A strong second quarter, during which its loan book crossed the milestone of Rs 1 trillion, another first by a local private bank, has generated noteworthy growth in key indicators for the Commercial Bank of Ceylon Group for the six months ended 30th June 2021.
Comprising of Sri Lanka’s largest private sector bank, its subsidiaries and an associate, the Group reported gross income of Rs 79.931 billion for the period, reflecting a growth of 6.34% over the corresponding six months of 2020 and an improvement of 11.23% in the second quarter of 2021.
The Group converted the first quarter’s negative growth of 2% in interest income to an improvement of 9% in the second quarter, to end the first half of 2021 with interest income of Rs 63.355 billion, which was an increase of 3.2% over the first half of last year. With interest expenses for the six months down 16.65% to Rs 32.197 billion, the Group posted a net interest income of Rs 31.158 billion for the period under review, achieving a growth of 36.86% and 57.06% respectively for the six months and the second quarter.
“An increase in operating income from the growth in lending, an improvement in net fees & commission income and significant gains in some of the components of other income was partly offset by a substantial growth in impairment charges in the six months reviewed, but we are pleased with the overall results because we have built on the momentum of the first quarter and improved many of the core ratios and key performance indicators,” Commercial Bank Chairman Justice K. Sripavan commented.
Commercial Bank Managing Director Mr S. Renganathan elaborated that the Bank’s CASA ratio had improved to 45.37% from 42.72% at the end of 2020 and 40.79% at end June 2020. “We have also sustained steady improvements in capital adequacy ratios, non-performing loan ratios, provision cover and interest margins while grappling with the challenges posed by the global pandemic. We extended our fullest support for the implementation of Government initiatives to minimise the impact of COVID-19 on businesses and the community and to stabilise the economy. This included providing relief to borrowers and participating in the ‘Saubhagya’ loan scheme in addition to implementing the Bank’s own concessionary lending schemes,” he said. “We believe we now have a blueprint for achieving well-balanced growth in adverse conditions that will be of value in the years ahead.”
“We are particularly encouraged to see our loan book surpass Rs 1 trillion, making Commercial Bank the first private sector bank in Sri Lanka to have three key balance sheet indicators that exceed Rs 1 trillion. Our assets crossed this threshold in 2016 while deposits achieved it in 2019,” he added.
Total operating income of the Group for the six months grew by 30.78% to Rs 46.344 billion, while impairment charges and provisions for other losses rose by 47.44% to Rs 13.654 billion consequent to a management decision to make provisions on a prudent basis, for exposures to identified risk-elevated industries.
As a result, net operating income grew by 24.88% to Rs 32.690 billion, but with operating expenses being restricted to Rs 14.079 billion, an increase of 8.42%, the Group posted an operating profit of Rs 18.611 billion before VAT on financial services for the six months, reflecting robust growth of 41.09% over the corresponding six months of the previous year. VAT on financial services increased by 37.82% to Rs 2.857 billion resulting in the Group achieving profit before income tax of Rs 15.754 billion for the first half of 2021, an improvement of 41.71% over the corresponding six months of 2020.
Income tax for the period under review amounted to Rs 3.400 billion, down 7.33% as a result of a reversal of excess in provisions for income tax made in 2020. This was due to the Bank’s provisions for income tax being computed at 28% on the basis that the 24% rate proposed in the last government budget to be effective from 1st January 2020, had not been enacted. The excess provision was reversed during the first quarter of 2021 as advised by the CA Sri Lanka.
Consequently, the Commercial Bank Group posted profit after tax of Rs 12.354 billion for the six months recording a growth of 65.87%, with growth in the second quarter alone amounting to 52.93%. Taken separately, Commercial Bank of Ceylon PLC reported profit before tax of Rs 15.420 billion for the period, a growth of 47.61% and profit after tax of Rs 12.134 billion, an improvement of 74.31%.
Total assets of the Group grew by Rs 172 billion or 9.77% over the six months to Rs 1.935 trillion as at 30th June 2021. Asset growth over the preceding 12 months was Rs 368 billion or 23.49% YoY.
Gross loans and advances increased by Rs 72.164 billion or 7.50% to Rs 1.034 trillion, recording a monthly average growth of Rs 12 billion over the six months. The growth of the loan book over the preceding year was 9.82%.
Total deposits of the Group recorded an impressive growth of Rs 118 billion or 9.20% in the six months reviewed at a monthly average of Rs 19.7 billion to Rs 1.405 trillion as at 30th June 2021. Deposit growth over the preceding 12 months was Rs 250 billion or 21.63% at a monthly average of Rs 20.8 billion.
Elaborating on the highlights of its income performance for the six months, the Bank said net fee and commission income grew by 39.74% to Rs 5.712 billion with the second quarter alone achieving a growth of 63.90%. Other income (comprising of net gains/losses from trading, net gains/losses from de-recognition of financial assets and net other operating income) grew by 10.39% to Rs 9.474 billion, with the comparatively lower percentage attributed to the higher gains of 2020 from the sale of bonds.
In other key indicators, the Bank’s Tier 1 Capital Adequacy Ratio (CAR) stood at 13.519% as at 30th June 2021, and its Total Capital Ratio at 16.880%, both comfortably above the revised minimum requirements of 9% and 13% respectively imposed by the regulator consequent to the COVID-19 pandemic.
The Bank’s gross non-performing loans (NPL) ratio improved to 4.97% from 5.11% at end 2020 and 5.37% a year previously, while its net NPL ratio improved to 1.97% from 2.18% as at 31st December 2020 and 3.19% as at 30th June 2020. As a result, provision cover based on regulatory requirements improved to 60.37% at the end of the reviewed six months, from 57.42% at end 2020 and 40.63% a year previously.
The Bank’s interest margin also improved to 3.36% from 3.17% for the year 2020, and 3.04% for the first half of the previous year. Return on assets (before taxes) and return on equity stood at 1.71% and 15.16% respectively for the six months ended 30th June 2021 compared to 1.51% and 11.28% for 2020 and 1.43% and 10.21% for the first half of 2020.
The Bank improved its cost to income ratio inclusive of VAT on financial services to 36.38% from 39.96% at end 2020 and 42.51% a year previously. The cost to income ratio excluding VAT on financial services improved similarly, from 36.54% a year ago to 33.95% at 31st December 2020 and 30.09% at the end of the six months under review.