Open letter to Chairman and Board of Directors of DFCC Bank

Thursday, 8 May 2025 04:10 -     - {{hitsCtrl.values.hits}}

This letter is written to draw the attention of the Board of DFCC Bank to the fact that they represent all shareholders including minority shareholders of DFCC Bank and have an obligation to ensure that the interest of all shareholders are addressed. This holds true particularly for the independent non-executive directors. Specific attention is drawn to the recent dividend approved by the directors.

The directors approved a dividend of Rs. 6.00 per share for the financial year ending 31 December 2024 made up of a cash distribution of Rs. 4.00 per share and a scrip dividend of Rs. 2.00 per share. I am sure the directors are aware that this resulted in a dividend yield (before tax) of 4.45% to a shareholder at the commencement of trading of shares issued as a scrip dividend. At a time the bank’s salaries and other benefits to staff have increased by 70%, one wonders whether the directors consider it fair and reasonable to give the shareholders who take all the risk by investing in the shares of DFCC Bank a return of 4.45 % on their investment.

Let us now look at the dividend record of DFCC Bank over the past 10 years, 2014 to 2024. The dividend during the period 2014 to 2017 fluctuated between a low of Rs. 4.50 per share and a high of Rs. 8.50 per share. This was all paid out as a cash dividend. The cash dividend during the period 2018 to 2024 fluctuated between a low of Rs. 00.0 per share and a high of Rs. 4.00 per share. In three of this six year period 2020, 2021 and 2022 only a scrip dividend was approved.

The dividend record of the bank shows that the medium to long term investors in shares of DFCC Bank have taken quite a beating as a result of the bank’s dividend policy. Commencing from 2019 the bank has consistently been declaring scrip dividends. 

What happens when a scrip dividend is declared is that shareholders are forced to accept shares in DFCC Bank instead of receiving cash which they can invest according to their will. Whilst an argument can be put forward that a shareholder is free to dispose of the shares issued as a scrip dividend, the directors must surely be aware that shareholders of DFCC Bank are at the mercy of the share price of the bank when trading commences after a scrip issue. This can be clearly seen in the last scrip issue done by DFCC Bank. The market price of DFCC Bank’s share at the time the script dividend was approved by the directors was Rs. 128.00. The market price when trading of the shares issued through the script dividend commenced was Rs. 108.00

Considering the foregoing it is only fair that the directors approve a special interim dividend for the financial year ending 31 December 2025 based in the sale of 50% stake in Acuity Partners Ltd. which brought in a net gain of Rs. 5.015 billion to the bank. Similar action has been taken by DFCC Bank in the past. Other banks have also distributed to its shareholders, a substantial portion of gains realised on the sale of long term investments.

In 2010 when DFCC Bank was under the stewardship of a different Chairman and Board of Directors, the bank disposed of part of its shareholding in Commercial Bank and generated a substantial capital gain. This is what the CEO of DFCC Bank had to say at that time.

“A key event during the year under review was the disposal of part of the equity stake in a former associate company, Commercial Bank of Ceylon PLC (CBC), in which the ownership was reduced from 27% to 14%. DFCC distributed part of the exceptional profit component as an interim dividend.” CEO Nihal Fonseka 2010/11 Annual Report 

The profit distributed as an interim dividend was Rs. 7.00 per share followed by a final dividend of a further Rs. 3.00 per share which the Chairman summed up as follows.

“This, together with the interim dividend of Rs. 7.00 per share declared earlier, represents a pay out of Rs. 10.00 per share, or Rs. 20.00 per share prior to the dilution arising from the 1 for 1 bonus issue in November 2010.” Chairman J.M.S.Brito 2010/11 Annual Report

NDB Bank did the same as DFCC Bank a few years after this when it divested its shareholding in Aviva NDB insurance holdings. NDB Bank paid out a dividend of Rs. 15.00 per share in 2012. This was a 100% increase over its dividend of Rs. 7.50 per share in the previous year.

A concerned 

shareholder

Discover Kapruka, the leading online shopping platform in Sri Lanka, where you can conveniently send Gifts and Flowers to your loved ones for any event including Valentine ’s Day. Explore a wide range of popular Shopping Categories on Kapruka, including Toys, Groceries, Electronics, Birthday Cakes, Fruits, Chocolates, Flower Bouquets, Clothing, Watches, Lingerie, Gift Sets and Jewellery. Also if you’re interested in selling with Kapruka, Partner Central by Kapruka is the best solution to start with. Moreover, through Kapruka Global Shop, you can also enjoy the convenience of purchasing products from renowned platforms like Amazon and eBay and have them delivered to Sri Lanka.

COMMENTS

Discover Kapruka, the leading online shopping platform in Sri Lanka, where you can conveniently send Gifts and Flowers to your loved ones for any event including Valentine ’s Day. Explore a wide range of popular Shopping Categories on Kapruka, including Toys, Groceries, Electronics, Birthday Cakes, Fruits, Chocolates, Flower Bouquets, Clothing, Watches, Lingerie, Gift Sets and Jewellery. Also if you’re interested in selling with Kapruka, Partner Central by Kapruka is the best solution to start with. Moreover, through Kapruka Global Shop, you can also enjoy the convenience of purchasing products from renowned platforms like Amazon and eBay and have them delivered to Sri Lanka.