Corporate

DFCC PAT for Q1 Rs 5,645m

The DFCC Banks non-audited profit after tax for the three months ended June 30 (current period) was Rs 5,645 million and the consolidated profit for the current period was Rs 3,346 million. The results of the current period include profit relating to the sale and change of classification of part of the Bank's shareholding in Commercial Bank of Ceylon PLC (CBC).

The contribution to profit after tax from the transactions related to CBC was Rs 5,282 million for the Bank and a lower amount of Rs 2,921 million in the consolidated income statement. The difference was due to the equity accounted higher carrying value of the shares in the consolidated balance sheet.

The Bank sold ordinary voting shares in CBC amounting to 10.7 percent of issued voting shares during the current period.

The Bank also transferred 10.6 million ordinary voting shares representing 3 percent of the issued shares to dealing securities reflecting the decision to reduce the Banks holding to 15 percent. The residual holding of 15 percent has been classified as an investment security and is carried at cost (Rs 31.31 per share) in the Banks balance sheet and at equity accounted cost (Rs 78.61 per share) as at the time CBC ceased to be an associate company, in the consolidated balance sheet.

The investment in CBC was treated as an investment in an associate company until June 1. The consolidated income statement for the current period therefore includes the proportionate share of the profit after tax of CBC for April and May based on non-audited half-year financial results of CBC. The share of profit of CBC for the period January to March was accounted through the Reserves.

The post tax profit of the Bank excluding the impact of the transactions in CBC shares was Rs 363 million in the current period compared to Rs 468 million in the previous period.

The main reason for this reduction is the significant increase in gross specific provision for bad and doubtful loans and leases that increased from Rs 188 million in the comparable period to Rs 420 million in the current period.

The provision net of recoveries was also higher at Rs 297 million in the current period compared to Rs 116 million in the comparable period.

The basis for recognition of impairment losses of loans for accounting purposes will change from the next financial year with the implementation of the Sri Lanka Accounting Standards on Financial Instruments. Unlike at present, the new basis takes into account time value of money even if the full amount of doubtful debts are collected over a period of time.

The specific provision made in the current period was significantly above the minimum mandated by current regulation and will better position the Bank for the impending transition to the new Accounting Standards.

Lending Activities

The gross advances of the Bank as at June 30 amounted to Rs 37,571 million, a reduction of 4.6 percent in the 3 months ended June 30. The combined gross advances of the Bank and its commercial banking subsidiary, DFCC Vardhana Bank (DVB) was Rs 52,300 million.

The combined portfolio recorded a drop of 4.3 percent in the 3 months. However, gross approval by the Bank loans and advances including finance leases in the current period was Rs 3,616 million compared to Rs 2,802 million in the comparable period.

The DFCC Group is continuing to expand its reach, including in the North and East and is well positioned to benefit from the resurgence in economic activity in these areas.

The overall pipeline of projects under consideration for financing by the Bank, new working capital and trade finance facilities approved by DVB have also shown a significant improvement. These factors are expected to lead to credit growth later on in the financial year as disbursements take place. Although the high level of liquidity in the banking system has increased the pressure on pricing, the Group was able to record a modest increase in net interest income by managing the funding cost.

The gross non-performing loans, advances and leases (NPA) ratio of the Bank was 11.6 percent, which was adversely affected by the contraction in the portfolio. Improving credit quality is a key focus area for the management.

With the improvement in the economic climate and the prevailing low interest rate regime, the transformation of non-performing advances to performing is expected to accelerate and improve asset quality by the end of the year.

As at June 30, specific provision cover was 45 percent and the non-performing loan exposure net of specific and general provisions (disregarding collateral value) as a percentage of equity of the Bank on June 30 was 9 percent.

Subsidiaries, Associates and Joint Ventures

The contribution to profit after tax from DVB was Rs 102 million compared with Rs 29 million in the comparable period. This increase was largely due to reversal of specific provision through recoveries.

The contribution to PAT from CBC for the period April to May 2010 was Rs 215 million compared with Rs 240 million in the comparable period. The comparable period is for 3 months while the current period covers only 2 months.

The contribution to consolidated profit of subsidiaries other than DVB and the joint venture company amounted to Rs 35 million in the current period compared to Rs 27 million in the previous period.

Sale of voting ordinary shares in CBC

Our investment in CBC originally made in 1997 proved to be a very profitable investment and the divestment was primarily driven by a change in regulatory requirements.

The Bank has, after June 30 reduced its voting shareholding in CBC by a further 3 percent to 15 percent.

profit after tax accruing to the Bank and the Group from this sell down was Rs 78 million which will be recognized in the quarter ending September 30.

The challenge for the Bank now is to develop an appropriate strategy of reinvestment of the net sale proceeds in a manner that would serve the short and long term interests of the Bank and its stakeholders.

