DFCC Bank delivers sustained growth and profitability in 2024

• Group Net Operating Income up by 30% to Rs. 35 b
• Impairment charge for loans and advances reduced by 68% to Rs. 3.96 b
• Group Profit After Tax of Rs. 9.9 b
• Group Total Capital Adequacy Ratio – 16.958%
• Group Total Assets up by 10% to Rs. 709 b

Chairman J. Durairatnam

Director/CEO Thimal Perera

In a demanding banking landscape, DFCC Bank said yesterday it has demonstrated resilience and strength, achieving robust financial performance in 2024.  

The bank recorded significant growth across key financial metrics, including total assets, loan portfolio, deposit base, and profitability, with profit after tax increasing by a notable 16%. This underscores DFCC Bank’s unwavering commitment to sound financial management and long-term growth. 

Amidst improving liquidity conditions in the domestic money market, driven by the Central Bank’s relaxed monetary policy stance, both deposit and lending interest rates continued to decline throughout the year.

This trend is expected to persist, further transmitting the benefits of policy easing. Market interest rates, having adjusted over time in response to accommodative policies, largely stabilised by the end of the year.

Consequently, credit extended to the private sector by Licensed Commercial Banks (LCBs) expanded significantly from May 2024 onwards. In alignment with these developments, DFCC Bank swiftly adjusted its lending and deposit rates, ensuring the effective transmission of monetary policy benefits to businesses and individuals.

The bank strategically enhanced profitability by optimising its investment portfolio, increasing exposure to high-yield government securities. Furthermore, positive macroeconomic trends and a strong focus on recoveries contributed to a significant reduction in impairment provisions, positively impacting the income statement.

DFCC Bank CEO Thimal Perera said despite the challenges posed by the economic conditions over the past year, which are showing signs of improvement, DFCC Bank has demonstrated resilience and achieved strong financial growth. Our unwavering commitment to “profit with purpose” has been central to our success.

For the year ended 31 December 2024, DFCC Bank PLC, the largest entity within the Group, reported a Profit Before Tax (PBT) of Rs. 13,498 million and a Profit After Tax (PAT) of Rs. 8,353 million. This marks an increase from the previous year’s PBT of Rs. 10,960 million and PAT of Rs. 7,220 million. Earnings per share (EPS) also rose by 12%, reaching Rs. 19.40 in 2024. These results reflect our strategic ability to adapt to an evolving economic landscape, driven by rigorous risk management, digital innovation, and a customer-centric approach.

Our impaired loan (stage 3) ratio has decreased from 7.03% in December 2023 to 5.65% as of 31 December 2024, reflecting the positive outcomes of our focused recovery efforts. This demonstrates our ability to capitalise on favourable macroeconomic trends. We remain committed to supporting economic revival and promoting sustainable growth within our organisation, the industry, and the broader national economy.

Additionally, Fitch Ratings has upgraded DFCC Bank PLC’s National Long-Term Rating to A(lka) from A-(lka), further reinforcing the bank’s strength and stability.

“Looking ahead, we will continue to seize opportunities that drive value for our stakeholders, strengthen customer loyalty, support our communities, and uphold our commitment to responsible, purposeful banking,” Perera added.

DFCC Bank was also honoured with three prestigious accolades at the Global Banking and Finance Awards 2024, solidifying its reputation as a customer-focused and sustainable banking leader in Sri Lanka. The bank received the titles of Banking Brand of the Year Sri Lanka 2024, Best Bank for Sustainable Development Sri Lanka 2024, and Fastest Growing Retail Bank Sri Lanka 2024. These independent awards, presented by the UK-based Global Banking and Finance Review, recognise DFCC Bank’s dedication to innovation, sustainability, and customer-centric growth.

Additionally, Fitch Ratings upgraded DFCC Bank PLC’s National Long-Term Rating to A(lka) from A-(lka), reinforcing the bank’s financial stability and strong position in the industry.

