DFCC Bank group profit after tax up 8.6% to Rs. 425 m in three months

The non-audited group profit after tax, attributable to equity holders of DFCC Bank, for the three months ended June 30, 2007 (current period) was Rs. 425 million, an increase of 8.6 percent over the Rs. 391 million in the corresponding period (April to June 2006).

The financial year of the associate company, Commercial Bank of Ceylon Limited (CBC) and two subsidiaries, DFCC Stockbrokers (Pvt) Ltd. and DFCC Vardhana Bank Limited (DVB) ends on December 31.

Thus the three months results for the period April 1 to June 30, 2007 includes the results of these companies for the period January 1 to March 31, 2007. The results of DFCC, DVB and CBC for the quarter to June 30, 2007 include the mandatory general provision of 0.1 percent of the performing and overdue loans and advances balance on June 30, 2007 imposed by the Central Bank.

The profit before Value Added Tax and Income Tax expense - Rs. 459 million in the current period recorded a decrease of 11 percent compared to Rs. 513 million in the corresponding period.

The Absence of growth in Net Interest Income (NII) and higher provisions including the mandatory general provisioning introduced in October 2006 were the main reasons for this decline.

The gross interest income on loans and advances of Rs. 1,755 million in the current period was 49 percent higher than the Rs. 1,179 million corresponding period in the backdrop of a 25 percent increase in loans and advances, net of provisions by Rs. 9,237 million during the one-year period to June 30, 2007. However, this did not translate to an increase in NII, which was static.

A positive feature of the results of this quarter is the 24 percent increase in non-interest income comprising dividend income, gain on sale of investment securities and other income.

This absorbed the regulatory general provision of Rs. 44 million in the current period, which commenced only from October 1, 2006.

The non-performing loans and advances as a percentage of the total loans and advances were 7.2 percent at June 30, 2007, an increase from the 4.5 percent recorded on March 31, 2007.

The portfolio infection rate in leases during this quarter was significantly higher. Some of the affected leases were sector specific (eg. Transportation, tourism) probably associated with increases in fuel and operating costs reducing the debt service capacity of the lessees.

Two renewable energy projects with exposure totalling Rs. 225 million were also classified as non-performing during the quarter due to temporary disruptions to cash flows. The projects are operational and the loans are expected to be regularised later in the year.

The cumulative provision on non-performing loans as at June 30, 2007 was 20 percent of gross non-performing loans and advances.

If non-performing loans fully provided and written off for accounting purposes are reinstated for purposes of computing this ratio, 49% percent of the non-performing loans are covered by full or partial provision.