DFCC posts Rs. 637 m profit after tax in 1Q

Chief Executive Officer 

Arjun Fernando

The DFCC Group has recorded a consolidated profit after tax of Rs. 637m for the three months

ended 30 June 2015 compared with Rs. 1,138m in the corresponding period of the previous

year (comparable period). 

The prior period included a one off adjustment due to a change to the impairment assessment process.

The Banking Business comprising the DFCC Bank (DFCC), a licensed specialized bank and its 99% owned subsidiary DFCC Vardhana Bank PLC (DVB), a licensed commercial bank contributed Rs. 643m to profit after tax. The contribution from all other subsidiaries, joint venture and associate company collectively was Rs. 1m.

BANKING BUSINESS

The Banking Business of the DFCC Group is undertaken by DFCC and DVB. Both banks function as one economic entity and as such it is appropriate to analyse the consolidated performance of the two banks as DFCC Banking Business (DBB). A consolidated Income statement for DBB has been released to the Colombo Stock Exchange as supplementary financial information.

This statement was derived from the interim financial statements. Since the financial year of DVB ends in December, the accounts of DVB are consolidated with a 3 month lag. 

DBB recorded a profit after tax (PAT) of Rs. 643 m during the current quarter. The PAT for the previous comparable period included an adjustment arising from a change to the impairment assessment processes which contributed Rs. 553 m to PAT. The PAT for the current period of Rs. 643 is an increase of 20% over that for the previous period excluding the one off adjustment.

Net Interest Income (NII) of DBB for the period increased by 4% from Rs. 1,693m to Rs. 1,757m. DBB also achieved a credit growth of 4% during the quarter to 30 June 2015. Net fee and commission income of DBB in the current period increased by 23% to Rs. 259m compared to Rs. 211m in the previous comparable period. Fee income is generated largely by DVB the commercial banking subsidiary from trade finance and commercial banking services.

The Gain on Sale of equity securities by the Bank was Rs. 37m compared to Rs. 100m in the

comparable period.

The forward exchange contracts are accounted as a derivative and its fair value changes are reported as net gain / (loss) from financial instruments at fair value through profit or loss in the income statement.

The cumulative allowance for impairment for loans and advances was maintained at a healthy level of 70% as a percentage of impaired loans and advances of DBB on 30 June 2015.

Due to stringent cost management DBB was able to contain the overall operating cost increases to only 9% over that of the comparable period. The main increase in operating cost was due to an increase in personnel cost as a result of a salary revision that was effected during the second half of last year. In common with banking industry, personnel cost is a significant proportion of the operating expenses.

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 period ended 30 June 2015, due to adverse market conditions the available for sale securities recorded a fair value loss of Rs. 669 m. In the comparable period the fair value gain was Rs. 2,289 m.

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 gain as a result of the recognition of shares listed in the Colombo Stock Exchange and owned by the bank at fair value.

PRUDENTIAL INDICATORS

The capital adequacy and liquidity ratios continued to be well above the stipulated regulatory minimum. The regulatory capital computation excludes fair value changes on financial assets classified as available for sale.