Eastern Bank’s profits rise on higher loan recovery, low NPL
Eastern Bank's profits grew at a handsome rate in 2019 because of an increased recovery from written-off and classified loans, new client acquisition and deeper penetration both in retail and SME segments despite it being a challenging year for nearly every financial institution.
The profit after tax of the lender, which started businesses in 1992, rose 30.1 % year-on-year to Tk 400 crore this past year.
"The main reason of our profit rise in the challenging year was the higher recovery rate and we were able to keep carefully the NPL ratio low," said Ali Reza Iftekhar, managing director and ceo.
The lender recovered Tk 63.6 crore from its written-off loans last year that was Tk 42.3 crore and Tk 50.1 crore in 2018 and 2017 respectively. Meanwhile its recovery from classified loans were Tk 94.7 crore, Tk 70 crore and Tk 85.8 crore respectively.
Its non-performing loan (NPL) ratio was 3.35 per cent this past year whereas the industry average was 9.32 per cent, according to its total annual report.
"If the NPL remains high, profits are mostly hit with provisioning, that we had relief as the caliber of our assets is good and the NPL remains low," the CEO told The Daily Star yesterday.
Though the NPL ratio was low in comparison to others in the market last year, it had been greater than 2.35 % in 2018 which was preceded by 2.50 %, 2.69 % and 3.27 % previously successive years.
This rise was mainly the effect of a single account from the textile industry, in line with the annual report.
A big contributor to the profit of 2019 was net interest income, which rose by 8.69 % to Tk 827.7 crore riding on a 10.87 % portfolio expansion in the retail and SME sectors, according the financial report of 2019.
"We desire to further expand our network along with reach unbanked people and we'll leverage our network and digital technique to drive deeper penetration in the retail and SME sectors," he said.
Eastern Bank in addition has found success in supply chain financing where it explored various industries and facilitated over 300 dealers and suppliers of several large corporate houses.
Its credit card portfolio hit almost Tk 600 crore in 2019, which is a 9 per cent growth from that the prior year.
Responding to a question, the managing director said the federal government set the lending rate at 9 % and his bank's interest was not greater than that of several other banks, for which net interest income growth was lower than that of the previous year.
The net interest income growth was 8.69 per cent last year which was 31 % in 2018.
Non-interest income increased by 14 % in 2019 due mainly to an increase in investment income, service fees and service charges.
The bank's deposit base swelled 20.5 % year-on-year to Tk 23,998 crore.
"This high growth in a challenging year is a testament to the bank's brand strength."
The bank's advance to deposit ratio was at 77.2 per cent in 2019, a reduction from 83.08 per cent the previous year. The question was if the bank reduced its lending to keep carefully the ratio low.
Iftekhar said liquidity was the safety net for a bank so Eastern Bank always maintained a minimal advance to deposit ratio.
"Historically, we are much meticulous on the liquidity issue," he said, adding that they preferred to be quite definitely liquid.
Returns on asset and equity of the lending company stood at 1.30 % and 16.52 % respectively.
However, it declared 25 % cash dividend for shareholders whereas it had been 20 % cash and 10 % stock dividends in 2018.
Its stocks traded at Tk 31 on Dhaka STOCK MARKET yesterday.
