Sampath Bank reported a net interest income of Rs. 19.8 Billion for 1H 2019, reflecting a growth of 12.2% over the figure reported in 1H 2018, a commendable result given the challenging economic environment throughout the period under review.
Operating profit before impairment charges and taxes for the period grew by 4.6% over the corresponding period in 2018. However, Profit Before Taxes recorded a decline of 33.7%.
Impairment charges for the period increased owing to higher non-performing loans reported during the period. Meanwhile, volatile interest rates, currency uncertainty and substantially higher taxes such as the debt repayment levy continued to undermine the bank’s profit growth. The economic slowdown and the recent Easter Sunday terror attacks which affected many key industries also had a negative impact on the profit growth of the Bank.
The bank recorded a Profit Before Tax (PBT) of Rs. 5.8 billion and a Profit After Tax (PAT) of Rs. 4.1 billion. Meanwhile the Sampath Bank Group reported a PBT and PAT of Rs. 5.9 billion and Rs 4.2 billion respectively.
Fund Based Income (FBI)
Net Interest Income (NII), which is the main source of income representing almost 76% of the total operating income of the bank, recorded an increase of Rs. 2.1 billion (12.2%) during the period under review. Accordingly, the bank recorded Rs. 19.8 billion as NII for the 1H 2019, as against Rs. 17.7 billion recorded for the corresponding period in 2018.
The above achievement was made possible due to marginal growth in the bank’s fund base, timely re-pricing of asset and liability products and other fund management strategies adopted by the bank. The decision by the regulator to reduce the SRR from 7.5% to 6.0% with effect from 16 November 2018 followed by a further reduction to 5% with effect from 1 March 2019 also had a positive impact on NII. On the other hand, the NIM of the bank dropped to 4.35% as at 30 June 2019 from 4.41% reported in December 2018, due to continuous pressure on interest rates.
Non-Fund Based Income (NFBI)
Net fee and commission income, which largely comprises fees generated through credit, trade, card and electronic channels, declined marginally to Rs. 4.7 billion in 1H 2019, from the figure reported in 1H 2018. The decline was kept to a minimum due to the strong market uptake for innovative value additions offered through electronic channels as well as appropriate action to expand credit card operations.
The net gain from the trading portfolio recorded a strong growth to reach Rs. 2.2 billion for the period under review. This was a result of tactical strategies to maximise forward contract margins in a highly volatile exchange rate environment which enabled the bank to benefit from significant revaluation gains on forward contracts. However, other operating income which mainly consisted of realised exchange profit/loss declined by 126% YoY to post a net loss of Rs. 642 million. This was due to the appreciation of the Sri Lankan rupee against the US dollar in 1H 2019, compared to the depreciation recorded during the comparative period in 2018.
Operating expenses of the bank which stood at Rs. 9.5 billion during 1H 2018, increased to Rs. 10.1 billion during the period under review, reflecting a YoY increase of 6.7%. This increase was mainly due to higher personnel expenses triggered by annual salary increments. Other overhead expenses too increased slightly due to general price hikes. Consequently, the bank’s Cost-to-Income ratio (excluding VAT, NBT & DRL on financial services) increased marginally to 38.8% in the first six months of 2019 from 38.4% reported for the corresponding period in 2018.
Impairment charges on loans and receivables
While the general economic slowdown continued to dampen the general business climate in the country, the recent Easter Sunday terror attack had a catastrophic impact on the financial performance of many key sectors of the economy. Consequently, non-performing advances of all banks including Sampath Bank further increased in 1H 2019. As a result, Sampath Bank’s gross NPA ratio increased to 5.66% as at 30 June 2019 from 3.69% reported as at end December 2018.
As a result of the increase in non-performing advances, the impairment charge of individually significant customers increased to Rs. 2.5 billion in 1H 2019 from Rs. 1.7 billion in the corresponding period for 2018. The collective impairment charge on loans and other investments also increased to Rs. 4.7 billion during the first six months of this year from Rs. 2.6 billion recorded during 1H 2018.
Sampath Bank’s total asset base grew by 1.3% (annualised 2.6%) during the period under review to reach Rs. 925.7 billion as at 30 June. In comparison, the total asset position as at 31 December 2018 stood at Rs. 914.2 billion. Gross loans and advances grew by 2.5% (annualised 5.0%) to reach Rs. 686.9 billion as at 30 June, recording a growth of Rs. 16.6 billion for the period under review. Total deposit base except deposits held by other banks increased by Rs. 5.7 billion for the same period, to reach Rs. 696.1 billion as at the reporting date, a growth of 0.8% (annualised 1.6%). Meanwhile, the CASA ratio which stood at 34.4% as at 30 June showed a marginal but encouraging improvement over the 33.4% registered as at 31 December 2018.
Return on Average Equity (ROE) (after tax) declined from 16.02% as at 31 December 2018 to 9.26% as at the end of the period under review in direct correlation to the bank’s performance for 1H 2019. The increase in average equity base as a result of the Rights Issues in June 2019 (Rs. 12.1 billion) also contributed to the drop in ROE. Return on Average Assets (ROA) (before tax) declined to 1.27% from 2.13% as at the end of 2018.
The Statutory Liquid Asset Ratio (SLAR) for the Domestic Banking Unit and the Off-Shore Banking Unit were maintained well above the mandatory requirement of 20% throughout the period, and ended up at 22.94% and 28.23% respectively as at 30 June 2019.
The Bank’s Common Equity Tier I Capital, Tier I Capital and Total Capital Adequacy ratios as at 30 June 2019 was at 14.0%, 14.0% and 18.1% respectively, all well above the minimum regulatory requirement of 8.5%, 10.0% and 14.0%, applicable as at the reporting date. In order to fall in line with Basel III capital requirements, Sampath Bank raised Rs. 7.0 billion worth of Tier II Capital by way of a Basel III Compliant Debenture issue in February 2019 and Rs. 12.1 billion worth of Tier I Capital by way of a Rights Issue in June 2019.