Cargills Bank cuts losses further in June quarter

Cargills Bank Limited continued to cut its losses as the bank maintained its growth in new loans during the period ended in June 2021 (2Q21) defying the virus related economic malaise.

The bank was also seen gradually dealing with its asset quality troubles, which reached double-digit levels due to a troubled one large corporate client to which the bank had a sizeable exposure.

The bank reported an interest income of Rs.436.7 million in the three months to June 2021, nearly unchanged from the same period in 2020 as the fall in interest expenses outweighed the decline in the corresponding interest income stemmed from the fast descent seen in the cost of funds led by deposit rates.

Many banks experienced growth in net interest incomes in the June quarter as deposit rates started adjusting to the low interest rates at their maturities buttressing their net interest margins because most of the loans had already adjusted to the lowest interest rates by then.

At Cargills Bank, reflecting this phenomenon, the net interest margin edged up to 3.92 percent by June end from 3.88 percent at the start of the year.

Interest rates are making a turnabout since around August across both deposits and loans in response to the policy rate hike and the current shortage in the money market liquidity. It could bode well for banks’ margins in the coming quarters as mostly floating rate loans get pricier at the next re-pricing cycle whereas deposits, except the new ones, get re-priced at the higher rates at their next maturity cycle.

Meanwhile, the bank with Rs.48.2 billion assets and Rs.36.9 billion in loans and advances gave loans worth of Rs.5.2 billion in the six months to June

2021, which is a robust 16.4 percent growth, of which Rs.2.3 billion came during the April - June quarter. Though remaining the highest among the licensed commercial banks, the bank continued to trim its gross non-performing loans ratio to 11.68 percent from 14.42 percent at the end of last year after a default by one large corporate clients had a significant bearing on the bank’s asset quality. Meanwhile, the bank set aside Rs.64.4 million for possible loan defaults and impairments against other financial assets during the June quarter, which was significantly down from Rs.393.6 million a year earlier. The bank’s deposits rose by Rs.3.9 billion in the six months to Rs.35.8 billion. The bank operates with a sizeable excess liquidity as its domestic statutory liquid asset ratio stood at 26.17 percent, down from 33.63 percent at the end of last year. The bank since postponing its listing plans in the Colombo Stock Exchange by an year to this June hasn’t made its plans public as to when it intends to seek a listing.

While the bank’s statutory capital adequacy ratios remain well above the regulator minimums, its Tier I capital was at Rs.8.6 billion by June end and the bank has less than 18 months to bring its capital up to Rs.20 billion mandated by the Central Bank under the deferred time frame allowed until the end of 2022 by the regulator.

For the quarter ended in June 2021, the bank reported a net loss of Rs.60.9 million compared to Rs.305.6 million in the same period in 2022.

There was a 301 percent increase in the fee and commission incomes to Rs.103.7 million between the two periods, reflecting business recovery as well as the lower base effects in the corresponding period in 2020 due to the wide ranging fee waivers offered to provide relief to the borrowers. Cargills group in concert with CT Holdings had 65 percent stake in Cargills Bank while the Monetary Board of the Central Bank held another 4.98 percent stake in the bank as of June 30, 2021 on behalf of the Employees’ Provident Fund.