This Financial Review provides an in-depth analysis of the Bank’s financial performance for the year 2024, offering valuable insights into the key drivers of growth, financial stability, and strategic outcomes. It should be read in conjunction with the section on Operating Environment and Outlook, which examines global, local, and industry trends that shaped the Bank’s financial trajectory. Additionally, the section on Management Discussion and Analysis elaborates on how the Bank effectively strengthened its financial and non-financial capitals within the framework of its Sustainability Agenda and long-term strategic priorities.

In a year marked by economic recovery and evolving regulatory landscapes, the Bank demonstrated resilience, agility, and sound financial stewardship, navigating challenges while capitalising on emerging opportunities. This review presents a comprehensive assessment of how financial decisions, risk management frameworks, and operational efficiencies collectively contributed to sustainable value creation for all stakeholders.

Performance of the Group

An overview

In a period marked with gradual turnaround of the Sri Lankan economy, demonstrating resilience amidst challenges and setting the stage for sustainable growth, the Commercial Bank Group, comprising Sri Lanka’s largest private sector bank, its subsidiaries, and the associate, concluded the year 2024 with the best ever operational performance in its history of operations. The Group’s assets grew to Rs. 2.876 Tn., marking an increase of 8.30% (2023 – 6.24%) from Rs. 2.656 Tn., at the end of 2023. The Group recorded a remarkable 154.28% growth in profit after tax, reaching Rs. 55.686 Bn., in 2024 (2023 – Rs. 21.900 Bn.), posting the highest-ever profit in its history. A commendable growth in income from core banking operations and the net impact, consequent to the conclusion of the debt restructuring program in relation to SLISBs, as detailed below, contributed for this exceptionally strong financial performance. Notably, even after discounting for the net impact of the debt restructuring program, the Group recorded a strong performance.

With the Bank accounting for 97.00% of the total assets (2023 – 97.17%) and 97.10% of the Group's profit after tax (2023 – 93.43%), the following analysis delves into the Bank's financial performance in detail. Subsequently, a brief overview of the Bank's operations in Bangladesh, other overseas operations, operations in local subsidiaries, and the associate is given on pages 161 to 165.

Performance of the Bank

An overview

The Bank's total assets surpassed the Rs. 2.5 Tn. milestone in 2023 and continued to hold its position as the only private sector commercial bank in the country with an asset base exceeding this threshold. As of December 31, 2024, total assets of the Bank stood at Rs. 2.790 Tn. compared to Rs. 2.580 Tn. in 2023, reflecting a growth of 8.12% (2023 – 6.37%). This growth, amounting to Rs. 209.452 Bn., was primarily supported by an increase in deposits, which grew by Rs. 151.521 Bn., or 7.27% (2023 – 8.92%), reaching Rs. 2.237 Tn., by year-end, compared to Rs. 2.085 Tn., at the end of 2023. Notably, the Bank achieved the milestone of being the only private sector bank to surpass Rs. 2 Tn., mark in deposits in the fourth quarter of 2023, an achievement that the Bank is maintaining to date. Net lending portfolio grew by Rs. 208.165 Bn., or 17.70% (2023 – 4.06%), reaching Rs. 1.385 Tn., by the end of the year, compared to Rs. 1.176 Tn., in 2023. It is noteworthy to mention that the Bank was able to increase its market share in total assets, deposits and loans and advances to 13.16%, 12.90% and 13.22% in 2024, respectively, from 12.65%, 12.54% and 11.49% respectively, at the end of 2023, as shown in the Table – 05 on page 61 on the Bank’s performance in 2024 compared to the Banking Sector.

It is pertinent to mention that the Bank achieved the above milestones despite the appreciation of the Rupee to 293.00 from 324.25 against the US Dollar by 10.67% during the year.

In 2024, the Bank‘s profit after tax rose to Rs. 54.074 Bn., showing a significant increase of 164.28% compared to Rs. 20.461 Bn. in 2023, which experienced a negative growth of 10.92%.

* Reported **Normalised

Performance of the Colombo Stock Exchange (CSE) in 2024

The CSE maintained its strong bullish momentum in 2024, building on its stellar performance from the previous year. The All Share Price Index (ASPI) surged 49.66% to close at 15,945 points, outperforming its 25.50% rise in 2023. The S&P SL20 Index, representing the most liquid and capitalised stocks, saw an even sharper 58.46% increase, closing at 4,862 points.

