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Sampath Bank’s Board of Directors has recommended a final cash dividend of Rs. 11.75 per share to be paid for the financial year ended 31 December 2019, subject to the approval of the shareholders at the Annual General Meeting to be held on 30 March. The dividend pay-out ratio for the year ended 31 December 2019 is over 40%.
The bank’s total operating profit before impairment and taxes grew by 1.1% to Rs. 34.8 billion in 2019 compared to Rs. 34.4 billion reported in 2018. However, Profit Before Tax (PBT) for the year 2019 dropped to Rs. 15.5 billion from Rs. 18.3 billion recorded in 2018.
This decline of 15.5% is attributed mainly to the 39% increase in taxes on financial services and the 12% increase in impairment charges. Taxes on Financial Services for the year increased to Rs. 6.7 billion, mainly due to the newly introduced debt repayment levy. Total debt repayment levy for the year exceeded Rs. 2.2 billion.
The bank reported a Profit After Tax (PAT) of Rs. 11.2 billion for the year under review, reflecting a slight decline of 8.2% over the previous year. The group recorded a PBT and a PAT of Rs. 16.3 billion and Rs. 11.7 billion, respectively.
Fund-Based Income (FBI)
Low credit growth, higher non-performing loans, Easter Sunday terrorist attacks, Presidential Elections, and pressure on lending rates/interest rate caps affected the Sampath Bank’s NII growth during the year 2019. Despite the challenges, however, the bank’s NII increased by Rs. 3.5 billion during the period under review to reach Rs. 41.6 billion as at 31 December 2019. 
This 9.3% growth was the result of effective fund management strategies adopted by the bank, coupled with timely re-pricing of assets and liability products right throughout the year 2019. It is noteworthy to mention that the Rs. 12.1 billion worth of Tier 1 capital raised during the year enabled the bank to release some of its larger high-cost deposits. This helped to reduce the cost of funds and created a positive impact on NII. The reduction of SRR from 7.5% to 6% with effect from 16 November 2018, followed by a further reduction to 5% with effect from 1 March 2019 also contributed towards improving the NII.
Overall interest income for the period under review recorded an increase of Rs. 5.7 billion to reach Rs. 103.6 billion compared to Rs. 97.9 billion recorded in 2018, which was a moderate growth of 5.8%.
Interest expenses for the year, too, increased slightly by 3.5% owing mainly due to the new debenture issue that took place in February 2019 and the marginal growth in the deposit portfolio. At the end of 2019, the bank’s interest expenses reached Rs. 62 billion compared to Rs. 59.9 billion recorded in 2018.
Consequently, the Net Interest Margin, too, improved marginally to 4.46% in 2019 compared to 4.41% reported in 2018.
Non-Fund-Based Income (NFBI)
Net fee and commission income, which comprises credit, trade, card, operations and electronic channel-related fees, grew marginally by 1.2% to Rs. 10 billion in 2019 from Rs. 9.9 billion in 2018. Growth for the year was driven by a strong increase in income generated through card and electronic channels due to higher volume of transactions, which helped to compensate for the drop in demand for fee-based activities across credit-related product lines.
Net gains from trading activities recorded a significant growth of 195%, mainly due to movements in forward exchange rates working in favour of the bank. For the year under review, net gains from trading stood at Rs. 2.2 billion compared, to a loss of Rs. 2.3 billion recorded in 2018. Meanwhile, other operating income recorded a decline of 84.4% from Rs. 8 billion in 2018 to Rs. 1.2 billion in 2019. This was due to the drop in realised exchange income following the appreciation of the rupee against the dollar by Rs. 1.55 in 2019, in complete contrast to the depreciation of Rs. 29.4 recorded in 2018. Total exchange income which consists of net gains/losses from forward contracts and realised exchange income, decreased to Rs. 2.8 billion for the year 2019, from Rs. 5.5 billion recorded during the previous year, which is a decline of 49%.
Impairment charge
Stressed economic conditions that prevailed throughout the year 2019 continued to affect business cash flows of many businesses in the country. As a result, the bank experienced significant increase in customer defaults and delayed repayments. To address this issue, the bank continued to take strategic measures such as rescheduling/restructuring existing facilities to suit the customers’ debt-servicing capacity coupled with improvements to the pre credit evaluation and post credit monitoring protocols. This helped to manage the increasing trend in the NPL to some extent towards the latter part of 2019. Nonetheless the bank’s NPL ratio as at 31 December 2019 increased to 6.37% from 3.69% recorded in 2018. The banking industry NPL also recorded a significant increase from 3.4% in 2018 to 4.7% as at 31 December 2019 due to the poor performance of construction, tourism and trading sectors which were badly affected in 2019 due to a combination of factors mentioned previously.
