General
The Board of Directors of DFCC Bank PLC (the Bank) takes pleasure in presenting the Report on the State of Affairs of the Bank as published in this Annual Report of the Bank which also consists of the Audited Financial Statements of the Bank, the Consolidated Financial Statements of the Group and the Auditors’ Report on those Financial Statements.
The disclosures in this Annual Report conform to the requirements of the Companies Act No. 07 of 2007, the Banking Act No. 30 of 1988 (as amended) and the Directions issued by the Monetary Board of the Central Bank of Sri Lanka under the Banking Act and the Listing Rules of the Colombo Stock Exchange (CSE).
The disclosures required under Section 168 of the Companies Act No. 07 of 2007, published in this Annual Report are tabulated below.
| Section | Disclosure requirement | Reference to Annual Report |
| 168 (1) (a) | The nature of the business of the Bank and the Group | Page 211 (Note 1.4 to the Financial Statements) |
| 168 (1) (b) | Signed Financial Statements of the Bank in accordance with Section 152 | Page 205 (Financial Statements) |
| 168 (1) (c) | Auditors’ Report on Financial Statements of the Bank and the Group | Page 197 |
| 168 (1) (d) | Changes in accounting policies made during the accounting period | Page 221 (Note 6 to the Financial Statements) |
| 168 (1) (e) | Particulars of entries in the interest register made during the accounting period | Page 175 of this Report |
| 168 (1) (f) | Remuneration and other benefits of Directors during the accounting period | Pages 174, 273 and 341 (Notes 20 and 57.2 to the Financial Statements and this Report) |
| 168 (1) (g) | Total amount of donations made by the Bank during the accounting period | Page 176 of this Report |
| 168 (1) (h) | Information on Directorate of the Bank during and end of the accounting period and persons who ceased to hold office as Directors during the accounting period | Page 174 of this Report |
| 168 (1) (i) | Amounts payable to the Auditors’ as audit fees and fees for other services rendered during the accounting period as a separate disclosure | Page 273 (Note 20 to the Financial Statements) |
| 168 (1) (j) | Auditors’ relationship or any interest with the Bank and its subsidiaries | Page 174 of this Report |
| 168 (1) (k) |
Annual Report of the Board of Directors on the State of Affairs of the Bank signed on behalf of the Board of Directors |
Page 178 (Signed with an acknowledgment by two Directors and the Company Secretary) |
Constitution
DFCC Bank was incorporated in 1955 under the DFCC Bank Act No. 35 of 1955 as a limited liability public company and the ordinary shares of the Bank were listed on the Colombo Stock Exchange.
Consequent to the enactment of the DFCC Bank (Repeal and Consequential Provisions) Act No. 39 of 2014, the DFCC Bank Act No. 35 of 1955 was repealed and with effect from 6 January 2015 the Bank was incorporated under the Companies Act No. 07 of 2007 as a public limited company listed on the Colombo Stock Exchange with the name “DFCC Bank PLC”.
The shareholders at the Extraordinary General Meeting held on 28 August 2015 approved the amalgamation of DFCC Vardhana Bank PLC (DVB) with DFCC Bank PLC (the Bank). The Registrar General of Companies on 1 October 2015 issued the Certificate of Amalgamation in terms of Section 244 (1) (a) of the Companies Act No. 07 of 2007 that DVB has been amalgamated with DFCC Bank PLC in accordance with the provisions of Part VIII of the Companies Act, with DFCC Bank PLC surviving as the amalgamated entity.
DFCC Bank PLC also obtained a commercial banking license from the Monetary Board of the Central Bank of Sri Lanka in terms of the Banking Act No. 30 of 1988, as amended, and accordingly upon the amalgamation now operates as a Licensed Commercial Bank with effect from 1 October 2015.
Going Concern
The Directors are satisfied that the Bank has adequate resources to continue its operations in the future and as such, the Financial Statements are prepared on the basis of a going concern.
