Lower credit costs bolster Pan Asia Bank September profits

Aravinda Perera - Chairman	Naleen Edirisinghe - CEO

Kicking off the banking sector earnings for the September quarter, Pan Asia Bank PLC showed that they can now afford to set aside only a little for possible loan losses as the rates ease and the economy improves, gradually enhancing the borrower profiles than they were a year ago.

The bank provided only Rs.93.1 million for possible bad loans in the quarter ended in September 2024, only a fraction of the Rs.832.9 million they provided in the same period a year ago as they no longer have to fear the higher defaults as they used to, as their clients see less pressure on their cash flows and thus are regaining their ability to repay their loans in an economy with lower rates and growth in the output.

Further, the banks no longer have to worry over what could happen to their holdings in the international sovereign bonds which are now in default for two years as Sri Lanka made clear that they were going ahead with the agreements in principle they entered into with the bond holders 
in September.

The agreements which are expected to be sealed into real deals in earnest by re-issuing new bonds with extended maturities are expected to result in large provision reversal in these banks as the banks set aside at least 50 percent of the face value of these bonds, potentially enhancing their future earnings.

As a result, the banking sector counters have mounted some large gains post the announcement of the in-principle agreement with the bond holders on September 19.

The bank reported earnings of Rs.2.69 a share or Rs.1.19 billion in the July – September quarter, compared to 72 cents a share or Rs.316.7 million in the same period in 2023.

The bank’ share added 10 Cents or 0.42 percent to close at Rs.24.00 at the market close before the earnings were released after the market close.

The bank could not make much headway in the top-line as the net interest income rose by only 1 percent due to the decline in the interest incomes, which lagged the decline in the interest expense in the quarter.

As a result, the net interest margin, the difference between what the bank gets from their loans and other interest bearing assets and what it pays for their deposits and other financial liabilities, expanded slightly to 4.84 percent from 4.67 percent at the beginning of the year.

The bank gave Rs.16.5 billion in loans of which Rs.7.5 billion came during the September quarter, reflecting that the loan growth is ticking higher.

The Stage 3 loans ratio, the closest proxy for the non-performing loans, did better as the ratio came down to 3.80 percent from 4.36 percent at the start of the year.

Meanwhile fee incomes rose by a robust 30 percent to Rs.487.9 million, reflecting the growth in loans.

Investor Dhammika Perera holds 29.99 percent stake directly in Pan Asia Bank.