Nations Trust Bank records resilient performance amidst challenges

The Nations Trust Bank Group demonstrated deep resilience amidst external challenges, to record a profit of Rs. 3.71 billion, a marginal increase over the previous year. 

Chairman Gihan Cooray

CEO and Director Renuka Fernando

Total Operating Income grew by 6% to Rs. 22.5 billion. The subdued economic conditions which prevailed in the country affected many key economic sectors, impacting the financial performance of businesses leading to low credit growth and higher non-performing loans. The Easter Sunday terrorist attacks and the election momentum further exerted pressure on credit growth in the industry.

Commenting on the results and achievements, CEO and Executive Director Renuka Fernando stated: “Despite the headwinds present in the operating environment, our fourth quarter witnessed an improved performance over the previous quarters of 2019, which is encouraging. With a cautious approach in growing the assets book, we remain committed to delivering our strategic agenda set at the beginning of the year to strengthen our digital capabilities, with the ultimate intention of achieving cost efficiencies, pioneering innovation and thereby challenging the norm to deliver an unparalleled banking experience to our customers.”

Amidst moderation in credit growth, Group pre-tax profits recorded a 9% increase over the previous period while post-tax profits dropped to the previous year’s level largely due to the full impact of the Debt Repayment Levy in 2019. The bank’s post-tax profits recorded a drop of 8% due to the inter-company dividend income recorded during the corresponding period of 2018.Due to the prevailing challenges in the economy, the bank followed a cautious approach in expanding its advances portfolio, which contributed to a slowdown in the loan book to a growth of 2 %, leading to moderated Net Interest Income (NII) growth of 6%. Lending rates ceiling imposed during the year also added to the slowdown in NII growth while the reduction in Statutory Reserve Ratio from 7.5% in 2018 to 5% in March 2019 contributed towards defending the pressure on NII growth.

While credit cards, trade- and deposit-related fee-based income recorded moderate growth, lending-related fees recorded a drop owing to lower business volumes. Net trading losses arising from funding swaps due to the appreciation of the Sri Lankan rupee during the period were largely negated by the revaluation gains arising from balance sheet positions accounted under Net Other Operating Income. The Sri Lankan rupee appreciated against the US dollar by Rs. 1.55 in 2019, in complete contrast to the depreciation of Rs. 29.4 recorded in 2018. The bank continued to benefit from the relatively lower funding costs of the funding swaps compared to high-cost rupee deposits.

Given rising impairments during the year, credit risk management was a key area of focus. The bank sought to strengthen pre-credit sanctions and collections, post-credit monitoring through ongoing assessment of early warning signals as well as provide ongoing employee training on credit appraisals and risk management. 

An increase in impairment charge was curtailed to 0.8% during the year, attesting to the huge emphasis placed on underwriting and recoveries.

The cost management culture entrenched across the organisation to manage the bottom line, especially in times of curtailed growth in business volumes, helped to contain operating expenses growth at 5%. Cross-functional teams heading various initiatives on cost management, productivity and efficiency improvements resulted in minimising increases in some large cost pools contributing to the overall management of the bank’s bottom line.

The group was also required to pay substantially higher income taxes in respect to the current year under the new tax regime introduced by the Government in April 2018. Taxes and levies to the Government account for Rs. 4.7 billion, which is 56% of the operating profit of the group.

The group’s Tier 1 capital ratio of 13.30% as at 31 December 2019 was comfortably above the minimum requirement of 8.5%, which became effective from 1 January 2019 under Basel III while the Total Capital Ratio of 17.96% was also in excess of the Basel III minimum requirement of 12.5%.

Nations Trust Bank Plc is among the top 15 business establishments in Sri Lanka as ranked by Business Today Magazine, ably providing a host of financial products and services to a wide range of customers. Nations Trust is also the bank behind Sri Lanka’s first fully-fledged digital banking experience, FriMi. The bank operates 96 branches across the country, boasting an ATM network covering 127 locations and 48 cash deposit and withdrawal machines, plus more than 3,700 ATMs on the Lanka Pay Network and is the issuer and sole acquirer of American Express® cards in Sri Lanka.