Notwithstanding the extremely challenging economic conditions which prevailed, Sampath Bank registered a profit before tax (PBT) of Rs 6.5 bn and a profit after tax (PAT) of Rs 4.7 bn for the three months ended March 31, 2022, indicating marginal growth of 5.3% and 2.9% from the figures reported in Q1 2021 despite having taken in a substantial impairment provision on loans and investments.
Sampath Bank recorded a total interest income of Rs. 24.9 bn in Q1 2022 compared to Rs 20.7 bn for the corresponding period in the previous year, reflecting a 20% growth year-on-year. The increase is attributed to the higher interest income from loans and investments resulting from the upward trend in interest rates in Q1 2022 compared to the corresponding period in the previous year. AWPLR increased by 396 bps from 5.75% reported on March 31, 2021 to 9.71% reported at the end of the reporting period. Meanwhile, one year treasury bill rate increased by 717 bps from 5.11% reported at the end of the corresponding period.
Despite the interest rate hikes observed in recent months, Sampath Bank was able to benefit from lower cost of funds thanks to the higher concentration of CASA in its deposit portfolio. As a result, the Bank recorded a marginal drop of 1.6% in interest expenses during Q1 2022 compared to the first quarter of 2021.
The Bank›s interest expenses for the first three months of 2022 was Rs 11.3 bn compared to Rs 11.5 bn reported for the same period in the previous year. Net interest income increased by 47% in the first quarter of 2022 as a result of the aforementioned factors. Net interest Margin also reported at 4.54%, a healthy growth of 93 bps compared to the figures reported at the end of 2021.
Sampath Bank reported a strong increase inNet fee and commission income (NFCI) in Q1 2022 over the figure tabled in the corresponding period of the previous year. NFCI comprises income from various sources such as loans and advances, credit cards, trade, and electronic channels. The Significant growth recorded during Q1 2022 was attributed to the higher volumes generated from card related business and an increase in the fee and commission income derived from trade-related activities.
Net other operating income also increased significantly by 223% in the first quarter of 2022 compared to the corresponding period in the previous year. This was the result of higher realised exchange income attributed to the sharp depreciation of the Sri Lankan Rupee against the US Dollar by 47%.
During the first three months of 2022, the Bank recorded Rs 8.7 bn as net other operating income compared to Rs 2.7 bn reported in Q1 2021. The Bank recorded a net trading loss of Rs 381 mn for the period under review, compared to the Rs. 398 mn incurred in the corresponding period of the previous financial year. On this basis, the Bank’s net exchange income from foreign exchange transactions amounted to Rs 8 bn for the period under review.
The Bank recognised a total impairment charge of Rs 11.8 bn for Q1 2022 compared to Rs 1.2 bn reported in the corresponding period of last year, representing a897% increase. The impairment charge for Q1 2022 comprises Rs 4.9 bn for loans and advances and Rs 6.7 bn for other financial instruments. Further, an impairment charge of Rs 209 mn was recorded against commitments and contingencies.
The Bank increased the impairment provision on loans and advances to capture the impact on emerging global and local economic challenges. Continuing with the impairment models used in 2021, the Bank made necessary adjustments to account for the severity of the prevailing economic outlook. These impairment models use probability weightages to consider the dominant economic scenarios in the local and global context in order to assist the Bank in determining the appropriate amount of loan loss allowance for a given reporting period.
On this basis, the Bank increased the weightages for worst-case economic scenarios by considering the recent shifts in the country’s economic outlook and used the latest economic data in the calculation of the impairment allowance for Q1 2022.
Given the heightened economic uncertainty during the period under review, the impairment provision for Q1 2022 was increased significantly. It should be noted that the impairment provision for the corresponding period in the previous year was comparatively low owing to the improved business confidence and positive economic outlook during that time.
The Bank also re-assessed the credit risk profile of customers vis-a-vis under the current economic context and increased impairment provisions accordingly. The Bank also pushed the customers to stage two from stage one based on their ability to withstand the economic uncertainties, including those customers operating in elevated risk industries. The Bank continues to recognise the allowance for overlay against the customers who came out from the fourth phase of the Covid-19 related moratorium in December 2021.
The Q1 2022 impairment charge against loans and advances stood at Rs 4.9 bn compared to Rs 1 bn recorded in the first three months of 2021, indicating a 404% increase year-on-year.