Seylan Bank 2Q net flat over narrowing margins
The moderate growth in the lending book during the first half of the year (1H16) failed to have a significantly positive impact on Seylan Bank PLC’S June quarter (2Q16) as its net profit rose by a paltry 1.04 percent to Rs.1.06 billion from the same period last year as the margins fell sharply on the back of rising borrowing costs, interim results released to the Colombo Stock Exchange showed.
The earnings per share were Rs.3.08, little down from Rs.3.05 a year ago.
The bank expanded its loan book (gross) during the 1H16 by 7.4 percent to Rs.213.5 billion. In absolute terms the loan book grew by Rs.14.7 billion out of which the overdrafts consisted of Rs.5.5 billion followed by a Rs.630 million growth in housing loans.
The growth in the loans and advances appears to have been completely funded by the growth in deposits as the customer deposits grew by 7.3 percent or Rs.16.3 billion. But the growth came in at a higher cost as the low-cost funds of the bank - the current and savings accounts (CASA) base - narrowed to 34.4 percent from 36.3 percent in December 2015 pushing the total cost of funds higher.
This is reflective from the bank’s core banking performance, which grew by just under 6.0 percent yearon-year (YOY) to Rs.3.2 billion but the interest expenses saw rising by almost doubled the rate at which the interest income had risen.
The interest income rose 34 percent YOY to Rs.8.04 billion, while the interest expenses rose by 62 percent YOY to Rs.4.8 billion.
The net interest margin fell to 3.94 percent from 4.42 percent in December 2015.
In response to the rising interest rates and money market liquidity shortage persisted during most of the period, the banks had to offer extremely higher interest rates to attract deposits to fund their loan book.
Having pressed for liquidity and also to support Tier II capital, the bank in July raised Rs.5.0 billion in subordinated debentures in fiveyear and seven-year tenures at fixed rate coupons of 13.0 percent and 13.75 percent, respectively, while the floating rate coupon offered was the one-year treasury bill rate plus 1.5 percent.
But the Central Bank last week raised the key policy rates by 50 basis points – the second hike in five months – to prune inflationary pressures caused by excessive demand created through bank credit.
Notably, the bank reined in any losses from its investments in the government securities during the June quarter as the bank made hefty realized and marked-to-market losses in the March quarter caused from the rise in government treasury yields in response to the monetary tightening measures.
The net trading income – the income made from trading government securities – had Rs.314.7 million for the quarter, which is an increase of 34 percent from a year ago.
However, the exchange gains narrowed to Rs.189.9 million from Rs.194.4 million a year ago.
The provisions made for possible bad loans rose by 30 percent YOY to Rs.228.2 million mainly due to the collective impairments as the loan book expanded but the individual provisions narrowed.
The asset quality however improved slightly as the gross non-performing loan ratio edged down to 4.63 percent from 4.68 percent in December 2015.
Meanwhile, for the six months ended June 30, 2016 (1H16), the bank recorded a net profit of Rs.1.74 billion or Rs.5.03 per share, up just 1.21 percent a year ago.
As of June 30, 2016, the bank’s Tier I and Tier II capital adequacy ratios stood at 10.93 percent and 11.33 percent, respectively against the regulatory minimums of 5.0 percent and 10.0 percent, respectively.
The state-controlled private sector pension fund, the Employees’ Provident Fund holds a 9.86 percent stake in the bank being the third largest shareholder, while the government in concert holds a 32.36 percent stake in the bank through Sri Lanka Insurance Corporation Limited (15.0 percent) and Bank of Ceylon (7.50 percent).