DFCC Bank stands firm amidst challenges.
May 6, 2021
Financial Results for the Quarter ended 31 March 2021.
• DFCC Group recorded a PAT of LKR 1.6 Bn.
• Advances grew by LKR 13 Bn to 315 Bn (4% growth).
• Deposits grew by LKR 2 Bn to 312 Bn (1% growth).
In the backdrop of an extremely challenging environment supporting the efforts by the Government to uplift and stabilize the economy, DFCC Bank continued its committed service to customers across the country providing essential banking services without interruption during these challenging times. DFCC Bank concluded the quarter ended 31March 2021 with sound performance and growth.
DFCC Bank really swung into full gear as a full-service Commercial Bank marking 65 years of being a pioneer in Sri Lanka’s banking sector. The Bank has made great strides recently to capture market share by demonstrating agility to embrace its goal of becoming a customer centric digitally enabled bank. The Bank introduced several concessionary schemes to its clientele in accordance with the Directions/ Guidelines of Central Bank of Sri Lanka extending financial and advisory support to all segments of customers.
The following commentary relates to the unaudited Financial Statements for the quarter ended 31 March 2021, presented in accordance with Sri Lanka Accounting Standard 34 (LKAS 34) on “Interim Financial Statements”.
Financial Performance
Profitability
The DFCC Group comprises of DFCC Bank PLC (DFCC), and its subsidiaries – Lanka Industrial Estates Limited (LINDEL), DFCC Consulting (Pvt) Limited (DCPL) and Synapsys Limited (SL), the joint venture company – Acuity Partners (Pvt) Limited (APL) and associate company – National Asset Management Limited (NAMAL).
DFCC Bank PLC, the largest entity within the Group, reported a profit before tax (PBT) of LKR 1,915Mn and a profit after tax (PAT) of LKR 1,479 Mn for the quarter ended 31 March 2021. This compares with a PBT of LKR 1,295 Mn and a PAT of LKR 925 Mn in the comparative period.
The Group recorded a PBT of LKR 2,036 Mn and PAT of LKR 1,583 Mn for the quarter ended 31 March 2021 as compared to LKR 1,408 Mn and LKR 1,014 Mn respectively in the comparative period of year 2020. All the member entities of the Group made positive contributions to this performance.
The basic earnings per ordinary share (EPS) of the Bank improved to LKR 4.80 for the quarter ended 31 March 2021 from LKR 3.04 for the comparative period in year 2020 recording an increase of 58%. The Bank’s Return on Equity (ROE) improved to 6% during the quarter ended 31 March 2021 from 4.93% recorded for the year ended 31 December 2020. The Bank’s Return on Assets (ROA) before tax also improved to 0.91% during the quarter ended 31 March 2021 compared to 0.78% recorded for the year ended 31 December 2020.
Net Interest Income
The Bank recorded a LKR 2,679 Mn in net interest income (NII) which is a 10% decline year on year primarily due to the drop in AWPLR more than 370 bps over the past 12 months and due to the business implications that arose with the pandemic situation. In line with this trend and due to the time taken to re price the existing deposits to reflect market trends the interest margin also has slightly decreased from 2.53% in December 2020 to 2.35% in March 2021.
Other Operating Income.
The economic activities have been operating uninterrupted to a large extent during the current period compared with the comparative period which involved a stringent lockdown situation. The Bank was able to use the opportunities created in the market with a concentrated effort to increase non-funded business and the effort was rewarded with an increase of fee and commission income to LKR 651 Mn for the quarter ended 31 March 2021 from LKR 548 Mn in the comparative period.
Other operating income has increased mainly due to increase in Dividend income and gain on sale of fixed income securities during the period ended 31 March 2021.
Impairment Charge on Loans and Other Losses
Impairment provision has decreased to LKR 356 Mn for the quarter ended 31 March 2021 from LKR 637 Mn in the comparable period. While maintaining the same provision level for loans and advances to customers, impairment charge over other financial assets was reduced due to the reduction in loss ratio related to the government securities denominated in foreign currencies as per a guideline issued by the Central Bank of Sri Lanka.
