Sampath Bank 1Q20 indicates economy was gathering steam before pandemic

Sampath Bank’s interim results released for the March quarter (1Q20) showed that the economy was gathering steam from the lower interest rates and tax cuts, as the loans had begun to rise and earnings got a boost before it hit a wall when the country went to lockdown to prevent the spread of China-originated COVID-19. 

Sampath Bank, the third largest private lender by assets in the country, reported better growth in the loan book for the quarter under review, with Rs.25 billion in new loans and the bank’s bottom line rose 27 percent year-on-year (YoY), as the scrapping of Nation Building Tax and Debt Repayment Levy preserved more than half a billion rupees for the bank. 

The bank reported earnings of Rs.7.02 a share or Rs.2.7 billion for the January-March 2020 period, compared to Rs.7.20 a share or Rs.2.1 billion in the year earlier period. 

However, at operating level, the results painted a daunting outlook of the developing scenario, surrounding the bank and the industry in the face of the pandemic-induced stresses. 

“Due to the unsettled economic environment, the prospects for Sri Lanka’s banking sector in 2020 remain bleak. While the government-mandated credit concessions are expected to decrease the impact on individuals and businesses, they would certainly impact the liquidity, revenue growth, credit growth and credit quality of all banks in the country. Further, profitability will be severely compromised,” Sampath Bank said. 

The bank’s operating profit before all taxes fell by 4.9 percent YoY to Rs.4.2 billion, as the bank took a significant impairment charge upon its profits, taking into consideration the long-term economic trends as the base. 

The bank provided Rs.5.2 billion for possible bad loans against the March 2020 profits, compared to Rs.3.8 billion in the year earlier period. 

“Further, the bank has also considered the relief packages introduced in the form of tax reliefs and moratoriums by the government to protect the economy. It is noteworthy to mention that the bank has made a substantial provision as management overlays by changing the probability weights applied to different macro-economic scenarios,” Sampath Bank said.

The bank’s gross non-performing loan ratio showed some uptick during the quarter, to 6.72 percent, from 6.37 percent at the beginning of the year. 

The interest income fell by 2.9 percent YoY to Rs.26.4 billion while the interest expense fell by 4.4 percent YoY to Rs.15.5 billion. 

The falling interest rates dented the bank’s net interest margin to 4.13 percent, from 4.46 percent at the beginning of the year. 

The bank saw its deposits rising by Rs.31 billion during the quarter under review. 

During the countrywide lockdown, where people’s movements were restricted as a measure to contain the spread of the virus, Sampath Bank came up with a standout innovation in collaboration with PickMe, to facilitate cash delivery to households from the nearest ATM to the account holder. 

The Employees’ Provident Fund has a 9.97 percent stake in Sampath Bank.