The assessment carried out by the Board took into consideration the current economic developments in order to make projections for future economic conditions of the environment in which it operates. The main factors that cause uncertainties regarding the application of this principle relate to the unstable economic environment in the country.
Specifically, the high degree of uncertainty that characterises the internal economic environment led to deterioration in the creditworthiness of corporate and individuals, to an increase of non-performing loans and therefore to the recognition of significant impairment losses by the Bank and by the banking system in general. Based on the above and taking into account the Bank’s capital adequacy and the ability of the Bank to access the liquidity mechanisms, the Bank estimates that the conditions for the application of the going concern principle for the preparation of its financial statements are met.
The Auditors have declared the Bank solvent even after the payment of dividend.
Financial Statements
The Financial Statements of the Bank and the Group are given on pages 202 to 355 of the Annual Report. The Financial Statements of the Bank and the Group have been prepared in accordance with Sri Lanka Accounting Standards prefixed SLFRS and LKAS, the Banking Act No. 30 of 1988 and amendments thereto, the Companies Act No. 07 of 2007 and other applicable statutory and regulatory requirements.
Review of Business of the Year
Despite unprecedented challenges and a volatile economic environment, DFCC Bank continued its commitment to serving customers across the country, delivering high-quality customer-centric banking services. Throughout these challenging times, customers experienced greater convenience in carrying out their financial transactions due to the Bank’s Digital footprint.
The Bank also implemented a number of relief schemes in line with Government Directives to support those customers affected as a result of the volatile economic environment.
The Chairman’s Statement, Chief Executive’s Report and the Management Discussion and Analysis give further details of the operations of the Bank and the Group, and the key strategies that were adopted during the year under review.
Profit and Appropriations
| Year ended 31 December |
2022
LKR ’000 |
| Profit for the period | 2,513,352 |
| Appropriations | |
| Transfer to: Reserve fund (statutory requirement) | 128,000 |
| First and final dividend recommended for financial year ended 31 December 2022 | 805,332 |
| Unappropriated profit for the period | 1,580,020 |
Accounting Policies
The accounting policies adopted in the preparation of the Financial Statements of the Bank and the Group are stated on pages 214 to 355 of the Annual Report.
There were no changes to the accounting policies of the Group in the year under review.
Auditors’ Report
The Auditors’ Report on the Financial Statements, which is unqualified, is given on page 197.
Reappointment of Auditors
The present Auditors, Messrs KPMG have expressed their willingness to continue as Auditors of the Bank for the next financial year ending 31 December 2023. The Audit Committee has reviewed the effectiveness and the relationship with the Bank including the fees paid to the Auditors and has concluded that they are suitable to continue in office. The Directors are satisfied that based on the written representation made by the Auditors, they have no relationship or interest with the Bank or with any of its subsidiaries which would impair the Auditors independence. A resolution pertaining to their reappointment and authorising the Directors to determine their remuneration will be proposed at the Annual General Meeting for adoption.
The Board of Directors
The Board of Directors of the Bank presently consists of 11 Directors with wide knowledge and experience in the fields of banking and finance, trade, law, commerce, or services. Profiles of the Directors are given on pages 24 to 28.
The Directors of the Bank categorised in accordance with criteria specified in the Direction No. 11 of 2007 issued by the Central Bank of Sri Lanka are as follows:
Independent Non-Executive Directors
J Durairatnam – Chairman
Ms L K A H Fernando
W R H Fernando
N K G K Nemmawatta
Ms A L Thambiayah
N Vasantha Kumar
H A J de S Wijeyeratne
Non-Independent Non-Executive Directors
W D Batagoda
Ms H M N S Gunawardana
Ms V J Senaratne
Executive Director
N H T I Perera – Chief Executive Officer
Appointment, Retirement/Resignation and Re-election of Directors
W D Batagoda and W R H Fernando were appointed as Directors of the Bank on 1 September 2022. They will retire in terms of Article 46 (ii) of the Articles of Association and are offering themselves for re-election at the Annual General Meeting.
