BOC posts subdued 1Q performance amid unprecedented challenges

Bank of Ceylon (BOC) has reported Rs.3.3 billion of profit before tax for the three-month period ended on March 31, 2023, amidst the unprecedented challenges continued to prevail from the previous year.
The interest income of the bank grew by 61 percent to Rs.137.8 billion, primarily due to the increase in AWPLR compared to the corresponding period of the previous year. However, interest expenses grew by 162 percent, as the funding mix has been repriced at higher rates, resulting in high cost of funding and led to a 53 percent decline in net interest income by Rs.21.2 billion, compared to 1Q 2022, since the bank has not transferred the full impact of the increase in the market interests to its loyal customers, in order to revive their businesses in this trying time, despite many headwinds to the bank’s current operating environment.
The net fee and commission income amounted to Rs.4.4 billion, with 13 percent growth, mainly backed by the increase in commission income from card-related transactions and travel and remittance-related services. 

Income from trading and investment activities and other operating income resulted in a negative note, due to the exchange loss reported during 1Q 2023, in line with the 10 percent LKR appreciation.
Chairman President’s Counsel Ronald C. Perera stated, “The bank’s concerted efforts on supporting the customers to revive through the never expected economic turmoil will be continued to ensure the survival of their businesses and proactive measures taken during the previous years helped the bank to manage its stage three loan ratio at 5.34 percent as of end-1Q 2023 (December 31, 2022: 5.27 percent). Our key focus and policy direction is to support all stakeholders of the bank. This effort may have resulted in a short-term cost to the bank but our long-lasting relationship with all stakeholders will bring prosperity to all groups in times to come.”
Nevertheless, the bank has maintained a prudent level of impairment provision for the expected loss from loans and advances and investments.
Operating expenses for the quarter reported an increase of 16 percent in the backdrop of cost escalation, due to inflation. Accordingly, the bank has reported the PAT of Rs.3.3 billion, with a 39 percent decline over 1Q 2022. At the end of 1Q 2023, the bank’s asset base recorded a negative growth of 6 percent, reflecting the impact of LKR appreciation, as around 30 percent of total assets comprises foreign currency-denominated loans and advances and investments. Amidst the high competition prevailed in the market, the bank’s deposit base stood at Rs.3.3 trillion as of end-March 2023.
Despite the adverse headwinds, the bank has complied with the regulatory capital requirements above the stipulated norms by maintaining the Tier I Capital Adequacy Ratio of 12.74 percent and Total Capital Adequacy Ratio of 15.66 percent. Meanwhile, all the liquidity ratios also improved, given the positive market liquidity vibes conquered during the period under review.
The bank’s General Manager/Chief Executive Officer Russel Fonseka highlighted, “Despite never experienced challenges, the bank has been able to maintain its position and steering the bank strongly and prudently in the next few years is of utmost importance and is on a pathway to stable growth with a growing market share and an increasing asset base made possible through scaling up of digitisation, pursuit of operational efficiencies and expert capacity of the cadre.” 
Further, he stated, “The bank has already identified the key challenges yet to be faced by the banking industry, due to the contraction of the economy and slow growth, debt restructuring programme and other government fiscal reforms. Based on these challenges, the Sri Lankan banking industry will have to face a never experienced operating context. BOC, as the largest local commercial bank of the country, it is vital to carefully manage the banking activities to support economic recovery and revival at large. Hence, in next couple of years, the bank’s key focus will be strengthening its balance sheet, instead of short-term profitability. Similarly, the bank has adopted the same strongly during last few years too.”