CORPORATE

BoC PAT increases by 106.4%

To transform the bank to a new era of financial services, BoC launched a three year plan in 2010. The first year of the plan has concluded with better than expected results.

Profit before tax for the year was Rs. 10.1b - a 138.9 percent growth and Profit after tax Rs. 6.4 b an increase of 106.4 percent. The main contributors were sound management of margins, volume growth in core banking and diversification of revenue into non-interest income, while offering the lowest interest rates to boost credit growth.

With income of Rs. 63.4 b remaining almost on par with the previous year, the increase in assets is due to lower interest rates in which BOC led the way. Non interest income grew by 25.4 percent to Rs. 11.1 b while fee income earnings mainly from international trade activities increased to Rs. 3.8 b, a 99.3 percent increase.

The bank continues to remain the market leader in import and export transaction banking. During the year, falling interest rates on fixed rate instruments together with good performance at the Colombo Stock Exchange, contributed to increase the capital gain of the Bank to Rs. 3.1 b, an increase of Rs. 1.1b or a 58.3 percent growth over last year.

BOCs proactive foreign currency management, prevented the bank from exchange losses that would otherwise have been incurred in a Rupee appreciating environment. Due to this, the exchange income came under pressure to record lower gains.

Staff costs remained at the same level of 2009. The premises related expenses increased by 12.5 percent to Rs. 2,803 m mainly due to the cost incurred in branch expansion in the north and east.

Increase in the other operating expenses include marketing spend on new products and services and write-offs amounting to Rs. 134 m in the branches adversely affected by the last phase of the conflict. This operational write-off was mainly to streamline and re-engage the affected business community, putting them back on their feet.

BOC improved its operating efficiency by reducing the cost to income ratio to 53.7 percent thereby being very competitive with that of the market.

Special emphasis on recovery at the beginning of the year, coupled with the transformation of sound risk management practices, improved the assets quality of the Bank. Non Performing Loans (NPL) reduced to Rs. 12.6 b from 15.5 b a year earlier recording an impressive NPL ratio of 3.3 percent from 5.6. percent in 2009.

Total assets increased by Rs. 176.7 b or 32.8 percent to Rs. 715 b. The loan book expanded by Rs. 107 b or 37.7 percent to Rs. 390 b, growing consistently throughout the year.

Private sector credit growth was Rs. 60.7 b, 33.2 percent increase over the last year to Rs. 243.4 b. Government and semi-government loans increased by 50.4 percent to Rs. 138.9 b which includes Rs. 2 .5 b in support of the paddy price stabilisation strategy.

Of the private sector credit growth, Rs. 38.8 b accounts for consumption, Rs. 9.3 billion is attributed to housing and construction, Rs. 3.5 b in Agriculture and Fisheries, Rs. 3.2 b in manufacturing, with Import-Export loans taking Rs. 2.7 b. BOC does not grant credit for speculative share trading purposes.

BOC engaged in deposit mobilisation campaigns and developed long term deposit mobilising products via BOC Vishrama, BOC Infinity and Smart Saver. During the year, customer deposits increased by Rs. 119.3 b or 29.2 percent to Rs. 528 b. The deposit mix comprises demand deposits of 17.7%, savings at 36.0 percent and time deposits of 45.7%. The bank also raised USD 306.5 million in the international market and debentures of Rs. 21.7 billion in the domestic market to fund the asset growth.

NSB records Rs. 9.8b PBT

“2010 was a milestone year for NSB. With sound macroeconomic fundamentals, we witnessed signs of the economy moving towards accelerated growth. The commendable performance of NSB is a clear manifestation of the peace dividend received by the country,” said General Manager/CEO of NSB, Hennayake Bandara.

The total assets of NSB reached Rs.403 billion in 2010 and total deposits were Rs.355 billion. PBT recorded a growth of 41 percent to reach Rs.9.8 billion and a post-tax profit increase of 45 percent to Rs.5.4 billion over the last financial year. The bank opened 29 branches during the year, most of them in rural areas.

Income and profitability

The Bank’s income was over Rs.50 billion recording a marginal growth of one percent even with low interest rates. This is a notable growth as more than 70 percent of the bank’s investments were in government securities which are being re-priced at lower rates.

As a result of the decline in the Bank’s deposit rates in line with market trends, interest expenses decreased by 13 percent when compared to year 2009. Due to above factors net interest income (NII) grew by 28 percent to reach Rs.16.6 billion in 2010. The Bank maintained its net interest margin at 4.4 percent in 2010 compared with 4.0 percent in 2009.

