Raj sells Rs 3.4M of Colombo Fort

Ceylon Finance Today: Business magnate A. Rajaratnam whose family is one of the main shareholders of several companies including the Lankem Group, C.W. Mackie, E.B. Creasy, Laxapana Batteries, Marawila Resorts plc as well as companies in the plantation sector, recently disposed of Rs 3.39 million worth of Colombo Fort Investments plc's shares.

Rajaratnam is a non executive director at Colombo Fort. The transaction comprised the sale of 34,996 shares of the company at Rs 97 a share. (PGA)

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Low, interest, inflationary regimes boost company earnings

Ceylon Finance Today: The Stock Market was reaping the benefits of a low interest rate and a low inflationary regime which saw listed company results in the quarter (Q) ended 30, September, 2015, witnessing their bottom lines grow, save one, in results thus far filed with the Colombo Stock Exchange (CSE) as at 12 Noon on Friday. The seven companies which had thus far filed quarterly results covered the financial services, food, chemicals and motor categories. Bottom line growth in the six profit making companies captured by......the CSE thus far ranged from within a low of 14% to a high of 1,661%.

Meanwhile, People's Leasing & Finance plc, a financial services company, in the 2Q ended 30 September, 2015 saw net profits (NP) grow by 13.66% year on year (YoY) to Rs 1,240 million, John Keells Stock Brokers (JKSB) said.

It further said that the company's net profits in the first half (1H) of the year to end 30 September, 2015 increased by 25.35% YoY to Rs 2,349 million. Growth in second quarter earnings were mainly supported by higher net interest income and lower impairment charges, JKSB in its report said.

The stock broking firm further said that Keells Food Products plc in the 2Q ended 30 September, 2015 saw NP grow by 79.55% YoY to Rs 95.50 million. JKSB also said that in the 1H ended end 30 September, 2015, Keells Food's NP grew sharply by 82.36% YoY to Rs 165.96 million. "Healthy revenue growth and robust margin expansion led to sharp earnings growth in the 2Q", said JKSB.

In related developments, "strong topline growth, coupled with margin expansion at the gross and operating level, resulted in Bairaha Farms plc achieving significantly higher quarterly earnings", JKSB said.

The company in the 2Q ended 30 September, 2015 saw NP grow by 1,660.58% YoY to Rs 143.39 million and half yearly profits by 465.74% YoY to Rs 287.68 million. JKSB also reported that Ceylon Cold Stores plc witnessed a significant increase in earnings for the Q, driven by increased revenues and higher earnings margins from the manufacturing and retail segments.

This saw Cold Stores increase their quarterly profits in the 2Q ended 30 September, 2015 by 129.13% YoY to Rs 706.47 million and half yearly NP by 106.76% YoY to a massive Rs 1,256.32 million.

In the financial sector, Union Bank, in the 3Q ended 30 September, 2015 saw NP grow by 51.13% YoY to Rs 76.69 million, while in the nine months ended 30 September, 2015, the Bank saw its NP increase by 84.59% YoY to Rs 144.71 million.

JKSB in its report on Union's performance said, strong loan book growth resulted in a healthy increase in interest income despite a contraction in NIMs, while increases in fee and commission income and net trading gains augmented total operating income. "These complemented by a steep reduction in total impairment charges, more than offset a significant increase in operating expenses, resulting in a sharp increase in earnings for the 3Q, said JKSB.

Meanwhile, Union Chemicals in the 3Q ended 30 September, 2015 saw NP grow by 82.88% YoY to Rs 21.08 million and in the nine months ended 30 September, 2015 by 92.63% YoY to Rs 68.45 million.

The only fly in the ointment was Autodrome plc which provides ancillary services to the transportation industry. The company made a Rs 148,000 loss in the 2Q ended 30, September, 2015; compared to a Rs 8.71 million profit in the corresponding Q of the previous year.

Autodrome in the 1H ended 30, September, 2015; saw NP decline by 17.4% YoY to Rs 14.95 million.

