CB considers JKH request to retain NTB stake above minimum 10% threshold

The Central Bank (CB) is considering an application by John Keells Holdings PLC ( JKH) to retain its 30 per cent stake in Nations Trust Bank PLC (NTB), industry sources said.

Currently a single investor or group cannot hold more than 10 per cent in a bank and needs to have CB approval for a higher stake. Some years ago, the regulator had granted time to the conglomerate to reduce its stake to 10 per cent to be in line with banks’ minimum shareholder limits.

“JKH wrote to CB saying that it wants to retain the 30 per cent and CB has responded saying that they are considering this request,” a NTB official told the Business Times, on the sidelines of a media briefing on Wednesday to announce its half yearly results.

NTB is also in talks with some finance companies for acquisition in a bid to support the government’s financial sector consolidation efforts.

“We are now in the process of negotiating with those companies to form an alliance to support the Central Bank guidelines even though our bank is financially sound and need not compulsorily follow such a ruling because we are above the Central Bank's requirement to be merged with another financial entity,” NTB CEO Renuka Fernando said announcing the results at a media conference.

NTB reported a bottom line growth of 18.1 per cent year on year to Rs. 1,157.2 million backed by stronger 2Q14 earnings, she said, adding that timely re- pricing of its liabilities and improving CASA (current and savings account ratio) mix was the main resultant of reduction in interest cost. NTB managed to increase the loan book by 10.8 per cent year on year in 2Q14.

Ms. Fernando said that credit growth has been a big challenge for the bank with industry growth rates at 0.96 per cent, but she noted that NTB has been able to maintain its numbers above the industry standard by a considerable amount. “Credit growth has been a big challenge for us. It’s our bread and butter as a bank. We are hopeful even though it has been challenging overall. It always gets better in the second half of the year than the first half. The numbers won’t be as ambitious as we thought but there will be an improvement.”

However given the declining interest rates, excess liquidity and competition led to declining yields in interest generating assets. This saw interest income decline by 1.6 per cent year on year to Rs. 5,012.5 mil- lion in 2 Q14 but given faster drop in interest costs NTB's Net Interest Margins saw a slight improvement by 2 basis points to 5.7 per cent. " Higher impairment charges and introducing new tax levies slowed bottom line growth over the corresponding period,” Ms. Fernando said.

Net fees and commission income grew by 6.7 per cent year on year to Rs. 640.5 million due to the strong performance in the credit card portfolio, she added.

The bank’s gross nonperforming loans ( NPL) ratio increased to 4.8 per cent while net NPL ratio rose by 36 basis points to 3.1 per cent.