2009 Annual Report

The Case Study > Seylan Bank PLC Annual Report 2009b

Annual Report 2009

Dedicated to all our Stakeholders

Copyright © 2009 Seylan Bank PLC

Stock Code SEYB. N0000

ISBN 978-955-1619-01-5

Designed and produced by Smart Media

This Annual Report is printed on paper containing post-consumer fibre.The paper used in this report is also certified under the Programme for the Endorsement of Forest Certification Schemes (PEFC)/Chain of Custody.

ConTenTSPrefaceA SToRY WoRTH SHARInG ............................................................... 07Seylan Bank’s return to financial stability warrants a unique case study - with lessons for the entire financial services industry.

Chapter 1GRoWTH AnD ITS CHALLenGeS ..................................................... 09From its founding in 1987, ‘The Bank with a Heart’ grew rapidly, and managing that success became increasingly difficult.

Chapter 2A CRISIS oF ConFIDenCe ............................................................... 17In a general climate of uncertainty, misunderstandings around the collapse of Golden Key Company triggered a run on Seylan Bank.

Chapter 3SWIFT AnD DeCISIVe ACTIon .......................................................... 25The Central Bank stepped in quickly, installing a new board of directors to stabilise the business and apply corrective measures.

Chapter 4ReASSURInG THe PUBLIC ............................................................... 35The top priority of the Bank’s new board was to restore confidence through forthright and transparent communications.

Chapter 5ReBUILDInG THe BUSIneSS ........................................................... 41A series of practical steps, including a systematic rethinking of policy in every area, soon yielded measurable positive results.

Chapter 6 A SoUnD FUTURe STRATeGY .......................................................... 49Guided by a comprehensive strategic plan, Seylan Bank is building a healthy, sustainable future for all stakeholders.

BenCHMARKS oF SUCCeSS . ........................................................... 55The ultimate measures of Seylan Bank’s return to stability and growth are the financial and operational results for 2009.

Financial Highlights Management Report Risk Management Report Corporate Governance Report Sustainability Report Financial Reports

AppendixProfiles of the Board of Directors, Senior Management Team, Ten Year Summary, Summary of Performance Indicators, US$ Accounts, Investor Information, Branch Network, Geographical Analysis, Glossary, Corporate Information, GRI Compliance Index, Subject Index, Notice of Meeting, Sinhala Translations, Tamil Translations, Form of Proxy

{ PReFACe }

A SToRY WoRTH SHARInGSeylan Bank’s return to financial stability warrants a unique case study - with lessons for the entire financial services industry.

In December 2008, Seylan Bank was confronted by a sudden, unexpected crisis of public confidence. The situation facing Sri Lanka’s fifth largest bank, while, no doubt linked to widespread uncertainty in the wake of the global economic downturn, was triggered by a highly publicised financial collapse much closer to home. As a result, many concerned customers rushed to withdraw their deposits, creating a run on the Bank. The ensuing period of instability threatened the very future of a 20-year old, systemically important institution.

The reasons behind the crisis are complex, and we will examine them in detail over the following pages. But the central point of the Seylan Bank story is very simple: A run that could have been catastrophic was halted, and the support of both customers and investors quickly restored without the need for a bail out from the Sri Lankan Government or the nation’s Central Bank. This is unprecedented in banking history.

Our goal in The Case Study is to tell this unique story - clearly and candidly, heartened by the knowledge that the crisis is behind us and we can already point to measurable signs of progress. At the same time, some of the problems that sparked this dramatic event, both inside our Bank and in the wider market-place, have yet to be fully resolved. We will examine those challenges as well, and the strategic plan we’ve put in place to address them.

Above all, our purpose here is to share the lessons learned and remedies applied as we’ve worked to make Seylan Bank more responsive and accountable to the needs of all stakeholders. Our sincere hope is that, others will benefit from seeing what has been accomplished in a remarkably short time, through the collective efforts of many dedicated individuals and institutions. We welcome this opportunity to set our corporate vision within a solid factual framework - to make the case for Seylan Bank as we build a healthy, sustainable business for the future.

Eastman NarangodaExecutive Chairman

17th February 2010

9

From its founding in 1987, ‘The Bank with a Heart’ grew rapidly, and managing that success became increasingly difficult.

GRoWTH AnD ITS CHALLenGeS

{ CHAPTeR 1 }

Seylan Bank PLC was founded in 1987 and opened its doors for business

on 24th March 1988, in Colombo Fort, the traditional banking district of

Sri Lanka’s largest city. Originally named Seylan Trust Bank Limited, it was

designated a Licensed Commercial Bank and incorporated as a public company

with a broad base of shareholders. From its founding, the new institution was

part of the Ceylinco Group of Companies, a major Sri Lankan conglomerate

operating in a wide range of industries.

The goal of the Bank’s Founder Chairman, Dr. Lalith Kotelawala, was

to offer retail customers a more welcoming, service-oriented alternative in a

banking culture that was generally perceived to be formal and regimented,

even a bit austere. From the outset, Seylan Bank presented itself as a flexible,

customer-friendly choice, summing-up its promise in a service motto that soon

caught the attention of prospective customers: ‘The Bank with a Heart’.

A Customer serviCe LeAderSeylan Bank quickly differentiated itself in the Sri Lankan market-place with a

range of innovative services, including:

• Extended weekday banking hours, as well as Saturday service

• 1% bonus interest on minimum average balances for savings accounts

• Special high-interest savings accounts with contracted monthly deposits

• 5% ‘thank-you’ bonuses on interest reinvested in fixed deposits

• Personal Assistance Loans for customers with limited credit opportunities

• Cash-card access to non-resident foreign currency accounts (often used by

Sri Lankan expatriates to transfer funds to their dependents)

The Case Study > Seylan Bank PLC Annual Report 200910

In 1992, the Bank introduced Sri Lanka’s first homegrown credit card -

Seylan Card - in association with Golden Key Credit Card Co. Ltd. Three

years later, Seylan Bank joined the Visa International network and over the

next decade became the largest issuer of Visa cards in Sri Lanka. A network of

Automated Teller Machines was implemented beginning in 1995.

The same period saw the Bank extend its retail network across the country,

opening new branches and acquiring those of other institutions, including the

Sri Lankan branches of the failed Bank of Credit and Commerce International

(BCCI). In addition, through the mid-1990s Seylan Bank extended its retail

services internationally, becoming a regional agency of the Western Union

global money transfer system and establishing presence in Dubai and Oman to

serve expatriate Sri Lankans working in the Middle East.

Entering the new millennium, Seylan Bank continued its course of steady

growth, adding branches in previously under-served areas of Sri Lanka. The

Bank also maintained its reputation as an industry innovator, leading the market

with a mobile palmtop banking solution in 2007 and, in the following year,

launching the country’s first corporate website in all three official languages -

Sinhala, Tamil and English.

At the same time, the Bank sought ways to further strengthen customer

relationships. For example, the Rewards Plus programme, featuring a prize draw

that benefited a few fortunate depositors, was replaced by a more sophisticated

loyalty programme called Merit Rewards, which recognised customers’

academic and professional excellence, sporting achievements and medical or

bereavement needs. Seylan Bank also affirmed its leadership in the realm of

social responsibility - notably by taking an active role in national rebuilding

initiatives following the devastating tsunami of December 2004 (the victims of

which included many Bank customers as well as employees).

11

rApid, profitAbLe GrowthSeylan Bank enjoyed immediate success, reporting after tax profit of Rs. 11.3 Mn.

for its first partial year (i.e., from 24th March) ending 31st December 1988. Over

the next 17 years, the Bank grew at an unprecedented pace, with assets totalling

Rs. 113.6 Bn. by the end of 2005. Profits in the same period fluctuated to some

degree but followed the same overall rapid trajectory, reaching Rs. 687 Mn. (after

taxes) in the 2005 financial year.

Other key measures showed a similar pattern of dramatic growth.

The Bank’s workforce increased steadily from an original staff of 72 to a

companywide total of 3,733 employees. A single head office location grew into

a network of 117 outlets - based, from 1997 onward, in a new headquarters,

Ceylinco Seylan Towers. By 2005, Seylan Bank was Sri Lanka’s fifth-largest

Bank and ranked third among privately owned financial institutions.

Unfortunately, that same year brought a dramatic heightening of public

concern - following several years of increased scrutiny from regulators, banking

analysts and other industry watchers - that Seylan Bank’s remarkable record

of growth masked some significant underlying management problems. In

retrospect we can see that these unresolved issues, while not the direct cause of

the Bank run three years later, undoubtedly set the stage for the crisis to come.

overexpAnsion CArries A priCeIn the view of some stakeholders, the staggering growth achieved by Seylan

Bank had led to a classic case of overtrading. Banking is by definition a capital-

intensive business. However, in the case of Seylan Bank, aggressive expansion,

both in terms of business volumes as well as physical infrastructure - opening

branches, expanding the ATM network, building new premises, etc. - had exerted

tremendous pressure on the limited amount of capital available. Within five

years of the Bank’s founding, its gearing ratio (the degree of leverage required

to finance operations, calculated as total assets divided by total shareholders’

funds) shot up past 29 times. This pointed to serious problems ahead.



The ratio in fact remained extraordinarily high through the rest of the

1990s and beyond. Where other industry players typically hold the gearing ratio

below a threshold of 15 times, Seylan Bank rarely managed to keep this key

performance indicator below 20 times, and in many years it rose significantly

higher. In retrospect, one need only glance at the Bank’s financial performance

highlights from the early 1990s onward to confirm a long-standing gap between

business needs and available resources.

Another, complementary measure of the Bank’s financial health was

its capital adequacy ratio, which had been consistently forced downward as

growth in capital failed to keep pace with growth in the volume of business.

Beginning in 1993, the year it was first reported, this vital ratio was frequently

below - and never more than marginally above - the statutory minimum of 8%

to 10% at the Tier I and II levels.

In retrospect, one need only glance at the Bank’s financial performance highlights to confirm a long-standing gap between business needs and available resources.

With concern growing over these and other key indicators, in 2005, the

Central Bank of Sri Lanka moved to impose limitations on Seylan Bank’s

expansion plans. These included restrictions on the number of new branches

the Bank was permitted to open, as well as its planned expansion of student-

service centres and even its ATM network. Summing-up several years of such

restrictions in the 2005 Annual Report, the Chairman expressed frustration

over measures that, in his view, prevented the Bank from fulfilling its mandate

as a leader in the ‘bottom-up’ development of an emerging economy:

13

“Despite (our) contribution towards the economy and the employment

we have generated, I feel sad that we are not given a voice when it comes to

development plans or even in our own growth... I feel this is wrong because it

is entrepreneurs like us who help grow the economy…”

other wArninG siGnsIn addition to the obvious indicators of overly ambitious expansion, industry

observers noted a growing number of signs that management at Seylan Bank

was not aligned with current professional standards for the industry. Among

members of the public as well, there was a growing perception that the Bank

was not being run properly.

The indicators that aroused concern covered various aspects of

management:

• Seylan Bank’s cost-to-income ratio was the highest in the industry.

• Its ratio of non-performing loans, ranging from just over 11% to more than 18%

since reporting began in 1998, was similarly among the highest in the industry.

• In addition to the shortfall in capital adequacy, there were other areas where

the Bank failed to comply with minimum statutory requirements.

• Seylan Bank was half the size of the country’s largest private bank in terms

of assets, yet it employed virtually the same number of staff.

• Operating expenses were as high, in absolute terms, as those of the nation’s

largest private bank.

• Productivity, gauged by assets per staff member and earnings per staff

member, was below industry norms.

• Profitability, measured both by return on assets and return on shareholders’

funds, fell significantly below industry norms - and below the returns posted

by competing banks.



In pointing out these warning signs, industry experts drew some general

conclusions about management effectiveness at Seylan Bank. Clearly, there was

reason to question the quality of credit appraisals in the Bank’s lending and other

financing activities. Risk management practices likewise fell short of reasonable

standards. And the Bank was significantly overstaffed, demonstrating a lack of

adequate human resource policies and procedures.

Equally apparent to outside analysts were more specific problems in one

crucial aspect of the Bank’s business conduct - its relationship to the Ceylinco

Group, whose principal shareholder and Chairman was also Seylan Bank’s

chair, Dr. Lalith Kotelawala.

the CeyLinCo ConneCtionFounded in 1939 as the Ceylon Insurance Co., the company now known as

Ceylinco had just three small subsidiaries and a total of 100 employees when

Mr. Kotelawala took on the Chief Executive role in the early 1960s. Under

his leadership, it grew into one of Sri Lanka’s major corporations, employing

over 30,000 people and encompassing more than 250 affiliated companies.

Some of those companies were publicly held and listed on the Colombo Stock

Exchange; most, however, were owned by other companies within the Group,

or by the Chairman and various Ceylinco directors.

The complex interrelationships between Seylan Bank and many of the companies associated with Ceylinco were a further source of unease for analysts examining the Bank’s financial performance, management practices and corporate governance.

Ceylinco was a major shareholder in Seylan Bank from its founding, with

an ownership stake averaging approximately 24% through the end of 2008. In

addition, the two entities entered into a diverse range of business relationships

over the years. For instance, in 1992, the Bank established a subsidiary, Ceylinco-

Seylan Development Company Limited, which involved a partnership between

the two businesses. And, as stated earlier, the Bank’s original credit cards were

issued under a franchise agreement with Golden Key Credit Card Co. Ltd.,

a company in the Ceylinco Group.

15

The complex interrelationships between Seylan Bank and many of the

companies associated with Ceylinco are beyond the scope of this case study.

What is salient is that those close connections were a further source of unease

for analysts examining the Bank’s financial performance, management practices

and corporate governance.

In short, it was widely agreed that Seylan Bank (a) had taken on excessive

and unjustified lending exposures with regard to many companies within the

Ceylinco Group, and (b) had signed contracts deemed unfavourable to the

Bank’s own interests in order to obtain services from, or deliver services to, a

large number of Ceylinco companies.

Again, these specific inferences about Seylan Bank’s connection to

Ceylinco, and even broader public conclusions about the competence of senior

management, did not directly cause the Bank run of December 2008. But there

is no question that they contributed to an overall climate of uncertainty around

Seylan Bank, such that the actual triggering event, when it did come, had

consequences that expanded far beyond the immediate crisis.


17

{ CHAPTeR 2 }

A CRISIS oF ConFIDenCeIn a general climate of uncertainty, misunderstandings around the collapse of Golden Key Company triggered a run on Seylan Bank.

The immediate chain of events that led to the historic run on Seylan Bank occurred

within - and was accelerated by - a broader context of public unease arising from

two recent institutional failures in Sri Lanka’s financial services sector.

Several years earlier, Pramuka Savings & Development Bank Limited had

failed, jeopardising the savings of more than 14,000 depositors. The Central

Bank of Sri Lanka had subsequently stepped in and liquidated the failed bank,

transferring its assets to a new entity. The complex process had taken sometime

to complete, however, and in 2008, the Pramuka Bank saga was still fresh in the

minds of Sri Lankan consumers as an example of the potential personal risk of

entrusting deposits to a mismanaged institution.

Then, in late September 2008, Sri Lankan media headlines were

dominated by revelations that an unlicensed finance company had defrauded

several thousand depositors of an estimated Rs. 900 million after luring them

with promises of exceptionally high rates of return. In what came to be called

the Sakvithi Scam (named after the individual reportedly responsible for the

collapsed investment scheme - who subsequently fled the country), attention

quickly shifted from the plight of individual investors to the overall hazards of

dealing with finance companies that operated outside regulatory controls.

In an effort to raise public awareness, the Central Bank of Sri Lanka

published - not for the first time - a list of all officially registered finance

companies. Among the significant omissions that immediately drew notice

were several companies within the Ceylinco Group, including Golden Key

Credit Card Co. Limited. In subsequent media reports, it emerged that Golden

Key, while not licensed to do so, had been accepting deposits from credit card

holders in the manner of a bank. Moreover, the Company had been offering

rates of return significantly higher even than those of the more aggressive

finance companies - reportedly in the range of 24% to 30% annually.


the probLem of GoLden Key The question of how such extraordinary interest rates could be offered by any institution, licensed or otherwise, took on a new urgency in light of the Sakvithi scandal. And the doubts only intensified as a series of unprecedented crises in the global banking industry through the final months of 2008 sent the world’s economy spiralling into a severe recession. Rumours of financial difficulties at Golden Key appeared to be confirmed by reports of depositors whose interest payment cheques had bounced and others who had been unable to withdraw their funds.

At the beginning of December 2008, Dr. Lalith Kotelawala - in his role as Chairman of Ceylinco, Golden Key’s corporate parent - wrote to depositors assuring them that all outstanding interest payments would be settled within two months. This did little to calm growing apprehension over the financial health of Golden Key, which at that point (according to later Court testimony) held about Rs. 26 Bn. on behalf of some 10,000 depositors. As new deposits dried up, and with no other means of covering the premature withdrawal requests, the Company could do little more than offer further assurances. At one point, a large group of angry depositors demonstrated outside the Golden Key offices, demanding their funds back.

Alarm over what appeared to be the imminent collapse of Golden Key spread to customers of other Ceylinco companies that mobilised deposits - which soon faced similar problems in fulfilling the demand for withdrawals. Meanwhile, unsubstantiated stories circulated about behind-the-scenes transactions among other Ceylinco subsidiaries designed to help Golden Key meet its obligations. In this climate of rising anxiety, it was not surprising that the cloud of rumours soon enfolded one of the most prominent enterprises in which Ceylinco had a major shareholding: Seylan Bank. Tainted by association, the Bank tried in vain to dispel suggestions that its own depositors had cause for concern.

the finAL strAwsWith public fears at their peak, the last few cards were played that brought Seylan Bank to the brink. On 19th December 2008, having admitted to mismanaging Golden Key (according to later statements by Ceylinco Chairman, Dr. Lalith Kotelawala), the Company’s Chief Executive Officer tendered his resignation to Dr. Kotelawala. Police authorities were called and the CEO handed over his passport. In a subsequent statement, Dr. Kotelawala confirmed that Golden Key had been enmeshed in a major credit card fraud.

On the afternoon of 23rd December, Dr. Kotelawala addressed thousands of concerned Golden Key depositors at a convention centre in Colombo. After listening to a series of first-person accounts of the hardships caused by Golden Key’s liquidity crisis, the Chairman pleaded with the crowd to be

19A CRISIS oF ConFIDenCe

patient and give the Company time to make good on its obligations. Then, on 27th December the Executive issued a further statement, which proved to be the inadvertent triggering event for what happened next to Seylan Bank.

In retrospect it’s generally agreed that what Dr. Kotelawala meant to communicate, as he tried once again to allay concerns over Golden Key, was that equity in other companies within the Ceylinco Group would be redeployed to help the failed credit card company pay off its depositors and creditors. However, when the Chairman specifically referenced selling his conglomerate’s stake in Seylan Bank, it was misinterpreted - through an unfortunate combination of unclear reporting and public misunderstanding - as meaning that Ceylinco would directly allocate bank assets in order to refund Golden Key deposits. Panicked Seylan Bank customers, convinced that their savings were about to be diverted toward a Ceylinco bail out, rushed to their home branches to make withdrawals. In a matter of hours, a classic bank run was rapidly gaining momentum.

A run on the bAnKOver the next few days, long queues formed outside Seylan Bank locations across Sri Lanka. Branch staff faced some tense moments, between fielding questions from upset customers and securing additional funds from head office to meet the extraordinary demand for withdrawals. Contrary to some media rumours, the Bank never attempted to stop withdrawals. Indeed, in some branches, money was conspicuously displayed to reassure anxious depositors waiting in line that there were sufficient funds to cover their requests. Meanwhile, the corporate management team, faced with a shrinking number of funding lines from other banks, worked closely with those institutions that maintained support - Bank of Ceylon, Wachovia Bank, Standard Chartered Bank, Pan Asia Bank, Nations Trust Bank, People’s Bank, HSBC and State Bank of India - to ensure a steady supply of cash.

Seylan Bank staff worked with remarkable diligence and professional composure in handling a crisis situation none of them had ever confronted before. They managed for the most part to keep customers calm and in some cases even managed to convince depositors to leave their accounts intact. But, it was clear that this impressive grassroots effort could only go so far. History held plenty of examples of Bank runs that had quickly spiralled out of control, not only bringing down the original institutions but also threatening entire national economies. With the worldwide economic downturn already prompting comparisons to the Great Depression of the 1930s, who could say how far the tremors from one national bank failure might reach?

Clearly something had to be done - and at the highest level of Sri Lanka’s banking system, a remarkable recovery effort was already in motion.

25

{ CHAPTeR 3 }

SWIFT AnD DeCISIVe ACTIonThe Central Bank stepped in quickly, installing a new board of directors to stabilise the business and apply corrective measures.

On 29th December 2008, Seylan Bank issued a statement clarifying the

Chairman’s press release of two days earlier:

“What has been stated in the press release is that our Founder/Chairman

and Ceylinco Group have decided to divest Seylan Bank shares owned by Ceylinco

Group so as to raise funds to honour the dues to Golden Key credit card holders.

We emphasise that the intended sale is of the shares owned by Ceylinco Group

to a potential reputed investor subject to the permission of the relevant regulatory

authorities… It is further clarified that what is intended for sale are not the assets

of the Seylan Bank, investments made by the Bank or any shares owned by Seylan

Bank. Furthermore, we wish to inform that Seylan Bank will not use the depositors’

funds to meet the obligations to Golden Key credit card holders.”

The clarification may have helped ease concerns in some quarters but, as

we’ve seen, did not succeed in neutralising the run on the Bank. What had far

greater impact, immediately and over the longer term, was a succinct statement

issued the same day by the Central Bank of Sri Lanka: The board of directors of

Seylan Bank had been dissolved. State-owned Bank of Ceylon had been asked

to appoint a new board and, in the meantime, would be providing management

support to Seylan Bank.

It was a swift, decisive move following a few days of intensive behind-the-

scenes consultations and reflecting the crucial support of the President and the

Government of Sri Lanka. The general consensus was that a high-profile bank

failure would have disastrous consequences for the financial sector and, indeed,

for the overall Sri Lankan economy, which was already shaken by the ongoing

global crisis. Faced with such circumstances, the Central Bank was empowered

to take action. Under the provisions of Section 31 of the Monetary Law Act,

the regulator could suspend the activities of a distressed Bank, remove its board

and order the immediate resumption of business under new management.


As the Central Bank made clear in its statement, the intervention of its

Monetary Board was sparked not simply by the plight of depositors, but by the

broader threat to economic equilibrium:

“The difficulties of Seylan Bank PLC presented a potential danger to the

stability of the financial system. Therefore, the Monetary Board is of the view

that immediate measures require to be taken to stabilise the financial system.”

With management support from Bank of Ceylon, the largest commercial

bank owned by the Sri Lankan Government, Seylan Bank would carry on

operating under its incumbent General Manager with no interruption in

service, and all current employees would retain their jobs. The Monetary Board

assured Seylan Bank customers that their deposits were safe and they could

conduct all transactions as usual. At the same time, the Central Bank reinforced

the message to the general public that the banking system was not in jeopardy.

This well-orchestrated intervention on behalf of Seylan Bank required a

remarkable level of cooperation and support among all key players, including the

Governor of the Central Bank of Sri Lanka, Mr. Ajith Nivard Cabraal, as well as

the Monetary Board, its Bank Supervision Department and staff at many levels.

under new mAnAGementOn 30th December, the Central Bank Governor, Mr. Cabraal, met with the newly

appointed board of directors of Seylan Bank. The new Executive Chairman was

Mr. Eastman Narangoda, a veteran of the banking industry who had previously

held the position of General Manager/CEO of National Savings Bank, a

state-owned, AAA-rated institution. A former President of the Association of

Professional Bankers of Sri Lanka, he had also served as Vice-Chairman of Financial

Ombudsman Sri Lanka (Guarantee) Limited and participated as a Commissioner

in a Presidential Commission investigating failed financial institutions.

Mr. Narangoda was joined by fellow directors Mr. Lalith Withana, a

Chartered Accountant; Mr. Naomal Goonewardena, a Chartered Accountant

and Attorney-at-Law; and Mr. Nihal Jayamanne, President’s Counsel and a

former President of the Bar Association of Sri Lanka. Also at the meeting

was Seylan Bank’s senior management team, led by the General Manager,

Mr. Ajitha Pasqual.

27

The significance of this landmark, first meeting was summed up by the

Central Bank Governor: “We have brought in the Bank of Ceylon together with

leading professional personalities in the country to head the new Seylan board,

and they are expected to perform their duties until that Bank becomes stable.”

That same day, trading in Seylan Bank shares, which had been halted by

securities authorities during the crisis, resumed on the Colombo Stock Exchange

and immediately showed a slight rise in value - an encouraging sign of restored

confidence. (Significantly, a day earlier the Bank had announced the extension

of a five-year debenture issue, after the full subscription of the first tranche of

Rs. 400 Mn. - further evidence of longer-term support from institutional investors.)

Mr. Pasqual, Seylan Bank’s General Manager, stressed to the media that

the Bank was functioning normally with the backing of the Bank of Ceylon

and the Central Bank. Now the challenge was to win back those customers

who had withdrawn their savings. He also asserted that the Bank would have no

involvement with Golden Key, other than to assist with Ceylinco’s anticipated

partial divestiture of its shareholding in Seylan Bank in order to reimburse

depositors in the credit card company.

Highlighting the Bank’s successful track record as a retail services

innovator, Mr. Pasqual emphasised that the recent crisis had originated from

one segment of its customer base. Local and overseas funding partners, while

initially concerned, had for the most part been reassured that Seylan retained a

solid foundation on which to move ahead and rebuild any lost business.

The spirit of a new beginning was symbolically reinforced when the

board of directors joined Seylan Bank employees at a head office gathering to

welcome in the New Year. After the traditional lighting of an oil lamp, the new

Executive Chairman expressed his confidence that the Bank would soon return

to strength. With the immediate crisis already showing signs of abating, it was

time to address some of the deeper management challenges and help Seylan

Bank reach even greater heights as a leader in the financial services industry.

SWIFT AnD DeCISIVe ACTIon


29

“We HAVe HonoUReD eACH AnD eVeRY CUSToMeR WHo CAMe To WITHDRAW MoneY AnD neVeR TURneD THeM BACK AT AnY SInGLe PoInT... I MUST ALSo TeLL YoU THAT WHen THe CenTRAL BAnK InTeRVeneD AnD APPoInTeD A neW BoARD oF DIReCToRS, PUBLIC PeRCePTIon CHAnGeD AnD MAnY CUSToMeRS WHo eARLIeR WITHDReW MoneY In FACT ReTURneD To THIS BAnK To Do THeIR FInAnCIAL TRAnSACTIonS.”Eastman Narangoda Executive ChairmanAt a media briefing held on 8th January 2009

The Case Study > Seylan Bank PLC Annual Report 200930THe BoARD oF DIReCToRS

1. mr. eastman narangoda Executive Chairman

2. mr. r. nadarajah Executive Director

3. mr. nihal Jayamanne - President’s Counsel, Director

4. mr. Lalith withana Director

1

2

5

3

The profiles of the directors are given on pages 228 and 229

31

5. rear Admiral (rtd.) b.A.J.G. peiris Director

6. mr. pradeep G.s. Kariyawasam Director

7. dr. nalaka h. Godahewa Director

8. mr. Ajith L. devasurendra Director

9. mr. ishara C. nanayakkara Director

10. mr. samantha p.s. ranatunga Director

7

9

108

4

6


the new boArd’s prioritiesAt the beginning of January 2009, two additional members joined the new

Seylan Bank board of directors: Rear Admiral (Retired) Ananda Peiris and

Mr. R. Nadarajah, former DGM of Bank of Ceylon and Managing Director/

CEO of Pan Asia Banking Corporation. The expanded board set to work, and

in short order the Executive Chairman outlined a set of immediate priorities:

• Re-establish financial stability

• Remedy any continuing stresses on operations as a result of the Bank run

• Introduce more effective risk management policies and practices

• Restore the full confidence of customers and win back those who had

made pre-emptive withdrawals

• Improve the quality of credit appraisal, monitoring and recovery

• Implement new measures for containing and managing operational costs

At the same time, the board identified a number of key objectives for the

longer term, including:

• Continuous improvement of business processes across the enterprise

• Transformation of the organisational structure and resources required to

implement those processes

• Preparation of employees to embrace and support the planned changes

• Identification of critical issues facing the business going forward

• Establishing a new vision, mission, values statement and set of defined

corporate goals

• Creation of a comprehensive strategic plan with clear guideposts for

management success

The new board of directors understood that the reinvention of Seylan Bank must begin at the highest level.

33

Mr. Narangoda outlined these objectives in a highly publicised media

briefing on 8th January 2009. The Executive Chairman also used this occasion

to share the new board’s perspective on the recent crisis, revealing that a total

of Rs. 7 Bn. had been withdrawn in the preceding weeks:

“We have honoured each and every customer who came to withdraw

money and never turned them back at any single point... I must also tell you

that when the Central Bank intervened and appointed a new board of directors,

public perception changed and many customers who earlier withdrew money

in fact returned to this Bank to do their financial transactions.”

Seylan Bank subsequently announced that it would be reducing its lending

to companies in the Ceylinco Group. It was the first in a series of signals that

the Bank was distancing itself not only from Golden Key, but also from the

larger conglomerate of which it was a part.

The failed credit card company continued to generate headlines in

early January, both for the deepening legal difficulties of its principals and

for Ceylinco’s repeated assurances that it would soon begin paying back

depositors. In the weeks and months that followed, there were further protests

by angry Golden Key customers as well as employees - along with widening

criminal investigations, high-profile arrests and revelations that other Ceylinco

subsidiaries faced serious financial problems.

At Seylan Bank, meanwhile, that 8th January news conference was

followed by a series of proactive steps aimed at getting key messages fully

aired and understood by customers and the general public. It was clear that

communications, even ahead of specific management changes, would play a

vital role in getting the Bank back on a solid footing.

SWIFT AnD DeCISIVe ACTIon

35

{ CHAPTeR 4 }

ReASSURInG THe PUBLICThe top priority of the Bank’s new board was to restore confidence through forthright and transparent communications.

Seylan Bank not only survived the trying days that closed 2008, but did so in

a way that was truly remarkable. Around the world, prominent banks dragged

down by the global financial crisis had been rescued with Government bail outs,

either in the form of massive infusions of capital or, in a few cases, outright

nationalisation. By contrast, the express support of the Central Bank and a

major state-owned commercial bank was sufficient for Seylan Bank to quickly

regain its equilibrium and begin moving forward again, with no need for a full-

fledged financial rescue.

the fuLL storyIn mid-January Seylan Bank’s new board oversaw publication of a

communications vehicle entitled The Full Story, which was given wide national

circulation. Through a series of executive interviews and partner testimonials,

the document affirmed the Bank’s status as an independently run entity that

had prevailed in challenging circumstances by adhering to a core set of sound

business practices. It also reinforced the Bank’s continued commitment to

the following “all regulations and compliance initiatives governing financial

institutions instituted by the Central Bank, the Monetary Board and other

regulatory bodies.”

Highlighting Seylan Bank’s strong fundamentals and traditionally high

standards of service, Mr. Pasqual, the Bank’s General Manager, delivered a

strong message of pride, commitment and continuity: “Our customers have

been our partners for 20 years, and we will be with you for the next 20 years and

more.” In a companion interview, the new Executive Chairman, Mr. Narangoda,

underlined the professional credentials of the board and senior management

team, as well as the expressions of solidarity from across the financial sector:

“I have utmost confidence that the Bank can emerge from this situation.”


Also contributing to The Full Story was the Chairman of Bank of Ceylon,

Dr. Gamini Wickramasinghe, who spoke frankly about Seylan Bank’s problems

while affirming his Institution’s unwavering support:

“We are the largest bank in the country. We are probably also the most

stable due to our large asset base, reserves and risk management capabilities.

Moreover, we carry the weight of the Government behind us, and this gives

people immense confidence... Seylan Bank needed large infusions of local as

well as foreign currency. The Central Bank has asked Bank of Ceylon to step

in to fill the void of funding and to help Seylan Bank manage its affairs in this

period of restoring confidence and consolidating its finances. I must, however,

stress that we have no intention of being privy to privileged information, and

our intention is purely to help a good and long-standing bank come through

this difficult period.”

As a testament to the fact that corporate clients had remained solidly

behind Seylan Bank, The Full Story included endorsements from senior

executives of several leading Sri Lankan corporations. They expressed their

confidence in the new board’s leadership and their continuing loyalty to the

Bank, based on the successes of the past.

Lastly, the publication presented a selection of testimonials from Bank’s

employees, who recounted how they’d helped cope with the crisis at the retail

level and shared their first-hand contributions to the Bank’s success in getting

back on track. As the centrepiece of a hurriedly launched media campaign,

The Full Story was an effective vehicle for getting important messages across

and garnering public attention. However, as the outflow of deposits continued

- totalling Rs. 18 billion for January and February - there was no question that

more work was needed to win back the hearts and minds of retail customers.

37

A muLti-front CAmpAiGn Seylan Bank’s public information campaign began in earnest within days of

the new board assuming control and targeted a range of fronts simultaneously.

Communications initiatives included:

Advertising and Public Relations

The Bank launched a coordinated campaign of press advertisements and PR

efforts with major media outlets, all communicating the central message that

the change in management marked not simply the end of the crisis but the

beginning of a new era. The goal was to maintain constant visibility by issuing

newsworthy releases and fostering journalistic contacts to suggest stories

worthy of coverage. Head office initiatives were supported at the local level by

branch managers, who were encouraged to act as PR representatives with the

media and community groups. In addition, branch staff were briefed on new

marketing plans at regular meetings.

Direct Mail Campaign

All customers who had remained with Seylan Bank throughout the crisis

received a thank you letter expressing gratitude for their support during a

difficult period. At the same time, letters were sent to those who had withdrawn

their deposits, expressing understanding for their decision and asking that they

now consider returning to the newly stabilised Bank.

ReASSURInG THe PUBLIC


Management Outreach

Management-level staff across the Bank launched a programme of regular

meetings with customers as well as employees, getting the message out that

the emergency had passed and smooth, reliable operations had resumed. The

Executive Chairman and the General Manager visited Seylan Bank branches

across the country, answering questions and offering personal assurances to

members of the public as well as branch staff. Indeed, these visits were especially

effective in raising morale, as many employees had never seen the Chairman of

their Bank in person before. Through a steady programme of regional meetings

and less formal gatherings, senior managers found new opportunities to connect

with employees - seeking their input, keeping them informed, helping to shift

attitudes and generally motivating everyone to work together in sustaining the

Bank’s return to health.

Enlisting Customer Support

In some locations, customers took the lead in showing support for the

beleaguered Bank. Branches in Galle, Matara, Mirigama, Badulla and

Bandarawela gratefully put up banners created by patrons who wanted others

to know how Seylan Bank helped them through their own difficult times, so

now they were pleased to reciprocate. A number of prominent customers took

part in publicity campaigns that showed them depositing cash.

Door-to-Door Campaign

On the initiative of the Executive Chairman, Seylan Bank took its marketing

efforts literally to the streets, introducing its first-ever house-to-house public

awareness and promotional campaign. Launched across the country on

31st January 2009, the effort saw Bank’s employees at every level - from branch

staff to the Executive Chairman, the Executive Director and the General Manager -

visiting homes and businesses and greeting people in public spaces, spreading

39

the word that ‘The Bank with a Heart’ was alive and well. Featuring prize

draws, music and a festive street-party atmosphere, the campaign was hugely

successful in sparking interactions with new and lapsed customers, and in

generally rebuilding the Bank’s positive public image - along with employees’

team spirit.

Seylan Bank took its marketing efforts literally to the streets, introducing its first-ever house-to-house public awareness and promotional campaign.

Taken together, these various communications efforts spearheaded by the

board of directors played a huge part in reaffirming Seylan Bank’s place in

the public consciousness as a solid, trusted, customer-focused market leader.

Ensuring that the Bank once again met those expectations required a parallel

effort behind the scenes, as the board and management worked to transform the

new strategic plan into real business change with measurable results.

ReASSURInG THe PUBLIC

41

{ CHAPTeR 5 }

ReBUILDInG THe BUSIneSSA series of practical steps, including a systematic rethinking of policy in every area, soon yielded measurable positive results.

The new board of directors understood that the reinvention of Seylan Bank

must begin at the highest level, with new policies and practices around

corporate governance. Board meetings, traditionally held once a month, now

became weekly events, starting at 4:30 p.m. and often running as late as 2:00

the following morning. In addition to the Management Committee, the board

established Credit, Audit, Nominations, Remuneration and Risk Management

committees. With a better-defined corporate structure, a rigorous set of

standards and a commitment to lead by example, the executive team could then

begin implementing the myriad practical measures required to get the Bank

moving forward on a secure and profitable path.

In a series of meetings in various forums, the Bank’s leadership sought

to restore employees’ confidence in their institution and obtain their support

for the collective effort to come. Employees gained a better understanding of

their individual responsibilities in relation to the Bank’s current position and

future expectations. The response at all levels was overwhelmingly positive, as

staff affirmed their commitment to returning Seylan Bank to full strength and

beyond. Now the task was to implement specific tactical measures designed to

re-engineer existing operations and processes.

The range of business challenges fell into three main areas:

Banking Practices

• As long as a significant number of depositors continued to empty their

accounts, management met on a daily basis to ensure branches had sufficient

funds to pay out all withdrawals.

• The board provided senior management with new targets for reducing the

Bank’s ratio of non-performing loans (NPLs), which had risen above 30%

during the crisis.


• Credit authority limits were reduced at every level, with all lending appraisals to

be monitored by a Credit Committee that includes two members of the board.

• More aggressive measures were adopted for handling defaulters.

• Risk management moved to the top of the corporate agenda, beginning with

workshops with an overseas professional on assessment and management

practices for senior bank staff. The ultimate goal is to systematise risk

management throughout the Bank’s transactional operations.

• In the absence of proper procurement procedures, the Bank established a

new, transparent process (based on the Bank of Ceylon model).

Cost Containment

The overall objective of the Bank’s new cost-management approach was to

curtail all expenditures that did not contribute to improved profitability.

• Employees were informed that the Bank was unable to pay incremental

salary increases in the near term.

• The anticipated April 2009 bonus was cancelled, and the gratuity formula

was reduced to half a month’s salary from previously enhanced levels.

• Personal loans to staff were temporarily suspended.

• Overtime was severely limited.

• Foreign travel was eliminated unless absolutely necessary.

• Fuel benefits were curtailed, including for the senior management team

(which also accepted fewer perks for entertainment and other expenses).

• All capital expenses were suspended unless they had the express approval of

the Executive Chairman and/or the board.

Human Resources

• A study was initiated to examine the problem of Seylan Bank’s high staffing

ratio in relation to competing banks.

• Arrangements were discontinued for some individuals who worked for the

Bank on a consulting basis.

• The age of retirement was lowered from 58 to 55.

• Some staff members who were considering resignation were offered

encouragement.

43ReBUILDInG THe BUSIneSS

• To support the Bank’s new ethical standards, a revised Disciplinary Code

was put in place.

• The Bank’s organisational structure and depth of talent were improved with

the addition of several new people in key positions, including:

- a Chief Financial Officer (CFO)

- an Executive responsible for corporate and retail banking

- an Internal Auditor

- an Assistant General Manager (AGM) in charge of premises and supplies

- a head of private banking for high-net-worth customers

- a Deputy General Manager (DGM) in a new role overseeing Recoveries

- an external consultant in Information Technology.

• The Bank’s two unions committed to cooperating with the new board. That

positive relationship is strengthened through monthly meetings in which

issues are discussed clearly and candidly, building an ongoing dialogue.

• The Human Resources department has been brought under the management

of a DGM.

As these various pragmatic steps were being implemented, the board of

directors made another key decision: For the first time in its history, Seylan Bank

would begin developing a comprehensive three-year strategic plan (which will

be detailed in the next chapter of The Case Study). At the same time, discussions

were underway with the Central Bank regarding potential new sources of

capital, as it was agreed that new shareholders bringing a fresh infusion of cash

would help further stabilise the Bank, shore up investor confidence – and pave

the way for the Central Bank’s ultimate ceding of full management control back

to the Seylan Bank board.

In March the Central Bank formally called for expressions of interest

from potential strategic partners in the recapitalisation of Seylan Bank. The

intended outcome was a new share issue that would result in an overall dilution

of holdings (as opposed to a divestiture by any of the current shareholders).


A new wAy of doinG businessAnother of the high-level commitments made by the new Seylan Bank board

was to demonstrate strict compliance with all industry-specific regulations and

other statutory provisions governing the financial services sector, including

adherence to Sri Lanka Accounting Standards. In March the Bank published

its draft accounts for the 2008 financial year. The board took this opportunity

to formally state its intent with regard to financial reporting:

“Consequent to recent adverse market perception since December 2008,

the Bank under its new directorate has decided to clean up and strengthen its

Balance Sheet position by constantly evaluating its total investment portfolio,

including loans and advances and other investments giving weightage to its

realisability, market risk, interest rate risk and any other associated risks.”

The Bank’s statement went on to explain that during the current financial

year, it had made provisions for falling value in its marketable investments and

loan portfolio, in keeping with International Accounting Standards and in fact

exceeding the guidelines stipulated by the Central Bank of Sri Lanka. Seylan

Bank had established a significant new benchmark, dispelling past criticisms with

a pledge to ensure clear, forthright and readily comparable reporting of results.

At the same time, there was renewed pressure to further differentiate

Seylan Bank from the troubled Ceylinco conglomerate with which it was too

closely - and now inappropriately - associated in the public mind. For the board

and senior executives, the answer was to stay focused on building a compelling

business case, showing how their Institution’s fundamental strengths, reshaped

by a new Code of Conduct, would translate into positive results.

weLCome siGns of proGressInterim results for the six months ended 30th June 2009 showed an after-tax

profit of Rs. 188 million for Seylan Bank and its subsidiaries (i.e., the Seylan

Group) and earnings per share of Rs. 4.5 - a dramatic improvement over the

first quarter. Moreover, a 20% reduction in expenditures compared to the same

period in 2008 demonstrated that the new cost-cutting measures were having

an impact. And while a provision of Rs. 296 Mn. for non-performing advances

45

definitely affected the bottom line, both liquidity and capital adequacy ratios

had already been restored to accepted levels. In short, the immediate crisis was

demonstrably past, and the steps toward longer-term recovery were already

yielding measurable success - at a time when much of the financial sector was

still mired in the global economic downturn.

Throughout the third quarter of 2009, there were many other signs of

progress:

• By August the Bank had recovered about Rs. 300 Mn. from previously non-

performing loans. The board’s pledge to reduce NPLs and step up recovery

efforts - including more aggressive pursuit of defaulters - was bearing fruit.

• Cost-cutting by the end of August had yielded Rs. 860 Mn. in savings,

bringing the target of Rs. 1 Bn. for the year well within reach. (Indeed, cost

savings reached Rs. 1.2 Bn. by the end of October.)

• In July and August the Bank launched a high-profile marketing campaign

to win new customer deposits, showcasing its extensive history as a retail

banking innovator with a range of attractive offers, including three-month and

one-year fixed products with the highest interest rates of any Sri Lankan bank.

The campaign exceeded all expectations, bringing in welcome revenue along

with the reassurance that customer confidence was significantly restored.

• In a further strengthening of its national retail presence, Seylan Bank

announced that it would soon be opening new branches in the East and North

of the country, including areas newly amenable to development following the

end of civil-war hostilities in May. The Bank has since opened a branch in

Nelliaddy and two Convenient Banking Centres in Manipay and Chankanai.

An additional new branch in Mannar is scheduled to open in March 2010.

• Foreign remittances also increased significantly for the first half of the year,

totalling Rs. 12.7 Bn. Seylan Bank’s extensive network of international

money transfer agencies - recently augmented by new partnerships with

MoneyGram International, XPRESS MONEY and EzRemit - made it

easier than ever for expatriate workers and the Sri Lankan diaspora to send

funds home from abroad. The growth in this area indicated that the Bank’s

reputation was secure overseas as well.

ReBUILDInG THe BUSIneSS


the reCApitALisAtion effortAs we’ve seen, the recovery of Seylan Bank stands out in the annals of banking

because it was achieved without any external infusions of emergency cash.

Through prudent management and implementation of the various measures

discussed above, the Bank’s declining liquid assets ratio was brought under

control and ultimately raised, by the end of August, to 23% - comfortably above

the minimum threshold of 20%. This was the single most significant sign of

restored stability that stakeholders had been waiting to see.

By year-end, the Bank’s liquid assets ratio had strengthened further to

29%. Meanwhile, its capital adequacy ratio, which had dropped as low as 8.0%,

had reversed direction, reaching 11.74% against the required 10% minimum.

To ensure the availability of capital for future growth, the Central Bank of

Sri Lanka made its aforementioned call for expressions of interest from

potential investors. On offer was a 33% stake in Seylan Bank for a specified

minimum investment of Rs. 5.7 Bn. Six parties expressed serious interest;

however, the bids they ultimately submitted were found to be not compliant

with the terms and conditions established for the deal.

The Central Bank therefore decided to pursue an alternative method

of recapitalising Seylan Bank - a new share issue that would combine a

private placement with a public offering to raise slightly more than Rs. 3 Bn.

In the private placement, two state-owned entities, Bank of Ceylon and

Sri Lanka Insurance Corporation, agreed to make a combined investment of

approximately Rs. 1.1 Bn. in new capital. The remaining Rs. 1.9 Bn. would

be raised through a public offering of 54,290,000 ordinary (voting) shares at

Rs. 35 per share. The issue, with a minimum subscription of 100 shares per

application, was set for 22nd September 2009.

47

The public offering was an extraordinary success, so much so that 10 days

later Seylan Bank announced it had been oversubscribed and all shares were

sold. The Executive Chairman, Mr. Narangoda, summed up the gratitude of

all bank employees:

“Given the crisis the Bank underwent towards the end of last year, this

oversubscription is an unequivocal endorsement by the people of Sri Lanka

demonstrating the confidence they have in the Bank. This has been a great team

effort. On behalf of Seylan Bank, I thank everybody who contributed to this

success story and reassure them that Seylan Bank will grow from strength to

strength and live up to their expectations.”

With the public and private share issues complete, the total stake in Seylan

Bank held by Government-owned institutions was now just over 28%, including

1.16% held by National Savings Bank. The highly successful initiative also

marked another milestone in the Ceylinco saga, as the resulting share dilution

further reduced the proportionate size of the conglomerate’s holding.

The Bank’s third-quarter results added further confirmation that Seylan

Bank was back on track. An after-tax profit of Rs. 503 Mn. for the nine months

ended 30th September compared favourably with a total of Rs. 155 Mn. for all

of 2008. At the same time, the board reported that advances had dropped by

Rs. 17 Bn for the year to date, and that recoveries had accelerated dramatically.

With these gratifying results and a large infusion of capital ensuring

continued stability and growth, Seylan Bank could now turn its attention

wholeheartedly to the future.

ReBUILDInG THe BUSIneSS

49

A SoUnD FUTURe STRATeGYGuided by a comprehensive strategic plan, Seylan Bank is building a healthy, sustainable future for all stakeholders.

Faced with a uniquely challenging threat to its future as an institution, Seylan

Bank has prevailed by building on - and believing in - its core strengths. The

Bank welcomed the support of its partners, but at the same time took pride in

never needing the financial rescue sought by so many other banks around the

globe. In retrospect, it’s clear that what helped Seylan Bank most in quickly

recovering its stride was a collective grasp of the fundamentals:

• Commitment to ethical governance and accountability

• Respect for basic values such as integrity, commitment and trust

• Belief in the power of teamwork

• Leadership grounded in experience and sound judgment

• Dedication, among thousands of loyal employees, to doing whatever is

needed to ensure success

As the current period of stabilisation and consolidation draws to a close,

Seylan Bank expects to maintain its ranking as Sri Lanka’s fifth largest bank,

using its solid customer base as a springboard for future growth. It also remains

‘The Bank with a Heart,’ but at the same time is ready to make its strong brand

even stronger, exploring new ways to provide the kind of responsive, flexible

service that has always set Seylan Bank apart.

The Bank’s strategic consultations have yielded a new vision:

“To be the leading financial solutions provider that delivers exceptional

value to stakeholders.”

{ CHAPTeR 6 }


And its collective aspirations have been captured in a new mission

statement:

“To exceed customer expectations by providing competitively priced

superior services through speedy and multiple delivery channels, whilst

rewarding staff through recognition and empowerment; being a responsible

corporate citizen; adopting environmental friendly practices and adding

superior value to shareholders.”

Before Seylan Bank could fully articulate a new strategic plan, however,

management first had to make a rigorous and objective evaluation of where the

business stands today.

Current stAte Assessment Combining the specialised knowledge and skills of internal teams with

the expertise of outside consultants, Seylan Bank has analysed systems and

processes, policies and procedures in every area of its operations.

Financial Performance

The Bank has identified a broad range of indicators - including return on

assets, operating profit, net income growth, cost-to-income ratio and growth in

deposits - that can be used to gauge its comparative performance in the market-

place. Seylan Bank’s NPL ratio, for instance, was significantly higher than that

of its competitors in 2008. And the fact that operating expenditure was as high

as that of Sri Lanka’s largest private bank - an institution twice the size of

Seylan Bank, measured by assets and branches - underlines a pressing need, as

discussed earlier, to look for greater efficiencies.

Products and Customer Segments

The enormously varied segmentation of the Bank’s target market means that

marketing strategies must be more focused than ever. By grounding campaigns

in independent research and solid analysis of feasibility, and by refining the

information tools used to measure success, Seylan Bank will further its reputation

for highly innovative product development and delivery. A comprehensive

strategic marketing plan is now being implemented.

51A SoUnD FUTURe STRATeGY

Structure

Like most financial institutions, Seylan Bank has a complex organisational structure

that undoubtedly could benefit from some economies of scale and efficiency. In

future, the Bank aims to become more market-focused in its organisation, creating

nimble business units that can move quickly to pursue opportunities without

fragmentation or duplication of effort. The branches, in particular, will continue to

evolve from self-contained “mini-banks” to delivery channels for a unified mix of

products, services and relationship-building strategies.

Systems and Processes

Seylan Bank is conducting exhaustive reviews of systems at all levels, from cost

allocation in the branches to enterprise-wide management information systems.

The overriding goals are to maximise efficiency, increase integration and

provide managers with the best possible reporting and analytical tools. Similarly,

processes are being deconstructed and evaluated across the business, bringing

together those, such as risk management, that benefit from central control and,

in other cases, establishing more clean divisions between responsibilities - for

example, relationship management and credit evaluation, or business and

consumer lending. All of these measures will be facilitated by a new strategic

plan for information technology, which is currently in development.

Human Resources

Internally, the Bank sees an opportunity to build on the momentum of the past

year, developing new human resources practices that better reflect employees’

demonstrated commitment to collaborative teamwork and tackling tough

challenges. Some will benefit from being redeployed in areas where they can

make more of a contribution. All will come to see the advantages of an HR

environment in which performance reviews, promotions and rewards are more

systematically and effectively managed, with clearly understood expectations

from both management and staff. The sense of confidence and motivation that

has accompanied the Bank’s return to financial stability will help retain existing

talent while strengthening recruitment efforts.


Image and Branding

As customer confidence continues to grow, Seylan Bank will balance its

established identity as a caring, personally responsive institution with a more

businesslike image – in effect using the residual positive impact of the crisis-

recovery story to give its brand more depth and credibility. At the same time,

efforts will continue to distance the Seylan Bank brand from the negative

associations of the Ceylinco legacy.

the strAteGiC pLAn: 2009–2011Out of the foregoing assessment process, Seylan Bank has identified the critical

success factors for each area and mapped out a comprehensive three-year plan

that will guide decision-making through the end of 2011. The specifics of the

plan are proprietary in nature and therefore beyond the scope of this case study.

However, its main elements can be summarised broadly as follows:

• Goals - defined and quantified in relation to seven specific performance indicators:

return on equity, profit after tax, cost-to-income ratio, customer deposits, total

assets, NPL ratio and market position in terms of total assets. These goals will

be incorporated into the budgets developed for each financial year.

• Strategic Initiatives - including domestic and international expansion

opportunities; capital requirements; governance structure and practices;

liquidity management, including loans-to-deposits ratio and long-term asset

maturity planning; risk management, especially with regard to NPL recoveries

and credit evaluation; mergers and acquisitions; and image and branding.

• Business-Level Strategies - focusing on the core business areas of retail banking,

corporate banking, customer segmentation and product market strategy,

as well as a range of support areas, including organisational structure,

centralisation of management systems and human resources management.

Guiding implementation of the strategic plan is a board whose success

in stabilising Seylan Bank has won emphatic support from all stakeholders.

Originally appointed for a period of six months, the directors, led by

Mr. Narangoda as Executive Chairman, subsequently had their terms extended

by a further three years. (The appointments were confirmed by a unanimous

vote at the Annual General Meeting held in the month of June 2009.)

53

A new Kind of bAnK Seylan Bank is a dramatically different institution from what it was just a year

ago. There is continuity in the range of products and services on offer, and in the

Bank’s trademark attention to customer care. But for employees, retail customers,

corporate and Government partners, industry analysts and regulators -

for all stakeholders - Seylan Bank is an institution transformed.

By year-end, the Bank’s capital adequacy ratio exceeded the statutory

minimum requirement. The liquidity ratio, which at one point in the crisis fell to

13% - well below the statutory minimum of 20% - had increased to 29%. Indeed, the

Bank is focused on compliance in all aspects of financial performance - as evidenced

by the summary of performance highlights for 2009, and by the comprehensive and

detailed report of financial and operational results for 2009 that follows.

Guiding implementation of the strategic plan is a board whose success in stabilising Seylan Bank has won emphatic support from all stakeholders.

There is still work to be done on many financial fronts. For example, at

one stage in the past year Seylan Bank’s NPL ratio, at 33%, was the highest in

the Sri Lankan industry and significantly above the widely accepted benchmark

of about 10%. The strategy for 2010 is to bring that ratio down to at least 15% -

with a further reduction to 5% in 2011 - by practising more prudent lending. As

for the recovery of outstanding loans, the Bank has set a tactical branch-level

target of recovering at least 1% of bad and doubtful debts every month. At the

regional level, the monthly goal is to reduce the NPL ratio by 2.5%.

Going forward, a new business team devoted exclusively to risk management

will extend the board’s vision deeper into the organisation, with the goal of

creating a pervasive culture of risk-reward assessment and mitigation. Another

team is working with an outside IT consultant to maximise the potential of the

Bank’s information systems and help employees take better advantage of the

powerful tools on their desktops. Meanwhile, with recruitment strictly curtailed,

the Bank’s human resources specialists are looking at opportunities for retraining

and redeploying current employees - including at new branches planned for cities

in the North and the East. Area managers will also be moving to the regions for

which they are responsible, giving them more visibility.

A SoUnD FUTURe STRATeGY


Changes, large and small, are evident everywhere at Seylan Bank. From

the launch of a Titanium MasterCard, to the relocation of a branch to more

attractive premises, to an ambitious new programme that will make all branches

more customer-centric - in every respect the Bank is moving forward, propelled

by a commitment to innovation and quality service that one twist in the road,

however alarming, was not going to stop.

A CAse for the futureWhat is the ultimate lesson to be drawn from the crisis at Seylan Bank? There

are probably as many as there are pages in this case study. But if we had to boil

it down to one, it would be this: The ultimate decision-maker in any business is,

without question, the customer.

It was a sudden, plummeting loss of customer confidence that brought

Seylan Bank to the edge of catastrophe. And it was a longer-term failure

to uphold the core values of the customer relationship - trust, integrity,

transparency, accountability, respect - that created the climate of uncertainty in

which such a precipitous fall could happen so easily.

No other bank in the world has weathered such a run without a bail

out. An investigative team from the International Monetary Fund, following

a recent visit to Sri Lanka, commented that it was a miracle Seylan Bank had

survived. The fact that the Bank did survive and, a year later, is poised to grow

stronger than ever, comes down to the same powerful single factor that almost

brought about its demise: customer confidence. That is the one investment,

more fundamental than the deepest cash reserves, that no financial institution

can take for granted.

Through the swift action and judicious planning of its new board, Seylan

Bank was able to secure the savings of its depositors and protect the interests of

its shareholders while also safeguarding thousands of jobs. These successes in

turn helped ensure the economic stability of the entire country.

In the final analysis, though, every practical remedy and process

step reviewed in these pages is ultimately directed at one basic goal - giving

customers all that they need to believe in the value of a relationship. This is the

fundamental business case that The Case Study has tried to illuminate. It is the

grassroots truth at the heart of ‘The Bank with a Heart.’ And it is the lesson

learned that Seylan Bank carries forward as it builds a healthy and sustainable

business for the future.

55

Financial Highlights .............................................................................. 56

Management Report ............................................................................. 57

Risk Management Report ....................................................................... 63

Corporate Governance Report ................................................................ 75

Sustainability Report ............................................................................ 105

Financial Reports ................................................................................. 117

AppendixProfiles of the Board of Directors (228), Senior Management Team (230), Ten Year Summary (232), Summary of Performance Indicators (233), US$ Accounts (234), Investor Information (236), Branch Network (241), Geographical Analysis (243), Glossary (244), Corporate Information (245), GRI Compliance Index (246), Subject Index (248), Notice of Meeting (249), Sinhala Translations (250), Tamil Translations (252), Form of Proxy (Enclosed)

BENCHMARKS OF SUCCESSThe ultimate measures of Seylan Bank’s return to stability and growth are the financial and operational results for 2009.

Seylan Bank PLC Annual Report 200956

FiNANCiAL HigHLigHtS

BANK gROUPDuring the Year 2009 2008

(Reclassified)Change 2009 2008

(Restated)Change

Rs. ’000 RS. ’000 % Rs. ’000 Rs. ’000 %

income 23,154,529 25,246,209 (8.29) 24,538,978 27,053,951 (9.30)

Net Profit before income tax 892,572 155,241 474.96 933,630 (735,579) (226.92)

income tax on Profits 349,271 – 100.00 484,869 64,224 654.97

Net Profit After taxation and Minority interest 543,301 155,241 249.97 569,208 (142,993) (498.07)

Revenue to government 910,711 243,056 274.69 1,123,194 309,846 262.50

gross Dividend - Note 133,018 – 100.00 133,018 – 100.00

At the Year EndShareholders’ Funds 10,582,474 7,020,011 50.75 11,109,138 7,786,525 42.67

Retained Profit 3,930,689 3,420,791 14.91 3,800,891 3,553,052 6.98

Deposits from Customers 104,815,899 107,938,801 (2.89) 104,815,899 109,505,539 (4.28)

Loans & Advances (Excluding Bills & Leases) 76,038,971 97,746,084 (22.21) 76,045,385 99,078,324 (23.25)

total Assets 132,775,872 154,046,245 (13.81) 137,267,851 163,308,489 (15.95)

Information per Ordinary ShareEarnings (Rs.) 2.83 0.90 214.44 2.97 (0.89) (433.71)

Dividends (Rs.) - Note 0.50 – 100.00 0.50 – 100.00

Net Asset Value (Rs.) 41.60 41.80 (0.48) 43.68 46.39 (5.84)

Market Value (Rs.) - As at End of the Year - Voting Shares 37.00 28.50 29.82

- Non-Voting Shares 16.00 6.00 166.67

Statutory/Other Ratios (%)Core Capital Adequacy (Minimum Requirement - 5%) 9.69 5.74 68.82 11.35 6.86 65.45

total Capital Adequacy (Minimum Requirement - 10%) 11.74 8.06 45.66 13.60 9.44 44.07

Liquidity - Domestic Banking Unit Operations % 28.80 20.11 43.21 (Minimum Requirement - 20%)

- Foreign Currency Banking Unit Operations % (Minimum Requirement - 20%)

24.94

22.11

12.80

Price Earnings Ratio - Voting (times) 13.07 31.67 (58.73)

Dividend Cover (times) - Note 4.08 – 100.00

Capital Funds to Liabilities and Commitment & Contingent Liabilities % 7.33 4.04 81.44

Note: Dividends for year 2009 are accounted for as per the Accounting Standard SLAS 12 (Revised).

Seylan Bank PLC Annual Report 2009 57

MANAgEMENt REPORt

CEO’S MESSAgE

An effective business case study not only illuminates best practices and valuable lessons learned; it also presents measurable outcomes. in the case of Seylan Bank, i am pleased to report that this institution’s return to financial stability under the guidance of our new board of directors has yielded gratifyingly positive financial results.

this Annual Report documents the first full financial year since the Central Bank of Sri Lanka took steps to establish a new management mandate at Seylan Bank. in the preceding section, we took the unusual route of chronicling those efforts in the form of an analytical case study. in the pages that follow, we complete the analysis by setting out the benchmarks for Seylan Bank’s success, reviewing both the impressive results our team has achieved to date and the clear milestones we’ve set along the road ahead.

Seylan Bank’s after-tax profit for 2009 was Rs. 543.301 Mn., which represents an increase of 250% over the previous financial year. During the same period, the Bank’s cost-to-income ratio showed a marked improvement, decreasing from 75.79% to 67.82%, while our total capital adequacy ratio - under severe pressure during the crisis at the end of 2008 - rose from 8.06% to 11.74%.

the recent global economic downturn, precipitated by a sharp decline in financial markets in late 2008, had a particularly strong impact on the domestic economy of Sri Lanka. Compounding the negative impact on Seylan Bank was the collapse of the golden Key Credit Card Co. Limited, which resulted in many of the Ceylinco group Companies facing a liquidity crisis resulting in those companies defaulting

on loans from our institution. An increase in the non-performing loans coupled with a 23% contraction of the loan book increased the ratio of non-performing assets to 33.61% from 16.93% 12 months earlier.

the positive indicators, and the many others detailed in the following Management Report and financial summaries, have brought a corresponding rise in confidence among both depositors and shareholders. Seylan Bank now meets or exceeds the liquidity targets stipulated by the Central Bank. And our share price, which returned to pre-crisis levels immediately following the appointment of the new board, has continued to gain strength as management at all levels implements the wide-ranging initiatives set out in our new strategic plan.

in short, Seylan Bank has made a series of decisive strides forward from the brief, galvanising crisis covered in the opening chapters of this Report. in the sections that follow, we examine in more detail the Bank’s progress on a range of fronts, from the adoption of new procedures for managing risk to the refinement of our corporate governance practices. We also review ongoing sustainability efforts, looking at all aspects of corporate responsibility - social, environmental and economic. We examine some of the key operational areas, from marketing to information technology, where the introduction of new standards and processes is prompting positive change. And we review Seylan Bank’s financial performance, applying the objective rigour expected of a leading financial institution.

For more than 20 years, Seylan Bank has proudly called itself “the Bank with a Heart,” and we have worked to live up to that credo in everything we do. As we tackled the unprecedented challenges of the past year, the dedicated men and women who make up this institution never lost heart. Buoyed by the continued support of our customers, we redefined our vision and improved management practices from the top down. At the same time, we reaffirmed the commitment that has guided Seylan Bank from the day our first branch opened its doors: to provide the best possible service while practicing innovative, responsible management to the benefit of all stakeholders.

it is enormously satisfying to table an Annual Report that we feel lives up to the high expectations of all who believe in Seylan Bank. i am confident that the positive momentum we’ve fostered and sustained will only continue in the years ahead.

Ajita PasqualGeneral Manager/CEO17th February 2010


FInAnCIAl REvIEwit is no exaggeration to say that the year under review was a memorable one for Seylan Bank. the collapse of the golden Key Credit Company which was a member of the Ceylinco group, of which the Bank too was then a member, sent shock waves through Sri Lankan society as well as through the country’s economy and financial services industry. Naturally, Seylan Bank was affected in several ways. the confidence of our depositors was temporarily shaken, though in fact the Bank was in a good position to meet its obligations. Happily, confidence was restored when the Central Bank of Sri Lanka (CBSL) stepped into the picture, appointing the Bank of Ceylon as Seylan Bank’s managing agent and averting a run on deposits. Subsequently, CBSL appointed a new board of directors, empowered by its Monetary Board to manage Seylan Bank independently.

Despite this severe setback, and against a background of global financial turmoil and economic recession, Seylan Bank was able to regain investor and depositor confidence; our share price rebounded immediately following the CBSL announcement, and the Bank now meets or exceeds all the statutory requirements laid down by the regulator. these outcomes represent a complete recovery from its troubles for the Bank and a strong vote of confidence in its solidity and stability from those who matter most: our shareholders and customers.

Developments in the wider world were hardly conducive to such a quick recovery. the first half of 2009 was characterised by limited economic activity as investors took a wait-and-see attitude in the face of economic uncertainty and the escalation of the war. the clothing and export industries, fearing the consequences of losing the preferential status granted to them by the EU under the gSP+ exemption to WtO rules, were particularly affected. the banking sector also had its own special difficulties, among them a fall of nearly 10% in interest rates, which had a cooling effect on both lending and borrowing, as well as continued high taxation. However, declining interest rates enabled Seylan Bank to earn substantial profits from its investments in government securities. Another bright spot in a generally gloomy picture was the

recovery of tourism, which led a modest revival of the economy in the second half of 2009 and general anticipation of better things to come in 2010.

