Sampath Group’s 9 month net profit tops Rs. 2 b mark

Tuesday, 26 October 2010 05:02 -     - {{hitsCtrl.values.hits}}

Sampath Bank Group, which consists of the bank and four subsidiary companies, continued with its growth momentum in the third quarter of 2010, by recording all-round impressive results over the corresponding period in 2009, despite many challenges faced.

Pre-tax profit of Rs. 3,212.4 m of the Group for the first three quarters of 2010 recorded a growth of Rs. 528.1 m or 19.7%, over the previous year’s pre-tax profit of Rs. 2,684.3 m, with Sampath Bank contributing the bulk (93.2%) of the profit as the main entity of the Group.  The Bank’s pre-tax profit, which rose to Rs. 2,992.5 m, reflected an increase of Rs. 422.8 m or 16.5% over the pre-tax profit of Rs. 2,569.8 m for the corresponding period in 2009. Marked improvement in the performance of all four subsidiary companies during the period under review has helped to record a higher profit growth rate at the Group level. The post-tax profit of the Group amounted to Rs. 2,166.2 m, recording a growth of Rs. 776.3 m or 55.9%, over the post-tax profit of Rs. 1,389.9 m for the corresponding period last year. This post-tax profit during the nine month period in 2010 was higher than the post-tax profit of Rs 2,083.8 m, published for the full year period of 2009. Similarly, Sampath Bank too recorded a post-tax profit growth of 51.0% over the corresponding period last year, rising from Rs. 1,330.2 m in 2009 to Rs. 2,009.2 m in 2010. 

A higher growth rate in post-tax profits, both at the Group and Bank levels 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. 660.7 m, realised through the sale of bonus-shares received from Lanka Bangla Finance Ltd., a recovery against a loan loss provision of Rs.331.8 m and mark to market gains totalling to Rs. 520.05 m. on the trading portfolio of the Bank. Consequently, the Bank’s tax charge for the period under review, decreased by Rs. 256.2 m, despite the increase of 16.5% in pre-tax profits.

The net return on the Bank’s entire fund-based operation, which is Net Interest Income (NII), made the single largest contribution for the increased profitability, by rising from Rs. 5,554.0 m in 2009 to Rs. 6,330.2 m in 2010, registering an impressive growth of Rs 776.2 m or 14.0%.

This growth in NII, 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 5.13% in 2010 as against 5.12% in 2009.

In addition to the timely 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 these levels, at the time when the interest margins were shrinking in the market.

Other income of the Bank, bulk of which is Commission and Fee-Based income, too recorded a growth of Rs. 92.1 m or 4.4% in 2010 over 2009. However, the Group recorded a higher growth of 14.8% in other income mainly due to the increased revenue from this source by some of the subsidiaries.

The only source of core-banking income, which recorded a negative growth (37.9%) in 2010 was exchange income, largely due to the revaluation loss of Rs. 126.14 m, incurred in 2010, as against the revaluation profit of Rs. 80.74 m recorded in 2009.This was solely due to the appreciation of the Sri Lankan rupee against the US dollar, from Rs. 114.80 as at 30 September 2009 to Rs. 111.95 as at 30 September 2010.

Increase in the Bank’s operating expenses over the previous year was managed at Rs. 730.4 m or 18.3%, despite the additional expenditure incurred on account of the ambitious branch expansion programme (36 new branches), 273 new recruitments and annual wage increases given effect during the nine month period under review.

The Specific Provision for Loan Losses of the Bank for the period under review amounted Rs. 1,182.9 m, as against Rs. 647 m for the corresponding period last year. The resultant increase of Rs. 535.9 m 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 48.59 % as at 30 September 2009 to 64.64 % as at 30 September 2010. In addition, full provision of Rs. 255.0 m was made on account of the investment in the ordinary shares of Union Bank Colombo, as instructed by CBSL.

However, the increased recoveries against previous loan loss provisions, which rose from Rs. 360.7 m in 2009 to Rs. 1,034.6 m in 2010, helped to off-set the effect of these additional provisions on the bottom line.

The improved profits paved the way for almost all the key financial ratios of the Bank to record significant improvements over the previous year. Good lending practices which included the cartelized 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. 8,515.9 m as at 30 September 2009 was reduced to Rs. 6,384.7 m by Rs. 2,131.2 m or 25.0%. Similarly the NPL Ratio of the Bank was reduced to 5.47 % as at 30 September 2010, from 8.86 % one year ago.

In addition to the improvement made in the Provision Cover referred to above, Bank’s Net NPL/Equity Ratio (Open Credit Exposure Ratio) too was reduced to 16.43% from 42.45% as at 30 September 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 9.81% and the Total Capital Adequacy Ratio at 12.26% as at 30 September 2010.

Total deposit base and the total assets of the Bank grew by 13.6% and 12.8% respectively in the first nine month of 2010. Going by the latest industry data available up to August 2010, Sampath Bank had maintained much higher growth rates in total deposits and total assets, thereby increasing the market share. In addition, the Bank continued with its growth momentum in customer advances, recording a significant growth of 19.1 % over 31 December 2009.

The recently-announced major capital restructuring programme, which entailed a scrip dividend of Rs. 3 per share and a share split, that increased the number of shares by 100%, was successfully concluded. After the share-split, Sampath share is currently traded at around Rs. 250 and this price is well above the re-stated net assets value of Rs. 87.42 per share, after the share-split. 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 December 2009.

Currently Sampath Bank operates with a network of 163 branches and 217 Automated Teller Machines. The Bank opened 28 new branches up to 30 September 2010 and plans are underway to accelerate the branch expansion programme and open more than 40 new branches in 2010.

Last year, the Bank won many accolades on its superior performance and notably the ‘Bank of the Year’ award by the ‘Banker Magazine,’ London and the ‘Best Corporate Citizen of the Year’ award by the Ceylon Chamber of Commerce. This process continued in 2010, with the Bank being ranked as No. 10 in the list of ‘Top Ten Companies’ by the ‘Business Today’ Magazine.

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

Sampath share price peaks to Rs. 303

SAMPATH Bank’s share price peaked to a high of Rs. 302.90 before closing at Rs. 295.10, up by Rs. 3.20 on the back of a Rs. 42.40 gain last week.

Deals on 2.2 million shares of Sampath accounted for the second highest turnover of Rs. 659 million yesterday. Of the total traded were seven crossings of 1.5 million shares (573,300 at Rs. 295; 760,000 at Rs. 300 and 183,224 at Rs. 278). Speculation was that Indra Silva figured on the buying side whilst foreign holding in Sampath declined by 628,800 shares. Silva held around 4.4% stake in Sampath Bank and a further 2% via Indra Traders as at 30 September, 2010.  Post scrip dividend and share split, Sampath Bank is trading at its highest levels.