The Merchant Bank of Sri Lanka (MBSL) has topped the billion rupee turnover milestone in the year ended December 31, 2008 although profit after-tax was down to Rs.205 million from Rs.238 million the previous year, the company’s Chairman, Mr. Janaka Ratnayake, has said in the company’s annual report.

He attributed the profit dip to "a combination of external factors," chiefly the high cost of borrowings and stiff competition especially from the banking sector that has the advantage of access to cheaper funding sources.

Ratnayake said that MBSL’s corporate finance and trade finance businesses are becoming increasingly significant contributors to earnings and he expected such contributions to grow as the bank gradually changes its business mix between fee and fund based income.

"This is the direction in which we are heading as we position ourselves as a true merchant bank," he said. "We are also extending our reach to the rural sector through micro-finance products and new branches."

Ratnayake said that the Bank of Ceylon, the country’s largest state owned bank, which has a controlling 76% stake in MBSL had contributed significantly to the stability of their operations and also helped instill customer confidence.

MBSL CEO Gamini Karunathilake reported that revenue had grown 18.6% over the previous year in the midst of a global economic crisis which is spreading out of the financial markets into the real economy.

Sri Lanka too had to face high interest rates due to reduced market liquidity and double digit inflation which had peaked to 28.2% during the year under review.

"These factors negatively impacted profitability of the company in the year under review," he said adding that high inflation had reduced demand for certain products like leasing.

They also had to contend with difficulties collecting rentals due to the reduction in disposable income of clients. However MBSL had remained profitable despite increasingly turbulent market conditions.

The year had seen MBSL opening its sixth branch in Negombo and linking all branches with the head office to consolidate information management and offer clients a speedy service, successfully managing the IPO of Janashakthi Insurance which was subscribed twice over and a Rs.3 billion debenture issue of the Bank of Ceylon.

MBSL’s leasing and hire purchase division generated the highest income of Rs.771 million representing 74.5% of total revenue, up 7% over the previous year.

The directors have recommended a payment of a first and final dividend of Re.1 per share for the year under review maintaining the same rate as on the previous year.

MBSL has a stated capital of Rs.1.07 billion, a reserve fund of Rs.45.7 million and retained earnings of Rs.567.1 million in its books. Liabilities include Rs.1.17 billion (current) and Rs.380.7 million (non-current).

Shareholders funds were up 7.3% to Rs.1.68 billion at the end of 2008 with the company’s return on equity down to 12.21% from the previous year’s 15.24%.

Other than the Bank of Ceylon, Ceybank Unit Trust owned 5.57% of MBSL and the Distilleries Company 1.07%. All other shareholders own less than one percent.

The MBSL share with net assets of Rs.18.66 per share, up from Rs.17.39 in 2007, traded at a high of Rs.18 and a low of Rs.7 during the year. This compared with a trading range of Rs.19.50 to Rs.12 the previous year.

The directors of the company are: Janaka Ratnayake (Chairman), Ms. W.A. Nalani, Dr. Ranjith Bandara, M.S.S. Paramananda, Lakshman Perera, J.G.B.P. Tissera, P.G. Rupasinghe and V. Kanagasabapathy.