The Nomination and Governance Committee has recommended the re-election of W D Batagoda and W R H Fernando and the Board having concluded that they are fit and proper persons to be Directors in terms of the provisions of the Banking Act unanimously endorsed the recommendation of the Nomination and Governance Committee.
P M B Fernando retired from the Board with effect from 30 June 2022 in terms of Section 3 (2) (ii) of the Banking Act Direction No. 11 of 2007 having served a period of nine years as a Director of the Bank.
There were no resignations during the year.
Retirement by Rotation and Re-election of Directors
The Directors retiring by rotation in terms of Article 44 of the Articles of Association are H A J de S Wijeyeratne and Ms H M N S Gunawardana, who offer themselves for re-election under the said Article with the unanimous support of the Directors.
Directors’ Remuneration
The Directors’ remuneration in respect of the Bank and the Group for the financial year ended 31 December 2022 is given below.
| Year ended 31 December |
2022
LKR ’000 |
2021 LKR ’000 |
| Bank | 60,932 | 117,463 |
| Group | 84,135 | 137,647 |
Directors’ Meetings
The Bank held 12 Board meetings during the year. The Table on page 158 of the Annual Report gives details of the attendance of the Directors at Board and Board committee meetings during the year.
Directors’ Interests in Shares
| Number of Shares | ||
| As at 31 December | 2022 | 2021 |
| W D Batagoda2 | Nil | – |
| J Durairatnam | Nil | Nil |
| Ms L K A H Fernando | Nil | Nil |
| W R H Fernando2 | Nil | – |
| P M B Fernando1 | – | 2,106 |
| Ms H M N S Gunawardana | Nil | Nil |
| N K G K Nemmawatta | Nil | Nil |
| N H T I Perera | 24,635 | 17,701 |
| Ms V J Senaratne | 2,006 | 1,909 |
| L H A L Silva1 | – | 26,200 |
| Ms A L Thambiayah | 100,292 | 95,432 |
| N Vasantha Kumar | Nil | Nil |
| H A J de S Wijeyeratne | 12,316 | 8,850 |
1 not a Director as at 31 December 2022
2 not a Director as at 31 December 2021
Directors’ Interests in Debentures
| Year ended 31 December |
2022
LKR ’000 |
2021 LKR ’000 |
| L H A L Silva (Retired on 31 December 2021) | – | 7,000 |
No Director directly or indirectly holds options of the Bank.
Directors’ Interests Register
Directors have made the general disclosure as provided for in Section 192 of the Companies Act No. 07 of 2007. The Directors have declared all material interests in contracts involving the Bank and have not participated in the decision-making related to such transactions. As required by the Companies Act No. 07 of 2007, an interest register is maintained by the Bank and relevant entries are recorded therein.
Directors’ Interests in Transactions with the Bank
The Directors’ interests in transactions with entities/persons (other than subsidiaries, the joint venture, and the associate) listed under each Director for the year ended 31 December 2022 is as follows.
| LKR ’000 | |
| J Durairatnam Asian Hotels and Properties PLC Assetline Finance Limited Aggregate amount of accommodation | 2,500,000 |
| Asian Hotels and Properties PLC Aggregate amount of payment | 58 |
| Ms L K A H Fernando United Motors Lanka PLC Aggregate amount of accommodation | 10,000 |
| United Motors Lanka PLC Aggregate amount of payment for services | 621 |
| P M B Fernando Evoke International Ltd. Aggregate amount of accommodation | 20,000 |
| W R H Fernando Aggregate amount of accommodation | 500 |
| Dedunu Housing & Real Estate (Pvt) Ltd. Aggregate amount of accommodation | 12,500 |
| Ms H M N S Gunawardana Aggregate amount of accommodation | 4,500 |
| N H T I Perera LVL Energy Fund PLC Aggregate amount of accommodation | 100,000 |
| LankaPay (Pvt) Ltd. Aggregate amount of payments for services | 732 |
| H A J de S Wijeyeratne | |
| Aggregate amount of accommodation | 18,400 |
| Trans Asia Hotels PLC Aggregate amount of payment for services | 66 |
During the year, N H T I Perera has been Chairman/Director of one or more of the subsidiaries, the joint venture, or the associate company. Details of transactions with subsidiary, joint venture and associate company are disclosed in Note 57.4.
