Performance Review

Message from the Chairman


When the global and local operating environment is volatile, we ensure that we frequently take stock of our strategic direction and reassess and recalibrate adopting an agile process to accommodate evolving challenges.

Resilience is entrenched in the very ethos of Commercial Bank. Despite unprecedented challenges in all sectors of the economy during the financial year 2022, the Bank continued to generate significant shareholder value and helped millions of customers realise their goals and contend with their difficulties. The Bank paid over Rs. 19 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 and sustainability goals.

An era of unprecedented challenges

The entire Sri Lankan political and socio-economic landscape underwent extraordinary turbulence with rapidly changing scenarios. Sri Lanka lost access to international financial markets following the credit rating downgrades resulting in a severe forex liquidity crisis culminating in Sri Lanka announcing an external debt service suspension in April 2022. The severe forex liquidity constraint was felt across the economy, particularly from the second quarter of 2022, with shortages of fuel, medicines, cooking gas, and other inputs needed for economic activity. This situation triggered a wave of further consequences for the Bank: there were difficulties in supporting customers’ import purchases, resulting in low trade volumes; high interest rates affected the margins of customers, adversely impacting their ability to service their debts; fewer lending opportunities were available due to corporate customers postponing their investment decisions; the credit quality of customers in vulnerable sectors deteriorated; capital adequacy-related constraints arose due to rising impairment provisions; and the energy crisis hindered the ability of staff to report to work, and the overall context leading to a staff exodus. The year-on-year inflation reached an unprecedented 64.3% in August 2022, largely due to high food inflation of 93.7%. This reflects the impact of rising global commodity prices, monetisation of the fiscal deficit, and currency depreciation.

Despite the Government making several proactive efforts to ensure the long-term stability of the Sri Lankan economy, the business environment performed below expectations in 2022 and the operating context is likely to remain challenging in the foreseeable future with many unresolved issues including uncertainties relating to debt restructuring and delays in IMF facilitation.

Resilient performance despite challenges

Our performance in 2022 is due in large part to the dedication and tireless efforts of the Commercial Bank team. We ended 2022 with a solid operational performance, navigating the stormy turbulence with prudent, forward-looking strategies that included making the highest-ever impairment provision of Rs. 71.9 Bn. in a year, in the history of the Bank.

The Group, comprising Sri Lanka’s biggest private sector bank, its subsidiaries and an associate, recorded an assets growth of Rs. 516.063 Bn. or 26.02% to approach the Rs. 2.5 Tn. milestone. The gross income grew by 71.31% YoY to Rs. 280.387 Bn. with the sharp depreciation of the Sri Lankan Rupee distorting some key indicators. Driven partly by the depreciation of the Rupee on foreign currency loans and advances, the loan book of the Group grew by Rs. 151.239 Bn. or 13.81% YoY as of December 31, 2022. Deposits swelled by Rs. 505.103 Bn. or 34.30%, with the depreciation of the Rupee accounting for part of the growth.

The shift from low-cost to high-cost funds resulting from the higher interest rates on Rupee deposits and the increased cost of living reduced the CASA ratio to 38.36% as of the end of the year. However, it is noteworthy to mention that this was an industry benchmark. The Bank recorded a profit before tax (PBT) of Rs. 22.598 Bn. and the profit after tax (PAT) reached Rs. 22.970 Bn. in 2022 largely due to a tax reversal. The Group PBT and PAT amounted to Rs. 24.505 Bn. and Rs. 24.399 Bn. respectively.

In terms of other key indicators, the Bank’s net assets value per share increased by 18.99% to Rs. 164.30. The Bank’s Tier I Capital Ratio, and the Total Capital Ratio stood at 11.389% and 14.657%, respectively as of December 31, 2022, both above their respective statutory minimum ratios of 10% and 14%. In terms of asset quality, the Bank’s impaired loans (Stage 3) ratio stood at 5.25% compared to 3.85% at end 2021, while its impairment (Stage 3) to Stage 3 loans ratio stood at 39.60% as of December 31, 2022, compared to 42.76% at the of end 2021. In terms of liquidity, the Bank’s statutory liquid asset ratios for its Domestic Banking Unit and Off-shore Banking Unit stood at 35.01% and 32.37%, respectively, while the consolidated liquid asset ratio for the Sri Lankan operations of the Bank stood at 35.88%, which is well above the minimum requirement of 20%.

