Pan Asia Banking : Interim Financials as at 06/30/2022

INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30TH JUNE 2022

COMPANY REGISTRATION NO : PQ 48

Press Release

Pan Asia Bank records a Moderate Performance during 2022 1H amidst Challenging Economic Conditions

• Net Interest Income - Rs. 5,155 million, up by 18%
• Net Fee and Commission Income - Rs. 938 million, up by 17%
• Net Gains from Trading - Rs. 231 million, up by 194%
• Loans and Advances book reaches Rs. 160 billion, up by 6%
• Customer Deposits reach Rs. 151 billion, up by 3%
• The Bank maintains a healthy Net Interest Margin of 5.23%
• Total Impairment Provision Coverage reaches 82% 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 reported a moderate financial performance during the 2022 1H to report a Pre-Tax Profit of Rs. 496 million and a Post-Tax Profit of Rs. 332 million amidst extremely challenging macro-economic conditions.

Meanwhile, the Bank increased its impairment provision buffers for loan losses during 2022 1H sensibly, through introducing changes to impairment models taking into consideration increased risks and uncertainties emerged due to the turbulent macro-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 six months period to cover the elevated risks in the macroeconomic environment including steep depreciation of LKR against major foreign currencies, the impairment charges recorded a sharp increase of 302% 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.1.4 billion. However, when presenting the figures, the management has classified impact of the currency depreciation on the impairment charges on foreign currency denominated loans and advances and government securities denominated in foreign currencies amounting to Rs. 1.9 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 is reflected under 'Impairment Charges' and it has increased by 79% compared to the corresponding period.

Interest Income for the period has gone up by 21% due to increase in market lending rates and repricing effect of credit facilities in response 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 removal of the interest rate caps on certain lending products. Further, the 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 also gone up due to the rate increases.

Interest Expense for the period has also gone up by 24% mainly due to increase in deposit rates and repricing effect of deposits in response 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 18% to Rs. 5.15 billion in 1H 2022 from Rs. 4.37 billion in 1H 2021 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 17% mainly due to increased volumes and rates of international trade activities, guarantees and remittances. Meanwhile, the Net Gains from Trading increased by 194% 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 under the Other Operating Income during the reporting period mainly due to the reclassification of exchange rate impact on impairment charges on loans & advances and foreign currency denominated securities of Government of Sri Lanka under Other Operating Income/(Loss). 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 in growths 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 13% in 1H 2022 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 1H 2022 despite increase in statutory tax rate for VAT on Financial Services.

The Bank reported a healthy Net Interest Margin of 5.23% during the reporting period with a marginal increase compared to the FY 2021. Meanwhile, the Bank reported a Pre-Tax Return on Assets (ROA) of 0.50% and a Post-Tax Return on Equity (ROE) of 3.58% during the period under review. The Bank's Earnings per Share (EPS) for 2022 1H dropped to Rs. 0.75 from Rs. 3.06 due to increased provisioning for credit losses.

The Net Asset Value per Share as at the end of the reporting period stood at Rs. 42.67.

The Total Assets base stood at Rs. 200 billion as at 30th June 2022 after posting a growth of 6% during the six months period supported mainly by the expansion in loan book. The Gross Loans and Advances book recorded a growth of 6.50% to reach Rs. 160.45 billion with major contribution from Retail Segment. This reflects the inflation of the loan book due to currency depreciation as well. The main lending products that drove the growth in 1H 2022 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 moderate growth of 3% to reach Rs. 150.85 billion as at 30th June 2022. The Bank's CASA Ratio is at 23.06% as of 30th June 2022.

The Bank's Stage 3 Loans to Total Loans Ratio is 3.18% as at 30th June 2022. The Bank's Stage 3 Provision Cover improved to 55.42% (2021-51.23%) and the Total Impairment Provision Cover improved to 81.98% (2021-78.39%) due to prudent provisioning for possible 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 June 2022 stood at 12.98% and 14.97% respectively. The Bank's Statutory Liquid Assets Ratio (SLAR) as at 30th June 2022 stood at 22.75% and 79.45% 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 125.78% and 116.11% for All Currencies and LKR respectively.

In Rupee Thousands

Income Statement

	For the Six Months ended 30th	Change	For the Quarter ended 30th	Change
	June		%	June		%
	2 022		2 021		2 022		2 021
Interest Income	11,009,276		9,074,225	21	6,135,787		4,444,079	38
Interest Expense	(5,854,773)		(4,708,996)	24	(3,452,268)		(2,312,965)	49
Net Interest Income	5,154,503		4,365,229	18	2,683,519		2,131,114	26
Fee and Commission Income	960,442		826,092	16	430,188		352,181	22
Fee and Commission Expense	(21,953)		(21,072)	4	(9,263)		(13,438)	(31)
Net Fee and Commission Income	938,489		805,020	17	420,925		338,743	24
Net Gains from Trading	231,054		78,628	194	121,590		3,046	3,892
Other Operating Income/(Loss)	(1,822,608)		209,996	(968)	(753,755)		30,699	(2,555)
Total Operating Income	4,501,438		5,458,873	(18)	2,472,279		2,503,602	(1)
Impairment Charges	1,559,968		869,648	79	958,249		231,798	313
Net Operating Income	2,941,470		4,589,225	(36)	1,514,030		2,271,804	(33)
Operating Expenses
Personnel Expenses	870,254		1,152,072	(24)	507,818		643,222	(21)
Depreciation and Amortisation	252,638		232,859	8	124,883		114,830	9
Other Operating Expenses	1,084,971		959,750	13	578,101		465,898	24
Total Operating Expenses	2,207,863		2,344,681	(6)	1,210,802		1,223,950	(1)
Operating Profit before VAT on Financial Services	733,607		2,244,544	(67)	303,228		1,047,854	(71)
Value Added Tax on Financial Services	237,762		422,190	(44)	121,583		211,274	(42)
Profit before Tax	495,845		1,822,354	(73)	181,645		836,580	(78)
Income Tax Expense	163,745		466,550	(65)	65,467		231,218	(72)
Profit for the Period	332,100		1,355,804	(76)	116,178		605,362	(81)
Earnings Per Share - Basic/Diluted (Rs.)	0.75		3.06	(76)	0.26		1.37	(81)