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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Cheap banks in Sri Lanka

Cheap banks in Sri Lanka

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1Cheap banks in Sri Lanka Empty Cheap banks in Sri Lanka Wed Feb 06, 2013 11:04 am

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Compared to other Asian banks NTB and SeyB are going for real cheap .... just US$100M

What to do others think?

2Cheap banks in Sri Lanka Empty Re: Cheap banks in Sri Lanka Wed Feb 06, 2013 1:07 pm

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@rainmaker wrote:Compared to other Asian banks NTB and SeyB are going for real cheap .... just US$100M

What to do others think?
Again, All things are relative. The Value of a particular Bank will depend on various factors such as Assets, Deposit Base, Loan Portfolio, Deposit to Loan Ratio, Non Performing Loan Portfolio (and the accounting that really goes into that i.e. Aggressive or Passive treatment), Interest Rate Spreads and Asset / Liability Duration, Branch Network, Management Team, Shareholding Structure etc.
Not knowing much about other Asian Banks, I cannot comment on the relative valuations.

3Cheap banks in Sri Lanka Empty Re: Cheap banks in Sri Lanka Wed Feb 06, 2013 1:24 pm

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
I understand what you are saying.... However look at the profits of these banks. Further think about the value of a banking licence - the ability to raise funds from the public

4Cheap banks in Sri Lanka Empty Re: Cheap banks in Sri Lanka Wed Feb 06, 2013 2:20 pm

salt

salt
Vice President - Equity Analytics
Vice President - Equity Analytics
Well this is again, inarticulate statement.
You would have seen in international comparisons by rating agencies. SL banks are among the most risky despite that we take lots of comfort on our banks
You have to look at the quality of income, sustainability, growth, market environment. regulatory environment ...etc for international comparison. Just PBV or PER comparison doesn't make sense at all.

5Cheap banks in Sri Lanka Empty Re: Cheap banks in Sri Lanka Wed Feb 06, 2013 2:55 pm

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Believe me I have seen some of the SL banks inside out. I understand there are small issues with corporate governance. However the portfolios are not as risky as you think - in fact most are quite secure.

What the rating agencies do not realise is that in SL there is very little related party lending. This often occurs in Indonesia or Thailand where tycoons use public banks to fund their private investments.

In the Asian Financial crisis, the NPLs shot up because of this.

Rating agencies point to macro instability due to oil imports

6Cheap banks in Sri Lanka Empty Re: Cheap banks in Sri Lanka Wed Feb 06, 2013 5:55 pm

raptor


Manager - Equity Analytics
Manager - Equity Analytics
$100m doesnt mean anything, its a headline figure of how much a bank is worth relative to its business mix and risks. If you invest based on a headline market cap number then you might as well just dump your money in any stock. The banks are small, relative to their peers. The largest private bank in SL, COMB is valued aroung $800m, is that cheap?

Also didnt NTB fire its CEO last year due to some fraud? and wansn't SEYB bailed out by the Central Bank or something related to the Ceylinco fraud? I might be mistaken on the latter but not on the former.

7Cheap banks in Sri Lanka Empty Re: Cheap banks in Sri Lanka Wed Feb 06, 2013 6:11 pm

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics

Now now, where did you find Mr Saliya Rajakaruna made a financial fraud? Unless we are sure we should not tanish anybody's name.

Read the below and what the bank said about his contact

http://www.cse.lk/cmt/uploadAnnounceFiles/671347868520_387.pdf


@raptor wrote:

Also didnt NTB fire its CEO last year due to some fraud? and wansn't SEYB bailed out by the Central Bank or something related to the Ceylinco fraud? I might be mistaken on the latter but not on the former.


8Cheap banks in Sri Lanka Empty Re: Cheap banks in Sri Lanka Wed Feb 06, 2013 6:14 pm

raptor


Manager - Equity Analytics
Manager - Equity Analytics
@slstock wrote:
Now now, where did you find Mr Saliya Rajakaruna made a financial fraud? Unless we are sure we should not tanish anybody's name.

