2017 June NDB Analysis - Banking Sector

Contents
Executive Summary 03 Stability of the Banking System

Banking Sector Growth Capital Adequacy 18
The Economy 05 CBSL Requirements under BASEL III 19
Credit Growth 06 Credit Ratings and Liquidity 21
Loans 07 Competition in the Sector 22

Outlook for Listed Banking Stocks
Deposits 09
BFI Sector 24
Borrowings 10
Listed Banking Counters
Risks in the Banking System
Commercial Bank of Ceylon (COMB) 26
Credit Risk 11
Hatton National Bank (HNB) 29
Interest Rate Risk 12
Sampath Bank (SAMP) 32
Exchange Rate Risk 13
Seylan Bank (SEYB) 35
Profitability of the Banking Sector National Development Bank (NDB) 38
Net Interest Income 14 DFCC Bank (DFCC) 41
Net Interest Margins 15 Nations Trust Bank (NTB) 44
Cost Structure 16 Pan Asia Banking Corporation (PABC) 47
Return on Equity and Assets 17 Union Bank of Colombo (UBC) 50
2
Sri Lankan Banking Sector
Executive Summary
The Sri Lankan Banking system is strongly correlated with the economic activity of the country. Economic growth slowed down in
the last couple of years compared to the rapid growth witnessed in the immediate post-conflict period. The consumption related
loans peaked in 2015 and slowed down in 2016. The consumption heavy economy grew by 4.8% in 2015 and 4.4% in 2016. During
2016, construction, wholesale & retail trade, financial & business services and consumer durables contributed the most to private
sector credit growth. These sectors accounted for 19.1%, 9.1%, 7.3% and 4.7% of total loans of commercial banks to the private
sector.
We anticipate Sri Lanka to move towards the upper middle income category within the next three years. However, as mentioned in
our last update, in the short term, we do expect economic growth to be challenged by the weak global demand for Sri Lankan
exports coupled with continued policy implementation with respect to fiscal consolidation. Hence, we estimate the economy to
grow by 4.5%, 4.9% and 5.1% in 2017, 2018 and 2019 respectively. We expect banks to play a key role in financing the new and
expanding corporates and the Small & Medium Enterprises (SME). To support the investment driven growth, we estimate the
banking sector to grow by 15.0%, 15.8% and 16.0% in 2017, 2018 and 2019 respectively.
Going forward, banks may have to shift from collateral based lending to cash flow based lending, introduce transparent fee
structures and utilize the state of the art IT infrastructure in order to facilitate long-term growth. Further, analyzing and profiling
customers via data analytics can be a stepping stone on moving towards cash flow based lending. Moreover, we expect IT
infrastructures to be developed further to support virtual banking with most of the banks concluding on their aggressive physical
branch network. Hence, the cost to income ratios are expected to improve in the long run.
The loan growth of the banking sector recorded 17.7% in 2016. The Banks with higher loan share to SME and retail witnessed
higher NIM expansion with AWPLR gaining 441 basis points (bps) during 2016. However, going forward we expect a slowdown in
demand for new loans due to the impact of monetary and fiscal measures taken by the Government of Sri Lanka (GoSL) in 2016.
Banking sector deposits grew by 16.5% in FY16 whilst the average weighted deposit rate (AWDR) increased by 197 bps compared
to 2015 where the AWDR was mostly stagnant. This increase caused the CASA of the banking sector to decrease from 40.3% in
2015 to 37.1% in 2016.
Continued to next page
3
Sri Lankan Banking Sector
Executive Summary Continued
Meanwhile, the banking sector borrowings declined by 3.5% in FY16 where foreign currency borrowings declined by 4.4%. During FY16,
the listed banks raised LKR 58.5 Bn through debentures listed on the CSE, ascertaining an increasing trend on raising funds via capital
markets. However, due to the 2017 budget proposal on tax exemptions removed on listed debentures, we expect corporate debenture
issues to slow down in the medium term.
Furthermore, with the increased consumption taxes, we expect demand for deposits to slow down. The weekly AWPLR and monthly
AWDR increased only by 17 bps and 82 bps respectively during YTD FY17. We do not expect NIMs to further improve from FY16 levels
due to reduction of upward pressure on interest rates coupled with declining CASA and increased competition for deposits. Therefore,
with moderate net interest income growth we do not expect the growth in profitability witnessed last year to be sustained in the short to
medium term.
We expect the current interest rate environment and mid-single digit inflation to remain stable in the medium term. Furthermore, with
the country been affected with floods in the 1HFY17, we expect impairments to increase slightly. However, we do not expect the banking
system to face significant credit risk in the short term. Currently, most of the banks have a diversified loan portfolio coupled with
relatively low NPLs.
The Sri Lankan banking sector is relatively resilient to internal and external shocks when compared to other sectors. This is mainly due to
industry practices and stringent regulations imposed by Central Bank of Sri Lanka (CBSL). However, 5 banks out of the 25 licensed
commercial banks hold almost 70% of the total banking sector assets. CBSL has issued stringent capital requirements that's compliant
with BASEL III guidelines. Further, domestic systematically important banks (with assets over LKR 500 Bn) have been imposed tighter
capital requirements to further strengthen the banking system. The increased requirements of capital and liquidity will also further
reduce the ability of banks to lend aggressively, going forward. The requirements are to be met by banks commencing 1st July 2017 on a
staggered basis where the full implementation will occur by 1st January 2019. Hence, most of the banks are in the process of raising
equity to strengthen capital ratios and buffers. Moreover, guidelines and requirements on leverage and liquidity ratios also have been
imposed by CBSL further strengthening the system. Despite the strengthening of the regulatory framework, above measures are
expected to reduce the ability of the banks to lend aggressively going forward.
High competition, additional capital and leverage requirements amongst smaller banks will threaten their return on equity in the short
run. Hence, we continue to support the banking consolidation which will further strengthen the system and improve banks access to
financing via international capital markets.
4
The Economy
Macro Economic Outlook for Sri Lanka
Annual Average Public Budget Balance of

Real GDP Growth
Inflation1 Debt Deficit Payments
2015 (A): 2015 (A): 2015 (A): 2015 (A): 2015 (A):
4.8% 3.8% 77.6% 7.4% USD (1.5) Bn
2016 (A): 2016 (A): 2016 (A): 2016 (A): 2016 (A):
4.4% 4.0% 79.3% 5.4% USD (0.5) Bn
2017 (E): 2017 (E): 2017 (E): 2017 (E): 2017 (E):
5.0%2 6.0%2 77.5%2 4.6%2 USD 1.1 Bn3
Expected to The financial

NDBS research Expected to improve with flows are
High compared GoSLs fiscal
estimates 4.5% remain in single expected to
to peers consolidation
in 2017 digits increase as a %
plans of GDP
Most of the factors are expected to improve that may facilitate sustainable economic growth
1 Based on NCPI
2 CBSL estimation
3 IMF estimation
Sources: CBSL, IMF 5

Credit Growth
GDP Vs Loan Growth Loan growth is moving in tandem with the economy
12.0% (R2= 0.52) 35.0%
30.0%
10.0%
25.0%
Banking sector loan growth

8.0%
Real GDP growth
20.0%
6.0% 15.0%
10.0%
4.0%
5.0%
2.0%
0.0%
0.0% (5.0%)
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (E) 2018 (E) 2019 (E)
Real GDP growth Banking sector loan growth
Balance of Payments and Loan Growth

3.0 35.0%
2.5 30.0%
Balance of payments (USD Bn)
Banking sector loan growth

2.0
25.0%
1.5
1.0 20.0%
0.5 15.0%
0.0 10.0%
(0.5) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
5.0%
(1.0)
(1.5) 0.0%
(2.0) (5.0%)
Balance of payments Banking sector loan growth
Sources: CBSL, NDBS Research 6

Loans
Going forward, we expect a slowdown in demand for
Loan Growth new loans due to the impact of monetary and fiscal
measures taken by the GoSL in 2016.
10.0% Loan growth

As at end 2016, share of credit to the private sector,
government & corporations to total domestic credit 8.0%
stood at ~65.2%, 29.2% and 5.6% respectively.
6.0%
In 1H2014, the credit growth slowed mainly due to the
reduction in consumer lending via gold backed loans. 4.0%
Hence, banking industry faced an excess liquidity
situation in 2014.
2.0%
Banking sector loan growth picked up post 0.0%

war, but was curtailed by CBSL through, Q1 Q2 Q3 Q4
1. Increasing policy rates (2.0%)
2. Imposing a credit ceiling 2014 2015 2016
LKR Tn From the beginning of 2015, credit demand

5.0 50.0% increased throughout the year. Leasing & Hire
Purchase picked up mainly due to import duty
4.0 40.0% concessions, while consumer and housing loans
grew due to increased spending power and
3.0 30.0% attractive interest rates.
2.0 20.0%
In 2016, the loans were mainly driven by
1.0 10.0% construction and wholesale and retail trade.
Monetary policy was tightened encouraging
0.0 0.0% curtailed loan growth.
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
(1.0) -10.0%
Loans Loan growth
Sources: CBSL, NDBS Research 7

Loans
Sri Lanka Banking Sector Over Time Banks (Listed Space): LKR/FCY Loans
LKR Tn LKR Mn (As at 31st Mar 2017)
6.0 700.0
FCY Loans
5.0 18.1% 600.0 19.5% 10.5%
LKR Loans
19.9% 500.0
4.0 11.6% FCY LKR
21.0% 400.0
3.0 18.2%
17.8%
17.3% 300.0 89.5%
81.9% 80.5% 7.6%
2.0 80.1% 88.4% 21.7% 8.8%
79.0% 200.0 5.7%
82.2% 81.8%
1.0 82.7% 92.4% 13.8%
100.0 78.3% 91.2% 13.5%
94.3%
86.2% 86.5%
0.0 0.0
FY11 FY12 FY13 FY14 FY15 FY16 COMB HNB SAMP SEYB NDB DFCC NTB PABC UBC
Outlook of Banks: Loans Outlook of Banks: Loan Growth

