Leadership Message

Chairperson's
Message

Dear stakeholders, In 2024, the global economy continued to show moderate growth, a trend which is expected to continue into the next couple of years. Heightened policy uncertainty, trade policy shifts, geopolitical tensions, climate-related adverse events and persistent inflation are headwinds, which will continue to impact low-middle income countries and could curtail their effort toward reversing the negative effects of the last few years in reaching a higher pace of growth.

The Sri Lankan economy exhibited signs of recovery in 2024, following the severe economic downturn experienced in the preceding years. Despite the World Bank projecting a real GDP growth rate of 4.4% for the year, the country recorded a 5.0% GDP growth at the end of 2024. This recovery follows a severe foreign exchange crisis in 2022 and was supported by a $2.9 billion International Monetary Fund (IMF) program initiated in March 2023, along with a $25 billion debt restructuring completed in December 2024.

While business activities in the first quarter of 2024 remained fairly sluggish, a marked revival in economic activities was noted across all sectors from the second quarter of the year, supported by declining market interest rates and stabilising cost of living. The country's economy grew by 5.4% year-on-year in the fourth quarter of 2024. This marked the fastest pace of growth since the second quarter of 2021, driven by a 13.1% surge in industrial production (compared to 10.1% in Q3 2024) and a 2.5% increase in services output (compared to 2.6% in Q3). These developments revitalised investor and business confidence in the domestic economy.

In this backdrop, the Bank reviewed and readjusted its previous cautious approach to portfolio expansion and positioned itself to capitalise on the economic rebound and adapt to changing market dynamics with new strategies to support national economic recovery. In addition, the bank continued to prioritise strengthening its access to liquidity, improving buffers and safeguarding capital.

Ms. Dinithi Ratnayake

Chairperson - Non-Executive, Independent Director

Impact on Performance

The cautious approach to growth in the early part of the year resulted in the bank's advance portfolio contracting by 4% to LKR 95.1 Bn. Deposit growth continued at a steady pace, albeit closing marginally below the previous year at LKR 107 Bn. The bank recorded a PAT of LKR 409.5 Mn for the year, a 12.27% drop from the profit recorded the previous year, largely due to the relief measures offered to our most vulnerable client segments affected by pandemic-related and subsequent economic uncertainties.

While gearing for growth, the Bank remained focused on financial empowerment and sustainable development, adapting to changes, and pursuing growth toward a more inclusive and resilient financial system. As a result, in 2024, the Bank entered a new growth phase in its three year strategy, launching business expansion at a controlled pace while also achieving a gradual reduction in non-performing loan (NPL) levels. Additionally, the bank has been upgrading SDB Bank's digital infrastructure to drive growth through digital solutions that enhance efficiency and productivity.

Ready to Support a National SME Revival

As Sri Lanka's economy gradually rebuilds from the devastation of the economic crisis, the pivotal role of micro, small, and medium enterprises (SMEs) in this recovery cannot be overstated. These SMEs not only represent the backbone of our economy but also embody the spirit of entrepreneurship in the nation. Currently, SMEs account for 75% of registered businesses and contribute approximately 52% to the country's Gross Domestic Product (GDP), making them essential for sustainable economic growth. Recognising this potential, we are convinced that Sri Lanka's SMEs can serve as the bedrock of a stable and resilient economy. Our commitment to supporting these enterprises is unwavering, particularly at this critical juncture. In 2024, we launched comprehensive outreach programmes designed to effectively reintegrate SMEs into the broader economic framework. These initiatives focus on providing specialised products and services aimed at rehabilitating, restructuring, and developing this vital base layer of the national economy

“While gearing for growth, the Bank remained focused on financial empowerment and sustainable development, adapting to changes, and pursuing growth toward a more inclusive and resilient financial system. As a result, in 2024, the Bank entered a new growth phase in its three- year strategy, launching business expansion at a controlled pace while also achieving a gradual reduction in nonperforming loan (NPL) levels. Additionally, the bank has been upgrading SDB Bank’s digital infrastructure to drive growth through digital solutions that enhance efficiency and productivity.”

To strengthen our support further, we have enhanced our engagement with the co-operative sector, which has historically been a stronghold for SDB Bank. Through targeted activities, we are offering specialised training programmes that equip cooperative members with necessary skills, as well as increased funding opportunities to help them upgrade and develop their businesses. This strategic approach not only empowers these cooperatives but also helps ensure the sustainability of the communityoriented businesses that play a crucial role in the rural economy. Whilst we are focused on retaining and expanding our core customer segments of cooperatives and SMEs, we are also proactively working to broaden our portfolio. This includes targeting new customer segments to diversify our risks, thereby enhancing our resilience for the future. By balancing our investments and support across different economic sectors and a wider range of businesses, we aim to foster a more inclusive economic landscape that can withstand unforeseen challenges. Through these initiatives, we aspire to cultivate an environment where SMEs can flourish, contributing significantly to job creation, innovation, and economic stability in the country.

