ComBank Group remains resilient in volatile first half of 2023

• Gross Income improves by 40.29% to Rs 167.668 Bn.

• Interest income up 71% to Rs 150.8 Bn, but interest expenses surge 139% to Rs 113.3 Bn.

• Appreciation of Rupee continues to impact loan book, deposits and assets

The Commercial Bank of Ceylon Group has reported gross income of Rs 167.668 billion including a growth in interest income to Rs 150.812 billion for the first half of 2023, achieving healthy topline growths of 40.29% and 71.15% respectively in a period of significant volatility for the banking sector.

Comprising of Sri Lanka’s biggest private sector bank, its subsidiaries and an associate, the Group also improved fee and commission income by 22.27% to Rs 14.377 billion, net fee and commission income by 19.30% to Rs 10.591 billion, and net other operating income by 236.42% to Rs 17.086 billion from a loss of Rs 12.524 billion recorded for the first half of 2022.

However, with interest expenses for the six months rising by Rs 65.958 billion or 139.14% to Rs 113.362 billion, the Group’s net interest income reduced by 8.01% to Rs 37.450 billion. The Group also recorded a net loss from trading of Rs 15.531 billion, as a result of realized and unrealized losses from forwards, spots and swap transactions owing to the appreciation of the Rupee in the review period, in contrast to a net gain of Rs 32.102 billion from trading in the corresponding six months of the previous year.

Total operating income of the Group declined by 27.03% to Rs 50.520 billion but net operating income for the period under review improved by 9.69% to Rs 37.309 billion with the Group making a provision of Rs 13.211 billion for impairment charges and other losses for the six months. Impairment charges for 2022 included a substantial additional provision made for foreign currency denominated Government Securities owing to the downgrading of Sri Lanka’s sovereign rating. Total operating expenses increased by 18.04% to Rs 21.285 billion, with personnel expenses, depreciation and amortization and other operating expenses rising by 17.86%, 20.90% and 17.56% respectively.

A revaluation of the Group’s assets in foreign currency consequent to the appreciation of the Rupee in the six months under review resulted in total assets of the Group reducing by Rs 37 billion or 1.50% to Rs 2.462 trillion as at 30^th June 2023. Gross loans and advances of the Group also reduced by 4.71% over the six months to Rs 1.188 trillion, partly due to the revaluation impact on foreign currency denominated loans and advances as a result of the appreciation of the Rupee. Total deposits of the Group stood at Rs 1.959 trillion as at 30^th June 2023, with Rupee-denominated deposits increasing by Rs 48.47 billion since end 2022, but the value of deposits denominated in foreign currency reducing significantly due to the appreciation of the Rupee.

Commenting on these results, Commercial Bank Chairman Prof. Ananda Jayawardane said: “The key performance indicators of banks continue to be influenced by external variables rather than core banking operations. Factors like sharp fluctuations in the value of the Rupee and mercurial interest rates that necessitate repricing of assets and liabilities have a distortionary effect on earnings and profits. However, we remain fundamentally strong in operational terms and are geared to leverage these strengths in the year ahead.”

Commercial Bank Managing Director/CEO Mr Sanath Manatunge elaborated: “We expect interest rates to reduce further in the year ahead to stimulate the economy. Our high liquidity position will be leveraged to increase lending, alongside a repricing of assets and liabilities, generating positive growth in the third and fourth quarters of the year. This would further strengthen the Bank’s superior position in the market.”

The Group reported an operating profit before taxes on financial services of Rs 16.024 billion for the six months, a marginal improvement of 0.26%. Taxes on financial services reduced by 25.70% to Rs 1.934 billion, resulting in profit before income tax increasing by 5.36% to Rs 14.092 billion. With income tax expenses for the period up by 38.21% to Rs 5.802 billion as a result of an increase in the income tax rate to 30% from 24% for the Group’s Sri Lankan operations, the Group’s net profit of Rs 8.290 billion represented a decline of 9.67%. Notably the Group converted a net loss of Rs 2.597 billion for the second quarter of last year to a net profit of Rs 3.931 billion for the second quarter of 2023.

Taken separately, Commercial Bank of Ceylon PLC reported a profit before tax of Rs 12.971 billion for the six months, an improvement of 3.14% while profit after tax for the period was down by 12.55% to Rs 7.514 billion.

In other key indicators, the Bank’s Tier 1 Capital Ratio and Total Capital Ratio stood at 12.374% and 15.550% respectively as at 30^th June 2023, both above the statutory minimum ratios of 10% and 14% respectively. The Bank’s net interest margin reduced to 3.01% for the six months under review compared to 3.74% reported for 2022. The Bank’s return on assets (before taxes) stood at 1.09% and return on equity at 7.49% for the period reviewed.

In terms of asset quality, the Bank’s impaired loans (Stage 3) ratio stood at 6.28% compared to 5.25% at end 2022, while its impairment (Stage 3) to Stage 3 loans ratio stood at 39.70% as at 30^th June 2023 from 39.60% at end 2022. In terms of liquidity, the Bank’s consolidated liquid assets ratio (Sri Lankan Operations) stood at 38.65%, well above the minimum requirement of 20%.

Sri Lanka’s first 100% carbon neutral bank and the first Sri Lankan bank to be listed among the Top 1000 Banks of the World, Commercial Bank operates a network of 271 branches and 957 automated machines in Sri Lanka. Commercial Bank is the largest lender to Sri Lanka’s SME sector and is a leader in digital innovation in the country’s Banking sector. The Bank’s overseas operations encompass Bangladesh, where the Bank operates 20 outlets; Myanmar, where it has a Microfinance company in Nay Pyi Taw; and the Maldives, where the Bank has a fully-fledged Tier I Bank with a majority stake.