BOC December net up 34%; core banking remains resilient

Bank of Ceylon (BOC) reported a December quarter net profit of Rs.6.95 billion recording an increase of 33.5 percent from a year ago as a significant tax reversal pushed up the bottom line of the largest state-owned lender, the interim financial accounts of the bank showed.

The profit before tax in fact fell 7.0 percent year-on-year (YOY) to Rs.8.3 billion but the lower corporate income tax expense that was booked, which was down by more than Rs.2.3 billion, managed to boost the after-tax profit.

However, the core banking operations did fare well during the period with the margins being well preserved. The net interest income (NII) rose by 39 percent YOY to Rs.15.9 billion whilst the net interest margin ticked up by a basis point to 3.31 percent—almost the level of the industry average.

This demonstrates how the state lenders, which have over billion-rupee balance sheets, neutralise the industry performance indicators, sometimes hiding the true picture behind.

Several lenders saw their margins coming under pressure in 2016 due to the rising funding cost propelled by the rising deposit rates. However, the pressure was contained to a minimum by many, the earnings reports analysed by Mirror Business showed.

Despite the whopping growth recorded in BOC’S loan book, the net fee and commission income narrowed by 10 percent YOY to Rs.1.98 billion.

The bank, on a standalone basis, grew its loan book by 20.4 percent or Rs.177.6 billion through 2016. The bank now has a Rs.1,048.3 billion loan book.

This enabled BOC to surpass the trillionrupee loan book in 2016 becoming the first commercial lender to have achieved trillion rupees in all three forms — assets, deposits and loans.

Meanwhile, the deposits grew by 16 percent or Rs.174.2 billion to Rs.1,256.6 billion.

The low-cost deposits, current and savings account (CASA) ratio, shrank to 43.3 percent from 46.5 percent at the beginning of the year. One other notable factor was the Rs.3.5 billion provision made against the possible bad loans. This was against the Rs.2.8 billion provision made last year.

However, the asset quality measured by the gross non-performing loan ratio noticeably fell to 2.88 percent from 4.3 percent a year earlier demonstrating the higher quality assets.

The Tier I and II capital adequacy ratios calculated prior to the earnings capitalisation narrowed to 8.0 percent and 11.61 percent, respectively, from 9.10 percent and 13.07 percent at the beginning of the year.

The challenge for the bank would be to meet the new BASEL III capital adequacy requirements because the national treasury will have to infuse equity as the government is the sole owner of the banking giant.

Meanwhile, for the year ended December 31, 2016, the bank reported earnings of Rs.22.9 billion, up 32 percent, on the back of a NII of Rs.56.2 billion, up 15 percent.