Vision

To be Sri Lanka’s premier financial services group.

Mission
To provide superior financial solutions and nurture
business enterprises, adding value to
our customers, shareholders, employees and
the nation.

Values
• Accountability
• Be Ethical
• Passion for innovation and Excellence
• Respect for the Individual
• Social Responsibility
• Teamwork
 Contents
2 Performance Highlights

4 Management Information
4 Chairman’s Message 8 Chief Executive’s Report 12 Profiles of Directors
16 Management Team 18 Subsidiary, Joint Venture and Associate Companies

20 Reports of Directors
20 Annual Report of the Board of Directors 25 Corporate Governance
32 Audit Committee Report 35 Human Resources and Remuneration Committee Report
36 Nominations Committee Report 37 Board Integrated Risk Management Committee Report

38 Management Discussion and Analysis

38 Operations Review 43 Financial Review 46 Risk Management

50 Sustainability Report
52 Chief Executive’s Message 53 Environment 55 Economy
56 Corporate Social Responsibility 59 Human Capital

61 Financial Report
62 Statement of Directors' Responsibilities in Relation to Financial Statements
63 Chief Executive Officer's and Chief Financial Officer's Responsibility Statement
64 Independent Auditor’s Report 65 Income Statement 66 Balance Sheet
67 Statement of Changes in Equity 68 Cash Flow Statement 70 Notes on the Financial Statements

121 Supplementary Information

121 Capital Adequacy 123 Statement of Value Added - Bank 124 Sources and Distribution of Income - Bank
125 Ten Year Summary 126 Performance of the Share 127 Share Information 129 Twenty Major Shareholders
130 Debenture Information 131 DFCC Bank’s Offices 132 DFCC Pioneer’s Journey
Performance
Highlights

Despite many challenges faced by the

Bank… Profit before tax increased by
20%, profit after tax increased by 26%,
earnings per share increased by 25%
and proposed dividend has increased
by 20%. Furthermore, operating
expenditure declined by 8%.

For the year ended 31 March 2010 2009 %

Change

Income - Rs M 8,843 9,888 10

Profit before tax 2,403 2,006 20
Profit after tax 1,713 1,360 26
Earnings per share - Basic - Rs 12.97 10.41
- Diluted - Rs 12.97 –
Gross dividend (Proposed) - Rs M 794 654
Dividend payout % 46 48
Shareholders' funds
(capital & reserves) - Rs M 15,723 14,491 8
Medium/long-term borrowing,
deposits & debentures - Rs M 38,539 38,988 1
Total assets - Rs M 56,416 58,485 4
Return on average total assets - % 3.4 2.2
Return on average shareholders’ funds 11.3 9.6

2
DFCC Bank Annual Report 2009/10
 3
DFCC Bank Annual Report 2009/10
Management
Information
Chairman’s Message

It is with great pleasure that I present Going forward, the prospects for unfettered will. It is my belief that this
the Annual Report of DFCC Bank for the Sri Lanka arising from the post conflict combination of factors now exists
financial year ended 31 March 2010. situation and the eventual recovery of as evidenced by the early efforts at
world markets are good. Even so, the streamlining a top heavy administration.
There is no doubt that it was a defining country has to embark on the long and Such efforts however, must build up
period for Sri Lanka. The shackles of arduous task of nation building with momentum.
conflict were finally undone and the vigour where sound strategic actions
long awaited ‘light at the end of the have to prevail in order for the peace The third issue is the recurring fiscal
tunnel’ was sighted. The country now dividend to materialise. While the deficit and large losses of several state-
has the epochal prospect of attaining its onward path is full of promise, there owned enterprises. The resultant build up
full potential. As expectations are high, are potential hazards that need to be of public sector debt is casting a shadow
the new elected Government under cleared right at the very outset. There over the future development of the
the leadership of His Excellency the are three immediate and perennial country. This needs to be aggressively
President Mahinda Rajapakse will no issues; politics, governance and the addressed sooner rather than later with
doubt grasp this opportunity and deliver fiscal deficit. the same intensity and attention that
on the mandate awarded by the people. enabled the defeat of terrorism. The
Firstly, the legacy of the defeated terrorist environment is now conducive for such
I would like to look back briefly on the movement will not be dispelled overnight. action and what is required is the political
past year. Sri Lanka’s economy had to Therefore, while the military ‘coup de will to capitalise on the ‘feel good’ factor
bear the full brunt of the global recession grace’ has been administered, focus and push through the more sensitive
and therefore weakened during the first must continue on the rehabilitation and measures such as factor liberalisation
half of 2009. However, positive internal resettlement process, and the economic and revenue reform.
and external developments towards development of all the affected regions.
the latter part of the year enabled the In this context, it is encouraging that the Also, while the Government will
economy to recover strongly from the development thrust that is gathering pace spearhead the development of
lacklustre start. While the catalyst was particularly in the South is also gaining infrastructure and other areas, there
the ending of the long running terrorist momentum in the North and East and is the need to increase the role of the
violence, the country’s economic achieving tangible results on the ground. private sector in this activity particularly
situation was also aided by the through public-private partnerships
continuing recovery in world markets. The second issue is the question of and other transparent structures. In the
The containment of inflation and the governance. In this regard, a top down context of investing in a post conflict
decline in interest rates were also approach based on meritocracy is the
important factors that helped to regain best strategy. Such action requires
business and investor confidence. determination and a strong and politically

4
DFCC Bank Annual Report 2009/10
"Going forward, the prospects
for Sri Lanka arising from the
post conflict situation and the
eventual recovery of world
markets are good. Even so, the
country has to embark on the
long and arduous task of nation
building with vigour where
sound strategic actions have to
prevail in order for the peace
dividend to materialise."

5
Chairman’s Message | DFCC Bank Annual Report 2009/10
Sri Lanka, I do not believe that the domestic banking industry continued delinquent assets and all aspects of
financing of such projects would be a to be profitable, the performance of the cost in order to achieve a respectable
constraint provided that transparency core business of intermediation was growth in the bottom line. Bearing in
prevails. Most long-term financial weak. However, there are welcome mind its responsibility as a development
institutions have a pragmatic attitude signs of revival that have emerged in the finance institution, the Bank took a
particularly when it comes to project last few months. conscious decision to provide liquidity
finance. However, ethical investing either by restructuring or providing new
and best practices, especially after the Looking ahead, there is widespread funding to many viable businesses in
global banking crisis, are overriding acceptance that the financial system sectors that experienced stress. These
considerations meaning that any has to undergo a fundamental structural endeavours enabled the Bank and the
opaqueness will stall a transaction. transformation. The domestic banking Group to record growths of 26% and
space is too fragmented and this will 30% respectively in profits after tax
I would like to move on to the banking require the players to attain a critical for the financial year ended 31 March
sector itself. Globally, the image of the mass, particularly given the credit 2010. I am also pleased to inform that,
industry has suffered. Depositors and demand prospects and the emerging at the Group level, the investment in the
investors lost much due to endemic regulatory scenario. The need for distribution network of DFCC Vardhana
moral hazard while taxpayers had to corporate consolidation to achieve scale Bank Limited (DVB) began to bear fruit
foot huge bills for the bailouts of those economy and operational homogeny as expected. DVB has now expanded its
institutions deemed ‘too Big to Fail’. In and thereby cost rationalisation and distribution network to all the provinces.
the United States alone, 140 banks went profitability enhancement has thus Despite the inherent difficulties that
under in 2009 and a further 41 failed been voiced many a time. The need for a small commercial bank has to face
during January to March 2010. However, an equitable tax rate to incentivise the in difficult economic conditions, DVB
following concerted policy actions that raising of equity capital has also been more than doubled its contribution to
helped stabilise the system, there was articulated repeatedly. In all this, there Group profit. It is clear that the Bank
some recovery beginning in the latter is a unity of opinion and I therefore requires to expand its franchise in the
part of 2009. Even so, confidence in hope that the policy makers and the commercial banking space to enable it
the industry needs to be quickly rebuilt authorities concerned will give due heed to effectively deliver on its development
particularly through the implementation to the industry situation and address the banking mandate. Accordingly, we are
of reform and regulatory tightening on a issues raised. in the process of developing a model
global scale. In contrast, the domestic under which both these businesses
financial system remained stable due I now turn to the performance of can continue. The future of the Bank’s
in no small part to proactive regulatory DFCC Bank. Weak credit demand and shareholding in Commercial Bank of
action taken by the Central Bank of Sri declining interest rates left their mark Ceylon PLC, presently an associate
Lanka. At the same time, the year was on the lending portfolio and interest company is being re-examined as part
challenging as a result of the slowdown income at both the Bank and Group of this exercise. The Group is committed
in the local economy towards the end level. In the environment that prevailed to play its development role in the North
of 2008, which carried through to the the main business line of DFCC Bank, and East and has opened the first three
first part of 2009. This slowdown took its which involves providing debt capital branches in the region. We will expand
toll on portfolio growth and quality. The for projects suffered disproportionately our activities in these provinces in the
industry-wide credit portfolio contracted when compared with banks that funded coming years.
by almost 5% as against the growth working capital. The contraction in
exhibited in previous years. As regards the top line meant that efforts had to
quality, total non-performing advances be focussed strongly on managing
went up by 21% contributing to an
industry-wide non-performing loan ratio
of 8% as at March 2010. Although the

6
DFCC Bank Annual Report 2009/10 | Chairman’s Message
Although experiencing a challenging financing and DVB’s commercial banking At DFCC, we regard all our clients
year, Commercial Bank of Ceylon PLC business. In this scenario, the Group will as valued partners and treat each
maintained its substantial contribution adopt proactive strategies for portfolio relationship as special. Their patronage
to the Group. Significant contributions growth focussing on those sectors with has enabled our success in no small
to Group profit also came from Lanka potential as well as resilience to internal way and I thank them all for their choice
Industrial Estates Limited and the and external shocks. of DFCC as financier. As we continue
investment banking joint venture, onwards, we will rely on a partnership of
Acuity Partners (Pvt) Limited. The Bank My fellow Directors were unstinting mutual support and benefit.
meanwhile divested its controlling stake in their support and cooperation.
in Lanka Ventures PLC at a profit to I thank them and will continue to rely Officials of the Ministry of Finance and
Acuity Partners (Pvt) Limited in early on their good counsel. Mrs. Sujatha the Central Bank of Sri Lanka have
2010. The Bank has committed new Cooray resigned from the Board in long been supportive of DFCC Bank’s
capital of up to Rs500 million to Acuity December 2009. I thank her for the endeavours. I thank them for the help
Partners to finance this acquisition and valued contribution and support. and support extended in the past and
for business expansion of the Acuity Mr. Ajith Jayaratne, Senior Director will continue to rely on their facilitation in
Group. This has brought all the non and Chairman of the Board Audit the future.
core financial businesses of the Bank Sub-committee, retired from the Board
under one umbrella and will enable on reaching the age of 70. I thank him Dear shareholders, I, together with my
Acuity Partners to position itself as for his valued guidance and backing fellow Directors, value the trust you have
Sri Lanka’s premier universal investment during his tenure on the Board and wish placed in our abilities and we thank you
bank. The information technology him well. I welcome Dr. Mrs Damitha for giving us the privilege of directing the
subsidiary Synapsys Limited has built de Zoysa who was appointed course of DFCC Bank. In recognition of
up capacity to move to the next level Government Director in December your support, and the 25% increase in
of implementing business solutions 2009. I also welcome Messrs Asoka earnings per share to Rs12.97, the Board
overseas. To further its growth, the Bank Abeyewardene, Tissa Bandaranayake has decided to recommend that the
plans to infuse Rs50 million in new (Alternate Director to Mr Turan dividend be increased to Rs6 per share
capital to this business in stages. Caglayan) and Gomin Dayasri who were from the Rs5 per share paid last year.
appointed in August 2009, October 2009 Going forward, while there is optimism,
From a business perspective, there is and March 2010 respectively. there will also be challenges to be faced.
cause for optimism. The upturn was Whatever these challenges, be assured
manifest in the last quarter of the financial DFCC is founded on its employees. it is your interest in DFCC Bank that will
year and the newly found confidence Mr. Nihal Fonseka, the Chief Executive, receive our utmost attention.
was marked by the unprecedented surge continues to bring out the best in
in equity prices on the Colombo Stock the DFCC team and together, their
Exchange. At the same time, DFCC’s performance has again delivered value.
project finance pipeline has strengthened Their work ethic is exemplary and
considerably across the board in sectors I remain confident of their continued J M S Brito
such as manufacturing, food & beverage, commitment in powering DFCC Chairman
tourism and telecommunication. This is forward. I thank all, and will bank on
26 May 2010
encouraging as it indicates the breadth their future efforts.
of the recovery. Also, the build up of
investment momentum augurs well for
DFCC’s core business of capital asset

7
Chairman’s Message | DFCC Bank Annual Report 2009/10
Management
Information
Chief Executive's Report

The financial year ended 31 March 2010 the first time in many years. Economic The portfolio quality too continued to
proved to be an year of contrasting activity in the country including the North be adversely affected, with the non-
challenges. At this time in 2009 the and East showed slow but sure signs of performing asset ratio increasing due
global economy was still fragile and improvement. However, the fiscal deficit to the contraction in advances, but on
Sri Lanka was still facing the challenge remained untamed and in fact widened. the positive side the quantum of non-
of rebuilding its depleted foreign These phenomena posed a different performing assets, which peaked in May
currency reserves in a sustainable set of challenges as we ended the last 2009, reduced every month thereafter
manner. On the positive side, there financial year. and showed a slight reduction year on
was great hope because the year. The Bank focused on containing
Government had for the first time in the non-performing portfolio through
several decades, taken control of the Profit increased but core proactive management of customer
entire land mass, sea and airspace of
business affected... advances rather than reducing the
Sri Lanka after crushing terrorist ratio through seeking to aggressively
violence that had caused more than In an year of contrasting challenges, grow the credit portfolio in the relatively
700,000 deaths and claimed several the performance of the Bank was high risk environment that prevailed for
times that number as victims in various mixed. Profit at the Bank and Group much of the year. However, the Bank
ways. This unprecedented opportunity level showed healthy increases to provided significant liquidity support to
was expected to serve as a springboard Rs1,713 million and Rs2,684 million many stressed borrowers, especially in
for catapulting Sri Lanka firmly into the up by 26% and 30% respectively from the small and medium enterprise sector,
ranks of a middle income country. the previous year. However, the core by restructuring and rescheduling debts
advances portfolio comprising loans and under both Government sponsored
Much has happened in the last 12 finance leases suffered a contraction for schemes and using the Bank’s own
months, both globally and in Sri Lanka. In the second consecutive year at a rate resources. Although gross provisions
April, the IMF predicted global economic somewhat above the banking sector for delinquent debts naturally increased
growth for 2010 to reach 4.2% on a average. This was understandable in this scenario, recovery of previously
purchasing power basis, up from the since during an economic downturn provided advances also showed a
forecast of 3.2% six months previously, and a high interest rate environment, fair improvement.
driven mainly by large emerging the normal contraction of the amortising
economies such as China, India and term loan portfolio is compounded by a The decline in interest income from
Brazil. Despite the looming threat posed lower demand for new medium and long loans and leases was partly offset by
by the debts of the so called 'PIIGS' term project loans whereas the revolving the interest earned on investments in
countries and the recent battering of the working capital finance which forms a Government Securities held to maturity.
Euro, there is some exuberance built significant proportion of the assets of the Net interest income showed a growth
around the world economy compared commercial banking sector, may not be due to the reduction in funding costs.
with the uncertainty that prevailed a affected as much. Dividends from group companies
year earlier. In Sri Lanka, the recently
concluded elections resulted in the
country having a strong Government for

8
DFCC Bank Annual Report 2009/10
"One must not underestimate
the role that has to be played
by the financial services sector
led by the banking sector, which
is the predominant provider of
funding to the private sector.
Achieving the growth objective
of the Government will require
bank lending to more than
double to Four Trillion Rupees
in the next five years."

9
Chief Executive’s Report | DFCC Bank Annual Report 2009/10
increased, as did income from the sale Group companies Mahinda Chintana - Idiri Dakma (Vision
of shares, with a significant component for the future) of doubling the per capita
steady...
of this income being derived from the GDP to above USD 4,000 in the next 6
divestment of subsidiary Lanka Ventures LVL which recorded a loss in the years by leveraging the peace dividend
PLC (LVL) to the investment banking joint previous year due to a prior year tax and the rebounding global economy.
venture, Acuity Partners (Pvt) Limited. charge, returned to profitability. It Continuing the policies of the past may
ceased to be a subsidiary on 18 January not get us there and a paradigm shift
Special attention was paid to managing 2010. Lanka Industrial Estates Limited may be called for. The Government
cost, including employment related (LINDEL) recorded a steady year. Acuity may therefore wish to re-examine and
expenses and the success of our efforts Partners (Pvt) Limited commenced change where necessary, any policy
is reflected in the low cost/income ratio full scale operations from one location that does not affect national security (in
of 26% for the Bank. and both the government securities an era of peace, not war), sovereignty
trading and stock broking businesses or personal freedoms, in its attempt to
made positive contributions while reach the goal. Bold new policies, but

DFCC Vardhana Bank commencing work on several corporate more importantly, implementation will

makes further progress... finance mandates. The information and be the key to success. The Government
communication technology subsidiary and the private sector now have a
Despite the challenging environment, Synapsys Limited which undertakes the golden opportunity to propel Sri Lanka to
the commercial banking unit, DFCC ICT operations of the Bank and DVB its full potential.
Vardhana Bank Ltd (DVB) recorded a made a small loss but continued to build
better performance. The investment in capacity to produce products for the A good start has been made with the
the distribution network whereby DVB financial services sector and implement cabinet of ministers being pruned down
now has 44 branches and 30 outlets in solutions for non-group companies. It by almost half which, should help to
post offices contributed to DVB growing recently launched its mobile banking streamline the administrative machinery.
its customer deposits by 16 %. DVB platform MBanx which is now deployed A recent public pronouncement that it
also benefitted from the declining cost of in DVB. The Bank is committed to is Government policy to allow overseas
funds and the interest earned from high investing new capital in Synapsys to universities to operate campuses in
yielding government securities held to enable it to expand its reach overseas. Sri Lanka is a welcome development to
maturity. Profit before and after tax for National Asset Management Limited help build the talent pool that the country
the year grew to Rs598 million and (NAMAL) launched the first listed needs to support the growth objective.
Rs268 million recording increases of close ended fund in the country’s fund
77% and 141% respectively for the management history. Commercial Bank
year. The slowdown in economic activity of Ceylon PLC (CBC) had a fair year Make doing
resulted in a deterioration in the asset and made a significant contribution
business easy...
quality of DVB as well and steps are to the Group profit. The market value
being taken to address this issue. of this investment has increased Targeted foreign direct investment
significantly in recent times although the will need to be attracted at an
synergy benefits envisaged at the time unprecedented level to complement

Entering the North of investment did not materialise. domestic investment. In doing so, it

and East... is time for us to move away from the

three traditional carrots, viz, cheap
The DFCC Group made its entry to the
The new challenges... labour, tax holidays, and protection
North and East by setting up branches in from competition that have been offered
Batticaloa, Ampara and Jaffna. Opening The new challenges that I referred to to investors both local and foreign
of two further full branches and several earlier relate to the repositioning of in the past, although it is recognised
post office units of DVB are planned for Sri Lanka to achieve the Government’s that the last two may still need to be
this year which will enable the DFCC objective set out in its policy programme used sparingly and in a time bound
Group to play its development role in the manner for major projects. Instead, the
post war reconstruction of these regions. Government can focus on improving
the ease of doing business in the

10
DFCC Bank Annual Report 2009/10 | Chief Executive’s Report
country in general. In the latest study introduction of new accounting Supportive Board of
in this regard conducted by the World standards on fair value accounting and
Directors, Employees,
Bank Group, Sri Lanka was ranked impairment measurement in 2011 may
Central Bank and
105 out of 183 countries surveyed. have an adverse impact on profitability
While the country ranked well when of banks. All of these developments will
Government...
compared with SAARC countries, we dictate that banks be strongly capitalised DFCC is fortunate to have a Board
badly lagged many ASEAN countries. and upgrade their risk management of Directors with diverse skills
Sri Lanka did particularly poorly in the practices with special emphasis being and experience who are able to
areas of construction permits, enforcing paid to risk based pricing. The DFCC constructively challenge management
contracts, employing workers, paying Group for its part has made significant whilst being supportive and who spare
taxes and speedy reforms in these four progress in this regard by investing in no effort to meet their responsibilities to
areas could help to push Sri Lanka into building technical and human capacity shareholders and other stakeholders.
the top 50 within a short time although in its Integrated Risk Management My management team and employees
reaching the top 25 should be the department and is using external always gave of their best to produce the
medium term goal. The private sector expertise for implementing the new results and I thank them. The Bank also
will have to play its part and become accounting standards in the financial received encouragement and support
more innovative and efficient but the year commencing 01 April 2011. from the Central Bank of Sri Lanka and
Government will have to provide the the Government for which I am thankful.
enabling environment for this to happen. There is much global criticism of the
Although this issue has already attracted performance of the banking sector
the attention of the Government, best with calls for greater regulation. In the
The future...
results may be achieved by setting up case of Sri Lanka, apart from isolated
a high level task force along the lines cases of governance and control failure, The country is uniquely placed to leap
of the Presidential Commission on private sector banks, that have recorded forward and the DFCC Bank is very
Taxation involving both the public strong growth in the last decade, have conscious of the role that it is mandated
and private sectors, to speedily come discharged their fiduciary responsibility to play by supporting development to
up with specific recommendations and to depositors and other stakeholders which we remain committed. However,
action plans. quite well over the years without the ground situation today is very much
recourse to schemes funded by tax different to the situation that prevailed
payers. While continuous improvement when the Bank was set up in the
Banks have to be ready in regulation is important, policymakers aftermath of World War II. Sustainability

to play a big role... should be mindful that regulation of the Bank requires it to be in a position
has both direct and indirect costs, to offer a wide range of services to
One must not underestimate the role sometimes arising from unintended its clients. In the coming year we will
that has to be played by the financial consequences. Thus, striking the focus on the challenge of delivering
services sector led by the banking right balance between regulation and on our development banking mandate
sector which is the predominant the need to permit the banking and while ensuring that our business model
provider of funding to the private sector. financial service sector to support the will ensure value addition to all our
Achieving the growth objective of the growth strategy of the country will need stakeholders.
Government will require bank lending to be carefully considered especially
to more than double to Four Trillion in the context that unlike global
Rupees in the next five years. Only players, the domestic banking sector
part of the required resources will is not significantly exposed to complex
be available from domestic sources. derivatives and securitisation. If I may Nihal Fonseka
The domestic banks will have to tap make a specific reference to the often Chief Executive
international capital markets for the referred to need for a deposit insurance
26 May 2010
balance requirements. The impending scheme, it is hoped that any scheme
that is introduced will not increase moral
hazards by requiring soundly managed
institutions to subsidise the weak.

11
Chief Executive’s Report | DFCC Bank Annual Report 2009/10
Management
Information
Profiles of Directors

Mr J M S Brito Mr A S Abeyewardene Mr T K Bandaranayake

Chairman Director Alternate Director to T Caglayan

Joined the Board of DFCC Bank in Appointed to the Board of DFCC Bank in Joined the Board of DFCC Bank in
March 2005. August 2009 October 2009.

Appointed Chairman in September Management and Financial Consultant. Senior audit partner of Ernst & Young
2005. Deputy Chairman and Managing Was a Partner of KPMG Ford, Rhodes, for 27 years prior to retirement in 2009.
Director of Aitken Spence & Company Thornton & Company, Sri Lanka. Served as an independent advisor to
Limited. Chairman of DFCC Vardhana Currently serves on the Boards of the Board Audit Committees of DFCC
Bank Limited. Formerly Chairman of Ceylon Hospitals PLC, J L Morrison Bank and DFCC Vardhana Bank.
Sri Lankan Airlines, and Director of Son & Jones PLC, National Asset Former Director of DFCC Vardhana
Sri Lanka Insurance Corporation. Management Limited. Formerly Bank. Currently serving on the Board of
A former member of the Strategic a Director of Sri Lanka Insurance Central Finance PLC.
Enterprise Management Agency Corporation Limited.
Graduate of the University of Ceylon and
(SEMA), the post-tsunami Presidential
Fellow of The Institute of Chartered a Fellow of the Institute of Chartered
Task Force for Rebuilding the Nation
Accountants of Sri Lanka, Fellow Accountants, Sri Lanka.
(TAFREN) and the Public Enterprises
of the Institute of Directors, UK
Reform Commission (PERC).
and Fellow of the Society of Certified
Mr Brito holds a Degree in Law and Management Accountants of Sri Lanka.
a MBA in Business Administration.
He is a Fellow of the Institute of
Chartered Accountants of England and
Wales. He has gained management
expertise serving companies such
as Pricewaterhouse, London, British
EverReady PLC, Minmetco Group and
the World Bank.

12
DFCC Bank Annual Report 2009/10
 Mr T Caglayan Mr G K Dayasri Mr A N Fonseka
Director Director Chief Executive Officer
Ex-Officio Director

Appointed to the Board of DFCC Bank in Appointed to the Board of DFCC Bank in Joined the Board of DFCC Bank in
August 1999. March 2010. January 2000 with his appointment as
Chief Executive.
First Vice-President and Head of Asia A practicing senior Attorney-at-Law and
Department of the German Investment a former Director of Sri Lanka Insurance Mr. Fonseka is a career banker. He is
and Development Company - DEG, a Corporation Limited and the Colombo the Chairman of the Colombo Stock
part of the KfW Banking Group. Stock Exchange, Mr. Dayasri holds a Exchange and the Association of
Degree in Law from the University of Development Financing Institutions
Prior to his current position, in different
Colombo. in Asia and the Pacific (ADFIAP).
capacities he took responsibility for
A member of the Governing Board
various sectors and emerging markets
of the National Institute of Business
focused on East/South-East Europe
Management (NIBM) and of the
and Asia. The initial period of his career
Advisory Committee on Finance and
was at Deutsche Bank and Bayer AG, in
Banking of the Ceylon Chamber of
Germany before joining DEG in 1992.
Commerce. He is also a member of
the National Payments Council, Inter-
Regulatory Institutions Council and the
Presidential Commission on Taxation.

Mr. Fonseka is a Graduate of the

University of Ceylon, Colombo, and
a Fellow of the Chartered Institute of
Bankers, UK.

13
Profiles of Directors | DFCC Bank Annual Report 2009/10
 Deshabandu Mr S N P Palihena Mr C P R Perera
A M de S Jayaratne Director Director
Director

Joined the Board of DFCC Bank in Joined the Board of DFCC Bank in Joined the Board of DFCC Bank in
September 2005. Designated Senior October 2002. July 2005.
Director in terms of Direction No.12 of
A former General Manager of Bank of Former Chairman and CEO of Forbes &
2007 of the Central Bank.
Ceylon. He has had a distinguished Walker Limited. A Former Chairman of
A former Chairman of Forbes and banking career spanning almost 40 years the Bank of Ceylon, Sri Lanka Insurance
Walker Limited, the Colombo Stock at the Bank of Ceylon. He also worked Corporation, Sri Lanka Tea Board
Exchange, Apollo Hospitals, Colombo, at the National Development Bank of and the Public Enterprises Reform
Ceylon Chamber of Commerce and the Sri Lanka for a period of over three years. Commission (PERC).
Finance Commission. He is a Director
He is a Fellow of the Chartered Institute Chairman of Avondale Tea Factories
of several public listed companies.
of Bankers (London) and a Fellow of the (Private) Limited, Anglo Ceylon Estates
Also served as Sri Lanka's High
Institute of Bankers, Sri Lanka. He also (Private) Limited and Ceylon Tea
Commissioner in Singapore.
has a Postgraduate Diploma in Business Brokers Limited. Currently serves on the
Mr Jayaratne is a Chartered Accountant and Financial Administration from The Committee of the Ceylon Chamber of
by profession and holds a Degree in Institute of Chartered Accountants, Commerce and as a Director of the
Economics. Sri Lanka. Sri Lanka Business Development
Centre. Serves on the Boards of
Mr Jayaratne retired as a Director of
two Plantation Companies and their
DFCC Bank on 30 April 2010 having
respective Holding Companies.
reached the age of 70.

14
DFCC Bank Annual Report 2009/10 | Profiles of Directors
 Mr D S Weerakkody Dr Mrs Damitha de
Director Zoysa
Government Director

Joined the Board of DFCC Bank in Joined the Board of DFCC Bank in
June 2003. December 2009.

Managing Director of Cornucopia Lanka Secretary, Ministry of Fisheries

Limited and Advisor to Cornucopia, and Aquatic Resources Development,
India. Director of Commercial Bank of Former Director General, Department
Ceylon PLC, GlaxoSmithKline Sri Lanka of Development Finance and former
and Vice-President, Sri Lanka Tennis Director General Fiscal Policy,
Association. A former Chairman/CEO Ministry of Finance and Planning.
of the Employees' Trust Fund Board of Chairman of the Plantation Trust
Sri Lanka, Advisor to the Prime Minister Fund. Director, Sri Lanka Institute of
of Sri Lanka in 2003/04. Past Council Nanotechnology (Pvt) Limited. Board
Member and Chairman Employer member of the National Water Supply
Relations of CIMA, Sri Lanka Division. and Drainage Board.

Trained in leadership, international Holds an Honours Degree in

relations, change management and Economics, Master's in Agricultural
human resource management in Development Economics (Canberra),
Singapore, UK, Japan, India, Master's in Economics (USA) and
France and USA. Doctor of Philosophy in Agricultural
Economics (USA).
MBA - University of Leicester UK,
Associate of the Chartered Institute of
Management Accountants (CIMA), UK.
Fellow of the Certified Management
Accountants of Sri Lanka, Professional
Member Singapore Institute of Human
Resource Management and Honorary
Member Institute of Personnel
Management of Sri Lanka.

15
Profiles of Directors | DFCC Bank Annual Report 2009/10
Management
Information
Management Team

Nihal Fonseka Palitha Gamage Prasad Dharmaratne

General Manager/Director & Planning & Plan Implementation Manager - Gampaha Branch
Chief Executive Officer B.Sc. (Eng.) MBA ACMA B.Sc. (Eng.)
B.Sc. FCIB (UK)
Manohari Gunawardhena Chandana Dharmawardana
Treasury Corporate Banking
Executive Vice-Presidents B.Sc. MBA B.Sc. (Eng.) MIESL

H A Ariyaratne Ananda Kumaradasa Neville Fernando

Lending Branch Banking & SME Business Systems
B.Sc. B.Sc. ACMA MBA B.Sc. ACMA PMP

S Nagarajah Thusantha Wijemanna Samarakodi Godakanda

Finance General Counsel/Board Secretary
Manager - Kurunegala Branch
FCMA (UK) FCA FCCA LLB LLM Attorney-at-Law
B.Sc. (Agri.)

Lakshman Silva
Chaminda Gunawardana
Chief Executive Officer - DFCC
Vice-Presidents Special Loan Administration
Vardhana Bank Limited
B.Sc. AIB MBA
(on secondment) Bhathiya Alahakoon
B.Com. MBA
Regional Manager Roshan Jayasekara
B.Sc. (Eng.)
Anomie Withana Corporate Banking
ACMA
Operations Chinthika Amarasekara
FCMA FCA MBA
Accounting & Reporting Ruwangani Jayasundera
ACA
Senior Vice-Presidents Manager - Nawala Branch
ACMA MBA
Suraj De Silva Renuka Amarasinghe
Integrated Risk Management Corporate Banking Chanaka Kalansuriya
B.Com. MBA FCMA LLB Attorney-at-Law
Procurement & Services
MBA
Tyrone De Silva Jayani Amarasiri
Corporate & Investment Banking Human Resources Chanaka Kariyawasam
CEI MBA BA (Econ.) MA
Regional Manager
B.Sc. (Pb. Admn.) MBA AIB
Dinesh Fernandopulle Nandasiri Bandara
Group Chief Information Officer Internal Audit
B.Sc. M.Sc. B.Sc. (Bs. Admn.)FCA

16
DFCC Bank Annual Report 2009/10
Nanediri Karunasinghe Assistant Vice-Presidents Jayangani Perera
Leasing Credit Risk Appraisal
B.Sc. (Eng.) MPhil. (Eng.) ACMA Gunaratne Bandara B.Com.
Manager - Ratnapura Branch
Prasanna Premaratne B.Sc. (Pb. Admn.) Wajira Punchihewa
Regional Manager Manager - Matara Branch
M.Sc. (Agri.) PGD in Bank Mgmt. Pradeepa De Alwis B.Sc. ACMA AIB MA (Fin. Econ.) MBA
Manager - Galle Branch
Sriyani Ranatunga B.Sc. (Stat.) PGD in Bs. Admn. Nimali Ranaraja
Credit Administration Transaction Processing
FCMA MBA MA (Econ) Champal de Costa LLB Attorney-at-Law ACMA
Business Banking
Priyadarsana Sooriya Bandara B.Sc. (Eng.) MBA MIESL CEng. Stanislaus Rayen
Regional Manager Business Banking
B.Sc. (Bs. Admn.) MBA ACMA ACCA Terrence Etugala B.Sc. (Eng.) MBA MIESL
Manager - Kandy Branch
Visaka Sriskantha B.Sc. (Acct.) Kapila Samarasinghe
Legal Manager - Malabe Branch
BA Attorney-at-Law Bandula Gamarachchi B.Sc. (Eng.) M.Sc. (Eng.)
Credit Administration
Kapila Subasinghe ACMA AIB FCMA - SL MBA Kusumsiri Sathkumara
Project Management Regional Manager
B.Sc. (Eng) ACMA Channa Jasenthuliyana BA (Econ.)
IT/Application Systems
Dharmasiri Wickramatilaka DCSD (NIBM) M.Sc. (IT) MBCS Mangala Senaratne
Branch Credit Manager - Kalutara Branch
B.Sc. (Eng.) MBA ACMA Sonali Jayasinghe B.Sc. (Eng.)
Training & Talent Management
Rosheeni Madanayake Wijesekera B.Sc. (Bs & Econ.) Nishan Weerasooriya
Corporate Communications IT Operations
BA PGD in Bs. Admn. Nalin Karunatileka B.Sc. (Comp. Sc.) MBA
Project Management
B.Sc. (Bs. Admn.) MA (Fin. Econ.) Chandrin Wimaladarma
Nawala Branch
Duleep Mahatantila BA Attorney-at-Law MBA
Credit Administration
BA (Acct. & Econ.) PGD in Law,
Barrister of Law

Management Team as at May 2010 with Names in alphabetical order within each grade.

Management Team | DFCC Bank Annual Report 2009/10

17
Management
Information
Subsidiary, Joint Venture and Associate Companies

Subsidiary
Companies

Company Company Company Company

DFCC Consulting (Pvt) DFCC Vardhana Bank Limited Lanka Industrial Estates Synapsys Limited
Limited 73, W A D Ramanayake Limited (LINDEL) No. 540, Nawala Road,
No. 73/5, Galle Road, Mawatha, Colombo 02 Pattiwila Road, Rajagiriya
Colombo 03 Sapugaskanda, Makola
Tel : (011) 2371371 Tel : (011) 2880770
Tel : (011) 2442442 Tel : (011) 2400318
Incorporated: August 1995 Incorporated: October 2006
Incorporated: September 2004 Incorporated: March 1992
DFCC’s Interest DFCC’s Interest
DFCC’s Interest 95.58% DFCC’s Interest 100%
100% 51.16%
Principal Activity Principal Activity
Principal Activity Commercial Banking Principal Activity A technology consulting,
Consultancy Leasing of lands and buildings implementation and managed
Directors to industrial enterprises services company
Directors 1. J M S Brito (Chairman)
1. A N Fonseka 3. Ms Y N Perera Directors Directors
(Chairman) 4. A N Fonseka 1. A N Fonseka (Chairman) 1. A N Fonseka (Chairman)
2. T W de Silva 5. J A R E M Machado 2. H A Samarakoon (CEO) 2. S Nagarajah
3. S E de Silva 6. S Nagarajah 3. Mrs. W H A Wimalajeewa 3. T W de Silva
4. C Dharmawardene 7. L H A L Silva (CEO) 4. T W de Silva 4. D Fernandopulle (CEO)
8. L N de S Wijeyeratne 5. Dr. R M K Ratnayake
Net loss Tax 2009/10 9. Ms R A P Withana 6. A D Tudawe Net Loss after Tax 2009/10
Rs(1) million Rs(9) million
Profit after Tax 2009/10 Profit after Tax 2009/10
Rs268 million Rs103 million Net Loss after Tax 2008/09
Profit after Tax 2008/09
Rs(19) million
Rs2 million
Profit after Tax 2008/09 Profit after Tax 2008/09
Rs111 million Rs101 million Dividend per Share 2009/10
Dividend per Share 2009/10
–
Rs3.00
Dividend per Share 2009/10 Dividend per Share 2009/10
Rs0.30 – Dividend per Share 2008/09
Dividend per Share 2008/09
–
Rs11.00
Dividend per Share 2008/09 Dividend per Share 2008/09
Rs0.10 Rs4.00 ROE 2009/10
ROE 2009/10
–
–
ROE 2009/10 ROE 2009/10
9.8% 24%

18
DFCC Bank Annual Report 2009/10
Joint Venture Associate
Companies

Company Company Company

Acuity Partners Commercial Bank of National Asset
(Pvt) Limited Ceylon PLC Management Limited
No. 53, Dharmapala Mawatha, “Commercial House” No. 73, W A D Ramanayake
Colombo 03 21, Bristol Street P.O. Box 856 Mawatha, Colombo 02.
Colombo 1, Sri Lanka
Tel : (011) 2206206 Tel : (011) 2445911
Tel: (011) 2445010
Incorporated: February 2008 Incorporated: September 1990
Incorporated: June 1969
DFCC’s Interest DFCC’s Interest
50% DFCC’s Interest 30%
26.9%
Principal Activity Principal Activity
Investment banking and related Principal Activity Launching, operating and
activities such as Corporate Commercial Banking administrating the Units Trusts
Finance, Debt Structuring and and managing private portfolio
IPOs. Directors funds.
1. M J C Amarasuriya
Directors (Chairman) Directors
1. A N Fonseka (Chairman) 2. B R L Fernando 1. A Abeywardana
2. R Theagarajah (Deputy Chairman) (Chairman)
3. M R Abeywardena (CEO) 3. A L Gooneratne 2. L U D Fernando
4. J M J Perera (Managing Director) (Alternate: R De Silva)
5. T W De Silva 4. Dr H S Wanasinghe 3. T W De Silva
6. D Ellepola 5. D S Weerakkody 4. R De Silva
7. J R P M Paiva 6. R M S Fernando 5. A N Fonseka
8. Ms. M Gunawardhena 7. P M Martelli (Alternate:
8. Ms. S.N. Wickramasinghe Ms. M Gunawardana)
Profit after Tax 2009/10 9. Ms. J Kuruppu
Rs84 million Profit after Tax 2009/10
Rs21 million
Profit After Tax 2009/10
Profit after Tax 2008/09 Rs4,193 million
Profit after Tax 2008/09
Rs16 million
Rs18 million
Profit After Tax 2008/09
Dividend per Share 2009/10 Rs4,120 million
Dividend per Share 2009/10
–
–
Dividend per share 2009/10
Dividend per Share 2008/09 Rs7.00 Dividend per Share 2008/09
–
Rs1.00
Dividend per share 2008/09
ROE 2009/10 Rs7.00 ROE 2009/10
14.87% 13%
ROE 2009/10
15.26%

19
Subsidiary, Joint Venture and Associate Companies | DFCC Bank Annual Report 2009/10
Reports of
Directors
Annual Report of the Board of Directors

The Directors of the DFCC Bank have Subsidiaries, Joint Venture Going Concern
pleasure in presenting to the members and Associates The Directors are satisfied that the Bank
the Annual Report together with the The subsidiaries of the Bank are has adequate resources to continue its
audited Financial Statements for the DFCC Consulting (Pvt) Limited, DFCC operations in the future and the financial
year ended 31 March 2010. Vardhana Bank Limited (DVB), Lanka statements are prepared on the basis of
Industrial Estates Limited (LINDEL) a going concern.
The Directors Report contains some and Synapsys Limited. Acuity Partners
pertinent information and disclosure (Pvt) Limited is an equally-owned joint Financial Statements
required under the Companies Act venture and associate companies are
The financial statements of the Bank
No.7 of 2007 to the extent applicable National Asset Management Limited
and the Group of companies are given
to DFCC Bank, the Listing Rules of (NAMAL) and Commercial Bank of
on page 65 to 69 of the Annual Report.
the Colombo Stock Exchange, the Ceylon PLC. The nature of business and
They have been prepared in conformity
Banking Act (including Directions issued the Bank’s interest in these entities are
with the requirements of the Sri Lanka
thereunder), the requirements of the set out in pages 18 and 19.
Accounting Standards, the Banking
Sri Lanka Accounting Standards.
Act and other applicable statutory and
The Bank divested the shares owned
regulatory requirements.
in Lanka Ventures PLC, a company
General principally engaged in making venture
Review of Business of the Year
capital investments to Acuity Partners
DFCC Bank which is established under The Chairman’s Statement, Chief
(Pvt) Limited in January 2010 and it
the DFCC Act No.35 of 1955, is listed Executive's Report and the Management
ceased to be a subsidiary thereafter.
on the Colombo Stock Exchange and is Discussions and Analysis give details
There were no significant changes
licensed as a Specialised Bank under the of the operations of the Bank and the
relating to the business of the
Banking Act No.30 of 1988 as amended. strategies that were adopted during the
subsidiaries and associates of the
year under review.
Bank during the year.

Principal Activities
Profit and Appropriations
Bank Year ended 31 March 2010 (Rupees million)
The principal activities of DFCC Bank
Retained profit on 31 March 2009 773
include the business of development
Previous year dividend approved on 30 June 2009 662
financing and investment banking
Unappropriated profit on 31 March 2009 111
services. There has been no significant
Profit after tax of the Bank 1,713
change in the nature of DFCC Bank’s
Total available for appropriations 1,824
principal activities during the year.

