NTB focussed on expansion - interest rates a concern

Nation's Trust Bank (NTB) will focus on brand expansion plans, opening new branches in Galle and Matara later this month after addressing its capital inadequacy through a successful rights issue early this year which was hindering the growth momentum."We harnessed Rs.1 billion from the rights issue in early January and the money came in by mid February. NTB is at a growth phase where we want to be present in selected outstations and Galle and Matara are two such locations," Zulficar Zavahir, CEO NTB told The Sunday Times FT.

Inadequacy of capital has been viewed as a significant constraint hindering the growth at NTB. Despite the bank meeting regulator requirements, its capital adequacy ratios had been declining in 2007. "The one for three rights issue at Rs.25 increased the capital strength of NTB. The rights contained warrants for one right with an exercise price of Rs.30 in two years and one warrant for two rights with an exercise price of Rs.35 in three years," Zavahir said, explaining the warrants will add Rs.1.26 billion and Rs.733 million to capital during these particular years.

NTB’s costs increased 24 percent fuelled by growing inflationary pressure. NTB posted Rs.553.67 million profit for 2007, an increase of 122 percent over 2006’s Rs.249.48 million. The turnover recorded was Rs.8.3 billion for 2007, which is a 66 percent increase from the previous year's Rs.5.03 billion. The bank's cost to income ratio saw a 69 percent improvement in 2007 from 2006's 71 percent.

Growth in loan book and deposit base and the significant increase in non-interest revenue were among the top contributors. Interest income of the group was at Rs. 7.83 billion with loans and advances contributing 64 percent. Interest expenses were at Rs. 5.71 billion resulting in net interest income of Rs. 2.12 billion. Year on year (YOY ) increase of interest income was 57 percent as opposed to a 74 percent YOY increase of interest expenses. Net interest income increased 24 percent in 2007 over 2006.

“The growth in interest income was a direct result of the current high interest environment aided by a 28 percent YOY growth in net loans and advances. The increases in interest expenses were significantly higher than that of interest income as a result of a 38 percent growth in the total deposit base,” Lanka Orix Securities (Pvt) Ltd, has said in a report.