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Abans Finance PLC. On profitable path

By Rishar Mohamed Saleem

Ceylon Finance Today: A financial analysis carried out by Professor Kennedy D. Gunawardana of University of Sri Jayewardenepura (USJ) indicates that Abans Finance Plc limited has recovered from an unprofitable previous year to a profitable footing in 2015. 

His analysis indicates all the vital areas are more towards profits after the declining profit situation it faced in 2014.

He stressed "Even though the company profits declined in year 2014 the profit for year 2015 grown up drastically. Profit before tax stood at Rs 29 million and it was increased up to Rs 109 million, which was 276% growth compared to previous year. Profit after tax also moved from Rs 9 million to Rs 73 Million which was 711% growth than previous year.

Ceylon Finance Today discusses with Professor. Kennedy D Gunawardana, Professor of Accounting Information Systems and Chairman of Board of Management Studies Faculty of graduate studies, coordinator of PhD programme of the faculty of graduate studies of the USJ 'in perspective' the Financial Statement of Abans Finance plc.

His analysis of total operating income indicates the following:

Incomes of the company consist of interest income, fee and commission income, and net gain/loss from trading and other operating Income. Based on the year 2012, as per the horizontal analysis income movement as follows: All the components of income shows gradual growth when compared to the year 2012 except other operating income which showed a sudden decrease in 2015 compared to base year. Other operating income declined in 2013, however grown up in 2014 where it decline drastically in 2015 compared. Fees and commission income showed significant growth when compared with base year amount which is 377.05% growth in 2015. This growth was mainly due to decline of interest rates within the industry.

Composition of Total Operating Income

It can be clearly identified that the company' income mainly consists of Interest income which was around 90% of the total income. Other incomes such as fees and commission income, net gains/losses from trading and other operating income consists of around 10% of the total income.

When comparing interest income and interest expenses between year 2013 and 2014 it showed that interest income rose by 27.24 % and expenses by 17.99%. However when 2014 was compared with 2015, the interest income increased by 24% and interest expenses were only increased by 5.86%.However this high growth of interest income and moderate growth of interest expenses were supported to a growth of Net interest income by 47.31% to a Rs 444 Million.

Profitability

Even though the company profits declined in year 2014 the profit for year 2015 grown up drastically. Profit before tax stood at Rs 29 million and it was increased up to Rs 109 million, which was 276% growth compared to previous year. Profit after tax also moved from Rs 9 million to Rs 73 million which was 711% growth than previous year.
Return on Equity (ROE) and Return of Assets (ROA)

Impairment Charge

Impairment charge had been drastically grown in 94% in 2013 and 4268.33% in 2014 and 2015 respectively. The main reason for this was the disposal of repossessed vehicles at a loss to prevent the decline of market value of asset and considering time value of money. 

Impairment charge on accommodations increased mainly due to adverse age movements in Lease, Hire Purchase and other lending products such as Failure on Property Mortgages. 

Also failure of corporate customers were affected due to downgrade of their asset quality.

Total operating expenses were increased in 2015 when compared with base year 2012. The majority of increase was due to increase in personnel expenses which was increased by 102.36%. However the personnel cost were only amounted to 12.38 % and other operating cost were 16.71% when compared with total income of year 2015.

The operating expenses has grown due to growth of business. Other than that company increased allocation of money in staff development, infrastructure development and promotional campaigns conducted by the company.

When compared to previous year company has declined the cost income ratio even though the operating expenses of the company increased during the 2015. This was mainly due to increase in income.

Total Asset

The lease and Hire purchase portfolio showed growth in 2015 than 2014. It was amounting to 40% increase than previous year. This was stood at Rs 2903 Million at 2015. Loan and Advances and Real Estate Stock also decreased to LKR 637 Million and LKR 97 Million respectively in year 2015. The negative impact was mainly due to negative growth in loan portfolio.

Due to growth of company's public deposits, company borrowings had been declined. Compared with the base year 2012 the company borrowings stood at 1.27% which was LKR 156 Million. Company had not borrowed money using other debt instruments and other instruments in year 2015. This was mainly due to increase in public deposits. Compared to the base year 2012 deposits from customer increased up to 136.38% and it consist of 75.24% of the total asset of year 2015.

