sri lanka banking sector report- pulling through macro challenges - 09-may-2013

SRI LANKA BANKING SECTOR Pulling through macro challenges

Udeeshan Jonas

Reshan Wediwardana

CAL Research

May 2013 1 See page 83 for important disclaimer

2.2x 2.0x

1.9x 1.8x 1.8x

1.2x 1.2x

0.0

0.5

1.0

1.5

2.0

2.5

3.0

P/B

V (

x)

2012 2013E

11.2%

14.0%

16.4% 16.5%

17.9%

19.6% 20.7%

10%

12%

14%

16%

18%

20%

22%

24%

Avg

. R

OEs

2012 2013E

Regional comparison of banking sector ROEs Regional comparison of banking sector P/BVs

www.randora.lk

SRI LANKA BANKING SECTOR

I. Macro variables to challenge banking industry 4

a) Local private commercial banks’ loans to grow at a 2014-16E cagr of 18%

b) Gov’t monetary easing to support a 17% LPCB loan growth in 2013E

II. ROEs of 20% for Sri Lanka banks vs. 16% for regional peers 25

III. CAL’s top 5 picks to provide an avg. 21% total 1- year return 34

IV. CAL’s Banking Basket 55

V. Appendices 61

DuPont Analysis

Summary Financial Statements

2

All figures have been calculated under IFRS

Page

www.randora.lk

CAL’s top 5 picks to avg. 22% vs. our coverage universe avg. of 19%

3

BankCurrent

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

Nations Trust Bank 64.4 79 22% 21.7% 1.8% 19% 22% 1.2 6.0 4.3% 26.4%

Hatton National Bank - Non Voting 126.4 149 18% 17.0% 1.9% 30% 14% 0.9 5.4 7.7% 25.6%

Commercial Bank - Non Voting 97.5 112 15% 18.6% 1.9% 26% 4% 1.3 7.6 7.1% 21.9%

Sampath Bank 225.5 254 13% 19.3% 1.6% 51% 5% 1.1 6.2 5.6% 18.2%

Commercial Bank - Voting 118.7 133 12% 18.6% 1.9% 26% 4% 1.6 9.3 5.8% 17.9%

Hatton National Bank - Voting 171 190 11% 17.0% 1.9% 30% 14% 1.1 7.0 5.9% 17.0%

National Development Bank 178 184 3% 13.9% 1.8% 54% 23% 1.1 8.0 5.2% 8.5%

www.randora.lk

I. Macro variables to challenge banking

industry in 2013

4

www.randora.lk

I. Macro variables to challenge banking industry in 2013

I. a) Local private commercial banks’ loans to grow at a 2014-16E cagr of 18%

CAL expects medium term total private sector credit growth (2013-16E) to be c.16%p.a.…

…as SL approaches the regional private sector credit to GDP avg. of 46% on the back of 6% real GDP

growth

Local private commercial banks (LPCB) account for 42% of commercial banking assets & 54% of private

sector credit

CAL expects an 18% LPCB loan growth cagr (2014-16E) as gov’t and foreign banks continue to lose

market share

In 2013E, CAL expects LPCB loan growth to reduce to 17% as current economic conditions remain

subdued

This is against a LPCB loan growth of 19% in 2012 despite a credit ceiling

Falling vehicle sales and an alternative debt market may further slow loan growth

5

www.randora.lk

I. Macro variables to challenge banking industry in 2013 (Continued)

I. b) Gov’t monetary easing to support a 17% LPCB loan growth in 2013E

In 1Q2013, AWPLRs were too high to boost loan growth despite excess liquidity

Govt’s monetary actions may indicate that interest rates may edge lower in the short term

Higher foreign inflows (USD 1.3bn YTD) and an appreciating LKR (+2% YTD) may support lowering of

interest rates

Cap on NBFC deposits may also reduce deposit rates at lower risk banks…

…which may result in a continued reduction in AWPLR during 2Q2013

Higher foreign inflows (USD 1.3bn YTD) and an appreciating LKR (+2% YTD) may provide further support

However, medium term interest rates are likely to revert upwards (+c.1.5-2%) as gov’t debt financing

continues…

…and high inflationary pressure kicks in due to recent energy price hikes

In 2013E, CAL expects industry NIMs to stagnate at 2012 levels (c.4.2%)…

…while industry NPLs remain manageable despite macro challenges (c.3.6%)

6

www.randora.lk

I. a) Local private commercial banks’ loans to grow at a 2014-16E cagr of 18%

7

www.randora.lk

LKR 2,358bn

LKR 4,307bn

2012 2016E

CAL expects medium term total private sector credit growth (2013-16E) to be c.16%p.a...

8 Source: CBSL & company annual reports

* Private sector credit includes government commercial banks, private local banks and foreign commercial banks

Figure 1: CAL’s estimate of private sector credit growth

SL private credit should grow at a

16% cagr if it were to reach lower

middle income peer avg. of 45% to

GDP by 2016

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…as SL approaches the regional private sector credit to GDP avg. of 45% on the back of 6% real GDP growth

9 Source: CBSL, World Bank & CAL Research estimates

Figure 2: Regional private sector credit to GDP % - 2011

31% 28%

32%

49% 51% 51%

0%

10%

20%

30%

40%

50%

60%

Pri

vate

se

cto

r cr

ed

it t

o G

DP

%

Avg. 45%

8.0% 8.2%

6.4% 6.0% 6.0% 6.0% 6.0%

16% 17%

16% 15%

13% 13% 13%

2010 2011 2012 2013E 2014E 2015E 2016E

Real GDP growth Nominal GDP growth

Figure 3: Real GDP growth vs. Nominal GDP growth

* Lower middle income countries include: Cambodia, India, Pakistan, Indonesia, Bhutan & Sri Lanka

www.randora.lk

21%

18%

54%

8%

People's BankBank of CeylonLocal commercial banksForeign banks

1.6%

5.6%

8.4%

9.6%

16.3% 23.4%

28.7%

UBC DFCC Vardhana

PABC NTB

NDB SEYB

SAMP HNB

COMB

Local private commercial banks (LPCB) account for 42% of commercial banking assets & 54% of private sector credit

10

Figure 4: Bank assets* market share 2011 vs. 2012 Figure 5: Private credit market share 2012

* Calculated based on total assets

Total assets = LKR3.7tn

Total assets = LKR4.5tn

Source: CBSL, Bank annual reports & CAL Research

23% 24%

20% 21%

13% 12%

12% 11%

11% 10%

7% 7%

14% 14%

2011 2012

BOC PB Foreign banksCOMB HNB SAMPOther LCPBs

LPCBs

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89.3%

10.7%

Local banks' market share

Foreign banks' market share

92.1%

7.9%

CAL expects an 18% LPCB loan growth cagr (2014-16E) as gov’t and foreign banks continue to lose market share

11

Figure 6: LPCB loan growth Figure 7: Local & foreign banks’ market share

2010 2012

1,114

1,313

1,536

2,492

0

500

1000

1500

2000

2500

3000

2011 2012 2013E 2016E

LKR

bn

18%

Source: CBSL & CAL Research estimates

LPCB loan growth is expected to outpace private sector credit growth of 16% (2013-16E)

www.randora.lk

113.7

111.2

107.5

104.2 104.5

106.5

103.8

98

100

102

104

106

108

110

112

114

116

Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12

Ind

ust

rial

pro

du

ctio

n in

de

x

(IP

I)

In 2013E, CAL expects LPCB loan growth to reduce to 17% as current economic conditions remain subdued

12

-18%

21%

37%

9%

-7%

13% 19%

9%

-30%

-20%

-10%

0%

10%

20%

30%

40%

2009 2010 2011 2012

Gro

wth

Growth in import trade Growth in export trade

Figure 11: Industrial production index

Figure 8: Export and import trade – 2009-12 Figure 9: Perceived Economic Opportunity Index

Figure 10: LMD-Nielson Business Confidence Index

108

121 122

135 134 139

158

140

147

100

110

120

130

140

150

160

LMD

- N

iels

on

BC

I

1.67

1.72 1.74

1.69

1.77

1.66

1.57 1.56

1.5

1.55

1.6

1.65

1.7

1.75

1.8

PEO

I

Source: CBSL, LMD & FEF

www.randora.lk

This is against a LPCB loan growth of 19% in 2012 despite a credit ceiling

13

24% 24%

20%

18% 18% 18% 17% 17%

15%

0%

5%

10%

15%

20%

25%

30%

PABC SAMP DFCC NTB COMB HNB UBC NDB SEYB

Average loan growth - 19%

Figure 12: 2012 bank loan growth (using SLAS figures)

In 2012, LPCB’s loans grew 19%, higher than

the overall private sector credit growth of

18% in 2012


Max. credit growth for banks borrowing abroad – 24%

www.randora.lk

16

43

89

5 7

30

55

2

-

10

20

30

40

50

60

70

80

90

100

Ve

hic

le r

egi

stra

tio

ns

('0

00

)

Jan-Apr 12 Jan-Apr 13

-38%

-56%

-30%

-66%

Falling vehicle sales and an alternative debt market may further slow loan growth

14 Source: Department of Motor Traffic & CAL Research

Figure 14: Debenture issues 2012 & 2013 announced till date

Figure 13: New vehicle registrations

LKR 16bn

LKR 25bn

5

10

-

5

10

15

20

25

30

35

40

45

50

2012 2013 (announced to date)

