Oil Hit

April 02, 2009 (LBO) – Non-performing assets at Citibank’s Sri Lanka branch have rocketed after state-run Ceylon Petroleum Corporation (CPC) refused to pay up on controversial oil derivatives which went against the utility. Citi, Standard Chartered, Deutsche Bank and locally incorporated People’s Bank and Commercial Bank sold oil derivatives to CPC.

Commercial Bank took a 692 million hit, straight on its profit and loss account last year on oil derivatives. Meanwhile, Standard Chartered Bank, which also sold derivatives to CPC, has taken a different path in dealing with the problem.

Citibank Sri Lanka has classified 22.07 billion rupees as a non-performing loan in its accounts for December 2008. The bank only has a performing loan book of 15.7 billion rupees and equity capital of 7.5 billion rupees.

Citi has made no provisions in the profit and loss account so far. CPC stopped paying on the oil derivatives late last year.

Under Sri Lankan law a bank has to start providing for loan losses only after six months. Between 6 to 12 months assets equal to 20 percent of the loan amount have to be set aside, and 50 percent thereafter.

Citi reported book profits of 1,298 million rupees for the year