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Sri Lanka’s Nations Trust Bank net up in March, warning on moratorium impact

ECONOMYNEXT – Profits at Sri Lanka’s Nations Trust Bank grew 24 percent to 959 million rupees in the March 2020 quarter from a year earlier helped by tax cuts and forex gains interim accounts showed, but the lender said the effects of a state-mandated debt moratorium in future profits were uncertain.

“A shortfall in revenue is expected against the targets set as a result of the debt moratorium, interest rate ceilings and also due to sluggish credit growth,” NTB said in a note to shareholders.

“The bank is in the process of gathering applications for the debt moratorium by customers and the eligible applications are still being reviewed.

“As a result, the impact on the Bank’s future earnings cannot be reasonably estimated at the present moment.

“At the same time, the Bank will cautiously explore new business opportunities that may present from time to time.”

NTB reported earnings of 3.38 rupees per share for the March 2020 quarter. The stocks closed 58.80 rupees per share on May 19, 2020.

Fiscal Stimulus

Sri Lanka slashed taxes in January 2020 in a ‘fiscal stimulus’ though they have not been passed in parliament yet.

In the March 2019 quarter, the bank paid 208 million rupees in a ‘debt repayment levy’ and 52 million in a Nation Building Tax which was absent this year.

Interest income in the March 2020 quarter fell 8 percent to 9.04 billion rupees, interest expense fell at a faster 13 percent to 5.2 billion rupees, helping slow net interest income fall by 01 percent to 3.7 billion rupees.





Sri Lanka’s central bank slapped price controls in 2018 after triggering a balance of payments crisis in 2018 by injecting liquidity through domestic operations and rupee-dollar swaps.

“Interest income declined by 8 percent due to the lack of growth in the loan book and interest ceiling imposed from April 2019,” NTB said.

“Average Weighted Prime Lending Rate reduced by 296 basis points as at end of 1Q 2020 Vs 1Q 2019.”

“However, the cost of funds declined at a faster rate of 13 percent due to effective fund management strategies supported by the growth in current and savings account balances.

As a result, reduction in Net Interest margins was contained to 30 basis points while Net Interest Income reduction was contained at 1 percent.”

For the quarter loans grew 1 percent to 229 billion rupees. Gross non-performing loans rose to 6.22 percent from 6.17percent.

Loan loss provisions were down 46 percent to 764 million rupees in the quarter.

“When assessing the impairment provisions, the Bank considered the potential impact of the COVID-19 pandemic on customers as well as the relief package introduced in the form of a debt moratorium by the government. ”

“Additional impairment provisions were made for identified customer segments impacted due to COVID-19 related developments, by assessing potential delays to the cash flow expectations based on currently available information, leading to a 46% increase in the impairment charge.”

Monetary Stimulus

NTB posted a net gain on the trading of 459 million rupees as the rupee fell. The bank said gains were made on foreign exchange swaps.

Many commercial banks that had swapped with the central bank to hedge dollar loans report forex gains when the rupee falls. Many banks in Sri Lanka also own dollar denominated government debt such as Sri Lanka Development Bonds and sovereign bonds.

The central bank is able to show higher levels of gross reserves on paper from the open positions on swaps, which go against it when the currency falls as it prints money in a monetary stimulus, especially when global conditions also worsen, analysts have said.

NTB gross assets grew 1 percent to 328 billion rupees.Net assets were also up by 2 percent to 31.9 billion rupees.

NTB’s Tier I Capital was 12.44 percent by end-March 2020 and total Capital Adequacy was 16.62 percent. (Colombo/Mar20/2020-sb)

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