Appropriations:
Transfer to Reserve Fund (statutory requirement) 90
Transfer to General Reserve 742
First and final dividend recommended for financial
year ended 31 March 2010 794
Unappropriated profit on 31 March 2010 198

20
DFCC Bank Annual Report 2009/10
Accounting Policies Profiles of the Directors are given in re-election and the Board having
page 12 to 15. The following are the concluded that they are fit and proper
The accounting policies adopted in the
present Directors of the Bank: persons to be Directors in terms
preparation of the financial statements
of the provisions of the Banking
of the Bank and the Group are stated
Mr J M S Brito (Chairman)
Act, unanimously endorse the
on page 70 to 82 of the Annual Report.
Mr S N P Palihena - Senior Director
recommendation of the Nominations
There were no significant changes to the
Mr A N Fonseka - CEO and
Sub-committee.
accounting policies of the Bank in the
Ex Officio Director
year under review.
Dr (Mrs) Damitha de Zoysa -
Retirement of Directors
Government Director
Auditor’s Report Mr T Caglayan
The Director retiring by rotation in
terms of Regulation No.87 of the DFCC
The Auditor’s Report on the financial Mr C P R Perera
Regulations is Mr T Caglayan.
statements, which is unqualified, is Mr D S Weerakkody
Mr A M de S Jayaratne, the Senior
given on page 64. Mr A S Abeyewardene
Director retired from the Board on
Mr G K Dayasri
30 April 2010 on reaching the age of
Reappointment of Auditors Mr T K Bandaranayake -
70 as required by Direction No.12 of
The present Auditors, Messrs KPMG Alternate to Mr T Caglayan
2007 of the Central Bank of Sri Lanka
Ford, Rhodes, Thornton & Company
on Corporate Governance in Licensed
have expressed their willingness to Resignation and Appointment
Specialised Banks.
continue as Auditors of DFCC Bank for of Directors
the next financial year ending Mrs Sujatha Cooray resigned from the
Senior Director
31 March 2011. The Audit Committee Board with effect from 15 December
Mr S N P Palihena, was elected by the
has reviewed the effectiveness and 2009 and Dr Mrs Damitha de Zoysa was
Board as the Senior Director in place of
the relationship with the Bank including appointed as the Government Director
Mr A M de S Jayaratne.
the fees paid to the Auditors and have with effect from 30 December 2009.
concluded that they are suitable to Mr T K Bandaranayake was appointed
continue in office. The Directors are as alternate to Mr T Caglayan with
Directors’ Remuneration
satisfied that, based on the written effect from 23 October 2009. Mr A S The Director’s remuneration for the
representation made by the Auditors, Abeyewardene was appointed to the financial year ended 31 March 2010
they have no relationship or interest with Board on 18 August 2009 and Mr G K is given in Note 18 of the financial
the Bank or with any of its subsidiaries Dayasri was appointed as a Director on statements.
which would impair the Auditor’s 31 March 2010. Mr A S Abeyewardene
independence. A Resolution pertaining to and Mr G K Dayasri will retire in terms Directors’ Meetings
their reappointment and authorising the of Regulation No.90 of the DFCC The Bank held 13 Board Meetings
Directors to determine their remuneration Regulations and are offering themselves during the financial year. The attendance
will be proposed at the Annual General for re-election at the Annual General of Directors is shown in the table on
Meeting for adoption. Meeting. The Nominations Sub- page 27 of the Annual Report.
committee have recommended their
The Board of Directors
The Board of Directors of the Bank Directors’ Interests in Shares and Debentures
consists of nine Directors with wide No. of Shares* No. of Shares*
as at as at
knowledge and experience in the 31 March 2010 31 March 2009
fields of finance, trade, commerce,
Brito, J M S 9,380 9,380
manufacturing, services and banking.
Caglayan, T Nil Nil
De Zoysa, Dr Mrs A D N Nil Nil
Abeyewardene, A S 1,190 Nil
Fonseka, A N 66,499 57,332
Bandaranayake, T K 739 Nil
Palihena, S N P 5,000 5,000
Perera, C P R 13,000 4,500
Weerakkody, D S 12,844 1,244
Dayasri, G K 518 Nil

* Directors’ shareholding includes shares held by the spouse and children under 18 years of age.

Annual Report of the Board of Directors | DFCC Bank Annual Report 2009/10
21
Mr A N Fonseka held 17,004 options as Messrs J M S Brito, A N Fonseka, Audit Sub-committee
at 31 March 2010 (151,171 as at T K Bandaranayake, A S Abeyewardene Mr T K Bandaranayake (Chairman)
31 March 2009). During the financial and D S Weerakkody are Chairman/ Mr S N P Palihena
year 2009/10, Mr Fonseka exercised Director of one or more of the subsidiary, Mr D S Weerakkody
Options on 134,167 shares. Joint venture or associate companies
and interest in transactions with Credit Sub-committee:
No Directors directly or indirectly hold subsidiary, joint venture and associate
Mr S N P Palihena (Chairman)
options or debentures of DFCC Bank. companies are disclosed under Note 61
Mr A N Fonseka
in notes to financial statements.
Mr C P R Perera
Directors’ Interests in
Transactions with the Bank Board Committees Human Resources & Remuneration
All Directors have complied with Sub-committee:
The following Directors serve as
Section 9 (6) of the DFCC Bank Act and members of the Sub-committees of Mr J M S Brito (Chairman)
declared any interest in transactions or the Board on (i) Audit, (ii) Credit, (iii) Mr C P R Perera
proposed transactions with the Bank Human Resources & Remuneration, Mr D S Weerakkody
and all such transactions have been (iv) Nominations and (v) Integrated
approved unanimously by the remaining Risk Management. Apart from these Nomination Sub-committee:
Directors of the Bank. permanent sub-committees, from time to Mr C P R Perera (Chairman)
time the Board appoints sub-committees Mr J M S Brito
The Directors’ interest in transactions with to deal with specific matters. The Board Mr D S Weerakkody
entities/persons (other than subsidiaries, has also invited external advisers and
joint ventures and associates) are listed Key Management Personnel to serve on Integrated Risk Management
Sub-committee:
under each Director for the year ended some of the sub-committees.
31 March 2010 as follows: Mr J M S Brito (Chairman)
Mr A S Abeyewardene

Rs million Mr S N P Palihena
Mr A N Fonseka - Chief Executive Officer
Mr J M S Brito
Elpitiya Plantations Limited
The Heads of key risk assuming units,
Aitken Spence PLC
the Head of Risk Management, the
Branford Hydro Power (Pvt) Limited
Chief Financial Officer and the Head of
Aggregate amount of credit facilities approved 1,075
Internal Audit are also members of this
Mr C P R Perera
Committee.
Ceylon Tea Brokers Limited
Aggregate amount of credit facilities approved 20.0
Further details relating to the sub-
Mr A N Fonseka committees are given in the section
Colombo Stock Exchange on Corporate Governance and the
Central Depository Systems Limited Committee Reports.
Mrs R D Fonseka
Aggregate amount of payments made for services/rent: 2.7

Mr A S Abeyewardene
Ceylon Hospitals PLC
Aggregate amount of credit facilities approved 600.0

Mr S N P Palihena
Senok Wind Power (Pvt) Limited
Aggregate amount of credit facilities approved 275.0

22
DFCC Bank Annual Report 2009/10 | Annual Report of the Board of Directors
Dividend Share Capital and Employment &
The Directors have recommended to
Subordinated Debentures Remuneration Policies
shareholders the payment of a final With the options exercised by the The policy of DFCC Bank is to develop
dividend of Rs6 per share, increased employees during this financial year, and maintain a dedicated and highly
from Rs5 per share paid in the previous the total share capital as at 31 March motivated group of employees who are
year. The proposed distribution is 2010 was Rs1,323,753,050 consisting committed to creating sustainable value
approximately Rs794 million of 132,375,305 shares of Rs10 each. through effective risk management
(Rs662 million in the previous year), Further information is given on page and high quality service while
which amounts to 46% of the Bank’s 107. The DFCC Bank Act No. 35 of supporting public and private sector
distributable profit. 1955 mandates a par value of Rs10 per in its development efforts within the
share. The Stated Capital, if computed ambit of the DFCC Bank Act. The Bank
The Directors unanimously declare in accordance with the requirements continuously invests in training and
that the Bank will satisfy the solvency of the Companies Act No. 7 of 2007 development of its staff to meet these
test stipulated in Section 57 of amounts to Rs4,695 million. objectives. DFCC Bank is an equal
the Companies Act No.7 of 2007 opportunity employer. Remuneration of
immediately after the proposed dividend Share Information employees consists of fixed and variable
payment is made and have obtained a Information relating to earnings, net payments. Annual increments and pay
certificate of solvency from its Auditors. asset and market value per share are awards are based on the performance

given in page 127 of the Annual Report of the Bank and the individual. It is
Property, Plant & Equipment and also contains information pertaining the Bank’s policy to fix remuneration
and Leasehold Property to the share trading during that period. at a level which will attract, motivate

The total expenditure of acquisition on and retain high quality employees. A

property, plant and equipment during Shareholders remuneration survey is conducted once

the year amounted to Rs38 million. in three years in order to appropriately

As at 31 March 2010 there were
Intangible assets amounted to Rs18 benchmark the Bank’s remuneration
7,952 registered shareholders and the
million. Details of these are given in levels and policies with those in the
distribution is indicated on page 128.
the Notes 40.1 and 41 to the financial banking and other competing private
The 20 largest shareholders as at 31
statements. sector institutions.
March 2010 are listed on page 129.

Reserves Employee Share Option

Plan (ESOP)
Total revenue reserves augmented by
The last grant under the ESOP
the annual appropriation and retained
approved by shareholders was made in
profit amounted to Rs992 million.
2006. And there will be no further grants.
As at 31 March 2010, the details of
Market Value of
Freehold Properties unexercised options were as follows:

The information is in Note 40 to the

financial statements. Tranche Total Award Exercise Price Exercise Outstanding
per Share* Period

4th 200,454 Rs117/46 03.07.2007 to 02.07.2011 180,622

* Adjusted for rights and bonus issues.

Annual Report of the Board of Directors | DFCC Bank Annual Report 2009/10
23
Statutory Payments Except as stated in the preceding
paragraph, the Bank has complied
The Directors, to the best of their
with the provisions of Direction No.12
knowledge and belief are satisfied
of 2007 - Corporate Governance of
that all statutory payments due to the
Licensed Specialised Banks in Sri Lanka
Government and in relation to the
as amended by Direction No.2 of 2008.
employees have been made in time.

Details of governance practices and

Compliance with Laws
the required disclosure are given in
and Regulations
pages 25 to 31.
The Bank has not engaged in any
activities contravening the laws and
Rule 3 (8) of the Direction No.12 of 2007
regulations. The Directors obtain
on Corporate Governance for Licensed
quarterly a confirmation report from the
Specialised Banks in Sri Lanka and
Management with regard to compliance
Section 7.10 of the Listing Rules of the
with laws and regulations. With regard
Colombo Stock Exchange prescribe
to a Direction issued by the Central
disclosures in the Annual Report. These
Bank to reduce its shareholding in the
disclosures have been made in this
Commercial Bank of Ceylon PLC to 15%
Annual Report as depicted in the Table
on or before 23 October 2008, the Bank
given below:
has complied with the consequential
provision of this Direction whereby the
The Table below provides cross
voting rights of the Bank are restricted to
references to facilitate easy reference.
10% until the shareholding is reduced.
The issue is sub-judice. Reference Requirement Reference to Annual Report
to Rule

Post Balance Sheet Events 8 (i) Financial statements on prescribed format Financial statements on
Subsequent to the date of the Balance pages 70 to 82
Sheet no circumstances have arisen 8 (ii) (a) Affirmative assurance of compliance with Directors’ Responsibility
which would require adjustments to accounting standards and requirements Statement on page 62
the accounts. Significant post Balance 8 (ii) (b) Affirmative assurance of the Integrity of Directors’ Responsibility
Sheet events which in the opinion financial reporting system Statement on page 62
of Directors require disclosure are 8 (ii) (d) Information on Directors
described in Note 63 to the financial 8 (ii) (d) Remuneration of Directors Notes on the financial
statements. statements 18
8 (ii) (e) Net accommodation granted to each Notes on the financial
Corporate Governance category of related party statements 61.9
The Directors place great emphasis on 8 (ii) (f) Compensation and other transactions with Notes on the financial
following internationally accepted good key management personnel statements 61.6.2
corporate governance practices and 8 (ii) (h) Compliance with prudential This report
principles and systems and procedures requirements regulations
are in place in order to satisfy good
governance requirements. For and on behalf of the Board of Directors

The External Auditor's Certification on

effectiveness of the internal control
mechanism and compliance with the
Direction 12 of 2007 of the Central Bank of J M S Brito A N Fonseka T Wijemanne
Chairman Ex-Officio Director & Secretary to the Board
Sri Lanka on Corporate Governance could
Chief Executive
not be obtained for reasons explained in
page 26 of the Annual Report.
26 May 2010

24
DFCC Bank Annual Report 2009/10 | Annual Report of the Board of Directors
Reports of
Directors
Corporate Governance

Good corporate governance is a The shares of DFCC Bank can be freely The Annual General Meeting of DFCC
mechanism that seeks to align the transferred through the Colombo Stock Bank is held within a period of one
interests of a wide range of stakeholders Exchange subject to the aggregate year from the date of the previous
of the institution. It contributes to limits imposed by the DFCC Bank Act meeting, giving adequate notice in
sustainable growth by enhancing and Banking Act. The Board approved terms of the Regulations. The Annual
access to outside sources of capital. Corporate Communications Policy Report and Notice of Meeting are sent
DFCC Bank practices high standards ensures that information relating to the to all shareholders in order to enable
of corporate governance based on the financial performance and the progress effective shareholder participation at
OECD principles of good governance. of the Bank is made available to the meeting. Shareholders have the
shareholders through timely disclosure opportunity to obtain the Annual Report
Some of the key corporate governance made to the Colombo Stock Exchange as an electronic or printed document.
practices of DFCC Bank are given in (CSE). The Annual Report contains a Extraordinary General Meetings are
this Report. It is followed by specific comprehensive review of performance summoned from time to time to seek
disclosures relating to the status as well as other information of relevance approval of shareholders on matters that
of compliance with the mandatory to the various stakeholders apart from require such approval.
requirements of Direction No. 12 of 2007 reporting on the financial condition of
of the Central Bank of Sri Lanka (as the Bank. Important information is also The Bank shares a reasonable portion
amended) and Section 7.10 of the Listing given publicity through the media and in of its profit with shareholders in the form
Rules of the Colombo Stock Exchange the Bank’s website. of a dividend while retaining the balance
relating to corporate governance. to support its growth and development.
The Bank has procedures to promptly
disseminate price sensitive information to The Bank treats all its shareholders

Shareholder Rights the CSE as required by the listing rules. equally on the basis of one vote per
In instances where this is not possible, ordinary share. The Bank has not issued
Basic rights of shareholders include the Head of Compliance advises closed any non-voting ordinary shares or
(a) the ability to transfer shares freely, periods for the trading in the Bank’s preference shares.
(b) to have access to financial and other shares by employees and Directors. As a
relevant information about the entity on general rule, the period commencing two
a regular and timely basis, (c) the ability weeks after the end of each quarter up
to effectively participate in shareholder until three market days after the financial
meetings, (d) appoint Directors and information is released, is treated as
Auditors and (e) equitable treatment closed periods. Procedures are in place
relating to the type of shares owned. to monitor any violations.

25
DFCC Bank Annual Report 2009/10
Disclosures on Corporate Status: Complied with. Please Status: Complied with. Please refer
Note 61 to the financial statements
Governance Made in refer 'Statement of Directors'
Responsibility' on page 62 of this on 'Related Party Disclosures’ in this
Terms of Provisions of Annual Report. Annual Report.
Direction 12 of 2007 of
The Central Bank of (c) The External Auditors' Certification (g) The External Auditor’s Certification of

Sri Lanka on the effectiveness of the internal the compliance with these Directions
control mechanism , in respect in the annual corporate governance
(1) Bank's Adherence with the of any statements prepared or reports published after 01 January
Corporate Governance Rules published after December 31, 2008. 2010.
as Required by Section 3 (8) Status: The External Auditor has Status: The External Auditor has
of the Banking Act Direction advised its inability to provide a advised its inability to provide a
No. 12 of 2007 Issued by the statement for publication in the statement for publication in the
Central Bank of Sri Lanka absence of a framework published absence of a framework published
Corporate Governance by a competent authority on which by a competent authority on which
Disclosure Requirements such certification can be based. The such certification can be based. The
Institute of Chartered Accountants Institute of Chartered Accountants
(i) The Board shall ensure that: of Sri Lanka is in the process of of Sri Lanka is in the process of
preparing such a framework which preparing such a framework which
Annual audited financial statements
is expected to be finalised later is expected to be finalised later
and quarterly financial statements are
in 2010. As such, it has not been in 2010. As such, it has not been
prepared and published in accordance
possible for the Bank to comply with possible for the Bank to comply with
with the formats prescribed by the
this requirement in respect of the this requirement in respect of the
supervisory and regulatory authorities reporting year. reporting year.
and applicable accounting standards;
and such statements are published in (d) Details of Directors, including names, (h) A report setting out details of
the newspaper in an abridged form, in fitness and propriety, transactions the compliance with prudential
Sinhala, Tamil and English with the Bank and the total of fees/ requirements, regulations, laws and
remuneration paid by the Bank. internal control and measures taken to
Status: Complied with.
Status: Complied with. Please refer rectify any material non-compliance.
to pages 96 and Notes 18 to the
(ii) The Board shall ensure that the Status: There were no material non-
following minimum disclosures are financial statements and Section 2 compliance that has led to the breach
made in the Annual Report: (c) of this Report. of any prudential requirement.
(a) A statement to the effect that the
annual audited financial statements (e) Total net accommodation as defined
A Direction issued by the Central
have been prepared in line with in 3 (7) (iii) of the Direction, granted
Bank to reduce the shareholding in
applicable accounting standards and to each category of related parties.
Commercial Bank of Ceylon PLC to
regulatory requirements, inclusive of The net accommodation granted to
15% before 23 October 2008 has
specific disclosures. each category of related parties be
not yet been complied with but the
disclosed as a percentage of the
Status: Complied with. Please consequential provisions limiting the
Bank's regulatory capital.
refer 'Statement of Directors' Bank’s voting rights to 10% until the
Status: Complied with. Please refer
Responsibility' on page 62 of this shareholding is reduced has been
Note 61 to the financial statements
Annual Report. complied with.
on 'Related Party Disclosures' in this
Annual Report.
(b) A report by the Board on the Bank's The Statement of Directors’
internal control mechanism that Responsibility on page 62 of this
(f) The aggregate values of
confirms that the financial reporting Annual Report provided further
remuneration paid by the Bank to its
system has been designed to provide details on compliance measures.
key management personnel and the
reasonable assurance regarding
aggregate values of the transactions
the reliability of financial reporting,
of the Bank with its key management
and that the preparation of financial
personnel, set out by broad
statements for external purposes
categories such as remuneration
has been done in accordance with
paid, accommodation granted and
relevant accounting principles and
deposits or investments made
regulatory requirements.
in the Bank.

26
DFCC Bank Annual Report 2009/10 | Corporate Governance
 (i) A statement of the regulatory and (2) Annual Corporate Mr J M S Brito is the non-executive
supervisory concerns on lapses in Governance Report to be Chairman and Mr A N Fonseka is
the Bank’s risk management, or non- Published in the Annual the Chief Executive Officer and their
compliance with these Directions Report as required by functions and responsibilities have been
that have been pointed out by the Direction 3 (1) (xvi) of the clearly defined by the Board.
Director of Bank Supervision, if so Banking Act Directions
directed by the Monetary Board to be No. 12 of 2007 The Board meets regularly, generally
disclosed to the public, together with
once a month. During the year, there
the measures taken by the Bank to
(a) Responsibilities of the Board were 13 meetings with the active
address such concerns.
The Board has taken necessary steps participation, in person, or by an
Status: The Monetary Board has
to ensure the safety and soundness alternate, by all members of the Board.
not issued any specific directions to
of the Bank, and its continuing capital During the year, all the Directors
the Bank.
adequacy as required by the Direction. attended, either in person or through
an alternate, over 90% of meetings that
were held. The schedule for regular
meetings is set at the beginning of the
year and any changes to the schedule
are agreed well in advance. The
attendance of Directors at Board and
Sub-committee meetings are given in
the Table below:

Board
Sub-committees

Audit Human Nominations Integrated Credit

Committee Resources & Committee Risk Management Committee*
Remuneration Committee
Committee

Committee Main Board Audit Committee Human Resources Nomination Integrated Risk
& Remuneration Committee Management
Committee Committee
Name of Director Eligible to Attended Eligible to Attended Eligible to Attended Eligible to Attended Eligible to Attended
attend attend attend attend attend

Mr J M S Brito 13 13 5 5 4 4 5 5
Mrs S Cooray 9 6 3 3
(resigned w.e.f. Dec. 2009)
Mr A N Fonseka 13 13
Mr A Jayaratne 13 12 9 9
Mr S N P Palihena 13 12 9 8 5 4
Mr C P R Perera 13 13 5 5 4 4
Mr D S Weerakkody 13 12 9 9 5 5 4 4
Mr A S Abeyewardene 9 9 2 2
Mr T K Bandaranayake** 7 6 9 9
Dr Mrs A D N de Zoysa 4 4
Mr G K Dayasri 1 1

* The Credit Committee approves papers by circulation

** Alternate Director to Mr T Caglayan - Mr. Caglayan participated at 02 meetings by teleconference.

27
Corporate Governance | DFCC Bank Annual Report 2009/10
Any Director may propose matters The Board has put in place systems and Government Director are subject to
to be included in the agenda under and controls to facilitate the effective re-election by shareholders at the first
the relevant subjects or under any discharge of Board functions. The Board general meeting after their appointment.
other business. The Board papers has also put in place effective systems The Board promptly announces
are dispatched in advance prior to the to secure the integrity of information, resignations of Directors and the reasons
regular Board Meetings and depending internal controls and risk management. for such resignations. No Director or an
on the urgency, maximum possible The Board has specified the subjects employee of another Bank, other than
notice is given for special meetings. The and matters that are reserved for the subsidiary, DFCC Vardhana Bank or
Board has an agreed procedure in place decisions by the Board. associate company, Commercial Bank of
for Directors to seek independent advice Ceylon PLC was a Director of the Bank
if they so require. The Directors also assessed the Board's during the reporting period.
overall performance at the end of the
Mr T Wijemanna, Attorney-at- Law year and have concluded that the (c) Fitness and Propriety of Directors
functions as the Secretary to the Board responsibilities are satisfactorily The provisions of Section 42 of the
Board. The Secretary complies with the discharged. Banking Act No. 30 of 1988 and the
requirements imposed by the Direction criteria set out in Direction No. 12 of
aforesaid, under the supervision and the (b) Board's Composition 2007, as amended, have been applied
guidance of the Board. The Secretary There are currently nine Directors on to determine the fitness and propriety of
attends the Board meetings and the Board, whose names and bio data the Directors. The Board is of the view
prepares the minutes for the approval are given in the Annual Report. All the that each and every Director is a fit and
of the Board of Directors. The Directors Directors have the necessary skills and proper person to serve as a Director
have access to him to clarify any experience to direct and lead the Bank. of the Bank. No Director is over the
matters of importance. age of 70 years. The only Director who
The Chairman, J M S Brito is not an is in office by virtue of the transitional
The minutes are kept under the independent director in terms of the provisions relating to Directors who
custody of the Secretary. The minutes Direction because he is the Chairman have served more than 9 years is
are recorded in sufficient detail, cross of the subsidiary, DFCC Vardhana Mr T Caglayan who is retiring at the
referring to the circular containing the Bank Ltd. Mr S N P Palihena, who is an Annual General Meeting to be held on
data and information used by the Board Independent Director was designated 30 June 2010.
in its deliberations, all related matters Senior Director on the retirement of
considered by the Board, key points the previous incumbent Mr A M de (d) Delegation of Authority
by the Board
of the discussions, recommendations S Jayaratne. The other Independent
and clarifications provided by the Chief Directors in terms of the criteria The Board is empowered by the
Executive Officer and other relevant specified in Section 3 (2) (iv) of the DFCC Bank Act and the Regulations
officers and the final decisions of the Direction are Messrs C P R Perera, thereunder to delegate to the Chief
Board. Any interest disclosed by a A M Abeyewardene, G K Dayasri and Executive Officer and Executive
Director and any dissenting view is T Caglayan. Committees, any of the powers vested
always recorded in the minutes. The with the Board, subject to any condition
Directors do not participate in the New appointments and re-election of the Board may impose. The Chief
decision making process on matters, in Directors to the Board are considered Executive Officer shall have powers,
which they have an interest and avoid and recommended by the Nomination within the limitations applicable, to
conflicts of interests in their activities Committee and based on such delegate such office/powers as he may
with the Bank. Any decision on an recommendations, final decisions on think necessary, for the management
issue in which any one Director has an suitability, fitness and propriety are made
interest requires the unanimous consent by the Board. All Directors appointed
of all the other Directors. to the Board, other than the Chief
Executive Officer (Ex-officio Director)

28
DFCC Bank Annual Report 2009/10 | Corporate Governance
and smooth operation of the Bank. The effort is made to provide the information Each of these sub-committees have as
delegation of powers of the Board are as early as possible. The Board papers their mandate, the matters specified in
subject to the general laws, regulations are prepared by employees to provide Section 3 (6) of Direction No. 12 of 2007
and Directions applicable to the adequate information to the Board to and any additional matters set out in their
Bank. To ensure that the delegation deliberate on all key issues concerning specific charters where applicable.
of authority would not in any way the Bank.
reduce the Board's ability to discharge The minutes of sub-committee meetings
its functions fully and effectively, All the Directors bring their independent are tabled at Board meetings. The
such delegated powers are reviewed judgment to bear on Board deliberations. sub-committee reports have been
periodically by the Board and/or the The Chairman takes action to ensure published in this Annual Report.
Board Integrated Risk Management that the Board acts in the best interests
Committee and changes effected of the Bank. The Credit Committee is another
where appropriate. permanent sub-committee of the
The Chairman presides at General Board. They have the authority to
(e) Chairman and Chief Meetings of shareholders. Shareholders approve restructuring of credit, waivers
Executive Officer
are given the opportunity to seek and write-offs beyond the authority
Mr J M S Brito, is the Chairman of clarification on matters under delegated to the Executive Credit
the Bank and Mr A N Fonseka is the consideration. Committee and CEO. Approval of new
Chief Executive Officer. There are credit facilities above the delegated
no relationships, including financial, The Chief Executive Officer is authority is handled by the Board.
business, family any other material/ responsible for the implementation
relevant relationship between the of strategy and for the day-to-day Sub-committees other than the
Chairman and the Chief Executive management of the Bank. The permanent sub-committees are
Officer, other than both being Directors Chairman does not directly supervise appointed from time to time as and when
of the subsidiary, DFCC Vardhana any key management personnel or other necessary to deal with specific matters.
Bank. Similarly, no close relationships executive officers. The Board monitors
as stipulated in the Banking Act exist progress through reports submitted to it (g) Related Party Transactions
among the other members of the Board. as well as periodic interaction with key Suitable mechanisms are in place to
management personnel. capture related party transactions. The
The Chairman provides leadership to Directors and other key management
the Board by ensuring that the Board (f) Board Committees personnel make declarations identifying
functions effectively and facilitates the The following sub-committees have related parties and take due steps to
effective discharge of Board functions. been appointed by the Board in terms avoid any conflicts of interest referred
He stimulates discussion on matters of the requirements of Section 3 (6) of to in the Direction. Related party
considered by the Board and invites Direction No. 12 of 2007 requiring each transactions, when undertaken, are
views and comments from all Directors. such committee to report to the Board: carried out on an arm’s length basis

Board Audit Committee without any special benefit to the related

The Agenda for each Board Meeting party. Key management personnel (but
Board Human Resources
is finalised by the Secretary under the not the Chief Executive Officer) may
and Remuneration Committee
direction of the Chief Executive Officer participate in approved loan schemes
and the Chairman. Board Nominations Committee
available to employees.
Board Integrated Risk
The Secretary ensures that the Directors Management Committee
receive adequate information in a
timely manner to prepare for Board
meetings. On urgent matters, every

29
Corporate Governance | DFCC Bank Annual Report 2009/10
Disclosure on Bank's Disclosures Relating to Directors (d) Upon appointment of a new Director
to its Board, the Company shall forthwith
Adherence with the (a) The Board shall make a
provide to the Colombo Stock Exchange
Corporate Governance determination annually as to the
a brief resume of such Director for
Rules as Required independence or non-independence
dissemination to the public. Such
of each Non-Executive Director
by Section 7.10 of resume shall include information on the
based on such declaration and other
the Listing Rules of information available to the Board and matters itemised in paragraphs (a), (b)
The Colombo Stock shall set out in the Annual Report the and (c) above.
Exchange (Corporate names of Directors determined to be Status: Complied with.
Governance Rules) 'independent'.
Status: Complied with. Messrs J M S (2) Remuneration Committee
Brito, A S Abeyewardene, C P R Perera, A listed company shall have a
(1) Directors
S N P Palihena, G K Dayasri and Remuneration Committee in conformity
Non-Executive Directors
D S Weerakkody meet all the specified with the following requirements:
(a) The Board of Directors of a listed criteria and have been determined by
company shall include at least, two Non- the Board to be independent. [Note: The Composition
Executive Directors; or such number of criteria specified for independence of The Remuneration Committee shall
Non-Executive Directors equivalent to Directors in Direction No. 12 of 2007 of comprise a minimum of:
one third of the total number of Directors the Central Bank and Section 7.10 of
(i) Two Independent Non-Executive
whichever is higher. the Listing Rules of the Colombo Stock
Directors (in instances where a
(b) The total number of Directors is to Exchange are different].
company has only two Directors on its
be calculated based on the number as Board); or
at the conclusion of the immediately (b) In the event a Director does not
(ii) Non-Executive Directors a majority
preceding Annual General Meeting. qualify as 'independent' against any of
of whom shall be independent,
the criteria set out in clause 7.10.4, but
(c) Any change occurring to this ratio whichever shall be higher.
if the Board, taking into account all the
shall be rectified within ninety (90) days Status: Complied with.
circumstances, is of the opinion that the
from the date of the change. Director is nevertheless 'independent'
Status: Complied with. All Directors In a situation where both the parent
the Board shall specify the criteria not
other than the Chief Executive are company and the subsidiary are listed
met and the basis for its determination in
Non-Executive Directors. companies the Remuneration Committee
the Annual Report.
of the parent company may be permitted
Status: In view of more than the
Independent Directors to function as the Remuneration
minimum number of Directors required
(a) Where the constitution of the Committee of the subsidiary.
being independent, the Board has
Board of Directors includes only two not made a determination on the
Non-Executive Directors as mentioned However, if the parent company is not a
independence of Directors who have not
above, both such Non-Executive listed company, then the Remuneration
met all the specified criteria.
Directors shall be 'independent'. In all Committee of the parent company is not

other instances two or 1/3 of Non- permitted to act as the Remuneration

(c) In addition to disclosures relating
Executive Directors appointed to the Committee of the subsidiary. The
to the independence of a Director set
Board of Directors, whichever is higher subsidiary should have a separate
out above, the Board shall publish in its
shall be 'independent'. Remuneration Committee.
Annual Report a brief resume of each
Status: Complied with. Status: Does not apply. DFCC Bank is
Director which includes information
not a subsidiary of any other company.
(b) The Board shall require each Non- on the nature of his/her expertise in

Executive Director to submit a signed relevant functional areas.

One Non-Executive Director shall
and dated declaration annually of his/ Status: Complied with. Please refer
be appointed as Chairman of the
her independence or non-independence pages 12 to 15 of this Annual Report.
Committee by the Board of Directors.
against the criteria specified in the Code.
Status: Complied with.
Status: Complied with.

30
DFCC Bank Annual Report 2009/10 | Corporate Governance
Functions In a situation where both the parent (iii) Oversight over the processes to

The Remuneration Committee shall company and the subsidiary are 'listed ensure that the Company's internal

recommend the remuneration payable companies', the Audit Committee of controls and risk management are

to the Executive Directors and the Chief the parent company may function as adequate, to meet the requirements of

Executive Officer of the listed company the Audit Committee of the subsidiary. the Sri Lanka Auditing Standards.

and/or equivalent position thereof, to However, if the parent company is Status: Complied with.

the Board of the listed company, which not a listed company, then the Audit

will make the final determination upon Committee of the parent company is not (iv) Assessment of the independence

consideration of such recommendations. permitted to act as the Audit Committee and performance of the company's

Status: Complied with. of the subsidiary. The subsidiary should External Auditors.
have a separate Audit Committee. Status: Complied with.
Disclosures Status: Does not arise.
(v) To make recommendations to
The Annual Report should set out the
One Non-Executive Director shall the Board pertaining to appointment,
names of Directors (or persons in the
be appointed as Chairman of the reappointment and removal of
parent company's committee in the case
Committee by the Board of Directors. External Auditors and to approve the
of a Group company) comprising the
Status: Complied with. remuneration and terms of engagement
Remuneration Committee, contain a
of the External Auditors.
statement of the remuneration policy and
Unless otherwise determined by the Status: Complied with.
set out the aggregate remuneration paid
Audit Committee, the Chief Executive
to Executive and Non-Executive Directors.
Officer and the Chief Financial Officer Disclosures
of the listed company shall attend Audit The names of the Directors (or persons
The term 'remuneration' shall make
Committee meetings. in the parent company's committee
reference to cash and all non-cash
benefits whatsoever received in
Status: Complied with. in the case of a Group company)

consideration of employment with the comprising the Audit Committee should

The Chairman or one member of the be disclosed in the Annual Report.
listed company (excluding statutory
Committee should be a member of a Status: Complied with.
entitlements such as contribution
recognised professional accounting body.
to Employees' Provident Fund and
Employees' Trust Fund).
Status: Complied with. The Committee shall make a

Status: Complied with. determination of the independence of the

Functions Auditors and shall disclose the basis for

(3) Audit Committee Shall include - such determination in the Annual Report.
(i) Oversight of the preparation, Status: Complied with.
A listed company shall have an Audit
presentation and adequacy of
Committee in conformity with the
disclosures in the Financial Statements The Annual Report shall contain a report
following requirements:
of a listed company, in accordance with by the Audit Committee, setting out the
the Sri Lanka Accounting Standards. manner of compliance by the Company
Composition
Status: Complied with. in relation to the above, during the period
The Audit Committee shall comprise a
to which the Annual Report relates.
minimum of:
(ii) Oversight of the company's Status: Complied with.
(i) Two independent Non-Executive
compliance with financial reporting
Directors (in instances where a
requirements, information requirements
company has only two Directors on its
of the Companies Act and other relevant
Board); or
financial reporting, related regulations
(ii) Non-Executive Directors a majority
and requirements.
of whom shall be independent,
Status: Complied with.
whichever shall be higher.
Bank's Response: Complied with.

31
Corporate Governance | DFCC Bank Annual Report 2009/10
Reports of
Directors
Committee Reports

Audit Committee Report

The purpose of the Audit Committee The composition of the Committee as at Secretary of the Committee. He has
is to assist the Board in its general the date of this report is as follows: direct access to the members of the
oversight of financial reporting, internal ● Mr T K Bandaranayake (Chairman) Audit Committee.
controls and audit functions. The ● Mr S N P Palihena
composition requirements and the terms ● Mr D S Weerakkody

of reference of the Audit Committee Meetings

are set out in the Direction No. 12 of Mr T K Bandaranayake served as an

2007 on Corporate Governance for adviser to the Committee until 23 October During the financial year ended
Licensed Specialised Banks in Sri Lanka 2009 subsequent to which he became a 31 March 2010, eight Audit Committee
issued by the Central Bank of Sri Lanka Non-Executive Independent Director and Meetings were held. Minutes of the
(hereinafter referred to as the Direction). a member of the Committee. Audit Committee Meetings are reported
This is complementary to the charter regularly to the Board.
formulated by the Audit Committee. Mr A M de S Jayaratne, a Non-Executive
Independent Director was the Chairman Attendance by the Committee members
This report provides information on the of the Committee until 30 April 2010 on at meetings is given in the table on
compliance with regulatory requirements which date he retired from the Board of page 27 of the Annual Report.
and where appropriate the process Directors as required by the Direction

adopted by the Audit Committee to on reaching the age of 70 years. The Chief Executive and Executive
discharge their responsibilities. Vice-President (Finance) attend the
The Bank has complied with Rule meetings by invitation. The Committee
No. 3(6)(ii) of the composition of the Audit met with the external auditor, KPMG
Committee and its terms of reference.
The Composition of the Ford, Rhodes, Thornton & Company on
31 August 2009 and 16 December 2009
Committee The Head of Internal Audit of the Bank without any Executive being present so
All members of this Committee are Non- retired in November 2009. The new as to provide the External Auditor an
Executive Directors and the Chairman of Head was appointed and assumed opportunity to have a frank dialogue with
the Committee and Mr S N P Palihena duties in January 2010 after the Audit the Committee.
qualify as Independent Directors as Committee approved his appointment.

per the criteria given in Rule No. 3(2) The new Head of Internal Audit has

(iv) of the Direction. The Chairman is a extensive experience in commercial Role of the Audit
banking and is responsible for the
Chartered Accountant with considerable Committee
experience in the fields of Finance and Internal Audit functions of the Bank

Audit. The profiles of the members of and its commercial banking subsidiary, The Audit Committee assists the Board
the Committee are given elsewhere DFCC Vardhana Bank Limited and is of Directors in fulfilling its oversight
in the Annual Report. designated as Head of Group Internal responsibilities for the Bank’s accounting
Audit. He holds the management rank and financial reporting process and
of Vice-President and serves as the audit of the financial statements of the
Bank by monitoring - (1) the integrity of

32
DFCC Bank Annual Report 2009/10
the Bank’s financial statements, (2) the the External Auditor, compliance reports the deficiencies identified, with a view
independence and qualifications of its and the responsibility statements in to managing significant business risks
External Auditor, (3) the Bank’s system relation to the financial statements and improving controls. Department/
of internal controls. (4) the performance issued by the Chief Financial Officer Unit heads attend meetings when their
of the Bank’s internal audit process and and Chief Executive Officer in making reports are discussed. Management
External Auditor, and (5) the Bank’s an overall assessment on the integrity of is required to implement the
compliance with Laws, Regulations the financial reporting system. recommendations contained in internal
and Codes of Conduct, with a view audit reports unless dispensation
to safeguarding the interests of all The Committee confirms that to the is given by the Committee. Such
stakeholders of the Bank. best of its knowledge and belief the dispensations are infrequent.
financial reporting system of the
Bank has been designed to provide

Financial Reporting reasonable assurance on the reliability Risks and Controls

of the financial statements prepared for
The Committee assists the Board of external purposes and is in compliance The Committee has adopted a
Directors to discharge their responsibility with relevant accounting principles risk-grading matrix for identifying and
for the preparation of true and fair and regulatory requirements. The assessing risks identified during audits.
financial statements in accordance with accounting principles are based The Committee seeks and obtains
the books of accounts and Sri Lanka on relevant Sri Lanka Accounting the required assurance from the head
Accounting Standards by (1) reviewing Standards, and regulatory requirements of the business unit on the remedial
the adequacy and effectiveness of the including DFCC Bank Act No. 35 of action taken in order to maintain the
internal control system and procedures 1955, Banking Act No. 30 of 1988 effectiveness of internal controls.
to provide reasonable assurance that and Companies Act No. 7 of 2007 as
all transactions are accurately and applicable to the Bank.
completely recorded in the books of External Audit
accounts, (2) reviewing the integrity
of the process by which financial The Audit Committee assists the Board
Internal Audit and
statements are derived from the books of Directors to implement a transparent
Inspection process - (1) in the engagement and
of accounts, (3) reviewing the choice of
appropriate accounting policies and the With the concurrence of the Board, remuneration of the External Auditor for
judgments made in the application of the Audit Committee has continued audit services with the approval of the
such accounting policies, (4) reviewing to engage the services of a firm of shareholders, (2) in reviewing the non-
the process by which compliance with Sri Chartered Accountants to supplement audit services to ensure that they do not
Lanka Accounting Standards and other the Bank’s internal audit function in lead to impairment of the independence
regulatory provisions relating to financial carrying out periodic audits at some of of the Auditor, (3) in assisting the Auditor
statements are ensured with reasonable the business units. Representatives to complete the audit programme within
degree of assurance. from the audit firm are invited to the an agreed time frame in compliance with

Audit Committee Meetings convened to relevant guidelines issued by the Central

The Committee reviewed all quarterly discuss their reports. Bank of Sri Lanka.
non-audited interim financial statements
and financial statements for the year The Audit Committee also provides a In order to discharge its responsibilities
ended 31 March 2010 together with forum for the review of internal audit the Audit Committee meets with the
supporting information that included reports and consideration of findings, Auditor as and when it is necessary.
significant assumptions and judgments recommendations and corrective action During this meeting with the Auditor the
made in the preparation of financial taken by management to overcome Audit Committee - (1) reviews the non-
statements. The committee also took audit services provided by the External
into consideration the internal audit Auditor to ensure that provision of such
reports, management letter issued by services are not in conflict with the
guidelines issued by the Central Bank of

Audit Committee Report | DFCC Bank Annual Report 2009/10

33
Sri Lanka and that the remuneration for not as yet reduced its shareholding to Reappointment of Auditor
such services are not of such value so 15% as directed by the Central Bank
as to impair their independence, of Sri Lanka, but has complied with the The Audit Committee having evaluated
(2) obtains information relating to the consequential provision whereby its the quality of audit service provided by
total remuneration of the External voting rights are restricted to 10% until the current Auditor has recommended to
Auditor for audit and non-audit services such reduction takes place. This matter the Board of Directors that M/s KPMG
provided to the Bank and the Group, (3) is sub-judice. Ford, Rhodes, Thornton & Company
discusses and finalises the scope of the be reappointed as Auditors for the year
audit to ensure that it is in compliance Rule No. 3(8)(ii) (c) and (g) of the ending 31 March 2011, subject to the
with the guidelines issued by the Central direction requires External Auditors approval of shareholders at the Annual
Bank of Sri Lanka. certification on the effectiveness of General Meeting.
the internal control mechanism and
In the context of determining the compliance with the provisions of the The Chairman and the members of the
independence of the Auditor, the Corporate Governance to be published Committee wish to place on record their
Committee reviewed the statements in the Annual Report. This certification appreciation of invaluable contribution
issued by the External Auditor pursuant is intended to be an independent made by Mr A M de S Jayaratne as
to Section 163(3) of the Companies validation of the affirmative assurances the previous Chairman of the Audit
Act No. 07 of 2007. As per this provided by Directors on this subject. Committee until his retirement.
declaratory statement the Auditor has The External Auditor, KPMG Ford,
confirmed that they do not have any Rhodes, Thornton & Company, however
relationship that would impair their has informed that they cannot consent
independence and disclosed the total to the publication of any such report
remuneration for the financial year given by them in the absence of an T K Bandaranayake
ended 31 March 2010 for both audit appropriate framework issued by The Chairman - Audit Committee
and permitted non-audit services. Institute of Chartered Accountants of Sri
26 May 2010
Lanka, which is still under preparation.
The Audit Committee also meets with Under the circumstances, in common
the Auditor at the conclusion of the audit with other banks who have published
to review the Management Letter issued their Annual Reports, it has not been
by the Auditor before it is transmitted to possible for the Bank to comply with this
the Board of Directors and the Central regulatory requirement.
Bank of Sri Lanka.

