Banking Sector Analysis (COMB,HNB,SEYB,NTB,SAMB,DFCC,HDFC,NDB,PAPC and MBSL)

Hi Friends

I just have done the analysis of Banking sector including 10 listed companies financial information ( including Voting and non voting shares).. I believe most of u all have at least one of the above stocks based on own you analysis and experience with the particular stock

I just want to get ur views and comments about your stocks about the current mkt price and future growth...

Ok i start from my picks... I bought HNBX and COMBX and DFCC, 2009 September... When Galien fund Starterd to selling the shares..( Collected very cheap price) I sold COMB X after one year period of time with good return and I sold DFCC during the bonus announcement... Still i am holding the HNBX, thinking that It would move up after Split....

Now I just thinking to get into NTB for the long term holding... Since NTB is on track to produce the good return with 1Bn milestone for 2010... And current PE is about 14.... Still It has a room to move up.. Further management works out to extending the branch network and introducing new products... This would help bank to have good potential growth...

How about SEYB... Still I have little bit scared about NPL ratio... ( But it reduced from 29%-21%) When u look at the financial reason for the reduction is that some of group loans ( granted Ceylinco group companies) were converted as Investment in Debenture and Preference shares... Further Bank Cost income ratio is pretty much high is about 69%... will see what will happened...

PAPC,MBSL and HDFC... There may be right issue to comply with capital adequacy requirement... Since CBSL required all the bank to have core capital in 2012 is Rs.4Bn ( I just want to confirm this requirement, if u know pls share with us) ....

Ok this my view..... Pls share with ur thoughts ........


I attached the Excel file of my analysis ... Pls open this....

Your Comments are Welcome....

Excellent analysis Seyon..

I recall there was a time Mono talked abt banks being traded on 2X-4X times on PBV.. so in that sense, OCMB.x, HNB.x, SEYB, NDB, DFCC are very much attractive..
Just my thoughts..

seyon wrote:Hi Friends

I just have done the analysis of Banking sector including 10 listed companies financial information ( including Voting and non voting shares).. I believe most of u all have at least one of the above stocks based on own you analysis and experience with the particular stock

I just want to get ur views and comments about your stocks about the current mkt price and future growth...

Ok i start from my picks... I bought HNBX and COMBX and DFCC, 2009 September... When Galien fund Starterd to selling the shares..( Collected very cheap price) I sold COMB X after one year period of time with good return and I sold DFCC during the bonus announcement... Still i am holding the HNBX, thinking that It would move up after Split....

Now I just thinking to get into NTB for the long term holding... Since NTB is on track to produce the good return with 1Bn milestone for 2010... And current PE is about 14.... Still It has a room to move up.. Further management works out to extending the branch network and introducing new products... This would help bank to have good potential growth...

How about SEYB... Still I have little bit scared about NPL ratio... ( But it reduced from 29%-21%) When u look at the financial reason for the reduction is that some of group loans ( granted Ceylinco group companies) were converted as Investment in Debenture and Preference shares... Further Bank Cost income ratio is pretty much high is about 69%... will see what will happened...

PAPC,MBSL and HDFC... There may be right issue to comply with capital adequacy requirement... Since CBSL required all the bank to have core capital in 2012 is Rs.4Bn ( I just want to confirm this requirement, if u know pls share with us) ....

Ok this my view..... Pls share with ur thoughts ........


I attached the Excel file of my analysis ... Pls open this....

Your Comments are Welcome....

Thanks for this Seyon. + rep

Thanks for your wonderful analysis Seyon. I am sure this will be very useful all the banking sector investors tremendously. Big + rep from me too.

Thanks for sharing this. I hope you have omitted non-recurrent gains when you calculate PAT/ net profits. Analyst needs to segragate bank's recurring gains on its trading portfolio vs non recurring gains ( such as DFCC sale of COM bank shares)

More relevent for banks, on my view is BV as they hold majority of financials assets which can be marked to markets whether it is taken in to P&L or not.

Other thing , we have to compare only one sgment in PER or PBV (Such as NV with NV only)

Banks capital structure, focus segment and assets quality differs markedly. Any comparision has to be only on that basis. Banks with good assets quality tends to trade at premium.

Thanks seyon.
as you mentioned ,NTB is highly attractive for me as well.

Hi seyon

Thanks for your good work.

