COM Bank resilient in 2008

Pre-tax profit up 12.16% to Rs.7.520 billion:

The Commercial Bank of Ceylon PLC, has demonstrated its resilience in the financial year ended December 31, 2008 despite global and local volatilities and an inflation rate that hovered around 20 per cent for most of 2008.

Foreign exchange profits recorded a phenomenal growth of 70.46% to reach Rs 2.633 billion mainly due to higher gains realized from forward foreign exchange deals transacted during the year and also due to depreciation of the Rupee against the US Dollar by 3.96% in 2008 compared to 0.93% in 2007.

Other income recorded a growth of 99.2% over the previous year mainly due to profit made on disposal of shares of Commercial Leasing Company PLC, a former associate of the Bank, and due to higher recovery of loans provided in previous years, the Bank said.

Com bank profits goes up

The Commercial Bank, the largest entity in the group has reported a profit before tax and after financial VAT of Rs.7.520 billion for the year ended December 31, 2008, an increase of Rs.815 million or 12.16 per cent over the pre-tax profit for the previous year. The Bank's profit after tax and financial VAT stood at Rs.4.268 billion compared to Rs 4.104 billion recorded in 2007 reflected a growth of 4.02 per cent.

The pre-tax profit of the Bank has been arrived at after charging Rs 692.162 million in payments made on account of oil hedging transactions and after recognizing Rs 405.531 million in profit on sale of the Bank's stake in its shares of Commercial Leasing Company PLC. Discounting for the effects of these two exceptional items, the normalized pre-tax profit of the Bank would amount to Rs 7.529 billion. On this basis the normalized pre-tax profit for 2008 represents a growth of Rs 825 million or 12.31% over 2007.

"Although the operating environment in Sri Lanka has been tough for many years where rising oil prices, high inflation, the war and low business confidence have made things hard for the industry, that the Bank has managed to perform, and perform creditably in these years is satisfying," said Chairman of the Commercial Bank Mahendra Amarasuriya.

"The Bank is confident it can ride crisis situations by sticking to the fundamentals: strong reserves, optimum liquidity, healthy capital adequacy ratios, product innovation, a lean organisational structure and a motivated management team and workforce. The Bank with its well-structured processes, disciplines and work culture will ride these rough seas and continue to deliver value to all our stakeholders,"said Amarasuriya.

Deposits up by 9.1 percent

Profit growth of the Bank was facilitated by an increase of Rs 1.302 billion or 11.26 per cent in net interest income, which reached Rs 12.852 billion at the end of 2008 due to timely re-pricing of loans and advances.

Commercial Bank Managing Director Amitha Gooneratne said, "2007 was an exceptional year for the Bank. We posted a strong performance in that year despite the unfavourable economic and political climate.

Trying to carry this same performance into 2008 and to push the bar even higher was a tough task."

Elaborating on the key indicators, Gooneratne said total deposits grew by more than Rs 16.8 billion or 9.16 per cent to Rs 199.881 billion by December 31, 2008, despite the dampening effect of rising inflation on deposit mobilisation. Gross loans and advances at Rs 189.893 billion as at December 31, 2008 also reflected a growth of 4.78 per cent or Rs 8.676 billion.

Total operating expenses of the Bank, which include loan losses and provisions and expenses on oil hedging transactions, rose by 28.14 per cent to Rs. 12.259 billion for the year, an increase of Rs. 2.692 billion over the operating expenses of 2007. Consequently the Bank's cost/income ratio increased to 50.461 per cent from 47.87 per cent reported a year ago.

"Higher provisioning for debt, a slower growth in advances and a significant increase in Financial VAT slowed our growth rate, despite a solid performance in some other areas.

Banks in Sri Lanka are subject to a high incidence of tax, much higher than most other countries and contrary to international best practices", Gooneratne said.

The non-performing loans ratio increased from 2.96 per cent to 5.19 per cent, which is still considered to be lower than the industry average. Consequent to this, the Bank increased its loan loss provisions by 21.18 per cent to Rs. 2.278 billion compared to Rs 1.777 billion provided in 2007.

This increase was primarily attributable to the adverse macro-economic conditions which prevailed in the country and additional provisions made consequent to the new guidelines issued by the Central Bank of Sri Lanka on Classification on Non-performing Loans.