Evaluation of the
Regulatory Compliance Committee
The Bank’s procedures in place to An evaluation of the effectiveness
ensure compliance with mandatory of the Committee was carried out by
banking and statutory requirements the other members of the Board and
were under constant check. The the Committee has been found to be
Committee is satisfied that the Bank effective.
substantially complies with these
requirements. With regard to its
continuing investment in Commercial
Bank of Ceylon PLC, the Bank has

34
DFCC Bank Annual Report 2009/10 | Audit Committee Report
Reports of
Directors
Committee Reports

Human Resources and Remuneration Committee Report

The Human Resources and to its strategy and needs to ensure the the Bank’s Talent Pool to identify high
Remuneration Committee appointed Bank consistently delivers value to all potential and review and approve the
by the Board of Directors, consists of stakeholders and make the organisation succession plans in place for all critical
three Non-Executive Directors. Mr J M S more competitive. With this in mind the management positions in the Bank.
Brito is the Chairman of the Committee Committee uses a mixture of fixed and
and Messrs C P R Perera and D variable pay to reward employees. The Committee held five meetings
Weerakkody act as members. The Chief during the financial year to carry out its
Executive - Mr. Nihal Fonseka attended Consistent with the Bank’s policy of task. The attendance by members is
meetings by invitation and participated pay for performance, the committee given in page 27 of the Annual Report.
in its deliberations except when his own reviewed the performance of the Bank
evaluation and remuneration was under for determining and recommending to
discussion. The former Executive Vice- the board the annual salary pool and the
President, Special Loans Administration bonus pool for the Bank. The Committee
& Human Resources and the Group also appraised the performance of J M S Brito
Vice-President, Human Resources the Chief Executive Officer against Chairman - Human Resources and
assisted the Committee by providing the pre-agreed targets and made Remuneration Committee

relevant information. recommendations to the board with 26 May 2010

regard to the CEOs total remuneration.
The Committee has adopted as its
mandate the tasks specified in Section In addition, the Committee considers
3 (6) (iii) and Direction No. 12 of 2007 and recommends to the Board of
of the Central Bank of Sri lanka on Directors from time to time, the
Corporate Governance for licensed requirements of additional/new
specialised banks. The Committee expertise/skills. Further, the Committee
determines the remuneration policy assesses and recommends to the Board
relating to Directors, Chief Executive on all promotions of Key Management
Officer and Key Management Personnel Personnel and the basis for rewarding
of the Bank. In determining the them. They also review periodically
appropriate compensation levels, the
Committee recognises the need for
the Bank to attract, retain and motivate
talent with the core capabilities matched

35
DFCC Bank Annual Report 2009/10
Reports of
Directors
Committee Reports

Nominations Committee Report

The Composition The Procedure

The Nomination Committee of the The Committee meets when required
Board of Directors consist of three and acts within a framework approved
Non-Executive Directors. Mr C P R by the Board of Directors when making
Perera, an independent Director is the its recommendations. The framework
Chairman with Messrs J M S Brito and incorporates, inter alia, the requirements
D S Weerakkody serving as members. of Direction No 12 of 2007 of the Central
The Chief Executive, Mr A N Fonseka Bank and the Listing Rule 7.10 of the
attends meetings by invitation, while the Colombo Stock Exchange relating to
Secretary to the Board functions as the Corporate Governance.
Secretary of the Committee.

Meetings
The Mandate
Four meetings were held during the
The Committee carries out the tasks financial year to identify possible
set out in Section 3 (6) (iv) of Direction candidates to fill Board vacancies
No. 12 of 2007 issued by the Central and to asses the fitness and propriety
Bank of Sri Lanka and Corporate of Directors. The attendance by
Governance in licensed specialised Directors at meetings is given in page 27
Banks. In terms of this Direction the of the Annual Report. All appointments
committee identifies and evaluates made to the Board were recommended
persons with the required skills, by the Committee.
knowledge, standing, fitness and
propriety to join the Board of the Bank
and evaluate the suitability of Directors
seeking re-election. The Committee
is also tasked with the responsibility C P R Perera
of a putting in place a procedure for Chairman - Nominations Sub-committee
the appointment of the CEO and
26 May 2010
Key Management Personnel, when
necessary. The Committee makes
recommendations to the Board for
consideration.

36
DFCC Bank Annual Report 2009/10
Reports of
Directors
Committee Reports

Board Integrated Risk Management Committee Report

Composition of Board Charter and the in advance. The process through which
Risks were managed is explained in
Integrated Risk Responsibilities of the
detail in the Management Discussion
Management Committee BIRMC
section of this Annual Report.
The Board Integrated Risk Management The approved Charter for the BIRMC
Committee (BIRMC) of DFCC consisted stipulates authority, structure,
of 3 Non-Executive Directors and 5 responsibilities and tasks of BIRMC. BIRMC Meetings
Non-Voting members, as at 31 March As per its Charter, the primary
2010. The Head of Internal Audit, responsibilities of BIRMC are to review BIRMC meets on a quarterly basis.

Mr A G N Bandara, attends meetings by and ensure: During the year, DFCC Bank convened

invitation while the Chief Risk Officer, four BIRMC meetings. The attendance
 Integrity and adequacy of the risk
Mr S de Silva, functions as the of Directors in the Committee is listed
management function of the Bank
Secretary to the Committee on page 27 of the Annual Report.
 Adequacy of the Bank’s capital on a
The minutes of the meetings are
solo and consolidated basis and its
Mr J M S Brito - Chairman reported to the Board subsequently.
allocation
Mr S N P Palihena - Non-Executive The committee reviewed policy
 Risk exposures and risk profiles of
Director frameworks, risk management
the Bank and its subsidiaries are
Mr A S Abeyewardene - Non-Executive strategies. Risk limits and key risk
within acceptable parameters and to
Director indicators at these meetings and was
make recommendations to the Board
Mr A N Fonseka - Chief Executive/ satisfied that the risk exposures of the
of Directors on any action required
Ex-Officio Director Bank were being satisfactorily managed.
 The compliance of the Bank’s
Mr H A Ariyaratne - Executive operations with relevant laws,
Vice-President/Lending regulations and standards including
Mr S Nagarajah - Executive the adherence to the Direction on
Vice-President/Finance Corporate Governance issued by the
Ms A Withane - Executive Central Bank J M S Brito

Vice-President/Operations Chairman

Mrs M Gunewardena - Executive The Integrated Risk Management

26 May 2010
Vice-President/Treasury & Resource Department prepares and collates the
Development material necessary for the BIRMC to
deliberate and take decisions on matters
falling within its mandate or to make
considered recommendations to the
Board. These are circulated to members

37
DFCC Bank Annual Report 2009/10
Management Discussion
and Analysis
Operations Review

Lending Approvals capital repayments of Rs15,000 million

resulting in the contraction of Rs4,000
In the first part of the financial year the A total of Rs16,173 million in facilities million. The Leasing and Corporate
global and local economic and business to customers was approved by the Banking portfolios contracted the most.
environment continued to remain Bank, up 17% on last year’s Rs13,868 The high interest rate environment that
unfavourable, particularly for capital million. As in previous years, project prevailed in the first half of the financial
asset financing. The contraction of the loans and investments accounted for year and the high level of stress on the
term lending portfolio, which began the bulk of approvals (87%) followed lease portfolio prompted the Bank to
during the previous year, continued by finance leases (9%) and financial consciously hold back from growing its
impacting mainly on the corporate guarantees. The Corporate Banking leasing business. As at 31 March 2010,
banking sector. The declining trend division accounted for 56% of the the Bank’s credit portfolio comprised
lasted until the third quarter of the approvals while the Branch Banking project loans - 85%, finance leases -
financial year when the economy started division, which caters to SME sector, 9% and investment securities - 6%.
showing signs of revival in the aftermath contributed the balance 44%. In terms of As depicted below, the portfolio is well
of various positive developments. This industry segmentation, nearly half of all diversified with nine broad industry
revival gathered momentum in the approvals were in the Food & Beverage, groupings accounting for about 75% of
last quarter with new loan approvals Financial & Business Services (which the credit exposure:
improving significantly. includes diversified holding companies)
and Trade sectors. Real estate, Business
While the corporate sector was and Financial services 16.2%
generally able to absorb adverse Trade* 12.2%
market conditions, the Small and Portfolio Food and beverage 11.4%
Medium Enterprise (SME) sector proved Community and
vulnerable. This required the Bank’s The economic recovery which began in Personal services 7.9%

concerted attention by way of enhanced the latter part of the year with improved Agriculture, Forestry
business confidence, did not have an and Fishing 7.4%
monitoring, working capital support and
immediate impact on the growth of the Transport, Communications
debt restructuring. In this regard, special
and Storage* 6.1%
focus was placed during the year on Bank’s credit portfolio due to the lead
Electricity, Gas and
tea, construction, apparel, tourism and time required for project formulation
Water industries 5.7%
property development segments of the and the time lag between approval and
Construction industries 4.8%
SME sector. disbursement. The total credit portfolio
Manufacture of non-metallic
of the Bank stood at Rs37,562 million,
mineral products 4.1%
down 10% from Rs41,858 million a
* Part of this exposure relates to
year ago. For the second successive
agriculture produce.
year, disbursements of Rs11,000
million were relatively low compared to

38
DFCC Bank Annual Report 2009/10
Portfolio Quality many corporate borrowers took trend is manifest in the corporate
advantage of the high market liquidity banking project pipeline. While there
The reduction in portfolio size caused and declining interest rates to is considerable interest in renewable
the Non-Performing Asset (NPA) ratio restructure or refinance their borrowings. energy, industries in manufacturing,
to deteriorate to 10% (previous This meant that most of the demand tourism, commercial agriculture, food &
year 9%) even though in absolute terms and competition for business was at beverage and telecom are also coming
the total NPAs marginally reduced. the short end of the market. Holding to the fore. One encouraging sign is the
Loans and Leases to the SME sector companies of the large diversified increasing diversity within these sectors
were the worst affected. Analysis of groups also used the opportunity to as for instance the emergence of wind
Non-Performing Loans (NPL) by industry secure refinance lines for their and bio-mass under renewable energy.
sectors indicates six sectors accounted long- term portfolio investment needs. The spill over from major Government
for 60% of the non-performing loans infrastructure projects is also evident
as at 31 March 2010. These sectors The adverse market conditions required from the rising number of subcontracted
in descending order of magnitude a concerted focus on profitability and projects. The Corporate Banking
were Finance, Trade, Manufacture of managing the quality of the lending department has been reorganised to
Food and Beverage, Healthcare and portfolio. Notwithstanding falling manage project and commercial lending
Education, Telecommunication, Storage volumes and decreasing interest undertaken by DFCC Vardhana Bank
& Warehousing and Renewable (hydro) margins, the overall profitability of through one focal point as this will
electricity generation. The quantum of total Corporate Banking was maintained. It enable the Department to capitalise on
NPAs peaked in May 2009 and showed is also notable that despite the industry the emerging prospects and manage
reductions every month since then. stress, the quality of the corporate risk in the most efficient manner.
banking portfolio was satisfactory
The Bank concentrated its efforts in throughout the year with a non-
follow up, monitoring and rehabilitation performing loan ratio of less than 1% Branch Banking
of projects in distress. However, where it as at 31 March 2010.
became clear that rehabilitation was not The branch relocation and development
feasible, the Bank had to take recovery In terms of sector concentration, programme, which commenced a few
action. Recovery of capital, previously Manufacturing accounted for 31% of the years back, was completed during
provided, amounted to Rs340 million portfolio’s exposure followed by Finance, the year. This included the complete
compared with Rs225 million in the Real Estate and Business Services - refurbishment of the Kandy branch.
previous year. There are signs that the 16%, Energy - 11% and Healthcare The Bank continued the expansion of its
recent improvement in market conditions and Education - 11%. Meanwhile, there branch network and moved into Ampara,
and the low interest rate regime will bear was continued interest in the renewable Batticaloa and Jaffna. This marked a
favourably on the future performance energy sector where DFCC was new phase in branch operations as
of SMEs and thereby lead to an involved in two landmark projects; the hitherto lending to enterprises in the
improvement in the portfolio quality. first private grid connected wind power North and East was carried out from
project in Sri Lanka and the first private branches outside the region. Two
hydropower project on the Mahaweli more branches are planned to be

Corporate Banking system. There was also renewed opened in Trincomalee and Vavuniya
interest in the Hotel & Tourism sector in 2010. Branch operations will also be
Approvals amounted to Rs9,051 with new construction and refurbishment expanded in the South and an office
million, which was an increase from the projects under consideration. in Hambantota is planned. DFCC
previous year’s figure of Rs7,331 million. Vardhana Bank too continued to expand
However, long-term credit demand Going forward, the new found stability its reach and now has 44 branches and
for projects was uneven and capital and rise in business confidence will 30 post office Banking Units.
asset financing was confined to a few drive project investment resulting in
industries such as renewable energy credit demand shifting to the longer
and healthcare. At the same time, term. This will have a positive impact
on DFCC’s core business. The positive

39
Operations Review | DFCC Bank Annual Report 2009/10
The branches will continue to focus Development Bank funded Small The growth in profitability is particularly
on assistance to entrepreneurs in the and Medium Enterprises Regional noteworthy. Profit before tax amounted
provinces. In the North and East, growth Development Credit Scheme (SMERDP) to Rs598 million while profit after tax
in demand for credit is expected from under which facilities in excess of was Rs268 million reflecting a growth of
small and medium enterprises in the Rs1,200 million were approved. 141% over 2008. The return on equity
agriculture, leisure, dairy, fisheries, Another very successful scheme was (ROE) for the year improved to 9.8%.
trading and transport industries. the E-Friends II Credit Line, under
Growth in the construction industry which enterprises were able to obtain The Bank added six Branches and
will also arise as subcontracted work concessionary finance for implementing 25 Extension Offices to its physical
from the various infrastructure projects environmental safeguard measures. distribution network and expanded the
undertaken by the Government, gets Other credit lines that were tapped electronic banking network by entering
underway. This is already evident in the included the SMILE II revolving fund, into an ATM sharing agreement with
South and is expected to develop in Southern Province Rural Economic another bank. Arrangements are being
other regions especially the North and Advancement Project revolving made to link the DVB ATM network
East. The Bank is well positioned to take fund (DASUNA), European Investment with the Visa International network to
advantage of such opportunities using Bank Post Tsunami credit line - and facilitate global access by customers.
its experience in SME financing and Renewable Energy for Rural Economic
access to various credit schemes that Development (RERED) schemes. International business contracted due
are tailor made to fund these projects. to the global recession and domestic
economic slowdown while inward and

DFCC Vardhana outward remittances increased by around

Small and Medium Bank Limited 19%. Personal financial services were

Enterprise Financing expanded by adding new branded liability

During 2009, DFCC Vardhana Bank and asset products. A number of new
SME credit approvals recorded a near (DVB) reported a robust growth in many customer relationships were established
15% growth to reach Rs7,112 million key areas of operations. Total assets for in the corporate banking sector.
from Rs6,193 million in the previous the year ending December 2009
year. This included renewed demand amounted to Rs31,336 million reflecting Capital Markets and
for finance leases in the last quarter a 26.3% growth. Similarly, fee bearing
Investment Banking
resulting in approvals increasing by commitments and contingent liabilities
18% to Rs1,406 million. However, amounted to Rs9,548 million showing The year under review witnessed an
with demand for credit increasing a growth of 29%. However, the loans impressive turnaround in the Colombo
only in the latter part of the year, the and advances portfolio contracted by stock market. The end of the conflict,
total SME portfolio itself underwent a 3.5% to Rs14,544 million largely due to the signs of economic recovery and the
contraction of 8% from Rs18,041 million low demand for credit which prevailed expectation of political stability restored
to Rs16,557 million. The major portion across all economic sectors. investor confidence and sparked a bull
of this contraction was due to a sharp run. Both indices were driven to new
decline of nearly 28% in the finance Time and demand deposits expanded highs with the All Share Price Index
lease portfolio from Rs4,805 million to by 16.2% and stood at Rs22,047 rising 127% from 1,638 to 3,725 points
Rs3,466 million. The loan component of million. The Balance Sheet growth and the Milanka Price Index 146%
the portfolio declined only marginally. was mainly driven by expansion of the from 1,736 to 4,271 points, which is
liability products. The Bank remained remarkable given the losses of 36% and
The Bank’s SME financing also excessively liquid with the advance to 45% respectively in the previous year.
benefitted from access to various deposit ratio reaching 68%. The market feat was complemented by
credit schemes of which there were a doubling of the average daily turnover
six in operation during the year. The
most heavily utilised was the Asian

40
DFCC Bank Annual Report 2009/10 | Operations Review
from Rs448 million to Rs892 million While Acuity Partners (Pvt) Limited investing into high yielding Government
during this period. Another contributory divested its stake in HNB Stockbrokers Securities during the first quarter of the
factor to this performance was the (Pvt) Limited during the year, it acquired year. The Treasury optimised funding
decline in interest rates with the 364-day an aggregate 79% stake in Lanka costs through planned exposure to the
Treasury Bill rate dropping from 16.63% Ventures PLC, previously held by wholesale and inter-bank market within
p.a. to 9.47% p.a. Market valuations DFCC, HNB and the public at a cost of the limits set by the Asset and Liability
were also driven by expectations of Rs719 million. As such, Acuity Partners Management Committee (ALCO) and
the earnings growth to be reported by (Pvt) Limited is now the group holding the Board Integrated Risk Management
most companies. company for Acuity Stock Brokers Committee. Managing the cost of
(Pvt) Limited, Acuity Securities Limited medium term customer deposits was
DFCC Bank’s investment securities which is a licensed primary dealer in a challenge for the Treasury. However
portfolio consists of medium to long-term Government Securities and Lanka such deposits formed only 14% of the
investments in quoted and unquoted Ventures PLC. The joint venture partners funds base of the Bank.
equity and in unit trusts. During the of Acuity Partners have committed to
year, the Bank increased its portfolio increase their equity investments in
investment from Rs732 million to Rs818 the Company to settle the short-term Funding
million while realising capital gains of loans obtained for the acquisition
Rs145 million. As at 31 March 2010, the of Lanka Ventures PLC. With a full The Treasury concluded negotiations
market value of the quoted investment portfolio of capital market services and and drew down a seven year USD
portfolio and unit holdings was Rs1,284 products, Acuity Partners is well placed 15 million loan, from the Nederlandse
million of which the unrealised capital to becoming the strongest universal Financierings–Maatschappij Voor
gain was Rs554 million. Due to a investment banking group in Sri Lanka. Ontwikkelingslanden N.V (FMO),
regulatory classification requirement, the obtained at a competitive interest rate.
Bank also has a small trading portfolio A further draw down of the European
which recorded a ‘marked to market’ Treasury Operations Investment Bank (EIB) Global II credit
gain of Rs43 million. line amounting approximately to USD
Group Treasury is responsible for 7.5 million was also made during the
While DFCC manages its own managing liquidity, interest rate and year. Funding itself was not a concern
investment portfolio and undertakes all foreign exchange risks arising out of the during the year due to the high level
fund based investment banking activity DFCC Group’s core activities, arranging of liquidity. These funds were either
in-house, the fee-based corporate medium term and money market deployed in foreign currency assets or
finance and advisory business is carried funding for the Group and managing Rupee assets on a hedged basis.
out under Acuity Partners (Pvt) Limited, the fixed income investments of the
the joint venture investment bank Group. During the year the benchmark
owned equally with Hatton National and market interest rates declined Management of
Bank PLC. Acuity Partners (Pvt) Limited significantly. The contraction of the
Credit Lines
has capitalised on its strong market advances portfolio referred to earlier
presence to build up a pipeline of in this review resulted in a significant DFCC Bank manages four credit

mandates. The Company has executed amount of liquidity which had to be programmes of the Government of

some notable transactions including managed in a declining rate scenario. Sri Lanka.

the listing of Sri Lanka’s first Exchange The Treasury was able to respond to
Traded Fund – the ‘NAMAL Acuity this challenge effectively by proactively
Value Fund’ and a cross-border partial
acquisition of a firm in the power sector.

Operations Review | DFCC Bank Annual Report 2009/10

41
The World Bank and Global the scheme to 14 eligible RPCs.
Environment Facility assisted These funds have been used for field
Renewable Energy for Rural Economic development, crop and non-crop
Development - Additional Financing diversification, factory consolidation
(RERED-AF) Project continues to & process automation, and marketing
facilitate the harnessing of renewable ventures.
energy resources for generation of
‘Green’ electricity to meet Sri Lanka’s The European Investment Bank (EIB) -
growing energy needs. Since 1997, assisted Post-Tsunami Reconstruction
the three DFCC Bank administered Project provides assistance to revive the
renewable energy credit lines have economies of 11 affected districts. As
collectively assisted in the capacity at 31 March 2010, EUR 58 million out
addition of 154MW to the national of EUR 60 million had been allocated
grid, and have electrified more than through the DFCC Bank administered
134,000 households using off-grid scheme A (for directly and indirectly
means. A notable feature during the affected projects) and seven participating
year was the financing of Sri Lanka’s financial institutions have collectively
first ever private sector grid-connected disbursed Rs7,114 million. These
wind power project with an expected development projects are estimated
installed capacity of 10MW. Capacity to provide over 3,000 employment
building activities carried out by the opportunities in leisure, health,
Project included a training program on manufacturing and service sectors.
Low Head Hydropower Development
and a conference and exhibition on The KfW-assisted Small and Medium
Net Metering & Grid Tied Photovoltaic Enterprise Development Project in
Systems, both with the participation the North and the East focuses on
of international resource personnel improving access to financial services
and aimed at gearing the renewable for entrepreneurs. The credit line is
energy development community towards geared to cater to the SME sector in the
tapping as yet unutilised resources. two provinces which are expected to
develop with new vigor complementing
The credit component of the Plantation the Government’s “Uthuru Wasanthaya”
Development Project, funded by the and “Nagenahira Navodaya”
Asian Development Bank (ADB) and the programmes, together with the
revolving fund set up by the Government extension of branch networks to North
of Sri Lanka, focuses on the and East by participating banks.
transformation of Regional Plantation
Companies (RPCs) from primary
producers into agribusiness entities.
As at 31 March 2010, seven
Participating Financial Institutions
have collectively disbursed 85% of
the Rs2,478.5 million available under

42
DFCC Bank Annual Report 2009/10 | Operations Review
Management Discussion
and Analysis
Financial Review

Overview The Bank however, anticipated the The improvement in net interest
emerging difficult business environment income margin was achieved despite
Profitability at the beginning of the financial year significant reductions in on-lending

The Group profit after tax of the Bank in and took specific steps to improve rates for advances in the second

the financial year under review (referred the profitability of the Bank. These half of the financial year as a result

to in this report as current year) was measures included the following: of the reduction of domestic interest

Rs2,684 million an increase of 30% rates. The Bank acquired significant

i. Maintenance of Net Interest amounts of Government Securities for
over Rs2,068 million in the previous
Income Margin
financial year (referred to as previous its held-to-maturity portfolio in the early
Interest income of Rs7,416 million in part of the year thereby locking in the
year). The unconsolidated profit after
the current year was 13% lower than income at the high interest rates that
tax of the Bank in the current year was
Rs8,529 million in the previous year, prevailed and was also able to use
Rs1,713 million a 26% increase over
in line with the contraction of loan funds amounting to Rs3,230 generated
Rs1,360 million the previous year. Thus,
and lease portfolios. Interest expense by the declining credit portfolio to shed
the performance in the current year is a
of Rs4,224 million in the current expensive customer deposits. These
significant improvement compared to the
year was however 25% lower than factors contributed to the increase in the
results one year ago which recorded a
Rs5,624 million in the previous year. interest margin.
8% decrease in the Group profit
Correspondingly net interest income
after tax and a modest 3% increase
was 43% of the interest income in the ii. Containment of Personnel Cost
in the unconsolidated profit after
current year, significantly higher than The increase in personnel cost to Rs575
tax of the Bank.
34% in the previous year. However, million in the current year was a modest
this increase is in part due to funding 6% increase over the previous year.
Unless otherwise stated, this review
swaps. The currency swap cost is not The pension cost reduced from Rs103
relates to unconsolidated results
included under net interest income million in the previous year to Rs72
of the Bank.
but charged against foreign exchange million in the current year primarily due
profit as prescribed by the currently to better returns on pension fund assets.
Calendar year 2009 was characterised
applicable reporting requirements. Thus
by a domestic economic slow down due
the foreign exchange loss shown under iii. Containment of other
to the global financial and economic crisis
other income would be a profit and net Operating Expenses
and the challenging domestic business
interest income correspondingly reduced The establishment and other overhead
environment. Thus the credit demand for
if the currency swap cost is shown as expenses in the current year was
Bank’s core business of financing new
an interest expense. Concurrent with Rs488 million, a marginal increase from
business enterprises, capacity expansion
the funding swap the Bank entered Rs483 million in the previous year. The
or modernisation of existing business
into forward exchange contracts to Bank uses internal costing methods
enterprises was significantly reduced.
close the foreign exchange positions to encourage cost savings in energy,
and therefore these transactions have
not resulted in open foreign exchange
positions of any significance.

43
DFCC Bank Annual Report 2009/10
transportation and cost of consumables. The consolidated results include the profit is liable to 20% financial services
The Bank was able to achieve this profits of subsidiaries and associate VAT, being a capital gain, there is no
cost efficiency despite additional companies and their performance income tax liability. The contribution to
operating costs incurred in the opening review is given individually. consolidated profit after tax was
of new branches in Galle, Batticaloa Rs142 million.
and Ampara. Combined Operations of the
Bank and its Commercial The results of LVL for the period
The Value Added Tax on financial Banking Subsidiary DFCC 18 January up to 31 March 2010 are
services and income tax expense in Vardhana Bank Limited (DVB) consolidated with Acuity Partners (Pvt)
the current year was Rs1,348 million DVB is a 96% owned subsidiary of the Limited. The Consolidated Financial
which is 44% of the operating profit Bank with an investment of Rs2,286 Statements of the Bank do not include
before these taxes. In the previous million. The credit quality of DVB too was these results since the results of Acuity
year these taxes accounted for 47% of affected by the economic downturn. Partners (Pvt) Limited whose financial
the operating profit before these taxes. year ended on 31 December 2009 are
These taxes collectively exceed the The combined non-interest expense consolidated with a three month gap.
non-interest expenses incurred by to operating income ratio of the Bank
the Bank to generate revenue (i.e. and its commercial banking arm DVB, Investment in Commercial
personnel cost, establishment and (the cost income ratio) was 32% in the Bank of Ceylon PLC
overhead expenses). current year compared to 33% in the The voting rights of the Bank are
previous year. currently restricted to 10%. However,
Loan Quality two nominee Directors continued
The gross non-performing loans (NPL) DVB too allocated substantial to serve on the Board of Directors
and finance leases was Rs3,768 million resources in the early part of the year to right through the current year and
on 31 March 2010, a marginal decrease investments in Government Securities consequently Commercial Bank of
from Rs3,783 million a year ago. to be held to maturity thereby benefiting Ceylon PLC is classified as an associate
However, the infected exposure net of when interest rates declined sharply company in the consolidated financial
provisions and the realisable value of later on in the year. It did not pursue loan statements. The Bank’s income
tangible collateral was only Rs217 million growth but concentrated on arresting any includes a dividend of Rs423 million
on 31 March 2010. As a percentage of the further decline in the quality of its existing in the current year, 27% higher than
equity on 31 March 2010, this was 1.4%. portfolio and managing the cost of its Rs333 million in the previous year. The
customer liability base. As a result, the increase being due to timing differences
Loans constitute 85% of the net interest income in the current year in the payment. The consolidated profit
non-performing credit portfolio. which reached Rs1,751 million, was 41% includes (after elimination of dividend)
of the interest income, increased from a post tax profit of Rs656 million in the
The composition of NPL by age of 37% in the previous year. current year and is less than
arrears indicates that Rs1,416 million Rs728 million in the previous year.
(44% of the total gross non-performing Investment in Lanka The market value of this investment on
loans of Rs3,194 million) was over 18 Ventures PLC 31 March 2010 was Rs13,536 million
months on 31 March 2010, an increase On 18 January 2010, Bank sold its entire compared to the cost of investment of
from 37% in the previous year’s non- shareholding in Lanka Ventures PLC Rs3,152 million. This is a significant
performing loans in the same arrears (LVL) to Acuity Partners (Pvt) Limited, increase compared to the market value
category. a joint venture company equally owned of Rs5,049 million one year ago.
by DFCC Bank and Hatton National
Bank PLC. This transaction yielded a
profit of Rs284 million. Although this

44
DFCC Bank Annual Report 2009/10 | Financial Review
Other Subsidiaries, Associate
Company (National Asset
Management Limited) and
Joint Venture (Acuity Partners
Pvt Limited)
The collective contribution to profit after
tax was Rs77 million in the current
year compared to Rs50 million in the
previous year. The Bank intends to
progressively increase its investment
in Synapsys Limited by Rs50 million to
enable Synapsys Limited to expand its
activities outside Sri Lanka.

Dividend Distribution
The Directors have recommended a first
and final dividend of Rs6 per ordinary
share, which will amount to a payment of
Rs794 million. The total dividend pay out
as a percentage of Bank’s own profit after
tax for the year ended 31 March 2010 is
46%. The total payout represents a 20%
increase over the previous year.

Capital and Liability Structure

The Total equity of the Bank was
Rs15,722 million on 31 March 2010.

Total interest bearing liabilities was

Rs38,654 million with a gearing of 75%
debt to 25% equity which is similar to
the gearing in the previous year. The
capital adequacy ratio on consolidated
basis was 23.2% on 31 March 2010
(19.9% on 31 March 2009).

45
Financial Review | DFCC Bank Annual Report 2009/10
Management Discussion
and Analysis
Risk Management

Governance Structure for The Chief Risk Officer who is a Senior Developments in
Vice President has been designated
Risk Management Risk Management
a Key Management Personnel and
The DFCC Bank and DFCC Vardhana reports to the Board Integrated Risk During the year the Group reviewed its
Bank’s (DVB) (collectively referred to as Management Committee (BIRMC) risk management function and further
DFCC Group in this review) governance through the Chief Executive. BIRMC improvements were introduced to be
structure for risk management functions under the responsibilities in line with business needs, regulatory
encompasses the concept of ‘Three set out in the Board-approved Charter requirements, environmental factors
Lines of Defence’, and is based on for the BIRMC, which incorporates and international best practices.
the four fundamentals of Board and corporate governance requirements A quantitative dimension for risk
senior management oversight, risk for Licensed Specialised Banks set out management was adopted in the
management policies and procedures, in the Direction issued by the Central Group’s risk management function
risk measurement, monitoring and Bank of Sri Lanka. The Executive while policy and guidelines were also
control, and internal controls and Committees such as the Asset Liability improved. Greater use of statistical tools
independent audit. Management Committee (ALCO), for risk management was introduced
Credit Committee, the Bad Debt Review during the course of the year that paved
The First Line of Defence involves Committee and the Special Loans the way for enhanced quality in risk
the supervision and monitoring of risk Review Committee are guided and management processes.
management practices by the business operate within risk frameworks and limits
managers, corporate management and set out by BIRMC. ALCO minutes are Adopting a proactive approach, DFCC
executive committees while discharging submitted to the BIRMC and both sets of Bank conducted a gap analysis between
their responsibilities and accountability minutes are submitted to the Board for the Bank's risk management practices
for day-to-day management of business information and review. The Integrated and the regulatory recommendations
operations. Independent risk monitoring, Risk Management Department is tasked for integrated risk management which
validation, policy review and compliance with the responsibility of measuring served as the base for developing the
by the Integrated Risk Management and monitoring risk at operational Risk Management road map.
Department, the compliance functions levels on an on-going basis to ensure
and periodic monitoring and oversight by compliance with the parameters set Stress tests carried out indicate that
the Board Integrated Risk Management out by the Board/BIRMC and other both DFCC Bank and DVB have a
Committee (BIRMC) and the Board of Executive Committees. All exceptions capital cushion above regulatory capital
Directors constitute the Second Line of are highlighted for corrective action and even if the worst case scenarios for
Defence. The Third Line of Defence is reported to the BIRMC. The structure for credit, market and operation at risks
provided by the independent check and the integrated risk management function as indicated in the specifications of the
quality assurance by the internal audit will evolve to be in line with the Basel Central Bank of Sri Lanka occur at the
and external audit functions. II recommendations and best practices same time.
over a period of time.

46
DFCC Bank Annual Report 2009/10
A policy for the management of credit undertaken during 2010, giving due Credit Risk
concentration risk was introduced and consideration to current practices and
monitoring of concentration risk of changes in the Delegation of Lending Credit risk is the risk that a loss will
the credit portfolio was strengthened. and Related Authority. be incurred if a counterparty to a
Herfindahl-Hirschman Index - an transaction does not fulfil its financial
internationally accepted technical tool, The ALCO charter was reviewed and obligations in full and in a timely manner.
indicated a satisfactory granularity of amended thereby streamlining the asset The loss of market value of debt
the DFCC Bank's credit portfolio among and liability management practices. securities of the investment portfolio due
different industry sectors. to credit rating downgrades or the credit
Studies and research of key industries spread widening is also part of credit
Computation of Probability of Default and risk factors are carried out and risk but in the Sri Lankan context only a
for borrowers and Loss Given Default communicated across the Bank very small proportion of corporate debt
data for the DFCC Bank's loan portfolio by Intergrated Risk Management is traded. Counterparty credit risk is the
were key initiatives undertaken during Department (IRM). most significant type of risk assumed
the year. These credit risk components by the Group, and accounted for 87%
facilitated key business and pricing of risk-weighted assets as at end of the
decisions in addition to positioning the Capacity Building financial year.
Bank for the implementation of Basel II
advanced approaches in the future. Staff attached to IRM have been trained Process for Credit Risk
and skilled as a part of the ongoing Management
The process of revalidating credit rating capacity building and development The use of internal rating models and
models for Corporate and Branch programme. the periodic review of assigned ratings
Banking was continued with enhanced form the basis for risk profiling of
data samples. The findings are used to Training needs were identified based borrowers for the purpose of managing
reassess the rating process and rating on regulations, best practice and credit risk through structuring, pricing,
models as an ongoing practice. individual as well as organisational monitoring, restructuring and recovery
level capabilities and needs. Resources action. A well-structured automated
A detailed road map for implementation needed for such training were allocated approval process is in place, guided
of Basel II was developed where on a priority basis. In particular, required by the Delegation of Lending and
milestones have been identified with knowledge and understanding of credit Related Authority limits. Authority
time frames and resource requirements. rating models, model development levels are defined for each business
Implementation commenced with the process and Basel II requirements to unit head based on respective risk
approval of the Board. The emphasis support the design, conceptualisation categories. Approval of credit exposures
on management of liquidity and portfolio and evaluation process were acquired of large value is undertaken by the
quality continued throughout the year. for the development of an in-house Executive Credit Committee or on
rating model. Necessary statistical skills its recommendation by the Board of
A new Credit Policy framework for were acquired by relevant staff with a Directors. Concentration risk is currently
DFCC Bank was developed during view to applying a statistical approach managed and monitored in terms of
the year. This framework stipulates to managing risk. The knowledge single borrower limits, group limits
specific policies, objectives, strategies, thus gained was shared with staff and sector limits. Risk exposures to
guidelines, organisational structure and members of the Group through training high-risk sectors are managed through
key responsibilities for the credit function programmes conducted in collaboration sector restrictions that require prior high
of DFCC Bank. The Credit Manual for with Human Resource Development. level clearance before taking on new
Corporate Banking together with all IRM continued to conduct a series of exposures even for small amounts.
related documents were reviewed and knowledge sharing sessions with a view Information on sector exposures are
updated during the year to be in line with to promoting a strong risk management given in the Operations Review in
current lending practices, processes, the culture across the Group through this Report.
credit policy framework and regulatory creating awareness and understanding
requirements. Review of the Credit of evolving risk management concepts.
Manual for Branch Banking is being

Risk Management | DFCC Bank Annual Report 2009/10

47
Market Risk reports to the ALCO for decisions on Risk Management. The liquidity
necessary realignment in the asset risk management process includes
Market risk is the risk of potential losses and liability structure and the pricing regular analysis and monitoring of the
accruing through the adverse fluctuation mechanism. liquidity position and maintenance of
in the market interest rates, equity prices market accessibility. Regular cash flow
and exchange rates. Market risk could As a general rule, medium-term fixed forecasts, liquidity ratio and maturity gap
impact a bank mainly in two ways; viz., rate advances are funded by fixed rate analysis are used as analytical tools by
loss of cash flows or loss of economic liabilities. Foreign currency assets and the ALCO. Whilst comfortably meeting
value. Market risk can be looked at in liabilities are re-priced periodically linked the regulatory requirements relating
two dimensions, as traded market risk, to a benchmark rate. Statistical methods to liquidity, for internal monitoring
which is associated with the trading such as scenario analysis, simulation purposes the Group also takes into
book and non-traded market risk, which and stress testing are used in managing consideration the actual liquidity of
is associated with the banking book. interest rate risk. each eligible instrument relating to the
DFCC Bank’s exposure to market risk is market at a given point in time as well
governed by a Market Risk Management as undrawn commitments to borrowers
Framework, that has been approved
Equity Prices Risk when stress testing its liquidity position.
by the ALCO, BIRMC and the Board. The maintenance of a strong credit
The ALCO acting through the Group Equity prices risk is the risk of losses rating [AA(lka)] by Fitch Ratings Lanka,
Treasury and the Investment Committee, in the equity trading book, which is unchanged since January 2003 and
are mandated to manage both the marked-to-market due to the decline the favourable reputation in the market
traded and the non-traded market risk in the market prices. The Investment enables DFCC Bank to access domestic
at the operational level. Tools such as Committee is responsible for making wholesale funds when needed to
supervisory monitoring, exposure limits, investment decisions and monitoring supplement its traditional funding from
stop-loss limits, simulation, scenario exposure to the equity market. Asset multilateral and bilateral sources. For
analysis, stress testing and marking-to allocation limits are approved by short-term liquidity support, DFCC Bank
market are used to manage the market the Board of Directors based on has access to the money market at
risk exposure. Trends in relevant local recommendations of ALCO/BIRMC. competitive rates. The diversification
as well as international markets are Rigorous appraisal, proper market of the liability structure is also a
analysed and reported by IRM to ALCO timing and exposure limits are used to key focus of the Group and access
and also shared across the Group. manage equity prices risk. The Group's to retail deposits is being effected
DFCC Bank’s foreign exchange assets long-term investment horizon for equity through expanding the reach of DVB.
comprising less than 4% of total assets investments smoothens out the adverse A substantial proportion of DFCC’s
and liabilities are substantially matched implications of short-term market funding is from medium to long-term
or hedged through various mechanisms volatility. The Group’s exposure to equity funds. This reduces its liquidity risk in
and the market risk exposure arising prices risk through the equity trading the short term. If the necessity arises,
from exchange rate movements is and the investment portfolios is nominal part of DFCC Bank's lending portfolio
insignificant. as these two portfolios account for 2.3% can be securitised to ease the Bank’s
of the total assets. DFCC Group has not liquidity position. DFCC’s risk-based
engaged in active trading of equities; pricing mechanism ensures that residual
Interest Rate Risk however, Directions issued by the liquidity risk is duly priced when
Central Bank of Sri Lanka necessitates pricing assets.
Interest rate risk can be termed as the the transfer and marking to market of
risk of loss in the net interest income certain residual equity holdings to a
(earnings perspective) or the net worth trading portfolio.
Operational Risk
(economic value perspective) due to the
adverse changes in the market interest Operational risk arises from
rates. The Group maintains the Trading
Liquidity Risk human activities, technology and
and Investment (held to maturity) natural incidents. The sources of
portfolios separately with regard to Liquidity risk is the risk of not having operational risks include fraud, staff
fixed income securities. The Assets sufficient resources to meet financial negligence, management systems
and Liability Management Unit routinely obligations in time and in full, at a failure, technology failure, model
assesses the Group's asset and liability reasonable cost. DFCC Bank has a failure, technology obsolescence
profile in terms of interest rate risk and Board approved framework for Liquidity and inadequate internal controls.
Segregation of duties with demarcated

48
DFCC Bank Annual Report 2009/10 | Risk Management
authority limits, internal and external and adverse changes in industry capital position on a solo and group
audit, strict monitoring facilitated by or macroeconomic conditions. The basis computed under the simplest
the technology platform and back- Group’s medium- term strategic approaches of Basel II1 . Contraction
up facilities for information are the plan and annual business plan in the credit portfolio was offset by the
fundamental tools of operational risk form a strategy road map towards investments in the default risk-free
management. Audit findings and continued prosperity. Diversification Government securities which made risk-
management responses are forwarded into related financial services through weighted assets to decline compared
to the Board’s Audit Sub-committee subsidiaries, associates and joint to the previous year. This was the main
for their examination. Effective internal ventures, continuous competitor and cause for the increase in the risk capital
control systems, supervision by the customer analysis, and monitoring of ratios during the period under review.
Board, senior management and the the macroeconomic environment enable The existing risk capital base of DFCC
line managers form a part of “First the Group to formulate its strategies for Bank was twice the minimum regulatory
Line of Defence” for operational risk growth and business risk management. capital requirement and indicated a
management at DFCC Bank. The high level of risk absorption capacity.
Group demands a high level of technical Business risk relating to customers are This capital position will enable DFCC
skills, professionalism and ethical assessed in the credit rating process Bank to exploit the anticipated growth
conduct from its staff and these serve and is priced accordingly. in credit.
as insulators for many operational
risk factors. The Bank’s business 1 The consolidated total regulatory capital
recovery plan deals with natural or Legal Risk base of the Group is lower than the core
other catastrophes. The loss of physical capital due to the reduction arising from
assets is mitigated through insurance. Legal risk arises from unenforceable the investment in the associate company,
transactions in a Court of Law or the Commercial Bank of Ceylon PLC.
failure to successfully defend legal
DFCC Group Regulatory Capital Ratio
Reputation Risk action instituted against the Bank. Legal
risk management commences from prior Under the simplest approaches of
Reputation risk is the risk of losing analysis, and a thorough understanding Basel II as at 31 March 2010.
public trust or the tarnishing of the of, and adherence to, related legislation 2010 2009
Bank’s image in the public eye. It by the staff. Necessary precautions Core capital 26.2% 21.9%
could arise from environmental, social, are taken at the design stage of Total capital base 23.2% 19.9%
regulatory or operational risk factors. transactions to minimise legal risk
Events that could lead to reputation risk exposure. In the event of a legal risk DFCC Group Regulatory Capital
are closely monitored, utilising an early factor, the Legal Department of the
Positions under the simplest approaches
warning system that includes inputs Bank takes immediate action to address
of Basel II as at 31 March 2010.
from frontline staff, media reports and and mitigate these risks. External legal
internal and external market survey advice is obtained when required. The Allocation of Capital Amount %
results. A Communication Policy that financial statements disclose details Rs million

addresses aspects of reputation risk is of significant ongoing legal disputes Credit Risk 5,544 86
in place. Policies and standards relating involving the Bank. Market Risk 82 1
to the conduct of the Bank’s business Operational Risk 814 13
have been promulgated through internal Risk-based Capital Adequacy Minimum Regulatory
Capital 6,440 100
communication and training. A culture of As can be seen from the Capital
Buffer 8,449
compliance permeates all levels of the Adequacy computation given elsewhere
Actual Regulatory
organisation, and the Chief Compliance in this Annual Report, DFCC Bank Capital 14,889
Officer submits quarterly compliance continued to maintain a healthy risk
reports to the Board of Directors. Group Risk Weighted Assets

Business Risk
Business risk is the risk of deterioration
in earnings due to the loss of market
share, changes in the cost structure

49
Risk Management | DFCC Bank Annual Report 2009/10
"For too long man has rolled out the juggernaut of development
oblivious to his surroundings, disregarding the consequences of his
actions. It is our moral obligation to safeguard the environment and
preserve it for future generations."

