DFCC BANK

Annual Report 2011/12

DFCC Bank - Annual Report 2011/12

Multiple Strands
DFCC Bank
DFCC Building, P.O. Box 1397, 73/5, Galle Road, Colombo 03, Sri Lanka
of Business Lend
Strength
Telephone: +94 11 2442 442 | Fax: +94 11 2440 376
E-mail: info@dfccbank.com | website: www.dfcc.lk
 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.

Our Values Our seven core values are the guiding principles for our ACTIONS that shape
the way we do business.

We are Accountable for what we do

We place Customer experience at the core
We believe Teamwork is key in turning our goals into accomplishments
We have a passion for Innovation and excellence
We Operate our business ethically
We focus on the Need to grow our business profitably
We are Socially and environmentally caring
Multiple Strands of Business Lend Strength

The cover depicts the multiple strands of a fibre optic cable - a technology which has opened a whole new world to
humankind.

A key aspect of the DFCC Banking Business is the manner in which we have woven the various strands of
business - development banking, commercial banking and investment banking - into a cohesive whole.
The composite strength, by the very nature of its variety, provides us the vibrancy, energy and speed in serving a
diversified portfolio ranging from top corporates to SMEs, from project financing to personal financial services
and everything in between.

DFCC really is about celebrating composite strength – the results of which unfold through the pages of this report.
CONTENTS

03 PERFORMANCE HIGHLIGHTS - DFCC BANK

04 MANAGEMENT INFORMATION
04 Chairman’s Message
08 Chief Executive’s Report
14 Board of Directors
18 Management Team
20 Group Structure

22 MANAGEMENT DISCUSSION AND ANALYSIS

22 Operations Review
33 Financial Review
37 Integrated Risk Management

46 Sustainability Report
46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

96 REPORTS OF DIRECTORS
96 Annual Report of the Board of Directors
104 Report of the Audit Committee
107 Report of the Human Resources and Remuneration Committee
108 Report of the Nomination Committee
109 Report of the Board Integrated Risk Management Committee
110 Directors’ Statement on Internal Control
113 Independent Assurance Report

114 SUPPLEMENTARY FINANCIAL INFORMATION

114 Consolidated Income Statement of DFCC & DVB (DBB)
115 Consolidated Balance Sheet of DFCC & DVB (DBB)
117 Key Performance Indicators of Consolidated Banking Business (DBB)
118 Reconciliation with Group Financial Statements

119 FINANCIAL REPORTS

120 Statement of Directors’ Responsibilities in Relation to Financial Statements
121 Chief Executive’s and Chief Financial Officer’s Statement of Responsibility
122 Independent Auditor’s Report
123 Income Statement
124 Balance Sheet
125 Statement of Changes in Equity
126 Cash Flow Statement
128 Notes to the Financial Statements

183 SUPPLEMENTARY INFORMATION

183 Capital Adequacy
185 Sources and Distribution of Income - Bank
186 Ten Year Summary
187 Performance of the Share
188 Share Information
190 Twenty Major Shareholders
191 DFCC Bank’s Offices
192 A Pioneer's Journey

Corporate Information - Inner Back Cover

 Performance Highlights - DFCC Bank

TOTAL ASSETS AND RETURN ON ASSETS PROFITS

LKR million % LKR million
90,000 15 3,000

75,000 12 2,400
60,000
9 1,800
45,000
6 1,200
30,000

15,000 3 600

0 0 0
08 09 10 11 12 08 09 10 11 12
Total Assets (LKR million) Profit Before Tax*
Return on Total Assets (%) Profit After Tax*
* excluding exceptional pro t from CBC

SHAREHOLDERSFUNDS AND RETURN ON EQUITY

LKR million %
25,000 50

20,000 40

15,000 30

10,000 20

5,000 10

0 0
08 09 10 11 12
Shareholders’ Funds (LKR million)
Return on Total Equity (%)

For the year ended 31 March 2012 2011 %

Change

Income - LKR million 7,434 14,191 (48)

Profit before tax - LKR million 2,748 7,876 (65)
Profit before tax - LKR million 2,748 2,515* 9
Profit after tax - LKR million 2,317 7,137 (68)
Profit after tax - LKR million 2,317 1,776* 30
Earnings per share - Basic - LKR 8.74 26.95
- Diluted - LKR – 26.93
Interim dividend paid LKR million – 1,855
Final dividend (Proposed) - LKR million 1,060 795
Dividend payout % 46 37
Shareholders' funds (capital & reserves) - LKR million 21,754 20,219 8
Medium/long-term borrowing, deposits & debentures - LKR million 45,631 31,017 47
Total assets - LKR million 71,707 59,926 20
Return on average total assets - % 3.52 12.27
Return on average shareholders’ funds - % 11.04 39.7

* excluding exceptional profit arising from the sale of Commercial Bank of Ceylon PLC shares.

Annual Report 2011/12 DFCC Bank 3

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
04 Chairman’s Message ANALYSIS
08 Chief Executive’s Report
14 Board of Directors
18 Management Team
20 Group Structure

Chairman’s Message

Our composite strength

equips us to ride change

Dear Shareholder,
In chaos theory, ‘the Butterfly Effect’ propounded by the famed mathematician and
meteorologist Edward Lorenz hypothesises how, for instance, a butterfly flapping
its wings on one side of the globe may trigger a chain of events that could lead to
a hurricane on the other. This notion could very well describe Sri Lanka’s situation
if one considers, the impact that the seemingly disconnected Iranian nuclear
programme or for that matter the debt mountains in some European countries are
having on the country’s fortunes in the context of its economy, the external sector
and geopolitics.

4 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

In 2011, the Sri Lankan economy recorded It must be borne in mind though, that most of
a growth of 8.3%, the highest in its post- the ‘South’ is powered by the export-driven
independence history. It was achieved whilst economic model and any downturn and fall
maintaining inflation in single digits and in consumption in the ‘North’ will cause a
unemployment below 5%. This performance, demand slack down the supply chain. The
which was driven by the consumption and silver lining is that most Asian economies
investment boom following the end of the are expected to demonstrate a relatively high
conflict in 2009, merited the upgrade of the degree of resilience. Supporting this view
sovereign credit rating in June 2011. However, is the fact that intra-regional investment,
in the second half of 2011, some overheating domestic consumption, commerce and trade
was evident and developments in the external have taken off. As such, there is comfort that
sector were not positive. A widening trade regional growth should remain relatively
deficit raised concerns about Sri Lanka’s robust in the face of a general decline in
external finances and led to corrective global momentum. This would have positive
measures in the form of the depreciation implications and provide support for the Sri
of the Rupee, the hike in policy rates and Lankan economy.
a ceiling on credit growth. It delivered the
message that the authorities were willing to Geopolitics - the third aspect referred to in
bite the bullet and accept a lower growth in my preface - has a significant bearing on
the context of giving priority to the external Sri Lanka. From Sri Lanka’s perspective,
sector. This is crucial given that Sri Lanka’s the external macro situation has been
external financing hinges on retaining investor made more complicated by the geopolitical
confidence in a consistent and rational policy developments in the West as well as in the
framework. Middle East. The former is still our largest
trading bloc and source of tourism while the
The world economy is in flux. Many latter is a key market for our tea exports and
‘Developed’ or ‘Northern’ economies are principal source of oil. Therefore, the fallout
stagnant, suffering a lack of competitiveness from the recent imposition of sanctions and
and an overload of debt that has sapped other politically driven actions would be
growth, reduced incomes, consumed cash better dealt with in a pragmatic rather than
and strained budgets. In contrast, most a reactive fashion. Given the new geopolitical
‘Developing’ or ‘Southern’ economies, realities, this will require a fine balancing act
exemplified by the BRICS group of nations, if Sri Lanka is to avoid the ‘Butterfly Effect’
are surging with growth and investment and assert itself without burning any of the
founded on a vibrant business culture bridges that have long stood the test of time.
driven by demographics, urbanisation and
an increasingly educated population. The Moving on to the Financial Sector; despite
historical balance of economic power is thus some systemic pressures in the latter
tilting Southward perhaps foreshadowing the part of the year, the industry reported a
emergence of a ‘New World Economic Order’. healthy performance with strong balance
sheet growth, higher asset quality and
increased profitability despite the narrowing
of margins as the year progressed.

Annual Report 2011/12 DFCC Bank 5

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
04 Chairman’s Message ANALYSIS
08 Chief Executive’s Report
14 Board of Directors
18 Management Team
20 Group Structure

This was accompanied by the expansion as we complete the 10th year in commercial
of delivery channels to unbanked regions banking undertaken through our almost
with increased deployment of electronic wholly-owned subsidiary DVB, its assets of
banking. On the regulatory side recent LKR 45,940 million now comprise 40% of the
pronouncements indicate that there is greater total DFCC Banking Business Assets. Good
awareness of the benefits of consolidation in progress has been made in the expansion of
the banking sector and it is hoped that the its distribution network. The strong growth in
amendments to the Banking Act that are in deposits and SME business is a testament to
the pipeline will facilitate this. The ambitious its reach and effectiveness.
growth plans of the country needs banks
that have larger risk taking capacity and are Our business model, which comprises two
strong enough to tap international capital core activities carried out by two separate
markets for significant amounts of medium legal entities but functioning in an operational
and long-term funds. merger, is unique in the local industry. It
successfully nurtures the respective core
Getting on to performance, shareholders skills and competencies under the two Banks
would be pleased to note that the DFCC Group without any dilution. At the same time, it
recorded a consolidated profit after tax of LKR permits both institutions to compete in the
2,973 million. This is an increase of 37% over financial services space as an effectively
the LKR 2,170 million recorded in the previous integrated entity offering the full range
year (excluding the exceptional profit relating of development and commercial banking
to the reduction of DFCC’s shareholding products and services seamlessly through
in Commercial Bank of Ceylon PLC and a unified distribution channel. And, looking
it ceasing to be an associate company). ahead, on the DFCC side, the project financing
As regards DFCC Banking Business, the pipeline is strong and this will remain a
combined profit after tax of DFCC Bank and core activity for the foreseeable future. On
DFCC Vardhana Bank PLC (DVB) increased by the DVB side, the bank has successfully
40.2% from LKR 1,990 million to LKR 2,789 positioned itself in all market segments and
million. Meanwhile, the combined credit has procured the necessary means - human,
portfolio of the DFCC Banking Business grew financial, technological, and others - from
47% from LKR 60,771 million to LKR 89,111 DFCC and other sources, to drive forward.
million. This includes a strong 31% growth The corporate model is therefore performing
in the project finance portfolio from LKR well. Nonetheless, given that it is in the
28,774 million to LKR 37,628 million. I am growth phase, the evolving regulatory
happy because this performance vindicates landscape, competitive pressures and
our strategy to nurture DFCC’s core project market forces may dictate a concentration
financing competency. It is also satisfying as of resources on the commercial banking
it demonstrates that the cross selling and operations of the DFCC Banking Business at
synergies between the development financing some point in the future. Other development
and commercial banking businesses is finance institutions in the region, with a
working well. I am also pleased to report that presence in commercial banking, have

6 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

also faced similar circumstances and To our clients, all of whom are valued
considerations. While some have gone down partners; my thanks for your patronage
the development bank - commercial bank and the partnership with DFCC that has
merger route, others have opted to retain the engendered mutual benefit and success.
status quo. What is important from DFCC’s On our part, I have no doubt that DFCC would
perspective is that our model also provides nurture each relationship as special and
the option for a restructure at some time in long-term.
the future should a merger be considered
the best option to compete in the market. DFCC’s success, both as a development bank
Facilitation of consolidation through changes and as the apex of a financial services group
to the Banking Act would therefore be a factor would not have been possible without the
that has a bearing on how we proceed. support of officials of the Ministry of Finance
and the Central Bank of Sri Lanka. I thank
I conclude by thanking all stakeholders of the them all and look forward in the future to
DFCC Group. their continued assistance and co-operation.

My fellow Directors, thank you for your Last but not least, I, together with my fellow
unstinted support and cooperation. I will Directors on the DFCC Board, thank the
continue to rely on your expert guidance in shareholders of the Bank for the reliance
charting the future course of the Bank. I also placed in our ability to guide this organisation.
thank the Directors who retired; Mr C P R It is indeed a weighty responsibility, which I
Perera in June 2011 and Mr S N P Palihena trust we have discharged satisfactorily. I also
in October 2011, both of whom served the wish to announce that the Board has decided
Board with distinction. I welcome Dr L P to recommend a first and final dividend of
Chandradasa and Mr J E A Perumal who were LKR 4.00 per share for the financial year
appointed to the Board in October 2011 and ended 31 March 2012, which is consistent
February 2012 respectively. with our dividend payout policy. It compares
well with the LKR 3.00 per share paid last
Mr Nihal Fonseka, the Chief Executive; you year and reflects our optimism in DFCC’s
have ably inspired the staff of DFCC Bank to future performance and our confidence in
deliver yet another superior performance enhancing your investment value.
and I thank you for the leadership that
has consistently driven the DFCC team to
higher attainment. The employees of DFCC
Bank; you have demonstrated yet another
commendable effort and I am confident of
J M S Brito
your continued commitment towards taking
Chairman
the organisation to newer thresholds.
30 May 2012

Annual Report 2011/12 DFCC Bank 7

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
04 Chairman’s Message ANALYSIS
08 Chief Executive’s Report
14 Board of Directors
18 Management Team
20 Group Structure

Chief Executive’s Report

Technological development constantly

challenges us to innovate…
“Technology, especially smart phones, tablets, and social media have radically
changed the way customers deal with banks and make payments not only in the
developed world but even in emerging economies. Although branches will continue
to be important, how customers interact with branches will change significantly
and banks will have to face competition from other delivery channels and
disintermediation. Our medium-term strategies will focus on leveraging technology
and developing partnerships not just for generating a short-term competitive
advantage but to radically change the way services are delivered
to customers.”

8 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

The financial year ended 31 March 2012 merged unit forged ahead by acquiring many
yielded solid results all round - for DFCC new corporate relationships and thereby
Bank (DFCC), our combined banking significantly expanding our working capital
operation with DFCC Vardhana Bank PLC and cross border trade finance activities.
(DVB), and the DFCC Group as a whole. In Competitive pricing and investments on
my Report last year I had explained our service delivery were necessary ingredients
operational merger with DVB, which enables to enter this space, and DBB used the
us - the DFCC Banking Business (DBB) - to opportunity afforded by the lower tax rates
build on our objective of providing a full that became effective in the year under
spectrum of seamless banking solutions to review and the improvement in asset quality
our customers. To enable our stakeholders to aggressively compete on price. The large
to assess the progress we have made, this corporate sector has in the past been less
analysis will mainly focus on the performance vulnerable to economic downturns, thus
of DBB as a whole, with details for DFCC and justifying the lower margins from a risk
the Group where appropriate. management perspective.

Strategic Positioning The DBB also expanded its personal financial

DFCC continued to build on its core services (PFS) business and by the year
competencies in project lending and end had a suite of PFS asset and liability
development financing activities, as they now products catering to different market
become even more relevant with the nation segments and life phases. The recall level
marching forward through rapid post-war of the DFCC brand in the PFS segment has
reconstruction and ambitious growth targets. increased encouragingly, but leveraging this
DVB, while leveraging the DFCC customer to new business acquisition and increasing
base, also actively develops new relationships market share is a challenge that has yet to
to provide working capital finance, and be met. The recent adverse developments
implements strategies to increase its affecting some aspects of the economy
penetration into personal financial services, warrants a somewhat cautious approach to
financing of international trade and payment the expansion of PFS assets until conditions
services that are not within DFCC’s ambit. improve. Until then the emphasis will be on
building a strong liability base and creating
On receiving regulatory approval for DVB an institutional value proposition through
to continue as an up to 100%-owned and streamlined and cost effective processes,
functionally managed subsidiary, DFCC since research indicates that mere product
increased its ownership of DVB to almost differentiation is not sustainable.
99.1% and invested LKR 1,337 million in new
Tier I equity capital of DVB. A further LKR There is general agreement that an annual
1,000 million was raised by DVB through GDP growth target of 8% cannot be sustained
the issue of subordinated debentures which over time only from domestic savings, and
were listed on the Colombo Stock Exchange, Sri Lanka’s private sector will need to tap
thereby making DVB compliant with the overseas capital markets for long-term
regulatory requirement for all banks to be resources to bridge the investment gap. DFCC
listed with the added benefit of being able to has in the past traditionally depended mainly
recognise it as Tier II capital. DBB was also on overseas development finance institutions
reorganised, whereby project finance and with the involvement of the Government
working capital lending to the large corporate for long-term funding. Going forward
sector were merged into one operational unit. DFCC will diversify its funding sources to
With the large corporate sector emerging as a include international capital markets while
key driver in the country’s growth agenda, the managing market risks that will arise at a

Annual Report 2011/12 DFCC Bank 9

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
04 Chairman’s Message ANALYSIS
08 Chief Executive’s Report
14 Board of Directors
18 Management Team
20 Group Structure

prudent level. As a prelude, DFCC recently Likewise, after eliminating gains from
secured regulatory approval to lend in disposals of subsidiaries and associates to
foreign currency to a wider range of business enable comparison, DFCC recorded a profit
sectors. Since these business sectors have after tax of LKR 2,317 million during the year,
foreign currency income streams, such an increase of 30.5% over the comparable
lending will provide a natural hedge against profit of LKR 1,776 million in the previous
market risks. year. Contributing factors for the profit growth
include a lower tax regime, smaller loan loss
In deciding on our strategic positioning we provisioning with some write-backs through
are conscious that being a mere follower will improved asset quality, higher non-funds
not allow us to achieve our corporate vision. based income and a healthy loan portfolio
Technology, especially smart phones, tablets, growth. However, surplus banking system
and social media have radically changed the liquidity and the low interest rate regime
way customers deal with banks and make that prevailed in the first half of the financial
payments not only in the developed world year led to intense price competition, and the
but even in emerging economies. Although higher funding costs in the last quarter as the
branches will continue to be important, monetary authorities moved to contain credit
how customers interact with branches will expansion contributed to a lower DBB net
change significantly and banks will have interest margin of 4.7% compared with 5.6%
to face competition from other delivery in the previous year. DBB too had to sacrifice
channels and disintermediation. Our medium interest margin for its corporate customer
term strategies will focus on leveraging acquisition strategy. Nevertheless, the other
technology and developing partnerships not factors referred to resulted in the combined
just for generating a short-term competitive profit after tax of DBB (after adjusting for
advantage but to radically change the way one-off gains) to increase to LKR 2,789
services are delivered to customers. million, being 40.2% over the previous year’s
figure of LKR 1,990 million.
As in previous years and consistent with our
accounting policy, the year under review (the As in any balance sheet-based banking
year) for DVB is the financial year ended 31 business such as ours the key drivers of
December 2011, while the corresponding profitability are credit growth, leverage,
period for DFCC is the financial year ended interest margins, credit quality, non-funds
31 March 2012. The feasibility of changing the based income, cost management and
financial year of DFCC to the calendar year, taxation. These aspects are discussed below
which is the norm in the banking industry, in relation to the performance of DBB, DFCC
will be considered if there are no significant and DVB.
adverse taxation implications that may arise
from such a change. A Strong Credit Pipeline as Business
Banking Opportunities Widen
Strong Profit Growth Despite Credit utilised by DBB customers grew 47%
Declining Margins during the year, driven by portfolio growths
The consolidated profit after tax of the DFCC of 34% and 74% achieved by DFCC and DVB
Group grew 37% from LKR 2,170 million to respectively. While DVB’s credit growth
LKR 2,973 million during the year, the best related mainly to working capital and trade
ever after disregarding the exceptional profit finance, DFCC’s credit portfolio was skewed
in the previous period arising from the partial towards medium and long-term project loans
divestment of our equity stake in Commercial and finance leases for production as opposed
Bank of Ceylon PLC and it ceasing to be an to consumption.
associate company.

10 DFCC Bank Annual Report 2011/12

 REPORTS OF DIRECTORS Supplementary financial Information

I am happy to report Credit growth was experienced across Squeeze on Interest Margin Requires
that concerted action diverse areas of economic activity, in both the Effective Counter Measures
taken during the year to corporate and Small and Medium Enterprise The reduction in interest margin of DBB was
(SME) sectors. Finance leases recorded in line with developments in the banking
improve credit quality
strong demand from the latter. Being fully sector that were discussed earlier. The
has been successful. supportive of the Government’s policy aimed recently witnessed increased interest rates
Despite the strong at acceleration of economic growth outside will have a favourable impact but pressure on
credit growth, non- the Western Province through employment margins over time will remain. A reduction
performing credit creation and poverty reduction, DBB in intermediation costs will certainly be
exposure of DBB did continued to expand its operations by bringing desirable, but achieving this will require
its total number of branches and service structural adjustments relating to the
not record a significant
locations to 127, of which 72% are presently banking sector, such as consolidation to
increase during the outside the Western Province. Of particular achieve benefits of scale. DFCC will consider
year, and the NPL significance is the growth of business in the opportunities that may arise in this regard.
ratio improved from Northern and Eastern Provinces in the post-
6.6% to 4.3%. conflict environment. DBB now operates 11 DVB is focusing on increasing the share
customer service centres in these provinces of lower cost current and savings account
compared with none three years ago. DBB is balances as a proportion of total customer
also a net transferrer of financial resources deposits of DVB. Despite limited success
to these regions through direct lending which on this front, DVB increased the aggregate
exceeds the deposits raised from the regions, income from fees and foreign exchange
as well as indirectly by acting as the apex transactions as a proportion of net interest
lender for the now fully-disbursed EUR 5 income from 20% to 31% in the year under
million medium-term credit line provided by review. To further diversify income streams,
the German development finance agency KfW DBB is generating higher levels of non-
for on-lending to small scale enterprises in funds based income from banking services
the North and East. including foreign exchange trading. As a cost
reduction strategy DBB will consider further
Looking forward, DBB will need to work streamlining and centralisation of internal
within the cap of 18% on LKR credit expansion business processes.
(23% if the additional amount is funded
from funds raised overseas) imposed by Credit Quality Continued to Improve, but
the Central Bank. This will have an impact there’s no Room for Complacency
especially on the planned growth of DVB Continuing the trend seen in the previous
which is growing from a low base. The year, I am happy to report that concerted
growth cap is expected to be a temporary action taken during the year to improve credit
measure aimed at preventing the economy quality has been successful. Despite the
from overheating, although there will be strong credit growth, non-performing credit
adjustment costs that will need to be incurred exposure of DBB did not record a significant
by both businesses and banks. increase during the year, and the NPL ratio
improved from 6.6% to 4.3%. The improved
business conditions that prevailed in the post-
conflict era helped some previously stressed
sectors such as tourism and construction to
recover as economic activity picked up.

Annual Report 2011/12 DFCC Bank 11

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
04 Chairman’s Message ANALYSIS
08 Chief Executive’s Report
14 Board of Directors
18 Management Team
20 Group Structure

The depreciation and volatility of the LKR The requirement to prepare financial
exchange rate experienced after the Central statements in full compliance with
Bank of Sri Lanka stopped intervention in International Financial Reporting Standards
the market from 10 February 2012 and the (IFRS) with effect from the financial year
gradual rise in LKR interest rates coupled ending on 31 March 2013 has surfaced
with credit growth restrictions that are in certain issues relating to taxation that needs
place will cause stress to some borrowers. to be addressed due to the tax legislation
Vigilance and the investments made in not being aligned with some of the income
building risk management capacity will stand and expenditure measurement criteria of
DBB in good stead to take proactive steps to IFRS. The banking industry has identified the
manage the situation. The significant capital gaps that need to be addressed and will be
buffer available to DBB will be a source of engaging policy makers in a bid to achieve
strength to absorb any downside. convergence.

Cost Leadership through Synergies and Subsidiaries and Joint Ventures

Productivity Apart from DVB, Acuity Partners (Pvt) Limited
Riding on DFCC’s track record of best in class (APL), the equally-owned joint venture with
cost to income ratios, which was 31.6% during Hatton National Bank PLC is a significant
the year, DBB likewise posted a creditable member of the DFCC Group delivering the full
cost to income ratio of 42.5% for the year range of investment banking services. APL
which compares very well with domestic played an active role in Initial Public Offerings
private banks operating in Sri Lanka. This was and Private Placement of equity, managing
largely achieved through reaping synergies issues in excess of LKR 9,000 million or
arising from shared services between DFCC about 30% of the total issued to the market.
and DVB, as well as continuous productivity The market downturn and reduced trading
improvements on all fronts. volumes in the latter part of the year meant
that the stock broking unit could not maintain
Tax Reforms Improve Profitability, but the level of profitability of the previous year.
New Issues Emerge Overall, APL recorded a net profit after tax
As I mentioned last year, the national budget of LKR 231 million compared with LKR 301
proposals presented in November 2010 million in the previous year. The market
proposed far reaching steps to reform the conditions in which APL and its subsidiaries
tax structure in the country. The measures are operating continue to be difficult and 2012
included a reduction in the standard is likely to be a challenging year.
corporate tax rate from a regionally high
level of 35% to 28%, and more importantly Lanka Industrial Estates Limited recorded
for banks, the reduction of the financial a steady performance. The Information
services value added tax rate from 20% to Technology subsidiary Synapsys Limited,
12%. The latter is effectively an additional apart from providing services to DFCC and
income tax, about which banks had made DVB, invested in enhancing the capabilities
repeated representations over the years. of its MBanx mobile banking platform
These measures made a positive impact on which is deployed in DVB. The development
the results of DBB during the year under costs are recognised as expenditure and
review and will contribute to internal capital resulted in Synapsys incurring a loss of
formation to support future growth. LKR 12.9 million for the year compared with

12 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

a profit of LKR 6.6 million in the previous Domestic Corporate Debt Market will
year. MBanx recently won the Technology Need to Come of Age
Development Award at the annual meeting As mentioned earlier, sustaining the country’s
of the Association of Development Financing development agenda will require vast
Institutions in Asia and the Pacific (ADFIAP). amounts of capital. Traditionally, bank credit
Synapsys is currently working on business has been the major source of funding in Sri
models to market MBanx internationally. Lanka but going forward the development of
long-term debt markets is sine qua non for
Convergence with International Financial the country’s forward march. The Government
Reporting Standards has taken steps to establish benchmarks in
Of particular significance to banks is the the international capital markets for both
impending adoption of Financial Instruments USD and LKR borrowings, thus paving the
Standards and full convergence with IFRS and way for businesses to follow. At the same
International Accounting Standards effective time, domestic corporate debt markets need
from the financial year that commenced on to be widened and deepened by developing
1 April 2012 in the case of DFCC. Further a long-term yield curve and robust trading,
information is given in Notes to the Financial distribution, market making and settlement
Statements. mechanisms within a sound regulatory
framework. Banks should not view capital
DBB has made considerable progress in markets as competitors but as partners in the
the preparatory work towards transition to emerging era where banks will be called upon
the new Accounting Standards. The two key to allocate more capital to support the risks
areas that have an impact on the financial inherent in their business models.
statements by way of adjustments to the
brought forward retained earnings are the Teamwork is the Key
cumulative impairment charge on impaired My colleagues in the Management Team and
loans at the beginning of the period compared staff at all levels have in no small measure
with the cumulative provisions made under put their shoulder to the wheel in turning out
the previous accounting standards, and the yet another excellent year for DFCC, DBB and
recognition of fair value instead of cost of the Group. I express my gratitude to all of
investments classified as available for sale. them. I also acknowledge with appreciation
Based on internal estimates, DBB is not the unstinted support received throughout the
expected to incur any additional impairment year from the Chairman, Board of Directors,
charge to the retained earnings on account the Central Bank of Sri Lanka and Government
of loans. Also, the restatement of the value of agencies, and look forward to the same degree
investments available for sale will result in a of cooperation in the years ahead.
significant addition to shareholders funds.

Nihal Fonseka
Chief Executive

30 May 2012

Annual Report 2011/12 DFCC Bank 13

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
04 Chairman’s Message ANALYSIS
08 Chief Executive’s Report
14 Board of Directors
18 Management Team
20 Group Structure

Board of Directors

08 09

03

J M S Brito 01
Chairman
A S Abeyewardene 02
Director
T K Bandaranayake 03
Director
Dr L P Chandradasa 04
Director
G K Dayasri 05
Director
A N Fonseka 06
Chief Executive/Director
Mrs Sharmalie Gunawardana 07
Government Director
C R Jansz 08
Director
J E A Perumal 09
Director
R B Thambiayah 10
Director

02
 REPORTS OF DIRECTORS Supplementary financial Information

10

04 06
05

07

01

Annual Report 2011/12 DFCC Bank 15

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
04 Chairman’s Message ANALYSIS
08 Chief Executive’s Report
14 Board of Directors
18 Management Team
20 Group Structure

J M S Brito Mills PLC, Coco Lanka PLC and Renuka Holdings PLC.
Chairman He is a former Chairman of the Audit Faculty and current
Appointed to the Board of DFCC Bank in March 2005; Chairman of the Quality Assurance Board established by
appointed Chairman in September 2005. The Institute of Chartered Accountants of Sri Lanka. He
is a former Senior Audit Partner of Ernst & Young and a
Mr Brito is Deputy Chairman and Managing Director former Director of DFCC Vardhana Bank PLC.
of Aitken Spence PLC; Chairman of DFCC Vardhana
Bank PLC and Chairman of the Employers’ Federation Mr Bandaranayake is a Graduate of the University
of Ceylon. He was formerly Chairman of SriLankan of Ceylon and a Fellow of The Institute of Chartered
Airlines, a Director of Sri Lanka Insurance Corporation; Accountants of Sri Lanka.
a Member of the Strategic Enterprise Management
Agency (SEMA), the Post-Tsunami Presidential Task Dr L P Chandradasa
Force for Rebuilding the Nation (TAFREN) and the Director
Public Enterprises Reform Commission (PERC). He has Appointed to the Board of DFCC Bank in October 2011.
gained management expertise serving companies such
as Pricewaterhouse - London, British EverReady PLC, Dr Chandradasa is the National Coordinator of Nutrition
Minmetco Group and the World Bank. at the President’s Secretariat. He is also the Chairman of
P J Pharma (Pvt) Limited, Employees Holdings Pvt Limited
Mr Brito holds a Degree in Law and an MBA. He is a and MED 1 (Pvt) Limited.
Fellow of the Institute of Chartered Accountants of
England and Wales and a Fellow of The Institute of He was formerly Commissioner of the Securities &
Chartered Accountants of Sri Lanka. Exchange Commission of Sri Lanka, Chairman of
the Sri Lanka Ports Authority, National Aquaculture
A S Abeyewardene Development Authority, Ceylon Fisheries Harbours
Director Corporation and General Secretary of the Government
Appointed to the Board of DFCC Bank in August 2009 Medical Officers Association.
and designated Senior Director in November 2011.
Dr Chandradasa holds an MBBS Degree from the
Mr Abeyewardene is a Director of Continental University of Colombo. He has completed the Module
Insurance Lanka Limited (a wholly-owned subsidiary of on Refugee Medicine and Medicine in Emergencies of
Distilleries Company of Sri Lanka PLC), Ceylon Hospitals the Master’s Programme in International Health at the
PLC, J L Morrison Son & Jones PLC and Durdans Medical University of Copenhagen.
and Surgical Hospital (Pvt) Limited. Previously he was a
Partner at KPMG, Sri Lanka. G K Dayasri
Director
Mr Abeyewardena is a Fellow of The Institute of Appointed to the Board of DFCC Bank in March 2010.
Chartered Accountants of Sri Lanka, Fellow of the
Institute of Directors - UK and Fellow of the Society of Mr Dayasri is a practicing senior Attorney-at-Law. He
Certified Management Accountants of Sri Lanka. is a former Director of Sri Lanka Insurance Corporation
Limited and the Colombo Stock Exchange.
T K Bandaranayake
Director Mr Dayasri holds a Degree in Law from the University of
Appointed to the Board of DFCC Bank in June 2010, Colombo.
having previously served as Alternate Director to Mr T
Caglayan since October 2009. A N Fonseka
Chief Executive/Director
Mr Bandaranayake currently serves on the Boards of Appointed to the Board of DFCC Bank as an Ex Officio
Central Finance Co. PLC, Nawaloka Hospitals PLC, Laugfs Director in January 2000 along with his appointment as
Gas PLC, Samson International PLC, Overseas Realty Chief Executive.
(Ceylon) PLC, Micro Holdings Limited, Harischandra

16 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

Mr Fonseka is a career banker. He is a Member of the C R Jansz

National Payments Council and the Financial System Director
Stability Consultative Committee of the Central Bank of Appointed to the Board of DFCC Bank in July 2010.
Sri Lanka. He is the President of the National Advisory
Council of the Chartered Institute for Securities & Mr Jansz counts over 35 years experience in logistics in
Investment, UK. the import/export field and in documentation, insurance,
banking and finance relating to international trade. He
Mr Fonseka is the immediate past Chairman of the presently serves on the Boards of Distilleries Company of
Colombo Stock Exchange (2006-11) and the Association Sri Lanka PLC, Balangoda Plantations PLC, Lanka Milk
of Development Financing Institutions in Asia and the Foods (CWE) PLC and several other companies of the
Pacific (ADFIAP) (2010-12). He served as a member of the Distilleries Group. He is a former Chairman of Sri Lanka
Presidential Commission on Taxation (2009) and the Inter Shippers Council and a former Member of the National
Regulatory Institutions Council. Trade Facilitation Committee of Sri Lanka.

In the past he has also served as a member of the Mr Jansz holds a Diploma in Banking and Finance from
Strategic Enterprise Management Agency (SEMA), the the London Guildhall University. He is also a Chevening
Post Tsunami Presidential Task Force for Rebuilding Scholar and a UN-ESCAP Certified Training Manager on
the Nation (TAFREN) and the Ministerial Task Force on Maritime Transport for Shippers.
Small and Medium Enterprises.
J E A Perumal
He is a graduate of the University of Ceylon, Colombo and Director
is a Fellow of the Institute of Financial Studies (Chartered Appointed to the Board of DFCC Bank in February 2012.
Institute of Bankers), UK.
Mr Perumal is Regional Managing Director of Mainetti
mrs Sharmalie Gunawardana Sri Lanka and Bangladesh (a Group with a presence
Government Director in 42 countries), and Managing Director of Mainettech
Appointed to the Board of DFCC Bank in August 2010. Lanka (Pvt) Limited, Techstar Packaging (Pvt) Limited,
BSH Ventures (Pvt) Limited and Hotels Corporation PLC.
Mrs Gunawardana is presently Director General of the He previously served on the Boards of Sri Lanka Tourist
Legal Affairs Department of the Ministry of Finance Board and the Consumer Affairs Authority.
and Planning, and also spearheads the Government’s
fiscal reforms programme as Project Director. She is a R B Thambiayah
Board Member of the Superior Courts Complex Board of Director
Management and the Postgraduate Institute of English, Appointed to the Board of DFCC Bank in July 2010.
and serves as a Trustee of the Judicial Infrastructure
Maintenance Trust Fund - Judicial Services Commission. Mr Thambiayah is Chairman of several companies in
She has over two decades of experience holding senior the Renuka Hotels Group and Chairman of Cargo Boat
public office, and was formerly Senior Assistant Secretary Development Company PLC. He serves on the Boards of
of the General Treasury and Secretary to the Commission/ Rocell Bathware Limited, Royal Porcelain (Pvt) Limited
Director Legal of the Public Enterprises Reforms and Royal Ceramics Lanka PLC. He is a former President
Commission (PERC). of Colombo City Tourist Hotels Association and Vice
President of the Tourist Hotels Association of Sri Lanka.
Mrs Gunawardana is an Attorney-at-Law of the Supreme
Court of Sri Lanka, a Notary Public and a Commissioner Mr Thambiayah holds a Degree in Economics from the
for Oaths, and holds a Master’s Degree in International University of Madras.
Commercial Law - UK. She has previously undergone
training at Harvard University, Amsterdam Institute of
Finance and the World Bank.

Annual Report 2011/12 DFCC Bank 17

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
04 Chairman’s Message ANALYSIS
08 Chief Executive’s Report
14 Board of Directors
18 Management Team
20 Group Structure

Management Team

Chief Executive Palitha Gamage Terrence Etugala

Nihal Fonseka BSc (Eng) MBA ACMA (UK) BSc (Acct)
BSc FCIB (UK) Planning and Plan Implementation Manager – Kandy Branch
Chief Executive/Director
Manohari Gunawardhena Errol Fernando
Executive Vice Presidents BSc MA (Fin. Econ) MBA ACI (Dealing Cert) CIB- UK (Part 1)
H A Ariyaratne Treasury and Resource Mobilisation Credit Administration
BSc
Lending Ananda Kumaradasa Neville Fernando
BSc ACMA (UK) MBA BSc ACMA (UK) PMP
Trevine Fernandopulle Branch Banking & SME Business Systems
BSc MSc FCIB (UK)
Chief Risk Officer Dharmasiri Wickramatilaka Samarakkodi Godakanda
BSc (Eng) MBA ACMA (UK) BSc (Agri)
S Nagarajah Branch Banking Manager – Kurunegala Branch
FCMA(UK) FCA FCCA
Finance Vice Presidents Chaminda Gunawardana
Bhathiya Alahakoon BSc AIB MBA
Lakshman Silva BSc (Eng) Business Banking
BCom MBA Regional Manager
Chief Executive Officer - Roshan Jayasekara
DFCC Vardhana Bank PLC Chinthika Amarasekara ACMA (UK)
(on secondment) ACA Business Banking
Accounting and Reporting
Anomie Withana Sonali Jayasinghe
FCMA (UK) FCA MBA Renuka Amarasinghe BSc (Bs & Econ)
Operations/Board Secretary LLB Attorney-at-Law HR Operations and Talent Management
Corporate Banking
Senior Vice Presidents Ruwangani Jayasundera
Nandasiri Bandara Jayani Amarasiri ACMA (UK) MBA
BSc (Bs. Admn) FCA BA (Econ) MA Manager - Nawala Branch
Internal Audit Human Resources
Chanaka Kalansuriya
Tyrone De Silva Gunaratne Bandara MBA
CEI MBA BSc (Pb. Admn) Procurement and Services
Corporate and Investment Banking Manager - Ratnapura Branch
Chanaka Kariyawasam
Dinesh Fernandopulle Chandana Dharmawardana BSc (Pb. Admn) MBA AIB
BSc MSc BSc (Eng) MIESL Regional Manager
Group Chief Information Officer Corporate Banking

18 DFCC Bank Annual Report 2011/12

 REPORTS OF DIRECTORS Supplementary financial Information

Nanediri Karunasinghe Assistant Vice Presidents Nalin Karunatileka

BSc (Eng) MPhil (Eng) ACMA (UK) Pradeep Ariyarathne BSc (Bs. Admn) MA (Fin. Econ)
Leasing BSc (Ph.Sc) MBA Project Management
Manager - Kotahena Branch
Prasanna Premaratne (on secondment to DFCC Vardhana Bank) Jayanath Liyanage
MSc (Agri) PGD in Bank Mgmt BSc (Agri) MBA
Regional Manager Shantha Atapattu Manager - Ampara Branch
BSc (Agri)
Wajira Punchihewa Manager - Kaduruwela Branch Duleep Mahatantila
BSc MA (Fin. Econ) MBA AIB ACMA (UK) BA (Acct & Econ) PGD in Law
Manager – Matara Branch Amanthi Balasuriya Dahanayake Barrister of Law
BA (Econ) Credit Administration
Sriyani Ranatunga Risk Processes and Controls
FCMA(UK) MBA MA (Econ) Kelum Perera
Corporate Banking Subhashi Cooray BSc MBA
BSc (Bs. Admin) ACA Matara Branch
Kapila Samarasinghe Credit Administration
BSc (Eng) MSc (Eng) Thejaka Perera
Manager – Gampaha Branch Pradeepa De Alwis BSc (Ph.Sc)
BSc (Stat) PGD in Bs. Admn MBA Attorney-at-Law ACI (Dealing Cert)
Kusumsiri Sathkumara Manager - Galle Branch Treasury
BA (Econ) MBA
Regional Manager Aruna Dissanayake Nimali Ranaraja
BSc (Agri) MSc (Agri. Econ) AIB LLB Attorney-at-Law ACMA(UK)
Priyadarsana Sooriya Bandara Manager - Badulla Branch Business Banking
BSc (Bs. Admn) MBA ACMA (UK)
Regional Manager Ranjith Dissanayake Sepali Ranawana
BCom MBA LLB Attorney-at-Law
Visaka Sriskantha Manager - Bandarawela Branch Legal
BA Attorney-at-Law
Litigation Champal de Costa Mangala Senaratne
BSc (Eng) MBA MIESL CEng BSc (Eng)
Kapila Subasinghe Manager - Malabe Branch Manager - Kalutara Branch
BSc (Eng) ACMA (UK)
Corporate Banking Sanjeewa Fernando Nishan Weerasooriya
BBMgt (Acct) CFA BSc (Comp. Sc) MBA
Rosheeni Madanayake Wijesekera Integrated Risk Management IT Operations
BA PGD in Bs. Admn
Corporate Communications Bandula Gamarachchi Chandrin Wimaladarma
ACMA(UK) AIB FCMA MBA BA Attorney-at-Law MBA
Credit Administration Special Loan Administration

Bhatika Illangarathne
BSc ACMA ACIM
Manager - Anuradhapura Branch

Annual Report 2011/12 DFCC Bank 19

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
04 Chairman’s Message ANALYSIS
08 Chief Executive’s Report
14 Board of Directors
18 Management Team
20 Group Structure

Group Structure

Subsidiary Companies

Company DFCC Consulting (Pvt) Limited DFCC Vardhana Bank PLC Lanka Industrial Estates Limited

Address 73/5, Galle Road, Colombo 03 73, W A D Ramanayake LINDEL Industrial Estate,
Mawatha, Colombo 02 Pattiwila Road, Sapugaskanda,
Makola

Phone Nos. +94 11 2442318, +94 11 2442021, +94 11 2371371 +94 11 2400318, +94 11 5738446
+94 11 2442009

Email rohantha.seneviratne@dfccbank.com info@dfccvardhanabank.com lindel@itmin.net

Incorporated 9 September 2004 25 August 1995 12 March 1992

DFCC’s Interest 100% 99.07% 51.16%

Owning and managing

Principal Activity Consultancy Services Commercial banking
industrial estate

Directors 1. A N Fonseka (Chairman) 1. J M S Brito (Chairman) 1. A N Fonseka (Chairman)

2. S E de Silva 2. L H A L Silva (CEO) 2. H A Samarakoon (CEO)
3. T W de Silva 3. L N de S Wijeyeratne 3. T W de Silva
4. K C S Dharmawardana 4. T Dharmarajah 4. Dr R M K Ratnayake
5. A N Fonseka 5. A D Tudawe
6. R S Jayawardena 6. Mrs W H A Wimalajeewa
7. S Nagarajah
8. Ms R A P Withana

Financial Year End 31 March 31 December 31 March

Financial Year 2011/12 2010/11 2011 2010 2011/12 2010/11

Profit after Tax LKR (0.99) LKR (2.1) LKR 531 LKR 276 LKR 107 LKR 98
million million million million million million

Dividend per Share – LKR 2.00 LKR 0.40 LKR 0.30 LKR 6.00 LKR 4.00

ROE – – 13.6% 9% 22% 22%

20 DFCC Bank Annual Report 2011/12

 REPORTS OF DIRECTORS Supplementary financial Information

Joint Venture Associate Company

Synapsys Limited Acuity Partners (Pvt) Limited National Asset Management Limited

540, Nawala Road, 53, Dharmapala Mawatha, 305, Vauxhall Street,

Rajagiriya Colombo 03 Colombo 02

+94 11 2880770 +94 11 2206206 +94 11 2445911

contactus@synapsys.sg info@acuity.lk info@namal.lk

11 October 2006 7 February 2008 16 June 1990

100% 50% 30%

Information technology and Investment banking including

Fund management
IT enabled services related financial services

1. A N Fonseka (Chairman) 1. R Theagarajah (Chairman) 1. A de Zoysa (Chairman)

2. D J P Fernandopulle (CEO) 2. M R Abeywardena (MD/CEO) 2. A Lovell (Deputy Chairman)
3. T W de Silva 3. T W de Silva 3. A Amarasuriya
4. S Nagarajah 4. D A B Ellepola 4. Khoo Siew Bee
5. A N Fonseka 5. T W de Silva
6. Mrs M Gunawardhena 6. A N Fonseka
7. J R P M Paiva 7. A Herath
8. J M J Perera 8. Yiu Joe Toh
9. J Warnakulasuriya

31 December 31 December 31 December

Financial year end was changed from

March to December in 2011
2011/12 2010/11 2011/12 2010/11 2011 2010/11

LKR (12.9) LKR 6.6 LKR 231 LKR 301 LKR 16 million LKR 22 million
million million million million (for nine months (for 12 months
ended 31.12.2011) ended 31.03.2011)

– – LKR 0.25 LKR 0.15 LKR 1.50 LKR 1.25

12.6%
– 43% 12% 24% 13.5%
(Annualised)

Annual Report 2011/12 DFCC Bank 21

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS
22 Operations Review
33 Financial Review
37 Integrated Risk Management

Operations Review

The project finance portfolio of the corporate sector remains well

diversified. About 83% of the total facilities booked are accounted for
by six industry sectors led by manufacturing, which itself includes
12 sub-sectors. The project pipeline is strong and a welcome trend.

For the most part of 2011 the macroeconomic Approvals of project finance facilities -
environment in the country was conducive comprising term loans, finance leasing,
for trade and investments. GDP grew at an investment securities and guarantees -
impressive 8.3%, driven by the industrial reached LKR 39,744 million during the year,
and services sectors; inflation remained an aggregate growth of 14.7% over the
stable in the mid single digits; and interest LKR 34,637 million of the previous year.
rates were relatively low. However, some Project loan approvals accounted for
overheating was evident in the second half of LKR 29,591 million or 74.5% of the current
the year with a widening deficit and balance year’s total. The main business segments
of payments position, leading to the Central financed were food & beverage, construction,
Bank introducing corrective measures that tourism, renewable energy, agriculture and
included the depreciation of the Rupee, a hike fisheries & diversified holding companies
in policy rates and a ceiling on credit expansion which borrowed for projects of their
by banks. respective subsidiaries.

As in the previous year, this Review of The total project financing portfolio stood at
Operations of the DFCC Group first deals LKR 59,793 million by year end, an increase
with our core businesses of development of 39% over the last year’s portfolio of
and commercial banking that are delivered LKR 43,030 million. The portfolio comprises
through an operationally merged DFCC Bank term loans (73%), finance leases (15%),
(DFCC) and DFCC Vardhana Bank PLC (DVB) and preference shares and debt securities
respectively. They are collectively referred (12%). It is well diversified with nearly 75%
to as DFCC Banking Business (DBB). This being accounted for by eight broad industry
is followed by investment banking, which is sectors. Exposure to each sector is regularly
largely channelled through our joint venture monitored against the internal exposure
company, Acuity Partners (Pvt) Limited and limits set by the Board Risk Management
its subsidiaries. The Review ends with a Committee to proactively manage
brief discussion on the activities of other concentration risks.
companies within the DFCC Group.
The gross non-performing assets recorded
Development Banking a reduction and the NPA ratio of the
Overall Performance project financing portfolio improved from
Development Banking, one of the core 6.4% to 4.3% during the year. This quality
businesses of the Group, recorded growth improvement is a combined effect of the
and improvements in all key areas including favourable macroeconomic conditions that
facility approvals, portfolio growth and prevailed during the year, a substantial
portfolio quality. Its two main arms, corporate portfolio growth and concerted recovery
banking and small and medium enterprise efforts.
(SME) financing, contributed almost equally to
this growth.

22 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

Project Financing for Corporate Clients trend is the renewed credit demand from
The total project finance portfolio of DFCC sectors such as food & beverage, tourism,
Banking Business (DBB) for corporate clients construction and trade. Credit demand is
grew 35% from LKR 18,053 million to LKR also driven by funding for the new public
24,366 million. This is the highest annual infrastructure projects with the Government
growth recorded in the past decade and is a actively seeking finance from the private
strong reversal of the contraction that took banking sector for specific projects.
place during the previous three years. The
increase was driven by disbursements of The credit expansion ceiling imposed at the
LKR 12,329 million, which is nearly double beginning of 2012 is not expected to prove a
the amount in the previous year. In terms major impediment given that project loans
of facilities, a total of LKR 17,370 million are amortisable and the capital repayments
was approved in the form of direct project will reduce the outstanding loan balances
loans to project executing enterprises and allowing the reductions to be utilised for new
indirect project loans to holding companies project loans. Moreover, funding for certain
and financial intermediaries. Although, the projects with foreign currency revenues can
market tightened in the second half of the be provided in US Dollars and the ceiling does
year, the favourable conditions in the first not apply to such facilities. Therefore, all
half and the launch of several projects that things considered, there is strong confidence
were in gestation last year were among the that DFCC’s project financing business will
contributory factors to this performance. grow as anticipated.

Given the rapid growth, the maintenance Commercial Banking for

of portfolio quality was a priority and Corporate Clients
this was achieved successfully. The non- DBB offers a full range of fee and fund based
performing asset ratio for corporate project commercial banking products and services
loans as at 31 March 2012 remained at a to corporate customers. During the year, a
historically low level with non-performing total of LKR 9,079 million in credit limits was
facilities amounting to just over LKR 50 approved for such customers, resulting in
million. This bears out the quality of project the corporate banking portfolio growing by
appraisal as well as the diligence of follow up. 72% from LKR 12,668 million to LKR 21,747
At the same time, there was special focus on million. In response, facility utilisation grew
those sectors with high dependence on export strongly by 94% from LKR 5,490 million to LKR
markets and imported inputs where adverse 10,629 million, which included an increase of
external trends that could impact businesses 89% in advances from LKR 3,349 million to
and impair debt servicing were evident. LKR 6,314 million.
Another important aspect in maintaining the
quality of the project finance portfolio is the Underpinning this performance was a
continuous monitoring, which provides early combination of several factors. While market
warning signals of distress situations and conditions were generally conducive for direct
thereby enables preventive action. business, DBB’s cross selling ability meant
that it could capitalise on the demand for
The project finance portfolio of the corporate commercial credit stimulated by the launch
sector remains well diversified. About 83% of of projects that were financed by DFCC. At the
the total facilities booked are accounted for same time, DVB’s increased single borrower
by six industry sectors led by manufacturing, exposure limit that followed an equity infusion
which itself includes 12 sub-sectors. and subordinated debt issue, and an enlarged
The project pipeline is strong and a welcome correspondent banking network enhanced

Annual Report 2011/12 DFCC Bank 23

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS
22 Operations Review
33 Financial Review
37 Integrated Risk Management

DVB’s ability to undertake larger transaction Financing Small and Medium Enterprises
volumes in the corporate banking sector. DBB provides finance and allied services for
In fact, a notable feature of the business SMEs through the Business Banking Unit
developed during the year was the growth in in Colombo and a network of 50 branches
trade-related facilities. This was generated and three extension offices located in the
from the enhancement of existing facilities provinces.
as well as from acquisition of new customer
relationships. Total credit facilities approved by DBB to the
SME sector during the year amounted to LKR
The favourable market conditions did have 49,903 million, an increase of 20% over the
a positive impact on the performance of previous year. This included project loans,
corporate customers. Even so, a proactive permanent working capital loans, short-term
strategy was continuously employed to loans, export & import loans and finance
maintain a high-performing credit portfolio. leases. Lease approvals, which accounted for
Its effectiveness on the quality of the portfolio 14% of gross approvals, increased by 17%,
is borne out by the zero non-performing largely driven by the reduced import duty on
loan ratio recorded for the DBB corporate motor vehicles and the very strong growth in
commercial banking business (provided the construction sector.
through DVB) as at 31 December 2011.
Besides rigorous appraisal and due diligence, In tandem, the total SME portfolio of DBB
the strategy includes risk management at increased from LKR 34,991 million to LKR
overall and specific levels and stringent 54,651 million during the year, reflecting a
monitoring and follow-up action. The quality healthy growth of 56% that follows a 29%
assurance of the portfolio is also underpinned growth in the previous year. Dominated
by the continuous credit review and rating by loans and leases, the SME portfolio,
process, which signals the onset of stress accounts for about 61% of DBB’s total credit
situations and triggers corrective action. As portfolio. The SME sector covers a wide
a case in point, businesses in those sectors range of activities and is the backbone of
with a high dependence on export markets or regional economies. Our assistance to this
imported inputs, where adverse trends were sector contributes to the development of
emerging, received special attention during entrepreneur skills, resource allocation
the year. and utilisation, employment creation and
finally distribution of income in the regions.
Looking ahead, demand for both short- The economic activities assisted include
term and long-term funding is gathering construction, transportation, wholesale and
momentum. However, the ceiling on credit retail trade, health, leisure, education, light
expansion imposed by the Central Bank engineering workshops, food and beverage,
will bear temporarily on DBB’s commercial poultry and cultivation of crops.
banking business growth.