This rally significantly expanded market capitalisation to Rs. 5.696 Tn., by end 2024, a 34.05% growth from Rs. 4.249 Tn., in 2023. Strong investor confidence, supported by improving macroeconomic stability, reinforced the CSE’s role as a key driver of capital formation and economic recovery.

Performance of the Banking Sector and Commercial Bank shares in 2024

Against the backdrop of the strong performance of the ASPI and S&P SL20 indices in 2024, the Bank Index climbed 67.77% to close at 1,337 points, reflecting strong sector growth, though at a moderated pace compared to 106.64% in 2023.

The Bank’s ordinary voting and non-voting shares appreciated 51.57% and 43.66%, respectively, with market prices closing at Rs. 144.75 (voting) and Rs. 115.50 (non-voting), up from Rs. 95.50 and Rs. 80.40 in 2023, as detailed in Table – 31 on page 182 Despite trading at 0.85 times book value (compared to 0.58 times in 2023), the Bank’s shares maintained the highest valuation among peers, reinforcing investor confidence and its market leadership in the sector.

Reflecting the Bank’s strong financial performance, its balanced dividend policy, and its commitment to delivering sustainable shareholder value, the Board of Directors has proposed a first and final dividend of Rs. 9.50 per share for 2024. This includes a cash dividend of Rs. 7.50 per share (a regular cash dividend of Rs. 5.50 per share and a special cash dividend of Rs. 2.00 per share) (Rs. 4.50 in 2023) and a scrip dividend of Rs. 2.00 per share (Rs. 2.00 in 2023). The proposed dividend aligns with the Bank’s capital augmentation strategy, ensuring continued financial resilience while providing an attractive return to shareholders and attributing to the non-recurring profits recognised during the year 2024.

Impact of the Debt Restructuring Program of the Government of Sri Lanka to the Bank

As part of the Debt Restructuring Program of the Government of Sri Lanka, investments in SLISBs were restructured on December 20, 2024. The Bank had a cumulative impairment provision of 54% of the carrying value to cover potential losses on its investments in SLISBs as of that date (the de-recognition date) which had a face value of USD 517.080 Mn. Under the two restructuring options offered, namely, “Local Bonds Option” and “Global Bonds Option”, the Bank opted for the “Local Bonds Option” as it offered a significantly lower principal haircut compared to the Global Bonds Option, albeit lower coupon rates and extended maturities and received 30% of its exposure in Local LKR Bonds (amounting to Rs. 45.033 Bn., or USD 153.700 Mn.) and also accepted a 10% nominal haircut on the face value of the remaining 70% of SLISBs. Consequently, a new USD-denominated bond (Step-Up Bond) was received, which represented 63% of the original face value (amounting to USD 325.760 Mn.), with the Government retaining the option to settle this bond in Sri Lankan Rupees in the event of a default. Further, a “Past Due Interest” (PDI) bond amounting to USD 68.420 Mn., after applying a 11% haircut on past-due interest claims was also received. A shortfall in committee expenses of USD 0.464 Mn., was deducted from the first amortisation of the PDI bond payment received in December 2024. Additionally, an Exchange Fee Bond with a face value of USD 9.602 Mn., was also received for consenting for the debt restructuring program.

The bonds issued under the exchange program were recognised in the Financial Statements as new financial instruments and measured at their fair value using the discounted cash flow valuation method. Since the PDI Bond and the Step-Up Bond referred to above were issued at a lower yield, the Bank determined the exit yields in line with the Sri Lanka Accounting Standard – SLFRS 9 on “Financial Instruments” (SLFRS 9), to arrive at their fair value on initial recognition.

As a result, the following adjustments were made to the Financial Statements for the year under review:

• Recognition of a loss Rs. 45.108 Bn., comprising a day-one loss of Rs. 39.277 Bn., on USD Step-Up- Bond and PDI Bond and a net capital loss on haircut of Rs. 5.831 Bn., in the “Net gains/(losses) from derecognition of financial assets” in the Income Statement.
• Reversal of the cumulative impairment provision of Rs. 92.858 Bn., as of the de-recognition date, to the “impairment charges/(reversal) and other losses” in the Income Statement.
• Reversal of the deferred tax asset of Rs. 25.522 Bn., recognised on the cumulative impairment provision for SLISBs derecognised to the “income tax expense” in the income statement.