50
DFCC Bank Annual Report 2009/10
Sustainability
Report 51
DFCC Bank Annual Report 2009/10
Sustainability
Report
Chief Executive’s Message

The native Americans have a proverb out to inculcate students with the Our contribution to the country’s
that says “We do not inherit this earth value of an organised lifestyle. The economy is a well-documented fact.
from our ancestors, we borrow it from principles of “ 6S” are about Sorting, DFCC Bank continues to support small
our children”. For too long man has Setting in order, Systematic cleaning, and medium enterprises, which form the
rolled out the juggernaut of development Standardising, Sustaining discipline and backbone of the Sri Lankan economy.
oblivious to his surroundings, Safety. Selected schools from around The SME sector comprised 44% of
disregarding the consequences of his the country were given guidance on our loan approvals in FYE 2010. We,
actions. It is our moral obligation to the implementation of the system and along with the rest of the country, are
safeguard the environment and preserve were later assessed by experts on their looking forward to positive economic
it for future generations. level of improvement and rewarded developments in the coming year. As
by the Bank. It was truly remarkable such, the Bank is geared to support
DFCC Bank has been in development seeing young minds being moulded and entrepreneurs when they need our
finance for almost six decades. learning hubs being transformed. resources and guidance.
Throughout this period we have evolved
along with the enterprises we helped DFCC Bank has continued to improve on Employee empowerment is the final
establish. Today, most of them have its environmental policies and guidelines. area dealt with in this Report. Despite
strong values that view sustainable The formal adoption of the Environmental difficult external conditions last year,
growth as an important aspect of & Social Management System (EMS) as DFCC Bank made a conscious effort
business strategy. part of the credit policy is an important not to compromise on staff development
step in promoting sustainable business and capacity enhancement. In 2009, we
Our own commitment to sustainability is ventures. The Bank also maintains a introduced a new platform for e-learning
strong as ever. As an organisation that is negative sector list, which it refrains from to staff and currently the programme
at the forefront of the financial sector, our funding due to adverse affects on the runs a series of job specific and soft
responsibility lies in guiding the nation’s environment. Furthermore, DFCC Bank skills development modules.
entrepreneurs in the right direction. was at the forefront of promoting Sri
Lanka’s first-ever wind power generation Looking towards the future, DFCC Bank
DFCC Bank's mission statement in itself plant, which seeks to use a renewable will continue to enhance its capabilities,
vows to support businesses and create source to generate 28GWh of electricity while delivering sustainable returns to
value for all stakeholders implying an annually. While compared to the annual it’s stakeholders.
engagement to deliver sustainable electricity consumption of the nation it is
corporate social responsibility initiatives. a small contribution, yet we believe it is a The future belongs to those who
giant step in the right direction. prepare for it.
This is our second Report on
Sustainability. It publishes details of our With regard to our own carbon footprint,
activities in environmental responsibility, the Bank has been aggressively pursuing
educational advancement, investment the policy of minimising wastage, Nihal Fonseka
in the community and employee reducing emissions, recycling waste and Chief Executive
empowerment. In 2009, we made conserving water in an attempt to be a 26 May 2010
progress in many areas of sustainability. “lean and green” corporate entity.
Our “6S” programme for schools set

52
DFCC Bank Annual Report 2009/10
Sustainability
Report
Reports

Environment

Sustainability is about the future. DFCC Bank has made significant efforts Identifying Environmental
Unborn generations are relying on to manage environmental and social
and Social Risks
us to protect and nurture this world aspects of conducting business, taking
so they too can enjoy the fruits of its investment decisions and managing Environmental and Social Assessment
splendour. As development rolls out and internal operations. However, increased is a process that aids in the decision
industries expand, our ecological and attention to these areas is now required making of the Bank by identifying
social environment changes, in most as it will not only make good business potential sources of future risk and
cases adversely. As the pioneering sense but also improve the corporate liabilities in the early stages of the project
development bank supporting the social responsibility image of the Bank. appraisal process. Environmental risk
growth of industry in Sri Lanka, DFCC With the objective of incorporating the can either be inherent in the collateral
Bank recognises its responsibility to consideration on environment and or property, or it may arise from the
support sustainable development. It social aspects as an integral part of operation of the project. In order to
also identifies the responsibility to help our project appraisal and follow up ensure sustainability of the project and
industries take necessary action to activities, the Bank has implemented an to arrive at a proper investment decision,
control and mitigate any adverse impact Environmental & Social Management environmental and social risks and
on the environment. System (EMS) with five main objectives. effectiveness of the proposed preventive
measures are assessed in addition to
Today there is growing public awareness First, the Bank works on identifying and the financial and economic viability of
and concern over environmental and assessing all environmental and social the project. All projects are screened to
social issues. This is driving changes risk factors of projects that seek financial determine environmental impacts such
in consumer behaviour, investments assistance. Second, it promotes as pollution, noise, odour, nuisance and
and regulations. Various stakeholders activities and investments that improve other social impacts.
including shareholders and funding environmental and social conditions,
agencies are increasingly concerned makes effective use of resources and
over environmental and social issues complies with environmental laws and Supporting
relating to development projects while regulations. The third objective is to
environmentally
consumers are altering their buying ensure that measures are incorporated
friendly initiatives
patterns to support ethically sourced to prevent the occurrence of adverse
goods and services. Compliance with environmental and social impacts. The Bank offers concessionary
environmental, social, health and This option of prevention is the loans under the e-Friends initiative
safety standards not only ensures the preferred alternative compared to to environmentally friendly projects.
continuity of the project, but also by being others such as minimising, mitigating The main objective of the scheme is
conscious of all stakeholder expectations or compensation. Fourth, the EMS to prevent industrial pollution in the
avoids costly litigation and corrective will monitor environmental and social country. These loans will be used
actions arising from non-compliance with performance of projects financed by for waste and pollution reduction
regulatory requirements. the Bank on a regular basis. The final while conserving resources. Since
objective of the Environmental & Social 2006 DFCC Bank has disbursed a
Management System is the effective total of Rs1.5 billion as part of this
management of environmental aspects initiative. During this year alone loans
of the Bank’s in-house operations.

53
DFCC Bank Annual Report 2009/10
amounting to Rs.683 million have been something that the Bank has practiced Clean Energy
provided to entrepreneurs to improve and improved upon year on year. The
the environmental standards of their data in the Table below indicates a The need for renewable, reliable, clean
businesses. marginal increase in average water energy is becoming more apparent as
usage per branch and head office we step into a new decade. Meeting
newspaper consumption. As a result Sri Lanka’s growing energy needs in

Preventing adverse of maintaining vehicles in their peak an economically, environmentally and

socially responsible way is a priority
affects on the condition, the average number of
kilometers per litre has increased for DFCC Bank. Our commitment to
environment and
while the total number of kilometers develop sustainable energy began with
Monitoring support for the first grid connected mini
travelled and the number of kilometers

The Bank ensures that environmental per executive at Head Office has hydropower project in Sri Lanka. Since

safeguards as defined by the reduced considerably due to the better then, we have made steady progress

Environmental Protection Act and the administration of transport schedules. resulting in being recognised as a

Rules and Regulations issued by the The amount of electricity used per premier resource centre for the country’s

Central Environmental Authority of branch has reduced appreciably due to Renewable Energy sector.

Sri Lanka are integrated into project new environmental guidelines set out

design prior to its financing and for DFCC Bank offices. Overall, In this backdrop the country’s first

complied with during the implementation Facilities Management and Procurement commercial wind power plant in Kalpitiya

and operation. DFCC Bank has also have been able to maintain set was supported by DFCC Bank. The

set out two different category lists for performance goals for 2009/10. This plant was set to produce 10MW of

restricted businesses and negative is an important step in reducing the Grid connected wind power using eight

sectors. While negative sectors are not corporate carbon footprint.

provided finance, restricted sectors are

Consumption 2009/10 2008/09 Increase/
entertained only after a thorough review Units Units Decrease %
of the business and its objectives.
Electricity (kWh) - Avg. per branch 117,569 134,932 (13)
Water (m3) - Avg. per branch 1,121 1,032 9
The Important consideration in
Fuel (litres) - Head Office 42,499 44,803 (5)
implementing an environmental and
Number of km -Head Office 326,793 330,851 (1)
social management plan is ensuring the
Hired Vehicles - Number of km 5,848 5,603 4
commitment of the project promoter. White Paper - Packets 1,776 2,470 (28)
This entity is expected to maintain Newspapers - Head Office 700 675 3
safeguards on a continuous basis
adhering to the requirements imposed Average No. of km per Executive 3,138 3,823
by the Bank. Furthermore, DFCC Bank’s Average No. of km per Liter 7.69 7.38
environmental recommendations are
included in the Terms and Conditions of
The Bank also attempts to minimise 1,250kW wind turbines. The expected
the loan facility, which in turn becomes
physical risk and protects its staff average annual energy generation is
part of the legal contract between
by employing safe technologies, 28 GWh, yielding a revenue of Rs560
the borrower and the Bank. During
operating procedures and provides million. DFCC Bank has been involved
the follow up process, monitoring of
a comfortable work environment. It in the project since its inception playing
environmental and social performance is
also provides operational staff with a vital role in guiding the promoters
an important part of the EMS policy.
training and information to enhance on key issues such as a viable tariff
their understanding of the Bank’s structure, structuring finance facilities
environmental policy and programme and and obtaining requisite approvals. This
Good Housekeeping
their responsibility to implement them. encouraged other banks to participate

DFCC Bank adopts environmentally in funding this pioneering venture.

friendly operational procedures; best DFCC Bank took a proactive interest in

practices in environmental management syndicating a loan of Rs1,100 million with

including energy efficiency, recycling, the participation of three other banks.

waste reduction and proper disposal

of waste. “Good Housekeeping” is

54
DFCC Bank Annual Report 2009/10 | Environment
Sustainability
Report
Reports

Economy

Ever since its incorporation in 1955, and services. These in turn create In the calendar year of 2009, despite
DFCC bank has served the nation by employment, which generates more the slowdown in demand, the Bank
facilitating entrepreneurship. Through consumption leading to capital formation provided over 10,000 loans and leases
almost six decades of existence the and economic growth. to Small and Medium Enterprises. While
Bank has assisted more than 100,000 SME credit approvals stood at Rs7,112
projects that created direct employment Under these circumstances supporting million for the FYE 2010.More than 400
for more than 750,000 individuals. Small and Medium Enterprises (SME) new jobs were created through these
is an important component of DFCC initiatives. The recent improvement
Apart from the numbers assisted and Bank’s commitment to the economy. in market conditions and low interest
amounts lent, DFCC Bank was at the The strategy for SMEs revolves around rates are expected to stimulate future
forefront in developing certain sectors developing their internal capabilities performance in the sector leading to
for investment. The Tourist Hotel leading towards improved access to more job creation and economic growth.
sector, Horticulture, Mini-hydro and finance. DFCC Bank also provides
Telecommunications were some of the access to concessionary credit lines, Our continuing efforts to reach out
areas DFCC Bank helped promote and giving these enterprises a competitive to entrepreneurs around the country
establish in partnership with Government edge. The Bank has taken the initiative saw DFCC Bank expand its network
agencies and the private sector. to utilise credit from bilateral and to Ampara, Batticaloa and Jaffna.
multilateral organisations to support Three more branches will be opened in
small businesses located in rural areas Trincomalee, Vavuniya and Hambantota

Supporting Small and of the country, becoming the premier shortly. This gives us the opportunity to

Medium Enterprises lender for most credit lines available for take our experience in SME financing
the sector. and various concessionary credit
Economic development, or the schemes to these regions and work
economic aspect of social change is DFCC also guides small businesses closely with businesses to ensure
about increasing and improving the in the effective use of credit to create sustainable growth.
production of goods and services. sustainable business ventures.
Helping businesses create social Close monitoring and patronage is
change through economics is the core of given to ensure that entrepreneurs
development banking. DFCC Bank as a are utilising all available resources to
specialised development bank finances increase innovation, competitiveness
business related activities. Entities and productivity.
utilise this investment to create products

55
DFCC Bank Annual Report 2009/10
Sustainability
Report
Reports

Corporate Social Responsibility

In the past, DFCC Bank has been Inspired by the Japanese, it was decided Volunteer Involvement
associated with many one-off projects to introduce the ‘5S’ management
in the sphere of education. However, system to primary school children who Going beyond the general practice of
as a leading corporate, there was a will better absorb the principles and a corporate that would stop at funding
growing need for the Bank to invest in a grow to be more organised citizens and such an initiative, DFCC Bank extended
community development project that was form a more efficient work-force. its involvement to this project in a unique
not only sustainable but would leave a way by having 240 volunteers from
lasting impression on the community. In 2009, schools from around the DFCC Bank as well as its subsidiary
country were selected to carry out this DFCC Vardhana Bank. Collectively,
programme, which was designed to they have invested over 3,000 volunteer

Education with a prepare young children cope with the hours to this initiative. Even though
the service of a consultant was used
Difference challenges of the future. It encompassed
teacher training and parent guidance to guide school staff, these volunteers
DFCC Bank’s year long project in as well. from the Bank who were working with
collaboration with the Ministry of the schools to creatively implement the
Education to empower young minds The implementation was on theoretical programme made the difference. DFCC
with knowledge and enable them to and practical application of the ‘Five-S’ Bank also saw this involvement as being
increase efficiency and productivity, was principles with an added ‘S’ for creating beneficial to its staff in terms of practical
successfully concluded with outstanding awareness on ‘Safety’. It also included training in teamwork and leadership.
performances by participating guidance on the ‘3R’ (Reduce, Reuse,
schools. Like lotuses blooming from Recycle) principles on environment Another unique aspect of this project
the murky depths of a muddy pond, it stewardship. was that the resource provider
was truly inspirational to witness the presented only the guideline as to how
transformation of these students and The Bank engaged a ‘5S’ expert who these management principles should
their respective schools. had extensive experience working with be implemented and the schools were
children to train and guide schools in evaluated on how innovative they had
During the many years of project the implementation of the programme. been in implementing the system in their
lending activity the Bank has observed Thereafter, students and teachers were respective schools.
that productivity levels in Sri Lankan encouraged to practice the disciplines.
enterprises are generally low. A key
reason is the lack of an organised
environment, which promotes efficiency.

56
DFCC Bank Annual Report 2009/10
Changing Attitudes Outstanding Results This was a major challenge faced by
the project team. There was a need to
The success of this project was At the end of 2009, a panel of judges break these barriers and drive change
dependent on the attitudes of students, ranked the schools. A dramatic amongst the parties involved.
principals and teachers. It is understood transformation was seen since the
that people are generally resistant to adoption of Six-S principles. The This was partly addressed by the way
change. Moving away from the old classrooms were better organised and the project was implemented. It was a
and learning new ways of doing things the surrounding areas cleaner. The collective effort by both the school as
was the key to implementing ‘5S’ in judges’ ratings showed that 90% of the well as the volunteer teams of DFCC
the classrooms. To effect a change selected schools scored well above the and DFCC Vardhana Bank. However,
in attitudes, DFCC Bank organised a set standard. an important step taken was to conduct
number of workshops and seminars for seminars and workshops for respective
principals and teachers who were driving Zonal Education Directors and Principals
this project in their respective schools. as well as teachers who gave leadership
to their respective ‘Quality Circles’
in these schools. The seminars and
Environmental workshops were conducted by a veteran

Stewardship in the field of change management in

the Public Sector.
As a further extension to this project of
implementing '6S' and '3R' principles, The Principals and Zonal Directors were
the Bank educated the students of these addressed on the topic of Leadership
schools the principles of environmental development and team building, which
stewardship and waste management. are key aspects of driving change.
During Vesak, which is a religious festival The principal and teachers of Udubadalawa
Sudharshana Maha Vidyalaya Kurunegala.
Teachers were addressed on teamwork
for Buddhists, a competition was held The winner of the award for the best and collective problem solving which
implementation in the ‘6S’ programme.
in schools to build lanterns and other were considered useful traits in facing
decorations using eco-friendly material. challenges in implementing new projects.
This helped children grasp the concepts
of 3R in an interesting manner. There Overcoming Challenges
was also a campaign to involve students
Changing the Mindset
in planting trees at the school premises
to mark the World Environment Day. The project was implemented in steps
over a period of time where the progress
was gradual. These steps involved
changing conventional methods to more
organised and effective work practices.
The process calls for a dramatic change
in the attitudes and mindset of the
principals and teachers who drove the
project in schools. At times, attempts
by school staff to change procedures Changing the mindset is the core of
were discouraged by the administration. change management. principals and
teachers of schools attend a workshop on
leadership and team building.

Students of Thalpawila Mihindu Model

School - Matara learning to care for the
Environment.

Corporate Social Responsibility | DFCC Bank Annual Report 2009/10

57
Parent Involvement Financing the Project Infrastructure Development
Since young minds easily grasp Funding for such long-term initiatives
in Schools
change, the focus of the project was is a major issue that schools face. With Focusing on enriching the school
on the primary students. However, dwindling finances, enthusiasm fades environment, DFCC Bank identified
the drawback was that these students and these projects generally end up in infrastructure development requirements
did not have the capacity to perform failure. Foreseeing this, DFCC Bank of a number of schools in the country
the physical change needed in school began a ‘matching grant’ scheme tied during 2009. One such school was St.
infrastructure. With limited number of to the 'Six-S' implementation. Under the Anne’s College- Kurana, which regularly
staff, the schools could not commit scheme, schools were asked to design felt the effect of floodwaters. Even in
enough manpower for labour-intensive and implement fund raising initiatives to a light rain shower the well maintained
efforts. As a result, the principal and cover their implementation expenses. garden and classrooms were often
teachers had to rely on parents of The funds raised were matched by inundated. The principal, staff and the
students to help the school for the DFCC Bank. Schools came up with students were constantly preparing
benefit of their children. many creative fundraising initiatives and themselves to deal with flood conditions.
moreover, the realisation that they could Seeing their plight DFCC Bank decided
However, this was not an easy task as do similar projects in the future ensures to support the school with the installation
many parents already had obligations the sustainability of the programme in of a drainage system within the school
to their workplaces and livelihoods. the years ahead. premises to manage flooding at a
Especially in the outstations where cost of Rs350,000.
many parents endured hardship making Going Forward
a daily living, it was a tough challenge Most of the schools located in the North
Encouraged by the outcome and with
to gain their commitment. DFCC Bank and the East have ended up as ruins
learning from the 2009 project, it was
and schools worked together in many as a result of hostilities, which affected
decided to give the opportunity to another
different ways get their voluntary the day-to-day life of civilians as well as
group of schools to join the programme.
contribution for the betterment of their school children. In its larger commitment
It is worthwhile to note that this group
child’s school. to support the North and the East,
includes two schools from Batticaloa,
DFCC Bank has already identified
an area that the conflict had rendered
The consultant engaged by DFCC Bank schools in Jaffna and Vavuniya districts
underdeveloped and distant. Being the
on this project was a well known public to develop infrastructure facilities
first of its kind, this Corporate Social
figure and that inspired many parents necessary to deliver quality education to
Responsibility initiative is something
to take part in the programme. Further, students in the region.
that the Bank would encourage other
the image of the Bank as a respected Corporates to do as well, since there
financial entity put the parents at ease are 10,000 schools around the country
and drew them to the project. eagerly awaiting opportunities to
transform themselves and in the process
However, the major contribution was the transform Sri Lanka’s future.
superficial transformation of the schools
witnessed by parents in their occasional
visits, which inspired them to engage
more in helping the teachers with the
implementation of 'Six S'.

Teachers from selected schools attended

a series of change management seminars
and workshops.

58
DFCC Bank Annual Report 2009/10 | Corporate Social Responsibility
Sustainability
Report
Reports

Human Capital

DFCC Bank continues to regard its pool The HR functions of our subsidiary, DFCC enhancement. Individual development
of human capital as a key component in Vardhana Bank Ltd (DVB) continued to needs were identified through the
fulfilling its mission of providing superior be centrally managed by the HR Division Bank’s training needs analysis process,
and state-of-the-art financial services of DFCC Bank. With its expansion via encompassing several feedback
and solutions to its varied clients new branches and extension offices mechanisms such as performance
engaged in nurturing enterprises within housed at Sri Lanka Post locations, 166 evaluations, individual development
Sri Lanka. In this endeavour, the Bank new staff members were recruited to DVB plans and discussions with business
continues to refine its selection process increasing the total staff strength to 492 heads on specialised job-based skill
to attract talent demonstrating the ‘best as at the 31 March 2010. enhancement requirements. This
fit’ to the organisation and its culture. process led to the formulation of a
We continue to accord high priority to To build capacity within the DFCC broad annual training plan for both
developing our staff so that they are Group on all aspects of commercial DFCC Bank and DVB. Based on this
equipped with the required attributes banking, DFCC Bank continued with plan, employees were given access to
and competencies not only to sustain programmes for secondments and job development interventions, both locally
the Bank but also to propel it forward in rotations by providing such opportunities and overseas.
a continuously challenging environment. at DVB for 20 staff members of DFCC
Bank. In addition to these capacity The Bank provided 18,824 man-hours
building initiatives, both DFCC Bank of training, reflecting an increase of

Recruiting the and DVB recruited a few individuals 14% over the comparable period of the

Best Talent with required skills and competencies previous year and translating to about
at senior executive level to complement 45 hours of training on average per
The challenge posed in previous years the knowledge pool currently available employee. The total training provided to
on recruiting employees with the ‘best at both Banks. This will be continued in
fit’ to the Bank continued into 2009/10. the current year as well with a view of
Considering the downturn in the global building the required expertise within
economy and its consequences on Sri the Banks.
Lanka, the Bank continued with its policy
of keeping incremental staff numbers
to an essential minimum. As a result, Enhancing Knowledge
as at 31 March 2010 total staff strength
and Building Skills
amounted to 427, an increase of less
through Training and
than 3% over the previous year, a
commendable achievement, considering
Development
the expansion of the Bank’s branch Despite the difficult external
network with the opening of three new conditions prevailing during the period
branches in the North and the East. under review, DFCC Bank made a
conscious effort not to compromise
on staff development and capacity

59
DFCC Bank Annual Report 2009/10
DVB staff increased by 80% to 23,048 Building an Interactive The branch of the Toastmasters
man-hours, reflecting over 52 hours club provided its members with
Culture
of training on average per employee. the opportunity to acquire public
Specialised job-based capacity The Bank is committed to providing its speaking skills.
building interventions focused on risk staff with a healthy work-life balance
management, treasury operations, so that individuals have opportunities The HR function of DFCC Bank has
banking operations, project financing, to develop not only professionally but made significant progress over the past
rehabilitation and restructuring. With also personally. In addition to helping few years and has put in place policies,
the assistance of a donor agency, we employees acquire the knowledge guidelines and processes required to
were able to obtain the services of and skills required to perform in maintain a sustainable talent pool for
three reputed international trainers who their respective functional roles, the both DFCC Bank and DVB. We believe
conducted sessions for staff of both Bank also provides many formal and that our stringent recruitment policies,
Banks. We continued to attract bright informal opportunities for them to focused development initiatives,
young talent and develop them through interact with each other outside the continuously improving performance
a structured management trainee office environment. The amalgamated management mechanisms as well
programme comprising on-the-job welfare clubs of DFCC Bank and DVB as focus on fostering a familial and
training with job rotations, technical and are primarily driven by employees supportive working environment will spur
soft skills training interventions, quarterly themselves who organise many DFCC Bank to scale greater heights
performance evaluations and continuous interesting and interactive programmes when operating within a competitive and
assessments. These management which are well patronised by staff at challenging financial environment.
trainees underwent over 200 hours of all levels and their families throughout
classroom training comprising in-house, the year.
external and overseas programmes.

2010 2009 2008 2007 2006

In 2009, we introduced e-learning to
staff of both DFCC Bank and DVB and Income Per Employee (000’s) 20,711 23,884 22,998 16,319 14,403
to-date have successfully launched PBT Per Employee (000’s) 5,627 4,845 4,733 4,420 4,418
a series of job specific and soft skills Assets Per Employee (000’s) 132,122 141,267 151,215 144,409 127,306
modules. The content for these
modules was primarily developed
in-house, utilising extensive internal
expertise available. This initiative has
been positively received by the staff and
is now becoming firmly entrenched as a
viable and accessible learning tool.

Succession Planning
Succession planning is an important task
that is managed by the HR department.
During the year, critical potential internal
successors for mid level management
positions were identified and the
HR department will be launching a
development and coaching program with
the help of external expertise.

60
DFCC Bank Annual Report 2009/10 | Human Capital
Measuring
performance
is an important
step towards
improvement.
When performance
meets potential,
excellence
becomes a reality.

Financial
Report
Statement of Directors’ Responsibilities in
Relation to Financial Statements

The Auditor’s Report sets out the The Directors are responsible for The Directors are in agreement
respective responsibilities of the keeping proper accounting records with the assessment of the Audit
Directors and Auditors relating to the and to take reasonable steps as Committee on the reliability of financial
financial statements and this statement far as practicable, to ensure the reporting system of the Bank and
provides additional information. accuracy and reliability of accounting confirm that the financial statements
records, to enable the preparation of prepared for external use is in
The Directors are required by relevant financial statements. The Directors accordance with relevant accounting
statutory provisions to prepare have a general responsibility to take principles and regulatory requirements.
financial statements for each financial reasonable steps to safeguard the
year which give a true and fair view of assets of the Bank. In discharging As part of institutional checks
the state of affairs of the Bank and the these responsibilities, the Directors and balances and accountability,
Group for that period. The statutory have instituted a system of internal in addition to this Directors’
provisions are in DFCC Bank Act financial controls and a system for Responsibility Statement, the
No. 35 of 1955, read in conjunction monitoring its effectiveness. These Directors have included the Chief
with Banking Act No. 30 of 1988 and provides reasonable but not absolute Executive Officer’s and the Chief
amendments thereto and Companies assurance of safeguarding of the Financial Officer’s Responsibility
Act No. 7 of 2007 to the extent it is Bank’s assets, maintenance of proper Statement on page 63.
applicable to the DFCC Bank. The accounting records and the reliability
application of principal qualitative of financial information. By Order of the Board
characteristics and appropriate
accounting standards and regulatory The Board appointed Audit
requirements inclusive of specific Committee chaired by an
disclosures would result in financial independent non-executive director
statements that convey a true and who possesses qualifications and T Wijemanna
fair view of financial information and experience in accountancy and audit Secretary to the Board
financial position. assists the Directors to discharge
26 May 2010
their responsibility on the integrity
The Directors are satisfied that the of financial reporting system and
Bank and Group have the resources monitoring the effectiveness and
to continue in business for the adequacy of internal control system.
foreseeable future and therefore, This Committee has made an
these financial statements are independent assessment of the
prepared on a going concern basis. financial reporting system of the
Bank and confirmed “that to the
The Directors consider that, best of its knowledge and belief
these financial statements have the financial reporting system of
been prepared using appropriate the Bank has been designed to
accounting policies, consistently provide reasonable assurance on the
applied, and supported by reasonable reliability of the financial statements
and prudent judgment and estimates prepared for external purposes
and in compliance with applicable and is in compliance with relevant
Sri Lanka Accounting Standards. Any accounting principles and regulatory
change to accounting policies requirements”. The report of this
and reasons for such change Committee is in pages 32 to 34.
is disclosed in the “Notes to the
Financial Statements”.

62
DFCC Bank Annual Report 2009/10
Chief Executive Officer’s and Chief Financial
Officer’s Responsibility Statement

The financial statements are prepared of internal control and accounting which these auditors are performing
in compliance with the Sri Lanka records, for safeguarding assets their responsibilities, and to discuss
Accounting Standards issued by the and for preventing and detecting auditing, internal control and financial
Institute of Chartered Accountants frauds as well as other irregularities, reporting issues. To ensure complete
of Sri Lanka, DFCC Bank Act No. 35 which is reviewed, evaluated and independence, the independent
of 1955 as amended, Section 153 updated on an ongoing basis. Our auditors and the internal auditors
of the Companies Act No. 7 of 2007 internal auditors have conducted have full and free access to the
and Banking Act No. 30 of 1988 as periodic audits to provide reasonable members of the Audit Committee to
amended and Directions issued there assurance that the established discuss any matter of substance.
under relating to financial statements policies and procedures of the Bank
formats and disclosure of information. were consistently followed. However,
The accounting policies used in there are inherent limitations that
the preparation of the financial should be recognised in weighing the
statements are appropriate and are assurances provided by any system S Nagarajah
consistently applied, unless otherwise of internal controls and accounting. Executive Vice President (Finance)
stated in the notes accompanying the
financial statements. The financial statements of the Group
and joint venture company were
The Board of Directors and the audited by KPMG Ford, Rhodes,
Management of the Bank accept Thornton & Co. (KPMG FRT). A N Fonseka
responsibility for the integrity National Asset Management Limited Ex-Officio Director & Chief Executive
and objectivity of these financial an associate company is also audited
statements. The estimates and by KPMG FRT. Commercial Bank Colombo
judgments relating to the financial of Ceylon PLC, another associate 26 May 2010
statements were made on a prudent company, is audited by Ernst & Young
and reasonable basis, in order that (EY). All the auditors are Chartered
the financial statements reflect in Accountants and independent auditors.
a true and fair manner, the form
and substance of transactions, The Audit Committee of the Bank
and reasonably present the Bank’s meets periodically with the internal
state of affairs. To ensure this, auditors and the independent
the Bank has taken proper and auditors to review the manner in
sufficient care in installing a system

63
DFCC Bank Annual Report 2009/10
Independent Auditor’s Report

TO THE SHAREHOLDERS OF Scope of Audit and Basis of Opinion financial statements give a true and
DFCC BANK Our responsibility is to express an fair view of the Bank’s state of affairs
Report on the opinion on these financial statements as at March 31, 2010 and its profit
Financial Statements and cash flows for the year then
based on our audit. We conducted our
We have audited the accompanying ended in accordance with Sri Lanka
audit in accordance with Sri Lanka
financial statements of DFCC Bank Accounting Standards.
Auditing Standards. Those standards
(“Bank”), the consolidated financial
require that we plan and perform the
statements of the Bank and its In our opinion, the consolidated
audit to obtain reasonable assurance
subsidiaries as at that date which financial statements give a true and
whether the financial statements are
comprise the balance sheet as at fair view of the state of affairs as
free from material misstatement.
March 31, 2010, and the income at March 31, 2010 and the profit
statement, statement of changes in and cash flows for the year then
An audit includes examining, on
equity and cash flow statement for the ended, in accordance with Sri Lanka
a test basis, evidence supporting
year then ended, and other explanatory Accounting Standards, of the Bank
the amounts and disclosures in the
notes as set out on pages 65 to 120 of and its subsidiaries dealt with thereby,
financial statements. An audit also
this Annual Report. so far as concerns the members of
includes assessing the accounting
principles used and significant the Bank.
Management’s Responsibility for
the Financial Statements estimates made by management, as
well as evaluating the overall financial Report on Other Legal and
Management is responsible for the Regulatory Requirements
statement presentation.
preparation and fair presentation
These financial statements also
of these financial statements in
comply with the requirements of the
We have obtained all the information
accordance with Sri Lanka Accounting
DFCC Bank Act No. 35 of 1955 and
and explanations which to the best
Standards. This responsibility
Section 153 (2) to 153 (7) of the
of our knowledge and belief were
includes: designing, implementing
Companies Act No. 07 of 2007 and
necessary for the purposes of our
and maintaining internal control
present the information required by
audit. We therefore believe that our
relevant to the preparation and
the Banking Act No. 30 of 1988.
audit provides a reasonable basis for
fair presentation of financial
our opinion.
statements that are free from material
misstatement, whether due to fraud
Opinion
or error; selecting and applying
In our opinion, so far as appears from
appropriate accounting policies; and
our examination, the Bank maintained Chartered Accountants
making accounting estimates that are
proper accounting records for the 26th May 2010
reasonable in the circumstances.
year ended March 31, 2010 and the Colombo.

64
DFCC Bank Annual Report 2009/10
Income Statement

BANK GROUP
For the year ended 31 March 2010 2009 2010 2009 * Variance
Notes Page No. Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Income 10 83 8,843,452 9,887,897 13,085,852 13,416,193 (330,341)

Interest income 11 83 7,416,335 8,528,857 11,793,481 11,998,933 (205,452)

Interest expense 12 83 4,224,044 5,623,964 6,595,929 7,761,960 (1,166,031)
Net interest income 3,192,291 2,904,893 5,197,552 4,236,973 960,579
Other income 13 84 1,427,117 1,359,040 1,292,371 1,417,260 (124,889)
Operating income 4,619,408 4,263,933 6,489,923 5,654,233 835,690

Personnel expenses 574,896 544,167 1,024,916 895,435 129,481

Provision for staff retirement benefits 14 84 139,961 163,822 186,857 203,217 (16,360)
Premises, equipment and
establishment expenses 246,758 241,636 613,880 534,982 78,898
Other overhead expenses 240,718 241,149 568,818 478,766 90,052
Bad and doubtful debts - specific 15 87 332,729 326,443 559,644 571,688 (12,044)
- general 16 87 22,996 172,502 29,652 214,470 (184,818)
Investment - impairment losses 17 88 0 11,303 0 41,303 (41,303)
Operating expenses 18 88 1,558,058 1,701,022 2,983,767 2,939,861 43,906

Operating profit before value added tax 3,061,350 2,562,911 3,506,156 2,714,372 791,784
Value added tax on financial services 658,673 556,988 840,415 658,058 182,357
Operating profit before income tax 2,402,677 2,005,923 2,665,741 2,056,314 609,427
Share of profits of associates** 0 0 1,085,261 1,066,101 19,160
Profit before tax 2,402,677 2,005,923 3,751,002 3,122,415 628,587
Income tax expense 19 88 689,441 646,050 1,067,232 1,054,844 12,388
Profit for the year 1,713,236 1,359,873 2,683,770 2,067,571 616,199
Attributable to:
Equity holders of the parent 2,579,972 2,044,706 535,266
Minority interest 103,798 22,865 80,933
Profit for the year 2,683,770 2,067,571 616,199
Earnings per share - Basic, Rs 20 89 12.97 10.41 19.53 15.65 3.88
- Diluted, Rs 12.97 No dilution 19.53 No dilution –
Dividend per share (Proposed) Rs 6.00 5.00 6.00 5.00 1.00

Notes from pages 70 to 120 form part of these financial statements.

* Current year minus, previous year - Group.

** After tax and minority interest.

65
DFCC Bank Annual Report 2009/10
Balance Sheet

BANK GROUP
As at 31 March 2010 2009 2010 2009
Notes Page No. Rs 000 Rs 000 Rs 000 Rs 000
Assets
Cash and short-term funds 21 90 2,822,033 2,509,971 2,343,650 4,213,984
Balances with Central Bank 22 90 – – 802,076 768,383
Treasury bills and other securities eligible
for rediscounting with Central Bank 23 91 7,651,073 5,905,209 23,740,835 12,650,799
Securities purchased under resale agreements 24 91 913,611 96,000 1,004,055 1,523,823
Placements with and loans to other
banks and financial institutions 25 91 1,834,018 1,454,262 1,834,018 1,352,262
Dealing securities 26 91 56,355 9,607 56,355 17,033
Assets held for sale 27 92 0 0 2,875 0
Bills of exchange discounted 28 92 0 0 325,886 326,171
Loans and advances 29 92 30,466,918 33,892,706 44,305,123 48,491,281
Finance leases 30 93 3,465,730 4,804,430 3,465,730 4,804,430
Interest receivable 31 94 411,389 603,289 238,223 682,228
Investment securities 32 94 1,998,527 1,918,420 2,001,137 2,394,435
Investment in associate companies 33 99 3,187,229 3,187,229 7,818,997 7,160,671
Investment in joint venture 34 100 250,000 250,000 0 0
Investment in subsidiary companies 35 100 2,408,320 2,627,167 0 0
Group balances receivable 36 100 36,121 36,325 150 0
Prepayments 23,853 13,812 23,853 13,812
Income tax refund receivable 37 100 0 1,980 1,682 14,396
Investment property 38 100 6,500 6,500 132,641 141,215
Goodwill on consolidation 39 101 0 0 156,225 146,602
Property, plant and equipment 40 101 375,558 427,697 784,219 803,040
Intangible assets 41 102 49,979 45,942 160,034 169,482
Deferred tax asset 42 102 0 0 806 0
Other assets 43 103 458,871 694,153 1,337,491 1,323,394
Total assets 56,416,085 58,484,699 90,536,061 86,997,441
Liabilities
Deposits from customers 44 103 5,123,657 5,308,440 25,503,685 23,575,344
Borrowing - Medium and long-term 45 103 28,715,376 28,979,442 28,715,376 28,979,442
- Short-term 46 104 115,000 3,029,871 6,646,231 6,737,096
Debentures 47 104 2,700,000 2,700,000 2,700,000 2,700,000
Group balances payable 48 104 151 0 0 0
Interest accrued 1,081,782 1,192,127 1,590,653 1,648,996
Current tax liability 199,786 0 307,836 220,576
Deferred tax liability 49 104 271,144 285,194 319,412 290,597
Other liabilities 50 105 486,365 498,781 1,379,082 1,152,212
Subordinated debentures 51 107 2,000,000 2,000,000 2,000,000 2,000,000
40,693,261 43,993,855 69,162,275 67,304,263
Equity
Share capital 52 107 1,323,753 1,307,325 1,323,753 1,307,325
Share premium 3,371,911 3,207,818 3,375,410 3,260,011
Stated capital 53 108 4,695,664 4,515,143 4,699,163 4,567,336
Reserves 54 108
Reserve fund 655,000 565,000 961,929 801,539
Other reserves 9,379,839 8,637,839 13,209,690 11,841,788
Retained earnings 992,321 772,862 2,075,577 1,841,264
Shareholders’ Equity 15,722,824 14,490,844 20,946,359 19,051,927
Minority interest 55 109 0 0 427,427 641,251
Total equity 15,722,824 14,490,844 21,373,786 19,693,178
Total equity and liabilities 56,416,085 58,484,699 90,536,061 86,997,441
Commitments and contingencies 56 109 9,520,695 7,833,247 18,953,920 14,859,140
Net asset value per share, Rs 119.03 110.90 158.58 145.81
Notes from pages 70 to 120 form part of these financial statements.
I confirm that to the best of my knowledge and belief these financial statements comply with the requirements in the Companies Act No. 07 of 2007
relating to group financial statements that are applicable to DFCC Bank.

S Nagarajah
Executive Vice-President (Finance)
For and on behalf of the Board of Directors,

J M S Brito A N Fonseka
Chairman Ex-Officio Director & Chief Executive
Colombo
26 May 2010

66
DFCC Bank Annual Report 2009/10
Statement of Changes in Equity

For the years ended 31 March

Share Share Reserve Other Retained Total
capital premium fund reserves earnings equity
Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Bank
Balance as at 31.03.2008 1,301,956 3,184,145 495,000 7,982,043 792,448 13,755,592
Profit for the year – – – – 1,359,873 1,359,873
Transfers from current earnings – – 70,000 655,796 (725,796) –
Final dividends approved on 30.06.2008 – – – – (653,663) (653,663)
Issue of shares under share option scheme 5,369 23,673 – – – 29,042
Balance as at 31.03.2009 1,307,325 3,207,818 565,000 8,637,839 772,862 14,490,844
Profit for the year – – – – 1,713,236 1,713,236
Transfers from current earnings – – 90,000 742,000 (832,000) –
Final dividends approved on 30.06.2009 – – – – (661,777) (661,777)
Issue of shares under share option scheme 16,428 165,210 – – – 181,638
Share issue expenses written off – (1,117) – – – (1,117)
Balance as at 31.03.2010 1,323,753 3,371,911 655,000 9,379,839 992,321 15,722,824

Attributable to the equity holders of the Bank

Share Share Reserve Other Retained Total Minority Total
capital premium fund reserves earnings interest equity
Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Group
Balance as at 31.03.2008 1,301,956 3,236,338 674,120 10,546,863 1,923,213 17,682,490 605,691 18,288,181
Deferred tax effect on revaluation surplus
on property - associate company – – – 1,337 – 1,337 – 1,337
Deferred tax on reclassification of revaluation
surplus to retained earnings - associate company – – – – 4,892 4,892 – 4,892
Surplus on revaluation property - associate company – – – 10,574 – 10,574 – 10,574
Temporary diminution value of investments – – – – (143) (143) (103) (246)
Net unrealised gains from translation of Bangladesh
operation of associate company – – – 17,673 – 17,673 – 17,673
Net income recognised directly in equity – – – 29,584 4,749 34,333 (103) 34,230
Profit for the year – – – – 2,044,706 2,044,706 22,865 2,067,571
Total recognised income and
expenses for the period – – – 29,584 2,049,455 2,079,039 22,762 2,101,801
Transfers – – 127,419 1,265,341 (1,392,760) – – –
Final dividends approved on 30.06.2008 – – – – (653,663) (653,663) – (653,663)
Dividend distributed to minority interest by subsidiaries – – – – – – (62,187) (62,187)
Issue of shares under share option scheme 5,369 23,673 – – – 29,042 – 29,042
Minority Interest on acquisition on Joint Venture – – – – – – 74,985 74,985
Disposal of subsidiary – – – – (84,981) (84,981) – (84,981)
Balance as at 31.03.2009 1,307,325 3,260,011 801,539 11,841,788 1,841,264 19,051,927 641,251 19,693,178
Reversal of temporary dimunition in value of investments -
Lanka Ventures PLC – – – – 3,996 3,996 2,854 6,850
Net unrealised losses from Bangladesh translation -
associate company – – – (2,612) – (2,612) – (2,612)
Net income recognised directly in equity – – – (2,612) 3,996 1,384 2,854 4,238
Profit for the year – – – – 2,579,972 2,579,972 103,798 2,683,770
Total recognised income and
expenses for the period – – – (2,612) 2,583,968 2,581,356 106,652 2,688,008
Transfers – – 160,610 1,370,719 (1,531,329) – – –
Transfer of Reserves Consequent to Liquidation -
associate company – – (220) – 220 – – –
Final dividends approved on 30.06.2009 – – – – (661,777) (661,777) – (661,777)
Dividend distributed to minority interest
by subsidiaries – – – – – – (814) (814)
Issue of shares under share option scheme 16,428 165,210 – – – 181,638 – 181,638
Share issue expenses written off – (1,117) – – – (1,117) – (1,117)
Disposal of subsidiary - joint venture company – – – – 313 313 – 313
Disposal of subsidiary - Lanka Ventures PLC - Note (a) – (48,694) – (205) (157,082) (205,981) (319,662) (525,643)
Balance as at 31.03.2010 1,323,753 3,375,410 961,929 13,209,690 2,075,577 20,946,359 427,427 21,373,786

Note (a)
Rs 000

Deemed disposal of subsidiary - Lanka Industrial Estates Limited (LINDEL) (9,163)

Additional share investment in LINDEL 6,560
Disposal of subsidiary - Lanka Ventures PLC (317,059)
319,662

67
Notes from pages 70 to 120 form part of these financial statements.

DFCC Bank Annual Report 2009/10

Cash Flow Statement

BANK GROUP
For the year ended 31 March 2010 2009 2010 2009
Rs 000 Rs 000 Rs 000 Rs 000

Cash flow from operating activities

Interest receipts 6,308,028 7,474,164 8,953,245 10,317,161
Interest payments (4,334,101) (5,481,414) (6,828,902) (7,467,568)
Recoveries on loans previously written-off 147,588 117,942 147,588 117,942
Receipts from other operating activities 140,004 340,818 432,050 3,330,916
Cash payments to employees and suppliers (1,061,502) (1,202,457) (1,980,934) (4,631,819)
Value added tax (662,361) (570,646) (855,811) (665,419)
Operating profit before changes in operating assets and liabilities 537,656 678,407 (132,764) 1,001,213
(Increase)/decrease in operating assets:
Deposits held for regulatory or monetary control purposes 0 0 (33,693) (157,082)
Funds advanced to customers 3,230,210 4,790,127 4,846,374 1,315,304
Others 156,183 494,039 466,549 324,030
Increase/(decrease) in operating liabilities:
Security deposits from customers (254) 0 369 4,288
Deposits from customers (172,478) 196,788 1,963,177 7,071,315
Negotiable certificates of deposit (12,305) 135 (34,837) 51,388
Net cash flow from operating activities before income tax 3,739,012 6,159,496 7,075,175 9,610,456
Income tax paid (387,353) (657,906) (663,344) (778,376)
Income tax refund receivable 0 (1,980) 0 (14,396)
Net cash from operating activities 3,351,659 5,499,610 6,411,831 8,817,684
Cash flow from investing activities
Dividends received 685,108 707,875 708,889 652,398
Interest received 1,169,251 860,319 2,741,157 1,349,666
Treasury bills eligible for rediscounting with Central Bank (1,745,864) 514,731 (8,277,803) (2,056,632)
Proceeds from sale and redemption of securities 613,758 789,654 649,877 1,724,759
Purchase of securities (552,743) (919,394) (603,743) (1,017,153)
Investment in joint venture - Acuity Partners Limited 0 (150,000) 0 0
Disposal of subsidiary shares - Lanka Ventures PLC 521,993 0 0 0
Disposal of subsidiary shares - by joint venture company 0 0 42,337 0
Investment in additional shares in subsidiaries - DFCC Vardhana Bank Limited 0 (23) 0 (23)
Purchase of additional shares of subsidiaries - Lanka Industrial Estates Limited (18,753) 0 (18,753) 0
Purchase of property, equipment, intangibles and investment property (56,524) (105,082) (219,687) (299,117)
Proceeds from sale of equipment and investment property 1,678 687 2,593 743
Net cash effect on disposal of subsidiary - DFCC Stockbrokers (Pvt) Limited 0 0 0 (74,335)
Net cash effect on investment in joint venture - Acuity Partners (Pvt) Limited 0 0 0 12,440
Net cash effect on disposal of subsidiaries - Lanka Ventures PLC 0 0 456,215 0
Net cash from/(used in) investing activities 617,904 1,698,767 (4,518,918) 292,746
Cash flow from financing activities
Issue of debentures 0 0 0 30,000
Issue of new shares under option 181,638 29,042 181,638 29,042
Share issue expenses (1,117) 0 (1,117) 0
Borrowing, medium and long-term 5,435,214 7,331,802 6,660,929 7,750,216
Other borrowings (2,914,872) (1,112,840) (1,537,859) (1,938,523)
Repayment of borrowing, medium-and long-term (5,699,281) (11,975,648) (5,699,281) (11,975,648)
Dividends paid (659,083) (651,075) (659,795) (718,671)
Net cash flow used in financing activities (3,657,501) (6,378,719) (1,055,485) (6,823,584)
Net increase in cash & cash equivalents 312,062 819,658 837,428 2,286,846
Cash & cash equivalents/(overdraft - net) at the beginning of period 2,509,971 1,690,313 6,162,307 3,875,461
Cash & cash equivalents at the end of period 2,822,033 2,509,971 6,999,735 6,162,307
Reconciliation of cash & cash equivalents
Cash & short-term funds - Note 21 2,822,033 2,509,971 2,343,650 4,208,584
Placements with & loans to banks & financial institutions - Note 21 0 0 0 5,400
Treasury bills & other securities eligible for rediscounting with Central Bank - Note 23 0 0 4,678,191 1,950,080
Borrowings short-term - Bank overdrafts - Note 46 0 0 (22,106) (1,757)
2,822,033 2,509,971 6,999,735 6,162,307

The cash flow statement of the Bank includes the results of associate, joint venture and subsidiary companies only to the extent of the cash
flows between Bank and respective companies as required by Sri Lanka Accounting Standards.
Comparative figures have been restated to confirm to the period ended 31 March 2010 classification.
Notes from pages 70 to 120 form part of these financial statements.