LKR Bn
1,000.0 FY14 (A)
70.0% FY14 (A) FY15 (A) FY16 (A) FY17 (E) FY18 (E) FY19 (E)
900.0 FY15 (A)
800.0 60.0%
FY16 (A) Curtailed loan growth expected in FY17
700.0 50.0%
FY17 (E)
600.0
FY18 (E) 40.0%
500.0
400.0 FY19 (E) 30.0%
300.0
20.0%
200.0
100.0 10.0%
0.0 0.0%
COMB HNB SAMP SEYB NDB DFCC* NTB PABC UBC COMB HNB SAMP SEYB NDB DFCC* NTB PABC UBC
*12 months ending March for FY14 and 9 months ending December for FY15
Sources: CBSL, Company reports, NDBS Research 8

Deposits
Banks (Listed Space) Outlook: Deposits
Deposits (LKR Bn) CASA ratio Banks with a larger branch network have
1,200.0 We expect demand for deposits to slow 60.0% been able to maintain a higher CASA ratio
down with increased consumption taxes CASA decreased in FY16 due to increased
1,000.0 50.0% interest rates
800.0 40.0%
600.0 30.0%
400.0 20.0%
200.0 10.0%
0.0 0.0%
FY14 (A) FY15 (A) FY16 (A) FY17 (E) FY18 (E) FY19 (E) FY14 (A) FY15 (A) FY16 (A) FY17 (E) FY18 (E) FY19 (E)
Deposit growth Loans to Deposits (LTD) LTD more than 100% due to credit lines (NDB,
45.0% 160.0% DFCC) and equity infusions (UBC)
40.0% 140.0%
35.0% 120.0%
30.0%
100.0%
25.0%
80.0%
20.0%
60.0%
15.0%
10.0% 40.0%
5.0% 20.0%
0.0% 0.0%
FY14 (A) FY15 (A) FY16 (A) FY17 (E) FY18 (E) FY19 (E) FY14 (A) FY15 (A) FY16 (A) FY17 (E) FY18 (E) FY19 (E)
Source: Company reports 9

Borrowings
Banks (Listed Space) Outlook: Borrowings
250.0 LKR Bn
FY14 (A) FY15 (A) FY16 (A) FY17 (E) FY18 (E) FY19 (E)
200.0
150.0
100.0
50.0
0.0
COMB HNB SAMP SEYB NDB DFCC* NTB PABC UBC
Banks (Listed Space): Listed Corporate Debt as % of Borrowings 4QFY16

Most of the banks have utilized the option of raising listed
35.0% debt during the low interest rate environment that prevailed
in the last couple of years
30.0% SAMP
However, going forward we expect a slowdown in corporate
PABC SEYB debenture issues due to the budget proposal made on
25.0%
% of Listed Debt
NTB DFCC removing the current exemption of WHT taxes

20.0% NDB HNB
15.0%
10.0%
COMB
5.0%
0.0% UBC
0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 180.0 200.0
Borrowings (LKR Bn)
Source: CBSL 10
Credit Risk
Risks in the Banking Sector
Credit risk Quality of loans Credit exposure of the banking sector 2016
2013: High gold backed NPLs Four sectors
9.0% Trading
2014: Reducing trend in NPLs due account for
8.0% 14%
Construction
to absence of high exposure to 15% 52% of the
Manufacturing
7.0% gold backed loans lending
2% Agriculture and Fishing
6.0% 3% Infrastructure portfolio
5.0% 5% 18% Consumption
4.0% 5% Financial Services
3.0% Other Services
7% Tourism
2.0% 4% 11%
Transport
1.0% 7% 9% Services
0.0% Other
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
Gross Non-performing Advances Ratio Net Non-performing Advances Ratio
Gross NPL Net NPL

9.0% 8.0%
8.0% FY14 FY15 FY16 1QFY17 7.0% FY14 FY15 FY16 1QFY17
7.0% 6.0%
6.0%
5.0%
5.0%
4.0%
4.0%
3.0%
3.0%
2.0%
2.0%
1.0% 1.0%
0.0% 0.0%
Sources: CBSL, World Bank 11

Interest Rate Risk
Interest rate trends
Policy rates, Treasury bill & bond rates and inflation
Policy Rates and Lending/Deposit Rates
16.0%
14.0%
12.0% SDFR and SLFR were increased 50 bps each in Feb and Jul 2016
10.0% whilst SRR increased by 150 bps in Jan 2016. Moreover, SDFR and
8.0%
SLFR were increased 25 bps in Mar 2017
6.0%
4.0%
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Oct-10
Oct-11
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
High interest rates and inflation
discouraging loan growth
AWDR SDFR AWPLR SLFR
14.0%
13.0%
14.0%
364 day T Bill Inflation
12.0%
Jun-17 12.0%
11.0%
Dec-16 10.0%
10.0%
Dec-15 8.0%
9.0%
Dec-14
6.0%
8.0% Dec-13
4.0%
7.0% Dec-12
6.0% 2.0%
5.0% 0.0%
3m 6m 12m 3Y 4Y 5Y 10Y 15Y 20Y 30Y Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016
Sources: CBSL, Bloomberg 12

Exchange Rate Risk
Key factors that influence a bank's operations
Exchange rate risk
165.0 LKR/USD
Significant depreciation
of 4.4% in 1QFY12 LKR depreciated by,
155.0 3.8% in 2016
145.0
2.5% YTD 2017
135.0
LKR depreciated by,
125.0
4.7% in September 2015
115.0
105.0
May-11 Jan-12 Sep-12 May-13 Jan-14 Sep-14 May-15 Jan-16 Sep-16 May-17
Reserves declined due to widening trade 9.0 USD Bn Months of imports 7.0
deficit and outflows of foreign investments
8.0
from the government securities market in 6.0
2016 7.0
5.0
However, foreign inflows were witnessed 6.0
in both government securities market 4.0
5.0
(including USD 1.5 international sovereign
bond in May 2017) and Colombo Stock 4.0 3.0
Exchange 3.0
The likely disbursement of the 3rd tranche 2.0
2.0
under the IMF Extended Fund Facility (EFF)
1.0
1.0
is expected to support the balance of
payments and the countrys reserve 0.0 0.0
position Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Mar-17 May-17
Gross Official Reserves Gross Official Reserves (Months of Imports)
Sources: CBSL, Bloomberg, NDBS Research 13

Net Interest Income
Outlook of Banks Listed Space: Profitability
Net interest income YoY growth
60.0%
50.0% FY14 (A) FY15 (A) FY16 (A) FY17 (E) FY18 (E) FY19 (E)
40.0%
30.0%
20.0%
10.0%
0.0%
(10.0%)
(20.0%)
Fee based income (net) as a % of net interest income

Sri Lankan listed counters 1QFY17 Other countries FY16
100.0%
100.0%
In order to compensate for contracting NIMs, banks are
80.0% concentrating more on increasing their fee based income 80.0%
which includes trade related fees, card fees etc
60.0% 60.0%
40.0% 40.0%
20.0% 20.0%
0.0% 0.0%
COMB HNB SAMP SEYB NDB DFCC NTB PABC UBC Hong Kong India Singapore Sri Lanka UK USA
Sources: Company reports, NDBS Research, Bloomberg 14

Net Interest Margins
Net Interest Margins (NIMs) to reduce and stabilize
Banks (Listed space) Regional peers
AWPLR increased by 441 bps whilst AWDR increased by 197 bps in
8.0%
2016. However, weekly AWPLR and monthly AWDR increased only
7.0% by 17 bps and 82 bps respectively during YTD FY17. 7.0%
6.0%
6.0%
FY14 (A)
5.0% 5.0%
FY15 (A) Singapore
4.0% 4.0%
FY16 (A) Vietnam
3.0% 3.0% Thailand
FY17 (E)
2.0% Sri Lanka
2.0%
FY18 (E)
Indonesia
1.0% 1.0%
FY19 (E)
0.0% 0.0%
COMB HNB SAMP SEYB NDB DFCC* NTB PABC UBC FY11 FY12 FY13 FY14 FY15 FY16
Listed Banks: Profitability Non Interest Income as a % of Net Interest Income

80.0%
60.0%
40.0%
20.0%
0.0%
Sources: NDBS Research, World Bank, Bloomberg 15

Cost Structure
Outlook of Banks Listed Space: Cost to Income Ratios
90.0%
Personnel cost/Income Other cost/Income
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
FY14 (A)
FY19 (E)
FY18 (E)
FY17 (E)
FY16 (A)
FY15 (A)
FY14 (A)
FY15 (A)
FY16 (A)
FY17 (E)
FY18 (E)
FY19 (E)
FY14 (A)
FY15 (A)
FY16 (A)
FY17 (E)
FY18 (E)
FY14 (A)
FY15 (A)
FY16 (A)
FY17 (E)
FY19 (E)
FY14 (A)
FY15 (A)
FY16 (A)
FY18 (E)
FY19 (E)
FY14 (A)
FY15 (A)
FY17 (E)
FY18 (E)
FY19 (E)
FY14 (A)
FY16 (A)
FY17 (E)
FY18 (E)
FY19 (E)
FY15 (A)
FY16 (A)
FY17 (E)
FY18 (E)
FY19 (E)
FY14 (A)
FY15 (A)
FY16 (A)
FY17 (E)
FY18 (E)
FY19 (E)
FY14 (A)
FY15 (A)
FY16 (A)
FY17 (E)
FY18 (E)
FY19 (E)
*12 months ending March for FY13 & FY14 and 9 months ending December for FY15
Outlook of Banks Listed Space: Profit after Tax

LKR Bn
25.0
20.0
15.0
10.0
5.0
0.0
Sources: Company reports, NDBS Research 16

Return on Equity and Assets
Outlook of Banks Listed Space: ROE Outlook of Banks Listed Space: ROA
Banks are expected to raise capital in the short to medium
term to meet additional capital and liquidity requirements. FY14 (A) FY14 (A) FY15 (A) FY16 (E) FY17 (E) FY18 (E) FY19 (E)
2.5%
25.0% We have not accounted for any additional equity infusions
FY15 (A)
that has not yet been announced by banks.
FY16 (A) 2.0%
20.0%
FY17 (E)
1.5%
15.0% FY18 (E)
FY19 (E)
1.0%
10.0%
0.5%
5.0%
0.0% 0.0%
Banking Sector ROE Decomposition

