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Tone From the Top

Joint Message from the Chairman and his Predecessor

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Dear friends,

Resilience is ingrained in the very ethos of Commercial Bank.

Despite a myriad of challenges during the financial year 2021, the Bank created significant shareholder value, helped millions of customers achieve their goals, paid over Rs.14 Bn. in taxes to strengthen the fiscal resilience of our Nation, supported our communities through charitable donations and volunteerism, and made progress towards achieving Sri Lanka's climate-related goals.

A strong financial performance in an uncertain context

The Sri Lankan business environment performed below expectations in 2021 partly due to the economic concerns fuelled by foreign exchange shortfalls prevalent during the year. The government took proactive efforts to ensure the long-term stability of the Sri Lankan economy and stemmed the surge of the pandemic through effective COVID-19 protocols and processes. Nevertheless, the operating context remained challenging.

Recording a resilient performance, we ended a tough 2021 with solid growth. In line with the Bank's strategic pillars of Prudent Growth and Operational Excellence, we placed emphasis on controlling operational expenses and arresting any possible deterioration in our cost-to-income ratio and profitability. As a result, the Group profit after tax increased by 42.16% YoY to Rs. 24.290 Bn. for the year compared to Rs. 17.087 Bn. in 2020. The Bank recorded the lowest cost-to-income ratio among the peer banks, which improved from 33.95% in 2020 to 31.61% in the year under review. The gross loans and advances of the Group grew by 13.83% to Rs. 1.095 Tn. while total deposits grew by 14.46% to Rs. 1.473 Tn. as of December 31, 2021. Consequently, total assets increased by 12.54% to Rs 1.983 trillion. With healthy deposit inflows, the Bank carried substantial excess liquidity levels throughout the year and also maintained a solid capital position. The Bank's CASA ratio strengthened further to 47.83%, becoming an industry benchmark in the process. As a result of this strong performance this year, we are happy to announce that we have increased dividends to Rs. 7.50 per share compared to Rs. 6.50 per share paid annually over the past nine years.

A track record of operational excellence

The Bank has grown over the decades to its current position as Sri Lanka's largest private sector bank and has built a rich legacy as the most recognised, both locally and internationally, bank in the country. We are extremely proud that we have won awards for all facets of the Bank’s performance: customer service, digital innovations, sustainability, social responsibility, governance, corporate communication, etc. The Bank's recent recognitions include the overall award for the Best Sustainability Report 2020, the Best Corporate Citizen award, the Best SME Bank, the Domestic Trade Finance Bank of the Year, the Most Respected Bank in Sri Lanka, and the Strongest Bank Brand, among others.

During 2021, a primary objective was to make the best use of our assets – which, to use the vocabulary of Integrated Reporting, involves making use of all of the Bank’s different capitals, not simply financial capital. In terms of customer capital, we focused on deepening our customer relationships by providing exemplary service during challenging times, making banking more accessible to and inclusive of the public. In terms of human capital, we focused on not only on enhancing the skills and competencies of our people in core banking functions, but training all levels of staff in a wider array of topics like compliance, corporate governance, and integrity. And in terms of manufactured capital, we emphasised improving the performance of loss-making branches. The Bank has one of the largest touch-point networks of any corporate in the country, a network that was built through a huge strategic effort during the late 1990s and 2000s. Even as the emphasis shifts from brick-and-mortar branches to digital banking, the Bank recognizes the immense value of its network, and will continue to capitalise on all the benefits – in outreach, customer relationships, new customer acquisition, etc. – that an island-wide physical presence offers.

A strategic blueprint for growth

Crucial to the Bank’s resilience is its strategic planning process, which is well entrenched and has been fine-tuned over a period of 25 years. The Corporate Plan and Budget are set out for five years on a rolling basis, allowing for the Bank to be responsive to shifts in the operating environment. Especially when the global and local operating environment is volatile, it is important that we frequently take stock of our strategic direction and reassess and recalibrate it as needed.

In 2021, we continued to strengthen our position in the SME and Micro enterprise customer segment, and, in particular, with enterprises that are women-led and women-connected. A strategic approach is imperative here since these segments encompass a wide range of industries of different sizes. As such, catering to them requires building our own skills and capacities to create solutions that meet their needs and expectations, rather than scaling down solutions that are applicable to larger corporates. Our ongoing SME Banking Transformation Project and our Gender Advisory Project are enabling us to do just that, and the Bank has emerged as a leading lender to these segments.