By far, the year’s most significant achievement was restoring the stability and liquidity of the Bank. this was achieved through a number of means.

taking advantage of the buoyant stock market, Seylan Bank made a public issue of 54,290,000 ordinary shares at Rs. 35/- per share on 22nd September. the desirability of the issue was bolstered by the aggregate 28% stake taken in Seylan Bank by two State institutions, the Bank of Ceylon and the Sri Lanka insurance Corporation. the success of the issue clearly demonstrated the recovery of investor confidence in the Bank, being fully subscribed before the closing date. Market capitalisation of Seylan Bank grew 288% in the course of the year, from Rs. 1.2 Bn. at the end of 2008 to Rs. 4.8 Bn. by the end of 2009. the Bank now has adequate capital to support the current business volumes as well as the growth plans and we do not foresee the need for any further re-capitalisation effort in the near future.

Profitabilityin retrospect, 2009 marked a commendable return to form for Seylan Bank. Special mention deserves to be made of the Bank’s treasury division, which performed extremely well in a year when the focus of many other departments was on Non-Performing Loans recovery and consolidation.


Profit before tax of the group increased from a restated loss for 2008 of Rs. 735.579 Mn. to a profit of Rs. 933.630 Mn., an increase of 227%. Loss before tax of Rs. 71.820 Mn. for 2008 as published in the last year’s Annual Report had to be restated due to the delayed audit of Seylan Merchant Bank concluding during the year with a higher loss for 2008. group profit after tax too improved from a restated loss of Rs. 799.803 Mn. in 2008 to a profit of Rs. 448.761 Mn. for 2009.

Resulting from the improved profitability, Return on Assets and Return on Equity too improved from 0.10% and 2.22% to 0.38% and 6.20% respectively.

the underlying gearing levels have improved to 16.3 times from 22.2 times in 2008. Earnings per share of the Bank grew from Rs. 0.90 for 2008 to Rs. 2.83 during the year under review.

Profit before tax of the Bank increased from Rs. 155.241 Mn. in 2008 to Rs. 892.572 Mn., an increase of 475%. this is as a result of operating expenses and provisions for loan losses decreasing by 21.05% (Rs. 1.729 Bn.) and 11.51% (Rs. 284 Mn.) respectively as against a drop in net income of 11.77% (Rs. 1.275 Bn.). Despite a contraction in business volumes, fund-based operations resulted in a marginal increase in net interest income in the backdrop of an improvement in interest spread. However, income from fee-based operations and investments recorded a substantial drop. Profit after tax increased from Rs. 155.241 Mn. in 2008 (in the absence of any tax liability) to Rs. 543.301 Mn. after making a provision of Rs. 349.271 Mn. towards income tax.


Operational EfficiencySeveral structural changes effected helped the Bank realise certain economies of scale and improve the Cost-to-income ratio by an unprecedented 8% from 75.79% to 67.82%. Some of the specific initiatives taken in this regard included formalising procurement procedure, elimination of unnecessary costs and a better control over costs.

cash flow of Rs. 20.869 Bn. for the Bank as against a negative of Rs. 6.595 Bn. in 2008 which was used in investing and financing activities.

ProductivityContraction of business volumes partly set-off by the drop in staff numbers from 3,923 to 3,733 caused the assets per staff member to decrease marginally from Rs. 39.2 Mn. in 2008 to Rs. 35.6 Mn. improved profitability during 2009 resulted in the profit after tax per staff member to increase from Rs. 0.040 Mn. to Rs. 0.146 Mn.

Asset QualityLoss of customer confidence was not the only difficulty the Bank suffered as a consequence of the collapse of the former group company. increased reputation risk was paralleled by real financial losses, since the Bank had extended loan facilities to a number of Ceylinco group companies, the economic impact of the collapse sent these loans into default. this coupled with economic recession and a contraction in the loan book caused the rise in the Bank’s NPL ratio in the year under review.

Non-Performing Assets

Non-Performing Assets Ratio

2009 2008 2009 2008Rs. Mn. Rs. Mn. % %

gross NPL 31,149.96 19,428.23 33.61 16.93

Net NPL 25,491.07 15,905.54 29.29 14.30

Stabilitytotal capital adequacy ratio which was below the statutory minimum of 10% at 2008 year-end improved to a comfortable level of 11.74% during the year under review. Fitch Ratings Lanka Ltd’s rating of Seylan Bank is BBB+ and the outlook is “Stable”.

Consequent to the issue of shares and improved profitability, regulatory capital of the Bank increased from Rs. 9,054.08 Mn. as at 31st December 2008 to Rs. 11,612.48 Mn. as at 31st December 2009. Market capitalisation too witnessed a four-fold increase from Rs. 1.2 Bn. to Rs. 4.8 Bn. as at 31st December 2009. the increase in the number of shareholders from 7,812 to 11,039 reflects the increased investor interest in the Bank.

Business volumesConsequent to the crisis the Bank went through as detailed in chapters one to six of this Annual Report, the Bank experienced a drop in the business volumes. though recovered to some extent with the restoring of the customer confidence, they fell short of the levels reported as at 31st December 2008, as detailed below:

item 2009 2008 VarianceRs. Mn. Rs. Mn. %

Net Loans & Advances 80,287.81 104,154.13 (23%)Deposits 104,815.90 107,938.80 (3%)total Assets 132,775.87 154,046.25 (14%)

liquidityA combination of factors such as the issue of shares, recovery of non-performing advances, curtailed lending and improved profitability of the Bank substantially boosted liquidity ratio of the Bank from 20% in December 2008 to 29% in December 2009, a pattern that the entire banking industry witnessed due to a negative growth in credit outstanding in the country. Operating activities generated a positive


Corporate governanceWith a view to enhance corporate governance practices, several structural improvements were effected in the course of the year. these are detailed in the Corporate governance Report on page 75.

OperationsDespite the year’s troubles, we took a firm decision to continue increasing the reach and relevance of Seylan Bank to customers through the expansion of our network of outlets, especially in the North of the country. A new fully-fledged branch was opened at Nelliady and new ‘convenient banking centres’ at Manipay and Chankanai. Our established branches at Ja-Ela and Malabe were relocated in the interests of greater efficiency and customer access. Pawning centres were set up at the Bank’s branches, and four more AtMs were added to the network.

Marketing

Marketing activity was emphasised in retail banking, where competitive pressures increased last year. We continued to offer a number of loyalty and rewards programmes to our customers, such as the Merit Rewards scheme on savings and current accounts, the Thilina Sayura scheme for foreign-currency account holders and a gift scheme for our Tikiri savings accounts for minors.

A special deposit-mobilisation campaign was held from June to August 2009. the objective of the campaign was to raise Rs. 2 Bn. in 50 days. the campaign exceeded its target by as much and more, raising a total of Rs. 4.2 Bn. and was judged a great success.

During the period when the troubles of the Ceylinco group impacted strongly on the Bank, we commenced a special effort to retain customers through a house-to-house campaign known as Jaya Maga. the campaign, still under way, has yielded very good results.

the Marketing Department undertook a customer satisfaction survey in the course of the year. the survey revealed that perceptions of service quality were good, with the Bank receiving an average score of 74% on the parameters tested.

Information technology

Modern banking is uncompromisingly technological. Seylan Bank’s 100-plus branches and convenient-banking centres are linked through a single automated network, which makes possible customer service quality and product access anywhere on the network and to customers overseas as well as in Sri Lanka. this network supports and enables all the features customers expect of a modern bank: AtMs, telephone, mobile and internet banking, and credit cards, as well as traditional high street banking services and Seylan’s pioneering mobile branches. All these are connected via state-of-the-art it.

improvements to our it capability during the course of the year included enhancements to the SMS banking module and greater functionality with respect to funds transfers, utility-bill payments, etc. We also supported the introduction of the Seylan Bank MasterCard.


Subsidiaries and Associatesthe board decided during the course of the year on a gradual divestiture of the Bank’s investment in Seylan Merchant Bank PLC (SMB). Accordingly, SMB ceased to be a Seylan Bank subsidiary on 1st October 2009.

investments in our other subsidiaries, Seylan Bank Asset Management Limited (a primary dealer) and Seylan Developments PLC, remain unchanged.

looking ForwardWith our difficulties now behind us, we are free to consider our strengths and capitalise on the opportunities opened up by the end of the war and the consequent opening-up of business opportunities in the North and the East, as well as the revival of tourism and the expected ‘peace dividend’.

today, Seylan Bank finds itself in an enviable position. Financially, it is stronger and more stable than ever. in terms of expertise and personnel resources, it can draw on a team of effective and experienced staff, many of whom enjoy long-established and close employee-employer relationships with the Bank. On the technology side, we are a fully-functional modern bank with a platform capable of rolling out innovative, in-demand services. Best of all, recent troubles have not affected the Bank’s large and loyal customer base.

Our current priorities are to release funds tied up in non-performing accounts, capitalise on business opportunities in the North and the East, and establish synergies with our new strategic investors, Sri Lanka insurance Corporation,

Browns and LOLC. going forward, we see a lucrative market in services to the small- and medium-scale enterprise (SME) sector and have begun plans to expand our coverage in this market. Also in the pipeline are moves to drive growth in fee-based income and a number of new products targeting well-defined market segments. Further alignment of products and services, marketing strategy, organisational structure and corporate governance practices, systems and procedures and productivity enhancements, customer segmentation and enhancing operational efficiencies too will continue to be priorities over the next several years.

Financial projections in the 3-year Strategic Plan 2009-11, that is currently guiding the Bank on a focussed path of stabilisation and consolidation are based on the successful implementation of these initiatives which are expected to position the Bank as follows by 2011:

indicator Projected 2011

Loans and advances (Rs. Bn.) 158Customer Deposits (Rs. Bn.) 170total Assets (Rs. Bn.) 195Profit after taxation (Rs. Mn.) 2,301Return on Equity (%) 17Net NPL Ratio (%) 10Cost to income ratio (%) 60


RiSK MANAgEMENt REPORt

OuR nEw PAth…Seylan Bank views Risk Management as an important element of the management control and business of the Bank. A renewed and re-emphasised approach is being taken under the new board for managing risks better.

We have recognised that risk is the existence of a range of possible outcomes where such outcomes and the potential range can be reasonably estimated. Where such estimation becomes difficult the situation is one of uncertainty. A Bank is faced with both uncertainty and risk. While attempting to avoid uncertainty as a business outcome, the Bank does accept risk within acceptable norms and limits, within our strategy set towards our new path.

We have categorised the key risks faced by us into three main risks viz. Credit Risk, Market Risk and Operational Risk. Apart from these three risks, several other risks such as liquidity risk, reputation risk, solvency risk and event risk, are some of the key risks faced by the Bank.

thE RESPOnSIBIlItIES FOR MAnAgIng RISkthe board of directors assumes overall responsibility for managing risks in the Bank. For this purpose, the board has determined the organisational structure that should prevail to ensure a sound and adequate risk management framework. Further, the board has designated Key Management Personnel to manage risk and identify their areas of responsibilities. the board also reviews on a regular basis the risk exposures of the Bank and specifies and approves policies with regard to risk measurement and control.

the board delegates some of its duties to various risk management committees and officials of the Bank.

thE RISk MAnAgEMEnt PROCESS And thE IntEgRAtEd RISk MAnAgEMEnt COMMIttEEthe following is a schematic presentation of the multifaceted framework of Risk Management that encompasses three areas of controls viz. Financial Control, Risk Management Control and internal Audit.


the key mechanism in discharging the board responsibilities of risk management is through the integrated Risk Management Committee that comprises the undermentioned three directors with the participation of senior management personnel. the Committee meets at least on a quarterly basis.

the members of the Board integrated Risk Management Committee are:

• Mr. Ajith Devasurendra -Director, Chairman of the Committee

• Mr.NaomalGoonawardene-Director (Resigned w.e.f. 03/12/2009), Chairman of the Committee, till 3/12/2009

• Mr.LalithWithana-Director

• Mr.PradeepaKariyawasam-Director

Four meetings of the Risk Management Committee were held during the year 2009.

the responsibilities of the integrated Risk Management Committee are designed to capture a wide range of potential risk-related issues that are dealt in a proactive and preventive manner. Some of the key functions include the following:

• Taking prompt corrective actions to mitigateeffects of specific risks.

• ReviewingandrecommendingRiskManagementpolicy, strategy and policy controls and systems for the Bank.

• Establishing risk tolerance for the Bank atenterprise and strategic business unit levels.

• Maintaining continued awareness of changesin the Bank’s risk profile and with periodical review of the risk exposures of the Bank.

• Submission of risk assessment reportsto the board pursuant to the discussions and observations at the Risk Management Committee meetings.

the new board places a very high emphasis on the risk management function and strengthened the committees as well as the organisational framework. Further, the effectiveness of the committees is being elaborated on, rather than mere functioning for the sake of formality. the structures of information dissemination and reporting formats have been improved.

A board approved Risk Management Policy covering multifaceted aspects has been put in place.

A new Risk Management Department enhancing the former Risk Management Department with wider scope and functions is set up to concentrate on the risk management function as a second line of defence for the Bank’s integrated Risk Management system. this Department will coordinate the activities of risk management and submit quarterly reports to the integrated Risk Management Committee. these reports include risk identification, risk measurement, reporting on risk-based occurrences, trends in the risks undertaken, risk mitigation and control. the Risk Management Department will also maintain data relating to operational loss events for further evaluation and study.


OuR APPROACh tO MOnItORIng RISk And CAPItAlAvailability of adequate capital in the business acts as a cushion against risk. Hence, minimum capital requirements have been stipulated by the authorities as a prudential means of regulation. the Bank had a deteriorating capital adequacy ratio in the early part of 2008.

the capital adequacy ratio that had fallen below the required level towards the end of the year 2008 got restored at 11.74% towards December 2009 which is above the statutory requirement of 10%. this was a result of several strategic moves and strategies adopted by the Bank including the issue of new shares to boost the capital base. the restoration of the capital adequacy requirement was a major achievement of the Bank during the year 2009.

the Risk Management Department is designed to comprise three units namely, Credit Risk Monitoring Unit, treasury Middle Office and Operational Risk Monitoring Unit. in addition, a separate unit carries out Quality Assurance, Business Continuity Planning and information Systems Security.


Risks arising from Financial Instrumentsinternational Financial Reporting Standards require certain disclosures on the risks arising from various financial instruments. the Bank deals in financial assets and liabilities and also in financial instruments such as the fixed income securities mainly comprising of government Securities viz. treasury Bills and treasury Bonds. the Bank held a trading portfolio of treasury Bills and Bonds amounting to Rs. 14.37 Bn. as at 31st December 2009 and an investment portfolio of Rs. 14.73 Bn. the main risk arising from the trading portfolio is the interest rate risk as detailed elsewhere in this Annual Report. Bank quantifies and monitors this risk on a regular basis. Further, the instruments result in liquidity risk in a very insignificant manner as the instruments themselves are fairly liquid and can be converted into cash quite easily or can be used as collateral to borrow in the REPO market.

the Bank also deals in forward exchange contracts mainly to cover the requirements of the clients and usually the positions are covered by opposite contracts and the level of exposure is not significant. the Bank also enters into currency swaps in a minimal way.

Bank does not as a policy usually enter into various derivative transactions on a speculative basis.

kEY RISkS And RISk MAnAgEMEntCREdIt RISkCredit Risk is the risk of default of capital and interest by the borrowers of the Bank as a result of which the Bank will encounter loss of revenue and a reduction in the value of its assets leading to reduced profits.

thE BOARd CREdIt SuBCOMMIttEE the Board Credit Subcommittee is chaired by the Chairman of the Bank and has a minimum of two directors.

the Board Credit Subcommittee formulates credit policies for the Bank inclusive of maximum limits of exposure to each major sector of the economy. the Committee formulates credit strategies towards maintaining a healthy credit portfolio and maintains credit discipline within the Bank.

the areas of focus include:• Approvaloffacilitieswithinarangeofspecified

limits and recommendation of credit facilities beyond such limits.

• Formulating credit policies and guidelinesfor the Bank from time to time and review of existing policies.

• Formulationofpolicies/reviewofexistingpolicieson credit risk management.

• Monitoringrecoveriesandformulatingrecoverystrategies.

• Ensuringthatthecreditportfoliodoesnotexceedaccepted levels of risk.

• Reviewofsingleborrowerlimitsandsectorlimitswhere more stringent limits are in place for any sector and also review of other lending criteria.

the Board Credit Subcommittee meets on a regular basis at a frequency of at least twice a month. the Chief Executive Officer and Key Management Personnel in charge of credit areas are co-opted to the meetings.

thE IntERnAl CREdIt COMMIttEE this Committee comprises of Executive Management and deals with approval of facilities within a certain range of amounts. Further, this Committee deals with recommendation of credit policies and implementation and monitoring of the same through respective credit disbursement areas and branch outlets.

Credit Policiesthis Committee formulates and recommends Bank’s credit risk policies based on the board’s risk management strategy. it has also during the year, improved the process for the management of credit and quantification of risk by standardising reporting formats, following a more stringent policy towards collateral requirements for credit facilities, restricting the exposures to any single customer, scaling down the facilities where the clean exposure is excessive, and application of shorter repayment periods on term loans.


SECtORAl ExPOSuRE OF CREdIt PORtFOlIO

Credit Ratingthe Bank also uses a comprehensive credit rating system based on a package acquired from an international vendor. the rating engine acquired by the Bank is capable of developing different rating modules. Bank has developed seven credit rating modules covering the areas of Corporate, SME, SMi, Leasing, Housing, Credit Cards and Personal Loans. the rating system provides quantitative support to the very subjective area of credit where both qualitative and quantitative aspects are captured in a scientific approach to maintain consistency.

the largest risk exposure of the Bank is in the area of credit risk, as common to any banking institution. the total risk weight of the three different risks viz. Credit Risk, Market Risk and Operational Risk as per the capital adequacy computations based on BASEL ii approach under the Central Bank guidelines, as at 31st December 2009 was Rs. 98.9 Bn. whereas the component of credit risk within this was Rs. 79.3 Bn. representing 80% of the quantified risk.


MARkEt RISkMarket Risk is the risk arising from fluctuations in the market price/value of tradable assets such as foreign exchange, fixed income securities and shares that are held for trading purposes where the Bank holds either long positions or short positions of such assets.

the two risk components of the market risk most applicable to the Bank are foreign exchange risk and interest rate risk.

the Foreign Exchange Risk arises from the foreign exchange positions maintained by the Bank where either the foreign currency denominated assets exceed such liabilities (long positions) or the foreign currency denominated liabilities exceed the assets (short positions). Such long or short positions could also be created through the purchase or sale

transactions both in spot and forward markets as well as through swap transactions. Bank is conservative and prudent in its management of foreign exchange exposures and has set out limits on its transactions and exposures including dealer limits, portfolio limits, daylight limits, overnight limits, long position limits, short position limits, counterparty limits etc. the treasury Middle Office monitors the compliance with the set limits.

Seylan maintained a net oversold position of USD 3.85 Mn. as at 31st December 2009 where the risk arising from appreciation of foreign currency was Rs 3.85 Mn. for each one Rupee appreciation of USD against the Rupee or equivalent in other currencies; a level of risk considered to be low based on the capital and resources of the Bank.


Interest Rate Risk arises from the movement of interest rates affecting the value of tradable fixed income securities as well as the interest rate re-pricing gaps of the interest rate sensitive assets and liabilities. the Bank evaluates the risk level of the tradable fixed income securities portfolio by assessing the sensitivity of the market value towards a change of interest rates by one hundred basis points, which is one percentage point. the size and duration of the trading portfolio is capped based on the potential risk exposure as well as the board approved limits placed on absolute values. Banks also typically have mismatches in the re-pricing periods of assets and liabilities and an approach of minimising the gaps and limiting long- term fixed rates is followed by the Bank.

Seylan as a policy does not carry a significant exposure to the equity market whilst of course being an active investor within applicable prudential limits.

the different types of market risks and the Balance Sheet structure with a long-term focus are monitored by the Asset and Liability Management Committee (ALCO).

ASSEt And lIABIlItY MAnAgEMEnt COMMIttEE (AlCO)this Committee comprises of senior management personnel representing treasury and main business functions and also the Risk Management area. the Committee meets once a month and addresses matters relating to market risk and to some extent the business risk which is mainly dealt with at the board level. A comprehensive reporting system is available to provide detailed information to the ALCO. During the year the ALCO reporting system was streamlined and a standardised “ALCO Pack” has been introduced for better reporting towards more effective risk management.

Of the total risk weight of the three different risks amounting to Rs. 98.9 Bn. the component of market risk was Rs. 4.5 Bn. representing 5% of the quantified risk.

OPERAtIOnAl RISkOperational Risk refers to the losses arising from fraud, negligence, oversight, human error, process errors, system failures, external events etc. the Bank manages most elements of the Operational Risk through sound internal control systems and well-defined processes both technology driven and with human intervention.

the areas of risk include process risks where faulty processes or errors in the processes could trigger losses. Continuous review of the systems and the processes either on a regular review basis or pursuant to observed loss events and incidents addresses potential weaknesses of the processes.

in implementation of new products that invariably relies on technology as well as human involvement a risk review is an essential aspect that needs both the marketing objectives as well as the Risk Management requirements. Bank strives to subject such new product introductions to adequate review.

Bank also maintains its policies with regard to access control and data protection and necessary safeguards are constantly introduced and upgraded to ensure the integrity of the information and the data bases. Preventive measures such as firewalls and virus guards among other steps are put in place.

Operational Risk unit - the operational risk is monitored by the Operational Risk Unit and the Operations Department.

the objective of operational risk assessment is to identify the areas of high risk based on the prevalence of occurrences as well as evaluation of potential dangers. the Bank is at an early stage of analysing loss events and loss data under different product and business categories. Any significant loss events are analysed in depth so as to strengthen the processes and close out any weak controls.

Of the total risk weight of the three different risks amounting to Rs. 98.9 Bn. the component of operational risk was Rs. 15.1 Bn. representing 15% of the quantified risk.


lIQuIdItY RISk Liquidity Risk is the risk that an entity may not be able to meet the payments as they fall due. it appears to be an insignificant risk that does not cause regular losses until such time a major event occurs resulting in even a threat to the mere existence of an organisation. Seylan views Liquidity Risk as an important aspect in managing risks and pays serious attention to the management of liquidity. the Bank underwent a potential liquidity crisis towards the end of year 2008 that was triggered by the external events, a situation referred to as ‘event risk’ that triggered potential crystallising of liquidity risk.

Bank always maintained its liquid assets in excess of the statutory requirement of 20% of liabilities; however as a result of the crisis the ratio fell to a range of 13%. Due to several measures taken by the Bank and the regulatory authority in meeting the challenges, the deposit base improved significantly and the ratio restored much above the statutory minimum of 20% to a level of 29% by the end of the year 2009.

ASSEt And lIABIlItY MAtuRItY gAPSAnother tool used by the Bank in the management of long-term Balance Sheet Structure of the Bank is to monitor the gap between the maturity of assets and liabilities under different time bands. this analysis shows the potential risks of mismatches between maturity of assets and maturity of liabilities. Seylan uses this analysis in its risk management process and monitors the maturity ladder at the ALCO meetings

on a monthly basis. While it is typical for a bank to have mismatches based on contractual maturities, it is also appropriate to analyse the maturities based on behavioural patterns. Bank has set targets in reducing the mismatches over a time period.

tREASuRY MAnAgEMEnt COMMIttEE this Committee chaired by the Chief Executive Officer, meets on a daily basis to deal with matters relating to liquidity management and market interest rates. in addition, foreign currency exposures are reviewed regularly. it is a strength of the Bank to have a focused approach through the treasury Committee in its liquidity management and management of the day to day forex and money market exposures as well as monitoring of the market rates for competitive and current pricing of products.

COMPlIAnCE FunCtIOnBank has set up a separate Compliance Department specialised in ensuring compliance with the regulatory and legal framework. the Department also has set in place necessary systems and processes to comply with the Anti-Money Laundering Regulations and Laws.

the Bank has taken a serious view that compliance with all regulations is an essential element of good governance and management of the Bank and therefore, emphasis is made on this aspect throughout the organisation.

Information technology Risk - the technology teams and users meet regularly and review the information systems currently utilised by the Bank and analyse the future technology and systems needs of the organization to compete effectively and efficiently in the future. Additionally, key areas of focus include information Security, Business Continuity Planning (BCP) and Data Security.

BuSInESS COntInuItY PlAnnIng (BCP)BCP is a strategic and tactical approach of an organisation to plan for and respond to incidents and business disruptions in order to continue business operations at an acceptable pre-defined level.


BCP is a process designed to reduce the organisation’s business risk arising from an unexpected disruption of the critical functions/operations (manual or automated) necessary for the survival of the organisation. this includes human/material resources supporting the critical functions/operations and the assurance of continuity of minimum level of service necessary for critical operations.

Bank has set in place a comprehensive Business Continuity Plan which has been developed with the assistance of external consultants. the plan addresses the criticality of different business functions and maintains contingency arrangements accordingly. Bank maintains an off-site Disaster Recovery Centre as part of the Business Continuity Plan. Further, data of all critical systems are updated on a real time basis in the backup machines at the Disaster Recovery Centre.

the initial task was to conduct a detailed Business impact Analysis (BiA) and a Risk Assessment (RA) on 29 business units and a team was formed comprising of a business team leader, coordinator and support staff with the assistance of an external consultant who was given the task of formulating a comprehensive business continuity plan for each business unit. the Plan has been built considering the following areas that could be affected due to any disaster or crisis.

•Personnel•Buildingstructure•Resources/Utilitiesand•AccessRoutes

BuSInESS COntInuItY MAnAgEMEnt (BCM) StRuCtuRE And FRAMEwORkBCM structure and framework consists of six stages and components.


the Bank adopted a six phase approach to develop the BCP as shown below.

RISk MAnAgEMEnt RElAtEd SYStEMSthe Bank has been developing its systems capabilities and infrastructure for the purpose of improved Risk Management. Accordingly, a comprehensive Credit Rating System was acquired in 2007. Bank also acquired a comprehensive treasury Management software system way back in the year 2001 and this system provides several facilities of stress testing, scenario analysis, gap analysis and duration measurement that facilitates monitoring of Market and Liquidity Risk of treasury products. Seylan also became one of the pioneering banks to acquire BASEL ii related software that covers capital charge calculations for Market Risk, Credit Risk and Operational Risk. the software is capable of expansion from the Basic indicator and Standardised Approaches towards Foundation and Advanced internal Rating Based Approaches. With the support of these software systems, Seylan Bank would possess a comprehensive and sophisticated Risk Management framework.


BASEl II IMPlEMEntAtIOn PlAnSeylan Bank was able to face its first stage of meeting the challenge of implementing the BASEL ii for credit risk - standardised approach, operation risk - basic indicator approach, and market risk - standardised approach very successfully through the appointment of a dedicated committee which comprised several subcommittees for evaluation and implementation involving key officers representing the core banking areas of finance, credit, operations, branch banking, and treasury who worked tirelessly towards achieving the set goals.

the first stage, comprised three phases; that of assessing and planning where a gAP analysis was conducted on our processes, methods, and systems involving the core system of Kapiti, and other systems used by treasury Operations, Pawning, Leasing, Credit Cards, etc, comparing the availability of data against the required data and thereafter developing a master plan involving short-term and long-term goals. the short-term goal was to initially achieve the CBSL stipulations of meeting the preliminary standards by 1st January 2008, a goal which was achieved successfully and on time.

After a careful evaluation process a reputed it software developer was hired to design the system to integrate the main operational systems of the Bank in forming a common data platform and thereafter performing the following tasks ;

Risk Measurement

• CreditPortfolioExposureCalculation

• Uploadofdata

• DataValidation

• Calculation of gross exposure for on-BalanceSheet and off-Balance sheet items

• Calculationofcreditriskexposureforregulatorypurpose and

• Capitalchargecalculations.

Risk Mitigation

• Settingupnettingagreementsandmanagement

• Calculationofimpactofnettingontheexposures

• CollateralManagement

• Collateralsetup

• Calculation of impact of collateralisation onexposures using simple approach

• GuaranteesManagementand

• Calculationofimpactofguaranteesonexposures.

Risk Reporting

• Capitalchargecomputation

• Statutoryreporting.

Parallel to the above, the second stage of gearing and preparing for the advanced approach in credit risk was launched by the introduction of internal credit scoring and rating modules for different types of facilities was rolled out throughout the branch network, and credit SBUs of the Bank. these rating modules are currently being fine tuned through stress testing, and back-testing with the view of ensuring that they reflect a realistic risk assessment of the counterparty and transaction, prior to linking them for credit decision making, risk-based pricing and the calculation of Probability of Default, Exposure at Default, and Loss given Default.

kEY ElEMEntS OF SuCCESSFul BASEl II RISk MAnAgEMEnt SYStEM• Sponsorshipfromtopmanagement.

• Projectimplementationteamwhocancollaboratebetween systems experts and risk experts.

• Bank-widecross-functionalTaskforce,establishedto identify and prioritise data quality issues, evaluate solutions and initiate process changes. implementing tools that detect data errors and omissions.

• Discipline needed to maintain “clean” data.Reports generated regularly to ensure that errors are not creeping back into database.


wAY FORwARd On RISk MAnAgEMEnt - kEY FOCuS AREAS OF thE BAnkthe following is a summary of the key areas focused by the Bank for implementation during the year 2010 onwards:

• Further development of internal risk ratingframeworks.

• Integration of frameworks through creditredesign initiatives.

• Ongoing testing and validation of risk ratingsystems.

• Calibrationofprobabilityofdefault.

• Development of portfolio managementinformation system.

• Buildingdatabaseofdefaultdata,lossdataandrecovery data.

• Measuringcreditexposuresaccurately.

• AnalyticsEnginesthatsupportBASELIIcapitalrequirements and economic capital attribution.

Each is a major project requiring cross-functional expertise and deep skill sets. Projects driven via Steering Committee and project leaders are held accountable for project delivery.

COnCluSIOnRisk Management is an important function of any organisation and more so in the case of a financial institution because the ability to expand the exposures is much more significant compared to most other business entities. Seylan Bank recognises the need for a sound and comprehensive risk management framework and therefore has introduced a risk management framework that is being continuously improved and developed.


CORPORAtE gOVERNANCE REPORt

IntROduCtIOn“Weak governance of banks reverberates throughout the economy with negative ramifications for economic development” (Ross Levine - global Corporate governance Forum, 2003).

“given the important financial intermediation role of banks in an economy, their high degree of sensitivity to potential difficulties arising from ineffective corporate governance and the need to safeguard depositors’ funds, corporate governance for banking organizations is of great importance …” (BASEL Committee on Banking Supervision - February 2006).

For Seylan, the above words serve as a bleak reminder of the events which took place in December 2008 - the difficulties faced by the Bank precipitated by a series of withdrawals which commenced with the collapse of a company within the Ceylinco group. timely intervention by the Central Bank of Sri Lanka together with Management assistance from Bank of Ceylon and appointment of a strong and independent board of directors paved the way for the Bank to make a recovery unprecedented and unparalleled in the history of the banking sector in the country particularly when its occurrence was in the midst of the global financial crisis.

the implementation and enforcement of sound corporate governance principles have therefore become even more critical in this context.

the newly-appointed board comprising of all eminent professionals in their respective fields are firm in their resolve that both the board and the senior management team and staff should act at all times with integrity and honesty and function in an environment where the highest element of ethical business conduct is maintained. they have therefore pledged their commitment towards adoption and implementation of transparent and effective corporate governance practices within the

Bank with the view of enhancing business prosperity and corporate accountability and realising not only long-term shareholder value and acquiring and retaining the trust of its depositors but also safeguarding the interests of all its stakeholders.

COMPlIAnCE REQuIREMEntSPursuant to Seylan Bank board being re-constituted in December 2008, the new board commenced detailed compliance with Corporate governance principles and guidelines with particular reference to the following during 2009:

• the Banking Act Direction No. 11 of 2007 (Corporate governance for Licensed Commercial Banks in Sri Lanka) issued by the Monetary Board of the Central Bank of Sri Lanka including subsequent amendments there to (CBSL Code);

• the Colombo Stock Exchange rules on Corporate governance (applicable on a voluntary basis for listed entities until 1st April 2008 and for banks until 31st December 2008) and mandatory thereafter.

• the Code of Best Practice of Corporate governance jointly issued by the Securities & Exchange Commission of Sri Lanka (SEC) and the institute of Chartered Accountants of Sri Lanka (iCASL).

the Bank is required to mandatorily comply with the Corporate governance rules of the Code of Best Practice of Corporate governance laid down as per Central Bank Direction No. 11 of 2007 as amended as aforesaid and also the Colombo Stock Exchange rules of Corporate governance for listed entities which became mandatory for banks with effect from the financial year commencing January 2009. Compliance with the iCASL/SEC Code of Best Practice on Corporate governance is on a voluntary basis.



the Bank’s level of conformity to the Central Bank Code of Corporate governance issued under Banking Act direction no. 11 of 2007 (as amended) is given below:

For purposes of compliance with Section 3 (1) (xvi) of the Banking Act direction no. 11 of 2007 (as amended) the disclosures made in the following two tables shall be deemed to be the Annual Corporate governance Report of the Bank.

AnnuAl CORPORAtE gOvERnAnCE REPORt - CORPORAtE gOvERnAnCE dISClOSuRE REQuIREMEntS AS PER SECtIOn 3 (8):

disclosure requirement level of compliance

3(8)(i) the board shall ensure that:

(a) annual audited Financial Statements and quarterly Financial Statements are prepared and published in accordance with the formats prescribed by the supervisory and regulatory authorities and applicable accounting standards, and

(b) such Statements are published in the newspapers in an abridged form, in Sinhala, tamil and English.

3(8)(ii) the board shall ensure that the following minimum disclosures are made in the Annual Report:

(a) A statement to the effect that the annual audited Financial Statements have been prepared in line with applicable accounting standards and regulatory requirements, inclusive of specific disclosures.

Complied.the Bank has made a balanced and fair assessment of its financial position for the year ended 31st December 2009 through the Audited Financial Statements contained in the Annual Report of 2009.

the Bank has continuously published its Quarterly Financial Statements supplemented with the necessary explanatory notes and observations for the information of its shareholders and other stakeholders. Strict adherence is made to all accounting formats and other procedures laid down by regulatory authorities such as the Colombo Stock Exchange and the Central Bank in the disclosure and submission of such information. Financial Statements both audited and interim unaudited are prepared and published in accordance with the Sri Lanka Accounting Standards and other regulatory requirements inclusive of specific disclosures.

Any other financial and non-financial information, which are price-sensitive or warrant the shareholders’ and stakeholders’ attention and consideration, are promptly disclosed to the public.

Please also refer the Statement of ‘Directors’ Responsibility for Financial Statements’ appearing on pages 134 and 135 of the Annual Report.

(b) A report by the board on the Bank’s internal control mechanism that confirms that the financial reporting system has been designed to provide reasonable assurance regarding the reliability of financial reporting, and that the preparation of Financial Statements for external purposes has been done in accordance with relevant accounting principles and regulatory requirements.

Complied. Please refer the Statement of ‘Directors’ Responsibility for Financial Reporting’.



(c) the external auditor’s certification on the effectiveness of the internal control mechanism referred to in Direction 3(8)(ii)(b) above, in respect of any statements prepared or published after 31st December 2008.

Pending auditing guidelines being issued by the iCASL in respect to the nature, extent and reporting formats for such certification, the Central Bank of Sri Lanka is considering deferment of this directive.

However, the board has put in place processes and monitors the effectiveness of internal controls through the following board subcommittees:

•AuditCommittee•IntegratedRiskManagementCommittee

(d) Details of directors, including names, fitness and propriety, transactions with the bank and the total of fees/remuneration paid by the bank.

Complied.Profiles of the board of directors and other details are provided on pages 228 to 229 of the Annual Report and also in the Annual Report of the Board appearing on pages 119 to 128 of the Annual Report.

Details of directors’ interest in contracts and related party transactions are given in Notes 42 and 43 of the Financial Statements and on pages 129 to 133 of the Annual Report.

Aggregate remuneration paid to directors and accommodation granted are indicated in Note 7 and Note 42 to the Financial Statements.

(e) total net accommodation as defined in 3(7)(iii) granted to each category of related parties. the net accommodation granted to each category of related parties shall also be disclosed as a percentage of the bank’s regulatory capital.

Complied. Details of accommodation granted to related parties are disclosed on pages 129 to 133 and in Notes 42 and 43 of the Financial Statements.

Net accommodation granted to related parties was 13.18% of the Bank’s regulatory capital.

(f) the aggregate values of remuneration paid by the bank to its key management personnel and the aggregate values of the transactions of the bank with its key management personnel, set out by broad categories such as remuneration paid, accommodation granted and deposits or investments made in the bank.

Complied. Please refer Notes 7 and 42 to the Financial Statements.

(g) the external auditor’s certification of the compliance with these Directions in the annual corporate governance reports published after 1st January 2010.

the Central Bank of Sri Lanka is considering the deferment of this directive.



(h) A report setting out details of the compliance with prudential requirements, regulations, laws and internal controls and measures taken to rectify any material non-compliances.

Please refer the Annual Report of the Board, Risk Management Report and Audit Committee Report. there were no material non-compliances.

Please also refer ’Statement of Directors’ Responsibility’ for Financial Reporting’.

(i) A statement of the regulatory and supervisory concerns on lapses in the bank’s risk management or non- compliance with these Directions that have been pointed out by the Director of Bank Supervision, if so directed by the Monetary Board to be disclosed to the public, together with the measures taken by the bank to address such concerns.

there were no lapses reported in the areas of risk management and non-compliance with Directions issued by the Central Bank which required disclosure to the public as directed by the Monetary Board.

AnnuAl CORPORAtE gOvERnAnCE REPORt ISSuEd In COMPlIAnCE wIth SECtIOn 3 (1) (xvI) OF thE BAnkIng ACt dIRECtIOn nO. 11 OF 2007 (AS AMEndEd)

CBSl Rule level/Extent of compliance

BOARd

Responsibilities of the Board3(1) (i) - ensuring the safety and soundness of the Bank3 (1) (xiii) - Schedule of matters reserved for board’s decision:

• formulationofstrategicobjectivesandimplementation of overall business strategy

• ensureidentificationandmanagementof risks by implementation of risk policies and measurable goals

• ensureeffectivenessandadequacyof information and internal control systems

• EnsurecompetencyofCEOandkeymanagement personnel and implement succession strategy

the board has taken relevant measures as necessary to ensure the safety and soundness of the Bank in terms of Section 3(1) (i) of the said Direction. its responsibilities included the following:

• Providingstrategicdirectionbyformulatingandimplementing of new Strategic Plan for the Bank.

• Formulationofbusinesspoliciesandensuringeffectiveimplementation of same.

• Strengtheninginternalsystemsofcontrolincludingformulation of overall risk policy for the Bank. Risk management procedures with measurable goals are currently being implemented.

• MonitoringeffectivenessofCEOandthecorporatemanagement. the board also carried out a substantial re-organisation exercise in the Bank;

• Implementationofsoundcreditpoliciesandensuringhighcredit quality as well as approval of credit facilities exceeding the delegated limits of the internal Credit Committee.



BOARd

• Ensuringcompliancewithlegalandethical standards

• EnsureoversightofaffairsoftheBankand fulfillment of other functions of the board.

• Ensuringinternalandexternalinformationflowsandappropriate financial reporting

• Approvingannualbudgetsandcorporateplanandapproving annual and interim Financial Statements.

• Ensuringadherencetolegalandethicalstandards.

• Rationalisationofadministrativeandpersonalexpensesandrevisiting human resources and procurement policies.

3 (2) Composition of the Board As at present, the board comprises of ten directors whose profiles appear on pages 228 and 229 of the Annual Report. All directors are eminent professionals with extensive experience in the fields of banking, finance, law, insurance and other related fields. the board also has several members with financial acumen and experience.

the board comprises of two Executive Directors viz. M/s. E. Narangoda (Chairman) and R. Nadarajah, the remaining eight being Non-Executive Directors.

the Bank has identified three of the Non-Executive Directors viz. Messrs P.L.P. Withana, N.M. Jayamanne PC and Rear Admiral (Rtd.) B.A.J.g. Peiris as ‘independent’ Directors within the meaning of Direction No. 3(2) (iv) of the Mandatory Code on Corporate governance issued by the Central Bank of Sri Lanka (CBSL Code) and the Listing Rules of the Colombo Stock Exchange (CSE), thus conforming to the minimum number of independent Non-Executive Directors required both as per the CBSL Code and the CSE Rules.

Pursuant to the re-capitalisation of the Bank, four new directors were appointed during 2009 viz. Mr. P.g.S. Kariyawasam, Dr. N.H. godahewa, M/s. A.L. Devasurendra and i.C. Nanayakkara. Mr. S.P.S. Ranatunge was appointed on 12th January 2010. there were no alternate directors appointed.

the Bank’s Executive and independent Non-Executive Directors are duly disclosed in the Annual Report and in all corporate communications.



BOARd

3 (3) Fitness and Propriety of directors All directors have satisfied the ‘fit and proper’ criteria set out in Section 42 of the Banking Act No. 30 of 1988 (as amended) and have forwarded to the Bank Supervision Department of the Central Bank signed affidavits and declarations confirming their ‘fit and proper’ status to hold office as directors as required by Section 42 of the Banking Act and as per Clause 2(3) (i) of the Banking Act Direction No. 11 of 2007 (as amended).

No directors hold office as a director of more than 20 companies/entities or institutions.

3(1) (iii) & 3 (1) (xiii) Meetings Board meetings to be held regularly with active participation of members

the board dedicated sufficient time for board meetings. total meetings held during 2009 were 27 and the attendance at these meetings is given on page 84 of this Report. the directors have a formal schedule of matters specifically reserved to it for decision making. All directors actively contribute to the board proceedings. Resolutions by circulation are kept at a minimum and restricted to matters of a routine nature.

3(1) (iv) - (vi) Compliance with Board procedures

Provision is made for all directors to place matters before the board relating to both the promotion of the business and management of risks. Due to board meetings being scheduled twice a month, directors are noticed of the date of the next meeting well in advance and board papers are circulated approximately 4-5 days prior to the date of the meeting.

3(1) (vii) – (x) Company Secretary All directors have access to the advice and services of the Company Secretary who is a chartered secretary and attorney-at-law to ensure that board procedures and all applicable rules and regulations are followed. the Company Secretary is responsible for compliance with the provisions of the Companies Act, rules of the Colombo Stock Exchange and Banking Act provisions relating to shareholders and provisions of the Securities & Exchange Commission Act. Minutes of board meetings are also recorded by her in sufficient detail to enable a proper assessment to be made of the depth of deliberations at the meetings.

3(1) (xi) Procedure for the Board to obtain Independent Advice

the board seeks independent professional advice on any matters whenever required.



BOARd

3(1) (xii) directors to avoid conflict of interest

1/3rd of the Bank’s board comprise of independent Non-Executive Directors and as such there is a strong independent element in the board. Directors avoid conflicts of interest with the Bank and any situation which involves or may reasonably be expected to involve, a conflict of interest with the Bank is disclosed promptly. Wherever a conflict of interest does arise, the said director abstains from voting on any such resolution.

3 (4) Management Functions delegated by the Board of directors

the board has delegated matters pertaining to the affairs of the Company to the • Boardsubcommitteescomprisingboardmembers

wherever applicable and to the

• ChiefExecutiveOfficer,

• Keymanagementpersonneland

• linemanagementwhilstretainingandnotderogatinginanymanner the final authority of the board.

the subcommittees function through the scope and authority delegated by the board and as per board approved terms of reference. Proper delegated authority limits have been set out to the CEO and the line Management to conduct their line functions within their lines of authority.

the delegation process to the board subcommittees and to the CEO and line management is reviewed by the board from time to time.

3(1) (ii) & 3 (5) Chairman & Chief ExecutiveDivision of responsibilities

the positions of the Chairman and the CEO have been separated. However, the Chairman functions in an executive capacity (upon Seylan Bank board being reconstituted in December 2008).

the Chairman provides leadership to the board and ensures that the board members effectively discharge their responsibilities and make an active contribution to the board’s affairs. Under the Chairman’s supervision, the agenda and matters to be taken up at the board meeting are itemised and scheduled.

CEOthe CEO of the Bank is not a member of the board. He heads the senior management team of the Bank and reports directly to the board of directors.



BOARd

His main functions and responsibilities are the overall management and operations of the Bank. He also heads the Bank’s treasury Committee and the Assets & Liabilities Committee (ALCO).

the authority over the function of credit administration has been delegated to the Board Credit subcommittee, internal Credit Committee and levels of management, from the CEO down to the level of Branch Managers with limits being stipulated in accordance with the level of authority.

the CEO also chairs the internal Credit Committee, which approves credit facilities above his delegated credit authority limits upto a limit specified by the board.

the functions and responsibilities of the Chairman and the Chief Executive are clearly set out in writing and approved by the board.

3(5)(ii) Appointment of Senior director - designate

the board has appointed Mr. N.M. Jayamanne PC, an independent Non-Executive Director of the Bank to function as the ‘Senior Director’ in order to bring in a greater independent element to the functioning of the board. Mr. N.M. Jayamanne PC functions in this capacity under board approved terms of reference.

3(1) (xv) Capitalisation of the Bank A re-capitalisation process was carried out in 2009 with a view to meeting regulatory requirements with regard to capital adequacy. the Bank is compliant with regulatory and prudential requirements relating to capital adequacy.

3(1) (xvii) Board to adopt a Scheme of Self-Assessment

the board adopted a scheme of self-assessment based on their duties and responsibilities as set out on pages 79 and 80 of the Annual Report and also with regard to specific targets and objectives set out for implementation in respect of the year 2009.



BOARd

3(6) Board appointed Committees the board subcommittees that were functional as at end 2009 include:

•AuditCommittee•IntegratedRiskManagementCommittee•CreditCommittee•RemunerationCommitteeand•NominationsCommittee

All subcommittees function within board-approved terms of reference and the details of same together with the attendance of the directors at meetings of subcommittees are given on pages 86 to 88 of the Annual Report. All subcommittees except the Credit Committee are chaired by Non-Executive Directors.

in December 2009, two additional board subcommittees for Strategic Planning and Sustainability were formed but commenced its activities only from January 2010. A further subcommittee for marketing and product development was formed in January 2010.

3 (7) Related Party transactions the board has taken adequate measures to ensure that no conflict of interest arises from any transactions of the Bank with any ‘related parties’ within the definition in Section 3 (7) (i) of the CBSL Code.

AttEndAnCEthe attendance of directors at the board meetings held during the year 2009 is given below:

Executive/non-Executive Capacity

Board meetings

Eligible to attend Attended

Mr. E. Narangoda Executive 27 27Mr. R. Nadarajah Executive 26 24Mr. P.L.P. Withana independent Non-Executive 27 23Mr. F.N. goonewardena(resigned on 3/12/09) independent Non-Executive 24 24Mr. N.M. Jayamanne PC independent Non-Executive 27 23Rear Adm. (Rtd) B.A.J.g. Peiris independent Non-Executive 26 20Mr. P.g.S. Kariyawasam(Appointed w.e.f. 10/11/09) Non-Executive 04 03Dr. N.H. godahewa (Appointed w.e.f. 10/11/09) Non-Executive 04 02Mr. A.L. Devasurendra(Appointed w.e.f. 24/11/09) Non-Executive 03 03Mr. i.C. Nanayakkara(Appointed w.e.f. 24/11/09) Non-Executive 03 03


Upon the re-constitution of the board on 30th December 2008, new board subcommittees were formed. However, upon the completion of the re-capitalisation process of the Bank and the subsequent appointment of new directors, the board subcommittees were further reconstituted on

3rd December 2009 and new Committees formed on 17th December 2009. the composition of the Committees both before and after the reconstitution is given below. Another subcommittee for Marketing & Product Development was formed on 19th January 2010.

Category Aud

it Co

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Inte

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Ris

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ittee

Cred

it Co

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ittee

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emun

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Com

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nom

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Co

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ittee

Stra

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Com

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*

Sust

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mm

ittee

**

Mar

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g &

Pro

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d

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omm

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***

Mr. E. Narangoda Executive √ ∆ ∆ ∆Mr. R. Nadarajah Executive √ ∆ ∆ ∆ ∆Mr. P.L.P. Withana independent

Non-Executive√ ∆ √ ∆ √ ∆ ∆

Mr. F.N. goonewardena(resigned on 03/12/09)

independent Non-Executive

√ √ √

Mr. N.M. Jayamanne PC independent Non-Executive

√ ∆ √ ∆ √ ∆ ∆ ∆

Rear Admiral (Rtd.) B.A.J.g. Peiris

independent Non-Executive

∆ √ ∆ ∆

Mr. P.g.S. Kariyawasam(Appointed w.e.f. 10/11/09)

Non-Executive ∆ ∆ ∆ ∆ ∆

Dr. N.H. godahewa (Appointed w.e.f. 10/11/09)

Non-Executive ∆ ∆ ∆

Mr. A.L. Devasurendra (Appointed w.e.f. 24/11/09)

Non-Executive ∆ ∆ ∆ ∆ ∆ ∆

Mr. i.C. Nanayakkara(Appointed w.e.f. 24/11/09)

Non-Executive ∆ ∆

Mr. S.P.S. Ranatunga(Appointed w.e.f. 13/01/10)

∆ ∆ ∆

√ Represents committee members before reconstitution of committees.

∆ Represents committee members after reconstitution of committees.

* Formerly titled as Remuneration Committee.** Strategic Planning and Sustainability Committees were formed in December 2009 and commenced activities in January 2010. *** Marketing & Product Development Committee was formed in January 2010 and commenced activities thereafter.


Committee /Composition no. of meetings Scope/terms of referenceEligibility to attend

Attended

Audit Committee:Mr. P.L.P. Withana (Chairman)

Mr. F.N. goonewardena (resigned on 3/12/09)

Mr. N.M. Jayamanne PC (appointed w.e.f. 24/2/09)

Mr. P.g.S. Kariyawasam (appointed w.e.f. 3/12/09)

7

7

5

N/A*

7

7

3

N/A

the Audit Committee comprises three Non-Executive Directors (of whom two are independent) and is headed by Mr. Lalith Withana an independent Director who possesses relevant financial experience and qualifications.

the Executive Director, CEO, Chief Financial Officer and DgM internal Audit attend the Committee meetings by invitation. the External Auditors participate at the meeting whenever required and therefore has direct access to the Audit Committee to report on any matters independently to the board. the Committee has met seven times during 2009.

the Committee reviews internal Controls, information technology governance activities and security and controls and reviews and monitors all audit activities and operations and the effectiveness of internal controls including it/information Systems control that are in place and the Bank’s compliance with key statutory and regulatory requirements and industry best practices.

the Report of the Audit Committee is set out on page 100 to 101 of the Annual Report.

* No Meetings were held after 3rd December 2009 until 31st December 2009

the composition and scope/terms of reference of the board subcommittees which were functional

as at 31st December 2009 and their attendance at committee meetings during 2009 are given below:



Attended

Integrated Risk Management CommitteeMr. F.N. goonewardena (Chairman) (resigned on 3/12/09)

Mr. P.L.P. Withana

Mr. A.L. Devasurendra(appointed to the Committee and as Chairman of the Committee w.e.f. 3/12/09)


3

3

N/A*

N/A*

3

3

N/A

N/A

the integrated Risk Management Committee comprises of three Non-Executive Directors and is headed by Mr. A.L. Devasurendra (consequent to the resignation of Mr. Naomal goonewardena on 3rd December 2009)

the Executive Director, Mr. Nadarajah, the CEO, CFO and key management personnel supervising broad risk categories, i.e., credit, market, liquidity, operational and strategic risks attend the Committee meetings by invitation.

the Committee met thrice during the year. the Committee’s responsibilities include assessment of all risks, i.e., credit, market, liquidity, operational and strategic risks to the Bank through appropriate risk indicators and management information and review the adequacy and effectiveness of management-level committees set up to address specific risks and the Asset-liability Committee to address and manage such risks.

the Report of the integrated Risk Management Committee is set out on page 102 of the Annual Report.

A detailed Report on Risk Management is given on pages 63 to 74 of the Annual Report.

* No Meetings were held after 3rd December 2009 until 31st December 2009

Credit CommitteeMr. E. Narangoda (Chairman)

Mr. R. Nadarajah

Mr. A.L. Devasurendra (appointed w.e.f. 3/12/09)

Mr. i.C. Nanayakkara (appointed w.e.f. 3/12/09)

20

20

3

3

20

19

2

1

the Credit Committee comprises of two Executive Directors and two Non-Executive Directors and is headed by the Chairman, Mr. E. Narangoda.

the CEO and senior management personnel supervising credit and credit monitoring attend the meeting by invitation.

the Committee’s responsibilities include formulating credit policies and credit strategies for the Bank towards maintaining a healthy credit portfolio and credit discipline within the Bank.

the Committee approves the credit facilities above the delegated authority limits of the internal Credit Committee subject to a specified limit and recommends facilities to the board in excess of the said limit. the Committee also formulates policies /reviews existing policies on credit risk management, monitors recoveries and formulates recovery strategies and ensure that the credit portfolio does not exceed accepted levels of risk.



Attended

Remuneration CommitteeMr. N.M. Jayamanne PC (Chairman)

Mr. P.L.P. Withana


Dr. N.H. godahewa (appointed w.e.f. 3/12/09)


Rear Admiral (Rtd.) B.A.J.g. Peiris (appointed w.e.f. 3/12/09)

Mr. S.P.S. Ranatunga (appointed w.e.f. 13/01/10)

2

2

2

N/A*

N/A*

N/A

2

2

–

N/A

N/A

N/A

the Remuneration Committee during 2009 comprised of six Non-Executive Directors and was headed by Mr. Nihal Jayamanne PC, an independent Non-Executive Director. the general Manager/CEO attended the meeting by invitation wherever permissible.

the mandate of the Committee is to determine the remuneration policies relating to directors, the Chief Executive Officer and the Key Management Personnel (KMPs) of the Bank; set goals and targets for the CEO and KMPs and evaluate their performance against these targets periodically to determine the basis of revising remuneration and other benefits paid.

the Committee met twice during the year.

the Report of the Remuneration Committee including the Remuneration Policy is set out on page 103 of the Annual Report.

* No meeting were held after 3rd December 2009 until 31st December 2009

nomination CommitteeRear Admiral (Rtd.) B.A.J.g. Peiris (Chairman)

Mr. N.M. Jayamanne PC


Mr. A.L. Devasurendra (appointed w.e.f. 3/12/09)

Mr. S.P.S. Ranatunga (appointed w.e.f. 13/01/10)

1

1

1

N/A*

N/A*

1

1

–

N/A

N/A

the Nomination Committee during 2009 comprised of four Non-Executive Directors and was headed by Rear Admiral (Rtd.) B.A.J.g. Peiris.

the Chairman, Executive Director and the CEO attend the meeting by invitation wherever permissible.

the Committee met once during the year.

the Committee makes recommendations to the board on the selection, appointment of new directors and key management personnel, determine the qualifications, experience and competencies required by such personnel to hold office of the CEO or other key posts, determine their succession planning and recommend election of directors and review the composition and structure of the board of directors having due regard to the balance of skills required to be maintained on the board.

* No meeting were held after 3rd December 2009 until 31st December 2009


COlOMBO StOCk ExChAngE CORPORAtE gOvERnAnCE REPORtthe Colombo Stock Exchange rules on Corporate governance became mandatory for all listed entities from the financial year commencing 1st April 2008

and for all licensed commercial banks which are listed entities, from the financial year commencing 1st January 2009.

the Bank’s compliance with Rule 7.10 of the CSE Revised Rules of Corporate governance from the financial year commencing 1st January 2009 is set out below:

Rule Status /Remarks

7.10.1 the Board of directors (a) the board of directors should include at least 2 Non-Executive directors or 1/3rd of the total number of directors whichever is higher.

(b) number of directors to be calculated based on the number as at the conclusion of the immediately preceding Annual general Meeting.

(c) Any change occurring to this ratio to be rectified within 90 days from the date of the change.

CompliedAs at 31st December 2009, the board comprised of 9 directors of whom 7 are Non-Executive Directors.

On 12th January 2010, an additional Non-Executive Director was appointed to the board.

Profiles of these directors appear on pages 228 to 229 of the Annual Report.

7.10.2 Independent directors (c) independent directors should be at least two Non-Executive Directors or one-third of the Non-Executive Directors appointed to the board, whichever is higher.

(d) Each Non-Executive Director to submit a signed and dated declaration annually to the board of his/her independence or non-independence against the specified criteria.

Compliedthree directors on the board viz. M/s. P.L.P. Withana, N.M. Jayamanne PC and Rear Admiral (Rtd.) B.A.J.g. Peiris are independent Non-Executive Directors of the Company. Mr. F.N. goonewardena who resigned from the board on 3rd December 2009 was also an independent Non-Executive Director.

CompliedSigned and dated declarations have been provided by the directors confirming their independent non-executive status in compliance with the CSE Rules.



7.10.3 disclosure Relating to directors(a) Determination made by board annually as to the independence/non-independence of each Non-Executive Director based on such declaration and other information available to the board and set out names of the ‘independent’ directors in the Annual Report.

(b) Where a Non-Executive Director does not qualify as independent but where the board is of the opinion he is nevertheless deemed to be ‘independent’, taking into account all other circumstances.

(c) Publish a brief résumé of each director on its board in the Annual Report which includes information on the nature of his/her expertise in relevant functional areas.

(d) Provision of a brief résumé to the CSE of a new director appointed to the board and informing matters itemised above.

CompliedBased on declarations received from the directors by the year end, the independent status of M/s. P.L.P. Withana, N.M. Jayamanne PC, F.N. goonewardena and Rear Admiral (Rtd.) B.A.J.g. Peiris is indicated on page 123 of the Annual Report.

Not Applicable

CompliedPlease refer pages 228 to 229 for profiles of directors.

Complied

7.10.5 Remuneration CommitteeA listed company shall have a Remuneration Committee in conformity with the following:

(a) Composition - comprise a minimum of two independent Non-Executive Directors or Non-Executive Directors, a majority of whom shall be independent, whichever is higher.

One Non-Executive Director shall be appointed as Chairman of the Committee by the board of directors.

(b) Functions - the Remuneration Committee shall recommend the remuneration payable to the Executive Directors and Chief Executive Officer and/or equivalent position thereof to the board which will make the final determination.

(c) Disclosure in the Annual Report – set out the names of directors comprising the Remuneration Committee, contain a statement of the remuneration policy and set out the aggregate remuneration paid to Executive and Non-Executive Directors.

Compliedthe Remuneration Committee comprises six Non- Executive Directors of whom three are independent.

CompliedMr. N.M. Jayamanne PC who is an independent Non-Executive Director is the Chairman of the Committee.

CompliedRemuneration of the CEO and the emoluments of the directors are recommended by the Remuneration Committee.

CompliedAggregate remuneration of directors and key management personnel is given in Note 7 to the Financial Statements. Please also refer the Remuneration Committee Report on page 103 of the Annual Report.

total remuneration paid to Executive and Non-Executive Directors including by way of fees as at 31st December 2009 amounted to Rs. 10.779 Mn. (2008 - Rs. 74.67 Mn.)



7.10.6 Audit Committee A listed company shall have an Audit Committee in conformity with the following:

(a) Composition - should comprise a minimum of two independent Non-Executive Directors or Non-Executive Directors, a majority of whom shall be independent, whichever shall be higher.

One Non-Executive Director shall be appointed as Chairman of the Committee by the board of directors.

Unless otherwise determined by the Audit Committee the Chief Executive Officer and the Chief Financial Officer of the listed company shall attend Audit Committee meetings.

the Chairman or one member of the committee should be a Member of a recognized professional accounting body.

(b) Functions shall include -• Oversightofthepreparation,presentation

and adequacy of disclosures in the Financial Statements of a listed company in accordance with Sri Lanka Accounting Standards.

• OversightoftheCompany’scompliancewithfinancial reporting requirements, information requirements of the Companies Act and other relevant financial reporting related regulations and requirements.

• OversightoverprocessestoensureCompany’sinternal controls and risk management are adequate, to meet the requirements of the Sri Lanka Auditing Standards.

• Assessmentoftheindependenceandperformance of the company’s External Auditors.

• Tomakerecommendationstotheboardpertaining to appointment, reappointment and removal of External Auditors and to approve the remuneration and terms of engagement of the External Auditors.

Complied the Audit Committee consists of three Non-Executive Directors, of whom two are independent.

CompliedMr. P.L.P. Withana, an independent Non-Executive Director is the Chairman of the Committee.

Compliedthe CEO and CFO attend the Committee meetings by invitation.

Compliedin 2009, two members of the Committee were members of recognised professional accounting bodies and the Chairman of the Committee was a member of the institute of Chartered Accountants of Sri Lanka.

Compliedthe Committee reviews all interim unaudited and audited Financial Statements prepared in conformity with Sri Lanka Accounting Standards.

CompliedFinancial reporting requirements are strictly complied in line with the Companies Act, Sri Lanka Accounting Standards and regulatory requirements imposed by the Colombo Stock Exchange and the Central Bank.

Compliedthe Committee monitors and reviews the effectiveness of the internal audit systems which includes the internal audit and information system audit functions.

Compliedthe Committee monitors and reviews the independence of the External Auditors as part of its scope.

Complied



(c) Disclosure in the Annual Report – • NamesofthedirectorscomprisingtheAudit

Committee to be disclosed in the Annual Report.

• Thecommitteeshallmakeadeterminationof the independence of the Auditors and shall disclose the basis for such determination in the Annual Report.

• TheAnnualReportshallcontainareportbythe Audit Committee, indicating the manner of compliance in relation to the above.

CompliedMembers of the Audit Committee are listed on page 86.

Compliedthe Committee has determined the independence of the Auditors and have disclosed the basis of their determination in page 128 of the Annual Report.

CompliedAudit Committee Report is given on page 100 to 101

BAnk’S COMPlIAnCE wIth thE COdE OF BESt PRACtICE On CORPORAtE gOvERnAnCE ISSuEd JOIntlY BY thE SECuRItIES & ExChAngE COMMISSIOn OF SRI lAnkA (SEC) And thE InStItutE OF ChARtEREd ACCOuntAntS OF SRI lAnkA (ICASl) the Bank commenced voluntary compliance of the above Code of Best Practice commencing from January 2009 and the level and nature of compliance with the Code are set out below:

A. Annual ReportSubject & Ref. Corporate governance Principle level of Compliance

Chairman & CEOA.2.1 & A.5.6

if Chairman and CEO is one and the same person, disclose the name of the Chairman/CEO and Senior independent Director appointed and justification of the decision to combine the positions.

As outlined earlier, the positions of the Chairman and the CEO have been separated.

the current Chairman, Mr. E. Narangoda was appointed as a director to the board on 30th December 2008 upon the re-constitution of the Bank in terms of Section 30(9) of the Monetary Law Act). in view of the exigencies of the situation the Bank was faced with, he was appointed as Chairman in an executive capacity by the new board of directors on 5th January 2009.

the board has appointed Mr. N.M. Jayamanne PC, an independent Non-Executive Director of the Bank to function as the Senior Director of the board.

Board BalanceA.5.5

Should identify the independent Non-Executive Directors.

Compliedthe board maintains the correct balance of Executive and Non-Executive Directors. Eight of the ten directors on the board are Non-Executive Directors whilst 1/3rd of the board comprise independent Non-Executive Directors.


Subject & Ref. Corporate governance Principle level of Compliance

Appointment of New DirectorsA.7.3

When new directors are appointed, the following details should be disclosed.

• abriefrésumé of each such director;

• thenatureofhisexpertiseinrelevantfunctional areas;

• thenamesofcompaniesinwhichthe director holds directorships or memberships in board committees; and

• whethersuchdirectorcanbeconsidered independent.

Compliedtimely disclosure of details as required herein of new appointments made to the board are disclosed to the Colombo Stock Exchange and also in the Annual Report. Profiles of directors are given on pages 228 and 229.

Nominations CommitteeA.7.1

the Chairman and members of the Nominations Committee should be identified.

Chairman of the Committee is Mr. N.M. Jayamanne PC who is an independent Non-Executive Director. Other members are Rear Admiral (Rtd.) B.A.J.g. Peiris, M/s. A.L. Devasurendra and S.P.S. Ranatunga (appointed w.e.f. 13th January 2010).

Appraisal of Board PerformanceA.9.3

Should disclose how performance evaluations have been conducted.

Compliedthe board’s performance for 2009 was evaluated in January 2010 anonymously by the directors against the following criteria:

• Developingandmonitoringimplementation of strategy;

• Levelofbusinessandfinancialacumenand experience and level of contribution to the board in driving business goals and formulating strategy and policies;

• Ensuringrobustandeffectiveriskmanagement;

• Managementofrelationswithstakeholders including Employee relations;

• Ensuringeffectivenessofinternalcontrol mechanisms;

• Creditmanagementandmonitoring;

• Effectivenessofboardsubcommittees;

• Dischargeofstatutoryandregulatoryduties and other responsibilities of the board;

• Corporategovernancecompliance:

• Re-visitingHumanResourcesandProcurement policies;

• Overallviewofthemanagement of the business.



Board Related DisclosuresA.10.1

the following details pertaining to each director should be disclosed.

• name,qualificationandbriefprofile;

• thenatureofhis/herexpertiseinrelevant functional areas;

• immediatefamilyand/ormaterialbusiness relationship with other directors of the Company;

• namesofotherlistedcompaniesin Sri Lanka in which the director concerned serves as a director;

• namesofcompaniesinwhichthedirector concerned serves as a director and/or the fact that he/she holds other directorships in the group Companies;

• number/percentageofboardmeetings of the Company attended during the year;

• namesoftheCommitteesinwhichthe director serves as the Chairman or a member; and

• number/percentageofcommitteemeetings attended during the year.

