BOC RECORDS RS 5.5B NET PROFIT IN 1Q 2022

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Sri Lanka’s banking giant Bank of Ceylon (BOC) has reported a net Pre-tax Profit of Rs 8.9 billion for the first quarter ended 31 March 2022, a near 40 per cent decline versus the pretax profit reported for the same period in 2021 of Rs 14.8 billion , the bank quarterly accounts showed.

With a near doubling of tax to Rs 3.9 billion on lower profits for the period, the bank has reported a Net Profit for the first quarter 2022 of Rs 5.5 billion, a hefty 57 per cent lower than the net profit reported for the same period in 2021.

A near 70 per cent uplift in Net Interest Income (NII) looks the only palatable item in the first quarter 2022 results reported by BOC.

BOC reported their NII for the three months ending 31 March 2022 at Rs 39.8 billion, an increase of 68.6 per cent compared to the NII reported for the same period in 2021. 

Net gains from trading increased by an unprecedented 560 per cent to Rs 6.6 billion from Rs 1.0 billion in 2021.

Similarly, Other Operating Income increased by near 600 per cent to Rs 27.9 billion from a mere Rs 4 billion in 2021. The item reflects the steep depreciation of the Sri Lankan rupee by nearly 50 per cent during January to March 2022 and resulting exchange gain from the revaluation of foreign currency denominated assets and liabilities and transactional foreign currency gains.

Further, the Bank increased the Expected Loss Rate to 12 per cent 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. 8.1 billion for the increase in credit risk and changes in ECL factors.

Accordingly, the Bank made impairment provision of Rs. 33.9 billionfor 1Q-2022 bringing the gross loan to impairment provision reserve ratio to eight per cent.

Impaired loan ratio (Stage 3) stood at 5.5 per cent against the 5.1 per cent 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 to 12 per cent 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.

Key Performance Ratios are no less unimpressive apart from the uplift in the NII Margin by 29 per cent. Both RoA per cent and RoE per cent have declined by disturbing levels, the former by 54 per cent and the latter by 66 per cent, the steep decline perhaps implying difficulties in turning them around in the future. The level and deterioration in other key ratios – impaired loans, debt: equity and interest cover imply that both the lending activity as well as financial management may need revamping and refocus.

By Ishara Gamage