ComBank accelerates lending in 3Q as strong fundamentals spur growth

The Commercial Bank of Ceylon group has achieved impressive growth at the end of the third quarter of 2024 by banking on judicious portfolio management and continued improvement of its CASA ratio to counteract the impacts of reduced interest income in the prevailing market conditions.

Comprising of Sri Lanka’s biggest private sector bank, its subsidiaries and an associate, the Commercial Bank group has reported a net interest income of Rs.88.98 billion for the nine months ended September 30, 2024, an increase of 46.15 percent, despite the declines in the interest income and gross income for the period.

With the interest rates for customer advances as well as government securities continuing to be lower than in the preceding year, the group posted a gross income of Rs.241.71 billion for the period, down 5.57 percent over the corresponding nine months of 2023.

The interest income was similarly impacted, reducing by 7.77 percent to Rs.207.12 billion but the repricing of the deposits and a further improvement in the CASA ratio brought the interest expenses down by a noteworthy 27.83 percent to Rs.118.14 billion, enabling a healthy growth in the net interest income, the group said in a filing with the Colombo Stock Exchange.

“The challenge for the banks operating in periods of low interest rates is to grow their portfolios while managing margins with timely adjustments,” Commercial Bank Chairman Sharhan Muhseen commented. 

“Our impeccable record of prudence and fairness along with our demonstrated financial strength continues to drive deposit mobilisation, enabling us to continue to step up lending. The performance for the nine months reviewed flows from these dynamics, underscoring the group’s expertise and resilience.”

Commercial Bank Managing Director/CEO Sanath Manatunge added that vigilant supervision of the quality of the loan portfolio, equitable and forward-looking management of the impairment provisioning and timely repricing of assets and liabilities have underpinned the group’s nine-month performance and would continue to be the strategy for the future. 

“Strong, consistent performance even in volatile conditions enables the bank to continue to accelerate lending and invest in digital transformation, sustainability and other commitments,” Manatunge said.

For the nine months reviewed, the group reported gross loans and advances of Rs.1.42 trillion, a growth of Rs.121.06 billion or 9.34 percent since December 2023, at a monthly average of Rs.13.45 billion. Significantly, 44.20 percent of loan book growth was recorded in the third quarter of the year. The loan book growth over the preceding 12 months was Rs.177.88 billion or 14.36 percent, averaging Rs.14.82 billion per month.

Deposits increased by 3.66 percent to Rs.2.23 trillion in the nine months, despite the appreciation of the rupee against the dollar, reflecting the average monthly growth of Rs.8.73 billion and a year-on-year (YoY) growth of 9.22 percent, with the monthly average growth of Rs.15.67 billion over the preceding 12 months. Notably, while the rupee deposits grew by more than Rs.120 billion in the review period, the rupee value of foreign currency deposits reduced by Rs.46.19 billion, due to the appreciation of the rupee.

Total assets of the group increased by Rs.108 billion or 4.05 percent in the nine months to reach Rs.2.76 trillion as at September 30, 2024.

Total operating income of the group improved by 33.86 percent to Rs.115.72 billion in the period reviewed. The group made provisions of Rs.20.02 billion for the impairment charges and other losses, a reduction of 22.35 percent over the figure of Rs.25.78 billion for the corresponding nine months of 2023, which included a provision of Rs.12.57 billion for the third quarter alone. In contrast, the impairment charges for the third quarter of 2024 were just Rs.1 billion. 

The net operating income for the nine months grew by 57.74 percent to Rs.95.70 billion. The group’s success in containing the total operating expenses for the period to Rs.36.49 billion – a growth of only 14.12 percent, enabled it to report the operating profit before taxes on financial services of Rs.59.21 billion, an improvement of 106.36 percent.

The taxes on financial services increased by 141.95 percent to Rs.8.87 billion, resulting in a profit before tax of Rs.50.34 billion for the nine months, an improvement of 101.14 percent. The income tax for the nine months increased by 83.13 percent to Rs.18.80 billion, leading to a net profit of Rs.31.54 billion for the first nine months of 2024, representing a growth of 113.61 percent over the corresponding period of 2023.

The total tax charges of the group at the end of the third quarter amounted to Rs.27.67 billion, double the Rs.13.93 billion tax charge in respect of the first nine months of the preceding year.

Taken separately, Commercial Bank of Ceylon PLC reported a profit before tax of Rs.48.73 billion and a profit after tax of Rs.30.38 billion for the nine months reviewed, recording growths of 112.70 percent and 128.33 percent, respectively.

In the other key performance indicators, the bank’s Tier 1 and total capital ratios stood at 12.550 percent (11.442 percent as at December 31, 2023) and 17.229 percent (15.151 percent as at December 31, 2023), respectively, as at September 30, 2024, both comfortably above the statutory minimum ratios of 10 percent and 14 percent, respectively. The bank’s capital was boosted by Rs.22.54 billion raised via a rights issue and Rs.20 billion raised via a debenture issue during the period under review. 

The CASA ratio of the bank improved to 39.60 percent as at September 30, 2024, from 39.23 percent at end-December 2023 and 38.51 percent at the end of the third quarter of the previous year.

The bank’s interest margin improved to 4.38 percent for the nine months, compared to 3.32 percent for 2023 and 3.21 percent at the end of 3Q 2023. The return on assets (before tax) stood at 2.47 percent, compared to 1.27 percent for 2023, while its return on equity grew to 17.42 percent, from 9.78 percent for 2023.

The bank’s cost-to-income ratio, excluding the taxes on financial services, stood at 31.49 percent, compared to 36.11 percent in 2023. The cost-to-income ratio inclusive of the taxes on financial services improved to 39.36 percent as at September 30, 2024, from 40.31 percent at end-2023 and 41.54 percent as at September 30, 2023. 

In terms of asset quality, the bank’s impaired loans (Stage 3) ratio stood at 4.08 percent, compared to 4.87 percent at end-June 2024, 5.85 percent at end-2023 and 6.11 percent at end-September 2023. The impairment (Stage 3) to Stage 3 loans ratio improved to 53.54 percent, from 49.18 percent as at June 30, 2024 and 43.22 percent at end-2023.