24 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

We reported last year about a new Business in absolute terms. Given the development-
Banking unit, which was set up to service a oriented nature of SME financing undertaken
customer segment that we had identified - by DBB, including the relatively high risk start
a group with specific and distinct needs. up ventures, the non-performing asset ratio
This segment comprises clients of the of 7.7% for SMEs is considered to be at an
semi-corporate end of the SME sector. The acceptable level. The non-performing loans,
terms and conditions of facilities extended advances, and lease ratio relating to SME
are customised to meet specific needs of finance, excluding legacy loans under legal
customers, and our ability to deliver a wide action for recovery was 6%.
spectrum of financial solutions has thus
resulted in a strong growth of this new DFCC strives to finance SMEs from credit
market segment. The portfolio of business schemes as far as possible in order to pass
banking loans and advances increased by LKR on the benefits of concessionary pricing and
2,000 million to LKR 6,355 million during the longer repayment periods available under
year. Meanwhile, non-fund based facilities such schemes to customers. We participated
too increased from LKR 1,174 million to LKR in 11 credit schemes targeting the SME
2,306 million, mainly for import financing. sector that were in operation during the
year, namely Small and Medium Enterprise
Our involvement with SMEs is not limited Development Facility (SMEDeF) extended
to the provision of finance. It comprises by the World Bank, KfW-DFCC V for SMEs
a comprehensive package of value added in the North and East, Dasuna Revolving
services that include training, education Fund, Awakening the North, Awakening the
and capacity building on important topics East, Agro Livestock Development Scheme
such as business management, leadership, (ALDL), New Comprehensive Rural Credit
entrepreneurship development, marketing, Scheme (NCRCS), Saubagya Loan Scheme,
customer care, problem solving and taxation. Second Perennial Crop Development
We conducted nine such training programmes Project Revolving Fund (PCDP II-RF), Tea
in major towns for both clients and potential Development Project Revolving Fund (TDP-
entrepreneurs during the year. These RF) and Construction Sector Development
programmes were well received and attracted Project (CSDP).
over 700 participants from diverse industries.
DFCC disbursed LKR 307 million out of its
This illustrates our continued and allocation of LKR 368 million (83.4%) under
comprehensive support for the SME sector the SMEDeF credit scheme and LKR 216
and our commitment to accelerate regional million under the KfW-DFCC V scheme as at
economic growth by leveraging on our core 31 March 2012.
competencies in development banking and
SME lending. DBB also granted facilities to borrowers
from the Investment Fund which is referred
The quality of our SME portfolio also improved to in the Financial Review and was set up
significantly during the year. Non-performing in conjunction with the reduced taxes that
assets reduced from 11.8% to 7.7% during became applicable.
the year, driven by the twin effects of portfolio
growth and a reduction of impaired loans

Annual Report 2011/12 DFCC Bank 25

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS
22 Operations Review
33 Financial Review
37 Integrated Risk Management

Credit Line Management DFCC - played a crucial role in the inclusion

The Renewable Energy for Rural Economic of Non-Conventional Renewable Energy
Development (RERED) Project funded by (NCRE) sources into the national energy mix.
the World Bank and the Global Environment NCREs contributed 244 MW or 7.7% of the
Facility where DFCC Bank functioned as the installed capacity of the national grid as at 31
administrative unit, and the KfW-DFCC V March 2012. RERED and ESD-funded projects
credit line for SME’s in the North and East, accounted for 77% of this capacity.
in which DFCC functioned as the apex body
came to a successful close during the year Due in no small part to the efforts of the
under review. RERED Project and its stakeholders, small
hydro and wind are now mainstream
Renewable Energy for Rural Economic renewable energy technologies in Sri Lanka.
Development Project The small hydro industry, developed entirely
The RERED Project consisted of two credit with indigenous talent, can be termed
lines of USD 75 million and USD 40 million, as ‘world class’ with many Sri Lankan
a grant component of USD 8 million and developers and contractors exporting know-
a Government subsidy programme. The how and even equipment overseas. While the
project aimed to foster rural economic country’s first privately-owned grid-connected
development and improve the quality of wind power project was funded by the RERED
life in rural areas by providing access to Project, the various technical assistance
electricity. It also focused on expanding initiatives such as funding for independent
the commercial provision of electricity technical due diligence studies and capacity
generated from renewable resources. The building programmes gave Sri Lankan banks
RERED Project was completed with 100% and the confidence to lend to an entirely new and
99.3% disbursements of the credit and grant untried sector.
components respectively. The total loans,
grants and subsidies disbursed during the life In terms of off-grid electrification, the RERED
of the Project from 2002 to 2011 amounted to Project assisted 110,575 rural households
LKR 14,490 million. to acquire solar home systems and 6,220
households in 175 villages to obtain electricity
The RERED Project assisted the electrification from 173 micro hydro projects and two
of 116,795 households in remote areas not biomass based projects. With the addition of
served by the national grid through solar households assisted under the ESD Project,
home systems and community-owned a total of 139,480 households or around half
independent mini-grid systems. The Project a million Sri Lankan citizens in remote areas
will also add a total of 184 MW of generating were able to enjoy a greatly improved quality
capacity to the national grid through 68 small of life due to the availability of electricity.
hydro and two wind projects when the balance Consequent to a study undertaken to develop
projects totalling 26 MW are commissioned a mechanism for integrating existing off-
shortly. The already commissioned on- grid village hydro schemes into the national
grid projects had by 31 December 2011 grid, two micro hydro projects will shortly be
contributed to the mitigation of over 2.15 connected to the grid. The CEB will treat the
million tonnes of CO2 emissions. newly-created village electricity generation
companies as regular small hydro companies
The RERED Project, together with its highly and pay them the same tariff.
acclaimed predecessor - the Energy Services
Delivery (ESD) Project, also implemented by

26 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

The World Bank has recognised RERED as increased demand in the capital asset funding
a ‘flagship’ project and we have shared our market. A credit line from the German
experiences with counterparts from several development financing institution DEG
countries including Cambodia, Ghana, India, amounting to USD 30 million was successfully
Indonesia, Mozambique, Nepal, Philippines, negotiated on competitive terms and drawn
Rwanda, Uganda and Vietnam over the years. down within a very short period. This new
During the year under review, DFCC hosted a line of funding assisted in strengthening the
team from Uganda. In January 2012, the maturity profile of the liability base of DFCC.
UNDP published a case study on the RERED
Project titled ‘Renewable Energy Sector During the year, Group Treasury structured
Development: A Decade of Promoting and issued a subordinated debenture for
Renewable Technologies in Sri Lanka’. In our commercial banking arm, DVB. This
October 2011, the National University of was the first debenture issue of DVB, and
Singapore published a case study on the the positive response was encouraging. The
ESD Project titled ‘Harvesting the Elements: debenture was subsequently listed on the
The Achievements of the Sri Lanka Energy Colombo Stock Exchange. The Treasury was
Services Delivery Project’. also actively involved in mobilising resources
on favourable terms for both commercial
KfW-DFCC V Credit Line for SMEs in and development banking businesses of the
the North and East Group. It is exploring cross border funding
The EUR 5 million KfW-DFCC V credit line opportunities while taking steps to manage
for SMEs in the North and East, which aimed the market risks that arise.
at improving access to financial services
through the banking sector for entrepreneurs Personal Financial Services
in the two provinces, closed successfully 2011 was an important year, as DBB
on 31 March 2012 with 100% disbursement intensified its strategic focus on the personal
of refinance amounting to LKR 771 million. financial services (PFS) segment. In order
Five banks participated in the Project. The to support this initiative an investment
post-war economic boom in the region was made to establish the DFCC brand in
together with relatively low interest rates this segment through a major promotional
contributed to the success of the Project. campaign via the award winning knowledge
The majority (93%) of the total 488 loans and quiz programme ‘DFCC MindStar’ on national
leases granted were less than LKR 3 million television. An initial outcome of these efforts
in value. The sectors funded were mainly was the increase of the PFS asset portfolio
agriculture, transport, trading, manufacturing to LKR 4.2 billion from a base of only LKR
and services. 0.9 billion a year ago. This high growth rate,
albeit from a small base, demonstrates that
Funding DBB has the potential to sustain the growth
The Group Treasury is responsible for momentum created in PFS.
resource mobilisation using appropriate
borrowing mechanisms from the local and The PFS asset product suite comprise of
international wholesale markets. personal loans, housing loans, educational
loans, pawning services, finance leasing
The development banking business was able facilities, credit cards and cash-backed
to utilise funding from the existing European advances. Its liability product range includes
Investment Bank (EIB) Global II credit line demand, savings and time deposits of different
under revised criteria which also coincided maturities and interest payment options. The
with the economic upturn and the resultant PFS products, all of which are offered through

Annual Report 2011/12 DFCC Bank 27

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS
22 Operations Review
33 Financial Review
37 Integrated Risk Management

DVB and a cross section of which are referred Credit and Debit Cards
to below, cater to diverse requirements during Having launched the Visa International Debit
the life cycle of individuals. The product Card in the last quarter of the year 2010,
brandings identify the products closely with DBB proceeded to issue over 10,000 debit
the intended use. cards during the year 2011. The Visa Debit
Cards provide access to over 16 million Visa
Housing Loans accredited merchant establishments globally
DBB’s housing loan scheme, branded Vardhana for purchase of goods and services. They can
Sandella, was introduced in 2010. The housing also be used for cash withdrawals worldwide
loans can be used for a variety of purposes such through the Visa ATM network of over two
as purchase of houses, property or residential million ATMs.
apartments. They also accommodate
construction of new housing units as well as DBB launched its chip-based Visa International
renovation and extension of existing houses. Platinum Cards in the last quarter of the year
During the year, DBB’s housing loan portfolio 2011, in addition to existing Visa Classic and
reached LKR 945 million. Significantly, Gold Cards. DBB is among the first few issuers
around 80% of these loans are from provincial of chip-based credit cards in Sri Lanka that
branches. It is noteworthy that the impairment provide enhanced protection against credit
rate relating to the housing loan portfolio card frauds. This security mechanism has been
remains under 1%. further fortified with the SMS alert message
service relating to all transactions conducted
Gold-backed Lending with credit cards.
Gold-backed lending or pawning is a widely
used product by personal banking customers Remittances
as a convenient source of finance. Following a The outward foreign currency remittances
comprehensive study of the pawning market by DBB during the year grew by 29%.
DBB ventured into this business and grew its This increase is attributed largely to the
portfolio from LKR 620 million to LKR 2,455 relaxation of the limit for advance payments
million during the year. Portfolio growth was for imports in 2011 from USD 10,000 to USD
driven by strong public awareness created 50,000. DBB also witnessed a substantial
through business promotion, our expanding increase in inward remittances from
presence islandwide, competitive advance expatriate Sri Lankan workers following the
rates, the upward trend in gold prices, strengthening of the infrastructure required.
customer-friendly service and Saturday DBB strengthened its correspondent bank
banking facilities. Despite the recent decline network in feeder regions and widened the
in gold prices the infection rate remains at internal distribution network by equipping the
very low levels due to prudent risk mitigation Sri Lanka Post Extension Offices of DBB to
and control mechanisms that are in place. handle these transactions.

Leasing DBB is taking steps to further widen its links

DVB added finance leasing to the product with money transfer companies in the Middle
portfolio in mid 2011. The leasing portfolio East, Europe, Far-East Asia and Australia
grew to LKR 493 million within a short period from which Sri Lanka receives a high volume
of time. It is marketed as a personal financial of remittances.
product mainly for the acquisition of vehicles,
and supplements financial leases offered by
DFCC to businesses.

28 DFCC Bank Annual Report 2011/12

 REPORTS OF DIRECTORS Supplementary financial Information

The high deposit growth Other Products Another strategy relating to the deposit
achieved during the year A widely used PFS product is the cash-backed mobilisation is to increase the proportion of
was driven by steadfast lending scheme branded as Vardhana Cash- savings deposits in the overall deposit mix
for-Cash designed for customers to take to achieve a better balance in the liability
direct sales and
advances against fixed or savings deposits portfolio. During the year, savings deposits
promotional campaigns grew by 34% from LKR 5,413 million to LKR
held with DBB.
conducted across the The product caters to all temporary personal 7,251 million. The flagship Mega Bonus
country. Public deposits credit needs of depositors. Savings Account and the Vardhana Junior
continued to be the Minors’ Savings Account were the main
main funding source Vardhana Nenasa is designed to help Sri contributors to this increase in the savings
Lankan students fund their higher education. account balances.
of DVB and constituted
The loans can be used to meet the expenses
73% of all sources of Savings deposits, which are only accepted
of locally offered courses or for studies in
finance including the foreign universities. These loans can have by DVB, comprised 21.6% of the deposit
equity capital. repayment periods extending up to ten years liabilities of DVB as at 31 December 2011.
while the other terms are customised to suit DVB will continue to focus on increasing this
the borrowers’ requirements. ratio as a strategy to reduce the cost of funds.

During the year, DBB launched a special loan The high deposit growth achieved during the
scheme for selected categories of public year was driven by steadfast direct sales and
sector employees. These loans were actively promotional campaigns conducted across the
marketed throughout the branch network. country. Public deposits continued to be the
main funding source of DVB and constituted
During the last quarter of 2011, DBB 73% of all sources of finance including the
launched a priority banking service branded equity capital.
as Vardhana Prabhu. This has so far been
rolled out in Jaffna and Batticaloa branches. Delivery Channels
Priority banking customers will benefit from DBB products are offered through a network
a host of privileges and DBB has plans to of 50 branches and 77 extension offices.
extend this service to customers in other Most extension offices operate through
areas during the year 2012. rural Post Offices under an agreement
with the Sri Lanka Postal Department.
Liability Products Three new branches and one extension
DBB’s deposit product suite includes term office were opened in the year under review
deposits of different maturities and interest covering Kegalle, Monaragala, Kalmunai
payments options and savings deposits (Saindamarandu) and the Narahenpita
customised as Junior, Mega Bonus and Economic Centre. The Katugastota extension
Senior Citizens’ Accounts. The customer office was upgraded into a fully-fledged
deposit portfolio of DBB increased by 75% branch, while the Panadura branch was
to LKR 44,420 million during the year, thus relocated to a more spacious building.
consolidating the DBB’s standing as a deposit The Bank has plans to further increase its
taking institution with wide customer appeal. presence in the Northern Province.
Of this deposit base LKR 33,587 million was in
the DVB which recorded a 43% growth.

Annual Report 2011/12 DFCC Bank 29

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS
22 Operations Review
33 Financial Review
37 Integrated Risk Management

Treasury Investment
The Group Treasury faced a relatively stable The Colombo stock market was unable
interest and exchange rate environment to sustain the previous years’ upward
during the first half of the year; but volatility momentum and suffered reversals during the
increased and market liquidity declined financial year with the All Share Price Index
sharply towards the end of 2011 and through falling by 25% to 5,420 and the Milanka Price
the last quarter of the financial year. However, Index by 29% to 4,892. Whilst many factors
this volatility also provided opportunities in the attributed for this reversal, it was evident
currency markets and foreign exchange profit that the valuation of 26 times earnings at
of DBB grew year-on-year due to increased the beginning of April 2011 could not be
customer business and higher volumes of maintained on the basis of fundamentals.
proprietary trading by DVB. DBB’s customer The market therefore underwent a correction
product offering and trading is limited to plain to a more sustainable valuation level of 14
Vanilla products and was undertaken within times earnings. At the same time, the retail
pre-approved risk limits. activity that provided the speculative element
in the market was curbed by restrictions
Foreign currency risk management of DFCC imposed by regulators on extension of credit.
also required greater attention due to the The situation was compounded by the rise
additional borrowings designated in foreign in interest rates as the year progressed. As
currency during the year. The Treasury was such, market turnover decreased significantly
able to generate LKR funds through funding with the average daily turnover falling from
swaps using appropriate hedges in place. LKR 2,809 million in the previous financial
year to LKR 1,827 million which masks a
The Treasury’s fixed income business was much lower average volume in the last
less buoyant than last year due to low interest quarter. However, despite the sluggish market
rates that prevailed during most of the year. conditions, the period was notable for several
equity issues that took place. These included
Treasury also played a key role in the 13 IPOs, which raised LKR 18,736 million.
implementing the decisions of the Board
Integrated Risk Management Committee and Market conditions were not conducive to
the Asset Liability Management Committee an active trading strategy. As such, DFCC
with respect to interest rate, foreign consolidated its investment portfolio of
exchange rate and liquidity risk management. quoted shares, unquoted shares and unit
Proactive liquidity management was a priority trust holdings whilst tapping capital gains
especially in the latter part of the year due from sales of mature holdings. On the buy
to the tighter liquidity conditions which side, notable transactions were the purchase
prevailed. of a 9.9% stake in Nations Trust Bank PLC at a
cost of LKR 1,330 million and the subscription

30 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

to the rights issue of Commercial Bank of Investment Banking

Ceylon PLC with an outlay of LKR 691 million. Acuity Partners (Private) Limited, the joint
On the sell side, selected divestments of venture investment banking group owned
quoted shares and unit trust holdings were equally with Hatton National Bank PLC,
made realising LKR 295 million in capital performed creditably in a very challenging
gains. Overall, the aggregate investment environment that impacted adversely on its
in DFCC’s entire portfolio increased from stockbroking and primary dealer subsidiaries
LKR 1,595 million to LKR 2,909 million in the latter part of the year. The adverse
(excluding the cost of the residual holding situation in the investment banking business
in Commercial Bank of Ceylon PLC (CBC). was exacerbated by the entry of several
As at 31 March 2012, the market value of the newcomers including seven stockbrokers, all
quoted investment portfolio (excluding CBC) scrambling for a slice of a shrinking pie.
and unit trust holdings was LKR 3,189 million
of which the cost was LKR 2,773 million. Nonetheless, Acuity’s strong competitive
The Directors’ Valuation of the unquoted advantages enabled it to maintain a prominent
investment portfolio was LKR 209 million of position in the industry. The Acuity Group
which the cost was LKR 136 million. As such was at the forefront of several landmark
the aggregate unrealised capital gain on transactions in the local capital market. These
the total investment portfolio was LKR 489 included the largest private equity placement,
million. The investment in CBC is carried at which raised LKR 4.9 billion and the highest
a cost of LKR 2,440 million and the market over subscription - 350 times - to an Initial
value on 31 March 2012 was LKR 11,399 Public Offering. Acuity was also successful in
million. DFCC also has a small share portfolio originating and executing several other IPO
classified as trading due to regulatory management and financial advisory mandates.
definition, which posted a ‘marked to market’
loss of LKR 19 million. Acuity is now a fully-fledged universal
investment banking group having broadened
During the year, DFCC subscribed to the its suite of products and services during
rights issue of DVB at a cost of LKR 1,098 the year. These include margin trading and
million. The total capital so infused increased underwriting services. Acuity has also moved
DVB’s stated capital to LKR 3,183 million and into asset management through a joint
enabled the bank to amply meet the minimum venture with Ceylon Guardian Investment
Tier I capital requirement for licensed Trust PLC, a member of the Carsons Group.
commercial banks stipulated by the Central Meanwhile Lanka Ventures PLC, the listed
Bank of Sri Lanka. DFCC also increased its venture capital subsidiary of Acuity focused
shareholding in DVB to 99.07% by buying out on expanding its portfolio in the power sector
some of the minority shareholders. and is moving into other growth sectors
as well.

Annual Report 2011/12 DFCC Bank 31

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS
22 Operations Review
33 Financial Review
37 Integrated Risk Management

DFCC Bank holds a stake of 30% in National Asset Management Limited

(NAMAL), the pioneering Unit Trust Management Company. In March 2011, a
consortium led by Union Bank PLC acquired the 70% controlling interest of
the Company from Milfrod Holdings (Private) Limited. Accordingly, NAMAL’s
direction was re-aligned to capitalise on the resources and synergies inherent
under the new ownership. A strengthening of the fund management team was
implemented and this contributed to the superior relative performances of the
unit trusts and private portfolios managed by the Company. The sales team
was also expanded to reach a broader and more diverse customer base and
this has borne fruit in the significant rise in fund subscriptions experienced
during the year. Following on, the Company launched two new unit trust
funds; the NAMAL IPO Fund in August 2011 and the NAMAL High Yield Fund in
January 2012.

Technology
The wholly-owned Group company Synapsys Limited (SL) provides all
technology Related services to DBB. It has a dedicated division that manages
the day-to-day information technology requirements of DBB and an external
business division that develops products and implements projects in
DBB as well as serving external clients. This business model as opposed
to having an internal division facilitates better control over technology
services costs. SL has deployed its Margin Trading solution developed by
its external business division at DBB as well as several other banks. During
the year, DBB upgraded its Storage Area Network and is in the process of
implementing a server rationalisation and virtualisation project to optimise
IT costs. During the year, SL also developed several new modules for its
mobile banking platform MBanx and is working on developing partnerships
to market it internationally.

32 DFCC Bank Annual Report 2011/12

 REPORTS OF DIRECTORS Supplementary financial Information

Financial Review

The current year Introduction Profit of DBB

witnessed a substantial The profit after tax of DFCC Group in the Income Statement
increase in credit financial year under review (‘current year’ or The adjusted profit after tax of DBB in
growth in the banking ‘the year’) was LKR 2,973 million, an increase the current year was LKR 2,789 million, a
of 37% over LKR 2,170 million in the previous 40.2% increase over LKR 1,990 million in
sector. In tandem, DBB
financial year after eliminating exceptional the previous year. DBB’s profit drivers are
posted a healthy 47% profit (‘previous year’). The exceptional profit net interest income of the credit portfolio
credit portfolio growth of the previous year referred to was LKR derived from portfolio growth and interest
from LKR 60,771 million 3,001 million relating to the reduction of our margin, dividend income, gains from sale
to LKR 89,111 million shareholding in Commercial Bank of Ceylon of non-affiliated share investments, fee and
during the year. PLC (CBC) and it ceasing to be an associate foreign exchange income and management
company. of non-interest costs. Maintenance of credit
portfolio quality is imperative to preserve
For purposes of making this review the contribution from these profit drivers.
meaningful we have provided supplementary
financial information of the consolidated Net Interest Income (NII)
banking business comprising DFCC Bank NII was LKR 4,721 million in the current year,
(DFCC) and DFCC Vardhana Bank PLC (DVB) a 6% decrease over the LKR 5,031 million in
with adjustments for the above mentioned the previous year. DBB’s interest income in
exceptional profit and eliminating the the current year of LKR 9,529 million was only
impact of equity accounting for CBC in the marginally higher than the previous year’s
previous year. This supplementary financial LKR 9,512 million, while the interest expense
information is on pages 114 to 118 and has of LKR 4,809 million was 7.3% higher than
been independently audited by KPMG. the previous year. As a result, the interest
margin reduced to 4.67% during the year,
The significant businesses of the Group are down from 5.55% achieved in the previous
the banking business of DFCC and DVB, year. This decline is in line with the reduction
referred to as DFCC Banking Business in the overall interest margins for the
(DBB) and the investment banking related banking sector and an aggressive customer
services delivered through the joint venture acquisition policy adopted by DBB.
company, Acuity Partners (Pvt) Limited and its
subsidiaries. The current year witnessed a substantial
increase in credit growth in the banking
This Review, based on the supplementary sector. In tandem, DBB posted a healthy
financial information referred to above, 47% credit portfolio growth from LKR 60,771
firstly deals with DBB and thereafter the million to LKR 89,111 million during the year.
performance of other members of the Group. The gross credit portfolio comprises loans
and advances, finance leases and bills of
exchange.

Annual Report 2011/12 DFCC Bank 33

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS
22 Operations Review
33 Financial Review
37 Integrated Risk Management

In the context of a favourable climate for contribution too increased substantially

credit growth induced by improved business during the year due to the increase in trade
conditions and a low interest rate regime finance business.
that prevailed in the first half of the year,
DBB pursued a strategy of acquiring major DVB benefited from the increase in trade
corporate customers and diversifying its finance business and resulting increase its
market segments. In particular DVB, the fees and commission income and foreign
commercial banking arm of DBB, offered exchange income. Prudent management
competitive on-lending interest rates to large of the open foreign currency denominated
corporate borrowers to enter this segment. net asset position enabled DVB to benefit
Although this initially reduces the interest from the sharp depreciation of the LKR vis à
margin, over time cross selling opportunities vis USD in the latter part of 2011. However,
and reducing cost of funding can restore our DVB’s accumulated net assets held in foreign
profitability. The latter includes composition currency is smaller compared with the larger
change of the deposit mix by increasing the commercial banks and as such the related
proportion of current accounts and savings translation profit from LKR depreciation is not
accounts. The ability to pursue an aggressive very significant.
pricing strategy was somewhat helped by
reduced taxation that prevailed throughout the Operating Expenses
current year. Non-interest expense in relation to operating
income was 42.5% in the current year, an
The strong credit growth of DBB with new increase over the 37.5% recorded in the
customer acquisition in the current year previous year. This ratio in the current year
complemented with diversified loan portfolio for DFCC was 31.6%, which is the lowest
of DVB covering both the business segment in the Sri Lankan banking sector. The ratio
and the personal finance retail sector augurs for DVB in the current year was 62.6%.
well for DBB to grow its market position in The higher ratio is largely attributable to
the medium term. investments in expanding the distribution
network, new channels of distribution to
However, credit growth in 2012 may moderate cater to technology savvy customers with
due to the credit ceiling imposed by the concomitant head count increase in DVB.
Central Bank of Sri Lanka as a monetary The pay back from these initiatives will be
policy measure, and lead to subdued interest realised in the medium term.
rate volatility.
Specific Provisions
Other Income The gross specific provision of LKR 703
Other income of DBB amounted to LKR million in the current year is 42.6% lower than
2,159 million, an increase of 26% over the the LKR 1,225 million in the previous year,
LKR 1,719 million of the previous year commensurate with improvements in the
excluding the exceptional gains referred to quality of the loan portfolio. The cumulative
earlier. Dividend income received by DFCC specific provision coverage on non-
and the sale of non-affiliated quoted shares performing loans and advances remained
before the downturn in the domestic share almost the same, 57.6% in the current year
market made significant contributions. DVB’s compared to 56.5% in the previous year.

34 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

Taxes only a negligible 0.5% increase in the non-

During the year under review, DBB enjoyed for performing loans in absolute terms, which
the first time the full benefit of the reduction amounted to LKR 4,496 million at the end
in the financial services value added tax from of the current year. The challenge now is to
20% to 12% which became effective from maintain the quality of assets in an increasing
1 January 2011, as well as the reduction in interest rate scenario.
the income tax rate from 35% to 28%. This
reduction in taxes had a significant impact on Profit of Acuity Partners (Pvt) Limited
DBB as in the case of other banks. Thus, while Acuity Partners (Pvt) Limited, an equally-
the operating profit before income tax of DBB owned joint venture between DFCC Bank and
of LKR 3,405 million in the current year was a Hatton National Bank PLC, together with its
13% increase over the LKR 3,003 million of the subsidiaries constitutes a Group (APG) that
previous year, the profit after tax of DBB in the provides a full range of investment banking
current year saw an upsurge of 40% over the services. During the current year, recorded
previous year. a profit after tax (PAT) of LKR 231 million
which was lower than LKR 301 million in
The reduction in taxes was accompanied by a the previous year. The lower profit in the
mandatory requirement to invest a significant current year was largely due to the market
part of the savings in long-term government downturn and reduced trading volumes in
securities or for granting long-term loans to the latter part of the current year which
sectors identified as important for national depressed the performance of the stock
development. DBB chose the option of broking subsidiary in APG and the adverse
deploying the tax savings in loans granted to impact of rising interest rates on the primary
economically and socially significant sectors. dealer subsidiary although it was partly
The interest income on these loans is exempt offset by increased income from advisory and
from income tax, to partially compensate the corporate finance activities in the first half
tenor and credit risk implicit in these market of the year. Given the continuing downturn in
segments. these businesses the contribution from APG
in 2012/13 is likely to be lower.
Loan Quality
In the context of reduced interest margins, Profits of Other Members of the Group
the quality of loan portfolio and the adequacy This comprises the profit contribution from
of loan loss provisioning assume greater Lanka Industrial Estates Limited, DFCC
significance. The gross NPL ratio of DBB Consulting (Pvt) Limited and National
was reduced from 6.6% to 4.3% during the Asset Management Limited. The collective
year. Further, despite a 47% increase in the contribution to Group profit after tax by these
credit portfolio during the year, there was entities was LKR 41 million in the current

Annual Report 2011/12 DFCC Bank 35

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS
22 Operations Review
33 Financial Review
37 Integrated Risk Management

year compared with LKR 59 million in the Regulatory Capital

previous year. The information technology The capital adequacy ratio on 31 March
subsidiary Synapsys Limited incurred a loss 2012 was 20.3% which is well above the 10%
of LKR 12.9 million compared with a profit of minimum. While improving the solvency of
LKR 6.6 million largely due to the expenses the Bank from the perspective of lenders and
associated with development of the ‘MBanx’ retail depositors, the downside is that the
mobile banking platform. The platform is surplus capital tends to reduce the Return on
deployed at DVB and it is being targeted at Equity until it is matched by increased gearing
other potential users. to support future credit growth.

Dividend Distribution Impending Changes to

The Directors have recommended a first and Accounting Standards
final dividend of LKR 4.00 per share, which Consequent to full convergence of Sri Lanka
will amount to an aggregate payment of Accounting Standards with International
LKR 1,060 million. The total dividend payout Accounting Standards and International
as a percentage of DFCC Bank’s own profit Financial Reporting Standards with effect
after tax for year to 31 March 2012 is 45.7%. from the next financial year there will be
However, certain statutory reserves such changes to the Recognition, Measurement
as Reserve Fund and Statutory Investment and Disclosures of financial assets and
Fund (representing tax savings) are non- liabilities. These have been explained in
distributable, and if the dividend is expressed Note 9 on page 139 and 140.
as a percentage of PAT reduced by non-
distributable reserves the payout increases
to 55.7%. DFCC Bank made a one for one
bonus issue in the previous year and therefore
the current dividend of LKR 4.00 per share is
equivalent to LKR 8.00 per share before bonus,
and a 33 1/3% increase over the final dividend
in the previous financial year.

36 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

Integrated Risk Management

DBB’s regulatory capital adequacy ratios continued to be above

industry average for banks indicating a stronger capacity for risk
absorption. This capital position will enable DBB to increase leverage
and exploit the anticipated growth in credit in the medium term in
line with the expected economic growth of the country.

DFCC Bank(DFCC) and DFCC Vardhana Bank required to comply with the provisions of
PLC (DVB) together constitute the DFCC the Direction from April 2012. IRMD has
Banking Business (DBB). DBB continued undertaken a review of the previously
to reassess its existing risk management approved policies and frameworks and
policies, guidelines and practices and brought revised them where necessary to comply with
further improvements to be in line with the requirements set out in the Direction.
business needs, regulatory requirements,
industry factors and international best IRMD is responsible for measuring and
practices while the quantitative dimension monitoring risk at operational level on an
for risk management was further improved. ongoing basis to ensure compliance with
The Board Integrated Risk Management the parameters set out by the Board, BIRMC
Committee (BIRMC) exercises oversight and and other management committees. IRMD
reports to the Board on significant risk issues is involved in the credit approval process for
that arise and any remedial action that is to credit proposals above a specified threshold,
be implemented. On an ongoing basis the and is represented in all the management
Integrated Risk Management Department committees of DBB. The Treasury Middle
(IRMD) is tasked with measuring and Office which is functionally segregated
monitoring risks and highlighting any specific from the Treasury Department monitors
issues, trends or exceptions that require the Treasury-related market risk limits on
decisions or action by the relevant business an ongoing basis. Policy manuals, internal
units or the BIRMC. controls, segregation of duties, clearly
demarcated authority limits and the internal
A key regulatory development in 2011 was audit function are key risk management tools
the issuing of Direction No. 07 of 2011 by used by DBB.
the Central Bank of Sri Lanka (CBSL) which
specified Guidelines on the Integrated Risk Risk Management Policies of DBB
Management Framework for Licensed Banks The broader aspects of the risk management
in Sri Lanka. These Guidelines cover various policies and guidelines of DBB are stipulated
approaches and tools for risk management in the Integrated Risk Management
in line with Basel II recommendations. It Framework (IRMF) approved by the Board
specifies a need for an Integrated Risk of Directors. Detailed policies, guidelines,
Management Framework and banks are strategies and practices for the management
of different types of risk exposures, viz.,

Annual Report 2011/12 DFCC Bank 37

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS
22 Operations Review
33 Financial Review
37 Integrated Risk Management

credit risk, market risk, operational risk, Governance Structure for

liquidity risk etc., are set out in the respective Risk Management
frameworks while IRMF defines risk The Governance structure for risk
integration and aggregation, combining the management at DBB encompasses the
provisions in the specific frameworks for each concept of ‘Three Lines of Defence’, and is
risk categories. The overall risk management based on the following:
policies of DBB include the following aspects:  Board and senior management oversight
 The responsibility of the Board for  Risk management policies and procedures
ensuring prudent risk management  Risk measurement, monitoring and
mechanisms controls
 Internal controls and independent audit
 Communication of DBB’s risk policy to
relevant staff
The First Line of Defence involves the
 Risk management through a mechanism supervision and monitoring of risk
of ‘Three Lines of Defence’ (discussed management practices by the business
below) managers, senior management,
 Adherence to regulatory requirements and management committees and the relevant
laws pertaining to risk management and Board committees while discharging their
business operations of DBB responsibilities and accountability for day-
 Centralised and independent integrated to-day management of business operations.
risk management function Independent risk monitoring, validation,
policy review and compliance by the IRMD,
 Evaluating risks relating to new business,
the compliance function with monitoring and
products or adopting new strategies in the
oversight by the BIRMC constitute the Second
context of internal expertise, capabilities
Line of Defence. The Third Line of Defence
for risk management and ability to absorb
is provided by the independent check and
unexpected losses
quality assurance by the internal audit and
 Adoption of a risk-based pricing strategy
external audit functions and the Board Audit
 Compliance with regulatory capital and Committee.
other mandatory prudential requirements
 Alignment of risk management strategy The Group Chief Risk Officer heading the
with corporate business strategy IRMD has direct access to the BIRMC. The
 Completeness, transparency and BIRMC functions under the responsibilities
objectivity in risk disclosures set out in the Board-approved Charter for the
BIRMC. Executive committees such as the
 Alignment with Basel II recommendations
Asset and Liability Committee (ALCO) and the
and regulatory guidelines
Credit Committee are guided and operated
 Maintenance of a prudent risk within risk frameworks and limits set out by
management culture the Board and Board committees.
 Adoption of an integrated approach to risk
management

38 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

Governance Structure for Risk Management of DBB

The Three Lines of Defence

Board of Directors

Board Committees related to Board Integrated Risk Board Audit Committee

business & services Management Committee
(BIRMC)

Chief Executive Compliance External Audit

Management
Committees Integrated Risk Internal Audit
Senior Management Management

Business Service
Units Units Legal

Involvement by the CEO, Senior Oversight by the BIRMC and Oversight by the Board Audit
management committees, independent risk monitoring by Committee and independent
accountability and responsibility IRM, Compliance and Legal check & quality assurance
of senior and middle
management supported by
internal controls, governance
structure and processes

First Line of Defence Second Line of Defence Third Line of Defence

Strategy, performance and Policy, monitoring and oversight Independent assurance
risk management

Key Developments in Risk Management customer needs and market conditions.

Function of DBB during the Financial Year Risk aspects of the products were assessed
Taking note of the emerging market through the structured process prescribed in
conditions, liquidity risk management was the New Product Development Policy.
strengthened through increased monitoring
and reassessment of liquidity limits. Several DBB undertook a reassessment and
new asset and liability products were introduced or revised limits for the
introduced and some existing products were management of liquidity, credit, and
revamped during the year with input from concentration risk. Limits for concentration
IRMD to make them better aligned with risk management covered dimensions such

Annual Report 2011/12 DFCC Bank 39

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS
22 Operations Review
33 Financial Review
37 Integrated Risk Management

as product categories, industry sectors, Risk Training and Capacity Building

large group exposures, and geographical Staff of IRMD received local and foreign
dispersion. The annual validation of credit training as a continuation of the capacity
rating models was performed during the building programme. Required knowledge
year while the Probability of Default (PD) and understanding of credit rating models,
and the Loss Given Default (LGD) were model development process and Basel
computed using an expanded data sample. II requirements to support the design,
As part of the implementation of the new conceptualisation and evaluation process
accounting standards conforming with IFRS, were acquired for the development of an
DBB compiled loss ratios for key lending in-house rating model. Necessary statistical
products using historical recovery evidence. skills were also acquired. Knowledge thus
The review of these loss ratios provided a gained has been shared with staff of DBB
basis for comparison with the LGD discussed through training programmes . During the
in the Basel II framework. These credit risk year, staff of IRMD conducted two workshops
parameters would be used in the areas on risk management and Basel II for internal
of assessing credit quality, expected loss staff with representation from business
and credit pricing to facilitate both credit and service departments of the Bank. DBB
sanctioning and credit risk management. considers this awareness building as a key
component of an effective risk management
In addition to the performance of the industry culture.
and the borrowers’ credit quality, the possible
impact on the underlying collateral for loans DBB’s Risk-based Capital Adequacy
was closely tracked. Sensitivity analyses DBB continued to maintain a healthy risk
and tolerance limits were set by studying capital position computed under Basel II
the probability factors for a decline in approaches currently mandated for the local
collateral values. IRMD continued to support banking sector. For the purpose of regulatory
business functions through periodic and capital adequacy computation, risk (Pillar I) is
event triggered studies and research on key quantified using the Standardised Approach
industries which were shared with DBB staff. for credit and market risk, and Basic Indicator
Approach for operational risk. Both DFCC and
Stress tests applied to DBB indicated a DVB continued to maintain strong regulatory
satisfactory capital and liquidity position even capital ratios on a solo and group basis.
under the worst case scenario. Use of credit DFCC’s Tier I capital ratio amounted to 24.3%
rating models for credit risk quantification while its total capital ratio was 20.3% as at
and pricing was extended during the year end March 2012. As of the reporting date,
to improve the structured process and Tier I capital of DVB amounted to 13.7%
quantitative dimension in credit sanctioning while total capital stood at 17.2% of the risk
and credit risk management. The Group weighted assets. The Group’s total regulatory
Treasury Middle Office was strengthened capital base reached LKR 21,085 million as at
through restructuring its functional reporting end March 2012, while the total risk weighted
channels and capacity building. Several assets amounted to LKR 106,056 million.
key policy frameworks and relevant risk DBB’s regulatory capital adequacy ratios
management practices were reviewed during continued to be above industry average for
the year. banks indicating a stronger capacity for risk
absorption. This capital position will enable
DBB to increase leverage and exploit the
anticipated growth in credit in the medium
term in line with the expected economic
growth of the country.

40 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

Regulatory Capital Ratios of DBB as at 31 March 2012 Under the Standardised Approach for
Credit and Market Risk and Basic Indicator Approach for Operational Risk of Basel II
Regulatory
DFCC on a DVB on a DBB on a Minimum
Capital Element Solo Basis Solo Basis Group Basis Requirements

Core capital (Tier I) 24.3% 13.7% 21.0% 5%

Total capital base 20.3% 17.2% 19.9% 10%

REGULATORY CAPITAL ALLOCATION AND

AVAILABLE CAPITAL BUFFER OF DBB ON
A GROUP BASIS AS AT 31 MARCH 2012

A - Credit Risk (44.8%)

A B - Market Risk (0.4%)
C - Operational Risk (5.1%)
D D - Capital Buffer (49.7%)

C B

Credit Risk Management Approval of large value credit exposures is

Credit risk is the risk that a loss will be undertaken by the Credit Committee or on its
incurred if the counterparty to a transaction recommendation, by the Board of Directors.
does not fulfil its financial obligations in full All credit appraisals of DVB are independently
and in a timely manner. Counterparty credit appraised by the DVB Credit Appraisal Unit.
risk is the most significant risk assumed by The credit ratings for exposures of DFCC
DBB, and accounted for 89% of total risk- above a specified threshold are independently
weighted assets as at end of the financial year. reviewed by the IRMD prior to approval.
Concentration risk is currently managed
The use of internal rating models and the and monitored in terms of the limits with
periodic review of assigned ratings by DBB respect to single borrower, group borrower,
form the basis for risk profiling of borrowers industry sector, broader asset category and
for the purpose of managing credit risk region. DBB has recognised some sectors
through structuring, pricing, monitoring, as requiring ‘special clearance’ while some
restructuring and recovery action. A well- exposures are prohibited through a ‘negative
structured approval process is in place, list’ for lending. Such sectors or credit
guided by the Delegation of Lending and products have been categorised based on
Related Authority limits based on risk the country’s laws and regulations, DBB’s
exposure levels. No single person can corporate policies and values, risk appetite
originate and approve the granting of credit. and the existing levels of risk exposure.

Annual Report 2011/12 DFCC Bank 41

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS
22 Operations Review
33 Financial Review
37 Integrated Risk Management

Market Risk Equity Prices Risk

Market risk is the risk of potential losses Equity prices risk is the risk of losses in
accruing through the adverse fluctuation the equity trading book, which is marked-
in the market interest rates, equity prices, to-market due to the decline in the market
commodity prices and exchange rates. Market prices. DFCC’s equity trading portfolio
risk could impact a bank mainly in two ways; (which is so classified due to a regulatory
viz., loss of cash flows or loss of economic definition) amounted to LKR 65 million as
value. Market risk can be looked at in two at March 2012, which was less than 0.1%of
dimensions, as traded market risk, which is the total assets of DBB. In addition, DFCC
associated with the trading book and non- had an equity market exposure of LKR 7,438
traded market risk, which is associated with million in its investment portfolio, including
the banking book. DBB’s exposure to market significant holdings in two commercial banks.
risk is primarily governed by a Treasury Policy Total direct equity exposure of DBB in both
Manual, provisions in the ALCO Charter, the trading and banking books accounted for
market risk management framework and risk only 6% of the total gross assets of the Group.
limits. The ALCO oversees the management DBB carried an indirect equity exposure
of both traded and non-traded market through margin lending provided to high net
risk. DBB’s Treasury manages the foreign worth personal financial services clients,
exchange risk using permitted hedging which was not significant. The resultant risk
mechanisms. Tools such as supervisory was actively managed.
monitoring, exposure limits, stop-loss limits,
simulation, scenario analysis, stress-testing Commodity Prices Risk
and marking-to-market are used to manage DBB is indirectly exposed to commodity prices
the market risk exposures. Trends in relevant risk through its pawning portfolio in DVB.
local as well as international markets are Risk exposure of the pawning portfolio which
analysed and reported by IRMD and the could arise due to gold prices was closely
Treasury to ALCO and BIRMC. monitored in relations to the movements
of local and world market prices for gold.
Interest Rate Risk Sensitivity analysis, measure of tolerance
Interest rate risk can be termed as the risk levels, cushion available for absorption of loss
of loss in the net interest income (earnings) of market gold prices were used as tools for
or the net worth (economic value) due to the risk measurement. Business decisions such
adverse changes in the market interest rates. as portfolio growth, lending quantum and
DBB maintains the trading and investment pricing were based on the outcome of these
(held to maturity) portfolios separately with risk quantifications. As at the end of financial
regard to fixed income securities. The Assets year, the pawning portfolio of DVB amounted to
and Liability Management Unit routinely LKR 2,455 million of which the collateral value
assesses the Bank’s asset and liability profile carried a healthy cushion over the outstanding
in terms of interest rate risk and reports to lending at the current market prices for gold.
the ALCO for necessary realignment in the Furthermore, this portfolio accounted for only
asset and liability structure and the pricing 2% of the total assets of DBB.
mechanism. Statistical methods such as
scenario analysis, simulation and stress
testing are used by DBB in managing interest
rate risk.

42 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

Liquidity Risk Operational Risk

Liquidity risk is the risk of not having Operational risk is the risk of loss resulting
sufficient funds to meet financial obligations from inadequate or failed internal processes,
in time and in full, at a reasonable cost. people and systems or from external
DBB has a Framework for Liquidity Risk events, including legal risk but excluding
Management and a Contingency Funding strategic and reputational risk. The
Plan. The liquidity risk management process sources of operational risks include fraud,
includes regular analysis and monitoring staff negligence, management systems
of the liquidity position and maintenance failure, technology failure, model failure,
of market accessibility. Regular cash flow technology obsolescence and inadequate
forecasts, liquidity ratio analysis, gap analysis internal controls. Segregation of duties with
and liquidity limits are used as analytical tools demarcated authority limits, internal and
by the ALCO. Whilst comfortably meeting the external audit, strict monitoring facilitated by
regulatory requirements relating to liquidity, the technology platform and backup facilities
for internal monitoring purposes, DBB for information are the fundamental tools of
takes into consideration the liquidity of each operational risk management. Information
eligible instrument relating to the market security is addressed through the provisions
at a given point in time as well as undrawn in the IT security policy of DBB. Audit findings
commitments to borrowers when stress and management responses are forwarded to
testing its liquidity position. The maintenance the Board Audit Committee for consideration.
of a strong credit rating of AA (lka) for DFCC Effective internal control systems, supervision
and AA- (lka) for DVB assigned by Fitch by the Board, senior management and line
Ratings Lanka and reputation in the market managers form a part of the ‘First Line of
enables DBB to access domestic wholesale Defence’ for operational risk management
funds and money market funds when needed. at DBB. The Bank demands a high level of
The diversification of the liability structure technical skills, professionalism and ethical
is also a key focus of DBB. The risk-based conduct from its staff and these serve as
pricing mechanism ensures that residual insulators for many operational risk factors.
liquidity risk is duly priced when pricing The loss of physical assets is mitigated
assets. This term premium in DBB’s pricing through insurance.
mechanism focuses on creating a cushion to
absorb a possible increase in cost of liquidity DBB’s business recovery plan deals with
to finance long-term assets during tight natural or other catastrophes. An off-site
market liquidity conditions. disaster recovery location has been set up
and disaster recovery capability for critical
functions of DBB have been tested.

Annual Report 2011/12 DFCC Bank 43

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS
22 Operations Review
33 Financial Review
37 Integrated Risk Management

Reputation Risk conditions. DBB’s medium term strategic

Reputation risk is the risk of losing public plan and annual business plan form a
trust or the tarnishing of DBB’s image in the strategy road map for sustainable growth.
public eye. It could arise from environmental, Diversification into related financial services
social, regulatory or operational risk factors. through subsidiaries, associates and joint
Events that could lead to reputation risk ventures, continuous competitor and
events are closely monitored, utilising an customer analysis, and monitoring of the
early warning system that includes inputs macroeconomic environment enable DBB
from frontline staff, media reports and to formulate its strategies for growth and
internal and external market survey results. business risk management. Processes
Policies and standards relating to the conduct such as Planning, ALM, IT and product
of DBB’s business have been promulgated development in co-ordination with business
through internal communication and training. functions facilitate the management
A culture of compliance permeates at all of business risk through recognition,
levels of DBB, and the compliance function measurement and implementation of tasks.
submits quarterly compliance reports to the Business risk relating to customers is
Board of Directors and the BIRMC. assessed in the credit rating process and is
priced accordingly.
Business Risk
Business risk is the risk of deterioration in Legal Risk
earnings due to the loss of market share, Legal risk arises from unenforceable
changes in the cost structure and adverse transactions in a court of law or the failure
changes in industry or macroeconomic to successfully defend legal action instituted

DFCC Bank won the award for ‘Best in Risk Management’ at the 5th Asset & Liability Management (ALM) Competition concluded at The Hague
in the Netherlands recently. DFCC was represented by a team comprising Mr Jayan Fernando - Senior Project Executive Asset & Liability
Management, Ms Manohari Gunawardhena - Senior Vice President Treasury, Mr Palitha Gamage - Senior Vice President Planning & Plan
Implementation, Mr Sanjeewa Fernando - Assistant Vice President Integrated Risk Management.

44 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

against DBB. Legal risk management Anti Money Laundering (AML)/Combating

commences from prior analysis, and a Terrorist Financing (CTF)
thorough understanding of, and adherence to, In response to international best practices
related legislation by DBB staff. Necessary and global standards of AML and combating
precautions are taken at the design stage of terrorist financing, Sri Lanka has enacted
transactions to minimise legal risk exposure. laws relating to AML and CTF. Further, the
In the event of an identified legal risk, the Financial Intelligence Unit, under the purview
Legal Unit of DBB takes immediate action to of the Central Bank, has issued rules for
address and mitigate these risks. External Know Your Customer (KYC), and Customer
legal advice is obtained when required. Due Diligence (CDD) to identify and report
suspicious transactions. DBB has taken
Compliance risk necessary measures to implement these
Compliance risk can be termed as the risk regulatory and legislative requirements
of legal or regulatory sanctions, financial for AML and CTF. The steps taken in this
loss, or loss to reputation a bank may suffer respect include customer identification
as a result of its failure to comply with and verification, maintenance of records,
all applicable laws, regulations, Codes of ascertaining sources of funds, monitoring and
Conduct and Standards of good practice. DBB maintenance of AML/CTF programmes. All
ensures that effective compliance policies customers of DBB are subject to KYC/CDD
and procedures are followed and appropriate measures.
corrective actions are taken to rectify any
breaches of laws, rules and standards if Business Continuity Management
and when identified. A robust compliance The Business Continuity Plan (BCP) of DBB
culture has been established within DBB with ensures timely recovery of critical operations
processes and work flows designed with the that are required to meet stakeholder needs
required checks and balances to facilitate based on identified disruptions categorised
compliance. The compliance function works into various severity levels. BCP has
closely with the business and operational been designed to minimise risk to human
units to ensure the consistent management resources and to enable the resumption of
of compliance risk. Compliance is a key area critical operations within reasonable time
of focus during the process of new product frames with minimum disruption to customer
development and design and review. Head service and payment settlement systems.
of compliance of DFCC and DVB submit The BCP site, which is located in a suburb
quarterly reports on the compliance status to of Colombo, has been prepared in line with
the Board to enable oversight to be exercised the BCP Guidelines issued by the Central
with the added safeguard of being subject to Bank and is tested regularly to establish
internal audit. its effectiveness. Training is carried out to
ensure that all staff are fully aware of their
role within the BCP.

Annual Report 2011/12 DFCC Bank 45

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

Sustainability Report
Chief Executive’s Message

“There is sufficiency in Sustainability is as much about taking units are driven by a performance culture that
the world for man’s responsibility for the use of the earth’s is aligned with our corporate vision, mission
resources and fostering societal aspirations and values, while performance targets are
need but not for man’s
as it is about ensuring the long-term based on rolling annual plans and business
greed” prosperity of the organisation itself. strategies that also take into account the
Mohandas K Gandhi Their inter-relationship is what drives diverse needs of all our stakeholders.
our corporate sustainability agenda - the
Our employees are the backbone of our
prudent management of the interfaces
continued success. We adopt several
between economic, environmental and social
approaches to empower and inspire our team.
dimensions of our enterprise.
For instance, our investment in training and
This is our fourth report on Sustainability and development during the year was the highest
the first to use a GRI reporting format. As a in the history of DBB, as we believe that our
launch off point for future improvements, employees should realise their full potential
we have created a self-declared application for our mutual benefit.
level C report for our stakeholders.
Our approach to the environment is threefold.
The DFCC Banking Business (DBB), We challenge ourselves to reduce the
comprising DFCC Bank (DFCC) and DFCC amount of energy, water and paper used
Vardhana Bank (DVB), continued to engage in our offices, as well as minimise waste.
in efforts to generate value for all who have a Through our special loan schemes we support
stake in our success. Our core strategy is to renewable energy development and encourage
provide a broad range of financial solutions environmentally responsible business
to empower and energise enterprises and practices of our clients. Additionally, we
people, thus adding value to our shareholders, implement a 3R policy to Reduce, Reuse and
customers, employees and the nation. Our Recycle all possible resources.
approach to sustainability thus involves six
We engage our community through financial
broad areas; Corporate Governance, Product
assistance and much more, with a special
Responsibility, Economic Performance,
focus on assisting Small and Medium
Employees, Environment and Community.
Enterprises to thrive and prosper. In the year
We continue to employ the best practices in under review, DBB continued its commitment
Corporate Governance. Our commitment to to education and productivity improvement
our investors, regulators and policy makers through the ‘6S in Schools Programme’.
has been vigorous and consistent. As the
With encouraging results and an ever
saying goes, ‘an ounce of prevention is worth
stronger drive to contribute to the country’s
a pound of cure’.
development efforts, DBB is well positioned
Our products and services are designed to for 2012 and beyond. We plan to step up our
deliver superior value to our customers. They efforts to generate more value, not only for
are built on the twin foundations of integrity our shareholders, but also for our employees,
and exceeding customer expectations. Our customers and the communities we serve.
concern for ethics and fair dealing include
aspects such as factual labelling, responsible
marketing, customer privacy and compliance
with relevant regulations and norms.
Nihal Fonseka
We are committed to sustained economic Chief Executive
performance, both short-term and long-term, DFCC Bank
in our efforts to increase the value of our
shareholders’ equity. Our strategic business 30 May 2012

46 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

Our Approach to Reporting

This report uses the Global Reporting

Initiative (GRI) G3 Guidelines and the Financial
Sector Supplement as a basis for reporting.
It is designated at a self declared application
level C. By using the GRI reporting format,
we wish to standardise our sustainability
reporting, showcase our commitment to
sustainable business practices and add
greater value to our stakeholders.

Corporate
Governance

Product and Service

Responsibility

Economic Our Approach to

Performance Sustainability

Employees

Environment

Community

Corporate Governance
Financial service providers play a The main goal is to provide assurance
fundamental role in maintaining stability in to stakeholders including investors and
economic systems. DBB understands the regulators about the sustainability of our
value and importance of adopting robust operations and value creation capabilities.
governance practices that lend the highest
credence to accountability and performance. Product and Service Responsibility
Our products and services are governed by
The Board Integrated Risk Management the highest of ethical standards. The Central
Committee (BIRMC) Charter, the Corporate Bank Customer Charter sets key standards for
Governance requirements for Licensed fair banking practices and customer service.
Specialised Banks and Licensed Commercial Additionally, DBB sets out a Code of Conduct
Banks issued by the Central Bank of Sri for its staff in relation to customer service
Lanka (CBSL) dictate our approach to and thoroughly ensures that all products and
Corporate Governance. services offered are in line with relevant laws
and regulations while maintaining the highest
principles of integrity and transparency. This
year we also converted a selection of our
branches to disabled-person friendly areas
so that our products and services can be
accessed by customers with varied physical
conditions.

Annual Report 2011/12 DFCC Bank 47

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

Economic Performance designated Environmental Management

The DFCC Banking Business is focused on System (EMS) we encourage our clients,
creating and distributing value to all our employees and service providers to adopt
direct stakeholders. While we understand environmentally responsible practices.
that every successful business needs to be
driven by a need to create a surplus, our Community
development financing roots have enabled DBB seeks to contribute to the well-being
us to better balance the twin objectives of of the communities it serves by actively
profit and service. Our contribution to the supporting economic and social development.
economy includes direct and indirect jobs The Bank continuously supports
created, taxes paid, projects, businesses and entrepreneurship while providing access
personal financial requirements financed, to banking services to masses through its
local suppliers sourced and most importantly extensive branch network.
returns generated for our investors.
We are also committed to uplifting the
Employees standards of education through productivity
Our employees are a major component of improvements in schools island-wide through
our success. Not only do they help us deliver the ‘6S in schools programme’.
superior financial services to our customers,
they tirelessly contribute their time and Report Boundary
energy to our social responsibility initiatives. This report describes the economic,
We consider our employees to be one of the environmental and social performance of
organisation’s greatest assets. We make sure DFCC Bank (DFCC) and its 99.1% owned
that their health and safety is treated with subsidiary DFCC Vardhana Bank PLC
paramount importance while having a zero (DVB), collectively referred to as DFCC
tolerance policy on discrimination in any form. Banking Business (DBB). As the structure,
board composition and specific regulatory
DBB continues to train and build a skilled, requirements are divergent for the two banks,
highly talented team that is deeply committed a separate Corporate Governance Report for
to success. DFCC Vardhana Bank has been presented
in the DVB Annual Report. (This is available
Environment at our website www.dfcc.lk) The Corporate
DBB is concerned by society’s impact on Governance Section within this report covers
the environment, in particular the effects of information related to DFCC Bank.
climate change. Although the nature of our
own operations has a limited impact on the
environment, we are continually improving
various measures with a view to reducing
our environmental footprint. Through our

48 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

Information related to DFCC is for the Policy on Seeking External Assurance

financial year ending 31 March 2012 while We firmly believe that Independent external
information related to DVB is for the financial assurance enhances the quality and
year ending 31 December 2011. transparency of a sustainability report. This
report is an initial exploratory attempt at
Scope of Reporting converting our traditional sustainability
The report provides information on DBB’s reporting process into a GRI harmonised
operations, financial and non-financial report. We will choose an appropriate party to
performance and integrated sustainability carry out an independent assurance for our
developments during the financial years next Sustainability Report.
ended 31 December 2011 and 31 March 2012.
Indicators such as water usage, electricity Stakeholder Engagement Process
and transportation have been calculated from All individuals and organisations that are
a cross section of available data from DFCC affected by our activities as well as those
and DVB Branches. who may affect our ability to perform are
considered to be stakeholders. Stakeholder
This report does not cover the operations engagement is a key component of sustainable
of any other subsidiary of the DFCC Group. business and responsible corporate
Issues and details presented herein are management. DBB gives due importance
primarily addressed to our staff, clients, to expectations and opinions of all relevant
shareholders, regulators and communities. stakeholders while developing its strategies.

