Sampath Bank profit up 57.4% to Rs. 3.3 b in 2010

Monday, 14 February 2011 00:01 -     - {{hitsCtrl.values.hits}}

Sampath Bank continued with the current growth momentum in 2010 as well, by posting all-round impressive results over the last year, despite many challenges faced.


The Bank’s pre-tax profit which rose to Rs. 4,501.7 mn in 2010 reflected an increase of Rs. 525.5 mn or 13.2% over the pre-tax profit of Rs. 3,976.2 mn for the year 2009. The post — tax profit of the Bank recorded a growth of 57.4 % over the last year, rising from Rs. 2,098.3 mn in 2009 to Rs.3, 302.7 mn in 2010.

A higher growth rate in post-tax profits than that in pre-tax profits, was made possible due to the tax free income accrued during the period, which included a capital gain of Rs. 654.8 mn, realised through the sale of bonus-shares received from Lanka Bangla Finance Ltd, a recovery against an impairment provision of Rs. 1,331.4 mn and an increase of Rs.333.02 mn in mark to market gains on the trading portfolio of the Bank. Consequently, the Bank’s tax charge for the period under review, decreased by Rs. 678.9 mn, despite the increase of 13.2% in pre-tax profits.

Group performance

Financial results of the Sampath Bank Group, which consists of the Bank and four subsidiary companies, were even better. Pre-Tax Profit of Rs.4,794.2 mn of the Group for 2010 recorded a growth of Rs. 789.3 mn or 19.7 %, over the previous year’s pre-tax profit of Rs. 4,004.9 mn, with Sampath Bank, contributing bulk (93.9%) of the profit as the main entity of the Group. The post — tax profit of the Group amounted to Rs. 3,5 19.9 mn, recording a growth of Rs. 1,436.2 mn or 68.9%, over the post-tax profit of Rs. 2,083.8 mn for the last year. Marked improvements in the performance of all four subsidiary companies during the period under review facilitated to record a higher profit growth rate at the group level.

Contributory factors for the Bank’s improved results

The net return on the Bank’s entire fund-based operation, which is Net Interest Income (Nil), made the single largest contribution for the increased profitability, rising from Rs. 7,805.2 mn in 2009 to Rs. 8,524.8 mn in 2010, registering an impressive growth of Rs. 719.6 mn or 9.2%. This growth in NIL, was facilitated by the continued volume expansion in the fund based operation and success of the Bank in managing the returns thereon, as reflected by the healthy Net Interest Margin (NIM), which amounted to 5.00% in 2010, above the industry average of 4.5%. In addition to the timely product reprising measures taken by the ALCO, the Bank’s success in minimising the NPLs both in terms of absolute volumes and the NPL Ratio and improving the deposit-mix helped to maintain the NIM at this level, at a time when the interest margins were shrinking in the market.

Other income of the Bank, bulk of which is Commission, recoveries and Fee-Based income, too recorded a growth of Rs. 1,612.1 mn or 38.0% in 2010 over 2009. The only source of core-banking income, which recorded a negative growth (35.7%) in 2010, was exchange income, largely due to the revaluation loss of Rs. I 76.2 mn, incurred in 2010 against the FCBU’s retained profits, as against the revaluation profit of Rs. 67.0 mn recorded in 2009. This was solely due to the appreciation of LKR against the US Dollar, from Rs 114.47 as at 31.12.2009 to Rs. 110.95 as at 31.12.2010.

Increase in the Bank’s operating expenses over the previous year was managed at Rs. 1,152.6 mn or 16.8%, despite the additional expenditure incurred on account of the ambitious branch expansion programme (40 new branches), 405 new recruitments and annual wage increases given effect from 1 April 2010.

The Specific Provision for Loan Losses of the Bank period for the year 2010 amounted Rs. 1,764.8 mn, as against Rs. 324.0 mn for the period of last year. The resultant increase of Rs. 1,440.7 mn in specific loan loss provisions was mainly due to the Bank’s decision to make additional loan loss provisions as a prudential measure against certain identified NPLs, over and above the prevailing time — based provisioning requirements, ignoring the collateral held. This move also helped the Bank to increase its Provision Cover (excluding the General Provisions) against the NPLs from 54.34% as at 31.12.2009 to 88.89% as at 31.12.2010, and it is well above the industry average of 59.5%. In addition, an impairment provision of Rs 275.9 mn was made on account of the investment in the ordinary shares of Union Bank Colombo, as instructed by CBSL, on the grounds that there has been no return from the date of investment.However, the increased recoveries against previous loan loss provisions, which rose from Rs. 540.3 mn in 2009 to Rs. 1, in 2010, helped to off-set the effect of these additional provisions on the bottom line.

