In the backdrop of an extremely challenging environment, Seylan Bank said yesterday it recorded a profit-after-tax (PAT) of Rs. 3 billion for the year ended 31 December 2020, down by 18% from the
|Chairman Ravi Dias
Interest Income of the bank stood at Rs. 52.3 billion, while interest expenses stood at Rs. 32.8 billion, reflecting a Net Interest Income (NII) of Rs. 19.5 billion with an annual growth of 4.6% in the year under review.
The main contributor for NII was the loans and advances portfolio that generated interest income of Rs. 41.7 billion during the year, whilst the Treasury operations generated Rs. 8.5 billion in interest income. Interest expenses on deposits stood at Rs. 27.8 billion, recording a decline from Rs. 30.7 billion from the previous year. Deposits that were re-priced during the year helped the bank to reduce its funding cost.
Net Interest Margin (NIM) of the bank declined to 3.95% against 4.20% reported in FY2019, as the loan book re-priced at a faster rate than the deposits. This also offset the positive impact from the growth in low-cost deposits.
Net Fee and Commission Income reduced to Rs. 3.7 billion from Rs. 4.2 billion, recording a YOY contraction of 11.89%. The reduction was mainly due to the lower volume of foreign-trade-related activities and banking operations by businesses retailers etc.
The Total Operating Income growth of 4.36% was predominantly aided by treasury trading activities, which improved from a loss of Rs. 497 million in 2019 to a gain of Rs. 348 million in FY 2020. Further, net gains reported from de-recognition of financial assets increased to Rs. 782 million from Rs. 320 million from FY2019 sustained the operating income growth and other operating income reduced by Rs. 600 million, mainly due to contraction of trade-related activities during the year.
The bank recorded an impairment charge of Rs. 6.9 billion against Rs. 3.9 billion reported in 2019 with a growth of 80%. Impairment charges for Stage III advances increased from Rs. 3.9 billion to Rs. 5.7 billion during the year due to the impact of COVID-19 pandemic on businesses. Further, businesses that were identified as risk elevated industries too contributed to the increase in impairment. Impairment on Stage I and II also grew from Rs. 103 million to Rs. 628 million and reversal of Rs. 246 million to charge of Rs. 359 million, respectively. Simultaneously, impairment on other financial instruments and assets also went up by Rs. 290 million, mainly due to downgrading of the credit rating attributed to foreign currency bond holdings. The overall impairment improved the provision cover ratio to 43.68% as of 31 December 2020.
Total Operating Expenses of the Bank slightly increased by 1.40% compared to FY2019. Establishment expenses reduced marginally from Rs. 6 billion recorded in FY2019 to Rs. 5.9 billion in FY2020. This was mainly driven by selective investments made on prioritised projects and cost containment initiatives adopted during the year. The bank’s continuous commitment to improve processes and workflows via business process reengineering, automating repetitive tasks and improving digitised systems and channels together with ongoing cost-saving initiatives contributed to this reduction.
The bank’s cost-to-income ratio which stood at 50.3% as at the end of 2020 has decreased when compared to FY2019.
VAT on Financial Services reduced by 5.73% in align to the Bank’s performance, despite the increase in personnel cost by 4.82%. The Nation Building Tax (NBT) and the Debt Repayment Levy (DRL) that were in 2019 were abolished during 2019, reflecting a positive change to the income statement. Income tax expenses stood at Rs. 1.3 billion which reduced to Rs. 1.1 billion due to subsequent elimination of temporary differences in Deferred Tax.
Overall, the bank recorded a profit-before-tax (PBT) of Rs. 4.1 billion against Rs. 5.10 billion in FY2019, demonstrating a 19.37% decline. Similarly, profit-after-tax (PAT) was Rs. 3.0 billion against Rs. 3.6 billion reported in FY2019. This reflected a YOY reduction of 18.18%.
Statement of Financial Position
The bank achieved Rs. 557 billion in Total Assets as of 31 December 2020, an 8.02% growth compared to the 31 December 2019. Overall, the bank’s gross loans grew by Rs. 19.3 billion, recording a 5% growth compared to Dec. 2019 to stand at Rs. 409.3 billion as at Dec. 2020. Disbursement of loans under the Saubagya Scheme to help the pandemic-affected businesses was a key focus and accounted for a significant component of the new loans disbursed.
Managing asset quality in the prevailing economic climate was a key challenge, as this had to be accomplished while assisting customers to sustain their businesses amidst the unprecedented negative impact of the pandemic on businesses. The difficult external factors contributed to a deterioration of the portfolio quality with the Gross NPL ratio increasing to 6.43% from 5.76% in 2019.
Total deposit base of the bank grew by Rs. 39.6 billion to Rs. 440.3 billion, a 9.87% increase compared to the previous year mainly delivered by the internal campaign ‘Heroes of Heart’ launched in 2020. Further, the bank’s CASA base grew to Rs. 145.4 billion, achieving a notable growth of 28% which improved the CASA ratio to 33% as of December 2020.
The bank maintains a sound capital-adequacy ratio despite the growth of the risk-weighted assets. The bank’s Common Equity Tier 1 (CET 1) Capital Ratio and Total Tier 1 Capital Ratio was recorded at 11.46% and Total Capital Ratio was recorded at 14.30% as at Dec. 2020.
The bank maintained its liquidity position above the required minimum ratios during the year under review. The Statutory Liquid Asset Ratio (SLAR) for the Domestic Banking Unit and the Foreign Banking Unit were maintained at 31.31% and 22.47%, respectively as of December 2020.
The Return on Equity (ROE) stood at 6.43% for the year under review, compared to 9.29% recorded in 2019. The Return (after tax) on Average Assets (ROAA) was recorded at 0.56% in 2020.
Earnings per Share (EPS) in 2020 stood at Rs. 5.82, a reduction compared to the Rs. 8.70 recorded in the previous financial year, while net assets value of share recorded at Rs. 94.71 (Group Rs. 98.20).