News
Bank of Ceylon debenture draws Rs 15b plus; writes off Rs 2.9b loans in first quarter
View(s):By Kapila Bandara
State-owned Bank of Ceylon announced Thursday that its Rs 10 billion 5-year debenture issue is oversubscribed with subscriptions surpassing Rs 15b.
The issue closed Thursday, the day it opened. The official closing date was to be 3 June.
The domestic systemically important bank (as in too big to fail), also announced this week that it wrote off Rs 2.9 billion in loans and advances in the first quarter, in the face of greater credit risks in some sectors.
BOC reported that this reflected “the continued stress in specific sectors’’, without further explanation.
But, in 2024, the bank had identified tourism, construction and textile exports sectors as
“risk elevated industries,’’ considering worsening cash flow in particular.
For all of 2024, the bank’s impairment charge for loans and advances was Rs 12.4b. The impaired loans (Stage 3) ratio increased to 7.2% from 5.1% in 2023.
In annual filings for 2024, BOC reported an Rs 200b impairment reserve against Stage 3 loan exposures. This covers more than half of the total such exposures at end 2024.
Underperforming loans, (Stage 2, payments 31-90 days past due) dropped by Rs 93.1b to Rs 45.1b at end 2024.
BOC did not pay dividends to the Government in 2024 compared with the Rs 173.2m payout for 2023, while salaries surged from Rs 29.8b in 2023 to Rs 40.287b in contrast to statements of “prudent cost management’’. Operating expenses increased by 13% in the first quarter 2025 to Rs. 16.5b.
The Basel III-compliant debenture, meant to bolster its asset base and liquidity, comes during a period when the bank’s loans and advance portfolio has been expanding. BOC said that rupee loans and advances increased by Rs 71.7b in the final quarter of 2024.
Gross rupee loans and advances increased from Rs 1.535 trillion at end September to Rs 1.607 tn at end December 2024. The bank disbursed average gross loans of Rs 61b monthly in the final quarter of 2024.
The bank said the demand for credit is “excessive’’.
Annual filings for 2024 show that in a declining interest rate environment, BOC’s interest income from loans and advances — which accounted for more than 55% of the total interest income — dropped to Rs 251.4b, or by 25%, compared with 2023. Net loans and advances were Rs 2.2tn at end 2024.
The Central Bank of Sri Lanka began reducing policy rates in June 2023 and credit contraction dropped from the third quarter of 2023 and then increased in the first half of 2024. CBSL data show that overall bank sector credit swelled to Rs. 11.1tn by the end of the second quarter 2024.
BOC’s debenture issue offered a fixed annual interest rate of 11.25% plus a floating rate equivalent to 1% above the weighted average 12 months gross Treasury Bill interest rate (before tax) at the latest primary auction.
In contrast to the debenture’s fixed annual interest rate, at the May 9 Treasury bond auction, bonds maturing in 2029 October offered a 10.35% coupon.
BOC intends to use the debenture proceeds to expand its lending while also increasing Tier II capital to improve the capital adequacy ratio. The proceeds will be invested in short term securities offering a 6 % per year yield until it is used for lending, the bank said in the prospectus.
The debenture will be listed on the Colombo Stock Exchange.
In 2023, an Rs 10b debenture (15% interest) from the bank drew more than Rs 10b subscriptions. A five-year, Rs 15b debenture in 2024 September offered 13.5% annual interest.
The 2025 issue price was Rs 100 per debenture. The minimum subscription was Rs 10,000.
These were Basel III compliant regulatory Tier 2, listed, rated, and unsecured, subordinated, (in the event of insolvency or winding up of BOC, rank after the claims of preferential claims), debentures.
At Rs 15b subscription, the bank estimates the capital adequacy ratio of 17.39%.
Annual filings for 2024 show that the biggest risk exposure for BOC is from credit risk. Its exposure to credit risk at the end of 2024 was Rs 2.177 tn, equivalent to 43.7% of all its assets.
BOC itself has invested in debentures such as those of Browns Investments Plc, Ceylon Electricity Board and Sri Lanka Telecom.
For the first quarter 2025, the BOC reported post-tax profit of Rs. 17.1b. Interest income climbed “moderately’’ by 12% from the year before to Rs. 121.1b. Net interest income was Rs. 50.5b.
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