Financial Times

Sampath seen maintaining interest rate spread

Sampath Bank plans to "aggressively" increase its lending in 2003, with the change in its deposit mix enabling it to maintain its interest spread that helped boost earnings last year, SC Research said.

The bank plans to increase its branch network while undertaking several cost cutting measures in the future, including centralizing back office operations and outsourcing certain functions, it said in a report.

"The bank is looking to expand both organically, through its branch network and via acquisitions both at home and abroad," it said.

"Our forecast for the group's consolidated net profit in 2003 is Rs. 591 million, representing an increase of 19 percent compared to profit earned in 2002."

Sampath is targeting a loan growth of 14 percent this year compared to last year's loan growth of around eight percent.

The bank has also been developing its deposit base and reducing its cost of funds. Deposits in 2002 increased by 14 percent. Low cost current and savings deposits increased by 22 percent and 39 percent respectively, while fixed deposits declined by four percent.

"The change in the deposit mix should enable the bank to maintain its interest spread in the future," SC Research said.

The group posted an "impressive" increase of 67 percent in consolidated net profit to Rs. 196 million for the first quarter of 2003, it said.

The bank owns three subsidiary companies, Sampath Centre, Sampath Surakum and SC Securities, its stock brokering arm.

The group's profit after tax without taking into account the new VAT charge was Rs. 242 million, up 82 percent compared to the profit after tax in the corresponding period last year, SC Research said.

VAT for the quarter amounted to Rs. 31 million, hence profit after tax after subtracting VAT was Rs. 212 million.

In 2002 the group earned Rs. 495 million, an increase of 41 percent compared to the net profit earned in 2001.

"Due to the falling interest rate regime, the bank enjoyed a wider interest rate spread as deposit rates fell faster than lending rates," SC Research said.

"Interest income at Rs. 4.7 billion was up three percent, whilst interest expenses at Rs. 2.9 billion were down 12 percent. As a result, net interest income at Rs. 1.8 billion rose by 41 percent."

Fee based income was also up by 21 percent. Like other banks, Sampath suffered a fall in foreign exchange income of 26 percent due to the stabilization of the Rupee against the US dollar.

SC Research said Sampath has been expanding rapidly, opening eight new branches in 2002. It plans on opening another ten in 2003.

As the North and East slowly becomes more economically integrated with the rest of the island, Sampath is stretching its network into these areas.

The bank opened its first branch in Vavuniya in January 2003 and plans on opening a branch in Jaffna before the end of 2003.