0

2

4

6

8

10

12

Val

ue

of

deb

en

ture

s -

LKR

bn

No

of

issu

es

Value of the issues No of issues

Incentives provided in the 2013

gov’t budget for debenture issues

provides an avenue for

corporates to borrow long term

at attractive rates

www.randora.lk

I. b) Gov’t monetary easing to support a 17% LPCB loan growth in 2013E

15

www.randora.lk

In 1Q2013, AWPLRs were too high to boost loan growth despite excess liquidity

16

Figure 16: Net injection/ absorption (LKR bn)

-70

-60

-50

-40

-30

-20

-10

0

10

20

Excess liquidity

Figure 15: Private sector credit growth (Jan-Feb 2013)

Private sector credit growth reduced to 1.2% from Dec 2012 to Feb 2013 compared to a 5% growth for

the corresponding period last year

Excess liquidity in the monetary system may also indicate that short term interest rates may edge lower

Source: CBSL

2006 2106

2358 2386

AWPLR - 11.5%

AWPLR - 14.3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

1000

1500

2000

2500

3000

3500

4000

Dec 2011 Feb 2012 Dec 2012 Feb 2013

LKR

bn

+5% +1.2%

www.randora.lk

Gov’t’s monetary actions may indicate that interest rates may edge lower in the short term

17

• In Jan 2013, CBSL imposed a cap on NBFC deposit rates. Rates cannot exceed AWPLR+2% for

deposits with maturity of <1 year

• The government’s effort to reduce borrowings may support a fall in interest rates

• The government may need to cut interest rates to reach its private credit and economic growth

targets

53% 50% 51%

47% 45%

37% 37% 33%

30% 32% 32%

25%

17%

0%

10%

20%

30%

40%

50%

60%

800

850

900

950

1000

1050

1100

Jan

-12

Feb

-12

Mar

-12

Ap

r-1

2

May

-12

Jun

-12

Jul-

12

Au

g-1

2

Sep

-12

Oct

-12

No

v-1

2

Dec

-12

Jan

-13

LKR

bn

Net Credit to the Government YOY %

Figure 18: Net credit to the government (M2b) Figure 17: Maximum cap on NBFC 1-yr deposit rates

Source: CBSL

13.2%

14.7%

16.3%

15.6%

16.8% 16.7%

14.5%

12%

13%

14%

15%

16%

17%

18%

Jan-Feb2012

March2012

April -May 2012

June - July2012

July - Sep2012

Oct - Dec2012

Jan-March2013

www.randora.lk

18

124

125

126

127

128

129

130

131

132

133

LKR

/USD

Figure 19: Exchange rate (LKR/USD) Figure 20: Net foreign inflows (Jan-Mar 2013)

Higher foreign inflows (USD 1.3bn YTD) and an appreciating LKR (+2% YTD) may further support low interest rates

Source: CBSL and Oanda.com

414

1,656

0

200

400

600

800

1000

1200

1400

1600

1800

Jan-Mar 2012 Jan-Mar 2013

USD

mn

USD mn Jan-Mar 2012 Jan- Mar 2013 % Δ

Balance of trade -2,779 -2,129 -23%

Worker remittances 1,508 1,560 3%

Portfolio investment 164 39 -76%

Earnings from tourism 267 318 19%

Inflows to the govt (bills and bonds) 1,255 1,869 49%

Total net foreign inflows 414.1 1656.4 300%

www.randora.lk

Cap on NBFC deposits may also reduce deposit rates at lower risk banks…

19

Figure 22: Deposit rate gap in Apr 2013

13.0%

13.5% 13.5%

14.0% 14.0% 14.0% 14.0%

14.5%

15.0%

12.0%

12.5%

13.0%

13.5%

14.0%

14.5%

15.0%

15.5%

16.0%

16.5%

17.0%

NDB COMB SAMP HNB DFCC NTB SEYB PABC UBC

De

po

sit

rate

s

Avg. 1yr FD rate for NBFCs - 15.92%

Avg. 1yr FD bank rate - 13.9% 20

0b

ps

Figure 21: Deposit rate gap in Jan 2013

13.0%

13.5% 13.5% 13.5% 13.5% 13.5%

14.0% 14.0%

15.0%

12.0%

12.5%

13.0%

13.5%

14.0%

14.5%

15.0%

15.5%

De

po

sit

rate

s

Avg. 1-yr FD rates for banks - 13.7%

75

bp

s

Maximum cap for 1-yr deposit rates for NBFCs - 14.45%

Government’s imposition of maximum deposit rates for NBFCs may drive deposit rates for lower risk

banks downward, thereby reducing cost of funding

Source: Bank websites & CAL Research

www.randora.lk

7.5

8.5

9.5

10.5

11.5

12.5

13.5

14.5

15.5

Inte

rest

rat

es

(%)

T-Bill 364 days AWPLR3

32

bp

s

22

2b

ps

AWLR

…which may result in a continued reduction in AWLR during 2Q2013

20

Figure 23: Gap between 1yr treasury rates and AWPLR

In 1Q2013, the banks remained reluctant to cut lending rates even amidst treasury rates declining c.150bps (Dec 2012- May 2013)

The spread between treasury rates and AWLR likely to reduce towards

mid-year, which is expected to drive the 17% LPCB loan growth

Source: CBSL

www.randora.lk

However, medium term interest rates are likely to revert upwards (+c.1.5-2%) as gov’t debt financing continues…

21 Source: CBSL & CAL Research estimates

CAL expects interest rates to rise by 1.5%-2% by year-end as inflation kicks in and gov’t debt is financed

Figure 24: Government foreign & local debt

996 957 1,103 1,326 1,449 1,760 2,025 2,329 2,767

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2004 2005 2006 2007 2008 2009 2010 2011 2012

LKR

bn

Total foreign debt Total debt

6,000

5,133

2139

Figure 25: Government foreign & local debt

-157 -172

-206

-246

-310

-476 -446 -450

-489 -507

-600

-500

-400

-300

-200

-100

0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E

LKR

bn

The government may need to finance the

budget deficit via borrowings from the local

market which may spike interest rates in the

medium term

www.randora.lk

…and high inflationary pressure kicks in due to recent energy price hikes

22

Figure 26: Colombo Consumer Price Index ( Base: 2006/07=100)

Source: CBSL

156

158

160

162

164

166

168

170

172

Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13

Ind

ex

*Electricity price hike of c. 40%, will take effect starting May 2013

www.randora.lk

23

In 2013E, CAL expects industry NIMs to stagnate at 2012 levels (c.4.2%)…

Source: CBSL and CAL Research

Figure 27: Industry net interest margins

4.4%

4.5%

4.7%

4.8%

4.6%

4.3%

4.2% 4.2%

3.8%

3.9%

4.0%

4.1%

4.2%

4.3%

4.4%

4.5%

4.6%

4.7%

4.8%

4.9%

2006 2007 2008 2009 2010 2011 2012 2013E

NIM

s

www.randora.lk

…while industry NPLs remain manageable despite macro challenges (c.3.6%)

24

Source: CBSL

Figure 28: AWLR vs. gross NPLs on a 1-year time lag

19.3% 19.3% 18.2%

15.7% 14.8%

15.4% 16.6%

18.1%

20.1%

17.4%

14.8%

13.4%

15.3% 15.3%

13.7%

9.3%

7.0%

5.6% 5.2%

6.3%

8.5%

5.4%

3.8% 3.6%

3%

5%

7%

9%

11%

13%

15%

17%

0%

5%

10%

15%

20%

25%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Gro

ss N

PL

AW

LR

AWLR (LHS) Gross NPL (RHS)

* The NPLs are plotted with a one year time lag

www.randora.lk

II. ROEs of 20% for Sri Lanka banks vs. 16% for regional peers

25

www.randora.lk

II. ROEs of 20% for Sri Lanka banks vs. 16% for regional peers

In 2013E, CAL expects industry ROEs of 20% and ROAs of 1.9% (vs. region’s 16% and

1.5%)…

…while NIMs remain stable (avg.c.4.2% vs. region’s 3.5%)

Cost-to-income ratios (53% vs. region’s 49%) are likely to improve as industry-wide

branch additions slow

Fee income from credit cards, remittances and e-banking still have vast scope for growth

(7% vs. region’s 15%)

Sri Lanka banks are also better geared for Basel III implementation…

…and are attractively valued compared to peers

In 2013E, dividend yields are likely to avg. 5.2% vs. region’s 2.8%

26

www.randora.lk

15.6% 16.5%

12.0%

14.5%

18.0%

20.8%

22.3%

17.9%

16.5%

11.2%

14.0%

16.4%

19.6%

20.7%

10%

12%

14%

16%

18%

20%

22%

24%

Avg

. R

OEs

2012 2013E

Source: Maybank Kim Eng & CAL Research estimates

In 2013E, CAL expects industry ROEs of 20% and ROAs of 1.9% (vs. region’s 16% and 1.5%)…

27

Figure 29: Regional comp of avg. ROEs

1.3% 1.2% 1.2%

1.8%

1.2%

1.9%

2.4%

1.5% 1.2%

1.0%

1.7%

1.2%

1.9%

2.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Avg

. R

OA

s 2012 2013E

Avg. 1.5%

Figure 30: Regional comp of avg. ROAs

Avg. 16%

www.randora.lk

…while NIMs remain stable (avg. c.4.2% vs. region’s 3.5%)

28 Source: CBSL & Maybank Kim Eng Research

Figure 31: Avg. NIMs* of regional peer banks

1.8%

2.6%

3.2% 3.2% 3.4%

4.2%

6.6%

Singapore Malaysia Thailand India Philippines Sri Lanka Indonesia

2012 2013E

Regional avg. 3.5%

* Based on average earning assets

www.randora.lk

Cost-to-income ratios (53% vs. region’s 49%) are likely to improve as industry-wide branch additions slow

29


Figure 33: Sri Lanka sector wise branch additions 2009-12

53%

43% 44%

49% 50%

57%

0%

10%

20%

30%

40%

50%

60%

Sri Lanka Singapore Malaysia Thailand Indonesia Philippines

Co

st t

o In

com

e

Figure 32: Regional Cost-to-income comparison

COMB, HNB & SAMP expanded branch networks rapidly over the last 2 years and are now in the phase of consolidation. In

2013, CAL expects a total of 12 branches to be added by these three banks.

