ComBank delivers strong 4Q though profits dented by higher provisions

Commercial Bank of Ceylon PLC reported some robust financial performance for the three months ended December 31, 2021, with improvements in almost all key performance indicators although higher provisions and expenses in the final quarter blunted the bank’s fiscal fourth quarter earnings. 

The bank with most assets among the private lenders in Sri Lanka reported net interest income of Rs.18.88 billion for the October - December quarter, up 34.2 percent from the same period in 2020 as the bank reported higher interest income due to the outsize growth in new loans, among which low cost deposits grew by huge proportions. 

The bank’s current and savings accounts ratio, the matrix for low-cost deposits, jumped from 42.72 percent to 47.83 percent making it an industry benchmark.  This helped the bank to stretch its net interest margin to 3.51 percent from 3.17 percent at the start of the year, helping higher net interest income on the back of higher growth in loans.  The loans grew by Rs.130.9 billion in 2021, translating to a robust 13.8 percent growth, and during the final three months the bank gave Rs.28.06 billion in loans. 

The bank’s growth in loans and advances corresponded with the growth in private sector credit for 2021, which also grew by around 13.0 percent. The bank reported earnings of Rs.4.37 a share or Rs.5.22 billion for the quarter compared to earnings of Rs.5.31 a share or Rs.5.87 billion in the same period in 2020, marking 11.2 percent decline.  However, for the year ended in December 2021, the bank reported earnings of Rs.20.15 a share or Rs.24.06 billion compared to earnings of Rs.15.32 a share or Rs.16.94 billion, up 42.05 percent. 

The bank’s share added Rs.1.20 or 1.52 percent on Friday to end at Rs.80.10 prior to the release of the earnings report which was filed late in the evening.  In the quarter, the bank’s net fee income grew by 19.1 percent to Rs.3.65 billion mirroring the business growth.  The bank’s net other operating income growth recorded  a massive 139.5 percent jump to Rs.2.19 billion in the quarter due to exchange gains, but net trading income reported a loss of Rs.101.1 million compared to a corresponding quarter gain of Rs.1.13 billion due to de-recognition of financial assets coming from the reduction in gains from the sale of treasury bonds and sovereign bonds. 

Meanwhile, the bank set aside Rs.7.14 billion for possible bad loans and other financial assets losses in the quarter, up 52.4 percent from the same period in 2020. 

However, the bank’s asset quality improved in line with the industry as the gross non-performing loans ratio declined to 4.62 percent from 5.11 percent at the beginning of the year.  Meanwhile, expenses weighed on the earnings in the quarter as personal expenses rose by 25.9 percent, “ consequent to an increase in personnel expenses following the signing of a collective agreement effective January 2021”, while the other operating expenses rose by 35.7 percent due to general cost increases, the bank said. 

Being its single largest shareholder, DFCC Bank has 12.12 percent stake in Commercial Bank while the Employees’ Provident Fund has 8.62 percent stake being its third largest shareholder.  Business tycoon Dhammika Perera upped his stake in the bank to 3.17 percent during the final quarter from 1.84 percent as at September 30, 2021, while L.E.M Yaseen and Sri Lanka Insurance Corporation were identified as major sellers of ComBank shares during the quarter.