The City Bank's business faced multiple challenges in the first half of 2020 due to the imposition of interest rate caps on loans by the authorities amid the Covid-19 pandemic.
Despite a strong growth – 18.4 percent or Tk4,548 crore – in loan from December last year, the banks' interest income decreased by 2.8 percent or Tk36 crore to Tk1,248.4 crore. The new interest rate cap of 9 percent on loans took effect on April 1.
On the other hand, interest expenses on deposits grew by 10.8 percent or Tk 81.7 crore over the last year, mainly due to an increase in deposit volume – Tk2,822 crore from December 2019 – despite the bank's cost of deposits remaining at the same level of 5.5 percent.
However, contributed mostly by an increase of Tk46.1 crore from the government securities, the non-interest income grew by 14.8 percent or Tk59.6 crore over the last year through June.
The bank's half-yearly revenue decreased by Tk57.8 crore, whereas the operating expenses increased by Tk46 crore over the last one year, mainly due to an increase in salary expenses, Managing Director Mashrur Arefin told The Business Standard.
Bank's total assets grew by Tk4,451 crore or 12.5 percent to Tk40,146 crore during the January-June period. Total equity grew by 2.2 percent to Tk2,507 crore. Loans grew by 18.3 percent to Tk29,322 crore. SME and commercial loans grew by 12 percent to Tk6,767 crore.
Between January and June, City Bank' deposits grew by 11.4 percent to Tk27,465 crore and advance to deposit ratio stood at 81.5 percent, capital adequacy ratio (consolidated) in June stood at 12.9 percent against the minimum requirement of 12.5 percent.
City Bank's default loan ratio declined to 4.5 percent in June this year against 5.8 percent of December last year, mostly driven by regulatory changes, said Mashrur Arefin.
"Agent banking and women banking, along with our retail banking, are expected to contribute considerably to our low-cost deposit mobilisation in the coming years," he added.
City Bank's agent banking deposits grew by 17.2 percent in the first six months of this year and women banking deposits grew by 7.6 percent in the same period.
Central bank's new regulations on classification, provisioning and credit guarantee schemes will make investments in the SME segment more profitable for banks as well, said the City Bank managing director.
City Bank's number of SME outlets reached 116 in June this year and agent banking outlets will also be used to roll out small business products and services and SME loans have grown significantly in the first half, with 21.7 percent growth.
City Bank has been actively participating in the stimulus packages introduced by the central bank to rejuvenate private sector businesses through the financial system. The bank disbursed Tk731 crore till date under such packages.
The bank's solo half-yearly revenue dropped by 17.2 percent from the usual scenario that would have prevailed without new regulation of interest cap and the Covid-19 pandemic.
At the same time, provision expenses increased by 24.9 percent, impacted mainly by the increase in provision on off-balance sheet items and investments and prudential risk and balance sheet management, which eventually took provision coverage ratio to 109 percent in June this year from 78 percent.
This indicates that bank is making the balance sheet more resilient if any unforeseen risk arises.
As a result of the above, the bank's consolidated profit after tax for the first half of 2020 stood at Tk1,06.8 crore with a decrease from the last year's number by Tk78 crore. Return in asset declined from 1.1 percent to 0.6 percent, return on equity declined from 14.5 percent to 8.6 percent, earnings per share declined from Tk3.6 to Tk2.1 in the same period.
"Nonetheless, the decline in the profitability of the bank during this period is mostly caused by external, regulatory and macro factors rather than internal lack of efficiency. A testament to this fact is the outstanding growth in the balance sheet items of the bank during this period, even with the coronavirus outbreak impacting all businesses severely," Mashrur added.