DFCC BANK | LMD

DFCC Financial institution Resilient Amidst Financial Headwinds 

• Group Complete working earnings up by 29% to LKR 41Bn
• Group tax expense for the 12 months was LKR 7Bn
• Impairment cost of LKR 14Bn reflective of current financial stresses
• Group Revenue After Tax   LKR  8.65Bn 

In a demanding banking panorama, DFCC Financial institution demonstrated resilience amidst vital native financial disruptions. Proactive coverage changes facilitated a notable discount in traditionally high-interest charges geared toward bolstering financial development and stabilising inflation. These changes, initiated in June 2023, envisaged a considerable and widespread lower in lending charges throughout markets, aligning with the overarching objective of financial easing. Complementing this effort, DFCC Financial institution promptly aligned with directives, decreasing lending and deposit charges to make sure the efficient transmission of financial coverage advantages to companies and people. Furthermore, the Financial institution strategically augmented profitability by optimising its funding portfolio, notably via elevated holdings in high-yield authorities securities. These measures enabled the Financial institution to take care of profitability while offering a lot wanted concessions to our valued prospects throughout these difficult instances. 

The next commentary pertains to the unaudited Monetary Statements for the interval ended 31 December 2023, offered in accordance with Sri Lanka Accounting Commonplace 34 (LKAS 34) on “Interim Monetary Statements”.

Monetary Efficiency

Profitability

DFCC Financial institution PLC, the biggest entity inside the Group, reported a Revenue Earlier than Tax (PBT) of LKR 10,960 Mn and a Revenue After Tax (PAT) of LKR 7,220 Mn for the 12 months ended 31 December 2023 in contrast with the earlier 12 months’s PBT of LKR 2,439 Mn and a PAT of LKR 2,513 Mn. The Group recorded a PBT of LKR 12,508 Mn and PAT of LKR 8,659 Mn for the 12 months ended 31 December 2023 as in comparison with LKR 3,112 Mn and LKR 3,042 Mn, respectively, in 2022. All of the member entities of the Group made optimistic contributions to this efficiency. The Financial institution’s Return on Fairness (ROE) improved to 12.19% in the course of the 12 months ended 31 December 2023 from 5.04% recorded for the 12 months ended 31 December 2022. The Financial institution’s Return on Belongings (ROA) earlier than tax for the 12 months ended 31 December 2023 is 1.82% in comparison with 0.46% for the 12 months ended 31 December 2022. The Financial institution’s complete tax expense, which incorporates Worth Added Tax (VAT) and Social Safety Contribution Levy (SSCL) on monetary companies and Earnings Tax is LKR 6,927 Mn for the 12 months ended 31 December 2023. Consequently, the Financial institution’s tax expense as a proportion of working revenue for the 12 months stood at 48.96%.

DFCC declared a last dividend of LKR 5.00 per share, consisting of LKR 3.00 per share in money and LKR 2.00 per share within the type of a scrip dividend for 2023.

Internet Curiosity Earnings

The tight liquidity circumstances within the home cash market have resulted in constantly rising market rates of interest in early 2023. Whereas the upper rates of interest have depressed the lending portfolio, strategically, the Financial institution elevated its funding portfolio in excessive yield authorities securities, which led to an total enchancment in Internet Curiosity earnings (NII). Nevertheless, with the market steering offered by the Central Financial institution, together with enchancment in liquidity circumstances of the home cash market consistent with the relaxed financial coverage stance of the Central Financial institution, each deposit and lending rates of interest have continued to regulate downwards. Accordingly, the Financial institution has diminished each lending and deposit charges to align with the financial instructions to ease financial circumstances for people and companies adequately and swiftly, thereby supporting the envisaged rebound of the financial system. Whereas decrease rates of interest could have resulted in diminished curiosity earnings and bills, in nominal phrases, Internet Curiosity Earnings (NII) has continued to enhance as a metric in the course of the interval below overview on account of the Financial institution’s technique of investing in high-yield authorities securities.

Strategically, the Financial institution thus elevated its fixed-income funding portfolio, contributing considerably to elevated curiosity earnings and The Financial institution’s Internet Curiosity Earnings (NII), which is its core enterprise, elevated by 18% to succeed in LKR 31 Bn by the top of 2023. The curiosity margin elevated from 4.96% in December 2022 to five.18% by December 2023.

Price and Fee Earnings

The Financial institution’s dynamic methods and the efforts of its devoted groups led to elevated remittances, trade-related commissions, and different payment earnings strains, which contributed to the rise in non-funded enterprise in the course of the interval. Price earnings generated by bank cards additionally elevated considerably, consistent with the quantity of the transactions. Accordingly, web payment and fee earnings have elevated by 36% to LKR 3,905 Mn for the 12 months ended 31 December 2023, in comparison with LKR 2,877 Mn for the comparative interval in 2022.

Impairment Cost on Loans and Different Losses

The impaired mortgage (stage 3) ratio elevated from 4.36% in December 2022 to 7.03% as of 31 December 2023, persevering with the prevalent development amidst the current financial circumstances. Nevertheless, the optimistic developments within the macroeconomic atmosphere coupled with the Financial institution’s concerted efforts in recoveries resulted in decreasing the impairment cost for the 12 months 2023 in comparison with the 12 months 2022. To deal with the present and potential future impacts of the current financial circumstances on the lending portfolio, the Financial institution made ample impairment provisions in the course of the 12 months by persevering with to calibrate inner fashions to account for unseen threat elements sooner or later, together with further provisions made for the Financial institution’s publicity to threat elevated sectors.

