Sampath Bank maintains strong value proposition to all stakeholders amidst ongoing economic challenges

Sampath Bank said yesterday it continued to reinforce its commitment to all stakeholders notwithstanding the ongoing economic challenges.

Sampath Bank registered a Profit Before Tax (PBT) of Rs. 4.5 billion and a Profit After Tax (PAT) of Rs. 2.6 billion for the three months ended 31 March, indicating a decline of 30.5% and 44.3% respectively from the figures reported in 1Q 2022. This decline was mainly attributed to the exchange losses recorded during the quarter as a result of the appreciation of rupee by Rs. 39 against the dollar on its foreign currency reserves. All other income lines recorded performance well above the previous period.

The bank succeeded in raising Rs. 10 billion in Tier 2 capital via a debenture issue in February 2023. Despite the depressing economic outlook in the country, the issue was oversubscribed – a testament to the investor confidence placed in Sampath Bank and widespread acceptance of the stability and prudent governance of the bank. The newly obtained capital will enable the bank to rise above and prevail as one of the country’s pre-eminent banks.

Stepping in to support the customers affected by the prolonged economic downturn, the bank continued to offer tailormade options and alternative repayment plans to help its customers sustain their businesses while staying true to its ethos of customer value creation. Similarly, the interests of another stakeholder group of the bank, the shareholders, were kept in mind by paying the industry’s highest cash dividend of Rs. 3.45 per share and a further Rs. 1.15 per share in the form of scrip dividend. The bank also continues to honour its commitments towards the community via the “Weweta Jeewayak” tank restoration initiative as well as the oceanic ecosystem restoration initiative titled “A Breath to the Ocean” which includes coral restoration, mangrove planting, and turtle conservation programs. The bank continues to honour its commitment towards the community by focusing on environmental sustainability and towards that end completed the restoration of the Halgahawala forest reserve which it will continue to support even after the project’s conclusion.

Fund based income

Sampath Bank reported a total interest income of Rs. 50.2 billion in 1Q 2023, up by 102% from the Rs. 24.9 billion recorded in the corresponding period of the previous year. The AWPLR moved up significantly from 9.85% at the end of the first quarter of 2022 to 21.4% at the end of the first quarter of 2023. Because of the higher interest rates that existed throughout the reporting period compared to the preceding period, the bank was able to register a substantial increase in interest income.

Interest expenses too grew in line with the previously indicated interest rate hikes resulting in the bank recording a total interest expense of Rs. 32.1 billion in the first quarter of 2023, an increase of 183% over the figure reported in the first quarter of 2022. As a result, net interest income increased by 34% in the first quarter of 2023.

However, the Net Interest Margin (NIM) of 5.60% reported at the end of the quarter under review showed a decline of 6 basis points from the figure reported at the end of 2022. The downward trend in AWPLR reported since the end of 2022 was the primary cause of the decline in NIM.

Non-fund based income

The bank’s Net Fee and Commission Income (NFCI) increased by 19% in the first quarter of 2023 compared to the corresponding period in the previous year. NFCI includes income from a variety of sources, including loans and advances, credit cards, trade and electronic channels. First-quarter growth was mainly attributable to the increase in fee and commission income derived from trade and remittance related activities.

Sampath Bank posted a net other operating loss of Rs. 4.4 billion in the first three months of 2023, compared to a gain of Rs. 8.7 billion reported in corresponding period of 2022, denoting a decline of 151%. This was due to the reversal of exchange gain amounting to Rs. 4.5 billion, resulting from the 10.7% appreciation of the rupee against the dollar. However, the bank recorded a net trading gain of Rs. 1.7 billion for the period under review, compared to a loss of Rs. 0.4 billion in the corresponding period of the previous financial year, mainly due to forward exchange contract revaluation gains. On this basis, the bank’s net exchange loss from foreign exchange operations for the period under review was Rs. 2.8 billion. (1Q 2022: A gain of Rs. 8 billion)

Impairment charge

The bank recorded a total impairment charge of Rs. 6.9 billion for the first quarter of 2023, 41% less than the charge for the corresponding period in the previous year. The impairment charge for the first quarter of 2023 consisted of Rs. 6.2 billion on account of loans and advances (Q1 2022: Rs. 4.9 billion) and Rs. 0.4 billion for other financial instruments (Q1 2022: Rs. 6.7 billion). In addition, an impairment charge of Rs. 0.4 billion was recorded against commitments and contingencies (Q1 2022: Rs. 0.2 billion).

Impairment charge on loans and advances: In the first quarter of 2023, the impairment charge for loans and advances increased by 27% compared to the same period in the previous year.

