CORPORATE

Seylan Bank records Rs. 1.2 b PAT

by Sapumali GALAGODA

Seylan Bank recorded a net profit of Rs. 1.2 billion for 2010, a 126 percent increase compared to Rs. 543 the previous financial year. Pre-tax profit, at Rs. 1.9 b was up by 124 percent from 2009, the highest ever profit earned by the bank since its inception.

Seylan Bank also created a new paradigm in financial reporting in Sri Lanka with its Annual Report for 2010.

Eastman Narangoda

Titled The Business Case, it is dedicated to all the Bank’s stakeholders and discusses how it has renewed stakeholder confidence and made remarkable progress throughout year 2010.

Among the major factors fuelling the progress of Seylan was its success in growing its deposit base to Rs. 109.9 b as well as other strategic measures to improve efficiency.

Renewed focus on recovering non-performing loans and advances brought a reduction in the NPL ratio, which dropped by approximately eight percent as against the previous year.

These measures improved the key indicators. Return on Average Assets increased to 0.87 percent in 2010 from 0.38 percent in 2009 while Return on Equity improved to 10.88 percent from 6.20 percent and the Interest rate increased to 6.00 percent compared to 5.18 percent a year earlier.

The Bank’s cost-to-income ratio increased from a marginal 67.82 percent to 68.69 percent, while the Capital Adequacy Ratio has remained above 12 percent in both 2009 and 2010 which is well above the required rate as stipulated by the Central Bank.

The Bank’s share price stabilised after the appointment of a new Board headed by Chairman Eastman Narangoda in early 2009 and continued gaining strength over the past year as the management implemented the wide-ranging initiatives set out in the Bank’s aggressive strategic plan.

The share price increased from Rs. 37 to Rs. 97.80 during the course of the year.

Narangoda said, “The Board is pleased to report that Seylan Bank achieved an after-tax profit of Rs. 1.2 b, an increase of 126 percent compared to the financial year 2009 despite having made the highest provisions for non-performing loans among Sri Lanka’s major banks (as per the results for the first 9 months)”.

The Business Case, takes the reader through seven principal sections the Preface, A Vote of Confidence, Tackling the Challenges, The Challenges Within, Pro Bono Publico (for the good of the public), Lessons Learned, Strategy Update and Benchmarks of Success.

Narangoda said that to increase overall efficiency while aligning itself with the best industry standards and performance indicators, the bank last week launched a Voluntary Retirement Scheme (VRS) open to 250 of its 3622 employees.

This was the first time in the history of banking in Sri Lanka that a VRS was made available on an exclusively on-line basis, signifying the adoption of new processes and more advanced technology across its operations.

With the VRS, Seylan will roll out a series of strategic measures - organisational restructuring, investment in advanced technology, and employee job enrichment and engagement processes by benchmarking international best practices from within and outside the country.

The Bank is currently rolling out a new product development process as well as investing on more research to ensure the success of its current portfolio of brands as well as intended new products and services, said Narangoda.

The Bank is finalising an internal marketing program to further revitalise its staff to deliver an even greater standard of customer service and flexibility.

The Bank is also strengthening its international network to deliver greater results on some of the growth segments identified by its recent strategic plan.

The network of branches will also be expanded to cater to the needs of its islandwide customer base, he said.

Janashakthi posts Rs 6.8b revenue

Janashakthi Insurance PLC (JIPLC) recorded an impressive 17 percent growth in net profit-after-tax reaching Rs. 770m and revenue of Rs. 6.8b with a growth of 13 percent during financial year 2010.

Chairman of Janashakthi Insurance PLC, W T Ellawala said, “Rising above the challenges, Janashakthi achieved a total gross premium of Rs. 6.158 billion which is an eight percent increase over 2009.

The contribution of the General Insurance business was Rs. 4.5 billion and from Life Insurance Rs. 1.68 billion.

“I see this as a very positive trend amidst the challenges of an excessively competitive industry”.

“A substantial part of our financial success came from the prudent and efficient management of our investment portfolio.

We invested in a range of long and short-term instruments including gilt-edge securities and equity.