68
DFCC Bank Annual Report 2009/10
Note a
Reconciliation of profit for the year to net cash from operating activities

BANK GROUP
For the year ended 31 March 2010 2009 2010 2009
Rs 000 Rs 000 Rs 000 Rs 000

Profit for the year 1,713,236 1,359,873 2,579,972 2,044,706

Deduct: Dividend transferred to investing activities (665,814) (715,709) (264,037) (318,355)
1,047,422 644,164 2,315,935 1,726,351
Add/(deduct) items not using/(providing) cash:
Depreciation - Property, plant and equipment and investment property 90,230 93,066 192,258 172,278
Amortisation - Intangible assets 14,233 30,517 61,643 70,230
Gains on sale of investment securities (145,274) (121,386) (150,242) (177,909)
Gain from marked to market on dealing securities (42,596) 8,883 (42,596) 20,170
Gain on sale of equipment and investment property (1,514) (286) (1,152) (108)
(Gain)/loss on deemed disposal of associate companies' shares 0 0 1,911 (130)
Notional tax credit on treasury bills and bonds (114,372) (85,702) (275,872) (136,902)
Share of profits of associates 0 0 (1,085,261) (1,066,101)
Bad and doubtful debts 355,725 498,945 589,296 786,158
Investments - impairment losses 0 11,303 0 41,303
Gain on disposal of subsidiary (284,393) (84,981) (142,197) (42,491)
Gain on disposal of subsidiary - by Joint Venture Company 0 0 (26,309) 0
Minority interests 103,798 22,865
Increase in accounts receivables (993,870) (955,791) (2,652,475) 1,005,550
Decrease in account payables (77,376) (6,372) (88,735) (2,474,896)
Increase/(decrease) in income tax payable 316,138 (46,427) 375,879 152,924
Increase in income tax refund receivables 0 (1,980) 0 (14,396)
Increase/(decrease) in deferred tax ( 14,050) 34,571 28,009 123,544
Increase/(decrease) in operating assets 3,386,394 5,284,165 5,279,234 1,482,253
Increase/(decrease) in operating liabilities (185,038) 196,921 1,928,707 7,126,991
Net cash from operating activities 3,351,659 5,499,610 6,411,831 8,817,684

Note b
Net cash effect on disposal of subsidiary - Lanka Ventures PLC (LVL) on 18 January 2010
Rs 000

Sale proceeds 521,993

Disposal of cash and cash equivalent in LVL (65,778)
Net cash inflow from disposal 456,215

Reconciliation with net assets of subsidiary disposed

Cash and cash equivalents 65,778
Loans and advances 105
Investment securities 447,122
Other assets 253,752
Property, plant & equipment 620
Total assets 767,377
Liabilities (6,737)
Net assets 760,640
Attributable to minority interest in LVL (317,059)
Attributable to equity holders of the Bank 443,581
Consolidated profit on sale 78,412
Sale proceeds 521,993

Reconciliation of consolidated profit on sale

Sale proceeds 521,993
Cost of investment 237,600
Profit on disposal in separate financial statements of the Bank 284,393

Comprising:
Post acquisition undistributed profit of LVL on 18 January 2010 205,981
Premium over net assets realised on sale 78,412
284,393

Notes from pages 70 to 120 form part of these financial statements.

Cash Flow Statement | DFCC Bank Annual Report 2009/10

69
Notes on the Financial Statements

1. Reporting Entity Synapsys Limited. Lanka Ventures Commercial Bank of Ceylon PLC
DFCC Bank (“Bank”) is a limited PLC ceased to be a subsidiary on 18 Commercial banking.
liability public company incorporated January 2010 consequent to transfer
National Asset Management Limited
and domiciled in Sri Lanka. It was of its voting shares held by the Bank
Fund management.
incorporated in 1955 under DFCC to Acuity Partners (Pvt) Limited a joint
Bank Act No. 35 of 1955. The Head venture company of DFCC Bank and Acuity Partners (Pvt) Limited

Office is situated at 73/5, Galle Road, Hatton National Bank PLC. Investment company and providing

Colombo 3. financial services.

The Bank has two associate
The Bank was incorporated under companies viz., Commercial Bank There were no significant changes in

DFCC Bank Act No. 35 of 1955 of Ceylon PLC and National Asset the nature of the principal activities

and therefore there was no Management Limited. of the Bank and the Group during the

requirement to register under the financial year under review.

Companies Ordinance at the time Total employee population of the

Bank and the Group on 31 March 2. Basis of Preparation
of incorporation. Consequently,
2010 was 427 and 1,047 respectively. 2.1 Statement of Compliance
the address of the Head Office is
with Sri Lanka Accounting
not registered with the Registrar of (31 March 2009 - 419 and 950
Standards
Companies. respectively)
The financial statements have been
prepared in compliance with relevant
Section 487 (2) of the Companies 1.1 Principal Activities
Sri Lanka Accounting Standards
Act No. 7 of 2007 requiring existing A summary of principal activities
adopted by the Institute of Chartered
companies to re-register and to obtain of DFCC Bank (the Parent), its
Accountants of Sri Lanka.
a new company number does not subsidiary companies, associate
apply to DFCC Bank. companies and joint venture company
2.2 Approval of Financial
is as follows: Statements by Directors
Section 6 (c) of the Companies DFCC Bank The financial statements are
Act No. 7 of 2007 requiring a limited Financial products and services to authorised for issue by the Board of
company which is a listed company to industrial, agricultural and commercial Directors on 26 May 2010.
have the words public limited company enterprises in Sri Lanka.
or the abbreviation PLC added to 2.3 Consolidated and Separate
its name does not apply to the Bank DFCC Consulting (Pvt) Limited Financial Statements
which continues with the description Technical, financial and other DFCC Bank as the Parent of
DFCC Bank given in Section 2 (1) (b) professional consultancy services in subsidiaries under its control
of DFCC Bank Act No. 35 of 1955, Sri Lanka and abroad. is required to present only the
as amended. Ordinary shares of the DFCC Vardhana Bank Limited consolidated financial statements
Bank are listed in the Colombo Stock Commercial banking. as per Sri Lanka Accounting
Exchange. Standard 26, on ‘Consolidated and
Lanka Industrial Estates Limited
Separate Financial Statements
Leasing of land and buildings for
The Bank does not have a Parent of (Revised 2005)’. In addition to the
industrial enterprises.
its own. consolidated financial statements,
Synapsys Limited separate financial statements are also
The Bank’s Group comprises four Information technology services presented as per Banking Act No. 30
subsidiary companies viz., DFCC and information technology of 1988.
Consulting (Pvt) Limited, DFCC enabled services.
Vardhana Bank Limited, Lanka
Industrial Estates Limited and

70
DFCC Bank Annual Report 2009/10
2.4 Basis of Measurement The following disclosures relate The pension scheme is closed to
The consolidated and separate to judgments and future oriented new entrants recruited on or after 1
financial statements of DFCC Bank estimates that have the most May 2004 and the basic pension and
are presented in Sri Lankan Rupees, significant effect on the amount the survivor pension amount is frozen
the functional and presentation recognised in the financial statements. on the date of cessation of tenured
currency, rounded to the nearest employment. These risk mitigation
thousand and, unless otherwise stated 2.7.2 Judgments and the strategies together with annual
Financial Impact
herein, have been prepared under the actuarial valuation and review of
The classification of investment key assumptions tend to reduce
historical cost convention. Exceptions
securities is based on the positive the probability that the actual results
to the historical cost convention of
intention of the management and will be significantly different from
accounting relate to dealing and
the financial capacity to hold certain the estimate.
investment securities. In the separate
investments to maturity. In the event
financial statements of the DFCC
of a change of intention evidenced by 2.7.3.3 End of Service Statutory
Bank, the investments in associates,
management action of active trading, Gratuity Liability
subsidiaries and joint venture
such investments are transferred to The estimation of this liability,
company are accounted on the basis
Dealing securities, which represents which is not funded, determined by
of direct equity interest rather than on
financial assets held for trading. an independent qualified actuary
the basis of the reported results and
necessarily involves long-term
net assets of the investees.
The classification of these securities assumptions on future changes to
determines the recognition of the salaries, resignations prior to the
2.5 Accrual Basis of Accounting
carrying amount of these financial normal retirement age and mortality of
All revenue and expenses are
assets in the balance sheet with covered employees. Key assumptions
recognised using accrual basis of
a consequential adjustment to the are disclosed in Note 14.6.
accounting with the exception of
reported results.
interest income from non-performing 2.7.3.4 Income Tax
assets and discount on bills of
2.7.3 Accounting Estimates The estimation of income tax liability
exchange; which are recognised only
2.7.3.1 Loan Losses includes interpretation of tax law
on the cash basis.
The assessment of loan loss and judgment on the allowance for
as set out in Notes 15 and 16 losses on individually assessed loans.
2.6 Materiality and Aggregation
involves considerable judgment and The estimation process by the Bank
Each material class of similar items is
estimation. Judgment is required includes seeking expert advice where
presented separately in the financial
firstly to determine whether there are appropriate and the payment of
statements. Items of a dissimilar
indications that a loss may already the income tax liability is on
nature or function are presented
have been incurred in individually self-assessment basis.
separately unless they are immaterial.
significant loans and secondly to
determine the recoverable amount. In the event an additional assessment
2.7 Critical Accounting is issued the additional income tax
Estimates and Judgments
2.7.3.2 Pension Liability and deferred tax adjustment, if any,
2.7.1 General
The estimation of this liability will be recognised in the period in
In the preparation of separate
determined by an independent, which the assessment is issued.
financial statements and consolidated
qualified actuary, necessarily involves
financial statements, the Bank 2.7.3.5 Impairment of Tangible
long-term assumptions on future and Intangible Assets
makes judgments, estimates
changes to salaries, future income
and assumptions that affect the The assessment of impairment
derived from pension assets, life
application of accounting policies in tangible and intangible assets
expectancy of covered employees,
and the reported amounts of assets, includes the estimation of the value
etc. Key assumptions are disclosed in
liabilities, income and expenses. in use of the asset computed at the
Note 14.6.
present value of the best estimates
Estimates and underlying of future cash flows generated by
assumptions are reviewed on an the asset adjusted for associated
ongoing basis. Changes to estimates risks. This estimation has inherent
in a subsequent financial year, uncertainties.
if any, are normally recognised
prospectively. Impairment losses, if any, are charged
to income statement immediately.

71
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
3. Basis of Consolidation Limited included in the consolidation 4. Scope of Consolidation
3.1 General have financial year to 31 March in All subsidiaries have been
The consolidated financial statements common with the Bank. The financial consolidated.
are prepared by consistent application statements of Acuity Partners (Pvt)
of consolidation procedures, which Limited, Commercial Bank of Ceylon 4.1 Subsidiaries
include amalgamation of the PLC, DFCC Vardhana Bank Limited, Subsidiaries are those entities
financial statements of the parent Synapsys Limited included in the controlled by the Bank. Control
and subsidiaries and accounting consolidation have financial year exists when the Bank has the power,
for the investments in associate ending on 31 December 2009. directly or indirectly, to govern the
companies and joint venture company financial and operating policies of
on the basis of reported results and The Group financial statements entities so as to obtain benefits from
net assets of the investee instead for the year ended 31 March 2010 its activities. The financial statements
of the direct equity interest. The include income of Lanka Ventures of subsidiaries are included in the
consolidation of the joint venture PLC for the period ended 18 January consolidated financial statements
company results is on proportionate 2010. The financial statements for from the date that control commences
consolidation method by combining the nine months ended 31 December until the date that control ceases.
Bank’s share of assets, liabilities, 2009 of Lanka Venture PLC were Note 35 contains the financial
income and expenses of the joint subject to negative assurance audit. information relating to subsidiaries.
venture company with the similar
items line-by-line in the financial 3.4 Significant Events and Minority interests in subsidiaries
Transactions during the period
statements of the Bank. between date of Financial are determined on the basis
Statements of the Subsidiaries, of proportionate equity in the
Thus, the consolidated financial Associate Companies and Joint subsidiaries owned by minority equity
Venture Company and the date of
statements present financial holders. The minority interests and
Financial Statement of the Bank
information about the Group as a the interest of the equity holders of
No adjustments to the results of
single economic entity distinguishing the Bank are separately identified in
subsidiaries, associate companies
the equity attributable to the the consolidated income statement
and joint venture company have been
parent and attributable to minority and consolidated balance sheet.
made as they were not significant.
shareholders.
4.2 Associate Companies
3.5 Financial Statements used
3.2 Transactions Eliminated Associate companies are those
for Computation of Goodwill or
on Consolidation
Negative Goodwill on date of enterprises in which the Bank has
Intra-group balances and Acquisition significant influence but not control over
transactions, including income, This is based on unaudited financial the financial and operating policies.
expenses and dividend are eliminated statements proximate to the date of The consolidated financial statements
in full. acquisition. include the Bank’s share of the total
recognised gains and losses of the
Only that portion of the profit, arising 3.6 Taxes on the Undistributed associate companies, on an equity
on sale of Lanka Ventures PLC a Earnings of Subsidiaries,
accounted basis, from the date that
Associate Companies and Joint
subsidiary to Acuity Partners (Pvt) significant influence commences until
Venture Company
Limited, attributable to Hatton National the date that significant influence
The distribution of the undistributed
Bank PLC is recognised in the ceases. Note 33 contains financial
earnings of the subsidiaries, associate
consolidated income statement. information relating to associate
companies and joint venture company
is remote in the foreseeable future. As companies.
3.3 Financial Statements
of Subsidiaries, Associate such, 10% withholding tax applicable
4.3 Joint Venture Company
Companies and Joint on the distribution has not been
Venture Company included recognised as a tax expense in the Joint venture company is an
in the Consolidated Financial incorporated enterprise in which the
financial statements of the Bank and
Statements
the Group. Bank owns 50% of the voting shares
Audited financial statements are with a contractual arrangement with
used. Financial statements of the other company, who owns the
DFCC Consulting (Pvt) Limited, balance 50% of the voting shares, in
Lanka Industrial Estates Limited terms of which both parties have joint
and National Asset Management control over that enterprise.

72
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
5. Principal Accounting 5.1.3 Discount or Premium on 5.1.6 Discount on Bills of
Policies Purchase of Dated Debt Securities Exchange

Accounting policies are the specific The premium or discount is amortised Discount charges on bills of exchange
principles, bases, conventions, rules through the income statement over the discounted are taken to revenue on
and practices applied consistently by period from the date of purchase to the redemption of bills of exchange.
the Bank in presenting and preparing date of maturity.
the financial statements. Changes in 5.1.7 Front-end Fee Income

accounting policies are made only if 5.1.4 Finance Lease Income This arises on loan origination and the
the Sri Lanka Accounting Standards Gross earnings from leases income is recognised on completion
require such change or when a comprising the excess of aggregate of loan documentation.
change results in providing more rentals receivable over the cost of
relevant information. New policies leased asset are allocated over the 5.1.8 Consultancy and Other
Professional Service Income
are formulated as appropriate to new term of the lease commencing with the
month in which the lease is granted, in Recognised as income in the
products and services provided by the
proportion to the declining receivable period in which entitlement to the
Bank or new obligations incurred by
balances. Income of finance leases consideration arises.
the Bank.
included in lease rentals is recognised
5.1.9 Underwriting Commission
5.1 Revenue and Expense on an accrual basis except for finance
Recognition Recognised as income in the
leases classified as non-performing,
period in which entitlement to the
5.1.1 Interest Income based on criteria set out in Direction
Interest receivable is recognised on consideration arises.
No. 4 of 2008 dated 8 May 2008
an accrual basis except for loans as amended by Direction 10 of
5.1.10 Guarantee Fee
and advances classified as non- 2008 dated 30 December 2008 and
Recognised in full in the period in
performing based on criteria set out Direction No. 7 dated 30 December
which guarantees are issued by
in Direction No. 4 of 2008 dated 2009 issued by Central Bank of
the Bank.
8 May 2008 as amended by Direction Sri Lanka on 'Classification of Loans
10 of 2008 dated 30 December 2008 and Advances, Income Recognition
5.1.11 Gains on Sale of Property,
Direction No. 7 of 2009 dated and Provisioning' as amended. Plant and Equipment
30 December 2009 issued by Central
Recognised as income in the period
Bank of Sri Lanka on 'Classification Interest income on non-performing in which the sale occurs.
of Loans and Advances, Income finance leases is accounted on
Recognition and Provisioning' receipt basis. Interest accrued and 5.1.12 Gains on Sale of
as amended. unpaid on non-performing financial Investment Property
leases at the date of classification The difference between the net
Interest income on non-performing is eliminated from the income and disposal proceeds and the carrying
loans and advances is accounted on transferred to lease income in value of the property disposed of,
receipt basis. Interest accrued and suspense. is recognised as income. On part
unpaid on non-performing loans at disposal of an investment property,
the date of classification is eliminated 5.1.5 Dividend Income the carrying value of the entire
from the income and transferred to Interim dividend on shares is property is apportioned to the
interest in suspense. recognised as income in the part sold, in the proportion of the
period in which it is declared by net disposal proceeds to the total
The criteria for classification of loans the Directors and final dividend on market value of the entire investment
and advances as non-performing are shares is recognised as income in property at the time of disposal.
explained in Note 5.2.6. the period in which it is approved
by the shareholders of the investee 5.1.13 Gains on Disposal of Dated
Debt Securities
5.1.2 Notional Tax Credit on company. Dividend income from unit
Interest Income from Treasury Bills
trust is recognised in the period they The difference between net disposal
and Bonds
are declared. proceeds and the carrying amount
Interest income from Treasury Bills and
of the debt securities disposed of is
Bonds is grossed by the addition of the
recognised as income.
tax credit imputed to 10% withholding
tax on discount allowed at the time of
issue. This notional tax credit is 1/9th of
the net interest income.

73
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
5.1.14 Sale and Repurchase 5.1.20 Interest Expense Credit facilities include loans and
Agreements advances and finance leases of
All interest expenses are recognised
Where Treasury Bills/Bonds and in the period in which they are the Bank. The credit facilities of
other corporate debt securities are incurred without any amount the subsidiary commercial bank,
sold subject to a commitment to being capitalised. DFCC Vardhana Bank Limited
repurchase them at a predetermined include loans and advances,
price (‘Repos’) the difference 5.1.21 Allowances for Credit Losses bills discounted and pawning
between sale and repurchase price is Credit losses comprise losses advances.
recognised as other income over the against loans, finance leases, bills
ii. An additional provision to
life of the agreement. of exchange, commercial papers,
recognise difficulties in realisation
trust certificates, promissory notes
5.1.15 Premises Rental Income of collateral or significant
and overdrafts. The estimated losses
impairment of debt service
Rental income is recognised on attributable to these debts are based
capacity of the borrower.
accrual basis. on a continuous review of all such
debts identified as bad or doubtful. 5.1.21.2 General Provision
5.1.16 Marked to Market Gains on
Dealing Securities A general provision of 1% of the
Group makes both general and outstanding balances of performing
Gains or losses on dated dealing debt
specific provisions. and special mention credit facilities
securities and listed ordinary shares
that arise by adjusting the carrying (Note 5.2.7) is maintained as per the
5.1.21.1 Specific Provisions
value of these securities to market direction issued by the Central Bank
Specific provisions are made for the
value are recognised in the income of Sri Lanka on all licensed banks
estimated loss on doubtful loans,
statement. operating in Sri Lanka.
finance leases, bills of exchange,
commercial papers, trust certificates,
5.1.17 Marked to Market Gains on In addition, the Bank has made a
Forward Exchange Contracts promissory notes and overdrafts
general provision of 3% on finance
Gains or losses on trading, open not covered by realisable value
leases, increase from 1% in the
forward exchange contracts that arise of collateral.
previous financial year.
by adjusting the carrying value of the
off-balance sheet forward exchange Specific provision on guarantees 5.1.22 Investment Securities
contracts to market value are issued is made to recognise significant Losses

recognised in the income statement. impairment of the debt service A temporary diminution in value is
capacity of the customer giving rise accounted for as a provision and
5.1.18 Foreign Exchange Income to a constructive obligation prior to a diminution other than temporary
Any exchange gain or loss arising enforcement of guarantee. accounted as a partial or full
from the settlement or translation write-off.
of the Bank’s monetary assets and The specific provision has two
liabilities at rates different from those elements: Diminution other than temporary in
which were initially recorded is dealt i. A minimum statutory provision value of each investment security,
in the income statement. as per the direction issued by is assessed by a combination of
Central Bank of Sri Lanka. This indicators of value including market
5.1.19 Gains on Sale of Subsidiary is on a graduated scale, based value, investee’s assets, results
to Joint Venture Company and the expected cash flow from
on the amount of outstanding
Investment by the Bank in the voting the investment and the prevailing
principal net of realisable security
ordinary shares Lanka Venture PLC market conditions in the Colombo
value (net exposure at risk) as
was sold on 18 January 2010 to Stock Exchange.
given below:
the joint venture company in which
Categories of Minimum provision
Bank owns 50% of the ordinary non-performing
voting shares. The profit on sale credit facilities

being the difference between the Substandard 20% of net exposure

at risk
sale consideration and the cost of
investment was reduced by 50% as a Doubtful 50% of net exposure
at risk
consolidation adjustment.
Loss 100% of net exposure
at risk

74
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
Temporary diminution in value of all 5.1.23.1 Current Tax 5.1.23.3 Social Responsibility Levy
equity securities listed in the Colombo i. Current tax is the expected tax This is 1.5% of the income tax, effective
Stock Exchange is the amount by payable on the profit for the year from 1 January 2008. Previously this
which the aggregate market value adjusted for taxation purposes in was 1%.
of such securities is lower than the accordance with the provisions of
aggregate cost of acquisition, reduced the Inland Revenue Act No. 10 of 5.1.23.4 Value Added Tax
where appropriate by write-off for 2006, as amended by subsequent The value base for value added tax for
diminution other than temporary in legislation. the Bank is the adjusted accounting
value of each security. The market profit before tax and emoluments of
value is based on the price information ii. Current tax expense include any employees. The adjustment to the
on quoted securities published by the adjustment to tax payable in accounting profit before tax is for
Colombo Stock Exchange. respect of previous years. economic depreciation computed on
prescribed rates instead of the rates
Temporary diminution in value of all 5.1.23.2 Deferred Tax adopted in the financial statements.
units purchased from a unit trust, is i. Deferred tax is recognised on This is 20% on the value base for
the amount by which the aggregate temporary differences between value added tax and is a disallowed
market value of such units, is lower the carrying amount of assets and expense deduction for purposes of
than the aggregate cost of acquisition, liabilities in the balance sheet income tax liability.
reduced where appropriate by and the amount attributed to
write-off for diminution other than such assets and liabilities for 5.1.23.5 Withholding Tax on
Dividends distributed by Subsidiaries
temporary in value of each unit. The tax purposes. and Associate Companies
market value is based on the Unit Dividends distributed out of the
Trust Manager’s buying price. Deferred tax liabilities are taxable profit of the subsidiaries
generally recognised for all and associate companies suffer
Temporary diminution in value of taxable temporary differences a 10% deduction at source and
ordinary shares listed in the Colombo and deferred tax assets are is not available for set off against
Stock Exchange and units purchased recognised to the extent it is the tax liability of the Bank. Thus,
from a unit trust are charged against probable that future taxable profit the withholding tax deducted at
the revenue reserves of the Bank. will be available against which source is added to the tax expense
Any subsequent reversal of such deductible temporary differences of the subsidiary company and
diminution in value will be credited to can be utilised. the associated company in the
the revenue reserves in the financial Group financial statements as a
year in which they occur. Deferred tax is calculated using consolidation adjustment.
the tax rates that have been
Diminution other than temporary in enacted or substantially enacted 5.2 Assets and Bases of
value of all investment securities is at the balance sheet date and are their Valuation
charged against the earnings of the expected to apply in the period in 5.2.1 Cash & Cash Equivalent
period in which they occur. Diminution which the assets will be realised For the purpose of the cash flow
other than temporary in value of or liabilities settled. statement, cash & cash equivalent
shares included in investment consist of cash held by the Bank
securities is written-off. ii. The net increase in the carrying and other short-term, highly liquid
amount of deferred tax liability investments that are readily convertible
5.1.23 Income Tax Expense net of deferred tax asset is to known amounts of cash and which
Income tax expense for the year recognised as deferred tax are subject to an insignificant risk of
comprises current and deferred expense and conversely any changes in value.
tax. Income tax is recognised in net decrease is recognised as
the income statement except to the reversal to deferred tax expense, 5.2.2 Balances with Central Bank
extent it relates to items recognised in the income statement. DFCC Vardhana Bank, a subsidiary
directly in reserves in which case it is of the Bank is a licensed commercial
recognised in reserves. bank. The Monetary Law Act requires
all commercial banks operating in
Sri Lanka to maintain cash deposits

75
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
with the Central Bank of Sri Lanka Treasury Bills and other securities such sales of significant amount has
as a reserve against all deposit eligible for rediscounting with the tainted the character of the balance
liabilities denominated in Sri Lanka Central Bank are included in the from held to maturity investment to
Rupees. The details of this reserve balance sheet at cost adjusted for the dealing securities.
requirement are given in Note 22. amortisation of premium or discount
arising on acquisition. 5.2.3.6 Investment Securities -
Shares and Units Purchased
5.2.3 Securities
from Unit Trusts
5.2.3.1 Dealing Debt Securities 5.2.3.3 Securities Purchased
under Resale Agreements (Reverse Shares quoted in the Colombo Stock
These are the marketable, dated debt
Repurchase Transactions) Exchange and units purchased from
securities in respect of which the Bank
These are loans collaterised by the unit trust are stated in the balance
has the expressed intention of trading
purchase of Treasury Bills and/or sheet at the lower of:
in the domestic debt market and are
guaranteed commercial papers from
included in the balance sheet at the i. Aggregate cost reduced by,
the counter-party to whom the loans
market value as a sub-category of where appropriate, the diminution
are granted. The sale by the counter-
Treasury Bills and other securities in value which is other than
party is subject to a commitment by
eligible for rediscounting with the temporary of each security; and
the Bank to sell back the underlying
Central Bank.
debt securities to the borrower at a
ii. Market value determined on an
pre-determined price. These loans are
The market value is determined aggregate portfolio basis.
stated in the balance sheet at cost.
using the middle rate of buy and sell
quotes for the Treasury Bills and other Other shares are stated in the
5.2.3.4 Securities Sold under
securities eligible for rediscounting Repurchase Agreements (‘Repos’) balance sheet at cost reduced by,
with the Central Bank provided by This relates to Treasury Bills where appropriate, the diminution
secondary market intermediaries. and Bonds sold subject to a in value, which is other than
commitment to repurchase them temporary of each security.
These securities are recognised at a predetermined price. Such
at cost initially on acquisition and Treasury Bills and Bonds remain Cost determined on weighted
thereafter marked to market on the on the balance sheet and the average basis includes incidental
balance sheet date in accordance with liability is recorded in respect of costs of acquisition. All securities
the direction issued by Central Bank the consideration received. The are held for yield or capital
of Sri Lanka on ‘Prudential norms for liability is disclosed as borrowing appreciation in the medium/
classification, valuation, and operation under repurchase agreement. long term.
of the Bank’s investment portfolio’ These Treasury Bills and Bonds
dated 1 March 2006. 5.2.4 Assets held for Sale
are not marked to market since the
corresponding liability is also not This represents land stated in the
5.2.3.2 Investment Debt Securities marked to market. balance sheet at the lower of cost
These are the dated debt securities and market price. The land was
in respect of which the Bank has 5.2.3.5 Dealing Securities - acquired by Acquity Partners (Pvt)
Ordinary Shares
expressed intention and ability to hold Limited exclusively with a view to its
until maturity. These are included in These are marketable ordinary shares subsequent disposal within one year.
the balance sheet as a sub-category listed in the Colombo Stock Exchange

of Treasury Bills and other securities acquired and held with the intention There was no impairment loss as at
eligible for rediscounting with the of resale over a short period. These the balance sheet date.
Central Bank under investment are stated in the balance sheet at

securities. market value. This relates to transfers 5.2.5 Loans and Advances
from investment securities to dealing Loans are stated in the balance sheet
securities when a significant portion net of provisions for possible loan
of ordinary shares of a company losses. The provisions for possible
is disposed. The remaining shares loan losses include both specific and
are transferred on the basis that general provision.

76
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
5.2.6 Non-Performing Loans and also have to be classified as non-
Finance Leases performing effective from 1 January
The classification on 31 March 2010 2009. Subsequent amendments
is based on the Direction No. 4 of to this Direction however, inter alia
2008 dated 8 May 2008 as amended extended the application of the
by Direction 7 of 2009 dated 30 aggregate rule for classification
December 2009. The loans are initially to 1 January 2010 and
classified as non-performing based on thereafter to 1 January 2011.
the following criteria:
Repayment terms Default period or The Bank however, proactively
number of
unpaid dues
has classified all credit facilities to a
borrower as non-performing when
i. Repayable in 3 unpaid dues
monthly instalments 50% of the total facilities were

ii. Repayable in quarterly/ 90 days from

non-performing.
half yearly instalments due date
5.2.7 Categorisation of
iii. Single lump sum 90 days from Non-Performing Loans and
repayment due date Finance Leases
The Direction No. 4 of 2008 requires
In addition, loans and finance leases non-performing loans and finance
with impaired debt service capacity leases to be categorised in the
are classified as non-performing on a following manner.
case-by-case basis.
Category Facility Type Determinant

Prior to the issue of Direction Special Mention Credit facilities, 3 instalments or more but less
No. 4 of 2008 dated 8 May 2008 repayable in monthly than 6 instalments, principal and/or
issued by the Central Bank, as per instalments interest are due and unpaid
the previous Direction on this subject,
Other credit facilities The payments are in arrears for
the non-performing classification
90 days or more but less than 180
criteria applied to each credit facility
days from the due date
extended to a borrower. As per
the Direction No. 4 of 2008, where Sub-standard Credit facilities, 6 instalments or more but less than
multiple credit facilities have been Credit Facilities repayable in monthly 12 instalments, principal and/or
granted to a single borrower, in the instalments interest are due and unpaid
event the aggregate outstanding Other credit facilities The payments are in arrears for
amount of non-performing credit 180 days or more but less than
facilities exceed 30% of the total 360 days from the due date
credit facilities extended to the
Doubtful Credit Credit facilities, 12 instalments or more but less
borrower, the balance facilities
Facilities repayable in monthly than 18 instalments, principal and/or
instalments interest are due and unpaid

Other credit facilities The payments are in arrears for

360 days or more but less than
540 days from the due date

Loss Credit Credit facilities, 18 instalments or more principal

Facilities repayable in monthly and/or interest are due and unpaid
instalments

Other credit facilities The payments are in arrears for 540

days or more

77
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
5.2.8 Reclassification of The rates of depreciation are as 5.2.13 Property, Plant and
Non-Performing Loans and Finance follows: Equipment
Leases as Performing 5.2.13.1 Basis of Recognition
% per annum
Currently non-performing loans The cost of property, plant and
and finance leases are reclassified Buildings 5
equipment is recognised as an asset,
Water treatment plant 10
as performing when the number of if it is probable that future economic
Site improvement 10
dues on a term loan or finance lease benefits associated with the property,
repayable in monthly instalments is plant and equipment will flow to
5.2.11 Investment in Subsidiaries
less than 3 while other credit facilities and Associate Companies the Bank and the cost can be
are reclassified only when arrears of The Bank’s investments in measured reliably.
interest and principal are settled in full subsidiaries and associates are
by the borrower. stated at cost less accumulated
5.2.13.2 Measurement at Recognition

impairment losses, if any, in the The cost of an asset comprises its

Rescheduled non-performing loans financial statements of the Bank. purchase price or cost of construction
however is reclassified only after and any directly attributable costs of
mandatory watch period ranging from In the consolidated financial bringing the asset to working condition
90 days to 360 days based on the statements, investments in for its intended use.
non-performing loan category at the associate companies are accounted
time of reschedule. 5.2.13.3 Subsequent Measurement
under equity method reduced by
The assets are stated at cost less
accumulated impairment losses if any.
5.2.9 Finance Leases accumulated depreciation and
Assets of the Bank leased to accumulated impairment losses. The
Consequently Group’s share of
customers by an agreement that depreciation is provided for on the
its associates’ post-acquisition
transfers substantially all the risks basis outlined below.
profits or losses is recognised in
and rewards of ownership to the
the consolidated income statement,
customer without transferring the title, Depreciation is provided on a straight-
and its share of post-acquisition
are classified as financial leases and line basis such that the cost of the
movements in reserves is recognised
disclosed as amounts receivable. The asset is amortised over the period
in consolidated reserves. The
leases are stated in the balance sheet appropriate to the estimated life of the
cumulative post-acquisition
after deduction of future income and type of asset.
movements are adjusted against the
specific provision for losses.
carrying amount of the investment.
The rates of depreciation are as
When the Groups’ share of losses in
5.2.10 Investment Property follows:
an associate equals or exceeds its
The investment property of the Bank % per annum
interest in associates, the Group does
is a land owned by the Bank held for
not recognise further losses. Buildings 5
capital appreciation. The investment
Furniture, fittings &
property of the Group includes land Groups’ investment in associates plant 10
and building held by a subsidiary includes goodwill identified on
Office equipment &
for capital appreciation and earns acquisition, net of any impairment motor vehicles 20
revenue by rentals. losses. (Note 33)
Depreciation commences in the
Land classified as investment 5.2.12 Investment in Joint Venture month the asset is commissioned for
property is carried at cost reduced Company
use in the business of the Bank and
by accumulated impairment losses The Bank’s investment in joint venture
ceases in the month of disposal.
and building classified as investment company is stated at cost less
property is carried at cost net of accumulated impairment losses, if any
Land is not depreciated.
accumulated depreciation and in the financial statements of the Bank.
accumulated impairment losses. 5.2.13.4 Derecognition
In the consolidated financial
The carrying amount of property,
statements, the income and net
Depreciation is provided on a straight- plant and equipment is derecognised
assets of the joint venture company
line basis such that the cost of the on disposal or when no future
are consolidated with the Bank
asset is amortised over the period economic benefits are expected from
proportionate to its ownership in the
appropriate to the estimated life of the its use and the gain or loss arising
voting ordinary share capital of the
type of asset. from the derecognition is included in
joint venture company.
the income statement.

78
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
5.2.14 Goodwill or Negative The initial cost is enhanced by in the income statement of the Bank.
Goodwill on Consolidation subsequent expenditure incurred Exchange rates used are the middle
This arises on a business combination by further customisation to meet spot rates.
resulting in a parent-subsidiary ancillary transaction processing and
relationship in which the acquirer is the reporting requirements tailor-made for Monetary liabilities denominated
parent and acquiree a subsidiary of the the use of the Bank constituting an in foreign currencies subject to
acquirer and is accounted by applying improvement to the software. an exchange loss covered by the
the purchase method. Goodwill arising Government of Sri Lanka as provided
on an acquisition of a subsidiary 5.2.16 Impairment of Assets in the DFCC Bank Act No. 35 of 1955
represents the excess of the cost of 5.2.16.1 Tangible and are not translated at the exchange
Financial Assets
the acquisition over the fair value of rates ruling on the balance sheet date.
the net identifiable assets acquired. The Bank reviews on the balance
Government of Sri Lanka bears the
sheet date whether the carrying
exchange loss and is entitled to any
Goodwill on acquisition of associates amount of property, plant and
exchange gain arising on settlement of
is included in the investment cost of equipment and investments in
such monetary liabilities. Government
associate and therefore is not included subsidiaries, associate companies
of Sri Lanka provides exchange loss
in goodwill on consolidation. and joint venture company are lower
cover only to liabilities guaranteed as
than the recoverable amount. In such
provided in the DFCC Bank Act No. 35
The carrying amount of goodwill on event the carrying amount is reduced
of 1955.
consolidation is at cost of acquisition to the recoverable amount and the

reduced by accumulated impairment reduction being an impairment loss is

Forward exchange contracts are
loss, if any. recognised immediately in the income
disclosed net and valued at the
statement. The recoverable amount is
forward market rates ruling on the
5.2.15 Intangible Assets - the higher of the market value of the
date of the balance sheet.
Computer Application Software asset less estimated cost of disposal
All software licensed for use by the and its value in use.
As at the balance sheet date, the
Bank, not constituting an integral part
assets and liabilities of the overseas
of related hardware are included in 5.2.16.2 Intangible Assets - Computer
Application Software and Goodwill on branch operations of the associate
the balance sheet under the category Consolidation company - Commercial Bank of
intangible assets and carried at cost
The Bank reviews on the balance sheet Ceylon PLC are translated into the
less cumulative amortisation and any
date whether the carrying amount of presentation currency of the Bank
impairment losses.
computer application software is lower as at the rate of exchange ruling at
than the recoverable amount. In such the balance sheet date and their
The initial acquisition cost comprises
event, the carrying amount is reduced income statement is translated at the
licence fee paid at the inception, import
to the recoverable amount and the weighted average exchange rate for
duties, non-refundable taxes and
reduction being an impairment loss is the year. The exchange differences
levies, cost of customising the software
recognised immediately in the income arising on the translation are taken
to meet the specific requirements of
statement. The recoverable amount is directly to a separate component
the Bank and other directly attributable
the value in use. of equity. On disposal of a foreign
expenditure in preparing the asset for
operation the deferred cumulative
its intended use.
Similar criterion is used to assess amount recognised in equity relating
impairment in goodwill on consolidation. to that particular foreign operation is
The cost is amortised using the
recognised in the income statement.
straight-line method, at the rate of 5.2.17 Foreign Currency
20% per annum commencing from Translation
5.2.18 Deferred Tax Asset
the date the application software Transactions in overseas currencies
Deferred income tax assets are
is available for use. The amortised are translated to Sri Lanka Rupees at
recognised for tax losses carry-
amount is based on the best estimate the exchange rate ruling at the date
forwards, unused withholding tax
of its useful life, such that the cost is of the transaction. Monetary assets
credits and specific provisions for bad
amortised fully at the end of the useful and liabilities denominated in foreign
and doubtful loans that exceeded 1%
life during which the Bank has legal currencies are translated at the
of the loans on Balance Sheet date
right of use. The amortisation cost is exchange rates ruling on the balance
only to the extent that the realisation
recognised as an expense. sheet date and consequently any
of related tax benefit through future
exchange loss or gain is recognised
taxable profits is probable.

