Sampath Bank records solid earnings for 2Q

Sampath Bank PLC saw its earnings for the quarter ended June 2021 (2Q21) surging, but the bank’s loan growth remained modest during the first half of the year.

For the quarter under review, Sampath Bank recorded earnings of Rs.2.11 per share or Rs.2.4 billion compared to earnings of Rs.1.15 per share or Rs.1.3 billion in the corresponding period of the previous year.

The increase in profits can be attributed to 34 percent year-on-year (YoY) surge in net interest income to Rs.10.8 billion, while the net fee & commission income rose 60 percent YoY to Rs.2.6 billion. 

An earnings release issued by the bank said the decline in interest expenses during the first half of the year (1H21) helped the bank to boost its net interest margin to 3.42 percent as of June 30, 2021, which is 12 bps higher compared to the figure recorded at the end of 2020.

Meanwhile, the banking group provided Rs.4.2 billion during the quarter under review on possible bad loans, which is an increase of 50 percent YoY. However, for the first half of 2021, provisions fell 27 percent YoY to Rs.5.8 billion.

“Even though the impairment charges decreased compared to the first half of last year, this did not include reversals of any impairment provision made in the previous year. 

The bank provided a considerable amount of impairment provision during the first half of 2020, after considering the impact and uncertainty created by COVID-19 on the economic front during that time. Since then, the bank has adopted a consistent approach to ensure impairment provisioning is in line with any potential abnormal credit behaviours of customers after the end of the moratoriums,” the earnings release said.

“Despite signs of an economic recovery apparent in 1Q 2021, the bank decided to continue with its prudent approach for impairment provisioning based on the same assumptions applied at the end of 2020. Following a reassessment of these assumptions, the bank decided to apply an even more prudent approach in 2Q 2021, in light of the evolving impact of the COVID-19 third wave and the extension of the moratorium framework.

Accordingly, during the quarter under review, the bank identified a larger number of customers deemed to be operating in elevated risk industries and reclassified them under a higher credit risk category (stage 2),” it added. 
The bank also said it continued to recognize the impairment provisions on foreign currency-denominated government instruments by applying the LGD rate of 20 percent. 

Meanwhile, Sampath Bank gave only about Rs.30 billion in new loans during the first half, recording modest 4.2 percent increase from December 31, 2020 to Rs.750.3 billion. 

Consequently, Sampath Bank’s total asset base increased to Rs.1.17 trillion at the end of the second quarter from Rs.1.11 trillion recorded at the end of last year.

The bank’s asset quality improved during the first half as the gross bad loans ratio stood at 5.77 percent as at June 30, 2021, compared to 6.3 percent as at December 31, 2020. 

The bank’s deposit base rose 6.6 percent to Rs.944 billion during the first half.

Sampath Bank’s liquidity position remains strong, with the liquidity coverage ratio confirming that the bank has sufficient liquidity buffers in line with regulatory requirements.

During the first half of 2021, the bank raised Rs.6 billion worth of Tier 2 capital via Basel III compliant, listed, rated, unsecured, subordinated, redeemable 7-year debentures with a non-viability conversion.

Business magnate Dhammika Perera-controlled Vallibel One PLC has 14.95 percent stake in Sampath Bank being its single largest shareholder. 

Employees’ Provident Fund as the second largest shareholder has 9.97 percent stake, while Global Rubber fame Prabhash Subasinghe’s Ayenka Holdings has 9.87 percent stake as the third largest shareholder.