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Rs. 63.3 billion as opposed to a 4.5% rise in 2013. Of the lending in 2014, over Rs. 4 billion was for SMEs in diverse sectors benefiting from PABC’s positioning as a flexible and dynamic small-sized commercial bank that can offer customised solutions.
On the deposit mobilisation side, as against a 12.3% improvement in 2013, PABC saw a growth of 20.5% to Rs. 65 billion in 2014. The Bank’s “Advance to Deposit ratio” was a healthy 85.30%. An aggressive current and savings account (CASA) drive was launched, resulting in a significant improvement in CASA ratio from 19% in 2013 to 31% in 2014 thereby reducing cost of funds.
Asset growth has been whilst keeping a tight lid on quality of its loan book. For example, the Non Performing Advances Ratio in 2015 was 5.73% (Gross) down by 28% from 8% in 2013 and 3.78% (net), lower by 42% from 6.49%.
PABC also managed to improve its net interest margin by 13% to 3.82% in 2014 thereby enabling a 31% growth in net interest income to Rs. 2.74 billion. Operating income grew by 27% to surpass the Rs. 4 billion mark. Bank’s Profit before tax and impairment losses witnessed an increase from Rs. 972 million to Rs. 1.56 billion in 2014, an increase of 62% despite nearly Rs. 450 million losses booked on gold related lending.
In 2013, PABC saw profit dip by 87% to Rs. 115 million though gross income grew by 17% to Rs. 9 billion.
However last year, profit before VAT and NBT on financial services saw a whopping 230% rise to Rs. 754.5 million whilst after tax profit jumped by 265% to Rs. 415.21 million.
Impressive turnaround
The impressive turnaround at PABC in 2014 wasn’t accidental but due to strong determination, well planned and executed strategies and better risk management techniques.
“We were able to record this performance despite making higher impairment loss provisions in excess of Rs. 800 million. This higher loan loss absorption capability puts the Bank in a better stead to withstand unexpected shocks which could arise in the financial system in times of stress,” emphasised Dimantha who joined PABC in March last year.
The Board of Directors of PABC led by Chairman Nimal Perera and its major shareholder Dhammika Perera headhunted Dimantha, who has over 24 years of banking of which 15 years was with HSBC including senior positions in Thailand, Bangladesh and Saudi Arabia helped PABC. His last three postings with HSBC Group were as Chief Risk Officer in these markets.
In PABC’s 2014 Annual Report, Chairman Nimal Perera said: “Our robust financial performance is a reflection of our turnaround strategy based on lessons learnt in 2013 due to the gold debacle that impacted financial institutions in the country. However, during this year, we worked in a focused manner to mitigate potential threats and offset losses from the previous year by operating with strict performance targets, which were tirelessly pursued by a dynamic team of professionals. We are confident that our strategy will provide the right platform to deliver sustained and profitable growth.”
PABC’s success in 2014 saw global recognition as well. It won the Fastest Growing commercial Bank in Sri Lanka - 2014 Award from the Global Banking and Finance Review as well as the Most Innovative Banking Product in Sri Lanka – 2014 Award for its Sammana scheme for senior citizens.
2014 challenges and opportunities
Dimantha recalled that 2014 saw both tremendous challenges and opportunities. To meet the challenges, the Bank had to re-think its processes, re-strategise and embark on a self-consolidation process, improving governance and risk management strategies.
Given the challenges faced by the industry due to gold/pawning loans, PABC made a conscious effort to clean up and strengthen the Balance Sheet. The improvement in NPLs in 2014 down to 3.78% from 6.49% in 2013 was a testimony to that exercise.
Credit marketing and analysis skills of staff were improved and the strategy of appointing four experienced managers to focus on regions as well as empowerment of SMEs via financial literacy program contributed to healthy growth in assets.
“Through our customised approach we endeavoured to upgrade SME clients to cash flow based borrowing,” says Dimantha, who noted that this segment found PABC responsive and agile to their needs.
