Financial Capital: How it supports DFCC Bank's Strategy

Linkage to Key Strategic Pillars of DFCC BANK's Strategy

SWOT Analysis for Social and Relationship Capital

OVERVIEW OF FINANCIAL STRENGTH

Bank’s performance cannot be assessed in isolation. It is shaped by the broader economic environment, borrower and investor confidence, interest rate movements, and the pace at which households and businesses normalise spending and investment decisions. Accordingly, the financial performance discussed below should be read in conjunction with the operating environment outlined on pages 47 to 49.

Against this backdrop of gradual stabilisation, DFCC Bank focused on three core objectives during the year, viz. sustaining core earnings by expanding the franchise and improving the quality of income beyond interest income to include fee and transaction-led revenues, preserving asset quality through disciplined underwriting and forward-looking provisioning and strengthening resilience through robust capital and liquidity buffers to remain well-positioned should conditions become less favourable.

The year’s results reflect progress across all three dimensions.

Key Highlights

• Group core business profit after tax up by 31% to LKR 11 Bn
• Group total assets up by 21% to LKR 858 Bn
• Group net fee commission Income up by 48% to LKR 7 Bn
• Bank’s loan book is up by LKR 120 Bn to LKR 516 Bn
• Bank’s customer deposit up by LKR 100 Bn to LKR 565 Bn
• Bank profit after tax of LKR 16 Bn including disposal gain from Acuity Partners (Pvt) Limited. (subsequently renamed as HNB Investment Bank (Pvt) Limited.)
• Bank’s ROA and ROE stood at 2.00% and 11.55%

DFCC Bank delivered a strong financial performance for the year ended 31 December 2025, demonstrating resilience and the effectiveness of its strategic initiatives. The Bank maintained positive momentum across key performance indicators, supported by sustained expansion in both loan portfolio and deposit base. Profit After Tax (PAT) from continuing operations rose by 32%, driven by disciplined asset and liability management and strong strategic execution. In addition to pursuing sustainable organic growth, the Bank continued to evaluate opportunities to enhance its market presence and elevate its position within the industry. This performance reflects DFCC Bank’s focus on credit growth and funding optimisation, reinforcing its commitment to generating long-term value for shareholders and customers.

Market interest rates stabilised at lower levels during the year, while the Central Bank of Sri Lanka (CBSL) maintained an accommodative monetary policy stance for a period, supporting credit flows and liquidity across key industries. Despite the slowdown in economic activity following Cyclone Ditwah in late 2025, early indicators pointed to resilience, with reconstruction initiatives expected to support credit demand in the period ahead.

The signing of a binding Business Sale Agreement (BSA) with Standard Chartered Bank PLC, to acquire the Wealth and Retail Banking operations of Standard Chartered Bank, Sri Lanka was one of the year’s most significant milestones. This strategic move aligns with DFCC Bank’s long-term vision to strengthen its retail and wealth management capabilities, expand its customer base, and build scale across key growth segments.

Another noteworthy achievement was the successful issuance of Sri Lanka’s first-ever listed and rated Blue Bond, which was oversubscribed by a wide margin. This landmark transaction reflects the strong investor confidence in the Bank and the Bank’s commitment to sustainability and environmental stewardship.

During the year, the Bank also marked its 70th anniversary by launching a suite of special Fixed Deposit products designed to reward long-standing customers and further strengthen relationships.

Looking ahead, DFCC Bank remains firmly committed to upholding Environmental, Social, and Governance (ESG) principles. Sustainability continues to be embedded in the Bank’s business model, ensuring that growth is inclusive, responsible, and aligned with the long term well being of communities and stakeholders. In strengthening this commitment, the Bank continues to enhance climate – and sustainability-related financial disclosures in line with SLFRS S1 and S2, supporting decision-useful transparency for investors and other capital providers.

In recognition of its continued impact, DFCC Bank was certified as a Great Place to Work, and ranked 4th in the AICPA & CIMA Top 20 Employers in Sri Lanka. It was also declared the Best Bank in MSME Acceleration at the ICC Emerging Asia Banking Awards 2025. Other accolades included recognition among Sri Lanka’s Top 30 Most Valuable and Strongest Brands by Brand Finance (ranked 27th), and received recognition at SLIM Digis 2.5 for Best Use of AI Technologies (Merit) and Best SEO/SEM Campaign (Silver).

