Commercial Bank first private bank to cross Rs. 1 trillion in assets in 2016

The Commercial Bank of Ceylon PLC continuing its good performance has reported profit before income tax (PBT) of Rs. 20.051 billion for 2016, marking the end of a spectacular year in which it made history as the first private bank in Sri Lanka to surpass a trillion rupees in assets.

In a media release, the bank said Profit before Value Added Tax (VAT) grew by 18.58 per cent to Rs. 23.755 billion. It said, that an increase in the financial VAT rate from 11 per cent to 15 per cent for four of the 12 months reviewed had resulted in the bank’s VAT expense for the full year increasing by 28.17 per cent to Rs. 3.703 billion, from Rs. 2.889 billion paid for 2015.

The 16.96 per cent growth achieved in PBT was bettered by the growth in profit after tax, which improved by 21.92 per cent to Rs. 14.513 billion during the year ending December 31, 2016, the media release added.

The bank paid Rs. 9.385 billion in taxes in respect of the year reviewed, an increase of 15.78 per cent even after discounting the Rs. 2.570 billion paid in 2015 as Super Gains Tax.

Commenting on these results, Commercial Bank Chairman Dharma Dheerasinghe, was quoted as saying: “The bank can take pride in the performance milestones reached in 2016, which reflect its ability to maintain its growth trajectory even in a rapidly changing environment. Doubling key components of our balance sheet in five years is no mean feat, and 2016 contributed significantly to this achievement.”

Managing Director/CEO Jegan Durairatnam observed that “Improvement in asset quality and a stable rating are testimony to balanced growth, while improving Return on Equity (ROE) attest to the direction of growth in our 48th year. The improvement in asset quality was key to improving profitability and reflects strong credit processes and an improved risk culture, particularly in our front lines which are responsible for accepting risk.”

Gross income of the bank improved by Rs. 15.275 billion or 19.62 per cent to Rs. 93.143 billion helped by a strong contribution from core banking activities with increased business volumes, which boosted interest income to Rs. 80.738 billion, a growth of 22.27 per cent, and Fee income increasing by 29.76 per cent to Rs. 8.143 billion principally through the growth of trade financing and card related business in the year reviewed.

Net loans and advances increased at a higher 21.24 per cent to Rs. 616.018 billion due to a reduction in impairment provisions required consequent to rigorous recovery efforts that resulted in a drop in non-performing loans (NPLs) in absolute terms, the bank said.

Deposits grew by 18.50 per cent to Rs. 739.563 billion as at December 31 2016.

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Unit Trust firms consider winding up, consolidation amidst regressive taxation

By Duruthu Edirimuni Chandrasekera

Removing tax incentives to the unit trust industry will see many asset management firms dealing mostly in unit trusts winding up or selling their firms to bigger counterparts, a top official said.

“There’s an acute disparity between the taxation say of a fixed deposit and a unit trust. This will force asset management firms to wind their unit trust businesses. We are certainly thinking about it,” Dilshan Wirasekara, CEO First Capital Holdings PLC which has an asset management business told the Business Times.

Since the inception of unit trusts in Sri Lanka, the Government has been granting some tax concessions to promote the industry. Through the 2012 Budget proposals the profits and income from redemption of units were exempted from income tax in the hands of the investors. This assisted the industry to collect funds from corporate investors who could enjoy a tax benefit of 18 per cent when investing in unit trust funds.

In the recent budget proposals, such benefits to corporate investors have been removed. This may initially result in an outflow of funds from the industry and exert pressure on the unit trust management companies, P. Asokan, Consultant SEC told the Business Times.

Removing the tax break would not be a problem as long as there is a level playing field between the tax impact to an investor investing through a unit trust fund or investing directly in a financial instrument such as treasury bills, bonds, debentures, commercial paper or bank fixed deposits is what the industry is calling for.

The basis for any investment should be the tradeoff between the risk you take and the return you get for taking the risk; and not the tax rate, said Vindya Jayasekera, Vice President NDB Wealth Management Ltd. “The budget 2017 proposes a withholding tax of 5 per cent for individuals investing in bank deposits while unit trusts would be subject to a 14 per cent withholding tax. Similar tax differentials proposed at various levels creates an unequal playing field and ultimately could lead to the deterioration of an industry that is established globally to improve investment opportunities to retail investors and enhance financial market efficiency,” she explained.

Unit Trusts provide investors opportunities to invest in markets like treasury bills, bonds, commercial paper etc. which most may not have access to. In spite of the benefits available to retail investors, the industry remains small and under-penetrated with assets of Rs. 100 billion (versus bank assets over Rs. 8 trillion), Ms. Jayasekera added. One reason for this, she says is that it may be because the tax rate for individual investors in unit trusts (10 per cent) was higher than the tax rate applicable to bank deposits (2.5 per cent) creating an unequal playing field between bank deposits and unit trusts for individual investors.

Mr. Wirasekara added that his firm will be focusing more on the wealth management business of their asset management firm. “We’ll be focusing on wealth management and products such as retirement planning.”

While the SEC has made representations pertaining to this, the word on the street is that these same budget proposals will remain.

However, creating a level playing field in taxation between unit trusts and bank deposits will certainly improve investor participation and in turn broadbase the asset ownership and increase efficiency of capital market, is what all industry participants say.

On the other hand the absence of this tax will persuade the unit trust management companies to focus on increasing their retail investor base and promote equity funds as these funds will continue to remain tax exempted in the hands of the investors, Mr. Asokan added.

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Pan Asia Bank posts record pre-tax profit of Rs.1.8 bln

Pan Asia Bank has closed its 2016 year recording a profit before tax of Rs 1.8 billion, up by 17 per cent over the previous year.

In a media release the bank said its post-tax profit was Rs.1.25 billion, surpassing its previous earnings record.

“This commendable performance is a result of the combination of factors from the timely re-pricing of assets and liabilities, re-calibration of assets in to more remunerative areas, better recoveries and asset quality, the relatively strong growth in loans and receivables and better management of costs in all areas of the banking business during the year,” the bank said.

Commenting on the performance, the bank’s Acting CEO, Lalith Jayakody attributed the performance to the proactive measures taken to successfully acclimatize the bank to the rising interest rate scenario from the beginning of 2016.

“Although the economic conditions were less supportive towards the banking and the financial services sector due to rising interest rates and the tightened credit conditions, we could still achieve these record numbers because we remained nimble to adjust ourselves fast to the new economic order. Our continuous efforts on upgrading the skills of our staff, improving the efficiency of our systems and processes by keeping a closer tab on our costs and investing in growth areas did yield us these record earnings,” he said.

The Return on Equity (RoE) which measures the return generated towards the shareholders, a widely used performance matrix in the banking industry stood at 19.97 per cent, above the industry average of 17.30 per cent. Pan Asia Bank remains among the few banks which have a RoE with a 20 per cent level, the release added.

Total operating expenses rose by 18.24 per cent predominantly due to increase in staff related expenses and other overhead expenses due to impact of tax hikes and inflationary pressures.

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