Being a mid-sized bank with a strong technological focus confers a further advantage, as it enables us to be nimbler, and adapt quickly to changes in the environment, as well as the fast-changing competitive landscape.
Successfully overcoming formidable obstacles and challenges, DFCC Bank has registered a number of significant achievements in the year under review. A customer-centric, digitally enabled core banking system has been implemented and holds us in good stead to face the upcoming challenges and customer expectations in the foreseeable future. Profitability has been robust, making 2021 the best year in the recent past. This can be ascribed to prudent cost management, a strategic approach to productivity enhancements, and the lower interest rates that prevailed, which led to a sizable boost to our lending portfolio. DFCC Bank has also been one of the first to use Google Workspace to drive digitisation, robotic automation and streamlined work processes to enhance customer experience. Such changes introduced during the year have made DFCC Bank among the most technically advanced in the industry.
During this year, DFCC Bank achieved a momentous milestone in reaching an asset base of LKR 486 Bn for the first time in its history. Profitability has soared to LKR 3,222 Mn, while income growth has peaked at LKR 42,649 Mn. The CASA ratio has risen to 31.25% while the cost to income ratio is 45:53. Loan book growth has climbed to LKR 365,901 Mn and the NPL stands at 5.6%. These figures, taken together, indicate a very impressive financial performance, despite an operating environment which was very unfavourable in many respects.
Among our segmentation propositions, DFCC Premier aimed at the higher end of customers was rebranded as DFCC Pinnacle, while we also launched DFCC Prestige, targeting the next level of discerning customers. The Bank is focusing on the salaried and professional segments and launched Salary Plus and Salary Partner, since they comprise a large share of retail banking customers. In addition, we have launched DFCC Aloka, our women’s banking proposition which is designed to empower female customers to achieve their professional and personal goals. Together, these are precisely targeted propositions which will fuel our growth in the
Challenging external environment
The external environment has posed exceptional challenges, other than those arising from the pandemic and resultant economic downturn, as well as the Easter Sunday carnage.
The downgrading of Sri Lanka’s sovereign rating by international rating agencies has impacted the entire banking industry, resulting in higher costs for the sourcing of funds locally and internationally. This has been aggravated by the single digit interest regime, as well as the series of moratoriums imposed by the Central Bank of Sri Lanka (CBSL), which deferred the inflow of customers’ loan repayment. Despite such a scenario, we had to continue servicing our debt commitments to customers and external lenders, in addition to meeting many other regulatory conditions, which resulted in serious liquidity constraints. The restriction of imports due to the limited foreign exchange reserves of the country, led to a drop in imports, which impacted our trade business. In addition, the drastic reduction in vehicle imports adversely affected our leasing business, which usually makes
a significant contribution to our bottom line.
Accelerating our digital journey
Our new core banking system can exponentially advance the frontiers of our digital capabilities in addition to enlarging the digitally enabled remote banking options for our customers through the provision of a number of innovative features. The system has the built-in capacity to facilitate Non-Face To Face (NF2F) on-boarding: even overseas customers can open accounts from the comfort of their home. Our advanced digital capability, coupled with restricted mobility of people during the pandemic, has resulted in a tremendous surge in digital adoption by customers. On-boarding through online/mobile apps for DFCC Virtual Wallet grew by 48%, and customers applying online for accounts and credit cards increased by 280%. Total transaction value via digital banking channels accelerated by 1300%, which is indicative of the success of our digitisation drive. Recent additions to our digital capabilities include the Multilingual Customer Contact Centre, and the virtual account opening process, which is fully integrated with the Department for Registration of Persons in Sri Lanka to authenticate the identity of new customers. With the new core banking system, we can optimise the use of multifunction platforms such as mobile banking and online banking, and opens up entering new target segments for us to drive new customer acquisition. The new system will also enable us to precisely segment, target and position our proposition to audiences such as Millennials and GenZ demographics, as well as the working population who make up a sizable proportion of potential customers. This has given us a tremendous head-start and an advantage in driving our business, using the latest technology.
Adapting to the “New Normal”
The pandemic-induced pressures have inspired DFCC Bank to consider “reimagined” models of working that diverge from traditional banking. This will include the use of digital channels by full-time staff working from home on most days, as well as part-time employees working on back-office tasks which do not require regular office hours. This could lead to improved efficiency and reduced costs, in terms of office space, utilities and overtime payments, as proper policies, procedures and strategies are put in place to take advantage of such practices. However, this will entail heightened cybersecurity concerns which will be of paramount importance, given the critical need to protect our systems domain. We have significantly invested and continue to invest in the necessary infrastructure, protocols and procedures to prevent and mitigate the impact
of hostile cyber-based threats.