Profitability

The bank’s profit after tax increased by 16% to Rs. 8,353 million, while earnings per share (EPS) rose by 12% to Rs. 19.40 in 2024.

DFCC Bank PLC, the largest entity within the Group, recorded a Profit Before Tax (PBT) of Rs. 13,498 million and a Profit After Tax (PAT) of Rs. 8,353 million for the year ended 31 December 2024, compared to a PBT of Rs. 10,960 million and a PAT of Rs. 7,220 million in the previous year.

At the Group level, PBT stood at Rs. 13,820 million, with a PAT of Rs. 9,932 million, including Rs. 1,378 million from discontinued operations, as compared to PBT of Rs. 11,369 million and PAT of Rs. 8,659 million in 2023. The bank’s Return on Equity (ROE) stood at 10.99% for the year, compared to 12.19% in 2023, while Return on Assets (ROA) before tax improved to 2.01%, up from 1.82% the previous year.

The bank’s total tax expense, which includes Value Added Tax (VAT), Social Security Contribution Levy (SSCL), and Income Tax, amounted to Rs. 9,562 million for the year ended 31 December 2024. As a result, the bank’s tax expense as a percentage of operating profit for the year stood at 53.37%.

Net Interest Income

Both deposit and lending interest rates continued to decline throughout the year, in line with improving liquidity conditions in the domestic money market and the Central Bank’s relaxed monetary policy stance.

The ongoing downward adjustments in lending interest rates are expected to further transmit the benefits of policy easing. Market interest rates, which declined over time in response to the accommodative monetary policy stance, largely stabilised by the end of the year. Supported by reduced market lending interest rates, credit extended to the private sector by Licensed Commercial Banks (LCBs) has expanded notably since May 2024.

Sectoral data for Q3-2024 on credit to the private sector also indicates broad-based growth across all major economic sectors. This expansionary momentum is expected to continue, underpinned by favourable market lending conditions. Meanwhile, improved fiscal performance, a lower inflation outlook, and generally stable economic conditions have contributed to easing pressure on Government bond yields.

Accordingly, the bank has made notable downward adjustments to lending and deposit rates, aligning with monetary directives to ease financial conditions for individuals and businesses swiftly and effectively, thereby supporting the anticipated economic recovery. The lower interest rates have resulted in reduced interest income and expenses compared to 2023.

The bank’s Net Interest Income (NII), its core business driver, decreased by 10% to Rs. 28,121 million by the end of 2024. The net interest margin declined from 5.18% in December 2023 to 4.18% by December 2024.

Fee and commission income

The bank’s proactive strategies and dedicated teams contributed to increased remittances, trade-related commissions, and other fee income streams, driving growth in non-funded business during the year.

Additionally, the expansion of credit card-related operations contributed to the increase in fee and commission income compared to 2023.

To support the expansion of credit card operations and acquire new business, fee expenses related to credit cards also increased. However, the net effect of this investment was positive, contributing to the overall growth in credit card operations. As a result, net fee and commission income increased by 8% to Rs. 4,929 million for the year ended 31 December 2024, compared to Rs. 4,551 million in 2023.

Net gains from de-recognition of financial assets

The bank disposed of a portion of its Sri Lankan Government securities classified under FVOCI, resulting in a gain of Rs. 2,877 million, underscoring the effectiveness of its strategic decisions. Additionally, capitalising on market opportunities following the finalisation of debt restructuring, the sale of the bank’s International Sovereign Bond (ISB) holdings had a positive impact of Rs. 991 million during the year through the reversal of impairment.

Impairment charge on loans and other losses

The impaired loan (Stage 3) ratio decreased from 7.03% in December 2023 to 5.65% as of 31 December 2024, driven by the bank’s concerted recovery efforts, the execution of write-off actions, and significant portfolio growth in line with positive macroeconomic developments. To address the current and potential future impact of prevailing economic conditions on the lending portfolio, the bank made adequate impairment provisions during the year, continuously calibrating internal models to account for unforeseen risk factors. This included additional provisions for the bank’s exposure to high-risk sectors.

