Performance Review

Joint Message from the Chairman and his Predecessor


In the COVID-19 pandemic recovery process, the Bank has played a significant role leading the private sector banks in supporting affected sectors.

Dear friends,

In 2020, under extremely challenging conditions that negatively impacted the business environment locally and globally, the Bank performed appreciably well in key areas of its business activities. It goes without saying that the adverse impact of COVID-19 affected all business operations of the Bank and took a heavy toll on the growth that was sustained by the Bank over the past several years. The Board devoted its time and energy providing necessary guidance and direction to the management to ensure uninterrupted service to our customers while being fully compliant with directions issued by regulators and other authorities. Measures were also taken to ensure the utmost safety of the staff who were invariably exposed to the elements while performing their duties.

In spite of these most taxing and unfavourable conditions, which hindered operations, income growth and profitability, the Commercial Bank Group successfully ended 2020 on a strong footing with substantial deposits growth, better liquidity and higher provision cover compared to most peers. This will undoubtedly enable the Bank to benefit from an upturn in envisaged credit demand in the years ahead. However, the multi-dimensional impact of the pandemic on the performance of the Bank, its subsidiaries, and the associate may continue to be reflected in most areas of business in the immediate future. Nevertheless, the Bank has gone from strength to strength to ensure its growth while supporting the needs and aspirations of our customers as well as being a responsible corporate that plays a role in achieving national economic goals. We wish to place on record our sincere appreciation of the effort taken by the authorities to contain the outbreak of the pandemic, and we look forward to doing our part to drive the country’s economic recovery in the coming year. This includes, in particular, a commitment to supporting the SME sector and the empowerment of women entrepreneurs.

All matters pertaining to the policies and procedures of the Bank are adequately deliberated at the Board and Board Sub-Committee levels and our discussions and decisions have been unanimous. The decision to make the highest provision ever for impairment during the year under review was to ensure that the Bank would have a cushion against the continuing effects of the COVID-19 pandemic on most areas of business. We feel that it is our responsibility to take adequate measures to mitigate any negative effects arising from the pandemic situation in the future, particularly the rising and higher than normal NPL portfolio. The high liquidity level we maintain will also bolster the efforts to face any cash flow shortages arising from deferred recoveries due to moratoriums and other concessions granted to the borrowers.

In our effort to strengthen the capital base of the Bank, we were able to infuse USD 50 Mn. of Tier 1 capital via an equity investment by the International Finance Corporation Group during the year. The Bank’s Tier 1 capital adequacy ratio at 13.217% is much higher than the revised minimum level of 9% imposed by the regulator consequent to the COVID-19 pandemic, while both Tier 1 and Tier 2 together stands at 16.819%, comfortably above the revised regulatory minimum capital requirement of 13%.

The Bank reported a profit after tax for the year of Rs. 16.373 Bn., compared to Rs. 17.025 Bn. in 2019, a marginal decline of 3.83% when viewed in the context of the highest ever single-year impairment provision of Rs. 21.484 Bn. Deposits recorded the highest-ever single year growth of Rs. 212.658 Bn. to end the year at Rs. 1,265.966 Bn., which contributed to increasing the total asset base to Rs. 1,736.218 Bn. as at December 31, 2020, a remarkable increase of 25.15%. Taking into account the shareholder expectations, the dividend policy of the Bank and the potentially difficult times ahead, the Board of Directors decided to maintain the dividends per share at the same level as in the recent past. Accordingly, a dividend per share of Rs. 6.50 has been recommended for shareholder approval at the Annual General Meeting to be held on March 30, 2021.

The history of Commercial Bank can be traced back to 1920 when its forerunner, Eastern Bank, established a branch and began its operations in Sri Lanka (then Ceylon). After being incorporated locally in 1969, Commercial Bank grew over the decades to its current position as the country’s largest private sector bank, and the most recognised and awarded bank, including becoming the first Sri Lankan bank to be ranked among the top 1000 banks in the world. In its status as a domestic systemically important bank, Commercial Bank has been a driving force in partnering and cooperating with national economic development efforts. In the COVID-19 pandemic recovery process, the Bank has played a significant role leading the private sector banks in granting working capital loans and providing concessions to affected sectors. The Bank has implemented programmes under 11 different categories for affected sectors and individuals as part of the “Arunella” Finance Support Scheme, and extended these relief measures beyond the mandated debt moratorium. These concessions included, among other things, flexible payment options, upto 20% rebates on accrued interest during the moratorium period, and extensions of mandated moratorium periods for a further six months.

