Lower impairments provide a fillip to Sampath Bank in 3Q

Sampath Bank PLC reported higher profits in the three months ending September 2023 (3Q23) as the bank set aside only a fraction of provisions against potential loans and other losses this year compared to a year ago, benefiting from improving operating conditions.
The third-largest private lender by assets reported a net interest income of Rs. 19.81 billion in the July–September quarter, reflecting an 11.1 percent decline from a year ago. This dip was attributed to slipping margins amid declining interest rates, as deposits increased while loans contracted.

The bank’s net interest margin stood at 5.19 percent by the end of September, compared to 5.66 percent at the beginning of the year. Despite this, the bank’s loans remained below the levels seen at the end of the previous year, at Rs. 865.1 billion compared to Rs. 920.1 billion. 
The bank is yet to experience meaningful growth in new loans sufficient to offset the contraction observed until recently.
However, the bank anticipates notable growth in the final three months of the year as rates decrease and financial conditions ease. This is expected to prompt more borrowers to return to the market for funds for investments and consumption. While interest rates have decreased from recent peaks and borrowers are showing some inclination to take on fresh loans, banks remain cautious about extending new loans unless they are fully convinced that the risks remain low.
The bank’s Stage 3 loans ratio, a measure of asset quality, was recorded at 5.93 percent by the end of September, compared to 4.35 percent at the end of the previous year.
The bank earned a net fee and commission income of Rs. 5.06 billion, reflecting a 3.9 percent increase from a year ago.

Meanwhile, the bank set aside Rs. 7.29 billion for possible loans and other contingencies in the quarter, marking a sharp decline from Rs. 20.62 billion in the same period last year when the economy faced significant challenges. 
This reduction significantly contributed to the bank reporting earnings of Rs. 5.09 billion, or Rs.4.34 per share, for the quarter under review, compared earnings of Rs.316.35 million, or 27 cents per share recorded for the same period last year.
Dhammika Perera-controlled Vallibel One PLC held 14.95 percent stake in Sampath Bank, while the Employees’ Provident Fund held 9.97 percent stake as at September 30, 2023.