Massive loan loss provisions undermine Sampath Bank’s June performance

A massive jump in provisions made against possible bad loans took away an otherwise an exceptional quarter at Sampath Bank PLC, marked by improved margins, healthy growth in new loans and balanced funding mix. 

Releasing its interim financial accounts for the April-June quarter (2Q18), Sampath Bank PLC reported earnings of Rs.14.36 a share or Rs.3.7 billion net profits, up 5.9 percent from the same period, last year.

The net interest income rose 40 percent year-on-year (YoY) to Rs.10.1 billion supported by some healthy growth in new loans and margins.

The bank with assets of Rs.866 billion and Rs.900.2 billion at the group level, gave new loans of Rs.57.9 billion, which is a 10 percent increase in the portfolio. 
The bank has a total loans and receivables book of Rs.630 billion. However, the 2.96 percent of these gross loans were bad or non-performing as of June 30, 2018, sharply up from 1.64 percent in December 2017. This phenomenon is common in the Sri Lankan banking sector since the beginning of 2018 and marks a sharp U-turn for Sampath Bank, which remained the poster child for best in asset quality among the domestic licensed commercial banks.    

Meanwhile, the net interest margin—the difference between the loan yields and what the bank pays for deposits and other funds—rose to a healthy 4.26 percent from 3.91 percent six months ago. 

The bank increased its net fees and commission incomes by 30.1 percent YoY to Rs.2.5 billion. 

The provisions made for possible bad loans by individual customers soared to Rs.1.2 billion from just Rs.204. 2 million in the corresponding quarter of 2017. 

The provisions made for all customers or collective impairments rose by 41 percent YoY to Rs.685.2 million. 

Meanwhile, the bank raised Rs.44.7 billion in new deposits during the six months to June 30, 2018, taking the total deposit base to Rs.626 billion. 

Also, the bank raised Rs.7.5 billion in debentures and Rs.12.5 billion in a rights issue during the six months mainly to strengthen its capital base and to lay the platform for an aggressive growth. 

Meanwhile, for the six-month period the bank reported earnings of Rs.27.46 a share or Rs.7.1 billion in net profits on a net interest income of Rs.19 billion, up 37 percent YoY.  

As at June 30, 2018, high net worth investor Dhammika Perera-controlled Vallibel One PLC held 14.95 percent stake of the bank as the single largest shareholder.