banking sector 1h2013 earnings review__ - net earnings dip despite robust core profit growth - 09...
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7/29/2019 Banking Sector 1H2013 Earnings Review__ - Net Earnings Dip Despite Robust Core Profit Growth - 09 Sep 2013
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1
Banking Sector 1H2013 Earnings ReviewNet earnings dip despite robust core profit growth
Udeeshan Jonas
Reshan Wediwardana
CAL Research
September 2013
60%
37% 35% 33% 32%
9%
-3%
-114%
SAMP NTB HNB NDB PABC COMB SEYB UBC
15%
5% 3%
-2%-11% -13%
-39%
-55%
HNB NTB SEYB NDB UBC COMB SAMP PABC
1H2013 Net Earnings YoY Growth 1H2013 Core Profits YoY Growth
See Page 50 for important disclaimer
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Banking Sector 1H2013 Earnings Review
I. Easing monetary stance yet to reap results
II. Core banking profits continue to remain robust
III. Macro changes challenge credit quality and netearnings
IV. CALs top 5 picks to avg. 36.4% vs. our coverageuniverse avg. of 30.2%
V. Appendix : Summary Financial Statements
2
Page
3
12
20
32
39
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I. EASING MONETARY STANCE YET TOREAP RESULTS
3
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I. Easing monetary stance yet to reap results
The Central Bank enforced an easing monetary stance from Jan 2013
In 1H2013, CBSLs monetary easing led to a 254bps decline in AWPLR
Deposit rates followed a similar trend declining c.280bps YTD
However, loan growth continues to remain subdued (avg. of 6.5% YTD) aseconomic conditions remain sluggish
Private sector credit yet to pick up despite the rate cut (+4.4% Jan-Jul 2013
vs. +13.2% Jan-Jul 2012)
CAL revises private sector credit growth downwards to 12% for 2013E(previous 16%)
4
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The Central Bank enforced an easing monetarystance from Jan 2013
The 18% cap imposed on loan growth for banks in 2012 was removed fromJan 2013
Policy rates were cut by 50bps in May 2013
Statutory Reserve Ratio was cut by 200bps in June 2013
Interest rate on credit cards was reduced from 28% to 24% in May 2013
A maximum cap of 2-3% on penal interest rate was imposed for delayedpayments
5
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9
10
11
12
13
14
15
16
17
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13
AWPR AWLR
In 1H2013, CBSLs monetary easing led to a254bps decline in AWPLR
6
Figure 1: AWLR and AWPR Jan-Aug 2013
Source: CBSL
Statutory Reserve Ratio wascut by 200bps in June 2013
Policy rates were cutby 50bps in May 2013
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Deposit rates followed a similar trend decliningc.280bps YTD
7
13.5% 13.5%14.0%
13.0%
14.0% 14.0%14.5%
15.0%
10.5% 10.5% 10.5% 11.0% 11.0% 11.0%11.5%
12.5%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
COMB SAMP NTB NDB HNB SEYB PABC UBC
1-yr FD rate Jan 2013 1-yr FD rates Aug 2013
Figure 2: 1-yr fixed deposit rate changes - YTD
Avg. 13.9%
Avg. 11.1%
Source: Bank websites
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However, loan growth continues to remainsubdued (avg. of 6.5% YTD)
8
Figure 3: Loan growth Jan to Jun 2013
Source: Bank quarterly reports
21.4%
11.7%
7.1%
5.0% 4.6% 4.6% 4.5%
1.1%
0%
5%
10%
15%
20%
25%
UBC SAMP HNB NTB SEYB NDB COMB PABC
Avg. loan growth 6.5% (Jan- June 2013)
Banks with heavy exposure to the corporate sector
witnessed lower loan book growth in 1H2013
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as economic conditions remain sluggish
9
1.8
1.57
1.5
1.6
1.6
1.7
1.7
1.8
1.8
1.9
Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13
Figure 7: Perceived Economic Opportunity IndexFigure 6: Industrial Production Index
Figure 4: External Trade Jan-Jun 2013
3,500
4,500
5,500
6,500
7,500
8,500
9,50010,500
Exports USD mn Imports USD mn
USDmn
Jan-Jun 2012 Jan-Jun 2013
-4.5%
-5.8%
112.3
109.2
90
95
100
105
110
115
120
Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13
2010=100
Figure 5: Nielson Business Confidence Index
135129
100
110
120
130
140
150
160
170
Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13
BCI
Source: CBSL, LMD & FEF
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Private sector credit yet to pick up despite the ratecut (+4.4% Jan-Jul 2013 vs. +13.2% Jan-Jul 2012)
10
22%
19%
22% 21%20%
24%
32%
15%
13%
11% 10%9.3% 8.9% 8.4%
0%
5%
10%
15%
20%
25%
30%
35%
Total credit to public sector growth (YoY)
Credit to the Private Sector growth (YoY)
Figure 8: Private Sector vs. Public SectorCredit YoY Growth
Source: CBSL & CAL Research
13.2%
4.4%
2012 2013
Credit to the Private Sector growth (YoY)
Figure 9: Private Sector Credit Growth(Jan-Jul)
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CAL revises private sector credit growthdownwards to 12% for 2013E (previous 16%)
11
LKR2.36tn
LKR2.64tn
2012 2013E
Figure 10: CALs private sector credit growth estimate
Source: CBSL & CAL Research
* Private sector credit includes government commercial banks, private local banks and foreign commercial banks* CAL expects marginal recovery in credit growth in 2H2013
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II. CORE BANKING PROFITS CONTINUETO REMAIN ROBUST
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II. Core banking profits continue to remainrobust
In 1H2013, deposit growth outpaced loan growth for most banks (avg. of 8.7%vs. 6.5%)
Slower loan book growth led to excess funds being parked in low-yield liquidassets (avg. 25%)
Banks with growing liquid assets witnessed declines in their net interest margins(avg. NIMs 4.5%)
Moderate fee income growth augmented NII growth for most banks, despite theslowdown in external trade
Cost-to-income* improved across the board as banks slowed down branchexpansion (avg -300bps)
Core profitability remains robust for mainstream banks (avg. 24%)
13
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15.4%
13.0%
9.4% 9.2%
6.8%6.5%
6.1%
3.0%
UBC SAMP HNB NTB SEYB NDB COMB PABC
In 1H2013, deposit growth outpaced loangrowth for most banks (avg. of 8.7% vs. 6.5%)
14
Figure 11: Deposit growth in 1H2013
Avg. Deposit growth 8.7% (Jan- Jun 2013)
Source: Bank quarterly reports
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Slower loan book growth led to excess funds beingparked in low-yield liquid assets (avg. 25%)
15
25.4%
22.0%
25.9%
21.5% 21.0% 21.5% 21.8% 21.6%
32.6%
27.7%
25.4%24.4% 23.8%
