Loan losses hurt DFCC’s 4Q and FY 13/14 bottom lines
Development financier DFCC Bank PLC (Group) saw its net profits for the quarter ended March 31, 2014 (4Q14) declining by 12.7 percent to Rs.1.17 billion while its net profits for the year ended March 31, 2014 (FY 13/14) also decreasing by 9.7 percent from a year earlier to Rs.3.15 billion due to higher loan loss provisions.
Collective loan losses during 4Q14 surged to Rs.213.6 million from Rs.3.9 million while the figure rose 156 percent during FY 13/14 to Rs.621. 6 million.
Earnings per share (EPS) in 4Q14 deteriorated to Rs.4.42 from Rs.5.07 a year earlier while the EPS for the FY 13/14 dropped to Rs.11.89 from Rs.13.18 a year ago.
While past industry data show that these loan losses were manly driven by gold-backed loans (pawning), DFCC didn’t elaborate in the statement released to the media on what drove its massive impairment charges.
The group’s pawning loans has reduced by Rs.200 million during FY 13/14 to Rs.3.43 billion.
Meanwhile Fitch ratings last week issuing a banking sector credit outlook opined that the proposed credit guarantee scheme on pawning will help the banks to contain the large losses and thus reduce the buildup of NonPerforming Loans (NPL).
Despite the bottom line coming under pressure, the group’s top line demonstrated a significant growth, both during the quarter and the FY 13/14.
During 4Q14, interest income grew by 2.42 percent Year-on-Year (YoY) to Rs.4.64 billion and the interest expense grew by 2.75 percent YoY to Rs.2.62 billion resulting in a net interest income (NII) of Rs.2.0 billion – a growth of 1.0 percent from a year earlier.
For the FY 13/14, the interest income grew by 15.24 percent YoY to Rs.18.6 billion while the interest expense grew by 15.54 percent to Rs.10.56 billion with a NII of Rs.8.0 billion – a growth 14.3 percent respectively.
Meanwhile the banking group which includes the commercial banking unit DFCC Vardhana Bank PLC recorded a private credit growth of 14.2 percent to Rs.112.4 billion, higher than most other banks and the industry average for 2013.
Meanwhile loanable funds invested in other securities particularly the government securities also increased significantly. Both such short term and long term investments increased by 45 percent and 630 percent respectively to Rs.40.14 billion and Rs.1.14 billion respectively.
The deposit base grew by 29 percent YoY to Rs.80.8 billion while total asset base of the group grew by 17 percent to Rs.177.33 billion.
Last October, DFCC raised US $ 100 million (Rs.13.0 billion) through a 5-year international bond at 9.6 percent interest from which 75 percent of the foreign exchange risk is hedged by the Central Bank through a currency SWAP. However the bank was originally asked to raise Rs.250 million.
However, the financial statements showed that the bank had retired its existing debts amounting to Rs.9.4 billion.
Earlier in 2014, a further Euro 90 million was secured from a credit line of European Investment Bank.
The group core capital adequacy ratio remained at 18.7 percent against the statutory minimum limit of 5 percent while total capital adequacy ratio was at 17.2 percent against 10 percent statutory limit.
Meanwhile the directors have recommended to pay a final dividend of Rs.5.50 a share.
According to budget 2014, DFCC is required to amalgamate with its counterpart NDB Bank PLC, and both institutions recently entered in to a Memorandum of Understanding to work towards the proposed amalgamation.