Higher credit costs, asset quality erosion dampen Sampath Bank third quarter

Sampath Bank PLC profits edged lower over significantly higher provisions made against possible loan losses while the bank’s asset quality eroded as debt serviceability of the borrowers weakened significantly.  

The bank reported a net operating income of Rs.10.6 billion for the three months ended September 30, 2018 (3Q18), up 6.1 percent year-on-year (YoY) as the bank made a hefty provision for possible bad loans undermining gains made in the top line.  

Such provisions were as high as Rs.3.94 billion for the quarter – Rs.2.43 billion for individual customers and Rs.1.51 billion as general provisions—which rose in tandem with the growth in the loan portfolio.  

This was a significant increase from Rs.815 million provisions made for the same period last year.

Meanwhile the bank’s asset quality measured by the gross non-performing loan ratio surged to 4.25 percent from 1.64 percent from the beginning of the year.   
Sampath Bank earned a net interest income of Rs.10.2 billion for the quarter under review, up 31.2 percent YoY on higher margins. 

The bank’s net interest margin rose to 4.27 percent by September 30, 2018, from 3.91 percent at the beginning of the year. 

Rising interest rates help lenders to stretch their interest margins but slow demand for new loans expose them for higher non-performing loans, hurting growth and bottom lines. 

Releasing the interim financial accounts with the opening of the market yesterday, Sampath Bank reported earnings of Rs.2.89 billion or Rs.10.90 a share for the July–September quarter compared to Rs.2.91 billion or Rs.13.66 a share reported for the corresponding period last year.

The significant decline in the earnings per share is due to the bank’s rights issue this April. 

The bank raised Rs.12.5 billion through a rights issue of three new shares for every 13 shares held to strengthen the tier I capital ratio. The bank booked a net trading loss of Rs.1.24 billion for the quarter, compared to Rs.251.2 million gain in the year earlier period.

Meanwhile, there was a substantial increase in the bank’s other operating incomes from Rs.656.1 million to Rs.2.95 billion. 

For the nine months ended September 30, 2018, Sampath Bank reported Rs.9.95 billion in earnings or Rs.37.52 a share compared to Rs.8.78 billion or Rs.41.20 a share reported for the same period last year. The net interest income for the period was Rs.29.2 billion, up 34.7 percent YoY. 

The bank gave Rs.75.4 billion in new loans during the nine months but there were signs of growth getting moderated. 

The deposits grew by Rs.45.6 billion, but during the September quarter the growth in new deposits was weaker—just under Rs.900 million—although the loans grew by Rs.17.5 billion during the period.  

In March the bank raised Rs.7.5 billion through a subordinated debenture issue to strengthen its tier II capital. 

Sampath Bank in October postponed its planned US $ 100 million dollar denominated debenture issue considering the relatively higher pricing amidst the volatility in global bond markets. The debentures will be qualified for Tier II capital. 

Business mogul Dhammika Perera controls 14.95 percent stake in Sampath Bank through Vallibel One PLC and the Employees’ Provident Fund holds 9.98 percent of the bank being the third largest shareholder.