Commercial Bank forecasts 30-35% gain in Q2 profits

• Bank will open Islamic finance branch in June
• Expects 20 percent gain in net profit for FY 2011
• Forecasts profits up 30-35 percent for Q2 2011

By Shihar Aneez and Ranga Sirilal

COLOMBO(Reuters) - Sri Lanka’s biggest private lender Commercial Bank of Ceylon on Monday said it expects its second-quarter profits to rise 30-35 percent year-on-year amid lower taxes and better economic growth in the post-war environment.

The bank’s full-year profits should grow 20 percent year-on-year, Chairman Mahendra Amarasuriya said, boosted additionally by expansion including a new Islamic banking unit.

Commercial Bank, Sri Lanka’s fifth-largest listed firm by market capitalisation, is also mulling a rights issue to boost capital to pay for a 2 billion Sri Lanka rupees ($18.2 million) expansion plan this year.

“This year should be a good year especially with the taxes being reduced considerably in the budget,” Amarasuriya told Reuters in an interview. “Earning potential itself is good and we should grow by about 20 percent this year annually and 30-35 percent this quarter.”

The group net profit of the firm jumped a more-than-expected 86.4 percent of 2.06 billion rupees in the first quarter ended March 31, after recording a 31.4 percent rise of 5.51 billion rupees in 2010. The bank has a forward price-to-earnings ratio of 12.5 percent with a 2011 earnings per share forecast of 19.6 rupees, according to Thomson Reuters StarMine data. The bank has aimed to invest 1 billion rupees on its information technology infrastructure, and another 1 billion to add 32 new branches to the 200 it has now.

“We already have Islamic banking window and by about June, we will set up a separate branch for Islamic banking,” he said.

Amarasuriya said the bank may go for a right issue this year, but declined to comment on the size and timing.

“We have not discussed it in detail, but most probably we have to go into it,” he said.

The bank also expects to grow its Bangladesh operations, which contribute 20 percent to the company’s bottom line, if the government permits further expansion, he said. Shares in Commercial Bank, which have risen nearly 400 percent the end of a 25-year war in Sri Lanka in May 2009, was trading at 262 rupees on Monday. Commercial Bank does not much free float, which has hampered offshore interest in what is routinely rated Sri Lanka’s best-run local bank, traders have said. Amarasuriya, however, said the bank would not opt for a share split to boost liquidity.

“They (government) have about 20 percent,” Amarasuriya said. “I think liquidity maybe a consideration because of big share holdings,” he said. The government has acquired the bank’s shares through the central bank-managed Employees Provident Fund and the state-owned insurance corporation, shareholding data shows.