Nations Trust Bank remains resilient despite volatile conditions

Chairman Gihan Cooray (left) and CEO/Director Priyantha Talwatte 

Nations Trust Bank ended the third quarter with a strong performance, continuing the trend demonstrated in the first half of the year. The loan book recorded an 18% growth during the nine months ended 30 September against the private sector credit growth of 10.6% during the same period of the year, amidst the challenging business environment. 

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 bank also offered special payment relief schemes and repayment plans for existing borrowers, in addition to the Central Bank mandated moratorium schemes with low-interest rates and restructured repayment plans for some of the identified industries. 

Nations Trust Bank raised $ 65 million from overseas development finance institutions during the year to support the Small and Medium Enterprise (SME) sector. 

The bank also raised Rs. 4 billion, Fitch ‘A’ rated, Senior, Unsecured, Unlisted, Redeemable Debenture in July 2021 further strengthening the medium-term funding profile of the bank.

The Group recorded a Profit Before Tax of Rs. 7.46 b, a growth of 27% for the nine months ended 30 September 2021 compared to the previous year, despite the challenging operating environment experienced during the period.

Supporting the loan growth and economic recovery efforts, average yields on loans reduced by 350bps. 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 CASA ratio to 37% as at end September 2021 from 31% as at the end of September 2020 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 behavior patterns owing to the restrictions in mobility and overseas travel. 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. 

The bank was able to realise sizable trading profits on its fixed income securities portfolio with the fall in market rates. Gains on foreign exchange trading also increased primarily from FX funding swaps due to a higher depreciation of the rupee during the current period in contrast to the depreciation during the same period last year.

Impairment charges on loans declined by 18% during the period owing to the new underwriting standards and concentration on loan recoveries. Positive flows in the past due buckets together with lower exposures in most risk buckets, reflects a 193bps reduction in the non-performing loan ratio. 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 Stage 3 loan ratio (net of impairment) and the provision cover for Stage 3 loans stood at 2.73% and 42.62% respectively as at 30 September 2021. The bank increased the impairment provision on investments in foreign currency denominated bonds issued by the Government of Sri Lanka in line with market practice to reflect the current macro-economic conditions. 

The bank was successful in containing the increase in Operating Expenses to 2% despite the Operating Expenses in 2020 being 10% below the corresponding period of 2019.  This reflects the cost management culture entrenched across the organisation. 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 this favorable outcome. Cost to income ratio improved to 42.3% compared to 45.7% in the same period last year, demonstrating the bank’s ability to considerably enhance efficiency and productivity through digitalisation and new ways of working.

The impact stemming from the income tax rate differential in income tax and deferred tax relating to the financial year ended 31 December 2020 was reversed using the applicable new tax rate of 24%. This resulted in a profit after tax of Rs.5Bn for the nine months ended 30 September 2021 with a 61% growth over last year same period. 

The Return on Equity stands at 18% and the Return on Assets at 2.19% for the period under review.

The financial position of the Group remained strong as its Tier I Capital and Total Capital Adequacy ratios as at 30 September 2021 standing well above the regulatory levels at 12.9% and 15.8%, respectively without considering the profits earned in 2021. The Statutory Liquid Asset Ratio (SLAR) for the Domestic Banking Unit and the Off-Shore Banking Unit was at 32% and 34%, respectively, as at the reporting date.

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

In true spirit of supporting the national effort, Nations Trust Bank’s employees came together to contribute essential medical equipment for the national COVID 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 earlier this year. 

Commenting on the results and achievements, CEO/Director Priyantha Talwatte stated: “We are committed to growing a healthy asset book and remain focused on delivering our strategic agenda set for the year and enhance 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.”