Financial Times

Looking at setting up in India
Commercial Bank retains number one position
The Commercial Bank of Ceylon, on the back of strong growth in all key financial performance indicators, shareholder value indicators and sector-related ratios for 2005, is actively exploring the possibility of launching in India, the bank said last week.

This development was exclusively reported in The Sunday Times FT a year ago in its February 13, 2005 issue. “We have been having this vision for quite sometime and we are exploring a small acquisition in India, possibly as a joint venture with another local bank. As part of the Comprehensive Economic Partnership Agreement (CEPA) negotiations, local banks, who want to enter India have been pushing for a ‘National’ status in India to avoid stringent regulations and we are positive about this coming through,” Commercial Bank Managing Director, Amitha Gooneratne said. He said that regulatory approvals were a hurdle, from last year when they had planned to enter in 2005. “Presently a bank has to pay US$ 25 million to enter India and 15 branches are allowed for foreign banks,” he said.

Commercial Bank recorded a profit of Rs 2.3 in 2005 showing a growth of Rs 631 million or 36.53 percent, as opposed to last year’s (2004) Rs 1.68 billion.
Commercial Bank’s Senior Deputy General Manager (Finance and Planning) Ranjith Samaranayake said due to selective lending procedures, stringent credit worthiness assessments and rigorous monitoring the non performing loans have decreased by 4.07 percent to Rs 4.9 billion from Rs.5 billion. He said that the earnings per share of the group recorded a healthy increase, rising from Rs 10.52 to Rs 14.96, reflecting a growth of 42.2 per cent. “This impressive growth in net interest income was possible through the substantial growth recorded by the bank in its fund-based operations,” he said. He said this year the bank will target emerging sectors such as the middle class segment and the small and medium sectors with a new range of products that will be introduced during the first half of this year.

The bank’s income growth was further boosted by a significant increase in fee and commission income which rose to Rs 1.759 billion, a growth of 27.78 percent. Other income recorded a growth of Rs 177.44 million, rising from Rs.408.6 million in 2004 to Rs 586 million this year.

“Profit growth at every stage exceeded the GDP growth which is estimated to be over five percent and the inflation rate of 11.6 percent, reflecting a growth in real terms. These results were achieved despite a 32.8 percent drop in the exchange profit of the group as a result of the appreciation of the rupee after a substantial inflow of funds to the country due to the tsunami,” he said.
The total income grew to Rs 16.2 billion from Rs 12.4 billion last year, a growth of Rs 3.8 billion or 30.46 percent. Net income grew from Rs 7.397 billion to Rs 8.766 billion in 2005, a growth of Rs 1.369 billion or 18.51 percent. The total assets rose to Rs 180.13 billion from Rs 141.79 billion last year, a growth of Rs 38.34 billion or 27.04 percent.

Significantly, loan loss provisions recorded a drop of Rs.284.3 million from Rs 699.2 million in 2004 to Rs 414.9 million in the year under review. Gooneratne said total deposits rose to Rs 127.4 billion as of December 31, 2005 from Rs 98.6 billion reflecting a health growth of Rs.28.8 billion or 29.27 percent. Further, the growth of the fund base was boosted by a syndicated loan of US$ 65 million raised by the bank from overseas sources.

“The gross advances portfolio grew by more than Rs 28 billion to Rs 124.35 billion in 2005 reflecting a percentage growth of 29.33,” Gooneratne added.
“The new tax regime introduced through the 2006 budget which proposes to increase corporate tax rate of public quoted companies, the Financial VAT and Social Responsibility Levy has sharply increased the percentage of profits paid by the bank as taxes. This year the bank will pay out between 55 to 60 percent of its profits as taxes,” Samaranayake said.

Gooneratne said that the board has declared a final dividend of 30 percent for 2005, in addition to the interim dividend of 15 percent. “Even though the total dividend for 2005 is a 15 percent reduction on last year’s dividend payment, the dividend for the year was based on the post bonus issue share capital of the bank,” he explained, adding that the dividend income to shareholders actually rose by 50 percent.

However, the capital adequacy ratio dropped from 13.16 percent as at in 2004 to 12.08 percent in 2005. “This is due to the expansion in our risk weighted asset portfolio far exceeding the growth in the regulatory capital. Growth in Tier one capital was adversely affected by high taxes. Additionally, opportunities available in the market for raising debt capital were limited. This ratio was nevertheless 2 per cent above the minimum required ratio of 10 percent,” Samaranayake said.

For your information
The AGM of the Commercial Bank will be held on March 30.

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