CompliedDirectors’ profiles giving their qualifications, areas of expertise etc. are given on pages 228 to 229.

Details of directorships/other positions held, directors’ interests in contracts and related party transactions are given on pages 129 and 133 and also disclosed in Notes 42 and 43 of the Financial Statements.

Details of board meetings and board subcommittees, their composition, attendance by directors of meetings held during the year are given on pages 84 and 86 to 88 of the Annual Report.

Disclosureof RemunerationB.3

• AStatementofRemunerationPolicyand details of remuneration of the board as a whole.

CompliedPlease refer Remuneration Committee Report on page 103 and also Notes 7 and 42 of the Audited Financial Statements.

Major transactionsC.2

All major transactions entered into by the Company should be disclosed.

there were no major transactions entered into by the Company during the year under review which fell within the definition of Section 185 of the Companies Act No. 07 of 2007 which materially affected the asset base of the Company.



Audit CommitteeD.3.4

• NamesofthemembersoftheAuditCommittee should be disclosed.

• Basisfordeterminingtheindependence of auditors.

CompliedPlease refer the Audit Committee Report on page 100 to 101.

Please refer page 128 of the Annual Report.

Code of BusinessConduct and EthicsD.4.1 & D.4.2

• ShoulddisclosewhethertheCompanyhas a Code of Business Conduct & Ethics for directors and members of the senior management team.

• Shouldalsodiscloseanaffirmativedeclaration that they have abided by such Code.

• TheChairmanmustcertifythathe/she is not aware of any violation of any of the provisions of this Code.

Complied

going ConcernD.1.5

Should report that the Company is a going concern, with supporting assumptions and qualifications as necessary.

CompliedPlease refer “Statement of Directors’ Responsibility for Financial Statements”

B. Remuneration Committee ReportSubject & Ref. disclosure Remarks

Members ofRemunerationCommitteeB.1.3

the names of the members of Remuneration Committee should be disclosed in the Remuneration Committee Report.

CompliedPlease refer the Remuneration Committee Report on page 103 of the Annual Report and also page 124 of the Annual Report of the board of directors.


C. directors’ ReportSubject & Ref. disclosure Remarks

Directors’ ReportD.1.2

Should contain the following declarations made by the directors

• TheCompanyhasnotengagedinany activities, which contravenes laws and regulations;

• Thedirectorshavedeclaredallmaterial interests in contracts involving the Company and refrained from voting on matters in which they were materially interested;

• TheCompanyhasmadeallendeavours to ensure the equitable treatment of shareholders;

CompliedPlease refer pages 119 to 133 of the Annual Report of the board of directors.

• Thebusinessisagoingconcernwith supporting assumptions or qualifications as necessary; and

• Theyhaveconductedareviewofinternal controls covering financial, operational and compliance controls and risk management and have obtained reasonable assurance of their effectiveness and successful adherence herewith.

Please also refer the Audit Committee Report and the Risk Management Report set out on pages 100 to 101 and 63 to 74 respectively in the Annual Report.

d. Financial StatementsSubject & Ref. disclosure Remarks

Financial StatementsD.1.3

• Theboardofdirectorsshouldincludea Statement of Responsibility for the preparation and presentation of Financial Statements.

• Auditorsshouldalsohaveastatementabout their reporting responsibility.

CompliedPlease refer pages 134 and 135 of the Annual Report.

Please refer pages 136 to 137 of the Annual Report.


E. Management ReportSubject & Ref. disclosure Remarks

Management ReportD.1.4

Should include a ‘Management Discussion and Analysis Report’ discussing at least the following issues:

• industrystructureanddevelopments;

• opportunitiesandthreats;

• risksandconcerns;

• internalcontrolsystemsandtheiradequacy;

• socialandenvironmentalprotectionactivities carried out by the Company;

• financialperformance;

• materialdevelopmentsinhumanresources/industrial relations; and

• prospectsforthefuture

CompliedPlease refer pages 57 to 62 of the Annual Report.

F. Corporate governance ReportSubject & Ref. disclosure Remarks

Corporate governance ReportD.5.1

Should disclose the manner and extent to which the Company has complied with the principles and provisions of the Code.

Complied

g. Audit Committee ReportSubject & Ref. disclosure Remarks

Audit CommitteeReportD.3.3.

Should set out the work carried out by the Committee.

CompliedPlease refer page 100 to 101 of the Annual Report for the Audit Committee Report.

OthER MAttERSCompliancethe Bank’s Compliance Department is responsible for ensuring the Bank’s compliance with banking regulations and the compliance requirements under specific statutes namely, the Prevention of Money Laundering Act, No. 5 of 2006, the Convention on the Suppression of terrorist Financing Act, No. 25 of 2005 and the Financial transactions Reporting Act, No. 6 of 2006. the Bank has fully implemented the additional requirements in terms of Central Bank’s regulations on Know Your Customer (KYC)

and Customer Due Diligence (CDD). internal guidelines were formulated and circulated on KYC and CDD. External training and periodic extensive internal training programmes have been organised to educate and update the staff.

Monthly, quarterly and half yearly compliance reports are forwarded to the Central Bank confirming the Bank’s compliance with the regulations under Banking Act and its amendments. the board is apprised of the status of compliance by the Bank on a regular basis whilst a detailed compliance report is submitted on a monthly basis.


IntERnAl COntROl SYStEMSthe establishment of an effective internal control system is a pre-requisite to conduct banking business in an orderly manner, safeguard its assets and secure as far as practicable the accuracy and reliability of records.

the two major internal control systems prevalent in the Bank include the internal audit and information system audit. the internal Audit Department is an independent assurance function established within the Bank to examine and evaluate its activities. the internal Audit Department of the Bank carries out regular reviews on the internal control system to assist members of the organisation, especially management and the board of directors, in the effective discharge of their responsibilities by furnishing them with analyses, appraisals, recommendations, counsel, and information concerning the activities reviewed and by promoting effective control at reasonable cost.

through an effective internal audit mechanism, the risks associated with business decisions taken to improve productivity through enhanced customer services are closely monitored, assessed and wherever deemed necessary tools employed to manage risks are introduced and existing systems further strengthened. the process of identifying and evaluating and effectively managing risks associated with business processes and their supporting functions is reviewed by the board on a quarterly basis through the Audit Committee.

the information Systems Audit (iSA) Department plays a key role in the Bank’s internal control system and it governance structure. iSA provides information system governance, assurance and risk management services to the Bank ensuring that the corporate information system assets are safeguarded and banking services are delivered in an efficient, reliable and effective manner whilst protecting stakeholders’ interest. iSA Department is engaged in implementing it governance and information Security Management Programmes that are in compliance with the industry standards such as Control Objectives for information and

Related technologies (COBit), iSO 27001 and generally Accepted good Practice (gAgP). Recently the Business Continuity Management Plans have been prepared for the Bank as guided by the Central Bank and required structures and processes are in place to recover and resume its critical banking functions in a disaster situation.

CORRECtIvE ACtIOn /IMPROvEMEntS EFFECtEd BY thE nEw BOARd in view of the Bank not being fully compliant prior to 2009 with some of the provisions outlined above, the newly constituted board commenced adherence with the Central Bank Code of Corporate governance from 2009.

Also with the CSE Rules of Corporate governance becoming mandatory from the financial year commencing 1st January 2009, focus was given to both these regulations. the board also took cognisance of and became compliant with the Code on Corporate governance issued jointly by the SEC and iCASL in October 2008 as outlined above.

the board which was appointed on 30th December 2008 (upon the Seylan Bank board being reconstituted) initially functioned with six directors two of whom were appointed as Executive Directors and four being Non-Executive Directors. the board is headed by an Executive Chairman. the board comprised the correct mix of Executive and Non-Executive Directors. the four Non-Executive Directors fell within the criteria specified for ‘independent’ directors within the meaning of both Section 3 (2) (iv) of the CBSL Code and Rule 7.10.4 of the CSE Rules. the Bank has further ensured that all directors fall within the ‘fit and proper’ criteria laid down by the Central Bank under Section 42 of the Banking Act No. 30 of 1988 (as amended).

the new board also formulated a three-year Strategic Plan for the Bank under which a major restructuring and reorganisation of the Bank took place. the Strategic Plan has already been rolled out and the results of same will be seen towards the latter part of 2010/early 2011.


the board focused much of their attention on the following during 2009 in order to revive the Bank’s operations and bring it to a point of stability as well as to promote and promulgate a productive work culture within the Bank:

(A) Re-evaluation of lending criteria in terms of credit appraisals, approvals, collateral, single borrower limits, monitoring and follow up.

(B) Non-performing loan classification and income recognition: Strict compliance with CBSL guidelines, reversal of interest recognised, revaluation of collateral and loan loss provisions etc.

(C) Reviewing and revising delegated authority of line Management for lending based on past loan failures and officers’ credit expertise.

(D) Setting out delegated authority for procurement, supplies and administration.

(E) Human resources areas - comprehensive revamping of HR policies including implementation of Disciplinary Code, Staff Promotion and transfer and Rotation Policy, Retention Policy, Recruitment Policy and other policies on performance, training and secondment.

(F) Strategic Plan and reorganisation.

All the board subcommittees were reconstituted viz. Audit Committee, Credit Committee, integrated Risk Management Committee and Nominations Committee. terms of reference for each of the Committees were formulated/revised and approved by the new board.

New committees were also formed viz. Strategic Planning, Sustainability and Marketing and Product Development Committees which commenced their activities in 2010.

All subcommittees have met for a minimum of two meetings for the year except for the Nominations Committee. the Audit Committee has met 7 times during the year.

Upon the completion of the Central Bank assisted re-capitalisation process of the Bank, four additional directors were appointed to the board in November 2009 and one director in January 2010. With the appointment of the additional directors, the board restructured the board subcommittees. A Strategic Planning Committee of the board was also formed to give further impetus to the effective implementation of the Strategic Plan. All directors are members of this Committee which had its first meeting in January 2010.

OthER ACtIOnS tAkEn /IMPROvEMEntS tO BE EFFECtEd In FutuRE All new appointments made to the board in 2009 were as a result of the re-capitalisation process undergone by the Bank which concluded in November 2009 and as such the Nominations Committee has not focused its attention during 2009 towards having a formal board approved procedure for the selection of/recommendation of new directors to the board. this will be put in place in 2010.

Further, in carrying out the board’s responsibility of implementing succession strategy for the CEO and Key Management Personnel (KMPs), the Nominations Committee is currently in the process of working out a succession plan for the CEO and the KMPs of the Bank.


AUDit COMMittEE REPORt

COMPOSItIOn OF thE AudIt COMMIttEE the Board Audit Committee comprises of three Non-Executive Directors of the Bank, the majority of whom are independent. Consequent to the re-constitution of the board of directors, all subcommittees of the board were also re-constituted and the following directors were appointed to the Audit Committee in 2009. viz -

Mr. Lalith Withana (Chairman)

Mr. Naomal goonewardena (resigned on 3rd December 2009)

Mr. Nihal Jayamanne PC (appointed w.e.f. 24th February 2009)

Mr. Pradeep Kariyawasam (appointed w.e.f. 3rd December 2009)

the Chairman of the Committee is Mr. Lalith Withana, who is an independent Non-Executive Director and a Fellow of the institute of Chartered Accountants of Sri Lanka. Mr. Nihal Jayamanne PC is also an independent Non-Executive Director, whilst Mr. Kariyawasam is a Non-Executive Director. Mr. Naomal goonewardena, an independent Non-Executive Director of the board and who is a Chartered Financial Analyst, Associate Member of the institute of Chartered Accountants of Sri Lanka (ACA) and Associate Member of the Chartered institute of Management Accountants (ACMA), U.K., functioned as a member of the Committee until his resignation on 3rd December 2009. the Executive Director Mr. Nadarajah, Chief Executive Officer, Chief Financial Officer and Deputy general Manager, internal Audit attend committee meetings by invitation. the External Auditors attend the meetings whenever the Committee requires their presence. the Company Secretary functions as the Secretary to the Audit Committee.

MEEtIngS As per the Audit Committee Charter, the Committee is required to meet at least 4 times a year. However during the year under review, the Committee met seven times and reports of internal and external audits were discussed at these meetings. Attendance of the members at these Committee

meetings are given on page 86 of this Annual Report. the Minutes of the Committee were made available to the board of directors for information and necessary action.

tERMS OF REFEREnCEthe new Charter of the Audit Committee that was approved by the board at the beginning of the year defines the role, responsibilities and powers of the Audit Committee and it ensures that the composition and the activities of the Audit Committee are in line with international Best Practices and Corporate governance Rules as laid down in Section 3 (6) (ii) of the Banking Act Direction No. 11 of 2007, titled “Corporate governance for Licensed Commercial Banks in Sri Lanka” and subsequent amendments thereto, Rule 7.10.6 of the Listing Rules of the Colombo Stock Exchange and the Code of Best Practice on Corporate governance jointly issued by the Securities & Exchange Commission of Sri Lanka (SEC) and the institute of Chartered Accountants of Sri Lanka (iCASL).

MAIn RESPOnSIBIlItIESthe main objective of the Audit Committee is to assist the board of directors to effectively carry out its responsibilities relating to financials and other connected affairs of the Bank. the main responsibilities include -

1. Reviewing and monitoring the integrity of the Financial Statements, financial reporting, information databases and audit process.

2. Examining any matter relating to financial and other connected affairs of the Bank.

3. Monitor all internal and external audits and inspection programmes.

4. Review and take action on all internal and external audit reports and follow-up on the recommendations.

5. Review and monitor it governance activities.

6. Review and monitor the systems of internal controls.

7. Review and monitor the system for approval and monitoring of expenses including capital expenditure.

8. Review and monitor statutory and regulatory compliance process.


9. Approving the annual internal audit plans.

10. Review Bank’s annual and interim Financial Statements.

11. Review the process of carrying out investigations wherever necessary to assist the board.

ACtIvItIES duRIng thE YEARCommittee carried out the following activities during the year under review:

1. Audit CharterA new audit charter was prepared and approved during the year.

2. Financial Reportingthe Committee discussed and reviewed the financial reporting process in the Bank on behalf of the board. All interim Financial Statements and annual Financial Statements were reviewed prior to their release for compliance with statutory and regulatory requirements including the Sri Lanka Accounting Standards, the Companies Act No. 07 of 2007, Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, the Banking Act No. 30 of 1988 (as amended). Conformity was also ensured to other regulatory requirements such as the Listing Rules of the Colombo Stock Exchange and Banking Act Direction No. 11 of 2007 and subsequent amendments thereto.

3. Regulatory Compliance Procedures were in place to ensure compliance with banking and other statutory regulations. During the year, these procedures were reviewed through monthly/quarterly reports submitted by the senior management to the board of directors.

4. Internal Audit and InspectionBank was able to prepare an annual audit plan for the year under review. A total of 39 audits and 90 investigations were carried out. the Audit Division was also restructured and a new DgM was recruited, who has an extensive industry and auditing experience. Work is currently in progress to restructure the internal Audit Division again combining the information systems audit functions with the Division. the Committee reviews and

monitors the effectiveness of the internal audit and inspection functions and the performance of the internal Audit and inspection Department.

5. External Auditthe Committee met with the External Auditors - KPMg Ford, Rhodes, thornton & Co., during the year to discuss the Management letters and the Financial Statements and also to plan out the scope, approach and the methodology to be adopted in carrying out the annual audit.

6. Audit Manualthe Committee has approved outsourcing the preparation of a risk-based internal Audit Manual for the Bank to PricewaterhouseCoopers, Chartered Accountants.

7. governancethe Committee also ensured that good corporate governance was practiced in conformity with the Banking Act Direction No. 11 of 2007 and subsequent amendments thereto (Central Bank Code of Corporate governance for licensed commercial banks), the Listing Rules of the Colombo Stock Exchange and the Code of Best Practice on Corporate governance issued jointly by the SEC & iCASL and the appropriate procedures were in place to conduct independent investigations whenever it was needed.

8. Evaluation of the CommitteeAs authorised by the board, the Nominations Subcommittee of the board through an annual evaluation, assessed the effectiveness of the Audit Committee as satisfactory.

the Audit Committee has recommended to the board of directors that Messrs KPMg Ford, Rhodes, thornton & Co., be re-appointed as Auditors for the financial year ending 31st December, 2010 subject to the approval of shareholders at the next Annual general Meeting.

lalith withanaChairman - Audit Committee

26th January 2010


BOARD iNtEgRAtED RiSK MANAgEMENt COMMittEE REPORt

COMPOSItIOn OF thE COMMIttEEthe Board integrated Risk Management Committee was set up in 2007. During the year 2009, the composition was changed and new board members were appointed to the Committee. the Committee comprised of the following during the year 2009:

• Mr. Ajith Devasurendra - Non-Executive Director, Chairman of the Committee (appointed w.e.f. 3.12.2009

• Mr. Naomal goonawardena - independent Non-Executive Director

(resigned on 03.12.2009) - Chairman of the Committee, till 03.12.2009)

• Mr. Lalith Withana - independent Non-Executive Director

• Mr. Pradeep Kariyawasam - Non-Executive Director

the Executive Director, Mr. Nadarajah, the CEO, CFO and Key Management Personnel supervising broad risk categories, i.e., credit, market, liquidity, operational and strategic risks attend the Committee meetings by invitation.

FunCtIOnS And tERMS OF REFEREnCE OF thE COMMIttEE the Committee was assigned revised terms of Reference (tOR) during the year 2009. the Committee’s responsibilities broadly include assessment of all risks, i.e., credit, market, liquidity, operational and strategic risks to the Bank through appropriate risk indicators and management information and reviewing the adequacy and effectiveness of management level committees set up to address specific risks and the Asset-Liability Committee to address and manage such risks.

the responsibilities and the key functions of the Committee as detailed in the terms of reference are given under the Risk Management Report of this Annual Report.

COMMIttEE MEEtIngS the Committee met thrice during the year 2009.

PROCESS OF FunCtIOnIng OF thE IntEgRAtEd RISk MAnAgEMEnt COMMIttEEthe Committee works closely with the board of directors as well as the senior management in fulfilment of the Bank’s regulatory and statutory responsibilities in Risk Management.

Ajith devasurendraChairman - Integrated Risk Management Committee

16th February 2010


REMUNERAtiON COMMittEE REPORt

the Remuneration Committee appointed by the board comprises of six Non-Executive Directors, three of whom are independent. the Committee is headed by an independent Non-Executive Chairman, Mr. N.M. Jayamanne PC and the members include Messrs P.L.P. Withana, P.g.S. Kariyawasam, Rear Admiral (Rtd.) B.A.J.g. Peiris, Dr. N.H. godahewa and Mr. S.P.S. Ranatunga.

Messrs P.g.S. Kariyawasam, Rear Admiral (Rtd.) B.A.J.g. Peiris and Dr. N.H. godahewa were appointed to the Committee with effect from 3rd December 2009 when the Committee was re-constituted. Mr. S.P.S. Ranatunga was appointed to the Committee with effect from 13th January 2010. Brief profiles of the members are given on pages 228 and 229 of the Annual Report.

the general Manager/Chief Executive of the Bank is co-opted to the meeting and the Deputy general Manager - Human Resources and Administration and Chief Manager - Finance assist the Committee by providing relevant information for their decision making within their board approved terms of reference.

the Committee met twice during the year under review. the Minutes of the Committee meeting were made available to the board of directors for their information and necessary action and were affirmed by the board.

REMunERAtIOn POlICY And FunCtIOnSthe Remuneration Committee is responsible for determining the compensation of the Executive Chairman and the Executive Director. Aggregate remuneration paid to Executive and Non-Executive Directors is set out in Note 7 to the Financial Statements.

the Committee also determines the compensation and benefits of the key management personnel including gM/CEO based on established performance parameters. in addition to that the Committee is responsible to lay down guidelines and parameters for the compensation structures for all executive staff of the Bank and oversee the implementation of these policies.

the Committee also determines the basis of revising remuneration and other benefits paid.

nihal Jayamanne PCChairman - Remuneration Committee

16th February 2010


NOMiNAtiONS COMMittEE REPORt

the Nominations Committee appointed by the board comprises of four Non-Executive Directors two of whom are independent. the Committee is headed by Rear Admiral (Rtd.) B.A.J.g. Peiris and the members include Messrs Nihal Jayamanne PC, Naomal goonewardena (until his resignation on 3rd December 2009), A.L. Devasurendra and S.P.S. Ranatunga upon Mr. goonewardena’s resignation, Mr. Ajith Devasurendra was appointed w.e.f. 3rd December 2009 and Mr. Samantha Ranatunga was appointed w.e.f. 13th January 2010. Messrs Ajith Devasurendra and Samanatha Ranatunga are Non-Executive Directors. All Committee members are appointed by the board of directors of the Bank. the Company Secretary functions as the Secretary of the Committee.

Brief profiles of the members of the Committee are given on pages 228 to 229 of the Annual Report.

the general Manager/Chief Executive of the Bank attends the meeting by invitation.

nOMInAtIOnS COMMIttEE ChARtERthe Nominations Committee is responsible for the following:

• implementation of procedure to select/appoint new directors, CEO and key management personnel including review of the structure, size, composition and competencies of the board from time to time;

• Recommend (or not recommend) the re-election of current directors having regard to their performance and contribution towards the overall discharge of the board’s responsibilities.

• Establish criteria to determine eligibility for appointment or promotion to the post of CEO and the key management positions.

• Ensure that the directors, CEO and key management personnel are fit and proper persons to hold office as specified in the criteria given in Direction 3(3) of the Banking Act Direction No. 11 of 2007 (‘Code of Corporate governance for licensed commercial banks in Sri Lanka’) and subsequent amendments thereto.

• Review and recommend requirements of additional/new expertise and the succession arrangements for retiring directors and key management personnel from time to time.

the Committee met once during the year under review. the Bank implemented a strategic plan in September 2009 and made significant changes in the Bank’s organisation structure and key management personnel heading core areas commencing from the last quarter of 2009 in line with the strategic plan implementation. Further changes to the organisation structure and determining succession arrangements for key management personnel are yet underway.

Also in view of appointments to the board during 2009 taking place as a result of the re-capitalisation process, the Committee has earmarked its scope for reviewing the composition and structure of the board with a view of maintaining a balance of skills on the board as a necessary function to be performed commencing from 2010.

Rear Admiral (Rtd.) B.A.J.g. Peiris Chairman - Nominations Committee

16th February 2010


RAISIng thE BARin this part of the Report the Bank examines the impact our activities have had on

the economy, the environment and society in general. today the goal of any corporate entity is not just to deliver consistent financial

value to its investors, but to ensure that its activities generate a broader social wealth that can be distributed among a wider group of stakeholders, including our investors. this is one of the goals of modern corporate citizenship: to ensure that diverse social groups are empowered; to unleash new opportunities; to invest in both Company and society; and to fan new and creative ideas.

We hope the publication of the Sustainability Report will enhance transparency with regard to all aspects of our operations and strengthen public confidence in the institution. We hope it will enable us to push the bar higher and continue to deliver financial, social and environmental value consistently and ethically.

Eastman narangodaExecutive Chairman

SUStAiNABiLitY REPORt


SuStAInABlE dEvElOPMEnt AIMS tO MEEt thE nEEdS OF thE PRESEnt wIthOut COMPROMISIng On thE ABIlItY OF FutuRE gEnERAtIOnS tO MEEt thEIR Own nEEdSSeylan Bank, as a major player in the financial industry in Sri Lanka, is committed to a vision of sustainable development. the Bank’s processes and systems are geared to ensuring that the Bank promotes sustainable development in the way it designs products, delivers financial services, organises the workplace and engages with society.

in this report we document the impact of the Bank’s activities on the economy, the environment, and society in general. it also documents how the Bank has been generating a larger social wealth for all our stakeholders. the Company’s stakeholders are many. they consist of our customers; our employees and their families; our shareholders; our business partners; the larger society; and generations yet unborn.

While building financial wealth for our shareholders is one of the things we do, we are also conscious that our activities have an impact on the physical environment, the economy, and society in general. While generating financial value we continue to work to protecting the environment, fuelling the economy, empowering communities and creating new opportunities for our employees.

the Bank hopes that this Sustainability Report will provide information on all aspects of our operations: the tangible and t he intangible. We hope this process will enhance transparency, facilitate better communication with our stakeholders and increase stakeholder confidence in our operations.

Creating a more enduring social wealth has required the Bank to constantly re-design its strategy, mindset and internal processes. the Bank is constantly re-evaluating its methods of work and looking at how we can strengthen our performance on all fronts: the financial; the social and the environmental.

Reporting on an institution’s economic, environmental and social performance supports the Bank’s financial reporting. Candid sustainability reporting also enables the Bank to review our systems scrupulously and to improve on the processes we have already established.

While generating a broader social wealth the Bank has not compromised on the quality of its products and services; on business ethics and

transparency; on serving all social segments; and on creating safe and enjoyable workplaces.

in 2009, the Bank established a Sustainability Committee. the Committee will enable the Bank to engage in CSR activities in a coherent and structured manner. Within the larger CSR are three thematic subcommittees that look at the relevance and feasibility of Sustainability projects with regard to society; the economy; and the environment. the Bank also has a Sustainability Committee at board level and all these Committees are responsible for guiding the CSR activities of the Bank.

the global Reporting initiative (gRi) has developed a framework for sustainability reporting. the framework was developed through a process of extensive consultation with a wide variety of stakeholders. We have used the gRi framework as a model for this year’s Report.

the Boardthe board of directors establishes overall policy for sustainable entrepreneurship in consultation with the three subcommittees: the Economic Subcommittee; the Environment Subcommittee and the Social Subcommittee.

Organisational Profilethis Report covers the activities of Seylan Bank PLC during the period from 1st January 2009 to 31st December 2009. From pages 138 to 226 we analyse the business and financial activities of the institution and provide detailed information on the Bank’s performance over the past year.

Any questions or comments about this Sustainability Report should be directed to the general Manager/CEO of Seylan Bank PLC, Mr. Ajita Pasqual on telephone No. 00 11 2456755.


Seylan Bank SubsidiariesName of Company % Holding

of the BankPrincipal area of Business

Seylan Developments PLC

50.29% of Ordinary Share Capital

Property Development

Seylan Bank Asset Management Limited

100% of Ordinary Share Capital

Dealing in government Securities

AwardsLast year the Bank was placed first in the trade Finance Quiz organised by the trade Finance Association of Bankers, first in inter-Bank Quiz organised by the Association of Chartered Bankers of Sri Lanka and first in the WiSDOM 2009, the quiz challenge organised by the Management Club of galle Face Hotel. the Bank was placed fourth in the Sri Lanka Masterminds Quiz organised by the Lions Club of Moratuwa.

Stakeholder dialogue the Bank values the input of its multiple stakeholders and has put in place a number of processes to enable stakeholders to contribute to decision making within the Company. Stakeholder input has had an important impact on decision making within the Company previously and will continue to play a role within the institution.

the Bank has tried to engage with as many stakeholders as possible and to be sensitive to their views and interests. Customers and shareholders, generally tend to influence decision making more than others. However, we have tried to ensure a voice for employees, the community and other stakeholders as well, and endeavour to see that decisions are taken with all interests in mind.

Shareholders

the board encourages the active participation of the shareholders at its Annual and Extraordinary general Meetings. the AgM is the main forum at which shareholders discuss performance, financial statements, returns, appointments and other relevant matters. the heads of the Audit, Credit and integrated Risk Management Committees are present at the AgM to respond to any queries from the shareholders.

Shareholders are free to communicate with the Bank and their requirements and queries are promptly addressed. Suggestions made by them are implemented whenever possible. According to the Companies Act No. 07 of 2007, notice of at least 15 working days must be given to shareholders prior to the conduct of the AgM. the Bank ensures that it complies with this requirement.

Customers

the Bank ensures that its products and services are driven and shaped by customer needs and aspirations. With this in mind, the Bank maintains close relations with customers and tries to obtain as much feed back and input as possible.

Customer feedback is one of the main methods the Company uses to improve the levels of its products and services and to respond to customer demands and expectations.

Customer surveys are conducted bi-annually by selecting a sample size from the existing customer base. Customer complaints are dealt with by the branch managers and the line managers and necessary corrective measures taken.

Employees

the employees are represented by two trade unions: the Seylan Bank Employees’ Union and the Ceylon Bank Employees’ Union.

the unions play a crucial role in representing the interests of the employees with the management. Every month the Chairman meets representatives of the two unions to discuss employee relationships and employee grievances. in addition, the unions have regular access to members of the senior management team.

the Bank’s ‘Open Door’ policy enables any employee to have a face to face discussion with the Executive Chairman. Every thursday of the week is reserved by the Chairman for this purpose. the ‘Open Door’ Policy facilitates closer contact between employees and the senior management, enhances employee confidence and forges a dynamic organisational culture.

Regular e-newsletters are circulated by the Welfare Association and can be accessed on the Welfare Website.


ECOnOMIC IMPACtthe Bank is committed to generating both social and financial values. While generating financial value for our shareholders is one of the main activities of the Bank, we are also conscious of the larger social obligations we have. this obligation is larger given that we provide a broad range of financial solutions to a wide range of customers from all social segments. We are conscious of the impact we have on all these social segments and conscious of the impact our products and policies have on the economy and society in general.

in this respect, the Bank seeks to generate value in all geographical regions of the country and among all social segments. Creating new jobs; establishing new opportunities; designing specially-tailored products and services; and empowering socially disadvantaged groups; are all part of the Bank’s attempts in value creation.

this part of the Report looks at the Bank’s impact on investors, customers and employees.

the ‘Value Added Statement’ of the Bank shows the wealth the Bank has created with regard to its customers, employees and shareholders and the contribution of the Company to the government’s revenue and the economy in general.

the Bank generated a total value of Rs. 4.66 Bn. for the year under review as against Rs. 4.58 Bn. the previous year. this was distributed among government, the employees, and shareholders.

Rs. 2.34 Bn. or 50.24% of the value generated was distributed among employees as compensation. Rs. 0.99 Bn. or 21.25% was paid to the government by way of taxes, including the Special Financial VAt. A sum of Rs. 1.33 Bn. was retained for further expansion of the Bank’s activities.

in the year under review, the Bank supported a number of initiatives that had broad social goals by way of loan facilities. A sum of Rs. 4.2 Mn. was the loan outstanding for water purification, water supply and waste water management. A sum of Rs. 12.6 Mn. was outstanding for power generation including mini-hydro power projects.

vAluE AddEd StAtEMEntValue added is the wealth the Bank has been able to create by providing clients with a quality, value added service.

Last year the Bank went through a crisis resulting from a sudden loss of public confidence. the Central Bank stepped into help stabilise the situation and appointed a new board of directors under the stewardship of the Executive Chairman. the Bank is proud to have confronted and overcome this crisis without any financial assistance from the State.

Investors

Earnings per share increased by Rs. 1.93 (214%) during the year under review. this was a result of the increase in profits by Rs. 388 Mn. the reasons for this are discussed more fully on pages … of the income Statement.

the value that accrues to a shareholder is a combination of the dividend per share and the appreciation/depreciation of the value of a share over the medium to long term.

Employees

the Bank has in place a market-based compensation scheme for its employees which is on par with the rest of the industry. Statutory requirements are stringently observed.

the Bank also provides medical insurance which covers most aspects of surgical and medical illnesses to its staff. in addition, employees are eligible for a variety of other benefits which include loans at concessionary rates and several other welfare facilities.

All employees are entitled to benefits under the Employees’ Provident Fund (EPF) and Employees’ trust Fund (EtF). in 2009, the Bank’s contribution towards the benefits under the EPF and EtF was Rs. 229.34 Mn. and Rs. 57.30 Mn. respectively.

the Bank has in place a comprehensive retirement benefits plan accounted for as per Sri Lanka Accounting Standard 16. the Bank measures the present value of the defined benefit obligation every year using the Projected Unit Credit Method defined by the Actuary. the following are taken into account by the Actuary when making the assessment: the existing interest rate; the rate of increase in salary and the retirement age of 55 years


Customers

the Bank’s products are geared towards meeting the goals and aspirations of its customers. the Bank is in constant touch with its customers through a variety of processes.

2009 2008Rs. ’000 Rs. ’000

value Added income Earned by Providing Banking Services 22,496,007 24,599,015 Cost of Services (16,308,349) (18,193,869)value Added by Banking Services 6,187,658 6,405,146 Non-Banking income 658,522 647,194 Provision for Bad Debts (2,183,132) (2,467,187)

4,663,048 4,585,153

2009 2008Rs. ’000 Rs. ’000 % Rs. ’000 Rs. ’000 %

value Allocatedto EmployeesSalaries, Wages and Other Benefits 2,342,563 50.24 3,361,212 73.31to Providers of CapitalDividends to Shareholders 6,238 0.13 255,900 5.58to governmentincome tax 349,271 – Stamp Duty 63,007 65,053 VAt 176 38,022 VAt on Profit 561,440 243,055 Debits tax 16,890 990,784 21.25 14,673 360,803 7.87to Expansion and growthSurplus/(Deficit) 543,301 (100,659)Depreciation 786,400 1,323,463 28.38 707,897 607,238 13.24

4,663,048 100.00 4,585,153 100.00

Dedicated relationship managers oversee high net worth customers. the Bank’s employees provide advice and other support to all our customers on a regular basis.


PROtECtIng thE EnvIROnMEnt the Bank is committed to preserving and replenishing the physical environment. All our policies and products are designed with this end in sight. through engagements with our customers we seek to spread the message of conservation to a broader audience as well. Some of our special products are designed specifically to protect the environment and others encourage clients to integrate environmental concerns into their project planning and implementation processes.

in this section we examine how the Bank’s policies and processes help preserve the environment and ensure its sustainability. A key aspect of the Bank’s environmental strategy has been the focus on the employees and on generating a cultural change within the organisation that is committed to protecting and preserving the environment.

the Bank has integrated energy-saving processes and technologies throughout the country and in all its branches. in redesigning its processes the Bank has focussed on the following areas:

Energy Conservation Waste ManagementPaper Management

Energy Conservationthe Bank constantly monitors its energy use with a view to reducing costs and making maximum use of the energy consumed. the main source of the energy is the national grid. the Bank is exploring the use of alternative and renewable sources of energy in its branches.

Energy Conserved Energy Consumption

Head Office 2009 2008

Consumption (Units) 2,504,928 2,827,026Expense (Rs.) 49,300,577 52,290,190

the head office and many of the Bank’s branches have replaced their incandescent lamps with energy-saving bulbs. By 2011, we will have all our branches using energy-saving bulbs. Natural sunlight is used where possible.

the use of air-conditioners is reduced wherever possible and temperatures are regulated to create optimum levels of comfort. Computers come with low radiation levels and are programmed to transit to stand by mode within a short time of idling.

waste Managementthe Bank’s policies and processes have been adapted so as to reduce waste. Where waste does arise, the Bank tries to reuse and recycle wherever this is technically and economically feasible.

Some of the Bank’s branches have introduced systems to segregate waste into plastics, solid waste, paper, glass and other materials. We are exploring several waste disposal and reuse options in this regard.

We have partnered with N.S. gunaratne and Co. to dispose of discarded accessories from the Head Office and branches in an environmentally friendly way.

in the coming year, we hope to collect all used toner cartridges in a central location and ensure that they are disposed of an environmentally friendly way.

Paper Managementthe Bank’s objective is to move towards a paperless office in the near future. With this in view the Bank has reduced substantially the amount of paper used within the office. Last year, the Bank spent Rs. 145.164 Mn. on stationery as against the Rs. 174.288 Mn. spent a year previously.

Expense 2009 Rs.

2008Rs.

Stationery 145,164,498 174,288,304

the Bank makes maximum use of electronic communication so as to reduce paper usage.

Communications with customers make optimum use of electronic channels and the Bank has attempted to keep paper communications to a minimum. Where possible, paper is recycled and reused.


EMPOwERIng PEOPlEthe Bank’s role as a financial services provider means it plays a sensitive role in people’s lives. the Bank has been conscious of this role and has focused on unleashing new opportunities for society in general and for its employees. Employees are the soul of the institution and we have endeavoured to create inspiring and safe workplaces for our staff. in this section we look at how the Bank’s activities impact on society and on our employees.

Category of Employment Category No. of Employees Percentage (%)

Permanent 3,504 94Contract 45 1trainee 184 5

No. of Employes based on CountryCountry No. of Outlets No. of Employees

Oman 1 5Dubai 1 1Saudi Arabia 1 1Sri Lanka* 93 3,726*

No. of Employes based on Geographic BreakdownProvince No. of Outlets No. of Employees

Northern 3 65Southern 7 170Eastern 5 109Western 49 2,657*Central 9 240North-Central 5 106Uva 2 52Wayamba 5 148Sabaragamuwa 8 179total 93 3,726*

* No. of employees includes Head Office staff too

Rewarding Innovation and Passion the Bank has focused on building a dynamic team that is bonded by a common set of values and goals and committed to a notion of sustainable entrepreneurship. the Bank has encouraged productivity, rewarded passion and ensured the highest levels of workplace safety. the Bank continues to invest in their skills and future growth.

Every member of the staff came together during the recent crisis the Bank faced. the Bank had to respond to a sharp decline in public confidence and a change in the ownership and management structure of the Bank. the resilience and innovation displayed by the entire team enabled the Bank to make this transition relatively smoothly.

As at the end of 2009, the Bank had 2,550 employees in 93 branches across the country. the employee turnover for the year was 146 or 3.8 % of the total workforce.

Age No. of Resignations

No. of Retirements

-19 – –20 - 24 43 –25 - 29 36 –30 - 34 26 –35 - 39 22 –40 - 44 8 –45 - 49 7 –50 & above 4 20

the Bank recognises the right to freedom of association and the right of employees to collectively bargain for their rights. two major trade unions operate within the Bank. Some employees are members of both unions. the management is in regular consultation with representatives of the unions to ensure that


worker satisfaction is at optimum levels. the Bank also has an ‘open door’ policy where any employee can speak directly with the higher management.

No. of Employees in the Unions of the BankName of Union/ Associations No. of Employees

Seylan Bank Employees’ Union 1,858Ceylon Bank Employees’ Union 2,435

Breakdown of Employees per Category according to Gender*grade 1 2 3 4 5 6 7 8 9 10 11 total

Male 40 256 878 297 356 155 110 81 66 29 34 2,302

Female 1 – 560 268 344 110 79 46 11 5 7 1,431

Breakdown of Employees per Category according to Ethnic Group*grade 1 2 3 4 5 6 7 8 9 10 11 total

Sinhala 30 238 1,303 527 640 239 167 98 59 28 35 3,364

tamil 9 9 111 28 42 16 13 10 6 3 3 250

Muslim – 9 18 6 10 4 6 11 7 3 2 76

Burger 1 – 2 4 7 6 2 6 5 – 1 34

Others 1 – 4 – 1 – 1 2 – – – 9

there were no cases of discrimination or

unfair dismissal and there were no court cases that were pending against the Bank during the year under review.

the Bank ensures that all employees can practice their religion without any hindrance.

All permanent employees of the Bank are covered by Bank’s Hospitalisation and insurance Scheme. the Bank’s Health Policy makes direct payments through the Sri Lanka insurance Corporation to the respective hospital on behalf of the employee. Critical illness Cover and Death Cover are also provided.

Educational expenses that pertain to a staff member’s employment are partially reimbursed and subscriptions for membership in recognised professional bodies are covered by the Bank.

Every year the line manager will evaluate an employee’s performance and discuss career advancement plans. Permanent employees (who make up 93.87% of the staff) are appraised every year, and employees on contract (who make up 1.23% of the workforce) are appraised at the time the contracts are renewed. trainee banking assistants are appraised at the end of their training period.

We ensure that every employee goes through a periodic appraisal. Our goal is to ensure that the Bank’s aspirations match the employee’s expectations and to create a win-win situation for both.

Child labour

the Bank has a zero tolerance of child labour. the Bank takes the position that all children under the age of 18 should have an opportunity to further their education and so does not employ anyone under that age. We attempt to promote this policy with our customers and business partners.

health and Safety

Ensuring the highest levels of workplace safety is a priority for the Bank. the Bank periodically undertakes an assessment of its safety levels across the country to ensure that the highest levels of safety are observed across the institution. Last year, there were no accidents recorded on any of its premises.

the Bank periodically arranges for the staff to attend lectures on a variety of health-related matters conducted by medical experts from private hospitals.

Counselling is provided by the Bank on alcoholism, drug addiction, stress management and emotional illnesses. Regular fire drills and in- house programmes on first aid are also conducted.

* Staff Grades

7. Assistant Manager 8. Manager9. Senior Manager10. Chief Manager11. Assistant General Manager & above

1. General Office Assistant I 2. General Office Assistant II3. Banking Assistant I & II4. Banking Assistant III5. Executive Officer I6. Executive Officer II


The Employees of the Bank taking part in the ‘Jaya Maga’ Campaign - January 2009 Region-wise sports festival for Bank staff was one of the many activities organised to foster solidarity and fellowship

The Bank made a donation of essentials towards the welfare of Internally-Displaced Persons

Seylan Bank Sports Club participated in the ‘Api Venuwen Api’ Programme to assist security forces

The Bank donated Surgical Masks to the Cancer Hospital in Maharagama for Child Patients

The Bank through the Sports Club made donations to Army Personnel of the Sri Lanka Army Camp, Minneriya


Employee welfare

Bank employees enjoy a number of benefits. these include:

Benefits Full-time Employees (Permanent)

Bonus YesHoliday Pay Yesinsurance YesStaff Loans YesRoutine Medical Allowances YesSpectacles Allowance YesHonorarium Payment YesAnnual Membership Subscription Yes

training

training is a crucial component of the Bank’s corporate philosophy. Every year the Bank invests substantially in upgrading the skills of its employees.

Last year, the Bank invested Rs. 27 Mn. on the training of its employees. 274 employees benefitted from External training Programmes. A total of 7,366 participants attended Regional and in-House training Programmes during 2009.

Employee Category

No. of training Hours (X)

No. of Employees (Y)

X/YHours

1 360 41 8.782 2,530 256 9.883 25,570 1,438 17.784 10,844 565 19.195 10,891 700 15.566 3,664 265 13.837 2,101 189 11.128 1,215 127 9.579 477 77 6.1910 80 34 2.3511 72 43 1.67

Sportsthe Bank has an active sports club and a welfare society, both of which are self-managed.

Among the main events for the year are the regional sports festivals organised in the different regions. Last year, sports festivals were held in Kandy, Koggala and Polonnaruwa and brought together representatives from branches in the vicinity.

Apart from participating in a range of sports activities, participants also have the opportunity to interact with their peers at a reception and dinner afterwards.

Promoting human Rightsthe Bank is committed to all those human rights enumerated in the Constitution of Sri Lanka and the international covenants that the country has signed. Promoting and protecting human rights is an important part of our endeavour in sustainable entrepreneurship.

the Bank respects, protects and promotes the rights of all its employees, including the labour-related rights, and also promotes the rights of all other stakeholders. the Bank encourages our customers and business partners to integrate similar commitments in their business practices.

Ensuring that women have equal rights within the institution is important to the Bank. We attempt to create an environment in which women feel comfortable and perform at optimum levels. Allegations of harassment are investigated promptly and remedial measures taken.

EMPOwERIng lIvESEvery year, the Bank invests in the future of the broader society. through these initiatives the Bank hopes to empower disadvantaged groups and create new opportunities for other social segments.


Promoting Ethnic harmony the end of the war in 2009 has created a massive opportunity for the country. For the first time in thirty years, the government’s writ runs over the entire country. this opportunity must be seized by the state, business and civil society and made use of to lay the foundations for a peaceful and prosperous society.

in the past year, the Bank focussed on promoting ethnic harmony and promoting reconciliation among the different communities. it is important to provide the opportunity for all communities to overcome the trauma of the war, to move forward in a spirit of harmony and to feel a sense of belonging.

Over the years, the Bank has been involved in promoting a sense of harmony by sponsoring initiatives in connection with the Sinhala and tamil New Year. Last year was no different. the Bank sponsored the traditional ‘Oil Anointing Ceremony’ (Hisa thel gama) at the Haththaka Rajamaha Viharaya, Niyagama, Hiniduma and also sponsored the ‘Kokila Wasanthaya Avurudu Ullela’ held at the Poddiwela Maha Vidyalaya organised by the Niyagama Divisional Secretariat and Niyagama Provincial Council.

the Bank also made significant contributions towards the Annual Kataragama Esala Perahera and contributed towards the live telecast of the Annual ‘Jasmine Flower Offering Ceremony’ (the Pichcha Mal Poojawa) which was held for the 20th year in Anuradhapura and organised by the Shanthi Foundation - Seruwila Buddhist Centre.

the Bank sponsored the Special tV Programme on the ‘Madhu Festival’ in August 2009. the Madhu Shrine is venerated by Sri Lankan Catholics from all communities and the festival was conducted in 2009 in an atmosphere free of violence for the first time after almost 30 years.

the Bank made a contribution of Rs. 1.5 Mn. to help the internally displaced persons who were being held in camps in Vavuniya and Mannar.

the reconstruction of the Yal Devi railway line linking the South with the North is a major part of the government’s reconciliation programme. the Bank made a significant contribution towards this initiative. Facilitating the movement of people between the ravaged North and the South of the country is vital if the country is to move into an era of peace and ethnic harmony and the Bank is proud to have been part of this initiative.

Empowering the disadvantagedthere were a number of other initiatives in which the Bank was involved.

the North-Central Province has recently been the site of a number of cases with kidney problems. this has been traced to high levels of calcium in the water in that area.

in 2009, a special renal care and research centre was built by the National Kidney Foundation in the Anuradhapura District in order to treat those patients. the Bank made a significant contribution towards the cost of the electrical cables for the transplant theatre complex.

Surgical masks were donated, with the assistance from the Seylan Bank Sports Club, to the Cancer Hospital in Maharagama, to be worn by the child-patients undergoing surgical treatment.

the Bank also supported the Sri Lanka Model United Nations 2009 Conference, contributed to Sri Lanka international Film Award Ceremony and helped the Association of Professional Bankers of Sri Lanka which, conducted their 21st Anniversary celebration in September 2009.

‘grameen’ loansthe Bank provides ‘grameen’ loans for agriculture, fisheries and small industries. the objective of these loans is to enable small business folk to engage in entrepreneurship without the risks and constraints of conventional financing.


these loans start at Rs. 5,000/- and are progressively increased to Rs. 100,000/- depending on how the customer performs.

Grameen Loans No. of Beneficiaries Loan Outstanding Rs. Bn.

157,883 2.499

Other Sector Loans Sector Amount Rs. Mn.

Agriculture 212.09Fisheries 39.15 Education Development 190.15Health Services 159.45Pharmaceuticals 58.40

gRAduAtE lOAnSthe Bank provides small loans at concessionary rates of interest to graduates who wish to establish their own businesses. Rs. 391.1 Mn. was dispensed under this scheme during the year under review.

Senior CitizensCitizens over the age of 55 receive a number of benefits from the Bank.

Fixed deposit holders receive premium interest rate on their deposits.

Critical insurance cover up to Rs. 50,000/- is provided.

in the case of saving accounts senior citizens are entitled to:

the cost of lenses for cataract surgeries.

Reimbursement of the cost of surgery.

Birthday gifts.

the reimbursement of reading material.

the reimbursement of medical bills up to Rs. 5,000/- for those over the age of 70.

Corruptionthe Bank has a policy of zero tolerance on corruption. it does not encourage ethically unsound or corrupt practices on the part of our customers or business partners. the internal Audit Department carries out Audits in branches to ensure compliance in this regard.

Regular training programmes on anti-corruption are conducted among the Bank’s employees. Last year, 35 training programmes on anti-corruption were conducted for the staff.

Anti-Competitive Behaviourthe Bank does not engage in anti-competitive behaviour and does not support other institutions engaging in such practices. No legal actions have been filed against the Bank in this regard.

Customer Privacythe Bank takes the utmost care to respect customer privacy and ensure that customer data and information is fully protected. Employees in possession of confidential data are required to take an oath of secrecy.

FINANCIAL CALENDAR UNAUDITED QUARTERLY FINANCIAL STATEMENTS 1st Quarter 31st March 2009 Issued to Colombo Stock Exchange 04th June 2009 Published in Newspapers 05th June 2009

2nd Quarter 30th June 2009 Issued to Colombo Stock Exchange 27th July 2009 Published in Newspapers 29th July 2009

3rd Quarter 30th September 2009 Issued to Colombo Stock Exchange 26th October 2009 Published in Newspapers 27th October 2009

4th Quarter 31st December 2009 Issued to Colombo Stock Exchange 16th February 2010

AUDITED FINANCIAL STATEMENTS AND ANNUAL REPORT Year Ended 31st December 2009 Issued to the Colombo Stock Exchange March 2010 Circulated to Shareholders and Debenture Holders March 2010

23RD ANNUAL GENERAL MEETING TO BE HELD ON 26th MARCH 2010

PREFERENCE DIVIDEND Payable for the year ended 31st December 2009 Date of Payment 31st March 2010

FIRST AND FINAL ORDINARY DIVIDEND Payable for the year ended 31st December 2009

Date of Payment 7th April 2010

FINANCIAL REPORTS

Annual Report of the Board on the State of Affairs of the Company 119

Directors’ Responsibility for Financial Reporting 134

Independent Auditors’ Report 136

Income Statement 138

Balance Sheet 139

Statement of Changes in Equity 140

Cash Flow Statement 141

Notes to the Consolidated Financial Statements 143


ANNUAL REPORT OF THE BOARD ON THE STATE OF AFFAIRS OF THE COMPANY

The board of directors presents hereto their Report on the State of Affairs of the Company for the year ended

31st December 2009. The Report also provides information as required by the Listing Rules of the Colombo

Stock Exchange, best accounting practices and other disclosures deemed relevant to the stakeholders of

the Company. The Report was approved by the directors on 17th February 2010.

GEnErAl

Seylan Bank PLC was incorporated on 28th August 1987 as a public limited liability company under the

Companies Act No. 17 of 1982 and obtained a listing for its ordinary voting shares on the Colombo Stock

Exchange on 5th January 1989. It is an approved licensed commercial bank under the Banking Act No. 30 of

1988. The Bank was re-registered under the Companies Act No. 07 of 2007 on 30th May 2007.

PrinciPAl ActivitY

The principal activity of the Bank is commercial banking and provision of related financial services such

as accepting of deposits, personal banking, trade financing, off-shore banking, resident and non-resident

foreign currency operations, travel-related services, corporate and retail credit, pawn broking, project

financing, lease financing, rural credit, issuing of local and international credit cards, telebanking facilities,

SMS and Internet banking, internet payment gateway and dealing in Government Securities, etc.

chAnGES to thE GrouP StructurE

The Bank gradually commenced divesting its investment during the fourth quarter of 2009 in Seylan Merchant

Bank PLC and accordingly, the Bank’s holding in the entity dropped to 49.58% (Voting Shareholding) as at

31st December 2009. As such Seylan Merchant Bank PLC ceased to be a subsidiary of the Bank from the

fourth quarter of 2009.

SubSiDiAriES

The Bank’s subsidiaries as at 31st December 2009 and their principal activities are given below:

Seylan Developments PLC - Property Development

Seylan Bank Asset Management Limited - Dealing in Government Securities*

Seylan Merchant Bank PLC - Merchant Banking

(deconsolidated with effect from 1st October 2009)

* On 12th February 2010, the boards of Seylan Bank PLC and Seylan Bank Asset Management Limited (SAM)

decided to amalgamate as per the provisions of Section 242 (1) of the Companies Act No. 07 of of 2007. The

amalgamated company will be Seylan Bank PLC. The amalgamation is to take effect on 31st March 2010. Approval

in principle has already been obtained for the aforesaid amalgamation from the Central Bank of Sri Lanka.

rEviEw of oPErAtionS

A review of the operations during the financial year 2009 and the performance of the Bank are given in the

Management Report appearing on pages 57 to 62 of the Annual Report, which report forms an integral part

of this Report.

brAnch nEtwork

In November 2009, the Bank opened a branch in Nelliady and two convenient banking centres at Manipay

and Chakanai. Two branches viz. Malabe and Ja-Ela were relocated during the year.


As at 31st December 2009, the Bank had 93 branches and 24 extension offices totalling to 117 in operation,

a list of which is given on pages 241 to 242 of this Annual Report. The Bank also has 83 student savings

centres as at end 2009.

viSion AnD MiSSion

During the year, the Bank adopted a new vision and a new mission statement for the Bank, which are given

on page 49 to 50 of this Annual Report.

futurE DEvEloPMEntS

An overview of the future plans and developments of the Bank is also indicated in the Management Report

appearing on pages 57 to 62 of this Annual Report.

finAnciAl StAtEMEntS

The Audited Financial Statements of the Bank and the Group for the financial year ended 31st December 2009

are given on pages 136 to 226 and form an integral part of the Annual Report of the Board.

AuDitorS’ rEPort

The Auditors of the Company Messrs KPMG Ford, Rhodes, Thornton & Co., Chartered Accountants have

carried out the audit of the Consolidated Financial Statements for the financial year ended 31st December

2009 and their Report on the Financial Statements is given on pages 136 to 137 of this Annual Report.

SiGnificAnt AccountinG PoliciES

The significant accounting policies adopted in preparation of the Financial Statements are given on pages

143 to 161 of this Annual Report.

finAnciAl rESultSincoME

The income of the Bank for the year 2009 was Rs. 23,154,529,138/- (Rs. 25,246,209,205/- in 2008), whilst the

income of the Group was Rs. 24,538,978,803/- (Rs. 27,053,948,932/- in 2008).

Profit

A summary of the consolidated financial results of the operations of the Group during the year ended

31st December 2009 is given below:

2009 2008(Restated)

rs. ’000 Rs. ’000

Profit/(Loss) before Taxation 933,630 (735,579)Less: Taxation 484,869 64,224Profit/(Loss) after Taxation 448,761 (799,803)Attributable to Minority Interest (120,447) (656,810)Net Profit Attributable to Shareholders 569,208 (142,993)Retained Profit brought forward after Dividend 3,546,814 3,693,225Profit available for Appropriation 4,116,022 3,550,232Adjustments/Transfer to Reserve Fund (27,165) (11,504)Other Transfers/Adjustments (287,966) 14,324balance carried forward 3,800,891 3,553,052


DonAtionS

During the year, the Company made donations amounting to Rs. 6,692,798/- (Donations made in 2008

amounted to Rs. 128,865,170/-).

PrEfErEncE DiviDEnD

The directors recommend the payment of a preference dividend of Rs. 1.84 per share to the preference

shareholders registered with the Bank as at the entitlement date for the year ended 31st December 2009. The

dividend rate is a pre-determined rate as per the prospectus to the Issue, viz. one percentage point over the

one year Weighted Average Treasury Bill rate at the primary auctions held during March of the preceding year;

i.e. March, 2009. The dividend is payable on 31st March 2010. A preference dividend was not paid in 2009 in

respect of the year ended 31st December 2008.

orDinArY DiviDEnD

The directors recommend the payment of a First and Final Ordinary Dividend of Rs. 0.50 per share to

the ordinary (voting and non-voting) shareholders, for the year ended 31st December 2009, payable on

7th April 2010. There was no dividend payout to ordinary shareholders in 2009 in respect of the year ended

31st December 2008.

SolvEncY cErtificAtion

The board of directors is satisfied that the Bank would meet the solvency test in terms of the provisions of

the Companies Act No. 07 of 2007 immediately after the proposed dividend which will be paid in April 2010.

The board has obtained a statement of solvency from the External Auditors in relation to the proposed

dividend payment.

tAxAtion

Provision for taxation has been computed as shown in Note 11 to the Financial Statements.

cAPitAl ExPEnDiturE

The total capital expenditure incurred on the acquisition of property, plant and equipment during the year

amounted to Rs. 227,235,000/- details of which are given in Note 27 to the Financial Statements.

ProPErtY, PlAnt AnD EQuiPMEnt

The details of the property, plant and equipment are given in Note 27 to the Financial Statements. Valuation

details of the properties are also disclosed therein. The Directors consider the market values of the property,

plant and equipment not to be significantly different to the amounts disclosed.

rESErvES

Total reserves (including Statutory Reserve Fund) of the Group as at 31st December 2009 amounted

to Rs. 5,541,319,769/- (Rs. 5,244,106,388/- in 2008) details of which are given in Notes 37 and 38 to the

Financial Statements.

StAtED cAPitAl

The Stated Capital of the Bank as at 31st December 2009 was Rs 5,567,820,324/- (Rs. 2,542,420,326/- in

2008) comprising of 130,000,000 ordinary (voting) shares, 3,390,100 non-redeemable, non-cumulative, non-

convertible and non-voting preference shares, 123,560,000 ordinary (non-voting) shares and share premium

of Rs. 837,319,324/-.


rE-cAPitAliSAtion of SEYlAn bAnk

In order to strengthen the Company’s equity capital base, meet regulatory requirements relating to capital

adequacy, facilitate future expansion and enhance business volumes, the Bank made a capital raising of

Rs. 3.025 Bn., through a two-tiered process constituting - (i) a Private Placement offering to designated state

institutions and (ii) a Public Offering of shares with existing shareholders also being given an opportunity to

participate in the Share Issue.

Through the Private Placement, the Bank allotted 13 Mn. ordinary voting shares to Bank of Ceylon

amounting to 10% of the increased share capital of the Bank. 19,150,000 ordinary voting shares were allotted

to Sri Lanka Insurance Corporation Limited which together with their existing holding in the Bank amounted

to 15% of the increased share capital. A total of Rs. 1,125,250,000/- was raised from the private placement.

In October 2009, the Bank concluded the Public Offering of 54,290,000 ordinary voting shares with

existing shareholders also participating in the Share Issue with a preferential allotment of one share for

every two ordinary voting shares held. The allotment was carried out on 13th October 2009. A total sum of

Rs. 1,900,150,000/- was raised from the Public Issue.

ShArEholDinGS

As at 31st December 2009, there were 10,984 and 6,146 registered ordinary (voting) and ordinary (non-

voting) shareholders and 967 non-redeemable, non-cumulative, non-convertible and non-voting preference

shareholders respectively of the Bank. An analysis of the distribution of the ordinary voting and non-voting

shareholders is given on page 238 of this Annual report. The twenty largest ordinary voting and non-voting

shareholders of the Bank are also given on pages 236 to 237 of this Annual Report.

DEbt cAPitAl

The Bank had issued debentures (both listed and unlisted) to the value of Rs. 4,230,365,000/- as at

31st December 2009 (2008 - Rs. 4,687,465,000/-).

The Bank had the following listed debt as at 31st December 2009, details of which are given on page 239

of this Annual Report:

Type No. of Debenturesof Rs. 100/- each

Unsecured Subordinated Redeemable Five YearDebentures - 2006/11 12,573,150-do- - 2007/12 7,494,000-do- - 2007/12 (Issue 2) 5,592,850-do- - 2008/13 * 6,305,650

* The Bank allotted 6,305,650 Unsecured Subordinated Redeemable five-year listed debentures of Rs. 100/- each on 12th January 2009 under a public issue which commenced in December 2008 and concluded on 2nd January 2009. The debentures were listed on the Colombo Stock Exchange on 10th February 2009. The Debenture Issue was primarily for the purpose of meeting capital adequacy requirements.

invEStorS’ inforMAtion

Information including earnings, profitability, dividend, net assets and market value per share is given under

Financial Highlights appearing on page 56 of this Annual Report. Information pertaining to share prices

(both voting and non-voting) and debenture prices is given on pages 236 to 239 of this Annual Report.


EQuitAblE trEAtMEnt of ShArEholDErS

The Bank has at all times ensured the equitable treatment of its shareholders.

DirEctorAtE

As outlined in our 2008 Annual Report, the Seylan Bank board was re-constituted on 29th December 2008

in terms of Section 30 (9) of the Monetary Law Act (as amended) pursuant to which a new board comprising

of four directors was appointed on 30th December 2008. On 8th January 2009, two additional directors,

Mr. R. Nadarajah and Rear Admiral (Rtd.), B.A.J.G. Peiris were appointed.

Pursuant to the re-capitalisation of the Bank four new directors were appointed in November 2009, viz.-

Mr. P.G.S. Kariyawasam and Dr. N.H. Godahewa, w.e.f. 10th November 2009 and Messrs A.L. Devasurendra

and I.C. Nanayakkara, w.e.f. 24th November 2009.

Mr. F.N. Goonewardena resigned from the board, on 3rd December 2009.

Accordingly, as at the Balance Sheet date, the directors who held office together with their executive,

non-executive and independent status are given below:

Name of Director Status

Mr. E. Narangoda (Chairman) ExecutiveMr. R. Nadarajah ExecutiveMr. N.M. Jayamanne PC Independent Non-ExecutiveMr. P.L.P. Withana Independent Non-ExecutiveRear Admiral (Rtd.) B.A.J.G. Peiris Independent Non-ExecutiveMr. P.G.S. Kariyawasam Non-ExecutiveDr. N.H. Godahewa Non-ExecutiveMr. A.L. Devasurendra Non-ExecutiveMr. I.C. Nanayakkara Non-Executive

Mr. S.P.S. Ranatunga was appointed to the board as a Non-Executive Director with effect from 12th January 2010.

The profiles of the board of directors are given on pages 228 to 229 of this Annual Report.

All Non-Executive Directors have signed declarations confirming their independent/non-independent

status in compliance with the Colombo Stock Exchange Rules of Corporate Governance.

Signed affidavits and declarations have also been provided by the new directors to the Bank Supervision

Department of the Central Bank of Sri Lanka in terms of Section 42 of the Banking Act (as amended) and as

per Direction 2 (3) (i) of the Banking Act Direction No. 11 of 2007, confirming their ‘fit and proper’ status to

hold office as directors of the Bank.

In terms of Article 82 of the Articles of Association, Mr. N.M. Jayamanne PC retires by rotation at the

Annual General Meeting of the Bank and being eligible, offers himself for re-election.

In terms of Article 89 of the Articles of Association, Messrs P.G.S. Kariyawasam, A.L. Devasurendra,

I.C. Nanayakkara, Dr. N.H. Godahewa and Mr. S.P.S. Ranatunga, retire as directors and being eligible, offer

themselves for re-election.


boArD SubcoMMittEES

The following board subcommittees were functional as at 31st December 2009:

Audit Committee

Members Mr. P.L.P. Withana (Chairman)


Mr. P.G.S. Kariyawasam (appointed on 3rd December 2009)

Integrated Risk Management Committee

Members Mr. A.L. Devasurendra (Chairman) (appointed on 3rd December 2009)

Mr. P.L.P. Withana


Remuneration Committee

Members Mr. N.M. Jayamanne PC (Chairman)

Mr. P.L.P. Withana

Dr. N.H. Godahewa (appointed on 3rd December 2009)


Rear Admiral (Rtd.) B.A.J.G. Peiris (appointed on 3rd December 2009)

Nomination Committee

Members Rear Admiral (Rtd.) B.A.J.G. Peiris (Chairman)


Mr. A.L. Devasurendra (appointed on 3rd December 2009)

Credit Committee

Members Mr. E. Narangoda (Chairman)

Mr. R. Nadarajah

Mr. A.L. Devasurendra (appointed on 3rd December 2009)

Mr. I.C. Nanayakkara (appointed on 3rd December 2009)

Reports of the Board Audit, Integrated Risk Management, Remuneration and Nominations Subcommittees

are set out on pages 100 to 104 respectively and form an integral part of the Annual Report of the board.

On 3rd December 2009 with the appointment of additional directors to the board, the board

subcommittees were reconstituted with their members being as detailed above.

Two additional board committees, viz. Strategic Planning Committee and Sustainability Committee were

formed in December 2009, but commenced their activities only from January 2010.

The composition of all board subcommittees, meetings held and their functions and responsibilities are

set out in the Corporate Governance Report appearing on pages 86 to 88 of this Annual Report.

ArticlES of ASSociAtion

For purposes of securing conformity with new regulations, legal provisions and more particularly the

Companies Act No. 07 of 2007, the Bank adopted new Articles of Association at an extraordinary general

meeting of the shareholders held on 2nd September 2009.


DirEctorS’ rESPonSibilitY for finAnciAl rEPortinG

The directors are responsible for the preparation of the Financial Statements of the Bank to reflect a true and

fair view of its state of affairs. The directors are of the view that these Financial Statements have been prepared

in conformity with the requirements of the Sri Lanka Accounting Standards, the Companies Act No. 07 of 2007,

Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, the Banking Act No. 30 of 1988 (as amended),

the Listing Rules of the Colombo Stock Exchange and Banking Act Direction No. 11 of 2007 (as amended) -

‘Corporate Governance for Licensed Commercial Banks in Sri Lanka’ issued by the Central Bank of Sri Lanka.

The directors’ Responsibility Statement appearing on pages 134 and 135 of the Annual Report forms an

integral part of the Annual Report of the Board.

DirEctorS’ intErESt rEGiStEr

The directors have declared all material interests in contracts involving the Company at board meetings and

refrained from voting on matters in which they were materially interested. All such disclosures required

to be made in terms of Section 192 of the Companies Act No. 07 of 2007, have also been duly recorded in

the Interest Register. Related party transactions arising out of these disclosures made are given in Notes

42 and 43 in the Audited Accounts and on pages 129 to 133 as an annexure to this Annual Report. A list of

directorships held by the directors in public-listed companies during 2009 is also given in the annexure.

