Seylan Bank records an impressive Q3 performance

Seylan Bank has presented itself as a flexible, customer-friendly choice, summing-up its promise in a service motto that has captured the attention of prospective customers: 'The Bank with a Heart'. Today Seylan Bank has established itself as a financially stable bank in Sri Lanka and it is in the process of further expanding its presence in geographically strategic places across the country.

Daily News Business interviewed, Ramesh Jayasekara, Chief Financial Officer of Seylan Bank Plc on the Seylan Bank Third Quarter Performance and future growth trajectory in an expanding bank industry. Here are the excerpts of the interview

Q: Seylan Bank has recorded an impressive third quarter performance and Profit After Tax for the nine months has increased to Rs 1604M from Rs 303M, how did this transformation come about?

A: Seylan Bank recorded an impressive Q3 performance with a Profit after Tax of Rs 1.604 billion for nine months ended September 30 2012. Profit before VAT and Income Tax rose to Rs 3.130 billion as opposed to Rs 1.424 million (before the exceptional VRS cost that was incurred last year), which is a 120% growth over the corresponding period in 2011.

Due to growth in Advances, our Net Interest Income increased by Rs 670 Mn (from Rs 5,748 in 2011 to Rs 6,418 Mn in 2012), while increased Trade and Foreign Exchange activities contributed to an increase of Rs 118 Mn (from Rs 1,698 Mn in 2011 to Rs 1,816 Mn in 2012) over the corresponding period of last year.

Further, last year's cost was impacted by a one-off VRS cost of Rs 699 Mn, an exceptional cost, that was not available in 2012.

A: The Bank's deposits grew from Rs 121.3 Bn to Rs 135.1 Bn during the nine months of the year.

One being the 'Thagi Pita Thagi' campaign which went on until April 2012, the other being the Current Account campaign, which immediately followed the 'Thagi Pita Thagi' campaign and thirdly our timely pricing strategies of Time Deposits. These initiatives assisted to bringing in significant deposit volumes.

Q: What measures were taken to curtail the expansion of Non Performing Assets ( NPA)?

A: Our Gross NPA which was high as Rs 31.1 billion in 2009 and was significantly reduced to Rs 20.2 billion by September 2012.

This was possible with a strengthened Recovery Department structure that was put in place as a result of effective recovery strategies.

This enabled the Bank to drastically reduce its Gross NPA ratio from 33% in 2009 to 15% by September 2012. Our strong Risk Management strategies too are yielding better quality assets. The plan is to reduce the Gross NPA ratio down to a single digit in the next eighteen months.

Q: How does Seylan Bank deal with the over staffing issue? Any plans to go for another Voluntary Retirement Scheme?

A: I don't think there would be another VRS, immediately. Staff which stood at 3,733 in 2009 was made optimal and reduced to a level of 3,057 by September 2012, inspite of branch expansions. This was possible due to the improvements in the systems and operational processes of the Bank. Our idea is to grow with the available staff at present.

Profile of Ramesh Jayasekara

Ramesh Jayasekara is currently the Chief Financial Officer of Seylan Bank Plc. Prior to Ramesh taking over as CFO a year ago, he was the Deputy Regional Financial Controller for BNP Paribas, Middle East Region (Bahrain, Saudi Arabia, Kuwait, Qatar, Dubai, Abu Dhabi and Cyprus) based in Bahrain.

Ramesh worked at HSBC Sri Lanka as Resident Manager, PFS Finance and Planning and at KPMG Sri Lanka as an Audit Manager. Ramesh holds a first class honours degree in Commerce from the University of Colombo.

He is an Associate Member of the Institute of Chartered Accountants of Sri Lanka, an Associate Member of the Chartered Institute of Marketing United Kingdom and an Associate Member of the Institute of Certified Management Accounts.

A: In terms of Capital structure, the Bank predominantly has Tier-I Capital, so with the view of diversifying the Bank's Capital base, the Bank decided to expand its Tier-II Capital base by issuing debentures via a private placement. However, with the recent tax exemptions proposed in the Budget of 2013 for listed debenture, we are currently re-assessing our mode of issue. Most likely, it would be a Public Debenture issue in Q1 2013.

