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Tuesday, 13 May 2014 00:01 - - {{hitsCtrl.values.hits}}
Sampath Bank proved its resilience to the external factors by recording a strong quarterly growth in profitability with a profit before tax of Rs. 1,668.3 m, an increase of 18.8% over the previous year’s first quarter pre-tax profit of Rs. 1,404.3 m.
The first quarter profit after tax stood at Rs. 1.2 b, which is an increase of 22.7% over the corresponding period in the previous year which amounted to Rs. 978 m.
The Group too recorded a profit before tax figure of Rs. 1,778 m compared to Rs. 1,494 m recorded in the corresponding period in 2013 which is an increase of 19%. The post–tax profit of the Group has also improved by 21.4%. PAT for the 1st quarter 2014 stood at Rs. 1,276.5 m as against Rs. 1,051.6 m recorded in 2013.
NII, which is the main source of income from the fund based operations, has decreased from Rs. 3,190.35 m in the first quarter 2013 to Rs. 2,788.4 m in the first quarter of 2014, recording a reduction of 12.6%, due to slower credit growth experienced throughout the quarter, industry wide pressure on interest margins, declining gold prices in the global market, etc. The bank charged the incurred interest loss arising from auctioned pawned articles amounting to Rs. 1,222.9 m against the interest income.
There was a corresponding release in the impairment provision on pawning which is reflected in the collective impairment. If not for this interest loss, NII would have been Rs. 4,010 m for the first quarter of 2014, which would have been a growth of 26%.
The net fee and commission income, which represented 17.44% of the total operating income increased by Rs. 145.3 m to Rs. 747.89 m in 1Q 2014, over the same period in 2013. This growth was mainly in line with growth of business volumes experienced in the card operations, inward remittances and trade related services.
Sampath is one of the leading local banks in the business of card operation. The bank continued to enhance arrangements with correspondent banks and exchange houses to attract more inward remittances by migrant workers with the intention of increasing exchange income. We also implemented a strategy to gain market share in trade finance by providing a superior service and extending business hours.
Other operating income of the bank increased by Rs. 188.83 m to Rs. 401.19 m in the 1Q2014 compared to Rs. 212.37 m recorded in the 1Q2013, mainly due to higher bad debt recoveries and exchange income from currency notes operations.
Operating expenses increased by 19.6% from Rs. 2.32 b in 1Q2013 to Rs. 2.77 b in 1Q2014 due to increase in staff cost and upgrading the existing branches to give a better service to its customers.
Total impairment reversal was Rs. 503.82 m in 1Q2014 compared to a charge of Rs. 291.41 m in 1Q2013. This was mainly due to the reversal of collective impairment made against the pawning advances in 2013 owing to the slight increase in gold prices in the world market and auctioning of unredeemed pawning articles for which provision had been made earlier.
The impairment reversal against the pawning portfolio for the quarter amounted to Rs. 814.8 m. The net impairment charge from all other advances was Rs. 320.3 m. Financial investments recorded a mark to market gain of Rs. 9.3 m.
The bank strategically reduced the pawning portfolio (including interest receivable) in view of the volatility in gold prices which impacted the entire financial services sector since April 2013. The bank’s pawning advances which stood at 19.7% of the total advances as at 31 December 2013 was reduced to 17.03% as at quarter end.
Total growth rate in deposits during 1Q2014 amounting to 3.5% compared well with the industry’s growth rate of 3.4% during the period, but the bank has recorded a negative growth in advances and total assets during the period under review amounting to -3.95% & -1.04% respectively. This was mainly due to the drop in pawning advances, low credit demand and settlement of foreign currency borrowings.
The cost to income ratio has increased from 60.32% in 1Q2013 to 72.85% in 1Q2014. This increase was mainly due to the drop in interest income owing to the interest loss on pawning articles auctioned. If not for this interest loss, cost to income ratio would have been at 56.7% during 1Q2014. ROA and ROE increased in line with the increase in profits due to reversal of pawning impairment provision which was made in 2013.
Statutory liquid asset ratio marginally rose from 27.62% as at 31 December 2013 to 29.11% as at 31 March 2014, largely due to the SRR reduction of 2% and low credit demand.
The capital adequacy ratios stood at 9.89 % (Tier I) and 13.85% (total) as at 31 March 2014, recording a marginal deterioration compared to the levels as at 31 December 2013, mainly due an increase in market risk arising from the decrease in market interest rates of the Treasury bill portfolio during 1Q2014. Nevertheless, they remained well above the minimum regulatory requirements of 5% and 10%.
Sampath Bank has demonstrated its ability to grow by focussing on enhancing customer experiences through improved service quality, effectively combining human resources and technological innovation. It has proved resilient to external shocks through effective risk management processes and its ability to respond to changes in its operating environment.
Its strategy was to support the country’s ambition to be the regional hub for energy, aviation, maritime, knowledge, commercial and tourism. It also continued its support to the agriculture sector, focusing particularly on the value addition to these commodities and also ensured that it maintained a minimum of 10% lending to the agriculture sector as directed by the Central Bank.
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 its rating assessment. In the same year, the overall credit rating of the bank’s AA-lka (Stable) has been reaffirmed by Fitch Rating Lanka.
