Taxes, impairments wipe out Sri Lankaâ€™s Cargills Bank Sept quarter profits
ECONOMYNEXT – Sri Lanka’s Cargills Bank reported net profit slumped to less than a million rupees in the September 2018 quarter from a year ago as tax costs doubled amid a big jump in bad loan provisioning and higher personnel expenses.
The September 2018 net profit was just 683,000 rupees compared with a profit of 465 million rupees the year before with zero earnings per share against 53 cents in the same 2017 period, interim accounts filed with the stock exchange showed.
In the nine months to September 2018, net profit fell 86 percent to 71 million rupees with EPS of eight cents compared with EPS of 60 cents the previous year.
In the September 2018 quarter, net interest income shot up 48 percent to 537 million rupees with interest income rising 32 percent to just over a billion rupees while interest expenses grew 19 percent to 478 million rupees.
Other income was sharply lower owing to a big one-off gain from the sale of a subsidiary the year before.
Individual impairment for bad loans shot up 811 percent to 25 million rupees and collective impairment was up 112 percent to 69 million rupees.
Pre-tax profit fell 91 percent to 44 million rupees but tax expenses doubled to 43 million rupees during the quarter.
Loans grew to 24.5 billion rupees as at September 2018 from 21 billion rupees in December 2017 while deposit growth was flat at 18.8 billion rupees, the accounts showed.
Cargills Bank chairman Louis R Page said the nine month profit of 71 million rupees “still shows growth of 56% when exceptional gain in the previous year is excluded.”
He said the 46 percent growth in net interest income to 1,530 million rupees in the nine month period reflected increased income from a larger loan portfolio, interest rate benefits from currency swaps and the impact of the inflow of a billion rupees from the sale of the subsidiary.
Impairment charges increased by 223% to 237 million rupees in 2018 owing to the growth in the loan portfolio, non-performance by some large customers and delayed settlements on other loans, Page said.
The bank’s NPA ratio increased from 3.55% at 31 December 2017 to 5.78% at 30 September 2018.
“This is receiving close attention,” Page said. “Management considers the increase is temporary. The bank stringently assesses credit quality and strengthens monitoring and recovery to contain NPAs at an acceptable level.”
Page said credit growth was moderated by a shift in focus to secured lending, an exit from large low yielding facilities and a re- deployment of funds in the SME segment.
“Growth was slower than expected given the prevailing macroeconomic environment,” he said.
“The bank’s deposit base, at 18 billion rupees at 30 September 2018, remained flat compared to the base at 31 December 2017. Rupee denominated deposits grew by a modest two billion rupees which was cancelled out by outflows in foreign currency deposits.”
Page said Cargills Bank has started a deposit campaign targeting 6 month, 1 year and 5 year deposits which was well received and led to a steady inflow of deposits.