DFCC Bank 4Q hampered by margin pressure and forex translation losses
The pressure on margins from higher funding cost and the foreign exchange translation losses eroded the profits at DFCC Bank PLC as the project lenderturned commercial bank resisted to reverse the fallout from the rising non-performing loans in 2018.
The December quarter (4Q18) interim financial accounts filed by the bank to the Colombo bourse yesterday showed its total operating income falling 48 percent year-onyear (YOY) to Rs.1.9 billion for the October-december quarter (4Q18).
The net interest incomes fell 23 percent to Rs.2.40 billion on the back of 16 percent increase in the interest expenses, which surpassed the growth in the interest incomes by a larger margin.
The interest income growth for the quarter rose 2.0 percent YOY to Rs.9.23 billion and the interest expenses were Rs.6.83 billion.
The net interest margin fell to 3.5 percent from 3.6 percent in contrast to most other mainstream banks, which stretched their margins helped by the rising interest rates.
When the interest rates in the economy rise, the banks price their existing and new loans higher, which outweigh the increase in the rates that they offer on their deposits.
However, DFCC Bank, which still has a larger project loan portfolio, may not have had the luxury of repricing its term loan facilities, which have either been granted at fixed rates or linked to the government’s interest subsidy schemes.
The lender still has the access to long-term concessionary credit lines, which many of the other commercial lenders do not have.
The bank said its low-cost current and savings account (CASA) portfolio was 21.8 percent by December end, which further goes up to 28.6 percent when these concessionary funds are added.
Meanwhile, the bank reported earnings of Rs.1.42 a share or Rs.375.3 million for the three months ended December 31, 2018, compared to Rs.5.84 a share or Rs.1.03 billion in total earnings reported for the corresponding period a year ago.
For the full year (FY18), the bank reported Rs.11.36 a share or Rs.3.01 billion in total earnings, compared to Rs.16.45 a share or Rs.4.36 billion in the previous year.
The bank’s net other operating income turned a loss of Rs.3.02 billion for the year due to a Rs.4.3 billion loss made from foreign exchange translation.
However, the bank made Rs.2.7 billion gain from forward foreign exchange contracts.
The bank provided Rs.1.1 billion under provisions against individually significant customers in 2018, up from Rs.724.4 million in 2017.
However, the collective impairments showed a reversal of Rs.92.8 million from a provision of Rs. 405.9 million in 2017.
This is despite the changes to the provisioning model under IFRS 9 on financial instruments, which typically results in substantially higher impairments.
The bank gave Rs.40 billion in loans and raised Rs.48.9 billion in new deposits during 2018, increasing each portfolio by 18 percent and 25.3 percent.
The bank also raised Rs.7.0 billion from subordinated debt.
The bank in January announced two for five share rights issue at Rs.72 a share to raise Rs. 7.63 billion to support its equity and future growth.
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 has 12.22 percent in DFCC Bank being the second largest shareholder.