DFCC Bank disposes part of sovereign bond holdings in June

• Reports Rs. 1.85 bn earnings in 2Q24
• Records net interest income of Rs.6.72bn for the quarter

DFCC Bank PLC has sold part of its sovereign bond holdings they held in their balance sheet in the quarter ended June even before a provisional deal with the bond holders gets finalised.

The bank releasing their interim report for the June quarter disclosed that they had disposed of part of their sovereign bond holdings, making a loss of Rs.2.2 billion which was however more than offset by the impairment reversal of Rs.2.4 billion set aside for the bonds sold.

While it wasn’t immediately clear why the bank decided to trim its exposure before a debt deal is reached which could potentially be more advantageous to the bank, it cannot be ruled out the bank would continue to trim its sovereign bond exposure in the ensuing quarters, irrespective of how the final bond restructuring would look like.  

The bank reported earnings of Rs.4.31 a share or Rs.1.85 billion for the April – June quarter, broadly flat from the same period in 2023.

The top-line performance was underwhelming as the bank’s net interest incomes came down amid narrowing margins.

This is despite a growth in loans by a modest 2.7 percent or Rs.10.5 billion growth in loans for the whole of six months ended in June.

The bank reported a net interest income of Rs.6.72 billion for the quarter, down 6 percent from a year ago. Amid declining market interest rates, the bank’s net interest margin shrank to 4.31 percent by the end of June from 5.18 percent at the start of the year.

“In line with the eased monetary policy stance of Central Bank, market interest rates  continued to adjust downwards,” the bank said in an earnings release.

But the bank, perhaps in a reference to the overall industry lending rates said that the downward adjustment to the lending rates remained weaker compared to the downward adjustment to the deposit rates.

“The bank has reduced lending and deposit rates in line with the prevailing accommodative monetary policy stance. As a result, the lending portfolio has increased by 3 percent as of 30 June 2024”, they added.

Nevertheless, the profitability comparable with last year’s levels was only possible from the substantially lower provisions against possible loan losses.

The bank provided Rs.1.11 billion for possible loan defaults, sharply down from Rs.3.11 billion provided in the same period last year as the bank became more confident about the prospects of the economy.

The bank’s impaired loans ratio narrowed to 6.89 percent from 7.03 percent during the six months, reflecting improved quality of the loan book.

The fee and commission incomes rose by 6 percent to in the quarter largely supported by card related commission incomes.  

The higher staff benefits and the inflationary impacts have driven the bank’s operating costs higher by 42 percent to Rs.3.84 billion for the quarter. This is unlikely to repeat in the coming quarters as inflation too remains soft.

The bank’s CEO, Thimal Perera said they remain ready and willing to support the economic recovery, capitalising on the favourable macro-economic trends.