CORPORATE

LOLC PAT Rs.3.9b in 1H

LOLC group pre-tax profits for the first half of 2010/11 was Rs. 4.5Bn with post tax profits of Rs.3.9Bn. Compared with the previous year, pre-tax profits grew by 370 percent.

The company’s acquisitions made in the previous financial year contributed well to the bottom line along with other income, which increased by 215 percent to reach Rs. 2.7 Bn at the end of the second quarter.

The revenue of the group grew by 500 percent over last year, mainly contributed by the trading companies in the Brown & Co PLC cluster.

The trading profits complemented well to the group’s financial services related business income of Rs5.8Bn, a 22 percent growth over last year.

The borrowing costs continued to come down in line with the sliding interest rates with the group raising funds at attractive rates.

This is mainly due to LOLC’s ability to source long-term funding from foreign multilateral and bilateral agencies at attractive rates contributing to the reduction in borrowing costs. The borrowing cost for the six months was 3 percent lower than last year and was Rs. 3Bn. This decrease is despite the increase in the quantum of borrowings.

Balance sheet growth was substantial with total assets reaching Rs. 98Bn, a 31 percent growth over last six months.

Aggressive growth in the lending business increased the total advances to Rs. 47Bn, a 48 percent growth over last year.

To support this aggressive growth in lending especially in the North and East, and branch expansion, the Group raised additional funding at attractive interest rates increasing the total borrowing by 29 percent over the last six months.

LOLC’s exponential growth, expansion strategy and strategic investments has positioned the Group on a strong footing for a steady stream of medium to long-term sustainable profitability and this is already evident from the record increase in profits when compared with last year.

Aggressive growth in the lending business over the last 12 months especially in the rural areas are contributing well to the bottom line of LOLC, Lanka ORIX Finance Co.Ltd.(LOFC), Lanka ORIX Micro Credit Ltd. (LOMC) and Commercial Leasing Company Ltd(CLC), the main lending companies of the Group.

Economies of scale from operations and multiplying synergies from sharing the distribution channels are reaping the benefits to the companies with each company making significant profit contributions to the Group. Effective and improved collection strategy following the initial disbursement complements well to this success.

Strategic expansion of the lending operations continues with the expansion of branches and “Isuru Diriya” centres being opened at an average of four a month in the rural areas.

The total count of the financial services sector outlets now exceeds 135, of which, Lanka Indian Oil Company outlets and “Isuru Diriya” centres increased to 63 with “Isuru Diriya” centres reaching 50 last month.

The company’s entry into the North and East with a significant number of outlets being opened in the region is already reaping benefits to the lending businesses.

The Company’s fully owned subsidiary LOFC the registered finance company within the Group, is performing exceptionally well with tremendous growth in its deposit base to reach a Rs. 12.7Bn a 70 percent growth over last year.

The deposit base increased by 26 percent within the last six months clearly establishing the financial stability and strong confidence the depositors have placed in the company.

CLC and LOMC, operate in the SME/Micro sectors and are well positioned to capitalize on the heightened activity due to the positive sentiments in economic growth.

These two companies are already contributing significantly to the bottom line of the Group giving high returns on investments.

The Group’s investments in the leisure sector are going through a phase of close evaluation for positioning for the future with significant investments being committed during the next twelve to eighteen months.

The capital investment envisaged for this sector is in excess of Rs.3.5Bn and LOLC Leisure is currently negotiating with major international hoteliers to enter into strategic alliance for the management of these prime properties situated in the golden mile of the south coast of Sri Lanka.

The company is gearing up to start off the two new operations namely LOLC Insurance and LOLC Securities.

LOLC obtained a composite licence for insurance and is expected to commence business in both life and General insurance early next year.

LOLC Securities received the stock broking licence recently and is expected to commence operations again in the early part of 2011.

The Group made a strategic investment into the construction sector, by acquiring 20 percent of Sierra Holdings Pvt. Ltd and 20 percent in Sierra Constructions Pvt. Ltd at a cost of RS. 1.6Bn.

“LOLC has firmly set its sights on creating an organisation with outstanding strength through sustainable income, profitability, strategic expansion and good governance, building on the solid business base in financial services.

LOLC will take full advantage of the promising future and continually seek opportunities to diversify” said the Group’s Managing Director, Kapila Jayawardena.

HNB PAT up

HNB Group posted a pre-tax profit of Rs. 4.7 billion and a post tax profit of Rs. 2.9 billion for the nine months ended September, up by 10 percent compared to first nine months of 2009 with HNB PLC recording a pre-tax profit of Rs. 4.4 billion and a post tax profit of Rs. 2.7 billion.

Interest income dropped by 15 percent during the nine months ended September to Rs. 17.6 billion despite loan growth due to re-pricing of assets during the year and prevailing low interest rates.

Nevertheless, due to prudent asset and liability management the Bank was successful in recording a 5 percent growth in net interest income during the period.

The non interest income increased by 22 percent year on year mainly on account of capital gains and market to market gains on the trading portfolio while the foreign exchange income witnessed a marginal growth.

