Managing Director/Chief Executive Officer's Review

Mahesh Nanayakkara
Managing Director/Chief Executive Officer

We have achieved a commendable growth in profits, while our operational indicators, including our non-performing asset ratios, have also improved, demonstrating exceptional resilience in responding to macroenvironmental threats.

I believe it is now opportune to think beyond the Organisation in a wider national perspective, to bring about a period of recovery and healing that would benefit all citizens.

Dear stakeholders,

As you are aware, the financial year 2021/22 marks three continuous years of socio-economic turbulence in Sri Lanka. Although our Nation made a rapid recovery from the Easter Sunday bombings in 2019, the outbreak of the COVID-19 pandemic in 2020, which extended through 2021, hampered the economic recovery. The economic conditions worsened in 2022, following the foreign exchange crisis, the depreciation of the rupee and rapid inflation, climaxing in a foreign debt default for the first time in post-independence history. Ongoing price increases and recurrent shortages of essential goods including fuel, electricity, gas, and medicines have caused severe hardships to businesses and the people of Sri Lanka, and the path ahead will undoubtedly have unprecedented challenges. Further international events fuelled domestic crisis with escalation of commodity and energy prices due to the Russia-Ukraine conflict.

Financial performance

Despite the challenging operating context, in 2021/22, I am pleased to report that CDB has sustained a robust financial performance, as reflected by key financial indicators. We have achieved a commendable growth in profits, while operational indicators, including the improvement of our non-performing asset ratio, demonstrate our exceptional resilience in responding to macroenvironmental threats.

Profit after tax (PAT) grew by 41% year-on-year (YoY), to Rs. 3,612 Mn. for the year ended 31 March 2022. The cost to income ratio improved to 38.65% and the total assets grew by 12% - YoY, to Rs. 105,420 Mn. Both the return on average equity (after-tax) and return on average assets (after-tax) improved to 22.79% and 3.62%, from 19.97% and 2.73% respectively. The gross non-performing assets (NPA) ratio and net NPA ratio improved to 5.89% and 0.11%, from 7.00% and 2.21% respectively, in the financial year 2020/21. Tier 1 and Tier I & II capital ratios stood at 15.16% and 17.07% respectively, whilst the liquidity ratio stood at 14.14%, well above the minimum regulatory requirements.

The current financial year (2022/23) has already witnessed historically high interest rates targeted at curbing inflation, which will have a tremendous impact on our bottom line due to the repricing impact based on our asset-liability maturity profile, consumer behaviour, and constrained credit demand.

Having said that, we have witnessed a tangible change in our balance sheet profile as at the year-end, where the shorter tenure, high-frequency turnaround transaction lending portfolios with a relatively higher yield increased to 15.1% of the loan book - from 9.9% at the beginning of the financial year under review. This is a significant change to our business as we cross the Rs. 100 Bn. milestone in total assets. Conventionally our balance sheet is comprised predominantly of equated monthly instalment repayment structures. We will further augment this composition to represent a balanced composition to minimise the impact of disruptive interest rate movements as experienced in the recent past.

Over the years, we have been continually recognised for our commitment to business excellence and international best practices in compliance, governance, business operations, accountability, ethics, and business principles by numerous national and international organisations.

Sustainability commitment vs business challenges

As indicated in our previous reports, CDB is strongly committed to its sustainability pledges. We have strategised to continue our carbon neutral status and our journey from Rs. 100 Bn. to a quarter trillion balance sheet company by the end of this decade (2021–30) leaving behind the smallest carbon footprint and being a highly socially impacting organisation. Towards these commitments, our tech-based future strategy enables us to expand our capacity without expanding our physical distribution channels, facilitating us to become a more resource-efficient organisation. This also enables us to be a conduit for financial inclusion, by reaching the most vulnerable, the base of the pyramid and rural markets. The current crisis has - challenged us in these commitments as some of the products we aggressively pursue require physical capacity as well. Despite these challenges, our team is committed to continuing to embrace our sustainability pledges and adopt appropriate strategies and navigate and emerge stronger from this crisis.

Outlook and plans

At the time of penning this message, our country is in the midst of a political transformation. While our Nation requires an inclusive interim solution pending the next general election, the political situation remains fluid. However, on a more positive note, people of all denominations have united as never before demanding better governance and accountability. Sri Lanka has also commenced formal engagement with the International Monetary Fund (IMF) and is en route to restructuring the foreign debt. We have garnered support from many nations and international organisations, such as the World Bank, IMF and Asian Development Bank, towards a recovery path. We are hopeful this course of action will bring much-needed relief to the public and would break the vicious cycle of inflation and rupee depreciation, while also facilitating recovery in tourism and worker remittances.

While the outlook for 2022/23 remains challenging, the emergence of a united Sri Lankan identity, zero tolerance for corruption and merit-based appointments, can recapture the potential of our country and precipitate a faster recovery. We are a blessed land of rich biodiversity with over 300 days of sunlight for a year and two seasons of rain, encircling countless man-made and natural heritage sites within a radius of 65,000 square kilometres. I believe these endowments still have the potential to attract 10 million tourists annually within this decade, a feat that will change the destiny of our Nation.

On our part, we are highly conscious of our obligations towards all our stakeholders during these extraordinary times. Therefore, we will carefully examine the challenges of the financial year 2022/23 and beyond and navigate them with prudence and strategic foresight. I believe at this juncture it is opportune to think beyond the Organisation in a wider national perspective, to bring about a period of recovery and healing that would benefit all citizens.

Appreciations

I would like to thank our team members who united as one, to battle a long period of challenges since 2019 that continues to date. Your determination has given me strength and enabled CDB to navigate this uncharted territory. I thank our customers and business partners for their patronage and confidence in us, during these unpredictable times. I extend my appreciation to our Chairman and the Board for their insightful leadership and for always encouraging the Management and strengthening our team. I would also like to thank all the doctors and other members of the Sri Lanka Association of Child Development (SLACD) for their commitment and support to continuing the work we do under our Autism Trust Fund. We look forward to working closely with all our stakeholders in navigating the challenges of the future.

Sincerely,

Mahesh Nanayakkara
Managing Director/Chief Executive Officer

17 June 2022
Colombo