Commercia Bank of Ceylon PLC, the country’s largest private lender by assets, performed poorly for the quarter ended June 30, 2022 (2Q22), amid a massive expansion of provisions against possible bad debts and other losses that may arise from the bank’s holding of government securities denominated in foreign currencies.
The banking group reported a loss of 2.21 rupees per share or 2.7 billion rupees for the quarter under review, compared to a profit of 4.61 rupees per share or 5.5 billion rupees for the corresponding quarter of the year. previous year, despite significant gains. made at the operational level.
The banking group reported net interest income of 21.8 billion rupees for the quarter under watch, up 40% year-on-year (YoY), mainly due to the revaluation of assets in an environment of interest rates. high interest.
The bank’s net fee and commission income, driven by its card and digital banking operations, rose 78% year-on-year to Rs 4.7 billion.
For the quarter under review, the bank recorded a commercial gain of 8.5 billion rupees, against 2.6 billion rupees a year ago. The bank, in a note on the results, said that this was mainly due to realized and unrealized gains on foreign exchange forward contracts, spot transactions and swaps.
However, the bank reported another net operating charge of Rs 300 million for the quarter, compared to Rs 1.5 billion a year ago, due to the revaluation of foreign currency assets and liabilities and the foreign exchange impact on loans and advances and government impairment charges. securities denominated in foreign currencies.
These losses for the first half exceeded 12.5 billion rupees, compared to 5.2 billion rupees a year ago.
Meanwhile, for the quarter under review, the banking group provided a whopping 29.2 billion rupees, compared to 6.5 billion rupees a year ago, and for the six months, these provisions amounted to 35 .2 billion rupees, against 13.6 billion rupees per year. one year ago.
Elaborating on the increase in impairment provision, Managing Director and CEO Sanath Manatunge said the bank had provided substantial impairment charges on loans and advances to major customers individually as well as collectively for others. customers and customers in high-risk sectors, as required by the most recent developments in macroeconomic indicators affecting credit risk.
“We also continue to record additional impairment allowances through management overlays on the moratorium loan account,” he said.
“In the second quarter, the bank also booked significant impairment provisions on its foreign-currency-denominated government securities due to the recent downgrade by ratings agencies of Sri Lanka’s sovereign debt and the government’s announcement that he was considering a consensual restructuring of the country’s foreign debt via an IMF-backed economic adjustment program. As a result, the bank increased provisions for depreciation of foreign-currency-denominated government securities during the second quarter “, he added.
As a result, net operating income growth fell by 63.5% year-on-year to 5.7 billion rupees for the quarter under review.
The bank’s operating expenses rose 32.5% year-on-year in the second quarter to reach Rs 9.3 billion, “mainly due to higher personnel and other operating expenses. due to inflation and the sharp depreciation of the Rupee during the first half of 2022, which had a significant impact on expenses paid in foreign currencies such as card-related payments, license fees and annual maintenance,” ComBank said. Meanwhile, the group’s gross loans and advances increased by Rs 205 billion or 18.71% to a monthly average of Rs 34 billion to reach Rs 1.3 trillion as of 30 June 2022, while the growth of the group’s loan book from the previous year was 266 billion rupees or 25.7%.The bank said its bad debt ratio improved to 3.65 % at 30 days June 2022, compared to 3.85 six months ago.
The group’s total deposits recorded growth of Rs 284 billion or 19.30% in the six months to reach Rs 1.7 trillion as of June 30, 2022, registering a monthly average of Rs 47 billion, while the annual growth in deposits was Rs. .352 billion at a monthly average of Rs.29 billion.
“Once again, the main reason for the growth in gross loans and advances and deposits was due to the sharp depreciation of the rupiah against the US dollar during the period under review,” the bank said.
The bank’s tier 1 capital adequacy ratio (CAR) stood at 10.604% as of June 30, 2022 and its total capital ratio stood at 13.528%. The bank said it plans to maintain the minimum profit retention rate at 60% for which the capital conservation buffer (CCB) requirement under Directive No. 04 of the Banking Act 2022 falls. between 1.250% and 1.875%. Accordingly, the minimum total capital ratio to be maintained by the bank is between 12.750% and 13.375%. The bank has put in place a capital increase plan with a view to rebuilding the CCB to 2.5% within three years, as required by the said directive.
The Employees Provident Fund, as the third sole shareholder, holds an 8.62% stake in the bank.