79
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
5.2.19 Unrecognised deferred Tax Assets
31 March 2010 Tax effect 35%
Rs 000 Rs 000

Bank
Disallowed specific provision for bad and doubtful loans 131,672 46,085

Group
Taxable Losses
DFCC Consulting Company - Subsidiary 2,069 724
Acquity Partners Limited - Joint Venture 29,913* 10,469*
Disallowed specific provision for bad and doubtful loans
DFCC Vardhana Bank Limited - Subsidiary 202,713 70,950
Unused withholding tax credit
DFCC Consulting Company - Subsidiary 299 105
Unrecognised loss/deferred tax asset 366,666 128,333
* 50% of Loss, proportionate consolidation.

actual return on pension assets and

Comparative Information The defined benefit pension plan the expected return on pension assets
Where items are regrouped, does not permit any post-retirement and changes in the estimates of actual
comparative information is also increases in pension nor any other employee turnover, mortality rates and
adjusted. benefit (e.g. medical expenses increases in salary.
reimbursement).
5.3 Liabilities and Provisions The Bank has chosen to recognise
5.3.1 Provision for Pension 5.3.1.2 Funding Arrangement only the portion of the net cumulative
Liability under a Defined
The Bank’s contributions to the Trust unrecognised actuarial gains and
Benefit Plan
5.3.1.1 Description of the Plan and Fund are made annually based on the losses at the end of the previous
Employee Groups Covered recommendation of an independent reporting period that exceeds the
The Bank established a Trust Fund in actuary. The employees make no limits of the corridor as permitted
May 1989, which operates the pension contributions to qualify for the basic by Sri Lanka Accounting Standard
scheme for payment of pension pension, which is therefore a (SLAS) 16 (Revised 2006) on -
approved by the Commissioner non-contributory benefit to the Employee Benefits. This new
General of Inland Revenue. The employees. Eligible employees who accounting policy is adopted from
fund of the scheme is managed by desire to provide for the payment of 1 April 2008 coinciding with first time
trustees appointed by the Bank and is pension to spouse and minor children, adoption of SLAS 16.
separate from the Bank. The scheme who survive them are however, required
provides for payment of pension to to contribute monthly, an amount based The limits of the corridor are set at the
retirees, spouse and minor children on a percentage of gross emoluments, greater of:
of deceased retirees based on pre- excluding bonus, if they joined the Bank a. 10% of the present value of the
retirement salary. All members of the on or after 31 August 1998 and prior to defined benefit obligation before
permanent staff who joined prior to 1 1 May 2004. deducting the pension assets;
May 2004 except one are covered by and
this funded pension scheme subject 5.3.1.3 Recognition of Actuarial
Gains and Losses b. 10% of the fair value of the
to fulfilment of eligibility conditions
The net actuarial gains or losses pension assets.
prescribed by the Bank.
arising in a financial year is due to
increases or decreases in either the The recognition in the income
The scheme was amended on
present value of the promised pension statement will be over the remaining
31 August 1998 and the amended
benefit obligation or the fair value of working life of the participants in the
plan will apply to all members of
pension assets. The causes for such pension scheme.
the permanent staff who joined the
gains or loss include changes in the
Bank on or after this date and prior
discount rate, differences between the
to 1 May 2004. The amendment
reduced the scope of the benefit in
the interest of long-term sustainability
of the pension plan as advised by the
independent actuary.

80
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
5.3.1.4 Recognition of Past 5.3.2.2 Funding Arrangement Contributions to defined contribution
Service Cost
The Bank and the subsidiaries adopt plans are recognised as an expense
Past service cost arises when a a pay-as-you-go method whereby the in the income statement as incurred.
defined benefit plan is introduced for employer makes a lump sum payment
the first time or subsequent changes only on termination of employment by 5.3.4 Debentures Issues by the
are made to the benefits payable Bank and Deposit from Customers
resignation, retirement at the age
under an existing defined benefit These liabilities are recognised when
of 55 years or death.
plan. Bank will recognise past service the Bank enters into contracts with
cost as an expense on a straight- 5.3.2.3 Recognition of Actuarial counter parties and initially measured
line basis over the average period Gains and Losses
at the consideration received. The
until the benefits become vested. To The Bank has chosen to recognise debentures are issued at par and are
the extent the benefits are already only the portion of the net cumulative redeemable at par on the repayment
vested following the introduction of or unrecognised actuarial gains and dates. Except for customer deposits
changes to a defined benefit plan, the losses at the end of the previous of DFCC Vardhana Bank Limited
Bank will recognise past service cost reporting period that exceeds the which includes deposits denominated
immediately. limits of the corridor. This new in foreign currency, others are
accounting policy is adopted from denominated in Sri Lanka Rupees.
5.3.2 Provision for End of Service 1 April 2008 coinciding with first time
Gratuity Liability under a Defined
adoption of SLAS 16. 5.3.5 Borrowing
Benefit Plan
5.3.2.1 Description of the Plan and All borrowing are recognised when
Employee Groups Covered The recognition in the income the Bank enters into contract with
Bank provides for the gratuity payable statement will be over the remaining counter parties and initially measured
under the Payment of Gratuity Act working life of the participants in the at the consideration received. All
No. 12 of 1983 for all employees end of service gratuity scheme. directly attributable cost are amortised
who do not qualify under the Pension on straight-line basis up to date of
5.3.2.4 Recognition of Past
Scheme. Therefore, this applies to repayment.
Service Cost
employees recruited to the permanent
Since end of service gratuity defined
cadre on or after 1 May 2004 on 5.3.6 Provisions for Liabilities
benefit is a statutory benefit, the
tenured or fixed term contract A provision is recognised in the
recognition of past service cost will
employment in the Bank. balance sheet when the Bank has
arise only if the Payment of Gratuity
a legal or constructive obligation
Act No. 12 of 1983 is amended in
The subsidiary companies, which as a result of a past event that
future to increase the promised
do not have a non-contributory can be estimated reliably and it is
benefit on termination of employment.
pension scheme provide for the probable that an outflow of economic
In such event, the Bank will adopt the
gratuity payable under the Payment of benefits will be required to settle the
accounting policy currently used for
Gratuity Act No. 12 of 1983 for obligation.
defined benefit pension plan.
all employees.
5.3.7 Off Setting
5.3.3 Defined Contribution Plans
The promised benefit is half a month Deferred and current tax asset of
This provides for a lump sum payment
pre-termination salary for each each taxable entity is set off against
on termination of employment by
completed year of service provided deferred and current tax liability of the
resignation, retirement at the age of
a minimum qualifying period of same taxable entity operating in
55 years or death while in service.
5 years is served prior to termination Sri Lanka and liable to Revenue
Payment is by an outside agency to
of employment. The Bank however Authority in Sri Lanka.
which contributions are made.
recognises the liability by way of a
provision for all employees in tenured 5.3.8 Commitments and
All employees of the Bank are Contingencies
employment from the date they joined
members of the Mercantile Service All discernible risks are accounted for
the permanent cadre while fixed term
Provident Society and the Employees’ in determining the amount of other
employees liability is recognised only
Trust Fund to which the Bank liabilities.
if the fixed term contract of service
contributes 15% and 3% respectively of
provides for unbroken service of 5
such employee’s consolidated salary.
years or more either singly or together
with consecutive contracts.

81
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
5.3.9 Events after Segment liabilities are those financial asset of one entity
Balance Sheet Date operating liabilities that result from the and a financial liability or equity
All material and important events operating activities of a segment and instrument of another entity.
which occur between the balance are directly attributed or allocated to
ii. Loans and customer advances
sheet date and the date on which the the segment on a reasonable basis.
and held to maturity investments
financial statements are authorised
will be carried at amortised cost
for issue, and the financial impact on Inter-segment transfers are accounted
reduced by impairment losses.
the condition of assets and liabilities for at competitive market prices
are disclosed in Note 63. charged to unaffiliated customers for iii. Recognition of impairment losses
similar services. Such transfers are on loans and customer advances
6. Cash Flow eliminated on consolidation. will be based on the present value
The cash flow has been prepared of future recoveries individually or
by using the ‘Direct Method’. Cash 8. Directors’ Responsibility collectively assessed, compared
and cash equivalents include cash Statement to the amortised cost. Currently,
balances, time deposits and Treasury The Directors’ acknowledge the impairment loss does not take
Bills of three months’ maturity at the the responsibility for true and into consideration time value of
time of issue. For the purpose of fair presentation of the financial future cash flows discounted at
cash flow statement, cash and cash statements in accordance with the the effective rates of the interest
equivalents are presented net of books of account and Sri Lanka applicable to loans and customer
bank overdrafts. Accounting Standards. Further advances.
elaboration of the Directors’
iv. Most of the financial liabilities will
7. Business Segment Responsibility is on page 62.
be carried at amortised cost.
Reporting
A business segment is a 9. New Accounting Standards v. All other financial assets and
distinguishable component of issued but not effective as at financial liabilities other than
an enterprise that is engaged in Balance Sheet Date those carried at amortised cost
providing an individual product or 9.1 Title of the Standards will be carried in the Balance
service or a group of related products i. Sri Lanka Accounting Sheet at their fair value.
or services that is subject to risk Standard 44 - Financial
vi. All derivatives will be recognised
and returns that are different from Instruments Presentation (SLAS
as On-Balance Sheet asset
those of other business segments. 44) - complies in all material
or liability and carried at the
The accounting policies adopted respects with International
fair value. Currently they are
for segment reporting are the same Accounting Standard 32 (2006
recognised Off-Balance Sheet.
accounting policies adopted for version).
preparing the financial statements of vii. Application of hedge accounting,
ii. Sri Lanka Accounting
the Group. which is optional, is permitted
Standard 45 - Financial
subject to stringent requirements
Instrument Recognition and
Segment revenue is the revenue on documentation and test for
Measurement (SLAS 45) -
reported in the income statement that effectiveness of the hedges.
complies in all material respects
is directly attributable to a segment. with International Accounting viii. Fair value is the market price
Standard 39 (2006 version). where an active market exists
Segment expense includes the or is computed using prescribed
relevant portion of interest expense 9.2 Effective Date for Mandatory valuation techniques.
and operating expenses allocated to Application
the segment on a reasonable basis. Financial year to 31 March 2012. 9.4 Financial Impact on the
Application of these Standards
Segment assets are those operating 9.3 Nature of Significant in the Financial Year to
Impending Changes 31 March 2012
assets that are employed by a
i. These Standards deal with The impact is not currently known or
segment in its operating activities and
the presentation, recognition reasonably estimated.
are directly attributed or allocated to
the segment on a reasonable basis. and measurement of financial
instruments defined as any
contract that gives rise to a

82
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
 BANK GROUP
For the year ended 31 March 2010 2009 2010 2009
Rs 000 Rs 000 Rs 000 Rs 000

10. Income
Gross income 8,843,452 9,887,897 13,085,852 13,416,193

Interest income 7,416,335 8,528,857 11,793,481 11,998,933

Other income 1,427,117 1,359,040 1,292,371 1,417,260
8,843,452 9,887,897 13,085,852 13,416,193

11. Interest Income

Loans 5,333,174 6,489,723 7,987,556 9,119,574
Treasury bills, bonds and placements with other banks 1,281,444 1,046,381 2,985,492 1,856,742
Gross earnings under finance leases 720,221 939,277 720,221 939,277
Default interest on lease rentals 81,496 53,096 81,496 53,096
Interest and discount arising from debt securities 0 380 18,716 30,244
7,416,335 8,528,857 11,793,481 11,998,933

Interest Income includes notional tax credit of 10% imputed for the withholding tax deducted/paid at source.

BANK GROUP
2010 2009 2010 2009
Rs 000 Rs 000 Rs 000 Rs 000

12. Interest Expense

Medium and long-term borrowing 1,983,881 2,280,827 1,983,881 2,267,370
Interest on overdrafts and revolving facilities 778,156 1,467,675 960,815 1,750,581
Debentures 670,488 791,306 670,488 791,306
Time deposits from customers 791,519 1,084,156 2,980,745 2,952,703
4,224,044 5,623,964 6,595,929 7,761,960

83
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
 BANK GROUP
For the year ended 31 March 2010 2009 2010 2009
Rs 000 Rs 000 Rs 000 Rs 000

13. Other Income

Dividend income from securities
Quoted ordinary shares 23,253 16,548 23,273 16,777
Unquoted ordinary shares 2,099 879 9,921 11,210
Unquoted preference shares 148,487 172,076 176,877 183,462
Units in unit trusts 49,092 97,277 53,966 105,075
Dividend income from investments in associates/subsidiaries
Quoted ordinary shares 422,804 376,649 0 0
Unquoted ordinary shares 20,079 50,449 0 0
Quoted preference shares 0 1,831 0 1,831
665,814 715,709 264,037 318,355
Gain/(loss) on sale of investment securities
Quoted ordinary shares 93,187 135,462 98,155 135,462
Others 52,087 (14,076) 52,087 (44)
Gain on disposal of subsidiary 284,393 84,981 142,197* 42,491
Gain on disposal of subsidiary - by joint venture company 0 0 26,309 0
Recovery of bad debts 147,588 117,942 147,588 117,942
Foreign exchange profit/(loss) ** (49,627) 60,306 (139,481) 76,593
Net gain on repurchase transactions 29,310 82,133 6,890 119,389
Marked to market gains/(losses)
Quoted ordinary shares - dealing securities 42,596 (8,883) 42,596 (20,170)
Gain on marked to market on treasury bills and bonds -
held for trading 0 583 285 15,539
Gain/(loss) on sale of treasury bills and bonds-held for trading 2,659 (330) 29,526 (1,921)
Premises rental income:
Investment property 0 0 133,061 120,493
Freehold property 43,714 39,229 27,180 18,045
Fee income
Front end fee 18,380 20,694 20,520 24,784
LC commission 1,310 0 37,694 57,349
Underwriting commission and guarantee fees 12,574 12,325 46,476 51,048
Consultancy and other professional services 25,367 64,470 25,566 69,793
Net gain on sale of equipment and investment property 1,514 286 1,152 108
Gain/(loss) on deemed disposal of associate and subsidiaries 0 0 (1,911) 130
Others 56,251 48,209 332,444 271,874
1,427,117 1,359,040 1,292,371 1,417,260
* Only 50% of the profit from sale (Attributable to the sale to Hatton National Bank PLC joint venture partners in
Acquity Partners (Pvt) Limited) is recognised in consolidation.
** Net of funding swap cost in 2010 Bank - Rs37 million and Group - Rs172 million

14. Provision for Staff Retirement Benefits

14.1 Amount Recognised as Expense
14.1.1 Funded Liability
Current service cost 59,556 53,633 59,556 53,633
Interest on obligation 112,903 105,289 112,903 105,289
Expected return on pension assets (107,063) (86,297) (107,063) (86,297)
Amortisation of unrecognised actuarial loss 0 22,442 0 22,442
Over provision in the previous financial year 0 (7) 0 (7)
65,396 95,060 65,396 95,060

84
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
 BANK GROUP
For the year ended 31 March 2010 2009 2010 2009
Rs 000 Rs 000 Rs 000 Rs 000

14.1.2 Unfunded Pension Liability

Current service cost 4,024 3,023 4,024 3,023
Interest on obligation 3,063 2,552 3,063 2,552
Amortisation of unrecognised actuarial loss 0 2,385 0 2,385
7,087 7,960 7,087 7,960

14.1.3 Unfunded End of Service Gratuity Liability

Current service cost 2,524 1,769
Interest on obligation 1,537 1,092
Amortisation of unrecognised actuarial loss 425 0
4,486 2,861 12,824 10,691
Total Defined Benefit Plans 76,969 105,881 85,307 113,711

14.1.4 Defined Contribution Plan

Employer's contribution to Employees Provident Fund 52,492 48,269 84,597 74,601
Employer's contribution to Employees Trust Fund 10,500 9,672 16,953 14,905
Total defined contribution plans 62,992 57,941 101,550 89,506
Total expense recognised in the income statement 139,961 163,822 186,857 203,217

14.2 Movement in Unrecognised Actuarial (Gain)/loss

14.2.1 Funded Liability
Unrecognised actuarial (gain)/loss on 1 April (50,231) 126,901
Adjustements (10)
Restated unrecognised actuarial(gain)/loss on 1 April (50,241) 126,901
Amortised in the financial year 0 (22,442)
Actuarial (gain) during the financial year (32,885) (154,690)
Unrecognised actuarial (gain) on 31 March (83,126) (50,231)

14.2.2 Unfunded Pension Liability

Unrecognised actuarial loss on 1 April 1,074 4,358
Amortised in the financial year 0 (2,385)
Actuarial loss/(gain) during the financial year 4,139 (899)
Unrecognised actuarial loss on 31 March 5,213 1,074

14.2.3 Unfunded End of Service Gratuity Liability

Unrecognised actuarial loss on 1 April 5,333 0
Amortised in the financial year (425) 0
Actuarial loss during the financial year 1,555 5,333
Unrecognised actuarial loss on 31 March 6,463 5,333

Actuarial valuation of end of service gratuity was adopted for the first time during the year ended 31 March 2009 as required
by SLAS 16 (Revised 2006) on 'Employee Benefits'.

14.2.4 Amortisation of Unrecognised (Gain)/Loss

Bank will recognise in the Income Statement only the portion of the unrecognised actuarial loss/(gain) at the beginning of
the financial year that exceeds 10% corridor by amortising such excess over the remaining working life of the employees
participating in the defined benefit plans. The 10% corridor is the greater of 10% of present value of defined benefit
obligation before deducting the plan assets, and 10% of the fair value of any plan asset at the beginning of the financial
year. These limits are calculated and applied separately to each defined benefit plan.

85
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
 BANK
For the year ended 31 March 2010
Rs 000

Funded Pension Liability

Unrecognised Actuarial (gain) on 1 April 2009 (50,241)

Limits of Corridor on 1 April 2009

(i) 10% of present value of pension obligation on 1 April 2009
(before deducting pension assets) 119,492
(ii) 10% of pension assets on 1 April 2009 121,649
(iii) Greater of (i and ii) 121,649

No amortisation since unrecognised actuarial gain is within the

limits of corridor.

Unfunded Pension Liability

Unrecognised actuarial loss on 1 April 2009 1,074

Limits of Corridor on 1 April 2009

(i) 10% of present value of pension obligation on 1 April 2009 3,001

No amortisation since unrecognised actuarial loss is within the

limits of corridor.

Unfunded End of Service Gratuity Liability

Unrecognised actuarial loss on 1 April 2009 5,333

Limits of Corridor on 1 April 2009

(i) 10% of present value of pension obligation on 1 April 2009 1,084
Excess unrecognised actuarial loss to be amortised, over the
remaining working life of employees eligible for gratuity 4,249
Expected average remaining working lives of employees
eligible for gratuity, years 10
Amortised unrecognised actuarial loss recognised in the
Income Statement 425

Bank chose to recognise by amortisation unrecognised loss/(gain) over the corridor on first time adoption of Sri Lanka
Accounting Standard 16 (Revised) 2006 on Employee Benefits, commencing from the financial year ended 31 March 2009.

The amortisation on this accounting policy commences from the financial year ended 31 March 2010.

14.3 Unfunded Pension Liability

This relates to pension liability of an employee, not funded through the DFCC Bank Pension Fund. The liability covers the
pension benefit to retiree and survivor spouse and minor children.

14.4 Actuarial Valuation

Actuarial valuation was carried out by Mr. Piyal S Gunathilake, Fellow of the Society of Actuaries USA of
Piyal S Gunathilake & Associates, on 31 March 2010.

14.5 Actuarial Valuation Method

Projected unit credit method was used to allocate the actuarial present value of the projected benefits earned by employees
to date of valuation.

86
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
14.6 Principal Actuarial Assumptions
Pension End of service
benefit (%) gratuity (%)

Discount rate as at 31 March 2010, per annum

Pre-retirement 9.0 11.5
Post-retirement 9.0 not applicable
Future salary increases per annum 11.5 11.0
Expected rate of return on pension assets 9.0 –
Actual rate of return on pension assets 18.4 –
Mortality UP 1984 mortality table
Retirement age 55 years 55 years
Normal form of payment:
Pension benefit lump sum commuted pension
payment followed by reduced
pension for 10 years (25% reduction)
End of service gratuity lump sum
Turnover rate -
Age
20 10.0 10.0
30 10.0 10.0
40 5.0 5.0
50/55 1.0 1.0

The discount rate is the yield rate on 31 March 2010 with a term equalling the estimated period for which all benefit
payments will continue. This period is approximately 23 years for pension and 10 years for end of service gratuity.
The differences in the discount rates for pension and end of service gratuity reflect the differences in the term.

The differences in the rate of future annual salary increases reflect the remaining working life of participants for each plan.

BANK GROUP
For the year ended 31 March 2010 2009 2010 2009
Rs 000 Rs 000 Rs 000 Rs 000

15. Bad and Doubtful Debts - Specific

Provision for the year
Loans 480,468 350,013 893,720 706,372
Leases 161,318 208,564 161,318 208,564
Dues on terminated leases 10,124 9,801 10,124 9,801
Bills of exchange 0 0 9,632 11,021
Others 18,599 14,329 18,599 14,329
Loan/lease losses 4,031 2,697 7,004 5,767
674,540 585,404 1,100,397 955,854
Less: Reductions in the year
Loans 243,262 166,318 433,093 289,738
Leases 73,244 59,151 73,244 59,151
Dues on terminated leases 24,170 26,702 24,170 26,702
Bills of exchange 0 5,620 9,111 7,405
Others 1,135 1,170 1,135 1,170
332,729 326,443 559,644 571,688

16. Bad and Doubtful Debts - General

Provision for the year
Loans 10,990 114,187 17,357 155,782
Leases 92,824 58,315 92,824 58,315
Bills of exchange 0 0 289 373
103,814 172,502 110,470 214,470
Less: Reductions in the year
Loans 45,794 0 45,794 0
Leases 35,024 0 35,024 0
22,996 172,502 29,652 214,470

87
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
 BANK GROUP
For the year ended 31 March 2010 2009 2010 2009
Rs 000 Rs 000 Rs 000 Rs 000

17. Investments - Impairment Losses

Investment securities 0 11,303 0 41,303

18. Operating Expenses

Operating expenses include the following:
Directors’ remuneration 31,727 33,446 64,485 62,579
Employers contribution to Employees’ Provident Fund 52,492 48,269 84,597 74,601
Employers contribution to Employees’ Trust Fund 10,500 9,672 16,953 14,905
Gratuity provision 4,486 2,861 12,824 10,691
Auditors’ remuneration
Audit fees and expenses 2,294 2,052 4,364 3,684
Audit related fees and expenses 789 581 789 873
Fees for non-audit services 246 214 457 214
Fees for other auditors 0 – 481 530
Depreciation - Investment property 0 0 7,257 6,354
- Property, plant and equipment 90,230 93,066 185,001 165,924
Amortisation - Intangible assets 14,233 30,517 61,643 70,230
Expenses on litigation 13,920 4,375 14,233 11,910

19. Income Tax Expense

19.1 Income tax on profit of the Bank has been provided at 35% on the taxable income.

19.2 Relationship between Tax Expense and Accounting Income

Tax charge is based on taxable profit which differs from profit for financial reporting purposes. These differences are
explained in the following reconciliation statement:
BANK GROUP
For the year ended 31 March 2010 2009 2010 2009
Rs 000 Rs 000 Rs 000 Rs 000

Profit before tax as per the income statement 2,402,677 2,005,923 3,751,002 3,122,415
Disallowed expenses and provisions 1,003,815 977,538 1,524,538 1,004,237
Lease rentals net of capital allowances 737,336 896,786 737,336 896,786
Interest income 0 0 38,915 40,612
Reported earnings under finance lease net of
provision for bad and doubtful debts (646,193) (806,765) (646,193) (806,765)
Capital allowances on property, plant and equipment (109,852) (96,630) (277,970) (234,687)
Dividend income (665,814) (715,709) (666,136) (318,355)
Gain on sale of investment securities (429,667) (206,367) (429,667) (177,909)
Other exemptions (264,078) (255,155) (298,230) (309,987)
Assessable Income 2,028,224 1,799,621 3,733,595 3,216,347
Offset of brought forward tax losses
(limited to 35% of assessable income) 93,244 215,130
Taxable Income 2,028,224 1,799,621 3,640,351 3,001,217
Income tax expense reported in the
income statement at the effective income tax rate 709,878 629,867 1,055,920 813,445

Effective tax rate % 30 31

Companies/income taxed at rates lower than 35%

2010 2009
% %

Lanka Industrial Estates Limited

(BOI approved company) - On business turnover 2 2
Synapsys Limited
(BOI approved company) - Income other than
investment income Exempt Exempt

Lanka Ventures PLC was included in the Group for 2009.

88
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
 BANK GROUP
For the year ended 31 March 2010 2009 2010 2009
Rs 000 Rs 000 Rs 000 Rs 000

19.3 Tax on Profit on Ordinary Activities

Taxation based on profits for the year 709,878 629,867
Tax over provision (6,387) (18,388)
Increase in deferred tax asset - end of service gratuity (1,035) (371)
Increase/(decrease) in deferred tax liability (13,015) 34,942
Bank 689,441 646,050 689,441 646,050
Acuity Partners (Pvt) Limited 0 26,125 10,112
DFCC Consulting (Pvt) Limited 0 0 820 (54)
DFCC Stockbrokers (Pvt) Limited 0 0 0 6,087
DFCC Vardhana Bank Limited 0 0 331,373 227,586
Lanka Industrial Estates Limited 0 0 14,484 19,275
Lanka Ventures PLC 0 0 4,774 144,193
Synapsys Limited 215 1,595
Subsidiaries and Joint-Venture 0 0 377,791 408,794
Total 689,441 646,050 1,067,232 1,054,844

GROUP
2010 2009
Rs 000 Rs 000

19.4 Summary
Bank 689,441 646,050
Subsidiaries and Joint-Venture
- current tax 335,732 321,828
- deferred tax - asset (Note 42) 29,959 74,728
- liability (Note 49) 12,100 12,238
Total 1,067,232 1,054,844

20. Earnings per Share

20.1 Basic Earnings per Share
Basic earnings per share of the Bank has been calculated by dividing the profit after income tax by the weighted average
number of shares in issue during the financial year.

Basic Group earnings per share has been calculated by dividing the profit after income tax less minority interest by the
weighted average number of shares in issue during the financial year.

20.2 Diluted Earnings per Share

Diluted earnings per share of the Bank and the Group has been calculated using the profit after tax of the Bank and the
Group profit after tax less minority interest respectively divided by the weighted average number of shares issued adjusted
for the effect of all dilutive potential ordinary shares arising from unexercised options.

Unexercised options on 31 March 2009 do not have a dilutive effect since the exercise price of the option exceeds the
weighted average market price during the year.

89
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
 BANK GROUP
For the year ended 31 March 2010 2009 2010 2009
Rs 000 Rs 000 Rs 000 Rs 000

20.3 Computation of Basic and Diluted

Earnings per Share
Profit for the year (Rs000) 1,713,236 1,359,873 2,579,972 2,044,706
Weighted average number of shares 132,089,362 130,664,310 132,089,362 130,664,310
Basic earnings per share, Rs 12.97 10.41 19.53 15.65
Number of shares that would have been issued at fair value
in respect of options granted on 31.03.2006 146,497 146,497
Number of shares at nil consideration (dilutive potential
shares) in respect of options granted on 31.03.2006 34,125 34,125
Total number of shares under option 180,622 180,622
Ordinary shares in issue and dilutive potential shares 132,123,487 132,123,487
Diluted earnings per share, Rs 12.97 19.53

20.4 Unexercised options on 31 March 2009 do not have a dilutive effect since the exercise price of the options exceeds the
weighted average market price during the financial year.

BANK GROUP
31.03.2010 31.03.2009 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000

21. Cash and Short-Term Funds

Cash and balances with banks 328,820 668,498 1,182,950 1,491,263
Call deposits
DFCC Vardhana Bank Limited 1,643,213 857,598 948,379 220,973
Others 850,000 0 0 785,100
Time deposits
DFCC Vardhana Bank Limited 0 636,625 102,791 636,625
Others 0 347,250 109,530 1,080,023
2,822,033 2,509,971 2,343,650 4,213,984

22. Balances with Central Bank

Statutory deposit with Central Bank of Sri Lanka 802,076 768,383

This requirement does not apply to DFCC Bank and applies only to DFCC Vardhana Bank Limited.

As required by the provisions of Section 93 of the Monetary Law Act, cash balance is maintained with the Central Bank
of Sri Lanka, explained in Note 5.2.2. The minimum cash reserve requirement on rupee deposit liabilities was reduced
to 9.25% with effect from 17 October 2008 and further reduced to 7.75% on 28 November 2008 (2007 - 10%). This was
reduced again to 7% from 27 February 2009.

These are not reserve requirements for deposit liabilities of the foreign currency banking unit and foreign currency deposit
liabilities in the domestic banking unit.

90
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
 BANK GROUP
31.03.2010 31.03.2009 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000

23. Treasury Bills and Other Securities

Eligible for Rediscounting with Central Bank
Treasury Bills and Bonds held for trading
Held for Repurchase transactions 0 0 464,492 1,775,696
Others 0 0 1,314,683 1,388,080
0 0 1,779,175 3,163,776
Treasury Bills and Bonds held to maturity
Held for repurchase transactions 7,651,073 3,196,185 10,932,156 3,196,185
Others 0 2,709,024 11,029,504 6,290,838
7,651,073 5,905,209 23,740,835 12,650,799

24. Securities Purchased under

Resale Agreements
Loans at cost 913,611 96,000 1,004,055 1,523,823

Face value of securities obtained as collateral exceeds the loan amount by 10%-20%. Accounting policy is in Note 5.2.3.3.

BANK GROUP
31.03.2010 31.03.2009 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000

25. Placements with and Loans to Other Banks and

Financial Institutions
Placements 0 0 0 20,000
Loans to banks 1,834,018 1,454,262 1,834,018 1,332,262
1,834,018 1,454,262 1,834,018 1,352,262

25.1 Placements
Financial Institutions 0 0 0 20,000
0 0 0 20,000

25.2 Loans to Banks

Subordinated loan - DFCC Vardhana Bank Limited 0 122,000 0 0
Refinanced loans - Plantation development project 1,459,726 812,086 1,459,726 812,086
- KFW DFCC (V) SME in the North and East 39,292 20,176 39,292 20,176
Other loans 335,000 500,000 335,000 500,000
1,834,018 1,454,262 1,834,018 1,332,262

BANK GROUP
31.03.2010 31.03.2009 31.03.2010 31.03.2009
Number of Number of Number of Number of
ordinary ordinary ordinary ordinary
shares shares shares shares
Rs 000 Rs 000 Rs 000 Rs 000

26. Dealing Securities

Quoted Ordinary Shares
Dialog Telekom PLC 54,890 370 54,890 269 54,890 370 54,890 269
John Keells Holdings PLC 148,335 27,294 148,335 9,308 148,335 27,294 205,477 12,894
Lanka IOC PLC 0 0 0 0 0 0 240,000 3,840
Sri Lanka Telecom PLC 900 33 900 30 900 33 900 30
27,697 9,607 27,697 17,033
Transfer from
Investment Securities
Stafford Hotels PLC 818,800 28,658 0 0 818,800 28,658 0 0
Market Value 56,355 9,607 56,355 17,033

91
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
 BANK GROUP
31.03.2010 31.03.2009 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000

27. Assets Held for Sale

Land acquired by Acquity Partners (Pvt) Limited exclusively for sale 0 0 2,875 0

Details of the Land

Extent 2010
(perches) Market Price
Rs 000

Freehold Land
Lot - x, Survey Plan - 6448, Off Edirisinghe Road, Mirihana 10 2,875

* Value of the land amounted to Rs5.75 million as at 12 November 2009. As this land is held by Acquity Partners (Pvt)
Limited, the Joint Venture, only 50% of the value is taken into the Consolidated Financial Statements.

BANK GROUP
31.03.2010 31.03.2009 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000

28. Bills of Exchange

Balance at beginning
Export bills 0 0 278,270 256,330
Import bills 0 0 65,477 86,555
Less: Provision for overdue bills - Specific 0 0 14,805 13,947
- General 0 0 3,056 2,767
0 0 325,886 326,171

28.1 Movement in Specific Provision

Balance at beginning 0 13,947
Add: Provision for the year 0 9,632
Exchange rate difference on foreign currency provision 0 337
Less: Recoveries 0 9,111
0 14,805

28.2 Movement in General Provision

Balance at beginning 0 2,767
Add: Provision for the year 0 289
0 3,056

29. Loans and Advances

29.1 Balance on 31 March
Sri Lanka Rupee Loans
Direct loans 29,457,120 32,872,158 35,680,186 38,282,667
Commercial papers & asset back notes 343,616 354,901 343,616 354,901
Debenture loans 398,178 615,038 398,178 615,038
Overdrafts 0 0 6,613,716 8,377,716
Staff loans for miscellaneous purposes 259,661 240,850 335,458 303,993
30,458,575 34,082,947 43,371,154 47,934,315
Foreign Currency Loans
Direct loans 1,486,985 1,073,436 3,122,835 2,305,283
31,945,560 35,156,383 46,493,989 50,239,598

Less: Loan loss provision - Specific 1,173,459 923,690 1,783,204 1,314,207

- General 305,183 339,987 405,662 434,110
Balance net of loan loss provision 30,466,918 33,892,706 44,305,123 48,491,281

92
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
 BANK GROUP
31.03.2010 31.03.2009 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000

29.2 Movement in Loan Loss Provision

29.2.1 Movement in Specific Provision
Balance at beginning 923,690 1,314,207
Add: Provision for the year 480,468 893,720
Transfer from interest in suspense 12,563 13,965
Exchange rate difference on foreign currency provision 0 665
Less: Reduction in the year 243,262 433,093
Write-off of loans 0 6,260
1,173,459 1,783,204

29.2.2 Movement in General Provision

Balance at beginning 339,987 434,110
Add: Provision for the year 10,990 17,357
Less: Recoveries in the year 45,794 45,794
Exchange rate difference on foreign currency provision 0 11
305,183 405,662

30. Finance Leases

30.1 Balance on 31 March
Gross investment in leases:
Lease rentals receivable
- within one year from balance sheet date 2,678,279 3,318,564 2,678,279 3,318,564
- after one year from balance sheet date 2,232,106 3,145,097 2,232,106 3,145,097
4,910,385 6,463,661 4,910,385 6,463,661
Less: Deposit of rentals 57,153 69,445 57,153 69,445
Specific provision for leases in default 345,634 309,715 345,634 309,715
General provision for leases in default 154,404 96,604 154,404 96,604
Income in suspense 79,892 79,352 79,892 79,352
Unearned income on rentals receivable
- within one year from balance sheet date 470,907 647,680 470,907 647,680
- after one year from balance sheet date 336,665 456,435 336,665 456,435
Net investment in leases 3,465,730 4,804,430 3,465,730 4,804,430

30.2 Movement in Provision

30.2.1 Movement in Specific Provision
Balance at beginning 309,715 309,715
Add: Provision for the year 161,318 161,318
Less: Recoveries 73,244 73,244
Transfers * 52,155 52,155
345,634 345,634

* To specific provision on dues on terminated leases, included under debtors.

30.2.2 Movement in General Provision

Balance at beginning 96,604 96,604
Add: Provision for the year 92,824 92,824
Less: Recoveries 35,024 35,024
154,404 154,404

30.3 Movement in Income Suspense

Balance at beginning 79,352 79,352
Add: Transfer during the year 116,834 116,834
Less: Recoveries 116,294 116,294
79,892 79,892

93
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
 BANK GROUP
31.03.2010 31.03.2009 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000

31. Interest Receivable

31.1 Balance on 31 March
Amount due 1,718,066 1,466,995 2,217,723 1,466,995
Amount accrued and not due 348,953 469,516 348,954 895,645
Less: Interest in suspense 1,655,630 1,333,222 2,328,454 1,680,412
411,389 603,289 238,223 682,228

31.2 Movement in Interest in Suspense

Balance at beginning 1,333,222 1,680,412
Add: Transfer during the year 1,030,938 1,816,420
Less: Collections 596,111 1,045,440
Transfer to loan provision 12,563 13,965
Write-off 99,856 108,973
1,655,630 2,328,454

Ordinary Shares Preference Debentures Unit Trusts Total Total

Shares
Quoted Unquoted Unquoted Unquoted Quoted Unquoted 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

32. Investment Securities

32.1 Composition of Investment Securities
32.1.1 Bank
Performing investments 272,072 39,895 1,180,083 0 150,000 256,526 1,898,576 1,836,615
Non-performing investments 46,868 47,790 0 0 0 5,293 99,951 81,805
318,940 87,685 1,180,083 0 150,000 261,819 1,998,527 1,918,420
32.1.2 Group
Performing investments 272,652 41,925 1,180,083 0 150,000 256,526 1,901,186 2,313,230
Non-performing investments 46,868 47,790 0 0 0 5,293 99,951 136,805
Less: Provision for diminution 0 0 0 0 0 0 0 55,600
319,520 89,715 1,180,083 0 150,000 261,819 2,001,137 2,394,435
32.2 Movement in Investment Securities
32.2.1 Bank
Balance at beginning 298,316 87,685 1,186,417 0 0 346,002 1,918,420 1,679,827
Additions for the year 89,499 0 300,000 0 150,000 13,245 552,744 918,117
Less: Disposals 59,068 0 0 0 0 97,428 156,496 400,789
Redemptions 0 0 306,334 0 0 0 306,334 267,416
Transfer to dealing securities 9,807 0 0 0 0 0 9,807 16
Write-offs 0 0 0 0 0 0 0 11,303
318,940 87,685 1,180,083 0 150,000 261,819 1,998,527 1,918,420
Market value
on 31.03.2010 810,317 159,000 314,996 1,284,313
on 31.03.2009 321,615 – 379,412 701,027

32.2.2 Group
Balance at beginning 322,620 188,140 1,379,773 163,500 0 396,002 2,450,035 2,222,188
Additions for the year 89,499 0 300,000 0 150,000 13,245 552,744 1,006,842
Acquisition of a joint venture 0 0 0 0 0 0 0 580
Less: Disposals 59,068 0 0 0 0 97,428 156,496 76,788
Redemptions 0 0 306,334 0 0 0 306,334 671,595
Transfer to dealing securities 9,807 0 0 0 0 0 9,807 18,729
Write-offs 0 0 0 0 0 0 0 11,303
Disposal of a subsidiary 23,724 98,425 193,356 163,500 0 50,000 529,005 1,160
319,520 89,715 1,180,083 0 150,000 261,819 2,001,137 2,450,035
Less: Provision for diminution 0 0 0 0 0 0 0 55,600
319,520 89,715 1,180,083 0 150,000 261,819 2,001,137 2,394,435
Market value
on 31.03.2010 812,402 159,000 314,996 1,286,398
on 31.03.2009 339,368 – 431,610 770,978

94
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
32.3 On 31 March 2010 the Bank held more than 20% and less than 50% of the voting control in Hydrotech Lanka Dickoya
(Pvt) Limited. This investment is classified under investment securities and not as investments in associate companies since
the Bank did not have a significant influence over the operating and financial policies of this company.

31.03.2010 31.03.2009
Number of Cost* Market Number of Cost* Market
ordinary value ordinary value
shares Rs 000 Rs 000 shares Rs 000 Rs 000

32.4 Quoted Ordinary Shares

Banks, Finance & Insurance
Ceylinco Insurance PLC - voting 4,100 719 947 4,100 719 574
Ceylinco Insurance PLC - non-voting 28,571 5,000 4,657 28,571 5,000 2,171
Hatton National Bank PLC - non-voting 797,600 23,575 111,664 797,600 23,575 30,308
Housing Development Finance
Corporation Bank of Sri Lanka 37,400 3,375 5,348 37,400 3,375 1,898
Janashakthi Insurance PLC 250,000 3,000 3,500 250,000 3,000 1,938
Lanka ORIx Leasing Company PLC 0 0 0 17,828 780 1,235
Sampath Bank PLC 190,630 18,990 42,320 173,300 18,991 12,131
Seylan Bank PLC - non-voting 260,000 4,416 6,760 260,000 4,416 1,430
Aviva NDB Insurance PLC 12,000 2,013 2,472 0 0 0
HNB Assurance PLC 29,500 1,013 1,637 0 0 0
NDB Bank PLC 83,200 14,893 17,472 0 0 0
Union Assurance PLC 100 7 10 0 0 0
77,001 196,787 59,856 51,685

Beverages, Food & Tobacco

Ceylon Tobacco Company PLC 136,467 3,092 34,117 119,967 86 11,517
Distilleries Company of Sri Lanka PLC 117,200 4,752 13,830 117,200 4,752 7,618
7,844 47,947 4,838 19,135

Chemicals & Pharmaceuticals

Haycarb PLC 38,330 4,139 6,133 19,130 944 890
Chemical Industries (Col) PLC - voting 184,000 10,189 12,512 0 0 0
Chemical Industries (Col) PLC - non-voting 218,300 8,064 9,496 0 0 0
22,392 28,141 944 890

Construction & Engineering

Colombo Dockyard PLC 194,125 23,883 54,695 88,725 5,442 5,080

Diversified Holdings
Aitken Spence & Company PLC 63,200 21,522 86,821 63,200 21,522 19,908
Hayleys PLC 250,460 22,484 56,354 250,460 22,484 22,541
Carson Cumberbatch PLC 28,000 10,062 15,302 0 0
54,068 158,477 44,006 42,449

Healthcare
Ceylon Hospitals PLC - voting 109,090 3,018 13,091 100,000 2,500 5,300
Ceylon Hospitals PLC - non-voting 327,272 6,818 22,254 300,000 6,000 8,550
9,836 35,345 8,500 13,850

* Cost is reduced by write-off of diminution in value other than temporary in respect of investments.

Sector classification and market value per share are based on the list published by Colombo Stock Exchange.

95
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
 31.03.2010 31.03.2009
Number of Cost* Market Number of Cost* Market
ordinary value ordinary value
shares Rs 000 Rs 000 shares Rs 000 Rs 000

32.4 Quoted Ordinary Shares (Contd.)

Hotels & Travels
Sigiriya Village Hotels PLC 0 0 0 55,000 1,284 1,375
Stafford Hotels PLC 0 0 0 5,909,825 56,990 67,963
Aitken Spence Hotel Holdings PLC 10,500 2,551 4,043 0 0 0
Asian Hotels & Properties PLC 91,800 3,956 12,072 0 0 0
6,507 16,115 58,274 69,338

Information Technology
E-Channelling PLC 857,100 8,571 8,785 877,100 8,771 6,798

Investment Trusts
Ceylon Guardian Investment Trust PLC 48,318 5,061 24,231 36,884 1,298 3,841
Ceylon Investment PLC 113,336 5,763 30,714 94,520 2,564 5,482
10,824 54,945 3,862 9,323

Manufacturing
ACL Cables PLC 51,000 3,070 3,825 51,000 3,070 1,237
Chevron Lubricants Lanka PLC 609,400 20,301 103,598 304,700 20,301 32,146
Piramal Glass Ceylon PLC 12,981,852 25,000 28,560 12,981,852 25,000 16,876
Ceylon Grain Elevators PLC 48,997 1,297 833 48,997 1,297 392
Lanka Tiles PLC 0 0 0 296,219 5,809 8,442
Tokyo Cement Company (Lanka) PLC -
non-voting 1,236,000 16,346 21,939 1,236,000 16,346 11,124
66,014 158,755 71,823 70,217

Power & Energy

Lanka Indian Oil Company PLC 600,000 12,000 10,950 600,000 12,000 9,600
Vallibel Power Erathna PLC 7,500,000 20,000 39,375 7,500,000 20,000 23,250
32,000 50,325 32,000 32,850

Total Quoted Shares - Bank 318,940 810,317 298,316 321,615

Investment in quoted shares
by subsidiaries 580 2,085 24,304 17,753
Total Quoted Shares - Group 319,520 812,402 322,620 339,368

32.4.1 Investment in Quoted

Ordinary Shares by Subsidiaries
Banks, Finance & Insurance
Central Finance Company PLC 3 0 1 3 0 0
0 1 0 0

Beverage & Tobacco

Coco Lanka PLC 0 0 0 937,500 23,725 16,875
0 0 23,725 16,875

Diversified Holdings
Hayleys PLC 7,491 558 1,281 7,491 557 644
John Keells Holdings PLC 4,680 22 803 4,680 22 234
580 2,084 579 878
580 2,085 24,304 17,753

* Cost is reduced by write-off of diminution in value other than temporary in respect of investments.

Sector classification and market value per share are based on the list published by Colombo Stock Exchange.

