DFCC Bank finds growth in a dull market, but profits halved on fair value losses on ComBank shares

Despite the setbacks suffered by the rest of the licensed banks, DFCC Bank PLC managed to survive some of the economic vagaries to keep its performance ticking during the quarter ended March 31, 2019, the lender’s interim financial accounts showed. 

The bank with little over Rs.390 billion assets gave Rs.12.2 billion worth of loans and raised Rs.6.4 billion in deposits with growth rates of 4.7 percent and 2.6 percent, respectively, during the first three months of the year. 

The lender reported Rs.3.3 billion in net interest income for the three months under review, up 10 percent over the same period, last year. 

The bank defended its net interest margin at 3.5 percent amid the rising funding cost. 

The total operating income however fell by 12 percent year-on-year (YoY) to Rs.3.36 billion, due to the trading losses of Rs.413.4 million, the bulk of which was coming from the mark-to-market losses from the shares DFCC Bank held in Commercial Bank of (Ceylon) PLC. 

Further, the bank incurred losses to the tune of Rs.2.28 billion from fair value changes in the forward exchange agreements with commercial banks.  Some of these non-fund base losses were offset by Rs.2.26 billion of net other operating income, which comprised of forex exchange translation gains and dividend income. 

The development lender-turned commercial bank reported earnings of Rs.2.23 a share or Rs.590.5 million for the three months under review, compared to Rs.4.16 a share or Rs.1.08 billion reported for the year earlier period.  The earnings adjusted for the one-off fair value losses from its shares in Commercial Bank came in at Rs.1.19 billion, compared to Rs.1.07 billion reported for the same period in 2018. 

The bank provided unusually low charge of Rs.23 million for possible bad loans during the three months to March 2019, compared to Rs.553.3 million in the corresponding period, last year. 

The bank said it recognised the loan-loss provisions based on the circular issued by the Central Bank on account of the small and medium enterprise loans, which prescribed some leniency in recognising possible sour loans. 

However, the bank’s asset quality waned as the gross non-performing loan ratio rose to 3.91 percent, from 3.28 percent in end-December 2018.  DFCC Bank’s right issue to raise Rs.7.6 billion by way of issuing 106 million new shares at Rs.72 a share to bolster its Tier I capital base, received a lukewarm response and the bank said it allotted only 39.09 million shares, which translated into only a 37 percent subscription rate. 

The government holds 35.04 percent in DFCC Bank via Bank of Ceylon, Sri Lanka Insurance Corporation, the Employees’ Provident Fund and Employees’ Trust Fund.  Hatton National Bank PLC has 12.22 percent in DFCC Bank being the second largest shareholder. .