The Operations Division was restructured and renamed ‘Services’ during the year to achieve more effective cohesion between branches and service centres as well as standardisation across our entire network. The DBB network comprises 137 service centres which includes 78 fully-fledged branches and 59 service centres located at Sri Lanka Post Offices (SLP). The Services Division now encompasses eight departments, namely, Network Service Centre, Channels and Service Delivery, Branch and SLP Services, Domestic Payment Services, Cash and Archiving Services, Insurance and Outsourced Vendor Management Services, Central Administration Services and Central Profile Administration Services.
While traditional bank counters with their customised warmth have been the forerunner in providing banking services, there has been a considerable rise in the use of alternate delivery channels in keeping with the times. The ATM network, eBanking and Cheque Deposit Units have been well received by customers, with rapid growth in debit cards (36% YoY) and eBanking customer base (50% YoY), whilst 34% of cheque deposits are being made at standalone Cheque Deposit Units.
Several enhancements during the year, coupled with ancillary services supported this drive such as:
Some of the key ongoing activities include management of customer complaints, dual controls that act as checks and balances and an accelerated move towards providing digital banking solutions.
|ANURADHAPURA||No.249, Maithreepala Senanayake Mw, Anuradhapura||025-2223417 / 025-2236463||025-2223418|
|AMPARA||No. 03, D.S. Senanayake Street, Ampara||063-2223442 / 063-2224242||063-2224243|
|BADULLA||No.14, Udhayaraja Mw, Badulla||055-2230160/1||055-2230163|
|BANDARAWELA||No.126, Main Street, Bandarawela||057-2224849 / 057-2224850||057-2224851|
|BATICALOA||No. 105, Trinco Rd, Baticaloa||065-2228333 / 111 / 222||065-2228282|
|GALLE||No. 93, Wakwella Rd, Galle||091-2227372 / 6||091-2227374|
|GAMPAHA||No.123, Baudhdhaloka Mw, Gampaha||033-2226104 033-2227940||033-2227941|
|HAMBANTOTA||No.21, Jail Street, Hambantota||047-2222882 / 047-2222858||047-2222828|
|JAFFNA||No. 141, K.K.S Rd, Jaffna||021-2221888 / 021-2221666||021-2221777|
|KADURUWELA||No.626, Main Street, Kaduruwela||027-2225859 / 027-2223333||027-2225858|
|KALUTHARA||No.282, Main Street, Kaluthara South||034-2225105 / 034-2236363||034-2236364|
|KANDY||No. 05, Dewa veediya, Kandy||081-2234411 / 081-2237455||081-2228460|
|KURUNEGALA||No.25, Rajapihilla Rd, Kurunegala||037-2224142 /461 / 462||037-2229195|
|MALABE||No.09, Athurugiriya Rd, Malabe||011-2442480 / 011 2156965||011-5552868|
|MATARA||No.05. Hakmana Rd, Matara||041-2225500 / 1 / 2||041-2222585|
|NAWALA||No. 540, Nawala Rd, Rajagiriya||011-2880880||011-2880887|
|NEGOMBO||No. 08, Main Street, Negombo||031-2227555||031-2227557|
|RATNAPURA||No.46, Bandaranayake Mw, Ratnapura||045-2223667 / 8||045-2223670|
|TRINCOMALEE||No.246, Ehambaram Rd, Trincomalee||026-2225555 / 22||026-2225566|
|VAVUNIYA||No.7B, Horowpathana Rd, Vavuniya||024-2226666 / 22 / 33||024-2226699|
It was an excellent year for project financing despite excess liquidity and sluggish credit conditions in the market. DFCC Bank exploited opportunities arising from growth in the construction and renewable energy sectors, supplemented to a lesser extent by growth in the tourism and allied services and manufacturing.
Total project financing approvals for corporates during the year reached LKR 24,869 million, an increase of 79% over the previous year. The project financing portfolio grew by 19% during the year to LKR 35,775 million, with the non-manufacturing sector accounting for 86% of the total. The renewable energy sector enjoyed the highest share of 16%, followed by finance and business services at 15% and construction at 14%.
While there was a marked increase in exposure to the trade, construction and food & beverage sectors, the portfolio remained well diversified. Many of the loans were granted to key players and market leaders in their respective industries.