This matter is receiving the careful attention of management and the board of directors.

HNB post tax profit increases to Rs. 1.89 b in 1H

Hatton National Bank PLC, recorded a pre tax profit of Rs. 2.89 billion in 1H 2010 in comparison to Rs. 2.72 billion in the corresponding period 2009 despite pressures on interest margins, while the post tax profit of the Bank improved to Rs. 1.79 billion during the 6 months under review from Rs. 1.77 billion in the first 6 months of 2009.

Commenting on key contributors to growth, Chief Financial Officer HNB Ajantha de Vas Gunasekara stated that "with the re-pricing of assets and liabilities, the interest income fell by 15 percent to Rs. 15.06 billion during the first 6 months of 2010, while a sharper decline of 29 percent was witnessed in interest expense.

This resulted in the net interest income improving by 5 percent during the period. Due to aggressive asset liability management, the Bank was successful in achieving a healthy net interest margin of 6.2 percent during the period".

Non interest income recorded an increase of 20 percent to Rs. 2.43 billion on account of capital gains on investments held in Commercial Bank of Ceylon PLC and Distilleries Company of Sri Lanka PLC although foreign exchange income dropped by 13 percent to Rs. 415.8 million.

The non interest expenses during the period increased by 14 percent largely due to the revision of salaries in 2009.

HNB Group posted a pre tax profit of Rs. 3.04 billion in 1H 2010 up by 13 percent compared to the first 6 months in 2009 while the Group's post tax profit increased to Rs. 1.89 billion from Rs. 1.72 billion in June 2009 supported by the positive performance of the Group companies viz. HNB Assurance PLC, Sithma Development (Pvt) Ltd, Acuity Partners (Pvt) Ltd.

The performance of the group in Q2 2010 was outstanding with post tax profit recording a growth of 23 percent quarter on quarter.

The total asset base grew to Rs. 286.2 billion as at end of June 2010 from Rs. 280.6 billion as at end December 2009 primarily driven by the loan growth.

The demand for credit improved on the backdrop of low interest rates and more conducive investment climate with the gross loans and advances reaching Rs. 180.2 billion as at end of 1H 2010 up by Rs.3.6 billion from end of December 2009. The gross non performing advances ratio stood at 6.5 percent while the net non performing ratio was at 3.3 percent respectively as at end of June 2010. The Bank managed to improve the provision cover to 49 percent as at end of 1H 2010.

The deposit base recorded a growth of approximately Rs. 2.6 billion to Rs. 216.5 billion over the first six months of 2010 in spite of low deposit rates.

A shift in deposit mix towards low cost deposits was witnessed over the period under review backed by the strong deposit brands of the Bank.

The core capital adequacy ratio and the total capital adequacy ratio stood at 10.40 percent and 12.31 percent respectively as at June 30.

HNB voting and non-voting shares recorded gains with the closing voting share price increasing by 65 percent to Rs. 281/- from Rs. 170/25 as at end of December 2009 and the non voting share recording a gain of 82 percent from Rs. 104.75 to Rs. 190.25 as at June 30.

The Bank is focused on capturing opportunities with the economic resurgence of the country.

Accordingly, HNB is in the process of building capacity and expanding delivery channels to cater to growth.

During 2010 HNB has opened 5 customer centres increasing the total distribution network to 191 and projects to open 15 more customer centres during the latter part of this year.

Renuka Holdings posts Rs. 148m net profit in Q1

Renuka Holdings PLC today announced noteworthy turnover and profit growth for the three months ending June 30. Group turnover increased to Rs 373.6 million and total assets of the group increased to Rs 2.9 billion. Group profit after tax was Rs 148.2 million compared to Rs 61 million for the corresponding quarter, of which Rs 119 million was attributable to shareholders, up 279 percent versus Rs. 31.4 million in the comparable quarter. These impressive financial results can be attributed to strong performances by the Group’s agribusiness, investment and service sectors. Its listed subsidiaries include Coco Lanka PLC and Renuka Agri Foods PLC. In the company’s Operations Review, Chairperson Indu Rajiyah stated, “We will soon embark on our third sector which will see us entering the Property Development and Leisure areas by utilising 1.6 acres of freehold property that the company owns in Colombo. In the context of declining interest rates on borrowings, improved investor confidence, stable exchange rates and Sri Lanka’s overall improved rating outlook, we believe this project would contribute a significant income stream in the years ahead”.

The released quarterly accounts of Renuka Holdings Group state short term investments in the share market of 575 million, a stated capital of Rs 125 million and accumulated profits of Rs 1.2 billion.

Renuka Holdings which traces its origin to 1866 was listed on the Colombo Stock Exchange in 2008.