Annual Report of the Board of Directors on the State of Affairs of the Bank
General
The Board of Directors of DFCC Bank PLC (the Bank) take pleasure in presenting their 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 Auditor’s 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 179 (Note 1.4 to the Financial Statements) |
| 168 (1) (b) | Signed Financial Statements of the Bank in accordance with Section 152 | Page 173 (Financial Statements) |
| 168 (1) (c) | Auditor’s Report on Financial Statements of the Bank and the Group | Page 165 |
| 168 (1) (d) | Changes in accounting policies made during the accounting period | Page 188 (Note 6 to the Financial Statements) |
| 168 (1) (e) | Particulars of entries in the interest register made during the accounting period | Page 145 of this Report |
| 168 (1) (f) | Remuneration and other benefits of Directors during the accounting period | Pages 144, 237 and 301 (Notes 20 and 58.2 to the Financial Statements and this Report) |
| 168 (1) (g) | Total amount of donations made by the Bank during the accounting period | Page 145 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 144 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 237 (Note 20 to the Financial Statements) |
| 168 (1) (j) | Auditors relationship or any interest with the Bank and its subsidiaries | Page 143 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 147 (Signed with an acknowledgement 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 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 170 to 309 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
DFCC Bank continued to serve the Bank’s customers across the country by providing essential banking services without interruption even during lockdown/curfew periods. Throughout this challenging times due to the Bank’s Digital Footprint customers experienced greater convenience as they were able to conduct their financial transactions in the comfort of their homes. The Bank also took all measures required to ensure the safety of its employees and other stakeholders.
During this year too Bank implemented a number of relief schemes in line with Government directives to support those customers affected as a result of the pandemic.
Message from the Chairman, Chief Executive’s Review 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 2021 | LKR ’000 |
| Profit for the period | 3,221,863 |
| Appropriations | |
| Transfer to: | |
| Reserve Fund (statutory requirement) | 163,000 |
| First and final dividend approved for financial year ended 31 December 2021 | 961,567 |
| Unappropriated profit for the period | 2,097,296 |
Accounting policies
The accounting policies adopted in the preparation of the Financial Statements of the Bank and the Group are stated on pages 182 to 309 of the Annual Report.
There were no changes to the accounting policies of the Group in the year under review, other than as disclosed in Note 6 to the financial statements.
Auditors’ Report
The Auditors’ Report on the Financial Statements, which is unqualified, is given on page 165.
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 2022. 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 consist of 10 Directors with wide knowledge and experience in the fields of banking, finance, trade, law, commerce, or services. Profiles of the Directors are given on pages 18 to 21.
The following are the present 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:
Independent Non-Executive Directors
J Durairatnam – Chairman
Ms L K A H Fernando
P M B Fernando – Senior Director
N K G K Nemmawatta
Ms V J Senaratne
Ms A L Thambiayah
N Vasantha Kumar
H A J de S Wijeyeratne
Non-Independent Non-Executive Director
Ms H M N S Gunawardana
Executive Director
N H T I Perera – Chief Executive Officer
(Functioned as Deputy Chief Executive Officer/Director
until 31 December 2021)
Appointment, retirement/resignation and re-election of Directors
N Vasantha Kumar and Ms A L Thambiayah were appointed as Directors of the Bank on 1 September 2021 and 1 October 2021 respectively. 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 N Vasantha Kumar and Ms A L Thambiayah and the Board having concluded that they are fit and proper persons to be Directors in terms of the provision of the Banking Act unanimously endorsed the recommendation of the Nomination and Governance Committee.
Ms S R Thambiayah retired from the Board with effect from 27 September 2021 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.
L A H L Silva retired on completion of his contract of employment as Director/Chief Executive Officer on 31 December 2021.
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, N K G K Nemmawatta and Ms L K A H Fernando 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 2021 is
given below:
| Year ended 31 December 2021 LKR ’000 | Year ended 31 December 2020 LKR ’000 | |
| Bank | 117,463 | 77,310 |
| Group | 137,647 | 96,644 |
Directors’ meetings
The Bank held 12 Board meetings during the year. The Table on page 128 of the Annual Report gives details of the attendance of the Directors at Board and Board committees during the year.
