Cargills Bank Limited showed signs of better prospects in the highly competitive Sri Lankan banking landscape as it recorded a positive growth in the most recent quarter, supported by a strong growth in loans.
Cargills Bank, the new kid on the block, turned a net profit of Rs.16.5 million or 2 cents a share for the April – June quarter (2Q17) from a net loss of Rs.38 million or 7 cents a share incurred in the same period in 2016, the interim financial accounts showed.
However, the group subsidiary, Capital Alliance Finance PLC, increased its losses as reflected in the higher increase in losses of the minority interests.
In 2014, the bank acquired Capital Alliance Finance under the finance sector consolidation plan that was later abandoned by the new government. The Cargills Bank’s board’s choice of its current Chief Executive Officer, P.S Mathavan appears to have worked as he has been driving the bank towards growth and profitability under his relatively short tenure thus far.
Mathavan was the former Chief Financial Officer of the Cargills group. The bank also has veteran banker Rajendra Theagarajah as its Deputy Chairman.
The group with an asset base of little under Rs.16 billion grew its interest income by 93 percent year-on-year (YoY) to Rs.694.2 million while the interest cost rose by 115 percent YoY to Rs.305.8 million.
The net interest income was Rs.388.4 million, up 79 percent YoY.
Cargills Bank’s net interest margin improved to 6.96 percent from 6.47 percent at the beginning of the year compared to an industry average of 3.6 percent.
During the six months ended June 30, 2017 (1H17), the bank grew its loan book by a strong Rs.3.2 billion to Rs.16.8 billion.
Given the size of the bank with only 14 branches the growth in loans is commendable, particularly at a time when the market conditions remain challenging.
The bank operates with competitive lending rates as it received a capital boost last year.
In 2016, the bank’s promoters infused fresh capital of Rs.5.8 billion in order to meet the Central Bank’s minimum capital requirement.
Currently, the bank’s Tier I and Tier II capital adequacy ratios stand at 42.34 percent and 41.49 percent respectively.
Meanwhile, the new deposits during the first six months grew by Rs.3.6 billion with the bulk of the growth coming from term deposits.
However, there was a significant erosion of low cost deposits as the current and savings account (CASA) ratio fell to 14.6 percent from 27.2 percent at the beginning of the year.
In March, the bank facilitated its account holders to do basic transactions such as deposits, withdrawals and fund transfers via point of sales (PoS) counters at Cargills Food City supermarkets.
The bank also launched its mobile banking app enabling the shoppers to make payments for the goods they purchase at Cargills supermarkets via the app.
For the 1H17, the bank reported a net profit of Rs.61.4 million or 7 cents a share from a loss of Rs.123.6 million or 23 cents a share.
For the period, the loan impairments almost doubled to Rs.41.6 million. The gross non-performing loan ratio spiked to 2.24 percent from 0.94 percent.