DFCC Group nearly doubles 1Q profit to Rs. 1.13 b

Monday, 18 August 2014 00:05 - - {{hitsCtrl.values.hits}}

The DFCC Group said on Friday it has recorded a consolidated profit after tax of Rs. 1,138 m for the three months ended 30 June 2014 compared with Rs. 612 m in the corresponding period of the previous year (comparable period). Apart from the banking business which contributed Rs. 1,093 m to profit after tax and is analysed below, the investment banking joint venture, Acuity Partners Ltd. (APL) contributed Rs. 3 m in the current period (Rs. 10 m in the comparable period). The contribution from all other subsidiaries and associate company collectively was Rs. 48 m in the current period (Rs. 24 m in the comparable period). Banking business The banking business of the DFCC Group is undertaken by DFCC Bank (DFCC), a licensed specialised bank and 99% owned subsidiary DFCC Vardhana Bank (DVB), a licensed commercial bank. Both banks function as one economic entity and as such it is appropriate to analyse the consolidated performance of the two banks as DFCC Banking Business (DBB).

A consolidated income statement for DBB has been released to the Colombo Stock Exchange as supplementary financial information. This statement was derived from the interim financial statements. Since the financial year of DVB ends in December, the accounts of DVB are consolidated with a three-month lag. The DBB recorded Rs. 1,541 m as operating profit before taxes, an increase of 61% over the comparable period. Profit after tax (both VAT on financial services and income tax) was Rs. 1,093 m, an increase of 89% over Rs. 577 m in the comparable period. Net Interest Income (NII) of DBB for the period decreased by 20% from Rs. 2,120 m to Rs. 1,693 m due to the drop in on lending rates in tandem with a drop in benchmark interest rates. Credit growth exceeded industry average and was an increase of 15% year on year. However, the major part of the asset build up was based on disbursements towards the latter part of the quarter. Net fee and commission income of DBB in the current period was Rs. 211 m an increase of 24% over Rs. 170 m in the previous comparable period. This is generated largely by DVB, the commercial banking subsidiary, since this source of income is mainly associated with trade finance and commercial banking services. Fee income also included consultancy fees earned from overseas on assignments undertaken during the period. Capitalising on the upward momentum in the stock market during the period, DFCC was able to divest some of the mature equity holdings and generate a capital gain of Rs. 100 million. The forward exchange contracts are accounted as a derivative and its fair value changes are reported as net gain/(loss) from financial instruments at fair value through profit or loss in the income statement. DFCC Banking Business (DBB) re-examined the impairment assessment processes in the light of experience gained over the past two years, in particular the methodology adopted with regard to the collective impairment assessment process. The impairment assessment as at 30 June 2014 based on the revised methodology has been verified through a special purpose audit by its external auditors. The cumulative allowance for impairment for loans and advances as a percentage of impaired loans and advances on 30 June 2014 was 72%. Due to strategic cost management DBB has been able to contain the operating cost increase to 16% over that of the comparable period. DBB added 12 more branches as at 30 June 2014 compared to the number of branches one year ago on 30 June 2013. The current period expenses also include a charge for Nation Building Tax which was introduced with effect from 1 January 2014. Investments Listed shares are classified as available for sale and carried at fair value. Fair value changes that represent unrealised gains/loss are recognised in other comprehensive income. During the period ended 30 June 2014, due to market appreciation of available for sale securities there was a fair value gain of Rs. 2,289 m. In the comparable period the fair value gain was Rs. 539 m. Equity capital Under SLFRS, the total income for the period comprises the income reported in the income statement and other comprehensive income. Consequent to this change there are two significant changes. Shares listed in the Colombo Stock Exchange and owned by the bank are recognised at the fair value and changes in the fair value included in other comprehensive income significantly augmenting the equity capital. Prudential indicators The capital adequacy and liquidity ratios continued to be well above the stipulated regulatory minimum. The regulatory capital computation excludes fair value changes on financial assets classified as available for sale.