In a bid to curb the spread of disease most of the affected countries were seen implementing nation-wide lockdowns and other control measures in turn bringing certain economies to a complete standstill.
In Sri Lanka, COVID-19 emerged just as the Country's economy was seemingly recovering from the spillover effects of the April 2019 Easter Sunday terror attacks.
Therefore, the outbreak of COVID-19 was a massive blow that further weakened the Country's economy which was under stress.
To ease the burden on the general public and revive economic activity during this unprecedented disruption, the Central Bank of Sri Lanka (CBSL) introduced a broad based economic stimulus package that included the Saubhagya COVID-19 Renaissance Facility and the Debt Moratorium scheme to offer support to COVID-19 affected businesses and individuals.
Other policy measures by the CBSL such as the restriction on imports, policy interest rate cuts, lowering of the SRR for licensed commercial banks and the involvement in the domestic foreign exchange market, were all aimed triggering economic activities as well as preserving the stability of the country’s financial system.
Despite the challenging conditions, Sampath Bank continued to prioritise the needs of all stakeholders.
Backed by its solid fundamentals and strong operational capacity, the Bank took prompt action to implement government-led relief measures aimed at combating the impacts of COVID-19.
Accordingly, the Bank was able to grant the debt moratorium phase I to approximately 50% of customers on its loan book, while phase II of the debt moratorium was extended to more than 29% of its loan book.
Sampath Bank also actively participated in disbursing the Saubhagya Renaissance scheme to eligible customers.
Where necessary, the Bank also took its own initiatives to assist customers to overcome this difficult time.
Meanwhile, with banking being declared an essential service during the COVID-19 first wave, a concerted effort was made to keep branches across the network open in order to facilitate regular branch operations throughout the 2 month island-wide lockdown.
Our ongoing investments in digital technology continued to benefit customers during this hour of need, as shown by the extensive use of Sampath Vishwa - the Bank's digital platform and other digital banking solutions offered by the Bank in order to provide an uninterrupted service to customers.
Irrespective of challenges, the Bank focused on its CSR activities throughout the year and undertook the restoration of tanks under its flagship "Wewata Jeewayak" CSR initiative aimed at supporting the livelihoods of rural agricultural communities.
Trillion Balance Sheet Achieved
Notwithstanding the extraordinary difficulties encountered during the year, Sampath Bank continued to grow in 2020 with the Bank's asset base expanding by 15.4% to cross the historical Rs. 1 Trillion mark to reach Rs 1.1 Tn as at 31st December 2020, from Rs 962 Bn reported as at end December 2019.
Passing the One Trillion mark in total assets in just 33+ years represents a significant milestone in Sampath Bank's journey to date, as it makes Sampath Bank the youngest bank in the local banking sector ever to surpass this remarkable landmark.
Financial Performance for the Year 2020
Sampath Bank recorded a decline in Profit After Tax (PAT), from Rs 11.1 Bn in 2019 to Rs 8 Bn for the year 2020.
Despite this being a 28% decline, it is nonetheless a noteworthy result against the backdrop of the COVID-19 induced economic slowdown locally and globally.
Meanwhile, the Bank registered a Profit Before Tax (PBT) of Rs 11.2 Bn compared to Rs 15.5 Bn recorded in 2019, a decline of 27.9%.
The PBT and PAT of the Group for the year ended 31st December 2020 stood at Rs 11.9 Bn and Rs 8.4 Bn respectively, denoting a decline of 27.2% and 27.6% respectively.
Fund Based Income (FBI)
With the government-led economic stimulus package and interest caps introduced by the regulator bringing pressure on the Bank’s Net Interest Margins (NIM), in 2020 the Bank registered a NIM of 3.3% which was 116 basis points lower than the year 2019.
Total Interest Income for the year 2020 decreased by Rs 14.9 Bn to Rs 88.6 Bn compared to Rs 103.5 Bn registered in the previous year, reflecting a dip of 14.4%.
Total Interest Expenses too reported a decline of 11.6% to Rs 54.8 Bn in 2020 from the Rs 61.9 Bn recorded in 2019.
Meanwhile as per the ‘Modification Method’ prescribed in the Sri Lanka Accounting Standards (SLFRS - 9), the Bank recognised a ‘Modification loss’ of Rs 3.1 Bn against the interest income, on account of the debt moratorium phase I.