We also made great progress in the execution of our Digital Road Map, and we have virtually arrived at our target of becoming a digital bank, i.e. offering our customers a full range of services and journeys through digital channels. However, providing a customer experience of simplicity and functionality is only one aspect of our Digital Road Map; the other is ensuring that our internal processes and controls are similarly digitalized, creating end-to-end digital chains. This allows our people to be relieved of tedious, repetitive tasks, and reassigned to more customer-centric functions, which, in turn, not only drives our profitability, but also enhances internal stakeholder experience as well.

Proactive risk management and sound corporate governance

Necessary in an unstable operating environment is an astute and proactive approach to risk management. In 2021, we worked with a consultant to implement an Early Warning Signals system. The system’s predictive capabilities will analyze portfolio performance and market trends to identify risk-elevated assets, allowing us to better understand the pressures our customers face and collaborate with them more productively to avert negative outcomes. Furthermore, with capital providing an indispensable buffer during times of heightened credit risk, the Board played a guiding and advisory role in prudent capital management. This is particularly crucial as a true picture of the condition of the Bank’s loan book will be revealed once government relief and forbearance measures are phased out in 2022, and we must be prepared to manage credit risk accordingly.

Additionally, a competitive and saturated industry landscape means that there is an even greater demand for the Board to remain vigilant in terms of its corporate stewardship. Our stakeholders have heightened expectations of transparency, accountability, and good governance that go beyond mere compliance. The Bank, through its conduct and performance, must demonstrate its corporate integrity and responsibility – and this is a pre-condition for its ability to remain a viable enterprise in the communities in which it operates. The reader will find more information on these aspects in the Chairman’s message on Governance  .

Vote of thanks from Justice K Sripavan

As I conclude my tenure on the Board as a Director since April 2017 and as the Chairman since December 2020, I extend my sincere appreciation and gratitude to several crucial people whose support was invaluable. Even as Sri Lanka faced unprecedented economic challenges, I have worked closely with the Deputy Chairman/Chairman Designate Prof A K W Jayawardane who will assume duties as the Chairman of the Bank on March 1, 2022. His insights and broad experience will be a great asset for the Bank and the Board. I am deeply grateful to the Managing Director/Group Chief Executive Officer, Mr S Renganathan and the Executive Director/Chief Operating Officer Mr S Manatunge for their outstanding efforts over the past truly challenging year. I warmly welcome the Deputy Chairman Designate, Mr Sharhan Muhseen, who will assume duties as the Deputy Chairman from March 1, 2022. Against the backdrop of economic uncertainty fuelled by the pandemic, our staff represented the Bank with immense professionalism and dedication and worked tirelessly to serve our customers, many of whom were facing struggles of their own. On behalf of the Board, I thank all our staff members for their dedication and response during this difficult period. I am grateful for the unstinted support and loyalty of our shareholders, customers and other stakeholders. My appreciation is extended to my colleagues on the Board, for their strong and consistent support and insightful guidance. The Bank is in good hands and is well placed to deliver sustainable long-term value for stakeholders.

Vote of thanks from Prof A K W Jayawardane

As I assume my position as the Chairman of the Bank, I wish to extend my sincere gratitude to Justice K Sripavan who will be relinquishing his duties from the Board effective March 1, 2022. Under his visionary leadership, the Bank navigated an unprecedented year and ascended to greater heights. I thank him for his dedicated service to our Bank and wish him well with his future endeavours. My appreciation and warm wishes are extended to the Deputy Chairman Designate, Mr Sharhan Muhseen who will assume duties as the Deputy Chairman of the Bank. I thank the Managing Director/Group Chief Executive Officer, Mr S Renganathan and the Executive Director/Chief Operating Officer, Mr S Manatunge for their exemplary leadership. My appreciation is extended to our shareholders and other stakeholders for their unstinted support throughout the year. I also acknowledge the hard work and dedication of the Commercial Bank team, who stepped up for our customers and shareholders in another challenging year. They remain our greatest asset. Drawing on our experience of 102 years and our strong foundation, I look forward to 2022 as we continue to deliver value to our shareholders and exemplary services to our customers.

Justice K Sripavan

Prof A K W Jayawardane
Chairman Designate

Colombo, February 25, 2022