SAMPATH BANK PLC · Sampath Bank has long been recognized as a driver of innovation in the local...

SAMPATH BANK PLCANNUAL REPORT 2016

Sampath Bank has long been recognized as a driver of innovation in the local banking industry. For over 30

years, we have delivered the finest in customer-friendly products and services designed to enable speed,

access and convenience. Our focus is always to serve our stakeholders with better value than anyone else.

That’s why we have developed world class digital banking technologies, the My Bank franchise supporting our

islandwide branch network and our creative and talented team. These are the synergies that power the inspired

financial solutions we deliver online and in real time, every single day.

A COMPELLING THOUGHT. A STUBBORN BELIEF. A PERSISTENT DREAM THAT WON’T GO AWAY.

THINK ABOUT WHAT YOU CAN ACHIEVE WHEN YOU BELIEVE THAT NOTHING IS IMPOSSIBLE. YOUR BOUNDARIES FALL AWAY. YOUR LIMITATIONS DISAPPEAR. EVERYTHING YOU THOUGHT WAS BEYOND YOUR REACH IS NOW IN THE PALM OF YOUR HAND. 30 YEARS AGO WE BELIEVED WE COULD IMAGINSPIRE OUR DREAMS THROUGH THE POWER OF OUR WILL.

TODAY WE KNOW WE WERE RIGHT.

SAMPATH BANKImaginspired

IMAGINSPIRED

2 SAMPATH BANK PLC

ANNUAL REPORT 2016

CONTENTSReport Profile ...........................................4

Financial Highlights .................................6

Non-Financial Highlights .........................9

INTRODUCTORY INFORMATION Our Vision and Our Values ....................12

About The Company .............................13

Product Portfolio ....................................14

Board of Directors .................................16

Corporate Management ........................22

Chief Managers .....................................25

Senior Managers ...................................28

MANAGING OUR BUSINESSChairman’s Message .............................32

Managing Director’s Review ..................38

Green Recognition ................................44

Sustainability Framework .......................45

Stakeholder Engagement ......................46

Business Model .....................................50

Materiality Assessment ..........................52

MANAGEMENT DISCUSSION & ANALYSISOperating Environment .........................56

CAPITAL MANAGEMENT REPORTS

Financial Capital ....................................60

Manufactured Capital ............................64

Intellectual Capital .................................70

Human Capital .......................................73

Social and Relationship Capital

Customer ...........................................82

Supplier ..............................................86

Community .........................................87

Natural Capital .......................................94

BUSINESS REPORTS

Personal and Branch Banking

Deposits .............................................99

Loans and Advances .......................100

Cards ...............................................101

Corporate Banking

Corporate Finance ...........................103

Corporate Credit ..............................104

Commercial Credit ...........................105

FCBU ...............................................106

Development Banking

MSME Development ........................107

Project Finance ................................108

Global Business

International Operations ..................109

Bank Notes Operations ....................110

Remittances .....................................111

Trade Services .................................112

Nostro Accounts, Correspondent

Banks and Exchange Companies ...113

Treasury ...............................................114

Operational Support

NSC and CCD ..................................115

Recoveries .......................................117

Performance of Subsidiaries

Siyapatha Finance ...........................118

SC Securities ...................................119

Sampath Centre ...............................120

SITS ..................................................121

Investor Information .............................123

Future Outlook .....................................134

RISK & GOVERNANCERisk Management Report ....................136

Compliance Review .............................151

Corporate Governance .......................153

Board Audit Committee Report ...........198

Board Human Resources and

Remuneration Committee Report ....202

Board Nomination Committee Report .204

Board Integrated Risk Management

Committee Report ............................206

Board Related Party Transactions

Review Committee Report ...............209

Board Credit Committee Report ..........210

Board Strategic Planning


Board Shareholder Relations


Board Treasury Committee Report ......216

Board Marketing Committee

Report ..............................................217

3

Read this Report Online

www.sampath.lk

FINANCIAL INFORMATIONFinancial Calendar ..............................220

Annual Report of the Board of

Directors on the Affairs of the

Company .........................................221

Directors’ Interest in Contracts

with the Bank ...................................230

Directors’ Statement on Internal

Control Over Financial Reporting ....231

Independent Assurance Report

to the Board of Directors of

Sampath Bank PLC ..........................233

Managing Director’s and

Chief Financial Officer’s

Responsibility Statement .................234

Statement of Directors’

Responsibility for Financial

Reporting .........................................235

Independent Auditors’ Report

to the Shareholders of

Sampath Bank PLC ..........................237

Statement of Profit or Loss ..................238

Statement of Comprehensive Income .239

Statement of Financial Position ...........240

Statement of Cash Flows .....................242

Statement of Changes in Equity ..........244

Notes to the Financial Statements .......246

SUPPLEMENTARY INFORMATIONStatement of Profit or Loss in US$ .......378

Statement of Comprehensive Income

in US$ ..............................................379

Statement of Financial Position

in US$ ..............................................380

Economic Value Addition ....................381

Ten Years at a Glance .........................382

Quarterly Statistics ..............................383

Capital Adequacy ................................385

GRI G4 Content Index .........................390

Other Sustainability Disclosures ..........398

Independent Assurance Report

to the Shareholders of Sampath

Bank PLC .........................................409

Glossary of Financial and

Banking Terms .................................410

Abbreviations ......................................416

Notice of Annual General Meeting ......418

Stakeholder Feedback Form ...............419

Corporate Information ........................IBC

4

REPORT PROFILE

SCOPE AND BOUNDARY

Covering the period 1st January 2016

to 31st December 2016, this annual

report marks the 3rd milestone on

our integrated reporting journey. The

report comprehensively covers the

performance of Sampath Bank PLC

for the reporting period and includes

among other matters; an analysis of

the operational results, a review of the

financial performance and an overview

of the Bank’s corporate governance,

risk management and compliance

frameworks, in accordance with the

Code of Best Practice on Corporate

Governance issued jointly by the

Institute of Chartered Accountants of

Sri Lanka and the Securities and

Exchange Commission of Sri Lanka,

the listing rules of the CSE and the

Banking Act Direction No. 11 of 2007

on Corporate Governance for Licensed

Commercial Banks in Sri Lanka, issued

by the Central Bank of Sri Lanka.

Further, in the interest of completeness,

an overview of the performance of

the Group’s subsidiary companies for

the same period is also provided in a

separate section of the report.

REPORTING FRAMEWORKS

This integrated annual report remains

the primary source of communication

with stakeholders and its main objective

is to show how we are working to

improve every aspect of our business

for the benefit of our stakeholders.

