The Commercial Bank Group led by Sri Lanka’s benchmark private sector bank has generated strong growth in fund-based operations in the first quarter of 2021, with the continuing trend of interest expenses reducing at a significantly higher rate than interest income combined with judicious management of core banking operations.
Comprising of Commercial Bank of Ceylon PLC, its subsidiaries and the associate, the Group reported a Gross income of Rs 40.905 billion for the three months ended 31st March 2021, with net interest income growing by a substantial 21.08% to Rs 15.477 billion consequent to interest expenses reducing by 17.14% to Rs 16.218 billion in contrast to a marginal decline of 2.04% in interest income to Rs 31.695 billion due to the reduction in interest rates.
Notably, the growth in net interest income was achieved despite a substantial increase in deposits and excess liquidity being invested in low-yielding treasury assets in view of the conditions that prevailed in the market during the three months reviewed, the Bank said.
The Bank further improved its CASA ratio to 45.26% — possibly the best in the industry — from 42.72% at end 2020, contributing to a supplementary reduction in interest expenses. CASA deposits grew by 36.04% YoY, accounting for over 70% of the YoY growth in total deposits, and timely re-pricing of liabilities further reduced the cost of funds.
Among other components of gross income, other income (comprising of net gains/losses from trading, net gains/losses from de-recognition of financial assets and net other operating income) grew by 22.58% to Rs 5.661 billion while net fees and commission income improved by 23.55% to Rs 3.023 billion, the Bank said in a filing with the Colombo Stock Exchange (CSE). Interest income continued to be the dominant source of income, accounting for 77.48% of gross income, while net interest income accounted for 64.06% of total operating income.
Total operating income for the quarter amounted to Rs 24.161 billion, reflecting an increase of 21.73%. Impairment charges and provisions for other losses were raised by 7.56% to Rs 7.156 billion in keeping with a management decision to make provisions on a prudent basis, for exposures to identified risk-elevated sectors.
As a result, net operating income grew by 28.88% to Rs 17.005 billion, but the Group’s success in containing operating expenses to Rs 7.052 billion, an increase of 4.53%, enabled it to post an operating profit of Rs 9.952 billion before VAT on financial services for the three months, achieving a noteworthy growth of 54.35% over the corresponding three months of the previous year. Meanwhile, VAT on financial services increased by 53.39% to Rs 1.548 billion in line with the growth in profits, and the Group reported profit before income tax of Rs 8.404 billion for the three months, an improvement of 54.55% over the corresponding quarter of 2020.
Commenting on the results achieved, Commercial Bank Chairman Justice K. Sripavan said: “Our performance in the latter part of 2020 laid the foundation for this growth, which has been achieved by a careful balancing of several countervailing factors arising from developments impacting the market and our response to them, including judicious provisioning for impairment on the expected credit losses. We expect to maintain this trajectory of growth in the short term, provided that there are no major shocks ahead of us.”
Commercial Bank Managing Director Mr S. Renganathan concurred: “Although the Bank has reduced the percentage of its loan book under moratorium to approximately 6%, the impact of the third wave of COVID-19 is yet to be ascertained and the Bank will be required to factor in these impacts in its decisions while managing interest margins and strategising on its financial assets portfolio and foreign currency operations. As a matter of prudence, the Bank has made an additional impairment provision against a part of the accrued interest on moratorium facilities during the quarter.”
He noted that the Bank had made a gain of Rs 6.513 billion on revaluation of assets and liabilities in the first quarter of last year, but in contrast, had booked a gain of only Rs 3.524 billion on revaluation of assets and liabilities in the quarter reviewed, resulting in net other operating income declining by 44.42% to Rs 3.670 billion. On the other hand, a significant growth of 391% was recorded in net gains on de-recognition of financial assets, which increased from Rs 361.7 million to Rs 1.776 billion. This was achieved through the sale of government bonds.
Income tax for the period under review amounted to Rs 1.607 billion, down a marginal 1.01% as a result of a reversal of excess in provisions for income tax made in 2020. This was due to the Bank’s provisions for income tax being computed at 28% on the basis that the 24% rate proposed in the last government budget to be effective from 1st January 2020, had not been enacted. The excess provision was reversed during the three months under review as CA Sri Lanka had subsequently advised that companies may consider the new tax rate as enacted.
Consequently, the Commercial Bank Group posted profit after tax of Rs 6.797 billion for the three months reviewed, recording a growth of 78.20%. Taken separately, Commercial Bank of Ceylon PLC reported profit before tax of Rs 8.183 billion for the quarter, a growth of 56.51% and profit after tax of Rs 6.658 billion, an improvement of 79.63%.
Total assets of the Group grew by Rs 62 billion or 3.51% over the three months to Rs 1.824 trillion as at 31st March 2021. Asset growth over the preceding 12 months was Rs 351 billion or 23.83% YoY.
Gross loans and advances increased by Rs 24.80 billion or 2.58% to Rs 986.662 billion, recording a monthly average growth of Rs 8.268 billion. The growth of the loan book over the preceding year was 2.74%.
