Loan approvals drop in 9th mth period for DFCC Bank

Non-audited profits of the DFCC Bank group for the nine months ended 31 December 2007 was Rs 3,642 million, up 19 percent over the Rs. 3,051 million in the previous comparable period (April to December 2006).

Profits from financial services, VAT and income tax expense was Rs 1,924 million with 53 percent of this profit and the profit attributable to equity holders after minority interest being Rs.1659 million, up 21 percent over the previous period.

Officials said gross approvals of DFCC Bank during the current period was Rs 10,412 million, 39 percent lower than Rs17,130 million in the comparable period reflecting the lower credit demand for capital asset funding and leases of acceptable credit quality in the high interest rate environment that prevailed.

The bank said it was particularly cautious in expanding the fixed rate medium term leases due to credit and market risk concerns and also due to changes to the tax structure introduced in the last budget that affected the profitability of this product.

Gross non-performing loans and advances ratio of the bank declined from 7.3 percent on 30 September to 6.2 percent on 31 December 2007, higher than the 4.5 percent on 31 March 2007. “However, we consider the portfolio risk level to be acceptable in the context of prevailing high interest rate regime reducing the debt service capacity of borrowers and the developmental role of the bank with a significant credit exposure to small and medium enterprises located in underdeveloped provinces. The bank’s business model does not expose it to significant market risks and this risk was managed through appropriate pricing strategies,” it said.

The bank invested an additional Rs 857 million in subsidiary DVB (Vardhana) by taking up its entitlement of the rights issue. This investment made in December 2007 enabled DVB to comply with the minimum equity requirement of Rs 2,500 million on 31 December 2007, mandated by Central Bank.

The bank said it is in the process of setting up an equally owned joint venture investment bank with Hatton National Bank. Preliminary regulatory clearances have been obtained for this venture. The new company is expected to commence operations shortly.