Operating expenses increased to Rs.5.7 billion recording a growth of 28 percent and this was mainly due to the increase in premises, equipment and establishment expenses and other operating expenses. The expansion of branch network, refurbishment of branches, the new project with Sri Lanka Post and provision for staff retirement benefits are the main factors for the increase in operating expenses.

Profit before taxes (Financial VAT and Corporate Tax) increased by 39 percent to Rs.12.8 billion the main contributor to this increase was Rs. 1.3 billion exceptional capital gains earned from equity market trading. Profit before tax grew by 41 percent to Rs. 9.8 billion recording the highest ever PBT for the Bank and PAT recorded a growth of 45 percent compared to the last financial year.

Taxation VAT on financial services increased by 33 percent while corporate tax increased by 36 percent. Effective tax rate was 45 percent without VAT and 58 percent with VAT.

Contribution to coffers

The Bank paid Rs. 2.6 billion as dividends to the Treasury for the financial year 2010 as per the new dividend policy agreed with the Treasury, the highest ever amount paid by a bank. With financial VAT and corporate tax, the Bank has altogether contributed over Rs.10 billion to coffers.

Assets, investments and loans

The Bank’s total assets were up by 14 percent to Rs.403 billion at the end of 2010 reflecting primarily, the increase in investments in government securities, loans and advances.

Loans and advances grew by 20 percent to Rs.82 billion at the end of 2010, notably housing loan disbursements recorded a growth of 120 percent compared to last year and non-performing loans reduced by 9.0 percent.

Asset quality remains strong with the non-performing loan (NPL) ratio of 2.5 percent reducing from 3.5 percent.

The decline in the NPL ratio was mainly due to increase in total loans and advances and efforts on recovery.

SriLankan Catering - net profit Rs. 640 m

SriLankan Catering (Pvt) Ltd. has reported a Net Profit of Rs. 640 million in the nine month period up to December 31, a 40 percentage increase over the same period in the previous year.

This performance came despite the company registering an exchange loss of Rs. 160 million during the period due to the appreciation of the Sri Lankan rupee.

The company’s state-of-the-art flight kitchen in Katunayake produced a total of 3.15 million meals during the 9-month period, at an average of 11,453 meals per day.

The Net Profit for the month of December 2010 was Rs. 110 million, during which time SriLankan Catering produced more than 385,000 meals.

SriLankan Catering has added several more client airlines in recent times, as well as providing an increasing number of meals to airlines already operating to BIA.

The company also provides cuisine for all seven of the restaurants and lounges at BIA. In addition to strengthening its core business of in-flight catering, SriLankan Catering is also diversifying into ancillary areas, and currently operates an industrial laundry facility in Katunayake and the 24-roomed Serenediva Transit Hotel at BIA.

 Ceylinco Insurance post Rs. 933.9m pre-tax profit

Managing Director/ CEO Ceylinco Insurance - General Ajith Gunawardena said, “In 2010, Ceylinco Insurance recorded a premium income of Rs. 18 billion out of which the General Division contributed Rs. 9.22 billion with the Life Division contributing the remaining Rs. 8.78 billion.

The Company made an exceptional pre-tax profit of Rs. 933.9 million for the year indicating a 12 percent increase in comparison to 2009 for which the General Division contributed Rs. 343 million. The company paid Rs. 8.28 billion in claims out of which Ceylinco Insurance- General paid Rs. 5.53 billion.” In order to ensure growth and to meet with emerging opportunities, the company maintains the largest branch network in the island, with over 260 branches and sales outlets. Ceylinco Insurance General also maintained a solvency margin of over 270 percent as at December 31, well above the recommended level by the regulator.

Voting shares fetched the highest price amongst banks and insurance companies. Rs. 680 being the highest traded price. The total assets of the company grew by 17 percent over the previous year, and stood at Rs. 49.3 billion, as at December 31.

HNB records Rs. 4.46b PAT

Despite adversities faced in 2010 HNB posted a robust growth for the year with pre-tax profits increasing by 13.8 percent to Rs. 6.7b and post tax profits to Rs. 4.46b.

Managing Director/CEO of HNB PLC Rajendra Theagarajah said that the solid contribution from core banking activities driven by agility and acceleration of strategy implementation paved the way for improved financial performance. The decline in domestic interest rates coupled with the sluggish loan growth witnessed during the first half of the year contributed towards a drop in the Bank’s top line where interest income declined by 12.6 percent to Rs. 30.2b from Rs. 34.6b in 2009. The drop in interest rates also enabled the Bank to contain its interest cost.

