The Merchant Bank of Sri Lanka Ltd has recorded the highest profit in the 25 year history of the bank. The Bank’s third quarter ending results have been outstanding with a 32% growth in revenue and profit over the corresponding period over the last year.

Cumulative revenue and profit after tax for the 09 months ending 30 September 2006 recorded LKR 517 M and LKR 157 M respectively. The high profit growth was largely due to steady growth in business volumes, efficient management of lending together with excellent recovery practices which have all contributed to this success.

A growth in the Balance Sheet too was recorded during the 09 months. Lending portfolio increased by 18% while borrowings decreased by 6%. Shareholder funds too increased by 7% after the payment of a dividend of 7.5%. The bank’s assets amounting to LKR 3.3 billion comprise of the bank’s gross loans and advances contributed by leasing, hire purchase and trade financing.

The bank’s largest portfolio, leasing (LKR 1,757 million) has been expanding steadily, but slowed down with the introduction of Hire Purchase (LKR 775 million). Hire purchase has been growing faster than any other product in its portfolio due to the exemption of VAT on rental, which has been an industry wide phenomenon.

The bank’s trade finance unit has been consolidating its position during the year and has been focusing on recovery of bad debts. The unit recorded a turnover of LKR 93 million with a contribution of LKR 58 million reflecting a growth of 82% and 150% respectively.

Corporate Finance and Capital Markets unit too recorded a remarkable income and profit growth of 147% and 600% respectively. The most significant being the increase in fee based capital market and corporate advisory activities. In the area of corporate advisory activities, MBSL is closely working with SBI Capital Markets Ltd., the merchant banking arm of State Bank of India (the largest commercial bank in India), with whom an alliance was formed and which has been a strength to the bank.

The bank registered a significant improvement in its gross NPL from 16.5% as at FY Dec 2005 to 11.9% as at 30th September 2006. Efficient management of lending together with excellent recovery practices contributed to this improvement. The Cost to Income ratio too reduced from 51% to 47.8% during the same period. Earnings per Share for the period is LKR 0.75 as to of LKR 0.94 over the corresponding period over the last year.

This decline was due to the dilution of share capital by way of a Rights Issue in November 2005.

MBSL currently operates 05 branches in Kandy, Galle, Kurunegala, Maharagama and Anuradhapura in addition to the Head office at BOC Merchant Towers Colombo 3. The Bank also has the majority holding at Merchant Credit of Sri Lanka Limited.

The bank is chaired by Udayasri Kariyawasam, who is also the Chairman of Bank of Ceylon. Currently Bank of Ceylon has a holds 76% of the shareholdings. This has been the first year the bank being under the leadership of Mr. Kariyawasam, and the bank has immensely benefited with his dedication and active involvement in strategic activities.

The outlook for the last quarter gave cause of concern with the escalating cost of borrowing, general inflation on the rise and the worsening security situation in the country. However, the recently announced MOU between the two main political parties and the government’s positive response toward the resolving the deadlock reached at Geneva talks II, we hope, will result in a peaceful and stable environment.