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Seylan Merchant Bank Ltd. (SMB) performed commendably in 2002, with the Bank reporting a net profit of Rs.2.3 million and the consolidated results revealing a net profit of Rs.11.3 million.

The Chairman and Managing Director of SMB Lalith Kotelawala said in the annual report that considering the unprofitable period experienced by the Bank from 1997 this creditable performance is expected to be the commencement of a prosperous future for SMB.

"SMB recorded a good financial performance after several years of financial losses in the 10th anniversary year of our institution. The past 10 years have witnessed both exceptional performances and sub-par results, with an initial period of high profitability for SMB followed by mediocre profitability for a few years and then by an extended period of financial losses extending from 1997-2001. However, it must be noted that the restructuring process initiated in 1997 in order to reverse the declining financial performances have met with a measure of success as of the end of 2002 with the achievement of profitability, both for the Bank and the SMB Group," Kotelawala said. The SMB Group also consists of three subsidiaries including SMB Money Brokers (Pvt) Ltd., SMB Real Estate Ltd. and Seylan Merchant Leasing Ltd.

Kotelawala said that the establishment of successful subsidiaries was only one of many strategies implemented by SMB from 1997.

"We also created a thriving leasing business, and the SMB is now one of the largest providers of leasing finance in Sri Lanka. SMB also increased its focus on fee-based income generating activities such as corporate finance and the trading of government securities to achieve capital gains and both these approaches have resulted in record profits being recorded by the divisions responsible for these activities.

One reason for the delay in SMB recording profits after 1997 was the substantial increase in market interest rates in late 2000 and 2001.

However, the decrease in market interest rates experienced from mid-2001 impacted positively on our financial results since our cost of borrowing declined," Kotelawala said. The Director/General Manager of SMB R.S.W Senanayake said that the Bank recorded a 54 percent increase in net income, from Rs.305.3 million in 2001 to Rs.468 million in 2002.

"Meanwhile, the consolidated net income was Rs.535.7 million in 2002, having increased 44 percent relative to the 2001 consolidated net income of Rs.372.3 million.

The best improvements were witnessed in net interest income for the bank and on a consolidated basis. The Bank achieved a 1560 percent increase in net interest income, from a loss of Rs.3.9 million in 2001 to Rs.57.3 million 2002, while the consolidated net interest income improved from Rs.2.7 million in 2001 to Rs.85.7 million in 2002. This is a growth of 3102 percent. The Bank and the SMB Group also recorded considerable increases in other income," Senanayake said.

The General Manager said that the asset base of SMB increased significantly in 2002 which was very important in terms of SMB re-establishing profitability.

"Total assets of the Bank increased by 24 percent, from Rs.2.1 billion in 2001 to Rs.2.6 billion in 2002. The total assets of the SMB Group increased by 25 percent, from Rs. 2.3 billion in 2001 to Rs.2.9 billion in 2002.

These statistics describe the improvements witnessed by our institution in 2002, even though the improvements are negated somewhat by a 113 percent increase in operating expenses for SMB and a 56 percent increase in consolidated operating expenses.

This increase has been noted and cost-containment and reduction procedures have been implemented in 2003 to reduce the adverse impact of the increase in operational expenses," Senanayake said.

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