The renewable energy sector received a boost due to the European Investment Bank (EIB) credit line which has a renewable energy/energy efficiency component. The Bank approved the financing of Sri Lanka’s first grid-connected solar PV independent power producer during the year under review. It would be a landmark transaction, which further reinforces the Bank’s pioneering status in the renewable energy sector, having also financed the country’s first Private sector grid-connected hydro and wind power projects.
The opportunities presented in the National Budget coupled with declining interest rates saw a number of well established, rated and listed corporates issuing debt instruments as an alternative financing mode. The Bank played a vital role in analysing and investing in these instruments while exploring synergies with Acuity Partners (Pvt) Limited, the joint venture investment banking arm of the DFCC Group.
Asset quality was maintained, with the non-performing loan ratio of corporate project loans standing at 0.08% by 31 March 2015 (FY 2013/14: 0.4%). The main contributory factors for portfolio quality are effective appraisal and excellent post disbursement follow up and procedures, including adherence to both internal and external regulatory limits in terms of sector, Group and client level exposures.
In just over ten years since its inception, DVB has amassed an impressive portfolio of corporate clientele ranging from some of the largest corporate institutions in the country to rapidly growing medium sized enterprises across diverse industry sectors. We offer companies a complete range of commercial banking products, from trade services to term loans and money market facilities, all tailored to meet the specific demands of companies and their industries.
The unified marketing approach of DVB leverages the brand equity of DFCC Bank, which has helped all units, including corporate banking, to cross-sell many other banking products, further enhancing customer convenience.
The DVB commercial banking portfolio grew by 9.4% over the previous year, with total utilisation of LKR 9,189 million by the end of 2014 being 51% of the total approved limits. Due to the high volatility in the short-term interest rates, maintaining the portfolio proved to a challenging task and the results reflect the strength of our relationship banking efforts.
We continued to restructure and streamline processes in the branch network which was initiated in 2013. Under this programme dedicated business development cells were established in main branches to drive business development locally and to provide a superior customer service. Business development initiatives of branches were brought under the purview of the new cell which is staffed with experienced Business Development Managers and Relationship Officers. Credit evaluation and processing is assigned to Relationship Managers specialising in project lending and retail lending. Such a focused marketing and processing approach is expected to improve customer interaction and reduce lead times, while providing a superior customer service and product delivery.
Encouraging results from the restructuring process was observed within a short period of time in terms of portfolio growth. The Branch Banking portfolio increased by 25.5% from LKR 60,975 million to LKR 76,541 million during the year, with the manufacturing, trade and agriculture and fishing sectors representing a major portion of the total lending portfolio.
We made good use of concessionary credit lines, particularly the one from the European Investment Bank to grow our SME project lending portfolio. With a focus on under-developed areas of the country and emerging SMEs which lack access to financing, a substantial number of credit facilities were approved to SMEs based in areas such as Jaffna, Vavuniya, Batticaloa, Ampara, Polonnaruwa and Badulla. Most of the facilities approved under this credit line were in the implementation stage by the year end, and thus will be reflected more fully in the Bank’s performance during the next accounting period.
The Branch Banking leasing portfolio grew by 15% despite adverse market conditions, with limited activity during the first half of the year and fierce competition. Since conditions were not conducive for a fixed rate product in a low interest regime, DBB was not bullish in expanding its finance leasing portfolio, as expected.
The NPL of the SME sector recorded a favourable decrease from 5.5% to 4.5%, underpinned by the low interest rate regime and diligent follow up.
The Branch Banking business continued to be the main driver in mobilising deposits from the general public. The savings account and deposit portfolio of the branch network grew by 10.4% from LKR 39,389 million to LKR 43,486 million during the year.
Our Business Banking Unit, set up a few years ago, functions as a one stop shop to deliver an entire range of development banking and commercial banking products to a mix of lower end corporate clients, higher end SME clients and retail customers. The fund based products include greenfield project financing, term loans for one time purchase of business assets, construction of factory buildings and provision of permanent working capital requirements as well as Personal Financial Services products such as leasing, overdrafts personal loans and housing loans. The fee based products include letters of credit and guarantees to cover transaction-related contingencies of customers.
The Business Banking portfolio grew by 13.8% to LKR 15,692 million during the year, driven by a 34% growth in the project financing portfolio. The development banking portfolio accounted for 41% of the total portfolio. The availability of a relatively low cost credit line at a fixed rate of interest during the year helped growth, while the leasing portfolio contracted as the prevailing conditions were not conducive for expansion (as discussed earlier). Cross-selling personal financing products was another focused strategy that was pursued, with good results.
