DFCC maintains profitability under volatile market conditions
February 25, 2020
- DFCC’s Total Assets grew by LKR 15,652 million to LKR 390,560 million
- DFCC recorded Tier 1 and total capital adequacy ratios of 10.34% and 15.45% respectively
- DFCC’s Core Business recorded a PAT increase of 9%
Core business of DFCC Bank posted a profit before tax of LKR 1,585 million and profit after tax of LKR 1,124 million for the quarter ended 31 March 2019 compared to profit before tax of LKR 1,243 million and profit after tax of LKR 1,034 million in the comparative period. After accounting for fair value loss on Commercial Bank of Ceylon PLC shares transferred to the trading portfolio, the Bank reported a profit before tax of LKR 1,001 million and profit after tax of LKR 541 million in comparison to profit before tax of LKR 1,277 million and a profit after tax of LKR 1,068 million in the comparative period.
The Bank recorded total operating income from core business amounting to LKR 3,981 million for the quarter ended 31 March 2019 compared to LKR 3,713 in the comparative period in 2018 which is an increase of 7%. After accounting for the impact of high fair value loss in the investment of Commercial Bank of Ceylon PLC, the operating income reflects a decline of 14%. The interest margin has remained at 3.5% as reported for the year ended 31 December 2018. Further, a growth of 8% was recorded in fees and commission income to LKR 467 million in Q1 2019 from LKR 434 million in Q1 2018. This is the outcome of a focus on non-funded business.
DFCC Bank sustained its aggressive branch expansion, launching 7 new branches which include the Bank’s first Super Grade Branch, at Lake House premises in the period April 2018 to March 2019. Operating expenses increased from LKR 1,579 million to LKR 1,750 million (11%) compared to the corresponding period in the previous year. The Bank’s Super Grade Branch at Lake House premises has taken customer convenience a step further by offering a totally new experience with DFCC MySpace, a Self-Banking area where customers can conduct all their transactions with ease and convenience in a fast and secure manner 24/7, 365 days of the year. The opening of this branch has helped to attract many new customers.
Impairment provision during the year decreased to LKR 11 million for Q1 2019 from LKR 542 million in the comparable period. The Bank has identified Small and Medium Enterprises (SMEs) as a separate segment in adopting the Circular No 6 of 2019 issued by Central Bank of Sri Lanka in the financial statements for the period ended 31 March 2019.
DFCC’s NPL ratio moved up to 3.91% as at 31 March 2019 from 3.28% in December 2018. This reflected an industry-wide trend, which was consequent to the challenging business environment that prevailed during the period. The ratio has however been managed at a level below the industry average of 4.2% as at March 2019.
Other Comprehensive Income
Investments in equity securities and treasury bills and bonds are classified as financial assets whose variations in fair value are recorded through other Comprehensive Income. Accordingly, fair value losses of LKR 1,407 million and net fair value gain of LKR 603 million were recorded on account of equity securities and fixed income securities respectively. The steep drop of 13.7% in the share price of Commercial Bank of Ceylon PLC during the quarter mainly contributed to the reported loss of equity securities, while prices of treasury bills and bonds were favourably impacted by decline in interest rates of government securities.
Statement of Financial Position
Reflecting its measured growth strategy, DFCC’s Total Assets grew by LKR 15,652 million to LKR 390,560 million on 31 March 2019, which is a 4% growth on 31 December 2018. Within this, the Bank’s loan portfolio grew by LKR 12,788 million to LKR 262,521 million compared to LKR 249,734 million as at 31 December 2018, which is a growth of 5%. The Bank lent prudently and did not pursue aggressive growth particularly to sectors that exhibited stress.
DFCC’s deposit base experienced a growth of 3% recording an increase of LKR 6,321 million to LKR 248,559 million from LKR 242,238 million as at 31 December 2018. This is not only a reflection of customers’ confidence in the Bank, but also the outcome of the investment in developing distribution channels and marketing innovative new products.
With this deposit growth, the Bank was able to report a loan to deposit ratio of 106% in March 2019.
The Bank’s CASA ratio, which represents the proportion of low cost deposits in the total deposits of the Bank, was 24.4% as at 31 March 2019. Funding costs for DFCC were also contained due to access to medium to long term concessionary credit lines. When these concessionary term borrowings are added to deposits, the ratio improved to 30.9% as at 31 March 2019.
The Debenture Issue was successfully concluded in March 2019 with the issue being oversubscribed on the opening day and the Bank being able to raise a total of LKR 10 billion from the issue.
DFCC Bank has always been a prudent lender. Therefore, in order to support future growth and to maintain its premier development banking focus, the Bank has consistently maintained a capital ratio above the Basel III minimum capital requirements. As at 31 March 2019, the Group’s Tier 1 capital adequacy ratio stood at 10.51% while the total capital adequacy ratio was 15.62%. On a solo basis, as at 31 March 2019, DFCC recorded Tier 1 and total capital adequacy ratios of 10.34% and 15.45% respectively. These ratios are well above the minimum regulatory requirements of 8.5% and 12.5% effective 2019.
The shareholder approval was received to issue new ordinary shares by way of a Rights Issue at a consideration of LKR 72/- per each ordinary share at the Extra Ordinary General Meeting held on 28 March 2019. The ordinary shares under the proposed Rights Issue was to be issued in the proportion of two (2) Ordinary Shares for every five (5) shares held by the holders of the issued ordinary shares of the Bank. Upon the completion of the Right Issue, 39,091,068 new shares were allotted to the subscribers to the issue, which will greatly contribute to the increase in DFCC’s Tier 1 capital.
Despite difficult conditions, DFCC Group maintained its momentum in the first quarter when compared to the previous year whilst continuing its dynamic progress in digital channels. The Bank continued to concentrate on adding value to shareholders, customers and other stakeholders through the introduction of innovative products and by providing an exceptional and personalised customer service.