The smaller banks delayed branch expansions and may see an increase in cost-to-income ratios as branches are added this

year.

Avg. 49%

62

95

160

69

-

20

40

60

80

100

120

140

160

180

2009 2010 2011 2012

Bra

nch

ad

dit

ion

s

www.randora.lk

Fee income from credit cards, remittances and e-banking still have vast scope for growth (7% vs. region’s 15%)

30

Figure 35: Worker remittances (USD mn)

7.6% 8.0% 7.6% 7.7% 7.2%

7.9% 8.3% 8.7% 10.1%

0%

2%

4%

6%

8%

10%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2004 2005 2006 2007 2008 2009 2010 2011 2012

Wo

rke

r R

em

itta

nce

s/ C

urr

en

t G

DP

Wo

rke

r's

Re

mit

tan

ces

(USD

mn

)

Workers’ Remittances (Mn) (LHS) Workers’ Remittances / Current GDP (RHS)

Figure 37: Active credit card users - SL

779

862

952

500

600

700

800

900

1,000

2010 2011 2012

No

of

acti

ve c

red

it c

ard

s (0

00

)

4.7% 6.2%

19.3%

28.4%

52%

Sri Lanka Indonesia Thailand Malaysia Singapore

Figure 36: Credit card penetration by country

Source: CBSL & CAL Research

Figure 34: Regional fee income as a % of (Fee + NII )

7%

10% 11% 14%

20% 20%

0%

5%

10%

15%

20%

25%

Fee

bas

ed

inco

me

/Gro

ss

inco

me

Avg. 15%

www.randora.lk

Sri Lanka banks are also better geared for Basel III implementation…

31 Source: Bank Reports & CAL Research

Figure 38: Tier 1 capital ratio of banks Figure 39: Tier 2 capital ratio of banks

20.4% 19.0% 18.8%

14.7% 13.9% 13.8% 13.3% 12.6% 11.9%

0%

5%

10%

15%

20%

25%

UBC DFCC NDB SEYB HNB NTB PABC COMB SAMP

Tier 1 capital minimum requirement - 5%

20.7% 19.5%

18.2% 17.5% 16.6%

15.8% 14.7%

13.8% 13.8%

0%

5%

10%

15%

20%

25%

NDB UBC NTB DFCC HNB PABC SEYB COMB SAMP

Tier 2 capital minimum requirement - 10%

Basel III requires banks to maintain a Tier 1 capital ratio of 7% (vs. 5% at present)

www.randora.lk

…and are attractively valued compared to peers

32

Figure 40: Avg. P/BV of regional country banks

2.5x 2.4x

2.1x

1.9x 2.1x

1.3x 1.4x

2.2x

2.0x 1.9x 1.8x 1.8x

1.2x 1.2x

0.0

0.5

1.0

1.5

2.0

2.5

3.0

P/B

V (

x)

2012 2013E

Figure 41: Avg. PER (x) of regional country banks

16.6x

11.1x 11.1x 11.1x 10.9x 10.5x

7.0x

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

PER

(x)

2012 2013E

Source: Maybank Kim Eng Research & CAL Research estimates

www.randora.lk

In 2013E, dividend yields are likely to avg. c.5.2% vs. region’s 2.8%

33 Source: Maybank Kim Eng Research & CAL Research estimates

Figure 42: 2012 & 2013E dividend yield of banking sector stocks

2.4%

3.8% 3.8%

1.3%

1.9%

5.1%

3.0%

3.7% 3.8%

1.5%

2.1%

5.2%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Thailand Malaysia Singapore Philippines Indonesia Sri Lanka

Div

ide

nd

yie

ld

2012 2013E

www.randora.lk

III. CAL’s top 5 picks to provide an avg. 19% total 1-year return

34

www.randora.lk

III. CAL’s top 5 picks to provide an avg. 19% total 1- year return

CAL’s top picks to avg. 22% vs. our coverage universe avg. of 19%

Less volatile and improving NIMs – the key to sustainable ROEs

A higher CASA base remains the core advantage for larger banks

Banks with a lower CASA base may witness higher cost of funding if interest rates rise

In 2013, low cost foreign borrowings for the larger banks may contribute marginally to NIM improvements…

…while removal of the credit ceiling may boost growth for smaller aggressive banks

However, maintaining NIMs by lending to high yield, riskier segments may be unsustainable over the long run for aggressive

banks as credit quality deteriorates

However, fee based income may be a viable alternative for NTB and NDB to compensate for low NIMs

Whilst branch consolidation may improve cost-to-income ratios at the larger banks, late entry into branch expansion may

add pressure on smaller banks’ cost-to-income ratios

Core profitability has been on an upward trend for CAL’s banking sector stock picks and in 2013E, are likely to witness avg.

core profit growth of 33%

However, maintaining profitability via lower provisioning is unsustainable at a few smaller banks

CAL’s top 5 banking picks have sustainable ROAEs (Avg. 18%) and superior ROAs (Avg. 1.7%)

CAL’s picks also have attractive trailing valuations and reasonable dividend yields (avg.5.4%)

The fall in gold prices a red herring – A further 10% decline manageable

35

www.randora.lk

CAL’s top 5 picks to avg. 22% vs. our coverage universe avg. of 19%

36

BankCurrent

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

Nations Trust Bank 64.4 79 22% 21.7% 1.8% 19% 22% 1.2 6.0 4.3% 26.4%

Hatton National Bank - Non Voting 126.4 149 18% 17.0% 1.9% 30% 14% 0.9 5.4 7.7% 25.6%

Commercial Bank - Non Voting 97.5 112 15% 18.6% 1.9% 26% 4% 1.3 7.6 7.1% 21.9%

Sampath Bank 225.5 254 13% 19.3% 1.6% 51% 5% 1.1 6.2 5.6% 18.2%

Commercial Bank - Voting 118.7 133 12% 18.6% 1.9% 26% 4% 1.6 9.3 5.8% 17.9%

Hatton National Bank - Voting 171 190 11% 17.0% 1.9% 30% 14% 1.1 7.0 5.9% 17.0%

National Development Bank 178 184 3% 13.9% 1.8% 54% 23% 1.1 8.0 5.2% 8.5%

www.randora.lk

Less volatile and improving NIMs – the key to sustainable ROEs

37 Source: Bank annual reports, Maybank Kimeng reports & CAL Research

Figure 44: Net interest margins of SL banks*

*Based on average earning assets

Figure 43: 2012 change in net interest margins – (bps)

25

15

6 6

(17)

(29)

(62)

(80)

-100

-80

-60

-40

-20

-

20

40

HNB COMB NDB SAMP NTB SEYB UBC PABC

20

12

- C

han

ge in

NIM

s (b

ps)

5.2% 4.9%

4.6% 4.6% 4.3% 4.2%

3.9% 3.8%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

SEYB HNB PABC COMB NTB SAMP UBC NDB

2011 2012

www.randora.lk

A higher CASA base remains the core advantage for larger banks

38

45%

39%

34% 31%

24% 22%

20%

17%

-

50

100

150

200

250

300

10%

15%

20%

25%

30%

35%

40%

45%

50%

COMB HNB SAMP SEYB NDB NTB UBC PABC

No

of

bra

nch

es

CA

SA R

atio

CASA (LHS) Branches (RHS)

Figure 45: Bank CASA Ratios Figure 46: Savings deposit market share of banks

Figure 47: Current deposit market share of banks

Smaller banks are unable to attract a larger CASA deposit base

despite offering higher yields (c.6-9% vs. larger banks’ c.4%) on

savings deposits.

