DFCC Bank reports robust 3Q on higher margins, low impairments

DFCC Bank PLC reported a robust bottomline performance in the three months ended in September 2023, supported by higher margins, lower impairments and other incomes.
The bank reported a net interest income of Rs.8.21 billion in the July-September period, up 6 percent from the same period last year, as the bank made most of the higher yields coming from the government securities, albeit both the yields and rates were easing from their recent peaks.
“Net interest income has continued to improve as a metric during the period under review, as a result of the bank’s strategy of investing in high-yield government securities,” the bank said in an earnings release.

“Strategically, the bank thus increased its fixed-income investment portfolio, contributing significantly to increased interest income,” it added. The bank therefore was able to increase its net interest margin to 5.45 percent by the end of September, from 4.96 percent at the start of the year, although it showed a slippage from 5.48 percent seen in the previous quartet.

This is because both the yields of government securities and interest rates were coming off starting from the second half of the year, in response to both the easing in monetary policy and announcement of the domestic debt optimisation programme, which helped to take off the risk premium attached to rupee debt. Despite the rates coming off, the bank was yet to see a growth in the new loans, as the bank’s loan book continued to shrink to Rs.379.8 billion, from Rs.402.9 billion at the beginning of the year. However, there were some pockets of the industry, which saw their loan books restarting to expand in the last quarter, in response to the easing financial conditions.
The bank saw its asset quality, measured by the Stage 3 loans ratio, rising to 6.13 percent, from 4.36 percent at the start of the year.

The bank set aside Rs.3.74 billion for possible bad loans, slightly less than Rs.3.89 billion provided in the year earlier period. However, there was a significant decline in the impairments made for the other financial asset losses, to Rs.278.74 million, from Rs.1.27 billion a year ago.
Meanwhile, the bank reported net fee and other commission incomes of Rs.902.4 million, up 6 percent from a year ago.
With these developments, the bank reported earnings of Rs.3.09 billion or Rs.7.43 a share, compared to Rs.451.9 million or Rs.1.25 a share in the corresponding period, last year.
By the end of September, Hatton National Bank PLC held a 12.47 percent stake in DFCC Bank, while the government, through Bank of Ceylon, Sri Lanka Insurance Corporation, the Employees’ Provident Fund and Employees’ Trust Fund Board, held a 26.42 percent stake.