Net Interest Income soars with impressive 20.98% growth
Seylan Bank recorded a Profit After Tax (PAT) of LKR 4.6 Bn for the year ended 31 December 2021 as Net Interest Income (NII) soared with an impressive growth of 20.98% for the period under review compared to 4.64% growth reported in 2020.
Despite the extremely challenging operating conditions that prevailed in 2021, the Bank recorded a healthy growth of 46.62% in Profit Before Tax (PBT) amounting to LKR 6.0 Bn compared to LKR 4.1 Bn recorded in 2020. Similarly, the Bank’s Profit After Tax (PAT) also achieved a 52.11% growth amounting to LKR 4.6 Bn in 2021 compared to LKR 3.0 Bn recorded in the previous financial year.
Though the Bank’s overall interest income for the period under review recorded a decrease of LKR 4.3 Bn to record LKR 46.8 Bn in 2021, interest expenses for the financial year decreased at a higher percentage of 26.66% to LKR 23.2 Bn compared to LKR 31.6 Bn recorded in 2020.
As a result, the Net Interest Income (NII) recorded an impressive growth of 20.98% for the period under review compared to 4.64% growth reported in 2020. An improved Net Interest Margin (NIM) of 4.05% recorded in 2021 compared to 3.63% in 2020 was driven by the timely re-pricing of assets and liabilities, together with the Bank’s continual strengthening of the CASA base which grew by LKR 27.6 Bn with 19.00% YoY growth in 2021.
The Bank’s net fee and commission income recorded a notable growth of 24.44% to LKR 4.6 Bn from LKR 3.7 Bn in the previous financial year. The growth in fee and commission income was driven mainly by guarantees, issuance fees, trade related fees as well as fee income on loans and cards.
The Bank recorded a total operating income growth of 23.71% amounting to LKR 31.4 Bn in 2021 compared to LKR 25.4 Bn in the previous financial year.
The Bank’s net gains from trading was reduced by 163.02 %, and was affected by the mark to market loss on derivative financial instruments and government securities during the year under review. Net Gains from de-recognition of financial assets recorded a negative growth of 29.28% over the prior year the year under review. Net other operating income of the Bank amounted to LKR 2,877.6 Mn for 2021, an increase of 172.04 % compared to the previous year.
The overall operating expenses of the Bank increased by 2.15% from LKR 12.8 Bn in 2020 to LKR 13.1 Bn during the period under review. The Bank’s personnel expenses increased slightly by 0.15% to LKR 7.3 Bn in 2021 compared to LKR 7.2 Bn in the previous year. Personnel Expenses includes a reversal of LKR 437.0 Mn past service cost on defined benefit obligation and if same was excluded, the personnel cost would have been higher with a 6.19% increase over the previous year. This was mainly due to annual increments as per collective agreements and staff promotions resulting an increased salary scales.
A moderate increase in establishment expenses is commendable, given the relatively faster volume growth during the year which reflects process improvements and efficiency-enhancing initiatives such as the implementation of workflows, robotic process automation, business processes re-engineering, and transaction migration to digital platforms. As a result, the establishment expenses increased from LKR 5.5 Bn in 2020 to LKR 5.8 Bn in 2021. The Bank continues to focus on cost curtailment and streamline the processes.
The Bank recorded an impairment charge of LKR 10.4 Bn in 2021 compared to LKR 7.0 Bn reported in 2020; with a growth of 49.03%. The Bank ensures adequate provisions are made in the financial statements for impairment charges and remains committed to continuously assessing the credit quality of the Bank’s loan portfolio. In the year under review, the credit quality of the Individually Significant Loans was critically evaluated, and appropriate provisions made, although some of those customers were within the debt moratorium.
Moreover, adequate provisions were also made under the Collective Impairment to capture the impact of the sluggish economic conditions prevalent in 2021, though part of the customers still continue on debt moratoriums. Management overlay was built to avoid any potential risk to the moratorium customers, while additional provisions were made to make sure the possible credit risk is addressed.
The Bank’s VAT on financial services increased by 26.60% amounting to LKR 1.9 Bn in FY 2021 compared to LKR 1.5 Bn recorded in the previous financial year. The Bank’s reported income tax of LKR 1.4 Bn for the FY 2021 has increased by 31.57% compared to LKR 1.1 Bn reported in FY 2020.
Despite the extremely challenging operating conditions that prevailed in 2021, the Bank recorded a healthy growth of 46.62% in Profit Before Tax (PBT) amounting to LKR 6.0 Bn compared to LKR 4.1 Bn recorded in 2020. Similarly, the Bank’s Profit After Tax (PAT) also achieved a 52.11% growth amounting to LKR 4.6 Bn in 2021 compared to LKR 3.0 Bn recorded in the previous financial year.
Statement of Financial Position
The growth of the Bank’s total assets which surpassed LKR 600 Bn in the year under review is a milestone demonstrating the sustained growth the Bank has been managing over the years. This growth in the asset base mainly comprises of growth in Loans and advances.
The Bank’s loan portfolio grew satisfactorily by 12.24% amounting to LKR 442.0 Bn despite the challenging conditions due to the COVID-19 pandemic. The key contributors to this growth were the Bank’s Term Loans, Pawning, Packing Credit Loans, Margin Trading and Overdrafts etc.
The Bank’s dynamic internal campaigns and promotions through digital platforms have enabled the growth of our deposits portfolio in an overall low-interest rate climate. The total deposits base of the Bank grew by 10.98% during the period under review to LKR 488.7 Bn from LKR 440.3 Bn in 2020.
Furthermore, the Bank’s CASA base grew from LKR 145.4 Bn in 2020 to LKR 173.0 Bn in 2021, a 19.00% growth compared to the previous financial year. The Bank’s CASA ratio stood at 35.41% in 2021 compared to 33.03 % in 2020. This increase is mainly attributed to the successful uptake of the internal campaign “Rise Up” which was launched during the year.
Managing capital, funding and liquidity are crucial to the on-going viability of any banking organisation in meeting foreseeable demands and to optimise the returns to stakeholders. To supplement business growth, improve Capital and to enhance the lending book, the Bank raised a total of LKR 6 Bn in a debenture issue during the financial year 2021 which was got oversubscribed, signifying strong confidence in the Bank.
The Bank maintains a sound capital adequacy ratio despite the growth of the risk weighted assets. The Bank’s Common Equity Tier 1 (CET 1) Capital Ratio & Total Tier 1 Capital Ratio recorded as 10.72% and Total Capital Ratio recorded 14.11% as at Dec 2021.
The Bank maintained its liquidity position above the required minimum ratios, during year under review. The Statutory Liquid Asset Ratio (SLAR) for the Domestic Banking Unit and the Foreign Banking Unit were maintained at 22.84% and 23.30% respectively as of 31 Dec 21.
The Return on Equity (ROE) stood at 9.07% for the year under review, compared to 6.43% recorded in 2020. The Return (before tax) on Average Assets (ROAA) recorded as 1.03% in 2021 compared to 0.77% in 2020.
The Bank’s Earnings Per Share (EPS) at the end of 2021 amounted to LKR 8.57, compared to LKR 5.64 recorded in the previous financial year, while net assets value per share recorded at LKR 97.44 (Group LKR 101.01) at the end of 2021 compared to LKR 94.71 (Group LKR 98.20) recorded at the end of FY 2020.