In order to address the potential future impacts of COVID-19 on the lending portfolio, the Bank has made adequate impairment provision as at 31 December 2020 by introducing changes to internal models to cover unseen risk factors in the highly uncertain and volatile environment including additional provisions made for the exposures to risk elevated sectors. The same methods and the processes were followed during the quarter ended 31 March 2021 as there is no material change to the operating environment. The bank reported the NPL ratio of 5.53% in March 2021 compared to 5.56% in December 2020. As the impacts of the COVID-19 pandemic will continue to be felt for some time, the Bank continues to closely monitor its loan portfolio and provisioning levels.
Operating Expenses
During the quarter ended 31 March 2021, operating expenses increased from LKR 1,751 million to LKR 2,031 million compared to the corresponding period in the previous year. Staff related provisions for year 2019 which were not utilized were reversed during the period ended 31 March 2020 and if not for such reversal the increase in total operating expenses would have been only 6% during the quarter ended 31 March 2021 compared with the comparative period of year 2020. During the year, the Bank created multiple channels for service delivery for customer’s access and provided uninterrupted services during the pandemic situation which resulted in increasing IT related cost and other operating expenses. Close monitoring and effective cost control measures adopted during the period helped to maintain the operating expenses at these levels.
Other Comprehensive Income
Investments in equity securities and treasury bills and bonds (fixed income securities) are classified as financial assets and the change in fair value is recorded through other comprehensive income. Accordingly, fair value gain of LKR 534Mn and a net fair value loss of LKR 1,131Mn were recorded on account of equity and fixed income securities, respectively. The increase in the share price of Commercial Bank of Ceylon PLC during the period mainly contributed to the reported fair value gain in equity securities, whilst the movement of interest rates of treasury bills and bonds unfavorably resulted in the fair value loss that was recorded during the period.
Business Growth
Despite the challenging business environment, the Bank continued its growth strategy by increasing both deposit and loan portfolio as at 31 March 2021. The loan portfolio grew by LKR 12,652 Mn to record LKR 314,562 Mn compared to LKR 301,909 Mn as at 31 December 2020 recording an increase of 4%. The Bank’s deposit base also experienced a growth of 1% recording an increase of LKR 2,059 Mn to LKR 312,086 Mn from LKR 310,027 Mn as at 31 December 2020.
With the 1% increase in deposits and 4% increase in loans, DFCC Bank reported loan to deposit ratio of 101%. The Bank’s CASA ratio, which represents the proportion of low-cost deposits in the total deposits of the Bank was 30.06% as at 31 March 2021. Funding costs for DFCC Bank were also contained due to access to medium to long-term concessionary credit lines. When these concessionary term borrowings are considered, the ratio improved to 35.94% as at 31 March 2021.DFCC Bank continued its approach to tap local and foreign currency related long to medium-term borrowing opportunities. DFCC Bank’s total assets and total liabilities slightly decreased by 1% from December 2020 mainly due to the strategy followed by the Bank for utilizing the excess funds to settle high-cost short term borrowings.
Equity and Compliance with Capital Requirements
The Bank has declared a final dividend of LKR 3.00 per share in the form of a scrip dividend for the year ended 31 December 2020, balancing the expectations of shareholders with business plans including the credit growth of the Bank. In order to support future growth as a full-service retail bank, the Bank has consistently maintained a capital ratio above the Basel III minimum capital requirements. As at 31 March 2021, the Bank has recorded Tier 1 and total capital adequacy ratios of 10.21% and 14.52%, respectively, which is well above the minimum regulatory requirements of 8% and 12% including Capital Conservation buffer of 2%. The Bank’s Net Stable Funding Ratio was 117.41%, well above the regulator mandated minimum of 90%. These strong capital adequacy and liquidity levels are clear affirmation of the Bank’s stability.
CEO Comment
“Given the ongoing uncertainties we will pursue growth. Our focus will be to engage with our customers and ensure that we will be their pillar of strength to help them achieve success during these unprecedented times. We will also continue to expand our digital footprint to offer ease and convenience to our customers as we have now adopted the best practices in the industry and implemented systems to meet the future challenges that we foresee in the new normal.
About DFCC Bank
DFCC Bank is a full-service Commercial Bank with a legacy of 65 years as one of Sri Lanka’s foremost financial conglomerates offers a gamut of commercial and development banking services. The Bank was ranked amongst Business Today’s Top 30 Corporates in Sri Lanka and was also positioned amongst Brand Finance’s Top 100 Most Valuable Brands, 2020. DFCC Bank is rated [SL] AA-Stable by ICRA Lanka Limited and A+(lka) Stable by Fitch Ratings Lanka Limited.