ComBank March quarter profit up over higher loans, lower provisions

Commercial Bank of Ceylon PLC (ComBank) reported earnings of Rs.3.8 billion or Rs.4.28 a share for the January-March quarter (1Q17), an increase of 17 percent from a year ago, as the higher growth in loans helped to offset the pressing margins as the bank felt the rising cost of funds.   
According to the interim results released to the Colombo Stock Exchange, the bank grew its net interest income by just under 8.0 percent from a year ago to Rs.8.8 billion due to a steep rise in interest cost. 
The net interest margin edged down to 3.41 percent from 3.47 percent in December 2016. 
The higher taxes, specially the value-added tax (VAT) on financial services, which came into effect from December last year, also had an adverse impact on the financial performance of all banks. 
In ComBank’s case, the VAT and Nation Building Tax on financial services rose by a significant 41 percent from year ago to Rs.1.12 billion as the full impact on the higher VAT was felt for the first time during the March quarter.  
“We have learned to live with the reality of reduced margins and higher taxes, through our strong focus on operational excellence, which continues to boost business volumes,” ComBank Chairman Dharma Dheerasinghe said in an earnings release. 
ComBank, Sri Lanka’s biggest private lender by assets, grew its loans and receivables by Rs.26.5 billion or 4.1 percent during the three months to Rs.664.4 billion. 
“The bank’s momentum in mobilizing funds and lending has not slowed, even though the dynamics that apply to these areas are changing,” 
Dheerasinghe added. 
So far the highest growth in loans was recorded by Sampath Bank PLC, which was Rs.30 billion during the first quarter. 
Meanwhile, the deposits grew by even stronger Rs.41.5 billion or 5.6 percent during the quarter to Rs.784.8 billion. 

Out of the total deposits, the current and savings accounts (CASA) ratio was maintained just under 42 percent, largely unchanged from December 2016. 
In March, ComBank announced a rights issue to raise up to Rs.10 billion in fresh equity to fund growth while strengthening the capital base. 
The performance was also buttressed by the lower provisions made against the possible bad loans as the total provisions were down from about a billion rupees to Rs.252 million during the quarter. 
The performance was also helped by the higher net fee and commission income, which rose by 41 percent to Rs.2.1 billion from a year ago. 
During the quarter, the bank made an unrealized gain of Rs.301 million against a Rs. 6.2 billion unrealized loss booked a year ago. 
DFCC Bank PLC held a 14.69 percent stake in ComBank as the single largest shareholder while the state-controlled private sector pension fund, the Employees’ Provident Fund, held a 9.67 percent stake being the third largest shareholder of the bank.