22.5% 22.2%
20.7%
0%
5%
10%
15%
20%
25%
30%
35%
COMB NDB NTB SYEB PABC SAMP HNB UBC
2012 1H2013
Avg. 25%
Figure 12: Statutory liquid assets of banks - 2012 vs. 1H2013
Source: Bank quarterly reports
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Significant reduction inlending rates to boostloan growth led to thedecline in NIMs
52
19
8 8
-35 -37
-69-77
-100
-80
-60
-40
-20
0
20
40
60
NTB NDB HNB SAMP COMB PABC SEYB UBC
Bpschange
Imposition of minimum lendingrates to improve yield on assetscompared to other banks led toa marginal improvement in NIMsdespite increasing liquid assets
Banks with growing liquid assets witnessed declines intheir net interest margins (avg. NIMs 4.5%)
16
Figure 13: NIMs for 1H2013 Figure 14: Bps change in NIMs (Jan- Jun 2013)
Source: Bank quarterly reports
Repricing of A&L., reduction in liquidassets and an improving CASA baseassisted the improvement in NIMs
5.5% 5.4%
4.5% 4.5%4.3% 4.3%
4.0%3.5%
NTB HNB COMB SEYB PABC SAMP NDB UBC
Avg. 4.5%
Figure 16: Bps change in liquid assets (Jan- Jun 2013)
723
570
284 284
9938
-47 -91-200
0
200
400
600
800
COMB NDB PABC SEYB SAMP HNB NTB UBC
Bpschange
Figure 15: Net interest income growth 1H2013 YoY
32%
27% 26%23%
17%
6%
-3%
-7%
NTB SAMP NDB HNB PABC COMB SEYB UBC
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Moderate fee income growth augmented NII growthfor most banks, despite the slowdown in external trade
17
Figure 17: 1H2013 Fee income growth YoY & Fee income as % of net income
56%
28%
20% 20%
16%
13%
10%
1%
17%
22%
20%
32%
18%16%
15%
22%
0%
5%
10%
15%
20%
25%
30%
35%
0%
10%
20%
30%
40%
50%
60%
UBC SEYB NDB NTB SAMP COMB HNB PABC
Feeincomeasa
%ofnetinterestincome
1H2013g
rowthinfeeincomeYoY
Growth in fee based income Fee income as a % of net interest income
Banks recognized higher fee income mainlystemming from the card business and higherbank charges
Source: Bank quarterly reports
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51%
59%
70%
67% 66%
72%69%
82%
50%56%
62% 63%64% 68%
70%
103%
COMB NTB SAMP HNB NDB PABC SEYB UBC
1H2012 1H2013
Cost-to-income* improved across the board as banksslowed down branch expansion (avg -300bps)
18* Cost-to-income = Non operating income/(Net Interest Income + Fee based income)
Figure 18: Cost-to-income ratio* of banks 1H2012 vs. 1H2013
Source: Bank quarterly reports
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Core profitability remains robust for mainstream banks(avg. 24%)
19
Figure 19: 1H2013 Core profit* growth YoY
60%
37% 35% 33% 32%
9%
-3%
-114%
SAMP NTB HNB NDB PABC COMB SEYB UBC
PABCs core profit growth mainly
comes from the reduction in cost-to-
income ratio from 72% to 68%
Source: Bank quarterly reports
Avg. 24%
UBCs core profits dipped 114% YoY asnet interest income declined 7% YoY
and operating expenses rose 24% YoY
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III. MACRO CHANGES CHALLENGECREDIT QUALITY & NET EARNINGS
20
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III. Macro changes challenge credit quality andnet earnings
Overall net earnings were down for 1H2013 due to higher impairment charges andtrading losses
NPLs across the board shot up with the slowdown in economic activity (avg. +72bps)
Substantial rise in impairment charges hurt bottom-line, especially for banks withgreater exposure to gold loans
as gold prices tumbled 26% Jan-Jun 2013
Net earnings deteriorated further on reduction in trading income resulting fromreduced forex gains
However, capital adequacy still remains above minimum requirement (avg. 15%)
Leverage ratios of SL banks also are at comfortable levels compared to global banks
Attractive relative valuation multiples for SL banking stocks (avg. PER 8.7x; avg. PBV1.1x)
Banking sector stocks dividend yield avg. 5.5%
21
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Overall net earnings were down for 1H2013 due tohigher impairment charges and trading losses
22
Figure 20: Net profit growth for the 1H2013 YoY
Source: Bank uarterl re orts
15%
5%3%
-2%
-11%-13%
-39%
-55%
HNB NTB SEYB NDB UBC COMB SAMP PABC
Higher impairment charges were offset by
the LKR1.5bn reversal of overprovisioning
for Employee Share Benefit Scheme
NDBs earnings declined 2% YoY due to
higher VAT charges & reduction in
trading and associate profits
COMBs net earnings declined 13% YoY due to a
one-off LKR 2.5bn forex translation gain recorded
in 1H2012 which resulted from the 14% LKR
depreciation (Jan-Jun 2012)
An LKR 1.7bn impairment charge and a one-off
LKR1.4bn forex gain last year resulted in 1H2013
net earnings declining 39% YoY, despite a 60%
YoY 1H2013 core profit growth
A trading loss of LKR243mn in 1H2013 vs. a
trading gain of LKR210mn in 1H2012 due to
the inclusion & revaluation of swap costs
resulted in the reduction in profitability
An LKR399mn impairment was recognized in
1H2013 vs. a LKR114mn reversal in 1H2012 to
compensate for the rising NPLs
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NPLs across the board shot up with theslowdown in economic activity (avg. +72bps)
23
Figure 21: Gross Non Performing Advances
ratio as at 30th Jun 2013
Figure 22: Basis points increase in Gross NPL's
(2012 to 1H2013)
Source: Bank quarterly reports
365
11489
6754 46
25
-184
-300
-200
-100
0
100
200
300
400
PABC NTB HNB COMB NDB SAMP UBC SEYB
Bps
NPLs declined 180bps due
to the higher NPL base of
SEYB
Avg. 72bps
11.2%
7.8%
5.7%4.6%
4.0% 4.0%
2.5%1.9%
SEYB PABC UBC HNB COMB NTB SAMP NDB
Avg. 4.7%
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Substantial rise in impairment charges hurt bottom-line,especially for banks with greater exposure to gold loans
24
Figure 23: Impairment charge & banks exposure to gold loans
25%
16%16%
13%
11%
4%
3%
3%
0%
5%
10%
15%
20%
25%
30%
-500
0
500
1,000
1,500
2,000
2,500
3,000
SAMP PABC HNB SEYB UBC NDB COMB NTB
%exp
osuretogoldloans-2012
Impa
irmentcharge-LKRmn
Impairment charge 1H2012 Impairment charge 1H2013 Exposure to gold loans
Source: Bank annual & quarterly reports
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as gold prices tumbled 26% Jan-Jun 2013
25
Figure 24: Global gold spot prices YTD
1,676
1,235
1,367
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
January-13 February-13 March-13 April-13 May-13 June-13 July-13 August-13 September-13
USD/Oz
Banks have now reduced their LTVs on gold loans toc.60-65% from their previous 80-85% to be cautious onfurther gold price reduction.
