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Nations Trust Bank records strong performance in 2021 amidst volatile conditions

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The Group achieved a record Profit Before Tax of LKR 10.4 billion, for the twelve months ended 31st December 2021 – a growth of 38% compared to the previous year, despite the challenging operating environment experienced during the period.  The Group recorded a Profit after tax growth of 65% supported by the decrease in the corporate tax rate.

Business Growth

The loan book recorded an 18% growth during the year against the private sector credit growth of 13.5%.

Nations Trust Bank adopted a selective expansion strategy, pursuing growth opportunities in sectors such as exports and local manufacturing which are aligned to the national development agenda while recording growth in the renewable energy and agriculture sectors. The Bank continued to focus on supporting customers through the crisis, proactively engaging and offering customised financing solutions to ensure commercial viability. The Bank also strengthened one-to-one engagement with customers, offering individual plans for repayment and providing guidance on effectively managing cashflows.

The Bank extended its fullest support in the implementation of the Government’s initiatives to minimise the impact of COVID-19 on businesses and the community and to stabilise the economy by partaking in the ‘Saubhagya’ loan scheme. Over LKR 20 billion new credit facilities were disbursed by the Bank under its own revival fund “Nations Diriya” scheme, which is dedicated to extending financial support to key industries, enabling such businesses to recommence and rebuild their business operations.

The Consumer Banking Division adopted a lifecycle approach to lending, moving away from a product push and offering customer-centric, relevant solutions based on specific needs. The Bank strengthened its digital offering to its customers, launching the Nations Direct integrated cash management system for corporate and commercial customers. This included tailormade offerings and host-to-host solutions, among others.

Nations Trust Bank raised USD 65 million from overseas Development Finance Institutions during the year to support the Small and Medium Enterprise (SME) sector, demonstrating the strength and track record of the Bank despite the volatile environment. The Bank also raised LKR 4 billion, Fitch ‘A’ rated, Senior, Unsecured, Unlisted, Redeemable Debentures, in July 2021, further strengthening the medium-term funding profile of the Bank.

Revenue growth

Supporting the loan growth and economic recovery efforts, average yields on loans reduced by 260 bps during the year. A net reduction in yields in the FIS portfolio also contributed to the decline in net interest income. The absence of a one-off interest reversal on moratorium loans similar to what was recognised in the previous year helped negate the decline in interest income. The improvement in the CASA ratio to 40% as at end of the year, from 32% recorded in the previous year, helped partially offset the decline in interest margins during the period.

Momentum could be seen in Trade Finance related income with the increase in certain Trade Finance related activities. Growth in cards income was contained on account of a decrease in card spend due to changes in customer behavior patterns owing to the restrictions in mobility and overseas travel during certain parts of the year. Suspension or refund of certain charges by the Bank, considering the current difficulties faced by customers due to the COVID-19 pandemic, negatively impacted the Bank’s fee-based income. While pandemic-led disruptions impacted credit card spending in certain months, the segment’s overall performance was upheld by the release of pent-up demand in other periods.

With the yield curve remaining flat for most part of the year, opportunities for generating capital gains through trading were limited. The Bank made conscious efforts to reduce the duration of the portfolio, repositioning it to capture future opportunities.

The Bank continued to adopt the strategy of utilising its FX SWAP book to fund rupee loan growth with focus placed on broad-basing counterparties to diversify risks. Gains on foreign exchange increased primarily from FX funding swaps due to the discounts which prevailed in the market. Nations Trust Bank successfully pursued low-cost funding options through the SWAP market, affording the Bank a strong platform to drive growth in 2022.

Credit cost management

Strategic focus on preserving portfolio quality through strong monitoring, risk profiling and ongoing customer engagement enabled the Bank to achieve an improvement in portfolio quality. Positive flows in the past due buckets together with lower exposures in most risk buckets, reflects a 228bps reduction in the non-performing loan ratio, thereby reducing impairment charges on loans by 13% during the period. The Bank continued to assess the uncertainties in the operating environment and to maintain a management overlay in the impairment provisions on exposures to identified risk elevated industries.

The Bank has also assessed the impact of macroeconomic variables that could elevate the credit risk of the loan portfolio and considered the potential impact of these variables in the calculation of provision for impairment.

The Bank further increased the impairment provisions against other financial instruments to reflect current market trends and other applicable macroeconomic conditions.

Operational excellence

Nations Trust Bank invested LKR 334 million on digital capabilities during the year while automating over 40 internal processes which supported growth in omni-channel users and Digital transactions which reached 87%. The cost management culture entrenched across the organisation by continuation of some of the cost saving strategies and initiatives executed last year along with productivity, efficiency drives and focus on some large cost pools were the main reasons for the 2% reductions in expenses. Cost to income ratio improved to 39% compared to 46% in the previous year, demonstrating the Bank’s ability to considerably enhance efficiency and productivity through digitalisation and new ways of working.

