The Bank of Ceylon (BOC), Bankers to the Nation, recorded a superlative performance, for the first half of 2021.
The Bank’s profit before tax (PBT) in the first half of the year grew by 292 per cent year on year (YoY) to Rs 27 billion, the highest ever by a licensed commercial bank (LCB), be it a domestic LCB or the branch office of a foreign bank operating in the country.
This achievement by BOC compared to its performance of a PBT of Rs 23 billion for the entire financial year last year is noteworthy. Further, BOC in the first half of the year saw credit growth by 16 per cent YoY, beating CBSL’s industry credit growth forecast of 14 per cent, while BOC’s topline grew by 16 per cent to a record Rs 136. 6 billion and its non-performing loan (NPL) portfolio which stood at 4.76 per cent in the last financial year, dropped to 4.70 per cent by the first half of the year under review.
BOC’s Deputy General Manager, International, Treasury & Investment, R. M. N. Jeewantha, in an interview with BMD attributed the Bank’s sterling performance to the operation of a low interest rate regime backed by high margins. He however said that recently CBSL increased its policy rates by 50 basis points each.
Despite the impact caused by the Covid 19 Pandemic, DGM Jeewantha was optimistic about the future.
He was confident that once Sri Lanka completes its vaccination program, thereby effectively controlling the spread of Covid 19, which had disastrous effects on the country’s economy last year, the main driver of Sri Lanka’s current economic woes led by US dollar shortages in the market, exports will rebound and tourism, Sri Lanka’s traditional third largest foreign exchange (FX) earner, will also recover.
Excerpts from the interview:
Q: Foreign exchange inflows to the country, are severely affected by the Covid 19 pandemic, currently gripping globe. What is BOC strategy to meet this challenge?
With the advent of the pandemic in Sri Lanka in March 2020, we experienced extreme difficulties, working under tremendous pressure not only in terms of liquidity, but also operational continuity vis-à-vis the external sector. In terms of rupee liquidity, we didn’t have much of a problem. Further, there is a regulator to provide rupee liquidity if the need arises.
But in terms of U.S. dollar liquidity, we were actually working under tremendous pressure. In 2020, Sri Lanka was downgraded by three rating agencies, Moody’s, S&P and Fitch. The downgrading affected our dollar liquidity adversely. It created a difficulty in obtaining funds from overseas sources. Even under these circumstances, I am happy to note that BOC was actually self-sufficient in dollar liquidity, and was able to raise large amounts from CDB and AIIB.
Q: Has there been a post pandemic escalation of workers’ remittances? Could you explain how this occurred and your strategy to sustain these inflows?
Yes. Fortunately, remittances income, Sri Lanka’s single largest source of foreign exchange grew to US dollars 7.1 billion last year of which 42 per cent, was channelled through BOC.
In 2020, informal Funds Transfer systems like Hawala and Undial couldn’t function as usual, due to the pandemic. This is one of the key reasons why we saw the 5.8% increase in workers’ remittances into the country last year compared to 2019. In 2021, up to July, of a total of US$ 3.7 billion remittances, 50 per cent was chanelled through BOC. We have increased our share of inward remittances from 42 per cent to 50 per cent. We are maintaining this leading position in terms of worker remittances to Sri Lanka. Our leadership position is strengthened by the 82-year history of the bank and our large branch network.
The curb market was paying between Rs. 240 to Rs. 250 to the dollar, whereas BOC was paying a lower rate. This was before the regulator mandated that all foreign exchange transactions of banks should be executed within the range of Rs 200 to Rs. 203 to the dollar, from the evening of September 6th 2021.
This was the main reason why foreign remittances were not being channelled through commercial banks as before. The informal channel is once again reactivated.
As a counter measure to enhance the Banks’s worker remittances, BOC has deployed 25 business promotion officers covering a major part of the world. They are stationed in key destinations where the majority of our expatriate workers live and are assisting Sri Lankans living overseas with their foreign currency remittances. We have also introduced various incentive schemes for people working abroad to send their money to Sri Lanka.
