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Banking sector steady from 2018 – 2020: First Capital Research

Ceylon Today | 4 -1-2018

By First Capital Research

A leading research firm expects the Sri Lankan Banking sector to be stable during the next three years, from 2018 to 2020, with a stable credit growth, reduced Non Performing Loans (NPL) and lower interest rate volatility

First Capital Research (FC Research), in its latest report on the banking sector, provided an indication of Strong Buy, saying, “we expect our banking sector universe to provide 25% average return over 1-Year period exceeding the expected market return.”
FC Research expects private sector credit growth to slow down to and remain stable at 16 percent during 2018 and gradually increase to 18 percent throughout the following two years on improving GDP growth backed by progressing external sector performance levels and lower impairment due to better credit quality, resultant to more business related credit compared to consumer credit.

Further, the firm expects the banking sector interest spreads to stabilize in 2017 and thereon backed by the implementation of ‘Inflation Targeting Framework’,……improved government revenue streams, increased foreign inflows into government securities market, introduction of ‘Liability Management Bill’ to stabilize the interest rate and rate of inflation while the flexible exchange rate policy further supports it.

Core and Total Capital Adequacy ratios were maintained at 12.2% and 15% where the regulatory minimums were 5% and 10% respectively. Larger banks in the sector have already taken necessary steps to raise capital thus meeting the BASEL III capital requirement. This move ensures more stability and paves way for the industry to be more resilient and better poised for future growth, the firm said.

In conclusion, the firm added that with average sector return at 25%, current interest rates make valuations attractive on expected return despite comparatively cheap frontier market valuations.

 

The comments on this report are provided by the Capital Markets Research Unit of First Capital Holdings PLC an investment bank in Sri Lanka.

The company operates in the capital markets of Sri Lanka in government securities – treasury bills and bonds, stock brokering and share market investments, asset management, private wealth management, retirement planning, personal financial planning, unit trust, margin trading, capital market research, trustee services, corporate finance advisory services including corporate debt structuring (debentures, trust certificates, commercial papers), valuations, restructuring, mergers and acquisitions, initial public offerings (IPOs) and project advisory.

The First Capital Group consists of First Capital Treasuries PLC, First Capital Limited, First Capital Markets Limited, First Capital Asset Management Limited and First Capital Equities (Private) Limited covering Colombo, Negombo, Matara, Kandy and Kurunegala.

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.