Taxation

The impact stemming from the tax rate differential in income tax and deferred tax relating to the previous financial year was reversed in the year ended 31st December 2021 using the applicable new tax rate of 24%. This resulted in a profit after tax growth of 65% over last year.

In the Budget Proposals 2022, the Government has proposed to impose a surcharge tax at the rate of 25%, on individuals or companies with a taxable income over Rs 2,000 million for the year of assessment 2020/2021. However, this proposal was not substantively enacted as at the date of the financial statements. As such, the Bank and the Group did not recognise any provision in 2021 financial statements in lieu of the proposed surcharge tax.

Profitability

The Return on Equity stands at 18% with a 69% EPS growth for the period under review.

Strong Financial position

The financial position of the Group remained strong as its Tier I Capital and Total Capital Adequacy ratios as at 31st December 2021 were well above the regulatory levels at 14.77% and 17.46%, respectively. The Statutory Liquid Asset Ratio (SLAR) for the Domestic Banking Unit was at 33% as at the reporting date.

Operations

Essential banking services were provided continuously despite some parts of the country being isolated with prolonged travel restrictions over a few months being imposed as a result of a third wave of COVID-19 during the year.

In true spirit of supporting the national effort, Nations Trust Bank’s employees came together to contribute essential medical equipment for the National COVID-19 Response, by donating a half a day’s salary to the Bio Medical Engineering Unit at the Ministry of Health. Nations Trust Bank also donated a portable ventilator to the Colombo South Teaching Hospital, Kalubowila in early 2021.

Way forward

Commenting on the results and achievements, Priyantha Talwatte, CEO/Director of Nations Trust Bank stated, “We are committed to pursue growth opportunities across selected industry sectors by offering holistic value propositions, which include advisory and capacity building across product verticals with ongoing focus on strengthening employee capabilities. We remain focused on delivering our strategic agenda set for the year and enhancing digital capabilities with the ultimate intention of achieving customer convenience, cost and process efficiencies, pioneering innovation and thereby, challenging the norm to deliver an unparalleled banking experience to our customers in a new reality. With the nation-wide vaccination program successfully being rolled out, there is an expectancy of a rapid return to economic normalcy, and Nations Trust Bank is fully geared to steer ahead more responsively to the external environment by prioritizing customer requirements supported by an extremely focused and involved Nations team who has demonstrated their agility to deliver sustainable value, given the challenging environment.”



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Salon owners contemplating pulling the plug, putting more than 300,000 jobs at risk

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  • = Ban on imported cosmetic products hampers industry
  • = Marked decrease in consumers patronising salons
  • = Developing Sri Lanka as a wedding-hub ‘fading away’
  • = Urges President to help protect the self-reliant industry

By Sanath Nanayakkare

Ninety percent of salons across Sri Lanka are at the risk of closure unless the temporary ban on imported cosmetic products is lifted soon, Jackie Aponso, president, Hair and Beauty Cluster (HBC) said last week addressing a press conference in Colombo.

She claimed that such an eventuality could lead to 75%-80% job losses of industry personnel. “That’s a large number as HBC is a unification of many associations in the beauty and personal care sector with 450,000 members,” she said.According to the figures given by her if the situation persists, 337,500 – 360,000 jobs would be lost for employees in the industry.

‘Yes, there is a sound fiscal argument for the government’s temporary ban on imported cosmetic products in the tight foreign exchange reserves backdrop. But if the ban is not lifted by the end of this month to facilitate the availability of international cosmetic brands in the market for upcoming Christmas and New Year, its impact will take a devastating toll on the 450,000 self-employed individuals engaged in the industry and 1.5 million of their dependents”, Jackie said.

‘Most foreign and local customers prefer international brands for their hair and skin treatments. Although a number of home-grown cosmetic brands have emerged, customers prefer their hair and facials done with brands that have been frontrunners in the market which they have relied on for years. Being a highly customer-centric business, we have to work with formulas that customers are comfortable with, because they are concerned about what we put on their face and hair.”

“It’s a relief to hear that the import ban is temporary. But it needs to be lifted quickly to allow sufficient lead time for cosmetics importers to place orders and bring the products to Sri Lanka. It was no secret that our industry was heavily battered by the Covid-19 pandemic and somehow we braved up to this point safeguarding our businesses. And we all have been looking forward to this season to offset the losses we suffered in the past two and a half years. If the ban is lifted by end of this month, imported brands will be available in the market by mid or end of November, and salons will be well-positioned to start work diligently as the season kicks off. But if the imported products reach here as late as mid-December, then this year also will be marked as another unfortunate business year for the salon industry, “she said.

