The DFCC Bank said yesterday its non-audited profit after tax for the three months ended 30 June 2010 (current period) was Rs5,645 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 to10.7 pc of issued voting shares during the current period. The Bank also transferred 10.6 million ordinary voting shares representing 3 pc of the issued shares to dealing securities reflecting the decision to reduce the Bank's holding to 15 pc. The residual holding of 15 pc has been classified as an investment security and is carried at cost (Rs31.31 per share) in the Bank's balance sheet and at equity accounted cost (Rs78.61 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 associate company until 1 June 2010. The consolidated income statement for the current period therefore includes the proportionate share of the profit after tax of CBC for April and May 2010 based on non-audited half-year financial results of CBC. The share of profit of CBC for the period January to March 2010 was accounted through the Reserves.
DFCC Bank CEO and Director Nihal Fonseka in a statement accompanying interim results said the post tax profit of the Bank excluding the impact of the transactions in CBC shares was Rs363 million in the current period compared to Rs468 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 Rs188 million in the comparable period to Rs420 million in the current period. The provision net of recoveries was also higher at Rs297 million in the current period compared to Rs116 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.
The gross advances of the Bank as at 30 June 2010 amounted to Rs 37,571 million, a reduction of 4.6 pc in the 3 months ended 30 June 2010. 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 pc in the 3 months. However, gross approval by the Bank of loans and advances including finance leases in the current period was Rs3,616 million compared to Rs2,802 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 pc, 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 30 June 2010, specific provision cover was 45 pc and the non-performing loan exposure net of specific and general provisions (disregarding collateral value) as a percentage of equity of the Bank on 30 June 2010 was 9 pc.
The contribution to profit after tax from DVB was Rs102 million compared with Rs29 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 Rs215 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 Rs35 million in the current period compared to Rs27 million in the previous period.
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 30 June 2010 reduced its voting shareholding in CBC by a further 3 pc to 15 pc. The 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 30 September 2010. 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. Mr. Fonseka said.
source - www.dailymirror.lk
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