120.0% 15.2
In FY15, increased leverage sustained the ROE
14.8 The increase in financial leverage since FY14 caused the
100.0% ROE of the sector to increase further in FY16
14.4
14.0
80.0% ROE, %
13.6
60.0% 13.2 Common Equity Margin = (Tier 1 Capital/ Common Equity), %
12.8
40.0% RoRWAs = (Net Income/ RWAs), %
12.4
12.0
20.0% Unit Risk = (RWAs/ Total Assets), %
11.6
0.0% 11.2 Financial Leverage = (Total Assets/ Tier 1 Capital), times
FY10 FY11 FY12 FY13 FY14 FY15 FY16
Sources: Company reports, NDBS research 17

Capital Adequacy
Outlook of Banks Listed Space
Core Capital Ratio
Core Capital Capital infusion by Culture
45.0% =
.
Total Risk Weighted Assets Financial Holdings Limited

40.0%
35.0%
30.0% Current regulatory requirement = 5%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Listed Space: Stated Capital Listed Space: Core and Total Capital* - 1QFY17
LKR Bn LKR Bn
COMB and HNB are expected to issue LKR 10 Bn (June
40.0 120.0 Core Capital Total Capital 25.0%
2017) and LKR 15 Bn (July 2017) respectively through
Core Capital Ratio Total Capital Ratio
35.0 rights issues
100.0
20.0%
30.0
80.0
25.0 15.0%
20.0 PABC raised LKR 2 Bn from 60.0
15.0 its Feb 2017 rights issue 10.0%
40.0
10.0
5.0%
20.0
5.0
0.0 0.0 0.0%
COMB HNB SAMP SEYB NDB DFCC NTB PABC UBC COMB HNB SAMP SEYB NDB DFCC NTB PABC UBC
Rights Issue in 2017 Capital raised from Scrip Dividend *All stated values are bank figures
Stated Capital as at 31st December 2016

CBSL Requirements under BASEL III Guidelines
Minimum Capital Ratios
Banks with assets of LKR 500 Bn and above (Listed LCBs: COMB, HNB and SAMP)
Components of Capital 1-Jul-17 1-Jan-18 1-Jan-19
Minimum Common Equity Tier 1 (CET1) 4.50% 4.500% 4.50%
Capital Conservation Buffer (CCB) 1.25% 1.875% 2.50%
Capital Surcharge for Domestic Systematically Important Banks (D-SIBs) 0.50% 1.000% 1.50%
Minimum CET1 + CCB + Capital Surcharge for D-SIBS 6.25% 7.375% 8.50%
Minimum Total Tier 1 (Total Tier 1 + CCB + Capital Surcharge for D-SIBS) 7.75% 8.875% 10.00%
Minimum Total Capital + CCB + Capital Surcharge for D-SIBs 11.75% 12.875% 14.00%
Banks with assets less than LKR 500 Bn (Listed LCBs: SEYB, NDB, DFCC, NTB, PABC and UBC)
Components of Capital 1-Jul-17 1-Jan-18 1-Jan-19
CET1 4.50% 4.500% 4.50%
CCB 1.25% 1.875% 2.50%
Minimum CET1 + CCB 5.75% 6.375% 7.00%
Minimum Total Tier 1 (Total Tier 1 + CCB) 7.25% 7.875% 8.50%
Minimum Total Capital + CCB 11.25% 11.875% 12.50%
If a bank fail to comply with the above mentioned requirements, CBSL

Based on our internal estimations for tier 1 capital
does not permit such banks to pay dividends or repatriate profits or
ratios, we expect SAMP in FY17 and SEYB in FY19 to
adopt any other measure that will further deteriorate the regulatory
raise additional equity to meet Basel III tier 1 ratios
capital position
Source: CBSL 19
CBSL Requirements under BASEL III Guidelines
Minimum Capital Buffers
Objective
To ensure that banks build up capital buffers during normal times (i.e. outside the period of stress) which
Capital Conservation Buffer
can be drawn down during stress periods
D-SIBs must have a higher capacity for loss absorbance to cover the greater risks that they pose to the
Capital surcharge for D-SIBs*
financial system
To ensure that the banking sector is protected from system wide risks that could arise from excess
credit growth
Countercyclical Buffers
It is expected to be implemented as and when excess aggregate credit growth is judged to be
associated with a build-up of system wide risk and vary between 0% to 2.5% of risk weighted assets
*All LCBs and LSBs with total assets LKR 500 Bn
Banks to meet capital requirements on a staggered basis
Liquidity and Leverage Ratios
1-Jan-19
1-Jan-15 1-Jan-16 1-Jan-17 1-Jan-18
onwards
Liquidity Coverage Ratio 60% 70% 80% 90% 100%
Minimum requirement of 4% for banks with asset LKR 500 Bn and 3% for banks with asset < LKR 500 Bn
BASEL III Leverage Ratio
Commencing 31st Mar 2017, banks are requested to report the ratio to CBSL for monitoring purposes
CBSL has not issued guidelines yet
Net Stable Funding Ratio However, CBSL expects to introduce minimum standards on Net Stable Funding Ratio starting from 1st Jan
2018
Objective
To ensure the bank has an adequate stock of unencumbered high quality liquid assets (HQLA) to meet its
Liquidity Coverage Ratio
liquidity needs for a 30 calendar day liquidity stress scenario
To restrict the build-up of excessive leverage in the banking sector and capture both on and off-balance
BASEL III Leverage Ratio
sheet sources of banks leverage
Banks to maintain a stable funding profile in relation to the composition of their assets and off-balance
Net Stable Funding Ratio
sheet activities
Source: CBSL 20
Credit Ratings and Liquidity
Creditworthiness of Listed Banks: Fitch Ratings
COMB HNB SAMP SEYB NDB DFCC NTB PABC UBC
National Long-Term Rating (lka) AA AA- A+ A- A+ AA- A BBB BB+
Outlook Stable Stable Negative Stable Stable Negative Stable Negative Stable
Banks Listed Space: Statutory Liquid Assets Ratio

90.0%
80.0% FY14 (A) FY15 (A) FY16 (A) 1QFY17 (A)

70.0%
60.0%
Current regulatory requirement = 20%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
*12 months ending March for FY14 indicate the pre merge value of DFCC Bank and 9 months ending December for FY15 indicates the post merge value of DFCC Bank
Sources: Company reports, Fitch Ratings 21

Competition in the Sector
Banks: DuPont Analysis for FY16
BOC PB COMB HNB SAMP SEYB NDB DFCC NTB PABC UBC
(a) Return on Equity 24.0% 21.2% 19.3% 18.7% 21.4% 14.6% 9.7% 7.4% 17.7% 19.8% 3.4%
(b) Return on Assets = Profits/Assets 1.4% 1.2% 1.5% 1.9% 1.6% 1.2% 0.9% 1.3% 1.5% 1.1% 0.6%
(d) 1-tax rate 64.1% 56.9% 60.7% 57.5% 58.8% 56.7% 55.3% 61.3% 53.1% 54.6% 66.0%
(e) Pre ROA 2.2% 2.1% 2.5% 3.3% 2.7% 2.2% 1.6% 2.0% 2.8% 1.9% 0.9%
(f) Contribution to Assets 2.5% 2.2% 2.7% 3.3% 2.9% 2.5% 2.0% 2.4% 3.1% 2.4% 1.2%
(h) Operating Income to Assets 4.5% 4.5% 4.7% 6.4% 5.6% 5.4% 4.2% 4.4% 7.1% 5.3% 5.2%
(j) Net Int Inc to Assets 3.4% 3.6% 3.5% 4.7% 3.9% 4.0% 2.7% 3.3% 5.1% 3.9% 3.4%
(k) Non Int Inc to Assets 1.1% 1.0% 1.2% 1.7% 1.6% 1.4% 1.5% 1.0% 2.0% 1.4% 1.8%
(i) Cost to Income 45.5% 51.9% 42.8% 48.3% 47.9% 54.7% 52.3% 45.2% 55.6% 55.6% 76.2%
(g) Impairment to Assets 0.3% 0.1% 0.2% 0.1% 0.3% 0.3% 0.4% 0.3% 0.4% 0.4% 0.3%
(c) Leverage = Assets/Equity 17.1 17.8 12.7 9.9 13.7 11.9 11.2 5.9 11.9 18.8 5.4
(a) = (b)*(c)
(b) = [1-(d)]*(e) Curtailment in loan growth, stabilizing interest rates, slightly contracting NIMs, CBSL increased capital, leverage and
(e) = (f)-(g) liquidity requirements are expected to reduce ROEs in the short term.
(f) = (h)*[1-(i)]
(h) = (j)+(k)

Contents
Outlook for Listed Banking Stocks

BFI Sector
Commercial Bank of Ceylon
Hatton National Bank
Sampath Bank
Seylan Bank
National Development Bank
DFCC Bank
Nations Trust Bank

Pan Asia Banking Corporation
Union Bank of Colombo
23
BFI Sector
BFI Constantly Outperformed the ASPI & S&P SL20
21,000
19,000
17,000
15,000
13,000
11,000
9,000
Jul -12 Jan -13 Jul -13 Jan -14 Jul -14 Jan -15 Jul -15 Jan -16 Jul -16 Jan -17
BFI Indexed ASPI Indexed S&P SL20
Listed Counters Outlook Dividend Yield

7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Sources: CSE, Company reports, NDBS Research 24

BFI Sector
Price Multiples
PBV comparison PER comparison
PBV (x) PER (x)
2.0 40.0
1.5 30.0
1.0 20.0
0.5 10.0
0.0 0.0
COMB HNB SAMP SEYB NDB DFCC NTB PABC UBC COMB HNB SAMP SEYB NDB DFCC NTB PABC UBC
Regional performance PBV Regional performance PER

PBV( x)
High in 2014 mainly due to UBC
PER( x)
2.5 40.0 being above 200 times
2.0
30.0 Singapore
Vietnam
1.5 Thailand
Singapore
20.0 Indonesia
Sri Lanka
1.0
Vietnam
Thailand
10.0 Sri Lanka
0.5
0.0 0.0
2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016
Sources: Bloomberg, Company reports 25