Materiality of Issues
In determining which topics and indicators
were material, DBB took into account a Our Membership Commitments
number of internal and external factors.  Association of Development
These included our vision and mission Financing Institutions in Asia and
statements, the Central Bank Customer the Pacific (ADFIAP)
Charter, the expectations and interests  Ceylon Chamber of Commerce
of stakeholders and DBB’s sustainability
 American Chamber of Commerce
impacts, risks and opportunities.
in Sri Lanka (AMCHAM)
 International Chamber of Commerce
 European Chamber of Commerce
 Sri Lanka Council for Business with Britain
 National Chamber of Commerce
 The Ceylon National Chamber of Industries
 Leasing Association of Sri Lanka
 Lanka Business Coalition on HIV and AIDS
 Institute of Bankers of Sri Lanka

Annual Report 2011/12 DFCC Bank 49

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

Our key stakeholders and examples of our engagement with them are presented below:
Type of Stakeholder Method of Engagement

Shareholders and Investors Annual General Meeting

DBB website
Annual Reports
Colombo Stock Exchange Announcements
Press Releases
Investor Relations Hotline
Meetings and Teleconferences
E-Mail Presentations and Briefings
Clients and Customers Annual Reports
DBB Website
Customer Satisfaction Surveys
Our Branch Network
Bank Call Centres
Business Development Meetings
E-mail Briefings
Press Releases
Advertising and Promotional Campaigns
Brochures/Leaflets
Employees Employee Surveys
Human Resources Intranet Portal
Employee Suggestion Box
Performance Review Systems
Staff Meetings
Employee Training Workshops and Seminars
Email Bulletins

International Financial Institutions Meetings

DBB Website
Teleconferences
Annual Reports
Regulators and Legislators Prudential Reports
Tabling of Financial Statements in Parliament
Meetings
Forums and Conferences
Participation in Task Forces
Community CSR Initiatives
DBB Website
Sponsorships
Our Branch Network
Media
Bank Call Centres
Suppliers DBB Supplier Management Policy
Meetings
Media Discussions with Editors and Journalists
DBB Website
Annual Media Get-together
Press Conferences
Press Releases

50 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

Corporate Governance

Good corporate governance is a mechanism insider dealings, unfair business practices,

that harmonises the interests of a wide range maintenance of confidentiality of business
of stakeholders of an institution. It contributes information, etc. All employees are guided by
to sustainable growth by attracting outside the Bank’s core values of accountability, being
sources of capital. ethical, passion for innovation and excellence,
respect for the individual, social responsibility
DFCC Bank practises high standards of and team work.
corporate governance based on the OECD
principles of good governance which, as The Board also formally adopted a Whistle
applied to the Bank, are based on the following Blowing Policy during the year to facilitate
six guidelines: employees to communicate legitimate
concerns, if any, of illegal or unethical
 Promoting transparency, being consistent
practices.
with laws and clearly articulating the
division of responsibilities
The key corporate governance practices of
 Protecting and facilitating the exercise of DFCC Bank are given in this Report with
shareholder rights specific disclosures relating to the status of
 Treating all shareholders in an equitable compliance with the mandatory requirements
manner of Direction No. 12 of 2007 of the Central Bank
 Recognising the rights of stakeholders and of Sri Lanka (as amended). In view of the said
encouraging cooperation with stakeholders disclosures, the Colombo Stock Exchange
in creating wealth and sustainability (CSE) has exempted licensed banks from the
application of Section 7.10 of the Listing Rules
 Providing timely and accurate disclosures
of the Colombo Stock Exchange relating to
on all material matters regarding the
corporate governance.
Bank including the financial situation,
performance, ownership and governance
Shareholder Rights
 Ensuring the strategic guidance of the
The basic rights of shareholders include (a)
Bank, effective monitoring of management
the ability to transfer shares freely, (b) access
of the Board, and the Board’s accountability
to financial and other relevant information
to the Bank and its shareholders.
about the entity on a regular and timely
basis, (c) the ability to effectively participate
The Board formally adopted the Corporate
in shareholder meetings, (d) a say in the
Governance Charter of the Bank during
appointment of Directors and Auditors and
the year under review. The Bank has an
(e) an equitable treatment relating to the type
internally developed Code of Conduct for its
of shares owned. The shares of DFCC Bank
employees which is posted on the internal
are freely transferable through the Colombo
web and is accessible by all employees.
Stock Exchange but subject to limitations
This sets out in detail the business ethics in
stated in the DFCC Bank Act and Banking Act.
relation to avoidance of conflict of interests,

Annual Report 2011/12 DFCC Bank 51

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

Our Goals of Good Corporate Governance

Creation
Integrated
Risk Management of wealth
Committee
Nomination
Committee Human Resources
and Remuneration
Credit Committee
Sustainable
Committee growth
Audit
Committee

Board of
Directors Adequate and timely
disclosures and
transparency
CHIEF
EXECUTIVE

Protection of
CorpoRate stakeholder
Management rights
Investment
Committee

Special
Asset Quality
Loan Review Equal treatment of
Review
Committee shareholders
Committee
Credit
IT Steering Committee
Committee
Asset Compliance with
Liability laws, regulations
Committee and ethical
standards

52 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

The Board-approved Corporate The Annual General Meeting of DFCC Bank

Communications Policy ensures that is held within a period of one year from the
information relating to the financial date of the previous meeting after giving
performance and the progress of DFCC Bank adequate notice to shareholders as required
is made available to shareholders through by the Regulations. The Annual Report and
timely disclosure made to the CSE. The Notice of Meeting are sent to all shareholders
Annual Report contains a comprehensive in order to enable effective shareholder
review of performance as well as information participation at the meeting. Shareholders
of relevance to stakeholders in addition to have the opportunity to obtain the Annual
the financial condition of DFCC Bank and Report as an electronic or printed document.
the Group. All important information is given Extraordinary General Meetings are held to
publicity through the press and electronic obtain shareholder approval on matters that
media and posted on the DFCC website. require such approval.

DFCC Bank has procedures to promptly During the year, DFCC Bank has shared
disseminate price sensitive information a reasonable portion of its profit with
and trading in shares by the Directors to shareholders in the form of a dividend while
the CSE as required by the Listing Rules. retaining the balance to support its growth
In instances where this is not possible, the and development.
Executive Vice President (Finance) advises
closed periods for the trading in DFCC All shareholders of DFCC Bank are treated
Bank’s shares by employees and Directors. equally on the basis of one vote per ordinary
As a general rule, the period commencing share. DFCC Bank has not issued any non-
two weeks after the end of each quarter up voting ordinary shares or preference shares.
until three market days after the financial
information is released, are treated as closed
periods. Procedures are in place to detect any
violations.

Annual Report 2011/12 DFCC Bank 53

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

Annual Corporate Governance Report for DFCC Bank for the

year ended 31 March 2012 published in terms of Section 3 (1) (xvi) of the Banking Act Direction No. 12 of 2007

Rule Governance Principle Compliance Remarks

3 (1) Responsibilities of the Board

3 (1) (i) The responsibility of the Board Compliant The Board engages in the strategic planning and control of
to strengthen the safety and DFCC Bank by overseeing the formulation of business objectives
soundness of the Bank and targets, assessing risks, evaluating the effectiveness of
the internal controls by engaging qualified and experienced
personnel and delegating them with the authority for conducting
operational activities and monitors the performance through a
formal reporting process.
3 (1) (ii) Appointment and segregation of Compliant The Board elects the Chairman and appoints the Chief Executive
the roles of the Chairman and whilst the Chairman provides leadership to the direction, oversight
Chief Executive Officer (CEO) and control process exercised by the Board. The Chief Executive is
responsible for management of the Bank as per DFCC Act.
3 (1) (iii) Board Meetings Compliant The Board held 15 Board Meetings during the year. The Directors
actively participated in the Board decision-making process as
evident from the Board minutes. Seeking approval of the Board
by circulation of written circulars was done only in exceptional
circumstances due to urgency.
3 (1) (iv) The Board to ensure that Compliant Whenever the Directors provide suggestions of topics for
arrangements are in place for consideration at the Board Meetings, they are included in the
Directors to include items and Agenda under “open forum” which is an integral part of every
proposals in the Agenda of Board Meeting and other supporting data, reports, documents
Board Meetings etc relevant for the subject matter are circulated among the
Directors for information.
3 (1) (v) Notice of Board Meetings – at Compliant Dates for the regular monthly Board Meetings are agreed by the
least 7 days notice of regular Directors at the commencement of each year and any changes
meetings and reasonable notice to dates of scheduled meetings are decided well in advance. The
of other meetings to be given Board circulars and other documents pertaining to meetings are
dispatched in advance to enable the Directors to participate in
deliberations.
3 (1) (vi) Attendance at Board Meetings Compliant All Directors attended more than two-thirds of Board meetings
and no Director was absent for three or more consecutive
meetings. Attendance details are given at the end of this Report.
3 (1) (vii) Duties and qualifications of the Compliant The Company Secretary possesses the qualifications specified in
Company Secretary Section 43 of the Banking Act.

The Company Secretary while performing the secretarial

services to the Board and shareholders’ meetings is responsible
to the Board in ensuring that Board procedures and applicable
rules and regulations are followed.

All new Directors are provided with the necessary documentation

on Director’s responsibilities and specific banking related
directions/policies that are required to perform their function
effectively.

54 DFCC Bank Annual Report 2011/12

 REPORTS OF DIRECTORS Supplementary financial Information

Rule Governance Principle Compliance Remarks

3 (1) (viii) The Directors’ access to the Compliant All Directors have access to the advice and services of the
Company Secretary Company Secretary directly.
3 (1) (ix) The Company Secretary’s Compliant The Company Secretary compiles the minutes of the Board
duty to maintain minutes of Meetings which are subject to approval of the Board and signed
Board Meeting and ensure the by the Chairman. Copies of minutes are provided and Directors
Directors’ access to them have access to the original minutes at all reasonable times.
3 (1) (x) The form and contents of the Compliant The Board minutes are drawn with reference to Board Circulars
minutes of Board Meetings with sufficient details to indicate the decisions made by the Board
of Directors. The information used in making such decisions,
the reasons and rationale of making them and each Director’s
contribution if considered material is included in the minutes.
3 (1) (xi) Independent professional advice Compliant The Board has put in place a procedure where the Directors
on request to Directors to can obtain independent professional advice, at DFCC Bank’s
perform their duties expense, to perform their duties.
3 (1) (xii) The Directors’ avoidance of Compliant Section 9 (6) of DFCC Act requires the Directors who are directly
conflict of interest or indirectly interested in contracts or a proposed contract with
DFCC Bank to declare the nature of such interest and not to
participate in the decision-making. All decisions pertaining to
such matters require to be unanimous according to the Act.
3 (1)(xiii) Schedule of matters reserved Compliant Schedule of matters reserved for the Board have been decided
for the decisions of the Board on.
3 (1) (xiv) Reporting insolvency to the Compliant Solvency is a matter constantly monitored by the Treasury
Director of Bank Supervision Department, Integrated Risk Management Committee and the
Board of Directors. During the year DFCC Bank remained solvent
and no event has or is likely to occur that would make the Bank
not able to meet its obligations.
3 (1) (xv) Adequacy of Capital Compliant DFCC Bank is capitalised well above the minimum levels
required by the Monetary Board in terms of the capital adequacy
and minimum required capital.
3 (1) (xvi) Corporate Governance Report Compliant The annual Corporate Governance Report forms an integral part
of the Directors’ Report of DFCC Bank’s Annual Report.
3 (1) (xvii) Self-assessment of the Board of Compliant The Board has a structured scheme of self-assessment which
Directors is carried out annually. The performance of the respective Board
Committees are also evaluated by the other members who are
not members of the respective Committees in order to ensure
that they function effectively. The findings are discussed at
the Board Meetings and action is taken on areas identified for
improvement.

The Chief Executive is a non-voting member as per the DFCC

Act. The performance assessment criteria of the Chief Executive
are given in 3.5 (xi).

Annual Report 2011/12 DFCC Bank 55

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

Rule Governance Principle Compliance Remarks

3 (2) Composition of the Board

3 (2) (i) Number of Directors Compliant The Board of Directors comprises ten Directors.
3 (2) (ii) Period of service of a Director Compliant No Director has held the position of a Director of DFCC Bank for
more than nine years.
3 (2) (iii) Number of Executive Directors Compliant The Chief Executive is the only Executive Director of the Board.
He is an ex-officio non-voting Director
3 (2) (iv) Number of Independent Compliant The Board includes seven Independent Directors.
Directors
3 (2) (v) Alternate Directors Compliant All persons appointed as Alternate Directors to an existing
Director of the Board have been subject to the same criteria
applicable to Directors.
3 (2) (vi) The skills, experience and Compliant All Non-Executive Directors have professional backgrounds,
track records of Non-Executive strong track records and high level managerial experience in
Directors banking, business, plantations, industry, law, auditing or service
sectors.
3 (2) (vii) Number of Non-Executive Compliant DFCC Bank has been constantly compliant with this rule at all
Directors required to form a times as monitored by the Company Secretary. Although according
quorum of Board Meetings to the DFCC Regulations, the required quorum is only 4 Non-
Executive Directors.
3 (2) (viii) Disclosure of details of Compliant The names and the composition of the Directors by category are
Directors disclosed in the Annual Report of the Board of Directors.
3 (2) (ix) Appointment of new Directors Compliant Appointment of all new Directors is formally evaluated by the
Nominations Committee and recommended to the Board of
Directors for approval in terms of the regulations.
3 (2) (x) Appointment of a Director to fill Compliant The regulations of DFCC Bank provide that the Directors
a casual vacancy appointed by the Board of Directors hold office until the following
Annual General Meeting (AGM) at which they have to be elected
by the shareholders.
3 (2) (xi) Resignation or removal of a Compliant The retirement of Directors from office during the period under
Director review are given in the Directors Report. No Director resigned or
was removed.
3 (2) (xii) Appointment of a Director or an Compliant No Director or employee of DFCC Bank is a Director of another
employee to another bank bank except the subsidiary company, DFCC Vardhana Bank PLC,
which is a permitted exception.
3 (3) Fitness and Propriety of Directors

3 (3) (i) Maximum age of Directors Compliant All Directors who reached the age of seventy have relinquished
office.
3 (3) (ii) Holding of Director’s position in Compliant All Directors comply with this requirement.
more than 20 companies in all
or in more than 10 prescribed
companies

56 DFCC Bank Annual Report 2011/12

 REPORTS OF DIRECTORS Supplementary financial Information

Rule Governance Principle Compliance Remarks

3 (4) Management Functions Delegated by the Board

3 (4) (i) Delegation arrangements Compliant The Board of Directors has delegated authority to the
management subject to specific criteria, limitations, safeguards
and monitoring mechanisms.
3 (4) (ii) Extent of Delegation Compliant The delegation of authority made by the Board is designed to
facilitate efficient management of the affairs of DFCC Bank and to
aid the oversight role exercised by the Board. It is not of an extent
to hinder the ability of the Board to discharge its functions. The
Board retains the authority to expand, curtail, limit or revoke such
delegated authority.
3 (4) (iii) Review of delegation process Compliant The delegation process is subject to periodic review by the Board
in order to ensure that necessary amendments are approved
to meet the requirements of DFCC Bank. Material decisions
made under delegated authority are reported to the Board for
information.
3 (5) The Chairman and Chief Executive

3 (5) (i) Separation of the roles of the Compliant The Chairman and the Chief Executive are two separate
Chairman and CEO individuals.
3 (5) (ii) The Chairman to be a Compliant The Chairman is a Non-Executive Director. The Board has
Non-Executive Director appointed an Independent Director as the Senior Director as
disclosed in the Annual Report.
3 (5) (iii) Disclosure of relationship Compliant No relationships exist between the Chairman, Chief Executive
between the Chairman, CEO and and the other Directors according to the declarations made by
other Directors them except being Directors of subsidiaries.
3 (5) (iv) Role of the Chairman Compliant The Chairman provides leadership to the Board and ensures
that the Board discharges its responsibilities effectively and
encourages members to actively participate and to raise their
independent judgment on all key and appropriate issues in a
timely manner.
3 (5) (v) Agenda of Board Meetings Compliant The agenda of each Board Meeting is drawn by the Company
Secretary under the direction of the Chief Executive and
Chairman and any matters relevant to the policies and
operations of the Bank proposed by other Directors are included
in the agenda upon approval by the Chairman.
3 (5) (vi) Providing information to the Compliant The Chairman ensures that all Directors are properly briefed on
Directors issues which arise at the Board Meetings and ensures that they
receive adequate information in a timely manner.
3 (5) (vii) The Board to act in the best Compliant The Chairman encourages exercise of independent judgement
interest of the Bank by the Directors on matters under consideration by the Board in
order that the best interests of the Bank can be assured.
3 (5) (viii) Effective contribution of Non- Compliant The Chairman facilitates contributions by the Non-Executive
Executive Directors Directors in making decisions.

Annual Report 2011/12 DFCC Bank 57

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

Rule Governance Principle Compliance Remarks

3 (5) (ix) The Chairman not to engage in Compliant The Chairman is Non-Executive and does not supervise any
executive functions management personnel of the Bank directly.
3 (5) (x) Communication with Compliant The Chairman has assigned the Chief Executive to maintain a
shareholders dialogue with institutional investors and bringing any matters of
concern to the notice of the Board.

During the year the Chief Executive met with 17 current and
potential institutional investors and briefed the Board on the
discussions held.
3 (5) (xi) CEO to be in charge of the Compliant The Chief Executive is the Head of the management team and
management of operations and is in charge of the day-to-day management of DFCC Bank’s
business operations and business.

At the beginning of each year the Board discusses the business

plan with the Chief Executive and senior management and agrees
on the medium and short term financial and non-financial targets
to be achieved and action plans to be implemented by the Bank.
Progress is monitored on an ongoing basis and the assessment
of the performance of the Bank is carried out by the Board at
the end of each year based on the initiatives laid down in the
business plan.
3 (6) Board Appointed Committees

3 (6) (i) Four Board appointed Compliant The Board has appointed the four committees stated in the
committees Direction. The reports on their duties, performance and roles
are published in the Annual Report
3 (6) (ii) Board Audit Committee - Compliant Please refer page 104
Composition and duties
3 (6) (iii) Board Human Resources and Compliant Please refer page 107
Remuneration Committee -
Composition and duties
3 (6) (iv) Board Nomination Committee - Compliant Please refer page 108
Composition and duties
3 (6) (v) Board Integrated Risk Compliant Please refer page 109
Management Committee -
Composition and duties

58 DFCC Bank Annual Report 2011/12

 REPORTS OF DIRECTORS Supplementary financial Information

Rule Governance Principle Compliance Remarks

3 (7) Related Party Transactions

3 (7) (i) to Avoidance of conflicts of interest Compliant DFCC Bank has adhered to the law as specified in the Banking
(iii) and favourable treatment in Act and the Directions issued there under with regard to
transactions with related parties transactions with related parties. The Board ensures that no
related party benefits from any favourable treatment except as
indicated in 3 (7) (vi).

The process of recording related party transactions was

strengthened during the year. The Bank has put in place a
mechanism to obtain on a quarterly basis a confirmation from all
key management personnel on a structured format to assist in
the process of collating related party transactions.
3 (7) (iv) Accommodation to Directors or Compliant DFCC Bank complies with the law as specified in the Banking
their close relations Act and the Directions issued there under in granting
accommodation to the Directors and/or their close relations.
3 (7) (v) Accommodation granted to Compliant The provisions of the Banking Act will be followed if such
Directors prior to appointment situations arise and public will be informed if not compliant
by the specified date as he/she will cease to hold office. This
situation did not arise.
3 (7) (vi) Avoidance of favourable Compliant The accommodation to employees, close relations of employees
treatment in accommodation and/or entities in which any employee or close relation of
to employees, close relations such employee hold substantial interest are subject to normal
of employees and/or entities in commercial terms applicable to such transactions except in
which any employee or close case of accommodation under approved schemes uniformly
relation of such employee hold applicable to all or specific categories of employees. The Chief
substantial interest Executive has not participated in these schemes.
3 (7) (vii) Not to remit part of Compliant No such situation has arisen
accommodation or interest
without prior approval of
Monetary Board

Annual Report 2011/12 DFCC Bank 59

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

Disclosure on Corporate Governance made in

Terms of Section 3 (8) of the Banking Act Direction No. 12 of 2007 of the Central Bank of Sri Lanka

(i) The Board shall ensure that:

The annual audited financial statements and quarterly Complied with
financial statements are prepared and published
in accordance with the formats prescribed by the
supervisory and regulatory authorities and applicable
accounting standards and such statements are
published in the newspapers in an abridged form in
Sinhala, Tamil and English.
(ii) The Board shall ensure that the following minimum disclosures are made in the Annual Report:
(a) A statement to the effect that the annual audited Complied with. Please refer the Statement of
financial statements have been prepared in line with Directors’ Responsibility on page 120
applicable accounting standards and regulatory
requirements, inclusive of specific disclosures.
(b) A report by the Board on the Bank’s internal control Complied with. Please refer to the Directors’
mechanism that confirms that the financial reporting Statement on Internal Control on page 110
system has been designed to provide reasonable
assurance regarding the reliability of financial
reporting and that the preparation of financial
statements for external purposes has been done in
accordance with relevant accounting principles and
regulatory requirements.
(c) The External Auditor’s certification on the effectiveness Complied with. Please refer Assurance Report of the
of the internal control mechanism in respect of External Auditor, on page 113
any statements prepared or published after
31 December 2008.
(d) Details of Directors, including names, fitness and Complied with. Please refer to page 14 and Notes 18
propriety, transactions with the Bank and the total fees/ and 62 to the financial statements
remuneration paid by the Bank

60 DFCC Bank Annual Report 2011/12

 REPORTS OF DIRECTORS Supplementary financial Information

(e) Total net accommodation as defined in 3 (7) (iii) Complied with.

granted to each category of related parties shall also
be disclosed as a percentage of the Bank’s regulatory Category of related 31 March 2012
capital party and type of LKR 000 %
transaction

Key management
Personnel-loans 6,310 0.04
Shareholders with material
interest in the Bank 34,216 0.23
Total net accommodation 40,526 0.27
Regulatory capital-solo basis 14,923,498

The total net accommodation was 0.27% of the

Bank’s regulatory capital on solo basis. Maximum
limit determined by Directors is 25% of Bank’s
regulatory capital on solo basis
(f) The aggregate values of remuneration paid by Complied with. Please refer Note 62 to the financial
the Bank to its key management personnel and statements.
the aggregate values of the transactions of the Bank
with its key management personnel, set out by broad
categories such as remuneration paid, accommodation
granted and deposits or investments made in the Bank.
(g) All the findings of the ‘factual findings report’ of the Complied with.
External Auditor to be incorporated in this report.
(h) A report setting out details of the compliance with Complied with. See Annual Report of the Board of
prudential requirements, regulations, laws and internal Directors
controls and measures taken to rectify any material
non-compliance
(i) A statements of the regulatory and supervisory The Monetary Board has not required any disclosure
concerns on lapses in the Bank’s risk management, or to be made.
non-compliance with these directions that have been
pointed out by the Director of Bank Supervision, if so
directed by the Monetary Board to be disclosed to the
public, together with the measures taken by the Bank to
address such concerns.

Report from External Auditors

The external auditors have performed procedures set out in Sri Lanka Related Services Practice Statement 4750 issued by
The Institute of Chartered Accountants of Sri Lanka (SLRSPS 4750), to meet the compliance requirement of the Corporate
Governance direction. Their findings presented in their report addressed to the Board are consistent with the matters disclosed
above and did not identify any inconsistencies to those reported above by the Board.

Annual Report 2011/12 DFCC Bank 61

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

Board Committtees

Audit Committee HR & Nomination Integrated Risk Credit

Remuneration Committee Management Committee*
Committee Committee

Attendance of Directors at Meetings

Name of Director Main Board Audit Human Nomination Integrated Risk
Committee Resources & Committee Management
Remuneration Committee
Committee

Total No. of Meetings 15 12 4 3 4

Mr J M S Brito 15/15 4/4 3/3 4/4
Mr A N Fonseka 15/15 4/4
Mr S N P Palihena 8/8 8/8 2/2
(retired w.e.f. 30 October 2011)
Mr C P R Perera 4/4 2/2
(retired w.e.f. 30 June 2011)
Mr A S Abeyewardene 15/15 12/12 4/4
Mr T K Bandaranayake 15/15 12/12 2/2
Mr G K Dayasri 14/15 4/4
Mr R B Thambiayah/ 12/15 3/3
Ms S R Thambiayah
(Alternate Director)**
Mr C R Jansz 15/15 3/3 2/2
Mrs H M N S Gunawardana 13/15 2/2
Dr L P Chandradasa 6/7
(w.e.f. October 2011)
Mr J E A Perumal 2/3 1/1
(w.e.f. February 2012)

* The Credit Committee approves papers by circulation

** Present by self or alternate

62 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

Economic Performance

Management Approach Despite the uncertainty in global economic

DBB consists of DFCC, one of the most conditions and the changing regulatory
successful development banks in the world, environment, DBB remains positive and
and its 99.1% owned DFCC Vardhana Bank, optimistic about the future. We continue to be
one of the fastest growing commercial banks well positioned within the realm of financial
in the country. service providers to leverage on opportunities
provided by the expansion of the Sri Lankan
They serve as powerful economic drivers, by economy.
providing financial resources for enterprises
as well as providing innovative financial Our economic footprint is visible in many
solutions for individuals to improve their lives. areas of the country’s economy. Value
generated by DBB has benefited our
Complementary businesses which include investors, employees, Government and many
investment banking, venture capital financing, other stakeholders.
consulting, IT services, asset management
and industrial estate management are carried The adjusted profit after tax of DBB in
out through our subsidiary, joint venture and the current year was LKR 2,789 million, a
associate companies. 40.2% increase over LKR 1,990 million in
the previous year. DBB’s profit drivers are
With the positive economic outlook and net interest income of the credit portfolio
robust demand for financial services that derived from portfolio growth and interest
prevailed throughout most of the year DBB margin, dividend income, gains from sale
produced excellent financial results. Our of non-affiliated share investments, fee and
Banking Business is consistently identified foreign exchange income and management
as one of the best financial service providers of non-interest costs. Maintenance of credit
in the country due to the quality of its credit portfolio quality is imperative to preserve the
portfolio, robust risk management policies, contribution from these profit drivers.
outstanding reputation and superior service
quality.

Annual Report 2011/12 DFCC Bank 63

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

Economic Performance Indicators

Statement of Value Added - DFCC Bank
For the year ended 31 March 2012 2011
LKR million % LKR million %

Value Added
Gross income 7,434 14,191
Cost of borrowing and support services (3,362) (3,273)
Provision for bad debts and investments (28) (244)
4,044 10,674

Value Allocated
To employees
Salaries, wages and other benefits 834 21 791 7

To providers of capital
Dividends to shareholders 795 20 2,649 25

To Government
Income tax on profit 430 739
Value added tax on financial services 336 766 19 1,890 2,629 25

To expansion and growth

Retained income 1,522 4,488
Depreciation 127 1,649 40 117 4,605 43
4,044 100 10,674 100

Statement of Value Added - DFCC Vardhana Bank

For the year ended 31 December 2011 2010
LKR million % LKR million %

Value Added
Gross income 4,338 3,787
Cost of borrowing and support services (2,701) (2,276)
Provision for bad debts and investments (64) (235)
1,573 1,276

Value Allocated
To employees
Salaries, wages and other benefits 595 38% 405 32%

To providers of capital
Dividends to shareholders 88 6% 55 4%

To Government
Income tax on profit 177 263
Value added tax on financial services 125 302 19% 190 453 36%

To expansion and growth

Retained income 443 221
Depreciation 145 588 37% 144 363 28%
1,573 100% 1,276

64 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

Product and Service Responsibility

DFCC Banking Business provides a gamut of DFCC Bank (DFCC) is a development bank
financial products and services to an array of for entrepreneurs; and as such is expected
customers around the country. These include to deliver progressive financial tools to help
project financing, working capital loans and them succeed. DVB has been positioned as
leasing facilities to businesses as well as a trusted and caring commercial bank that
personal financial services such as accounts, reaches out not only to the urban and semi-
loans and credit cards. urban populations but also the rural masses.
Nevertheless, the operationally merged DFCC
DBB Product Portfolio Banking Business (DBB) provides a full range of
 Start up loans financial solutions seamlessly under one roof.
 Expansion, Relocation and
Diversification Loans We have based our customer service policy on
 Special credit line loans our very own Code of Conduct as well as the
 Guarantees Central Bank Customer Charter which was
 Preference shares released in October 2011.
 Balance sheet restructuring
 Bridging finance Responsible Lending
 Working capital loans Since 1955, DFCC’s particular focus has been
 DFCC leasing development of enterprises. Not only has the
 Spot/forward exchange contracts Bank provided entrepreneurs with financial
 Special Foreign Currency Investment assistance but it also supports an integrated
Deposit Account (SFIDA) approach to entrepreneurship development.
 Sandella housing loans This allows enterprises to benefit from our
 Ranwarama pawning expertise to meet required standards while
 Nenesa educational loans enhancing their competitiveness. One of the
 Vardhana leasing major causes for Non-Performing Assets
 Mega Bonus savings (NPAs) is negligence on the part of banks in
 Float savings accounts realising their role in the proper development
 Fixed deposits of entrepreneurs.
 Current accounts
 Overdraft facilities DBB provides factual information related to
 Foreign currency accounts the products and services offered and makes
 Vardhana Junior savings all attempts to help customers understand
 Vardhana e-banking - Internet the nature, opportunities and risks associated
Banking Service with these financial products.
 Vardhana Prabhu priority banking
 Vardhana credit cards Lending decisions are consistently based on
 Vardhana gift certificates the future prospects of the customer and are
 International trade services factored in to the customer’s credit rating and
 Offshore banking industry forecasts. Exposure to each sector
 International payments is regularly monitored against the internal
 Local payments exposure limits set by the Board Integrated
Risk Management Committee to address
DBB has one of the fastest growing networks concentration risks.
in Sri Lanka. We have a visible presence in
the market with hundreds of thousands of
customers served through our network of 127
branches.

Annual Report 2011/12 DFCC Bank 65

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

All lending assessments are subject to an evaluation Accessibility

of ethical issues and a compatibility test with our We are committed to providing banking facilities that have
Environmental Management System (EMS). a high degree of accessibility for all users. In keeping with
national policy on disability and the Rights of Persons with
Customer Satisfaction Disabilities Act, 18 of our branches are currently equipped
We continuously strive to create greater customer to enable convenient access to those with disabilities.
focus and to improve the quality of our service delivery We are committed to improve accessibility across our
processes. We see our customers as an integral part of network in the future.
our success story and have engaged in many initiatives to
increase customer satisfaction on a long-term basis. Our goal is to provide a welcoming environment where
customers with disabilities can conduct their routine
In 2011 DBB conducted a focused customer awareness banking business without undue burden. Where
and satisfaction survey through an independent external necessary our staff communicate by exchanging notes
agency. Customers from SME and personal banking or volunteer to read documents and assist in filling out
segments were covered. The survey results indicated that forms.
customers find DBB to be trust-worthy and stable while
delivering excellent customer service. Marketing Communications and Promotions
Our marketing, advertising and promotional activities
While these positive insights will help us formulate focus on providing accurate and quality of information
greater engagement plans for the future DBB which enables customers to make wise financial
continuously trains and steers its employees to improve decisions.
on its customer service delivery process.
All our information brochures and leaflets are created
Thriving on Thrift in Sinhala, Tamil and English. Where applicable all
Sri Lankan society has always valued the savings habit. advertisements carry our credit ratings and contact
Recently though, with increased focus on consumption and information for consumers looking to find out more
changing socio-economic conditions, savings patterns have details about our products and services. Our interest
changed. It is a challenge for savers to make provisions for rates, exchange rates, credit ratings, contact details of the
deposits while banks compete with each other for these financial ombudsman and holiday notices are prominently
limited funds. displayed in all branches and are available for further
perusal on our website.
In this backdrop DVB launched a focused campaign to
educate consumers about the importance of savings while Vardhana Thaegi Vaasi
providing them incentives by way of high interest rates, (Vardhana Savings Rewards)
convenient service locations and attractive gift schemes With regard to special promotions, the Vardhana Thegi
which encouraged them to save more. Vaasi (VTV) Savings reward programme launched in
August 2011 saw depositors rewarded with over 5,000
Compliance instant prizes for their savings.
Our operations and compliance departments ensure
compliance with data protection policies, regulations, Unlike traditional raffle based schemes, VTV ensured
guidelines and procedures when protecting customer that all who saved were rewarded with a gift through the
data. The rules and regulations are accessible by all scheme. Gifts were based on the value of the deposit
employees on the intranet. and included popular consumer durables. Not only was
the promotion successful in increasing deposits, it also
In terms of statutory requirements for products and enabled customers to win gifts while encouraging the
services, we regularly monitor compliance with regulatory savings habit.
and legal requirements.

66 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

Environment

DFCC Banking Business is conscious of the As a firm believer in the 3R concept DBB
human impact on adverse environmental extensively uses the Reduce, Reuse, Recycle
changes. Although the nature of our own concept when procuring and managing its
operations has a limited impact on the resources.
environment, we are continually striving
to introduce measures to reduce our All internal correspondence within DBB
environmental impact. We also encourage offices and branches is carried out via email
our clients, employees and suppliers to adopt and electronic media. Email messages are
environmentally responsible practices. preserved in retrievable electronic storage
and not printed unless absolutely essential.
Additionally, every year since 2008 our annual Consequently, the paper-based internal
desk and wall calendars have featured communication has been largely made
images of Sri Lankan natural beauty, captured redundant across the organisation. We adopt
by amateur and professional photographers. duplex printing whenever practically possible
These pictures are accompanied by an to minimise wastage.
environmental message featuring information
and statistics regarding the fauna and flora The publication of the Annual Report is
depicted. This serves to raise awareness another area where the organisation attempts
among our stakeholders to take effective to utilise resources effectively. Due to the
measures to preserve the environment. widespread availability of personal computers,
the Bank now publishes over 90% of its total
Our commitment to environmental Annual Report requirement in CD ROM format.
sustainability comprises three main This process reduces the amount of paper
elements. utilised and also reduces printing, handling
and delivery costs.
Managing Resource Consumption
DFCC Banking Business is committed to Good housekeeping is something that DBB
reducing its resource consumption and has strived to maintain year on year.
periodically reviews its resource management
policy to implement practical and innovative
methods to reduce energy and material usage
while also reducing associated costs.

Our Commitment to Environmental Sustainability

Managing Supporting Encouraging

Resource Environmental Responsible
Consumption Initiatives Investment

Annual Report 2011/12 DFCC Bank 67

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

The per capita electricity and water DFCC Bank established a special lending
consumption (across a selection of branches) window for renewable energy-related projects
has reduced appreciably due to continuous more than a decade ago, the first bank in the
monitoring and commitment by staff. country to do so. More recently, the country’s
Constant endeavours are made across the first commercial wind power plant in Kalpitiya
network to ensure all company vehicles are was also enthusiastically funded by us.
maintained and serviced effectively, thereby
increasng fuel efficiency. All officers engage DFCC Bank’s pioneering work in renewable
only in essential travel and covoiturage energy takes a three dimensional approach
whenever practically possible. to developing the sector. Firstly, the Bank
2011/12 2010/11
functions as the Administrative Unit and Apex
body for several credit lines extended to the
Electricity Usage Government of Sri Lanka by the World Bank.
kWh/m2 per month 2.1 2.6 The World Bank and Global Environment
Facility (GEF) assisted Renewable Energy
kWh per employee
for Rural Economic Development (RERED)
per month 262 267
was a project that aimed to improve the
quality of rural life by promoting access
Water Usage to electricity through off-grid renewable
Cubic metres per energy technologies and to add capacity
employee per month 3 3.4
to the national grid through private sector
participation in power generation using
Head Office renewable sources.
A4 Paper (reams) 2,250 2,400
Fuel (litres) 51,669 38,668 Secondly, the Bank, independently of the
Office Vehicles (km) 310,685 293,874 Administrative Unit, acts as a participating
Hired Vehicles (km) 7,832 12,983 credit institution to identify and approve funds
from the above credit lines for renewable
Supporting Environmental Initiatives energy projects.
The need for renewable, reliable, clean
The third dimension is for the Bank to
energy is becoming more apparent with all
utilise its sector expertise to undertake
the uncertainties that engulf global energy
consulting assignments on renewable energy
sources. Meeting Sri Lanka’s growing energy
development through its subsidiary DFCC
needs in an economically, environmentally
Consulting (Pvt) Limited. The Company has
and socially responsible way is a priority for
completed several assignments for overseas
DBB. Our commitment to develop sustainable
markets and also identifies, guides and
energy began with support for Sri Lanka’s
promotes potential local entrepreneurs to
first private sector grid-connected small
take on renewable energy projects.
hydropower project in the mid 1990’s. Since
then, we have made steady progress resulting
in being recognised as a premier resource
Introducing Environmental Stewardship
centre for developing the country’s renewable As a supplementary area under the ‘6S
energy sector. implementation in schools project’ we
attempted to educate students on the need

68 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

for conserving the natural environment The important consideration in implementing

and minimising negative impacts resulting an environmental and social management
from human behaviour. In this regard tree plan is ensuring the commitment of the
planting campaigns were organised in all project promoter. This entity is expected to
participating schools in celebration of the maintain safeguards on a continuous basis
World Environment Day on 5 June 2011. adhering to the requirements imposed
by the Bank. Furthermore, DFCC Bank’s
The project donated a variety of plants to environmental recommendations are included
schools, teachers and students, and our in the Terms and Conditions of the loan
staff also volunteered in the planting of trees facility, which in turn become part of the legal
across identified locations in and around contract between the borrower and the Bank.
schools. The initiative drove the concept During the follow up process, monitoring
of trees as the lungs of the world among a of environmental and social performance
generation of children around the country. is an important part of the Environmental
Management System (EMS).
Another sub-project to encourage
environmental stewardship was the 3R All projects above a threshold value or in
Vesak lantern competition. In line with the a defined sector which DFCC considers
2600th Sambuddathva Jayanthi celebrations for financing undergo an environmental
participating school children were and social impact analysis. Amongst other
invited to construct Vesak lanterns using criteria, generally this would mean an
environmentally friendly materials. assessment of whether the project has
been designed to prevent or minimise
Contestants built amazing creations through pollution, and have acceptable measures
the use of material such as coconut leaves, for waste disposal or recycling, water and
shells and husks as well as bamboo and energy conservation, climate protection and
cloth. product stewardship. It also encompasses
projects focused on the development and
Encouraging Responsible Investment implementation of environment-friendly
DBB ensures that environmental safeguards technology. The social aspects being, whether
as defined by the Environmental Protection the project is in line with the labour laws of
Act and the Rules and Regulations issued by the country and good international practices
the Central Environmental Authority of Sri which include the provision of worker
Lanka are integrated into project design prior health and safety, prevention of child labour,
to its financing and complied with during the non-discrimination at work place, checks
implementation and operation. The Bank has on sexual harassment and minimising the
also set out two different category lists for impact on local communities.
restricted businesses and negative sectors.
While negative sectors are not provided DFCC is working on an environmental
finance, restricted sectors are entertained classification for its new projects depending
only after a thorough review of the business on the level of potential environmental
and its objectives. impact. Currently all loans, whatever the
risk level, are provided on market terms.
However, for projects that need to put in
place further mitigating measures, the Bank
offers concessionary loans under special loan
schemes.

Annual Report 2011/12 DFCC Bank 69

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

Employees

Fostering a Culture of
Key Achievements 2011 Engagement and Inclusivity
 Recruitment of 280 new staff A recognised competitive advantage is the
members to the DFCC Banking internal culture we have fostered over the
Business years driven on an ethos of professionalism,
 Introduction of assessment centres team work, openness and support. We believe
and competency-based interviewing in maintaining the highest ethical standards,
processes for recruitment transparency and consistency in internal
and external dealings. We are an equal
 Introduction of measures to assist
opportunity employer and we unswervingly
new recruits assimilate faster to our
promote diversity and inclusion in all human
work culture
resource practices. We have achieved an
 Re-alignment of staff emoluments
almost equal gender distribution among
with market
staff and strictly adhere to a practice of
 Successful conclusion of LEAP - an ‘equal pay for equal work’. Almost 30% of our
initiative to enhance leadership skills management staff are female.
among management
 Provision of career advancement Ensuring and improving on the transparency
opportunities and equitability of our processes and
procedures continues to be a priority.
We expect our employees to behave
We acknowledge our human capital as
professionally and no harassment or
being a key differentiator in achieving
inappropriate conduct is tolerated. Employees
DBB’s strategic objectives and in ensuring
at all levels are encouraged to raise issues
we retain our competitive edge in the
and concerns and formalised grievance and
country’s financial services arena. On this
whistle blowing policies and procedures are
premise, we remain committed to acquiring,
in place.
developing and retaining an appropriate
talent pool. As the level of commitment and
New Initiatives in Resourcing
involvement employees have towards the
work place impacts bottom line performance, We continue to prioritise on attracting
we continue to give priority to aspects and retaining new talent. During the year
influencing employee engagement levels under review 280 new staff were recruited
such as providing a conducive, safe and to DBB, which resulted in an increase of
professional work environment, effective over 10% in the total headcount. Most were
talent management, empowerment, equal entry level recruitments to DVB who were
opportunities and fair treatment, market- selected subsequent to an aptitude test as
based compensation and adopting best well as two sets of interviews. In addition, 26
human resources practices. management trainees and executive trainees
joined the DBB during the year.

70 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

We reviewed our recruitment processes Assisting Assimilation

critically and certain improvements were We believe that first impressions go a long
made. Assessment centres and competency- way in building loyalty and trust and thereby
based interviewing were introduced for improving engagement and retention.
management trainee selection. Prospective Towards this end an effort is made to ensure
candidates spend a day at the assessment new recruits are made to feel welcome and
centre and go through a series of different comfortable. Managers are informed in
tests and activities designed to identify those advance of new recruitments to ensure the
with the ‘best fit’ to the DBB. They are also availability of necessary facilities. To further
made aware of the activities of the Group, our assist in the assimilation process, a ‘buddy’
practices and culture so that they too would is assigned to introduce new executives to
be in a position to make a more informed other staff, explain their job roles, systems
decision on whether they want to make a and procedures. They also become members
career with us. During the year, we reviewed of ‘DFCC Reds’, a new club whose aim is to
our interviewing methodology and brought provide opportunities for new executive staff
on board competency based interviewing to meet and actively engage with each other
with the intention of improving the efficiency, as well as staff at other levels. This initiative
focus and professionalism of the process and gives them an opportunity to participate in
most importantly, to ensure that a conscious numerous social events, community projects
effort is made to recruit staff possessing and shared learning experiences.
competencies required for their envisaged job
roles. Performance of new employees is closely
reviewed by the supervisor and regular
feedback is given. Management Trainees
meet with the HR Department periodically to
discuss work progress as well as other issues
and concerns they may have.

Analysis by Grade
2009/10 2010/11 2011/12

No. of Employees Promoted to a Higher Level - DFCC

Management 14 10 13
Executives 37 18 42
Non-Executives 20 37 34
Total 71 65 89
No. of Employees Promoted to a Higher Level - DVB
Management 2 0 4
Executives 19 38 19
Non-Executives 27 74 87
Total 48 112 110
Total No. of Employees Promoted - DBB
DFCC 71 65 89
DVB 48 112 110
Total 119 177 199

Annual Report 2011/12 DFCC Bank 71

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

Training per Selected Competence

No. of No. of
Type days participants

Credit evaluation 44 341

Operations and trade 29 452
Finance and Risk 43 115
Legal, compliance and regulatory 28 171
Leasing 8 109
Treasury operations 18 38 Employee Departures - DBB
Personal Financial Services 12 113
2009/10 2010/11 2011/12
Safety and health 4 92 Total
DFCC DVB DFCC DVB DFCC DVB
Customer service 19 341
Communication skills 15 115 Resignations 22 58 55 91 39 117 382
Behavioural competencies 39 362 Retirements 6 0 9 0 10 0 25
Industry/business 69 64 28 58 64 91 49 117 407
* No retirements of Staff DVB for above years

STAFF DISTRIBUTION BY AGE - DBB STAFF DISTRIBUTION BY GENDER - DBB

E F
D
A - 18-25 (39%)
B - 26-30 (21%)
A A - Female (49.5%)
C - 31-40 (27%)
A B - Male (50.5%)
C D - 41-50 (8%)
E - 51-55 (3%) B
F - 56+ (2%)

SENIORITY PYRAMID - DBB AGE PYRAMID - DBB

56 and
Above 20
over
Service Period (Years)

15-20 51-55
Age (Years)

10-15 41-50

5-10 31-40

1-5 26-30

Below 1 18-25
60 40 20 0 20 40 60 50 40 30 20 10 0 10 20 30 40
Female Female Composition (%)
Composition (%)
Male Male

72 DFCC Bank Annual Report 2011/12

 REPORTS OF DIRECTORS Supplementary financial Information

Staff Distribution by Province and Gender

31 March 2012
DFCC DVB
Total %
Female Male Female Male

Central 11 11 30 41 93 8
Eastern 7 12 14 25 58 5
Northern 5 5 7 9 26 2
North Central 9 17 10 23 59 5
North Western 11 11 25 17 64 5
Sabaragamuwa 6 11 28 26 71 6
Southern 10 18 39 42 109 9
Uva 6 16 13 22 57 5
Western 175 125 202 189 691 56
Total 240 226 368 394 1,228 100
466 762

STAFF DISTRIBUTION BY PROVINCE TOTAL TRAINING HOURS - DBB

A - Central (7%) Hours
A
50,000
B B - Eastern (5%)
C
C - Northern (2%) 40,000
D
D - North Central (5%)
E
E - North Western (5%) 30,000

I F F - Sabaragamuwa (6%)
20,000
G - Southern (9%)
G
H - Uva (5%) 10,000
H I - Western (56%)
0
2008/09 2009/10 2010/11 2011/12

CHANGE IN TOTAL HEAD COUNT - DBB (AS %) INVESTMENT IN TRAINING - DBB

% LKR million
100 40

80 32

60 24

40 16

20 8

0 0
2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12
Non-Executives
Executives
Management

Annual Report 2011/12 DFCC Bank 73

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

Benchmarking Compensation Structures banking business such as project financing,

To ensure that we continue to retain our status delinquent loan management and follow up,
as an ‘employer of choice’ and also in keeping working capital financing, banking operations,
with our ethics of fair play, from time to time risk management, treasury operations,
DFCC commissions independent surveys SME lending, trade financing, regulatory
in order to benchmark our compensation environment in banking, compliance,
with that of competition to better align our leasing and banking products to name a
emoluments with the market. Such alignment few. As a measure of learning impact most
is essential if we are to continue to attract, technical programmes included post-training
retain and motivate staff. assessments. The bulk of these programmes
were conducted by mid and senior level staff
It is in this context that DFCC commissioned of DBB as they are best positioned to impart
the services of an independent third party knowledge of internal operations, processes
to conduct a remuneration benchmarking and practices. DBB does not pay a fee to our
exercise in 2011. Based on the findings of the employees who function as resource persons
survey, revisions were made to grade specific as the appropriate transfer of knowledge is
salary ranges as well as to certain senior level considered to be an essential responsibility
specific positions to better align base pay of all staff. However, it is encouraging to note
levels to that of the market. In addition, many that despite no direct financial incentive being
staff benefits were enhanced, to be in line with provided, our employees are always willing to
market practice. devote substantial personal time and effort
to imparting knowledge and assisting in the
Commitment to Development and Growth development of junior staff. We believe that
During the year under review we reinforced this unstinting commitment and openness is
our ongoing commitment to enabling a reflection of the learning culture we have
development and growth of our employees by developed within the DBB over the years.
continuing to invest and promote staff training
and related initiatives. It is noteworthy that The e-learning platform continued to be
our investment in training was enhanced used consistently with a total of 33 learning
by almost 50% in comparison to that of the modules being available to employees as
previous year. We believe that the return at end 2011. The modules primarily focus
derived more than justifies the investment as on core business areas of DBB and include
access to adequate training and development assessments as well. Frequency of access,
opportunities enables employees to perform completion of assigned modules and
their duties more effectively, helps shorten assessment scores are consistently tracked
the learning curve and enhances levels of and employees and their supervisors kept
motivation and self-worth. informed as appropriate. Completion of
certain modules is a mandatory requirement
During the year 1,280 participants from DFCC for junior level staff prior to confirmation in
attended 180 programmes of which 50 were service. In an effort to further popularise and
conducted in-house. During the same period enhance the usage of the e-learning tool,
1,387 participants from DVB attended 106 a quiz competition, ‘MindStar Online’ was
programmes of which 60 were conducted launched. This initiative was enthusiastically
in-house. We continued to emphasise on received and a large number of the targeted
technical skill development with programmes staff groups participated.
focused on topics relevant to the core

74 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

The Management Trainee programme is a Supporting Leadership Development

signature initiative of DBB. The programme LEAP - the leadership development initiative
content is reviewed every year and amended that commenced in 2010 was successfully
as appropriate. As the best mode of gaining concluded during the year under review. The
experience is by actually doing it, trainees project, formulated with external consultancy
are provided with hands on experience in expertise and partial financial support from
banking functions, and in addition undergo FMO of the Netherlands, was executed in four
a structured and rigorous training schedule. stages. The first three stages encompassing
On average trainees are provided with access the formulation of a leadership competency
to about 200 hours of class-room based model - ASPIRE, selection and assessment
training per year covering all relevant aspects of 15 members of the management team
of banking. In addition, experiential learning against the established competencies and
opportunities, adventure-based outdoor preparation of individual reports. In the final
programmes and field visits are organised. phase of this initiative, based on the outcomes
Trainees are monitored in areas such as of the assessments, individual development
performance on the job, behaviour, team and coaching plans were formulated for
orientation, attitude, commitment, customer the participants, who were each assigned a
relations and participation at Group activities, coach. During a period spanning about nine
and given quarterly assessments. months, both parties connected at regular

1. The annual trip brings together a trainload of

DFCC friends & families
2. RedsCare Volunteers contribute to improve
the Camilla School, Mattegoda
3. DFCC Reds enjoying an outbound training session 3

Annual Report 2011/12 DFCC Bank 75

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

intervals through one-on-one sessions. DFCC Behavioural

The coaches updated the CEO on the progress Competency Model: ASPIRE
of the coaching initiative. At the end of the
initiative 360 assessments were done for all A chieve Results
S trategize for Growth
participants to evaluate the level of progress
achieved.

P artner with others

I mprove & Change
Identify 1-2
Development
R elate to Customers
Areas E ngage self/teams
2 To further inculcate ASPIRE among
Involve
Review and executive staff, two customised competency
Manager and
Monitor
3 Stakeholders development programmes were conducted in
Progress 1
2011. One, targeting first level management,
C oaching was held over a period spanning several
months and included substantial casework
and assessments. The other was a five-day
5 4 programme conducted in Malaysia to further
Get Feed the understanding of the competencies
Review forward through role plays, case work and
Action Plan Suggestions assessments.

Adopting Best Practices

We have consistently placed importance on
ensuring that our human resource systems
The leadership competency model – ASPIRE, and processes are current, relevant and
was developed for DBB after consolidating conform to industry best practices. Every
inputs from all relevant stakeholders and effort is made to ensure transparency and
also benchmarked against leadership consistency in implementing these and
competencies currently used within the South in communicating relevant information to
Asian financial sector. The competency model stakeholders in a clear and timely manner.
is built around six behaviours. A detailed
handbook, explaining the competencies and Performance management continues to be
their defining attributes, proficiency levels an area of priority for us as it involves many
expected at different management grades and elements of subjectivity which are difficult
ways in which individuals could develop these to eliminate altogether. We also appreciate
competencies was shared with employees. that there is considerable sensitivity involved
as this would directly impact on reward
and recognition. Therefore, supervisors are
tasked with ensuring that performance of

76 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

their direct reports is regularly reviewed Staff handbooks, which are periodically
and feedback given and corrective action updated, contain extensive details of all
taken as appropriate. At the end of the year aspects of importance and relevance to DBB
supervisors appraise individual performance employees. The content of the handbooks are
in consultation with the staff members also available as e-learning modules together
concerned and assign performance scores. If with assessments, and it is mandatory for all
the staff member concerned disagrees with new staff to complete them. Job descriptions
the performance appraisal he/she has the are available for all staff positions and
option of escalating his concern to a higher consistently reviewed and updated. A human
level for further review. resources manual is available to staff of the
HR Department detailing procedures to be
Availability of opportunities for career adopted in all employee related practices.
advancement is another area of focus. At Separate training manuals are available
entry level employment grades promotions for different modes of training as well. The
are not cadre restricted and given based existing HR information system enables
on performance, behavioural qualities access to extensive reports and databases
and tenure. However, higher up in the pertaining to staff.
organisation chart promotions are naturally
based on cadre availability. During the Enabling Wellness and Safety
year under review DBB saw a total of 208 We actively endorse work life balance
non-management level promotions, while and wellness as measures of enhancing
promotions within the management cadres employee motivation and productivity levels.
amounted to 17. Some key aspects of our wellness initiatives
include availability of indoor and outdoor
medical benefits, financial support for gym
memberships, organising annual health risk
assessments and awareness programmes on
general health, nutrition, first aid, handling
stress, managing time and multitasking. In

1 2

1. The DFCC REDS on a field trip to the wind farms in Kalpitiya

2. Competition is always intense at DFCC’s Sports day

Annual Report 2011/12 DFCC Bank 77

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

2011 hospitalisation financial support was increased for all staff grades and
the quantum of allowances available for gym and club memberships were
also increased for applicable grades. To encourage participation in sports we
sponsor many activities such as badminton, tennis, basketball, cricket etc.
Several clubs and committees, primarily driven by employees themselves,
organise varied and interactive events for staff members and their families
throughout the year.

