A nnua l R epo r t 2019 DFCC BANK PLC C o n n e c t e d Annual Report 20 1 9 Connected Life is a journey that 02 can be challenging About this Report unless you have the right connections. At DFCC 03 we understand this all too well. About DFCC Bank To us, every relationship 04 is meaningful and we Highlights strive to strengthen and add value with each new 06 connection. Our unique DFCC Group Structure proposition contributes towards robust links with everyone across all platforms. Scan to view the online version http://dfcc2019.annualreports.lk Contents 08 33 137 Leadership Management Discussion Message from the Chairman and Analysis Financial Capital – 33 Institutional Capital – 46 Investor Capital – 50 Customer Capital – 54 Employee Capital – 60 Financial Reports Business Partner Capital – 67 Social and Environmental Capital – 70 Financial Calendar – 138 Page – 08 Statement of Directors’ Responsibilities in Relation to Chief Executive’s Review Financial Statements – 139 74 Chief Executive’s and Chief Financial Officer’s Statement of Responsibility – 140 Independent Auditors’ Report – 141 Financial Statements and Notes – 146 Other Disclosures – 283 Page – 11 Board of Directors – 14 Recognition 287 Corporate Management – 18 Awards and Accolades – 74 Supplementary Management Team – 19 Key Events of the Year – 75 Information Basel III Disclosure Requirement – 287 Main Features of Regulatory Capital 22 76 Instruments – 304 Business Model Ten Year Summary – 309 Stewardship Corporate Information – 310 Our Value Creation Model – 22 Integrated Risk Management – 76 Operating Environment – 24 Corporate Governance – 100 Strategic Direction and Outlook – 26 Annual Report of the Board of Directors Stakeholders – 28 on the State of Affairs of the Bank – 117 Materiality – 32 Board Committee Reports – 124 Directors’ Statement of Internal Controls – 133 Independent Assurance Report – 136 About this Report This Integrated Annual Report serves as Compliance a disclosure of our strategy, governance, performance, and prospects and how As declared on page 14, the Board they help to create sustainable value of Directors of DFCC Bank, in the within our operating environment with spirit of good governance, accepts the focus to be “Connected”. responsibility for the entirety of this Annual Report 2019. The information contained herein, as in the past, is in Comprehensive and compliance with all applicable laws, regulations, and standards. yet concise We have adopted an approach to In addition, we have drawn on reporting that balances the need to concepts, principles, and guidance communicate effectively through from the GRI Standards, the concise, relevant information (to a large International Integrated Reporting and diverse stakeholder group), while at Framework, and the Smart Integrated TM the same time providing comprehensive Reporting Methodology in producing compliance-related disclosures. this Report. A comprehensive report in online As provided in the paragraphs 2.10 HTML format and 2.17 – 2.19 of the International (for a universal audience) <IR> Framework, organisations [http://dfcc2019.annualreports.lk] preparing an integrated report are not required to adopt the <IR> Framework A Concise Integrated Annual Report categorisation of capitals. Accordingly, in print, PDF, and CD formats (meets we have categorised the capitals compliance requirements). differently to best describe our value creation process. “Perennial Compendium” (tracks activities throughout the year). Precautionary principle We take due cognisance of the social A condensed “annual snapshot” and environmental consequences of in all three languages in print and our actions, both direct and indirect. PDF formats (communicates across The latter are more significant and they a broad spectrum of current and arise from our lending operations, which potential stakeholders). are addressed through credit policies, post disbursement supervision, and risk management processes. Reporting period and boundary DFCC Bank Annual Report for 2019 covers the 12-month period from 1 January 2019 to 31 December 2019. Our reporting covers DFCC Bank PLC (“DFCC Bank” or “Bank”) and the DFCC Bank Group (“Group”) comprising the Bank and its subsidiaries, a joint venture company and an associate company. The respective entities are duly identified where applicable. 