ComBank 1Q performance becomes casualty of wild swings in interest and exchange rates

Commercial Bank of Ceylon PLC became a casualty of the sharp swings in the interest and exchange rates in the last 12 months, as the country’s biggest private sector lender reported subdued performance in the first three months of 2023. 
For 1Q23, Commercial Bank reported a net interest income of Rs.18.98 billion, largely unchanged from a year ago. 
This is because the bank, as much as being a beneficiary of the sharply higher interest rates, which yielded massively higher incomes on its loans and government securities portfolio, the expansive deposit base for which the bank offered higher rates or started repricing, more than offset any benefit. 

The net interest margin fell to 3.05 percent, from 3.74 percent. 
Sri Lanka’s interest rates rose sharply or nearly threefold, starting from April last year through the end of 2022 before starting to moderate from the beginning of 2023. 
But the rates still remain restrictively high, as the demand for credit still remains anaemic. 
On the other hand, the swings in the exchange rate too had a massive bearing on the bank’s trading portfolio, which captures the forwards, spots and swap transactions. 
This resulted in the bank turning a massive trading loss of Rs.8.98 billion in the first three months of the year, compared to a gain of Rs.23.54 billion in the same period in 2022. 
Meanwhile, the same exchange rate movement caused the bank to report a net other operating income of Rs.9.55 billion, compared to a net loss of Rs.12.22 billion a year ago from exchange losses. 
These extreme swings in rates compelled the bank to report a decline in its total operating income by 26.2 percent to Rs.25.29 billion for the three months under review. 
The bank continued to make higher impairment provisions, as it set aside Rs.6.79 billion for the quarter, up 14.04 percent from the same period last year. 
ComBank too saw its loans contracting in the quarter by Rs.57.6 billion to Rs.1,162.07 billion. Part of this contraction was coming from the re-translation of foreign currency loans at the appreciated rupee. 
The bank’s reported Stage 3 loans ratio was at 5.84 percent, slightly up from 5.25 percent at the end of last year. 
Meanwhile, the deposits grew by Rs.43.51 billion to Rs.1,957.87 billion at bank level. At group level, the consolidated deposits surpassed Rs.2.0 trillion level. 
In the January-March quarter, the bank reported earnings of Rs.3.21 a share or Rs.4.22 billion, compared to Rs.9.42 a share or Rs.11.68 billion in the corresponding period in 2022. This marked a 63.9 percent slump. 
ComBank share gave up Rs.1.00 or 1.69 percent yesterday to close at Rs.58.20. 
The fee incomes however rose by 32.2 percent to Rs.5.40 billion. 
DFCC Bank PLC holds a 12.12 percent stake in ComBank, being its single largest shareholder while the government via the EPF, Sri Lanka Insurance and the ETF holds roughly 19 percent of the bank’s voting shares.