We are an active member of the Sri Lanka Business Coalition for HIV & AIDS.
The Business Coalition was initiated at the eighth International Congress on
AIDS in the Asia Pacific (ICCAP) that was held in Sri Lanka in August 2007.
The Lanka Business Coalition on HIV and AIDS is also a member of the Asia
Pacific Business Coalition on ADIS.

The Coalition works with its partners to ensure that each member
organisation has an HIV/AIDS Workplace Policy in place, as well as providing
ongoing tailored HIV/AIDS awareness training through a pool of professional
trainers.

Regular awareness programmes have been conducted for our staff to

educate them on the Banks’ HIV/AIDS policy, to raise awareness on related
issues and avoid stigma towards those living with the disease.

Both banks have in place detailed business continuity plans and safety
procedures which would come into operation in the event of unexpected
disasters. Relevant employee groups are provided with regular training on
emergency evacuation procedures, handling fires and other emergencies,
administering first aid etc. The work areas are planned in conformity to
internationally accepted health and safety standards. All equipment, such
as elevators, fire extinguishers, sprinklers etc., are regularly serviced and
maintained at optimal levels. Disability accesses and services are available
at the DFCC head office building and in most of the branches for the
convenience of staff, customers and visitors.

78 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

Community

DBB LOANS AND ADVANCES BY

CUSTOMER SEGMENTS

A
A - Corporate (34%)
B - SME (61%)
C - Personal Banking (5%)

DBB firmly believes that enterprises have the as small scale agriculture and plantation,
power to transform communities. light-engineering, agro-processing,
transportation and trade activities. These
We contribute to the well-being of local enterprises are key drivers of growth and
communities by actively supporting economic employment creation in the provincial
and social development, particularly through areas. There was a 56% increase in
the provision of rural banking services the SME loan portfolio during the year,
and the uplifting of Small and Medium signifying our contribution to the economic
Enterprises (SMEs). SMEs are considered development of rural areas of the country.
to be an important cog in the economic
wheel, creating jobs and economic growth Supporting SMEs is an important
particularly in the regions. component of DBB’s commitment to the
economy. The strategy for SMEs revolves
Our award winning CSR programme ‘6S in around developing their internal capabilities
schools’ attempts to improve learning facilities and improving access to finance. The latter
and productivity levels in selected schools includes access to concessionary credit
islandwide. lines from Government, as well as bilateral
and multilateral organisations. DBB is the
DFCC and DVB also won recognition for premier lender under most credit lines
continuing its highly popular TV quiz show available for the sector. DBB also guides
DFCC MindStar. The programme provided a small businesses in the effective use
platform for talented individuals to showcase of credit to create sustainable business
capabilities while giving the Banks a chance ventures.
to present their products and services to a
mass national viewership. Total credit facilities approved by DBB to
the SME Sector during the year amounted
Supporting Small and Medium Enterprises to LKR 49,903 million, an increase of 20%
Our branches strive to raise awareness on compared to the previous year.
entrepreneurship within local communities,
while directing SMEs towards innovation and In early 2011, the Batticaloa District was
creativity. affected by the worst floods experienced
by the region for several decades in
A large number of DBB’s customers are which more than 350,000 people lost
SMEs engaged in economic activities such their homes and means of income.

Annual Report 2011/12 DFCC Bank 79

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

The hardest hit was the poorest segment of the community who needed
assistance to re-establish their livelihoods. The Batticaloa Branch, having
made an initial assessment of the damage, set up a special fund to provide
financial assistance to cottage industry workers who had lost machinery and
equipment during the floods.

Under this grant scheme, the flood-affected small-scale entrepreneurs

engaged in trades such as tailoring, food processing, rice milling and poultry
farming from six towns in the district were given financial assistance.
1
Last year, the Gampaha Branch took an active interest in developing a close
relationship with the local community including its customers. They joined
hands with the Department of Inland Revenue to increase awareness about
the Tax Regulations in Sri Lanka by organising a one-day workshop for 175
participants from the business community.

‘6S’ in Schools
Students, especially in rural underprivileged schools, deserve to have the
skills which will enable them to be part of an evolving socio-economic
system. When children are given the right training and motivation to change 4
themselves and their immediate surroundings, the ripple effect creates a
positive change across the fabric of society.

In collaboration with the Ministry of Education, DFCC launched a community

development project in 2009 targeting primary school students spread
across the country. The objective was to empower young minds with
knowledge that would enable them to increase efficiency and productivity.

1. A classroom at Ihalagoda Sumangala Maha Vidyalaya, Galle arranged according to 6S

2. Masks made out of waste paper, Kadawalawewa Maha Vidyalaya, Kaduruwela
3. Surrounding area of Shariputhra Primary School, Kuliyapitiya
4. Environmental stewardship, Eravur Rahumania Maha Vidyalaya, Batticaloa
5. Nayakakanda Girls Primary School, winner of the 6S program 2011
6. Tree planting on World Environment Day at Olcott Primary School, Matara
7. A recycling bin at Pohorabawa Maha Vidyalaya, Rathnapura
8. Volunteers from our Bandarawela Branch
9. Workshops Conducted for Principals and Teachers
10. Vesak Lanterns made by students of Urani Sarasvathi College, Batticaloa
11. Bandarawela Janananda Maha Vidyalaya was another disadvantaged school uplifted
through the 6S programme 9

80 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

2 3

5 6

10 11

Annual Report 2011/12 DFCC Bank 81

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

This Project was administered by DBB and time included two schools from the Northern
implemented by Zonal Education Directors, Province. It was a great experience for the
Principals of each school, quality circles schools as well as the teams that drove the
elected by the teachers, parents, past pupils, project, as they had different cultural roots but
students of the school and DBB volunteers. Each worked harmoniously towards a common goal.
quality circle agreed on a time-bound set of
objectives and activities to be completed during DFCC Volunteerism
the year. The flow of Ideas from the bottom Another striking feature of the project was the
to top, particularly proposals for continuous enthusiasm of staff, who contributed their time
improvement based on the Kaizen philosophy, and effort voluntarily. In total, over 154 staff
further strengthened the unity among all members participated, contributing over 1,338
participants. volunteer hours in guiding the schools and
monitoring their progress during the year.
The project focused on educating and training
teachers and primary school students from Funding
selected public schools on the theoretical and The attempt made to encourage schools to raise
practical applications of the Japanese Principles their own funds to carry out project initiatives
of ‘Five-S with added emphasis on Safety’. It also in 2009 proved to be successful. It was thus
included guidance on the ‘3R principles’ (Reduce, continued in 2011 as well, with improvements.
Reuse, Recycle) on environmental stewardship. In addition to the general means of raising funds
Students, teachers and parents were encouraged through organising market fairs and concerts
to practise these disciplines and those who best or selling small handmade items, in 2011 the
grasped the precepts were rewarded with cash schools took on more challenging initiatives.
prizes and awards at the end of the project. These included activities such as the production
of bricks, cinnamon cultivation and the production
This ongoing project received recognition locally of flower vases made of recycled material.
and internationally in 2010. The amount of funds raised by the participating
schools exceeded LKR 1.2 million. As matching
Further Improvements grants, a maximum of LKR 30,000 per school was
Despite the recognition and awards, the disbursed to encourage continued participation.
challenge during the year under review was
to ensure the continuity of the progress and Results
performance of the schools which took part in While there was an immediate observable
2009 and 2010, while extending this project to a change in the physical environment of
new set of schools. Measures taken to ensure participating schools, the hidden value and
sustainability included the appointment and sustainability of the project lies in the change
training of audit teams from each school and the that occurs in the mindsets of the students,
introduction of an inter-school audit programme. parents and teachers.
This required the appointed team from each
school to visit the closest school which took It is estimated that the overall project has
part in the same project and audit the level of benefited over 45,000 students and 2,000
maintenance of the project initiatives. This was teachers in schools all over Sri Lanka.
strengthened through prizes for top performers
based on an evaluation by an independent judge. We have now successfully extended the project
to selected schools in Trincomalee, Vavuniya and
Learning from experience, the project was Hambantota Districts.
further improved and extended to a new group
of schools during year 2011, which for the first

82 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information

1. The finalists of DFCC MindStar Season 2 preparing

for battle
2. Winner of DFCC MindStar Season 2 -
1 Medical Student, Kosala Samarasinghe

DFCC MindStar
DFCC MindStar was a reality TV quiz show DFCC MindStar served to educate and
initiated by DBB to engage and connect with entertain all those who watched the show.
members of our community. Through affinity There were two main identifiable community
built up through this programme DFCC and engagement outcomes from the show.
DVB were able to build trust and familiarity Firstly, it created awareness and a thirst
with audiences across Sri Lanka. for information among the general public.
With the success of the quiz format other
The two seasons of MindStar saw more than television networks also attempted to satisfy
20,000 applicants taking part in the initial viewer appetites for quality knowledge
aptitude tests while over 400 participants based programming. These developments
made it to the final rounds of the competition. were important in the larger scheme of
building a knowledgeable, information thirsty
In addition to the standard thirty show format community as the wheel of development rolls
used in first season the second season towards a knowledge-based economy.
dedicated five special shows to school
children from all around the country. Of Secondly, there was a tremendous amount of
the prize money won by students 75% was public goodwill created by the programme.
donated to their respective schools while the Contestants from varied backgrounds found
balance and other gifts such as laptops and opportunities for personal development
book vouchers were retained by the winners. through their participation in the show.
Many used their prize winnings to engage in
community service projects and charitable
causes. This created a cascading effect within
the community about DBB and MindStar, not
just as a revolutionary TV show, but also as a
show that played a part in a social revolution.

Annual Report 2011/12 DFCC Bank 83

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

GRI Index

Profile Description Reported Cross-reference Annual Report Page Number/

Disclosure Direct Answer

1. Strategy and Analysis

1.1 Statement from the most senior decision-maker of the  Pages 8-13, 46
organisation.
1.2 Description of key impacts, risks, and opportunities.  Pages 22-32, 37-45

2. Organisational Profile
2.1 Name of the organisation.  DFCC Bank
2.2 Primary brands, products, and/or services.  Page 65
2.3 Operational structure of the organisation, including  Pages 20-21
main divisions, operating companies, subsidiaries, and
joint ventures.
2.4 Location of organisation's headquarters.  73/5, Galle Road, Colombo 3, Sri Lanka.
2.5 Number of countries where the organisation operates,  The organisation operates primarily in
and names of countries with either major operations or Sri Lanka.
that are specifically relevant to the sustainability issues
covered in the report.
2.6 Nature of ownership and legal form.  DFCC Bank (DFCC) is a quoted public company
with limited liability incorporated by DFCC Bank
Act No. 35 of 1955 and is a Licensed specialised
bank under the Banking Act No. 30 of 1988. It is
listed on the Colombo Stock Exchange.

DFCC Vardhana Bank PLC (DVB) is a company

with limited liability incorporated under the
Companies Act. It’s a Licensed commercial
bank under the Banking Act No. 30 of 1988. It is
listed on the Colombo Stock Exchange.
2.7 Markets served (including geographic breakdown, sectors  Pages 79,175
served, and types of customers/beneficiaries).
2.8 Scale of the reporting organisation.  DFCC Banking Business
Employees - 1,228
Revenue - LKR 9,529 million
Total Loans, Advances and Leases -
LKR 89,111 million
Deposits from Customers - LKR 44,746 million
2.9 Significant changes during the reporting period regarding  20 Major Shareholders - Page 190
size, structure, or ownership. Structure - Page 189
Size - In 2011 DBB added five branches and one
extension office to its network
2.10 Awards received in the reporting period.  Page 44

 Fully Reported  Partially Reported  Not Reported

84 DFCC Bank Annual Report 2011/12

 REPORTS OF DIRECTORS Supplementary financial Information

Profile Description Reported Cross-reference Annual Report Page Number/

Disclosure Direct Answer

3. Report Parameters
3.1 Reporting period (e.g., fiscal/calendar year) for  DFCC 01 April 2011 to 31 March 2012
information provided. DVB 01 January 2011 to 31 December 2011
3.2 Date of most recent previous report (if any).  DFCC 31 March 2011
DVB 31 December 2011
3.3 Reporting cycle (annual, biennial, etc.)  Annual
3.4 Contact point for questions regarding the report or its  Vice-President - Group Corporate
contents. Communications, EVP - Finance
3.5 Process for defining report content.  Page 47
3.6 Boundary of the report (e.g., countries, divisions,  Page 48
subsidiaries, leased facilities, joint ventures, suppliers.
3.7 State any specific limitations on the scope or boundary of the  Page 48
report (see completeness principle for explanation of scope).
3.8 Basis for reporting on joint ventures, subsidiaries, leased  Page 49
facilities, outsourced operations, and other entities that
can significantly affect comparability from period to period
and/or between organisations.
3.9 Data measurement techniques and the bases of  Page 49
calculations, including assumptions and techniques
underlying estimations applied to the compilation of the
indicators and other information in the report. Explain any
decisions not to apply, or to substantially diverge from,
the GRI Indicator Protocols.
3.10 Explanation of the effect of any restatements of information  None Reported
provided in earlier reports, and the reasons for such
restatement (e.g., mergers/acquisitions, change of base
years/periods, nature of business, measurement methods).
3.11 Significant changes from previous reporting periods in  Page 49
the scope, boundary, or measurement methods applied in
the Report.
3.12 Table identifying the location of the Standard Disclosures  This GRI Table
in the Report.
3.13 Policy and current practice with regard to seeking external  Page 49
assurance for the Report.

4. Governance, Commitments and Engagement

4.1 Governance structure of the organisation, including  Page 96-112
committees under the highest governance body
responsible for specific tasks, such as setting strategy or
organisational oversight.
4.2 Indicate whether the Chair of the highest governance body  Page 57
is also an Executive Officer.

 Fully Reported  Partially Reported  Not Reported

Annual Report 2011/12 DFCC Bank 85

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

Profile Description Reported Cross-reference Annual Report Page Number/

Disclosure Direct Answer

4.3 For organizations that have a unitary Board structure, state  Pages 56, 98
the number of members of the highest governance body
that are Independent and/or Non-Executive Members.
4.4 Mechanisms for shareholders and employees to  Pages 50, 58
provide recommendations or direction to the highest
governance body.
4.5 Linkage between compensation for members of  Page 107
the highest governance body, senior managers, and
executives (including departure arrangements), and
the organisation's performance (including social and
environmental performance).
4.6 Processes in place for the highest governance body to  Page 110-111
ensure conflicts of interest are avoided.
4.7 Process for determining the qualifications and expertise of  Page 108
the members of the highest governance body for guiding
the organisation's strategy on economic, environmental,
and social topics.
4.8 Internally developed statements of mission or values,  Inner Cover
codes of conduct, and principles relevant to economic,
environmental, and social performance and the status of
their implementation.
4.9 Procedures of the highest governance body for overseeing  Pages 51-53, 37, 45
the organisation's identification and management of
economic, environmental, and social performance,
including relevant risks and opportunities, and adherence
or compliance with internationally agreed standards,
codes of conduct, and principles.
4.10 Processes for evaluating the highest governance body's  Page 107
own performance, particularly with respect to economic,
environmental, and social performance.
4.11 Explanation of whether and how the precautionary  DBB uses the precautionary principle to
approach or principle is addressed by the organisation. minimise adverse environmental and social
impacts while improving conditions in markets
it operates.
4.12 Externally developed economic, environmental, and social  Page 49
charters, principles, or other initiatives to which the
organisation subscribes or endorses.
4.13 Memberships in associations (such as industry  Page 49
associations) and/or national/international advocacy
organisations in which the organisation:
* Has positions in governance bodies;
* Participates in projects or committees;
* Provides substantive funding beyond routine
membership dues; or
* Views membership as strategic.

 Fully Reported  Partially Reported  Not Reported

86 DFCC Bank Annual Report 2011/12

 REPORTS OF DIRECTORS Supplementary financial Information

Profile Description Reported Cross-reference Annual Report Page Number/

Disclosure Direct Answer

4.14 List of stakeholder groups engaged by the organisation.  Page 50

4.15 Basis for identification and selection of stakeholders with  Page 49
whom to engage.
4.16 Approaches to stakeholder engagement, including  Page 50
frequency of engagement by type and by stakeholder group.
4.17 Key topics and concerns that have been raised through  Pages 51-83
stakeholder engagement, and how the organisation has
responded to those key topics and concerns, including
through its reporting.

Standard Disclosures Part II: Disclosures on Management Approach (DMAs)

DMA PS Disclosure on Management Approach PS.
Aspects Product Portfolio.
FS1 Policies with specific environmental and social  Page 69
components applied to business lines.
FS2 Procedures for assessing and screening environmental  Page 69
and social risks in business lines.
FS3 Processes for monitoring clients' implementation of and  Page 69
compliance with environmental and social requirements
included in agreements or transactions.
FS4 Process(es) for improving staff competency to implement  Pages 72, 74-75
the environmental and social policies and procedures as
applied to business lines.
FS5 Interactions with clients/investees/business partners  Pages 68,69
regarding environmental and social risks and opportunities.
Audits
Active Ownership

DMA EC Disclosure on Management Approach EC  Page 63

Aspects Economic Performance COMM
Market presence
Indirect economic impacts

DMA EN Disclosure on Management Approach EN  Page 67

Aspects Materials
Energy
Water
Biodiversity
Emissions, effluents and waste
Products and services
Compliance
Transport
Overall

 Fully Reported  Partially Reported  Not Reported

Annual Report 2011/12 DFCC Bank 87

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

Profile Description Reported Cross-reference Annual Report Page Number/

Disclosure Direct Answer

DMA LA Disclosure on Management Approach LA  Page 70

Aspects Employment
Labour/management relations
Occupational health and safety COMM
Training and education
Diversity and equal opportunity

DMA HR Disclosure on Management Approach HR  Page 70

Aspects Investment and procurement practices
Non-discrimination
Freedom of association and collective bargaining
Child labour
Forced and compulsory labour
Security practices
Indigenous rights

DMA SO Disclosure on Management Approach SO  Page 78

Aspects Community
Corruption
Public policy
Anti-competitive behaviour
Compliance

DMA PR Disclosure on Management Approach PR  Page 65

Aspects Customer health and safety
Product and service labelling
FS15 Policies for the fair design and sale of financial products
and services.
Marketing communications
Customer privacy
Compliance

Standard Disclosures Part III: Performance Indicators

Product and Service Impact
Product Portfolio
FS6 Percentage of the portfolio for business lines by specific  Pages 79,175
region, size (e.g., micro/SME/large) and by sector.
FS7 Monetary value of products and services designed to  While data for 2011/12 was unavailable DBB is
deliver a specific social benefit for each business line in the process of implementing mechanisms to
broken down by purpose. capture related data accurately.

 Fully Reported  Partially Reported  Not Reported

88 DFCC Bank Annual Report 2011/12

 REPORTS OF DIRECTORS Supplementary financial Information

Profile Description Reported Cross-reference Annual Report Page Number/

Disclosure Direct Answer

FS8 Monetary value of products and services designed to  While data for 2011/12 was unavailable DBB is
deliver a specific environmental benefit for each business in the process of implementing mechanisms to
line broken down by purpose. capture related data accurately.
Audit
FS9 Coverage and frequency of audits to assess  Pages 104-106
implementation of environmental and social policies and
risk assessment procedures.
Active Ownership
FS10 Percentage and number of companies held in the  Page 162
institution's portfolio with which the reporting organisation
has interacted on environmental or social issues.
FS11 Percentage of assets subject to positive and negative  100%
environmental or social screening.
FS12 Voting policies applied to environmental or social issues  Not Applicable
for shares over which the reporting organisation holds the
right to vote shares or advises on voting.

Economic
Economic Performance
EC1COMM Direct economic value generated and distributed,  Page 64
including revenues, operating costs, employee
compensation, donations and other community
investments, retained earnings, and payments to capital
providers and Governments.
EC2 Financial implications and other risks and opportunities  Related data has not been qualified.
for the organisation's activities due to climate change.
EC3 Coverage of the organisation's defined benefit plan  Pages 168-169
obligations
EC4 Significant financial assistance received from Government.  DFCC and DVB does not receive significant
financial assistance from the Government.
Market Presence
EC5 Range of ratios of standard entry level wage compared to  Related data has not been quantified.
local minimum wage at significant locations of operation.
EC6 Policy, practices, and proportion of spending on locally-  DBB strives to source all its resource
based suppliers at significant locations of operation. requirements from suppliers who are based
locally, wherever it is practicable.
EC7 Procedures for local hiring and proportion of senior  Currently all hiring for DBB management and
management hired from the local community at non-management positions are done locally.
significant locations of operation.

 Fully Reported  Partially Reported  Not Reported

Annual Report 2011/12 DFCC Bank 89

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

Profile Description Reported Cross-reference Annual Report Page Number/

Disclosure Direct Answer

Indirect Economic Impacts

EC8 Development and impact of infrastructure investments  Pages 79-83
and services provided primarily for public benefit through
commercial, in-kind, or pro bono engagement.
EC9 Understanding and describing significant indirect  Pages 63-66, 69
economic impacts, including the extent of impacts.
Environmental
Materials
EN1 Materials used by weight or volume.  Page 68
EN2 Percentage of materials used that are recycled input  The Bank does not utilise significant amounts
materials. of (raw) material for the delivery of its products
and services.
Energy
EN3 Direct energy consumption by primary energy source. Page 68
EN4 Indirect energy consumption by primary source.  While Data for 2011/12 was unavailable DBB is
in the process of implementing mechanisms to
capture related data accurately.
EN5 Energy saved due to conservation and efficiency  While Data for 2011/12 was unavailable DBB is
improvements. in the process of implementing mechanisms to
capture related data accurately.
EN6 Initiatives to provide energy-efficient or renewable energy  Page 68-69
based products and services, and reductions in energy
requirements as a result of these initiatives.
EN7 Initiatives to reduce indirect energy consumption and  Page 68-69
reductions achieved.
Water
EN8 Total water withdrawal by source.  Page 68
EN9 Water sources significantly affected by withdrawal of  Not Applicable
water. Our Primary products and services are not
water intensive.
EN10 Percentage and total volume of water recycled and  Not Applicable
reused. Our Primary products and services are not
water intensive.
Biodiversity
EN11 Location and size of land owned, leased, managed in, or  Not Applicable
adjacent to, protected areas and areas of high biodiversity Our Operations have no known direct impact.
value outside protected areas.
EN12 Description of significant impacts of activities, products,  Not Applicable
and services on biodiversity in protected areas and areas Our Operations have no known direct impact.
of high biodiversity value outside protected areas.
EN13 Habitats protected or restored.  None

 Fully Reported  Partially Reported  Not Reported

90 DFCC Bank Annual Report 2011/12

 REPORTS OF DIRECTORS Supplementary financial Information

Profile Description Reported Cross-reference Annual Report Page Number/

Disclosure Direct Answer

EN14 Strategies, current actions, and future plans for managing  Not Applicable
impacts on biodiversity. Our Operations have no known direct impact on
biodiversity.
EN15 Number of IUCN Red List species and national  Not Applicable
conservation list species with habitats in areas affected by Our Operations have no known direct impact.
operations, by level of extinction risk.
Emissions, Effluents and Waste
EN16COMM Total direct and indirect greenhouse gas emissions by  While Data for 2011/12 was unavailable, DBB is
weight. in the process of implementing mechanisms to
capture related data accurately.
EN17 Other relevant indirect greenhouse gas emissions by  While Data for 2011/12 was unavailable, DBB is
weight. in the process of implementing mechanisms to
capture related data accurately.
EN18 Initiatives to reduce greenhouse gas emissions and  Pages 67-68
reductions achieved.
EN19 Emissions of ozone-depleting substances by weight.  Not Applicable
Our Operations have no known direct impact.
EN20 NOx, SOx, and other significant air emissions by type and  Not Applicable
weight. Our Operations have no known direct impact.
EN21 Total water discharge by quality and destination.  Not Applicable
Our Operations have no known direct impact.
EN22COMM Total weight of waste by type and disposal method.  Not Applicable
Our Operations have no known direct impact.
EN23 Total number and volume of significant spills.  Not Applicable
Our Operations have no known direct impact.
EN24 Weight of transported, imported, exported, or treated  Not Applicable
waste deemed hazardous under the terms of the Basel Our Operations have no known direct impact.
Convention Annex I, II, III and VIII, and percentage of
transported waste shipped internationally.
EN25 Identity, size, protected status, and biodiversity value of  Not Applicable
water bodies and related habitats significantly affected Our Operations have no known direct impact.
by the reporting organisation's discharges of water and
runoff.
Products and Services
EN26 Initiatives to mitigate environmental impacts of products  Page 69
and services, and extent of impact mitigation.
EN27 Percentage of products sold and their packaging materials  Not Applicable
that are reclaimed by category. Our Operations have no known direct impact.
Compliance
EN28 Monetary value of significant fines and total number  None Reported
of non-monetary sanctions for non-compliance with
environmental laws and regulations.

 Fully Reported  Partially Reported  Not Reported

Annual Report 2011/12 DFCC Bank 91

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

Profile Description Reported Cross-reference Annual Report Page Number/

Disclosure Direct Answer

Transport
EN29 Significant environmental impacts of transporting products  Page 68
and other goods and materials used for the organisation's
operations, and transporting members of the workforce.
Overall
EN30 Total environmental protection expenditures and  While Data for 2011/12 was unavailable DBB is
investments by type. in the process of implementing mechanisms to
capture related data accurately.

Social: Labour Practices and Decent Work

Employment
LA1 Total workforce by employment type, employment  Pages 72-73
contract, and region.
LA2 Total number and rate of employee turnover by age group,  Page 72
gender and region.
LA3 Benefits provided to full-time employees that are not  Permanent employees are eligible for
provided to temporary or part-time employees, by major subsidised loans, and other allowances based
operations. on employment grade.
Labour/Management Relations
LA4 Percentage of employees covered by collective bargaining  None
agreements.
LA5 Minimum notice period(s) regarding significant  Notice periods vary according to operational
operational changes, including whether it is specified in requirements. DBB always strives to give its
collective agreements. employees adequate time and training to adjust
to any changes.
Occupational Health and Safety
LA6 Percentage of total workforce represented in formal joint  100%
management-worker health and safety committees that
help monitor and advise on occupational health and safety
programmes.
LA7 Rates of injury, occupational diseases, lost days, and  None Reported
absenteeism, and number of work-related fatalities by
region.
LA8 Education, training, counselling, prevention, and  Pages 77-78
risk-control programmes in place to assist workforce
members, their families, or community members
regarding serious diseases.
LA9 Health and safety topics covered in formal agreements  Though DBB does not have any collective
with trade unions. bargaining agreements, all permanent
employees are eligible for medical leave,
medical insurance and reimbursement of
medical expenses.

 Fully Reported  Partially Reported  Not Reported

92 DFCC Bank Annual Report 2011/12

 REPORTS OF DIRECTORS Supplementary financial Information

Profile Description Reported Cross-reference Annual Report Page Number/

Disclosure Direct Answer

Training and Education

LA10 Average hours of training per year per employee by  Page 73
employee category.
LA11 Programmes for skills management and lifelong learning  Pages 72, 74-75
that support the continued employability of employees and
assist them in managing career endings.
LA12 Percentage of employees receiving regular performance  100%
and career development reviews.
Diversity and Equal Opportunity
LA13 Composition of governance bodies and breakdown of  Pages 72-73
employees per category according to gender, age group,
minority group membership, and other indicators of
diversity.
LA14 Ratio of basic salary of men to women by employee  DBB is an equal opportunity employer
category.

Social: Human Rights

Investment and Procurement Practices
HR1COMM Percentage and total number of significant investment  Quantification process is currently incomplete.
agreements that include human rights clauses or that
have undergone human rights screening.
HR2 Percentage of significant suppliers and contractors that  Quantification process is currently incomplete.
have undergone screening on human rights and actions
taken.
HR3 Total hours of employee training on policies and  Quantification process is currently incomplete.
procedures concerning aspects of human rights that
are relevant to operations, including the percentage of
employees trained.
Non-Discrimination
HR4 Total number of incidents of discrimination and actions  None Reported
taken.
Freedom of Association and Collective Bargaining
HR5 Operations identified in which the right to exercise  Collective bargaining is not considered to be at
freedom of association and collective bargaining may be at risk.
significant risk, and actions taken to support these rights.
Child Labour
HR6 Operations identified as having significant risk for  Not Applicable
incidents of child labour, and measures taken to Our Operations have no known direct impact.
contribute to the elimination of child labour.

 Fully Reported  Partially Reported  Not Reported

Annual Report 2011/12 DFCC Bank 93

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS 46 Chief Executive’s Message
47 Our Approach to Reporting
51 Corporate Governance
63 Economic Performance
65 Product & Service Responsibility
67 Environment
70 Employees
79 Community
84 GRI Index

Profile Description Reported Cross-reference Annual Report Page Number/

Disclosure Direct Answer

Forced and Compulsory Labour

HR7 Operations identified as having significant risk for  Not Applicable
incidents of forced or compulsory labour, and measures Our Operations have no known direct impact.
to contribute to the elimination of forced or compulsory
labour.
Security Practices
HR8 Percentage of security personnel trained in the  Security functions are outsourced and closely
organisation's policies or procedures concerning aspects monitored by DBBs Service & Procurement
of human rights that are relevant to operations. Departments.
Indigenous Rights
HR9 Total number of incidents of violations involving rights of  Not Applicable
indigenous people and actions taken. Our operations have no known direct impact
Social: Society
Community
SO1 Nature, scope, and effectiveness of any programmes  Pages 78-83
and practices that assess and manage the impacts of
operations on communities, including entering, operating,
and exiting.
FS13 Access points in low-populated or economically  Page 191
disadvantaged areas by type.
FS14 Initiatives to improve access to financial services for  Pages 65-66
disadvantaged people.
Corruption
SO2 Percentage and total number of business units analysed  100%
for risks-related to corruption.
SO3 Percentage of employees trained in organisation’s  100%
anti-corruption policies and procedures.
SO4 Actions taken in response to incidents of corruption.  None Reported
Public Policy
SO5 Public policy positions and participation in public policy  Page 12
development and lobbying.
SO6 Total value of financial and in-kind contributions to  DBB continues to remain an apolitical entity
political parties, politicians, and related institutions by
country.
Anti-Competitive Behaviour
SO7 Total number of legal actions for anti-competitive  None reported
behaviour, anti-trust, and monopoly practices and their
outcomes.

 Fully Reported  Partially Reported  Not Reported

94 DFCC Bank Annual Report 2011/12

 REPORTS OF DIRECTORS Supplementary financial Information

Profile Description Reported Cross-reference Annual Report Page Number/

Disclosure Direct Answer

Compliance
SO8 Monetary value of significant fines and total number of  None reported
non-monetary sanctions for non-compliance with laws
and regulations.
Social: Product Responsibility
Customer Health and Safety
PR1 Life cycle stages in which health and safety impacts of  Our products and service designs are not
products and services are assessed for improvement, and dependent on health and safety related aspects.
percentage of significant products and services categories
subject to such procedures.
PR2 Total number of incidents of non-compliance with  None reported
regulations and voluntary codes concerning health and
safety impacts of products and services during their life
cycle, by type of outcomes.
Product and Service Labelling
PR3 Type of product and service information required by  Not Applicable
procedures, and percentage of significant products and
services subject to such information requirements.
PR4 Total number of incidents of non-compliance with  None reported
regulations and voluntary codes concerning product and
service information and labelling, by type of outcomes.
PR5 Practices related to customer satisfaction, including  Page 66
results of surveys measuring customer satisfaction
FS16 Initiatives to enhance financial literacy by type of  Page 80
beneficiary.
Marketing Communications
PR6 Programmes for adherence to laws, standards, and  Pages 65-67
voluntary codes related to marketing communications,
including advertising, promotion, and sponsorship.
PR7 Total number of incidents of non-compliance with  None Reported
regulations and voluntary codes concerning marketing
communications, including advertising, promotion, and
sponsorship by type of outcomes.
Customer Privacy
PR8 Total number of substantiated complaints regarding  None reported
breaches of customer privacy and losses of customer data.
Compliance
PR9 Monetary value of significant fines for non-compliance  None reported
with laws and regulations concerning the provision and
use of products and services.

 Fully Reported  Partially Reported  Not Reported

Annual Report 2011/12 DFCC Bank 95

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS

Annual Report of the Board of Directors

The Directors of DFCC Bank have pleasure Subsidiary, Joint Venture and Associate
in presenting to the shareholders the Annual Companies
Report together with the audited financial The subsidiaries of the Bank are DFCC
statements for the year ended 31 March 2012. Consulting (Pvt) Limited, DFCC Vardhana
Bank PLC (DVB), Lanka Industrial Estates
The Report of the Directors contains pertinent Limited (LINDEL) and Synapsys Limited.
information and disclosures required under Acuity Partners (Pvt) Limited is an equally-
the Companies Act No. 07 of 2007 to the owned joint venture and National Asset
extent applicable to DFCC Bank, the Listing Management Limited (NAMAL) is an associate
Rules of the Colombo Stock Exchange, the company. The nature of business and the
Banking Act (including Directions issued Bank’s interest in these entities are set out in
there under) and the requirements of the page 20 and 21 of the Annual Report.
Sri Lanka Accounting Standards.
Review of Business
General Going Concern
DFCC Bank is established under the The Directors are satisfied that the Bank has
Development Finance Corporation Act No. adequate resources to continue its operations
35 of 1955. It is listed on the Colombo Stock in the future and hence the financial
Exchange and is licensed as a Specialised statements are prepared on the basis of a
Bank under the Banking Act No. 30 of 1988 as going concern. The Auditors have declared
amended. the Bank is solvent even after the payment of
dividend.
Principal Activities
Bank Financial Statements
The principal activities of DFCC Bank include The financial statements of the Bank and the
the business of development financing. There Group are given on pages 123 to 127 of the
has been no significant change in the nature Annual Report. They have been prepared in
of DFCC Bank’s principal activities during the conformity with the requirements of the Sri
year. However, on receipt of approval from Lanka Accounting Standards, the Banking Act
the Monetary Board in February 2012, Board and other applicable statutory and regulatory
approval was granted to engage in broader requirements.
range of foreign currency-related activities
including lending and deposit taking which Operations
will enable the Bank to enhance the scope of The Chairman’s Statement, Chief Executive’s
such activities in the future. Report and the Management Discussion and
Analysis give details of the operations of the
Bank and the Group and the key strategies that
were adopted during the year under review.

96 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information
96 Annual Report of the Board of Directors
104 Report of the Audit Committee
107 Report of the Human Resources and
Remuneration Committee
108 Report of the Nomination Committee
109 Report of the Board Integrated Risk
Management Committee
110 Directors’ Statement on Internal Control
113 Independent Assurance Report

Profit and Appropriations

Year ended 31 March 2012 (LKR 000)

Retained profit on 31 March 2011 3,067,038

Previous year dividend approved on 30 June 2011 795,208
Unappropriated profit on 31 March 2011 2,271,830
Profit after tax of the Bank for the year under review 2,317,469
Total available for appropriations 4,589,299

Appropriations:
Transfer to:
Reserve Fund (statutory requirement) 120,000
Investment Fund (statutory requirement) 296,615
General Reserve 2,400,000
First and final dividend recommended for
financial year ended 31 March 2012 1,060,391
Unappropriated profit on 31 March 2012 712,293

Accounting Policies
The accounting policies adopted in the
written representation made by the Auditors,
preparation of the financial statements of the
they have no relationship or interest with the
Bank and the Group are stated on pages 128
Bank or with any of its subsidiaries which
to 140 of the Annual Report. There were no
would impair the Auditor’s independence. A
significant changes to the accounting policies
Resolution pertaining to their reappointment
of the Bank in the year under review.
and authorising the Directors to determine
their remuneration will be proposed at the
Auditors’ Report Annual General Meeting for adoption.
The Auditors’ Report on the financial
statements, which is unqualified, is given on The Board of Directors
page 122.
Information on Directors
The Board of Directors of the Bank consist
Reappointment of Auditors
of ten Directors with wide knowledge and
The present auditors, KPMG have expressed
experience in the fields of banking and
their willingness to continue as Auditors
finance, trade, commerce, manufacturing,
of DFCC Bank for the next financial year
services and law. Profiles of the Directors
ending 31 March 2013. The Audit Committee
are given on pages 16 and 17 of the Annual
has reviewed the effectiveness and the
Report. The following are the present
relationship with the Bank including the
Directors of the Bank categorised in
fees paid to the Auditors and has concluded
accordance with criteria specified in Direction
that they are suitable to continue in office.
No. 12 of 2007 issued by the Central Bank of
The Directors are satisfied that based on the
Sri Lanka.

Annual Report 2011/12 DFCC Bank 97

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS

Non-Executive Directors Dr L P Chandradasa was appointed as a

Mr J M S Brito (Chairman) Director with effect from 27 October 2011. Mr
Mrs H M N S Gunawardana – J E A Perumal was appointed as a Director
Government Director with effect from 27 February 2012. Messrs L
P Chandradasa and J E A Perumal will retire
Independent Non-Executive Directors in terms of Regulation No. 90 of the DFCC
Mr A S Abeyewardene - Senior Director Regulations and are offering themselves for
Mr T K Bandaranayake re-election at the Annual General Meeting. The
Dr L P Chandradasa Nomination Committee has recommended
Mr G K Dayasri
their re-election and the Board, having
Mr C R Jansz
concluded that they are fit and proper persons
Mr J E A Perumal
to be Directors in terms of the provisions of
Mr R B Thambiayah
Ms S R Thambiayah - the Banking Act, unanimously endorse the
Alternate to Mr R B Thambiayah recommendation of the Nomination Committee.

Executive Director Retirement and Re-election of Director

Mr A N Fonseka - Chief Executive The Director retiring by rotation in terms of
and Ex Officio Director Regulation No. 87 of the DFCC Regulations
is Mr J M S Brito who offers himself for re-
Mr Brito does not meet the criteria set out in election under the said Regulation with the
the Direction to be designated an Independent unanimous support of the Directors based
Director by virtue of his being a Director of on the recommendation of the Nomination
the subsidiary, DFCC Vardhana Bank PLC. Committee.
Mrs Gunawardana represents a specific
stakeholder. Senior Director
Mr Abeyewardene was elected by the Board
Resignation and Appointment of Directors as the Senior Director in place of Mr S N P
The following Directors retired from the Palihena.
Board during the year on the dates shown:
Mr C P R Perera - 30 June 2011 Directors’ Remuneration
Mr S N P Palihena - 30 October 2011 The Directors’ remuneration for the financial
year ended 31 March 2012 is given in Note 18
The Directors record their appreciation for of the Financial Statements. Mr G K Dayasri
the contributions made by them during their has opted not to receive any remuneration
tenure as Directors. as a Director. The Directors record their
appreciation for the honorary services
provided by Mr Dayasri.

98 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information
96 Annual Report of the Board of Directors
104 Report of the Audit Committee
107 Report of the Human Resources and
Remuneration Committee
108 Report of the Nomination Committee
109 Report of the Board Integrated Risk
Management Committee
110 Directors’ Statement on Internal Control
113 Independent Assurance Report

Directors’ Meetings
The Bank held 15 Board Meetings during the
financial year. The attendance of Directors is
shown in the table on page 62 of the Annual
Report.

Directors’ Interests in Shares and Debentures

No. of Shares1 No. of Shares1

as at 31 March 2012 as at 31 March 2011

Abeyewardene, A S 10,380 10,380

Bandaranayake, T K 1,478 1,478
Brito, J M S 38,760 18,760
Chandradasa, LP 500 –
Dayasri, G K 1,036 1,036
Fonseka, A N 142,006 107,998
Gunawardana, Mrs H M N S Nil Nil
Jansz C R 1,000 1,000
Perumal, J E A 5,000 –
Palihena, S N P2 – 10,000
Perera, C P R2 – 20,000
Thambiayah, R B 211,200 211,200
Thambiayah, Ms S R Nil Nil
1
Directors’ shareholding includes shares held by the spouse and children under 18 years of age.
2
Not Directors as at 31 March 2012.

Mr A N Fonseka in his capacity as Chief

Executive exercised the balance options of
34,008 during the financial year 2011/12.
He did not hold any options as at 31 March 2012.

No Director directly or indirectly holds options

or debentures of DFCC Bank.

Directors’ Interests in Transactions with

the Bank
All Directors have complied with Section 9 (6)
of the DFCC Bank Act and declared any interest
in transactions or proposed transactions with
the Bank, and all such transactions have been
approved unanimously by the other Directors
of the Bank.

Annual Report 2011/12 DFCC Bank 99

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS

The Directors’ interest in transactions with entities/persons (other than Messrs J M S Brito, A N Fonseka and A S
subsidiaries, joint ventures and associates) is listed under each Director for the Abeyewardene are or have been Chairman/
year ended 31 March 2012 as follows: Director of one or more of the subsidiary, joint
venture or associate companies. Details of
(LKR 000)
transactions with subsidiary, joint venture and
associate companies are disclosed in Note 62
Mr A S Abeyewardene
in the Notes to the Financial Statements.
Ceylon Hospitals PLC
Aggregate amount of credit facilities approved 45,000
Board Committees
Mr J M S Brito The following are the members of the
Ace Containers (Pvt) Limited permanent Committees of the Board.
Aitken Spence PLC Changes to the composition during the year
Aitken Spence Travels (Pvt) Limited are set out in the respective Committee
Elevators (Pvt) Limited Reports in the Annual Report.
EPP Hydropower Co. (Pvt) Limited
Aggregate amount of credit facilities approved 837,000 Audit Committee
Aggregate amount of payments made for services 795
Mr T K Bandaranayake (Chairman)
Mr T K Bandaranayake Mr A S Abeyewardene
Nawaloka Hospitals PLC Mr J E A Perumal
Aggregate amount of credit facilities approved 260,000
Mr A N Fonseka Credit Committee
Mrs R D Fonseka - Rent 1,980 Mr J M S Brito (Chairman)
Acuity Stock Brokers (Pvt) Limited Mr A N Fonseka
Central Depository Systems Limited Mrs H M N S Gunawardana
Colombo Stock Exchange
Aggregate amount of payments made for services 9,334 Human Resources and Remuneration
Committee
Mr C R Jansz
Lanka Bell (Pvt) Limited Mr J M S Brito (Chairman)
Aggregate amount of payments made for services 46 Mr T K Bandaranayake
Mr G K Dayasri

Nomination Committee
Mr R B Thambiayah (Chairman)
Mr J M S Brito
Mr C R Jansz

Integrated Risk Management Committee

Mr J M S Brito (Chairman)
Mr A S Abeyewardene
Mr C R Jansz
Mr A N Fonseka

100 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information
96 Annual Report of the Board of Directors
104 Report of the Audit Committee
107 Report of the Human Resources and
Remuneration Committee
108 Report of the Nomination Committee
109 Report of the Board Integrated Risk
Management Committee
110 Directors’ Statement on Internal Control
113 Independent Assurance Report

The Heads of key risk assuming units, Reserves

the Head of Risk Management, the Chief Total revenue reserves, augmented by the
Financial Officer and the Head of Internal annual appropriation and retained profit,
Audit are also members of the Integrated amounted to LKR 17,038 million.
Risk Management Committee.
Property, Plant and Equipment
In addition, from time to time the Board Freehold Property, Plant and Equipment
appoints committees to deal with specific and Leasehold Property
matters. The Board also invites external The total expenditure on acquisition of
advisers and key management personnel property, plant and equipment during the
to serve on some of the committees as and year amounted to LKR 47 million, of which
when necessary. intangible assets amounted to LKR 2 million.
Details of these are given in the Notes 41 and
Further details relating to the above 42 to the financial statements.
Committees are given in the section on
Corporate Governance and the Committee Market Value of Freehold Properties
Reports.
The information on market value of freehold
properties are given in Note 41 to the financial
Dividends and Reserves
statements.
Dividend
The Directors have recommended for approval Shares and Debentures
by shareholders at the Annual General Meeting Share Capital and Subordinated
the payment of a first and final dividend of Debentures
LKR 4.00 per share (the final dividend paid in
Consequent to the options exercised by
the previous year was LKR 3.00 per share).
employees during the financial year the total
The total dividend for the year will amount to
share capital as at 31 March 2012 was
approximately LKR 1,060 million (LKR 2,650
LKR 2,651 million, consisting of 265,097,688
million in the previous year), which amounts
shares of LKR 10 each. Further information is
to 56% of the Bank’s distributable profit. The
given on page 170. The DFCC Bank Act No. 35
higher dividend in the previous year was due to
of 1955, as amended, mandates a par value
an interim dividend of LKR 1,855 million paid
of LKR 10 per share. The stated capital, if
out of a one-off profit made in that year.
computed in accordance with the requirements
of the Companies Act No. 07 of 2007 amounts
The Directors unanimously declare that the
to LKR 4,716 million.
Bank will satisfy the solvency test stipulated
in Section 57 of the Companies Act No. 7 of
Share Information
2007 immediately after the dividend payment
Information relating to earnings, net asset
is made and have obtained a certificate of
and market value per share are given on
solvency from its Auditors.
page 188 of the Annual Report. It also
contains information pertaining to share
trading during the year under review.

Annual Report 2011/12 DFCC Bank 101

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS

Shareholders Statutory Payments

As at 31 March 2012 there were 9,827 The Directors, to the best of their knowledge
registered shareholders. The distribution and belief, are satisfied that all statutory
is indicated on page 189 and the 20 Largest payments due to the Government and in relation
Shareholders as of that date are listed on to the employees have been made on time.
page 190.
Compliance
Employee Share Option Plan (ESOP) Compliance with Laws, Regulations and
The last grant under the ESOP approved by Prudential Requirements
shareholders was made in 2006. The exercise The Bank has not engaged in any activities
period of these grants expired on 02 July contravening the laws and regulations and
2011. has complied with prudential requirements.
The Directors obtain a quarterly confirmation
Human Resources report from the Management with regard
Employment and Remuneration Policies to compliance with laws, regulations and
prudential requirements.
The policy of DFCC Bank is to develop and
maintain a dedicated and highly motivated
group of employees who are committed
Post-Balance Sheet Events
to creating sustainable value through Subsequent to the date of the balance
effective risk management and high quality sheet no circumstances have arisen which
service while supporting the public and would require adjustments to the accounts.
private sectors in their development efforts Significant post-balance sheet events which
within the ambit of the DFCC Bank Act. in the opinion of Directors require disclosure
The Bank continuously invests in training are described in Note 64 to the Financial
and development of its staff to meet these Statements.
objectives. DFCC Bank is an equal opportunity
employer. Remuneration of employees Corporate Governance
consists of fixed and variable payments. The Directors place great emphasis on
Annual increments and pay awards are following internationally-accepted good
based on the performance of the Bank and corporate governance practices and
the individual. It is the Bank’s policy to fix principles. Systems and procedures are in
remuneration at a level which will attract, place in order to satisfy good governance
motivate and retain high quality employees. requirements.
A remuneration survey was conducted during
the year and action was taken to appropriately The Directors have obtained the External
benchmark the Bank’s remuneration levels Auditor’s assurance on effectiveness of the
and policies with those in the banking and internal control mechanism and compliance
other competing private sector institutions. with Direction No. 12 of 2007 of the Central
Bank of Sri Lanka on Corporate Governance.

102 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information
96 Annual Report of the Board of Directors
104 Report of the Audit Committee
107 Report of the Human Resources and
Remuneration Committee
108 Report of the Nomination Committee
109 Report of the Board Integrated Risk
Management Committee
110 Directors’ Statement on Internal Control
113 Independent Assurance Report

Details of governance practices and the

required disclosure are given on pages 51
to 62.

Rule 3 (8) of the Direction No. 12 of 2007

on Corporate Governance for Licensed
Specialised Banks in Sri Lanka prescribe
disclosure requirements in the Annual
Report. These disclosures have been made
in this Annual Report as depicted in the table
given below with cross references:

Reference Requirement Reference to Annual Report

to Rule

3 (8) (i) Financial statements on prescribed Financial statements on pages 123

format to 127
3 (8) (ii) (a) Affirmative assurance of compliance with Directors’ Responsibility Statement
Accounting Standards and requirements on page 120
3 (8) (ii) (b) Affirmative assurance of the integrity Directors‘ Responsibility Statement of
of financial reporting system Internal Control on pages 110 to 112
3 (8) (ii) (c) Assurance report issued by the external Independent Assurance Report,
auditor on Directors’ Statement on on page 113
Internal Control
3 (8) (ii) (d) Information on Directors Page 16
3 (8) (ii) (d) Remuneration of Directors Notes on the financial statements on
page 147
3 (8) (ii) (e) Net accommodation granted to Corporate Governance Report on page
each category of related party 51 to 62
3 (8) (ii) (f) Compensation and other transactions Notes on the financial statements on
with key management personnel page 179
3 (8) (ii) (g) Confirmation by the Directors that all Corporate Governance report page 51
findings of the ‘factual findings report’ of to 62
auditors have been incorporated
3 (8) (ii) (h) Compliance with prudential requirements This report
and regulations

For and on behalf of the Board of Directors,

J M S Brito A N Fonseka Ms A Withana

Chairman Ex Officio Director and Secretary to the Board
Chief Executive

30 May 2012

Annual Report 2011/12 DFCC Bank 103

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS

Report of the Audit Committee

The purpose of the Audit Committee is to Attendance by the Committee members at

assist the Board in its general oversight of the meetings is given in the table on page 62
financial reporting, internal controls and audit of the Annual Report.
functions of DFCC Bank. The composition
requirements and the terms of reference of The Chief Executive and Executive Vice
the Audit Committee are set out in Direction President (Finance) attend the meetings
No. 12 of 2007 on Corporate Governance for by invitation. The Committee met with the
Licensed Specialised Banks in Sri Lanka external Auditor, KPMG on six occasions, which
issued by the Central Bank of Sri Lanka. This included two meetings without management
is complementary to the Charter formulated presence so as to provide the External Auditor
by the Audit Committee. an opportunity to have a frank dialogue with the
Committee.
This report provides information on the
compliance with regulatory requirements Mandate and Role
and where appropriate the process adopted The Audit Committee assists the Board
by the Audit Committee to discharge its of Directors in fulfilling its oversight
responsibilities. responsibilities for the Bank’s accounting
and financial reporting process and audit
Composition of the financial statements of the Bank by
All members of this Committee are monitoring (1) the integrity of the Bank’s
independent Non-Executive Directors. The financial statements, (2) the independence
Chairman is a Chartered Accountant with and qualifications of its External Auditor, (3)
considerable experience in the field of Finance the Bank’s system of internal controls, (4)
and Audit. The profiles of the members are the performance of the Bank’s internal audit
given under the caption Board of Directors on process and External Auditor, and (5) the
pages 16 to 17 of the Annual Report. Bank’s compliance with laws, regulations and
codes of conduct with a view to safeguarding
The composition of the Committee as at the the interests of all stakeholders of the Bank.
date of this Report is as follows:
 Mr T K Bandaranayake (Chairman) The Committee has discharged the
 Mr A S Abeyewardene responsibilities assigned by Rule No. 3 (6) (ii) of
 Mr J E A Perumal the Corporate Governance Direction No. 12 of
2007 issued by the Central Bank of Sri Lanka.
Mr J E A Perumal was appointed a member Where appropriate more details are provided
in place of Mr S N P Palihena who retired under separate headings in this Report.
from the Board during the year. Mrs H M
N S Gunawardana served the Committee Financial Reporting
temporarily until Mr Perumal was appointed The Committee assists the Board of
to the Committee. The Head of Group Internal Directors to discharge its responsibility for
Audit holds the management rank of Senior the preparation of true and fair financial
Vice President and serves as the Secretary of statements in accordance with the books
the Committee. He has direct access to the of accounts and Sri Lanka Accounting
members of the Audit Committee. Standards by: (1) reviewing the adequacy
and effectiveness of the internal control
Meetings system and procedures to provide reasonable
Twelve Audit Committee Meetings were held assurance that all transactions are accurately
during the financial year ended 31 March and completely recorded in the books of
2012. Proceedings of the meetings are accounts, (2) reviewing the integrity of the
reported regularly to the Board. process by which financial statements

104 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information
96 Annual Report of the Board of Directors
104 Report of the Audit Committee
107 Report of the Human Resources and
Remuneration Committee
108 Report of the Nomination Committee
109 Report of the Board Integrated Risk
Management Committee
110 Directors’ Statement on Internal Control
113 Independent Assurance Report

are derived from the books of accounts, 2007. The provisions of the Companies Act do
(3) reviewing the choice of appropriate not apply where express provisions are included
accounting policies and the judgments on the same subject in the DFCC Bank Act.
made in the application of such accounting
policies; and (4) reviewing the process by Internal Audit
which compliance with Sri Lanka Accounting With the concurrence of the Board, the
Standards, and other regulatory provisions Audit Committee has continued to engage
relating to financial statements are ensured the services of three firms of Chartered
with reasonable degree of assurance. Accountants to supplement the Bank’s
Internal Audit function in carrying out
The Committee reviewed all quarterly periodic audits at some of the business
non-audited interim financial statements units. Representatives from the audit firm
and financial statements for the year ended are invited to the Audit Committee Meetings
31 March 2012 together with supporting convened to discuss their reports.
information that included significant
assumptions and judgements made in the The Audit Committee also provides a forum
preparation of financial statements. The for the review of Internal Audit Reports and
Committee also took into consideration the consideration of findings, recommendations
Internal Audit Reports, Management Letter and corrective action taken by management
issued by the External Auditor, Compliance to overcome the deficiencies identified, with
Reports and the Responsibility Statements in a view to managing significant business risks
relation to the financial statements issued by and improving controls. Department/Unit
the Chief Finance Officer and Chief Executive in heads attend meetings when their reports are
making an overall assessment on the integrity discussed.
of the Financial Reporting System.
Risks and Controls
The Annual Report of the Board of Directors The Committee has adopted a risk-grading
for this financial year to 31 March 2012 matrix for identifying and assessing risks
includes a separate report on internal encountered during the internal audit work.
controls on page 110. This report is issued The Committee seeks and obtains the required
pursuant to Rule 3 (8) (ii) (b) of the Direction assurance from the head of the business unit
No. 12 of 2007 on Corporate Governance for on remedial action taken in order to maintain
Licensed Specialised Banks and includes the effectiveness of internal controls.
inter alia an affirmative assurance on the
integrity of Financial Reporting System to
External Audit
produce reliable financial statements that are
The Audit Committee assists the Board of
true and fair.
Directors to implement a transparent process
(1) in the engagement and remuneration
The Committee confirms that to the best of its
of the External Auditors for audit services
knowledge and belief the financial statements
with the approval of the shareholders; (2) in
issued for external purposes by the Bank
reviewing the non-audit services to ensure
complied with generally accepted principles
that they do not lead to impairment of the
of accounting as enunciated in Sri Lanka
independence of the Auditors; (3) in assisting
Accounting Standards and complies with the
the Auditors to complete the audit programme
statutory provisions of DFCC Bank Act No. 35
within an agreed time frame in compliance
of 1955, Banking Act No. 30 of 1988 and to the
with relevant guidelines issued by Central
extent applicable, the Companies Act No. 7 of
Bank of Sri Lanka.

