The Year 2020 proved to be one of unprecedented economic change across the globe and in Sri Lanka, presenting significant challenges in all industries, particularly impacting the banking and financial services sector.
Alongside the Government and Central Bank-led economic revival measures mandated industry-wide on account of COVID-19, including credit moratoriums and policy rate reductions, SDB bank maintained a strong focus on digital transformation which helped them overcome the pandemic’s negative impact rapidly. The bank placed equal emphasis on non-performing advances management and streamlining processes to enhance efficiencies.
Identified by the bank as essential parameters in resuscitating the nationally critical SME sector, as it single-handedly accounts for 52% of total GDP, the bank transformed rapidly and went on to record a Profit of LKR 835 Million in 2020, amounting to a massive 229% increase in annual profit from 2019.
Their strong performance was impacted heavily by numerous SDB bank-led initiatives in SME and co-operative development, including the partnership with The Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) to provide free, one-on-one expert mentorship and technical knowledge to SMEs through a team of fully-qualified accountants, with SDB performing the key role of funding partner. The bank’s partnerships with MILCO in supporting dairy farmers and DIMO to extend support to agri-farmers through leasing promotions to secure agricultural equipment and machinery, represent programs of equal importance as part of their SME focus.
Active financial support of this nature offered to SMEs in far-flung areas, in addition to strengthening their entrepreneurial efforts plus helping them overcome the economic challenges experienced in 2020, assisted the bank in maintaining a Gross Non-Performing Advances Ratio of 4.54% in 2020, considerably lower than the industry figures for the period. This positive impact on financial performance has helped them maintain their SME-focused initiatives, thereby boosting the national economy considerably.
The bank similarly realized Net Interest Income of LKR 6.1 Billion, displaying an 8% growth from the previous year despite the prevailing lower lending rates and the associated reduction in customer deposits rates. Of equal significance, the bank displayed a Net Interest Margin of 5.89% even with slowing down of borrowing and the extended loan moratoriums granted.
Parallelly, the bank’s revamped digital efforts were aided by its successful completion of the first-ever digital rights issue by a Colombo Stock Exchange-listed entity — officially recognized as the first digital share subscription to be oversubscribed — allowing them to raise a substantial volume of funds and provide low-cost funding to key customer segments.
The lower cost structure realised has allowed for a lower cost per customer and improved profitability, reflected in the 229% rise in profit from the previous year, also influenced by the bank’s Capital Adequacy Ratio of 13.38%, which is well above the statutory Capital requirement indicating the bank’s high perceived safety.
Parallelly, the bank’s strong relationships with international finance partners such as the International Finance Corporation (IFC), Dutch development bank FMO, and Japan-based finance services institution SBI Holdings, have afforded assistance in the bank’s governing framework through the prevailing economic climate. Together with the bank’s independent growth initiatives, these partnerships contributed to the achieving of Total Assets of LKR 129 Billion and Total Equity of LKR 9.9 Billion in 2020, amounting to a 20% balance sheet growth from 2019. SDB bank’s consistent growth and resulting reduction in overall finance cost has allowed the bank to offer a higher quality of banking services to its significant out-of-city client base, reinforcing its mission of providing contemporary banking solutions for the masses.
The bank has realised a position of strength to drive considerable value for all its stakeholders amidst the crisis, achieving an ROA of 1.19% representing a significant rise from 2019, indicative of the bank’s enterprising use of resources to generate greater income. The bank also realized an ROE of 9.49%, considerably higher than the previous year, displaying the bank’s generation of value through the investments made. Their healthy performance also draws from a 55% impairment reduction from 2019, improving their asset value considerably.
SDB bank’s strong showing in 2020 across all key performance indicators, on the back of its digital transformation efforts which helped mitigate the economic impact of COVID-19, while improving the bank’s profitability and sustaining the SME sector despite the challenges experienced, further strengthens their position as the apex banking entity in the SME space and a key partner of national development.