High impairment provisions neutralise solid 6-month operational growth of ComBank Group

The Commercial Bank Group has reported a six-month financial performance that mirrors the impacts of the country’s macro-economic variables, with solid operational gains negated by extraordinary provisioning in the second quarter for impairment charges and other losses.

Comprising of the Commercial Bank of Ceylon PLC, its subsidiaries and an associate, the Group posted a gross income of Rs 119.517 billion for the six months ended 30th June 2022 and Rs 64.944 billion for the second quarter, achieving a healthy topline growth of 49.52% and 66.41% respectively.

Interest income grew by 39.08% to Rs 88.117 billion for the six months, and by 58.78% to Rs 50.270 billion for the second quarterprimarily due torepricing of assets. With rising interest rates and the consequent repricingof deposits, interest expenses increased by 47.23% to Rs 47.404 billion for the six months, and by 77.61% to Rs 28.380 billion for the second quarter. As a result, net interest income for the six months improved by 30.66% to Rs 40.713 billion, while net interest income for the second quarterreported a higher growth of 39.59% to Rs 21.890 billion.

Commenting on the period reviewed, Commercial Bank Chairman Prof. AnandaJayawardane said: “Our six-month results are a case study on how macro-economic challenges can neutralise solid operational performance. We have achieved encouraging operational performance across the board, but have been compelled, as any prudent institution woulddo, to make adjustments that respond to the deteriorating economic environment, ensuring that the Bank meets its obligations to all stakeholders and retains its inherent financial strength and stability.”

The Bank’s Managing Director and CEO Mr Sanath Manatunge added: “The mercurial policy environment we operate in, requires agile responses as well as forward-looking decisions, however tough they may be. Our second quarter results are particularly influenced by additional impairment charges that impacted on profit growth, but represent a realistic management of credit risk. Banks will be required to perform a balancing act of this nature in the short and medium term until external conditions improve.”

According to the Interim Financial Statements filed with the Colombo Stock Exchange (CSE), the Commercial Bank Groupachieved a solid growth in fee and commission income, which was up 65.56% to Rs 11.759 billion for the six monthsmainly due to a noteworthy improvement in fee and commission income of 79.21% to Rs 6.366 billion for the second quarter; which helped net fee and commission income for the first half of 2022 to improve by 55.41% to Rs 8.878 billion compared to Rs. 5.712 billion reported for the corresponding period of 2021.

Further, other income, which comprises of net gains from trading, net gains from derecognition of financial assets and net other operating income,grew by 107.32% to Rs 19.642 billion for the six months and by 117.88% to Rs 8.309 billion for second quarter of 2022.Net gains from trading for the six months amounted to Rs 32.102 billion compared to Rs 1.425 billion recorded for the corresponding period of the previous year. This wasprimarily from realized and unrealized gains from forward exchange contracts, spot and swap transactions. However, 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 resulted in a net other operating expense of Rs 12.524 billion for the first half of 2022, compared tothe net other operating income of Rs 5.213 billion reported for the corresponding period of last year.

Total operating income for the six months under review amounted to Rs 69.232 billion, an improvement of 49.39%. The figure for the second quarter was Rs 34.988 billion, reflecting an even stronger growth of 57.72%.

The Group reported impairment charges and other losses totaling to Rs 35.219 billion for the six months and Rs 29.258 billion for the second quarter alone, reflecting increases of 157.93% and 350.24% respectively.The exchange impact on impairment charges on loans and advances and Government Securities denominated in foreign currency was adjusted in Net Other Operating Income where the corresponding exchange gains are recognised.

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