Commitment to Our Sustainable Growth Strategy

As a Bank with a history rooted in sustainable thinking, we have wholeheartedly adopted environmentally and socially sustainable growth fostered through community integration and inclusivity as the cornerstone of our business strategy. We are currently refining this strategy in collaboration with Rabo Partnerships, a leader in sustainable finance. Additionally, our partnership with Value for Women, a global advocate for increasing women's participation in leadership roles in business, finance, and investment within emerging markets, aims to integrate a gender-focused perspective into our business model. In 2024, we also launched the SDB Bank Rural Upliftment Programme, which serves as a launchpad for both emerging and established rural entrepreneurs to refine their business strategies and successfully access broader markets. Furthermore, the Bank has committed to joining the Women Entrepreneurs Finance Code (WE Finance Code), aimed at increasing funding opportunities for women-led micro, small, and medium enterprises (MSMEs). The Bank is implementing a comprehensive, multi-faceted strategy to remain sustainably oriented in its operations. From an environmental standpoint, we signed a memorandum of understanding (MOU) with USAID's climate adaptation programme to enhance internal awareness regarding climate issues and improve our operational processes to better support climate resilience, which we are committed to continuing with like-minded partners. To effectively capture the outcomes of these sustainable business endeavours, we are in the process of developing an improved Sustainability Framework. This framework is designed to transform SDB Bank into a value-driven financial institution capable of measuring our economic, social, and environmental impact throughout each stage of our value chain.

Risk, Governance, and Compliance

SDB Bank is fully aware of the necessity for the highest standards of governance and compliance practices, and we have crafted a clear roadmap to meet enhanced requirements established under the new Banking Act. We have conducted a thorough evaluation of the Bank's overall risk framework, reinforced risk parameters and enhancing our risk models to ensure that the Bank's risk management capabilities align with the industry best practices and regulatory requirements. This includes improvements in portfolio underwriting quality, the establishment of rigorous credit standards, and the provision of comprehensive training for our staff. This initiative aims to strengthen the Bank's ability to manage risks effectively, safeguard stakeholder interests and maintain operational stability.

"As a Bank with a history rooted in sustainable thinking, we have wholeheartedly adopted environmentally and socially sustainable growth fostered through community integration and inclusivity as the cornerstone of our business strategy. We are currently refining this strategy in collaboration with Rabo Partnerships, a leader in sustainable finance. Additionally, our partnership with Value for Women, a global advocate for increasing women's participation in leadership roles in business, finance, and investment within emerging markets, aims to integrate a gender-focused perspective into our business model."

Looking to the Future

As the Sri Lankan economy steadily strengthens, the Bank is strategically positioning itself to seize growth opportunities that will significantly contribute to the sustained and accelerated revival of the country's economic landscape. In pursuit of this ambition, we are committed to enhancing our strategies through the utilisation of tangible data, which will enable us to conduct quantifiable impact assessments across our entire value chain. This value-driven approach will allow us to make informed decisions that align with our growth objectives, while ensuring environmental, social and economic sustainability in our business activities. To further bolster our commitment to responsible banking practices, we will significantly increase Environmental, Social, and Governance (ESG) applications across our value chain. A key part of this effort will involve increasing employee awareness and understanding of ESG principles through continuous training.

As we expand our operations, we will maintain a strong focus on our traditional customer base, which consists primarily of cooperatives and small and medium-sized enterprises (SMEs). We intend to further strengthen the relationships we have developed with these businesses, while also exploring partnerships with new entities that align with our mission and values. In this context, we believe that Sri Lanka's improving economic momentum provides a substantial opportunity, particularly within our SME portfolio. This sector not only represents a significant growth potential but also allows us to make a meaningful impact on the livelihoods of many individuals and communities. Moreover, we recognise the immense potential within Sri Lanka's cooperative sector. To support this objective, we plan to enhance our Rural Upliftment Programme, designed to empower local communities and foster cooperative development. By expanding this initiative, we aim to provide increased access to financial resources and support systems that will enable cooperatives to thrive. Our growth plans will be anchored in a robust digital expansion strategy, which seeks to enhance value creation through the introduction of innovative products and services geared towards greater customer convenience. This effort will streamline processes, improve accessibility to banking services, and ultimately lead to an enriched customer experience. In addition, we are proactively incorporating climate risk considerations into the Bank's risk management framework. This initiative is critical in today's world, where environmental sustainability plays an increasingly vital role in financial decision-making. As the first step in this process, we will conduct a comprehensive assessment to evaluate our current portfolio's exposure to climate-related risks, allowing us to address any vulnerabilities effectively.

Appreciations

I would like to take this opportunity to warmly welcome Mr. Kapila Ariyaratne as the Bank's Executive Director/CEO. His industry experience will be invaluable as we move forward by establishing a new growth trajectory for the Bank. Furthermore, our Board reflects a majority representation of the Bank's key stakeholders, ensuring a high degree of stakeholder involvement in the Bank's strategic and operational aspects. During this year, we bid farewell to two esteemed Board members, Dr. Mahesha Ranasoma and Professor Sampath Amarathunga, whose contributions and service we deeply appreciate.

I would like to conclude by thanking our shareholders for their trust, confidence and support during the year, and extend my sincere appreciation to our loyal customers, who have stood by us through these years of turbulence. I would also like to thank my colleagues on the Board, Corporate Management and the entire SDB Bank team for their commitment and contribution during the year. Our international partners have supported the Bank with technical knowledge and their experience, and I fully appreciate the impact we can create together. I would also like to thank our lenders, regulators, and other stakeholders for their contributions and support during the year. I invite all of you to join us in supporting Sri Lanka's recovery journey.