Given the significant impact of these adjustments on the financial performance for the year under review, readers are advised to consider this fact when interpreting the results. To assist the reader in this regard, we have provided a “Normalised Income Statement” below, which excludes the impact of these adjustments and related taxes, for the year 2024 alongside the reported figures for 2023 from the Annual Report 2023. Accordingly, the following analysis of the Bank’s financial performance for 2024 is based on the Normalised Income Statement. However, the analysis of Sections on profitability and the Statement of Other Comprehensive Income is based on the Audited Financial Statements published in the Annual Report.

Furthermore, as the impact of the adjustments referred to above on the financial position is not material, the analysis on Statement of Financial Position as at December 31, 2024, is presented as per the Audited Financial Statements published in the Annual Report.

Income Statement of the Bank Table – 23

For the year ended December 31,	2024 Rs. ’000	2023 Rs. ’000	Change %
	(Normalised)	(As reported in the Annual Report)
Gross income	312,439,113	335,770,196	(6.95)
Interest income	269,596,222	292,618,360	(7.87)
Less: Interest expense	155,037,883	209,514,795	(26.00)
Net interest income	114,558,339	83,103,565	37.85
Fee and commission income	33,246,118	29,704,104	11.92
Less: Fee and commission expense	10,716,909	8,145,910	31.56
Net fee and commission income	22,529,209	21,558,194	4.50
Net gains/(losses) from trading	(2,201,010)	(12,481,613)	82.37
Net gains/(losses) from derecognition of financial assets	4,090,697	5,060,242	(19.16)
Net other operating income	7,707,086	20,869,103	(63.07)
Other operating income	9,596,773	13,447,732	(28.64)
Total operating income	146,684,321	118,109,491	24.19
Less: Impairment charges/and other losses	28,286,959	38,623,739	(26.76)
Net operating income	118,397,362	79,485,752	48.95
Less: Expenses
Personnel expenses	26,913,870	21,956,866	22.58
Depreciation and amortisation	4,669,731	4,283,566	9.02
Other operating expenses	18,069,772	16,403,768	10.16
Total operating expenses	49,653,373	42,644,200	16.44
Operating profit before taxes on financial services	68,743,989	36,841,552	86.59
Less: Taxes on financial services	11,796,956	4,961,392	137.78
Profit before tax	56,947,033	31,880,160	78.63
Less: Income tax expense	16,345,777	11,419,198	43.14
Profit for the year	40,601,256	20,460,962	98.43

Income Statement

Financial intermediation

The normalised gross income decreased by 6.95% in 2024, compared to the growth of 21.90% in 2023, to Rs. 312.439 Bn., from Rs. 335.770 Bn., reported in 2023. This decrease in gross income coupled with the growth in average assets for the year of 7.27% (14.43% in 2023), the financial intermediation margin (calculated as gross income divided by average total assets) dropped to 11.64% by the end of 2024, compared to 13.41% in 2023, representing a decrease of 177 basis points (bps). The financial intermediation margin for the banking sector as a whole stood at 11.59% in 2024 (14.44% in 2023).

Fund-based operations

Interest income, constituting 86.29% of the normalised gross income amounting to Rs. 312.439 Bn., (87.15% in 2023), dropped to Rs. 269.596 Bn, in the year from Rs. 292.618 Bn., in 2023, recording a decrease of 7.87% (as against the growth of 34.03% in 2023). This drop was primarily driven by a decrease in average interest rate on interest-earning assets by 2.27%. However, the negative impact of the above was partly offset due to the growth in average interest-earning assets by Rs. 245.198 Bn.

The growth in average interest-earning assets was primarily funded by the increase in deposits and funds raised to strengthen the regulatory capital. A notable growth of 17.70% (2023 – 4.06%) observed in net loans and advances mainly contributed to the growth in average interest-earning assets. The average interest rate on interest-earning assets dropped due to the re-pricing effect on both the loans and advances portfolio and the other interest earning assets which mainly include Government securities, as a result of the lower interest rate regime prevailed following the easing of monetary policy. Interest income earned from sources other than loans and advances contributed 47.31% of the total interest income, compared to 46.44% in 2023, while the former marked a decrease of 6.15% as against the increase of 80.62% in 2023. Meanwhile, interest income from loans and advances decreased by 9.36% in 2024 (as against a growth of 9.53% in 2023), accounting for 52.69% of the total interest income, compared to 53.56% in 2023.