INCOME STATEMENT ANALYSIS

PROFITABILITY

In 2025, DFCC Bank PLC, the largest entity within the Group, reported a Profit Before Tax (PBT) of LKR 15,582 Mn and a PAT of LKR 11,060 Mn from continuing operations, reflecting a 32% increase from the previous year’s PAT of LKR 8,353 Mn. The PAT increased to LKR 16,028 Mn including the gain from the disposal of its stake in Acuity Partners (Pvt) Ltd (subsequently renamed as HNB Investment Bank (Pvt) Ltd). The Bank also recorded a 30% rise in Earnings Per Share (EPS) to LKR 25.30, while the EPS including the gain from the disposal of discontinued operation stood at LKR 36.66, thereby demonstrating its strong financial performance and continued growth momentum.

EPS (Group)

The Group reported a PBT of LKR 15,953 Mn and a PAT of LKR 11,231 Mn, from continuing operations for the year ended 31 December 2025, compared to LKR 13,820 Mn and LKR 8,554 Mn, respectively in 2024. The Group recorded a 30% rise in EPS from continuing operations to LKR 25.31, compared to LKR 19.51 in 2024.

The Bank’s Return on Assets (ROA) before tax from continuing operation maintained at 2.00%, while Return on Equity (ROE) from continuing operation stood at 11.55% for 2025, compared to 10.99% in 2024. The Group’s Return on Assets (ROA) before tax from continuing operation maintained at 2.03% while Return on Equity (ROE) stood at 11.68% in 2025.

The Bank’s total tax expense, including Value Added Tax (VAT), Social Security Contribution Levy (SSCL) on financial services, and Income Tax, amounted to LKR 10,751 Mn for the year ended 31 December 2025. Consequently, the Bank’s tax expense as a percentage of operating profit including the gain on disposal of Acuity stake stood at 41% for the year.

DFCC Management Approach to Taxation

DFCC Bank follows a strong and well-structured approach to managing taxes based on the prevailing tax laws of the country. The Board of Directors overseeing the tax governance. Bank’s finance team monitors the compliance with all tax regulations on an ongoing basis with a quarterly update to the Board Audit Committee.

The Bank and its subsidiaries maintain regular engagement with tax authorities to ensure the timely filing of tax returns, prompt settlement of tax payments, and full compliance with all related statutory obligations. The Bank also engages proactively and constructively with tax authorities to negotiate and resolve tax matters in a prudent manner, safeguarding the Bank’s interests while upholding regulatory requirements.

In addition, the Bank contributes indirectly to the National Budget process by submitting proposals and recommendations on tax policies and legislative amendments through the Chamber of Commerce and the Sri Lanka Banks’ Association. During the year under review, the Bank remained fully compliant with all applicable tax laws, regulations, and reporting requirements.

As at 31 December	Unit/Measure	2025	2024
Key Indicator
Taxes paid to the Government	LKR Mn	10,751	9,198

NET INTEREST INCOME

During the year, DFCC Bank recorded a 6% increase in interest income while containing interest expenses, reflecting disciplined margin management amid a challenging rate environment. This growth was primarily supported by a 31% expansion in the loan portfolio, consistent with DFCC’s strategic focus on quality asset growth.

Net Interest Income, the Bank’s core earnings driver, increased by 10% to LKR 30,953 Mn, driven by effective loan book expansion and funding cost optimisation while maintaining a robust CASA ratio. The CASA portfolio increased by 20% compared to the previous period, with CASA at 24.49% as at 31 December 2025, reflecting a stronger deposit mix and improved funding cost efficiency. However, Net Interest Margin moderated from 4.18% in December 2024 to 3.96% by December 2025, primarily due to the Bank’s competitive positioning and prevailing market dynamics.

FEE AND COMMISSION INCOME

The Bank’s dynamic strategies and the efforts of its dedicated teams drove growth in remittances, trade-related commissions, and other fee income lines, contributing to the expansion of its non-funded business. Further, the increased focus on credit card operations also played a key role in boosting fee and commission income compared to 2024. Related fee expenses also rose in line with the Bank’s objective to expand credit card services and acquire new business. Nevertheless, the net impact remained positive, with net fee and commission income increasing by 48% to LKR 7,313 Mn for the year ended 31 December 2025, compared to LKR 4,929 Mn in 2024.

