Thursday Nov 21, 2024
Thursday Nov 21, 2024
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Chairman Ronald C. Perera PC and General Manager/CEO W.P. Russel Fonseka
Bank of Ceylon (BOC) said yesterday it posted a Profit Before Tax (PBT) of Rs. 40.3 billion for the year ended 31 December 2023 demonstrating a strong and steady performance across various dimensions, including liquidity, capital, efficiency, profitability and asset quality despite prevailing global and local economic uncertainties.
In a statement, BOC said in a competitive and challenging environment the bank was able to achieve its goals by having a professional and experienced team, which helped to turnaround under-performing business sectors, back into their operations generating profits through the business revival and rehabilitation strategies. This achievement showcases the Bank’s resilience and ability to navigate through challenging times while delivering positive financial results consistently by following the best practices in the banking industry and adopting into novel technology.
Chairman Ronald C. Perera PC said: “The Bank has successfully navigated all headwinds that came across during past few years and the immediate measures were taken strategically and ensured the business continuity and uninterrupted services to our valuable stakeholders. Managing the foreign currency shortage was a challenging task, particularly as being “Bankers to the Nation” we always act with a broader vision. We identified the criticality of uninterrupted energy supply for survival of the economy and social life. In this backdrop the Bank took all its efforts to facilitate foreign currency needs for importing energy and essential goods. Nevertheless, short-term strategies were carefully managed without compromising the Bank’s long-term strategic priorities, with a focus on strengthening the financial position.”Fund based and non-fund based income
The Bank achieved a profit before tax of Rs. 40.3 billion, driven by a significant 15% increase in interest income. However, despite this growth, a sharp rise in interest expenses resulted due to lag effects in re-pricing the time deposits mobilised at higher rates. Accordingly, net interest income decreased by 28% YoY. Moreover, net fee and commission income experienced a growth of 8%, primarily due to increase in card transactions, improved remittance, and greater adoption of digital banking services in retail banking. The Bank experienced approximately a 49% increase in worker remittances, accompanied by a rise in the number of remittances.
Impairment reversal for loans and advances and other financial instruments
From the emerging of the economic turmoil the Bank implemented proactive measures to mitigate the credit risk by applying management overlays to identify risk-elevated industries, reassessing exposures to high-risk borrowers and implementing stringent monitoring mechanisms. Under the Expected Credit Loss model the Bank provided a considerable level of impairment provision in previous years and by the beginning of the year 2023, the Bank had maintained provision coverage of 60% for stage 3 loans. As a testament to these efforts, the Bank witnessed a noteworthy net reversal of impairment provisions for loans and advances amounting to Rs. 2.7 billion during the year. This positive outcome was attributed to the synergy of various factors, including robust business revival activities, rigorous credit monitoring practice, and the favourable appreciation of the LKR against USD. Such strategic manoeuvres not only safeguard the Bank’s financial health but also underscore its commitment to fostering stability and resilience in the face of challenging economic landscapes.
By the end of 2023 the same coverage ratio, i.e 60% coverage for stage 3 was maintained.
Through the Business Revival and Rehabilitation Unit, the Bank adopted a strategy aimed at reviving potential customers rather than pursuing immediate recovery actions. The objective was to identify high-value clients exhibiting early warning signals for closer monitoring. Relationship-building was conducted to persuade these clients toward loan repayment.
The Bank’s exposure to the Government bonds through SLDBs, ISBs, and FCBU loans raised concerns during the implementation of the Domestic Debt Optimisation (DDO). However, the Bank successfully completed the restructuring of SLDBs using an internally developed mechanism, without adversely affecting liquidity, profitability, net operating profit, or impacting the foreign exchange market.
Operating expenses and profitability
Total operating expenses increased by 10%, mainly due to escalating other expenses in line with higher inflation. However, operating profit before taxes on financial services stood at Rs 53.0 billion, marking a notable improvement of 25% compared to the previous year. The Profit Before Tax (PBT) of Rs. 40.3 billion was reported after charging the Value Added Tax (VAT) of Rs. 11.1 billion and Social Security Contribution Levy (SSCL) of Rs. 1.5 billion. Additionally, the Bank incurred income tax expenses amounting to Rs. 13.7 billion for the year, resulting in a Profit After Tax of Rs. 26.7 billion.
Financial position
Despite the challenges posed by the appreciation of the LKR and a moving to low-interest-rate scenario, the Bank’s deposit base expanded by 16% to Rs. 3.9 trillion, indicating strong customer confidence. Nevertheless, the Bank adeptly managed its liquidity position by strategically navigating its deposit base amid the liquidity challenges prevalent in the market during the first half of the year.