Interest expenses, comprising 57.51% of the interest income (71.60% in 2023), decreased to Rs. 155.038 Bn., for the year from Rs. 209.515 Bn., in 2023, recording a significant drop of 26.00% (as against a growth of 53.40% in 2023). This decrease was primarily driven by a 3.25% reduction in the average cost of funds, achieved through the timely repricing of deposits under the lower interest rate environment that prevailed during the year. However, the positive impact due to the favourable movement in the interest rates was partly offset due to the increase in average interest-bearing liabilities by Rs. 146.734 Bn. and the marginal decrease in the CASA ratio of the Bank to 38.07% from 39.23% in 2023. However, the CASA ratio of the Bank is considered an industry benchmark compared to the industry CASA ratio of 32.02%.

As a result, the Bank's net interest income increased to Rs. 114.558 Bn., from Rs. 83.104 Bn., recorded in 2023, reflecting a significant growth of 37.85% (compared to the marginal increase of 1.66% in 2023), and represented 78.10% of the total normalised operating income (70.36% in 2023).
The Bank's net interest margin too, which indicates the difference between the return on average interest-earning assets and the cost of funds of average interest-bearing liabilities, improved by 98 basis points to 3.80% in 2024 compared to 2.82% reported in 2023.

Fee-based operations

Fee and commission income reached Rs. 33.246 Bn., compared to Rs. 29.704 Bn., in 2023, reflecting a growth of 11.92% (16.65% in 2023). This increase was primarily driven by higher income from credit and debit card-related services and other financial services provided during the year.

On the other hand, fee and commission expenses, primarily associated with credit and debit card-related services, too rose to Rs. 10.717 Bn., from Rs. 8.146 Bn., in 2023, with a higher increase of 31.56% (36.39% in 2023).

Consequently, net fee and commission income increased to Rs. 22.529 Bn., compared to Rs. 21.558 Bn., in 2023, recording a lower growth of 4.50% (10.60% in 2023). Net fee and commission income accounted for 15.36% of the normalised total operating income (18.25% in 2023).

Other operating income

The Bank’s normalised other operating income, consisting of net gains or losses from trading, net gains or losses from de-recognition of financial assets, and net other operating income, decreased by 28.64% to Rs. 9.597 Bn. for the year, compared to Rs. 13.448 Bn., reported in 2023 (a drop of 57.52%). The primary factor contributing to this decrease was the drop in net other operating income by 63.07% to Rs. 7.707 Bn., from Rs. 20.869 Bn., in 2023, mainly due to the decrease in exchange gains from the revaluation of assets and liabilities, which was largely offset by a reduction in net losses from trading by 10.281 Bn., or 82.37% to Rs. 2.201 Bn., for the year compared to the net loss of Rs. 12.482 Bn., in 2023.

Total operating income

The improvements in both net interest income and net fee and commission income contributed to the normalised total operating income of the Bank to improve to Rs.146.684 Bn., representing an increase of 24.19% compared to Rs. 118.109 Bn., reported in 2023 (as against the drop of 11.12%).

* Reported **Normalised

Impairment charges and other losses

The normalised impairment charges and other losses reflected a decrease of Rs. 10.337 Bn., or 26.76% to Rs. 28.287 Bn., for the year, compared to Rs. 38.624 Bn., in 2023, This was primarily due to the impairment provisions made on SLISBs in 2024 being only Rs. 4.288 Bn., compared to Rs. 35.262 Bn., in 2023. During the year 2023, the Bank proactively increased its provision cover for SLISBs from 35% to 52% and further increased the provision cover to 54% in the 2nd quarter of 2024. These measures helped the Bank to mitigate the net losses sustained on the restructuring of SLISBs. However, as a prudent measure, impairment provisions for loans and advances were increased to Rs. 22.816 Bn., for the year, compared to Rs. 5.690 Bn., in 2023, which partly offset the positive impact of the decrease in impairment charges for SLISBs.

Net operating income

Consequently, the net normalised operating income for the year surged by 48.95% (29.40% in 2023) to Rs. 118.397 Bn., from Rs. 79.486 Bn., reported in 2023. This increase was primarily driven by the increase in the contribution from fund and fee-based operations.

