August, 9, 2021
Despite the unprecedented challenges faced due to the pandemic resulting in volatility and economic slowdown, DFCC Bank continued its commitment in serving its customers across the country to deliver high-quality uninterrupted banking services. This hard work is embodied in the global recognition that was received by Global Brands UK, awarding DFCC Bank as the ‘Most Trusted Retail Banking Brand and the ‘Best Customer Service Banking Brand in Sri Lanka for 2021 under the category of ‘’Banking and Finance”.
The Bank was able to achieve expected growth as a result in executing a focus strategy whilst retaining the purpose unchanged. The core objective being to help people and businesses prosper embracing change through technological transformation in order to continue to seize new opportunities that were posed as a result of the pandemic.
The Bank implemented several concessionary schemes to support Covid-19 stricken customers to emerge strong through numerous moratoriums, relief measures and advisory support services in accordance with the directives issued by the Central Bank of Sri Lanka.
DFCC Bank concluded the period ended 30 June 2021 with a sound performance and growth.
The following commentary relates to the unaudited Financial Statements for the period ended 30 June 2021, presented in accordance with Sri Lanka Accounting Standard 34 (LKAS 34) on “Interim Financial Statements”.
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).
DFCC Bank PLC, the largest entity within the Group, reported a profit before tax (PBT) of LKR 2,753 Mn and a profit after tax (PAT) of LKR 2,031 Mn for the period ended 30 June 2021. This compares with a PBT of LKR 2,163 Mn and a PAT of LKR 1,444 Mn in the comparative period.
The Group recorded a PBT of LKR 2,994 Mn and a PAT of LKR 2,237Mn for the period ended 30 June 2021 as compared to LKR 2,566 Mn and LKR 1,803 Mn respectively in the comparative period of year 2020. All the member entities of the Group made positive contributions to this performance.
The basic earnings per ordinary share (EPS) of the Bank improved to LKR 6.45 for the period ended 30 June 2021 from LKR 4.75 for the comparative period in year 2020 recording an increase of 36%.
The Bank’s Return on Equity (ROE) improved to 5.03% during the period ended 30 June 2021 from 4.93% recorded for the year ended 31 December 2020. The Bank’s Return on Assets (ROA) before tax for the period ended 30 June 2021 is 0.75% compared to 0.78% for the year ended 31 December 2020.
The Bank recorded LKR 5,601 Mn in net interest income (NII) which is a 5% decrease year on year primarily due to the drop in AWPLR more than 350 bps over the past 12 months as well as due to business implications that emerged due to the pandemic. In line with this trend and due to the time taken to reprice the existing deposits to reflect market trends, the interest margin also decreased from 2.53% in December 2020 to 2.37% in June 2021. With the repricing of the deposits to reflect the current market rates, the bank will be able to improve net interest margin in the coming months.
We witnessed a sizeable amount of economic activities being interrupted due to travel restrictions imposed to curb the spread of the pandemic during the current period affecting business momentum.
Due to bank staff and the branch network working continuously over the period has helped the bank to increase non-funded business. This effort was fruitful as it resulted in an increase in net fee and commission income to LKR 1,298 Mn for the period ended 30 June 2021 from LKR 905 Mn in the comparative period. Other operating income has increased mainly due to increase in dividend income and gain on the sale of fixed income securities during the period ended 30 June 2021.
Impairment provision for the period ended 30 June 2021 was LKR 1,649 Mn compared to LKR 1,507 Mn in the comparable period. In order to address the potential future impacts of COVID- 19 on the lending portfolio, the Bank has made an adequate impairment provision as at 31 December 2020 by introducing changes to internal models to cover unseen risk factors in the highly uncertain and volatile environment including additional provisions made for the exposures to risk elevated sectors. While following the same method and basis, impairment provisions was increased in response to the third wave of the pandemic and related matters. However, with the best practices that were adopted in granting new credit and by providing proactive solutions to the impacted clients, the bank was able to report a NPL ratio of 5.46% in June 2021 compared to 5.56% in December 2020. As the interruptions due to COVID-19 pandemic might continue to be felt for some time, the Bank continues to monitor its loan portfolio and provisioning levels on a more regular basis.
