The moderation in the growth in new loans, pressure on margins amid higher funding cost, weak asset quality and Debt Repayment Levy were among the key reasons behind the weak top and bottom line performance of Nations Trust Bank PLC (NTB), the bank’s first quarter interim results showed.
The bank with assets of little under Rs.345 billion was scrambling to find growth in its loans and deposits book as it reported earnings of Rs.2.72 a share or Rs.772.9 million for the January-March quarter (1Q19), compared to Rs.3.31 a share or Rs.939.1 million profits reported for the same period, last year.
While the bottom line recording an 18 percent decline, the top line too came under pressure by the same reasons cited above, as the bank’s new loans came in at Rs.13.6 billion or 6.0 percent for the three months.
The growth in the net interest income – the gap between what the bank earned from the loans and other assets and what it paid for deposits and other liabilities – languished at 8.0 percent year-on-year (YoY) to Rs.3.8 billion.
The pressure on the bank’s net interest margin persisted as it narrowed to 4.89 percent, from 5.03 percent in December 2018.
NTB in an earnings release said it had to offer higher rates to lure medium-term funds to diversify the funding mix.
The bank raised only Rs.4.3 billion in deposits with a growth less than 2.0 percent.
NTB used to stand out from other licensed banks for its higher margins well anchored by its credit cards and leasing portfolios, which typically carry higher yields.
But the growth in the card portfolio barely grew and the leasing growth moderated during the three months as the Sri Lankan economy languished.
Meanwhile, the fee income growth fell to 6.0 percent YoY due to the “sluggish rate of growth witnessed in fee generating transactional volumes across product lines”, the bank stated.
Sri Lanka’s banking industry is going through a rough patch, mainly due to the lack of business and consumer confidence in the economy, although relatively higher rates were also partly blamed for the lacklustre performance.
While NTB reported only one percent YoY drop in the profits before all taxes, which was Rs.1.9 billion, the Rs.208.9 million, the Debt Repayment Levy had a huge bearing on the bank’s bottom line.
The bank’s asset quality weakened as the gross non-performing loans ratio rose to 4.88 percent, from 4.58 percent in December 31, 2018.
The John Keells group has a 29.63 percent stake in NTB.