Sampath Bank posts robust 4th quarter earnings despite heavy provisioning

Kicking off banking sector earnings, Sampath Bank PLC reported higher profits for the three months ended in December 2022 (4Q22) as elevated interest rates, fee incomes and exchange gains helped the bank to outweigh the impact stemming from slow growth and provisions made against loans and other losses. 

The third largest private bank by assets reported net interest income of Rs.20.74 billion for the three months to December, up 59.2 percent from the same period in 2021 as the company could expand its margins from elevated rates. 
The higher rates typically help banks to fatten their interest margins – the difference between what they charge for loans and other financial assets and what they pay for depositors and other liabilities – offsetting slowdown in new loans. 

But, the conditions that befell in 2022 were unprecedented as rates sky rocketed nearly stalling industry growth with borrowers being pushed into default while banks closed their lending spigots to prevent any more damage to their asset quality and thereby their capital and liquidity. 
The asset quality measured by Stage 3 loans ratio, a term for to non-performing loans, rose to 4.35 percent from 3.20 percent. 
The bank’s liquidity measured by the Statutory Liquid Asset ratio stood at 27.85 percent, well above the minimum requirement of 20.0 percent. 

The capital adequacy levels too remained above the regulatory minimums at 11.92 percent and 14.27 percent respectively for Tier I and Tier capitals compared to the 8.5 percent and 12.5 percent which should be maintained at a minimum. 
The growth nearly stalled as loans and advances, adjusted for foreign currency depreciation was measured at 3.2 percent while the unadjusted deposits grew by 12.76 percent, 
“It should be noted however that much of this growth is attributed to the revaluation gain on the foreign currency denominated deposits,” the bank said in an earnings release. 

The bank reported earnings of Rs.6.37 billion or Rs.5.57 a share for the October – December 2022 quarter compared to earnings of Rs.3.55 a share or Rs.4.06 billion in the same period in 2021, a 57.1 percent increase.
The bank declared a dividend of Rs.4.60 a share comprising of Rs.3.45 in cash and Rs.1.15 in scrip, a term for dividend paid in shares.  
This is despite a massive Rs.13.72 billion in provisions made for loans, financial assets and other losses, up from Rs.7.38 billion in the same period in 2021.  

For the full year ended December 2022, the bank made provisions of Rs. 62.91 billion, of which Rs.54.3 billion was related to loans. 
The bank generated Rs.6.29 billion in net fee and commission incomes and another Rs. 1.83 billion in net other operating income, much of which is attributed to net foreign exchange income.
As banks move past potentially the worst operating conditions in 2022, they look at 2023 with relative optimism with hopes for modest growth in loans. 
Billionaire investor Dhammika Perera controlled Vallibel One PLC has 14.95 percent in Sampath Bank while the Employees’ Provident Fund has 9.97 percent stake being the third largest shareholder.