DFCC Bank continued to demonstrate positive momentum across business in the 3rd quarter of 2017 as a rapidly emerging full service commercial bank.
Financial Performance
DFCC Bank recorded growth across all its income segments, with a 31% increase in operating income year-on-year. The Bank’s net interest income rose by 32%, to LKR 8,228 Mn buoyed by improvements to the net interest margin from 3.3% in December 2016 to 3.6% by September 2017. In addition, the Bank’s net fee and commission income grew by 17% to LKR 1,110 Mn complemented by the growth in business volumes.
The Bank augmented its total assets by LKR 32,568 Mn (11%) and reported a 31% growth in profit before tax of LKR 4,341 Mn and a 35% growth in profit after tax of LKR 3,418 Mn, despite a backdrop of higher taxes, volatile interest rates, tight margins and intensifying competition.
The Group closed nine months as at end September 2017, with a 24% year-on-year growth in profit before tax of LKR 4,377 Mn. Group profit after tax (PAT) for 3Q declined by Rs 525 Mn against the 3Q of 2016. This is mainly due to the Bank’s higher impairment provision and increased cost due to expansion. However, over the 9-month period, the Group recorded a consolidated PAT growth of 26% amounting to LKR 3,391 Mn.
The DFCC Group comprises DFCC Bank PLC (DFCC), and its subsidiaries – Lanka Industrial Estates Limited (LINDEL), DFCC Consulting (Pvt) Limited (DCPL) and Synapsys Limited (SL), a joint venture company – Acuity Partners (Pvt) Limited (APL) and associate company – National Asset Management Limited (NAMAL).
Anchoring growth firmly on a foundation of good governance, the DFCC Group and DFCC Bank maintained capital adequacy ratios well above minimum requirements under Basel III standards which came into effect from July 2017. As at 30 September 2017, the Group’s Tier 1 capital adequacy ratio stood at 11.83% and the total capital adequacy ratio at 15.49%. DFCC Bank recorded Tier 1 and total capital adequacy ratios of 11.37% and 15.04% respectively, which is well over the minimum regulatory requirements of 7.25% and 11.25%.
DFCC Bank continued to penetrate the market by expanding its branch network to be more accessible to customers. During the nine months ended September 2017, the Bank opened twelve fully-fledged branches across the country.
This coupled together with extensive business promotions, new savings products, and investments in IT system modernisations have contributed towards expanding delivery channels and improving service deliverables. The results of these investments are already evidenced in the lending and deposit growth as at end September 2017. The rapid loan portfolio growth to LKR 202,676 Mn by end September 2017, was outshone by the 33% (LKR 46,657 Mn) year to date deposit growth, which swelled total deposits to LKR 187,171 Mn by end September 2017. The Bank’s low cost deposits (CASA) increased by LKR 5 Bn during the 3rd quarter bringing the CASA ratio to 17% from 16% in June 2017. This growth in particular was an outcome from the various initiatives launched by the Bank during the year, to grow this segment of deposits.
DFCC Bank continues to enjoy medium to long term concessionary credit lines which has helped the Bank to maintain low cost of funds. When considering these funding lines and the low cost deposits, the ratio improves to 26.5% in September 2017.
Against this backdrop of asset growth, the Bank’s return on assets (ROA) improved to 1.7% by September 2017 from 1.6% in December 2016, while the return on equity (ROE) increased by 17.5% to 8.7%, from 7.4% in December 2016.
Due to the prudent recovery processes implemented and close monitoring, the Bank has been able to reduce the NP ratio to 3.24% by September 2017 from 3.34% recorded in March 2017.
Due to investments in people, IT and branch expansion the Bank’s operating expenses increased to LKR 4,190 Mn. Despite this increase, the Bank has been able to maintain a cost to income ratio of 44% (without the exceptional gain).
Operational Performance
DFCC Bank focuses on closely engaging with its customer base to understand and deliver according to their changing needs. In line with this, during the Quarter, DFCC Bank re-launched its minor savings product, adding value to its Junior customer base and further strengthening the product’s position as one of the leading minor savings products in the country. The product was re-launched with an exciting array of valuable gifts to provide the right inspiration for parents and children to save for the future.
In order to further drive this proposition, the Bank also conducted Vardhana Junior Seminars in 10 key locations across the country. Over 3000 students were coached in preparation for the Scholarship seminars held in collaboration with the Zonal Education Offices and these programmes proved to be significantly instrumental in adding value to all those who participated.
Upholding its commitment as a crucial partner for the exporter community in Sri Lanka, the Bank stepped forward to support the Colombo International Tea Convention held in August 2017, as a Strategic Partner. By partnering such a key event the Bank added value and growth opportunities for businesses in the Tea Industry.
DFCC Bank also continued its CSR efforts, pursuing its commitment to uplifting the standards of education in the country. DFCC Bank counts education as a key pillar in its corporate social responsibility initiatives having actively supported education over the years through various initiatives. In keeping with this, the Bank conducted an English Education programme, “Samata English” as a pilot project in the Gampaha and Kalutara areas, targeting youth between the ages of 16-22. The main objective of this project was to teach Spoken English and equip students with the knowledge required to enter into the workforce. This project was completed and a graduation ceremony was held during the quarter to recognize the achievers of this programme. The Bank received very positive feedback from the participants who expressed that their ability to speak in English with confidence has significantly increased. As a result of the success of this project, the Bank now plans to extend it to other areas across the country in the near future.
DFCC Bank also believes that staff plays an important role as ambassadors of the Bank. Therefore, during the quarter, in order to further reinforce the Bank’s vision, mission and values and engage with the Bank’s growing workforce, an internal campaign was launched updating the look and language of the values. The new concept introduced revolves around DFCCs people and accountability for living the values was deeply instilled through this initiative.
Mr Lakshman Silva took over as the CEO from Mr Arjun Fernando on 16 August 2017. Mr Silva who was the driving force behind the amazing success of DFCC Vardhana Bank in a short period of time, will use his acumen and experience to drive the Bank’s commercial banking business while continuing to promote and encourage project financing services, using expertise that DFCC has honed over six decades as one of the premier development banks in Asia.
DFCCs future outlook is positive as the Bank’s growth drivers are delivering results. The Bank’s key focus areas are enhancing operational efficiencies, strategic investments, notably in technology, IT systems and solutions and increasing our penetration into markets across the country. Thus, our optimism is reinforced over our medium-term outlook and we are set to close the financial year 2017/18 with greater value creation.