Provision reversal ups BoC June net by 36% amid narrowing margins

State-owned banking giant, Bank of Ceylon (BoC) saw its June quarter net profits growing by 36 percent to Rs.4.9 billion from a year ago amid compressing margins, slower growth in loans and narrowed fee-based incomes, the interim results filed with the Colombo bourse showed. 

The net interest income was almost flat as the cost of the deposits rose faster than the interest income from its loan book amid rising interest rates, but the growth in the bottom-line was supported by the absence of provisions against the possible bad loans.

The total operating income before such provisions was up by a paltry 3.0 percent year-on-year (yoy) to Rs. 17.1 billion as the net fee and commission income too dived 13 percent to Rs.1.26 billion from a year ago.  
Provisions for possible loans had a reversal of Rs.181 million in the June quarter against the massive Rs.3.4 billion provisioning during the same quarter last year, which largely helped to cushion the bottom-line. 
The banking group saw its interest expenses rising by 25 percent to Rs.20.6 billion from a year ago, more than doubling the increase in interest income of Rs.33.5 billion, up by 14 percent yoy. This dented the net interest margin to 3.18 percent from 3.30 percent in December 2015. 

The bank on a standalone basis expanded its loan book by Rs.48.7 billion or 5.6 percent during the first six months of the year. 
The businesses pursued a wait-and-see approach for investments during the period and therefore applyied for less bank credit for investments. Further, the lending to some of the key public enterprises also remained low as their financial positions improved, specially of the Ceylon Petroleum Corporation and Ceylon Electricity Board. 
Some of the key public enterprises did repay part of their borrowings too, the Central Bank said last month. 

However, personal loans grew by a massive Rs.33.7 billion, while the housing loans had Rs.2.7 billion new loans. 
Foreign currency loans contracted by Rs.27 billion during the six months, comprising repayments made by the borrowers.  
The Central Bank, concerned about the continued growth in private credit, raised its key policy rates by 50 basis points in July to further curb the credit flows into private persons in a move to keep the demand-driven inflation under check. 
BoC has a total loan book of Rs. 919.4 billion. 

Meanwhile, the deposits grew by Rs.36.6 billion or 3.4 percent, but the low-cost funds as measured by the current and savings account (CASA) ratio fell to 44.9 percent from 46.5 percent due to depositors moving towards high-yielding fixed deposits. 
The bank as of June 30, 2016, had a total deposit portfolio of Rs.1.12 trillion, rgw highest attained by any bank in Sri Lanka. 
The total asset base of the bank grew by a little under 1 percent to Rs.1.58 trillion. 
Asset quality further improved as the gross non-performing loan ratio dropped to 3.18 percent from 3.30 percent in December 2015. 
The prudential indicators, the bank’s Tier I and Tier II capital adequacy ratio, stood at 8.26 percent and 11.88 percent respectively. The regulatory minimums are 5 percent and 10 percent each.  
The government is the lone shareholder of the bank.   
For the six months ended on June 30, 2016, the bank made a net profit of Rs. 10.8 billion, up 65 percent from a year ago. The total provisions for the period was down to Rs.405.5 million from a massive Rs.7.6 billion during the same period last year.