DFCC 3Q profit soars on higher loans and trading gains

DFCC Bank PLC delivered some solid financial performance for the three months to September, as the bank continued to grow its loans while the trading of foreign exchange added a massive gain in the three months characterised by the extreme volatility in the domestic foreign exchange market.  

The development lender-turned commercial bank reported a net interest income of Rs.3.11 billion in the July-September quarter, up 17 percent from the same period last year while the interest expenses fell at a faster pace than the interest income. 

As a result, the net interest margin of the bank slightly narrowed to 2.41 percent, from 2.53 percent at the beginning of the year, as the prime lending rate climbed while there was a “time lag to reprice the existing deposits to match market trends”. 

The bank’s share ended at Rs.65.20 on Friday, down Rs.1.90 or 2.83 percent. 
Nevertheless, the bank expects the interest margin to expand in the coming months, with the upwards adjustments in the interest rates.  

“Since a large component of the portfolio, which are to be repriced based on variable rates and with the expected upward revision to average weighted prime lending rates, the bank would record a positive impact to the net interest margins in the coming months,” the banks said in an earnings release. 

The bank gave loans worth of Rs.56.52 billions in the nine months, accelerating towards the September quarter and made provisions worth of Rs.939.7 million in the quarter, 11 percent less than a year ago, although the bank adopted the same provisioning methods to that of the December 2020, due to the heightened credit and market risks stemmed from the fresh financial hardships faced by the borrowers since April this year, due to the re-emergence of the pandemic. 

The bank also managed to narrow its gross non-performing loans ratio to 5.18 percent, from 5.56 percent at the end of last year. 

The bank appeared to have made the most from the foreign exchange volatility prevailed during the three months, as it reported trading gains worth of Rs.678.6 million, compared to just Rs.64.7 million in the year earlier period.
Meanwhile, the fee incomes rose by 19 percent to Rs.630.8 million. 

Supported by the above, the bank reported earnings of Rs.3.64 a share or Rs.1.15 billion in the July-September quarter, compared to Rs.2.59 a share or Rs.278.4 million in the comparable period last year, translating into a massive 312 percent increase. 

In the nine months to September, the bank reported earnings of Rs.10.53 a share or Rs.3.32 billion, up 64 percent, from Rs.6.92 a share or Rs.2.03 billion last year. 

The nine-month profits were supported by a net interest income of Rs.8.72 billion, up 2 percent; fee incomes of Rs.1.93 billion, up 34 percent; trading incomes of Rs.775.3 million, up 132 percent; net gains from the de-recognition of financial assets of Rs.1.33 billion, up 333 percent and net other operating income of Rs.2.44 billion, comprising of the dividend income from its equity holdings and a sizeable foreign exchange revaluation gain, up 52 percent.  

However, the bank made a sizeable loss of Rs.937.1 million, up from a loss of Rs.444.7 million a year ago from the fair value changes in the forward foreign exchange agreements. 

The government controls a 31.61 percent stake in DFCC Bank through Bank of Ceylon, Sri Lanka Insurance Corporation, the Employees’ Provident Fund and Trust Fund while Hatton National Bank holds a 14.91 percent stake, being its single largest shareholder.