NTB records performance whilst supporting economy
The Government and the Central Bank of Sri Lanka (CBSL) initiated various policy measures during 2020, aiming at triggering economic activities, ensuring livelihoods, and preserving the stability of the country’s financial system. These policy measures included loan moratoriums, reduction of policy rates, lowering of the statutory reserve requirement for licensed commercial banks, restricting importation of non-essential items, and offering various incentives to attract foreign funding sources into the domestic market.
In this backdrop, Nations Trust Bank PLC (NTB) participated in providing working capital loans under the “Saubhagya” scheme introduced by the Government and took measures to extend necessary assistance to customers across all segments who required special attention.
The bank recognised the importance of contributing to assisting adversely affected businesses with a view of supporting the revival of the national economy and rebuilding livelihoods. Towards this cause, the bank allocated Rs. 7 billion for 2020 via internally generated funds under the “Nations Diriya” scheme dedicated to extending financial support to key industries, thereby enabling such businesses to recommence their business operations.
Special payment relief schemes and special repayment plans for borrowers were also offered in addition to the Central Bank-mandated moratorium schemes by lowering interest rates and charges on identified segments. With banking being declared an essential service during the first wave of Covid-19, a concerted effort was made to keep branches across the network open in order to facilitate regular branch operations throughout the lockdown period. The bank operated a 24×7 contact centre uninterrupted throughout this period, supporting all its client’s banking requirements.
During the pandemic, the bank strengthened its digital essentials in order to keep its customers connected and facilitated all banking services digitally.The bank also supported cash to the doorstep services during the lockdowns. Digitisation and e-Commerce being the way forward, the bank continued to invest in further strengthening the digital platforms designed with customer centrality. Whilst being socially responsible, the bank converted customer and brand communications from paper-based to e-based methods.
Despite the circumstances followed by the outbreak of the Covid-19 global pandemic, NTB demonstrated performance with a bottom-line growth of 9%. However, net interest income fell short by 15% while the interest margins eroded by 80 bps due to the combined impact of the lower interest regime, interest rates ceilings imposed, and the concessionary interest rates granted on debt moratorium.
Credit demand from the private sector and the selective lending approach adopted by the bank amidst elevated credit risk prevalent in the market throughout the year led to a contraction in the loan book by 7%, adding pressure on the interest income growth. Low yield on the excess liquid assets further impacted the overall margins. The low level of economic activity and restricted hours of business operations during the pandemic had a sizable impact on the volume of fee-based transactions carried out by the bank during the year.
Furthermore, suspending or refunding certain charges by the bank, considering the current difficulties faced by customers due to the pandemic, also negatively impacted the bank’s fee-based income, resulting in a drop of 12.9% over the past year. Cards income resulted in the highest drop of 26% with the drop in card expenditure due to changes in customer spending patterns owing to the pandemic.Restrictions on non-essential imports and an overall decline in exports caused a 7% drop in the trade fee.
However, gains on trading FX increased as a result of FX funding swaps with the depreciation of the rupee during the current period in contrast to the appreciation experienced during the same period last year. The bank continued to benefit from the low cost funding swaps compared to the cost of rupee deposits. The bank also benefited with trading profits on its fixed income securities portfolio with the drop in market rates, resulting in an overall growth in non-fund-based income by 18% over the last year, despite the drop in fee-based income.
The efforts were disrupted heavily due to the pandemic, resulting in the non-performing loans ratio increasing to 7.2% compared to 6.2% reported last year. The bank made additional provisions on impairment for identified customer segments for possible cash flow delays based on available information and on certain risk-elevated industries they operate in. With the cascading impacts of above coupled with the downgrading of the country’s sovereign rating, the overall impairment provisions increased by 16.5% over last year.
Operating expenses were curtailed by Rs. 968 million, a 9% saving over last year. Various cost saving strategies and initiatives, along with productivity, efficiency drives, and focus on some of the large cost pools, were the main reasons for the favourable variance. Accordingly, the cost to income ratio as of December 2020 improved to 46% compared to 48% achieved last year.
With the abolishment of the Debt Repayment Levy (DRL) and the Nation Building Tax (NBT) with effect from January 2020 and December 2019, respectively, the effective tax rate dropped to 46% from 56%, respectively, last year and the group recorded a profit after tax of Rs. 4.05 billion compared to Rs. 3.71 Billion in 2019.
The financial position of the group remained strong as its Tier I Capital and Total Capital Adequacy ratios as at 31 December 2020 stood well above the regulatory levels at 14.73% and 18.29%, respectively. The Statutory Liquid Asset Ratio (SLAR) for the domestic banking unit and the off‐shore banking unit were at 38.79% and 30.75%, respectively, as at year-end.
NTB CEO/Director Priyantha Talwatte stated: “Despite the substantial headwinds, the bank will continue to support the Sri Lankan Government’s initiatives in reviving the economy and safeguarding the livelihoods of our people. The Nations Trust teams are fully committed to support our nation and all our clients to navigate through this period and come out strong into a post-pandemic era. The bank is confident it has many endowments and capabilities to successfully navigate this period and serve all our stakeholders. The rollout of the vaccine and the careful opening of the country’s borders to tourists are welcome indicators of a gradual recovery. The bank is optimistic of prospects. We continue to be committed to serving our customers achieve their financial goals and aspirations in a sustainable manner.”