Hefty provisions dent ComBank 3Q earnings

Despite strong top line gains, heavy provision made on possible bad loans negatively impacted the bottom line performance of Sri Lanka’s largest private bank, Commercial Bank Ceylon PLC, during the third quarter (3Q22), the interim financial accounts released to the Colombo Stock Exchange showed.

For the quarter ended September 30, 2022, the banking group reported earnings of Rs.4.92 per share or Rs.6.09 billion compared to earnings of Rs.5.52 per share or Rs.6.5 billion reported for the corresponding period last year.

The banking group’s net interest income for the third quarter increased by 34.97 percent YoY to Rs.22.1 billion. Net fee and commission income rose to Rs.5.03 billion, up 74 percent YoY. The banking group made provisions of Rs.17.05 billion on possible bad loans for the quarter under review, which is an increase of 293 percent from a year ago.

“Notably, a substantial portion of the impairment charges is on account of Government Securities denominated in foreign currency in view of the Sri Lankan Sovereign rating downgrade and the debt restructuring programme currently being negotiated by the government. 

Further, the exchange rate impact on impairment charges on loans and advances and Government Securities denominated in foreign currency was adjusted in Net Other Operating Income where the corresponding exchange gains are recognised. This was done in order to accurately reflect the underlying cost of risk and also to normalise the exchange gains and losses reported,” the bank said in a statement. 

Gross loans and advances of the group increased by Rs.147.5 billion or 13.48 percent to Rs 1.2 trillion as at September 30, 2022, while the growth of the loan book of the group over the preceding year was Rs.175.4billion or 16.44 percent.

Total deposits of the group recorded growth of Rs 380.82 billion or 25.86 percent in the nine months to Rs 1.8 trillion as at 30th September 2022, while the YoY deposit growth was Rs.405.5 billion or 28.01 percent. 

The bank said the primary reason for the growth in gross loans and advances and deposits was the sharp depreciation of the Sri Lankan rupee against the US dollar in the first half of the year.

In terms of asset quality, the bank’s bad loans ratio stood at 4.09 percent as at September 30, 2022 compared to 3.85 percent at end 2021.