Sampath Bank third quarter boosted by lower interest rates, fee incomes and forex gains

Sampath Bank PLC’s profits soared in the three months to September, despite higher provisions for loans and other assets as the lender benefitted from the steep decline in interest expense, higher fee incomes and foreign exchange gains made possible from the depreciation of the rupee, though the growth in loans eased to some extent in the period. 

The bank reported a net interest income of Rs.11.39 billion for the July-September quarter logging 23.2 percent growth from the same period last year as interest expense fell by 18.6 percent to Rs.11.44 billion compared to the 2 percent decline in interest income to Rs.22.82 billion. 

While the lower interest rates in the economy compared to the previous year weighed on the interest income from loans, the bank said the pressure, “was partly absorbed by increased interest income generated from other investment securities”. 

While the lending rates remained largely lower, upward pressure was built up on the yields of government securities, which became pronounced from around August and September in line with the key policy rate hike and the lifting of yield caps from mid-September. 

On the other hand, the strong build up of current and savings account (CASA) balances during the period helped the bank to keep its funding costs down through the build up of the low cost funds. The bank grew its CASA accounts by as much as Rs.81.5 billion during the nine months to September, while total deposits grew by Rs.71.4 billion as the term deposits fell. 

This helped the bank to stretch its net interest margin to 3.46 percent from 3.30 percent at the beginning of the year. 

Meanwhile, the bank with Rs.1.18 trillion assets, gave Rs.9.6 billion worth of loans in the three months to September taking the total new loans and advances in the nine months to Rs.39.6 billion, reflecting some easing in the growth in loans in the forgoing quarter, translating the cumulative loans disbursed in the period to 5.5 percent growth. 

The bank set aside Rs.5.31 billion for possible loans and other losses, logging 29.4 percent increase as the bank provided substantially for loans and investments in foreign currency denominated government securities considering the lingering macro-economic challenges on the broader economy.

“The bank made a substantial impairment provision during the current period as the macroeconomic environment remains challenging locally and globally and the bank conscious of the potential longer- term impact, especially once relief measures are eased,” Sampath Bank said.

However, the provisions in the quarter under review were lower than that of last year levels considering the significantly higher provisions made in 2020, which resulted in a slight decline of the total provisions in the nine months period from the same period last year. 

The bank also managed to bring down its gross non-performing loans ratio to 5.52 percent from 6.30 percent at the end of last year.

The bank reported earnings of Rs.1.99 a share or Rs.2.28 billion for the July- September quarter compared to earnings of Rs.1.06 a share or Rs.1.22 billion in the corresponding period in 2020, logging 87.2 percent jump. 
For the nine months too, the bank increased its earnings by a similar percentage to Rs.8.56 a share or Rs.9.79 billion. 

The bank’s earnings received a boost from fee incomes which rose by a little under 30 percent to Rs.3.06 billion and the net other operating incomes by 117 percent to Rs.1.26 billion in the quarter as rupee deprecation against the dollar helped the bank to book higher realised exchange income.

Sampath Bank remains well capitalised and adequately liquid to power its growth forecasts in the remainder of the year and next. The bank in April this year raised Rs.6.0 billion via a debenture, which would give it more room to expand loans. Businessman Dhammika Perera-controlled Vallibel One PLC has 14.95 percent stake in Sampath Bank as the single largest shareholder while the Employees’ Provident Fund has 9.97 percent stake being its second largest shareholder.