Delivering steady growth year after year: Sampath Bank CFO elaborates on bank’s performance

Sampath Bank PLC (Sampath Bank) posted a record profit after tax (PAT) of Rs.9.1 billion for the financial year ended December 31, 2016, the highest ever since its inception 30 years ago in 1987. Recording substantial growth across all its key business pillars despite several external market challenges, the bank had recorded an impressive year-on-year (YoY) growth in PAT of about 49 percent. 
Charging ahead into 2017 with this tremendous growth momentum, Sampath Bank reported a PAT of Rs.2.3 billion for the quarter ended March 31, 2017, a YoY growth of 34.6 percent. Coming on the heels of a record financial year, the bank’s performance during the quarter is a reflection of its steady rise as a growing force in Sri Lanka’s financial 
services industry.
Sampath Bank PLC Chief Financial Officer (CFO) Ajantha de Vas Gunasekara shed light on how the bank has managed to consistently deliver such outstanding results despite stiff competition and changing market realities. During the January to March 2017 quarter, Sampath Bank registered a net interest income (NII) of Rs.6.3 billion, a YoY growth of 36.1 percent. Accounting for 70 percent of the bank’s operating income, the NII remains the key source of income for the bank. 
Having ended FY 2016 with a record 30.8 percent YoY growth in NII, we have been able to maintain this growth momentum in 2017 with a 4.4 percent (annualized 18 percent) growth in deposits and a 6.5 percent (annualized 26 percent) rise in advances.”
The net fee and commission income grew by 32.5 percent to end the quarter at Rs.1.9 billion and contributed to 21 percent of the operating income. The remaining 9 percent was comprised of trading, investment and other operating income of Rs.0.8 billion, a YoY growth of 
31.0 percent.
A fellow of the Institute of Chartered Accountants Sri Lanka, Gunasekara stressed on the need for banks and all financial service enterprises in general to have a balanced portfolio of products and services with no single element being overly dominant.
“Post the pawning crunch of 2013, which had a significant impact on several leading banks including us, we have made conscious efforts to ensure that we are not too dependent on any single product, service or industry. In line with market trends, term loans are the largest element in our portfolio today and are comprised of customers from a diverse mix of industries thereby reducing our risk exposure. Also, while corporate clients currently account for a significant volume of our revenues, we continue to steadily grow the consumer and SME side of our business too.”
The bank incurred operating expenses of Rs.4 billion constituted 66 percent of the bank’s total expenses during the quarter. The income tax expenses of Rs.1.2 billion and VAT and NBT on financial services of Rs.0.9 billion made up for 19 percent and 15 percent of total 
expenses, respectively.
While the operating expenses grew by 15.9 percent YoY during the quarter, the bank saw its cost-to-income ratio, excluding the VAT and NBT on financial services, improve by 710 basis points, ending the quarter at 43.7 percent. Gunasekara stated that maintaining this ratio under 50 percent, consistently, was a significant achievement in itself as the relatively younger bank continues to invest on expanding its 
branch network. “In 2010, we took a strategic decision to take the bank’s services closer to consumers around the island by expanding our branch network. Since then, we have more than doubled our branch numbers. I’m delighted to note that we have begun reaping the dividends of our investments in this area over the past three to four years, with the revenue from these newly opened branches adding to our bottom line.”
The bank had provisioned Rs.646.1 million towards net impairment charges during the quarter, an increase of 198 percent over the same quarter in FY 2016. Of this, Rs.462.3 million was allocated for impairment against individually significant customers and Rs.183.8 million for collective impairment.Gunasekara noted that periodical improvements to impairment calculation models in order to ensure that they are up-to-date vis-à-vis the changes taking place in the business environment help provide a more realistic picture of a bank’s performance to investors and other stakeholders. Hence, it is essential for banks to make prudent impairment cost projections without giving into concerns around short-term impact on profitability.
In the light of this, Sampath Bank revisited assumptions used in its impairment models in 2016 to ensure that they were more closely aligned to the current market realities.
“This was one of the main reasons behind the 52 percent YoY rise in our impairment charge during the FY 2016. Despite this increase in impairment charges, we posted our highest ever PAT numbers last year.”
The Institute of Chartered Accountants of Sri Lanka has decided to adopt Sri Lanka Financial Reporting Standards 9 (SLFRS 9) with effect from January 1, 2018 being on par with the global accounting bodies. This will be another challenge to the entire banking industry as this will bring in a new impairment provisioning framework. The new standard requires banks to move away from the principle of ‘incurred loss’, where the impairment will be dependent only on historical loss events and include more futuristic assumptions on expected credit losses. 
“At Sampath Bank, we have already started the implementation process and necessary infrastructure has been provided to the implementation team including the technical assistance of an external consultant. We are confident that we can see the first set of data by the end of FY 2017.” The bank continues to post encouraging returns to investors over the years, with both a steady rise in market value as well as a constant dividend payout ratio of around 
37 percent.
Having held corporate management positions through his 18-year career in Sri Lanka’s banking and insurance sectors, Gunasekara states while having a great mix of technologically superior, consumer-oriented products and services is imperative to a bank’s success in the market, the real difference is in how they are delivered to consumers. “Bringing a bank’s products and services to life, people - talented individuals with a strong service mindset – are the ones who truly make the difference. In this regard, I’m proud to note that our team of about 4,000 Sampath bankers is our greatest source of strength. Guided by the bank’s strategic vision, they tirelessly strive to meet and exceed customer expectations. It is their commitment to our core principles and to service excellence that allows us to continue to deliver greater value to all stakeholders.”
Going forward, Gunasekara sees Sampath Bank’s SME and personal banking portfolio grow in size. He underscores that while this will help deliver higher returns to the bank, the move is also aimed at empowering individuals and small businesses to a greater extent, financially, ushering in more inclusive economic growth.
Celebrating its 30th anniversary this year, Sampath Bank has recorded several milestone events within this relatively short span including growing its total asset base over the Rs.500 billion mark in 2015, almost reaching Rs.700 billion in 1Q 2017.  With a deposit base of Rs.539 billion and advances of about Rs.500 billion as at March 31, the bank continues its rise as a growing force in Sri Lanka’s financial services landscape and is set to surpass several such milestones in the days ahead.