Sri Lankan shares slip on month-end forced selling

Feb 27 (Reuters) - Sri Lankan stocks closed a tad weaker on Friday on forced selling due to month-end settlements, while foreign investors exited risky assets amid political uncertainty ahead of parliamentary elections.

Foreign investors, who have bought 1.51 billion rupees worth shares so far this year, sold a net 163.6 million rupees on Friday, extending net forging selling for a second straight session to 490 million rupees.

"The downward trend continued today because of month-end settlements, margin selling and profit-taking amid political uncertainty," said Dimantha Mathew, manager, research at First Capital Equities (pvt) Ltd.

Elections to Sri Lanka's 225-member parliament are expected to be announced after April 23 and it is unclear whether the ruling coalition led by President Maithripala Sirisena would contest unitedly or go to the polls separately.

The main stock index ended 0.22 percent weaker, or 16.15 points, at 7,301.29, marking their third session of losses in four. It fell 0.2 percent for the week.

Shares of Shalimar Estate Plc fell 2.88 percent, Nestle Lanka Plc dropped 1.42 percent and Sri Lanka Telecom Plc declined 1.22 percent.

Turnover was 932 million rupees ($7.00 million), well below this year's daily average of 1.4 billion rupees. 

($1 = 133.1000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Subhranshu Sahu)

Plain-vanilla CSE must become Neapolitan: Harsha

By Sanath Nanayakkare

"There’s a growing middle class in the provinces and that segment should be attracted to the Colombo Stock Exchange to invest in John Keells Holdings, corporate debt market etc., going beyond plain vanilla investment instruments to Neapolitan varieties such as derivatives, Deputy Minister of Policy Planning and Development, Harsha de Silva said at the Colombo Stock Exchange (CSE) yesterday.

He said so as the CSE launched a special opening of the trading day at the CSE to mark the visit of Dato Samy Vellu, Malaysian Indian politician who was the Works Minister of Malaysia and the longest serving minister in the Cabinet of Malaysia until 2008.

"To make this desirable outcome possible, people across the country need to be able to trust the operations of the CSE. It should be clear to them that the chances of making or losing money in the Stock Market are fair and square. Effective regulation of stock trading and expansion of available investment instruments can make it happen".

"It’s time the CSE went from plain vanilla to Neapolitan with complex investment instruments, such as, derivatives. No longer should we be comparing ourselves with the performance of South Asian countries. It’s time to benchmark our standards with East Asia, Europe and the USA. We are running the ‘policy shop’ in that direction. The CSE needs to be competitive and just in its trading to ensure not only economic justice but also social justice, the deputy minister said.

Neapolitan ice cream is made up of blocks of vanilla, chocolate, and strawberry ice cream side by side.
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HNB Group after-tax profit tops Rs. 10 b

* Group PAT grows by 29%; assets cross Rs. 600 b
* ROA 1.7%; ROE 16%
* Declares total dividend of Rs 8.50 per share

Hatton National Bank (HNB) said yesterday it has recorded another year of outstanding performance, with Group Profit After Tax (PAT) increasing by 29% to Rs 10.1 b while, the bank’s PAT recorded a growth of 28% exceeding Rs. 9 b.

Commenting on the performance, Chairperson Dr. Ranee Jayamaha stated: “We are very pleased to announce that the bank has once again demonstrated resilience and posted an all-round exceptional performance notwithstanding the challenging global environment, adverse impacts on the pawning portfolio and a substantial reduction in interest margins. 

These were amply compensated by the proactive strategies adopted by the bank in driving fee income, aggressive recovery action, improved productivity and cost management. In pursuance of our goal of reaching a Rs. 1 trillion balance sheet, the Group successfully crossed Rs. 600 b in assets during the year.”

She further stated that the bank’s performance had steadily improved over the last three years, recording impressive growth in deposits and advances.

The bank recorded a strong growth of over 28% in Current Accounts and Savings Accounts (CASA), which supported in funding the impressive growth of over 20% in its loan book (excluding pawning).

The CASA ratio exceeded 45% in December 2014 compared to 38% in 2013 and helped towards cushioning the impact from the drop in interest margins during the year due to the decline in Average Prime Lending Rate (AWPLR) by approximately 600 bps and the significant drop in the pawning portfolio to 5% of the loan book from 13% as at end of 2013.

Fee and commission income increased by 16.7% to Rs. 4.9 b for 2014. In addition to the growth in the card acquiring business, fees from trade, guarantees and the rapid increase in the uptake of digital banking facilitated this growth in fee income.

Net gain from financial investments increased to Rs. 1.4 b, driven by profits from sale of investments and increased dividend income from the bank’s long-term equity investments while the gains recorded on treasury bonds and bills contributed positively to improve the net trading position compared to the previous year. Accordingly, the total operating income of the bank grew by 10% to Rs. 32.4 b for the year ended 2014.

Provisioning costs for the year reduced considerably by Rs. 1.8 b, in line with the reduction in non-performing loans. Aggressive recovery efforts throughout the year have consistently driven down the NPA ratio of the bank and during the year, the bank was successful in recovering a couple of large Maldivian loans which were non-performing over the last few years.