“When we don’t have wedding makeup essentials, a number of other industries also will get affected; such as hotels, wedding and event planners, wedding florists, bridal photographers, Poruwa suppliers, hall decorators and so on. As a result of the import ban, a black market has emerged where the prices of cosmetics have gone up by 6-7 folds. This has put 90% of our beauty and personal care parlours in great difficulty. A hair spray which was about Rs. 2,000, now costs Rs. 12,000. Can we pass that cost burden to the customer? No, we can’t. It is the same with all other products. There are a few salons that can afford such high costs and charge high prices, but the majority of our members are not so, and they are at the risk of closing their businesses. As there has been a marked decrease in customers patronizing salons, some members even called us and asked for help to sell their equipment and exit the industry. Such a situation may create an unemployment problem as they are all self-employed individuals.”

According to HBC, the industry’s cosmetics import bill accounts for 0.08% of the total national import bill. They also highlighted the fact that all registered cosmetics importers and HBC members pay their due taxes to the government.

Salon entrepreneur Bernie Balasuriya said: “Our industry brings in foreign exchange to the country. When foreigners and expatriates come to Sri Lanka for weddings, their families stay in hotels for about a week. Sometimes we set up salon space inside the hotel to cater to beauty and personal care needs of these visitors. They want us to use international cosmetic brands. This is an industry which earns foreign exchange and which therefore demands best industry practices.”

Theekshani Kariyawasam, Gold medal winner at OMC Hairworld in France in the category of bridal makeup, who successfully competed against contestants from more than 60 countries, said that the situation is so sad especially because Sri Lankan beauty artistes and entrepreneurs have never been a burden on the economy. We have always relied on our own talent and commitment. We need international cosmetic products to work with and be recognized for highest standards on par with other destinations.”

Asoka Thilakaratna who boasts 35-years of experience in the industry said,”Skilled Sri Lankan hairdressers and beauticians get overseas jobs because they have a lot of knowledge and experience in working with international cosmetic brands and techniques. That serves as a plus point for them at job interviews with prospective foreign employers. Further, I heard the good news that there would be some Indian weddings taking place here in Sri Lanka in November, December and January. I know from my experience that they come as groups about a week before the wedding and get all their beauty treatments done in Sri Lanka. If we don’t have cosmetic brands they love and trust, we could miss out on these business opportunities because they make it a point to stay away from lesser known products and fake products.”

Concluding the comments, Jackie Aponso said,” We have made an appeal to President Ranil Wickremasinghe to consider the lifting of the ban with the objective of protecting this self-reliant industry and its self-employments. We look forward to a favourable solution in time to get back to business.”

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Sri Lanka eyes $2.9 billion IMF loan finalised in December 2022

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Sri Lanka expects the International Monetary Fund (IMF) Board to approve a $2.9 billion loan by year-end, according to a news report by Reuters.The IMF Board approval of the loan is expected by mid-December. From now until mid-November, the country aims to get financing assurances from public- and private-sector creditors.

The country earlier this month reached a staff-level agreement with the IMF for the loan of about $2.9 billion, contingent on it receiving financing assurances from official creditors and negotiations with private creditors.

“It’s going be very tough, but so much of it depends on China, basically one creditor, so maybe it can be done,” a bondholder told Reuters on condition of anonymity.

The virtual presentation to investors on Friday marks the first time the Sri Lankan government has formally engaged with private bondholders after deciding earlier this year that it would restructure $13 billion in international sovereign bonds, held by private creditors such as asset managers BlackRock and Ashmore.Central Bank Governor Nandalal Weerasinghe and Treasury Secretary Mahinda Siriwardena participated in the virtual presentation on Friday, along with representatives of financial and legal advisers Lazard and Clifford Chance.

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SLIM launches SLIM DIGIS for 4th consecutive year

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Sri Lanka Institute of Marketing (SLIM), the apex body for Sri Lankan Marketers, has opened entries for the 2022 edition of SLIM DIGIS from the 23rd of September until the 25th of October 2022. SLIM DIGIS celebrates and rewards outstanding work and talent within the digital sphere. This year’s competition, SLIM DIGIS 2.2, features two awards categories; the special awards category and the main awards category, under which multiple awards are poised to recognize the Best Digital Marketing campaigns from a range of categories chosen specifically to reflect the development and growth of Sri Lanka’s digital marketing sector.

Nuwan Gamage, President of SLIM, stated, “During the last 3 years, as a nation, we have faced numerous challenges than we have ever faced in our history. Consumer behavior changed dramatically, and companies that acted quickly were able to thrive despite the changing economic backdrop. In those agile approaches, we have seen digital marketing play a vital role and I firmly believe that it will continue to play a very prominent role in the nation’s branding national initiative that we are running currently to position Sri Lanka globally to travel, invest and live. I would like to invite all the digital marketers and brand owners to showcase great digital execution that they have done in this challenging environment.”

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