Accordingly, this report has been

prepared in accordance with the

IIRC’s <IR> Framework “Six Capitals”,

Reporting Framework, and the Capital

Management Report on pages 59

through 97 details the work we are

putting in to strengthen each of the

“Six Capitals” for the benefit of our

stakeholders.

The report also references the

Global Reporting Initiatives (GRI), G4

guidelines for sustainability reporting

where a comprehensive GRI content

index on pages 390 to 397 provides a

qualitative and quantitative assessment

of our progress on key sustainability

indicators.

MATERIAL ISSUES

We view the process of determining

material issues as a business tool

that facilitates integrated thinking. As

illustrated in the Materiality Assessment

Mechanism on pages 52 to 54, we

focused on 32 material issues in

2016 and throughout this report we

demonstrate the symbiotic relationship

between these material issues

and our business model, strategy,

risk framework and governance

mechanisms.

Material issues are reviewed on an

ongoing basis to ensure they remain

relevant to the overall vision of Sampath

Bank.

FORWARD-LOOKING

STATEMENTS

The Report includes forward-looking

statements, which relate to the

possible future financial position and

results of the Sampath Bank PLC’s

operations. These statements by their

nature involve an element of risk and

uncertainty, as they relate to events and

depend on circumstances that may or

may not occur in the future. However,

we do not undertake to update or

revise any of these forward-looking

statements publicly, whether to reflect

new information or future events or

otherwise.

ASSURANCE

We use a combination of internal

controls, management assurance and

compliance and internal audit reviews

to ensure the accuracy of our reporting.

Further, we continue to hire

independent service providers to

assess and assure various aspects

of the business operations, including

elements of external reporting,

including;

Auditing of the financial

statements by external auditors,

Messrs Ernst & Young, Chartered

Accountants. Please refer

page 237.

An independent audit conducted

by Messrs Ernst & Young,

Chartered Accountants, to

verify compliance of GRI G4

sustainability indicators, in

conformity with “In accordance

- Comprehensive” disclosure

requirements. Please refer

page 409.

FEEDBACK

Any feedback or comments regarding

this report can be directed through the

stakeholder feedback form on

page 419 of this report.

SAMPATH BANK PLC

ANNUAL REPORT 2016

G4 - 15,28,29,30,32,33

5OUR PROGRESS TOWARDS SUSTAINABILITY REPORTING

Year Report Profile GRI Application Level Declaration Status External Assurance

Provided

2011 Stand-alone Report GRI 3.1 Level B Self-declared YES

2012 Incorporated in Annual Report GRI 3.1 Level B Self-declared YES

2013 Stand-alone Report GRI G4 Comprehensive - YES

2014 Integrated Report GRI G4 Comprehensive - YES



MEMBERSHIP OF ASSOCIATIONS

Sampath Bank PLC is a member of several national and international associations.

Name of the Association Membership Status

American Chamber of Commerce in Sri Lanka Member

Association of Compliance Officers of Banks, Sri Lanka Member

Association of Primary Dealers (APD) Member

Biodiversity Sri Lanka, Ceylon Chamber of Commerce Patron Member

Clearing Association of Bankers Member

CSR Lanka (Guarantee) Ltd Member

International Chamber of Commerce - ICC Sri Lanka Member

Lanka Clear (Pvt) Ltd Member

Lanka Financial Services Bureau (LFSB) Member

Lanka SWIFT User Group (LSUG) Member / Deputy Chairman

Leasing Council of Bankers Member

Payment Card Association of Sri Lanka Member

Society for Worldwide Interbank Financial Telecommunication (SWIFT) Member

Sri Lanka Association of Software & Service Companies (SLASSCOM) Member

Sri Lanka Bank’s Association (Guarantee) Ltd Member

Sri Lanka Italy Business Council Member

Steering Committee on Economic Policy – The Ceylon Chamber of Commerce Member

The Association of Banking Sector Risk Professionals - Sri Lanka Member

The Ceylon Chamber of Commerce Patron Member

The European Chamber of Commerce of Sri Lanka Member

The Financial Ombudsman Sri Lanka (Guarantee) Ltd Member

G4 - 16

6

FINANCIAL HIGHLIGHTS

BANK GROUP

2016 2015 Change

%

2016 2015 Change

%

Profitability (Rs Mn)

Gross income 67,585 47,032 43.7 70,445 49,102 43.5 Total operating income 32,344 25,288 27.9 33,957 26,742 27.0 Operating expenses, impairment losses &

VAT & NBT on financial services 19,744 16,187 22.0 20,743 16,953 22.4 Profit before income tax 12,600 9,101 38.4 13,214 9,790 35.0 Income tax expense 3,475 2,967 17.1 3,712 3,161 17.4 Profit for the year 9,125 6,134 48.8 9,501 6,628 43.3

Assets & Liabilities (Rs Mn)Due to banks & other customers (Deposits only) 516,273 409,411 26.1 519,140 410,252 26.5 Loans to & receivables from banks & other

customers after impairment provisions 458,831 377,348 21.6 475,397 387,929 22.5 Total equity 44,489 35,125 26.7 49,742 39,203 26.9 Total liabilities 614,023 490,152 25.3 630,357 499,444 26.2Total assets 658,512 525,277 25.4 680,099 538,647 26.3

Investor InformationNet asset value per share (Rs) 251.38 198.47 26.7 281.06 220.98 27.2 Market value per share at the year end (Rs) 260.40 248.00 5.0 Earnings per share - Basic / Diluted (Rs) 51.56 34.66 48.8 53.66 37.42 43.4 Dividend per share (Rs) 18.75 13.00 44.2 Dividend cover (Times) 2.75 2.67 3.0 Gross dividend (Rs Mn) 3,362 2,240 50.1 Market capitalisation (Rs Mn) 46,086 42,734 7.8

Other RatiosDividend yield (%) 7.20 5.24 37.4 Price earning ratio (Times) 5.05 7.16 (29.5)Impairment allowance on loans to &

receivables from other customers (%) 1.67 1.83 (8.7) 1.70 1.87 (9.1)Non-performing loan (NPL) (%) 1.61 1.64 (1.8)Liquid assets ratio (%) 21.84 22.05 (1.0)

Fitch ratingA+ (lka)

(Negative)

A+ (lka)

(Stable)

Moody’s ratingB1

(Negative)

FINANCIAL GOALS AND ACHIEVEMENTS - BANK

Goal 2016 2015 2014 2013 2012

Financial IndicatorsReturn on average assets (after tax) (%) Over 1% 1.55 1.28 1.23 0.98 1.88Return on average equity (after tax) (%) Over 16% 23.47 18.42 16.35 12.88 22.26Growth in profit (%) Over 15% 48.76 24.83 43.27 (34.43) 54.40Growth in total assets (%) Over 15% 25.36 21.58 13.08 23.47 24.93Cost to income ratio (excluding VAT

& NBT) (%) Below 50% 47.83 52.75 54.82 51.20 51.70Capital adequacy ratios (%) - Core capital (Tier I) Over 7.5% 8.31 7.90 8.83 10.08 11.80 - Total capital (Tier I + II) Over 12% 12.87 12.26 13.62 14.22 13.61

Comparative information for the year 2015 has been reclassified wherever necessary to conform to the current year’s

presentation.

