DFCC Bank’s PAT up 7.6% to Rs. 1,167m in nine months

DFCC Bank’s own non-audited profit after tax for the nine months ended December 31, 2008 (current period) was Rs. 1,167 million, an increase of 7.6 per cent over the corresponding period (April to December 2007), a media release said.

The rate of increase had slowed down from the half year primarily due to the cumulative impact of the reduction of the advances and asset portfolio and reduced capital gains in the third quarter.

The slower growth in profit is the outcome of a strategy to control credit portfolio growth and utilise improved liquidity to reduce borrowings and maintain a healthy liquidity cushion in the context of the uncertainties in the global and local economic environment.

Thus the Bank reduced the total borrowing from Rs. 48 billion to Rs. 42 billion during the nine-month period. The 10-year Floating Rate Notes issued in 1998 for US$ 65 million was redeemed in December 2008.

Since Sinking Funds had been built to meet this liability this repayment did not have a significant impact on the liquidity of the Bank.

The consolidated profit attributable to equity holders after minority interest in the current period however was Rs. 1,627 million, an increase of 1.8 per cent over the corresponding period. This was due to a reduction in contribution from subsidiaries.

Consolidated earnings per share for the current period decreased to Rs. 12.48 from Rs. 12.78 in the corresponding 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 December 31, 2008 (consolidated with a three-month lag due to different financial years) amounted to Rs. 57,878 million recording a marginal reduction in the nine months ended December 31, 2008 primarily due to the contraction of portfolio in DFCC Bank by Rs. 3,910 million. In contrast, the portfolio of the commercial banking subsidiary, DVB increased by 25 per cent to Rs. 14,580 million on December 31, 2008.

Unlike DFCC Bank whose core business is the funding of capital assests relating to projects that tends to slow down in times of economic uncertainty and stress, the expansion of the portfolio of a commercial bank is correlated to the working capital requirements, that tend to increase in tandem with price increases in the raw material and stock and slow turn around of trade debtors. DVB was a beneficiary of this phenomenon.

During the third quarter DFCC Bank selectively assisted borrowers in the SME sector such as those engaged in the low country tea industry and tourism to tide over cash flow difficulties that arose from adverse market conditions, the release said.