On NTB, I had done a post just after release of their last qtr results. Pl go through:

http://forum.srilankaequity.com/t1707-ntb-have-a-re-look

For me, NTB is attractive over other banks in BFI sector due to:

1. Strong Financials
2. Good capital adequacy, NPA Ratio
3. Sound background provided by JKH group and CF.
4. Well placed among the smaller banks

Compared to larger banks, NTB's growth will be faster - going by the positive vibes and future plans in the AR.

SEYB is my next choice. Restructuring is in place and they have identified all important areas for improvement and are working on that. So they should not go wrong. Taking early position can yield handsomely in mid-term.

COMB and HNB are excellent - if you have the holding power. For trading - those are not suitable.

Just my two cents....

For what ever it is worth, here are 2 post/analysis I did on MBSL and NTB . I did these posts when this forum was very young. These were made before release of DEC results. Now you can compare with Seyon post.


MBSL : http://forum.srilankaequity.com/t108-mbsl-a-good-pick?highlight=MBSL

NTB : http://forum.srilankaequity.com/t124-ntb-analysis-keep-an-eye-open
( note warrants mentioned in the post will be soon converted to full shares)

salt wrote:Thanks for sharing this. I hope you have omitted non-recurrent gains when you calculate PAT/ net profits. Analyst needs to segragate bank's recurring gains on its trading portfolio vs non recurring gains ( such as DFCC sale of COM bank shares)

More relevent for banks, on my view is BV as they hold majority of financials assets which can be marked to markets whether it is taken in to P&L or not.

Other thing , we have to compare only one sgment in PER or PBV (Such as NV with NV only)

Banks capital structure, focus segment and assets quality differs markedly. Any comparision has to be only on that basis. Banks with good assets quality tends to trade at premium.

Hi Salt

Yes i noted, out of 4.5bn for the 9 months profit 5.3Bn contributed from selling 13.5 shares of COMB... If u take out this gain, there is no contribution from recurring operation..

Yes When the dealing securities are valued on marked to market basis, the unrealized gain will be booked in PL

I cant get your comments about Capital Structure and Assets quality... Pls clear me...

Thanks

salt wrote:Thanks for sharing this. I hope you have omitted non-recurrent gains when you calculate PAT/ net profits. Analyst needs to segragate bank's recurring gains on its trading portfolio vs non recurring gains ( such as DFCC sale of COM bank shares)

More relevent for banks, on my view is BV as they hold majority of financials assets which can be marked to markets whether it is taken in to P&L or not.

Other thing , we have to compare only one sgment in PER or PBV (Such as NV with NV only)

Banks capital structure, focus segment and assets quality differs markedly. Any comparision has to be only on that basis. Banks with good assets quality tends to trade at premium.

Salt,
U seems to have an above avg idea on banking sector valuation.. would appreciate if you could evaluate Seyon's analysis and elaborate more on the future gains of the sector. It may be worthwhile to hold few banks if the future looks promising.. Awaiting a reply from u.. here's a rep from me (not a bribe )

seyon wrote:Hi Friends

I just have done the analysis of Banking sector including 10 listed companies financial information ( including Voting and non voting shares).. I believe most of u all have at least one of the above stocks based on own you analysis and experience with the particular stock

I just want to get ur views and comments about your stocks about the current mkt price and future growth...

Ok i start from my picks... I bought HNBX and COMBX and DFCC, 2009 September... When Galien fund Starterd to selling the shares..( Collected very cheap price) I sold COMB X after one year period of time with good return and I sold DFCC during the bonus announcement... Still i am holding the HNBX, thinking that It would move up after Split....

Now I just thinking to get into NTB for the long term holding... Since NTB is on track to produce the good return with 1Bn milestone for 2010... And current PE is about 14.... Still It has a room to move up.. Further management works out to extending the branch network and introducing new products... This would help bank to have good potential growth...

How about SEYB... Still I have little bit scared about NPL ratio... ( But it reduced from 29%-21%) When u look at the financial reason for the reduction is that some of group loans ( granted Ceylinco group companies) were converted as Investment in Debenture and Preference shares... Further Bank Cost income ratio is pretty much high is about 69%... will see what will happened...

PAPC,MBSL and HDFC... There may be right issue to comply with capital adequacy requirement... Since CBSL required all the bank to have core capital in 2012 is Rs.4Bn ( I just want to confirm this requirement, if u know pls share with us) ....

Ok this my view..... Pls share with ur thoughts ........


I attached the Excel file of my analysis ... Pls open this....

