Amana Bank’s conservative approach to new loans...
Amana Bank PLC turned a bit more risk averse ahead of an expected challenging operating context but that weighed on its March quarter (1Q20) performance as margins narrowed, net interest income fell and operating profits weakened in a quarter where others in the sector got off to a strong start aided by lower interest rates and renewed confidence in the economy.
The Islamic lender however continued to raise deposits at a stronger clip continuing the momentum it gained in the previous year and managed to secure its earnings due to lower taxes. “As a result of conscious strengthening of credit risk parameters in the backdrop of challenging market conditions, advances grew only by 1 percent to close at Rs 58.4 billion,” the bank said in a statement.
It appears that the bank has deliberately contained the growth in its loans to safeguard the bank’s asset quality from a possible fallout.
The asset quality as measured by gross non-performing loans was at 4.0 percent by end of March, up from 3.7 percent at the end of last year. “I am pleased to witness that the strategies and measures taken during 2019 has helped the bank withstand the challenging economic conditions and record a satisfactory performance in Q1 2020,” said Chief Executive Officer Mohamed Azmeer in a statement.
The bank raised Rs.5.46 billion new deposits and gave only Rs.700 million in new loans during the three months to March 2020 weighing on its net financing income as the bank having to book more financing expense on its deposits than its loans or financing and receivables to its customers.
The net financing income fell by 6 percent over the same period last year to Rs.810.9 million as financing expenses grew much higher than the financing income.
Although Amana is among the banks which required to augment its core capital base to Rs.20 billion by the end of this year, the Monetary Board extended timeline by two more years to meet the requirement as a part of a capital reprieve in a measure to relieve the liquidity pressure on the sector which is feeling the brunt of the pandemic as it provide relief to the businesses and the individuals impacted by the temporary business closures, via broad based loan moratoria.
Amana Bank had Rs.11 billion in core capital by March end.
The bank said the extent to which the moratoria would have to be extended to its eligible clientele based on their requests; the bank’s future performance would have an impact.
“Of these measures, the allocation of funds to businesses via Central Bank’s ‘Saubhagya’ refinancing scheme, as well as extending moratoria of up to 6 months for affected businesses to defer their repayments, are considered significant”, the bank said in a note to its interim financial results.
Meanwhile the fee and commission incomes grew by 10 percent on year to Rs.83.7 million for the quarter.
Impairment charges or the provisions made for possible bad loans were Rs.53.3 million compared to Rs.82.9 million a year ago.
The bank reported an operating profit before taxes of Rs.261.4 million for the January March period, down 17 percent from the same period last year.
As the new government which came into power phased out the Nation Building Tax on financial services and the Debt Repayment Levy, Amana Bank reported earnings of 5 cents a share or Rs.129.8 million in total earnings, up 3 percent from Rs.126.6 million a year ago.
Jeddah based ISDB Group being the principal shareholder has 29.97 percent shareholding of the bank.