The Bank closed the first quarter ending 31 March 2015 with a post-tax profit of Rs 493 million underpinned by a moderate growth of 9% in operating income and a commendable containment of operating expenses growth to 5% over the corresponding quarter.
These levels of growth in income and expenses resulted in the Bank improving core operating margins considerably but were hindered by higher impairment charges which impacted bottom line growth.
Net interest income recorded a growth of 8% over the previous period as the low interest rate operating environment brought about many challenges on asset re-pricing which was partly off-set by reducing cost of liabilities with the re-pricing of shorter tenor deposits.
The resultant drop in interest income of 8% over previous period was offset by the drop in interest expenses of 22%.
The bank’s Net Interest Margins (NIM) did not record any significant movement as continuous efforts to grow low cost deposits improved the deposit mix which also assisted in reducing the cost of liabilities.
Net fees and commission income recorded a growth of 20% for the period under review driven by credit card fee based income. The Bank continued to look towards enhancing its fee based income from products such as debit cards, transactional accounts, remittances, bancassurance and trade related products.
Many initiatives were taken to promote these products through a concerted effort from the branches with product expertise sourced centrally.
Foreign exchange income also recorded positive growth with enhanced customer volumes and favourable rate movements benefiting proprietary trading.
Net trading income recorded a loss for the period owing to marked to market losses on the FIS portfolio as a result of unfavorable movements in the underlying Government Securities yields.
Bottom line growth for the current period slowed due to higher impairment charges amounting to Rs.530Mn while impairment charges for the period increased by 73% as compared to the corresponding period of 2014.
This was primarily due to a one off charge where specific facilities have been fully provided. The drop in collective impairment for the current quarter is mainly attributable to charges made on account of pawning portfolio in the corresponding period.
Operating expenses were contained at a growth of 5% with personnel expenses maintained at previous year levels accounting for 42% of total expenses.
There was also minimal growth in other operating expenses accounting for a further 48% of the total cost. Cost management initiatives coupled with the implementation of lean concepts across the organization assisted in containing cost escalations despite a year on year increase in the branch network of 24% and higher depreciation charges resulting from the Core Banking System upgrade. A rapid move into digitalization platforms and workflows is also expected to pay rich dividends in cost management in ensuing years.
Cost income ratio dropped from 54% to 52% in the current quarter showcasing encouraging trends in driving this ratio below 50% in the medium term.
The Bank was able to grow the loan book by 2% in the first quarter of 2015 even though high market liquidity and severe price competition prevailed during the period. However, the total asset growth was contained since the maturing FIS portfolio was not reinstated to the same level until a clear interest rate direction was observed.
The capital position was sound at Rs.17.0Bn with Capital Adequacy Ratios both at Tier 1 and 2 maintained at comfortable levels.
ROE recorded a drop over the level reported for the full year 2014 due to the relatively lower post tax profit for the quarter. However with the anticipated steady growth in quarterly profits, an upward trend in ROE is expected as the Bank remains firmly committed towards delivering sustainable returns.
The channel expansion drive continued with the opening of the 90th branch at Narahenpita and an offsite ATM at Kalubowila. At the end of the quarter, total customer touch points serviced by the Bank stood at 125 giving seamless accessibility and convenience across the geographies.
Commenting on the results and achievements, Nation’s Trust CEO Renuka Fernando stated: “We are pleased with the performance of the Bank in the quarter, which has withstood multiple challenges of narrowing NIMs, slow demand for credit, higher impairment charges and talent retention. We will remain undeterred and focused as we relentlessly pursue our goal to become ‘The Primary Bank’ for our target customer segments”.