Sampath Bank : Interim Financial Statements as of 30/09/2022

SAMPATH BANK PLC

Interim Financial Statements

for the period ended 30th September 2022

(In terms of Rule 7.4 of the Colombo Stock Exchange)

Sampath Bank moves ahead steadily to prove its ability to withstand strong headwinds.

Amidst widespread economic uncertainty during the year 2022, Sampath Bank maintained a strong capital base and a steady liquidity profile. Proactive efforts to identify challenges and implement appropriate strategies has allowed the Bank to further reinforce its strength and stability. The Bank has also continued to lead by example in demonstrating its commitment to the national growth agenda by promoting inward remittances and encouraging the inflow of export proceeds to the Country while assisting all stakeholders to manage the current economic crisis. CSR activities were also accelerated by undertaking multiple projects under the Bank's flagship "Weweta Jeewayak" programme in order to propel the rural economy.

The Bank reported a PAT of Rs 7.2 Bn and PBT of Rs 9.3 Bn for the period ended 30th September 2022, reflecting a decline of 19.8% and 24.4% respectively, from the figures reported for the corresponding period in 2021 which is a reflection of the current economic turmoil in the Country. As at 30th September 2022, the Group reported PAT and PBT of Rs 7.7 Bn and Rs 10.2 Bn, a drop of 21.6% and 24.3% respectively compared to the corresponding period 2021.

Key financial highlights declared by Sampath Bank for 2022:

• 276% growth in exchange income stemming from the sharp depreciation of LKR against USD by 82% or by Rs 164.75.
• Sizeable 69.5% increase in net fee and commission income during the period, driven by cards and trade-related operations.
• The Bank booked Rs 48.8 Bn impairment charge on loans and investments to capture possible economic uncertainties during the year.

Fund Based Income

Total interest income increased by 67.7% YoY during the nine months ended 30th September 2022, reaching Rs 106 Bn from the Rs 63 Bn reported in the corresponding period of the previous year. This was primarily due to the hike in interest rates reported in 2022, which saw the AWPLR reaching 25.95% as at 30th September 2022, denoting a 1,953 bps increase from the 30th September 2021 and 1,734 bps increase compared to the yearend 2021. The one-year T Bill coupon rate also rose to 29.85% as at 30th September 2022, an increase of 2,284 bps against 30th September 2021.

Driven by the rising market interest rates, the Bank's interest expense increased by 57.3% compared to the corresponding period of the last year to reach Rs 52.8 Bn for the reporting period. Prudent asset and liability management ensured that net interest income increased by 79.4%

Non-Fund based income

During the reporting period, the Bank's net fee and commission income (NFCI) increased substantially by 69.5% compared to the same period in the prior year. NFCI, which comprises of revenue from numerous sources, such as loans and advances, credit cards, trade and electronic channels increased significantly led by the card related businesses and fee and commission income derived from trade related activities.

The net other operating income for the nine months ended 30th September 2022 was Rs 18 Bn. This 320% YoY increase was attributed to the Rs 164.75 drop in value of the LKR against USD. During 2022, the Bank reported a net trading loss of Rs 3 Bn against the Rs 98 Mn loss reported during the previous year. Total foreign exchange income for the reporting period was Rs 14.5 Bn, up from the Rs 3.8 Bn recorded during the last year.

Impairment charge

The Bank has recognised a total impairment charge of Rs 48.8 Bn for the nine months ended 30th September 2022. This is a 396% increase from the Rs 9.8 Bn charge reported in the previous year. Of this, the impairment charge for loans and advances amounted to Rs 37.7 Bn, while Rs 10.3 Bn was on account of other financial instruments. In addition, an impairment charge totaling Rs 839 Mn was booked against other commitments and contingencies.

Impairment charge on loans and advances: In order to reflect the deterioration of the country's economic environment, the Bank increased the probability weightage allocated to a worst economic scenario and revisited the EFA model which led to the recognition of a significantly higher impairment provision during the reporting period. Industries considered under elevated risk were further expanded to capture a broader range of industry specific stress factors. The potential impact of rising inflation, higher interest charges and increase in taxes on the retail segment were some of the other factors that were considered in recognizing impairment provisions.

The Bank reviewed the adequacy of the impairment provision in respect of customers in the tourism and other similarly affected industries whereby necessary and adequate impairment provisions were recognised under individually significant loan impairment. The Bank also continued to recognise impairment provision against the customers who exited the moratorium at the end of December 2021 and June 2022 as some customers have requested further concessions given the current economic outlook. In addition, steps were taken to shift customers from Stage 1 to Stage 2 based on their ability to withstand the negative effects caused by the economic downturn.

