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during the period, adversely impacted the profit growth of the bank, despite the strong growth recorded in key core banking income areas such as net interest income and commission income.
Revaluation gain
The revaluation gain of Rs. 1.4 billion recorded in the first half of 2012 on the foreign currency reserves of the FCBU turned out to be a revaluation loss of Rs. 28.8 million in the first half of 2013, which figures are reported under ‘Other Operating Income’ of the published accounts. This was solely due to the significant depreciation of the rupee by Rs. 20 during 1H 2012, as against the appreciation of the rupee by Rs. 0.90 during the 1Q 2013, in which period the bulk of the FC reserves held were converted into the rupee.
Pawning provision
The bank also booked an impairment provision on pawning advances amounting to Rs. 989 million during the 1H 2013. This provision has been computed taking into account the gold prices that prevailed as at 30 June 2013. The provision covers not only the ‘fallen due’ category, but also the performing category.
In fact, two thirds of the above mentioned provision amounting to Rs. 646 million was on account of the performing pawning advances. The total impairment provision on pawning advances was about 1.66% of the total amortised cost of the pawning portfolio of Rs. 59.4 billion of which included capital and interest receivable.
Net interest income
Net interest income of the bank, which is the main source of income from fund based operations and represents over 50% of the total operating income, rose from Rs. 5,445.8 million in the first half of 2012 to Rs. 6,870.9 million in the first half of 2013, recording a significant growth of 26.2%.
This significant growth in NII was largely due to the high growth recorded by the bank in key business volumes, namely a Rs. 24.4 billion increase in customer advances (11.2%), a Rs. 32.8 billion increase in total assets (10.6%) and a Rs. 22.7 billion increase (9.3%) in total deposits during the first half 2013, over the base figures as at 31 December 2012.
Further, conversion of part of the FC reserves of the FCBU into local currency in the early part of the year and higher volumes of FX SWAPs during the year too contributed towards this growth in NII. It was also possible to improve the net interest margin (NIM) by 0.08% over the base figures as at 31 December 2012, despite the increase in cost of funds, facilitated mainly through timely re-pricing of products and effective management of the fund base, through ALCO activities. Further, this NII growth was achieved despite a reversal of accrued interest provision of Rs. 210 million on fallen due pawning advances as at 30 June 2013.
Commission and fee based income
Net commission and fee based income of the bank recorded a growth of Rs. 153.1 million or 14.6% in the first half of 2013 over the same period in 2012, as a result of increased turnover in commission and fee based income categories of the bank. The growth in fee based income was achieved in a backdrop of the negative growth experienced in imports and exports financing volumes in the market.
Net trading income
Net trading income amounting to Rs. 171.67 million for 1H 2013 was a decrease of Rs. 234.6 million compared to Rs. 406.25 million for the same period last year. The major contributory factor for the same was the reduction in forward exchange contract revaluation gains, from Rs. 385.1 million in 1H 2012 to Rs. 116.5 million in the corresponding period in 2013.
Other operating income
Other operating income which significantly contributed to the operating income in 1H 2012 decreased from Rs. 2,930.7 million to Rs. 1,054.4 million in 1H 2013. The drop of Rs. 1,876.3 million was mainly due to the drop in the revaluation gains on the FCBU reserves, as commented on above.
Operating expenses
Operating expenses of the bank, which stood at Rs. 4,621 million in the first half of 2012 rose to Rs. 5,020 million in the first half of 2013, recording an increase of Rs. 398.3 million (8.6%). This growth in operating expenses was largely due to an increase in staff cadre coupled with salary increments given to the staff, effective 1 April 2013.
The bank anticipates that the cost increase rate would be somewhat lower in years to come, in view of the moderation in the branch expansion program, given the fact that the bank’s branch network has now adequately covered most of the potential locations of the country.
Loan loss provisions and provision cover (as per CBSL’s requirement)
Though the specific provision coverage ratio recorded a marginal decline and stood at 61.4 % as at the end of the first half of 2013 due to the recoveries made against the underlining NPLs, this ratio still remained at a high level compared to the industry average of 35.2% as at 30 June 2013. Together with the general provisions, the total provision coverage ratio of the bank stood at 81.64% as at 30 June 2013.
Impairment provision
Impairment provision on individually significant loans decreased from Rs. 513 million in the first half of 2012 to Rs. 498 million in the first half of 2013 by Rs. 15 million. The collective impairment provision rose to Rs. 1,119.6 million in the first half of 2013 (which included an impairment provision of Rs. 989 million made against the pawning advances), as against Rs. 162.8 million reversal in the first half of 2012.
On the other hand, the impairment testing on financial investments (Treasury bills and other trading securities) resulted in a gain of Rs. 69.2 million for the first half of 2013, as against an impairment provision of Rs. 214 million in the first half of 2012. This was largely due to the mark to market gain of Rs. 125.2 million on the bank’s trading portfolio of shares, off-setting the mark to market loss of Rs. 56 million on the Treasury bill portfolio held.
Business growth
The growth rates in deposits, advances and total assets recorded by the bank during the first half of 2013, which amounted to 9.3%, 11.2% and 10.6% respectively, compared well with the industry’s growth rates of 7.92%, 3.35% and 7.98% recorded in the respective areas during the period.
Statutory liquid asset ratio
This ratio marginally rose from 22.40% as at 31 December 2012 to 23% as at 30 June 2013. Though this ratio was somewhat above the minimum requirement of 20%, it was not as high as the industry average of around 29.2%, due to the prudent trade-off maintained by the bank between its liquid and earning assets.
Capital adequacy ratios
The capital adequacy ratios stood at 10.37% (tier I) and 12.48% (total) as at 30 June 2013, recording a marginal deterioration compared to the levels as at 31 December 2012, mainly due to the payment of dividends for 2012 and the credit expansion during the first half of 2013. Nevertheless, they remained well above the minimum regulatory requirements of 5% and 10%.
Accolade
Sampath Bank has been selected as the ‘Best Bank in Sri Lanka 2013’ by the prestigious business magazine Euromoney. Euromoney is a highly reputed global financial magazine involved in selecting best performing banks worldwide and conducts an annual competition to select best performing banks.
External rating
In the 2013 rating assessment, considering the healthy asset quality, better compliance, transparency, capital adequacy, internal control systems and processes of the bank, RAM Ratings Lanka has reaffirmed AA (stable) rating for Sampath Bank, in their rating assessment. Last year (2012), the overall credit rating of the bank’s AA- lka (stable), was reaffirmed by Fitch Rating Lanka.
