Annual Report of the Board of Directors on the Affairs of the Bank
Constitution
DFCC Bank was incorporated in 1955 under the DFCC Bank Act No. 35 of 1955 as a limited liability public company and the ordinary shares of the Bank were listed in the Colombo Stock Exchange.
Consequent to the enactment of the DFCC Bank (Repeal and Consequential Provisions) Act No. 39 of 2014, the DFCC Bank Act No. 35 of 1955 was repealed and with effect from 6 January 2015 the Bank was incorporated under the Companies Act No. 07 of 2007 as a public limited company listed in the Colombo Stock Exchange with the name ‘DFCC Bank PLC’.
The Bank continues to carry on its business as a licensed specialised bank without any interruption.
Going Concern
The Directors are satisfied that the Bank has adequate resources to continue its operations in the future and as such the financial statements are prepared on the basis of a going concern. The Auditors have declared the Bank solvent even after the payment of dividend.
Financial Statements
The financial statements of the Bank and the Group are given under Financial Reports section.
The financial statements of the Bank and the Group have been prepared in accordance with Sri Lanka Accounting Standards prefixed SLFRS and LKAS, the Banking Act No. 30 of 1988 and amendments thereto, the Companies Act No. 07 of 2007 and other applicable statutory and regulatory requirements.
The impact on adoption of Sri Lanka Accounting Standard SLFRS 11 – ‘Joint Arrangements’ which became effective during the current financial year to the statement of financial position is disclosed in Note 36.3. Due to the adoption of this standard there was no impact on the equity attributable to the equity holders of the Bank.
Review of Business of the Year
The Chairman’s Statement, Chief Executive’s 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.
Profit and Appropriations
| Year ended 31 March 2015 |
LKR 000 |
| Profit for the year |
3,240,348 |
| Other comprehensive income for the year, net of tax |
4,902,876 |
| Total comprehensive income for the year |
8,143,224 |
| Appropriations |
|
| Transfer to: |
|
| Reserve Fund (statutory requirement) |
165,000 |
| First and final dividend recommended for financial year ended 31 March 2015 |
1,590.586 |
| Balance carried forward |
6,387.638 |
Accounting Policies
The accounting policies adopted in the preparation of the financial statements of the Bank and the Group are stated on Financial Reports section.
There were no changes to the accounting policies of the Group in the year under review other than due to adoption of Sri Lanka Accounting Standard SLFRS 11 – ‘Joint Arrangements’ which replaced LKAS 31 – ‘Interest in Joint ventures’ with effect from 1 January 2014. Upon adoption of Sri Lanka Accounting Standard SLFRS 11 – ‘Joint Arrangements’, the Group now accounts for the investment in Acuity Partners (Pvt) Limited, the joint venture using the equity method. Previously the Group accounted for its investment in joint venture using the proportionate consolidation method.
Auditor’s Report
The Auditor’s Report on the financial statements, is unqualified.
Reappointment of Auditors
The present Auditors, Messrs KPMG have expressed their willingness to continue as Auditors of the Bank for the next financial year ending 31 March 2016. The Audit Committee has reviewed the effectiveness and the relationship with the Bank including the fees paid to the Auditors and has concluded that they are suitable to continue in office. The Directors are satisfied that based on the written representation made by the Auditors, they have no relationship or interest with the Bank or with any of its subsidiaries which would impair the Auditor’s independence. A Resolution pertaining to their reappointment and authorising the Directors to determine their remuneration will be proposed at the Annual General Meeting for adoption.
The Board of Directors
The Board of Directors of the Bank presently consists of nine Directors with wide knowledge and experience in the fields of banking and finance, trade, law, commerce, manufacturing or services. Profiles of the Directors are listed on the Board of Directors section. The following were the Directors of the Bank as at 31 March 2015 categorised in accordance with criteria specified in Direction No. 12 of 2007 issued by the Central Bank of Sri Lanka.
Non-Executive Directors
Mr C R Jansz - Chairman
Mr T Dharmarajah
Ms H M N S Gunawardana
Independent Non-Executive Directors
Mr K P Cooray
Mr G K Dayasri
Mr P M B Fernando
Mr J E A Perumal (Resigned on 30 April 2015)
Ms S R Thambiayah
Executive Director
Mr A R Fernando - CEO and Ex-Officio Director
Subsequent to the end of the financial year Mr A W Atukorala was appointed a Director of the Bank with effect from 23 April 2015.
Ms Gunawardana represents a specific stakeholder and as such do not qualify to be designated as an Independent Director. Mr Jansz and Mr Dharmarajah does not meet the criteria set out in the Direction to be designated as an Independent Director by virtue of their being a Director of the Subsidiary, DFCC Vardhana Bank PLC
Senior Director
Mr Dayasri was designated as the Senior Director by the Board on 25 June 2014 in terms of Central Bank of Sri Lanka Rule No. 3 (5) (ii) of the Direction No. 12 of 2007 on Corporate Governance.