Source: Bank annual reports & CAL Research

35% 36%

29% 27%

17% 17%

9% 9% 3% 5%

2% 3% 2% 2% 2% 1% 1% 1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Savings deposit market share - 2011 Savings deposit market share - 2012

COMB HNB SAMP SEYB NDB NTB DFCC PABC UBC

33% 31%

23% 22%

13% 15%

10% 10% 7% 8% 7% 8% 4% 3% 2% 2% 1% 1%

0%

20%

40%

60%

80%

100%

Current account deposit market share -2011

Current account deposit market share -2012

COMB HNB SAMP SEYB NDB NTB PABC UBC DFCC

www.randora.lk

Banks with a lower CASA base may witness higher cost of funding if interest rates rise

39

Figure 48: Change in cost of funding in 2012

7.2% 7.2%

8.0% 8.3% 8.6%

9.6% 9.6% 9.7%

1.7% 1.6%

2.0% 1.9%

2.1%

2.8% 2.9%

3.3%

5%

7%

9%

11%

13%

15%

17%

19%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

COMB HNB SEYB SAMP NDB NTB PABC UBC

Co

st o

f fu

nd

ing

20

12

%

Ch

ange

in c

ost

of

fun

din

g %

in 2

01

2

A c.300bps increase in interest rates in

2012 resulted in banks with a lower CASA base

witnessing higher increases in cost of funding

With demand deposit rates at 0% and savings

deposit rates remaining almost flat (at c.4%), the

change in cost of funding for larger banks with

a larger CASA base was relatively small


www.randora.lk

In 2013, low cost foreign borrowings for the larger banks may contribute marginally to NIM improvements...

40

Figure 49: Foreign borrowings as a percentage of gross loans and advances

6,735 6,940

8,791 3,853

1,943

11,644

6,606 4,228

6,559

-499

8.4%

4.4%

3.4%

9.3%

1.5%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

-5,000

0

5,000

10,000

15,000

20,000

SAMP HNB COMB NDB DFCC

F. b

orr

ow

ings

as

a %

of

gro

ss lo

ans

Fore

ign

bo

rro

win

gs -

LK

R m

n

Incremental foreign borrowings in 2012 (LHS)

Foreign borrowings (LKR mn) in 2011 (LHS)

Foreign borrowings as a percentage of gross loans in 2012 (RHS)

In 2013, NDB intends to raise

USD250mn according to the

provisions mentioned in the

gov’t budget

In 2013, COMB raised USD75mn

via a 10yr subordinated debt

agreement from IFC

In 2013, SAMP

raised

USD100mn

loan via a

syndicated loan

from HSBC

which may

increase

foreign

borrowings as

a % of total

loans to 14%

In 2013, HNB intends to raise

USD150mn (provisional) In 2013, DFCC raised USD45mn via

a syndicated loan by HSBC. DFCC is

likely to raise USD250mn as

mentioned in the gov’t budget

COMB & SAMP may only have to partially hedge for exchange rate risk as they hold foreign assets which

may be used to match foreign loans.

COMB, HNB and SAMP have the ability to raise foreign loans at lower rates (<c.6%) compared to peers due

to their size, ratings and credit quality. Higher swap costs (c.8-10%) make foreign borrowings unaffordable

for smaller banks

www.randora.lk

...while the removal of the credit ceiling may boost growth for smaller aggressive banks

41

17% 17% 17% 18% 19%

20% 20%

22%

24%

SEYB UBC NDB HNB COMB NTB DFCC SAMP PABC

Figure 50: Gross loan book growth under IFRS - 2012 Figure 51: Loan growth for selected banks – 2013E

15%

17% 17%

19%

20%

22%

NDB HNB COMB DFCC NTB SAMP

CAL’s assumptions on loan growth are based on a recovery

in credit growth in 2H2013

DFCC, SAMP , NTB & PABC have maintained 5-yr loan growth

cagrs above 20%, as they started from lower loan book bases.

These banks were able to easily reach the 18-23% credit ceiling

imposed by the Central Bank in 2012.

Source: Bank annual reports

www.randora.lk

However, maintaining NIMs by lending to high yield, riskier segments may be unsustainable over the long run for aggressive banks...

42

15.3% 15.2% 14.7%

14.0% 13.3% 13.0%

12.4% 11.9%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

PABC NTB UBC SEYB SAMP HNB COMB NDB

2011 2012

Smaller aggressive banks maintain higher NIMs by providing loans to higher risk clients in the

SME, pawning and personal loan segments.

NTB’s higher yields are attributable to higher interest on credit card loans and providing value

added services to high yield corporate clients.

Figure 52: Yield on Assets for banks – 2011 vs. 2012


www.randora.lk

…as credit quality deteriorates

43

1.3% 2.1%

2.8% 3.4% 3.7% 4.2% 5.4%

13.0%

0%

2%

4%

6%

8%

10%

12%

14%

NDB SAMP NTB COMB HNB PABC UBC SEYN

Gro

ss N

PLs

-2

-58

3

-6 -27

59

136

-125 -150

-100

-50

0

50

100

150

NDB SAMP NTB COMB HNB PABC UBC SEYNCh

ange

in g

ross

NP

Ls

Figure 53: 2012 Bank NPLs

Figure 55: 2012 Change in NPLs (bps)


6.2%

4.7% 4.2% 4.0%

3.4% 2.6% 2.5% 2.4%

0%

2%

4%

6%

8%

10%

SEYB UBC PABC COMB SAMP NDB HNB NTB

Imp

aire

d lo

ans/

Gro

ss lo

ans

2011 2012

Figure 54: Impaired loans as a percentage of gross loans

With the introduction of IFRS accounting from

2013, loan loss provisioning was replaced with

impairment accounting where a loan asset is

impaired (reduced in value) if the carrying value of

the loan exceeds the future expected cash flows

from the customer

www.randora.lk

However, fee based income may be a viable alternative for NTB and NDB to compensate for low NIMs

44

26.9%

21.8%

17.9%

15.7% 15.5% 14.4%

13.6%

10.5%

0%

5%

10%

15%

20%

25%

30%

NTB NDB PABC SEYB SAMP HNB COMB UBC

Fee

& C

om

mis

sio

n in

com

e/N

et

Inte

rest

, fee

&

com

mis

sio

n in

com

e

2011 2012

NTB has been successful in increasing its fee based

income (e.g. credit cards) compensating for the decline in

NIMs

NDB signed a bankassurance agreement with AIA which

may contribute to fee based income.

Figure 56: Fee and commission based income


www.randora.lk

Whilst branch consolidation may improve cost-to-income ratios at the larger banks...

45

Figure 57: Cost-to-income ratios of local banks

51%

60% 60% 63%

68% 68% 68%

82%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

COMB NDB NTB HNB SAMP PABC SEYB UBC

Op

erat

ing

cost

/ N

et

inte

rest

, fee

& c

om

mis

sio

n

inco

me

2011 2012

COMB, HNB & SAMP rapidly expanded their branch network during the last 2 years and

now are in the phase of consolidation.

The other smaller banks delayed branch expansion and will see the impact in the cost-to-

income ratios from increased branch additions during the year.

Source: CBSL & CAL Research

www.randora.lk

…late entry into branch expansion may add pressure on smaller banks’ cost-to-income ratios

46

Figure 59: Estimated branch additions for 2013 Figure 58: Branch penetration by region (Western vs. Non Western province)

0

5

6

10 10 10

0

2

4

6

8

10

12

SAMP COMB HNB NTB NDB DFCC

No

of

targ

et

bra

nch

ad

dit

ion

s fo

r 2

01

3

Source: Annual reports, bank data & CBSL

58 51 66 117

172 158 162

343

98 128 120

253

370 425

688

760

-

100

200

300

400

500

600

700

800

HNB COMB SAMP SEYB PABC NDB NTB UBC

No

of

bra

nch

es/

(p

op

ula

tio

n ‘000)

Wetern Province Outside Western province

Smaller banks have lower branch penetration outside the Western province

www.randora.lk

Core profitability has been on an upward trend for CAL’s banking sector top picks...

47

2.3%

2.6%

1.7%

1.1%

2.3%

3.2%

1.3%

1.1%

2.8% 2.7%

2.3%

1.9% 1.9% 1.8%

1.6%

1.0%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

NTB COMB HNB SEYB NDB PABC SAMP UBC

Co

re p

rofi

t a

s a

% o

f av

era

ge a

sse

ts

2011 2012

Figure 60: Core profit as a percentage of average assets

Source: Annual reports, bank data & CBSL

With one-off gains and subjective

impairment provisioning having

the ability to boost profits and

ROE’s, CAL believes core profits to be a good indicator of

underlying bank profitability.