The combined impact of the lower interest regime and the concessionary interest rates charged during debt moratorium phase I, drove down the Bank’s NII by 18.6% from Rs 41.6 Bn in the previous year to Rs 33.8 Bn in 2020.
The Bank continued to closely monitor all variables affecting the NII supported by necessary follow up action to prudently manage the same throughout the year.
Non-Fund Based Income (NFBI)
Sampath Bank reported net fee and commission income of Rs 8.5 Bn in 2020, a decline of 15.7% against the previous year.
The Bank's ability to generate fee based income was adversely affected by the 2 month long island-wide lockdown as well as due to region-wise mobility restrictions imposed by the authorities from time to time in order to control the spread of COVID-19.
The resulting low level of economic activity and restricted hours of business operations, had a sizable impact on the volume of fee based transactions carried out by the Bank during the year.
Further, suspending or refunding of certain charges by the Bank, considering the current difficulties faced by customers due to the COVID-19 pandemic, also negatively impacted the Bank’s fee based income.
However on a positive note, fees generated through electronic channels and digital platforms recorded a robust increase in 2020, as majority of the customers began migrating to digital channels during the lockdown period and thereafter.
Despite the reduction in trade related activities, the trade related commission income also recorded a marginal growth.
This growth was attributed to the government directive mandating the conversion of sight LC to term LCs.
Meanwhile aggressive efforts to capture limited business opportunities helped to bolster commission income.
Net Other Operating Income recorded a substantial growth of 179.2% in 2020, primarily due to higher realised exchange income and the FCY reserve revaluation gains.
These exchange gains are attributed to the 2.2% depreciation of LKR against the US Dollar.
On the other hand, the same reason was behind the exchange losses on the revaluation of forward exchange contracts, which was responsible for the 98.9% decline in the Net Gain from Trading compared to the previous year.
Therefore while, the Bank’s Net Other Operating Income increased to Rs 3.5 Bn in 2020 compared to the Rs 1.2 Bn reported in 2019, the Net Gain from Trading declined to Rs 24.8 Mn for 2020 compared to the Rs 2.2 Bn recorded in 2019.
The total exchange income meanwhile reported only a marginal decrease of Rs 1 Mn in the year under review in comparison to the previous year.
Moreover, the Net Gain on De-recognition of Financial Assets was Rs 423.8 Mn in 2020 as opposed to the Rs 113.7 Mn reported in 2019, a year-on-year (YoY) increase of 272.8%.
Impairment Charge
The Bank remains committed to continuously assess the credit quality of its advances portfolio in order to ensure that adequate provisions are recognised in the financial statements.
In the year under review, the credit quality of the Individually Significant Loans was discretely evaluated with appropriate provisions made, regardless of the fact that those customers were within the debt moratorium. Adequate provisions were also made under the Collective Impairment category to capture the impact of weak economic conditions prevalent for much of 2020.
Moreover, given the sluggish movement in the overall advance portfolio and the debt moratoriums extended during the year 2020 and also considering the potential impact that could arise once the debt moratorium phase II lapses in March 2021, it was decided to recognise a material impairment provision as an allowance for overlay, in 2020.
Additionally, the Bank downgraded the customers operating in elevated risk industries on prudential basis from Stage 1 to Stage 2 and recognised a substantial provision to account the potential risk.
Further provisions were made by increasing the probability weightage on the worst-case macro-economic scenario to capture the expected credit losses.
Due to all these prudential measures taken by Sampath Bank, impairment provision against Stage 1 and Stage 2 loans for the year 2020 increased by 15.8% compared to 2019.
Owing to the significant increase in Stage 3 loans (Rs 10.7 Bn) during the year 2019, the Bank had to make higher impairment provisions against the Stage 3 loans in that year.
However, the Bank did not require higher impairment provisions against Stage 3 loans in 2020 as it did in 2019 owing to the fact that the Stage 3 loan growth was only Rs 6 Bn during the year under review.
Consequently, impairment charges against Stage 3 loans in 2020 decreased by 33.1% compared to the previous year.
On the other hand, the impairment provision against the investment in Sri Lanka Development Bonds (SLDBs) and Sri Lanka International Sovereign Bonds (SLISBs) increased significantly during the year, owing to the downgrading of the country’s sovereign rating.