Read the below and what the bank said about his contact

http://www.cse.lk/cmt/uploadAnnounceFiles/671347868520_387.pdf


I think thats a polite way of getting someone to retire, he was in the job for 3 years only I think. I was surprised as well when I heard it. I will scan their results that year, they would have hidden something away if there was a fraud.

9Cheap banks in Sri Lanka Empty Re: Cheap banks in Sri Lanka Wed Feb 06, 2013 6:20 pm

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
If he made a fraud do they have to wait until his contact ended? I have no connection with this gentlemen.

But unless you have proof or heard enough facts to justify it do not assume and tarnish a person's name. it is not done.


@raptor wrote:
@slstock wrote:
Now now, where did you find Mr Saliya Rajakaruna made a financial fraud? Unless we are sure we should not tanish anybody's name.

Read the below and what the bank said about his contact

http://www.cse.lk/cmt/uploadAnnounceFiles/671347868520_387.pdf


I think thats a polite way of getting someone to retire, he was in the job for 3 years only I think. I was surprised as well when I heard it. I will scan their results that year, they would have hidden something away if there was a fraud.

10Cheap banks in Sri Lanka Empty Re: Cheap banks in Sri Lanka Wed Feb 06, 2013 6:29 pm

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Re NTB Ceo : No he did not commit any fraud. what happened was, about 2-3 years back, their was a "rogue trader" at the bank who lost approx Rs 700 million in unauthorized forex transactions. As it happened on his watch, he subsequently resigned due to this. ( or may be have asked to go too). But the point is their was absolutely no wrongdoing on his part.

11Cheap banks in Sri Lanka Empty Re: Cheap banks in Sri Lanka Wed Feb 06, 2013 6:30 pm

raptor


Manager - Equity Analytics
Manager - Equity Analytics
[quote="slstock"]If he made a fraud do they have to wait until his contact ended? I have no connection with this gentlemen.

But unless you have proof or heard enough facts to justify it do not assume and tarnish a person's name. it is not done.

[quote="slstock"]

I'm saying his contract was ended from what I heard, it didnt end beacuse he signed a 3 year contract or whatever. I heard this from someone who was in risk at another bigger bank that dealt with the Central Bank on matters like this. I am saying what I have heard, as many people do regarding rumours that happen in the market. Its up to someone else to believe it or not, I didn't at first but its quite possible. All I was saying was I exited the stock due to that. These days its very hard to prove anything but a lot of what happens in the equity markets is an open secret. No sorry I don't have proof, take this with a pinch of salt if you want. Makes no difference to me, I am not a connected party to anyone.

12Cheap banks in Sri Lanka Empty Re: Cheap banks in Sri Lanka Wed Feb 06, 2013 6:33 pm

raptor


Manager - Equity Analytics
Manager - Equity Analytics
@The Alchemist wrote:Re NTB Ceo : No he did not commit any fraud. what happened was, about 2-3 years back, their was a "rogue trader" at the bank who lost approx Rs 700 million in unauthorized forex transactions. As it happened on his watch, he subsequently resigned due to this. ( or may be have asked to go too). But the point is their was absolutely no wrongdoing on his part.

I stand corrected, I knew it was FX related. Either way, going back to the topic, there was a fraud at the bank and it proves their internal controls are not good enough which is probably another reason why its undervalued.

13Cheap banks in Sri Lanka Empty Re: Cheap banks in Sri Lanka Wed Feb 06, 2013 6:41 pm

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
1) You should have said in the first place what you knew below so there will be atleast a reason given for your comment.
2) Read alchemist post
3) It is okay to hold or exit NTB . It is your liking. But all I see now is they are performing well. Any company is viable to frauds, but the important thing is what they do to correct it, make it lot harder to happen , and wether they are reporting good earning now. ( recovery)
4) If you want to state a rumor , say it is is a rumor clearly and say what the rumor is and where you heard it.
Please follow forum rules. This forum from time to time is used for mudlsing activities we do not allow( so we have a forum to begin with)

Don;t take it personal as it is general info.