Accordingly, as at end 2014 the Bank’s NPA ratio improved to 3.16% compared to 3.6% in 2013. This is the lowest NPA ratio in HNB’s recent history and is significantly lower than the industry average of 4.2% for 2014.

The year-on-year increase in operating expenses adjusted for extraordinary items stood at 2.1%, which is the lowest increase the bank has witnessed in the recent past. Accordingly the cost to income ratio for 2014 stood at 47.4% which is a significant improvement compared to the 2013 adjusted cost to income ratio of 52%. The improvement in the cost to income ratio is a testament of the bank’s commitment to achieving process efficiency and operational excellence.

Financial VAT for the period increased by 51% to Rs. 2.5 b driven by higher operating profits while the introduction of Nation Building Tax of 2% also contributed towards the increase. The effective corporate tax rate reduced from 30.0% in 2013 to 25.4% in 2014 mainly due to higher qualifying payment benefit.

The strong performance for 2014 enabled the bank to post healthy improvements in key performance indicators. Accordingly, ROA improved to 1.7% compared to 1.5% in 2013, while the ROE of the bank improved to 16% compared to 14.3% for the previous year. The bank continued to remain as one of the best capitalised banks in the industry with tier I capital adequacy ratio at 12.1% and total capital adequacy ratio at 14.8%.

Dr. Jayamaha added: “Healthy capital ratios recorded continuously are testaments to the safety and soundness of the bank. Along with an interim dividend of Rs. 1.50 per share, the bank has proposed a final dividend of Rs. 7 per share which would result in a total dividend of Rs. 8.50 for 2014. Accordingly, HNB is one of the best dividend payers to its shareholders.”

The market capitalisation of HNB exceeded Rs. 62 b as at end of 2014 from Rs. 47 b in 2013, with the voting share price improving from Rs. 147 in 2013 to Rs. 194.90 as at end 2014.

All Group companies recorded the best-ever performance in terms of profitability during the year with HNB Assurance PLC, Sithma Development Ltd. and Acuity Partners Ltd. recording profit growth of 7%, 35% and 85% respectively.

HNB Managing Director/CEO Jonathan Alles stated: “The exceptional performance recorded by the bank in 2014 is attributable to the strategic initiatives implemented by the Bank over the past few years. The process improvement initiatives launched during 2013 have begun to gather momentum and the bank will reap the full benefit of these initiatives in the years ahead. The technological thrust has strengthened the bank’s competitive advantage with our New World Banking offering which complement our network of customer service centres. We are actively promoting a sales culture and service excellence as key strategic initiatives of the bank. Buoyed by the progress we have made in establishing a sound platform for growth during the past few years, we look ahead with new vigour to capitalise on the opportunities in the future.”
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Nations Trust records resilient performance amidst challenges

Nations Trust Bank (NTB) said yesterday it ended 2014 with a post-tax profit of Rs. 2,536 m recording a growth of 19% over the corresponding year.

Core revenue recorded a faster rate of growth of 22% over operating expenses growth of 11%, thereby significantly improving operating margins. However, higher impairment charges and introduction of new tax levies somewhat lowered bottom line growth.

The sluggish growth witnessed in loans and advances portfolio during the 1H of the year which mirrored industry trends gradually picked up during the latter part of the year recording a growth of 19% compared to industry growth of 14%.

Growth was broad-based across all lending portfolios. Deposits too grew in line to support expansion in lending with the most notable growth stemming from CASA which not only improved to 30% of total deposits from the previous year’s 25%, but also achieved significant volume growth of 38%.

Commenting on the results and achievements, Director/CEO Renuka Fernando stated: “Nations Trust has demonstrated a resilient performance which has withstood multiple industry challenges in year 2014. Private sector credit demand is expected to strengthen in 2015 against the backdrop of conducive interest rates, as well as macroeconomic policies to boost domestic and foreign investor confidence. As the country moves towards a $ 4,000 per capita income, our prospects for growth in all our target segments looks positive and we will seek to strengthen our position as the primary bank for Sri Lankans.”

Net interest income recorded a growth of 16% over the previous period with improved NIMs. The low interest rate environment resulted in the loan book repricing downwards during the year. However, effective management of the asset and liability maturities and repricing decisions as well as optimal allocation of resources to high yielding segments allowed the Bank to improve its NIM to 5.8% during the year.

Net fees, commission and other operating income recorded a growth of 13% which was primarily fuelled by increased volumes in the cards business. The bank endured many challenges in growing trade finance income during the early part of the year owing to slow growth in corporate assets and import volumes in the economy.

Net trading income on account of foreign currency recorded losses on funding SWAPs due to the adverse movement in forward premiums. However, the losses recorded for the current period is far lower than the previous year. Trading and mark to market gains attributable to FIS portfolio also contributed towards achieving higher trading income for the current year.

Operating expenses recorded an increase of 11% driven by branch expansion and capacity building initiatives. However, cost efficiency measures pursued through lean management initiatives and increased automation resulted in a slowdown of growth in operating expenses compared to 2013. Cost income ratio reduced to 53% from 58% reported for the previous year. The bank is firmly committed towards driving its C:I ratio below 50% in the medium term.

