BANKING SECTOR

seyon wrote:
Just for ur info http://www.thesundayleader.lk/2011/05/01/sampath-opens-62-branches/

Sampath Opens 62 Branches


Sampath Bank continued with the growth momentum in 201l 1st quarter (1Q) by posting impressive results over the previous year. Sampath Bank’s pre-tax profit rose to Rs. 1,348.6 mn. in 1Q 2011, reflecting a 70.4% increase year on year (YoY). Bank’s post –tax profit recorded a 60.9 % YoY growth to Rs.898.8 mn. in 2011.
Increase in Bank’s operating expenses over the previous year was managed at Rs. 365.4 mn. or 24.8%, despite the additional expenditure incurred on account of the ambitious branch expansion programme, which entailed opening of 62 branches during the last two years ended 31.03.2011, new recruitments of over 600 staff to manage this expansion drive, higher number of staff promotions and the cost of annual wage increases given effect during the periods under review.
Currently Sampath Bank operates with a 178 branch network and 229 automated teller machines. The Bank opened 40 new branches during 2010, which was a record in Sri Lanka’s banking history plans are underway to continue with the accelerated branch expansion program in year 2011as well.
Meanwhile Sampath Bank Group’s financial results which comprise the Bank and four subsidiary companies were even better. Group 1Q pre-tax profit grew 71.3% YoY to Rs.1,460.8 mn. with Sampath Bank contributing the bulk (92%) as the Group’s main entity. Group post –tax profit grew 64.2% YoY to Rs. 992.5 mn. Marked performance improvements of all four subsidiaries during the review period facilitated recording this higher profit growth rate at group level in 2011.
Increased economic activity in the market and the rapid 42.2% growth achieved by the Bank in its lending activities during the one year period ended 31.03.2011 paved the way for generating a higher fee-based and commission income, which recorded a significant 45.6% YoY growth to Rs. 216.1 mn. in 1Q 2011. Nevertheless Exchange income recorded a negative 1.36% growth in 2011 largely due to the Rs. 36.9 mn. revaluation loss incurred in 2011 on FCBU’s retained profits as against the Rs. 26.0 mn. revaluation loss incurred in 2010. This was solely due to the appreciation of LKR against the US Dollar; from Rs 113.95 as at 31.03.2010 to Rs 110.40 as at 31.03.2011.
The Bank was successful in managing the net charge on loan losses in 2011. As a result of the Bank’s improving credit quality (as indicated by reducing NPL volumes and NPL Ratios, detailed elsewhere in this report), it was possible to reduce provisions made on specific loan losses to Rs. 153.2 mn. in 2011 (even with additional provisions totalling Rs.100.0 mn. included therein), as against Rs. 702.6 mn. made in 2010, which too was inclusive of additional provisions totalling to Rs. 517.4 mn. These additional specific loan loss provisions were made in line with the Bank’s policy of making such provisions against identified NPLs, ignoring the collateral held, aimed at improving Bank’s provision cover. As the Bank achieved an 88.9% Provision Coverage Ratio as at 31.12.2010, the need for such additional provisions was naturally low in 2011.
In addition, based on higher credit growth during the period, a further sum of Rs. 101 mn. was provided as Regulatory General Provisions on loan losses in 2011, the effect of which was however reduced by Rs. 90.4 mn., o/a of a reversal of General Provisions, resulting from the applicable rate being reduced from 0.9% to 0.8% in 1Q 2011.
