Pan Asia Banks posts record high profit of Rs.1.8 b in 2016

• Full year profit after tax rises by 20.3% to cross Rs.1.25 b mark
• 4Q’16 profit after tax rises by 19.5% to Rs.346 million 
• Bank expands assets by over 20% to just under Rs.130 b 
• Return on Equity of 20%, one of industry highest 
• Asset quality improves as net NPL falls below 3% 

Pan Asia Bank closed its financial year that ended December 31 2016 recording a profit before tax of Rs 1.8 billion, an increase of 17% over the previous year. 

The bank also increased its profit after tax by 20% for the same period to Rs.1.25 billion or Rs.4.24 a share, surpassing its previous earnings record. 

The bank attributes this performance to a combination of factors from the timely re-pricing of assets and liabilities, re-calibration of assets in to more remunerative areas, better recoveries and asset quality, the relatively strong growth in loans and receivables and better management of costs in all areas of the banking business during the year. 

For the quarter ended that December 31, 2016 (4Q’16), the Bank reported earnings of Rs.4.65 a share, or Rs.346 million, which translated to an increase of 19%. 

Commenting on the performance, the Bank’s Acting Chief Executive Officer Lalith Jayakody said the performance was due to the proactive measures taken to successfully acclimatise the bank to the rising interest rate scenario from the beginning of 2016. 

“Our performance is a clear testament to Pan Asia Bank’s ability to deliver excellent performance despite the challenges thrown at us by the economic headwinds. Although the economic conditions were less supportive towards the banking and the financial services sector due to rising interest rates and the tightened credit conditions, we could still achieve these record numbers because we remained nimble to adjust ourselves fast to the new economic order. Our continuous efforts on upgrading the skills of our staff, improving the efficiency of our systems and processes by keeping a closer tab on our costs and investing in growth areas did yield us these record earnings,” said Jayakody.

 “We continue to remain upbeat over the opportunities that may arise going forward and will take forward looking decisions to turn these opportunities in to realities,” he added.

In 2016, in recognition of the bank’s excellent business and financial results, Pan Asia Bank was recognised as the overall winner in this category at the 2016 edition of the National Business Excellence Awards.  

RoE, an industry outlier

The Return on Equity (RoE) which measures the return generated towards the shareholders, a widely used performance matrix in the banking industry, stood at 19.97%, above the industry average of 17.30%. Pan Asia Bank remains among the few banks which have an RoE with a 20% level.

Core banking performance

The bank’s principal source of income, the Net Interest Income, rose by a modest 16.93% to Rs.4.63 billion.

This is despite the faster rise in interest expenses over the rise in the corresponding interest income. This is due to higher cost of funds which had to be borne by the Bank on account of the rising deposit costs as result of the 150 bps hike in Statutory Reserve Ratio in January 2016 followed by 100 bps upward revision in key policy rates. 

This was a significant achievement at a time when the banking sector margins were coming under pressure due to low interest rates prevailed during most part of the year.

Non-interest income as a solid anchor to pressing margins  

Net fee and commission income delivered its role as a crucial buffer to make up for the narrowing margins. This was evident from a very strong growth recorded by the net fee and commission income during 2016 albeit some areas under the fees and commissions being challenged.    

The total net fee and commission income rose by 35.74% to Rs.1.11 Billion. This was mainly supported by the credit related commission income despite the growth in loans moderating during the year. 

Operational efficiency

The total operating expenses rose by 18.24% to Rs. 3.52 billion in 2016 predominantly due to increase in staff related expenses and other overhead expenses due to impact of tax hikes and inflationary pressures. As a result, the cost to income ratio, the key efficiency matrix in the banking sector slightly deteriorated to 56.03% in 2016. 

Quality portfolio growth

Despite the slowdown in the growth in loans and advances during 2016, the bank managed to expand its asset base by commendable 20.1% bringing the total asset base up just under Rs.130 billion.

In effect, Pan Asia Bank grew its asset base by over 2.5 folds or Rs. 82.45 billion during the last five years, demonstrating the faster growth trajectory it has been pursuing in recent times.

This is whilst maintaining a better asset quality which has been improving year by year. What is also noteworthy in this journey is the fact that the bank diversified its composition of the assets and liabilities in the balance sheet. 

This was done by going beyond the deposits and tapping in to non-traditional funding sources which in turn was distributed across a well diversified lending mix across retail, small and medium enterprises and large and midsized corporates. 

Meanwhile, the provisions made for possible loan losses markedly decreased in 2016 as provisions in lieu of specific customers declined significantly.

The bank’s asset quality continued to improve with both its gross and net non-performing loan ratios markedly falling.

The gross non-performing loan ratio improved to 4.74% from 4.84% a year ago and the net non-performing loan ratio too followed suit by falling to 2.95% from 3.26% a year ago. This is mainly due to the rigorous recovery efforts deployed throughout the year with a strong leadership and the underwriting standards.

Loans and receivables growth

In response to the monetary and fiscal tightening measures taken by the authorities throughout 2016, the bank’s loans and receivables growth moderated to 14% level. The total gross loans and receivables book stood at Rs. 98.5 billion as of the end of 2016.

Customer deposits

Despite the intense competition seen throughout the year, the bank managed to increase its deposit base by almost 18% to Rs. 91.46 billion.

However, the cost of deposits went up significantly because of the high cost medium term deposits rising much faster while the low cost, Current and Savings Accounts (CASA) was taking a dip.

Shareholder funds, capital adequacy and liquidity

The total shareholder funds rose by 19.03% to Rs. 6.87 billion from Rs. 5.77 billion a year ago.

The bank’s capital adequacy levels remained at healthier levels above the regulatory minimum level albeit the Tier II capital coming under pressure.

During the year, the Tier I Capital Adequacy Ratio (CAR) improved to 8.37% from 7.82% a year ago due to relatively slow asset growth compared to the strong internal capital generation during the period under review.

Pan Asia Bank is also in the process of raising equity over Rs. 2.0 billion via a rights issue which will issue one new ordinary share for every two existing ordinary shares held.

However, the bank’s total capital adequacy weakened slightly to 11.40% from 12.30% last year due to the periodic discounting effect of the outstanding subordinated debts issued earlier.

Statutory liquidity requirements remained above the minimum stipulated levels during the year albeit coming under pressure. However, timely measures taken in mobilising the deposits and raising debt funding ensured the bank stays rich with liquidity.

The statutory liquid asset ratio of Pan Asia Bank at the yearend for Domestic Banking Unit and Off Shore Banking Unit stood at 28.03% and 38.82% respectively.