Pan Asia Banking : Interim Financial Statements for the nine months ended 30th September, 2022

INTERIM FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED 30TH SEPTEMBER 2022

COMPANY REGISTRATION NO : PQ 48

Press Release

Pan Asia Bank's first nine months performance reflects resilience amid adversities

• Net Interest Income - Rs. 7,434 million, up by 11%
• Net Fee and Commission Income - Rs. 1,332 million, up by 6%
• Net Gains from Trading- Rs. 242 million, up by 264%
• Total Assets passes Rs. 200 billion mark, up by 8%
• Customer deposit-base reach Rs. 158 billion, up by 8%
• The Bank maintains a healthy Net Interest Margin of 4.98%
• Total Impairment Provision Coverage reaches 86% due to increased prudent provisioning
• The Bank remains well capitalised and liquid-All liquidity and capital adequacy ratios are above the regulatory minimum requirements

Pan Asia Banking Corporation PLC reflected resilience amid the multitude of adversities coming from the challenging macro-economic conditions as the bank reported its financial performance for the period ended on September 30, 2022 which showed judicious portfolio management and prudency exercised in dealing with possible fallout on its asset quality from sharp increase in the interest rates.

Despite the muted profitability mainly stemming from the enhanced provisions made against the possible stresses on loans, the bank increased its net interest income by 11% in the nine months to Rs. 7,433.6 million in a testament for the better management of its asset and liability portfolio, making the most of the rising rates.

For the nine months ended on 30th September 2022, the Bank reported a Pre-Tax Profit of Rs. 626 million and a Post-Tax Profit of Rs. 433 million which were weighed down by higher impairment provisions on loans and other assets denominated in foreign currency.

The Bank increased its provision buffers for loan losses during the period under review sensibly, through introducing changes to impairment models taking into consideration increased risks and uncertainties emerged due to the turbulent economic conditions prevailed in the country, including additional provisions on the Bank‟s investments in foreign currency denominated financial instruments of Government of Sri Lanka. As a result of the additional provisions made during the nine months period to cover the elevated risks in the macro-economic environment including steep depreciation of LKR against major foreign currencies, the impairment charges recorded a sharp increase of 233% compared to the corresponding period which caused the Bank reporting a decline in net operating income on YoY basis.

The impairment expense for the reporting period includes provisions made on foreign currency exposures to the Government of Sri Lanka amounting to Rs.1.58 billion. However, when presenting the figures, the Management has classified the impact of currency depreciation on the impairment charges of loans and advances and government securities denominated in foreign currencies amounting to Rs. 2.39 billion under the Other Operating Income/(Loss) where the exchange gains from the corresponding assets have been recognized. Therefore, impairment charges arose solely as a result of deterioration in credit quality has been accounted under "Impairment Charges‟ and it has increased by 66% compared to the corresponding period.

"Our performance is a testament that we have put quality over quantity this year when the circumstances dramatically changed from what we witnessed last year. This is while managing the assets and liabilities to generate returns from our existing portfolio while also keeping a closer tab on the operational expenses amid runaway inflation", said Nimal Tillekeratne, the Bank‟s Managing Director/Chief Executive Officer.

Reflecting this the interest income for the period rose by 34% due to increase in market lending rates and re-pricing effect of facilities as respond to the market conditions resulted from the recent monetary policy decisions taken by the Central Bank of Sri Lanka to increase the policy rates and remove the interest rate caps on certain lending products. Further, the significant volume growth in pawning, term loans and overdrafts which also led to the increase in interest income. Interest income from Rupee denominated securities of Government of Sri Lanka has gone up due to the rate increases.

Interest Expense for the period has also gone up by 56% mainly due to steep increase in deposit rates and re-pricing effect of deposits as respond to the market conditions resulted from the recent monetary policy decisions taken by the Central Bank of Sri Lanka to increase the policy rates. Consequently, the Net Interest Income grew by 11% to Rs. 7.43 billion during the period under review from Rs. 6.67 billion in corresponding period due to higher growth in interest income than the growth in interest expense.

The Bank‟s Net Fee and Commission Income recorded a growth of 6% mainly due to increased volumes and rates of international trade activities, guarantees and remittances. Meanwhile, the Net Gains from Trading increased by 264% mainly resulted from reporting high premiums in forex swap agreements due to the unconventional developments in the swap market which was heavily discounted in previous period. In contrary, the Bank reported a significant loss in "Other Operating Income‟ during the reporting period mainly due to the presentation of the currency depreciation impact on impairment charges on financial assets denominated securities of Government of Sri Lanka, under "Other Operating Income‟. Other than that, there is a drop in foreign exchange gains due to losses from asset and liability revaluation incurred as a result of depreciation of LKR significantly against major foreign currencies.

