Sampath Bank ups post-tax profit by 51.6% to Rs. 5.1 b

Sampath Bank continued with the growth momentum in 2012, by posting impressive results in many key areas over the last year, amidst many challenges which included a regulatory credit ceiling and pressure on interest margins, resulting from shifting of funds from low cost to high cost deposits in the high interest rate scenario which prevailed in the market.

The Bank’s pre-tax profit which rose to Rs. 7,265 m in 2012, reflected an increase of Rs. 2,271.4 m or 45.5% over the pre-tax profit of Rs. 4,993.6 m for the year ended 2011. The post-tax profit of the Bank recorded a growth of 51.6 % over the same period of last year, rising from Rs. 3,387.2 m in 2011 to Rs. 5,136.4 m in 2012.

Pre-tax profit of the Group, which consists of Sampath Bank and the four subsidiary companies, amounted to Rs. 7,517.5 m. for the year ended 2012, reflecting a growth of Rs. 2,141.9 m or 39.8%, over the pre-tax profit of Rs. 5,375.5 m for 2011.

Sampath Bank, as the main entity of the Group contributed bulk (96.1%) of the profit. The post-tax profit of the Group amounted to Rs. 5,346.0 m, recording a growth of Rs. 1,640.5 m or 44.3%, over the post-tax profit of Rs. 3,705.4 m for the last year. The lower PAT growth rate of 44.3% at the group level was mainly due to the drop in profits of the Stock Brokering subsidiary, SC Securities Company, arising from the market conditions which prevailed 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. 8,943.3 m in 2011 to Rs. 11,612.6 m in 2012, recording a significant growth of 29.8%. This significant growth in NII was largely due to the high growth rates recorded by the Bank in key business volumes, namely 21.63% in customer advances, 24.93% in total assets and 24.34% in deposits during the year ended 2012. It was also possible to improve the Net Interest Margin (NIM), by 0.10% over the previous year, despite the increase in cost of funds, mainly due to timely re-pricing of products and better managing non-interest earning assets.

Commission and fee based income of the Bank recorded a growth of Rs. 338.4 m or 18.69% in 2012 over the previous year, as a result of increased economic activity in the market and the rapid growth achieved by the Bank in its lending activities.

Other income of the bank increased by Rs. 289.75 m to Rs. 4,107.8 m in 2012 compared to Rs. 3,818.1 m, in 2011. Bulk of the other income comprised of exchange income which rose from Rs. 963.8 m in 2011 to Rs. 2,149.4 m in 2012, recording a growth of Rs. 1,185.5 m or 123.0%. 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 the sharp depreciation of Rupee against the US Dollar in 2012 (from Rs. 113.9 as at 31st Dec 2011 to Rs. 127.65 as at 31st December 2012) and the substantial increase in the dealing room’s trading profits.

Net trading income decreased by Rs. 307.7 m. mainly due to the recognition of a capital gain in 2011 amounting to Rs.376.8 m. by selling the Visa/Master shares held by the Bank, which were received free of charge.

Operating expenses of the Bank, which stood at Rs. 8,058.8 m in 2011, rose to Rs. 9,396.8 m in 2012, recording an increase of Rs. 1,338.0 m or 16.6%. This growth in operating expenses was largely due to the incremental cost incurred in connection with the opening of 35 and three new branches in 2011 and 2012 respectively and the increase in 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 Bank’s branch network has now adequately covered most of the potential locations of the country. Apart from that, the effect of salary increments during the year and the inflation in the economy too contributed in increasing operating expenses over the previous year.

The requirement on the impairment provision decreased by Rs. 553.14 m, mainly due to the charge for loan impairment decreasing by Rs. 291.95 m in 2012 compared to the previous year. In addition, impairment provision on Financial Investments recorded a significant reversal amounting to Rs. 261.19 m, compared to 2011. This was largely due to mark to market gain on Bank’s Treasury bill portfolio (amounting to Rs. 386.05 m), nullifying the effect of the increased mark to market loss on the trading portfolio of shares held (amounting to Rs.124.86 m).

The growth rates in deposits and total assets in 2012 amounted to 24.34% and 24.93 % respectively and compared well with the industry’s growth rates of 17.1% and 20.9%, during the period. In addition, the growth rate in customer advances during the year 2012 amounted to 21.63%, as against the industry average of 20.9% during the period. The bank was able to exceed the permitted credit growth of 18% due to its ability in raising foreign currency funding totaling to US $ 62.5 m.

The Bank has one of the lowest impairment ratios in the industry at 1.9%. This was mainly due to prudent credit disbursements and excellence in credit quality management. The total impairment provisions cover as at end 2012 was 68.1% which is a decrease compared to 77.0% as at end 2011, largely due to recoveries made.

The improved profits paved the way for most of the key financial ratios of the Bank to record significant improvements over the previous year. Cost/income ratio rose to a peak level of 61.5% in 2011, mainly due to the additional cost incurred in connection with the accelerated branch expansion program and recruitment of 600 new staff to support the business expansion. However, the ratio in 2012 dropped to 59.0% with the moderation in branch expansion program and the significant increases in the NII and Foreign Exchange Income.

Both ROA and ROE ratios showed significant improvements in 2012, due to the higher profit growth rate of 51.6.% of the Bank during the period. The ROA after tax which stood at 1.55% in 2011 rose to 1.85% in 2012, whereas the ROE which stood at 16.17% in 2011 rose to 22.33% during the period under review.

The statutory liquid asset ratio dropped from 24.95% as at 31 December 2011 to 22.4% as at 31 December 2012, mainly due to the rapid credit expansion. Though, the ratio was maintained at a reasonably high level over the minimum requirement of 20%, it was not as high as the industry average of around 31.2%, due to the prudent trade-off maintained between liquid assets and earning assets.

Sampath bank also remained as one of the well capitalised banks, with the Tier I capital adequacy ratio at 11.80% and the total capital adequacy ratio at 13.61% as at 31 December 2012, despite the high credit growth of 21.63% recorded during the year. This was mainly due to recognition of audited profit (SLFRS) for the year 2012, the debenture issue of Rs. 1.5 b in October 2012 and the Bank’s success in managing the expansion of risk weighted value of assets.

The Bank’s Annual Report 2011 and Financial Data 2011 won a ‘Bronze Award’ and a ‘Gold Award’ under the ‘Banks National’ category at the 26th ‘ARC Award Ceremony’ held in New York and the Management Commentary was awarded a Gold Award, at The Chartered Accountants Annual Report Awards held in 2012.

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 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.

This analysis is based on the accounts published in the Annual Report 2012 of Sampath Bank PLC, in accordance with the Sri Lanka Financial Reporting Standards (SLFRS). Hence they differ to some extent with the accounts for 2011 already released to the Colombo Stock Exchange, which are based on SLAS. In the accounts published for 2012 under the SLFRS, the comparative figures for 2011 too have been restated in accordance with SLFRS principles.