Banking Sector profitability has improved steeply with a growth of 71.1%YoY in 3Q2023 whilst PBT of the big 6 listed banks grew by 93.4%YoY to LKR 32.1Bn in 4Q2023, First Capital Research said in a report.
They also point out reduction in non-performing loans played as a key catalyst towards the recovery in profitability with stage 3 NPLs of the big six averaging at 5.04% in 4Q2023 cf. 5.82% in 3Q2023. Meanwhile, as anticipated banking sector NPL ratio climbed and peaked at 13.6% in 3Q2023 cf. 13.4% in 2Q2023.
Private sector credit recovered during 2H2023 by 4.1%YoY cf. -4.5% in 1H2023, with big 6 listed banks growing of 2.7%. Amidst the steep decline in AWDR, banking sector CASA base improved to 30.6% in 3Q2023.
Meanwhile they point out that Banking sector capitalization continued to improve since their last report and recorded at 3.6%YoY growth in Tier 1 capital and 1.8%YoY growth in Tier 2 capital in 3Q2023 with several banks raising debentures during 4Q2023 as interest rates decline steeply.
Despite a slight uptick in prices since their last update, the banking sector continues to trade 0.5x book value, offering opportunities close to doubling the investments, given that the Big Six has already offered an average ROE of 11.4% in 4Q2023.
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