SMIB awaits Rs.1.7bn fresh equity from Treasury to meet minimum capex

State Mortgage & Investment Bank (SMIB), which has been recalibrating its portfolio away from the Employee Provident Fund (EPF)-backed loans is facing a Rs.1.7 billion equity deficit this year to meet the regulatory mandated minimum capital levels, which kicks in by the end of the year. 

According to the numbers worked out by ICRA Lanka Limited after accounting for the internal capital generation, the rating agency said the State-owned specialised lender would need about Rs.1.7 billion to meet Central Bank’s minimum core capital requirement, which will step up to Rs.7.5 billion on December 31, 2022. 

According to the latest financial information available up to September 2021, the bank’s core capital stood at Rs.5.8 billion, which is well above the current regulatory requirement of Rs.5.0 billion. 

But, the bank faces a deficit in its core capital, as it is required to meet the elevated core capital requirement, which will be enforced from the end of this year after a two-year deferment period, which was given by the Central Bank, at the onset of the pandemic in 2020. 

Nevertheless, the bank already stays well above the BASEL required minimum capital adequacy ratios. 
For instance, by September 2021, the Tier I capital ratio was at 21.77 percent, whereas the regulatory requirement was 8.00 percent and the total capital ratio stood at 22.87 percent, compared to the 12.00 percent regulatory minimum. 

ICRA Lanka last week reaffirmed the bank’s rating at BBB+ with a Stable outlook considering these conformable level of capital ratios, expectation of a capital infusion to make up for the deficit mentioned above and the portfolio shift from EPF backed loans which have  generated a sizeable non-performing assets in the past. 

For instance, the bank’s overall Gross Non-Performing Loans (GNPL) ratio has slightly improved to 22.10 percent by September 2021 from 22.94 percent in December 2020, and the ratio barring the EPF backed loans improved to 11.22 percent and further to 10.13 percent by November end. 

The management has consciously been trimming its exposure to EPF-backed loans, and during the last five years the share such loans of the total portfolio came down to 17 percent from 36 percent. 

The balance consists of personal loans and mortgage loans, which respectively account for 49 percent and 26 percent shares from the total loan portfolio. 

SMIB with Rs.52.9 billion assets reported profit after tax of Rs.269 million for the nine months ended September 30, 2021, down from Rs.322 million in the corresponding period last year. 
The bank is fully owned by the government.