Your Comments are Welcome....

Hi seyon & smallville,

You guys are marvelous (others too.. ) and I follow your posts and learned and learning lot. Thanks guys. You are teaching new comers like me, from your findings too. Collars up boysssssssssssssss

Both gets all the time + points from me too..... ( I know you're doing this not expecting + points from us but we're appreciating your work from giving + points)

anu wrote:Hi seyon

Thanks for your good work.

On NTB, I had done a post just after release of their last qtr results. Pl go through:

http://forum.srilankaequity.com/t1707-ntb-have-a-re-look

For me, NTB is attractive over other banks in BFI sector due to:

1. Strong Financials
2. Good capital adequacy, NPA Ratio
3. Sound background provided by JKH group and CF.
4. Well placed among the smaller banks

Compared to larger banks, NTB's growth will be faster - going by the positive vibes and future plans in the AR.

SEYB is my next choice. Restructuring is in place and they have identified all important areas for improvement and are working on that. So they should not go wrong. Taking early position can yield handsomely in mid-term.

COMB and HNB are excellent - if you have the holding power. For trading - those are not suitable.

Just my two cents....

Yes Anu I viewed you post... as u said all of the banks will benefit from reduction of the corporate tax and VAT on financial service..

Just for the info for the tax reduction related to banks and financial institution...

1.Reduce tax on profits of banking and financial institutions, from 35 percent to 28 percent. This will apply uniformly to all off-shore and
domestic banks as well as to finance companies, leasing, insurance and other specialized banking and financial services.

2.VAT on financial services will be reduced from 20 percent to 12percent.

Nice work.Thank you very much..!

smallville wrote:Excellent analysis Seyon..

I recall there was a time Mono talked abt banks being traded on 2X-4X times on PBV.. so in that sense, OCMB.x, HNB.x, SEYB, NDB, DFCC are very much attractive..
Just my thoughts..

Hi smallville

Yes as u mentioned all bank non voting shares are traded below 2x times on PBV.. out of that SEYB is very attractive at current price.. but I little bit scared about its NPL and Cost income ratio is pretty much high comparing with industry... As Anu mentioned, the restructure program is in place to highlight the good performance in future... How is ur personal views on SEYB...

Further NDB and DFCC are in different nature of banking ( Not like real retail banking).. Am i correct?

slstock wrote:For what ever it is worth, here are 2 post/analysis I did on MBSL and NTB . I did these posts when this forum to very young. These were made before release of DEC results. Now you can compare with Seyon post.


MBSL : http://forum.srilankaequity.com/t108-mbsl-a-good-pick?highlight=MBSL

NTB : http://forum.srilankaequity.com/t124-ntb-analysis-keep-an-eye-open
( note warrants mentioned in the post will be soon converted to full shares)

Thanks slstock... good analysis of NTB.. I gathered lot info.....

seyon wrote:

smallville wrote:Excellent analysis Seyon..

I recall there was a time Mono talked abt banks being traded on 2X-4X times on PBV.. so in that sense, OCMB.x, HNB.x, SEYB, NDB, DFCC are very much attractive..
Just my thoughts..

Hi smallville

Yes as u mentioned all bank non voting shares are traded below 2x times on PBV.. out of that SEYB is very attractive at current price.. but I little bit scared about its NPL and Cost income ratio is pretty much high comparing with industry... As Anu mentioned, the restructure program is in place to highlight the good performance in future... How is ur personal views on SEYB...

Further NDB and DFCC are in different nature of banking ( Not like real retail banking).. Am i correct?

I mean generally all banking shares, not specifically X shares.. However as u can see mostly X are coming into this category after all . The point is, if banks are below 2-3X of PBV, that seems attractive in many ways..
Banks are all about the deposits they have, the more they attract customers and allow them to deposit, the more the bank gets in revenue..

Coming quarters we see the single digit interest rates gonna attract more crowd to banks, but I doubt whether private sector banks could achieve that goal.. Even if they cannot, a reduction up to 11-12% means something..
Now this decrease in interest hits the profit margins as well. Banks used to benefit from high interest loans, and now they'll have to give the same to a lower rate..

We're so bullish on banks making more profits in near future but then again the increase in deposits could even level the interest drop for some extent and if that happens we only see about 5-7% increase in their revenue.. may be around 12% increase overall (annually).