During the period ended 30 June 2021, the Bank’s operating expenses increased from LKR 3,528 million to LKR 4,095 million compared to the corresponding period in the previous year mainly due to increase in transport cost provided to its staff due to restrictions in public transport and all other expenses incurred in keeping safe and healthy environment within Bank premises to support client engagements. During the year the Bank also created multiple channels to enhance the service delivery to customers through a strong digital drive providing access to uninterrupted banking services during these trying times. This resulted the increase in IT related expenses with the infrastructure upgrades. The process automation and workflow management systems introduced during this period facilitated effective cost control measures which resulted in managing the operating expenses at these levels.
Investments in equity securities and treasury bills and bonds (fixed income securities) are classified as financial assets and the change in fair value is recorded through other comprehensive income. Accordingly, a fair value gain of LKR 885Mn and a net fair value loss of LKR 2,486Mn were recorded on account of equity and fixed income securities, respectively. The increase in the share price of Commercial Bank of Ceylon PLC during the period mainly contributed to the reported fair value gain in equity securities. The movement of interest rates of treasury bills and bonds unfavourably resulted in the fair value loss of LKR 425 Mn during the period. A gain of LKR 2,062 Mn was recycled through the Income statement by disposing of selected treasury bills and bonds holding originally categorized under fair value through other comprehensive income (FVOCI) with the objective of cash flow management to support the loans and advance growth in line with its projections. The action also goes in tandem with the bank’s expectations on the domestic interest rate trend, going forward.
Despite the challenging business environment, the Bank continued its growth strategy by increasing both deposit and loan portfolio as at 30 June 2021. The loan portfolio grew by LKR 29,968 Mn to record LKR 331,877 Mn compared to LKR 301,909 Mn as at 31 December 2020 recording an increase of 10%. The Bank’s deposit base also experienced a growth of 5% recording an increase of LKR 16,167 Mn to LKR 326,194 Mn from LKR 310,027 Mn as at 31 December 2020. With the 5% increase in deposits and 10% increase in loans, DFCC Bank reported loan to deposit ratio of 102%. The Bank’s CASA ratio, recorded an impressive improvement to 34.77% which is one of the best in the industry. Funding costs of the Bank were also contained by using medium to long-term concessionary credit lines. When these concessionary term borrowings are considered, the CASA ratio improved to 39.85% as at 30 June 2021.
DFCC Bank continued its approach to tap local and foreign currency related long to medium- term borrowing opportunities to facilitate lending to deserving segments of the market whilst maintaining a quality portfolio.
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 2021, the Bank has recorded Tier 1 and total capital adequacy ratios of 9.90% and 14.20%, respectively which is well above the minimum regulatory requirements of 8% and 12% including capital conservation buffer of 2%. The Bank’s Net Stable Funding Ratio was 111.13%, which is well above the regulatory minimum of 90%. These strong capital adequacy and liquidity levels are a clear affirmation of the Bank’s stability.
Considering all the above positive factors, Fitch Ratings Lanka Limited recently reaffirmed DFCC Bank’s rating at 'A+(lka)'; Outlook Stable.
“Ensuring that we run our business responsibly delivering profit with purpose DFCC Bank will always place our customers in the forefront of everything we do. As a customer centric, digitally enabled bank we will continue to be our customers source of stability and deliver value through an unmatchable top-of-the-line customer experience.
Despite the unprecedented challenges faced due to the ongoing pandemic, staff of DFCC Bank will continue to work with commitment to combat the negative socio-economic effects that have impacted our customers and assist them to ascent through sound financial solutions. We will continue to introduce banking services that put safety and security at the forefront and ensure that our internal processes are aligned to these same principles to serve our customers better.
We have a strong asset base to be deployed, but none is more important than the loyalty we earn from customers, not just by keeping their money and their data safe, but by offering products and services that meet their financial needs. This loyalty generates both more predictable returns and insight, enabling us to continue to improve our service”
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