SAMPATH BANK PLC

ANNUAL REPORT 2016

7

Net Asset Value per Share grew by

26.7%to Rs 251.38

EACH YEAR, WE CONTINUE TO IMPLEMENT FINANCIAL STRATEGIES THAT ENHANCE OUR FINANCIAL CAPITAL TO ENABLE US TO CARRY OUT THE DAY-TO-DAY BUSINESS ACTIVITIES OF THE BANK...

Total Deposits grew by

26.1%to Rs 516.3 Bn

Gross Advances grew by

21.3%to Rs 468.5 Bn

Interest Income grew by

49.0%to Rs 56.5 Bn

Gross Income grew by

43.7%to Rs 67.6 Bn

TOTAL OPERATING INCOME

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2014

2013

2015

2016

20,7

57

21,3

94

25,2

88

32,3

44

(Rs Mn)

COMPOSITION OF TOTAL OPERATING INCOME 2016

Net Interest IncomeNet Fee & Commission IncomeTrading, Investment &

Other Operating Income

70.3

20.4

9.3

(%)

INTEREST EXPENSE

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2014

2013

2015

2016

26,5

56

22,3

35

20,5

42

33,7

76

(Rs Mn)

NET FEE & COMMISSION INCOME

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2014

2013

2015

2016

2,5

43

4,1

87

5,2

87

6,5

85

(Rs Mn)

8

FINANCIAL HIGHLIGHTS

DRIVEN BY STRONG REVENUE GROWTH AND COMPARATIVELY LOWER COSTS, THE BANK’S BOTTOM LINE GREW BY 48.8%, COMPARED TO THE PREVIOUS YEAR

PROFIT BEFORE TAX & PROFIT AFTER TAX

0

3

6

9

12

15

2014

2013

2015

2016

Profit Before Tax

Profit After Tax

4.9

9.1

6.1

12.6

9.1

6.7

3.4

4.5

(Rs Bn)

ROE & ROA

(%) (%)

0

5

10

15

20

25

2014

2013

2015

2016

23.4

7

18.4

2

16.3

5

12.8

8

ROEROA

0.0

0.5

1.0

1.5

2.0

0.98

1.23

1.28

1.55

SAMPATH BANK PLC

ANNUAL REPORT 2016

NET ASSET VALUE PER SHARE & DIVIDEND PER SHARE(Rs) (Rs)

0

50

100

150

200

250

300

2014

2013

2015

2016

251.3

8

198.4

7

179.3

9

169.3

7

Net Asset Value per Share

Dividend per Share

0

5

10

15

20

8.00

11.00

13.00

18.75

TOTAL ASSETS & GROSS INCOME

(Rs Bn) (Rs Bn)

0

100

200

300

400

500

600

700

800

2014

2013

2015

2016

659

525

432

382

Total AssetsGross Income

0

10

20

30

40

50

60

70

80

47.5 44.6

47.0

67.6

30%

COMPOSITION OF TOTAL EXPENSES 2016

Operating ExpensesIncome Tax ExpenseVAT & NBT on Financial Services

Net Impairment Charge

66.6

15.0

6.3

12.1

(%)

TOTAL ADVANCES & TOTAL DEPOSITS

0

100

200

300

400

500

600

2014

2013

2015

2016

Total Advances - Gross

Total Deposits

342

386

409

469

516

311

302

272

(Rs Bn) (%)

0

20

40

60

80

100

Loan to Deposit Ratio

89.8 91.194.3

90.7

9

NON-FINANCIAL HIGHLIGHTS

Indicator 2016 2015

Employees

Total number of employees by gender

- Male 2,586 2,595

- Female 1,374 1,398

Total number of training hours 136,271 141,182

Average training hours per employee per annum 34.4 35.4

Number of industrial disputes Nil Nil

Employee retention ratio 96.5% 97.0%

Profit per employee (Rs Mn) 2.3 1.5

Environment

Savings from paper recycling

Number of fully grown trees 763 1,204

Electricity (kWh) 179,452 283,200

Landfill (Cubic Meter) 135 212

Oil (Litres) 78,735 124,254

Water (Litres) 1,425,746 2,250,024

Reduction of green house gas (Kg) 44,863 70,804

Carbon footprint calculation (tCO2e) - Head Office - 3,753

- Entire Bank 11,613 -

Customers

Growth in deposits 26.10% 19.73%

Growth in advances 21.39% 24.07%

Number of ATMs 381 370

Number of off-site ATMs 83 78

Number of cash deposit kiosks 108 48

Number of branches 229 225

Growth in Sampath App downloaded 87.00% 80.00%

Corporate Citizenship

Number of CSR projects 121 60

Employee volunteerism for CSR (Man Hours) 24,431 7,284

Total investment from CSR fund (Rs Mn) 20.30 15.26

MSME Development

Number of beneficiaries of the Sampath Saviya programme 293 162

Contribution to the Government

Taxes paid to the Government (Rs Bn) 6.27 3.02

Taxes collected on behalf of the Government (Rs Bn) 1.43 1.40

G4 - EN 19

10

NON-FINANCIAL HIGHLIGHTS

SAMPATH BANK PLC

ANNUAL REPORT 2016

WE BELIEVE THAT THE PROSPERITY OF OUR STAKEHOLDERS TRULY DEFINES HOW SUCCESSFUL WE ARE AS A BANK

PROFIT PER EMPLOYEE

0.0

0.5

1.0

1.5

2.0

2.5

2014

2013

2015

2016

0.9

1.2

1.5

2.3

(Rs Mn)

0

500

1,000

1,500

2,000

2,500

3,000

2014

2013

2015

2016

1,3

69

2,5

95

1,3

98

2,5

86

1,3

74

2,6

31

1,3

54

2,3

34

STAFF STRENGTH

Male

Female

0

50

100

150

200

250

2014

2013

2015

2016

243

242

60

121

NUMBER OF CSR PROJECTS

Employee Volunteerism on CSR grew by

235%to 24,431 Man Hours

Total Investment from CSR Fund grew by

33%to Rs 20.3 Mn

Beneficiaries of Sampath Saviya grew by

81%to 293 Beneficiaries

Profit per Employee grew by

53%to Rs 2.3 Mn

Number of CSR Projects grew by

102%to 121 Projects

CUSTOMER TOUCH POINTS

0

50

100

150

200

250

300

350

400

2014

2013

2015

2016

No. of Branches

No. of ATMs

326

225

370

229

381

220

326

212

[ INTRODUCTORY INFORMATION ]A quick profile of the Bank, together with an introduction to our Board and

Senior Management Team

IMAGINCLUSIVE

Our Vision and Our Values 12

About the Company 13

Product Portfolio 14

Board of Directors 16

Corporate Management 22

Chief Managers 25

Senior Managers 28

12 SAMPATH BANK PLC

ANNUAL REPORT 2016

Create a learning culture that promotes individual

and organisational development as well as

promoting innovation and value for customers.

