Sanasa June quarter net falls amid shrinking margins

Sanasa Development Bank PLC saw its June quarter (2Q16) net profit falling by as much as 63 percent year-on-year (YoY) to Rs.77.8 million or Rs.1.85 a share due to narrowing margins, higher personnel and other expenses, the interim results filed with the Colombo Stock Exchange showed.

 
The core banking operations suffered as the bank had to offer higher rates to retain its existing deposit base but the loan book was repriced at a slower pace. The result was the interest expenses rising by 19 percent YoY to Rs.1.95 billion whereas the interest expenses rose by a much faster 45 percent YoY to Rs.1.16 billion. 

This dragged down the earlier comfortable margin between the cost of total funds and interest income from loans and other investments enjoyed by the bank to 5.83 percent from 7.13 percent within six months. 
As a result, the net interest income fell 6 percent to Rs.785.6 million from a year ago.  The loan book grew by 11 percent or Rs.5.1 billion to Rs.50.9 billion during the six months but the deposits remained unchanged despite offering higher rates. 

The bank had a deposit base of Rs.43.2 billion, 88 branches and 1,217 employees. 

In December 2015, the bank issued a Rs.4 billion debenture and other borrowings also rose by Rs.1.2 billion. Sanasa has fully funded its loan book through borrowings and the absence of new deposits could make the future growth challenging for the bank.  The bank also saw Rs.897 million worth of held-to-maturity investments being retired.   

The bank had a total asset base of Rs.61.9 billion, up 3 percent in six months. The net asset per share dropped to Rs.127 from Rs.136 as 1.8 million new shares were listed on June 10, 2016 in lieu of scrip dividend of one for 21.9467. 

Meanwhile, the net fee and commission income grew by 16 percent YoY to Rs.71 million during the June quarter.  Provisions made for possible bad loans were Rs.24.6 million, 28 percent lower from a year ago, as individual impairments remained lower. 

The steep rise in personnel and other expenses on a YoY basis hurt the June results the most as the former rose by as much as 39 percent or Rs.92 million to Rs.328.7 million during the quarter. 
For the six months ended on June 30, 2016, the bank posted a net profit of Rs.196.6 million or Rs.4.67 a share, 52 percent down from a 
year ago. 

The net interest income was 3 percent lower at Rs.1.6 billion compared to the same period 
last year. 

Dr. T. Senthilverl and Global Rubber Industries held 14.0 percent and 10.31 percent stakes, respectively, as at June 30, 2016, being the first and second largest shareholders, up from 13.8 percent and 9.8 percent, respectively, 
from March.