Commercial Bank reports stellar 1Q performance

• Loan book grows by Rs. 7.5 billion, deposits by Rs. 14.8 billion in three months
• Pre-tax profit for the quarter up 56% to Rs. 2.9 billion

Noteworthy volume increases in its performing loan book and in other principal banking activities in a period of relatively lower taxation has enabled the Commercial Bank of Ceylon PLC to maintain its pace of growth in the first quarter of 2011, and post yet another stellar performance.

Chairman Mahendra Amarasuriya &  MD Amitha Gooneratne

Sri Lanka’s benchmark private sector bank has reported profit before tax of Rs. 2.959 billion for the three months ended 31 March, reflecting a growth of 56.45 per cent over the corresponding quarter of 2010. Profit after tax was up 87.08 per cent to Rs. 2.060 billion, the bank said yesterday.

The Performing Loans and Advances portfolio of the bank increased by Rs. 6.2 billion in the three months reviewed, from Rs. 213.4 billion as at 31 December 2010 to Rs. 219.6 billion at the end of 1Q 2011, as against an increase of Rs. 316 million in the first quarter of 2010.

Consequently, interest income from this source grew by Rs. 864.1 million (15.69 per cent) to Rs. 6.371 billion, contributing to net interest income of the bank growing 20.83 per cent to Rs. 4.3 billion.

Post tax profit growth was boosted further by a reduction in the income tax rate from the 35 per cent that prevailed last year to 28 per cent, resulting in tax expenses increasing by only 13.78 per cent to Rs. 899 million for the three months.

“Market conditions were more conducive for the banking sector than they were a year ago,” Commercial Bank Managing Director Amitha Gooneratne commented. “Having persistently adhered to best practices in tough times, the bank was in a position to consolidate and build on the momentum achieved in 2010.”

Total deposits of the bank grew by Rs. 14.794 billion at an average of nearly Rs. 5 billion a month in the three months reviewed to reach Rs. 274.572 billion as at 31 March 2011.  Despite this significant increase, the comparatively lower interest rate regime that prevailed in the quarter resulted in total interest expenses declining by 6.21 per cent, enabling the bank to improve its net interest margin to 4.59 per cent from 4.43 per cent a year ago.

Gross Loans and Advances recorded a growth of Rs. 7.542 billion from Rs. 228.373 billion at the end of December 2010 to Rs. 235.915 billion at the end of the quarter reviewed. Total assets of the bank grew by Rs. 24.512 billion (6.62 per cent) to Rs. 394.572 at end of the period under review.

In other key indicators, ‘Other’ income of the bank comprising principally of commission income and income from investments, recorded a growth of 22.53 per cent, while foreign exchange income improved by 11.32 per cent on a relatively higher volume of transactions. As a result, total non-interest income of the bank increased by Rs. 231.2 million or 18.52 per cent.

Net provisions on account of Bad and Doubtful Debts decreased by Rs. 251.9 million over the corresponding quarter of the previous year, largely due to the Central Bank mandated reversal of part of the statutory general provision on the performing and overdue loans portfolio of commercial banks. The provision, computed at 0.9 per cent as at 31 December 2010, was reduced to 0.8 per cent at end of the quarter under review and will be further reduced by 0.1 per cent each quarter to reach 0.5 per cent by the end of 2011.

These contributions helped the bank to record an increase in total income of Rs. 777.4 million or 7.92 per cent to Rs. 10.591 billion for the three months ended 31 March 2011.

An improvement of Rs. 95.9 million in recoveries on non performing loans in the quarter also contributed to the reduction in net provisions on Bad and Doubtful debts.

The non-interest expenses of the bank increased by Rs. 360.3 million (15.23 per cent) to Rs. 2.725 billion mainly due to increased expenses on the expansion of its branch network and an associated increase in staff numbers. The number of Commercial Bank’s delivery points in Sri Lanka and Bangladesh stood at 213 at the end of March 2011, as against 190 a year previously.

The total capital adequacy ratio of the bank stood at 11.58 per cent at the end of the quarter under review compared to the statutory minimum capital adequacy requirement of 10 per cent.

The bank’s annualised Return on Assets (before tax) improved to 3.14 per cent from 2.69 per cent for 2010, while its annualised Return on Equity increased from 17.87 per cent to 24.66 per cent.

Taken as a Group, the Commercial Bank, its subsidiaries and associates posted pre-tax profit of Rs. 2.973 billion at the end of 1Q 2011, recording a growth of 56.09 per cent. Profit after tax for the period was up 86.42 per cent to Rs. 2.065 billion.

Established in 1969, Commercial Bank owns a network of 198 computer-linked branches and supermarket banking counters in Sri Lanka. The bank also owns the single largest network of ATMs in the country, currently numbering 417 terminals.

The Bank has been adjudged ‘Best Bank in Sri Lanka’ for 13 consecutive years by ‘Global Finance’ Magazine, ‘Bank of the Year’ seven times by ‘The Banker’ 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.