Resignation and Retirement of Directors
Dr L P Chandradasa and Mr J E A Perumal resigned from the Board with effect from 22 January 2015 and 30 April 2015 respectively. Mr R B Thambiayah retired from the Board with effect from 28 January 2015 upon reaching the age of 70.
The Directors’ record their appreciation for the contributions made by them during their tenure as Directors.
Appointment and Re-election of Directors
Mr T Dharmarajah, Ms S R Thambiayah, Mr K P Cooray and Mr A W Atukorala were appointed as Directors with effect from 1 July 2014, 2 March 2015, 13 March 2015 and 23 April 2015 respectively. They will retire in terms of Article 47 (ii) of the Articles of Association and are offering themselves for re-election at the Annual General Meeting. The Nomination Committee has recommended their re-election and the Board having concluded that they are fit and proper persons to be directors in terms of the provision of the Banking Act unanimously endorsed the recommendation of the Nomination Committee.
Retirement by Rotation and Re-election of Director
The Director retiring by rotation in terms of Article 45 of the Articles of Association is Mr C R Jansz who offers himself for re-election under the said Article with the unanimous support of the Directors.
Directors’ Remuneration
The Director’s remuneration for the financial year ended 31 March 2015 is given in Note 20 of the financial statements.
Mr G K Dayasri has opted not to receive any remuneration as a Director. The Directors record their appreciation for the honorary services provided by Mr Dayasri.
Directors’ Meetings
The Bank held 17 Board meetings during the financial year. The attendance of Directors is shown in this table.
Directors’ Interests in Shares
| |
No. of Shares |
| |
as at 31.03.2015 |
as at 31.03.2014 |
| Chandradasa, L P2 |
– |
500 |
| Cooray, K P1 |
Nil |
– |
| Dayasri, G K |
1,036 |
1,036 |
| Dharmarajah, T1 |
500 |
– |
| Fernando A R |
4,470 |
4,470 |
| Fernando, P M B |
1,000 |
1,000 |
| Gunawardana, Ms H M N S |
Nil |
Nil |
| Jansz, C R |
1,000 |
1,000 |
| Perumal, J E A |
42,475 |
42,475 |
| Thambiayah, R B2 |
– |
211,200 |
| Thambiayah, Ms S R3 |
Nil |
– |
1 Not a Director as at 31 March 2014
2 Not a Director as at 31 March 2015
3 Only an Alternate Director as at 31 March 2014
Directors’ Interests in Debentures
| |
31.03.2015
LKR 000 |
31.03.2014
LKR 000 |
| Fernando, A R |
5,000 |
5,000 |
No Director directly or indirectly holds options of the Bank.
Directors’ Interest Register
An interest register is maintained by the Bank as required by the Companies Act No. 07 of 2007. Directors have made the general disclosure as provided for in Section 192 of the Companies Act No. 07 of 2007. The Directors have declared all material interests in contracts involving the Bank and have not participated in the decision-making related to such transactions. All related entries were made in the interest register during the year under review.
Directors’ Interests in Transactions with the Bank
The Directors’ interest in transactions with entities/persons (other than subsidiaries, joint venture and associate) is listed under each Director, for the year ended 31 March 2015 is as follows:
| |
LKR 000 |
| Dr L P Chandradasa |
|
| Aggregate amount of payments made for services |
800 |
| |
|
| Mr K P Cooray |
|
| Sri Lanka Telecom PLC |
|
| Aggregate amount of payments made for services |
563 |
| |
|
| Mr T Dharmarajah |
|
| Institute of Chartered Accountants of Sri Lanka |
|
| Aggregate amount of payments made for services |
362 |
| |
|
| Mr A R Fernando |
|
| Home Finance Company Limited, Fiji |
|
| Aggregate amount of fees received for services |
15,401 |
| |
|
| Mr C R Jansz |
|
| Lanka Bell (Pvt) Limited |
|
| Lanka Milk Foods (CWE) PLC |
|
| Aggregate amount of payments made for services |
219 |
Messrs C R Jansz and A R Fernando are/or has been Chairman/Director of one or more of the subsidiary, joint venture or associate companies. Details of transactions with subsidiary, joint venture and associate companies are disclosed in Notes 58.2 - 58.4 in the Notes to the financial statements.
Corporate Donations
During the year the Bank did not make any donations.
Board Committees
The following are the present members of the permanent committees of the Board. Changes to the composition during the year are set out in the respective Committee Reports in the Annual Report.