Annual Report 2011/12 DFCC Bank 105

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS

In order to discharge its responsibilities the The Audit Committee also meets with the
Audit Committee meets with the Auditors as Auditors at the conclusion of the audit to
and when it is necessary. During this meeting review the Management Letter issued by the
with the Auditors the Audit Committee (1) Auditors before it is transmitted to the Board
reviews the non-audit services provided by of Directors and the Central Bank of Sri Lanka.
the External Auditors to ensure that provision
of such services are not in conflict with the Regulatory Compliance
guidelines issued by the Central Bank of The Bank’s procedures in place to ensure
Sri Lanka and that the remuneration for compliance with mandatory Banking and
such services are not of such value so as to other statutory requirements were monitored
impair their independence; (2) request for on an ongoing basis. The Audit Committee
information relating to the total remuneration receives a copy of the Compliance Report
of the External Auditors for audit and non- that provides information on the status of
audit services provided to the Bank and compliance with statutory provisions relevant
its Group; and (3) discusses and finalises to the Bank. The purpose of the review
the scope of the audit to ensure that it is in is to assess the risks of non-compliance
compliance with the guidelines issued by the and currently there is some overlap of the
Central Bank of Sri Lanka. functions between the Audit Committee and
the Integrated Risk Management Committee
In the context of determining the in this respect. The compliance reporting
independence of the Auditors, the Committee is subject to Internal Audit verification on a
reviewed the statements issued by the sample basis. The Committee is satisfied that
External Auditors pursuant to Section the Bank substantially complies with these
163(3) of the Companies Act No. 7 of 2007. requirements.
As per this declaratory statement the
Auditors have confirmed that they do not Evaluation
have any relationship that would impair An evaluation of the effectiveness of the
their independence and disclose the total Committee was carried out by other
remuneration for the financial year ended 31 members of the Board and the Committee
March 2012 for both audit and permitted non- has been found to be effective.
audit services.
Reappointment of Auditors
The Audit Committee has also recommended
The Audit Committee having evaluated
the adoption of a policy on the engagement
the quality of audit service provided by the
of the External Auditors to provide non-audit
current Auditors has recommended to the
services. This policy document approved
Board of Directors that KPMG be reappointed
by the Board of Directors, in addition to
as Auditors for the year ending 31 March
complying with the regulatory requirements,
2013, subject to the approval of shareholders
has included guidelines to ensure that the
at the Annual General Meeting, at a fee to be
independence of the External Auditors is not
determined by the Board.
impaired by the scale and scope of non-audit
services.

T K Bandaranayake
Chairman - Audit Committee

30 May 2012

106 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information
96 Annual Report of the Board of Directors
104 Report of the Audit Committee
107 Report of the Human Resources and
Remuneration Committee
108 Report of the Nomination Committee
109 Report of the Board Integrated Risk
Management Committee
110 Directors’ Statement on Internal Control
113 Independent Assurance Report

Report of the Human Resources and Remuneration Committee

Composition Procedure
The Human Resources and Remuneration Apart from the general review of
Committee appointed by the Board of remuneration, in keeping with the policy
Directors consists of three Non-Executive of pay for performance, the Committee
Directors. Mr J M S Brito is the Chairman of reviewed the performance of the Bank against
the Committee and Messrs G K Dayasri and historical performance, key performance
T K Bandaranayake are the other members. indicators agreed at the beginning of the
Mr Bandaranayake was appointed to the year as well as against a peer group when
Committee during the year in place of determining and recommending to the Board
Mr C P R Perera. The Chief Executive - the annual salary increment pool and the
Mr Nihal Fonseka attended meetings by performance based variable pay pool for the
invitation and participated in its deliberations Bank. The Committee also appraised the
except when his own evaluation and performance of the Chief Executive based on
remuneration were under discussion. He the pre-agreed targets and desired skills and
also serves as the Secretary. The Group Vice reviewed his remuneration.
President - Human Resources assists the
Committee by providing relevant information. In addition, the Committee considers and
The Committee invites external specialists recommends to the Board of Directors from
with banking industry knowledge to attend time to time, the requirements of additional
meetings as and when required. or new expertise and skills and also salary
revisions. The Committee periodically
Mandate assesses the succession plan for key
The Committee has adopted as its mandate management positions and took appropriate
the tasks specified in Section 3 (6) (iii) of steps to induct external skills to strengthen
Direction No. 12 of 2007 of the Central Bank the management of the DFCC Group Banking
of Sri Lanka on Corporate Governance for Business where it was deemed necessary.
licensed specialised banks. The Committee
in determining the remuneration policy Meetings
relating to Directors, Chief Executive and The Committee held four meetings during
Key Management Personnel of the Bank the financial year to carry out its tasks.
in terms of Directions ensures appropriate The attendance by members is given on page
compensation levels in order to attract, 62 of the Annual Report.
retain and motivate talented staff with the
core capabilities matched to its strategy and
also to ensure that the Bank consistently
delivers value to all stakeholders and to
make the organisation more competitive. To J M S Brito
achieve this, the Committee uses a mixture of Chairman – Human Resources and
fixed and variable pay to reward employees. Remuneration Committee
During the year under review, the Committee
oversaw a review of the remuneration 30 May 2012
structure based on a comprehensive
remuneration survey carried out by an
external consultant among comparable
institutions.

Annual Report 2011/12 DFCC Bank 107

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS

Report of the Nomination Committee

Composition Procedure
The Nomination Committee of the Board of The Committee meets when required and
Directors consists of three Non-Executive acts within its mandate approved by the Board
Directors. Mr R B Thambiayah, an of Directors and makes recommendations to
independent Director is the Chairman with the Board for consideration.
Messrs J M S Brito and C R Jansz serving
as members. The Chief Executive, Mr A N Meetings
Fonseka attends meetings by invitation, while Three meetings were held during the financial
the Secretary to the Board functions as the year to identify possible candidates to fill
Secretary of the Committee. Board vacancies and to assess the fitness and
propriety of Directors. Individual Committee
Mandate members do not participate in discussions in
The Committee carries out the tasks set matters relating to them. The attendance by
out in Section 3 (6) (iv) of Direction No. 12 Directors at meetings is given on page 62 of
of 2007 issued by the Central Bank of Sri the Annual Report. All appointments made to
Lanka on Corporate Governance in licensed the Board during the year were recommended
specialised banks. In terms of this Direction by the Committee and the Committee has
the role of the Committee is to identify and recommended the re-election of Directors
evaluate persons with the required skills, offering themselves for re-election at the
knowledge, standing, fitness and propriety Annual General Meeting.
to join the Board of the Bank and to evaluate
the suitability of Directors who are seeking
re-election. The Committee is responsible for
the task of putting in place a procedure for
the appointment of the Chief Executive and R B Thambiayah
key management personnel. The Committee Chairman - Nomination Committee
makes recommendations to the Board of
Directors for consideration. 30 May 2012

108 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information
96 Annual Report of the Board of Directors
104 Report of the Audit Committee
107 Report of the Human Resources and
Remuneration Committee
108 Report of the Nomination Committee
109 Report of the Board Integrated Risk
Management Committee
110 Directors’ Statement on Internal Control
113 Independent Assurance Report

Report of the Board Integrated Risk Management Committee

Composition The process through which the BIRMC

The Board Integrated Risk Management discharges its responsibilities is detailed in
Committee (BIRMC) of DFCC Bank consists of the Risk Management section of this Annual
three Non-Executive Directors and five Non- Report.
Voting members. The Head of Internal Audit
attends meetings by invitation while the Chief BIRMC Meetings
Risk Officer functions as the Secretary to the BIRMC meets on a quarterly basis. During
Committee. the year, the Bank convened four BIRMC
meetings. The attendance of members is
Voting Members listed on page 62 of the Annual Report.
Mr J M S Brito - Chairman The Committee reviewed policy frameworks,
Mr C R Jansz - Non-Executive Director risk management strategies and key risk
Mr A S Abeyewardene - Non-Executive Director indicators at these meetings and was
satisfied that the risk exposures of the
Non-Voting Members Bank were being appropriately managed.
Mr A N Fonseka - Chief Executive During the year, in line with the changing
Mr T S A Fernandopulle - Executive Vice market conditions, BIRMC introduced or
President/Chief Risk Officer recommended certain new risk management
Mr H A Ariyaratne - Executive Vice President/ practices and actions in the areas of liquidity,
Lending concentration, credit and market risk
Mr S Nagarajah - Executive Vice President/ management. New limits were introduced
Finance and certain existing risk limits were reviewed.
Ms R A P Withana - Executive Vice President/ The Committee reviewed the stress testing
Operations results of the Bank conducted during the year
Ms M Gunawardhena - Senior Vice President/ on a bank-wide basis and noted a healthy
Treasury and Resource Mobilisation capital cushion available under the assumed
stress conditions.
Charter and Responsibilities
Reporting
The approved Charter of the BIRMC stipulates
its authority, structure, responsibilities The proceedings of the BIRMC meetings are
and tasks. As per its Charter, the primary reported to the Board through the submission
responsibilities of BIRMC are to review and of meeting minutes. Specific matters are
ensure: submitted separately for the Board’s approval
on the recommendation of the BIRMC. The
 Integrity and adequacy of the risk recommendations made by the BIRMC during
management function of the Bank the year under review were approved by the
 Adequacy of the Bank’s capital on a solo Board without any material changes.
and consolidated basis and its allocation

 Risk exposures and risk profiles of the

Bank and its subsidiaries are within
acceptable parameters and to make
recommendations to the Board of J M S Brito
Directors on any action required Chairman, BIRMC
 Compliance of the Bank’s operations with
relevant laws, regulations and standards 30 May 2012
including the adherence to the Direction
on Corporate Governance issued by the
Central Bank of Sri Lanka.

Annual Report 2011/12 DFCC Bank 109

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS

Directors’ Statement on Internal Control

Introduction information and records or against financial

Internal Control is the process designed and losses or fraud.
effected by those charged with governance,
management and other personnel to provide Framework for Managing Material Risks
reasonable assurance about the achievement of the Bank
of the DFCC Bank’s (Bank) objectives with The Board has set up an ongoing process
regard to reliability of financial reporting, for identifying, monitoring and managing
effectiveness and efficiency of operations the material risks faced by the Bank. This
and compliance with applicable laws and includes establishment of a dedicated Risk
regulations. Internal Control consists of the Management Department that provides
following components: regular reports on various risks, subject to an
oversight by the Internal Audit Department
(a) The control environment;
through Internal Audit Reports that enables
(b) The entity’s risk assessment process;
the Audit Committee to review the adequacy
(c) The information system, including the
and effectiveness of the system of internal
related business processes, relevant to
financial reporting and communication; controls continuously to match the changes
in the business environment or regulatory
(d) Control activities; and
guidelines. In making this assessment, all key
(e) Monitoring of controls.
processes relating to material or significant
transactions capture and recording in the
The subset of this wider internal control
books of accounts are identified and covered
system is the internal controls designed
on an ongoing basis that is compatible
and implemented to provide reasonable
with the guidance for Directors of Banks
assurance regarding the reliability of the
on the Directors’ Statement of Internal
financial reporting, and that the preparation
Control issued by The Institute of Chartered
of financial statements for external purposes
Accountants of Sri Lanka.
has been done in accordance with relevant
accounting principles and regulatory
Key Internal Control Processes
requirements.
The key processes that have been established
in reviewing the adequacy and integrity of
Responsibility
the system of internal controls include the
The Board of Directors acknowledge
following:
their responsibility for the adequacy and
effectiveness of the Bank’s system of
 The Board has established Committees to
internal controls which is designed to
assist the Board in exercising an oversight
provide assurance on the maintenance of
on the effectiveness of the Bank’s daily
proper accounting records and the reliability
operations and ensuring that they are in
of financial information generated, and
accordance with the corporate objectives,
safeguarding of the assets of the Bank.
strategies and the budgetary targets
However, such systems are designed to
as well as the policies and business
manage the Bank’s key exposures to risk
directions that have been approved.
within acceptable risk parameters, rather
than to eliminate the risk of failure to achieve  The Internal Audit Department of the
the business goals and objectives of the Bank verifies compliance of operations
Bank. Therefore, the system of internal with policies and procedures and the
controls can only provide reasonable and not effectiveness of the internal control
absolute assurance against errors or material systems and highlights significant findings
misstatement of management and financial in respect of any non-compliance. Audits
are carried out on all units and branches,

110 DFCC Bank Annual Report 2011/12

REPORTS OF DIRECTORS Supplementary financial Information
96 Annual Report of the Board of Directors
104 Report of the Audit Committee
107 Report of the Human Resources and
Remuneration Committee
108 Report of the Nomination Committee
109 Report of the Board Integrated Risk
Management Committee
110 Directors’ Statement on Internal Control
113 Independent Assurance Report

the frequency of which is determined Assessment of the Adequacy and

by the level of risk assessed, to provide Effectiveness of Internal Control
an independent and objective report on Although this process is carried out every
operational and management activities year on a continuing basis, the Direction on
of these units and branches. The annual Corporate Governance issued by the Central
audit plan is reviewed and approved by Bank of Sri Lanka requires the Board of
the Audit Committee and the findings Directors to provide a separate Report on
of the audits are submitted to the Audit the Bank’s Internal Control mechanism that
Committee for review at their periodic confirms that the financial reporting system
meetings. has been designed to provide reasonable
 The Audit Committee of the Bank reviews assurance regarding the reliability of financial
internal control issues identified by the reporting and that the preparation of financial
internal audit, the External Auditors, statements for external purposes has been
regulatory authorities and management done in accordance with relevant accounting
and evaluates the adequacy and principles and regulatory requirements,
effectiveness of the risk management supplemented with independent certification
and internal control systems. They also by the auditor. The Auditors provide the
review the internal audit function focusing independent Assurance Report in accordance
on the scope of audits and the quality with Sri Lanka Standard on Assurance
of reporting. The minutes of the Audit Engagements 3050 issued by the Institute of
Committee meetings are tabled for the Chartered Accountants of Sri Lanka (ICASL).
information of the Board on a periodic
basis. Further details of the activities In order to facilitate the tasks of the Auditors
undertaken by the Audit Committee of the to issue the Independent Assurance Report,
Bank are set out in the Audit Committee the SLSAE - 3050 requires documentation of
Report on page 104. all procedures and controls that are related
to significant accounts and disclosures of the
 The Board Integrated Risk Management
financial statements of the Bank with audit
Committee (BIRMC) is established by the
evidence of checks performed by the Bank on
Board to assist the Board to oversee the
an ongoing basis.
overall management of principal areas
of risk of the Bank. The BIRMC includes
The risk-based Internal Audit Plan
representation from all key business
implemented by the Internal Audit
and operations areas of the Bank and
Department in consultation with the Board
assists the Board in the implementation of
Committee on Audit, specifically included on
policies, procedures and controls identified
a sample basis, independent verification that
by the BIRMC.
the internal control process documented by
 Operational Committees have also been the Bank and supported with audit evidence
established with appropriate mandates was in fact carried out on an ongoing basis.
to ensure effective management and
supervision of the Bank’s core areas of
business operations. These committees
include the Management Committee,
the Credit Committee, the Asset/
Liability Committee, the Bad Debt
Review Committee and the Information
Technology Steering Committee.

Annual Report 2011/12 DFCC Bank 111

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS

The comments made by the external auditors Confirmation

in connection with internal control system Based on the above processes, the Board
in the financial year to 31 March 2011 were confirms that the financial reporting system
reviewed during the year and appropriate of the Bank has been designed to provide
steps have been taken to rectify them. The reasonable assurance regarding the reliability
recommendations made by the external of financial reporting and the preparation of
auditor, KPMG in the financial year to 31 financial statements for external purposes
March 2012 in connection with the internal is in accordance with Sri Lanka Accounting
control system will be addressed in future. Standards and regulatory requirements of the
The Directors are of the opinion that these Central Bank of Sri Lanka.
recommendations are intended to further
improve the internal control system and they Review of the Statement by External
do not any way detract from the conclusion Auditors
that the financial reporting system is reliable The External Auditors have reviewed the
to provide reasonable assurance that the above Directors’ Statement on Internal
financial statements for external use are Control for the year ended 31 March 2012 and
true and fair and complies with Sri Lanka their Independent Assurance Report is on
Accounting Standards (SLAS) and the page 113 of the Annual Report.
regulatory requirements of the Central Bank of
Sri Lanka (CBSL) By Order of the Board,

This assessment of internal control process

is confined only to the Bank and did not
include its subsidiaries. However, the Board
of Directors of the 99.1%-owned commercial T K Bandaranayake
banking subsidiary, DFCC Vardhana Bank Chairman
PLC (DVB) issued an affirmative assurance Audit Committee
in their Statement on Internal Control, on
the adequacy and the effectiveness of the
internal control system which was included in
the DVB’s Annual Report for the year ended
31 December 2011. The said Statement by J M S Brito
the Directors was independently reviewed by Chairman
KPMG, who are also the Auditors of the Bank. Board of Directors

A N Fonseka
Chief Executive/Director

30 May 2012

112 DFCC Bank Annual Report 2011/12

 REPORTS OF DIRECTORS Supplementary financial Information
96 Annual Report of the Board of Directors
104 Report of the Audit Committee
107 Report of the Human Resources and
Remuneration Committee
108 Report of the Nomination Committee
109 Report of the Board Integrated Risk
Management Committee
110 Directors’ Statement on Internal Control
113 Independent Assurance Report

Independent Assurance Report

To the Board of Directors of DFCC Bank

We were engaged by the Board of Directors of DFCC Bank (c) Related the Statement made by the directors to our
(“Bank”) to provide assurance on the Directors’ Statement on knowledge of the Bank obtained during the audit of the
Internal Control (“Statement”) for the year ended 31st March financial statements.
2012, as set out on pages 110 to 112 of the Annual Report. (d) Reviewed the minutes of the meetings of the Board of
Directors and of relevant Board Committees.
Management’s Responsibility for (e) Attended meetings of the audit committee at which the
the Statement on Internal Control
annual report, including the Directors’ Statement on Internal
Management is responsible for the preparation and Control is considered and approved for submission to the
presentation of the Statement in accordance with the “Guidance Board of Directors.
for Directors of Banks on the Directors’ Statement on Internal
(f) Considered whether the Directors’ Statement on Internal
Control” issued in compliance with the section 3(8)(ii)(b) of
Control covers the year under review and that adequate
the Banking Act Direction No. 11 of 2007, by the Institute of
processes are in place to identify any significant matters
Chartered Accountants of Sri Lanka.
arising.

Scope of the Engagement in (g) Obtained written representations from directors on matters
Compliance with SLSAE 3050 material to the Directors’ Statement on Internal Control
Our responsibility is to issue a report to the Board on the where other sufficient appropriate audit evidence cannot
Statement based on the work performed. We conducted reasonably be expected to exist.
our engagement in accordance with Sri Lanka Standard on
Assurance Engagements SLSAE 3050 – Assurance Report for SLSAE 3050 does not require us to consider whether the
Banks on Directors’ Statement on Internal Control issued by the Statement covers all risks and controls, or to form an opinion
Institute of Chartered Accountants of Sri Lanka. on the effectiveness of the Bank’s risk and control procedures.
SLSAE 3050 also does not require us to consider whether the
processes described to deal with material internal control
Summary of Work Performed
aspects of any significant problems disclosed in the annual
Our engagement has been conducted to assess whether the
report will, in fact, remedy the problems.
Statement is both supported by the documentation prepared
by or for directors and appropriately reflects the process the
Our Conclusion
directors have adopted in reviewing the system of internal
control for the Bank. Based on the procedures performed, nothing has come to our
attention that causes us to believe that the Statement included
To achieve this objective, appropriate evidence has been in the Annual Report on pages 110 to 112 is inconsistent with
obtained by performing the following procedures: our understanding of the process the Board of Directors have
adopted in the review of the design and effectiveness of internal
(a) Enquired the directors to obtain an understanding of the
control system of the Bank.
process defined by the Board of Directors for their review
of the design and effectiveness of internal control and
compared their understanding to the Statement made by the
directors in the annual report.
(b) Reviewed the documentation prepared by the directors to Chartered Accountants
support their Statement made. 30th May 2012
Colombo

KPMG, a Sri Lankan Partnership and a member firm M.R. Mihular FCA Ms. M.P. Perera FCA P.Y.S. Perera FCA
of the KPMG network of independent member firms C.P. Jayatilake FCA T.J.S. Rajakarier FCA W.W.J.C. Perera FCA
affiliated with KPMG International cooperative Ms. S. Joseph FCA Ms. S.M.B. Jayasekara ACA W.K.D.C. Abeyrathne ACA
S.T.D.L. Perera FCA G.A.U. Karunaratne ACA R.M.D.B. Rajapakse ACA
(”KPMG International”), a Swiss entity.
Principals - S.R.I. Perera ACMA, LLB, Attorney-at-Law, H.S. Goonewardene ACA

Annual Report 2011/12 DFCC Bank 113

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS

Consolidated Income Statement of DFCC and DVB (DBB)

This information relates to the consolidation of DFCC Bank (DFCC) and DFCC Vardhana Bank PLC (DVB) for purpose of internal
review and analysis of the banking business and is derived from total Group financial statements.
Reconciliation with Group financial statements is in page 118. These statements have been audited by KPMG.
Income statement of DVB for the year ended 31 December is consolidated with income statements of DFCC for the year
ended 31 March.

Adjustment Audited
2012 2011 2012 2011 2012 2011
For the year ended 31 March LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

Interest income 9,529,393 9,512,191 9,529,393 9,512,191

Interest expense (4,740,917) (4,391,291) (67,761)1 (90,138)1 (4,808,678) (4,481,429)
Net interest income 4,788,476 5,120,900 (67,761) (90,138) 4,720,715 5,030,762
Other income:
Dividend from CBC (as investment security) 614,079 330,276 246,3492 614,079 576,625
Dividend received from unconsolidated - Subsidiaries 30,309 29,409 30,309 29,409
- Joint venture 16,375 9,825 16,375 9,825
Dividend from non-affiliated entities 218,058 134,273 218,058 134,273
Gains from CBC shares 0 4,341,089 (4,341,089)3 0 0
Gains from sale of non-affiliated quoted shares 270,046 52,506 270,046 52,506
Foreign exchange income 118,875 (61,946) 67,7611 90,138 1 186,636 28,192
Fees and commission income 575,242 384,781 575,242 384,781
Others 248,254 509,758 (6,119)2 248,254 503,639
Operating income 6,879,714 10,850,871 0 (4,100,859) 6,879,714 6,750,012
Personnel costs 1,203,353 1,014,566 1,203,353 1,014,566
Provision for staff retirement benefits 225,442 180,717 225,442 180,717
Premises, equipment & establishment expenses 665,224 621,511 665,224 621,511
Other overhead expenses 827,175 711,970 827,175 711,970
Operating expenses 2,921,194 2,528,764 0 0 2,921,194 2,528,764
Operating profit before provisions 3,958,520 8,322,107 0 (4,100,859) 3,958,520 4,221,248
Allowances for credit losses
Specific Provision 703,343 1,224,992 703,343 1,224,992
Specific Provison - recoveries (537,051) (772,493) (537,051) (772,493)
General Provision (103,089) 25,953 (103,089) 25,953
Less: Provision for fall in value of investments 29,132 0 29,132 0
Operating profit before value added tax 3,866,185 7,843,655 0 (4,100,859) 3,866,185 3,742,796
Value added tax on financial services (461,476) (2,080,063) 1,340,2693 (461,476) (739,794)
Operating profit before income tax 3,404,709 5,763,592 0 (2,760,590) 3,404,709 3,003,002
Income tax expense (612,730) (1,006,913) (612,730) (1,006,913)
Profit after tax 2,791,979 4,756,679 0 (2,760,590) 2,791,979 1,996,089
Minority Interest DVB (7,504) (12,199) (7,504) (12,199)
Profit after tax attributable to shareholders of DFCC 2,784,475 4,744,480 0 (2,760,590) 2,784,475 1,983,890
Share of profits of National Asset Management Limited
and CBC Associate (CBC ceased to be an associate
on 2 June 2010) 4,488 199,767 (193,354)2 4,488 6,413
2,788,963 4,944,247 – (2,953,944) 2,788,963 1,990,303
Segregated exceptional profit on sale of CBC - post tax
reduced by minority interest 0 3,000,820
Adjusted profit after tax attributable to shareholders of
parent company - DFCC Bank 2,788,963 4,991,123

Adjustments explained by footnotes

1. The forward exchange premium on US Dollar/LKR swap is included in the foreign exchange income, while interest earned on LKR from the swap is included in net
interest income (NII) in the financial statements issued for external use. Thus the swap cost is netted against the NII to reflect the commercial reality of the transaction.
2. Investment in Commercial Bank of Ceylon PLC (CBC) is treated as if it was an investment in a non-affiliated entity in previous financial year. Thus income from
this investment is accounted as dividend income instead of equity accounted profit with consequential change to the respective balance sheets.
3. Exceptional profit after taxes arising from sale of CBC shares is segregated from the profit after tax of the banking business.

114 DFCC Bank Annual Report 2011/12

 REPORTS OF DIRECTORS Supplementary financial Information
114 Consolidated Income Statement of
DFCC & DVB (DBB)
115 Consolidated Balance Sheet of
DFCC & DVB (DBB)
117 Key Performance Indicators of
Consolidated Banking Business (DBB)
118 Reconciliation with Group
Financial Statements

Consolidated Balance Sheet of DFCC and DVB (DBB)

This information relates to the consolidation of DFCC Bank (DFCC) and DFCC Vardhana Bank PLC(DVB) for purpose of internal
review and analysis of the banking business and is derived from the total Group financial statements.

Reconciliation with Group financial statements is in page 118. These statements have been audited by KPMG.

Balance sheets of DVB as at 31 December is consolidated with balance sheets of DFCC as at 31 March.
Adjustment Audited
As at 31 March 2012 2011 2012 2011 2012 2011
LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

Assets
Cash and short-term funds 4,819,351 1,466,293 4,819,351 1,466,293
Balances with Central Bank regulatory deposits (DVB only) 1,595,595 894,235 1,595,595 894,235
Treasury Bills and Bonds:
Trading book 168,269 392,447 168,269 392,447
Investment book 9,888,105 17,164,024 9,888,105 17,164,024
Securities purchased under resale agreements 100,000 699,881 100,000 699,881
Dealing securities 65,307 85,242 65,307 85,242
Placements with and loans to other banks and
financial institutions 1,917,373 2,254,778 1,917,373 2,254,778
Bills of exchange discounted - Performing 527,476 282,761 527,476 282,761
Loans and advances - Performing 72,688,836 47,705,660 72,688,836 47,705,660
Finance leases - Performing 9,481,350 6,053,014 9,481,350 6,053,014
Total performing - Gross 84,615,035 56,296,213 84,615,035 56,296,213
Bills of exchange discounted - Non-performing 32,661 35,102 32,661 35,102
Loans and advances - Non-performing 4,291,268 4,132,025 4,291,268 4,132,025
Finance leases - Non-performing 171,780 307,458 171,780 307,458
Total non-performing - Gross 4,495,709 4,474,585 4,495,709 4,474,585
Total credit portfolio - Gross 89,110,744 60,770,798 89,110,744 60,770,798
Specific provision on credit portfolio (2,588,609) (2,528,249) (2,588,609) (2,528,249)
General provision on credit portfolio (485,825) (588,607) (485,825) (588,607)
Interest in suspense relating to overdrafts (652,520) (481,032) (652,520) (481,032)
Interest receivable 620,356 379,346 620,356 379,346
Investment securities:
Investment in Commercial Bank of Ceylon PLC 4,956,072 4,174,201 (895,039)2 (895,039)2 4,061,033 3,279,162
Others 4,452,432 2,358,713 4,452,432 2,358,713
Investment in associate companies 51,279 50,931 51,279 50,931
Investment in subsidiaries 137,669 155,036 137,669 155,036
Investment in joint ventures 655,000 655,000 655,000 655,000
Group balances receivable 1,136 3,276 1,136 3,276
Prepayments 43,810 17,331 43,810 17,331
Other receivables 1,770,163 1,208,013 1,770,163 1,208,013
Investment property 29,887 109,198 29,887 109,198
Goodwill on consolidation with DVB 146,602 146,602 146,602 146,602
Property and equipment - Net book value 823,722 855,503 823,722 855,503
Intangible assets - Application software 201,049 170,791 201,049 170,791
Income tax receivable 139,574 139,574
Total assets 116,049,168 88,158,973 (895,039) (895,039) 115,154,129 87,263,934

Annual Report 2011/12 DFCC Bank 115

 MANAGEMENT INFORMATION MANAGEMENT DISCUSSION AND SUSTAINABILITY REPORT
ANALYSIS

Adjustment Audited
As at 31 March 2012 2011 2012 2011 2012 2011
LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

Liabilities
Deposits from customers: 44,746,429 25,707,555 44,746,429 25,707,555
Demand and savings deposits (DVB only) 8,512,572 6,845,007 8,512,572 6,845,007
Time deposits 36,233,857 18,862,548 36,233,857 18,862,548
Borrowing - medium and long-term 32,630,092 24,128,704 32,630,092 24,128,704
Borrowing - short-term 7,147,259 6,437,513 7,147,259 6,437,513
Debentures (DFCC only) 700,000 1,200,000 700,000 1,200,000
Group balances payable 222 0 222 0
Interest accrued 1,729,783 1,218,192 1,729,783 1,218,192
Taxation 8,046 297,998 8,046 297,998
Deferred tax liabilities 376,284 315,313 376,284 315,313
Other liabilities 1,648,473 3,160,915 1,648,473 3,160,915
Subordinated Debentures 1,590,000 2,000,000 1,590,000 2,000,000
Total Liabilities 90,576,588 64,466,190 90,576,588 64,466,190

Net assets (Total assets - Total liabilities) 25,472,580 23,692,783 (895,039) (895,039) 24,577,541 22,797,744

Equity
Share capital - DFCC only 2,650,977 2,648,838 2,650,977 2,648,838
Share premium - DFCC only 2,064,837 2,054,546 2,064,837 2,054,546
Stated Capital 4,715,814 4,703,384 4,715,814 4,703,384

Reserves
Statutory reserves - DFCC only 1,485,215 1,015,000 1,485,215 1,015,000
Other reserves 13,779,839 11,433,439 13,779,839 11,433,439
Retained earnings 5,448,239 6,404,001 (895,039)2 (895,039)2 4,553,200 5,508,962
Bank’s Shareholders’ Equity 25,429,107 23,555,824 (895,039) (895,039) 24,534,068 22,660,785
Minority interest 43,473 136,959 43,473 136,959
Total equity 25,472,580 23,692,783 (895,039) (895,039) 24,577,541 22,797,744

116 DFCC Bank Annual Report 2011/12

 REPORTS OF DIRECTORS Supplementary financial Information
114 Consolidated Income Statement of
DFCC & DVB (DBB)
115 Consolidated Balance Sheet of
DFCC & DVB (DBB)
117 Key Performance Indicators of
Consolidated Banking Business (DBB)
118 Reconciliation with Group
Financial Statements

Key Performance Indicators of Consolidated Banking Business (DBB)

The key ratios of performance are derived from the consolidated income and balance sheet of DFCC Bank and
DFCC Vardhana Bank PLC.
2012 2011

1. Net interest income/interest income 49.5% 52.9%

Non-interest expenses/operating income (Adjusted for CBC) 42.5% 37.5%
2. Non-performing loans and advances ratio - Gross 4.3% 6.6%
- Net 1.6% 2.7%
3. Cumulative specific provision/non-performing loans
and advances (provision coverage) 57.6% 56.5%
4. Interest margin - Net interest income/total assets 4.67% 5.55%
5. Common branches as at 31 March (DFCC), 31 December (DVB) 18 18
Additional branches, DVB only as at 31 December 32 31
6. Employees - 31 March 1,228 1,109

Annual Report 2011/12 DFCC Bank 117

 Supplementary financial Information financial reports
114 Consolidated Income Statement of
DFCC & DVB (DBB)
115 Consolidated Balance Sheet of
DFCC & DVB (DBB)
117 Key Performance Indicators of
Consolidated Banking Business (DBB)
118 Reconciliation with Group
Financial Statements

Reconciliation with Group Financial Statements

1. Consolidated Income Statement of DBB

Year ended 31 March 2012 2011
LKR ʼ000 LKR ʼ000

Consolidated profit of DBB attributable to equity holders of DFCC Bank

(before adjustments) (Page 114) 2,788,963 4,944,247
Less: Dividend from Subsidiaries and Joint Venture (46,684) (39,234)
WHT on dividend received (3,368) (3,268)
2,738,911 4,901,745
Add: Profit from other Subsidiaries and Joint Venture Attributable to
equity holders of DFCC Bank
Subsidiaries 41,062 58,658
Joint Venture 102,866 129,910
Consolidation adjustment for loss in value of a Subsidiary 17,367 –
Profit attributable to equity holders of the bank (Page 123) 2,900,206 5,090,313

2. Consolidated Equity of DBB

As at 31 March 2012 2011
LKR 000 LKR 000

Consolidated Equity of DBB (before adjustments) 25,429,107 23,555,824

Equity of other Subsidiaries 164,697 157,315
Proportionate Equity of Acuity Partners (Pvt) Limited - Joint Venture 240,727 154,237
Elimination of 50% of the profits on sale of Subsidiaries to Joint Venture Company (184,688) (184,688)
Consolidation adjustment for loss in value of a Subsidiary 17,367 –
Total Equity attributable to DFCC Bank’s equity holders (Page 124) 25,667,210 23,682,688

118 DFCC Bank Annual Report 2011/12

Financial
Reports
Financial Calendar - 2011/12

Rs 3.00 per share Final Dividend for 2011 paid on 11 July 2011
Audited financial statements signed on 30 May 2012
56th Annual General Meeting to be held on 29 June 2012
Rs 4.00 per share Final Dividend for 2011 payable on* 11 July 2012

1st Quarter Interim Results released on 12 August 2011

2nd Quarter Interim Results released on 09 November 2011
3rd Quarter Interim Results released on 08 February 2012

Proposed Financial Calendar - 2012/13

1st Quarter Interim Results to be released in August 2012

2nd Quarter Interim Results to be released in November 2012
3rd Quarter Interim Results to be released in February 2013

57th Annual General Meeting to be held in June 2013

* Subject to confirmation by Shareholders

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

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 with the
respective responsibilities of the Directors keeping proper accounting records assessment of the Audit Committee on
and Auditors relating to the financial and to take reasonable steps as far the reliability of financial reporting system
statements and this statement provides as practicable, to ensure the accuracy of the Bank and confirm that the financial
additional information. and reliability of accounting records, statements prepared for external use is
to enable the preparation of financial in accordance with relevant accounting
The Directors are required by relevant statements. The Directors have a general principles and regulatory requirements.
statutory provisions to prepare financial responsibility to take reasonable steps
statements for each financial year which to safeguard the assets of the Bank. In As part of institutional checks and
give a true and fair view of the state of discharging these responsibilities, the balances and accountability, in addition to
affairs of the Bank and the Group for that Directors have instituted a system of this Directors’ Responsibility Statement,
period. The statutory provisions are in internal financial controls and a system the Directors have included the Chief
DFCC Bank Act No. 35 of 1955, read for monitoring its effectiveness. These Executive’s and the Chief Financial
in conjunction with Banking Act provides reasonable but not absolute Officer’s Responsibility Statement on
No. 30 of 1988 and amendments thereto assurance of safeguarding of the Bank’s page 121.
and Companies Act No. 7 of 2007 to assets, maintenance of proper accounting
the extent it is applicable to the DFCC records and the reliability of financial By Order of the Board
Bank. The application of principal information.
qualitative characteristics and appropriate
accounting standards and regulatory The Board appointed Audit Committee
requirements inclusive of specific chaired by an independent non-executive Ms A Withana
disclosures would result in financial director who possesses qualifications Secretary to the Board
statements that convey a true and fair and experience in accountancy and audit
30 May 2012
view of financial information and financial assists the Directors to discharge their
position. responsibility on the integrity of financial
reporting system and monitoring the
The Directors are satisfied that the Bank effectiveness and adequacy of internal
and Group have the resources to continue control system. This Committee has
in business for the foreseeable future and made an independent assessment of
therefore, these financial statements are the financial reporting system of the
prepared on a going concern basis. Bank and confirmed “that to the best of
its knowledge and belief the financial
The Directors consider that, these statements issued for external purposes
financial statements have been prepared by the Bank complied with Sri Lanka
using appropriate accounting policies, Accounting Standards and complies with
consistently applied, and supported the statutory provisions of DFCC Bank
by reasonable and prudent judgment Act No. 35 of 1955, Banking Act No. 30
and estimates and in compliance of 1988 and to the extent, applicable,
with applicable Sri Lanka Accounting the Companies Act No. 07 of 2007. The
Standards. Any change to accounting report of this Committee is in pages 104
policies and reasons for such change is to 106.
disclosed in the “Notes to the Financial
Statements”.

120 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

Chief Executive’s and Chief Financial Officer’s Statement of Responsibility

The financial statements are prepared in form and substance of transactions, and The Audit Committee of the Bank meets
compliance with the Sri Lanka Accounting reasonably present the Bank’s state of periodically with the internal auditors
Standards issued by the Institute of affairs. To ensure this, the Bank has taken and the independent auditors to review
Chartered Accountants of Sri Lanka, proper and sufficient care in installing a the manner in which these auditors are
DFCC Bank Act No. 35 of 1955 as system of internal control and accounting performing their responsibilities, and to
amended, Section 153 of the Companies records, for safeguarding assets and discuss auditing, internal control and
Act No. 7 of 2007 and Banking for preventing and detecting frauds financial reporting issues. To ensure
Act No. 30 of 1988 as amended and as well as other irregularities, which is complete independence, the independent
Directions issued there under relating reviewed, evaluated and updated on auditors and the internal auditors have full
to financial statements formats and an ongoing basis. Our internal auditors and free access to the members of the
disclosure of information. The accounting have conducted periodic audits to Audit Committee to discuss any matter of
policies used in the preparation of the provide reasonable assurance that the substance.
financial statements are appropriate and established policies and procedures of
are consistently applied, unless otherwise the Bank were consistently followed.
stated in the notes accompanying the However, there are inherent limitations
financial statements. that should be recognised in weighing the
assurances provided by any system of S Nagarajah
The Board of Directors and the internal controls and accounting. Executive Vice-President (Finance)
Management of the Bank accept
responsibility for the integrity and The financial statements of the Group
objectivity of these financial statements. and joint venture company were audited
The estimates and judgments relating by KPMG. National Asset Management
to the financial statements were made Limited an associate company is also A N Fonseka
on a prudent and reasonable basis, audited by KPMG. Ex Officio Director & Chief Executive
in order that the financial statements
reflect in a true and fair manner, the Colombo
30 May 2012

Annual Report 2011/12 DFCC Bank 121

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

Independent Auditors’ Report

TO THE SHAREHOLDERS OF and applying appropriate accounting Opinion

DFCC BANK policies; and making accounting estimates In our opinion, so far as appears from
Report on the Financial Statements that are reasonable in the circumstances. our examination, the Bank maintained
We have audited the accompanying proper accounting records for the year
financial statements of DFCC Bank Scope of Audit and Basis of Opinion ended 31st March 2012, and the financial
(“Bank”), the consolidated financial Our responsibility is to express an opinion statements give a true and fair view of the
statements of the Bank and its subsidiaries on these financial statements based Bank’s state of affairs as at 31st March
as at that date which comprise the balance on our audit. We conducted our audit 2012, and its profit and cash flows for
sheet as at 31st March 2012, and the in accordance with Sri Lanka Auditing the year then ended in accordance with
income statement, statement of changes Standards. Those standards require Sri Lanka Accounting Standards.
in equity and cash flow statement for that we plan and perform the audit to
the year then ended, and a summary of obtain reasonable assurance whether the In our opinion, the consolidated financial
significant accounting policies and other financial statements are free from material statements give a true and fair view of
explanatory notes as set out on pages 123 misstatement. the state of affairs as at 31st March 2012
to 182 of this Annual Report. and the profit and cash flows for the year
An audit includes examining, on a then ended, in accordance with Sri Lanka
Management’s Responsibility for the test basis, evidence supporting the Accounting Standards, of the Bank and its
Financial Statements amounts and disclosures in the financial subsidiaries dealt with thereby, so far as
Management is responsible for the statements. An audit also includes concerns the shareholders of the Bank.
preparation and fair presentation of assessing the accounting policies used
these financial statements in accordance and significant estimates made by Report on Other Legal and
with Sri Lanka Accounting Standards. management, as well as evaluating the Regulatory Requirements
This responsibility includes: designing, overall financial statement presentation. These financial statements also comply
implementing and maintaining internal with the requirements of the DFCC Bank
control relevant to the preparation and We have obtained all the information and Act No. 35 of 1955 and Section 153(2)
fair presentation of financial statements explanations which to the best of our and 153(7) of the Companies Act No. 07 of
that are free from material misstatement, knowledge and belief were necessary 2007 and present the information required
whether due to fraud or error; selecting for the purposes of our audit. We by the Banking Act No 30 of 1988.
therefore believe that our audit provides a
reasonable basis for our opinion.

Chartered Accountants
30th May 2012
Colombo.

KPMG, a Sri Lankan Partnership and a member firm M.R. Mihular FCA Ms. M.P. Perera FCA P.Y.S. Perera FCA
of the KPMG network of independent member firms C.P. Jayatilake FCA T.J.S. Rajakarier FCA W.W.J.C. Perera FCA
affiliated with KPMG International cooperative Ms. S. Joseph FCA Ms. S.M.B. Jayasekara ACA W.K.D.C. Abeyrathne ACA
S.T.D.L. Perera FCA G.A.U. Karunaratne ACA R.M.D.B. Rajapakse ACA
(”KPMG International”), a Swiss entity.
Principals - S.R.I. Perera ACMA, LLB, Attorney-at-Law, H.S. Goonewardene ACA

122 DFCC Bank Annual Report 2011/12

SUPPLEMENTARY INFORMATION

Income Statement

BANK GROUP
For the year ended 31 March 2012 2011 2012 2011
Notes Page No. LKR 000 LKR 000 LKR 000 LKR 000

Income 10 141 7,433,975 14,191,300 12,140,756 15,830,285

Interest income 11 141 5,871,820 6,206,458 9,646,418 9,658,167

Interest expense 12 141 2,880,428 2,786,098 4,719,006 4,394,201
Net interest income 2,991,392 3,420,360 4,927,412 5,263,966
Amortisation of negative goodwill 0 0 0 7,313
Other income 13 142 1,562,155 7,984,842 2,494,338 6,172,118
Operating income 4,553,547 11,405,202 7,421,750 11,443,397

Personnel expenses 657,363 649,118 1,428,687 1,206,838

Provision for staff retirement benefits 14 143 176,142 141,512 251,567 198,919
Premises, equipment and
establishment expenses 282,374 282,161 758,289 705,997
Other overhead expenses 325,247 322,171 823,079 718,386
Bad and doubtful debts - specific 15 146 103,869 243,540 166,293 452,499
- general 16 147 (104,816) 153 (103,089) 25,953
Investments - impairment losses 17 147 29,132 0 11,765 3,125
Operating expenses 18 147 1,469,311 1,638,655 3,336,591 3,311,717

Operating profit before value added tax 3,084,236 9,766,547 4,085,159 8,131,680
Value added tax on financial services 19 148 336,338 1,890,229 461,476 2,080,063
Operating profit before income tax 2,747,898 7,876,318 3,623,683 6,051,617
Share of profits of associates* 5,649 217,758
Profit before tax 2,747,898 7,876,318 3,629,332 6,269,375
Income tax expense 20 148 430,429 738,867 656,493 1,098,302
Profit for the year 2,317,469 7,137,451 2,972,839 5,171,073
Attributable to:
Equity holders of the parent 2,900,206 5,090,313
Minority interest 72,633 80,760
Profit for the year 2,972,839 5,171,073
Earnings per share - Basic, LKR 21 149 8.74 26.95 10.94 19.22
- Diluted, LKR** 26.93 19.21
Dividend per share, LKR 4.00 10.00 4.00 10.00

Notes from pages 128 to 182 form part of these financial statements.
* After tax.
** As at 31 March 2012 there were no unexercised options.

Annual Report 2011/12 DFCC Bank 123

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

Balance Sheet
BANK GROUP
As at 31 March 2012 2011 2012 2011
Notes Page No. LKR 000 LKR 000 LKR 000 LKR 000

Assets
Cash and short-term funds 22 150 3,534,762 1,490,629 4,945,199 1,548,193
Balances with Central Bank 23 150 1,596,066 894,235
Treasury bills and other securities eligible
for rediscounting with Central Bank 24 150 1,537,518 10,500,575 10,568,367 18,429,116
Securities purchased under resale agreements 25 150 0 166,000 1,884,792 1,996,168
Placements with and loans to other
banks and financial institutions 26 151 1,917,373 2,254,778 1,917,373 2,254,778
Dealing securities 27 151 65,307 85,242 65,307 85,242
Non-current assets held for sale 28 151 0 0 2,875 2,875
Bills of exchange 29 152 0 0 532,925 288,932
Loans and advances 30 152 42,382,536 30,964,127 73,452,522 48,706,217
Finance leases 31 154 8,929,973 5,960,055 9,423,417 5,960,055
Interest receivable 32 154 360,675 257,299 646,900 415,225
Investment securities 33 155 6,907,117 4,031,527 9,559,437 6,685,547
Investments in associate companies 34 162 35,270 35,270 370,800 177,291
Investments in joint venture company 35 162 655,000 655,000 0 0
Investments in subsidiary companies 36 162 3,760,540 2,441,320 0 16,000
Group balances receivable 37 163 41,597 15,950 0 0
Prepayments 43,810 17,331 43,810 17,331
Income tax refund due 38 163 139,574 0 161,020 1,471
Investment properties 39 163 0 0 147,981 233,579
Goodwill on consolidation 40 163 226,411 226,411
Property, plant and equipment 41 164 431,606 493,465 936,250 939,415
Intangible assets 42 165 29,978 45,491 203,861 173,042
Deferred tax asset 43 165 0 0 5,583 1,781
Other assets 44 166 933,999 512,060 1,810,282 1,342,781
Total assets 71,706,635 59,926,119 118,501,178 90,395,685
Liabilities
Deposits from customers 45 166 11,710,526 3,688,183 44,420,013 25,416,397
Borrowing - Medium and long-term 46 166 32,630,092 24,128,704 32,630,092 24,128,704
- Short-term 47 167 2,186,500 4,931,819 9,071,834 8,048,189
Debentures 48 167 700,000 1,200,000 700,000 1,200,000
Group balances payable 49 167 222 0 0 0
Interest accrued 1,144,954 842,137 1,731,630 1,224,362
Current tax liability 0 230,858 56,665 401,254
Deferred tax liabilities 50 167 328,039 275,121 376,284 315,313
Other liabilities 51 168 662,750 2,410,436 1,842,546 3,492,112
Subordinated debentures 52 170 590,000 2,000,000 1,590,000 2,000,000
49,953,083 39,707,258 92,419,064 66,226,331
Equity
Share capital 53 170 2,650,977 2,648,838 2,650,977 2,648,838
Share premium 2,064,837 2,054,546 2,064,837 2,054,546
Stated capital 54 171 4,715,814 4,703,384 4,715,814 4,703,384
Reserves 55 171
Statutory reserves 1,485,215 1,068,600 1,485,215 1,068,600
General reserve 13,779,839 11,379,839 13,779,839 11,379,839
Retained earnings 1,772,684 3,067,038 5,686,342 6,530,865
Shareholders’ equity 21,753,552 20,218,861 25,667,210 23,682,688
Minority interest 56 172 414,904 486,666
Total equity 21,753,552 20,218,861 26,082,114 24,169,354
Total equity and liabilities 71,706,635 59,926,119 118,501,178 90,395,685
Contingent liabilities and commitments 57 172 18,695,153 15,979,729 40,922,680 26,512,785
Net asset value per share, LKR 82.06 76.33 96.82 89.41
Notes from pages 128 to 182 form part of these financial statements.
I confirm that to the best of my knowledge and belief these financial statements comply with the requirements of 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 and Chief Executive
Colombo
30 May 2012

124 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

Statement of Changes in Equity

For the years ended 31 March
Share Share Statutory General Retained Total
capital premium Reserves reserves earnings equity
LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

Bank
Balance as at 01.04.2010 1,323,753 3,371,911 655,000 9,379,839 992,321 15,722,824
Profit for the year – – – – 7,137,451 7,137,451
Transfers from current earnings – – 413,600 2,000,000 (2,413,600) –
Final dividend approved on 30.06.2010 – – – – (794,452) (794,452)
Interim dividend approved on 31.03.2011 – – – – (1,854,682) (1,854,682)
Bonus issue of shares 1,324,320 (1,324,320) – – – –
Issue of shares under share option scheme 765 7,055 – – – 7,820
Share issue expenses written off – (100) – – – (100)
Balance as at 31.03.2011 2,648,838 2,054,546 1,068,600 11,379,839 3,067,038 20,218,861
Profit for the year – – – – 2,317,469 2,317,469
Transfers from current earnings – – 416,615 2,400,000 (2,816,615) –
Final dividend approved on 30.06.2011 – – – – (795,208) (795,208)
Issue of shares under share option scheme 2,139 10,424 – – – 12,563
Share issue expenses written off – (133) – – – (133)
Balance as at 31.03.2012 2,650,977 2,064,837 1,485,215 13,779,839 1,772,684 21,753,552

Attributable to the equity holders of the Bank

Share Share Statutory General Retained Total Minority Total
capital premium reserves reserves earnings * interest equity
LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

Group
Balance as at 01.04.2010 1,323,753 3,371,911 655,000 9,379,839 6,215,856 20,946,359 427,427 21,373,786
Net unrealised losses from Bangladesh translation -
associate company – – – – (9,286) (9,286) – (9,286)
Net loss recognised directly in equity – – – – (9,286) (9,286) – (9,286)
Profits of associate - Commercial Bank of Ceylon PLC
from January-March 2010 – – – – 296,716 296,716 – 296,716
Profit for the year – – – – 5,090,313 5,090,313 80,760 5,171,073
Total recognised income and expenses for the period – – – – 5,377,743 5,377,743 80,760 5,458,503
Transfers from current earnings – – 413,600 2,000,000 (2,413,600) – –
Final dividend approved on 30.06.2010 – – – – (794,452) (794,452) – (794,452)
Interim dividend approved on 31.03.2011 – – – – (1,854,682) (1,854,682) – (1,854,682)
Dividend distributed to minority interest by subsidiaries – – – – – – (45,874) (45,874)
Bonus issue of shares 1,324,320 (1,324,320) – – – – – –
Issue of shares under share option scheme 765 7,055 – – – 7,820 – 7,820
Share issue expenses written off – (100) – – – (100) – (100)
Acquisition of subsidiaries by joint venture company
Lanka Ventures PLC – – – – – – 120,013 120,013
Acuity Securities Limited – – – – – – (95,660) (95,660)
Balance as at 31.03.2011 2,648,838 2,054,546 1,068,600 11,379,839 6,530,865 23,682,688 486,666 24,169,354
Profit for the year – – – – 2,900,206 2,900,206 72,633 2,972,839
Transfers from current earnings – – 416,615 2,400,000 (2,816,615) – – –
Final dividend approved on 30.06.2011 – – – – (795,208) (795,208) – (795,208)
Dividend distributed to minority interest by subsidiaries – – – – – – (45,847) (45,847)
Rights issue of shares – – – – – – 11,682 11,682
Issue of shares under share option scheme 2,139 10,424 – – – 12,563 – 12,563
Increase in ownership interest by the Bank
that does not result in change of control – – – – (132,906) (132,906) (110,230) (243,136)
Share issue expenses written off – (133) – – – (133) – (133)
Balance as at 31.03.2012 2,650,977 2,064,837 1,485,215 13,779,839 5,686,342 25,667,210 414,904 26,082,114

* Includes statutory reserve fund and statutory investment fund account of DFCC Vardhana Bank PLC.

Notes from pages 128 to 182 form part of these financial statements.

