Sampath Bank 2Q hurt by higher loan loss provisions

Sampath Bank PLC’s profit fell as the provisions made for possible bad loans surged during the June quarter (2Q19) marked by anaemic growth in new loans amid widespread economic uncertainty exacerbated by the Easter attacks. 

The bank reported earnings of Rs.6.84 a share or Rs.2.06 billion for the April-June period, compared to earnings of Rs.12.65 a share or Rs.3.04 billion reported for the same period last year. The slump in the per share earnings is also due to the bank raising Rs.12.1 billion in a rights issue in June. 

The bank issued 89 million shares at Rs.136 a share, in the proportion of seven new shares for every 23 held.    

With the rights issue funds and the slowdown in growth for new loans during the first six months ended June 30, 2019 (1H19), Sampath Bank has managed to leave aside the nagging issue of Tier I capital ratio, at least for some time. 

As of June 30, 2019, the bank had a Tier I capital adequacy ratio of 14 percent and a Tier II capital ratio of 18.01 percent, well above the industry minimums of 10 percent and 14 percent, respectively. 

The bank also raised Rs.7.0 billion via a BASEL III debenture to strengthen its Tier II capital. 

Meanwhile, for the quarter under review, Sampath Bank reported Rs.13.9 billion in total operating income, up 1.2 percent year-on-year (YoY).

The net interest income was up by a subdued 2.2 percent YoY to Rs.10.3 billion, as the margins came under pressure amid slow growth. 

The net interest margin as at June 30, 2019 was 4.35 percent, compared to 4.41 percent at the beginning of the year. 

The provisions made for possible bad loans in the quarter under review spiked to Rs.4.1 billion, from Rs.2.4 billion in the same quarter a year ago, as the credit quality waned amid adverse economic conditions. 

The gross non-performing loans ratio rose to 5.66 percent by end-June, from 3.69 percent at the beginning of the year.

Meanwhile, loans at the country’s third largest private bank in terms of assets grew 2.5 percent or by Rs.16.6 billion during 1H19, while deposits grew 9 percent or by Rs.5.7 billion.
The bank has an asset base of Rs.925.7 billion as of June 30, up 1.3 percent from the beginning of the year. 

“… volatile interest rates, currency uncertainty and substantially higher taxes such as Debt Repayment Levy continued to undermine the bank’s profit growth. 

The economic slowdown and the recent Easter Sunday terror attacks, which affected many key industries, also had a negative impact on the profit growth of the bank,” Sampath Bank said in its earnings release. 

Meanwhile, for 1H19, the bank reported earnings of Rs.13.95 a share or Rs.4.2 billion in total earnings, compared to earnings of Rs.23.05 a share or Rs.6.2 billion a year ago. 

As at June 30, 2019, businessman Dhammika Perera-controlled Vallibel One PLC had a 14.95 percent stake in Sampath Bank, while the state-run private sector pension fund, the Employees’ Provident Fund, held a 9.97 percent stake in the bank.

Ayenka Holdings Private Limited, which was not among the top 20 shareholders of Sampath Bank as of March 31, 2019, held 4.66 percent in the bank, becoming the fifth largest shareholder.