ComBank September profit up 14% on loan growth but margins come under pressure

Sri Lanka’s largest private sector commercial bank by assets, Commercial Bank of Ceylon PLC (ComBank) increased its net profit for the quarter ended September 30, 2016 (3Q16) by 13.5 percent to Rs.3.69 billion or Rs.3.71 a share from a year ago, amid relatively strong growth in the loan book though the margins came under pressure, the interim financial accounts showed. 
The ComBank share ended 60 cents or 0.41 percent higher at Rs.148 at yesterday’s 
market close. 

The net interest income (NII) rose by a moderate 7 percent to Rs.8.22 billion as the rise in the interest expenses outweighed the 
corresponding income. 
The bank on a standalone basis expanded its loan book by 13 percent or Rs.67 billion during the nine months – little under Rs.7.5 billion a month – to a total of Rs.593 billion.  
Rupee overdrafts rose by Rs.14.6 billion, leases by Rs.1.4 billion, credit cards by Rs.1.0 billion and housing loans by Rs.4.9 billion during the period. Meanwhile, the deposits rose by 14 percent or Rs.86.4 billion to Rs.624.1 billion but the low-cost deposits base – current and savings account ratio (CASA) – fell to 44.5 percent from 49.7 percent in 
December 2015. 
The bank has an asset base of Rs.953.3 billion, up 8.4 percent during the nine months. 
The net interest margin (NIM) slipped to 3.53 percent, which is about the industry average— from 3.62 percent in December 2015 as the rise in deposit rates outweighed the loan rates. 
The net fee and commission income rose by a healthy 35 percent year-on-year (YoY) to 
Rs.1.8 billion. 
However, the bank made a loss of Rs.238.4 million from its trading book against a gain of Rs.926.3 million a year ago. 
However, the unrealized gains on the bank’s financial assets under the available-for-sale category turned in a profit Rs.1.93 billion from a loss of Rs.3.5 billion during the same quarter 
last year. 

Despite the stronger growth in the loan book, the bank was able to enhance its asset quality as the bank’s gross non-performing loan ratio edged down to 2.49 percent by the end of September from 2.74 percent at the start of the year. 
Further, the provisions made for possible bad loans also declined to Rs.252.8 million from Rs.1.1 billion a year ago.   
Meanwhile, for the nine months ended September 30, 2016, the bank posted a net profit of Rs.10.2 billion or Rs.11.46 a share, an increase of 21.02 percent from the same period last year. 
The NII rose by 8.5 percent YoY to Rs.24.5 billion and the net fee and commission income rose by 25 percent YoY to Rs.4.8 billion.  
ComBank’s capitalization levels remained well above the minimum required levels as both Tier I and Tier II capital adequacy levels stood at 11.4 percent and 14.8 percent, respectively. The regulatory minimums are 5 percent and 10 
percent, respectively.  

As at September 30, 2016, DFCC Bank held a 14. 74 percent stake in ComBank while Y.S.H.I. Silva held a 9.91 percent stake. The state-controlled private sector pension fund, the Employees’ Provident Fund, held 9.69 percent being the third largest shareholder.