Seylan Bank ends FY19 with Rs. 3.68 b profit; assets top Rs. 500 b

In the backdrop of challenging external environment, Seylan Bank said yesterday it recorded a profit after tax of Rs. 3.68 billion for the year ended 31 December 2019. 

Successful and oversubscribed Rights Issue made during the last quarter for Rs. 4.30 billion which followed a similarly successful debenture issue earlier in the year endorsed and demonstrated the confidence placed in the bank by the investors and shareholders. 



Net Interest Income (NII)

Net Interest Income (NII), the main source of income representing more than 75% of the total operating income of the bank, recorded an increase of Rs. 0.886 billion (4.99%) during the period under review. Accordingly, the bank recorded a NII of Rs. 18.633 billion in 2019, compared to Rs. 17.747 billion in 2018. NII growth, despite the narrowing net interest margins, was supported by growth in loans and advances and volatile interest rates. Net Interest Margin (NIM) reduced to 4.20% from 4.53% in 2018.

Fee and commission income

Net fee and commission income was Rs. 4.233 billion, reflecting an increase of 4.41% compared to the previous year. Income on guarantees, cards, trade and remittances were the main contributors for the increase. 

The bank strengthened its banking activities in trade finance special guarantees and other financial services causing the fee and commission income to increase compared to last year. The bank promotes the cross-selling of its products across the spectrum by the branches, to increase the fee base income.  

Total operating income

The operating Income of Rs. 24.354 billion was 5.01% higher than the previous year and reflects a growth in NII (Rs. 0.886 billion), Net Fee and Commission Income (Rs. 0.178 billion) and other income (Rs. 0.098 billion). 

Other income comprises  a net loss from trading amounted to Rs. 1.459 billion over the previous year (reflects a net loss from Derivative Financial Instruments of Rs. 1.864 billion due to fluctuations in rates and volume), net gains/(losses) from de-recognition of financial assets with a growth of Rs. 0.268 billion and Other Operating Income with a growth of Rs. 1.289 billion which is mainly from foreign exchange income derived from both revaluation gain/(loss) on the bank’s net open position and realised exchange gain/(loss) on foreign currency transactions. 

Impairment charges

The impairment charge for the year 2019 was Rs. 3.883 billion which is an 11.73% increase over the last year. The impairment charge of loans and advances for the year amounted to Rs. 3.848 billion compared to, Rs. 3.516 billion in 2018. 

Stage 3 assets has increased by Rs. 3 billion over the previous year and the same impacted on the impairment charges for Stage 3 (increased by Rs. 0.9 billion approximately) in 2019. Expected credit loss allowance as at 31 December 2019 stood at Rs. 10.73 billion which is an increase of Rs. 0.84 billion from Rs. 9.89 billion recorded in 2018.

Operating expenses

Total operating expenses recorded Rs. 12.606 billion during the year under review, whilst total operating expenses including VAT, NBT and DRL arose to Rs. 15.37 billion. Personnel costs increased by 12.28% as head count, remuneration and staff development activities increased during the year. 

The bank’s cost to income ratio, including additional gratuity expense, VAT, NBT and DRL stood at 63.12%, which reflects a drop from 2018 (64.90%). The cost to income ratio excluding additional gratuity expense stood at 62.79% as at end 2019 which shows an increase from the previous year (60.00%), mainly due to increase in DRL charge in 2019 compared to 2018 by Rs. 0.738 billion (DRL was effective from 1 October 2018 and accounted only three months in 2018). 

The cost to income ratio excluding DRL (including VAT and NBT) stood at 58.88% in 2019 and almost same as the ratio in 2018 of 59.08% and noted that an increase of DRL by Rs. 0.738 billion has impacted on the cost to income ratio by 4%. However, the cost to income ratio excluding additional gratuity expense, VAT, NBT and DRL was reported as 51.43%.

Taxation

Sri Lanka Government announced several tax amendments during latter part of 2019. Value Added Tax standard rate reduced from 15% to 8% for other than financial services with effect from 1 December 2019. 

The Debt Repayment Levy has been removed with effect from 2020 and this will have a favourable impact on the profitability of the Bank in the future.

The bank’s tax expense (income tax, VAT, NBT and DRL on financial services) for 2019 was Rs. 4.185 billion which is higher than the tax expense recorded in 2018 (Rs. 3.590 billion) by Rs. 0.595 billion with 17% increase. This is mainly from DRL, which reflected an increase of Rs. 0.738 billion over the previous year (DRL was effective from 1 October 2018 and accounted only for three months in 2018).

