Cargills Bank reported a 3 percent decline in second-quarter profit to Rs.75.8 million, despite stronger lending income and fee-based revenue, as higher costs, impairment charges and taxes weighed on earnings.
Cargills Bank sees stronger lending and fee income as costs and taxes weigh on earnings
Cargills Bank PLC saw its profit after tax edge lower for the quarter ended June 30, 2026, even as the bank recorded significant improvements in its core banking operations. Profit declined to Rs.75.8 million from Rs.78.0 million a year earlier, while profit before tax increased 23 percent to Rs.177.0 million from Rs.144.2 million.
The contrasting movements highlight the pressure facing the bank as stronger operating income is being absorbed by rising expenses, impairment charges and taxation. Earnings per share also declined to Rs.0.06 from Rs.0.09 during the corresponding quarter.
Taxes remained a significant drag on the bottom line. Taxes on financial services increased 54 percent to Rs.161.4 million, while income tax expense rose 53 percent to Rs.101.2 million.
At the operating level, however, the results were considerably stronger. Net interest income increased 20 percent to Rs.1.17 billion, supported by growth in lending activity. Net fee and commission income recorded an even sharper increase of 45 percent to Rs.268.2 million.
The improvement in these core revenue streams helped total operating income rise 21 percent to Rs.1.47 billion, despite a 39 percent decline in other income. The results indicate that the bank is increasingly generating earnings from its core banking activities rather than relying on gains from investment and treasury operations.
The improvement was partly offset by higher impairment charges, which increased 40 percent to Rs.75.6 million during the quarter. Total operating expenses also rose 15 percent to Rs.1.06 billion, with personnel expenses increasing 18 percent and depreciation and amortisation rising 34 percent.
For the first six months of 2026, Cargills Bank reported profit after tax of Rs.180.7 million, down 25 percent from the previous year. Profit before tax declined 22 percent to Rs.362.4 million. The weaker first-half headline performance largely reflected a sharp reduction in other income compared with an unusually strong performance in the previous year.
Core banking income, meanwhile, continued to strengthen. First-half net interest income increased 20 percent to Rs.2.21 billion, while net fee and commission income rose 17 percent to Rs.515.6 million. The bank attributed the growth in net interest income primarily to loan expansion and the repricing of deposits and advances in response to market conditions.
Net interest margin improved to 4.64 percent from 4.38 percent at the end of 2025, suggesting that the bank maintained some improvement in the spread generated from its interest-earning assets and funding base.
The main offset came from other income, which fell 89 percent to Rs.54.7 million from Rs.477.0 million. Cargills Bank said the sharp decline reflected the high comparative base in the previous year, when earnings benefited from realised capital gains on financial assets and gains on assets measured at fair value through profit or loss.
The changing earnings mix was particularly visible across business segments. The Banking segment moved into a pre-tax profit of Rs.306.0 million from a Rs.27.3 million loss in the corresponding period. Segment net interest income increased 42 percent to Rs.2.05 billion.
By contrast, the Treasury and Investments segment recorded pre-tax profit of Rs.56.5 million, compared with Rs.491.3 million a year earlier. This shift suggests a greater contribution from traditional banking activities as market-related gains normalise.
Balance-sheet expansion also remained strong. Net loans increased 15 percent from December to Rs.72.3 billion, while customer deposits rose 18 percent to Rs.77.9 billion. Total assets increased 14 percent to Rs.104.7 billion. On a year-on-year basis, loans grew 28 percent and deposits expanded 32 percent.
Much of the deposit growth came from time deposits. Domestic-currency time deposits increased to Rs.60.14 billion from Rs.49.48 billion at the end of 2025, while savings deposits rose only marginally to Rs.9.85 billion from Rs.9.64 billion. The funding mix will remain important as the bank seeks to expand lending while maintaining its margins.
Asset quality showed some improvement on a gross basis. The gross Stage 3 ratio declined to 11.30 percent from 12.00 percent at the end of 2025. However, the net Stage 3 ratio remained broadly unchanged at 6.53 percent, compared with 6.52 percent previously.
Stage 3 provision coverage declined to 42.26 percent from 45.65 percent. The bank said improvements in asset quality followed rigorous scrutiny and recovery actions. First-half impairment charges fell to Rs.100 million from Rs.180 million a year earlier, despite the increase recorded during the second quarter.
Costs remain a key challenge for Cargills Bank. First-half operating expenses increased 11 percent to Rs.2.04 billion, pushing the cost-to-income ratio to 73.43 percent from 70.68 percent at the end of 2025.
Personnel expenses rose 17 percent, while depreciation and amortisation increased 35 percent, primarily reflecting continued investment in information technology and infrastructure. For the bank, the ability to translate its growing loan book, deposits and fee income into sustainable bottom-line earnings will therefore depend heavily on cost management and continued improvement in operating efficiency.
The latest results present a mixed picture for the Sri Lanka banking sector: Cargills Bank is demonstrating stronger underlying banking activity and balance-sheet growth, but elevated expenses, taxation and changes in investment-related income continue to limit the impact on reported profitability.