Promoting a youthful, inclusive culture
It is heartening to note that we have a sizable percentage of young staff at all levels, who have the inherent ability to embrace our automated processes and technological advancement. We also have an equal balance of males and females, further fostering an inclusive culture. Younger people are taking up branch leadership, and we have been fast-tracking career progress for this group. They have also been at the vanguard of our digital and sustainability initiatives. Such empowered staff will help us achieve our vision of being a customer-centric and digitally enabled bank by 2025 while accelerating our journey towards reaching two million customers during this time frame.
This will also help DFCC Bank cement its well-deserved reputation for having an inspiring working environment which fosters innovative and creative thinking and work practices. In fact, we have won titles such as becoming one of Sri Lanka’s “Top 10 Women Friendly Workplaces” and being recognised as a “Company with Great Managers”. The Bank also received an honourable mention at Sri Lanka’s “Most Admired Companies” Awards in the year 2021.
Sustainability taking centre-stage
We approach sustainability in terms of a 10-year plan with clearly identified goals and areas of focus. The results of these initiatives will be evident by 2025. We also have an external Strategy Consultant to guide us in our efforts. Within the Bank itself, we have made considerable progress in reducing paper, plastics and electricity usage, in addition to installing rooftop solar projects at selected branches. These have helped reduce our carbon footprint on the environment, and related expenditure, to a great extent. We continue our efforts in embedding sustainability within the DNA of the Bank, extending it to all areas of our operations. Centring sustainability within our lending portfolio, we offer the “Krushibala” loan scheme at low interest rates for people involved in agriculture, more specifically, sustainable agriculture. Renewable energy is another key focus area in which we encourage customers to invest, offering preferential rates and other financial services and benefits. The “DFCC Sustainability Trust” will engage the branches and other interested stakeholders to contribute towards the sustainability effort of the country. In recognition of our efforts with regard to sustainability, we have been recognised with two awards at the Karlsruhe Awards for Sustainability, held in Germany.
Focusing on risk management
The Integrated Risk Management Committee with the guidance of the Board, and the Operational Risk Management Committee, carry out their roles diligently under the three pillars of market risk, credit risk and operational risk, with clearly identified KPIs decentralised. Credit Hubs have been set up to underwrite and evaluate credit risk of facilities that are granted. Market risk is managed by fully automated systems. We have external agencies to validate operating models on the basis of the business users’ requirements. Retail banking products, credit cards, loan originations and other functions are fully automated, including statistically developed credit scorecards. As a result, manual interventions will be minimal, making the area of risk management highly transparent. We believe that the quality of our portfolios will further improve
as a result of all these initiatives that are firmly in place.
DFCC Bank has strict and deeply-entrenched policies against corruption and bribery. Staff members are required to sign a pledge to this effect, and there is also a transparent whistle-blowing policy, which gives employees an avenue to report misappropriation or wrongdoing of any kind to relevant senior authorities. The Bank is currently in the final stages of formulating and implementing a more rigorous transparency policy, which is essential for our onward march.
The effects of the pandemic are likely to linger, though there could be an improvement in the business climate as more and more organisations adapt to the “new normal”, and tourism rises out of its depressed situation. Exports are likely to continue their upward trend, while inward remittances could improve when more workers return to their jobs overseas. As the moratoriums granted to businesses come to an end, they will be required to start repaying their loans. As many businesses have not recovered completely, this could lead to a spike in non-performing loans, unless debts are restructured and flexible repayments allowed. This is sure to result in challenging times ahead. The decline in the country’s foreign exchange reserves could have a major spill-over effect across all sectors of the economy, unless remedial measures are undertaken by the Government. Rising inflation is likely to remain an area of concern in the year ahead.
Despite such setbacks, we can look forward to the future with a degree of confidence, due to the rich heritage of trust, inherent strengths, as well as the prudent and proven management practices of DFCC Bank. Being a mid-sized bank with a strong technological focus confers a further advantage, as it enables us to be nimbler, and adapt quickly to changes in the environment, as well as the fast-changing competitive landscape.
My sincere appreciation
As I take on the stewardship of DFCC Bank, and the challenging task of guiding its fortunes through turbulent times ahead,
I take confidence in the fact that I have the backing of some of the best minds in the industry. Let me take this opportunity to thank our Chairman, Mr J Durairatnam, and our Board of Directors, while looking forward to their guidance in taking the Bank forward. Mr L H A L Silva who stepped down from the position as CEO at the end of 2021, deserves a word of appreciation for navigating the Bank through a very challenging time period during his tenure at the helm of the Bank. I also wish to express my gratitude to the Governor and staff of the Central Bank of Sri Lanka, the Treasury and its officials for their support. A very big thank you to our staff for their efforts, perseverance and dedication during these difficult times. Finally, I would like to express my sincere appreciation to our customers for their unwavering loyalty, and our shareholders for their continued support. Together, we can make the coming year a resounding success in every way.
N H T I Perera
Chief Executive Officer
17 February 2022