The impairment charge for loans and receivables increased notably from Rs. 451 m in the previous year to Rs. 1,157 m during 2014. The impairment estimation methodology was re-calibrated in order to get a more focused view of the portfolio, more specifically in respect of leases, which resulted in booking some additional one-off charges during the year.

The bank enhanced its presence in key geographic locations by opening 17 new branches and seven offsite ATMs, thus taking its customer touch points to 124 locations. A sales force effectiveness initiative was launched across all branches focusing on inculcating a sales culture among all staff and complementing our customer service proposition.
In parallel to the branch-led growth strategy, its focus on a multi-channel approach continued with increased investments in internet and mobile applications. Increasing ATM transaction volumes as well as internet and mobile banking users have confirmed customer preferences for automated and digital channels.

The bank continued to focus on expanding its overseas networks to capture remittance market share in this intensely competitive space. The bank opened the first of its kind Banking Centre at the Sri Lanka Bureau of Foreign Employment. The FCY Home Loan product was also launched alongside the remittance value offering, primarily targeting this customer segment. Product capabilities were also enhanced, with the launch of dual currency deposits, tailored derivative products and other value additions to customers.

A new product targeting the export/import sector named Nations Trader was launched during the year. This product was selected as one of the top 10 among global competitors at the SME Finance Innovation Awards. In 2014, the bank introduced the country’s first chip and PIN based USD Travel card, a pre-paid card which enables customers to access USD during their overseas travels.

In line with the bank’s environmental sustainability efforts, emphasis was placed on growing the hybrid vehicles leasing portfolio. Through the Hybrid Bonanza initiative the bank partnered with over 35 car importers to promote hybrid vehicle leasing, offering attractive rates, free vehicle registration and an allowance for fuel.

Nations Trust Bank PLC is one of the fastest growing banks in Sri Lanka today, operating 90 branches and an ATM network covering 124 locations and is the issuer and sole acquirer for American Express cards in Sri Lanka.
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Seylan’s profit surpasses Rs. 3 b mark

Seylan Bank said yesterday it reported a record profit after tax figure of Rs. 3,079 million for the year ended 31 December 2014.

This is an impressive 33% growth in PAT compared to the Rs. 2,316 million reported in 2013, an impressive 33% growth in PAT.

Net interest income increased from Rs. 9,719 million to Rs. 11,165 million, a 14.9% increase for the 12 months ended 31 December 2014. Fee and commission income increased 6.1% from Rs. 2,127 million to Rs. 2,257, million showing a consolidation of the solid growth achieved by Seylan Bank over the past few years.

Other operating income comprising net gains from trading, gains on financial instruments, gains on foreign exchange and other income increased significantly by 174.61% from Rs. 1,023 million to Rs. 2,809 million, mainly due to capital gains realised on Government Securities.

During the year under review the bank also focused considerably on cost containment.

This impressive performance was supported by the containment of growth in expenses of 10.99% during 2014. This is reflected in the bank’s declining cost to income ratio of 62.59% in 2013 reducing to 57.37% in 2014.

The sluggish credit demand evident in the first half of the year was reversed in the latter half with growth momentum picking up in the third and fourth quarters of 2014 and the bank reported a net credit growth of 13.48%, with net advances growing from Rs. 136,553 million in 2013 to Rs. 154,963 million.

During 2014, the bank grew its deposit base from Rs. 167,371 million to Rs. 185,924 million. The growth was predominantly achieved through the mobilisation of current and saving deposits, which enabled the bank’s low cost deposit base to be increased from 33% in December 2013 to 39% as at end December 2014.

Despite the decline in gold prices and its impact on the pawning base, the bank was able to improve its asset quality with a significant reduction in its Gross NPA (net of IIS) from 10.58% in December 2013 to a single digit of 7.69% as at end December 2014. The bank has consistently been able to improve its asset quality since 2009 through focused, sustained and effective recovery efforts.

The bank also continued its CSR initiatives focusing on education and accelerated its 100 libraries project for underprivileged schools; 39 more school libraries were opened by the bank during 2014, taking the overall number of libraries opened under the project to 51.

The branch relocation and upgrading project too continued in full stream during 2014, with a view to enhance the customers’ service experience. During 2014, the bank upgraded 31 Convenient Banking Centres to full branch status. The bank also opened six new branches, fully refurbished another 12 branches and relocated a further six branches to more customer friendly locations. As at 31 December 2014, the bank network comprised 157 branches, 177 ATMs and 94 Student Saving Centres.

The bank’s total capital adequacy ratio stands at 14.73% at the end of 2014, well above the regulatory requirements. In October 2014, Fitch affirmed the bank’s rating at A-lka with a Stable outlook.

As a result of the impressive performance, earnings per share were at Rs. 8/92 for 2014, while return (profit before tax) on assets and return on equity stood at 2.05% and 13.45% respectively. The bank’s net asset value per share as at 31 December 2014 was Rs. 69/60 (Group Rs. 73/04).
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