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| Sunday, 13 June 2004 |
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Impressive 1Q profit growth at Commercial Bank The Commercial Bank of Ceylon Ltd., has recorded a pre-tax profit of Rs. 523.3 million for the first quarter of 2004, a growth of Rs. 191.7 million or 57.81 per cent over the corresponding period last year. This impressive pre-tax profit was achieved despite providing for the special Value Added Tax which increased from 10 per cent to 15 per cent during the period under review. Post-tax profit of the bank for the quarter ended March 31, 2004 amounted to Rs. 341.3 million, a growth of Rs. 117.7 million or 52.64 per cent. Commercial Bank's Deputy General Manager (Finance and Planning), Rajith Samaranayake said the Bank achieved profit growth of over 50 per cent mainly due to significant growth in deposits, advances and assets. The contribution from low-cost deposits in the deposit mix continued to improve by recording satisfactory growth Samaranayake said, adding that net interest income which is the bank's principal source of income, totalled at Rs. 1,087.2 million in the first quarter, representing a healthy growth of Rs. 294.5 million or 37.15 per cent. Exchange profit recorded a growth of 84.49 per cent while other income recorded a growth of 42.35 per cent. Gross income of the Bank rose to Rs. 2,750.3 million reflecting a substantial growth of Rs. 713.3 million or 35 per cent. The newly acquired Bangladesh operations also made a significant contribution to these results, he said. Mr. Samaranayake said these results were achieved despite several constraints including the provision of Rs. 187.5 million on account of possible loan losses compared to Rs. 129.3 million provided in the first quarter of 2003. He disclosed, however, that the net charge to the income statement on account of loan loss provisions amounted to only Rs. 102.6 million, as a result of releasing an excess provision against lease receivable amounting to Rs. 84.9 million. This excess provision arose as a result of the Bank's decision to revise its provisioning policy on lease receivable in line with the accepted market practices. Explaining the Bank's new provisioning policy on lease receivables, Mr. Samaranayake said that a 100 per cent provision is made in respect of each lease outstanding, where six rentals or more are in arrears, after discounting the net realisable value of the leased asset for specific provisions. Additionally under general provisions, provision is made at 0.5 per cent of the outstanding leases, as against the 3 per cent previously adopted. Part of the additional provisions required under the new 'Hair Cut Rule' of the Central Bank, which came into effect in January 2004 has ben made in the first quarter and the balance provisions required would be made over the next nine months, he said. In addition to the enhanced provisions for loan losses, the Bank's profits were further adversely affected by a loss of Rs. 34.2 million on mark to market valuation. (The decrease in market prices of the trading portfolio of Treasury Bills and Treasury Bonds as a result of the rise in the market interest rates, which result in a loss when compared with the book value of such securities). Furthermore, operational expenses included Rs. 24.8 million as a result of payments made under a Voluntary Retirement Scheme (VRS). The results of the Commercial Bank Group representing the Bank, its subsidiaries and associate companies were adversely affected by the losses made by the Bank's Primary Dealer subsidiary in first quarter 2004. As a result the Group recorded a pre-tax profit of Rs. 505.0 million, a growth of 10.62 per cent over the corresponding period last year. The losses of the Primary Dealer were also due to the mark to market losses incurred on its trading portfolio of Treasury Bills and Treasury Bonds consequent to the rise in market interest rates. The losses of the Bank's primary dealer and the increase in the tax liability as a result of increased tax rates on off-shore banking profits affected the post-tax profit of the Group which reflected a drop of 6.88 per cent to Rs. 319.3 million, in the reviewed quarter, Mr. Samaranayake said. The Bank is in the process of taking necessary steps to minimise the adverse effects on its profits resulting from the mark to market losses in the future, he added. |
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