February, 14, 2020
Sampath Bank’s Board of Directors has recommended a final cash dividend of Rs 11.75 per share to be paid for the financial year ended 31st December 2019 subject to the approval of the shareholders at the Annual General Meeting to be held on 30th March 2020.
The dividend payout ratio for the year ended 31st December 2019 is over 40%. The Bank's total operating profit before impairment and taxes grew by 1.1% to Rs 34.8 Bn in 2019 compared to Rs 34.4 Bn reported in 2018. However, profit before tax (PBT) for the year 2019 dropped to Rs 15.5 Bn from Rs 18.3 Bn recorded in 2018.
This decline of 15.5% is attributed mainly to the 39% increase in taxes on financial services and the 12% increase in impairment charges. Taxes on Financial Services for the year increased to Rs 6.7 Bn, mainly due to the newly introduced debt repayment levy. Total debt repayment levy for the year exceeded Rs 2.2 Bn.
The Bank reported a Profit after tax (PAT) of Rs 11.2 Bn for the year under review, reflecting a slight decline of 8.2% over the previous year. The Group recorded a PBT and a PAT of Rs 16.3 Bn and Rs 11.7 Bn respectively.
Fund Based Income (FBI)
Low credit growth, higher non-performing loans, Easter Sunday terrorist attacks, Presidential election and pressure on lending rates/interest rate caps affected the Sampath Bank's NII growth during the year 2019. Despite the challenges however, the Bank's NII increased by Rs 3.5 Bn during the period under review to reach Rs 41.6 Bn as at 31st December 2019. This 9.3% growth was the result of effective fund management strategies adopted by the Bank, coupled with timely re-pricing of assets and liability products right throughout the year 2019. It is noteworthy to mention that the Rs 12.1 Bn worth of Tier 1 capital raised during the year, enabled the Bank to release some of its larger high-cost deposits. This helped to reduce the cost of funds and created a positive impact on NII. The reduction of SRR from 7.5% to 6% with effect from 16th November 2018, followed by a further reduction to 5% with effect from 1 st March 2019 also contributed towards improving the NII.
Overall interest income for the period under review recorded an increase of Rs 5.7 Bn to reach Rs 103.6 Bn compared to Rs 97.9 Bn recorded in 2018, which was a moderate growth of 5.8%.
Interest expenses for the year too increased slightly by 3.5% owing mainly due to the new debenture issue that took place in February 2019 and the marginal growth in the deposit portfolio. At the end of 2019, the Bank's interest expenses reached Rs 62 Bn compared to Rs 59.9 Bn recorded in 2018.
Consequently, the Net Interest Margin too improved marginally to 4.46% in 2019 compared to 4.41% reported in 2018.
Non Fund Based Income (NFBI)
Net fee and commission income, which comprises credit, trade, card, operations and electronic channel related fees, grew marginally by 1.2% to Rs 10 Bn in 2019 from Rs 9.9 Bn in 2018. Growth for the year was driven by a strong increase in income generated through card and electronic channels due to higher volume of transactions, which helped to compensate for the drop in demand for feebased activities across credit-related product lines.
Net gains from trading activities recorded a significant growth of 195%, mainly due to movements in forward exchange rates working in favour of the Bank. For the year under review, net gains from trading stood at Rs 2.2 Bn compared, to a loss of Rs 2.3 Bn recorded in 2018. Meanwhile, other operating income recorded a decline of 84.4% from Rs 8 Bn in 2018 to Rs 1.2 Bn in 2019. This was due to the drop in realized exchange income following the appreciation of Sri Lankan Rupee against the US Dollar by Rs 1.55 in 2019, in complete contrast to the depreciation of Rs 29.4 recorded in 2018. Total exchange income which consists of net gains/losses from forward contracts and realized exchange income, decreased to Rs 2.8 Bn for the year 2019, from Rs 5.5 Bn recorded during the previous year which is a decline of 49%.
Stressed economic conditions that prevailed throughout the year 2019 continued to affect business cash flows of many businesses in the country. As a result, the Bank experienced significant increase in customer defaults and delayed repayments. To address this issue, the Bank continued to take strategic measures such as rescheduling/restructuring existing facilities to suit the customers’ debtservicing capacity coupled with improvements to the pre credit evaluation and post credit monitoring protocols. This helped to manage the increasing trend in the NPL to some extent towards the latter part of 2019. Nonetheless the Bank’s NPL ratio as at 31st December 2019 increased to 6.37% from 3.69% recorded in 2018. The banking industry NPL also recorded a significant increase from 3.4% in 2018 to 4.7% as at 31 st December 2019 due to the poor performance of construction, tourism and trading sectors which were badly affected in 2019 due to a combination of factors mentioned previously.
