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Nevertheless, improvements in all sources of income namely other operating income (Rs. 968 million), net fee and commission income (Rs. 544 million), net trading income (Rs. 207 million) and a drop in impairment charge for loan and other losses (Rs. 2,471 million) contributed towards this growth in profit.
NII, which is the main source of income from the fund-based operations, representing over 68% of the total operating income, increased from Rs. 15.3 billion in 2013 to Rs. 15.7 billion in 2014, recording moderate growth of 2.5%, despite the continuous decrease in net interest margins (NIM). Net interest margins dropped from 4.39% in 2013 to 3.95% in 2014.This was mainly due to downward pressure on interest rates, lower credit growth in customer advances and the bank being compelled by market factors to invest excess funds in low yielding fixed income securities.
Net fee and commission income
Net fee and commission income of the bank increased to Rs. 3,087 million during the year under review from Rs. 2,543 million in 2013, recording a significant growth of 21.4 %. Growth in business volumes such as card operations, inward remittances, trade services and commission income from other banking service contributed mainly towards this growth.
Net trading and other operating income
Net trading income and other operating income, which accounts for 17.7% of the total operating income, recorded an increase of Rs. 1,175 million from Rs. 2,877 million in 2013 to Rs. 4,052 million for the year ended 31 December 2014. The main contributory factors for this increase were higher bad debt recoveries, charges recovered and exchange income.
Operating expenses
The operating expenses of the bank, which stood at Rs. 10,634 million for the year ended 31 December 2013, increased to Rs. 12,335 million for the year ended 31 December 2014, reflecting a growth of 16%. This was due to general price increases, increase in staff numbers by 312, coupled with salary increments given to staff members with effect from 1 April 2014.
In addition, the opening of eight new branches and 52 new ATMs island-wide during the year, expenses incurred to upgrade the standards of existing branch networks also contributed to the aforementioned increase.
Impairment loss on loan and receivables
Total impairment losses decreased during the year from Rs. 4,736 million in 2013 to Rs. 2,264 million in 2014, mainly due to reduction in impairment charge against pawning portfolio to Rs. 1,320 million in 2014 from Rs. 4,513 million in 2013. Individually significant impairment also recorded a slight decrease of Rs. 10 million and stood at Rs. 788 million for the year ended 31 December 2014.
Business growth
Total deposits as at 31 December 2014 stood at Rs. 342 billion with a growth rate of 13% compared to total deposits as at 31 December 2013, while the CASA portfolio reached a commendable 47% of the total deposits.
Even though the industry experienced slower credit growth, the bank’s total advances as at 31 December 2014 stood at Rs. 311.4 billion which was a growth of 14.6% compared to figures reported as at 31 December 2013.
Sampath Bank’s total assets crossed the Rs. 400-billion mark in 2014 and stood at Rs. 432 billion at the year-end even after settling a foreign currency borrowing which amounted to $ 100 million (Rs. 13 billion) during the first quarter of 2014.
Performance ratios
The cost to income ratio increased to 53.95% for the year ended 31 December 2014, from 51.23% in 2013. This increase was due to an increase in operating expenses as mentioned above and the slow growth in net interest income. ROA (after tax) and ROE (after tax) increased in line with increase in profit for the year ended 31 December 2014 and stood at 1.23% and 16.35% respectively. The statutory liquid assets ratio stood at 24.54% which was well above the mandatory requirement of 20%.
Capital adequacy ratios
The capital adequacy ratios stood at 8.83% (Tier 1) and 13.62% (Total) as at 31 December 2014, recording a marginal deterioration compared to the levels recorded as at 31 December 2013, mainly due to the payment of dividend for 2013 and increase in risk weighted assets for credit risk, as a result of credit growth happening mainly in loan products other than pawning. Nevertheless, both these ratios remained well above the minimum regulatory requirements of 5% and 10% respectively.
Future
Sampath Bank has demonstrated its ability to grow by focusing on enhancing customer satisfaction through improved service quality, combining effectively with human resources and technological innovations. It has proved resilient to external shocks through effective risk management processes and its ability to respond to changes in its operating environment.
Furthermore, as a premier responsible corporate citizen in Sri Lanka, Sampath Bank is continuing to focus and invest in development projects in vital areas of the country’s economy such as education, environment, community-based developments, etc.
Events after the Reporting Period: Super Gain Tax
As per the Interim Budget 2015, passed in Parliament on 7 February 2015, an additional one-off tax of 25% has been imposed on the profits the groups which have earned in excess of Rs. 2,000 million for the year of assessment 2013/2014.
The Sampath Group earned a profit in excess of such an amount for the stipulated period and accordingly the group will be liable to pay such an additional tax in the future.
Accolade
Sampath Bank has been recognised at many prestigious award ceremonies during 2014 including ‘The Euromoney’, which recognised Sampath Bank Plc as the ‘Best Bank in Sri Lanka – 2014’ for the second consecutive year.
Additionally, the bank has been adjudged the Best Commercial Bank and the Best Retail Bank in Sri Lanka by the World Finance Banking magazine.
Its 2013 Annual Report won the Gold award in the ‘Banking Institutions Sector’ and the bronze award in the ‘Overall Excellence in Annual Financial Reporting’ at the 50th Annual Report Award Ceremony, organised by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka). A Sampath Bank television commercial on Sampath Sevana was also recognised as the Best Television Commercial of the Year – First Runner-Up at the Sumathi Awards 2014.
External rating
In the rating assessment for 2014, considering the healthy asset quality, better compliance, transparency, capital adequacy, internal control systems and processes of the bank, Fitch Rating Lanka Ltd. reaffirmed Sampath Bank Plc’s long-term rating as ‘AA-(lka)’, with a stable outlook and Lanka Rating Agency reaffirmed it as ‘AA’ with a stable outlook.
Furthermore, Fitch Rating Lanka Ltd. has assigned a credit rating of ‘A + (lka)’ to Sampath Bank’s Debentures issued in December 2014.
