DFCC Bank Demonstrates Disciplined Performance and Balance Sheet Strength in Q1 2026

DFCC Bank delivered a strong financial performance for the period ended 31 March 2026, underscoring the robustness of its strategy, disciplined execution, and the resilience of its balance sheet.

Loan and deposit portfolios recorded sustained growth of 5% and 7%, respectively, compared to 31 December 2025, reflecting calibrated credit expansion and funding optimisation.

As a result, total assets increased by 3% to LKR 884 Bn and total liabilities grew by 4% to LKR 777 Bn.

Prudent liquidity management and funding optimisation, together with effective control of funding costs in a moderating interest rate environment, supported the Bank’s performance and strengthened long-term value creation for shareholders and customers, resulting in a 12% increase in Net Interest Income to LKR 8 Bn.

Profit After Tax from core business amounted to LKR 1.7 Bn, reflecting the Bank’s prudent and forward-looking approach to risk management amid evolving geopolitical and macroeconomic conditions.

During the period, the Bank strengthened impairment provisioning through updated model calibrations and management overlays, while adopting selective lending strategies and disciplined cost management measures to support sustainable growth and strengthen resilience against unforeseen external shocks.

Consequently, impairment charges increased by LKR 1.8 Bn compared to the corresponding period.

Advancing its strategic priorities to strengthen its retail and wealth franchise, broaden its customer base, and accelerate scale across key growth segments, DFCC Bank achieved a significant milestone with the signing of a binding Business Sale Agreement with Standard Chartered Bank PLC to acquire its Wealth and Retail Banking operations in Sri Lanka.

The Bank has now transitioned to the next phase of the transaction, with integration and migration activities currently underway as the Bank progresses towards completion of the transition.

The following commentary relates to the unaudited financial statements for the period ended 31 March 2026, presented in accordance with Sri Lanka Accounting Standard 34 (LKAS 34) on Interim Financial Statements.

INCOME STATEMENT ANALYSIS PROFITABILITY

DFCC Bank PLC, the largest entity within the Group, reported a Profit Before Tax (PBT) of LKR 2,439 Mn and a Profit After Tax (PAT) of LKR 1,715 Mn from core operations for the period ended 31 March 2026, compared to a PBT of LKR 3,962 Mn and a PAT of LKR 2,818 Mn in the corresponding period.

At Group level, for the period ended 31 March 2026, Profit Before Tax was LKR 2,573 Mn and Profit After Tax was LKR 1,812 Mn, compared to LKR 4,105 Mn and LKR 2,927 Mn, respectively, in 2025.

The Bank’s Earnings Per Share (EPS) from core banking operations was LKR 3.90 for the period ended 31 March 2026.

The Bank’s Return on Assets (ROA) before tax was 0.56%, while Return on Equity (ROE) after tax stood at 4.40% for the period ended 31 March 2026.

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 1,706 Mn for the period ended 31 March 2026.

Consequently, the Bank’s tax expense as a percentage of operating profit stood at 50% for the period.

NET INTEREST INCOME

For the period ended 31 March 2026, interest income and interest expense grew by 15% and 17%, respectively, resulting in a 12% increase in net interest income to LKR 8,323 Mn.

This performance reflects disciplined margin management in a lower interest rate environment compared to the prior period, alongside a 16% expansion of the Bank’s asset base over the past 12 months.

The 31% growth in the loan portfolio further supported performance, driven by effective loan book expansion, funding cost optimisation, and a strategic focus on high-quality asset growth, compared to 31 March 2025.

In addition, the CASA portfolio increased by 6% from 31 December 2025, with the CASA ratio improving to 24.20% as at 31 March 2026, indicating a stronger deposit mix and improved cost efficiency.

Net Interest Margin was maintained at 3.88 % in March 2026, compared to 3.96% in December 2025, reflecting competitive pressures and prevailing market dynamics.

FEE AND COMMISSION INCOME

Strategic focus on trade-related commissions and card-based services supported strong growth in fee based income, with the credit card portfolio expansion contributing significantly to overall performance.

