Cargills Bank cuts 3Q loss on significantly lower provisions

Cargills Bank Limited cut losses by nearly half in the three months to September 30, 2020, predominantly aided by significantly lower loss provisions against the possible bad loans compared to the previous year.

Accordingly, the Cargills group’s licensed commercial bank reported a loss of Rs.127 million in the July-September quarter, compared to a loss of Rs.215 million in the comparable period in 2019. 

The bank with assets over Rs.44 billion, provided Rs.62.2 million as possible losses from bad loans in the three months, compared to Rs.573.1 million set aside in the same period in 2019. While the banking sector as a whole was battered by the pandemic, the sector earnings were blunted mostly by the heavier provisions set aside for possible loan defaults in the three months to September.  Sri Lanka’s listed companies’ earnings jumped 53 percent to Rs.73.7 billion in the three months to September, the highest such three months stretch since further quarter of 2018. According to the research arm of Softlogic Stockbrokers, this is a 287 percent surge from 2Q20 and more than double from 1Q20, clearly signifying the pace of the economic rebound since the end of lockdowns in mid-May.    Cargills Bank grew its loans by Rs.1.11 billion in the nine months to September to Rs.29.9 billion, with little over Rs.500 million coming from credit cards.  The bank’s gross non-performing loans ratio rose to 16.46 percent, compared to 12.79 percent, as the bank has a systematic asset quality issue, predominantly due to its exposure into one large corporate loan, which is now in dud form. The bank, meanwhile saw its deposit pile going up by Rs.5.5 billion in the nine months to Rs.30.5 billion, a phenomenon seen across the industry.  The bank recorded a net interest income of Rs.332 million for the three months, compared to Rs.701.2 million in the year earlier period, as new loans lagged deposit growth while the net interest margin fell from 5.55 percent to 4.14 percent.  The bank had recognised a loss of Rs.48 million as day-one loss, due to deferment of recovery of loans arising from the moratorium relief scheme. However, it isn’t clear in which quarter and under which part of the income statement—interest income or impairments—the bank recognised this loss. Cargills Bank has shelved plans to go public by at least June 2021, due to both challenging business record, exacerbated by the pandemic and the Central Bank allowing time till December 2022 to raise its minimum capital under the broader relief afforded to the banking sector to ride out the pandemic. The Cargills group together with CT Holdings owns a 65 percent stake in Cargills Bank while the Monetary Board of the Central Bank owns a 4.98 percent stake, on behalf of the Employees’ Provident Fund.