ComBank reports subdued 2Q earnings amid higher provisions

Commercial Bank of (Ceylon) PLC, Sri Lanka’s largest private bank with over Rs.1.36 trillion in assets, saw its June quarter (2Q19) performance hampered by a spike in provisions made against possible bad loans and contraction in its loan book.

The earnings of the bank were also negatively impacted by Rs.592 million debt repayment levy, which was non-existent during the corresponding period. 

The banking group’s earnings for the quarter under review fell 11 percent year-on-year (YoY) to Rs.3.8 billion while the earnings per share also weakened to Rs.3.36 from Rs.3.83 per share a year ago.

The banking group reported 12 percent YoY increase in interest income to Rs.32.6 billion though its loan book contracted and non-performing loans increased.
The interest expense for the period rose 16 percent YoY to Rs.20.6 billion. 

The net interest income reported for the period was Rs.12 billion, up 5.5 percent YoY.

The bank’s loan book contracted 1.6 percent or by Rs.13.8 billion during six months ended June 30, 2019 (1H19).

The banking group saw its provisions made against possible bad loans surging 62 percent YoY to Rs.3.6 billion.

The bank’s gross non-performing loans ratio rose to 4.86 percent as at June 30, 2019, from 3.24 percent at the beginning of the year, indicating deterioration in the asset quality.
The bank’s deposit base rose 3.85 percent or by Rs.37.9 billion from the beginning of the year.

For the quarter under review, the banking group reported 6 percent YoY decline in net fee and commission income to Rs.2.4 billion.

However, the bank booked Rs. 362.2 million in net gains from trading during the quarter under review against a trading loss of Rs.1.4 billion a year ago.Meanwhile, for 1H19, the banking group reported earnings of Rs.6.40 per share or Rs.6.58 billion against earnings of Rs.7.90 per share or Rs.7.97 billion reported for the same period last year.

The bank’s Total Tier 1 capital ratio (with capital buffers) at 12.467 percent as at June 30, 2019 was comfortably above the minimum requirement of 10 percent while the total capital ratio of 16.578 percent was also above the Basel III minimum requirement of 14 percent. State-run private sector pension fund, the Employees’ Provident Fund has 9.63 percent stake in Commercial Bank as the single largest investor, followed by DFCC Bank with 8.59 percent stake.

High-net-worth investor Indra Silva has 8.07 percent stake in Commercial Bank as the third largest shareholder.