The Bank of Ceylon (BOC) reported Rs. 260.5 billion in interest income, a 15% increase over 2020. The benefits of the remarkable loan growth achieved in the previous year materialised during this year, generating an interest income of Rs. 193.1 billion through loans and advances which is 74% of the total interest income. The main contributive portfolios were overdraft, term loan and personal loans.
“During the Covid-19 pandemic the Bank of Ceylon stamped its class by supporting the Nation to uplift the Covid-19 hit economy. Availability of banking services was ensured even during lockdowns without compromising on the customer needs. The digital delivery channels were enhanced to cater to the unprecedented demand and greater customer adoption rates to digital platforms. We continue to stand by our valued customers and our priority was assisting them in all possible ways in order to recover and support the country’s economy with more energy,” said Chairman, Bank of Ceylon, Kanchana Ratwatte.
The debt instruments which mainly comprises Government Treasury Bills, Bonds and other foreign currency Sovereign Bonds brought the major portion of interest income earned from the investment portfolio which stood at Rs. 65.7 billion.
Interest expenses declined by 2% to Rs. 149.3 million in line with the improvement in the CASA ratio to 36% from 35% (2020) and repricing the deposits at lower rates. The inverse movement in interest income and interest expense positively contributed to Net Interest Income (NII) of the Bank and NII increased by 49% to Rs. 111.3 billion YoY.
Non-fund-based income of the Bank grew by 42% YoY basis and the main contributors were fee and commission income and exchange income. Fee and Commission income has shown a sizable growth owing to a flourishing trend reported towards digital banking channels. Suitably,transactional banking related fee and commission income has formed a major portion of fee and commission income reporting 69% of the fee and commission income. During the period under review, an exchange gain of Rs. 9.2 billion was also reported.
Impairment charges for loans and advances for the period amounted to Rs. 35.4 billion bringing the loan to impairment provision reserve ratio to 6%. The NPA ratio stood at 4.5% against4.8% reported by end 2020. Nevertheless, in calculating the impairment charge, the Bank 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. The Bank made an additional expected loss provision using management overlays on identified risk elevated industries.
Investments
Individually significant customers were thoroughly assessed for their repayment capacity irrespective of the moratorium or concessions they enjoyed due to the Covid-19 situation and necessary provisions were made along with the independent review. Consequently, the provision made for stage III customers escalated by Rs.19.7 billion (19%) and provision for Stage II customers increased by Rs. 3.7 billion (32%).
The Bank has considerable exposure to investments in foreign currency denominated sovereign instruments by way of Sri Lanka Development Bonds and International Sovereign Bonds. As per the regulatory and Accounting Standards requirements a significant amount of provision amounting to Rs. 8.3 billion was made for investments in aforesaid instruments accounting the impact of sovereign downgrade.
The operating expenses of Rs. 41.7 billion consists of personnel costs, assets maintenance, deposit insurance and other overhead expenses. The increment of 26% by Rs. 8.6 billion reported in operating expenses in line with the increase in personnel expenses. Other expenses settled at Rs. 12.6 billion for the year with a 18% upward, backed by an increase in deposit insurance premium due to growth in deposit base, upturn in office administration and establishment expenses which includes special transport arrangements for staff and expenses made in relation to Covid-19 related special safety measures at the Bank’s premises. However, the Bank’s cost to income ratio of 32% shows prudent and effective cost management mechanisms adopted by the management to maintain the cost escalation in line with revenue growth.
VAT on financial services which is charged based on the value addition made by the financial services has a direct relationship to the growth in PBT. That’s being the case, the growth of 80% reported in operating profits, the VAT on financial services also increased to Rs.9.0 billion with the 65% YoY growth.
Although the income tax expenses reported in the Income statement is Rs. 5.6 billion after the adjustments made for deferred tax, the total income tax payment which will be paid for the year of assessment accounts to Rs. 10.3 billion.
The Bank’s total assets grew by 27% and reached Rs.3.8 trillion. The key contributive factor is growth in loans and the investment book which denotes about 93% of the assets of the Bank. The Bank’s gross loan book surpassed the Rs. 2.0 trillion mark during 2020 and now stands at Rs. 2.6 trillion, a 22% growth. Lending to the private sector grew by 9%. The Bank maintains adequate coverage for the expected losses and the provision reserve built so far covers the 6% of the total loan book for expected losses.
The Bank’s deposit base increased to Rs. 2.9 trillion with a 16% YoY growth and 77% of the Deposit base comprises local currency deposits. The remaining 21% which denotes foreign currency deposits stood at Rs. 613.2 billion as of end 2021. BoC is the market leader in foreign currency remittances and during this year the foreign currency deposit base grew by 10%. Current and Saving deposit (CASA) base which generates funds at low cost represents 36%. Return on Assets (ROA) ratio of the Bank stood at 1.3% while reporting a 21.0% Return on Equity ratio. Both these ratios improved from the previous year attributable to the increase in profit.
The key regulatory ratio of the Banking industry; Capital Adequacy Ratio (CAR) was maintained well above the regulatory norms. The Tier I Capital and Total Capital ratio stood at 13.1% and 16.8% respectively as of end December 2021, both of which were above the regulatory norms.