COMBank makes prudent start to new fiscal year

Turnover up 6.85 % to Rs 11 billion in 1Q, but provisioning and other precautionary measures pruned after tax profits by 13% to Rs. 892 m

The Commercial Bank of Ceylon Group has posted a turnover of Rs 10,982 million in the three months ended March 31, 2009, a healthy growth of 6.85 per cent.
In results released to the Colombo Stock Exchange yesterday, Commercial Bank of Ceylon PLC, its associates and subsidiaries reported a profit before tax and financial VAT of Rs 2,150 million, and profit before tax of Rs 1,635 million. Group Net profit after tax for the quarter was Rs 892.2 million.
Significant developments in the period reviewed included a suspension of interest on certain loans by the Bank, as a result of the prevailing economic situation. This resulted in net interest income declining from Rs 2,992 million in the first quarter of 2008 to Rs 2,942 million this year, although total interest income grew by more than 3 per cent.
The Bank said interest expenses had grown by 5.6 per cent due to an increase in volume of deposits and some deposits getting re-priced with a shift from low cost funds to high cost funds compared to the corresponding period last year. Financial VAT had increased by a further 2.1 per cent to reach a total of Rs 515.2 million as a result of increased staff emoluments which are added back in computing the Financial VAT. The specific provisions rose by 159 per cent to Rs 460.4 million, but General provisions declined nearly 66 per cent to Rs 66.9 million. Consequently the net provisions increased by 44 per cent to Rs 409.8 million.
On the positive side, noteworthy growth was achieved in foreign exchange profit, from Rs 526.1 million to Rs 983.6 million, an increase of 86.9 per cent as a result of the depreciation of the Rupee and profits from several forward exchange deals done during the period under review.
Commenting on these results, Commercial Bank’s Chief Financial Officer, Nandika Buddhipala said: “As expected, the quarter reviewed was one of mixed results, with strong gains in some areas and declines in others notably a decrease in net interest income and an increase in provisions made in the interest of prudence. We believe the Commercial Bank Group has emerged stronger and better geared to face what could be a tough year for the banking sector.”
He disclosed that Other income had declined by 7.7 per cent and stood at Rs 715 million, and non-interest expenses had grown 21.5 per cent to Rs 2,081 million. Personnel costs had increased by 27.7 per cent following the conclusion of a new Collective Agreement backdated to January 1, 2009.
All of these factors combined to exert pressure on profit growth and were responsible for the declines of 6.3 per cent in profit before tax and financial VAT and 12.9 per cent in profit after tax, Mr. Buddhipala explained, but noted that in absolute terms, Commercial Bank remained the most profitable private local bank in the country.
At Bank level, profit before tax of Rs 1,600 million reflected a drop of 9.25 per cent over the corresponding three months of last year, while profit after tax of Rs 866.2 million was down by 13.4 per cent.
The Group’s Total Assets grew by 2.24 per cent from Rs 281.6 billion as at December 31, 2008 to Rs 287.9 billion as at March 31, 2009.
Total deposits of the Group, which stood at Rs 199.9 billion as at December 31, 2008, rose to Rs 204.3 billion as at March 31, 2009 recording a growth of 2.2 percent. Gross loans and advances reduced by 2.5 per cent from the end of the preceding quarter to Rs 184.9 billion. Gross Non Performing Loans (NPL) which stood at Rs 14.1 billion at December 31, 2008 increased 31.2 per cent to Rs 18.6 billion at the end of the quarter reviewed.
However, Commercial Bank’s Gross and Net NPL ratios at 7.41 per cent and 4.94 per cent as at March 31, 2009, remained below the industry average, Mr Buddhipala said, pointing out that the Group’s Capital Adequacy Ratios were also well above the statutory minimums, with Core Capital Adequacy Ratio at 10.5 per cent and Total Capital Adequacy Ratio at 13.11 per cent at the end of the quarter. Similarly, the Bank’s overall Liquidity Ratio at over 25 per cent was well above the minimum statutory requirement of 20%.
Mr. Buddhipala also disclosed that with effect from January 2009, the Commercial Bank had adopted hedge accounting in line with international best practice.
Fitch Ratings Lanka Limited recently reaffirmed Commercial Bank of Ceylon PLC’s national long-term rating of AA+ (lka).