Total Assets base up 10% to Rs. 4.2 t 9% growth propels deposit base to over Rs. 3 t mark
Total Loans and advances reached to Rs. 2.4 t, lending to private sector up 7%
Net Interest income up 68% to Rs. 39.8 b
Pre-tax profit down by 40% to Rs. 8.9 b
Depreciation of rupee forces BOC make additional provision of Rs. 19.4 b for foreign currency denominated loans and advances and
Rs. 8 b for increase in credit risk and changes in ECL factors
Industry giant Bank of Ceylon has managed to improve its lending and deposits in the first quarter whilst profitability suffered due to heavy provisioning influenced by external factors.
During the first quarter ended 31 March 2022, BOC’s total assets grew by 10% and reached Rs. 4.2 trillion, preserving its industry leadership.
The key contributor factor is growth in loans and the investment book which denotes about 92% of the assets of the Bank. The gross loans and advances showed a marginal growth of 2% during 1Q-2022 and stood at Rs. 2.6 trillion due to low credit appetite in line with the sluggish movement in the economy.
The lending to the private sector grew by 7% during the period and the Bank continued to extend its support towards business revival. Focusing more on maintaining the portfolio quality and with a view to addressing transforming of non-performing facilities in to hardcore level, the Bank setup a Business Revival unit during the last year and continued to support the revival of the customers. The Bank maintains adequate coverage for the expected losses and the provision reserve built so far covers the 8% of the total loan book for expected losses.
The Bank’s deposit base during the year has increased to Rs. 3.1 trillion with a 9% growth and 72% of the deposit base comprises local currency deposits. The balance 28% which denotes foreign currency deposits stood at Rs. 879.7 billion as of end March 2022. Current and Saving deposit (CASA) base which generates funds at low cost represents 34%.
BOC said 1Q was an exceptionally challenging period for the entire economy due to external sector pressure. Even though the disruptions to day-to-day operations caused by the COVID-19 were controlled at a satisfactory level, the adverse impact caused to the economy prevailed continuously. However, during the 1Q-2022 the Bank recorded Rs. 8.9 billion Profit Before Tax down by 40% from a year ago and Profit After Tax (PAT) of Rs. 5.5 billion, down by 57%
The net interest income of Rs. 39.8 billion was reported with 68% growth contributing 52% to total operating income of the Bank. Interest income grew by 46% materialising the loans and investment growth reported in the previous year. Out of the total interest income of Rs. 85.3 billion, 67% was represented by the interest income from loans and advances and considerable contribution was delivered by income from Overdraft, Term loans and Retail loans.
The investment instruments which mainly comprises Government Treasury Bills, Bonds and other Foreign Currency Sovereign Bonds brought the major portion of interest income earned from the investment portfolio which stood at Rs. 27.9 billion.
Interest expenses increased by 30% to Rs. 45.5 billion in line with the increase in deposit base and re-pricing the deposits at higher rates immediately with the rate increase exercised in the beginning of the month of March 2022. However, the upward rate shift started from the latter part of the 1Q-2022 will be reflected in the balance periods of the year.
Total net non-fund-based income of the Bank amounted to Rs. 36.6 billion and this includes Rs. 34.4 billion of exchange gain resulted from revaluation of foreign currency denominated assets and liabilities and transactional foreign currency gains due to the 49% rupee depreciation that took place during 1Q-2022.
Net fee and commission income of Rs. 3.9 billion was derived through the retail transaction level banking services and trade finance including card transactions and remittances. Mark to market loss of Rs. 1.9 billion was resulted from the investment in unit trusts and equity shares due to market price fluctuations.
In preparing these Financial Statements, BOC said it adopted the requirements specified under the new CBSL Directions No. 13 and 14 of 2021 on Classification, Recognition and Measurement of Credit Facilities and Financial Assets which have been effective from 01.01.2022 when classifying and calculating the impairment provision for loans and advances and investments.
Further, the BOC increased the Expected Loss Rate to 12% applicable for investments in foreign currency denominated sovereign instruments and foreign currency denominated loans and advances to sovereign in order to capture the impact of country rating downgrade.
Due to increase in exchange rate the Bank had to make additional provision of Rs. 19.4 billion for the foreign currency denominated loans and advances and Rs. 8 billion for the increase in credit risk and changes in ECL factors. Accordingly, the Bank made impairment provision of Rs. 33.9 billion for 1Q-2022 bringing the gross loan to impairment provision reserve ratio to 8%. Impaired loan ratio (Stage 3) stood at 5.5% against the 5.1% reported by end 2021.
In terms of impairment for investments in foreign currency denominated sovereign instruments, the Bank made Rs. 12.6 billion due to downgrade of country rating adjusting ECL (Expected Credit Loss) to 12% as mentioned afore and Rs. 8.6 billion due to increase in exchange rate aggregating the total impairment provision made for investment during the period to Rs. 21.2 billion.
Nevertheless, in calculating the impairment charge, the BOC said it always follows a prudential approach; given the high degree of uncertainty and extraordinary circumstances in the short-term economic conditions mainly caused by the continuous disruptions to businesses.
BOC’s operating expenses of Rs. 10.2 billion consists of personnel costs, assets maintenance, deposit insurance and other overhead expenses. The increment of 5% by Rs. 0.4 billion reported in operating expenses in line with the increase in personnel expenses. Other expenses settled at Rs. 2.6 billion for the period with a 12% dip, backed by the Bank’s effective cost management practices.
VAT on financial services which is charged based on the value addition made by the financial services has a direct relationship to the PBT showed 14% decline to Rs. 2.3 billion in line with the decrease in PBT. Income tax expense for the period amounted to Rs. 3.4 billion.
Return on Assets (ROA) ratio of the Bank stood at 0.9% while reporting a 10.6% Return on Equity ratio. Both these ratios showed a decline compared to previous year due to deterioration in the bottom line.
The key regulatory ratio of the Banking industry; Capital Adequacy Ratio (CAR) was maintained above the regulatory norms and the Bank always strives to maintain adequate buffers on all its regulatory norms to absorb unforeseen risk factors. The Tier I Capital and Total Capital ratio stood at 11.9% and 14.9% respectively as of end March 2022, both of which were above the regulatory norms.
Despite cash flow deferments in loan instalments, the Bank was able to maintain a better trade -off between the liquid assets and its liabilities. All liquidity ratios were maintained in the safe zone.
During the year 2021 Fitch Ratings (SL) reaffirmed the credit rating of AA- (lka) assigned to Bank of Ceylon and the rating assigned by the ICRA Lanka states as SL (AAA) under watch with negative implications.
BOC said its approach on service delivery has now reached more towards digital and virtual delivery channels. A greater surge was experienced in the customer adoption to those channels during the pandemic and the Bank was ready with the required infrastructure to cater this growing demand, resulting an increase in the Bank’s digital and virtual transactions.
During the last year Bank added 104 new CRM machines to its service channels and the Bank has more than 1,400 digital customer touch points and more than 670 physical customer touch point island wide.
FT