Annual Report 2011/12 DFCC Bank 125

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

Cash Flow Statement

BANK GROUP
For the year ended 31 March 2012 2011 2012 2011
LKR 000 LKR 000 LKR 000 LKR 000

Cash flow from operating activities

Interest receipts 5,413,741 4,832,311 8,641,544 7,248,631
Interest payments (2,577,612) (3,025,744) (4,329,432) (4,884,391)
Recoveries on loans previously written off 119,074 133,215 119,074 133,215
Receipts from other operating activities 958,768 47,014 1,908,138 911,547
Cash payments to employees and suppliers (1,428,550) (1,241,320) (2,981,734) (2,427,026)
Value added tax (359,454) (1,910,630) (463,147) (2,103,256)
Operating cash flow before changes in operating assets and liabilities 2,125,967 (1,165,154) 2,894,443 (1,121,280)
Increase/decrease in operating assets:
Deposits held for regulatory or monetary control purposes 0 0 (701,360) (92,159)
Funds advanced to customers (13,728,756) (3,252,629) (27,853,251) (7,135,585)
Others (14,931) 163,470 (92,452) (53,013)
Decrease in operating liabilities:
Security deposits from customers (950) (2,080) (754) (12,516)
Deposits from customers 8,023,779 (1,433,937) 18,906,550 (122,641)
Negotiable certificates of deposit (1,436) (1,537) 93,939 35,355
Others 92,909 52,798 146,323 136,439
Net cash flow from operating activities before income tax (3,503,418) (5,639,069) (6,606,562) (8,365,400)
Income tax paid (721,066) (571,141) (1,018,881) (761,686)
Net cash used in operating activities (Note a) (4,224,484) (6,210,210) (7,625,443) (9,127,086)
Cash flow from investing activities
Dividends received 719,660 660,407 667,799 594,586
Interest received 308,560 1,379,176 827,328 2,385,708
Treasury bills eligible for rediscounting with Central Bank 9,591,161 (2,849,168) 12,148,062 2,700,552
Proceeds from sale and redemption of securities 717,479 2,849,809 809,240 2,849,809
Purchase of securities (3,308,198) (810,705) (3,316,498) (838,977)
Investment in joint venture - Acuity Partners (Pvt) Limited 0 (55,000) 0 0
Disposal of associate company shares - Commercial Bank of Ceylon PLC 0 5,833,708 0 5,833,708
Investment in additional shares of subsidiary by joint venture 0 0 0 (88,348)
Investment in associates by joint venture 0 0 (192,000) 0
Investment in additional shares of subsidiary - DFCC Vardhana Bank PLC (1,336,587) 0 (243,136) 0
Investment in additional shares of subsidiary - Synapsys Limited 0 (33,000) 0 (16,000)
Purchase of property, equipment, intangibles and investment property (49,568) (231,036) (333,882) (568,385)
Proceeds from sale of equipment and investment property 4,796 55,792 104,305 61,605
Net cash from investing activities 6,647,303 6,799,983 10,471,218 12,914,258
Cash flow from financing activities
Issue/redemption of debentures (1,910,000) (1,500,000) (910,000) (1,500,000)
Issue of new shares under option 12,563 7,820 12,563 7,820
Issue of new shares by subsidiary - Rights issue 0 0 11,681 0
Share issue expenses (133) (100) (133) (100)
Borrowing, medium and long-term 13,748,692 1,511,150 13,748,692 (617,350)
Other borrowings - net (2,625,500) 4,697,000 627,458 3,223,874
Repayment of borrowing, medium and long-term (6,217,274) (5,965,488) (6,004,059) (5,965,488)
Dividends paid (2,638,552) (791,378) (2,684,393) (829,594)
Net cash flow from/(used in) financing activities 369,796 (2,040,996) 4,801,809 (5,680,838)
Net increase/(decrease) in cash and cash equivalents 2,792,615 (1,451,223) 7,647,584 (1,893,666)
Cash and cash equivalents/(overdraft - net) at the beginning of period as previously stated 1,370,810 2,822,033 4,777,976 6,999,735
Consolidation adjustment - Investment in Synapsys Limited 0 0 16,000 0
- Acquisition of Lanka Ventures PLC by joint venture 0 0 0 (328,093)
Cash and cash equivalents/(overdraft - net) at the beginning of the period restated 1,370,810 2,822,033 4,793,976 6,671,642
Cash and cash equivalents at the end of period 4,163,425 1,370,810 12,441,560 4,777,976
Reconciliation of cash & cash equivalents
Cash and short-term funds 3,534,762 1,490,629 4,945,199 1,548,193
Treasury bills and other securities eligible for rediscounting with
Central Bank 628,663 0 7,353,808 2,605,283
Securities purchased under resale agreements 0 0 220,994 758,135
Borrowings, short-term - Bank overdrafts 0 (119,819) (78,441) (133,635)
4,163,425 1,370,810 12,441,560 4,777,976
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.
Notes from pages 128 to 182 form part of these financial statements.

126 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

Note (a) Reconciliation of profit for the year to net cash used in operating activities
BANK GROUP
For the year ended 31 March 2012 2011 2012 2011
LKR 000 LKR 000 LKR 000 LKR 000

Profit for the year 2,317,469 7,137,451 2,900,206 5,090,313

Add/(deduct) items not using (providing) cash: (94,987) 194,792 165,136 350,997
Depreciation - Property,equipment and investment property 108,962 99,826 240,163 213,959
Amortisation - Intangible assets 17,790 17,527 66,386 76,018
Unrealised gains from marked to market on dealing,
other securities and forward contracts (223,044) (33,577) (211,742) (27,288)
Bad and doubtful debts (947) 243,693 63,204 478,452
Notional tax credit on treasury bills and bonds (26,880) (132,677) (71,624) (242,839)
Provision for fall in value of dealing & investment securities losses 29,132 0 11,765 3,125
Amortisation of negative goodwill 0 0 0 (7,313)
Loss on deemed disposal of associate companies' shares 0 0 0 (6,119)
Share of profits of associates 0 0 (5,649) (217,758)
Minority interest 0 0 72,633 80,760

Deduct items reported gross under investing activities: (1,231,366) (7,637,689) (1,190,523) (4,976,365)
Dividend income (930,272) (840,391) (874,271) (524,762)
Gains on sale of investment securities (295,417) (355,731) (295,417) (268,645)
Gain on sale of equipment and investment property (5,677) (47,802) (20,835) (49,878)
Realised gains from marked to market on dealing securities 0 (1,660,792) 0 (1,135,478)
Gain on disposal of associate company shares (0) (4,732,973) 0 (2,997,602)

Add/(deduct) changes in operating assets & liabilities: (5,215,600) (5,904,764) (9,500,262) (9,592,031)
(Increase)/decrease in accounts receivable 538,887 (1,374,825) 1,889 (2,280,343)
Increase/(decrease) in accounts payable 165,536 (223,749) 361,244 (400,243)
Increase/(decrease) in income tax payable (203,980) 163,749 (258,535) 341,691
Increase in income tax refund (139,574) – (161,020) –
Increase/(decrease) in deferred tax 52,917 3,977 57,167 (5,074)
Increase in operating assets (13,743,687) (3,089,159) (28,647,063) (7,284,696)
Increase/(decrease) in operating liabilities 8,114,301 (1,384,757) 19,146,056 36,634
Net cash used in operating activities (4,224,484) (6,210,210) (7,625,443) (9,127,086)

Annual Report 2011/12 DFCC Bank 127

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

Notes to the Financial Statements

1. Reporting Entity The Bank has one associate company 2. Basis of Preparation
DFCC Bank (“Bank”) is a limited liability viz., National Asset Management Limited. 2.1 Statement of Compliance with
public company incorporated and Commercial Bank of Ceylon PLC ceased to Sri Lanka Accounting Standards
domiciled in Sri Lanka. It was incorporated be an associate company on 2 June 2010. The financial statements have been
in 1955 under DFCC Bank Act No. 35 of prepared in compliance with relevant
Total employee population of the Bank Sri Lanka Accounting Standards adopted
1955. The Head Office is situated at 73/5,
and the Group on 31 March 2012 was by The Institute of Chartered Accountants
Galle Road, Colombo 3.
466 and 1,396 respectively. (31 March of Sri Lanka and comply with the
2011 - 451 and 1,278 respectively) requirements of Banking Act No. 30 of
The Bank was incorporated under
DFCC Bank Act No. 35 of 1955 and 1988 and amendments there to.
1.1 Principal Activities
therefore there was no requirement
to register under the Companies A summary of principal activities of DFCC 2.2 Approval of Financial
Ordinance at the time of incorporation. Bank (Bank), its subsidiary companies, Statements by Directors
Consequently, the address of the Head associate company and joint venture The financial statements are authorised
Office is not registered with the Registrar company is as follows: for issue by the Board of Directors on
of Companies. DFCC Bank 30 May 2012.

Financial products and services to

Section 487 (2) of the Companies Act industrial, agricultural and commercial
2.3 Consolidated and Separate
No. 07 of 2007 requiring existing Financial Statements
enterprises in Sri Lanka.
companies to re-register and to obtain a DFCC Bank as the Parent of subsidiaries
DFCC Consulting (Pvt) Limited
new company number does not apply to under its control is required to present
DFCC Bank. Technical, financial and other professional only the consolidated financial statements
consultancy services in Sri Lanka and as per Sri Lanka Accounting Standard 26,
Section 6 (c) of the Companies abroad. on ‘Consolidated and Separate Financial
Act No. 07 of 2007 requiring a limited Statements' (Revised 2005)’. However,
DFCC Vardhana Bank PLC
liability company which is a listed company in addition to the consolidated financial
Commercial banking.
to have the words public limited company statements, separate financial statements
or the abbreviation PLC added to its
Lanka Industrial Estates Limited are also presented as per Banking Act
name does not apply to the Bank which Leasing of land and buildings for industrial No. 30 of 1988.
continues with the description DFCC enterprises.
Bank given in Section 2 (1) (b) of DFCC 2.4 Basis of Measurement
Synapsys Limited
Bank Act No. 35 of 1955, as amended. The consolidated and separate financial
Information technology services and
Ordinary shares of the Bank are listed in statements of the Bank are presented
information technology enabled services.
the Colombo Stock Exchange. in LKR being the (Sri Lanka Rupees),
National Asset Management Limited functional and presentation currency,
The Bank does not have a Parent Fund management. rounded to the nearest thousand and,
company. Acuity Partners (Pvt) Limited unless otherwise stated, have been
prepared under the historical cost
Investment banking related financial
The Bank’s Group comprises of services.
convention. Exceptions to the historical
subsidiary companies viz., DFCC cost convention of accounting relate
Consulting (Pvt) Limited, DFCC Vardhana There were no significant changes in the to dealing securities and investment
Bank PLC, Lanka Industrial Estates nature of the principal activities of the securities. Investment securities are
Limited and Synapsys Limited. Bank and the Group during the financial carried in the balance sheet at lower
year under review. of aggregate cost reduced by where
Acuity Partners (Pvt) Limited a joint appropriate the diminution in value which
venture company equally owned by the is other than temporary of each security
Bank and Hatton National Bank PLC. and market value on a portfolio basis
while dealing securities are marked to
market and carried in the balance sheet

128 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

at the market price of each security. 2.7.2 Judgments and the 2.7.3.3 End of Service Statutory
In the separate financial statements Financial Impact Gratuity Liability

of the DFCC Bank, the investments in The classification of investment securities The estimation of this liability, which is not
associates, subsidiaries and joint venture is based on the positive intention of the funded, determined by an independent
company are accounted on the basis management and the financial capacity to qualified actuary necessarily involves
of direct equity interest rather than on hold certain investments to maturity. long-term assumptions on future changes
the basis of the reported results and net to salaries, resignations prior to the
assets of the investees. In the event of a change of intention normal retirement age and mortality of
evidenced by management action of active covered employees. Key assumptions are
2.5 Accrual Basis of Accounting trading, such investments are transferred disclosed in Note 14.6.
All revenue and expenses are recognised to dealing securities, which represents
2.7.3.4 Current Tax
using accrual basis of accounting with the financial assets held for trading.
exception of interest income from non- The estimation of income tax liability
performing assets and discount on bills of The classification of these securities includes interpretation of tax law and
exchange; which are recognised only on determines the recognition of the carrying judgment on the allowance for losses
the cash basis as explained in Note 5.1.1 amount of these financial assets in the on individually assessed loans. The
and Note 5.1.6. balance sheet with a consequential estimation process by the Bank includes
adjustment to the reported results. seeking expert advice where appropriate
2.6 Materiality and Aggregation and the payment of the current tax liability
2.7.3 Accounting Estimates is on self-assessment basis. In the event
Each material class of similar items is
2.7.3.1 Loan Losses an additional assessment is issued the
presented separately in the financial
The assessment of loan loss as set out in additional income tax and deferred tax
statements. Items of a dissimilar nature or
Notes 15 involves considerable judgment adjustment, will be recognised in the
function are presented separately unless
and estimation. Judgment is required period in which the assessment is issued if
they are immaterial.
firstly to determine whether there are so warranted.
indications that a loss may already have
2.7 Critical Accounting Estimates
been incurred in individually significant 2.7.3.5 Impairment of Tangible
and Judgments and Intangible Assets
2.7.1 General loans and secondly to determine the
The assessment of impairment in tangible
recoverable amount.
In the preparation of separate financial and intangible assets includes the
statements and consolidated financial estimation of the value in use of the asset
2.7.3.2 Pension Liability
statements, the Bank makes judgments, computed at the present value of the best
The estimation of this liability determined
estimates and assumptions that affect estimates of future cash flows generated
by an independent, qualified actuary,
the application of accounting policies and by the asset adjusted for associated risks.
necessarily involves long-term
the reported amounts of assets, liabilities, This estimation has inherent uncertainties.
assumptions on future changes to
income and expenses. Impairment losses, if any, are charged to
salaries, future income derived from
income statement immediately.
Estimates and underlying assumptions pension assets, life expectancy of covered
are reviewed on an ongoing basis. employees, etc. Key assumptions are
3. Basis of Consolidation
Changes to estimates in a subsequent disclosed in Note 14.6.
3.1 General
financial year, if any, are normally
The pension scheme is closed to The consolidated financial statements
recognised prospectively.
new entrants recruited on or after 1 May are prepared by consistent application
2004 and the basic pension and the of consolidation procedures, which
The following disclosures relate to
survivor pension amount is frozen on the include amalgamation of the financial
judgments and future oriented estimates
date of cessation of tenured employment. statements of the parent and subsidiaries
that have the most significant effect on
These risk mitigation strategies together and accounting for the investments in
the amount recognised in the financial
with annual actuarial valuation and review associate companies and joint venture
statements.
of key assumptions tend to reduce company on the basis of reported
the probability that the actual results results and net assets of the investee
will be significantly different from the instead of the direct equity interest. The
estimate.

Annual Report 2011/12 DFCC Bank 129

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

consolidation of the joint venture company 3.5 Financial Statements used for 4.2 Associate Companies
results is on proportionate consolidation Computation of Goodwill or Negative Associate companies are those enterprises
method by combining Bank’s share of Goodwill on date of Acquisition
in which the Bank has significant influence
assets, liabilities, income and expenses This is based on unaudited financial but not control over the financial and
of the joint venture company with the statements proximate to the date of operating policies. The consolidated
similar items line-by-line in the financial acquisition. financial statements include the Bank’s
statements of the Bank. share of the total recognised gains and
3.6 Taxes on the Undistributed losses of the associate companies, on an
Thus, the consolidated financial Earnings of Subsidiaries, Associate
equity accounted basis, from the date that
statements present financial information Companies and Joint Venture
Company significant influence commences until the
about the Group as a single economic date that significant influence ceases.
The distribution of the undistributed
entity distinguishing the equity attributable Note 34 contains financial information
earnings of the subsidiaries, associate
to the parent and attributable to minority relating to associate companies.
companies and joint venture company is
shareholders.
remote in the foreseeable future. As such,
4.3 Joint Venture Company
3.2 Transactions Eliminated 10% withholding tax applicable on the
on Consolidation distribution has not been recognised as a Joint venture company is an incorporated
tax expense in the financial statements of enterprise in which the Bank owns 50%
Intra-group balances and transactions,
of the voting shares with a contractual
including income, expenses and dividend the Group.
arrangement with the other company,
are eliminated in full.
4. Scope of Consolidation who owns the balance 50% of the voting
3.3 Financial Statements shares, in terms of which both parties
All subsidiaries have been consolidated.
of Subsidiaries, Associate have joint control over that enterprise.
Companies and Joint Venture
4.1 Subsidiary Companies
Company included in the 5. Principal Accounting Policies
Consolidated Financial Statements Subsidiaries are those entities controlled
Accounting policies are the specific
Audited financial statements are used. by the Bank. Control exists when the
principles, bases, conventions, rules
Financial statements of DFCC Consulting Bank has the power, directly or indirectly,
and practices applied consistently by
(Pvt) Limited and Lanka Industrial Estates to govern the financial and operating
the Bank in presenting and preparing
Limited included in the consolidation have policies of entities so as to obtain
the financial statements. Changes in
financial year to 31 March in common benefits from its activities. The financial
accounting policies are made only if the
with the Bank. The financial statements statements of subsidiaries are included
Sri Lanka Accounting Standards require
of Acuity Partners (Pvt) Limited, DFCC in the consolidated financial statements
such change or when a change results in
Vardhana Bank PLC, Synapsys Limited from the date that control commences
providing more relevant information. New
and National Asset Management Limited until the date that control ceases. Note 36
policies are formulated as appropriate to
included in the consolidation have financial contains the financial information relating
new products and services provided by
year ending on 31 December 2011. to subsidiaries.
the Bank or new obligations incurred by
the Bank.
3.4 Significant Events and Minority interests in subsidiaries are
Transactions during the period determined on the basis of proportionate
between date of Financial equity in the subsidiaries owned by
5.1 Revenue and Expense
Statements of the Subsidiaries, Recognition
minority equity holders. The minority
Associate Companies and Joint 5.1.1 Interest Income
Venture Company and the date of interests and the interest of the equity
Interest income is recognised on an
Financial Statement of the Bank holders of the Bank are separately
accrual basis except for loans and
No adjustments to the results of identified in the consolidated income
advances classified as non-performing
subsidiaries, associate companies and statement and consolidated balance sheet.
based on criteria set out in Direction
joint venture company have been made as
No. 4 of 2008 dated 8 May 2008
they were not significant.
issued by Central Bank of Sri Lanka on
'Classification of Loans and Advances,
Income Recognition and Provisioning'.

130 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

Interest income on non-performing loans date of classification is eliminated from property disposed of, is recognised as
and advances is accounted on receipt the income and transferred to lease income. On part disposal of an investment
basis. Interest accrued and unpaid on income in suspense. property, the carrying value of the entire
non-performing loans at the date of property is apportioned to the part sold, in
classification is eliminated from the income 5.1.5 Dividend Income the proportion of the net disposal proceeds
and transferred to interest in suspense. Interim dividend on shares is recognised to the total market value of the entire
as income in the period in which it is investment property at the time of disposal.
The criteria for classification of loans declared by the Directors and final
and advances as non-performing are dividend on shares is recognised as 5.1.13 Gains on Disposal of Dated
explained in Note 5.2.7. income in the period in which it is Debt Securities
approved by the shareholders of the The difference between net disposal
5.1.2 Notional Tax Credit on Interest investee company. Dividend income from proceeds and the carrying amount of the
Income from Treasury Bills and Bonds unit trust is recognised in the period they debt securities disposed of is recognised
Interest income from Treasury bills and are declared. as income.
bonds is grossed up by the addition of the
tax credit imputed to 10% withholding tax 5.1.6 Discount on Bills of Exchange 5.1.14 Sale and Repurchase
on discount allowed at the time of issue. Agreements
Discount charges on bills of exchange
This notional tax credit is 1/9th of the net Where treasury bills/bonds and other
discounted are taken to revenue on
interest income. corporate debt securities are sold subject
redemption of bills of exchange.
to a commitment to repurchase them
5.1.3 Discount or Premium on 5.1.7 Front-end Fee Income at a predetermined price (‘Repos’) the
Purchase of Dated Debt Securities difference between sale and repurchase
This arises on loan origination and the
The premium or discount is amortised price is recognised as other income over
income is recognised on completion of
through the income statement over the the life of the agreement.
loan documentation.
period from the date of purchase to the date
of maturity. 5.1.15 Premises Rental Income
5.1.8 Consultancy and Other
Professional Service Income Rental income is recognised on
5.1.4 Finance Lease Income
Recognised as income in the period in accrual basis.
Gross earnings from leases comprising the which entitlement to the consideration
excess of aggregate rentals receivable over arises. 5.1.16 Marked to Market Gains on
the cost of leased asset are allocated over Dealing Securities
the term of the lease commencing with 5.1.9 Underwriting Commission Gains or losses on dated dealing debt
the month in which the lease is granted, Recognised as income in the period in
securities and listed ordinary shares that
in proportion to the declining receivable arise by adjusting the carrying value
which entitlement to the consideration
balances. Income of finance leases of these securities to market value are
arises.
included in lease rentals is recognised on recognised in the income statement.
an accrual basis except for finance leases 5.1.10 Guarantee Fee
classified as non-performing, based on 5.1.17 Marked to Market Gains on
Recognised in full in the period in which Forward Exchange Contracts
criteria set out in Direction No. 4 of 2008 guarantees are issued by the Bank.
dated 8 May 2008 issued by Central Bank Gains or losses on trading, open forward
of Sri Lanka on 'Classification of Loans exchange contracts that arise by adjusting
5.1.11 Gains on Sale of Property,
and Advances, Income Recognition and the carrying value of the off-balance sheet
Plant and Equipment
Provisioning'. forward exchange contracts to market value
Recognised as income in the period in
are recognised in the income statement.
which the sale occurs.
Interest income on non-performing
5.1.18 Foreign Exchange Income
finance leases is accounted on receipt 5.1.12 Gains on Sale of
basis. Interest accrued and unpaid on Investment Property Any exchange gain or loss arising from
non-performing financial leases at the The difference between the net disposal the settlement or translation of the Bank’s
proceeds and the carrying value of the monetary assets and liabilities at rates
different from those which were initially
recorded is dealt in the income statement.

Annual Report 2011/12 DFCC Bank 131

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

5.1.19 Interest Expense subsidiary commercial bank, DFCC Temporary diminution in value of all equity
All interest expenses are recognised in Vardhana Bank PLC include loans securities listed in the Colombo Stock
the period in which they are incurred and advances finance leases and Exchange is the amount by which the
without any amount being capitalised. bills discounted. aggregate market value of such securities
is lower than the aggregate cost of
ii. An additional provision to recognise
5.1.20 Allowances for Credit Losses acquisition, reduced where appropriate
difficulties in realisation of collateral or
Credit losses comprise losses against by write-off for diminution other than
significant impairment of debt service
loans, finance leases, bills of exchange, temporary in value of each security.
capacity of the borrower.
commercial papers, trust certificates, The market value is based on the price
promissory notes and overdrafts. The information on quoted securities published
5.1.20.2 General Provision
estimated losses attributable to these by the Colombo Stock Exchange.
A general provision of 0.5% of the
debts are based on a continuous review outstanding balances of performing and
of all such debts identified as bad or Temporary diminution in value of all units
special mention credit facilities (Note 5.2.7)
doubtful. The Group makes both general purchased from a unit trust, is the amount
as at 31 March 2012 (0.8% as at 31 March
and specific provisions. by which the aggregate market value of
2011) is maintained as per the Direction
such units, is lower than the aggregate
No. 4 of 2010 issued by the Central Bank
5.1.20.1 Specific Provisions cost of acquisition, reduced where
of Sri Lanka.
Specific provisions are made for the appropriate by write-off for diminution
estimated loss on doubtful loans, finance other than temporary in value of each
This mandatory minimum general
leases, bills of exchange, commercial unit. The market value is based on the
provision which was previously 1% was
papers, trust certificates, promissory Unit Trust Manager’s buying price.
reduced progressively at the rate of 0.1%
notes and overdrafts not covered by per calendar quarter during the period 1
realisable value of collateral. Temporary diminution in value of ordinary
October 2010 to 31 December 2011.
shares listed in the Colombo Stock
Specific provision on guarantees issued is Exchange and units purchased from a
In the current financial year consequent to
made to recognise significant impairment unit trust are charged against the revenue
the reassessment of the quality of the new
of the debt service capacity of the customer reserves of the Bank. Any subsequent
finance leases, the Bank ceased to make
giving rise to a constructive obligation prior reversal of such diminution in value will
additional general provision.
to enforcement of guarantee. be credited to the revenue reserves in the
financial year in which they occur.
In the previous financial year:
The specific provision has two elements:
Leases granted up to
Diminution other than temporary in value
i. A minimum statutory provision as per 30 June 2010 3%
of all investment securities is charged
the direction issued by Central Bank Leases granted during 9 months
against the earnings of the period in
of Sri Lanka. This is on a graduated to 31 March 2011 2%
which they occur. Diminution other than
scale, based on the amount of
5.1.21 Investment Securities Losses temporary in value of shares included in
outstanding principal net of realisable
A temporary diminution in value is investment securities is written-off.
security value (net exposure at risk)
as given below: accounted for as a provision and
a diminution other than temporary 5.1.22 Income Tax Expense
Categories of Minimum provision
non-performing accounted as a partial or full write-off. Income tax expense for the year,
credit facilities comprises current and deferred tax.
Substandard 20% of net exposure at risk Diminution other than temporary in value of Income tax is recognised in the income
each investment security, is assessed by a statement except to the extent it relates
Doubtful 50% of net exposure at risk
combination of indicators of value including to items recognised directly in reserves in
Loss 100% of net exposure at risk market value, investee’s assets, results and which case it is recognised in reserves.
the expected cash flow from the investment
Credit facilities include loans and and the prevailing market conditions in the
advances and finance leases of Colombo Stock Exchange.
the Bank. The credit facilities of the

132 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

5.1.22.1 Current Tax 5.1.22.4 Value Added Tax 5.2.3 Securities

i. Current tax is the expected tax The value base for value added tax for 5.2.3.1 Dealing Debt Securities
payable on the profit for the year the Bank is the adjusted accounting profit These are the marketable, dated debt
adjusted for taxation purposes in before tax and emoluments of employees. securities in respect of which the Bank has
accordance with the provisions of the The adjustment to the accounting profit the expressed intention of trading in the
Inland Revenue Act No. 10 of 2006, as before tax is for economic depreciation domestic debt market and are included in
amended by subsequent legislation. computed on prescribed rates instead the balance sheet at the market value as
of the rates adopted in the financial a sub-category of treasury bills and other
ii. Current tax expense include any statements. The value added tax rate was securities eligible for rediscounting with the
adjustment to tax payable in respect reduced from 20% to 12% with effect Central Bank.
of previous years. from 1 January 2011. The effective Tax
rate however is 10.71% since the nominal The market value is determined using
5.1.22.2 Deferred Tax rate of 12% is applied on the value added the middle rate of buy and sell quotes
i. Deferred tax is recognised on taxable base after charging the Financial for the treasury bills and other securities
temporary differences between Services Value Added Tax as an expense. eligible for rediscounting with the Central
the carrying amount of assets and Bank provided by secondary market
liabilities in the balance sheet 5.1.22.5 Withholding Tax on Dividends intermediaries.
Distributed by Subsidiaries and
and the amount attributed to
Associate Companies
such assets and liabilities for These securities are recognised at cost
Dividends distributed out of the taxable
tax purposes. initially on acquisition and thereafter
profit of the subsidiaries and associate
marked to market on the balance sheet
companies suffer a 10% deduction at
Deferred tax liabilities are generally date in accordance with the Direction
source and is not available for set off
recognised for all taxable temporary issued by Central Bank of Sri Lanka
against the tax liability of the Bank.
differences and deferred tax assets on ‘Prudential norms for classification,
Thus, the withholding tax deducted at
are recognised to the extent it is valuation, and operation of the Bank’s
source is added to the tax expense
probable that future taxable profit will investment portfolio’ dated 1 March 2006.
of the subsidiary company and the
be available against which deductible
associate company in the Group financial
temporary differences can be utilised. 5.2.3.2 Investment Debt Securities
statements as a consolidation adjustment.
These are the dated debt securities in
Deferred tax is calculated using the respect of which the Bank has express
5.2 Assets and Bases of
tax rates that have been enacted or their Valuation intention and ability to hold until maturity.
substantially enacted at the balance These are included in the balance sheet as
5.2.1 Cash & Cash Equivalent
sheet date and are expected to apply a sub-category of treasury bills and other
For the purpose of the cash flow
in the period in which the assets will securities eligible for rediscounting with the
statement, cash & cash equivalent consist
be realised or liabilities settled. Central Bank under investment securities.
of cash held by the Bank and other
short-term, highly liquid investments that
ii. The net increase in the carrying Treasury bills and other securities eligible
are readily convertible to known amounts
amount of deferred tax liability net of for rediscounting with the Central Bank
of cash and which are subject to an
deferred tax asset is recognised as are included in the balance sheet at cost
insignificant risk of changes in value.
deferred tax expense and conversely adjusted for the amortisation of premium
any net decrease is recognised as or discount arising on acquisition.
5.2.2 Balances with Central Bank
reversal to deferred tax expense, in
DFCC Vardhana Bank PLC, a subsidiary
the income statement. 5.2.3.3 Securities Purchased under
of the Bank is a licensed commercial Resale Agreements (Reverse Repurchase
bank. The Monetary Law Act requires all Transactions)
5.1.22.3 Social Responsibility Levy
commercial banks operating in Sri Lanka These are loans collateralised by
This is abolished with effect from 1 April
to maintain cash deposits with the Central the purchase of treasury bills and/or
2011 and was 1.5% of the income tax in the
Bank of Sri Lanka as a reserve against all guaranteed commercial papers from
previous financial year.
deposit liabilities denominated in Sri Lanka the counter-party to whom the loans are
Rupees (LKR). The details of this reserve
requirement are given in Note 23.

Annual Report 2011/12 DFCC Bank 133

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

granted. The sale by the counter-party is ii. Market value determined on an 5.2.7 Non-Performing Loans and
subject to a commitment by the Bank to aggregate portfolio basis. Finance Leases
sell back the underlying debt securities The classification is based on the
to the borrower at a predetermined price. Other shares are stated in the balance Direction No. 4 of 2008 dated 8 May
These loans are stated in the balance sheet at cost reduced by, where 2008. The loans are classified as non-
sheet at cost. appropriate, the diminution in value, which performing based on the following criteria:
is other than temporary of each security. Repayment terms Default period or
5.2.3.4 Securities Sold under Repurchase number of
Agreements (‘Repos’) unpaid dues
Cost determined on weighted-average basis
This relates to treasury bills and includes incidental costs of acquisition. i. Repayable in 3 unpaid dues
bonds sold subject to a commitment to monthly instalments
All securities are held for yield or capital
repurchase them at a predetermined appreciation in the medium/long term. ii. Repayable in quarterly/ 90 days from
price. Such treasury bills and bonds half yearly instalments due date
remain on the balance sheet and the
5.2.4 Non-Current Assets held for Sale iii. Single lump sum 90 days from
liability is recorded in respect of the
This represents land stated in the balance repayment due date
consideration received. The liability is
disclosed as borrowing under repurchase sheet at the lower of cost and market
price. The land was acquired by Acuity In addition, loans and finance leases
agreement. These treasury bills and
Partners (Pvt) Limited exclusively with a with impaired debt service capacity are
bonds are not marked to market since the
view to its subsequent disposal. classified as non-performing on a case-
corresponding liability is also not marked
by-case basis.
to market.
There was no impairment loss as at the
balance sheet date. As per the previous Direction on this
5.2.3.5 Dealing Securities -
Ordinary Shares subject prior to the Direction No. 4
These are marketable ordinary shares 5.2.5 Loans and Advances of 2008 dated 8 May 2008 issued by
listed in the Colombo Stock Exchange the Central Bank, the non-performing
Loans are stated in the balance sheet net
and stated in the Balance Sheet at market classification criteria applied to each
of provisions for possible loan losses. The
credit facility extended to a borrower. As
value. These are residual unsold shares provisions for possible loan losses include
transferred from investment securities to per the Direction No. 4 of 2008, where
both specific and general provision.
dealing securities as per the regulatory multiple credit facilities have been granted
requirement. 5.2.6 Finance Leases to a single borrower, in the event the
aggregate outstanding amount of non-
Assets of the Bank leased to customers
5.2.3.6 Investment Securities - performing credit facilities exceed 30% of
by an agreement that transfers
Shares and Units Purchased the total credit facilities extended to the
from Unit Trusts substantially all the risks and rewards
borrower, the balance facilities also have
of ownership to the customer without
Shares quoted in the Colombo Stock to be classified as non-performing.
transferring the title, are classified as
Exchange and units purchased from Unit
financial leases and disclosed as amounts
Trust are stated in the balance sheet at
receivable. The leases are stated in the
the lower of:
balance sheet after deduction of future
i. Aggregate cost reduced by, where income and specific provision for losses.
appropriate, the diminution in value
which is other than temporary of each
security; and

134 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

5.2.8 Categorisation of Non-Performing Loans and Finance Leases Overdrafts and credit card facilities are
The Direction No. 4 of 2008 requires non-performing loans and finance leases to be offered only by DFCC Vardhana Bank
categorised in the following manner: PLC, the commercial banking subsidiary of
DFCC Bank and the applicable Direction
Category Facility Type Determinant
for Licensed Commercial banks is applied.
Special Mention Credit facilities, repayable in 3 instalments or more but less than 6
monthly instalments instalments, principal and/or interest 5.2.9 Reclassification of
are due and unpaid Non-Performing Loans and Finance
Overdrafts Exceeds the sanctioned limit for a Leases as Performing
continuous period of 90 days or more All interest and principal in arrears of
but less than 180 days from the due non-performing loans and finance leases
date. have to be paid in full by the borrower/
Credit cards The minimum payment is in arrears lessee to qualify for reclassification.
for 90 days or more but less than 120 Where rescheduled non-performing
days from the due date.
loans are reclassified as performing only
Other credit facilities The payments are in arrears for 90 after mandatory watch period ranging
days or more but less than 180 days
from 90 days to 360 days based on the
from the due date
non-performing loan category at the time
Substandard Credit facilities, repayable in 6 instalments or more but less than 12
of reschedule subject to satisfactory
monthly instalments instalments, principal and/or interest are
due and unpaid performance during the mandatory
watch period.
Overdrafts Exceeds the sanctioned limit for a
continuous period of 180 days or
5.2.10 Investment Property
more but less than 360 days from the
due date. The investment property of the Group
includes land and building held by a
Credit cards The minimum payment is in arrears
for 120 days or more but less than 180 subsidiary for capital appreciation and
days from the due date. earning revenue by rentals.
Other credit facilities The payments are in arrears for 180
days or more but less than 360 days Land classified as investment property is
from the due date carried at cost reduced by accumulated
Doubtful Credit facilities, repayable in 12 instalments or more but less than 18 impairment losses and buildings classified
monthly instalments instalments, principal and/or interest are as investment property is carried at cost
due and unpaid net of accumulated depreciation and
Overdrafts Exceeds the sanctioned limit for a accumulated impairment losses.
continuous period of 360 days or
more but less than 540 days from the
Depreciation is provided on a straight-line
due date.
basis such that the cost of the asset is
Credit cards The minimum payment is in arrears
amortised over the period appropriate to
for 180 days or more but less than 240
days from the due date. the estimated life of the type of asset.

Other credit facilities The payments are in arrears for 360

days or more but less than 540 days The rates of depreciation are as follows:
from the due date % per annum

Loss Credit facilities, repayable in 18 instalments or more principal and/or Buildings 5

monthly instalments but interest are due and unpaid Water treatment plant 10
Overdrafts Exceeds the sanctioned limit for a Site improvement 10
continuous period of 540 days or more.
Credit cards The minimum payment is in arrears for 5.2.11 Investment in Subsidiaries and
240 days or more. Associate Companies

Other credit facilities The payments are in arrears for 540 The Bank’s investments in subsidiaries
days or more and associates are stated at cost less
accumulated impairment losses, if any, in
the financial statements of the Bank.

Annual Report 2011/12 DFCC Bank 135

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

In the consolidated financial statements, 5.2.13.3 Subsequent Measurement The carrying amount of goodwill on
investments in associate companies are The assets are stated at cost less consolidation is at cost of acquisition
accounted under equity method reduced accumulated depreciation and accumulated reduced by accumulated impairment
by accumulated impairment losses if any. impairment losses. loss, if any.

Consequently Group’s share of its Depreciation is provided on a straight-line 5.2.15 Intangible Assets - Computer
associates’ post-acquisition profits or Application Software
basis such that the cost of the asset is
losses is recognised in the consolidated amortised over the period appropriate to All software licensed for use by the Bank,
income statement, and its share of post- the estimated life of the type of asset. not constituting an integral part of related
acquisition movements in reserves is hardware are included in the balance
recognised in consolidated reserves. The The rates of depreciation are as follows: sheet under the category intangible
cumulative post-acquisition movements assets and carried at cost less cumulative
% per annum
are adjusted against the carrying amount amortisation and any impairment losses.
Buildings 5
of the investment. When the Group’s
share of losses in an associate equals or Furniture, fittings and plant 10 The initial acquisition cost comprises
exceeds its interest in the associates, the Office equipment and licence fee paid at the inception, import
motor vehicles 20 duties, non-refundable taxes and levies,
Group does not recognise further losses.
cost of customising the software to meet
Group’s investment in associates includes Depreciation commences in the month the specific requirements of the Bank and
goodwill identified on acquisition, net of the asset is commissioned for use in the other directly attributable expenditure in
any impairment losses. (Note 34) business of the Bank and ceases in the preparing the asset for its intended use.
month of disposal.
5.2.12 Investment in Joint Venture The cost is amortised using the straight-
Company Land is not depreciated. line method, at the rate of 20% per
The Bank’s investment in joint venture annum commencing from the date the
company is stated at cost less 5.2.13.4 Derecognition
application software is available for use.
accumulated impairment losses, if any in The carrying amount of property, The amortised amount is based on the
the financial statements of the Bank. plant and equipment is derecognised best estimate of its useful life, such that
on disposal or when no future economic the cost is amortised fully at the end of
In the consolidated financial statements, benefits are expected from its use and the the useful life during which the Bank has
the income and net assets of the joint gain or loss arising from the derecognition legal right of use. The amortisation cost is
venture company are consolidated with is included in the income statement. recognised as an expense.
the Bank proportionate to its ownership
in the voting ordinary share capital of the 5.2.14 Goodwill or Negative Goodwill
The initial cost is enhanced by
joint venture company. on Consolidation
subsequent expenditure incurred by
This arises on a business combination
further customisation to meet ancillary
5.2.13 Property, Plant and Equipment resulting in a parent-subsidiary relationship
transaction processing and reporting
5.2.13.1 Basis of Recognition in which the acquirer is the parent and
requirements tailor-made for the use of
The cost of property, plant and equipment acquiree a subsidiary of the acquirer and
the Bank constituting an improvement to
is recognised as an asset, if it is probable is accounted by applying the purchase
the software.
that future economic benefits associated method. Goodwill arising on an acquisition
with the property, plant and equipment of a subsidiary represents the excess of the
5.2.16 Impairment of Assets
will flow to the Bank and the cost can be cost of the acquisition over the fair value of
5.2.16.1 Tangible and Financial Assets
measured reliably. the net identifiable assets acquired.
The Bank reviews on the balance
sheet date whether the carrying value
5.2.13.2 Measurement at Recognition Goodwill on acquisition of associates
of property, plant and equipment and
The cost of an asset comprises its is included in the investment cost of
investments in subsidiaries, associate
purchase price or cost of construction and associate and therefore is not included in
companies and joint venture company
any directly attributable costs of bringing goodwill on consolidation.
are lower than the recoverable amount.
the asset to working condition for its
In such event the carrying amount is
intended use.

136 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

reduced to the recoverable amount and 5.2.18 Deferred Tax Asset

the reduction being an impairment loss Deferred income tax assets are
is recognised immediately in the income recognised for tax losses carry-forwards,
statement. The recoverable amount is the unused withholding tax credits and
higher of the market value of the asset specific provisions for bad and doubtful
less estimated cost of disposal and its loans that exceeded 1% of the loans on
value in use. balance sheet date only to the extent
that the realisation of related tax benefit
5.2.16.2 Intangible Assets - Computer through future taxable profits is probable.
Application Software and Goodwill on
Consolidation
5.2.19 Unrecognised Deferred Tax Assets
The Bank reviews on the balance sheet
date whether the carrying amount of 31 March 2012 Tax effect 28%
LKR 000 LKR 000
computer application software is lower
than the recoverable amount. In such Bank
event, the carrying amount is reduced to Disallowed specific provision for bad and doubtful loans 361,099 101,108
the recoverable amount and the reduction
Group
being an impairment loss is recognised
Taxable Losses
immediately in the income statement. The
DFCC Consulting (Pvt) Limited - Subsidiary 3,185 892
recoverable amount is the value in use.
Acquity Partners (Pvt) Limited - Joint Venture* 75,182 21,051
Disallowed specific provision for bad and
Similar criterion is used to assess
doubtful loans and advances
impairment in goodwill on consolidation.
DFCC Vardhana Bank PLC - Subsidiary 110,337 30,894

5.2.17 Foreign Currency Translation Unused withholding tax credit

DFCC Consulting (Pvt) Limited - Subsidiary 114 32
Transactions in overseas currencies
Unrecognised loss/deferred tax asset 188,818 52,869
are translated to LKR at the exchange
Group 549,917 153,977
rate ruling at the date of the transaction.
Monetary assets and liabilities * 50% of Loss, proportionate consolidation.

denominated in foreign currencies are

translated at the exchange rates ruling on 5.3 Liabilities and Provisions
the balance sheet date and consequently 5.3.1 Provision for Pension Liability
under a Defined Benefit Plan
any exchange loss or gain is recognised
5.3.1.1 Description of the Plan and
in the income statement of the Bank. Employee Groups Covered
Exchange rates used are the middle
The Bank established a trust fund in The scheme was amended on
spot rates.
May 1989, for payment of pension which 31 August 1998 and the amended
operates the pension scheme approved plan will apply to all members of the
Forward exchange contracts are disclosed
by the Commissioner General of Inland permanent staff who joined the Bank on
net and trading (open) forward exchange
Revenue. The fund of the scheme is or after this date and prior to 1 May 2004.
contracts are valued at the forward market
managed by trustees appointed by the The amendment reduced the scope of
rates ruling on the date of the balance
Bank and is separate from the Bank. The the benefit in the interest of long-term
sheet for the residual maturity. Resulting
scheme provides for payment of pension sustainability of the pension plan as
net unrealised gains or losses are
to retirees, spouse and minor children of advised by the independent actuary.
recognised in the income statement.
deceased retirees based on pre-retirement
salary. All members of the permanent staff The defined benefit pension plan does
Until 2 June 2010, Commercial Bank of
who joined prior to 1 May 2004 except not permit any post-retirement increases
Ceylon PLC was an associate company
one are covered by this funded pension in pension nor any other benefit (e.g.,
and in accordance with its accounting
scheme subject to fulfilment of eligibility medical expenses reimbursement).
policy the translation gains or losses
conditions prescribed by the Bank.
arising from its overseas branch
operations were taken directly to
separate component of equity.

Annual Report 2011/12 DFCC Bank 137

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

5.3.1.2 Funding Arrangement 5.3.1.4 Recognition of Past Service Cost 5.3.2.2 Funding Arrangement
The Bank’s contributions to the trust Past service cost arises when a defined The Bank and the subsidiaries adopt a pay-
fund are made annually based on the benefit plan is introduced for the first time as-you-go method whereby the employer
recommendation of an independent actuary. or subsequent changes are made to the makes a lump sum payment only on
The employees make no contributions benefits payable under an existing defined termination of employment by resignation,
to qualify for the basic pension, which is benefit plan. Bank will recognise past retirement at the age of 55 years or death.
therefore a non-contributory benefit to the service cost as an expense on a straight-
employees. Eligible employees who desire line basis over the average period until 5.3.2.3 Recognition of Actuarial Gains
and Losses
to provide for the payment of pension to the benefits become vested. To the extent
spouse and minor children, who survive the benefits are already vested following The Bank has chosen to recognise
them are however, required to contribute the introduction of or changes to a defined only the portion of the net cumulative
monthly, an amount based on a percentage benefit plan, the Bank will recognise past unrecognised actuarial gains and losses
of gross emoluments, excluding bonus, if service cost immediately. at the end of the previous reporting period
they joined the Bank on or after 31 August that exceeds the limits of the corridor.
1998 and prior to 1 May 2004. 5.3.2 Provision for End of Service
Gratuity Liability under a Defined The recognition in the income statement
Benefit Plan will be over the remaining working life
5.3.1.3 Recognition of Actuarial Gains
and Losses 5.3.2.1 Description of the Plan and of the participants in the end of service
Employee Groups Covered
The net actuarial gains or losses arising gratuity scheme.
Bank provides for the gratuity payable
in a financial year is due to increases or
under the Payment of Gratuity Act No. 12 5.3.2.4 Recognition of Past Service Cost
decreases in either the present value of
of 1983 for all employees who do not
the promised pension benefit obligation Since end of service gratuity defined
qualify under the Pension Scheme.
or the fair value of pension assets. The benefit is a statutory benefit, the
Therefore, this applies to employees
causes for such gains or losses include recognition of past service cost will arise
recruited to the permanent cadre on or
changes in the discount rate, differences only if the Payment of Gratuity Act No. 12
after 1 May 2004 on tenured or fixed term
between the actual return on pension of 1983 is amended in future to increase
contract employment in the Bank.
assets and the expected return on pension the promised benefit on termination of
assets and changes in the estimates of employment. In such event, the Bank will
The subsidiary companies, which
actual employee turnover, mortality rates adopt the accounting policy currently used
do not have a non-contributory pension
and increases in salary. for defined benefit pension plan.
scheme provide for the gratuity payable
under the Payment of Gratuity Act No. 12 5.3.3 Defined Contribution Plans
The Bank has chosen to recognise only the
of 1983 for all employees.
portion of the net cumulative unrecognised This provides for a lump sum payment on
actuarial gains and losses at the end of termination of employment by resignation,
The promised benefit is half a month
the previous reporting period that exceeds retirement at the age of 55 years or death
pre-termination salary for each completed
the limits of the corridor as permitted by while in service. Payment is by an outside
year of service provided a minimum
Sri Lanka Accounting Standard (SLAS) 16 agency to which contributions are made.
qualifying period of 5 years is served prior
(Revised 2006) on - 'Employee Benefits'.
to termination of employment. The Bank
All employees of the Bank are members of
however recognises the liability by way of
The limits of the corridor are set at the the Mercantile Service Provident Society
a provision for all employees in tenured
greater of: and the Employees’ Trust Fund to which the
employment from the date they joined
a. 10% of the present value of the Bank contributes 15% and 3% respectively
the permanent cadre while fixed term
defined benefit obligation before of such employee’s consolidated salary.
employees liability is recognised only if
deducting the pension assets; and
the fixed term contract of service provides
Contributions to defined contribution plans
b. 10% of the fair value of the pension for unbroken service of 5 years or more
are recognised as an expense in the
assets. either singly or together with consecutive
income statement as incurred.
contracts.
The recognition in the income statement
will be over the remaining working life of
the participants in the pension scheme.

138 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

5.3.4 Debentures Issues by the Bank impact on the condition of assets and Segment liabilities are those operating
and Deposit from Customers liabilities are disclosed in Note 65. liabilities that result from the operating
These liabilities are recognised when the activities of a segment and are directly
Bank enters into contracts with counter 5.3.10 Comparative Information attributed or allocated to the segment on
parties and initially measured at the Where items are regrouped, comparative a reasonable basis.
consideration received. The debentures information is also adjusted.
are issued at par and are redeemable at Inter-segment transfers are accounted
par on the repayment dates. Except for 6. Cash Flow for at competitive market prices charged
customer deposits of DFCC Vardhana The cash flow has been prepared by to unaffiliated customers for similar
Bank PLC which includes deposits using the ‘Direct Method’. Cash and services. Such transfers are eliminated on
denominated in foreign currency, others cash equivalents include cash balances, consolidation.
are denominated in LKR. time deposits and Treasury bills of three
months’ maturity at the time of issue. For 8. Directors’ Responsibility
5.3.5 Borrowing Statement
the purpose of cash flow statement, cash
All borrowing are recognised when the and cash equivalents are presented net of The Directors acknowledge the
Bank enters into contract with counter bank overdrafts. responsibility for true and fair presentation
parties and initially measured at the of the financial statements in accordance
consideration received. All directly 7. Business Segment Reporting with the books of account and Sri Lanka
attributable costs are amortised on Accounting Standards. Further elaboration
A business segment is a distinguishable
straight-line basis up to date of repayment. of the Directors’ Responsibility Statement
component of an enterprise that is engaged
in providing an individual product or service is on page 120.
5.3.6 Provision for Liabilities
or a group of related products or services
A provision is recognised in the balance that is subject to risk and returns that are 9. New Accounting Standards
sheet when the Bank has a legal or different from those of other business issued but not effective as at
constructive obligation as a result of a segments. The accounting policies adopted
Balance Sheet Date
past event that can be estimated reliably for segment reporting are the same Commencing from 1 April 2012, the
and it is probable that an outflow of accounting policies adopted for preparing Bank shall prepare and present financial
economic benefits will be required to the financial statements of the Group. statements to comply with a new set of
settle the obligation. Financial Reporting Standards issued by
Segment revenue is the revenue reported The Institute of Chartered Accountants
5.3.7 Offsetting of Sri Lanka (ICASL), the national
in the income statement that is directly
Deferred and current tax asset of each attributable to a segment. body responsible for promulgation of
taxable entity is set off against deferred Accounting Standards in Sri Lanka. These
and current tax liability of the same Segment expense includes the relevant new Standards become effective for
taxable entity operating in Sri Lanka and portion of interest expense and operating accounting periods commencing on or
liable to revenue authority in Sri Lanka. expenses allocated to the segment on a after 1 January 2012.
reasonable basis.
5.3.8 Commitments and Contingencies
These new Standards have been issued
All discernible risks are accounted for in Segment assets are those operating consequent to the decision of ICASL to
determining the amount of other liabilities. assets that are employed by a segment converge fully with International Financial
in its operating activities and are directly Reporting Standards (IFRS) and therefore
5.3.9 Events after the Balance Sheet attributed or allocated to the segment on
Date have a prefix SLFRS corresponding to
a reasonable basis. IFRS issued by International Accounting
All material and important events which
occur between the balance sheet date and Standards Board (IASB) and a prefix LKAS
the date on which the financial statements [corresponding to International Accounting
are authorised for issue, and the financial Standards (IAS) issued by the predecessor
to IASB]

Annual Report 2011/12 DFCC Bank 139

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

These new Standards are a combination of iii. Changes to interest income

revision to Sri Lanka Accounting Standards recognition of impaired loans.
used in the preparation and presentation
iv. All derivatives will become on-balance
of financial statements for the year ended
sheet (statement of financial position)
31 March 2012 and few entirely new
items and carried at fair value.
Standards.
v. Any adjustments considered
necessary on the full convergence
Of the entirely new Standards, the most
with IFRS.
significant Standards applicable to the
Bank are:
This disclosure complies with the
i. Financial Instruments Standards requirements of SLAS 10 - Accounting
comprising Presentation (LKAS 32), Policies Changes in Accounting Estimates
Recognition and Measurement and Errors (Revised 2005) as amended
(LKAS 39) and Disclosure (SLFRS 7) by ICASL which specifies that the
paragraphs 30 and 31 of SLAS 10 will
ii. First time adoption of Sri Lanka not be applicable for financial statements
Accounting Standards (SLFRS 1) prepared in respect of financial periods
iii. Presentation of financial statements commencing before 1 January 2012.
(LKAS 1) - revision with new features
to SLAS 3 the Accounting Standard Bank has made significant progress in
applicable for the year ended 31 the measures to be adopted for transition
March 2012. to SLFRS and LKAS for the financial
year ending on 31 March 2013. These
measures included the implementation
Implementation of LKAS 1, LKAS 32, of the financial instrument standards for
LKAS 39 will result in changes to the which the Bank obtained the assistance
format of the primary financial statements of an external consultant.
and the recognition and measurement of
financial assets and financial liabilities. In Bank will take adequate steps during
addition, on adoption of SLFRS 1, there financial year to 31 March 2013 to
could be few adjustments required. further refine and finalise the transition to
The key changes are: SLFRS and LKAS in accordance with the
implementation options granted by ICASL.
i. Some financial assets and liabilities
are measured on the statement
of financial position (new term for
balance sheet) at amortised cost
while others are at fair value.

ii. Impairment losses on loans and

advances are based on estimate of
future recoveries assessed individually
and /or collectively replacing the
current, rule based provisioning matrix
and general provision.

140 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

BANK GROUP
For the year ended 31 March 2012 2011 2012 2011
LKR 000 LKR 000 LKR 000 LKR 000

10. Income
Gross income 7,433,975 14,191,300 12,140,756 15,830,285

Interest income 5,871,820 6,206,458 9,646,418 9,658,167

Other income 1,562,155 7,984,842 2,494,338 6,172,118
7,433,975 14,191,300 12,140,756 15,830,285

11. Interest Income

Loans 4,367,334 3,947,846 7,625,130 6,192,886
Treasury bills, bonds and placements with other banks 370,327 1,405,707 875,785 2,612,357
Gross earnings under finance leases 1,072,347 755,972 1,083,691 755,972
Default interest on lease rentals 61,812 96,933 61,812 96,952
5,871,820 6,206,458 9,646,418 9,658,167

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

BANK GROUP
2012 2011 2012 2011
LKR 000 LKR 000 LKR 000 LKR 000

12. Interest Expense

Medium and long-term borrowing 1,380,839 1,514,036 1,380,839 1,514,036
Short-term borrowing:
Interest on overdrafts and revolving facilities 574,675 268,402 759,725 370,099
Debentures 289,388 497,997 324,871 497,997
Time deposits from customers 635,526 505,663 2,253,571 2,012,069
2,880,428 2,786,098 4,719,006 4,394,201

Annual Report 2011/12 DFCC Bank 141

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

BANK GROUP
For the year ended 31 March 2012 2011 2012 2011
LKR 000 LKR 000 LKR 000 LKR 000

13. Other Income

Dividend income from investment securities
Quoted ordinary shares 717,735 366,613 759,870 387,385
Unquoted ordinary shares 3,642 3,689 3,881 3,896
Unquoted preference shares 85,340 90,592 85,340 90,592
Units in unit trusts 25,180 42,889 25,180 42,889
Dividend income from investments in associates, subsidiaries and joint ventures
Quoted ordinary shares 0 249,808 0 0
Unquoted ordinary shares 98,375 86,800 0 0
930,272 840,391 874,271 524,762
Gain on sale of investment securities
Quoted ordinary shares 270,046 34,956 270,046 34,956
Others 25,371 17,549 25,371 30,035
Gain on disposal of shares of Commercial Bank of Ceylon PLC (CBC)
As an associate 0 4,732,973 0 2,997,602
As investment securities 0 303,226 0 203,654
As dealing securities up to 30 September 2010 0 1,660,792 0 1,135,478
0 6,696,991 0 4,336,734

Recovery of bad debts 119,074 133,215 119,074 133,215

Foreign exchange (loss)/gain (202,951) (12,352) (45,139) 61,395
Funding swap cost (4,675) (49,594) (67,761) (90,138)
Marked to market gain on forward exchange contracts 243,001 0 231,773 (3,938)
35,375 (61,946) 118,873 (32,681)
Net gain on repurchase transactions 7,639 39,620 3,574 74,531
Marked to market gains/(losses) - unrealised
CBC ordinary shares 0 4,355 0 4,355
Other quoted ordinary shares (19,398) 28,888 (19,398) 28,888
Treasury bills and bonds - held for trading (559) 334 (631) (2,017)
(Loss)/gain on sale of treasury bills and bonds - held for trading (12,712) 20,500 (28,308) 47,683
Fee and commission income 95,179 81,946 735,989 384,781
Gain on sale of investment property 0 0 10,039 0
Net gain on sale of property, plant and equipment 5,677 47,802 10,796 49,878
Other operating income 106,191 100,241 374,642 556,998
1,562,155 7,984,842 2,494,338 6,172,118

142 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

BANK GROUP
For the year ended 31 March 2012 2011 2012 2011
LKR 000 LKR 000 LKR 000 LKR 000

14. Provision for Staff Retirement Benefits

14.1 Amount Recognised as Expense
14.1.1 Funded Liability
Current service cost 55,958 58,626 55,958 58,626
Interest on obligation 128,152 123,859 128,152 123,859
Expected return on pension assets (103,262) (123,537) (103,262) (123,537)
80,848 58,948 80,848 58,948

14.1.2 Unfunded Pension Liability

Current service cost 5,320 4,258 5,320 4,258
Interest on obligation 4,788 4,094 4,788 4,094
Amortisation of unrecognised actuarial loss 0 1,090 0 1,090
10,108 9,442 10,108 9,442

14.1.3 Unfunded end of Service Gratuity Liability

Current service cost 3,582 3,139 8,742 7,656
Interest on obligation 2,276 2,078 4,769 4,184
Amortisation of unrecognised actuarial loss 523 497 523 497
Provision made for gratuities computed on formula method 0 0 8,842 5,103
6,381 5,714 22,876 17,440
Total defined benefit plans 97,337 74,104 113,832 85,830

14.1.4 Defined Contribution Plan

Employer's contribution to Employees' Provident Fund 65,671 56,173 114,712 93,914
Employer's contribution to Employees' Trust Fund 13,134 11,235 23,023 19,175
Total defined contribution plans 78,805 67,408 137,735 113,089

Total expense recognised in the income statement 176,142 141,512 251,567 198,919

14.2 Movement in Unrecognised Actuarial Gain/Loss

14.2.1 Funded Liability
Balance at beginning (140,826) (83,126)
Actuarial (gain)/loss during the financial year
Due to experience of pension assets (56,374) 2,958
Due to actuarial experience 36,445 (11,034)
Due to change in plan assumption 0 (49,624)
Unrecognised actuarial gain on 31 March (160,755) (140,826)

Annual Report 2011/12 DFCC Bank 143

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

BANK
For the year ended 31 March 2012 2011
LKR 000 LKR 000
14.2.2 Unfunded Pension Liability
Balance at beginning 2,425 5,213
Amortised in the financial year 0 (1,090)
Actuarial loss/(gain) during the financial year 7,151 (1,698)
Unrecognised actuarial loss on 31 March 9,576 2,425

14.2.3 Unfunded end of Service Gratuity Liability

Balance at beginning 7,146 6,463
Amortised in the financial year (523) (497)
Actuarial loss during the financial year 5,848 1,180
Unrecognised actuarial loss on 31 March 12,471 7,146

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.

