Monday, 11 November 2019 07:18

Sampath Bank’s Net Interest Income increases by 13.4% in first 9 months of 2019

In results released to the Colombo Stock Exchange, Sampath Bank announced that its Net Interest Income recorded an encouraging growth of 13.4% for the nine months ended 30 September over the figure reported for the corresponding period in 2018. Commendably, these results are despite slower growth in the loan book, increasing non-performing loans and other external environmental factors that affected the business throughout the review period.

For the nine months ended 30 September, the bank reported an operating profit of Rs. 25.6 billion before impairment charges and taxes, a 5.2% increase over the same period of 2018. Nonetheless, Profit Before Tax (PBT) for the nine months ended 30 September dropped to Rs. 10.4 billion from Rs. 12.6 billion recorded in the corresponding period. This decline of 17.4% is attributed mainly to higher impairment charges (an increase of 22%) and an almost 50% increase in taxes on financial services. Taxes on Financial Services for the nine months rose to Rs. 4.8 billion, including Rs. 1.6 billion on account of the debt repayment levy. However, the PBT decline reported for the nine months was lesser than that recorded by the bank in the first half of 2019.

The bank reported a Profit After Tax (PAT) of Rs. 6.5 billion for the period under review, reflecting a decline of 23.5% over the corresponding period in the previous year.

The Sampath Group recorded a PBT and PAT of Rs. 10.8 billion and Rs. 6.8 billion respectively.

Fund Based Income (FBI)

Interest income for the period under review increased by Rs. 6.2 billion and stood at Rs. 77.7 billion at the end of the third quarter, compared to Rs. 71.5 billion recorded for the corresponding period in 2018, a moderate growth of 8.7% which comes amidst low credit growth and higher non-performing loans.

Interest expenses for the period too increased slightly by 5.8% owing to the new debenture issue which took place in February 2019 and a marginal growth in its deposit portfolio. At the end of the third quarter of 2019, the bank’s interest expenses reached Rs. 46.9 billion compared to Rs. 44.3 billion recorded for same period in 2018.

Overall, the bank’s Net Interest Income (NII) increased by 13.4% for the period under review and stood at Rs. 30.8 billion thanks to effective fund management strategies and timely re-pricing of assets and liability products. Further, the decision by the regulator to reduce the SRR from 6% to 5% with effect from 1 March also had a positive impact on NII. Consequently the bank’s Net Interest Margin also remained broadly stable and stood at 4.45% at the end of the third quarter of 2019.

Non-Fund Based Income (NFBI)
The bank recorded a 223% increase in the net gains from its trading portfolio, mainly due to movement in forward exchange rates in favour of the bank. At the end of 3Q 2019 net gains from the trading portfolio stood at Rs. 1.8 billion compared to a loss of Rs. 1.4 billion recorded in the corresponding period of the previous year. Meanwhile, other operating income which mainly consists of realised exchange profit/loss, declined by 81%. This was due to the appreciation of the Sri Lankan rupee against the US dollar for the better part of 2019, in contrast to the depreciation recorded during the comparative period in 2018.

Net fee and commission income, which largely comprises of fees generated through credit, trade, card and electronic channels, edged up 0.3% to Rs. 7.3 billion for the nine months ended 30 September.

Operating expenses
Total operating expenses of the bank stood at Rs. 15.3 billion during the nine months ended 30 September, compared to Rs. 14.1 billion recorded in the corresponding period for 2018. Higher personnel expenses triggered by annual salary increments and general price hikes were the main factors that contributed to the increase of 9% in total operating expenses. Consequently, the bank’s cost-to-income ratio (excluding VAT, NBT and DRL on financial services) increased by 80 basis points to 37.5% at the end of 3Q 2019 from 36.7% reported for the corresponding period in 2018.

Impairment charges on Loans and Receivables
A combination of factors beyond the bank’s control were responsible for the deterioration in the quality of the loan portfolio throughout the first nine months of 2019. As a result, Sampath Bank’s gross NPA ratio increased to 6.03% as at 30 September from 3.69% reported as at the end of December 2018.

Owing to the increase in non-performing advances, the overall impairment charge of the bank also increased to Rs. 10.3 billion at the end of 3Q 2019, from Rs. 8.5 billion in the corresponding period in 2018. However, the impairment charge on individually significant customers decreased by Rs. 735 million due to a series of strategic measures taken by the bank to enhance the quality of collateral and assist customers to improve their debt servicing capacity.

Business growth
The bank recorded a total asset growth of 4.1% (annualised 5.5%) during the period under review, with the asset book reaching Rs. 952 billion as at 30 September. In comparison, the total asset position as at 31 December 2018 stood at Rs. 914 billion. Gross loans and advances grew by 5.8% (annualised 7.8%) to reach Rs. 709 billion as at 30 September. Total deposit base except deposits held by other banks increased by Rs. 18 billion for the same period to reach Rs. 708 billion as at the reporting date, a growth of 2.6% (annualised 3.5%). Meanwhile, the CASA ratio which stood at 33.4% as at 31 December 2018 increased by 90 basis points at the end of the third quarter of 2019 to reach 34.3%.

Capital Base and ratios
In the first nine months of 2019, the bank remained proactive in its efforts to strengthen its capital base in compliance with the Basel III capital requirements. After two successful Basel III compliant debentures and rights issues in previous years, the bank succeeded in raising another Rs. 7 billion worth of Tier II Capital by the way of a Basel III compliant debenture issue in February 2019. A further Rs. 12.1 billion worth of Tier 1 capital was raised by way of a rights issue in June 2019. As a result, the bank’s Common Equity Tier I Capital, Tier I Capital and Total Capital Adequacy ratios as at 30 September stood at 13.57%, 13.57% and 17.73% respectively.

The bank continues to remain well capitalised and highly liquid with all metrics above the regulatory thresholds. As at 30 September, the Statutory Liquid Asset Ratio (SLAR) for the Domestic Banking Unit and the Off-Shore Banking Unit were at 22.32% and 28.34% respectively.

However, due to the decline in the bank’s performance during the period under review and the increase in the average equity base as a result of the rights issue in June 2019, the Return of Average Equity (ROE) (after tax) dropped from 16.02% reported as at 31 December 2018 to 9.67% as at 30 September, while Return on Average Assets (ROA) (before tax) declined to 1.51% from 2.13% as at the end of 2018.


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