SEYB shows an increase due to

the inclusion of VRS cost in 2011

*Under IFRS, CAL defines core profits as (Net interest income + Fee based income – operating expenses

www.randora.lk

...and in 2013E, are likely to witness avg. core profit growth of 33%

48 Source: Annual reports, bank data & CBSL

Figure 61: Core profit as a percentage of average assets

51%

38%

30%

26%

19%

0%

10%

20%

30%

40%

50%

60%

SAMP NDB HNB COMB NTB

Avg.33%

www.randora.lk

However, maintaining profitability via lower provisioning is unsustainable at a few smaller banks

49

Figure 62: Provisioning coverage under SLAS

100%

80%

44%

36% 36% 31%

28%

15%

0%

20%

40%

60%

80%

100%

120%

NDB SAMP HNB COMB NTB UBC SEYB PABC

Pro

visi

on

ing

Co

vera

ge

2011 2012


Providing lower impairment charges for bad losses to boost profitability may

not be sustainable over the long run

www.randora.lk

CAL’s top 5 banking picks have sustainable ROAEs (Avg. 18%) …

50

21.7% 20.8% 20.7%

17.4%

14.1% 13.9%

10.4% 9.8%

0%

5%

10%

15%

20%

25%

30%

PABC NTB COMB HNB SAMP NDB SEYB UBC

RO

AE-

Re

curr

ing

2011 2012

Figure 63: Recurring ROEs of banks – 2012


www.randora.lk

2.1%

1.9% 1.9% 1.9%

1.7% 1.7% 1.7%

1.2%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

COMB HNB NDB SAMP NTB UBC PABC SEYB

Ave

rage

RO

A

…and superior ROAs (Avg. 1.7%)

51

Figure 64: Average ROAs for 2012


www.randora.lk

CAL’s picks also have attractive trailing valuations…

52

Figure 65: 2012 PER (x) and PBV of banking sector stocks

Source: CSE & CAL Research

0.98 1.11 1.15

1.31 1.39 1.39 1.39 1.42 1.52

1.89 6.2x

9.3x

10.9x

8.3x

7.1x 7.2x 6.9x

16.2x

8.0x

9.8x

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

HNB.X NDB SEYB HNB SAMP NTB PABC UBC COMB.X COMB

PER

(x)

P/B

V (

x)

P/BV (x) PER (x)

www.randora.lk

…and reasonable dividend yields (avg.5.4%)

53

Figure 66: 2012 dividend yield of banking stocks

Source: CSE & CAL Research

8.8%

6.7% 6.6%

5.6% 5.4% 5.2%

4.9%

4.4%

3.3%

2.8%

0.8%

NDB HNB.X COMB.X COMB SAMP HNB SEYB.X PABC NTB SEYB UBC

www.randora.lk

The fall in gold prices a red hearing – A further 10% decline manageable

54

Figure 67: Banks exposure to pawning loans

24.9%

16.4% 15.8%

13.1% 11.2%

3.6% 3.2%

0%

5%

10%

15%

20%

25%

30%

SAMP PABC HNB SEYB UBC NDB COMB

Paw

nin

g lo

ans/

Gro

ss L

oan

s

Figure 68: World market gold prices

Declining gold prices reduces the collateral value of gold loans, but the impact is not reflected in the income statement or balance sheet

immediately.

Giving out c.80-85% (LTV) of the gold value through pawning loans has provided a buffer for banks. However, HNB indicates that a

further 10% reduction from current gold prices (c.USD1400/Oz) may reduce the collateral value below loan values.

The sensitivity analysis in the SAMP annual report indicates that gold prices at current levels (USD1400/Oz) will lead to a mark-to-market

loss of LKR6.4bn on its pawning portfolio.

However, an impact on the income statement will only occur when the collateral on defaulted loans are sold at auction at a lower price.

Sentimental value for jewelry may reduce customer default rates on pawning loans as they aren’t generally refinanced even when gold

prices collapse. However, banks may increase their impairment provisioning in 2Q2013 if the downward trend in gold prices continue.

1200

1300

1400

1500

1600

1700

1800

1900

Ap

r-1

2

May

-12

Jun

-12

Jul-

12

Au

g-1

2

Sep

-12

Oct

-12

No

v-1

2

De

c-1

2

Jan

-13

Feb

-13

Mar

-13

Ap

r-1

3

USD

/Oz

www.randora.lk

IV. CAL’s Banking Basket

55

www.randora.lk

Commercial Bank –1 yr. total return of +18%: BUY – TP LKR133 Consolidation phase for industry leader

Commercial Bank (COMB V LKR 119, NV LKR 98; Market Cap USD748mn): COMB is the largest private sector commercial bank in SL with a loan book of LKR373bn (+19 YOY) and a c.29% private bank market share. CAL forecasts COMB’s loan book to grow in line with industry loan growth at 17% for 2013E.

COMB’s 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 from IFC in 2012 consequent to raising USD65mn in 2012. Benefits from recent branch additions (2010-12) and consolidation of bank branches will enable COMB’s cost-to-income ratios to improve to 48% in 2013E from 51% in 2012. CAL expects COMB’s core profitability to grow 26% to LKR 16.1bn in 2013E.

COMB also provides an attractive dividend yield of 5.6% for the voting and 6.9% for the non voting share. COMB’s size and higher than avg. liquidity (+2.3x) makes it investible for foreign investors. COMB has one of the highest ROEs in the sector which stands at 19% for 2013E. Larger dominant banks in regional peer countries trade at a 47% premium to their smaller counterparts which may justify a c.40% premium for COMB. CAL’s 2013E target price for COMB is LKR133 (+12%) and LKR112(10%) for the non-voting share. COMB currently trades at a PER of 7.8x on 2013E and PBV of 1.4x.

56

FYE Mar - LKR mn FY11 FY12 FY13E FY14E

Net interest income 18,678 22,852 26,821 32,147

Net interest income growth 22% 17% 20%

Core Profit* 10,479 12,882 16,172 20,702

Core Profit growth 23% 26% 28%

Profit attributable to equity holders 7,932 10,080 10,504 12,890

Profit growth 27% 4% 23%

EPS (LKR) 9.2 13.4 12.4 15.2

NAVPS 52.0 62.4 70.4 80.2

PER (x) (Voting) 12.9 8.8 9.6 7.8

P/BV (x) (Voting) 2.3 1.9 1.7 1.5

PER (x) (Non Voting) 10.5 7.2 7.8 6.4

P/BV (x) (Non Voting) 1.9 1.6 1.4 1.2

DPS (LKR) 5.8 6.4 6.7 8.2

Dividend Yield % (Voting) 4.9% 5.4% 5.6% 6.9%

Dividend Yield % (Non Voting) 6.0% 6.6% 6.9% 8.5%

FY11 FY12 FY13E FY14E

Net interest margin 5.10% 5.39% 5.34% 5.36%

Cost-to-income 52% 51% 48% 44%

Average ROE 20.2% 20.8% 18.6% 20.2%

Average ROA 1.95% 2.11% 1.87% 1.95%

Loan Growth 26.5% 18.6% 18.2% 18.0%

85

90

95

100

105

110

115

120

125

May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13

COMB.N ASPI COMB.X

Market Cap (USD): 748mn

1 Year Avg. Daily T/O (USD): 604k

1 Year Price H/L (LKR): 119.5/96.8

Free Float: 85%

Current Price (LKR): 118.50

www.randora.lk

Hatton National Bank–1 yr. total return of +17%: BUY – TP LKR190 New branch additions to start contributing to profitability

Hatton National Bank (HNB V LKR 171, NV LKR 126; Market Cap USD432mn):

HNB is the second largest private commercial bank with a loan book of LKR 304bn (+18%YoY) and a c.23% private bank market share. Despite witnessing the highest improvement in NIMs in 2012 to 5.83%, HNB may continue to maintain NIMs at current(5.83%) levels supported by their relatively larger CASA base (39%) and repricing of assets. Higher deposit growth compared to loan growth may put marginal pressure on NIMs if current interest rate regime continues.

CAL estimates HNB’s loan growth to remain at c.18% for 2013E and fee based income to grow c.25% during the year with the initiation of new products which may lead to net income growing 15% to LKR 32bn in 2013E. The bank will also witness improvements in its cost-to-income ratios as branches added during the last 2 years start contributing to profitability. HNB targets to improve cost-to income ratios to 60% by 2013E.

CAL anticipates HNB’s earnings to grow 14% to LKR9.3bn in 2013E which may translate into a PER of 7.2x and PBV of 1.2x at current prices. HNB may maintain a dividend payout close to 42% which may provide a dividend yield of 5.7% at current prices for the voting share and 7.7% yield for the non-voting share. CAL’s target price for HNB Voting is LKR and LKR149 for the non-voting share. CAL Recommends a BUY

57




Core Profit* 6,207 9,699 12,577 13,093




EPS (LKR) 9.1 29.3 23.6 25.7

NAVPS 104.6 129.9 143.9 160.5

PER (x) (Voting) 18.9 5.8 7.2 6.6

P/BV (x) (Voting) 1.6 1.3 1.2 1.1

PER (x) (Non Voting) 13.9 4.3 5.4 4.9

P/BV (x) (Non Voting) 1.2 1.0 0.9 0.8

DPS (LKR) 7.3 8.5 9.8 10.6

Dividend Yield % (Voting) 4.3% 5.0% 5.7% 6.2%

Dividend Yield % (Non Voting) 5.8% 6.7% 7.7% 8.4%




Average ROE 18.1% 17.4% 17.0% 16.7%

Average ROA 1.91% 1.94% 1.88% 1.75%

Loan Growth 27.7% 18.1% 17.9% 16.9%

80

90

100

110

120

130

140

150

HNB.N ASPI HNB.X



1 Year Price H/L (LKR): 176/130

Free Float: 67%

Current Price (LKR): 171

www.randora.lk

Sampath Bank– 1 yr. total return of +18%: BUY – TP LKR 254 Foreign funding to improve NIMS

Sampath Bank (SAMP LKR 226; Market Cap USD300mn): SAMP is the third largest private commercial bank in Sri Lanka with a loan book of LKR 224bn (25% YoY) and a c.16% private bank market share. In 2013E, SAMP is likely to maintain loan book growth at c.23%. SAMP’s net interest margins are likely to marginally improve from 4.89% in 2012 to 5.00% 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. industry avg. of 27% for 2012). SAMP raised USD100mn in 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 branch expansion (+80 branches from 2009) slows down. SAMP’s higher exposure to the pawning segment (c.25%) may require a higher impairment charge for possible loan losses if the fall in gold prices continue. CAL expects SAMP’s recurring earnings to decline 5% in 2013E to LKR5055mn which translates into a 6.5x PER and 1.2x PBV on 2013E. However, the LKR2bn foreign translation gain resulting from the 15% LKR depreciation is likely to reverse in 2013E which may bring down net profitability by 5%.

