Sri Lanka’s ComBank Group navigates devaluation impact in the first quarter of 2022
The Morning: The Commercial Bank (ComBank) Group has posted a balanced financial performance for the first quarter (Q1) of 2022, highly influenced by the sharp devaluation of the rupee impacting key performance indicators both positively and negatively.
The Group, comprising Commercial Bank of Ceylon PLC, its subsidiaries, and an associate, reported a gross income of Rs. 54.573 billion, a total operating income of Rs. 34.244 billion, and a net operating income of Rs. 28.284 billion for the three months ended 31 March 2022, recording improvements of 33.41%, 41.74%, and 66.33% respectively.
Year-on-year (YOY) growth in the loan book coupled with the positive impact of the unprecedented deprecation of the rupee, witnessed in March 2022 on the interest income from the foreign currency denominated assets portfolio, saw interest income for the three months increasing by 19.41% to Rs. 37.847 billion. Interest expenses too increased by 17.30% to Rs. 19.024 billion due to the YOY growth in the deposit portfolio as well as a substantial increase in interest expenses booked on deposits and borrowings denominated in foreign currency owing to the sharp depreciation of the rupee. As a result, the Group posted a net interest income of Rs. 18.823 billion for the quarter, an improvement of 21.62%.
Commenting on the quarter reviewed, ComBank Chairman Prof. Ananda Jayawardane said: “These are extraordinary times for business in Sri Lanka and for banks in particular. It takes a great deal of exceptional financial acumen and maturity to navigate the mercurial challenges that prevail. Our results for the first quarter reflect the depth of the managerial skills at the disposal of the bank.”
The bank’s newly-appointed Managing Director/Chief Executive Officer (CEO) Sanath Manatunge said: “The unprecedented depreciation of the rupee impacts income and profits as well as key balance sheet indicators. This can have a distortionary effect on performance. We have nevertheless posted solid results and are constantly taking swift actions and necessary measures to minimise the negative impacts of the rapid changes taking place in external factors.”
According to interim financial statements filed with the Colombo Stock Exchange (CSE), the Group’s other operating income more than doubled to Rs. 11.333 billion in the three months reviewed while the net fee and commission income improved by 35.21% to Rs. 4.088 billion, and combined with the net interest income, contributed to the growth in the total operating income of the Group.
Meanwhile, the growth in the net operating income was helped by impairment charges and other losses reducing by 16.71% to Rs. 5.961 billion. The exchange impact on impairment charges on loans and advances and government securities denominated in foreign currency was recognised in net other operating income, where the corresponding exchange gains are recognised.
The Group recorded a net gain of Rs. 23.542 billion from trading via realised and unrealised exchange profits resulting from the sharp depreciation of the rupee, offsetting the impact of reduced capital gains from government securities in comparison with the corresponding quarter of 2021, which led to net gains from derecognition of financial assets reducing to Rs. 15.143 million during the three months under review from Rs. 1.776 billion reported for the corresponding period last year. However, a net loss of Rs. 12.223 billion was posted in other operating income due to the exchange losses on the revaluation of foreign currency assets and liabilities and the exchange impact on impairment charges on loans and advances and government securities denominated in foreign currency.
Consequently, the 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%.
With operating expenses of Rs. 8.721 billion for the three months reflecting a lower rate of increase of 23.66% in comparison to the 66.33% 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%.
OSL take:
The growth recorded by ComBank is indicative of the strength, resilience and growth potential of Sri Lanka’s banking sector. Sri Lanka, with its development programme is working towards positioning the country as a growing business destination in the South Asian region. Sri Lanka’s geographical positioning in the Indian Ocean and the many trade agreements as well as trade concessions enjoyed by the country have also helped boost the country’s business potential. With the expanding opportunities and a strong banking system in place, foreign businesses/investors could explore opportunities in Sri Lanka or even look at forming partnerships or joint ventures with local businesses.
| Article Code : | VBS/AT/25052022/Z_8 |