Feb 23, Colombo: Sri Lanka's Commercial Bank of Ceylon PLC has reported an operating profit of Rs 31.6 billion for the year ended 31st December 2018, reflecting a growth of 12.8% before taxes on financial services, in a financial performance Sri Lanka's benchmark private bank describes as a "perfect example of progress under duress."
Profit before income tax improved by 10.4% to Rs 25.6 billion, a lower rate of growth attributable to the introduction of the Debt Repayment Levy (DRL) effective 1st October 2018, the Bank said in a filing with the Colombo Stock Exchange (CSE).
Profit after tax at Rs 17.5 billion represented an increase of 5.8% principally due to the substantially higher income taxes the Bank was required to pay under the new tax regime introduced by the Government in the year under review, which took away most of the tax concessions previously enjoyed by the banking industry.
Commercial Bank paid a total of Rs 14.3 billion in taxes (income tax, taxes on financial services including DRL of Rs 650 million and crop insurance levy) to the Government in respect of 2018, approximately 45% of its profit. The comparative figure for the preceding year was Rs 11.7 billion or 41% of profit.
Commenting on these results, Commercial Bank Chairman Dharma Dheerasinghe said: "The Bank turned in a robust performance in all key sectors while staying on plan and within budget in spite of an environment that was continually in flux."
He pointed out that higher impairment provisioning on account of non-performing advances, volatile and escalating interest rates and depreciating domestic currency had worked against growth in 2018, while decelerating economic activity had exerted a domino effect, adversely impacting business expansion.
The Bank's Managing Director/CEO S. Renganathan noted that "Profit retention remains paramount for banks, given the ever-increasing capital requirements arising from Basel III implementation and higher impairment provisioning due to SLFRS 9 adoption. Yet the regime of taxes imposed on banks has a significant impact thereon."
In the implementation of the migration from LKAS 39 to SLFRS 9, CA Sri Lanka granted companies the option of preparing their interim financial statements up to the 3rd quarter of 2018 in conformity with LKAS 39. However, as the full year results were required to be in conformity with SLFRS 9, the Bank's figures of the 4th quarter reflect the impact of the difference between the full year's numbers under SLFRS 9 and the 9-month numbers under LKAS 39. The comparative information for 2017 is reported under LKAS 39 and hence is not comparable with the information presented for 2018.
The permitted adjustment on account of the "Day 1" impact of the migration to SLFRS 9 was adjusted against the Bank's retained earnings brought forward to 2018, resulting in net assets reducing by Rs 5.3 billion, the Bank disclosed.
Commercial Bank's operating profit before impairment charges improved by a noteworthy 30.6%to Rs 63.7 billion for the year reviewed. Impairment charges, provided for the first time under SLFRS 9, rose to Rs 8.6 billion, from Rs 677 million provided in 2017 under LKAS 39.
Total assets of the Bank grew by Rs 160 billion or 14 % at a monthly average of Rs 13.3 billion to Rs 1.3 Trillion as at 31st December 2018.
Net loans and advances to customers increased by Rs 123.7 billion or 16.8% over the 12 months of 2018 to stand at Rs 861.1 billion at the end of the year reviewed, recording an average increase of more than Rs 10 billion per month. This was the fourth successive time that Commercial Bank increased its loan book by more than Rs 100 billion in a year.
The Bank's deposits portfolio recorded a growth of 15.6% or Rs 132.9 billion to Rs 983.0 billion as at 31st December 2018, reflecting average monthly growth of over Rs 11 billion. This was the third successive year in which the Bank's deposits grew by more than Rs 100 billion.
Commercial Bank's gross income for the year grew by 20.7% to Rs 138.0 billion, with total interest income improving by 14% to Rs 117.5 billion mainly due to the growth in the Bank's loan book. Interest expenses grew by a lower 13.3% to Rs 72.5 billion through timely re-pricing of liabilities amidst a shift from low cost funds to high cost time deposits. Consequently, net interest income increased by 15.2% to Rs 44.9 billion.
Total other income comprising of fees and commission income, exchange profit, net gains or losses on trading and net gains or losses on de-recognition of financial assets, grew by an impressive 92.1% to Rs 18.7 billion, mainly due to a significant increase in exchange profit resulting from a substantial increase in the Treasury's trading volumes and exchange income derived from a 16.4% depreciation of the Rupee against the US Dollar, the sharpest depreciation in the past decade.
The Bank's net fees and commission income of Rs 10.2 billion for 2018 recorded a commendable increase of 18% over 2017 due to increased income from trade-related activities and growth in card services.
However, the Bank recorded a loss from trading of Rs 3 billion as against a gain of Rs 234 million in 2017 mainly due to losses incurred on certain FX Swap transactions that matured during the year. As a result, the Bank's total operating income of Rs 63.687 billion reflected lower but healthy growth of 30.6%.
The increased impairment charges necessitated by SLFRS 9 resulted in net operating income improving by a more modest 14.6% to Rs 55.1 billion. Total operating expenses increased by 17.1% to Rs 23.5 billion mainly due to increased personnel costs following salary increases granted under a Collective Agreement effective from the beginning of 2018 to non-executive staff and salary increments granted to executive staff.
In other key indicators, the Bank's net assets value per share stood at Rs 117.15 at the end of the year, an increase of Rs 9.60 or 8.9% since December 2017. Return on assets (after tax)and return on equity at end of 2018 stood at 1.43% and 15.56% respectively mainly due to the lower rate of growth of profit after tax consequent to the increased impairment charges under SLFRS 9 and increased taxes. The Bank's interest margin for 2018 improved to 3.7% from 3.6% in the previous year.
In terms of Capital Adequacy Ratios, the Bank's Total Tier 1 capital ratio (with capital buffers) at 11.338% as at 31st December 2018 was well above the 8.875% required under Basel III. The Total Capital Ratio of 15.603% at the end of the year was also comfortably above the Basel III requirement of 12.875%.
At Group level, Commercial Bank, its subsidiaries and associates reported profit before income tax of Rs 26.1 billion for the year ended December 31, 2018, an improvement of 12.1%. Profit after tax for the year grew by 7.4% to Rs 17.9 billion.
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. (Press Release)