2017 Report Annual Report 2016 Financing Institutions in Asia and the Pacific (ADFIAP)

The Bank for the Times the for Bank The Tea is a drink for anytime and DFCC is the Bank for the times Vision Mission Our Values “To be the leading financial “To provide innovative and Innovative solutions provider sustainably responsible solutions true to our Customer Centric developing individuals and Values with the expertise of our Professional businesses” multidisciplinary Ethical team of professionals and Accountable synergies of our financial Team Oriented services group” Socially Responsible The new look DFCC Bank DFCC Bank PLC Annual Report 2017 1 “Pioneer, Pathfinder and Trailblazer” DFCC is the First Bank to be listed in 1956 on the Colombo Brokers’ Association, predecessor of the Colombo Stock Exchange and the second Financial Institution to do so. Its Shareholders span the gamut of local and foreign investors and include financial and non-financial corporates, investment funds, and individuals. Given below are highlights of the Bank’s illustrious history from an investor’s and a shareholder’s perspective. DFCC founded by Act No. 35 Bonus Issue and New Share 1955 of 1955 following World 1983 Issue increases paid-up capital Bank initiative Bonus issue of 60,000 shares followed by issue Incorporated by an Act of Parliament; DFCC was of 700,000 new shares to the public increases the outcome of a joint effort by the Government the paid-up share capital to LKR 100 million of Sri Lanka and the World Bank consequent to the first World Bank mission in 1952 Unprecedented demand for 1991 New Share Issue Began operations with share 1956 Public issue of 366,667 ordinary LKR 100 shares capital of LKR Eight million; at a premium price of LKR 500 oversubscribed listed on the Colombo Stock by 19,000 new applicants; number of Exchange with its shares held shareholders increased from 800 to 16,000 by eminent investors Most valuable and profitable Issue of 80,000 new shares at par value of 1992 LKR 100 to the public; over 70,000 shares of companies listed on the subscribed to by institutions with the balance Colombo Stock Exchange from individuals; subscribers included the Bank of Ceylon, National Bank of India, Indian Number one in market capitalisation on the Overseas Bank, National Mutual Life Association Colombo Stock Exchange for three consecutive of Australia, HSBC and Grindlays Bank years; ranked first in profit after tax for listed companies New Share issues with 1977 Best Managed Company in to International Financial 1995 1979 to Sri Lanka for 1995 and the Institutions coming on board 1999 decade 1990/1999 Staged issue of 160,000 new shares at LKR 100 to the public; IFC (the World Bank subsidiary), Selected by “Asiamoney” financial journal DEG (the German Development Bank) and FMO as Sri Lanka’s best managed company; (the Dutch Development Bank) become investors recognised for “business strategy, financial in DFCC with each having a 10% shareholding management, fairness to minority investors and investor relations” 2 DFCC Bank PLC Annual Report 2017 “Pioneer, Pathfinder and Trailblazer” Maiden International Note Re-incorporated as 1998 2015 Issue guaranteed by a DFCC Bank PLC Multilateral Agency Status changed from Public Quoted Company Raised USD 65 million by the international incorporated under Act of Parliament to Public issue of Floating Rate Notes guaranteed by Quoted Company incorporated under Companies ADB and listed on the Luxembourg Stock Act No. 07 of 2007 Exchange; ABN AMRO Bank was the Lead Manager to the issue Amalgamated with 2015 DFCC Vardhana Bank Acquired commercial 2003 DFCC Bank and DFCC Vardhana Bank banking subsidiary amalgamated; and is now a Licensed Acquired 94% of MERC Bank; revitalised, Commercial Bank rebranded and re-launched as DFCC Vardhana Bank International Syndicated 2013 Loan and International Bond Issue demonstrates market acceptance and enhances profile among international investors Raised USD 45 million via a debut international loan syndication among six foreign banks; HSBC was lead arranger and book runner for this transaction; also raised USD 100 million by the issue of an international five year bond listed on the Singapore Exchange – Citigroup Global Markets and Merrill Lynch (Singapore) acted as the Joint Lead Managers DFCC Bank PLC Annual Report 2017 3 Contents 05 86 About this Report Recognition – 07 Awards and Accolades 86 Highlights 87 Stewardship 10 Integrated Risk Management – 87 Message from the Chairman Corporate Governance – 111 Annual Report of the Board of Directors on the Affairs of the Bank – 125 12 Board Committees – 131 Chief Executive’s Review Directors’ Statement on Internal Control – 140 14 Independent Assurance Report – 143 Profiles 144 – Board of Directors 14 Investor Relations Corporate Management – 18 Management Team – 20 Investor