Source: Bloomberg
Banks with higher exposure to pawning advancesrecognized significant impairment charges as the 26%reduction in gold prices led to collateral value of goldloans falling below loan value
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Net earnings deteriorated further on reduction intrading income resulting from reduced forex gains
26
Figure 25: Net trading income/(losses) in 1H2012
vs. 1H2013
-6%
-5%
2%
-5%
8%
-5%
4%
6%
(1,500)
(1,000)
(500)
-
500
1,000
1,500
2,000
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
HNB COMB SAMP NTB NDB SEYB PABC UBC
Trading income 1H2012
Trading income 1H2013
Trading income as a % of net operating income
105
110
115
120
125
130
135
140
LKR/USD
+2% LKR
depreciation
Figure 26: LKR exchange rate movement
2012 to Sep 2013
One-off forex gains in 1H2012 stemming from the 16%
LKR depreciation (Jan-Jun 2012) and recognition of
currency swap costs (1H2013) under trading income
resulted in a decline in trading income
Source: Bank quarterly reports & CBSL
LKRmn
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However, capital adequacy still remains aboveminimum requirement (avg. 15%)
27
Figure 27: Tier 2 capital ratio of banks 2012 vs. 1H2013
20.7%
13.9%
20.3%
16.9%
14.4%
17.3%
15.8%
13.8%
18.3%17.8%
16.0% 15.9%15.2% 14.9%
12.7% 12.6%
0%
5%
10%
15%
20%
25%
NDB COMB UBC HNB SYEB NTB PABC SAMP
Tier 2 as at 31st Dec 2012 Tier 2 as at 30th Jun 2013
Source: Bank quarterly reports & CBSL
Min. requirement 10%
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Leverage ratios of SL banks also are atcomfortable levels
28
Figure 28: Leverage ratio of SL banks (Assets/ Equity)
6.9x7.5x
9.0x
9.5x10.0x
12.1x12.5x
15.4x
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
UBC NDB HNB SEYB COMB NTB SAMP PABC
Leverageratio(Assets/Equity)
Leverage ratio as at 31st Dec 2012 Leverage ratio as at 30th June 2013
Avg. 10.4x
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...compared to global banks
29
Figure 29: Leverage ratios of a few global banks (Assets/Equity)
10.4x9.3x 9.0x
9.6x
11.6x
20.2x
18.6x
14.7x
11.3x
9.8x 9.6x
14.3x
0
5
10
15
20
25
Sri Lanka Bank of
america
Wells
Fargo &
Co
Bank Of
New York
Mellon
Corp
JPMorgan
Chase &
Co
Bnp
Paribas
Royal
Bank Of
Scotland
Group
HSBC
Holdings
Malayan
Bank
DBS
Group
ICICI Bank Punjab
National
Bank
Assets/Equity
Avg. 12.5x
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Attractive relative valuation multiples for SLbanking stocks (avg. PER 8.7x; avg. PBV 1.1x)
30
Figure 30: Trailing 12 months and Forward 2013E PER
Figure 31: P/BV based on net assets values as at 31 June 2013 and December 2013E
Source: Bank quarterly reports & CAL Research
0.5x
0.8x0.9x 1.0x 1.0x
1.1x 1.1x1.2x
1.3x
1.3x
1.7x
0.8x
0.9x 1.0x1.0x
1.1x1.3x
1.6x
-
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
-
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
SEYB.X HNB.X SEYB UBC NDB SAMP HNB PABC NTB COMB.X COMB
PBV-2013E
PBV
PBV Jun 2013- (LHS) PBV -2013E - (RHS)
5.0x 5.3x6.7x 7.2x 7.4x 7.7x 7.8x 8.1x
9.5x 10.5x
24.9x
4.5x6.0x 6.2x 6.5x
7.3x 7.6x
9.9x
-
2
4
6
8
10
12
-
5
10
15
20
25
30
SEYB.X HNB.X NTB HNB SAMP PABC NDB COMB.X SEYB COMB UBC
ForwardPER-2013E
Trailing12MP
ER(x)
Trailing PER - (LHS) Forward PER - 2013E (RHS)
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Banking sector stocks dividend yield avg. 5.5%
31
Figure 32: Dividend yield for banks 2012 and 2013E
Source: Bank quarterly reports & CAL Research
7.8%
7.3%
6.7% 6.5%6.3% 5.7% 5.6%
5.6%
3.6%3.5%
1.0%
9.1%
7.1%
5.7%
6.6%
5.4% 5.5%
4.3%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
HNB.X COMB.X SEYB.X SAMP PABC HNB COMB NDB NTB SEYB UBC
D
ividendYield-2013E
Dividendyield-2012
Dividend yield - (LHS) Dividend Yield -2013E - (RHS)
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IV. CALs top 5 picks to avg. 36.4% vs.our coverage universe avg. of 30.2%
32
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CALs top 5 picks to avg. 36.4% vs. ourcoverage universe avg. of 30.2%
33
BankRecomm
endation
Current
Price
Previous
target
price
Target
Price
Price
upside
2013E
ROE
2013E
ROA
Core
profit
growth
2013E
Net
profit
growth
2013E
PBV
2013E(x)
PER
2013E (x)
Dividend
yield
2013E
Total
Return
Hatton National Bank - Non Voting Buy 109 149 151 38% 17.3% 1.9% 32% 16% 1.0 4.5 6.8% 45.2%
Nations Trust Bank Buy 56 79 78 39% 20.4% 1.72% 31% 14% 1.2 6.1 4.3% 43.6%
Hatton National Bank - Voting Buy 149 190 190 28% 17.3% 1.9% 32% 16% 0.8 6.1 9.1% 36.7%
Sampath Bank Buy 179 224 224 25% 16.2% 1.4% 55% -14% 1.0 6.8 5.5% 30.6%
Commercial Bank - Non Voting Buy 88 112 105 20% 17.4% 2.0% 13% -3% 1.6 9.9 6.2% 26.1%
Commercial Bank - Voting Hold 114 133 125 10% 17.4% 2.0% 13% -3% 1.3 7.6 7.1% 16.9%
National Development Bank Hold 143 184 153 7% 16.7% 1.7% 23% 4% 0.9 7.3 5.5% 12.5%
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Hatton National Bank [HNB.X0000] to deliver 1-year total return of +45.2%: BUYHatton National Bank (HNB V LKR 146.5 NV LKR 109; Market Cap USD421mn): HNB is the second largest private commercial bank with a loan
book of LKR 326bn (+13%YoY) and a c.23% private bank market share.
CAL expects HNBs NIMs to improve to 6.1% in 2013E from 5.8% in
2012 benefiting from declining interest rates (1-yr FD rates reduced to
11% in 2H2013 from 14% in starting 2013) and an improving CASA base
(40% in 1H2013 vs. 39% in 1H2012).
