Sampath Bank to raise Rs.7.6bn via rights to beef up capital

Sampath Bank PLC’s board of directors last week gave approval to raise as much as Rs.7.6 billion in fresh equity via a rights issue to comply with enhanced capital requirements under the BASEL III accord.

The bank with an asset base of over Rs.700 billion said it would issue one new share for every six shares held at an issue price of Rs.245 a share. 

Accordingly, the bank will issue a little over 31 million ordinary voting shares. 

Sampath Bank’s share closed Rs.7.90 or 2.82 percent lower at Rs.272.10 at last week’s market close. 

The announcement by the bank, which showed some strong growth in loans during the 1Q17, came in less than a month since it announced a Rs.6.0 billion capital call via subordinated debentures in earlier July.  

As at March 31, 2017, Sampath Bank’s Tier II capital adequacy ratio stood at 11.93 percent while the Tier I capital adequacy ratio, which contains shareholder funds and retained earnings in relation to its risk weighted assets, stood at 7.68 percent.   

But according to the new BASEL III rules, the minimum regulatory requirements for Tier I and Tier II increase up to 10.0 percent and 14 percent respectively by January 1, 2019 from the current 5.0 percent and 10.0 percent.

For the 1Q17, the bank reported earnings of Rs.12.81 or Rs.2.39 billion, a nearly 30 percent jump from the same period a year ago. 

This performance was mainly supported by a strong growth in loans which topped Rs.30 billion,
The bank is expected to release its 2Q17 financial results this week. But Fitch Ratings recently said it does not believe that strong earnings alone could support internal capital generation of a bank, which has been growing aggressively. 

“Fitch does not believe Sampath can sustain its capitalization purely through retained earnings. 
The bank’s rating reflects its lower capitalization and higher risk appetite relative to peers, which counterbalance its satisfactory asset quality and improving franchise”, Fitch said in one of its recent rating outlooks on the bank.   

The data showed that Sri Lanka’s banks have been growing their loan books faster than their internal capital generation in the recent past.  Fitch Ratings in 2015 downgraded Sampath Bank’s national long term rating to A+ from AA- with a ‘Stable outlook’ before the outlook being revised down to ‘Negative’ in expectation of further worsening capitalization beyond previous expectations. 

With the new BASEL III rules coming into effect from July 1, 2017, Sri Lanka’s banks are seen shoring up capital to stay in line with some demanding minimum capital, liquidity and leverage requirements under the new rules. 

So far this year, Commercial Bank PLC, Hatton National Bank PLC, Pan Asia Banking Corporation PLC and Amana Bank PLC have raised new capital via rights issues.