3Q Earnings Up 51% To Rs. 51bn; Banking Sector Leads The Pack

The Colombo Stock Exchange (CSE) listed entities upped their total earnings for the quarter ended September 30, 2014 by as much as 51.3 percent to Rs.51.1 billion from the same quarter in 2013, according to a 3Q earnings update released by an independent research firm.This is an acceleration from a 21.7 percent year-on-year (YoY) earnings increase in the second quarter of 2014, Capital Alliance Securities (Private) Limited’s research unit (CAL Research) said.

The banking, finance and insurance sector, composed of 57 listed entities, contributed as much as Rs.19.7 billion or 38.4 percent to the total market earnings during the quarter. The sector increased its earnings by as much as 56 percent YoY.This was followed by t he beverage, food and t obacco sector with earnings of Rs.6.9 billion, recording a 15 percent YoY increase and the diversified holdings sector with Rs.6.8 billion earnings, recording a phenomenal 159 percent YoY increase.Listed banking sector leader Commercial Bank of Ceylon PLC (ComBank) led the pack with the highest contribution to the total earnings with 6.5 percent or Rs.3.33 billion, up 21 percent YoY.

The banking sector earnings grew by 30 percent YoY during the September quarter against the 8 percent decline in earnings in the corresponding quarter last year. According to CAL Research, the sector earnings were pushed up by the lower impairments and capital gains on bond portfolios. This is despite most banks seeing a decline in net interest incomes.

However, the banking sector earnings are expected to come under pressure in the future due to shrinking net interest margins in the low interest regime.
“Non-bank financial institutes saw an 80 percent YoY growth i n earnings as fixed lease portfolios lent at higher rates during the last two years benefitted from l ower funding costs as interest rates declined 700 basis points YoY and impairment charges slowed during the quarter,” CAL Research stated.Sri Lankan stocks gained this year due to low interest rates, higher foreign buying and strong 3Q earnings.However, since midNovember the Colombo bourse has seen some volatility due to the party defections and political uncertainty leading up to the January 8 polls.