CAL estimates HNBs loan growth to be c.15% for 2013E and fee based
income to grow c.9% during the year with the introduction of new
products (hybrid S/As) which may lead to core profit growing 31% YoY
to LKR 12.7bn in 2013E. The bank will also w itness improvements in i ts
cost-to-income ratios (63% in 2012 to 55% in 2013E) as branches addedduring the last 2 years start contributing to profitability. For 1H2013,
HNBs core profits grew 31% YoY while net profits grew 15% YoY to
LKR 3.4bn.
CAL anticipates HNBs earnings to grow 16% YoY to LKR 9.4bn in
2013E which may translate into a PER of 6.1x and PBV of 0.8x at
current prices. HNB may maintain a dividend payout close to 42%
which may provide a dividend yield of 6.8% for the voting share and
9.1% yield for the non-voting share. CALs target price for HNB Voting
is LKR 190 (+30% total return) and LKR 151 (+39%) for the non-votingshare. BUY
34
FY11 FY12 FY13E FY14E
Net interest margin 5.24% 5.83% 6.11% 5.93%
Cost-to-income 69% 63% 55% 58%
Average ROE 18.1% 17.4% 17.3% 18.9%
Average ROA 1.91% 1.94% 1.94% 2.08%
Loan Growth 27.7% 18.1% 15.4% 17.2%
* Net interest income+Fee based income-Operat ing expenses
90
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120
130140
Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13
Index
HNB HNB.X ASPI
Market Cap (USD): 422mn
1 Year Avg. Daily T/O (USD): 95k
1 Year Price H/L (LKR): 132.5/ 102Free Float: 80%
Current Price (LKR): 109.00
FYE Mar - LKR mn 2011 2012 2013E 2014E
Net interest income 16,920 22,444 27,173 30,465
Net interest income growth 33% 21% 12%
Core Profit* 6,207 9,699 12,669 14,856
Core Profit growth 56% 31% 17%
Profi t a ttributable to equ ity holders 6,819 8,111 9,415 11,551
Profit growth 19% 16% 23%
EPS (LKR) 17.1 20.3 24.0 29.4
NAVPS 104.2 129.4 143.7 162.6
PER (x) (Voting) 8.7 7.3 6.2 5.1
P/BV (x) (Voting) 1.4 1.2 1.0 0.9
PER (x) (Non Voting) 6.4 5.4 4.5 3.7
P/BV (x) (Non Voting) 1.0 0.8 0.8 0.7
DPS (LKR) 7.3 8.5 9.9 12.2
Dividend Yield % (Voting) 4.9% 5.7% 6.7% 8.2%
Dividend Yield % (Non Voting) 6.7% 7.8% 9.1% 11.2%
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Nations Trust Bank [NTB.N0000] to deliver 1-yeartotal return of +43.6%: BUY
Nations Trust Bank (NTB V LKR 56; Market Cap USD 100mn):
NTB is one of the smaller listed private banks with a loan book
of LKR 77bn (+9% YoY) representing a market share of c.6%.NTBs deposit base stood at LKR 92bn (+13% YoY)
representing a market share of c.6.2% among private sector
banks.
CAL expects NTBs loans to grow 12% in 2013E even amidst
the subdued economic conditions prevailed in 1H2013. NTBs
higher fee based income from its growing credit card business
and bond trading to supplement relatively stable core profits.
However, NTBs cost-to-income ratios are anticipated to
remain higher (c.57%) as NTB initiates its branch expansion
program to improve its CASA base which currently stands atc.22%. NTB has opened 5 branches in 1H2013 and intends to
open 10 branches during the year.
In 1H2013, NTBs earnings were LKR 980mn (+5% YoY) and
CAL expects earnings to reach LKR 2.2bn (+14% YoY) for
2013E which translates into a PER of 5.8x and PBV of 1.1x at
current prices. CALs 2013E target price for NTB is LKR 78,
+39% from current prices and we expect a dividend yield of4.5%. BUY
35
95
100
105
110
115
120
125130
Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13
Index
NTB ASPI
Market Cap (USD): 100mn
1 Year Avg. Daily T/O (USD): 113k
1 Year Price H/L (LKR): 68.9/51.8
Free Float: 80%
Current Price (LKR): 56
2011 2012 2013E 2014E
Net interest margin 5.37% 5.80% 6.00% 6.25%
Cost-to-income 66% 60% 57% 55%
Average ROE 20.9% 20.8% 20.4% 23.4%
Average ROA 1.74% 1.74% 1.72% 2.01%
Loan Growth 39.3% 20.0% 11.6% 20.0%
* Net inter est income+Fee based income-Operat ing ex penses
YEAR END DEC (LKR mn) 2011 2012 2013E 2014E
Net interest income 4,404 5,755 6,987 8,417
Net interest income growth 31% 21% 20%
Core Profit* 2,093 3,118 4,088 5,145
Core Profit growth 49% 31% 26%
Profi t attributable to equity holders 1,607 1,951 2,231 3,006Profit growth 21% 14% 35%
EPS (LKR) 7.0 8.5 9.7 13.0
NAVPS 37.4 43.8 50.9 60.6
PER (x) 8.0 6.6 5.8 4.3
P/BV (x) 1.5 1.3 1.1 0.9
DPS (LKR) 2.0 2.1 2.5 3.4
Dividend Yield % 3.6% 3.7% 4.5% 6.1%
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Sampath Bank [SAMP.N0000] to deliver 1-yeartotal return of +30.6%: BUY
Sampath Bank (SAMP LKR 179; Market Cap USD 225mn): SAMP is
the third largest private commercial bank in Sri Lanka with a loan
book o f LKR 237bn and a c.16% private bank market share. In 2013E,SAMP is likely to maintain loan book growth at c.23%. SAMPs net
interest margins are likely to marginally improve from 4.89% in 2012
to 5% in 2013E on the back of higher low-cost foreign borrowings
raised during the year and above average CASA base (c.33% for
2013E vs. indust ry avg. o f 27% for 2012). SAMP raised USD 100mn i n
2013 which may reduce the average cost of funding by 6bps as
hedging costs are partly reduced due to assets in Bangladesh.
The cost-to-income ratio of the bank is also likely to improve on
consolidation of the branch network as the extensive branchexpansion (+80 branches from 2009) slows down. SAMPs share
price collapsed 21% from a high of LKR 240 in Feb 2013. In 1H2013,
one-time charge of LKR 989mn out of the LKR 1.6bn overall
impairment charge was provided for pawning advances (c.25% of
loan book) as global gold prices tumbled 26% (Jan-June 2013).
