Seylan Bank PLC has delivered a resilient financial performance for 2025, surpassing market forecasts and signaling a steady recovery in its underlying credit profile, according to a recent equity research update by First Capital Holdings PLC.

The bank recorded a net profit of LKR 12.2 billion for the full year 2025, marking a significant 20.3% year-on-year increase. Performance in the final quarter was particularly notable, with net profit reaching LKR 3.8 billion, a 9.4% rise compared to the same period in 2024. This result exceeded analysts’ expectations by 5.4%, underscoring the bank’s strengthening fundamentals.

Core banking operations remained a primary driver of growth. Net interest income (NII) expanded by 18.3% year-on-year to LKR 11.3 billion in 4Q2025. This was supported by an 8.3% increase in interest income and a marginal contraction in interest expenses, reflecting highly favorable funding dynamics.

Total operating income surged by 51.1% in the final quarter, a sharp jump largely attributed to the absence of International Sovereign Bond (ISB) restructuring losses that had impacted the previous year’s performance. Fee and commission income also saw robust growth of 21.8%, fueled by increased activity in cards, remittances, and international trade.

A standout highlight for the period was the aggressive expansion of the bank’s loan book, which grew by 29.6% year-on-year to reach LKR 599.8 billion by the end of 2025. The deposit base also grew by 13.3%.

Asset quality showed marked improvement as the bank successfully navigated the tail-end of the economic recovery. The Stage 3 loan ratio, a key indicator of credit risk, fell to 1.03% in 4Q2025, down significantly from 2.10% a year earlier. This was further bolstered by a 95.1% contraction in impairment charges on loans and advances, reflecting a move toward more stable provisioning.

Seylan Bank’s capital and liquidity positions remain a source of strength, staying comfortably above regulatory requirements. The bank’s Total Capital Ratio stood at a healthy 17.89%, while the liquidity coverage ratio remained elevated at nearly 230%, providing ample buffers to support future lending.

Looking ahead, First Capital projects a more moderated pace of growth as the broader economic momentum eases and the monetary easing cycle reaches its trough. Nevertheless, analysts remain optimistic, projecting net profits to rise to LKR 15.9 billion in 2026 and LKR 18.4 billion in 2027.

While the bank’s estimated fair value for 2026 has been revised to LKR 140 per share to reflect market re-rating trends, the stock still offers a compelling total return of approximately 37%. A newly introduced 2027 fair value of LKR 155 implies an even higher potential return of 52%. Citing these strong fundamentals and the significant upside potential, the First Capital report maintains a “Buy” recommendation on Seylan Bank.

By Sanath Nanayakkare