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ComBank Group posts healthy topline growth for 9M22

11 Nov 2022

The Commercial Bank of Ceylon (ComBank) Group stated it has posted a strong operational performance in the first nine months of 2022 (9M22) as well as in the third quarter (3Q22) despite the continuing adverse effects of macroeconomic variables, which have necessitated a tripling of impairment provisions for 9M22, and reduced profits for the quarter as well as the year to date compared to the corresponding periods of last year.  Nevertheless, the bank reported that the third quarter witnessed a reversal of the operating loss before Value Added Tax (VAT) on financial services of Rs. 3.581 billion reported for the second quarter of the year. These achievements were recorded even after providing relief for affected businesses and individuals in line with directions issued by the Central Bank of Sri Lanka, as well as the bank’s own relief schemes, which included deferment of repayment terms of credit facilities, concessionary rates of interest on eligible loan products (debt moratorium), and waiving off certain fees and charges following the global pandemic, the bank said.  Comprising Commercial Bank of Ceylon PLC, its subsidiaries, and an associate, the group reported a gross income of Rs. 195.573 billion for 9M22 and Rs. 76.056 billion for 3Q22, reflecting robust topline growth rates of 62.91% and 89.58%, respectively. Growth in loans and an increase in income from interest-earning assets resulted in interest income for 9M22 improving by 56.15% to Rs. 150.257 billion, and by an even more impressive 89.04% to Rs. 62.140 billion for 3Q22. However, the growth in deposits in the review period combined with a sharp rise in interest rates and the consequent conversion of low-cost funds to high-cost funds saw interest expenses increasing by 79.58% to Rs. 87.443 billion for the nine months, and by a whopping 142.71% to Rs. 40.039 billion for the third quarter. The bank’s CASA ratio, an industry benchmark, stood at 40.14% at the end of the nine months reviewed, as against 47.83% at end-2021 and 42.72% at end-2020. The increase in interest rates and the consequent reduction in the CASA ratio contributed to the higher interest expenses recorded in the period reviewed. Nevertheless, net interest income for the nine months improved by 32.15% to Rs. 62.814 billion, while net interest income for the third quarter increased by 34.97% to Rs. 22.101 billion. With the escalation in interest expenses, net interest income accounted for 60.49% of the total operating income of the nine months reviewed, in contrast to 68.94% at the end of the third quarter of 2021. Noting that the external challenges that have depressed profit and other indicatoRs. continued in the third quarter, Commercial Bank Chairman Prof. Ananda Jayawardane said: “The growth we have recorded in business volumes indicates that core banking operations remained intact. The single biggest impact on growth in terms of bottom line continues to be the burgeoning provisioning for impairment, which is an unavoidable response to the prevailing economic environment. Such provisioning assures our stakeholdeRs. that the Bank is financially prepared for any future contingencies.” Commercial Bank Managing Director and CEO Sanath Manatunge commented: “Our results underline that at Commercial Bank, risk appetite and risk tolerance continue to be well-managed, especially in the context of the challenges faced by the banking sector. We have continued our focus on preserving the quality of the loan book, managing interest rates and liquidity, while improving compliance to minimize reputational risk. The increase in the cost of funds is inevitable, but all possible steps have been taken to increase the fee-based income and to maintain non-interest costs at acceptable levels.” According to the interim financial statements filed with the Colombo Stock Exchange (CSE), the Commercial Bank Group recorded a total operating income of Rs. 103.837 billion for the nine months under review, an improvement of 50.59%. The figure for the third quarter was Rs. 34.605 billion, reflecting an even stronger growth of 53.07%. The net fee and commission income of the group improved by 61.84% to Rs. 13.91 billion for the nine months, while other income, which comprises of net gains from trading, net gains from derecognition of financial assets and net other operating income, grew by 111.45% to Rs. 27.11 billion. Net gains from trading for the period amounted to Rs. 34.12 billion compared to Rs. 2.08 billion recorded for the corresponding period of the previous year. This was primarily from realised and unrealised gains from forward exchange contracts, spot and swap transactions, and mark to market gains.  