On the other hand the Bank was successful in making recoveries against NPLs. Consequently it was possible to reverse previous loan loss provisions made to the tune of Rs. 402.9 mn. in 2011, as against Rs. 424.5 mn. reversed in 2010, which figure however was boosted by a single recovery of Rs. 331.9 mn. made in 2010.
The Rs. 275.9 mn. impairment provision made in 2010 on account of the investment in ordinary shares of Union Bank Colombo as instructed by CBSL was reversed & taken to profits of 1Q 2011, since Union Bank shares are now being listed on the Colombo Stock Exchange and are being traded.
Despite the rapid growth recorded in the Bank’s fund based operation as reflected by the 22.2% and 42.2% growth rates achieved during the one year period ended 31.03.2011. in deposits and advances respectively, Bank’s Net Interest Income recorded a Rs. 139.0 mn. YoY drop to Rs.2, 060.5 mn. in 2011. This was mainly due to the return on interest earning assets dropping at a faster rate than the drop in cost of funds on deposits, shrinking the Net Interest Margin (NIM) from 5.59% in 1Q 2010 to 4.22% in 1Q 2011, consequent upon the significant changes that took place in the market’s interest rate structure. However the Bank is in the process of taking effective strategies, aimed at improving NIMs in future.
In addition, reduced Financial VAT tax rates (reduced from 20% to 12.0%) and Corporate Tax (reduced from 35% to 28%), too helped to improve Bank’s post tax profits in 2011.
Improved profits paved the way for most of the Bank’s key financial ratios to record significant improvements over the previous year. Prudent lending practices which included the centralized credit model introduced recently, effective post-sanctioning monitoring systems and intensified recovery efforts against existing NPLs resulted in reducing Bank’s NPLs both in absolute and percentage terms. NPL volumes net of IIS which stood at Rs 7,003 mn. as at 31.03.2010 was reduced to Rs 5,275.9 mn. (24.66%) as at 31.03.211. Similarly Bank’s NPL Ratio was reduced to 3.64% as at 31.03.2011, from 6.89% one year ago, as against the industry’s average NPL Ratio of 5.3% as at December 31, 2010. In addition to the improvement made in the Provision Cover referred to above, the Bank’s Net NPL / Equity Ratio (Open Credit Exposure Ratio) too was reduced to 6.87% as at 31.03.2011 from 20.84% as at 31.03.2010. Furthermore, almost all profit- based Ratios of the Bank such as ROA, ROE and EPS recorded significant improvements.
Sampath also remained as one of the well capitalized banks, with the Tier I Capital Adequacy Ratio at 9.51% and Total Capital Adequacy Ratio at 11.41% as at 31.03.2011, despite the higher 42.19% credit growth recorded during the one year period ended 31.03.2011.
Bank’s total deposit and total asset bases grew by 22.2% and 24.55% respectively during the one year period ended 31.03.2011. The growth rates in the two areas during the 1Q 2011 were 7.84 % and 9.37 % respectively. In addition, growth in customer advances were phenomenal, with advances volumes recording a significant 42.2% growth during the one year period ended 31.03.2011 and 13.3% in IQ 2011.
Taking in to account of the bank’s better performance in 2010, Bank paid a final dividend of Rs.6.60 per share in the form of scrip dividend in addition to the interim Rs. 3 per share scrip dividend already paid. Even after the two share-splits, which increased the number of shares by 120% in 2010, Sampath share is currently traded at around Rs 285 p.s. This price is well above the re-stated Rs. 103.78 net assets value per share after the share-splits. In terms of market capitalization, Sampath Bank’s ranking on the CSE has now improved to 14th position, as against the 15th position held on 31.12.2010.

