DFCC Bank Sept. profits surge amid solid core banking performance

• But slowdown in loans, rising credit costs witnessed
• Govt. institutions have over 33% stake in DFCC  

DFCC Bank PLC registered some solid performance in core banking for the September quarter (3Q18), but showed clear slowdown in new loans during the period while quality of some of the assets weakened. 

The banking group reported 18 percent year-on-year (YoY) growth in net interest income for the three months under review to Rs. 3.47 billion as the bank had generated revenues from faster loans growth during the first two quarters.

However, during the September quarter, the bank only gave loans worth of Rs.7.3 billion, a clear deceleration from the Rs.23.6 billion growth reported up to June. 
By the end of September, 2018, the bank had a loan book of Rs.252.2 billion, which had expanded by 14 percent. 

Meanwhile, during quarter under review, the bank reported a net operating income—total operating income minus credit costs but before any operating expenses—of Rs. 3.51 billion, up 46 percent YoY. 

The bank reported earnings of Rs.3.06 a share or Rs.810.8 million for the quarter, up 90 percent YoY.

However, the DFCC Bank share closed 20 cents lower at Rs.97.40 on Friday.  

The bank has stepped up its deposit raising efforts as new deposits had risen by as much as Rs.22.9 billion during the three months, much higher than the Rs.14.6 billion raised during the entire first half. 

The bank raised Rs.7.0 billion in Basel III compliant Tier II eligible debentures earlier this year to strengthen its capital base while growing its loan book. The bank has further raised about Rs.7.0 billion in medium to long-term borrowings. “DFCC bank continues to enjoy medium to long term low cost borrowing lines that helped to reduce the funding cost”, the bank said in an earnings release. 

DFCC Bank, once a project and development lender, transformed itself into a fully-fledged commercial bank after it fully merged with its commercial banking subsidiary, DFCC Vardhana Bank in 2015. 

The bank has a net interest margin of 3.8 percent, up from 3.6 percent at the beginning of 2018. 

The asset quality of the bank weakened as the gross non-performing loans ratio rose to 3.26 percent from 2.77 percent by end of December 2017. 

Meanwhile, for the nine months ended September 30, 2018, the bank reported earnings of Rs.9.94 per share or Rs.2.64 billion, down 21 percent YoY as the bank booked a hefty capital gain from the sale of its stake held in Commercial Bank of Ceylon PLC in the corresponding period in 2017. 

During the nine months, the bank earned Rs.10.1 billion in net interest income, up 22 percent YoY.

As at September 30, 2018, the Sri Lankan government held 33.54 percent stake in the DFCC bank through Bank of Ceylon, Sri Lanka Insurance Corporation and Employees’ Provident Fund, while Hatton National Bank had 12.22 percent stake being the second largest shareholder.