Commercial Bank breaks Rs. 5 b PAT barrier in resurgent 2010

Solid loan book growth and noteworthy improvements in most key indicators have contributed to Commercial Bank of Ceylon PLC attaining a major banking sector performance landmark in the year ending 31 December 2010.

According to financial statements filed with the Colombo Stock Exchange, Sri Lanka’s benchmark private sector bank crossed the milestone Rs. 5 billion mark in profit after tax during the year to end FY 2010 with a net profit of Rs. 5.523 billion, achieving a growth of 28.3 per cent over 2009.

The bank’s profit before tax grew by a healthy 29.5 per cent to Rs. 9.317 billion, an increase of more than Rs. 2 billion in the year reviewed.

A welcome resurgence in credit demand and a drop in non-performing advances in absolute terms helped achieve this growth by facilitating a 32.2 per cent (Rs. 4 billion) improvement in net interest income, from Rs. 12.41 billion to Rs. 16.41 billion, the bank said. Loan book growth also contributed to an increase of 27.3 per cent in fee and commission income.

Total operating income of the bank recorded a 14.7 per cent growth to Rs. 23.193 billion, despite a steep drop in interest rates. There was, however, a decrease in other income, largely as a result of a drop in capital gains from the sale of treasury bills and bonds compared to the previous year and a 41.2 per cent reduction in the exchange profit of the bank due to the appreciation of the rupee against the US dollar in 2010.

On the strength of these results, the Board of Directors of Commercial Bank PLC has proposed a final dividend of Rs. 4 per share, made up of Rs. 2 in cash and Rs. 2 in the form of a scrip dividend, taking total dividend per share for the year to Rs. 7. The bank paid two interim dividends of Rs. 1.50 each earlier in the year.

This is the third year running that the Commercial Bank has declared annual dividends of Rs. 7 per share, the highest in the local banking sector. The maintenance of the bank’s dividend rate subsequent to a 1 for 2 share split that created 125 million new shares in June 2010 means that the dividend rate in terms of the previous shareholding amounts to Rs. 10.50 per share.

Commenting on the bank’s performance in 2010, Commercial Bank Managing Director Amitha Gooneratne said practically every ratio had improved substantially. “Most noteworthy to shareholders would be the increase in the return on average shareholder funds, which at 17.9 per cent, is very much higher than the yield on treasury bills,” he pointed out.

Key to the bank’s results, Gooneratne said, was the growth in business volumes in the year under review. Deposits improved by Rs. 25 billion or 10.7 per cent to Rs. 259.779 billion at 31 December 2010. Gross loans and advances increased by Rs. 45 billion to Rs. 228.373 billion, a growth of more than 25 per cent. Total assets of the bank grew by Rs. 47 billion in the 12 months to Rs. 370 billion at the end of the year.

A noteworthy aspect of the bank’s loan book growth was the improvement in performing loans and the simultaneous reduction in non-performing loans.

Total provisions for loan losses decreased by 22.3 per cent (Rs. 342 million) to Rs. 1.192 billion in the period reviewed. This was facilitated by a drop of Rs. 469 million in specific provisions on loans and advances.

However, statutory general provisions on performing and special-mentioned loans and advances increased by Rs. 145 million due to the growth in the loan book, notwithstanding the decrease in the provisioning requirement from one per cent to 0.9 per cent in the last quarter of the year.

Non-performing loans, net of interest in suspense, reduced by Rs. 2.7 billion to Rs. 9.369 billion, giving the bank a net NPL ratio of 4.22 per cent, one of the best in the industry, Gooneratne disclosed. The bank’s net NPL ratio at the end of 2009 was 6.84 per cent.

Commercial Bank’s Open Credit Exposure Ratio (ratio of net non-performing loans to capital) recorded a significant improvement, from 28.68 per cent in 2009 to 18.61 per cent in the year reviewed.

In other key performance ratios, the Bank’s Basic Earnings per Share improved 27.7 per cent to Rs. 14.67; Net Asset Value per Share increased by 16.1 per cent to Rs. 88.22 from Rs. 76.01 (re-stated subsequent to the share split of 1 for 2); Return on Equity improved by more than two percentage points to 17.9 per cent, and Return on Assets grew nearly 12 per cent to 1.6 per cent.

The bank also maintained its Capital Adequacy Ratios at 10.8 per cent (Tier I) and 12.3 per cent (Tier II) despite the growth of its loan book.

Significantly, the bank was able to limit the growth in total operating expenses to 6.4 per cent, despite adding 15 new branches to its network in 2010 and the consequent increase in personnel. With income growing at a faster rate than expenses, the bank’s Cost Income Ratio declined more than two percentage points to 54.69 per cent.

Incorporated in 1969, but heir to a legacy dating back 91 years, the Commercial Bank of Ceylon PLC is the highest market capitalised bank in Sri Lanka, and the fourth largest entity in the country overall in terms of market capitalisation.

The bank’s market capitalisation of Rs. 91.824 billion at the end of FY 2010, is triple the value of shareholders’ funds, which stood at Rs. 33.631 billion. The bank’s 187 branches and delivery points (as at end December 2010) which currently stands at 191, gives it the largest presence among private banks in Sri Lanka, while its network of 400 ATMs is the largest automated cash dispensing system in the country.

Commercial Bank has been adjudged Sri Lanka’s ‘Bank of the Year’ seven times by ‘The Banker,’ ‘Best Bank in Sri Lanka’ for 12 consecutive years by ‘Global Finance’ Magazine, and the Best Bank in Sri Lanka twice by FinanceAsia. It has also been rated ‘Best Local Trade Bank’ in Sri Lanka by the UK based ‘Trade Finance’ magazine. The bank also operates 17 delivery points in Bangladesh.