Sampath Bank September quarter net up 38% as loans and margins grow

• Loans grow 15% or Rs.56bn during nine months 
• Deposits grow 20% or Rs.83bn but low-cost funds fall sharply
• Rs.1bn growth in pawning observed but exposure under 4%
• Capital adequacy falls near industry minimums as assets grew fast

Sampath Bank PLC, Sri Lanka’s third largest private lender by assets increased its September quarter net profit by 37.8 percent Year-on-Year (YoY) to Rs.2.59 billion or Rs.14.65 a share due to strong core banking operations and other incomes despite rising interest rates. 
Sampath Bank share gained 70 cents or 0.27 percent to Rs.263.70 at last week’s close. 
The bank increased its net interest income (NII) by 29.4 percent YoU to Rs.6.21 billion despite the interest expenses rising much faster than the corresponding interest income.   
Much notable in the bank’s performance was that it had managed to increase the margins slightly during the nine months as the net interest margin (NIM) edged up to 3.77 percent from 3.64 percent in December 2015 when most other competitors see their NIMs narrowing. 
Despite the toughened money conditions in the economy, the bank on a standalone basis grew its loan book by a healthy 14.6 percent or Rs. 56.2 billion to Rs. 440.8 billion. 
Among the portfolios, rupee housing loans grew by Rs.3.4 billion, import loans by Rs.8.0 billion and overdrafts by Rs.9.9 billion. 
Meanwhile, the gold-backed loans portfolio of the bank saw rising by around a billion rupees to Rs.14.8 billion during the nine months to September but the portfolio exposure stood under 4.0 percent. 
Sampath Bank was among the hardest hit banks during the 2013/14 period when the precious metal lost its glitter as the prices came tumbling down after which the bank trimmed its exposure to pawning significantly. 
The growth in loans put pressure on the bank’s capital adequacy as both Tier I and Tier II capital adequacy ratios (CARs) declined to 7.68 percent and 11.92 percent each from 7.90 percent and 12.26 percent stood at the beginning of the year. 
This will require the bank to raise equity capital in the short term to maintain the growth in its assets if otherwise will have to scale it down. The regulatory minimum CARs stand at 5.0 percent and 10.0 
percent, respectively.  
The bank’s gross non-performing loan ratio edged up to 1.67 percent from 1.64 percent in December 2015 but remained significantly below the industry average of 3.0 percent. 
Meanwhile during the nine months, the bank increased its financial assets in the trading book by a massive Rs.29.7 billion up to Rs.31.6 billion. Investments held under available-for-sale assets came down by Rs.23.3 billion. The bank holds no investments for maturity.    
This probably is an indication that the bank expects the interest rates to come down leaving room for 
capital gains. 
However, the other operating incomes dropped by 40.5 percent YoY to Rs.687.6 million due to decline in gains made from foreign 
exchange transactions. 
During the quarter, the bank made a realized gain on its trading portfolio of Rs.148.2 million against loss of Rs.242.7 million during the same period last year. 
By the end of September 30, 2016 Sampath Bank had an asset base of Rs.617.4 billion, an increase of 
17.5 percent. 
The deposits, which funded the most of the growth in loans, grew by 20.3 percent or Rs.82.6 billion during the nine months but the low cost deposits measured through current and savings accounts (CASA) ratio declined to 40 percent from 47.6 percent in 
December 2015. 

Besides the growth in core-banking, the net fee and commission incomes also grew by 22.6 percent YoY during the quarter to Rs.1.74 billion. 
Meanwhile, during the nine months ended September 30, 2016 the bank made a net profit of Rs.6.94 billion or Rs.39.21 a share, an increase of 
36.4 percent. 

The NII rose by 22.9 percent YoY to Rs.17.0 billion while the net fee and commission income rose by 23.3 percent YoY to Rs.4.8 billion. 
As of September 30, 2016, the billionaire businessman Dhammika Perera controlled Vallibel One PLC held 14.95 percent stake in the bank followed by 9.98 percent stake by 
Indra Silva. 

The state controlled private sector pension fund, Employees’ Provident Fund held 9.97 percent stake in the bank being the third largest shareholder.