seyon wrote:Hi Friends

This brief analysis is connected to my previous analysis (http://forum.srilankaequity.com/t2231-banking-sector-analysis-combhnbseybntbsambdfcchdfcndbpapc-and-mbsl) and this analysis in briefing the financials comparing with previous year and including main features (key balances and numbers) of the retail largest banks. I excluded the DFCC,NDB and HDFC , as their scope is mainly focus on development banking. Further I give certain measures ( KPI- Key Performance Indicators) to interpret the performance. I do not restrict with these KPI, if u have additional measures related to banking industry, Pls share with us..

This is good time to discuss about banking sectors, as expected to see the first quarter results with the new improvement due to tax saving and economic growth. Here we have veteran analyzers with different views, which would help us to have good investment decision and to sharing our knowledge and views.

Following are the my selected KPIs
* Interest Margin
* % of Other Income Out of Operating Profit Operational Cost to Income Ratio
* % Loan Loss Provision out of Total Non Performing Loan
* NPL Raito
* PER
* PBV
* Number of Employees (comment in terms of total assets)


This is My View……………….

When I do the analysis of banks (SEYB,NTB,SAMP,PABC) KPIs ,I took the indicators of COMB and HNB as industry norms ( I may be wrong) as these two banks are relatively strength in the banking industry and analyzed COMB and HNB by comparing each others.

1.SEYB…

Interest Margin – Line with industry

% of Other Income Out of Operating Profit- Very High, out of that 1Bn bad debt written back and recovered

Operational Cost to Income Ratio – Very high % comparing with other banks

% Loan Loss Provision out of Total Non Performing Loan – Comparably High

NPL Raito - Highest Ratio in the Banking Sectors ( this might be improved due to the recent restructured program taken place in the bank and Bank strategic target to reduce to 10% during the year.)

PER - Trading @ 15X which is slightly low comparing with other retails banks. This impact is due to the recent Rights issue

PBV- Very Low… This also may be due to the recent Rights issue

Number of Employees – Very High

2.NTB

Interest Margin – Line with industry

% of Other Income Out of Operating Profit- Very High, out of that 1.3Bn reported as fees and other income ( no details given) this may
be due to the unrealized gain on fair value adjustment.

Operational Cost to Income Ratio – Very high % amongst other banks

% Loan Loss Provision out of Total Non Performing Loan – Comparably High, However comparing with previous year good improvement.

NPL Raito – Good, line with industry…

PER - Trading @ 18x, Fairly trading @ Industry average

PBV - Line with Industry

Number of Employees - Comparably high

3.SAMP

Interest Margin – Line with industry

% of Other Income Out of Operating Profit- Slightly High, out of that Capital Gain on Sale of LBFL shares 654Mn , Bad Debt Recoveries
1.2Bn and Recovery of Impairment of Investment 1.3Bn. Hence Recovery of impairment and Capital gain are non recurring items amounts to Rs.2Bn.

Operational Cost to Income Ratio – Par with industry
% Loan Loss Provision out of Total Non Performing Loan – Very High reporting @ 12% due to the bank made additional specific credit
loss provisions of Rs. 1,344.9 Mn, over and above the amounts recommended by the Central Bank of Sri Lanka ignoring collateral values.

NPL Raito – Good, and Well managed

PER - Trading @ 14x, is Low comparing with other bank, However, taking out the non recurring income Rs.1.3Bn, then PE would be trading above the average.

PBV - Line with Industry

Number of Employees – Fairly ok. We could see there were new recruitment about 300 staff due to addition of 30 new branches during the year.

4.PABC

Interest Margin – Slightly high margin with other banks

% of Other Income Out of Operating Profit- Fairly Good

Operational Cost to Income Ratio – Par with industry

% Loan Loss Provision out of Total Non Performing Loan – Improved comparing with previous year. Par with the industry

NPL Raito – Above the industry average, however it is improved comparing with previous year.

PER - Trading @ 21x, is high comparing with other bank.

PBV - Line with Industry

Number of Employees – Comparably High..

5.HNB

Interest Margin – Par with industry

% of Other Income Out of Operating Profit- Comparing with COMB contribution is high, that is due to the capital gain of sales quoted investment amounts 600Mn

Operational Cost to Income Ratio – Reporting @76% comparing with COMB, ratio is high

% Loan Loss Provision out of Total Non Performing Loan – Well Maintained at very low level

NPL Raito – Reporting at 5% , Very lower level

PER - Trading @ 20x, is high comparing with other bank.

PBV - Line with Industry

Number of Employees – Little bit high compare to COMB employees with the total assets.


6.COMB

Interest Margin – Par with industry

% of Other Income Out of Operating Profit- Reporting at 33%, Lowest contribution to operational profit.