Impairment charges and provisions for other losses for the nine months amounted to Rs. 52.27 billion, reflecting an increase of Rs. 34.27 billion, or 190.44%, from Rs. 18 billion recorded for the corresponding nine months of 2021. For the third quarter alone, impairment charges nearly quadrupled to Rs. 17.05 billion from Rs. 4.34 billion provided in respect of the third quarter of last year. Notably, a substantial portion of the impairment charges was on account of Government securities denominated in foreign currency in view of the Sri Lankan sovereign rating downgrade and the debt restructuring program currently being negotiated by the Government. Further, the exchange impact on impairment charges on loans and advances and Government securities denominated in foreign currency was adjusted in net other operating income where the corresponding exchange gains are recognised. This was done in order to accurately reflect the underlying cost of risk and also to normalise the exchange gains and losses reported, the bank said. As a consequence of the increased impairment charges, net operating income for the nine months under review improved only by a marginal 1.20% to Rs. 51.57 billion, while the figure of Rs. 17.55 billion for the third quarter reflected a decline of 3.9%.  Operating expenses increased by 22.26% for the nine months to Rs. 26.08 billion, and by 10.90% for the third quarter to Rs. 7.98 billion, mainly due to the impact of inflationary pressures, Rupee depreciation and an increase in Government taxes. Consequently, personnel expenses increased by 20.40%, depreciation and amortisation by 8.58% and other operating expenses by 30.59%. As a result, the group’s operating profit before Value-Added Tax (VAT) on Financial Services reduced by 13.90% to Rs. 25.55 billion for the nine months under review and by 13.53% to Rs. 9.57 billion for the third quarter.  With VAT on financial services reducing by 23.81% to Rs. 3.51 billion, the group reported a profit before tax of Rs. 22.04 billion for the nine months, recording a decline of 12.09% over the first nine months of 2021. Income tax for the period increased by 8.70% to Rs. 6.58 billion despite the drop in pre-tax profit for the period under review as the figure for the corresponding nine months of 2021 was reduced by the reversal of an over-provision for 2020 resulting from the reduction in the corporate tax rate from 28% to 24%, which was adjusted in the first quarter of 2021.   Consequently, the group’s profit after tax of Rs. 15.46 billion for the nine months represented a decline of 18.70% compared to the corresponding period of last year. For the third quarter, the Commercial Bank Group reported a net profit of Rs. 6.283 billion, a reduction of 5.72% compared to the same period of last year. Taken separately, Commercial Bank of Ceylon PLC posted a profit before tax of Rs. 20.65 billion for the nine months, a drop of 15.46%, while profit after tax for the third quarter was down 22.40% to Rs. 14.44 billion. Total assets of the Group grew by Rs. 406.81 billion or 20.51% over the nine months to reach Rs. 2.39 trillion as at 30 September 2022. Asset growth over the preceding 12 months was Rs. 427.84 billion or 21.80%. A significant portion of the growth in assets during the period under review was due to the depreciation of the Sri Lankan rupee against the US dollar up to June 2022.  Gross loans and advances of the group increased by Rs. 147.57 billion or 13.48% to Rs. 1.24 trillion as at 30 September 2022, while the growth of the loan book of the Group over the preceding year was Rs. 175.45 billion or 16.44%.  Total deposits of the group recorded a growth of Rs. 380.83 billion or 25.86% in the nine months to Rs. 1.85 trillion as at 30 September 2022, while the year-on-year (YOY) deposit growth was Rs. 405.58 billion or 28.01%. Here too, the bank said the primary reason for the growth in gross loans and advances and deposits was the sharp depreciation of the Sri Lankan rupee against the US dollar in the first half of the year. In other key indicators, the bank’s net assets value per share increased by 14.16% to Rs. 157.63 from Rs. 138.08 as at end 2021. The Bank’s Tier 1 capital ratio, and the total capital Ratio stood at 11.57% and 14.36%, respectively, as at 30 September 2022, both above the statutory minimum ratios of 10% and 14%, respectively. The bank’s net interest margin improved to 3.80% for the nine months ended 30 September 2022, from 3.51% for the year 2021 and 3.37% for the nine months ended 30 September 2021. The bank’s return on assets (before taxes) stood at 1.29% and return on equity at 10.72%. In terms of asset quality, the bank’s impaired loans (stage 3) ratio stood at 4.09% compared to 3.85% at end 2021, while its stage 3 impairment to stage 3 loans ratio stood at 40.49% as at 30 September 2022, compared to 42.76% at end 2021. The bank’s cost-to-income ratio before VAT on financial services improved to 24.94% for the period under review from 31.61% for 2021 and 33.95% for 2020. The cost-to-income ratio inclusive of VAT on financial services improved to 28.39% from 37.97% for 2021 and 39.96% for 2020.  


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