Target Price LKR 155.90 COMB is the largest and only listed private bank with group assets amounting to more than
Recommendation Hold LKR 1 Tn. It also has the largest branch network amongst private banks in Sri Lanka with 256
branches (and 657 ATMs) and a regional presence in Bangladesh (third largest foreign bank in
Share Data (Voting) Bangladesh, with 19 service points and 20 ATMs) since 2003. Moreover, in September 2016
Market Price as at 30.06.2017 LKR 139.70 the bank setup a tier I bank in Maldives with a 55% stake, amounting to an equity investment
52 Week Range LKR 113.56 - 145.66
of LKR 1.0 Bn.
Shares in Issue (as at 31.03.2017) 845,836,038
Average Daily Volume (52 Weeks) 471,572 The loans grew by 21.6% and 4.3% (unannualized) during FY16 and 1QFY17 respectively,
Estimated Free Float (%) 70.5
whilst the banking sector grew by 17.7% during FY16. COMBs loan portfolio is well diversified
with corporate sector and high yielding SME loan exposure accounting ~40% each. Further,
Main Shareholders as at 31.03.2017 No. of Shares %
DFCC Bank A/C No 1 124,294,154 14.7 the exposure to gold backed loans is almost near zero (0.2% at the end of 1QFY17). We expect
Mr Y S H I Silva 83,676,121 9.9 a 3 year CAGR in loans of 14.7% from FY17 to FY19.
Employees Provident Fund 81,758,168 9.7
SLIC Life Fund 42,382,210 5.0
During FY16 and 1QFY17, the deposits increased by 19.1% and 5.6% (unannualized)
CB NY S/A IFC 37,674,695 4.5 respectively, whilst the banking sector grew by 16.5% during FY16. Supported by the extensive
reach across the country, COMB commands the highest group CASA ratio of 41.5% (as at
Price Performance (Voting) 1QFY17) compared to the listed LCBs average of 28.1% (as at 1QFY17). We estimate a 3 year
LKR Volume, CAGR in deposits of 12.3% from FY17 to FY19, with COMBs large branch network.
150.0 Mn 35.0
145.0 COMB raised LKR 10.1 Bn capital via a rights issue in June 2017 issuing 84.6 Mn voting
30.0
140.0 shares and 5.8 Mn non-voting shares. The bank expects to utilize the funds to meet stringent
135.0 25.0 tier I capital requirements issued by CBSL under BASEL III guidelines. We have considered the
130.0 20.0 proceeds from the rights issue in our forecasts.
125.0
120.0 15.0 VAT and NBT on financial services rose significantly in COMB and all the other banks due to
115.0 10.0 impact of 15% VAT and 2% NBT which came into effect from November 2016.
110.0
105.0
5.0 We expect COMB to maintain its consistent profit growth, low risk profile, adequate capital
100.0 0.0 buffers and acceptable NPL levels. The banks continuous effort to look at opportunities
Jul-16 Oct-16 Jan-17 Apr-17
beyond the island is expected to support further growth.
Volume Price Adjusted ASPI
Sources: Bloomberg, Company reports, CSE, NDBS Research, Mihaaru, LBO, Fitch 26
EPS (LKR)* 11.3 11.9 14.6 16.0 18.0 20.3
NIM (%) 4.2 3.9 3.8 3.6 3.5 3.5
Cost to Income (%) 42.0 41.9 42.8 40.6 40.0 39.2
ROE (%) 16.9 16.7 19.4 17.6 16.1 15.8
Forward P/E (X)** 13.2 10.6 9.4 9.8 8.7 7.7
DPS (LKR)*** 4.5 4.5 4.5 4.5 4.5 5.0
Dividend Yield (%) 3.0 3.6 3.3 2.9 2.9 3.2
BV (LKR) 71.6 71.3 79.4 102.3 120.9 136.4
PBV (X)** 2.1 1.8 1.7 1.5 1.3 1.1
Tier 1 (%) 13.1 11.6 11.6 13.0 12.4 11.9
*Restated to existing no of shares
**P/Es and PBVs from FY14-FY16 have been calculated using the year-end share price, P/Es and PBVs FY17-FY19 have been calculated on target price
***No Scrip Dividends included
Income Statement
Figure in LKR Mn FY14 (A) FY15 (A) FY16 (A) FY17 (E) FY18 (E) FY19 (E)
Interest income 61,933 66,339 81,315 95,411 108,079 121,465
Less: Interest expense 34,613 35,772 48,186 59,476 68,345 77,562
Net interest income 27,320 30,567 33,128 35,935 39,734 43,904
Non-interest income 10,151 10,966 11,270 11,779 13,697 15,748
Total operating income 37,471 41,534 44,398 47,713 53,430 59,652
Less: Impairment charge/(reversal) 3,209 4,100 1,583 1,561 1,936 2,276
Net operating income 34,262 37,434 42,815 46,153 51,495 57,376
Less: Operating expenses 15,720 17,421 18,991 19,386 21,368 23,362
Operating profit before tax 18,542 20,013 23,824 26,766 30,127 34,014
Share of profit/(loss) of associates 7 14 6 9 10 11
Less: Tax 7,306 8,167 9,364 10,901 12,269 13,852
Profit after tax 11,243 11,859 14,466 15,875 17,868 20,173
Less: Non-controlling interest 4 4 (44) (25) (5) 2
Profit attributable to equity holders 11,239 11,855 14,510 15,900 17,873 20,171
27
Balance Sheet
Figure in LKR Mn FY14 (A) FY15 (A) FY16 (A) FY17 (E) FY18 (E) FY19 (E)
Assets
Cash and cash equivalents 20,622 20,107 32,924 35,047 32,156 34,693
Balances with CBSL 19,634 28,221 43,935 49,634 55,715 62,248
Placements with banks 14,508 17,194 11,718 13,437 15,084 16,852
T-bills & investments 312,645 281,763 281,584 310,740 329,953 337,044
Loans & receivables to other customers and banks
407,082 510,524 620,754 713,861 820,170 937,404
Other assets 21,910 23,490 28,935 32,754 35,824 39,497
Intangible assets 856 884 1,133 1,132 1,132 1,132
Total assets 797,258 882,183 1,020,984 1,156,606 1,290,034 1,428,871
Liabilities
Due to other customers 529,267 624,021 743,311 839,837 942,724 1,053,263
Borrowings 26,862 33,680 72,613 73,486 75,418 76,888
Debt issued and other borrowed funds 147,290 134,224 103,749 113,378 122,554 131,658
Other liabilities 22,585 19,244 21,495 27,295 28,282 30,545
726,004 811,169 941,168 1,053,995 1,168,978 1,292,354
Shareholder's Funds
Stated capital 21,458 23,255 24,978 36,950 36,950 36,950
Reserve fund 4,327 4,922 5,648 6,443 7,337 8,345
Retained earnings and other reserves 45,421 42,787 48,366 58,420 75,977 90,428
71,206 70,964 78,992 101,813 120,264 135,723
Non-controlling interest 48 50 823 798 792 794
Total liabilities and shareholders' funds 797,258 882,183 1,020,984 1,156,606 1,290,034 1,428,871
28
HNB is the second largest private bank with group assets of LKR 945.9 Bn. Further, the bank
Target Price LKR 254.00
has the second largest branch network in Sri Lanka with 252 branches in the listed space.
Recommendation Hold
The loans grew by 17.8% and 5.1% (unannualized) during FY16 and 1QFY17 respectively.
Share Data (Voting)
Market Price as at 30.06.2017 LKR 237.10
The acquisition of HNB Grameen in 2014 continues to benefit HNB with higher exposure to the
52 Week Range LKR 202.86 - 249.90 micro lending sector. Moreover, HNB Grameen contributed LKR 1.3 Bn of profit in FY16. We
Shares in Issue (as at 31.03.2017) 335,971,677 estimate loans with a high share in SME and retail (~30 and ~20% respectively) to grow at a 3
Average Daily Volume (52 Weeks) 82,117 year CAGR of 16.4% from FY17 to FY19.
The deposits grew by 18.5% and 2.3% (unannualized) during FY16 and 1QFY17 respectively
Main Shareholders as at 31.03.2017 No. of Shares % as a result of the well expanded branch network across the country. Due to the shift into higher
Employees' Provident Fund 32,793,921 9.8 yielding fixed deposits witnessed in the industry, the CASA declined from 35.7% in FY16 to
SLIC - Life Fund 32,451,260 9.7 35.2% in 1QFY17, above the listed LCBs average of 28.1% (as at 1QFY17). However, with
Milford Exports (Ceylon) Limited 26,604,922 7.9 stabilizing interest rates we expect HNB to maintain its CASA around 30% in the next 3 years.
Mr Sohli Edelji Captain 24,418,023 7.3
Furthermore, we estimate a 3 year CAGR in deposits of 16.6% from FY17 to FY19.
Stassen Exports Ltd 23,060,263 6.9
The net fee income grew by 23.7% YoY to LKR 7.7 Bn in FY16 mainly due to the growth in
Price Performance (Voting) the credit card business along with trade finance, guarantees and remittances. (We estimate a
LKR Volume, 3 year CAGR of 12.3% in non-interest income dominated by fee income through FY17 to FY19).
260.0 Mn 1.4
250.0 HNB expects to raise LKR 15.0 Bn via a rights issue in July 2017 issuing 56.0 Mn voting
1.2
240.0 shares and 14.1 Mn non-voting shares. The bank expects to utilize the funds to meet stringent
1.0 tier I capital requirements issued by CBSL under BASEL III guidelines. We have considered the
230.0
220.0 0.8 proceeds from the rights issue in our forecasts. Therefore, we estimate a 8.2% upside potential
210.0 0.6
based on the theoretical ex-right price (calculated based on current price) of LKR 234.7.
200.0
0.4 Considering HNBs presence across the country, maturing portfolio, exposure towards the
190.0
0.2 key thrust sectors of the economy lead by the SME sector, exposure towards a high quality
180.0
micro portfolio, high CASA, increased focus in digital banking, we estimate a 3 year CAGR in
170.0 0.0
Jul-16 Oct-16 Jan-17 Apr-17 profits of 12.8% from FY17 to FY19.
Sources: Bloomberg, Company reports, CSE, NDBS Research 29

