Sri Lanka Seylan Bank reveals restructuring measures

Mar 08, 2011 (LBO) - Sri Lanka's Seylan Bank, being restructured under regulatory supervision has revealed to shareholders some of action it is taking to change processes, trim staff costs and revamp credit policies.

Seylan's directors were changed by the Central Bank amid a run after a financial firm in its founder Ceylinco group collapsed. At the time 29 percent of the bank's loans had gone bad.

The bank told shareholders in the annual report that bad loans had been brought down to 21.2 percent in 2010 from 29.2 percent. The new managers were planning to bring it down to 10 percent by the end of the year.

The bank said its previous board had "taken on excessive and unjustified lending exposures" with many Ceylinco companies. Court cases against Ceylinco companies had made recoveries difficult.

The bank's credit practices have been tightened with a new credit risk unit, and started a training program on credit processes to all staff.

Return on assets had increased to 0.87 percent in 2010 from 0.38 percent, but was still low and return on equity had improved to 10.88 percent from 6.2 percent.

Seylan reported profits of 1.2 billion rupees for the year ending December 2010, up 176 percent from a year earlier.

Seylan said there was "significant restructuring" at Seylan Development PLC, a property subsidiary "which will affect profitability" at a group level.
Its interest rate spread had increased to 6.0 percent from 5.18 percent.

The bank said its cost-to-income ratio worsened to 68.6 percent from 67.8 percent.

Seylan said the bank was overstaffed due to past recruitment and productivity levels were low adding to costs.

It had a top heavy management structure with 40 deputy general managers and assistant general managers including consultants.

"This is a much higher concentration of senior staff than one finds at comparable banks," the annual report said.

"For example, the bank's largest competition, while 2.5 times larger in terms of total assets has only 22 positions at the corporate management level."

The bank had started centralizing functions which is expected to release 400 staff positions which is costing 100 million rupees a year.

The bank was redeploying staff and also retiring staff at 55 years. Seylan has separately said in a stock exchange filing that is starting a voluntary retirement scheme to shed 250 employees.

source - www.lbo.lk