DFCC Group records a PAT of Rs.1.8bn for 1H 2020

August, 12, 2020

  • Advances grew by LKR 19Bn to 292 Bn (7% growth)
  • Deposits grew by LKR 30 Bn to 278 Bn (12% growth)
  • DFCC Group recorded a PAT of LKR 1.8Bn for the first half of the year 2020 Impairment charge of 1.5Bn for the first half of the year 2020
  • Tier I Capital ratio of the Bank is 11.14% as at 30 June 2020

The DFCC Group comprising DFCC Bank and its subsidiaries recorded a Profit After Tax (PAT) of Rs. 1,803 Million for the period ended 30 June 2020 compared to Rs.906 Million (after fair value loss on investment in Commercial Bank equity securities) in the comparative period.

Contributing to efforts by the Sri Lankan government to manage the impact of COVID-19 global pandemic, DFCC Bank continued to serve the Bank’s customers across the country by providing essential banking services without interruption during the lockdown period. Throughout this challenging times due to the Banks Digital footprint customers experienced greater convenience as they were able to conduct their financial transactions in the comfort of their home at any time convenient to them.

The Bank also implemented a number of relief schemes in line with Government directives to support those customers affected as a result of the pandemic.

Profitability

DFCC Bank, the largest entity within the group, was able to record a profit after tax (PAT) of LKR 1,444 Million for the period ended 30 June 2020 in comparison to profit after tax of LKR 737 Million recorded in the comparative period. However, profit recorded in the comparable period includes the fair value loss on investment in Commercial Bank’s equity securities of LKR 851 Million. With the view of concentrating on core banking profitability, the Bank has reclassified the investment made in the equity securities of Commercial Bank of Ceylon PLC from fair value through profit or loss to fair value through other comprehensive income with the option given in the “Guidance Notes on Accounting Consideration of the COVID-19 Outbreak” issued by the Institute of Chartered Accountants of Sri Lanka. This reclassification helped the Bank to refocus its efforts to ensure core business profitability. The Group recorded a profit after tax of LKR 1,803 Million for the period ended 30 June 2020 compared to LKR 906 Million (after fair value loss on investment in Commercial Bank equity securities) in the comparative period.

NII and fee income

The Bank recorded a LKR 5,919 Million in net interest income (NII) which is an 8% decline year on year primarily due to a drop in AWPLR more than 250 bps over the past 12 months and due to the business implications that arose after 18 March 2020. The slowdown of the economic activities due to COVID- 19 and relief measures introduced have had serious implications to the fee and commission income of the Bank. However, the concentrated effort to increase non-funded business has helped to minimize the impact only with a 3% reduction to LKR 962 Million for the period ended 30 June 2020 from LKR 993 Million in the comparative period due to the adverse impact of the COVID-19 pandemic.

Operating Expenses

The Bank was able to maintain operating expenses to the same level during 6 months period ended 30 June 2020 compared to comparative period in year 2019 despite the growth strategy of expanding branch network operations adopted by the Bank. In addition, the Bank has introduced many safety measures across the branch network in order to provide a seamless service to customers and to secure and safety environment to the employees and all stakeholders. Investments have also been made in introducing digitally enabled products and services to the local market, which in turn have helped the Bank to provide an uninterrupted service to its loyal customers, especially during the COVID-19 lockdown period and after reopening of the economic activities.

Impairment

The Bank maintained the NPL ratio of 4.85% as at 30 June 2020 which is same level compared to 31 December 2019. Borrowers who have applied for the moratorium had not commenced the repayments of their facilities as at 30 June 2020. Due to the lack of reliable information with regards to the impact of COVID-19 on its loans and advances portfolio at the reporting date and as the impact of the economic downturn cannot be reasonably estimated yet, the Bank has considered the long-term economic trend in calculating the impairment provision for the period in line with the guideline issued by the Institute of Charted Accountants of Sri Lanka. With the reopening of the economy and concessions offered to its clients, the Bank expects majority of the borrowers to service the facilities regularly after the moratorium periods. Notwithstanding the same, the Bank has made LKR 1,507 Million impairment charge for the 6 months period ended 30 June 2020 by taking into account some of the possible impairment of exposures once the moratorium is over.

Business Growth

Despite the challenges faced by the Economy and Banking Sector during this period, DFCC Bank’s total assets increased by LKR 30,302 Million and recorded a growth of 7% from December 2019. This 3 constitutes a loan portfolio growth of LKR 18,841 Million to LKR 291,659 Million compared to LKR 272,818 Million as at 31 December 2019 recording an increase of 7%. The Bank’s deposit base as at 30 June 2020 increased to LKR 277,722 Million from LKR 247,787 Million as at 31 December 2019, which is a growth of 12%.

Accordingly, the Bank reported a loan-to-deposit ratio of 105% in June 2020 compared to 110% in December 2019. The Bank’s CASA ratio which represents the proportion of low-cost deposits declined to 21.32% by 30 June 2020 compared to 22.72% in December 2019. The Bank’s advance portfolio is partly funded through long-term concessionary credit lines enjoyed over a long period of time. When these concessionary term borrowings are considered, the ratio increased to 26.77% as at 30 June 2020.

Capital Management

As per the relief measures introduced by the Central Bank of Sri Lanka, banks were permitted to release 50 basis points from the capital conservation buffers maintained to date. The bank expects the debt moratorium and concessionary working capital loans introduced by the Central Bank of Sri Lanka, to help the businesses to recommence their operations and reach to normalcy soon. However, reduction in the cash flows from moratorium and delayed payments by customers who did not enjoy moratoriums would likely to contribute a negative impact on the earnings, cash flows and liquidity position of the Bank. Based on the internal assessment undertaken by the Bank, there is no significant adverse impact to the regulatory capital ratios maintained by the Bank. In order to support future growth as a full-service retail bank, the Bank has consistently maintained a capital ratio above the Basel III minimum capital requirements. As at 30 June 2020, the Bank recorded Tier 1 and total capital adequacy ratios of 11.14% and 15.34%, respectively, which is well above the minimum regulatory requirements of 8% and 12% including Capital Conservation buffer of 2%.

Looking ahead DFCC Bank will continue to focus on customer centricity and introduce unique digital innovations that will revolutionize greater customer experience and convenience in banking. In addition, the Bank will continue to monitor the business environment and the global trends in order to support the Government initiatives to manage the economic landscape in the country amidst COVID19.

The DFCC Group comprises of DFCC Bank PLC (DFCC), and its subsidiaries – Lanka Industrial Estates Limited (LINDEL), DFCC Consulting (Pvt) Limited (DCPL) and Synapsys Limited (SL), the joint venture company – Acuity Partners (Pvt) Limited (APL) and associate company – National Asset Management Limited (NAMAL).

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