Pan Asia Bank 1H’16 pre-tax profit soars 48% to
1H’16 post-tax profits up 34% to Rs.604 Mn Asset quality improves as net NPL falls to 2.7% RoE rises to 20.25%; among the highest
Sri Lanka’s fastest growing commercial bank, Pan Asia Banking Corporation PLC increased its pre-tax profit by a strong 48% to Rs. 943.0 million for the six months ended June 30, 2016 (1H’16) from the same period last year on the back of a strong growth in core-banking operations and fee and commission based incomes.
The post-tax profit too followed suit and has increased by as much as 34% year-on-year (yoy) to Rs.604.0 million. The earnings per share rose to Rs.4.10 from Rs.3.08 a year ago.
Core-banking performance
The bank’s core-banking performance has been quite strong with net interest income growing by 28 percent yoy to Rs.2.34 billion but the rise in interest expenses exceeded the rise in interest income due to slower re-pricing of the loan book in the rising interest rate market compared to the rate offered for the deposits.
As a result the net interest margin has slipped to 4.11 percent from 4.34 percent in December 2015 demonstrating the pressure on the margins.
Nevertheless the maintaining the margin above 4.0 percent is considered commendable amid rising funding cost.
The bank has also managed to expand its gross loans and receivables to customers by an annualized 12.8% or by Rs.5.5 billion during the 1H’16 to Rs.91.8 billion.
Total assets stood at Rs.120.8 billion, recording an increase of an annualised 24% during the 1H.
The growth in loans and advances to customers during the 1H has been fully funded through the bank’s customer deposit base which has risen by an annualised 15% to Rs.83.6 billion.
However the bank’s low cost deposit base declined due to both active promotion of medium term deposits and the shift in savings account balances to fixed deposits seeking higher returns in a rising interest rate environment.
Commenting on the performance Pan Asia Bank Director/ Chief Executive Officer Dimantha Seneviratne said the 1H financial results is a clear testament of the bank’s ability to deliver consistent performance irrespective of the economic cycles.
“We have throughout been proactive in identifying the market developments. This enabled us to make early inroads in to certain segments and this has been the hallmark of our successful performance. We would continue to remain futuristic and make forward looking decisions to turn opportunity in to realities.
In recent past we invested not just in system capabilities but also in our people development without which we would not have recorded this stellar performance. With the right structure now in place, our ability to continue this growth momentum in a sustained manner has now become more strengthened now than ever,” said Seneviratne.
Outlier in RoE sphere
At a time when the banking sector Return on Equity (RoE) comes under pressure due to narrowing margins, Pan Asia Bank has continuously driven up its return to its share holders. The RoE has increased up to 20.25% from 19.94% in December 2015. Now the bank’s RoE is amongst the highest in the industry and beyond.
Continued growth in other incomes
The bank has equally performed well in its fee-based income as a cushion to narrowing margins and toughened core-banking performance in view of rising funding cost.
During the 1H’16 the net fee and commission incomes has risen by 20% yoy to Rs. 458.3 million largely supported by credit related commissions.
However there has been a dip in gains made from trading as a result of government securities yield rising throughout the period resulting from lower fair value gains. The net gains from trading therefore have declined by 44% yoy to Rs.110.9 million.
Cost efficiencies a top priority
Operating expenses during the 1H’16 has increased by 19.9% yoy to Rs. 1.72 billion as a result of increased staff cost and general increase in prices during the period.
The cost-to-income ratio stood at 54.7% by the end of 1H and the bank continues to keep a closer tab on the overheads. Multiple projects are currently being rolled out to enhance efficiencies further in all areas of operations.
The bank is currently seeing the benefits of the investment made on the new core-banking platform in 2015 with enhanced service quality, resource optimization and speed of delivery.
Quality balance sheet growth
Meanwhile the bank saw its asset base growing by annualised 24% to Rs. 120.8 billion during the 1H’16 mainly supported by the growth in the loan book.
Equally the asset quality has also improved gradually as demonstrated by the decline in gross non-performing loan ratio to 4.39% from 4.84% six months ago. The net non-performing loan ratio of the bank now stands at 2.70% compared to 3.26% in December 2015.
This is a result of conscious efforts by the management to gradually bring down the non-performing loan ratio towards the industry average levels and the bank has further strengthened its risk management policies and recovery efforts to maintain asset quality at elevated levels.
Meanwhile the capital adequacy levels – Tier I and Tier II – stood at 7.88% And 11.53% respectively, above from the regulatory minimums of 5.0% and 10.0% percent respectively.
The bank is poised to continue its growth momentum towards the remainder of the year and beyond amid the existing challenging economic conditions with much optimism and forward looking mindset.