Operating expenses

Total operating expenses for the year amounted to Rs. 49.653 Bn., compared to Rs. 42.644 Bn., reported in 2023, an increase of Rs. 7.009 Bn., or 16.44% (22.06% in 2023). This increase was primarily driven by an increase in personnel expenses by 22.58% (14.88% in 2023), to Rs. 26.914 Bn., from Rs. 21.957 Bn., in 2023, due to salary increments and other staff related expenses. Additionally, other operating expenses for the year also increased by 10.16% (33.80% in 2023) to Rs. 18.070 Bn., from Rs. 16.404 Bn., in 2023, mainly attributed to cost of additional services obtained by the Bank to enhance the customer service levels and price hikes across various expense categories as a result of increase of indirect taxes during the year. Depreciation and amortisation expenses also rose to Rs. 4.670 Bn., with an increase of 9.02% (20.21% in 2023), primarily due to investments made in IT-related assets.

Consequently, the Bank's normalised Cost to Income ratio (excluding taxes on financial services) for 2024 dropped to 33.85% for the year from 36.11% in 2023.

Operating profit before taxes on financial services and taxes on financial services

With operating expenses for the year growing by a modest 16.44%, the Bank reported a normalised operating profit before taxes on financial services of Rs. 68.744 Bn., compared to the previous year’s figure of Rs. 36.842 Bn., an increase of 86.59% (39.07% in 2023).

Based on the normalized operating profit as mentioned above, the taxes on financial services of the Bank amounted to Rs. 11.797 Bn., compared to Rs. 4.961 Bn. in 2023, which represented an increase of 137.78% (27.47% in 2023).

Consequently, the Bank’s normalised Cost to Income ratio (including taxes on financial services) for 2024 marginally increased to 41.89% for the year from 40.31% in 2023.

Profit before and after taxes

Due to the increase in taxes on financial services outpacing the increase in operating profit before taxes on financial services, as explained earlier, the normalized profit before taxes for the year increased to Rs. 56.947 Bn., recording a growth of 78.63% (41.07% in 2023).

As such, based on the normalised income statement, income tax charge for the year increased to Rs. 16.346 Bn., compared to Rs. 11.419 Bn., in 2023, an increase of 43.14%.

Consequently, the profit after tax for the year stood at Rs. 40.601 Bn., compared to Rs. 20.461 Bn., in 2023 with a growth of 98.43%. It is pertinent to mention that even after normalising the net effect of the restructuring of SLISBs, the above profit after tax, stands as the highest ever profit after tax reported by the Bank in its history.

* Reported **Normalised

Profitability

Reflecting the significant growth in profit after tax, both the Return on Assets (ROA) and Return on Equity (ROE) increased to 2.01% (0.82% in 2023) and 22.06 % (9.78% in 2023) respectively, despite the growth in total assets and equity during the year. Similarly, the ROA (before tax) for the year too increased to 3.56% from 1.27% in 2023, with the significant growth in profit before tax as explained earlier.

Other Comprehensive Income (OCI)

The Bank reported a loss of Rs. 10.277 Bn., in Other Comprehensive Income during the year, compared to a loss of Rs. 8.465 Bn., reported in 2023. This was primarily due to a loss of Rs. 10.890 Bn., (Rs. 11.086 Bn. in 2023) on the translation of financial statements of the Bank’s Bangladesh operations. Further, net gains on investments in financial assets (debt instruments) classified under Fair Value through Other Comprehensive Income (FVOCI) decreased by 98.83% (as against the increase of 113.38% in 2023) during the year recording a gain of Rs. 22.137 Mn. only, compared to the gain of Rs. 1.899 Bn., recorded in 2023. In addition, there was a net surplus on the revaluation of freehold land and buildings of the Bank, amounting to Rs. 1.012 Bn., in 2023 as per the Bank’s policy on revaluation of freehold land and buildings. However, the negative effect of the above factors during the year was partially offset by a net gain of Rs. 1.010 Bn., (as against a loss of Rs. 13.481 Mn., in 2023), recognised on revaluation of investments in Financial Assets (equity instruments) at FVOCI.

As a result, the total comprehensive income of the Bank for the year 2024 increased to Rs. 43.796 Bn., compared to Rs. 11.996 Bn., reported in 2023, reflecting a significant growth of 265.09% (as against the negative growth of 75.61% in 2023).

Statement of Financial Position

During the year 2024, the Bank reinforced its dominant position as the leader among the private sector banks in the country by further improving its assets, loans and advances portfolio and the deposit base.