During 3rd quarter, the Bank divested the direct stake of 49.99 percent held in Acuity Securities (Pvt) Ltd., to Acuity Partners (Pvt) Ltd., the joint venture Investment Bank with DFCC Bank as part of the Bank’s long term strategy.

Commenting on the growth the Senior DGM - Strategy Nihal Kekulawala stated that with the economic resurgence, the industry witnessed a growth in demand for credit while the Bank recorded an increase of Rs. 14.2 billion in gross loans and advances to Rs. 190.9 billion during the nine months.

The performing loans increased to Rs. 177.8 billion by 8 percent compared to end 2009 while the gross and net NPA ratios improved to 5.9 percent and 3.1 percent due to prudent lending policies and concerted recovery effort by the Bank.

Further the bank maintained a provision cover of 48 percent as at end of the 3rd quarter.

Despite downward revisions in interest rates, the Bank was successful in increasing the deposit base by Rs. 7.4 billion to Rs. 221.4 billion.

PABC outlook stable - Fitch

The upgrade of Pan Asia Banking Corporation PLC’s (PABC) National Long Term Rating to ‘BBB(lka)’ recently reflects continuing improvements in its asset quality and capitalisation.

The rating also takes into account structural changes taking place within the bank, and Fitch Ratings’ expectation that these should enable PABC to diversify and enhance the quality of its loan portfolio - and further increase its available capital buffer to meet potential loan losses over the next two to three years.

The improvement in loan quality was aided by structural changes, including the strengthening of underwriting and risk standards, as well as the ongoing economic recovery.

Nominal NPLs had fallen by 19 percent at end September from the peak in June 2009, and, together with increasing exposure to low risk, gold backed advances, helped reduce PABC’s gross NPL ratio to 7.7 percent (June 2009: 13.4 percent). Net NPLs/equity fell to 31.6 percent at end September (June 2009: 58.3 percent), aided by an equity infusion in May.

PABC raised LKR442.6m through a rights issue in May, enabling it to meet the regulatory LKR2.5bn minimum capital requirement (MCR) for licensed commercial banks (LCBs) by June. Although the MCR has now been increased to LKR5bn, PABC is on track to meet the interim target of LKR3bn by end 2011.

Capital adequacy ratios (CARs) continued to remain comfortable, due to the bank’s high percentage of cash backed loans which are zero risk weighted. Tier 1 CAR was 15.3 percent at end September.

However, Fitch notes that the capital buffer available to meet any loan losses, as measured by the net NPLs/equity ratio, is weaker than the LCB sector.

Despite pressures arising from higher credit costs and weak credit demand, profitability (as measured by ROA) increased to 1.9 percent in 2009, boosted by capital gains and marked to market gains on PABC’s government securities portfolio.

ROA normalised to 1.5 percent in the nine months ending September (9M10), which was marginally higher than the LCB sector.

PABC’s relatively high deposit growth of 15.9 percent in 9M10 was unable to keep pace with the rapid expansion of its loan book, bringing the loans/deposit ratio to 91 percent at end September.

Total loan growth was 50 percent in 9M10. However, with the bank’s greater deposit mobilisation efforts, deposit growth should pick up over the next 12 months.

Union Assurance PAT Rs 144m in Q3

Union Assurance PLC reported positive results in both turnover and profits for the nine months ended September 30. General and life insurance premiums increased by 9 percent from Rs. 4.4 billion to Rs. 4.8 billion for the nine months ended September 30 compared to the same period of the previous year.

This was mainly due to the increase in life insurance premiums which grew by 19 percent from Rs. 2 billion in 2009 to Rs. 2.4 billion in 2010. General insurance premiums recorded a marginal growth of 0.3 percent compared to the previous year.

Profit before tax increased by 20 percent from Rs. 169 million as at September 2009 to Rs. 202 million as at September 2010.

Profit after tax also increased by 8 percent from Rs. 133 million in September 2009 to Rs. 144 million in September 2010.

Profits up at PCH

PCH demonstrated resilience of its core services in the backdrop of a rapidly improving economic environment, fuelling healthy growth of its profit after tax. In the six months ended September 30, profits increased by 149 percent to Rs. 90.6 million.

The company’s total revenue went up by 30 percent from Rs. 1.20 billion to Rs. 1.57 billion, with gross profit increasing by 24 percent. The prevailing low interest rate environment resulted in interest expenses going down by 46 percent, and this reduction contributed towards the increase in profitably.

Commenting on the results, S.H.M. Rishan, Chairman of PCH said, “We have succeeded in increasing our net profits after an exciting time for the company. We are very confident that we will be able to comfortably surpass the projected profits for the current year that was taken into account in the valuation of the Company in preparation for the IPO.”

After the recent IPO, PCH has committed to the build-up in operations with the opening of branches in Hambanthota, Nelladdi, Kilinochchi and Mannar. Taking ICT to the rural youth has been an initiative that corresponds with the Government’s islandwide initiative of taking IT to all corners of the island.

Plans are under way for enhanced expansion of its BPO/KPO operations to be launched in the 3rd quarter.