DFCC Group records consolidated profit after tax of Rs 1,558 mn
The DFCC Group recorded a consolidated profit after tax of LKR 1558m
for the half year ended 30 September 2012 compared with LKR 1249m in the
corresponding period of the previous year (comparable period).
Apart from the Banking Business which contributed LKR 1442m to profit
after tax (based on partial consolidation in the supplementary income
statement of DBB) and is analyzed below, the investment banking joint
venture, Acuity Partners (Pvt) Ltd (APL) contributed LKR 87m in the
current period marginally lower than LKR 90m in the comparable period.
The current period however includes a deemed disposal gain of LKR
83m(50% of the total recorded by APL) arising from a transaction by its
subsidiary Lanka Ventures PLC accounted in the income statement as per
the previous Sri Lanka Accounting Standards. However, at the end of the
current financial year consequent to representation of financial
statements under the new accounting standards this amount of deemed
disposal gain would be accounted as other comprehensive income in the
equity and not in the income statement as currently presented.
The environment was not conducive for investment banking business and
the contribution from APL's core activities was significantly lower than
in the previous period. The contribution from all other subsidiaries and
associate company collectively was LKR 78m in the current period (LKR
65m in the comparable period).
BANKING BUSINESS
The Banking Business of the DFCC Group is undertaken by DFCC Bank (DFCC),
a licensed specialized bank and 99 % owned subsidiary DFCC Vardhana Bank
(DVB), a licensed commercial bank. Both banks function as one economic
entity and as such it is appropriate to analyse the consolidated
performance of the two banks as DFCC Banking Business (DBB).
A consolidated Income statement for DBB has been released to the
Colombo Stock Exchange as supplementary financial information. This
statement was derived from the interim financial statements with certain
adjustments for ease of analysis. Since the financial year of DVB ends
in December, the accounts of DVB are consolidated with a 3 month lag.
The interest income of DBB in the current period was LKR 6,929m, an
increase of 61% over LKR 4,303m in the previous comparable period. Thus
the second quarter was an improvement over the 54% increase recorded in
the first quarter over the previous comparable period.
The higher interest income in the current period was the result of
portfolio growth with total loans and advances (excluding interest
receivable) increasing 33% from LKR 72,426m on 30 September 2011 to LKR
96,468m on 30 September 2012, as well as due to the increase in market
interest rates. As in the first quarter, the funding cost in DVB was
also correspondingly high, but there was a marginal improvement in the
interest margin.
DVB reached the 18% maximum LKR credit growth ceiling for 2012
imposed by the Central Bank of Sri Lanka by 30 June 2012 which is
consolidated with half year ended 30 September 2012 of DFCC Bank with a
3 month gap.
It recently obtained a foreign currency line of credit which was
converted to LKR on a hedged basis which enables it to increase its LKR
advances portfolio by about LKR 1 billion during the period leading up
to December 2012;DVB's customer deposit base increased from LKR 24,041m
on 30 September 2011 to LKR 43,022m on 30 September 2012, an increase of
79% resulting in reducing its exposure to inter bank borrowing and
significant improvement to the cash equivalent on 30 September 2012 to
LKR 8,278m compared to LKR 4,112m one year ago. DFCC also increased its
customer deposit base from LKR 5,787m on 30 September 2011 to LKR
15,269m on 30 September 2012.
Thus both constituent banks of the DBB made use of reduced domestic
investor appetite for medium and long term funds in the relative
volatility of interest rates by growing its customer deposit
base.Depending on future market conditions and credit demand, DFCC will
replace or supplement these deposits with longer term funding from
domestic or international sources.
Other income of DBB was LKR 645m in the current period, 10% higher
when compared to the comparable period. Main contributors were dividend
income, fees and commission income which offset lower gains from sale of
listed shares and a marginal net loss in foreign exchange operations.
Foreign exchange income of the DBB is primarily derived from DVB, the
commercial banking arm The income generated from trading activities was
slightly lower than the cost of hedging swaps of foreign currencies to
LKR for a higher interest yield and net interest income. this funding
strategy was overall beneficial to DBB. |