Seylan Bank June net up 25% but asset quality weakens

Seylan Bank PLC reported earnings of Rs.3.74 a share or Rs.1.32 billion for the June quarter (2Q17), recording an increase of 25 percent year-on-year (YoY) amid weaker growth in loans, compressed margins and higher loan loss provisions, the interim results of the bank showed. 

The bank with an asset base of Rs.370 billion managed to grow its loans by about Rs.7.7 billion during the 6 months while the deposits grew by some Rs.6.7 billion, relatively weaker for a bank of its size. 

The bank on a standalone basis has a loan book of little under Rs.250 billion and a deposit base of Rs.280.2 billion. 

The bank’s net interest income rose by 15 percent YoY to Rs.3.67 billion but the interest expenses rose much faster than the increase in interest income, exerting pressure on the margins. 
As a result, the net interest margin fell by 21 basis points to 3.98 percent.

The low cost deposits measured by current and savings account (CASA) ratio also fell by about 100 basis points to 31.6 percent during the six months ended June 30, 2017.

Meanwhile, the bank made higher provisions against some selected clients as the specific provisions rose to Rs. 684.8 million from Rs.103.8 million YoY. 

Seylan said these were some impairments made on, “legacy NPAs that was made due to the delay experienced in settlement of dues by the Compensation Tribunal and another payment to be received   as a secured creditor with the liquidation of entity concerned”. 

The soar loan portfolio also rose as the gross non-performing loan ratio increased to 5.16 percent from 4.47 percent in December 2016. 

The net fee and commission income rose by 23 percent YoY to Rs.903.1 million for the quarter.  
Meanwhile, for the six months ended on June 30, 2017, the banking group reported earnings of Rs.6.13 per share or Rs.2.14 billion net profit, recording an increase of little under 24 percent YoY. The net interest income for the period was Rs.7.29 billion, up 18 percent YoY.

 
Both specific and general provisions rose substantially. 
The bank’s tier I and tier II capital adequacy ratios stood at 10.42 percent and 12.67 percent, higher than the regulatory minimums but a higher growth in assets could weaken the capitalization. 

As of June 30, the government held little over 32 percent stake in Seylan Bank PLC through Sri Lanka Insurance Corporation Limited, Employees’ Provident Fund and Bank of Ceylon. 

Brown & Company PLC and LOLC Investments Limited held 13.97 percent and 9.55 percent stakes, respectively.