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Produced by Smart Media (Pvt) Limited, a carbon Contents 02 69 About this Report Recognition Awards and Accolades – 69 03 About DFCC Bank 70 Stewardship Integrated Risk Management – 70 04 Corporate Governance – 94 Annual Report of the Board of Directors on Highlights the Affairs of the Bank – 108 Board Committees – 114 Directors’ Statement on 06 Internal Control – 123 DFCC Group Structure Independent Assurance Report – 126 08 127 Leadership Financial Reports Financial Calendar – 128 Message from the Chairman – 08 Statement of Directors’ Responsibilities in Chief Executive’s Review – 10 Relation to Financial Statements – 129 Board of Directors – 12 Chief Executive’s and Chief Financial Corporate Management – 16 Officer’s Statement of Responsibility – 130 Management Team – 18 Independent Auditors’ Report – 131 Financial Statements and Notes – 136 20 Other Disclosures – 243 Business Model Our Value Creation Model – 20 246 Operating Environment – 22 Supplementary Information Strategic Direction and Outlook – 23 Basel III Disclosure Requirement – 246 Stakeholders – 26 Main Features of Regulatory Capital Materiality – 28 Instruments – 263 Ten Year Summary – 266 30 Corporate Information – 267 Management Discussion and Analysis Financial Capital – 30 Institutional Capital – 43 Investor Capital – 45 Customer Capital – 49 Employee Capital – 56 Business Partner Capital – 61 Social and Environmental Capital – 66 This Integrated Annual Report serves as a disclosure of our strategy, governance, performance About A condensed “annual snapshot” and prospects and how they help to create sustainable value within our in print and PDF formats operating environment. (communicates across a broad this spectrum of current and potential stakeholders) Comprehensive and yet concise Report Reporting period and We have adopted an approach to boundary reporting that balances the need to communicate effectively through DFCC Bank Annual Report for 2018 concise, relevant information (to covers the 12 – month period from a large and diverse stakeholder 1 January 2018 to 31 December group), while at the same time 2018. Our reporting covers DFCC providing comprehensive Bank PLC (“DFCC Bank” or compliance-related disclosures “Bank”) and the DFCC Bank Group (that would interest only a few). (‘Group’) comprising the Bank and its subsidiaries, a joint venture company and an associate company. The respective entities are duly identified where applicable. A comprehensive report in online HTML format (for a universal Compliance audience) [http://dfcc2018. annualreports.lk] As declared on page 12 the Board of Directors of DFCC Bank, in the spirit of good governance, accepts responsibility for the entirety of this A concise integrated annual report Annual Report 2018. in print, PDF and CD formats (meets compliance requirements) The information contained herein, as in the past, is in compliance with all applicable laws, regulations, and standards. “Perennial Compendium” (tracks In addition, we have drawn on activities throughout the year) concepts, principles and guidance from the GRI Standards, the International Integrated Reporting Framework and the Smart Integrated Reporting MethodologyTM in producing this Report. Precautionary principle We take due cognisance of the social and environmental consequences of our actions, both direct and indirect. The latter are more significant and they arise from our lending operations, which are addressed through credit policies, post- disbursement supervision and risk management processes. About DFCC Vision, Bank Through subsidiaries; DFCC Mission Consulting, Lanka Industrial Now established as a fully-fledged Estates, Synapsys, and joint venture and commercial bank, DFCC Bank was Acuity Partners, the DFCC Group Sri Lanka’s pioneer development offers a host of financial solutions Values bank, incorporated in 1955 under that include investment banking, an Act of Parliament, and was one wealth management, information of the first development banks to be technology, industrial park Vision instituted in Asia. management, and consultancy. To be the leading financial solutions provider sustainably Soon thereafter, in 1956 DFCC Bank DFCC Bank is rated AA-(lka) by developing individuals and became the first bank to be listed on Fitch Ratings Lanka Limited. businesses the Colombo Brokers’ Association, the precursor to the Colombo Stock Reach Exchange, and has been a listed Mission company ever since. DFCC Bank delivers its services through 138 branches and service To provide innovative and responsible solutions true to As the first development bank in centres island-wide. Customers have our Values with the expertise the Nation, DFCC Bank has been