Maintains growth of 23.8%
Sampath Bank continued with the growth momentum in the first nine months of 2012, by posting impressive results in many key areas over the last year same period, amidst increasing interest rates and shifting of funds towards high cost financing due to the prevailing market conditions.
The bank’s pre-tax profit, which rose to Rs. 5,453.7 m in the first nine months of 2012, reflected an increase of Rs. 1,047.9 m or 23.8% over the pre-tax profit of Rs. 4,405.8 m for the first nine months of 2011. The post-tax profit of the bank recorded a growth of 23.5% over the same period of last year, rising from Rs. 3,060.5 m in 2011 to Rs. 3,778.6 m in 2012.
Sampath Bank Group
Pre-tax profit of the group, which consists of Sampath Bank and the four subsidiary companies amounted to Rs. 5,620.7 m for the first nine months in 2012, reflecting a growth of Rs. 950.3 m or 20.3%, over the pre-tax profit of Rs. 4,670.4 m for the corresponding period in 2011.
Sampath Bank, as the main entity of the Group, contributed the bulk (97.0%) of the profit. The post-tax profit of the Group amounted to Rs. 3,900.5 m, recording a growth of Rs. 615.2 m or 18.7%, over the post-tax profit of Rs. 3,285.3 m for the same period of the last year. The lower PAT growth rate of 18.7% 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.
Contributory factors for the bank’s improved results were as follows:
Net Interest Income (NII)
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. 6,585.6 m in the first nine months 2011 to Rs. 8,358.3 m in the first nine months 2012, recording a significant growth of 26.9%.
This increase was achieved despite the Net Interest Margin (NIM), which stood at 4.17% in the first nine months of 2011 dropping to 4.10% in the first nine months of 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 29.7% in customer advances, 27.6% in total assets and 25.0% deposits during the one year period ended 30.09.2012.
The exchange income rose from Rs. 437 m in the first nine months of 2011 to Rs. 2,165.7 m in the first nine months of 2012, recording a growth of Rs. 1,728.7 m or 395.6%. 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 sharp depreciation of Rupee against the US Dollar in 2012 (from Rs. 113.9 as at 31 December 2011 to Rs. 129.48 as at 30 September 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. 221.5 m or 10.7% in the first nine months 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 (100%) in first nine months 2012 was capital gain on share trading, where the bank realised capital gain of Rs. 413.8 m and Rs. 364.57 m in 2011by selling part of scrip dividend received from Lanka Bangla Finance Ltd and by selling the Visa/Master shares held by the bank, which was received free of charge during first nine months 2011.
Operating expenses of the bank which stood at Rs. 5,749.8 m in the first nine months 2011, rose to Rs. 6,815.1 m in the first nine months 2012, recording an increase of Rs. 1,065.3 m or 18.5%. This growth in operating expenses was largely due to the incremental cost incurred in connection with the opening of 28 new branches in the first nine months of 2011and the increase of 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. Apart from that, effect of salary increment during the year and the inflation in the economy also resulted in increasing operating expenses over the previous year same period.
Loan loss provisions and provision cover
Though, the provision cover recorded a marginal decline and stood at 71.23 % at the end of the first nine months of 2012, due to the recoveries made against the underlining NPLs, the specific provision cover still remained at a high level compared to the industry average of 50.9% on 30 September 2012. Together with the general provisions, the total provision coverage ratio of the bank stood at 86.41 % as at 30 September 2012.
Similarly, NPL ratio too came down to 2.27% as at 30 September 2012 from 2.65% as at 31 December 2011. However, the regulatory general provision made against performing advances had to be increased due to significant credit growth recorded in the first nine months of 2012.
A gain of Rs. 93.4 m arose in the first nine months of 2012, due to the reversal of previous mark to market losses, arising from the appreciation of market value in Treasury Bill portfolio held, which off-set the mark to market losses on the trading portfolio of shares. The previous year’s gain of Rs.72.1 m arose due to a reversal of an impairment provision of Rs. 275.9 m made against the share investment in the Union Bank.
The growth rates in deposits and total assets during the first nine months of 2012 amounted to 17.3% and 18.2 % respectively and compared well with the industry’s growth rates of 12.8% and 15.6%, during the period. In addition, the growth rate in customer advances during the First Nine Months of 2012 amounted to 19.8%, as against the industry average of 16.6% during the period.
Though the NPL volumes marginally rose by Rs. 91.5 m in the first nine months 2012, the NPL ratio of the bank dropped to 2.27% as at 30 September 2012, from 2.65% as at 31.12.2011, which also compared well with the industry average of 4.0% as at 30 September 2012.
Key financial ratios
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 59.15% in 2011, mainly due to the additional cost incurred in connection with the accelerated branch expansion program and recruitment of 867 new staff to support the business expansion. However, the ratio in the first nine months of 2012 dropped to 57.18% with the moderation in the branch expansion program and the significant increases in the NII and foreign exchange income.
ROA and ROE
Despite the marginal drop compared to the previous year, the above two ratios remained at healthy levels of 1.85% and 24.55% during the period under review.
Statutory liquid asset ratio
This ratio dropped from 24.95% as at 31 December 2011 to 21.32% as at 30 September 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%, due to the prudent trade-off maintained between liquid assets and earning assets.
Capital adequacy ratios
Sampath Bank also remained as one of the well capitalised Banks, with the Tier I capital adequacy ratio at 10.67% and total capital adequacy ratio at 11.65% at 30 September 2012, despite the higher credit growth of 19.8% recorded during the first nine months of 2012.
This was partly due to the bank’s success in managing the expansion of risk weighted value of assets. Further recognition of the audited profit of the second half of the year and the debenture issue of Rs. 1.5 b in October 2012 will further improve capital adequacy towards the year end.
Compliance with new Sri Lanka Accounting Standards
As per the ruling issued on 2 March 2012 by the Institute of Chartered Accountants of Sri Lanka on ‘Preparation of Financial Statements as per LKAS 34,’ the bank has published the quarterly financial statements for the first nine months of 2012 under Option 2, by presenting them in accordance with the Sri Lanka Accounting Standards (SLAS), which existed immediately prior to 1 January 2012, with disclosures on the impact on the statement of comprehensive income for the nine-month period under review and net assets (equity) as at 31 December 2011 and 30 September 2012 respectively.
With the objective of strengthening the Tier II capital adequacy, Sampath Bank PLC issued 15,000,000 unsecured subordinated redeemable debentures at a par value of Rs. 100.The debenture issue was opened on 4 October 2012 and closed on 5 October 2012 as the issue was oversubscribed. These debentures are quoted in the Colombo Stock Exchange.
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.
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 has 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 affirmed by Fitch Rating Lanka too.