Cargills Bank turns a profit in September as margins rise, loans grow

Cargills Bank Limited, the financial arm of diversified CT Holdings PLC, turned a net profit of  Rs.27.6 million or 5 cents a share during its September quarter (3Q16) from a net loss of Rs. 78.7 million a year ago, the interim financial 
accounts showed. 

The performance was supported by the relatively higher loan growth and the significant improvement in 
interest margins. 
The bank for the quarter under review earned a net interest income (NII) of Rs.310.5 million, an increase of 210 percent from the same period last year. 

When the industry margins were coming under pressure, Cargills Bank on a standalone basis increased its net interest margin to 6.06 percent from 3.22 percent at the beginning of the year. The bank gave loans of Rs. 5.2 billion during the 9-months to September, 2016, which included Rs.800 million worth of money market loans. 
The bank has a total loan book of Rs.12.4 billion and an asset base of Rs.18.6 billion, an increase of 
39 percent. 
This is despite maintaining a quality portfolio as the gross non-performing loan ratio was only 0.67 percent, an improvement from 1.31 percent at the start of the year. However the bank is still at its early stage of growth and has a lot of scope for its expansion in the 
loan book. 

The industry average gross non-performing loan ratio is 3.0 percent.  
The capital base stood stronger as both Tier I and Tier II capital adequacy ratios (CARs) remaining at 63.43 percent and 61.99 percent, respectively, when the regulatory minimums are at 5.0 percent and 10.0 percent.  

During the 9-months the promoters, Cargills (Ceylon) PLC and CT Holdings PLC, injected a capital of Rs.5.8 billion by allocating 400.14 million shares under special approval received from the Monetary Board of the Central Bank in response to calls to increase the minimum core-capital level to Rs.10.0 billion by the start of January 1, 2016. 

The promoters together have a total stake of 64.99 percent in the bank while the state controlled private sector pension fund, Employees’ Provident Fund (EPF) held 4.98 percent stake being the third largest shareholder. 
However, Finance Minister in the 2017 budget proposed to raise the minimum core capital level of the banking sector up to Rs.20.0 billion, probably from early 2019.  The bank also increased its deposits by Rs.3.4 billion to Rs.7.3 billion but the low cost current and savings account (CASA) ratio edged down to 19 percent from 20.6 percent at the beginning of the year. 

Meanwhile, the bank, for the 9-months ended September 30, incurred a net loss of Rs.96.2 million or 15 cents a share. However this is lesser than the Rs.238.9 million or 52 cents a share loss incurred during the same period 
last year. 

The NII for the period rose by 141 percent Year-on-Year to Rs.695.7 million and the net fee and commission income rose by 68 percent to 
Rs.45.6 million. 

Cargills Bank in 2014 bought 73.39 percent stake in the licensed finance company, Capital Alliance Finance PLC in a Rs.400 million deal. 
The bank now operates with a branch network of 11 and 323 employees.