Sri Lanka’s Commercial Bank profits inch up in Dec on lower income tax charge

ECONOMYNEXT- Commercial Bank of Ceylon Plc, Sri Lanka’s largest listed lender in assets, said profits for the December quarter grew 1.11 percent to 5.87 billion rupees from a year earlier on the back of lower income tax charges, largely due to a tax reversal on Sri Lanka Development Bonds (SLDBs).

The group in its interim financials reported 5.71 rupees in earnings per share. For the 12 months ended December, Commercial Bank earned 16.80 rupees a share on profits of 17.26 billion rupees, down 2.66 percent.

The firm’s share opened at 90 rupees on the Colombo Stock Exchange on Monday.

The Commercial Bank group posted 38.38 billion rupees in gross income for the December quarter, down 0.29 percent from a year earlier.

Interest income grew 2.24 percent to 31.93 billion rupees while interest expenses increased at a faster 2.78 percent to 20 billion rupees, leading to net interest income rising at a slower 1.35 percent to 11.93 billion rupees.

The group loan book grew 3.03 percent to 893.92 billion rupees at end-December from a year earlier.

Bad loans grew to 4.95 percent from 3.24 percent at the bank-level, but Commercial Bank said the rate fell from a peak 5.09 percent in September.

Group provisioning for bad loans in December grew 56.22 percent to 2.78 billion rupees from a year earlier. Commercial Bank said provisioning grew due to adverse economic conditions in 2019.

Net fee and commission income grew 0.82 percent to 3.07 billion rupees.

The group earned 1.66 billion rupees in gains from trading, up from a 1.74 billion rupee loss a year earlier, while net gains from derecognition of financial assets grew to 690.96 million rupees from 47 million rupees.

Commercial Bank said gains were made on trading in 2019 compared to 2018 as some loss-making foreign exchange swap transactions matured a year earlier.

Net other operating income fell 92.08 percent to 428.69 million rupees. Commercial Bank said earnings from foreign exchange transactions fell due to the rupee appreciating against the dollar in 2019.

The Commercial Bank operating profits before financial and income tax fell 23.10 percent to 8.02 billion rupees.

Income tax for the quarter fell 85.8 percent to 336.8 million rupees, partially helped by the tax reversal on interest income from Sri Lanka Development Bonds (SLDBs) with effect from April 1.

The dollar denominated SLDBs were made tax-free February, resulting in a one-off gain for income taxed for the past seven quarters, and lower taxes on earnings from the securities going forward.

The group net assets grew 12.59 percent to 134.42 billion rupees.

The Tier 1 capital ratio grew to 12.399 percent at end-2019 from 11.43 percent a year earlier against a minimum requirement of 10 percent.

Total capital ratio grew to 16.182 percent from 15.623 percent against a required 14 percent.

The bank’s return on assets fell to 1.66 percent from 2.09 percent, while return on equity fell to 13.54 percent from 15.56 percent. (Colombo/Feb24/2020)