Personally I think this SEYB right issue is diluting their share value.. Other than that I was in a good impression their gonna break the ice.. Lets see how their new management is driving the company.. Why they've announced a div when they could use the money as retained earnings to refinance the company.. I'm thinking again whether this right issue is really necessary? This is not the best time however..
Now one must subscribe to all rights and additional too to cover up the cost..

The best banks in my opinion is COMB & NTB at this moment.. Profitability is really astonishing.. Even HNB is a good pick..

DFCC & NDB markets are kinda different but both have a good back bone to stand in a case of difficulty.. So we cannot really forget those..

seyon wrote:

slstock wrote:For what ever it is worth, here are 2 post/analysis I did on MBSL and NTB . I did these posts when this forum to very young. These were made before release of DEC results. Now you can compare with Seyon post.


MBSL : http://forum.srilankaequity.com/t108-mbsl-a-good-pick?highlight=MBSL

NTB : http://forum.srilankaequity.com/t124-ntb-analysis-keep-an-eye-open
( note warrants mentioned in the post will be soon converted to full shares)

Thanks slstock... good analysis of NTB.. I gathered lot info.....

You are welcome Seyon. NTB is on the road to be a future giant

Momentum in all banking sector shares seems to have initiated, getting ready for April boom in the CSE.

It is the time for the Blue chips to recover with all other stocks. Corporate profits in banks and investment oriented PLCs would be reflected.

smallville wrote:

Personally I think this SEYB right issue is diluting their share value.. Other than that I was in a good impression their gonna break the ice.. Lets see how their new management is driving the company.. Why they've announced a div when they could use the money as retained earnings to refinance the company.. I'm thinking again whether this right issue is really necessary?

My suspicion is...That the Dividend is for the present share holders and the rights issue is targeted at prearranged buyer....who may apply for full issue as additional rights application [some thing similar to underwriting] ...! so by the way of rights the Bank will get the targeted 4BN @ the same time showing all the citizens & stake holders that the Bank is in correct path by giving a Dividend...!

SEYB : If you look at their BV it is one of the most attractive. Their Non Performing loans are also coming down. Note that these kind of banks can show better financial uptrends as they are in the recovery stage than higher value and larger cap ones. ( Am not saying larger cap are bad at all). As we discussed several times, this decision and pricing of the right issue was very bad timing. As smallville said above it was ridiculous to give a dividend and then ask for several times more. It would have been better not to give the dividend but make the right issue more attractive. Capital gain will surpass dividends in such a case. It has good potential even in the high 40s until this right issue killed it( temporarily?). If you look at SEYB.X for example, the last time it was in the Rs38-40 range was in July/August fro memory. Even in december it was hanging aroudn RS 45. Overall this is too big of a Bank to neglect and we should keep our eye on this.


NDB : If you look at BV and also PER this is highly undervalued. A Very strong bank.

DFCC: We should look at DFCC with a different mind set. This is a financial giant for decades. Any old , long term share holder ( I am not that old but am old haha) will know that. Though it not a share that will make you rich overnight like the gambling ones, DFCC has always looked after its share holders in the long term. Just look who is in the top 20 share holder list and decide. Period. Remember this is one of the oldest and highly regarded financial institutions in the country. A Blue Chip with much regard due to it strength and management. Banks like this should/would trade with a premium due to its place in the sector. (Like JKH,SPEN is doing in their sector). DFCC showed a good improvement last december in results. We should not expect massive differences in gain for more established large cap banks like DFCC,COMB,HNB. If you read the Chairmans comments they even mentioned about the March Tax benefits kicking in due course. So it should up their profits. In summary , in my opinion this is one of the most solid shares to hold in ones Long Term portfolio.If you like short term profits and miracles this is not the share though. However for shot term also note that DFCC is extremely over sold now and it would bring short term profit with a run. DFCC is now trading in august/september prices as in much before the bonus).

I have posted my analysis on NTB, MBSL before as I mentioned below.
MBSL : http://forum.srilankaequity.com/t108-mbsl-a-good-pick?highlight=MBSL

NTB : http://forum.srilankaequity.com/t124-ntb-analysis-keep-an-eye-open
( note warrants mentioned in the post will be soon converted to full shares)

Disclaimer: I hold most of the banking sectors shares due to their different personality. Each of them can kick off individually also upon good news as opposed to an apparent sector run. COMB, HNB are also giants whom I will not comment as lot of people would have discussed their standings.