Treat all internal and external customers the way we

would like to be treated.

Encourage and promote teamwork in all aspects of

behaviour.

Open to feedback and demonstrate an eagerness

for personal development.

Monitor and demonstrate an impressive commitment

to results.

Uncompromising ethical and professional standards

of behaviour.

“THE GROWING FORCE IN SRI LANKAN FINANCIAL SERVICES”

OUR VISION

OUR VALUES

INTRODUCTORY INFORMATION

13

ABOUT THE COMPANY

Sampath Bank PLC is one of

Sri Lanka’s premier commercial Banks

and is ranked as one of the top private

banks in the country in terms of total

assets, total equity, customer accounts

and loan portfolio.

Incorporated in 1986 and listed

on the main board of the Colombo

Stock Exchange, Sampath Bank

has functioned as a fully-fledged

commercial bank for the past three

decades. The Bank has successfully

combined both conventional brick and

mortar banking concepts with the latest

developments in digital banking to

deliver a superior banking experience

to all customers.

The Bank serves a full spectrum of

customer segments, including retail,

large corporates, middle market and

Small and Medium Enterprises (SMEs).

In recent years, the Bank’s customer

base has grown exponentially and

as at 31st December 2016 stands at

3,659,737 customers.

SAMPATH BANK’S CONTINUED GROWTH AND SUCCESS IS FOUNDED ON A HIGHLY DIVERSIFIED AND WELL-BALANCED BUSINESS MODEL AND A ROBUST MULTI-CHANNEL ENVIRONMENT

Sampath Bank’s continued growth

and success is founded on a highly

diversified and well-balanced business

model and a robust multi-channel

environment.

Thanks to a strategy based on

innovation and service differentiation,

Sampath Bank continues to enjoy a

position of leadership in the market,

while the core values that underpin

our desire to serve the nation and its

citizens have catapulted the “Sampath”

brand to iconic status.

Maintaining its record of excellence,

Sampath Bank was recognized as

the “Best Bank in Sri Lanka 2016” -

awarded by the prestigious Business

Magazine “Euromoney”, at the

“Euromoney Awards for Excellence

2016”. This was in addition to the

awards for the ‘Best Commercial Bank

2016’ and ‘Best Retail Bank 2016’ in

Sri Lanka awarded by the UK based

World Finance Magazine, for the third

consecutive year.

ATMs

381Total Assets

Rs 659 BnBank’s Market Capitalisation

Rs 46 BnNo. ofShareholders

17,456

Branches

229

14 SAMPATH BANK PLC

ANNUAL REPORT 2016

PRODUCT PORTFOLIO

PERSONAL BANKING

> Sampath General Current Account

> Sampath Supreme Current Account

> Sampath Payment Guaranteed Cheques

> Sampath Double S

> Sampath Hit Saver

> Sampath Kalin Cash

> Easy FD

> Factoring Facility

> Sampath BIZCASH

> Sampath Samachara Loan

> Special loans for Government medical officers

> Fixed Deposits

> Certificate of Deposits

> Sevana Housing Loan

> Sevana Dayada Housing Loan

> Foreign Currency Housing Loan

> Sampath Credit Cards

> Sampath Debit Cards

> Sampath Web Card

> Sampath Bank American Express ® Platinum Ultramiles Credit Card

> Sampath Bank American Express ® Everyday Credit Card

> Sampath Bank American Express ® Travel Lite Card

> Sampath Instant Loan

> Sampath Vishwa

> Pay Easy

> Sampath Missed Call Banking

> Sampath Z-Reload

> Sampath M-POS

> Mobile Cash

> SMS Banking

> SMS Alertz

> Sampath Bank App

> Telebanking

> Sampath Cardless Cash

> Off-site ATMs

> Interbank ATM Network

> Cash Deposit ATMs

> Cheque Deposit ATMs

> Foreign Currency Exchange ATMs

> Cash Deposit Kiosk

> Sampath Pubudu & Sapiri

> Sampath Sanhinda FD

> X-SET

> Ladies 1st

> Sampath Sanhinda Saver

LOANS

LEASING

ACCOUNTS FOR PROFESSIONALS

PAWNING

GIFT VOUCHERS

CARDS

FOREIGN REMITTANCES

SAFETY LOCKERS

RELATIONSHIP BANKING

CLUBS & SOCIETIES ACCOUNT

ELECTRONIC BANKING

ENTREPRENEUR DEVELOPMENT

CURRENT ACCOUNTS

SAVINGS

FOREIGN CURRENCY ACCOUNTS

TERM DEPOSIT ACCOUNTS

> Regular Savings

> Children's Savings

> Teenage Savings

> Ladies Savings

> Senior Citizen’s Savings

> Regular Deposits

> Flexible Deposits

> Senior Citizens Deposits

> Housing Loans

> Business Loans

> Personal Loans

> Internet Banking

> Mobile Banking

> ATM Banking

> Sampath Cards

> American Express ® Card

> Sampath Leasing

> Sampath Safe Deposit Lockers

> Sampath Professional Account

> Sampath Samaja

> Sampath Randiriya

> Sampath Saviya

> e-Remittance

> Sampath Thilina

> Platinum Plus

> Non Resident Foreign Currency Accounts (NRFCA)

> Resident Foreign Currency Accounts (RFCA)

> Resident Non-National Foreign Currency Accounts (RNNFCA)

> Non Resident Non-National Foreign Currency Accounts (NRNNFCA)

> Special Foreign Investment Deposit Account (SFIDA)

> Foreign Exchange Earners Accounts (FEEA)

> Diplomatic Foreign Currency Account (DFA) and Diplomatic Rupee Account (DRA) Schemes

> Inward Remittance Distribution Account (IRDA)

> Outward Investment Accounts (OIA)

> Securities Investment Account (SIA)

G4 - 04


15

FORWARD EXCHANGE CONTRACT

CORPORATE BANKING

NEW OFFERINGS

TREASURY

> Corporate Credit > Commercial Credit > Corporate Finance > Development Banking > Foreign Currency Banking Unit (FCBU)

FINANCING SPOT CONTRACT

INTERNATIONAL TRADE

ELECTRONIC BANKING

REPO & REVERSE REPO

TREASURY BILLS

TREASURY BONDS

> Trade Services > Correspondent Banks

> Export House

> Sampath Vishwa Corporate > Sampath Payment Gateway > Sampath Corporate Payment System (SCPS)

Ladies 1st by Sampath

Bank, an account for women

promising more freedom,

convenience and advantages.

