Nations Trust Bank continues to support revival of the economy

Chairman Gihan Cooray

Director/CEO Priyantha Talwatte

The Group ended the third quarter with an operating profit before all taxes of Rs. 5.8 b, a marginal 3% drop over last year amidst the unprecedented disruptions brought about by the COVID-19 pandemic.

Nations Trust Bank recognised the importance of contributing to assisting adversely affected businesses with a view to supporting the revival of the national economy. Towards this cause, the bank allocated Rs. 7 billion of internally generated funds dedicated to extending financial support to key industries, thereby enabling them to recommence their businesses. Further, special payment relief schemes and special repayment plans for existing borrowers were also offered in addition to the Central Bank mandated moratorium schemes by lowering interest rates and charges on identified portfolios.

The bank actively engaged in providing working capital loans under the ‘Saubhagya’ scheme introduced by the Government and took proactive measures to extend necessary assistance to customers across all segments those who required special attention.

However, stressed macro-economic conditions caused a lack of growth in the overall loan book. This coupled with interest concessions granted as explained above and low yields on surplus liquid assets resulted the Net Interest income to drop by 9%. Nevertheless, with effective fund management strategies supported by current and savings account balances growth of 20%, the drop in net interest margin was curtailed to 20 bps. 

In line with reduced business volumes due to the disruption caused by the COVID-19 pandemic and the waiver of fees and charges, the fee based income dropped by 18%. Cards income resulted in the highest drop of 26% with the drop in card spend due to changes in customer spending pattern owing to the pandemic. 

The restrictions on non-essential imports and an overall decline in exports caused a 7% drop in the trade fee. However, gains on trading FX increased as a result of FX funding swaps with the depreciation of the rupee during the current period in contrast to the appreciation experienced during the same period last year. 

The bank continued to benefit from the low cost funding swaps compared to the cost of rupee deposits. The bank also benefited with trading profits on its fixed income securities portfolio with the drop in market rates.

In line with constrained operating conditions due to the restriction in movement which also hampered collections to an extent, the non-performing loans ratio of the bank increased to 7.2% compared to 6.2% in December 2019 resulting higher provisions in impairment over last year. The bank also made additional provisions on impairment for identified customer segments on possible cash flow delays based on available information and on relief packages offered in the form of debt moratoriums.

Through various cost saving strategies and initiatives, the operating expenses were curtailed by Rs. 759 m. This is a 10% saving in expenses over last year. Designating cost champions, productivity and efficiency drives along with more focus on some of the large cost pools were the main strategies adopted in achieving these savings. Accordingly, the cost to income ratio as of September 2020 was 45.7%, an improvement from 47.9% reported in 2019.

With the removal of the Debt Repayment Levy (DRL) and Nation Building Tax (NBT) from January 2020 and December 2019 respectively, the Group recorded a profit after tax of Rs. 3.1 b, an improvement of 22% over the previous year.

The financial position of the Group remained strong as its Tier I Capital and Total Capital Adequacy ratios as at 30 September 2020 stood well above the regulatory levels at 12.69% and 16.4% respectively. The Statutory Liquid Asset Ratio (SLAR) for the Domestic Banking Unit and the Off‐Shore Banking Unit was at 35.32% and 24.51% respectively as at the reporting date.

With digital banking and e-commerce being the way forward in the “new normal”, the bank made multiple upgrades to its platforms during the last few months whilst placing digitisation at its core, enabling many customers to stay connected and reach the bank at customers’ convenience ensuring they stay safe in the aftermath of the pandemic.

The bank will also continue to support both the Sri Lankan Government with all the initiatives taken in reviving the economy, and the customers to overcome the current difficulties and survive the pandemic together.

Fitch Ratings Lanka has affirmed the National Long-Term Rating on Nations Trust Bank PLC at 'A(lka)' and the Outlook as Stable on 6 October.

The bank is confident in facing any potential impact that may arise as a result of the current on-going crisis with its strong capital base, healthy liquidity buffers and the robust risk management models that are in place. The bank also keeps abreast of the current developments in the operating environment and seeks opportunities for growth to maximise stakeholder returns.