There are 3 other companies which comes to mind about fraud. 1 of them has recoverd , other 2 is recovering.


[quote="raptor"][quote="slstock"]If he made a fraud do they have to wait until his contact ended? I have no connection with this gentlemen.

But unless you have proof or heard enough facts to justify it do not assume and tarnish a person's name. it is not done.

@slstock wrote:

I'm saying his contract was ended from what I heard, it didnt end beacuse he signed a 3 year contract or whatever. I heard this from someone who was in risk at another bigger bank that dealt with the Central Bank on matters like this. I am saying what I have heard, as many people do regarding rumours that happen in the market. Its up to someone else to believe it or not, I didn't at first but its quite possible. All I was saying was I exited the stock due to that. These days its very hard to prove anything but a lot of what happens in the equity markets is an open secret. No sorry I don't have proof, take this with a pinch of salt if you want. Makes no difference to me, I am not a connected party to anyone.

14Cheap banks in Sri Lanka Empty Re: Cheap banks in Sri Lanka Wed Feb 06, 2013 6:59 pm

raptor


Manager - Equity Analytics
Manager - Equity Analytics
I agree with you slstock, read my initial post, I never mentioned I KNEW he was fired due to it. I also mentioned I heard it from someone who worked for another bank in their risk function. Like I said its upto the reader to decide, I was just stating what I thought people need to know. Ultimately he took responsibility for what happened under his watch so technically he was fired due to what happened. I never made it seem like I knew 100% what he did or didnt do. I simply wanted to point something out, that a fraud had taken place. Maybe some forum users would think I was mud slinging but I wasnt, I dont even know who he was. I wanted to point it out so that forum users would know there was a relatively large fraud at the bank and it possible affects how it is perceived by investors and therefore trades at a discount to market.

I stand by what I said initially.

15Cheap banks in Sri Lanka Empty Re: Cheap banks in Sri Lanka Wed Feb 06, 2013 9:11 pm

smallville

smallville
Associate Director - Equity Analytics
Associate Director - Equity Analytics
@raptor wrote:
@The Alchemist wrote:Re NTB Ceo : No he did not commit any fraud. what happened was, about 2-3 years back, their was a "rogue trader" at the bank who lost approx Rs 700 million in unauthorized forex transactions. As it happened on his watch, he subsequently resigned due to this. ( or may be have asked to go too). But the point is their was absolutely no wrongdoing on his part.

I stand corrected, I knew it was FX related. Either way, going back to the topic, there was a fraud at the bank and it proves their internal controls are not good enough which is probably another reason why its undervalued.

Nuh.. most banks are in kindergarten stage in these areas so internal control alone wont help prevent frauds.

HSBC has the most rigorous controls I've ever heard of, they continuously educate their employees of money laundering activities and other frauds that the bank might be subjected to - yet how much they pay as fines and how many incidents happened for last couple of years?

http://www.nbcnews.com/business/banking-giant-hsbc-pay-record-1-9-billion-money-laundering-1C7541128

So my experience says; Business RISK assessment teams + Audits + compliance awareness + internal control in a combinational effort might help to mitigate the risks involved in this area.

Banking is a highly leveraged industry hence closely regulated. So to provide a stable operating environment, many banks will incur additional costs in compliance, risk and IT areas.

We might've underestimated NTB's operations. When I checked lately, it appears that Nations Trust Bank can be considered as a fully integrated financial services provider. See their business line;
- Deposit generation and lending on a secured basis.
- Operation of franchise to issue American Express credit cards
- Extend loans on an unsecured basis.
- Operations of The Treasury,
- Corporate banking business - transactions with large corporate entities.
- SME franchise - mobilising business current accounts, leasing and factoring.
- Insurance broking thru Nations Insurance Brokers
- Investment banking thru Waldock Mackenzie


But why NTB share price is still low ? While I cannot figure out exactly why, bank’s goal is not to have a rapid growth but to sustain as a long running business.. Therefore, their dividends may be low too..
However, in March 2010 Nations Trust Bank had a warrants issue which was fully subscribed. Rs 1.2 billion they received after the conversion of the warrants meant that they easily complied with the capital adequacy requirement too at that time.



