The Bank’s pre-tax profit which rose to Rs. 2,150.8 Million in the 1st Q 2012, reflected an increase of Rs. 802.2 Million or 59.5% over the pre-tax profit of Rs. 1,348.6 Million for the 1st Q 2011. The post –tax profit of the Bank recorded a growth of 59.1 % over the same period of last year, rising from Rs. 898.8 Million in 2011 to Rs.1,430.0 Million in 2012. The lower PAT growth rate of 50.6% at the group level was mainly due to the drop in profits of the Stock Brokering subsidiary, SC Securities Company, arising from the current situation 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 2,060.5 Million in the 1st Q 2011 to Rs 2,458.6 Million in the 1st Q 2012, recording a significant growth of 19.3%. This increase was achieved despite the Net Interest Margin (NIM), which stood at 4.22% in 1st Q 2011 dropping to 3.86% in the 1st Q 2012, as a result of cost of funds increasing at a faster rate than the rise in average yield rates of both the customer advances and government securities held. Hence, this significant growth in NII was largely due to the high growth rates recorded by the bank in key business volumes, namely 33.7% in customer advances, 31.9% in total assets and 25.3% deposits during the one year period ended 31.03.2012.
The above income, the key contributory factor for the high profit growth in the 1st Q2012, rose from Rs.137.9 Million in the 1st Q 2011 to Rs.1,427.6 Million in the 1st Q 2012, recording a growth of Rs.1,289.7 Million or 935%. This was facilitated mainly by the increase in the revaluation gains on the foreign currency reserves held in the Bank’s FCBU, aided by a sharp depreciation of Rupee against the US Dollar in 2012 ( from Rs. 113.9 as at 31st Dec 2011 to Rs. 128.20 as at 31st March 2012) and the substantial increase in the Dealing Room’s trading Profits.
Other income of the Bank, bulk of which is Commission and Fee-Based income, too recorded a growth of Rs.100.7 Million or 14.6% in 1Q 2012 over the same period in 2011 as a result of Increased economic activity in the market and the rapid growth achieved by the Bank in its lending activities. The only source of other income, which recorded a negative growth (85.6%) in 1 Q 2012 was capital gain on share trading, which amounted to Rs 11.3 Million as against Rs 78.6 Million reported in 1Q 2011.
Operating expenses of the Bank which stood at Rs. 1,838 Million in the 1st Q 2011, rose to Rs. 2,132 Million in the 1st Q 2012, recording an increase of Rs. 294 Million or 16%. This growth in operating expenses was largely due to the incremental cost incurred in connection with the opening of 35 new branches in 2011and the increase of 697 in the 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.
Though, the Provision Cover recorded a marginal decline and stood at 71.36 % at the end of the 1st Q 2012, due to the recoveries made against the underlining NPLs, the specific Provision Cover still remained at a higher level, compared to the industry average of 45 % on 31.12.2011. Together with the general provisions, the total Provision Coverage Ratio of the bank stood at 85.35 % as at 31.03.2012.
With a low NPL ratio of 2.55% and high provision cover of 77.3 % at the beginning of the year 2012, the need for specific provisions become naturally low and consequently the charge on specific provisions in the 1st Q 2012 amounted to Rs.72.5 Million, as against Rs. 153.2 Million made in the 1st Q 2011. However, the regulatory general provision made against performing advances had to be increased due to significant credit growth recorded in the 1st quarter 2012.
The provision against mark to market losses on the trading portfolio of shares and Treasury Bills amounted to Rs 119.5 Million in the 1st Q 2012, as a net gain of Rs 208.4 Million in the 1st Q 2011, which includes a reversal of an impairment provision of Rs. 275.9 Million made against the share investment in Union Bank.
The growth rates in deposits and total assets during the 1st Q 2012 amounted to 6.2% and 9.1 % respectively and compared well with the industry’s growth rates of 5.7% and 8.1%, during the period. In addition, the growth rate in customer advances during the 1st Q 2012 amounted to 10.8%, as against the industry average of 6.8% during the period.
The NPL volumes net of IIS which stood at Rs 5,919 Million as at 31.03.2011 was reduced to Rs 5,532.6 Million by Rs. 386.4 Million or 6.5% as at 31.03 .2012. Though the NPL volumes rose by Rs.296.8. Million in the 1st Q 2012, the NPL Ratio of the Bank was reduced to 2.55% as at 31.03.2012, from 2.65% as at 31.12.2011, which also compared well with the industry average of 3.9% as at 31 March 2012.
The improved profits paved the way for most of the key financial ratios of the Bank to record significant improvements over the previous year.
This ratio rose to a peak level of 61.6% in 2011, mainly due to the additional cost incurred in connection with the accelerated branch expansion program and recruitment of 697 new staff to support the business expansion. However, the ratio in the 1st Q 2012 dropped to 50.64% with the moderation in the branch expansion program and the significant increases in the NII and Foreign Exchange Income.
Both ratios showed significant improvements in the 1st Q 2012, due to the higher profit growth rate of 59.1.% of the Bank during the period. The ROA after tax which stood at 1.78% in 2011 rose to 2.25% in the 1st Q 2012, whereas the ROE which stood at 22.6% in 2011 rose to 29.27% during the period under review.
This ratio dropped from 24.95% as at 31.12.2011 to 22.03% as at 31.03.2012, mainly due to the rapid credit expansion. Though, the ratio was maintained at a reasonably high level over the minimum of 20%, it was not as high as the industry average of around 31.7%, due to the prudent trade-off maintained between liquid assets and earning assets.
The capital adequacy ratios, Tier I at 9.83% and Total at 11.04%, by the end of 1st Q 2012, recorded marginal deteriorations compared to the level as at 31.12.2011, mainly due to the rapid credit expansion during the 1st Q 2012. Nevertheless, they remained above the minimum regulatory requirements. The bank is currently exploring the possibility of structuring suitable Tier-II instruments, utilizing the sizable leeway available in Tier-II.
At the last AGM held on 30th March 2012, on the recommendation of the Directors, shareholders approved a final dividend of Rs 9/= per share, which was paid 50% in cash and 50% in the form of scrip dividend. These scrip dividend shares were priced at Rs. 175/=.
The total dividend of Rs 9/= per share paid for 2011 was much above the minimum dividend of Rs 2.33 payable under the Deemed Dividend requirement. It also represented a dividend pay-out ratio of 36.9.% for 2011, as against 37.4 % in 2010.
As per the Ruling issued on 02.03.2012 by the Institute of Chartered Accountants of Sri Lanka on ‘Preparation of Interim Financial Statements as per LKAS 34’, the Bank has published the interim financial statements for 1Q 2012 under Option 2, by presenting them in accordance with the Sri Lanka Accounting Standards (SLAS), which existed immediately prior to 01.01.2012 , with disclosures on the impact on the Statement of Comprehensive Income for the 3 month period under review and Net Assets (Equity) as at 31st December 2011 and 31st March 2012 respectively.
In the 2011 rating assessment, considering the healthy asset quality, better compliance, transparency, capital adequacy, internal control systems & processes of the Bank, RAM Ratings Lanka has reaffirmed AA (stable) rating for Sampath Bank, in their rating assessment. In the same year, the overall credit rating of the Bank’s "AA-"lka (positive) has been reaffirmed by Fitch Rating Lanka too.