The combined renewals/approval of both development banking and commercial banking facilities during the year amounted to LKR 10,650 million, although many of the large facilities remained unutilised at year end with the usual lag effect of disbursements.
The NPL of the development banking portfolio remained relatively low at 2.01%. This was achieved by taking remedial action based on early warning signals and through stringent credit appraisals and monitoring mechanisms.
The combined deposit portfolio of Business Banking stood at LKR 8,296 million during the year.
Personal Financial Services (PFS) is a relatively recent business segment that was established by DVB to penetrate the lucrative retail banking sector. Emphasis is placed on personal banking as it is a consistent driver of growth and profitability. The personal banking product range includes asset and liability products specially designed to cater to the diverse financial requirements of individuals and the ever-changing retail market conditions, with increasing domestic and foreign employment and growing personal income levels.
Personal Financial Services via ‘Personal Plus’ provides a host of benefits and privileges to customers such as attractive interest rates coupled with speedy approvals and minimum documentation. ‘Personal Plus’ products are available through multiple channels, enabling individuals to meet all their financial requirements – be it buying, renovating or building a house, leasing a vehicle, paying for higher education or travelling overseas.
The PFS Portfolio stood at LKR 10,200 million by end of 2014, recording a monumental growth of LKR 3,977 million for the year, which is a substantial increase from the growth recorded in the previous period. The significant increase could be largely attributed to the growth in personal loans of LKR 1,430 million amidst intense competition in the market. PFS has been steadily growing in the regions outside of Colombo, which contributed to 78% of the portfolio.
The strong growth experienced in 2014 is expected to continue in 2015 as greater emphasis is placed on exceeding customer expectations in meeting product and service delivery, with continuous product development and training of key frontline personnel, along with the expectation that the present trend in interest rates will continue.
The ‘Vardhana Personal Loan’ product was launched in 2013. Despite its late entrance into the market, it has surpassed expectations and has emerged as a driving force in the growth of the PFS portfolio. The product is primarily targeted to meet any personal requirement of those in permanent employment in the private and state sectors, along with sub categories comprising professionals, defence forces and education under the Nenasa Educational Loan scheme.
The loans offered under the scheme are attractively priced, offering an extended repayment period, coupled with a speedy and hassle free delivery in keeping with the product service standards.
DVB has established many tie ups with large corporate entities in order to promote the Vardhana Personal Loan Scheme which has further enabled the product to gain a significant portion of the market share in 2014. The portfolio of the product stood at LKR 2,250 million at year end, showing a significant growth from the previous year.
Vardhana Sandella with the tag line of ‘make your dream home a reality’ was launched in mid-2010. The housing loan scheme, offered through DFCC Vardhana Bank (DVB), covers a variety of purposes including the purchase, construction or renovation of a house, property or apartment. The Sandella housing loans grew by LKR 1,330 million to reach a portfolio balance of LKR 3,700 million during the year, with a significant 81% attributable to the outlying provinces.
Housing loans are an important component in the PFS portfolio, and year 2014 saw the product being extended to different market segments through marketing campaigns. We also participated in housing exhibitions and established strong links with property developers for apartment and housing finance in a strategic move to penetrate the market.
Going forward, we will take advantage of the low interest rate environment to provide customers with flexible interest rate options, and further focus on suburbs and provinces where there is significant development and demand for housing. Target customers will include young professionals and fixed income earners, with the objective of building loyal, long lasting customer relationships.
The first tranche of USD 7.5 million from the USD 15 million credit line provided by the Asian Development Bank was successfully utilised during FY 2013/14. With the second tranche to be disbursed in 2015, we plan to utilise the funds towards housing throughout the country with special focus on the rebuilding and development efforts of the conflict and tsunami affected areas in the Northern, Eastern and Southern provinces.
Despite the challenges experienced in early 2014, the latter part of the year saw the product gain momentum. Vardhana Leasing was introduced in September 2011 to provide customers of DVB a complete package of products. Leasing is available throughout the branch network with significant volumes coming in from the branches outside Colombo.
The leasing market has been extremely competitive with banks and finance companies alike striving to capture market share. We introduced an ‘Easy Leasing’ campaign during the year to promote our leasing product, whilst creating many tie-ups with reputed motor vehicle importers. DVB introduced hire purchase facilities in late 2014 with the intention of reaching a wider customer network. This will be further developed going forward based on market response.
