return. Another facet we intend working on is raising foreign funds, which would enable us to expand our business activities,” CEO Bandara added.