DFCC Group posts Rs. 615m PAT in Q1

The DFCC Group recorded a consolidated profit after tax of Rs 615 million for the first quarter ended June 30, 2013 compared with Rs 609 million in the corresponding period of the previous year.

Apart from the banking business which contributed Rs 577 million to profit after tax, the investment banking joint venture, Acuity Partners (Pvt) Limited (APL) contributed Rs 14 million in the current period and a loss of Rs 1 million in the comparable period.

The contribution from all other subsidiaries and associate company collectively was Rs 24 million in the current period (Rs 29 million in the corresponding period).

The banking business of the DFCC Group is undertaken by DFCC Bank (DFCC), a licensed specialised bank and 99% owned subsidiary DFCC Vardhana Bank (DVB), a licensed commercial bank.

Both banks function as one economic entity and 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. Since the financial year of DVB ends in December, the accounts of DVB are consolidated with a three-month lag. Net Interest Income (NII) of DBB for the period increased by 35% from Rs 1,574 million to Rs 2,120 million although total loans and advances (net of accrued interest) only increased by 11% year-on-year to Rs 108,075 million as at June 30, 2013.

However, the reported NII does not include the cost of hedging exchange rate risk arising from funding swaps where the DBB swaps foreign currency to rupees to fund rupee assets as part of its funding strategy.

The swap premiums during the current period was Rs 261 million compared with Rs 266 million in the corresponding period. Adjusted for these costs, the NII would have been Rs 1,859 million for the quarter and Rs 1,308 million in the comparable period, a 42% increase signifying the successful outcome of the funding swap strategy that offset the pressure on interest margin in an environment where rupee interest rates progressively declined.

Correspondingly an adjustment had to be made for foreign exchange income/(loss) reported under 'other operating income'. With such adjustments the revised foreign exchange loss in the current period is Rs 35 million (reduced from reported loss from Rs 254 million). The comparable previous period income was Rs 264 million (an increase from the reported gain of Rs 50m).

Total charge for impairment for the current period was Rs 351 million, a 33% increase over Rs 263 million in the corresponding period.

The cumulative allowance for impairment as a percentage of impaired loans on June 30, 2013 was 80%, the same level as on March 31, 2013.

The DBB recorded Rs 958 million as operating profit before taxes an increase of 3% over the corresponding period. Profit After Tax was Rs 577m, marginally lower than Rs 586 million in the corresponding period.