Recently our digital foreign remittance system known as BOC Smart Remit, was upgraded to a convenient, user friendly system for expatriate workers to remit money to Sri Lanka through BOC. Now expatriate workers have the facility of remitting their earnings to Sri Lanka with one click of BOC Smart Remit. Coinciding with our 82nd anniversary, we have upgraded this process on August 1, where money could be remitted instantly to an account securely.
Q: How important is the role of Special Deposit Accounts (SDAs) in foreign exchange inflows at BOC?
Yes, we are happy to say that as far as SDA accounts are concerned, we are in a leading position. The SDAs are the most popular product at the moment. We are paying the highest interest rate of seven per cent for USD SDA Accounts in the banking sector.
Special Deposit Accounts (SDAs) were introduced in April 2020 and now have been extended up to April 2022. As per data released by the Central Bank of Sri Lanka (CBSL), US $ 458 million was received under the SDA accounts, the majority of which has been received by BOC. We have also launched a new marketing campaign across digital channels as well as through our Business Promotion Officers (BPO) who operate at present 10 countries.
Q: The prevailing situation constrains commercial banks in facilitating imports due to a shortage of foreign currency liquidity. How does BOC manage its operations under this condition?
Basically, we are under import restrictions now. But we still can see an increase in imports. Now, imports are mainly limited to essential foods, fuel, pharmaceuticals and gas bills etc. Those are the major import items under the present dispensation. We are playing a major role in providing dollars to these sectors.
We are proud to mention that BOC facilitates 90 per cent of petroleum imports which are some of the largest import bill payments in the country. We have a relationship with the Asian Development Bank (ADB) which underwrites all loans taken by us on behalf of petroleum imports to the country. But the ADB wants to phase out underwriting petroleum import loans to renewable energy loans in the future.
We are taking the lead role in Covid19 vaccine imports to Sri Lanka. We are also providing dollars to import essential food items imported by the Pettah Market as other banks are reluctant to open letters of credit (LCs). BOC also undertakes other bank LCs. We are taking a lead in Sri Lanka at the moment in terms of anything to do with finance.
Q: How do you foresee the foreign exchange liquidity of BOC in the near future?
Currently, foreign exchange liquidity has been impacted due to a number of reasons like the fall in tourist arrivals, slow foreign direct investments (FDI) etc. as a direct result of the ongoing pandemic. Nonetheless with the vaccination program in operation, tourism, traditionally Sri Lanka’s third largest foreign exchange earner is predicted to experience an upswing, coupled with a pickup in the merchandise export business in Sri Lanka. I think this current problem in dollar scarcity will be a thing of the past. I’m pretty optimistic about the future.
We are negotiating with AFD France for a $35 million loan to be distributed among the SME sector and recently BOC concluded a US$ 90 million facility from the Asian Infrastructure Investment Bank (AIIB).
Apart from these positives, recently we released our half yearly results. We have an increase of 292 per cent in terms of profit. We generated Rs 27 billion in profit, the highest among all commercial banks.
In our last financial year, we made a profit of Rs 23 billion. But now in six months we have made Rs 27 billion. We enjoyed a 16 per cent credit growth in the reviewed six months whereas Central Bank of Sri Lanka (CBSL) expected this sector of the banking industry to grow only by 14 per cent.
Due to the prevalence of a low interest rate regime we were able to bring down our cost of funds to significant levels. It’s only now that CBSL has begun raising its policy rates.
We have reported the highest net interest margin (NIM) whilst maintaining our liquidity levels. And we’re happy to say that we have both the largest loan book and the biggest deposit base in the country. We have a Rs 2.6 trillion loan portfolio.
Total revenue made in the first six months of the current financial year was Rs. 136. 6 billion, a 16 per cent YoY increase. We are also managing our non-performing loans (NPLs). In 2020, our audited NPL ratio stood at 4.76 per cent. By end 30 June 2021 it had come down to 4.70 per cent.