EPS (LKR)* 20.0 21.5 30.1 34.0 37.7 43.4
NIM (%) 4.9 4.6 4.9 4.6 4.5 4.5
Cost to Income (%) 52.2 52.7 48.3 47.7 46.2 45.0
ROE (%) 15.7 14.7 17.7 15.8 14.5 14.7
Forward P/E (X)** 8.9 9.3 7.4 7.5 6.7 5.9
DPS (LKR)*** 8.5 5.0 5.0 5.0 5.5 5.8
Dividend Yield (%) 4.8 2.5 2.3 2.0 2.2 2.3
BV (LKR) 138.4 154.0 186.0 243.8 275.9 313.6
PBV (X)** 1.3 1.3 1.2 1.0 0.9 0.8
Tier 1 (%) 12.7 11.0 11.5 13.9 12.8 12.1
*Restated according to the existing number of shares
**P/Es and PBVs for FY14-FY16 have been calculated using the year-end share price, P/Es and PBVs for FY17-FY19 have been calculated on target price
***No Script Dividends included
Income Statement
Figures in LKR Mn FY14 (A) FY15 (A) FY16 (A) FY17 (E) FY18 (E) FY19 (E)
Interest income 53,063 56,894 81,534 97,959 116,067 134,711
Less: Impairment charge/(reversal) 2,533 1,022 508 118 2,079 2,512
Personnel cost 8,108 9,155 10,416 11,029 12,352 13,834
Depreciation of property & equipment 1,331 1,251 1,394 1,476 1,736 1,940
Other operating expenses 10,295 12,054 13,963 15,998 17,368 18,797
Less: Tax 5,631 8,126 11,569 13,636 15,100 17,398
Profit after tax 10,068 11,096 15,665 17,603 19,494 22,460
Less: Non-controlling interest 248 542 909 915 1,014 1,168
30
Balance Sheet
Assets
Loans & receivables 401,860 507,244 597,467 693,719 807,489 942,744
Other assets 27,635 32,279 41,619 49,208 57,863 68,059
Intangible assets 1,090 1,001 1,180 1,234 1,234 1,234
Total assets 596,491 757,585 901,451 1,068,035 1,223,201 1,405,573
Liabilities
Due to other customers 425,620 536,133 635,371 739,967 863,625 1,008,282
Borrowings 48,481 85,421 97,761 99,156 103,635 108,390
Insurance provision 6,842 8,553 10,669 13,230 16,273 20,016
526,852 679,841 807,139 944,478 1,082,850 1,245,583
Shareholder's Funds
Stated capital 13,290 13,827 15,340 31,793 31,793 31,793
Reserve fund 3,160 3,760 4,560 5,394 6,318 7,383
67,905 75,564 91,291 119,620 135,401 153,872
Non-controlling interest 1,734 2,179 3,021 3,936 4,950 6,118
Total Liabilities and shareholders' funds 596,491 757,585 901,451 1,068,035 1,223,201 1,405,573
31
Sampath Bank
Target Price LKR 315.90 Sampath bank is the third largest listed private bank with group assets worth LKR 680.1 Bn.
Due to the aggressive branch expansion post-war (41.6% of the 226 branches opened during
Recommendation Hold
FY09 to FY11), SAMP currently is the third largest branch network in the listed space while
Share Data having 229 branches across the country.
52 Week Range LKR 212.75 - 297.10 The group loan portfolio grew by 22.0% and 9.0% (unannaulized) during FY16 and 1QFY17
Shares in Issue (as at 31.03.2017) 186,190,488 respectively. Further, SAMPs loan portfolio is well diversified with corporate sector and high
Average Daily Volume (52 Weeks) 71,406 yielding SME loan exposure accounting for 55% and 40% respectively. The exposure to gold
Estimated Free Float (%) 75.1 backed loans recorded a 3.1% by end of 1QFY17. We expect a 3 year CAGR in loans of 19.9%
from FY17 to FY19.
Vallibel One PLC 27,840,878 15.0 The deposits grew by 25.9% and 5.5% (unannaulized) in FY16 and 1QFY17 respectively,
Mr Y S H I Silva 18,597,945 10.0 whilst the CASA ratio declined from 38.5% (FY16) to 38.1% (1QFY17) as a shift was made
Employees' Provident Fund 18,568,025 10.0
towards high yielding fixed deposits in the backdrop of rising interest rates that was witnessed
Rosewood (Pvt) Limited - A/C No 1 12,368,115 6.6
MATTHEWS Asia Growth Fund 8,533,267 4.6
industry wide. We estimate a 3 year CAGR in deposits of 19.5% from FY17 to FY19.
Price Performance Moreover, banks core and total capital ratios decreased from 8.3% and 12.9% in FY16 to
7.7% and 11.9% in 1QFY17 respectively. The core capital ratio significantly declined from
LKR Volume,
Mn 1.8 11.8% (FY12) to 7.7% (1QFY17). This was mainly due to zero risk weighted gold backed loans
350.0
330.0
being re-allocated to risk weighted loan segments such as consumer and retail since early
1.6
310.0 1.4
2014. Hence, going forward, an equity infusion would help to avoid the core capital ratio
290.0
1.2
declining further and also meet the BASEL III requirements. We expect the bank to raise
270.0
1.0
capital via a rights issue during FY17.
250.0
230.0
0.8 The well diversified loan portfolio, strong growth in term loans and the focus on increased
0.6
210.0 fee income will help SAMPs profits to grow. We estimate a 3 year CAGR in profits of 14.1%
0.4
190.0 from FY17 to FY19.
170.0 0.2
150.0 0.0

Sampath Bank
EPS (LKR) 23.8 35.6 51.0 52.3 63.3 75.7
NIM (%) 4.3 4.1 4.2 4.0 3.9 3.9
Cost to Income (%) 55.9 52.2 47.9 45.2 42.5 41.5
ROE (%) 13.4 18.0 21.4 17.8 18.0 18.0
Forward P/E (X)** 8.4 6.2 4.8 6.0 5.0 4.2
DPS (LKR)*** 5.0 6.0 4.8 - - -
Dividend Yield (%) 2.5 2.7 2.0 - - -
BV (LKR) 185.4 210.0 267.2 319.5 382.8 458.5
PBV (Times) 1.1 1.0 0.9 1.0 0.8 0.7
Tier 1 (%) 9.0 8.0 8.4 7.7 7.2 6.8
**P/Es and PBVs from FY14-FY16 have been calculated using the year-end share price, P/Es and PBVs FY17-FY19 have been calculated on target price ***No
Scrip Dividends included
Income Statement
Interest income 39,696 39,706 58,976 74,059 88,494 106,048
Impairment (charge)/reversal (1,581) (993) (1,535) (2,558) (3,200) (3,589)
Less: Operating expenses (12,180) (13,962) (16,266) (17,483) (19,061) (21,650)
Personnel cost (5,341) (6,524) (7,835) (8,585) (9,653) (10,949)
Other operating expenses (6,839) (7,438) (8,431) (8,897) (9,408) (10,700)
Tax (3,578) (5,159) (6,655) (8,893) (10,752) (12,859)
Profit after tax 4,441 6,628 9,501 9,751 11,788 14,099
Non-controlling interest (4) (5) (5) (6) (7) (8)
33
Sampath Bank
Balance Sheet
Assets
Placements with banks 1,792 5,193 8,750 11,906 14,962 17,920
Loans and receivables 334,530 421,297 514,105 614,997 737,000 886,919
Other assets 12,563 13,298 17,767 21,370 25,545 30,158
Intangible assets 394 368 356 397 397 397
Total assets 442,790 538,647 680,099 805,618 955,869 1,134,354
Liabilities
Due to other customers 339,679 407,164 512,550 610,577 729,858 874,145
Borrowings 15,061 12,538 17,113 19,538 23,355 26,224
Debt issued & other borrowed funds 43,611 65,171 84,179 97,692 111,303 126,751
408,186 499,444 630,356 746,125 884,588 1,048,974
Shareholder's Funds
Stated capital 4,470 5,381 6,471 8,705 8,705 8,705
Reserves 28,510 31,867 40,934 47,958 59,504 73,313
34,511 39,109 49,742 59,487 71,268 85,359
Non controlling interest 92 95 - 6 13 21
Total liabilities & shareholders' funds 442,790 538,647 680,099 805,618 955,869 1,134,354
34
Seylan Bank
Target Price LKR 102.60 In December 2008, Seylan Bank was confronted by a sudden, unexpected crisis of public
Recommendation Hold confidence resulting from the controversy surrounding the "Golden Key Credit Card Company"
which was a subsidiary of the Ceylinco Group of companies. With the timely intervention of
Share Data (Voting) CBSL, a new board of directors was appointed to manage the bank. During FY10, SEYB profits
increased by 176.7% YoY to LKR 1.2 Bn. From FY10 to FY16, the group increased its profits at
52 Week Range LKR 81.35 - 97.82
a 6 year CAGR of 23.0%.
Average Daily Volume (52 Weeks) 127,395
During FY16 and 1QFY17, SEYB recorded a loan growth of 22.2% and 2.8% (unannualized)
respectively. The high yielding SME loan portfolio accounting for ~55% of total loans, we
Main Shareholders as at 31.03.2017 No. of Shares % expect a 3 year CAGR in loans of 16.5% from FY17 to FY19.
Sri Lanka Insurance Corporation Ltd 26,942,047 15.0
During FY16, the deposits grew by 21.8% whilst during 1QFY17 deposits grew at a slower
Brown & Company PLC A/C No 1 24,921,279 13.9
Employees Provident Fund 17,705,441 9.9
pace of 0.2% (unannualized) with CASA weakening from 32.5% in FY16 to 31.2% in 1QFY17.
LOLC Investments Ltd 17,155,820 9.6 We estimate a 3 year CAGR in deposits of 14.2% from FY17 to FY19.
National Development Bank PLC A/C No 2 15,671,043 8.7
SEYB is to continue its branch expansion (currently 166 branches) with a lean model, which
Price Performance (Voting) was adapted recently. Therefore, we estimate the cost to income ratios to improve from
57.8% (1QFY17) to 56.7%, 56.3% and 55.3% in FY17, FY18 and FY19 respectively.
LKR Volume,
105.0 Mn 14.0 One of the main reason for Seylan Banks above peer average NPL of 4.9% (1QFY17) is the
100.0 12.0 legacy portfolio. However, the current NPL is a significant improvement from 33.6% in
95.0 10.0
4QFY09. Nonetheless, we expect a recovery in the NPLs in the coming years which will
improve the Banks bottom line as well.
90.0 8.0
85.0 6.0 With Seylan de-risking itself from its crisis in 2008, we expect the bank to continue with its
80.0 4.0
profitability recorded in the last couple of years. Amid increasing competition we expect
Seylan bank to continue to grow its loan portfolio, mainly in the SME sector and improve its
75.0 2.0
fee based income structure.
70.0 0.0
Jun-16 Sep-16 Dec-16 Mar-17

