Business Line Reviews

Bank of Ceylon is the largest lender in Sri Lanka, with an asset base of over LKR 4 trillion at the end of 2022. BoC’s Corporate Banking segment supports the largest industries, institutions, and projects; impacting entire supply chains, and contributing to employment of millions of Sri Lankans. The Offshore Banking segment is a vital engine of foreign exchange for both Bank of Ceylon and the Country. In 2022, the segment contributed more than 50% of FOREX inflows to the Bank, and approximately 10% of Sri Lankan total export earnings during the year. The corporate and offshore segment contributes 55% of the Bank’s total Loans and Advances, 56% of Interest Income, and 30% of total Deposit Base.

Despite a challenging year and severe limitations to operations, this segment was able to cater to the urgent needs of Sri Lanka’s businesses and industries, supporting smooth functioning of the entire economy and sustainability of businesses.

Operating Context

Following two years of sustained pressures from the COVID-19 pandemic, Sri Lanka faced multiple disruptions and crises in 2022, including burgeoning inflation and an unexpected increase in exchange rates and interest rates. For corporations, these unprecedented challenges resulted in loss of competitiveness, increased cost of capital, working capital and cash flow issues, and in the worst cases: business failure and closure.

Continuance of import restrictions during the year had a negative effect on opportunities for trade finance, while cessation, suspension, or slowdown of projects curtailed Project Financing. At the same time, foreign currency liquidity issues coupled with the interest rate hike limited opportunities for Offshore Banking.

Despite these pressures, the Bank’s Corporate and Offshore Banking segment was able to leverage opportunities to support customers, communities, and the Country. Facilities were made available to ensure import of essentials. Bilateral and concessionary funding lines were explored and successfully implemented. Crisis-hit businesses were provided with short-term funding to meet working capital requirements and help sustain operations, while further support was extended to multiple touch points across the supply-chain of affected industries. New and emerging industries with local capacity and expertise were supported to take advantage of business opportunities. Throughout, the Bank instituted stringent monitoring, pioneered new features for customer convenience, and worked closely with customers to prioritise business revival while ensuring recoveries to retain customers in the performing category.

Influence of the Operating Environment

Private Sector Lending

Lending to the private sector constituted 30% of the segment’s total loan portfolio in 2022, reflecting 15% growth, indicative of new customers onboarded, ventures explored, emerging industries supported, and working capital financing extended to crisis-hit businesses.

Downgrade of sovereign rating and limited Forex liquidity resulted in local businesses facing issues of Letters of Credit (LCs) and Letters of Guarantees (LGs) not being accepted, curtailed credit limits from international banks, and requirements to maintain 100% margins. In this situation, the Bank was able to support businesses with short-term funding support to meet working capital requirements.

Despite non-recourse funding with international banks being largely unavailable to explore, support was extended to the private sector’s hardest hit segments, including apparels, construction, tourism, fertiliser and more. Key private sector lending made available by the Bank for new projects in the manufacturing sector, including production of medical products.

A major success in 2022 was negotiation of concessionary funding lines made available to local businesses through the Asian Infrastructure Investment Bank (AIIB) and the Asian Development Bank (ADB). BoC’s Environmental and Social Management System (ESMS) policy was in alignment with requirements of multilateral lenders, and enabled screening of credit for Environmental and Social (E&S) factors. For more information on the Bank’s efforts to mainstream ESG factors, refer Community and Environment.

Concessionary credit line of USD 90 million was secured from AIIB for on-lending to sub-borrowers to support COVID affected businesses islandwide in the Corporate and SME segments. The credit line prioritised financial support to SMEs and woman-led enterprises.

BoC supported enterprises to be resilient amidst negative fallouts of the pandemic by granting 775 loans amounting to LKR 22.4 billion and maintaining minimum NPL.

Bank of Ceylon’s concrete solutions and strong business relationships with entrepreneurs have enabled enterprises to remain profitable and conduct their business in a sustainable manner.

Project Financing

Cessation of many infrastructure development and construction projects, diminution of foreign direct investments and wait-and-see approach of local investment arms have contributed to limit the scope of project financing during the year 2022.

The Bank was partnered in financial support to develop export-oriented manufacturing industries, mixed development projects partially financed through foreign direct investment, manufacturing health care products that could be used as import substitutes, and the renewable energy sector.

BoC also provided advisory services to implement feasible projects in emerging markets including export of agricultural products, manufacturing electric bikes and related products, and waste management systems that would earn and save foreign exchange to the betterment of the Nation.

The Bank’s ESMS policy played a crucial role in project finance, with E&S screening for every project, followed by review of high-risk projects by a high-level Sustainability Committee. Bank of Ceylon adheres to guidelines of the National Environmental Act in line with its commitment to sustainable development of the Country.

Highlights of project financing in 2022 included the following:

Trade Financing

As part of its national commitment, the Bank continued to extend support to priority sectors of the state involved in import of essential goods, including fuel, liquid petroleum gas, food items, pharmaceuticals, vaccines, medicines, and more. From swap arrangements to enabling multilateral and bilateral lines of credit, Bank of Ceylon prioritised supporting national needs, often bearing heavy import bills in the process. The Bank’s strict internal controls and stringent oversight ensured the success of trade financing endeavours, while the segment used the opportunity to canvass business and onboard customers who would be beneficial to the long-term sustainability of the Bank.

During 2022, BoC prioritised support to export-oriented startups and SMEs, and provided preshipment and postshipment access to finance for smaller exporters. The Bank’s Export Circle extended support coupled with guidance on export and related advisory services linking with necessary trade associations and key government institutions such as the Export Development Board (EDB), Industrial Development Board (IDB), and Sri Lanka Export Credit Insurance Corporation (SLECIC). In this regard, the Bank disbursed a total of LKR 1.2 billion to key export customers in the SME Sector.

Offshore Banking

Amidst the challenging environment with foreign currency liquidity issues in 2022, the Bank’s Offshore Banking Division continued to extend financial assistance and faciliting outward remittances in terms of foreign currency to exporters in order to sustain their export-oriented industries, which in turn boosted export earnings in the economy.

Key highlight of the year was successfully completing the funding of two large projects in the Republic of Maldives. One project was financed under a syndicated loan arrangement, in which Bank of Ceylon’s Offshore Banking Division was the lead arranger, while the other was financed through a club deal arrangement.

Portfolio Quality

Moratoria granted to crisis-affected sectors as of end 2022 amounted to LKR 50.6 billion (Tourist sector: 40%, Manufacturing sector: 20%, Construction sector: 13%, Trading and other: 27%). The Bank continued to engage closely with customers, and provided support for working capital, in order to ensure business survival and manage the Bank’s Non-Performing Assets (NPA) within the given range despite challenging conditions.