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Commercial Bank grows stronger,maintains leadership in banking industry
Tuesday, 8 March 2005 - 1:27 AM SL Time
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The Commercial Bank of Ceylon has ended 2004, which could be described as `turbulent,` on a high note, with a strong financial performance, which has enabled the bank to maintain its preeminent position as the country`s leading private sector bank..
Releasing its annual report, a sectoral benchmark, the Commercial Bank Group comprising the bank, its subsidiaries and associate companies, announced today that pre-tax profit had crossed a milestone Rs 2.5 billion (Rs 2.594 billion), recording a growth of Rs 555 million or 27.24 per cent after provision for special VAT computed on net profit before tax and staff costs.
Group turnover, up Rs 2.687 billion to Rs 12.437 billion, reflected a similar growth of 27.56 per cent following solid growth in deposits, advances and principal income generators in a performance the bank described as `gritty` in circumstances that it said were adverse.
Deposits rose from Rs 75.1 billion at end 2003 to Rs 98.6 billion, a growth of Rs 23.5 billion or 31.3 per cent, while the growth in advances mirrored the trend with a growth of 34.75 per cent or Rs 24.8 billion to reach Rs 96.2 billion as at December 31, 2004. Total assets grew 25.68 per cent (Rs 29.0 billion) to Rs 141.8 billion in the year under review.
The group`s post-tax profit took a hit from a significant increase in its income tax liability, which recorded an extraordinary increase of 51.67 per cent (Rs 295.5 million) over the previous year, growing from Rs 571.9 million to Rs 867.4 million. Despite this higher provision, the Group said it was pleased with the post-tax profit of Rs 1.727 billion, which represents a growth of 17.71 per cent.
Presenting the Group`s first all Black and White annual report since the advent of colour printing, an acknowledgment of the scars inflicted on the nation by the year-end tsunami, Commercial Bank Chairman Mahendra Amarasuriya said: `According to the published results of peer banks up to September 30, 2004, the Commercial Bank continued to be the most profitable and financially sound local bank in terms of profit levels as well as other key financial indicators such as capital adequacy ratios, return on assets ratio, cost income ratio, net assets per share and earnings per share.`
He announced that the Board of Directors has recommended a final dividend of 40 per cent, in addition to the interim dividend of 20 per cent paid in November 2004.
Commercial Bank Managing Director Amitha Gooneratne said the bank remains upbeat about the future and would while consolidating its position in Bangladesh, persist in its efforts to enter the Indian market. `The Commercial Bank has established its international credibility and we believe that the country should focus on becoming a financial hub for the region and beyond,` he said, also disclosing that the bank planned to focus more on wealth management and tapping the remittances market in the future.
Elaborating on the highlights of the Group`s performance in 2004, Commercial Bank`s Senior Deputy General Manager (Finance & Planning) Ranjith Samaranayake said net interest income, which is the principal source of income of the Bank, recorded a healthy growth of Rs 988 million to Rs 4.738 billion in 2004, which was an increase of 26.33 per cent.
Exchange profit, the second single largest source of income increased to Rs 873.6 million during the period under review recording a significant growth of Rs 476.7 million or 120 per cent. The foreign exchange transaction gains were due mainly to the depreciation of the Rupee against the US Dollar from Rs 96.90 at the end of 2003 to Rs 104.45 at the end of 2004. The exchange profit growth was also facilitated by an increase in exchange turnover from US $ 1.392 billion in 2003 to US $ 1.683 billion in 2004.
Fee based and commission income also recorded an impressive growth of Rs 326 million or 31 per cent to Rs 1.377 Billion.
Mr. Samaranayake said the Group`s exceptional performance had been achieved despite several adverse factors. The post-tax profit recorded by the Group for example, was impacted by the unusual increase of the income tax liability as a result of several adverse changes in taxation applicable on the bank`s off-shore banking unit`s profit and on the contribution to the staff superannuation schemes. With effect from the year under review, contributions to the Pension Fund and Provident Fund in excess of 25 per cent of the salary bill have been disallowed for tax purposes. The additional liability to the group as a result was Rs 67 million.
In addition to this increase in taxation, the Group had to absorb mark to market losses and bond trading losses which were incurred by the Bank`s Primary Dealer company, which resulted in a negative growth of Rs 263 million in the other income of the Group mainly due to these mark to market losses amounting to Rs 76.1 million incurred on Treasury Bill and Treasury Bond portfolios as against the profit of Rs 365.5 million earned from this source in 2003. The losses were due to the drop in bond prices consequent to the increase in market interest rates. Retrospective taxation on the trading profits of primary dealers introduced by the government also cost the reserves of the Group Rs 70 million.
The operating expenses excluding loan losses and provisions of the Group had increased by Rs 930 million to Rs 4.180 billion. This growth of 28.6 per cent was mainly due to increases in the cost of utility services, staff costs and other overhead expenses. In addition, the operating expenses of the Bangladesh operation for the full year have been included in 2004, as against the inclusion of these expenses only for 6 months in 2003.
The special VAT computed on net profit before tax and staff costs also increased from 10 per cent to 15 per cent in the year under review. The Group`s pre-tax profit before special VAT totalled Rs 3.037 billion and reflected a growth of 30.51 per cent. The Special VAT component paid out in 2004 was Rs 442.0 million, as against Rs 288.0 million in 2003.
The total contribution by the group to the Sri Lankan Government coffers by way of different taxes, namely the Income Tax, Special VAT and Debits Tax, amounted to Rs 1,100 million in 2004, as against Rs. 863.1 million in 2003.
Additionally, loan loss provisions had increased to Rs 699.2 million from Rs 623.3 million the previous year. The loan loss provision for the period under review was arrived at after providing for the `hair-cut` rule of the Central Bank.
Mr. Samaranayake said it was particularly significant in the context of these factors, that the Group had been able to achieve results that were well above the total sum of inflation and GDP growth for 2004, indicating a growth in real terms.
He also pointed out that a higher growth in advances even after providing for statutory reserves on deposit growth was facilitated by funds raised from non-deposit sources such as the syndicated loan of US$ 35 million which was raised in the international market and the debenture issue of Rs 1 billion. The success in raising the syndicated loan amply reflected the confidence commanded by Commercial Bank in the international banking arena.
The Commercial Bank of Ceylon, which was established in 1969, has the country`s largest computer-linked network of 125 branches, and operates 187 automated teller machines. In addition to this, Commercial Bank has two fully fledged branches and two booths operating in Bangladesh. The Bank has been rated the `Best Bank` and the `Bank of the Year` in Sri Lanka by two prestigious international publications, the US based `Global Finance` for the last six consecutive years and UK`s `The Banker` magazine for the last four consecutive years respectively.
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