DFCC records Rs. 781 m profit in first half

The Bank’s own non-audited profit after tax for the half year ended September 30, 2008 (current period) was Rs. 781 million an increase of 28 pc over the comparable period (April to September 2007).

The consolidated profit attributable to equity holders after minority interest in the current period however was Rs 974 million a decrease of 9 pc over the comparable period, GM/CEO of DFCC Bank Nihal Fonseka said.

GM/CEO of DFCC Bank Nihal Fonseka

The current period includes a one off capital gain of Rs 176 million (after Financial Services VAT) arising from the disposal of a quoted share investment and reconstitution of the ownership structure of DFCC Stockbrokers (Pvt) Limited concurrent with the Bank’s equity investment in Acuity Partners (Pvt) Limited, a 50-50 joint venture company on 1 July 2008.

This gain is exempt from income tax. Although the Bank has recognised the full profit on transfer of shares in DFCC Stockbrokers (Pvt) Limited to Acuity Partners (Pvt) Limited, only 50 pc of this profit is recognized in the consolidated income, since only 50 pc of the effective ownership is transferred to the other venturer, Hatton National Bank PLC.

These adjustments are made as at 30 September 2008 but the income for 3 months ended 30 September 2008 derived from Acuity Partners (Pvt) Limited will only be consolidated with a 3-month gap since the financial year of Acuity Partners (Pvt) Limited ends on December while the financial year of the Bank ends in March.

As reported in the commentary on the first quarter results, a legislative change that became effective from March 2008 further increased the charge for Financial Services Value Added Tax for this financial year. The Rs. 290 million incurred for the half year was Rs. 48 million higher than what it would have been on the basis of the previous computation methodology.

Consolidated earnings per share for the current period decreased to Rs. 7.59 from Rs. 8.58 in the comparable period. Since the exercise price of outstanding stock options is currently higher than the market price there is no dilution of the basic earnings.

The combined gross advances of the Bank and DFCC Vardhana Bank Ltd (DVB) as at September 30, 2008 amounted to Rs. 58,213 million recording a marginal reduction in the half year ended September 30, 2008 primarily due to the contraction of portfolio in DFCC Bank by Rs. 2,184 million. In contrast the portfolio of the commercial bank subsidiary, DVB increased by 13.6 pc to Rs. 13,201 million on September 30, 2008.

The primary focus of the Bank is to finance the capital assets for expansion, modernisation and new business enterprises. In the context of the current high interest rate regime and economic turmoil in the global markets there was a tendency for some of such capital intensive projects to be deferred and this led to a slight reduction in the loan portfolio since new disbursements did not keep pace with loan repayments.

The high interest rate environment and the cautious approach to credit expansion contributed to a contraction in the lease portfolio. Despite this scenario, some big ticket transactions resulted in the gross new advances approved for the half year to reach Rs 8,283 million, 8 pc higher than the amount in the comparable period.

Conversely the credit demand for working capital emanating from inflation adjusted prices for stocks, lengthening of trade cycle and higher utility and other resource cost tend to increase and is reflected in the portfolio increase of the commercial banking subsidiary, DVB.

Despite a contraction in advances portfolio the Bank was able to improve the margins by judicious optimization of the interest differentials between the lending rates, Government Securities yield and the cost of borrowing while controlling the non-performing portfolio.

The loss for the half-year ended 30 September 2008 reported by LVL was primarily due to an income tax provision made in the quarter ended September 30, 2008.