COMBank nets record Rs. 4 b 1H profit

A continuing emphasis on leveraging its strong fundamentals for growth in a relatively conducive business environment has generated impressive first half financial results for the country’s benchmark private sector bank, the Commercial Bank of Ceylon PLC.

Raising the performance bar further, Sri Lanka’s most internationally-acclaimed financial institution reported profit before tax and financial VAT of Rs. 6.528 billion for the half year ending 30 June 2011 – a growth of 24% over the first half of 2010.

Profit after tax grew by a remarkable 74.3% to cross Rs. 4 billion for the first time in a six-month period, as both the loan book and business volumes witnessed strong growth and the bank benefitted from a reduction in the effective tax rate.

The bank’s profit before tax (after financial VAT) was up 42.8% to Rs. 5.75 billion over the first half of the previous year, with the financial VAT component shrinking by Rs. 458.7 million to Rs. 778.7 million consequent to the reduction of the rate from 20% in 2010 to 12% this year.

The Total Loans and Advances portfolio of the bank increased by Rs. 15.8 billion in the half year reviewed, from Rs. 228.3 billion as at 31 December 2010 to Rs. 244.1 billion at the end of the first half of 2011. The increase over the 12-month period from end June 2010 to end June 2011 was Rs. 57.5 billion, reflecting an impressive growth of 30.8% YoY.

Total Deposits grew by Rs. 28.1 billion or 10.8% over the six months to Rs. 287.8 billion as at 30 June 2011. This figure represents a commendable growth of Rs. 45.5 billion or 18.7% YoY since 30 June 2010.

Commercial Bank Managing Director Amitha Gooneratne described this performance as an appropriate representation of the bank’s pre-eminent position as the largest private bank in the country and a financial sector benchmark.

“The healthy growth of the loan book and deposit base reflects the resurgence of the business sector and the continued trust Commercial Bank enjoys as one of the most stable financial institutions in the region,” he said.

The reduction in the corporate tax rate from 35% in 2010 to 28% in 2011 had also helped the bank to reduce its effective tax rate to 29.83% after consolidating the profits of its operations in Bangladesh, where profits are taxed at 42.5%, Gooneratne added.

Gross Income grew 8.7% to Rs. 21.5 billion, while total assets increased by 7.4% from Rs. 370 billion at 31 December 2010 to Rs. 397.5 billion as at 30 June 2011. The growth of total assets over the one year period ended 30 June 2011 was Rs. 59.6 billion or 17.6%.

Elaborating on some of the highlights of the bank’s half yearly results, Chief Financial Officer Nandika Buddhipala said interest income improved 7.2% to Rs. 17.994 billion, with interest income from loans and advances increasing by Rs. 2.185 billion or 19.7% due to the faster growth of the loan book over the corresponding period of the last year.

Interest income from other interest earning assets which mainly consist of Treasury Bills and Bonds recorded a drop of Rs. 978 million or 17% primarily due to the reduction in interest rates, Buddhipala said.

Non-interest income including commissions and exchange income grew by a healthy 14.4% to Rs. 373.3 million.

Interest expenses came down by Rs. 216.6 million due to timely action to re-price deposits. Non-interest expenses including personnel costs and other costs connected to branch network operations increased by 19.4%.

Net provisions for bad and doubtful debts and loans written off recorded a drop of Rs. 300.6 million from a net provision of Rs. 75.3 million in the corresponding six months of 2010, mainly due to the reduction of the rate on general provisions on performing and overdue loans by the Central Bank. The bank was also able to record increased recoveries on non performing loans by Rs. 143.2 million during the period under review.

Buddhipala also pointed out that the bank’s success in reducing total non-performing loans by Rs. 3.664 billion or 19.2% over the one year period to 30 June 2011 had resulted in Gross and Net NPL ratios improving significantly to 4.09% and 2.75% respectively at the end of the review period from 6.96% and 5.05%, a year ago.

In other performance indicators, Commercial Bank reduced its cost-income ratio from 56.36% in the first half of last year to 51.50% this year, despite noteworthy branch expansion, and improved its interest margin from 4.53% to 4.64%.

These measures helped the bank to improve returns to shareholders, mainly basic EPS by Rs. 4.50 per share or 73.77% and net assets value per share by Rs. 7.02 or 7.96%. Both Commercial Bank’s voting and non-voting ordinary shares traded much above their book values at the end of June 2011.

The Capital Adequacy Ratios of the bank, both Tier I and Tier I & II, stood at 11.63% and 12.82% as at 30 June 2011 respectively. These were well above the minimum stipulated ratios of 5% and 10% respectively. These ratios are expected to improve further with the receipt of proceeds of the rights issue already in progress and provide an adequate cushion for the expansion drive of the bank, Buddhipala said.

The results announced are based on the audited financial statements of the bank for the six months ended 30 June 2011.

Taken as a group, the Commercial Bank, its subsidiaries and associates posted pre-tax profit of Rs 5.774 billion at the end of 1H 2011, recording a growth of 42.98%. Profit after tax for the period was up 74.68% to Rs. 4.042 billion.

Established in 1969, Commercial Bank is the largest private bank in Sri Lanka, and operates a network of 200 computer-linked branches and service points and the country’s single largest ATM network of 430 terminals.

The bank has been adjudged ‘Best Bank in Sri Lanka’ for 13 consecutive years by ‘Global Finance’ Magazine, three consecutive years by FinanceAsia and on two occasions by Euromoney. The bank has also been awarded the ‘Bank of the Year’ seven times by ‘The Banker’ magazine and ‘Best Local Trade Bank’ in Sri Lanka by the UK-based ‘Trade Finance’ magazine. The bank’s operations in Bangladesh comprise of 17 service points.