The DFCC Bank PLC group increased its June quarter (2Q16) net profits by 20 percent to Rs.747 million or Rs.2.82 a share from a year ago supported by stronger core banking operations, the interim financial accounts of the bank showed.
Despite the banking group increasing its net interest income (NII), the interest expenses were seen rising at a faster rate than the interest income due to the rising deposit costs.
The NII rose 15.8 percent year-on-year (YoY) to Rs.2.05 billion amid interest expenses rising 63.6 percent YoY. But the interest income rose by only 41.1 percent YoY.
The bank’s loan book grew only 4.1 percent or Rs.6.9 billion to Rs.173.4 billion during the six months ended June 30, 2016 (1H16) but the deposit growth surpassed the growth in advances.
Overdrafts rose by Rs.2.8 billion to Rs.26.8 billion while the bank’s gold-backed loans grew by Rs.220 million to Rs.1.75 billion.
The deposits recorded a growth of 8.3 percent or Rs. 9.2 billion to Rs.120.1 billion.
DFCC Bank was seen aggressively campaigning for deposits during the 1H16 but has failed to show results because the total deposits had been risen by only a single or by a few foreign currency fixed deposit/s worth Rs.10.9 billion.
The rupee deposits have in fact fallen by Rs.1.7 billion during the period.
The low-cost deposits measured by the current and savings account (CASA) ratio too have fallen sharply to 16.47 percent from 19.02 percent in December 2015.
These changes in funding mix and the rise in interest expenses outweighing the rise in interest income may have most likely dented the bank’s net interest margin, though the bank did not disclose its margin in its interim accounts.
The then development financier, DFCC Bank PLC merged with its fully-owned subsidiary DFCC Vardhana Bank Limited to form a fully-fledged commercial bank.
The group also consists of its subsidiaries Lanka Industrial Estates Limited, DFCC Consulting (Pvt.) Limited and Synapsys Limited (SL), the joint venture company Acuity Partners (Pvt.) Limited and the associate company - National Asset Management Limited (NAMAL).
Meanwhile, the group fee and commission income rose by a little under 10 percent YoY to Rs.295.3 million.
The net gain from the bank’s trading book increased to Rs.209.4 million from Rs.61.9 million but the unrealized losses of the equity holdings have been Rs.167.8 million against a loss of Rs.647.8 million during the corresponding period last year.
However, these unrealized losses for the 1H16 had been as high as Rs.2.94 billion against Rs.1.32 billion a year ago due to the downturn in the Colombo Stock Exchange.
The banking group has also made a loss on forward exchange contracts revaluation of Rs.149.6 million during the 1H16 from a profit of Rs.162.9 million recorded a year ago.
Further, during the 1H16, the bank has received a dividend income of Rs.576.9 million against Rs.544.7 million mainly composed of the dividends received from the bank’s investment in the Commercial Bank of Ceylon PLC shares.
The individual impairments rose to Rs.157.6 million from Rs.121.9 million a year ago due to, “provisions made on account of two large exposures based on available objective evidence.
The ratio of impaired loans to total loans as at June 30, 2016 was 5.5 percent compared to 5.1 percent as at December 31, 2015. The cumulative allowance for impairment for loans and advances was maintained at a healthy level of 70 percent of impaired loans and advances as at June 30, 2016,” the bank’s Chief Executive Officer Arjun Fernando said in an earnings release.
Meanwhile, during the 1H16 the banking group made a net profit of Rs.1.7 billion or Rs.6.42 a share, up 17.7 percent YoY.
As at June 30, 2016, state-owned Bank of Ceylon held 14.35 percent of the bank, followed by Hatton National Bank PLC with a 12.22 percent stake.
The state-controlled private sector pension fund, the Employees’ Provident Fund held a 9.19 percent stake as the fourth largest shareholder.