Sampath Bank succeeded in raising Rs 10 Bn in Tier 2 capital via a debenture issue in February 2023 and despite the depressing economic outlook in the Country, the issue was oversubscribed – a testament to the investor confidence placed in Sampath Bank and widespread acceptance of the stability and prudent governance of the Bank.
The newly obtained capital will enable the Bank to rise above and prevail as one of the Country’s pre-eminent Bank.
Sampath Bank registered a profit before tax (PBT) of Rs 4.5 Bn and a profit after tax (PAT) of Rs 2.6 Bn for the three months ended 31st March 2023, indicating a decline of 30.5% and 44.3% respectively from the figures reported in 1Q 2022. This decline was mainly attributed to the exchange losses recorded during the quarter as a result of the appreciation of LKR by Rs 39 against the USD on its foreign currency reserves. All other income lines recorded performance well above the previous period.
Key highlights of financial results declared by Sampath Bank and the Group for 1Q 2023 compared to 1Q 2022:
Strong NII buttressed by the higher AWPLR
19% increase in net fee and commission income driven by trade-related operations As a result of the appreciation of LKR against USD by Rs 39 in 1Q 2023 vs depreciation of Rs 93.75 in 1Q 2022, the exchange income declined by Rs 10.9 Bn.
27% increase in impairment provision on loans and advances.
The high inflationary conditions resulting in 22% increase in operational expenses. The upward revision in Income Tax rate and the introduction of SSCL resulting in higher tax expenses. Group’s PBT and PAT for 1Q 2023 was Rs 5 Bn and Rs 3 Bn respectively, reflecting a decline of 27% and 38% respectively.
Fund based income
Sampath Bank reported a total interest income of Rs 50.2 Bn in 1Q 2023, up by 102% from the Rs 24.9 Bn recorded in the corresponding period of the previous year. The AWPLR moved up significantly from 9.85% at the end of the first quarter of 2022 to 21.4% at the end of the first quarter of 2023.
Because of the higher interest rates that existed throughout the reporting period compared to the preceding period, the Bank was able to register a substantial increase in interest income. Interest expenses too grew in line with the previously indicated interest rate hikes resulting in the Bank
recording a total interest expense of Rs 32.1 Bn in the first quarter of 2023, an increase of 183% over the figure reported in the first quarter of 2022. As a result, net interest income increased by 34% in the first quarter of 2023.
However, the Net Interest Margin (NIM) of 5.60% reported at the end of the quarter under review showed a decline of 6 basis points from the figure reported at the end of 2022. The downward trend in AWPLR reported since the end of 2022 was the primary cause of the decline in NIM.
Non-Fund based income
The Bank’s Net fee and commission income (NFCI) increased by 19% in the first quarter of 2023 compared to the corresponding period in the previous year. NFCI includes income from a variety of sources, including loans and advances, credit cards, trade and electronic channels. First-quarter growth
was mainly attributable to the increase in fee and commission income derived from trade and remittance related activities.
Sampath Bank posted a net other operating loss of Rs 4.4 Bn in the first three months of 2023, compared to a gain of Rs 8.7 Bn reported in corresponding period of 2022, denoting a decline of 151%. This was due to the reversal of exchange gain amounting to Rs 4.5 Bn, resulting from the 10.7% appreciation of the LKR against the USD.
However, the Bank recorded a net trading gain of Rs 1.7 Bn for the period under review, compared to a loss of Rs 0.4 Bn in the corresponding period of the previous financial year, mainly due to forward exchange contract revaluation gains. On this basis, the Bank’s net exchange loss from
foreign exchange operations for the period under review was Rs 2.8 Bn (1Q 2022: A gain of Rs 8 Bn)
The Bank recorded a total impairment charge of Rs 6.9 Bn for the first quarter of 2023, 41% less than the charge for the corresponding period in the previous year. The impairment charge for the first quarter of 2023 consisted of Rs 6.2 Bn on account of loans and advances (Q1 2022: Rs 4.9 Bn) and Rs 0.4 Bn for other financial instruments (Q1 2022: Rs 6.7 Bn). In addition, an impairment charge of Rs 0.4 Bn was recorded against commitments and contingencies (Q1 2022: Rs 0.2 Bn).
Impairment charge on loans and advances: In the first quarter of 2023, the impairment charge for loans and advances increased by 27% compared to the same period in the previous year.
Impairment on Individually Significant Loan (ISL) Customers:
During the first quarter of 2023, the Bank evaluated a substantial portion of its loans and advances under the ISL category, taking into account both their financial strength and external macroeconomic pressures.
