Nations Trust Bank records strong performance in 2021 amidst volatile conditions

Chairman Gihan Cooray

CEO/Director Priyantha Talwatte

Nations Trust Bank has in 2021 achieved a record Group Profit Before Tax of Rs. 10.4 billion up 38% from the previous despite the challenging operating environment experienced during the period. 

The Group recorded a Profit After Tax growth of 65% supported by the decrease in the corporate tax rate, NTB said in a statement.

Business growth

The loan book recorded an 18% growth during the year against the private sector credit growth of 13.5%. 

NTB adopted a selective expansion strategy, pursuing growth opportunities in sectors such as exports and local manufacturing which are aligned to the national development agenda while recording growth in the renewable energy and agriculture sectors. The bank continued to focus on supporting customers through the crisis, proactively engaging and offering customised financing solutions to ensure commercial viability. The bank also strengthened one-to-one engagement with customers, offering individual plans for repayment and providing guidance on effectively managing cashflows.

The bank extended its fullest support in the implementation of the Government’s initiatives to minimise the impact of COVID-19 on businesses and the community and to stabilise the economy by partaking in the ‘Saubhagya’ loan scheme. Over Rs. 20 billion new credit facilities were disbursed by the bank under its own revival fund ‘Nations Diriya’ scheme, which is dedicated to extending financial support to key industries, enabling such businesses to recommence and rebuild their business operations. 

The Consumer Banking Division adopted a lifecycle approach to lending, moving away from a product push and offering customer-centric, relevant solutions based on specific needs. The bank strengthened its digital offering to its customers, launching the Nations Direct integrated cash management system for corporate and commercial customers. This included tailormade offerings and host-to-host solutions, among others.

NTB raised $ 65 million from overseas Development Finance Institutions during the year to support the Small and Medium Enterprise (SME) sector, demonstrating the strength and track record of the bank despite the volatile environment. The bank also raised Rs. 4 billion, Fitch ‘A’ rated, Senior, Unsecured, Unlisted, Redeemable Debentures, in July 2021, further strengthening the medium-term funding profile of the bank.

Revenue growth

Supporting the loan growth and economic recovery efforts, average yields on loans reduced by 260 bps during the year. A net reduction in yields in the FIS portfolio also contributed to the decline in net interest income. The absence of a one-off interest reversal on moratorium loans similar to what was recognised in the previous year helped negate the decline in interest income. The improvement in the CASA ratio to 40% as at end of the year, from 32% recorded in the previous year, helped partially offset the decline in interest margins during the period. 

Momentum could be seen in trade finance related income with the increase in certain trade finance related activities. Growth in cards income was contained on account of a decrease in card spend due to changes in customer behaviour patterns owing to the restrictions in mobility and overseas travel during certain parts of the year. Suspension or refund of certain charges by the bank, considering the current difficulties faced by customers due to the COVID-19 pandemic, negatively impacted the bank’s fee-based income. While pandemic-led disruptions impacted credit card spending in certain months, the segment’s overall performance was upheld by the release of pent-up demand in other periods.

With the yield curve remaining flat for most part of the year, opportunities for generating capital gains through trading were limited. The bank made conscious efforts to reduce the duration of the portfolio, repositioning it to capture future opportunities.

The bank continued to adopt the strategy of utilising its FX SWAP book to fund rupee loan growth with focus placed on broad-basing counterparties to diversify risks. Gains on foreign exchange increased primarily from FX funding swaps due to the discounts which prevailed in the market. Nations Trust Bank successfully pursued low-cost funding options through the SWAP market, affording the bank a strong platform to drive growth in 2022.

Credit cost management

Strategic focus on preserving portfolio quality through strong monitoring, risk profiling and ongoing customer engagement enabled the bank to achieve an improvement in portfolio quality. Positive flows in the past due buckets together with lower exposures in most risk buckets, reflects a 228bps reduction in the non-performing loan ratio, thereby reducing impairment charges on loans by 13% during the period. The bank continued to assess the uncertainties in the operating environment and to maintain a management overlay in the impairment provisions on exposures to identified risk elevated industries. 

The bank has also assessed the impact of macroeconomic variables that could elevate the credit risk of the loan portfolio and considered the potential impact of these variables in the calculation of provision for impairment.

The bank further increased the impairment provisions against other financial instruments to reflect current market trends and other applicable macroeconomic conditions. 

Operational excellence

NTB invested Rs. 334 million on digital capabilities during the year while automating over 40 internal processes which supported growth in omni-channel users and digital transactions which reached 87%. The cost management culture entrenched across the organisation by continuation of some of the cost saving strategies and initiatives executed last year along with productivity, efficiency drives and focus on some large cost pools were the main reasons for the 2% reductions in expenses. Cost to income ratio improved to 39% compared to 46% in the previous year, demonstrating the bank’s ability to considerably enhance efficiency and productivity through digitalisation and new ways of working.

Taxation

The impact stemming from the tax rate differential in income tax and deferred tax relating to the previous financial year was reversed in the year ended 31 December 2021 using the applicable new tax rate of 24%. This resulted in a profit after tax growth of 65% over last year. 

In the Budget Proposals 2022, the Government has proposed to impose a surcharge tax at the rate of 25%, on individuals or companies with a taxable income over Rs. 2,000 million for the year of assessment 2020/2021. However, this proposal was not substantively enacted as at the date of the financial statements. As such, the bank and the Group did not recognise any provision in 2021 financial statements in lieu of the proposed surcharge tax.

Profitability

The Return on Equity stands at 18% with a 69% EPS growth for the period under review.

Strong financial position

The financial position of the Group remained strong as its Tier I Capital and Total Capital Adequacy ratios as at 31 December 2021 were well above the regulatory levels at 14.77% and 17.46%, respectively. The Statutory Liquid Asset Ratio (SLAR) for the Domestic Banking Unit was at 33% as at the reporting date.

Operations

Essential banking services were provided continuously despite some parts of the country being isolated with prolonged travel restrictions over a few months being imposed as a result of a third wave of COVID-19 during the year. 

In true spirit of supporting the national effort, Nations Trust Bank’s employees came together to contribute essential medical equipment for the National COVID-19 Response, by donating a half a day’s salary to the Bio Medical Engineering Unit at the Ministry of Health. Nations Trust Bank also donated a portable ventilator to the Colombo South Teaching Hospital, Kalubowila in early 2021. 

Way forward

Commenting on the results and achievements, CEO/Director Priyantha Talwatte said: “We are committed to pursue growth opportunities across selected industry sectors by offering holistic value propositions, which include advisory and capacity building across product verticals with ongoing focus on strengthening employee capabilities. We remain focused on delivering our strategic agenda set for the year and enhancing digital capabilities with the ultimate intention of achieving customer convenience, cost and process efficiencies, pioneering innovation and thereby, challenging the norm to deliver an unparalleled banking experience to our customers in a new reality. 

“With the nation-wide vaccination program successfully being rolled out, there is an expectancy of a rapid return to economic normalcy, and Nations Trust Bank is fully geared to steer ahead more responsively to the external environment by prioritising customer requirements supported by an extremely focused and involved Nations team who has demonstrated their agility to deliver sustainable value, given the challenging environment.”