Corporate Donations
During the year, the Bank made donations amounting to LKR 180,000.
Board Committees
The following are the present members of the Permanent Committees of the Board. Changes to the composition during the year are set out in the respective Committee Reports in the Annual Report:
Audit Committee
H A J de S Wijeyeratne – Chairman
Ms L K A H Fernando
Ms H M N S Guanwardana
Credit Approval Committee
J Durairatnam – Chairman
N K G K Nemmawatta
Ms A L Thambiayah
Credit Restructure Committee
J Durairatnam – Chairman
N K G K Nemmawatta
N Vasantha Kumar
Human Resources and Remuneration Committee
J Durairatnam – Chairman
W D Batagoda
Ms H M N S Guanwardana
Ms A L Thambiayah
Nomination and Governance Committee
J Durairatnam – Chairman
W R H Fernando
Ms V J Senaratne
N Vasantha Kumar
Integrated Risk Management Committee
N Vasantha Kumar – Chairman
Ms L K A H Fernando
W R H Fernando
N H T I Perera
Ms V J Senaratne Chief Risk Officer of the Bank is also a member of the Committee.
Related Party Transactions Review Committee
N K G K Nemmawatta – Chairman
J Durairatnam
N H T I Perera
In addition, from time to time the Board appoints committees to deal with specific matters. The Board also invites external advisors and Key Management Personnel to serve on some of the committees as and when necessary.
Further details relating to the committees are given in the section on Corporate Governance and the committee reports.
Dividend
The Directors have recommended the payment of a first and final dividend of LKR 2.00 per share, (final dividend paid in the previous period, LKR 3.00 per share). The total dividend for the year will amount to approximately LKR 805 Mn (LKR 962 Mn in the previous period), which amounts to 34% of the Bank’s distributable profit.
The Directors unanimously declare that DFCC Bank PLC will satisfy the solvency test stipulated in Section 57 of the Companies Act No. 07 of 2007 immediately after the dividend payment is made and a certificate of solvency from its Auditor is obtained.
Property, Plant, and Equipment, and Leasehold Property
The total expenditure for the acquisition of property, plant, and equipment during the year amounted to LKR 1,111 Mn, of which intangible assets amounted to LKR 411 Mn. Details of these are given in Notes 38 and 39 to the Financial Statements.
Reserves
Total reserves and retained profit amounted to LKR 37,539 Mn.
Market Value of Freehold Properties
The information on market value of freehold properties is given in Note 38.1.2 to the Financial Statements.
Stated Capital and Subordinated Debentures
The stated capital as at 31 December 2022 was LKR 13,182 Mn. The number of shares in issue as at 31 December 2022 was 402,666,056.
The Board of Directors, on 17 February 2022 decided to raise new capital by way of a Rights Issue of twelve shares for every thirty-seven shares held at a consideration of LKR 55.00 per share. New capital amounting to LKR 3,620 Mn was raised by way of the Rights Issue. Consequent to the Scrip issue approved during the year, the stated capital increased by LKR 962 Mn.
Further information is given on pages 334 and 335.
Share Information
Information relating to earnings, net assets, market value per share and share trading during the period is given on pages 78 to 80 of the Annual Report.
Shareholders
As at 31 December 2022, there were 10,459 registered shareholders and the distribution is indicated on page 79.
