Sampath Bank reports robust 4Q and full year profits despite challenges

• 4Q earnings up 26% to Rs.4.1bn; full year profit up 55% to Rs.12.5bn
• Director board recommends final dividend of Rs.4.25 a share
• Seven fold increase in provisions for possible bad loans; but asset quality improves 
• Personal expenses fall sharply in 4Q as bank makes amendments to pension fund with the revision of retirement age up to 60 years

Sampath Bank PLC closed the year 2021— which was marked by multiple headwinds combined with enormous opportunities—on a high note, as the lender’s margins stretched, fee incomes rose, delinquencies eased and loans grew during the final quarter of the financial year. Kicking off banking sector earnings for the December 2021 quarter, Sampath Bank PLC reported earnings of Rs.3.55 a share or Rs.4.06 billion for the quarter under review compared to earnings of Rs.2.82 a share or Rs.3.23 billion a year ago, logging 25.7
percent increase.

For the financial year ended December 31, 2021, the bank reported earnings of Rs.10.89 a share or Rs.12.46 billion compared to earnings of Rs.7.01 a share or Rs.8.03 billion in 2020, an increase of
55.2 percent.  

The bank’s director board recommended a final dividend of Rs.4.25 a share and awaits approval for the same at the company’s annual shareholders’ meeting. 

Sampath Bank share closed at Rs.56.00, up Rs.2.80 or 5.26 percent yesterday. Investors flocked to the banking sector counters during the two years of the pandemic as it delivered steady returns.  

The bank’s performance was remarkable given the seven fold increase in the provisions for possible bad loans made in the quarter at Rs.7.39 billion as the bank made additional provisions as an allowance for overlay in order to capture potential non-repayment of loans upon the expiry of the moratoria. 

However, the bank’s asset quality improved as the gross non-performing loans ratio eased to 5.09 percent from 6.30 percent a year ago. The bank gave loans worth Rs.56.5 billion in FY2021, of which Rs.7.1 billion was disbursed during the final three months, easing from Rs.9.6 billion worth loans given in the September quarter. 
The banking industry was off to a robust start in 2021 with acceleration in new loans due to the historically low interest rates and the optimism in the economic recovery that continued through April.  However, the industry started losing some momentum in the remainder of the year due to the virus resurgence, related restrictions on economic activities and the fresh challenges that came from foreign exchange and commodities shortages and the rising prices. 

However, Sampath Bank saw a strong and continued build-up of low cost deposits in 2021 via savings and current accounts, and some decline in term deposits buttressing its net interest margin and thereby the net interest income. The bank reported a net interest margin of 3.61 percent compared to 3.30 percent a year ago while its net interest income grew by a robust 50.6 percent to Rs.13.03 billion. 

“Notably however, the decline in interest income from loans and advances was partially offset by interest income from other financial instruments,” Sampath Bank said in an earnings release.

“Meanwhile, interest expenses for FY 2021 declined by 19.1 percent compared to the previous year on the back of a strong improvement in CASA. The bank recorded 640 bps growth in its overall CASA portfolio, while recording a decline in relatively costly term deposits,” the bank said in respect of the 12-month performance. 

“This change in the composition of the deposit portfolio coupled with the lower interest rate regime that prevailed for most part of the year contributed towards lowering interest expenses,”it added. 

In another notable change, the bank’s personal expenses fell sharply by 56.2 percent in the quarter to Rs.1.27 billion as it made amendments to its own pension fund after the government raised the retirement age up to 60 years. 

“The bank reassessed the pension fund liability taking into consideration the revision of the ‘Minimum Retirement Age under the Workers Act No. 28 of 2021’. This reassessment resulted in a net reversal of liability which was immediately reversed to the Statement of profit or loss as it is considered as a change to the plan in compliance with the Sri Lanka Accounting Standard ‘LKAS 19 – Employee Benefits,” Sampath Bank said. The billionaire investor, Dhammika Perera-controlled Vallibel One PLC has 14.95 percent stake in Sampath Bank while the Employees’ Provident Fund has 9.97 percent stake being its second largest shareholder.