This economic landscape set the stage for People’s Bank to record a profit before tax of Rs.5 Bn for 2007. Gains in net interest income and non-funded income of respectively Rs.725 Mn and Rs.1,208 Mn added to this figure.

The increase in provision for VAT and taxation is based on an increase in profits. The Bank operated under a higher tax load compared to previous years, mainly due to adding-back the new general loan loss provisioning, high VAT expenses and the lapse of large specific provisions as seen in prior years.

According to the report, net income of People’s Bank grew by Rs.1.9 Bn, a rise of 9.9 percent compared with the figure for 2006. Factors contributing to this growth were timely lending-rate revisions, a year-on-year rise in total advances by Rs.30 Bn and the rise in non-funded income referred to above.

Based on a 2007 actuarial valuation undertaken in compliance with Sri Lanka Accounting Standard No. 1 6, Provision for the Bank’s Pension Trust Fund was reduced to a more modest Rs.1.7 Bn in place of the Rs.2.5 Bn paid in 2006. This was partly due to the Fund having reached maturity and partly to enhanced returns from high-yielding investments made in 2007, which compare favourably with the lower yielding asset base had in 2006.

Yet, there was an increase of over Rs.776 Mn in administration overheads compared to 2006. Advertising and publicity expenses formed the bulk of this, growing by more than Rs.100 Mn to reach a year-end total of about Rs.600 Mn against Rs.477 Mn in 2006. Other cost increases were mainly due to inflation, the report highlighted.

Overall, the Bank recorded a working profit of Rs.5.7 Bn, an improvement of Rs.1 .2 Bn over the 2006 figure.

The Central Bank of Sri Lanka now requires commercial banks to make provision of 0.1 percent quarterly on outstanding advances. This resulted in an increase of Rs.352 Mn in general provisioning over 2006. Coupled with higher VAT and mainstream tax provisions for 2007, these deductions resulted in profit after tax of around Rs.2.4 Bn. Although this figure is a decrease over the previous year’s, it speaks well for institution’s resilience in the face of the numerous external and internal operational pressures faced in 2007.

The current-account balance at the end of 2007 showed a decrease of around Rs.2 Bn compared to 2006 (post normalization of Pension Fund Balance transfer to Fixed Deposits in 2006), averaging of around Rs.32 Bn over the year, with sudden changes owing to the nature of current accounts.

The vital rupee-savings balance showed an Rs.12.5 Bn increase over December 2006. This 11 percent increase was achieved despite high inflation, high FD rates and considerable competition across the entire banking sector, the report said.

The overall deposit base passed the Rs.300 Bn mark in 2007, showing an Rs 31 Bn increase over the same period in 2006. Fixed deposits increased by around Rs 20 Bn Loans. The Bank’s loan book grew by around Rs.30 Bn, or 13 percent over 2006 ending at Rs.253 Bn as at year end 2007. The main increase came from the pawning business, which grew by Rs.18.5 Bn this year, a monthly average increase of Rs.1.5 Bn.

The Bank’s total exposure to State-Owned Enterprises (SOEs) as at end 2007 amounted to about 15 percent of the loan portfolio, closing at Rs.40 Bn. This is equivalent to the year-end balance for 2006 and shows that exposure to this SOEs has remained constant.

The non-performing portfolio as at 31 December 2007 had decreased by some Rs.1,000 Mn less compared with the end of the previous financial year, mainly due to a string of recoveries and certain identified exposures offset against specific provisions.

The Bank received a capital injection of Rs.1 .5 Bn from the Government in 2007. Together with estimated retained earnings for the year of around Rs.1 .4 Bn, raised capital and reserves to Rs.13.2 Bn against Rs.10.3 Bn as at 31 December 2006, the report noted.

It is also pertinent to note that People’s Bank contributed Rs.6.2 Bn by way of taxes and levies to the Government of Sri Lanka in F/Y 2007 against Rs.4.3 Bn in F/Y 2006.