Consequently, Rs 4.6 Bn was charged as impairment provisions against ISL customers in the first three months of 2023, an increase of Rs 1.3 Bn compared to the same period in 2022. Even though a slow recovery was witnessed in some vulnerable industries, the Bank prudently maintained
the previous level of impairment provisioning against ISL customers in these industries as it did not deem that the industry risk had significantly declined.
Collective Impairment: Impairment models used in 2022 were continued in 1Q 2023 to ensure adequate buffers were in place to absorb any potential credit risk that could arise in future. This cautious strategy was in response to the uncertain economic conditions witnessed both locally and globally.
The Bank continued to maintain in 2023, the allowance for overlay which it applied in 2022. The probability weightage applied to the worst-case economic scenario remained unchanged during the reporting period.
During the period under review, the Bank also proceeded to reclassify customers from Stage 1 to Stage 2 considering their potential credit risk.
Meanwhile customers operating in Risk Elevated Industries were also reclassified under Stage 2, with additional provisions recognized against them.
Impairment charge on other financial instruments
The impairment charge on other financial instruments amounted to Rs 0.4 Bn for 1Q 2023, a 95% reduction compared to Rs 6.7 Bn reported in the corresponding period of the previous year. In 1Q 2022, the Bank recognised a substantial impairment charge against FCY denominated government securities in response to the downgrade of Sri Lanka’s sovereign rating in April 2022 and the announcement by the Government of Sri Lanka (GoSL) on the restructuring of the country’s external debt through an IMF-
supported economic adjustment program. No such provisioning was deemed necessary in 1Q 2023 as substantial provisioning had already been recognized against the said instruments as at 31st December 2022.
Operating expenses in 1Q 2023 showed a 22% increase in comparison to the first quarter of 2022. The 41% increase in other expenses could be attributed to the prevailing inflationary conditions and other factors such as LKR depreciation, increased taxes and import restriction. Personnel costs too grew by 7.4% in 2023 mainly owing to annual salary increases.
Total effective tax rate of the Bank increased to 57% in 1Q 2023 from 42% reported in 1Q 2022, owing to the combined effect of the newly introduced Social Security Contribution Levy (SSCL) and the increase in income tax rate.
The Return on Average Shareholders’ Equity (after tax) decreased to 8.37% as at 31 st March 2023 from 10.95% reported at the end of the year 2022. Return on Average Assets (before tax) stood at 1.38% as at 31st March 2023 as against the 1.16% reported as at 31st December 2022.
The Bank’s latest capital adequacy ratios improved further in 1Q 2023 from the figures reported in the previous quarter in addition to their being well above the regulatory minimum requirements. As at 31st March 2023, Sampath Bank’s CET 1, Tier 1 and total capital ratios were at 12.51%, 12.51% and 16.12% compared to 11.92%, 11.92% and 14.27% respectively at the end of 2022. These increases are attributed to two main reasons – Rs 10 Bn worth of Tier 2 capital infusion in February 2023 and decline in risk weighted assets resulting from the LKR appreciation.
Assets and Liabilities
Total assets of the Bank declined by Rs 18 Bn (by 1.4%) from Rs 1.32 Tn as at 31st December 2022 to Rs 1.31 Tn as at 31 st March 2023. This decline was mainly the result of the Rupee value reduction in foreign currency denominated assets on the back of the LKR appreciation against the USD.
Similarly, the total Advances declined by Rs 22 Bn (by 2.4%) in the first three months of 2023 from Rs 920 Bn as at 31st December 2022 to Rs 898 Bn at the end of the reporting period due to the LKR appreciation against the USD.
Sampath Bank’s total deposit book declined from Rs 1.1 Tn reported at the end of 31 st December 2022 to Rs 1.07 Tn at the end of 31 st March 2023, a decline of Rs 32 Bn (by 2.9%). The CASA ratio at the end of 1Q 2023 was 32.8% compared to 32.7% reported at the end of 2022.
The Shareholders of Sampath Bank at the Annual General Meeting held on 30th March 2023 approved the final Cash Dividend of Rs 3.45 per share and Scrip Dividend of Rs 1.15 per share for the financial year 2022. In its 1Q 2023 Financial Statements, the Bank made a provision of Rs 5.3 Bn to facilitate the payment of the approved final dividend, while Rs 1.1 Bn was capitalized for the purpose of creating shares under scrip dividend. The Bank paid the dividend in April 2023.