FCBU Dealing Room breach costs NTB Rs. 800 m

A breach of procedure in its dealing room at Nations Trust Bank (NTB) has caused a staggering loss of Rs. 800 million in the quarter ended on June 30, 2009.
The figure was disclosed in the NTB’s provisional results for the second quarter released yesterday.
Foreign Exchange Income in the second quarter was a negative. Rs. 800.4 million suggesting a loss of equal amount. In the corresponding quarter of last year Foreign Exchange Income was Rs. 143.5 million. However in the first half, the foreign exchange loss was Rs. 640.2 million as opposed to an income of Rs. 240.6 million in the first half of 2008.
In the notes to provisional accounts, NTB said foreign exchange income was negative due to the losses arising from a breach in operating procedures in the Bank’s Foreign Currency Banking Unit, which have been fully accounted for during the period under review.
However, the Bank noted that other operating income has shown a significant increase, by 335% to Rs. 1.08 billion in the second quarter and by 197% to Rs. 1.47 billion in the first half due to income earned on trading in government securities and increase in business volumes of other banking activities.
This explanation suggests that increase in other income had helped to mitigate the loss caused by the breach in its dealing room.
The Bank’s gross income in the first quarter had increased by 21% to Rs. 3.4 billion and by 27% to Rs. 7 billion in the first half. NTB had also increased its specific provisioning substantially, by 104% to Rs. 476.6 million in the first half and by 58% in the second quarter to Rs. 137.6 million. For this, the Bank said it includes “certain prudential provisions made over and above the provisioning policy” of the Bank which is more stringent than the guidelines of the Central Bank.
Operating profit before VAT and corporate tax was up by only 2% to Rs. 219 million in the second quarter and by 28% in the first half to Rs. 528.5 million.
Net profit for the first half was Rs. 211.4 million, up by 1% whilst in the second quarter it was down by 30% to Rs. 75.2 million. Group net profit was Rs. 331 million in the first half reflecting an increase of 16% whilst it amounted to Rs. 150.7 million in the second quarter, up by 7% over the corresponding period of last year.
Last month NTB admitted that it discovered a breach of procedure in its dealing room leading to an exchange loss.
“However, gains from other Treasury operations will offset this loss to a great extent and the impact on the bottom line will not result in a half year Profit After Tax that is significantly different from plan,” NTB said in a filing to the Colombo Stock Exchange.
It also said the loss resulting from the breach does not adversely affect any of the liquidity and capital adequacy ratios, which will continue to remain well above the statutory requirements.
“The Bank is on track to meet this year’s revenue and profit forecasts. We will be publishing our interim accounts for the period ended June 30 , 2009 as early as possible in July which will confirm the matters stated above and reflect the continuing strength of the Bank,” NTB said.