The Bank has already secured a substantial portion of its advance portfolio with first class securities which in turn helped to control the impairment provision. Sampath Bank's total impairment charge against loans and advances for the year ended 31st December 2019 stood at Rs 12 Bn, an increase of Rs 1.5 Bn or 13.8%. It is noteworthy to mention that impairment charge for the fourth quarter showed a reduction of Rs 393 Mn compared to the corresponding period in 2018 as well as a reduction of Rs 611 Mn compared to the third quarter of 2019. The Bank’s cost of risk has increased to 1.74% from 1.69% reported in the previous year due to reasons mentioned above. Further, impairment provision against other financial assets and commitments & contingencies amounted to Rs 569 Mn.
Total operating expenses for 2019 was Rs 20.4 Bn compared to Rs 19.3 Bn recorded in 2018. Higher personnel expenses triggered by annual salary increments and general price hikes were the main factors that contributed to the increase of 5.5% in total operating expenses. The total percentage growth in operating expenses remained above the total percentage growth in total operating income. As a result, the Bank’s cost-to-income ratio (excluding VAT, NBT and DRL on financial services) increased by 100 basis points from 35.9% reported in last year to 36.9% in 2019. However it is important to note that the Bank managed to restrict its total operating expenses to well below the budget allocation for 2019.
Sampath Bank's tax expenses include financial services VAT, financial services NBT, debt repayment levy (DRL) and income tax. Total tax expense of the Bank stood at Rs 11.1 Bn for the year 2019 which included DRL amounting to Rs 2.2 Bn. As a result, the Bank's tax expenses taken as a percentage of operating profit for the year increased to 49.9% for 2019 compared to 47.7% in 2018. It is noteworthy to report that the decision by the Government to abolish the DRL with effect from 1 st January 2020 is a welcome move for the entire financial services sector.
The Bank recorded a total asset growth of 5.3% during the period under review, with the asset book reaching Rs 962 Bn as at 31st December 2019. In comparison, the total asset position as at 31st December 2018 stood at Rs 914 Bn. Gross loans & advances grew by 7.4% to reach Rs 720 Bn as at 31st December 2019. Sampath Bank’s deposit base expanded by Rs 20 Bn, during the year to reach Rs 718 Bn as at 31st December 2019. This marginal growth of 2.9% was due to the conscious efforts made by the Bank to slowdown the deposit mobilization activities and also due to shedding of certain large high-cost deposits following the capital infusions and extra lendable funds released from the balances maintained with CBSL due to SRR cuts effected by the regulator. Furthermore, renewed emphasis on promoting low cost savings led to a robust 8.7% CASA growth which in turn pushed up the CASA ratio to 35.2% in 2019 from 33.4% recorded in 2018.
Capital Base and Ratios
In 2019, the Bank remained proactive in its efforts to strengthen the capital base in compliance with the Basel III capital requirements. After two successful Basel III compliant debentures and rights issues in previous years, the Bank raised another Rs 7 Bn worth of Tier II Capital by way of a Basel III compliant debenture issue in February 2019. In June 2019, amidst trying economic conditions in the country the Bank successfully raised Rs 12.1 Bn for Tier 1 capital through a successful Rights issue. As a result, the Bank’s Common Equity Tier I Capital, Tier I Capital and Total Capital Adequacy ratios as at 31st December 2019 stood at 14.22%, 14.22% and 18.12% respectively. These ratios stood well above the minimum ratios prescribed by the Basel III capital requirements.
The Statutory Liquid Asset Ratio (SLAR) for the Domestic Banking Unit and the Off-Shore Banking Unit were at 21.51% and 26.88% respectively. However, the decline in the Bank’s performance during the year under review and increase in average equity base owing to the Rights issue in June 2019, saw the Return on Average Equity (ROE) (after tax) declining to 11.78% in 2019 from 16.02% in 2018. Return on Assets (ROA) before income tax for 2019 also declined to 1.66% from 2.13% predominantly due to decrease in profitability.
Performance of Shares
With the performance of the Colombo Stock Exchange (CSE) affected by weak economic conditions in the country, the ASPI fluctuated significantly in 2019 between a low of 5,200 and high of 6,215 before finally settling at 6,129 by the end of 2019. In this environment, Sampath Bank’s share price too, fluctuated between a low of Rs 136.00 and a high of Rs 245.00 during the year. The Bank's share price settled at Rs 162.40 on the last trading day of 2019, a drop of Rs 72.60 or 31% from the last traded price of Rs 235.00 in 2018. The increase in the number of listed shares of the Bank also had an impact on share price.
Earnings per Share (EPS) for 2019 was at Rs 32.84, 23.9% lower than the Rs 43.18 recorded for the previous year due to the subdued performance tabled by the Bank in 2019 and the increase in number of shares during the year due to the new capital infusion and capitalisation of the scrip dividend. Net assets value per share too, decreased by Rs 25.15 compared to 2018 and stood at Rs 275.27 due to above noted increase in number of shares.