The bank has already secured a substantial portion of its advance portfolio with first class securities which in turn helped to control the impairment provision. Sampath Bank’s total impairment charge against loans and advances for the year ended 31 December 2019 stood at Rs. 12 billion, an increase of Rs. 1.5 billion or 13.8%. It is noteworthy to mention that impairment charge for the fourth quarter showed a reduction of Rs. 393 million compared to the corresponding period in 2018 as well as a reduction of Rs. 611 million compared to the third quarter of 2019. The bank’s cost of risk has increased to 1.74% from 1.69% reported in the previous year due to reasons mentioned above. Further, impairment provision against other financial assets and commitments and contingencies amounted to Rs. 569 million.
Operating expenses
Total operating expenses for 2019 was Rs. 20.4 billion compared to Rs. 19.3 billion recorded in 2018. Higher personnel expenses triggered by annual salary increments and general price hikes were the main factors that contributed to the increase of 5.5% in total operating expenses. The total percentage growth in operating expenses remained above the total percentage growth in total operating income. As a result, the bank’s cost-to-income ratio (excluding VAT, NBT and DRL on financial services) increased by 100 basis points from 35.9% reported in last year to 36.9% in 2019. However, it is important to note that the bank managed to restrict its total operating expenses to well below the budget allocation for 2019.
Taxation
Sampath Bank’s tax expenses include financial services VAT, financial services NBT, debt repayment levy (DRL), and income tax. Total tax expense of the bank stood at Rs. 11.1 billion for the year 2019, which included DRL amounting to Rs. 2.2 billion. As a result, the bank’s tax expenses taken as a percentage of operating profit for the year increased to 49.9% for 2019 compared to 47.7% in 2018. It is noteworthy to report that the decision by the Government to abolish the DRL with effect from 1 January is a welcome move for the entire financial services sector.
Business growth
The bank recorded a total asset growth of 5.3% during the period under review, with the asset book reaching Rs. 962 billion as at 31 December 2019. In comparison, the total asset position as at 31 December 2018 stood at Rs. 914 billion. Gross loans and advances grew by 7.4% to reach Rs. 720 billion as at 31 December 2019. Sampath Bank’s deposit base expanded by Rs. 20 billion, during the year to reach Rs. 718 billion as at 31 December 2019. This marginal growth of 2.9% was due to the conscious efforts made by the bank to slowdown the deposit mobilisation activities and also due to shedding of certain large high-cost deposits following the capital infusions and extra lendable funds released from the balances maintained with CBSL due to SRR cuts effected by the regulator. Furthermore, renewed emphasis on promoting low cost savings led to a robust 8.7% CASA growth which in turn pushed up the CASA ratio to 35.2% in 2019 from 33.4% recorded in 2018.
Capital base and ratios
In 2019, the bank remained proactive in its efforts to strengthen the capital base in compliance with the Basel III capital requirements. After two successful Basel III compliant debentures and rights issues in previous years, the bank raised another Rs. 7 billion worth of Tier II Capital by way of a Basel III compliant debenture issue in February 2019.
In June 2019, amidst trying economic conditions in the country the bank successfully raised Rs. 12.1 billion for Tier 1 capital through a successful Rights Issue. As a result, the bank’s Common Equity Tier I Capital, Tier I Capital and Total Capital Adequacy ratios as at 31 December 2019 stood at 14.22%, 14.22% and 18.12%, respectively. These ratios stood well above the minimum ratios prescribed by the Basel III capital requirements.
The Statutory Liquid Asset Ratio (SLAR) for the Domestic Banking Unit and the Off-Shore Banking Unit were at 21.51% and 26.88%, respectively. However, the decline in the bank’s performance during the year under review and increase in average equity base owing to the Rights Issue in June 2019, saw the Return on Average Equity (ROE) after tax declining to 11.78% in 2019 from 16.02% in 2018. Return on Assets (ROA) before income tax for 2019 also declined to 1.66% from 2.13% predominantly due to decrease in profitability.
Performance of shares
With the performance of the Colombo Stock Exchange (CSE) affected by weak economic conditions in the country, the ASPI fluctuated significantly in 2019 between a low of 5,200 and high of 6,215 before finally settling at 6,129 by the end of 2019. In this environment, Sampath Bank’s share price too, fluctuated between a low of Rs. 136 and a high of Rs. 245 during the year.
The bank’s share price settled at Rs. 162.40 on the last trading day of 2019, a drop of Rs. 72.60 – or 31% – from the last traded price of Rs. 235 in 2018. The increase in the number of listed shares of the bank also had an impact on share price.
Earnings per Share (EPS) for 2019 was at Rs. 32.84, 23.9% lower than the Rs. 43.18 recorded for the previous year due to the subdued performance tabled by the bank in 2019, and the increase in number of shares during the year due to the new capital infusion and capitalisation of the scrip dividend. Net assets value per share too, decreased by Rs. 25.15 compared to 2018 and stood at Rs. 275.27 due to above noted increase in number of shares.