Financial ratios

The improved profits paved the way for almost all the key financial ratios of the Bank to record significant improvements over the previous year. Prudent lending practices which included the cartelised credit model introduced recently, effective post-sanctioning monitoring systems and intensified recovery efforts against the existing NPLs, resulted in reducing the Bank’s NPLs both in absolute and percentage terms. The NPL volumes net of IIS which stood at Rs. 7,473.9 mn as at 3 1.12.2009 was reduced to Rs. 5,047.1 mn by Rs. 2,426.8 mn or 32.5%. Similarly the NPL Ratio of the bank was reduced to 3.95% as at 31.12.2010, from 7.63% one year ago. The industry average on NPL Ratio as at 31 December 2010 was 5.3%. In addition to the improvement made in the Provision Cover referred to above, The Bank’s Net NPL I Equity Ratio (Open Credit Exposure Ratio) too was reduced to 3.58% from 26.59% as at 31.12.2009. In addition, almost all profit- based Ratios of the Bank such as ROA, ROE and EPS recorded significant improvements.

Sampath also remained as one of the well capitalised banks, with the Tier I Capital Adequacy Ratio at 10.71 % and the Total Capital Adequacy Ratio at 12.91 % as at 31.12.2010, despite the credit growth of 30.3%.

Business growth

Total deposit base and the total assets of the Bank grew by 19.4% and 18.5% respectively in the year of 2010, well above the industry averages of (5.6% and 17.6% respectively. In addition, the Bank continued with its growth momentum in customer advances, recording a significant growth of 30.3 % over 31.12.2009, which too surpassed the industry average of 22.6.%. Samapth Bank’s much higher growth rates in all three key growth areas namely, total deposits, total advances and total assets, surpassing those of the industry resulted in increases in the market share of the Bank in the respective areas.

Value creation for the shareholders

Taking in to account of the bank’s better performance in year 2010, the board of directors of the Bank has recommended a final dividend of Rs.6.60 per share, in the form of scrip dividend in addition to the interim scrip dividend of Rs. 3.00 per share already paid. Further in 2010, the bank announced a major capital restructuring programme, which entailed two sub-division of shares (share-splits) that increased the number of shares by 120%. Even after these share splits, Sampath share is currently trading at around Rs. 300 per share and this price is well above the re-stated net assets value of Rs. 98.29 per share, after the share-splits. In terms of market capitalisation, Sampath Bank’s ranking on the CSE has now improved to the 15th position, as against the 19th position held on 31.12.2009.

Moving forward

Currently, Sampath Bank operates with a network of 175 Branches and 228 Automated Teller Machines. The Bank opened 40 new branches during the year 2010, which was a record in the banking history of Sri Lanka and plans are underway to continue with the accelerated branch expansion programme.


In the year 2010 Sampath Bank has received many awards namely Bank of the Year — 2010 for the second consecutive year by the “The Banker Magazine” – London, which is considered as the most prestigious award in the international banking industry, three prestigious awards at the National Business Excellence Awards 2010,conducted by the National Chamber of Commerce, First Runner Up Award 2010 by the South Asian Federation of Accountants (SAFA) for best presented accounts, Effie Advertising Awards 2010 (which has been granted considering the both effectiveness and the creativity of advertising campaign), e-Swabhimani Award 2010, in the category of e-Business and Commerce and National Best Quality Software Awards (NBQSA)

At the newly concluded rating assessments, considering the healthy asset quality, better compliance, transparency, capital adequacy, controls, systems and processes of the Bank , the overall credit rating of the Bank’s has been improved from “AA-”Ika (stable) to “AA-Ika (positive) by Fitch Rating Lanka. However, RAM Ratings Lanka has assigned AA (stable) rating for Sampath Bank, in their initial rating assessment concluded recently.