MI records Rs 417 mn PAT in 1 H 2012

Mercantile Investments and Finance PLC (MI) announced a Profit After Tax of Rs 417 million for the six months ended September 30, 2012. Profit Before Tax for the same period was Rs 467million . This compares to last year's PAT figure of Rs 634 million and a PBT figure of Rs. 684million . While income from core business, mainly net interest increased by a very commendable Rs 211 million (70 %), the declining share market led to a considerable decrease in share investment income of Rs 369 million (64 %), contributing significantly to the lower profit.

Operating expenses increased by 29 % mainly due to the increased number of branches and increasing volumes. There was also substantial growth in the Balance Sheet, with Advances growing to Rs.12.1 billion (36 %) and Deposits growing to Rs.6.6 billion (25 %), with Total assets growing to Rs19.4 billion (23 %). Despite a very difficult environment, with rising interest rates, slowing demand and the adverse effects of the drought, MI was also very successful in improving the credit quality of it's lending portfolio, with gross and net NPL ratios significantly improving to 2.52 % and 2.24 % from 4.25 % and 3.85 % respectively from last year. Net NPL values improved as well from Rs 329 million to Rs 287million .Gerard Ondaatjie, Managing Director of MI said “ I am very pleased with the progress this year, especially the growth and contribution from core business activities.

While increasing our balance sheet, we have also ensured that credit quality and the recoveries process was streamlined. I am confident that we have now set the basis for healthy growth in the years to come.”

During this financial period, the company was able to open its 16th branch located in an ideal location in Gampaha, strengthening the branch network that is already well established and located in key business hubs of the country. Management continued efforts in boosting volumes through business expansion and concentrated efforts on building on MI's critical success factors that include service excellence have paid off handsomely in the past few years.

Like others in the finance company sector, MI too had to overcome numerous market challenges in this period to maintain anticipated performance levels. The continued rise in market interest rates that reached levels beyond 25 % had a negative effect on the lending business especially since it stressed borrowers to seek finance for their purchases such as vehicles, machinery etc. On the other hand managing cost of funding was a challenge with the persistent rise in rates on borrowings while deposit mobilization continued to be highly competitive due to the price sensitiveness of customers.