Volatile economic conditions which prevailed in the country and affected many key economic sectors since the second half of 2018, continued into 2019 as well, impacting the financial performance of many businesses.
Amidst the rising NPLs, increased credit cost and moderation of credit growth, the Group pre-tax profits recorded a 10% drop over the previous period largely stemming from increased impairment charges whilst post-tax profits took a further hit largely due to the LKR 383Mn impact arising from the Debt Repayment Levy. Notably, Bank post-tax profits recorded a larger drop due to the inter-company dividend income received in the corresponding period of 2018.
Despite the headwinds present in the operating environment, the Bank continued pursuing its strategic initiatives identified at the beginning of the year in the areas of CASA growth, digital journey, cost efficiencies and the upskilling of people, further strengthening the foundation for capturing a larger component of the upside of business growth in the medium term.
The Bank has followed a cautious approach in expanding its advances portfolio during the current challenging economic conditions, which has contributed to a slowdown in the loan book growth leading to a moderated net interest income growth of 9%. A higher increase of 21% is seen in interest expenses due to the increased cost of funds and a higher mix of medium term funding raised for better diversification of the funding base.
Whilst credit cards, trade and deposit related fee based income recorded a moderate growth, lending related fees recorded a drop owing to lower volumes and the absence of one off fees earned from syndication facilities in the previous period. Net trading losses arising from the movement in SWAP premiums is largely negated by the revaluation gains arising from balance sheet positions accounted under Net other operating income. The Bank continued to benefit from the relatively lower funding costs of the forex swaps compared to high cost rupee deposits.
Expenses growth was well contained at 8% with a cost management culture entrenched across the organization to manage the bottom line, in times of curtailed growth in the top line. Cross functional teams heading various initiatives on cost management, productivity and efficiency improvements have largely assisted in minimizing increases in some large cost pools contributing to the overall management of the Bank bottom line.
The Group was also required to pay substantially higher income taxes in respect of the current year under the new tax regime introduced by the Government in April 2018.
The Group’s Tier 1 capital ratio of 12% as at 30th June 2019 was comfortably above the minimum requirement of 8.5% which became effective from 1st January 2019 under Basel III while the Total Capital Ratio of 15% was well in excess of the Basel III minimum requirement of 12.5%.
Commenting on the results and achievements, Renuka Fernando, CEO/Executive Director stated, “All our efforts and focus is to record an improved performance in the second half of the year with the focused strategies towards better recoveries and lower impairment provisions. With a cautious approach in growing the assets book we remain committed to delivering our strategic agenda set at the beginning of the year to strengthen our digital capabilities, with the ultimate intention of achieving cost efficiencies, pioneering innovation and thereby challenging the norm to deliver an unparalleled banking experience to our customers. We are extremely proud to have been awarded as the winner for Best New Fin-Tech Bank Sri Lanka 2019 by Global Banking and Finance Review”.