The Bank strived for earnings maximization through portfolio re-alignment and cost management despite sector vulnerabilities that prevailed since last year. The Bank‟s Cost-to-Income Ratio improved during the period under review owing to the excellence in core banking performance which is reflected ingrowths in most key revenue lines and various strategies and measures taken to contain the increase in overhead costs. In fact, the Bank managed to contain the increase in Other Operating Expenses at 15% during the period under review compared to the previous period despite rising prices for commodities. Meanwhile, the reduced allocations for staff bonuses and cost savings due to staff rationalisation activities caused the Bank reporting a reduced Personnel Expenses and Total Operating Expenses during the period under review.

Value Added Tax on Financial Services and Income Tax Expenses have come down mainly due to the drop in Operating Profits of the Bank for the period under review despite the increase in statutory tax rate for VAT on Financial Services.

The Bank reported a healthy Net Interest Margin of 4.98% during the reporting period. Meanwhile, the Bank reported a Pre-Tax Return on Assets (ROA) of 0.42% and a Post-Tax Return on Equity (ROE) of 3.08% during the period under review. The Bank‟s Earnings per Share (EPS) for the period dropped to Rs. 0.98 from Rs.4.54 due to increased impairment provisioning buffers. The Bank‟s Net Asset Value per Share as at the end of the reporting period stood at Rs. 42.90.

The Total Assets base stood at Rs. 205 billion as at 30th September 2022 after posting a growth of 8% during the nine months period supported mainly by the expansion in investments and loan book. The Gross Loans and Advances book recorded a growth of 4% to reach Rs. 157.04 billion with major contributions from the Retail segment. The main lending products that drove the growth during the period were Pawning and Term loans. During the period under review the Bank did not lend vigorously to sectors that exhibited high stress as a measure of the Bank‟s prudential lending decisions.

The Customer Deposits recorded a growth of 8% to reach Rs.157.64 billion as at 30th September 2022.

The Bank‟s Stage 3 Loans to Total Loans Ratio is 3.40% as at 30th September 2022. The Bank‟s Stage 3 Provision Cover improved to 55.26% (2021-51.23%) and the Total Impairment Provision Cover improved to 86.27% (2021-78.39%) due to prudent provisioning for probable credit losses. The Bank continued its focused actions towards managing the quality of its loan book by containing NPLs amidst the extremely weakened economic landscape.

The Bank maintains all its Capital and Liquidity Ratios well above the regulatory minimum standards. The Bank‟s Tier 1 Capital Ratio and Total Capital Ratio as at 30th September 2022 stood at 13.44% and 15.41% respectively. The Bank‟s Statutory Liquid Assets Ratio (SLAR) as at 30th September 2022 stood at 23.50% and 83.93% for Domestic Banking Unit and Off-Shore Banking Unit respectively. Meanwhile, the Bank‟s Liquidity Coverage Ratio (LCR) under BASEL III stood well above the statutory minimums. The Bank maintained LCR of 194.77% and 207.16% for All Currencies and LKR respectively.

In Rupee Thousands

Income Statement

	For the Nine Months ended	Change	For the Quarter ended	Change
	30th September	%	30th September	%
	2 022	2 021		2 022	2 021
Interest Income	18,299,188	13,638,955	34	7,289,912	4,564,729	60
Interest Expense	(10,865,596)	(6,970,153)	56	(5,010,823)	(2,261,156)	122
Net Interest Income	7,433,592	6,668,802	11	2,279,089	2,303,573	(1)
Fee and Commission Income	1,359,634	1,283,928	6	399,192	457,836	(13)
Fee and Commission Expense	(27,207)	(27,980)	(3)	(5,254)	(6,908)	(24)
Net Fee and Commission Income	1,332,427	1,255,948	6	393,938	450,928	(13)
Net Gains/(Losses) from Trading	242,064	66,541	264	11,010	(12,087)	191
Other Operating Income/(Losses)	(2,251,350)	274,429	(920)	(428,742)	64,433	(765)
Total Operating Income	6,756,733	8,265,720	(18)	2,255,295	2,806,847	(20)
Impairment Charges	2,390,383	1,436,798	66	830,415	567,150	46
Net Operating Income	4,366,350	6,828,922	(36)	1,424,880	2,239,697	(36)
Operating Expenses
Personnel Expenses	1,363,738	1,706,770	(20)	493,484	554,699	(11)
Depreciation and Amortisation	381,627	346,370	10	128,988	113,511	14
Other Operating Expenses	1,644,218	1,434,178	15	559,247	474,428	18
Total Operating Expenses	3,389,583	3,487,318	(3)	1,181,719	1,142,638	3
Operating Profit before VAT on Financial Services	976,767	3,341,604	(71)	243,161	1,097,059	(78)
Value Added Tax on Financial Services	350,743	623,166	(44)	112,981	200,976	(44)
Profit before Tax	626,024	2,718,438	(77)	130,180	896,083	(85)
Income Tax Expense	193,163	710,810	(73)	29,418	244,260	(88)
Profit for the Period	432,861	2,007,628	(78)	100,762	651,823	(85)
Earnings Per Share - Basic/Diluted (Rs.)	0.98	4.54	(78)	0.23	1.47	(85)