Sampath Bank’s 1H 2022 profit takes hit from massive impairment charges

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Despite the prevailing economic turmoil, Sampath Bank posted a commendable PAT of Rs 7.1 billion and PBT of Rs 9 billion for the period ended 30 June 2022, reflecting a minor increase of 0.3% and a slight decrease of 5.5% respectively compared to the figures declared in 1H 2021,the Bank statement said.

In the meantime, the Group declared a PAT of Rs 7.4 billion and PBT of Rs 9.6 billion, denoting a decline of 2% and 5.5% respectively over the first half of 2021.

Total interest income increased by 41.1 % year on year to Rs 59.2 billion in the first half of 2022, compared to Rs 41.9 billion in the same period of the previous year. This significant increase in interest income is due to the upward trend in interest rates in the first half of 2022. The AWPLR at the end of the reporting period reached 22.62%, which is 1,711 bps higher than the rate reported on 30 June 2021.

Interest expenses increased by 22.6% compared to the corresponding period of last year due to the rising interest trend. The Bank’s total interest expense was Rs 27.8 billion at the end of the current reporting period compared to Rs 22.7 billion reported in 1H 2021. Prudent asset and liability management however ensured that net interest income grew by 63% in 1H 2022. This trend is reflected in the NIM growth of 124 bps reported for the period.

The Bank recorded a significant increase of 69.9% in its net fee and commission income (NFCI) in 1H 2022 compared to the same period of the previous year.

During the first half of 2022, net other operating income increased to Rs 16 billion, an unprecedented 378% increase compared to Rs 3.4 billion recorded in the corresponding period of the previous year. This was mainly due to the 80% depreciation of LKR against the US Dollar.

The Bank recognised a total impairment charge of Rs 28.2 billion for 1H 2022 compared to Rs 5 billion reported in the corresponding period of last year, representing a 464% increase. The impairment charge for the period under review comprises Rs 19.3 billion for loans and advances and Rs 7.8 billion for other financial instruments. Further, impairment charge of Rs 1.1 billion was recorded against commitments and contingencies.

A sizable provision was made under Economic Factor Adjustment for the period under review as the Bank continued to increase the probability weightage used in the computation of impairment to reflect the deteriorating macro-economic conditions. During the second quarter of 2022, the probability weightage allocated to the worst-case scenario was further increased, the Bank stated.

In order to absorb the possible losses, the Bank decided to increase the allowance for overlay against the tourism sector customers. It was also decided to retain impairment provisions against the customers who exited the moratorium at the end of 2021. As a result, cumulative impairment provision against stage 1 and stage 2 loans reported a sizable increase of 27.3% and 63.5% respectively compared to 31 December 2021.

The Bank provided Rs 7 billion against SLISBs and Rs 11.8 billion against SLDBs as at 30 June 2022. This decision was influenced by the downgrade in Sri Lanka’s sovereign rating in May 2022 to RD from C by Fitch Ratings and other current debt restructuring actions taken by the Government.

Operating expenses for the first half of 2022 amounted to Rs 13.7 billion, a 24.3% increase from the Rs 11 billion recorded for the first half of 2021. The primary reason for the increase in operating expenses was an increase in the inflation rate, which rose significantly during the first six month of 2022. Despite the growth recorded in the operating expenses, the Bank’s cost to income ratio (CIR) dropped significantly by 1,406 bps and stood at 25.45% compared to 39.51% reported in the corresponding period of 2021. This decline in CIR was primarily triggered by an increase in total operating income that was greater than the increase in operating expenses.

The Return on Average Shareholders’ Equity (after tax) increased to 12.06% as of 30 June 2022 compared to 11.05% reported at the end of the year 2021.

At the end of June 2022, Sampath Bank’s total assets surpassed Rs 1.3 trillion, denoting an increase of Rs 122 billion (annualised growth of 20.2%) from Rs 1.2 trillion as of 31 December 2021.