The licensed commercial bank, Pan Asia Banking Corporation PLC saw its net profit for the quarter ended June 30, 2016 (2Q16) increasing by a modest 10 percent to Rs.299.8 million or Rs.4.08 a share from a year ago but the growth in the loan book slowed amid narrowing margins, the interim results showed. 

The net interest income grew by 18 percent year-on-year (YoY) to Rs.1.15 billion but the rise in interest expenses exceeded the growth in interest incomes for the period as the rise in interest rates took a toll on the bank’s funding cost as the deposits had to be re-priced higher, the bank said in a note. 

During the six months ended June 30, 2016 (1H16), the lender expanded its loan book by little over 6 percent or Rs.5.5 billion to Rs.91.8 billion. 
Gold-backed loans grew by Rs.1.26 billion during the period. 

The bank however was seen funding its total growth in loans through the customer deposits as such deposits grew by 7.06 percent or Rs.5.9 billion to Rs.83.6 billion. 
The low-cost deposits, current and savings account ratio took a steep fall to 23 percent from 28 percent in December 2015 as the bank’s mid-term deposits has grown while the savings and current accounts falling as some of the low-yielding savings shifted to higher-yielding fixed deposits. 

This resulted in higher funding cost to the bank, which dented the net interest margin to 4.11 percent from 4.34 percent in December 2015. 
Meanwhile, the fee and commission-based incomes have grown by a strong 38 percent YoY to Rs.249.6 million mainly due to the credit-related fee incomes, the bank said. 
The net gains from trading almost halved to Rs.54.7 million from a year ago due to the rise in gilt securities leading to fair value losses in the bank’s trading book. 
Other operating income fell by 12 percent YoY to Rs.127.6 million probably due to the adverse impact from the revaluation of the foreign currency reserves. 
The provisions made for possible bad loans in respect of individual customers rose by 124 percent YoY to Rs.145.4 million but the provisions made on the entire portfolio – collective impairments – turned a reversal of Rs.54.3 million from a provision of Rs.170.7 million a year ago reflecting the improved quality of the portfolio. 

The gross non-performing loans ratio slightly fell to 4.39 percent from 4.84 percent six months ago due to continuous efforts by the bank on recovery and rigid credit risk management policies. 
Although there is a slight improvement in the capital adequacy ratios from December 2015 – Tier I at 7.88 percent and Tier II at 11.53 percent – both ratios are nearing regulatory minimums of 5 percent and 10 percent, respectively requiring a fresh capital injection. 

The bank’s Tier I capital stands at Rs.5.9 billion but the Central Bank is soon expected to issue a directive asking banks to raise Tier I capital up to either Rs.15 billion or Rs.20 billion. 
With thin margin of safety between the bank’s capital adequacy and the regulatory minimums, the growth will be soon capped in the absence of fresh capital, the banking sector analysts have been saying. 
Meanwhile, for the 1H16 the bank posted a net profit of Rs.603.7 million or Rs.4.10 a share, an increase of 34 percent from the same period last year. 
Business tycoon Dhammika Perera held a 29.99 percent stake in the bank as of June 30, 2016.