Banking sector performance for the September quarter (3Q15) is expected to be hampered by losses made on their investments in the government securities, as the treasury yields saw edging up, according to a research note by an equity brokerage.
Sri Lanka’s treasury yields rose from June this year and one year treasury bill rate climbed almost 100 basis points to 7.18 percent by the end of September from 6.28 percent on June 30.
As a result, banks made mark-to-market losses on these investments turning from hefty gains (including capital gains) made during the same quarter last year (3Q14), as the interest rates were at historically low, Asia Securities Private Limited said.
Seylan Bank PLC, though making steady progress in its financial performance and asset quality had to book a loss as much as Rs.900 million during its September quarter.
Meanwhile, it is expected that John Keells Holdings PLC (JKH), banking sector arm, Nations Trust Bank PLC (NTB) too have seen a dent in its September quarter profit due to losses made on government securities investment portfolio.
“We expect NTB’s net profit to decline by 10.2 percent quarter-on-quarter to Rs 686 million (-17.3 percent year-on-year) in 3Q CY15E, resulting in a 2.2 percent YoY decrease in its 9M CY15E net profit to Rs 1,944 million,” Asia Securities said in its note.
Meanwhile, the stagnated economic scenario prevailed during most part of the year is also expected to have affected the credit growth of NTB.
“NTB credit growth is below expectations and has affected the top line growth. This could be partly due to stagnated business scenario prevailing in the country with an uncertain policy environment,” they further said.
Further JKH Chairman, Susantha Ratnayake commenting on the group’s financial services segment performance expressed same sentiments on NTB’s below satisfactory performance.
“The decline in PBT (in the financial services segment) is mainly attributable to the performance of Nations Trust Bank as a result of mark to market losses on its bond portfolio due to an increase in the long end of the yield curve and lower than anticipated growth in its loan book,” Ratnayake said in the group’s earnings release this week.
Going forward, the tightening regulations on the vehicle financing market too is expected to have a negating impact on the banking sector credit growth and in particularly to NTB as the bank’s exposure to leasing is as high as 25 percent of its gross loans.
The growth in the bank’s gross loans in 2Q15 was 2.2 percent on quarter-on-quarter basis.
While the 70 percent cap on vehicle financing will come into effect from December 1 onwards, further tightening measures are expected from the revenue-hunting budget to be presented on November 20.
Sri Lanka’s banking sector however has been fairly resilient and recorded consistent performance irrespective of economic cycles.