DFCC Bank 4Q earnings impacted by higher provisions, Fx losses & expenses

• However, for FY21 the bank reported increased earnings of Rs.3.55bn

DFCC Bank PLC profits fell sharply during the three months to December on higher loss provisions, personal costs and foreign exchange revaluation losses but the margins improved with rising interest rates, a trend which is expected to hold this year.

The development lender turned commercial bank reported net interest income of Rs.3.96 billion for the October – December 2021 quarter, up 61 percent from the same period a year ago as the bank’s loans grew and funding costs declined with the low cost funds raised during the year. As a result, the bank’s net interest margin expanded to 2.66 percent by the year-end from 2.53 percent at the start of the year.

 While the rising interest rates could slow down the growth in new loans and could pressure asset quality somewhat, banks could reap higher earnings coming from stretched margins.   

The bank gave loans worth Rs.67.7 billion during 2021, out of which Rs.11.2 billion was given in the final three months, substantially slowing down from the previous quarter.

The banking sector was off to a flying start during the first quarter of 2021 before the virus resurgence got in the way in the remainder of the year with lockdowns and prolonged restrictions.

The bank reported earnings of 72 cents a share or Rs.230 million for the quarter under review, compared to Rs.2.59 a share or Rs.716.5 million in the same period in 2020. This translated into a 68 percent slump.

For the year ended December 31, 2021, DFCC Bank reported earnings of Rs.11.17 a share or Rs.3.55 billion compared to Rs.9.00 or Rs.2.74 billion in 2020, recording growth of 29 percent.

The bank’s share ended Rs.3.10 or 5.07 percent lower at Rs.58.00 on Friday.

During the quarter under review, the bank’s fee and commission income grew 6.0 percent and made a negative net other operating income of Rs.884.7 million compared to a profit of Rs.216.9 million in the comparative period in 2020 as the bank booked a loss on revaluation of foreign exchange.

Typically the bank’s net other operating income is supported massively by the dividend income it receives from its stake in Commercial Bank of Ceylon PLC.  

Meanwhile, the bank’s provisions against both loans and advances, and other financial assets rose by 152 percent and 256 percent respectively to Rs.1.33 billion and Rs.595.4 million.

The bank’s gross non-performing loans ratio increased by 4 basis points during the year to 5.60 percent as opposed to 5.56 percent at the start of the year.

Meanwhile, the bank’s expenses on its personnel rose by 28 percent.

Another notable factor in the bank’s portfolio was the extremely slow growth in deposits as they grew by only Rs.9.83 billion. However, the bank raised funds from medium term credit lines. Further, the bank proposed to raise Rs.6.0 billion from a rights issue last week.

As at December 31, 2021, the government held 30.9 percent stake in DFCC Bank via Bank of Ceylon, Sri Lanka Insurance Corporation, Employees’ Provident Fund and Employees’ Trust Fund Board.