Sanasa Development Bank PLC (Sanasa), microfinancier turned licensed commercial bank, saw its net profit for the quarter ended September 30, 2016 (3Q16) falling by 70 percent from a year ago to Rs.49.2 million or Rs.1.22 a share, as the bank felt the brunt of squeezing margins, the interim results filed with the Colombo bourse showed.
The net interest income (NII) declined by 7 percent from a year ago to Rs.781 million as the rise in interest expense outweighed the rise in the interest income.
This pushed the net interest margin to fall to 5.65 percent from 7.13 percent at the start of the year. Sanasa is a key financial institution in the country, which has been strengthening the rural economy for decades by providing financial support to less privileged institutions and entities in society. The bank is backed by nearly 8,000 co-operative societies with over a million members.
However, in recent times, the bank has been shifting its focus from microfinance to small and medium enterprise (SME) finance in a bid to diversify its portfolio, which may have taken a toll on its margins.
In 2015, the bank also obtained the advisory services from the International Finance Corporation (IFC), the private sector investment arm of the World Bank, to assist them in technical processes and internal restructuring in their shift toward SME-focused banking.
The bank grew its loan book by 14 percent or by Rs.6.6 billion during the nine months to September. The bank now has a loan book slightly in excess of Rs.52.4 billion.
The bank also has an asset base of Rs.65 billion, which is an 8.0 percent increase from December 31, 2015. However, the growth in deposits has been extremely slow as the deposit growth during the same period was only Rs.2.5 billion. The bank in December 2015 raised Rs.4.0 billion in a listed debenture issue. Sanasa has a core-capital base of Rs.5.1 billion but the minimum capital requirement for a licensed commercial bank is Rs.10.0 billion.
The bank’s Tier II capital adequacy ratio stood at 11.71 percent, little above the regulatory minimum of 10.0 percent.
Meanwhile, the provisions made for possible loan losses during the quarter increased to Rs.38.9 million from a provision reversal of Rs.4.2 million a year ago.
The gross non-performing loan ratio was at 2.42 percent, slightly up from 2.37 percent in December 2015 but below the industry average of 3.0 percent.
Meanwhile, during the nine months to September 30, the bank made a net profit of Rs.245.9 million or Rs.5.85 a share, 58 percent less than a year ago.
The NII fell by 4.0 percent year-on-year to Rs.2.4 billion.
As at September 30, high-net-worth investor Dr. T. Senthilverl held 12.77 percent, while Global Rubber Industries (Pvt.) Ltd held a 10.47 percent stake in the bank.