The DFCC Bank last week releasing its annual report announced that the after-tax group profit had grown to nearly Rs.3 billion in financial year 2011/12, up 37% over the previous year’s figure of Rs.2.17 billion (excluding the exceptional profit gained by reducing its shareholding of the Commercial Bank of Ceylon PLC on a Central Bank directive).
At a news briefing launching the report, DFCC CEO Nihal Fonseka said that the nine-year old DFCC Vardhana Bank (DVD) had contributed Rs.500 million to the group’s bottom line, an improvement from the previous year.
DFCC runs its banking business through two separate legal entities, the DFCC Bank itself and DFCC Vardhana Bank (DVB) which is its commercial banking wing.
DFCC Chairman Rajan Brito indicated in his chairman’s review that a possible merger of the two entities is a possibility in the future should market demands and provisions in the Banking Act permit it.
Main contributing factors to the bank’s earnings growth were lower loan loss provisions and high write-backs due to improved asset quality and recoveries, higher non-fund based income and a strong loan portfolio growth, the bank said.
Brito said that the combined after-tax profit from banking business of DFCC Bank and DVB had increased 40.2% from nearly Rs.2 billion to nearly Rs.2.8 billion with the combined credit portfolio of the banking business growing 47% to Rs.89.1 billion.
"Our business model, which comprises two core activities carried out by two separate legal entities but functioning in an operational merger, is unique in the local industry," he said.
"It successfully nurtures the respective core skills and competencies under the two banks without any dilution. At the same time, it permits both institutions to compete in the financial services space as an effectively integrated entity offering the full range of development and commercial banking products and services seamlessly through a unified distribution channel."
Looking ahead, he said that the project financing pipeline is strong on the DFCC side and this will remain a core activity for the foreseeable future.
"On the DVB side, the bank has successfully positioned itself in all market segments and has procured the necessary means – human, financial, technological and others – from DFCC and other sources, to drive forward. The corporate model is therefore performing well," he said.
However, he indicated that the evolving regulatory landscape, competitive pressures and market forces may dictate concentration of resources on the commercial banking operations of the DFCC banking business at some point in the future.
"Other development finance institutions in the region, with a presence in commercial banking, have also faced similar circumstances and considerations. While some have gone down the development bank – commercial bank merger route, others have opted to retain the status quo," Brito explained.
Where DFCC was concerned, their model provided the option for a restructure at some time in the future should a merger be considered the best option to compete in the market.
"Facilitation of consolidation through changes to the Banking Act would therefore be a factor that has a bearing on how we proceed," he said.
DFCC CEO Nihal Fonseka said that following regulatory approval for DVB to continue as up to 100% owned and functionally managed subsidiary, DFCC had increased its ownership of DVB to almost 99.1% investing Rs.1.34 billion in new tier one equity capital of DVB.
Total assets ran at Rs.71.7 billion and liabilities at Rs.50 billion.
The Bank of Ceylon with 14.35% is the major shareholder of DFCC followed by HNB (12.11%), the Insurance Corporation (10%) and the EPF (5.02%). Mr. M.A. Yaseen owns 8.64% and the Distilleries Company 6.43%.
The directors have recommended a first and final dividend of Rs.4 per share which will involve a payment of over Rs.1 billion, 45.7% of the bank’s own profit after-tax for the year under review.
The report said that the DFCC made a one for one bonus issue in the previous year and therefore the current dividend of Rs.4 per share is equivalent to Rs.8 per share before bonus and is a 33.33% increase over the final dividend the previous year.
The directors of the DFCC Bank are: Messrs. J.M.S. Brito (Chairman), A.S. Abeyewardene, T.K. Bandaranayake, Dr. L.P. Chandradasa, G. Dayasri, A.N. Fonseka (CEO), Mrs. Sharmalie Gunawardana, C.R. Jansz, J.E.A. Perumal and R.B. Thambiayah.