Operational Cost to Income Ratio – Reporting @ 61% very lowest amongst the banks.

% Loan Loss Provision out of Total Non Performing Loan – Well Maintained at very low level

NPL Raito – Reporting at 7% , a little bit higher compare to HNB

PER - Trading @ 19x

PBV - Line with Industry

Ok, there can be some differ view on the interpretation and comparison of KPI or additional measures to be brought to have good analysis.

So Pls share ur thoughts and views on the KPI or If u have some additional / different measures to be adopted… Pls contribute that with the analysis

Thanks in advance

Find the attachment of Brief Analysis of Banking Sector

Thanks for the analysis..

hybrid_OS wrote:

seyon wrote:

hybrid_OS wrote:

tubal wrote:I do appreciate Seyon's hard work. Well done.
buf if you ask me (and no one is asking me :-) ), unimaginative brokers are promoting the banking sector and most investors are falling hook line and sinker for it. When the interims start coming out, we will find that once you deduct the extra-ordinary items, eps growth is very ordinary.

You will also find that the central banks increase in the reserve ratio will have a negative impact on the banks bottom line.

Agree with tubal to some extent. Banking sectors has seen better days.
In my opinion Sampath is the most secure investment though you will not lose with others mentioned above.

Prudency in showing higher provisions for bad debts is not a negative sign. Actually, to the contrary it gives an investor more confidence.

Profits will be marginal though. Cannot expect anything exceptional.

Hi hybrid

For the SAMB don"t u think the opening of 30 branches during the year of 2010 will impact the cost income ratio negatively in coming quarters. Then this impact would hit the bottom line...

How do u look into this...

Seyon, you have already answered your own question subsequently.
My opinion...

If I think like a big investor, where can I invest my millions without blinking an eye?
Are there any other options available?
A big investor will want to improve his ROI with a reputable, progressive and a company that has big plans for the future.

Sampath bank has that in their vision. They are not going to sit back and let HNB, COMB, SEYB,BOC get their share of the banking business.
They must have good LTP's for the next 5-10 years. Yes it may hit the bottom line hard, but the major investors are informed and they are on board.

What if Sampath just waits? It's like offering the new business / customers on a platter to the rest of the big banks! Like Gambir said:Quote: we are here not just to participate in the game. We are here to win" Unquote.


So I prefer if Sampath does something with my money that I cannot do and they are best geared to do. May I have good ROI in the years to come.

Go long term with Sampath.

Joe007 wrote:SAMP is the best in the banking sector at the moment also SDB & HNB are fairly priced but may have to go down little further.

ruwan326 wrote:Banking sector profits seen losing steam ahead of 3Q earnings season-2018-10-16

The banking sector earnings, which once looked almost immune to economic cycles, have indicated some signs of weakness in recent times, as the sector is facing multiple headwinds, which are putting its resilience to test. 


The most recent data seen by Mirror Business signalled a possible decline in sector profits, which for over a year were plagued by a number of problems from higher credit costs to slowdown in demand for fresh loans.


The government has also slapped higher taxes on the banking sector, which is looked at as a cash cow to be milked every time the government coffers run dry. 


The data for the first eight months showed that although the interest income of the banking sector had increased by Rs.87.8 billion from the same period in 2017, the after tax profits had increased by only Rs.300 million. 


The banking sector reported after tax profits of Rs.86.9 billion in total during the first eight months in 2018, on an interest income of Rs.716.4 billion. 


In a note released on the banking sector performance in September, Fitch Ratings predicted a mild pressure on the performance during the rest of 2018 and possibly in 2019, due to the challenging operating conditions. 


Fitch Ratings is maintaining a ‘Negative’ outlook on the sector as the operating conditions continue to be difficult against a challenging macroeconomic backdrop, which is expected to pressure the banks’ performance in the short to medium term. Sri Lanka’s banking sector asset quality fell to a new low in August this year, as the reported gross non-performing loan (NPL) ratio rose to 3.6 percent, from 3.4 percent in July and 2.5 percent in 2017. 


