The state-owned banking giant, Bank of Ceylon (BOC), said it reported Rs.30.3 billion in profit before tax (PBT) for the financial year ended December 31, 2017 (FY17), maintaining its position as the highest profit-earning single entity in the country.
This was an 8 percent growth in PBT, when adjusted for the one-off gain recorded in 2016, through the disposal of Mireka Capital Lanka, the bank said. The profit after tax (PAT) for FY17 stood at Rs.21.3 billion.
The total operating income grew by 3 percent during the year, notching the Rs.74.3 billion mark. The net interest income contributed to 78 percent of the total operating income and the year-on-year (YoY) growth of the net interest income was 8 percent.
In March 2017, the Standing Deposit Facility Ratio (SDFR) and Standing Lending Facility Ratio (SLFR) were increased by 25 basis points, up to 7.25 percent and 8.75 percent, respectively.
Followed by the change in policy rates, the market interest rates moved further upward and the high interest rate regime, which prevailed throughout the year, except for the latter part of the year in which the interest rates recorded a slight slowdown.
Whilst the increasing trend in market interest rates resulted in an increase in both interest income and expenses, the net interest margin of the bank only shed 10 basis points over the previous year, due to its effective management of cost of funding.
The interest income earned through investment activities, particularly in treasury bills and treasury bonds, also contributed towards the growth in the net interest income.
In the mid of a subdued performance reported from the trade sector, the bank reported a growth of its net fee and commission income, due to the timely and meticulous strategies it adopted to diversify its avenues of revenue.
The net operating income for the period reflected a marginal reduction of 4 percent, mainly due to the Rs.4.9 billion increment reported in the impairment charges.
The underlying cause is the change in the base of impairment recognition, due to the transfer of a number of collectively impaired customers to the individually impaired category during the year and the bank adopting a more prudential approach to the new accounting standards that are coming to effect in 2018.
During the year, the economy was performing below the expected level and the bank also had to absorb the impact of the prolonged drought, which prevailed in the northern part of the island.
However, the successful credit management policies adopted has enabled BOC to maintain the NPA ratio at 2.8 percent, as in the previous year.
The bank has been able to achieve a 9 percent reduction in its total operating expenses due to the efficiencies achieved via many process changes introduced. Also depicting the bank’s effective cost benefit management, the cost to income ratio came down to 38 percent from 43 percent of the previous year.
The financial strength of the bank is showcased by its ability to record Rs.30.3 billion in PBT even after recognizing an impairment provision of Rs.9.3 billion into its accounts.
This gives a strong indication of the bank’s ability to continue its strong financial position, even in midst of financial shocks, which directly impact its profits.
The income tax, VAT, NBT and dividend, which constitute the bank’s value to the government coffers, amounted to Rs.28.6 billion during the period under review. This is 76 percent of the profit before financial VAT, NBT and taxation.
BOC has been, for a number of years now, the holder of the largest asset base held by any single entity in the country.
This position was further strengthened as the loans and advances figure reached Rs.1.2 trillion and in doing so, the asset base reached Rs.1.95 trillion, bringing BOC closer to another significant milestone—the Rs.2.0 trillion mark. This was a growth of 17 percent.
The loans and advances accounted for nearly 60 percent of the bank’s total assets with the gross loans and advances recording a 16 percent YoY growth, even with the downward pressure exerted on lending by the tight monetary policy in place currently.
Those that contributed most to the growth momentum in the loans and advances portfolio are personal loans, term loans and overdrafts.
The deposit base accounted for 84 percent of the bank’s liabilities as at end-2017 and recorded a growth of 23 percent YoY to Rs.1.5 trillion. However, the 36 percent increase in time deposits has resulted due to the industry-wide move towards higher yielding deposits, as a response to the high interest rates prevailed during the year.
The bank’s return on average assets (ROAA) ratio stood at 1.7 percent and return on average equity (ROAE) ratio stood at 20.9 percent, portraying BOC’s ability to generate healthy returns for the owners, despite the increased assets base over the period.
The reduction in the ROAE from 28.4 percent to 20.9 percent over the year has been the result of the capital infusion the bank received from the government in the last month of the financial year. The bank aims to generate the returns from this capital in the year 2018.
Consequent to the previous year, the bank’s domestic liquid asset ratio was at a moderate level of 27.2 percent as at end-2017, standing much above the Central Bank’s required benchmark of 20 percent.
The off-shore liquid asset ratio was at 21.9 percent, against the required benchmark, indicating stability in the foreign currency liquid assets of the bank.
The bank managed to maintain a better trade-off between liquidity and interest earning assets. The bank also continued to sustain the capital adequacy ratio (CAR) by maintaining the total capital of Tier I and Tier II at the 14.6 percent level, against the Central Bank’s minimum requirements of 11.75 percent, according to the BASEL III capital requirements, which came into effect from July 1, 2017.
During the year, the bank received Rs.5.0 billion capital infusion from the Treasury, strengthening the bank’s capital base to Rs.20 billion.