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Mobilising Deposits

Favourable economic conditions enabled the Bank to pursue significant mobilisation of deposits in 2011. The Central Bank kept policy rates stable during most part of the year. Nevertheless, the confidence of loyal customers and the general public helped the Bank comfortably exceed growth targets, particularly with respect to the volume and product mix set for deposits. Consumers demonstrated that they valued reputation and stability over interest rates when choosing a bank. Commercial Bank’s time, saving and demand deposits increased by 33.55%, 15.50% and 8.26% respectively. However, at certain large branches, deposit growth slowed in 2011.

Expansion of the branch network, including the opening of delivery points in the Northern and Eastern Provinces, greatly contributed to deposits growth, while the competitive rates offered during the latter part of the year helped the Bank retain existing deposits as well as garner new deposits.

The Bank’s competitive position helped secure high liquidity and lower cost of funds in the first half of the year. This advantage eased the burden of implementing lending rate cuts, especially for commercial loans, personal loans, leasing, pawning and home loans, and allowed the Bank to record an overall growth in its loans business. However, the high volume of loans disbursed led to low liquidity levels in the fourth quarter - a situation the Bank addressed by, inter alia, increasing deposit rates which attracted substantial deposits. To supplement the deposit mobilisation efforts, the Bank was also able to enter into an agreement to raise funds from an external source - notably through a loan from the IFC.

Future Outlook

Interest rates have slowly been increasing since the third quarter of 2011. In response, the Bank raised deposit rates twice in the closing months of 2011 - a trend likely to continue due to rising inflation and dwindling liquidity in the market.

Commercial Bank intends to introduce a few new deposit products in 2012, and to re-launch and repackage existing products for better market penetration. The Bank will also continue to capitalise on its brand image and record of financial stability while redefining service standards to further market penetration and pursuing aggressive marketing and business promotions. In line with the Strategic Plan, the Bank plans to maintain its position as the leading private commercial bank for deposits.

ATM Network

The strength of Commercial Bank’s ATM network has long been a source of advantage in a highly competitive retail banking environment. The Bank continued to expand its electronic delivery channels especially through enhanced penetration of ATMs. With more than 500 machines at convenient locations across the country, which includes a total of 100 off-site ATMs. Uptime of ATM network continued to be high at over 99%.

The acceptance of other brand cards at Commercial Bank ATMs was further enhanced with the acceptance of ‘Diners’ and ‘Discover’ cards during the year.

The following chart summarises the continued growth of this vital part of the Bank’s service infrastructure during 2011:

Future Outlook

The extensive ATM network plays a pivotal role in enhancing the Bank’s visibility and improving its overall brand image as an institution that constantly invests in technology to meet customers’ changing needs. This trend will continue with the deployment of additional ATM locations.

Pawning

Most of the domestic banks and even several non-banking financial institutions are engaged in the highly competitive pawning business. The Bank benefits from a two-way advantage on pawning advances, earning interest and zero risk weight in the capital adequacy computation.

The past year was engulfed by volatile gold prices, as the Euro Zone debt crisis sent spot gold prices to historic highs. When prices dropped later in the year, some players continued to offer unrealistic values for advances. Nevertheless the Bank adopted a conservative approach, monitoring advanced amounts against the market value of gold to mitigate risks.

The Bank’s pawning portfolio grew to Rs. 11.70 Bn. in 2011, a fivefold increase over the previous year. Reduced rate of interest from September to November helped the Bank to achieve a significant growth in the market share of pawning during the year. Ninety-nine pawning units were launched, and the service is now available at all branches. The Bank's NPA ratio for pawning is 0.38%, and the Bank has not conducted pawning auctions during last few years.

Future Outlook

The Bank intends to grow its pawning volumes and overall service in the coming year. New software with enhanced security features will be implemented during the first half of 2012 to help further speed-up customer transactions and improve security. The Bank is working to improve gold identification methods to meet a marked increase in fraudulent pawning practices. In addition, a few new products is in the pipeline and will be introduced during 2012.

Leasing

The Bank achieved an impressive growth in its leasing portfolio in 2011, extending an island-wide offering backed by strategic partnerships with reputable vendors. The speedy service offered by our branch network also helped in achieving this remarkable growth. A record 6,121 new leases totalling Rs. 15.4 Bn. were executed, driving the value of the portfolio to Rs. 20.8 Bn. - an increase of 85% over the previous year. The leasing business recorded a drop in NPAs in absolute terms to achieve an impressive infection ratio of 1.8% at the end of 2011.

Vehicle leases dominated the Bank’s portfolio due to the high demand resulting from reduced import duties, a strong second-hand market and changing repossession practices.

Future Outlook

The Bank’s focus on infrastructure development projects and the SME sector will help to boost demand for leasing in 2012. Moreover, the Government’s decision to increase the tax depreciation rate to 33.33% from 12.50% should spark additional leasing of productive assets. Plans are in place to tie up many reputed dealers and appoint contract-based sales officers in 2012.