The Commercial Bank Group ended 2019 with the performance milestone of gross income surpassing Rs 150 billion for the first time, but substantially higher impairment charges and the impact of a full year of Debt Repayment Levy (DRL) in a year the Bank describes as “difficult for the Bank and the country,” saw declines in profit indicators.
Comprising of Commercial Bank of Ceylon PLC, its subsidiaries and associates, the Group reported top line growth of 7.94% to Rs 150.741 billion for the 12 months ending 31st December 2019, with interest income, the main source of fund-based operations, up by Rs 10.763 billion or 9.06% to Rs 129.288 billion.
Total operating income improved by 4.35% to Rs 67.687 billion before impairment charges, the Group said in a filing with the Colombo Stock Exchange (CSE). Impairment charges increased by Rs 2.498 billion or 28.28% to Rs 11.332 billion, and DRL by Rs 1.819 billion to Rs 2.469 billion in the 12 months, exerting pressure on profit before tax (PBT), which eventually declined by 11.93% to Rs 22.984 billion.
However, profit after tax (PAT) at Rs 17.420 billion for the year reflected a decline of 2.48% due to income tax for the period reducing by 32.45% largely due to gains from a Government decision, announced by the Department of Inland Revenue to exempt interest income on Sri Lanka Development Bonds from income tax.
Nevertheless, Commercial Bank group paid Rs 12.819 billion as corporate taxes in respect of the 12 months reviewed, which accounted for over 42% of the Group’s profit before taxes. However, the Bank continued to maintain the same dividend per share since 2012.
Commenting on the mixed fortunes witnessed by the banking industry in the concluded year, Commercial Bank Chairman Mr Dharma Dheerasinghe said: “The performance of a systemically important bank mirrors the dynamics of the market in which it operates, but what separates the exceptional from the rest is how a bank navigates the challenges. Our decline in profits is directly attributable to higher provisioning and higher levies by the state. In all operational indicators, the Bank has weathered the turbulence well to end the year as strong and as stable as it ever was.”
The Bank’s Managing Director Mr S. Renganathan said funding, liquidity management and financial capital management played a crucial role in facing the challenges of the year under review. “In an environment inhospitable to credit expansion, the Bank strategically invested excess liquidity in both Rupees and foreign currency in government securities,” he said. “Similarly, the modest increase in Risk Weighted Assets meant that the Bank was able to efficiently manage its capital and end the year with an adequate capital base to facilitate the expected growth rebound in 2020.”
Total assets of the Group grew by Rs 89 billion or 6.75% at a monthly average of Rs 7.4 billion to Rs 1.409 Trillion as at 31st December 2019.
Gross loans increased by Rs 32.782 billion or 3.65% to Rs 930.737 billion, while net loans and advances to customers grew by Rs 26.307 billion or 3.03% over the 12 months of 2019 to stand at Rs 893.919 billion at the end of the year reviewed.
Total deposits recorded a growth of 7.5% or Rs 74.611 billion to reach Rs 1.069 Trillion as at 31st December 2019, reflecting average monthly growth of over Rs 6.2 billion. The rate of growth achieved in deposits mobilisation was the best among peer banks in the year reviewed, the Bank said.
Elaborating on some of the key aspects of its earnings performance, the Bank disclosed that interest expenses increased by 10.97% in contrast to the 9.06% growth in interest income, which was hampered by many factors including lower credit growth and sharp increases in non-performing loans (NPLs) in the aftermath of the Easter Sunday incidents, as well as the lending and interest rate caps imposed by the Central Bank of Sri Lanka.
As a result, net interest income grew by only 6% to Rs 48.356 billion, and the Bank’s interest margin in 2019 reduced to 3.51% from 3.67% recorded for 2018.
Total other income including net gains/losses from trading, net gains/losses from de-recognition of financial assets and net other operating income, reduced marginally to Rs 8.578 billion despite net other operating income declining by as much as 46.52% to Rs 6.082 billion mainly due to a significant drop in exchange profit consequent to the appreciation of the Rupee against the US Dollar. In the preceding year, the Rupee depreciated by Rs 29.40 or 19.14%. The negative impact of reduced exchange profit was however offset by gains of Rs 1.361 billion on trading as against a loss of Rs 3.033 billion on trading in 2018 which was mainly due to losses incurred on certain FX swap transactions that matured during 2018.
Net operating income of the Group improved by a marginal 0.58% to Rs 56.355 billion mainly due to the higher impairment charges necessitated by an increase in the Bank’s non-performing loans & advances portfolio, attributable to the adverse economic conditions that prevailed throughout 2019.
Consequently, the Bank’s gross NPL ratio increased to 4.95% from 3.24% at end 2018, while its net NPL ratio followed the trend, increasing to 3.0% from 1.71%. However, both gross and net NPL ratios reflected improvements at the end of the year in comparison with the ratios of 5.09% and 3.22% respectively, recorded at the end of the third quarter of 2019.
Total operating expenditure of the Group grew by 9.37% to Rs 26.125 billion. As a result, operating profit before taxes on financial services reduced by 5.96% to Rs 30.230 billion. Taxes on financial services increased to Rs 7.256 billion, a growth of 19.89%, mainly due to DRL of Rs 650 million paid in respect of a single quarter in 2018, increasing to Rs 2.469 billion for the 12 months of 2019.
At Bank level, Commercial Bank reported PBT of Rs 22.339 billion, down by 12.71% for the year reviewed, while PAT was down by 2.96% to Rs 17.025 billion.
In other key indicators, the Bank’s Total Tier 1 capital ratio (with capital buffers) at 12.398% as at 31st December 2019 was comfortably above the minimum requirement of 10% which became effective from 1st January 2019 under Basel III while the Total Capital Ratio of 16.146% was also above the Basel III minimum requirement of 14%.
The Bank’s return on assets (before tax) and return on equity reduced to 1.66% and 13.54% respectively from 2.09% and 15.56% reported for 2018, but reflected an improvement over the percentages at the end of September 2019, which were 1.64% and 12.12%. This was possible due to the tax reliefs announced by the Government.
The only Sri Lankan Bank to be ranked among the world’s top 1000 banks for nine years consecutively, Commercial Bank is celebrating its 100th anniversary in 2020. The Bank, which won more than 50 international and local awards in 2019, operates a network of 268 branches and 865 ATMs in Sri Lanka.
Commercial Bank’s overseas operations encompass Bangladesh, where the Bank operates 19 outlets; Myanmar, where it has a Representative Office in Yangon and a Microfinance company in Nay PyiTaw; and the Maldives, where the Bank has a fully-fledged Tier I Bank with a majority stake.