Cargills Bank hurt by rising NPLs and sluggish economy

Cargills Bank PLC recorded a net loss during the period ended in June 30, 2019 (2Q19) as the lender was stung by hefty non-performing loans in a hobbling economy. 
The bank reported Rs.64.4 million loss or 7 cents per share in negative earnings for the three months under review compared to a profit of Rs.52.5 million or 53 cents a share. 

The poor bottom line resulted from heavy credit losses due to rise in non-performing loans and the contraction in net interest income stemming from the modest loan growth and the heavy interest cost. 

The licensed lender of the Cargills group with an asset base of slightly under Rs.36 billion had 13.8 percent gross non-performing loans ratio by the end of June 2019.   
This is an increase from 6.04 percent at the beginning of the year. The bank has a loan book of Rs.27.8 billion, up Rs.3.1 billion during the first half of the year (1H19).
During the quarter, provisions made against possible bad loans more than doubled to Rs.136.4 million. For the six months, such provisions surged to Rs.434.9 million compared to Rs.142.1 million in the period year earlier. 

“Given the bank’s relatively modest loan portfolio, the impact of a few large ticket loans continued to act as a significant impediment on profitability, prompting the development of individualized action plans for the recovery of the remaining dues,” a Cargills Bank statement said. 

At one point the large ticket loans, primarily from the corporate and the mid-market segments had consisted of Rs.2.3 billion or 60 percent of the bank’s total non-performing loans, Cargills Bank said. 

This had been brought down to Rs.1.64 billion or 43 percent of the total non-performing loans by June. 

“The fragmentation of NPAs – with primary exposure being in corporate and mid-market further validates the overall strategic emphasis of the bank towards retail and SME, hence the overall growth prospects of the bank remain unhindered,” Cargills Bank Managing Director Rajendra Theagarajah said.

The contraction in the net interest income was partly coming from the modest growth in interest income due to the suspended interest as a result of the non-performing loans and the slower growth in new loans. 

The other reason was the faster increase in interest expenses coming from  foreign currency borrowings and growth in term deposits, the bank said. 
Cargills Bank had raised a medium term loan facility of Rs.900 million from a multilateral lender—its first non-deposit funding. 

The bank is also in the process of finalizing a senior debenture for the second half of the current financial year in order to ease off the pressure on deposit mobilization, which is now slow paced after the Central Bank capped interest rates. 

Meanwhile, during the six months, the bank raised Rs. 1.6 billion in deposits.

For the six months, the bank reported a loss of Rs.260.9 million or a loss per share of 30 cents compared to a profit of Rs.70.8 million or 58 cents a share reported for the same period last year. 

The bank’s promoters, Cargills Ceylon PLC and CT Holdings PLC together own 65 percent of the shares of the bank although their voting rights are limited to 30 percent by the Monetary Board. 

Meanwhile, the bank is taking steps towards listing it on the Colombo Stock Exchange. 

“Cargills Bank has taken the initial steps towards the listing of its shares within the time frame stipulated by the Central Bank. 

“The bank has also been engaged with selected institutional investors, who would add value to the bank’s business model, in its capital raising process to comply with the minimum capital requirement by end 2020 and in the digital journey”, the statement added.