Nations Trust Bank records subdued performance

Nations Trust Bank’s performance during the quarter ending 31 March 2019 reflected a continuation of the issues witnessed in the previous few quarters with increasing non-performing loans and moderation of credit growth. 

Chairman Gihan Cooray

Director/CEO Renuka Fernando

The increased credit cost arising from both higher NPLs and policy changes relating to SLFRS 9 impairment provisioning added further pressure to the results of the quarter when compared with the corresponding period. 

Despite these unfavourable conditions, Group pre-tax profits remained relatively constant at previous year levels, recording Rs. 1,938 m whilst post-tax profits were affected largely due to the Rs. 209 m, impact arising from the Debt Repayment Levy. 

Therefore, Group post-tax profits for the quarter recorded Rs. 773 m, down by 18% over the corresponding period. Notably, the bank’s post-tax profits recorded a larger drop due to the inter-company dividend income of Rs. 291 m received last year resulting in a higher operating income for the comparative quarter.

Net interest income growth was weak at 8% owing to the pressure of narrowing NIMs to 4.89% from 5.46% reported in the corresponding quarter. Interest income growth moderated at 18% mainly due to a cautious lending approach adopted for selective portfolios coupled with some impact stemming from changes in impairment policy rules. A higher increase of 26% is seen in interest expenses due to the rising cost of funds and a higher mix of medium term funding raised for better diversification of the funding base.

Fees and commission income growth reduced to 6% reflecting the sluggish rate of growth witnessed in fee generating transactional volumes across product lines. Net trading losses arising from the movement in SWAP premiums is largely negated by the revaluation gains arising from balance sheet positions accounted under Net other operating income. The bank continued to benefit from the relatively lower funding costs of the forex swaps compared to high cost rupee deposits. 

Impairment charges recorded an increase of 10% mainly due to the continued cash flow stresses witnessed in selective portfolios as evidenced in the deterioration of the Group NPL ratio to 4.88% from 4.58% reported in December 2018. The bank continued its efforts in improving asset quality with prudent risk management practices and better alignment of collection processes. 

Expenses recorded a growth of 12% of which relatively higher increases are attributable to personnel expenses (+16%) owing to increased head count, annual increments, continuous investments made in up-skilling of the staff; depreciation (+144%) owing to reclassification of prepaid rent of premises under new accounting standards relating to leases; and amortisation cost (+16%) owing to investments made in digital/technology of which a larger part was made during the 2H of 2018. 

Growth in the loans and advances portfolio of 6% is primarily driven by Corporate and Leasing. CASA growth was recorded at 10% with a larger contribution coming from Current Account balances. Acquisition of new accounts/customers on CASA is a focus area for the bank and the momentum is expected to continue. 

Group capital position was sound at Rs. 32.3 b with Capital Adequacy Ratios both at Tier 1 and 2 maintained at comfortable levels of 11.56% and 14.64% against the required 8.50% and 12.50% respectively.

The bank’s digital transformation initiatives continued to drive customer migration to digital channels with 70% of all customer originated transactions including cash and cheque transactions being migrated to digital channels comprising of mobile, online, debit, POS, ATM and CRMs. This ratio increased from 60% reported by end December 2018. 

FriMi, its digital banking platform, continued to gain traction with developments being carried out to design and offer first to market features. The bank has also been driving initiatives towards leveraging on Open API banking and rolling out the new Cash Management System to bring in the full cash flow ecosystem of corporate customers to the bank.

Commenting on the results and achievements, CEO/Executive Director Renuka Fernando stated: “Despite top-line numbers showing restrained growth largely due to multiple changes in accounting rules impacting the current quarter coupled with a slow recovery of the economy, the core foundations put in place in our business pillars remains strong. We will continue to focus our efforts on managing impairment and driving our strategic agenda set at the beginning of the year.”