“My Bank” was introduced to provide

a convenient banking solution in rural

and suburban areas. This unique

system redefines convenience in

banking and inculcates the habit

of saving, by integrating the basic

principles of banking into their

lifestyles, in their familiar territories.

1st Bank in Sri Lanka to launch

Visa payWave enabled Credit &

Debit Cards and the merchant

network.

16 SAMPATH BANK PLC

ANNUAL REPORT 2016

BOARD OF DIRECTORS

1. MR CHANNA PALANSURIYA Chairman

2. MR NANDA FERNANDO Managing Director

3. PROF MALIK RANASINGHE Deputy Chairman

4. MR SANJIVA SENANAYAKE Senior Director /

Non Executive Director

5. MR DEEPAL SOORIYAARACHCHI Non Executive Director

6. MRS DHARA WIJAYATILAKE Non Executive Director

1

3 4

5 6

2


17

7. MISS ANNIKA SENANAYAKE Non Executive Director

8. MR DESHAL DE MEL Non Executive Director

9. MR RANIL PATHIRANA Non Executive Director

10. MRS SAUMYA AMARASEKERA Non Executive Director

11. MR RANJITH SAMARANAYAKE Group Finance Director

12. MRS ANUJA GOONETILLEKE Company Secretary

11

10

87

9

12

18 SAMPATH BANK PLC

ANNUAL REPORT 2016

BOARD OF DIRECTORS

MR CHANNA PALANSURIYA

Chairman

QUALIFICATIONS, SKILLS &

EXPERIENCE:

Earned Masters of Business

Administration from Open University

of Malaysia and has gained over thirty

years of extensive experience in the

Apparel sector by heading the Orit

Group of companies and through

continuous leadership given to other

companies in the Apparel Industry.

Further, being a Board member of

the BOI for ten years, he gained

wide experience in Government

Administration. He has won awards

such as Asia Pacific Outstanding

Entrepreneurship Award in 2013,

Sri Lankan Entrepreneur of the Year

in 2002 and the Silver Award of the

National Chamber of Exporters of

Sri Lanka for the Garment Extra Large

category in 2004.

APPOINTED TO THE BOARD:

1st January 2012 as a Non Independent

Non Executive Director. Appointed as

Deputy Chairman on 26th January 2012,

and held office as a Board member until

12th November 2015. Re-appointed

to the Board on 28th April 2016 and

appointed as Chairman on 1st August

2016.

MEMBERSHIP OF BOARD SUB

COMMITTEES:

Chairman of Board Strategic Planning

Committee. Member of Human

Resources and Remuneration

Committee, Board Nomination

Committee, Board Credit Committee

and Board Marketing Committee.

CURRENT APPOINTMENTS:

Chairman of Sampath Bank PLC,

Chairman of Style Kraft Sportware

(Pvt) Ltd, Deputy Chairman of National

Livestock Development Board, Director

of Siyapatha Finance PLC, Director

of Orit Apparels Lanka (Pvt) Ltd and

Orit Trading Lanka (Pvt) Ltd, Executive

Committee Member of Joint Apparel

Association Forum (JAAF), Executive

Committee Member of Sri Lanka Apparel

Exporters’ Association, Executive

Committee Member of Sri Lanka Apparel

Sourcing Association (SLASA).

FORMER APPOINTMENTS:

Chairman of Orit Apparels Lanka (Pvt)

Ltd, Chairman of Orit Trading (Pvt)

Ltd, Deputy Chairman of Sampath

Bank PLC, Chairman of Siyapatha

Finance PLC, Board Member of Sri

Lanka Institute of Textile and Apparel,

Chairman of Apparel Exporter’s

Association 200gfp during 2006-2008,

Chairman of CG Lanka Clothing (Pvt)

Ltd till 2013 and Board Member of

Board of Investment of Sri Lanka from

2005 to January 2015.

MR NANDA FERNANDO

Managing Director


EXPERIENCE:

Over 35 years of experience in banking

and finance, driving multiple aspects

of banking business, Transactional

Banking in Retail and Corporate

Banking, among many other key growth

areas. He is an Associate member and

a Senior Fellow member of Institute

of Bankers of Sri Lanka and holds a

Masters of Business Administration

specialized in Marketing from Sikkim

Manipal University, India. He is also

a qualified Four Bead Leader Trainer

and functions as the Group Advisor to

the Group Committee of S. Thomas’

College, Mount Lavinia.


13th September 2016 as an Executive

Director.

MEMBERSHIP IN BOARD SUB

COMMITTEES:

Member of Board Integrated Risk

Management Committee, Board

Credit Committee, Board Shareholder

Relations Committee, Board Strategic

Planning Committee and Board

Treasury Committee.


Managing Director of Sampath Bank

PLC, Director of SC Securities (Pvt) Ltd,

Lanka Financial Services Bureau Ltd,

and a Governing Board Director of the

Institute of Bankers of Sri Lanka.


Chairman of Bankers‘ Technical

Advisory Committee, which functions

under the purview of Sri Lanka

Banks’ Association and a past District

Commissioner of the Sri Lanka Scout

Association.

PROF MALIK RANASINGHE

Deputy Chairman


EXPERIENCE:

Extensive governance experience

as a former Vice-Chancellor and

Non Executive Director on Corporate

Boards. A Fellow Member, Chartered

Engineer and International Professional

Engineer of the Institution of Engineers

Sri Lanka, Fellow of the National

Academy of Sciences Sri Lanka and

the Institute of Project Managers, Sri

Lanka, PhD from University of British

Columbia, Vancouver, Canada in Civil

Engineering Economics as a Canadian

Commonwealth Scholar; recipient of

accolades and awards including the

1999 General Research Committee

Award for outstanding Contribution

to Sri Lankan Science from the Sri

Lanka Association for Advancement

of Science, the Committee of Vice-

Chancellors and Directors (CVCD)

Excellence Award for 2012 for the

G4 -38,39


19Most Outstanding Senior Researcher

in Technology and related Sciences,

the Award for Outstanding Contribution

to Education 2012 at World Education

Congress and the Education

Leadership Award 2013 in Singapore.


