Sampath Bank 1Q operating profit before taxes down 11%

Sampath Bank PLC yesterday reported a 10.8% drop in operating profit before taxes in the first quarter of 2020 financial year though posting a moderate growth in after tax profit due to withdrawal of Debt Recovery Levy and Nation Building Tax.

The bank said the challenges brought by COVID-19 pandemic and the recession brought on by the terrorist attack in April 2019 led the first quarter to be pressurised by some unique challenges that were not seen in Q1 2019. 

Chairman Prof. Malik Ranasinghe

Managing Director Nanda Fernando

“Therefore, it is important to note that comparing the results of Q1 2020 with the corresponding period in 2019 may not be realistic,” it added.

Operating profit before all taxes, which is the real return generated by utilising the assets and liabilities of the bank, declined by 10.8%. This decline was due to the reasons mentioned above. Sampath Bank recorded a Profit before tax (PBT) of Rs. 3 billion for the quarter ending 31 March.  The bank reported Profit after tax (PAT) of Rs. 2.5 billion for the three months ended 31 March, reflecting a growth of 15.7% over the corresponding period in 2019.

 PAT growth was attributed to two factors; (1) the higher exchange income due to depreciation of the rupee against the dollar by Rs. 7.90 during the quarter and (2) tax concessions received owing to the abolition of Debt Repayment Levy and NBT on financial services. 

The Sampath Group achieved a PBT of Rs. 3.3 billion and a PAT of Rs. 2.7 billion for the period under review compared to Rs. 2.8 billion and Rs. 2.1 billion reported in the corresponding period of 2019. 

Fund Based Income (FBI)

Owing to the prevailing challenges, average weighted prime lending rate in the Country dropped by approximately 3%. A similar drop was observed in Treasury bill interest rates. Consequently, Sampath Bank's Net Interest Income (NII) decreased by Rs. 0.2 billion to Rs. 9.98 billion as at 31 March, a decline of 2.4% compared to the figure reported in Q1 2019. 

It should however be noted that despite the challenging conditions, effective fund management strategies helped to restrict the decline in NII to 2.4%. The bank will monitor the NII continuously and will implement appropriate actions to safeguard the NII to the best of its ability in the future.

Overall, interest income for the period under review decreased by Rs. 1.1 billion and stood at Rs. 24.5 billion compared to Rs. 25.6 billion recorded in the corresponding period in 2019, a decline of 4.3%. Interest expenses for the period under review decreased by 5.5%. 

For the three months ended 31 March, Sampath Bank registered interest expenses of Rs. 14.5 billion compared to Rs. 15.4 billion recorded in 2019. As a result, the Net Interest Margin for Q1 2020 decreased to 4.13% compared to 4.46% reported in 2019. 

Non-Fund Based Income (NFBI)

Net fee and commission income, which largely comprises credit, trade, card, and electronic channel related fees, was Rs. 2.2 billion for the quarter under review, a marginal decline of 1.4% over the figure reported in Q1 2019. The decline was kept to a minimum due to the strong market attractions for innovative value additions offered through electronic channels and was further enhanced due to the higher usage volume of electronic channels during the lockdown in March. 

Net other operating income recorded a YoY increase of 321.6% in Q1 2020, led mainly by an increase in realised exchange income due to a 4.4% depreciation of the rupee against the dollar. Consequently, net other operating income for the first three months of 2020 increased to Rs. 2.3 billion, from the loss of Rs. 1 billion reported during the corresponding period in 2019. 

On the other hand, the bank incurred a net trading loss of Rs. 664 million as a result of mark to the market losses on forward exchange contracts owing to the aforementioned currency depreciation. Therefore, the bank's net exchange income from foreign exchange transactions amounted to Rs. 1.6 billion for the period under review.

Operating expenses

The bank’s total operating expenses, which amounted to Rs. 5.14 billion in 1Q 2019, increased marginally by 0.2% during the period under review to Rs. 5.15 billion in 1Q 2020. The increase in operating expenses was kept to a minimum, thanks to comprehensive cost containment strategies implemented throughout the period under review. 

Consequently, the bank's cost-to-income ratio, excluding taxes on financial services was 37.1% at the end of 31 March, significantly lower than the 39.6% reported for the corresponding period in 2019. 

Impairment charges 

Due to lack of reasonable and reliable information with regard to the impact of COVID-19 on its customers as at the reporting date, the bank has taken into consideration the long-term economic trends as the basis of calculating impairment provisions for the quarter. 

Further, the bank has also considered the relief packages introduced in the form of tax reliefs and moratoriums by the Government to protect the economy. It is noteworthy to mention that the bank has made a substantial provision as management overlays by changing the probability weights applied to different macroeconomic scenarios.

This revision together with increasing non-performing loans resulted in higher impairment charges for the period under review. The total impairment charge for the first three months ended 31 March was Rs. 4.9 billion compared to Rs. 3.5 billion recorded in 1Q 2019 denoting an increase of 39.7%. The gross non-performing loans increased to 6.72% at end of 31 March from 6.37% reported at the end of 2019.

Business growth 

Sampath Bank’s total asset base grew by 2.2% (annualised 8.7%) during the period under review to reach Rs. 983 billion as at 31 March. In comparison, the total asset position as at 31 December 2019 stood at Rs. 962 billion. 

Gross loans and advances grew by 3.4% (annualised 13.9%) to reach Rs. 744 billion as at 31 March, recording a growth of Rs. 24.8 billion for the period under review. The total deposit base increased by Rs. 31.1 billion for the same period, to reach Rs. 749 billion as at the reporting date, a growth of 4.3% (annualised 17.4%). Meanwhile, the CASA ratio stood at 35.6% at the end of the reporting period. 

Capital adequacy and performance ratios 

he bank’s Common Equity Tier (CET) I Capital, Tier I Capital and Total Capital Adequacy ratios as at 31 March stood at 13.65%, 13.65% and 17.16% respectively, all well above the corresponding minimum regulatory requirement of 6.5%, 8% and 12%, applicable as at the reporting date. CBSL reduced the Capital Conservation Buffer by 0.5% with effect from 27 March. 

The Statutory Liquid Asset Ratio (SLAR) for the Domestic Banking Unit and the Off-Shore Banking Unit was at 22.18% and 31.05% respectively as at the reporting date, while Return on Average Assets (ROA) (before tax) stood at 1.26% and Return on Average Equity (ROE) (after tax) stood at 9.47% at the end of 31 March.