The 20 largest shareholders as at 31 December 2022 are listed on page 80.
Employment and Remuneration Policies
The policy of the Bank is to develop and maintain a dedicated and highly motivated group of employees who are committed to creating sustainable value through effective risk management and high quality service while supporting the public and private sector in its development efforts within the ambit of the Articles of Association of the Bank. DFCC Bank PLC continuously invests in training and development of its staff to meet these objectives. The Bank is an equal opportunity employer. Remuneration of employees consists of fixed and variable payments. Annual increments and pay awards are based on the performance of the Bank and the individual. It is the Bank’s policy to fix remuneration at a level which will attract, motivate, and retain high quality employees.
Statutory Payments
The Directors, to the best of their knowledge and belief are satisfied that all statutory payments due to the Government and in relation to the employees have been made on time.
Review of Related Party Transactions
The Related Party Transactions Review Committee is responsible for ensuring compliance with the code specified in Section 9 of the CSE Listing Rules. The Committee reviewed the related party transactions carried out during the year and noted that the transactions were in compliance with the said code.
Compliance with Laws, Regulations, and Prudential Requirements
DFCC Bank PLC has not engaged in any activities contravening the laws and regulations and has complied with prudential requirements. The Directors obtain a confirmation report from the Management with regard to compliance with laws, regulations, and prudential requirements on a quarterly basis.
Events Occurring after the Reporting Period
Subsequent to the date of the Statement of Financial Position, no circumstances have arisen which would require adjustments to the accounts. Significant events occurring after the reporting period which in the opinion of Directors require disclosure are described in Note 60 to the Financial Statements.
Corporate Governance
The Directors have obtained External Auditors’ assurance on effectiveness of the internal control mechanism and compliance with the Direction No. 11 of 2007 of the Central Bank of Sri Lanka on Corporate Governance.
Details of governance practices and the required disclosures are given on pages 152 to 171.
Rule 3 (8) of the Direction No. 11 of 2007 on Corporate Governance for Licensed Commercial Banks in Sri Lanka prescribe disclosures in the Annual Report. These disclosures have been made in this Annual Report as shown in the following Table, with cross references to facilitate easy reference.
| Reference to rule | Requirement | Reference to Annual Report |
| 3 (8) (i) | Financial statements on prescribed format | Financial Statements on pages 202 to 355. |
| 3 (8) (ii) (a) | Affirmative assurance of compliance with accounting standards and requirements | Directors’ Responsibility Statement on page 195. |
| 3 (8) (ii) (b) | Affirmative assurance of the integrity of financial reporting system | Directors’ Statement of Internal Control on page 189. |
| 3 (8) (ii) (c) |
Assurance report issued by the External Auditor |
Independent Assurance Report on page 192. |
| 3 (8) (ii) (d) | Information on Directors | Pages 24 to 28. |
| 3 (8) (ii) (d) | Remuneration of Directors | Annual Report of the Board of Directors on the State of Affairs of the Bank on page 174. |
| 3 (8) (ii) (e) | Net accommodation granted to each category of related party | Corporate Governance Report table on page 171. |
| 3 (8) (ii) (f) | Compensation and other transactions with Key Management Personnel |
Corporate Governance Report on page 171. |
| 3 (8) (ii) (h) | Compliance with prudential requirements and regulations | This Annual Report |
Annual General Meeting
The Sixty-Seventh Annual General Meeting will be held on 30 March 2023 at 10.00am.
Acknowledgement of the Content of the Report
As required by Section 161 (1) (k) of the Companies Act No. 07 of 2007, the Board of Directors does hereby acknowledge the contents of this report.
For and on behalf of the Board of Directors,
J DURAIRATNAM
CHAIRMAN
N H T I PERERA
DIRECTOR/CHIEF EXECUTIVE OFFICER
MS N RANARAJA
COMPANY SECRETARY
17 February 2023