DirEctorS’ intErEStS in ShArES of thE bAnk

Directors’ holdings in shares (ordinary voting and non-voting) in the Bank as at 31st December 2009 are

given below:

Name of Director 31.12.2009 31.12.2008 Shares

Mr. E. Narangoda 34,300 10,050 Ordinary Voting– 90,100 Ordinary Non-Voting

Mr. R. Nadarajah 30,900 Nil Ordinary Voting10,000 7,000 Ordinary Non-Voting

Mr. N.M. Jayamanne PC 3,000 – Ordinary VotingMr. P.L.P. Withana 23,363 242 Ordinary VotingMr. F.N. Goonewardena (resigned on 03.12.2009) 48,000 Nil Ordinary VotingRear Admiral (Rtd.) B.A.J.G. Peiris nil N/AMr. P.G.S. Kariyawasam nil N/ADr. N.H. Godahewa 2,500 N/A Ordinary Non-VotingMr. A.L. Devasurendra nil N/AMr. I.C. Nanayakkara nil N/A

Percentage Shareholding of Directors: Ordinary voting shares 0.07% 0.02%* Ordinary non-voting shares 0.01% 0.08%*

* Represents shares held by Mr. E. Narangoda and Mr. P.L.P. Withana only.

No change occurred in the directors’ interest in shares after 31st December 2009 and 17th February 2010,

the date of this Annual Report.

DirEctorS’ intErEStS in PrEfErEncE ShArES AnD DEbEnturES

The directors had neither non-redeemable, non-cumulative, non-convertible and non-voting preference

shares nor debentures, registered in their names, both at the beginning or end of the year under review.


DirEctorS’ rEMunErAtion

Details of directors’ emoluments paid during the year are given in Note 7 to the Financial Statements.

inSurAncE AnD inDEMnitY

Pursuant to a decision taken by the board, the Bank has obtained an insurance policy to cover Directors’ liability.

corPorAtE GovErnAncE

The board of directors has pledged their commitment towards adoption and implementation of transparent

and effective corporate governance practices within the Bank with the view of enhancing business prosperity

and corporate accountability.

The Bank accordingly ensures that relevant practices and procedures are in place to ensure conformity to

Corporate Governance Rules laid down in the following rules/regulations, viz. -

• Banking Act Direction No. 11 of 2007 (Corporate Governance for Licensed Commercial Banks in

Sri Lanka) issued by the Monetary Board of the Central Bank of Sri Lanka, amended by Banking Act

Directions Nos. 05 of 2008 and 07 of 2008. The Bank has conformed to these directions except in areas

where extended dates of compliance have been expressly provided in the rules.

• ColomboStockExchange(CSE)RulesonCorporateGovernancewhichbecamemandatoryforcompliancebyall

listed companies in the financial year commencing from 1st April 2008 and for banks - from 1st January 2009.

• CodeofBestPracticeofCorporateGovernancejointlyissuedbytheSecurities&ExchangeCommission

of Sri Lanka (SEC) and The Institute of Chartered Accountants of Sri Lanka (ICASL) in 2008.

The extent of compliance with the above rules and regulations and best practice guidelines are described

in the Corporate Governance report appearing on pages 75 to 99 of this Annual Report.

riSk AnD intErnAl control

The board assumes overall responsibility for managing risks in the Bank. Towards this end it has implemented

a sound risk management framework and also designated key management personnel to manage risk and

identify their areas of responsibility. The board also reviews on a regular basis the risk exposures of the Bank

and specify and approve policies with regard to risk management, measurement and control.

The board of directors has put in place an effective system of internal controls so as to safeguard the

Bank’s assets and ensure continuity of its operations and also to ensure as far as practicable the accuracy

and reliability of records. The board from time to time reviews through the Audit Committee, the adequacy

and integrity of the internal control systems covering accounting, financial and operational aspects based

on Audit Reports and management information systems.

coMPliAncE with lAwS AnD rEGulAtionS

The Bank has not engaged in any activities contravening any laws and regulations currently in force. Key

management personnel designated in the Bank for ensuring compliance with laws and regulations submit

a compliance report on a monthly basis to the board.


GoinG concErn

The directors are satisfied that having considered the financial position, operating conditions, regulatory

and other factors and such other matters required to be addressed in the Corporate Governance Code,

that the Bank has adequate resources to continue its operations in the foreseeable future. The Financial

Statements of the Bank have accordingly been prepared on a going concern basis.

huMAn rESourcES

Effective management of people is closely linked with the organisation’s performance and profitability.

Therefore, it is essential to have well trained motivated staff to achieve the objectives of the Bank.

Moving on to specific challenges where human resource policies and practices can make a competitive

difference in people management, development of human capital becomes a primary goal in achieving a

competitive advantage. The emerging role of human resource management is that of creating a human

organisation that can provide a competitive advantage.

The key challenge in people development is, to ensure that the focus is on business goals and the

overall strategy of the Bank. Developing capabilities to ensure higher performance is closely linked to the

organisation’s performance and profitability.

Attracting, retaining and developing its workforce is the best way to achieve the resilience that is required

to survive in an increasingly turbulent business environment and the Bank is committed towards developing

its human capital as an ongoing process to stay ahead of the competition.

StAtutorY PAYMEntS

The directors are satisfied that to the best of their knowledge and belief, all statutory payments due to the

Government and to the employees of the Bank have been made up to date.

EMPloYEES’ ShArE owninG SchEME

The Bank has in place several employee share owning trusts established with the objective of providing an

additional benefit to the employees at the time of their retirement/resignation in terms of the trust deeds. The

trusts have acquired shares of the Bank from time to time as and when formed. All shares held by the trusts

have been purchased at the market prices prevailing at the time. Details of facilities granted to the trusts and

outstanding as at the Balance Sheet date are provided in Notes 43 and 19.h to the Financial Statements.

In October 2009, under the Bank’s Public Share Issue, one of its employee share owning trusts, Seyfest

(Pvt) Limited was allotted 700,000 ordinary voting shares at the issue price of Rs. 35/- per share. The shares

were purchased by the trust company out of its own funds.

PoSt-bAlAncE ShEEt EvEntS

No events have occurred after the Balance Sheet date which would require adjustments to or disclosure in

the Accounts, other than those given in Note 41 to the Financial Statements.


AuDitorS

The Bank’s Auditors during the period under review were Messrs KPMG Ford, Rhodes, Thornton & Co.,

Chartered Accountants. A sum of Rs. 6,043,000/- (2008 - Rs. 4,317,000/-) is payable to the Auditors by the

Bank as audit service fees for the year under review and Rs. 480,000/- (2008 - Rs. 1,727,000/-) as audit-

related fees. No non-audit fees was payable to the Auditors for the year 2009 (2008 - Rs. 197,000/-).

Consolidated audit fees payable to the Auditors for the year under review amounted to Rs. 7,170,000/-

(2008 - Rs. 6,789,000/-) as audit service fees, Rs. 480,000/- (2008 - Rs. 1,727,000/-) as audit-related fees and

Rs. 157,000/- (2008 - Rs. 703,000/-) as non-audit fees.

Based on the declaration made by Messrs KPMG Ford, Rhodes, Thornton & Co. and as far as the directors

are aware, the Auditors do not have any relationship with or interest in the Company or any of its subsidiaries

other than disclosed in the aforesaid paragraphs.

The retiring Auditors, Messrs KPMG Ford, Rhodes, Thornton & Co., have signified their willingness to

continue in office and a resolution to re-appoint them as Auditors and authorising the directors to fix their

remuneration will be proposed at the Annual General Meeting.

inDEPEnDEncE of thE AuDitorS

Based on an assessment carried out by the Board Audit Subcommittee, the board is of the opinion that the

External Auditors, Messrs KPMG Ford, Rhodes,Thornton & Co. can be deemed to be independent for all

intents and purposes considering the following factors:

• NopartnerfromtheFirmisontheboardofSeylanBankorontheboardofanysubsidiarycompany.

• Theauditfeeisnegotiatedandnotaboveindustrylevels.

• The Auditors do not receive fees from other assignments except for certifications and SLAS

implementation assistance.

• Compliedin2009withPartnerandAudit-teamrotation.

• Afirmofhighrepute.

noticE of MEEtinG

Notice of Meeting relating to the Twenty Third Annual General Meeting of the Bank is included in this

Annual Report.

By Order of the Board,

E. narangoda r. nadarajah (Ms.) M.r.S. Gunasekara Executive Chairman Executive Director Company Secretary

17th February 2010


i. intErESt rEGiStEr

The Bank carries out transactions in the ordinary course of business at commercial rates with entities in

which a Director of the Bank is the Chairman or a director of such entities. The transactions with entities

where a Director of the Bank either has control or exercises significant influence arising as a result of

common directorships and through shareholdings have been classified as related party transactions and

disclosed in Note 43 to the Financial Statements. The transactions with entities where directors of the Bank

hold directorships are disclosed below:

1. lEnDinG trAnSActionS with thE bAnkAggregate Amount of Accommodation as at

31.12.2009

Company Name of Director & Relationship

Nature of Transaction

Limit Rs. Mn.

OutstandingRs. Mn.

Security

Brown & Company PLC

Mr. A.L. Devasurendra, Deputy Chairman

Mr. I.C. Nanayakkara, Director

Overdraft Term Loan

140.000100.000

1.209100.000

Corporate Guarantee from Standard Finance Limited (Group Company of Brown & Co. PLC) for Rs. 240 Mn., pledge of 275,100 shares of HNB held in the custodian account at Seylan Bank and availability of leeway on the value of 5.3 Mn. shares of HNB mortgaged to Standard Finance (Private) Limited.

total 240.000 101.209

Standard Finance (Pvt) Limited

Mr. A.L. Devasurendra, Director

Term Loan 335.000 218.091 Mortgage over 5.3 Mn. shares of HNB.

total 335.000 218.091

Taprobane Holdings Limited

Mr. A.L. Devasurendra, Managing Director


Margin Trading

15.000 – Pledge of 5,607,800 quoted shares (MV - Rs. 46.23 Mn.).

Ceylease Financial Services Limited *

Mr. P.L.P. Withana, Director(*Resigned w.e.f. 18.11.2009)

Revolving Term Loan Overdraft

200.00020.000

––

* Assignment over performing lease agreements at a ratio of 1:1.25 with a special Power of Attorney up to maximum of Rs. 275.00 Mn. (to secure the term loans)

* Letter of undertaking to substitute with performing leases if a particular lease falls into arrears for more than 03 months. Repo for Rs. 2.7 Mn.

total 220.000 –

ANNExURE TO THE ANNUAL REPORT OF THE BOARD ON THE STATE OF AFFAIRS OF THE COMPANY


Aggregate Amount of Accommodation as at

31.12.2009



Limit Rs. Mn.

OutstandingRs. Mn.

Security

Lanka ORIx Leasing Co. PLC

Mr. I.C. NanayakkaraDeputy Chairman

Short-Term LoanOverdraftTrust ReceiptRevolving Lease

Letter of Credit UsancePost-Dated Cheque Facility

640.00020.000

135.000

180.000

10.000

5.000

440.0000.162

–

44.337

–

–

Lien over fixed deposit for USD 2,840,678/09.

Lien over special foreign currency account of USD 356,043/79.

Assignment over factoring and lease receivables.

Commercial Paper for Rs. 600.0 Mn. (to be provided at the time of issuance). Commercial Paper Agreement.

Assignment over lease Agreements for Rs. 625.0 Mn.

Absolute ownership over motor vehicles to be leased.

Special Power of Attorney for Rs. 10.0 Mn. over lease agreement for Rs. 15.0 Mn.

total 990.0 484.499

Ishara Traders (Pvt) Limited

Mr. I.C. NanayakkaraDirector

Overdraft 800.000 0.776 Mortgage and Power of Attorney over shares of several blue-chip companies.



31.12.2009



Limit Rs. Mn.

OutstandingRs. Mn.

Security

Maturata Plantations Limited


Mr. A.L. Devasurendra, Director

OverdraftTerm Loan (PSRP I)Term Loan (PSRP II)Term Loan (PSRP III)Term Loan (PSRP IV)Term Loan (PSRP V)Term Loan (E-FRIENDS)Term Loan (IV)Term Loan (V)Short-Term LoanTerm Loan (Tea Relief)Term Loan (Tea Relief)Guarantee

125.000

41.911

18.737

2.274

10.600

13.732

0.380

6.00010.600

3.000

43.748

26.000

2.000

39.318

41.911

18.737

2.274

10.500

13.732

0.380

6.00010.600

3.000

43.748

NIL

1.250

Mortgage over leasehold rights of Bramley Estate for Rs. 13.0 Mn. (MV - Rs. 27.0 Mn., FSV - Rs. 22.0 Mn.)

Primary Mortgage for Rs. 36.0 Mn. Secondary Mortgage for Rs. 50.0 Mn. over leasehold rights of Gonapitiya Estate (MV - Rs. 160.0 Mn., FSV - Rs. 120.0 Mn.)

Mortgage over leasehold rights of Alma Estate for Rs. 26.0 Mn. (MV - Rs. 75.0 Mn., FSV - Rs. 65.0 Mn.)

Mortgage over leasehold rights of Ragala Estate for Rs. 74.75 Mn. (MV - Rs. 190.0 Mn., FSV - Rs. 160.0 Mn.)

Mortgage over leasehold rights of Maha Uva Estate for Rs. 19.5 Mn. (MV - Rs. 75.0 Mn., FSV - Rs. 65.0 Mn.)

Mortgage over leasehold rights of Enselwatte Estate for Rs. 102.25 Mn. (MV - Rs. 270.0 Mn., FSV - Rs. 220.0 Mn.)

Letter of Comfort from Free Lanka Trading Co. and Free Lanka Plantations Co. (Pvt) Limited for Rs. 75.0 Mn.

Overdraft Agreement for Rs. 125.0 Mn.

Loan Agreement Forms for Rs. 296.986 Mn.

total 303.982 191.450



31.12.2009



Limit Rs. Mn.

OutstandingRs. Mn.

Security

Lanka Hospital Corporation PLC

Mr. P.G.S. Kariyawasam, Director

Dr. N.H. Godahewa, Director

Term Loan 98.750 8.855 Syndicate Loan Agreement entered into by the Company and the Bank. Primary mortgage bonds over immovable and movable assets of the Company covering the loan up to 42.5% of capital, interest and other charges in favour of International Finance Corporation (IFC) and Consortium of Banks including Seylan Bank.

- Concurrent mortgage over moneys receivable in favour of IFC and the Consortium of Banks.

- Partial syndication loan Guarantee from IFC up to 57.5% of the principal amount.

Sotse (Pvt) Limited

Mr. E. Narangoda, Chairman

Mr. R. Nadarajah, Director

Term Loan 38.550 30.225 Loan Agreement Form for Rs. 38.8 Mn.

Seyshop (Pvt) Limited




Seybest (Pvt) Limited




Esots (Pvt) Limited





2. trADinG trAnSActionS with thE bAnkCompany Name of Director & Relationship Nature of Transaction Amount

Rs. Mn.

Brown & Company PLC Mr. A.L. Devasurendra, Deputy ChairmanMr. I.C. Nanayakkara, Director

Purchase of 2 Nos. of mailing metres and base

0.537

Ceylease Financial Services Limited*

Mr. P.L.P. Withana, Director (*Resigned w.e.f. 18.11.2009) Interest expense 0.292

Capital Payment 203.015

Interest received 17.406

Seylan Bank Employees’ Gratuity Trust Fund* Mr. E. Narangoda, Trustee

Funds transferred by Seylan Bank 31.758

Mr. R. Nadarajah, TrusteeRear Admiral (Rtd.) B.A.J.G. Peiris, Trustee

Investment in Treasury Bond 568.423

Mr. F.N. Goonewardena, Trustee (*Resigned w.e.f. 03.12.2009)

Lanka ORIx Leasing Co. PLC Mr. I.C. Nanayakkara, Deputy Chairman Interest receivedInterest paid

2.63418.097

Sri Lanka Insurance Corporation Limited

Mr. P.G.S. Kariyawasam, ChairmanDr. N.H. Godahewa, Managing Director

Interest payable 2.564

Sotse (Pvt) Limited Mr. E. Narangoda, Chairman Interest received 1.385


Seyshop (Pvt) Limited Mr. E. Narangoda, Chairman Interest received 1.505


Seybest (Pvt) Limited Mr. E. Narangoda, Chairman Interest received 1.492


Esots (Pvt) Limited Mr. E. Narangoda, Chairman Interest received 1.526


ii. DirEctorS who hElD DirEctorShiPS in liStED coMPAniES DurinG 2009Name of Director Name of Listed Company

Mr. R. Nadarajah Seylan Developments PLC (formerly: Ceylinco Seylan Developments PLC)

Mr. P.L.P. Withana Dankotuwa Porcelain PLC (resigned w.e.f. 30.06.2009)Rear Admiral (Rtd.) B.A.J.G. Peiris Seylan Developments PLC

(formerly: Ceylinco Seylan Developments PLC)Mr. P.G.S. Kariyawasam Lanka Hospitals Corporation PLCDr. N.H. Godahewa Lanka Hospitals Corporation PLCMr. A.L. Devasurendra Brown & Company PLCMr. I.C. Nanayakkara Brown & Company PLC

Lanka ORIx Leasing Company PLCTouchwood Investments PLC


DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING

In terms of the provisions of the Companies Act No. 07 of 2007, the directors are responsible for ensuring

that the Bank maintains proper books of account of all its transactions so as to -

(i) enable the financial position of the Company to be determined with reasonable accuracy at any time;

(ii) enable the directors to prepare Financial Statements in accordance with the Act; and to

(iii) enable the Financial Statements of the Company to be readily and properly audited.

In terms of Sections 150 (1), 151 (1), 152 (1) and 153 (1) of the Companies Act, the directors are required

to ensure that Financial Statements are prepared that give a true and fair view of the state of affairs of the

Company and the Group and the profit or loss for the year ended on the Balance Sheet date.

Accordingly, the directors have ensured that proper books of account have been maintained and have also

taken reasonable steps to ensure the accuracy and reliability of accounting records. The financial reporting

system is also reviewed by the board through the management accounts submitted at board meetings and

by the Audit Committee. The Bank’s Interim and Audited Financial Statements are also reviewed by the Audit

Committee and the board prior to their release.

The Financial Statements of the Bank and the Group give a true and fair view of the state of affairs of

the Bank and its subsidiaries and the profit/loss for the year ended 31st December 2009. The Financial

Statements of the Bank and the Group have been certified by the Bank’s Chief Financial Officer, the person

responsible for their preparation and signed by two directors and the Company Secretary of the Bank on

17th February 2010.

The Bank’s Financial Statements for the year ended 31st December 2009 and presented in this Annual

Report are consistent with the underlying books of account of the Bank and are in conformity with the

Sri Lanka Accounting Standards, Companies Act No. 07 of 2007, Sri Lanka Accounting and Auditing

Standards Act No. 15 of 1995, the Banking Act No. 30 of 1988 (as amended), the Listing Rules of the Colombo

Stock Exchange and the Code of Best Practice on Corporate Governance issued jointly by the Securities and

Exchange Commission of Sri Lanka (SEC) and The Institute of Chartered Accountants of Sri Lanka (ICASL).

The directors also confirm that in preparing the Financial Statements for the year ended 31st December

2009 published on pages 136 to 226 of this Annual Report, appropriate accounting policies have been selected

and applied on a consistent basis with material departures (if any) disclosed in the Financial Statements and

the rationale for same provided.

The directors also confirm that the Bank and its quoted subsidiaries have met all the requirements under

Section 7 of the Listing Rules of the Colombo Stock Exchange.

The board has also taken reasonable measures to safeguard the Bank’s assets and ensure continuity of

operations. To this end, effective internal control systems are in place to prevent frauds and irregularities

and ensure as far as practicable the accuracy and reliability of records.

The Bank’s Auditors, Messrs KPMG Ford, Rhodes, Thornton & Co. carry out reviews and sample checks on

the effectiveness of the systems of internal control, as they consider appropriate and necessary in providing

their opinion on the Financial Statements. Messrs KPMG Ford, Rhodes, Thornton & Co. have examined the

Financial Statements made available together with all other financial records, minutes of shareholders’ and

directors’ meetings and related information and have expressed their opinion which appears on pages 136

and 137 of this Annual Report.


The board of directors confirm that they have authorised the distribution of the proposed dividend after

having satisfied that the Bank would meet the solvency test in terms of the provisions of the Companies Act

No. 07 of 2007 immediately after the dividend payment. The board has obtained a statement of solvency from

the External Auditors in relation to the proposed dividend payment.

The directors confirm that to the best of their knowledge and belief, all statutory payments due and

payable to all statutory and regulatory authorities as at the Balance Sheet date, have been paid by the Bank

or where relevant provided for.

The directors further confirm that having considered the financial position, operating conditions,

regulatory and other factors and such other matters required to be addressed in the Corporate Governance

Code, the Bank has adequate resources to continue its operations in the foreseeable future. The Financial

Statements of the Bank have accordingly been prepared on a going concern basis.

The directors are of the view that they have discharged their obligations as set out in this statement.

By order of the board of directors

(Ms.) M.r.S. Gunasekara

Company Secretary

17th February 2010


INDEPENDENT AUDITORS’ REPORT

to thE ShArEholDErS of SEYlAn bAnk Plc

report on the financial Statements

We have audited the accompanying financial statements of Seylan Bank PLC (the “Company”), and the

consolidated financial statements of the Company and its subsidiaries (the “Group”) as at 31st December

2009, which comprise the balance sheet as at that date, and the income statement, statement of changes

in equity and cash flow statement for the year then ended, and a summary of significant accounting policies

and other explanatory notes as set out on pages 138 to 226 of this Annual Report.

Management’s responsibility for the financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in

accordance with Sri Lanka Accounting Standards. This responsibility includes: designing, implementing

and maintaining internal control relevant to the preparation and fair presentation of financial statements

that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate

accounting policies; and making accounting estimates that are reasonable in the circumstances.

Scope of Audit and basis of opinion

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted

our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we plan and

perform the audit to obtain reasonable assurance whether the financial statements are free from material

misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the

financial statements. An audit also includes assessing the accounting principles used and significant

estimates made by management, as well as evaluating the overall financial statement presentation.

We have obtained all the information and explanations which to the best of our knowledge and belief were

necessary for the purposes of our audit, including specific directions/exemptions from the Central Bank

of Sri Lanka as a measure of ongoing support resulting from the restructuring of the Bank. We therefore

believe that our audit provides a reasonable basis for our opinion.


opinion - company

In our opinion, so far as appears from our examination, the Company maintained proper accounting

records for the year ended 31st December 2009 and the financial statements give a true and fair view of the

Company’s state of affairs as at 31st December 2009 and its profit and cash flows for the year then ended

in accordance with Sri Lanka Accounting Standards and specific directions/exemptions received from the

Central Bank of Sri Lanka that were used in applying the said Accounting Standards.

opinion - Group

In our opinion, the consolidated financial statements give a true and fair view of the state of affairs as at

31st December 2009 and the profit and cash flows for the year then ended, in accordance with Sri Lanka

Accounting Standards and specific directions/exemptions received from the Central Bank of Sri Lanka that

were used in applying the said Accounting Standards, of the Company and its subsidiaries dealt with thereby,

so far as concerns the members of the Company.

report on other legal and regulatory requirements

These financial statements also comply with the requirements of Section 153(2) to 153(7) of the Companies

Act No. 07 of 2007 and present the information required by the Banking Act, No 30 of 1988.

CHARTERED ACCOUNTANTS

17th February 2010

Colombo, Sri Lanka.


INCOME STATEMENT

BANK GROUP For the Year ended 31st December 2009 2008 2009 2008

(Reclassified) (Restated)Note rs. ’000 Rs. ’000 rs. ’000 Rs. ’000

income 2 23,154,529 25,246,209 24,538,978 27,053,951

Interest Income 3 20,708,034 21,552,070 21,796,473 23,156,161 Less: Interest Expenses 4 13,492,053 14,361,452 14,389,303 15,875,504

net interest income 7,215,981 7,190,618 7,407,170 7,280,657 Foreign Exchange Profit 521,388 670,731 521,388 670,731 Net Fee and Commission Income 5 1,169,124 1,749,737 1,225,310 1,778,320 Other Income 6 650,856 1,221,582 879,701 1,385,305 operating income 9,557,349 10,832,668 10,033,569 11,115,013

less: operating Expenses 7 Personnel Expenses 8 2,385,255 3,405,714 2,500,429 3,608,728 Premises, Equipment & Establishment Expenses 1,608,097 1,505,226 1,619,848 1,615,111 Provision for Loan Losses 9 2,183,132 2,467,187 2,227,623 2,804,112 Diminution/(Appreciation) in Value of Investments 10 (47,094) 40,684 (41,965) 277,099 Other Overhead Expenses 2,535,387 3,258,616 2,794,004 3,545,542

8,664,777 10,677,427 9,099,939 11,850,592

Profit/(loss) from operations before taxation 892,572 155,241 933,630 (735,579)

Less: Income Tax Expense 11 349,271 – 484,869 64,224

Profit/(loss) for the Year 543,301 155,241 448,761 (799,803)

Attributable to -Equity Holders of the Bank 543,301 155,241 569,208 (142,993)Minority Interest – – (120,447) (656,810)net Profit/(loss) for the Year 543,301 155,241 448,761 (799,803) basic Earnings/(loss) per Share (rs.) 12 2.83 0.90 2.97 (0.89)Dividends per Share (rs.) * 0.50 – 0.50 –

Notes to the Consolidated Financial Statements from pages 143 to 226 form an integral part of these Financial

Statements.

* Based on the final dividend proposed to be approved at the Annual General Meeting.


BALANCE SHEET

BANK GROUPAs at 31st December 2009 2008 2009 2008

(Reclassfied) (Restated)Note rs. ’000 Rs. ’000 rs. ’000 Rs. ’000

AssetsCash & Cash Equivalents 14 4,683,805 5,511,331 4,691,881 5,680,774 Balance with Central Bank of Sri Lanka 15 5,084,229 6,857,039 5,084,360 6,857,153 Commercial Papers 324,500 390,000 324,500 390,000 Securities Purchased under Resale Agreements 2,951,860 664,934 2,955,390 855,055 Dealing Securities 16 14,544,172 865,977 16,475,533 1,410,066 Investment Securities 17 14,897,394 24,243,200 16,421,677 27,261,001 Bills of Exchange 18 1,322,364 1,471,831 1,322,364 1,471,831 Loans & Advances 19 76,038,971 97,746,084 76,045,385 99,078,324 Lease Rentals Receivable within One Year 20 1,598,684 2,245,873 1,598,684 3,189,889 Lease Rentals Receivable later than One Year and not later than Five Years 21 1,325,892 2,686,524 1,325,892 3,792,276 Lease Rentals Receivable after Five Years 22 1,894 3,813 1,894 9,927 Investments in Associate Companies – – – 54,315 Investments in Subsidiary Companies 23 860,166 948,529 – – Group Balances Receivable 24 808,655 623,180 – – Investment Properties 25 520,812 520,812 1,504,676 1,541,058 Current Taxation 89,654 108,273 89,654 108,273 Deferred Taxation 26 454,213 91,582 454,360 95,790 Property, Plant & Equipment 27 3,324,034 4,073,353 4,111,573 4,938,612Leasehold Rights 28 63,083 64,165 664,220 673,180Intangible Assets 29 – – – 25,410 Other Assets 30 3,881,490 4,929,745 4,195,808 5,875,555 total Assets 132,775,872 154,046,245 137,267,851 163,308,489

liabilitiesDeposits 31 104,815,899 107,938,801 104,815,899 109,505,539 Borrowings 32 3,055,840 7,105,018 3,498,704 9,208,809 Securities Sold under Repurchase Agreements 1,878,704 14,516,393 4,174,877 19,085,870 Group Balances Payable 33 9,575 1,523,992 – – Advance Received against Debentures 34.a – 630,565 – 630,565 Debentures 34.b 4,230,365 4,056,900 4,230,365 4,253,835 Current Tax Liabilities – – 142,732 25,343 Other Liabilities 35 8,203,015 11,254,565 8,493,187 11,901,450 total liabilities 122,193,398 147,026,234 125,355,764 154,611,411

EquityStated Capital 36 5,567,820 2,542,420 5,567,820 2,542,420 Statutory Reserve Fund 37 506,919 479,754 506,919 481,650 Reserves 38 4,507,735 3,997,837 5,034,399 4,762,455total Equity Attributable to Equity holders of the bank 10,582,474 7,020,011 11,109,138 7,786,525

Minority interest – – 802,949 910,553total Equity 10,582,474 7,020,011 11,912,087 8,697,078 total liabilities & Equity 132,775,872 154,046,245 137,267,851 163,308,489 commitments & contingencies 39 22,262,562 26,874,375 22,262,562 26,874,375

Notes to the Consolidated Financial Statements from pages 143 to 226 form an integral part of these Financial Statements.

The Financial Statements have been prepared in compliance with the requirements of the Companies Act No. 07 of 2007.

raaj De Silva Ajita PasqualChief Financial Officer General Manager/Chief Executive Approved and signed for and on behalf of the board.

Eastman narangoda r. nadarajah Ms. M.r.S. GunasekaraExecutive Chairman Executive Director Company Secretary 17th February 2010


For the Year ended 31st December - Bank Stated Capital Share Share Reserve Retained Revaluation Other

Capital Premium Fund Profits Reserve Reserves Total Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Balance as at 01.01.2008 1,705,101 837,319 468,250 3,374,839 198,918 451,808 7,036,235 Effect of Change in Accounting Policy due to Adoption of SLAS 16 (Revised 2006) – – – 74,849 – – 74,849 Adjustment to Reserve Fund* – – 3,742 (3,742) – – –Revised Balance as at 01.01.2008 1,705,101 837,319 471,992 3,445,946 198,918 451,808 7,111,084 Net Profit Attributable to the Shareholders of the Bank – – – 155,241 – – 155,241 Dividends (Note 13) – – – (255,900) – – (255,900)Transfers from/to Retained Profits – – 7,762 75,504 (83,266) – –Other Transfers – – – – 9,586 – 9,586 Balance as at 31.12.2008 1,705,101 837,319 479,754 3,420,791 125,238 451,808 7,020,011

Balance as at 01.01.2009 1,705,101 837,319 479,754 3,420,791 125,238 451,808 7,020,011 Issue of Ordinary Voting Shares 3,025,400 – – – – – 3,025,400 Net Profit Attributable to the Shareholders of the Bank – – – 543,301 – – 543,301 Dividends (Note 13) – – – (6,238) – – (6,238)Transfers from/to Retained Profits – – 27,165 (27,165) – – –balance as at 31.12.2009 4,730,501 837,319 506,919 3,930,689 125,238 451,808 10,582,474

* 5% of the adjustment to the opening balance of the Retained Profits (as at 01.01.2008) has been transferred to Reserve Fund in order to comply with the Sections 20 (1) and (2) of the Banking Act No. 30 of 1988.

For the Year ended 31st December - Group

STATEMENT OF CHANGES IN EQUITY

Stated Capital Share Share Reserve Special Risk Retained Revaluation Other Minority Total

Capital Premium Fund Reserve Profits Reserve Reserves Total Interest Equity (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated)

Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Balance as at 01.01.2008 1,705,101 837,319 470,146 4,515 3,949,125 564,242 714,326 8,244,774 1,711,895 9,956,669 Effect of Change in Accounting Policy due to Adoption of SLAS 16 (Revised 2006) – – – – 71,012 – – 71,012 (3,726) 67,286 Adjustment to Reserve Fund* – – 3,742 – (3,742) – – – – –Impact of Non-Uniform Accounting Policies by Subsidiaries (Note 48) – – – – (137,830) – – (137,830) (132,372) (270,202)Revised Balance as at 01.01.2008 1,705,101 837,319 473,888 4,515 3,878,565 564,242 714,326 8,177,956 1,575,797 9,753,753Profit as Reported in the previous year – – – – 166,492 – – 166,492 (259,666) (93,174)Prior Year Adjustment (Note 47) – – – – (309,485) – – (309,485) (397,144) (706,629)Net Profit Attributable to the Shareholders/Minority – – – – (142,993) – – (142,993) (656,810) (799,803)Dividends (Note 13) – – – – (255,900) – – (255,900) – (255,900)Transfers from/to Retained Profits – – 7,762 – 75,504 (83,266) – – – –Adjustment of Change in Minority Interest – – – – – – – – 12,972 12,972Dividend Paid to Minority – – – – – – – – (21,406) (21,406)Other Transfers – – – – (2,124) 9,586 - 7,462 – 7,462As at 31.12.2008 (Restated) 1,705,101 837,319 481,650 4,515 3,553,052 490,562 714,326 7,786,525 910,553 8,697,078

Balance as at 01.01.2009 1,705,101 837,319 481,650 4,515 3,553,052 490,562 714,326 7,786,525 910,553 8,697,078 Issue of Ordinary Voting Shares 3,025,400 – – – – – – 3,025,400 – 3,025,400 Net Profit Attributable to the Shareholders/Minority – – – – 569,208 – – 569,208 (120,447) 448,761 Dividends (Note 13) – – – – (6,238) – – (6,238) – (6,238)Transfers from/to Retained Profits – – 27,165 38,080 (65,245) – – – – –Deconsolidation Adjustment – – (1,896) – (234,709) (6,670) (7,305) (250,580) (784) (251,364)Effect on Change in % holding in Subsidiary – – – – (15,177) – – (15,177) 13,627 (1,550)balance as at 31.12.2009 4,730,501 837,319 506,919 42,595 3,800,891 483,892 707,021 11,109,138 802,949 11,912,087

* 5% of the adjustment to the opening balance of the Retained Profits (as at 01.01.2008) has been transferred to Reserve Fund in order to comply with the Section 20 (1) and (2) of the Banking Act No. 30 of 1988.


CASH FLOW STATEMENT

BANK GROUPFor the Year ended 31st December 2009 2008 2009 2008

(Reclassified) (Restated)rs. ’000 Rs. ’000 rs. ’000 Rs. ’000

cash flows from operating ActivitiesInterest Receipts 19,968,676 20,872,930 21,138,875 22,686,039 Fees and Commission Receipts 1,274,251 1,737,414 1,380,835 1,959,650 Interest Payments (13,489,437) (13,816,538) (14,386,685) (15,330,589)Exchange Income 521,388 670,731 521,388 670,731 Receipts from Other Operating Activities 658,522 647,194 658,522 874,073 Cash Payments to Employees and Suppliers (6,174,015) (6,725,188) (6,361,407) (7,814,139)Payments on Other Operating Activities (105,127) (52,089) (116,136) (63,434)operating Profit before changes in operating Assets & liabilities [note (a)] 2,654,258 3,334,454 2,835,392 2,982,331 (increase)/Decrease in operating Assets:Funds (Advanced to)/Repaid by Customers 19,983,292 (7,025,231) 25,020,404 (9,170,454)Deposits Held for Regulatory or Monetary Control Purposes 1,772,810 1,058,621 1,772,793 1,058,587increase/(Decrease) in operating liabilities:Deposits from/(Withdrawals by) Customers (3,194,089) (3,012,171) (4,760,827) (2,582,682)Negotiable Certificates of Deposit 71,187 (348,640) 71,187 (348,640)cash (used in)/Generated from operations 21,287,458 (5,992,967) 24,938,949 (8,060,858)Income Tax Paid (386,797) (467,427) (406,347) (548,251)Contribution Paid into Staff Retirement Benefit Plan (31,739) (134,816) (31,739) (134,816)Adjustment Due to Deconsolidation – – (1,713,474) – net cash (used in)/Generated from operating Activities 20,868,922 (6,595,210) 22,787,389 (8,743,925)cash flows from investing ActivitiesInvestment in Subsidiary & Associate Company Shares/Debentures – (201,250) – – Proceeds from Sale of Subsidiary/Associate Investments 4,753 44,848 4,753 18,760 Dividends Received 5,199 223,294 5,199 8,710 Treasury Bills/Bonds Maturing after 03 Months (10,210,450) (2,041,583) (10,392,733) (792,314)Purchase of Dealing Securities (205,314) – (219,959) (301,267) Proceeds from Sale of Dealing Securities 257,010 – 553,101 537,296 Purchase of Non-Dealing Securities/Investments in Projects – (2,250) – (2,250)Proceeds from Sale of Non-Dealing Securities/ Investments in Projects 65,500 782,727 320,821 784,136 Purchase of Property, Plant & Equipment (227,235) (1,456,575) (227,941) (1,498,408)Proceeds from Sale of Property, Plant & Equipment 194,214 396,531 214,531 402,528 Proceeds from Sale of Investment Property – 137,500 – 151,400 Purchase of Investment Property – (371,418) – (371,418)Adjustment due to Deconsolidation – – (22,696) – net cash (used in)/Generated from investing Activities (10,116,323) (2,488,176) (9,764,924) (1,062,827)cash flows from financing ActivitiesProceeds from Issue of Debentures – 72,550 – 64,900 Advance Received on Debenture Issue – 630,565 – 630,565 Repayments on Redemption of Debentures (457,100) (1,395,010) (654,035) (1,617,612)Proceeds from Issue of New Shares 3,025,400 – 3,025,400 – Securities Sold under Repurchase Agreements (12,637,689) 11,394,739 (14,910,993) 10,197,755 Net Increase/(Decrease) in Other Borrowings (5,149,617) 1,917,755 (7,363,936) 1,949,443 Dividends Paid (513) (254,924) (8,276) (267,468)Share/Debenture Issue Expenses (18,758) (5,307) (18,758) (5,307)Adjustment due to Deconsolidation – – 2,162,363 – net cash from financing Activities (15,238,277) 12,360,368 (17,768,235) 10,952,276 Net Increase in Cash & Cash Equivalents (4,485,678) 3,276,982 (4,745,770) 1,145,524Cash & Cash Equivalents at beginning of the Period 12,240,216 8,963,234 12,937,088 11,791,564 Adjustment due to Deconsolidation [Note (b)] – – (359,781) – cash & cash Equivalents at End of the Period 7,754,538 12,240,216 7,831,537 12,937,088 reconciliation of cash & cash EquivalentsCash and Cash Equivalents - [Note 14] 4,683,805 5,511,331 4,691,881 5,680,774 Treasury Bills/Bonds Maturing within 03 Months 118,873 6,063,951 184,266 6,401,259 Securities Purchased under Resale Agreement 2,951,860 664,934 2,955,390 855,055

7,754,538 12,240,216 7,831,537 12,937,088


BANK GROUPFor the Year ended 31st December 2009 2008 2009 2008


note (a) reconciliation of operating ProfitProfit before Taxation 892,572 155,241 933,630 (735,579)Dividend Income (5,199) (223,295) (5,199) (8,710)(Profit)/Loss on Sale of Investment Securities – – 7,590 697 (Profit)/Loss on Sale of

Property, Plant & Equipment (2,978) (100,080) (22,531) (103,696)Depreciation - Freehold Property, Plant & Equipment 785,318 707,205 812,884 752,954Depreciation - Leasehold Property, Plant & Equipment 1,082 692 8,960 8,575Depreciation of Investment Property – – 20,066 22,151 (Profit)/Loss on Sale of Investment Property – (53,765) – (56,476)Gain on Transfer of Investments to Trading Portfolio – (197,248) – (197,248)Provision for Loan Losses 2,183,132 2,467,187 2,227,623 2,804,112 VAT Accruals 25,813 (9,550) 25,813 (9,550)Provision for Staff Retirement Benefit (458,111) 131,379 (461,272) 141,276 Impairment Loss - Provision/(Reversal) (3,855) 301,280 (3,855) 374,030 (Profit)/Loss on Sale of Dealing Securities 9,213 – 9,213 (17,750)Provision for Doubtful Receivables 32,880 16,338 112,977 72,664 Diminution/(Appreciation) in Value of Investments (47,094) (3,370) (41,965) 221,740 (Profit)/Loss on Sale of Shares of Associates/Subsidiaries 6,630 – (187,825) (5,788)Share of Associates (Profit)/Loss (Net of Income Tax) – – 16,962 (4,365)Issue Expenses on Debentures/Shares 18,758 5,307 18,758 5,307 Notional Tax (439,968) (251,033) (439,968) (251,033)Interest Receivable (299,388) (448,467) (217,631) (727,515)Leave Encashment Provision 19,408 42,281 19,409 42,282 Increase/(Decrease) in Interest Payable & Accrued Expenses (63,955) 794,352 1,753 654,253

2,654,258 3,334,454 2,835,392 2,982,331

note (b) net cash flow effect on Deconsolidation of Seylan Merchant bank Plc on 01st october 2009

Elimination of net Assets Excluding cash & cash Equivalents rs. ’000

Investments 22,696

Loans & Advances 3,397,347

Investment Properties 16,316

Property, Plant & Equipment 50,097

Other Assets 88,879

Deposits (1,568,864)

Borrowings (1,672,031)

Debentures (196,935)

Other Liabilities (497,286)

cash & cash Equivalents Decrease on Deconsolidation (359,781)


1. rEPortinG EntitY

Seylan Bank PLC (‘Bank’) is a public quoted company incorporated on 28th August 1987 and domiciled in

Sri Lanka. The registered office of the Bank is situated at No. 90, Galle Road, Colombo 03. The shares of the

Bank have a primary listing on the Colombo Stock Exchange.

The staff strength of the Bank as at 31st December 2009 is 3,733 (2008 - 3,923).

The Consolidated Financial Statements of the Bank for the year ended 31st December 2009 include the

Bank and its subsidiaries (together referred to as the ‘Group’ and individually as ‘Group entities’). The Bank

does not have an identifiable Parent of its own. There were no significant changes in the nature of the

principal activities of the Bank and the Group during the financial year under review.

1.1 Principal Activities1.1.1 bank

The principal activities of the Bank are banking and related activities such as accepting deposits, personal

banking, trade financing, off-shore banking, resident and non-resident foreign currency operations, travel

related services, corporate and retail credit, project financing, lease financing, rural credit, issuing of local

and international credit cards, telebanking facilities, Internet banking, dealing in Government Securities, etc.

1.1.2 Subsidiaries

The subsidiaries of the Bank are Seylan Bank Asset Management Limited, Seylan Developments PLC and

Seylan Merchant Bank PLC (deconsolidated with effect from 1st October 2009) and the principal activities

of these subsidiaries are primary dealing, property developing and providing financial services respectively.

1.2 basis of Preparation1.2.1 Statement of compliance

The Balance Sheet, Income Statement, Statement of Changes in Equity and Cash Flow Statement have been

prepared in accordance with the Sri Lanka Accounting Standards laid down by the Institute of Chartered

Accountants of Sri Lanka and comply with the requirements of the Companies Act No. 07 of 2007 and

Banking Act No. 30 of 1988 and amendments thereto.

1.2.2 Approval of financial Statements by Directors

The Financial Statements were authorised for issue by the board of directors on 17th February 2010.

1.2.3 basis of Measurement

The Financial Statements have been prepared on the historical cost basis and applied consistently with no

adjustments being made for inflationary factors affecting the Financial Statements, except for the following:

• Land and buildings are measured at cost at the time of acquisition and subsequently at revalued

amounts, which are the fair values at the date of revaluation less accumulated depreciation and

impairment losses, if any.

• Dealing securities are measured at market value, adjustments for changes in market values are

accounted for in the Income Statement.

1.2.4 functional and Presentation currency

The Financial Statements are presented in Sri Lankan Rupees, which is the Bank’s functional currency. Except

as indicated, financial information presented in Sri Lankan Rupees has been rounded to the nearest thousand.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


1.2.5 use of Estimates and Judgments

The preparation of Financial Statements requires management to make judgments, estimates and

assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities,

income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognised in the period in which the estimate is revised and in any future periods affected.

In particular, information about significant areas of estimation uncertainty and critical judgments

in applying accounting policies that have the most significant effect on the amounts recognised in the

Consolidated Financial Statements are described in the following Notes:

• Notes16&17-ClassificationofDealing(Trading)andInvestmentSecurities

• Note17-AssessmentofImpairmentofInvestmentSecurities

• Note19b-AnalysisofProvisionforLoanLosses

• Note25-InvestmentProperty

• Note26-DeferredTaxation

• Note35a-MeasurementofDefinedBenefitObligations

1.3 Materiality and Aggregation

Each material class of similar items is presented separately in the Financial Statements. Items of a dissimilar

nature or function are presented separately unless they are immaterial.

1.4 Significant Accounting Policies

The accounting policies set out below have been applied consistently to all periods presented in these

Financial Statements. The accounting policies of the Bank have been consistently applied by Group entities

where applicable and deviations if any, have been disclosed accordingly.

1.4.1 basis of consolidation1.4.1.1 Subsidiaries

Subsidiaries are entities that are controlled by the Bank. Control exists when the Bank has the power,

directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from

its activities. In assessing control, potential voting rights, which presently are exercisable, are taken into

account. The Financial Statements of subsidiaries are included in the Consolidated Financial Statements

from the date that control effectively commences until the date that control effectively ceases. The minority

interests are presented in the Consolidated Balance Sheet within Equity, separately from the equity

attributable to the equity holders of the Bank.

The Group Financial Statements comprise a consolidation of the Financial Statements of the Company

and its subsidiaries incorporated in Sri Lanka, Seylan Bank Asset Management Limited (100%) and Seylan

Developments PLC (50.29%). Financial Statements of Seylan Merchant Bank PLC have been deconsolidated

with effect from 1st October 2009.

Subsidiary Companies Nature of Business

Seylan Bank Asset Management Limited Primary Dealer

Seylan Developments PLC Property Developers

Seylan Merchant Bank PLC

(deconsolidated with effect from 1st October 2009) Financial Services



The total profit/loss of the subsidiaries are included in the Consolidated Income Statement, and the

proportion of the profit or loss after taxation applicable to outside shareholders is shown under the heading

‘Minority Interest’ (SLAS 26). All assets and liabilities of the Company and its subsidiaries are included in

the Group Balance Sheet. The interest of the outside shareholders in the net assets of the Group is stated

separately in the Consolidated Balance Sheet within Equity under the heading ‘Minority Interest’.

1.4.1.2 Transactions Eliminated on Consolidation

(a) Intra-Group Transactions

Intra-group balances and transactions and any unrealised gains arising from intra-group transactions, are

eliminated in preparing the Consolidated Financial Statements. Unrealised losses are eliminated in the same

way as unrealised gains except that they are only eliminated to the extent that there is no evidence of impairment.

(b) Profit and Loss

In arriving at the profit attributable to the shareholders of Seylan Bank PLC, the total profits or losses of the

subsidiaries are included in the Consolidated Income Statement after eliminating intra-group transactions

and the portion of the profit or loss after taxation applicable to non-group shareholders.

(c) Assets and Liabilities

All assets and liabilities of the Company and its subsidiaries are included in the Consolidated Balance Sheet.

The proportionate interest of the non-group shareholders in the net assets employed is stated separately in

the Consolidated Balance Sheet under the heading ‘Minority Interest’.

(d) Non-Uniform Accounting Policies

The impact of non-uniform accounting policies adopted by subsidiaries has been adjusted in the consolidated

accounts. The details of the adjustments are disclosed in Note 48.

1.4.2 foreign currency translation

Transactions in foreign currencies in Domestic Banking Unit are translated to Sri Lankan Rupees at the

middle rate of exchange ruling at the date of the transaction. Monetary items denominated in foreign

currencies at the Balance Sheet date are translated to Sri Lankan Rupees at the middle rate of exchange

ruling at that date. Foreign exchange differences arising on the settlement or reporting of the Bank’s

monetary items at rates different from those which were initially recorded are dealt in the Income Statement.

Non-monetary assets and liabilities denominated in foreign currency that are stated at historic cost at the

Balance Sheet date are translated to Sri Lankan Rupees at the foreign exchange rates ruling at that date.

Forward exchange contracts are valued at the forward market rates ruling on the date of the Balance

Sheet. Unrealised gains and losses are dealt with through the Income Statement.

Foreign Currency Banking Unit (FCBU) balances have been converted at closing rate for all monetary

items and historic rate for non- monetary items. Income Statement of the FCBU has been converted at the

monthly average rate. Differences arising from conversion are recognised in the Income Statement.

Assets and basis of their valuation

1.4.3 Statutory Deposit with central banks

The Monetary Law Act requires that all commercial banks operating in Sri Lanka maintain reserves against

all deposit liabilities denominated in Sri Lankan Rupees. The details of reserve requirements are given

in Note 15.



1.4.4 Government of Sri lanka treasury bills and bonds1.4.4.1 Investment in Treasury Bills and Bonds Held for Dealing

The Bank has adopted a policy of marking to market its ‘Trading Portfolio’ of Government Securities in line

with the directions made by the Monetary Board of the Central Bank of Sri Lanka under Section 46 (1) of the

Banking Act No. 30 of 1988 amended by the Banking (Amendment) Act No. 33 of 1995 and Act No. 2 of 2005.

The Trading Portfolio of Seylan Bank Asset Management Limited is being marked to market based on the

weighted average rates circulated by CBSL and gains or losses recognised in the Profit and Loss Account.

1.4.4.2 Securities Purchased Under Resale Agreements (Reverse Repurchase Transactions)

These are loans collateralised by the purchase of Treasury Bills and/or guaranteed commercial papers from

the counterparty to whom the loans are granted. The sale by the counterparty is subject to a commitment by

the Bank to sell back the underlying debt securities to the borrower at a predetermined price. These loans

are stated in the Balance Sheet at cost.

1.4.5 Advances to customers

Advances to customers are stated in the Balance Sheet net of provisions for possible loan losses and

also net of interest which is not accrued to revenue. Bank’s policy is to discontinue accruing interest on

non-performing loans and advances after 12 months.

1.4.6 Provision for loan losses1.4.6.1 Specific Provision for Loan Losses and Leases

In accordance with the direction issued by the Central Bank of Sri Lanka on 8th May 2008, Direction No. 3

of 2008 ‘Classification of Loans & Advances, Income Recognition & Provisioning’ specific provisions on NPA

(as a minimum) are made as follows:

Category of Minimum Specific NPA Credit Quality Provision Requirement (Net of Security)

Substandard - Credit Cards 25% Other Advances 20%

Doubtful 50%

Loss 100%

The provision made relates to all categories of loans and advances including pawning and leasing

identified as substandard, doubtful and loss.

Where necessary, specific provisions have been made over and above the minimum percentages stipulated

above, on a case by case basis.

In addition to the specific provisions for possible loan losses made on the basis of a continuous review of

all loans and advances to customers in accordance with the Sri Lanka Accounting Standard 23 on Revenue

Recognition and Disclosures in the Financial Statements of Banks and the directions issued by the Central

Bank of Sri Lanka, the Bank evaluates the need for additional provisions for loans and advances based

upon management’s best estimate of recoverability. In estimating the recoverability the management makes

judgments about the borrower’s financial situation, the workout strategy and the net realisable value of any

underlying collateral.



1.4.6.2 General Provision

The general provisions cover loan losses inherent in portfolios with similar credit risk characteristics

(e.g., portfolio of loans, advances and lease receivables), when there is objective evidence to suggest that

they contain impaired loans, but the individual impaired loans cannot yet be identified. In assessing the need

for general provision for loan losses, management considers factors such as credit quality, portfolio size,

concentrations and economic factors. In order to estimate the required provisions, assumptions are made

to define the way inherent losses are determined based on historical experience.

The amount of potential losses not specifically identified but which experience indicates are present

in the portfolio of loans, advances and lease receivables are recognised as a general provision in the

Income Statement.

In addition, the direction issued by the Monetary Board of the Central Bank of Sri Lanka, in terms of Section

46 of the Banking Act No. 30 of 1988, as amended, in ‘Requirements to Maintain a General Provision for

Advances’ requires all licensed commercial banks to maintain a general provision of 1% of the total on Balance

Sheet, performing loans and advances and on Balance Sheet overdue loans and advances, net of interest in

suspense and credit facilities secured by cash deposits, gold or Government Securities with the same bank. The

general provision was commenced with a minimum of 0.1% provision as at 31st December 2006 and thereafter

incremental provisions were made on the same basis till 31st March 2009, with the view of meeting the total

provision requirement of 1% by 31st March 2009.

1.4.7 investments1.4.7.1 Investments in Subsidiaries

Investments in subsidiaries are stated at cost in the Bank’s Financial Statements in accordance with the

Sri Lanka Accounting Standard 26 on Consolidated Financial Statements and Accounting for Investments

in Subsidiaries.

1.4.7.2 Investments in Associates

Investments in associates are accounted under the Equity Method in Consolidated Financial Statements in

accordance with the Sri Lanka Accounting Standard 27 on Accounting for Investments in Associates.

1.4.7.3 Dealing Securities

These are marketable securities acquired and held with the intention to resale over a short period of time.

Such securities are recorded at market values, adjustments for changes in market values are accounted for

in the Income Statement. In classifying securities as ‘Dealing’ (Trading), the Bank has determined that it

meets the description for such classification.

1.4.7.4 Investment Securities

These are acquired and held for yield or capital growth in the medium/long term. Such securities are

recorded at cost. Changes in market values of these securities are not taken into account unless there is

considered to be a permanent diminution in value. In classifying securities as ‘Investment’, the Bank has

determined that it has both the positive intention and ability to hold the securities until their maturity date.

Unquoted long-term investments are stated at cost.

1.4.7.5 Investment Properties

Investment properties are properties held either to earn rental income or for capital appreciation or both

but not for sale in the ordinary course of business, used in the production or supply of goods or services or

for administrative purposes.



Basis of Recognition

Investment property is recognised if it is probable that future economic benefits that are associated with the

investment property will flow to the Group and cost of the investment property can be reliably measured.

Measurement

An investment property is measured initially at its cost. The cost of a purchased investment property comprises

of its purchase price and any directly attributable expenditure. The cost of a self-constructed investment is

its cost at the date when the construction or development is completed. The Group applies the cost model

for investment properties in accordance with Sri Lanka Accounting Standard 40 - ‘Investment Property’

(Revised 2005). Accordingly, land classified as investment properties are stated at cost and buildings classified

as investment properties are stated at cost less any accumulated depreciation and any accumulated

impairment losses. Fair values of these properties are disclosed in Note 25 to the Financial Statements.

Derecognition

Investment properties are derecognised when disposed of, or permanently withdrawn from use because

no future economic benefits are expected. Transfers are made to and from investment property only when

there is a change in use.

1.4.7.6 Other Investments

Where the Group interest in equity is less than 20% and or in companies where the Bank does not exercise

significant influence and/or control over the financial and operating policies, investments are valued at cost.

1.4.8 Property, Plant & Equipment

Property, Plant & Equipment are tangible items that are held for servicing, or for administrative purposes

and are expected to be used during more than one period.

Basis of Recognition

Property, Plant & Equipment are recognised if it is probable that future economic benefits associated with

the assets will flow to the Group and cost of the asset can be reliably measured.

Measurement

An item of Property, Plant & Equipment that qualifies for recognition as an asset is initially measured at its

cost. Cost includes expenditure that is directly attributable to the acquisition of the asset and cost incurred

subsequently to add to, replace part of, or service it. The cost of self-constructed assets includes the cost of

materials and direct labour, any other costs directly attributable to bringing the asset to a working condition

for its intended use and the costs of dismantling and removing the items and restoring the site on which they

are located. Purchased software that is integral to the functionality of the related equipment is capitalised

as part of computer equipment.

Cost Model

The Group applies cost model to Property, Plant & Equipment except for freehold land and buildings and

records at cost of purchase or construction together with any incidental expenses thereon less accumulated

depreciation and any accumulated impairment losses.

Revaluation Model

The Group applies the revaluation model for the entire class of freehold land and buildings. Such properties are

carried at a revalued amount, being their fair value at the date of revaluation less any subsequent accumulated



depreciation and subsequent accumulated impairment losses. Freehold land and buildings of the Bank are

revalued every five years on a roll over basis to ensure that the carrying amounts do not differ materially from

the fair values at the Balance Sheet date. On revaluation of an asset, any increase in the carrying amount

is credited directly to equity, under revaluation reserve or used to reverse a previous revaluation decrease

relating to the same asset, which was debited to the Income Statement. In this circumstance, the increase

is recognised as income to the extent of the previous write down. Any decrease in the carrying amount is

recognised as an expense in the Income Statement or debited directly to equity under revaluation reserve to

the extent of any credit balance existing in the revaluation reserve in respect of that asset.

Subsequent Costs

The cost of replacing part of an item of Property, Plant & Equipment is recognised in the carrying amount of

the item if it is probable that the future economic benefits embodied within that part will flow to the Group

and its cost can be reliably measured. The costs of day-to-day servicing of Property, Plant & Equipment are

charged to the Income Statement as incurred.

Derecognition

The carrying amount of an item of Property, Plant & Equipment is derecognised on disposal or when no future

economic benefits are expected from its use or disposal. The gain or loss arising from the derecognition of an

item of Property, Plant & Equipment is included in Income Statement when the item is derecognised. When

replacement costs are recognised in the carrying amount of an item of Property, Plant & Equipment, the

remaining carrying amount of the replaced part is derecognised. Major inspection costs are capitalised. At

each such capitalisation, the remaining carrying amount of the previous cost of inspections is derecognised.

Depreciation

Seylan Bank and Seylan Bank Asset Management Limited provides depreciation from the date the assets

are available for use up to the date of disposal, at the following rates on a straight-line basis over the periods

appropriate to the estimated useful lives of the different types of assets: life Period rate

Freehold/Leasehold Building 40 Yrs. 2.5%

Motor Vehicles 5 Yrs. 20%

Computer Equipment 5-6 Yrs. 16.67%-20%Office Equipment, Furniture & Fittings and Leased Assets 3-10 Yrs. 10%-33 1/3%

Building Improvements 5 Yrs. 20%

Depreciation is not provided for freehold land.

The rate of depreciation of freehold buildings was revised with effect from 1st January 1999 (from 4% to

2.5%). Freehold buildings purchased prior to 1st January 1999 have been depreciated over the remaining

useful life based on the revised depreciation rates. Freehold buildings purchased after 1st January 1999

have been depreciated based on revised rates.

Leasehold building has been depreciated over the useful economic life as the lease period is greater than

the useful life of the asset.

Depreciation of an asset begins when it is available for use and ceases at the earlier of the date that the

asset is classified as held for sale and the date that the asset is derecognised.




Property, Plant & Equipment are recorded at cost of purchase or valuation together with any incidental expenses thereon. The assets are stated at cost or valuation less accumulated depreciation which is provided for on the basis specified below.

The property at No. 90, Galle Road, Colombo 03, which includes the leasehold land, buildings and equipment and comprises of two towers namely, East and West were revalued on open market effective value basis. The surplus arising on the revaluation was transferred to revaluation reserve account.

The value pertaining to the East tower is apportioned on a square feet area basis and is stated at valuation less accumulated depreciation under Property, Plant & Equipment.

Depreciation of common types of assets within the Group are in line with the Group policy disclosed above.Freehold land, antiques and ornamental paintings are not depreciated. Leasehold land and buildings are

depreciated over the remaining unexpired lease period. The depreciation of other assets that are unique to Seylan Developments PLC is provided on the straight-line method at varying rates per annum based on their useful lives as follows:

useful life (Years) Depreciation rate

Leasehold Land 81 1.23%Building 81 1.23%

Interior Decor - General 02 50%Motor Cycle 04 25%Tools 03 33.33%Cutlery & Crockery 02 50%Equipment - West Tower 02 50%Furniture - West Tower 03 33.33%Interior - West Tower 03 33.33%General Plant & Equipment 20 5%

Depreciation of an asset begins when it is available for use whereas depreciation of an asset ceases at the

earlier of the date that the asset is classified as held for sale and the date that the asset is derecognised.

Capital Work-in-Progress

Capital work-in-progress is stated at cost. These are expenses of a capital nature directly incurred in the construction of buildings, major plant and machinery and system development, awaiting capitalisation.

Borrowing Costs

Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset have been capitalised as part of the cost of the asset in accordance with Sri Lanka Accounting Standard 20 - ‘Borrowing Costs’. Capitalisation of borrowing costs ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use are completed.

1.4.9 intangible Assets

Goodwill arising on acquisition was measured at cost and amortised previously. Other intangible assets included in Note 29 has been impaired and charged to Income Statement as set out in Note 1.4.10.2.

1.4.10 impairment1.4.10.1 Financial Assets

The Bank assesses at each Balance Sheet date whether there is objective evidence that a financial asset is impaired. A financial asset is impaired and impairment losses are incurred if and only if, there is objective evidence of impairment as a result of one or more loss events that occurred after the initial recognition of the asset and prior to the Balance Sheet date (‘a loss event’), and that loss event or events have had an impact on the estimated realisable value of the asset.



The Bank assesses whether objective evidence of impairment exists for financial assets that are significant (except for loans and advance explained in Note 1.4.6). For loans and advances, impairment loss is measured individually and collectively as explained in Note 19.

When a loan is uncollectible, it is written off against the related provision. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of the amounts previously written off are included under ‘Other Income’ in the Income Statement.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the impairment provision account. The amount of the reversal is recognised in

the Income Statement.

1.4.10.2 Non-Financial Assets

The carrying values of Property, Plant & Equipment and investment properties are reviewed for impairment annually or when events or changes in circumstances indicate that the carrying value may not be recoverable. If such indications exist and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount. Impairment losses are recognised in the Income Statement unless it reverses a previous revaluation surplus for the same asset.

Assets with an indefinite useful life, including goodwill, are not subject to amortisation and are tested on an annual basis for impairment and additionally whenever an indication of impairment exists. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

The recoverable amount of an asset is the higher of its fair value less cost to sell or its value in use. Any decrease in the carrying value is recognised as an expense in the Income Statement in the reporting period in which the impairment loss occurs.

For assets that do not generate largely independent cash inflows, the recoverable amount is determined for the cash generating unit to which that asset belongs. Management judgment is applied to establish cash-generating units. Each of these cash-generating units is represented by an individual primary reporting segment, or a sub-division of a primary segment.

An impairment loss in respect of goodwill is not reversed. In respect of other assets impairment losses recognised in prior periods, are assessed at each Balance Sheet date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

1.4.11 inventory

Inventory mainly consists of stationery and gold. Bank’s policy for the accounting of inventory is as follows:

Stationery: At weighted average cost method.

Gold Stock: Market value at the year end.

liabilities and Provisions1.4.12 Deposits from customers

Deposits include non-interest bearing deposits, saving deposits, term deposits, deposits redeemable at

call and certificates of deposit. They are brought to account at the gross value of the outstanding balance.

Interest paid is charged to the Income Statement.



1.4.13 Dividends Payable

Provision for dividends is recognised at the time the dividend recommended and declared by the board of

directors is approved by the shareholders.

1.4.14 borrowings

Borrowings include refinance borrowings, call money borrowings, Vostro account balances and borrowings

from financial institutions. They are brought to account at the gross value of the outstanding balance.

1.4.15 Securities Sold under repurchase Agreement (‘rEPos’)

This relates to Treasury Bills and Bonds sold subject to a commitment to repurchase them at a predetermined

price. Such Treasury Bills and Bonds remain on the Balance Sheet and the liability is recorded in respect of the

consideration received. The liability is disclosed as borrowing under repurchase agreement. These Treasury

Bills and Bonds are not marked to market since the corresponding liability is also not marked to market.

1.4.16 bills Payable and other liabilities

Bills payable and other liabilities include all financial liabilities, interest, fees, expenses payable and securities

purchased but not delivered. These liabilities are recorded at the cash value to be realised when settled.

1.4.17 Employee benefits1.4.17.1 Defined Benefit Plan

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan.

The Bank operates an approved Gratuity Fund to facilitate the payments for permanent staff of the Bank.

The Bank’s obligation in respect of defined benefit gratuity plans is calculated by estimating the amount

of future benefit that employees have earned in return for their service in the current and prior periods and

discounting that benefit to determine its present value, then deducting the fair value of any plan assets. The

discount rate is the yield at the reporting date on Government Bonds that have maturity dates approximating

to the terms of the Bank’s obligations. The calculation is performed by a qualified actuary using the Projected

Unit Credit Method which is the method recommended by Sri Lanka Accounting Standard 16 (Revised 2006) -

‘Employee Benefits’ (SLAS 16).

When the benefits of a plan are improved, the portion of the increased benefit relating to past service

by employees is recognised in the Income Statement on a straight-line basis over the average period until

the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised

immediately in Income Statement.

In respect of actuarial gains and losses that arise in calculating the Bank’s obligation in respect of a plan,

to the extent that any cumulative unrecognised actuarial gain or loss exceeds 10% of the greater of the

present value of the defined benefit obligation and the fair value of plan assets, that portion is recognised in

Income Statement over the expected average remaining working lives of the employees participating in the

plan. Otherwise, the actuarial gain or loss is not recognised.

Monthly provision is made by the Bank for the Gratuity Fund, based on a percentage of the basic salary of

employees. The percentage of contributions is determined by the same actuary and retirement benefits are

provided to all permanent staff. The Bank carries out an actuarial valuation of the Gratuity Fund in December

each year to ascertain the full liability of the fund. The valuation method used by the actuary to value the fund

is the ‘Projected Unit Credit Method’, the method recommended by SLAS 16. The demographic assumptions

underlying the valuation are retirement age (55 yrs.), early withdrawals from service and retirement on

medical grounds, death before and after retirement etc.



However, under the Payment of Gratuity Act No. 12 of 1983, the liability to an employee arises only on

completion of five years of continual service.

Changes to Gratuity Policy

Board of directors of the Bank at its meeting held on 24th March 2009 decided to change the previous

policy of gratuity payments of paying one month’s salary (last drawn) to resigned staff members who have

completed ten years of service in the Bank with effect from 5th March 2009.

The policy of paying half a month’s salary (last drawn) to resigned staff members who have completed

five years of service (not completed ten years of service) in the Bank remains unchanged.