However, the Central Bank believes the potential NPL ratio to be over 5.0 percent, as most banks are believed to have rescheduled the troubled loans to show a better picture. 


The rescheduled loans have increased by a staggering Rs.155 billion by end-August 2018, from Rs.93 billion a year ago, an increase of 66 percent. 


Higher credit costs or provisions for possible bad loans are also on the rise, denting the profits further. New taxes and higher tax rates have increased the banking sector effective tax rate to over 50 percent in most cases, making the industry the heaviest taxed in any country. 
As a result, the return on equity, the commonly watched investor ratio, which gauges the sector attractiveness, has declined by 310 basis points during the eight months, to 14.5 percent. 


This is also partly due to the new capital raised by the banks since 2017 to remain compliant with the full implementation of the BASEL III capital ratios coming into effect from January 1, 2019. 


Sri Lankan banks have raised Tier I capital of Rs.66 billion and Tier II capital of Rs.45 billion since 2017, ahead of the full implementation of BASEL III in 2019, Fitch Rating said. “This includes Rs.10 billion of equity by the large state-licensed commercial banks. Further capital raising is likely in 2018, although much of the shortfall was bridged in 2017,” the rating agency noted. 

Despite the weakness in earnings, the Sri Lankan banks remain relatively strong and well capitalized to withstand shocks after 
capital raisings. 


Banks will start filing their third quarter earnings from next week onwards. Analysts expect higher provisions and slowdown in new loans to decelerate earnings growth. 

http://www.dailymirror.lk/article/Ba...n--156910.html

Yahapalanaya wrote:

ruwan326 wrote:Banking sector profits seen losing steam ahead of 3Q earnings season-2018-10-16

The banking sector earnings, which once looked almost immune to economic cycles, have indicated some signs of weakness in recent times, as the sector is facing multiple headwinds, which are putting its resilience to test. 


The most recent data seen by Mirror Business signalled a possible decline in sector profits, which for over a year were plagued by a number of problems from higher credit costs to slowdown in demand for fresh loans.


The government has also slapped higher taxes on the banking sector, which is looked at as a cash cow to be milked every time the government coffers run dry. 


The data for the first eight months showed that although the interest income of the banking sector had increased by Rs.87.8 billion from the same period in 2017, the after tax profits had increased by only Rs.300 million. 


The banking sector reported after tax profits of Rs.86.9 billion in total during the first eight months in 2018, on an interest income of Rs.716.4 billion. 


In a note released on the banking sector performance in September, Fitch Ratings predicted a mild pressure on the performance during the rest of 2018 and possibly in 2019, due to the challenging operating conditions. 


Fitch Ratings is maintaining a ‘Negative’ outlook on the sector as the operating conditions continue to be difficult against a challenging macroeconomic backdrop, which is expected to pressure the banks’ performance in the short to medium term. Sri Lanka’s banking sector asset quality fell to a new low in August this year, as the reported gross non-performing loan (NPL) ratio rose to 3.6 percent, from 3.4 percent in July and 2.5 percent in 2017. 


However, the Central Bank believes the potential NPL ratio to be over 5.0 percent, as most banks are believed to have rescheduled the troubled loans to show a better picture. 


The rescheduled loans have increased by a staggering Rs.155 billion by end-August 2018, from Rs.93 billion a year ago, an increase of 66 percent. 


Higher credit costs or provisions for possible bad loans are also on the rise, denting the profits further. New taxes and higher tax rates have increased the banking sector effective tax rate to over 50 percent in most cases, making the industry the heaviest taxed in any country. 
As a result, the return on equity, the commonly watched investor ratio, which gauges the sector attractiveness, has declined by 310 basis points during the eight months, to 14.5 percent. 


This is also partly due to the new capital raised by the banks since 2017 to remain compliant with the full implementation of the BASEL III capital ratios coming into effect from January 1, 2019. 


