Sri Lanka’s financial landscape has witnessed a transformative phase, characterised by the resilience and strategic manoeuvring of its banking sector. Amid economic fluctuations and shifting market conditions, major financial institutions have navigated challenges to achieve commendable financial results, showcasing adaptability and fortitude in a dynamic landscape.

As the nation grappled with economic headwinds, these banks emerged as pillars of stability, charting a path of growth and resilience. Through strategic recalibrations and astute management, they showcased robust performances, marking a notable trajectory of progress and fortitude amidst the volatile economic backdrop.

The banking sector, an instrumental component of the nation’s financial ecosystem, has displayed remarkable resilience and strategic adeptness in navigating the intricate web of economic uncertainties. Over the past year, these institutions have weathered the storms of fluctuating interest rates, evolving economic landscapes, and external challenges, emerging as beacons of stability and growth.

NDB 

Rebounding from consecutive quarters of less than its potential profitability, attributable to external challenges, the National Development Bank (NDB) Group comprising the NDB Bank as the parent and its subsidiary companies posted Rs. 10 billion Profit Before Tax (PBT) for the nine months ended 30 September 2023, compared with Rs. 1.2 billion for the same period in 2022. 

NDB Director/CEO Dimantha Seneviratne stated: “The Sri Lankan economy is emerging well from the crisis and the bank is recording similar performance. With critical economic factors such as interest rate, exchange rate, and inflation stabilised, there is greater certainty and confidence in doing business. 

“The timely finalisation of Domestic Debt Optimisation is noteworthy and we expect expedited finalisation of the international debt structuring too, which will further enhance internal conditions and also the external profile of Sri Lanka. We have recalibrated our strategy in the current context and remain well on track to achieving our targets, which will deliver continued value to our stakeholders.”

Profit After Tax (PAT) at the group level was Rs. 5.4 billion whilst it was Rs. 5.2 billion at the bank level, compared with Rs. 691 million and Rs. 561 million respectively for the same nine months of 2022 (Year-on-Year – YoY). 

Healthy performance on revenue, reduction in impairment provisions compared to the comparative period, and effective cost management across all operations enabled enhanced profitability. 

At the bank level, gross income for the period was Rs. 102.9 billion, up by 38% YoY. Net Interest Income (NII) was Rs. 24.4 billion, an increase of 10%. Interest income of Rs. 93.7 billion (increased by 44%) and interest expense of Rs. 69.3 billion (increased by 61%) drove NII. 

As market interest rates continued to decline, in response to the Central Bank of Sri Lanka’s (CBSL) relaxing monetary policy, the Bank passed on the benefit to customers with reduced loan rates. The deposits book was also re-priced simultaneously, with the Bank achieving a Net Interest Margin (NIM) of 4%. Net Fee and Commission Income (NFCI) also drove profitability with a marked improvement of 24% to Rs. 5.4 billion. 

Sampath Bank

Sampath Bank registered a PBT of Rs. 22 billion and a PAT of Rs. 12.3 billion for the nine months ended 30 September, recording a growth of 136.4% and 71.5% respectively against the subdued financial figures reported during the corresponding period in 2022.

Issuing a press release, the bank reported gross interest income of Rs. 153.4 billion for the period under review, up 44.6% from the Rs. 106.1 billion recorded in the corresponding period of the previous year. 

While the Average Weighted Prime Lending Rate (AWPLR) registered as at 30 September 2023 was 1,128 bps lower than the AWPLR reported as at 30 September 2022, the average AWPLR remained considerably higher throughout the current reporting period compared to the corresponding period in the previous year. 

Interest expense for the period under review grew at a faster pace than the interest income as a consequence of the numerous interest rate hikes, resulting in a marginal 0.3% reduction in Net Interest Income. 

Net Interest Margin also recorded a decline of 47 basis points from 5.66% as at 31 December 2022 to 5.19% as at the reporting date, which is attributed primarily to the downward trend in the AWPLR from Q1 2023.

Sampath Bank’s NFCI increased by 10% during the period under review compared to the corresponding period in the previous year. Growth experienced in the period was mainly due to the increase in fee and commission income derived from card, trade, and electronic channels, as well as remittance-related activities.

