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RESULTS FOR THE THREE MONTHS ENDED 30 JUNE 2009
This release relates to the Results for the three months ended 30 June 2009.
Profitability
The Bank’s own non-audited profit after tax for the three months ended 30 June 2009 (current period) was Rs468 million an increase of 35 pc over the comparable period (April to June 2008).
Despite a contraction in the credit portfolio, which mirrors the general trend in the Sri Lankan banking industry, the Bank was able to improve its net interest income through proactive liability and liquidity management. The Bank chose to shed expensive time deposits and increase the current allocation to government securities to benefit from the higher yield that prevailed earlier in the year. Thus, despite an 8.1 pc reduction in interest income on loans and advances during the current period, the net interest income of Rs770 million in the current quarter was a 13 pc increase over the comparable period.
Close attention to cost control and the cessation of general provisioning mandated by the Central Bank of Sri Lanka which ihas been built up to the maximum required level, enabled the Bank to increase the operating profit before taxes by 17.7 pc compared with the previous period.
The deferred tax liability reduced consequent to the contraction of the lease portfolio and thus reduced the effective tax rate significantly.
However, the consolidated profit attributable to equity holders after minority interest in the current period was Rs479 million, a reduction of 6.9 pc over the comparable period mainly due to the elimination of dividends received from Commercial Bank of Ceylon PLC (CBC) as a consolidation adjustment and the lower profit after tax contribution from CBC in the current period.
Consolidated earnings per share for the current period decreased to Rs3.65 from Rs3.95 in the comparable period.
Lending Activities
The combined gross advances of the Bank and DFCC Vardhana Bank Ltd (DVB) as at 30 June 2009 (consolidated with a 3 months lag due to different financial years) amounted to Rs57,831 million recording a marginal reduction of 1.4 pc in the 3 months ended 30 June 2009 primarily due to the contraction of portfolio in DFCC Bank by Rs1,213 million. The portfolio of the commercial banking subsidiary DVB decreased by Rs404 million.
Gross approval of loans and advances including finance leases for the current period was Rs.2,802 million compared to Rs.2,749 million in the comparable period.
Risk Management
The gross non-performing loans, advances and leases (NPA) ratio of the Bank was 12.3 pc and increased from 9 pc on 31 March 2009. The increase in NPA is a phenomenon experienced by the banking sector in Sri Lanka in the last few months. The SME sector and leasing business continued to experience stress but additionally a few exposures in Corporate Banking were classified non-performing during the quarter due to temporary cash flow constraints although the projects continue to be operational. The bank made specific provisions, at times over and above the minimum mandated by the Central Bank of Sri Lanka.
The consolidated non-performing loans and advances ratio of both the Bank and its commercial banking subsidiary DVB was 11.9 pc on 30 June 2009 an increase from 8.7 pc on 31 March 2009. The total provisions covered 50.5 pc of the consolidated gross NPA. Despite the continuing challenges posed by the global and local economic climate, the significant reduction in the market interest rates in recent times and the improved business sentiment consequent to the end of the war and the recent credit line granted to Sri Lanka by the IMF may help to improve the asset quality by the year end.
The Bank’s business model does not expose it to significant market risks and this risk was managed through appropriate pricing strategies.
Subsidiaries, Associates and Joint Ventures
In the case of CBC, The gross specific provision during the first quarter was Rs460 million, a substantial increase over Rs178 million in the previous comparable period. Despite this steep increase, the profit of CBC before financial services VAT and income tax was only by 6 pc lower in the current period. However, the share of profit after tax of Commercial Bank of Ceylon PLC (CBC) included in the consolidated financial statement was 15 pc lower in the current period at Rs213 million, compared with Rs252 million in the comparable period due to the higher incidence of financial services VAT arising from increase in personnel cost consequent to the renegotiation of a Collective Agreement with employees.
The contribution from DVB was Rs12 million compared with Rs 29 million in the comparable period largely due to higher provisions. Since both CBC and DVB end their financial year in December, the consolidated financial statements for 30 June include the results for the 3 months to 31 March.
The contribution of other subsidiaries and joint venture company were somewhat lower in the current period but their impact on the consolidated profits was not significant.
Nihal Fonseka
General Manager/Chief Executive Officer
30 July 2009 |