The Bank’s Cost to Income Ratio before taxes on financial services improved to 26.29% for the year under review from 31.61% in 2021 and 33.95% in 2020. The cost to income ratio inclusive of taxes on financial services improved to 29.22% from 37.97% in 2021 and 39.95% in 2020.

Although we performed better relative to our peers, we too had to contend with the foreign currency liquidity shortage that affected the country. We responded to our customers’ foreign currency needs rationing what was available in a justifiable manner while prioritising essential imports. With regard to rupee liquidity, the Bank carried substantial excess throughout the year, making investment for a return commensurate with the risk challenging at times.

The Board gave careful consideration to the sustainability of the Bank in the wake of uncertainties associated with the ongoing efforts by the Government relating to debt restructuring and the possibility of further deterioration in asset quality. Accordingly, the Board of Directors decided to announce a scrip dividend of Rs. 4.50 per share for the year, which we believe is a prudent measure that balances the need to accommodate shareholder expectations and the need to overcome any potential stress on capital and retain capacity for future growth of the Bank.

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 Sri Lankan bank, both locally and internationally. We are extremely proud that we have won awards for all facets of our performance: customer service, digital innovations, sustainability, social responsibility, governance, corporate communication, etc. The Bank’s recent recognitions include the Best Green Bank in Sri Lanka, the Best SME Bank, the Best CSR Bank, the Best Digital Bank, the Best Bank for ESG, the Trade Finance Bank of the Year, the Most Respected Bank in Sri Lanka, and the Strongest Bank Brand, among over 60 awards secured during 2022.

We always strive to make the best use of capitals in terms of Integrated Reporting parlance. This involves making use of all of the Bank’s multiple capitals and not solely financial capital. In terms of customer capital, we focused on deepening our customer relationships by providing exemplary service during challenging times, and making banking more accessible and inclusive to the public. In terms of human capital, we focused not only on enhancing the skills and competencies of our people in core banking functions, but also training all levels of staff, including executives, in a wider array of aspects including customer delight, compliance, corporate governance, risk management, and integrity. 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 an enormous strategic effort during the late 1990s and 2000s. Even as the emphasis shifts from brick-and-mortar branches to digital banking, we recognise the immense value of our network both for retail and corporate customers, and will continue to capitalise on all the benefits – in outreach, customer relationships, new customer acquisition, etc. on an island-wide basis.

Our Environmental, Social, and Governance (ESG) engagement has continued to be a focus in 2022 and we made considerable progress with several important achievements. For years, we have played a pivotal role in environmental advocacy, demonstrating how the local banking industry can contribute towards Sri Lanka’s transition to a low-carbon economy. Becoming the first carbon neutral Bank in Sri Lanka in 2020 is a clear testament to the effectiveness of our pioneering initiatives to significantly lower our carbon footprint as well as that of our customers and other stakeholders. Remaining a consistent leader in climate financing we promote sustainable economic growth and address challenges posed by climate change through our green financing and climate financing initiatives. The Bank’s Green Financing is geared towards the fight against climate change, meeting the United Nations Sustainable Development Goals 7 and 12: Affordable and Clean Energy, and Responsible Consumption and Production. Our dedication and transparency in reporting our climate investments gained global recognition during the year. Furthermore, our initiatives include lending to support eco-friendly operations, migrating customers to paperless banking, and reducing consumption of non-renewable energy, water, and other resources in our operations. Our focus on supporting and uplifting communities enabled us to complete over 600 projects through the Bank’s CSR Trust under the categories of education, healthcare, community, arts & crafts, and the environment.

