BOC ups pre-tax profit by 114% to Rs. 22.4 b in 1H

• Net Interest Income at Rs. 57.5 b 
•  Total Assets base at Rs. 4.4 t 
•  Total Deposit base at Rs. 3.8 t
•  Gross loans and advances at Rs. 2.3 t

The Bank of Ceylon (BOC) said yesterday in 1H 2024 it navigated the challenging landscape of the Sri Lankan economy with strategic foresight. Despite heightened competition and global economic uncertainties, the bank delivered a Profit Before Tax (PBT) of Rs. 22.4 billion, a growth of 114% compared to previous year PBT of Rs. 10.5 billion. This performance underscores the bank’s resilience and adaptability in an environment marked by fluctuating market conditions and challenges.

Bank of Ceylon Chairman Kavan Ratnayaka said: “Inspired by 85 years of excellence, the Bank of Ceylon continues to foster progress and innovation. Further initiatives are focused on supporting youth financing, empowering women entrepreneurs, and nurturing startups. Special attention is given to advancing green finance and supporting sustainable development goals, ensuring that growth contributes to environmental sustainability and well-being of society. These efforts are crucial to driving broader economic growth and creating sustainable opportunities for all. The commitment to these priorities highlights the Bank’s role in shaping a prosperous future for the community at large”.

Fund-based and non-fund-based income 

During the first half of 2024, the bank achieved a PBT of Rs. 22.4 billion. Demonstrating its ability to re-price its assets and liabilities in line with market condition, net interest income rose significantly to Rs. 57.5 billion, marking a 101% increase compared to Rs. 28.6 billion in the same period of 2023. This growth underscores the bank’s improved profitability despite the challenging economic environment. The increase in interest income, which rose to Rs. 213.1 billion, was partially offset by a rise in interest expenses, which totaled to Rs. 155.6 billion. This uptick in interest expenses reflects the bank’s strategic decision to remain competitive by offering attractive deposit rates, crucial for retaining and expanding its deposit base.

Net fee and commission income continued to be a robust contributor, amounting to Rs. 9.9 billion, showcasing an impressive 14% year-on-year growth from Rs. 8.7 billion in the first half of 2023. This was largely driven by increased activity in card-related transactions and retail banking services. The bank’s ongoing investment in digital banking has also played a crucial role, as more customers turned to digital channels for their banking needs, further boosting fee and commission income.

Impairment charge for loans and advances and other financial instruments

In the first half of 2024, the bank took a cautious approach to credit risk management, mindful of the ongoing uncertainties in both global and local economies. To address heightened risks in certain industries, the bank implemented management overlays, allowing for close monitoring and proactive risk mitigation. This strategy helped the bank to anticipate potential issues early and set aside adequate provisions for possible credit losses.

Impairment charges amounted to Rs. 3.3 billion for loans and advances and Rs. 4.6 billion for other financial assets, reflecting challenges faced by sectors still recovering from economic downturns and global disruptions. Despite these provisions, the bank’s stringent credit monitoring and the relative stabilisation of the Sri Lankan Rupee contributed to maintaining a solid financial standing.

However, the impaired loans (Stage 3) ratio increased to 5.68%, indicating potential external economic pressures. Nonetheless, the impairment coverage ratio (Stage 3 impairment provision to Stage 3 Loans) remains strong at 58.85%, demonstrating the bank’s prudent risk management.

The bank also concentrated on business revival efforts, collaborating closely with customers to support their recovery. These initiatives, along with strategic credit decisions, have helped limit credit losses, ensuring the bank is well-positioned to contribute to the broader economic recovery.

Operating income, expenses, and profitability

The bank reported total operating income of Rs. 68.7 billion, reflecting significant growth of 163% compared to the previous year. This increase was driven by substantial improvements in net interest income, net fee and commission income and trading income. 

Operating expenses amounted to Rs. 30.8 billion, marking a 27% year-over-year increase, which was mainly due to personnel costs, depreciation, amortization, and other expenses also contributed to the overall increase in costs. Despite these higher expenses, the bank effectively managed its operating costs, maintaining a cost-to-income ratio below 50%, consistent with previous quarter.

