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The banking sector in Sri Lanka, which comprises Licensed Commercial Banks (LCBs) and Licenced Specialised banks (LSBs), dominates the financial system and accounts for the highest share of the total assets in the financial system. Banks play a critical role within the Sri Lankan financial system, as they are engaged in provision of liquidity to the entire economy, while transforming the risk characteristics of assets.
Banks also engaged in providing payment services, thereby facilitating all entities to carry out their financial transactions. On the other hand, banks can create vulnerabilities of systemic nature, partly due to a mismatch in maturity of assets and liabilities and their interconnectedness. Therefore, the soundness of banks is important, as it contributes towards maintaining confidence in the financial system, and any failure may have the potential to impact on activities of all other financial and non-financial entities, and finally the economy.
In terms of the asset base and the magnitude of services provided, the LCBs are the single most important category of financial institutions within the banking sector. LCBs dominate the financial system with the highest market share of the entire financial system's assets. Therefore, the health of Sri Lankan financial system depends to a large extent on the soundness of the LCBs, primarily on the performance and financial strength of the six largest LCBs, generally referred to as the Systemically Important Banks (SIBs).
The systemic importance of the LSB sector is relatively low in comparison to the LCBs, both in terms of size and their impact on the financial system, as it does not play a major intermediary role in the payment cycle.
Hi Friends
This brief analysis is connected to my previous analysis (https://forum.srilankaequity.com/t2231-banking-sector-analysis-combhnbseybntbsambdfcchdfcndbpapc-and-mbsl) and this analysis in briefing the financials comparing with previous year and including main features (key balances and numbers) of the retail largest banks. I excluded the DFCC,NDB and HDFC , as their scope is mainly focus on development banking. Further I give certain measures ( KPI- Key Performance Indicators) to interpret the performance. I do not restrict with these KPI, if u have additional measures related to banking industry, Pls share with us..
This is good time to discuss about banking sectors, as expected to see the first quarter results with the new improvement due to tax saving and economic growth. Here we have veteran analyzers with different views, which would help us to have good investment decision and to sharing our knowledge and views.
Following are the my selected KPIs
* Interest Margin
* % of Other Income Out of Operating Profit Operational Cost to Income Ratio
* % Loan Loss Provision out of Total Non Performing Loan
* NPL Raito
* PER
* PBV
* Number of Employees (comment in terms of total assets)
This is My View……………….
When I do the analysis of banks (SEYB,NTB,SAMP,PABC) KPIs ,I took the indicators of COMB and HNB as industry norms ( I may be wrong) as these two banks are relatively strength in the banking industry and analyzed COMB and HNB by comparing each others.
1.SEYB…
Interest Margin – Line with industry
% of Other Income Out of Operating Profit- Very High, out of that 1Bn bad debt written back and recovered
Operational Cost to Income Ratio – Very high % comparing with other banks
% Loan Loss Provision out of Total Non Performing Loan – Comparably High
NPL Raito - Highest Ratio in the Banking Sectors ( this might be improved due to the recent restructured program taken place in the bank and Bank strategic target to reduce to 10% during the year.)
PER - Trading @ 15X which is slightly low comparing with other retails banks. This impact is due to the recent Rights issue
PBV- Very Low… This also may be due to the recent Rights issue
Number of Employees – Very High
2.NTB
Interest Margin – Line with industry
% of Other Income Out of Operating Profit- Very High, out of that 1.3Bn reported as fees and other income ( no details given) this may
be due to the unrealized gain on fair value adjustment.
Operational Cost to Income Ratio – Very high % amongst other banks
% Loan Loss Provision out of Total Non Performing Loan – Comparably High, However comparing with previous year good improvement.
NPL Raito – Good, line with industry…
PER - Trading @ 18x, Fairly trading @ Industry average
PBV - Line with Industry
Number of Employees - Comparably high
3.SAMP
Interest Margin – Line with industry
% of Other Income Out of Operating Profit- Slightly High, out of that Capital Gain on Sale of LBFL shares 654Mn , Bad Debt Recoveries
1.2Bn and Recovery of Impairment of Investment 1.3Bn. Hence Recovery of impairment and Capital gain are non recurring items amounts to Rs.2Bn.
