Sri Lanka’s benchmark private bank, Commercial Bank of Ceylon PLC has demonstrated its resilience in adverse conditions, weathering the twin challenges of high taxes and impairment charges to post a healthy growth in most key performance indicators at the end of the third quarter of 2018.
The Bank’s gross income surpassed the Rs 100 billion mark in nine months for the first time growing by 21.61% to Rs 102.841 billion, with interest income improving by a robust 17.39% to Rs 88.825 billion on the back of a strong loan book growth. Interest expenses increased at a lower rate of 12.09% to Rs 53.160 billion, due to timely re-pricing of liabilities despite a substantial increase in deposits. Notably, both deposits and loans have recorded YoY growth of more than Rs 125 billion.
Net interest income for the nine months at Rs 35.666 billion represented an improvement of Rs 7.424 billion or 26.29%. Incidentally, net interest income accounted for 73.81% of the total operating income of the Bank.
The Bank reported a 17.85% improvement in net fees and commission income, amounting to Rs 7.249 billion for the nine months and representing 15% of the total operating income. Other income, including exchange profit, recoveries of loans written off/provided for and net gains/losses from trading and financial instruments, grew by a remarkable 244.56% to Rs 5.406 billion. The growth in the exchange profit of the Bank was mainly due to revaluation of foreign currency assets consequent to the depreciation of the Rupee against major currencies. However, the Bank reported a loss of Rs 1.442 billion on trading, as against a profit of Rs 351 million last year, mainly due to losses suffered on matured SWAPs during the period.
As a result, the total operating income of Rs 48.321 billion for the nine months ending 30th September 2018 reflected a growth of 34.37% over the corresponding period of last year.
The prevailing weak market conditions resulted in an increase in non-performing loans and advances, pushing the total impairment charges for loans and other losses for the period under review to Rs 6.864 billion from Rs 1.494 billion for the first nine months of 2017. Consequently, the growth of the net operating income was hampered, restricting it to 20.28% to reach Rs 41.456 billion.
Operating expenses at Rs 17.189 billion for the period, reflected the Bank’s success in managing its overheads with an increase of 16.54% despite salary increments and the costs of expansion. As a result, the Bank reported a profit before VAT and NBT of Rs 24.267 billion for the nine months, an improvement of 23.07%. The VAT and NBT on Financial Services for the period amounted to Rs. 4.213 billion compared to Rs. 3.486 billion paid in the corresponding period last year, reflecting an increase of 20.86%.
The Bank’s filing with the Colombo Stock Exchange (CSE) reported that profit before income tax grew 23.55% to Rs 20.054 billion as at 30th September 2018. The Bank disclosed that income tax had increased by 38.09% to Rs 6.293 billion for the nine months compared to Rs. 4.557 billion in the corresponding period last year, primarily due to the removal of most of the income tax exemptions enjoyed by the banking industry with the introduction of the new Inland Revenue Act which became effective from April 01, 2018.
Consequently, the Bank’s net profit after tax for the nine months improved by Rs 2.086 billion or 17.87% to Rs 13.761 billion, while the profit after tax of Rs 5.115 billion for third quarter, recorded an improvement of 23.71% over the corresponding quarter of 2017, despite a rise in impairment provisions and escalating tax expenses.
Commenting on these results, Commercial Bank Chairman Mr Dharma Dheerasinghe said: “Our nine-month performance reflects the vagaries of the period, with the Bank overcoming the challenges of slower business growth through a combination of prudent banking practices and agile responses to changing conditions. We expect conditions to be even more challenging in the fourth quarter, but are confident of weathering them in our own way.”
The Bank’s Managing Director/CEO Mr S. Renganathan said: “Rising NPL ratios are a concern for the entire industry, and are compelling Banks to increase provisioning for bad debts. In the case of Commercial Bank, NPL ratios are still lower than industry averages, and timely re-pricing of liabilities and strong deposit growth have enabled the Bank to keep interest expenditure growth to a significantly lower rate than interest income growth. Nevertheless, the contribution of net interest income to operating income has declined, indicating that fund-based operations of the Bank are now contributing substantially to income. We are proud that the Bank amidst many challenges has been able to maintain a consistent growth in its performance in all key areas. ”
Total assets of the Bank grew by Rs 98.257 billion or 8.59% over the nine months to reach Rs 1.242 trillion as at 30th September 2018. Asset growth over the preceding 12 months totalled Rs 142.645 billion, reflecting YoY growth of 12.98%.
Gross loans and receivables from customers increased by Rs 102.511 billion or 13.58% since 31st December 2017 to Rs 857.219 billion at the end of the third quarter, recording an average increase of over Rs 11 billion per month. The increase over the preceding 12 months was Rs 132.388 billion, reflecting YOY growth of 18.26%.
The Bank’s deposits increased to Rs 943.615 billion in the period reviewed, growing by 11% or Rs 93.488 billion since 31st December 2017, at a monthly average of more than Rs 10 billion. Deposit growth over the 12 months from 30th September 2017 totalled Rs 125.051 billion, recording YoY growth of 15.28%.
In other key indicators, the Bank’s gross and net NPL ratios stood at 2.83% and 1.68% respectively from 2.02% and 1.00% a year ago, due to the increase in non-performing loans. The interest margin continued to improve, from 3.62% in 2017, to 4% for the nine months reviewed.
The Bank’s Tier 1 capital ratio at 11.390% as at 30th September 2018 was well above the 8.875% required under Basel III, while the Total capital ratio of 15.820% for the period was also comfortably above the Basel III requirement of 12.875%. The required capital ratios are due to increase to 10% for Tier I and 14% for Total capital ratio from January 2019.
Return on assets (before tax) improved to 2.25% for the nine months reviewed, from 2.15% for 2017 while the Return on equity stood at 16.22% at the end of the third quarter, a marginal drop due to an increase in the shareholder funds. The net assets value per share increased to Rs 118.43 at the end of the review period from Rs. 107.54 as at end 2017.
At Group level, Commercial Bank, its subsidiaries and associates reported profit before tax of Rs 20.098 billion for the nine months, an improvement of 22.50%. Profit after tax for the period grew by 16.93% to Rs 13.767 billion.
The only Sri Lankan Bank to be ranked among the world’s top 1000 banks for eight years consecutively, Commercial Bank operates a network of 263 branches and 800 ATMs in Sri Lanka. The Bank has won multiple awards both local and international in 2017 and 20 international awards in the first eight months of 2018.
Commercial Bank’s overseas operations encompass Bangladesh, where the Bank operates 19 outlets; Myanmar, where it has a Representative Office in Yangon and a Microfinance company in Nay PyiTaw; and the Maldives, where the Bank has a fully-fledged Tier I Bank with a majority stake.