Section of the audience at the investor forum - Pix by Kushan Pathiraja 


Going forward, the banking sector margins will further come under pressure due to the twin challenges of lower interest rates and the uptick in cost of funds as the banks having to offer higher deposit rates, according to Nations Trust Bank PLC (NTB) CEO, Renuka Fernando.  

After a long hiatus, Sri Lanka’s private sector credit growth started picking up from the third quarter of last year and the banks find challenging to fund this pent up demand for credit which began from the first quarter of this year. 

Therefore the banks slowly increased their fixed deposit rates in the order of 25-50 basis points in order to attract deposits in to the system. 

“In the low interest rate regime, there is always pressure on Net Interest Margins (NIM). That is why you have to attack it below your net interest income line, especially on your cost,” Fernando said on the sidelines of the bank’s fifth investor forum held yesterday. 

However Fernando said NTB operates with adequate liquidity. The bank’s statutory liquid asset ratio in its domestic and off-shore banking units stood at 24.58 percent and 30.81 percent respectively by the end of June 30,2015, above the minimum requirement of 20 percent. 

NTB which has always maintained its NIM, above the industry average, saw its NIM edging down to 5.69 percent from 5.81 percent during the first half of 2015. 

However, the banking sector NIM in April slightly improved to 3.7 percent from 3.2 percent in the same month last year. 

To tackle this challenge, she suggested growing business volumes which can circumvent the impact of the low NIMs. For this she said, the banks must offer innovative investment products shifting away from offering just plain vanilla styled fixed deposits focusing on the aspirational consumer requirements. 
NTB’s NIMs remain above the industry average because its loan portfolio is skewed towards the consumer banking side which generally commands higher margins. 

Besides, lean management practices to achieve internal operational efficiencies too play a key role in maintaining higher bottom line. NTB has contained its cost to income ratio to 52 percent by the end of June 30, 2015. 

High yielding leasing and credit card portfolio is 37 percent of the total gross loans and receivables of Rs.105.5 billion as of June 30, 2015. Fernando said NTB commands between 20 to 25 percent from the credit card market share. 

However the bank has aggressively ventured in to Small and Medium Enterprise segment as its portfolio grew from Rs.16 billion to Rs.26 billion during the last two years. 

“We now have a very diversified and a balanced loan book,” she said.

However she said the 5.8 percent growth the bank achieved in its gross loans and receivables is below their expectations but remain positive on the second half of the year. 

The bank grew its loans and receivables portfolio by just Rs.5.8 billion during the six months and the asset base grew by just 1 percent to Rs.161 billion. 
The gross non-performing loan ratio slightly improved to 4.05 percent from 4.20 percent during the six months. 

The banking group’s first half net profit growth was constrained to just 9 percent year-on-year to Rs. 1.26 billion (EPS of Rs.5.45) due to higher impairment charge caused by a hefty one-off write off against a fraud committed in during the first quarter to the tune of Rs.350 million. 

“We have taken action to clean it out. There is an ongoing investigation by the Criminal Investigation Department. We have taken the full hit and we are trying to recover as much as possible going forward,” she assured the shareholders.