Operational Cost to Income Ratio – Par with industry
% Loan Loss Provision out of Total Non Performing Loan – Very High reporting @ 12% due to the bank made additional specific credit
loss provisions of Rs. 1,344.9 Mn, over and above the amounts recommended by the Central Bank of Sri Lanka ignoring collateral values.
NPL Raito – Good, and Well managed
PER - Trading @ 14x, is Low comparing with other bank, However, taking out the non recurring income Rs.1.3Bn, then PE would be trading above the average.
PBV - Line with Industry
Number of Employees – Fairly ok. We could see there were new recruitment about 300 staff due to addition of 30 new branches during the year.
4.PABC
Interest Margin – Slightly high margin with other banks
% of Other Income Out of Operating Profit- Fairly Good
Operational Cost to Income Ratio – Par with industry
% Loan Loss Provision out of Total Non Performing Loan – Improved comparing with previous year. Par with the industry
NPL Raito – Above the industry average, however it is improved comparing with previous year.
PER - Trading @ 21x, is high comparing with other bank.
PBV - Line with Industry
Number of Employees – Comparably High..
5.HNB
Interest Margin – Par with industry
% of Other Income Out of Operating Profit- Comparing with COMB contribution is high, that is due to the capital gain of sales quoted investment amounts 600Mn
Operational Cost to Income Ratio – Reporting @76% comparing with COMB, ratio is high
% Loan Loss Provision out of Total Non Performing Loan – Well Maintained at very low level
NPL Raito – Reporting at 5% , Very lower level
PER - Trading @ 20x, is high comparing with other bank.
PBV - Line with Industry
Number of Employees – Little bit high compare to COMB employees with the total assets.
6.COMB
Interest Margin – Par with industry
% of Other Income Out of Operating Profit- Reporting at 33%, Lowest contribution to operational profit.
Operational Cost to Income Ratio – Reporting @ 61% very lowest amongst the banks.
% Loan Loss Provision out of Total Non Performing Loan – Well Maintained at very low level
NPL Raito – Reporting at 7% , a little bit higher compare to HNB
PER - Trading @ 19x
PBV - Line with Industry
Ok, there can be some differ view on the interpretation and comparison of KPI or additional measures to be brought to have good analysis.
So Pls share ur thoughts and views on the KPI or If u have some additional / different measures to be adopted… Pls contribute that with the analysis
Thanks in advance
Find the attachment of Brief Analysis of Banking Sector
Banks also engaged in providing payment services, thereby facilitating all entities to carry out their financial transactions. On the other hand, banks can create vulnerabilities of systemic nature, partly due to a mismatch in maturity of assets and liabilities and their interconnectedness. Therefore, the soundness of banks is important, as it contributes towards maintaining confidence in the financial system, and any failure may have the potential to impact on activities of all other financial and non-financial entities, and finally the economy.
In terms of the asset base and the magnitude of services provided, the LCBs are the single most important category of financial institutions within the banking sector. LCBs dominate the financial system with the highest market share of the entire financial system's assets. Therefore, the health of Sri Lankan financial system depends to a large extent on the soundness of the LCBs, primarily on the performance and financial strength of the six largest LCBs, generally referred to as the Systemically Important Banks (SIBs).
The systemic importance of the LSB sector is relatively low in comparison to the LCBs, both in terms of size and their impact on the financial system, as it does not play a major intermediary role in the payment cycle.
Hi Friends
This brief analysis is connected to my previous analysis (https://forum.srilankaequity.com/t2231-banking-sector-analysis-combhnbseybntbsambdfcchdfcndbpapc-and-mbsl) and this analysis in briefing the financials comparing with previous year and including main features (key balances and numbers) of the retail largest banks. I excluded the DFCC,NDB and HDFC , as their scope is mainly focus on development banking. Further I give certain measures ( KPI- Key Performance Indicators) to interpret the performance. I do not restrict with these KPI, if u have additional measures related to banking industry, Pls share with us..
This is good time to discuss about banking sectors, as expected to see the first quarter results with the new improvement due to tax saving and economic growth. Here we have veteran analyzers with different views, which would help us to have good investment decision and to sharing our knowledge and views.
Following are the my selected KPIs
* Interest Margin
* % of Other Income Out of Operating Profit Operational Cost to Income Ratio
* % Loan Loss Provision out of Total Non Performing Loan
* NPL Raito
* PER
* PBV
* Number of Employees (comment in terms of total assets)
This is My View……………….
