High levels of liquidity in Sri Lanka's banking system prevailing for most of the current period has led to "intense" competition with the interest spread coming under pressue, according to top banker Nihal Fonseka, the Chief Executive of DFCC, a local financial group comprising commercial banking, investment banking and stockbroking, interests.
In addition, he commented that, as a result, the DFCC Banking Business (DBB), which includes DFCC Bank, a licenced specialised bank, and DFCC Vardhana bank (DVB), a licenced commercial bank, had experienced a net interest income decline of 9% year-on-year, to Rs. 2.2 billion, for the six months to end-September 2011. This was also despite total loans and advances of DBB growing to Rs. 74 billion, compared to Rs. 54 billion for the same period in 2010.
He also opined that "market conditions in the current period resulted in a significant reduction in marked to market gains in debt and equity instruments in the trading portfolio." However, Mr. Fonseka further added that "DVB’s initiatives to diversify its product range and market segments were successful with strong growth in pawning complementing the growth in corporate credit. In the case of DFCC the undisbursed approvals on 30 September 2011 were Rs. 16 billion, compared to Rs. 14 billion, on 31 March 2011."
Meanwhile, DBB's total income for the three months to end-September 2011 was at Rs. 2.56 billion, down from Rs. 2.96 billion for the comparable quarter of 2010. While, DBB's total deposits and total borrowings, as of end-September 2011, were Rs. 29.82 billion and Rs. 36.06 billion.
Mr. Fonseka also noted that "profit before income tax of DBB of Rs. 1,439 million in the current period was marginally lower by 3.3% compared to Rs. 1,488 million in the comparable period. However DBB benefitted from the lower taxes that came into effectin the current financial year and consequently recorded Rs. 1,132 million as profit after tax in the current period which was an increase of 20% over the comparable period."
Also revealed; "Operating expenses of the DBB increased by 18% in the current period to Rs. 1,267 million mainly due to expenses relating to expanding the distribution network and related head count increase. The recently opened branches are yet to break even and this contributed to the ratio of operating expenses to operating income to increase to 44% in the current period compared to 32% in the comparable period."
According to Mr. Fonseka; "The DFCC Group recorded a consolidated profit after tax of Rs. 1,249 million for the half year ended 30 September 2011 (current period) compared with Rs. 3,892 million in the corresponding period of the previous year (comparable period). This profit for the comparable period included a one off gain of Rs. 3,001 million from the disposal of part of the equity stake in Commercial Bank of Ceylon PLC (CBC)." |
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