The Bank’s prudent asset and liability management strategies enabled it to convert a significant portion of its fixed deposits into comparatively low cost deposits which helped improve the deposit mix where current and savings accounts balances represented 53 percent of the total deposit base compared to 46 percent in 2009. This too contributed to the reduction of interest cost achieving a 6.6 percent growth in net interest income despite the drop in the top line.

The Bank remained extremely aggressive in its recovery efforts during 2010 resulting in its gross non performing ratio declining to 4.51 percent against the industry average of 5.3 percent, while the net non performing ratio declined to 1.95 percent% recording one of the best ratios in the industry. The provision cover as at end of 2010 improved to 56.8 percent.

The corporate tax charge for the Bank increased by a substantial 44.8 percent to Rs. 2.3b in 2010 compared to the previous year. The main reason for this was the exceptionally low tax charge witnessed in 2009 resulting from the Bank utilising carried forward tax losses and write-back of over provided taxes during early years. Accordingly, the effective corporate tax rate increased to 33.7 percent in 2010 compared to a low 26.5 percent in 2009 resulting in a modest growth in post tax profits despite a robust growth in the pre-tax profits.

The joint venture Investment Banking Group, Acuity Partners (Pvt) Ltd demonstrated a commendable profit growth of 257 percent with positive contributions from all its business activities, which include corporate finance, stock broking and dealing in fixed income securities. Acuity Group was further strengthened during the year by bringing in Lanka Ventures PLC under the Acuity umbrella.

The property management subsidiary of the Bank which owns HNB Towers also contributed towards the Group’s bottom line. However, the two exchange houses Majan and Delma are yet to break-even, as they are new investments. Majan and Delma have demonstrated potential and have been avenues through which the Bank has increased its penetration to the Middle East.

Commercial Bank PAT exceeds Rs 5.5b

Solid loan book growth and noteworthy improvements in most key indicators have contributed to Commercial Bank of Ceylon PLC attaining a major banking sector performance landmark in the year ending December 31, 2010.

According to financial statements filed with the Colombo Stock Exchange, the Bank crossed the milestone Rs 5 billion in profit after tax during the year with a net profit of Rs 5.523 billion, achieving a growth of 28.3 percent over 2009.

The Bank’s profit before tax grew by a healthy 29.5 percent to Rs 9.317 billion, an increase of more than Rs 2 billion in the year reviewed.

A welcome resurgence in credit demand and a drop in non-performing advances in absolute terms helped achieve this growth by facilitating a 32.2 percent (Rs 4 billion) improvement in net interest income, from Rs 12.41 billion to Rs 16.41 billion, the Bank said. Loan book growth also contributed to an increase of 27.3 percent in fee and commission income.

Total operating income of the Bank recorded a 14.7 percent growth to Rs 23.193 billion, despite a steep drop in interest rates. There was, however, a decrease in other income, largely as a result of a drop in capital gains from the sale of treasury bills and bonds compared to the previous year, and a 41.2 percent reduction in the exchange profit of the Bank due to the appreciation of the Rupee against the US Dollar in 2010.

On the strength of these results, the Board of Directors of Commercial Bank PLC has proposed a final dividend of Rs 4 per share, made up of Rs 2 in cash and Rs 2 in the form of a scrip dividend, taking total dividend per share for the year to Rs 7. The Bank paid two interim dividends of Rs 1.50 each earlier in the year.

This is the third year running that the Commercial Bank has declared annual dividends of Rs 7 per share, the highest in the local banking sector. The maintenance of the Bank’s dividend rate subsequent to a one for two share split that created 125 million new shares in June 2010 means that the dividend rate in terms of the previous shareholding amounts to Rs 10.50 per share.

Commenting on the Bank’s performance in 2010, Commercial Bank Managing Director Amitha Gooneratne said practically every ratio had improved substantially. “Most noteworthy to shareholders would be the increase in the return on average shareholder funds, which at 17.9 percent, is very much higher than the yield on treasury bills,” he pointed out.

Key to the Bank’s results, Gooneratne said, was the growth in business volumes in the year under review.

Investing in green economy can boost growth, reduce poverty - UN Report

Investing around $1.3 trillion - or two percent of global Gross Domestic Product (GDP) into ten key sectors can kick-start a transition towards a low-carbon, resource-efficient ‘green economy’ that can also help reduce poverty, says a United Nations report launched recently.

The UN Environment Program (UNEP) presented the report, “Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication,” to environment ministers from over 100 countries at the opening of the UNEP Governing Council/Global Ministerial Environment Forum in Nairobi.

The report identifies the following sectors as key to greening the global economy: agriculture, buildings, energy supply, fisheries, forestry, industry including energy efficiency, tourism, transport, waste management and water.