Total deposits of the Group recorded a noteworthy growth of Rs 60 billion or 4.66% in the quarter reviewed at a monthly average of Rs 20 billion to stand at Rs 1.347 trillion as at 31st March 2021. Deposit growth since 31st March 2020 was Rs 227 billion or 20.19% at a monthly average of Rs 18.9 billion. A significant milestone was recorded in the quarter reviewed when local currency deposits crossed the Rs 1 trillion mark for the first time.
In other key indicators, the Bank’s Tier 1 Capital Adequacy Ratio (CAR) stood at 12.917% as at 31st March 2021, and its Total Capital Ratio at 16.514%, both comfortably above the revised minimum requirements of 9% and 13% respectively imposed by the regulator consequent to the COVID-19 pandemic.
The Bank’s gross non-performing loans (NPL) ratio improved to 4.94% from 5.11% at end 2020 and 5.27% a year previously, recording a notable YoY improvement of 33 basis points, while its net NPL ratio reduced to 1.93% from 2.18% as at 31st December 2020 and 3.24% as at 31st March 2020, reflecting YoY improvement of 131 basis points. As a result, provision cover based on regulatory requirements improved to 60.98% at the end of the reviewed quarter, from 57.42% at end 2020 and 38.41% a year previously.
The Bank’s interest margin also improved to 3.46% from 3.17% at end 2020, but was lower than the 3.52% of the corresponding quarter of the previous year. Net assets value per share increased to Rs 133.58 from Rs 130.35 a year ago, while return on assets (before taxes) and return on equity stood at 1.88% and 17.05% respectively for the three months ended 31st March 2021 compared to 1.51% and 11.28% for 2020.
The Bank improved its cost to income ratio inclusive of VAT on financial services to 35.53% from 39.96% at end 2020 and 39.06% a year previously. The cost to income ratio excluding VAT on financial services recorded an equally impressive improvement, from 33.83% a year ago to 33.95% at 31st December 2020 and 29.03% at the end of the quarter under review.
BP sees biggest profit in 114-year history after oil and gas prices soar
Energy giant BP has reported record annual profits after oil and gas prices surged last year following Russia’s invasion of Ukraine.
The company’s profits more than doubled to $27.7bn (£23bn) in 2022, compared with $12.8bn the year before.
Other energy firms have seen similar rises, with Shell reporting record earnings of nearly $40bn last week.
The profits have led to calls for energy firms to pay more tax as many households struggle with rising bills.
BP boss Bernard Looney said the British company was “helping provide the energy the world needs” and investing the transition to green energy.
Energy prices had begun to climb following the end of Covid lockdowns but rose sharply in March last year after Russia invaded Ukraine, sparking concerns about global supplies.
The price of Brent crude oil reached nearly $128 a barrel, but has since fallen back to about $80. Gas prices also spiked but have come down from their highs.
It has led to bumper profits for energy companies, but also fuelled a rise in energy bills for households and businesses.
Public spending on education in SL declining but non-state actor participation in sector up: IPS
By Lynn Ockersz
‘Despite Sri Lanka’s free education policy and expansion of state activities in education, public spending on education has historically declined. Government expenditure on education is low compared to Nepal, India and Malaysia, for example, although research indications are that non-state actor participation in the sector is growing, Director of Research at the Institute of Policy Studies of Sri Lanka Dr. Nisha Arunatilaka said.
‘Encouraging non-state sector participation in education services and expanding on successful collaborative initiatives between the state and non-state sectors to improve services, efficiency and quality, though under regulation and with attention to ensuring equity, are some measures that could be taken to address the challenges faced by Sri Lanka’s non-state education sector, Dr. Arunatilaka added. She was addressing an IPS and UNESCO-initiated panel discussion titled, ‘Non-State Actors in Sri Lanka’s Education Sector’, on January 24, at the IPS’s Dr. Saman Kelegama auditorium, to mark International Day of Education.
The event was aimed at raising public awareness on the findings of the ‘Global Education Monitoring Report 2022 South Asia’, which draws on the global comparative research by the ‘Global Education Monitoring (GEM) Report at UNESCO’. The IPS is one of six regional partners who contributed to the report on the basis of Sri Lanka’s experiences in the relevant areas of interest, IPS sources said.
Earlier, addressing the audience online, Senior Project Officer (Research), Global Education Monitoring Report, UNESCO, Dr. Priyadarshani Joshi said: ‘The 2022 GEM Report demonstrates inadequate public provision in South Asia and discusses the different contributions to education made by the region’s diverse non-state providers. To strengthen South Asia’s education sector, we suggest bringing all actors under one umbrella to work towards achieving educational goals by creating an enabling policy and regulatory environment, built on standards, information, incentives and accountability.’
The IPS-UNESCO panel brought together some key figures in Sri Lanka’s educational sphere from the state and non-state sectors. Following their presentations a Q&A session with the audience followed.
Chairman, National Education Commission Professor Harishchandra Abeygunawardena said in his presentation and in response to issues raised by the audience: ‘There is certainly a role for non-state actors in Sri Lanka’s education sector. We need to improve non-state access to the lower levels of education and to the tertiary level of the structure. Currently, resource constraints face the government. Here’s where the private sector could come in and help meet this shortfall in resource-allocation. In these efforts we need to keep in mind the primary aims in education: Providing universal access to education, irrespective of creed, ethnicity, language and other differences and bringing out good citizens. The promotion of patriotism among students is important.
