DFCC Bank stands firm amidst challenges

Wednesday, 5 May 2021 00:27 -     - {{hitsCtrl.values.hits}}

  • Concludes quarter ended with sound performance and growth
  • DFCC Group recorded a PAT of Rs. 1.6 b in 1Q
  • Advances grew 4% or by Rs. 13 b to Rs. 315 b
  • Deposits up 1% or Rs. 2 b to Rs. 312 b

Chairman J. Durairatnam
CEO Lakshman Silva

In the backdrop of an extremely challenging environment supporting the efforts by the Government to uplift and stabilise the economy, DFCC Bank said yesterday it continued its committed service to customers across the country providing essential banking services without interruption during these challenging times.

DFCC Bank CEO Lakshman Silva said: “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,” he added. 

In a note accompanying interim results, DFCC Bank really swung in to 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.

DFCC Bank PLC, the largest entity within the Group, reported a profit before tax (PBT) of Rs. 1,915 million and a profit after tax (PAT) of Rs. 1,479 million for the quarter ended 31 March. This compares with a PBT of Rs. 1,295 million and a PAT of Rs. 925 million in the comparative period. The Group recorded a PBT of Rs. 2,036 million and PAT of Rs. 1,583 million for the quarter ended 31 March as compared to Rs. 1,408 million and Rs. 1,014 million 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 Rs. 4.80 for the quarter ended 31 March from Rs. 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 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 compared to 0.78% recorded for the year ended 31 December 2020.

Net Interest Income

The bank recorded a Rs. 2,679 million 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.

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 Rs. 651 million for the quarter ended 31 March from Rs. 548 million 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.

Impairment Charge on Loans and Other Losses

Impairment provision has decreased to Rs. 356 million for the quarter ended 31 March from Rs. 637 million 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 as there is no material change to the operating environment. 

The bank reported the NPL ratio of 5.53% in March 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, operating expenses increased from Rs. 1,751 million to Rs. 2,031 million compared to the corresponding period in the previous year. Staff related provisions for year 2019 which were not utilised 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 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 Rs. 534 million and a net fair value loss of Rs. 1,131 million 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 unfavourably 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. The loan portfolio grew by Rs. 12,652 million to record Rs. 314,562 million compared to Rs. 301,909 million 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 Rs. 2,059 million to Rs. 312,086 million from Rs. 310,027 million 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. 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 utilising the excess funds to settle high cost short term borrowings.

Equity and compliance with capital requirements

The bank has declared a final dividend of Rs. 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, 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.

The DFCC Group comprises of DFCC Bank PLC (DFCC), and its subsidiaries – Lanka Industrial Estates Ltd., (LINDEL), DFCC Consulting Ltd., (DCPL) and Synapsys Ltd., (SL), the joint venture company – Acuity Partners Ltd., (APL) and associate company – National Asset Management Ltd., (NAMAL).