NET GAINS FROM DE-RECOGNITION OF FINANCIAL ASSETS

The Bank disposed a portion of its Sri Lankan government securities holding classified under FVOCI, realising a gain of LKR 1,688 Mn, underscoring the effectiveness of its treasury strategy while maintaining risk appetite.

IMPAIRMENT CHARGE ON LOANS AND OTHER LOSSES

The Stage 3 impaired loan ratio improved to 4.55% as at 31 December 2025, from 5.63% as at 31 December 2024, driven by successful recoveries and portfolio growth. Impairment provisions were prudently calibrated to reflect model updates and risk buffers across higher-risk customer base including customers who were affected by Cyclone Ditwah and requesting relief under the temporary debt relief schemes. Consequently, impairment charges increased by 6% to LKR 4,926 Mn compared to LKR 4,648 Mn in 2024.

OPERATING EXPENSES

Technology and digital transformation remained a strategic priority, with ongoing upgrades to its IT infrastructure aimed at enhancing multi-channel service delivery and operational efficiency. In parallel, the Bank increased its investment in marketing and promotional activities to strengthen brand visibility, deepen customer engagement, and support product growth. These forward-looking initiatives are expected to deliver long-term value by expanding market reach, accelerating customer acquisition, and reinforcing DFCC Bank’s competitive position in a dynamic financial landscape.

As a result of these strategic investments, operating expenses increased to LKR 18,808 Mn for the year ended 31 December 2025, compared to LKR 16,805 Mn in 2024. Despite this increase, the Bank remains firmly committed to strategic cost optimisation across all functions to support sustainable growth and operational resilience.

OTHER COMPREHENSIVE INCOME (OCI)

Changes in the fair value of investments in equity and fixed-income securities (treasury bills and bonds), along with movements in hedging reserves, are recorded through other comprehensive income. The application of hedge accounting minimised the impact of exchange rate fluctuations on the Bank’s profitability.

A fair value gain of LKR 9,721 Mn was recorded on equity securities outstanding as of 31 December 2025, primarily driven by the increase in the share price of Commercial Bank of Ceylon PLC. Additionally, fair value gains on treasury bill and bond yields amounted to LKR 1,059 Mn during the year.

FINANCIAL POSITION ANALYSIS

ASSETS

DFCC Bank delivered strong balance sheet growth despite ongoing economic challenges and sector-specific pressures. Total assets expanded by LKR 153 Bn, a 22% increase since December 2024. The Bank’s net loan portfolio also increased by LKR 120 Bn to reach LKR 516 Bn, representing a robust 31% growth from LKR 395 Bn as at 31 December 2024. This performance reflects the successful execution of DFCC Bank’s strategic growth priorities and renewed confidence amid improving economic conditions, reinforcing the Bank’s vital role in driving credit expansion and supporting national economic recovery.

LIABILITIES

The Bank’s total liabilities increased by LKR 130 Bn, reflecting a 21% growth from December 2024. The deposit base expanded by 21%, rising by LKR 100 Bn to LKR 565 Bn, up from LKR 465 Bn as of 31 December 2024, resulting in an improved loan-to-deposit ratio of 99.80%. Additionally, the CASA ratio stood at 24.49% as of 31 December 2025. The Bank effectively contained funding costs by utilising medium to long-term concessionary credit lines, which supported the expansion of the lending portfolio and provided much-needed concessionary funding to customers. Factoring in these concessionary term borrowings, the CASA ratio further improved to 29.74%, while the loan-to-deposit ratio improved to 92.85% as of 31 December 2025.

EQUITY AND COMPLIANCE WITH CAPITAL REQUIREMENTS

Key Highlights

• Group’s Tier 1 Capital Ratio (Minimum requirement - 8.5%) – 13.610
• Group’s Total Capital Ratio (Minimum requirement - 12.5%) – 15.989
• Bank’s Liquidity Coverage Ratio(%)- All Currency (Minimum Requirement - 100%) – 184.06
• Bank’s Net Stable Funding Ratio (%) (Minimum requirement - 100%) – 122.64

As at 31 December 2025, total equity increased by LKR 23 Bn, supported by a profit after tax of LKR 16.03 Bn and fair value gains across the Bank’s securities portfolios.

