People’s Bank Sri Lanka group profit down on bad debt, balance sheet shrinks

ECONOMYNEXT- Sri Lanka’s state-run People’s Bank group, which also has a leasing unit, posted a net profit of 3.2 billion rupees for the March 2019 quarter, down 31.8 percent from a year earlier amid higher credit losses and slow net interest income growth, interim accounts showed. 

The loan book of the bank, the second largest in the country by assets, fell 2.9 percent to 1.38 trillion rupees in March from three months earlier.
 
The balance sheet contracted 0.5 percent to 1.89 billion rupees.
 
Head of Finance Azzam Ahamat told EconomyNext that a trade finance customer settled forex loans, which was one reason leading to the contracting of the loan book.
 
Trade financing foreign currency loans fell to 114.2 billion rupees from 172.6 billion rupees. US dollar term loans grew to 153 billion rupees in the March quarter from 124 billion rupees.
 
Rupee credit at group level was also down to 1.81 trillion rupees from 1.91 trillion rupees in December.
 
Sri Lanka is recovering from monetary instability in 2018 driven by below market interest rates enforced with printed money and a real effective exchange rate index target. 
 
The rupee fell from 153 to 182 to the US dollar during 2018, but has been allowed to recover to 176 to the US dollar in 2019.
 
People’s Bank group interest income grew 15 percent from a year earlier to 52.8 billion rupees in the March quarter, while interest expenses grew at a faster 21.6 percent to 34.3 billion rupees and net interest income grew at a slower 4.6 percent to 18.5 billion rupees.
 
Provisioning for bad loans grew 39.9 percent to 2.7 billion rupees.  There was a 367.3 million rupee provisioning charge on ‘other financial assets’.
 
"The increase in impairment for other financial assets: approximately 70 percent related to those provided on account of Debenture investments,"  Ahamat said.
 
"Much of the balance stemmed from undrawn loan commitments/other contingencies," he said.
 
Provisioning for non-financial assets were 465.6 million rupees in the March quarter from 187.9 million rupees a year earlier, as the subsidiary Peoples Leasing & Finance Plc transitioned to the new IFRS 9 accounting standard.
 
Other expenses grew 31.3 percent to 4.8 billion rupees.
 
"The increase in other operating expenses stemmed primarily from network expansions/developments including those IT related and marketing & promotional activities (including deposit mobilization related)," Ahamat said.
 
Deposits grew 1.8 percent to 1.5 billion rupees.
 
Contingent liabilities of state-owned enterprises backed by the group fell 4.6 percent to 390.6 billion rupees.
 
Gross non-performing loans grew to 2.90 percent from 2.49 percent during the three months, against an industry average of 4.2 percent. 
 
Bank-level total capital ratio improved to 15.02 percent in March from 14.47 percent in December, against a minimum requirement of 14 percent. (Colombo/Jun24/2019)