Sampath Bank third quarter profits impacted by higher taxes

Kicking off the December quarter banking earnings, Sampath Bank PLC reported lower profits for the three months, largely affected by higher taxes, margin compression and lower fee incomes which more than offset the benefit of lower impairments which was possible from the improving borrower profile and economic conditions.

The bank reported a net interest income of Rs.20.20 billion in the October – December quarter, slipping 2.6 percent from the same period a year ago as the interest income fell faster than the decline in interest expense.
This was reflected in the bank’s net interest margin – the difference between what the bank charges from its borrowers and what it pays to its deposits – which edged down to 5.16 percent from 5.66 percent a year ago.
In this backdrop the bank reported earnings of Rs.4.43 a share or Rs.5.19 billion for the three months, compared to Rs.5.44 a share or Rs.6.37 billion reported in the same period last year, translating into an 18.5 percent decline.
The bank’s share added Rs.1.00 or 1.39 percent to end up at Rs.73.10 yesterday.

However, the bank reported higher profits before corporate income taxes which were up by a strong 35.1 percent.
The bank said the full year impact of the high 30 percent corporate income tax rate had a bearing on the earnings. The bank charged Rs.3.16 billion for the quarter compared to a tax reversal of Rs.187.1 million in the year earlier period.

The bank had a deferred tax credit of Rs.1.8 billion in 2022 stemming from an increase of deferred tax assets due to a one-off adjustment associated with the income tax hike from 24 percent to 30 percent.

For the full year, the bank charged a mammoth Rs.13.28 billion in corporate income tax compared to Rs.2.33 billion in 2022 while the totality of value added tax on financial services and the Social Security Contribution Levy (SSCL) rose to Rs.9.09 billion from Rs.5.58 billion in 2022 due to the overall expansion in the tax base and the full year application of the SSCL.

Meanwhile, the bank provided Rs.5.71 billion for possible bad loans and other financial assets losses, sharply down from Rs.13.72 billion provided in the year earlier period due to improving economic conditions but the total provision cover rose by 200 basis points to 13.8 percent.

Performance was also affected by the decline in the fee incomes due to the lower card and trade related fee and commission incomes, the former due to the subdued consumer spending and the latter due to the downward revision in commission rates and the appreciation in the rupee against the dollar.

The net fee and commission income fell by 30.4 percent to Rs.4.38 billion from a year ago.   
However, the trade related commission income contributed the most to the total commission income of the bank, followed by the cards.

The bank’s gross loan book contracted by Rs.42.80 billion in 2023 to Rs.877.32 billion but the bank saw the growth returning in the final three months with an increase of Rs.12.18 billion in new credit.

The deposits grew by Rs.157.54 billion for the full year, bringing the total base to Rs.1,253.64 billion.
The bank’s impaired or Stage 3 loans ratio was at 5.87 percent, up from 4.35 percent a year ago but down from 5.93 percent in September 2023.

Dhammika Perera controlled Vallibel One PLC held 14.95 percent stake in Sampath Bank being its largest shareholder while the Employees Provident Fund had 9.97 percent stake being the fourth largest shareholder.