RESULTS FOR THE NINE MONTHS ENDED 31 DECEMBER 2009

This release relates to the Results for the nine months ended 31 December 2009 released to the Colombo Stock Exchange on 12 February 2010.

Profitability
The Bank's own non-audited profit after tax for the nine months ended 31 December 2009 (current period) was Rs 1,327 million an increase of 13.8 pc over the comparable period (April to December 2008).

A combination of portfolio reduction due to continued low demand for project loans and the sharp drop in market lending rates during the 3rd quarter resulted in the reduction in the interest margin and net interest income from lending activities. However, the Bank was able to contain costs (non-interest expenses) at below the comparable period.

The portfolio contraction resulted in the release of part of the mandatory general provision previously made, which is 1 pc of the portfolio on which specific provisions are not made. The cumulative reduction of this mandatory general provision in the current period was Rs 57 million. However, in the second quarter the general provision on the finance leases portfolio was increased to 3pc, from 1 pc on 30 June 2009, recognizing impairment losses of this portfolio over and above the specific provision. This additional general provision during the current period was Rs72 million and the net amount charged to the income statement was Rs15 million.

Gross specific provisions increased from Rs 365 million in the comparable period to Rs 489 million in the current period which was considerably reduced by recoveries of previously provided loans and advances which increased to Rs 377 million from Rs261 million in the previous period.

The Bank swapped US dollars 15 million sourced from an overseas medium term borrowing to Rupees with the exchange risk covered. The premium payable on the forward exchange purchase contract gave rise to an exchange loss but was more than compensated by the higher interest income earned on the Rupees generated.

The consolidated profit attributable to the shareholders of the Bank was Rs 1,869 million an increase of 14.9 pc. The contribution to profits from Commercial Bank of Ceylon PLC was slightly lower but Lanka Ventures PLC, a subsidiary of the Bank returned to profitability from the loss incurred in the comparable period resulting in higher consolidated profit.

Consolidated earnings per share for the current period increased to Rs14.16 from Rs12.49 in the comparable period.

Lending Activities
The combined gross advances of the Bank and DFCC Vardhana Bank Ltd (DVB) as at 31 December 2009 (consolidated with a 3 months lag due to different financial years) amounted to Rs 52,603 million recorded a reduction of 10.3 pc in the 9 months ended 31 December 2009. Both DFCC Bank and its commercial banking subsidiary DVB recorded a decrease in the credit portfolio in common with banking sector trends. However, the pipeline for new lending opportunities is showing signs of improving.

Credit Quality
The gross non-performing loans, advances and leases (NPA) ratio of the Bank was 10.4 pc. This is a reduction from 12.1 pc on 30 September 2009 although it is higher than the 9 pc on 31 March 2009. The total NPAs have shown a reduction from Rs6,285 million in September 2009 to Rs 5,381 million in December 2009. Thus, the bank is witnessing a gradual improvement in the credit quality despite the reduction in portfolio through its efforts in collection and rehabilitation of projects.

The total provisions (specific and general) and interest in suspense covered 60.1 pc of the consolidated gross NPA.

Subsidiaries, Associates and Joint Ventures
The nine months profit after tax of Commercial Bank of Ceylon PLC (CBC) recorded a marginal decrease of 2.3 pc.

The contribution from DVB was Rs 146 million compared with Rs 88 million in the comparable period. Since both CBC and DVB end their financial year in December, the consolidated financial statements for 31 December include the results for the nine months to 30 September.

Lanka Ventures PLC (LVL) recorded a profit after tax of Rs 69 million in the current period compared with a loss of Rs 78 Million in the comparable period.

The Bank divested LVL to Acuity Partners (Pvt) Limited, the joint venture investment banking company of DFCC Bank and Hatton National Bank PLC, on 18 January 2010. This transaction will result in a cash inflow of Rs521 million and a capital gain of Rs 284million (Rs 227 million net of financial services VAT) being recognized at the Bank level. Since the sale is to Acuity Partners (Pvt) Limited only 50 pc of the profit or Rs 113.5 million will be recognized in the consolidated income statement as required by the relevant Sri Lanka Accounting Standard. Although LVL ceases to be a 58 pc owned subsidiary of the Bank, this reorganization of ownership is expected to increase the scope and focus of LVL business activities. Acuity will make a mandatory offer to acquire the balance shares of LVL. The Bank will increase the equity capital of Acuity by investing up to Rs500 million while preserving the fifty-fifty ownership ratio in Acuity.

The contribution of other subsidiaries and investment banking joint venture company, Acuity Partners Ltd, though relatively small, improved during the current period.

The Bank and its commercial banking subsidiary DVB have spread its presence to the North and East. The distribution capabilities of DVB have been further enhanced through joining a local ATM network and setting up of 30 low cost outlets in post offices. These initiatives will support the DVB's plans to broaden its customer base and provide full banking services island wide.

Nihal Fonseka
Chief Executive Officer
12 February 2010