DFCC Bank reported a Profit Before Tax of Rs 4,233 million and a Profit After Tax(PAT) of RS 2,768 million for the year ended December 31, 2018. This compares with a Profit Before Tax of Rs 5,792 million and a Profit After Tax of Rs 4,415 million in the previous year.
However, the profit for 2018 includes the one-off fair value loss on Commercial Bank shares transferred to the trading portfolio and the Debt repayment levy (DRL) imposed on the value addition on financial services in the current year while the profit for 2017 includes a gain from the sale of Commercial Bank shares.
Therefore, when the loss and gain on account of the Commercial Bank shares and the DRL are eliminated for an equitable comparison, the resultant Profit after Tax would be Rs 3,851 million for 2018 and Rs 3,498 million for 2017. Accordingly, the 2018 performance represents a profit growth of 10% over that in 2017. The Group recorded a profit before tax of Rs 4,676 million and profit after tax of Rs 3,070 million for the year ended December 31, 2018 as compared to Rs 5,891 million and Rs 4,434 million respectively in 2017. All members of the DFCC Group made positive and improved contributions to this performance.
Following a judicious growth strategy which took into consideration the challenging environment faced by the country, DFCC recorded a year-on-year growth of 17% in its net portfolio which when coupled with prudent management of asset and liability pricing, enabled the Bank to post an increase of 9% in Net Interest Income to Rs 12,414 million from Rs 11,342 million in the previous year.
The interest margin has decreased slightly to 3.5% from 3.6% in 2017. This performance is creditable given the stringent non-recognition of interest income on credit impaired loans. Further, a growth of 26% was recorded in fees and commission income to Rs 2,013 million from Rs 1,591 million in December 2017. This is the outcome of a focus on non-funded business.
As part of its growth strategy, DFCC continuously invests in its organisation and infrastructure. The Bank increased its island-wide footprint by extending the branch network and added ten full service branches during the year. The outlay on these investments resulted in a moderate increase of 14% in Operating Expenses to Rs 6,672 million from Rs 5,870 million in the previous year.
Although the individual impairment provision increased due to a few specific exposures, the overall impairment provision during the year decreased. Moreover, recovery processes are being rigorously pursued to minimize any actual losses that may arise from the specific exposures.
DFCC’s NPL ratio moved up to 3.28% as at 31 December 2018 from 2.77% in December 2017.
Investments in equity securities and treasury bills and bonds are classified as financial assets whose variations in fair value are recorded through Other Comprehensive Income. Accordingly, fair value losses of Rs 1,951 million and Rs 1,371 million were recorded on account of equity securities and fixed income securities respectively. Prices of equity securities were affected by the declining trend in the share market, while prices of treasury bills and bonds were impacted by taxes implemented in Aril 2018.
Reflecting its measured growth strategy, DFCC’s Total Assets grew by Rs 41,800 million to Rs 374,908 million, which is a 13% growth on 31 December 2017. Within this, the Bank’s loan portfolio grew by Rs 36,058 million to Rs 249,734 million compared to Rs 213,676 million as at 31 December 2017, which is a growth of 17%. This growth is commendable given that the adoption of SLFRS 9 resulted in an additional provision to the portfolio. The Bank lent prudently and did not pursue aggressive growth particularly to sectors that exhibited stress.
DFCC’s deposit base experienced a substantial growth of 25% recording an increase of Rs 48,930 million to Rs 242,238 million from Rs 193,308 million as at December 31, 2017. This is not only a reflection of customers’ confidence in the Bank, but also the outcome of the investment in developing distribution channels and marketing innovative new products. With this deposit growth the Bank was able to report improved loans to deposit ratio of 103% from 110% in December 2017.
DFCC Bank, throughout its history, has been a prudent lender. Therefore, in order to support future growth and to maintain its premier development banking focus, the Bank has consistently maintained a capital ratio above the Basel III minimum capital requirements. As at 31st December 2018, the Group’s Tier 1 capital adequacy ratio stood at 10.888% while the total capital adequacy ratio was 16.168%. On a solo basis, as at 31st December 2018, DFCC recorded Tier 1 and total capital adequacy ratios of 10.766% and 16.065% respectively.
These ratios are well above the minimum regulatory requirements of 8.5% and 12.5% effective 2019.
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