During the year the Bank’s total assets grew by 2% and reached to Rs. 4.4 trillion, further solidifying its position as a leader in the industry. Due to high interest rate and subdued economic conditions during the first half of the year the dip in credit demand was experienced, however, with the ease in monetary policies adopted in the latter part of the year, the credit growth started picking up and from June 2023 to December 2023 credit growth of 6% was reported.
A significant portion of Sri Lanka’s agricultural sector relies heavily on agricultural chemicals such as fertilisers, pesticides, and growth regulators due to the rising demand for increased food production. Bank of Ceylon has exposures of Rs. 111.0 billion towards the agricultural sector as of end December 2023. Further the bank has contributed funds towards the importation of pharmaceutical and energy.
General Manager/CEO Russel Fonseka said: “It has been already considered the changes required to the business model of the Bank by focusing on the post-crisis economic environment and changes in macroeconomic fundamentals including new business activities and focus on private sector lending.”
Commitment to SME development
SME businesses contribute a larger portion to the GDP, making them the backbone of the economy. Some major sectors powered by SMEs include agriculture, where SMEs account for over 90% of total enterprises. Through the SME circle, the Bank has helped SME customers leverage the market by filling gaps created by import restrictions. The Bank remains committed to supporting the SME sector through financing. The “SME Energiser” loan scheme exemplifies this commitment, providing credit facilities to Micro, Small, and Medium Enterprises to stimulate economic growth and boost export earnings. Under this scheme, Rs. 5 billion have been allocated at low-interest rates for SME customers.
The Bank has undertaken a project “BOC Gammana” aimed at developing the livelihoods and financial literacy, including digital financial literacy, of a selected village from each province. In doing so, the Bank aims to enhance customer relationships with the villagers and improve value generation for both the Bank and the customers by strengthening their financial position. The Bank continues its efforts for increasing financial inclusion 1 with the “BOC Mithuru” project in alignment with the “BOC Gammana” concept.
Key Performance Indicators
The Bank achieved a Return on Assets (ROA) ratio of 0.92% and reported a Return on Equity (ROE) ratio of 10.55%. Notably, the Bank maintained its Tier I Capital and Total Capital ratios at 12.76% and 15.84%, respectively as of end December 2023, exceeding regulatory requirements.
For the first time in Sri Lanka, a state-owned bank issued Basel III compliant listed debentures amounting to Rs. 10 billion. The listing of BOC Debentures facilitated the listing of perpetual bonds on the stock market for the first time, aiming to meet Basel III write-down features associated with the BOC debentures.
During the year, Fitch Ratings upgraded the Long-Term Foreign Currency Issuer Default Rating (IDR) of the Bank to ‘CC’ from ‘RD (Restricted Default)’ and Short Term IDR to ‘C’ from ‘RD’, the national rating of the Bank continued to rate at A(lka).
Recognition
The Bank was honoured with a prestigious accolade of ‘The Bank of the Year 2023-Sri Lanka’ from The Banker Magazine UK and this is the second time BOC received this global level recognition. Furthermore, Bank of Ceylon achieved notable recognition, being ranked among the top 1,000 banks worldwide by The Banker magazine UK for the 12th consecutive year. It stands as the sole Sri Lankan bank to secure a position in the top 1,000 world banks for 2023. Additionally, BOC retained its position as the No.1 Banking Brand in Sri Lanka for the 15th consecutive year, by Brand Finance Lanka with a brand value of Rs. 50.2 billion.
A glimpse into the Bank’s ambitious plans and promising prospects for 2024
The Bank remained committed to implementing prudent strategies in balance sheet management, aligning with external dynamics to ensure robust returns, optimal liquidity and sufficient capital adequacy. Amidst the Sri Lankan economy’s recovery from recent challenges, the Bank’s performance reflects this positive trajectory. Stability in key economic indicators such as interest rates, exchange rates, and inflation instils increased certainty and confidence, fostering conducive conditions for conducting business operations.
Chairman Ronald C. Perera commenting on the Bank’s future outlook said: “A digitally sophisticated bank - Customer engagement will be conducted through digital channels; internal processes will be automated and excellence in customer service will remain a key priority. Focused training will be provided to staff to enhance efficiency and productivity.”
The General Manager/CEO Russel Fonseka said: “The Agile banking model is essential in our rapidly evolving digital economy. Agility enables organisations to swiftly respond to customer demands and market shifts, especially within the realm of Digital Banking. Agile transformation endeavours to accelerate the delivery of products and services. Overseas presence will also be a priority area, and the Bank will promote green/blue lending while introducing new products related to these aspects. Bank of Ceylon aims to generate not only financial and economic value but also long-term environmental and social value for a diverse array of stakeholders.”
