NSB records improved performance in 3Q-12

NSB’s performance has improved notably during the third quarter 2012. The bank’s total income recorded a growth of 9 percent mainly due to the increase in interest income on loans and advances. The interest income on loans and advances grew by 44 percent which can be attributable to the portfolio diversification. The interest expenses on deposits increased by 19 percent due to stiff competition in the market for deposit mobilization.

Sunil Sirisena, Chairman NSB said, “ NSB results for the third quarter bear testimony to our commitment towards a sustainable business growth, increased efficiency and overall operational improvement despite the challenging circumstances prevailed in the first half of the year, which were not conducive for the growth of the business instead had an adverse impact on the overall performance. We are poised for further growth in profitability as we remain focused on growing our core business segments, whilst continuing to build capacity and capability, and develop our key assets being our talent. I am confident that our performance will further improve as we continue to strengthen our fundamentals and pursue business growth responsibly.”

Commenting on the bank’s performance Hennayake Bandara, CEO, NSB said, “Although the performance of the bank in the first two quarters was below the expectation, it has improved notably during the third quarter. Total income of the bank recorded a growth of 9 percent mainly due to the increase in interest income on loans and advances. The interest income on loans and advances grew by 44 percent which can be attributable to the portfolio diversification. The interest expenses on deposits increased by 19 percent due to stiff competition in the market for deposit mobilization. The increase in cost of funds was higher than the growth in income which resulted in a 12 percent decline in the net interest income to Rs. 8.4 billion during the period as against Rs 9.6 billion during the corresponding period last year.

The bank’s operating profit before tax has decreased by 29 percent to Rs. 5.4 billion during the first nine months of 2012 compared to Rs. 7.6 billion in the corresponding period in 2011. Similarly, profit after tax declined by 31 percent to Rs. 3.7 billion during first three quarters from Rs.5.3 billion in the same period last year.

The lower growth of income due to the time lag of repricing of T-bonds at higher rate and repricing of majority of the deposits within a short period, are the main reasons for decline in the profitability of the bank and as a result the net interest margin of the bank declined to 3.2 percent for the nine months ended September 30, 2012 compared to 3.9 percent for the year 2011. The bank’s effective overall tax rate inclusive of VAT on financial services was 42 percent for the period.

The bank has been able to manage the growth of non-interest expenses at 17 percent despite the notable increase in personnel costs and expenses on network expansion. Non-interest expenses stood at Rs 5.4 billion in September 2012 compared to Rs.4.6 billion in September 2011. During the 3rd quarter the bank added 4 new branches to bring its total network to 214 branches. The bank is fully committed to continue investing in its network and infrastructure to serve customers better and strengthen its reach in the country.

The bank’s total assets as of September 30 2012 stood at Rs.481.9 billion, reflecting primarily, the increase in loans and advances and the aggregated customer deposits were Rs.422 billion as of September 30, 2012.

Loans and advances grew by 17 percent to Rs135.5 billion as of September 30, 2012 compared to the end of 2011. Housing loans, personal loans and pawning advances grew by 14 percent, 105 percent and 36 percent respectively and the bank granted more than 17,449 housing and personal loans during the period. Even though non-performing loans (NPL) increased by 19 percent during the nine month period, asset quality remains strong with the NPL ratio of 2.8 percent as at September 30, 2012. The bank was able to maintain the NPL ratio at the same level of end 2011 due to increase in total loans & advances and efforts on recovery.

The CEO said, “While enhancing the efficiency of our operations, the focus of the bank over the past quarter has been the mobilization of savings at rural level. Tier 1 and Tier 2 capital for the bank were 19.4 percent and 18 percent compared to the regulatory minimum of 5 percent and 10 percent respectively.

“Going forward, we have redefined our strategic intent as a differentiator in serving our stakeholders, whereby we aspire to become the leading relationship bank in Sri Lanka by truly being with the community, serving through customised products and solutions and delivering a high quality of service” added Chairman, Sirisena.

The group’s operating profit from ordinary activities before tax was Rs 5.4 billion, a decline of 29 percent over the same period of 2011, while profit after tax for the period declined by 31 percent to Rs 3.7 billion. The main reason for the decrease in the group profitability was the substantial increase in the marked to market provision of the subsidiary due to increase in the government securities interest rates during the period.

Fitch Ratings Lanka for the tenth consecutive year reaffirmed the AAA credit rating for the bank in September and NSB remains the only local bank to receive AAA credit rating from Fitch. Hennayake added, “we will continue to maintain our focus on liquidity, credit quality and investments, which we believe represent the key ingredients for success in today’s volatile environment.”