Banking
DFCC continues to be at the forefront of Project Finance
Over the last six decades, DFCC Bank has remained steadfastly committed to its mission as Sri Lanka’s pioneering and premier development bank and continues to be regarded as a leading reference for project financing in the banking industry.
DFCC offers a wide range of project financing products and services aimed at providing support for enterprise building across all verticals regardless of scale and country. Following are the excerpts of an interview held with DFCC Senior Vice President – Corporate Banking & Investment Banking Tyrone de Silva on the potential and extended the extended support in project financing.
Q: Can you brief us about the DFCC’s mandate in project financing business?
DFCC is Sri Lanka’s pioneering development finance institution. It was established by an Act of Parliament in 1955 to provide long-term project finance and support to the Private sector. The Act was amended in 1997 to include the Public sector as well. Up to 1977, when the State owned NDB was set up, DFCC was the sole long-term project financier in the country.
Tyrone De Silva- DFCC Senior Vice President - Corporate Banking & Investment Banking
This role was facilitated by access to dollar funds from institutions such as the World Bank and the ADB, which enabled the import of capital goods by the private sector. Throughout the years DFCC forged relationships with a range of enterprises including multinationals, local corporates, SMEs and entrepreneurs, many of whom obtained their start-up financing from us. In fact we can safely say that at some point in time, most private sector undertakings in Sri Lanka had a relationship with DFCC.
Q: What are the industry areas the DFCC would assist?
DFCC is involved in virtually every industry sector. This has come about by virtue of our long established developmental role, where we assisted many pioneering industries in the Agriculture, Manufacturing and Service sectors. Resort hotels are among the earliest examples where we supported the first projects undertaken by private developers on the coastal belt. Telecoms are another where we financed Sri Lanka’s first mobile operator. Our assistance to the renewable energy sector is especially noteworthy.
In 1996, we financed, with both long-term debt and equity, Sri Lanka’s first ever privately owned, grid connected mini-hydro power plant. We have gone on to support several others and in fact, DFCC’s role in the renewable energy sector has been commended by the World Bank.
Also, our in-house appraisal skills have enabled us to assist local developers in setting up projects overseas, for instance in Africa. DFCC was also involved in the first wind power project and is assisting others. In recent times, DFCC has increased its assistance to the public sector by financing several projects under the Government’s infrastructure programme. These include buildings, road and water supply projects. Of course not all industries turned out to be successful as anticipated. The aquaculture and sericulture industries come to mind, where unfortunately for several reasons many of the smaller projects had to be rehabilitated or abandoned.
Q: How would you consider the risk element involved in new ventures?
Project financing is primarily based on the cash flows that are generated to service the debt and provide a return to the equity investors. Therefore, every project is appraised to determine not just the expected cash flows, but also the behaviour of these cash flows under various scenarios. For instance, what would happen to the project should raw material or power costs increase, or exchange rates fluctuate, or there is a threat from new competition? We then assess the project risk by looking at the probability of these scenarios occurring and the circumstances that would mitigate any adverse impact. While project finance facilities are backed by some form of collateral, usually the project assets, security is generally not the overriding consideration.
Q: After six decades in operation, what is your market standing?
In project financing, DFCC is generally regarded as having the finest pool of skills and expertise stemming from almost 60 years experience. We are also renowned for taking the early project risk and partnering the enterprise to a mature level where commercial banks would come in. Also, it is not only funding that we provide, but knowledge in other business areas as well. In fact we are proud of the fact that many of Sri Lanka’s leading businesses of today had their beginnings with DFCC Bank.
Q:From where will you bring in the funds to meet the project requirements?
DFCC is well known to multilateral lending agencies having being a project financier for decades. Moreover, most of these agencies consider DFCC as the preferred conduit for their lending to local projects. DFCC therefore leverages on these relationships to secure long term credit lines and in fact a concessionary credit line from the European Investment Bank will be available shortly. Also, we appreciate the Government’s continuing role in supporting DFCC to raise funds from international markets.
Q: Are you looking at a downward trend in the interest rates which will help reduce the NPL ratio?
A: Yes we are, interest rates should moderate within the next few months and naturally this would ease the overall debt servicing burden. However, as regards Non Performing Loans, other factors beside interest rates are usually at play. Nonetheless, at DFCC, the overall delinquency situation is well under control.
Q: In your view what are the growth areas?
Our portfolio expansion is geared to ride the expected rebound from the agriculture and service sectors. While construction and infrastructure remain the broad growth areas, other more specific prospects exist. For instance our pipeline includes a diversity of projects ranging from wind and bio-mass power to tertiary education, regional hospitals, themed hotel properties, commercial agriculture and environmental sustainability programmes.
Moreover, we are encouraged that this pipeline has been generated by both our corporate and SME clientele. Therefore, the outlook for expanding our project finance business remains positive.
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