Silk goes green

When it comes to pursuing the spirit of core banking, Silk Bank definitely stands out from the crowd. In times when the entire banking industry has fallen for the lure of lucrative yields on PIBs, Silk Bank chose the hard way by continuing to lend to the private sector. With a strong focus on advances, the bank boasts an advance-to-deposit ratio (ADR) of as high as 86 percent in the industry.
While the top line growth of its peers was driven by PIB gains during the year, Silks top line growth is mainly the outcome of its bulky advances portfolio. While its advances continued to grow, the bank also increased its investments portfolio during the year to reap up the benefits of soaring yields on risk-free sovereign securities. Yet, lending remains Silks primary area of focus.
Its spreads have improved significantly, from 28 percent in CY13 to 37 percent this year. Here, rationalization of deposit mix has favoured the expansion in spreads. With the imposition of minimum return on deposits, the bank is working on improving its CASA mix, which stood at 56 percent as of September 2014.
Despite aggressive lending, non-performing loans (NPLs) have been kept in check. The increasing coverage ratio is a manifestation of the improving quality of Silk Banks loan portfolio. With this, the pace of provisioning against NPLs is also slowing down, thus keeping the bottom line in comfort zone.
Besides, the banks treasury wing also deserves some brownie points. Non-mark-up income grew by a healthy 30 percent year-on-year, with the growth being driven by fee, commission and brokerage income; gain on sale of securities and unrealized gain on re-measurement of investments.
Besides, administrative expenses were kept under control during the year. Owing to the aforementioned reasons, the bank turned around this year to a profit of Rs86 million in contrast to a loss of Rs1,155 million in the preceding year. Although all looks well for Silk for now, further improvements on the coverage side can serve the bank well in coming months.

============================================================

Silk Bank (Profit & Loss Account)

============================================================

Rs (mn)                              CY14      CY13      Chg

============================================================

Markup Earned                       9,429     7,622      24%

Markup Expenses                   (5,969)   (5,462)       9%

Net Markup Income                   3,460     2,160      60%

Provisioning against NPLs            (79)     (420)     -81%

Net Markup Income after provision   3,092     1,527     102%

Non Mark-up/Interest Income         1,720     1,325      30%

Total income                        4,812     2,852      69%

Non Mark-up/Interest Expenses     (4,681)   (4,379)       7%

Profit Before Taxation                131   (1,527)        -

Taxation                             (45)       372        -

Profit After Taxation                  86   (1,155)        -

EPS (Rs.)                            0.03    (0.43)

============================================================