Seylan Bank
EPS (LKR)* 9.0 10.9 11.3 10.3 11.3 12.8
NIM (%) 5.0 4.5 4.2 4.0 3.9 3.9
Cost to Income (%) 49.9 53.3 54.7 56.7 56.3 55.3
ROE (%) 13.3 15.0 14.5 11.9 11.8 12.0
Forward P/E (X)** 9.7 8.2 7.7 10.0 9.1 8.0
DPS (LKR)*** 2.5 2.8 1.0 1.0 1.0 -
Dividend Yield (%) 2.9 3.1 1.1 1.0 1.0 -
BV (LKR)* 71.1 74.2 81.9 90.3 100.6 113.4
PBV (X)** 1.2 1.2 1.1 1.1 1.0 0.9
Tier 1 (%) 14.0 12.5 10.9 10.1 9.4 8.7
**P/Es and PBVs for FY14-FY16 have been calculated using the year-end share price, P/Es and PBVs for FY17-FY19 have been calculated on target price ***No Script Dividends
included
Income Statement
Interest income 23,422 24,167 33,473 40,571 47,337 54,486
Less: Impairment charge/(reversal) 2,135 489 954 1,325 1,616 1,906
Personnel cost 3,957 4,222 4,642 5,178 5,795 6,370
Depreciation of PPE & other expenses 4,178 4,409 5,103 6,017 6,552 7,149
Less: Tax 2,786 3,193 3,079 3,575 3,938 4,462
Profit after tax 3,253 3,886 4,035 3,661 4,032 4,568
Less: Non-controlling interest 74 31 22 20 24 30
36
Seylan Bank
Balance Sheet
Assets
Loans & receivables to other customers 154,963 193,104 236,020 280,318 323,673 373,121
Other assets 13,029 13,338 15,979 18,233 20,799 23,830
Total assets 251,558 298,586 358,249 421,343 480,163 545,655
Liabilities
Borrowings 11,841 19,850 17,836 29,865 33,170 36,662
225,238 271,231 328,164 388,239 443,382 504,306
Shareholder's Funds
Stated capital 10,530 10,530 10,530 11,228 11,228 11,228
Reserve fund 996 1,187 1,388 1,570 1,770 1,997
25,195 26,288 29,020 32,019 35,672 40,210
Non-controlling interest 1,124 1,067 1,065 1,085 1,110 1,139
Total liabilities and shareholders' funds 251,558 298,586 358,249 421,343 480,163 545,655
37
National Development Bank NDB Securities (Pvt) Ltd is a subsidiary company of NDB Capital Holdings Ltd
which is a subsidiary of National Development Bank PLC.
NDB was established as a state-owned development bank in 1979, transforming itself

subsequently in 2005, into a development-oriented commercial bank with the acquisition of
Recommendation Hold ABN-AMRO Bank. Currently, the bank operates 106 branches with 28 branches opened since
Share Data January 2014. Hence, the group balance sheet has also expanded and records an asset base of
Market Price as at 30.06.2017 LKR 143.40 LKR 353.7 Bn (1QFY17).
52 Week Range LKR 127.00 - 162.51
Shares in Issue (as at 31.03.2017) 171,485,705 During FY16 and 1QFY17, group recorded a loan growth of 8.6% and 6.0% (unannualized)
Average Daily Volume (52 Weeks) 137,416 respectively. The loan book comprises of retail & SME, corporate, project finance and other,
Estimated Free Float (%) 72.3 accounting for 40%, 34%, 23% and 3% respectively. We estimate a 3 year CAGR in loans of
11.8% from FY17 to FY19.
Bank of Ceylon A/C No 1 16,995,471 9.9 Group deposits increased by 10.5% and 11.8% (unannualized) during FY16 and 1QFY17
Employees Provident Fund 16,620,881 9.7 respectively. The bank has grown its deposit base to be in line with its changed model of an
Mr R S Captain 13,989,265 8.2
LCB since 2005. Hence the bank records a relatively low CASA ratio at 21.7% in 1QFY17 which
SLIC - General Fund 9,746,566 5.7
Dr S Yaddehige 8,876,393 5.2
declined from 22.8% in FY16. We estimate a 3 year CAGR in deposits of 11.4% from FY17 to
FY19 due to the challenge in mobilizing deposits with increased interest rates and
Price Performance competition.
LKR Volume,
180.0 Mn 8.0
Banks core ratio slightly declined from 9.3% in FY16 to 9.2% in 1QFY17. Total capital ratio
also declined further from 13.0% in FY16 to 12.8% in 1QFY17. The bank has indicated a
7.0
170.0 possibility of an equity infusion to be pursued by 1HFY18 in order to support the banks
6.0
160.0 growing franchise coupled with preparations to migrate to Basel III.
5.0
150.0 4.0 NDB is well positioned to grow its presence in the SME sector whilst strengthening the
3.0 retail banking sector. However, with the increased pressure on NIMs, high competition from
140.0
2.0 its peers and transition to new strategic plan, we estimate a 3 year CAGR in profits of 5.1%
130.0 from FY17 to FY19.
1.0
120.0 0.0

EPS (LKR)* 24.1 20.7 15.7 15.8 16.9 18.3
NIM (%) 3.5 2.8 2.8 2.8 2.7 2.7
Cost to Income (%) 45.6 51.4 52.3 52.9 52.5 52.0
ROE (%) 15.8 12.6 9.2 8.7 8.6 8.6
Forward P/E (X)** 9.2 8.7 9.4 10.0 9.4 8.7
DPS (LKR)*** 11.0 11.0 2.0 2.0 2.0 2.0
Dividend Yield (%) 5.0 6.1 1.3 1.3 1.3 1.3
BV (LKR)* 162.6 165.5 174.6 188.4 203.3 219.6
PBV (X)** 1.4 1.1 0.8 0.8 0.8 0.7
Tier 1 (%) 12.9 11.1 11.6 11.1 10.7 10.0
**P/Es and PBVs for FY14-FY16 have been calculated using the year-end share price, P/Es and PBVs for FY17-FY19 have been calculated on target price ***No Script
Dividends included
Income Statement
Interest income 21,152 21,432 28,961 34,225 38,191 42,817
Less: Impairment charge/(reversal) 529 746 1,425 949 1,248 1,624
Personnel cost 3,172 3,634 3,793 4,178 4,501 4,839
Share of profit/(loss) of associates 97 78 - - - -
Less: Tax (2,378) (2,123) (2,279) (3,032) (3,244) (3,503)
Profit after tax 4,246 3,670 2,815 2,827 3,024 3,266
Less: Non-controlling interest (112) (128) (124) (113) (121) (130)
39
Balance Sheet
Assets
Other assets 4,129 4,476 4,621 5,195 5,793 6,473
Total assets 269,130 315,354 340,732 373,687 411,120 453,169
Liabilities
Borrowings 18,842 31,833 37,046 42,915 49,114 55,586
Debt issued & other borrowed funds 61,926 60,498 59,233 60,985 62,967 65,437
240,329 285,953 309,718 340,189 374,941 414,068
Shareholder's Funds
Stated capital 1,145 1,163 1,246 2,209 2,209 2,209
Reserve fund 1,011 1,243 1,246 1,246 1,246 1,246
27,876 28,382 29,937 32,308 34,868 37,660
Non-controlling interests 923 1,019 1,077 1,190 1,311 1,441
40
DFCC Bank
DFCC Bank, the countrys first specialized development bank was incorporated by an Act of
Parliament in 1955, as a part of the GoSLs initiative to create a strong institution to support the
Recommendation Hold
private sector with medium and long-term financing. In October 2015, DFCC Vardhana Bank PLC
Share Data (DVB) (LCB, previously 99.2% owned by DFCC bank) was amalgamated with DFCC Bank, with
Market Price as at 30.06.2017 LKR 127.40 DFCC Bank (DFCC) surviving as the amalgamated entity. The combined entity has over 139
52 Week Range LKR 110.00 - 133.01
branches islandwide. The group recorded assets of LKR 285.5 Bn by the end of 1QFY17.
Average Daily Volume (52 Weeks) 56,837 The loan growth during FY16 and 1QFY17 was 20.1% and (0.5%) (unannualized) respectively.
Estimated Free Float (%) 54.2 With high focus on SME and project lending (accounting for 50-55% of the loan portfolio) we
estimate a 3 year CAGR in loans of 10.3% from FY17 to FY19. However, the gross NPL recorded
Bank of Ceylon A/C No 2 38,039,994 14.3
3.3% in 1QFY17 slightly above the peer average of 3.1% mainly due to the high exposure in the
Hatton National Bank PLC A/C No 1 32,396,140 12.2 SME and Micro sector.
SLIC - Life Fund 26,509,832 10.0
DFCC funding mainly depends on mobilizing deposits and securing long-term funds through
Employees' Provident Fund 24,368,995 9.2
Melstacorp Limited 22,175,280 8.4 credit lines from multilateral and bilateral agencies. However, the low cost deposits CASA, one
of the lowest in the industry declined from 20.3% (FY16) to 17.3% (1QFY17). Therefore, we
Price Performance estimate a 3 year CAGR in deposits of 13.8% from FY17 to FY19.
LKR Volume,
135.0 Mn 2.5 The NIMs are expected to continue to contract mainly due to repricing on the liability side.
130.0 DFCCs slow deposit growth due to high competition and tight market liquidity is expected to
2.0 further increase interest expenses.
125.0
120.0 1.5 The banks expertise and long term presence in SME lending, product offering ranging from
115.0
SME and Micro financing to commercial banking, increased focus in catering to emerging SMEs
1.0
(segment in transition stage from Micro to SME), strong capital ratios and rapid expansion of
110.0
0.5 the branch network to the under banked segment is expected to drive profits at a 3 year CAGR
105.0 of 18.8% from FY17 to FY19.
100.0 0.0

