Cargills Bank 2Q losses surge to Rs.306mn as pandemic bites

Cargills Bank Limited reported Rs.306 million net loss for the three months ended June 30, 2020 (2Q20) on top of Rs.242.6 million loss in the previous quarter (1Q20), amid the bank’s management seeking the assistance of external consultants to turn the lender’s fortunes around, which were further beset by the pandemic. 

Cargills Bank put off an earlier plan to go public by at least a year to June 2021 due to its challenging business record, exacerbated by the pandemic and the Central Bank allowing time till December 2022 to raise its minimum capital under the broader relief afforded to the banking sector to ride out the pandemic. 

The bank’s performance is in tune with its earlier forecasts for lower profitability and higher non-performing loans this year stemming from the negative impact arising from the debt moratorium relief granted by the Central Bank on interest income, fee income and cash flows. 

Cargills Bank’s 2Q interim report caps the June earning season for licensed commercial banks as the rest filed their interim results in August. 

However, Cargills Bank is freed from such requirements until it becomes a listed entity where the interim results must be filed with the stock exchange within 45 days from the close of the fiscal quarter. 

The bank reported Rs.437.9 million in net interest income for the quarter under review, up 2 percent year-on-year (YoY) while the net fee and commission income halved to Rs.25.9 million amid relief measures by way of deferment of repayment terms of credit facilities, offering of concessionary rates to eligible loan products and waiving off certain fees and charges for a wide swath of pandemic affected individuals and businesses, staved off part of the income. 

The narrowing interest rate margins also weighed on the bank’s performance while the loan book remained largely unchanged at Rs.31.3 billion from March through June, which is largely in line with the broader industry, where the loans lagged heavy deposit accumulation. 

For the six months to June 30, the bank gave Rs.2.4 billion in new loans, which included Rs.838 million money market loans and raised Rs.6.9 billion new deposits leaving a substantial amount of excess liquidity. 

However, the growth in loans gathered pace since July with the private sector credit jumping Rs.78.3 billion in August, indicating that the banks had ramped up loans to their customers with the rebound in economic activities. 
The bank’s net interest margin for the period fell to 4.31 percent in end-June from 4.65 percent in end-March and 5.55 percent in end-December 2019.  The bank reported gross non-performing loan ratio of 16.68 percent, up from 13.78 percent by end-March and 12.79 percent at the beginning of the year. The bank provided Rs.379.4 million for possible loan defaults for the quarter under review, up Rs.150 million YoY, which is in line with the rest of the industry peers, who booked larger provisions expecting higher defaults after relief measures end.  Cargills group in concert with CT Holdings has 65 percent stake in Cargills Bank, while the Central Bank’s Monetary Board has 4.98 percent stake on behalf of the Employees’ Provident Fund.