Impairment on Individually Significant Loan (ISL) customers:

During the first quarter of 2023, the bank evaluated a substantial portion of its loans and advances under the ISL category, taking into account both their financial strength and external macroeconomic pressures. Consequently, Rs. 4.6 billion was charged as impairment provisions against ISL customers in the first three months of 2023, an increase of Rs. 1.3 billion compared to the same period in 2022.

Even though a slow recovery was witnessed in some vulnerable industries, the bank prudently maintained the previous level of impairment provisioning against ISL customers in these industries as it did not deem that the industry risk had significantly declined.

Collective Impairment: Impairment models used in 2022 were continued in 1Q 2023 to ensure adequate buffers were in place to absorb any potential credit risk that could arise in future. This cautious strategy was in response to the uncertain economic conditions witnessed both locally and globally. The bank continued to maintain in 2023, the allowance for overlay which it applied in 2022. The probability weightage applied to the worst-case economic scenario remained unchanged during the reporting period.

During the period under review, the bank also proceeded to reclassify customers from Stage 1 to Stage 2 considering their potential credit risk. Meanwhile customers operating in risk elevated industries were also reclassified under Stage 2, with additional provisions recognised against them.

Impairment charge on other financial instruments:

The impairment charge on other financial instruments amounted to Rs. 0.4 billion for 1Q 2023, a 95% reduction compared to Rs. 6.7 billion reported in the corresponding period of the previous year. In 1Q 2022, the bank recognised a substantial impairment charge against FCY denominated government securities in response to the downgrade of Sri Lanka’s sovereign rating in April 2022 and the announcement by the Government of Sri Lanka (GoSL) on the restructuring of the country’s external debt through an IMF-supported economic adjustment program. No such provisioning was deemed necessary in 1Q 2023 as substantial provisioning had already been recognised against the said instruments as at 31 December 2022.

Operating expenses

Operating expenses in 1Q 2023 showed a 22% increase in comparison to the first quarter of 2022. The 41% increase in other expenses could be attributed to the prevailing inflationary conditions and other factors such as rupee depreciation, increased taxes and import restriction. Personnel costs too grew by 7.4% in 2023 mainly owing to annual salary increases.

Tax expenses

Total effective tax rate of the bank increased to 57% in 1Q 2023 from 42% reported in 1Q 2022, owing to the combined effect of the newly introduced Social Security Contribution Levy (SSCL) and the increase in income tax rate.

Key ratios

The Return on Average Shareholders’ Equity (after tax) decreased to 8.37% as at 31 March 2023 from 10.95% reported at the end of the year 2022. Return on Average Assets (before tax) stood at 1.38% as at 31 March 2023 as against the 1.16% reported as at 31 December 2022.

Capital ratios

The bank’s latest capital adequacy ratios improved further in 1Q 2023 from the figures reported in the previous quarter in addition to their being well above the regulatory minimum requirements. As at 31 March 2023, Sampath Bank’s CET 1, Tier 1 and total capital ratios were at 12.51%, 12.51% and 16.12% compared to 11.92%, 11.92% and 14.27% respectively at the end of 2022. These increases are attributed to two main reasons – Rs. 10 billion worth of Tier 2 capital infusion in February 2023 and decline in risk weighted assets resulting from the rupee appreciation.

Assets and Liabilities

Total assets of the bank declined by Rs. 18 billion (by 1.4%) from Rs. 1.32 trillion as at 31 December 2022 to Rs. 1.31 trillion as at 31 March 2023. This decline was mainly the result of the rupee value reduction in foreign currency denominated assets on the back of the rupee appreciation against the dollar.

Similarly, the total advances declined by Rs. 22 billion (by 2.4%) in the first three months of 2023 from Rs. 920 billion as at 31 December 2022 to Rs. 898 billion at the end of the reporting period due to the rupee appreciation against the dollar.

Sampath Bank’s total deposit book declined from Rs. 1.1 trillion reported at the end of 31 December 2022 to Rs. 1.07 trillion at the end of 31 March 2023, a decline of Rs. 32 billion (by 2.9%). The CASA ratio at the end of 1Q 2023 was 32.8% compared to 32.7% reported at the end of 2022.

Dividend

The shareholders of Sampath Bank at the Annual General Meeting held on 30 March 2023 approved the final cash dividend of Rs. 3.45 per share and scrip dividend of Rs. 1.15 per share for the financial year 2022. In its 1Q 2023 financial statements, the bank made a provision of Rs. 5.3 billion to facilitate the payment of the approved final dividend, while Rs. 1.1 billion was capitalised for the purpose of creating shares under scrip dividend. The bank paid the dividend in April 2023.