Industry giant Bank of Ceylon has managed to improve its income in the first quarter whilst profitability suffered due to heavy provisioning influenced by external factors, BoC sources said.
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.
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.
