Relief provided to pandemic-affected borrowers weighs on BOC’s 2Q

The moratorium impact on interest income, slump in fee incomes and higher provisions made on possible loan defaults weighed heavily on Bank of Ceylon’s (BOC) June quarter (2Q20) performance as the bank led the government-announced relief package to the people and businesses affected by the pandemic.

The bank reported a net interest income of Rs.14.1 billion for the three months, compared to Rs.20.7 billion a year ago.  

The moratorium erased Rs.6.0 billion from the bank’s interest income in the quarter as BOC recognised the impact as a day-one loss, according to the reporting standards, the bank stated in an earnings release.

The state banking giant gave a mammoth Rs.112.9 billion in new loans during the three months, providing liquidity to individuals and businesses whose operations were impacted by the pandemic.

BOC is also leading in the number and the total amount of loans registered under the Central Bank’s Saubhagya COVID-19 Renaissance Facility loan scheme, the latest data by the Central Bank up to August 18 showed.

The bank had a total loan book of Rs.1,872.4 billion by end-June but the margins were thinning as new loan rates were coming down, as seen from the bank and industry data.
The net interest margin of the bank by end-June was at 2.47 percent, compared to 2.87 percent in March and 3.20 percent in December 2019.

The bank was also operating with significant excess liquidity, which mostly earns government securities yield, providing returns lower than loaning such funds to its clients. By end-June, the bank had a liquid asset ratio of 31.3 percent, compared to a minimum requirement of 20 percent.

Meanwhile, the bank raised Rs.92.9 billion in new deposits, bringing the total deposit portfolio to Rs.2,203.4 billion, as the industry saw a surge in deposits during the lockdowns since both people and companies parked moneys in bank accounts.

This also weighed on the bank’s net interest income, as interest expenses rose while depriving the bank of interest income from a segment of loans, which became subject to moratorium.
BOC in June announced that it would raise Rs.5.0 billion via perpetual bonds to bolster its additional Tier I capital. Fresh capital provides further capital cover to the bank to ramp up lending.

Meanwhile, the bank’s fee incomes fell by 44 percent to Rs.1.9 billion, from Rs.3.4 billion in the year earlier period, due to regulator-mandated waivers given on certain loan products.
Further, the bank provided Rs.7.6 billion against possible bad loans for the three months under review, compared to Rs.6.8 billion in the year earlier period, as the pandemic heightened the credit risks of borrowers.

BOC recorded a non-performing loan ratio of 5.35 percent, compared to 5.16 percent in March and 4.79 percent in December 2019.

The bank reported negative earnings of Rs.214.1 million for the quarter ended in June, compared to earnings of Rs.2.9 billion recorded for the comparable period in 2019.

However, the bank on a standalone basis reported earnings of Rs.353.4 million for the period, compared to Rs.2.7 billion in the comparable period last year.