• Gross Income grows 54.20% to Rs 84.149 Bn.
• Impairment provisioning up 14% to Rs 6.797 billion
• Appreciation of Rupee impacts loan book, deposits and assets

The Commercial Bank of Ceylon Group’s deposit base has surpassed Rs 2 trillion, a milestone it achieved in the first quarter of 2023 despite the continuing impacts of mercurial exchange rates and market interest rates, and the effects of the economic downturn on multiple sectors of business.

The Group, comprising of Sri Lanka’s biggest private sector bank, its subsidiaries and an associate, has reported noteworthy operational gains for the three months ending 31^st March 2023, with gross income up 54.20% to Rs 84.149 billion, interest income growing by 100.65% to Rs 75.939 billion and fee and commission income improving by 35.37% to Rs 7.301 billion compared with the first quarter of 2022.

Interest income growth of the Group was driven by the sharp rise in market interest rates, which generated an 84.75% improvement in income from loans and a 127.98% increase in income from government securities in the review period. However, the same factor resulted in interest expenses for the three months ballooning by Rs 37.940 billion or 199.43% to Rs 56.964 billion, with interest expenses on deposits of the Group increasing by 258%.

Consequently, the Group’s net interest income of Rs 18.975 billion for the quarter reflected a marginal growth of 0.81%.

A revaluation of the Group’s assets in foreign currency in the context of the appreciation of the Rupee in the review period resulted in total assets of the Group reducing by a marginal 0.29% to Rs 2.492 trillion as at 31^st March 2023. Gross loans and advances of the Group also reduced by 4.73% over the three months to Rs 1.187 trillion, partly due to the appreciation of the Rupee. Total deposits of the Group grew by 2.31% crossing the Rs 2 trillion threshold for the first time to reach Rs 2.023 trillion as at 31^st March 2023, mainly due to an increase in Rupee-denominated deposits, and despite the value of deposits denominated in foreign currency reducing due to the appreciation of the Rupee.

Commenting on these results, Commercial Bank Chairman Prof. Ananda Jayawardane said: “As can be expected, our performance reflects the challenges that stem from volatility in interest and exchange rates and a weakening economy that necessitates higher provisioning for impairment and other losses. While the solid topline growth we have recorded affirms the continuing momentum of our core banking franchise, a prudent and far-sighted approach to managing the diverse factors that impact on performance makes a decline in profit inevitable.”

Commercial Bank Managing Director/CEO Mr Sanath Manatunge added: “Posting operating income of Rs 25 billion for three months can be considered a realistic start to the financial year given the prevailing conditions. We have also maintained our liquidity at levels that are significantly higher than the statutory requirements and our capital adequacy ratios too are at healthy levels. These are important indicators, particularly in the context of the challenges that are still ahead for the banking sector.”

Total operating income of the Group declined by 26.16% to Rs 25.287 billion while the Group made a provision of Rs 6.797 billion for impairment charges and other losses for the three months, an increase of 14.04% over the figure for the first quarter 2022. This resulted in net operating income for the period reducing by 34.63% to Rs 18.490 billion. The operating expenses increased by 22.44% to Rs 10.678 billion, with personnel expenses, depreciation and amortization and other operating expenses rising by 21.69%, 30.06% and 21.61% respectively.

The Group reported an operating profit before taxes on financial services of Rs 7.812 billion for the three months, a decline of 60.07%. Taxes on financial services reduced by 66.03% to Rs 1.072 billion, resulting in profit before income tax for the period declining by 58.91% to Rs 6.741 billion. However, the income tax expense for the period reduced only by 48.56% as a result of an increase in the income tax rate to 30% from 24% for the Group’s Sri Lankan operations. Consequently, the Group’s net profit of Rs 4.359 billion represented a decline of 62.98% over the net profit reported for the first quarter of 2022.

Taken separately, Commercial Bank of Ceylon PLC reported a profit before tax of Rs 6.337 billion for the quarter, a drop of 60.61% while profit after tax for the period was down by 64.57% to Rs 4.091 billion.

Elaborating on some of the noteworthy aspects of the quarter’s performance, the Group said fee and commission expenses at Rs 1.898 billion for the period represented an increase of 45.44%, significantly higher than the 35.37% growth in fee and commission income, resulting in net fee and commission income of Rs 5.402 billion, an increase of 32.16%.

Other income comprising of net gains or losses from trading, net gains or losses from de-recognition of financial assets and net other operating income, reduced to Rs 909.5 million from Rs 11.333 billion for the corresponding quarter of the previous year during which the Rupee recorded the highest ever depreciation on record, contributing to significant exchange gains. The Group posted a net loss of Rs 8.975 billion from trading during the period under review as a result of losses from forwards, spots and swap transactions owing to the appreciation of the Rupee.

Notably, the Group converted a loss of Rs 12.223 billion recorded in net other operating income in the first quarter of 2022 due to substantial exchange losses, to a net other operating income of Rs 9.548 billion for the three months under review, via exchange gains from the revaluation of assets and liabilities.

The Group reported a net loss of Rs 7.521 billion in other comprehensive income primarily due to a loss of Rs 8.778 billion on translation of financial statements of its overseas operations, partly offset by a gain of Rs 1.297 billion for the quarter on investments in financial assets measured at fair value through other comprehensive income. Consequently, total comprehensive income for the three months reviewed was a loss of Rs 3.162 billion, as against a gain of Rs 11.657 billion reported during the corresponding period of last year.

In other key indicators, the Bank’s Tier 1 Capital Ratio and Total Capital Ratio stood at 11.942% and 15.141% respectively as at 31^st March 2023, both above the statutory minimum ratios of 10% and 14% respectively. The Bank’s interest margin reduced to 3.05% for the quarter from 3.74% for the year 2022. The Bank’s return on assets (before taxes) stood at 1.06% and return on equity at 8.21% as at end of the first quarter.

In terms of asset quality, the Bank’s impaired loans (Stage 3) ratio stood at 5.84% compared to 5.25% at end 2022, while its impairment (Stage 3) to Stage 3 loans ratio stood at 39.93% as at 31^st March 2023 from 39.60% at end 2022. In terms of liquidity, the Bank’s statutory liquid asset ratios for its domestic banking unit and offshore banking unit stood at 38.11% and 30.86% respectively, while the consolidated liquid asset ratio for the Sri Lankan operations of the Bank stood at 38.20%, which is well above the minimum requirement of 20%.

Sri Lanka’s first 100% carbon neutral bank, 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 12 years consecutively, Commercial Bank operates a network of 270 branches and 950 automated machines in Sri Lanka. Commercial Bank is the largest lender to Sri Lanka’s SME sector and is a leader in digital innovation in the country’s Banking sector. The Bank’s overseas operations encompass Bangladesh, where the Bank operates 20 branches; 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.