Engagement – 144 Performance of the Share – 144 24 Distribution of Shareholding – 145 Business Model Organisational Overview – 24 147 Our Business Model – 26 Financial Reports Operating Environment – 27 Financial Calendar – 148 Strategic Direction and Outlook – 29 Stakeholders – 31 Statement of Directors’ Responsibilities in Relation Materiality – 33 to Financial Statements – 149 Chief Executive’s 35 and Chief Financial Officer’s Management Discussion Statement of Responsibility – 150 and Analysis Independent Auditors’ Report – 151 Financial Statements and Notes – 152 Value Creation and Internal Capital Formation – 35 Financial Capital – 35 248 – Institutional Capital 51 Supplementary Information Value Creation and External Capital Formation – 54 Quantitative Disclosures as per Investor Capital – 54 Schedule III of Banking Act Direction No. 01 of 2016, Capital Requirements Customer Capital – 55 under Basel III – 248 Employee Capital – 66 Main Features of Regulatory – Business Partner Capital 75 Capital Instruments – 264 Social and – Environmental Capital – 80 Ten Year Summary 265 Corporate Information – 266 About this Report This Integrated Annual Report serves as Comprehensive and a disclosure of our strategy, governance, Yet Concise performance and prospects and how they help to create sustainable value Continuing with the approach to within our operating environment. reporting adopted in the last three years, this Report balances the need Value Creation and to communicate effectively through concise, relevant information (to a large Capital Formation and diverse stakeholder group), while at The value an organisation creates for the same time providing comprehensive its stakeholders and the ability of the compliance-related disclosures (that organisation to create sustainable would interest only a few). We are thus value for itself are mutually dependent presenting our Annual Report 2017 in activities – the more value the three primary formats: organisation creates, the more value it A concise report (what you are now is able to create for itself. Therefore, reading) in print and CD formats firms spend substantial resources on which meets compliance requirements creating and maintaining relationships while communicating with an with their stakeholders. audience looking for the essentials in an easily digestible format; Value creation leads to capital A comprehensive report formation. Capital is generally defined for a universal audience in as wealth in the form of money and online HTML format assets. In integrated reporting, capital [http://dfcc2017.annualreports.lk] takes on a broader definition: the that includes our ‘Perennial resources and relationships used Compendium’ feature, that tracks and affected by an organisation. We activities throughout the year which identify capital that is held by the are relevant to our investors and organisation as being ‘internal’ capital, stakeholders; and and capital not held by the organisation as ‘external’ capital. The aspect of A condensed ‘annual snapshot’ ownership is irrelevant here as long in print and PDF formats that as the organisation has access to and communicates across a broad uses all forms of its capital to create spectrum of current and potential sustainable value for itself and its stakeholders. stakeholders. Going beyond conventional reporting, The structure of our Management we have implemented the latest Global Discussion and Analysis is based on value Reporting Initiative (GRI) Standards creation and capital formation. format for reporting, an update to the GRI G4 format used in our previous annual reports. We continue to update our corporate website with a focus on investor relations, supplemented by an investor relations app for smart phones and other devices. SCAN to view the online version http://dfcc2017.annualreports.lk DFCC Bank PLC Annual Report 2017 5 Reporting Period DFCC Bank Annual Report for 2017 In addition, we have drawn on concepts, covers the 12-month period from principles and guidance from the GRI 1 January 2017 to 31 December 2017. Standards, the International Integrated About this Report The previous annual report covered Reporting Framework and the Smart the 12-month period from Integrated Reporting Methodology™ 1 January 2016 to 31 December 2016 in producing this Report. and is available on the Bank website (www.dfcc.lk). One of the Group entities Precautionary Principle have a 31 March financial year-end and they are consolidated with DFCC We take due cognisance of the social Bank’s reporting period with a and environmental consequences of three-month time lag. A summary of our actions, both direct and indirect. the accounting periods covered by the The latter are more significant and Statement of Profit and Loss and Other they arise from

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