Gains from governmentsecurities, foreign exchange (FX)swap trading and FXtrading activities have enabled the Commercial Bank of Ceylon Group to mitigate to some extent the severity of the impacts of the COVID-19 pandemic on profits in a period of reduced interest income and substantially higher impairment provisioning compared to the corresponding quarter of the last year.
The Group, comprising of Sri Lanka’s benchmark private bank, its subsidiaries and an associate, has reported total operating income of Rs 55.818 billion for the nine months ending 30th September 2020, achieving a growth of 11.84% mainly by more than doubling other incomefor the period from Rs 5.804 billion to Rs 12.262 billion, even though net interest income, the largest component, only improved by a marginal 1.02% to Rs 36.796 billion.
Financial statements filed with the Colombo Stock Exchange (CSE) show that the capital gains on Treasury investmentsgenerated a net gain of Rs 4.658 billion on de-recognition of financial assets, more than a 10-fold increase over the Rs 444.754 million for the corresponding nine months of last year; that mark to market gains on Treasury Bills and Bonds enabled a conversion of a net loss of Rs 294.249 million on trading to a net gain of Rs 749.059 million for the nine months, and that exchange profit grew by 25.2% to Rs 6.586 billion from FX swap trading and other foreign exchangetrading activities as well as translation gains on the Bank’s US Dollar reserves due to an approximately 2% depreciation of the Rupee against the Dollar in the period under review.
With interest rates coming down, the Group was able to reduce interest expenses by 7.70% to Rs 56.240 billion in a period when interest income declined by 4.44% to Rs 93.035 billion, mainly due to modification losses on interest concessions granted as pandemic relief to borrowers, the Bank reported. Consequently, the achievement of a 1.02% improvement in net interest income at the end of nine months is noteworthy, considering that net interest income had declined by 5.71% at the end of the first half of the year. The turnaround was made possible by a 14.26% increase in net interest income in the third quarter alone.
Meanwhile, net fees and commissions had reduced by 11.97% for the nine months to Rs 6.760 billion as a result of the disruption caused by the COVID-19 pandemic,especially on trade related activities and the reduction of fees and charges by the Bank as required by the Central Bank of Sri Lanka (CBSL).
“Banks, like all other businesses, have to roll with the punches dealt by the global pandemic, and our nine months reflect just that,” Commercial Bank Chairman Mr Dharma Dheerasinghe commented. “While the core banking dynamic of lending versus deposits is directly impacted, astute management of investments, trading, services and other revenue generating activities ensures that although profits are affected, the Bank remains financially strong and stable and able to navigate the external adversities.”
Commercial Bank Managing Director Mr S. Renganathan disclosed that the Group’s efforts to manage costs had resulted in total operating expenses for the nine months growing by just 2.52% to Rs 19.633 billion. Net operating income had declined by 5.50% to Rs 39.085 billion largely due to provisions for impairment and other losses being increased by 95.83% YoY to Rs 16.733 billion for the nine months reviewed, he said. “We have made additional provisions for tourism sector exposures which were identified as more vulnerable to the effects of the COVID-19 pandemic,” Mr Renganathan said, adding that “we believe however, that Commercial Bank is better positioned than most to take the challenges of the times in its stride due to its diversified assets structure.”
Mr Renganathan pointed out that the Central Bank of Sri Lanka had announced another pandemic-linked moratorium for borrowers after the Bank’s nine-month accounts were finalised. As the impact of these additional concessions is yet to be known, it would be brought to the financial statements of the final quarter.
The impact of higher impairment charges and pandemic-linked concessions already granted to borrowers resulted in the Group’s operating profit before taxes on financial services for the nine months reducing by 12.42% to Rs 19.452 billion. Meanwhile, taxes on financial services declined by 44.11% to Rs 3.060 billion due to the abolition of the Debt Repayment Levy (DRL) and Nation Building Tax (NBT) from January 2020 and December 2019 respectively.
Consequently, profit before income tax recorded a decline of 2.10% over the corresponding period to total Rs 16.394 billion. The Group’s income tax charge for the period,at Rs 5.219 billion, was marginallydown by 0.15%whilenet profit at Rs 11.175 billion for the nine months reviewed, reflecteda reduction of2.98%.
Taken separately, the Commercial Bank of Ceylon PLC reported a profit before tax of Rs 15.566 billion for the nine months, a decline of4.43% and profit after tax of Rs 10.595 billion, a reduction of 5.60%.
Total assets of the Group grew by Rs 254.143 billion or 18.04% since 31st December 2019 to Rs 1.663 trillion as at 30th September 2020. Asset growth over the preceding 12 months was Rs 292.730 billion or 21.36% YoY.
Gross loans and advances of the Group grew by Rs 18.935 billion or 2.03% since end 2019 to Rs 949.672 billion at the end of the nine months reviewed.This includes loans of approximately Rs 20 billion granted to COVID-19 affected businesses. The growth of the loan book of the Group over the preceding year was Rs 49.554 billion, reflecting YoY growth of 5.51%.
Total deposits of the Group recorded a noteworthy growth of Rs 152.774 billion or 14.29% over the nine months at a monthly average of Rs 16.975 billion to stand at Rs 1.222 trillion as at 30th September 2020. Deposit growth of the Group since 30th September 2019 was Rs 174.619 billion or 16.68% at a monthly average of Rs 14.551 billion.
In other key indicators, the Bank’s Tier 1 capital adequacy ratio (CAR) stood at 12.161% as at 30th September 2020, prior to the infusion of US$ 50 million via an equity investment by the International Finance Corporation (IFC) Group in October. The Bank’s Tier I CAR even before the IFC investment was well above the revised minimum requirement of 9% imposed by the regulator consequent to the COVID-19 pandemic, while its Total Capital Ratio of 15.951% was also comfortably above the revised requirement of 13%.
The Bank’s gross NPL ratio increased to 5.20% from 4.95% at end 2019 while its net NPL ratio increased marginally to 3.04% from 3.00%. The Bank’s interest margin recorded a nominal increase from 3.04% for the six months to 3.17% for the nine months but was lower than the 3.51% at end December 2019. Return on assets (before tax) and return on equity stood at 1.37% and 10.28% respectively for the period ended 30th September 2020 compared to 1.66% and 13.54% for the year 2019.
At the forefront as a contributor to the national economy for many decades, the Commercial Bank has been a driving force in economic recovery in the post-pandemic period, leading the private banks in granting working capital loans and providing concessions to affected businesses. The Bank has grouped 11 different programmes being implemented for affected businesses and individuals under the umbrella of the ‘Arunella’ Financial Support Scheme and extended these relief programmes beyond the mandated debt moratorium. These concessions included flexible payment options, up to 20% rebates on accrued interest during the moratorium periods, extension of moratorium periods for up to another six months, further reductions on Credit Card repayments and applicable interest rates, and Debt Consolidation Plans.
The first Sri Lankan Bank to be listed among the Top 1000 Banks of the World and the only Sri Lankan bank to be so listed for ten years consecutively, Commercial Bank is celebrating its 100thanniversary this year. The Bank, which won more than 50 international and local awards in 2019, operates a network of 268 branches and 875 ATMs in Sri Lanka.
Commercial Bank’s overseas operations encompass Bangladesh, where the Bank operates 19 outlets; Myanmar, where it has a Microfinance company in Nay Pyi Taw; and the Maldives, where the Bank has a fully-fledged Tier I Bank with a majority stake.