War shock-driven loan provisions weigh on DFCC March quarter profit

Chairman J. Durairatnam

CEO Thimal Perera

DFCC Bank PLC reported earnings of Rs.3.90 a share or Rs.1.71 billion for the quarter ended March 2026, compared to Rs.6.41 a share or Rs.2.82 billion in the year earlier period, as higher loan loss provisions and mark-to-market losses on equity investments weighed on profitability.

The bank’s impairment charges rose sharply to Rs.3.16 billion for the quarter from Rs.1.35 billion a year earlier as the bank strengthened provisions through updated expected credit loss models and management overlays amid rising geopolitical and macroeconomic uncertainties.

The bank also recognised an unrealised loss of Rs.568.5 million on equity investments due to market volatility stemming from the escalating Middle East conflict and weaker investor sentiment globally.

Despite the pressure on earnings, the bank’s loan book expanded by Rs.25 billion or 5 percent during the quarter to Rs.535.7 billion, while deposits grew by Rs.39 billion or 7 percent to Rs.604.3 billion.

The growth in lending came on top of a 31 percent year-on-year expansion in the gross loan portfolio, supported by growth in term loans, trade finance and gold-backed lending.

Meanwhile, the bank’s asset quality improved further with the Stage 3 impaired loan ratio declining to 4.18 percent from 4.55 percent at the end of December 2025, aided by recoveries and portfolio expansion.

Net interest income rose 12 percent to Rs.8.32 billion, supported by disciplined margin management, loan growth and lower funding costs in a moderating interest rate environment.

Meanwhile, net fee and commission income increased by 34 percent to Rs.1.92 billion, driven largely by trade-related commissions and card-based services, with the bank saying the expansion in its credit card portfolio contributed significantly to the growth.

Operating expenses rose to Rs.5.28 billion from Rs.4.33 billion a year earlier due to higher investments in technology infrastructure, digital transformation and marketing initiatives aimed at strengthening customer acquisition and operational efficiency.

During the quarter, DFCC Bank also proceeded with the next phase of its proposed acquisition of Standard Chartered Bank Sri Lanka’s wealth and retail banking operations following regulatory approval from the Central Bank.

The bank further strengthened its capital profile through a Rs.10 billion Basel III-compliant GSS+ bond issuance completed in February, which the bank said was oversubscribed.

As at March 2026, the bank’s Tier I capital ratio stood at 12.12 percent while the total capital ratio was at 16.05 percent, comfortably above the regulatory minimum requirements of 8.5 percent and 12.5 percent respectively.

Hatton National Bank PLC remained the single largest shareholder in DFCC Bank with a 12.47 percent stake as at end-March 2026.