DFCC maintains a steady course despite turbulence

DFCC Bank yesterday said it has managed to maintain steady course in its financial performance and operations despite turbulent environment in the second quarter and first half ended on 30 June 2019.

In a statement DFCC said the core business of the Bank posted a profit before tax of Rs. 2,056 million and profit after tax of Rs. 1,588 million for the period ended 30June 2019 compared to profit before tax of Rs. 2,373 million and profit after tax of Rs. 1,837 million in the comparative period. After accounting for the one-off fair value loss on Commercial Bank of Ceylon PLC shares transferred to the trading portfolio, the bank reported a profit before tax of Rs. 1,205 million and profit after tax of Rs. 737 million in comparison to profit before tax of Rs. 1,843 million and a profit after tax of Rs. 1,308 million in the comparative period.  

Operating income

The bank recorded total operating income from core business amounting to Rs. 7,037 million for the periodended 30 June 2019 compared to Rs. 6,867in the comparative period in 2018 which is an increase of2%. After accounting for the impactofhigh fair value loss in the investment of Commercial Bank of Ceylon PLC, the operating income reflects a decline of 5%. Further, a growth of 4% was recorded in fees and commission income to Rs. 945million in period of six months in 2019 from Rs. 906 million in comparative period of six monthsin 2018. This is the outcome of a focus on non-funded business.

Operating expenses

DFCC Bank sustained its aggressive branch expansion, increasing its footprint in strategic locations from January to June 2019.Operating expenses increased from Rs. 3,175 million to Rs. 3,523 million (11%) compared to the corresponding period in the previous year. The recently opened Super Grade Branch at Lake House premises has become a significant customer touch point as it provides a greater customer experience with digitalised platforms. The DFCC MySpace, self-banking platform has been able to attract a significant number of new customers to this location dueto easy transaction facilities available 24x7/365 days of the year. 

Impairment

The bank’s impairment provision during the period ending 30 June 2019 was Rs. 476 million which is a reduction compared to a sum of Rs. 649 million provided in the comparable period.

The bank continued to identify 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 30 June 2019.

DFCC’s NPL ratio moved up to 4.63% as at 30June 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.

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 Rs. 2,015 million and net fair value gain of Rs. 1,789 million were recorded on account of equity securities and fixed income securities respectively. Thedrop in the share price of Commercial Bank of Ceylon PLCduring the period 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.Over the last few weeks Commercial Bank share price has seen a surge, and should this continue, we should see a reversal of the marked to market losses.

Statement of Financial Position Assets

Reflecting its measured growth strategy, DFCC’s Total Assets grew by Rs. 25,081 million to 

Rs. 399,988 million on 30June 2019, which is a 7% growth on 31 December 2018. Within this, the bank’s loan portfolio grew by Rs. 7,876 million to LKR 257,610million compared to Rs. 249,734 million as at 31 December 2018, which is a growth of 3%. The bank lent prudently and did not pursue aggressive growth particularly to sectors that exhibited stress.

Liabilities

DFCC’s deposit base experienced a growth of 5% recording an increase of Rs. 12,328 million toRs. 254,566 million from Rs. 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 an improved loan to deposit ratio of 101% in June 2019 from 103% in December 2018.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 30June 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 30.5% as at 30June 2019.

Capital management

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 30June 2019, DFCC recorded Tier 1 and total capital adequacy ratios of 11.40% and 16.59% respectively. Thanks to the Right Issue, the bank has improved Tier 1 and total capital adequacy ratio to well over the minimum regulatory requirements of 8.5% and 12.5% effective 2019. 

CEO’sstatement 

“We understood the importance of driving the core business across all customer segments and launched our new brand campaign ‘DFCC Bank for everyone’. In order to cater to these customer segments we have embarked on a journey that will offer digitally enabled agile platforms to provide an omni-channel customer experience. Furthermore, we will continue to keep adding value to all our shareholders, through customer centricity coupled with unmatched service excellence.

“We are thankful to our former Chairman Royle Jansz who relinquished his duties on 27 July for his inspirational leadership and dynamism that contributed to the success and growth of DFCC Bank.I would also like to take this opportunity to welcome J.Durairatnam as the new Chairman of DFCC Bank with effect from 28 July2019.”