Pan Asia Banking : Interim Financial Statements for the year ended 31st December, 2022

INTERIM FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2022

COMPANY REGISTRATION NO : PQ 48

Press Release

Pan Asia Bank's performance for the year 2022 reflects resilience amid adversities

• Total Assets reaches Rs. 208 billion, up by 10%
• Customer deposit base reaches Rs. 163 billion, up by 11%
• Profit for the year Rs. 2 billion, down by 35%
• The Bank maintains a Net Interest Margin of 4.70%
• The Bank reports a decent Return on Equity of 10.58% and Post Tax Return on Assets of 1%
• The Bank remains well capitalised and liquid
• • Tier 1 Capital ratio 14.09% (regulatory minimum - 8.50%)
  • Total Capital ratio 16.07% (regulatory minimum -12.50%)
  • Rupee LCR 253.11% (regulatory minimum -100%)
  • All Currency LCR 226.09% (regulatory minimum -100%)
• Net Interest Income for the year Rs. 9,455 million, down by 2%
• Net Fee and Commission Income for the year Rs. 1,719 million, down by 4%
• Net Gains from Trading for the year Rs. 111 million, up by 21%

Pan Asia Banking Corporation PLC reflected resilience amid multitude of adversities emerging from challenging macroeconomic conditions as the Bank reported its financial performance for the year 2022 which showed judicious portfolio management and prudency exercised in dealing with possible fallout on its asset quality from sharp increase in interest rates.

For the year ended 31st December 2022, the Bank reported a Pre-Tax Profit of Rs. 650 million which was weighed down by higher credit loss expenses and exchange losses on loans and advances and foreign currency denominated financial instruments of the Government of Sri Lanka. The Bank increased its provision buffers for loan losses during the year under review sensibly, through introducing changes to its impairment models taking into consideration of increased level of 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 the Government of Sri Lanka in view sovereign rating downgrades and the impact of the external debt standstill.

The Bank increased the impairment provision buffers on its investments in Sri Lanka International Sovereign Bonds (SLISBs) up to 35% due to the increased level of credit risk emerged as a result of prevailing external public debt service standstill of the government of Sri Lanka and the possible adverse outcomes of the on-going comprehensive debt restructuring programme. As a result of the additional impairment provisions made in lieu of the elevated risks in the macroeconomic environment including steep depreciation of LKR against major foreign currencies, the corresponding provision buffers recorded a sharp increase during the year causing the bank reporting a reduced Net Operating Income in 2022.

The amounts charged to the income statement during the year 2022 includes provisions made on foreign currency exposures to the Government of Sri Lanka amounting to Rs. 3.80 billion. However, when presenting the figures, the management has presented the impact of the currency depreciation on the impairment charges of loans and advances and investments under Other Operating Income/(Losses) where the exchange gains from the corresponding assets have been recognized. The impairment charges arose solely as a result of change in the level of credit risks of financial assets has been classified under the Impairment Charges for the year which is increased by 21% compared to the last year.

The interest income for the year rose by 42% due to increase in market lending rates and re-pricing effect of facilities in response to the market conditions resulted from the 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 advances and term Loans also led to the increase in interest income. Interest income from Rupee denominated securities of the Government of Sri Lanka has also gone up due to the rate increases as well as increased investments. Meanwhile the interest expense for the year has also gone up by 88% 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 dropped by 2% to Rs. 9.46 billion during the year under review from Rs. 9.64 billion in the corresponding year due to higher growth in interest expense than the growth in interest income.

The Bank's Net Fee and Commission Income declined by 4% mainly loans and advances due to weak demand for credit resulted from the part of the year. However, there was a significant increase in fee remittances due to increase in volumes and rates which nullified the greater extent.

due to drastic reduction in fee income generated from high interest rate regime prevailed during significant income generated from trade finance activities and effect of fee income drop from loans and advances to

The Net Gains from Trading increased by 21% mainly resulted from high premiums in Forex SWAP agreements due to unconventional developments in the SWAP market which was heavily discounted in last year. However, this positive trend reversed during 4Q as the market conditions changed as the demand for foreign currencies reduced and nullified the increasing impact of high premiums during the first three quarters of 2022, up to some extent. Meanwhile, the trading gains from Rupee denominated securities of the Government of Sri Lanka has also increased in the year 2022.

In contrary, the Bank reported a significant loss in Other Operating Income/(Losses) during the year 2022 mainly due to presentation of the currency depreciation impact on impairment charges on financial assets under Other Operating Income in the income statement. Other than that, there is an increase in foreign exchange gains due to gains from asset and liability revaluation incurred as a result of depreciation of LKR significantly against major foreign currencies.

The Bank strived for earnings vulnerabilities that prevailed since core banking performance despite

maximization through portfolio re-alignment and cost management despite sector last year. The Bank's Cost-to-Income ratio deteriorated during the year due to subdued the measures taken to contain the increase in overhead costs.