BANK
For the year ended 31 March 2012
LKR 000

Funded Pension Liability

Unrecognised actuarial gain on 1 April 2011 140,826

Limits of corridor on 1 April 2011

(i) 10% of present value of pension obligation on 1 April 2011
(before deducting pension assets) 136,796
(ii) 10% of pension assets on 1 April 2011 152,198
(iii) Greater of (i and ii) 152,198

No amortisation since unrecognised actuarial gain is within the limits of corridor.

Unfunded Pension Liability

Unrecognised actuarial loss on 1 April 2011 2,425

Limits of corridor on 1 April 2011

(i) 10% of present value of pension obligation on 1 April 2011 4,789
Excess over the limit 0

No amortisation since unrecognised actuarial gain is within the limits of corridor.

144 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

BANK
For the year ended 31 March 2012
LKR 000

Unfunded End of Service Gratuity Liability

Unrecognised actuarial loss on 1 April 2011 7,146

Limits of corridor on 1 April 2011

(i) 10% of present value of pension obligation on 1 April 2011 1,918
Excess unrecognised actuarial loss to be amortised, over the remaining
working life of employees eligible for gratuity 5,228
Expected average remaining working lives of employees eligible for gratuity 10 years
Unrecognised actuarial loss amortised and recognised in the income statement 523

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 ʻEmployee Benefitsʼ.

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 2012.

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.

Annual Report 2011/12 DFCC Bank 145

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

14.6 Principal Actuarial Assumptions

Pension End of service
benefit (%) gratuity (%)

Discount rate as at 31 March 2012, per annum

Pre-retirement 9.0 10.0
Post-retirement 9.0 not applicable
Future salary increases per annum 10.5 10.0
Expected rate of return on pension assets - post tax 7.0 –
Actual rate of return on pension assets 7.0 –
Mortality UP 1984 mortality table
Retirement age 55 years 55 years
Normal form of payment: lump sum commuted pension payment lump sum
followed by reduced pension for 10 years
(25% reduction) (for new entrants
recovery period is 15 years)
Turnover rate -
Age
20 10.0 10.0
25 10.0 10.0
30 10.0 10.0
35 7.5 7.5
40 5.0 5.0
45 2.5 2.5
50/55 1.0 1.0

The principle actuarial assumptions in the previous year has not changed. The discount rate is the yield rate on 31 March 2012 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 estimated period for benefit payments.

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 2012 2011 2012 2011
LKR 000 LKR 000 LKR 000 LKR 000

15. Bad and Doubtful Debts - Specific

Provision for the year
Loans 389,221 733,525 631,595 1,103,431
Leases 26,320 75,902 26,320 75,902
Dues on terminated leases 72 2,180 72 2,180
Bills of exchange 0 0 1,660 15,462
Other debts written off 12,963 16,965 12,963 16,965
Loan/lease losses 3,203 9,024 30,747 11,052
431,779 837,596 703,357 1,224,992
Less: Reductions in the year
Loans 249,076 443,801 454,373 618,876
Leases 69,872 126,354 69,872 126,354
Dues on terminated leases 2,036 2,081 2,036 2,081
Bills of exchange 0 0 3,857 3,362
Others 6,926 21,820 6,926 21,820
103,869 243,540 166,293 452,499

146 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

BANK GROUP
For the year ended 31 March 2012 2011 2012 2011
LKR 000 LKR 000 LKR 000 LKR 000

16. Bad and Doubtful Debts - General

Provision for the year
Loans and advances 11,378 0 11,378 26,344
Leases 3,977 51,777 6,465 51,777
Bills of exchange 0 0 67 499
15,355 51,777 17,910 78,620
Less: Reduction in the year
Loans and advances 52,279 45,273 53,107 45,273
Leases 67,892 6,351 67,892 6,351
Bills of exchange 0 0 0 1,043
(104,816) 153 (103,089) 25,953

17. Investments - Impairment Losses

Investment securities
E Services Lanka Limited 0 0 0 3,125
G T B Colombo Corporation (Private) Limited 681 0 681 0
Hemas Holdings PLC 10,334 0 10,334 0
Link Development (Private) Limited 750 0 750 0
Investment in subsidiary companies
Synapsis Limited 17,367 0 0 0
29,132 0 11,765 3,125

18. Operating Expenses

Operating expenses include the following:
Directors’ remuneration 42,912 41,833 82,157 67,774
Employer's contribution to Employees’ Provident Fund 65,671 56,173 114,712 93,914
Employer's contribution to Employees’ Trust Fund 13,134 11,235 23,023 19,175
Gratuity provision 6,381 5,714 22,876 17,440
Auditors’ remuneration
Audit fees and expenses 2,775 2,603 5,018 4,714
Audit related fees and expenses 1,929 2,620 2,998 3,485
Fees for non-audit services 103 1,167 1,247 2,468
Fees for other auditors 0 0 271 0
Depreciation - Investment property 0 0 8,283 8,030
- Property, plant and equipment 108,962 99,826 231,880 205,929
Amortisation - Intangible assets 17,790 17,527 66,386 76,018
Expenses on litigation 0 3,068 94 3,169

Annual Report 2011/12 DFCC Bank 147

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

BANK GROUP
For the year ended 31 March 2012 2011 2012 2011
LKR 000 LKR 000 LKR 000 LKR 000

19. Value Added Tax on Financial Services

Relating to divestment of shares in CBC* 0 1,340,269 0 1,340,269
Others 336,338 549,960 461,476 739,794
336,338 1,890,229 461,476 2,080,063
* Commercial Bank of Ceylon PLC

20. Income Tax Expense

20.1 Income tax on profit of the Bank has been provided at 28% (2011 - 35%) on the taxable income.

20.2 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 2012 2011 2012 2011
LKR 000 LKR 000 LKR 000 LKR 000

Profit before tax as per the income statement 2,747,898 7,876,318 3,629,332 6,269,375
BOI Companies - Taxed on turnover basis – – (88,555) (111,632)
Disallowed - Expenses incurred for trade losses – – 33,283 11,481
Disallowed expenses and provisions
VAT on Financial Services 336,338 1,890,229 461,476 2,080,063
Specific provision above 1% ceiling 361,099 430,012 471,435 737,688
Others – 40,177 37,861 57,329
Reduction in provisions (38,719) – (38,719) –
Dividend income (930,272) (840,391) (874,271) (524,762)
Gain on sale of investment securities (295,417) (6,749,496) (295,417) (4,401,725)
Other exemptions (87,682) (149,761) (127,903) (282,765)
Finance Leases
Lease rentals net of capital allowances 850,426 488,794 850,426 488,794
Reported earnings under finance leases net of
provision for bad and doubtful debts (1,118,654) (811,763) (1,118,654) (811,763)
Property Plant & Equipment
Depreciation and Amortisation 126,751 117,353 272,131 261,080
Capital allowances on property and equipment (73,954) (86,584) (265,455) (250,058)
Temporary differences (Adjusted in deferred taxation) (215,431) (292,200) (261,552) (311,947)
Specific provision claim from prior year (430,012) (122,536) (737,688) (259,935)
Relief for tax losses prior year (limited to 35% of total statutory income) 0 0 (940) (558)
Taxable Income 1,447,802 2,082,352 2,208,342 3,262,612
Income tax expense based on profits for the year 405,384 728,824 650,127 1,110,857

Effective tax rate, % 14.75 9.25

Companies/income taxed at rates lower than 28%

2012 2011
% %

Lanka Industrial Estates Limited

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

148 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

For the year ended 31 March 2012 2011

LKR 000 LKR 000

20.3 Tax on Profit on Ordinary Activities

Taxation based on profits for the year 405,384 728,824
Tax over/under provision (27,873) 6,066
Increase in deferred tax liabilities 52,918 3,977
Bank 430,429 738,867
Acuity Partners (Pvt) Limited 28,420 74,501
DFCC Consulting (Pvt) Limited 393 279
DFCC Vardhana Bank PLC 182,301 268,044
Lanka Industrial Estates Limited 14,740 16,243
Synapsys Limited 210 368
Subsidiary companies tax 226,064 359,435
Total Group 656,493 1,098,302

20.4 Summary
Bank 430,429 738,867
Subsidiaries and joint venture
- current tax 221,813 368,486
Increase in deferred tax asset (3,802) (1,019)
Increase/(decrease) in deferred tax liabilities 8,053 (8,032)
Total Group 656,493 1,098,302

21. Earnings per Share

21.1 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.

21.2 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.

BANK GROUP
For the year ended 31 March 2012 2011 2012 2011

21.3 Computation of Basic and Diluted Earnings per Share

Profit for the year (LKR 000) 2,317,469 7,137,451 2,900,206 5,090,313
Weighted average number of shares 265,073,131 264,854,825 265,073,131 264,854,825
Basic earnings per share, LKR 8.74 26.95 10.94 19.22
Weighted average number of shares that would have been issued at
average market price (44,284) (44,284)
Weighted average number of shares under option 260,746 260,746
Weighted average number of shares 265,071,287 265,071,287
Diluted earnings per share, LKR 26.93 19.21

Annual Report 2011/12 DFCC Bank 149

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

BANK GROUP
31.03.2012 31.03.2011 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000

22. Cash and Short-Term Funds

Domestic Currency
Cash and balances with banks 83,210 16,553 1,911,603 1,520,592
Call deposits 0 1,474,076 275 27,435
Time deposits 0 0 97,810 166
Foreign Currency
Timed deposits 3,451,552 0 2,935,511 0
3,534,762 1,490,629 4,945,199 1,548,193

23. Balances with Central Bank

Statutory deposit with Central Bank of Sri Lanka 0 0 1,596,066 894,235

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

As required by the provisions of Section 93 of the Monetary Law Act, a minimum cash balance is maintained with the Central Bank of
Sri Lanka, as explained in Note 5.2.2. The minimum cash reserve requirement on rupee deposit liabilities is prescribed as a percentage of
Rupee deposit liabilities. The percentage is varied from time to time.

Applicable minimum rate was 7% up to 29 April 2011 increased to 8% thereafter.

There are no cash reserve requirements for foreign currency deposit liabilities.

BANK GROUP
31.03.2012 31.03.2011 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000

24. Treasury Bills and Other Securities

Eligible for Rediscounting with Central Bank
Treasury bills and bonds held for trading 123,806 392,447 653,716 697,881
123,806 392,447 653,716 697,881
Treasury bills and bonds held to maturity
Repurchase transactions 0 1,678,520 3,858,310 3,445,587
Others 1,413,712 8,429,608 6,056,341 14,285,648
1,537,518 10,500,575 10,568,367 18,429,116

25. Securities Purchased under Resale Agreements

Loans at cost 0 166,000 1,884,792 1,996,168

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

150 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

BANK GROUP
31.03.2012 31.03.2011 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000

26. Placements with and Loans to Other Banks and Financial

Institutions
26.1 Loans to Banks and Financial Institutions
Refinanced loans - Plantation development project 1,395,539 1,985,378 1,395,539 1,985,378
- KFW DFCC (V) SME in the North and East 521,834 99,400 521,834 99,400
Other loans 0 170,000 0 170,000
1,917,373 2,254,778 1,917,373 2,254,778
KFW - Kreditanstalt fur wiederaufbau

BANK GROUP
31.03.2012 31.03.2011 31.03.2012 31.03.2011
Number of Market Number of Market Number of Market Number of Market
ordinary Value ordinary Value ordinary Value ordinary Value
shares shares shares shares
LKR 000 LKR 000 LKR 000 LKR 000

27. Dealing Securities

Quoted Ordinary Shares
Dialog Axiata PLC 0 0 54,890 576 0 0 54,890 576
Dolphin Hotels PLC 818,800 24,564 818,800 42,250 818,800 24,564 818,800 42,250
John Keells Holdings PLC 197,780 40,743 148,335 42,365 197,780 40,743 148,335 42,365
Sri Lanka Telecom PLC 0 0 900 51 0 0 900 51
65,307 85,242 65,307 85,242

BANK GROUP
31.03.2012 31.03.2011 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000

28. Non-Current Assets Held for Sale

Land acquired by Acuity Partners (Pvt) Limited 0 0 2,875 2,875

Details of the Land

Extent Market Value
perches LKR 000

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

Value of the land amounted to LKR 5.75 million as at 31 January 2011. As this land is held by Acuity Partners (Pvt) Limited, the joint
venture, only 50% of the value is taken into the consolidated financial statements.

Annual Report 2011/12 DFCC Bank 151

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

BANK GROUP
31.03.2012 31.03.2011 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000

29. Bills of Exchange

Balance on 31 March
Export bills 521,442 301,057
Import bills 38,695 16,806
Less: Provision for overdue bills - Specific 24,647 26,462
- General 2,565 2,469
532,925 288,932

29.1 Movement in Provision

29.1.1 Movement in Specific Provision
Balance on 31 March 2011 26,462
Add: Provision for the year 1,660
Exchange rate difference on foreign currency loan provision 382
Less: Recoveries in the year 3,857
24,647

29.1.2 Movement in General Provision

Balance on 31 March 2011 2,469
Add: Provision for the year 67
Exchange rate difference on foreign currency loan provision 29
2,565

30. Loans and Advances

30.1 Balance on 31 March
Domestic Currency
Term loans 38,945,324 28,994,362 52,061,883 37,246,596
Commercial papers and asset back notes 1,596,750 740,300 1,611,750 755,543
Debenture loans 975,776 1,109,674 975,776 1,109,674
Overdrafts 0 0 11,960,672 6,941,307
Others 0 0 3,391,684 881,980
Staff loans for miscellaneous purposes 420,626 265,410 638,020 396,801
41,938,476 31,109,746 70,639,785 47,331,901
Foreign Currency
Overdrafts 0 0 365,046 764,858
Term loans 2,318,910 1,621,532 3,154,897 2,143,370
Trade loans 0 0 2,762,725 1,634,629
2,318,910 1,621,532 6,282,668 4,542,857
44,257,386 32,731,278 76,922,453 51,874,758

Less: Loan loss provision - Specific 1,655,841 1,507,241 2,472,552 2,301,200

- General 219,009 259,910 344,859 386,309
Interest in suspense relating to overdrafts 0 0 652,520 481,032
Balance net of loan loss provision 42,382,536 30,964,127 73,452,522 48,706,217

152 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

BANK GROUP
31.03.2012 31.03.2012
LKR 000 LKR 000

30.2 Movement in Provision

30.2.1 Movement in Specific Provision
Balance on 31 March 2011 1,507,241 2,301,200
Add: Provision for the year 389,221 631,595
Transfer from interest in suspense to interest capitalised loans 8,455 8,455
Exchange rate difference in foreign currency loan provision 0 2,260
Less: Recoveries in the year 249,076 454,373
Write-off of loans 0 16,585
1,655,841 2,472,552

30.2.2 Movement in General Provision

Balance on 31 March 2011 259,910 386,309
Add: Provision for the year 11,378 11,378
Exchange rate difference on foreign currency loan provision 0 279
Less: Reductions in the year 52,279 53,107
219,009 344,859

30.3 Loans granted from Investment Fund Account

The details of loans granted from Investment Fund Account which were outstanding as at 31 March 2012 are as follows:

No. of loans Balance on Interest rate Tenure

31 March 2012 %
LKR 000

Agriculture 7 29,363 11.4 - 14.8 5-8 years

Factory/mills modernisation 11 73,089 11.5 - 14.8 5-8 years
Small and medium enterprises 19 96,844 11.4 - 15.3 5-7 years
Infrastructure development 3 16,973 11.6 - 13.2 5-6 years
Construction of hotels and for related purposes 5 32,967 11.4 - 14.5 5-8 years
Total 249,236

Annual Report 2011/12 DFCC Bank 153

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

BANK GROUP
31.03.2012 31.03.2011 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000

31. Finance Leases

31.1 Balance on 31 March
Gross investment in leases:
Lease rentals receivable
- within one year from balance sheet date 3,920,776 2,991,608 11,440,472 2,991,608
- one to five years from balance sheet date 7,361,698 4,928,633 483,961 4,928,633
11,282,474 7,920,241 11,924,433 7,920,241
Less: Deposit of rentals 25,374 35,934 27,093 35,934
Specific provision for leases in default 91,310 200,587 91,310 200,587
General provision for leases in default 135,915 199,830 138,403 199,830
Income in suspense 22,469 48,874 22,469 48,874
Unearned income on rentals receivable
- within one year from balance sheet date 994,524 699,796 2,133,137 699,796
- one to five years from balance sheet date 1,082,909 775,165 88,604 775,165
Net investment in leases 8,929,973 5,960,055 9,423,417 5,960,055

31.2 Movement in Provision

31.2.1 Movement in Specific Provision
Balance on 31 March 2011 200,587 200,587
Add: Provision for the year 26,320 26,320
Less: Recoveries in the year 69,872 69,872
Transfers* 65,725 65,725
91,310 91,310

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

31.2.2 Movement in General Provision

Balance on 31 March 2011 199,830 199,830
Add: Provision for the year 3,977 6,465
Less: Reduction in the year 67,892 67,892
135,915 138,403

31.3 Movement in Income Suspense

Balance on 31 March 2011 48,874 48,874
Add: Transfer during the year 14,851 14,851
Less: Recoveries in the year 41,256 41,256
22,469 22,469

32. Interest Receivable

32.1 Balance on 31 March
Amount due 1,396,506 1,266,784 2,263,224 1,912,368
Amount accrued and not due 295,239 207,504 295,239 207,504
Less: Interest in suspense 1,331,070 1,216,989 1,911,563 1,704,647
360,675 257,299 646,900 415,225

154 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

BANK GROUP
31.03.2012 31.03.2012
LKR 000 LKR 000

32.2 Movement in Interest in Suspense

Balance on 31 March 2011 1,216,989 1,704,647
Add: Transfer during the year 427,705 668,684
Exchange rate difference in foreign currency interest 0 982
Less: Collections 239,512 357,728
Transfer to loan provision 8,455 8,455
Write-offs 65,657 96,567
1,331,070 1,911,563

Ordinary Shares Preference Debentures Unit Trusts Total Total

Shares
Quoted Unquoted Unquoted Quoted Unquoted Quoted Unquoted 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

33. Investment Securities

33.1 Composition of Investment Securities
33.1.1 Bank
Performing investments 4,776,594 37,327 1,568,000 0 0 151,528 262,196 6,795,645 3,913,904
Non-performing investments 10,166 98,377 0 0 0 0 2,929 111,472 117,623
4,786,760 135,704 1,568,000 0 0 151,528 265,125 6,907,117 4,031,527

Market value
on 31.03.2012 14,091,088 190,153 306,515* 14,587,756
on 31.03.2011 16,347,547 257,159 350,782 16,955,488

33.1.2 Group
Performing investments 7,276,531 54,970 1,584,490 4,000 76,750 151,528 287,196 9,435,465 6,567,924
Non-performing investments 10,166 110,877 12,500 0 0 0 2,929 136,472 130,123
Less: Provision for diminution 0 0 12,500 0 0 0 0 12,500 12,500
7,286,697 165,847 1,584,490 4,000 76,750 151,528 290,125 9,559,437 6,685,547

Market value
on 31.03.2012 14,094,694 190,153 333,272* 14,618,119
on 31.03.2011 16,351,528 257,159 377,831 16,986,518
* Managers buying price

33.2 Movement in Investment Securities

33.2.1 Bank
Balance on beginning 2,762,035 73,001 777,167 0 0 151,528 267,796 4,031,527 1,998,527
Additions for the year 2,139,309 64,134 1,100,000 0 0 0 5,437 3,308,880 810,705
Transfer from investments
in associate companies 0 0 0 0 0 0 0 0 2,051,225
Transfer from
dealing securities 0 0 0 0 0 0 0 0 4,896
Less: Disposals 104,250 0 0 0 0 0 0 104,250 97,793
Redemptions 0 0 309,167 0 0 0 8,108 317,275 402,916
Transfer to dealing
securities 0 0 0 0 0 0 0 0 333,117
Write-offs 10,334 1,431 0 0 0 0 0 11,765 0
4,786,760 135,704 1,568,000 0 0 151,528 265,125 6,907,117 4,031,527

Annual Report 2011/12 DFCC Bank 155

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

Ordinary Shares Preference Debentures Unit Trusts Total Total

Shares
Quoted Unquoted Unquoted Quoted Unquoted Quoted Unquoted 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

33.2.2 Group
Balance at beginning 5,261,972 94,844 816,157 4,000 76,750 151,528 292,796 6,698,047 2,001,137
Additions for the year 2,139,309 72,434 1,100,000 0 0 0 5,437 3,317,180 810,705
Transfer from investments
in associate companies 0 0 0 0 0 0 0 0 4,550,582
Transfer from
dealing securities 0 0 0 0 0 0 0 0 4,896
Acquisition of subsidiary by
joint venture company 0 0 0 0 0 0 0 0 164,553
Less: Disposals 104,250 0 10,000 0 0 0 0 114,250 97,793
Redemptions 0 0 309,167 0 0 0 8,108 317,275 402,916
Transfer to dealing
securities 0 0 0 0 0 0 0 0 333,117
Write-offs 10,334 1,431 0 0 0 0 0 11,765 0
7,286,697 165,847 1,596,990 4,000 76,750 151,528 290,125 9,571,937 6,698,047
Less: Provision for diminution 0 12,500 0 0 0 0 12,500 12,500
7,286,697 165,847 1,584,490 4,000 76,750 151,528 290,125 9,559,437 6,685,547

GROUP
31.03.2012 31.03.2011
LKR 000 LKR 000

33.3 Provision for Diminution

Balance at beginning 12,500 0
Recognised in income statement 0 3,125
Consolidation adjustment - acquisition of a subsidiary by joint venture company 0 9,375
12,500 12,500

33.4 On 31 March 2012 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.

156 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

31.03.2012 31.03.2011
Number of Cost* Market Number of Cost* Market
ordinary value ordinary value
shares LKR 000 LKR 000 shares LKR 000 LKR 000

33.5 Quoted Ordinary Shares

Banks, Finance & Insurance
Aviva NDB Insurance PLC 12,000 2,013 2,538 12,000 2,013 3,589
Ceylinco Insurance PLC - voting 24,100 10,807 19,579 24,100 10,807 17,593
Ceylinco Insurance PLC - non-voting 43,971 11,118 13,380 43,971 11,118 12,703
Commercial Bank of Ceylon PLC - voting 113,985,956 2,440,453 11,398,596 52,853,674 1,659,617 14,048,507
Commercial Bank of Ceylon PLC - non-voting 211,178 16,262 16,894 97,519 15,174 16,149
Hatton National Bank PLC - non-voting 696,040 33,550 65,776 797,600 23,575 170,128
HNB Assurance PLC 39,332 1,320 1,801 29,500 1,013 2,360
Janashakthi Insurance PLC 250,000 3,000 2,900 250,000 3,000 4,125
Nations Trust Bank PLC 22,865,356 1,329,713 1,301,039 0 0 0
National Development Bank PLC 2,000,000 352,369 245,600 1,000,000 352,369 340,400
Sampath Bank PLC 285,798 21,297 51,387 425,982 28,879 122,811
Union Assurance PLC 0 0 0 100 7 17
4,221,902 13,119,490 2,107,572 14,738,382

Beverages, Food & Tobacco

Ceylon Tobacco Company PLC 150,967 8,520 77,763 150,967 8,520 54,046
Distilleries Company of Sri Lanka PLC 1,087,200 181,846 157,644 1,087,200 181,846 195,696
190,366 235,407 190,366 249,742

Chemicals & Pharmaceuticals

Chemical Industries (Colombo) PLC - voting 247,900 17,674 23,699 247,900 17,674 38,425
Chemical Industries (Colombo) PLC - non-voting 389,400 23,135 25,350 389,400 23,135 42,055
Haycarb PLC 38,330 4,139 6,133 38,330 4,139 5,956
44,948 55,182 44,948 86,436

Construction & Engineering

Colombo Dockyard PLC 245,831 34,793 56,541 234,125 34,793 59,725

Diversified Holdings
Aitken Spence & Company PLC 0 0 0 948,000 21,522 153,860
Carson Cumberbatch PLC 97,512 28,309 45,343 97,512 28,308 61,901
Hayleys PLC 0 0 0 348,060 56,907 132,994
Hemas Holdings PLC 620,700 20,371 16,324 620,700 30,705 28,552
48,680 61,667 137,442 377,307

Healthcare
Ceylon Hospitals PLC - voting 130,908 3,018 9,491 130,908 3,018 13,091
Ceylon Hospitals PLC - non-voting 392,726 6,818 21,757 392,726 6,818 31,457
9,836 31,248 9,836 44,548
Hotels & Travels
Aitken Spence Hotel Holdings PLC 91,875 3,233 6,431 91,875 3,233 9,004
Asian Hotels & Properties PLC 183,600 3,956 14,321 91,800 3,956 17,249

* 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 official valuations list published by Colombo Stock Exchange.

Annual Report 2011/12 DFCC Bank 157

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

31.03.2012 31.03.2011
Number of Cost* Market Number of Cost* Market
ordinary value ordinary value
shares LKR 000 LKR 000 shares LKR 000 LKR 000

7,189 20,752 7,189 26,253

33.5 Quoted Ordinary Shares (Contd.)

Investment Trusts
Ceylon Guardian Investment Trust PLC 246,931 5,190 57,041 246,931 5,190 91,241
Ceylon Investment PLC 676,953 17,359 53,005 676,953 17,359 102,220
22,549 110,046 22,549 193,461

Footwear & Textiles

Odel PLC 7,400 111 147 7,400 111 283

Telecommunications
Dialog Axiata PLC 2,050,000 27,296 14,555 2,050,000 27,296 21,525

Manufacturing
ACL Cables PLC 51,000 3,070 3,193 51,000 3,070 4,794
Ceylon Grain Elevators PLC 48,997 1,297 2,979 48,997 1,297 8,236
Chevron Lubricants Lanka PLC 609,400 20,301 110,850 609,400 20,301 97,504
Piramal Glass Ceylon PLC 21,790,852 61,118 132,924 22,076,852 61,921 245,053
Royal Ceramics Lanka PLC 139,800 16,996 16,077 139,800 16,996 21,949
Tokyo Cement Company (Lanka) PLC - non-voting 2,247,000 46,142 60,669 2,247,000 46,142 98,868
148,924 326,692 149,727 476,404

Power & Energy

Lanka IOC PLC 508,300 10,166 9,861 510,300 10,206 8,981
Vallibel Power Erathna PLC 7,500,000 20,000 49,500 7,500,000 20,000 64,500
30,166 59,361 30,206 73,481

Total Quoted Shares - Bank 4,786,760 14,091,088 2,762,035 16,347,547

Investment in quoted shares by joint venture 580 3,606 580 3,981
Commercial Bank of Ceylon PLC - equity adjustment 2,499,357 0 2,499,357 0
Total Quoted Shares - Group 7,286,697 14,094,694 5,261,972 16,351,528

33.5.1 Investment in Quoted

Ordinary Shares by Joint Venture
Banks, Finance & Insurance
Central Finance Company PLC 3 0** 0 3 0** 2
0 0 0 2

Diversified Holdings
Hayleys PLC 7,491 558 2,809 7,491 558 2,584
John Keells Holdings PLC 4,680 22 797 4,680 22 1,395
580 3,606 580 3,979
580 3,606 580 3,981

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

** Less than LKR 500.

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

158 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

31.03.2012 31.03.2011
Number of Cost* Directors' Number of Cost* Directors'
ordinary valuation ordinary valuation
shares LKR 000 LKR 000 shares LKR 000 LKR 000

33.6 Unquoted Ordinary Shares

Beico Link Carbons (Pvt) Limited 328,500 2,190 4,359 328,500 2,190 2,190
Credit Information Bureau of Sri Lanka 8,884 888 888 8,884 888 888
Durdans Medical & Surgical Hospital (Pvt) Limited 1,273,469 16,029 16,029 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 0 0 150,000 750 750
Millenium Housing Developers Limited 250,000 2,500 3,534 250,000 2,500 2,500
Plastipak Lanka Limited 240,000 2,400 2,301 240,000 2,400 2,400
Ranweli Holiday Village Limited 1,885,558 13,980 52,421 1,616,193 10,748 40,599
Sampath Centre Limited 1,000,000 10,000 30,000 1,000,000 10,000 30,000
Samson Reclaim Rubbers (Pvt) Limited 116,700 2,334 12,100 116,700 2,334 15,006
Sinwa Holdings Limited 460,000 9,200 9,200 460,000 9,200 23,172
Sun Tan Beach Resorts (Pvt) Limited 6,119,579 61,008 61,008 197,309 1,816 1,816
The Video Team (Pvt) Limited 30,000 300 2,670 30,000 300 375
Wayamba Plantations (Pvt) Limited 2,750,000 9,750 9,750 2,750,000 9,750 30,459
Total unquoted ordinary shares - Bank 135,704 209,385 73,001 170,280
Investments in unquoted ordinary shares by subsidiaries 2,030 2,030 2,030 2,030
Investments in unquoted ordinary shares
by joint venture 28,113 28,113 19,813 19,813
Total unquoted ordinary shares - Group 165,847 239,528 94,844 192,123

31.03.2012 31.03.2011
Number of Cost* Directors' Number of Cost* Directors'
ordinary Valuation ordinary Valuation
shares LKR 000 LKR 000 shares LKR 000 LKR 000

33.6.1 Investments in Unquoted Ordinary Shares by

Subsidiaries
Credit Information Bureau of Sri Lanka 300 30 30 300 30 30
Lankaclear (Pvt) Limited 100,000 1,000 1,000 100,000 1,000 1,000
Lanka Financial Services Bureau Limited 100,000 1,000 1,000 100,000 1,000 1,000
2,030 2,030 2,030 2,030

33.6.2 Investments in Unquoted Ordinary Shares by

Joint Ventures
Durdans Heart Surgical Centre (Pvt) Limited 750,000 7,313 7,313 750,000 7,313 7,313
Durdans Medical and Surgical Hospital (Pvt) Limited 1,000,000 12,500 12,500 1,000,000 12,500 12,500
Kankiriya Thambiliya (Pvt) Limited 550,000 5,530 5,530 0 0 0
Parambe Hydro (Pvt) Limited 50 1,629 1,629 0 0 0
Pupulaketiya Hydro Power (Pvt) Limited 51 1,141 1,141 0 0 0
28,113 28,113 19,813 19,813
* Cost is reduced by write-off of diminution in value other than temporary in respect of investments.

Annual Report 2011/12 DFCC Bank 159

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

31.03.2012 31.03.2011
Number of Cost* Number of Cost*
ordinary ordinary
shares LKR 000 shares LKR 000

33.7 Unquoted Preference Shares

33.7.1 Unquoted Redeemable
Cumulative Preference Shares
Carson Cumberbatch & Company PLC 11,000,000 110,000 16,500,000 165,000
Dialog Axiata PLC 117,500,000 117,500 235,000,000 235,000
Heladanavi Limited 0 0 1,666,669 16,667
Phoenix Industries Limited 124,000,000 1,240,000 36,000 360,000
Tudawe Brothers Limited 1,000,000 100,000 0 0
1,567,500 776,667

33.7.2 Unquoted Irredeemable Preference Shares

Arpico Finance Company PLC 50,000 500 50,000 500
Total investments in unquoted
preference shares - Bank 1,568,000 777,167
Investments in unquoted
preference shares by joint venture 28,990 38,990
Total investments in unquoted
preference shares - Group 1,596,990 816,157

33.7.3 Investments in Unquoted

Preference Shares by Joint Venture
E Services Lanka Limited 1,250,000 12,500 1,250,000 12,500
Nividhu (Pvt) Limited 1,640,000 16,490 1,640,000 16,490
Tudawe Brothers Limited 0 0 100,000 10,000
28,990 38,990

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

31.03.2012 31.03.2011
Cost Cost
LKR 000 LKR 000

33.8 Quoted Debentures

Total investments in quoted debentures - Bank 0 0
Investments in quoted debentures by joint venture 4,000 4,000
Total investments in quoted debentures - Group 4,000 4,000

33.8.1 Investments in Quoted Debentures by Joint Venture

Bank of Ceylon - 11.50% 4,000 4,000
4,000 4,000

160 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

31.03.2012 31.03.2011
Cost Cost
LKR 000 LKR 000

33.9 Unquoted Debentures

Total investments in unquoted debentures - Bank 0 0
Investments in unquoted debentures by joint venture 76,750 76,750
Total investments in unquoted debentures - Group 76,750 76,750

33.9.1 Investments in Unquoted Debentures by Joint Venture

Ceylon Hospitals PLC 50,000 50,000
Hatton National Bank PLC 6,750 6,750
Neluwa Cascade Hydro Power (Pvt) Limited 20,000 20,000
76,750 76,750

31.03.2012 31.03.2011
Number of Cost Market Number of Cost Market
units value units value
LKR 000 LKR 000 LKR 000 LKR 000

33.10 Quoted Units in Unit Trusts

NAMAL Acuity Value Fund 3,018,300 151,528 190,153 3,018,300 151,528 257,159
Total quoted units - Bank 151,528 190,153 151,528 257,159
Investments in unit trusts by subsidiaries 0 0 0 0
Total investments in quoted unit
trusts - Group 151,528 190,153 151,528 257,159

31.03.2012 31.03.2011
Number of Cost Managers Number of Cost Managers
units Buying Price units Buying Price
LKR 000 LKR 000 LKR 000 LKR 000

33.11 Unquoted Units in

Unit Trusts
NAMAL Growth Fund 295,000 2,929 23,798 533,050 5,293 55,469
NAMAL Income Fund 16,712,129 170,625 182,496 16,712,129 170,625 181,661
NAMAL Money Market Fund 8,573,206 86,258 88,476 8,037,604 80,821 82,144
National Equity Fund 500,000 5,313 11,745 1,040,540 11,057 31,508
Total investments in unqouted unit
trusts - Bank 265,125 306,515 267,796 350,782
Investments in unit trusts by joint venture 25,000 26,757 25,000 27,049
Total investments in unquoted unit
trusts - Group 290,125 333,272 292,796 377,831

33.11.1 Investments in Unit Trusts

by Joint Venture
NAMAL Income Fund 2,436,870 25,000 26,757 2,436,870 25,000 27,049
25,000 26,757 25,000 27,049

Annual Report 2011/12 DFCC Bank 161

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

BANK GROUP
31.03.2012 31.03.2011 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000

34. Investments in Associate Companies

34.1 Unquoted
National Asset Management Limited (Ownership 30%)
Balance at beginning 35,270 35,270 50,931 47,977
Share of profit after tax 0 0 4,488 6,413
Dividend received - elimination on consolidation 0 0 (4,140) (3,459)
Balance on 31 March 35,270 35,270 51,279 50,931

Investment in Associate Companies by

Acuity Partners (Pvt) Limited via Lanka Ventures PLC
Balance at beginning 126,360 0
Net assets on acquisition 0 108,370
Investment at cost 192,000 0
Share of profit after tax 1,161 17,990
Balance on 31 March 319,521 126,360

Total 35,270 35,270 370,800 177,291

BANK
31.03.2012 31.03.2011
LKR 000 LKR 000

35. Investments in Joint Venture

Unquoted
Acuity Partners (Pvt) Limited (ownership 50%)
Balance on 31 March 655,000 655,000

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

GROUP
31.03.2012 31.03.2011
LKR 000 LKR 000

Total Assets 6,471,681 2,945,092

Liabilities 4,430,715 2,011,553
Income 994,182 466,130
Expenses 708,618 258,874
Income tax 56,839 74,501

DFCC DFCC Lanka Synapsys Bank

Consulting Vardhana Industrial Limited 31.03.2012 31.03.2011
(Pvt) Limited Bank PLC Estates Limited
Ownership Ownership Ownership Ownership
100% 99% 51% 100%
LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

36. Investments in Subsidiary Companies

Balance as at beginning 5,000 2,286,284 97,036 53,000 2,441,320 2,408,320
Investments in additional shares* 0 1,336,587 0 0 1,336,587 33,000
Provision for impairment 0 0 0 17,367 17,367 0
Balance on 31 March 5,000 3,622,871 97,036 35,633 3,760,540 2,441,320
* Including right issue

162 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

BANK GROUP
31.03.2012 31.03.2011 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000

37. Group Balances Receivable

DFCC Consulting (Pvt) Limited 0 36
DFCC Vardhana Bank PLC 40,461 12,674
Synapsys Limited 1,136 3,240
41,597 15,950

38. Income Tax Refund Due

Income tax overpayment 139,574 0 161,020 1,471

39. Investment Properties

39.1 Composition
Balance at beginning 0 6,500 233,579 132,641
Additions during the year 0 0 5,693 118,073
Less: Depreciation 0 0 8,283 8,030
Disposals during the year 0 6,500 83,008 9,105
0 0 147,981 233,579

Buildings Extent of Cost Accumulated Net Book Market

Land Depreciation/ Value Value
Impairment
Sq. Ft. Perches LKR 000 LKR 000 LKR 000 LKR 000

39.2 List of Investment Properties

Pattiwila Road, Sapugaskanda, Makola 280,000 20,000 200,750 82,656 118,094 755,750
44/7, School Lane, Nawala 0 29.4 29,887 0 29,887 33,810
230,637 82,656 147,981
The fair value of investment property as at 31 March 2012 situated at Pattiwela Road, Sapugaskanda, Makola was based on market valuations carried out
in April 2012 by Mr P B Kalugalagedara, FIV (Sri Lanka), Chartered Valuer.

The fair value of investment property as at 31 March 2012 situated at School Lane, Nawala is based on the sales transactions carried out in December 2011.

Rental income from investment property in Group for 2012, LKR 128 million (2011 - LKR 115 million).

GROUP
31.03.2012 31.03.2011
LKR 000 LKR 000

40. Goodwill on Consolidation

DFCC Vardhana Bank PLC 146,602 146,602
Acquisition of Lanka Ventures PLC by joint venture 70,186 70,186
Lanka Industrial Estates Limited 9,623 9,623
226,411 226,411

Annual Report 2011/12 DFCC Bank 163

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

Land & Office Furniture Motor Total

building equipment & fittings vehicles
LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

41. Property, Plant and Equipment

41.1 Composition: Bank
Cost as at 31.03.2011 265,550 580,549 221,328 213,936 1,281,363
Additions for the year 0 24,926 22,469 0 47,395
Less: Disposals during the year 0 424 1,397 5,982 7,803
Cost Adjustment 104 0 0 0 104
Cost as at 31.03.2012 265,446 605,051 242,400 207,954 1,320,851
Accumulated depreciation as at 31.03.2011 136,376 472,179 97,190 82,153 787,898
Charge for the year 7,734 44,411 19,684 37,133 108,962
Less: Accumulated depreciation on disposal 0 424 1,397 5,794 7,615
Accumulated depreciation as at 31.03.2012 144,110 516,166 115,477 113,492 889,245
Net book value as at 31.03.2012 121,336 88,885 126,923 94,462 431,606
Net book value as at 31.03.2011 129,174 108,370 124,138 131,783 493,465

Building Extent of Cost Accumulated Net book

land depreciation value
sq. ft. perches* LKR 000 LKR 000 LKR 000

41.1.2 List of Freehold Land and Building

73/5, Galle Road, Colombo 3 57,200 104.45 55,193 50,745 4,448
5, Deva Veediya, Kandy 4,600 12.54 16,196 5,435 10,761
259/30, Kandy Road, Bambarakelle, Nuwara-Eliya 0 28.72 7,279 0 7,279
73, W A D Ramanayake Mawatha, Colombo 2 21,400 45.00 184,178 87,930 96,248
4A, 4th Cross Lane, Borupana, Ratmalana 0 20.00 2,600 0 2,600
265,446 144,110 121,336
* 1 perch = 25.2929m2; 1 sq ft = 0.0929m2

Market Value of Properties

Date of
LKR million valuation

73/5, Galle Road, Colombo 3 605 31.03.2011

5, Deva Veediya, Kandy 50 31.03.2011
73, W A D Ramanayake Mawatha, Colombo 2 350 31.03.2011
(Valued by Mr P B Kalugalagedera - Chartered Valuer)

164 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

Land & Plant & Office Furniture Motor Total

building machinery equipment & fittings vehicles
LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

41.2 Composition: Group

Cost as at 31.03.2011 333,859 64,850 1,000,479 567,305 272,624 2,239,117
Additions for the year 22,565 0 105,747 73,012 29,220 230,544
Less: Disposals during the year 0 0 3,307 1,632 15,732 20,671
Write offs 0 0 397 118 0 515
Cost as at 31.03.2012 356,424 64,850 1,102,522 638,567 286,112 2,448,475

Accumulated depreciation as at 31.03.2011 164,919 62,112 736,954 223,280 112,437 1,299,702

Charge for the year 13,008 0 112,729 57,321 48,822 231,880
Less: Accumulated depreciation on disposal 0 0 3,104 1,445 14,293 18,842
Write offs 0 0 397 118 0 515
Accumulated depreciation as at 31.03.2012 177,927 62,112 846,182 279,038 146,966 1,512,225
Net book value as at 31.03.2012 178,497 2,738 256,340 359,529 139,146 936,250
Net book value as at 31.03.2011 168,940 2,738 263,525 344,025 160,187 939,415

BANK GROUP
31.03.2012 31.03.2011 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000

42. Intangible Assets

Cost at beginning 318,125 305,086 822,813 733,787
Additions for the year 2,277 13,039 97,645 89,026
Less: Disposals during the year 0 0 733 0
Cost as at 31 March 320,402 318,125 919,725 822,813
Accumulated amortisation at beginning 272,634 255,107 649,771 573,753
Amortisation for the year 17,790 17,527 66,386 76,018
Less: Accumulated amortisation on disposal 0 0 293 0
Accumulated amortisation as at 31 March 290,424 272,634 715,864 649,771
Net Book Value as at 31 March 29,978 45,491 203,861 173,042

43. Deferred Tax Asset

Balance at beginning 1,781 762
Increase in deferred tax asset 3,802 1,019
Balance as at 31 March 5,583 1,781

Annual Report 2011/12 DFCC Bank 165

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

BANK GROUP
31.03.2012 31.03.2011 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000

44. Other Assets

Refundable deposits and advances 78,049 53,403 184,948 322,219
Dividend due 417,648 205,032 417,648 207,788
Debtors 438,302 253,625 1,207,686 812,774
933,999 512,060 1,810,282 1,342,781

45. Deposits from Customers

Domestic Currency Deposits (LKR)
Demand deposits 0 0 1,214,074 1,347,390
Savings deposits 0 0 6,511,801 4,718,720
Fixed deposits 11,710,526 3,686,747 28,751,562 13,256,125
Certificates of deposits 0 1,436 194,528 100,589
Others 0 0 272,302 229,038
11,710,526 3,688,183 36,944,267 19,651,862
Foreign Currency Deposits
Demand deposits 0 0 42,834 81,334
Savings deposits 0 0 660,887 665,679
Fixed deposits 0 0 6,770,321 5,016,203
Others 0 0 1,704 1,319
0 0 7,475,746 5,764,535
Total deposits from customers 11,710,526 3,688,183 44,420,013 25,416,397

Deposits from banks 0 0 1,247,502 1,034,300

Deposits from finance companies 0 0 75,826 159,787
Deposits from other customers 11,710,526 3,688,183 43,096,685 24,222,310
Total deposits from customers 11,710,526 3,688,183 44,420,013 25,416,397

46. Borrowing - Medium and Long-Term

Repayable in foreign currency
Exchange difference borne by the Bank
FMO 1,728,000 1,656,000 1,728,000 1,656,000
Nordea Bank Danmark A/S 127,514 156,804 127,514 156,804
DEG 3,840,000 0 3,840,000 0
Government of Sri Lanka/EIB loans - credit lines 2,567,988 2,400,242 2,567,988 2,400,242
8,263,502 4,213,046 8,263,502 4,213,046
Repayable in Rupees
Government of Sri Lanka/IDA loans - credit lines 2,447,149 1,977,155 2,447,149 1,977,155
Government of Sri Lanka/ADB loans - credit lines 4,288,287 4,388,825 4,288,287 4,388,825
Government of Sri Lanka/KFW loans - credit lines 1,919,286 1,715,533 1,919,286 1,715,533
Government of Sri Lanka/JBIC loans - credit lines 1,897,002 2,431,759 1,897,002 2,431,759
Government of Sri Lanka/IFAD loans - credit lines 14,954 17,664 14,954 17,664
Government of Sri Lanka/EIB loans - credit lines 8,150,468 8,475,302 8,150,468 8,475,302
Central Bank of Sri Lanka - refinance loans (secured) 564,674 739,704 564,674 739,704
FMO 0 169,716 0 169,716
Other local sources 5,084,770 0 5,084,770 0
32,630,092 24,128,704 32,630,092 24,128,704

166 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

46.1 Supplementary Information

(As required under DFCC Act No. 35 of 1955)
As at 31 March 2012, 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.

46.2 Assets Pledged as Security

Amount
Nature LKR 000

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

Loans refinanced by Central Bank 564,674

Acronyms:
ADB - Asian Development Bank
DEG - Deutsche Investitions-Und Entwicklungsgesellschaft MBH, Germany
EIB - European Investment Bank, Luxembourg
FMO - Nederlandse Financierings (Maatschappij Voor Ontwikkeling), The Netherlands
IDA - International Development Association
IFAD - International Fund for Agriculture Devolopment
JBIC - Japan Bank for International Cooperation Fund, Japan
KFW - Kreditanstalt fur Wiederaufbau, Germany

BANK GROUP
31.03.2012 31.03.2011 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000

47. Borrowing - Short-Term

Borrowing under repurchase agreements (Repos)
Government securities sold under repurchase 0 1,512,000 5,480,078 4,560,671
Bank overdrafts 0 119,819 78,441 133,635
Inter-bank borrowing 2,186,500 3,300,000 3,513,315 3,353,883
2,186,500 4,931,819 9,071,834 8,048,189

48. Debentures
48.1 Movement in Debentures
Balance at beginning 1,200,000 2,700,000 1,200,000 2,700,000
Redeemed during the year (500,000) (1,500,000) (500,000) (1,500,000)
700,000 1,200,000 700,000 1,200,000

49. Group Balances Payable

DFCC Consulting (Pvt) Limited 222 0 0 0
222 0 0 0

50. Deferred Tax Liabilities

Balance at beginning 275,121 271,144 315,313 319,368
Increase/(decrease) in liabilities 52,918 3,977 60,971 (4,055)
Balance as at 31 March in deferred tax asset 328,039 275,121 376,284 315,313

Annual Report 2011/12 DFCC Bank 167

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

BANK GROUP
31.03.2012 31.03.2011 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000

51. Other Liabilities

Accruals 58,277 73,281 97,611 103,952
Prior year's dividends 33,784 22,448 33,784 24,010
Interim dividend 0 1,854,682 0 1,854,682
Security deposit for leases 4,065 5,015 44,794 45,548
Prepaid loan and lease rentals 89,427 82,793 89,427 82,793
Account payables 212,672 191,921 1,172,055 1,116,543
Provision for staff retirement benefits 95,828 44,296 144,171 78,066
Other provisions 168,697 136,000 260,704 186,518
662,750 2,410,436 1,842,546 3,492,112

51.1 Provision for Staff Retirement Benefits

Defined benefit funded pension 24,197 (13,197) 24,197 (13,197)
Defined benefit unfunded pension 55,571 45,463 55,571 45,463
Defined benefit unfunded end of service gratuity 16,060 12,030 64,403 45,800
95,828 44,296 144,171 78,066

51.2 Movement in Provision for Staff Retirement Benefits

51.2.1 Defined Benefit Funded Pension
Net accrued liability on 31 March 2011 (13,197) (13,197)
Retirement benefit expense for the financial year 80,848 80,848
Employer contributions for the financial year (43,454) (43,454)
Net accrued liability on 31 March 2012 24,197 24,197

51.2.2 Defined Benefit Unfunded Pension

Net accrued liability on 31 March 2011 45,463 45,463
Retirement benefit expense for the financial year 10,108 10,108
Net accrued liability on 31 March 2012 55,571 55,571

51.2.3 Defined Benefit Unfunded End of Service Gratuity

Net accrued liability on 31 March 2011 12,030 45,800
Retirement benefit expense for the financial year 6,381 22,876
Gratuity payments for the financial year (2,351) (4,273)
Net accrued liability on 31 March 2012 16,060 64,403

51.3 Movement in Other Provisions

Balance as at 31 March 2011 136,000 186,518
Provision for the financial year 168,697 263,142
Payments for the financial year (122,755) (169,477)
Over provision (13,245) (19,479)
Balance as at 31 March 2012 168,697 260,704

168 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

BANK
31.03.2012
LKR 000

51.4 Reconciliation of Actuarial Liability with Accounting

Liability Recognised in the Balance Sheet
51.4.1 Funded Pension Liability
Present value of defined benefit pension obligations 1,494,887
Fair value of pension assets (1,631,445)
(136,558)
Unrecognised gain on 31 March 2012 (Note 14.2.1) 160,755
Liability recognised in the balance sheet (Note 51.2.1) 24,197

51.4.2 Unfunded Pension Liability

Present value of defined benefit pension obligations 65,147
Unrecognised (loss) on 31 March 2012 (Note 14.2.2) (9,576)
Liability recognised in the balance sheet (Note 51.2.2) 55,571

51.4.3 Unfunded End of Service Gratuity

Present value of defined benefit obligations 28,531
Unrecognised (loss) on 31 March 2012 (Note 14.2.3) (12,471)
Liability recognised in the balance sheet (Note 51.2.3) 16,060

51.5 Movement in Actuarial Liability

51.5.1 Funded Pension Liability
Present value of defined benefit pension obligations on 1 April 2011 1,367,956
Current service cost 55,958
Interest on obligation 128,152
Benefit payments during the year (93,624)
Actuarial experience loss 36,445
Present value of defined benefit pension obligations on 31 March 1,494,887

51.5.2 Unfunded Pension Liability

Present value of defined benefit pension obligations on 1 April 2011 47,888
Current service cost 5,320
Interest on obligation 4,788
Benefit payments during the year 0
Actuarial experience loss 7,151
Present value of defined benefit pension obligations on 31 March 65,147

51.5.3 Unfunded End of Service Gratuity

Present value of defined benefit pension obligations on 1 April 2011 19,176
Current service cost 3,582
Interest on obligation 2,276
Benefit payments during the year (2,351)
Actuarial experience loss 5,848
Present value of defined benefit pension obligations on 31 March 28,531

Annual Report 2011/12 DFCC Bank 169

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

BANK
31.03.2012
LKR 000

51.6 Movement in Pension Assets

Pension assets on 1 April 2011 1,521,978
Expected return on pension assets 103,262
Employer's contribution 43,454
Benefits paid (93,624)
Actuarial experience gain 56,374
1,631,444

BANK GROUP
31.03.2012 31.03.2011 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000

52. Subordinated Debentures

Listed in the Colombo Stock Exchange 590,000 1,000,000 1,590,000 1,000,000
Private placement 0 1,000,000 0 1,000,000
590,000 2,000,000 1,590,000 2,000,000

Subordinated debentures listed in the Colombo Stock Exchange are redeemable over a period 2006 to 2016. Fixed interest at 14% p.a.
is payable annually. On 31 March 2012 comparative Government Securities interest rate is 14.22% p.a. (gross).

Ratios
Debt Equity Ratio - 2012 1.56 (2011 - 1.35)
Interest Cover (Times) - 2012 1.72 (2011 - 3.54)
Liquid Assets Ratio (%) - 2012 52 (2011 - 295)

Disclosure under Listing Rule No. 7.6 (xi)

BANK GROUP
31.03.2012 31.03.2011 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000

53. Share Capital

53.1 Authorised Share Capital
500,000,000 ordinary shares of LKR 10/- each 5,000,000 5,000,000 5,000,000 5,000,000

53.2 Issued Share Capital

265,097,688 ordinary shares of LKR 10/- each 2,650,977 2,648,838 2,650,977 2,648,838
Allotted and fully-paid:
Balance at beginning 264,883,768 ordinary shares
(132,375,305 shares in 2011) 2,648,838 1,323,753 2,648,838 1,323,753
Bonus share issue on 1 November 2010
(1 for every 1 held - 132,431,968 ordinary shares) 0 1,324,320 0 1,324,320
Issue under share option - 213,920 ordinary shares
(76,495 shares in 2011) 2,139 765 2,139 765
Balance on 31 March 265,097,688 ordinary shares
(264,883,768 shares in 2011) 2,650,977 2,648,838 2,650,977 2,648,838

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.