In alignment with the Bank’s growth strategy and the improving economic environment, the net loan portfolio grew by 31%. Leveraging the strengthened equity base, the Bank effectively absorbed the additional capital requirements associated with portfolio growth. The Bank’s Tier 1 Capital Ratio was maintained at 13.550%, while the Total Capital Ratio stood at 15.933%, compared to 12.402% and 15.759%, respectively, as at December 2024.

The Bank’s Net Stable Funding Ratio (NSFR) and Liquidity Coverage Ratio (LCR), across all currencies, continue to remain well above the required regulatory minimums.

CREDIT QUALITY

In line with its prudent lending policies, the Bank adopted a measured approach to growth, refraining from aggressive expansion, particularly in stress-prone sectors. During the year, moderate loan book growth was recorded across the corporate, retail, and SME segments. As the Bank expanded into new geographical areas and customer segments, it strengthened pre- and post-credit monitoring, enhanced internal processes and implemented timely recovery actions to maintain a sustainable risk profile.

DIVIDEND POLICY

The Bank’s dividend policy seeks to maximise shareholder wealth while ensuring adequate capital for expansion, supported by its island wide presence and investments in technology. Accordingly, the Board of Directors has approved a final dividend of LKR 7.50 per share, comprising LKR 2.50 per share in cash and LKR 5.00 as a scrip dividend for the year ended 31 December 2025, balancing shareholder returns with long-term business plans. Consequently, the dividend payout ratio for the year is 32% of the distributable profits from continuing business operations.

GROUP PERFORMANCE

The DFCC Group consists of DFCC Bank PLC and its subsidiaries: DFCC Consulting (Pvt) Limited (DFCC Consulting), Lanka Industrial Estates Limited (LINDEL), Synapsys Limited (Synapsys) and its associate company, National Asset Management Limited (NAMAL). In line with the Group’s strategic realignment, the Bank divested its 50% stake in Acuity Partners (Pvt) Ltd (rebranded as HNB Investment Bank (Pvt) Ltd) to Hatton National Bank in January 2025. This move allows DFCC Bank to focus on its core banking and financial services operations.

The Group recorded a PAT of LKR 11,532 Mn for the year ended 31 December 2025, compared to LKR 9,932 Mn made in 2024. DFCC Bank accounted for the majority of the Group profit, with PAT of LKR 16,028 Mn, while LINDEL LKR 331 Mn, Synapsys LKR 18 Mn and DFCC Consulting LKR 5 Mn also contributed positively to the PAT of the Group. In 2024, LINDEL, Synapsys, and DFCC Consulting, reported PAT of LKR 317 Mn, loss of LKR 20 Mn, and PAT of LKR 1 Mn respectively. The associate company, NAMAL, contributed LKR 10 Mn in 2025 (2024: LKR 5 Mn).

ECONOMIC VALUE CREATED AND DISTRIBUTED – BANK

For the year ended 31 December	2025		2024
	LKR Mn	%	LKR Mn	%
Economic value added
Interest income	81,345		76,907
Net fee and commission income	7,313		4,929
Net gains from trading	2,481		1,273
Net gains from derecognition of financial assets	1,688		3,868
Net other operating income	1,621		1,176
	94,448		88,153
Economic value distributed
To lenders as interest	50,392	53.35	48,786	55.34
To providers of supplies and services	9,230	9.77	7,138	8.10
To employees as emoluments	7,949	8.42	8,328	9.45
To Government as Taxation	10,751	11.38	9,198	10.43
To community (CSR related activities)	14	0.01	10	0.01
To shareholders as dividends	2,596	2.75	2,110	2.39
Retained in the business
Depreciation and amortisation	1,473	1.56	1,216	1.38
Reserves	7,117	7.54	6,718	7.62
Provision for losses	4,926	5.22	4,648	5.27
Total economic value distributed	94,448	100.00	88,153	100.00

Economic value distributed