Navigating amidst challenges, BoC strengthens its industry leadership position

The Bank has reported Rs. 32.0 billion Profit After Tax (PAT) for the year ended 31 December 2022 despite of many headwinds caused by the never experienced economic and operational environment prevailed during the year.

Fund Based Income

Despite of never experienced economic and operating environmental challenges prevailed, the net interest income grew by 13.6% to Rs. 126.3 billion contributing 71% to total operating income. The increase in interest rates in line with the upsurge in policy rates and materializing the volume growth resulted 61% growth in interest from loans and advances which denotes 68% of total interest income. Interest income from investments boomed up YoY to Rs. 146.0 billion and the major portion of it derived through Treasury Bills and Bonds.

The upsurge in deposit rates increased the cost of funding, YoY interest expense hiked by 121% and as considerable portion of FDs are reprised by now, during the latter part of this year interest expense moved up by nearly threefold than previous year.

Non- Fund Based Income

As rupee depreciation is around 81% for the period, net exchange gains derived through trading activities and currency conversion represents considerable portion in non-fund based income amounting to Rs. 32.9 billion. Similarly, net fee and commission income also contributed Rs. 16.4 billion with 15% growth as business operations are now normalized and increased number of retail transactions and trade financing activities caused in improvement in related fee income.

As conducive environment was not prevailed in the Share market activities during the year the mark to market losses of Rs. 804.4 million was resulted from equity and unit trust portfolio. However, through trading of equity and Government security the Bank was able to gain Rs. 861.3 million.

Impairment Charges for Loans and Advances and Other Financial Instruments

From January 2022 onwards, impairment provision for loans and advances and investment were provided in compliance with CBSL Directions No.13 and 14 of 2021 on Classification, Recognition and Measurement of Credit Facilities and Financial Assets. Thus, the impairment provision for loans and advances and financial investments were calculated to capture the expected losses associated with the customers or the investment instruments based on the possible consequences in current economic conditions, sector specific risk factors, new policy reforms, present negotiations in foreign and local debt settlements by the Government.

Management overlays were applied to identify the risk elevated industries which results the significant increase in credit risk due to spillover of economic turmoil prevailing the country and exposures to those industries were assessed as underperforming to account for life time credit loss on prudent basis. Further, the Economic Factor Adjustment (EFA) which is used in calculating the expected losses for collectively assessed portfolios were enhanced by capturing the stressed economic condition prevailed at present. Nevertheless, the Individually Significant Customers (ISL customers) were also assessed critically given the high degree of uncertainty and extraordinary circumstances in the short-term and mid-term economic conditions mainly caused by the continuous disruptions to businesses and prudent level of ISL impairment provision were made. (BOC)