Monday Dec 23, 2024
Monday Dec 23, 2024
Friday, 18 February 2022 00:22 - - {{hitsCtrl.values.hits}}
Sampath Bank yesterday announced impressive results for 2021 with profit before tax up 51% to Rs. 16.8 billion and after-tax profit grew by 55% to Rs. 12.5 billion.
At group level PBT was Rs. 18.8 billion and PAT was Rs. 13.9 billion with all subsidiaries Sampath Centre Limited, SC Securities Ltd., Siyapatha Finance PLC and Sampath Information Technology Solutions Ltd., recording remarkable performance compared to the previous year.
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| Chairman Harsha Amarasekera |
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| Managing Director Nanda Fernando |
The total assets of the Group Grew by 8% to Rs. 1.24 trillion. Sampath said it was noteworthy that the Group took proactive measures to manage the credit risk at each subsidiary level. Consequently, Siyapatha Finance PLC also made a sizable provision as an allowance for overlay against potential losses.
The Board of Directors has recommended a final cash dividend of Rs. 4.25 per share for the financial year ended 31 December 2021 subject to the approval of the shareholders at the Annual General Meeting to be held on 30 March.
The Dividend Payout Ratio for the year ended 31 December 2021 stood over 39%.
Fund-based income
Interest income of the bank fell by 3% to Rs. 85.9 billion in the year under review compared to the previous year. The lower interest rate environment which prevailed for most part of the year and the weak credit demand resulting from the pandemic-induced economic downturn, were the main reasons for this contraction. Notably however, the decline in interest income from loans and advances was partially offset by interest income from other financial instruments.
Meanwhile, interest expenses for FY 2021 declined by 19.1% compared to the previous year on the back of a strong improvement in CASA. The bank recorded 640 bps growth in its overall CASA portfolio, while recording a decline in relatively costly term deposits. This change in the composition of the deposit portfolio coupled with the lower interest rate regime that prevailed for most part of the year contributed towards lowering interest expenses.
Moreover, with the decrease in interest expenses making up for the decline in interest income, NII recorded a growth of Rs. 7.8 billion and reached Rs. 41.7 billion at the end of 2021. Consequently, the bank's NIM too reported a healthy increase of 31 bps over the previous year despite notable pressure on interest income.
Non-fund-based income
Net fee and commission income, comprising fees related to loans and advances, credit cards, trade, and electronic channels, increased to Rs. 11.5 billion in 2021 from Rs. 8.5 billion reported in 2020. This significant year-on-year growth was driven by a strong increase in fee-based revenues generated from trade related transactions, the sizable improvement in credit card business volumes and higher volumes of online transactions made through Sampath Bank's digital products in 2021 compared to last year.
Fee and commission income received a further boost following the government decision to gradually ease restrictions on the collection of commissions during the year.
Sampath Bank’s net other operating income also recorded a significant growth of 37.5% in 2021, on the back of the depreciation of the rupee against the dollar. With the rupee depreciating by 8.2% against the dollar during the year, the bank's Net gain from trading increased to Rs. 399 million from Rs. 24.8 million recorded in the last year. The net gain on the derecognition of financial assets meanwhile decreased to Rs. 150.4 million from Rs. 423.8 million recorded in the previous financial year.
Impairment charge
The bank recognised a total impairment charge of Rs. 17.1 billion for 2021 compared to Rs. 11.8 billion in 2020, pointing to a 45% increase, year-on-year. In the current year, the bank recognised Rs. 12.7 billion against loans and advances and Rs. 3.8 billion against other financial instruments.
Impairment charge on loans and advances: Over the course of the year, the bank made a substantial provision after reviewing the prevailing challenging macroeconomic conditions at the global and local levels. Individually Significant Customers were carefully evaluated, and appropriate provisioning made considering the severity of the pandemic’s impact on each customer’s business.
As a means of factoring the long-term impact of COVID-19 on the client's ability to repay loans, the bank reassessed the risk profiles of its customers to determine if they should be moved to lifetime expected credit losses (Stage 2) from the 12-month expected credit losses (Stage 1) under collective impairment.
Based on this assessment, customers were transferred to Stage 2 in circumstances where their business models appeared to be affected by the prolonged economic consequences brought on by the pandemic. Meanwhile, the bank continued to recognise customers operating in risk elevated industries as Stage 2 during 2021 as well. This prudent categorisation resulted in the bank’s stage 2 balance increased by Rs. 87 billion during the year.
In addition, the bank increased the loan loss provision for moratorium loans classified under Stage 1 and Stage 2 as an allowance for overlay in order to capture potential non-payment of loans upon the expiry of moratoriums.
The bank has also assessed the impact of macroeconomic variables that could elevate the credit risk of the loan portfolio and considered the potential impact of these variables in the calculation of provision for impairment. As a result of all the above factors, the bank’s Stage 1 and Stage 2 total provision increased by 23.5% and 91.2% respectively in 2021 from the figures reported in 2020.
The total impairment provision of Stage 3 loan balances increased marginally by Rs. 1.2 billion in 2021 despite an overall Rs. 3.9 billion decline in Stage 3 loan balances.
