ComBank Sept. profits surge on new loans, lower provisions

Commercial Bank of Ceylon PLC reported robust top and bottom line performance, as the bank ploughed ahead with new loans, lower funding cost and cut provisions from last year, albeit setting aside a sizeable amount for possible bad loans, considering the fresh uncertainties propped up in the three months to September. 

Sri Lanka’s largest private lender reported a net interest income of Rs.16.38 billion in the July-September quarter, up 16.72 percent from a year ago, as the bank’s interest income rose by 3.89 percent to Rs.32.87 billion while the interest expense fell by 6.34 percent to Rs.16.49 billion made possible by the accumulation of low-cost funds. 
With its current and savings accounts ratio at 47.05 percent, the bank claimed it became the first in the industry for having nearly half of its deposits in low-cost buckets. The bank raised a massive Rs.154.3 billion in new deposits in the nine months and another Rs.8.595 billion in a debenture issued in September. 

There was a notable increase in the banks’ savings account balances in the forgoing quarter as majority working families left large portions of their moneys in their salary accounts, as there were limited spending opportunities after mobility and other restrictions on recreational activities were reimposed since around mid August.  

These conditions helped the bank to slightly improve its net interest margin to 3.37 percent, which was also supported by the market interest rates, which fell to their lowest levels compared to a year ago, albeit there was some upward pressure since around August, after the Central Bank increased its benchmark policy rates. 
Despite some slowdown from the previous quarter, the bank gave Rs.30.7 billion in new loans in the three months, taking the total new loans in the nine months to an eye-popping Rs.102.8 billion, which translated into 10.8 percent growth.  

Under these conditions, the bank reported earnings of Rs.5.52 a share or Rs.6.59 billion in the quarter, up by a massive 78.4 percent, from Rs.3.51 a share or Rs.3.69 billion in the year earlier period. In the nine months to September, the bank reported earnings of Rs.15.78 a share or Rs.18.84 billion, up 70.3 percent from a year ago. 
The profits were also supported by the lower provisions made in the period against the possible loan defaults against last year. 

The bank set aside Rs.4.34 billion in the quarter, as impairments for loans and other losses, compared to Rs.7.47 billion in the year earlier period, albeit the incumbent period provisions have taken into account the uncertain macro-economic conditions caused by the virus resurgence and fresh economic pain inflicted by global and local market conditions such as the foreign currency crunch. 

This helped the bank to book Rs.2.59 billion in net operating income, predominantly supported by the foreign exchange gains. But the reduced profits from the sale of treasury and sovereign bonds offset the above forex-related gains. The bank continued to improve its asset quality as its reported gross non-performing loans ratio fell slightly to 4.94 percent, from 5.11 percent at the start of the year. 

Being its largest shareholder, DFCC Bank has a 12.02 percent stake in Commercial Bank while the Employees’ Provident Fund has a 8.62 percent stake, being its third largest shareholder.