BOC concludes 2021 with unprecedented value creation for all stakeholders

• Profit before tax Rs.43.2bn; revenue growth of 17%
• Net interest income of Rs.111.3bn, with 49% growth
• Total assets reached another milestone to Rs.3.8tn 
• Over Rs.2tn deposits and advances base

State-owned banking giant Bank of Ceylon (BOC) was able to reiterate its position as the undisputed market leader in Sri Lanka’s banking sector with a robust financial performance for the year 2021.

Demonstrating its strength, agility and strategic approach in succeeding in the midst of challenges, the bank was able to show a notable increase in both its fund-based and fee-based incomes during the year and recorded Rs.43.2 billion profit before tax (PBT), regardless of the headwinds created by market interest rate fluctuations and stressed portfolio quality emanating from COVID-19-related economic impacts. 

Mostly, owing to loan growth and continuous credit monitoring efforts put in place during 2021, the bank reported Rs.260.5 billion interest income, which is a 15 percent increase over the year 2020. 

The benefits of the remarkable loan growth achieved in the previous year materialised during this year, generating an interest income of Rs.193.1 billion through loans and advances, which is 74 percent of the total interest income. 

The main contributive portfolios were overdraft, term loans and personal loans. The debt instruments, which mainly comprises of government treasury bills, bonds and other foreign currency sovereign bonds brought the major portion of interest income earned from the investment portfolio, which stood at Rs.65.7 billion.

In the meantime, interest expenses declined by 2 percent to Rs.149.3 billion in line with the improvement in the CASA ratio to 36 percent, from 35 percent (2020) and repricing the deposits at lower rates. The inverse movement in interest income and interest expense positively contributed to the net interest income (NII) of the bank and NII increased by 49 percent to Rs.111.3 billion year-on-year (YoY). 

The non-fund-based income of the bank grew by 42 percent on a YoY basis and the main contributors were fee and commission income and exchange income. Fee and commission income has shown a sizable growth, owing to a flourishing trend reported towards digital banking channels. 

Transactional banking-related fee and commission income formed a major portion of fee and commission income, reporting 69 percent of the fee and commission income. During the period under review, an exchange gain of Rs.9.2 billion was also reported.

Meanwhile, impairment charges for loans and advances for the period amounted to Rs.35.4 billion, bringing the loan to impairment provision reserve ratio to 6 percent. The NPA ratio stood at 4.5 percent, against 4.8 percent reported by end-2020. 

Nevertheless, in calculating the impairment charge, the bank said it always follows a prudential approach, given the high degree of uncertainty and extraordinary circumstances in the short-term economic conditions mainly caused by the continuous disruptions to businesses. The bank made an additional expected loss provision using management overlays on identified risk elevated industries.

Individually significant customers were thoroughly assessed for their repayment capacity irrespective of the moratorium or concessions they enjoyed due to the COVID-19 situation and necessary provisions were made along with the independent review. Consequently, the provision made for stage III customers escalated by Rs.19.7 billion (19 percent) and provision for Stage II customers increased by Rs.3.7 billion (32 percent).The bank has considerable exposure to investments in foreign currency-denominated sovereign instruments by way of Sri Lanka Development Bonds and International Sovereign Bonds. As per the regulatory and Accounting Standards requirements, a significant amount of provision amounting to Rs.8.3 billion was made for investments in aforesaid instruments accounting the impact of sovereign downgrade.  

The bank’s operating expenses of Rs.41.7 billion for the period under review consisted of personnel costs, assets maintenance, deposit insurance and other overhead expenses. The increment of 26 percent by Rs.8.6 billion reported in operating expenses in line with the increase in personnel expenses due to the revision of salary scales according to the collective agreement, absorption of trainee staff assistants to the permanent cadre and provision made for post-retirement benefit plans.  Other expenses settled at Rs.12.6 billion for the year with an 18 percent upward, backed by an increase in deposit insurance premium, due to growth in deposit base, upturn in office administration and establishment expenses, which includes special transport arrangements for staff and expenses made in relation to COVID-19-related special safety measures at the bank’s premises. 

However, the bank’s cost to income ratio of 32 percent shows prudent and effective cost management mechanisms adopted by the management to maintain the cost escalation in line with revenue growth.   
In terms of the bank’s tax expenses, VAT on financial services, which is charged based on the value addition made by the financial services, has a direct relationship to the growth in PBT. That’s being the case, the growth of 80 percent reported in operating profits, the VAT on financial services also increased to Rs.9.0 billion, with the 65 percent YoY growth. 

Although the income tax expenses reported in the income statement is Rs.5.6 billion after the adjustments made for deferred tax, the total income tax payment, which will be paid for the year of assessment, accounts to Rs.10.3 billion.

During the period under review, the bank’s total assets grew by 27 percent and reached Rs.3.8 trillion, preserving its industry leadership. The key contributive factor is growth in loans and the investment book, which denotes about 93 percent of the assets of the bank. The bank’s gross loan book surpassed the Rs.2.0 trillion mark during the year 2020 and now stands at Rs.2.6 trillion reporting a 22 percent growth during the period under concern mainly backed by growth in overdrafts, term loans and personal loans. 

The lending to private sector grew by 9 percent during the year and the bank continued to extend its support towards business revival. Focusing more on maintaining the portfolio quality and with a view to addressing non-performing facilities being transferred to hardcore facilities, the bank setup a Business Revival unit. 

The bank maintains adequate coverage for the expected losses and the provision reserve built so far covers the 6 percent of the total loan book for expected losses. 

The bank’s deposit base during the year increased to Rs.2.9 trillion, with a 16 percent YoY growth and 77 percent of the deposit base comprises of local currency deposits. The balance 21 percent, which denotes foreign currency deposits, stood at Rs.613.2 billion as of end-2021.

BOC is the market leader in foreign currency remittances and during this year the foreign currency deposit base grew by 10 percent. Current and saving deposit (CASA) base, which generates funds at low cost, represents 36 percent.

Meanwhile, return on assets (ROA) ratio of the bank stood at 1.3 percent while reporting a 21.0 percent return on equity ratio. Both these ratios improved from the previous year attributable to the increase in profit.
The key regulatory ratio of the banking industry, capital adequacy ratio (CAR) was maintained well above the regulatory norms and the bank always strives to maintain adequate buffers on all its regulatory norms to absorb unforeseen risk factors.

The Tier I Capital and Total Capital ratio stood at 13.1 percent and 16.8 percent, respectively as of end-December 2021, both of which were above the regulatory norms. Despite cash flow deferments in loan instalments, the bank was able to maintain a better trade-off between the liquid assets and its liabilities. All liquidity ratios were maintained on safe zone.

Commenting on the bank’s performance BOC Chairman Kanchana Ratwatte said, “During this difficult situation BOC stamped its class by continuing to play the role of being Bankers to the Nation and supported the nation to deliver its mandate of uplifting the COVID-19-hit economy. Availability of banking services was ensured even during lockdowns without compromising on the customer needs.”

Further commenting on the bank’s services on the post-COVID-19 recovery, he stated, “the bank tirelessly worked on ensuring that maximum benefits of the CBSL announced moratoria were being transferred to customers with least possible time lags. Going further, the bank’s own concession schemes were also offered to customers. At the same time, more focus was given on uplifting the SME sector by way of continuous engagement and giving them the much-needed business acumen in addition to our role of financing. Moreover, as the largest bank in the country, the bank’s leading role in ensuring stable supply of essential import commodities such as fuel, food, vaccines, medical supplies is also noteworthy.”