DFCC Bank : 2023 Report

 

 

Sustainable Growth,

Financial Strength

In the year under review, we made remarkable progress on two fronts. We achieved the best financial results ever in an economy

still recovering from an extreme crisis.

DFCC faced daunting challenges on so many fronts, but the Bank overcame them with flexibility and innovation. Despite trying circumstances, the Bank did not waver in its commitment to the sustainable development of the nation, both in the environmental and social spheres. These two events are indeed inter-related.

Our commitment to national sustainability has driven our growth and sustainability.

CONTENTS

• INTRODUCTION

1. About the Report

1. About DFCC Bank

1. Milestones

1. DFCC Group Structure
2. Highlights

• RECOGNITION

1. Awards and Accolades

1. Key Events of the Year

• LEADERSHIP

1. Message from the Chairman

1. Chief Executive's Review

1. Board of Directors

1. Corporate Management
2. Management Team

• STRATEGY REPORT

1. Our Value Creation Model

1. Operating Environment

1. Strategic Direction and Outlook

1. Stakeholders

1. Materiality

• MANAGEMENT DISCUSSION AND ANALYSIS

1. Financial Capital

1. Institutional Capital

1. Investor Capital

1. Customer Capital

1. Employee Capital

1. Business Partner Capital

1. Social Capital

1. Natural Capital

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• STEWARDSHIP

1. Integrated Risk Management

1. Corporate Governance

199 Annual Report of the Board of Directors on the State of Affairs of the Bank

208 Report of the Audit Committee

1. Report of the Human Resources and Remuneration Committee
2. Report of the Nomination and Governance Committee

215 Report of the Board Integrated Risk Management Committee

1. Report of the Credit Approval Committee
2. Report of the Related Party Transactions Review Committee
3. Directors' Statement of Internal Controls

222 Assurance Report on The Director's Statement on Internal Control

• FINANCIAL REPORTS

1. Financial Calendar
2. Statement of Directors' Responsibilities in Relation to Financial Statements
3. Chief Executive's and Chief Financial Officer's Statement of Responsibility
4. Independent Auditors' Report

1. Income Statement
2. Statement of Profit or loss and other Comprehensive Income
3. Statement of Financial Position

1. Statement of Changes in Equity

1. Statement of Cash Flows

1. Notes to the Financial Statements

1. Other Disclosures

• SUPPLEMENTARY INFORMATION

392 Quantitative Disclosures as per Schedule III of the Banking Act Direction No. 01 of 2016, Capital Requirements Under Basel III

1. Ten Year Summary

1. GRI Content Index

423 Independent Assurance Report on Sustainability Reporting

425 Independent Assurance Report for Integrated Reporting

427 Corporate Information

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DFCC BANK PLC ANNUAL REPORT 2023

Introduction

04 About the Report

08 About DFCC Bank

10 Milestones

12 DFCC Group Structure

13 Highlights

Introduction

04 Introduction

ABOUT THE REPORT

GRI 2-1, 2, 3, 4, 5, 3-1

Scope and Boundary

The DFCC Bank Annual Report 2023 (herein referred to as "the Report" or "the Annual Report") is the Bank's 11th Integrated Report and presents a concise yet holistic picture of the Bank's strategies, goals, governance, and operations from 1 January 2023 to 31 December 2023 which is the financial year of the Bank's reporting.

The scope and boundary of this report mainly cover the core banking activities of DFCC Bank PLC (herein referred to as "DFCC Bank", "DFCC" or "Bank") while presenting both financial and non-financial aspects of the Bank's performance. Accordingly, this Annual Report reflects the Bank's integrated approach to management, ensuring that different functions are not in isolated silos but are integrated. In line with global trends, the Bank increasingly focuses on sustainability, which the Report emphasises. Non-financial factors that impact the Bank's ability to create value, such as social and environmental impacts, are therefore given prominence in the Report. The Report brings out the Bank's value creation in the short, medium, and long-term. The Bank's overall strategy and that of its separate divisions are given prominence

in the Report. In addition, an overview and financial performance of the companies in the DFCC Bank Group (herein referred to as "Group"), i.e. its subsidiaries, namely DFCC Consulting (Pvt.) Limited, Synapsys Limited, Lanka Industrial

Estates Limited, Joint Venture - Acuity Partners (Pvt) Limited and Associate Company - National Asset Management Limited are presented in this Report. (details given on page 134). The respective entities have been duly identified where applicable.