Subsidiaries have also adopted the Revised SLAS 16 from 1st January 2008 and have made provisions

based on the above method.

Transitional Provision

On first adoption of the standard in 2008 the Bank has determined its transitional liability for defined benefit

obligation which is less than the liability recognised by the Bank, under previous accounting policy and the

difference was adjusted in the opening balance of the retained earnings.

Defined benefit obligations are partly funded by the Bank to a separate Gratuity Trust Fund, which is an

approved investment for tax purposes. The Bank makes annual contributions to the fund not exceeding

a total sum equivalent to the half a month’s salary of each employee as depicted in the last month of

the accounting year together with an additional 25% of the total thereof.

1.4.17.2 Defined Contribution Plans

A defined contribution plan is a post-employment plan under which an entity pays fixed contributions into

a separate entity and will have no legal or constructive obligation to pay a further amount. Obligations for

contributions to defined contribution plans are recognised as expense in the Income Statement as and when

they are due.

1.4.17.2 (a) Employees’ Provident Fund

The Bank and employees contribute 12% and 8% respectively on the salary of each employee to the approved

private Provident Fund while the Group entities and their employees contribute the same percentages to

Employees’ Provident Fund [Refer Note 08].

1.4.17.2 (b) Employees’ Trust Fund

The Bank/Group contributes 3% of the salary of each employee to the Employees’ Trust Fund. The total

amount recognised as an expense to the Bank for contribution to ETF is disclosed in the Notes to Financial

Statements [Refer Note 08].

1.4.17.3 Short-Term Benefit

Short-term employee benefits are measured on an undiscounted basis and are expensed as the related

service is provided.

A provision is recognised for the amount expected to be paid under short-term compensated absences

if the Bank has a present legal or constructive obligation to pay as a result of past services provided by the

employees and the obligation can be estimated reliably. Leave encashment policy has been calculated for

the annual leave entitlement up to a maximum of 90 working days that could be carried forward up to the

date of retirement by the staff member.



1.4.18 Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract before a provision is established, the Group recognises

any impairment loss on the assets associated with that contract.

1.4.19 commitments and contingencies

All discernible risks are accounted for in determining the amount of all known liabilities. The Bank’s share of any contingencies and capital commitments of a subsidiary for which the Bank is also liable severally or otherwise are also included with appropriate disclosures.

Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is not probable or cannot be reliably measured. Contingent liabilities are not recognised in the Balance Sheet but are disclosed unless they are remote.

1.4.20 Events After the balance Sheet Date

All material and important events which occur after the Balance Sheet date have been considered and

disclosed in Note No. 41 or adjusted as applicable.

incoME StAtEMEnt1.4.21 revenue recognition

Interest Income: Interest receivable is recognised on an accrual basis. Interest ceases to be taken into revenue when the recovery of interest or principal is in arrears for 90 days. Thereafter interest on advances is accounted for on a cash basis.

Interest on non-performing debts is credited to the ‘Interest in Suspense’ account which is netted in the

Balance Sheet against the relevant balance.

1.4.22 interest income

Interest receivable is recognised on an accrual basis. Interest from loans and advances ceases to be accrued when they are classified as non-performing as explained in Note 19.e. Interest on non-performing loans and advances is accounted for on a cash basis. Interest on non-performing loans and advances is credited to the ‘Interest in Suspense Account’ which is netted in the Balance Sheet against the relevant loans and advances.

Interest income from investments is recognised on an accrual basis.

1.4.23 Dividend income

Dividend income is recognised in the period in which it is declared.

1.4.24 Accounting for finance lease income

Assets leased to customers which transfer substantially all the risks and rewards associated with ownership other than the legal title are classified as finance leases. Amount receivable under finance leases are included under ‘Lease Rental Receivable’. Leasing balances are stated in the Balance Sheet after deduction of initial rentals received.

The excess of aggregate rentals receivable over the cost of the leased assets constitutes the total unearned income. The unearned income is taken into revenue over the term of the lease, commencing from

the month in which the lease is executed in proportion to the remaining receivable balance of the lease.



1.4.25 Accounting for operating lease income

Seylan Merchant Bank PLC, a subsidiary until 30th September 2009, rental income is recognised as revenue

over the term of lease. However, no accrued rental income is recognised where any portion of capital or

interest is in arrears for six months or more. In such cases interest income is accounted for on a cash basis.

1.4.26 income tax Expense

Income tax expense comprises of current and deferred tax. Income tax expense is recognised in the Income

Statement except to the extent that it relates to items recognised directly in equity, in which case it is

recognised in equity.

1.4.26.1 Current Taxation

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively

enacted on the Balance Sheet date, and any adjustment to tax payable in respect of previous years.

Provision for taxation is based on the profit for the year adjusted for taxation purposes in accordance with

the provisions of the Inland Revenue Act No. 10 of 2006 and the amendments thereto at the rates specified

in Note 11.

1.4.26.2 Deferred Taxation

Deferred taxation is provided using the liability method, providing for temporary differences between the

carrying amounts of assets and liabilities for financial reporting purposes and the tax base of assets and

liabilities, which is the amount attributed to those assets and liabilities for tax purposes. The amount of

deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount

of assets and liabilities, using tax rates enacted or substantively enacted by the reporting date.

Deferred tax liabilities are not recognised for the following temporary differences: the initial recognition

of goodwill, the initial recognition of assets and liabilities in a transaction that is not a business combination

and that affects both accounting nor taxable profit and differences relating to investments in subsidiaries

to the extent that they probably will not reverse in the foreseeable future. Deferred tax assets, including

those related to temporary tax effects of income tax losses and credits available to be carried forward, are

recognised only to the extent that it is probable that future taxable profits will be available against which the

asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent

that it is no longer probable that the related tax benefit will be realised.


Since the Company enjoys 7-year tax holiday from the year of assessment 2003/04, certain temporary

differences will not reverse for a considerable period.

Considering the above tax effect and losses carried forward, temporary differences have been excluded

from the computation of deferred tax expenses for the period under review.

1.4.27 withholding tax on Dividends

Dividend distributed out of taxable profit of the subsidiaries attracts a 10% deduction at source and is not

available for set-off against the tax liability of the Bank. Thus, the withholding tax deducted at source is

added to the tax in the Consolidated Financial Statements as a consolidation adjustment. Withholding tax

that arise from the distribution of dividends by the Bank are recognised at the same time as the liability to

pay the related dividend is recognised.



1.4.28 vAt on financial Services

The value base for value added tax for the Bank is the adjusted accounting profit before tax and emoluments

of employees. The adjustment to the accounting profit before tax is for economic depreciation computed on

prescribed rates instead of the rates adopted in the Financial Statements.

1.4.29 fee and commission income

All fee and commission income have been recorded when a trade takes place.

1.4.30 Profit or loss on Sale of Property, Plant & Equipment/investments

Gains or losses of a revenue nature on the disposal of Property, Plant & Equipment and share portfolio are

accounted for in the Income Statement.

1.4.31 interest Expenses

Interest payable is recognised on an accrual basis. Other expenses have been recognised in the accounts as

they are incurred in the period to which they relate.

1.4.32 Earnings Per Share

The Group presents basic Earnings Per Share (EPS) data for its ordinary shares. Basic EPS is calculated by

dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number

of ordinary shares outstanding during the period.

1.4.33 Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing related products or services (business segment), or in providing products and services within a particular economic environment (geographical segment), which is subject to risks and returns different from those of other business segments. For the purposes of segment reporting disclosures, the information is presented in respect of the Group’s business segments, which is based on the Group’s management and internal reporting structure. The Group comprises the following major business segments: Banking, Leasing, Treasury and Property/Investments.

Inter-segment pricing is determined on an arm’s-length basis. Measurement of segment assets, liabilities, segment revenue and results is based on the accounting

policies set out above. Segment revenue results, assets and liabilities include items directly attributable to segments as well as those that can be allocated on a reasonable basis.

Disclosure by geographical region is not provided for as the Group’s activities are located in Sri Lanka and the economic environment in which the Group operates is not subject to risk and return that are significantly different on a geographical basis.

1.4.34 cash flow

The cash flow has been prepared using the direct method of preparing cash flows in accordance with the

Sri Lanka Accounting Standard 9 - ‘Cash Flow Statements’.

For the purpose of the Cash Flow Statement, cash and cash equivalents include notes and coins on hand,

unrestricted balances held with the Central Bank and highly liquid financial assets with original maturities

of less than three months, which are subject to insignificant risk of changes in their value and are used by

the Group in the management of its short-term commitments.

1.4.35 financial risk Management (a) Introduction and Overview

Bank has implemented a risk management framework in order to identify, measure, mitigate and control

the various risk falling within market credit and operational risk.



Bank has exposure to the following risks from financial instruments:

Credit risk

Liquidity risk

Market risks

Operational risks

(b) Risk Management Framework

The board of directors has overall responsibility for the establishment and oversight of the Bank’s risk

management framework. The board has established the Asset and Liability (ALCO), Risk Management

Committees, which are responsible for developing and monitoring risk management policies in their

specified areas. All board committees have both executive and non-executive members and report regularly

to the board of directors on their activities.

The risk management policies are established to identify and analyse the risks faced by the Bank, to set

appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies

and systems are reviewed regularly to reflect changes in market conditions, products and services offered.

Bank, through its training and management standards and procedures, aims to develop a disciplined and

constructive control environment, in which all employees understand their roles and obligations.

The Audit Committee is responsible for monitoring compliance with the risk management policies and

procedures.

(c) Credit Risk

Credit risk is the risk of financial loss to the Bank if a customer or counter party to a financial instrument

fails to meet its contractual obligations, and arises principally from the loans and advances to customers

and other banks and investment debt securities.

(c.I) Past due but not Impaired Loans and Investment Debt Securities

Past due but not impaired loans and investment debt securities are those for which contractual interest or

principal payments are past due but the Bank believes that impairment is not appropriate on the basis of the

level of security/collateral available and/or the stage of collection of amounts owed.

(c.II) Loans with Re-negotiated Terms

Loans with re-negotiated terms are loans that have been restructured due to deterioration in the borrower’s

financial position and where the Bank has made concessions that it would not otherwise consider. Once the

loan is restructured it remains in this category independent of satisfactory performance after restructuring.

(c.III) Write-off Policy

The Bank writes off a loan or investment debt security balance, and any related allowances for impairment

losses, when Bank credit determines that the loan or security is uncollectible. This determination is reached

after considering information such as the occurrence of significant changes in the borrower’s/issuer’s

financial position such that the borrower/issuer can no longer pay the obligation, or that proceeds from

collateral will not be sufficient to pay back the entire exposure.

(d) Liquidity Risk

Central Treasury receives information from other business units regarding the liquidity profile of their

financial assets and liabilities and details of other projected cash flows arising from projected future

business. Central Treasury then maintains a portfolio of short-term liquid assets, largely made up of short-



term liquid investment securities, loans and advances to banks and other inter-bank facilities, to ensure

that sufficient liquidity is maintained.

All liquidity policies and procedures are subject to review and approval by ALCO. Daily reports cover the

liquidity position of the Bank. A summary report, including any exceptions and remedial action taken, is

submitted regularly to ALCO.

Exposure to Liquidity Risk

The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to deposits

from customers. For this purpose net liquid assets are considered as including cash and cash equivalents.

Liquidity Management 2009 2008 2009 2008

Domesticbanking unit

DomesticBanking Unit

foreigncurrency

banking unit

Foreign Currency

Banking Unit

As at 31st December 28.80% 20.11% 24.94% 22.11%Highest 28.80% 22.70% 24.94% 22.72%Lowest 11.87% 20.09% 12.85% 20.25%Average 19.19% 21.55% 20.24% 21.33%

(e) Market Risks

Market risk is the risk that changes in market prices, such as interest rates, equity prices, foreign

exchange rates and credit spreads (not relating to changes in the obligor’s/issuer’s credit standing) will

affect the Bank’s income or the value of its holdings of financial instruments. The objective of market

risk management is to manage and control market risk exposures within acceptable parameters, while

optimising the trading portfolios for risk management purposes. Overall authority for market risk is vested

in ALCO.

Market risk is the risk arising from fluctuations in the market price/value of tradable assets such as

foreign exchange, fixed income securities and shares that are held for trading purposes where the Bank

holds either long positions or short positions of such assets.

The two risk components of the market risk most applicable to the Bank are foreign exchange risk and

interest rate risk.

(e.i) the foreign Exchange risk arises from the foreign exchange positions maintained by the Bank

where either the foreign currency denominated assets exceed such liabilities (long positions) or the foreign

currency denominated liabilities exceed the assets (short positions). Such long or short positions could also

be created through the sale or purchase transactions both in spot and forward markets as well as through

swap transactions. Bank is conservative and prudent in its management of foreign exchange exposures and

has set out limits on its transactions and exposures including dealer limits, portfolio limits, daylight limits,

overnight limits, long position limits, short position limits, counter party limits, etc.

(e.ii) interest rate risk arises from the movement of interest rates affecting the value of tradable fixed

income securities as well as the interest rate re-pricing gaps of the interest rate sensitive assets and

liabilities. The Bank evaluates the risk level of the tradable fixed income securities portfolio by assessing

the sensitivity of the market value towards a change of interest rates by one hundred basis points, which

is one percentage point. The size and duration of the trading portfolio is capped based on the potential

risk exposure as well as the board approved limits placed on absolute values. Banks also typically have



mismatches in the re-pricing periods of assets and liabilities and an approach of minimising the gaps and

limiting long-term fixed rates is followed by the Bank.

Seylan as a policy does not carry a significant exposure to the equity market whilst of course being an

active investor within applicable prudential limits.

The different types of market risks and the Balance Sheet structure with a long-term focus are monitored

by the Asset and Liability Management Committee (ALCO).

(f) Operational Risk

Operational risk refers to the losses arising from fraud, negligence, oversight, human error, process errors,

system failures, external events, etc. The Bank manages most elements of the operational risk through sound

internal control systems and well-defined processes both technology driven and with human intervention.

The areas of risk include process risks where faulty processes or errors in the processes could trigger

losses. Continuous review of the systems and the processes either on a regular review basis or pursuant to

observed loss events and incidents addresses potential weaknesses of the processes.

In implementation of new products that invariably relies on technology as well as human involvement a

risk review is an essential aspect that needs both the marketing objectives as well as the risk management

requirements. Bank strives to subject such new product introductions to adequate review.

Bank also maintains its policies with regard to access control and data protection and necessary

safeguards are constantly introduced and upgraded to ensure the integrity of the information and the data

bases. Preventive measure such as firewalls and virus guards among other steps are put in place.

(g) Capital Management

Capital Adequacy is a measure of a commercial bank’s ability to withstand the associated risks of its business.

Regulators find it necessary that every bank holds adequate capital to absorb unexpected losses as a going

concern, while they price their products and services to take care of expected risks. Capital Adequacy Ratio

(CAR) was measured on the basis of credit and Market risk under the BASEL I accord and under BASEL II

it takes into account the credit, market and operations risks. Keeping with the International Standards of

BASEL Committee on Banking Regulations and Supervisory Practices, Sri Lanka has been following BASEL II

CAR calculation from January 2008 after conducting parallel calculations in 2007.

(g.I) Available Capital

BASEL I and BASEL II accords recognise three capital elements, namely, Tier I, Tier II and Tier III capital. Tier

I capital includes paid up ordinary share capital, paid up non-cumulative, non-redeemable preference shares,

share premium, statutory reserve fund, published retained earnings, general and other reserves less goodwill.

Tier II capital includes 50% of asset revaluation reserves (created by revaluation carried out in every seven

years) general provision for advances, hybrid debt/equity instruments and approved subordinated term debts.

Tier II capital cannot exceed Tier I capital and subordinated debt cannot exceed 50% of the Tier I capital.

Tier III capital will consist only of short-term debt instrument and will be used for calculation of market risk

only. Tier III is subject to a maximum of 250% of Tier I capital after meeting the credit and operational risk.

Equity investments in unconsolidated banking and financial subsidiaries and investments in capital of

other banks/financial associates are deducted from capital in arriving at the capital base. The Bank is

required to maintain a minimum total risk-weighted capital ratio of 10% in respect of Domestic Banking

Unit (DBU) and Foreign Currency Banking Unit (FCBU) operations.



Capital Adequacy Details 31st December (Basel II)BANK GROUP

2009 2008 2009 2008(Restated)

rs. Mn. Rs. Mn. rs. Mn. Rs. Mn.

Total Tier I Capital 9,583 6,449 11,717 8,225 Total Tier I & II Capital 11,612 9,054 14,038 11,317 Risk-weighted Assets & Off Balance Sheet exposure 79,302 95,921 81,681 102,472

Off Balance Sheet exposure 4,405 5,259 4,405 5,259

Capital Adequacy RatiosTier I 9.69% 5.74% 11.35% 6.86%Tier I & II 11.74% 8.06% 13.60% 9.44% 1.4.36 new Accounting Standards issued but not Effective as at balance Sheet Date

Two new standards issued by the Institute of Chartered Accountants of Sri Lanka have not been applied

in preparing these Consolidated Financial Statements as they are not effective for the year ended

31 December 2009.

Sri Lanka Accounting Standard 44 - Financial Instruments: Presentation provides for the following:

Guidance regarding the classification of financial instruments as equity or debt, and for the accounting for

compound instruments with characteristics of both equity and debt instruments based on the substance

of the contractual arrangement.

Criteria are specified for the netting of financial assets and financial liabilities. Netting requires a legal

right of set-off as well as the intention to offset the assets and liabilities or settle simultaneously.

Sri Lanka Accounting Standard 45 - Financial Instruments: Recognition and Measurement provides the

principles for recognising and measuring financial assets and financial liabilities.

The requirements are summarised below:

(a) Recognition and Derecognition

All financial assets and financial liabilities should be recognised in the Balance Sheet. Previously

certain instruments, in particular derivatives, were held by enterprises without being reflected in the

Balance Sheet.

In order to remove (‘derecognise’) assets from its Balance Sheet, the Bank must be deemed to have lost

control over those financial assets.

In order to derecognise a liability, the Bank must be legally released from primary responsibility related

to that liability.

(b) Measurement

Financial assets must be classified into one of four categories: fair value through profit or loss (trading);

loans and receivables; held-to-maturity and available-for-sale. The categorisation determines whether

and where the remeasurement is recognised in the Bank’s Financial Statements.

Loans and receivables and held to maturity financial assets should be measured at amortised cost using

the effective interest method. Loan impairment is recognised when objective evidence is available that a



loss event has occurred and as a consequence the Bank will not likely receive all amounts owed to it. Loan

impairment is calculated as the difference between the carrying amount of the loan and the present value

of future expected cash flows associated with the loan discounted at the loan’s original effective interest

rate. This will be a significant change compared to the current method applied by the Bank for loan loss

provisioning based on the direction issued by the Central Bank of Sri Lanka, which is primarily time based.

Financial liabilities are categorised as either measured at amortised cost using effective interest rate or

at fair value through profit or loss.

Financial assets should be carried at fair value, with the exception of loans and receivables, held-to-

maturity assets, and in the rare circumstances where the fair value of a financial instrument cannot be

reliably measured. Remeasurement to fair value must be performed at each financial reporting date.

Derivatives are always categorised as trading and therefore measured at fair value with changes recorded

in the Income Statement, unless the enterprise can establish that an effective hedging relationship exists.

The effect of remeasurement to fair value must be recognised and consistently applied in one of two

ways: recognise all changes in fair value in the Income Statement; or recognise changes in fair value of

only trading instruments in the Income Statement, and available-for-sale instruments as a component of

equity until sold or otherwise disposed.

(c) Derivatives and Hedge Accounting

All derivatives must be measured at fair value in the Balance Sheet in situations where these are

categorised as trading, as well as when designated as a hedging instrument.

SLAS 45 provides detailed guidance as to when and how hedge accounting should be applied. The Bank

must designate all of its hedging relationships and document their assessment of effectiveness prior to

the application of hedge accounting.

Hedge accounting is permitted provided that the Bank can establish that the hedging instrument and the

hedged item have an effective hedging relationship throughout the financial reporting period.

There are three hedging models under SLAS 45. These are: the fair value hedge, the cash flow hedge and

the hedge of a net investment in a foreign operation. Each of these models is based on accounting for the

hedging instruments at fair value.

The Bank is currently in the process of evaluating the potential effect of these Standards. However, the

impact of the above requirements has not been quantified. Given the nature of the Bank’s operations, these

Standards are expected to have a pervasive impact on the Group’s Financial Statements.

The above Standards are effective for annual periods beginning on or after 1st January 2011.

1.4.37 comparative information

Seylan Merchant PLC and Seylan Developments PLC audited Financial Statements for the year 2008 were

completed on 5th November 2009 and 29th June 2009 respectively. Accordingly, comparative figures for

2008 have been restated. The comparative information is reclassified wherever necessary to conform with

the current year’s presentation in order to provide a better presentation. The details of restatements are

disclosed in Notes 46 and 47 to the Financial Statements.

1.4.38 Directors’ responsibility Statement

The board of directors of the Bank is responsible for the preparation and presentation of these Financial Statements.

Please refer to pages 134 and 135 for the Statement of the Directors’ Responsibility for Financial Reporting.



BANK GROUP2009 2008 2009 2008


2. incoMEInterest Income (Note 3) 20,708,034 21,552,070 21,796,473 23,156,161 Foreign Exchange Profit 521,388 670,731 521,388 670,731 Fee and Commission Income (Note 5.a) 1,274,251 1,801,826 1,341,416 1,841,754 Other Income (Note 6) 650,856 1,221,582 879,701 1,385,305

23,154,529 25,246,209 24,538,978 27,053,951

Income of the Company resulted mainly from the business of banking and related activities.

3. intErESt incoMECustomer Advances 14,836,462 17,898,073 15,074,475 18,402,956 Treasury Bills, Bonds & Placements with Other Banks 5,820,916 3,511,299 6,603,455 4,422,303 Debentures – 24,967 – 1,161 Other 50,656 117,731 118,543 329,741

20,708,034 21,552,070 21,796,473 23,156,161

According to the Section 137 of the Inland Revenue Act No. 10 of 2006, any person who derives income from the secondary market transactions in Government Securities is entitled to a notional tax credit in relation to the tax payable by such person. Notional tax credit would be determined by grossing up of the income from the secondary market transactions to an amount equal to 1/9 of same and credit to be afforded for a like sum. Accordingly, Bank has accounted for Rs. 439,968,584/- as notional tax credit for the year 2009 (Rs. 251,033,272/- for 2008).

BANK GROUP2009 2008 2009 2008


4. intErESt ExPEnSES Customer Deposits 11,106,062 12,415,244 11,105,997 12,667,038 Borrowings 249,884 586,400 729,053 979,659 Refinance 108,292 117,766 108,292 117,766 Treasury Bills Repurchased 1,300,100 498,838 1,691,580 1,290,211 Debentures 727,715 743,204 744,942 751,642 Other – – 9,439 69,188

13,492,053 14,361,452 14,389,303 15,875,504

5. nEt fEE & coMMiSSion incoME5.a fee & commission incomeFee Income 499,842 765,964 567,528 806,898 Commission Income 774,409 1,035,862 773,888 1,034,856

1,274,251 1,801,826 1,341,416 1,841,754

5.b fee & commission ExpensesCommission Expenses 105,127 52,089 116,106 63,434

105,127 52,089 116,106 63,434 net fee & commission income 1,169,124 1,749,737 1,225,310 1,778,320



BANK GROUP2009 2008 2009 2008


6. othEr incoMEDividend Income from Dealing Securities - Quoted 2,498 3,968 2,498 5,967 Dividend Income from Investment Securities - Quoted 540 127 540 127 Dividend Income from Investment Securities - Unquoted 2,161 2,588 2,161 2,616 Dividend Income from Investments in Subsidiaries – 216,612 – – Gain on transfer of Investments to Trading Portfolio – 197,248 – 197,248 Profit/(Loss) on Sale of Property, Plant & Equipment 2,978 100,080 22,531 103,696 Profit/(Loss) on Sale of Investment Property – 53,765 – 56,476 Profit/(Loss) on Sale of Investment Securities – – (7,590) (697)Share of Associate Company Profit/(Loss) after Tax – – (16,962) 4,365 Profit/(Loss) on Sale of Shares of Subsidiaries (6,630) – 187,825 5,788 Profit/(Loss) on Sale of Dealing Securities (9,213) – (9,213) 17,750 Bad Debts Recovered and Written Back 658,522 647,194 658,522 874,073 Others – – 39,389 117,896

650,856 1,221,582 879,701 1,385,305

7. oPErAtinG ExPEnSES Operating Expenses include the following:Directors’ Emoluments 10,779 74,675 26,225 110,879 Auditors’ Remuneration - Audit Fees & Expenses 6,043 4,317 7,642 7,186 - Audit-Related Fee & Expenses 480 1,727 480 1,727 - Non-Audit Services – 197 157 703 Depreciation - Freehold Property, Plant & Equipment (Note 27) 785,318 707,205 * 816,072 752,954Depreciation - Leasehold Property, Plant & Equipment (Note 28)* 1,082 692 8,960 8,575Depreciation - Investment Property (Note 25) – – 20,066 22,151 Donations 6,693 128,865 6,693 136,009 Expenses on Litigation 79,890 109,958 79,889 113,724 Issue Expenses on Debentures/Shares 18,758 5,307 18,758 5,307 Value Added Tax on Financial Services 561,440 243,056 638,325 245,622 Impairment Loss - Provision/(Reversal) (3,855) 301,280 (3,855) 374,030 Provision for Doubtful Receivables 32,880 16,338 112,977 72,664

* Includes depreciation charge of Seylan Merchant Bank PLC for the nine months period ended 30th September 2009 (Rs. 3.188 Mn.) .



BANK GROUP2009 2008 2009 2008


8. PErSonnEl ExPEnSESPersonnel Expenses includes the following:Salaries and Wages 1,934,286 1,972,391 2,007,101 2,087,147 Contribution to Employees’ Provident Fund 229,342 235,049 238,078 249,169 Contribution to Employees’ Trust Fund 57,306 58,719 59,491 62,250 Provision for/(Reversal from) Staff Retirement Benefit* (458,111) 131,379 (461,272) 141,276 Other 622,432 1,008,176 657,031 1,068,886

2,385,255 3,405,714 2,500,429 3,608,728

* Impact of Curtailing Gratuity Benefits during the year is disclosed under Note 35.a.8.

9. ProviSion for loAn loSSESProvision for Bad & Doubtful Debts -

Specific (Note 19.c) 2,411,886 2,006,427 2,411,886 2,302,914 Provision/(Reversal) for Bad & Doubtful Debts - General (Note 19.c) (247,441) 379,149 ** (216,949) 379,149 Direct Write Off 18,687 81,611 32,686 122,049

2,183,132 2,467,187 2,227,623 2,804,112

** Includes general provision for loan losses of Seylan Merchant Bank PLC Rs. 30.492 Mn.

10. DiMinution/(APPrEciAtion) in vAluE of invEStMEntSDiminution/(Appreciation) Provision as at 1st January 40,733 49 326,943 49,844 Diminution/(Appreciation) Provision as at 31st December (6,361) 40,733 146,208 326,943Less: Adjustment on Deconsolidation – – (138,770) – Dimunition/(Appreciation) in Value of Investments (47,094) 40,684 (41,965) 277,099

BANK GROUP2009 2008 2009 2008

(Restated)rs. ’000 Rs. ’000 rs. ’000 Rs. ’000

11. incoME tAx ExPEnSE11.a charge to taxation is as follows:Taxation Based on Profits for the Year 601,671 233,877 736,583 253,080 Reversal from Deferred Tax (Note 26) (362,631) (185,266) (358,874) (176,142)Withholding Tax on Dividend – – – 36,830 (Over)/Under Provision of Taxes in Previous Years 110,231 (48,611) 107,160 (49,544)

349,271 – 484,869 64,224

(i) Income tax on profits has been computed at the rate of 35% on the taxable income arising from the

domestic operations and On-Shore Banking operations of the Foreign Currency Banking Unit (FCBU)

and 20% on the taxable income from Off-Shore Banking operations of the FCBU together with Social

Responsibility Levy.



(ii) The Group companies have computed taxation based on the applicable rates for such companies.BANK GROUP

2009 2008 2009 2008(Restated)

rs. ’000 Rs. ’000 rs. ’000 Rs. ’000

11.b reconciliation of Accounting Profit and taxable incomeProfit/(loss) as per the income Statement 892,572 155,241 933,630 (735,579)

Add: Disallowable Expenses 5,787,110 6,605,716 5,894,437 7,452,631

Less: Allowable Expenses 4,615,483 4,967,938 4,607,903 4,973,374

Exempt/Allowable Income 77,123 1,133,755 (149,892) 1,015,137

Statutory income 1,987,076 659,264 2,370,056 728,541

Less: Tax Loss Set Off - Note below 289,795 – 292,957 14,829

Assessable income 1,697,281 659,264 2,077,099 713,712

Less: Donations to Approved Charities 500 – 500 –

taxable income 1,696,781 659,264 2,076,599 713,712

taxable income

tax Expense

Taxable Income

Tax Expense

taxable income

tax Expense

Taxable Income

Tax Expense

rs. ’000 Rs. ’000 rs. ’000 Rs. ’000

Bank - Domestic Banking Unit & On-Shore Profits - 35% 1,689,489 591,321 657,154 230,003 2,069,307 724,257 711,602 249,061

Off-Shore Profits - 20% 7,292 1,458 2,110 422 7,292 1,458 2,110 422

Social Responsibility Levy (SRL) – 8,892 – 3,452 – 10,868 – 3,597

1,696,781 601,671 659,264 233,877 2,076,599 736,583 713,712 253,080

tax losses

Due to the ambiguity of the Law, the Bank had not claimed the tax losses for the year of assessment

2002/03 on profit on sale of Treasury Bills in secondary market. Bank made an appeal to the Board of

Review and the determination was issued on 11th August 2009 in favour of the Bank. As per the board’s

determination, Bank can claim the Tax Loss of Rs. 289,794,900/-.

12. bASic EArninGS/(loSS) PEr ShArE

Basic Earning/(Loss) per Share has been calculated by dividing profit after taxation, minority interest and

preference dividends by the weighted average number of ordinary shares in issue (both voting and non-voting)

during the year ended 31st December.BANK GROUP

2009 2008 2009 2008(Restated)

rs. ’000 Rs. ’000 rs. ’000 Rs. ’000

Net Profit Attributable to Shareholders of the Bank 543,301 155,241 569,208 (142,993)Preference Dividends (6,238) (5,185) (6,238) (5,185)Net Profit after Preference Dividends 537,063 150,056 562,970 (148,178)Weighted Average Number of Ordinary Shares 189,813 167,120 189,813 167,120

Basic Earnings/(Loss) per Share (Rs.) 2.83 0.90 2.97 (0.89)



BANK GROUP2009 2008 2009 2008

rs. ’000 Rs. ’000 rs. ’000 Rs. ’000

13. DiviDEnDS

Ordinary Share Dividends (13.a) – 250,679 – 250,679 Preference Share Dividends (13.b) 6,238 5,221 6,238 5,221

6,238 255,900 6,238 255,900

13.a ordinary Share Dividendnet Dividend – 227,184 – 227,184 Tax Deducted at Source – 23,495 – 23,495 Gross Dividend (note 41.c) – 250,679 – 250,679

13.b Preference Share Dividendnet Dividend (rs. 1.84 per share) 6,238 5,221 6,238 5,221 Tax Deducted at Source – – – –Gross Dividend 6,238 5,221 6,238 5,221

BANK GROUP2009 2008 2009 2008


14. cASh AnD cASh EQuivAlEntSCash in Hand - Local Currency 4,070,066 3,794,245 4,070,114 3,811,920 Cash in Hand - Foreign Currency 197,341 102,647 197,341 102,648 Cash at Bank – – 2,085 7,434 Balances with Local Banks 13,146 19,536 13,146 19,536 Balances with Foreign Banks 358,252 1,594,903 358,252 1,594,903 Money at Call and Short Notice 45,000 – 45,000 – Placements with Banks and Finance Companies – – 5,943 144,333

4,683,805 5,511,331 4,691,881 5,680,774

15. bAlAncE with cEntrAl bAnk of Sri lAnkA Cash balance is required to be maintained with the Central Bank of Sri Lanka according to statutory requirements. At present, the minimum cash reserve requirement is 7% of the deposit liabilities. Rate has been reduced from 7.75% to 7% with effect from 27th February 2009.

BANK2009 2008

rs. ’000 Rs. ’000

Average Deposit Liabilities for the last week of December 95,665,565 104,897,406Statutory Reserve Requirement 6,696,590 8,129,548Less: Average Sri Lanka Currency Notes and Coins held over & above 2% of average deposit Liabilities, but not Exceeding 4% 1,209,967 1,275,504total reserve required to be held with central bank 5,486,623 6,854,044Average Balance held by the Bank for the last week of the year 5,620,347 6,279,267Deposit Balance as at 31st December 5,084,229 6,857,039



2009 2008 (Restated)

costrs. ’000

Marketvalue

rs. ‘000 Cost

Rs. ’000

Market Value

Rs. ’000

16. DEAlinG SEcuritiESSeylan Bank PLC (16.a) 14,544,172 14,544,172 865,977 865,977

Seylan Bank Asset Management Limited (16.b) 1,931,361 1,931,361 544,089 544,089

total Dealing Securities - Group 16,475,533 16,475,533 1,410,066 1,410,066

31.12.2009 31.12.2008 (Restated) no. of

ordinaryShares

costrs. ’000

% oftotalcost

Marketvalue

rs. ‘000

No. of Ordinary

Shares Cost

Rs. ’000

Market Value

Rs. ’000

16.a Seylan bank Plc

16.a.1 Quoted Shareshotels & travel

Galadari Hotels Lanka PLC 443,200 6,465 6,648 – – –

Eden Hotel Lanka PLC 44,200 1,110 1,138 – – –

Hotel Sigiriya PLC 26,700 1,326 1,435 – – –

Stafford Hotels PLC 51,500 1,346 1,416 – – –

Serendib Hotels PLC 38,900 2,363 2,577 – – –

12,610 7.69 13,214 – –

banks, finance & insurance

DFCC Bank PLC 200,000 31,442 33,400 – – –

Hatton National Bank PLC 100,000 16,597 17,025 – – –

Hatton National Bank PLC - Non-Voting 60,000 5,953 6,285 – – –

National Development Bank PLC 150,000 25,683 30,900 – – –

Sampath Bank PLC 50,000 8,749 10,213 – – –

Nations Trust Bank PLC 99,300 3,555 3,649 – – –

Arpico Finance Company PLC – – – 60,651 3,639 1,820

Nation Lanka Finance PLC 2,700 41 39 2,700 41 25

The Finance Company PLC 110,160 6,197 2,121 110,160 6,197 3,002

Ceylinco Insurance PLC – – – 933,055 205,272 174,481

Asian Alliance Insurance PLC 50,000 2,881 2,800 – – –

Janashakthi Insurance Company PLC 200,000 2,328 1,900 – – –

103,426 63.08 108,332 215,149 179,328

Diversified holdings

John Keells Holdings PLC 114,800 16,463 10.04 19,688 – – –

beverage, food & tobacco

Lanka Milk Foods (CWE) PLC 50,000 3,275 2.00 3,238 – – –

land & Property

Colombo Land & Development Company PLC 250,000 1,771 1.08 1,625 – – –



31.12.2009 31.12.2008 (Restated) no. of

ordinaryShares

costrs. ’000

% oftotalcost

Marketvalue

rs. ‘000

No. of Ordinary

Shares Cost

Rs. ’000

Market Value

Rs. ’000

Manufacturing

Richard Pieris & Company PLC 133,300 5,193 5,199 – – –

Tokyo Cement Company (Lanka) PLC 50,000 875 988 – – –

ACL Cables PLC 75,000 5,293 5,756 – – –

Blue Diamonds Jewellery Worldwide PLC 3,191,543 8,617 6,383 3,815,243 10,301 5,341

19,978 12.18 18,326 10,301 5,341

chemicals & Pharmaceuticals

Chemical Industries (Colombo) PLC 93,800 6,448 3.93 5,909 – – –

Power & Energy

Vallibel Power Erathna PLC – – – 75,000 200 248

total 163,971 100 170,332 225,650 184,917

Marked to Market Valuation Gain/(Loss) - (Note 10) 6,361 (40,733) –

total Quoted Shares - bank 170,332 170,332 184,917 184,917

16.a.2 Government of Sri lanka treasury billsDiscounted Value 1,220,260 1,229,788 23,578 23,413

Marked to Market Valuation Gain/(Loss) 9,528 – (165) –

total treasury bills - bank 1,229,788 1,229,788 23,413 23,413

16.a.3 Government of Sri lanka treasury bonds

FaceValue

Rs. ’000

Year ofMaturity

DiscountedValue

Rs. ’000

316,493 2010 312,286

3,895,386 2011 3,838,342

4,350,000 2012 4,213,273

4,000,000 2013 3,973,959

250,000 2014 243,231

12,581,091 13,144,052 654,465 657,647

Marked to Market Valuation Gain 562,961 – 3,182 –

total treasury bonds - bank 13,144,052 13,144,052 657,647 657,647

total Dealing Securities - bank (notes 16.a.1, 16.a.2 & 16.a.3) 14,544,172 14,544,172 865,977 865,977



31.12.2009 31.12.2008 (Restated)

costrs. ’000

Marketvalue

rs. ‘000 Cost

Rs. ’000

Market Value

Rs. ’000

16.b Seylan bank Asset Management limited16.b.1 Government of Sri lanka treasury billsDiscounted Value 157,598 159,095 213,086 212,920

Marked to Market Valuation Gain/(Loss) 1,497 – (166) –

total treasury bills 159,095 159,095 212,920 212,920

16.b.2 Government of Sri lanka treasury bondsFace

ValueRs. ’000

Year ofMaturity

DiscountedValue

Rs. ’000

328,972 2010 339,421

268,075 2011 276,672

603,869 2012 629,478

400,000 2013 427,774

1,673,345 1,772,266 334,531 331,169

Marked to Market Valuation Gain/(Loss) 98,921 (3,362)

total treasury bonds 1,772,266 1,772,266 331,169 331,169

total Dealing Securities - Seylan bank Asset Management limited (notes 16.b.1 & 16.b.2) 1,931,361 1,931,361 544,089 544,089

total Dealing Securities - Subsidiaries (note 16.b) 1,931,361 1,931,361 544,089 544,089

total Dealing Securities - Group 16,475,533 16,475,533 1,410,066 1,410,066

2009 2008 (Restated) cost Market value Cost Market Value

rs. ‘000 rs. ‘000 Rs. ’000 Rs. ’000

17. invEStMEnt SEcuritiESSeylan Bank PLC (17.a) 14,897,394 15,046,527 24,243,200 23,769,304 Seylan Merchant Bank PLC (17.b) 229,170 233,339 Seylan Developments PLC (17.c) 27,244 3,272 39,324 2,111 Seylan Bank Asset Management Limited (17.d) 1,497,039 1,511,939 2,749,307 2,526,330 total investment Securities - Group 16,421,677 16,561,738 27,261,001 26,531,144



17.a Seylan bank Plc

Quoted Shares2009 2008 (Restated)

no. of cost Market No. of Cost Marketordinary value Ordinary Value

Shares rs. ’000 rs. ’000 Shares Rs. ’000 Rs. ’000

17.a.1 Quoted SharesVisa Inc. 13,328 65,184 133,294 13,328 64,414 78,993 Seylan Merchant Bank PLC 22,064,566 249,535 105,910Less - Loss on ImpairmentSeylan Merchant Bank PLC (168,701)total Quoted Shares - bank 146,018 239,204 64,414 78,993

unquoted Shares2009 2008

no. of cost Directors’ No. of Cost Directors’ ordinary valuation Ordinary Valuation


17.a.2 unquoted Shares Credit Information Bureau of Sri Lanka 2,900 290 5,627 2,900 290 5,627

Transnational Lanka Records Solutions (Pvt) Limited 1,000,000 10,000 14,250 1,000,000 10,000 13,787

Lanka Clear (Pvt) Limited 1,000,000 10,000 35,010 1,000,000 10,000 28,638

Lanka Financial Services Bureau Limited 225,000 2,250 2,828 225,000 2,250 1,767

total unquoted Shares - bank 22,540 57,715 22,540 49,819

The valuation is based on net assets per share as per the Audited Financial Statements of these companies

as at following dates:

Credit Information Bureau of Sri Lanka - 31st December 2008.

Transnational Lanka Records Solutions (Pvt) Limited - 30th June 2009.

Lanka Clear (Pvt) Limited - 31st March 2009.

Lanka Financial Services Bureau Limited - 31st March 2009.



2009 2008 (Restated) cost Market value Cost Market Value

rs. ’000 rs. ’000 Rs. ’000 Rs. ’000

17.a.3 Government of Sri lanka treasury bills

FaceValue

Rs. ’000

Year ofMaturity

DiscountedValue

Rs. ’000

5,000 2010 4,821 4,821 4,822total treasury bills - bank 4,821 4,822 – –

17.a.4 Government of Sri lanka treasury bonds

FaceValue

Rs. ’000

Year ofMaturity

DiscountedValue

Rs. ’000

1,223,554 2010 1,260,292 755,760 2011 786,142

3,060,500 2012 2,995,792 4,513,000 2013 4,493,345 1,700,000 2014 1,687,713 1,300,000 2015 1,272,476

12,495,760 12,516,531 16,030,145 15,514,391

CWE Bond 2016 250,000 250,000 250,000 250,000 total bonds - bank 12,745,760 12,766,531 16,280,145 15,764,391

17.a.5 foreign currency bonds

FaceValue

USD. ’000

Year ofMaturity

DiscountedValue

USD. ’000

300 2010 300 17,000 2011 17,000

1,978,255 1,978,255 7,876,101 7,876,101

total foreign currency bonds - bank 1,978,255 1,978,255 7,876,101 7,876,101

total bonds - bank 14,724,015 14,744,786 24,156,246 23,640,492

17.a.6 Quoted Debentures held by the bank Seylan Merchant Bank PLC (50 Mn. -14%, 60 Mn. -

12.75%, 18.724 Mn. - 16%) 128,724 Less - Loss on Impairment (128,724)

total Quoted Debentures - bank – – – –

total investment Securities - bank (note 17.a.1, 17.a.2, 17.a.3, 17.a.4, 17.a.5 & 17.a.6) 14,897,394 15,046,527 24,243,200 23,769,304



invEStMEnt SEcuritiES hElD bY SubSiDiAriES17.b Seylan Merchant bank Plc

2009 2008 (Restated) no. of cost Market No. of Cost Market

ordinary value Ordinary Value Shares rs. ’000 rs. ’000 Shares Rs. ’000 Rs. ’000

17.b.1 Quoted SharesThe Finance Company PLC 108,997 5,652 2,970 Blue Diamonds Jewellery Worldwide PLC 3,180,280 47,818 4,452 Metal Recyclers Colombo PLC 69 3 –Kotmale Holding PLC 1,000 16 10 Sierra Cables PLC 5,400 16 7 Dialog Telekom PLC 9,000 256 43 Diminution in Value (Note 10) – (50,508) –total Quoted Shares – 3,253 7,482

2008 No. of Cost

Ordinary Shares Rs. ’000

17.b.2 unquoted SharesCeylinco Sports Complex Limited 300,000 3,000 Ceylinco Express (Pvt) Limited 37,050 371 MBSL Savings Bank Limited 1,189,600 11,896 Openarc Global Solutions (Pvt) Limited 45,000 450 Ceylinco Investment & Reality (Pvt) Limited 100,000 1,000 South Asian Travels Limited 30,000 300 Ceylinco Coloured Stones (Pvt) Limited 500,000 5,000 Seraka Investment Limited (5,655,900 Non-Cumulative, Non-Redeemable, Preference Shares) 48,645 Diminution in Value (Note 10) (70,662)total unquoted Shares –

2008 Cost

Rs. ’000

17.b.3 unquoted DebenturesCeylinco Automobiles Limited 17,600 Diminution in value (Note 10) (17,600) total unquoted Debentures –



2009 2008 (Restated) cost Market Cost Market

value Value rs. ’000 rs. ’000 Rs. ’000 Rs. ’000

17.b.4 Government of Sri lanka treasury billsDiscounted Value – – 126,448 126,448total treasury bills – – 126,448 126,448

17.b.5 Government of Sri lanka treasury bondsDiscounted Value – – 99,469 99,469total treasury bonds – – 99,469 99,469

total investment Securities - Seylan Merchant bank Plc (notes 17.b.1, 17.b.2, 17.b.3, 17.b.4 & 17.b.5) – 229,170 233,339

17.c Seylan Developments Plc2009 2008

no. of cost Market No. of Cost Market ordinary value Ordinary Value


17.c.1 Quoted SharesNation Lanka Finance PLC 200,000 2,000 2,900 200,000 2,000 1,850

Associated Property Developers PLC 100 1 – 100 1 6

CT Land Developers PLC 100 1 2 100 1 1

City Housing & Real Estate PLC 250 2 5 250 2 3

The Colombo Fort Land & Building Company Limited 100 1 3 100 1 –

Overseas Reality Ceylon PLC 100 – 2 100 – 1

Kelsey Developments PLC 100 1 1 100 1 1

Property Development PLC 100 2 2 100 2 6

Colombo Land & Development Company PLC 1,250 – 8 1,250 – 1

East West Company PLC 200 1 2 100 1 –

Equity One PLC 100 1 2 100 1 1

O'nally Holdings PLC 100 1 4 100 1 2

York Arcade Holdings PLC 100 – 1 100 – 1

Blue Diamonds Jewellery & Worldwide PLC 170,000 383 340 170,000 383 238

total Quoted Shares 2,394 3,272 2,394 2,111



2009 2008 (Restated) no. of cost Market No. of Cost Market

ordinary value Ordinary Value Shares rs. ’000 rs. ’000 Shares Rs. ’000 Rs. ’000

17.c.2 unquoted SharesCeylinco Venture Capital Investment Limited 95,000 950 95,000 950

Ceylinco Sports Complex Limited 220,000 2,200 220,000 2,200

Ceycom Global Communications Limited 40,500 405 40,500 405

Asian Finance Company Limited 75,000 750 75,000 750

MBSL Savings Bank Limited 25,000 250 25,000 250

Ceylinco - CISCO Security Corporation (Pvt) Limited 10,000 – 10,000 –

Ceylinco International Property Developers (Pvt) Limited 50,000 500 50,000 500

Ceyenergy Electronics Co. (Pvt) Limited 15,000 150 15,000 150

Ceylinco SwiftCare (Pvt) Limited 75,000 750 75,000 750

Independent Financial News & Views (Pvt) Limited 4,900 49 4,900 49

Ceylinco International Realty (Pvt) Limited 200,000 2,000 200,000 2,000

e.Ceylinco.Com (Pvt) Limited 60,000 600 60,000 600

International Consultancy & Corporate Services (Pvt) Limited 5,000 50 5,000 50

Ceylinco PLC Technology (Pvt) Limited 177,500 1,775 177,500 1,775

Ceylinco Investments & Realty (Pvt) Limited 4,000,000 40,000 4,000,000 40,000

The Sitar (Pvt) Limited 60,000 600 60,000 600

Seraka Investments Limited 510,000 5,100 510,000 5,100

Ceylinco - CISCO Ranaviru Services (Pvt) Limited 10,000 100 10,000 100

Ceylinco - CISCO Cash Management and Transport Company Limited 10,000 100 –

Diminution in Value (Note 10) (31,479) (19,299)

total unquoted Shares 24,850 36,930

total investment Securities - Seylan Developments Plc (notes 17.c.1 & 17.c.2) 27,244 3,272 39,324 2,111

17.d Seylan bank Asset Management limited

17.d.1 Quoted SharesBlue Diamond Jewellery Worldwide PLC 300,000 2,392 600 1,344,200 10,725 3,764 Diminution in Value (Note 10) (1,792) – (8,843) –total Quoted Shares 600 600 1,882 3,764



2009 2008 no. of cost No. of Cost

ordinary Ordinary Shares rs. ’000 Shares Rs. ’000

17.d.2 unquoted SharesCeylinco Venture Capital Co. Limited 500,000 5,000 500,000 5,000 Ceylinco Foliage Exports (Pvt) Limited 850,000 8,500 850,000 8,500 Ceylinco - CISCO Ranaviru Services (Pvt) Limited 50,000 500 50,000 500 Ceylinco Niranjan Invention (Pvt) Limited 33,249 350 33,249 350 Ceylinco Travels & Tours Limited 100,000 1,000 100,000 1,000 Ceylinco Tourist Hotels Ltd. - Hotel Ceysands 33,000 3,500 33,000 3,500 Ceylinco Development Bank Limited 725,000 7,250 725,000 7,250 Ceylinco Vocational Training (Pvt) Limited 120,000 1,482 120,000 1,482 The Finance & Guarantee Co. Limited 30,000 3,000 30,000 3,000 Ceylinco Employees Sports Complex (Pvt) Limited 200,000 2,000 200,000 2,000 Ceylinco Lexcon Services (Pvt) Limited 77,847 778 77,847 778 Ceylinco Automobiles Limited 500,000 5,000 500,000 5,000 Tropical Foliage Limited 150,000 1,500 150,000 1,500 Ceylinco Bio Tech Limited 150,000 1,500 150,000 1,500 Economic Resurgence Association (Pvt) Limited 1,000,000 10,000 1,000,000 10,000 Ceylinco Seylan Housing & Commercial Properties Limited 20,000 200 20,000 200 Ceylinco Building Society 10,000 5,000 10,000 5,000 Ceylinco Aruna Accessories (Pvt) Limited 25,000 250 25,000 250 The Sitar (Pvt) Limited 380,000 6,000 380,000 6,000 Independent Financial News & Views (Pvt) Limited 100,000 1,000 100,000 1,000 Ceylinco Coloured Stones (Pvt) Limited 1,000,000 10,000 1,000,000 10,000 Ceylinco Freight International (Pvt) Limited 400,000 4,000 400,000 4,000 Ceylinco Hotels Limited 475,000 4,750 475,000 4,750 Ceylinco Cellular Company (Pvt) Limited 100,000 1,000 100,000 1,000 South Asian Travels Limited 500,000 5,000 500,000 5,000 Ceylinco Packaging Company Limited 500,000 5,000 500,000 5,000 Ceylinco - CISCO Cash Management & Transit Company 50,000 500 50,000 500 Ceylinco Consolidated International Property Development (Pvt) Limited 700,000 7,000 700,000 7,000 Middleway Printing (Pvt) Limited 1,375,000 13,750 1,375,000 13,750 Ceylinco Design & Project Management (Pvt) Limited 200,000 2,000 200,000 2,000 Diminution in Value (Note 10) (116,810) (116,810)total unquoted Shares – –

17.d.3 unquoted DebenturesCeylinco Vocational Training (Pvt) Limited 988 988(8,000 Debentures of Rs. 100/- each) MBSL Savings Bank Limited 1,500 1,500(15,000 Debentures of Rs. 100/- each) Diminution in Value (Note 10) (2,488) (2,488)total unquoted Debentures – –



2009 2008 (Restated)

cost Market value Cost Market Value rs. ‘000 rs. ‘000 Rs. ’000 Rs. ’000

17.d.4 Government of Sri lanka treasury bondsFace

ValueRs. ‘000

Year ofMaturity

DiscountedValue

Rs. ‘000

668,000 2010 700,303 515,000 2011 512,069 100,000 2012 97,679 175,000 2013 186,388

1,496,439 1,511,339 2,747,425 2,522,566

total treasury bonds 1,496,439 1,511,339 2,747,425 2,522,566

total investment Securities - Seylan bank Asset Management limited (notes 17.d.1, 17.d.2, 17.d.3 & 17.d.4) 1,497,039 1,511,939 2,749,307 2,526,330

total investment Securities - Subsidiaries (notes 17.b , 17.c & 17.d) 1,524,283 1,515,211 3,017,801 2,761,840

total investment Securities - Group (notes 17.a ,17.b , 17.c & 17.d) 16,421,677 16,561,738 27,261,001 26,531,144

17.e Assets Pledged as Security

Out of the Treasury Bills and Bonds classified as Investment Securities the following amount has been

pledged as security for repurchase agreements.

BANK GROUP2009 2008 2009 2008

rs. ’000 Rs. ’000 rs. ’000 Rs. ’000

Treasury Bonds 2,066,574 16,504,580 4,408,935 16,645,303 Sri Lanka Development Bond (USD 500,000) * 57,175 – 57,175 –

* The Bank has pledged a Sri Lanka Development Bond amounting to USD 500,000 with Bank of Ceylon as security for a guarantee obtained on behalf of Seylan Credit Card Centre.



BANK GROUP2009 2008 2009 2008


18. billS of ExchAnGEExport Bills 849,682 1,090,162 849,682 1,090,162 Import Bills 319,993 147,370 319,993 147,370 Local Bills 181,781 250,496 181,781 250,496

1,351,456 1,488,028 1,351,456 1,488,028 Less: Provision for Bad & Doubtful Debts (Note 19.a) (29,092) (16,197) (29,092) (16,197)

1,322,364 1,471,831 1,322,364 1,471,831

19. loAnS AnD ADvAncESSri lanka rupee loans and AdvancesOverdrafts 20,565,334 30,003,713 20,565,334 30,003,713 Trust Receipt Loans/Revolving Import Loans (RIL) 2,377,152 3,731,720 2,377,152 3,731,720 Staff Loans 4,543,552 3,665,637 4,549,431 3,677,272 Housing Loans 8,426,228 9,242,718 8,426,228 9,242,718 Pawning Advances 3,550,851 2,731,828 3,550,851 2,731,828 Refinance Loans 1,185,931 1,594,264 1,185,931 1,594,264 Other Loans 38,547,615 43,495,807 38,548,150 44,842,234

79,196,663 94,465,687 79,203,077 95,823,749

foreign currency loans and AdvancesOverdrafts 677,773 1,317,592 677,773 1,317,592 Trust Receipt Loans/Revolving Import Loans (RIL) 155,603 933,398 155,603 933,398 Other Loans 7,769,329 10,761,933 7,769,329 10,761,932

8,602,705 13,012,923 8,602,705 13,012,922 total loans & Advances - Gross 87,799,368 107,478,610 87,805,782 108,836,671Less: Loan Loss Provision (Note 19.a) (6,167,662) (6,279,669) (6,167,662) (6,283,989) Interest in Suspense (Note 19.a) (5,592,735) (3,452,857) (5,592,735) (3,474,358)total loans & Advances - net 76,038,971 97,746,084 76,045,385 99,078,324

19.a Analysis of Provision for loan losses and interest in SuspenseBANK GROUP

2009 2008 2009 2008loan loss interest in Loan Loss Interest in loan loss interest in Loan Loss Interest in Provision Suspense Provision Suspense Provision Suspense Provision Suspense

(Reclassified) (Reclassified) (Restated) (Restated)rs. ’000 rs. ’000 Rs. ’000 Rs. ’000 rs. ’000 rs. ’000 Rs. ’000 Rs. ’000

Bills of Exchange 29,092 – 16,197 – 29,092 – 16,197 –

Loans and Advances 6,167,662 5,592,735 6,279,669 3,452,857 6,167,662 5,592,735 6,283,989 3,474,358

Lease Rental Receivable 269,254 66,156 264,400 69,837 269,254 66,156 450,185 127,052

6,466,008 5,658,891 6,560,266 3,522,694 6,466,008 5,658,891 6,750,371 3,601,410



19.b Analysis of Provision for loan losses BANK GROUP

2009 2008 2009 2008(Restated)

loan loss loan loss Loan Loss Loan Loss loan loss loan loss Loan Loss Loan Loss Provision Provision Provision Provision Provision Provision Provision Provision

Specific General Specific General Specific General Specific General(Reclassified) (Reclassified) (Restated) (Restated)

rs. ’000 rs. ’000 Rs. ’000 Rs. ’000 rs. ’000 rs. ’000 Rs. ’000 Rs. ’000

Bills of Exchange 17,490 11,602 3,282 12,915 17,490 11,602 3,282 12,915

Loans and Advances 5,698,546 469,116 5,577,567 702,102 5,698,546 469,116 5,581,887 702,102

Lease Rental Receivable 240,796 28,458 222,800 41,600 240,796 28,458 408,585 41,600

5,956,832 509,176 5,803,649 756,617 5,956,832 509,176 5,993,754 756,617

Loan Loss Provision - Specific 5,956,832 5,803,649 5,956,832 5,993,754

Loan Loss Provision - General 509,176 756,617 509,176 756,617

Total Loan Loss Provision - (Note 19.a) 6,466,008 6,560,266 6,466,008 6,750,371

19.c Movement in loan loss ProvisionBANK GROUP

2009 2008(Reclassified)

2009 2008(Restated)

Specific General Specific General Specific General Specific Generalrs. ’000 rs. ’000 Rs. ’000 Rs. ’000 rs. ’000 rs. ’000 Rs. ’000 Rs. ’000

Balance Brought Forward 5,803,649 756,617 4,594,758 377,468 5,993,754 756,617 4,715,254 377,468

Additional Provision Made 2,411,886 (247,441) 2,006,427 379,149 2,411,886 (247,441) 2,302,914 379,149

Fully Provided Loans Written Off (1,673,732) – (248,936) – (1,673,732) – (248,936) –

Recoveries Made During the Year (598,040) – (588,268) – (598,040) – (815,146) –

Exchange Rate Variance on Foreign Currency Provisions 13,069 – 39,668 – 13,069 – 39,668 –

Adjustment on Deconsolidation – – – – (190,105) – – –

5,956,832 509,176 5,803,649 756,617 5,956,832 509,176 5,993,754 756,617

19.d Movement in interest in SuspenseBANK GROUP

2009 2008 2009 2008(Reclassified) (Restated)

rs. ’000 Rs. ’000 rs. ’000 Rs. ’000

Balance Brought Forward 3,522,694 3,302,165 3,601,410 3,433,765 Interest Suspended During the Year 4,754,247 2,172,347 4,754,247 2,232,174 Interest Recovered During the Year (1,422,925) (1,485,534) (1,422,925) (1,598,245)Reversal of Interest for Write Off/Write Down (1,197,101) (471,493) (1,197,101) (471,493)Exchange Rate Variance on Foreign Currency Provisions 1,976 5,209 1,976 5,209 Adjustment on Deconsolidation – – (78,716) –

5,658,891 3,522,694 5,658,891 3,601,410



19.e basis for Provisioning

As detailed in Note 19.b, Bank makes general provision for the potential losses (not specifically identified) in

the performing portfolio of loans and advances and lease receivables, other than credit facilities secured by

cash deposits, Gold or Government Securities with the Bank. Bank has made a cumulative general provision

of Rs. 509.176 Mn. (2008 - Rs. 756.617 Mn.) to meet the regulatory requirement. The total general provision

of Rs. 509.176 Mn. is 0.59% (2008 - 0.68%) of the total performing and overdue loans and the advances net

of interest in suspense as at the Balance Sheet date.

19.e.1 non-Performing lending Portfolio

Loans, advances and leases are classified as non-performing as detailed in Note 19.f.1. The criteria used for

the classification of lending portfolio of the Bank as non-performing is set out below. This is in accordance

with the direction issued by the Central Bank of Sri Lanka on 8th May 2008, on ‘Classification of Loans and

Advances, Income Recognition and Provisioning’.

categorisation of non-Performing lending PortfolioType of Facility Determinant Overdue/Special

Mention Substandard Doubtful Loss

Overdrafts Exceeds the sanctioned limit for a continuous period of

90 days or more but less than 180 days



540 days or more

Credit facilities repayable in monthly instalments

Principal and/or interest due and unpaid

3 instalments or more but less than 6 instalments



18 instalments or more

Other credit facilities

Payments are in arrears from the due date




540 days or more

Credit Cards Minimum payments are in arrears from the due date




240 days or more

Provision for loan losses are made on the basis of continuous review of all advances to the customers in

accordance with the Sri Lanka Accounting Standard 23 - ‘Revenue Recognition and Disclosure in Financial

Statements of Banks’, and the direction issued by the Central Bank of Sri Lanka, which has been disclosed in

the Financial Statements of the Bank after considering the values of the collateral, obtained against the

respective non-performing loans and advances.

Valuation of collateral is performed based on the direction issued by the Central Bank of Sri Lanka as

explained in Note 19.e.2.



19.e.2 valuation of Securities for Provisioning Purpose

As per the amendment to the direction issued by the Central Bank of Sri Lanka on 15th August 2003

(Effective from 1st January 2004), under Section 46 of the Banking Act No. 30 of 1988, as amended by

Banking (Amended) Act No. 33 of 1995, the initial and progressive discount that need to be applied to the

forced sale value of immovable properties held as collateral, are as follows:

Category Forced Sale Value of Immovable Property that can be Considered as the

Value of Security (%)

At the Time of 1st Provisioning 751 - 2 Years in the Loss Category 602 - 3 Years in the Loss Category 503 - 4 Years in the Loss Category 40Over 4 Years in the Loss Category At the Discretion of the Management

Provision for Loans and Advances - Ceylinco Group Exposure

In view of the special circumstances under which the Bank was reconstituted by the direction of the Central

Bank of Sri Lanka, the Monetary Board has granted an exemption to Seylan Bank PLC, from the requirement

to apply progressive discount on the forced sale value of immovable property, in terms of the Banking Act

Direction No. 03 of 2008 on Classification of Loans and Advances, Income Recognition and Provisioning

when computing the provisioning to be made as at 31st December 2009, for the facilities granted to the

specific group of Companies against mortgage over immovable property.

BANK GROUP2009 2008 2009 2008

(Restated)rs. ‘000 Rs. ‘000 rs. ‘000 Rs. ‘000

19.f non-Performing Advances Disclosures non-Performing Advances (with bcci)Bills of Exchange 191,269 53,069 191,269 53,069Loans & Advances 24,734,686 15,189,717 24,734,686 15,353,010Lease Rentals Receivable 565,113 662,754 565,113 996,617total 25,491,068 15,905,540 25,491,068 16,402,696

19.f.1 non-performing Assets included in the bills of Exchange, loans and Advances, Pro notes and lease rentals receivable on which interest is not being Accrued are as follows:

BANK GROUP2009 2008 2009 2008


Total Non-Performing Advances Excluding Former BCCI Advances 25,460,589 15,861,311 25,460,589 16,358,467 Former BCCI Advances 30,479 44,229 30,479 44,229

25,491,068 15,905,540 25,491,068 16,402,696



BANK2009 2008

Advances Advances Changers. ‘000 %* Rs. ‘000 %* %

Total Gross Loans and Advances including Bills of Exchange, Pro Notes, Lease Rentals Receivable and Group Balance Receivable 92,680,732 114,765,174 (19.24)Interest in Suspense (Note 19.a) (5,658,891) (3,522,694) 60.64 Total Loans and Advances including Bills of Exchange, Pro Notes, Lease Rentals Receivable and Group Balance Receivable (Net of Interest in Suspense) 87,021,841 111,242,480 (21.77)Non-Performing Advances (Gross) 31,149,959 33.61 19,428,234 16.93 60.33 Non-Performing Advances (Net of Interest in Suspense) 25,491,068 29.29 15,905,540 14.30 60.27 Less: Provision for Bad & Doubtful Debts (Note 19.a) (6,466,008) – (6,560,266) – (1.44)net non-Performing Advances 19,025,060 21.86 9,345,274 8.40 103.58

* As a percentage of total loans and advances as at 31st December.

Rs. 19,025.060 Mn. net non-performing advances is covered by tangible securities valued at approximately

Rs. 20,629.911 Mn.

19.f.2 non-Performing Portfolio of Grameen Micro credit company limited

Subsequent to the Balance Sheet date the Bank has restructured its loan portfolio to Grameen Micro Credit

Company Limited (Rs. 2.725 Bn.) and obtained approval from the Monetary Board to convert Rs. 1 Bn. of the

outstanding loans to 15% Cumulative, Redeemable, Convertible Preference Shares of the said company.

Further, Bank has converted the balance of Rs. 1.725 Bn. to Secured Debentures at an Interest Rate of

Treasury Bills +10% per annum (maturing 2012 to 2019).

2009rs. ’000

Grameen Loans Outstanding as at the Balance Sheet date 2,499,468Interest Receivable 225,532Amount Considered for Restructuring 2,725,000

19.f.3 As per the direction issued by the Central Bank of Sri Lanka on 31st December 2004, the Non-Performing

Ratio net of Interest in Suspense after inclusion of Investment Properties is as follows:2009 2008

% %

Non-Performing Ratio before Adjusting Investment Properties 29.29 14.30Non-Performing Ratio after Adjusting Investment Properties 29.71 14.70



19.g.1 collateral-wise Analysis of Gross non-Performing Portfolio

The Bank holds collateral against its lending portfolio in the form of mortgage interest over property,

other registered securities and assets. Estimation of fair value/realisable value are based on the value of

collateral, assessed at the time of lending and generally are not updated except when a loan is individually

assessed as non-performing.

2009 2008rs. ‘000 Rs. ‘000

Secured by Tangible Assets 19,025,060 9,345,274Secured by Movable Assets (Non-Performing Lease Receivable) 644,106 599,306Other Securities – – Clean 11,480,793 9,483,654

31,149,959 19,428,234

19.g.2 foreclosed Properties

Loans & Advances 1,099,823 889,454Bills of Exchange 68,630 28,110

1,168,453 917,564

19.h balance outstanding on Advances Granted to Employee Share owning trust companiesAmount

outstanding 2009

Amount Outstanding

2008rs. ’000 Rs. ’000

Seybest (Pvt) Limited 30,898 32,896 Sotse (Pvt) Limited 30,225 30,530 Esot (Pvt) Limited 31,540 33,462 Seyshop (Pvt) Limited 30,937 32,932



19.i concentration of credit risk

Sector-wise analysis credit portfolio given below, reflects the exposure to credit risk in the various sectors

of the economy.