However, CAL has factored in a conservative USD 1100/oz. gold price
and 8% impairment rate which provides a LKR 1.2bn impairment
charge on gold loans for 2013E vs. previous LKR 356mn. However,
gold prices in the local market stands atc
. USD 1535/oz. (includes a10% import duty). CALs revised target price for SAMP is LKR 224
(+25%) with a dividend yield of 5.7% for 2013E. BUY
36
FY11 FY12 FY13E FY14E
Net interest margin 4.77% 4.89% 5.01% 4.88%
Cost-to-income 73% 68% 60% 57%
Average ROE 16.3% 21.4% 16.2% 20.7%
Average ROA 1.67% 1.89% 1.35% 1.65%
Loan Growth 34.5% 25.5% 22.6% 20.3%
* Net interest income+Fee based income-Operat ing ex penses
100
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135
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Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13
Index
SAMP ASPI
Market Cap (USD): 225mn
1 Year Avg. Daily T/O (USD): 324k
1 Year Price H/L (LKR): 242/ 178.5Free Float: 85%
Current Price (LKR): 179
FYE DEC - LKR mn FY11 2012 2013E 2014E
Net interest income 9,288 12,039 15,179 17,771
Net interest income growth 30% 26% 17%
Core Profit* 2,975 4,622 7,150 8,894
Core Profit growth 55% 55% 24%
Profit attributable to equity holders 3,683 5,343 4,609 6,749
Profit growth 45% -14% 46%
EPS (LKR) 22.1 31.9 27.5 40.2
NAVPS 136.0 162.2 180.9 208.3
PER (x) 8.1 5.6 6.5 4.4
P/BV (x) 1.3 1.1 1.0 0.9
DPS (LKR) 8.5 11.6 10.2 14.9
Dividend Yield % 4.8% 6.5% 5.7% 8.3%
C i l B k [COMB X0000] t d li 1
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Commercial Bank [COMB.X0000] to deliver 1-year total return of +26%: BUYCommercial Bank (COMB V LKR 114.1, NV LKR 88; Market Cap
USD 717mn): COMB is the largest private sector commercial
bank in SL with a loan book of LKR 373bn (+19 YoY) and a
c.29% private bank market share. CAL forecasts COMBs loanbook to grow in line with industry loan growth at 17% for 2013E.
COMBs larger CASA base (c.42% for 2013E), low cost IFC loans
and foreign deposits may enable COMB to maintain NIMs at
2012 levels (c.5.4%) despite lower yields from higher liquid
assets. COMB borrowed USD75mn via a subordinated loan f rom
IFC in 2012 consequent to raising USD65mn in 2012. Benefits
from recent branch additions (2010-12) and consolidation of
bank branches will enable COMBs cost-to-income ratios to
improve to 50% in 2013E from 51% in 2012. CAL expectsCOMBs core profi tability to grow 13% to LKR 14.4bn in 2013E.
COMB also provides an attractive dividend yield of 5.4% for the
voting and 7.1% for the non voting share. COMBs size and
higher than avg. liquidity (+2.3x) makes it investible for foreigninvestors. Larger dominant banks in regional peer countries
trade at a 47% premium to their smaller counterparts which may
just ify a c.40% premium for COMB. CALs 2013E target pri ce for
COMB.X is LKR125 (+10%) and LKR105 (19%) for the non-vot ing
share. CAL recommends a HOLD on COMB.N and BUY onCOMB.X currently trades at a PER of 7.6x on 2013E and PBV of
1.3x.
37
95
100
105
110
115
120
125
130
Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13
COMB COMB.X ASPI
Market Cap (USD): 715mn
1 Year Avg. Daily T/O (USD): 29k
1 Year Price H/L (LKR): 102/ 85
Free Float: 100%
Current Price (LKR): 88.00
2011 2012 2013E 2014E
Net interest margin 5.10% 5.39% 5.16% 5.44%
Cost-to-income 52% 51% 50% 45%
Average ROE 20.2% 20.8% 17.4% 20.1%
Average ROA 1.95% 2.11% 1.95% 1.95%
Loan Growth 26.6% 18.6% 10.8% 18.1%* Net interest income+Fee based income-Operating expenses
FYE Mar - LKR mn 2011 2012 2013E 2014E
Net interest income 18,678 22,852 25,004 30,565
Net interest income growth 22% 9% 22%
Core Profit* 10,479 12,882 14,496 19,260
Core Profit growth 23% 13% 33%
Profit attributable to equity holders 7,932 10,080 9,765 12,714
Profit growth 27% -3% 30%
EPS (LKR) 9.3 11.9 11.5 15.0
NAVPS 52.0 62.4 69.9 79.5
PER (x) (Voting) 12.2 9.6 9.9 7.6
P/BV (x) (Voting) 2.2 1.8 1.6 1.4
PER (x) (Non Voting) 9.4 7.4 7.6 5.9
P/BV (x) (Non Voting) 1.7 1.4 1.3 1.1
DPS (LKR) 5.8 6.4 6.2 8.1
Dividend Yield % (Voting) 5.1% 5.6% 5.5% 7.1%
Dividend Yield % (Non Voting) 6.6% 7.3% 7.1% 9.2%
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National Development Bank [NDB.N0000] todeliver 1-year total return of +12.5%: HOLDNational Development Bank (NDB V LKR 143; Market Cap USD
117mn): NDB is the 5th largest private sector bank with a loan book
of LKR 130bn and a c.8.4% private bank market share. The bank
commenced operations as a development bank and now functions
as a fully fledged commercial bank. NDB was able to grow its
assets by 17% in 2012. CAL expects NDBs loan book to grow
c.12% in 2013E due to the delay in obtaining the proposed low cost
USD250mn foreign loan facil ity.
In 1H2013, NDBs fee based income grew 20% YoY to LKR 690mn
while cost to-income ratio improved marginally f rom 66% in 1H2012
to 64% in 1H2013 amidst 5 branches being added YTD, leading to
core profits growing 33% YoY to LKR 1.5bn. CAL expects 2013E
core profit s to grow 23% YoY to LKR 3.7bn and recurring net prof its
to marginally grow 4% YoY to LKR3.2bn.
