Pan Asia Banking Corporation PLC delivered its biggest ever 1H profits even amid much tougher market conditions resulting from the higher interest rates and lower demand for credit.
The bank with little over an asset base of Rs.128 billion said its net profit increased by 2.0 percent from a year ago to Rs. 616.8 million or Rs.2.96 a share, which is by far the highest ever net profit posted by the 22 year old bank for its half year results.
The performance was largely supported by the bank’s prudent asset and liability management, timely re-pricing of the portfolios, re-calibration of assets in to more remunerative areas and closer tab on overheads.
Despite the challenging macro-economic conditions prevailed for lending as the interest rates remained higher, the bank managed to expand its gross loans and receivables book by little under Rs.5 billion.
Commenting on the performance, the bank’s Director, Chief Executive Officer, Nimal Tillekeratne said although the bank faced some headwinds during this period which slowed down the growth from the desired level, the bank took some bold decisions and deployed strategies to ensure the future growth path is a sustainable one.
“We simply do not want to be mired in a stop-go style of growth as we have seen in the recent past. Our focus now is on building a solid foundation to ensure a sustainable and a durable growth.
So, we have identified where the improvements must be needed and bridged the loopholes wherever they are, in areas such as credit controls, NPL management, building a talent pool, managing costs, innovation and digital banking.
We are already seeing the results and I am confident that in the medium term we could build on these strengths to record higher growth when the market conditions turn benign’, Tillekeratne added.
Meanwhile for the second quarter (2Q’17), the bank posted a net profit of Rs. 263.5 million or Rs.2.51 a share. This is a decline of 12 percent from the same period last year as the margins pressured amid high cost of funds.
However bank’s return on equity clocked in at 14.51 percent which is considered as a relatively strong return. The bank’s near 20.0 percent RoE came down as a result of the Rs.2.0 billion rights issue in March this year which strengthened the bank’s capital base substantially.
The bank’s core-banking operations remained intact during the 1H’17 as the net interest income rose by 2.0 percent to Rs.2.38 billion from a year.
The growth in net interest income slowed down as the pressure mounted on margins as the deposit rates remained high.
However the bank managed to contain the decline in net interest margin to only 14 basis points to end the period with 3.73 percent which is still higher than the industry average as well as some bigger players in the market.
Meanwhile the deposits grew by some Rs.6.6 billion, of which majority contained medium term deposits as the depositors preferred higher interest yielding fixed deposits over savings deposits.
As a result the low cost deposits took a slight dip during the six months which weigh on the bank’s net interest margin.
The bank has a total deposit base of Rs.98.1 billion and a gross loans and receivable book of Rs.102.9 billion.
Other income as an anchor
Meanwhile the net fee and commission income provided much needed cushion as such income rose by some strong 37 percent to Rs. 661.9 million from a year earlier.
The fee and commission income was mainly driven by the credit and card related fee and commission which have increased in tandem with their portfolio growths.
Meanwhile the bank also increased its trading gains by 49 percent year-on-year to Rs.165.7 million mainly due to the increased gains from units and exchange gains from financial derivatives.
However, other operating income declined by 37 percent yoy to Rs.147.5 million predominantly due to steeper fall in exchange revaluation gains.
As a result the total operating income grew by a modest 6.0 percent yoy to Rs. 3.36 billion for the 6 months.
Pressure on asset quality
Meanwhile the period saw the bank’s asset quality coming under pressure as the gross non-performing loan ratio increasing to 6.26 percent from 4.74 percent in December 2016 mainly due to the subdued growth in loans during the period.
Besides there was a slight increase in non-performing loan portfolio as some of the borrowers found it challenging to service their facilities amid tougher economic conditions which eroded their disposable income.
But the bank said the situation had been arrested with recovery efforts have been strengthened. The bank further set up a new unit to closely monitor all the facilities to ensure they do not fall in arrears.
Strong capital buffer
Meanwhile Pan Asia Bank strengthened its capital base quite substantially during the period with the injection of fresh equity of Rs. 2.0 billion during the 1Q’17.
As a result the bank saw its Tier I and Tier II capital adequacy ratios increasing to 10.79% and 13.30% respectively from 8.37% and 11.40% in December 2016.
Now the bank’s capital adequacy ratios stands well above the minimum required by even the BASEL III accord which came in to effect on July 1, 2017.
With the strong capital base, sound fundamentals and correct strategies, the bank is confident that it could record higher growth and better results during the 2H’17 to end the year with a record profit, surpassing even the previous best.