Cost efficiencies drive vibrant 9-month growth for ComBank

• Cost to Income Ratio (before VAT on Financial Services) improves to 30.73% from 33.95% at end-2020 and 38.51% at end-2019
• Pays Rs. 10.981 b in total as taxes
• CASA ratio continues to improve, sets industry benchmark at 47.05%
• Growth of impairment charges curtailed to 7.56%; totals Rs. 17.997 b 
• Provision cover further strengthened to 63.03%; net NPL ratio improves to 1.83%

The Commercial Bank of Ceylon Group said yesterday it has achieved characteristically equitable growth for the nine months ending 30 September 2021, despite a slowing down in some key contributors in the third quarter of the year.

The Group, comprising the Commercial Bank of Ceylon PLC – Sri Lanka’s largest private sector bank – its subsidiaries and an associate, has reported a gross income of Rs. 120.050 billion for the period, an improvement of 5.66% over the corresponding nine months of 2020, with the third quarter recording a growth of 4.34% in comparison with the 6.34% growth achieved for the first half of 2021.

Interest income, the biggest component of gross income, grew by 3.43% to Rs. 96.227 billion, improving on the 3.20% growth achieved up to June 2021, and interest expenses continued to decline, albeit at a lower rate than in the first half of the year, the Group said. Consequently, interest expenses reduced by 13.42% to Rs. 48.693 billion for the nine months, enabling the Group to post net interest income of Rs. 47.533 billion, recording an increase of 29.18%.

Among the other principal contributors to gross income, fee and commission income grew by 32.21% to Rs. 11.002 billion; net other operating income improved by 13.91% to Rs. 7.808 billion assisted by higher exchange gains; net gains from de-recognition of financial assets contributed Rs. 2.976 billion and net gains from trading amounted to Rs. 2.037 billion, an increase of 171.95%. Net gains from de-recognition of financial assets witnessed a decline of 36.10% due to a reduction in profits from the sale of Treasury Bonds and Sovereign Bonds by Rs. 1.417 billion, in comparison with the third quarter of last year, the Group said.

Total operating income at Rs. 68.951 billion for the nine months reflected a growth of 23.53% and the Group’s noteworthy achievement of restricting impairment charges to Rs. 17.997 billion during the period under review, an increase of only 7.56% as compared with a 47.44% growth at the end of the first half of 2021, resulted in net operating income growing by 30.37% to Rs. 50.954 billion. With the Group’s consistency in curtailing growth in operating expenses to 8.39% (8.42% for the first half of 2021), total operating expenses for the nine months increased by Rs. 1.647 billion to Rs. 21.280 billion.

Consequently, operating profit before VAT on financial services grew by a significant 52.55% to Rs. 29.674 billion for the nine months, improving on the 41.09% growth recorded at the end of the first six months of the year.

Commercial Bank Chairman Justice K. Sripavan noted that these results demonstrated Commercial Bank’s strong ability to maintain healthy and balanced growth in core banking operations to mitigate the impacts of fluctuations in income from fee-based operations and other operating income. “Each quarter sees the bank maintaining or improving on its key performance ratios to become even more financially stable and better-positioned to continue its mission as a systemically important bank,” he said.

The bank’s Managing Director S. Renganathan elaborated that Commercial Bank continued to improve its CASA ratio, cost-income ratio, provisioning for impairment and provision cover in the period reviewed, disclosing that charges for impairment and other losses had in fact declined by a remarkable 41.87% in the third quarter.

“These are excellent indicators of our unrelenting focus on banking fundamentals even as we continue to provide concessions to our customers in consideration of the difficult circumstances that prevail,” Renganathan said. “It is most noteworthy that in terms of profitability, the Group has also surpassed its 2020 full-year performance at the end of the third quarter of 2021 while improving its interest margins, return on assets and return on equity.”

The Group paid Rs. 4.608 billion as value-added tax on financial services for the nine months, which was up 50.55% in line with the growth in profits. As a result, profit before tax for the period amounted to Rs. 25.067 billion, an improvement of 52.90%. Income tax increased by 15.92% to Rs. 6.049 billion, the relatively lower rate attributable to the reduction in the income tax rate. 

Consequently, profit after tax for the nine months reviewed grew by 70.17% to Rs. 19.017 billion. Notably, this is Rs. 1.931 billion or 11.30% more than the Group’s net profit for the full year of 2020. Total taxes paid by the Group in respect of the nine months amounted to Rs. 10.981 billion.

Taken separately, Commercial Bank of Ceylon PLC reported profit before tax of Rs. 24.425 billion for the period, with a growth of 56.91% and profit after tax of Rs. 18.606 billion, recording an improvement of 75.61%.

Total assets of the Group grew by Rs. 200 billion or 11.35% over the nine months to reach Rs. 1.962 trillion as at 30 September 2021.

Gross loans and advances increased by Rs. 105.195 billion or 10.94% to Rs. 1.067 trillion, recording a monthly average growth of Rs. 11.688 billion over the nine months. The growth of the loan book over the preceding year was 12.36%.

Total deposits of the Group recorded an improvement of Rs. 161.272 billion or 12.53% in the nine months reviewed at a monthly average of Rs. 17.919 billion to reach Rs. 1.448 trillion as at 30 September 2021. Deposit growth over the preceding 12 months was 18.51%.

In other key indicators, the bank’s basic and diluted earnings per share improved by 54.72% from Rs. 10.07 to Rs. 15.58, while its net assets value per share increased to Rs. 137 from Rs. 134.67 as at end 2020.

The CASA ratio improved to an impressive 47.05%, an industry benchmark, from 42.72% at the end of 2020 and 41.97% at the end of the third quarter of 2020, while the bank’s Cost to Income Ratio (CIR) before VAT on Financial Services improved to 30.73% at the end of the period under review from 33.95% at the end of 2020 and 38.51% at the end of 2019. The cost to income ratio inclusive of VAT on financial services improved to 37.55% from 39.96% at end 2020 and 49.41% at the end of 2019.

The bank’s Tier 1 Capital Adequacy Ratio (CAR) stood at 12.182% as at 30 September 2021, and its Total Capital Ratio at 16.128%, both comfortably above the revised minimum requirements of 9% and 13% respectively imposed by the regulator consequent to the COVID-19 pandemic. 

The bank’s gross non-performing loans (NPL) ratio improved to 4.94% from 5.11% at end 2020 and 5.20% a year previously, while its net NPL ratio improved to 1.83% from 2.18% as at 31 December 2020 and 3.04% as at 30 September 2020. As a result, provision cover based on existing Central Bank of Sri Lanka (CBSL) regulatory requirements improved to 63.03% at the end of the reviewed nine months, from 57.42% at end 2020 and 41.47% a year previously. 

The bank’s impaired loan (stage 3) ratio and impairment (stage 3) to stage 3 loans ratio as at 30 September 2021 stood at 6.83% and 31.92% respectively, compared to 6.78% and 30.87% respectively, at the end of 2020.

The bank’s interest margin also improved to 3.37% from 3.17% for the year 2020, and 3.17% for the first nine months of the previous year. Return on assets (before taxes) and return on equity stood at 1.78% and 15.51% respectively for the nine months ending 30 September 2021 compared to 1.51% and 11.28% for 2020 and 1.37% and 10.28% at the end of the third quarter of 2020.