Seylan Dec. earnings lifted by absence of gratuity expense on ex-employees
Seylan Bank PLC reported modest operating performance for the quarter ended December 31, 2019 (4Q19) beset by multiple headwinds but the bottom line received a boost from the absence of a notable one-off gratuity expense, which undermined the lender’s previous year earnings.
Seylan Bank reported net interest income of Rs.4.9 billion for the three months under review, up from Rs.4.7 billion a year ago as the demand for loans accelerated during the final quarter.
The bank gave loans worth of Rs.53.2 billion registering a full-year loan book growth of 15.8 percent, an unprecedented growth for a bank with assets of Rs.516 billion in a period characterized by slow economic growth and rising non-performing loans (NPL).
Seylan Bank, which long remained a problem child for its prolonged double digit non-performing loans ratio managed to lower its NPL ratio to 5.76 percent from 5.98 percent at the beginning of 2019, defying last year’s industry trend.
However, the provisions for possible bad loans rose to Rs.735.2 million for the three months compared to Rs.453.7 million in the year earlier period.
The bank reported earnings of Rs.2.70 a share on total profit of Rs.1.2 billion for the quarter under review compared to earnings of Rs.1.63 a share or Rs.651.9 million in the year earlier period.
The surge in bottom line was possible due to the absence of a one off gratuity expense the bank charged to the income statement during the final quarter of FY18 in response to a long-standing issue in the company.
“The bank has not recognized an additional gratuity liability in the financial statement for ex- employees who have not entered into the ‘Memorandum of Settlement (MOS)’ with the bank for the conformant of the additional gratuity and giving the right to settle the said liability by utilizing proceeds expected from disposal of shares held by share trust companies, as the establishment of the liability is contingent upon the date of signing the ‘Memorandum of
Settlement’ and the prevailing share prices as at that date of signing,” the bank said in a note to the financial statements.
In the final quarter of 2018, the bank charged a hefty Rs.1.13 billion as additional gratuity expense.
However, Seylan Bank said, “If the above uncertainties are resolved, the bank estimates an additional cash outflow of Rs.150 million (net of tax)”. Meanwhile, the bank reported earnings of Rs.9.12 a share or Rs.3.7 billion for the year ended December 31, 2019 (FY19) compared to earnings of Rs.7.84 a share or Rs.3.1 billion in FY18.
Seylan Bank in December raised Rs.4.389 billion via a rights issue of voting and non-voting shares to strengthen its capital buffers and also to support future growth.
In FY19 bank managed to attract Rs.43.1 billion in deposits, recording a growth of 12 percent.
As of December 31, 2019, the state-run private sector pensions fund, Employees’ Provident Fund, held 9.86 percent of the bank’s voting shares being its third largest shareholder. EPF also held 5.33 percent stake in Seylan Bank’s nonvoting shares being the second largest shareholder.