96
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
 31.03.2010 31.03.2009
Number of Cost* Directors Number of Cost* Directors
ordinary valuation ordinary valuation
shares Rs 000 Rs 000 shares Rs 000 Rs 000

32.5 Unquoted Ordinary Shares

Beico Link Carbons (Pvt) Limited 328,500 2,190 2,190 328,500 2,190 2,190
Browns Dimo Industrial Products
(Pvt) Limited 150,000 1,500 8,556 150,000 1,500 1,500
Ceylinco Developers Limited 250,000 2,500 2,500 250,000 2,500 2,500
Credit Information Bureau of Sri Lanka 8,884 888 888 8,884 888 888
Cyprea Lanka (Pvt) Limited 1,500,000 15,000 15,000 1,500,000 15,000 15,000
Durdans Medical & Surgical Hospital
(Pvt) Limited 1,200,000 15,000 15,000 1,200,000 15,000 15,000
Fitch Ratings Lanka Limited 62,500 625 625 62,500 625 625
Hydrotech Lanka (Dickoya)
(Pvt) Limited 1,834,500 4,500 4,500 1,834,500 4,500 4,500
Link Development (Pvt) Limited 150,000 750 750 150,000 750 750
Plastipak Lanka Limited 240,000 2,400 2,400 240,000 2,400 2,400
Ranweli Resorts Limited 1,616,193 10,748 10,748 1,616,193 10,748 10,748
Sampath Centre Limited 1,000,000 10,000 16,000 1,000,000 10,000 10,000
Samson Reclaim Rubbers (Pvt) Limited 116,700 2,334 4,978 116,700 2,334 2,752
Sinwa Holdings Limited 460,000 9,200 9,200 460,000 9,200 9,200
The Video Team (Pvt) Limited 30,000 300 300 30,000 300 300
Wayamba Plantations (Pvt) Limited 2,750,000 9,750 9,750 2,750,000 9,750 9,750
Total unquoted ordinary shares - Bank 87,685 103,385 87,685 88,103
Investments in unquoted ordinary
shares by subsidiaries 2,030 100,455
Total unquoted ordinary
shares - Group 89,715 188,140

31.03.2010 31.03.2009
Number of Cost* Number of Cost*
ordinary ordinary
shares Rs 000 shares Rs 000

32.5.1 Investments in Unquoted

Ordinary Shares by Subsidiaries
Credit Information Bureau of Sri Lanka 300 30 300 30
Durdans Heart Surgical Centre (Pvt) Limited 0 0 1,500,000 14,625
Durdans Medical & Surgical (Pvt) Limited 0 0 2,000,000 25,000
Hayleys Hydro Energy (Pvt) Limited 0 0 5,880,000 58,800
Lankaclear (Pvt) Limited 100,000 1,000 100,000 1,000
Lanka Financial Services Bureau Limited 100,000 1,000 100,000 1,000
2,030 100,455

* Cost is reduced by write-off of diminution in value other than temporary in respect of investments.

97
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
 31.03.2010 31.03.2009
Number of Cost* Number of Cost*
ordinary ordinary
shares Rs 000 shares Rs 000

32.6 Unquoted Preference Shares

32.6.1 Unquoted Redeemable
Cumulative Preference Shares
Carson Cumberbatch PLC 30,750,000 263,750 40,625,000 406,250
Dialog Telekom PLC 352,500,000 352,500 423,000,000 423,000
Eden Hotels Lanka PLC 3,333,334 33,333 3,333,334 33,334
Heladanavi (Pvt) Limited 5,000,002 50,000 8,333,335 83,333
Phoenix Industries (Pvt) Limited 54,000,000 480,000 24,000,000 240,000
1,179,583 1,185,917

32.6.2 Unquoted Irredeemable Preference Shares

Arpico Finance Company PLC 50,000 500 50,000 500
Total investments in unquoted
preference shares - Bank 1,180,083 1,186,417
Investments in unquoted
preference shares by subsidiaries 0 193,356
Total investments in unquoted
preference shares - Group 1,180,083 1,379,773

32.6.3 Investments in Unquoted

Preference Shares by Subsidiaries
E Services Limited 0 0 2,500,000 25,000
LVS Energy (Pvt) Limited 0 0 5,000,000 50,250
Nividhu (Pvt) Limited 0 0 3,280,000 32,981
Renuka Agrifoods Limited 0 0 0 0
Royal Fernwood Porcelain Limited 0 0 2,500,000 30,000
Tudawe Brothers Limited 0 0 390,000 30,000
Unit Energy (Pvt) Limited 0 0 2,500,000 25,125
0 193,356

* Cost is reduced by write-off of diminution in value other than temporary in respect of investments.

31.03.2010 31.03.2009
Cost* Cost*
Rs 000 Rs 000

32.7 Unquoted Debentures

Total investments in unquoted debentures - Bank 0 0
Investments in unquoted debentures by subsidiaries 0 163,500
Total investments in unquoted debentures - Group 0 163,500

32.7.1 Investments in Unquoted Debentures by Subsidiaries

Ceylon Hospitals PLC 0 100,000
Hatton National Bank PLC 0 13,500
Neluwa Cascade Limited 0 40,000
Unit Energy (Pvt) Limited 0 10,000
0 163,500

* Cost is reduced by write off, where appropriate by the diminution in value other than temporary in respect of investments.

98
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
 31.03.2010 31.03.2009
Number of Cost Market Number of Cost Market
units value units value
Rs 000 Rs 000 Rs 000 Rs 000

32.8 Quoted Units in Unit Trusts

NAMAL Actuity Value Fund 3,000,000 150,000 159,000 0 0 0
Total quoted units - Bank 150,000 159,000 0 0
Investments in unit trusts by subsidiaries 0 0 0 0 0
Total investments in quoted unit
trusts - Group 150,000 159,000 0 0

31.03.2010 31.03.2009
Number of Cost Managers Number of Cost Managers
units Buying Price units Buying Price
Rs 000 Rs 000 Rs 000 Rs 000
32.9 Unquoted Units in
Unit Trusts
NAMAL Growth Fund 533,050 5,293 33,673 1,203,050 11,947 31,857
NAMAL Income Fund 16,712,129 170,625 184,168 16,712,129 170,624 178,987
NAMAL Money Market Fund 7,444,611 74,844 76,084 13,465,899 135,372 140,314
National Equity Fund 1,040,540 11,057 21,071 2,640,540 28,059 28,254
Total investments in unqouted unit
trusts - Bank 261,819 314,996 346,002 379,412
Investments in unit trusts by subsidiaries 0 0 50,000 52,198
Total investments in unquoted unit
trusts - Group 261,819 314,996 396,002 431,610

32.9.1 Investments in Unit Trusts

by Subsidiaries
NAMAL Income Fund 0 0 0 4,873,740 50,000 52,198
0 0 50,000 52,198

BANK GROUP
31.03.2010 31.03.2009 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000

33. Investments in Associate Companies

33.1 Quoted
Commercial Bank of Ceylon PLC (CBC)
(Ownership 26.85%-26.90% in 2009)
Balance at beginning 3,151,959 3,151,959 7,116,534 6,353,709
Share of profit after tax 0 0 1,079,128 1,061,224
Dividend received - elimination on consolidation 0 0 (422,804) (333,005)
Gain on deemed reduction in ownership 0 0 774 130
Movement recognised in the statement of changes in equity 0 0 (2,612) 34,476
Balance on 31 March at cost 3,151,959 3,151,959 7,771,020 7,116,534

33.2 Unquoted
National Asset Management Limited (Ownership 30%)
Balance at beginning 35,270 35,270 44,137 42,080
Share of profit after tax 0 0 6,132 4,877
Dividend received - elimination on consolidation 0 0 (2,863) (2,820)
Disposal of subsidiary - LVL deemed disposal 0 0 571 0
Balance on 31 March 35,270 35,270 47,977 44,137
Total 3,187,229 3,187,229 7,818,997 7,160,671
Market value of investment in Commercial Bank of Ceylon PLC
(Voting & non-voting ordinary shares) 13,536,896 5,049,111 13,536,896 5,049,111

The Central Bank has issued a Direction requiring the Bank to reduce its voting share holding in CBC to 15% by 23 October
2008, and the Bank's failure to do so has resulted in the voting rights being restricted to 10% thereafter. The Bank has filed
action against the monetary board seeking the withdrawal or variation of this Direction. The actions are pending.

Investment in CBC was classified as an Associate Company on the basis that though the voting rights attached to this
investment is restricted to 10% after 23 October 2008 in terms of applicable direction issued by the Central Bank, the Bank
continued to have representation on the Board of CBC and thereby had the ability to participate in policy making process
during the financial year.

99
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
 BANK GROUP
31.03.2010 31.03.2009 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000

34. Investment in Joint Venture

34.1 Unquoted
Acuity Partners (Pvt) Limited (ownership 50%)
Balance on 31 March 250,000 250,000 0 0

Bank’s Interest in Acuity Partners (Pvt) Limited includes:

GROUP
31.03.2010 31.03.2009
Rs 000 Rs 000

Assets 2,081,424 2,160,849

Elimination of gain attributable to parent - consolidation adjustment (142,197) (42,491)
Total Assets 1,939,227 2,118,358
Liabilities 1,705,928 1,827,850
Income 182,201 65,805
Expenses 113,892 47,680
Tax 26,124 10,112

DFCC DFCC Lanka Lanka Synapsys Bank

Consulting Vardhana Industrial Ventures Limited 31.03.2010 31.03.2009
(Pvt) Limited Bank Limited Estates Limited PLC
Ownership Ownership Ownership Ownership Ownership
100% 96% 51% 59% 100%
Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

35. Investments in
Subsidiary Companies
Balance at beginning 5,000 2,286,284 78,283 237,600 20,000 2,627,167 2,642,163
Investments in additional shares 0 0 18,753 0 0 18,753 23
Less: Disposal 0 0 0 237,600 0 237,600 15,019
Balance on 31 March 5,000 2,286,284 97,036 0 20,000 2,408,320 2,627,167

The Bank divested its share holding in Lanka Ventures PLC to Acquity Partners (Pvt) Limited on 18 January 2010.
Consequent to this disposal Banks ownership in Industrial Estates Limited reduced to 49%.
Bank increased its direct ownership on 25 March 2010 by investing in 340,969 shares in Lanka Industrial Estates Limited.
This increased the direct holding to 51%.
In terms of Direction No. 1 of 2007 issued by the Central Bank of Sri Lanka to Commercial Banks, DFCC Bank is required to
reduce the voting ordinary shares held in its subsidiary, DFCC Vardhana Bank Limited to 15% on or before 23 April 2012.

BANK GROUP
31.03.2010 31.03.2009 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000

36. Group Balances Receivable

Acuity Partners (Pvt) Limited 302 7 150 0
DFCC Consulting (Pvt) Limited 0 122 0 0
DFCC Vardhana Bank Limited 30,777 33,320 0 0
Synapsys Limited 5,042 2,876 0 0
36,121 36,325 150 0

37. Income Tax Refund Receivable

Income tax overpayment 0 1,980 1,682 14,396

38. Investment Properties

38.1 Movement
Balance as at 31 March 6,500 6,500 141,215 137,181
Additions during the year 0 0 0 10,388
Less: Depreciation 0 0 7,257 6,354
Disposals during the year 0 0 1,317 0
6,500 6,500 132,641 141,215

100
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
 Buildings Extent of Cost Accumulated Net Book Market
Land Depreciation/ Value Value*
Impairment
sq. ft. Perches Rs 000 Rs 000 Rs 000 Rs 000

38.2 List of Investment Property

586, Galle Road, Colombo 3 0 20 6,500 ** 0 6,500 6,500
Pattiwila Road, Sapugaskanda, Makola 280,000 20,000 193,802 59,087 134,715 575,305
200,302 59,087 141,215 581,805
* The fair value of investment property as at 31.03.2010 was based on market valuations carried out in 2007 by Mr P B Kalugalagedara,
FIV (Sri Lanka), Chartered Valuer.

** Cost net of cumulative impairment loss

GROUP
31.03.2010 31.03.2009
Rs 000 Rs 000

39. Goodwill on Consolidation

DFCC Vardhana Bank Limited 146,602 146,602
Lanka Industrial Estates Limited 9,623 0
156,225 146,602

Based on value in use Bank has determined that there is no impairment of goodwill on consolidation.

Land & Office Furniture Motor Total

building equipment & fittings vehicles
Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

40. Property, Plant and Equipment

40.1 Composition: Bank
Cost as at 31.03.2009 261,266 520,172 174,625 157,766 1,113,829
Additions for the year 0 21,516 16,751 0 38,267
Less: Disposals during the year 0 194 0 3,838 4,032
Cost as at 31.03.2010 261,266 541,494 191,376 153,928 1,148,064
Accumulated depreciation as at 31.03.2009 120,466 385,296 64,235 116,135 686,132
Charge for the year 8,185 49,881 15,845 16,319 90,230
Less: Accumulated depreciation on disposal 0 158 0 3,698 3,856
Accumulated depreciation as at 31.03.2010 128,651 435,019 80,080 128,756 772,506
Net book value as at 31.03.2010 132,615 106,475 111,296 25,172 375,558
Net book value as at 31.03.2009 140,800 134,876 110,390 41,631 427,697

Building Extent of Cost Accumulated Net book

land depreciation value
sq. ft. perches Rs 000 Rs 000 Rs 000

40.1.2 List of Freehold Land and Building

73/5, Galle Road, Colombo 3 57,200 104.45 54,510 49,097 5,413
5, Deva Veediya, Kandy 4,600 12.54 12,699 4,611 8,088
259/30, Kandy Road, Bambarakelle, Nuwara-Eliya 0 28.72 7,279 0 7,279
73, W A D Ramanayake Mw., Colombo 2 21,400 45.00 184,178 74,943 109,235
4A, 4th Cross Lane, Borupana, Ratmalana – 20.00 2,600 0 2,600
261,266 128,651 132,615

Market Value of Properties

Date of
Rs million valuation

73/5, Galle Road, Colombo 3 500 31.03.2008

5, Deva Veediya, Kandy 35 31.03.2008
73, W A D Ramanayake Mawatha, Colombo 2 320 31.03.2008
(Valued by Mr P B Kalugalagedera - Chartered Valuer)

101
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
 Land & Plant & Office Furniture Motor Total
building machinery equipment & fittings vehicles
Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

40.2 Composition: Group

Cost as at 31.03.2009 314,555 64,850 831,024 406,360 201,887 1,818,676
Transferred from intangible assets 0 0 2,988 0 0 2,988
Additions for the year 8,875 0 71,538 88,106 0 168,519
Less: Disposals during the year 89 0 2,507 3,515 3,839 9,950
Disposal of a subsidiary
- Lanka Ventures PLC 0 0 1,214 3,527 3,125 7,866
- Joint Venture Company 0 0 2,950 956 0 3,906
Cost as at 31.03.2010 323,341 64,850 898,879 486,468 194,923 1,968,461

Accumulated depreciation as at 31.03.2009 142,438 62,112 531,509 138,288 141,289 1,015,636

Transferred from intangible assets 0 0 2,671 0 0 2,671
Charge for the year 11,184 0 106,338 43,190 24,289 185,001
Less: Accumulated depreciated on disposal 0 0 1,311 3,503 3,698 8,512
Disposal of a subsidiary
- Lanka Ventures PLC 0 0 960 3,483 3,125 7,568
- Joint Venture Company 0 0 2,397 589 0 2,986
Accumulated depreciation as at 31.03.2010 153,622 62,112 635,850 173,903 158,755 1,184,242
Net book value as at 31.03.2010 169,719 2,738 263,029 312,565 36,168 784,219
Net book value as at 31.03.2009 172,117 2,738 299,515 268,072 60,598 803,040

BANK GROUP
31.03.2010 31.03.2009 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000

41. Intangible Assets

Cost as at 31 March 286,816 264,287 684,263 610,632
Transferred (to)/from property, plant and equipment 0 0 (2,988) 796
Additions for the year 18,270 22,529 52,512 65,510
Acquisition of a joint venture 0 0 0 7,325
Cost as at 31 March 305,086 286,816 733,787 684,263
Accumulated depreciation as at 31 March 240,874 210,357 514,781 440,525
Transferred (to)/from property, plant and equipment 0 0 (2,671) 187
Amortisation for the year 14,233 30,517 61,643 70,230
Acquisition of a joint venture 0 0 0 3,839
Accumulated amortisation as at 31 March 255,107 240,874 573,753 514,781
Net Book Value as at 31 March 49,979 45,942 160,034 169,482

42. Deferred Tax Asset

Balance at beginning 1,928 1,557 34,309 109,047
Additions through acquisition of a joint venture -
Acuity Partners (Pvt) Limited 0 0 0 367
Disposal of subsidiary - DFCC Stockbrokers (Pvt) Limited 0 0 0 (748)
Increase/(decrease) 1,035 371 (28,924) (74,357)
2,963 1,928 5,385 34,309
Transferred from deferred tax liability (Note 49) 0 0 (127) 0
Offset against deferred tax liability (Note 49) (2,963) (1,928) (4,452) (34,309)
0 0 806 0

102
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
 BANK GROUP
31.03.2010 31.03.2009 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000

43. Other Assets

Refundable deposits and advances 38,359 70,958 137,662 188,242
Dividend due 22,533 41,742 22,448 41,742
Reimbursement of exchange loss due from
Government of Sri Lanka 0 129,959 0 129,959
Debtors 397,979 451,494 1,177,381 963,451
458,871 694,153 1,337,491 1,323,394

BANK GROUP
31.03.2010 31.03.2009 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000

44. Deposits from Customers

Demand deposits 0 0 968,679 707,640
Savings deposits 0 0 4,598,808 2,361,526
Fixed deposits 5,120,684 5,293,162 19,775,256 20,326,168
Certificates of deposits 2,973 15,278 65,234 100,071
Margin deposits 0 0 95,708 79,939
5,123,657 5,308,440 25,503,685 23,575,344

Deposits from banks 9,399 8,088 1,562,958 1,256,181

Deposits from non-bank customers 5,084,837 4,450,352 23,763,181 21,414,257
Deposits from finance companies 29,421 850,000 177,546 904,906
5,123,657 5,308,440 25,503,685 23,575,344

45. Borrowing - Medium and Long-Term

45.1 Borrowing
Repayable in foreign currency
Exchange difference borne by the Bank
FMO 1,709,250 0 1,709,250 0
Nordea Bank Danmark A/S 192,309 226,300 192,309 226,300
EIB 2,668,735 2,039,370 2,668,735 2,039,370
4,570,294 2,265,670 4,570,294 2,265,670
Exchange rate difference reimbursed by GOSL
ADB 0 344,524 0 344,524
Repayable in Rupees
Government of Sri Lanka/IDA loans - credit lines 1,771,121 1,834,112 1,771,121 1,834,112
Government of Sri Lanka/ADB loans - credit lines 4,115,732 3,419,554 4,115,732 3,419,554
Government of Sri Lanka/KFW loans - credit lines 2,065,703 2,480,202 2,065,703 2,480,202
Government of Sri Lanka/JBIC loans - credit lines 2,962,971 2,816,436 2,962,971 2,816,436
Government of Sri Lanka/IFAD loans - credit lines 20,375 23,085 20,375 23,085
Government of Sri Lanka/EIB loans - credit lines 8,814,819 8,690,318 8,814,819 8,690,318
Central Bank of Sri Lanka - re-finance loans (secured) 1,054,928 1,346,391 1,054,928 1,346,391
FMO 339,433 509,150 339,433 509,150
Other local sources 3,000,000 5,250,000 3,000,000 5,250,000
28,715,376 28,979,442 28,715,376 28,979,442

45.2 Supplementary Information

(As required under DFCC Act No. 35 of 1955)
As at 31 March 2010 there were no loans outstanding which were approved and guaranteed by Government of Sri Lanka in
terms of Section 14 of DFCC Bank Act No. 35 of 1955 as amended.

103
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
45.3 Assets Pledged as Security
Amount
Nature Rs 000

Assignment in terms of Section 88A of the Monetary Law of

Loans refinanced by the Central Bank 1,054,928

Acronyms:
ADB - Asian Development Bank
EIB - European Investment Bank
FMO - Nederlandse Financierings - Maatschappij Voor Ontwikkelingslanden N.V
IDA - International Development Association
IFAD - International Fund for Agriculture Development
JBIC - Japan Bank for International Cooperation
KFW - Kreditanstalt fur Wiederaufbau
BANK GROUP
31.03.2010 31.03.2009 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000

46. Borrowing - Short-Term

Borrowing under repurchase agreements (Repos)
Government securities sold under repurchase 115,000 2,768,741 4,441,741 5,639,540
Other securities sold under repurchase 0 11,130 0 11,130
115,000 2,779,871 4,441,741 5,650,670
Bank overdrafts 0 0 22,106 1,757
Inter-bank borrowing 0 250,000 2,182,384 1,084,669
115,000 3,029,871 6,646,231 6,737,096

47. Debentures
47.1 Movement in Debentures
Balance at beginning 2,700,000 2,000,000 2,700,000 2,000,000
Issued during the year 0 700,000 0 700,000
2,700,000 2,700,000 2,700,000 2,700,000

BANK GROUP
2010 2009 2010 2009
Rs 000 Rs 000 Rs 000 Rs 000

48. Group Balances Payable

DFCC Consulting (Pvt) Limited 151 0 0 0

BANK GROUP
31.03.2010 31.03.2009 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000

49. Deferred Taxation

Balance at beginning 287,122 252,180 324,906 276,100
Additions through acquisition of a joint venture -
Acuity Partners (Pvt) Limited – – – 1,626
Increase/(decrease) (13,015) 34,942 (915) 47,180
274,107 287,122 323,991 324,906
Transferred to deferred tax asset (Note 42) – – 127 –
Transferred from deferred tax asset (Note 42) 2,963 1,928 4,452 34,309
271,144 285,194 319,412 290,597

104
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
 BANK GROUP
31.03.2010 31.03.2009 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000

50. Other Liabilities

Accruals 57,131 36,282 65,553 136,473
Prior year dividends 19,374 16,680 19,374 18,973
Security deposit for leases 7,095 7,349 58,065 59,989
Prepaid loan and lease rentals 72,895 87,754 72,895 87,754
Account payables 162,883 172,684 935,813 629,684
319,378 320,749 1,151,700 932,873

50.1 Provision for staff retirement benefits:

Defined benefit funded pension (7,654) 28,669 (7,654) 28,669
Defined benefit unfunded pension 36,020 28,933 36,020 28,933
Defined benefit unfunded end of service gratuity 8,465 5,510 34,540 26,171
356,209 383,861 1,214,606 1,016,646
Other provisions 130,156 114,920 164,476 135,566
486,365 498,781 1,379,082 1,152,212

50.2 Movement in Provision for Staff Retirement

50.2.1 Defined Benefit Funded Pension
Net accrued liability on 31 March 2009 28,669 28,669
Retirement benefit expense for the financial year 65,396 65,396
Employer contributions for the financial year (101,719) (101,719)
Net prepayment on 31 March 2010 (7,654) (7,654)

50.2.2 Defined Benefit Unfunded Pension

Net accrued liability on 31 March 2009 28,933 28,933
Retirement benefit expense for the financial year 7,087 7,087
Employer contributions for the financial year 0 0
Net accrued liability on 31 March 2010 36,020 36,020

50.2.3 Defined Benefit Unfunded End of Service

Net accrued liability on 31 March 2009 5,510 26,171
Retirement benefit expense for the financial year 4,486 12,824
Gratuity payments for the financial year (1,531) (4,455)
Net accrued liability on 31 March 2010 8,465 34,540

50.3 Movement in Other Provisions

Balance as at 31 March 2009 114,920 135,566
Provision for the financial year 130,156 164,476
Payments for the financial year (111,151) (129,778)
Over provision (3,769) (5,142)
Disposal of a subsidiary - Lanka Ventures PLC 0 (646)
Balance as at 31 March 2010 130,156 164,476

105
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
 BANK
31.03.2010
Rs 000

50.4 Reconciliation of Actuarial Liability with

Accounting Liability Recognised in the
Balance Sheet
50.4.1 Funded Pension Liability
Present value of defined benefit obligations 1,317,586
Fair value of pension assets (1,408,366)
(90,779)
Unrecognised gain on March 2010 (Note 14.2.1) 83,126
Prepayment recognised in the balance sheet (7,654)

50.4.2 Unfunded Pension Liability

Present value of defined benefit obligations 41,233
Unrecognised(loss) on 31 March 2010 (Note 14.2.2) (5,213)
Liability recognised in the balance sheet on Note 50.2.2 36,020

50.4.3 Unfunded End of Service Gratuity

Present value of defined benefit obligations 14,928
Unrecognised (loss) on 31 March 2010 (Note 14.2.3) (6,463)
Liability recognised in the balance sheet on Note 50.2.3 8,465

50.5 Movement in Actuarial Liability

50.5.1 Funded Pension Liability
Present value of defined benefit pension obligations 1,194,916
Current service cost on 1 April 2009 59,556
Interest on obligation on 31 March 2010 112,903
Benefit payments year ended 31 March 2010 (53,801)
Actuarial experience loss 4,012
Present value of defined benefit pension obligations 1,317,586

50.5.2 Unfunded Pension Liability

Present value of defined benefit pension obligations 30,007
Current service cost on 1 April 2009 4,024
Interest on obligation on 31 March 2010 3,063
Benefit payments year ended 31 March 2010 0
Actuarial experience loss 4,139
Present value of defined benefit pension obligations 41,233

50.5.3 Unfunded End of Service Gratuity

Present value of defined benefit pension obligations 10,843
Current service cost on 1 April 2009 2,524
Interest on obligation on 31 March 2010 1,537
Benefit payments year ended 31 March 2010 (1,531)
Actuarial experience loss 1,555
Present value of defined benefit pension obligations 14,928

50.6 Movement in Pension Assets

Pension assets on 1 April 1,216,487
Expected return on pension assets 107,063
Employer's contribution 101,719
Actuarial experience gain 36,898
Benefits paid (53,801)
1,408,366

106
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
 BANK GROUP
31.03.2010 31.03.2009 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000

51. Subordinated Debentures

Listed in the Colombo Stock Exchange 1,000,000 1,000,000 1,000,000 1,000,000
Private placement 1,000,000 1,000,000 1,000,000 1,000,000
2,000,000 2,000,000 2,000,000 2,000,000

52. Share Capital

52.1 Authorised Share Capital
500,000,000 ordinary shares of Rs 10/- each 5,000,000 5,000,000 5,000,000 5,000,000

52.2 Issued Share Capital

132,375,305 ordinary shares of Rs 10/- each 1,323,753 1,307,325 1,323,753 1,307,325

Allotted and fully paid:

Balance at beginning 130,732,470 ordinary shares
(130,195,603 shares in 2009) 1,307,325 1,301,956 1,307,325 1,301,956
Issue under share option - 1,642,835 ordinary shares
(536,867 shares in 2009) 16,428 5,369 16,428 5,369
Balance on 31 March 132,375,305 ordinary shares
(130,732,470 shares in 2009) 1,323,753 1,307,325 1,323,753 1,307,325

Ordinary shares held by associate Commercial Bank of Ceylon PLC - 20,588, on 31 March 2010.

The financial statements of the Bank has retained the concept of par value, authorised capital and share premium account
instead of the Stated Capital introduced by the Companies Act No. 07 of 2007 in accordance with Section 7
of the DFCC Bank Act No. 35 of 1955 as amended.

52.3 Employee Share Option Plan

31.03.2010
Numbers

52.3.1 Movement in Options Granted

Options granted 2,215,540
Adjustment for bonus and rights 1,922,820
Options lapsed (256,723)
Total granted 3,881,637

Less: Options exercised

Prior years 2,058,180
During the year 1,642,835
180,622

Outstanding options are in respect of the grant in the year to 31 March 2006. The exercise price is Rs117.46. The options
will have to be exercised on or before 2 July 2011.

107
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
 BANK GROUP
31.03.2010 31.03.2009 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000

53. Stated Capital

Share Capital 1,323,753 1,307,325 1,323,753 1,307,325
Share Premium - Bank 3,371,911 3,207,818 3,371,911 3,207,818
- Group 0 0 3,499 52,193
Equivalent Stated Capital 4,695,664 4,515,143 4,699,163 4,567,336

54. Reserves
54.1 Reserve Fund
Five percentum of profits after tax is transferred to the reserve fund as per direction issued by Central Bank of Sri Lanka under
section 76 (j) (1) of the Banking Act No. 30 of 1988 as amended by Banking (Amendment) Act No. 33 of 1995.

General Foreign Primary dealer Total

reserve currency special risk
translation reserve
reserve 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

54.2 Other Reserves

Bank
Balance at beginning 8,637,839 – – 8,637,839 7,982,043
Transfers 742,000 – – 742,000 655,796
Balance as at 31 March 9,379,839 – – 9,379,839 8,637,839

Group
Balance at beginning 11,926,826 (98,179) 13,141 11,841,788 10,546,863
Deferred tax effect on revaluation
surplus on property - associate company 0 0 0 0 1,337
Surplus on revaluation property
- associate company 0 0 0 0 10,574
Net unrealised gains from Bangladesh translation
- associate company 0 (2,612) 0 (2,612) 17,673
Transfer of Reserves Consequent to Liquidation
- associate company 0 0 0 0 0
Transfers 1,356,495 0 14,224 1,370,719 1,265,341
Disposal of subsidiary (205) 0 0 (205) 0
Balance as at 31 March 13,283,116 (100,791) 27,365 13,209,690 11,841,788

54.3 Other Reserves

54.3.1 Foreign Currency Translation Reserve
This represents the loss on the translation of the financial statements of the Bangladesh operations of the associate
Commercial Bank of Ceylon PLC.

54.3.2 Primary Dealer Special Risk Reserve

This comprises 25% of the post tax profit of the primary dealer unit of Commercial Bank of Ceylon PLC as per the direction
issued by Central Bank of Sri Lanka.

108
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
54.4 Retained Earnings
This represents cumulative net earnings, inclusive of proposed dividend amounting to Rs794 million payable on approval by
the shareholders at the Annual General Meeting on 30 June 2010. The balance is retained and reinvested in the business of
the Bank.

55. Minority Interests

Minority interests represent the portion of equity interests that are not owned, directly or indirectly through subsidiaries, by
the Bank.

BANK GROUP
31.03.2010 31.03.2009 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000

56. Commitments & Contingencies

56.1 Contingent Liabilities
Guarantees issued to:
DFCC Vardana Bank in respect of indebtedness
of customers of the Bank 115,000 410,176 0 0
Other banks in respect of indebtedness of
customers of the Bank 68,484 139,234 68,484 475,446
Companies in respect of indebtedness of
customers of the Bank 417,502 447,975 1,826,848 1,614,654
Principal collector of customs (duty guarantees) 0 0 0 51,212
Shipping guarantees 0 0 281,845 382,103

Documentary credits 0 0 1,683,210 1,871,713

Bills for collection 0 0 631,482 661,923
Income tax (assessment under appeal Y/A 2006/07) 77,406 77,406 77,406 77,406
Forward exchange contracts (net) 1,724,764 0 6,028,770 1,910,051

56.2 Commitments in Ordinary Course of Business

Commitments for unutilised credit facilities 7,095,539 6,758,456 8,305,294 7,662,247
Capital expenditure approved by the Board of Directors
and Contracted 22,000 0 33,272 94,170
Not contracted 0 0 17,309 58,215
9,520,695 7,833,247 18,953,920 14,859,140

57. Litigation
57.1 Litigation against the Bank
(a) A client has filed action against five defendants including the Bank in the District Court of Kurunegala claiming that a
property mortgaged by him to the Bank had been unlawfully transferred to a third party through procedure in Recovery
of Loans by Banks (Special Provisions) Act No.4 of 1990 seeking the sale of the property to be set aside, and claiming
Rs6 million as damages from the Bank. The Bank has transferred the property in terms of a settlement entered in the
Magistrate’s Court in another case. The District Court has issued an interim injunction. One of the defendants has
appealed to the Provincial High Court of Civil Appeal against the interim injunction order. The Bank is defending
themselves in this action.

(b) A client of the Bank has instituted legal action in the District Court of Matara against the Bank claiming a sum of Rs10
million for non-disbursement of the full loan approved to him. The Bank had suspended the disbursement of the facility
approved to him as he has made a false statement in his application to the Bank. The Bank is defending this action.

109
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
(c) A client of the Bank has filed action in the District Court of Kandy claiming Rs1 million as damages on the basis that the
Bank has published an incorrect resolution in the newspaper under Recovery of Loans by Banks (Special Provisions) Act
No. 4 of 1990. The Bank is defending this action.

(d) A client of the Bank who has defaulted leasing facilities has filed action in the Commercial High Court of Colombo
claiming a sum of Rs200 million as damages against the Bank for unlawfully re-possessing and selling the equipment
leased by him. The Bank is defending this action as the Bank has lawfully re-possessed and sold the equipment having
granted time for settlement by the lessee.

(e) The Bank's voting rights in Commercial Bank of Ceylon PLC (CBC) taken together with several other shareholders has
been restricted to 10% pursuant to a interim injunction granted in actions filed by certain parties seeking to reduce Bank's
shareholding in CBC. The Bank is defending the actions.

58. Maturity Profile of Assets and Liabilities

58.1 Definition of Maturity
58.1.1 Time interval between balance sheet date and contractual maturity date, as defined in Sri Lanka Accounting
Standard 23, ‘Revenue Recognition and Disclosures in the Financial Statements of Banks’, in respect of assets and
liabilities with contractual maturity dates.

58.1.2 Time interval between balance sheet date and expected date of realisation of assets and repayment of liabilities as
defined by Central Bank of Sri Lanka for assets and liabilities with no contractual maturity dates.

58.2 Allocation of Amounts

Amounts are allocated to respective maturity groupings based on:

a. instalments falling due as per contracts, for assets and liabilities with a contractual maturity dates; and

b. expected dates of realisation of an asset and expected dates of repayments of liabilities, for assets and liabilities with no
contractual maturity dates.

The amounts allocated represent the total amount receivable or payable in each maturity grouping.

110
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
 31.03.2010 Up to 3 months 3 to 12 months 1 to 3 years 3 to 5 years > 5 years
Total
Rs 000 Rs 000 % Rs 000 % Rs 000 % Rs 000 % Rs 000 %

58.3 Profile
58.3.1 Bank
Assets with Contractual Maturity
(Interest bearing assets)
Short-term funds 2,493,213 1,866,488 75 626,725 25 – – – –
Treasury bills & other securities eligible
for rediscounting with Central Bank 7,651,073 1,763,436 23 5,887,637 77 – – – –
Securities purchased
under resale agreements 913,611 913,611 100 – – – – – –
Placements with and loans to other
banks and financial institutions 1,834,018 28,178 2 202,095 11 438,475 24 484,137 26 681,133 37
Loans and advances 30,466,918 4,219,425 14 6,651,201 22 12,803,781 42 5,482,845 18 1,309,666 4
Leases 3,465,730 141,729 4 434,007 13 1,127,003 33 1,483,015 42 279,976 8
46,824,563 8,932,867 19 13,801,665 29 14,369,259 31 7,449,997 16 2,270,775 5

Other Assets
(Non-interest bearing assets)
Cash and balance with banks 328,820 328,820 100 – – – – –
Dealing securities 56,355 56,355 100 – – – – –
Interest receivable 411,389 407,465 99 3,924 1 – – –
Investment securities-
Ordinary shares/units 818,444 – – – – – – 818,444 100
Preference shares 1,180,083 222,499 19 180,417 15 601,667 51 175,000 15 500 0
Investment in associate companies 3,187,229 – – – – – – 3,187,229 100
Investment in joint venture 250,000 – – – – – – 250,000 100
Investment in subsidiary companies 2,408,320 – – – – – – 2,408,320 100
Group balances receivable 36,121 36,121 100 – – – – –
Prepayments 23,853 2,839 12 4,171 17 9,176 39 5,111 21 2,556 11
Investment property 6,500 – – – – – – 6,500 100
Property, plant and equipment 375,558 – – – – – – 375,558 100
Intangible assets 49,979 – – – – – – 49,979 100
Other receivables 458,871 458,871 100 – – – – –
9,591,522 1,512,970 16 188,512 2 610,843 6 180,111 2 7,099,086 74
Total assets 56,416,085 10,445,837 19 13,990,177 24 14,980,102 26 7,630,108 14 9,369,861 17

Liabilities with Contractual Maturity

(Interest bearing liabilities)
Deposits from customers 5,123,657 1,486,714 29 2,696,121 52 907,555 18 32,967 1 300 0
Borrowing - Medium and long-term 28,715,376 1,122,887 4 4,823,188 17 6,562,766 23 5,731,415 20 10,475,120 36
- Short-term 115,000 115,000 100 – – – – – – –
Debentures 2,700,000 500,000 19 1,000,000 37 1,200,000 44 – – – –
Subordinated debentures 2,000,000 – – – – 1,410,000 70 – – 590,000 30
38,654,033 3,224,601 8 8,519,309 22 10,080,321 26 5,764,382 15 11,065,420 29

Other Liabilities
(Non-interest bearing liabilities)
Group Balances Payable 151 151 100
Interest accrued 1,081,782 1,081,782 100 – – – –
Taxation 199,786 199,786 100 – – – – – – – –
Deferred taxation 271,144 – – – – – – 271,144 100 – –
Other liabilities 486,365 486,365 100 – – – – – – – –
2,039,228 1,768,084 87 – – – – 271,144 13 – –

Total liabilities 40,693,261 4,992,685 12 8,519,309 21 10,080,321 25 6,035,526 15 11,065,420 27

111
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
 31.03.2010 Up to 3 months 3 to 12 months 1 to 3 years 3 to 5 years > 5 years
Total
Rs 000 Rs 000 % Rs 000 % Rs 000 % Rs 000 % Rs 000 %

58.3.2 Group
Assets with Contractual Maturity
(Interest bearing assets)
Short-term funds 1,129,914 391,042 35 738,872 65 – – – – – –
Treasury bills and other securities eligible
for rediscounting with Central Bank 23,740,835 8,120,727 34 13,054,916 56 2,431,689 10 83,084 0 50,419 0
Securities purchased
under resale agreements 1,004,055 993,250 99 10,805 1 – – – – – –
Placements with and loans to other
banks and financial institutions 1,834,018 28,178 2 202,095 11 438,475 24 484,137 26 681,133 37
Bills of exchange discounted 325,886 310,454 95 6,459 2 8,973 3 – – – –
Loans 44,305,123 11,314,389 25 11,749,850 27 13,664,792 31 6,042,942 14 1,533,150 3
Finance leases 3,465,730 141,729 4 434,007 13 1,127,003 32 1,483,015 43 279,976 8
75,805,561 21,299,769 28 26,197,004 35 17,670,932 23 8,093,178 11 2,544,678 3

Other Assets
(Non-interest bearing assets)
Cash and balance with Banks 1,213,736 1,213,736 100 – – – – – – – –
Balances with Central Bank 802,076 802,076 100 – – – – – – – –
Dealing Securities 56,355 56,355 100 – – – – – – – –
Assets held for sale 2,875 2,875 100
Interest receivable 238,223 201,449 85 21,474 9 10,554 4 3,130 1 1,616 1
Investment securities: – – – – – – – – – –
Ordinary shares/units 821,054 – – – – – – 580 0 820,474 100
Preference shares 1,180,083 222,499 19 180,417 15 601,667 51 175,000 15 500 0
Investment in associate companies 7,818,997 – – – – – – – – 7,818,997 100
Group balances receivable 150 150 100 – – – – – – – –
Prepayments 23,853 2,839 12 4,171 17 9,176 39 5,111 21 2,556 11
Income tax refund due 1,682 937 56 745 44 – – – – – –
Investment property 132,641 – – – – – – – – 132,641 100
Goodwill on consolidation 156,225 – – – – – – – – 156,225 100
Property and equipment 784,219 – – – – – – 32,369 4 751,850 96
Intangible Assets 160,034 – – – – – – 1,820 1 158,214 99
Deferred tax assets 806 – – – – 662 82 144 18 – –
Other assets 1,337,491 907,127 68 126,471 9 293,246 22 10,647 1 – –
14,730,500 3,410,043 23 333,278 2 915,305 6 228,801 2 9,843,073 67
Total assets 90,536,061 24,709,812 27 26,530,282 29 18,586,237 21 8,321,979 9 12,387,751 14

Liabilities with Contractual Maturity

(Interest bearing liabilities)
Deposits from customers 25,503,685 12,692,602 51 11,570,504 45 1,142,745 4 96,534 0 1,300 0
Borrowing - Medium and long-term 28,715,376 1,122,887 4 4,823,188 17 6,562,766 23 5,731,415 20 10,475,120 36
- Short-term 6,646,231 6,496,599 98 149,632 2 – – – – – –
Debentures 2,700,000 500,000 19 1,000,000 37 1,200,000 44 – – – –
Subordinated debentures 2,000,000 – – – – 1,410,000 70 – – 590,000 30
65,565,292 20,812,088 31 17,543,324 27 10,315,511 16 5,827,949 9 11,066,420 17

Other Liabilities
(Non-interest bearing liabilities)
Interest accrued 1,590,653 1,590,653 100 – – – – – – – –
Taxation 307,836 231,059 75 76,777 25 – – – – – –
Deferred taxation 319,412 24,112 8 24,112 8 44 0 271,144 84 – –
Other liabilities 1,379,082 1,048,905 76 228,903 17 13,438 1 5,644 0 82,192 6
3,596,983 2,894,729 88 329,792 9 13,482 0 276,788 0 82,192 2
Total liabilities 69,162,275 23,706,817 34 17,873,116 26 10,328,993 15 6,104,737 9 11,148,612 16

112
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
59. Concentration of Assets and Liabilities
59.1 Concentration in the Distribution of Assets
59.1.1 In order to minimise potential risks inherent in the realisation of assets, the Bank adhere to prudential exposure limits
on customer and industry groups.

59.1.2 Industry wise Distribution of main Assets are given below:

31.03.2010 31.03.2009
2010 2009
% %

Industry Sector
Agriculture, forestry and fishing 7.4 7.5
Mining and quarrying .8 .9
Manufacture of food, beverages and tobacco 11.4 11.0
Manufacture of textiles .8 .8
Manufacture of wearing apparel excluding footwear 3.1 2.0
Manufacture of leather and leather products including footwear .5 .3
Wood and manufacture of wood products 1.1 1.5
Manufacture of paper products, printing, publishing and packaging 3.7 3.7
Manufacture of chemical and chemical products 1.2 1.0
Manufacture of rubber products 3.0 3.4
Manufacture of plastic products 3.5 3.0
Manufacture of non-metallic mineral products 4.1 5.3
Basic metal products .6 .5
Manufacture of fabricated metal products, machinery and equipment 2.6 1.6
Electricity, gas and water industries 5.7 4.7
Construction industries 4.8 4.7
Trade 12.2 14.3
Hotels and restaurants 3.3 3.2
Transport, storage and communications 6.1 8.8
Financing, insurance, real estate and business services 16.2 14.3
Community, social and personal services 7.9 7.5
100.0 100.0

Rs million Rs million

Composition of Assets
Loans* 32,041 35,106
Leases 3,466 4,804
Investment securities 1,999 1,918
Dealing securities 56 10
37,562 41,838
* Including loans to banks & excluding staff loans.