This was as a result of our investment committee taking advantage of the bullish sentiment that prevailed at the Colombo Stock Exchange during 2010.

During the year, we disposed of some of our strategic quoted equity investments, booking substantial profits that contributed significantly to the result for the year.”

Our strength was endorsed by RAM Ratings which upgraded our claims-paying ability rating to A-: the outlook is stable. The rating upgrade was premised on our strong performance since the previous review, underpinned by our ability to improve our expense ratio and maintain a better claims ratio than most peers in the general segment.

The expansion of Life business during 2010 was encouraging, with a significant growth of 18 percent over the previous year.

The introduction of our new investment linked policies and availability of new business in the North and the East have contributed to this beneficial result.

The General sector growth in 2010 fell below our expectations and failed to match the previous year’s increase of 9 percent. This may be ascribed to a variety of reasons the most important being the entry of several new players offering very low premium rates albeit unviable and unsustainable in the longer term.

Another reason was the strategic decision to discontinue certain accounts which have consistently proved to be unremunerative.

Janashakthi’s Motor Insurance business - especially the star performer the Full Option Policy - further reinforced by its innovative Motor Vehicle Emergency Policy - continued to be the popular choice, with revenue growth 11 percent, the highest among the three top insurers.

The company’s Gross Written Premium (GWP) reached Rs. 6.2 billion at 8 percent growth and the revenue was Rs. 6.8 billion at 13 percent growth.

The total assets of the company stood at Rs. 11.8 billion while the company life fund grew by approximately 18 percent to reach Rs. 3.8 billion.

The Company paid claims amounting to Rs. 3.1bn, which was 13 percent higher than 2009.

Managing Director of Janashakthi Insurance PLC Prakash Schaffter said, “We will focus our sights on growing our top line in 2011, whilst ensuring that business written adds to the bottom line.

The current and projected rates of growth for the country’s economy portend significant expansion in the insurance sector. Janashakthi is well poised with its extensive branch network and focused distribution strategy to capitalise on this.”

Janashakthi was Sri Lanka’s first private insurer to venture into the South Asian market.

The Company made the highest pay out in relation to tsunami claims, in excess of Rs. 5 billion.

Janashakthi Insurance has the highest stated capital among quoted insurance companies amounting to over Rs.1.49 billion, which is over 7.5 times the statutory requirement.

The company is backed by an asset base of over Rs.11.8 billion, of which Rs. 4.7 billion is in Government Securities.

Fitch rates Senkadagala Finance’s proposed debt ‘BBB+(lka)’

Fitch Ratings Lanka has assigned Senkadagala Finance Company Ltd’s (SFC) proposed senior unsecured redeemable listed debentures of up to Rs 1 billion a ‘BBB+(lka)’ rating. The agency has simultaneously affirmed SFC’s National Long-Term rating at ‘BBB+(lka)’. The outlook is stable.

SFC’s ratings reflect its long operating history and sustained strong capital structure, as well as its relatively sound credit control systems and processes.

The ratings are, however, constrained by SFC’s evolving economies of scale and relatively low market share in core operations in relation to some of its larger peers. The proposed debt issue has a five-year tenure, and Fitch expects it to be raised at a fixed coupon rate, enabling SFC to minimise interest rate risk on its loan book.

The debenture will be utilised to finance lending operations as well as to settle existing debt, and is expected to be listed on the Colombo Stock Exchange.

SFC is a mid-sized registered finance company (RFC) with an asset base of Rs 6.2bn at December 31,2010.

It operates through a network of over 30 outlets, employing over 200 staff. At end-March 2010, SFC accounted for a share of 3 percent of local RFC sector assets. The Balasuriya family, who owns 90 percent of SFC’s equity, established the company in 1968.

HNB Assurance records 20% growth in PAT

HNB Assurance PLC has recorded a 15 percent growth in its turnover and a 20 percent growth in its profit after tax, for the year ended December 31. Its Gross Written Premium (GWP) rose to Rs. 2,428 million with General Insurance by 19 percent to reach Rs. 1,344 million and Life Insurance by 10 percent to register Rs.1,084 million.

