Vardhana Bank records 80% growth in deposits

DFCC Vardhana Bank, the commercial banking arm of the DFCC Bank has recorded an impressive growth of 80% in its deposit base as at end September 2008 compared with the figures reported on the same day of 2007. This is the highest growth rate achieved by any bank in the country at a time when banks are facing liquidity pressures owing to declining trend in ability to save whilst credit demand has increased as a result of inflation.

L.G. Perera, Managing Director / CEO of DFCC Vardhana Bank is pleased with this achievement in a fiercely competitive market. He further elaborated on the bank’s overall performance up to quarter ended September whilst addressing major concerns facing the banking sector including Vardhana Bank.

Interest Income and costs

The Net Interest Income of DFCC Vardhana Bank for the nine months ended 30th September 2008 amounted to   Rs 814.4 mn.  This   reflects   a remarkable growth of approximately 83% over the same comparable period of last year.

Total   Interest   income   increased   by 66% to Rs 2.2 bn for the nine months ended September ’08, aided by higher interest margin of 5.4% recorded in 2008 from 4% in the third quarter of 2007 in addition to increased loans and advances.

The   interest income on interest bearing assets depicted a growth of 247% and stood at             Rs 344mn as at the end of Sep ’08 compared to Rs 99mn in 2007. This is due to higher investments in Treasury bills and Bonds in the current year amounting to Rs 5.08bn in comparison to an investment of Rs 709 mn in 2007.

Interest costs on customer deposits was Rs 1.28bn as at end September 2008 compared to            Rs 649 mn in 2007. Total non interest expenses rose from Rs 354.5mn to Rs 538 mn in 2008 due to the rapid branch expansion and staff costs related to same. These branches which are relatively new did not have time to breakeven and contribute to the income stream of the Bank   during the first year of operations.

Return on Assets

Return on Assets (ROA) and Return on Equity (ROE) stood at 0.62% and 4.78% respectively as at end September 2008. This denotes a deterioration of 0.44% and 4.8% respectively due to the decrease in profit after tax by 16 % and higher equity base in comparison to last year.

Although Profit before tax and provisions amounting to Rs 493 mn   reflected   a growth of   70%, Profit after the provisions for loan losses   amounting to  Rs 264 mn  showed a growth  of only  8% over the previous year. This was due to higher provisions being made in the financials over and above the regulatory CBSL provisioning guidelines due to more prudent practices adopted by the Bank. This resulted in the provision cover increasing by 10 percentage points from 16% in Sep ’07 to 26% in Sep ’08.

Loan Growth and Asset Quality

Total Gross loans and advances portfolio stood at Rs 14.58bn as at the end of the 3rd quarter of 2008 which depicts a 35% growth over the last year .However, this is relatively low compared to the loan growth of 53% achieved in the same period in 2007 due to a policy decision made by DVB to curtail loan growth in the light of a weakening macro environment.

The Gross Non performing   advances   ratio deteriorated   to 9.65% at the end of September 2008 from 8.5% in 2007. This is mainly due to significant exposure to economic sectors which are under performing owing to both local and global pressures. Construction, readymade garments and tea sectors contributed significantly to the rise in NP advances. The increasing industry NPA average clearly indicates the challenge the banks will be called upon to face in the short to medium term.

However the Net Non Performing ratio net of provisions and interest in suspense improved by   0.19% due to the higher provisions being made during the year.

Deposits

DVB has achieved a strong deposit growth of 80% at the end of the 3rd quarter, supported by the groups’ strong image and aggressive campaigns carried out during the year. Total deposits of the bank stood at Rs 17.67Bn at the end of September 2008. Total Deposits which accounted to 80% of DVB’s funding mix at September 2008 would continue to be the primary source of funding in the short term.

The savings deposits stood at Rs 2.55 Bn which depicts a growth rate of 143% over the last year due to a vigorous effort made by the Bank to drive the savings deposits in the given year. 

The credit to deposit ratio has improved significantly by   the end of September 2008 and stood at 82%   in comparison to 110% a year earlier.

Capital Resources and Borrowings

The equity Capital of the Bank increased to Rs 2.6 bn as at 30th September 2008 supported by a capital infusion of Rs 893.3 mn by the shareholders at the end of 2007 and growth in profits. Presently, the equity capital represents 11% of the total resources of the Bank.

The increased equity capital of DVB conforms to the minimum regulatory capital requirement of   Rs 2.5bn for licensed commercial banks as at the end of 2007.

Other borrowings of the Bank as at 30th September 2008 stood at Rs 1.9 bn or 8.4% of the total resource base.

The bank has undertaken a series of innovative initiatives during the year to maintain the growth momentum it has achieved so far whilst introducing more stringent precautionary measures to enable the bank to ride through the turbulent economic environment facing the banking industry.

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