Fitch Ratings has affirmed the National Long-Term Rating of Sampath Bank PLC at ‘A+(lka)’ and revised the Outlook to Stable from Negative. Fitch has also affirmed Sampath’s subordinated debentures at ‘A(lka)’.
The Outlook revision reflects Fitch’s expectation that the bank would be able to sustain higher capital buffers as it continues to focus on capital management and earnings retention while expanding its market share.
Fitch expects the bank to maintain adequate buffers above regulatory requirements even though its Tier 1 ratio could temporarily fall to around 11% by end-2018 due to continued rapid growth.
Fitch estimates Sampath’s Tier 1 ratio was 12% in April 2018 after it raised Rs.12.5 billion in April 2018 and Rs.7.6 billion in December 2017 via rights issuances and retained its 2017 profit of Rs.12.7 billion through a scrip dividend.
The bank’s total capital ratio improved to 14.3% by end-March 2018 (2016: 12.9%) after issuing Rs.13.5 billion of Basel III-compliant subordinated debt over the last 12 months.
Loan growth is projected to remain strong in 2018 after a 7.5% expansion in 1Q18 since December 2017. th
Sampath’s NPL ratio increased to 1.95% by end-1Q18 from 1.64% at end-2017. Total allowances rose to 10.5% of pre-provision profit in 2017 from 8.7% in 2016. Impairment charges could rise further due to potential asset-quality pressures, as well as the implementation of SLFRS 9. Sampath’s ROAA improved to 1.7% in 2017 from 1.6% in 2016 aided by higher business volumes.
Fitch rates the Tier 2 instrument one notch below the bank’s National Long-Term Rating to reflect the notes’ subordinated status and higher loss-severity risks relative to senior unsecured instruments.