The Bank’s performance during the quarter ending March 31, 2019 reflected a continuation of the issues witnessed in the previous few quarters with increasing non-performing loans and moderation of credit growth.
The increased credit cost arising from both higher NPLs and policy changes relating to SLFRS 9 impairment provisioning added further pressure to the results of the quarter when compared with the corresponding period. Despite these unfavorable conditions, Group pre-tax profits remained relatively constant at previous year levels, recording Rs. 1,938 mn while post-tax profits were affected largely due to the Rs. 209 mn impact arising from the Debt Repayment Levy.
Therefore, Group post-tax profits for the quarter recorded Rs. 773Mn down by 18% over the corresponding period. Notably, Bank post-tax profits recorded a larger drop due to the inter-company dividend income of Rs. 291Mn received last year resulting in a higher operating income for the comparative quarter.
Net interest income growth was weak at 8% owing to the pressure of narrowing NIMs to 4.89% from 5.46% reported in the corresponding quarter. Interest income growth moderated at 18% mainly due to a cautious lending approach adopted for selective portfolios coupled with some impact stemming from changes in impairment policy rules.
A higher increase of 26% is seen in interest expenses due to rising cost of funds and a higher mix of medium term funding raised for better diversification of the funding base.
Fees and commission income growth reduced to 6% reflecting the sluggish rate of growth witnessed in fee generating transactional volumes across product lines. Impairment charges recorded an increase of 10% mainly due to the continued cash flow stresses witnessed in selective portfolios as evidenced in the deterioration of the Group NPL ratio to 4.88% from 4.58% reported in December 2018.
Expenses recorded a growth of 12% of which relatively higher increases are attributable to personnel expenses (+16%) owing to increased head count, annual increments, continuous investments made in up-skilling of our staff; Depreciation (+144%) owing to re-classification of prepaid rent of premises under new accounting standards relating to leases; and amortisation cost (+16%) owing to investments made in digital/technology.
Growth in the loans and advances portfolio of 6% is primarily driven by Corporate and Leasing. CASA growth was recorded at 10% with a larger contribution coming from Current Account balances. Acquisition of new accounts/customers on CASA is a focus area for the Bank and the momentum is expected to continue.
Group capital position was sound at Rs. 32.3 bn with Capital Adequacy Ratios both at Tier 1 and 2 maintained at comfortable levels of 11.56% and 14.64% against the required 8.50% and 12.50% respectively.
CEO/Executive Director Renuka Fernando said, “Despite top-line numbers showing restrained growth largely due to multiple changes in accounting rules impacting the current quarter coupled with a slow recovery of the economy, the core foundations put in place in our business pillars remain strong. We will continue to focus our efforts on managing impairment and driving our strategic agenda set at the beginning of the year.”