Sampath Bank 3Q profit up 12% on new lending, stable margins

Sampath Bank PLC reported strong financial performance for its most recent September quarter (3Q17) backed by an exponential growth in new loans for the period.
Despite the tighter money conditions by way of higher interest rates and loan-to-value ratios on certain assets, the private lender gave out a thumping Rs.25 billion in new loans during the quarter. On a cumulative basis for the nine months, the bank loaned a total of Rs.81.1 billion in new loans. This translated into a stronger 17.4 percent growth in the loan book to Rs.547 billion.

So far the banking sector credit growth has remained stubbornly high and questions the efficacy of the monetary tightening measures of the Central Bank aimed at curbing excessively high growth in private credit.

Stronger new lending by the banking sector is a close barometer for the consumer and investor confidence but in Sri Lanka this link is blurred.

This is because much of these bank borrowings either drain out of the country for imports or invested in the non-tradable sector such as services, utilities and construction, which has limited value addition in the economy, unlike manufacturing and industries, which help prop up incomes and economic activities across most sectors.

The Central Bank is largely expected to keep the policy rates steady although the International Monetary Fund wants a more hawkish monetary policy, which can tame the pace of the credit growth and the inflation.

Sampath Bank, the third largest private lender by assets, reported earnings of Rs.2.9 billion for the quarter under review or Rs.15.64 a share, up 12.3 percent from the corresponding period a year ago. 

The net interest income grew by 25.4 percent year-on-year (YoY) to Rs.7.79 billion although the increase in interest expense was higher than the interest income for the period. However, the bank managed to maintain a stable net interest margin during the year at 3.87 percent, slightly above the industry average. Sampath Bank has to tackle lower capital ahead of higher capital adequacy required by BASEL III, which came into effect on July 1, 2017. The sector analysts do not believe the bank could sustain its capitalization purely through retained earnings.

As a result of this lower capitalization relative to the aggressive growth style of the bank, Fitch Ratings in 2016 revised its rating outlook to ‘negative’ from ‘stable’.

The bank has an ‘A+’ rating by Fitch.

In late June, Sampath Bank announced a convertible subordinated debenture to raise Rs.6.0 billion to support its capital.

The following month, the bank announced one-for-six rights issue at an issue price of Rs.245 to raise another Rs.7.6 billion in new equity for the same purpose.

Meanwhile, the bank’s deposit base has grown by a staggering Rs.96.1 billion during the nine months, recording an increase of 18.9 percent. The bank now has a total deposit base of Rs.605.8 billion.

However, the current and savings account base shrank to 34.3 percent from 38.7 percent at the start of the year.

As of September 30, 2017, Dhammika Perera-controlled Vallibel One PLC held a 14.95 percent stake in the bank followed by a 9.99 percent stake by high-net-worth investor Indra Silva, the owners of Indra Traders.

The Employees’ Provident Fund held another 9.97 percent stake being the third largest shareholder.