DFCC Bank 4Q impacted by margin pressures...
DFCC Bank PLC saw its top line getting squeezed and profits halving during the three months to December 2019 (4Q19) as the banking group felt margin pressure amid higher loan loss provisions and marked-to-market losses on equity investments.
The mid-sized lender with Rs.405 billion assets recorded a net interest income of Rs.3.1 billion for the quarter under review compared to Rs.3.5 billion in the corresponding period of the previous year as the margins came under pressure when the Central Bank capped lending rates.
“This NII growth was possible even after bank meeting the conditions stipulated by Central Bank of Sri Lanka to reduce the lending rates by 250 basis points by December 2019 compared with the rates applicable in April 2019,” DFCC Bank stated in an earnings release.
The bank’s net margin contracted to 3.2 percent from 3.5 percent a year ago.
The total operating income declined 2 percent year-on-year to Rs.4.1 billion despite the bank’s fee and commission income recording a double digit growth because of the marked-to-market losses and the losses incurred on forward exchange contracts.
DFCC Bank hold shares in Commercial Bank of Ceylon PLC, Sri Lanka’s largest private lender by assets. The bank booked a marked-to-market loss of Rs.131.1 million for the quarter and Rs.754 million for the full year due to weak share price. Meanwhile, provisions against possible bad loans rose to Rs.813.5 million for the quarter from Rs.308.6 million a year ago. For the full year, the bank provided Rs.1.6 billion as possible bad loans compared to Rs.985.9 million a year earlier. The asset quality measured by the non-performing loans ratio rose to 4.85 percent from 3.28 percent at the beginning of the year. Sri Lanka’s banking sector asset quality came under pressure and provisions for bad loans rose exponentially during 2018 and 2019 amid sluggish economy and Easter attacks.
DFCC reported earnings of Rs.1.76 a share on total earnings of Rs.516.1 million for the October –December 2019 quarter compared to earnings of Rs.4.21 a share or Rs.1.1 billion reported for the same quarter, last year.
For the full year ended in December 31, 2019 (FY19), the lender reported earnings of Rs.7.62 a share on total profit of Rs.2.2 billion compared to earnings of Rs.11.36 a share or Rs.3.0 billion in FY18.
The bank gave loans amounting to Rs.23.9 billion, recording a 9.1 percent increase in the loans book for the year while the deposits grew by only Rs.5.6 billion or 2.31 percent. DFCC in January announced a debenture issue to raise Rs.7.0 billion to support its Tier II capital adequacy.
The government holds 30.54 percent in DFCC Bank via Bank of Ceylon, Sri Lanka Insurance Corporation, the Employees’ Provident Fund and Employees’ Trust Fund. Hatton National Bank PLC as the single largest shareholder has 14.91 percent of the issued shares of the bank.