‘However, there is no accountability on the part of some private schools. Many private schools do not get registered with the authorities. The impression that one gets with regard to many institutions in this sector is that ‘education is up for sale’. The number of students “passing out” with “top degrees” is astounding. The quality of teaching and the educational qualifications of many teachers leave much to be desired.’
Chairman, Gateway Group, Dr. Harsha Alles said: ‘There is no support for the private sector in education. There are no loans for us free of charge but we have to pay all taxes without fail. Currently, there are 140,000 students in private schools. However, there are some 1,500 state schools with less than 50 students.
‘But private educational institutions could to do things differently. For example, through the use of modern technology in teaching. The public and private sectors have to work together. But the monitoring of private schools is important. The entirety of the latter institutions need to register with the authorities but this has not happened. We need to work out the cost per student. When this is done it will be found that the cost per private sector student is lower than that of his counterparts in the public sector.’
Senior Manager, Social Innovations, Dialog Axiata PLC, Asith de Silva stressed the need for up-skilling teachers. They need to acquire the ability to teach with the aid of modern technology. At present there is a lack of awareness among many teachers on the need for such abilities. They and the general public should be made aware of the importance of IT technology, if not such technology would be a like a new car that has been for bought for running but left completely unused. It is unfortunate that some school administrators and teachers have a misleading view on IT technology. Prejudices to the effect that the use of IT in teaching could lead to harmful consequences need to be dispelled.
Outlining some ways in which Dialog is helping in achieving educational goals, De Silva said that under its ‘Nenasa’ program eight channels are dedicated to teaching students from Years 1 to 13. There are four such dedicated channels in Tamil.
Former Additional Secretary (Policy, Planning and Review), Ministry of Education Dr. Madura M. Wehella focusing on existing gaps in educational regulations drew attention in particular to the 1961 Education Act which does not recognize non-state actors in local education. She said, among other things, that ‘state and non-state actors could collectively overcome regulatory constraints and strengthen the education system holistically’. For example, the two actors could collaborate in introducing innovations in the area of teacher training.
Share market pulls back from green territory; mid-day trade slumps
By Hiran H.Senewiratne
The CSE fell in mid-day trade yesterday, having pulled back after continuously being on the green in the past sessions. But banking sector counters showed some selling pressure due to certain comments in the media during the weekend on domestic debt restructuring, analysts said.
The market moved to green with a leap on Friday, generating over Rs 4 billion due to credit assurance from the Paris Club, Non Paris Club and bond holders on the matter of obtaining the IMF bail-out package, market analysts opined.
However, there’s a pull- back consequent to certain media articles on domestic debt restructuring, which resulted in impairing investor perception to greater extent, especially in the banking sector, market analysts added.
Consequently, both indices moved downwards. The All- Share Price Index went down by 78.4 points and S and P SL20 declined by 20.2 points. Turnover stood at Rs 2.3 billion with five crossings. Those crossings accounted for 30 per cent of revenue, analysts explained.
The companies that mainly contributed to the turnover were, Expolanka Holdings, which crossed 900,000 shares to the tune of Rs 172.8 million, its shares traded at Rs 492, JKH 1 million shares crossed to the tune of Rs 145 million, its shares fetched Rs 145, Sampath Bank one million shares crossed for Rs 45.5 million, its shares traded at Rs 45.50, Dialog Axiata 2.6 million shares crossed for Rs 26 million, its shares fetched Rs 10 and Agstar PLC 1.48 million shares crossed for Rs 23 million, its shares traded at Rs 15.60.
In the retail market top seven companies that mainly contributed to the turnover were, JKH Rs 308 million (2.1 million shares traded), Expolanka Holdings Rs 288 million (1.5 million shares traded), Aitken Spence Rs 119 million (794,000 shares traded), Lanka IOC Rs 87.1 million (434,000 shares traded), Expact Corrugated Cartons Rs 75.5 million (4.5 million shares traded) and Softlogic Capital Rs 70.6 million (4.2 million shares traded). During the day 73.8 million share volumes changed hands in 17000 transactions.
The banking sector should explore restructuring loans of salaried employees hit by progressive tax, Central Bank Governor Dr. Nandalal Weerasinghe said as progressive income taxes were imposed at lower thresholds amid high inflation following a sovereign default.
There have been complaints mainly by picketing state enterprise executives and also other workers of such agencies, such Sri Lanka Port Authority, that high progressive taxes were putting their bank accounts into overdraft after loan installments were cut.
Yesterday, the Central Bank announced the US dollar buying rate as Rs 359.99 and selling rate as Rs 370.18.
BP sees biggest profit in 114-year history after oil and gas prices soar
Employees’ Trust Fund Act No. 46 of 1980 to be amended
Cabinet nod for MOU between the Democratic Socialist Republic of Sri Lanka and the Republic of Maldives on Cultural Cooperation
‘Dates have the highest sugar content to fight Coronavirus’
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