DFCC Bank
FY14/15 (A) 9MFY15/16 (A) FY16 (A) FY17 (E) FY18 (E) FY19 (E)
EPS (LKR)* 16.5 6.0 12.9 17.7 19.6 21.6
NIM (%) 3.5 2.8 3.4 3.4 3.3 3.3
Cost to Income (%) 40.1 55.0 45.2 39.8 39.5 38.9
ROE (%) 9.9 3.5 7.5 9.7 9.9 10.1
Forward P/E (X)** 8.7 28.0 9.5 8.0 7.2 6.6
DPS (LKR)*** 6.0 2.5 4.5 4.5 4.5 4.5
Dividend Yield (%) 4.2 1.5 3.7 3.2 3.2 3.2
BV (LKR)* 180.7 164.9 176.7 189.9 205.0 222.1
PBV (X)** 0.8 1.0 0.7 0.7 0.7 0.6
Tier 1 (%) 17.7 15.4 14.6 13.8 13.0 12.5
**P/Es and PBVs for FY14/15-FY15/16 have been calculated using the year-end share price, P/Es and PBVs for FY17-FY19 have been calculated on target
price ***No Script Dividends included
Income Statement
Figures in LKR Mn FY14/15 (A) 9MFY15/16 (A) FY16 (A) FY17 (E) FY18 (E) FY19 (E)
Interest income 16,099 15,309 24,206 29,501 33,010 37,143
Impairment (charge)/reversal (247) (795) (916) (938) (1,016) (1,337)
Personnel cost 2,213 2,630 2,980 2,972 3,210 3,475
Tax (1,861) (1,501) (2,191) (2,630) (2,913) (3,212)
Profit after tax 4,439 1,642 3,469 4,769 5,280 5,824
Non-controlling interest (76) (49) (54) (76) (84) (93)
42
DFCC Bank
Balance Sheet
Figures in LKR Mn FY14/15 (A) 9MFY15/16 (A) FY16 (A) FY17 (E) FY18 (E) FY19 (E)
Assets
Other assets 3,652 3,386 4,734 5,362 6,110 6,987
Total assets 210,610 247,109 291,266 322,676 358,491 401,854
Liabilities
Borrowings 6,010 24,451 18,209 22,212 25,942 29,662
Debt Issued and other borrowed funds 59,902 63,015 79,172 83,293 87,678 95,085
162,348 203,140 244,156 271,991 303,719 342,451
Shareholder's Funds
Stated capital 4,716 4,716 4,716 4,716 4,716 4,716
Reserve fund 1,545 1,834 2,004 2,239 2,499 2,785
47,909 43,716 46,850 50,349 54,352 58,890
43
Nations Trust Bank
NTB has been one of the fastest growing banks in the last couple of years. The bank
recorded an average ROE of above 19.1% during last five years. NTBs strong presence in
Recommendation Hold
consumer lending helped the bank to grow at a faster pace than the industry in the past. The
Share Data group assets recorded LKR 232.1 Bn by the end of 1QFY17.
52 Week Range LKR 71.93 - 84.00 The group loans increased by 23.7% and 8.7% (unannualized) in FY16 and 1QFY17
Shares in Issue (as at 31.03.2017) 230,607,283 respectively. As of Dec 2016, the corporate segment (mainly focusing on the mid corporates),
Average Daily Volume (52 Weeks) 21,345 retail and SME and leasing accounted for ~26%, 52% and 21% respectively. After the 70% Loan
Estimated Free Float (%) 61.0 to Value (LTV) restriction was imposed on leasing in 2016, the CBSL issued a direction in
February 2017 proposing a 25% LTV on three wheelers and a 50% LTV on motor cars and vans.
John Keells Holdings PLC 46,121,536 20.0
We estimate a 3 year CAGR in loans of 20.8% from FY17 to FY19.
HWIC Asia Fund 34,591,092 15.0
During FY16 and 1QFY17 group deposit increased by 17.3% and 10.7% (unannualized)
Mackinnons Keells Limited 22,830,159 9.9
respectively. The low cost CASA ratio has declined steeply from 32.3% (FY16) to 27.8%
Central Finance Company PLC A/C No 3 20,715,400 9.0
Janashakthi General Insurance Limited 18,582,682 8.1 (1QFY17) compared to the listed LCBs falling by 139 bps. We estimate a 3 year CAGR in
deposits of 20.4% from FY17 to FY19 due to increased competition and slowing demand based
Price Performance on tax impositions made last November.
LKR Volume,
90.0 Mn 0.3 CBSL increased the ceiling on the interest rate of credit cards to 28% from 24%, to be
effective from 1st of July 2017. We expect this to improve NIMs of the bank, with banks credit
85.0 0.3
card segment amounting to 9.9% of its loan portfolio. However, the regulated LTV ratio for
80.0 0.2 leasing and demand on higher yielding deposits may have an unfavorable impact on NIMs.
Therefore, we expect the group NIMs to shrink from 5.4% (FY16) to 5.1% in FY17 and decrease
75.0 0.2
to 5.0% in FY18 and remain at same level in FY19.
70.0 0.1
We estimate a 3 year CAGR in profits of 15.1% from FY17 to FY19.
65.0 0.1
60.0 0.0

Nations Trust Bank
EPS (LKR)* 11.0 11.3 12.4 13.2 15.5 19.0
NIM (%) 6.3 5.8 5.4 5.1 5.0 5.0
Cost to Income (%) 52.5 54.8 55.6 54.9 53.3 51.4
ROE (%) 19.8 18.0 17.7 16.4 16.6 17.5
Forward P/E (X)** 8.2 7.2 6.3 7.0 6.0 4.9
DPS (LKR)*** 2.1 2.1 2.1 2.0 2.0 2.0
Dividend Yield (%) 2.3 2.6 2.7 2.1 2.1 2.1
BV (LKR)* 60.3 65.8 75.1 86.3 99.8 116.8
PBV (X) 1.5 1.2 1.0 1.1 0.9 0.8
Tier 1 (%) 14.2 13.2 11.4 10.1 9.3 8.9
**P/Es and PBVs from FY14-FY16 have been calculated using the year-end share price,P/Es and PBVs for FY17-FY19 have been calculated on target price
***No Scrip Dividends included
Income Statement
Interest income 17,452 16,628 21,384 26,104 31,865 38,691
Non-Interest Income 3,177 3,414 3,925 4,475 5,019 5,810
Less: Impairment charge/(reversal) 1,182 985 690 995 1,326 1,664
Personnel cost 2,700 2,883 3,331 3,704 4,151 4,648
Depreciation of property & equipment 324 377 362 395 451 509
Less: Tax 2,035 2,058 2,531 2,953 3,533 4,357
Profit after tax 2,537 2,614 2,869 3,052 3,568 4,374
45
Nations Trust Bank
Balance Sheet
Assets
Loans and receivables 98,347 121,143 149,818 181,138 218,697 263,877
Other assets 3,614 3,530 4,333 4,940 6,009 7,275
Total assets 158,781 176,262 211,704 254,475 306,440 365,671
Liabilities
Deposits 111,010 129,158 151,502 182,967 220,906 264,538
Borrowings 18,136 15,546 21,242 28,360 36,449 43,781
144,887 161,090 194,383 234,564 283,422 338,741
Shareholder's Funds
Stated capital 5,101 5,101 5,101 5,101 5,101 5,101
Reserve fund 538 661 796 949 1,127 1,346
13,895 15,171 17,321 19,911 23,018 26,931
46
PABC recorded an asset base of LKR 129.1 Bn in 1QFY17. PABC launched an aggressive
branch expansion (currently 82 branches) with 52.5% of its branches opening during 2010
Recommendation Hold
to 2013. Along with the branch expansion the loan growth also has increased rapidly.
Share Data However, loan growth has slowed down during FY16 under slight pressure due to new
additions to NPLs.
52 Week Range LKR 15.10 - 24.41
Shares in Issue (as at 31.03.2017) 442,561,629 During FY16 and 1QFY17 loans grew by 13.5% and 2.0% (unannualized) respectively.
Due to significant exposure towards retail and SME which accounted for 77.3% total loan
portfolio in FY16, we estimate a 3 year CAGR in loans of 12.2% from FY17 to FY19.
During FY16 and 1QFY17 deposits grew by 17.7% and 2.5% (unannualized)
K D D Perera 132,724,230 30.0
Bansei Securities Co. Ltd 66,384,246 15.0 respectively. Further, the banks CASA declined from 20.3% (FY16) to 19.6% (1QFY17). We
Seylan Bank PLC/ Lanka Century Investments PLC 29,287,094 6.6 estimate a 3 year CAGR in deposits of 13.0% from FY17 to FY19.
D C C Joseph 25,998,531 5.9
K D H Perera 23,305,998 5.3 We expect the LKR 1.2 Bn raised by PABC via the rights issue in March 2017 to
strengthen capital buffers and meet CBSL stringent capital requirements in the short term.
Price Performance
LKR Volume, We expect with the commencement of the new strategic plan of 2018-2020 under the
26.0 Mn 35.0
direction of the newly appointed CEO and the expectation on an aggressive expansion of
24.0 30.0 branch network across the country, we estimate a 3 year CAGR in profits of 10.4% from
22.0
25.0 FY17 to FY19.
20.0
20.0
18.0
15.0
16.0
10.0
14.0
12.0 5.0
10.0 0.0

