ComBank Group navigates devaluation impact in complex Q1 performance

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The Commercial Bank Group has posted a balanced financial performance for the first quarter of 2022, highly influenced by the sharp devaluation of the Rupee impacting key performance indicators both positively and negatively.

The Group, comprising the Commercial Bank of Ceylon PLC, its subsidiaries and an associate, reported gross income of Rs 54.573 billion, total operating income of Rs 34.244 billion and net operating income of Rs 28.284 billion for the three months ended 31 March 2022, recording improvements of 33.41 per cent, 41.74 per cent and 66.33 per cent respectively.

YOY growth in the loan book coupled with the positive impact of the unprecedented deprecation of the Rupee witnessed in March 2022 on  interest income from the foreign currency denominated assets portfolio saw interest income for the three months increasing by 19.41 per cent to Rs 37.847 billion. Interest expenses too increased by 17.30 per cent to Rs 19.024 billion. The Group posted net interest income of Rs 18.823 billion for the quarter, an improvement of 21.62 per cent.

The Group’s other operating income more than doubled to Rs 11.333 billion in the three months reviewed while net fee and commission income improved by 35.21 per cent to Rs 4.088 billion.

Meanwhile, the growth in the net operating income was helped by impairment charges and other losses reducing by 16.71 per cent to Rs 5.961 billion.

The Group recorded a net gain of Rs 23.542 billion from trading via realized and unrealised exchange profits resulting from the sharp depreciation of the Rupee. A net loss of Rs 12.223 billion was posted in other operating.

Consequently, net operating income increased to Rs. 28.284 billion from Rs. 17.005 billion reported for the corresponding quarter of 2021, an improvement of 66.33 per cent.

 With operating expenses of Rs 8.721 billion for the three months reflecting a lower rate of increase of 23.66 per cent in comparison to the 66.33 per cent growth achieved in net operating income, the Group reported operating profit before taxes on financial services of Rs 19.563 billion, recording a higher growth of 96.56 per cent.

VAT on Financial Services for the quarter more than doubled to Rs 3.155 billion. The Group’s profit before income tax for the three months grew by 95.21 per cent to Rs 16.406 billion.

The Group’s income tax expense for the period under review amounted Rs 4.631 billion, a 188.2 per cent increase.

Consequent to the extraordinary increase in income tax for the reviewed quarter, the Group reported profit after tax of Rs 11.775 billion for the three months, an improvement of 73.23 per cent.

Taken separately, Commercial Bank of Ceylon PLC posted a profit before tax of Rs 16.089 billion for the three months, achieving a growth of 96.61 per cent and a profit after tax of Rs 11.548 billion, recording an improvement of 73.44 per cent.

Total assets of the Group and the Bank crossed the milestone of Rs 2 trillion during the quarter. The total assets of the Group stood at Rs 2.287 trillion as at 31 March 2022, an increase of Rs 304 billion or 15.28 per cent since December 2021.

Gross loans and advances of the Group increased by Rs 133 billion or 12.16 per cent to Rs 1.228 trillion, while the growth of the loan book of the Group over the preceding year was 24.47 per cent.

Total deposits of the Group recorded a growth of Rs 233 billion or 15.88 per cent in the quarter reviewed and stood at Rs 1.706 trillion as at 31st March 2022, while the YOY deposit growth was 26.73 per cent.

In other key indicators, the Bank’s basic and diluted earnings per share improved by 66.85 per cent from Rs 5.58 to Rs 9.31. Total equity attributed to shareholders of the Bank increased by Rs 4.122 billion or 2.5 per cent to Rs 169.016 billion.

The Bank’s Tier 1 Capital Adequacy Ratio (CAR) stood at 9.835 per cent as at 31 March 2022, and its Total Capital Ratio at 13.087 per cent.

In terms of liquidity, the Bank’s statutory liquid asset ratios for its domestic banking unit and offshore banking unit stood at 39.68 per cent and 31.90 per cent respectively. In terms of asset quality, the Bank’s impaired loans (Stage 3) ratio stood at 3.58 per cent while its Stage 3 impairment to Stage 3 loans ratio stood at 43.51 per cent as at 31 March 2022, compared to the ratios of 3.85 per cent and 42.76 per cent reported as at end 2021.

In key profitability indicators, the Bank’s net interest margin, return on assets (before taxes) and return on equity improved to 3.55 per cent, 3.12 per cent and 28.05 per cent respectively for the three months ended 31 March 2022 compared to 3.51 per cent, 1.74 per cent and 14.66 per cent respectively for 2021. In the meantime, the Bank’s Cost to Income Ratio (CIR) before VAT on Financial Services improved to 25.33 per cent for the quarter under review. The cost to income ratio inclusive of VAT on Financial Services improved to 34.67 per cent.

The Bank’s CASA ratio, an industry benchmark, stood at 48.10 per cent at the end of the three months reviewed, as against 47.83 per cent and 42.72 per cent respectively as at end of 2021 and 2020.