NDB currently trades at a 2013E PER of 7.3x and PBV of 0.9x. CAL
maintains a HOLD on NDB based on lower ROEs (13% for 2013E)
and a revised target price of LKR 153 ( +7%) which may provide a
total 1-yr return of 12.5%, including a dividend yield of 5.5%. HOLD
38
100
110
120
130
140
150
160
Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13
NDB ASPI
Market Cap (USD): 177mn
1 Year Avg. Daily T/O (USD): 155k1 Year Price H/L (LKR): 182.5/118.1
Free Float: 96%
Current Price (LKR): 143
FYE Mar - LKR mn 2011 2012 2013E 2014E
Net interest income 4,909 5,896 7,206 9,167
Net interest income growth 20% 22% 27%
Core Profit* 2,845 3,043 3,749 5,189
Core Profit growth 7% 23% 38%
Profi t attributable to equi ty holders 2,527 8,854 3,229 4,374
Profit growth 250% -64% 35%
EPS (LKR) 15.4 53.9 19.7 26.6
NAVPS 103.1 151.5 153.3 169.3
PER (x) 9.3 2.6 7.3 5.4
P/BV (x) 1.4 0.9 0.9 0.8
DPS (LKR) 7.5 15.0 7.9 10.7
Dividend Yield % 5.3% 10.5% 5.5% 7.5%
FY11 FY12 FY13E FY14E
Net interest margin 4.33% 4.11% 4.21% 4.33%
Cost-to-income 58% 60% 59% 55%
Average ROE 15.7% 35.3% 12.9% 16.5%
Average ROA 2.01% 1.87% 1.71% 1.91%
Loan Growth 43.6% 17.9% 12.2% 17.4%* Net intere st income+Fee based income-Operating expe nses
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Appendix : Summary Financial Statements
39
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40
Hatto
nNation
alBank
-IS
Hatton National Bank - Income Statement
As at 31 December 2012 2013E 2014E
Income 55,160 68,798 80,487
Interest income 47,940 60,832 70,786
Less: Interest expenses 25,496 33,659 40,320
Net interest income 22,444 27,173 30,465Fee and commission income 3,833 4,408 5,290
Less: Fee and commission expenses 64 353 423
Net fee and commission income 3,769 4,056 4,867Net interest, fee and commission income 26,213 31,229 35,332
Net loss from trading (1,624) (1,488) (1,936)
Net gain from financial investments 114 213 213
Other operating income 4,897 4,833 6,135
Total Operating income 29,600 34,786 39,743Less: Impairment charge/(reversal) for loans and other losses (1,162) (3,037) (1,178)
Net operating income 28,438 31,749 38,565
OPERATING EXPENSES
Personnel expenses 7,104 6,361 8,671
Premises, equipment and establishment expenses 3,481 3,917 4,324
Other overhead expenses 5,929 6,782 7,481
16,514 17,060 20,476
Operating profit before value added tax (VAT) 11,924 14,689 18,089
Less: Value added tax (VAT) on financial services 1,248 1,431 1,820Operating profit after value added tax (VAT) 10,676 13,258 16,270
Share of profit/(loss) of Associates (net of income tax) 17 17 18
PROFIT BEFORE INCOME TAX 10,693 13,275 16,288
Less: Income tax expense 2,421 3,717 4,561
PROFIT FOR THE YEAR 8,271 9,558 11,727
Profit attributable to Equity holders of the Bank 8,111 9,415 11,551
Profit attributable to Non-controlling interests 160 143 176
PROFIT FOR THE YEAR 8,271 9,558 11,727
Hatton Nat ona Ban - Statement o F nanc a Pos t on
As at 31 December 2011 2012 2013E 2014E
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41
Hatto
nNation
alBank
-BS
As at 31 December 2011 2012 2013E 2014E
ASSETS
Cash and cash equivalents 7,576 8,849 16,343 8,533
Balances with central banks 18,698 19,950 25,605 30,190
Placements with banks 8,244 11,667 4,872 5,359
Derivative financial instruments 497 345 351 411
Other financial assets held for trading 2,408 1,078 2,625 2,193
Non-current assets held for sale 3 3 3 3
Loans and receivables to other customers 257,435 303,922 350,732 410,991
Financial investments - Available-for-sale 51,435 58,929 67,488 78,961
Financial investments - Held-to-maturity 1,698 1,644 1,875 2,193
Financial investments - Loans and receivables 15,362 20,904 22,496 26,320
Investments in Associates 384 386 404 422
Investment properties 169 165 160 155
Property, plant and equipment 15,416 17,815 18,285 18,881
Intangible assets 671 690 710 731
Deferred tax assets 319 372 372 372
Other assets 10,982 12,680 13,872 16,231
Total assets 391,297 459,399 526,192 601,947
LIABILITIES
Due to banks 19,885 30,401 38,799 48,212
Derivative financial instruments 618 1,436 2,551 3,319
Due to other customers 290,912 340,848 374,932 438,671
Dividends payable 170 223 277 340
Other borrowings 8,876 6,747 17,537 9,042
Debt securities issued - 150 150 150
Current tax liabilities 1,094 1,840 2,230 2,736
Bills payable 1,404 1,431 1,431 1,431
Subordinated debentures 4,989 4,563 8,813 8,813
Insurance provision - Life 3,021 3,626 4,170 4,796
Insurance provision - General 944 969 1,018 1,069
Deferred tax liabilities 1,225 1,556 1,556 1,556
Other provisions 5,877 4,400 5,261 6,165Other liabilities 9,924 8,614 9,045 9,497
Total Liabilities 348,940 406,805 467,770 535,796
EQUITY
Stated capital 11,451 12,579 12,579 12,579
Statutory reserves 2,778 4,531 4,719 4,950
Retained earnings 3,504 5,322 8,429 12,818
Other reserves 23,841 29,193 31,582 34,514
Total equity attributable to equity holders of the Bank 41,575 51,624 57,309 64,862
Non-controlling interests 782 969 1,113 1,289
Total Equity 42,357 52,594 58,422 66,150
Total Liabilities and Equity 391,297 459,399 526,192 601,947
NAVPS 104.2 129.4 143.7 162.6
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42
Natio
nsTrust
Bank-IS
As at 31 December 2011 2012 2013E 2014E
Income
Interest Income 9,795 15,113 18,574 21,560
Interest Expense (5,391) (9,358) (11,587) (13,143)
Net Interest Income 4,404 5,755 6,987 8,417
Fees and Commission Income 1,850 2,285 2,794 3,363
Fees and Commission Expense (144) (163) (210) (252)
Net Fees and Commission Income 1,706 2,122 2,584 3,111
Net Trading Income 72 288 (262) (174)
Other Operating Income 312 228 277 333
Total Operating Income 6,494 8,392 9,586 11,687
Net Operating Income 6,728 7,960 9,092 11,224
Personnel Expenses 1,901 2,097 2,608 3,276
Depreciation of Property, Plant and Equipment 230 267 292 335
Amortization of Intangible Assets 95 113 99 119
Other Operating Expenses 1,791 2,283 2,484 2,654
Total Operating Expenses 4,017 4,759 5,484 6,383
Operating Profit Before Value Added Tax (VAT) 2,712 3,202 3,608 4,840
Value Added Tax (VAT) on Financial Services 376 435 510 666
Profit Before Income Tax 2,336 2,766 3,098 4,175
Income Tax Expense 729 815 868 1,169
Profit for the Year 1,607 1,951 2,231 3,006
EPS 6.97 8.46 9.67 13.03
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43
Natio
nsTrust
Bank-B
S
As at 31 December 2010 2011 2012 2013E 2014E
Assets
Cash and Cash Equivalents 1,533 3,694 2,534 2,134 2,200
