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Join date : 2014-02-23
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SANASA Development Bank (SDB) is a licensed specialized bank in Sri Lanka with a competitive advantage of lending to high risk, yet high return - informal and ‘non-bankable’ sectors through their unique wholesale lending franchise. SDB lends to the SANASA Societies which ultimately lends / distribute the funds to the end customers, thereby reducing the overall risk exposure and allowing SDB to maintain NPL’s below 3.5% since 2015, with NIMs above 7%. Accounting for a total asset base of LKR52.7 bn (USD373.4 mn) and a branch network of 85. SDB primarily caters to a separate niche market, the rural micro and SME sectors of the country. Currently, the bank is well capitalized with a Tier I CAR at 11.9% and Tier II CAR at 12.4% strengthened by a healthy loan book and deposit growth.
Net earnings grew 59.3% YoY to LKR166.2 mn in 3Q15. SDB’s net earnings for 3Q15 grew by c.59% YoY backed by the strong performance in core banking operations and Leasing & HP segments. NII increased by 32.2% YoY though net fee & commission income dipped by 6.1% YoY to LKR61.2 mn. Moreover, total impairments saw a notable decrease of c.110% YoY due to the recoveries made during the quarter. Thus, total operating income inclined by 26.3% YoY despite total operating expenses growing by 40.8% to LKR580.1 mn and caused the bank’s cost to income ratio (excluding prov.) increase to 63.1% cf. 56.6% in 3Q14. Meanwhile, SDB’s aggregate net earnings stood at LKR580.0 mn (+84% YTD) with NII at LKR2.5 bn (+46% YTD) and net fee & commission income at LKR188.7 mn (+30% YTD).
Net Interest Income (NII) growth of 32.2% YoY to LKR841.0 mn was backed by the interest income rising c.41% YoY to LKR1.7 bn as SDB’s net loan book grew 70.2% YoY (+35% YTD) to LKR43.2 bn. Also a c.741.1% YTD increase to LKR2.5 bn was recorded from investments held-to maturity. However, SDB’s interest expense also witnessed an increase of c.52% YoY) to LKR876.3 mn in 3Q15 contributed by the bank’s deposit growth of 43.2% YoY (+30% YTD) to LKR39.4 bn and other borrowings increasing by c.48% YTD to LKR6.8 bn. Further NII grew by c.46% YTD to LKR2.5 bn backed by the bank’s strong performance in core banking operations whilst Net Interest Margins (NIMs) were sustained at 7.3% as at 3Q15.
Non-interest income dipped c.6% YoY to LKR61.2 mn backed by the c.6% YoY decrease in fee & commission income to LKR61.8 mn and an increase in fee & commission expenses by c.15% YoY to LKR0.5 mn. Non-interest income grew by c.30% YTD to LKR188.7 mn backed by the c.29% YTD growth in fee & commission income mainly from core banking operations with expenses declining by c.10% YTD to LKR1.7 mn.
Gross NPL’s improved to 3.0% in 3Q15 from 5.0% in 3Q14 backed by SDB’s unique wholesale lending franchise through the SANASA societies, lower exposure to pawning and efficient credit disbursement processes. Further net NPLs of the bank also improved to 0.4% in 3Q15 from 2.8% in 3Q14.
The voting share offers good value. Stock is attractive at the current price as it trades on 1.2x PBV and 8.1x four quarter trailing PE (both at a discount to the banking sector by c.14% to the sector PBV of 1.4x and c.16% to the sector PE of 9.7x). Further SDB also had an increase in ROE, dividend per share and dividend yield in 2014, mainly due to the healthy turnaround in performance from 2013. Therefore, with the expected growth in the SME sector of the country and SDB’s unique wholesale lending franchise, the growth trajectory would boost SDB’s performance in the coming months.
- Sanasa Development Bank PLC - 3Q15 Earnings Review--SC Securities Research
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