BANK GROUP2009 2008 2009 2008

(Reclassified) (Restated)rs. ’000 % Rs. ’000 % rs. ’000 % Rs. ’000 %

Food, Beverages & Tobacco 1,314,948 1.50 3,515,077 3.27 1,314,948 1.50 3,538,868 3.25

Agriculture, Agro Business & Fisheries 3,467,424 3.95 4,202,230 3.91 3,467,424 3.95 4,343,374 3.99

Textiles & Wearing Apparel 2,117,555 2.41 7,212,904 6.71 2,117,555 2.41 7,264,431 6.67

Wood & Paper Products 1,058,202 1.21 958,051 0.89 1,058,202 1.21 996,635 0.92

Rubber & Leather Products 721,436 0.82 1,417,015 1.32 721,436 0.82 1,467,679 1.35

Metals, Chemicals & Engineering 2,564,190 2.92 3,193,956 2.97 2,564,190 2.92 3,294,051 3.03

Hotels 1,897,208 2.16 2,099,516 1.95 1,897,208 2.16 2,121,951 1.95

Services 7,275,258 8.29 10,271,850 9.56 7,275,258 8.29 10,732,017 9.86

Others 67,383,147 76.74 74,608,011 69.42 67,389,561 76.74 75,077,665 68.98

Gross loans & Advances 87,799,368 100.00 107,478,610 100.00 87,805,782 100.00 108,836,671 100.00

Loans & Advances 87,799,368 107,478,610 87,805,782 108,836,671

Lease Rentals Receivable 3,261,880 5,270,446 3,261,880 7,569,329

Bills of Exchange 1,351,456 1,488,028 1,351,456 1,488,028

Inter-Company Loans 268,028 528,090 – –

Gross loans & Advances including lease receivables & bills of Exchange 92,680,732 114,765,174 92,419,118 117,894,028

‘others’ category comprises the following AdvancesExports 7,418,660 11.01 5,786,708 7.76 7,418,660 11.01 5,786,708 7.71

Imports 3,719,104 5.52 5,217,972 6.99 3,719,104 5.52 3,719,104 4.95

Trading 8,194,541 12.16 14,812,309 19.85 8,194,541 12.16 8,194,541 10.91

Financial Services 4,059,196 6.02 5,028,335 6.74 4,059,196 6.02 4,059,196 5.41

Housing 14,851,747 22.04 13,591,431 18.22 14,851,747 22.04 14,851,747 19.78

Consumption 8,610,171 12.78 8,400,440 11.26 8,610,171 12.78 8,610,171 11.47

Miscellaneous 20,529,728 30.47 21,770,816 29.18 20,536,142 30.47 29,856,198 39.77

67,383,147 100.00 74,608,011 100.00 67,389,561 100.00 75,077,665 100.00

BANK GROUP2009 2008 2009 2008


20. lEASE rEntAlS rEcEivAblE within onE YEAr

From the Balance Sheet date 2,470,278 3,377,886 2,470,278 4,965,751 Less: Unearned Income (536,184) (797,776) (536,184) (1,198,625)

1,934,094 2,580,110 1,934,094 3,767,126 Less: Loan Loss Provision (Note 19.a) (269,254) (264,400) (269,254) (450,185) Interest in Suspense (Note 19.a) (66,156) (69,837) (66,156) (127,052)

1,598,684 2,245,873 1,598,684 3,189,889



BANK GROUP2009 2008 2009 2008


21. lEASE rEntAlS rEcEivAblE lAtEr thAn onE YEAr AnD not lAtEr thAn fivE YEArS

From the Balance Sheet Date (Note 21.a) 1,606,273 3,257,487 1,606,273 4,587,676 Less: Unearned Income (280,381) (570,963) (280,381) (795,400)

1,325,892 2,686,524 1,325,892 3,792,276

21.a Lease Rentals Receivable 1,787,491 3,382,025 1,787,491 4,712,214 Less: Deposit of Rentals (181,218) (124,538) (181,218) (124,538)

1,606,273 3,257,487 1,606,273 4,587,676

22. lEASE rEntAlS rEcEivAblE lAtEr thAn fivE YEArS

From the Balance Sheet Date (22.a) 1,971 4,029 1,971 11,106 Less: Unearned Income (77) (216) (77) (1,179)

1,894 3,813 1,894 9,927 Less: Loan Loss Provision (Note 19.a) – – – – Interest in Suspense (Note 19.a) – – – –

1,894 3,813 1,894 9,927

22.a Lease Rentals Receivable 1,971 4,029 1,971 11,106 Less: Deposits of Rentals – – – –

1,971 4,029 1,971 11,106

23. invEStMEntS in SubSiDiAriES - bAnk

PrincipalActivity

number ofShares

% holding

cost as at31.12.2009

Marketvalue as at31.12.2009

Number ofShares

% Holding

Cost as at31.12.2008

MarketValue as at31.12.2008

31.12.2009 rs. ’000 rs. ’000 31.12.2008 Rs. ’000 Rs. ’000

Quoted - ordinary Shares & DebenturesSeylan Merchant Bank PLC (Note 23.1)

Merchant Banking – – – – 23,071,066 42.88 260,919 69,213

Seylan Developments PLC Property Development 37,203,584 50.29 358,916 353,434 37,203,584 51.01 358,916 148,814

DebenturesSeylan Merchant Bank PLC (50 Mn. - 14%, 60 Mn. - 12.75%, 18.724 Mn. - 16%) – 100.00 128,724 –

less: loss on impairmentSeylan Merchant Bank PLC - Shares – – (172,556) – Seylan Merchant Bank PLC - Debentures – – (128,724) –

358,916 353,434 447,279 218,027



PrincipalActivity

number ofShares

% holding

cost as at31.12.2009

Directors’ valuation

31.12.2009Number of

Shares%

HoldingCost as at

31.12.2008

Directors’ Valuation

31.12.200831.12.2009 rs. ‘000 rs. ‘000 31.12.2008 Rs. ‘000 Rs. ‘000

unquoted - ordinary Shares

Seylan Bank Asset Management Ltd

Primary Dealers 19,750,000 100.00 501,250 573,234 19,750,000 100.00 501,250 420,914

total 860,166 926,668 948,529 638,941

23.1 reasons for Deconsolidation

As the Bank does not exercise control over the activities of Seylan Merchant Bank PLC and has no intention

to do so in the future, the board resolved during the last quarter to gradually divest its investment in this

entity. Further, there are no common directors to exercise influence, any longer. Accordingly, the Bank sold

1,006,500 shares during the last quarter of the year and by 31st December 2009 the Bank’s holding in the

entity dropped to 42.45%. As such, Seylan Merchant Bank PLC has been deconsolidated with effect from

1st October 2009 in the Group accounts of the Bank and the investment is classified as ‘Investment Securities’

in the Bank’s Financial Statements.

23.2 Jointly-controlled operations

The Bank had a jointly-controlled operation for the Seylan Credit Card activities. The Bank reconstituted this

operations at the year end under a new Memorandum of Understanding. However, no adjustments were required

in the Bank’s Financial Statements.

BANK GROUP2009 2008 2009 2008


24. GrouP bAlAncES rEcEivAblE

name of companySeylan Merchant Bank PLC – 342,314 – – Seylan Developments PLC 349,028 280,866 – – Seylan Bank Asset Management Limited 459,627 – – – total 808,655 623,180 – –



BANK GROUP2009 2008 2009 2008


25. invEStMEnt ProPErtiEScostBalance as at 1st January 520,812 149,394 1,764,455 1,403,880 Add: Additions During the Year – 371,418 – 371,418 Transferred from Property, Plant & Equipment – – – 346 Disposals During the Year – – – (11,189) Adjustment on Deconsolidation – – (16,316) – cost as at 31st December 520,812 520,812 1,748,139 1,764,455 less - Provision for impairment – – (134,795) (134,795)cost less impairment as at 31st December 520,812 520,812 1,613,344 1,629,660 Accumulated DepreciationBalance as at 1st January – – 88,602 66,451 Charge for the year – – 20,066 22,151 balance as at 31st December – – 108,668 88,602 carrying value as at 31st December 520,812 520,812 1,504,676 1,541,058

Bank has accounted its investment properties at cost and revalues these properties periodically on a

systematic basis for disclosure purposes.

25.a investment Properties (bank) - 2009BANK

Cost Market ValueAddress Extent Date of Valuation Rs. ’000 Rs. ’000

Kohalwila Road, Gonawala, Gampaha 0A 1R 19.14P 26.08.2008 6,166 10,900 Walpolawatte, Kudawaskaduwa, Wadduwa 2A 0R 25.4P 06.04.2009 28,799 28,800 Kahapola, Piliyandala 20A 1R 39.5P 10.04.2009 114,429 137,119 97, Station Road, Kandana 1A 1R 9.84P 27.10.2008 139,319 150,850 161, Galle Road, Wellawatta 0A 1R 27.48P 23.11.2009 232,099 233,429

520,812 561,098

Bank is confident on the valuation carried out on above dates and the values have not significantly changed

as at the Balance Sheet date.



25.b investment Properties (Group) - 2009GROUP

CostValuation

Market Value

Address Extent Date of Valuation Rs. ’000 Rs. ’000

Kohalwila Road, Gonawala, Gampaha 0A 1R 19.14P 26.08.2008 6,166 10,900 Walpolawatte, Kudawaskaduwa, Wadduwa 2A 0R 25.4P 06.04.2009 28,799 28,800 Kahapola, Piliyandala 20A 1R 39.5P 10.04.2009 114,429 137,119 97, Station Road, Kandana 1A 1R 9.84P 27.10.2008 139,319 150,850 161, Galle Road, Wellawatta 0A 1R 27.48P 23.11.2009 232,099 233,429 90, Galle Road, Colombo 3 Seylan Towers (West Tower)** 54,897.52 Sq.Ft 29.12.2009 1,022,792 1,151,494 257, Union Place, Colombo 2 52.27P 28.12.2008 204,535 250,256

1,748,139 1,962,848

** The rent income from the Seylan Towers (West Tower) for the year 2009 is Rs. 54.8 Mn. - (2008 Rs. 53.16 Mn.).

BANK GROUP2009 2008 2009 2008


26. DEfErrED tAxAtionBalance Brought Forward 91,582 – 95,790 13,332 Transferred from Deferred Tax Liability – (93,684) – (93,684)Charge/(Reversal) for the Year - (Note 11) 362,631 185,266 358,874 176,142 Adjustment for Seylan Merchant Bank PLC – – (304) –Balance Carried Forward - (Note 26.a & 26.b) 454,213 91,582 454,360 95,790

2009 - bAnk 2008 - BANK temporary Difference

rs. ‘000 tax

rs. ‘000

Temporary Difference

Rs. ‘000 Tax

Rs. ‘000

26.a Analysis of Deferred tax Assets and liabilitiesDeferred tax - liabilityProperty, Plant & Equipment 1,060,002 371,000 1,083,333 379,167 Lease Rentals 242,702 84,946 289,417 101,296

1,302,704 455,946 1,372,750 480,463

Deferred tax - AssetsDefined Benefit Obligation* – – 614,318 215,012 Unclaimed Bad Debt Provision - Specific 2,451,368 857,979 874,778 306,172 Bad Debt Provision - General** 149,087 52,180 128,474 44,966 Tax Losses Carried Forward – – 16,843 5,895

2,600,455 910,159 1,634,413 572,045 net Deferred tax Assets/liabilities - (note 26.a.1) 1,297,751 454,213 261,663 91,582



2009 - bAnk 2008 - BANK balance as at recognised balance as at Balance as at Recognised Balance as at 1st January in Profit or loss 31st December 1st January in Profit or Loss 31st December

rs. ’000 rs. ’000 rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

26.a.1 Movement in temporary DifferencesDeferred tax - liability Property, Plant & Equipment 1,083,333 (23,331) 1,060,002 949,568 133,765 1,083,333 Lease Rentals 289,417 (46,715) 242,702 182,810 106,607 289,417

1,372,750 (70,046) 1,302,704 1,132,378 240,372 1,372,750 Deferred tax - Assets Defined Benefit Obligation* 614,318 (614,318) – 635,060 (20,742) 614,318 Unclaimed Bad Debt Provision - Specific 874,778 1,576,590 2,451,368 – 874,778 874,778 Bad Debt Provision - General** 128,474 20,613 149,087 377,468 (248,994) 128,474 Tax Losses Carried Forward 16,843 (16,843) – – 16,843 16,843

1,634,413 966,042 2,600,455 1,012,528 621,885 1,634,413 net Deferred tax Assets/liabilities 261,663 1,036,088 1,297,751 (119,850) 381,513 261,663

2009 - GrouP 2008 - GROUP temporary Difference

rs. ‘000 tax

rs. ‘000

Temporary Difference

Rs. ‘000 Tax

Rs. ‘000

26.b Analysis of Deferred tax Assets and liabilitiesDeferred tax - liability Property, Plant & Equipment 1,062,455 371,859 1,071,311 374,959 Lease Rentals 242,702 84,946 289,417 101,296

1,305,157 456,805 1,360,728 476,255

Deferred tax - Assets Defined Benefit Obligation* 2,874 1,006 614,318 215,012Unclaimed Bad Debt Provision - Specific 2,451,368 857,979 874,778 306,172 Bad Debt Provision - General 149,087 52,180 128,474 44,966 Tax Losses Carried Forward – – 16,843 5,895

2,603,329 911,165 1,634,413 572,045

net Deferred tax Assets/liabilities (note 26.b.1) 1,298,172 454,360 273,685 95,790



2009 - GrouP 2008 - GROUP balance as at recognised balance as at Balance as at Recognised Balance as at 1st January in Profit or loss 31st December 1st January in Profit or Loss 31st December

rs. ’000 rs. ’000 rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

26.b.1 Movement in temporary DifferencesDeferred tax - liability Property, Plant & Equipment 1,071,311 (8,856) 1,062,455 949,568 121,743 1,071,311 Lease Rentals 289,417 (46,715) 242,702 182,810 106,607 289,417

1,360,728 (55,571) 1,305,157 1,132,378 228,350 1,360,728 Deferred tax - Assets Defined Benefit Obligation* 614,318 (611,444) 2,874 635,060 (20,742) 614,318 Unclaimed Bad Debt Provision - Specific 874,778 1,576,590 2,451,368 – 874,778 874,778 Bad Debt Provision - General** 128,474 20,613 149,087 377,468 (248,994) 128,474 Tax Losses Carried Forward 16,843 (16,843) – – 16,843 16,843

1,634,413 968,916 2,603,329 1,012,528 621,885 1,634,413 net Deferred tax Assets/liabilities 273,685 1,024,487 1,298,172 (119,850) 393,535 273,685

* Defined Benefit Obligation (Gratuity Provision)The Bank has a separate Gratuity Trust Fund which was approved by the Commissioner General of Inland Revenue. As per the approval, Bank could transfer Gratuity Provision of 62.5% of the last month’s salary of the year and deduct from the tax computation. Therefore, temporary differences have not arisen.

** General Provision Recognition of deferred tax assets arising from General Provision at Balance Sheet date was limited to non-performing ratio of the temporary difference. In management’s view the Bank’s NPA Ratio as at Balance Sheet date is an indicator of deferred tax assets which could be recovered in the future periods.

The Bank has recognised deferred tax assets on the General Provision of Rs. 149,086,976 (Amount not recognised - Rs. 360,089,806).

Seylan Developments Plc In accordance with the BOI agreement dated 30th March 1993, the profits and income of the Company are exempt from taxation until the year 2011 and at the expiry of the said period the following options are available for the Company.

(a) Income tax payable for the Year of Assessment shall be computed at 2% of the turnover of the Company for 15 years;

(b) The provisions of the Inland Revenue Laws for the time being imposed shall apply.

In the event the Company elects option (a) no Deferred Tax Liability will arise even after the expiry of the tax exemption period.

The Company needs to make the election only 90 days prior to the expiration of the said tax exemption period after evaluating all tax implications prevailing at that time. Therefore, no provision has been made in the Financial Statements by the Company for Deferred Tax Liability which could be arised after the tax exemption period in the event the Company elects option (b).



27. ProPErtY, PlAnt & EQuiPMEntbank Freehold Freehold Computer Machine/ Furniture/ Motor Leased Capital Work- 31.12.2009 31.12.2008

Land Building Equipment Equipment Fittings Vehicles Assets in-Progress total Total (Reclassified)

Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 rs. ’000 Rs. ’000

Cost/ValuationBalance as at 01st January 387,214 946,867 4,976,594 1,157,904 946,501 434,451 57,903 – 8,907,434 7,916,735 Additions & Improvements 39,418 13,597 117,544 28,100 27,331 238 – 1,007 227,235 1,456,408 Disposals – – (342,479) (11,372) (12,427) (17,480) (40) – (383,798) (465,709)Transfers – – (2,802) 1,811 1,136 – (145) – – –As at 31st December 426,632 960,464 4,748,857 1,176,443 962,541 417,209 57,718 1,007 8,750,871 8,907,434

Accumulated DepreciationBalance as at 01st January – 96,863 2,845,444 894,823 708,568 230,524 57,859 – 4,834,081 4,296,134Charge for the year – 24,390 536,808 91,130 63,517 69,455 18 – 785,318 707,205Disposals – – (152,365) (11,332) (11,940) (16,885) (40) – (192,562) (169,258)Transfers – (10) 17,816 (22,695) 14,674 (9,640) (145) – – –As at 31st December – 121,243 3,247,703 951,926 774,819 273,454 57,692 – 5,426,837 4,834,081

carrying Amount as at 31.12.2009 426,632 839,221 1,501,154 224,517 187,722 143,755 26 1,007 3,324,034 –

Carrying Amount as at 31.12.2008 387,214 850,004 2,131,150 263,081 237,933 203,927 44 – – 4,073,353

Group Freehold Freehold Computer Machine/ Furniture/ Motor Leased Capital Work- 31.12.2009 31.12.2008 Land Building Equipment Equipment Fittings Vehicles Assets in-Progress total Total

(Restated) Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 rs. ’000 Rs. ’000

Cost/ValuationBalance as at 01st January 387,214 1,696,286 5,092,782 1,276,036 988,536 465,136 75,519 – 9,981,509 8,957,234Additions & Improvements 39,418 13,597 118,175 28,122 27,384 238 – 1,007 227,941 1,498,408 Disposals – – (342,479) (11,525) (12,536) (22,434) (2,085) – (391,059) (473,113)Transfers – – (2,802) 1,811 1,136 – (145) – – (1,020)Adjustment on Deconsolidation – – (84,342) (29,611) (28,782) (9,515) – – (152,250)As at 31st December 426,632 1,709,883 4,781,334 1,264,833 975,738 433,425 73,289 1,007 9,666,141 9,981,509

Accumulated Depreciation Balance as at 01st January – 133,904 2,918,842 943,928 735,416 247,037 63,770 – 5,042,897 4,464,224 Charge for the Year – 33,607 539,490 97,960 64,851 73,667 3,309 – 812,884 752,954 Disposals – – (152,365) (11,371) (11,973) (21,508) (1,842) – (199,059) (174,281)Transfers – (10) 17,816 (22,695) 14,674 (9,640) (145) – – – Adjustment on Deconsolidation – – (51,984) (20,362) (20,655) (9,153) – – (102,154)As at 31st December – 167,501 3,271,799 987,460 782,313 280,403 65,092 – 5,554,568 5,042,897

carrying Amount as at 31.12.2009 426,632 1,542,382 1,509,535 277,373 193,425 153,022 8,197 1,007 4,111,573 –

Carrying Amount as at 31.12.2008 387,214 1,562,382 2,173,940 332,108 253,120 218,099 11,749 – – 4,938,612



27. ProPErtY, PlAnt & EQuiPMEntbank Freehold Freehold Computer Machine/ Furniture/ Motor Leased Capital Work- 31.12.2009 31.12.2008

Land Building Equipment Equipment Fittings Vehicles Assets in-Progress total Total (Reclassified)

Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 rs. ’000 Rs. ’000

Cost/ValuationBalance as at 01st January 387,214 946,867 4,976,594 1,157,904 946,501 434,451 57,903 – 8,907,434 7,916,735 Additions & Improvements 39,418 13,597 117,544 28,100 27,331 238 – 1,007 227,235 1,456,408 Disposals – – (342,479) (11,372) (12,427) (17,480) (40) – (383,798) (465,709)Transfers – – (2,802) 1,811 1,136 – (145) – – –As at 31st December 426,632 960,464 4,748,857 1,176,443 962,541 417,209 57,718 1,007 8,750,871 8,907,434

Accumulated DepreciationBalance as at 01st January – 96,863 2,845,444 894,823 708,568 230,524 57,859 – 4,834,081 4,296,134Charge for the year – 24,390 536,808 91,130 63,517 69,455 18 – 785,318 707,205Disposals – – (152,365) (11,332) (11,940) (16,885) (40) – (192,562) (169,258)Transfers – (10) 17,816 (22,695) 14,674 (9,640) (145) – – –As at 31st December – 121,243 3,247,703 951,926 774,819 273,454 57,692 – 5,426,837 4,834,081

carrying Amount as at 31.12.2009 426,632 839,221 1,501,154 224,517 187,722 143,755 26 1,007 3,324,034 –

Carrying Amount as at 31.12.2008 387,214 850,004 2,131,150 263,081 237,933 203,927 44 – – 4,073,353

Group Freehold Freehold Computer Machine/ Furniture/ Motor Leased Capital Work- 31.12.2009 31.12.2008 Land Building Equipment Equipment Fittings Vehicles Assets in-Progress total Total

(Restated) Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 rs. ’000 Rs. ’000

Cost/ValuationBalance as at 01st January 387,214 1,696,286 5,092,782 1,276,036 988,536 465,136 75,519 – 9,981,509 8,957,234Additions & Improvements 39,418 13,597 118,175 28,122 27,384 238 – 1,007 227,941 1,498,408 Disposals – – (342,479) (11,525) (12,536) (22,434) (2,085) – (391,059) (473,113)Transfers – – (2,802) 1,811 1,136 – (145) – – (1,020)Adjustment on Deconsolidation – – (84,342) (29,611) (28,782) (9,515) – – (152,250)As at 31st December 426,632 1,709,883 4,781,334 1,264,833 975,738 433,425 73,289 1,007 9,666,141 9,981,509

Accumulated Depreciation Balance as at 01st January – 133,904 2,918,842 943,928 735,416 247,037 63,770 – 5,042,897 4,464,224 Charge for the Year – 33,607 539,490 97,960 64,851 73,667 3,309 – 812,884 752,954 Disposals – – (152,365) (11,371) (11,973) (21,508) (1,842) – (199,059) (174,281)Transfers – (10) 17,816 (22,695) 14,674 (9,640) (145) – – – Adjustment on Deconsolidation – – (51,984) (20,362) (20,655) (9,153) – – (102,154)As at 31st December – 167,501 3,271,799 987,460 782,313 280,403 65,092 – 5,554,568 5,042,897

carrying Amount as at 31.12.2009 426,632 1,542,382 1,509,535 277,373 193,425 153,022 8,197 1,007 4,111,573 –

Carrying Amount as at 31.12.2008 387,214 1,562,382 2,173,940 332,108 253,120 218,099 11,749 – – 4,938,612



27.a fully Depreciated Assets

The initial cost of fully-depreciated plant, machinery, equipment & furniture as at 31st December 2009

which are still in use as at Balance Sheet date:BANK

2009rs. ’000

GROUP 2009

rs.'000

Buildings – –Computer Equipment 1,976,346 1,985,179 Office Machines & Equipment 679,732 680,590 Fixtures, Fittings & Furniture 605,518 608,508 Motor Vehicles 70,358 70,358 Leased Assets 57,626 57,626

3,389,580 3,402,261

27.a.1 temporarily idle Plant & Equipment

The following assets as at 31.12.2009 have been identified as temporarily idle plant & equipment.

BANK GROUPCost

Rs. ‘000

Depreciation

Rs. ‘000

Net Book Value

Rs. ‘000

Cost

Rs. ‘000

Depreciation

Rs. ‘000

Net Book Value

Rs. ‘000

ATM Machines 7,834 1,814 6,020 7,834 1,814 6,020 Mobile Banking Equipment 31,454 6,870 24,584 31,454 6,870 24,584

39,288 8,684 30,604 39,288 8,684 30,604

27.b freehold/leasehold land & buildings - bankAddress Extent Cost/

Valuation Accumulated Depreciation

net book value as at 31.12.2009

Rs. ’000 Rs. ’000 rs. ’000

free holdMt. lavinia198, Galle Road, Ratmalana 25.75 P 23,908 3,147 20,761 badulla10, Cocowatte Road, Badulla 1 R 6.40 P 57,866 2,065 55,801 kochchikade66, 66 1/1, 68 2/1, Chilaw Road, Kochchikade 8.0 P 5,228 868 4,360 Avissawella71, Ratnapura Road, Avissawella 19.13 P 9,574 1,888 7,686 Grandpass401, Prince of Wales Avenue, Colombo 14 1R 6.0 P 44,372 201 44,171 hingurakgoda13 & 14, Airport Road, Hingurakgoda 15.84 P 12,000 731 11,269 bandarawela240, Badulla Road, Bandarawela 23.20 P 36,898 1,204 35,694 Sarikkamulla97, Old Galle Road, Sarikkamulla 11.56 P 4,059 1,143 2,916



Address Extent Cost/ Valuation

Accumulated Depreciation

net book value as at 31.12.2009

Rs. ’000 Rs. ’000 rs. ’000

tissamaharama547, Debarawewa, Tissamaharama 0.091 H 11,193 483 10,710 raddolugama171, National Housing Scheme, Raddolugama 12.80 P 11,500 476 11,024 nuwara Eliya12, Lawson Street, Nuwara Eliya 20.28 P 6,365 1,602 4,763 Maradagahamula150, Divulapitiya Road, Maradagahamula 35.0 P 7,569 1,197 6,372 Anuradhapura23-A1, Anuradhapura 43.65 P 3,500 609 2,891 Embilipitiya53 & 53/1, New Town Road, Embilipitiya 22.1 P 27,295 916 26,379 nugegoda211, High Level Road, Nugegoda 14.0 P 36,061 2,258 33,803

nawalapitiya77/1, 79, Dolosbage Road, Nawalapitiya 10.52 P 5,719 422 5,297 ratnapura5, Inner Circular Road, Ratnapura 9.31 P 24,552 1,238 23,314 EmbilipitiyaPettigala Road, Embilipitiya 32.9 P 5,500 – 5,500 Private banking2, Deal Place, Colombo 3 19.0 P 192,095 467 191,628 Gampola44, Kandy Road, Gampola 13.5 P 15,599 1,030 14,569 negombo115, Rajapaksa Broadway, Negombo 29.15 P 51,999 52 51,947 head office90, Galle Road, Colombo 3 (Level - 1, 2, 13, 14) 31,704

Square Feet

794,244 99,246 694,998

total freehold land & buildings - bank 1,387,096 121,243 1,265,853

total freehold buildings - Seylan Developments Plc 749,419 46,258 703,161total freehold land & buildings - Group 2,136,515 167,501 1,969,014

leasehold Properties - (note 28)nuwara Eliya48 & 48/1, Park Road, Nuwara Eliya 19.08 P 66,148 3,065 63,083 total leasehold land & buildings - bank 66,148 3,065 63,083

Seylan tower land90, Galle Road, Colombo 3 640,549 39,412 601,137total leasehold land - Seylan Developments Plc 640,549 39,412 601,137total leasehold land & buildings - Group 706,697 42,477 664,220total land & buildings - Group 2,843,212 209,978 2,633,234



BANK Cost/Valuation

Rs. ‘000 Depreciation

Rs. ‘000 Net Book Value

Rs. ‘000

27.c Summary of freehold/leasehold PropertiesFreehold Land 426,632 – 426,632 Freehold Building 960,464 121,243 839,221

1,387,096 121,243 1,265,853

Leasehold Land 22,603 – 22,603 Leasehold Building 43,545 3,065 40,480

66,148 3,065 63,083total - bank 1,453,244 124,308 1,328,936

Leasehold Land - Seylan Developments PLC 640,549 39,412 601,137Freehold Building - Seylan Developments PLC 749,419 46,258 703,161total land & buildings - Group 2,843,212 209,978 2,633,234

27.d revaluation - land & building

The Bank’s land & building were revalued in year 2006 by a qualified valuer. Valuation was made on the

basis of open market value and the revaluation surplus was transferred to the revaluation reserve.

If land & building were stated at historical cost, the amounts would have been as follows:

BANKLand Building Total

Rs. ‘000 Rs. ‘000 Rs. ‘000

Properties revaluedcost Freehold 22,204 61,588 83,792 Leasehold 8,894 31,596 40,490 Accumulated DepreciationFreehold – (12,490) (12,490)Leasehold – (1,153) (1,153)carrying value 31,098 79,541 110,639

Properties not revaluedcost Freehold 364,726 827,497 1,192,223Leasehold – – –Accumulated DepreciationFreehold – (114,130) (114,130)Leasehold – – –carrying value 364,726 713,367 1,078,093

total carrying value 395,824 792,908 1,188,732



BANK GROUP2009 2008 2009 2008


28. lEASEholD riGhtS cost/valuation Balance as at 01st January 66,148 65,981 706,697 706,530Additions for the Year – 167 – 167 As at 31st December 66,148 66,148 706,697 706,697

Accumulated Depreciation Balance as at 01st January 1,983 1,291 33,517 24,942Charge for the Year 1,082 692 8,960 8,575As at 31st December 3,065 1,983 42,477 33,517

carrying Amount as at 31st December 63,083 64,165 664,220 673,180

Bank - Leasehold property consists of the property situated at Park Road, Nuwara Eliya acquired in the year 2001.

Seylan Developments PLC - Year 1993, Seylan Developments PLC, a subsidiary of Seylan Bank PLC acquired the

leasehold rights of the land situated at No. 90, Galle Road, Colombo 03 for a period of 94 years to construct the

Seylan Towers.

BANK GROUP2009 2008 2009 2008


29. intAnGiblE ASSEtS Deferred Expenses/Others – 25,410

– – – 25,410

30. othEr ASSEtSDeposits & Prepayments 461,808 455,423 482,080 486,021 Interest Receivable 1,289,039 989,650 1,289,039 1,071,409 Clearing House Balance 1,189,688 969,160 1,164,869 969,160 Inventories 334,630 1,383,405 335,904 1,384,676 Investment in Projects – – 209,500 459,007 Sundry Debtors 99,130 137,488 115,447 229,212 Other Receivables 133,513 178,069 272,489 225,781 Due From Trust Companies 124,154 124,154 124,154 124,154 Others 249,528 692,396 202,326 926,135

3,881,490 4,929,745 4,195,808 5,875,555



BANK GROUP2009 2008 2009 2008


31. DEPoSitSlocal currency Deposits

Demand Deposits 7,923,720 7,852,370 7,923,720 7,852,370 Savings Deposits 28,867,299 28,491,646 28,867,299 28,576,708 Time Deposits 56,351,640 56,694,360 56,351,640 58,176,036 Certificates of Deposit 3,056,958 2,985,771 3,056,958 2,985,771

96,199,617 96,024,147 96,199,617 97,590,885

foreign currency Deposits Demand Deposits 1,134,245 1,070,826 1,134,245 1,070,826 Savings Deposits 2,949,285 3,776,790 2,949,285 3,776,790 Time Deposits 4,532,752 7,067,038 4,532,752 7,067,038

8,616,282 11,914,654 8,616,282 11,914,654

total Deposits 104,815,899 107,938,801 104,815,899 109,505,539

31.a MaturityDue within One Year 93,067,958 97,432,331 93,067,958 98,528,112 Due after One Year 11,747,941 10,506,470 11,747,941 10,977,427

104,815,899 107,938,801 104,815,899 109,505,539

31.b Deposits from Non-Bank Customers 103,038,963 106,964,791 103,038,963 108,531,529 Banks 87,670 715,988 87,670 715,988 Finance Companies 1,689,266 258,022 1,689,266 258,022

104,815,899 107,938,801 104,815,899 109,505,539

32. borrowinGSCall Money Borrowings 1,376,475 4,449,105 1,376,475 4,449,105 Refinance Borrowings 1,200,397 1,249,916 1,200,397 1,255,250 Borrowings from Foreign Banks 476,006 1,391,492 476,006 1,391,493 Other Borrowings 2,962 14,505 445,826 2,112,961

3,055,840 7,105,018 3,498,704 9,208,809

32.a MaturityDue Within One Year 2,078,671 5,825,584 2,227,251 6,993,560 1-5 Years 639,072 – 933,356 769,586 After Five Years 338,097 1,279,434 338,097 1,445,663

3,055,840 7,105,018 3,498,704 9,208,809



BANK GROUP2009 2008 2009 2008


33. GrouP bAlAncES PAYAblESeylan Merchant Bank PLC – 92,804 – –Seylan Developments PLC 3,509 2,706 – –Seylan Bank Asset Management Limited 6,066 1,428,482 – –

9,575 1,523,992 – –

34. SuborDinAtED DEbEnturES34.a Advance received on Debenture issue

This balance consists of cash received in advance for debentures in 2008 which was allotted after the

Balance Sheet date (12th January 2009) of the previous year.

34.b Debentures BANK GROUP

Year of Issue

Redemption Period

Private/Public Issue

Rate Amount Outstanding

Amount Outstanding

Annual Monthly Floating(Annual)

Floating(03 Months)

as at 31.12.2009Rs. ’000

as at 31.12.2009Rs. ’000

2005 2005-10 Private Issue 14.50% – – – 699,000 699,000

2006 2006-11 Public Issue 13.50% 13.00% 15.74% – 1,257,315 1,257,315

2006 2006-11 Private Issue 15.00% 14.00% 12.71% – 162,250 162,250

2007 2007-12 Public Issue - I 16.75% 15.75% 20.13% – 749,400 749,400

2007 2007-12 Public Issue - II 18.00% 17.00% 21.56% 14.36% 559,285 559,285

2007 2007-12 Private Issue 19.50% – – – 100,000 100,000

2008 2008-13 Private Issue 20.00% 18.50% 22.50% – 72,550 72,550

2008 2008-13 Public Issue 21.50% 20.50% 19.06% 12.78% 630,565 630,565

4,230,365 4,230,365

BANK GROUP2009 2008 2009 2008


35. othEr liAbilitiESAccrued Expenses and Interest Payable 4,283,666 4,347,620 4,308,554 4,365,497 Margin Accounts 604,512 693,321 604,512 693,321Deposit Funding Accounts 1,189,313 988,225 1,189,313 988,225 Dividend Payable 22,668 16,393 23,314 24,802 Provision for Defined Benefit Obligations (Net) (Note 35.a) 36,322 526,172 50,714 552,551 Sundry Creditors 422,149 1,622,841 451,536 1,645,829Value Added Tax & Other Statutory Payables 350,987 (78,671) 526,782 38,426Cheques & Drafts Payable 711,826 2,223,506 711,826 2,223,506Unredeemed Debentures – 104,990 – 104,990 Others 581,572 810,168 626,636 1,264,303

8,203,015 11,254,565 8,493,187 11,901,450



35.a Defined benefit obligations

The Bank pays half-a-month’s salary (last drawn) for each completed year of service as gratuity for

employees who has worked for more than 5 years at the time of retirement/resignation.

Board of directors of the Bank at its meeting held on 24th March 2009, decided to change the previous

policy of gratuity payments of paying one month salary (last drawn) to resigned staff members who have

completed ten years of service in the Bank with effect from 5th March 2009.

BANK GROUP2009 2008

(Reclassified)2009 2008


35.a.1 the Amount recognised in the balance SheetPresent Value of Defined Benefit Obligations (Note 35.a.3) 663,119 1,258,285 693,568 1,300,355 Fair Value of Plan Assets (Note 35.a.4) (595,920) (542,563) (611,977) (558,254)Unrecognised Actuarial Gain or (Loss) (Note 35.a.5) (37,966) (189,550) (37,966) (189,550)Unrecognised Past Service Gain

Non-Vested (Note 35.a.6) 7,089 – 7,089 –Provision for Defined benefit obligations 36,322 526,172 50,714 552,551

35.a.2 Plan Assets consists the following Balance with Banks 28,729 4,228 44,786 19,126 Investment in Treasury Bonds 567,191 530,463 567,191 530,463 Interest Receivable – 7,872 – 8,665 Provision for Defined benefit obligations 595,920 542,563 611,977 558,254

Plan assets are held by an approved external gratuity fund.

35.a.3 Movement in the Present value of Defined benefit obligations Liability for Defined Benefit Obligations

as at 1st January 1,258,285 1,276,475 1,300,355 1,304,148 Effect of Change in Accounting Policy due to Adoption of SLAS 16 (Revised 2006) – (236,734) – (229,171)Revised Balance as at 1st January 1,258,285 1,039,741 1,300,355 1,074,977 Current Service Cost 52,295 98,791 55,481 102,259 Interest Cost 150,994 124,769 155,012 128,938 Past Service Cost/(Gain) Non-Vested Benefits (10,633) – (10,633) 3,688 Past Service Cost/(Gain) Vested Benefits (588,269) – (588,269) – Transferred from Gratuity Trust Fund – – – 468 Unrecognised Actuarial (Gains)/Losses (149,068) 131,689 (148,383) 130,260 Payments Made (Including benefits paid by the Plan) in 2009 (50,485) (136,705) (61,037) (140,235)Adjustment on Deconsolidation (8,958) – liability for Defined benefit obligations as at 31st December 663,119 1,258,285 693,568 1,300,355



BANK GROUP2009 2008

(Reclassified)2009 2008


35.a.4 Movement in Plan Assets Fair Value of Plan Assets as at 1st January 542,563 421,215 558,254 434,759 Effect of Change in Accounting Policy due to Adoption of SLAS 16 (Revised 2006) – 88,917 – 88,917 Revised Balance as at 1st January 542,563 510,132 558,254 523,676 Expected Return on Plan Assets 75,959 92,181 78,085 94,376 Contribution Paid into Plan 31,739 134,816 31,739 134,816 Benefits Paid by the Plan (50,485) (136,705) (61,169) (136,705)Unrecognised Actuarial Gains/(Loss) on Plan Assets (3,856) (57,861) 5,068 (57,909)fair value of Plan Assets at 31st December 595,920 542,563 611,977 558,254

35.a.5 unrecognised Actuarial (Gain) or lossBalance as at 1st January 189,550 – 189,550 – Actuarial (Gain)/Loss for Year - Obligation (149,068) 131,689 (148,524) 131,689 Actuarial (Gain)/Loss for Year - Plan Assets 3,856 57,861 3,856 57,861 Actuarial Gain/(Loss) Immediately Recognised (6,372) – (6,916) – balance as at 31st December 37,966 189,550 37,966 189,550

35.a.6 unrecognised Past Service cost non-vested benefits Balance as at 1st January – – – – Past Service Cost/(Gain) Non-Vested Benefits** 10,633 – 10,633 –Amount Recognised in the Income Statement (3,544) – (3,544) –balance as at 31st December 7,089 – 7,089 –

** The Past Service Cost on Non-Vested Benefits is recognised on a straight line basis over 3 years.

35.a.7 Amount recognised in the income Statement Current Service Cost 52,295 98,791 55,481 102,259 Interest Cost 150,994 124,769 155,012 128,938 Expected Return on Plan Assets (75,959) (92,181) (78,085) (94,376)Actuarial (Gains)/Loss Immediately Recognised 6,372 – (1,867) 767Past Service Cost/(Gain) Vested Benefits (588,269) – (588,269) –Past Service Cost/(Gain) Non-Vested Benefits (3,544) – (3,544) 3,688

(458,111) 131,379 (461,272) 141,276



Balance beforeReducing of Benefits

for Future ServiceRs. ’000

Gain on Reduction

of BenefitsRs. ’000

Balance afterReducing the

BenefitsRs. ’000

35.a.8 Movement in Defined benefit Plan with the reduction of benefits - bankNet Present Value of Obligations (Note 35.a.3) 1,258,285 595,166 663,119 Fair Value of Plan Assets (Note 35.a.4) (542,563) 53,357 (595,920)

715,722 648,523 67,199 Unrecognised Actuarial Gains (Note 35.a.5) 189,550 151,584 37,966 Unrecognised Past Service Gain

Non-Vested (Note 35.a.6) – (7,089) 7,089Adjustment to Net Liability Recognised

in Balance Sheet 526,172 489,850 36,322

BANK2009 2008

35.a.9 Actuarial Assumptions- bankNormal Retirement Age 55 years 55 yearsRate of Discount 11% 12%Salary Increase 5%,7.5% and thereafter 8% 10% increase per annum for

per annum. (next increment first 5 years and 8% perdue on 1st July 2010) annum thereafter

BANK GROUP2009 2008 2009 2008


36. StAtED cAPitAlOrdinary Shares - Voting (Note 36.a) 3,461,000 435,600 3,461,000 435,600 Ordinary Shares - Non-Voting (Note 36.b) 1,235,600 1,235,600 1,235,600 1,235,600 Preference Shares - Non-Redeemable, Non-Cumulative, Non-Convertible and Non-Voting (Note 36.c) 33,901 33,901 33,901 33,901 Share Premium (Note 36.d) 837,319 837,319 837,319 837,319

5,567,820 2,542,420 5,567,820 2,542,420

36.a ordinary Shares - votingBalance as at 01st January - 43,560,000 Ordinary Shares 435,600 435,600 435,600 435,600 Issued during the year - 86,440,000 Ordinary Shares of Rs. 35/- each 3,025,400 – 3,025,400 –130,000,000 ordinary Shares - voting 3,461,000 435,600 3,461,000 435,600

36.b ordinary Shares - non-votingBalance as at 01st January - 123,560,000 Ordinary Shares 1,235,600 1,235,600 1,235,600 1,235,600 123,560,000 ordinary Shares - non-voting 1,235,600 1,235,600 1,235,600 1,235,600



BANK GROUP2009 2008 2009 2008


36.c Preference SharesBalance as at 01st January - 3,390,100 Shares of Rs. 10/- each 33,901 33,901 33,901 33,901 3,390,100 Preference Shares 33,901 33,901 33,901 33,901

36.d Movement in Share PremiumBalance as at 01st January 837,319 837,319 837,319 837,319 balance as at 31st December 837,319 837,319 837,319 837,319

BANK GROUP2009 2008 2009 2008


37. StAtutorY rESErvE funDBalance as at 01st January 479,754 468,250 481,650 470,146 Add: Transferred During the Year 27,165 ** 7,762 ** 27,165 7,762 Adjustments During the Year – 3,742 – 3,742 Adjustment on Deconsolidation – – (1,896) –balance as at 31st December 506,919 479,754 506,919 481,650

** 5% of Net Profit After Tax Statutory Reserve Fund represents the statutory requirement in terms of the Section 20 (1) and (2) of the Banking Act No. 30 of 1988.

BANK GROUP2009 2008 2009 2008


38. rESErvESCapital Reserve (Note 38.a) 418,021 418,021 418,021 418,021 Revaluation Reserve (Note 38.b) 125,238 125,238 483,892 490,562 General Reserve (Note 38.c) 33,787 33,787 33,787 33,787 Capital Redemption Reserve Fund (Note 38.d) – – 255,213 258,997 Special Risk Reserve (Note 38.e) – – 42,595 4,515Reserve on Script Issue – – – 3,521 Retained Profits 3,930,689 3,420,791 3,800,891 3,553,052

4,507,735 3,997,837 5,034,399 4,762,455

38.a Movement in capital reserveBalance as at 01st January 418,021 418,021 418,021 418,021 balance as at 31st December 418,021 418,021 418,021 418,021

Consists of the Debenture Redemption Reserve Fund of Rs. 400 Mn. transferred to Capital Reserve in 2004.

Debenture Redemption Reserve Fund was created for the redemption of five-year debentures amounting to

Rs. 400 Mn. issued in November 1999. Balance consisting of Rs. 18 Mn. transferred to Capital Reserve in 1991.



BANK GROUP2009 2008 2009 2008


38.b Movement in revaluation reserveBalance as at 01st January 125,238 198,918 490,562 564,242 Transferred to/from Revaluation Reserve – (73,680) (6,670) (73,680)balance as at 31st December 125,238 125,238 483,892 490,562

In addition to the Bank’s Revaluation Reserve, Group includes the surplus on revaluation of fixed assets of

Seylan Developments PLC.

BANK GROUP2009 2008 2009 2008


38.c Movement in General reserveBalance as at 01st January 33,787 33,787 33,787 33,787 balance as at 31st December 33,787 33,787 33,787 33,787

Consist of Rs. 25 Mn. transferred in 1995 to General Reserve, Rs. 2.7 Mn. transferred from Bad Debts

Reserve and Rs. 6 Mn. transferred from Contingency Reserve in 2002 to General Reserve.

BANK GROUP2009 2008 2009 2008


38.d Movement in capital redemption reserve fundBalance as at 01st January – – 258,997 258,997Add: Transferred during the Year – – – –Less: Adjustment on Consolidation – – (3,784) –balance as at 31st December – – 255,213 258,997

Capital Redemption Reserve Fund was created at the time of redeeming the preference shares of

Seylan Developments PLC.BANK GROUP

2009 2008 2009 2008(Restated)

rs. ’000 Rs. ’000 rs. ’000 Rs. ’000

38.e Movement in Special risk reserveBalance as at 01st January – – 4,515 4,515Add: Transferred during the Year – – 38,080 –balance as at 31st December – – 42,595 4,515

According to the circular Ref. No. 08/24/002/005/003 issued by the Central Bank of Sri Lanka, Seylan Bank Asset Management Ltd. is required to appropriate 25% of the net profit after tax for the year towards the Special Risk Reserve Fund.



39. coMMitMEntS AnD continGEnciES

In the normal course of business, the Bank makes various commitments and incurs certain contingent

liabilities with legal recourse to its customers. No material losses are anticipated as a result of these

transactions.

BANK GROUP2009 2008 2009 2008


39.a commitmentsUndrawn Credit Lines 8,698,972 8,943,671 8,698,972 8,943,671 Capital Commitments (Note 40.a) 2,684 143,252 2,684 143,252

8,701,656 9,086,923 8,701,656 9,086,923

39.b contingenciesAcceptances 2,781,914 3,544,212 2,781,914 3,544,212 Stand by Letters of Credit 283,255 559,581 283,255 559,581 Guarantees 7,194,304 8,005,123 7,194,304 8,005,123 Documentary Credit 2,007,403 1,983,522 2,007,403 1,983,522 Bills for Collection 1,335,048 3,353,715 1,335,048 3,353,715 Forward Exchange Contracts (Net) (41,018) 341,299 (41,018) 341,299

13,560,906 17,787,452 13,560,906 17,787,452 total commitments and contingencies 22,262,562 26,874,375 22,262,562 26,874,375

39.c cases Against the bank

In the normal course of business, the Bank is involved in various types of litigation with borrowers or others

who have asserted or threatened claims/counter claims against the Bank. Including the following:

c. i. civil cases

1. Some of the appeals relate to cases; • CHC128/2001(1)andCHC14/98bothcasesareinappeal.Bothappealsnotyetlisted.

• CA(Rev)1788/04.Appealpending.Fixedforargumenton12thMarch2010.

• CHC157/2001(1)CasependinginSupremeCourt.Caseisfixedforargumenton21stJune2010.

• HC(Civil)137/99(1).JudgmentdeliveredinfavouroftheBank.Plaintiffappealedagainstjudgment.

• DCColombo15958/M.Appealpending.

2. DC Mt. Lavinia 4246/03 Case is filed against the Bank claiming wrongful seizure. The case is coming up on 24th March 2010 for inquiry.

3. DC Colombo 157/2007 claiming that, Bank had honoured 3rd party cheque which, allegedly forged by the customer of our Raddolumgama Branch (RDL) and credited to his account. Trial on 10th March 2010.

4. DC Ratnapura 23391/M case filed by customer for wrongful take over of assets not mortgaged. Case is fixed for answer on 12th March 2010.

5. CHC Colombo 403/09/MR. Case filed by plaintiff claiming that Bank has not permitted the customer to utilise the facilities and charging high rate of interest. Case is fixed for Answer.



6. DC Colombo 07219/09/DMR. Case filed by the customer for collecting proceeds of a cheque crediting to a fictitious account. Answer 7th May 2010.

7. DC Colombo DSP 212/2009 an enjoining order preventing the Bank from paying monies under the Letter of Credit issued by the Bank to Bank of China. Written submissions on 2nd March 2010 and notice returnable on the 2nd defendant Veihai Joylong International.

8. D C Bandarawela 1687/L to 1695/L (9 cases) occupants before the mortgage have filed actions against the Bank. Government intervened and acquired the property and we lodged the claim. Settlement date 7th May 2010.

9. DC Mt. Lavinia 500/4/P Bank has been added as 13th defendant and 10th defendant had mortgaged the property to the Bank. There is no claim against the Bank. Case to be called.

10. DC Colombo 26321/M action claiming an ex-gratia payment. Trial fixed.

11. CHC 638/09/MR (DC Colombo 6033/SPL) Bank has filed the case for an injunction, counter claim has been made by the defendant.

12. CHC 232/2002. This is instituted with regard to sale of shares of Blue Diamond Jewellery World Wide (BDJWL) held as security for the facility of Gold Lada. Action filed for damages claiming from Bank. Calling same. CHC 320/2002 (1) Case is fixed for hearing.

13. CHC 243/2002 (1). This action is filed seeking a declaration from Courts that the Bank is not entitled to sell/alienate/transfer shares of the BDJWL company among other claims. Trial on 3rd May 2010.

c. ii. labour tribunal cases

1. LT 1/377/97. Case filed by an employee. Settlement pending. To be called on 1st March 2010.

2. Labour Department Inquiry No. IR/1055/2009 CA Writ 891/2009. Retired employees of Seylan Bank Vs Seylan Bank. Labour Commissioner ordered to pay gratuity at the rate of one month salary for each year of service for the employees who completed ten years service. Bank has filed a writ application in Court of Appeal.

Based on the available information and current status of the above cases, the Bank is not in a position to

quantify the potential financial impact if any, as at the Balance Sheet date. Further, based on legal advice the

Bank does not expect the outcome of any action to have a material effect on the financial position of the Bank.

39.d tax Assessments Against bank

1. Assessment No. VATFS/BFSU/09/130 for VAT on Financial Services for 2007, amounts to Rs. 359,126,131/-.

Bank made the appeal on 22nd December 2009, and Department of Inland Revenue acknowledged the

same on 15th January 2010.

2. Income Tax for Y/A 2003/2004 amounting to Rs. 190,738,861/- determined by the Commissioner General

of Inland Revenue, on assessment No. 8224200. Bank has made an appeal to the Board of Review and

the final hearing will be scheduled in April 2010.

The Bank is in the view that the above assessments would not have any material impact on the

Financial Statements.



40. cAPitAl coMMitMEntSCapital expenditure approved by the board of directors for which provision has not been made in these

accounts amounted to approximately:BANK GROUP

2009rs. Mn.

2008Rs. Mn.

2009rs. Mn.

2008Rs. Mn.

40.a Approved and Contracted for 2.684 143.25 2.684 143.25

40.b Approved but not Contracted for – 140.54 – 140.54

41. EvEntS occurrinG AftEr bAlAncE ShEEt DAtE

(a) The board has approved the amalgamation of Seylan Bank Asset Management Limited with Seylan Bank

PLC as per the provision of Section 242(i) of the Companies Act No. 07 of 2007. The Central Bank of Sri Lanka

has approved in principle the amalgamation of Seylan Bank Asset Management Limited with Seylan Bank

PLC and the appointment of Seylan Bank PLC as a primary dealer in principle, subject to the fulfilment of

the terms and conditions applicable to the appointment of Licensed Commercial Banks as Primary Dealers

as stipulated in Registered Stock and Securities (Primary Dealers) Regulation No. 01 of 2009 and Local

Treasury Bills (Primary Dealers) Regulation No. 01 of 2009.

(b) Subsequent to the year end loan granted to Grameeen Micro Credit Company Limited has been

restructured as referred in Note 19.f.2.

(c) The board of directors of the Bank has recommended a final ordinary dividend of Rs. 0.50 per share for the

year 2009 and to be approved at the Annual General Meeting.

Subsequent to the Balance Sheet date, no circumstances have arisen which require adjustments to or

disclosure in the Financial Statement.

42. rElAtED PArtY trAnSActionSa. According to Sri Lanka Accounting Standard 30 (Revised 2005) - Related Party Disclosure, Key Management

Personnel are those having authority and responsibility for planning, directing and controlling the activities

of the entity. Accordingly, the board of directors, General Manager/Chief Executive Officer (GM/CEO) and key

employees of the Bank holding directorships in subsidiary companies have been classified as Key Management

Personnel of the Bank.



b. transactions with key Management Personnel (kMP)Facilities Limit

Rs. Mn.Outstanding

Rs. Mn.Security

Mr. Ajita Pasqual Overdraft 1.5 0.819 Lien over REPO for Rs. 1,366,891.23 and for Rs. 250,000

Employee Provident Fund Loan 5.9 5.527 Against Employees Provident Fund balance of Rs. 7,409,465/-

Housing Loan- I 6.0 2.736 Primary Mortgage Bond for Rs. 6,000,000/- over the property at Kirulapone

Term Loan – I 3.558 3.092 }Term Loan – II 0.205 0.187 Lien over deposits for USD 69,417.36 and Rs. 500,500/-

Term Loan – III 0.711 0.677

Term Loan – IV 2.061 1.886

Mr. A. Madurapperuma Employee Provident Fund Loans 7.060 7.060 Employees Provident Fund balance of Rs. 7,933,950/-

Mr. S. Palihawadana Overdraft 0.015 DPN /Overdraft Agreement

Employee Provident Fund Loans 3.910 3.910 Employees Provident Fund balance of Rs. 4,398,183/-

Housing Loan - I 1.582 0.844 Primary Mortgage Bond for Rs. 1,582,000/- over the property at Pita-Kotte

Piyasa Housing Loan 2.375 0.180 }Housing Loan - II 1.500 1.088 Secondary Mortgage Bond for Rs. 2,375,000/- over the above property

Housing Loan - III 0.500 0.359

DepositsRs. Mn.

Mr. E. Narangoda Total 0.396

Mr. R. Nadarajah Total 0.246

Mr. A.L. Devasurendra Total 0.124

Mr. A. Madurapperuma Total 0.950

Mr. S. Palihawadana Total 0.272

Other Instruments

Mr. E. Narangoda Treasury Bonds 1.821

Mr. A.L. Devasurendra Repo Interest Earned on Margin Trading Shares

0.105

1.886



c. Accommodation Granted to kMP for credit cardsName of Key Management Personnel Credit Card Limit

Rs. ’000Outstanding

Rs. ’000Security Type

Mr. E. Narangoda 500 NilMr. R. Nadarajah 500 6Mr. N.M. Jayamanne PC 500 194Mr. P.L.P. Withana – Mr. F.N. Goonewardena** – Rear Admiral (Rtd.) B.A.J.G. Peiris 500 NilMr. P.G.S. Kariyawasam – Dr. N.H. Godahewa – Mr. A.L. Devasurendra 500 NilMr. I.C. Nanayakkara – Mr. Ajita Pasqual 1,750 277 Secured on Treasury

Bond of Rs. 1,000,000/-Mr. A. Madurapperuma 600 33Mr. S. Palihawadana 500 116

** Mr. F.N. Goonewardena resigned with effect from 3rd December 2009.

d. compensation to kMP2009 2008

rs. Mn Rs. Mn

Short-Term Employee Benefits 28.63 66.83Post-Employement Benefits 3.98 26.56

In addition to their salaries Bank also provides non-cash benefits to the directors and executive officers

and contributes to a post-employment define benefit plan on their behalf. Directors emoluments are

disclosed in Note 7 to the Financial Statements.

e. All the other interests of each director, direct or indirect in financial and other arrangements are disclosed

under Note 43 - Other Related Party Transactions.



43. othEr rElAtED PArtY trAnSActionSThe Bank had the following financial dealings during the year 2009 with companies which are considered, related parties and unless otherwise stated, transactions were carried out in the ordinary course of business on an arm’s-length basis at commercial rates with the companies mentioned below. The parties given below are considered related parties mainly due to significant influence arising as a result of common directorships and through shareholdings. These companies, names of the directors and the nature of transactions entered into are listed below:

Party/Parties Accommodated

name of Director/key Management Personnel

Deposit

Aggregate Amount of Accommodation outstanding as at 31.12.2009

Services obtained/other transactions

relationship

rs. Mn.

Nature of Accommodation

Limit

Rs. Mn.

Funded

Rs. Mn.

Non-Funded

Rs. Mn.

Interest in Suspense Provision

for the Year

Rs. Mn.

Bad & Doubtful

DebtProvision

for the Year Rs. Mn.

Nature of Service Amount Payable/Receivable

Rs. Mn.

Amount Paid/Received

Rs. Mn.

(a) Direct Subsidiaries of the bank

Seylan Development PLC Rear Admiral (Rtd.) B.A.J.G. Peiris Chairman Demand Deposit 3.509 Overdraft 66.000 64.802 8.998 Expenses

Term Loan 165.000 162.397 Bank Charges 0.143

3.509 Guarantee 10.245 Rent 92.217

231.000 227.199 10.245 8.998 Management Fees 4.000

Work Order Jobs 0.768

Interest Expenses 0.029

97.157

Mr. R. Nadarajah Director

Primary Mortgage Bond for Rs. 17.6 Mn. units 3 and 4.

Mr. A. Madurapperuma Director

Mr. S. Palihawadana Director

Additional Mortgage Bond - Rs. 9.4 Mn. Market Value - Rs. 42.6 Mn. Forced Sale Value Rs. 36 Mn. Seylan Towers, Primary Mortgage Bond for Rs. 21 Mn. Unit 8 - Market Value - Rs. 25 Mn., Forced Sale Value - Rs. 24 Mn. Interest Income 40.829 10.483

Mortgage Bond for Rs. 187 Mn. obtained over Units 27, 30 and 33depicted in Plan No. 59/2004

40.829 10.483

Rent Deposit Rs. 81 Mn.

Forced Sale Value - Rs. 275 Mn. Market Value Rs. 300 Mn.


Mr. E. Narangoda Chairman Demand Deposit 6.066 Interest Paid 82.739

6.066 Interest Payable 0.227

0.227 82.739

Mr. R. Nadarajah Director Reverse Repo Income 13.415

Mr. A. Pasqual Director Branch Commission 0.521

Mr. A. Madurapperuma Director Reverse Repo 459.4 Mn. Over Draft Interest Income 0.001

Mr. S. Palihawadana Director 13.937



43. othEr rElAtED PArtY trAnSActionSThe Bank had the following financial dealings during the year 2009 with companies which are considered, related parties and unless otherwise stated, transactions were carried out in the ordinary course of business on an arm’s-length basis at commercial rates with the companies mentioned below. The parties given below are considered related parties mainly due to significant influence arising as a result of common directorships and through shareholdings. These companies, names of the directors and the nature of transactions entered into are listed below:



Deposit



relationship

rs. Mn.


Limit

Rs. Mn.

Funded

Rs. Mn.

Non-Funded

Rs. Mn.


for the Year

Rs. Mn.

Bad & Doubtful

DebtProvision



Rs. Mn.


Rs. Mn.

(a) Direct Subsidiaries of the bank

Seylan Development PLC Rear Admiral (Rtd.) B.A.J.G. Peiris Chairman Demand Deposit 3.509 Overdraft 66.000 64.802 8.998 Expenses

Term Loan 165.000 162.397 Bank Charges 0.143

3.509 Guarantee 10.245 Rent 92.217

231.000 227.199 10.245 8.998 Management Fees 4.000

Work Order Jobs 0.768

Interest Expenses 0.029

97.157

Mr. R. Nadarajah Director

Primary Mortgage Bond for Rs. 17.6 Mn. units 3 and 4.

Mr. A. Madurapperuma Director

Mr. S. Palihawadana Director

Additional Mortgage Bond - Rs. 9.4 Mn. Market Value - Rs. 42.6 Mn. Forced Sale Value Rs. 36 Mn. Seylan Towers, Primary Mortgage Bond for Rs. 21 Mn. Unit 8 - Market Value - Rs. 25 Mn., Forced Sale Value - Rs. 24 Mn. Interest Income 40.829 10.483

Mortgage Bond for Rs. 187 Mn. obtained over Units 27, 30 and 33depicted in Plan No. 59/2004

40.829 10.483

Rent Deposit Rs. 81 Mn.

Forced Sale Value - Rs. 275 Mn. Market Value Rs. 300 Mn.


Mr. E. Narangoda Chairman Demand Deposit 6.066 Interest Paid 82.739

6.066 Interest Payable 0.227

0.227 82.739

Mr. R. Nadarajah Director Reverse Repo Income 13.415

Mr. A. Pasqual Director Branch Commission 0.521

Mr. A. Madurapperuma Director Reverse Repo 459.4 Mn. Over Draft Interest Income 0.001

Mr. S. Palihawadana Director 13.937





Deposit



relationship

rs. Mn.


Limit

Rs. Mn.

Funded

Rs. Mn.

Non-Funded

Rs. Mn.


for the Year

Rs. Mn.

Bad & Doubtful

DebtProvision



Rs. Mn.


Rs. Mn.

(b) trust companies and funds set up under the bankSeylan Bank Employees’ Gratuity Trust Fund

Mr. E. NarangodaTrusteeMr. R. NadarajahTrustee Demand Deposit 22.601 Investment in Treasury Bond amounting to face value Rs. 568.423 Mn.

22.601 Funds transferred by Seylan Bank PLC amounting to Rs. 31.758 Mn.Rear Admiral B.A.J.G. PeirisTrusteeMr. F.N. GoonewardenaTrustee (Resigned w.e.f. 03.12.2009)

Seylan Bank Employees’ Provident Fund

Mr. Ajita Pasqual TrusteeMr. S. PalihawadanaTrustee Savings Account 1.821.235 Investment in Seylan Bank PLC Debenture amounted to Rs. 220 Mn. Interest Expenses

74.204

1,821.235 74.204

Sesot (Pvt) Limited Mr. E. NarangodaChairman

Demand Deposit 0.064 No. of Voting Shares - 2,252,900

0.064 Rs. 52.153 Mn. Payable to Seylan Bank PLCMr. R. NadarajahDirector

Seyfest (Pvt) Limited Mr. E. NarangodaChairmanMr. R. NadarajahDirector Demand Deposit 0.067 Rs. 23.2 Mn. Payable to Seylan Bank PLC

0.067 No. of Voting Shares - 2,977,996

Sotse (Pvt) Limited Mr. E. NarangodaChairman Term Loan 38.550 30.225 Interest Received 1.385

38.550 30.225 1.385 Loan Agreement Form for Rs. 38.8 Mn.

Mr. R. NadarajahDirector No. of Voting Shares - 962,331

Rs. 8 Mn. Payable to Seylan Bank PLC

Credit facilities have been allowed at preferential rates of interest since these facilities were utilised to purchase shares which are allotted to the employees in proportion to their gratuity.Seyshop (Pvt) Limited Mr. E. Narangoda

Chairman Term Loan 54.375 30.937 Interest Received 1.505 54.375 30.937 1.505

Loan Agreement Form for Rs. 55.1 Mn.Mr. R. NadarajahDirector No. of Voting Shares - 2,132,900

Rs. 14.10 Mn. Payable to Seylan Bank PLC

Seybest (Pvt) Limited Mr. E. NarangodaChairman Term Loan 54.510 30.898 Interest Received 1.492


Mr. R. NadarajahDirector No. of Voting Shares - 2,132,900


Esots (Pvt) Limited Mr. E. NarangodaChairman Term Loan 53.860 31.540 Interest Received 1.526


Mr. R. NadarajahDirector

No. of Voting Shares - 2,115,857Rs. 13.1 Mn. Payable to Seylan Bank PLC





Deposit



relationship

rs. Mn.


Limit

Rs. Mn.

Funded

Rs. Mn.

Non-Funded

Rs. Mn.


for the Year

Rs. Mn.

Bad & Doubtful

DebtProvision



Rs. Mn.


Rs. Mn.

(b) trust companies and funds set up under the bankSeylan Bank Employees’ Gratuity Trust Fund

Mr. E. NarangodaTrusteeMr. R. NadarajahTrustee Demand Deposit 22.601 Investment in Treasury Bond amounting to face value Rs. 568.423 Mn.

