DFCC Bank’s 9-month post-tax profit tops Rs. 6.6 b

DFCC Bank yesterday announced a Rs. 6.6 billion profit after tax for the nine months ended 31 December 2010 up from Rs. 1.32 billion in the corresponding period of last financial year.

The high figure includes an exceptional profit contribution of Rs. 5.36 billion arising from the reduction of voting ordinary shareholding in Commercial Bank of Ceylon PLC (CBC) to 15% from 26.8% during June to August 2010.

The consolidated profit after tax for the current period was Rs. 4.54 billion compared with Rs 1.95 billion in the previous period. The consolidated profit is lower mainly due to consolidation adjustments arising from CBC ceasing to be an associate company from 2 June 2010.

Excluding the exceptional profit from part sale of COMBank stake, the post tax profit of the Bank was Rs. 1.25 billion in the current period, 5.4% lower compared to Rs. 1.32 billion in the previous period.

“At the half year stage the post tax profit of the bank excluding the impact of the CBC transaction was lower than the post tax profit for the comparative period by 16%. The bank was able to narrow this gap during the third quarter due to significant reduction in non-performing loans and a higher level of recoveries of loans previously provided, a slight improvement in interest margin through liability re-pricing and a lower level of provisioning,” DFCC Bank CEO Nihal Fonseka said.

“These factors contributed to a profit after tax of Rs. 507 million in the third quarter of the current period, an increase of 17% over the third quarter in the previous period,” he added.

Commenting on the lending activities, the CEO said gross advances of the bank as at 31 December 2010 amounted to Rs. 39.12 billion. The third quarter of the current period witnessed a 3% growth in advances which was an improvement on the 1% growth recorded in the second quarter.

“This was due to renewed demand for leasing and project loans although partly offset by some prepayments by borrowers who opted to refinance their longer term loans with short term borrowings to take advantage of the lower interest rates and significant liquidity in the banking system,” Fonseka said.

The combined gross advances of the Bank and the commercial banking subsidiary, DFCC Vardhana Bank Ltd. (DVB) increased to Rs. 57.376 billion, for a growth of 5% in the current period.

“The credit growth in the branches dealing with the Small and Medium Enterprises (SME) was stronger than in the corporate division, where, although the level of approval was almost double that of the previous period, disbursements tend to take place with a time lag due to the greater complexity of the projects financed,” Fonseka pointed out.

According to him, credit approved but not as yet disbursed as at the end of the current period was Rs. 10.343 billion compared with Rs. 7 billion at the end of the previous period.

The gross non-performing loans, advances and leases (NPA) ratio of the bank was 7.5% reduced from the peak of 11.6% on 30 June 2010 and lower than 10% on 31 March 2010, the end of previous financial year. Gross non-performing assets that stood at Rs. 5.424 billion on 31 March 2010 declined by Rs. 1.09 billion to Rs. 4.33 billion at the end of the current period.

“These positive developments relating to growth in the core business and improved asset quality augurs well for the future,” DFCC CEO said.

He also said despite the improvement in asset quality, the bank continued its prudent provisioning policy. As at 31 December 2010, the specific provision cover was 62% and the non-performing loan exposure net of specific and general provisions (disregarding collateral value) as a percentage of equity of the bank on 31 December 2010 was 3%.

The contribution to profit after tax from DVB was Rs. 157 million compared with Rs. 129 million in the comparable period. This increase was largely due to reversal of specific provision through recoveries.

CBC ceased to be an associate company on 2 June 2010 and therefore the results for the second and third quarters of this financial year do not include the proportionate profit after tax of CBC.

The contribution to consolidated profit from subsidiaries (other than DVB) and the joint venture company amounted to Rs. 19 million in the current period compared to Rs. 72 million in the previous period.

The previous period included the profit contribution from Lanka Ventures PLC, which was a subsidiary in the previous period but is currently a subsidiary of the joint venture company Acuity Partners Limited (APL).

The joint venture investment bank APL performed well and contributed Rs. 94 million to consolidated after tax profit mainly due to the strong results delivered by its stock broking subsidiary. Its contribution in the comparative period was Rs. 7 million. APL acquired 49.9% of the shares in Acuity Securities Pvt. Ltd., the primary dealer, on 30 September 2010 to make it a wholly-owned subsidiary.

Fonseka also said Financial Services VAT was reduced from 20% to 12% with effect from 1 January 2011 and therefore the last quarter of this financial year would benefit from this reduction. The Income Tax rate has been reduced from 35% to 28% with effect from 1 April 2011.