CAL’s target price for SAMP is LKR254 (+13%) with a dividend yield of 5.4% for 2013E.

58




Core Profit* 2,975 4,622 6,981 8,927




EPS (LKR) 22.8 32.8 34.6 43.1

NAVPS 140.1 167.1 192.0 222.0

PER (x) 9.9 6.9 6.5 5.2

P/BV (x) 1.6 1.3 1.2 1.0

DPS (LKR) 8.8 12.0 12.1 15.9

Dividend Yield % 3.9% 5.3% 5.4% 7.1%




Average ROE 16.3% 21.4% 19.3% 20.8%

Average ROA 1.67% 1.89% 1.63% 1.69%

Loan Growth 34.5% 25.5% 23.1% 21.6%

86

96

106

116

126

136

146

SAMP.N ASPI



1 Year Price H/L (LKR): 242/148.50

Free Float: 85%

Current Price (LKR): 231.10

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Nations Trust Bank –1 yr. total return of +18%: BUY - TP LKR 79 Reverting to aggressive growth

Nations Trust Bank (NTB V LKR 64; Market Cap USD118mn): NTB is one of the smaller listed private banks with a loan book of LKR 73bn (20% YoY) representing a market share of c.6%. NTB’s deposit base stood at LKR86bn (+37% YoY) representing a market share of c.6.2% among private sector banks.

CAL expects NTB’s loans to grow 21% in 2013E and NTB’s higher fee based income from its growing credit card business and bond trading to supplement relatively stable NIMs for 2013E (5.7%). However, NTB’s cost-to-income ratios are anticipated to remain higher (c.61%) as NTB initiates its branch expansion program to improve its CASA base which currently stands at c.20%. NTB intends to open 10 branches during the year.

For 2012, NTBs earnings were LKR1.95bn (+21% YoY) and CAL expects earnings to reach LKR2378mn for 2013E which translates into a PER of 6.2x and PBV of 1.2x at current prices. CAL’s 2013E target price for NTB is LKR79, +23% from current prices and we expect a dividend yield of 4.2%.

59




Average ROE 20.9% 20.8% 21.7% 23.1%

Average ROA 1.74% 1.74% 1.78% 1.90%

Loan Growth 39.3% 20.0% 20.9% 20.0%




Core Profit* 2,093 3,118 3,723 4,619




EPS (LKR) 7.0 8.5 10.3 13.0

NAVPS 37.4 43.8 51.4 61.0

PER (x) 9.2 7.6 6.2 4.9

P/BV (x) 1.7 1.5 1.2 1.1

DPS (LKR) 2.0 2.1 2.7 3.4

Dividend Yield % 3.1% 3.3% 4.2% 5.3%

87

97

107

117

127

137

147

May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13

NTB.N ASPI

Market Cap (USD): 117.50mn


1 Year Price H/L (LKR): 65.5/43.5

Free Float: 80%


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National Development Bank –1 yr. total return of +9%: HOLD TP LKR 184 USD250mn loan- the next game changer

National Development Bank (NDB V LKR 178; Market Cap USD232mn): NDB is the 5th largest private sector bank with a loan book of LKR 121bn (+19% YoY) 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 NDB’s loan book to grow c.15% in 2012 due to subdued economic conditions and low take up of loans in the SME sector.

In 2013E, net interest margins for NDB may improve to 4.53% from 4.11% on the backdrop of low cost foreign funding and LKR 5.9bn capital gain from the Aviva-NDB transaction. The dependence on higher cost deposit funding is likely to reduce further as NDB borrows USD 250mn from foreign sources as provided in the gov’t budget. The forex risk on loan of the amount will be borne by the gov’t. CAL expects core profit to grow 54% in 2013E driven by improving net interest margins, despite higher cost-to-income ratios resulting from rapid branch expansion. The LKR4.3bn currently sitting on the books of NDB gives the opportunity to lookout for lucrative business opportunities.

With NDB’s share price rising 45% (2012-13), NDB currently trades at a forward PER of 7.9x on 2013E earnings and 1.1x PBV. CAL’s target price is 184/share. NDB may also provide a dividend yield of 5.2%.

60

FYE Dec - LKR mn FY11 FY12 FY13E FY14E



Core Profit* 2,845 3,043 4,677 6,175



Profit growth 250% -59% 26%

EPS (LKR) 16.8 54.4 22.6 28.5

NAVPS 103.1 151.5 167.4 187.2

PER (x) 10.6 3.3 7.9 6.2

P/BV (x) 1.7 1.2 1.1 1.0

DPS (LKR) 7.5 15.0 9.3 11.7

Dividend Yield % 4.2% 8.4% 5.2% 6.6%




Average ROE 15.7% 14.1% 13.9% 15.8%

Average ROA 2.01% 1.87% 1.85% 1.98%

Loan Growth 43.2% 17.7% 15.6% 15.7%

80

90

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110

120

130

140

150

160

May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13

NDB.N ASPI


1 Year Avg. Daily T/O (USD):126k

1 Year Price H/L (LKR): 181/96

Free Float: 96.12%


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IV. Appendices

61

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DuPont Analysis - 2012 HNB COMB SAMP NDB NTB SEYB PABC UBC

Average Return on Equity 17.42% 20.75% 14.13% 13.92% 20.84% 10.43% 21.74% 9.82%

Average Return on Assets 1.94% 1.62% 1.25% 1.91% 1.74% 1.18% 1.67% 1.67%

Leverage 8.96 9.82 11.30 7.27 11.99 8.84 13.03 5.86

Average Return on Equity 17.42% 15.91% 14.16% 13.92% 20.84% 10.43% 21.74% 9.82%


Core profit margin 2.78% 3.17% 2.05% 2.48% 2.85% 2.01% 2.32% 1.80%

Impairment multiplier 0.90 0.79 0.99 1.10 0.86 0.91 0.96 0.86

Tax multiplier 0.77 0.65 0.62 0.70 0.71 0.65 0.75 1.08


Core Profit Margin 2.78% 3.17% 2.05% 2.48% 2.85% 2.01% 2.32% 1.80%

Net interest margins 6.11% 5.39% 4.89% 4.11% 5.80% 5.97% 5.43% 5.70%

Avg interest earning assets % 0.86 0.89 0.87 0.91 0.88 0.86 0.86 0.85

Net interest margin as a % of avg assets 5.28% 4.79% 4.26% 3.72% 5.13% 5.12% 4.67% 4.84%

Non-interest income as a % of Avg assets 1.68% 1.64% 1.60% 1.98% 2.35% 1.41% 1.91% 1.75%

VAT expense % 0.29% 0.42% 0.41% 0.39% 0.39% 0.38% 0.41% 0.34%

Operating expense % 3.88% 2.84% 3.40% 2.84% 4.24% 4.14% 3.86% 4.45%

Non interest expense as a % of avg assets) 4.18% 3.26% 3.81% 3.23% 4.63% 4.52% 4.26% 4.79%

Core profit margin % 2.78% 3.17% 2.05% 2.48% 2.85% 2.01% 2.32% 1.80%

Appendix 1: Summary of DuPont analysis for banks -2012

62 * The analysis is after excluding Non-recurring items Positive factors Negative factors

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Dupont Analysis

ROAE - Net Profit/Average Equity

ROAA- Net Profit/Average Assets

Core Profit Margin- Core Profit/Average Assets

Net interest income- Net Interest income/

Average Assets

Net interest Margin- Net interest income/Average interest earning Assets

Assets Multiplier- Average interest earning

Asset/Average Assets Non interest income-

Non interest income/Average Assets

Non interest expenses-Non interest Expenses/

Average Assets

Impairment Ratio- Profit before Tax/ Core Profit

Tax Ratio- Net Profit/Profit before Tax

Leverage - Average Assets/Average Equity

Appendix 2: DuPont analysis for banks - 2012

63

Calculation methodology

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Dupont Analysis – COMMERCIAL BANK

Dupont Analysis – HATTON NATIONAL BANK

HNB

ROAE -17.42%

ROAA- 1.94%

Core Profit Margin-2.78%

Net interest income- 5.28%

Net interest Margin- 6.11%

Asset Multiplier-

0.86x Non interest income- 1.68%

Non interest expenses -

4.18%

Impairment Ratio- 0.9x

Tax Ratio- 0.77x Leverage - 9x

COMB

ROAE -20.75%

ROAA- 1.62%




Assets Multiplier-



3.26%


Tax Ratio- 0.65x Leverage -

9.82x

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Dupont Analysis – SAMPATH BANK

Dupont Analysis – NATIONAL DEVELOPMENT BANK

SAMP

ROAE -14.13%

ROAA- 1.25%




Asset Multiplier-



3.18%



11.3x

NDB

ROAE -13.92%

ROAA- 1.91%




Asset Multiplier-



3.57%



7.27x

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NTB

ROAE -20.84%

ROAA- 1.74%




Asset Multiplier-0.88x

Non interest income- 2.35%

Non interest expenses - 4.63%



Dupont Analysis – SEYLAN BANK

SEYB

ROAE - 10.43%

ROAA- 1.18%




Asset Multiplier-86x



4.52%


Tax Ratio- 0.65x Leverage - 8.8x

Dupont Analysis – NATIONS TRUST BANK

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Dupont Analysis – PANASIA BANK