A culmination of these efforts has ensured that a higher overall provision cover of 9.8% at the end 30th September 2022 which is deemed adequate to support the Bank to absorb potential losses arising from severe macro-economic conditions.

Impairment charge on other financial instruments: The Bank provided Rs 9,040 Mn against SLISBs and Rs 935 Mn against SLDBs as at 30th September 2022. This decision was influenced by two key factors- the downgrade in Sri Lanka's sovereign rating in May 2022 to RD from C by Fitch Ratings and the current debt restructuring actions taken by the Government. The Bank's cumulative impairment provision for SLDBs and SLISBs stood at Rs 21.6 Bn at the end of the reporting period. Meanwhile, the Bank was able to significantly reduce the exposure to FCY instruments by converting the matured SLDBs to LKR instruments during the reporting period.

Net Operating Income

Total operating income for the period increased by Rs 40 Bn. However, impairment charge too increased by Rs 39 Bn, restricting the growth of net operating income to 3.7%.

Operating Expenses

Operating expenses during the reporting period amounted to Rs 20.5 Bn, a 23.6% increase from Rs 16.6 Bn recorded during the corresponding period of last year. Rising inflation and the LKR depreciation were the main contributors to this increase. Despite the growth recorded in the operating expenses, the Bank's cost to income ratio (CIR) dropped significantly by 1,460 bps and stood at 25% compared to 39.6% reported in the corresponding period of 2021. This drop in CIR was predominantly due to the increase in total operating income surpassing the rise in total operating costs.

Tax Expenses

Despite the 17.6% drop in profit before VAT, the VAT on Financial Services increased by 9.3% owing to the upward movement in the VAT rate from 15% to 18%, with effect from 1st January 2022.

The Inland Revenue (Amendment) Bill issued on 11th October 2022 has not been substantively enacted by the parliament. Therefore, the Bank has not considered the changes proposed in the Bill for the reporting period.

Key Ratios

The Return on Average Shareholders' Equity (after tax) dropped to 8.08% as at 30th September 2022 compared to 11.05% reported at the end of the year 2021. Return on Average Assets (before tax) stood at 0.96% as at 30th September 2022 as against the 1.44% reported for 2021.

Capital Ratios

As at 30th September 2022, the Bank maintained all its capital ratios well above the regulatory minimum requirements. Bank's CET 1, Tier 1 and total capital ratios on 30th September 2022 were 11.31%, 11.31%, and 13.72% respectively, in comparison with 13.95%, 13.95%, and 17.02% at the end of 2021. The decline in the ratios during the reporting period is due to the combined impact of increase in risk-weighted assets resulting from the LKR depreciation, cash dividends and payment of surcharge tax.

Assets and Liabilities

Sampath Bank's total assets exceeded Rs 1.3 Tn by end of September 2022, an increase of Rs 113 Bn (annualised growth of 12.6%) from the 31st December 2021 position of Rs 1.2 Tn. Increases in cash and cash equivalents as well as net loans and advances have contributed to the aforementioned growth. One of the primary causes of the balance sheet expansion can be attributed to the devaluation of the local currency during the year.

Total advances increased by 22.6% (annualised) over the reporting period, from Rs 813 Bn at the end of December 2021 to Rs 951 Bn as of 30th September 2022. The LKR loan book increased by 12.1% (annualised). It should be mentioned that the value of loans denominated in foreign currency grew significantly after the LKR depreciated by Rs 164.75 against USD during the period. If the variations in currency rates had not occurred, the total loans and advances would have shown an increase of 8.8% (annualised).

During the 3Q22, the LKR deposit base grew by Rs 44.4 Bn due to deposit mobilisation initiatives promoted by the Bank. Nevertheless, growth in LKR deposit base was restricted to 0.8% compared to year end 2021.

