NSB improves revenue but bottom line under stress

National Savings Bank (NSB) last week reported mixed performance for the nine months of 2012, with top line growth and bottom line being under stress though the third quarter reflects an improvement.

Total income of the bank recorded a growth of 9% mainly due to the increase in interest income on loans and advances. The interest income on loans and advances grew by 44% which can be attributable to the portfolio diversification. The interest expenses on deposits increased by 19% due to stiff competition in the market for deposit mobilisation. The increase in cost of funds was higher than the growth in income which resulted in a 12% decline in the net interest income to Rs. 8.4 billion during the period as against Rs. 9.6 billion during the corresponding period last year.

The bank’s operating profit before tax has decreased by 29% to Rs. 5.4 billion during the first nine months of 2012 compared to Rs. 7.6 billion in the corresponding period in 2011. Similarly, profit after tax declined by 31% to Rs. 3.7 billion during first three quarters from Rs. 5.3 billion in the same period last year.

The lower growth of income due to the time lag of repricing of T-bonds at higher rate and repricing of majority of the deposits within a short period, are the main reasons for decline in the profitability of the bank and as a result the net interest margin of the bank declined to 3.2% for the nine months ended 30 September 2012 compared to 3.9% for 2011. The bank’s effective overall tax rate inclusive of VAT on financial services was 42% for the period.

The bank has been able to manage the growth of non-interest expenses at 17% despite the notable increase in personnel costs and expenses on network expansion. Non-interest expenses stood at Rs. 5.4 billion in September 2012 compared to Rs. 4.6 billion in September 2011. During the 3rd quarter the bank added 4 new branches to bring its total network to 214 branches. The bank is fully committed to continue investing in its network and infrastructure to serve customers better and strengthen its reach in the country.

The bank’s total assets as of 30 September 2012 stood at Rs. 481.9 billion, reflecting primarily, the increase in loans and advances and the aggregated customer deposits were Rs. 422 billion as of 30 September 2012.

Loans and advances grew by 17% to Rs. 135.5 billion as of 30 September 2012 compared to the end of 2011. Housing loans, personal loans and pawning advances grew by 14%, 105% and 36% respectively and the bank granted more than 17,449 housing and personal loans during the period.

Even though non-performing loans (NPL) increased by 19% during the nine month period, asset quality remains strong with the NPL ratio of 2.8% as at 30 September 2012. The bank was able to maintain the NPL ratio at the same level of end 2011 due to increase in total loans and advances and efforts on recovery.  

“NSB results for the third quarter bear testimony to its commitment towards a sustainable business growth, increased efficiency and overall operational improvement despite the challenging circumstances that prevailed in the first half of the year, which were not conducive for the growth of the business and instead had an adverse impact on the overall performance,” Chairman Sunil Sirisena said.

 “We are poised for further growth in profitability as we remain focused on growing our core business segments, whilst continuing to build capacity and capability, and develop our key assets being our talent. I am confident that our performance will further improve as we continue to strengthen our fundamentals and pursue business growth responsibly,” the NSB Chairman added.

Commenting on the bank’s performance, NSB CEO Hennayake Bandara said: “Although the performance of the bank in the first two quarters was below the expectation, it has improved notably during the third quarter.”

The CEO further commented: “While enhancing the efficiency of our operations, the focus of the bank over the past quarter has been the mobilisation of savings at rural level.”

Tier 1 and Tier 2 capital for the bank were 19.4% and 18.0% compared to the regulatory minimum of five% and10% respectively.

“Going forward, we have redefined our strategic intent as a differentiator in serving our stakeholders, whereby we aspire to become the leading relationship bank in Sri Lanka by truly being with the community, serving through customised products and solutions and delivering a high quality of service,” added Chairman Sirisena.

The group’s operating profit from ordinary activities before tax was Rs. 5.4 billion, a decline of 29% over the same period of 2011, while profit after tax for the period declined by 31% to Rs. 3.7 billion. The main reason for the decrease in the group profitability was the substantial increase in the marked to market provision of the subsidiary due to increase in the government securities interest rates during the period.    

Fitch Ratings Lanka for the tenth consecutive year reaffirmed the AAA credit rating for the Bank in September and NSB remains the only local bank to receive AAA credit rating from Fitch.  

Hennayake concluded: “We will continue to maintain our focus on liquidity, credit quality and investments, which we believe represent the key ingredients for success in today’s volatile environment.”