Amid widespread economic uncertainty during 2022, Sampath Bank maintained a strong capital base and a stable liquidity profile. Proactive efforts to identify challenges and implement appropriate strategies have enabled the Bank to further strengthen its soundness and stability. The Bank also continued to lead by example in demonstrating its commitment to the national growth agenda by promoting inward remittances and encouraging the influx of export earnings to the country while helping all stakeholders manage the current economic crisis. CSR activities have also been accelerated by undertaking multiple projects under the Bank’s flagship “Weweta Jeewayak” program to boost the rural economy.
The Bank declared a PAT of Rs 7.2 billion and a PBT of Rs 9.3 billion for the period ended 30 September 2022, reflecting a decline of 19.8% and 24.4% respectively, compared to the figures declared. for the corresponding period in 2021, which reflects the current economic crisis in the country. As of September 30, 2022, the Group declared PAT and PBT of Rs 7.7 billion and Rs 10.2 billion, a decrease of 21.6% and 24.3% respectively compared to the corresponding period of 2021.
Key Financial Highlights Reported by Sampath Bank for 2022:
276% growth in FX revenue resulting from the sharp depreciation of the LKR against the US Dollar by 82% or Rs 164.75. Considerable increase of 69.5% in net fee and commission income during the period , driven by cards and trade-related operations.
The Bank recorded an impairment charge of Rs 48.8 billion on loans and investments to account for possible economic uncertainties during the year.
Total interest income increased by 67.7% year-on-year during the nine months ended September 30, 2022, reaching Rs 106 billion against Rs 63 billion reported during the corresponding period of the previous year. This is mainly explained by the increase in interest rates recorded in 2022, which saw the AWPLR reach 25.95% as of September 30, 2022, an increase of 1,953 basis points compared to September 30, 2021 and a increase of 1,734 basis points compared to the end of 2021. The one-year Treasury bill coupon rate also increased to 29.85% as of September 30, 2022, an increase of 2,284 basis points. basis compared to September 30, 2021.
Driven by rising market interest rates, the Bank’s interest expense increased by 57.3% from the same period last year to Rs 52.8 billion for the reporting period . Prudent asset and liability management resulted in net interest income increasing 79.4%
Non-Fund Based Income
During the reporting period, the Bank’s net income from fees and commissions (NFCI) increased significantly by 69.5% compared to the same period of the previous year. NFCIs, which include revenue from many sources, such as loans and advances, credit cards, commerce and electronic channels, grew significantly thanks to card-related activities and fee and commission revenue from trade-related activities.
Other net operating income for the nine months ended September 30, 2022 was Rs 18 billion. This 320% year-on-year increase was attributed to the Rs 164.75 decline in the value of the LKR against the USD. In 2022, the Bank recorded a net trading loss of Rs 3 billion against the loss of Rs 98 million recorded the previous year. Total foreign exchange revenue for the reporting period was Rs 14.5 billion, up from Rs 3.8 billion recorded last year.
The Bank recognized a total impairment charge of Rs 48.8 billion for the nine months ended 30 September 2022. This is an increase of 396% from the charge of Rs 9.8 billion reported on last year. Of this amount, the impairment charge for loans and advances amounted to Rs 37.7 billion, while Rs 10.3 billion related to other financial instruments. In addition, an impairment charge totaling Rs 839 Mn has been recorded against other commitments and contingencies.
Impairment charge on loans and advances: In order to reflect the deterioration of the country’s economic environment, the Bank increased the probability weighting assigned to a worst-case economic scenario and revisited the EFA model which led to the recognition of a provision for impairment significantly higher during the reporting period. Industries considered high risk have been expanded to capture a wider range of industry-specific stressors. The potential impact of higher inflation, higher interest charges and increased taxes on the retail segment are some of the other factors that have been considered in the recognition of provisions for depreciation.
