Sampath Bank third quarter profit down on hefty provisions

Sampath Bank PLC saw its profits declining in the September quarter (3Q22) after the bank was continuously compelled to make massive provisions against possible bad loans and other financial assets denominated in foreign currency following the economic crash.
The bank reported a net interest income of Rs.22.29 billion for the July - September quarter, up by a robust 95.7 percent as it managed to make the most of the soaring interest rates despite having to set aside massively for possible loan defaults. 

The bank saw its net interest margin rising sharply to 5.35 percent by the end of September from 3.61 percent at the start of the year as it raised its lending rates following the jumbo rate hike by the Central Bank in April.
While higher interest rates bode well for banks to stretch their margins and thereby their profits, the sheer magnitude of the increase in rates pushed scores of borrowers either into default or to miss their timely loan repayments, prompting banks to set aside massively against their profits. 

As a result, the bank set aside massive Rs.20.6 billion as provisions for the quarter which includes Rs.10 billion of additional provisions made for foreign currency denominated assets such as International Sovereign Bonds and Sri Lanka Development Bonds (SLDBs), taking the cumulative provisions made for the two instruments to Rs.21.6 billion by the end of September. 
Meanwhile, making use of the option made available at the time of announcing the debt default, the bank converted the maturing SLDBs into rupee instruments during this period, significantly cutting its exposure to foreign currency instruments. 

The bank with an asset base in excess of Rs.1.3 trillion saw its loan book growing by Rs.138 billion in the nine months or 22.6 percent annualised rate in the nine months. However, the true growth in loans comes to an annualised 8.8 percent when the translation impact of the steeper depreciation of the rupee is adjusted. 
The bank reported an impaired loans ratio of 4.08 percent, up from 3.20 percent at the beginning of the year. 
Meanwhile, the bank raised Rs.6.45 billion worth of new rupee deposits in the nine months. 
The bank for the quarter under review reported earnings of 28 cents a share or Rs.316.4 million compared to earnings of Rs.1.99 a share or Rs.2.28 billion in the same period last year. 

The bank had net fee and commission income of Rs.4.88 billion in the three months, up 59.2 percent from a year ago which was largely driven by cards and trade related operations. 
The operating costs also rose by 19.4 percent to Rs.7.26 billion in the quarter, mainly stemming from the weaker rupee and the soaring inflation, but the cost to income ratio had fallen to 25 percent from 39.6 percent due to rise in total operating income which outstripped the rise in total operating cost. 

The bank reported a net other operating income of Rs.2.16 billion compared to Rs.1.26 billion in the year earlier period which was attributed to the steeper weakening of the rupee against the dollar. 
Dhammika Perera-controlled investment vehicle, Vallibel One PLC has 14.95 percent stake in Sampath Bank while the Employees’ Provident Fund 9.97 percent being its third largest shareholder.