Sampath Group ups 1H pre-tax profit by 42.8% to Rs. 4.25 b

The Sampath Group, which consists of Sampath Bank and four subsidiary companies, continued with the growth momentum in the first half 2012, by posting impressive results in many key areas over the last year’s same period, amidst increasing interest rates and shifting of funds towards high cost deposits due to the prevailing market conditions.

Pre-tax profit of Rs. 4, 250.1 million of the Group for the first H 2012 was a growth of Rs. 1,273.2 million or 42.8 %, over the previous year’s 1H pre-tax profit of Rs. 2,976.9 million, with Sampath Bank, as the main entity of the Group contributing bulk (97.7%) of the profit. The post-tax profit of the Group amounted to Rs. 2,855.1 million, recording a growth of Rs. 724.2 million or 34.0%, over the post-tax profit of Rs. 2,131.0 million for the last year’s same period.

The bank’s pre-tax profit, which rose to Rs. 4,150.6 million in 1H 2012, reflected an increase of Rs. 1,345.3 million or 48.0% over the pre-tax profit of Rs. 2,805.3 million for the 1st H 2011. The post –tax profit of the Bank recorded a growth of 40.4 % over the same period of last year, rising from Rs. 1,987.7 million in 2011 to Rs. 2,789.8 million in 2012. The lower PAT growth rate of 34.0% at the group level   was mainly due to the drop in profits of the Stock Brokering subsidiary, SC Securities Company, arising from the current situation in the Colombo Stock market.    

NII, which is the main source of income from the fund based operations and representing over 50% of the total operating income, rose from Rs. 4,192.3 million in the first H 2011 to Rs 5,398.8Mn in the first H 2012, recording a significant growth of 28.8%.

This increase was achieved despite the Net Interest Margin (NIM), which stood at 4.11% in the first H 2011, marginally dropping to 4.08% in 1H 2012, as a result of cost of funds increasing at a faster rate than the rise in average yield rates of both the customer advances and Government securities held.

Hence, this significant growth in NII was largely due to the high growth rates recorded by the bank in key business volumes, namely 30.2% in customer advances, 27.9% in  total assets and 23.6% deposits during the one year period ended 30 June 2012.

The above income, one of the key contributory factors for the high profit growth in 1H 2012, rose from Rs. 238.3 m in the first H 2011 to Rs. 2,336.4 million in 1H 2012, recording a growth of Rs. 2,098.1 million or 880.6%.  This was facilitated mainly by the increase in the revaluation gains on the foreign currency reserves held in the bank’s FCBU, as a result of sharp depreciation of the Rupee against the US Dollar in 2012 (from Rs. 113.9 as at 31 December 2011 to Rs. 133.90 as at 30 June 2012) and the substantial increase in the Dealing Room’s trading profits.

Other income of the bank, the bulk of which is commission and fee-based income, too recorded a growth of Rs. 203.0 million or 15.2% in 1H 2012 over the same period in 2011 as a result of increased economic activity in the market and the rapid growth achieved by the bank in its lending activities.

The only source of other income, which recorded a negative growth (100%) in 1H 2012   was capital gains  on share trading, where the bank realised capital gain of Rs. 411.2 million by selling part of scrip dividend received from Lanka Bangla Finance Ltd during the  1 H 2011.

Operating expenses of the bank, which stood at Rs. 3,747 million in 1H 2011, rose to Rs. 4,458 million in 1H 2012, recording an increase of Rs. 711 million or 19%.  This growth in operating expenses was largely due to the incremental cost incurred in connection with the opening of 18 new branches in the second half of 2011 and the increase of the staff cadre, which too was due to the expansion drive.

The bank anticipates that the cost increase rate would   be somewhat lower in years to come, in view of the moderation expected 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. Apart from this, effect of the salary increments during the year and inflation in the economy also impacted on the increase in operating expenses over the previous year’s same period.

Though the provision cover recorded a marginal decline and stood at 72.85 % at the end of 1H 2012, due to the recoveries made against the underlining NPLs, the specific provision cover still remained at a higher level, compared to the industry average of 54 % on 30 June 2012. Together with the general provisions, the total provision coverage ratio of the bank stood at 87.20 % as at 30 June 2012.

