Amana Bank December in red as one-off impairment provision hurts performance

Amana Bank PLC for its October-December quarter reported a loss of five cents a share or Rs.60.8 million from a net profit of Rs.37.4 million recorded during the same period from a year ago, the interim financial accounts released to the Colombo Stock Exchange showed. 
The performance was impacted by a one-off impairment of Rs.149.2 million while the growth in loans also slowed as a result of tighter credit conditions during the period.    
“Although the one-off impairment has had an impact to our profits, the net assets were not affected as a result, due to such losses being captured in the bank’s reserves previously and set off against profits in the fourth quarter,” said the bank’s Chief Executive Officer Mohamed Azmeer in a post-earnings release. 
But the impairment is a provision made against the profit in view of a possible credit loss and such profit is added to the retained earnings. 
Since Amana Bank has a negative retained earnings due to previous losses, any new profits made will reduce the cumulative negative balance in the retained earnings, thus the net assets improves. 
For the year ended December 31, 2016, the bank reported earnings of Rs.40.6 million or three cents a share, down 74 percent. 
Amana is the first Lankan Sharia-compliant lender operating on the non-interest-based banking model with an asset base of Rs.54.3 billion, up little under 14 percent. 
The bank in January received the Central Bank nod to delay its core-capital enhancing requirement to June 30, 2017 from the earlier January 1, 2017 on the grounds that the bank is in talks with a fund manager to infuse fresh capital in return for a stake in the bank. 
The bank is negotiating a deal with Islamic Corporation for The Development of the Private Sector (ICD), fund manager of IB Growth Fund (Labuan) LLP – (IBGF) for a proposed issue of shares. However, the bank must increase its core capital base up to Rs.10 billion by January 1, 2018. 
The bank’s Tier I and Tier II capital adequacy ratios weakened to 10.4 percent and 10.8 percent, respectively from 12.0 percent and 12.4 percent a year ago. The minimum regulatory requirement for each is 5.0 percent and 10.0 percent. 
In 2016, the bank grew its loan book by 16.2 percent or Rs.5.4 billion to Rs.38.7 billion. The net interest margin remained unchanged at 3.6 percent. 
The deposits grew by 21.8 percent or Rs.8.4 billion to Rs.46.9 billion. 
As at December 31, 2016, Bank Islam Malaysia Berhad, AB Bank in Bangladesh and the Islamic Development Bank based in Saudi Arabia together held a 38.5 percent stake in Amana Bank.