Promoters step into boost Cargills Bank’s capital requirements

The country’s youngest commercial bank, Cargills Bank Ltd will be getting more capital infusion from its promoters Cargills (Ceylon) PLC (Cargills) and C T Holdings PLC to meet future shortfalls in its core capital requirements. C T Holdings Group Chairman Louis Page said in the latest Cargills annual report that the rights issue, which was supposed to assist meeting the capital adequacy requirements for Cargills Bank, had not been fully subscribed to.

“Shortfalls in taking up the rights issue are to be met through the intervention of promoters both Cargills and CT Holdings as authorised by the regulator,” Page said. He did not specify whether the new capital would be forwarded in terms of equity or debt. The Cargills Bank annual report indicated that the 2015 rights issue had 176 million unallocated shares worth Rs.2.55 billion. However, the rights issue had raised Rs.623.50 million without the allocation of any shares, possibly indicating capital infusion by C T Holdings and Cargills. Cargills Bank had a Tier I capital adequacy ratio of 39.69 percent for the first quarter ended March 2016 (1Q16), compared to 73.00 percent year-on-year (YoY). The Tier II capital adequacy ratio fell to 37.22 percent from 68.96 percent YoY.

The bank’s loan book expanded to Rs.8.17 billion in 1Q16 from Rs.7.21 billion at the start of the financial year, and Rs.2.79 billion YoY. Cargills Bank’s net nonperforming loan ratio for 1Q16 increased to 5.43 percent from nil YoY. The country’s credit growth for 2015 was helped by the interest regime, which was kept artificially low by the Central Bank to provide a stimulus to the economy. However, credit growth has not shown signs of a slowdown despite the recent hikes in policy rates. The net losses for 1Q16 increased to Rs.89.16 million from Rs.73.06 million YoY, while the interest income increased to Rs.241.26 million from Rs.96.84 million YoY and the net interest income increased to Rs.143.89 million from Rs.72.07 million YoY. The operating expenses increased to Rs.247.43 million from Rs.152.19 million YoY. International development funders IFC and DEG, that had held 10 percent shareholding each in the bank at its conception in 2013, divested the shares in 2015. (CW) Cargills and C T Holding together own 36.44 percent of the shares in Cargills Bank, while the Employees’ Provident Fund owns 9.11 percent of the shares.