Core lending, interest income drive DBSA’s profit up by 182%

17th September 2021 By: Donna Slater - Creamer Media Contributing Editor and Photographer

Development finance institution (DFI) the Development Bank of Southern Africa (DBSA) reports that its net profit for the financial year ended March 31 increased by 182% to R1.4-billion, compared with the net profit of R504-million recorded for the 2020 financial year.

CEO Patrick Dlamini says that managing profitability and efficiencies were the main drivers of the good set of results.

The net profit arose from the core lending activities of the bank, along with growth in net interest income, which increased by 11% year-on-year.

Despite currency headwinds, the DBSA increased its operating income by 8% to R5.1-billion, up from R4.7-billion in the year prior.

Also, the bank reports that impairment charges reduced by 68% year-on-year, with the DBSA having made significant adjustments to accommodate for the negative impact of the Covid-19 pandemic.

In addition, the DFI notes that effective cost containment strategies enabled it to improve its cost-to-income ratio, from 28% in the 2020 financial year, to 25% for the 2021 financial year.

The DBSA says that, despite the impact of the pandemic, it remains focused on its mandate of pursuing its growth strategy, which is designed to augment disbursements through emphasis on its catalytic role aimed at contributing to sustainable infrastructure development beyond the confines of its own balance sheet.

FINANCIAL POSITION

Year-on-year, the bank’s total asset base remained at the R100-billion level, despite loan repayments having reached a record level of R19-billion. This comprised principal loan repayments of R11-billion and interest repayments of R8-billion, which were offset by currency movements of R5-billion and new disbursements of R13.5-billion.

The DBSA’s development loan disbursements decreased by 14%, from R15.6-billion in the prior year, to R13.5-billion in the year under review, as the impact of the pandemic disrupted new business.

At period-end, the DBSA’s equity investment portfolio decreased by 16% year-on-year, from R5.9-billion to R5-billion, as a result of currency movements of about R619-million.

The bank recorded capital repayments of R236-million and fair value adjustments of R349-million during the year, as well as experiencing an increase in expected credit loss provisions of R1.2-billion on the back of marginal deterioration in the overall risk of the loan book and the average probability of default of the loan book increasing marginally.

Further, the DBSA increased its impairment coverage levels on the loan book from about 11% in March 2020, to about 12% at period-end, resulting in the balance sheet provision for expected credit losses increasing by 12% to R11.4-billion.

However, when compared with the prior year, the expected credit loss provision charge in the income statement significantly decreased by 68%, from R3.6-billion to R1.2-billion.

The DBSA’s cash collections reached record levels during the period under review, contributing to the increase in cash generated from operations, from R3.6-billion in 2020 to R4.5-billion for the 2021 financial year.

Cash and cash equivalents increased to R9-billion, from R3.5-billion in 2020.

“We have been successful in raising funding from international development finance institutions, as well as international and local commercial banks,” Dlamini says, adding that this gives the DBSA confidence in its ability to continue attracting investors in an increasingly challenging environment.

“Many countries were faced with finding a balance between the containment of the virus while continuing to support economic growth,” he notes.

DEVELOPMENT IMPACT

During the 2021 financial year, the DBSA made it possible for 6 909 learners to receive access to 11 newly built schools across South Africa, while 33 125 learners benefited from 51 refurbished schools.

Interventions at municipal level resulted in the successful completion of 13 projects.

In addition, 1 031 small, medium-sized and microenterprises (SMMEs) benefited from the infrastructure that has been delivered to date, of which 80 are women-owned SMMEs.

The DBSA also delivered infrastructure to the value of R26.6-billion, of which R8.2-billion was infrastructure catalysed.

In terms of its outlook, the DBSA reports that, despite the challenging economic environment, the DFI has built a resilient balance sheet and continues to play a significant role in infrastructure development through lending and non-lending activities.

“Our continued success hinges on our ability to grow developmental impact using our own balance sheet and partnering with others. Both domestic and global economic factors are critical to the achievement of the DBSA’s objectives,” Dlamini says.

He adds that the DFI has a healthy pipeline of projects that form a solid springboard for success in the future.

“We will continue to focus on disbursing to infrastructure projects to grow developmental impact in line with our mandate.”