A strategic blueprint for growth

Crucial to our resilience is our strategic planning process, which is well entrenched and has been fine-tuned over several decades. The Corporate Plan and the Budget are set out for five years on a rolling basis, allowing us to be responsive to shifts in the operating environment. Especially when the global and local operating environment is volatile, we ensure that we frequently take stock of our strategic direction and reassess and recalibrate, adopting an agile process to accommodate evolving challenges.

The Board of Management provided constant strategic stewardship for facing these evolving challenges in 2022. These included prudent management of forex facilitating remittances, promoting exports focused relationships, prioritising imports, supporting threatened businesses through rehabilitation, and focusing on customer anchoring through mechanisms such as ComBank trade clubs. 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 varying sizes. As such, catering to them requires building our 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 continued to make great progress in the execution of our Digital Roadmap, and we have virtually achieved our target of becoming a digital bank having onboarded over 50% of our customer base and offering a full range of services for their journeys through digital channels. In addition to providing a customer experience for simplicity and functionality through our multiple channels of digital solutions, several initiatives were taken to improve our internal processes and controls and create end-to-end digital chains. This allows our stakeholders to be relieved of tedious, repetitive tasks, and staff reassigned to more customer-centric functions, which, in turn, not only drives our profitability but enhances internal stakeholder experience as well.

Proactive risk management and sound corporate governance

We strive to ensure maximum coverage and readiness for risks – and remain alert to converting risks into opportunities – through our comprehensive governance and risk management frameworks. An astute and proactive approach to risk management is crucial in an unstable operating environment. The Early Warning System (EWS) launched during the year proved to be beneficial in identifying risk-elevated assets by analysing portfolio performance and market trends through the system’s predictive capabilities. This enabled 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 and with the real threats arising out of possible external and internal debt restructuring, the Board played a guiding and advisory role in prudent capital adequacy management. This is particularly crucial as the true picture of the condition of the Bank’s loan book is masked, and we must be prepared to manage credit risk with the phasing out of the Government’s relief and forbearance measures.

Furthermore, a turbulent, 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 of the Report will find more information on these aspects in the Chairman’s message on Governance in the section on Annual Corporate Governance Report.

Vote of thanks

I wish to extend my sincere gratitude to Justice K Sripavan who relinquished office from the Board Chairmanship on March 01, 2022 and thank him for his dedicated service to our Bank during these challenging times. My appreciation is extended to the Deputy Chairman, Mr Sharhan Muhseen whose insights and broad contribution were a great asset to the Bank. I thank the former Managing Director/Chief Executive Officer, Mr S Renganathan who retired on May 11, 2022, the current Managing Director/Chief Executive Officer Mr Sanath Manatunge, and the Executive Director/Chief Operating Officer, Mr S Prabagar for their exemplary leadership during turbulent times. Against the backdrop of economic uncertainty fuelled by political turmoil and economic downfall, our corporate managers, senior managers, and the entire Commercial Bank team represented the Bank with immense professionalism and dedication and worked tirelessly to serve our customers, even while many were facing sztruggles of their own. They remain our greatest asset. On behalf of the Board, I thank all our staff members for their dedication and positive response during this difficult period. I am grateful for the unstinted support and loyalty of our shareholders, customers, and other stakeholders. Finally, my appreciation is extended to my colleagues on the Board, for their strong and consistent support and insightful guidance.

Drawing on our experience of 103 years and our strong foundation, I look forward to 2023 as we continue to deliver value to our shareholders and exemplary services to our customers.

It was Albert Einstein who once said “Life is like riding a bicycle. To keep your balance you must keep moving”. In a year of multiple crises, a healthy balance between the stakeholder expectations and the diverse portfolios of the Bank, was the Bank’s primary aim, and the Bank kept moving forward, to a future that stood chiseled in sediments of time, heralding the dawn of hope to newer financial horizons.

Prof A K W Jayawardane

February 24, 2023