When I do the analysis of banks (SEYB,NTB,SAMP,PABC) KPIs ,I took the indicators of COMB and HNB as industry norms ( I may be wrong) as these two banks are relatively strength in the banking industry and analyzed COMB and HNB by comparing each others.
1.SEYB…
Interest Margin – Line with industry
% of Other Income Out of Operating Profit- Very High, out of that 1Bn bad debt written back and recovered
Operational Cost to Income Ratio – Very high % comparing with other banks
% Loan Loss Provision out of Total Non Performing Loan – Comparably High
NPL Raito - Highest Ratio in the Banking Sectors ( this might be improved due to the recent restructured program taken place in the bank and Bank strategic target to reduce to 10% during the year.)
PER - Trading @ 15X which is slightly low comparing with other retails banks. This impact is due to the recent Rights issue
PBV- Very Low… This also may be due to the recent Rights issue
Number of Employees – Very High
2.NTB
Interest Margin – Line with industry
% of Other Income Out of Operating Profit- Very High, out of that 1.3Bn reported as fees and other income ( no details given) this may
be due to the unrealized gain on fair value adjustment.
Operational Cost to Income Ratio – Very high % amongst other banks
% Loan Loss Provision out of Total Non Performing Loan – Comparably High, However comparing with previous year good improvement.
NPL Raito – Good, line with industry…
PER - Trading @ 18x, Fairly trading @ Industry average
PBV - Line with Industry
Number of Employees - Comparably high
3.SAMP
Interest Margin – Line with industry
% of Other Income Out of Operating Profit- Slightly High, out of that Capital Gain on Sale of LBFL shares 654Mn , Bad Debt Recoveries
1.2Bn and Recovery of Impairment of Investment 1.3Bn. Hence Recovery of impairment and Capital gain are non recurring items amounts to Rs.2Bn.
Operational Cost to Income Ratio – Par with industry
% Loan Loss Provision out of Total Non Performing Loan – Very High reporting @ 12% due to the bank made additional specific credit
loss provisions of Rs. 1,344.9 Mn, over and above the amounts recommended by the Central Bank of Sri Lanka ignoring collateral values.
NPL Raito – Good, and Well managed
PER - Trading @ 14x, is Low comparing with other bank, However, taking out the non recurring income Rs.1.3Bn, then PE would be trading above the average.
PBV - Line with Industry
Number of Employees – Fairly ok. We could see there were new recruitment about 300 staff due to addition of 30 new branches during the year.
4.PABC
Interest Margin – Slightly high margin with other banks
% of Other Income Out of Operating Profit- Fairly Good
Operational Cost to Income Ratio – Par with industry
% Loan Loss Provision out of Total Non Performing Loan – Improved comparing with previous year. Par with the industry
NPL Raito – Above the industry average, however it is improved comparing with previous year.
PER - Trading @ 21x, is high comparing with other bank.
PBV - Line with Industry
Number of Employees – Comparably High..
5.HNB
Interest Margin – Par with industry
% of Other Income Out of Operating Profit- Comparing with COMB contribution is high, that is due to the capital gain of sales quoted investment amounts 600Mn
Operational Cost to Income Ratio – Reporting @76% comparing with COMB, ratio is high
% Loan Loss Provision out of Total Non Performing Loan – Well Maintained at very low level
NPL Raito – Reporting at 5% , Very lower level
PER - Trading @ 20x, is high comparing with other bank.
PBV - Line with Industry
Number of Employees – Little bit high compare to COMB employees with the total assets.
6.COMB
Interest Margin – Par with industry
% of Other Income Out of Operating Profit- Reporting at 33%, Lowest contribution to operational profit.
Operational Cost to Income Ratio – Reporting @ 61% very lowest amongst the banks.
% Loan Loss Provision out of Total Non Performing Loan – Well Maintained at very low level
NPL Raito – Reporting at 7% , a little bit higher compare to HNB
PER - Trading @ 19x
PBV - Line with Industry
Ok, there can be some differ view on the interpretation and comparison of KPI or additional measures to be brought to have good analysis.
So Pls share ur thoughts and views on the KPI or If u have some additional / different measures to be adopted… Pls contribute that with the analysis
Thanks in advance
Find the attachment of Brief Analysis of Banking Sector
Last edited by seyon on Sat Apr 16, 2011 7:45 pm; edited 2 times in total