Crisis can, however, sometimes provide an opportunity for reinvention. It is patently clear that we are living through a digital revolution, where conventional business models and ecosystems are in rapid transformation, and new entrants to the financial landscape have heightened competition and risk. The COVID-19 pandemic accelerated customer demand for digital products and services, and has spurred the rapid development of our own digital strategy. The initiatives taken and investments made over the past five years in building its digital capacities – its portfolio of customer facing platforms, digital products, and services, and back-end processes and infrastructure – have provided the Bank with a strong foundation to meet these new challenges. Nevertheless, the Bank recognises that there are further opportunities to be seized, both within the Bank and in the sector as a whole. The Bank has implemented a digital strategy that will take it towards its goal of becoming a comprehensive ‘digital bank’ – i.e. a complete banking ecosystem – by 2025. As this process unfolds, the traditional ‘brick and mortar’ model will gradually shift. Innovative, integrated thinking, guided by the Board, will be the order of the day.

The COVID-19 pandemic has brought to the fore a new kind of risk – what has been referred to recently as conduct risk, a form of reputational risk. While the Bank’s fundamental business of financial intermediation requires adherence to government regulations, operating in a community of stakeholders means that it also needs a ‘Social Licence’. The latter has to be earned from the public through sustained ethical and conscientious behaviour. And, at a time when so many are struggling under the effects of the pandemic, anything less than conducting business with integrity can result in this Social Licence being revoked. To supplement the Bank’s robust efforts in this arena, the Bank is developing, as we draft this message, a formal Anti-Bribery and Corruption Policy, which will be submitted for the approval of the Board during the first quarter of 2021. The Bank’s longstanding, widespread reputation for compliance to not just the letter but sprit of the law is one of our most important intangible assets, and one which the Board considers imperative to safeguard and nourish.

Vote of thanks from Mr Dharma Dheerasinghe

As I conclude my six-and-a-half-year tenure as the Chairman of the Bank, and nine years service on the Board overall, I want to extend my profound thanks and gratitude to several crucial people whose support was invaluable. During the last two years, across which Sri Lanka has faced unprecedented economic challenges, I have worked closely with the outgoing Deputy Chairman Mr M P Jayawardena, the current Managing Director/Chief Executive Officer, Mr S Renganathan, and the current Chief Operating Officer, Mr S Manatunge. Their dedication and acuity have helped guide the Bank through difficult waters, and left it poised for even greater success in the future. The Board during these challenging times has showed an admirable spirit of unanimity, working creatively and productively to arrive at decisions through consensus, providing sound and unified leadership at the head of the Bank, and I wish to thank them for their service. I also wish to recognise the previous Deputy Chairmen, Managing Directors and Chief Operating Officers I have had the pleasure of working with during my tenure as Chairman and Board Member, as well as previous Board members, all of whom have immensely contributed to the Bank’s success and left their imprint on the Bank. My experience at the Bank has reinforced that when committed, passionate, and talented people work together, mutual success always follows. As I welcome the incoming Chairman, Deputy Chairman, and Board members, I am supremely confident that the Bank is in good hands, and I look forward to the Bank’s continued ascent.

Vote of thanks from Justice K Sripavan

As I assume my position as Chairman of the Bank, I wish to extend my sincere gratitude to Mr Dharma Dheerasinghe and Mr M P Jayawardena, former Chairman and Deputy Chairman, respectively. Under their visionary leadership, the Bank has navigated difficult times and ascended to new heights. They leave big shoes to fill, and the current Board looks forward to building on their considerable achievements. I am glad to have at the helm of the management team Managing Director/Chief Executive Officer Mr S Renganathan and Executive Director/Chief Operating Officer Mr S Manatunge. Their tireless efforts and agile, resourceful management across an unprecedented year were nothing short of remarkable.

I also wish to thank our shareholders, valued customers, indefatigable staff, and other stakeholders for their continued support in an extremely challenging environment across 2020. Given the context, the Bank’s performance was commendable, and I recognise that we have a significant role to play in the country’s recovery from the COVID-19 pandemic. At times like these, the Bank relies on the strength of the stakeholder relationships it has built over the years, and it is on this foundation of mutual trust that the Board and the Corporate Management approach the coming year with determination and confidence.

Justice K Sripavan

K G D D Dheerasinghe
Former Chairman

February 24, 2021