Sampath Bank Group records Rs. 1.056 b post-tax 1Q profit

Despite many challenges posed by the external market forces on the banking sector, which included the slower credit demand and excess liquidity conditions, Sampath Bank Group has been able to record a PAT of Rs. 1.056 b for the 1st Quarter 2013, with the bank recording PAT of Rs. 982.8 m. In addition, the bank, which recorded a revaluation gain of Rs. 1.01 b in the 1st Quarter 2012 on its FC reserves of the FCBU, had to absorb a revaluation loss of Rs. 96.6 m from this source in the 1st Quarter 2013, which figures are included under ‘Other Operating Income’ of the published accounts.

This drop was solely due to the appreciation of the rupee against the dollar by Rs. 0.90 during this period, as against the significant depreciation of rupee by Rs. 14.30 during the corresponding period in 2012. Discounting the effect of this factor, the bank has in fact been able to record a PAT growth of 19% from its normal trading operations in 1Q2013, as against 1Q2012.

Net Interest Income, which is the main source of income from the fund based operations and representing over 50% of the total operating income, rose from Rs. 2,438 m in 1Q2012 to Rs. 3,190.3 m in 1Q2013, recording a significant growth of 30.9%. This significant growth in NII was largely due to the high growth recorded by the bank in key business volumes, namely, Rs. 12 b increase in customer advances (6.4%), Rs. 18 b increase in total assets (5.8%) and Rs. 12 b increase (5%) in total deposits during 1Q2013, over the base figures on 31 December 2012.

It was also possible to improve the Net Interest Margin (NIM) by 0.28% over the previous year’s period, despite the increase in cost of funds, mainly due to timely re-pricing of products and better managing the fund base, through ALCO activities.

Commission and fee based income of the bank recorded a growth of Rs. 59.65 m or 11.0% in 1Q2013 over the same period in 2012, as a result of increased turnover in commission and fee based income areas of the bank.

Other income, which represents the net trading income and other operating income in published accounts, recorded decreases of Rs. 35.7 m and Rs. 1,364.3 m respectively during the period under review, as compared to the corresponding period in 2012. The drop of Rs. 1,364.3 m in other operating income was mainly due to the drop in the revaluation gains on the FCBU reserves, as commented above.

Operating expenses of the bank which stood at Rs. 2,124.7 m in 1Q2012 rose to Rs. 2,307 m in 1Q2013, recording an increase of Rs. 182.3 m. This growth in operating expenses was largely due to increase in staff cadre and also salary increment given to the staff effective 1 April 2012. The bank anticipates that the cost increase rate would be somewhat lower in years to come, in view of the moderation in the branch expansion program, given the fact that bank’s branch network has now adequately covered most of the potential locations of the country.

Though, the specific provision coverage ratio recorded a marginal decline and stood at 70.59 % at the end of 1Q2013, due to the recoveries made against the underlining NPLs, this ratio still remained at a high level, compared to the industry average of 35.6 % as at 31 March 2013. Together with the general provisions, the total provision coverage ratio of the bank stood at 87.09 % as at 31 March 2013.

Impairment provision on individually significant loans rose from Rs. 42.8 m in 1Q2012 to Rs. 67.8 m in 1Q2013 by Rs. 25 m. Similarly, the collective impairment provision rose to Rs. 298.4 m in 1Q2013 (which included an impairment provision of Rs. 184 m made against the pawning advances), as against Rs. 38.8 m in 1Q2012. In addition, the impairment testing on financial investments (Treasury bills and other trading securities) resulted in a gain of Rs. 74.9 m for 1Q2013, as against an impairment provision of Rs. 119.5 m in 1Q2012. This was largely due to mark to market gain of Rs. 107.6 m on the bank’s trading portfolio of shares, offsetting the mark to market loss of Rs. 32.7 m on the Treasury Bill portfolio held.

The growth rates in deposits, advances and total assets recorded by the bank during 1Q2013, which amounted to 5.0%, 6.4% and 5.8 % respectively, compared well with the industry’s growth rates of 4.75%, 2.64% and 5.27% recorded in the respective areas during the period.

The statutory liquid asset ratio marginally rose from 22.40% as at 31 December 2012 to 22.95% as at 31 March 2013. Though this ratio was somewhat above the minimum requirement of 20%, it was not as high as the industry average of around 32.9%, due to the prudent trade-off maintained by the bank between its liquid and earning assets.

The capital adequacy ratios stood at 10.91% (Tier I) and 12.63% (total) as at 31 March 2013, recording a marginal deterioration compared to the levels as at 31 December 2012, mainly due to the credit expansion during 1Q2013. Nevertheless, they remained well above the minimum regulatory requirements of 5% and 10%.

At approved at the last AGM held on 4 April 2013, a final dividend of Rs. 12 per share was paid in April 2013, 50% in cash and 50% in the form of scrip dividends. These scrip dividend shares were priced at Rs. 180.10. This dividend of Rs. 12 per share paid for 2012 was much above the minimum dividend of Rs. 2.66 payable under the deemed dividend requirement. It also represented a dividend pay-out ratio of 38% for 2012, as against 36.9 % in 2011.

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 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.