The bank’s operating profit before taxes on financial services reached Rs. 30.1 billion, a remarkable 101% improvement over the previous year. After accounting for Value Added Tax (VAT) and the Social Security Contribution Levy (SSCL), the PBT stood at Rs. 22.4 billion, reflecting a 114% increase. Income tax expenses for the period amounted to Rs. 9.9 billion, resulting in a profit after tax of Rs. 12.5 billion. This robust performance, in the face of significant challenges, highlights the Bank’s resilience and commitment to delivering sustainable profitability.

Financial position

As of 30 June, Bank of Ceylon’s total assets reached Rs. 4,423.3 billion, reflecting a slight increase of 0.3% from Rs. 4,411.7 billion in December 2023. This growth, despite economic challenges, solidifies the bank’s leading position in Sri Lanka’s competitive banking sector. The increase in total assets was primarily driven by significant rises in investment in debt and other instruments and investment in securities purchased under resale agreement surged by Rs 114.0 billion. This underscore the Bank’s strategic focus on liquidity management and its ability to capitalise on favourable market conditions.

Gross loans and advances amounted to Rs. 2.3 trillion as of 30 June, Even though gross loan balance showed a decrease of 5 % due to LKR appreciation by 5.6% and low credit demand. The Bank has considered the possible impact from the Government’s Domestic Debt Restructing process too. 

The bank’s deposit base stood strong at Rs. 3.8 trillion as at 30 June, showcasing sustained customer confidence and the bank’s strategic focus on deposit mobilisation. Amidst the appreciation of the LKR, foreign currency (FCY) deposits increased by $ 14.0 million.

Key performance indicators

The bank demonstrated strong financial performance across key metrics. The Return on Assets (ROA) before tax improved to 1.02% from 0.92% in December 2023, reflecting enhanced profitability from the bank’s asset base. While the Return on Equity (ROE) saw a slight decline to 9.80%, this was primarily due to a strategic expansion of the equity base, positioning the bank for continued stability and growth in the challenging economic environment. The interest margin also increased to 2.60% from 2.08% at the end of 2023, highlighting effective management of interest-earning assets and liabilities.

The bank maintained robust capital adequacy, with a Common Equity Tier 1 ratio of 10.85% and a Total Capital Ratio of 14.91%, both above Basel III requirements. This underscores the bank’s strong capital position and its ability to absorb potential risks. Additionally, liquidity coverage ratios for both rupee and all currencies remained well above regulatory requirements, at 329% and 249.51%, respectively, ensuring the bank’s capacity to meet short-term obligations. 

Outlook for second half of 2024

General Manager /Chief Executive Officer Russel Fonseka stated that: “Bank of Ceylon has been recognised as the only Sri Lankan bank on Top 1000 World Banks list once again in the year 2024 by The Banker UK magazine, reflecting on its enduring journey as a market leader in the financial sector. The bank is well-equipped to embrace advanced financial technologies and pursue strategic growth opportunities. Looking ahead, the bank remains committed to enhancing digital banking solutions and expanding service offerings. The strategic vision is centered on sustainable growth and reinforcing leadership in the Banking sector”. 

As the 2H of 2024 begins, the Bank of Ceylon is strategically positioned to navigate the evolving economic landscape with foresight and resilience. As a leading financial institution and Government Bank, it is dedicated to leveraging technological innovations and advancing initiatives that drive sustainable growth and financial stability. The focus will remain on enhancing customer experiences, supporting community development, and upholding a crucial role in ensuring the stability and integrity of Sri Lanka’s financial sector. The bank is committed to maintaining its high standards of excellence, driving economic progress, and reinforcing its leadership in fostering a robust and stable financial environment.

During the 1H of 2024, Fitch Ratings has affirmed the National Long-Term Rating at ‘A(lka)’with a stable outlook and the Long Term Foreign Currency Issuer Default Rating (IDR) at ‘CC’.