Higher provisions, slower credit growth dent DFCC Bank’s 1Q
The slowdown in new loans and higher provisions against the possible bad loans dampened the core banking performance of DFCC Bank PLC, while the higher operating cost, foreign exchange conversion losses and losses incurred from hedging foreign exchange contracts hurt the banking group’s first quarter profit.
Releasing the interim accounts for the January-march period (1Q18), the development lenderturned commercial bank reported earnings of Rs.4.19 cents a share or Rs.1.09 billion compared to Rs.4.91 cents a share or Rs.1.29 billion profit in the same period last year, which translated into a 16 percent year-on-year (YOY) decline.
The operating profit before taxes declined by 5.0 percent YOY to Rs.1.91 billion.
The total operating incomes rose by 16 percent YOY to Rs.4.17 billion, despite the foreign exchange conversions and hedging losses as core-banking performance remained modestly strong. The net interest income rose by 29 percent YOY to Rs.3.36 billion amid a relatively slow growth in new loans. Higher margins were seen largely buttressing the top line growth supported by fee incomes, which grew by 27 percent YOY to Rs.434.4 million.
The bank on a stand-alone basis granted new loans worth Rs.9.5 billion registering a growth of 4.3 percent and the net interest margin rose to 4.0 percent from 3.6 percent a year ago.
Meanwhile, the quality of the loan book weakened as the non-performing loans increased. The gross non-performing loan ratio rose to 3.12 percent from 2.77 percent in December 2017.
The bank has a loan book of Rs.231 billion and an asset portfolio of Rs.351.5 billion, up 6.0 percent from December 2017.
DFCC Bank’s loan growth and the NPL ratio provide a close proxy for how the industry fared during the first quarter in both matrices.
The industry loans slowed while the gross NPL ratio rose to a three-year high of 3.0 percent by end-february 2018.
Meanwhile, the bank’s provisions made against the individual client facilities rose to Rs.333.6 million in March from Rs.211.4 million in March 2017.
The collective impairments or the provisions made against the entire loan portfolio were at Rs.228.9 million against a reversal of 44.3 million during the corresponding period last year.
Meanwhile, the deposit growth too languished with a 3.7 percent growth or Rs.7.2 billion.
The total deposit base of the bank is Rs.201 billion of which 19.55 percent is current and savings accounts, down from 21.26 percent in December 2017.
This October, the bank is due to retire the US $ 100 million notes it raised in 2013 when the then government used the two development lenders as proxies for government borrowings.
Meanwhile, the bank raised Rs.7.0 billion in BASEL Iii-complaint debentures this year, to support its capital levels.
DFCC Bank recorded Tier I and total capital adequacy ratios of 12.07 percent and 17.88 percent, respectively, as at March 31, 2018, compared to Tier I and total capital adequacy ratios of 12.68 percent and 16.13 percent, respectively, as at December 31, 2017.
The government holds a little over 35 percent stake in DFCC Bank through Bank of Ceylon, Sri Lanka Insurance Corporation, the Employees’ Provident Fund and Employees’ Trust Fund.
Hatton National Bank PLC has a 12.22 percent stake in DFCC Bank being the second largest shareholder.