A: In the latter part of 2011, the Bank formulated a Strategic Plan that it is fully committed to achieve, this four-year plan provides the strategic vision and direction path ahead.

Our focus on Asset growth, Branch Expansion, Customer Service Excellence, Staff Development, NPA reduction and Shareholder value are clearly embedded in our strategic plan.

Q: What measures were taken to improve capital and governance structures for future growth?

A: As at September 30 2012, the Bank's Total Capital Adequacy was 14.47%, of which Tier -I capital comprises 14.10% of this ratio. So, as mentioned earlier, the Bank's Capital is predominantly Tier-I capital.

Hence there is a huge amount the Bank can accommodate as Tier-II capital in expanding its capital base.

A: Seylan Bank's clientele is predominantly Small and Medium Enterprises (SME). You could say this is a competitive advantage of ours, compared to other Banks. With the country expected to grow between 6% - 8% in the next few years.

This is a sector which is expected to benefit immensely, in that sense the Bank is already extremely well positioned in the market. We are quite positive in terms of the growth potential in the SME market.

During the period 2010 and 2011, sixteen new branches conveniently positioned were added to the branch network, while this year, a further six new branches in convenient centres were added and three branches relocated in more customer friendly locations.

As at September 30 2012, our network comprised of 139 branches and convenient centres with 145 ATM's. Considering the new branches andconvenient centres are in the pipeline of our network and would reach around 147 outlets by the endo of the year.

A: Perhaps, removing or relaxing the 18% credit growth ceiling is something the industry will be looking forward during next year. If required, credit growth could be controlled by the regulator in terms of identified "sectorial exposures" and not on the entire lending book of Banks.

Q: what is your personal views on the Budget 2013, with regard to the banking industry?

A: One could say, Budget 2013 was a budget of consolidation. In terms of the banking industry, four broad changes will be identified.

Those are a 1% additional tax on annual profits, increased stamp duty on credit card transactions, exempting listed debentures from Income Tax and WHT and utilization of the Investment Fund Account (IFA) funds.

Q: Central Bank is pushing banks towards lending to the, SMEs and the agriculture sector? Your views on this?

A: With the country recording a 8% growth in 2010 and 2011 and a growth of around 6.5% is expected this year and similar projects in years ahead, I personally think SME is a good sector to be in, to take advantage of this growth. As mentioned earlier, Seylan is a strong player in this sector and we are well positioned to take advantage of this expected growth.

A: Our Remittances (worker remittance) amounts to around Sri Lankan rupees 12 billion of total remittances to the country. We have some ambitious plans ahead in terms of increasing our coverage. We are already represented in many countries namely, Saudi Arabia, UAE, Qatar, Oman, Kuwait, Bahrain, Lebanon, Jordan, France, Germany and many more.

The Bank has taken advantage in lending to tourism related sectors, rather than to the hotel building sector, namely in transportation and supplies.

Q: It was reported that the Seylan Bank 2011 Annual Report won some awards, could you elaborate on this?

A: Yes, our 2011 Annual Report 'North Bound' was awarded a Gold and Bronze at the recently concluded ARC Awards.

The prestigious Gold Award was for non-traditional Annual Reports in the Banking and Finance Services: Asia/South Pacific Category. While, the Bronze was awarded for its written text category. The Annual Report 2011, also claimed a Silver Award at the LACP - Vision Awards in July this year. The Silver Award was won under the Banks Commercial Category. Both the ARC and LACP Vision Awards are the top two Global Awards Scheme for Annual Reports, which attracts around 2,000 - 5,000 entries from across the World.

We have also been informed that our 2011 Annual Report has been selected as one of the top three categories of Annual Reports in the Banking Institutions, for the ICASL Annual Report Awards.

Q: How does Seylan Bank make a responsible commitment to the well-being of the local community?

A: As a part of the Corporate Social Responsibility initiative of Seylan Bank, we have adopted a pilot village at 'Devamulla' where the educational needs are being looked after by the bank. Currently, we are looking at adopting three more villages in Dunuhappawa, Gurugoda and Wewgama in a bid to uplift the educational standards in these areas.