Lower loan impairments help Pan Asia Bank June profits

• Says it may experience higher loan defaults, credit costs once relief schemes expire 

Pan Asia Bank reported higher net interest income and profits for the three months ended June 30, 2020 (2Q20), as the bank took advantage of its high priced loans by taking time to adjust them lower while the loan impairments held back due to relief measures that came in the form of moratoria. 

The bank reported impairment charges of Rs.146.5 million for the April-June quarter, significantly lower from Rs.457.8 million provided in the comparable period last year, which assisted its current year profits. 

However, the lender had experienced a higher collective impairment charge during the period under review and forecast that it could see higher provisions against possible loan defaults during the second half once the relief measures expire. 

“The economic environment remains uncertain and future impairment charges may be subject to further volatility depending on the longevity of the COVID-19 pandemic and related containment measures, as well as the longer term effectiveness of Central Bank/government support measures,” the bank said in its interim report filed with the Colombo Stock Exchange. 
The Central Bank relaxed guidelines recognising non-performing loans and loss provisions in a letter sent to all banks in March in view of providing some flexibility encouraging banks to provide relief to the pandemic-affected borrowers. 

The bank reported 29 percent year-on-year (YoY) increase in net interest income to Rs.1.83 billion as the fall in the rates of its loans lagged the fall in deposits and other liabilities. 
This reflected in the bank’s net interest margin, which increased to 4.65 percent by the end of June 30, 2020 from 4.36 percent at the beginning of the year. 

The pace of business slowed dramatically during the quarter under review due to business disruptions and the lender could book only Rs.1.5 billion worth new loans from a total of Rs.8.1 billion loans during the first six months. 

The bank had a total loan portfolio of Rs.125.6 billion by end-June 2020. 

Meanwhile, the bank raised Rs.1.7 billion in new deposits during the June quarter, a fraction of the Rs.7.0 billion worth new deposits raised during the first three months. 

Pan Asia Bank in June raised US$ 7.75 million, a rupee equivalent of Rs.1.5 billion via a green bond launched by Switzerland-based Symbiotics, a leading market access platform for impact investing. 

In July the bank further raised Rs.820 million via BASEL III complaint five-year debenture issue to bolster its Tier II capital and assist its new lending. 

The bank received a new lifeline in March as the regulator extended the deadline by two years from 2020 to 2022 to meet the enhanced minimum capital of Rs.20 billion as the bank was scrambling for fresh equity. 

The bank reported earnings of Rs.1.11 a share or Rs.490.3 million for the April – June 2020 quarter compared to Rs.1.09 a share or Rs.481.6 million in the comparable period last year. 
Fee income fell sharply to Rs.202.3 million from Rs.383.6 million a year ago reflecting both the decline in business volumes during the period and regulator-driven waivers associated with certain products. 

“Some of the regulatory action including the introduction of payment holidays (moratoria) for certain borrowers and waiver of fees associated with certain products have continued to affect the bank’s profitability due to lower effective interest rates earned on certain portfolios and lower fee income being earned on certain products,” the bank stated. 

High net-worth investor and business mogul Dhammika Perera has 29.99 percent stake in the bank.