Banks like Commercial Bank (COMB), Sampath (SAMP), and Hatton National (HNB) are perennial favourites among Sri Lankan investors — large, dividend-paying, and central to the economy. But a bank can't be analysed like a normal company. It doesn't sell a product; it manages money and risk. This guide gives you the handful of metrics that actually matter, in plain language.
A framework, not a tip. We're covering how to compare banks, using the standard tools analysts use. Pull each bank's latest report from the CSE for current figures before drawing any conclusion — banking numbers shift every quarter.
Why a bank is different
A normal company buys or makes something and sells it for more. A bank's "raw material" is money: it takes in deposits (paying you a little interest) and lends that money out (charging borrowers more). Its profit lives in the gap between those two rates — and in how well it avoids lending to people who don't pay it back. So the metrics are all about margins, risk, and efficiency, not units sold.
The six numbers that matter
The banking scorecard
- Net Interest Margin (NIM) — the gap between what the bank earns on loans and pays on deposits. Higher is generally better.
- CASA ratio — the share of deposits sitting in cheap current & savings accounts. Higher means cheaper funding.
- NPL ratio — non-performing loans as a share of the total. Lower is safer; this is the key risk gauge.
- Cost-to-income — running costs as a share of income. Lower means a more efficient bank.
- Return on Equity (ROE) — profit as a share of shareholders' money. The headline profitability number.
- Capital Adequacy (CAR) — the bank's safety buffer against losses, set by the regulator. Higher is sturdier.
Reading them together
No single number decides it. You're looking for a bank that is profitable (good NIM and ROE), efficient (low cost-to-income), safe (low NPLs, strong CAR), and cheaply funded (high CASA). A bank might win on one and lose on another — the art is in the balance.
Building the comparison
The clean way to compare COMB, SAMP, and HNB is a simple table: banks down the side, the six metrics across the top, latest figures in the cells. Fill it from each bank's most recent results and the differences jump out — one may be more profitable but carry riskier loans; another safer but lower-returning.
Then add the valuation row. For banks, the most-used yardstick is price-to-book (P/B) — the share price versus the bank's net asset value per share — alongside dividend yield. A strong bank trading below book value has historically drawn value investors' attention, though "cheap" always demands the question why.
A great bank is profitable, efficient, well-funded, and cautious about who it lends to — all at once. Compare on all four, never just profit.
The Sri Lankan context you can't ignore
Recent years were extraordinary for local banks. During the economic crisis they were hit on several fronts at once: exposure to government securities that had to be restructured, a jump in bad loans as businesses struggled, and volatile interest rates. Understanding where each bank stands in that recovery — how much it has cleaned up its loan book, rebuilt its buffers, and returned to normal profitability — is central to analysing them today. A number that looks unusual may be a scar from that period, or a sign of genuine recovery. Read the management commentary to tell which.
How to reach your own view
Fill the scorecard for all three, judge each on profitability, efficiency, risk, and funding, layer on valuation, and read each bank's own account of its recovery. You'll quickly see they're not interchangeable — each has a different profile of strengths and risks. That comparison, done honestly, is worth far more than any "banks are cheap" headline.