This is the first time in the Company’s nine-year history that GWP measures crossed the Rs.1 billion mark.

“Taking advantage of the much improved external environment, the Company achieved commendable growth rates in turnover and profit, managing the challenges that were unique to the industry” Chairman HNB Assurance PLC said Rienzie T. Wijetilleke.

Managing Director Manjula de Silva said, “A very encouraging development witnessed in 2010 is the phenomenal growth achieved by the Company’s bancassurance channel which generated a GWP of Rs.158 million from life insurance recording a growth rate of 78 percent over the previous year. The number of bancassurance units operating from HNB branches with a dedicated staff member from HNB Assurance attached to it grew from 74 to 98 at end 2010.

The contribution made by the bancassurance channel grew to 15 percent of the total Life GWP.

The channel contributed Rs.551 mn of General GWP as well accounting for a share of 41 percent of General Insurance business.”

Insurance industry poised for growth - Ram Ratings

The Sri Lankan insurance sector has been gradually recovering from the economic slump in 2008/09. Premiums in the general segment, which had contracted in 2009 staged a strong rebound in the first half of 2010.

According to a report by RAM Rating on the insurance sector the life insurance industry has picked up pace recording a double digit growth in premiums compared to the relative standstill a year earlier.

RAM Ratings Lanka envisages the industry to keep up this positive trend, supported by more robust economic growth with greater penetration in the North and East.

The insurance penetration rate is lower than those of other Asian countries with total premium per capita at $ 31.10 as of end 2009.

Several new players entered the industry last year while the more established players have shifted from price based competition to focus more on service quality.

With the industry poised for growth the Insurance Board of Sri Lanka (IBSL) is in the process of enforcing a new regulatory framework.

Mainly composite insurance companies will be required to split their existing life and general businesses into separate legal entities. Listing on the Stock Exchange will be made mandatory, with the incumbents and new entrants given five and three years to comply.

In addition, the rules on solvency margins have been revamped to broaden the classification of assets recognised as admissible.

Through these initiatives the regulator intends to bring the local insurance sector more in line with international norms. It will also support a more vibrant investment market.

The changes in the classification will improve the existing players solvency margins as many of them presently exclude these investments, states the report.

The IBSL has also permitted foreign currency investments.

These moves will provide insurers more avenues for investment.

Over the medium-term the regulator intends to implement risk based capital supervision currently practiced by banks.

The new changes are viewed positively but the new regulations will expose insurers to operational and foreign exchange risks.

The industry’s general insurance claims have remained relatively stable at around 62 percent for the general segment.

The general insurance companies have been incurring underwriting losses and have been relying on investment returns for profits.

Meanwhile, the report states that most general insurance companies in other South Asian markets are also reporting underwriting losses.

Claims in the general segment are expected to increase due to the heavy floods in 2010 and early this year.

The impact on the insurers bottom lines may be offset by an expansion in premiums supported by the more conducive economic climate.

The life segment has experienced an increase in claims among RAM Ratings rated companies as well as listed companies.

This is mainly due to policy lapses brought by harsh economic conditions.

Unlike the general segment most like insurers at present are earning underwriting profits as the life market has yet to mature and claims will only arise over the long-term.

Given the low penetration rate in the life insurance market, we believe that there is room for growth claims in this segment will ease over the medium-term, as the sector expands against the backdrop of the improving economic conditions while replenishing maturing contracts.

In terms of financial performance, insurance companies have been shifting investments to the booming equity market to maintain investment income as interest rates taper.

Traditionally investment income has mainly stemmed from fixed income securities buoyed by the previously high interest rates.

With regulations permitting a wider range of investments, investment monitoring and appraisal with play a greater role within each company.

In the medium-term overheads may experience upward pressure as insurance companies seek to expand their branch networks in the North and East of Sri Lanka, states the report.

Ceylinco Life posts premium income of Rs. 8.8b

Ceylinco Life ended FY 2010 with total income of Rs. 12.2 billion and Gross Written Premium income of Rs. 8.786 billion. consolidating its position as Sri Lanka’s largest life insurer.

