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Sri Lanka Equity Forum » Stock Market Talk » Sri Lanka's Commercial Bank's deposits surpass landmark Rs 1 Trillion in Q1 2019

Sri Lanka's Commercial Bank's deposits surpass landmark Rs 1 Trillion in Q1 2019

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Equity Analytic
Equity Analytic
[size=43]The Commercial Bank Group comprising of the Commercial Bank of Ceylon PLC, its subsidiaries and associates, has reported gross income of Rs 35.501 billion for the three months ended March 2019, an improvement of 12.86% over the first quarter of 2018. [/size]
[size=43]Operating profit before impairment charges for the period represented an increase of 4.86% over the corresponding period of 2018. However, operating profit before taxes on financial services at Rs 6.804 billion reflected a negative growth of 5.11%, largely driven by an increase in impairment charges owing to rising non-performing loans and early recognition of impairment provisions as required by the expected credit loss method under SLFRS 9. [/size]
[size=43]The higher impairment charges necessitated by the slowdown in key sectors of the economy, lower exchange profits resulting from translation losses on foreign exchange, and substantially higher taxation in the three months reviewed negatively impacted profits despite sound operational results reported by the Group.[/size]
[size=43]The Group posted profit before income tax of Rs 5.019 billion and profit after income tax of Rs 3.191 billion in the first quarter of 2019 in a performance that reflects the impact of these external factors.[/size]
[size=43]Further, an increase in the taxes on financial services primarily due to the introduction of Debt Repayment Levy (DRL) from 1st October 2018, which cost the Bank Rs 576.450 million, contributed to a decline in the pre-tax profit of the Group during the reviewed quarter by 14.86%to Rs. 5.019 billion and by 19.08% to Rs. 4.774 billion at Bank level.[/size]
[size=43]The Group was also required to pay substantially higher income taxes in respect of the three months under the new tax regime introduced by the Government in 2018, which took away most of the tax concessions previously enjoyed by the banking industry. The income tax charge for the three months under review amounted to Rs 1.828 billion, reflecting an effective tax rate of 36.42% as opposed to 29.79% in the first quarter of 2018. Due to these factors, taxes on financial services and income tax accounted for 53.13% of the operating profit of the Group. Consequently, profit after tax for the Group reduced by 22.90% to Rs. 3.191 billion and by 27.23% to Rs. 3.023 billion at Bank level.[/size]
[size=43]Commenting on the Bank's performance, the Commercial Bank Chairman Dharma Dheerasinghe said that he is happy to note that the confidence of valued customers has enabled the Bank to reach the milestone Rs 1 Trillion mark in deposits for the first time as anticipated. "However, the rate of taxation on banks continues to be a matter of concern, particularly in the context of the challenging external conditions affecting the industry. As a systemically important bank and as a responsible stakeholder of the economy, we need to focus on further increasing our capacity to support key sectors of the economy, and while the taxes we pay represent one form of support, there are many others including SMEs that need attention," he said. [/size]
[size=43]The Bank's Managing Director/CEO S. Renganathan explained that the Bank has followed a more cautious approach in expanding its advances portfolio during these challenging economic conditions, which has contributed to a marginal decline in the loan book in comparison to 31st December 2018.He said this has contributed to a drop in net interest income and has also had a cascading effect on the Group's profit after tax. "Despite the decline in advances, I am happy to say that the Bank has continued to support the SME sector, as reflected in the satisfactory growth of this portfolio during the quarter," Mr Renganathan added.[/size]
[size=43]He disclosed that in order to facilitate comparison of the figures of the quarter reviewed with those of the corresponding quarter, the figures of the first quarter of 2018 have been re-stated in line with the requirements of SLFRS 9 which was implemented from the fourth quarter of 2018.[/size]
[size=43]The Group reported an interest income of Rs 31.977 billion for the three months reviewed, an increase of 13.87%, while interest expenses grew by a higher rate of 16.07% to Rs 19.857 billion due to the growth in deposits and the continuing shift to high cost time deposits. As a result, net interest income grew by a lower rate of 10.44% to Rs 12.120 billion.[/size]
[size=43]Net fees and commission income totaled Rs 2.448 billion, reflecting a marginal increase of 0.06%, while gains or losses from trading, and gains or losses from de-recognition of financial assets recorded growths of 204.19% and 248.35%, respectively. However, net other operating income which includes exchange profit and investment income reflected a net loss of Rs 298.811 million due to translation losses on foreign exchange as a result of an appreciation of the Sri Lanka Rupee against the US dollar in the quarter under review as opposed to a translation gain reported in the first quarter of 2018 due to a depreciation of the Sri Lanka Rupee during that period.[/size]
[size=43]The net operating income of the Group recorded a marginal increase of 3.54% to Rs 13.222 billion, while operating expenses increased by 14.64% to Rs 6.418 billion largely due to salary increments of staff and an increase in general expenses on maintaining the Bank's branches.[/size]
[size=43]Total assets of the Group grew by Rs 23.465 billion or 1.78% to Rs 1.343 Trillion as at 31st March 2019, and reflected a YoY growth of Rs 112.655 billion or 9.15%.[/size]
[size=43]Total loans & advances reduced by a marginal Rs 5.112 billion or 0.57% since end 2018 to Rs 892.844 billion at the end of the quarter reviewed. Loan book growth over the preceding 12 months amounted to Rs 88.493 billion reflecting a YoY growth of 11%.[/size]
[size=43]Deposits grew by Rs 31.214 billion or 3.14% since 31st December 2018, to Rs 1.026 Trillion as at 31st March 2019. The growth of deposits over the preceding 12 months was Rs 112.441 billion or 12.31% YoY.[/size]
[size=43]In other key indicators, the Bank's net assets value per share stood at Rs 116.04 at the end of the first quarter of 2019 despite an increase in shareholders' funds, as against Rs 117.15 at the end of 2018, mainly due to an increase in the number of shares during the first quarter of 2019 consequent to the scrip dividend declared as the final dividend for 2018. Return on assets (before tax) and return on equity stood at 1.48% and 10.32% respectively, as opposed to 2.09% and 15.56% for 2018.[/size]
[size=43]The Bank's interest margin for the period under review however improved marginally to 3.68% from 3.67% recorded in 2018.[/size]
[size=43]The Bank's gross NPL ratio increased to 4.14% as at 31st March 2019 from 3.24% at end December 2018, while its net NPL ratio increased from 1.71% to 2.47% for the same period[/size]
[size=43]The Bank's Total Tier 1 capital ratio (with capital buffers) at 11.353% as at 31st March 2019 was comfortably above the minimum requirement of 10% which became effective from 1st January 2019 under Basel III while the Total Capital Ratio of 15.184% was well in excess of the Basel III minimum requirement of 14%.[/size]
[size=43]The only Sri Lankan Bank to be ranked among the world's top 1000 banks for eight years consecutively, Commercial Bank operates a network of 266 branches and 830 ATMs in Sri Lanka. The Bank has won multiple international and local awards in 2016 and 2017 and over 40 international and local awards in 2018.[/size]
[size=43]Commercial Bank's overseas operations encompass Bangladesh, where the Bank operates a further 19 outlets; Myanmar, where it has a Representative Office in Yangon and a Microfinance company in Nay PyiTaw; and the Maldives, where the Bank has a fully-fledged Tier I Bank with a majority stake.[/size]


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