ComBank shows resilience despite surge in NPLs, higher taxes

Commercial Bank of Ceylon PLC (ComBank) yesterday showed it has what it takes to withstand the shocks in the wider economy and could still post strong profits and growth. 

According to the interim financial accounts for the quarter ended September 30, 2018 (3Q18) released to the Colombo bourse, ComBank has recorded 25 percent year-on-year (YoY) growth in earnings to Rs.5.1 billion or Rs.5.11 per share. 

The net interest income rose 16.5 percent YoY to Rs.12.3 billion as the bank managed to maintain growth in its loan book through the third quarter and attract deposits at a low cost compared to its competitors. 

ComBank gave Rs.28.4 billion in new loans during the July-September quarter bringing the total loans granted by the bank to Rs.102.5 billion during the first nine months, recording an increase of 13.6 percent in the loan book from the beginning of the year. 

The deposits grew by Rs.32.4 billion during the three months with the total deposit growth coming in at Rs.93.5 billion for the nine months, which is an 11 percent increase.

ComBank is the largest private sector lender with assets of Rs.1.24 trillion as of September 30, 2018, up 8.6 percent from the beginning of the year. 
The bank reported a 44 percent YoY growth in pre-provision income to Rs.18.3 billion on robust core-banking operations during the quarter under review. 
But the net operating income growth decelerated to 23 percent YoY to Rs.14.9 billion due to the substantial increase in the provisions made for possible bad loans. 
Individual impairments or provisions made on certain large facilities, which had shown signs of sourness, surged to Rs.3.3 billion for the quarter from Rs.97.3 million in the corresponding quarter last year. 

Meanwhile, the gross non-performing loan ratio rose to 2.83 percent, from 1.88 percent at the beginning of the year. 

“The rising NPL ratios are a concern for the entire industry and are compelling banks to increase provisioning for bad debts. 

In the case of Commercial Bank, NPL ratios are still lower than industry averages and timely repricing of liabilities and strong deposit growth have enabled the bank to keep interest expenditure growth to a significantly lower rate than interest income growth,” said ComBank CEO S. Renganathan.

For the nine months ended September 30, 2018, the total provisions rose to a whopping Rs.7.4 billion, from just Rs.1.7 billion reported for the corresponding period in 2017. 

The earnings for the nine months were Rs.13.63 a share or Rs.13.7 billion, compared to Rs.12.41 or Rs.11.8 billion reported for the corresponding period last year. 
The net interest income for the period was Rs.36.2 billion, up 26 YoY. 

The bank remains well capitalised for the forthcoming full implementation of higher capital adequacy ratios under the Basel III accord. 

DFCC Bank PLC has a 13.57 percent stake in ComBank as the single largest shareholder, while the Employees’ Provident has a 9.63 percent stake being the second largest shareholder.

High-net-worth investor Indra Silva also has a 8.08 percent stake in the bank as the third largest shareholder.