Accordingly, reflecting the improvement in macroeconomic indicators and the bank’s focused recovery efforts, impairment charges for loans and advances declined significantly to Rs. 4,648 million for the year ended 31 December 2024, compared to Rs. 13,985 million in the previous year.

Operating expenses

Operating expenses for the year ended 31 December 2024 increased to Rs. 16,805 million, compared to Rs. 12,366 million in 2023, primarily due to inflationary pressures and adjustments to staff benefits. Personnel expenses rose following salary increments and performance-based incentives. However, the Bank has implemented numerous cost-control measures within its operations, effectively curtailing expenses and maintaining them at manageable levels.

Other Comprehensive Income (OCI)

Other comprehensive income includes changes in the fair value of investments in equity securities and fixed-income securities (treasury bills and bonds), as well as movements in hedging reserves. Exchange rate fluctuations impacting the bank’s total equity were minimised through the application of hedge accounting. A fair value gain of Rs. 9,120 million was recorded on equity securities outstanding as of 31 December 2024, primarily driven by the increase in the share price of Commercial Bank of Ceylon PLC. Additionally, the fair value gain on Treasury bill and bond yields amounted to Rs. 3,789 million during the year.

Financial position analysis

Assets

Despite challenges in the economy and the banking sector, DFCC Bank’s total assets increased by Rs. 62.6 billion, recording a 10% growth from December 2023. In line with the bank’s growth strategy and the prevailing economic conditions, increased investments in fixed-income securities contributed to a 55% increase in financial assets at amortised cost, reaching Rs. 106 billion as at 31 December 2024, compared to the balance as of 31 December 2023.

Additionally, the bank’s net loan portfolio grew by Rs. 46 billion to Rs. 394 billion, reflecting a 13% increase compared to Rs. 349 billion as at 31 December 2023, further contributing to asset growth. Moreover, in line with its strategic decision to explore divestment opportunities, the bank designated its 50% ownership of its joint venture investment in Acuity Partners Ltd. as an asset held for sale.

Liabilities

DFCC Bank’s total liabilities increased by Rs. 46 billion, marking an 8% increase from December 2023. The bank’s deposit base grew by 14%, rising by Rs. 58 billion to Rs. 465 billion, up from Rs. 407 billion as at 31 December 2024. This resulted in recording 94.79% loan-to-deposit ratio in 2024. The CASA ratio stood at 24.77% as at 31 December 2024.

To manage funding costs, the bank leveraged medium- to long-term concessionary credit lines, which were primarily utilised to expand the lending portfolio and provide much-needed concessionary funding to customers. Considering these term borrowings, the CASA ratio improved to 31.82%, while the loan-to-deposit ratio improved to 85.90% as at 31 December 2024.

First and final dividend

The Directors have approved the payment of a first and final dividend of Rs. 6.00 per share which will consist of Rs. 4.00 per share in cash and Rs. 2.00 in the form of a scrip dividend, for the financial year ended 31 December 2024. The dividend pay-out ratio for the year stood at 31%.

Equity and compliance with capital requirements

DFCC Bank’s total equity increased to Rs. 84 billion as at 31 December 2024, supported by favourable movements in the equity and fixed-income security portfolios classified under fair value through other comprehensive income, as well as positive movements in the hedging reserve. This, combined with a recorded profit after tax of Rs. 8.4 billion, further strengthened the bank’s capital position. Accordingly, the Tier 1 and Total Capital ratios improved to 12.402% and 15.759%, by 31 December 2024, compared to 11.490% and 13.511%, respectively, as at 31 December 2023. The bank’s Net Stable Funding Ratio (NSFR) stood at 124.60%, and Liquidity Coverage Ratio (LCR) – all currency – was 280.26% as at 31 December 2024, compared to 124.60% and 597.47%, respectively, as at 31 December 2023. These ratios were well above the minimum regulatory requirements.