Amana Bank’s June quarter profit hurt by higher expenses, narrowing margins

Sri Lanka’s Amana Bank PLC saw its net profit for the quarter ended June 30, 2016 (2Q16) falling by 62 percent to Rs.17.9 million from a year ago as the higher expenses weighed down Sri Lanka’s first Sharia-compliant bank, the interim financial accounts filed with the Colombo Stock Exchange showed. 

The earnings per share was one cent as opposed to four cents a year ago. 

The total operating expenses rose by 20 percent to Rs.495.1 million from a year ago, out of which, half the increase was seen in personnel expenses. 
The core banking operations fared well as the net financing income rose by 32 percent to Rs.457.8 million despite the financing expenses rose faster than 
the income. 

The finance income of the bank rose by 41 percent year-on-year (YoY) Rs.950.9 million while the finance expenses rose by 49 percent to 
Rs.493.1 million. 

Due to the higher rise in interest expense, the financing margin—the equivalent of the net interest margin in the general banking terms—dropped to 3.4 percent from 3.6 percent in December 2015.  The net fee and commission income rose by 32 percent to Rs.50.8 million. 

The bank grew its financing and receivables or its loan book by 11 percent or Rs.3.7 billion during the six months to June 30, 2016 (1H16). The bank has a total financing and receivables portfolio of Rs.37 billion. 
By end of 1H16, Amana Bank had a total asset base of Rs.52.5 billion, up 9.6 percent from December 2015.   

The deposit base grew by 17.6 percent or Rs.6.8 billion to Rs.45.4 billion. Amana was among the few banks that received an extended deadline from the Central Bank to increase its core capital base up to Rs.10 billion. 
 As of June 30, 2016, the bank’s core capital base stood at Rs.4.8 billion but the bank needs to more than double it within the next 18 months to stay in 
line with the regulator’s capital enhancement plan. 

The prudential indicators – the Tier I capital adequacy ratio (CAR) – stood at 10.8 percent while the Tier II CAR was 11.2 percent by the end of the first half.  Meanwhile, the bank saw the gains from its trading portfolio almost halving to Rs.57.2 million from Rs.109.4 million a year ago. 

Provisions made for possible bad loans showed such provisions made against the total loan portfolio had a charge of Rs.6.8 million against a reversal of Rs.3.3 million a year ago. The specific provisions had a provision reversal of Rs.3.5 million. 

The gross non-performing loan ratio was 0.95 percent, slightly up from 0.92 percent in December 2015, but one of the lowest in the industry. 
Meanwhile, for the six months ended June 30, 2016, the bank made a net profit of Rs.56.2 million or four cents a share, down 21 percent from a year ago. 

“I am optimistic that this performance trend will continue for the second half of the year as we make steady progress to achieve the goals outlined in our five-year strategic plan, with the core focus being SMEs,” Amana Bank Chief Executive Officer Mohamed Azmeer said in a statement.  Bank Islam Malaysia Berhad and AB Bank Limited in Bangladesh hold a 14.44 percent stake each in the bank, followed by Akbar Brothers (Pvt.) Ltd with another 9.62 percent and Islamic Development Bank in Saudi Arabia with a 9.62 percent stake as of end-
June 2016.