ComBank first quarter profits soar; asset quality records improvement

Commercial Bank of Ceylon PLC reported sound performance for the three months ended in March 2021 (1Q21) as demand for loans gained pace while the company improved its margin amid the fast descent in interest rates.
The bank with the most assets in the private sector reported earnings of Rs.5.65 a share or Rs.6.75 billion in the three months to March 2021, up 80 percent from Rs.3.66 a share or Rs.3.77 billion in earnings in the year earlier period.  

The bank gave Rs.24.2 billion in fresh loans during quarter, more than twice the amount of loans disbursed in the immediate preceding quarter in December 2020, in a reflection of fast rebound in the economic activities from January through March with ease of virus related restrictions.  Loans to businesses such as working capital loans and term loans improved while there was a renewed optimism seen for housing loans after the rate was capped at 7.0 percent for five years to improve the home ownership among the middle-income class. Both personal loans and credit cards also rose in reaffirmation of a strong consumer-driven growth recorded in the broader economy in the first quarter. 

This is despite the bank improving its asset quality as measured by the gross non-performing loans ratio, which fell to 4.94 percent from 5.11 percent at the end of 2020. 

Despite concerns of re-emergence of asset quality issues, the banking sector in fact managed to contain the situation amid the expiry of the second phase of the moratoria on March 31. 

However, as the outlook for the immediate future is increasingly turning bleak with enterprise crippling restrictions being imposed, small businesses in particular, could find challenging to service their facilities, raising fresh concerns for banks. 

The bank provided Rs.7.16 billion during the quarter on possible losses from loan defaults and other financial assets, up 7.56 percent from the same period a year ago. 

Meanwhile, the bank reported Rs.15.48 billion net interest income for the three months, up by robust 21 percent from the same period in 2020 as it improved interest margins amid higher loans while interest rates declined. 

The net interest margin expanded to 3.46 percent from 3.17 percent three months ago despite nearly Rs.60 billion worth of growth in fresh deposits. 

The bank generated fee incomes of Rs.3.0 billion in the three months, up 24 percent from a year ago. Meanwhile the bank booked capital gains worth of Rs.1.78 billion in the three months compared to Rs.361.7 million in the year earlier period as it sold part of its investments in government securities at higher prices as yields fell. 

However, other net operating income fell to Rs.3.7 billion from Rs.6.6 billion a year ago as revaluation gains declined. 

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