Operating Expenses
Operating Expenses, which stood at Rs 20.4 Bn in 2019, decreased to Rs 20.1 Bn in the year under review, reflecting a YoY drop of 1.3%.
The stringent cost optimisation strategies implemented by the Bank in response to the challenging macroeconomic conditions, was instrumental in lowering costs.
Nevertheless, the Bank’s Cost-to-Income ratio (excluding taxes on financial services) increased to 43.5% in 2020, from 36.9% in 2019.
This was, primarily due to the 16.2% decline in total operating income for 2020 which outweighed the positive impact created by the 1.3% drop in total operating expenses.
Business and Investments Growth
The main contributor to the Bank’s asset growth during this year was not the Loans and Advances, the reason being the sluggish credit demand from the private sector and the selective lending approach adopted by the Bank amid the elevated credit risk prevalent in the market throughout the year.
As a result, the net loan book of the Bank, which stood at Rs 689.4 Bn as at 31st December 2019 expanded marginally by 4.5%, to reach Rs 720.2 Bn as at 31st December 2020.
On the other hand, Debt and Other Instruments such as Treasury Bills, Treasury Bonds, SLDBs and SLISBs etc., became the most attractive investment opportunity to divert the Bank’s funds.
Thus, the Debt and Other Instruments portfolio recorded a considerable growth of 76% or Rs 118.8 Bn in the year under review.
Sampath Bank’s deposit base expanded by Rs 168.6 Bn or 23.5% during the year, to reach Rs 886.9 Bn as at 31st December 2020, compared to the Rs 718.3 Bn reported as at 31st December 2019.
This growth was largely backed by the Current and Savings Accounts (CASA).
The Bank’s CASA ratio increased by triple digit basis points (410) during the year and stood at 39.3% as at the reporting date, vis-à-vis the 35.2% recorded at the end of the previous year end.
Despite the low interest rate environment that prevailed throughout the year, the Bank’s Term Deposit portfolio too grew by 15.8% in 2020.
Performance Ratios
Return on Average Equity (ROE) (after tax) declined from 11.78% as at 31st December 2019 to 7.58% as at 31st December 2020 in direct correlation to the Bank’s performance for 2020.
Return on Average Assets (ROA) (before tax) also declined to 1.09% as at 31st December 2020 from 1.66% as at the end of 2019.
Capital Adequacy and Liquidity
The Bank remained well capitalised during 2020 with low leverage and high levels of loss absorbing capacity, with all capital metrics well above the regulatory thresholds right throughout the year.
The Bank’s Common Equity Tier I, Total Tier I and Total Capital ratios stood at 13.44%, 13.44% and 16.41%, respectively as at 31st December 2020, notably above the Basel III prescribed minimum capital requirements, while the Leverage ratio of 6.94% too was well in excess of the minimum requirement of 3%.
The Statutory Liquid Asset Ratio (SLAR) for the Domestic Banking Unit and the Off-Shore Banking Unit was maintained well above the mandatory requirement of 20% throughout the period and ended up at 34.98% and 37.60% respectively as at 31st December 2020.
Dividend and sub-division of shares
The Directors have recommended a final cash dividend of Rs 8.25 per share based on the 381,457,985 shares in issue as at 15th February 2021 for the Financial Year ended 31st December 2020.
The said dividend is subject to approval of the shareholders at the Annual General Meeting to be held on 30th March 2021.
However, if the shareholders approve the resolution for the proposed sub-division of shares in the proportion of 01:03 at the Extra-ordinary General Meeting to be held on 17th March 2021, the final cash dividend will be based on the increased number of shares (i.e., 1,144,373,955 shares). Consequently, each share will be entitled to a cash dividend of Rs 2.75.
Debenture Issue 2021
The Board of Directors of the Bank decided to issue 50,000,000 Basel III Compliant - Tier 2, Listed, Rated, Unsecured, Subordinated, redeemable 7 year debentures (2021/2028) with a Non-Viability Conversion at a pre-specified trigger point, at the par value of Rs 100 each to raise Rs 5,000,000,000 with an option to issue up to a further 10,000,000 of said debentures to increase the said sum by up to a further Rs 1,000,000,000 at the discretion of the Bank in the event of an over subscription of the initial issue.
The above issue is subject to the approval of the shareholders at an Extraordinary General Meeting.