In 2023, the Bank became the first private sector Bank in the country to surpass Rs. 2.5 Tn., in assets and Rs. 2 Tn. in deposits, solidifying its status as the benchmark private sector Bank in the country. Those accomplishments added to its legacy of being the first private sector Bank to surpass Rs. 1 Tn., mark in total assets (achieved in 2016), deposits (achieved in 2019) and loans and advances (achieved in 2021).

Assets

During the year, the Bank’s total assets grew by a healthy 8.12% (6.37% in 2023), reaching Rs. 2.790 Tn., from Rs. 2.580 Tn., at the end of 2023. This growth rate significantly exceeded the industry’s asset growth rate of 3.95% (5.04% in 2023). Notably this growth has been achieved despite the downward revaluation effect on the Bank’s assets and liabilities denominated in foreign currency due to appreciation of the Sri Lankan Rupee against the US Dollar as mentioned earlier. It is noteworthy to mention that almost the entirety of this growth came from the increase in net loans and advances.

Loans and advances to customers

As of December 31, 2024, gross loans and advances of the Bank increased to Rs. 1.487 Tn., from Rs. 1.266 Tn., a year ago. The net loans and advances stood at Rs. 1.385 Tn., as of December 31, 2024, compared to Rs. 1.176 Tn., at the end of 2023, reflecting an improvement of 17.70% (4.06% in 2023). Net loans and advances accounted for 49.63% of total assets as of December 31, 2024, reflecting a notable improvement over the 45.59% reported in 2023.

The Bank continued to maintain its position as the largest lender to the SME sector in Sri Lanka for the fourth consecutive year (see page 104 for details). It is noteworthy to mention that the gross loans and advances portfolio of the Bank’s operations in Bangladesh too reported a growth of 15.00% in 2024 (24.70% in 2023) in BDT terms.

Asset quality

The quality of loans and advances serves as a critical factor in assessing the sustainability of the Bank’s operations. Despite greater stability in the Sri Lanka’s macroeconomic environment in 2024 in the backdrop of conclusion of the much awaited debt restructuring programme, eased inflation, falling interest rates and stabilisation of forex market, fostering a more favourable environment for businesses and financial institutions, the Bank is mindful of the possible challenges of the volatilities that could arise from the macroeconomic conditions prevailing in Bangladesh. Consequently, impairment provisions in Sri Lanka for loans and advances in Stage 1 and Stage 2 reduced, reflecting improved asset quality under the improved macroeconomic conditions. However, impairment provisions for loans and advances classified under Stage 3 in Sri Lanka were increased as a prudential measure. In the meantime, impairment provisions for loans and advances portfolio in Bangladesh too were increased, as required by SLFRS 9, under Expected Credit Loss (ECL) models, given the uncertainties that prevailed. These proactive measures resulted in both the Net Impaired Loans (Stage 3) to total loans and advances ratio (including undrawn commitments) and Impaired Loans (Stage 3) to total loans and advances ratio (excluding undrawn commitments) improving to 2.76% (2023 – 5.85%) and 8.59% (2023 – 11.34%), respectively, by the end of 2024, demonstrating the Bank's approach for prudent risk management.

Consequently, cumulative impairment provisions for stage 3 loans and advances as a percentage of stage 3 loans and advances. (Stage 3 Impairment Coverage Ratio) significantly improved to 66.33% (2023 – 44.03%) while the cumulative impairment provisions for loans and advances as a percentage of the total loans and advances (Total Impairment Coverage Ratio) stood at 6.89% (7.05% in 2023), by the end of 2024, reflecting overall improvement in quality of the loan book of the Bank. These ratios though reflect mix results compared to the industry averages of 52.31% and 8.67% respectively, demonstrate the proactive stance taken by the Bank in its risk management practices.

Moreover, the open credit exposure ratio, which represents the net exposure on Stage 3 loans as a percentage of regulatory capital, saw a significant improvement and stood at 15.06% at the end of 2024 (38.69% in 2023) compared to industry averages of 34.48% (40.90% in 2023), amply demonstrating the soundness of the Bank’s risk management process.

It is important to note that the Bank’s loans and advances portfolio is well diversified across multiple industry sectors, minimizing significant exposure to any single sector and enhancing resilience against sector-specific risks. Further details on the sector-wise distribution of loans to customers are available on page 360.