Gold pledged lending was once a successful product in retail banking. However, following the drastic global downturn in gold prices from April 2013, lenders were faced with rising NPLs as borrowers failed to redeem pawned items. The business has since moved into defensive mode to cut losses.
We have taken advantage of the Credit Guarantee Scheme implemented by the Central Bank of Sri Lanka in late 2014 to promote gold pledged advances in the market and are cautiously optimistic of prospects for 2015.
Having launched the Visa International Debit Card in the year 2011, DVB ended the year with over 66,500 debit cards in issue. The DVB Visa debit cards provide access to over 36 million Visa-accredited merchants globally for purchase of goods and services and can be used for cash withdrawals worldwide through a network of over 2 .4 million ATMs.
The year saw DVB debit card usage of LKR 1,870 million at ATMs and LKR 226 million at POS terminals. In addition to the standard Visa debit cards we have introduced three special Visa debit cards for DVB Premier Banking customers, namely, Premier plus, Premier and Prabhu.
DVB’s credit card range covers internationally valid Visa Classic, Gold and Platinum cards. The Platinum cards, with a number of value added features, are issued to key customers of DFCC Bank and DVB, while corporate cards target corporate customers of DFCC Bank and DVB. All the credit cards issued by DVB are chip based and provide enhanced protection against credit card frauds. This includes SMS alert messages relating to transactions and a 24-hour hotline.
The total credit exposure of the credit card portfolio stood at LKR 635 million by year end, with a card usage of LKR 385 million during the year. The DVB credit card operation remains a viable business line despite its late entry into the market. The card portfolio is free of material infections due to prudent screening methods adopted in issuing credit cards.
The chip based multi currency Visa Global Travel Card was introduced in early 2015 replacing the magnetic stripe based single currency Global Travel card. The Global Travel card is a prepaid card which provides the choice of preloading and accessing four international currencies in one card at any given time, thus reducing additional costs arising from multiple currency conversions.
Investment Banking services are offered through DBB’s joint venture, Acuity Partners (Pvt) Limited which offers a comprehensive suite of products and services in Fixed Income Securities, Stock Brokering, Corporate Finance, Margin Trading, Asset Management and Venture Capital Financing.
As at 31 March 2015, the aggregate cost of investment in DFCC Bank’s portfolio of quoted shares (excluding the holding in Commercial Bank of Ceylon PLC (CBC) voting shares), unquoted shares and unit holdings amounted to LKR 1,687 million. The distribution of the aggregate investment portfolio is given below:
Investment Portfolio as at 31 March 2015
|Quoted share portfolio (excluding CBC)||788.1||1,439.0|
|Unit Trust portfolio||757.3||805.7|
|Unquoted share portfolio||142.0||142.0|
The cost of the unquoted share portfolio is carried at cost on the balance sheet. The market value of the investment in CBC voting shares was LKR 19,888 million on 31 March 2015 as against the cost of LKR 3,075 million.
During the year, DFCC Bank divested its 9.92% stake in Nations Trust Bank PLC at a price of LKR 95.00 per share and realised a capital gain of LKR 829 million. In addition, selected divestments of quoted shares and units were carried out during the year, generating LKR 306 million in capital gains.
Using part of the sales proceeds, LKR 500 million in investments were made in three equity linked Unit Funds during the year, namely NAMAL Growth Fund (LKR 250 million), Guardian Acuity Equity Fund (LKR 150 million) and JB Vantage Value Equity Fund (LKR 100 million).
The relatively stable USD/LKR exchange rate and comparatively low levels of interest that prevailed from the latter part of 2013 brought in optimism to actively focus on the balance sheet growth in 2014.
During the period under review, the market witnessed continued easing of the monetary policy stance of the Central Bank of Sri Lanka (CBSL) as a response to benign inflation levels. The policy rates [Standard Deposit Facility (SDF) and Standard Lending Facility (SLF)] that stood at 6.50% and 8.50% respectively at the beginning of the year closed at 6.50% and 8.00% at the end of the year. Interbank money market rates too continued to decline in line with the general reduction in interest rates and as a result of some non-traditional measures taken by the regulator.
Benchmark Government Bill/Bond yields dipped during the calendar year 2014: from 7.95% to 6.00% for 12-month Treasury Bills; from 7.48% to 7.20% for 5-year bonds; from 10.25% to 7.85% for 8-year bonds.
