Sampath Bank expects to accelerate lending by year end

22 July 2019 12:10 am - 0     - {{hitsCtrl.values.hits}}

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  • MD Fernando says bank has mechanism and ability to expand
  • “We certainly feel going above 10% credit growth at end of the year”- Fernando
  • Says bank was focusing on credit quality over quantity in first half

 

Sri Lanka’s third largest private lender in terms of assets, Sampath Bank PLC, expects its credit growth to accelerate over 10 percent by the end of this year, beating industry projections.
“We certainly feel going above 10 percent credit growth at the end of the year,” Sampath Bank, Managing Director Nanda Fernando told reporters in Colombo last week.


He said that the bank was focusing more on enhancing credit quality than quantity at the early part of this year.


“During the first quarter, in the view of conditions, we wanted deliberately focus more on credit quality over credit quantum expansion. We have the mechanism and ability to expand. When the conditions are conducive, we would certainly grow,” he said.


Fernando highlighted that Sampath Bank’s annualised credit growth stood at 3.2 percent in the first quarter of this year while the private sector credit growth contracted by 
1.5 percent.


However, he noted that the surge in non-performing loans (NPL) is the biggest challenge for the banking sector including Sampath Bank. The banking sector NPL ratio nearly doubled to 4.2 percent by end of the first quarter of 2019 from 2.5 percent recorded at the end of 2017.


Similarly, Samapth Bank’s NPL ratio also shot up to 4.8 percent at the end of the quarter.


Fernando pointed out that the shift to forecast-oriented International Financial Reporting Standards (IFRS) was a key contributing factor for the rise in NPLs.

“With the IFRS requirement, we moved from incurred loss to future expected loss method from second quarter of last year.” 


He expects that banking sector NPL ratios to subside by mid next year when the Presidential and Parliamentary elections are concluded.  
“However, there could be a rise until the end of the year.” 


While noting that construction and infrastructure related activities took a dip during the last one and half years, he said tourism sector recovery, construction and infrastructure related activities would be crucial for NPLs to subside.


Speaking on the demand for working capital loans by the tourism sector after the Easter Sunday attacks, Fernando said Sampath Bank is a yet to experience a considerable demand for such facilities.  “The appetite to borrow for tourism is little lesser. There’s no great demand for new loans into tourism right now. What most of our customers are asking is a moratorium,” he said.


He noted the NPL ratios on tourism sector loans at  Sampath Bank currently is not high at the moment. However, he noted the real impact can be seen once the moratorium period ends in the middle of next year. Sampath Bank has 7 percent exposure to tourism sector.(NF)

 


Defends recent Rs.12.1bn rights issue 

Sampath Bank says its recent Rs. 12.1 billion rights issue was a success, as all key shareholders and over 80 percent of its foreign shareholders subscribed to the issue despite the initial under subscription. 


The bank offered 89 million shares at a discounted price of Rs.136 each in the proportion of seven new voting shares for every 23 held.
The rights issue was undersubscribed initially with only 78 percent of rights being purchased by the bank’s shareholders at the time of the official closing of the issue.

However, later, the bank was successful in allotting all the shares that remained unsubscribed.


Sampath Bank Managing Director Nanda Fernando said all key shareholders purchased the offered rights except for a particular shareholder who subscribed to a lesser amount.
Defending the timing and pricing of the rights issue, he stressed that the bank was compelled to move forward with the issue to meet Basel III requirements and to support the bank’s expansion plans despite the challenging investment environment that arose after the Easter Sunday attacks. 


“By the time we announced the rights issue, we knew the conditions were not the best, but we had to do it.


“Some rating agencies had pointed out that our capital adequacy ratios and buffers were insufficient when compared with some of our private sector peers. Hence we wanted to ensure that we have sufficient buffer,” he elaborated. 


At the time the rights issue was announced on March 1, Sampath Bank share traded at Rs.230.90. Since then the share price started to come down significantly to the Rs.138 level.
However, following the allotment of shares, Sampath Bank share closed higher last week at Rs.150,recording around a 10 percent increase in the share price. 


Fernando stressed that the pricing of the rights was correct, noting that the lowest point the bank’s shares reached was Rs.138, which was below the rights’ price of Rs 136. “We wanted to give the best benefit to our existing shareholders. That was why we thought of giving a deep discount at Rs 136,” he said.

 

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