Deposits

With our solid franchise, customer deposits continued to remain the primary source of funding for the Bank, constituting 80.17% of the total assets as of December 31, 2024 (80.81% in 2023), compared to the industry average of 81.79% (81.54% in 2023). Deposits grew by 7.27% to reach Rs. 2.237.Tn., by the end of 2024, compared to the growth rate of 8.92% in 2023, despite the effect of the appreciation of the Rupee against the US Dollar during the year. The growth in deposits for the year amounted to Rs. 151.521 Bn. (Rs. 170.687 Bn. in 2023)

The Bank’s CASA ratio stood at 38.07% as of December 31, 2024, compared to 39.23% in 2023, which is considered the industry best compared to the industry average of 32.02% in 2024 (32.32% in 2023).

Other liabilities

Total other liabilities at the year-end amounted to Rs. 277.952 Bn., compared to Rs. 280.351 Bn., at the end of 2023. In July 2024, the Bank raised Rs. 20 Bn., through the issuance of BASEL III compliant, Tier 2, listed, rated, unsecured, subordinated, redeemable debentures with a non-viability conversion feature, to further strengthen Tier II Capital while Rs. 12 Bn., worth of similar debentures were raised in 2023.

Capital

The Bank is guided by its Internal Capital Adequacy Assessment Process (ICAAP), Capital Augmentation Plan, and the Board-approved dividend policy to maintain capital levels aligned with its current and projected business growth. Accordingly, the Bank raised Rs. 22.544 Bn., via a rights issue in August 2024 to strengthen its Tier I capital base. Consequently, with the capital raised via the rights issue and supported by the total comprehensive income for the year and with its prudent dividend policy, the Bank increased its equity capital by 28.07% (5.51% in 2023) to Rs. 275.262 Bn., as of December 31, 2024, compared to Rs. 214.931 Bn., as of December 31, 2023. With an on-balance sheet multiplier (gearing ratio) of 10.14 times (12.01 times in 2023), equity funded 9.87% (8.33% in 2023) of total assets as of the current year-end, compared to industry averages of 11.17 times (11.55 times 2023) and 8.95% (8.66% in 2023) respectively. The Bank expected to ploughed back Rs. 41.510 Bn., from the profit for the year 2024 after the payment of dividends.

The risk-weighted assets of the Bank increased to Rs.1.574 Tn., as of December 31, 2024, from Rs. 1.371 Tn., as of the end of 2023 by 14.86% (1.12% in 2023). However, both the Tier 1 and total capital ratios improved to 14.227% (11.442% in 2023) and 18.142% (15.151% in 2023) respectively, as at December 31, 2024, comfortably above the regulatory minimum ratios of 10% and 14% respectively. These ratios demonstrate the Bank's compliance with the higher capital adequacy requirements as a one of the top tier Domestic Systemically Important Bank (D-SIB) under Basel III regulations, highlighting its significance to the Sri Lankan economy.

The equity multiplier, in terms of risk-weighted assets to regulatory total capital, decreased to 5.51 times from 6.60 times a year ago.

Liquidity

The growth in loans and advances outpacing deposit growth witnessed during the year, did not exert pressure on the Bank’s liquidity, as it maintained excess liquidity throughout the year. This surplus liquidity provides a strong assurance and positions the Bank to capitalize on expected increases in credit demand. Recognising its importance, liquidity review remains a key agenda item in the Bank's fortnightly ALCO meetings.

The gross loans to deposits ratio stood at 66.48% (60.70% in 2023). Available stable funding, as defined by the CBSL, amounted to Rs. 2.123 Tn., as of December 31, 2024 (Rs. 1.933 Tn., in 2023), leading to a Net Stable Funding Ratio (NSFR) of 187.29% (193.70% in 2023), nearly double the minimum statutory requirement of 100%. This underscores the Bank's ability to meet its long-term funding requirements. Moreover, the Liquidity Coverage Ratio (LCR) for all currencies and the Liquidity Coverage Ratio for the Rupee stood at 454.36% (2023: 516.27%) and 529.20% (2023: 491.61%) respectively, as of December 31, 2024, both more than four times the statutory minimum of 100%. These ratios signify the Bank's ability to supply of unencumbered high-quality liquid assets, ensuring its ability to withstand short-term liquidity disruptions.