Dupont Analysis – UNION BANK OF COLOMBO

PABC

ROAE - 21.7%

ROAA- 1.67%




Asset Multiplier-



4.3%



UBC

ROAE - 9.82%

ROAA- 1.67%




Asset Multiplier- 0.85x


Non interest expenses - 4.79%


Tax Ratio- 1.08x Leverage - 5.9x

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Appendix 3: Bank fixed deposit market share

68

23% 23%

23% 22%

17% 17%

9% 9%

5% 5%

7% 7%

4% 4% 2% 2%

10% 10%

0%

20%

40%

60%

80%

100%

120%

Fixed deposit market share - 2011 Fixed deposit market share - 2012

COMB HNB SAMP NDB DFCC NTB PABC UBC SEYB

Figure 67: Fixed deposit market share of banks - 2012


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Appendix 4: Bank cost management

69

775

1028 1029 1032

1,253

1,518 1612.5 1,641

1,703

0

200

400

600

800

1000

1200

1400

1600

1800

PABC UBC NTB DFCC SAMP HNB NDB SEYB COMB

Pe

rso

nn

el c

ost

/em

plo

yee

(LK

R 0

00

)

11,105

14,980

21,662 23,486

25,307

31,346

37,521 38,100

41,595

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

DFCC PABC UBC COMB SAMP NDB SEYB HNB NTB

Ge

ne

ral &

OH

co

st/b

ran

ch (

LKR

'00

0)


Figure 68: Personnel cost per employee -2012 Figure 69: General & OH cost per branch - 2012

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Appendix 5: Bank loan-to-deposit rates

70

103% 96% 92% 90% 89% 88% 85% 85%

0%

20%

40%

60%

80%

100%

120%

140%

NDB COMB SAMP PABC HNB UBC NTB SEYB

LDR

2011 2012

Figure 70: Loan-to-deposit rates of banks


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Appendix 6: Change in AWPLR (Jan – April 2013)

71

Figure 71: Bank AWPLR (April 2013)

Figure 72: Change in AWPLR from Jan –April 2013

Source: CBSL

13.9 13.9 13.9 14.1 15.0

16.0 16.5 17.7 17.9

8

10

12

14

16

18

20

AW

PLR

%

-3 -26

-49 -69

-94

-171

-200 -200

-224 -250

-200

-150

-100

-50

0

Ch

ange

in b

ps

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Appendix 7: Summary Financial Statements

72

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73

Commercial Bank - Income Statement

As at 31 December 2011 2012 2013E 2014E

Income 45,839 63,374 70,949 84,778

Interest income 38,314 52,663 64,175 76,964

Less: Interest expenses 19,635 29,811 37,354 44,817


Fee and commission income 3,765 4,147 4,769 5,484

Less: Fee and commission expenses 440 549 620 713

Net fee and commission income 3,325 3,598 4,149 4,771

Net interest, fee and commission income 22,004 26,450 30,970 36,919

Net loss from trading 462- 2,494 - -

Net gain from financial investments 38 32 - -

Other operating income 4,184 4,038 2,005 2,330

Total Operating income 25,764 33,014 32,975 39,249

Less: Impairment charge/(reversal) for loans and other losses 1,747 3,158 1,544 2,708

Less: Impairment gain / ( loss) on financial investments - - - -

Net operating income 24,017 29,856 31,431 36,541

Personnel expenses 6,346 7,837 8,597 9,533

Other operating expenses 5,178 5,731 6,201 6,684

11,525 13,568 14,797 16,217

Operating profit before value added tax (VAT) 12,492 16,288 16,634 20,324

Less: Value added tax (VAT) on financial services 1,523 1,987 2,044 2,418

Operating profit after value added tax (VAT) 10,969 14,301 14,590 17,905

Share of profit/(loss) of Associates (net of income tax) 11 12 14 16

PROFIT BEFORE INCOME TAX 10,980 14,313 14,590 17,905

Less: Income tax expense 3,048 4,232 4,085 5,013

PROFIT FOR THE YEAR 7,932 10,081 10,505 12,892

Profit attributable to Equity holders of the bank 7,932 10,080 10,504 12,890

Non-controlling interest 0 1 1 2


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74

Commercial Bank - Statement of Financial Position

As at 31 December 2011 2012 2013E 2014E

ASSETS

Cash and cash equivalents 12,935 19,752 4,933 5,308

Balances with Central Banks 17,343 18,168 28,647 34,131

Placements with banks 11,674 16,163 17,779 19,557

Derivative financial instruments 40 1,351 6,172 7,283

Other financial assets held for trading 6,418 6,041 7,035 8,301

Loans and receivables to banks 580 629 629 629

Loans and receivables to other customers 314,327 372,857 440,858 520,213

Financial investments - Available-for-sale 61,415 57,963 84,420 99,615

Investments in associates 120 94 104 114

Property, plant & equipment 8,503 8,947 8,158 7,357

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 10,787 10,787

Total assets 441,598 512,221 610,554 714,282

LIABILITIES

Due to banks 11,574 4,764 65 65

Derivative financial instruments 435 84 100 118

Due to other customers 323,698 390,569 468,998 553,418

Other borrowings 49,455 47,566 64,210 72,542

Current tax liabilities 1,307 2,822 2,043 2,507

Deferred tax liabilities 1,640 1,890 1,890 1,890

Other provisions 1 2 2 2

Other liabilities 8,214 10,417 12,344 14,566

Subordinated term debts 1,106 1,106 1,109 1,109

Total liabilities 397,429 459,220 550,761 646,217

EQUITY

Stated capital 16,474 18,009 19,920 22,253

Statutory reserves 2,890 3,433 3,999 4,683

Retained earnings 2,588 4,173 4,698 5,343

Other reserves 22,187 27,353 31,143 35,751

Total equity to equity owners of the Bank 44,139 52,968 59,760 68,030

Non-Controlling Interest 30 32 34 35

Total equity 44,169 53,001 59,793 68,065

441,598 512,221 610,554 714,282

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Hatton National Bank - Income Statement

As at 31 December 2011 2012 2013E 2014E

Income 40,123 55,160 57,430 61,342

Interest income 33,547 47,940 58,542 68,762







Net loss from trading -426 -1,624 -1,701 -1,936

Net gain from financial investments 391 114 0 0



Less: Impairment charge/(reversal) for loans and other losses 501 -1,162 -1,567 -1,993


OPERATING EXPENSES


Premises, equipment and establishment expenses 2,956 3,481 3,968 4,382

Other overhead expenses 5,163 5,929 6,662 7,348

13,645 16,514 18,490 20,401


Less: Value added tax (VAT) on financial services 1,224 1,248 1,485 1,627

Operating profit after value added tax (VAT) 9,072 10,676 12,491 13,625

Share of profit/(loss) of Associates (net of income tax) -16 17 17 18




Profit attributable to Equity holders of the Bank 6,819 8,111 9,240 10,079

Profit attributable to Non-controlling interests 81 160 141 153


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Hatton National Bank - Statement of Financial Position

As at 31 December 2011 2012 2013E 2014E

ASSETS


Balances with central banks 18,698 19,950 24,448 28,731

Placements with banks 8,244 11,667 12,834 14,118



Non-current assets held for sale 3 3 3 3

Loans and receivables to other customers 257,435 303,922 358,433 418,937

Financial investments - Available-for-sale 51,435 58,929 69,789 81,653

Financial investments - Held-to-maturity 1,698 1,644 1,994 2,333

Financial investments - Loans and receivables 15,362 20,904 23,928 27,995

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


Deferred tax assets 319 372 372 372

Other assets 10,982 12,680 14,755 17,264

Total assets 391,297 459,399 540,434 628,727

LIABILITIES

Due to banks 19,885 30,401 39,184 48,609

Derivative financial instruments 618 1,436 2,551 3,319


Dividends payable 170 223 272 296

Other borrowings 8,876 6,747 7,886 9,217

Debt securities issued - 150 150 150


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 5,377 6,284


Total Liabilities 348,940 406,805 482,120 563,670

EQUITY

Stated capital 11,451 12,579 12,579 12,579

Statutory reserves 2,778 4,531 4,715 4,917

Retained earnings 3,504 5,322 8,371 12,201

Other reserves 23,841 29,193 31,538 34,096

Total equity attributable to equity holders of the Bank41,575 51,624 57,204 63,794

Non-controlling interests 782 969 1,110 1,264

Total Equity 42,357 52,594 58,314 65,057

Total Liabilities and Equity 391,297 459,399 540,434 628,727

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77

Sampath Bank - Income Statement

As at 31 December 2011 2012 2013E 2014E

Income 28,268 39,725 46,495 55,385

Interest income 21,565 32,712 40,444 48,510







Net loss from trading 314 6 0 0



Less: Impairment charge/(reversal) for loans and other losses -399 -152 -857 -1,221