In a declining margin scenario PABC also improved the fee-based income via greater Corporate lending and Trade Finance activities. Personal banking segment saw a higher growth with credit card customer base tripling. Housing loans had doubled while leasing portfolio had expanded by a sizeable amount.
PABC is also focused on further improving its cost to income ratio to industry average. It was reduced by 12% in 2014 to 61% from 69% in the previous year and the goal is to graduate to a low or mid 50% by end 2015 or early 2016. With rapidly expanded branch network contributing, the cost to income ratio is expected to improve further.
“We also appointed Cost Champions as well as Income Champions within the Bank and this initiative has begun to bring desired results,” said Dimantha. He noted with improved internal controls and risk management frameworks and new business development strategies in motion, the Bank saw growth momentum in the second half of 2014.
“We expect this momentum to sustain itself. Our asset growth goal stems from that confidence,” the PABC CEO said. This year the Bank hopes to open three more branches to consolidate the existing network of 78 as at end 2014.
Management changes
and new blood
PABC also saw several changes in the management structure whilst infusing new blood into the team with the aim of building up a committed and professional management team and grooming the next generation of leaders. The cadre rose to 1,302 by end 2014 from 1,169 a year earlier.
Personnel expenses which constitute 44% of other operating expenses, increased by 14.7% to Rs. 1 billion due to new recruitments for expanded operations and annual salary increments. Over 220 senior and high potential staff were also promoted in 2014.
In recent times, PABC has drawn several top experts who had served other banks. Among them are Chief Financial Officer and Deputy General Manager Lalith Jayakody who has previously served Peoples Bank and Sampath Bank, ex-Nations Trust Bank’s Indrajith Gunasekara who is the AGM in charge of SME and Pawning (he also worked at Seylan and Commercial Bank), Head of HR Rohitha Amarapala, who has previous experience in Taj, Coca Cola and Hutchison, Head of IT Sajith Sameera who previously worked at NTB and Cargills Bank and Head of Corporate Banking Chandrika Ranawaka, formerly from HNB apart from previous employment in the UAE.
Overall the Corporate Management team, which is the next layer of future leadership, is highly experienced and talented ably supported by the dynamic operation management team, according to the CEO.
New systems and
branding campaign
In February 2015, PABC also upgraded its core banking IT platform to be one of the most technologically advanced and versatile following a Rs. 300 million investment.
A roll out of a new system for Treasury operations and leasing is also on the cards. The revamp of IT will enable PABC to become more cost and processes efficient with greater empowerment of staff and customers via an upgrade internet banking facility for the latter. Launch of private banking is also planned for this year.
PABC is also planning a new holistic branding campaign departing from the previous product based driven focus.
The Bank is adequately capitalised as of now but going forward and given growth forecasts Dimantha envisages fresh capital infusion to the Bank to comply with regulatory requirements. Last year the Bank issued a Rs. 3 billion debenture.
Pan Asia Bank’s capitalisation levels strengthened as its core capital (Tier I) and capital base (Tier II) stood above Rs.4.4 billion and Rs.6.9 billion with Capital Adequacy Ratios of 8.97% and 14.19% respectively. This is above the minimum regulatory requirements of 5% and 10%.
Amid pressurising margins Pan Asia Bank improved its return to its shareholders (return on equity) to 9.81 % from 2.89 % from a year ago. The Earnings per Share increased to Rs.1.41 from just Rs.0.39 a year ago whilst the market price per share rose by 67 % to Rs.25.90 during 2014.
Business leader Dhammika Perera owns 29.9% stake in Pan Asia Bank Plc whilst Japan’s Bansei Securities hold 15%. Its public float is 54.3% in the hands of 4,223 shareholders.
The Board of Directors of Pan Asia Bank comprises Nimal Perera (Chairman), Eshana De Silva (Deputy Chairman), M. Goonathilleke, T.G. Thoradeniya, G.A.R.D. Prasanna, T.R. Igarashi, T. Murakami, J.S.B. Rangamuwa and M.A. Abeynaike.
