Subdued credit growth weighs on NTB; but Sept. earnings up on tax benefits

Nations Trust Bank PLC (NTB) reported higher earnings for the three months to September (3Q20), on the absence of the Debt Repayment Levy and Nation Building Tax on financial services but the lack of growth and higher credit costs weighed on the operating results of the bank. 

The bank saw its total loans and advances contracting by Rs.10.5 billion in the nine months to September but it witnessed the contraction was narrowing closer to September to Rs.1.9 billion, in an indication that the bank was beginning to feel the positive impacts of the robust growth seen in the private sector credit.  

The bank reported a net operating income – profit before overheads but after impairments— of Rs.4.88 billion for the July-September quarter, compared to Rs.5.16 billion in the comparable period last year, a decline of 5 percent. The net interest income was up one percent to Rs.4.15 billion, as the management took proactive steps to manage margins, since the bank maintained its net interest margin at 4.33 percent, up from 4.03 percent in June and little changed from 4.86 percent at the beginning of the year. “However, stressed macroeconomic conditions caused a lack of growth in the overall loan book.  

This, coupled with interest concessions granted as explained above and low yields on surplus liquid assets, resulted the net interest income to drop by 9 percent,” the bank said in an earnings release in reference to the nine months income.  The net fee income dropped 10 percent to Rs.1.47 billion in the quarter from a year ago, on the absence of net credit growth, particularly in the bank’s credit card portfolio, which accounts for a sizeable share.  
“Cards income resulted in the highest drop of 26 percent with the drop in card spend, due to the changes in customer spending pattern owing to the pandemic. The restrictions on non-essential imports and an overall decline in exports caused a 7 percent drop in the trade fee,” the bank said. 

The bank provided Rs.1.22 billion in possible credit losses in the quarter, compared to Rs.711.9 billion in the three months a year ago. The bank’s non-performing loan ratio was 7.18 percent, up from 6.61 percent in June and 6.17 percent in 2019.  The reported earnings of Rs.4.78 a share or Rs.1.36 billion in the three months to September, compared to Rs.3.98 a share or Rs.1.13 billion in the comparable period last year. 

Meanwhile, on the funding side, the bank’s deposit portfolio grew by Rs.12.9 billion in the nine months but it appears that the bank doesn’t very much prefer the deposits, which weighs on its net interest income, due to the absence of a sizeable growth in the credit. This was reflected from the Rs.1.1 billion de-growth seen in the deposits during the last three months. 

“The bank continued to benefit from the low-cost funding swaps, compared to the cost of rupee deposits,” the bank made it clear in its earnings release.