Less: Impairment gain / ( loss) on financial investments -189 72 0 0


OPERATING EXPENSES


Depreciation of property & equipment 551 588 615 629

Amortisation of intangible assets 40 47 56 64


Other Operating Expenses 8,247 9,619 10,616 11,688


Less: Value added tax (VAT) on financial services 918 1,161 1,246 1,483




Profit attributable to Equity holders of the Bank 3,683 5,343 5,626 7,007

Profit attributable to Non-controlling interests 22 3 6 7


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Sampath Bank - Statement of Financial Position

As at 31 December 2011 2012 2013E 2014E

ASSETS


Balances with Central Bank of Sri Lanka 13,232 17,201 19,403 23,103

Placements with Banks 5,337 8,788 9,843 11,024

Reverse repurchase agreements 4,606 3,300 4,084 4,901


Financial investments held -for- trading 23,053 35,181 36,698 44,657

Financial assets held-for-trading pledged as collaterals 4,003 2,856 4,376 5,251

Loans and receivables from banks 442 816 729 875

Loans and receivables from other customers 171,977 212,480 262,129 318,979

Other loans & receivables 5,736 10,224 12,252 14,702

Financial investments- available- for- sale 2,025 1,924 2,097 2,552

Financial investments- held - to- maturity 19 10 15 18

Property and equipment 6,691 6,764 6,397 6,114


Deferred tax asset 2 12 12 12

Other assets 2,847 3,731 4,104 4,514

Total assets 250,995 314,326 377,256 451,045

LIABILITIES

Due to banks 1,176 668 875 1,050

Securities sold under re-purchase agreements 4,101 2,751 3,670 4,466



Debt issued and other borrowed funds 21,490 32,218 40,839 49,007

Unclaimed dividend 37 49 49 65


Deferred tax liabilities 396 431 431 431

Provisions 138 180 199 219


Total Liabilities 228,128 287,051 345,927 414,820

EQUITY

Stated capital 2,744 3,564 3,674 3,797

Statutory / risk reserve funds 858 1,199 1,480 1,831

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 21,767 26,182

Total equity attributable to equity holders of the Bank 22,807 27,214 31,262 36,151

Non-controlling interests 60 61 67 74

Total Equity 22,867 27,275 31,329 36,225


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79

Nations Trusts Bank

Income Statement

As at 31 December 2011 2012 2013E 2014E

Income

Interest Income 9,795 15,113 17,244 20,425

Interest Expense -5,391 -9,358 -10,502 -12,346

Net Interest Income 4,404 5,755 6,741 8,080

Fees and Commission Income 1,850 2,285 2,772 3,325

Fees and Commission Expense -144 -163 -208 -249

Net Fees and Commission Income 1,706 2,122 2,564 3,076

Net Trading Income 72 288 291 327

Other Operating Income 312 228 270 323

Total Operating Income 6,494 8,392 9,866 11,806

Impairment Charge / (Reversal ) for Loans and Advances -235 432 453 455

Net Operating Income 6,728 7,960 9,413 11,351

Personnel Expenses 1,901 2,097 2,607 3,206

Depreciation of Property, Plant and Equipment 230 267 289 326

Amortization of Intangible Assets 95 113 130 141

Other Operating Expenses 1,791 2,283 2,557 2,863

Total Operating Expenses 4,017 4,759 5,583 6,536

Operating Profit Before Value Added Tax (VAT) 2,712 3,202 3,831 4,815

Value Added Tax (VAT) on Financial Services 376 435 528 658

Profit Before Income Tax 2,336 2,766 3,303 4,157

Income Tax Expense 729 815 925 1,164

Profit for the Year 1,607 1,951 2,378 2,993

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Nations Trusts Bank - Statement of Financial Position

Statement of Financial Position

As at 31 December 2011 2012 2013E 2014E

Assets

Cash and Cash Equivalents 3,694 2,534 4,352 2,730

Balances with Central Bank of Sri Lanka 4,284 5,089 6,619 7,943

Reverse Repurchase Agreements 6,614 2,712 3,103 3,723

Derivative Financial Instruments 255 328 399 479

Financial Assets - Held for Trading 6,550 21,088 20,686 24,823

Financial Assets - Held to Maturity 11,818 10,238 12,411 14,894

Other Financial Assets 2,898 1,893 2,069 2,482

Loans and Advances to Customers 61,188 73,424 88,773 106,527

Other Assets 2,280 2,591 3,196 3,835

Property, Plant and Equipment 1,891 1,908 2,013 2,121

Intangible Assets 600 642 513 601

Total Assets 102,073 122,447 144,133 170,159

Liabilities

Due to Banks 1,277 2,796 3,076 3,445

Repurchase Agreements 14,480 11,833 14,204 17,044

Derivative Financial Instruments 316 528 592 663

Due to Customers 67,633 86,190 103,428 124,114

Debt Issued and Other Borrowed Funds 5,409 6,334 6,168 5,798

Current Tax Liabilities 235 544 607 744

Other Liabilities 3,859 3,846 3,923 4,001

Deferred Tax Liabilities 236 280 280 280

93,444 112,352 132,278 156,089

Equity Attributable to Equity Holders of the Parent

Stated Capital 5,101 5,101 5,101 5,101

Statutory Reserve Fund 224 314 423 561

Retained Earnings 3,034 4,044 5,267 6,805

Other Reserves 269 636 1,064 1,603

8,628 10,095 11,855 14,070


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Income Statement

As at 31 December 2011 2012 2013E 2014E

Interest income 11,655 17,150 21,811 26,114

Interest expense -6,745 -11,254 -13,647 -15,845



Net trading income/(expense) 448 1,272 950 1,064

Other operating income 648 6,127 501 561

Total operating income 7,922 14,938 11,590 14,177

Impairment charge/ (reversal) for loans and other losses -88 51 311 500


Less: Operating Expenses


Depreciation of property, plant & equipment 199 205 228 248

Amortisation of intangible assets 51 96 112 145


Total operating expenses 3,981 4,496 5,463 6,377

Operating profit before value added tax 4,030 10,391 5,817 7,300

Value Added Tax (VAT) on financial services -505 -622 -781 -953

Operating profit after value added tax 3,525 9,769 5,036 6,347

Share of associate companies’ profit 331 439 -15 -15

Profit before tax 3,855 10,207 5,021 6,333

Income tax expense -1,093 -1,275 -1,306 -1,647

Profit for the year 2,763 8,932 3,716 4,686

Profit attributable to equity holders of the parent 2,527 8,854 3,641 4,592

Profit attributable to minority interest 235 78 74 94

Profit for the year 2,763 8,932 3,716 4,686

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National Development Bank

Statement of Financial Position

As at 31 December 2011 2012 2013E 2014E

ASSETS


Balances with Central Bank 4,614 6,075 7,354 8,423

Placements with banks 518 3,559 4,040 4,646

Securities purchased under resale agreements 912 3,325 9,794 8,448

Financial assets held for trading 7,106 983 6,121 5,632

Derivative financial instruments 1,402 1,706 2,449 2,816


Loans and advances to banks 1,640 1,183 6,121 7,040

Loans and advances to customers 93,166 109,649 126,779 146,684

Lease rentals receivables 4,650 6,390 8,480 10,338

Other financial assets classified as loans and receivable 2,563 3,764 4,407 4,928

Financial assets - held to maturity 15,666 19,223 24,486 26,751

Financial assets - available for sale 186 174 612 704

Investments in associate companies 1,797 33 19 19

Other assets 963 1,155 1,347 1,549


Property, plant & equipment 1,185 1,223 1,338 1,533

Investment properties 1,296 1,296 1,296 1,296

Goodwill - - - -

Total assets 142,588 174,103 220,304 244,197

LIABILITIES

Due to Banks 5,924 2,320 2,719 3,145

Securities sold under repurchase agreements 10,133 12,516 13,946 16,135

Derivative financial instruments 1,022 1,737 1,902 2,200

Due to customers 82,094 107,394 122,429 140,793

Debt securities issued and other borrowed funds 19,466 17,802 43,582 42,182

Tax liabilities 356 634 653 823


Subordinated term debts 2,428 2,255 2,303 2,111

Deferred Tax 41 79 79 79

Total liabilities 124,750 148,394 191,923 212,457

EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF PARENT

Stated capital 864 864 864 864

Statutory reserve fund 879 879 879 879

Investment Fund 387 924 1,335 1,843

Retained Earnings 14,796 22,216 24,402 27,160

16,925 24,883 27,480 30,745

Non-controlling interests 913 826 901 994

Total Equity 17,838 25,709 28,381 31,740

Total liabilities and total equity 142,588 174,103 220,304 244,197

NAVPS 103.1 151.5 167.4 187.2

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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 given constitute a judgment as of the date of the material and are subject to change without notice. This report is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The recipient of this report must make their own independent decision regarding any securities, investments or financial instruments mentioned herein. Securities or financial instruments mentioned may not be suitable to all investors. Capital Alliance Securities (Private) Limited it’s directors, officers, consultants, employees, outsourced research providers associates or business partner, will not be responsible, for any claims damages, compensation, suits, damages, loss, costs, charges, expenses, outgoing or payments including attorney’s fees which recipients of the reports suffers or incurs directly or indirectly arising out actions taken as a result of this report. This report is for the use of the intended recipient only. Access, disclosure, copying, distribution or reliance on any of it by anyone else is prohibited and may be a criminal offence.

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sri lanka banking sector report- pulling through macro challenges - 09-may-2013

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