access to over 3,800 ATMs across of our multidisciplinary team the financier behind trailblazing the country via the LankaPay ATM of professionals and synergies Sri Lankan entrepreneurs, network. Through the adoption of the of our financial services group particularly during their risky early latest technology, the Bank also offers stages. The Bank continues to be a range of alternate delivery channels, the preferred lender of choice for and continues to expand its branch Values “Green” development projects network. Innovative including waste-to-energy, hydro, Customer centric wind, and solar energy projects, Refer page 51 for more details on the branch network. Professional in addition to other large start-up Ethical projects. Honed over the course Accountable of six decades, the expertise of the Portfolio Team oriented Bank’s project lending teams is Socially responsible unmatched in the industry. Today, DFCC Bank’s primary lines of DFCC Bank is at the forefront business include Corporate Banking, of pioneering digitally-enabled Branch and SME Banking, Micro, products and services, offering Small and Medium Enterprise customers unmatched values and (MSME) Banking, Business benefits. Banking, Consumer Banking, Premier Banking, Treasury, and International Banking. Refer page 49 for more details on the product portfolio. Scan to view the online version http://dfcc2018.annualreport.lk DFCC Bank PLC Annual Report 2018 3 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 March 2018 2017 2016 2015 2015 Operating Results Total income 39,448 35,987 26,980 17,503 20,094 Profit before tax 4,676 5,891 4,674 2,553 5,416 Tax expense 1,606 1,458 1,205 912 977 Profit attributable to equity holders of the Bank 3,011 4,362 3,415 1,592 4,362 Statement of Financial Position Assets Cash and short-term funds 17,331 21,390 13,824 9,870 8,002 Loans to and receivables from banks and other customers 262,589 224,660 198,085 164,945 138,887 Other financial assets 87,681 80,751 72,584 67,060 58,258 Investments in associate and joint venture 1,989 1,684 1,443 1,248 1,188 Other assets 7,172 5,983 5,278 3,986 4,275 Total assets 376,762 334,468 291,214 247,109 210,610 Liabilities Due to depositors 241,915 192,920 140,220 110,551 92,712 Due to other borrowers 82,589 84,578 97,276 87,381 65,874 Other liabilities 6,602 7,568 6,660 5,208 3,761 Total liabilities 331,106 285,066 244,156 203,140 162,347 Equity Total equity attributable to equity holders of the Bank 45,398 49,125 46,850 43,716 47,909 Non-controlling interests 258 277 260 253 354 Total equity and liabilities 376,762 334,468 291,266 247,109 210,610 Return on equity, %* 7.70 12.08 10.3 5.6 14.0 Return on total assets, %* 0.88 1.47 1.4 0.8 2.5 Earnings per share, LKR 11.36 16.45 12.88 6.01 16.46 Net asset value per share, LKR 171.25 185.31 176.73 164.90 180.72 Capital adequacy Core capital ratio – 14.60 15.39 17.71 Total capital ratio – 17.47 15.32 16.62 Common equity tier I Capital ratio, % (Basel III) 12.68 13.09 ––– Tier I capital ratio, % (Basel III) 12.68 13.09 ––– Total capital ratio, % (Basel III) 16.13 16.53 ––– * After eliminating fair value reserve. 4 DFCC Bank PLC Annual Report 2018 Highlights Highlights Branch expansion New products and services Conversion of 10 extension Relaunch of Credit Cards offices into fully-fledged branches Launch of DFCC iConnect Social responsibility Number of training programmes Successful completion of the second edition of the “Samata English 2018 – 425 programme” 2017 – 404 Brand value DFCC’s brand ranking moved up 37 notches in LMD’s list of Most Respected Companies in Sri Lanka – 2018 The Bank was recognised as one of the Top 10 Most Admired Companies of Sri Lanka DFCC Bank’s brand value recorded the highest increase of 183% in the Brand Finance ranking DFCC Bank PLC Annual Report 2018 5 DFCC Group Structure Subsidiary company Subsidiary company Subsidiary company Joint venture Associate company Name Name DFCC Consulting (Pvt) Limited Synapsys Limited Lanka Industrial Estates Limited Acuity Partners (Pvt) Limited National Asset Management Limited Address 73/5 Galle Road, 540, Nawala Road, LINDEL Industrial Estate, 53, Dharmapala Mawatha, 7, Glen Aber Place, Address Colombo 3 Rajagiriya Pattiwila Road, Sapugaskanda, Colombo 3 Colombo 3 Makola Phone +94 11 244 2442 +94 11 288 0702 +94 11 240 0318, +94 11 240 0319, +94 11 220 6206 +94 11 244 5911 Phone +94 11 240 0320, +94 11 240 0532 Email [email protected] [email protected] [email protected] [email protected] [email protected] Email Incorporated 9 September 2004 11 October 2006 12 March 1992 7 February 2008 28 September 1990 Incorporated DFCC Bank’s interest 100 100 51.15 50 30 DFCC Bank’s (%) interest (%) Principal activity Consultancy Information technology services