Last edited by smallville on Thu Feb 07, 2013 7:47 am; edited 1 time in total

16Cheap banks in Sri Lanka Empty Re: Cheap banks in Sri Lanka Wed Feb 06, 2013 9:55 pm

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@slstock wrote:If he made a fraud do they have to wait until his contact ended? I have no connection with this gentlemen.

But unless you have proof or heard enough facts to justify it do not assume and tarnish a person's name. it is not done.


@raptor wrote:
@slstock wrote:
Now now, where did you find Mr Saliya Rajakaruna made a financial fraud? Unless we are sure we should not tanish anybody's name.

Read the below and what the bank said about his contact

http://www.cse.lk/cmt/uploadAnnounceFiles/671347868520_387.pdf


I think thats a polite way of getting someone to retire, he was in the job for 3 years only I think. I was surprised as well when I heard it. I will scan their results that year, they would have hidden something away if there was a fraud.


Actually, the CEO at the time of the unauthorized forex trade was NOT Mr. Saliya Rajakaruna !

Source - CSE website under Announcements

ANNOUNCEMENT BY NATIONS TRUST BANK
21 August 2009
The Company has announced to the CSE that "Mr. Saliya Rajakaruna has been appointed as the new Chief Executive Officer of Nations Trust Bank PLC with effect from 15th September 2009 subject to approval from the Central Bank of Sri Lanka. He will succeed the present Chief Executive Officer Mr Zulfiqar Zavahir who has retired from his position as Chief Executive Officer and resigned from the Board of Directors with effect from 20th August 2009. The Deputy Chief Executive Officer of Nations Trust Bank PLC Mr Iftikar Ahamed has resigned from the services of the Bank with effect from 20th August 2009. Mr. Sarath Piyaratna, Executive Director will act as the Chief Executive Officer of the Bank subject to approval from the Central Bank of Sri Lanka, until Mr. Rajakaruna assumes office.

Mr. Saliya Rajakaruna joins Nations Trust Bank PLC with a wealth of experience counting over 35 years of service in the Banking Industry. He has worked for over 30 years at the London offices of Citibank,N.A., taking on various roles relating to corporate banking, risk management, finance and marketing with customers in Scandinavia, the UK and Europe. He has also undertaken various assignments covering audit, product management and treasury activities relating to Citibank portfolios in the USA, South Africa and Asia.

Over the last 3 years Mr. Rajakaruna has been attached to the Bank of Ceylon, initially as its Chief Financial Officer and thereafter as its Chief Risk Officer, with a mandate to manage all financial aspects and strategic issues impacting the Bank of Ceylon".

WEB ARTICLE PUBLISHED IN WWW.LANKABUSINESSONLINE.COM ON 24TH JUNE 2009
25 June 2009

The Company's response to the CSE query with regard to the web article published in the Lanka Business Online is as follows;

"The Bank has discovered a breach of procedure in its dealing room leading to an exchange loss. However, gains from other Treasury operations will offset this loss to a great extent and the impact on the bottom line will not result in a half year PAT that is significantly different from plan.

The loss resulting from the above breach does not adversely affect any of the liquidity and capital adequacy ratios, which will continue to remain well above the statutory requirements. The Bank is on track to meet this year's revenue and profit forecasts.

We will be publishing our interim accounts for the period ended 30th June 2009 as early as possible in July which will confirm the matters stated above and reflect the continuing strength of the Bank".

17Cheap banks in Sri Lanka Empty Re: Cheap banks in Sri Lanka Thu Feb 07, 2013 9:18 am

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Both NTB and SeyB have had problems. When will LOLC buy control of SeyB from BOC and SLIC?

At current prices both banks are still a bargain. The real value is DFCC with its lucrative stakes in other banks.

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