Strong asset and other income growth combined with an emphasis on prudent provisioning in one of the most challenging years on record, have enabled the Commercial Bank of Ceylon Group (ComBank) to end 2020 on a stable platform for growth, with better liquidity than most peers and adequate provision cover.
The Group, comprising of Sri Lanka’s benchmark private bank, its subsidiaries and an associate, has reported gross income of Rs. 151.966 billion for the year ending 31 December 2020, which although a marginal improvement over the preceding year, included net interest income of Rs. 50.869 billion for the full year and Rs. 14.073 billion for the last quarter alone, representing growths of 5.20% and 17.93% respectively.
ComBank in a statement said this growth was attributed to interest expenses reducing by 9.53% to Rs. 73.219 billion in a period when interest income declined by 4.02% to Rs. 124.088 billion due to the reduction in interest rates and the modification losses incurred on interest concessions granted as pandemic relief to borrowers, that were recognised in the second quarter of the year. The bank also achieved a creditable improvement to its CASA ratio from 37.10% to 42.72%, helping to reduce interest expenses.
One of the noteworthy contributors to performance in the year under review was other income of Rs. 16.039 billion, reflecting a growth of 86.97% from Rs. 8.578 billion for 2019. This was made possible by net gains from trading improving by 38.01% to Rs. 1.878 billion; a net gain of Rs. 6.390 billion on de-recognition of financial assets, which was an increase of 462.66% over the preceding year; and foreign exchange income growing by 27.87% to Rs. 7.396 billion due to a 2.81% depreciation of the Rupee against the Dollar in the period under review, leading to net other operating income improving by 27.77% to Rs. 7.771 billion.
Consequently, total operating income of the Group for the year grew by 13.36% to Rs. 76.729 billion and by an impressive 17.61% to Rs. 20.912 billion for the fourth quarter alone. The impairment charges and provisioning for other losses increased by Rs. 10.088 billion or 89.03% YOY, taking impairment charges for the year to Rs. 21.420 billion in consideration of certain identified risk-elevated sectors.
As a result, net operating income declined by 1.85% to Rs. 55.310 billion, but the Group’s success in reducing operating expenses marginally to Rs. 26.263 billion, enabled it to post operating profit of Rs. 29.047 billion before taxes on financial services for the year, limiting the YOY decline to 3.91%. Notably, operating profit-before-taxes on financial services for the final quarter amounted to Rs. 9.595 billion, reflecting growth of 19.66%.
Meanwhile, net fees and commissions reduced by 8.65% to Rs. 9.822 billion as a result of the impact of the COVID-19 pandemic on import and export income, the waivers and reductions of fees and charges by the bank and a drop in commissions on credit cards.
Commenting on the year’s results, Dharma Dheerasinghe, who served as Chairman of the Bank till his retirement in December 2020 said: “The COVID-19 pandemic exerted a multi-dimensional impact on our performance, which will continue to be reflected in some indicators in the years ahead, but I am confident that we have ended 2020 in good shape to achieve growth, while providing adequate support to our customers and the national economy.”
Commercial Bank Chairman Justice K. Sripavan who commenced his term in December 2020 said the bank had on careful analysis, taken a decision to set aside one of the highest amounts in the industry in terms of provisioning for impairment charges to ensure that it would have a cushion against the continuing effects of the pandemic on several sectors of business.
“Much of the impact of the increase in impairment charges was absorbed in the third quarter, and the figures for the fourth quarter show that we are now well-positioned to face the challenges of 2021 and beyond,” he said.
Commercial Bank Managing Director S. Renganathan elaborated that: “The Bank’s performance is an affirmation that every possible measure has been taken to respond to the challenges as well as the needs of the period under review in a manner that is inclusive of all stakeholder groups.”
He disclosed that steps taken to make forward-looking risk-based provisions as a prudential measure increased the bank’s provision cover from 39.39% at the end of 2019 to 57.42% at the end of the year under review, based on the Central Bank’s provisioning criteria.
“Additional impairment provisions made as a management overlay amounted to Rs. 5.188 billion, while the day one impact of the moratoria granted on loans, interest refunds and rebates provided to borrowers due to the reduction of the interest rate on Equated Monthly Instalment loans to 7%, resulted in an additional impact of Rs. 3.150 billion on profit,” Renganathan revealed.
