Chairman’s Letter

Alastair Corera
Chairman

Our fundamental resilience, reinforced by our employees and their steadfast support for our customers, continues to give me great confidence that we will continue to play a proactive role in building a better future.

Our digitalisation journey is ongoing. It will further cement the creation of a top flight experience for both internal and external customers, reduce cost and create additional capacity to support more of our customers, without increasing our staff cadre or opening new physical touchpoints.

On behalf of the Board of Directors, I am pleased to present the Annual Report of CDB for the financial year ended 31 March 2022.

Navigating a year of multiple challenges

The year gone by was one of great complexity, for which there was no blueprint to follow. Yet, we relied on our fundamentals, adopted a considered and prudent approach and are reasonably pleased of the value delivered to all our stakeholders. With the pandemic dictating the way we work and live for most of the year, CDB remained strongly committed and focused to ensure the health, safety, and well-being of our people. I applaud the incredible energy put forward by the team in the face of adversity to best serve our customers and communities and ensure integrity of our operations.

It was our decisive and timely actions that helped to infuse stability and activate alternate strategies to achieve the original performance targets.

Delivering results under pressure

We began the year with a strong focus on achieving our strategic targets.

Some of the business targets were revised down early in the year as the pandemic gathered pace again. However, I am happy to state that despite the eventful economic conditions, we ended the year delivering a profit before tax of Rs. 3,612 Mn. (2020/21 - Rs. 2,557 Mn.) and earnings per share of Rs. 51.75 (2020/21 - Rs. 36.64). I would direct you to the CEO’s and CFO’s reviews for more detailed commentaries on CDB’s performance.

Our ongoing focus on digitalisation, streamlining of our systems and processes while strengthening capacity helped to deliver this commendable performance. The digital transformation continued in earnest this year, as we pursued our goal of becoming a digitally-enabled organisation. A few more components of our workflow is now automated, paperless and functions 24/7. This has considerably reduced turnaround times as well as reduce costs. Importantly, it’s a step closer towards achieving our sustainability goals. Our digitalisation journey is ongoing. It will further cement the creation of a top flight experience for both internal and external customers, reduce cost and create additional capacity to support more of our customers, without increasing our staff cadre or opening new physical touchpoints. Our foray into gold loans was in line with our diversification strategy. Essentially a fully collateralised product with short maturities, the expansion of gold loans helps reduce the overall portfolio’s sensitivity to changes in interest rates. It also helps us manage our exposure to vehicle loans.

During the financial year, we focused on preserving capital and liquidity and protecting our balance sheet. Our capital and liquidity levels strengthened further, which, when combined with strong loan coverage, positions our balance sheet well, increasing resilience and providing a solid base for growth. Based on our profitability and financial position, we made a dividend payment for 2020/21 of Rs. 7.50 per share, a pay-out ratio of 20.47%.

We always prioritise financial inclusion and create a high level of trust in our services, through transparency and fair dealing as part of our efforts to strengthen our bonds with all our stakeholders.

Championing sustainability

During the year under review, the CDB Advance Sustainable Financing Vertical was initiated in our endeavour to become a leader in sustainable financing by progressing towards the Green Economy by 2030.

We have also always prioritised financial inclusion for the underserved and creating a high level of trust in our services through transparency and fair dealing as part of our efforts to strengthen our bonds within the communities in which we operate.

We also marked our solidarity with our team members, customers and the community across the island through a broad range of relief support. These included donating oxygen concentrators and other essential medical supplies worth over Rs. 50 Mn. to the Ministry of Health and several hospitals in critical need. Over the past year, we were proud to stand up for causes we believe in and support key community partners, with a particular focus on: children’s health; equipping the next generation to lead by making education and career opportunities more widely available for our employees and people across our communities; and supporting women entrepreneurs, who are an indispensable yet underutilised segment of our country’s labour force. It is noteworthy to mention that 25% of our lending was extended to women entrepreneurs in the period under review.

