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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » NTB optimistic of improved prospects in 2H

NTB optimistic of improved prospects in 2H

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sandunj


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Published : 12:00 am August 27, 2013 (FT)
Nations Trust Bank last week expressed optimism on improved prospects in the second half of the 2013 financial year. At its investor presentation, NTB stated that first half results demonstrated strong underlying fundamentals which have withstood multiple industry challenges.
“We are optimistic on a possible turnaround in demand for credit towards the latter part of 2H with declining interest rates fuelling credit demand,” the bank said at the forum chaired by NTB Chairman Arjuna Gunaratne. NTB Director and CEO Renuka Fernando, CFO Ajith Akmeemana and Executive Director Sarath Piyaratna were also present.
The bank said that the full impact of the 24% interest rate ceiling introduced by CBSL, coupled with the ceiling on penal interest rates especially with respect to the leasing book which will come into full effect in 2H, throwing in fresh challenges, especially in the leasing and cards businesses.
NTB also said that anticipated earnings volatility will be mitigated to some extent by the balanced mix in the bank’s lending portfolio, strong focus towards strengthening and effectively managing the collections across all businesses, and stringent management of the bank’s assets/liabilities and its pricing policies.
“The execution of our five-year strategic plan including the commencement of the implementation process of a new core banking system will gather momentum in 2H which would put further pressure on our resources and financials. The bank remains well-equipped to handle these challenges, with a young committed team and a dynamic business model,” NTB said.
In the first half of FY13, NTB Group recorded a profit after tax of Rs. 980 million for the six months ended 30 June 2013 compared with Rs. 933 million in the corresponding period of the previous year. The bank said the performance was evenly balanced across the business pillars with results demonstrating good underlying momentum despite industry challenges faced in a subdued macro-economic environment.
The modest financial performance recorded by the bank was underpinned by a well diversified business mix, minimising earnings volatility and offsetting economic headwinds seen in multiple areas. The year commenced with weakening credit demand leading to higher liquidity and loan growth falling below anticipated levels in the banking system.
The policy rate cuts at frequent intervals to fuel credit growth led to a gradual decline in interest rates as the year progressed. Net interest income recorded a 32% increase over the previous period with corresponding NIMs improving modestly. Yields on loans and advances came under stress due to low credit demand.
However, the gradual decline in cost of deposits towards the latter part of the period under review, coupled with improved spreads on the FIS portfolio, positively impacted NIM movement. The bank continued its efforts to grow low cost balances which reaped good results, recording an 11% growth and thereby improving low cost mix.
Net fees and other operating income recorded a 28% growth, with an excellent contribution coming from credit card related fees and commission. Trade finance income was at previous year’s levels despite a decline of import and export volumes in the market by 9% and 7% respectively for the first five months of the year in comparison to previous period.
Net trading income amounted to a loss of Rs. 242 million for the current year, mainly due to losses recorded in FX income which was partly offset by gains attributed to the FIS portfolio. FX income for 1H 2012 was exceptionally high due to the currency devaluation. Current year market activity on FX front has been low with falling trading volumes; however, the larger blow came from the adverse movement in forward premiums resulting in negative market-to-market impact on funding SWAPS.
Operating expenses recorded a growth of 24% as implementation of the initiatives indentified in the five-year strategic plan took place across the bank. Investments in people, products, branding and technology were channelled towards the expansion of the distribution network including digital channels. The bank also invested in technology to support the roll out of lean management concepts across the key areas of the bank, bringing in higher customer value and leaner processes.
As the bank gradually transforms into a lean environment in the medium term, NTB anticipates considerable reduction in costs and increased productivity.
The bank’s NPLs ratio stood at 3.9% which recorded an increase over 2.8% reported in December 2012, which is in part due to the slower growth in the loan book whilst absolute NPLs. NTB also said that the impairment charge for the six months increased by 100 million over the previous period, mainly attributable to the pawning portfolio.

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