While related fee expenses increased in line with customer acquisition and portfolio growth, the net impact remained positive.

Net fee and commission income increased by 34% to LKR 1,916 Mn, compared to LKR 1,434 Mn in the corresponding period in 2025.

NET (LOSSES)/ GAINS FROM TRADING

The Bank’s reported bottom line for the period was impacted by mark-to-market valuation losses on equity securities, arising from heightened volatility in global financial markets amid ongoing geopolitical developments, including the escalation of the Middle East conflict, which negatively impacted investor sentiment and equity market valuations globally.

Consequently, an unrealised loss of LKR 569 Mn on equity investments was recognised in the income statement.

This temporary impact reflects short-term market fluctuations and does not indicate any deterioration in the quality of the Bank’s investment portfolio or its long-term strategic positioning.

IMPAIRMENT CHARGE ON LOANS AND OTHER LOSSES

The Stage 3 impaired loan ratio improved to 4.18% as at 31 March 2026, from 4.55% as at 31 December 2025, supported by recoveries and portfolio expansion.

In response to current and potential future impacts of global and domestic economic conditions on the Bank’s lending portfolio, management strengthened impairment provisioning during the period.

This was achieved through enhancements to internal expected credit loss models to capture risk factors not fully observable in the current volatile geopolitical and economic environment, including the recognition of additional provisions as management overlays for exposures to higher-risk sectors and customer segments.

The Bank also maintained adequate provisioning in line with the accelerated growth in its lending portfolio.

As a result, impairment charges increased to LKR 3,163 Mn for the period ended 31 March 2026, compared to LKR 1,355 Mn recorded in the corresponding period of 2025.

These provisions have been established to safeguard the Bank’s financial strength and reflect a more conservative assessment of potential credit risks, taking into account prevailing macroeconomic conditions and the potential impact of the geopolitical environment.

OPERATING EXPENSES

Technology and digital transformation remained central to the Bank’s strategy, with continued investments in IT infrastructure aimed at enhancing multi-channel service delivery, strengthening information security, and improving operational efficiency.

At the same time, increased investment in marketing and promotional initiatives supported brand visibility, deeper customer engagement, and product growth.

Together, these initiatives are expected to generate long-term value by reinforcing brand equity, broadening market presence, accelerating customer acquisition, and strengthening DFCC Bank’s competitive standing in a dynamic financial environment.

As a result of these strategic investments, operating expenses increased to LKR 5,278 Mn for the period ended 31 March 2026, compared to LKR 4,329 Mn in the corresponding period of 2025.

The Bank continues to prioritise cost optimisation to ensure 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 388 Mn was recorded on equity investments outstanding as at 31 March 2026, primarily driven by the increase in the share price of Commercial Bank of Ceylon PLC.

FINANCIAL POSITION ANALYSIS ASSETS

Total assets increased by LKR 27 Bn, representing a 3% growth since December 2025, mainly attributable to the expansion of the loan portfolio, which rose by LKR 25 Bn to LKR 540 Bn, a 5% increase from LKR 516 Bn as at 31 December 2025.

This performance demonstrates the successful delivery of DFCC Bank’s strategic growth initiatives, driven by a selective and disciplined lending approach that balances sustainable expansion with asset quality.

The renewed confidence amid improving economic conditions reinforces the Bank’s role in driving prudent credit expansion and supporting national economic initiatives.

LIABILITIES

The Bank’s total liabilities increased by LKR 27 Bn, reflecting a 4% growth from December 2025.

The deposit base expanded by 7%, rising by LKR 39 Bn to LKR 604 Bn, up from LKR 565 Bn as at 31 December 2025, resulting in a loan-to-deposit ratio of 97.75%.

Additionally, the CASA ratio stood at 24.20% as of 31 March 2026.

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 concessionary funding to customers.

Factoring in these term borrowings, the CASA ratio further improved to 29.60%, while the loan-to-deposit ratio improved to 90.79% as of 31 March 2026.

