Cargills Bank recorded a modest post-tax profit of Rs. 71 m for the nine months ended 30 September 2018. This reflects a growth of 56% over the corresponding period of last year, after discounting the one-off gain of Rs. 481 m from the disposal of its subsidiary.
Net Interest Income of Rs. 1,530 m improved by 46%, reflecting increased income from a larger loan portfolio, interest rate benefits from currency swaps and the impact of the inflow of Rs. 1 b from the disposal referred to.
Net Fee-based Income of Rs. 115 m for the nine months reflected an increase of 43%. Most of this was attributable to income from growth in the loan portfolio and to higher guarantee commissions. This income would have been substantially higher if not for the delay in the launch of credit cards.
Other income for the nine months grew 23% when the exceptional gain in 2017 is excluded, an important contributor being increased earnings on foreign exchange.
Impairment charges increased 223% from Rs. 73 m in 2017 to Rs. 237 m in 2018. Growth in the loan portfolio, non-performance by some large customers and delayed settlements on other loans contributed to this. The bank’s NPA ratio increased from 3.55% at 31 December 2017 to 5.78% at 30 September 2018. This is receiving close attention; management considers the increase temporary. The bank stringently assesses credit quality and strengthens monitoring and recovery to contain NPAs at an acceptable level.
Operating expenses increased by 27% for the nine months. Higher depreciation costs and personnel expenses accounted for most of this increase. The employee head count at 30 September 2018 was 524 against 418 at 30 September 2017.
The Rs. 24.5 b loan portfolio of the bank at 30 Septmeber 2018 was 18% higher than at 31 December 2017. Credit growth was moderated by a shift in focus to secured lending, an exit from large low yielding facilities and a re-deployment of funds in the SME segment. Growth was slower than expected given the prevailing macroeconomic environment.
The bank’s deposit base, at Rs. 18 b at 30 September 2018 remained flat compared to the base at 31 December 2017. Rupee denominated deposits grew by a modest Rs. 2 b, which was cancelled out by outflows in foreign currency deposits. It commenced, during the third quarter, a deposit campaign targeting six month, one year and five year deposits.
This promotion has been well received and we are seeing a steady inflow of deposits. The bank also unveiled its new ‘Podihitiyo’ children’s savings account on World Children’s Day, offering an attractive interest rates for children’s savings accounts to help create a culture of savings in the community. Targeted promotions to attract deposits will continue. The bank’s CASA ratio stood at 16% at 30 Sep 2018.
The Capital Adequacy Ratio of Cargills Bank continued to be well above the minimum regulatory requirement during the period. At 30 September 2018, the Tier I Capital Ratio was 32.3% and the Total Capital Adequacy Ratio was 32.7%. The bank remains focused on the need to productively deploy the capital buffer it presently carries.
The bank won three awards at the recently concluded LankaPay Technovations Awards 2018, demonstrating the success of its thrust in technological innovation and operational excellence. The event was organised by Lanka Clear Ltd. to recognise banks, non-banking financial institutions and fintechs for their excellence and commitment to digital adoption.
The bank also signed a strategic partnership agreement with Flemingo Duty Free and Supreme Paysez to roll out the Alipay mobile payment gateway in the Colombo Airport’s duty free shops of Flemingo. A joint marketing arrangement is now in place for Flemingo to offer customised and targeted shopping offers to Chinese passengers using Alipay.
Expanding its remittance network, the bank recently joined RippleNet to facilitate cross-border inward remittances to Sri Lanka using Ripple’s blockchain based enterprise software solution, enabling safe and secure cross-border transactions. Its customers now have more than 360 access points to collect their remittances from, and the convenience and service we provide here is unmatched.
The bank has invested in a state-of-the-art card management system which is now fully operational, with cards now being marketed. Implementation of the card management system was delayed by some months and, as such, customer acquisition was significantly lower than expected. A steady income stream from this line of business is expected in the future.
Cargills Cash, the bank’s agency banking arrangement at Cargills Food City, and ‘Bank in a Box’ kiosk machines, have seen increased usage, and the bank will focus on this low- cost customer touch point to increase retail banking penetration.
The bank is confident that its early initiatives in the retail, SME and agri segments will develop strongly; combined with technological innovation, the future augurs well.
Fitch Ratings has affirmed a National Long-Term Rating of ‘BB (lka)’ with a Stable Outlook for the bank. The bank continues its preparation for a listing within the time frame stipulated by the Central Bank, and anticipates listing by 30 June 2020.