The bank posted a net operating loss of Rs. 2.3 billion in the first nine months of 2023 compared to a gain of Rs. 18 billion reported in the corresponding period of 2022, largely due to the Rs. 2.8 billion exchange loss stemming from appreciation of the LKR against the USD by 11.5%. 

This was however counterbalanced by the bank recording a net trading gain of Rs. 1.7 billion for the first nine-month period ending 30 September 2023, compared to a loss of Rs. 3 billion reported in the corresponding period of the previous year, which was mainly due to revaluation gains derived from its forward exchange contracts. 

DFCC Bank

DFCC Bank PLC, the largest entity within the group, reported an Operating Profit Before Taxes on financial services of Rs. 10,693 million, Profit Before Income Tax of Rs. 8,305 million, and a PAT of Rs. 5,498 million for the period ended 30 September 2023. 

“DFCC Bank’s strong performance in Q3 of 2023 marked a remarkable 43% increase in total group operating income, which underscores our commitment to delivering exceptional banking services in challenging times. We’re optimistic about the future, thanks to the Central Bank’s supportive policies, lower interest rates, and improved economic conditions. 

“While facing external challenges and ongoing economic stresses, our prudent strategies have led to a significant boost in profitability, growth in assets, and improved equity positions. We remain steadfast in our mission to navigate the volatile business environment and continue supporting our valued customers and the nation’s economy,” said DFCC Bank Chief Executive Officer (CEO) Thimal Perera.

This compares with an Operating Profit Before Taxes on financial services of Rs. 2,269 million, PBT of Rs. 1,420 million, and PAT of Rs. 1,043 million in Q3 of 2022. The group recorded an Operating Profit Before Taxes on financial services of Rs. 11,069 million, PBT of Rs. 9,938 million, and PAT of Rs. 7,064 million for the period ended 30 September 2023 compared to Rs. 2,612 million, Rs. 1,762 million, and Rs. 1,320 million respectively in 2022. 

All the member entities of the group made positive contributions to this performance. The bank’s Return on Equity (ROE) increased to 11.66% during the period ended 30 September 2023 from 5.04% recorded for the year ended 31 December 2022. The bank’s Return on Assets (ROA) before tax for the period ended 30 September 2023 is 1.76%, compared to 0.46% for the year ended 31 December 2022.

The bank’s NII increased 26% over the third quarter of 2022 to reach Rs. 23,655 million by the end of September 2023. Both deposit and lending interest rates have continued to adjust downwards with the broader guidelines provided by the Central Bank in line with its relaxed monetary policy stance. 

The bank increased its fixed-income investment portfolio, contributing significantly to increased interest income. The interest margin increased from 4.95% in September 2022 to 5.45% by September 2023. 

Fee income generated by credit cards also increased significantly, in line with the volume of transactions. Accordingly, NFCI has increased by 40% to Rs. 2,848 million for the period ended 30 September 2023, compared to Rs. 2,031 million for the comparative period in 2022. 

HNB

Hatton National Bank (HNB) PLC posted a PBT of Rs. 26.3 billion and a PAT of Rs. 16.6 billion during the nine months ended September 2023. The group recorded a consolidated PBT and PAT of Rs. 29 billion and Rs. 18.8 billion respectively for the period.

Commenting on the performance, HNB Chairman Nihal Jayawardene stated: “Sri Lanka has progressed well during the year with signs of recovery as indicated by most macroeconomic variables. While we remain positive on the country’s journey ahead, as a premier bank in Sri Lanka, we are delighted to have surpassed Rs. 1.5 trillion in deposits. 

“It is noteworthy to mention that a growth of Rs. 500 billion in deposits has been achieved since June 2021, and we would like to place on record our sincere gratitude to our valued customers for their unwavering trust and confidence, despite extremely turbulent macro conditions experienced during this period.”  

The bank’s interest income recorded a YoY growth of 63.5%, reaching Rs. 220.7 billion during the first nine months, in the background of a sharp decline in interest rates during the third quarter. Interest expense increased at a faster pace of 115% YoY, resulting in a 17.1% YoY growth in Net Interest Income which improved to Rs. 83.2 billion. 

