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Asian Tribune is published by E-LANKA MEDIA(PVT)Ltd. Vol. 20 No. 101

Merchant Bank of Sri Lanka records highest ever profits in its 25th anniversary year.

Sunil C. Perera - Reporting from Colombo

Colombo, 12 May, ( The Merchant Bank of Sri Lanka (MBSL) recorded a year of achievement in 2006 with highest ever profitability, regaining the status of a billion-revenue group and a satisfactory improvement in its asset quality. This impressive level of performance was coincidentally achieved during its 25th anniversary year.

The Bank’s CEO Gamini Karunathilake said that progress to this level was enriched with opportunities through which MBSL took part in the socio-economic development of the country. "On the other hand, our strength in resilience was underscored through the many challenges that MBSL withstood to preserve its stakeholder interests", he added.

MBSL regained its billion-income position in 2006 after the drawback experienced during the 19972001 period. MBSL's total income in 2006 reached LKR 704 million which marked a growth of 31% compared to the income of LKR 539 million in 2005. The net profit attributable to the company also increased by 32% to LKR 210 Mn when compared to the net profit of LKR 158 mn in the previous year.

This has been the highest net profit so far in MBSL's 25 year history. The enhancement of profitability was achieved mainly through the expansion in the revenue generating activities. It is noteworthy to record a growth in the interest income together with an increase in the interest margin in 2006, despite pressure from rising interest rates.

Interest income of the year grew by 28% to LKR 610 million while the net interest margin improved to 69% compared to that of 61% in 2005. The other income category, which mainly consists of corporate finance & capital market activities, strengthened the income of MBSL by LKR 95 million in 2006 against the previous year level of LKR 64 million.

The total net lending portfolio, which amounted to LKR 3,556 million as at end 2006, expanded by 9% during the year while gross disbursements to the customers by the company during the period recorded a growth of over 20%. This increase in gross disbursements was partly funded from the internally generated cash flows through operating profit. Other funding requirements in operating, financing and investing activities were sourced through short-term liquid assets.

During 2006, the total asset base and net assets grew by about 8.7% and 7.1%, respectively together with a growth of 22% in the net lending portfolio as at end December 2006. It is noteworthy that while the MBSL's profitability and asset base increased, the asset quality also improved substantially. Non-performing loans and advances declined to 11.8% of the gross lending portfolio as at end 2006 compared to 19.2 % as at end 2005. This improvement in asset quality was achieved through enforcing a better evaluation, risk management and monitoring process on advances. The MBSL's prudent provisioning policy was continued in the year too.

MBSL carried out a more active approach in its equity portfolio activities during the year. With the overall market posting an impressive performance in 2006 with the indices reaching the highest values by the latter part of 2006, MBSL was able to achieve a return of 28% on the investments held. The Leasing and Trade Finance Divisions, while increasing the volumes, continued their emphasis on improving the credit assessment and post-lending monitoring process in order to manage the credit risk.

Whilst commending the impressive 2006 performance, MBSL's CEO Gamini Karunathilake, emphasised that the bank looks forward for greater challenges in 2007. "One of our main concerns is commercial banks embarking on merchant banking activities and promoting leasing to their clients. This is considered as the major threat.
The increase in interest rates and the outbreak of hostilities in the North and East are also of grave concern. These however have to be faced by all players in the market. With its superior service legacy, MBSL is confident it can stand above the rest", Karunathilake added.

- Asian Tribune -

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