August, 9, 2019
The Bank reported a net interest income of Rs 19.8 Bn for 1H 2019 reflecting a growth of 12.2% over the figure reported in 1H 2018, a commendable result given the challenging economic environment throughout the period under review.
Operating profit before impairment charges and taxes for the period, grew by 4.6% over the corresponding period in 2018. However, profit before taxes recorded a decline of 33.7%. Impairment charges for the period increased owing to higher non-performing loans reported during the period. Meanwhile, volatile interest rates, currency uncertainty and substantially higher taxes such as debt repayment levy continued to undermine the Bank’s profit growth. The economic slowdown and the recent Easter Sunday terror attacks which affected many key industries, also had a negative impact on the profit growth of the Bank.
The Bank recorded Profit before tax (PBT) of Rs 5.8 Bn and Profit after taxes (PAT) Rs 4.1 Bn. Meanwhile Sampath Bank Group reported Group PBT and PAT of Rs 5.9 Bn and Rs 4.2 Bn respectively.
Net Interest Income (NII), which is the main source of income representing almost 76% of the total operating income of the Bank, recorded an increase of Rs 2.1 Bn (12.2%) during the period under review. Accordingly, the Bank recorded Rs 19.8 Bn as NII for the 1H 2019, as against Rs 17.7 Bn recorded for the corresponding period in 2018.
The above achievement was made possible due to marginal growth in the Bank’s fund base, timely re-pricing of asset and liability products and other fund management strategies adopted by the Bank. The decision by the regulator to reduce the SRR from 7.5% to 6.0% with effect from 16th November 2018 followed by a further reduction to 5% with effect from 1st March 2019 also had a positive impact on NII. On the other hand, NIM of the Bank dropped to 4.35% as at 30th June 2019 from 4.41% reported in December 2018, due to continuous pressure on interest rates.
Net fee and commission income, which largely comprises of fees generated through credit, trade, card and electronic channels, declined marginally to Rs 4.7 Bn in 1H 2019, from the figure reported in 1H 2018. The decline was kept to a minimum due to the strong market uptake for innovative value additions offered through electronic channels as well as appropriate action to expand the credit card operations.
The Net gain from the trading portfolio recorded a strong growth to reach Rs 2.2 Bn for the period under review. This was the result of tactical strategies to maximize forward contract margins in a highly volatile exchange rate environment which enabled the Bank to benefit from significant revaluation gains on forward contracts. However, other operating income which mainly consist of realized exchange profit/loss, declined by 126% YoY to post a net loss of Rs 642 Mn. This was due to the appreciation of Sri Lankan rupee against US dollar in 1H 2019 compared to the depreciation recorded during the comparative period in 2018.
Operating expenses of the Bank which stood at Rs 9.5 Bn during 1H 2018, increased to Rs 10.1 Bn during the period under review, reflecting a YoY increase of 6.7%. This increase was mainly due to higher personnel expenses triggered by annual salary increments. Other overhead expenses too increased slightly due to general price hikes. Consequently, the Bank’s Cost-to-Income ratio (excluding VAT, NBT & DRL on financial services) increased marginally to 38.8% in the first six months of 2019 from 38.4% reported for the corresponding period in 2018.
While the general economic slowdown continued to dampen the general business climate in the country, the recent Easter Sunday terror attack had a catastrophic impact on the financial performance of many key sectors of the economy. Consequently, non-performing advances of all banks including Sampath Bank further increased in 1H 2019. As a result, Sampath Bank’s gross NPA ratio increased to 5.66% as at 30th June 2019 from 3.69% reported as at end December 2018.
As a result of increase in non-performing advances, impairment charge of individually significant customers increased to Rs 2.5 Bn in 1H 2019 from Rs 1.7 Bn in the corresponding period for 2018. The collective impairment charge on loans and other investment also increased to Rs 4.7 Bn during the first six months of this year from Rs 2.6 Bn recorded during 1H 2018.
Sampath Bank’s total asset base grew by 1.3% (annualized 2.6%) during the period under review to reach Rs 925.7 Bn as at 30th June 2019. In comparison, the total asset position as at 31st December 2018 stood at Rs 914.2 Bn. Gross loans & advances grew by 2.5% (annualized 5.0%) to reach Rs 686.9 Bn as at 30th June 2019, recording a growth of Rs 16.6 Bn for the period under review. Total deposit base except deposits held by other banks increased by Rs 5.7 Bn for the same period, to reach Rs 696.1 Bn as at the reporting date, a growth of 0.8% (annualized 1.6%). Meanwhile, the CASA ratio which stood at 34.4% as at 30th June 2019 showed a marginal but encouraging improvement over the 33.4% registered as at 31st December 2018.
Return on Average Equity (ROE) (after tax) declined from 16.02% as at 31st December 2018 to 9.26% as at the end of the period under review in direct correlation to the Bank’s performance for 1H 2019. The increase in average equity base as a result of the Rights issues in June 2019 (Rs 12.1 Bn) also contributed to drop in ROE. Return on Average Assets (ROA) (before tax) declined to 1.27% from 2.13% as at the end of 2018.
The Statutory Liquid Asset Ratio (SLAR) for the Domestic Banking Unit and the Off-Shore Banking Unit were maintained well above the mandatory requirement of 20% throughout the period, and ended up at 22.94% and 28.23% respectively as at 30th June 2019.
The Bank’s Common Equity Tier I Capital, Tier I Capital and Total Capital Adequacy ratios as at 30th June 2019 was at 14.0%, 14.0% and 18.1% respectively, all well above the minimum regulatory requirement of 8.5%, 10.0% and 14.0%, applicable as at the reporting date. In order to fall in line with Basel III capital requirements, Sampath Bank raised Rs 7.0 Bn worth of Tier II Capital by way of a Basel III Compliant Debenture issue in February 2019 and Rs 12.1 Bn worth of Tier I Capital by way of a Rights issue in June 2019.