The bank’s Net Fee and Commission Income grew by 6.3% YoY to Rs. 11.7 billion, primarily fuelled by cards and digital channels. The appreciation of the Sri Lankan Rupee against the US Dollar by approximately 12% during the period resulted in the bank having to record an exchange loss of Rs. 2.5 billion for the nine months. 

HNB continued to maintain its asset quality well above the industry, with Net Stage 3 ratio at 4.9% and Stage III provision cover at 50.7%. The bank recognised a total impairment charge of Rs. 32.4 billion during the first nine months of 2023, which consisted of impairment on account of loans and advances and foreign currency-denominated Government securities.

NTB

Nations Trust Bank (NTB) continued its solid financial performance into the third quarter (Q3) of 2023, with a PBT of Rs. 19.4 billion and a PAT of Rs. 9.4 billion – a YoY increase of 78% for the nine months ending on 30 September, a recent media release announced. 

NTB Director and Chief Executive Officer Hemantha Gunetilleke said: “We’re pleased to report a strong result for the nine months up to 30 September, highlighting steady growth across our customer segments and gains in market share. The bank’s strengths lie in its continued focus on digital empowerment, robust risk management models, and a strong capital base, in addition to healthy liquidity buffers.” 

The bank recorded a 24% YoY growth in operating income for the nine months, supported by higher Net Interest Income and fees, as well as substantially lower impairment charges.

NTB’s financial position remained strong with a Tier 1 capital adequacy ratio at 13.95% and total capital adequacy at 15.61% against regulatory requirements of 8.5% and 12.5%, respectively. The statutory liquid asset ratio was 43.49% as of 30 September, well above the regulatory requirement of 20%.

The ROE increased from 17.1% in December 2022 to 24.3% as of 30 September. The bank’s Earnings Per Share (EPS) also improved significantly, reaching Rs. 29.53 for the nine months ending 30 September, compared to Rs. 16.56 during the same period last year.

Commercial Bank

A heightened emphasis on lending has seen the Commercial Bank Group increase gross loans and advances by Rs. 51.404 billion in the third quarter of 2023 at a monthly average of Rs. 17.135 billion, growing its loan book by 4.33% over three months to Rs. 1.239 trillion and reversing the trend of the first half of the year.

Commenting on these results, Commercial Bank Chairman Prof. Ananda Jayawardane said: “Our performance reflects the continuing impacts of external factors that influence multiple aspects of income generation, investments, risk management, lending, deposit mobilisation, and asset-liability matching. In this scenario, banks need to retain their focus on their fundamental role of financial intermediation, and our results for the third quarter in particular reflect this focus.”

The group’s deposits crossed the Rs. 2 trillion milestone in the same period, growing by Rs. 79.808 billion or 4.07% to Rs. 2.038 trillion as at 30 September 2023, achieving a monthly average increase of Rs. 26.603 billion in the third quarter.

The group, comprising Sri Lanka’s biggest private sector bank, its subsidiaries, and an associate, reported in a filing with the Colombo Stock Exchange (CSE) that total assets increased by Rs. 63.343 billion or 2.57% over the three months to reach Rs. 2.526 trillion as at 30 September, once again reversing the trend of the first half of the year.

Commercial Bank Managing Director/CEO Sanath Manatunge added: “We are encouraged by the growth in our loan book despite the effect of the appreciation of the rupee on the value of the portfolio. Extra attention is being given to expand our balance sheet with emphasis on credit growth, which also supports efforts to revive the national economy. Our liquid assets ratio is well above the statutory minimum requirement, enabling the bank to continue to be the biggest lender to the SME segment in particular, which is the major contributor to the economy.”

Gross income at Rs. 255.963 billion reflected an increase of 52.66% since 30 June 2023 and an improvement of 30.88% over the corresponding nine months of 2022, while interest income at Rs. 224.570 billion was up 48.91% over the figure for the first half of the year and recorded an improvement of 49.46% from a year ago.