STATEMENT OF PROFIT OR LOSS

			Bank						Group
	For the nine months ended 30th September		For the quarter ended 30th September	For the nine months ended 30th September		For the quarter ended 30th September
	2022	2021	Change		2022	2021	Change	2022	2021	Change		2022	2021	Change
	Rs 000	Rs 000	%		Rs 000	Rs 000	%	Rs 000	Rs 000	%		Rs 000	Rs 000	%
Gross income	136,597,968	76,576,261	78.4		53,849,467	25,257,790	113.2	142,745,042	82,724,167	72.6		56,058,282	27,429,052	104.4
Interest income	106,051,372	63,244,699	67.7		46,802,684	21,263,277	120.1	111,203,342	67,985,644	63.6		48,661,346	22,821,955	113.2
Less : Interest expense	52,792,140	33,552,083	57.3		24,943,090	10,836,379	130.2	55,902,646	35,494,910	57.5		26,373,426	11,435,738	130.6
Net interest income	53,259,232	29,692,616	79.4		21,859,594	10,426,898	109.6	55,300,696	32,490,734	70.2		22,287,920	11,386,217	95.7
Fee & commission income	15,104,303	9,023,952	67.4		5,290,172	3,186,029	66.0	15,704,887	9,729,740	61.4		5,466,041	3,465,010	57.7
Less : Fee & commission expense	1,810,212	1,183,015	53.0		588,791	402,290	46.4	1,811,738	1,183,612	53.1		589,252	402,154	46.5
Net fee & commission income	13,294,091	7,840,937	69.5		4,701,381	2,783,739	68.9	13,893,149	8,546,128	62.6		4,876,789	3,062,856	59.2
Net (loss)/gain from trading	(3,016,235)	(98,394)	(2,965.5)		(474,629)	(144,780)	(227.8)	(3,016,235)	(98,394)	(2,965.5)		(474,629)	(144,780)	(227.8)
Net gain/(loss) on derecognition of financial assets
- at fair value through profit or loss	448,679	80,234	459.2		227,490	21,058	980.3	448,679	80,234	459.2		227,490	21,058	980.3
- at fair value through other comprehensive income	(16,269)	30,313	(153.7)		20,436	1,968	938.4	(16,269)	30,313	(153.7)		20,436	1,968	938.4
- at amortised cost	-	5,682	(100.0)		-	238	(100.0)	-	5,682	(100.0)		-	238	(100.0)
Net other operating income	18,026,118	4,289,775	320.2		1,983,314	930,000	113.3	18,420,638	4,990,948	269.1		2,157,598	1,263,603	70.7
Total operating income	81,995,616	41,841,163	96.0		28,317,586	14,019,121	102.0	85,030,658	46,045,645	84.7		29,095,604	15,591,160	86.6
Less: Impairment charge	48,807,580	9,841,249	395.9		20,626,371	4,846,349	325.6	49,190,396	11,171,495	340.3		20,620,632	5,308,052	288.5
Net operating income	33,188,036	31,999,914	3.7		7,691,215	9,172,772	(16.2)	35,840,262	34,874,150	2.8		8,474,972	10,283,108	(17.6)
Less: Operating expenses
Personnel expenses	9,533,242	8,651,948	10.2		2,906,608	2,777,004	4.7	10,562,773	9,646,992	9.5		3,218,670	3,130,740	2.8
Depreciation and amortisation expenses	1,798,683	2,083,644	(13.7)		598,151	697,061	(14.2)	1,752,386	1,967,230	(10.9)		584,095	634,551	(8.0)
Other expenses	9,145,757	5,836,296	56.7		3,309,953	2,104,953	57.2	9,616,909	6,402,872	50.2		3,462,147	2,320,772	49.2
Total operating expenses	20,477,682	16,571,888	23.6		6,814,712	5,579,018	22.1	21,932,068	18,017,094	21.7		7,264,912	6,086,063	19.4
Operating profit before taxes on financial services	12,710,354	15,428,026	(17.6)		876,503	3,593,754	(75.6)	13,908,194	16,857,056	(17.5)		1,210,060	4,197,045	(71.2)
Less: Value added tax on financial services	3,395,575	3,105,950	9.3		581,602	819,086	(29.0)	3,701,380	3,370,574	9.8		643,054	907,753	(29.2)
Profit before income tax	9,314,779	12,322,076	(24.4)		294,901	2,774,668	(89.4)	10,206,814	13,486,482	(24.3)		567,006	3,289,292	(82.8)
Less : Income tax expense	2,114,386	3,340,827	(36.7)		179,945	858,106	(79.0)	2,521,244	3,688,245	(31.6)		250,655	1,010,704	(75.2)
Profit for the period	7,200,393	8,981,249	(19.8)		114,956	1,916,562	(94.0)	7,685,570	9,798,237	(21.6)		316,351	2,278,588	(86.1)
Attributable to:
Equity holders of the Bank	7,200,393	8,981,249	(19.8)		114,956	1,916,562	(94.0)	7,685,570	9,798,237	(21.6)		316,351	2,278,588	(86.1)
Non-controlling interest								-	-	-		-	-	-
	7,200,393	8,981,249	(19.8)		114,956	1,916,562	(94.0)	7,685,570	9,798,237	(21.6)		316,351	2,278,588	(86.1)
Earnings per share - Basic/Diluted (Rs)	6.29	7.85	(19.8)		0.10	1.67	(94.0)	6.72	8.56	(21.6)		0.28	1.99	(86.1)
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