COMB and SAMP seem to recover.

slstock wrote:SEYB : If you look at their BV it is one of the most attractive. Their Non Performing loans are also coming down. Note that these kind of banks can show better financial uptrends as they are in the recovery stage than higher value and larger cap ones. ( Am not saying larger cap are bad at all). As we discussed several times, this decision and pricing of the right issue was very bad timing. As smallville said above it was ridiculous to give a dividend and then ask for several times more. It would have been better not to give the dividend but make the right issue more attractive. Capital gain will surpass dividends in such a case. It has good potential even in the high 40s until this right issue killed it( temporarily?). If you look at SEYB.X for example, the last time it was in the Rs38-40 range was in July/August fro memory. Even in december it was hanging aroudn RS 45. Overall this is too big of a Bank to neglect and we should keep our eye on this.


NDB : If you look at BV and also PER this is highly undervalued. A Very strong bank.

DFCC: We should look at DFCC with a different mind set. This is a financial giant for decades. Any old , long term share holder ( I am not that old but am old haha) will know that. Though it not a share that will make you rich overnight like the gambling ones, DFCC has always looked after its share holders in the long term. Just look who is in the top 20 share holder list and decide. Period. Remember this is one of the oldest and highly regarded financial institutions in the country. A Blue Chip with much regard due to it strength and management. Banks like this should/would trade with a premium due to its place in the sector. (Like JKH,SPEN is doing in their sector). DFCC showed a good improvement last december in results. We should not expect massive differences in gain for more established large cap banks like DFCC,COMB,HNB. If you read the Chairmans comments they even mentioned about the March Tax benefits kicking in due course. So it should up their profits. In summary , in my opinion this is one of the most solid shares to hold in ones Long Term portfolio.If you like short term profits and miracles this is not the share though. However for shot term also note that DFCC is extremely over sold now and it would bring short term profit with a run. DFCC is now trading in august/september prices as in much before the bonus).

Thanks slstock for ur valuable comments related to SEYB , NDB and DFCC...

Yes SEYB is in the process of restructuring whole banking system. In the business case study the mgt emphasized some strategical target... such as Reduce the NPl to 10% and Reducing cost income ratio by the way of centralizing some function and paperworks.. and VRS scheme. If this will happen... this price level is very much attractive....

DFCC.. when u look at the Financial out of 4.5bn for the 9 months profit 5.3Bn contributed from selling 13.5 shares of COMB... If u take out this gain, there is no contribution from operation.... Is it worth for the current level...

If u dont mind Can u elaborate DFCC and NDB banking product... I believe these tow are not a real retail banking like COMB,HNB and SEYB... Am i correct....

Thanks in advance...

seyon wrote:

slstock wrote:SEYB : If you look at their BV it is one of the most attractive. Their Non Performing loans are also coming down. Note that these kind of banks can show better financial uptrends as they are in the recovery stage than higher value and larger cap ones. ( Am not saying larger cap are bad at all). As we discussed several times, this decision and pricing of the right issue was very bad timing. As smallville said above it was ridiculous to give a dividend and then ask for several times more. It would have been better not to give the dividend but make the right issue more attractive. Capital gain will surpass dividends in such a case. It has good potential even in the high 40s until this right issue killed it( temporarily?). If you look at SEYB.X for example, the last time it was in the Rs38-40 range was in July/August fro memory. Even in december it was hanging aroudn RS 45. Overall this is too big of a Bank to neglect and we should keep our eye on this.


NDB : If you look at BV and also PER this is highly undervalued. A Very strong bank.

DFCC: We should look at DFCC with a different mind set. This is a financial giant for decades. Any old , long term share holder ( I am not that old but am old haha) will know that. Though it not a share that will make you rich overnight like the gambling ones, DFCC has always looked after its share holders in the long term. Just look who is in the top 20 share holder list and decide. Period. Remember this is one of the oldest and highly regarded financial institutions in the country. A Blue Chip with much regard due to it strength and management. Banks like this should/would trade with a premium due to its place in the sector. (Like JKH,SPEN is doing in their sector). DFCC showed a good improvement last december in results. We should not expect massive differences in gain for more established large cap banks like DFCC,COMB,HNB. If you read the Chairmans comments they even mentioned about the March Tax benefits kicking in due course. So it should up their profits. In summary , in my opinion this is one of the most solid shares to hold in ones Long Term portfolio.If you like short term profits and miracles this is not the share though. However for shot term also note that DFCC is extremely over sold now and it would bring short term profit with a run. DFCC is now trading in august/september prices as in much before the bonus).

