NSB had a productive year in 2011 in terms of deposit growth, asset growth, profitability achievement of a number of milestones, expansion of the branch network, re-launch of core products and winning of local, regional and international accolade.
Commenting on the bank’s performance, NSB General Manager and CEO Hennayake said: “The entirety of the bank’s activities focused on one goal i.e. financial inclusion, which is evident in the wide reach of the branch network, the add-on products and services as well as CSR activities. With 24 new branches opened across the country during the year, the bank concentrated more on the rural areas. It also saw the opening of its 200th milestone branch in Medawachchiya and counted 210 branches under its wing by end 2011.”
Evaluating the financial performance of the bank, he said that the deposit base passed the Rs. 400 billion mark in 2011 and despite tight liquidity position in the market during the fourth quarter, the bank succeeded in mobilising Rs. 55.6 billion deposits during the year recording a growth of 16%.
The bank’s total assets were up by 16% to Rs. 466 billion at 31 December 2011 compared with Rs. 404 billion at the end of FY 2010.
The increase in total assets reflected 25% growth in loans and advances to customers reaching Rs. 87 billion against Rs. 70 billion at the end of FY 2010 and as a wholesale lender, the bank’s corporate lending portfolio recorded a significant growth of 168% to Rs. 33 billion in FY 2011 compared to Rs. 12 billon at the end of FY 2010. The government securities portfolio recorded a growth of 15% to Rs. 289 billion in FY 2011 from Rs. 251 billion in FY 2010.
The Net Interest Income (NII) marginally increased by 2% to Rs. 16.9 billion in 2011 compared with Rs. 16.6 billion for the year ended 31 December 2010. The decrease of interest income from government securities investments due to re-pricing at lower rates is the main reason for lower growth in NII and decrease of lending rates due to competitive pressure on lending pricing.
However, strong growth in corporate lending and lending to customers contributed to maintain the NII at current level following the reduction in the cost of deposits during the first nine months of 2011. As a result, Net Interest Margin (NIM) declined to 3.9% for 2011 compared with 4.4% in 2010.
The bank’s total operating expenses excluding provision for fall in value in dealing securities marginally increased by 2% to Rs. 6. 02 billion for year ended 31 December 2011 compared with Rs. 5.89 billion in FY 2010.
The bank’s operating profit from ordinary activities before tax declined by 8% to Rs. 8.95 billion compared to Rs. 9.78 billion in FY 2010. The significant increase in marked to market provision of equity portfolio due to under performance of the share market was the main reason for reduction in profit, in addition to increase in operating expenses due to increase in costs associated with the business expansion programme.
However, net profit of the bank increased by 7% to Rs. 5.76 billion against Rs. 5.39 billion in FY 2010 mainly due to the reduction of tax rates. During the year the bank has contributed Rs. 366 million to the Deposit Insurance Scheme of the Central Bank. The cost to income ratio has improved to 42.2% in 2011 from 48.9% in FY 2010; cost management will continue to be a strategic priority in 2012.
Hennayake added that the bank’s capital position remains strong and well above the Central Bank’s required minimum level of 10% with the total capital adequacy ratio at 17.1% as at 31 December 2011 compared with 19.2% at the end of 2010.
The statutory liquid asset ratio of the bank stood at 74% by the end of FY 2011 compared to 81% at the end of FY 2010 which is well above the minimum requirement of 20%. Return on Assets (ROA) (before tax) declined to 2.1% in FY 2011 from 2.6% at the end of 2010, which was mainly due to decline of NIM and provision for fall in value of dealing securities.
The bank contributed to Government coffers by paying the historically highest dividend of Rs. 3.21 b for FY 2011, which is an over 100% dividend payment.
The Group’s operating profit from ordinary activities before taxes decreased to Rs. 9.08 billion recording a decline of 11% over the FY 2010, while profit after tax for the period increased to Rs. 5.80 billion recording a growth of 4%. The lower growth in group profits was due to decline in market interest rates which resulted in lower interest income and capital gains of the subsidiary compared to last year.
The bank also took part in various CSR programmes including the main CSR activity of conducting free seminars for Year Five scholarship students and awarding those who performed well at national and district level at the scholarship examination held in August 2011. In addition the bank spent over Rs. 12 m in FY 2011 on various other CSR activities.
Commenting on future prospects, Hennayake said that the Sri Lankan economy remained well positioned compared with global market conditions and was forecast to perform strongly, providing a positive outlook for 2012.
“We expect to see continued domestic market growth, albeit at a reduced level given continued global economic uncertainty. We will continue to focus on targeting new opportunities and diversifying our income streams whilst maintaining a vigilant approach to balance sheet management, asset quality and risk management.”