The DFCC Group posted a consolidated profit after tax of LKR 2,973 million for the financial year 2011/12. The figure is an increase of 37% over the LKR 2,170 million recorded in the previous year (excluding the exceptional profit relating to the reduction of DFCC's shareholding in Commercial Bank of Ceylon PLC in 2010/11). For the quarter ended 31 March 2012, the post tax group profit increased by 22% to LKR 769 million.
|Nihal Fonseka Chief Executive DFCC Bank
||J M S Brito Chairman - DFCC Bank
Main contributing factors to the profit growth were lower loan loss provisioning and higher write-backs due to improved asset quality and recoveries, higher non-funds based income and a strong loan portfolio growth.
These more than offset the slightly reduced contribution from the 50% owned investment banking joint venture Acuity Group, which was affected by the somewhat unfavourable market conditions in the latter part of 2011. The combined credit portfolio of the DFCC Bank (DFCC) and DFCC Vardhana Bank (DVB) grew 47% from LKR 60,771 million to LKR 89,111 million. Credit growth was experienced across diverse areas of economic activity, in both the Corporate and Small and Medium Enterprise (SME) sectors.
DFCC and DVB continued to expand its operations by bringing its total number of branches and service locations to 127, of which 72% are presently outside the Western Province. Of particular significance is the growth of business in the Northern and Eastern Provinces in the post-conflict environment. DFCC now operates 11 customer service centers in these provinces compared with none three years ago. The Bank is also a net transferor of financial resources to these regions through direct lending which exceeds the deposits raised from the regions. It also acted as the apex lender of a EUR 5 million medium-term credit line provided by the German development finance agency KfW, for small scale enterprises in the North and East.
The total SME portfolio of DFCC and DVB comprising of loans and leases increased from LKR 34,991 million to LKR 54,651 million during the year, recording a strong growth of 56% that follows a 29% growth in the previous year. The SME portfolio now accounts for about 61% of the Banks' total credit portfolio signifying the importance we attach to this sector for the development of regional economies through capital formation and employment creation. 2011 was an important year, as DFCC's almost wholly-owned (99.1%) subsidiary DFCC Vardhana Bank (DVB) increased its focus on the top end corporate sector for working capital and trade finance as well as the Personal Financial Services (PFS) segment. DFCC Bank tapped wholesale deposits to supplement its funding base whilst DVB launched several deposit products to cater to personal customers to their life cycles.
Total customer deposits of the Group increased 75% to LKR 44,420 million from LKR 25,416 million an year earlier. In order to support the PFS initiative an investment was made to establish the DFCC brand in this segment through a major promotional campaign via the award winning knowledge quiz programme 'DFCC MindStar' on national television. An initial outcome of these efforts was the increase of the PFS asset portfolio to LKR 4,200 million from a base of only LKR 900 million a year ago. This high growth rate, albeit from a small base, demonstrates that DVB has the potential to sustain the growth momentum created in Personal Financial Services.
DFCC Group continued to focus on controlling costs . During the year, DFCC Bank's cost to income was 31.6% while DFCC and DVB taken together recorded a creditable combined cost to income ratio of 42.5% for the year which compares very well with domestic private sector banks in Sri Lanka.
This was largely achieved through reaping synergies arising from shared services between DFCC and DVB, as well as continuous focus on productivity improvements.
Looking forward optimistically to the future, Nihal Fonseka, Chief Executive of DFCC Bank stated "In deciding on our strategic positioning we are conscious that being a mere follower will not allow us to achieve our corporate vision.
Technology, especially smart phones, tablets, and social media have radically changed the way customers deal with banks and make payments not only in the developed world but even in emerging economies. Although branches will continue to be important, how customers interact with branches will change significantly and banks will have to face competition from other delivery channels and disintermediation. Our medium term strategies will focus on leveraging technology and developing partnerships not just for generating a short-term competitive advantage but to radically change the way services are delivered to customers".