Thanks slstock for ur valuable comments related to SEYB , NDB and DFCC...

Yes SEYB is in the process of restructuring whole banking system. In the business case study the mgt emphasized some strategical target... such as Reduce the NPl to 10% and Reducing cost income ratio by the way of centralizing some function and paperworks.. and VRS scheme. If this will happen... this price level is very much attractive....

DFCC.. when u look at the Financial out of 4.5bn for the 9 months profit 5.3Bn contributed from selling 13.5 shares of COMB... If u take out this gain, there is no contribution from operation.... Is it worth for the current level...

If u dont mind Can u elaborate DFCC and NDB banking product... I believe these tow are not a real retail banking like COMB,HNB and SEYB... Am i correct....

Thanks in advance...

Yes Seyon, compared to other commercial/ retail banks their focus is more different in ways. As with the "D" in both of them ( DFCC and NDB) their have focus for development based financing.

I took this from their profile.

DFCC : "The principal activities of DFCC Bank include the business of development financing and investment banking services."

Vardhana Bank their commercial banking arm is also contributing to their bottom line. Once upon a time they were geared for
more high profile larger loans. But recently they are also focusing on SME as far as I know.

NDB : Nature of Business : Providing Medium and Long Term Credti for Development Projects, Merchant Banking, Venture Capital, Stock Broking, Fund Management & Property Development.

Both these banks cannot be treated in the same way as newer commercial banks when looking profits made. As they are established blue chip large caps as mentioned before we cannot expect huge profit variations. ( Bitl like JKH which trades at a premium usually) Their financial strengths, management , reputation should be taken into consideration.

Last Quarter DFCC EPS was around Rs 2.4. I guess this quarter it can reach up to Rs 3 with Budget benefits. So the current price I would say is fairly valued.

Just For info

Apr 08, 2011 (LBO) - Loans by Sri Lanka's listed commercial banks will grow 25 percent in 2011, up from 22.5 percent in the with bad loans and also interest rates remaining low despite rising inflation, an equities research report has said.
"We believe the positive macro economic outlook will translate to higher demand for credit aided by the low interest rates," a report by NDB Stockbrokers said.

"Despite a high loan growth forecast, we anticipate the gross non-performing loans (NPLs) to reside around 6 percent in FY11 (financial year 2011) due to the improving debt servicing capacity of borrowers."

Strong credit demand is likely to come from small and medium enterprises in construction and agriculture, large firms in leisure, energy, construction, trade and in personal lending in pawning (gold jewellery backed loans) housing and leasing.

NDB Stockbrokers said loans by commercial banks rose 23 percent to 862 billion rupees by December 2010 agaisnt a 6 percent contraction a year earlier.

"Falling interest rates coupled with the increasing demand for credit resulted in a healthy loan growth," the NDB Stockbrokers report said.

"Gold backed lending and housing loans were seen giving a boost to the loan growth of many banks."

Margin trading facilities for stock purchases were also popular.

The report said PABC Bank reported highest loan growth of 80 percent and Sampath Bank 30 percent. Without margin trading and gold backed loans, PABC loans grew 49 percent and Sampath 26 percent.

Seylan Bank, which is recovering from a run and massive bad loans and is under state-supported restructure had recorded the lowest loan growth of 9.1 percent while DFCC Bank's loans had grown 10.5 percent.

Asset quality of listed commercial banks had improved with bad loans falling to 6.7 percent in 2010 from 10.58 percent.

Gross non performing loans were just 1.90 at NDB and 3.95 percent at Sampath. Provision cover at NDB was 95.7 percent and at Samapth 79.5 percent. Seylan with 21.3 percent and DFCC with 7.5 percent had the highest bad loans ratio.

"Despite rising inflation and other external factors, we feel the government is unlikely to raise policy rates significantly which could hamper the growth of the economy," the report said.

With rising inflation and low interest rates, deposit growth may be lower than loan growth. The report forecasts deposits at listed banks to grow 12 percent.

"We expect the deposit mobilization to be a challenge in FY11 as we anticipate the prevailing low interest rates to continue," the report said. "This we feel will be further exacerbated by the rising food prices, threatening the overall savings capacity." Net interest margins are likely to remain around 5.0 percent, the report said.

Source http://www.lbo.lk/fullstory.php?nid=747145162