Results for the six months ended 30 June 2016
August 8, 2016
This commentary relates to the interim non audited financial statements for the six months ended 30 June 2016 (the current period) presented in accordance with Sri Lanka Financial Reporting Standards (SLFRS) aligned with International Financial Reporting Standards (IFRS).
The DFCC Group comprises DFCC Bank PLC (DFCC), together with 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 the associate company – National Asset Management Limited (NAMAL).
Pursuant to the amalgamation with DFCC Vardhana Bank PLC (DVB) during 2015, DFCC changed its financial year-end from 31 March to 31 December. Accordingly, the first-half results for the year 2016 of DFCC relates to the period 01.01.2016 to 30.06.2016. For clarity the current period results are compared with the results for the period 01.01.2015 to 30.06.2015 (the previous period). The previous period results of the group include the results of DVB, SL, APL and NAMAL consolidated with a three months lag on account of their respective financial years ending 31 December. The other group entities, LINDEL and DCPL, are consolidated without a lag.
In order to facilitate comparison and give context to the DFCC’s results for the current period, a restated Income Statement for the six months ended 30 June 2015 (the comparable period) prepared as if the amalgamation with DVB took place prior to 1 January 2015, is given as supplementary financial information
Overview of Financial Performance of the Group
The DFCC Group recorded a consolidated profit after tax of LKR 1,721 million in the current period, which is a healthy growth of 16.1% over the LKR 1,482 million recorded in the comparable period ended 30 June 2015. The total assets of the Group stood at LKR 263,234 million as at 30 June 2016 compared to LKR 247,109 million on 31 December 2015.
Banking Business
While the DFCC Group is active in a broad and diversified range of financial services, the largest contribution to its profits and assets is from the core Banking Business, which recorded a robust performance on all fronts when regarded with the comparable period.
During the current period, net interest income increased by 9.4% to LKR 3,831 million from LKR 3,503 million in the comparable period while net fee and commission income grew by 14.7% to LKR 600 million from LKR 523 million. Other income is largely in the form of dividends derived from the investment in Commercial Bank of Ceylon PLC supplemented by dividend from other equity securities classified as available-for-sale. In the current period, dividend income was LKR 569 million compared to LKR 558 million in the comparable period.
The impairment allowance during the current period was LKR 644 million compared to LKR 531million in the comparable period. The increase in the impairment charge during the period was as a result of provisions made on account of two large exposures based on available objective evidence.However, recovery processes are being pursued to minimize any actual losses that may arise from such exposures. The ratio of impaired loans to total loans as at 30 June 2016 was 5.5% compared to 5.1% % as at 31 December 2015. The cumulative allowance for impairment for loans and advances was maintained at a healthy level of 70% of impaired loans and advances as at 30 June 2016.
Operating expenses were LKR 2,178 million in the current period, a decrease of 7% over LKR 2,344 million in the comparable period. Stringent cost control and efficiency measures will continue to remain a priority in the Bank’s operations. The improved operating metrics enabled DFCC’s Banking Business to post a profit after tax of LKR 1,600 million in the current period, which is a growth of 14.9% from LKR 1,393 million recorded in the comparable period.
Investments
Listed shares are classified as available for sale and carried at fair value. Fair value changes that represent unrealized gains/loss are recognized in other comprehensive income. During the current period ended 30 June 2016, due to declining share market conditions, the available for sale securities recorded a fair value loss of LKR 2,943 million. In the comparable period, the fair value loss was LKR 1,247 million.
Equity Capital
Under SLFRS, the total income for the period comprises the income reported in the income statement and other comprehensive income. The equity capital is significantly augmented due to the recognition of net unrealized gain on the ordinary shares listed in the Colombo Stock Exchange and owned by the Bank at fair value.
Prudential Indicators
DFCC remains as one of the best capitalized Banks in the industry with a Group Tier 1 capital adequacy ratio of 14.50% and a total capital adequacy ratio of 14.18%, which are well above the regulatory stipulated levels. The regulatory capital computation excludes fair value changes on financial assets classified as available for sale.
Arjun Fernando
Chief Executive Officer
08 August 2016