30th August 2011 as an Independent

Non Executive Director. Appointed as

Deputy Chairman on 1st August 2016.


COMMITTEES:

Chairman of Board Credit Committee

and Board Shareholder Relations

Committee. Member of Board Audit

Committee, Board Related Party

Transactions Review Committee, Board

Strategic Planning Committee and

Board Treasury Committee.


Deputy Chairman of Sampath

Bank PLC, Senior Professor in Civil

Engineering, University of Moratuwa,

Member of University Grants

Commission, Independent Non

Executive Director of Textured Jersey

Lanka PLC, Access Engineering PLC,

United Motors Lanka PLC and Resus

Energy PLC.


Vice Chancellor of the University of

Moratuwa, Chairman of the Committee

of Vice Chancellors and Directors

of Sri Lanka, Council Member of

the Association of Commonwealth

Universities, Fellow of the National

University of Singapore, Independent

Non Executive Director of the Colombo

Stock Exchange, Lanka IOC PLC,

Hemas Power PLC.

MR SANJIVA SENANAYAKE

Senior Director


EXPERIENCE:

Extensive local and overseas

experience in the financial services

sector having served in the senior

management capacities at premier

financial institutions and as an

independent consultant. Holds Master

of Science and Bachelor of Science

Degrees in Engineering from University

of London.


1st January 2012 as an Independent

Non Executive Director and appointed

as Senior Director on 26th January

2012.


COMMITTEES:

Chairman of Board Integrated Risk

Management Committee and Board

Treasury Committee. Member of Board

Nomination Committee and Board

Related Party Transactions Review

Committee.


Senior Director of Sampath Bank

PLC, Non Executive Director of Asian

Hotels & Properties PLC, Hemas

Pharmaceuticals (Pvt) Ltd.


Group Resident Representative for Sri

Lanka and Maldives of International

Finance Corporation (IFC) – The private

sector investment arm of World Bank,

Senior Investment Officer - Global

Financial Markets (West Africa),

Assistant General Manager (Treasury

and Investment Banking) of National

Development Bank PLC, Consultant

(Treasury and Business Development)

of Commercial Bank of Ceylon PLC,

Citibank: Senior Risk Manager -

Sydney, Australia, Head of Treasury

and Investment Banking Brunei, various

positions including Treasurer and Head

of Public Sector Business at Citibank

Colombo.

MR DEEPAL

SOORIYAARACHCHI


EXPERIENCE:

Counts over 30 years’ experience in

Sales, Advertising, Marketing, Human

Resources Development & Strategy

with extensive experience in the field

of insurance. Fellow member of the

Chartered Institute of Marketing UK and

a Chartered Marketer. Holds a Masters

of Business Administration from the

University of Sri Jayewardenepura.

Pioneer in disseminating Management

knowledge in Sinhala Language.

A Leading management development

consultant and author.



Non Executive Director.


COMMITTEES:

Chairman of Board Human Resources

& Remuneration Committee. Member

of Board Audit Committee, Board

Integrated Risk Management

Committee, Board Related Party

Transaction Review Committee, Board

Shareholder Relations Committee and

Board Marketing Committee.


Independent Non Executive Director

of Sampath Bank PLC, Independent

Non Executive Director of AIA

Insurance Lanka PLC, Pan Asian Power

PLC, Singer Sri Lanka PLC, Hemas

Manufacturing (Pvt) Ltd.


Past President of Sri Lanka Institute of

Marketing, Managing Director Aviva

NDB Insurance PLC, Commissioner -

Sri Lanka Inventors’ Commission,

Consulting Partner - RBL Group USA.

20 SAMPATH BANK PLC

ANNUAL REPORT 2016

MRS DHARA WIJAYATILAKE


EXPERIENCE:

Attorney-at-Law, LLB (Cey), Retired

from the Public Service of Sri Lanka in

August 2015, after 41 years of service.

The first lady in Sri Lanka to hold

the post of a Secretary to a Cabinet

Ministry.





COMMITTEES:

Chairperson of Board Related Party

Transactions Review Committee.

Member of Board Audit Committee,

Board Nomination Committee, Board

Human Resource and Remuneration

Committee, Board Strategic Planning

Committee and Board Credit

Committee.



of Sampath Bank PLC, Member of the

Public Service Commission, CEO of

The Ceylon Chamber of Commerce,

Member of the Sri Lanka Law

Commission.


Secretary to the Ministry of Justice,

Secretary to the Ministry of Plan

Implementation, Secretary to the

Ministry of Technology and Research,

Advisor to Minister of Higher Education

and Research.

MISS ANNIKA SENANAYAKE


EXPERIENCE:

Bachelor of Arts in Management

Studies from the University of

Nottingham. Heads Corporate

Planning for the IWS Holdings Group,

in diversified business interests in

telecommunication, shipping, media

& broadcast, automobiles, aviation,

warehousing, food & beverage

processing and packaging.


1st January 2012 as an Independent



COMMITTEES:

Chairperson of the Board Nomination

Committee, Member of Board Human

Resources & Remuneration Committee,


Committee, Board Strategic Planning

Committee, Board Marketing

Committee and Board Treasury

Committee.



of Sampath Bank PLC, Director of IWS

Holdings (Pvt) Limited and IWS Leisure

(Pvt) Limited, Director of APL Lanka

(Private) Limited, RAD Productions

(Private) Limited. Trustee - Youth

Business Sri Lanka, Ceylon Chamber of

Commerce.

MR DESHAL DE MEL


EXPERIENCE:

Master of Science Degree in

International Political Economics from

the London School of Economics,

Bachelor of Arts Degree with Honours

in Philosophy, Political Science and

Economics from University of Oxford.


1st January 2012 as a Non

Independent Non Executive Director.


COMMITTEES:

Chairman of Board Marketing

Committee, Member of Board Human

Resources & Remuneration Committee,

Board Credit Committee, Board

Strategic Planning Committee, Board

Shareholder Relations Committee and

Board Treasury Committee.


Non Executive Director of Sampath

Bank PLC, Senior Economist, Hayleys

PLC, Member of the Board of Directors

of Centre for Poverty Analysis, Member

of Economic Policy Committee of the

Ceylon Chamber of Commerce and

Director of SC Securities (Pvt) Ltd.


Economist, Institute of Policy Studies,

Sri Lanka.

BOARD OF DIRECTORS


21MR RANIL PATHIRANA


EXPERIENCE:

Extensive experience in finance and

management in financial, apparel and

energy sectors. Fellow member of the

Chartered Institute of Management

Accountants, UK (FCMA) and holds a

Bachelor of Commerce degree from the

University of Sri Jayewardenepura.


