ComBank maintains growth impetus in 2Q despite external pressures

The Commercial Bank of Ceylon group, comprising of Sri Lanka’s biggest private sector bank and its subsidiaries and an associate, has reported gross income of Rs.163.12 billion for the six months ending June 30, 2024, a decline of 2.71 percent over the corresponding period of 2023. 
However, gross income for the second quarter, at Rs.82.91 billion, was down only by a marginal 0.73 percent, reflecting an improvement over the first quarter.
The group attributed the reduction in gross income to reduced interest income due to lower market interest rates on loans and government securities compared to 2023. Interest income for the six months under review amounted to Rs.139.26 billion, a drop of 7.66 percent but with interest expenses for the same period reducing by 28.86 percent to Rs.80.64 billion as a result of an improvement in the bank’s CASA ratio and repricing of deposits, net interest income grew by 56.53 percent to Rs.58.62 billion.

Notably, the CASA ratio of the bank improved to 39.95 percent as at June 30, 2024, from 39.23 percent as at December 2023 and 38.83 percent at the end of the first half of the previous year.
“With macroeconomic variables continuing to exert pressure on core banking operations, we intensified our focus on portfolio management and cost efficiency,” noted Commercial Bank Chairman Sharhan Muhseen. 
“The success of these initiatives is reflected in the bank’s improved key performance ratios, including profitability, alongside our sustained balance sheet growth.”
Commercial Bank Managing Director/CEO Sanath Manatunge emphasised the bank’s continued commitment to lending as a vital responsibility in supporting economic recovery, even as the appreciation of the rupee impacted the value of the loan book. 
“We remain steadfast in raising funds to bolster the SME sector, despite the need to increase provisions for impairments and other losses, because our dedication to core banking functions remains unwavering,” he added.
The group ended the first half of 2024 with gross loans and advances of Rs.1.36 trillion, a growth of Rs.67.55 billion or 5.21 percent over six months, at a monthly average of Rs.11.26 billion. The loan book growth over the preceding 12 months was Rs.175.77 billion, averaging Rs.14.65 billion per month. Deposits grew by 2.1 percent to Rs.2.19 trillion in the six months reviewed, despite the appreciation of the rupee against the dollar, reflecting average monthly growth of Rs.7.50 billion and year-on-year (YoY) growth of 11.96 percent, with the monthly average growth of Rs.19.52 billion over 12 months. 

Total assets of the group increased by Rs.228.30 billion or 9.27 percent YoY and by Rs.34.85 billion or 1.31 percent in the period under review to reach Rs.2.690 trillion as at June 30, 2024. Total operating income of the group for the six months grew by 52.92 percent to Rs.77.26 billion.  The group made provisions of Rs.19.02 billion for impairment charges and other losses, an increase of 43.95 percent over the figure for the corresponding six months of 2023.  The net operating income for the period increased by 56.10 percent to Rs.58.24 billion. With total operating expenses for the six months increasing by a lower rate of 14.93 percent to Rs.24.46 billion, the group reported operating profit before taxes on financial services of Rs.33.78 billion, reflecting growth of 110.80 percent. Taxes on financial services increased by 140.96 percent to Rs.4.66 billion, leading to a group profit before tax of Rs.29.12 billion for the six months, an improvement of 106.62 percent. Income tax for the six months increased by 76.12 percent to Rs.10.22 billion, resulting in a net after tax profit of Rs.18.90 billion for the first half of 2024, representing a growth of 127.96 percent compared to the first half of 2023. Taken separately, Commercial Bank of Ceylon PLC reported a profit before tax of Rs.28.02 billion and a profit after tax of Rs.18.10 billion for the six months, achieving growths of 116.02 percent and 140.87 percent, respectively, for the first half of 2024. In other key performance indicators, the bank reported its Tier 1 and total capital ratios at 11.583 percent and 15.117 percent, respectively as at June 30, 2024, both comfortably above the statutory minimum ratios of 10 percent and 14 percent, respectively. In July 2024, the bank raised Rs.20 billion via a debenture issue, the largest ever by a private sector bank in the country, while its rights issue of ordinary shares in early August, the largest rights issue by a private sector bank in the country, is expected to raise up to Rs.22.54 billion, further strengthening capital adequacy.  The bank’s interest margin improved to 4.41 percent for the six months, compared to 3.32 percent for 2023. Return on assets (before tax) stood at 2.17 percent, compared to 1.27 percent for 2023, while its return on equity grew to 16.76 percent, from 9.78 percent for 2023.

The bank’s cost to income ratio inclusive of taxes on financial services stood at 37.82 percent, compared to 40.31 percent in 2023.  In terms of asset quality, the bank’s impaired loans (stage three) ratio stood at 4.87 percent compared to 5.85 percent at end 2023, while its impairment (stage three) to stage three loans ratio increased to 49.18 percent as at June 30, 2024, compared to 43.22 percent at end-2023, consequent to the increase in impairment provisions for the six months reviewed.