As per the Debt to equity ratio specify that the company has higher liabilities than total shareholders' funds. The gradual increase in Debt to Equity ratio was mainly due to increase in customer deposit.

Abans finance PLC is incorporated on 08 April 2005 under Companies Act, No 17 of 1982 and reregistered on 15 June 2009 under Companies Act, No 07 of 2007. Company registered under Finance Leasing Establishment Act, No 56 of 2000 and as a Finance Company in terms of the Finance Companies Act No 78 of 1988.Company is a subsidiary of Abans (Pvt) Ltd which holds the 89.26% (as per 2013/2014 annual report) of the stake of the company.

This report mainly focuses to conduct analysis of Abans Finance Plc. Significant items in the Statement of Financial Position and Statement of Comprehensive Income were considered to this analysis using 5 year historical data. Horizontal Analysis, Vertical Analysis, Trend Analysis and also ratio analysis carried out using tables and graphs to analyze the company.

For the horizontal analysis year 2012, is selected as the Base year.

There were increases and some declines were identified in some significant items. This was mainly due to growth of company portfolio and decline in interest rates where demand for credit increases during year 2015.

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Fitch Affirms Five Small, Mid-sized Banks

Fitch Ratings – Colombo – 22 October 2015: 

Fitch Ratings has affirmed the National Long Term Ratings on five small and mid-sized Sri Lankan banks. Nations Trust Bank PLC (NTB) has been affirmed at 'A(lka)', Pan Asia Banking Corporation PLC (PABC) at 'BBB(lka)', Sanasa Development Bank PLC (Sanasa) at 'BB+(lka)', Union Bank of Colombo PLC's (UB) at 'BB+(lka)' and Amana Bank PLC (Amana) at 'BB(lka)'. A full list of rating actions is at the end of this commentary.

The ratings are all based on the banks' intrinsic strengths. The main development affecting their business profiles is the banks' initiatives to expand their small franchises. 

The banks' unique business models have led to growth in different areas. While UB has shifted to larger corporates, the other banks are more focused on the SME and retail segments. All of their loans grew faster than that of the overall banking sector, resulting in continued decline in their capital ratios. The capitalizations of NTB, UB and Sanasa have remained satisfactory, but Amana and PABC have yet to maintain capital of at least LKR10bn, which would be required by 1 January 2018.

The NPL ratios of the banks have been decreasing. This has been largely a function of the strong growth in loans, which could lead to asset-quality pressure as the loan book seasons.The banks' deposit franchises are weak in relation to more established banks, and all except Amana have a small share of current and savings accounts (CASA) in the deposit mix.

KEY RATING DRIVERS

NATIONAL RATINGS AND SENIOR DEBT

NTB's ratings reflect its expanding franchise, improved efficiency and its high and increasing exposure to products and customer segments that are more susceptible to economic cycles.

The bank's SME and retail exposure increased to 25% of gross loans at end-June 2015 from 12% at end-2010. Consumer lending continued to account for a large portion of NTB's loan portfolio, with leases accounting for 27% of gross loans while credit cards and personal loans together accounted for a further 22% of gross loans at end-June 2015. Fitch believes that these exposures could put pressure on NTB's asset quality. Its reported gross NPL ratio was 4.02% at end-June 2015 and 4.14% at end-2014 (end-2013: 3.51%), with leasing NPLs accounting for an increasing share. The ratio of the bank's reserves for impaired loans to gross loans was 2.26% at end-June 2015, which remained lower than that of its peers.

CASA accounted for 32% of overall deposits, which Fitch expects to remain lower than that of higher-rated peers, although this has increased from the 26% at end-2013, driven by the recent branch expansion.

PABC's rating reflects improving but still-weak asset quality relative to higher-rated peers, its moderate franchise and improving profitability. The Negative Outlook on PABC's rating reflects continued deterioration in its capitalization amid rapid loan growth. Fitch believes that PABC's aggressive growth could put pressure on asset quality over the medium term, even though the bank's NPLs have declined. ROA improved to 1.1% at end-June 2015 from 0.6% at end-2014 due to expansion in net interest margin (NIM) and improved cost-to-income ratio.