The cost savings from the staff rationalisation activities and reduced staff bonuses contributed for the 15% reduction in
Personnel Expenses which in turn reflected in the marginal increase (1%) in Total Operating Expenses during the year under
review. The increase is Total Operating Expenses during the year was mainly driven by the increase in Other Operating
Expenses of 18% as a result of the rising prices of commodities due to reasons such as the impact of the currency
depreciation, fuel price hikes and tax hikes etc.
Value Added Tax on Financial Services has come down mainly due to the drop in Operating Profits of the Bank for the year
under review despite the increase in statutory tax rate for VAT on Financial Services (2022-18%,2021-15%)
The Post-Tax Profits gained significantly due to reversal of deferred tax expense due to re-assessment of temporary
differences in accordance with the Government Gazette Notification No. 2303/05 issued under the Inland Revenue Act No.
24 of 2017 dated 25	th	October 2022 and also application of newly enacted tax rate of 30% for computation deferred tax asset
as at the year end.
The Bank reported a Net Interest Margin of 4.70% during the year 2022. Meanwhile, the Bank reported a Return on Equity
(ROE %) of 10.58% and a Post-Tax Return on Assets of 1.00% despite unprecedented macro-economic conditions during
the year under review.
The Bank's Earnings Per Share (EPS) for the year dropped to Rs. 4.52 from Rs. 6.95 mainly due to increased inflated
funding costs, exchange losses and impairment charges. Meanwhile the Bank's Net Asset Value Per Share as of 31	st
December 2022 stood at Rs. 46.58 after an appreciation of 11%.
The Total Assets of the Bank stood at Rs. 208 billion as of 31	st	December 2022 after posting a growth of 10% during the
year supported mainly by the expansion in Rupee Treasury Bills and loan book. The gross Loans and Advances book
recorded a growth of 2% to reach Rs. 154 billion with major contributions from the Retail segment. The main products that
drove the credit growth during the year were Pawning and Term Loans. During the year 2022, the Bank did not lend
vigorously to sectors that exhibited high stress as a measure of the Bank's prudential lending decisions. Meanwhile,
supported by the expansion on time deposits, the Total Customer Deposits recorded a growth of 11% to reach Rs. 162.5
st
billion as of 31 December 2022.
The Bank's Stage 3 Loans to Total Loans Ratio stood at 3.63% as of 31	st	December 2022. The Bank's Stage 3 Provision
Cover improved to 53.11% (2021-51.23%).	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 of 31	st	December 2022 stood at 14.09% and 16.07% respectively. Further the Bank's
leverage ratio stood at 8.21% at the year end.
						st
The Bank's Bank Level Statutory Liquid Assets Ratio (SLAR) as of 31 December 2022 stood at 21.60%. Meanwhile, the
Bank's Liquidity Coverage Ratio (LCR) under BASEL III stood well above the statutory minimums. The Bank
maintained LCR of 226.09% and 253.11% for All Currencies and LKR respectively.

In Rupee Thousands

Income Statement

	For the Year ended 31st	Change	For the Quarter ended 31st	Change
	December		December
	2022	2021	%	2022	2021	%
	(Audited)	(Audited)
Interest Income	26,626,159	18,798,301	42	8,326,971	5,159,346	61
Interest Expense	(17,170,702)	(9,156,565)	88	(6,305,106)	(2,186,412)	188
Net Interest Income	9,455,457	9,641,736	(2)	2,021,865	2,972,934	(32)
Fee and Commission Income	1,754,921	1,821,228	(4)	395,287	537,300	(26)
Fee and Commission Expenses	(36,112)	(38,295)	(6)	(8,905)	(10,315)	(14)
Net Fee and Commission Income	1,718,809	1,782,933	(4)	386,382	526,985	(27)
Net Gains/(Losses) from Trading	111,315	92,257	21	(130,749)	25,716	(608)
Other Operating Income/(Losses)	(2,679,251)	391,748	(784)	(427,901)	117,320	(465)
Total Operating Income	8,606,330	11,908,674	(28)	1,849,597	3,642,955	(49)
Impairment Charges	2,860,555	2,370,452	21	470,172	933,655	(50)
Net Operating Income	5,745,775	9,538,222	(40)	1,379,426	2,709,300	(49)
Operating Expenses
Personnel Expenses	1,893,676	2,227,359	(15)	529,938	520,589	2
Depreciation and Amortisation	481,488	459,840	5	99,861	113,469	(12)
Other Operating Expenses	2,281,193	1,939,793	18	636,975	505,615	26
Total Operating Expenses	4,656,357	4,626,992	1	1,266,774	1,139,673	11
Operating Profit before VAT on Financial Services	1,089,418	4,911,230	(78)	112,652	1,569,627	(93)
Value Added Tax on Financial Services	439,565	877,577	(50)	88,822	254,411	(65)
Profit before Tax	649,853	4,033,653	(84)	23,829	1,315,216	(98)
Income Tax Expense	(1,352,087)	958,295	(241)	(1,545,250)	247,485	(724)
Profit for the Period	2,001,940	3,075,358	(35)	1,569,079	1,067,731	47
Earnings Per Share - Basic/Diluted (Rs.)	4.52	6.95	(35)	3.55	2.41	47

					In Rupee Thousands
Statement of Comprehensive Income
	For the Year ended 31st	Change	For the Quarter ended	Change
	December	31st December
	2022	2021	%	2022	2021	%
	(Audited)	(Audited)
Profit for the Period	2,001,940	3,075,358	(35)	1,569,079	1,067,731	47
Other Comprehensive Income for the Period
Other Comprehensive Income Not to be Re-classified to Profit or Loss
Revaluation Surplus on Property, Plant and Equipment	243,809	-	100	243,809	-	100
Deferred Tax Effect on Above	(73,142)	-	(100)	(73,142)	-	(100)
	170,667	-	100	170,667	-	100
Acturial Gains/(Losses) on Defined Benefit Plan	(44,103)	36,409	(221)	(44,103)	36,409	(221)
Deferred Tax Effect on Above	13,231	(8,738)	251	13,231	(8,738)	251
	(30,872)	27,671	(212)	(30,872)	27,671	(212)
Deferred Tax Effect on Revision of Statutory Income Tax Rate	(78,695)	53,311	(248)	(78,695)	2,315	(3,500)
	(78,695)	53,311	(248)	(78,695)	2,315	(3,500)
Other Comprehensive Income for the Period	61,100	80,982	(25)	61,099	29,986	104
Total Comprehensive Income for the Period
2,063,040	3,156,340	(35)	1,630,178	1,097,717	49