The Bank has reviewed the adequacy of the impairment allowance with respect to tourism customers and other similar impacted industries where necessary and adequate impairment allowances have been recorded for individually significant loan impairments. The Bank also continued to recognize a provision for impairment of customers exiting the moratorium at the end of December 2021 and June 2022, as some customers requested additional concessions given the current economic outlook. Additionally, steps have been taken to transition customers from Stage 1 to Stage 2 based on their ability to withstand the negative effects caused by the economic downturn.
The culmination of these efforts has resulted in higher overall provision coverage of 9.8% as of September 30, 2022, which is considered sufficient to help the Bank absorb potential losses resulting from difficult macroeconomic conditions.
Impairment charge on other financial instruments: The Bank provided Rs 9,040 million against SLISBs and Rs 935 million against SLDBs as of September 30, 2022. This decision was influenced by two key factors: rating downgrade Sri Lanka sovereign in May 2022 to RD of C by Fitch Ratings and the current debt restructuring measures taken by the government. The Bank’s accumulated impairment provision for SLDBs and SLISBs stood at Rs 21.6 billion at the end of the reporting period. In the meantime, the Bank was able to significantly reduce exposure to FCY instruments by converting matured SLDBs to LKR instruments during the reporting period.
Net operating income
Total operating income for the period increased by Rs 40 billion. However, the impairment charge also increased by Rs 39 billion, limiting the growth in net operating income to 3.7%.
Operating expenses during the reporting period amounted to Rs 20.5 billion, an increase of 23.6% from the Rs 16.6 billion recorded during the corresponding period last year. Rising inflation and the depreciation of the LKR were the main contributors to this increase. Despite the growth recorded in operating expenses, the Bank’s cost to income ratio (CIR) fell significantly by 1,460 basis points and stood at 25% against 39.6% recorded in the corresponding period. of 2021. This decrease in CIR was mainly due to the increase in total operating income exceeding the increase in total operating costs.
Despite the 17.6% drop in profit before VAT, VAT on Financial Services increased by 9.3% due to the upward movement of the VAT rate from 15% to 18%, with effect from January 1, 2022 .
The Inland Revenue (Amendment) Bill published on October 11, 2022 has not been substantially enacted by parliament. Therefore, the Bank did not take into account the changes proposed in the draft law for the reference period.
Return on average equity (after tax) fell to 8.08% as of September 30, 2022, compared to 11.05% at the end of 2021. Return on average assets (pre-tax) decreased set at 0.96% as of September 30, 2022 versus 1.44% reported for 2021.
As of September 30, 2022, the Bank maintained all of its capital ratios well above regulatory minimum requirements. The Bank’s CET 1, Tier 1 and total capital ratios as of September 30, 2022 were 11.31%, 11.31% and 13.72% respectively, compared to 13.95%, 13.95% and 17.02 % at the end of 2021. The decline in the ratios during the reporting period is due to the combined impact of the increase in risk-weighted assets resulting from the depreciation of the LKR, cash dividends and the payment of the surcharge.
Assets and liabilities
Sampath Bank’s total assets exceeded Rs 1.3 Tn at the end of September 2022, an increase of Rs 113 bn (annualized growth of 12.6%) compared to the position at December 31, 2021 of Rs 1.2 Tn. The increase in cash and cash equivalents and net loans and advances contributed to the aforementioned growth. One of the main causes of balance sheet expansion can be attributed to the devaluation of the local currency during the year.
Total advances increased by 22.6% (annualized) during the reporting period from Rs 813 billion at the end of December 2021 to Rs 951 billion as at September 30, 2022. The LKR loan portfolio increased by 12.1% (annualized). It is worth mentioning that the value of foreign currency denominated loans increased significantly after the LKR depreciated by Rs 164.75 against USD during the period. If exchange rate variations had not occurred, total loans and advances would have increased by 8.8% (annualized). During 3Q22, the deposit base in LKR increased by Rs 44.4 billion due to deposit mobilization initiatives promoted by the Bank. Nevertheless, the growth of the LKR deposit base was limited to 0.8% compared to the end of 2021.