Sampath Bank gears up for the future amidst economic challenges

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Financial Performance

Sampath Bank registered profit before tax (PBT) of Rs 22.0 Bn and profit after tax (PAT) of Rs 12.3 Bn for the nine months ended 30th September 2023, recording a growth of 136.4% and 71.5% respectively against the subdued financial figures reported during the corresponding period in 2022.

Key highlights for the period ended 30th September 2023

· Bank PAT improved by 71.5% to Rs 12.3 Bn.

· 10.0% year on year growth in net fee and commission income.

· YoY exchange income declined by Rs 15.8 Bn due to the appreciation of LKR against USD by Rs 42.00.

· 70.4% decline in impairment charge on loans and investments.

· Increase in government taxes by 197.7% compared to the previous period.

· Total LKR deposits increased by Rs 112 Bn during the period to reach Rs 996 Bn as at 30th September 2023.

· Tier 1 and Total Capital ratios improved from 11.92% and 14.27% as at 31st December 2022 to 14.37% and 17.73% respectively as at 30th September 2023.

Fund based income

Sampath Bank reported gross interest income of Rs 153.4 Bn for the period under review, up 44.6% from the Rs 106.1 Bn recorded in the corresponding period of the previous year. While the Average Weighted Prime Lending Rate (AWPLR) registered as at 30th September 2023 was 1,128 bps lower than the AWPLR reported as at 30th September 2022, the average AWPLR remained considerably higher throughout the current reporting period compared to the corresponding period in the previous year.

Interest expense for the period under review grew at a faster pace than the interest income as a consequence of the numerous interest rate hikes, resulting in a marginal 0.3% reduction in Net Interest Income.

Net Interest Margin also recorded a decline of 47 basis points from 5.66% as at 31st December 2022 to 5.19% as at the reporting date which is attributed primarily to the downward trend in the AWPLR from 1Q 2023.

Non-Fund based income

Sampath Bank’s Net fee and commission income (NFCI) increased by 10.0% during the period under review compared to the corresponding period in the previous year. Growth experienced in the period was mainly on account of the increase in fee and commission income derived from card, trade, electronic channels as well as remittance related activities.

Sampath Bank posted a Net Other Operating Loss of Rs 2.3 Bn in the first nine months of 2023 compared to a gain of Rs 18.0 Bn reported in corresponding period of 2022, largely due to the Rs 2.8 Bn exchange loss stemming from appreciation of the LKR against the USD by 11.5%. This was however counter balanced by the Bank recording a net trading gain of Rs 1.7 Bn for the first nine month period ending 30th September 2023, compared to a loss of Rs 3.0 Bn reported in the corresponding period of the previous year which was mainly due to revaluation gains derived from its forward exchange contracts.

Impairment charge

The Bank continued with its conservative and prudent provisioning policy and posted a total impairment charge of Rs 14.4 Bn for the period, though 70.4% less than the charge for the corresponding period in the previous year. The impairment charge for the current review period comprises Rs 12.5 Bn on account of loans and advances (corresponding period in 2022: Rs 37.7 Bn) and Rs 1.8 Bn on other financial instruments (corresponding period in 2022: Rs 10.3 Bn) as well as an additional impairment charge of Rs 0.2 Bn on commitments and contingencies (corresponding period in 2022: Rs 0.8 Bn).

Impairment charge on loans and advances

Even though the impairment charge for loans and advances for the first nine months of 2023 decreased by 66.9% compared to the same period in the previous year, the total provision cover of the Bank increased by 370 bps from 9.8% as at end September 2022 to 13.5% as at 30th September 2023.

Impairment on Individually Significant Loan (ISL) Customers

Rs 11.4 Bn was charged as an impairment provision against ISL customers during the first nine months of 2023. During the period under review the Bank re-evaluated a substantial portion of its loans and advances portfolio under the ISL category, considering both the financial resilience of customers as well as external macroeconomic pressures. Meanwhile, the proactive approach adopted by the Bank in the previous financial year to make appropriate provisioning to account for customers with potential risk has led to the build up of a sizeable provision cover against many ISL impaired customers, which resulted in lower additional provisioning being required during the reporting period. This was the main reason for the drop in the impairment charge as reported above.