59.2 Composition of Liabilities is given in Note 45.

113
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
 BANK GROUP
2010 2009 2010 2009
Rs 000 % Rs 000 % Rs 000 % Rs 000 %

60. Non-Performing Loans, Leases and Bills

Loans and advances 3,193,863 3,096,950 5,077,791 4,428,391
Finance leases 574,559 685,669 574,559 685,669
Bills of exchange discounted 0 0 30,592 35,485
Gross exposure 3,768,422 10.0 3,782,619 9.0 5,682,942 10.8 5,149,545 9.0
Less: Interest in suspense included in overdrafts 0 0 328,428 166,397
Net non-performing loans, advances, leases and bills 3,768,422 10.0 3,782,619 9.0 5,354,514 10.2 4,983,148 8.7
Less: Provision for bad and doubtful debts 1,418,338 1,124,603 2,037,452 1,525,418
Net exposure 2,350,084 6.2 2,658,016 6.4 3,317,062 6.3 3,457,730 6.1
Net of tangible securities 217,244 302,215 986,016 1,148,823

Percentage relates to the ratios of non-performing credit exposure to the total credit exposure computed on gross and
net basis.

BANK GROUP
2010 2009 2010 2009
Rs 000 Rs 000 Rs 000 Rs 000

60.1 Provision for Bad and Doubtful Debts

Loans and advances 1,173,459 923,690 1,783,204 1,314,207
Finance leases 345,635 309,715 345,635 309,715
Bills of exchange discounted 0 0 14,805 13,947
1,519,094 1,233,405 2,143,644 1,637,869
Provisions relating to facilities currently performing
Loans and advances 85,615 94,609 91,051 98,255
Finance leases 15,141 14,193 15,141 14,196
100,756 108,802 106,192 112,451
Provision relating to non-perfoming facilities 1,418,338 1,124,603 2,037,452 1,525,418

60.2 The realisable value of tangible securities is computed in accordance with the hair cut rule prescribed by the Central
Bank of Sri Lanka. Effective from 1 January 2004 Central Bank of Sri Lanka requires the application of prescribed discounts
given below,to the forced sale value based on age of arrears of loans,finance leases ,bills of exchange and other credit
facilities for the purpose of determining the net exposure at risk.

Age of arrears Applicable discount percentage on

the forced sale value

6 -30 months 25%

Over 30 months and below 42 months 40%
Over 42 months and below 54 months 50%
Over 54 months and below 66 months 60%
Over 66 months At the discretion of the
management

61. Related Party Transactions

61.1 The Group's related parties include Associates, Trust established by the Bank for post-employment retirement benefit
plan, Joint ventures, key management personnel, close family members of key management personnel and entities which are
controlled, jointly controlled or significantly influenced for which significant voting power is held by key management personnel
or their close family members.

Where appropriate additional information on related party transactions are disclosed in compliance with Rule No. 3 (8) (ii) of
the Direction No. 12 of 2007 issued by the Central Bank of Sri Lanka on corporate governance.

114
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
For the year ended 31.03.2010 31.03.2009
Rs 000 Rs 000

61.2 Transactions with Subsidiaries of the Bank

61.2.1 Balance Sheet
Assets
Cash and short-term funds 1,950,866 1,758,641
Loans and advances – 122,000
Securities purchased under repurchase agreements 813,000 96,000
Interest receivable 20,435 7,985
Total 2,784,301 1,984,626

Liabilities
Deposits 58,344 42,110
Securities sold under repurchase agreement – 800,000
Interest payable 3,262 3,270
Total 61,606 845,380

Undisbursed credit facilities 878,000 878,000

61.2.2 Income Statement

Interest income 124,673 88,966
Interest expense 15,635 15,198
Other income 19,705 14,968
Dividends received 17,216 91,272
Other expenses 36,415 42,098
Reimbursed expenses 82,310 75,195

61.3 Transactions with Joint Venture

61.3.1 Balance Sheet
Assets
Loans 350,000 –
Interest receivable 134 –
Total 350,134 –

61.3.2 Income Statement

Interest income 9,474 0
Reimbursed expenses 3,048 0

61.4 Transaction with Associates

61.4.1 Balance Sheet
Assets
Cash and short-term funds 19,087 31,535
Placements with and loans to other banks and financial institutions 186,848 99,395
Interest receivable 3,188 1,526
Total 209,123 132,456

Liabilities
Subordinated debentures 10,000 10,000
Interest payable 265 507
Total 10,265 10,507

61.4.2 Income Statement

Interest income 7,721 5,494
Interest expenses 1,485 2,564
Other income 1,696 1,471
Dividends received 425,666 337,657
Other expenses 1,138 6,243

115
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
61.5 Transaction with entities in which Directors of the Bank have significant influence
without substantial shareholding
31.03.2010 31.03.2009
Rs 000 Rs 000
61.5.1 Balance Sheet
Assets
Loan and advances 947,050 838,990
Leases 4,895 0
Interest receivable 4,948 5,091
Total 956,893 838,990

Liabilities
Subordinated debentures 25,000 25,000
Interest payable 863 863
Total 25,863 25,863

61.5.2 Off-Balance Sheet Items

Commitments and contingencies
Undrawn facilities 1,099,040 12,650
Guarantees 0 59,750
Total 1,099,040 72,400

61.5.3 Income Statement

Interest income 173,816 95,405
Interest expenses 3,500 3,500
Other income 1,026 654
Other expenses 183 837

61.6 Transactions with Key Management Personnel

61.6.1 Key Management Personnel
Key management personnel are the Board of Directors of the Bank, Chief Executive Officer, Executive Vice-Presidents,
Senior Vice-President - Treasury, Senior Vice-President - Integrated Risk Management, Senior Vice-President - Group,
Chief Information Officer and the Secretary to the Board for the purpose of Sri Lanka Accounting Standard on Related
Party Disclosures.

Chief Information Officer concurrently serves as the Managing Director of Synapsys Limited and received emoluments only
from Synapsys Limited.

BANK GROUP
For the year ended 31.03.2010 31.03.2009 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000

61.6.2 Compensation of Directors and

Other Key Management Personnel
Number of persons 17 16 61 63
Short-term employment benefits 78,395 74,634 126,894 118,170
Post-employment benefits - pension 11,493 15,054 11,493 15,054
- others 8,416 7,083 12,609 10,985
98,304 96,771 150,996 144,209

Post-employment benefits are the expenses recognised in the income statement to provide a pension and other retirement
benefits (end-of-service gratuity payable to employees not eligible for pension), defined contribution to Employees' Provident
Fund/Mercantile Services Provident Fund Society and Employees' Trust Fund, by the employer.

116
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
61.6.3 Share Based Payments to Key Management Personnel - Bank
Key management personnel together with other eligible employees participated in a share option plan approved by the
shareholders in 2002. The final grant under this plan was made during the year ended 31 March 2006.

The Non-Executive Directors of the Board did not participate in this option plan.

For the year ended 31 March 31.03.2010 31.03.2009

Rs 000 Rs 000

Unexercised options balance at the beginning of financial year 506,492 647,404

Exercised during the year 381,627 (140,912)
Unexercised options balance end of financial year 124,865 506,492
Weighted average price of unexercised options end of the year 117.46 111.07
Weighted average price of exercised options 110.58 53.08
Weighted average price of Bank’s share during the period in which options were excercised 116.90 125.33

* In respect of financial year ended 31 March 2007, awarded on July 2007.

61.6.4 Loans to Key Management Personnel - Bank

Number of KMPs 2 2
Amount outstanding on 31 March 5,418 2,949

These loans are granted under a uniform scheme applicable to all employees of the Bank.

61.6.5 Rent to Spouse of Key Management Personnel

Bank pays a rent of Rs1,740,000 to Mrs R D Fonseka spouse of Chief Executive Officer.

61.7 Transactions with DFCC Pension Fund - Trust

61.7.1 DFCC Bank Pension Fund constituted as a Trust was established by the DFCC Bank to discharge defined benefit
pension liability of eligible employees of the Bank. The assets of the pension fund are not invested in the business of the Bank.

The Chairman, the Chief Executive Officer together with two other employees and two pensioners (ex-employees) are trustees.

61.7.2 Transactions with DFCC Bank Pension Fund

31.03.2010 31.03.2009
Rs 000 Rs 000

Contributions due at the beginning of financial year 28,669 29,637

Contribution due for the financial year (Note 14.1.1) 65,396 95,060
Contribution paid/pre-paid (101,719) (96,028)
Contribution due at the end of the financial year (Note 50.2.1) (7,654) 28,669

117
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
61.7.3 Transactions between DFCC Bank Pension Fund and Associate
There were no transactions during the year ended 31 March 2010 and 31 March 2009. Details of investments made by the
Pension Fund in Commercial Bank of Ceylon PLC in the year ended 31 March 2007 and outstanding on 31 March 2010 are
given below:

First investment amount Rs50 million

Date of investment 16 May 2006
Repayment 16 May 2016
Interest 13.25% p.a. (fixed) payable annually
Second investment amount Rs15 million
Date of investment 18 December 2006
Repayment 18 December 2011
Interest 1 year gross treasury bill rate + 1% p.a
Interest rate 1 January 2010 - 11.37%
Interest rate 1 January 2009 - 22.24%
Interest rate 1 January 2008 - 23.17%
Interest rate 1 January 2007 - 15.42%

61.8 Pricing Policy and Terms for Transactions with Related Parties
Bank enters into transactions with related parties in the ordinary course of business on terms similar to comparable
transactions with an unrelated comparable counter party. The terms include pricing for loans, deposits and services,
collateral obtained for loans where appropriate.

61.9 Net Accommodation Granted to Related Parties

(Disclosure under Rule 3 (8) (ii) (e) of the Corporate Governance Direction of No. 12 of 2007 issued by the Central Bank
of Sri Lanka.)
31.03.2010
Rs 000 %

Subsidiaries
Securities purchased under resale agreements 813,000 6.92
Undisbursed credit facility 878,000 7.47
1,691,000 14.40
Key Management Personnel
Loans to 2 employees 5,418 0.05
Total net accommodation 1,696,418 14.44
Regulatory Capital - solo basis 11,747,669

The total net accommodation was 14.44% of the Bank’s regulatory capital on solo basis. Maximum limit determined by
Directors is 25% of Bank's regulatory capital on solo basis.

The undisbursed credit facility is a standby facility and was not used by the subsidiary DFCC Vardhana Bank Limited
throughout the year ended 31 March 2010.

The definition of Related Parties for the purpose of this disclosure is based in Rule 3 (7) (1) of Corporate Governance
Direction No. 12 of 2007 issued by the Central Bank of Sri Lanka. This definition is slightly from the definition of Related
Parties under the Sri Lanka Accounting Standard 30 (Revised 2005) on Related Party Disclosures.

118
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
For the year ended 31 March 2010 Lending Financial Investing in Venture Commercial Other Unallocated Eliminations Total
Leasing Equity Capital Banking
Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

62. Business Segment Information

Revenue
Interest income 6,614,618 801,717 – 46,368 4,235,229 192,563 – (97,014) 11,793,481
Other income 203,909 – 1,095,481 46,519 212,251 255,652 127,726 (649,167) 1,292,371
Income from external customers 6,818,527 801,717 1,095,481 92,887 4,447,480 448,215 127,726 (746,181) 13,085,852
Total income 6,818,527 801,717 1,095,481 92,887 4,447,480 448,215 127,726 (746,181) 13,085,852

Percentage* 52 6 8 1 34 3 6 – 100

Expenses
Segment losses 223,897 131,828 – – 233,571 – – – 589,296
Depreciation – – – 236 124,970 25,396 – – 150,602
Other operating & interest expenses 3,965,377 425,814 – 16,504 3,291,677 217,799 – (112,560) 7,804,611
Inter segment expenses – 17,551 29,075 – (46,626) –
4,189,274 557,642 – 16,740 3,667,769 272,270 (159,186) 8,544,509
Result 2,629,253 244,075 1,095,481 76,147 779,711 175,945 4,541,343

Unallocated expenses 1,035,187

Value added tax on financial services 840,415

2,665,741
Associate companies profit before tax 1,085,261
Profit before tax 3,751,002
Income tax expense 1,067,232
Profit after tax 2,683,770
Minority interests 103,798
Profit for the year 2,579,972
Assets 33,625,936 3,465,729 2,248,527 – 31,335,584 2,645,439 11,321,320 (1,925,471) 82,717,064

Percentage 41 4 3 – 38 3 14 – 100

Investments in associate companies 7,818,997

90,536,061
Liabilities 27,186,587 3,119,156 – – 28,457,733 1,815,006 10,509,264 (1,925,471) 69,162,275
Capital expenditure - additions – 122,749 41,128 57,154 221,031

For the year ended 31 March 2009

Revenue
Interest income 7,536,486 992,373 – 78,169 3,212,690 235,486 – (56,271) 11,998,933
Other income 215,430 – 910,789 45,005 285,583 258,362 221,532 (519,441) 1,417,260
Income from external customers 7,751,916 992,373 910,789 123,174 3,498,273 493,848 221,532 (575,712) 13,416,193
Inter segment income – – – – – 111,159 (111,159) –
Total income 7,751,916 992,373 910,789 123,174 3,498,273 493,848 332,691 (686,871) 13,416,193

Percentage* 58 7 7 1 26 4 6 – 100

Expenses
Segment losses 308,117 190,827 11,303 30,000 287,213 – 827,460
Depreciation – – – 714 101,479 16,732 118,925
Other operating & interest expenses 968,675 98,524 – 31,124 2,666,872 298,971 (56,271) 4,007,895
Inter segment expenses – – – – 3,950 46,034 (49,984) –
1,276,792 289,351 11,303 61,838 3,059,514 361,737 (106,255) 4,954,280
Result 6,475,124 703,022 899,486 61,336 438,759 132,111 8,461,913

Unallocated expenses 5,747,541

Value added tax on financial services 658,058
2,056,314
Associate companies profit before tax 1,066,101
Profit before tax 3,122,415
Income tax expense 1,054,844
Profit after tax 2,067,571
Minority interests 22,865
Profit for the year 2,044,706

Assets 37,887,730 4,804,430 2,168,420 828,166 24,804,733 2,624,287 6,755,382 (36,378) 79,836,770

Percentage 48 6 3 1 31 3 8 – 100
Investments in associate companies 7,160,671
86,997,441
Liabilities 30,291,925 4,323,987 – 145,326 22,176,796 1,834,922 8,567,685 (36,378) 67,304,263
Capital expenditure - additions 198 176,383 6,899 105,082 288,562
* Net of eliminations

119
Notes on the Financial Statements | DFCC Bank Annual Report 2009/10
62.1 Revenue and expenses attributable to the incorporated business segments of industrial estate management, unit trust
management, stockbroking, investment banking, consultancy services and information technology services are included in
the column for Other.

62.2 Revenue and expenses attributable to the business segment of DFCC Vardhana Bank Limited is included
in the column for Commercial Banking.

62.3 Property, plant and equipment and depreciation attributable to an incorporated business segment is included
in the relevant segment and the balance is unallocated.

62.4 Dealing securities losses of subsidiary company are included in unallocated expenses.

62.5 Assets held for sale is included in the segment, other.

62.6 Eliminations are the consolidation adjustments for inter company transactions, dividend and dividend payable
attributable to minority shareholders.

63. Post Balance Sheet Events

63.1 Options exercised by Employees
The employees have exercised options during the post-balance sheet period. Increase in ordinary share capital
corresponding to the options exercised was Rs58,330 and the increase in the share premium was Rs626,814.18.

63.2 Proposed Dividend

The Directors have recommended the payment of a final dividend of Rs6 per share for the year ended 31 March 2010,
which requires the approval of the shareholders at the Annual General Meeting to be held on 30 June 2010. The Board of
Directors confirms that the Bank has satisfied the solvency test in accordance with Section 57 of the Companies Act No. 7 of
2007 and have obtained the Certificate from the Auditors.

The proposed final dividend exceeds the minimum distribution mandated by the Inland Revenue Act No. 10 of 2006 and
therefore, the 15% deemed dividend tax, will not be imposed on the Bank.

63.3 Commercial Bank of Ceylon PLC (CBC)

(a) The market value of the investment in CBC on 26 May 2010 based on the closing share price of Rs249.25 per share
(voting) and Rs210.00 per share (non-voting) was Rs16,724 million.
(b) Board of Directors of CBC have recommended;
(ii) Subdividing two (2) existing issued and fully paid ordinary (voting) shares into three (3) ordinary (voting) shares; and
(ii) Subdividing two (2) existing issued and fully paid ordinary (non-voting) shares into three (3) ordinary (non-voting) shares.
This recommendation requires the approval of the shareholders at an Extraordinary General Meeting convened on
8 June 2010.

63.4 Investment in joint venture company - Acuity Partners (Pvt) Limited

The Bank has agreed to invest up to Rs500 million in the ordinary shares of the Company; of this amount Rs350 million was
advanced in the form of a loan as at the balance sheet date as disclosed in Note 61.3.1.

63.5 Additional Investment in Synapsys Limited

The Bank has approved an additional Rs50 million in the ordinary shares of Synapsys Limited. The investment will be made
in stages.

63.6 No other circumstances have arisen which would require disclosure or adjustment to the accounts.

64. Certification Required by the Companies Act No. 7 of 2007

This certification is based on independent legal advice obtained by the Bank which confirms that the Bank will not be
required to provide the certification in Section 150 (1) (b) of the Companies Act since Sections 15 and 16 of the DFCC
Bank Act No. 35 of 1955 as amended, specifically deals with the financial statements of the Bank. However, Sections 152
and 158 dealing with the Group financial statements and certification in the Companies Act No. 7 of 2007 are currently
applicable to the Bank.

120
DFCC Bank Annual Report 2009/10 | Notes on the Financial Statements
Supplementary Information
Capital Adequacy
Introduction
This term is used to describe the adequacy of Bank’s aggregate capital in relation to the risks, which arise from its assets
and off balance sheet transactions, its dealing operations and its human activities, technology and natural incidents. Central
Bank of Sri Lanka has prescribed the minimum risk sensitive capital and effective from 1 January 2008 required the Bank
to compute the minimum capital in accordance with the ‘International Convergence of Capital Measurement and Capital
Standards - a Revised Framework’ (BASEL II). The aim is to ensure minimum capital, commensurate with risks assumed by
the Bank, is maintained as a buffer to absorb foreseeable future credit, market and operational losses.

Capital to Risk Weighted Assets Ratio

(Based on audited consolidated financial statements)
Actual
Minimum
Requirement 31.03.2010 31.03.2009

Tier I (%) 5.0 32.7 27.3

Deductions - Tier I (%) 6.5 5.4
26.2 21.9

Tier II (%) 2.9 2.9

Deductions - Tier II (%) 6.0 4.9
(3.1) (2.0)
Capital base (%) 10.0 23.1 19.9

Details of Computation
Capital Base 31.03.2010 31.03.2009
Rs 000 Rs 000

Tier I: Core Capital

Paid-up ordinary shares 1,323,753 1,307,325
Share premium 3,375,410 3,260,011
Statutory reserve fund 961,929 801,539
Published retained profits 2,075,577 1,841,264
General & other reserves 12,895,944 11,528,042
Minority interests 427,427 641,251
21,060,040 19,379,432
Less: Deductions
Goodwill 156,225 146,602
Net deferred tax assets 806 0
Other intangible assets 160,034 169,482
50% Investments in the capital of other banks and financial institutions 3,852,315 3,510,044
Total Tier I Capital 16,890,660 15,553,304

Tier II: Supplementary Capital

Revaluation reserve (as approved by the Central Bank of Sri Lanka) 134,129 134,129
Approved subordinated term debt 1,154,000 1,436,000
General provision 563,122 533,481
1,851,251 2,103,610
Less: Deductions
50% Investments in the capital of other banks and financial institutions 3,852,315 3,510,044
Eligible Tier II Capital (2,001,064) (1,406,434)
Capital base 14,889,596 14,146,870

121
DFCC Bank Annual Report 2009/10
Risk Weighted Assets and Off-Balance Sheet Exposure
Balance Risk Risk-Weighted Balance
Assets Exposures 31.03.2010 31.03.2009 Weights 31.03.2010 31.03.2009
Rs 000 Rs 000 % Rs 000 Rs 000

To Central Government and CBSL 25,546,966 14,995,547 0 0 0

To Banks 3,470,682 4,938,159 20-150 839,423 1,233,642
To Financial Institutions 892,547 678,895 20-150 558,350 392,612
To Corporates 39,525,161 45,803,897 20-150 37,859,650 44,410,504
Secured by Residential Property 211,325 157,451 50-100 114,520 87,563
Secured by Commercial Real Estate 4,004,961 4,074,071 100 4,004,961 4,074,071
Classified as Non-performing Advances 3,303,647 3,123,697 50-150 4,561,259 4,273,422
Cash Items 706,987 628,087 0-20 2,460 2,293
Other Assets 2,150,270 2,154,642 100 2,150,270 2,154,642
Total assets 79,812,546 76,554,446 50,090,893 56,628,749

Risk-Weighted
Credit Risk Credit Equivalent
Off Balance Sheet Exposure Conversion 31.03.2010 31.03.2009 Weights 31.03.2010 31.03.2009
Factor % Rs 000 Rs 000 % Rs 000 Rs 000

General guarantee of indebtedness 100 914,388 1,341,338 20-100 914,338 1,239,506

Performance bonds, bid bonds
and warranties 50 707,582 538,778 100 353,791 269,389
Shipping guarantees 20 281,144 356,684 20-100 56,229 68,404
Documentary letters of credit 20 816,032 815,049 20-100 163,206 150,287
Trade related acceptances 20 821,988 1,056,664 20-100 164,398 198,933
Undrawn overdraft facilities & others 0 1,209,755 903,791 100 0 0
Undrawn term loans 50 6,988,015 6,736,776 100 3,494,008 3,368,388
Others - undrawn lease facilities 50 107,524 63,168 100 53,762 31,584
Forward foreign exchange contracts 2 7,345,641 4,246,271 100 146,913 84,925
Total off-balance sheet exposure 19,192,069 16,058,519 5,346,645 5,411,416
Total risk weighted assets and off-balance sheet exposure for credit risk 55,437,538 62,040,165
Total risk weighted assets equivalent for market risk (Note 1) 820,590 1,977,830
Total risk weighted assets equivalent for operational risk (Note 2) 8,141,560 7,044,020
Total risk weighted assets 64,399,688 71,062,015

Capital charge Risk-Weighted Assets Equivalent

31.03.2010 31.03.2009 31.03.2010 31.03.2009
Rs 000 Rs 000 Rs 000 Rs 000

Market Risk (Note 1)

Interest rate 4,954 13,256 49,540 132,560
Equity 9,885 2,554 98,850 25,540
Foreign Exchange & Gold 67,220 181,973 672,200 1,819,730
82,059 197,783 820,590 1,977,830

Operational Risk (Note 2)

Average gross income 5,427,705 4,696,013
15% of average gross income 814,156 704,402
814,156 704,402 8,141,560 7,044,020

122
DFCC Bank Annual Report 2009/10 | Capital Adequacy
Statement of Value Added - Bank

For the year ended 31 March 2010 2009

Rs million % Rs million %

Value Added
Gross income 8,843 9,888
Cost of borrowing and support services (4,607) (5,983)
Provision for bad debts and investments (356) (510)
3,880 3,395

Value Allocated
To employees
Salaries, wages and other benefits 715 18 708 21

To providers of capital
Dividends to shareholders 794 20 654 19

To Government
Income tax on profit 689 646
Value added tax on financial services 659 1,348 35 557 1,203 35

To expansion and growth

Retained income 919 706
Depreciation 104 1,023 27 124 830 25
3,880 100 3,395 100

123
DFCC Bank Annual Report 2009/10
Sources and Distribution of Income - Bank

For the year ended 31 March 2006 2007 2008 2009 2010
Rupees million

Sources of Income
Interest income 4,508 6,018 8,491 8,529 7,416
Income from investments 436 436 687 913 1,138
Others 443 433 458 446 289
5,387 6,887 9,636 9,888 8,843

Distribution of Income
To employees as emoluments 523 612 672 708 715
To lenders as interest 2,376 3,537 5,815 5,624 4,224
To providers of supplies and services 257 335 340 359 383
To Government as taxation 742 1,113 1,100 1,203 1,348
To shareholders as dividends 346 454 654 654 794
Retained in the business:
Depreciation set aside 119 128 133 124 104
Provision of losses 190 37 258 510 356
Reserves 834 671 664 706 919
5,387 6,887 9,636 9,888 8,843

124
DFCC Bank Annual Report 2009/10
Ten Year Summary

Year ended 31 March 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Rupees million

Bank
Operating Results
Total income (net of TT & NSL) 3,452 4,037 4,113 4,444 4,641 5,387 6,887 9,636 9,888 8,843
Profit before tax 507 883 1,036 1,490 1,512 1,652 1,865 1,983 2,006 2,402
Income tax 132 252 181 385 404 472 740 665 646 689
Profit after tax 375 631 855 1,105 1,108 1,180 1,125 1,318 1,360 1,713

Balance Sheet
Assets
Cash, short-term funds
and securities 1,394 2,359 2,398 2,675 2,778 4,928 7,935 8,124 8,415 10,472
Dealing securities 3 4 3 1 0 14 26 18 10 56
Receivables 533 666 914 909 1,641 946 1,611 1,684 1,348 930
Placements with and loans to banks
and financial institutions 325 0 0 500 302 738 1,024 1,579 1,454 1,834
Securities purchased under resale
agreements 288 569 48 26 1,051 520 240 208 96 914
Bills of exchange discounted 23 23 23 18 13 6 6 6 0 0
Loans and advances 17,878 17,982 19,515 22,386 25,270 30,963 38,200 38,185 35,156 31,946
Finance leases 1,932 1,859 2,445 3,742 4,348 5,545 7,756 6,726 5,211 3,966
Provisions (633) (757) (949) (1,077) (995) (937) (946) (1,179) (1,670) (1,979)
Net of Provisions 19,200 19,107 21,034 25,069 28,636 35,577 45,016 43,737 38,697 33,933
Investment securities 1,784 2,102 1,802 1,704 1,731 1,340 1,260 1,680 1,918 1,999
Investment in associate, joint
venture and subsidiary companies 1,386 1,392 1,407 2,514 2,636 3,057 3,350 5,829 6,064 5,845
Income tax refund receivable 0 0 0 0 0 0 0 0 2 0
Investment property 0 187 187 12 12 12 7 7 7 7
Property, plant, equipment
and intangibles 277 265 378 516 475 481 472 493 474 426
25,190 26,651 28,171 33,926 39,262 47,613 60,941 63,359 58,485 56,416

Liabilities
Equity 5,054 5,723 6,382 7,383 8,207 9,091 9,494 13,761 14,491 15,723
Medium/long-term borrowings
and debentures 17,841 17,892 16,775 19,570 24,120 30,384 34,357 38,323 33,679 33,415
Customer deposits 558 1,562 2,868 4,944 3,780 4,017 13,573 5,112 5,308 5,124
Short-term borrowings 796 398 1,143 577 1,387 2,453 1,540 4,157 3,030 115
19,195 19,852 20,786 25,091 29,287 36,854 49,470 47,592 42,018 38,654
Other liabilities 941 1,076 1,003 1,451 1,768 1,668 1,977 2,006 1,976 2,039
25,190 26,651 28,171 33,926 39,262 47,613 60,941 63,359 58,485 56,416

Return on equity % 7.5 11.7 14.1 16.1 14.2 13.6 12.1 11.3 9.6 11.3
Return on total assets, % 1.5 2.4 3.1 3.6 3.0 2.7 2.1 2.1 2.2 3.0

Earnings per share, Rs 3.47 5.84 7.91 10.14 10.14 10.77 10.20 10.41 10.41 12.97
Market value per share, Rs 26.04 46.67 59.17 121.94 128.75 122.36 161.67 126.00 68.25 180.5
Price earnings ratio 7.5 8.0 7.5 12.0 12.7 11.4 15.9 12.1 6.56 13.9

Dividend per share 4.50 5.00 5.50 5.50 5.50 6.00 5.00 5.00 5.00 6.00
Dividend cover, times 2.4 3.0 3.7 3.5 3.5 3.4 2.5 2.0 2.1 2.6
Gross dividend, Rsm 159.0 212.0 233.0 314.3 315.8 345.5 454.4 653.7 653.7 794.3
Liquid assets to liabilities (as specified
in the Banking Act No. 30 of 1998) – – – 28 38 48 79 31 145 214
No. of employees 276 289 305 305 340 374 422 419 419 427

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DFCC Bank Annual Report 2009/10
Performance of the Share

126
DFCC Bank Annual Report 2009/10
Share Information

Year ended 31 March 2010 2009

Earnings
Earnings per share, Rs 12.97 10.41
Price Earnings Ratio, times 13.90 6.56

Dividends
Final Dividend Paid (proposed paid) 794.25 653.66
Dividend per share, Rs 6.00 5.00

Book Value
Net assets per share on 31 March, Rs 119.03 110.90

Price Indices
CSE All Share Price Index 3,724.59 1,638.06
Milanka Price Index 4,270.73 1,736.20

Share Prices
Lowest, Rs 67.00 (02.04.09) 52.00 (30.12.08)
Highest, Rs 183.50 (04.03.10) 130.00 (30.05.08)
Last transaction, Rs 180.50 (31.03.10) 68.25 (31.03.09)

Market Capitalisation
Value, Rs million 23,893.74 8,890
% of total trade 1.97 1.67
Rank 14 11

Value of Shares Traded

Value, Rs million 5,532.05 1,364
% of total trade 2.84 1.28
Rank 5 10

Days Traded
Number of days traded 238 222
Total number of market days 240 239
% of market days traded 99 92

Frequency of Shares Traded

Number of transactions 11,441 2,381
% of total frequency 0.77 0.35
Rank 44 100

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DFCC Bank Annual Report 2009/10
Size-wise Distribution of Shareholding
As at 31 March 2010 As at 31 March 2009
Number of Shares No. of Total % No. of Total %
Holders Holding Holders Holding

01 - 1,000 6,226 2,088,678 1.58 6,117 2,054,968 1.57

1,001 - 5,000 1,265 2,684,969 2.03 1,216 2,476,991 1.90
5,001 - 10,000 180 1,286,493 0.97 156 1,090,946 0.83
10,001 - 50,000 183 3,905,804 2.95 141 2,749,647 2.10
50,001 - 100,000 39 2,861,812 2.16 28 1,947,198 1.49
100,001 - 500,000 33 7,515,457 5.68 16 3,071,409 2.35
500,001 - 1,000,000 10 6,714,184 5.07 09 6,262,453 4.79
Greater than 16 105,317,908 79.56 16 111,078,858 84.97
Total 7,952 132,375,305 100 7,699 130,732,470 100.00

Ownership
As at 31 March 2010 As at 31 March 2009
Shareholding % Foreign Sri Lankan Total Foreign Sri Lankan Total

Individuals 8.86 8.04 16.90 8.71 6.69 15.40

Institutions 21.34 61.76 83.10 34.83 49.77 84.60
Total 30.20 69.80 100.00 43.54 56.46 100.00

As per the Rule No. 8.7 (h) of the Colombo Stock Exchange, percentage of public holding as at 31.03.2010 was 60.29%
(61.88% as at 31.03.2009).

128
DFCC Bank Annual Report 2009/10 | Share Information
Twenty Major Shareholders

Twenty Major Shareholders of the DFCC Bank as at 31 March 2010 are given below:
2010 2009
Name of Shareholder/Company Name No. of Shares % Cumulative % No. of Shares %

Bank of Ceylon A/c. No. 2 19,191,197 14.498 14.50 19,019,997 14.55

Sri Lanka Insurance Corporation Limited - Life Fund 17,211,766 13.002 27.50 14,676,966 11.23
Hatton National Bank Limited A/c No. 1 16,054,570 12.128 39.63 16,054,570 12.28
Mr M A Yaseen 11,262,250 8.508 48.14 11,262,250 8.62
Distilleries Company of Sri Lanka Limited 8,521,428 6.437 54.57 8,407,628 6.43
Seafeld International Limited 7,643,397 5.774 60.35 7,643,397 5.85
HSBC Intl. Nominees Limited - BPSS Lux-Aberdeen Global
Asia Pacific Equity Fund 6,108,073 4.614 64.96 6,108,073 4.67
HSBC Intl. Nominees Limited - BPSS LDN-Aberdeen
Asia Pacific Fund 3,375,000 2.550 67.51 3,375,000 2.58
Renuka City Hotels Limited 3,352,035 2.532 70.04 1,050,335 0.80
Employees’ Provident Fund 2,420,600 1.829 71.87 – –
HSBC Intl. Nominees Limited/DEG - Deutsche Investitions -
und Entwicklungsgesellschaft mbH 2,250,162 1.700 73.57 2,250,162 1.72
Renuka Hotels Limited 2,024,180 1.529 75.10 180 –
RBC Dexia Investor Services Trust S/A Edinburgh
Dragon Trust PLC 2,000,000 1.511 76.61 2,224,400 1.70
National Saving Bank 1,608,000 1.215 77.83 158 –
Northern Trust Co S/A Murray Johnstone International
Delaware Business Trust 1,271,250 0.960 78.79 1,271,250 0.97
Cargo Boat Development Company Limited 1,024,000 0.774 79.56 – –
HSBC Intl. Nominees Limited - SSBTL-Aberdeen Asia
Smaller Companies Investment Trust XCB9 900,000 0.680 80.24 900,000 0.69
HSBC Intl. Nominees Limited-SSBTL-Aberdeen New Dawn
Investment Trust XCC6 900,000 0.680 80.92 900,000 0.69
Employees’ Trust Fund Board 768,333 0.580 81.50 1,065,133 0.81
Mellon Bank N.A. - Florida Retirement Scheme 750,000 0.567 82.07 – –
Total of the 20 Major Shareholders 108,636,241 82.067 – – –
Other Shareholders 23,739,064 17.933 100.00
Total 132,375,305 100.000

129
DFCC Bank Annual Report 2009/10
Debenture Information

DFCC Listed Debentures

Debenture Categories Interest Applicable Interest Rate of
Payable Rate Comparable
Frequency Government
Security

Fixed Rate
2006/2016 - 14.00% p.a. Annually 14.00% 13.12%
2006/2011 - 13.75% p.a. Annually 13.75% 10.83%

Floating Rate
2006/2011 - 6 months TB rate (Net) + 2.00% p.a. Semi-Annually 10.70% 10.83%
2006/2011 - 6 months TB rate (Gross) + 1.00% p.a. Semi-Annually 10.70% 10.83%

None of these debentures have been traded during the year.

6 months TB rate (Net) - Six months weighted average Treasury Bill rate after 10% withholding
(net rate) as published by the Central Bank of Sri Lanka.

6 months TB rate (Gross) - Six months weighted average Treasury Bill rate before 10% withholding (gross rate)
as published by the Central Bank of Sri Lanka.

Other Ratios 2010 2009

Debt Equity Ratio 2.13 2.32

Interest Cover (Times) 1.25 1.00
Quick Assets Ratio (%) 213.7 145
(Same as liquid asset ratio.)

130
DFCC Bank Annual Report 2009/10
DFCC Bank’s Offices

AMPARA GAMPAHA MALABE

3, D S Senanayake Street 123, Bauddhaloka Mawatha 9, Athurugiriya Road
Ampara Gampaha Malabe
Telephone: 063-2224242 Telephone: 033-2226104 Telephone: 011-2442714
Fax: 063-2224243 Fax: 033-2227941 Fax: 011-5552868

ANURADHAPURA JAFFNA MATARA

249, Maithripala Senanayake Mawatha 141, KKS Road, 5, Hakmana Road
Anuradhapura Jaffna Matara
Telephone: 025-2223417 Telephone: 021-2221444 Telephone: 041-2225500-1
Fax: 025-2223418 Fax: 021-2221555 Fax: 041-2222585

BADULLA KADURUWELA NAWALA

14, Udayaraja Mawatha 626, Main Street 540, Nawala Road
Badulla Kaduruwela Rajagiriya
Telephone: 055-2230160-2 Telephone: 027-2223333 Telephone: 011-2880880
Fax: 055-2230163 Fax: 027-2225858 Fax: 011-2880889

BANDARAWELA KALUTARA RATNAPURA

126, Main Street 282, Main Street 46, Bandaranayake Mawatha
Bandarawela Kalutara South Ratnapura
Telephone: 057-2224849-52 Telephone: 034-2236363 Telephone: 045-2223667-9
Fax: 057-2224851 Fax: 034-2236364 Fax: 045-2223670

BATTICALOA KANDY
105, Trinco Road 5, Deva Veediya
Batticaloa Kandy
Telephone: 065-2228333 Telephone: 081-2234411
Fax: 065-2228282 Fax: 081-2228460

COLOMBO KURUNEGALA
73, W A D Ramanayake Mawatha 25, Rajapihilla Road
Colombo 2 Kurunegala
Telephone: 011-2310500 Telephone: 037-2224142,
Fax: 011-2305579 037-2224461-2
Fax: 037-2224142
GALLE
93, Wakwella Road
Galle
Telephone: 091-2227372-6
Fax: 091-2227374

131
DFCC Bank Annual Report 2009/10
DFCC Pioneer’s Journey

1955 1983 1991 1995

OCTOBER JANUARY AUGUST JUNE
DFCC Founded by Bonus Issue 1 for 4 Bonus Issue 1 for 3 paid Bonus Issue of 1 for 3
Act No. 35 of 1955 Paid Up Share Capital Up Share Capital Increased Paid Up
Rs30 million Rs133 million Share Capital to
1956 Rs302.2 million
MAY FEBRUARY OCTOBER
Paid Up Share Capital Paid Up Share Capital JULY
Commenced Operations
with Share Capital of Rs60 million Rs170 million Public Issue Asia Money Ranks DFCC
Rs8 million at 5 Times Par Increased as the Best Managed
MARCH Number of Shareholders Company in Sri Lanka
Paid Up Share from 826 to 12,320
1958 Capital Rs100 million
FEBRUARY DECEMBER 1996
APRIL
Act Amended Namal Founded
No. 8 of 1958 1984 DMG and DFCC Sign
SEPTEMBER Telecom Mandate
Finance Leasing 1992 with GOSL
1967 FEBRUARY
MARCH Introduced APRIL
LVL Founded
Act Amended Fixed Deposit Mobilization
No. 1 of 1967 1985 MARCH
JANUARY APRIL
Achieved Highest
Medium-Term PAT Among all Listed Sri Lanka’s First BOO
1974
APRIL Working Capital Companies Power Project, Sponsored
Act Amended Financing by DFCC, Commissioned
MARCH
Law No. 12 of 1974 SEPTEMBER
Lindel Founded DECEMBER
Insurance Anuradhapura Branch
1977 Agency Business
JANUARY 1993 Opened
APRIL
Paid Up Share Capital
Rs16 million 1986 ADFIAP Annual 1997
MAY JULY
Sessions Hosted
MARCH Head Office Appointed Administrative
Building Opened JUNE Unit of World Bank
ADFIAP Formed
DFCC Founder Member Act Amended No. 25 of Funded Energy Services
1988 1993 Share Split Delivery Project
AUGUST
1979 AUGUST AUGUST
NOVEMBER Kandy
Branch Opened Reached No. 1 Position in Act Amended
Paid Up Share
Market Capitalisation No. 23 of 1997
Capital Rs24 million
1989 OCTOBER AUGUST
NOVEMBER
1982 Rights Issue 1 for 3 at 18 Gampaha Branch Opened
DECEMBER Short-Term
Times Par Paid Up Share
Act Amended Working Capital SEPTEMBER
Capital Rs226.7 million
No. 42 of 1982 Financing
Acquired 29.8% Stake
1994 in Commercial Bank of
1990 NOVEMBER Ceylon PLC
NOVEMBER
Kurunegala Branch OCTOBER
Matara Branch Opened
Opened
Badulla Branch Opened
DECEMBER
Ratnapura Branch Opened

132
DFCC Bank Annual Report 2009/10
1998 2002 2006 2009
FEBRUARY NOVEMBER MAY SEPTEMBER
5 New Projects Launched Managed the IPO of ADFIAP Annual Sessions AA(lka) Fitch Rating
Under Small & Medium Sri Lanka Telecom; the Hosted Affirmed
Enterprises Development Largest Offering on CSE
Programme JULY DECEMBER
DECEMBER Bonus Issue of 1 for 2 Ampara Branch opened
APRIL Fitch Rating Lanka Increased Paid Up Share Batticaloa Branch opened
Bonus Issue of 1 for 6 Limited Assigned Capital to Rs863.9 million
Increased Paid UP Share “SL AA” National Rating 2010
Capital to Rs3,526 million for Implied Long-Term SEPTEMBER JANUARY
Unsecured Senior Debt of Bandarawela office Jaffna Branch Opened
DECEMBER DFCC Bank opened
FRN of US $ 65 million Divested LVL Shares
Guranteed by ADB Issue of Debentures to to Acuity Partners (Pvt)
2003
AUGUST the Value of Rs2 billion Limited
DECEMBER Enhanced Regulatory
Acquired 94.16% of
Lead Arranged the Capital
MERC Bank
Largest Sri Lanka Rupee
Syndicated Loan for OCTOBER 2007
Sri Lanka Telecom MERC bank Renamed JUNE
DFCC Vardhana Bank Rights Issue 1 for 4
1999 Bonus Issue of 1 for 5
OCTOBER Increased Share Capital
2004
Asia Money Ranks DFCC FEBRUARY to Rs1,302 million
as the Best Managed Bonus Issue of 1 for 3
Company of the Decade SEPTEMBER
Increased Paid Up
Share Capital to AA(lka) Fitch Rating
DECEMBER affirmed
Rs565.9 million
Colombo Office Opened
SEPTEMBER 2008
2000 AA Rating Affirmed JULY
MARCH Acuity Partners (Pvt)
Structured & Managed NOVEMBER Limited commenced
Sri Lanka’s First Rated Malabe Branch Opened commercial operations
Debenture Issue for
Sri Lanka Telecom OCTOBER
2005
MARCH AA(lka) Fitch Rating
2001 DFCC Consulting affirmed
JANUARY Founded DECEMBER
DFCC Acquired ABN Galle Branch opened
AMRO Securities (Pvt)
Limited Renamed
DFCC Stock Brokers
(Pvt) Limited
APRIL
Bonus Issue of 1 for 5
Increased Paid Up
Share Capital to
Rs423.1 million

133
DFCC Pioneer’s Journey | DFCC Bank Annual Report 2009/10
Notes

134
DFCC Bank Annual Report 2009/10
 135
Notes | DFCC Bank Annual Report 2009/10
136
DFCC Bank Annual Report 2009/10 | Notes
The Annual General Meeting, Name of Company
will be held at the Cinnamon Grand, Colombo 3, on 30 June 2010. DFCC Bank
Details of the business of the meeting and other information are
contained in the booklet enclosed with this Annual Report. Legal Form
A quoted public company with limited
liability incorporated by DFCC Bank
For any Clarifications on this Report please write to: Act No. 35 of 1955.
The Board Secretary A licensed specialised bank under the
DFCC Bank Banking Act No. 30 of 1988.
No. 73/5, Galle Road, Colombo 3, Sri Lanka.
or E-mail to: info@dfccbank.com Credit Rating
AA (lka) credit rating
Minimise waste by informing the DFCC Bank Board Secretary to update from Fitch Ratings Lanka Limited.
the mailing list if you are receiving more than one copy of the
Annual Report. Board Secretary
T Wijemanna

Lawyers
F J & G De Saram
Attorneys-at-Law

Auditors
KPMG Ford, Rhodes, Thornton & Co.
Chartered Accountants

Bankers
DFCC Vardhana Bank Limited
Commercial Bank of Ceylon PLC
Bank of Ceylon

Vat Registration No.

409000088-7000

Head Office
DFCC Building, P O Box 1397
73/5, Galle Road, Colombo 3,
Sri Lanka.
Telephone: 94-11-2442442
Fax: 94-11-2440376
E-mail: info@dfccbank.com
Website: http://www.dfccbank.com