Seylan Bank PLC increased its net profits for the quarter ended September 30, 2016 (3Q16) 8.08 percent to Rs.1.08 billion from a year ago amid lowering margins and rising bad loans in an increasing interest rate market, the interim results filed with the stock exchange showed.
The earnings per share slightly rose to Rs.3.14 from Rs.2.90 a year ago.
Meanwhile for the nine months, the banking group recorded Rs.8.17 profit per share or Rs.2.82 billion from Rs.7.87 profit per share a year ago, recording a 3.7 percent increase over the previous year.
The bank gave Rs.29.3 billion worth of loans recording a14.7 percent increase in its loans and advances book to Rs.228.1 billion. Rupee overdrafts grew Rs.8.1 billion while the housing loans grew by little under a billion rupees and gold-backed loans grew closer to Rs.600 million. Growth in credit cards was less impressive. The bank has an asset base of Rs.337.6 billion by the end of September, an increase of little under 14 percent over the nine months.
However, the bank saw its asset quality took a slight dent as its gross non-performing loan (NPL) ratio rose to 5.12 percent from 4.68 percent in December 2015.
Seylan Bank is one of the few successful corporate turnaround stories in the banking industry as the bank was able gradually bring down its double digit NPL ratio to closer to industry average levels, which now in fact stands at historically low of 3.0 percent.
The provisions made for possible bad loans in respect of individual customers rose 39 percent Year-on-Year (YoY) to Rs.241.8 million during the quarter while the general provisions rose to Rs.20.6 million from a provision reversal of Rs.221.6 million a year ago.
The deposits grew Rs.26.2 billion or 11.7 percent to Rs.250.7 billion but the low cost deposit base measured by the current and savings accounts (CASA) fell to 33.7 percent by the end of September from 36.3 percent at the beginning of the year.
The bank in July also raised Rs. 5.0 billion in subordinated debentures with 5 and 7 year tenors at between 13- 13.75 percent.
This higher cost of funds made a dent on the bank’s net interest margin to 4.0 percent from 4.68 percent at the beginning of the year but still higher than the 3.5 percent industry average.
The bank now plans to raise another Rs.8.0 billion in senior debentures in the coming weeks in tenors of three-year and four-year to expand its loan book.
Bank’s capital adequacy came under pressure due to growth in the risk weighted assets or loans. The Tier I capital adequacy ratio (CAR) stood at 10.26 percent in corresponds to 12.24 percent at the beginning of the year while the Tier II CAR remained unchanged at 12.87 percent between the nine months as the subordinated debenture in July would have cushioned the ratio.
Meanwhile, quite notably the bank recouped its realized and un-realized losses made on its gilt investments during the third quarter as the bank made a net trading gain of Rs.198.4 million against a loss of Rs.204 million a year ago.
The bank further made an un-realized gain of Rs.960.3 million for the quarter against a loss of Rs.699.6 million during the corresponding quarter a year ago.
Seylan was among the banks which were battered heavily by the rising interest rates as its large gilt edged portfolio incurred both realized and marked-to-market losses in previous quarters.
As of September 30, the government held 32.36 percent stake in the bank through Sri Lanka Insurance Corporation Limited, Employees’ Provident Fund and Bank of Ceylon.
Nanayakkara family controlled 23.42 percent stake through Brown & Company PLC and LOLC Investments Limited.