Noteworthy improvements in all key performance indicators pertaining to long-term insurance generated solid overall business growth for the company, notwithstanding the fact that disposable incomes in most target segments remained flat during the year, the company said.

Ceylinco Life’s Life Fund grew by a healthy 20.5 percent to Rs. 31.868 billion, following a net transfer of Rs. 5.418 billion during the year, while Investments grew by 25.7 percent to Rs. 29.376 billion. Total assets increased by 20.6 percent to Rs. 36.956 billion as at December 31.

Ceylinco Life Managing Director and CEO R. Renganathan said: “One of the most noteworthy aspects of our performance is the fact that we substantially further increased our solvency ratio, which at the end of 2010 was an extraordinary nine times more than the minimum stipulated by law.”

The valuation of the Life Insurance Fund as at December 31 was done by M/s Towers Watson Risk Consulting (Pvt) Ltd, according to which Rs. 600 million was recommended to be transferred from the surplus on Life Insurance business to the Shareholders’ Fund for 2010.

Consequently, Rs. 591 million was contributed to the Rs. 939 million consolidated net profit of the company after deducting expenses attributable to shareholders, Renganathan said. A computation of the excess of admissible assets over statutory liabilities, the Solvency Margin is the best indicator of an insurance company’s ability to meet the obligations arising from its insurance contracts at any time, he said.

In other key indicators, the company’s premium income recorded a growth of 17 percent over 2009, while total income increased by 12.5 percent. Investment and Other income improved by 3 percent to Rs. 3,454 million.

The company sold 157,682 new life policies in the year reviewed despite the non-conducive socioeconomic environment, and had paid Rs. 2,757 million in customer benefits.

The investment portfolio, valued at more than Rs. 29 billion as at December 31, comprised Government Securities (38 percent); Licensed Private Banks (17 percent); State Banks (22 percent); Real Estate (12 percent); Corporate Debt (7 percent) and Others (4 percent).

“We conform strictly with the investment guidelines stipulated under the Regulation of the Insurance Industry Act No. 43 of 2000 for investments pertaining to Life Funds,” Renganathan said.

“These investments are subject to regular monitoring by the Insurance Board of Sri Lanka, the Government appointed regulator for the industry.”

Describing the company’s performance in 2010 as “characteristically consistent,” he said: “There have been no shortcuts or cutting corners. No expedient quick-fixes or gimmicks to stay ahead of the competition. We have simply moved forward with our tried and tested approach to business, and overcome challenges.”

Dr Ranee Jayamaha and Dr Willie W. Gamage on HNB Board

The Board of Hatton National Bank PLC has appointed Dr Ranee Jayamaha and Dr Willie W.

Gamage as Independent Non-Executive Directors from March 31.

Dr Jayamaha is currently an Advisor to President Mahinda Rajapaksa.

She had been the Deputy Governor in charge of Financial System Stability of the Central Bank of Sri Lanka from 2004 up to her retirement in May 2009.

She has over 37 years of extensive experience in the fields of economics, banking, finance, regulations and administration, having held a number of positions in the Central Bank and outside. Dr Jayamaha has authored several articles for local and international journals and more recently, she had been providing advisory services to a number of financial institutions and the Central Banks in the Region.

She holds a Bachelor of Arts (Hons) Degree from the University of Ceylon Peradeniya, M.Sc in Economics from the University of Stirling, U.K. and a Ph.D in Monetary Economics from the University of Bradford, U.K.

Dr Willie W. Gamage currently serves as the Secretary to the Ministry of State Resources and Enterprises Development, while serving as the Chairman/CEO of the Strategic Enterprise Management Agency (SEMA).

He has over 30 years’ experience in public, private and non-governmental organisations in formulating and implementing projects on poverty alleviation, economic development, promoting alternative energy generation and enhancing capacities in public enterprises.

He holds a B.Sc in Economics and Management from the University College of London, U.K., Masters in Business Studies from the University of Colombo and a Ph.D from the Rajarata University.