The local unit of the world’s leading credit rating agency Standard & Poor’s (S&P), Lanka Rating Agency (LRA) this week re-affirmed its rating on Pan Asia Banking Corporation PLC’s (PABC) long and short-term financial institution ratings at BBB+ and P2 respectively.
The bank’s rating re-affirmation is mainly supported by its average asset quality, performance, capitalisation and liquidity, LRA said releasing its rating review.
For the Financial Year Ended (FYE) December 31, 2014 the bank increased its net profits by 265% to Rs. 415.2 million on the back of a 34% loans and receivables growth – the highest among LCBs in 2014.
Continuing the momentum, the bank posted a net profit of Rs. 177 million, recording an increase of 106% year-on-year (yoy) for the quarter ended 31 March 2015 (1Q’15) on the back of a further 10% growth in its loan book.
As at the end of 1Q’15 the bank has a loan book of Rs. 69.2 billion and an asset book of Rs. 81 billion.
Meanwhile for the FYE Dec-2014 the deposits have grown by 20.5% to Rs. 65 billion and it accounted for 83.5% of the funding mix. Most notably the low cost fund base measured through the bank’s current and Savings Account (CASA) base has grown up to 31% from 19% a year ago.
This growth has largely driven by the retail and small and medium enterprise segments but well supported by the growth in the corporate banking unit, particularly by increasing the fee based incomes in a concerted effort to diversify the bank’s income sources. The bank’s fee and commission income has grown by as much as 46% yoy to Rs.207.1 million during 1Q’15.
The bank’s net interest income increased 30.8% in FY 2014 while the NIM increased to 3.8% from 3.4% a year ago. This is at a time when the market’s key interest rates were coming down and the banking sector NIMs were coming under pressure.
By the end of 1Q’15 NIM has further risen to 4.3%.
“It is noted that, with shorter-term deposits re-pricing and the growth in CASA deposits; the reduction in the cost of deposits outweighed the reduction in loan yields leading to an increase in NIM,” LRA stated.
A notable improvement has been made in the bank’s Return on Equity (RoE), where the RoE has increased up to 9.8% by FYE Dec-2014 from 2.9% at the beginning of the year. The ratio was further improved to 14.9% by end of 1Q’15 demonstrating the bank’s continuous commitment to enhance its shareholder returns.
A key efficiency ratio, the cost to income ratio has been brought down to 61 % by FYE Dec-2014 from 69% a year ago. This has further come down to below 60% by the end of 1Q’15 demonstrating the improving efficiency levels in all operations of the bank.
Further the Return on Assets (RoA) has been increased to 0.6% by FYE Dec-2014 from 0.2% at the beginning of the year. This has further improved to 0.9% by end 1Q’15.
Meanwhile, during FY 2014, the bank has improved its asset quality as its gross Non-Performance Loan (NPL) ratio has declined to 5.73% from 8.01% at the beginning of the year.
The bank has also overcome all of its pawning related asset quality issues seen in 2013 continued till the 1H of 2014 which occurred as a result of the plunge in the global gold prices. The management has now taken a cautious approach towards the gold backed loans and is now only limited to very short term tenors in a bid to manage volatility, should they occur.
“The bank’s gross NPL coverage ratio stood at 94.93% as at FY end-Dec 2014 improving from 70.81% as at end-Dec 2013. The bank’s coverage levels are considered to be in line with industry peers. Overall, PABC’s asset quality is viewed as average owing to a loan portfolio risk profile, non-performing loans ratio and coverage ratio which is in line with its peers,” the rating agency opined.
The bank’s liquidity profile as well as capital adequacy levels stood above the regulatory minimums. The statutory liquid asset ratio clocked in at 21.42% as at FYE Dec-2014 whereas the regulatory minimum is 20%.
Both Tier I and Tier II capital adequacy levels also stood at 8.97% and 14.19% respectively as at FYE Dec-2014, above the regulatory minimums of 5% and 10% each.
“These capital ratios are deemed to be average in view of the bank’s planned credit expansion strategies,” LRA stated.
Underpinned by this performance, the bank is now planning to raise Rs.4 billion through a 3 and 4 year listed senior debenture issue to expand its loan book and to minimise the maturity mismatches in its assets and liability portfolio.
The proposed debenture issue is also assigned with a rating of BBB+, in line with the bank’s long-term ratings.
In October 2014 Pan Asia Bank issued a five-year subordinated debentures issue for Rs. 3 b with a rating of BBB, which was oversubscribed on the opening day itself.
LRA, formerly known as RAM Rating Lanka, is a technical affiliate of CRISIL India (CRISIL). CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. CRISIL is India’s leading ratings agency and is also the foremost provider of high-end research to the world’s largest banks and leading corporations.
CRISIL’s majority shareholder is S&P. S&P, a part of McGraw Hill Financial (formerly The McGraw-Hill Companies), is the world’s foremost provider of credit ratings.