Profitability

Despite the sluggish economy that prevailed during 2019, Seylan recorded a net profit before income tax of Rs. 5.099 billion and net profit after tax of Rs. 3.680 billion which is 15.40% higher than last year. Branch banking, treasury operations and corporate banking are the main contributors to profitability. 

Asset growth

2019 was a year of accomplishment as the bank’s asset base crossed the Rs. 500 billion. The total assets of the bank rose to Rs. 516 billion and represents a growth of 10.57% over last year. Despite a number of factors such as the Easter attack, political instability, increasing interest rates, tightening liquidity and subdued global growth outlook that affected industry credit growth, Seylan Bank’s loan portfolio gathered momentum in 2019 with substantial growth of 16.02%. Corporate Banking was the main contributor to the loan growth.

Further, with the SLFRS 16 effective from 1 January 2019, the bank’s balance sheet has grown by Rs. 4 billion approximately in both the assets and liabilities. I.e. Rights of use assets was newly recorded in the assets side (Rs. 4.457 billion and lease liabilities were newly recorded in the liabilities side (Rs. 4.351 billion). 

Loan growth and asset quality

Loans and advances grew by Rs. 52.377 billion which is a 16.02% growth over 2018 to Rs. 379 billion as at end 2019. Targeted marketing to lucrative segments within the economy helped us grow our loan portfolio in areas such as term loans, refinance, housing and RIL.

Preserving asset quality in the current economic climate was a key challenge for most lending institutions in the industry. However, Seylan Bank tightened the process of loan approvals and disbursements and continuous monitoring of the portfolio led to controlling NPLs. Consequently, the gross NPL ratio declined to 6.49% in 2019 from 6.55% in 2018. The net NPL ratio also declined to 5.76% in 2019 from 5.98% in 2018. Bank’s provision cover was 42.03% in the year under review.

Deposit growth

The total deposit base of the Bank grew by Rs. 43.171 billion to Rs. 400.731 billion, a 12.07% increase compared to the previous year. Despite the aggressive rates, deposit growth was able to achieve through our widespread branch network across the country. 

This showed a confidence placed by our valuable customers. Despite a shift into higher yielding deposits witnessed across the industry, the bank grew its CASA base to Rs. 113.76 billion which was a notable 10.33% rise from last year. The bank’s CASA ratio stood at 28.39% at the end of 2019. 

Capital and funding

Managing capital, funding and liquidity are crucial to the ongoing viability of any banking organisation in meeting foreseeable demands and to optimise the returns to stakeholders. Market liquidity remained tight throughout most parts of the year, as loan growth was showing an upward trend. 

To supplement business growth and to enhance the lending book, the bank raised a total of Rs. 9.389 billion in a debenture issue (Rs. 5 billion) and a rights issue (Rs. 4.389 billion) in April 2019 and November 2019 (allotted on 10 December 2019) respectively, in the process of strengthening Basel III capital and the balance sheet. Both these issues were oversubscribed, signifying strong confidence in the bank.

Capital adequacy ratios

The bank maintains a sound capital adequacy ratio despite the growth of the lending book which resulted in increasing risk weighted assets. The capital adequacy ratio has increased from 13.30% to 14.84% during the year, mainly due to rights issue of Rs. 4.3 billion, Debenture issue of Rs. 5 billion, favourable impact from fair value through other comprehensive income reserve (Rs. 1.2 billion), despite the increase in the risk weighted amount for credit risk (Rs. 52 billion) mainly due to growth in the advances portfolio.

Return on equity

The return on equity (ROE) at the bank level was 9.29%, up from 9.27% in 2018. Excluding the right issue the ratio in 2019 was 9.83% which is higher than the current ratio with rights of 9.29%.

Earnings per share (EPS)

Earnings per share of Rs. 8.99 in 2019 were higher than the Rs. 7.97 recorded in the previous year. Earnings per share excluding additional gratuity expenses show Rs. 9.13 comparative to last year Rs. 10.01.

EPS has been diluted with the rights issue, where the number of shares increased by 125,905,946 making the total number of shares to 503,623,786 (weighted average number of ordinary shares as at 31 December was 409,441,483). The EPS for 2019 was 9.74 if excludes right issue (2018 – EPS 8.44).

Bank has made a significant progress in implementing the initiatives derived on the strategic plan 2017-2020 resulting many developments in SME operations, digital drive, low cost deposit mobilisation, sales and marketing etc.

During the quarter Seylan Bank opened its 200th library under ‘Seylan Pehesara’ library project recognising the social responsibility towards the education. Further, the bank’s Environmental and Social Management Policy implemented specifies a pledge to undertake responsible financing.