The People's Merchant Bank (PMB), which stood ahead of the pack in what was a difficult year for merchant banks, has maintained its record of profitability and return to shareholders in the financial year ended March 31, 1998, proposing a 11% dividend..

Net income at Rs. 43 million was up from Rs. 35.6 million a year earlier while the pre-tax profit at Rs. 14.6 million was up 40% from Rs. 10.4 million earned the previous year.

Reporting to shareholders, the company's chairman, Dr. Gamini Fernando, said that the year under review was a difficult one for merchant banks as fee based incomes had fallen. But PMB had been able to remain profitable and ensure a return to their shareholders since their 1994 initial public offering.

Noting that the pre-tax profit was up 40% from the previous year, he said that prudent lending enabled the bad debt provision to be held at 1% of the loan book and increased corporate finance activities enabled a favourable result.

He also said that the Rs. 10 million provided against a specific bad debt the previous year may not be a write-off as the Treasury had agreed to take it over under a scheme of restructuring industries in financial difficulties.

The company's director/general manager, Ananda Wehella, said that although fee based income grew only 9%, income from fund based activities were up 120%. Loan syndication for a thermal power project and a beer factory had boosted their fee income, the GM said.

Noting that although the number of merchant banks in the country had increased from 7 to 10, Wehella said that the Central Bank had reported that their total income had dropped 11%. 90% of such income was fund based and only 10% fee based. At PMB, their ratio of fee based to fund based income was 1:12.

Falling interest rates mounted pressure on the merchant banks during the year. Wehella said. Over liquidity in the money markets reduced credit demand and pushed down lending rates.

He said that the outlook for PMB looks rosier in the context of stabilising interest rates and they had several fee based projects in the pipeline. They planned to open at least three branches in the big towns in the forthcoming year and also increase their fund base by a Rs. 100 mn. redeemable debenture issue.

However, PMB which saw its quoted share portfolio costing Rs. 34.1 million with a market value of Rs. 31.9 million as at March 31, 1998, will have to contend with the sharp downturn in the Colombo stock market since the balance sheet date.

The company has an issued share capital of Rs. 135 million. Its directors are Dr. Gamini Fernando (chairman),, Messrs. K.K.L. Piyasena, S. Sunderalingam, H.A. Wehalle, R.T. Wijetillake, M.R. Prelis, A.P. Weerasinghe, N.B. Elias (alternate M. Radhakrishnan).