Sri Lankan banks have raised Tier I capital of Rs.66 billion and Tier II capital of Rs.45 billion since 2017, ahead of the full implementation of BASEL III in 2019, Fitch Rating said. “This includes Rs.10 billion of equity by the large state-licensed commercial banks. Further capital raising is likely in 2018, although much of the shortfall was bridged in 2017,” the rating agency noted. 

Despite the weakness in earnings, the Sri Lankan banks remain relatively strong and well capitalized to withstand shocks after 
capital raisings. 


Banks will start filing their third quarter earnings from next week onwards. Analysts expect higher provisions and slowdown in new loans to decelerate earnings growth. 

http://www.dailymirror.lk/article/Ba...n--156910.html

Let's see CDB,SAMP results in coming weeks.

soileconomy wrote:

Yahapalanaya wrote:

ruwan326 wrote:Banking sector profits seen losing steam ahead of 3Q earnings season-2018-10-16

The banking sector earnings, which once looked almost immune to economic cycles, have indicated some signs of weakness in recent times, as the sector is facing multiple headwinds, which are putting its resilience to test. 


The most recent data seen by Mirror Business signalled a possible decline in sector profits, which for over a year were plagued by a number of problems from higher credit costs to slowdown in demand for fresh loans.


The government has also slapped higher taxes on the banking sector, which is looked at as a cash cow to be milked every time the government coffers run dry. 


The data for the first eight months showed that although the interest income of the banking sector had increased by Rs.87.8 billion from the same period in 2017, the after tax profits had increased by only Rs.300 million. 


The banking sector reported after tax profits of Rs.86.9 billion in total during the first eight months in 2018, on an interest income of Rs.716.4 billion. 


In a note released on the banking sector performance in September, Fitch Ratings predicted a mild pressure on the performance during the rest of 2018 and possibly in 2019, due to the challenging operating conditions. 


Fitch Ratings is maintaining a ‘Negative’ outlook on the sector as the operating conditions continue to be difficult against a challenging macroeconomic backdrop, which is expected to pressure the banks’ performance in the short to medium term. Sri Lanka’s banking sector asset quality fell to a new low in August this year, as the reported gross non-performing loan (NPL) ratio rose to 3.6 percent, from 3.4 percent in July and 2.5 percent in 2017. 


However, the Central Bank believes the potential NPL ratio to be over 5.0 percent, as most banks are believed to have rescheduled the troubled loans to show a better picture. 


The rescheduled loans have increased by a staggering Rs.155 billion by end-August 2018, from Rs.93 billion a year ago, an increase of 66 percent. 


Higher credit costs or provisions for possible bad loans are also on the rise, denting the profits further. New taxes and higher tax rates have increased the banking sector effective tax rate to over 50 percent in most cases, making the industry the heaviest taxed in any country. 
As a result, the return on equity, the commonly watched investor ratio, which gauges the sector attractiveness, has declined by 310 basis points during the eight months, to 14.5 percent. 


This is also partly due to the new capital raised by the banks since 2017 to remain compliant with the full implementation of the BASEL III capital ratios coming into effect from January 1, 2019. 


Sri Lankan banks have raised Tier I capital of Rs.66 billion and Tier II capital of Rs.45 billion since 2017, ahead of the full implementation of BASEL III in 2019, Fitch Rating said. “This includes Rs.10 billion of equity by the large state-licensed commercial banks. Further capital raising is likely in 2018, although much of the shortfall was bridged in 2017,” the rating agency noted. 

Despite the weakness in earnings, the Sri Lankan banks remain relatively strong and well capitalized to withstand shocks after 
capital raisings. 


Banks will start filing their third quarter earnings from next week onwards. Analysts expect higher provisions and slowdown in new loans to decelerate earnings growth. 

http://www.dailymirror.lk/article/Ba...n--156910.html

Let's see CDB,SAMP results in coming weeks.

Banking sector represent two banks....???