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The DFCC Group yesterday announced a Profit Before Tax of Rs. 4,036 million and Profit After Tax of Rs. 2,693 million for the nine months ended 30 September 2018 as compared to Rs. 4,377 million and Rs. 3,391 million respectively in the comparative period in 2017.
DFCC Bank, the largest entity within the group, recorded an increase in Profit Before Tax and Profit After Tax of 11% and 1% respectively compared to the previous corresponding period after adjusting for the exceptional gain from the sale of Commercial Bank equity shares reported in the previous period, despite substantially higher impairment and taxation provisions.
However, the reported Profit Before Tax of Rs. 3,792 million and Profit After Tax of Rs. 2,530 million reflects a decline of 13% and 26% respectively compared to the corresponding period of 2017 after the exceptional gain is accounted for.
Operating income
The bank recorded a healthy growth of 22% in Net Interest Income to Rs. 10,020 million from Rs. 8,228 million mainly as a result of the net portfolio growth of Rs. 40,725 million in loans and receivables year-on-year and the prudent management of asset and liability re-pricing. The overall net interest margin (NIM) improved from 3.6% in 2017 to 3.8% by the end of the third quarter of 2018, based on the total assets of the bank.
Further, a growth of 28% was recorded in fees and commission income to Rs. 1,422 million from Rs. 1,110 million in September 2017.
Total Operating Income increased to Rs. 11,609 million compared to Rs. 10,638 million in the comparative period.
Operating Expenses
DFCC Bank continued to penetrate the market by extending its branch network, conducting extensive business promotions including a new savings campaign and by investing in innovative products and IT system modernisations that have contributed towards expanding delivery channels and improving service deliverables.
The bank has added seven-fledged branches to its branch network during the nine-month period. This largely contributed to the increase in Operating Expenses to Rs. 4,870 million from Rs. 4,190 million (16%) in the comparable period.
Impairment
The impairment provision during the period increased to Rs. 1,898 million compared to Rs. 1,017 million in the comparable period. However, recovery processes are being rigorously pursued to minimise any actual losses that may arise from such exposures.
The bank’s NPL ratio moved up slightly to 3.26% as at 30 September 2018 from 3.14% recorded in June 2018 as a result of adverse environmental conditions that prevailed during this time. The ratio has however been managed at a lower level than the industry average (3.6% as at September 2018).
Other Comprehensive Income
Listed shares, unit trust investments, investments in treasury bills and bonds are classified as available for sale financial assets and carried at fair value. Due to the declining trend in the equity market, a fair value loss of Rs. 3,381 million on account of the available for sale equity securities was recorded in Other Comprehensive Income.
Furthermore, the Fixed Income securities recorded a fair value loss of Rs. 692 million. The regulatory change in implementation of tax with effect from 1 April 2018 for Treasury Bills and Bonds adversely affected the market prices of Treasury Bills and Bonds.
Statement of financial position Assets
Reflecting its financial stability, DFCC Bank’s Total Assets grew by Rs. 56,287 million year-on-year to Rs. 378,967 million, which is a 17.4% growth compared to September 2017, while the bank’s loans portfolio grew by Rs. 40,725 million to Rs. 243,401 million compared to Rs. 202,676 million as at 30 September 2017, which is a growth of 20% year-on-year.
Liabilities
The bank’s deposit base reported a substantial increase to Rs. 230,818 up 23.3% from Rs. 187,171 million in September 2017, reflecting the customers’ trust and confidence in the bank. The growth in customer deposits during the 2018 period was Rs. 37,511 million (19%).
The bank’s CASA ratio, which represents low-cost deposits over the total deposits of the bank, was 20.1% as at 30 September 2018. DFCC bank continues to enjoy medium to long-term low-cost borrowing lines that helped to reduce the funding cost. When these term borrowings are added to deposits, the ratio improved to 27.7% as at 30 September 2018.
Capital management and investor returns
DFCC Bank consistently maintains capital ratio above the Basel III minimum capital requirements. As at 30 September 2018, the Group’s Tier 1 capital adequacy ratio stood at 10.722% while the total capital adequacy ratio stood at 16.067%.
DFCC Bank recorded tier 1 and total capital adequacy ratios of 10.360% and 15.732% respectively as at 30 September 2018. These ratios are well above the minimum regulatory requirements of 7.875% and 11.875%.
Return on Equity (ROE) at the bank level was 6.8% for Q3 2018, which is an increase from the 6.2% recorded in Q2 2018.
Other achievements
During the quarter, DFCC Bank was recognised as one of the Top 10 Most Admired Companies in Sri Lanka in 2018 by the Chartered Institute of Management Accountants (CIMA) and the International Chamber of Commerce Sri Lanka (ICCSL), which is a testament to the bank’s superior customer service, financial stability ethical practices and contribution towards the economy over 63 years, CEO Lakshman Silva said: “2018 has been a year where we did some crucial changes in terms of our structure and processes in order to ensure that we have a strong foundation in place as we keep growing as a fully-fledged commercial bank. Despite the worsening trend in NPL, DFCC has managed to maintain its NPL ratio below the industry average and increase its net interest margins. We reached many milestones during the year and are hopeful that we will see the results emerging in terms of growth in profits over the short term. We are also happy to note that Fitch Rating recently reaffirmed DFCC’s rating as AA-(lka)/Stable.
“We remain focused on generating improved returns and value for all our stakeholders through expansion of the branch network, introduction of new and innovative products and enhancing internal capabilities. The bank is investing heavily in our digital capabilities, keeping pace with the Fintech developments in the market. Supported by a solid foundation of customer trust and unwavering commitment to excellence, the bank is now on track for future growth.”