22.601 Funds transferred by Seylan Bank PLC amounting to Rs. 31.758 Mn.Rear Admiral B.A.J.G. PeirisTrusteeMr. F.N. GoonewardenaTrustee (Resigned w.e.f. 03.12.2009)

Seylan Bank Employees’ Provident Fund

Mr. Ajita Pasqual TrusteeMr. S. PalihawadanaTrustee Savings Account 1.821.235 Investment in Seylan Bank PLC Debenture amounted to Rs. 220 Mn. Interest Expenses

74.204

1,821.235 74.204

Sesot (Pvt) Limited Mr. E. NarangodaChairman

Demand Deposit 0.064 No. of Voting Shares - 2,252,900

0.064 Rs. 52.153 Mn. Payable to Seylan Bank PLCMr. R. NadarajahDirector

Seyfest (Pvt) Limited Mr. E. NarangodaChairmanMr. R. NadarajahDirector Demand Deposit 0.067 Rs. 23.2 Mn. Payable to Seylan Bank PLC

0.067 No. of Voting Shares - 2,977,996

Sotse (Pvt) Limited Mr. E. NarangodaChairman Term Loan 38.550 30.225 Interest Received 1.385


Mr. R. NadarajahDirector No. of Voting Shares - 962,331

Rs. 8 Mn. Payable to Seylan Bank PLC

Credit facilities have been allowed at preferential rates of interest since these facilities were utilised to purchase shares which are allotted to the employees in proportion to their gratuity.Seyshop (Pvt) Limited Mr. E. Narangoda

Chairman Term Loan 54.375 30.937 Interest Received 1.505 54.375 30.937 1.505

Loan Agreement Form for Rs. 55.1 Mn.Mr. R. NadarajahDirector No. of Voting Shares - 2,132,900


Seybest (Pvt) Limited Mr. E. NarangodaChairman Term Loan 54.510 30.898 Interest Received 1.492


Mr. R. NadarajahDirector No. of Voting Shares - 2,132,900


Esots (Pvt) Limited Mr. E. NarangodaChairman Term Loan 53.860 31.540 Interest Received 1.526


Mr. R. NadarajahDirector

No. of Voting Shares - 2,115,857Rs. 13.1 Mn. Payable to Seylan Bank PLC





Deposit



relationship

rs. Mn.


Limit

Rs. Mn.

Funded

Rs. Mn.

Non-Funded

Rs. Mn.


for the Year

Rs. Mn.

Bad & Doubtful

DebtProvision



Rs. Mn.


Rs. Mn.

(c) common Directorship Entities

Brown & Company PLC Mr. A.L. DevasurendraDeputy Chairman Overdraft 140.00 1.209

Purchase of 2 Nos. of mailing meters and base. 0.537

Term Loan 100.00 100.000 0.537

240.00 101.209

Mr. I.C. Nanayakkara Director

Corporate Guarantee from Standard Finance Limited (Group Company of Browns) for LKR 240 Mn. 275,100 shares of HNB presently lodged in the custodian account of Brown & Co. PLC at Seylan Bank PLC. Leeway available on the value of 5,300,000 shares of HNB mortgaged to Standard Finance Limited


Mr. A.L. DevasurendraDirector Demand Deposit 0.024 Term Loan 335.000 218.091

0.024 335.000 218.091

Mortgage over 5,300,000 shares of HNB


Mr. A.L. Devasurendra Managing Director Margin Trading 15.00

Mr. I.C. Nanayakkara Director Demand Deposit 0.065

0.065 15.000

Secured by Rs. 46,230,000 worth of quoted shares

No. of Non-Voting Shares - 5,607,800

Ceylease Financial Services Limited

Mr. P.L.P. Withana Director (Resigned w.e.f. 18.11.2009) Demand Deposit 1.231 Revolving Terms Loan 200.000 Interest Expense 0.001 0.291

1.231 Overdraft 20.000 Capital Repayment 203.015

220.000 0.001 203.306

Assignment over performing lease agreements at a ratio of 1:1.25 with a special Power of Attorney up to maximum of Rs. 275.00 Mn. (to secure the term loans). Interest Received 17.406

17.406

Letter of undertaking confirming that the Company will settle the full outstanding or substitute same with performing leases if a particular lease falls into arrears for more than 03 months.

Letter of undertaking that they will keep us informed in the event of any change in the management/ownership of the Company.

Loans Agreement Form.

Series of Loans.

Overdraft Agreement Form.

Letter of Set Off (Company)

Repo Rs. 2.7 Mn.

SriLankan Catering (Pvt) Limited

Mr. N.M. Jayamanne PC Director Time Deposits 5.280

5.280





Deposit



relationship

rs. Mn.


Limit

Rs. Mn.

Funded

Rs. Mn.

Non-Funded

Rs. Mn.


for the Year

Rs. Mn.

Bad & Doubtful

DebtProvision



Rs. Mn.


Rs. Mn.

(c) common Directorship Entities

Brown & Company PLC Mr. A.L. DevasurendraDeputy Chairman Overdraft 140.00 1.209

Purchase of 2 Nos. of mailing meters and base. 0.537

Term Loan 100.00 100.000 0.537

240.00 101.209


Corporate Guarantee from Standard Finance Limited (Group Company of Browns) for LKR 240 Mn. 275,100 shares of HNB presently lodged in the custodian account of Brown & Co. PLC at Seylan Bank PLC. Leeway available on the value of 5,300,000 shares of HNB mortgaged to Standard Finance Limited


Mr. A.L. DevasurendraDirector Demand Deposit 0.024 Term Loan 335.000 218.091

0.024 335.000 218.091

Mortgage over 5,300,000 shares of HNB


Mr. A.L. Devasurendra Managing Director Margin Trading 15.00

Mr. I.C. Nanayakkara Director Demand Deposit 0.065

0.065 15.000

Secured by Rs. 46,230,000 worth of quoted shares

No. of Non-Voting Shares - 5,607,800

Ceylease Financial Services Limited

Mr. P.L.P. Withana Director (Resigned w.e.f. 18.11.2009) Demand Deposit 1.231 Revolving Terms Loan 200.000 Interest Expense 0.001 0.291

1.231 Overdraft 20.000 Capital Repayment 203.015

220.000 0.001 203.306

Assignment over performing lease agreements at a ratio of 1:1.25 with a special Power of Attorney up to maximum of Rs. 275.00 Mn. (to secure the term loans). Interest Received 17.406

17.406

Letter of undertaking confirming that the Company will settle the full outstanding or substitute same with performing leases if a particular lease falls into arrears for more than 03 months.

Letter of undertaking that they will keep us informed in the event of any change in the management/ownership of the Company.

Loans Agreement Form.

Series of Loans.

Overdraft Agreement Form.

Letter of Set Off (Company)

Repo Rs. 2.7 Mn.

SriLankan Catering (Pvt) Limited

Mr. N.M. Jayamanne PC Director Time Deposits 5.280

5.280





Deposit



relationship

rs. Mn.


Limit

Rs. Mn.

Funded

Rs. Mn.

Non-Funded

Rs. Mn.


for the Year

Rs. Mn.

Bad & Doubtful

DebtProvision



Rs. Mn.


Rs. Mn.

Lanka ORIx Leasing Mr. I.C. Nanayakkara Time Deposit

Company PLC Deputy Chairman (USD 2,840,678.09) 324.832 Short-Term Loan 640.000 440.000 Interest Paid 18.097

Savings Account 0.004 Overdraft 20.000 0.162 18.097

Demand Deposit 2.284 Trust Receipt 135.000

327.120 Revolving Lease 180.000 44.337 Interest Received 2.634

Letters of Credit Usance 10.000 2.634

Post-Dated Cheque Facility 5.00

990.00 484.499

Lien over fixed deposit for USD 2,840,678.09 (Commercial Paper Loan at Treasury)


Commercial Paper for Rs. 600.0 Mn. (to be provided at the time of issuance)

Commercial Paper Agreement.

Assignment over lease agreements for Rs. 625.0 Mn.



Lien over special foreign currency account USD 356,043.79 (Revolving Short-Term Loan)

No. of Voting Shares 66

No. of Non-Voting Shares 19,733,400


Mr. I.C. Nanayakkara Director Demand Deposit 0.01 Overdraft 800.000 0.776

0.01 800.000 0.776

Mortgage and Power of Attorney over a basket of quoted Blue-Chip Company Shares.


Mr. I.C. Nanayakkara Director Overdraft 125.000 39.318

Term Loan (PSRP I) 41.911 41.911

Mr. A.L. Devasurendra Director Term Loan (PSRP II) 18.737 18.737

Term Loan (PSRP III) 2.274 2.274

Term Loan (PSRP IV) 10.600 10.500

Term Loan (PSRP V) 13.732 13.732

Term Loan (EFRIENDS) 0.380 0.380

Term Loan (IV) 6.000 6.000

Term Loan (V) 10.600 10.600

Short-Term Loan 3.000 3.000

Term Loan (Tea Relief) 43.748 43.748

Term Loan (Tea Relief) 26.000 NIL

Guarantee 2.000 1.250

303.982 190.200 1.250





Deposit



relationship

rs. Mn.


Limit

Rs. Mn.

Funded

Rs. Mn.

Non-Funded

Rs. Mn.


for the Year

Rs. Mn.

Bad & Doubtful

DebtProvision



Rs. Mn.


Rs. Mn.

Lanka ORIx Leasing Mr. I.C. Nanayakkara Time Deposit

Company PLC Deputy Chairman (USD 2,840,678.09) 324.832 Short-Term Loan 640.000 440.000 Interest Paid 18.097

Savings Account 0.004 Overdraft 20.000 0.162 18.097

Demand Deposit 2.284 Trust Receipt 135.000

327.120 Revolving Lease 180.000 44.337 Interest Received 2.634

Letters of Credit Usance 10.000 2.634

Post-Dated Cheque Facility 5.00

990.00 484.499

Lien over fixed deposit for USD 2,840,678.09 (Commercial Paper Loan at Treasury)


Commercial Paper for Rs. 600.0 Mn. (to be provided at the time of issuance)

Commercial Paper Agreement.

Assignment over lease agreements for Rs. 625.0 Mn.



Lien over special foreign currency account USD 356,043.79 (Revolving Short-Term Loan)

No. of Voting Shares 66

No. of Non-Voting Shares 19,733,400


Mr. I.C. Nanayakkara Director Demand Deposit 0.01 Overdraft 800.000 0.776

0.01 800.000 0.776

Mortgage and Power of Attorney over a basket of quoted Blue-Chip Company Shares.


Mr. I.C. Nanayakkara Director Overdraft 125.000 39.318

Term Loan (PSRP I) 41.911 41.911

Mr. A.L. Devasurendra Director Term Loan (PSRP II) 18.737 18.737

Term Loan (PSRP III) 2.274 2.274

Term Loan (PSRP IV) 10.600 10.500

Term Loan (PSRP V) 13.732 13.732

Term Loan (EFRIENDS) 0.380 0.380

Term Loan (IV) 6.000 6.000

Term Loan (V) 10.600 10.600

Short-Term Loan 3.000 3.000

Term Loan (Tea Relief) 43.748 43.748

Term Loan (Tea Relief) 26.000 NIL

Guarantee 2.000 1.250

303.982 190.200 1.250





Deposit



relationship

rs. Mn.


Limit

Rs. Mn.

Funded

Rs. Mn.

Non-Funded

Rs. Mn.


for the Year

Rs. Mn.

Bad & Doubtful

DebtProvision



Rs. Mn.


Rs. Mn.

Mortgagevalue

bond 60%of fSv

Mortgage over leasehold rights of Bramley Estate for Rs. 13.0 Mn. Forced Sale Value Rs. 22.0 Mn. Market Value Rs. 27.0 Mn. valued by Mr. S.N. Wijepala on 11.05.2009. 13.00 13.00Primary Mortgage for Rs. 36.0 Mn. Secondary Mortgage for Rs. 50.0 Mn. over leasehold rights of Gonapitiya Estate Forced Sale Value Rs. 120.0 Mn, Market Value Rs. 160.0 Mn. valued by Mr. S.N. Wijepala on 17.04.2009 86.00 72.00Mortgage over leasehold rights of Alma Estate for Rs. 26.0 Mn. Forced Sale Value LKR 65.0 Mn. Market Value Rs. 75.0 Mn. valued by Mr. S.N. Wijepala on 17.04.2009 26.00 39.00Mortgage over leasehold rights of Ragala Estate for Rs. 74.75 Mn. Forced Sale Value Rs. 160.0 Mn. Market Value Rs. 190.0 Mn. by Mr. S.N. Wijepala on 17.04.2009 74.75 96.00Mortgage over leasehold rights of Maha Uva Estate for Rs. 19.5 Mn. Forced Sale Value Rs. 65.0 Mn. Market Value Rs. 75.0 Mn. valued by Mr. S.N. Wijepala on 17.04.2009. 19.50 39.00Mortgage over leasehold rights of Enselwatte Estate for LKR 102.25 Mn. Forced Sale Value LKR 220.0 Mn. Market Value LKR 270.0 Mn. valued by Mr. S.N. Wijepala on 03.06.2009. 102.25 132.00




Existing security cover and mortgage bonds are adequate to cover enhanced overdraft.

(ii) Proposed security: (Additional if any) treasury Guarantee to be obtained to cover proposed term loan of rs. 26.0 Mn.

Lanka Hospitals Corporation PLC

Mr. P.G.S. Kariyawasam Director Demand Deposit 0.028 Term Loan 98.750 8.855

0.028 98.750 8.855 Dr. N.H. Godahewa Director

Syndicate Loan Agreement entered into by Lanka Hospital Corporation PLC and Seylan Bank PLC.Primary Mortgage Bond Nos. 167 and 168 over immovable and movable assets of the Company covering the loan up to 42.5% of capital and interest and other charges on the loan execution in favour of DFCC, NDB, HNB and SBK.Concurrent mortgage over all moneys receivable executed in favour of International Finance Corporation (IFC), DFCC, NDB, HNB and SBK.Partial Syndication Loan Guarantee from IFC up to 57.5% of the principal amount.


Mr. P.G.S. Kariyawasam Chairman Time Deposit 500

Sri Lanka Insurance Corporation Limited held 1,500,000 Seylan Bank Debentures (Rs. 150,000,000/-) as at 31.12.2009 (Private Placement of Debentures 2005/10). Interest Payable 2.564 _

500 2.564 Dr. N.H. Godahewa Managing Director

Sri Lanka Insurance Corporation Limited - No. of Voting Shares 19,500,000 - No of Non-Voting Shares 714,000

Browns Plantations Investments (Pvt) Limited

Mr. A.L. Devasurendra Director

Investor in Seylan Bank PLCNo. of Voting Shares - 12,416,966No. of Non-Voting Shares - 6,588,700

Commercial Leasing Company PLC


Investor in Seylan Bank PLC No. of Non-Voting Shares - 72,400

(d) Significant Provision of finance/Economic DependenceGrameen Micro Credit Co. Limited

Loan and interest of Rs. 2,725,000 Mn. restructured post-year end (Note 19.f.2).

Seylan Credit Card Co. Limited

Mr. A. Pasqual Director

The Bank jointly controlled operations for the Seylan Credit Card activities

Mr. T. NanayakkaraDirector

The Bank reconstituted their operations at the year end under a new Memorandum of Understanding (Note 23.2).

Mr. C. KotigalaDirector

Leasing 5.403 3.375*

* Total rentals outstanding. Absolute ownership over the vehicle





Deposit



relationship

rs. Mn.


Limit

Rs. Mn.

Funded

Rs. Mn.

Non-Funded

Rs. Mn.


for the Year

Rs. Mn.

Bad & Doubtful

DebtProvision



Rs. Mn.


Rs. Mn.

Mortgagevalue

bond 60%of fSv

Mortgage over leasehold rights of Bramley Estate for Rs. 13.0 Mn. Forced Sale Value Rs. 22.0 Mn. Market Value Rs. 27.0 Mn. valued by Mr. S.N. Wijepala on 11.05.2009. 13.00 13.00Primary Mortgage for Rs. 36.0 Mn. Secondary Mortgage for Rs. 50.0 Mn. over leasehold rights of Gonapitiya Estate Forced Sale Value Rs. 120.0 Mn, Market Value Rs. 160.0 Mn. valued by Mr. S.N. Wijepala on 17.04.2009 86.00 72.00Mortgage over leasehold rights of Alma Estate for Rs. 26.0 Mn. Forced Sale Value LKR 65.0 Mn. Market Value Rs. 75.0 Mn. valued by Mr. S.N. Wijepala on 17.04.2009 26.00 39.00Mortgage over leasehold rights of Ragala Estate for Rs. 74.75 Mn. Forced Sale Value Rs. 160.0 Mn. Market Value Rs. 190.0 Mn. by Mr. S.N. Wijepala on 17.04.2009 74.75 96.00Mortgage over leasehold rights of Maha Uva Estate for Rs. 19.5 Mn. Forced Sale Value Rs. 65.0 Mn. Market Value Rs. 75.0 Mn. valued by Mr. S.N. Wijepala on 17.04.2009. 19.50 39.00Mortgage over leasehold rights of Enselwatte Estate for LKR 102.25 Mn. Forced Sale Value LKR 220.0 Mn. Market Value LKR 270.0 Mn. valued by Mr. S.N. Wijepala on 03.06.2009. 102.25 132.00




Existing security cover and mortgage bonds are adequate to cover enhanced overdraft.

(ii) Proposed security: (Additional if any) treasury Guarantee to be obtained to cover proposed term loan of rs. 26.0 Mn.

Lanka Hospitals Corporation PLC

Mr. P.G.S. Kariyawasam Director Demand Deposit 0.028 Term Loan 98.750 8.855

0.028 98.750 8.855 Dr. N.H. Godahewa Director

Syndicate Loan Agreement entered into by Lanka Hospital Corporation PLC and Seylan Bank PLC.Primary Mortgage Bond Nos. 167 and 168 over immovable and movable assets of the Company covering the loan up to 42.5% of capital and interest and other charges on the loan execution in favour of DFCC, NDB, HNB and SBK.Concurrent mortgage over all moneys receivable executed in favour of International Finance Corporation (IFC), DFCC, NDB, HNB and SBK.Partial Syndication Loan Guarantee from IFC up to 57.5% of the principal amount.


Mr. P.G.S. Kariyawasam Chairman Time Deposit 500

Sri Lanka Insurance Corporation Limited held 1,500,000 Seylan Bank Debentures (Rs. 150,000,000/-) as at 31.12.2009 (Private Placement of Debentures 2005/10). Interest Payable 2.564 _

500 2.564 Dr. N.H. Godahewa Managing Director

Sri Lanka Insurance Corporation Limited - No. of Voting Shares 19,500,000 - No of Non-Voting Shares 714,000

Browns Plantations Investments (Pvt) Limited

Mr. A.L. Devasurendra Director

Investor in Seylan Bank PLCNo. of Voting Shares - 12,416,966No. of Non-Voting Shares - 6,588,700

Commercial Leasing Company PLC


Investor in Seylan Bank PLC No. of Non-Voting Shares - 72,400

(d) Significant Provision of finance/Economic DependenceGrameen Micro Credit Co. Limited

Loan and interest of Rs. 2,725,000 Mn. restructured post-year end (Note 19.f.2).

Seylan Credit Card Co. Limited

Mr. A. Pasqual Director

The Bank jointly controlled operations for the Seylan Credit Card activities

Mr. T. NanayakkaraDirector

The Bank reconstituted their operations at the year end under a new Memorandum of Understanding (Note 23.2).

Mr. C. KotigalaDirector

Leasing 5.403 3.375*

* Total rentals outstanding. Absolute ownership over the vehicle



44. MAturitY AnAlYSiSbank44.a An analysis of the total assets employed as at 31st December 2009, based on the remaining period at the Balance Sheet date to the respective contractual maturity dates is given below:

Up to 3 3 to 12 1 to 3 3 to 5 More Than total as atMonths Months Years Years 5 Years 31.12.2009Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 rs. ’000

interest Earning AssetsBills of Exchange 1,119,644 148,660 54,060 – – 1,322,364 Loans & Advances 19,801,856 18,025,676 12,584,684 5,756,331 19,870,424 76,038,971 Lease Receivable 677,920 920,764 1,186,286 139,606 1,894 2,926,470 Balances with Banks 371,398 – – – – 371,398 Short-Term Funds 45,000 – – – – 45,000 Commercial Paper – 324,500 – – – 324,500 Treasury Bills/Bonds 118,873 2,735,148 14,236,830 10,489,349 1,522,476 29,102,676 Securities Purchased Under Resale Agreement 2,951,860 – – – – 2,951,860 Group Balance Receivable 714,031 – 13,397 – – 727,428

25,800,582 22,154,748 28,075,257 16,385,286 21,394,794 113,810,667

non-interest Earning AssetsCash in Hand 4,267,407 – – – – 4,267,407 Balances with CBSL 5,084,229 – – – – 5,084,229 Investments 251,163 – – – 947,893 1,199,056 Investment Property 520,812 – – – – 520,812 Group Balances Receivable 81,227 – – – – 81,227 Property, Plant & Equipment – – – – 3,387,117 3,387,117 Income Taxation 89,654 – – – – 89,654Deferred Tax Assets 454,213 – – – – 454,213 Other Assets 3,881,490 – – – – 3,881,490

14,630,195 – – – 4,335,010 18,965,205

total Assets 40,430,777 22,154,748 28,075,257 16,385,286 25,729,804 132,775,872

44.b An analysis of the total liabilities as at 31st December 2009, based on the remaining period at the

Balance Sheet date to the respective contractual maturity dates is given below:


interest bearing liabilitiesDeposits 61,341,193 22,668,800 3,704,450 1,720,810 6,322,681 95,757,934 Securities Sold Under Repurchase Agreements 1,679,754 198,950 – – – 1,878,704 Borrowings 1,884,310 194,361 427,305 211,767 338,097 3,055,840 Debentures – 699,000 2,828,250 703,115 – 4,230,365

64,905,257 23,761,111 6,960,005 2,635,692 6,660,778 104,922,843




non-interest bearing liabilitiesDeposits 8,467,465 590,500 – – – 9,057,965 Other Liabilities 8,180,347 – – – – 8,180,347Dividend Payable 22,668 – – – – 22,668Group Balances Payable 9,575 – – – – 9,575Equity – – – – 10,582,474 10,582,474

16,680,055 590,500 – – 10,582,474 27,853,029total liabilities 81,585,312 24,351,611 6,960,005 2,635,692 17,243,252 132,775,872

Notes - ‘Up to 3 months’ Interest Bearing Liabilities includes the Bank’s Savings Deposits base of Rs. 25.5 Bn.

‘More than 5 years’ Interest Bearing Liabilities reflects the Bank’s Tikiri Deposit Base of Rs. 6.3 Bn.

Shareholders’ Funds (Equity) are classified into the ‘More than 5 years’ category since no contractual date of maturity can be identified.

Group44.c An analysis of the total assets employed as at 31st December 2009, based on the remaining period at the Balance Sheet date to the respective contractual maturity date is given below:


interest Earning AssetsBills of Exchange 1,119,644 148,660 54,060 – – 1,322,364 Loans & Advances 19,801,871 18,025,676 12,585,335 5,762,079 19,870,424 76,045,385 Lease Receivable 677,920 920,764 1,186,286 139,606 1,894 2,926,470 Balances with Banks 371,398 – – – – 371,398 Short-Term Funds 50,943 – – – – 50,943 Commercial Paper – 324,500 – – – 324,500 Treasury Bills/Bonds 184,266 3,885,681 15,820,086 11,117,969 1,522,476 32,530,478 Securities Purchased Under Resale Agreement 2,955,390 – – – – 2,955,390

25,161,432 23,305,281 29,645,767 17,019,654 21,394,794 116,526,928

non-interest Earning AssetsCash in Hand 4,269,540 – – – – 4,269,540 Balances with CBSL 5,084,360 – – – – 5,084,360 Investments 252,761 5,943 – – 108,028 366,732 Investment Properties 520,812 – – – 983,864 1,504,676Property, Plant & Equipment – – – – 4,775,793 4,775,793 Income Taxation 89,654 – – – – 89,654 Deferred Tax Assets 454,213 147 – – – 454,360 Other Assets 3,892,632 142,639 160,537 – – 4,195,808

14,563,972 148,729 160,537 – 5,867,685 20,740,923

total Assets 39,725,404 23,454,010 29,806,304 17,019,654 27,262,479 137,267,851



44.d An analysis of the total liabilities as at 31st December 2009, based on the remaining period at the Balance Sheet date to the respective contractual maturity date is given below:


interest bearing liabilitiesDeposits 61,341,193 22,668,800 3,704,450 1,720,810 6,322,681 95,757,934 Securities Sold Under Repurchase Agreements 3,253,739 919,974 1,164 – – 4,174,877 Borrowings 1,936,081 291,170 721,590 211,766 338,097 3,498,704 Debentures – 699,000 2,828,250 703,115 – 4,230,365

66,531,013 24,578,944 7,255,454 2,635,691 6,660,778 107,661,880

non-interest bearing liabilitiesDeposits 8,467,465 590,500 – – – 9,057,965 Other Liabilities 8,155,962 249,304 – 64,607 – 8,469,873 Deferred Taxation – – – – – –Tax Payable – 142,732 – – – 142,732 Dividend Payable 23,314 – – – – 23,314 Equity – – – – 11,109,138 11,109,138 Minority Interest – – – – 802,949 802,949

16,646,741 982,536 – 64,607 11,912,087 29,605,971 total liabilities 83,177,754 25,561,480 7,255,454 2,700,298 18,572,865 137,267,851

Notes - ‘Up to 3 months’ Interest Bearing Liabilities includes the Seylan Bank’s Savings Deposits base of Rs. 25.5 Bn.

‘More than 5 years’ Interest Bearing Liabilities reflects the Seylan Bank’s Tikiri Deposit Base of Rs. 6.3 Bn.

Shareholders’ Funds (Equity) are classified into the ‘More than 5 years’ category since no contractual date of maturity can be identified.

45. SEGMEnt rEPortinG45.a Group

Segment information is presented in respect of the Group’s business segments. The primary format,

business segments are based on the Group’s management and internal reporting structure.

business Segments

The Group comprises the following main business segments:banking: Loans (other than Leasing), deposits and other transactions and balances with corporate and

retail customers.

leasing: Leasing balances with corporate and retail customers.

treasury: Undertakes the Group’s funding and centralised risk management activities through

borrowings, issue of debt securities, use of derivatives for risk management purpose and

investing in liquid assets such as short-term placements and corporate and Government debt

securities.

Property/investment: The property investment related income, expenses, assets & liabilities.



Banking Leasing Treasury Property/Investments Total2009 2008

(Restated)2009 2008

(Restated)2009 2008

(Restated)2009 2008

(Restated)2009 2008

(Restated)rs. ’000 Rs. ’000 rs. ’000 Rs. ’000 rs. ’000 Rs. ’000 rs. ’000 Rs. ’000 rs. ’000 Rs. ’000

External revenueInterest Income 16,053,472 19,757,109 – – 5,448,666 2,987,399 2,949 81,577 21,505,087 22,826,085 Foreign Exchange Profit 130,003 187,647 – – 376,481 443,754 – – 506,484 631,401 Lease Income/Brokering – – 212,720 701,251 – – – – 212,720 701,251 Fee and Commission Income 1,245,899 1,691,844 29,134 28,702 62,382 (15,335) – – 1,337,415 1,705,211 Dividend Income & Other Income 754,309 1,363,952 9,704 55,058 85,092 244,396 158,669 (29,952) 1,007,774 1,633,454 Total Revenue from External Customers 18,183,683 23,000,552 251,558 785,011 5,972,621 3,660,214 161,618 51,625 24,569,480 27,497,402 Inter Segment Revenue 1,654,387 1,868,287 (266,113) (283,833) (1,388,274) (1,584,454) – –Total Segment Revenue 19,838,070 24,868,839 (14,555) 501,178 4,584,347 2,075,760 161,618 51,625 24,569,480 27,497,402 Depreciation Charge for the Year 248,835 263,094 678 13,325 27,313 5,225 29,565 31,874 306,391 313,518

Reportable Segment Profit Before Income Tax (22,981) 1,316,968 85,701 (404,534) 2,759,979 783,133 (275,944) (23,057) 2,546,755 1,672,510

othEr inforMAtionReportable Segment Assets 114,335,758 122,942,874 118,823 3,516,011 12,970,249 29,005,102 2,966,835 4,112,520 130,391,665 159,576,507 Segment Amortisations (1,789,743) (1,719,922) (9,018) (78,692) (115,374) (107,093) (142,576) (128,514) (2,056,711) (2,034,221)

total Assets 112,546,015 121,222,952 109,805 3,437,319 12,854,875 28,898,009 2,824,259 3,984,006 128,334,954 157,542,286 Reportable Segment Liabilities 111,696,536 121,173,015 109,805 3,235,580 12,581,641 27,224,146 1,103,277 1,615,629 125,491,259 153,248,370

total liabilities 111,696,536 121,173,015 109,805 3,235,580 12,581,641 27,224,146 1,103,277 1,615,629 125,491,259 153,248,370

2009 2008rs.’000 Rs.’000

45.b reconciliation of reportable Segment revenues, Profit or loss and Assets and liabilitiestotal Segment revenuesTotal Revenue for Reportable Segments 24,569,480 27,497,402Unallocated Amounts 262,792 164,568Elimination of Inter-Segment Revenue (293,294) (608,019)

24,538,978 27,053,951

reportable Segment Profit before income taxTotal Profit or Loss for Reportable Segments 2,546,755 1,672,510Unallocated Amounts (1,613,125) (2,408,089)

933,630 (735,579)

reportable Segment total AssetsTotal Assets for Reportable Segments 128,334,954 157,542,286Other Unallocated Amounts 8,932,897 5,766,203Consolidated Total Assets 137,267,851 163,308,489

reportable Segment total liabilitiesTotal Liabilities for Reportable Segments 125,491,259 153,248,370Other Unallocated Amounts 11,776,592 10,060,119Consolidated Total Liabilities 137,267,851 163,308,489



46. coMPArAtivE inforMAtion

The following comparative figures have been reclassified in the 2009 Financial Statements to maintain

comparability of Financial Statements in order to provide a better presentation.

income statement

As disclosed in 2008

bank reclassified

in 2009 Adjustment

Rs.‘000 rs.‘000 Rs.‘000

46.a Interest Income 21,572,430 21,552,070 20,360Other Income 1,201,222 1,221,582 (20,360)

Net Fee and Commission Income 1,801,826 1,749,737 52,089 Fee and Commission Expense 52,089 – 52,089

Operating Expenses 8,262,329 10,677,427 (2,415,098)Provision for Loan Losses 2,467,187 – 2,467,187

Personnel Expenses 3,274,335 3,405,714 (131,379)Provision for Staff Retirement Benefit 131,379 – 131,379 a i Capital gains/losses from Government Securities (Rs. 21.916 Mn.) and gain/loss from marked to market valuation Rs. 1.555 Mn. included in other income have been reclassified as Treasury Bills, Bonds and placements with other Banks (Rs. 20.36 Mn.) under Interest Income.

a ii Fee and Commission Income included in other income has been reclassified as net fee and commission income. Accordingly, commission expense included under operating expense amounting to Rs. 52.089 Mn. is deducted from the Fee and Commission Income.

a iii Loan loss provision of Rs. 2,467.187 Mn. (after profit on ordinary activities before loan loss provision, taxes and associate company profits) has been reclassified and presented separately as provision for loan losses under operating expenses.

a iv Provision for staff retirement benefit amounting to Rs. 131.379 Mn. included in the operating expenses has been reclassified under personnel expenses in operating expenses.



balance Sheet

BANK

As Disclosed Reclassified Adjustment Rs. ‘000 Rs. ‘000 Rs. ‘000

46.b Cash and Cash Equivalents 5,491,795 5,511,331 (19,536)Other Assets 4,944,560 4,929,745 14,815 Property, Plant & Equipment 4,142,241 4,073,353 68,888Leasehold Rights – 64,165 (64,165)

b i Balance with local banks amounting to Rs. 19.536 Mn. classified under Other Assets has been reclassified under cash and cash equivalents.

b ii Freehold land amounting to Rs. 4.724 Mn. under Property, Plant & Equipment is reclassified as other assets.

b iii Leasehold Land & Building amounting to Rs. 64.165 Mn. is reclassified as Leasehold Rights.

BANK


46.cTreasury Bills & Bonds Eligible for Rediscounting with Central Bank within One Year 13,176,451 – 13,176,451 After One Year 11,660,853 – 11,660,853 Government and Other Securities Held for Dealing Purpose 184,917 865,977 (681,060)Investment Securities 476,956 24,243,200 (23,766,244)Commercial Papers - 390,000 (390,000)

25,499,177 25,499,177 –

c i Treasury Bills and Bonds eligible for rediscounting with Central Bank within one year and after one year have been reclassified under Government and other securities held for dealing purpose and as Investment Securities. Accordingly, those balances are reclassified and presented in the Notes 16 and 17.

c ii Commercial papers held by Seylan Bank PLC (Lanka ORIx Leasing & Co.) of Rs. 390,000/- which was disclosed under Investment securities previously was reclassified as commercial papers in the Balance Sheet.

BANK


46.d Analysis of Provision for loan losses and interest in SuspenseBills of Exchange 1,484,746 1,471,831 12,915 Loans and Advances 97,691,569 97,746,084 (54,515)Lease Rentals Receivable within One Year 2,287,473 2,245,873 41,600

Provision for bad and doubtful debts for above figures are restated including general provisions for

loan losses.



47. coMPArAtivE inforMAtion in thE conSoliDAtED finAnciAl StAtEMEntS hAvE bEEn rEStAtED AS followS:income Statement for the Year Ended 31st December 2008

Net Profit/(Loss) After Tax

Rs. ’000

As per the Financial Statements Published in 2008 (93,174)As per the Financial Statements Restated in 2009 (799,803)Change - Profit/(Loss) (706,629)

balance Sheet as at 31st December 2008 Assets Liabilities Equity

Rs. '000 Rs. '000 Rs. '000

As per the Financial Statements Published in 2008 164,210,437 154,530,749 9,679,688 As per the Financial Statements Restated in 2009 163,308,489 154,611,411 8,697,078Change (901,948) 80,662 (982,610)

Net profit before tax has been restated due to adjustment carried out subsequent to the consolidation in

2008 based on unaudited Financial Statements, in the following subsidiary companies:

∙ Seylan Merchant Bank PLC - Audited Accounts signed on 05th November 2009.

∙ Seylan Developments PLC - Audited Accounts signed on 29th June 2009 (comparative figures were

restated in 2009 Audited Financial Statement dated 08th February 2010).

47.a income Statement for the year ended 31st December 2008 Seylan Merchant Bank PLC Seylan Developments PLC 2008

Restated 2008

Published Change 2008

Restated 2008

Published Change Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Income 1,180,717 920,433 260,284 292,235 280,883 11,352Net Interest Income 96,315 44,171 52,145 (93,175) (92,599) (576)Other Income 321,358 164,537 156,821 278,382 267,029 11,353Operating Income 417,673 208,708 208,965 185,207 174,430 10,777Less: Operating Expenses 1,072,806 362,377 710,429 570,612 515,023 55,589Profit/(Loss) before Taxation (655,133) (153,669) (501,464) (385,405) (340,593) (44,812)Less: Income Tax Expense 41,947 (922) 42,869 7,062 7,062 – Profit/(Loss) after Taxation (697,080) (152,747) (544,333) (392,467) (347,655) (44,812)



47.b balance Sheet as at 31st December 2008 Seylan Merchant Bank PLC Seylan Developments PLC 2008

Restated 2008

Published Change 2008

Restated 2008

Published Change Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Total Assets 4,224,557 4,850,023 (625,466) 3,510,440 3,558,831 (48,391)Liabilities 4,302,511 4,387,914 (85,403) 1,220,507 1,216,478 4,029 Equity (152,280) 381,099 (533,379) 2,289,933 2,342,353 (52,420)Minority Interest 74,326 81,010 (6,684) – – – Total Liabilities & Equity 4,224,557 4,850,023 (625,466) 3,510,440 3,558,831 (48,391)

47.c reconciliation of Profit After tax as at 31st December 2008 Rs.’000

Change in Profit of Seylan Merchant Bank PLC (SMB) (544,333)Change in Profit of Seylan Developments PLC (SD) (44,812)Elimination of Provision made by SMB for SD Shares 7,690 Change in Profit Portion of Associate Company Profits & its Classification 2,441 Impact of Non-Uniform Accounting Policies by Subsidiaries (127,615)

(706,629)

Adjustment to Equity Holders of the Bank (309,485)Minority Holders (397,144)

(706,629)

47.d reconciliation of Equity as at 31st December 2008 Rs.’000

Change in Equity of Seylan Merchant Bank PLC (SMB) - Attributable to Equity Holders of the Bank (533,379) - Attributable to Minority Interest (6,684)Change in Equity of Seylan Developments PLC (SD) (52,420)Elimination of Provision made by SMB for SD Shares 7,690Impact of Non-Uniform Accounting Policies by Subsidiaries (Note 48 (b)) (397,817)

(982,610)



48. non-uniforM AccountinG PoliciES

The impact of non-uniform accounting policies adopted by subsidiary companies has been adjusted in the

Consolidated Financial Statements as set out below:

48.a Depreciation Adjustment due to Different rates Applied by Seylan bank Asset Management limited

Rs. ’000 Rs. ’000Group Impact

Rs. ’000Minority Impact

charges Depreciation Adjusted to income Statement of 2008Depreciation Charge as per the Seylan Bank Rates 5,878 5,878 –Depreciation Charge as per the Seylan Bank Asset Management Limited Rates 6,231 6,231 –Charge made to Consolidated Financial Statements (353) (353) –

48.b Adjustment due to Different Accounting Policies for investment Properties by Seylan Developments Plc (fair value), whereas the bank Accounts investment Properties at cost

Rs. ’000 Rs. ’000Group Impact

Rs. ’000 Minority Impact

reversal of revaluation Gains Reversal of Revaluation Gains Adjusted to Opening Balance of Equity in 2008 (48.c) (203,751) (103,933) (99,818)Reversal of Revaluation Gains Adjusted to Income Statement of 2008 (48.c) (105,465) (53,798) (51,667)Reversal of Revaluation Gains Adjusted to Income Statement of 2009 (115,149) (57,908) (57,241)

(424,365) (215,639) (208,726)

charging of Depreciation Charges Depreciation Adjusted to Opening Balance of Equity

in 2008 (48.c) (66,451) (33,897) (32,554)Charges Depreciation Adjusted to Income Statement

of 2008 (48.c) (22,150) (11,299) (10,851)Charges Depreciation Adjusted to Income Statement of 2009 (20,066) (10,091) (9,975)

(108,667) (55,287) (53,380)total Adjustment Made - income/(charge) (533,032) (270,926) (262,106)

48.c impact on opening Equityrs. ‘000

Revaluation gain 309,216Depreciation 88,601

397,817


APPENDIXProfiles of the Board of Directors 228

Senior Management Team 230

Ten Year Summary 232

Summary of Performance Indicators 233

US$ Accounts 234

Investor Information 236

Branch Network 241

Geographical Analysis 243

Glossary 244

Corporate Information 245

GRI Compliance Index 246

Subject Index 248

Notice of Meeting 249

Sinhala Translations 250

Tamil Translations 252

Form of Proxy Enclosed


PROFILES OF thE BOARd OF dIRECtORS

Mr. Eastman Narangoda Executive Chairman BA (Econ.), FIB, FIMS (UK), FItd (SL), dip. in Advanced Bank Management (Stockholm)

Mr. Eastman Narangoda has vast experience in the Sri Lankan banking sector. he spearheaded National Savings Bank as its General Manager/CEO for over five years. during his tenure, NSB was awarded AAA rating by Fitch Ratings for four consecutive years.

Mr. Narangoda is a former President of the Association of Professional Bankers of Sri Lanka and had held the positions of director/Vice-Chairman of Financial Ombudsman (Sri Lanka) Limited, director of NSB Fund Management Co., Asha Central hospital Limited and Mercantile Leasing Limited and had also been a director of the Institute of Bankers. he was also appointed as the Commissioner of the Presidential Commission on Failed Finance Companies. he is currently a director of Wealth trust Corporation (Pvt) Limited and the President of Sri Lanka Institute of training and development.

Mr. Narangoda was appointed to the Board of Seylan Bank PLC on 30th december 2008.

Mr. R. Nadarajah Executive Director B.Sc. (hons.), MBA, FCIB (London)

Mr. Ramanathan Nadarajah brings with him 40 years of banking experience in both state and private sector banks. he served as Managing director/General Manager/CEO of Pan Asia Bank for six years and previously served at Bank of Ceylon in various capacities including as a deputy General Manager. he was the inaugural President of the Primary dealers Association and has been a Past President of the Association of Professional Bankers of Sri Lanka.

Mr. Nadarajah was appointed to the Board of Seylan Bank PLC on 8th January 2009.

Mr. Nihal Jayamanne - President’s Counsel Director Mr. Nihal Jayamanne PC is an eminent lawyer and holds key offices in the fields of law, including as Member of the Advisory Council of Jurists of the Asia Pacific Forum for the Advancement of human Rights, Chairman-Law College Foundation and Member of the Board of trustees of the Judicial Infrastructure

Maintenance trust. he was also the President of the Bar Association of Sri Lanka, the Vice-President of SAARCLAW and a Member of the Law Commission of Sri Lanka and of the National Police Commission of Sri Lanka. Mr. Jayamanne PC is on the Boards of SriLankan Airlines Limited and SriLankan Catering (Pvt) Limited. he is also a former Commissioner of the telecom Regulatory Commission of Sri Lanka and a former member of the Council of Legal Education.

Mr. Jayamanne was appointed to the Board of Seylan Bank PLC on 30th december 2008.

Mr. Lalith Withana Director MBA, BA (hons.), FCMA, FCA

Mr. Lalith Withana counts over 20 years in management positions within the corporate sector of which more than 12 years have been at senior levels in banking, trade and manufacturing, with experience at organisations such as Brandix, Messrs Ernst & Young, Amro Bank, IBM and Carson Cumberbatch PLC.

he currently holds the position of Consultant at Brandix Asia Limited and has also been the CEO of Brandix Casualware Limited, Brandix Lightsew Limited and CEO - Procurement of Brandix Apparels Limited. he had served on the Boards of Bank of Ceylon, dankotuwa Porcelain PLC, Merchant Bank of Sri Lanka and Ceylease Financial Services Limited. he had also been a Commissioner of the telecommunication Regulatory Commission.

Mr. Withana was appointed to the Board of Seylan Bank PLC on 30th december 2008.

Rear Admiral (Rtd.) B.A.J.G. Peiris DirectorRSP, VSV, USP, ndc, psc, dISS

Rear Admiral (Rtd.) Ananda Peiris is a decorated officer of the Sri Lanka Navy counting a service record of over 34 years. his naval experience includes serving as the Area Commander - Eastern Naval Command, Western Naval Command and Southern Naval Command. he was also twice appointed the deputy Area Commander of Northern Naval Command and Squadron Commander Fast Attack Craft and has taken part in almost all major operations in the North and East. he had also been

the director - Naval Administration & Welfare, director - Naval Personnel & training and director General (Services), Sri Lanka Navy. he retired from the regular naval service on 29th January 2009 and has since been mobilised to the regular naval reserve. he currently holds the post of director General - Sri Lanka Civil defence Force to which position he was appointed in mid February 2010.

Rear Admiral (Rtd.) Ananda Peiris was granted the accolades of Rana Sura Padakkama (RSP), Vishishta Sewa Vibhushanaya (VSV) and Uttama Seva Padakkama (USP) for his service to the nation, while he was also awarded several medals during his tenure of service in the Navy including Sri Lanka Navy 50th Anniversary Medal (2001), Sri Lanka Armed Services Long Service Medal, President’s Inauguration Medal (1978), North-East Operation Medal and Purna Bumi Padakkama.

Rear Admiral (Rtd.) Ananda Peiris was appointed to the Board of Seylan Bank PLC with effect from 8th January 2009. he was also elected as the Chairman of the Bank’s subsidiary, Seylan developments PLC (formerly Ceylinco Seylan developments PLC) with effect from 11th September 2009.

Mr. Pradeep G.S. Kariyawasam Director

Mr. Pradeep Kariyawasam is the present Chairman of Sri Lanka Insurance Corporation Limited and is also on the Board of Lanka hospitals Corporation PLC (Apollo hospitals).

Mr. Kariyawasam is a senior corporate figure with over thirty years of experience in the private sector, of which over 15 years has been as Chief Executive and General Manager level at Unimo Enterprises, United Motors Lanka PLC and Browns Group of Companies. Mr. Kariyawasam could also be singularly credited in the setting-up of overall operations at Ceylinco Limited, the foremost Principal Agency of National Insurance Corporation during a 3-year period from the late 80s to early 90s. his extensive experience in marketing and sales management encompasses a cross section of large corporate conglomerates. Mr. Kariyawasam has also functioned as a respected consultant in business management and project management. he holds a Certificate of Marketing from CIM (UK).


Mr. Pradeep Kariyawasam was appointed to the Board of Seylan Bank PLC on 10th November 2009.

Dr. Nalaka H. Godahewa DirectorPh.d. (University of South Australia), MBA (Sri J.), B.Sc. Eng. (Moratuwa), FCIMA (UK), FCMA (Aus.) and FCIM (UK)

dr. Nalaka Godahewa is the Managing director of Sri Lanka Insurance Corporation and is also on the board of Lanka hospitals Corporation PLC (Apollo hospitals) and CSC Kandia (Pvt) Limited. he gained managerial and leadership experience at some of Sri Lanka’s leading corporate institutions including Unilever, Suntel and apparel giant MAS. Whilst at MAS holdings, he was the CEO of several overseas operations. dr. Godahewa is academically and professionally qualified in the multiple fields of engineering, marketing and finance. he holds a Ph.d. from the University of South Australia as well as a B.Sc. in Electronics and telecommunication Engineering from the Moratuwa University and a MBA from the University of Sri Jayewardenepura. he is also a Fellow Member of the Chartered Institute of Management Accountants (UK), a Fellow Member of the Institute of Certified Management Accountants (Aus.) and a Fellow Member of the Chartered Institute of Marketing (UK). he has also served as Consultant to the Board of Investment and as Chairman, Imperial College of Business Studies. dr. Godahewa is currently the President of the Sri Lanka branch of the Institute of Certified Management Accountants of Australia, honorary President of the Global Marketing Network and Chairman of the Association of Licensed Banker Operations of Sri Lanka.

dr. Nalaka Godahewa was appointed to the Board of Seylan Bank PLC on 10th November 2009.

Mr. Ajith L. Devasurendra Director

Mr. Ajith devasurendra counts over 30 years experience both in Sri Lanka and overseas in the financial sector. he is currently the deputy Chairman of Brown & Company PLC, Managing director/CEO of taprobane holdings

Limited and director of taprobane Fund Management Limited. he is also the Chairman of Galoya Plantation (Pvt) Limited.

Mr. devasurendra was also instrumental in pioneering the money broking and Government Securities markets in Sri Lanka and had the honour of being the first President of the Sri Lanka Money Brokers Association and had also been a past President of the Sri Lanka Primary dealers Association.

he had also been a consultant to PricewaterhouseCoopers, Bombay, India on a USAId project (assigned as consultant to Reserve Bank of India and Securities & Exchange Commission of India on Fixed Income Securities Market). Further, he was also appointed to the Expert Group on Stimulus Package for Banking, Finance and Leasing Industry by the Central Bank of Sri Lanka and is also a member of the Financial System Stability Consultative Committee (FSSCC) appointed by the Central Bank of Sri Lanka.

Mr. Ajith devasurendra was appointed to the Board of Seylan Bank PLC on 24th November 2009.

Mr. Ishara C. Nanayakkara Directordiploma in Business Accounting & Finance (Aus.)

Mr. Ishara Nanayakkara who holds a diploma in Business Accounting from Australia, ventured into the arena of financial services with the strategic investment in the LOLC group. he serves as the deputy Chairman on the board of Lanka ORIX Leasing Co. PLC and all its subsidiaries and associate companies, including Commercial Leasing Company, the latest development in LOLC’s related expansion. he is a director of Ishara traders Group, Associated Battery Manufacturers (Cey.) Limited and Browns Group of Companies, a conglomerate with exposure in trade, leisure and manufacturing. he is also a director of Colombo Land Exchange and taprobane Fund Management Limited, focusing on primary markets.

Mr. Nanayakkara’s business philosophy based on sustainable development has made LOLC enter into many new business ventures with high potential for growth in all three spheres;

economic, social and environmental. With the exposure in the SME and micro sectors, he spearheads LOLC Micro Credit Limited and Sundaya Lanka (Pvt) Limited, and PRASAC, the largest micro finance company in Cambodia.

In line with his focus on sustainable forestry and plantations, Mr. Nanayakkara is also the deputy Chairman of touchwood Investments Limited and a director of Maturata Plantations Limited, Pussallawa Plantations Limited and Gal Oya Plantations (Pvt) Limited, the first Public-Private Partnership with Government of Sri Lanka.

Mr. Ishara Nanayakkara was appointed to the board of Seylan Bank PLC on 24th November 2009.

Mr. Samantha P.S. Ranatunga DirectorMBA (Birmingham), B.Sc. (hons.) (delhi)

Mr. Samantha Ranatunga who has over 20 years experience in the field of marketing and managing FMCG business, is the Managing director/CEO of Chemical Industries (Colombo) PLC. he joined the Board of Chemical Industries (Colombo) PLC in May 2002 and was appointed Managing director/CEO in April 2009.

Mr. Ranatunga holds a degree from the University of delhi and a Masters in Business Administration, UK.

he is a Non-Executive director in many of the unlisted companies in the CIC Group including Akzo Nobel Lanka Paints (Pvt) Limited and Perfunova International Limited, India. he is the President of the Sri Lanka-Africa-Middle East Business Council of the Ceylon Chamber of Commerce and the Vice-President of the Sri Lanka Maldivian Business Council. he has led the Sri Lankan Chamber of Commerce delegations to many overseas countries. he is also a Committee Member of the Mercantile Services Provident Society representing the Ceylon Chamber of Commerce by virtue of his committee membership in the Ceylon Chamber of Commerce.


SENIOR MANAGEMENt tEAM

01

05

09

13

17

21

02

06

10

14

18

22

03

07

11

15

19

23

04

08

12

16

20

24

GM/CEO 1. Mr. Ajita Pasqual General Manager/Chief Executive Officers

Consultants2. Mr. Sunil De Silva Credit Monitoring/Recoveries3. Mr. R.B. Ekanayake Information Technology

Snr. DGMs4. Mrs. L. Seneviratne Corporate & Retail Banking5. Mr. C. Kotigala Legal 6. Mr. Ajantha Madurapperuma Banking Services & Risk Management7. Mr. Tissa Nanayakkara Seylan Card Centre

DGMs8. Mr. Raaj de Silva Chief Financial Officer 9. Mr. S. Jebaratnam Operations & International 10. Mr. Kithsiri Perera Recoveries 11. Mr. Sarath Dias Bandaranayake Human Resources & Administration 12. Mr. Ravi Divulwewa Zone I13. Mr. K.D.W. Rohana Zone II 14. Dr. P. Niranjan Zone III15. Mr. Ranjith Fonseka E-Commerce & IT International16. Mr. S. Palihawadana Chief Dealer17. Ms. Shalini Perera Corporate & Foreign Currency Banking18. Mr. Chithral De Silva Development Banking19. Mr. A.R.M. Hanan Information Technology20. Mr. Damith Vitharanage Audit & Inspection


25

29

33

37

41

26

30

34

38

42

27

31

35

39

43

28

32

36

40

AGMs 21. Mr. Ravi Dissanayake Personal Assistant to GM/CEO 22. Mr. Hiran Amarasinghe Treasury23. Ms. Rohini Weerakkody Operations24. Mr. T.J. Pathirage Information Systems Audit 25. Mr. Shafeek Samad International26. Mr. Lalantha Kulatunga Zone I27. Mr. Nandalal Ranasinghe Treasury & International Audit28. Mr. Delvin Pereira Zone II 29. Mr. Christie Nanayakkara Corporate & Foreign Currency30. Mr. A. Emmanuel Zone III 31. Mr. Kamal Deshapriya Marketing32. Ms. Damayanthi Tillekeratne International/Exports

33. Mr. M.K. Prematilleke Property Unit34. Mr. Sirilal Amarasinghe Development Banking 35. Mr. Neomal Suraweera Zone I 36. Ms. Deeshani Goonaratne Human Resources 37. Mrs. G. Edwards Private Banking38. Mrs. Y. Udurawana Consumer Finance Unit39. Mr. Rohan Fernando Audit & Inspection40. Mr. Sumith Fernando Zone III41. Mr. Shanaka Perera Senior Dealer 42. Mr. Asanga Dayaratne Premises Maintenance 43. Mr. Wasantha Karunaratne Supplies


Year Ended 31st December 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

(Reclassified) (Reclassified) (Restated) (Restated) (Restated)

Trading Results

Gross Income 23,154,529 25,246,209 21,079,885 17,183,481 13,090,715 10,072,376 9,973,644 8,988,278 8,475,059 6,745,575

Profit before Income tax 892,572 155,241 1,439,069 1,606,882 1,061,033 478,291 705,953 677,989 278,435 256,536

taxation 349,271 – 515,880 718,814 373,200 69,648 114,539 10,021 5,928 10,932

Profit after Taxation 543,301 155,241 923,189 888,068 687,833 408,643 591,414 667,968 272,507 245,604

dividends Proposed (Ordinary)

Rs. 0.50Per Share

Rs. 1.50 Per Share

Rs. 1.50Per Share

20% 16% 15% 15% 12.5% 12%

Balance Sheet

ASSETS

Cash & Short-term Funds 7,635,665 6,176,265 26,824,927 21,833,056 17,322,763 12,080,206 15,669,097 11,673,027 10,634,811 10,582,643

Statutory deposit with Central Bank of Sri Lanka 5,084,229 6,857,039 7,915,660 6,913,224 5,908,292 5,050,665 3,951,940 3,866,450 3,351,904 3,617,909

Investments (Including Investment Properties) 30,286,878 26,019,989 1,370,762 333,960 333,755 649,117 1,076,728 1,201,947 1,075,990 658,291

Bills of Exchange 1,322,364 1,471,831 1,967,091 1,827,824 2,154,916 2,210,842 1,745,701 1,652,786 1,502,995 2,009,411

Loans, Advances & Leases 78,965,441 102,682,294 95,684,286 91,431,102 79,314,465 60,613,807 49,903,047 42,998,354 37,254,770 33,408,337

123,294,577 143,207,418 133,762,726 122,339,166 105,034,191 80,604,637 72,346,513 61,392,564 53,820,470 50,276,591

Investment in Subsidiary 860,166 948,529 1,093,407 1,048,559 1,029,656 1,095,231 1,435,231 1,444,275 1,444,275 1,441,011

Other Assets (Including Income taxation) 5,234,012 5,752,780 4,954,206 3,783,353 4,648,548 3,698,682 4,285,255 2,961,309 3,090,017 1,691,530

Property, Plant & Equipment 3,387,117 4,137,518 3,690,014 3,135,030 2,896,049 2,785,092 1,984,070 1,980,472 1,947,968 2,518,481

132,775,872 154,046,245 143,500,353 130,306,108 113,608,444 88,183,642 80,051,069 67,778,620 60,302,730 55,927,613

LIABILITIES

deposits from Customers 104,815,899 107,938,801 111,299,612 100,078,809 85,833,954 68,301,154 59,362,955 52,431,165 47,859,511 41,695,054

Borrowings & debentures 9,164,909 26,308,876 14,775,780 13,167,204 13,037,404 6,648,055 8,606,998 6,355,156 4,400,760 6,947,041

Other Liabilities 8,189,922 12,762,164 9,901,004 9,860,078 9,998,624 9,296,381 7,838,625 6,106,586 5,796,800 5,291,888

taxation – – 472,306 817,297 105,420 (187,856) (145,304) (46,339) (55,800) (32,156)

dividends 22,668 16,393 15,416 14,442 6,763 21,716 22,396 85,006 63,426 55,588

122,193,398 147,026,234 136,464,118 123,937,830 108,982,165 84,079,450 75,685,670 64,931,574 58,064,697 53,957,415

EQUITY

Stated Capital

- Share Capital 4,730,501 1,705,101 1,705,101 1,705,101 869,501 869,501 869,501 469,501 446,141 435,600

- Share Premium 837,319 837,319 837,319 837,319 674,922 696,235 713,399 183,167 194,485 202,144

Reserve Fund 506,919 479,754 468,250 422,091 377,688 343,296 303,146 289,158 275,799 270,349

Reserves 4,507,735 3,997,837 4,025,565 3,403,767 2,704,168 2,195,160 2,479,353 1,905,220 1,321,608 1,062,105

10,582,474 7,020,011 7,036,235 6,368,278 4,626,279 4,104,192 4,365,399 2,847,046 2,238,033 1,970,198

TOTAL LIABILITIES & EQUITY 132,775,872

154,046,245 143,500,353 130,306,108 113,608,444 88,183,642 80,051,069 67,778,620 60,302,730 55,927,613

Commitments and Contingencies 22,262,562 26,874,375 24,335,965 22,924,450 22,942,795 20,983,027 17,743,062 13,206,586 10,083,442 10,274,265

tEN YEAR SUMMARY OF FINANCIAL StAtEMENtS


SUMMARY OF PERFORMANCE INdICAtORS

Measure 2009 2008 2007 2006 2005(Reclassified) (Reclassified) (Restated)

SIZEAssets Growth % (13.81) 7.35 10.13 14.70 28.83 Contingent/(total Assets + Contingent) % 9.27 10.35 11.33 12.29 14.36 Interest Earning Assets/total Assets % 85.17 85.20 85.26 86.62 85.30 Cash & Reserves/total Assets % 7.36 8.03 7.50 7.57 7.89 Risk Weighted Assets Growth % (11.91) 23.00 5.37 19.04 22.22

PROFITABILITYReturn on Average Assets % 0.38 0.10 0.67 0.73 0.68 Return on Average Equity % 6.20 2.22 13.84 16.25 15.76 Net Profit/(total Assets + Commitment & Contingencies) % 0.35 0.09 0.55 0.58 0.52 Net Interest Margin (NII/Avg. Int. Earn. Assets) % 5.91 5.67 5.77 5.84 6.19 Net Interest Income/total Income % 31.16 28.48 32.18 35.67 40.22 Cost to Income Ratio % 67.82 75.79 66.31 64.18 60.68 Average Interest Yield % 16.95 17.00 15.14 13.47 12.39 Average Interest Cost % 11.72 11.98 10.14 8.38 6.79 Interest Rate Spread % 5.23 5.02 5.00 5.09 5.60 Int. Yield on Customer Advances % 18.48 17.18 15.79 14.03 12.22 Int. Cost on Customer deposits % 10.60 11.50 8.27 6.56 5.19 Spread on Customer deposits & Advances % 7.88 5.68 7.52 7.46 7.03 dividend Payout (Note) % 24.48 – 27.72 28.74 49.02 Growth Rate of Equity % 50.99 (0.23) 10.54 37.93 12.83 Earnings per Share Rs. 2.83 0.90 5.50 6.69 8.20 Ordinary dividends per Share (Note) Rs. 0.50 – 1.50 1.50 2.00

ASSET QUALITYLoss Provisions Rs. Mn. 6,466 6,560 4,972 4,559 4,267 Provision Recoveries Rs. Mn. 598 588 720 874 600 Provisions/Loans + Bills + Leases % 7.00 5.74 4.69 4.53 4.85 NPL with Interest in Suspense Rs. Mn. 31,150 19,428 16,345 13,951 13,502 NPL with Interest in Suspense/Gross Loans % 33.61 16.93 15.39 13.85 15.34 Interest in Suspense on Advances Rs. Mn. 5,659 3,523 3,302 2,725 2,291 NPL Excluding Interest in Suspense Rs. Mn. 25,491 15,906 13,043 11,226 11,211 NPL Excluding Interest in Suspense/Gross Loans Excluding Interest in Suspense % 29.29 14.30 12.68 11.45 12.74 Int. in Suspense/Gross Loans % 6.11 3.07 3.11 2.70 2.60 Net Assets Value per Share Rs. 41.60 41.80 41.90 37.90 55.36

CAPITAL ADEQUACYLeverage on Shareholders' Funds times 11.55 20.94 19.45 19.46 23.56 Leverage on Capital Funds (Including debentures) times 7.96 12.16 10.46 10.69 12.31 Percentage Earnings Retained (Note) % 75.52 100.00 72.28 71.26 50.98 Equity/deposits, Borrowings & Securities Sold Under Repurchase Agreements % 9.61 5.39 5.81 5.84 4.87 Equity/total Assets % 7.94 4.54 4.88 4.86 4.07 Equity/Loans + Bills + Leases % 13.14 6.71 7.17 6.79 5.68

LIQUIDITY & FUNDINGLoans + Bills + Leases/deposits, Borrowings & Securities Sold Under Repurchase Agreements % 73.15 80.39 80.98 85.98 85.79 Customer deposits/deposits, Borrowings, Securities Sold Under Repurchase Agreements & debentures % 91.96 80.40 88.28 88.37 86.81 Liquid Assets/total Assets % 31.63 24.70 24.21 22.06 20.40 Liquid Assets/deposits, Borrowings & Securities Sold Under Repurchase Agreements % 38.26 29.37 28.81 26.50 24.40 Net Lending or (Borrowings) in Call Money Market Rs. Mn. (1,331) (4,449) (4,430) (2,538) (3,321)

OTHER DATANumber of Banking Centres 117 114 114 116 116 Number of Staff Members 3,733 3,923 3,871 3,934 3,700 Profits per Staff Member Rs. ’000 146 40 238 226 186 Number of Ordinary Shares - Voting ’000 130,000 43,560 43,560 43,560 43,560 - Non-Voting ’000 123,560 123,560 123,560 123,560 40,000 Share Prices as at 31st december - Voting Rs. 37.00 28.50 32.00 35.00 36.75 - Non-Voting Rs. 16.00 6.00 8.00 9.75 16.25

Note: dividends for year 2009 are accounted for as per the Accounting Standard SLAS 12 (Revised).


BANK GROUP For the year ended 31st December 2009 2008 2009 2008

(Reclassified) (Restated) US$ ’000 US$ ’000 US$ ’000 US$ ’000

Income 202,488 223,418 214,595 239,415 Interest Income 181,093 190,726 190,612 204,922 Less: Interest Expenses 117,989 127,092 125,836 140,491 Net Interest Income 63,104 63,634 64,776 64,431 Foreign Exchange Profit 4,560 5,936 4,560 5,936 Net Fee and Commission Income 10,224 15,484 10,715 15,737 Other Income 5,692 10,810 7,693 12,559 Operating Income 83,580 95,864 87,744 98,663

Less: Operating ExpensesPersonnel Expenses 20,859 30,139 21,866 31,936 Premises, Equipment & Establishment Expenses 14,063 13,321 14,166 14,293 Provision for Loan Losses 19,092 21,834 19,481 24,815 diminution/(Appreciation) in Value of Investments (412) 360 (367) 2,452 Other Overhead Expenses 22,172 28,837 24,434 31,376

75,774 94,491 79,580 104,872

Profit/(Loss) from Operations before Taxation 7,806 1,373 8,164 (6,509)Less: Income tax Expense 3,054 – 4,240 568 Profit/(Loss) for the Year 4,752 1,373 3,924 (7,077)

Attributable toEquity holders of the Bank 4,752 1,373 4,978 (1,265)Minority Interest – – (1,053) (5,812)Net Profit/(Loss) for the Year 4,752 1,373 3,925 (7,077)Basic Earnings/(Loss) per Share (US$) 0.025 0.008 0.026 (0.008)

Exchange rate of US$ 1 was Rs. 114.35 as at 31.12.2009 (Rs. 113.00 as at 31.12.2008)

the Income Statement given on this page is solely for the convenience of the shareholders, bankers, investors,

customers and other users of Financial Statements and do not form part of the Audited Statements.

INCOME StAtEMENt IN US dOLLARS


BANK GROUPAs at 31st December 2009 2008 2009 2008Assets (Reclassified) (Restated)

US$ ’000 US$ ’000 US$ ’000 US$ ’000

Cash & Cash Equivalents 40,960 48,773 41,031 50,272 Balance with Central Bank of Sri Lanka 44,462 60,682 44,463 60,683 Commercial Papers 2,838 3,451 2,838 3,451 Securities Purchased Under Resale Agreements 25,814 5,884 25,845 7,567 dealing Securities 127,190 7,664 144,080 12,478 Investment Securities 130,279 214,542 143,609 241,248Bills of Exchange 11,564 13,025 11,564 13,025 Loans & Advances 664,967 865,010 665,023 876,799 Lease Rentals Receivable within One Year 13,981 19,875 13,981 28,229 Lease Rentals Receivable later than One Year and Not later than Five Years 11,595 23,775 11,595 33,560 Lease Rentals Receivable after Five Years 17 34 17 88 Investments in Associate Companies – – – 481 Investments in Subsidiary Companies 7,522 8,394 – –Group Balances Receivable 7,072 5,515 – – Investment Properties 4,555 4,609 13,159 13,638 Current taxation 784 958 784 958 deferred taxation 3,972 810 3,973 848 Property, Plant & Equipment 29,069 36,047 35,956 43,705Leasehold Rights 552 568 5,809 5,957Intangible Assets – – – 225 Other Assets 33,943 43,625 36,691 51,996 Total Assets 1,161,136 1,363,241 1,200,418 1,445,208

Liabilitiesdeposits 916,624 955,211 916,624 969,076 Borrowings 26,724 62,876 30,596 81,494 Securities Sold Under Repurchase Agreements 16,429 128,464 36,510 168,902 Group Balances Payable 84 13,487 – – Advance Received Against debentures – 5,580 – 5,580 debentures 36,995 35,902 36,995 37,645 Current tax Liabilities – – 1,248 224 Other Liabilities 71,735 99,597 74,273 105,322 Total Liabilities 1,068,591 1,301,117 1,096,246 1,368,243

EquityStated Capital 48,691 22,499 48,691 22,499 Statutory Reserve Fund 4,433 4,246 4,433 4,262 Reserves 39,421 35,379 44,026 42,146 Total Equity Attributable to Equity Holders of the Bank 92,545 62,124 97,150 68,907Minority Interest – – 7,022 8,058Total Equity 92,545 62,124 104,172 76,965Total Liabilities & Equity 1,161,136 1,363,241 1,200,418 1,445,208 Commitments & Contingencies 194,688 237,826 194,688 237,826

Exchange rate of US$ 1 was Rs. 114.35 as at 31.12.2009 (Rs. 113.00 as at 31.12.2008)

the Balance Sheet given on this page is solely for the convenience of the Shareholders, Bankers, Investors,

Customers and Other Users of Financial Statements and do not form part of the Audited Statements.