This Report is in accordance with the boundaries of our Financial Statements and includes DFCC Bank and its subsidiaries. Stakeholders and entities to be included in this Annual Report are decided based on the Framework discussed below:

	Reporting Boundary for the Integrated Report
	(Value Creation, Risks, Opportunities)
		Financial Reporting Boundary
		DFCC BANK PLC
Subsidiaries		Joint Venture	Associate Company
DFCC Consulting (Pvt)	Acuity Partners (Pvt)	National Asset
Limited		Limited		Management Limited
Synapsys Limited
Lanka Industrial Estates
Limited
Shareholders	Customers	Employees	Business	Communities	Advocacy	Government
and			Partners,		Groups	Institutions,
Investors			Suppliers			Regulatory
			and			Bodies
			Service			and Other
			Providers			Industry
						Associations
		DFCC BANK PLC
		Sustainability Reporting Boundary

DFCC BANK PLC ANNUAL REPORT 2023

Introduction About the Report	05

Reporting Frameworks

Integrated reporting

The International Integrated Reporting Framework of the International Financial Reporting Standards (IFRS) Foundation.

Smart Integrated Reporting MethodologyTM.

Sustainability reporting

Financial reporting

Governance, compliance and risk reporting

Global Reporting Initiative (GRI) standards - "In Accordance with the GRI Standards", issued by the Global Sustainability Standards Board.

Guidelines on Environmental, Social and Governance (ESG) Reporting issued by the Colombo Stock Exchange (CSE).

The United Nations Sustainable Development Goals (UN SDGs).

Banking Act Direction No. 05 of 2022 on Sustainable Finance Activities of Licensed Banks.

Sustainable Banking Principles of the Sustainable Banking Initiative of the Sri Lanka Banks' Association (SLBA-SBI).

Sri Lanka Accounting Standards (LKASs/SLFRs) issued by the Institute of Chartered Accountants of Sri Lanka.

Companies Act No. 07 of 2007 and amendments thereto.

Code of Best Practice for Corporate Governance issued by the Institute of Chartered Accountants of Sri Lanka.

Banking Act Direction No. 11 of 2007 on Corporate Governance for Licensed Commercial Banks in Sri Lanka, issued by the Central Bank of Sri Lanka and any amendments thereto.

Banking Act Direction No. 01 of 2016 on Capital Requirements under Basel lll and amendments thereto.

Banking Act No. 30 of 1988 and amendments thereto.

Companies Act No. 07 of 2007 and amendments thereto.

Listing Rules of the Colombo Stock Exchange (CSE).

Securities and Exchange Commission of Sri Lanka (SEC) Act No. 19 of 2021, including directives and circulars.

Directions issued by the Central Bank of Sri Lanka and the Basel Capital Accord (III).

Code of Best Practice on Corporate Governance issued by the Institute of Chartered Accountants of Sri Lanka.

The guiding principles in integrated reporting have been considered in preparing and presenting the Report. This includes material risks, opportunities, and outcomes attributable to or associated with the operating environment (pages 152 and 178), our value creation model (pages 44 and 45), capitals (pages 70 to 150) and corporate governance (pages 179 to 198) etc.

Sustainability must be supported by governance frameworks, systems, and procedures. This is depicted in the governance section of the Report. Risks and opportunities are featured throughout the Report, while a section is dedicated to the risk management process.

DFCC BANK PLC ANNUAL REPORT 2023

06	Introduction About the Report

Value Creation

DFCC's value creation process is captured and clearly articulated in its business model on pages 44 and 45.

The model describes inputs and outputs regarding capitals and their growth/transformation. The value derived by the Bank and delivered to stakeholders is described under outcomes, while the ultimate outcome is described under impact. The entire process is placed within the context of the operating environment and governance structures.

The Eight Capitals

The IFRS Foundation recognises six distinct but interrelated capitals:

Financial, Manufactured, Natural, Human, Intellectual, and Social Relationship. Integrated Reporting is based on the understanding that future cash flows and other conceptions

of value depend on a wide range of capitals, interactions, activities, causes and effects, and relationships other than those directly associated

Capitals described in this

Annual Report:

Financial Capital

Institutional Capital

Investor Capital

Customer Capital

Employee Capital

Business Partner Capital

Materiality

According to the principles of integrated reporting, a matter is considered to be material if it substantively affects the ability of an organisation to create value in the short, medium, and long-term. Materiality is largely industry-specific but is also organisation-specific. Identification of material matters is interwoven with the identification of risks and opportunities featured throughout the Report.

DFCC's strategies, governance, plans, and operations are guided by integrated thinking and materiality matters. Financial and non-financial factors are considered and are given appropriate importance.

Ascertainment of material matters requires input from all key divisions of the Bank and must consider all stakeholder groups' perspectives. The process must also be placed in the context of the operating environment.

with changes in financial capital. The organisation's operations create value for itself and its stakeholders. During value creation, capital is consumed, developed, and transformed.

As provided in paragraphs 2.17 and

2.18 of the Integrated Reporting Framework, organisations are not required to adopt the Framework's categorisation of capitals. Thus, the capitals have been categorised in

a manner that best describes the Bank regarding the Bank's value creation process.

Social Capital

Natural Capital

The relationships and interconnections between the various capitals will be brought out in the Report. Reporting on the multiple products, services, activities, and operations will be placed appropriately within the capitals.