Maintaining the targeted interest rate spreads between deposit liabilities and lending rates in the light of prevalent low interest rate sentiment, especially in the minds of borrowers, was a challenge for all market players. This, coupled with high market liquidity, prompted a fierce competition among banks and non-banking financial institutions for growth in advances at the expense of margins. This scenario compelled bank treasuries to improve the efficiency of liquidity and interest rate management to a level never witnessed before.
Foreseeing these developments, DBB Group Treasury took initiatives to establish a dedicated fixed income (FI) desk with active focus on trading in Government Treasuries. This has not only yielded tremendous results, but helped immensely in terms of enhancing Treasury visibility in the market place. During the year under review, the FI desk made LKR 335 million through trading activities. The FI portfolio witnessed a twofold growth while the encumbered portfolio (allocated for REPO transactions) alone stood at LKR 15,635 million at the end of the financial year.
The USD/LKR rate closed the calendar year 2014 with a marginal depreciation, achieving the CBSL objective of minimising the level of market volatility. The steep drop in USD/LKR premiums that the market witnessed at the latter part of 2013 was slightly reversed in selected time buckets and found its equilibrium to end the year at around LKR 1.40, LKR 2.55 and LKR 4.85 for 3-months, 6-months and 12-months respectively compared to LKR 1.00, LKR 2.45 and LKR 5.50. Amidst this challenging environment, the DBB Group Treasury made LKR 144 million through trading activities while positively contributing to reduce the cost of funds through its FX swap operation.
As the economy continued to slowly recover from lacklustre private sector business conditions, improvements in customer volumes were witnessed, especially in the latter part of the year. During the period under review, the Treasury sales desk successfully organised several customer events with the collaboration of market experts, economists and senior CBSL officials, with the objective of enhancing the knowledge on current economic trends and resultant opportunities. The improved sales focus helped the Treasury to achieve an 18.6% YoY growth in FX customer volumes while contributing LKR 154 million to the bottom line through FX customer transactions.
Going forward, while maintaining the positive momentum, the Treasury is focusing on further improving efficiency in asset and liability management with necessary IT support.
The scope of the Treasury Middle Office (TMO) was further enhanced in line with the regulator’s guidelines to support the growing Treasury business. The TMO independently reports to the Bank’s Integrated Risk Management Department and is managed by a team of qualified professionals.
All International Banking transactions relating to Trade and Remittances of DFCC Bank customers are routed through DVB.
Our specialised international trade-related services include import and export finance and services to corporate, business and individual customers. The branches also generate international trade business from the SMEs by offering import and export trade facilities.
Total fee and commission income earned from trade services and remittances grew by 14.4% during the year to LKR 311 million. This growth was mainly supported by import transactions arising from increased importation of vehicles and food items into the country. The appreciation of LKR against the Japanese Yen promoted vehicle importation to the country. Further, the Bank earned a substantial commission income from the letters of credit issued for the projects financed by DFCC Bank.
Expansion of the international correspondent bank network helped DVB to handle higher volumes of letters of credit from regular clients who were seeking to expand their import transactions with global partners. Income from export transactions increased by 24.8% during the year, with new export clients supporting this growth.
Inward remittances into the country have shown a persistent growth over several years. Sri Lanka’s remittance inflow increased from USD 6,400 million in 2013 to USD 7,000 million in 2014, driven by worker remittances which constitute an important part of the total external receipts. This is a growing source of foreign exchange earnings to the country as around 2 million Sri Lankans are employed abroad. The employment destinations have expanded from a predominantly Middle Eastern base to include Europe, South East Asia and Far Eastern countries such as Japan and South Korea.
Total inward and outward remittances turnover of DBB increased by 35% to LKR 42,517 million during 2014. This is in line with the trend of increasing volumes of foreign remittances into and from the country. Inward remittances handled, including telegraphic transfers and bank drafts collected, increased by 41% to LKR 28,680 million, while outward remittances increased by 24% to LKR 13,836 during 2014. Fee income from remittance services increased likewise, thus supporting our strategy to diversify income streams.
DVB introduced Lanka Money Transfer (LMT) during the year, which is an automated money transfer system to directly credit incoming remittances into the accounts of the recipients. DVB signed up with several local banks with a large retail customer base to be partner institutions of the LMT system, while also introducing the system to several money transfer companies in the Middle East. Going forward, the LMT system will later be linked to the MWallet solution which is currently being developed and tested. This will provide the added capability for making electronic payments and settlements.