Rising NPAs and a subdued macroeconomic environment hindered top and bottom line performance for Cargills Bank during the six months ended June 30, 2019 (1H 19) resulting in a loss after tax of Rs. 261 million as compared with a profit after tax of Rs. 70.8 million in the corresponding period of the previous year (1H18) which has been reported under LKAS 39 and not restated.
The bank’s interest income grew at a modest pace of 9% Year-on-Year (YoY) to Rs. 2.04 billion, given the suspended interest component arising out of the increased NPAs during 1H19.
However, net interest income contracted by 13% YoY to Rs. 860.6 million due to increase in interest expense resulting from foreign currency borrowings and growth in term deposits.
Fee and commission income during 1H19 rose by 61% YoY to Rs. 163.2 million, while net fee and commission income also recorded positive results supported by increased usage of Cargills Bank Debit and Credit cards. Net fee and commission income increased by 40% YoY up to Rs. 105 million while total other income increased by 12% YoY to Rs. 91.1 million.
Cargills Bank continued to invest in expansion of several of its business segments over the half year period. Personnel costs reflected a 17% YoY increase consequent to an increase in the workforce in the Card Centre, its sales force and Retail Banking etc. Challenging macroeconomic conditions were reflected in modest growth in the Bank’s lending portfolio and deposit base which recorded 11% YoY and 8% YoY growth to 26.5 billion and 21.5 billion respectively, as compared to December 31, 2018.
While the bank’s NPA position is challenging, our relatively recent entrance into the market means that our portfolio is relatively modest, particularly given the extremely strong position of our regulatory capital reserves which currently stands at over 2.5 times the stipulated minimum.
“The fragmentation of NPAs – with primary exposure being in corporate and mid-market further validates the overall strategic emphasis of the bank towards retail and SME, hence the overall growth prospects of the bank remain unhindered,” Cargills Bank MD/CEO, Rajendra Theagarajah said.
The bank’s regulatory capital ratios were maintained well above the statutory minimum requirements with substantial regulatory capital buffer. The Common Equity Tier 1 Capital Ratio and Tier 1 capital Ratio both stood at 28.5% at the end of the quarter while the bank’s Total Capital Ratio was held steady at 28.8%, as compared with minimum regulatory requirements of 7%, 8.5%, and 12.5% respectively.
During the first half of the year, as previously reported, Cargills Bank secured a multi-notch upgrade from Fitch to A-(lka) with stable outlook. Fitch Rating attributed the upgrade to its “assessment of support from its ultimate parent, CT Holdings PLC (CTH), and our expectation that the Bank is likely to receive extraordinary support from its ultimate parent, if needed”
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