Similarly, NPL Ratio too came down to 2.42% as at 30 June 2012 from 2.65% as at 31.12.2011. However, the regulatory general provision made against performing advances had to be increased due to significant credit growth recorded in 1H 2012.

The provision against mark to market losses on the trading portfolio of shares and Treasury Bills also increased by Rs. 214 million due to unfavourable market conditions in 1H 2012, as against a net gain of Rs. 129.6 million in the first H 2011, which includes a reversal of an impairment provision of Rs. 275.9 million made against the share investment in Union Bank. This was mainly due to drop in the share prices of the companies listed in the CSE nowadays.

The growth rates in deposits and total assets during 1H 2012 amounted to 12.1% and 14.5 % respectively and compared well with the industry’s growth rates of 9.3% and 13.7%, during the period. In addition, the growth rate in customer advances during 1H 2012 amounted to 14.1%, as against the industry average of 13.0% during the period.   

The NPL volumes net of IIS which stood at Rs. 4,890.5 million as at 30 June 2011 were reduced to Rs 4,825.7 million by Rs. 64.85 million or 1.34%  as at  30 June 2012. Though the NPL volumes rose by Rs. 145.9 million in the first H 2012, the NPL ratio of the bank dropped to 2.42% as at 30 June 2012, from 2.65% as at 31 December 2011, which also compared well with the industry average of 3.8% as at 30 June 2012.

The improved profits paved the way for most of the key financial ratios of the bank to record significant improvements over the previous year.

This ratio rose to a peak level of 59.9% in 2011, mainly due to the additional cost incurred in connection with the accelerated branch expansion program and recruitment of 697 new staff to support the business expansion. However, the ratio in 1H 2012 dropped to 52.26% with the moderation in the branch expansion program and the significant increases in the NII and foreign exchange income.

Both ratios showed  significant improvements in 1H 2012, due to the higher profit growth rate of 40.4.% of the Bank  during the period. The ROA after tax which stood at 1.95% in 2011 rose to 2.12% in 1H 2012, whereas the ROE which stood at 25.16% in 2011 rose to 27.97% during the period under review.

This ratio dropped from 24.95% as at 31 December 2011 to 23.37% as at 30 June 2012, mainly due to the rapid credit expansion.  Though, the ratio was maintained at a reasonably higher level over the minimum of 20%, it was not as high as the industry average of around 31.4%, due to the prudent trade-off maintained between liquid assets and earning assets.

The capital adequacy ratios, Tier I at 10.77% and Total at 11.94%, by the end of first H 2012, recorded marginal deteriorations compared to the level as at 31 December 2011, mainly due to the rapid credit expansion during 1H 2012 and part of the dividend payment for 2011 made in cash. Nevertheless, they remained above the minimum regulatory requirements.

With the objective of strengthening the Tier-II capital, utilising the sizable leeway available in Tier-II, Sampath Bank is taking steps to issue 15,000,000 debentures with an option to issue up to a further 10,000 000 debentures (in the event of over subscription) at a par value of Rs. 100 subject to the necessary regulatory approvals. The bank hopes list these debentures on the Colombo Stock Exchange.

As per the Ruling issued on 2 March 2012 by the Institute of Chartered Accountants of Sri Lanka on ‘Preparation of Interim Financial Statements as per LKAS 34,’ the bank has published the interim financial statements for 1H 2012 under Option 2,  by presenting  them in accordance with the Sri Lanka Accounting Standards (SLAS),  which existed immediately prior to 1 January 2012, with disclosures on the impact on the statement of comprehensive income for the six month period under review  and  net assets (equity)  as at 31 December 2011 and 30 June 2012 respectively.

In the 2012 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. In the last year, the overall credit rating of the bank’s “AA-”lka (positive) has been affirmed by Fitch Rating Lanka too. Sampath Group was recognised as the ‘Best Banking Group in Sri Lanka for the Year 2012’ at the World Finance Awards presented by World Finance Magazine.