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Pan Asia Bank recorded an operating loss of Rs.59.8 million, before making the loan loss provision against a backdrop of the economy. In comparison, the Bank registered an operating profit of Rs.47.7 million in 2000 before provisioning for loan losses and taxation, according to its Annual Report 2001.

The poor performance during the year under review was due primarily to the higher interest expenses resulting from extremely volatile conditions which prevailed in the local money market, particularly in the first three quarters of the year, Chairman, W.M.Abeyratne Bandara said in the report.

Although gross income for 2001 amounted to Rs.861 million, an increase of Rs. 199 million or 30 percent over the previous year, net interest income for 2001 was only Rs.145.1 million compared to Rs.219.3 million in 2000, which is a drop of Rs.74.2 million. This is due to increased interest expenses by Rs.248.3 million, an increase of 74.5 percent. The interest income during this period went up only by 31.5 percent.

The difficult economic conditions had an adverse impact on the deposit growth of the Bank too. Nonetheless, the Bank's deposit base increased to Rs.3,488 million, a growth of Rs.492 million (16.4 percent) over the previous year. The increase in deposits was contributed primarily by interest bearing time deposits, he said.

Total loans and advances stood at Rs.3,542 million as at end December 2001, compared to Rs.3,355 million as at the end of the previous year.

The marginal growth in the advances portfolio was due mainly to the Bank's focussing on retail and middle market customers more than corporates who faced difficult operating conditions in 2001. The non-performing advances during the year have increased due to the Bank categorising them strictly in terms of the Central Bank guidelines and not accruing interest when the advances do not perform for more than three months.

A quality credit portfolio is one of the main determinants of the success of a financial institution. During the second half of 2001, special emphasis was placed on the process of proper credit evaluation and risk monitoring.

The Credit Department and the Credit Supervision Department have embarked on a joint exercise to study in detail the risks inherent in the Bank's exposure to various industries and economic sectors. Lending officers are appraised of any early warning signals so that appropriate remedial action could be implemented.

An intensive loan recovery drive is being carried out on a priority basis to improve interest recovery and thereby profits. Negotiated settlement is also being recorded as far as possible with customers in default.

The capital buffer of the Bank i.e. equity capital in relation to total risk weighted assets was 13.24 percent as at the end of 2001.

The situation is expected to improve during the year 2002 due to the operating profits made during the first quarter of 2002 and with successful recovery efforts on non-performing advances, General Manager/CEO R. Nadarajah said.

The performance of all commercial banks was adversely affected by the unfavourable economic trends which prevailed in the year 2001. The profitability of Pan Asia Bank Ltd. also drastically declined, resulting in a considerable loss for the year 2001.

Several strategic changes were introduced to arrest this declining trend in the performance of the Bank by the management during the year, including an intensive recovery drive and the pruning down of overhead expenditure, the Chairman said. A Credit Committee was established for the first time in the Bank in May 2001. Decision making based on credit risk analysis, credit control and supervision have increased since then to a great extent. A strategic shift was introduced to the area of credit moving from the concept of `large advances to a few customers' to the concept of `good advances to more retail and middle market customers', to reduce the high concentration of risk and low profitability due to non-performance of large advances.

Loan recoveries improved to a satisfactory level following the establishment of a Loan Recovery Taskforce. The new credit monitoring system allowed the bank to have a better control over its total portfolio of advances.

The Bank has achieved a remarkable increase in customer loyalty, reflected by the increased volume of deposits in the recent past, as a result of the expanded and improved customer services.

The introduction of geographical and branch requirement based strategic planning, along with the individual and branch targeting system, target based performance evaluation and reward method, and continuous Performance and Budget Review techniques have contributed to an increase in dedication, commitment and the performance of employees in their day-to-day operational activities, as well as in participatory decision making.

"The new strategies we have adopted have already begun to show results in the year 2002 by achieving our primary objective of generating operational profits. However, further improvements are needed in capital investment in advanced technology to provide an expanded and improved service to our customers at a reasonable cost," he said.

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Copyright 2001 The Associated Newspapers of Ceylon Ltd.
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