1st January 2012 as a Non Executive

Director. Became an Independent Non

Executive Director on 31st January

2015.


COMMITTEES:

Chairman of Board Audit Committee,


Management Committee and Board

Strategic Planning Committee.



of Sampath Bank PLC, Group Finance

Director - Hirdaramani Group of

Companies, Non Executive Director

of Windforce (Pvt) Ltd, Esna Power

(Pvt) Ltd, Star Packaging (Pvt) Ltd,

Alumex (Pvt) Ltd, Odel PLC, Taprobane

Holdings PLC and Ceylon Hotels

Corporation Ltd.


Chief Executive Officer of Vanik

Bangladesh Securities; AVP of Vanik

Incorporation, Director of Hayleys

MGT Knitting PLC, Hayleys PLC and

Nirmalapura Windpower (Pvt) Ltd.

MRS SAUMYA

AMARASEKERA


EXPERIENCE:

Counts over 29 years in active legal

practice in Civil Law, practicing in the

Original, Appellate & Supreme Courts

as an Attorney-at-Law. Holds a Masters

degree in Law from the University of

Pennsylvania with particular emphasis

on Insurance Law, Privacy and

Defamation Law. Has experience in

areas relating to Property, Testamentary,

Condominium Disputes, Trusts, Family

Law, and Money Recovery. Also

litigates on behalf of financial services

sector clients and has specialised in

local and international arbitrations.


1st June 2012 as a Non Independent



COMMITTEES:

Member of Board Nomination

Committee, Board Human Resource

and Remuneration Committee,


Committee and Board Marketing

Committee.


Non Executive Director of Sampath

Bank PLC, Legal practitioner, Member

of the Bar Association of Sri Lanka.

Director of Manson Investments (Pvt)

Ltd.

MR RANJITH

SAMARANAYAKE

Group Finance Director


EXPERIENCE:

Extensive experience as Head of

Finance & Planning at National Savings

Bank, Commercial Bank of Ceylon

PLC and Sampath Bank PLC. Counts

over 40 years’ experience of managing

finance in the financial services sector.

Holds a Bachelor of Commerce

(Accountancy Special) Degree from the

University of Peradeniya.


1st January 2009 as an Executive

Director.


COMMITTEES:


Management Committee, Board

Related Party Transactions Review

Committee, Board Credit Committee,

Board Strategic Planning Committee

and Board Treasury Committee.


Executive Director/Group Finance

Director of Sampath Bank PLC,

Director Siyapatha Finance PLC and

Sampath Information Technology

Solutions Ltd.


Senior Deputy General Manager,

Finance & Planning at Commercial

Bank PLC, Group Chief Financial

Officer at Sampath Bank PLC.

22 SAMPATH BANK PLC

ANNUAL REPORT 2016

CORPORATE MANAGEMENT

31 2

64 5

97 8

1. MR NANDA FERNANDO Managing Director

2. MR RANJITH SAMARANAYAKE Group Finance Director

3. MR THARAKA RANWALA Senior Deputy General Manager -

Consumer Banking

4. MRS SHASHI JASSIM Senior Deputy General Manager -

Corporate Banking

5. MR ARUNA JAYASEKERA Group Chief Human Resource Officer

6. MR AJANTHA DE VAS GUNASEKARA Chief Financial Officer

7. MR DINUSHA IHALALANDA Deputy General Manager -

Operations

8. MR PRADEEP PERERA Head of Internal Audit

9. MR MANOJ AKMEEMANA Deputy General Manager -

Branch Banking


23

1210 11

1816 17

1513 14

10. MR AJITH SALGADO Head of Information Technology

11. MRS AYODHYA IDDAWELA PERERA Deputy General Manager -

Corporate Banking

12. MRS ANUJA GOONETILLEKE Company Secretary

13. MR RAJENDRA RANASINGHE Assistant General Manager -

New IT Business Development

14. MR PUNUNUWAN WICKREMASEKERA Chief Legal Officer

15. MR SANATH ABHAYARATNE Assistant General Manager - Global

Business

16. MR SANJAYA GUNAWARDENA Assistant General Manager -

Strategic Planning & Research

17. MR MAHEEL KURAGAMA Assistant General Manager -

Operations

18. MR H B KEERTHIRATHNA Assistant General Manager -

Finance

24 SAMPATH BANK PLC

ANNUAL REPORT 2016

19 20

21 22

19. MR AMAL KIRIHENE Assistant General Manager -

Branch Banking

20. MR THUSITHA NAKANDALA Assistant General Manager -

Branch Banking

21. MR PRASANTHA DE SILVA Assistant General Manager -

Treasury

22. MS NADI B DHARMASIRI Head of Marketing

CORPORATE MANAGEMENT


25

31 2

97 8

64 5

1. MR DUSHYANTHA DASSANAYAKA Chief Manager -

Electronic Delivery Channels

2. MR ASOKA MANIKGODA Chief Manager -

Recoveries

3. MR ANANDA WIJITHA Chief Manager -

IT (EDP)