Balances with Central Bank of Sri Lanka 2,416 4,284 5,089 5,251 6,302
Reverse Repurchase Agreements 3,484 6,614 2,712 2,896 3,475
Derivative Financial Instruments 62 255 328 369 443
Financial Assets - Held for Trading 16,033 6,550 21,088 24,133 27,801
Financial Assets - Held to Maturity 8,242 11,818 10,238 11,584 13,901Other Financial Assets 3,140 2,898 1,893 2,896 2,317
Loans and Advances to Customers 43,938 61,188 73,424 81,959 98,351
Other Assets 1,858 2,280 2,591 2,951 3,541
Property, Plant and Equipment 1,788 1,891 1,908 2,082 2,266
Intangible Assets 679 600 642 773 999
Total Assets 83,174 102,073 122,447 137,028 161,596
Liabilities
Due to Banks 1,202 1,277 2,796 3,020 3,262
Repurchase Agreements 17,391 14,480 11,833 13,113 15,736
Derivative Financial Instruments 360 316 528 592 663
Due to Customers 49,025 67,633 86,190 96,533 115,839
Debt Issued and Other Borrowed Funds 4,065 5,409 6,334 7,213 7,099
Current Tax Liabilities 583 235 544 607 744
Other Liabilities 3,788 3,859 3,846 3,923 4,001
Deferred Tax Liabilities 13 236 280 280 280
76,426 93,444 112,352 125,282 147,625
Equity Attributable to Equity Holders of the Parent
Stated Capital 4,368 5,101 5,101 5,101 5,101
Statutory Reserve Fund 156 224 314 416 555
Retained Earnings 2,225 3,034 4,044 5,191 6,736
Other Reserves - 269 636 1,037 1,579
6,749 8,628 10,095 11,746 13,970
Total Liabi li ties and Equity 83,174 102,073 122,447 137,028 161,596
NAVPS 29.3 37.4 43.8 50.9 60.6
Sampath Bank - Income Statement
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44
Samp
athBank
-IS
As at 31 December 2012 2013E 2014E
Income 39,725 48,667 56,647
Interest income 32,712 43,190 50,607
Less: Interest expenses 20,673 28,011 32,836
Net interest incom e 12,039 15,179 17,771Fee and commission income 2,877 3,337 3,604
Less: Fee and commission expenses 675 751 793
Net fee and commission income 2,202 2,586 2,811
Net interest , fee and com m ission incom e 14,241 17,765 20,582Net loss from trading 6 343 320
Other operating income 4,130 2,140 2,436
T otal Operating incom e 18,377 20,249 23,338Less: Impairment charge/(reversal) for loans and other losses (152) (2,020) (819)
Less: Impairment gain / ( loss) on financial investments 72 0 0
Net operating income 18,297 18,228 22,519
OPERATING EXPENSES
Personnel expenses 4,329 4,777 5,256
Depreciation of property & equipment 588 615 629
Amortisation of intangible assets 47 56 64
Other operating expenses 4,654 5,168 5,739
Other Operating Expenses 9,619 10,616 11,688
Operating profit before value added tax (VAT) 8,678 7,613 10,831
Less: Value added tax (VAT) on financial services 1,161 1,115 1,448
PROFIT BEFORE INCOME TAX 7,517 6,498 9,383
Less: Income tax expense 2,172 1,884 2,627
PROFIT FOR THE YEAR 5,346 4,613 6,756
Profit attributable to Equity holders of the Bank 5,343 4,609 6,749
Profit attributable to Non-controlling interests 3 5 7
PROFIT FOR THE YEAR 5,346 4,613 6,756
Sampath Bank - Statement of Financial Position
31 b 2011 2012 2013 201
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45
Samp
athBank
-BS
As at 31 December 2011 2012 2013E 2014E
ASSETS
Cash and cash equivalents 10,747 10,442 18,265 15,295
Balances with Central Bank of Sri Lanka 13,232 17,201 15,765 18,601
Placements with Banks 5,337 8,788 9,843 11,024
Reverse repurchase agreements 4,606 3,300 4,084 4,819
Derivative financial instruments 204 279 261 314
Financial investments held -for- trading 23,053 35,181 36,535 43,983
Financial assets held-for-trading pledged as collaterals 4,003 2,856 4,376 5,163
Loans and receivables from banks 442 816 729 861Loans and receivables from other customers 171,977 212,480 260,966 314,166
Other loans & receivables 5,736 10,224 12,252 14,457
Financial investments- available- for- sale 2,025 1,924 2,088 3,142
Financial investments- held - to- maturity 19 10 15 18
Property and equipment 6,691 6,764 6,397 6,114
Intangible assets 73 316 261 490
Deferred tax asset 2 12 12 12
Other assets 2,847 3,731 4,104 4,514
Total assets 250,995 314,326 375,951 442,972
LIABILITIESDue to banks 1,176 668 875 1,033
Securities sold under re-purchase agreements 4,101 2,751 3,654 4,398
Derivative financial instruments 311 382 646 646
Due to other customers 195,094 243,088 291,706 344,213
Debt issued and other borrowed funds 21,490 32,218 40,839 48,190
Unclaimed dividend 37 49 43 62
Current tax liabilities 1,881 3,036 2,261 3,153
Deferred tax liabilities 396 431 431 431
Provisions 138 180 199 219
Other liabilities 3,503 4,247 4,884 5,617
Total Liabilities 228,128 287,051 345,537 407,962
EQUITY
Stated capital 2,744 3,564 4,458 4,458
Statutory / risk reserve funds 858 1,199 1,429 1,767
Revaluation reserve 2,879 2,876 2,876 2,876
Available-for-sale reserve 1,798 1,465 1,465 1,465
Revenue reserves 14,529 18,110 20,120 24,372
Total equity attributable to equity holders of the Bank 22,807 27,214 30,348 34,938
Non-controlling interests 60 61 66 73
Total Equity 22,867 27,275 30,414 35,011
Total Liabilities and Equity 250,995 314,326 375,951 442,972
NAVPS 136 162 181 208
Commercial Bank - Income Statement
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Comm
ercialB
ank-IS
As at 31 December 2012 2013E 2014E
Income 63,374 71,809 83,677
Interest income 52,663 62,517 73,308
Less: Interest expenses 29,811 37,514 42,743
Net interest income 22,852 25,004 30,565Fee and commission income 4,147 4,769 5,484
Less: Fee and commission expenses 549 668 768Net fee and commission income 3,598 4,101 4,716
Net interest, fee and commission income 26,450 29,105 35,282Net loss from trading 2,494 1,383- 1,556-
Net gain from financial investments 32 30 30
Other operating income 4,038 4,523 4,884
Total Operating income 33,014 32,274 38,640Less: Impairment charge/(reversal) for loans and o 3,158 2,152 2,565
Less: Impairment gain / ( loss) on financial investm - - -
Net operating income 29,856 30,122 36,075
Personnel expenses 7,837 8,551 9,483
Other operating expenses 5,731 6,058 6,539
13,568 14,609 16,022
Operating profit before value added tax (VAT) 16,288 15,513 20,053
Less: Value added tax (VAT) on financial services 1,987 1,949 2,392
Operating profit after value added tax (VAT) 14,301 13,564 17,661
Share of profit/(loss) of Associates (net of income 12 14 16
PROFIT BEFORE INCOME TAX 14,313 13,564 17,661
Less: Income tax expense 4,232 3,798 4,945
PROFIT FOR THE YEAR 10,081 9,766 12,716
Profit attributable to Equity holders of the bank 10,080 9,765 12,714
Non-controlling interest 1 1 2