2 DFCC Bank PLC Annual Report 2019 About DFCC Vision, Bank Mission and Values Established as a fully-fledged Reach commercial bank at present, DFCC Bank was Sri Lanka’s pioneer DFCC Bank delivers its services development bank, incorporated in through 139 branches island-wide. Vision 1955 under an Act of Parliament, Customers have access to over 4,500 and was one of the first development ATMs across the country via the To be the leading financial banks to be instituted in Asia. LankaPay ATM network and through solutions provider sustainably DFCC MySpace, the self-banking developing individuals and In 1956, DFCC Bank became the first solution and digital service delivery businesses bank to be listed on the Colombo space. Through the adoption of the Brokers’ Association, the precursor to latest technology, the Bank also the Colombo Stock Exchange, and has offers a range of alternate delivery been a listed company ever since. channels, and continues to expand its branch network. As the first development bank in Mission the Nation, DFCC Bank has been Refer page 56 for more details on the the financier behind trailblasing branch network. To provide innovative and Sri Lankan entrepreneurs, particularly responsible solutions true to during their early stages. The Bank our Values with the expertise continues to be the preferred lender Portfolio of our multidisciplinary team of of choice for “Green” development professionals and synergies of DFCC Bank’s primary lines of projects including waste-to-energy, our financial services group business include Consumer Banking, hydro, wind, and solar energy projects, Corporate Banking, Treasury and in addition to other large start-up Resource Mobilisation, Branch projects. Banking, International Banking, Card Operations, and Bancassurance. Honed over the course of six decades, the expertise of the Refer page 38 for details on Business Bank’s project lending teams is lines and refer page 55 for details on Values unmatched in the industry. Today, the product portfolio. DFCC Bank is at the forefront of Innovative pioneering digitally-enabled products Customer centric and services, offering customers Professional unmatched values and benefits. Ethical Accountable Through subsidiaries; DFCC Team oriented Consulting, Lanka Industrial Estates, Socially responsible Synapsys, and joint venture Acuity Partners, the DFCC Group offers a host of financial solutions that include investment banking, wealth management, information technology, industrial park management, and consultancy. DFCC Bank is rated AA-(lka) by Fitch Ratings Lanka Limited. DFCC Bank PLC Annual Report 2019 3 Highlights Highlights Group Based on Based on LKAS 39 SLFRS 9 LKR Mn Year Year Year Year Year ended ended ended ended ended 31 December 31 December 31 December 31 December 31 December 2019 2018 2017 2016 2015 Operating Results Highlights Total income 43,648 39,448 35,987 26,980 17,503 Profit before tax 3,308 4,676 5,891 4,674 2,553 Tax expense 1,008 1,606 1,458 1,205 912 Profit attributable to equity holders of the Bank 2,214 3,011 4,362 3,415 1,592 Statement of Financial Position Assets Cash and short-term funds 14,326 17,331 21,390 13,824 9,870 Loans to and receivables from banks and other customers 281,221 262,589 224,660 198,085 164,945 Other financial assets 99,768 87,681 80,751 72,584 67,060 Investments in associate and joint venture 2,096 1,989 1,684 1,443 1,248 Other assets 9,500 7,172 5,983 5,278 3,986 Total assets 406,911 376,762 334,468 291,214 247,109 Liabilities Due to depositors 247,458 241,915 192,920 140,220 110,551 Due to other borrowers 102,910 82,589 84,578 97,276 87,381 Other liabilities 7,117 6,602 7,568 6,660 5,208 Total liabilities 357,485 331,106 285,066 244,156 203,140 Equity Total equity attributable to equity holders of the Bank 49,163 45,398 49,125 46,850 43,716 Non-controlling interests 263 258 277 260 253 Total equity and liabilities 406,911 376,762 334,468 291,266 247,109 Return on equity, %* 5.32 7.70 12.08 10.3 5.6 Return on total assets, %* 0.59 0.88 1.47 1.4 0.8 Earnings per share, LKR 7.62 11.36 16.45 12.88 6.01 Net asset value per share, LKR 184.45 171.25 185.31 176.73 164.90 Capital adequacy Core capital ratio – – – 14.60 15.39 Total capital ratio – – – 17.47 15.32 Common equity Tier I Capital ratio, % (Basel III) 11.33 10.89 13.09 – – Tier I capital ratio, % (Basel III) 11.33 10.89 13.09 – – Total capital ratio, % (Basel III) 15.78 16.17 16.53 – – * After eliminating fair value reserve. 4 DFCC Bank PLC Annual Report 2019 Extended Reinvigorated Highlights reach offering Launch of Launch of DFCC DFCC MySpace, Winner savings Launch of DFCC a bespoke, digital account Personal Loan space for self-banking Delivery Revamping of DFCC Virtual Wallet and Corporate Website 20 branches opened islandwide within 30 days, a milestone in the Bank’s history Expanded Intrinsically learning culture connected with sustainability LKR 34.6 Mn invested in training and development Samata English 421 in house training expanded its reach programmes and carried out programmes in Jaffna, Over 103,000 hours of Polonnaruwa, Ampara, training and Ratnapura 18% growth in usage of the e-learning platform Post-training assessments conducted