Sri Lanka’s Commercial Bank PLC shows stability amidst global Covid 19 challenges
Sri Lanka’s Commercial Bank of Ceylon Group (ComBank) has reportedly managed to mitigate to some extent, the severity of the impacts of the COVID-19 pandemic on profits in a period of reduced interest income and substantially higher impairment provisioning, compared to the corresponding quarter of the last year through gains from government securities, foreign exchange (FX) swap trading and FX trading activities.
The Group, comprising of Sri Lanka’s benchmark private bank, its subsidiaries and an associate, has reported total operating income of Rs. 55.818 billion for the nine months ending 30 September, achieving a growth of 11.84%, mainly by more than doubling other income for the period from Rs. 5.804 billion to Rs. 12.262 billion, even though net interest income, the largest component, only improved by a marginal 1.02% to Rs. 36.796 billion, the Daily FT reported.
According to the news report, financial statements filed with the Colombo Stock Exchange (CSE) show that the capital gains on Treasury investments generated a net gain of Rs. 4.658 billion on de-recognition of financial assets, more than a 10-fold increase over the Rs. 444.754 million for the corresponding nine months of last year; that mark to market gains on Treasury Bills and Bonds enabled a conversion of a net loss of Rs. 294.249 million on trading to a net gain of Rs. 749.059 million for the nine months and that exchange profit grew by 25.2% to Rs. 6.586 billion from FX swap trading and other FX trading activities, as well as translation gains on the Bank’s US Dollar reserves, due to an approximately 2% depreciation of the Rupee against the Dollar in the period under review.
With interest rates coming down, the Group was able to reduce interest expenses by 7.70% to Rs. 56.240 billion in a period when interest income declined by 4.44% to Rs. 93.035 billion, mainly due to modification losses on interest concessions granted as pandemic relief to borrowers, the bank has reported.
Consequently, the achievement of a 1.02% improvement in net interest income at the end of nine months is noteworthy, considering that net interest income had declined by 5.71% at the end of the first half of the year and the turnaround was made possible by a 14.26% increase in net interest income in the third quarter alone.
“Banks, like all other businesses, have to roll with the punches dealt by the global pandemic and our nine months reflect just that. While the core banking dynamic of lending versus deposits is directly impacted, astute management of investments, trading, services and other revenue generating activities ensures that although profits are affected, the bank remains financially strong and stable and able to navigate the external adversities,” ComBank Chairman Dharma Dheerasinghe has been quoted as saying.
ComBank Managing Director S. Renganathan has disclosed that the Group’s efforts to manage costs had resulted in total operating expenses for the nine months growing by just 2.52% to Rs. 19.633 billion. Net operating income had declined by 5.50% to Rs. 39.085 billion, largely due to provisions for impairment and other losses being increased by 95.83% YOY to Rs. 16.733 billion for the nine months reviewed, he said.
“We have made additional provisions for tourism sector exposures which were identified as more vulnerable to the effects of the COVID-19 pandemic,” Renganathan has said, adding that “we believe however, that ComBank is better positioned than most to take the challenges of the times in its stride due to its diversified assets structure.”
OSL take:
Sri Lanka’s banking sector has shown stability despite the internal and external challenges posed by the global Covid 19 pandemic. The country’s banking sector has managed to ensure that Sri Lanka’s economy emerges strong after facing the pandemic. Foreign businesses/investors could confidently look at doing business with Sri Lanka given the support of a strong banking system. Also, Sri Lanka’s geographical positioning in the Indian Ocean and the many trade agreements as well as trade concessions enjoyed by the country have made it a business hub in the South Asian region.
| Article Code : | VBS/AT/19112020/Z_4 |