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| Chairman J. Durairatnam |
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| Director/CEO Thimal Perera
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DFCC Bank PLC has announced a profit before tax (PBT) of Rs. 4,326 million and a profit after tax (PAT) of Rs. 3,222 million for the year ended 31 December 2021. This compares with a PBT of Rs. 3,398 million and a PAT of Rs. 2,388 million in 2020.
The Group recorded a PBT of Rs. 4,859 million and a PAT of Rs. 3,665 million for 2021 were also higher in comparison to 2020 performance of Rs. 3,944 million and Rs. 2,847 million respectively. DFCC said all the member entities of the Group (Lanka Industrial Estates (LINDEL), DFCC Consulting Ltd., and Synapsys Ltd., joint venture company – Acuity Partners Ltd., and associate company – National Asset Management Ltd. (NAMAL) made positive contributions to this performance. The basic earnings per ordinary share (EPS) of the bank improved to Rs. 10.14 for the year ended 31 December 2021 up by 29% from a year earlier.
The bank’s Return on Equity (ROE) improved to 6.55% during the year ended 31 December 2021 from 4.93% recorded for the year ended 31 December 2020. The bank’s Return on Assets (ROA) before tax for the year ended 31 December 2021 is 0.91%, against a figure of0.78% for the year ended 31 December 2020.
“As a result of focussed approach and agile manoeuvring, DFCC Bank was able to successfully conclude the year ended 31 December 2021, having delivered robust performance and growth, amidst a challenging economic environment,” DFCC Director/CEO Thimal Perera said.
He said despite unprecedented challenges faced due to the pandemic resulting in volatility and economic slowdown, DFCC Bank continued its commitment to serving customers across the country, delivering high-quality uninterrupted banking services.
This hard work is attested to by the global recognition that DFCC Bank received from Global Brands UK, being recognised as both the ‘Most Trusted Retail Banking Brand’ and the ‘Best Customer Service Banking Brand’ in Sri Lanka for 2021, in the ‘Banking and Finance’ category.
With the objective of becoming one of Sri Lanka’s most customer-centric digitally enabled banks by 2025, and in line with the bank’s corporate strategy, the T24 Temenos Core Banking System was implemented on 21 October 2021, along with a functionally rich online banking platform. The transition to the new core banking system will offer customers a digitally enabled, best in class banking service that is flexible and agile.
He said DFCC was able to achieve expected growth as a result of executing a focussed strategy, driven by its purpose. The core objective being to help people and businesses prosper by embracing change through technological transformation, in order to continue to seize new opportunities resulting from the challenges of the pandemic.
DFCC implemented several concessionary schemes to support customers affected by the pandemic, helping them to emerge stronger, through numerous moratoriums, relief measures and advisory support and services, in accordance with the directives issued by the Central Bank of Sri Lanka.
Following are excerpts from the DFCC statement on its 2021 results.
Net interest income
The bank recorded Rs. 12,653 million in net interest income (NII), which is a 15% increase year on year. This contributed to an increase in interest margin from 2.53% in December 2020 to 2.66% in December 2021.
Other operating income
Due to travel restrictions imposed during the year to curb the spread of the pandemic, business momentum was noticeably negatively affected.
The bank staff at Head office and across branch network working continuously over the year has helped the bank to increase non-funded business. This effort was fruitful as it resulted in an increase in net fee and commission income to Rs. 2,596 million for the year ended 31 December 2021, up from Rs.2,061 million in the comparative year.
Other operating income has increased mainly due to increases in dividend income and gains on the sale of fixed income securities during the year ended 31 December 2021.
Impairment charge on loans and other losses
Impairment provisions for the year ended 31 December 2021 was Rs. 4,485 million compared to Rs. 3,298 million in the year prior. The NPL ratio increased from 5.56% in December 2020 to 5.60% in December 2021.
In order to address the current and potential future impacts of COVID-19 and other prevailing economic conditions on the lending portfolio, the bank has made adequate impairment provisions, as at 31 December 2021, by introducing changes to internal models to cover unseen risk factors in the present highly uncertain and volatile environment, including additional provisions made for the bank’s exposure to risk elevated sectors.
Operating expenses
The bank’s operating expenses increased from Rs. 7,387 million during the year prior to Rs. 8,381 million during the year under review, primarily due to increases in transport costs, as result of special transport facilities provided to staff due to COVID restrictions and non-availability of public transport, along with all other additional expenses incurred in keeping and maintaining a safe and healthy environment within the bank’s premises, to support client engagements and servicing.
During the year, the bank also created multiple channels to enhance service delivery to customers through a strong digital drive, providing access to uninterrupted banking services during difficult times. This resulted in an increase in IT related expenses in order to support the infrastructure upgrades.
However, the numerous process automation and workflow management systems introduced during the year under review helped to facilitate effective cost controls, which resulted in operating expenses being curtailed and managed at these levels.
Other comprehensive income
Investments in equity securities and treasury bills and bonds (fixed income securities) are classified as financial assets and their change in fair value is recorded through other comprehensive income. Accordingly, a fair value loss of Rs. 36 million and a net fair value loss of Rs. 2,469 million were recorded on account of equity and fixed income securities, outstanding as at 31 December 2021 respectively.
Unfavourable movements in Treasury bill and bond yields resulted in the fair value loss of Rs. 4,532 million during the year. A gain of Rs. 2,062 million was recycled through the Income statement by disposing of selected Treasury bill and bond holdings, originally categorized under fair value through other comprehensive income (FVOCI), with the objective of cash flow management to support loans and advance growth in line with projections.
The action also goes in tandem with the bank’s expectations with regard to the domestic interest rate trend, going forward.
Business growth
Despite the challenging business environment, the bank continued its growth strategy by increasing both its deposit and loan portfolios during the year ended 31 December 2021. The loan portfolio grew by Rs. 63,991 million to record Rs. 365,901 million compared to Rs. 301,909 million as at 31 December 2020, recording an increase of 21%. The bank’s deposit base also experienced a growth of 3%, recording an increase of Rs. 9,834 million to Rs. 319,861 million from Rs. 310,027 million as at 31 December 2020.
This resulted in recording a loan to deposit ratio of 114%. Further CASA ratio improved to 31.25% as at 31 December 2021. Funding costs of the bank 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 36.47% as at 31 December 2021.
DFCC Bank continued its approach to tap local and foreign currency related long to medium- term borrowing opportunities to facilitate lending to deserving segments of the market whilst maintaining a high-quality portfolio.
Equity and compliance with capital requirements
In order to support future growth as a full-service retail bank, the bank has consistently maintained a capital ratio above the Basel III minimum capital requirements. As at 31 December 2021, the bank has recorded Tier 1 and total capital adequacy ratios of 9.31% and 13.03%, respectively which is comfortably above the minimum regulatory requirements of 8% and 12% including capital conservation buffer of 2%. The bank’s Net Stable Funding Ratio was 122.43%, which is well above the regulatory minimum of 100%.