PABC's senior debentures are rated in line with its National Long-Term Rating of 'BBB(lka)', as they rank equally with the claims of the bank's other senior unsecured creditors.

Sanasa's rating captures the bank's high exposure to the retail and lower-end SME segments and its weak asset quality, which are counterbalanced by above-average NIM stemming from its high-yielding loan book. Fitch believes that Sanasa will need a capital injection as internal capital generation will likely remain insufficient to support strong loan growth. The slight improvement in its reported gross NPL ratio to 3.2% at end-June 2015 from 3.8% at end-2014 stems from rapid loan growth and Fitch expects asset quality to deteriorate as the loans season.

UB's rating reflects ongoing structural improvements, a still-small franchise and higher capitalization compared with that of its peers. Fitch expects capitalization to gradually decline over the next 12-18 months to levels more comparable to that of its peers, but believes that it could sustain stronger capitalization in the medium term than in the past. 

Its Fitch Core Capital ratio decreased to 29.1% at end-June 2015 after being boosted to 35.8% at end-2014 following an LKR11.4bn capital injection from an affiliate of Texas Pacific Group (TPG). UB's profitability is low with an ROA of 0.3% at end-June 2015 and Fitch believes that the low internal capital generation may not keep pace with rapid loan growth.

Fitch believes UB's risk profile has improved following a shift towards loans to larger corporates from SMEs, which are more vulnerable in economic downturns, and better risk management. This could support better asset quality than in the past. There has been a sharp decline in UB's reported gross NPL ratio to 4.87% at end-June 2015 from 8.25% at end-2014. This figure excludes NPLs at its subsidiary UB Finance, which remained significant and accounted for 33.5% of the groups' total NPLs at end-June 2015.

The rating on Amana, which is a Sharia-compliant bank, reflects its still-small and developing franchise and short operating history. The rating also captures the bank's relatively high risk appetite, which is evident in the rapid growth in retail and SME segments, which could result in pressure on asset quality as the loan book seasons. Liquid assets are mostly placements overseas as the bank cannot invest in domestic government securities, which are not Sharia-compliant. The deterioration of its capitalization weighs on its rating. Amana's profitability metrics have improved with ROA reaching 0.4% in 1H15 from -0.27% in 2014.

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LOLC loans Rs 4.1B to BRAC

Ceylon Finance Today: BRAC Lanka Finance plc has obtained loans totalling
Rs 4.097 billion from its parent company the LOLC Group as well as from its sister company Lanka Orix Factors Ltd., the Colombo Stock Exchange was informed by LOLC on Thursday (22 October, 2015). These comprised Rs 957, 317,006 from its parent and
Rs 3.14 billion from its sister company Lanka Orix Factors.

The loans carried borrowing charges of AWPLR plus 4.5% and 13.5% respectively. These were to meet BRAC's working capital requirements. The AWPLR as at 2 October, 2015 was 7.04%, according to Central Bank of Sri Lanka (CBSL) The AWPLR as at 30 September, 2015 was not immediately known. BRAC is a financial sérvices company. (PGA)

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CIFL case postponed for January 2016

The fraud case against Chulaka Gunawardena alias Deepthi Perera, former Chairman, Central Investment and Finance Ltd (CIFL), was taken up before Gihan Pilapitiya, Colombo Chief Magistrate this week to assess the progress on the repayment to depositors an the revival plan of the company.

Naveen Marapona, Counsel for the first accused Deepthi Perera, indicated to Court that the accused agreed to transfer the assets of Aspic Corporation. Muditha Perera, Counsel for the CIFL Depositors Association (CIFLDA), told Court that the accused has sent a letter to the CIFLDA that he wished to discuss the restructuring plan and this meeting is due to take place soon. Further hearing of the case was postponed for 28 January 2016. www.dailymirror.lk