178-pct tax hike bites Sri Lanka Union Bank March earnings
ECONOMYNEXT – Sri Lanka’s listed Union Bank said profits fell 17 percent from a year earlier to 117.6 million rupees in the March 2019 quarter as tax expenses swelled 178 percent in the period as several exemptions were withdrawn and a new levy imposed.
Earnings were 11 cents a share in the quarter, interim results filed with the Colombo Stock Exchange showed. The bank was trading at 11.50 rupees on Wednesday.
"(Earnings) for the period were affected by a significant increase in the effective tax rate. The effective tax rate for the quarter was 72 percent compared to 52 percent in the comparative period," the bank said in a note to shareholders.
Banks are a favourite target for cash-strapped governments.
Union Bank group’s tax expenses for the quarter surged 178 percent from a year earlier to 105.4 million rupees.
The increase in the effective tax rate was due to the withdrawal of tax exemptions on profits earned on investments in Sri Lanka Development Bonds, mutual funds, and debentures.
The introduction of a debt repayment levy in the quarter also impacted the bank’s effective tax rate. This tax together with a value added tax and nation building tax amounted to 401 million rupees, up 31 percent from a year earlier.
The withdrawal of notional tax credits also impacted earnings, the bank said.
In the March quarter, net interest incomes rose 17 percent from a year ago to 1.2 billion rupees as interest income increased 12 percent to 3.8 billion rupees and interest expenses grew a slower 10 percent to 2.6 billion rupees.
The bank’s interest margin improved to 3.24 percent as at end March, up from 2.98 percent at end December 2018.
Net fees and commission income rose 4 percent from a year ago to 246.5 million rupees.
Bad loans provisioning fell 22 percent to 114.6 million rupees on improved credit quality of individual borrowers, the bank said.
However, non-performing loans rose to 4.32 percent of its loan book, up from 3.68 percent from three months earlier.
Personnel costs rose 7 percent to 521.8 million rupees and other expenses were steady at 472 million rupees.
Union Bank’s loan book expanded 3 percent in the three months to end March 2019 to 84.6 billion rupees while its deposit base contracted 2 percent to 84.9 billion rupees.
Total capital adequacy was 16.01 percent in end March, down from 16.47 percent three months earlier, but was above the regulatory minimum of 12.5 percent.
“We have got a very positive start to the year 2019 with significant growth in the core banking operations. However, the macro-environmental conditions are very challenging which will have an impact going forward," Union Bank’s Chief Executive Indrajit Wickramasinghe said.
"We also plan to add scale to the Bank through in-organic growth strategies, including portfolio acquisitions with the objective of optimising capital utilisation and thereby enhancing shareholder returns," he said. (COLOMBO, 8 May 2019-SB)