EQUITY AND COMPLIANCE WITH CAPITAL REQUIREMENTS

As at 31 March 2026, total equity was maintained at LKR 107 Bn supported by a profit after tax of LKR 1.7 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 5%.

Leveraging the strengthened equity base, the Bank effectively absorbed the additional capital requirements associated with portfolio growth.

The Tier 1 Capital Ratio was maintained at 12.118%, while the Total Capital Ratio stood at 16.046%, supported by the successful GSS+ bond issuance, compared to 13.550% and 15.933%, respectively, as at December 2025.

The Bank’s dividend policy is designed to optimise shareholder value while maintaining sufficient capital to support future growth, underpinned by its island-wide presence and continued investments in technology.

In line with this policy, a final dividend of LKR 7.50 per share, comprising a cash dividend of LKR 2.50 per share and a scrip dividend of LKR 5.00 per share, was paid during the first quarter of 2026, amounting to a total distribution of LKR 3.3 Bn as at 31 March 2026.

The Bank’s Net Stable Funding Ratio (NSFR) stood at 126.54%, and the Liquidity Coverage Ratio (LCR) – all currency – stood at 154.41%, both comfortably exceeding regulatory minimums.

CEO’s Statement

DFCC Bank’s performance in the first quarter of 2026 reflects a measured and disciplined approach within a steadily evolving operating environment.

While profitability moderated during the period, this was primarily driven by a deliberate strengthening of impairment provisioning in response to emerging global and domestic risks, including heightened geopolitical uncertainty.

The Group also adopted proactive and prudent measures during the quarter, including management overlays, selective lending strategies, and disciplined cost management, to safeguard long-term stability and strengthen resilience against unforeseen external shocks.

For the period ended 31 March 2026, the Group recorded a Profit After Tax of LKR 1.8 Bn, supported by steady growth in lending and deposits, an improved funding mix, and continued attention to asset quality.

These fundamentals continue to position DFCC Bank to navigate uncertainty while remaining aligned with opportunities for sustainable expansion.

During the quarter, the Bank continued to advance key strategic priorities. Following the acquisition agreement signed in 2025 with Standard Chartered Bank PLC for its Wealth and Retail Banking operations in Sri Lanka, integration and migration activities are currently underway as the Bank progresses towards completion.

This initiative represents a significant step in strengthening DFCC Bank’s retail and affluent banking franchise.

The Bank also reinforced its position in sustainable finance through the successful issuance of a Basel III-compliant, listed, rated GSS+ Bond amounting to LKR 10 Bn, which was oversubscribed.

This reflects strong investor confidence and builds on DFCC Bank’s broader track record in sustainable capital markets, including earlier initiatives in thematic bond issuance and international market engagement.

At the same time, DFCC Bank’s continued focus on improving customer experience and accessibility was recognised at the LankaPay Technovation Awards 2026, where the Bank received a Gold Award for Financial Inclusivity and a Merit Award for Customer Convenience.

These recognitions reflect the Bank’s ongoing efforts to leverage digital capabilities to simplify banking and expand access for customers.

The Bank’s wider institutional strength continues to be reflected through sustained recognition across people, sustainability, and governance.

Building on recognitions such as Great Place to Work and its ranking among the AICPA & CIMA Top 20 Employers, DFCC Bank remains committed to strengthening its organisational culture while delivering responsible growth.

Initiatives such as Ride for Life, together with ongoing environmental conservation efforts focused on protecting the Sri

Lankan leopard and preserving ecological balance, further reflect the Bank’s role beyond financial intermediation, contributing to the well-being of communities and the environment.

On behalf of DFCC Bank, I remain grateful to our customers, regulators, and stakeholders for the trust placed in the institution.

This trust continues to guide decision-making, ensuring that growth is pursued with discipline, transparency, and a long-term perspective.

As the year progresses, the Bank remains focused on strengthening its core business, executing its strategic priorities, and maintaining financial resilience.

With clear direction, strong fundamentals, and disciplined execution, DFCC Bank remains well positioned to deliver sustained and responsible growth.