PABC kicks off December quarter earnings with massive provision reversal on sovereign bonds

Kicking off the banking sector earnings for the December 2024 quarter, Pan Asia Banking Corporation PLC (PABC) reported some robust performance for the quarter, which was further propelled by the massive reversal of provisions coming from the International Sovereign Bonds.

Pan Asia Bank reported earnings of Rs.4.33 a share or Rs.1.92 billion for the October-December quarter,compared to Rs.1.38 a share or Rs.612.53 million in the corresponding period in 2023, largely helped by an outsize provision reversal, on account of its International Sovereign Bond investments.

The bank reported provision reversals of Rs.5.44 billion in the quarter, compared to Rs.887.51 million in new provisions made in the comparison period in 2023. The bank had made provisions of about Rs.6.2 billion from its profits coming into the December quarter, which accounted for roughly 55 percent of the sovereign bond investments it had.

However, at the same time, it had recognised a net loss of Rs.3.70 billion for the quarter, on account of the derecognition of the sovereign bonds, which it had already had before the bond exchange formally concluded on December 20, 2024.

This is also called the day-one loss in the industry, which may arise from the difference between the carrying value of the old sovereign bonds and fair value of the new bonds it received at the bond exchange.

Many investors bought into the banking sector, sending their share prices higher from last year through most of January 2025, expecting massive profits from the banks, which could be propelled by these provision reversals.

The bank’s share added Rs.2.10 or 5.50 percent to close at Rs.40.30, before the earnings were released.

The bank’s share was up roughly 15 percent year-to-date, on top of a roughly 65 percent gain in 2024.

Meanwhile, Pan Asia Bank in its normal banking business reported a net interest income of Rs.3.34 billion, up 18 percent from a year ago, as the interest expenses fell faster than the corresponding interest income did.

The bank’s net interest margin expanded slightly to 4.93 percent, from 4.67 percent at the start of the financial year.  

Meanwhile, the fee and commission incomes also rose by 18 percent to Rs.494.43 million from a year ago, in tandem with the growth in the lending activities, the bank said.

The bank gave loans worth Rs.20.99 billion for the full year, expanding the loan book by 15.0 percent, with Rs.4.55 billion in new loans coming in, in the final three months.

The bank also reported its stage three loans ratio at 3.10 percent, coming down from 4.36 percent at the beginning of the year.

For the full year, the bank reported earnings of Rs.9.34 a share or Rs.4.13 billion, compared to Rs.4.19 a share or Rs.1.85 billion.

Billionaire investor Dhammika Perera directly holds a 29.99 percent stake in Pan Asia Bank.