ComBank 1Q net up 29% over strong core banking and stable margins

Sri Lanka’s largest commercial bank by assets, Commercial Bank of Ceylon PLC (ComBank) increased its group net profit 28.7 percent to Rs.3.26 billion during the quarter ended March 31, 2016 from a year ago, the interim results showed. 

This translated into an earnings per share of Rs.3.72 from Rs.2.90.  
The performance is a reflection of strong core banking performance supported by stable margins, net fee and other incomes and reversals of provisions made for possible bad loans in earlier periods amid improved credit quality. But the growth in the loan book was seen slowing down. 

The ComBank share ended Rs.2.90 or 2.18 percent down at Rs.130 at yesterday’s close. 
Despite making stronger gains on its trading portfolio under the income statement, the bank made a hefty mark-to-market loss of Rs.6.25 billion on its investments in government securities, up from a Rs.4.71 billion loss a year ago under the comprehensive section of the income statement, as such investments have been recognized under the available-for-sale investments. 

Meanwhile, the net gains from trading, recognized in the income statement was Rs.1 billion, recovering from a loss of Rs.647.7 million a year ago. But the other incomes narrowed sharply to Rs.360.2 million from Rs.1.83 billion during the same quarter last year due to adverse impact from foreign exchange dealings. 

The net interest income rose 12.1 percent year-on-year (YoY) to Rs.8.17 billion amid slowing demand for credit but the bank maintained its net interest margin at 3.62 percent despite the rising interest rates were seen compressing the margins in the country’s banking sector. 

The bank in a standalone basis expanded its gross loans and advances by 5.6 percent or Rs.29.3 billion during the quarter to Rs.555.5 billion with rupee overdrafts increasing by Rs.7.1 billion. Rupee housing loans grew by Rs.2.3 billion and the term loans grew the most, by Rs.23.9 billion.
However, the rupee trade finance portfolio fell as much as Rs.8.3 billion, probably a reflection of the slowdown in trade. Meanwhile, rupee leases grew by Rs.900 million. 

The largest private lender has a total asset base of Rs.924.6 billion, up 5.09 percent from December 2015.
The deposits grew 4.6 percent or Rs.28.9 billion to Rs.653 billion. The bank’s low-cost deposit base – current and savings account (CASA) ratio— stood at 47 percent, down from 49.6 percent in December 2015. 

Meanwhile, the provisions made for possible bad loans came down by Rs.334 million to Rs.1 billion mainly due to, “a reversal of Rs.142.763 million in provisions for individual impairment, compared to a provision of Rs.210.453 million in the first quarter of last year. 
This was mainly as a result of the reduction in the number of loans subjected to individual impairment in the three months reviewed,” the bank said in a statement. 

The asset quality slightly improved as the gross non-performing loan ratio edged down to 2.64 percent from 2.74 percent in December 2015. 
The capital adequacy remained strong as both Tier I and Tier II capital adequacy ratios stood at 11.12 percent and 14.77 percent, respectively, well above the regulatory minimums of 5 percent and 10 percent. 

As of March 31, 2016, DFCC Bank held a 14.74 percent stake in ComBank being the single largest shareholder while the state-controlled private sector pension fund, the Employees’ Provident Fund had a 9.70 percent stake being the third largest shareholder of the bank, unchanged from December 2015.