PROFIT FOR THE YEAR 10,081 9,766 12,716
EPS 11.9 11.5 15.0
Commercial Bank - Statement of Financial Position
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Comm
ercialB
ank-BS
As at 31 December 2011 2012 2013E 2014E
ASSETS
Cash and cash equivalents 12,935 19,752 17,928 24,024
Balances with Central Banks 17,343 18,168 19,199 21,216
Placements with banks 11,674 16,163 6,465 7,112
Derivative financial instruments 40 1,351 1,446 1,707
Other financial assets held for trading 6,418 6,041 7,912 7,785
Loans and receivables to banks 580 629 629 629
Loans and receivables to other customers 314,327 372,857 413,205 487,835
Financial investments - Available-for-sale 61,415 57,963 87,916 103,795
Investments in associates 120 94 104 114
Property, plant & equipment 8,503 8,947 8,297 7,635
Intangible assets 475 506 464 420
Leasehold property 113 112 110 109
Deferred tax assets 364 458 458 458
Other assets 7,290 9,179 9,671 9,671
Total assets 441,598 512,221 573,804 672,508
LIABILITIES
Due to banks 11,574 4,764 5,327 5,959Derivative financial instruments 435 84 93 110
Due to other customers 323,698 390,569 439,579 518,973
Other borrowings 49,455 47,566 52,986 60,823
Current tax liabilities 1,307 2,822 1,899 2,473
Deferred tax liabilities 1,640 1,890 1,890 1,890
Other provisions 1 2 2 2
Other liabilities 8,214 10,417 11,570 13,659
Subordinated term debts 1,106 1,106 1,109 1,109
Total liabilities 397,429 459,220 514,457 604,998
EQUITY
Stated capital 16,474 18,009 19,791 22,093
Statutory reserves 2,890 3,433 3,962 4,637
Retained earnings 2,588 4,173 4,661 5,297
Other reserves 22,187 27,353 30,899 35,448
Total equity to equity owners of the Bank 44,139 52,968 59,313 67,475
Non-Controlling Interest 30 32 33 35
Total equity 44,169 53,001 59,347 67,511
441,598 512,221 573,804 672,508
NAVPS 52.0 62.4 69.9 79.5
S As at 31 December 2011 2012 2013E 2014E
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NationalDevel
opmentBank-IS As at 31 December 2011 2012 2013E 2014E
Income
Interest income 11,655 17,150 22,290 27,024
Interest expense (6,745) (11,254) (15,084) (17,858)
Net interest income 4,909 5,896 7,206 9,167
Net fee and commission income 1,916 1,644 1,966 2,369
Net trading income/(expense) 448 1,272 1,172 1,312Other operating income 648 6,127 1,258 1,504
Total operating income 7,922 14,938 11,601 14,352
Impairment charge/ (reversal) for loans and other losses (88) 51 249 385
Net operating income 8,010 14,887 11,352 13,967
Less: Operati ng Expenses
Personnel expenses 2,118 2,333 2,809 3,225
Depreciation of property, plant & equipment 199 205 242 279
Amortisation of intangible assets 51 96 112 145
Other operating expenses 1,613 1,862 2,260 2,698
Total operating expenses 3,981 4,496 5,423 6,347
Operating profit before value added tax 4,030 10,391 5,929 7,620
Value Added Tax (VAT) on financial services (505) (622) (1,104) (1,084)
Operating profit after value added tax 3,525 9,769 4,825 6,535
Share of associate companies profit 331 439 21 28
Profit before tax 3,855 10,207 4,846 6,563
Income tax expense (1,093) (1,275) (1,551) (2,100)
Profit for the year 2,763 8,932 3,295 4,463
Profit attributable to equity holders of the parent 2,527 8,854 3,229 4,374
Profit attributable to minority interest 235 78 66 89
Profit for the year 2,763 8,932 3,295 4,463
EPS 15.4 53.9 19.7 26.6
SAs a t 31 Decem be r 2010 2011 2012 2013E 2014E
ASSETS
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NationalDevelopmentB
ank-BS ASSETSCash and cash equivalents 2,508 2,519 3,635 2,281 2,623
Balances with Central Bank 3,077 4,614 6,075 6,321 7,356
Placements with banks - 518 3,559 7,383 11,898
S ecurities purchased under resale agreements 2,155 912 3,325 4,252 6,852
Financial assets held for trading 8,187 7,106 983 7,825 12,611
Derivative financial instruments 141 1,402 1,706 3,802 2,915
Other financial assets held for trading 1,852 2,087 10,412 5,236 8,438
Loans and advances to banks 1,817 1,640 1,183 1,267 1,457
Loans and advances to customers 65,045 93,166 109,649 121,778 142,626
Lease rentals receivables 2,412 4,650 6,390 8,444 10,234
Other financial assets classified as loans and receivable 9,179 2,563 3,764 8,867 14,290
Financial assets - held to maturity 7,680 15,666 19,223 18,498 29,812
Financial assets - available for sale 7 186 174 526 847
Investments in associate companies 1,763 1,797 33 55 55
Other assets 691 963 1,155 1,774 2,040
Intangible assets 210 318 319 356 421
Property, plant & equipment 708 1,185 1,223 1,328 1,495
Investment properties 1,200 1,296 1,296 1,296 1,296
Total assets 108,635 142,588 174,103 201,287 257,267
LIABILITIES
Due to Banks 570 5,924 2,320 6,943 7,932
S ecurities sold under repurchase agreements 11,475 10,133 12,516 17,049 19,968
Derivative financial instruments - 1,022 1,737 1,827 2,139
Due to customers 60,533 82,094 107,394 126,725 145,733
Debt securities issued and other borrowed funds 13,961 19,466 17,802 15,402 44,682
Tax liabilities 573 356 634 775 1,050
Other liabilities 2,825 3,286 3,657 4,140 4,849
Subordinated term debts 2,625 2,428 2,255 2,303 2,111
Deferred Tax 60 41 79 79 79
Total l iabi l i ties 92,622 124,750 148,394 175,243 228,545
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF PARENT
Stated capital 864 864 864 864 864
Statutory reserve fund 879 879 879 879 879
Investment Fund - 387 924 1,332 1,854
Retained Earnings 13,553 14,796 22,216 22,104 24,206
15,295 16,925 24,883 25,179 27,803
Non-controlling interests 717 913 826 866 920
Total Equity 16,012 17,838 25,709 26,045 28,722
Total l iabi l i ties and total equity 108,635 142,588 174,103 201,287 257,267
NAVPS 93.1 103.1 151.5 153.3 169.3
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Disclaimer
This document has been prepared and issued on the basis of publicly available information,
internally developed data and other sources, believed to be reliable. Capital Alliance Securities
(Private) Limited however does not warrant its completeness or accuracy. Opinions and estimates
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Contacts
Research TeamTel No: +94 11 231 7777 (General)Email : [email protected]
Head of ResearchPurasisi J inadasa
Tel No: +94 11 231 7786Email: [email protected]
Udeeshan J onasTel No: +94 11 231 7746
Email : [email protected]
Reshan WediwardanaTel No: +94 11 231 7777 (Ext: 7814)Email : [email protected]
Dushan De SilvaEmail: [email protected]
Thushani De SilvaEmail: [email protected]