In the backdrop of an extremely challenging environment, Seylan Bank recorded a Profit After Tax (PAT) of LKR 3Bn for the year ended 31 December 2020.
Interest Income of the Bank stood at LKR 52.3Bn while interest expenses stood at LKR 32.8Bn reflecting a Net Interest Income (NII) of LKR 19.5Bn with an annual growth of 4.6% in the year under review. The main contributor for NII was the loans and advances portfolio that generated interest income of LKR 41.7Bn during the year whilst the Treasury operations generated LKR 8.5Bn in interest income. Interest expenses on deposits stood at LKR 27.8Bn recording a decline from LKR 30.7Bn from the previous year. Deposits that were re-priced during the year helped the Bank to reduce its funding cost.
Net Interest Margin (NIM) of the Bank declined to 3.95% against 4.20% reported in FY2019, as the loan book repriced at a faster rate than the deposits. This also offset the positive impact from the growth in low cost deposits.
Net Fee & Commission Income reduced to LKR 3.7Bn from LKR 4.2Bn, recording a YoY contraction of 11.89%. The reduction was mainly due to the lower volume of foreign trade related activities and banking operations by businesses retailers etc.
The Total Operating Income growth of 4.36% predominantly aided by treasury trading activities which improved from a loss of LKR 497Mn in 2019 to a gain of LKR 348Mn in FY 2020. Further, net gains reported from de-recognition of financial assets increased to LKR 782Mn from LKR 320Mn from FY2019 sustained the operating income growth and other operating income reduced by LKR 600Mn mainly due to contraction of trade-related activities during the year.
Bank recorded an impairment charge of LKR 6.9Bn against LKR 3.9Bn reported in 2019 with a growth of 80%. Impairment charges for Stage III advances increased from LKR 3.9Bn to LKR 5.7Bn during the year due to the impact of COVID-19 pandemic on businesses. Further, businesses that were identified as risk elevated industries too contributed to the increase in impairment. Impairment on Stage I & II also grew from LKR 103Mn to LKR 628Mn and reversal of LKR 246Mn to charge of LKR 359Mn respectively. Simultaneously, Impairment on other financial instruments and assets also went up by LKR 290Mn, mainly due to downgrading of the credit rating attributed to foreign currency bond holdings. The overall impairment improved the provision cover ratio to 43.68% as of 31 December 2020.
Total Operating Expenses of the Bank slightly increased by 1.40% compared to FY2019. Establishment expenses reduced marginally from LKR 6.0Bn recorded in FY2019 to LKR 5.9Bn in FY2020. This was mainly driven by selective investments made on prioritized projects and cost containment initiatives adopted during the year. The Bank continuous commitment to improve processes and workflows via business process reengineering, automating repetitive tasks, and improving digitizing systems and channels together with ongoing cost-saving initiatives contributed to this reduction.
The Bank’s Cost to Income ratio which stood at 50.3 % as at the end of 2020 has decreased when compared to FY2019.
VAT on Financial Services reduced by 5.73% in align to the Bank’s performance despite the increase in personnel cost by 4.82%. The Nation Building Tax (NBT) and the Debt Repayment Levy (DRL) that were in 2019 were abolished during 2019, reflecting a positive change to the income statement. Income tax expenses stood at LKR 1.3Bn which reduced to LKR 1.1Bn due to subsequent elimination of temporary differences in Deferred Tax.
Overall, Bank recorded a Profit Before Tax (PBT) of LKR 4.1Bn against LKR 5.10Bn in FY2019 demonstrating a 19.37% decline. Similarly, Profit After Tax (PAT) was LKR 3.0Bn against LKR 3.6Bn reported in FY2019. This reflected a YoY reduction of 18.18%.
Statement of Financial Position
Bank achieved the LKR 557Bn Total Assets as of 31 December 2020 (Dec 20), a 8.02% growth compared to the 31 December 2019 (Dec 19). Overall, the Bank’s gross loans grew by LKR 19.3Bn, recording a 5% growth compared to Dec 2019 to stand at LKR 409.3Bn as at Dec 2020. Disbursement of loans under the Saubagya Scheme to help the pandemic affected businesses was a key focus and accounted for a significant component of the new loans disbursed.
Managing asset quality in the prevailing economic climate was a key challenge, as this had to be accomplished while assisting customers to sustain their businesses amidst the unprecedented negative impact of the pandemic on businesses. The difficult external factors contributed to a deterioration of the portfolio quality with the Gross NPL ratio increasing to 6.43% from 5.76% in 2019.
Total deposit base of the Bank grew by LKR 39.6Bn to LKR 440.3Bn, a 9.87% increase compared to the previous year mainly delivered by the internal campaign “Heroes of Heart” launched in 2020. Further, the Bank’s CASA base grew to LKR 145.4Bn, achieving a notable growth of 28% which improved the CASA ratio to 33% as of Dec 20.
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 11.46% and Total Capital Ratio recorded 14.30% as at Dec 2020.
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 31.31% and 22.47% respectively as of Dec 20.
The Return on Equity (ROE) stood at 6.43% for the year under review, compared to 9.29% recorded in 2019. The Return (after tax) on Average Assets (ROAA) recorded as 0.56% in 2020.
Earnings per Share (EPS) in 2020 stood at LKR 5.82, a reduction compared to the LKR 8.70 recorded in the previous financial year, while net assets value of share recorded at LKR 94.71 (Group LKR 98.20).