ECONOMYNEXT – Profits of Sri Lanka’s state-run Bank of Ceylon fell 6.8 percent to 5.49 billion rupees in the September 2021 quarter, as the lender made prudential provisions, despite steep credit growth amid state deficit spending for a ‘production economy’, interim accounts show.
Interest income grew 13.2 percent to 193 billion rupees in the September 2021 quarter, interest expenses fell 0.6 percent to 37 billion rupees and net interest income soared 44.9 percent to 30.1 billion rupees.
Bank of Ceylon provided 15.3 billion rupees for bad loans, up from 4.8 billion rupees a year earlier.
But the non-performing loans ratio fell to 4.5 percent from 5.0 percent amid steep credit growth.
The bank had provided 28 billion rupees for the nine months.
“..[W]hen calculating the impairment charge, the Bank always follows a very prudent approach; given the high degree of uncertainty and extraordinary circumstances in the short-term economic conditions mainly caused by the continuous disruptions to businesses the Bank made additional expected loss provision using management overlays on identified risk elevated industries and adjusting the economic factor reasonably and adequate enough to cover unseen risk factors in the uncertain and highly volatile environment,” the lender said.
Balance of sheets Sri Lanka’s state banks usually grow as the central bank prints money to keep rates down and trigger currency crises as the government deficit spends.
State bank balance sheets grow partly due to financing loss-making energy utilities, or because CPC is barred from buying dollars in the spot market forced to take dollar loans as money printing creates forex shortages in policy errors fine-tuned over repeated currency crises, analysts have shown.
Sri Lanka is currently deficit spending and state enterprises are running losses as part of a policy framework to create a ‘production economy’.
Loans and overdrafts grew 22.9 percent to 2.4 trillion rupees from December to September 2021.
State banks are key financiers of the government overdraft which soars during currency crises, sometimes re-financed with central bank window money to create a balance of payments deficit and foreign reserve losses.
Overdrafts jumped from 309 billion rupees in December 2020 to 619 billion rupees in September 2021.
Bank of Ceylon’s bond portfolio grew 9.6 percent to 793 billion rupees. Up to around September 2021 the central bank bought most Treasuries to print money as bond and bill auctions failed.
Bank of Ceylon’s balance sheet grew 19.6 percent to 3.56 billion rupees from December to September.
Customer deposits grew 11.8 percent to 2.76 trillion. Loans from other borrowers grew 92 percent to 348 billion rupees.
Repo borrowings grew 146 percent to 140 billion rupees.
During currency crises state banks end up borrowing printed money overnight from central bank windows. In 2020 the central bank also re-financed or gave printed money for Covid-19 distress loans. (Colombo/Nov20/2021)