The Financial institution has used vital judgment utilizing the data accessible on the reporting date to estimate the recoverable worth of international currency-denominated funding securities issued by the Authorities of Sri Lanka. Accordingly, an impairment cost has been recognised to take care of a provision cowl of fifty% on the above investments.

Accordingly, with these provisions to handle the extra dangers within the financial atmosphere, the impairment cost recorded at LKR 13,985 Mn for the 12 months ended 31 December 2023, in comparison with LKR 17,041 Mn within the comparable interval.

Working Bills

Working bills for the 12 months ended 31 December 2023 elevated to LKR 11,720 Mn in contrast with LKR 10,117 Mn in the course of the corresponding interval in 2022, primarily because of the enhance in inflation. Nevertheless, the Financial institution has taken quite a few price management measures inside the Financial institution, leading to working bills being curtailed and managed at these ranges. The Financial institution achieved a wholesome 29.41% price/earnings ratio in 2023 in comparison with 32.79% in 2022.

Different Complete Earnings (OCI)

Adjustments within the truthful worth of investments in fairness securities and fixed-income securities (treasury payments and bonds) and motion in hedging reserves are recorded via different complete earnings. Because of the software of hedge accounting, the impression on the whole fairness of the Financial institution as a result of change charge fluctuation was minimised. A good worth achieve of LKR 7,016 Mn was recorded on account of fairness securities excellent as at 31 December 2023. The rise within the share worth of Business Financial institution of Ceylon PLC in the course of the interval was the principle contributor to the reported truthful worth achieve in fairness securities. The beneficial motion in treasury payments and bond yields additionally resulted in a good worth achieve of LKR 5,932 Mn in the course of the 12 months. 

Enterprise Development

Belongings

Regardless of the challenges confronted by the financial system and the banking sector, DFCC Financial institution’s complete property elevated by LKR 74.6 Bn, recording a development of 13% from December 2022. Aligning the Financial institution’s development technique to the current financial local weather by rising funding in fixed-income securities, mixed with optimistic truthful worth motion in each fixed-income securities and fairness securities, has contributed to a 113% enhance in funding in monetary property at truthful worth via different complete earnings as of 31 December 2023 in comparison with the steadiness as of 31 December 2022. With elevated provision for anticipated credit score losses, appreciation of the Sri Lanka Rupee in comparison with 31 December 2022 and appreciable financial challenges, the online mortgage portfolio has recorded LKR 349 Bn as at 31 December 2023, which is 6% decrease than the steadiness as at 31 December 2022.

Liabilities

The Financial institution’s deposit base skilled a development of 9.97% in the course of the 12 months, recording a rise of LKR 37 Bn to LKR 407 Bn, up from LKR 370 Bn as at 31 December 2022. This resulted in recording an improved loan-to-deposit ratio of 96.92%. Additional, the CASA ratio was 23.79% as at 31 December 2023. The Financial institution’s funding prices have been additionally contained utilizing medium to long-term concessionary credit score strains, primarily used to develop the lending portfolio and supply a lot wanted concessionary funding to our prospects. Contemplating these concessionary time period borrowings, the CASA ratio additional improved to 33.57%, and the loans-to-deposit ratio improved to 84.47% as at 31 December 2023. 

Fairness and Compliance with Capital Necessities

DFCC Financial institution’s complete fairness elevated to LKR 68 Bn as at 31 December 2023, supported by beneficial actions within the fairness portfolio and glued earnings safety portfolio categorized as truthful worth via different complete earnings, and optimistic actions within the hedging reserve, along with the recorded revenue after tax of LKR 7.2 Bn. Accordingly, Tier 1 and Complete Capital ratios improved to 11.490% and 13.511%, by 31 December 2023, in comparison with 10.085% and 13.148%, respectively, as at 31 December 2022. The Financial institution’s Internet Secure Funding Ratio (NSFR) was 124.60%, and Liquidity Protection Ratio (LCR) – all forex – was 597.47% as at 31 December 2023, in comparison with 126.55% and 202.34%, respectively, as at 31 December 2022. All these ratios have been thus maintained nicely above the minimal regulatory requirement.

CEO’s Assertion

“In gentle of our strong monetary efficiency in 2023, marked by substantial development in complete property, deposit base, and profitability metrics, together with a notable 187% enhance in revenue after tax, DFCC Financial institution stays steadfast in its dedication to prudent monetary administration and sustainable development. Our strategic investments in high-yield authorities securities and centered efforts on payment earnings technology have bolstered our web curiosity earnings and non-funded enterprise strains. Regardless of prevailing financial challenges, we’ve maintained resilient credit score high quality and fortified our capital place, as evidenced by improved fairness ratios and compliance with regulatory necessities. Our dedication to innovation and customer-centric values continues to be recognised, reaffirming DFCC Financial institution’s place as a frontrunner within the banking sector. Wanting forward, we stay centered on driving inclusive development, fostering sustainability, and delivering worth to all stakeholders.

A major milestone this 12 months was our accreditation by the Inexperienced Local weather Fund (GCF), making DFCC Financial institution the primary entity in Sri Lanka to obtain such recognition. We’re additionally honoured to obtain prestigious accolades such because the ‘Euromoney Money Administration- Market Chief Award 2023 and the Advantage Award for the ‘Inexperienced Model of the Yr’ at SLIM Model Excellence.’ These recognitions underscore our unwavering dedication to sustainability, innovation, and customer-centric values. As we proceed to revamp our Company and Retail banking digital platforms and implement concessionary lending schemes to assist our prospects throughout difficult instances, we stay dedicated to serving because the Financial institution for Everybody, supporting sustainable and social entrepreneurship and driving optimistic change within the communities we function and serve.”