The global economy was expected to grow by 3.3 percent in 2014, growth that was forecast to remain at the same level by the end of 2015, should momentum be maintained. However, the financial sector has faced several significant challenges, which threaten to disrupt such growth. Whether it be the rapid decline in oil prices, the quick adjustments in exchange rates, escalating geopolitical tensions related to Russia/Ukraine and conflict in the Middle East, or the increased concern about the economic and political future of the EU, each has posed some sort of threat to the global equilibrium.

Here parallels can be drawn with the Sri Lankan economy, with the rapid economic growth dependent on finding a stable political environment in the country. The Sri Lankan economy was able to maintain a growth rate around seven percent up until the end of 2014, it then decreased to 6.4 percent by the end of the first quarter of 2015.

Most of the government infrastructure projects in the country have been delayed due to new priorities. This could have a significant effect on the construction sector throughout 2015, and could slow economic growth further. The sector was one of the prime contributors to the country’s economic growth in previous years, but due to the indeterminate political future, private investors and foreign investors could hold back their investment.

Elsewhere, the leisure sector continues to expand in line with the increasing number of tourists, with an 18 percent increase in visitors year-on-year as of March 2015. Per capita income is estimated to be around $4,009 for 2015. The country’s currency platform shows a mixed outcome over the first six months of the year, with the Sri Lankan rupee depreciating against the US dollar and UK pound sterling, while appreciating against the euro, Japanese yen and Australian dollar. Annual average inflation declined to 2.1 percent in April 2015 from 3.3 percent at the end of 2014. This recent trend in inflation rate is mainly due to aforementioned decrease in oil prices in the country and price reduction on essential product and services by the government. This trend is expected to continue into late 2015.

Ups and downs
In 2014 Sri Lanka’s banking sector began with restrained credit growth due to moderate demand for credit in the market and a reduction of exposure to pawning portfolio, due to the steady decline in gold prices. However, private sector credit growth rebounded during the latter part of the year and momentum continued into 2015. As such, an increase in credit demand could be expected in the later part of the year, if political stability is achieved.

Market interest rates fell in 2014 and the same downward pressure on interest rates continued into 2015 due to the Central Bank of Sri Lanka’s (CBSL) relaxed monetary policy. Average weighted lending rates of the sector decreased from 15.18 percent at the end of 2013, to 11.91 percent at the end of 2014 and to 11.53 percent at the end of April 2015. Falling interest rates and increased competition threatened to narrow the sector’s Net interest Margin (NIM), but even with the shrinking rate, the NIM remained at the 3.5 percent from 2013 to 2014, and increased slightly to 3.8 percent at the end of first quarter of 2015.

CBSL’s relaxed monetary policy has also decreased the deposit rates in the market sharply, reducing the average weighted fixed deposit rates from 11.78 percent at the end of 2013, to 7.33 percent at the end of 2014 and to 6.87 by the end of 2015. The CASA (current and savings accounts as a percentage of total deposits), increased from 33.9 percent at the end of 2013, to 39.5 percent by the end of 2014 and only a marginal change was observed at the end of first quarter of 2015.

Within this challenging environment, the banking sector saw the post-tax profit increase to LKR 88bn ($661m) at the end of 2014, a growth of 18 percent. One positive knock-on-effect of the shrinking interest rate is that banks are encouraged to focus on other income sources as a result. This has seen the total non-interest income of the banking sector increase to LKR 98bn ($734.5m) at the end of 2014, a 14 percent growth on 2013, albeit the rate did marginally decrease by LKR 3.1bn ($23.2bn) in the first quarter of 2015.

Yearly comparison
In comparison with the banking sector performance in 2013, return-on-assets and return-on-equity also increased in line with the increased profit of the sector, and stood at 1.4 percent and 16.6 percent respectively as of December 31 2014. This level remained until March 31 2015.

Throughout 2014, banks were keen on improving the asset quality by recovering non-performing loans, specifically non-performing pawning advances. The asset quality is measured by non-performing loan to total loans and has improved from 5.6 percent in 2013 to 4.2 percent at the end of 2014 and 4.3 percent at the end of the first quarter of 2015.

The branch network expanded marginally in 2014, comparatively less than the previous year. This is mainly due to challenging market conditions the country experienced last year and future expansions will depend on the necessity of traditional branch banking in Sri Lanka, innovative banking products/services and technology. Nevetheless, it is possible that leading banks in Sri Lanka are purposefully increasing the branch network at a slow pace as they have already covered most of the country, while other banks will continuously increase their network in par with the banking necessities of the economy.

Local challenges
Sampath is one of the largest private sector banks in Sri Lanka, ranked third based on its asset base. As pioneers in technology, we have introduced IT-based banking solutions to customers, specifically the introduction of the first ever ATM in Sri Lanka in the late 1980s. Since then we have continued to provide technology-oriented products and services such as internet banking, mobile banking and foreign currency ATMs.

Since the incorporation of the bank in 1986, we have faced many challenges and so our achievements thus far have been nothing short of remarkable. The bank has played a prominent role in developing Sri Lanka’s retail banking sector in recent years, by opening 89 new branch outlets since 2010, arming each with well-trained staff members and advanced technology to provide the best service in what is a highly competitive market.

The bank has 223 branches in the Sri Lanka covering almost all the vital business areas in the country and has 345 ATMs, which enable us to serve local and especially foreign customers. Our foreign currency exchange ATMs are located in famous tourist areas in the country to make transactions easier and more central. The bank has recently invested largely in off-site ATMs in order to facilitate the customers who do not have speedy access to the branch network. Our ATMs provide many services including cardless cash and bill payments. If you are a foreign tourist or anyone intending to visit Sri Lanka, we can provide tailored banking services for you in any part of the country.

Over the years Sampath Bank’s achievements have been honoured by internationally recognised magazines, shoulder to shoulder with some of the biggest names in the industry. It was named Best Bank in Sri Lanka by Euromoney for a second consecutive time in 2014 and has most recently been named Best Commercial Bank and Best Retail Bank for Sri Lanka in 2015 by World Finance.

Despite such success, it is the bank’s statistics that speak for themselves. Our pre-tax profit growth for the year 2014 showed a remarkable 49.8 percent growth, compared with 28.5 percent in 2013. In addition to this, our asset base stood at LKR 432bn ($3.24bn) in 2014 and increased by LKR 9bn ($67.6m) in the first quarter of this year. Our core capital ratio is well above the minimum regulatory requirements and the bank also has an AA (stable) rating from Lanka Rating Agency and A+ (stable) from Fitch Ratings.

Our strategy is to tackle the challenges of the local banking industry in a diligent way, for instance, due to shrinking interest margins we would focus on other income sources such as fee and commission based income, charges recovering, etc. We are also focusing on a growing quality credit portfolio and improving credit quality of the existing portfolio. Currently our non-forming ratio is around two percent, which is prudently maintained by us and it is well below the non-performing ratio of the banking industry.

We don’t just do banking; we also involve and invest in many corporate social responsibility projects. We have so far been involved in renovating northern railway, renovating tanks to aid agriculture in rural areas and have helped out in a massive tree-planting project, among other things.

Sampath Bank, being pioneers in providing innovative banking solutions to customers in Sri Lanka, will continue to improve its service quality with improved efficiency coupled with innovation. Furthermore, as a premier responsible corporate citizen in Sri Lanka, Sampath Bank is continuing to focus and invest in development projects in vital areas of the country’s economy, such as education, environment and community based developments.