COMBank’s net profit tops Rs. 6 b by 3Q

Interest income generated by the robust growth of its loan book, gains from the reduced effective tax rate and a noteworthy contribution from non-interest income have enabled Commercial Bank of Ceylon PLC to accelerate profit growth in the first nine months of 2011 and post sector-leading financial results, befitting its status as the country’s benchmark private bank.

Releasing its interim income statements for the nine months ending 30 September 2011, Sri Lanka’s premier private bank announced that profit before tax had grown by nearly Rs. 2 billion or 33.7 per cent over the corresponding period of last year to reach Rs. 8.717 billion.

          

Profit after tax increased by an outstanding 63.56 per cent to cross Rs. 6 billion (Rs. 6.097 billion) as against Rs. 3.727 billion for the first nine months of 2010, as the effective tax rate for the review period, including the bank’s operations in Bangladesh, reduced to 30.05 per cent from 42.82 per cent in the previous year as a result of the reduction of the corporate tax rate and VAT on financial services.

Total income of the bank for the nine months was Rs. 32.904 billion, reflecting a growth of 8.53 per cent. The interest income component recorded growth of 7.63 per cent to Rs. 27.548 billion as at 30 September 2011, with interest income from loans and advances increasing by a healthy 20.63 per cent (more than Rs. 3.5 billion) to Rs. 20.589 billion and non-interest Income (commission, investment and foreign exchange income) growing by 11.13 per cent to Rs. 4.501 billion. Net interest income improved by 14.36 per cent to Rs. 13.420 billion.

The bank attributed the lower rate of growth of total interest income comparative to the growth of some of the individual components that make up the total, to reduced Interest Income from other interest-bearing assets such as Treasury Bills and Bonds due to the lower yields on these assets in the review period. Interest income from this source declined from Rs. 8.528 billion at the third quarter of 2010 to Rs. 6.960 billion for the nine months reviewed.

Gross loans and advances of the bank increased by a remarkable Rs. 39.9 billion in the nine months, from Rs. 228.4 billion as at 31 December 2010 to Rs. 268.1 billion at the end of the third quarter of 2011, a growth of 17.4 per cent. The increase over the 12 month period from end September 2010 was Rs. 63.4 billion, reflecting an impressive growth of 30.94 per cent YoY, or a gross increase averaging more than Rs. 5 billion per month.

The total performing loans and advances portfolio of the bank grew by 18.16 per cent since 31 December 2010 to Rs. 252.2 billion.

Total deposits increased by Rs. 42.7 billion or 16.44 per cent over the nine months to Rs. 302.5 billion as at 30 September 2011. The growth over the preceding 12 month period was Rs. 49.9 billion, reflecting a YoY increase of 19.74 per cent.

Commenting on these results, Commercial Bank Managing Director Amitha Gooneratne said: “What we are witnessing is the combined effect of size and momentum, supported by a solid foundation of customer trust and unwavering commitment to excellence in operational fundamentals. Although our operations are expanding rapidly, entailing higher capital and recurrent expenditure, and yields from interest-bearing investments are lower, the Bank has stepped up the pace growth.”

Total assets of the bank increased by Rs. 51.2 billion or 13.84 per cent from Rs. 370 billion at 31 December 2010 to Rs. 421.3 billion as at 30 September 2011. The growth of total assets over the one year period to the third quarter of 2011 was Rs. 56.9 billion or 15.6 per cent.

Detailing some of the operational aspects of the bank’s third quarter results, Chief Financial Officer Nandika Buddhipala said an improvement in the deposit mix and careful management of deposit rates had enabled the bank to keep the increase in interest expenses down to 1.93 per cent, from Rs. 13.861 billion to Rs. 14.129 billion.

Non-interest expenses had grown by 20.54 per cent to Rs. 8.486 billion, mainly on account of increased expenses linked to the expansion of the bank’s delivery channels in Sri Lanka and Bangladesh and the necessary increase in staff-related expenses. The deposit insurance scheme mandated by the Central Bank of Sri Lanka had entailed an additional expense of Rs. 226 million for the nine months, he said.

One of the highlights of the bank’s results was a decrease of Rs. 752.4 million in net provisions for bad and doubtful debts and loans written off for the period under review. A Central Bank directive requiring commercial banks to reduce the Statutory General Provision rate by 0.1 per cent each quarter to 0.5 per cent by the end of 2011 had resulted in the reversal of part of the bank’s general provision as at 30 September 2011.

Specific provisions had increased by Rs. 33.8 million (4.9 per cent) to Rs. 722.8 million, due to the increase in the non-performing loans and advances portfolio from Rs. 14.9 billion at the end of 2010 to Rs. 15.9 billion as at 30 September 2011. The increase in specific provisions, however, had been offset by an increase of Rs. 185.3 million in recoveries against loans written off or provided for in the nine months reviewed, Buddhipala explained.

In other key performance indicators, Commercial Bank’s core capital adequacy ratio stood at 12.02 per cent, and its total capital adequacy ratio was 13.07 per cent at the end of the nine months reviewed, supported by the proceeds from its rights issue in the review period, comfortably above the statutory minimum of five per cent and 10 per cent stipulated by the Central Bank of Sri Lanka. The liquid asset ratio of the bank as at 30 September 2011 was 26.68 per cent; also well above the minimum of 20 per cent required by the Central Bank.

The gross and net non-performing loans ratio of the bank (net of interest in suspense) stood at 3.92 per cent and 2.76 per cent respectively at the end of September 2011, as against 4.22 per cent and 2.78 per cent on 31 December 2010.

Taken as a Group, the Commercial Bank, its subsidiaries and associates posted pre-tax profit of Rs. 8.754 billion at the end of 3Q 2011, recording a growth of 33.71 per cent. Profit after tax for the period was up 63.48 per cent to Rs. 6.107 billion.

Established in 1969, Commercial Bank is the largest private bank in Sri Lanka and the only Sri Lankan Bank listed in the world’s Top 1,000 Banks. It operates a network of 208 computer-linked service points in Sri Lanka and the country’s single largest ATM network of 460 terminals.

The bank has been adjudged ‘Best Bank in Sri Lanka’ for 13 consecutive years by ‘Global Finance’ Magazine and has won multiple awards as the country’s best bank from ‘The Banker,’ ‘FinanceAsia,’ ‘Euromoney’ and ‘Trade Finance’ magazines. Commercial Bank’s operations in Bangladesh comprise of 17 service points.