DFCC Vardhana Bank PAT up by 92.6%

DFCC Vardhana Bank (DVB) reported significantly improved financial results for the year ended December 31, 2011 with profit before tax up by 31.5% compared with 2010, while the post-tax profits grew by 92.6% to Rs 531 million.

This increase in the net profit was driven by the growth in fund-based and fee-based income, cost efficiencies relating to operations and significantly reduced loan impairment charges. Remarkably,the increase in the fund based income was recorded while operating in a low interest regime compared with the previous year. The gains in interest income were achieved by shifting a large proportion of money market investments into better yielding corporate loan products.

The positive investment outlook in the economy increased the demand for credit particularly among business customers.The demand for credit led to an aggregate growth of 73.9% in loans and advances and financial leases to Rs 33,779 million.

DVB continued to channel its lending towards the growth sectors to build new revenue streams and positionthe business for sustainable growth.

The strongest credit growth was recorded in the corporate banking sector and these relationships opened up opportunities for conducting a higher volume of import and export transactions.

Consequently, the business related contingent liabilities showed a growth of 113.5% and amounted to Rs 22,101million by the end of the year. This has been a major factor for the increase of non-interest income by 44.2% to Rs 604 million in 2011.

The specific provision for loan losses declined sharply from Rs 208.9 million to Rs 62.4million, the lowest level recorded for several years. The overall improvement of the quality of the credit portfolio reflects the benefits of stable economic conditions for many customers, concerted action taken to exit from non-performing loans and tightened credit underwriting standards applied for lending activities.

DVB continued to invest in expanding the branch network and improving its operations. Five new branches were added in strategic locations increasing the branch network to 50 branches as well as 3 branch/extension offices.

In November 2011, the bank obtained the listing of the CSE for its unsecured subordinated debentures. DFCC Vardhana Bank Chairman J M S Brito

The Board oversaw a successful rights issue to add Rs 1.1 billion to the Stated Capital of the bank. The share issue was fully subscribed by the shareholders with the DFCC Bank applying in full for the entire rights issue to take up any rights not exercised by other shareholders. The allotment of the rights increased the shareholding of DFCC Bank to 99.07% of the issued shares. The equity capital of DVB is in excess of the minimum capital for licensed commercial banks stipulated by the CBSL.The Bank raised Rs 1,105 million of Tier 1 capital

through a rights issue of shares. Further, the net profit of the year was reinvested in the business after distribution of dividends to the shareholders. The outcome of the stress tests conducted under the guidelines of the Central Bank of

Sri Lanka confirmed the strength of DVB's capital position. The fresh capital issue was supplemented by a five year subordinated debenture issue of Rs 1,000 million which qualified for the Tier 2 capital in the capital adequacy assessment.

The debentures were subsequently listed in the Colombo Stock Exchange (CSE) to make them more liquid for the investors. The debt issues will be an avenue for

diversification of the funding sources on a sustained basis.DVB's dividend payout has remained modest over the years with a large proportion of the net profits being constantly reinvested in the business.

The Board decided to propose a first and final dividend of Rs 0.40 per share out of the profits for 2011. The return on the shareholders’ equity (ROE)for the year was 13.6% compared with the ROE of 9.2% recorded for the previous year.