170 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

53.3 Employee Share Option Plan

The employee share option plan was closed with the exercise of the final tranch of options on 2 July 2011.

Number
of option

53.3.1 Movement in Options Granted

Options granted 2,215,540
Adjustment for bonus and rights 2,046,779
Options lapsed (270,889)
3,991,430
Less: Options exercised
Prior years 3,777,510
During the year 213,920
3,991,430

BANK GROUP
31.03.2012 31.03.2011 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000

54. Stated Capital

Share Capital 2,650,977 2,648,838 2,650,977 2,648,838
Share Premium 2,064,837 2,054,546 2,064,837 2,054,546
Equivalent Stated Capital 4,715,814 4,703,384 4,715,814 4,703,384

55. Reserves
Reserve Investment BANK GROUP
fund fund account 31.03.2012 31.03.2011 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

55.1 Statutory Reserves

Balance at beginning 1,015,000 53,600 1,068,600 655,000 1,068,600 655,000
Transfers from current earnings 120,000 296,615 416,615 413,600 416,615 413,600
Balance as at 31 March 1,135,000 350,215 1,485,215 1,068,600 1,485,215 1,068,600

55.1.1 Reserve Fund

Five percentum of profit 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.

55.1.2 Investment Fund Account

This represents cumulative savings of financial services VAT and income tax. The amount is appropriated from profits. The amount of the
reserve will be utilised only for the purpose prescribed by the Central Bank of Sri Lanka.

55.2 Retained Earnings

This represents cumulative net earnings, inclusive of proposed dividend amounting to LKR 1,060 million payable on approval by the
shareholders at the Annual General Meeting on 29 June 2012. The balance is retained and reinvested in the business of the Bank.

55.2.1 Dividend Per Share (Disclosure as Per Listing Rules)

2012 2011
LKR LKR

Interim 0 7
Final proposed 4 3
4 10

Annual Report 2011/12 DFCC Bank 171

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

56. Minority Interests

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

BANK GROUP
31.03.2012 31.03.2011 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000

57. Commitments and Contingencies

57.1 Contingent Liabilities
Guarantees issued to:
DFCC Vardhana Bank PLC in respect of indebtedness of customers of the Bank 0 45,000 0 0
Other Banks in respect of indebtedness of customers of the Bank 22,300 16,300 74,786 16,300
Companies in respect of indebtedness of customers of the Bank 804,941 855,640 3,178,737 2,192,911
Principal collector of customs (duty guarantees) 0 0 91,980 65,841
Shipping guarantees 0 0 1,406,575 599,532

Documentary credits 0 0 8,864,444 4,923,769

Bills for collection 0 0 1,323,370 675,443
Forward exchange contracts (net) 2,951,561 1,111,494 3,439,398 2,167,620

57.2 Commitments in Ordinary Course of Business

Commitments for unutilised credit facilities 14,894,841 13,935,957 22,395,418 15,629,762
Capital expenditure approved by the Board of Directors:
Contracted 21,510 4,058 70,754 46,493
Not contracted 0 11,280 77,218 195,114
18,695,153 15,979,729 40,922,680 26,512,785

58. Litigation
58.1 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 the procedure in Recovery of Loans by Banks
(Special Provisions) Act No. 04 of 1990, seeking the sale of the property to be set aside, and claiming LKR 6.0 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 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 LKR 10.0 million
for non-disbursement of the full loan approved to him. The Bank has 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.

(c) The Bank acquired the leasehold right of a property in Puttlam under Recovery of Loans by Banks (Special Provisions) Act No.
04 of 1990. A party who paid LKR 6 million being a part payment to acquire the rights of the Bank in terms of a settlement in court has
subsequently claimed the return of payment alleging that the Bank had no title. The District Court has given the judgment in favour of
the Bank and now he has appealed to the Provincial High Court of Civil Appeal in Kurunegala against the said judgment. The Bank is
defending this action.

172 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

59. Maturity Profile of Assets and Liabilities

59.1 Definition of Maturity
59.1.1 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.

59.1.2 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.

59.2 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.

Total Up to 3 months 3 to 12 months 1 to 3 years 3 to 5 years > 5 years

LKR 000 LKR 000 % LKR 000 % LKR 000 % LKR 000 % LKR 000 %

59.3 Profile
59.3.1 Bank
Assets with Contractual Maturity
(Interest bearing assets)
Short-term funds 3,451,552 1,403,552 40.7 2,048,000 59.3 – – – – – –
Treasury bills and other securities
eligible for rediscounting with
Central Bank 1,537,518 1,488,955 96.8 48,563 3.2 – – – – – –
Placements with and loans to other
banks and financial institutions 1,917,373 61,872 3.1 200,437 10.4 722,295 38 666,780 34.7 265,989 13.8
Loans and advances 42,382,536 4,065,258 9.7 8,107,096 19.2 17,103,123 40 9,382,559 22.2 3,724,500 8.9
Finance leases 8,929,973 760,056 8.4 2,005,901 22.4 4,784,400 54 1,379,616 15.2 – –
58,218,952 7,779,693 13.4 12,409,997 21.3 22,609,818 38.8 11,428,955 19.6 3,990,489 6.9

Other Assets
(Non-interest bearing assets)
Cash and balance with banks 83,210 83,210 100 – – – – – – – –
Dealing securities 65,307 65,307 100 – – – – – – – –
Interest receivable 360,675 321,962 89 38,713 11 – – – – – –
Investment securities -
Ordinary shares/units 5,339,117 – – – – – – – – 5,339,117 100
Preference shares 1,568,000 272,500 17 220,000 14 625,000 40 450,000 29 500 0
Investment in associate company 35,270 – – – – – – – – 35,270 100
Investment in joint venture company 655,000 – – – – – – – – 655,000 100
Investment in subsidiary companies 3,760,540 – – – – – – – – 3,760,540 100
Group balances receivable 41,597 41,597 100 – – – – – – – –
Prepayments 43,810 1,949 4 5,503 13 13,939 32 11,384 26 11,035 25
Income tax refund due 139,574 – – – – 139,574 100 – – – –
Property, plant and equipment 431,606 – – – – – – – – 431,606 100
Intangible assets 29,978 – – – – – – – – 29,978 100
Other assets 933,999 933,999 100 – – – – – – – –
13,487,683 1,720,524 13 264,216 2 778,513 6 461,384 3 10,263,046 76

Total assets 71,706,635 9,500,217 13 12,674,213 18 23,388,331 32 11,890,339 17 14,253,535 20

Liabilities with Contractual Maturity

(Interest bearing liabilities)
Deposits from customers 11,710,526 6,876,136 59 3,617,791 31 1,210,382 10 6,217 0 – –
Borrowing - Medium and long-term 32,630,092 3,386,930 10 3,777,937 12 8,396,685 26 6,445,819 20 10,622,721 32
- Short-term 2,186,500 2,186,500 100 – – – – – – – –
Debentures 700,000 – – 700,000 100 – – – – – –
Subordinated debentures 590,000 – – – – – – 590,000 100 – –
47,817,118 12,449,566 26 8,095,728 17 9,607,067 20 7,042,036 15 10,622,721 22

Annual Report 2011/12 DFCC Bank 173

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

Total Up to 3 months 3 to 12 months 1 to 3 years 3 to 5 years > 5 years

LKR 000 LKR 000 % LKR 000 % LKR 000 % LKR 000 % LKR 000 %

Other Liabilities
(Non-interest bearing liabilities)

Interest accrued 1,144,954 1,065,590 93 79,364 7 – – – – – –

Group balances payable 222 222 100 – – – – – – – –
Deferred tax liabilities 328,039 – – – – – 328,039 100 – –
Other liabilities 662,750 662,750 100 – – – – – – – –
2,135,965 1,728,562 81 79,364 4 – – 328,039 15 – –
Total liabilities 49,953,083 14,178,128 28 8,175,092 16 9,607,067 19 7,370,075 15 10,622,721 22

Total Up to 3 months 3 to 12 months 1 to 3 years 3 to 5 years > 5 years

LKR 000 LKR 000 % LKR 000 % LKR 000 % LKR 000 % LKR 000 %

59.3.2 Group
Assets with Contractual Maturity
(Interest bearing assets)
Short-term funds 3,549,637 1,325,437 37.3 2,224,200 62.7 – – – – – –
Treasury bills and other securities
eligible for rediscounting with
Central Bank 10,568,367 8,506,876 80.5 1,952,734 18.5 108,757 1.0 – – – –
Securities purchased
under resale agreements 1,884,792 1,760,560 93.4 124,232 6.6 – – – – – –
Placements with and loans to other
banks and financial institutions 1,917,373 61,872 3.2 200,437 10.5 722,294 37.7 666,780 34.8 265,990 13.8
Bills of exchange discounted 532,925 517,162 97.0 15,763 3.0 – – – – – –
Loans and advances 73,452,522 14,984,549 20.4 15,037,896 20.5 21,087,041 28.7 14,367,567 19.6 7,975,469 10.8
Finance leases 9,423,417 784,844 8.3 2,082,828 22.1 5,014,364 53.2 1,541,381 16.4 – –
101,329,033 27,941,300 27.6 21,638,090 21.4 26,932,456 26.6 16,575,728 16.4 8,241,459 8.0

Other Assets
(Non–interest bearing assets)
Cash and balance with Banks 1,395,562 1,395,562 100.0 – – – – – – – –
Balances with Central Bank 1,596,066 1,596,066 100.0 – – – – – – – –
Dealing securities 65,307 65,307 100.0 – – – – – – – –
Non–current assets held for sale 2,875 2,875 100.0 – – – – – – – –
Interest receivable 646,900 488,064 75.4 129,754 20.1 7,633 1.2 12,079 1.9 9,370 1.4
Investment securities:
Ordinary shares/units 7,894,197 – – – – – – – – 7,894,197 100.0
Preference shares 1,584,490 272,500 17.2 220,000 13.9 625,000 39.4 450,000 28.4 16,990 1.1
Debentures 80,750 – – – – 13,625 16.9 40,250 49.8 26,875 33.3
Investment in associate companies 370,800 – – – – – – – – 370,800 100.0
Prepayments 43,810 1,949 4.4 5,503 12.6 13,939 31.8 11,384 26.0 11,035 25.2
Income tax refund due 161,020 – – 20,194 12.5 140,826 87.5 – – – –
Investment property 147,981 – – – – – – – – 147,981 100.0
Goodwill on consolidation 226,411 – – – – – – – – 226,411 100.0
Property, plant and equipment 936,250 – – 743 0.1 1,133 0.1 3,515 0.4 930,859 99.4
Intangible assets 203,861 – – – – 319 0.2 409 0.2 203,133 99.6
Deferred tax assets 5,583 415 7.4 4,768 85.4 400 7.2 – – – –
Other assets 1,810,282 1,670,230 91.2 44,442 3.5 22,496 1.2 10,325 0.6 62,789 3.4
17,172,145 5,492,968 31.7 425,404 2.5 825,371 4.8 527,962 3.0 9,900,440 57.7
Total assets 118,501,178 33,434,268 28.2 22,063,494 18.6 27,757,827 23.4 17,103,690 14.4 18,141,899 15.3
Liabilities with Contractual Maturity
(Interest bearing liabilities)
Deposits from customers 44,420,013 19,133,435 43.1 14,257,132 32.1 3,086,161 6.9 1,825,583 4.1 6,117,702 13.8
Borrowing - Medium and long-term 32,630,092 3,386,930 10.4 3,777,937 11.6 8,396,685 25.7 6,445,819 19.8 10,622,721 32.5
- Short-term 9,071,834 8,892,936 98.0 178,555 2.0 343 0.0 – – – –
Debentures 700,000 – – 700,000 100.0 – – – – – –
Subordinated debentures 1,590,000 – – – – – – 1,590,000 100.0 – –
88,411,939 31,413,301 35.5 18,913,624 21.4 11,483,189 13.0 9,861,402 11.2 16,740,423 18.9

174 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

Total Up to 3 months 3 to 12 months 1 to 3 years 3 to 5 years > 5 years

LKR 000 LKR 000 % LKR 000 % LKR 000 % LKR 000 % LKR 000 %

Other Liabilities
(Non-interest bearing liabilities)
Interest accrued 1,731,630 1,652,266 95.4 79,364 4.6 – – – – – –
Current tax liability 56,665 52,643 92.9 4,022 7.1 – – – – – –
Deferred tax liabilities 376,284 – – – – – – 328,040 87.2 48,244 12.8
Other liabilities 1,842,546 1,287,701 69.9 365,370 19.8 12,963 0.7 139 0.0 176,373 9.6
4,007,125 2,992,610 74.7 448,756 11.2 12,963 0.3 328,179 8.2 224,617 5.6
Total liabilities 92,419,064 34,405,911 37.2 19,362,380 21.0 11,496,152 12.4 10,189,581 11.0 16,965,040 18.4

60. Concentration of Assets and Liabilities

60.1 Concentration in the Distribution of Assets
60.1.1 In order to minimise potential risks inherent in the realisation of assets, the Bank adhere to prudential exposure limits
on customer and industry groups.

60.1.2 Industry-wise Distribution of main Assets are given below:

31.03.2012 31.03.2011
% %

Industry Sector
Agriculture, forestry and fishing 5.1 6.1
Mining and quarrying 1.0 0.8
Manufacture of food, beverages and tobacco 7.4 10.1
Manufacture of textiles 0.8 0.5
Manufacture of wearing apparel excluding footwear 2.6 3.7
Manufacture of leather and leather products including footwear 0.3 0.4
Wood and manufacture of wood products 1.0 1.3
Manufacture of paper products, printing, publishing and packaging 3.1 3.9
Manufacture of chemical and chemical products 1.1 1.3
Manufacture of rubber products 1.2 1.8
Manufacture of plastic products 3.4 2.2
Manufacture of non-metallic mineral products 2.5 3.5
Basic metal products 0.5 0.4
Manufacture of fabricated metal products, machinery and equipment 2.2 2.4
Electricity, gas and water industries 6.0 5.9
Construction industries 7.6 7.0
Trade 14.3 13.6
Hotels and restaurants 5.6 2.5
Transport, storage and communications 5.1 4.9
Financing, insurance, real estate and business services 23.2 19.9
Community, social and personal services 6.0 7.8
100.0 100.0

31.03.2012 31.03.2011
LKR 000 LKR 000

Composition of Assets
Loans* 43,879,283 32,953,495
Leases 8,929,973 5,960,055
Investment securities 6,907,117 4,031,527
Dealing securities 65,307 85,242
59,781,680 43,030,319
* Including loans to banks and excluding staff loans.

Annual Report 2011/12 DFCC Bank 175

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

60.2 Composition of liabilities is given in Note 46.

BANK GROUP
2012 2011 2012 2011
LKR 000 % LKR 000 % LKR 000 % LKR 000 %

61. Non-Performing Loans, Leases and Bills

Loans and advances 2,218,735 2,311,673 4,291,268 4,132,025
Finance leases 171,340 307,458 171,780 307,458
Bills of exchange discounted 0 0 32,661 35,102
Gross exposure 2,390,075 4.3 2,619,131 6.3 4,495,709 5.1 4,474,585 7.4
Less: Interest in suspense included in overdrafts 0 0 652,520 481,032
Net non-performing loans, advances, leases and bills 2,390,075 4.3 2,619,131 6.3 3,843,189 4.3 3,993,553 6.6
Less: Provision for bad and doubtful debts 1,567,414 1,552,119 2,408,432 2,370,042
Net exposure 822,661 1.5 1,067,012 2.6 1,434,757 1.6 1,623,511 2.7
Net of tangible securities 49,377 85,509 330,966 1,303,679

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

BANK GROUP
31.03.2012 31.03.2011 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000

61.1 Provision for Bad and Doubtful Debts

Loans and advances 1,655,841 1,507,241 2,472,552 2,301,200
Finance leases 91,310 200,587 91,310 200,587
Bills of exchange discounted 0 24,647 26,462
1,747,151 1,707,828 2,588,509 2,528,249
Provisions relating to facilities currently performing
Loans and advances 176,517 151,467 176,857 153,965
Finance leases 3,220 4,242 3,220 4,242
179,737 155,709 180,077 158,207
Provision relating to non-performing facilities 1,567,414 1,552,119 2,408,432 2,370,042

61.2 The realisable value of tangible securities is computed based on the progressive discount on the Forced Sale Value (FSV)
stipulated in the Direction issued by the Central Bank of Sri Lanka as given below:

Item % of FSV of immovable property that can be considered as the value of security
Freehold Property Leasehold Property
At the first time of provisioning 75 60
Period in the loss section
Less than 12 months 75 60
More than 12 but less than 24 months 60 50
More than 24 but less than 36 months 50 40
More than 36 but less than 48 months 40 30
More than 48 months Property should be reviewed on a regular Nil
basis and discounted further at the
discretion of the Bank's management

176 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

62. Related Party Transactions

62.1 The Group's related parties include associates, Trust established by the Bank for post-employment retirement benefit plan, joint
venture, 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.

31.03.2012 31.03.2011
LKR 000 LKR 000

62.2 Transactions with Subsidiaries

62.2.1 Balance Sheet
Assets
Cash and short-term funds 974,352 1,354,263
Securities purchased under repurchase agreements 0 166,000
Interest receivable 12,780 16,897
Total 987,132 1,537,160

Liabilities
Deposits 79,407 64,028
Interest payable 3,570 2,445
Total 82,977 66,473

For the year ended 31 March 2012 2011

LKR 000 LKR 000

62.2.2 Income Statement

Interest income 71,367 131,095
Interest expense 10,414 14,985
Other income 23,640 22,881
Dividend received 77,859 76,975
Other expenses 55,780 51,455
Reimbursed expenses 124,639 96,750
Personnel expenses 2,863 2,249

For the year ended 31 March 2012 2011

LKR 000 LKR 000

62.3 Transactions with Joint Venture

62.3.1 Income Statement
Interest income 0 12,082
Interest expense 5,588 0
Reimbursed expenses 0 269
Other expenses 8,165 3,036
Dividend income 16,375 0

62.4 Transactions with Associates

62.4.1 Income Statement
Other income 0 827
Dividends received 4,140 249,808
Other expenses 2,331 2,108

Annual Report 2011/12 DFCC Bank 177

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

62.5 Transaction with entities in which Directors of the Bank have significant influence without
substantial shareholding
31.03.2012 31.03.2011
LKR 000 LKR 000

62.5.1 Balance Sheet

Assets
Loan and advances 1,852,060 871,370
Investment securities 185,079 223,597
Interest receivable 8,493 2,460
Total 2,045,632 1,097,427

Liabilities
Deposits from customers 1,700,000 32,632
Interest payable 56,617 971
Total 1,756,617 33,603

62.5.2 Off-Balance Sheet Items

Commitments and contingencies
Undrawn facilities 260,760 1,709,010
Total 260,760 1,709,010

For the year ended 31 March 2012 2011

LKR 000 LKR 000

62.5.3 Income Statement

Interest income 126,829 129,037
Interest expense 66,287 3,058
Other income 68 2,922
Other expense 795 819

62.6 Transactions with Key Management Personnel

62.6.1 Key Management Personnel
Key management personnel are the Board of Directors of the Bank, Chief Executive, 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.

Currently Executive Vice-President - Operations concurrently holds the position of Secretary to the Board.

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

178 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

BANK GROUP
For the year ended 31.03.2012 31.03.2011 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000

62.6.2 Compensation of Directors and Other

Key Management Personnel
Number of persons 16 17 59 57
Short-term employment benefits 90,854 90,162 152,717 145,484
Post-employment benefits - pension 16,947 14,177 16,947 14,177
- others 9,684 8,737 13,373 12,078
117,485 113,076 183,037 171,739

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
Service Provident Fund Society and Employees' Trust Fund, by the employer.

62.6.3 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.

Share option scheme was closed on 2 July 2011 with the exercise of the final tranche of options granted.

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

For the year ended 31.03.2012 31.03.2011

LKR 000 LKR 000

Number of unexercised options as at the beginning of financial year 70,844 40,380

Exercised prior to bonus issue 70,844 4,958
0 35,422
Adjustment for 1 for 1 bonus share issue on 1 November 2010 0 35,422
Exercised during the year 70,844 0

Number of unexercised options balance at the end of financial year 0 70,844

Weighted average price of unexercised options end of the year LKR, 0 58.73
Weighted average price of exercised options LKR, 58.73 117.46
Weighted average price of Bank’s share during the period in which options were excercised LKR, 173.60 230.09

31.03.2012 31.03.2011
LKR 000 LKR 000

62.6.4 Other Transactions with Key Management Personnel and their Close Family Members
62.6.4.1 Balance Sheet
Assets
Number of persons 2 2
Loans and advances 6,310 7,171
Total 6,310 7,171

Annual Report 2011/12 DFCC Bank 179

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

These loans are granted under a uniform scheme applicable to all employees of the Bank.
31.03.2012 31.03.2011
LKR 000 LKR 000

Liabilities
Number of persons 1 1
Deposits 10,875 8,682
Accrued interest 322 319
Total 11,197 9,001

For the year ended 31 March 2012 2011

LKR 000 LKR 000

62.6.4.2 Income Statement

Interest income 471 425
Interest expense 864 539
Interest expense 1,980 1,881

62.6.5 Transactions with DFCC Pension Fund - Trust

31.03.2012 31.03.2011
LKR 000 LKR 000

Contributions (prepaid) at the beginning of financial year (13,197) (7,654)

Contribution due for the finnancial year (Note 14.1.1) 80,848 58,948
Contribution paid (43,454) (64,491)
Contribution due/(prepaid) at the end of the finacial year (Note 51.2.1) 24,197 (13,197)

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

62.7 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 with the exception of accommodation granted to Key Management Personnel under approved
schemes uniformly applicable to all or specific categories of employees. The terms include pricing for loans, deposits and services,
collateral obtained for loans where appropriate.

180 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION

For the year ended 31 March 2012 Lending Finance Investing in Commercial Other   Unallocated Eliminations Total
Leasing Equity Banking
LKR 000 LKR 000 LKR 000 LKR 000 LKR 000   LKR 000 LKR 000 LKR 000

63. Business Segment Information

Revenue
Interest income 4,737,661 1,145,503 – 3,721,795 144,601 – (103,142) 9,646,418
Other income 86,960 – 1,223,685 604,374 554,139 251,511 (226,331) 2,494,338
Total income from external customers 4,824,621 1,145,503 1,223,685 4,326,169 698,740 251,511 (329,473) 12,140,756
Percentage* 40 9 10 36 6 2 – 100
Expenses
Segment losses 108,445 (109,392) – 64,151 – – – 63,204
Depreciation – – – 145,380 34,417 – – 179,797
Other operating & interest expenses 3,467,950 637,976 – 3,294,341 416,031 – (248,465) 7,567,833
3,576,395 528,584 – 3,503,872 450,448 (248,465) 7,810,834
Result 1,248,226 616,919 1,223,685 822,297 248,292 4,329,922
Unallocated expenses 244,763
Value added tax on financial services 461,476
3,623,683
Associate companies profit before tax 5,649
Profit before tax 3,629,332
Income tax expense 656,493
Profit after tax 2,972,839
Minority interest 72,633
Profit for the year 2,900,206
Assets 44,660,584 9,194,559 6,907,117 45,675,437 3,893,272 8,895,700 (1,096,291) 118,130,378

Percentage 38 8 6 39 3 8 100
Investments in associate companies 370,800
118,501,178
Liabilities 37,765,719 8,036,976 – 41,260,091 2,316,002 4,136,567 (1,096,291) 92,419,064
Capital expenditure - additions 223,564 54,953 49,672 328,189
* Net of eliminations.

For the year ended 31 March 2011 Lending Financial Investing in Commercial Other   Unallocated Eliminations Total
Leasing Equity Banking
LKR 000 LKR 000 LKR 000 LKR 000 LKR 000   LKR 000 LKR 000 LKR 000

Revenue
Interest income 5,353,552 852,906 – 3,368,119 168,221 – (84,631) 9,658,167
Amortisation of negative goodwill – – – – 7,313 – – 7,313
Other income 215,312 – 5,929,095 419,004 590,544 1,846,552 (2,828,389) 6,172,118
Total income from external customers 5,568,864 852,906 5,929,095 3,787,123 766,078 1,846,552 (2,913,020) 15,837,598
Percentage* 35 5 37 24 5 30 – 100
Expenses
Segment losses 248,620 (4,927) – 234,759 – – – 478,452
Depreciation – – – 143,727 28,490 – – 172,217
Other operating & interest expenses 2,927,686 460,292 – 2,680,017 410,325 – (216,155) 6,262,165
3,176,306 455,365 – 3,058,503 438,815 – (216,155) 6,912,834
Result 2,392,558 397,541 5,929,095 728,620 327,263 – 8,924,764
Unallocated expenses 793,084
Value added tax on financial services 2,080,063
6,051,617
Associate companies profit before tax 217,758
Profit before tax 6,269,375
Income tax expense 1,098,302
Profit after tax 5,171,073
Minority interest 80,760
Profit for the year 5,090,313

Assets 33,642,205 5,960,055 4,686,527 29,525,556 3,547,274 14,708,930 (1,852,153) 90,218,394

Percentage 37 7 5 33 4 16 100
Investments in associate companies 177,291
90,395,685
Liabilities 27,949,280 5,364,049 – 26,432,096 3,062,217 5,270,842 (1,852,153) 66,226,331
Capital expenditure - additions 196,475 26,266 231,309 454,050
* Net of eliminations.

Annual Report 2011/12 DFCC Bank 181

 FINANCIAL REPORTS
120 Statement of Directors’ Responsibilities 122 Independent Auditor’s Report 125 Statement of Changes in Equity
in Relation to Financial Statements 123 Income Statement 126 Cash Flow Statement
121 Chief Executive's and Chief Financial 124 Balance Sheet 128 Notes on the Financial Statements
Officer’s Statement of Responsibility

63.1 Revenue and expenses attributable to the incorporated business segments of industrial estate management, unit trust
management, stockbroking and consultancy services are included in the column for Other.

63.2 Revenue and expenses attributable to the business segment of DFCC Vardhana Bank PLC is included in the column for
commercial banking.

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

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

64. Post-Balance Sheet Events

64.1 Proposed Dividend
The Directors have recommended the payment of a final dividend of LKR 4/- per share for the year ended 31 March 2012, which require
the approval of the shareholders at the Annual General Meeting to be held on 29 June 2012. The Board of Directors confirms that
the Bank has satisfied the solvency test in accordance with Section 57 of the Companies Act No. 07 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.

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

65. Reclassification of Comparative Figures

Amounts shown for the previous year in respect of Note 18, Operating Expenses, Note 26, Placements with and Loans to Other Banks and
Financial Institutions, Note 30, Loans and Advances, Note 44, Other Assets and Note 51, Other Liabilities have been reclassified to facilitate
comparison.

66. Certification Required by the Companies Act. No. 07 of 2007

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 are currently applicable to the Bank. This certification is based on
independent legal advice obtained by the Bank.

182 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION
183 Capital Adequacy 187 Performance of the Share 191 DFCC Bank’s Offices
185 Sources and Distribution of Income - Bank 188 Share Information 192 DFCC Pioneer's Journey
186 Ten Year Summary 190 Twenty Major Shareholders

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 31.03.2012 31.03.2011

Tier I (%) 24.7 31.6

Deductions - Tier I (%) 3.7 3.6
5.0 21.0 28.0

Tier II (%) 2.0 1.9

Deductions - Tier II (%) 3.1 3.0
(1.1) (1.1)
Capital base (%) 10.0 19.9 26.9

Details of Computation
Capital Base 31.03.2012 31.03.2011
LKR 000 LKR 000

Tier I: Core Capital

Paid-up ordinary shares 2,650,977 2,648,838
Share premium 2,064,837 2,054,546
Statutory reserve fund 1,485,215 1,068,600
Published retained profits 5,686,342 6,530,865
General & other reserves 13,779,839 11,379,839
Minority interest 414,904 486,666
26,082,114 24,169,354
Less: Deductions
Goodwill 226,411 226,411
Net deferred tax assets 5,583 1,781
Other intangible assets 203,861 173,042
50% Investments in the capital of other banks and financial institutions 3,318,748 2,323,196
Total Tier I Capital 22,327,511 21,444,924

Tier II: Supplementary Capital

Approved subordinated term debt 1,590,000 872,000
General provision 485,827 588,608
2,075,827 1,460,608
Less: Deductions
50% Investments in the capital of other banks and financial institutions 3,318,748 2,323,196
Eligible Tier II Capital (1,242,921) (862,588)
Capital base 21,084,590 20,582,336

Annual Report 2011/12 DFCC Bank 183

 FINANCIAL REPORTS

Risk-Weighted Assets and Off-Balance Sheet Exposure

Balance Risk Risk-Weighted Balance

Assets Exposures 31.03.2012 31.03.2011 Weights 31.03.2012 31.03.2011
LKR 000 LKR 000 % LKR 000 LKR 000

To Central Government and CBSL 14,049,225 21,319,519 0 0 0

To Banks 5,425,149 2,498,038 20-150 1,128,014 603,661
To Financial Institutions 3,587,422 1,387,551 20-150 2,587,442 784,452
Performing Advances
To Corporates 65,643,531 46,496,233 20-150 65,094,633 45,883,397
Secured by Residential Property 1,235,045 433,064 50-100 656,388 252,353
Secured by Commercial Real Estate 8,534,747 4,427,832 100 8,534,747 4,427,832
Non-Performing Advances 1,421,728 1,570,410 50-150 1,850,724 1,999,224
Cash Items 1,437,424 948,895 0-20 1,409 1,164
Other Assets 3,102,218 2,537,452 100 3,102,218 2,537,452
Total assets 104,436,489 81,618,994 82,955,575 56,489,535

Risk-Weighted
Credit Balance Risk Credit Equivalent
Off-Balance Sheet Exposure Conversion 31.03.2012 31.03.2011 Weights 31.03.2012 31.03.2011
Factor % LKR 000 LKR 000 % LKR 000 LKR 000

General guarantee of indebtness and

other gurantees 100 1,159,196 903,361 20-100 1,155,317 903,361
Performance bonds, bid bonds,
warranties and other transactions 50 1,529,722 995,522 20-100 764,861 496,704
Shipping guarantees 20 1,406,575 598,546 20-100 281,315 119,709
Documentary letters of credit 20 5,684,614 2,876,297 20-100 1,136,923 574,982
Trade related acceptances 20 3,000,694 1,895,066 20-100 600,139 379,013
Other commitments with an original
maturity of up to one year 0 7,500,577 1,693,805 100 0 0
Other commitments with an original
maturity of over year 50 14,894,841 13,935,957 100 7,447,421 6,967,979
Forward foreign exchange contracts -
Orginal maturity less than one year 2 4,931,452 5,917,274 100 98,629 118,345
Forward foreign exchange contracts -
orginal maturity more than one year 5 1,344,000 110,400 100 67,200 5,520
Total off balance sheet exposure 41,451,671 28,926,228 11,551,805 9,565,614
Total risk-weighted assets and off-balance sheet exposure for credit risk 94,507,380 66,055,149
Total risk-weighted assets equivalent for market risk (Note 1) 815,030 574,530
Total risk-weighted assets equivalent for operational risk (Note 2) 10,733,670 9,908,670
Total risk-weighted assets 106,056,080 76,538,349

Capital Charge Risk-Weighted Assets Equivalent

31.03.2012 31.03.2011 31.03.2012 31.03.2011
LKR 000 LKR 000 LKR 000 LKR 000

Market Risk (Note 1)

Interest rate 383 19,772 3,830 197,720
Equity 11,024 14,901 110,240 149,010
Foreign exchange and gold 70,096 22,780 700,960 227,800
Total risk-weighted assets equivalent for market risk 81,503 57,453 815,030 574,530

Operational Risk (Note 2)

Average gross income 7,155,782 6,605,779
15% of average gross income 1,073,367 990,867
Total risk-weighted assets equivalent for operational risk 1,073,367 990,867 10,733,670 9,908,670

184 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION
183 Capital Adequacy 187 Performance of the Share 191 DFCC Bank’s Offices
185 Sources and Distribution of Income - Bank 188 Share Information 192 DFCC Pioneer's Journey
186 Ten Year Summary 190 Twenty Major Shareholders

Sources and Distribution of Income - Bank

For the year ended 31 March 2008 2009 2010 2011 2012
LKR million

Sources of Income
Interest income 8,491 8,529 7,416 6,206 5,872
Income from investments 687 913 1,138 2,911 1,193
Others 458 446 289 5,074 369
9,636 9,888 8,843 14,191 7,434

Distribution of Income
To employees as emoluments 672 708 715 791 834
To lenders as interest 5,815 5,624 4,224 2,786 2,880
To providers of supplies and services 340 359 383 487 481
To Government as taxation 1,100 1,203 1,348 2,629 767
To shareholders as dividends 654 654 794 2,649 795
Retained in the business:
Depreciation set aside 133 124 104 117 127
Provision of losses 258 510 356 244 28
Reserves 664 706 919 4,488 1,522
9,636 9,888 8,843 14,191 7,434

SOURCES OF INCOME DISTRIBUTION OF INCOME

C A A
F
A B
B
C F

2011 2012 2011 2012

C
E

B
A D D
E C
B
2011 2012 2011 2012
A - Interest income 43% 79% A - To employees as emoluments 6% 11%
B - Income from investments 21% 16% B - To lenders as interest 20% 39%
C - Others 36% 5% C - To providers of supplies and services 3% 6%
D - To Government as taxation 19% 10%
E - To shareholders as dividends 19% 11%
F - Retained in the business 33% 23%

Annual Report 2011/12 DFCC Bank 185

 FINANCIAL REPORTS

Ten Year Summary

Year ended 31 March 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
LKR million

Bank
Operating Results
Total income 4,113 4,444 4,641 5,387 6,887 9,636 9,888 8,843 14,191 7,434
Profit before tax 1,036 1,490 1,512 1,652 1,865 1,983 2,006 2,402 7,876 2,748
Income tax 181 385 404 472 740 665 646 689 739 430
Profit after tax 855 1,105 1,108 1,180 1,125 1318 1,360 1,713 7,137 2,317

Balance Sheet
Assets
Cash, short-term funds and securities 2,398 2,675 2,778 4,928 7,935 8,124 8,415 10,472 11,991 5,073
Dealing securities 3 1 0 14 26 18 10 56 85 65
Receivables 914 909 1,641 946 1,611 1,684 1,348 930 803 1,380
Placements with and loans to banks
and financial institutions 0 500 302 738 1,024 1,579 1,454 2,205 2,255 1,917
Securities purchased under resale
agreements 48 26 1,051 520 240 208 96 914 166 0
Bills of exchange discounted 23 18 13 6 6 6 0 0 0 0
Loans and advances 19,515 22,386 25,270 30,963 38,200 38,185 35,156 31,575 32,731 44,257
Finance leases 2,445 3,742 4,348 5,545 7,756 6,726 5,211 3,966 6,360 9,157
Provisions (949) (1,077) (995) (937) (946) (1,179) (1,670) (1,979) (2,168) (2,102)
Net of provisions 21,034 25,069 28,636 35,577 45,016 43,737 38,697 33,562 36,923 51,312
Investment securities 1,802 1,704 1,731 1,340 1,260 1,680 1,918 1,999 4,032 6,907
Investment in associate, joint
venture and subsidiary companies 1,407 2,514 2,636 3,057 3,350 5,829 6,064 5,845 3,132 4,451
Income tax refund due 0 0 0 0 0 0 2 0 0 140
Investment property 187 12 12 12 7 7 7 7 0 0
Property, plant, equipment
and intangibles 378 516 475 481 472 493 474 426 539 462
Total assets 28,171 33,926 39,262 47,613 60,941 63,359 58,485 56,416 59,926 71,707
Liabilities
Equity 6,382 7,383 8,207 9,091 9,494 13,761 14,491 15,723 20,219 21,754
Medium/long term borrowing
and debentures 16,775 19,570 24,120 30,384 34,357 38,323 33,679 33,415 27,329 33,920
Customer deposits 2,868 4,944 3,780 4,017 13,573 5,112 5,308 5,124 3,688 11,710
Short-term borrowing 1,143 577 1,387 2,453 1,540 4,157 3,030 115 4,932 2,187
20,786 25,091 29,287 36,854 49,470 47,592 42,018 38,654 35,949 47,817
Other liabilities 1,003 1,451 1,768 1,668 1,977 2,006 1,976 2,039 3,758 2,136
Total equity and liabilities 28,171 33,926 39,262 47,613 60,941 63,359 58,485 56,416 59,926 71,707

Return on equity, % 14.1 16.1 14.2 13.6 12.1 11.3 9.6 11.3 39.7 11.0
Return on total assets, % 3.1 3.6 3.0 2.7 2.1 2.1 2.2 3.0 12.3 3.5
Earnings per share, LKR* 3.54 4.57 4.57 4.87 4.63 5.09 5.17 6.48 26.95 8.74
Market value per share, LKR* 25.09 52.26 55.34 52.75 69.78 62.45 33.78 90.23 171.8 112.6
Price earnings ratio, times* 7.1 11.4 12.1 10.8 15.1 12.3 6.5 13.9 6.4 12.9
Earnings yield, %* 14.1 8.8 8.3 9.3 6.6 8.1 15.4 7.2 15.6 7.8
Dividend per share , LKR 5.5 5.5 5.5 6.00 5.00 5.00 5.00 6.00 10.00 4.00
Dividend cover, times 3.7 3.5 3.5 3.4 2.5 2.0 2.1 2.2 2.7 2.91
Gross dividend, LKR million 233.0 314.3 315.8 345.5 454.4 653.7 653.7 794.3 2,649 795
Liquid assets to liabilities (as specified
in the Banking Act No. 30 of 1998), % – 28 38 48 79 31 145 214 295 52
No. of employees 305 305 340 374 422 419 419 427 451 466
* adjusted for bonus issue

186 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION
183 Capital Adequacy 187 Performance of the Share 191 DFCC Bank’s Offices
185 Sources and Distribution of Income - Bank 188 Share Information 192 DFCC Pioneer's Journey
186 Ten Year Summary 190 Twenty Major Shareholders

Performance of the Share

EARNINGS PER SHARE AND DIVIDEND PER SHARE AND

PRICE EARNINGS RATIO DIVIDEND YIELD
LKR Times LKR %
30 15 12 18

25 12 10 15

20 8 12
9
15 6 9
6
10 4 6

5 3 2 3

0 0 0 0
08 09 10 11 12 08 09 10 11 12
Earnings per Share, LKR Dividend per Share, LKR
Price Earnings Ratio, Times Dividend Yield, %

NET ASSET VALUE PER SHARE AND SHARE PRICE AND MOVEMENT
PRICE TO BOOK VALUE RELATIVE TO MILANKA PRICE INDEX
LKR Times LKR Index
100 3 200 7,500

80 160 6,000
2
60 120 4,500

40 80 3,000
1
20 40 1,500

0 0 0 0
08 09 10 11 12 08 09 10 11 12
Net Asset Value Per Share, LKR Share Price, LKR
Price to Book Value, Times Milanka Price Index, Index

GROSS DIVIDEND AND

DIVIDEND PAYOUT RATIO
LKR million %
3,000 60

2,500 50

2,000 40

1,500 30

1,000 20

500 10

0 0
08 09 10 11 12
Gross Dividend, LKR million
Dividend Payout Ratio, %

Annual Report 2011/12 DFCC Bank 187

 FINANCIAL REPORTS

Share Information

DFCC Bank Share Price for period 1 April 2011 to 31 March 2012
Year ended 31 March 2012 2011

Earnings
Earnings per share, LKR 8.74 26.95
Price earning ratio, times 12.9 6.4

Dividends
Dividends for the year, paid and proposed, LKR million 795 2,649
Dividend per share, LKR 4.00 10.00

Book Value - Bank

Net assets per share on 31 March, LKR 82.06 76.33

Price Indices
CSE All Share Price Index 5,420.20 7,226.12
Milanka Price Index 4,891.58 6,874.74

Share Prices
Lowest, LKR 98.00 (15.02.12) 169.10 (31.03.11)
Highest, LKR 188.80 (10.05.11) 550.00 (30.09.10)
Last transaction, LKR 112.60 (30.03.12) 171.80 (31.03.11)

Market Capitalisation
Value, LKR m 29,850 45,507
% of total trade 1.48 1.88
Rank 14 13

Value of Shares Traded

Value, LKR m 2,256 7,629
% of total trade 0.51 1.14
Rank 49 17

Days Traded
Number of days traded 240 239
Total number of market days 240 239
% of market days traded 100.00 100.00

Frequency of Shares Traded

Number of transactions 7,346 19,700
% of total frequency 0.20 0.48
Rank 122 68

188 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION
183 Capital Adequacy 187 Performance of the Share 191 DFCC Bank’s Offices
185 Sources and Distribution of Income - Bank 188 Share Information 192 DFCC Pioneer's Journey
186 Ten Year Summary 190 Twenty Major Shareholders

SHAREHOLDERS OWNERSHIP

C A

A - 1-1,000 Shares (62%) B A - Foreign Individuals (9%)

B B - 1,000-5,000 Shares (30%) B - Foreign Institutions (19%)
C - Greater than D C - Sri Lankan Individuals (8%)
5,000 Shares (8%) D - Sri Lankan Institutions (64%)
C
A

SHAREHOLDING

AB

A - 1-1,000 Shares (1%)

B - 1,000-5,000 Shares (2%)
C - Greater than
5,000 Shares (97%)

Size-wise Distribution of Shareholding

As at 31 March 2012 As at 31 March 2011
Number of Shares No. of Total % No. of Total %
Shareholders Holding Shareholders Holding

01 - 1,000 6,066 2,158,534 0.81 5,938 2,175,145 0.82

1,001 - 5,000 2,930 6,103,395 2.30 3,024 6,260,189 2.36
5,001 - 10,000 380 2,742,367 1.03 369 2,650,798 1.00
10,001 - 50,000 323 6,723,728 2.54 345 7,486,004 2.83
50,001 - 100,000 51 3,485,588 1.32 54 3,636,054 1.37
100,001 - 500,000 43 9,108,834 3.44 45 9,631,498 3.64
500,001 - 1,000,000 9 5,885,300 2.22 10 6,532,196 2.47
Greater than 1,000,000 25 228,889,942 86.34 25 226,511,884 85.51
Total 9,827 265,097,688 100.00 9,810 264,883,768 100.00

Ownership
As at 31 March 2012 As at 31 March 2011
Shareholding % Foreign Sri Lankan Total Foreign Sri Lankan Total

Individuals 8.76 7.94 16.70 8.83 8.08 16.91

Institutions 19.14 64.16 83.30 19.32 63.77 83.09
Total 27.90 72.10 100.00 28.15 71.85 100.00

As per the Rule No.8.7(h) of the Colombo Stock Exchange, percentage of public holding as at 31 March 2012 was 63.38%
(60.38% as at 31.03.2010)

Annual Report 2011/12 DFCC Bank 189

 FINANCIAL REPORTS

Twenty Major Shareholders

Twenty Major Shareholders of the Bank as at 31 March 2012

2012 2011
Name of Shareholder/Company Name No. of Shares % Cumulative % No. of Shares %

Bank of Ceylon - No. 2 A/C 38,039,994 14.35 14.35 38,039,994 14.36

Hatton National Bank PLC A/c No. 1 32,109,140 12.11 26.46 32,109,140 12.12
Sri Lanka Insurance Corporation Limited - Life Fund 26,509,832 10.00 36.46 34,423,532 13.00
Employees’ Provident Fund 23,904,758 9.02 45.48 12,632,200 4.77
Mr M A Yaseen 22,886,700 8.64 54.12 22,841,700 8.62
Distilleries Company of Sri Lanka PLC 17,042,856 6.43 60.55 17,042,856 6.44
Seafeld International Limited 15,286,794 5.77 66.32 15,286,794 5.77
HSBC Intl. Nominees Limited - BPSS Lux-Aberdeen
Global Asia Pacific Equity Fund 12,216,146 4.61 70.93 12,216,146 4.61
Renuka City Hotels PLC 6,926,870 2.61 73.54 6,926,870 2.61
HSBC Intl. Nominees Limited - BPSS LDN-Aberdeen
Asia Pacific Fund 6,750,000 2.55 76.09 6,750,000 2.55
HSBC Intl. Nominees Limited - BP2S London-Edinburgh
Dragon Trust PLC 4,742,200 1.79 77.88 4,728,800 1.78
Renuka Hotels Limited 4,073,360 1.54 79.42 4,048,360 1.53
HSBC Intl Nominees Limited - SSBT- Aberdeen Institutional
Commingled Funds, LLC 2,582,500 0.97 80.39 2,542,500 0.96
Cargo Boat Development Company PLC 2,098,200 0.79 81.18 2,048,200 0.77
Employees Trust Fund Board 2,016,266 0.76 81.94 2,001,666 0.76
HSBC Intl. Nominees Limited - BP2S-London-Aberdeen
Asia Smaller Companies Investment Trust 1,800,000 0.68 82.62 1,800,000 0.68
HSBC Intl. Nominees Limited - SSBTL-Aberdeen
New Dawn Investment Trust XCC6 1,800,000 0.68 83.30 1,800,000 0.68
Mellon Bank N.A. - Florida Retirement System 1,500,000 0.57 83.87 1,500,000 0.57
National Savings Bank 1,342,024 0.51 84.38 1,342,024 0.51
Renuka Consultants and Services Limited 1,097,992 0.41 84.79 1,047,992 0.40
Total of the 20 Major Shareholders 224,725,632 84.79
Other Shareholders 40,372,056 15.21 100
Total 265,097,688

190 DFCC Bank Annual Report 2011/12

 SUPPLEMENTARY INFORMATION
183 Capital Adequacy 187 Performance of the Share 191 DFCC Bank’s Offices
185 Sources and Distribution of Income - Bank 188 Share Information 192 DFCC Pioneer's Journey
186 Ten Year Summary 190 Twenty Major Shareholders

DFCC Bank’s Offices

AMPARA GAMPAHA MALABE

3, D S Senanayake Street 123, Bauddhaloka Mawatha 9, Athurugiriya Road
Ampara Gampaha Malabe
Telephone: 063-2224242/063-2223442 Telephone: 033-2226104 Telephone: 011-2442714/3
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: 025-2223417/025-2236463 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: 027-2223333/5859 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 Trincomalee

105, Trinco Road 5, Deva Veediya 246, Ehamparam Road,
Batticaloa Kandy Trincomalee
Telephone: 065-2228111/333/222 Telephone: 081-2234411 Telephone: 026-2225555/5522
Fax: 065-2228282 Fax: 081-2228460 Fax: 026-2225566

GALLE KURUNEGALA Vavuniya

93, Wackwella Road 25, Rajapihilla Road 7B, Horowpathana Road,
Galle Kurunegala Vavuniya
Telephone: 091-2227372-6 Telephone: 037-2224142 Telephone: 024-2226622/00
Fax: 091-2227374 Fax: 037-2229195 Fax: 024-2226660

Annual Report 2011/12 DFCC Bank 191

 FINANCIAL REPORTS SUPPLEMENTARY INFORMATION
000 Capital Adequacy 000 Performance of the Share 000 DFCC Bank’s Offices
000 Sources and Distribution of Income - Bank 000 Share Information 194 A Pioneer's Journey
000 Ten Year Summary 000 Twenty Major Shareholders

A Pioneer’s Journey

1956 MAY JANUARY 1983 AUGUST 1991 1995 JUNE 1998 FEBRUARY 2002 NOVEMBER 2006 MAY 2009 SEPTEMBER
Commenced Bonus Issue 1 to 4 Paid Up Bonus Issue 1 to 3 Paid Up Share Bonus Issue of 1 for 3 5 New Products Launched Under Small Managed the IPO of Sri Lanka Telecom; ADFIAP Annual AA(lka) Fitch
Operations with Share Capital Capital LKR 133 million increased Paid Up Share and Medium Enterprises Development the Largest Offering on CSE Sessions hosted Rating affirmed
LKR 8 million LKR 30 million OCTOBER Capital to LKR 302.2 million Programme DECEMBER JULY
Share Capital FEBRUARY Paid Up Share Capital LKR 170 million JULY APRIL Fitch Rating Lanka Limited assigned Bonus Issue of 1 for
Paid Up Share Capital Public Issue at 5 Times Par increased Asia Money Ranks DFCC as Bonus Issue of 1 for 6 Increased Paid UP “SL AA” National Rating for Implied Long- 2 Increased Paid Up
LKR 60 million number of Shareholders from the Best Managed Company Share Capital to LKR 352.6 million Term Unsecured Senior Debt of DFCC Bank Share Capital to
MARCH 826 to 12,320 in Sri Lanka DECEMBER LKR 863.9 million
Paid Up Share Capital DECEMBER FRN of US$ 65 million Guranteed by ADB SEPTEMBER
LKR 100 million NAMAL Founded DECEMBER 2003 AUGUST Issue of Debentures
1967 MARCH 1996 APRIL Acquired 94.16% of MERC Bank to the Value of
1984 SEPTEMBER Lead Arranged the Largest Sri Lanka Rupee
Act Amended DMG and DFCC Sign LKR 2 billion Enhanced
Finance Leasing Syndicated Loan for Sri Lanka Telecom OCTOBER
No. 1 of 1967 Telecom Mandate with Regulatory Capital
Introduced MERC bank Renamed DFCC
GOSL Vardhana Bank
1999 OCTOBER
APRIL
1974 APRIL Asia Money Ranks DFCC as the Best
Fixed Deposit
NOVEMBER 1989 Managed Company of the Decade
Act Amended Mobilisation
Short-Term JULY 2008 2011 JUNE
No. 12 of 1974
Working Capital APRIL Acuity Partners (Pvt) Shareholding in DVB
Financing Commissioning 2000 MARCH Limited commenced increased to 99.1%
Sri Lanka’s First Structured and Managed commercial operations SEPTEMBER
BOO Power Project, Sri Lanka’s First Rated OCTOBER AA(lka) Fitch Rating
1979 NOVEMBER MAY 1986 Sponsored by DFCC Debenture Issue for AA(lka) Fitch Rating affirmed
Paid Up Head Office Sri Lanka Telecom affirmed
Share Building
Capital LKR Opened
24 million

1955 OCTOBER
DFCC Founded by
Act No. 35 of 1955

1958 FEBRUARY 1982 DECEMBER 1988 AUGUST 1993 APRIL 1997 JULY 2001 JANUARY 2004 FEBRUARY 2007 JUNE 2010 JANUARY
Act Amended Act Amended 1st Branch ADFIAP Annual Sessions Appointed DFCC Acquired ABN Bonus Issue of 1 for 3 Rights Issue 1 for 4 Divested LVL Shares to Acuity Partners
No. 8 of 1958 No. 42 of 1982 opened in Kandy hosted Administrative Unit of AMRO Securities (Pvt) Increased Paid Up Bonus Issue of 1 for 5 (Pvt) Limited
World Bank Funded Limited Renamed Share Capital to Increased Share Capital
JUNE June
Energy Services DFCC Stock Brokers LKR 565.9 million to LKR 1,302 million
Act Amended No. 25 of 1993 Commercial Bank PLC ceased to be an
JANUARY 1977 JANUARY 1985 FEBRUARY 1992 Delivery Project (Pvt) Limited SEPTEMBER
Share Split SEPTEMBER Associate Company
Paid Up Medium-Term Working LVL Founded AA Rating Affirmed
AUGUST AUGUST APRIL AA(lka) Fitch Rating
Share Capital Capital Financing September
MARCH Act Amended No. 23 Bonus Issue of 1 for SEPTEMBER affirmed
LKR 16 million Reached No. 1 Position in AA(lka) Fitch Rating affirmed
SEPTEMBER Achieved highest PAT among of 1997 5 Increased Paid Up DFCC Consulting
Market Capitalisation
MARCH Insurance Agency all Listed Companies Founded November
SEPTEMBER Share Capital to LKR
ADFIAP formed Business OCTOBER Bonus Issue 1 for 1 increased Paid Up
MARCH Acquired 29.8% Stake 423.1 million
DFCC Founder Rights Issue 1 for 3 at Share Capital to LKR 2,648 million
LINDEL Founded in Commercial Bank
Member 18 Times Par Paid Up Share
Capital LKR 226.7 million of Ceylon PLC

192 DFCC Bank Annual Report 2011/12 Annual Report 2011/12 DFCC Bank 193
A Pioneer’s Journey
Notes

194 DFCC Bank Annual Report 2011/12

Annual Report 2011/12 DFCC Bank 195
196 DFCC Bank Annual Report 2011/12
 COrPORATE Name of Company
DFCC Bank
INFORMATION
Legal Form
A quoted public company with limited liability incorporated by
DFCC Bank Act No. 35 of 1955. A licensed specialised bank
under the Banking Act No. 30 of 1988

Credit Rating
AA (lka) credit rating from Fitch Ratings Lanka Limited.

The Annual General Meeting

will be held at the Cinnamon Grand, Colombo 3, on 29 June 2012.
Details of the business of the meeting and other information are
contained in the booklet enclosed with this Annual Report.

For any Clarifications on this Report please write to:

The Board Secretary
DFCC Bank
No. 73/5, Galle Road, Colombo 03, Sri Lanka.
or E-mail to: info@dfccbank.com

Minimise waste by informing the DFCC Bank Board Secretary to

update the mailing list if you are receiving more than one copy of
the Annual Report.

Board Secretary
Ms A Withana

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

Auditors
KPMG
Chartered Accountants

Bankers
DFCC Vardhana Bank PLC This Annual Report is
Carbon Neutral
VAT Registration No.
This DFCC Bank Annual Report has been produced by
409000088-7000
Smart Media - The Annual Report Company whose
greenhouse gas emissions resulting from the designing,
Head Office production, project management, usage of paper and other
raw materials, printing and transportation are offset using
DFCC Building, verified carbon offsets.
P O Box 1397, 73/5, Galle Road,
Colombo 03, Sri Lanka.
Telephone: +94-11-2442442
Fax: +94-11-2440376
E-mail: info@dfccbank.com
Website: www.dfcc.lk
 DFCC BANK
Annual Report 2011/12

DFCC Bank - Annual Report 2011/12

Multiple Strands
DFCC Bank
DFCC Building, P.O. Box 1397, 73/5, Galle Road, Colombo 03, Sri Lanka
of Business Lend
Strength
Telephone: +94 11 2442 442 | Fax: +94 11 2440 376
E-mail: info@dfccbank.com | website: www.dfcc.lk