Precautionary Principle

We use the Precautionary Principle as a social and environmental decision-making guideline. The salient points of the Principle are:

• Taking preventive action in the face of uncertainty.
• Shifting the burden of proof to the proponents of an activity.
• Exploring a wide range of alternatives to possibly harmful actions.
• Increasing public participation in decision-making.

DFCC BANK PLC ANNUAL REPORT 2023

Introduction About the Report	07

All previous Integrated Annual Reports including the most recent report for the financial year 2022 are available for viewing and downloading on the bank's website - www.dfcc.lk.

While there are no restatements, certain reclassifications relating to the financial statements are reported in the Notes to the Financial Statements (page 243 to 390). With regard to the GHG emission calculation of the Bank, we have decided to change the base year from 2022 to 2023 as the emission figures have been verified by an accredited external verification body.

Combined Assurance

The mandatory independent review of the financial statements, including the notes to the accounts, has been provided by external auditors - Messrs KPMG Sri Lanka, Chartered Accountants. Their opinion is given on pages 227 to 233.

Further, independent assurance on the following presented in this report has been provided by Messrs Ernst & Young, Sri Lanka (EY).

• Independent assurance on the DFCC Bank's reporting adherence to the GRI standards (page 423 to 424)
• Independent assurance on DFCC Bank's reporting adherence to the Integrated Reporting Framework (page 425 and 426)

Feedback

For any clarification

on this Report please write to:

The Company Secretary DFCC Bank PLC 73/5, Galle Road, Colombo 3,

Sri Lanka

Email: [e-mail]

Company Secretary

Ms N Ranaraja

Registered office

73/5, Galle Road, Colombo 3,

Sri Lanka

Phone: [phone]

Email: [e-mail]

Website: www.dfcc.lk

Forward-looking

Statements

This Report includes forward-looking statements relating to the likely future financial position and results of the Bank's operations. By their very nature, these statements involve elements of risk and uncertainty as they relate to events and depend on circumstances that may or may not occur in the future.

Looking Forward

The last few years have been highly turbulent, politically, economically, and socially. The current environment is still somewhat fluid. Given this backdrop, it is imperative to take a forward-looking view. We cannot foresee the future, but we attempt to present the most probable scenario as we see it.

Board Responsibility Statement

The Board of Directors of DFCC Bank PLC confirms that the 2023 Annual Report has been prepared and presented in accordance with the Framework and acknowledges its responsibility for ensuring the integrity of this integrated report. Accordingly, the Board is satisfied with the presentation of information with regard to the Bank's strategy and value creation addresses material matters relevant to the Bank and its stakeholders. The Board has considered the completeness of the information presented in the report based on the combined assurance process outlined above.

Signed on behalf of the Board,

N H T I Perera

Director/Chief Executive Officer

DFCC BANK PLC ANNUAL REPORT 2023

08		Introduction
	ABOUT DFCC BANK
		GRI 2-6
			Vision		Mission
		To be the leading	To provide innovative
		financial solutions	and responsible solutions
		provider, sustainably	true to our values with
		developing individuals	the expertise of our
		and businesses.	multidisciplinary team
					of professionals and
					synergies of our financial
					services group.

Values

DFCC Bank PLC ensures that its employees are committed towards enhancing the lives of people by being:

	Customer-Centric
Stewardship	Professional
Diversity, Equity, and	Team-Oriented
Inclusion (DE&I)
Innovative	Accountable
Ethical	Socially Responsible

Sustainability

The next stage in the Bank's evolution was a significant shift towards sustainability. In common with much of the industry globally, DFCC has eschewed a near-sighted focus

on the bottom line, realising that sustainability is the path to ensure long-term profitability. The Bank has aligned its strategies with the triple bottom line. It has set itself the ambitious goal of becoming completely carbon-neutral by 2030.

DFCC has established itself as a premier lender for renewable energy projects such as waste-to-energy, solar, wind, and hydropower.

Ethics and Integrity

DFCC has a strict code of ethics and integrity, which is scrupulously followed in all its business practices. It is integral to interactions with all stakeholders, including employees, customers, and business partners. The Bank also has strict safeguards against corruption.

Product and

Service Portfolio

LKR

407 Bn

Deposits

DFCC functioned as a development bank for the first six decades of its existence, primarily contributing to balanced regional and sectoral development. The Sri Lankan banking sector witnessed a significant advancement with the introduction of groundbreaking products and services. This pioneering effort

has snowballed into industry-wide adoption of digitisation.

Diversity, Equity, and Inclusion (DE&I), and Stewardship are new values recognised in 2022. DFCC Bank takes a comprehensive perspective on DE&I to include not only the traditional criteria of race, religion, and gender but diversity of personalities as well.

LKR

395 Bn

Loans

DFCC BANK PLC ANNUAL REPORT 2023