Sampath Bank maintains strong capital base, steady liquidity profile amidst challenges

Chairman Harsha Amarasekera (left) and Managing Director Nanda Fernando 

Amidst widespread economic uncertainty during the year 2022, Sampath Bank said yesterday it maintained a strong capital base and a steady liquidity profile.

Proactive efforts to identify challenges and implement appropriate strategies has allowed the bank to further reinforce its strength and stability. 

The bank has also continued to lead by example in demonstrating its commitment to the national growth agenda by promoting inward remittances and encouraging the inflow of export proceeds to the country while assisting all stakeholders to manage the current economic crisis.

CSR activities were also accelerated by undertaking multiple projects under the bank’s flagship ‘Weweta  Jeewayak’ programme in order to propel the rural economy.

The bank reported a PAT of Rs. 7.2 billion and PBT of Rs. 9.3 billion for the period ended 30 September 2022, reflecting a decline of 19.8% and 24.4% respectively, from the figures reported for the corresponding period in 2021 which is a reflection of the current economic turmoil in the country.  As at 30 September 2022, the Group reported PAT and PBT of Rs. 7.7 billion and Rs. 10.2 billion, a drop of 21.6% and 24.3% respectively compared to the corresponding period 2021.

Key financial highlights declared by Sampath Bank for 2022:  

• 276% growth in exchange income stemming from the sharp depreciation of rupee against dollar by 82% or by Rs. 164.75

• Sizeable 69.5% increase in net fee and commission income during the period, driven by cards and trade-related operations  

• The bank booked Rs. 48.8 billion impairment charge on loans and investments to capture possible economic uncertainties during the year

Fund-Based Income

Total interest income increased by 67.7% YoY during the nine months ended 30 September 2022, reaching Rs. 106 billion from the Rs. 63 billion reported in the corresponding period of the previous year. This was primarily due to the hike in interest rates reported in 2022, which saw the AWPLR reaching 25.95% as at 30 September 2022, denoting a 1,953 bps increase from the 30 September 2021 and 1,734 bps increase compared to the year-end 2021. The one-year T-Bill coupon rate also rose to 29.85% as at 30 September 2022, an increase of 2,284 bps against 30 September 2021. 

Driven by the rising market interest rates, the bank’s interest expense increased by 57.3% compared to the corresponding period of the last year to reach Rs. 52.8 billion for the reporting period. Prudent asset and liability management ensured that net interest income increased by 79.4%  

Non-Fund based income

During the reporting period, the bank's Net Fee and Commission Income (NFCI) increased substantially by 69.5% compared to the same period in the prior year. NFCI, which comprises of revenue from numerous sources, such as loans and advances, credit cards, trade and electronic channels increased significantly led by the card related businesses and fee and commission income derived from trade related activities.

The net other operating income for the nine months ended 30 September 2022 was Rs. 18 billion. This 320% YoY increase was attributed to the Rs. 164.75 drop in value of the rupee against dollar. During 2022, the bank reported a net trading loss of Rs. 3 billion against the Rs. 98 million loss reported during the previous year. Total foreign exchange income for the reporting period was Rs. 14.5 billion, up from the Rs. 3.8 billion recorded during the last year.

Impairment charge

The bank has recognised a total impairment charge of Rs. 48.8 billion for the nine months ended 30 September 2022. This is a 396% increase from the Rs. 9.8 billion charge reported in the previous year. Of this, the impairment charge for loans and advances amounted to Rs. 37.7 billion, while Rs. 10.3 billion was on account of other financial instruments. In addition, an impairment charge totalling Rs. 839 million was booked against other commitments and contingencies.

Impairment charge on loans and advances: In order to reflect the deterioration of the country’s economic environment, the bank increased the probability weightage allocated to a worst economic scenario and revisited the EFA model which led to the recognition of a significantly higher impairment provision during the reporting period. 

Industries considered under elevated risk were further expanded to capture a broader range of industry specific stress factors. The potential impact of rising inflation, higher interest charges and increase in taxes on the retail segment were some of the other factors that were considered in recognising impairment provisions.

