Commercial Bank of Ceylon (CBC), Sri Lanka's largest private sector bank, has spent more than a century establishing itself as a central figure in the country’s financial landscape. Celebrating its 100th anniversary in 2020, CBC has weathered numerous economic challenges, and in 2024, it continues to be recognised as Sri Lanka’s Strongest Bank by Balance Sheet in the TAB Global 1000 Rankings of the World’s Largest and Strongest Banks. The bank’s ability to adapt to shifting market conditions and its focus on resilience has been key to its sustained success.

At the helm of this continued growth is Sanath Manatunge, Managing Director/CEO since 2022, whose leadership has steered CBC through both local and global financial uncertainties. With over 35 years of experience in the banking sector, Manatunge’s approach is defined by strategic prudence, a focus on technology, digital banking, sustainable growth and an unwavering support for Sri Lanka’s vital small and medium-sized enterprises (SMEs).

Resilience amid economic challenges

Sri Lanka’s economic conditions over the past few years have been far from stable. High inflation, fluctuating interest rates, and currency devaluation have put immense pressure on banks, particularly in terms of managing asset quality. CBC, like its peers, faced the consequences of the volatile economic conditions prevailing in the country.

CBC was included, together with its two other large domestic systemically important banks (DSIBs), in the TAB Global Bank Watch List in 2024, which tracks specifically financial institutions with higher-than-average NPL ratios and at the same time keeping low bad debt provisions. However, the bank’s ability to maintain a strategic focus with strong operational efficiencies has positioned it to handle these challenges effectively. "Pandemic and negative micro and socioeconomic environment including higher interest rates certainly contributed to an increase in NPLs," explained Manatunge, acknowledging the impact of rising borrowing costs on repayment capacities. However, CBC’s ability to generate sustainable net interest margins and prudent risk management initiatives has helped offset the higher credit costs. As interest rates are expected to ease, Manatunge is confident that repayment capabilities will improve, leading to a reversal of the higher NPLs.

Despite the short-term challenges posed by higher interest rates, CBC has been able to maintain its profitability and financial stability by capitalising on higher interest margins. This ability to generate strong margins, despite rising credit costs, has helped the bank absorb the increased risks associated with higher NPLs.

In addition to interest rates, the exchange rate volatility in Sri Lanka has been another critical factor for the bank, particularly in terms of foreign currency exposure. As a bank with international operations, CBC faces the challenge of managing foreign exchange risk, especially during times of currency depreciation and high volatility in the foreign exchange market.

Manatunge explained that the bank’s international operations and foreign currency denominated borrowings are influenced by the exchange rate fluctuations, which can impact both the bank’s funding costs and profitability. As the Sri Lankan rupee depreciates against the US dollar and other major currencies, the bank faces higher costs for foreign currency-denominated debt and the possibility of increased provisions for potential currency-related risks.

Despite these pressures, CBC has maintained a robust liquidity position, with a liquidity coverage ratio (LCR) of 516.27% in 2023, significantly higher than the regulatory minimum of 100%. This strong liquidity provides the bank with a cushion against external shocks, including those arising from adverse exchange rate movements. The bank's ability to manage its liquidity effectively helps mitigate the risks posed by both foreign currency fluctuations and domestic interest rate hikes.

Furthermore, CBC’s strong focus on supporting SMEs, a sector heavily impacted by exchange rate and interest rate volatility, has been a key part of its strategy to maintain a stable loan book and continue growth despite broader economic pressures. By providing tailored financial products and advisory services, CBC helps SMEs better manage the financial challenges posed by exchange rate movements and interest rate hikes.

Sovereign ratings impact on interest and exchange rates

The country’s sovereign credit rating has a direct impact on interest and exchange rates in Sri Lanka. When Sri Lanka’s sovereign credit rating was downgraded to 'RD' (Restricted Default) by Fitch and 'Ca' by Moody’s, the country faces higher borrowing costs in international markets, which in turn influences domestic interest rates. The downgrade signals increased risks for investors, leading to higher yields demanded by foreign investors and higher costs for the government’s borrowing needs, which inevitably trickles down to the banking sector.

For CBC, the sovereign downgrade affects its access to international markets and foreign currency liquidity. However, Manatunge pointed out that the bank has strategically managed these risks by maintaining a conservative approach to foreign exchange and interest rate exposure. The bank’s strong liquidity position, supported by its strong export market share and high-volume deposit base, provides it with the flexibility to continue operations without significant disruptions, even in a challenging macroeconomic environment.

"We’ve always been mindful of liquidity, and our robust position ensures that we can handle unexpected shocks while maintaining operational stability," said Manatunge. The bank’s healthy liquidity profile is a testament to its prudent financial management and risk mitigation strategies, which are designed to ensure the continued smooth functioning of its operations.