Directors’ interests in shares
| Number of shares as at 31 December 2021 | Number of shares as at 31 December 2020 | |
| J Durairatnam | Nil | Nil |
| Ms L K A H Fernando | Nil | Nil |
| P M B Fernando | 2,106 | 2,011 |
| Ms H M N S Gunawardana | Nil | Nil |
| N K G K Nemmawatta | Nil | Nil |
| N H T I Perera | 17,701 | 16,899 |
| Ms V J Senaratne | 1,909 | 1,823 |
|
L H A L Silva (Retired on 31 December 2021) |
26,200 | 25,013 |
|
Ms A L Thambiayah (Appointed on 1 October 2021) |
95,432 | – |
|
Ms S R Thambiayah (Retired on 27 September 2021) |
– | Nil |
|
N Vasantha Kumar (Appointed on 1 September 2021) |
Nil | – |
| H A J de S Wijeyeratne | 8,850 | 8,449 |
Directors’ interests in debentures
| 31 December 2021 LKR ’000 | 31 December 2020 LKR ’000 | |
|
L H A L Silva (Retired on 31 December 2021) |
7,000 | 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 associate) listed under each Director for the year ended 31 December 2021 is
as follows:
| LKR ’000 | |
|
J Durairatnam
Assetline Leasing Company Limited Asian Hotels and Properties PLC Aggregate amount of accommodation |
5,200,000 |
| Asian Hotels and Properties PLC Aggregate amount of payment for services | 247 |
|
Ms L K A H Fernando
RIL Property PLC Aggregate amount of accommodation |
2,700,000 |
| United Motors Lanka PLC Aggregate amount of payment for services | 567 |
|
P M B Fernando
Lanka Hospitals Diagnostics (Pvt) Limited Aggregate amount of payment for services |
293 |
|
Ms H M N S Gunawardana
Sri Sathya Sai Karunaniliyam Foundation Aggregate amount of accommodation |
150,000 |
|
N H T I Perera
Aggregate amount of accommodation |
800 |
| Acuity Stock Brokers (Pvt) Limited Aggregate amount of accommodation | 250,000 |
|
L H A L Silva
Aggregate amount of accommodation |
2,800 |
|
Lanka Clear (Pvt) Limited
Lanka Financial Services Bureau Limited
Sri Lanka Banks’ Association (Guarantee) Limited Aggregate amount of payments for services |
10,388 |
|
Ms A L Thambiayah
Aggregate amount of accommodation |
500 |
|
N Vasantha Kumar
Aggregate amount of accommodation |
500 |
|
H A J de S Wijeyeratne
Aggregate amount of accommodation |
8,300 |
|
Trans Asia Hotels PLC Aggregate amount of payment for services |
423 |
During the year, L H A L Silva, P M B Fernando, and N H T I Perera are or have been Chairman/Director of one or more of the subsidiary, joint venture, or associate company. Details of transactions with subsidiary, joint venture and associate company are disclosed in Note 58.4.
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
P M B Fernando – Chairman
Ms L K A H Fernando
H A J de S Wijeyeratne
Credit Approval Committee
J Durairatnam – Chairman
P M B Fernando*
N K G K Nemmawatta
Ms A L Thambiayah
*Non-voting member
Credit Restructure Committee
J Durairatnam – Chairman
N K G K Nemmawatta
N Vasantha Kumar
Human Resources and Remuneration Committee
J Durairatnam – Chairman
Ms H M N S Gunawardana
Ms A L Thambiayah
Nomination and Governance Committee
P M B Fernando – Chairman
J Durairatnam
Ms V J Senaratne
Integrated Risk Management Committee
Ms L K A H Fernando– Chairperson
Ms H M N S Gunawardana
N H T I Perera
Ms V J Senaratne
N Vasantha Kumar
Chief Risk Officer of the Bank is also a member of the Committee.
Related Party Transactions Review Committee
P M B Fernando – 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 approved the payment of a first and final dividend of LKR 3.00 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 962 Mn (LKR 918 Mn in the previous period), which amounts to 31% 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 of acquisition on property, plant and equipment during the year amounted to LKR 2,068 Mn, of which intangible assets amounted to LKR 1,728 Mn. Details of these are given in Notes 39 and 40 to the Financial Statements.
Reserves
Total reserves and retained profit amounted to LKR 40,386 Mn.
Market value of freehold properties
The information on market value of freehold properties are given in Note 39.1.2 to the Financial Statements.
Stated capital and subordinated debentures
The stated capital as at 31 December 2021 was LKR 8,600 Mn. The number of shares in issue as at 31 December 2021 was 320,522,436.
Consequent to the Scrip Issue approved during the year, the stated capital was increased by LKR 918 Mn.
Further information is given on pages 295 and 296.
Share information
Information relating to earnings, net asset and market value per share are given on pages 61 and 65 of the Annual Report and also contain information pertaining to the share trading during the period.
Shareholders
As at 31 December 2021, there were 10,595 registered shareholders and the distribution is indicated on page 63.
The 20 largest shareholders as at 31 December 2021 are listed on page 64.
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 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 quarterly, a confirmation report from the Management with regard to compliance with laws, regulations, and prudential requirements.
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 61 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 123 to 141.
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.
The table below provides 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 170 to 309 |
| 3 (8) (ii) (a) |
Affirmative assurance of compliance with accounting standards and requirements |
Directors’ Responsibility Statement on page 163 |
| 3 (8) (ii) (b) |
Affirmative assurance of the integrity of financial reporting system |
Directors’ Statement of Internal Control on page 157 |
| 3 (8) (ii) (c) | Assurance report issued by the External Auditor | Independent Assurance Report on page 160 |
| 3 (8) (ii) (d) | Information on Directors | Pages 18 to 21 |
| 3 (8) (ii) (d) | Remuneration of Directors |
Annual Report of the Board of Directors on the State of Affairs of the Bank on page 144 |
| 3 (8) (ii) (e) |
Net accommodation granted to each category of related party |
Corporate Governance Report. Table on page 140 |
| 3 (8) (ii) (f) |
Compensation and other transactions with Key Management Personnel |
Corporate Governance Report on page 141 |
| 3 (8) (ii) (h) | Compliance with prudential requirements and regulations | This report |
Annual General Meeting
Taking into consideration the current regulations on social distancing and limitations on gatherings due to the COVID-19 pandemic, the Board of Directors decided to hold the Sixty-sixth Annual General Meeting as a Virtual Meeting on 30 March 2022 at 10.00am in line with the guidelines issued by Colombo Stock Exchange (CSE) on holding virtual shareholder meetings.
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 and Chief Executive Officer
Ms A Withana
Company Secretary
17 February 2022