RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007

The non-audited group profit after tax, attributable to equity holders of DFCC Bank, for the six months ended 30 September 2007 (current period) was Rs1,131 million, an increase of 34 pc over the Rs841 million in the previous comparable period (April to September 2006).

Composition of Group PAT in the consolidated financial statements attributable to equity holders of DFCC Bank is given below. In the consolidated financial statements the reported profit before tax and after tax are adjusted for inter company dividends, and other consolidation adjustment, which are eliminated in the consolidation process.

Current Period Previous Comparable period Variance % Rs.m Contribution % Rs.m Contribution % DFCC Bank’s operations – PBT (as reported) Inter company dividend Other consolidation adjustment 925 (44) (6)   841 (41) -   10   Adjusted PBT 875   800   10 DVB Subsidiary – PBT 135   100   35 DFCC & DVB PBT 1,010   900   12 DFCC & DVB Tax (380)   (357)   6 DFCC & DVB PAT 630 56 543 65 16 Other Subsidiaries – PAT 66 6 36 4 83 Associate Companies*– PAT 435 38 262 31 66 Total  PAT 1,131 100 841 100 34 *  Mainly Commercial Bank of Ceylon Limited. CBC profit for the comparable period has been restated from the previously reported figure of Rs253 million arising from a change in accounting policy related to its Bangladesh operations.

DFCC Bank

The profit before Value Added Tax and Income Tax was Rs1,115 million in the current period being an increase of 10 pc compared to Rs1,010 million in the comparable period. The 11 pc decrease in the first quarter of this financial year was offset by the 32 pc increase recorded in the second quarter. 

Funds from the fully subscribed Rights Issue (net of investment in Commercial Bank of Ceylon Limited (CBC) ) and a credit line from the European Investment Bank enabled the Bank to reduce its dependence on high cost short-term customer deposits that were resorted to in the first quarter as an interim financing measure.  The reconstitution of the liabilities with a lower level of short-term customer deposits enabled the bank to improve the annualized interest margin from 3.6 pc in the first quarter to 4.7 pc in the second quarter and 4.2 pc for the full half year.

The gross approvals during the current period was Rs7,158 million being 21 pc lower than Rs9,043 million in the comparable period. The undisbursed approvals on 30 September 2007 were Rs10,328 million. Approvals and draw down for capacity expansion, modernization of existing entities and new ventures that constitutes the core business slowed down somewhat under the tight monetary policy stance adopted by the Central Bank to control credit expansion and high inflation. 

Non-interest income of Rs447 million in the current period was a 34 pc increase over Rs334 million in the comparable period. The main contributor to this increase was a Rs91 million first interim dividend from CBC. 

The current period includes a charge of Rs89 million imposed by the Central Bank by way of a general provision for advances. Since this charge commenced from the quarter commencing 1 October 2006, the comparative period of the half-year results does not include the mandatory general provision.  This general provision is a non-deductible charge for income tax and therefore has an impact on both pre-tax and post-tax profit.

The non-performing loans and advances as a percentage of the total loans and advances were 7.3 pc at 30 September 2007, a marginal increase from the 7.2 pc recorded on 30 June 2007.  The Bank’s efforts to contain the non-performing loan exposures were satisfactory in an environment of high interest rates that resulted in increased working capital requirements of borrowers thereby reducing their debt servicing capacity.

DFCC Vardhana Bank (DVB)

The operations of both DFCC Bank and DVB, 95 pc owned subsidiary, continue to be managed to optimize synergy benefits

As stated in the commentary on the first quarter results, DVB was also adversely affected by the interest rate and liquidity volatility while benefiting somewhat from exchange rate volatility. 

DVB continues to build  capacity and expand its distribution network. DVB now has 27 operating units in various parts of the country and is working on developing  alternative delivery channels and acquiring new customer relationships.

The combined Profit before Income Tax of the two entities increased by 12 pc to Rs1,010 million in the current period, compared to Rs900 million in the previous comparable period.   The increase in the second quarter was 39 pc compared with the decline of a 13 pc in the first quarter.

The combined non-interest expense to operating income ratio of DFCC Bank and DVB (cost/income ratio) was 34 pc in the current period and 33 pc in the comparable period.  For purposes of this ratio the non-interest expense exclude provision for bad and doubtful debts and Value Added Tax on financial services. This is below the industry norms due to synergies and shared services.

The consolidated net loans and advances of DFCC Bank and DVB was Rs55,679 million as at 30 September 2007 compared to Rs53,698 Million as at 31 March 2007.  The combined customer deposits of both DFCC Bank and DVB was Rs14,126 million on 30 September 2007 compared to Rs20,817 million on 31 March 2007.

The loans and advances and deposits as at 30 June 2007 of DVB are consolidated with those of DFCC Bank on 30 September 2007 in the financial statements.  DVB’s financial year ends in December, 3 months prior to that of DFCC Bank.

Other Subsidiary and Associate Companies

The share of profit after tax of CBC for the period January – June 2007 included in the consolidated financial statements was Rs435 million in the current period, an increase of 66pc compared to Rs262 million in the previous comparable period. CBC’s interest charge benefited from the successful Rights Issue of Rs5,741 million that was concluded in May 2007 as well as from higher foreign exchange profit.

The subsidiaries other than DVB collectively contributed Rs 66 million to the profit after tax of the Group compared with Rs 36 million in the previous comparable period. 

Investment in Synapsys Limited

DFCC Bank invested Rs20 million in October 2007 in this company making it a wholly owned subsidiary.  This company is approved under Section 17 of the Board of Investment Act No. 4 of 1978.  While providing information technology services and support to DFCC Bank and DVB it, will gradually widen the scope of its activities to generate new revenue leveraging on its inherent skills based strengths. In order to reach its full potential it will have to build capacity initiatives and therefore will not make a significant contribution to the profit of the Group in the current financial year ending on 31 March 2008.

Nihal Fonseka

General Manager/Chief Executive Office

19 November 2007