Segmental performance

The Corporate and the Personal Banking Divisions made a significant contribution to the Group's profit before tax in 2024. In addition, the Treasury Division of the Bank too made an enhanced contribution to the profit before tax of the Group largely due to the reversal of impairment charges upon conclusion of the SLISB restructure program in December 2024. However, contribution to the Group’s profit before tax from the International Operations reduced mainly due to increased impairment provisions made for loans and advances portfolio of the Bangladesh Operation as a prudential measure as explained previously.

For a detailed analysis of segmental performance, please refer to pages 159 and 160 and the Note 61 to the Financial Statements on Operating Segments on pages 418 and 419.

Quarterly financial performance and the financial position of both the Group and the Bank for 2024 and 2023 can be found on pages 166 to 171, while the Bank’s performance in terms of key indicators over the past 10 year period is given in the “Decade at a Glance” section on pages 172 to 175.

The Financial Soundness Indicators presented below offer valuable insights into the financial robustness and stability of the Bank.

Core Financial soundness indicators (FSIs) Table – 24

Financial soundness indicator (%)	2024	2023	2022	2021	2020
Capital Adequacy Ratios (under Basel III regulations)
Common Equity Tier 1 ratio (Current minimum requirement – 8.5%)	14.23	11.44	11.39	11.92	13.22
Tier 1 capital ratio (Current minimum requirement – 10%)	14.23	11.44	11.39	11.92	13.22
Total Capital Ratio (Current minimum requirement – 14%)	18.14	15.15	14.66	15.65	16.82
Asset Quality Ratios
Impaired loans (Stage 3) ratio (Based on existing regulatory provisions which includes undrawn commitments)	2.76	5.85	5.25	3.85	6.78
Impairment (Stage 3) to Stage 3 Loans Ratio (Based on existing regulatory provisions which includes undrawn commitments)	64.61	43.22	39.60	42.76	30.87
Total impairment coverage ratio	6.89	7.05	7.32	5.94	5.38
Cost of credit risk	1.53	0.45	1.80	1.35	1.88
Non-Performing Credit Facilities (NPCFs) – [net of impairment] to Equity	15.63	37.38	33.56	26.69	N/A
Open credit exposure ratio (Net exposure on NPCFs as a % of regulatory capital)	15.06	38.69	34.41	25.33	N/A
Earnings and Profitability Ratios
Net interest income to total operating income *	78.10	70.36	61.51	70.69	66.15
Net fee and commission income to total operating income *	15.36	18.25	14.67	12.86	12.35
Other income to total operating income *	6.54	11.39	23.82	16.45	21.50
Operating expenses to gross income *	15.89	12.70	12.68	17.96	16.99
Impairment charge to total operating income *	19.28	32.70	53.78	27.02	28.67
Cost to income ratio (including taxes on financial services) *	41.89	40.31	29.22	37.97	39.96
Cost to income ratio (excluding taxes on financial services) *	33.85	36.11	26.29	31.61	33.95
Financial intermediation margin (Gross income to average assets) *	11.64	13.41	12.59	8.73	9.59
Interest margin (Net interest income to average assets)	4.27	3.32	3.74	3.51	3.17
Return on assets (ROA) – before income tax	3.56	1.27	1.03	1.74	1.51
Return on assets (ROA) – after income tax	2.01	0.82	1.05	1.28	1.05
Return on equity (ROE)	22.06	9.78	12.46	14.66	11.28
Liquidity Ratios
Liquidity coverage ratio (LCR) – Rupee – (Current minimum requirement – 100%)	529.20	491.61	405.91	425.97	599.38
Liquidity coverage ratio (LCR) – All currency – (Current minimum requirement – 100%)	454.36	516.27	293.91	242.52	422.86
Net stable funding ratio (NSFR) – (Current minimum requirement – 100%)	187.29	193.70	173.58	157.47	157.49
CASA ratio (Current and Savings deposits as a % of total deposits)	38.07	39.23	38.36	47.83	42.72
Gross loans and advances to deposits ratio	66.48	60.70	63.71	74.75	74.87
Assets and Funding Structure related Ratios
Deposits to gross loans and advances	150.42	164.75	156.96	133.78	133.56
Deposits to total assets	80.17	80.81	78.92	74.03	72.92
Borrowings to total assets	2.58	1.91	3.20	3.64	5.35
Equity to total assets	9.87	8.33	8.40	8.46	9.05

* Current year figures are normalized for the effect of the SLISB restructure.