The bank reviewed the adequacy of the impairment provision in respect of customers in the tourism and other similarly affected industries whereby necessary and adequate impairment provisions were recognised under individually significant loan impairment. 

The bank also continued to recognise impairment provision against the customers who exited the moratorium at the end of December 2021 and June 2022 as some customers have requested further concessions given the current economic outlook. In addition, steps were taken to shift customers from Stage 1 to Stage 2 based on their ability to withstand the negative effects caused by the economic downturn.

A culmination of these efforts has ensured that a higher overall provision cover of 9.8% at the end 30 September 2022 which is deemed adequate to support the bank to absorb potential losses arising from severe macro-economic conditions.

Impairment charge on other financial instruments: The bank provided Rs. 9,040 million against SLISBs and Rs. 935 million against SLDBs as at 30 September 2022. This decision was influenced by two key factors- the downgrade in Sri Lanka’s sovereign rating in May 2022 to RD from C by Fitch Ratings and the current debt restructuring actions taken by the Government. 

The bank’s cumulative impairment provision for SLDBs and SLISBs stood at Rs. 21.6 billion at the end of the reporting period. Meanwhile, the bank was able to significantly reduce the exposure to FCY instruments by converting the matured SLDBs to rupee instruments during the reporting period.

Net operating income 

Total operating income for the period increased by Rs. 40 billion. However, impairment charge too increased by Rs. 39 billion, restricting the growth of net operating income to 3.7%.

Operating expenses

Operating expenses during the reporting period amounted to Rs. 20.5 billion, a 23.6% increase from Rs. 16.6 billion recorded during the corresponding period of last year. Rising inflation and the rupee depreciation were the main contributors to this increase. 

Despite the growth recorded in the operating expenses, the bank’s cost to income ratio (CIR) dropped significantly by 1,460 bps and stood at 25% compared to 39.6% reported in the corresponding period of 2021. This drop in CIR was predominantly due to the increase in total operating income surpassing the rise in total operating costs. 

Tax expenses

Despite the 17.6% drop in profit before VAT, the VAT on Financial Services increased by 9.3% owing to the upward movement in the VAT rate from 15% to 18%, with effect from 1 January 2022.

The Inland Revenue (Amendment) Bill issued on 11 October 2022 has not been substantively enacted by the parliament. Therefore, the bank has not considered the changes proposed in the Bill for the reporting period. 

Key ratios

The Return on Average Shareholders’ Equity (after tax) dropped to 8.08% as at 30 September 2022 compared to 11.05% reported at the end of the year 2021. Return on Average Assets (before tax) stood at 0.96% as at 30 September 2022 as against the 1.44% reported for 2021.

Capital ratios

As at 30 September 2022, the bank maintained all its capital ratios well above the regulatory minimum requirements. Bank's CET 1, Tier 1 and total capital ratios on 30 September 2022 were 11.31%, 11.31%, and 13.72% respectively, in comparison with 13.95%, 13.95%, and 17.02% at the end of 2021. The decline in the ratios during the reporting period is due to the combined impact of increase in risk-weighted assets resulting from the rupee depreciation, cash dividends and payment of surcharge tax.

Assets and liabilities

Sampath Bank's total assets exceeded Rs. 1.3 trillion by end of September 2022, an increase of Rs. 113 billion (annualised growth of 12.6%) from 31 December 2021 position of Rs. 1.2 trillion. Increases in cash and cash equivalents as well as net loans and advances have contributed to the aforementioned growth. One of the primary causes of the balance sheet expansion can be attributed to the devaluation of the local currency during the year. 

Total advances increased by 22.6% (annualised) over the reporting period, from Rs. 813 billion at the end of December 2021 to Rs. 951 billion as of 30 September 2022. The rupee loan book increased by 12.1% (annualised). 

It should be mentioned that the value of loans denominated in foreign currency grew significantly after the rupee depreciated by Rs. 164.75 against dollar during the period. If the variations in currency rates had not occurred, the total loans and advances would have shown an increase of 8.8% (annualised).

During the 3Q22, the rupee deposit base grew by Rs. 44.4 billion due to deposit mobilisation initiatives promoted by the bank. Nevertheless, growth in rupee deposit base was restricted to 0.8% compared to year end 2021.