State run banking giant National Savings Bank’s (NSB) profits plunged 66.6 percent to Rs. 1.2 billion during the first six months of this year from Rs. 3.59 billion a year earlier largely due to losses on trading in securities and stiff competition for deposits.
According to interim financial results for the six months ending June 30, 2012, NSB reported a Rs. 1.51 billion loss on trading in securities.
Group-wise, profits fell 85.9 percent to Rs. 897.8 million from a profit of Rs. 3.72 billion a year earlier. The loss of trading in securities amounted to Rs. 1.94 billion.
With limited disclosure in the interim results published on the bank’s website, the equity component is not clear.
As at June 30, 2012 NSB’s portfolio of government securities amounted to Rs. 295.9 billioon, a slight 0.9 percent drop from Rs. 298.6 billion a year earlier. What NSB simply calls ‘other securities’ fell 22.7 percent to Rs. 8.8 billion. In its trading account, government securities amounted to Rs. 6.03 billion, down 4.2 percent from a year ago while ‘other securities’ amounted to Rs. 6.54 billion, down 15.8 percent from Rs. 7.77 billion a year earlier.
The bank’s net interest income fell 3.8 percent to Rs. 5.96 billion while group net interest income also fell 3.8 percent to Rs. 8.2 billion.
The bank issued the following statement yesterday releasing its financial results for the six month period."Retail lending of the National Savings Bank (NSB) increased to Rs. 101 billion during the first half of this year, recording a growth of 30.5 percent compared with Rs.78 billion a year earlier," the NSB statement said.
"The housing loans portfolio of the bank recorded a growth of 17.8 percent while pawning advances recorded an impressive growth of 48.5 percent during the first half of the year."
"NSB granted a total of 12,211 loans during first half of 2012 which consisted of 4,764 housing loans and 7,447 personnel loans and significantly, the majority of these loans were granted at rural level through the ever-expanding island-wide branch network.
"Profitability of the bank for 1H 2012 declined in comparison to the corresponding period of the previous year," the bank said not divulging any figures in its statement.
Explaining the decline in profits the bank said the time lag in re-pricing government securities was the major contributor.
"It is mandatory that the bank invests a minimum of 60% of its deposits in government-guaranteed securities and as of end June 2012, the bank had invested Rs.303 billion in government securities which is 73% of the total deposits, 95% of the total investments and 64% of the total assets. In an upward moving interest rate environment, there is a considerable time lag of repricing of government securities, particularly Treasury Bonds, compared to loans and advances and other investments and as a result interest income of the Bank increases at a lower rate. Further, repricing of deposits is faster than that of government securities due to the short-term nature of deposits and medium to long-term nature of government securities. These have contributed significantly to lower profits in the first half 2012," NSB said.
"The stiff competition in the market to mobilize deposits has also caused to increase the interest cost over the income growth resulting in a decrease of net interest income and profitability of the Bank in the first half of 2012. Another main factor that contributed to the decline in profitability was the marked to market provision made for share market investments as well as investments in government securities. The substantial increase in personnel cost too affected the profit margins of the bank. The decline in other income due to lower capital gains earned from share market investments and secondary market trading of government securities due to under-performance of equity market and increasing interest rates too affected the bank’s profitability in 1H 2012.
"However, the profitability of the bank is expected to improve when the majority of the government securities get re-priced at higher yields or market rates decline to sustainable levels.
"The bank has initiated new business strategies under the new Board of Directors to improve the performance of the bank. NSB Bank will continue to expand branch network at rural level and 16 more branches will be added to the network before the end of the year."