Audit Committee
Mr P M B Fernando – Chairman
Mr T Dharmarajah
Ms S R Thambiayah
Credit Approval Committee
Mr C R Jansz – Chairman
Mr T Dharmarajah
Mr A W Atukorala
Credit Restructure Committee
Mr C R Jansz – Chairman
Ms H M N S Gunawardana
Mr A W Atukorala
Ms S R Thambiayah
Human Resources and Remuneration Committee
Mr C R Jansz – Chairman
Mr G K Dayasri
Mr A W Atukorala
Nomination Committee
Mr P M B Fernando – Chairman
Mr C R Jansz
Mr A W Atukorala
Mr K P Cooray
Integrated Risk Management Committee
Mr C R Jansz – Chairman
Mr T Dharmarajah
Mr P M B Fernando
Mr A R Fernando – Chief Executive
Chief Risk Officer of the Bank is also a member of the Committee
In addition, from time to time the Board appoints committees to deal with specific matters. The Board also invites external advisers and key management personnel to serve on some of the committees as and when necessary.
Further details relating to the committees are given in the section on Corporate Governance and the Committee Reports.
Dividend
The Directors have recommended for approval by shareholders at the Annual General Meeting the payment of a first and final dividend of LKR 6.00 - per share, (final dividend paid in the previous year, LKR 5.50 per share). The total dividend for the year will amount to approximately LKR 1,591 million (LKR 1,458 million in the previous year), which amounts to 52% of Bank’s distributable profit.
The Directors unanimously declare that, the Bank will satisfy the solvency test stipulated in Section 57 of the Companies Act No. 07 of 2007 immediately after the dividend payment is made and have obtained a certificate of solvency from its Auditor.
Property, Plant and Equipment and Leasehold Property
The total expenditure of acquisition on property, plant and equipment during the year amounted to LKR 61 million of which intangible assets amounted to LKR 46 million. Details of these are given in the Notes 39 and 40 to the financial statements.
Reserves
Total reserves and retained profit amounted to LKR 39,379 million.
Market Value of Freehold Properties
The information on market value of freehold properties are given in Note 39.1.2 to the financial statements.
Stated Capital and Subordinated Debentures
The stated capital as at 31 March 2015 was LKR 4,716 million. The number of shares in issue as at 31 March 2015 was 265,097,688. Further information is given on Note 51.1 and Note 52.
Share Information
Information relating to earnings, net asset and market value per share are given on Investor Relations section of the Annual Report and also contains information pertaining to the share trading during that period.
Shareholders
As at 31 March 2015, there were 8,443 registered shareholders and the distribution is indicated under Distribution of Shareholding. The 20 largest shareholders as at 31 March 2015 are listed here.
Employment and Remuneration Policies
The policy of the Bank is to develop and maintain a dedicated and highly motivated group of employees who are committed to creating sustainable value through effective risk management and high quality service while supporting public and private sector in its development efforts within the ambit of the DFCC Bank Act/Articles of Association. The Bank continuously invests in training and development of its staff to meet these objectives. The Bank is an equal opportunity employer. Remuneration of employees consists of fixed and variable payments. Annual increments and pay awards are based on the performance of the Bank and the individual. It is the Bank’s policy to fix remuneration at a level which will attract, motivate and retain high quality employees. A remuneration survey was conducted during the year and action was taken to appropriately benchmark the Bank’s remuneration levels and policies with those in the banking sector.
Statutory Payments
The Directors, to the best of their knowledge and belief are satisfied that all statutory payments due to the Government and in relation to the employees have been made in time.
Compliance with Laws, Regulations and Prudential Requirements
The Bank has not engaged in any activities contravening the laws and regulations and has complied with prudential requirements. The Directors obtain quarterly, a confirmation report from the Management with regard to compliance with laws, regulations and prudential requirements.
Events Occurring after the Reporting Period
Subsequent to the date of the statement of financial position no circumstances have arisen which would require adjustments to the accounts. Significant events occurring after the reporting period which in the opinion of Directors require disclosure are described in Note 61 to the financial statements.
Proposed Consolidation of Banking Business
In Pursuance to the policies announced by the Government to encourage consolidation of certain banking business, DFCC Bank PLC and National Development Bank PLC have taken the initiative to explore the possibilities of amalgamating. Both banks have entered into a Memorandum of Understanding to work towards the proposed amalgamation.
Corporate Governance
The Directors place great emphasis on following internationally accepted good corporate governance practices and principles. Systems and procedures are in place in order to satisfy good governance requirements.
The Directors’ have obtained External Auditor’s assurance on effectiveness of the internal control mechanism and compliance with the Direction 12 of 2007 of the Central Bank of Sri Lanka on Corporate Governance. Details of governance practices and the required disclosure are given on under Corporate Governance section. Rule 3 (8) of the Direction No. 12 of 2007 on Corporate Governance for Licensed Specialised Banks in Sri Lanka prescribe disclosure in the Annual Report. These disclosures have been made in this Annual Report as shown in the following Table:
The Table below provides cross references to facilitate easy reference.
For and on behalf of the Board of Directors
C R Jansz
Chairman
A R Fernando
Director and Chief Executive
Ms A Withana
Company Secretary
15 May 2015