BALANCE ShEEt IN US dOLLARS


INVEStOR INFORMAtION

TWENTY LARGEST SHAREHOLDERS AS AT 31ST DECEMBER 2009 2008*

Ordinary Voting Shares No. of Shares % No. of Shares %

1. Sri Lanka Insurance Corporation Limited (**Including 350,000 shares of Sri Lanka Insurance Corporation Limited - Life Fund)

19,500,000 ** 15.00 350,000(Life Fund)

0.80

2. Bank of Ceylon 13,000,000 10.00 – –3. dr. t. Senthilverl 13,000,000 10.00 2,178,000 5.004. Browns Plantations Investment (Pvt) Limited 12,416,966 9.55 – –5. Lanka Orix Information technology Limited 12,416,966 9.55 – –6. Seyfest (Private) Limited 2,977,996 2.31 2,177,996 5.007. Employees’ Provident Fund 2,865,600 2.20 – –8. Sesot (Private) Limited 2,252,900 1.73 2,177,900 5.009. Nation Lanka Finance PLC

(Formerly Ceylinco Finance PLC) 2,139,010 1.65 2,140,226 4.9110. Seybest (Private) Limited 2,132,900 1.64 2,177,900 5.0011. Seyshop (Private) Limited 2,132,900 1.64 2,177,900 5.0012. Esots (Private) Limited 2,115,857 1.63 2,160,857 4.9613. Ceylinco Limited 1,680,896 1.29 1,680,896 3.8614. National Savings Bank 1,510,900 1.16 1,510,900 3.4715. the Finance Company PLC 1,473,223 1.13 1,473,223 3.3816. Phoenix Ventures Limited 1,337,400 1.03 90,000 0.2117. Miss. M.d. Bollagala 1,194,500 0.92 – –18. Sotse (Private) Limited 962,331 0.74 1,002,331 2.3019. Mr. K.R.B. Fernando 955,400 0.73 – –20. Ceylinco Insurance PLC, A/C No. 2 (General Fund) 798,610 0.61 65,000 0.15

Sub Total 96,864,355 74.51 21,363,129 49.04Balance Shares Held by Other Voting Shareholders 33,135,645 25.49 22,196,871 50.96

(10,964 Shareholders) (7,812 Shareholders)

Total Voting Shares 130,000,000 100.00 43,560,000 100.00

* Comparative shareholdings as at 31st December, 2008 of the twenty largest shareholders as at 31st December, 2009.

Note: During the year, in order to part settle their liabilities to the Bank (Settlor), under their respective Trust Deeds,

four employee share owning trusts set up by the Bank disposed of shares which were in turn purchased by two other

employee share owning trusts of the Bank out of their own funds. Details of the sales/purchases are given below:

Purchases of Ordinary Voting

Shares of SBK

Sales of Ordinary VotingShares of SBK

Sesot (Private) Limited 75,000 –Seyfest (Private) Limited 100,000 –Seyshop (Private) Limited – 45,000Seybest (Private) Limited – 45,000Sotse (Private) Limited – 40,000Esots (Private) Limited – 45,000

In addition, Seyfest (Private) Limited was allotted 700,000 Ordinary Voting Shares in the Seylan Bank's

Public Issue at an issue price of Rs. 35/- per share. the shares were purchased by the trust Company out

of its own funds.


2009 2008*Ordinary Non-Voting Shares No. of Shares % No. of Shares %

1. Lanka ORIX Leasing Company PLC 19,733,400 15.97 – –2. Pershing LLC S/A Averbach Grauson & Co. 8,582,400 6.94 10,119,200 8.193. Browns Plantation Investments (Pvt) Limited 6,588,700 5.33 – –4. taprobane holdings Limited 5,607,800 4.54 – –5. Mr. S.V. Somasunderam 4,368,800 3.54 5,591,900 4.526. Mr. L.M.S.h. Alnaqib 3,000,000 2.43 – –7. Miss. M.d. Bollagala 2,937,300 2.38 – –8. Questnet Limited 2,409,500 1.95 – –9. Mr. t.t. Al-Nakib 2,021,900 1.64 – –

10. Mr. W.K.V.M. Fernando 1,669,300 1.35 – –11. Mr. M.M. Udeshi 1,424,000 1.15 100 0.0012. Phoenix Ventures Limited 1,400,000 1.13 – –13. Prime Lands (Pvt) Limited 1,376,300 1.11 – –14. Mrs. K.W.S.h. Fernando 1,362,600 1.10 – –15. Mr. N.R. Somaiya 1,248,500 1.01 1,248,500 1.0116. Mr. E. thavagnanasooriyam 1,183,900 0.96 500,000 0.4017. Employees’ trust Fund Board 1,099,400 0.89 1,099,400 0.8918. Miss. S.A. Fernando 1,095,700 0.89 – –19. Mrs. S. Surendini 935,900 0.76 500,000 0.4020. Mr. h.W.M. Woodward 914,800 0.74 30,000 0.02

Sub Total 68,960,200 55.81 19,089,100 15.45Balance Shares Held by other Non-Voting Shareholders 54,599,800 44.19 104,470,900 84.55

(6,126 Shareholders) (5,642 Shareholders)

Total Non-Voting Shares 123,560,000 100.00 123,560,000 100.00

* Comparative shareholdings as at 31st December, 2008 of the twenty largest shareholders as at 31st December, 2009.


ANALYSIS OF THE DISTRIBUTION OF SHAREHOLDERS AS AT 31ST DECEMBER 2009 Ordinary (Voting) Shares Ordinary (Non-Voting) Shares

Range of Shareholding No. of Shareholders

No. of Shares

Percentage(%) of

Shareholding

No. of Shareholders

No. of Shares

Percentage(%) of

Shareholding

1 - 1,000 8,241 2,516,018 1.94 3,007 1,430,033 1.16 1,001 - 10,000 2,318 7,630,830 5.87 2,354 9,524,999 7.71 10,001 - 100,000 362 9,974,365 7.67 669 19,196,675 15.54 100,001 - 1,000,000 46 16,080,773 12.37 98 26,298,793 21.28 1,000,001 & Above 17 93,798,014 72.15 18 67,109,500 54.31Total 10,984 130,000,000 100.00 6,146 123,560,000 100.00

Resident/Non-ResidentResident 10,900 128,906,075 99.16 6,079 102,966,980 83.33Non-Resident 84 1,093,925 0.84 67 20,593,020 16.67

Individuals/InstitutionsIndividuals 10,707 62,679,649 48.22 5,948 63,553,261 51.44Companies 277 67,320,351 51.78 198 60,006,739 48.56

ORDINARY SHARES (QUOTED) Voting (SEYB-N) Non-Voting (SEYB-X)

2009 2008 2009 2008

No. of Shares Issued 130,000,000 43,560,000 123,560,000 123,560,000First & Final dividend - Proposed (Rs. per share) 0.50 – 0.50 –Share Priceshighest (Rs.) 49.25 34.00 19.50 10.00Lowest (Rs.) 27.00 15.75 4.90 4.90Last traded (Rs.) 37.00 28.50 16.00 6.00Percentage of Public holding (%) 64.90 99.96 83.99 99.89

Shareholdings of Directors and Chief Executive Officer as at 31st December 2009

directors’ shareholdings are given on page 125 of the Annual Report of the board of directors. Shares held

by the Chief Executive Officer, Mr. A.M. Pasqual as at 31st december 2009 are as follows:

No. of Shares % holding

33,000 Ordinary Voting Shares 0.025

33,000 Ordinary (Non-Voting) Shares 0.027


DEBENTURES (QUOTED)

Debentures 2006/2011(Listed on CSE in July 2006)

(SEYB d86, d87 and d88) Monthly Interest (13%)

Annual Interest (13.50%)

Floating Rate of Interest

2009 2008 2009 2008 2009 2008

No. of debentures Issued 7,646,400 4,620,800 305,950debenture Prices:highest (Rs.) 100.00 74.00 97.00 75.69 NotLowest (Rs.) 60.00 74.00 97.00 75.69 tradedLast traded (Rs.) 98.00 74.00 97.00 75.69 in 2009

Debentures 2007/2012 – Issue 1(Listed on CSE in June 2007)

(SEYB d118, d119 and d120) Monthly Interest (15.75%)


Floating Rate of Interest

2009 2008 2009 2008 2009 2008

No. of debentures Issued 2,916,200 4,275,450 302,350debenture Prices:highest (Rs.) 100.26 74.14 90.00 84.00 86.00 82.44 Lowest (Rs.) 77.51 74.14 77.50 84.00 80.00 82.44 Last traded (Rs.) 100.00 74.14 90.00 84.00 80.00 82.44

Debentures 2007/2012 – Issue 2(Listed on CSE in January 2008)

(SEYB d127, d128, d129 and d130) Monthly Interest (17.00%)


Floating Rate of Interest Payable Quarterly

Floating Rate of Interest Payable Annually

2009 2008 2009 2008 2009 2008 2009 2008

No. of debentures Issued 2,089,550 2,962,400 433,350 107,550debenture Prices:highest (Rs.) 84.00 99.47 90.00 85.00 100.00 Not traded Not tradedLowest (Rs.) 59.69 99.47 90.00 85.00 100.00 during the during the Last traded (Rs.) 80.00 99.47 90.00 85.00 100.00 Year 2008 Years 2008/09

Debentures 2008/2013(Listed on CSE in February 2009)

(SEYB d141, d142, d143 and d144) Monthly Interest (20.50%)


Floating Rate of Interest Payable Quarterly

Floating Rate of Interest Payable Annually

2009 2008 2009 2008 2009 2008 2009 2008

No. of debentures issued 3,954,450 2,316,100 1,200 33,900debenture Prices:highest (Rs.) 100.04 N/A Not N/A Not N/A Not N/ALowest (Rs.) 78.75 traded traded tradedLast traded (Rs.) 95.00 in 2009 in 2009 in 2009


Current Previous Period Comparative

Period**31.12.2009 31.12.2008

Interest Rate of Comparable Government Security 11.65% 18.64%Debt/Equity Ratio 0.40 0.68 Interest Cover 2.23 1.21 Quick Asset Ratio 0.59 0.73

Interest Yield as at Date of Last Trade 2006/11 IssueAnnual Interest (27.10.2009)/(29.09.2008) 13.92% 17.84%Monthly Interest (22.12.2009)/(03.10.2008) 14.08% 18.65%Floating Interest - Annual* * *2007/12 Issue IAnnual Interest (24.11.2009)/(17.09.2008) 18.61% 19.94%Monthly Interest (15.12.2009)/(29.09.2008) 16.94% 22.84%Floating Interest - Annual (09.10.2009)/(08.10.2008) 25.16% 23.05%2007/12 Issue IIAnnual Interest (08.12.2009)/(14.08.2008) 20.00% 21.18%Monthly Interest (17.11.2009)/(02.12.2008) 22.99% 18.49%Floating Interest - Quarterly (07.12.2009)/* 15.15% * Floating Interest - Annual* * * 2008/13 Issue Annual Interest* * * Monthly Interest (15.10.2009)/* 23.73% * Floating Interest - Quarterly* * * Floating Interest - Annual* * *

Yield To Maturity of Trade Done On 2006/11 IssueAnnual Interest (27.10.2009)/(29.09.2008) 15.49% 26.82%Monthly Interest (22.12.2009)/(03.10.2008) 14.45% 26.52%Floating Interest - Annual* * * 2007/12 Issue IAnnual Interest (24.11.2009)/(17.09.2008) 22.12% 23.53%Monthly Interest (15.12.2009)/(29.09.2008) 15.74% 27.06%Floating Interest - Annual (09.10.2009)/(08.10.2008) 32.06% 26.90%2007/12 Issue IIAnnual Interest (08.12.2009)/(14.08.2008) 22.98% 23.79%Monthly Interest (17.11.2009)/(02.12.2008) 26.83% 17.19%Floating Interest - Quarterly (07.12.2009)/* 14.36% * Floating Interest - Annual* * * 2008/13 Issue Annual Interest* * * Monthly Interest (15.10.2009)/* 22.35% * Floating Interest - Quarterly* * * Floating Interest - Annual* * *

* No trading during the period.** Comparative Period - Immediate Preceding Financial Year.


BRANCh NEtWORK

AmbalangodaNo. 24 A, Galle Road, Ambalangoda tel: 091 2258010/2256154

AmparaRegal Cinema Complex 129, d.S. Senanayake Street, Ampara tel: 063 2224897-9

AnuradhapuraNo. 250, Main Street, Anuradhapura tel: 025 2224649/4580940

AttidiyaNo. 214, Main Road, Attidiya, dehiwela tel: 2738453/4203565

AvissawellaNo. 71, Ratnapura Road, Avissawella tel: 036 2222007/5673333

Badulla No. 10, Cocowatta Road, Badulla tel: 055 2223414/4499524

BalangodaNo. 123, Barns Ratwatte Mawatha, Balangoda tel: 045 2287007/2288020

BandaragamaNo. 17 A, horana Road, Bandaragama tel: 038 2290706/4290263

BandarawelaNo. 240, Badulla Road, Bandarawela tel: 057 2223144/2231085

Batticaloa No. 06, Lloyd’s Avenue, Batticaloa tel: 065 2224419/2224587

BeliattaNo. 50, Walasmulla Road, Beliatta tel: 047 2243619/2251478

BogawanthalawaNo. 79, Main Street, Bogawanthalawa tel: 052 2267576/060 2538295

BoralesgamuwaNo. 24, Kesbewa Road, Boralesgamuwa tel: 2517548-9/5525054

BorellaNo. 1119, Maradana Road, Borella, Colombo 08 tel: 2681191-2/2678189

Ceylinco HouseNo. 69, Janadhipathi Mawatha, Colombo 01 tel: 2445840-3/4714655

ChilawNo. 46, Kurunegala Road, Chilaw tel: 032 2222121/4860550

Cinnamon GardensNo. 4, Baptist Chapel Road, Colombo 07 tel: 2694966/2683726

Colombo SouthNo. 30, Galle Road, Colombo 06 tel: 2593405/4510030

DehiattakandiyaNo. 83/84, Main Street, dehiattakandiya tel: 027 2250268-9

DehiwelaNo. 166 d, Galle Road, dehiwela tel: 4201756-7/2726395

Embilipitiya53, New town Road, Embilipitiya tel: 047 2230340/4379635

First City OfficeNo. 33, Sri Baron Jayathilake Mawatha, Colombo 01 tel: 4725000/4714365

Free Trade ZoneUnit 3, Plaza Complex, KIPZ, Katunayake tel: 2252566/2251462

GalleNo. 34, 1st Cross Street, talbot town, Galle tel: 091 2223514/5454647

Gampaha No. 1 J, Bauddhaloka Mawatha, Gampaha tel: 033 2222618/2230717

Gampola No. 44, Kandy Road, Gampola tel: 081 2352741-2/4485435

GanemullaNo. 187/1, Kirindiwatta Road, Ganemulla tel: 033 2260230/2260738

GrandpassNo. 401, Prince of Wales Avenue, Colombo 14 tel: 2331726-7/2451061

HambantotaNo. 32 & 34, Wilmet Street, hambantota tel: 047 2220507/2220518

HattonNo. 42, dunbar Road, hatton tel: 051 2222347/2222234

Havelock TownNo. 164,166, havelock Road, Colombo 05 tel: 2596550-3/2597497

HingurakgodaNo. 13 & 14, Airport Road, hingurakgoda tel: 027 2246242/027 2246087

HomagamaNo. 94 , high Level Road, homagama tel: 4442021-2/2855065

HoranaNo. 160/1/1, Ratnapura Road , horana tel: 034 2261176/2261018

Ja-elaNo. 165 and 165/2/1, Colombo Road, Ja-ela tel: 2237421/5858373

JaffnaNo. 560 & 562, hospital Road, Jaffna tel: 021 2223047/2225073

KadawathaNo. 28 B, Ganemulla Road, Kadawatha tel: 2925594-5/4816821

KalubowilaNo. 32, S. de S. Jayasinghe Mawatha, Kalubowila tel: 5557567/4202648

KalutaraNo. 338, Main Street, Kalutara tel: 034 2225035-7/5081841

KandyNo. 65, King’s Street, Kandy tel: 081 2232767/2233484

KattankudyNo. 230, Main Street, Kattankudy tel: 065 2247456/2246625

KatuneriyaNo. 99/1, Chilaw Road, Katuneriya tel: 031 2255209/2257764-5

KegalleNo. 143, Colombo Road, Kegalle tel: 035 2223538/2222100

KekirawaNo. 06, Yakalla Road, Kekirawa tel: 025 2264590-1/2263215

KiribathgodaNo. 52, Kandy Road, Kiribathgoda tel: 2910581/4936902

KochchikadeNo. 66, Chilaw Road, Kochchikade tel: 031 2277661/2277580

KoggalaNo. 09, E.P.Z, Koggala, habaraduwa tel: 091 2283390

Kollupitiya428, R.A. de Mel Mawatha, Colombo 03 tel: 2576911-3/2576910

KottawaNo. 34, Nawasiri Building, highlevel Road, Kottawa tel: 2842682-3/4304784

Kuliyapitiya139, hettipola Road, Kuliyapitiya tel: 037 2281450/4696450

KurunegalaNo. 54, Colombo Road, Kurunegala tel: 037 2223581-2/2224276

MaharagamaNo. 201, highlevel Road, Maharagama tel: 2841997-8/2841999

MalabeNo. 11, Athurugiriya Road, Malabe tel: 4547400/2560403

ManampitiyaMain Street, Manampitiya tel: 027 2224455/060 2279685

Maradana No. 250, Sri Sangaraja Mawatha, Colombo 10 tel: 2473281/2473773

MarandagahamulaNo. 150, divulapitiya Road, Marandagahamula tel: 031 2246377/2246096

MataleNo. 166, 168, Main Street, Matale tel: 066 2223241-2/4460123

MataraNo. 45, Anagarika dharmapala Mawatha, Matara tel: 041 2221181-2/2222393

MatugamaNo. 06, Aluthgama Road, Matugama tel: 034 2247544/4931350

MawanellaNo. 21, Courts Road, Mawanella tel: 035 2246007/2246988


Meegoda Meegoda Economic Centre, Meegoda tel: 2830820/2830817

MillenniumSeylan towers, No. 90, Galle Road, Colombo 03 tel: 2456145/2456135

MirigamaNo. 42, danowita Road, Mirigama tel: 033 2273001-2

Moratuwa No. 509, Galle Road, Rawathawatte, Moratuwa tel: 2647900/2642954

Mount LaviniaNo. 198, Galle Road, Mount Lavinia tel: 2731266-7/4213194

NawalaNo. 48/A, Narahenpita Road, Nawala tel: 2806727/2807329

NawalapitiyaNo. 02, Baily Road, Nawalapitiya tel: 054 2222056-7/2222018

NegomboNo. 141, Rajapaksha Broadway, Negombo tel: 031 2224334-6/2233054

Nelliaddy No. 149, Point Pedroo Road, Nelliaddy tel: 021 3205961-3

NittambuwaNo. 195/1, Colombo Road, Nittambuwa tel: 033 2295270-1

NugegodaNo. 211, high Level Road, Nugegoda tel: 2811180-1/2809955

Nuwara EliyaNo. 48, Park Road, Nuwara Eliya tel: 052 2223026/2234338

Old Moor StreetNo. 315/317, Old Moor Street, Colombo 12 tel: 5358885/2421483

Panadura No. 401, Galle Road, Panadura tel: 038 2233172-3/2238355

PelmadullaNo. 17, Galwatta Road, Pelmadulla tel: 045 2275034/2275625

PettahNo. 96, Main Street, Colombo 11 tel: 2337823-5/2441471

PolonnaruwaLake View Building, Polonnaruwa tel: 027 2223168-9/2224590

PuttalamNo. 56, K.K. Street, Puttalam tel: 032 2265194/2265580

RaddolugamaNo. 171, N.h.S., Raddolugama tel: 2292778/2292252

RatnapuraNo. 06, Goodshed Road, Ratnapura tel: 045 2225801-2/2223730

RuwanwellaNo. 52, Main Street, Ruwanwella tel: 036 2267445-6/2268623

SarikkamullaNo. 97, Galle Road, Sarikkamulla, Panadura tel: 038 4282844-5/2235265

Savings & TravelNo. 202,204, Main Street, Colombo 11 tel: 4718344-5/2345797

SoysapuraNo. 164/2, Soysapura, Moratuwa tel: 2622756/5524673

ThalawakeleNo. 08 & 10, Kothmale Road, thalawakele tel: 052 2258635-8

TissamaharamaNo. 547, debarawewa, tissamaharama tel: 047 2237161-2/2239583

TrincomaleeNo. 289, Central Road, trincomalee tel: 026 2227701-2/2227704

VavuniyaNo. 45, 2nd Cross Street, Vavuniya tel: 024 2222633-4/2220077

WarakapolaNo. 192, Main Street, Warakapola tel: 035 2267628-9/2267100

WattalaNo. 276, Negombo Road, Wattala tel: 4814717/2946266

WelimadaNo. 107, Nuwara Eliya Road, Welimada tel: 057 2245617/2244628

WeliweriyaNew Kandy Road, Weliweriya tel: 033 2255291/2257710

YakkalaNo. 104, Kandy Road, Yakkala tel: 033 2226378/2227014

ExTENSION OFFICES

BaduraliyaNo. 92, Ratnapura Road, Baduraliya tel: 034 2246716

Beruwela No. 82, Galle Road, Beruwela tel: 034 2279887

ChankanaiMallakkam Junction, Ponnalai Road, Main Street, Chankanai tel: 021 3205965/3205967

DambullaNo. 601, Anuradhapura Road, dambulla tel: 066 2283023

HasalakaNo. 95, 96, Corporative Society Building, Kandy Road, hasalaka tel: 055 2258324

IngiriyaNo. 23, Central Building, Padukka Road, Ingiriya tel: 034 2269754

KatugastotaNo. 444, Katugastota Road, Kandy tel: 081 2212870

Kirindiwela No. 89, Gampaha Road, Kirindiwela tel: 033 2269709/4923886

KotagalaMain Street, Kotagala tel: 051 2222797

Kotahena No. 310, George R. de Silva Mawatha, Kotahena tel: 2399660/4172460

KotikawattaNo. 260 A, I.d.h. Road, Kotikawatta tel: 2418883

KotiyakumburaNo. 05, Main Street, Kotiyakumbura tel: 035 2289035

ManipayNo. 103, Ward No. 07, Jaffna Road, Manipay tel: 021 3205964/3205968

MaswelaNo. 53, Mawela, Maswela tel: 081 4927683

MawathagamaNo. 56 F, Kandy Road, Mawathagama tel: 037 2298666

MinuwangodaNo. 40, Cargills Building, Colombo Road, Minuwangoda tel: 2299004

KirulaponeNo. 280 B, high Level Road, Colombo 06 tel: 2829054

Pallekele BOI, Pallekelle tel: 081 2423135/2423958

PiliyandalaNo. 90 A, horana Road, Piliyandala tel: 2604982-3

RanpokunugamaNo. 1, Maduwegedara, Nittambuwa tel: 033 2282242

SamanthuraiNo. 113, hijra Junction, 1st Street, Samanthurai tel: 067 2261284

VeyangodaNo. 177, Main Street, Veyangoda tel: 033 2295050-1

Wijerama No. 525, highlevel Road, Wijerama, Nugegoda tel: 4301878

YatiyantotaNo. 51/1/2, Ginigathhena Road, Yatiyantota tel: 036 2271480


GEOGRAPhICAL ANALYSIS

Deposits and AdvancesAs at 31st December 2009Province No. of

Branchesdeposits Advances

Including Leasing**

Rs. Mn. % Rs. Mn. %

Western 46 67,938 64.8 61,876 77.0Southern 7 5,739 5.5 2,891 3.6Uva 3 2,138 2.0 846 1.1North-Central 5 2,463 2.3 1,308 1.6North-Western 7 6,604 6.3 3,204 4.0Eastern 5 3,637 3.5 1,808 2.3Northern 3 2,382 2.3 1,033 1.3Sabaragamuwa 9 6,921 6.6 3,469 4.3Central 8 6,994 6.7 3,853 4.8Total 93 104,816 100.0 80,288 100.0

** Loans and advances excluding loan loss provision and interest in suspense.

Commitments and ContingenciesAs at 31st December 2009Province No. of

BranchesAcceptances

Rs. Mn.

Stand by Letters of

CreditRs. Mn.

Guarantees

Rs. Mn.

documentary Credit

Rs. Mn.

Bills For Collection

Rs. Mn.

Forward Exchange Contracts

Rs. Mn.

totalincluding

CommitmentsRs. Mn.

Western 46 2,600 279 4,864 1,845 1,246 (41) 10,793 Southern 7 19 4 337 8 13 – 381 Uva 3 – – 262 – – – 262 North-Central 5 – – 347 – – – 347 North-Western 7 69 – 451 35 14 – 569 Eastern 5 – – 199 – 1 – 200 Northern 3 – – 134 5 – – 139 Sabaragamuwa 9 16 – 248 48 35 – 347 Central 8 78 – 352 67 26 – 523 Commitments 8,702

Total 93 2,782 283 7,194 2,008 1,335 (41) 22,263


GLOSSARY

Capital Adequacy Ratiothe percentage of risk-adjusted assets supported by capital as defined under the framework of risk-based capital standards developed by the Bank for International Settlements (BIS) and as modified to suit local requirements by the Central Bank of Sri Lanka.

Cash EquivalentsCash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subjected to an insignificant risk of changes in value.

Contingent LiabilitiesConditions or situations at the Balance Sheet date, the financial effect of which are to be determined by the future events which may or may not occur.

Cost to Income RatioOperating expenses as a percentage of net income.

Deferred TaxSum set aside in the Financial Statements for taxation that may become payable/receivable in a financial year other than the current financial year.

Dividend Yielddividend earned per share as a percentage of its market value.

Dividend CoverProfit after tax divided by gross dividends. this ratio measures the number of times dividend is covered by the current year’s distributable profits.

Equity Growth Rate the percentage increase in total equity over the year under review.

Equity total of shareholders’ funds; share capital + statutory reserves + other reserves.

Impairmentthis occurs when recoverable amount of an asset is less than its carrying amount.

Interest Earning Assets Assets, which earn interest - the total of Advances, Bills, Leases, Government Bills & Bonds, Call Money and Placements with other institutions.

Interest in Suspense Interest Income of non-performing loans; these are accrued but not considered as profits.

Interest Rate Spread the difference between the effective interest yield and the effective interest cost of the Bank.

Liquid Assets Cash, Bills, Short-term Funds, Balance with Central Bank and dealing Securities.

Non-Performing Loans Loans which are not activated for 90 days (3 months), or more.

NPA Ratiototal non-performing advances (net of interest in suspense) divided by total advances portfolio (net of interest in suspense).

Price Earning Ratio Market price of the Bank’s share as number of times of the earnings per share.

Profit Handoutdividends as a percentage of profit after tax.

Provision for Bad and Doubtful DebtsProvisions made for possible loan losses, according to the period of non-performance and the exposure over the collateral.

REPOsRepurchase agreements; the securities sold to creditors (who lend money for funding purposes); with the intention of buying them back at a set price.

Return on Average Assets (ROAA)Profit after tax as a percentage of average assets.

Return on Equity (ROE)Profit after tax as a percentage of average equity.

Risk Weighted Assets the assets and off Balance Sheet items weighted according to the risk involved as stipulated by the Central Bank.

Statutory Reserve Fund Capital reserve created as per the provisions of Banking Act No. 30 of 1988.

Tier 1 CapitalConsists of the sum total of paid up ordinary shares, non-cumulative, non-redeemable preference shares, share premium, statutory reserve fund, published retained profits, general and other reserves, less goodwill.

Tier 2 CapitalConsists of the sum total of revaluation reserves, general provisions, hybrid capital instruments and approved subordinated debentures.

Total Capitaltotal Capital is the sum of tier 1 Capital and tier 2 Capital.

Value AddedValue added is the wealth created by providing banking services less the cost of providing such services. the value added is allocated among the employees, the providers of capital, to Government by way of taxes and retained for expansion and growth.


CORPORAtE INFORMAtION

NAME OF COMPANY

Seylan Bank PLC

LEGAL FORM

A public limited liability company

incorporated in Sri Lanka on

28th August 1987 and listed on

the Colombo Stock Exchange

in January 1989. A licensed

commercial bank regulated

under the Banking Act No. 30 of

1988 (as amended).

COMPANY REGISTRATION NUMBER

PQ 9

REGISTERED OFFICE

Seylan towers

No. 90, Galle Road, Colombo 03

HEAD OFFICE

Seylan towers

P.O. Box 400,

No. 90, Galle Road, Colombo 03

tel : (94)-(11)-2456789,

(94)-(11)-4-701000

Fax : (94)-(11)-2456456

Swift: SEYBLKLX

E-mail: [email protected]

Website: www.eseylan.com

BOARD OF DIRECTORS

Mr. Eastman Narangoda

(Executive Chairman)BA (Econ.), FIB, FIMS (UK),

FItd (SL), dip. in Advanced Bank

Management (Stockholm)

Mr. R. Nadarajah

(Executive director)B.Sc. (hons.), MBA, FCIB (London)

Mr. Nihal M. Jayamanne PC

Mr. P. Lalith P. WithanaMBA, BA (hons.), FCMA, FCA

Rear Admiral (Rtd.) B. Ananda J.G. PeirisRSP, VSV, USP, ndc, psc, dISS

Mr. Pradeep G.S. Kariyawasam

dr. Nalaka h. GodahewaPh.d. (University of South Australia),

MBA (Sri. J.), B.Sc. Eng. (Moratuwa),

FCIMA (UK), FCMA (Aus.) and

FCIM (UK).

Mr. Ajith L. devasurendra

Mr. Ishara C. Nanayakkaradip. in Business Accounting &

Finance (Aus.)

Mr. Samantha P.S. RanatungaMBA (Birmingham), B.Sc. (hons.)

delhi

(Appointed w.e.f. 12.01.2010)

COMPANY SECRETARY

Ms. M.R.S. GunasekaraACIS, LLB (hons.) Colombo

Attorney-at-Law

AUDITORS

Messrs KPMG Ford, Rhodes,

thornton & Co.

Chartered Accountants

CREDIT RATING

the Bank has been assigned

a BBB+ (lka) national credit

rating for implied long term

unsecured senior debt by Fitch

Ratings Lanka Limited.

SUBSIDIARY COMPANIES

Seylan developments PLC(formerly Ceylinco Seylan Developments PLC)

Seylan Bank Asset Management

Limited

ExCHANGE HOUSE MANAGED BY SEYLAN BANK PLC

Asia Express Exchange,

Muscat, Oman


GRI COMPLIANCE INdEX

Index No.

description Report Level Page No.

1. STRATEGY AND ANALYSIS

1.1 Statement from the most senior decision-maker of the organization about the relevance of sustainability to the organization and its strategy

Sustainability Report 105

2. ORGANISATIONAL PROFILE2.1 Name of the organisation Corporate Information 245

2.2 Primary Brands, Products, and/or services Management Report 57-62

2.3 Operational Structure of the organisation Corporate Governance Report 75-99

2.4 Location of organisation's headquarters Corporate Information 245

2.5 Number of countries where the organisation operates, and names of countries with either major operations or that are specifically relevant to the sustainability issues covered in the report


2.6 Nature of ownership and legal form Corporate Information 245

2.7 Markets served Geographical Analysis 243

2.8 Scale of the reporting organisation Labour, ten Year Summary 111,230

2.9 Significant changes during the reporting period Investor Information, Financial Statements

236,136

2.10 Awards received in the reporting period Sustainability Report 107

3. REPORT PARAMETERS3.1 Reporting Period Sustainability Report 106

3.2 date of most recent previous report First Report based on GRI Guidelines –

3.3 Reporting cycle Sustainability Report 106

3.4 Contact point for questions regarding the report or its contents Sustainability Report 106

3.5 defining report content Sustainability Report 106

3.6 Boundary of the report Sustainability Report 106-107

3.7 Any specific limitations on the scope or boundary of the report None –

3.8 Basis for reporting on joint ventures, subsidiaries, leased facilities, outsourced operations, and other entities that can significantly affect comparability from period to period and/or between organisations

Not Applicable –

3.10 Explanation of the effect of any re-statement of information provided in earlier report

Not Applicable –

3.11 Significant changes from previous reporting periods in the scope, boundary, or measurement methods applied in the report

Not Applicable –

4. GOVERNANCE, COMMITMENTS AND ENGAGEMENT4.1 Governance Structure of the Organisation Corporate Governance Report 76

4.2 Indicate whether the Chair of the highest governance body is also an executive officer

Corporate Governance Report 75-99

4.3 For organisations that have a unitary board structure, state the number of members of the highest governance body that are independent and/or non-executive members


4.4 Mechanisms for shareholders and employees to provide recommendations or direction to the highest governance body


4.14 List of Stakeholder group engaged by the organisation Sustainability Report 107

4.15 Basis for identification and selection of stakeholders Sustainability Report 107


Index No.

description Report Level Page No.

5. MANAGEMENT APPROACH AND PERFORMANCE INDICATORS

Economic EC1 direct economic value generated and distributed, including

revenues, operating costs, employee compensation, donations and other community investments, retained earnings and payments to capital providers and governments

Sustainability Report 108-109

EC3 Coverage of the organisation’s defined benefit plan obligations. Sustainability Report 108

EC4 Significant financial assistance received from government. None –

EC9 Understanding and describing significant indirect economic impacts, including the extent of impacts


Environmental

EN1 Materials used by weight or volume Sustainability Report 110

EN5 Energy saved due to conservation and efficiency improvements Sustainability Report 110

SocietySO1 Nature, scope and effectiveness of any programmes and

practices that assess and manage the impacts of operations on communities including entering, operating and exiting.


SO2 Percentage and total number of business units analysed for risks related to corruption


SO3 Percentage of employees trained in organisation’s anti-corruption policies and procedures


SO6 total value of financial and in-kind contributions to political parties , politicians and related institutions by Country

None

Labour LA1 total workforce by employment type, employment contract,

and regionSustainability Report 111

LA2 total number and rate of employee turnover by age group, gender, and region


LA4 Percentage of employees covered by collective bargaining agreements


LA6 Percentage of total workforce represented in formal joint management–worker health and safety committees that help monitor and advice on occupational health and safety programmes


LA7 Rates of injury, occupational diseases, lost days, and absenteeism, and number of work related fatalities by region.


LA8 Education, training, counseling, prevention of diseases, and risk-control programs in place to assist workforce members, their families, or community members regarding serious diseases


LA10 Average hours of training per year per employee by employee category


LA11 Programmes for skills management and lifelong learning that support the continued employability of employees and assist them in managing career endings

Sustainability Report 112,114

LA12 Percentage of employees receiving regular performance and career development reviews


LA13 Composition of governance bodies and breakdown of employees per category according to gender, age group, minority group membership, and other indicators of diversity



SUBJECt INdEX

Page No.

Annual Report of the Board of directors 119Asset and Liability Management Committee (ALCO) 69Asset Quality 60Audit Committee Report 100Auditors 128Auditors’ Report 136Balance Sheet 139Balance with Central Bank of Sri Lanka 166BASEL II Implementation Plan 73Basis of Provisioning for Loan Losses 179Bills of Exchange 177Board Integrated Risk Management Committee Report 102Board of directors 30, 123, 228Board Subcommittees 85, 124Borrowings 196Branch Network 241Business Continuity Planning 70Capital Adequacy Ratios 160Capital Commitments 205Cash and Cash Equivalents 141Cash Flow Statement 141CEO’s Message 57Chairman’s Message 07Commitments and Contingencies 203Concentration of Credit Risk 183Corporate Governance Report 75Corporate Information 245Cost to Income Ratio 233Credit Rating 245Credit Risk 66, 157debentures 239debt-Equity Ratio 240deferred tax 187deposits 196depreciation Rates 150directors’ Interests in Contracts with the Company 129directors' Interests in Shares 125directors’ Responsibility for Financial Reporting 134dividend Cover 56dividend Payout 233dividends 121donations 121Earnings Per Share 56Events Occurring After Balance Sheet date 205Financial Calendar 117Financial highlights 56Financial Review 58Foreign Exchange Profit 138Form of Proxy EnclosedGeographical Analysis 243Glossary 244GRI Compliance Index 246Income Statement 138Income tax Expense 164

Page No.

Independence of Auditors 128Interest Cover 240Interest Expense 162Interest Income 162Interest Rate Risk 69, 158Interest Register 125Interest Yield on Advances 233Interest Yield on debentures 239Investor Information 236Lease Receivable 183Liquidity 158Liquidity Risk 70, 157Loan Losses & Provisions 178Loans & Advances 177Management Report 57Market Capitalisation 60Market Risk 68Maturity Analysis 218Net Asset Value Per Share 56, 233Nomination Committee 104Non-Performing Loans & Advances 179Notice of Meeting 249Operating Expenses 163Operational Efficiency 60Operational Risk 69Performance Indicators 233Price Earnings Ratio 56Principal Activities 143Productivity 60Profiles of the Board of directors 228Profitability 58Property, Plant & Equipment 190Quick Assets Ratio 240Related Party disclosures 205Remuneration Committee Report 103Return on Average Assets 233Return on Average Equity 233Risk Management Report 63Sectoral Exposure of Credit Portfolio 67Segment Reporting 220Senior Management team 230Share Prices 238Significant Accounting Policies 144Stability 60Stated Capital 200Statement of Changes in Equity 140Statutory Reserve Fund 201Strategic Plan 52, 62Subsidiaries 119Sustainability Report 105the Case Study 07ten Year Summary 232total Equity 139US$ Accounts 234Value Added Statement 109Vision & Mission 49, 50Yield to Maturity of debentures 240


NOtICE IS hEREBY GIVEN thAt the twenty third Annual General Meeting of Seylan Bank PLC will be held on Friday 26th March 2010 at the “Oak Room”¸ Cinnamon Grand Colombo, No. 77, Galle Road, Colombo 03, at 10.30 a.m. for the following purposes:

ROUTINE BUSINESS1. to receive and consider the Annual Report of the Board of directors on the Affairs of the Company and

the Audited Financial Statements for the year ended 31st december 2009, together with the Report of the Auditors thereon.

2. to declare a preference dividend as recommended by the directors.

3. to declare a first and final ordinary dividend as recommended by the directors.

4. to re-elect Mr. N.M. Jayamanne PC, who retires by rotation at the Annual General Meeting in terms of Article 82 of the Articles of Association of the Company, as a director.

5. to re-elect Mr. P.G.S. Kariyawasam at the Annual General Meeting in terms of Article 89 of the Articles of Association of the Company, as a director.

6. to re-elect dr. N.h. Godahewa at the Annual General Meeting in terms of Article 89 of the Articles of Association of the Company, as a director.

7. to re-elect Mr. A.L. devasurendra at the Annual General Meeting in terms of Article 89 of the Articles of Association of the Company, as a director.

8. to re-elect Mr. I.C. Nanayakkara at the Annual General Meeting in terms of Article 89 of the Articles of Association of the Company, as a director.

9. to re-elect Mr. S.P.S. Ranatunga at the Annual General Meeting in terms of Article 89 of the Articles of Association of the Company, as a director.

10. to re-appoint Messrs KPMG Ford, Rhodes, thornton & Co., Chartered Accountants as the Auditors for the ensuing year and authorise the directors to determine their remuneration.

11. to authorise the board of directors to determine donations for 2010.

12. to transact any other business of which due notice shall be given.

By Order of the Board

(Ms.) M.R.S. GunasekaraCompany SecretaryColombo, 25th February 2010

Notes(a) A member entitled to attend or attend and vote is entitled to appoint a proxy to attend/vote instead of him/her. A proxy holder

need not be a member of the Company. A form of proxy is enclosed for this purpose.

(b) The completed Form of Proxy should be deposited at the Office of the Company Secretary at Seylan Towers, No. 90, Galle Road, Colombo 03 not less than 48 hours before the time appointed for the holding of the Annual General Meeting. Only registered holders will be permitted to attend the Annual General Meeting.

(c) Shareholders/proxy holders are requested when attending the Annual General Meeting to bring with them their National Identity Cards or any other form of valid identification.

NOtICE OF MEEtING

In order to minimise wastage, the Bank has taken steps to avoid more than one copy of the Annual Report being dispatched, to any one shareholder.

however, please inform the Company Secretary if you have received more than one copy of the Annual Report.

250

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fï wmf.a wNsm%dh wruqKqlr .;a wmf.a wdh;ksl o¾Ykh bÈßm;a lsÍug ,enqKq fuu wjia:dj wms w.h lruq'

BiaÜuka kdrxf.dv

úOdhl iNdm;s

2010 fmnrjdÍ 17jk Èk

fi,dka nexl=j mS't,a'iS' ys 2009 jd¾Isl jd¾;dj

251

m%Odk úOdhl ks,Odß;=udf.a mKsjqvh

M,odhS jHdmdßl isoaê wOHhkhla wdo¾Yu;a mdvï iy úYsIaG mßphka ;j;j;a TmuÜgï lrkjd muKla fkdj

m%udKd;aul m%;sM,o úoHudk lrhs' kj wOHCI uKav,hl uÕfmkaùu hgf;a kej;;a uQ,Huh ia:djr;ajhla

w;am;a lr.;a fi,dka nexl=j" i;=gqodhl" Okd;aul uQ,H m%;sM, w;am;a lr § we;s nj uu i;=áka m%ldY lrñ'

kj l<ukdldÍ;ajhla hg;g fi,dka nel=j m;alsÍug Y%S ,xld uy nexl=j mshjr .ekSfuka miq f.jqk m<uq

iïmQ¾K uQ,H j¾Ifha l%shdldÍ;ajh fuu jd¾Isl jd¾;dfõ olajd we;' nexl=j ia:dhS;ajhg m;alsÍug .kakd ,o

W;aidyhka úYaf,aIKd;aul isoaê wOHhkhla f,i" fuu jd¾;dfõ m<uq fldgfia bÈßm;a lsÍug wms mshjr .;af;uq'

fi,dka nexl=fõ ld¾huKav,h iduQyslj w;am;a lr.;a is;a.kakdiq¿ m%;sM, úoyd olajk ñKqïo~q iy wkd.;fha

w;am;a lr .ekSug wêIaGdk lrf.k isák jeo.;a mshjrhkao fuu jd¾;dfõ b;sß fldgfiys olajd we;'

fmr j¾Ihg idfmACIj 2009 jif¾ nexl=fõ noaog miq ,dNh 250] lska j¾Okh ù remsh,a ñ,shk 543'301

f,i jd¾;d úh' tu ld, mßÉfþoh ;=<§ nexl=fõ wdodhug idfmACIj úhoï wkqmd;h o iqúfYaIS j¾Okhla

fmkakqï l< w;r th 75'79] isg 67'82] olajd my; jeáKs' 2008 wjidkfha meje;s w¾nqoldÍ ld, mßÉfþoh

;=<§ buy;a mSvkhlg ,laj ;snQ m%d.aOkfha m%udKd;aul Ndjfha wkqmd;ho 8'06] isg 11'74] olajd j¾Okh úh'

2008 wjidkfha uQ,H fCIa;%h ;=< we;sjQ oeä miqnEï ;=<ska ;jÿrg;a ;Sj% jQ f,dal wd¾Ól wjmd;h Y%S ,xldfõ

wd¾Ólh flfryso oeä wys;lr n,mEï we;s lf<ah' f.da,avka lS fl%äÜ ldâ iud.fï lvdjeàu" meje;s wys;lr

wd¾Ól ;;a;ajhka fya;= fldgf.k nexl=jg we;sj ;snQ n,mEï ;jÿrg;a W.% l< w;r øjYS,;d w¾nqohkag uqyqK

ÿka wfkl=;a fi,skaflda iud.ï iuQyfha iud.ï úiska fi,dka nexl=fjka ,ndf.k ;snQ Kh wdmiq f.ùu meyer

yßk ;;a;ajhla olajd th j¾Okh úh' ,nd§ we;s Kh m%udKh 23] l wvqùulao wl%sh Kh j, j¾Okhlao"

fya;=fldgf.k nexl=fõ wl%Sh Kh wkqmd;h miq.sh jif¾ meje;s 16'93] isg 33'61] olajd by< .sfhah'

Okd;aul o¾Ylhkays iy l<ukdldÍ;aj jd¾;dfõ iy uQ,H idrdxYhkays iúia;rd;aulj olajd we;s wksl=;a

lreKq ldrKdj,g idfmaCIj nexl=j flfrys meje;s" ;ekam;alrejkaf.a iy fldgialrejkaf.a úYajdiho

j¾Okh úh' Y%S ,xld uy nexl=j úiska ks¾foaYs; øjYS, uÜgug jvd by< w.hlska tu wkqmd;h mj;ajd .ekSug

oeka nexl=jg yelsù ;sfí' kj wOHCI uKav,hla m;alsÍu;a iuÕ w¾nqoldÍ ;;a;ajhg fmr meje;s uÜgug

meñKs iud.fï fldgia ñ,.Kka iud.fï kj Wmdhud¾.sl ie,eiafï wvx.= l%shdud¾. l%shd;aul lsÍu;a iuÕ

;jÿrg;a j¾Okh fjñka mj;S'

fláfhka m%ldY l<fyd;a" fuu jd¾;dfõ uq,a mßÉfþo lsysmh ;=< úia;r lr ;sfnk w¾nqoldÍ ;;a;ajfhka

ñ§ ÈhqKqj lrd mshjr ke.Sug wjYH ;SrKd;aul mshjrhka /ila nexl=j úiska fï jk úg f.k ;sfí' wjodkï

l<ukdlrKh i|yd y÷kajdÿka kj l%shdmámdá o" wdh;ksl md,kh jvd;a hym;a lsÍu i|yd .kakd ,o

l%shdud¾. o we;=¿j" fmruqKq /ilska nexl=j ,o id¾:l;ajh" jd¾;dfõ b;sß mßÉfþoj,ska wms iúia;rd;aulj

wOHhkh lruq' idudÔh" mdßißl iy wd¾Ól hk wxY ;=k flfrys we;s wdh;ksl j.lSu bgqlsÍfï§ wd¾Ól

iïm;a l,amj;akd f,i Wmfhda.S lr .ekSu fjkqfjka wm .;a W;aidyhkao jd¾Isl jd¾;dfõ iúia;rd;aulj

olajd we;' kj m%ñ;Ska iy l%shdj,Ska y÷kajd§u fya;=fldgf.k Okd;aul fjkila we;sù ;sfnk wf,úlrKh iy

f;dr;=re ;dCIKh jeks m%uqL fufyhqï wxYj, l%shdldÍ;ajh o wms ú.%y lr we;af;uq' m%uqL uQ,H wdh;khlg

.e,fmk oeä ks¾Kdhlhka Wmfhda.S fldgf.k nexl=fõ uQ,H m%;sm, ú.%yhlg ,lafldg we;'

úis jirlg wêl ld, mßÉfþohla mqrd fi,dka nexl=j —iqyo yola we;s foaYSh nexl=j˜ f,i wNsudkfhka

y÷kajd.;a w;r ñka bÈßhgo wm lrkq ,nk ish¿ l¾;jHhkays§ tu wdo¾YmdGhg .e,fmk mßÈ lghq;= lsÍug

wms wêIAGdk fldgf.k isáuq' miq.sh jif¾ wm uqyqK ÿka" ñkafmr fkdÿgQ úrE wNsfhda.hka ch .ekSug .;a

W;aidyfha§ fi,dka nexl=fõ ld¾h uKav,h lsisÿ whqrlska wffOrHhg m;a fkdjqKs' .kqfokqlrejkaf.a wLKav

W;aidyfhka WoaÞuhg m;a jQ wms" wm wdh;kfha o¾Ykh m%;sks¾jpkh l< w;r" by< isg my< olajd ish¿u

l<ukdlrK mßphka jeäÈhqKq lf<uq' tfiau fi,dka nexl=fõ m<uq YdLdj újD; l< Èk isg fï olajd meje;s

wmf.a lemùu ish¿u md¾Yajlrejkaf.a hym; i|yd kjH l%shdud¾. iy j.lSulska hq;a l<ukdldÍ;ajhla

;=<ska úYsIaG fiajdjla wkd.;fha§ o iemhSug wms lghq;= lruq'

fi,dka nexl=j flfrys úYajdih ;nd isák ish¿fokdf.a n,dfmdfrd;a;= ish,a,u bIag jk wdldrfha jd¾Isl

jd¾;djla bÈßm;a lsÍug yelsùu w;sYhskau i;=gqodhl lreKls' mj;sk hym;a m%jK;djhka" bÈß wkd.;hg

fkdfjkiaj mj;ajdf.k hdug yelsjkq we;s nj uu úYajdi lrñ'

wð; meial=j,a

idudkHdêldÍ$m%Odk úOdhl ks,OdÍ

2010 fmnrjdÍ 17jk Èk

fi,dka nexl=j mS't,a'iS' ys 2009 jd¾Isl jd¾;dj

nryhd; tq;fp gpvy;rp Mz;lwpf;if 2009252

gfpu;e;J nfhs;sf; $ba ngWkjpahdnjhU fij

nryhd; tq;fp kPz;Lk; ];jpukhd epjp epiyikf;Fj; jpUk;gpaJ tuyhw;Wr; rhjid kl;Lkd;wp Vida epjp

epWtdq;fSf;Fk; xU vLj;Jf;fhl;L vd;gjpy; Iak; ,y;iy.

2008 brk;gu; khjj;jpy; nryhd; tq;fp Kw;wpYk; vjph;ghuhj tifapy; rLjpahf Vw;gl;l nghJ kf;fspd;

ek;gpf;if ,og;Gf;F Kfk; nfhLf;f Ntz;ba epu;g;ge;jj;Jf;F cs;shfpaJ. ,yq;ifapd; Ie;jhtJ nghpa

tq;fpahd nryhd; tq;fp cyfshtpa uPjpapy; Vw;gl;l nghUshjhur; ruptpdhy; Kw;whfr; nraypof;f

Ntz;ba fl;lhaj;Jf;F cs;shfpaJ..

,jd; tpisthf Vuhskhd thbf;ifahsh;fs; vkJ tq;fpapy; ,lg;gl;bUe;j jkJ itg;Gj; njhiffis

mtru mtrukhf kPl;Lf; nfhs;s Kide;jdu;. kpfTk; Jujp\;lkhd ,e;j epiyikapd; fhuzkhf

,UgJ tUl Jha tuyhw;iwAk; mgupjkhd nry;thf;ifAk; ngw;wpUe;j vkJ tq;fpapd; vjpu;fhyk;

Nfs;tpf;FwpahdJ.

,e;j gpd;dilTf;fhd fhuzq;fs; kpfTk; rpf;fyhdit. mtw;iw gpd;tUk; gf;fq;fspy; njspthf;f

Kaw;rp nra;fpd;Nwhk;.

kpfTk; Mgj;jhd rupit Nehf;fpr; nrd;W nfhz;bUe;j ehk; ,yq;if murpdNjhkj;jpapy; Njrj;jpd;

kj;jpa tq;fpaapdNjh gpizapd;wp vkJ KjyPl;lhsu;fspdJk; thbf;ifahsh;fspdJk; jw;fhypfkhf

,oe;jpUe;j ek;gpf;ifia kPz;Lk; epiy epWj;jpf; nfhz;Nlhk;. tq;fpfspd; tuyhw;wpy; Kd;ndg;NghJk;

ele;jpuhj mupa epfo;T ,J.

vkJ epfuw;w ,e;jf; fijia njspthfTk; Neu;ikahfTk; nrhy;y Ntz;Lnkd;gNj vkJ ,yf;F.

ehk; Kfk; nfhLj;j rpf;fy;fspd; NghJ ngw;Wf; nfhz;l mDgt mwptpd; %yk; Vw;fdNt Fwpg;gplj;jf;f

Kd;Ndw;;wj;ijg; ngw;Ws;Nshk;.

mNj Ntis ehk; ,f;fl;by; ,Ue;j rkak; vkJ tq;fpf;Fs;Sk; tprhykhd ntspr;re;ijapYk;

Kfk; nfhLj;j rpy gpur;rpidfs; ,d;Dk; Kw;whfj; jPu;;f;fg;glTs;sd. me;j rthy;fisr; re;jpg;gjw;Fk;

mtw;Wf;fhd Mf;fu;t jPu;Tfisg; ngw;Wf;nfhs;sTk; ehk; Kide;J nraw;gLNthk;.

,f;fl;lhd Ntisapy; vkf;F jdp egu;fshYk; epWtdq;fshYk; mu;g;gzpg;Gld; toq;fg;gl;l

NgUjtpfs; %yk; kpff; FWfpa fhyg;gFjpapy; ehk; ngw;w kPl;rpAk; Kd;Ndw;wKk; Vidatu;fSf;F xU

Kd;Djhuzkhf mikAk; vd;gJ vkJ gzpthd ek;gpf;ifahFk;.

cWjpahdJk; cz;ikahdJkhd rl;lfnkhd;Wf;Fs; vk;ik epiy epWj;jp MNuhf;fpakhdJk;

epiyj;jpUf;ff; $baJkhd tu;j;jfj;ij vjph;fhyj;Jf;fhf cUthf;Ftjw;F vkf;F fpilj;Js;s ,e;j

mupa re;ju;g;gj;ij ehk; nghpJk; tuNtw;fpNwhk;.

<];l;kd; ehud;nfhl

epiwNtw;Wj; jiyth;

ngg;utup 17> 2010

253nryhd; tq;fp gpvy;rp Mz;lwpf;if 2009

Mf;fg+u;tkhd tu;j;jf Ma;nthd;W rpwe;j eilKiwfisAk; fw;Wf; nfhz;l ngWkjp kpf;f ghlq;fisg; gw;wpAk;

njspT gLj;JtNjhL kl;Lk; epd;W tplhky; tpise;j ngWNgWfisAk; Kd;itf;fpd;wJ. nryhd; tq;fpiag;

nghWj;jtiu mJ Gjpa gzpg;ghsu; rigapd; topfhl;lypy; kpfj; jpUg;jpahdJk; ];jpukhdJkhd ngWNgWfis

mile;Js;sijj; njuptpg;gjpy; ehd; ngUkfpo;tilfpd;Nwd;.

,yq;if kj;jpa tq;fp Gjpa epu;thfj;ij epu;khzpf;Fk; eltbf;iffis vLj;jgpd; ntspahFk; Kjy;

epjpahz;bd; mwpf;if ,JthFk; ,jw;F Ke;jpa gf;fq;fspy; xU Ma;twpf;if %yk; ehk; vLj;j tof;fj;Jf;F

khwhd njhlu; Kaw;rpfisg; gw;wpf; Fwpg;gpl;Ls;Nshk;. njhlu;e;J tUk; gf;fq;fspy; me;j Ma;twpf;ifia

nryhd; tq;fp ,Jtiu ngw;w ntw;wpapd; milahsr; rpd;dkhfTk; vkJ vjpu;fhyg; ghijapd; njspthd iky;

fw;fshfTk; ehk; njspT gLj;jpAs;Nshk;.

2009 ,y; thpf;F gpd;dhyhd tUkhdk; 543.301 kpy;ypad; &ghthf ,Ue;jJ. ,J mjw;F Ke;jpa epjpahz;il

tpl 250 rjtPj cau;r;rpiaf; fhl;bAs;sJ. mNjNtis tq;fpapd; tUkhdj;Jf;nfjpuhd nryT tpfpjk;

Fwpg;gplj;jf;f Kd;Ndw;wj;ijf; fhl;bAs;sJ. ,J 75.79 tpfpjj;jpy; ,Ue;J 67.82 rjtpfpjkhff; Fiwe;Js;sJ.

2008 k; Mz;bd; kpfTk; mOj;jk; epiwe;j rpf;fyhd Ntisapy; vkJ NgJkhd %yjd tpfpjk; 8.00 tPjj;jpy;

,Ue;J 11.74 rjtpfpjkhf cau;e;jJ. 2008k; Mz;L ,Wjpg;gFjpapy; cyfyhtpa uPjpapy; Vw;gl;l rLjpahd

nghUshjhur; ruptpd; fhuzkhf ,yq;ifapd; cs;ehl;L nghUshjhuj;jpy; ghupa gpd;dilT Vwgl;lJ. ,e;j

vjph;kiwj;jhf;fj;jpd; fhuzkhf rpypq;Nfh FOkj;jpy; nryhd; tq;fpaplk; Vida epWtdq;fs; ngw;w fld;fspd;

kPs; nfhLg;gdT Kw;whfj; jilg;gl;lJld; vkJ FOkj;jpd; ,iz mq;fj;Jt epWtdq;fSk; mt;thNw ngUksT

ghjpf;fg;gl;ld.

,aq;f Kbahj epiyf;Fj; js;sg;gl;l fld;fspy; Vw;gl;l cau;r;rpapdhy; vkJ tq;fpapd; ,af;fKbahj

nrhj;Jf;fspd; f;ld; tpfpjk; 16.93% ,Ue;J 33.61% tiu fle;j 12 khjq;fspy; cah;tile;Js;sJ ,J gw;wpa

tpguq;fs; ,e;j Mz;lwpf;ifapd; epu;thf mwpf;ifapYk; epjpepiyik RUf;fwpf;iffspYk; njspTgLj;jg;gLtJld;

KjyPl;lhshu;fspdJk; gq;Fjhuu;fspdJk; ek;gpf;ifia ntd;wpl fsk; mikf;fg;gl;Ls;sijAk; njspT

gLj;Jf;fpd;wJ

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mg;ghYk; Kd;Ndw;wk; fz;Ls;sJ. Gjpa epu;thf rig epu;zapf;fg;gl;lgpd;du; vkJ Mf;fu;tkhd jpl;lq;fspd;

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RUf;fkhfr; nrhy;yg;Nghdhy; ,e;j Mz;lwpf;ifapd; Muk;gj;jpy; Fwpg;gp;lg;gl;Ls;s rpf;fy;fisAk;

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ntspg;gLj;jpAs;sNjhL mtw;wpd; rhjf ghjfq;fisAk; njspTgLj;jpAs;Nshk;. mj;Jld; epiyj;J epw;ff;$ba

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Nkk;ghl;ilAk; fUj;jpy; nfhz;L vkJ vjpu;fhy eltbf;iffis Kd;ndLj;Jr; nry;yTs;Nshk;.

mj;Jld; Kf;fpa Nfe;jpuq;fshd jfty; njhopy;El;gk; njhlf;fk; re;ijg;gLj;jy; tiu rfy njhopy;

JiwfspYk; nryhd; tq;fp jdJ fhybiag; gjpg;gjw;Fj; jPu;khdpj;Js;snjdTk; mjd; %yk; Mf;fu;g+tkhdnjhU

khw;wj;ij cUthf;f tpUk;GtijAk; ehd; Rl;bf; fhl;l tpUk;GfpNwd; ,e;j eltbf;iffs; %ykhf nryhd;

tq;fpia ,e;ehl;bd; Kd;zzp tq;fpahf kPz;Lk; epiy epWj;j ehk; Kide;J epw;fpd;Nwhk;.

fle;j ,UgJ tUlq;fSf;F Nkyhf nryhd; tq;fp “md;Gld; mutizf;Fk; tq;fp” vd ngUikAld; jd;id

giwrhw;wp te;Js;sJ vdNt vkJ vjpu;fhy eltbf;iffisAk; mNj J}a ,jaj;Jld; Kd;ndLj;Jr; nry;y

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epkpu;e;J epw;Fk; fhyk; ntF Jhuj;jpy; ,y;iynad;W jplkhf ek;GfpNwhk;.

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mf;fiwAk; nghWg;Gzu;Tk; njhle;Jk; Kd;ndLf;fg;gLnkdTk; vk;kPJ gy;yhapuf;fzf;fhd thbf;ifahsh;fSk;

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KjyPl;lhsh;fisAk; ,e;j Mz;lwpf;if %yk; re;jpf;f tha;g;G fpilj;jijapl;L NgUtif nfhs;tJld; ,e;j

tug;gpurhjk; vdf;F gy;yhz;L fhyk; epiyngw Ntz;LnkdTk; gpuhu;j;jpf;fpd;Nwd;

m[pj ng];Fthy;

nghJKfhikahsu; gpujk epiwNtw;W mjpfhup

ngg;utup 17> 2010


I/We* ……………..………………………………………………......…………………………......................................…...……..............

of ………………..…………………………………………..................………………..being a shareholder/s of Seylan Bank PLC

hereby appoint Mr./Mrs./Miss.*…………………………………...……………….............................……................................

(N.I.C. No...….....................………………) of …………….................................……………………………………………………. orfailing him/her* Mr. Eastman Narangoda of Rajagiriya, whom failing, Mr. Ramanathan Nadarajah of Colombo 07, whom failing, Mr. Nihal Michael Jayamanne PC of Colombo 08, whom failing, Mr. Punsisi Lalith Patuwatha Withana of Battaramulla, whom failing, Rear Admiral (Rtd.) Baminahennadige Ananda Jayalal Gurukula Peiris of Pannipitiya, whom failing, Mr. Pradeepa Gamini Suraj Kariyawasam of Colombo 08, whom failing, dr. Nalaka harshijeewa Godahewa of Mount Lavinia, whom failing, Mr. Ajith Lasantha devasurendra of Colombo 05, whom failing, Mr. Ishara Chinthaka Nanayakkara of Rajagiriya, whom failing, Mr. Samantha Pradeep Samarawickrama Ranatunga of Colombo 05, as my/our* Proxy to represent me/us* and to vote on my /our* behalf at the Annual General Meeting of the Company to be held on 26th March 2010 and at any adjournment thereof. I/We* the undersigned hereby authorise my/our Proxy to vote for me/us* and on my/our* behalf in accordance with the preferences indicated below:

(**) For Against1. to receive and consider the Annual Report of the Board of directors on the

Affairs of the Company and the Audited Financial Statements for the year ended 31st december 2009, together with the Report of the Auditors thereon.

2. to declare a preference dividend as recommended by the directors.

3. to declare a first and final ordinary dividend as recommended by the directors.

4. to re-elect Mr. N.M. Jayamanne PC, who retires by rotation in terms of Article 82 of the Articles of Association of the Company, as a director.

5. to re-elect Mr. P.G.S. Kariyawasam, who retires in terms of Article 89 of the Articles of Association of the Company, as a director.

6. to re-elect dr. N.h. Godahewa, who retires in terms of Article 89 of the Articles of Association of the Company, as a director.

7. to re-elect Mr. A.L. devasurendra, who retires in terms of Article 89 of the Articles of Association of the Company, as a director.

8. to re-elect Mr. I.C. Nanayakkara, who retires in terms of Article 89 of the Articles of Association of the Company, as a director.

9. to re-elect Mr. S.P.S. Ranatunga, who retires in terms of Article 89 of the Articles of Association of the Company, as a director.

10. to re-appoint M/s. KPMG Ford, Rhodes, thornton & Co., Chartered Accountants as the Auditors for the ensuing year and authorise the directors to determine their remuneration.

11. to authorise the board of directors to determine donations for 2010.

(* Please delete the inappropriate words)(** Please mark your preference with “X”)

Signed this …………………………. day of March 2010

................................................ ................................................Signature/s of Shareholder/s Shareholder/s’ N.I.C/Co. Reg. No.

Notes and Instruction as to the completion of the Form of Proxy are noted on the reverse hereof:

FORM OF PROXY


Notes

Only proxy holders of Ordinary voting shareholders are entitled to vote on their behalf at the Annual General Meeting and at

any adjournment thereof. Ordinary (Non-voting) shareholders and Preference shareholders can only appoint a proxy holder to

represent them at the Annual General Meeting.

INSTRUCTIONS FOR THE COMPLETION OF FORM OF PROxY

1. In terms of Article 63 of the Articles of Association of the Company -

this instrument appointing a proxy shall be in writing and

(a) in the case of an individual be under the hand of the appointer or his attorney or

(b) if such appointer is a company or corporation either under its common seal or under the hand of an

officer or attorney authorised in that behalf in accordance with its Articles of Association or constitution.

In terms of Article 69, a company or corporation being a member of the Company may appoint any of its

officers or any other person to be its representative or proxy at any meeting or meetings of the Company

and any person so appointed shall be entitled to be present and vote and exercise all other powers in

regard to any such meeting on behalf of the Company or Corporation which he represents as if he were

a member holding the shares of such company or corporation.

2. the full name and address of the shareholder should be filled in legibly on the Form of Proxy together

with the National Identity Card Number/Passport/Company Registration Number (as applicable).

3. the completed Form of Proxy should be deposited at the Office of the Company Secretary at Level 13,

Seylan towers, No. 90, Galle Road, Colombo 03 not later than 48 hours before the time appointed for the

holding of the Meeting.

4. If the Form of Proxy has been signed by an attorney, the relative power of attorney should also accompany

the completed Form of Proxy for registration, if such power of attorney has not already been registered

with the Company.

5. If there is any doubt as to how the vote is to be exercised, by reason of the manner in which the Form of

Proxy has been completed, no vote will be recorded by the Form of Proxy.


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2009 Annual Report

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