DFCC Bank in Rs.7.6bn cash call to bolster capital base

DFCC Bank PLC yesterday announced a rights issue to bolster its capital base, in view of supporting its growth projections, the bank said in a stock exchange filing. 

The bank’s board of directors at a meeting held early this week had decided to issue 106 million new shares in the proportion of two new shares for every five shares held, at a price of Rs.72.0 a share, to raise Rs.7.6 billion. 

The bank’s share ended Rs.7.00 lower, at Rs.82.10, at the end of yesterday’s trading. 

The stated capital of the bank as at January 21, 2019 was Rs.4.72 billion and the rights issue funds would put the bank’s capital base at over Rs.12.3 billion. 

The rights issue is subject to the approval by the bank’s shareholders and the Colombo Stock Exchange.  

DFCC Bank currently operates with a comfortable level of capital as its capital adequacy ratios stand well above the regulatory minimums.

As at September 30, 2018, DFCC Bank’s Tier I capital adequacy ratio stood at 10.360 percent and the Tier II capital ratio stood at 15.732 percent, when the regulatory minimums were 7.875 percent and 11.875 percent for each. 

However, starting from January 1, 2019, the minimum regulatory capital adequacy ratios rose to 8.5 percent and 12.5 percent, respectively, under the Tier I and Tier II capital ratios. 

The rights issue by the bank could be a pre-emptive measure to meet the likely Rs.20 billion minimum core capital base by a licensed commercial bank, by the end of 2020. 

Meanwhile, the minimum bar set for the Tier I and Tier II capital ratios automatically increases when the bank reaches the Rs.500 billion asset base, which is roughly a couple of years away. 

Such a bank is identified by the BASEL III accord as a systematically important bank and the two capital ratios also go up to 10 percent and 14 percent each. 

However, faster the bank expands its loans or risk weighted assets, higher the capital it requires. 

DFCC Bank had Rs.379 billion assets by September 2018. 

The government owns close to 34 percent of DFCC Bank through Bank of Ceylon, Sri Lanka Insurance Corporation and the Employees’ Provident Fund. 

For the nine months ended in September 2018, the bank reported earnings of Rs.9.94 a share or Rs.2.6 billion in total profits, down 21 percent from a year ago.