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DFCC Bank PLC has reported a Profit Before Tax (PBT) of Rs. 2,684 million and a Profit After Tax (PAT) of Rs. 1,749 million for the quarter ended 31 March 2023.
This compares with a PBT of Rs. 143 million and a PAT of Rs. 366 million in the previous period.
The Group recorded a PBT of Rs. 3,001 million and PAT of Rs. 2,062 million for the quarter ended 31 March 2023 as compared to Rs. 326 million and Rs. 527 million respectively in 2022. All the member entities of the Group made positive contributions to this performance.
The bank’s Return on Equity (ROE) increased to 10.88% during the quarter ended 31 March 2023 from 5.04% recorded for the year ended 31 December 2022. The bank’s Return on Assets (ROA) before tax for the quarter ended 31 March 2023 is 1.63% compared to 0.46% for the year ended 31 December 2022.
Net Interest Income
The bank’s Net Interest Income (NII), increased by 75% over Q1 of 2022 to reach Rs. 8.34 billion by the quarter end of March 2023. The tight liquidity conditions in the domestic money market have resulted in rising market interest rates.
As a result, the bank’s deposit and lending products experienced a significant increase in interest rates during the period under review. While the higher interest rates may have continued to depress the lending portfolio, it led to an overall improvement in Net Interest income (NII).
Strategically, the bank increased the fixed-income investment portfolio, which contributed significantly to an increase in investment interest income. In line with the increase in the AWPLR over the past 12 months, the interest margin increased from 3.80% in March 2022 to 5.93% by March 2023.
Fee and Commission Income
The untiring efforts of the bank’s staff led to increased remittances, trade-related commissions and other fee income lines which contributed to the increase of non-funded business during the period.
Fee income generated by credit cards also increased significantly in line with the volume of the transactions. Accordingly, net fee and commission income have increased to Rs. 1,064 million for the quarter ended 31 March 2023, compared to Rs. 639 million in the comparative period in the year 2022.
Impairment charge on loans and other losses
The impaired loan (stage 3) ratio has increased from 4.36% in December 2022 to 4.80% as of 31 March 2023, a continuation of the trend in the prevailing economic condition. To address the current and potential future impacts of the current economic conditions on the lending portfolio, the bank made adequate impairment provisions during the period by introducing changes to internal models to account for unseen risk factors in the current highly uncertain and volatile environment. With these provisions made to cover the additional risks in the economic environment, the impairment charge recorded an increase of 67% against the comparative period and stood at Rs. 4.69 billion for the quarter ended 31 March 2023 compared to Rs. 2.81 billion in the comparable period.
Operating expenses
The operating expenses for the quarter ended on 31 March 2023 increased due to an increase in IT-related expenses as a result of infrastructure upgrades, as well as cost increases due to inflation and the Sri Lanka Rupee devaluation. However, the numerous process automation and workflow management systems introduced over the period helped curtail and manage operating expenses at reduced levels.
Other comprehensive income
Changes in the fair value of investments in equity securities and fixed-income securities (treasury
bills and bonds) and movement in hedging reserves are recorded through other comprehensive income.
Due to the application of hedge accounting, the impact on the bank equity due to the exchange fluctuation was minimised. A fair value gain of Rs. 2,034 million was recorded on account of equity securities outstanding as of 31 March 2023. The increase in the share price of Commercial Bank of Ceylon PLC during the period was the main contributor to the reported fair value gain in equity securities. The favourable movement in the treasury bills and bond yields resulted in a fair value gain of Rs. 908 million during the period.
Business Growth
Despite the challenges faced by the economy and the banking sector, DFCC Bank’s total assets increased by Rs. 9.8 billion, recording a growth of 1.75% from December 2022. In line with the bank’s growth strategy and the current economic situation, an increase in investment in fixed-income securities, combined with positive fair value movement in both fixed-income securities and equity securities, has contributed to a 49% increase in investment in financial assets at fair value through other comprehensive income as of 31 March 2023 compared to the balance as of 31 December 2022. With increased provision for expected credit losses and appreciation of the Sri Lanka Rupee, the net loan portfolio has recorded Rs. 357 billion as of 31 March 2023.
The bank’s deposit base experienced a growth of 2.29%, recording an increase of Rs. 8,490 million to Rs. 378,805 million from Rs. 370,314 million as of 31 December 2022. This resulted in recording a loan-to-deposit ratio of 104.33%. Further, the CASA ratio is 18.05% as of 31 March 2023. The bank’s funding costs were also contained by using medium to long-term concessionary credit lines. When these concessionary term borrowings are considered, the CASA ratio further improved to 29.86% and the loans-to-deposit ratio improved to 89.02% as of 31 March 2023.
DFCC Bank’s total equity increased to Rs. 57 billion as of 31 March 2023 with the recorded profit after tax of Rs. 1.75 billion. The favourable movements in the equity portfolio and fixed income security portfolio classified as fair value through other comprehensive income and positive movement in hedging reserve also resulted in an increase of the bank’s total equity.
As of 31 March 2023, the bank Recorded Tier 1 and Total Capital ratios of 10.171% and 12.848%, respectively. The bank’s Net Stable Funding Ratio (NSFR) was 128.24%, and Liquidity Coverage Ratio (LCR) – all currency was 226.43% as of 31 March 2023. All these ratios were maintained above the minimum regulatory requirement.
DFCC Bank CEO Thimal Perera said, “As we reflect on the last quarter’s performance, we are pleased to report strong financials across all business areas. Sri Lanka’s resilient and adaptable economy and our commitment to innovation, operational excellence, and customer-centricity continue to pay off, as evidenced by our steady revenue growth and increased profitability.
“We are confident that our robust growth strategy and prudent risk management practices will enable us to continue delivering sustainable value to our stakeholders in the long term, which bodes well for the overall economic situation of Sri Lanka.”
