ISBs, loan-related provision reversals lift Sampath Bank Dec. profits

Sampath Bank PLC saw its December quarter receiving a massive lift from the reversals of provisions on the International Sovereign Bonds (ISBs) and also the substantially lower provisions made for loans, due to the improving borrower profiles in a recovering economy.
The bank reported earnings of Rs.8.20 a share or Rs.9.61 billion for the October-December period, up 85 percent from the same period in 2023.
The profits included a gargantuan Rs.16.95 billion in provision reversals, on account of the ISBs and also Rs.402.08 million, on account of loans and advances, compared to Rs.5.60 billion in the year earlier period.
“This improvement was primarily due to prudent provisioning measures taken in previous years, which lowered the provision requirements for the current year, coupled with a recovery in economic activity that enhanced customer ability to meet their repayment obligations,” the bank said as part of its interim statement, referring to the provisions made for its loans.
The conclusion of the bond restructuring in December last year helped the banks and other companies, which held investments in ISBs, to reverse part of the provisions they had made, expecting haircuts or losses as high as 50 percent of those bonds.

However, at least half of this positive impact was offset by what is referred to as the ‘day-1 loss’, on account of these bonds, which amounted to Rs.8.37 billion, measured through the difference between the carrying value of the old bonds and fair value of the new bonds that were received at the bond exchange on December 20, last year.  
Meanwhile, the bank reported a net interest income of Rs.20.48 billion for the quarter, up just one percent from the same period in 2023, as interest expenses fell at a higher pace than the decline in the corresponding decline in the interest income.
This was seen in the narrowing net interest margin, which ended the year at 4.90 percent, compared to 5.16 percent at the start of 2024.
The bank also saw its net fee and commission incomes rising by 10 percent to Rs.4.82 billion from a year ago.
This appears to have mainly been supported by some robust growth in the bank’s loan book.
In fact, the bank grew its gross loan book by Rs.97.34 billion or 10.7 percent, to little over a trillion rupees by the end of the year.
The deposits grew by 16.5 percent or Rs.210.59 billion, to a total portfolio of Rs.1,487.15 billion.
As seen from the substantially trimmed down provisions for possible loan losses, the credit quality of the bank improved as the stage three loans ratio fell to 4.69 percent, from 5.87 percent at the start of the year.
Amid these developments, the bank reported full-year earnings of Rs.24.48 a share or Rs.28.70 billion, compared to Rs.15.28 a share or Rs.17.92 billion in 2023.