It sees a green economy as not only relevant to more developed economies but as a key catalyst for growth and poverty eradication in developing ones too, where in some cases close to 90 percent of the GDP of the poor is linked to nature or natural capital such as forests and freshwaters.

“With 2.5 billion people living on less than $2 a day and with more than two billion people being added to the global population by 2050, it is clear that we must continue to develop and grow our economies,” said UNEP Executive Director Achim Steiner.

“But this development cannot come at the expense of the very life support systems on land, in the oceans or in our atmosphere that sustain our economies, and thus, the lives of each and everyone of us,” he added. “The green economy provides a vital part of the answer of how to keep humanity’s ecological footprint within planetary boundaries. It aims to link the environmental imperatives for changing course to economic and social outcomes — in particular economic development, jobs and equity.”

According to the UNEP, the world currently spends between one and two percent of global GDP on a range of subsidies that often perpetuate unsustainable resources use in areas such as fossil fuels, agriculture, including pesticide subsidies, water and fisheries.

Many of these contribute to environmental damage and inefficiencies in the global economy, and phasing them down or phasing them out would generate multiple benefits while freeing up resources to finance a green economy transition.

The report does acknowledge that in the short-term, job losses in some sectors, such as fisheries, are inevitable if they are to transition towards sustainability. Investment, in some cases funded from cuts in harmful subsidies, will be required to re-skill and re-train some sections of the global workforce to ensure a fair and socially acceptable transition.

The report makes the case that over time the number of “new and decent jobs created” in sectors —ranging from renewable energies to more sustainable agriculture — will however offset those lost from the former “brown economy.”

Gold corporate accountability rating for Brandix

Top apparel exporter Brandix Lanka Limited has been awarded a Gold rating for the second consecutive year in the 2011 edition of the coveted ‘Sting Corporate Accountability Index’ released by the Lanka Monthly Digest (LMD) magazine in association with Sting Consultants.

Brandix has obtained the 10th overall position among 74 entities in the index securing 69.75 points.

It is the highest ranked company representing the Apparel, Footwear and Textiles sector, which the Index rates as one of the six ‘above average’ sectors for Corporate Accountability.

The criteria taken into consideration by a team of expert judges in awarding the rankings included measurement and disclosure; stakeholder engagement; policy coverage; management and governance; identifying impacts, risks and opportunities and corporate values.

“This endorsement of Brandix’s corporate accountability practices by a reputed independent entity, based on broad criteria, demonstrates the high degree of transparency and continued commitment to best practices at Brandix,” a spokesperson for the Brandix Group said.

“This rating confirms the high ethical standards maintained by the Group in multiple aspects of business.”

Brandix was also among the top 10 corporate entities and received a Gold rating in the 2010 Sting Corporate Accountability Index.

Aviva NDB Group revenue Rs. 15.2b

Aviva NDB Insurance PLC reported Rs. 10.6b in consolidated Gross Written Premium and Rs. 15.2b in group revenue, reaching a significant milestone by crossing the Rs. 10b and Rs. 15b industry benchmarks of scale and success.

The Company recorded consolidated revenue of Rs. 15.2b which reflects a growth of 57 percent over 2009. Profit after tax stood at an impressive Rs. 602m despite a Rs. 324m one-off brand change spend in 2010.

The new Aviva NDB brand has been readily accepted by all stakeholders.

Life business recorded a very strong performance. Life Gross Written Premium stood at Rs. 7.8b, a growth of 68 percent over 2009.

The direct sales force and bancassurance channel contributed towards this achievement, with the former accounting for 72 percent of the volume and the latter 26 percent, whilst corporate group life and group gratuity business made up the remaining 2 percent.

Bancassurance made a contribution of Rs. 2.0b in Gross Written Premium during the year which is 4.5 times its achievement for 2009.

General insurance business reported a healthy top line performance in 2010 with Gross Written Premium of Rs. 2.8b, recording a 14 percent increase over 2009.

The growth was achieved despite the quality-focused underwriting policy adopted by the management team, especially in the medical class of business. The impact was partially offset by the growth in the Motor class of business which reported Rs. 1.6b in Gross Written Premium, recording a 53 percent growth over 2009. General insurance reported an underwriting loss primarily due to the adverse loss experience of Medical and Motor classes of business as well as unfavourable weather. The two floods in May and November that affected the Western province impacted the financial performance of General insurance business.

Despite this underwriting loss, General insurance business reported a profit of Rs. 274m for 2010 supported by strong investment income flow.

The Company continues to remain strong and stable in the midst of the current growth phase with Life business solvency ratio at 1.5 times, GI business solvency ratio at 4.09 times and net assets of Rs. 2.9b. Net assets have grown by 13 percent during the year.