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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Sri Lanka banks trading at 10-yr low valuations: First Capital

Sri Lanka banks trading at 10-yr low valuations: First Capital

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KavinduTM

KavinduTM
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Sri Lankan banks are trading at a ten year low valuation, with upward pressure on performance after a challenging 2019, a research firm said.

“Compared to frontier and emerging markets, Sri Lankan banks have the lowest price to earnings ratios,” First Capital Senior Research Analyst Hiruni Perera said.

“Banks are still undervalued in Sri Lanka. Banking stocks are at a ten year low,” she said, speaking at the First Capital Investment Strategy 2020 Second Research Conference held on Tuesday.

Sri Lankan banks had ended 2019 at a price to earnings multiple of 5.4 and a price to book value multiple of 0.7.

The price to earnings multiple of India-based Axis Bank Ltd was 17.3 at end-December, while Bank of the Philippine was 12.3 and Malayan Banking Berhad was 11.5.

The Colombo Stock Exchange had ended the year with a price to earnings multiple of 11.6.

FC Research Assistant Manager Atchuthan Srirangan said with the government removing the Nation Building Tax and the Debt Repayment Levy, net profits at banks will rise 9 percent.

The government has also announced bank income tax will fall to 24 percent from 28 percent.

With a bullish view on banking stock Srirangan said banks with high capital and a digitization edge will outperform the sector, as digital banking growth has outpaced traditional transactions at brick and mortar branches.

Profits at banks which fell 4 percent in 2019 with constrained capital and rising bad loans, will grow at a compounded 19 percent up to 2021, he said.

Return on equity is expected to rise to 12 percent in 2021, First Capital has estimated, from 10 percent in 2019.

Credit growth is expected to pick up in the latter half of 2020 and early 2021, while bad loans will moderate with higher economic growth and the breathing room borrowers receive from loan moratoriums, he said.

Meanwhile, the capital constraints on banks will ease, as many have raised equity during the year, while larger banks such as Sampath, HNB, Seylan and NDB will face lower capital requirements due to the D-SIB rule change, which will give them room to expand, Perera said.

Annual private credit growth, which had fallen to 4.5 percent in 2019, would rise to 14 percent in 2020 and 2021 amid a low interest environment, Srirangan said. (Colombo/Feb18/2020)

KavinduTM

KavinduTM
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Banks Smile

Teller

Teller
Moderator
Moderator
Dont burn your hands. 23 finance companies almost dead now. I dont think there will be any chance to recover them. Most probably they will merge each other.


_________________




Teller said is said..

ASDDS


Stock Analytic
Stock Analytic
@Teller wrote:Dont burn your hands. 23 finance companies almost dead now. I dont think there will be any chance to recover them. Most probably they will merge each other.
බැංකු සහ අනිකුත් මූල්‍ය සමාගම් පටල ගන්න එපා.ලංකාවේ ෆිනෑන්ස් සමාගම් 42ක් තියෙනවා.එයින් 22 ක් යම් ගැටළු සහගත තත්වෙක තියෙනවා කියලා තමයි මහ බංකු නියෝජ්‍ය අධිපති කිව්වේ.

ඔය කියන සමාගම් 42 ඇතුලෙවත් අවදානම් කියන සමාගම් 20 අතුලෙවත් කිසිම බැංකු සමාගමක් නෑ.ඒ නිසා වැරදි මත සමාජ ගත කරන්න එපා.

Teller

Teller
Moderator
Moderator
@Asdds, read carefully, i clearly told "finance companies " , i know there are 2 bank facing the issue. Im gathering more info it. Im getting these information internally. 1.1 million vehicles on cease , 2 or above installments are in arrears.

venura


Manager - Equity Analytics
Manager - Equity Analytics
For how any vehicles they hv given leases?
We hv to consider that when analysing cease cases.
Bcos interest income has gone up in many finance companies.

ASDDS


Stock Analytic
Stock Analytic
@Teller wrote:@Asdds, read carefully, i clearly told "finance companies " , i know there are 2 bank facing the issue. Im gathering more info it. Im getting these information internally. 1.1 million vehicles on cease , 2 or above installments are in arrears.
ඔබ කියපු දේ නොතේරුණා නෙමෙයි,නමුත් ඔබ කියපු තැන වැරදියි. මොකද මෙතන මාත්ෘකාව උනේ බැංකු.ඒ දේ ගැන ඔබට ගැටලුවක් නෑ කියලා හිතනවා.

ඒ වගේම දැනට ලංකාවේ කිසිම බැංකු සමාගමක ගැටලුවක් නෑ.ඒ ගැන වගකීමෙන් කියන්න පුලුවන්.ඒ නිසා සාක්ෂි නතුව බොරු සමාජගත කරන්න එපා.

KavinduTM

KavinduTM
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
@ASDDS wrote:
@Teller wrote:@Asdds, read carefully, i clearly told "finance companies " , i know there are 2 bank facing the issue. Im gathering more info it. Im getting these information internally. 1.1 million vehicles on cease , 2 or above installments are in arrears.
ඔබ කියපු දේ නොතේරුණා නෙමෙයි,නමුත් ඔබ කියපු තැන වැරදියි. මොකද මෙතන මාත්ෘකාව උනේ බැංකු.ඒ දේ ගැන ඔබට ගැටලුවක් නෑ කියලා හිතනවා.

ඒ වගේම දැනට ලංකාවේ කිසිම බැංකු සමාගමක ගැටලුවක් නෑ.ඒ ගැන වගකීමෙන් කියන්න පුලුවන්.ඒ නිසා සාක්ෂි නතුව බොරු සමාජගත කරන්න එපා.

Yeah i agree. That was really misleading.

Teller

Teller
Moderator
Moderator
Investors are coming here to read the posts.im sure they know bank and finance companies even the minimum capital requirement , regulations and what ever. Central bank also confirmed the issues, so people aware about it. Now so many people panic and they are trying to take deposits outs. In commercial credit with in 2 weeks , more than 260 million outs due to panic. So pressure will get more and closer will be sooner for some companies . Currently 2 bank in crisis. One already collected some additional funds from overseas investor. Other one still struggling .


_________________




Teller said is said..

Ekanayake90

Ekanayake90
Manager - Equity Analytics
Manager - Equity Analytics
Sri Lanka’s Hatton National Bank expects double digit credit growth in 2020
Thursday February 20, 2020 07:28:19


CREDIT HOPES: Sri Lanka’s private credit growth is forecasted to pick up to 14 percent by First Capital, an investment house based in Colombo.
ECONOMYEXT – Sri Lanka’s Hatton National Bank is expecting 12-14 percent loan growth in 2020 as the banking system recovers from a credit slowdown and economic growth is expected to accelerate, Chief Operating Officer Dilshan Rodrigo said.

In the 9-months to September 2019 HNB’s loans and advances contracted 4 percent to 749 billion rupees as Sri Lanka recovered from a currency collapse in 2018.

Hatton National Bank is Sri Lanka’s second largest private bank by assets. Group assets totaled 1,161 billion by September.

Interest rates have also fallen in 2019, as private credit slowed.

HNB’s profits are also expected to improve on the back of a corporate income tax from 28 percent to 24 percent, lifting of a so-called debt repayment levy.

A determination by Sri Lanka’s revenue office that government dollar securities styled Sri Lanka Development Bond would again be tax free would also help the bank from 2019 onwards.

Group profits were down 34 percent to 8.4 billion rupees in the nine months to September 2019.

Sri Lanka’s banks are now trading at earnings multiples that are at 10-year lows, equity researchers at First Capital, a Colombo-based investment house said.

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