Cargills Bank gives dour profit outlook for 2020 as virus bites

Cargills Bank Limited gave a dour outlook for the company’s earnings and asset quality for the remainder of the year, coming directly from the pandemic and the subsequent relief measures extended to affected parties, as the bank said that the crisis had impaired its ability to generate interest incomes and other fees.

The Cargills group bank already had problems with its asset quality even before the pandemic outbreak, as the company had few large ticket loans in bad status, including one from a major construction sector company, weighing on its profits. The bank’s loans and bad loans portfolio is highly skewed towards the corporate segment and the company is making adjustments to balance the mix among retail, SME and corporate. The pandemic, despite its challenges, has opened up a better and a faster route to increase the bank’s exposure to SMES by way of participating in refinance schemes and interest subsidy schemes announced by the Central Bank.

The bank’s gross nonperforming loan ratio was 13.78 percent by March 31, 2019, rising from 12.79 percent at the beginning of the year. The industry nonperforming loan ratio was 5.1 percent by end-march, up from 4.7 percent at the start of the year. “The COVID19 pandemic would increase the non-performing loans and advances of the bank and coupled with the negative impact arising from the debt moratorium relief granted by the CBSL on interest income, fee income and cash flows will result in lower profitability of the bank,” Cargills Bank said in a note accompanying the interim financial accounts.