As of December 31, 2023, CBC reported total deposits of LKR 2.148 trillion (about $7.39 billion) and a loan book of LKR 1.296 trillion (about $4.45 billion). These figures underline the bank’s central role in Sri Lanka’s banking sector, maintaining strong growth even in challenging times. Moreover, Sri Lanka’s Ministry of Finance has declared CBC as the largest lender to Sri Lanka's SME sector for the fourth consecutive year, accounting for 33% of total loans disbursed to SMEs in the country—LKR 231.655 billion (approximately $796 million) out of a total of LKR 704.142 billion (about $2.417 million)

Digital banking and customer-centric innovation

One of the key pillars of CBC’s strategy in recent years has been its focus on digital banking. In line with global banking trends, CBC has expanded its digital capabilities, launching the ‘ComBank Digital’ platform, which now serves over 1.5 million registered users. This platform has been pivotal in making banking services more accessible, especially as the demand for digital banking solutions continues to grow in Sri Lanka.

“We recognised early on that digital banking is the future. We invested in building platforms that are not just accessible, but also comprehensive in meeting our customers’ needs,” said Manatunge. Through the platform, CBC has been able to offer a wide array of services, from basic banking functions to more advanced services like digital payments and loan management.

In addition to expanding its digital offerings, CBC is also incorporating artificial intelligence (AI) and data analytics into its operations. "AI and data analytics will allow us to better serve our customers by making our operations more efficient and tailored to their needs," Manatunge noted. By leveraging these technologies, CBC aims to improve customer service and optimise internal processes, ensuring that it remains competitive in an increasingly digital world.

Supporting SMEs, the backbone of Sri Lanka’s economy

SMEs represent a crucial component of Sri Lanka’s economy, and CBC has been a steadfast supporter of this sector. As the largest lender to SMEs in the country, CBC has provided essential financial services to help these businesses grow and navigate economic challenges.

"SMEs are integral to Sri Lanka’s economic recovery," said Manatunge. "We’ve always been committed to ensuring that SMEs have the resources and capabilities they need to succeed." CBC’s financial products are tailored to meet the specific needs of SMEs, including working capital loans, trade financing, and advisory services. This support has been crucial, especially as the SME sector has faced difficulties stemming from economic volatility.

In addition to providing financial products, CBC works to ensure that SMEs are equipped with the knowledge and tools needed to thrive in an increasingly digital economy. "We help SMEs embrace digital tools and modernise their operations," said Manatunge. This focus on supporting SME development continues to be a cornerstone of CBC’s overall strategy, with the bank playing a key role in supporting Sri Lanka’s economic recovery.

Focus on green financing and sustainability

Sustainability has been a central focus for CBC in its strategy during recent years. The bank was the first in Sri Lanka to engage in green financing for solar energy projects, and it has continued to expand its green financing portfolio. As part of its commitment to environmental sustainability, CBC has supported projects that not only deliver financial returns but also contribute to Sri Lanka’s environmental goals.

"Supporting green projects aligns with our long-term strategy, and we believe it’s crucial to balance our financial growth with positive environmental outcomes," said Manatunge. CBC’s green financing initiatives include funding for renewable energy projects and sustainable infrastructure developments. These initiatives not only benefit the environment but also reflect the bank’s broader commitment to responsible investment practices towards becoming a Net-Zero bank. The Bank was also the only Sri Lankan bank to win two Climate Assessment for Financial Institutions (CAFI) awards from the International Finance Corporation (IFC).

In line with global trends in sustainable banking, CBC is committed to further growing its green financing portfolio. "Sustainability is integrated into our overall strategy, and we will continue to look for opportunities to support environmentally friendly projects," Manatunge added. 

Preparing for regional expansion and growth

In addition to strengthening its domestic position, CBC is also focused on regional expansion. The bank has already established a presence in Bangladesh, where it has seen success, and it is looking to further expand in emerging markets in East Africa. 

In 2003, CBC expanded its operations into Bangladesh by acquiring the banking business of Credit Agricole Indosuez (CAI). This acquisition marked CBC's first venture outside Sri Lanka. At the time, CAI operated two branches and two booths in Bangladesh. Following the acquisition, CBC expanded its presence in the country, establishing a network that includes multiple branches.

At home, CBC remains committed to supporting Sri Lanka’s economic recovery, particularly in the manufacturing sector. "We expect increased demand for credit as Sri Lanka’s economy stabilises, and we’re prepared to meet that demand," said Manatunge.

Reflecting on a century of service and looking ahead

For over 100 years, CBC has developed a long history of service to Sri Lanka's financial sector. The bank’s ability to adapt to changing economic conditions, its continued investment in digital transformation, and its commitment to supporting SMEs and sustainable projects have ensured its position as a key player in Sri Lanka’s banking industry.

Reflecting on CBC’s achievements over the past century, Manatunge said, "We’ve built a foundation of resilience, adaptability, and long-term growth. As we look to the future, we remain focused on steady, sustainable growth and continuing to meet the needs of our customers, both in Sri Lanka and overseas."

As CBC prepares for the next 100 years, its strategic focus on managing risks, expanding its digital capabilities, and supporting environment, society and all segments of customers will be critical to its continued success.