Pan Asia Bank’s 1Q profit takes hit from massive impairment charges

Along with a number of other lenders, Pan Asia Banking Corporation PLC also saw its profits plunging after it charged a massive impairment provision against possible loan losses and other financial assets held in government securities on default fears. 

The bank reported earnings of Rs.215.9 million or 49 cents a share for the January-March quarter (1Q22) compared to Rs.750.4 million or Rs.1.70 a share in the same period in 2021, recording a 71 percent slump between the two quarters. 

The bank was seen providing Rs.1.66 billion for possible bad loans and other financial assets losses in the proportion of Rs.1.0 billion for loans and Rs.660 million for investments held in dollar denominated assets of the government. 

This translated into a 161 percent surge in provisions made in the same period in 2021. 
 “… the bank increased its provision buffers for loan losses during 2022 Q1, sensibly taking into consideration increased risks and uncertainties emerged due to extremely challenging macroeconomic conditions prevailed in the country through introducing changes to impairment models, including additional provisions for the bank’s investments in foreign currency denominated financial instruments of government of Sri Lanka…,” Pan Asia Bank said in an earnings release. 

Meanwhile, the bank’s core banking operations saw their growth moderating after the economy took a wild turn which made banks to become extremely cautious in loaning money. 

“During the quarter under review the bank did not lend vigorously to sectors that exhibited high stress as a measure of the Bank’s prudential lending decisions,” the bank said. 
Despite the moderation, the bank’s loan book grew by a somewhat robust Rs.8.9 billion, of which the rupee loans and advances grew by Rs.8.6 billion, largely driven by term loans and pawning. 

Meanwhile, the deposits grew by Rs.9.5 billion, of which Rs.5.1 billion came from rupee deposits. 
The cumulative deposits and advances in banks had a distortionary impact coming from the sharp fall in the rupee against all other foreign currencies as banks are required to revalue their assets and liabilities at the balance sheet date. This made their portfolios and balance sheets look larger in rupee terms, although the true growth is very much less. 

The expansion in the portfolios helped Pan Asia Bank to report a 11 percent growth in net interest income to Rs.2.47 billion in the quarter while the fee incomes also rose by a similar level to Rs.517.6 million over the same period last year on the back of the modest growth in loans. 

Compared to larger counterparts, Pan Asia Bank had limited exposure to foreign currency swap lines and thereby their fair value gains. However, the bank made a, other operating loss of Rs.8.4 million, which came mainly from the revaluation impact of its foreign currency assets and liabilities at the weaker exchange rate, compared to an operating income of Rs.179.3 million in the year earlier period.  

Meanwhile, the bank also reported its Stage 3 loans ratio, a novel accounting term used for gross non-performing loans at 2.95 percent, slightly improving from 3.04 percent in December 2021. 

The bank’s capital and liquidity ratios remain elevated from their regulatory minimums with adequate buffers.