EUR 4.56 For Business Accounts Only

JKSB Quarterly Highlights_Seylan Bank PLC (SEYB)_2QCY17

SEYB reported a sound increase of 24.2% YoY in total operating income which was driven by healthy increases in both net interest income (+14.7% YoY) and non-interest income (+45.1% YoY). The growth in net interest income was a result of the 17.0% YoY expansion of the loan book and an improvement in the NIM from 3.94% in 2Q CY16 to 3.98% in 2Q CY17.

 On the other hand, total impairment charges increased steeply from Rs.228 Mn in 2Q CY16 to Rs.831 Mn in 2Q CY17 and caused net operating income to grow at a slower rate of 11.8% YoY. In addition to this, the 13.8% YoY increase in total operating expenses resulted in a drop in the cost to income ratio from 51.5% in 2Q CY16 to 47.3% in 2Q CY17. Although SEYB's PBT growth was limited to 10.9% YoY during the quarter, a drop in the effective tax rate from 24.4% to 17.9% caused SEYB's bottom line to increase by 24.7% YoY to Rs.1.3 bn.

 For the cumulative period, 1H CY17, SEYB's earnings have reached Rs.2.1 bn which translates to a strong growth of 23.5% YoY. We currently project full-year earnings to reach Rs.4.5 bn in CY 2017E which translates to forward PE ratios of 7.5x and 4.6x for the voting and non-voting shares respectively.

 SEYB's Tier 1 capital adequacy ratio stood at 10.6% as of end June 2017 which is in excess of the current applicable mandatory requirement of 7.25% and as a result SEYB will not require any infusion of equity capital in the immediate term. However, considering our expectations for SEYB's asset growth rates to exceed internal capital generation rates and the possibility of SEYB's asset base crossing the Rs.500 bn mark in the next few years, we believe that capital infusion will eventually be needed to satisfy these capital adequacy requirements in the long term.