While the higher impairment charges and pandemic-linked concessions granted to borrowers resulted in a decline in the Group’s operating profit-before-taxes on financial services, taxes on financial services also declined by 37.55% to Rs. 4.531 billion due to the abolition of the Debt Repayment Levy (DRL) and Nation Building Tax (NBT) from January 2020 and December 2019 respectively.
As a result, profit-before-income-tax recorded an improvement of 6.68% over the previous year to Rs. 24.520 billion for 2020. Significantly, profit-before-tax for the fourth quarter alone was up by an impressive 30.25% to Rs. 8.126 billion. The Group’s income tax charge for the year, at Rs. 7.433 billion, reflected an increase of 33.60%, principally because the previous year’s income tax computation was reduced by an exemption granted on the interest income from Sri Lanka Development Bonds (SLDBs).
The higher income tax incurred in 2020 led to profit-after-tax declining by 1.91% to Rs. 17.087 billion. However, net profit for the fourth quarter improved by a marginal 0.16% to Rs. 5.912 billion, despite income taxes for the three months, at Rs 2.214 billion, reflecting an increase of 557%.
Taken separately, the Commercial Bank of Ceylon PLC reported a profit-before-tax of Rs. 23.511 billion for the year, a growth of 5.25% and profit-after-tax of Rs. 16.373 billion, a reduction of 3.83%.
Total assets of the Group grew by Rs. 354 billion or 25.09% to Rs. 1.763 trillion as of 31 December 2020.
Gross loans and advances of the Group grew by Rs. 31.122 billion or 3.34% to Rs. 961.859 billion. This includes loans of approximately Rs. 30 billion granted to COVID-19-affected businesses. As much as 35% of the bank’s SL loan book was under moratorium at the start of the pandemic, but the figure reduced to 16% by the end of the year.
Total deposits of the Group recorded remarkable growth of Rs. 218 billion or 20.36% in the year reviewed at a monthly average of Rs. 18.136 billion to stand at Rs 1.287 trillion as of 31 December 2020.
In other key indicators, the bank’s Tier 1 capital adequacy ratio (CAR) stood at 13.217% as of 31 December 2020, after an infusion of $ 50 million via an equity investment by the International Finance Corporation (IFC) Group. The Bank’s Tier I CAR was well above the revised minimum requirement of 9% imposed by the regulator consequent to the COVID-19 pandemic, while its Total Capital Ratio of 16.819% was also comfortably above the revised requirement of 13%.
The bank’s gross NPL ratio increased to 5.11% from 4.95% at the end of 2019, while its net NPL ratio reduced to 2.18% from 3.00% due to additional provisioning. The bank’s interest margin recorded a decline from 3.51% to 3.17%. Its net assets value per share increased to Rs. 134.67 from Rs. 129.60 at the end of 2019, while return on assets (before taxes) and return on equity stood at 1.51% and 11.28% respectively for the year ended 31 December 2020, compared to 1.66% and 13.54% for 2019.
At the forefront as a contributor to the national economy for many decades, ComBank has been a driving force in economic recovery in the post-pandemic period, leading the private banks in granting working capital loans and providing concessions to affected businesses. The bank has grouped 11 different programs being implemented for affected businesses and individuals under the umbrella of the ‘Arunella’ Financial Support Scheme and extended these relief programs beyond the mandated debt moratorium. These concessions included flexible payment options, up to 20% rebates on accrued interest during the moratorium periods, extension of moratorium periods for up to another six months, further reductions on Credit Card repayments and applicable interest rates, and Debt Consolidation Plans.
The first Sri Lankan Bank to be listed among the Top 1000 Banks of the World and the only Sri Lankan bank to be so listed for ten years consecutively, ComBank operates a network of 268 branches and 887 ATMs in Sri Lanka.
ComBank’s overseas operations encompass Bangladesh, where the Bank operates 19 outlets; Myanmar, where it has a Microfinance company in Nay Pyi Taw; and the Maldives, where the Bank has a fully-fledged Tier I Bank with a majority stake.