Are the state banks a viable option to invest in?

COLOMBO (News 1st): Hot on the heels, of our coverage of Peoples Bank's ever-increasing non-performing loan portfolio, details have emerged of the declining profitability of the People's Bank group. The state-run Peoples Bank group which includes a leasing unit amongst its assets posted a net profit of Rs. 3.2 billion for the quarter ending March 2019. This figure is down by 31.8% in comparison to the previous year. And there was marked higher credit losses and slow net interest income growth according to the interim accounts now available. By contrast, the loan portfolio of the bank fell 2.9% to Rs. 1.38 trillion in March, in comparison to 3 months earlier. The abysmal situation continues with deposits growing by a mere 1.8% to Rs. 1.5 billion. Analysts noted with interest that contingent liabilities of state-owned enterprises fell to Rs. 390.6 billion. In the last few days, it was revealed that W. M. Mendis and Company had a non-performing portfolio of Rs. 2.9 billion. In the final analysis, industry sources were dismissive of the performance of the state sector, including the performance of the state banks. These sources point out that state banks are a mere extension of the government, who use the state banks to fund state-owned enterprises, in the main loss-making, poorly managed and inundated with political patronage. As at end 2018, total loans and advances to state-owned enterprises amounted to Rs.496,320,000,000 (Rs 496.3 billion). This represents 41% of total loans and advances to state-owned enterprises. These sources also point out that if one was to clinically examine the loan book of the People's Bank most loans granted to state-owned enterprises and the various arms of the government including those who enjoy political patronage from the government of the day, no investor will consider the state banks as a viable option to invest.