A winning, talented and diverse team

I am proud of how our team has managed over the past two years and for their unwavering dedication to meeting customers’ needs during difficult times. We will be leveraging what we have learned over the past two years working under unique conditions to evolve the employee experience. Being certified as A Great Place to Work is gratifying and motivates our commitment to building a high level of employee trust, engagement, pride and camaraderie to shape great workplace culture. Being recognised with a category award for “Employee Relations” at the Best Corporate Citizen Sustainability Award 2021 underscores our extraordinary team and demonstrates that we can achieve extraordinary results through ordinary people in our journey of empowering a smarter and sustainable Sri Lanka.

Being awarded the Business Excellence Award in the Non-Banking and Financial Services Sector by the National Chamber of Commerce and Industry for the fifth consecutive year is an affirmation of our valued contribution to business excellence in Sri Lanka.

Sound corporate governance

The Board and I strive to ensure that CDB remains a place where all our people have the opportunity to fulfil their potential in a nurturing environment that encourages the right behaviour. Our stakeholders expect honesty and integrity and we will continue to promote a sense of accountability and ethics among team members. Our governance culture supported by sound risk management is aimed at ensuring that we remain resilient during challenges and forge a sustainable future for the Organisation. Our commitment to business excellence and international best practices in compliance, governance, and business principles have been recognised by numerous national and international organisations. Being awarded the Business Excellence Award in the Non-Banking and Financial Services Sector by the National Chamber of Commerce and Industry for the fifth consecutive year is gratifying.

A new set of challenges to contend with

This year we face a new crisis. Our Nation faces severe domestic macroeconomic pressures, primarily emanating from a deteriorating external financing position, which has been subsequently exacerbated by political uncertainty and social unrest towards the fourth quarter of 2021/22. At the time of penning this message, we are facing our Nation’s most significant and challenging crisis – economically, politically, and socially. From March 2022 onwards, Sri Lanka witnessed a record depreciation of the rupee following the floating of the currency, due to the previously pegged exchange rate not being reflective of market rates, unprecedented rates of inflation, shortages of essential goods, and disruptions to power supply, which have placed a significant burden on businesses and the people of our Nation.

However, it is somewhat comforting to note the positive developments in relation to the engagement with the International Monetary Fund (IMF) following the appointment of a new Governor of the Central Bank of Sri Lanka (CBSL), and the ongoing discussions towards reaching a staff-level agreement. within a few months. We hope the necessary actions required to revive the economy are taken decisively and expeditiously following due process.

As the current macroeconomic challenges continue to evolve, we need to brace ourselves to face the uncertainty and challenges ahead. As an entity that predominately provides long-term leases financed by shorter term borrowings, we will be impacted by the substantially higher interest rates that now prevail. There are many possible paths along which this crisis can play out and many unseen second order effects that we will have to contend with. What we do have in the face of all this uncertainty however is a very experienced, committed senior and middle management team who are very familiar with the business and have faced and worked through serious challenges previously. I am confident in our team that has rallied together to prepare, pre-empt and navigate these challenges. I am also confident in the resilience of the people of our Nation to overcome this challenge. It gives us hope that we will overcome these challenges together.

Expressing appreciation

Year 2022 will not be an easy one, but we look ahead with resolve to continue working towards our purpose. I extend my appreciation to our employees for their engagement and dedication in these unprecedented times. I convey my deep appreciation to my colleagues on the Board for their counsel in steering the Company during difficult times and I thank them for their valuable input. I wish to commend Mr Mahesh Nanayakkara, our Managing Director and CEO for his inspired leadership. I also extend my thanks to the senior officials of the Central Bank of Sri Lanka for their valuable counsel, guidance and support, and my appreciation to our Auditors, KPMG for their valuable service. My sincere appreciation is extended to our customers for their loyalty and valued patronage and our shareholders for their confidence and steadfast support extended to us at all times.

Alastair Corera
Chairman

17 June 2022
Colombo