Core banking performance strong as bank’s new loans, new deposits robust

DFCC Bank PLC reported strong top line growth supported by robust core banking performance during its September quarter (3Q17) on strong loan growth but the bottom line was hampered due to a multitude of factors.

 
The development lender-turned commercial bank reported Rs.427.4 million net profit for the quarter under review, compared to Rs.953.8 million for the same period last year. This was a decline of 55 percent year-on-year (YoY).

The bottom line performance was hurt by fair value losses in respect of forward exchange rate contracts, higher credit costs and overheads, predominantly the staff cost.

The fair value losses from the forward contracts held with other commercial banks and the Central Bank amounted to Rs.836.8 million against just Rs.66.8 million loss for the similar period last year.
Meanwhile, higher provisions made against possible bad loans also rose sharply during the quarter from a year ago.

While the specific provisions rose by 38 percent YoY to Rs.314 million, the general provisions rose to Rs.183.3 million from just Rs.23.4 million provided against the profit during the same quarter last year.
This is on the back of a strong growth in loans and receivables as the bank on a standalone gave out Rs.17.7 billion in new loans during the nine months to September, recording an increase of 9.2 percent.

The bank has a total loans and receivables book of slightly above Rs.210 billion and the bank grew its assets by 11 percent to Rs.322.7 billion during the period.

The asset quality was hurt slightly as the gross non-performing loan ratio rose to 
3.24 percent from 2.97 percent at the start of the year.

For the quarter, the banking group increased its net interest income by 22 percent to Rs.2.94 billion albeit the faster growth in interest expenses against its corresponding income.

However, the bank managed to increase its net interest margin to 3.6 percent from 
3.3 percent.

Although the low-cost deposit base is still 17 percent, the lowest among the licensed commercial banks, the bank in a statement said it “continues to enjoy medium to long-term concessionary credit lines, which has helped the bank to maintain low cost of funds.

When considering these funding lines and the low-cost deposits, the ratio improves to 26.5 percent in September 2017”.

Development lenders such as DFCC Bank still has the luxury of receiving concessionary credit lines from mainly multi-lateral lenders such as the World Bank and Asian Development Bank although in recent times the availability of such funds have become scarce.

Meanwhile, the bank managed to mobilize new deposits of Rs.46.7 billion during the nine months, recoding a strong growth of 33.2 percent.

On a quarter-on-quarter basis, deposits grew by Rs.18.8 billion or 11 percent.

The total overheads rose by 23.4 percent year-on-year to Rs.1.44 billion of which the employment cost rose by the highest percentage of 34 percent. 

Meanwhile, the bank on a standalone basis, made a gain of Rs.1,073 million on the sale of shares of Commercial Bank it held under the available-for-sale financial assets.

As a result, the total gain from financial investments for the nine months rose to Rs.1.68 billion at group level, which also included the dividend income received from its group entities and other investments, from Rs.736.7 million gain in the same quarter last year.

For the nine months, the banking group reported earnings of Rs.3.34 billion or Rs.12.59 a share, compared to Rs.2.66 billion profit or Rs.10.02 a share in the same period last year with an increase of 26 percent.

The Sri Lankan government controls a 33.54 percent stake in DFCC through Bank of Ceylon, Sri Lanka Insurance and the Employees’ Provident Fund.
Hatton National Bank remains the second largest shareholder with a 12.22 percent stake.