The annual review of the loss rates and the re-measurement of impairment provision for some stage 3 customers were the main reasons for the overall increase in impairment provision against Stage 3 customers. These increases together contributed towards higher impairment provision under the expected credit loss model.
Impairment charge on other financial instruments: In 2021, the bank further increased the impairment provisions against other financial instruments to reflect current market trends and other applicable macroeconomic conditions. As such, the impairment charge of Rs. 3.8 billion recognised on account of other financial instruments including government securities denominated in foreign currency.
The bank also provided Rs. 574 million against the credit related commitments and contingencies, during the year compared to Rs. 269 million reported in last year.
Operating expenses
The bank’s operating expenses increased to Rs. 20.7 billion in 2021 from the Rs. 20.1 billion reported in 2020, denoting a marginal 2.8% increase. General price hikes and the increase in deposit insurance premium during the year contributed to the afore-mentioned increase.
Notably however, personnel expenses reported a decline of 6.7% compared to the previous year, primarily due to the amendments to the bank’s own pension fund. The bank reassessed the pension fund liability taking into consideration the revision of the ‘Minimum Retirement Age under the Workers Act No. 28 of 2021’.
This reassessment resulted in a net reversal of liability which was immediately reversed to the Statement of profit or loss as it is considered as a change to the plan in compliance with the Sri Lanka Accounting Standard ‘LKAS 19 – Employee Benefits’.
The cost to income ratio (excluding the special adjustment described above) dropped significantly by 480 bps and stood at 38.7% for FY 2021 compared to 43.5% in the previous year, led by effective cost saving measures to curb expenses. It should be noted that the cost to income ratio declined by a further 340 bps to 35.3% after adjusting the pension fund reversal referred above.
Taxation
Total tax expenses for the year under review was Rs. 8.3 billion against the Rs. 6.3 billion recorded for the previous year, reflecting a YoY increase of 31.2%. The increase in VAT on financial services and income tax expenses are directly correlated to the increase in profitability for the year. Meanwhile, the reduction in corporate income tax rate by 4% from 28% to 24% had a positive impact on the income tax charge of the year.
In 2020, income tax and deferred tax were calculated at 28%, as the legislation was not substantively enacted at the time of publication of the financial statements in 2020. The rate reduction was subsequently introduced from the year of assessment 2020/21, which led the bank to reverse Rs. 817 million worth of income tax during the current financial year, on account of the previous year rate differential. This was partly offset by the additional deferred tax charge of Rs. 725 million recognised due to the reversal of deferred tax assets reported as of 31 December 2020.
In the Budget Proposals 2022, the Government has proposed to impose a surcharge tax at the rate of 25%, on individuals or companies with a taxable income over Rs. 2,000 million for the year of assessment 2020/2021. However, this proposal has not yet been substantively enacted. As such, Sampath Bank and Sampath Group have not recognised any provision in 2021 financial statements against the proposed surcharge tax.
Key ratios
As a result of the growth recorded in PAT, the Return on Average Shareholders’ Equity (after tax) increased by 347 bps to 11.05% as of 31 December 2021 compared to 7.58% reported at the end of the year 2020. Return on Average Assets (before tax) also increased to 1.44% as of 31 December 2021 against the 1.09% reported for 2020.
Capital ratios
Sampath Bank maintained all its capital ratios well above the regulatory requirements throughout 2021. As of 31 December 2021, the bank’s CET 1, Tier 1, and total capital ratios were at 13.95%, 13.95% and 17.02% compared to 13.44%, 13.44% and 16.41% respectively at the end of 2020.
The change in the total capital ratio during 2021 was due to the inclusion of the audited profit for 2021 in the capital calculation and the tier 2 capital infusion by way of the Debenture issue in April 2021. This increase was partly offset by an increase in total Risk-Weighted Assets and dividend payout for 2020.
Assets and liabilities
The Sampath Bank's total assets reached almost Rs. 1.2 trillion at the end of 31 December 2021, up from Rs. 1.1 trillion at the end of the preceding year, an increase of Rs. 90 billion (8.1%).
As in the previous year, weak economic conditions stemming from the pandemic led to low demand for loans and advances throughout 2021. In the midst of these challenges, the bank adopted a prudent approach towards granting new loans and reported a growth of Rs. 54 billion for the twelve months ended 31 December 2021, a 7.1% increase over the previous financial year.
The bank’s deposit book reported Rs. 978 billion as of 31 December 2021 with a year-on-year growth of 10.3%, driven mainly by current and savings accounts (CASA). Sampath Bank's CASA portfolio experienced a significant growth of 640 bps during the year to reach 45.7% at the end of the year.
At the same time, low-interest rates experienced currently reduced the attractiveness of term deposits, leading to a 2.2% decline compared to the previous year. Overall, the total deposit portfolio of the bank grew by Rs. 91 billion to reach Rs. 978 billion at the end of 31 December 2021 compared to Rs. 887 billion reported at the end of 31 December 2020.