EPS (LKR)* 0.9 2.4 2.8 3.5 3.7 3.8
NIM (%) 4.2 4.5 4.2 4.3 4.2 4.1
Cost to Income (%) 61.0 52.9 55.6 51.3 50.6 50.1
ROE (%) 9.5 19.8 19.8 18.0 15.0 13.6
Forward P/E (X)** 24.6 10.3 6.4 6.2 5.7 5.6
DPS (LKR)*** - 0.5 - 0.5 0.5 0.5
Dividend Yield (%) - 2.1 - 2.3 2.3 2.3
BV (LKR)* 10.7 13.0 15.5 23.2 26.4 29.7
PBV (X)** 2.2 1.9 1.2 0.9 0.8 0.7
Tier 1 (%) 9.0 7.8 8.4 10.8 9.9 9.0
Income Statement
Interest income 7,542 9,039 13,367 16,626 19,051 21,824
Impairment (charge)/reversal (815) (751) (528) (724) (963) (1,294)
Personnel cost 1,081 1,389 1,614 1,719 1,908 2,113
Operating profit before tax 755 1,904 2,291 2,939 3,153 3,222
Tax (339) (863) (1,039) (1,402) (1,504) (1,537)
Profit after tax 415 1,041 1,252 1,537 1,649 1,685
Non-controlling interest - - - - - -
Profit attributable to equity holders 415 1,041 1,252 1,537 1,649 1,685
48
Balance Sheet
Assets
Other assets 3,039 2,074 2,135 2,213 2,292 2,376
Total assets 79,605 107,783 129,451 149,103 169,278 192,703
Liabilities
Borrowings & debt issued 4,969 15,430 22,189 25,212 29,084 33,667
Other borrowed funds 3,160 7,097 6,763 8,233 9,307 10,562
74,871 102,010 122,579 138,850 157,597 179,558
Shareholder's Funds
Stated capital 1,549 1,549 1,549 3,614 3,614 3,614
Retained earnings 2,719 3,712 4,754 5,993 7,339 8,718
Other reserves 277 271 264 264 264 264
4,735 5,773 6,872 10,253 11,681 13,145
Non-controlling interest - - - - - -
Total liabilities & shareholders' funds 79,605 107,783 129,451 149,103 169,278 192,703
49
Target Price LKR 16.80 In October 2014, Texas Pacific Group (TPG), one of the leading global investment firms
Recommendation Hold with USD 65 Bn in assets under management, through its affiliate, Culture Financial
Share Data Holdings Ltd., acquired 70% equity stake in UBC. The private placement raised LKR 11.4 Bn
Market Price as at 30.06.2017 LKR 15.10 (USD 84.7 Mn) at LKR 15.30 per share, one of the largest foreign direct investment to Sri
52 Week Range LKR 13.40 - 17.28 Lanka. UBC recorded an asset CAGR of 38.3% during FY15 and FY16. As at end of 1QFY17
Shares in Issue (as at 31.03.2017) 1,091,406,249
the asset base of the group was LKR 109.0 Bn.
Estimated Free Float (%) 30.0 Group loans increased by 38.2% and 7.9% (unannualized) during FY16 and 1QFY17
respectively. As of March 2017, corporate, SME and retail segments accounted for 47%,
Culture Financial Holdings Ltd 763,984,374 70.0 40% and 13% of the loan portfolio respectively. Bank expects to further increase its
Vista Knowledge Pte Ltd 64,677,973 5.9 exposure to corporate banking and retail banking to penetrate into new target markets.
Associated Electrical Corporation Ltd 29,237,387 2.7 Hence, we estimate a 3 year CAGR in loans of 26.3% from FY17 to FY19.
Mr A I Lovell 23,974,505 2.2
Mr C P A Wijeyesekera 18,508,468 1.7 Group deposits increased by 38.2% and 9.6% (unannualized) during FY16 and 1QFY17
Price Performance
respectively. Group CASA ratio declined from 21.5% (FY16) to 20.6% (1QFY17). Sustaining
CASA will be relatively difficult for UBC due to competition from the larger banks coupled
LKR Volume,
18.0 Mn 6.0 with the increased interest rates. However, we expect a 3 year CAGR in deposits of 21.8%
from FY17 to FY19.
17.0 5.0
We expect with the strategic investments on expansion and improved banking
16.0 4.0
services, an estimated 3 year CAGR in profit of 17.3% from FY17 to FY19
15.0 3.0
14.0 2.0
13.0 1.0
12.0 0.0

EPS (LKR)* 0.03 0.20 0.46 0.47 0.61 0.75
NIM (%) 4.8 4.0 3.6 3.6 3.5 3.5
Cost to Income (%) 72.3 79.9 76.2 74.3 72.1 70.7
ROE (%) 0.3 1.4 3.1 3.1 3.9 4.6
Forward P/E (X)** 880.5 98.0 33.1 35.4 27.4 22.3
DPS (LKR)*** - 0.04 0.10 0.10 0.10 0.10
Dividend Yield (%) - 0.2 0.7 0.6 0.6 0.6
BV (LKR)* 14.8 15.0 15.2 15.5 16.0 16.7
PBV (X)** 1.7 1.3 1.0 1.1 1.0 1.0
Tier 1 (%) 41.7 24.7 22.9 20.4 19.2 18.3
Income Statement
Interest income 4,483 4,999 8,466 11,026 13,670 17,057
Non-interest income 773 980 1,558 1,874 2,461 2,900
Less: Impairment charge/(reversal) (527) (260) (252) (405) (580) (786)
Personnel cost 785 1,159 1,567 1,908 2,328 2,728
Other operating expenses 905 1,208 1,493 1,812 2,098 2,486
Operating profit before tax 233 428 839 1,049 1,356 1,666
Less: Tax (155) (174) (286) (486) (629) (772)
Profit after tax 78 255 553 563 728 894
Less: Non-controlling interest (47) (32) (49) (45) (58) (71)
Profit attributable to equity holders 31 223 504 518 670 822
51
Balance Sheet
Assets
Balances with CBSL 949 1,307 2,488 3,340 4,070 4,965
Other assets 2,324 2,572 2,855 3,249 3,959 4,830
Total assets 52,558 76,545 100,533 121,088 146,929 178,683
Liabilities
Due to banks 2,146 7,156 12,770 16,771 22,563 30,123
Borrowed funds 1,941 9,276 10,947 13,627 17,029 20,775
36,061 59,830 83,567 103,771 128,994 159,964
Shareholder's Funds
Stated capital 16,335 16,335 16,335 16,335 16,335 16,335
Warrants issued 65 65 65 65 65 65
Retained earnings and other reserves (216) (14) 209 580 1,140 1,853
16,185 16,386 16,609 16,914 17,475 18,188
52
Disclaimer
This document is based on information obtained from sources believed to be reliable, but NDB Securities (Pvt) Ltd., (NDBS) accepts no
responsibility or makes no warranties or representations, express or implied, as to whether the information provided in this document is
accurate, complete or up-to-date. Furthermore, no representation or warranty is made by NDBS as to the sufficiency, relevance, importance,
appropriateness, completeness or comprehensiveness of the information contained herein for any specific purpose. Prices, opinions and
estimates reflect our judgment on the date of original publication and are subject to change at any time without notice. NDBS reserves the right
to change their opinion at any point in time as they deem necessary. There is no guarantee that the target price for the stock will be met or that
predicted business results for the company will be met. NDBS accepts no liability whatsoever for any direct or consequential loss or damage
arising from any use of these reports or their contents. References to tax are based on our understanding of current law and Inland Revenue
practices, which may change from time to time.
Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular
needs of any specific addressee. This document is for the information of addressee only and is not to be taken as substitution for the exercise of
judgment by addressee. The information contained in any research report does not constitute an offer to sell securities or the solicitation of an
offer to buy, or recommendation for investment in, any securities within Sri Lanka or any other jurisdiction. The information in any research
report is not intended as financial advice. Moreover, none of the research reports is intended as a prospectus within the meaning of the
applicable laws of any jurisdiction and none of the research reports is directed to any person in any country in which the distribution of such
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Any discussion of the risks contained herein should not be considered to be a disclosure of all risks or complete discussion of the risks which are
mentioned.
NDBS and its associates, their directors, and/or employees may have positions in, and may affect transactions in securities mentioned herein and
may also perform or seek to perform broking, investment banking and other financial services for these companies.

2017 June NDB Analysis - Banking Sector

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2017 June NDB Analysis - Banking Sector

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Contents

Executive Summary 03 Stability of the Banking System

Loans 07 Competition in the Sector 22

Continued to next page

Annual Average Public Budget Balance of

Expected to The financial

Sources: CBSL, IMF 5

Banking sector loan growth

Real GDP growth Banking sector loan growth

Balance of Payments and Loan Growth

Banking sector loan growth

Sources: CBSL, NDBS Research 6

10.0% Loan growth

Banking sector loan growth picked up post 0.0%

LKR Tn From the beginning of 2015, credit demand

Sources: CBSL, NDBS Research 7

Outlook of Banks: Loans Outlook of Banks: Loan Growth

Sources: CBSL, Company reports, NDBS Research 8

Source: Company reports 9

Banks (Listed Space): Listed Corporate Debt as % of Borrowings 4QFY16

NTB DFCC removing the current exemption of WHT taxes

Gross Non-performing Advances Ratio Net Non-performing Advances Ratio

Gross NPL Net NPL

Sources: CBSL, World Bank 11

Sources: CBSL, Bloomberg 12

Sources: CBSL, Bloomberg, NDBS Research 13

Fee based income (net) as a % of net interest income

Sources: Company reports, NDBS Research, Bloomberg 14

Listed Banks: Profitability Non Interest Income as a % of Net Interest Income

Sources: NDBS Research, World Bank, Bloomberg 15

Outlook of Banks Listed Space: Profit after Tax

Sources: Company reports, NDBS Research 16

Banking Sector ROE Decomposition

Sources: Company reports, NDBS research 17

Total Risk Weighted Assets Financial Holdings Limited

Sources: Company reports, NDBS Research 18

If a bank fail to comply with the above mentioned requirements, CBSL

Banks Listed Space: Statutory Liquid Assets Ratio

80.0% FY14 (A) FY15 (A) FY16 (A) 1QFY17 (A)

Sources: Company reports, Fitch Ratings 21

Sources: Company reports, NDBS Research 22

Outlook for Listed Banking Stocks

Listed Banking Counters

Commercial Bank of Ceylon

Hatton National Bank

National Development Bank

Nations Trust Bank

BFI Indexed ASPI Indexed S&P SL20

Listed Counters Outlook Dividend Yield

Sources: CSE, Company reports, NDBS Research 24

Regional performance PBV Regional performance PER

Sources: Bloomberg, Company reports 25

Sources: Bloomberg, Company reports, CSE, NDBS Research 29

Sources: Bloomberg, Company reports, CSE, NDBS Research 32

Sources: Bloomberg, Company reports, CSE, NDBS Research 35

NDB was established as a state-owned development bank in 1979, transforming itself

Sources: Bloomberg, Company reports, CSE, NDBS Research 38

Sources: Bloomberg, Company reports, CSE, NDBS Research 41

Sources: Bloomberg, Company reports, CSE, NDBS Research 44

Sources: Bloomberg, Company reports, CSE, NDBS Research 47

Sources: Bloomberg, Company reports, CSE, NDBS Research 50

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