Higher impairments and modest business volumes overshadow Seylan Bank 4Q

Higher credit costs on account of possible loan defaults, modest business volumes amid faster re-pricing of the asset base compared to the liabilities in a declining interest rate regime, dragged down Seylan Bank PLC’s December quarter (4Q20) profits, but the bank navigated the pandemic triggered challenges 
relatively well.

The bank reported net interest income of Rs.4.7 billion in the period under review, down 4.73 percent from the same period a year ago, as “the sluggish industry credit growth due to COVID-19 pandemic slowed down the usual credit growth patterns of the bank,” Seylan Bank said in a statement. 

The bank’s loans and advances book showed a notable acceleration towards the final three months of the year as the bank gave Rs.14.5 billion in loans, in relation to the total loan growth of Rs.19.4 billion for the entire year. 

“Term loans, pawning and refinance loans backed by Saubagya refinance scheme were the main products that contributed towards this modest credit growth,” the statement added. The bank has a total loan book of Rs.409.3 billion by December end. 

The bank managed to improve its asset quality towards the year-end from September quarter as its gross non-performing loans ratio slightly recovered to 6.43 percent from 6.75 percent, though it remained higher than 5.76 percent at the start of the year. 

Provisions, mainly against possible bad loans and to a lesser extent against other financial assets such as foreign currency denominated government bonds, hurt the bank’s bottom line the most as such provisions rose to Rs.1.58 billion in the final three months from Rs.735.2 million in the corresponding period of  2019. 

The bank reported earnings of Rs.1.63 a share or Rs.841.3 million for the quarter under review compared to Rs.2.62 a share or Rs.1.18 billion in the same period in 2019. 

For the full year ended in December 31, 2020, the bank reported earnings of Rs.5.88 a share or Rs.3.04 billion compared to earnings of Rs.8.83 a share or Rs.3.73 billion in 2019. 

The bank’s share ended at Rs.49.60 yesterday, 80 cents or 1.59 percent lower. 

The bank saw its deposit base rising by Rs.39.6 billion to Rs.440.3 billion by the end of the year.  The bank in July announced a debenture issue to raise up to Rs.10 billion, but in November it decided to defer the issue towards the first half of 2021 taking into consideration the prevailing market conditions.

“The Board decided to review the market conditions during the first quarter in 2021 and consider the timing of proceeding with the issue subject to receiving the approval of the CSE on the listing of the debentures,” the bank said in a note to the interim results. 

During the quarter, business tycoon Dhammika Perera upped his stake in the bank to 9.89 percent to become its third largest shareholder from 6.20 percent as at September 30, 2020.