Collective Impairment

Impairment models used in 2022 were continued in the first nine months of 2023 to ensure adequate buffers were in place to absorb any potential credit risk that could arise in the future. The probability weightage applied to the worst-case economic scenario remained unchanged during the reporting period. Despite the positive movements in major macro-economic variables, the Bank did not reflect these in the Economic Factor Adjustments in this quarter either, which is in keeping with the conservative stance adopted in the previous two quarters. The Bank continued to be prudent and built additional provisions against newly identified customer segments with increased credit risk during the reporting period. The allowance for overlay applied in 2022 continued to be maintained for the current reporting period as well.

The collective impairment charge for the reporting period dropped by 91.3% as the buffers built up in the previous reporting period helped to manage the risk elevated segments of the loan portfolio during the reporting period.

Impairment charge on other financial instruments

Sampath Bank recorded a net impairment charge of Rs 1.8 Bn against other financial instruments during the reporting period. The Bank opted to exchange its holdings in SLDBs to local currency denominated bonds offered by the Domestic Debt Optimisation Program (DDO). This allowed the Bank to reverse the impairment provision already recognised against the SLDBs. However, the Bank recognised a day one loss against the local currency bonds received in settlement of SLDBs under the DDO program. At the same time, the Bank increased the impairment provision against its SLISB investments on account of a possible haircut. The combined impact saw the Bank tabling a net impairment charge of Rs 1.7 Bn for the period under review against the debt instruments.

Operating Expenses

Operating expenses in the first nine months of 2023 showed 18.8% increase in comparison to the corresponding period in 2022. This was mainly due to a 25.6% increase in other expenses driven by inflation induced price increases, the substantial currency depreciation that took place in 2022 and other factors such as increased taxes and import restrictions. Personnel costs grew by 14.1% in 2023 owing to the annual salary increase.

Tax Expenses

Total effective tax rate of the Bank increased to 57.1% in first nine months of 2023 from 43.4% reported in the corresponding period in 2022 owing to the combined effect of the increase in tax rate and newly introduced Social Security Contribution Levy (SSCL).

Key Ratios

The Return on Average Shareholders’ Equity (after tax) increased to 12.49% as at 30th September 2023 from 10.95% reported at the end of the year 2022. Return on Average Assets (before tax) stood at 2.15% as at 30th September 2023 as against 1.16% reported as at 31st December 2022.

Capital Ratios

In addition to being well above the regulatory minimum requirements, Sampath Bank’s capital adequacy ratios improved further in the first nine months of 2023 from the figures reported in the previous year end. As at 30th September 2023, Sampath Bank’s CET 1, Tier 1 and total capital ratios were at 14.37%, 14.37% and 17.73% compared to 11.92%, 11.92% and 14.27% respectively at the end of 2022. These increases are attributed to three main reasons – the Tier 2 capital infusion of Rs 10 Bn in February 2023, profit generated in 1H 2023 along with the decline in risk weighted assets due to increased investment in government securities and LKR appreciation.

Assets and Liabilities

Total assets of the Bank increased by Rs 161 Bn (annualized growth of 16.3%) from Rs 1.32 Tn as at 31st December 2022 to Rs 1.49 Tn as at 30th September 2023 mainly due to investments in Government Securities.

Meanwhile, total loans declined by Rs 55 Bn from Rs 920 Bn as at 31st December 2022 to Rs 865 Bn at the end of the reporting period. Foreign currency loans declined by 19.6% mainly due to the LKR appreciation against the USD, while LKR denominated loans decreased by 3.0%.

Despite the LKR appreciation, Sampath Bank’s total deposit book increased from Rs 1.10 Tn reported as at 31st December 2022 to Rs 1.21 Tn at the end of September 2023, an increase of Rs 110.1 Bn. LKR deposits increased by Rs 112 Bn in the first nine months of 2023 to reach Rs 996 Bn as at 30th September 2023. The CASA ratio as at the same date was 33.8% compared to 32.7% reported at the end of 2022.

Awards

Sampath Bank was awarded with the esteemed title of “Best Bank in Sri Lanka for 2023”at the prestigious Euromoney Awards ceremony held in Hong Kong. The award recognises the Bank’s resilient performance and its conviction to supporting all stakeholders, while navigating through exceedingly challenging conditions in 2022. While staying true to its stated goals, this is the fifth time Sampath Bank has received this coveted award, a testament to the Bank’s commitment to excellence and its positive impact on society.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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