We have ensured that our customers kept their heads above water during the economic downturn, by understanding their challenges, working within their cash flows, restructuring their loans, offering tenure extensions, moratoriums, grace periods, and providing additional funding despite the distressed situation.
The year under review began on a positive note as the nation had successfully overcome the ravages of Covid-19, and there were promising signs of economic revival. As the year unfolded, the continuing impact of the pandemic on tourism and the economy was compounded by the foreign exchange crisis, persistent inflation, and unprecedented political upheavals. Normality was restored, to a considerable extent, towards the end of the year.
Successfully prevailing over such obstacles, including an overall economic downturn and significantly higher impairments, DFCC Bank registered a modest level of profitability. We were successful in meeting all our customer commitments and requests, as well as LC commitments. Substantial settlements to overseas lenders were also met on time. This is something that we are extremely proud of. During this period, the management and staff of the Bank displayed resoluteness of purpose and remarkable resilience in achieving our goals.
Digital to the Core
Our digital strategy has been focused on improving customer interactions and experience, enhancing staff productivity, and making their lives easier. This two-fold strategy neatly coincides into our overarching goal of being among the most customer-centric banks through digitisation. The pandemic was a time of momentous change, as our digital channels reached their highest level of adoption, with customers switching to online channels due to mobility restrictions. Closure of branches also led to the increased use of ATMs and CRMs, in addition to the DFCC Virtual Wallet for utility bill payments, and fund transfers for B2B and B2C transactions. Credit card usage has been somewhat subdued as travel was restricted, but local spends have been quite healthy, and recovery rates have been well managed.
Strengthening Relationships
We have ensured that our customers remained solvent during the economic downturn, by understanding their challenges, working out their cash flows, restructuring their loans, offering tenure extensions, moratoriums, grace periods, numerous extensions, and providing additional funding despite the distressed situation. I believe that DFCC has played an exemplary role in terms of what a bank should be during challenging times.
We have been helping micro entrepreneurs and SME clients, providing advice and guidance on proper corporate governance, know-how on improving their businesses, and taking their businesses to the next level. This sector has fared relatively well, especially those engaged in the export of essential food items and pharmaceuticals. Manufacturing was curtailed due to restrictions on the import of raw materials and machinery. Agriculture was heavily impacted by the fertilizer ban, though we are now seeing signs of gradual recovery. SME importers have also been badly hit, obviously, due to the shortage of foreign exchange and import restrictions. The upsurge in interest rates has been another serious pain point, as those who borrowed at 10%-12% interest were compelled to pay 25%-30% per annum. On the other hand, the Bank’s deposit book showed sizable growth as a result of higher interest rates.
Our retail customer base is relatively low, and more skewed towards larger corporates. We are currently focused on broadening our retail customer base, which gives us more stable funding, and also local funds, which is important for a bank. We are placing more emphasis on women customers and women entrepreneurs, through clearly positioned propositions. At this time, our major focus is not on the asset side of the balance sheet, but on the liability side, which is deposits and savings balances, along with cost management discipline and a keen focus on containing our impairments. These will remain our primary focus during the coming year as well.
Compliance and Control
Our financial crime compliance regime consists of a combination of systems and manual controls. We have systems, financial control modules, numerous anti-money laundering protocols, KYC activities, and transaction monitoring, which have been carried out with renewed focus.
The corporate governance, risk management, internal controls, and operational controls have been tightened, with added emphasis on the credit side and credit controls. Identifying risk segments, avoiding lending to these high-risk segments, and the recovery side of the business are being rigidly monitored and adhered to. We have also updated all our credit underwriting scorecards for products, introduced new scorecards with statistical modelling, and behavioural scorecards, in addition to evaluating predictive models to be introduced as we move forward.
Sustainability Taking Centre-Stage
DFCC Bank has made a conscious effort to bring structure and focus into sustainability initiatives with external guidance which helped the Bank formulate a sustainability agenda and sustainability charter, which are in compliance with the UN’s Sustainable Development Goals (SDGs). The strategy for sustainability was initially applied within the Bank, before being extended to the external environment. We currently contribute to 13 of the 17 SDGs. Aligned with these objectives, we have introduced “Bike to Work”, where we encourage our staff to bike to their respective workplaces, or use bicycles instead of cars whenever possible, which is currently being followed by other banks and corporates as well. Our sustainability framework is based on a cross-cutting theme known as the 6 Es: Education, Elderly, Emergency Relief, Entrepreneurship, Environment, and Exercise. Under these pillars, we have carried out several initiatives for our staff during the work from home period, including yoga, meditation and pilates, as well as a number of discussions on health and wellness.
Other initiatives in pursuit of our sustainability goals include: “Community Kitchen”, providing food for underprivileged families and children; Samata English program, which is now in its fifth year, where a group of discerning individuals are selected from the locality of our branches, and we prepare them to adapt their attitude and mindset, as well as inculcate the necessary skills required to find employment and to work in an office environment, teaching them how to face an interview, and how to construct a CV. Basic English is being taught in association with Gateway International, in addition to the children’s scholarship programme that we have continued over a period of time.
Renewing our Focus on Human Resources
The business landscape, along with technological advances, are changing at a rapid pace, which requires consistent and focused training and development of our staff to meet the challenges of the future. We have placed considerable emphasis on up-skilling and bringing our staff up to speed on new technologies, product management, and process improvements. Training budgets are quite robust, along with the adoption of the latest training methodologies.
With over 90% of the training being done online, staff members can follow the training and development programmes during weekends from the comfort of their homes. This provides greater geographical reach for our training, as we can extend our programmes across the provinces and outlying areas. It has also helped us deliver more training packages to our staff in a more cost-efficient and productive manner.
We strongly believe prioritising innovation and agility is fundamental in driving transformation and change across the Bank. The DFCC Agile Innovation Centre was set up to institutionalise these priorities and propel the Bank’s transformation journey by formulating strategies to build internal capacity in divergent thinking and enterprise creativity. As a first step, in 2022, the DFCC Agile Design Thinking and Transformation workshop series was launched for 45 handpicked participants. The programme focused on furthering the understanding of design thinking methodologies and tools to help develop value propositions and solutions to effectively manage the challenges of the modern marketplace caused by automation, adoption of artificial intelligence, big data, the emergence of new entrants and rapid changes in consumer behaviour. This intensive programme structured around a “learning by doing” framework was conducted through offline and online clinics and encompassed aspects such as customer research, identifying and testing value propositions, building prototypes and business case preparation and pitching the story for investment and business integration.
Facing the Future
I am of the view that 2023 will be a year of consolidation. There cannot be any aggressive lending. Managing our impairments will be crucial along with managing our costs in an environment where revenues are challenged.
The Bank has multiple systems and processes in place that have helped it weather these past challenges and will continue to provide us with that strong backing in 2023 and beyond. We are constantly on the lookout for innovative ways to move forward with the resources in hand. DFCC Bank will continue to leverage its financial and managerial strengths, proven track record of resilience, the unwavering commitment of its staff members, as well as the trust of our loyal customer base over the past 68+ years. We are confident that all these factors will contribute to achieving organic growth in the upcoming years.
My Sincere Appreciation
I take this opportunity to thank our staff who have performed with admirable commitment, dedication, and unwavering loyalty. I also extend my sincere gratitude to the Board of Directors for their guidance and advice, our customers for their loyalty, and the Governor and staff of the Central Bank of Sri Lanka, who have been a source of strength to us, in overcoming the daunting challenges of the year.
N H T I PERERA
CHIEF EXECUTIVE OFFICER
17 February 2023