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Earnings Update – STRONG BUY
Current Price: LKR 73.5 Fair Value: LKR 95.0
Click the below link to download the Report of NTB - Earnings Update - 18 03 16 - FC Research
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§ Net earnings up by 21%YoY to LKR 675mn: NTB reported a net earnings growth of 21%YoY to LKR675mn in 4Q2015 on the back of lower impairment charges. The total impairment charges for the period declined by 51%YoY to LKR 176mn due to 53%YoY reduction in collective impairment. The bank’s continuous focus on quality loan growth and improved collection efforts paid off to report a dip. Meanwhile during 2015 NTB recorded a bottom line growth of 3% to LKR 2.6bn.
§ NTB’s NII edge down with lower margins: NTB NIMs saw dip to 5.5% in 4Q2015 compared to 5.8% in 4Q2014 and 5.6% in 3Q2015. Lower yields due to competition in the banking industry resulted in Interest income inclining by mere 1%YoY despite loan book increasing by 23% during 2015. However, interest expense increased by 3%YoY in 4Q2015 on the rising cost of funds and intensified competitive pressures though deposits grew at a much slower pace than loans by 16% in 2015.
§ Stable fee and commission income growth while other operating income jump: Net fees and commission income signified a growth of 11%YoY to LKR 858.9mn in 4Q2015 higher consumer spending via credit cards and increased trading related loans. Trading income in 4Q2015 managed to record a marginal profit of LKR 9mn, but full remained in losses amounting to LKR 94mn resulting from unfavorable movements in the yields of the Government Securities
§ Operating expenses increased to 12%: 4Q2015 operating expenses jump was primarily driven by the 26%YoY growth in personnel expenses. The increase is due to higher gratuity provisioning and filling of vacancies amounting to 62 employees. However, depreciation of property, plant and equipment declined by 9%YoY to LKR 93.0mn. NTB had no new branch openings during the quarter.
§ Impairment charges declined 51%: Impairment dipped mainly due to reduction in collective impairment of 53%YoY to LKR 284mn in 4Q2015. This improvement reflects the Bank’s emphasis on quality loan growth and substantial improvements in collection efforts during the quarter. Further, individual impairment also edged down by 33%YoY in 4Q2015. Meanwhile during 2015 the impairment charges declined by 17%YoY to LKR 986mn despite a one off individual impairment made in 1Q2015.
First Capital Limited holds 475,000 shares and affiliated Unit Trusts hold 40,000 shares in NTB. Neither First Capital Equities (Pvt) Ltd nor related entities have traded in the shares in the three trading days prior to this document, and will not trade in the shares for seven trading days following the issue of this document.
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