4. MR SISIRA DABARE Chief Manager -

Branch Banking

5. MR SAMAN DE SILVA Chief Manager -

Branch Banking

6. MRS ACHALA WICKRAMARATNE Chief Manager -

Card Centre

7. MR HEMANTHA MARASINGHE Chief Manager -

Administration

8. MR LALITH WERAGODA Chief Manager -

Human Resources

9. MR PRIAM KASTURIRATNA Group Risk Officer

CHIEF MANAGERS

26 SAMPATH BANK PLC

ANNUAL REPORT 2016

CHIEF MANAGERS

1210 11

1513 14

1816 17

10. MR CHATURA RUDESH Chief Manager - Trade Services &

International Operations

11. MR NALAKA GUNAWARDENA Chief Manager - System Audit

12. MR PRASANNA MULLEGAMA Chief Manager - Branch Banking

13. MR JANAKA JAYASURIYA Chief Manager -

City & Commercial Credit

14. MRS KUMARI JAYASURIYA Chief Manager - Branch Banking

15. MR PASAN MANUKITH Chief Manager - IT Systems

Development

16. MR DEEPAL DE SILVA Chief Manager - Branch Banking

17. MR HALIN HETTIGODA Chief Manager - Network Service

Centre

18. MS DULSIRI JAYASINGHE Chief Manager - Corporate Finance


27

2119 20

2725 26

2422 23

19. MR LASANTHA SENARATNE Group Compliance Officer

20. MRS ALOKA EKANAYAKE Chief Manager - FCBU

21. MR SUMIE MITHRAPALA Chief Manager -

Branch Banking

22. MR SENAKA HEWAVITHARANA Chief Manager - Legal

23. MRS CHAMPIKA NANAYAKKARA Chief Manager -

Corporate Credit

24. MR SHIRAN KOSSINNA Chief Manager -

Branch Banking

25. MR KASUN FERNANDO Chief Manager -

Branch Banking

26. MR UDARA SURAWEERA Chief Manager - Operations & Business

Process Re-engineering

27. MR KUSAL DE SILVA Chief Manager -

E-Remittance & Bank Notes Operations

28 SAMPATH BANK PLC

ANNUAL REPORT 2016

SENIOR MANAGERS

31 2

64 5

97 8

1. MR PRASADA GOONERATNE Senior Manager -

Database Administration

2. MR LAKMAL MUNASINGHE Senior Regional Manager

3. MR KASUN RATNAYAKE Senior Regional Manager

4. MR JANAKA KARUNARATNE Senior Regional Manager

5. MR THUSHANTHA SUMITHRAARACHCHI Senior Manager -

Systems & Procedures

6. MR CHINTHAKE DE SILVA Senior Regional Manager

7. MR KESHAN DABARE Senior Manager -

Lending Products

8. MR MADHUPRIYA DISSANAYAKE Senior Regional Manager

9. MR PRABODHA COORAY Senior Regional Manager


29

1210 11

1816

1513 14

10. MRS NAYANA JAYASENA Senior Manager -

IT System Development

11. MR BHARANA JAYAWARDENA Senior Regional Manager

12. MRS MANOJI HETTIGODA Senior Manager -

Trade Services

13. MR SUDATH ILLEPERUMA Senior Regional Manager

14. MR AMILA THEWARAPPERUMA Senior Manager -

Special Projects

15. MR MANJULA SENEVIRATNE Senior Manager -

Bancassurance

16. MR PRIYANKA DE SILVA Senior Manager -

Borella Branch

17. MRS PIYAMI COORAY Senior Manager -

Corporate Credit

18. MR CHAMINDA JAYASINGHE Senior Manager -

Card Centre Operations

17

30 SAMPATH BANK PLC

ANNUAL REPORT 2016

2119 20

2422 23

2725 26

19. MRS MUDITHA LIYANAPATHIRANA Senior Regional Manager

20. MR MANJULA ABEYSUNDARA Senior Manager -

Old Moor Street Branch

21. MR ANURA JAYAKODY Senior Manager -

Network Service Centre

22. MR ASANTHA PUNCHIHEWA Senior Manager -

Development Banking

23. MR ROHANA ALUTHGEDARA Senior Manager -

Central Processing Unit

24. MR VIPULA KURUPPUARACHCHI Senior Regional Manager

25. MR KITHSIRI DODAMGODA Senior Regional Manager

26. MR JANAKA MOHOTTY Senior Regional Manager

27. MR DARSHIN PATHINAYAKE Senior Manager -

Card Centre Marketing

SENIOR MANAGERS


[ MANAGING OUR BUSINESS ]Read the Executive Reports, analyse our Business Model and learn

how we assess our performance against several key indicators.

IMAGINSIGHT

Chairman’s Message 32

Managing Director’s Review 38

Green Recognition 44

Sustainability Framework 45

Stakeholder Engagement 46

Business Model 50

Materiality Assessment 52

32 SAMPATH BANK PLC

ANNUAL REPORT 2016

CHANNA PALANSURIYA Chairman

A COMPELLING THOUGHT, A STUBBORN BELIEFCHAIRMAN’S MESSAGE

ANSURIYA

S MESSAGE

MANAGING OUR BUSINESS

33Having taken over as Chairman of

Sampath Bank PLC in 01st August

2016, it gives me great pleasure to

announce that the Bank once again

exceeded all expectations, delivering

exceptional results for the year under

review. I believe this was also the result

of our ongoing commitment to position

Sampath Bank as a future-friendly

bank, a stance we adopted in the

previous year.

Before I touch on our efforts for 2016,

I would like to take this opportunity to

welcome Mr Nanda Fernando, who took

over as Managing Director of Sampath

Bank with effect from 13th September

2016. I look forward to working together

with Mr Fernando, who as a seasoned

banker with a vast knowledge and

years of experience has the drive to

steer the Bank towards its next big

growth phase in the years ahead.

Moving on to our performance for the

year, our topline reached Rs 67.6 Bn, up

by 43.7% from the Rs 47.0 Bn registered

in 2015. The bottom line rose by 48.8%,

from Rs 6.1 Bn in 2015 to Rs 9.1 Bn for

2016. While this speaks volumes for

our well-articulated strategies, it also

points to the visionary leadership of my

predecessor Mr Dhammika Perera, our

outgoing Managing Director

Mr Aravinda Perera, the commitment of

the Board of Directors and corporate

management and the passion of our

3,960 strong team of employees, who

continually drive the Bank’s success.

MOVING ON TO OUR PERFORMANCE FOR THE YEAR, OUR TOPLINE REACHED RS 67.6 BN, UP BY 43.7% FROM THE RS 47.0 BN REGISTERED IN 2015. THE BOTTOM LINE ROSE BY 48.8%, FROM RS 6.1 BN IN 2015 TO RS 9.1 BN FOR 2016

Total Assets grew by

25.4%to Rs 659 Bn

Dividend per Share grew by

44.2%to Rs 18.75

Earnings per Share grew by

48.8%to Rs 51.56

GROSS INCOME (Rs Mn)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2014

2013

2015

2016

67

,58

5

47

,03

2

44

,59

7

47

,50

9

PROFIT AFTER TAX(Rs Mn)

0

2,000

4,000

6,000

8,000

10,000

2014

2013

2015

2016

9,1

25

6,1

34

4,9

14

3,4

30

G4 -01,02

34 SAMPATH BANK PLC

ANNUAL REPORT 2016

The Bank acquired the remaining

2.86% of Sampath Centre Ltd, making

all Group companies fully owned

subsidiaries as at 31st December 2016.

There is also much more to be proud

of; our business is based on strong

fundamentals which, for the past

three decades have helped Sampath

Bank to serve the people of Sri Lanka.

Today we are ranked as one of the top

three private commercial banks in the

country, despite stiff competition. We

remain a strong, well-capitalized bank

built on a foundation of integrity, trust,

and ethical behaviour across all our

business activities, and thanks to our

iconic brand and unique footprint, we

have earned a reputation as agents of

change for a more progressive nation.

MACRO-ECONOMIC

OUTLOOK

From a macro-economic perspective,

I am happy to note that Sri Lanka

remains well positioned as an emerging

economy, ahead of many of its peers in

the South Asian region. Although initial

signs appeared to suggest a slowdown

in 2016, the country’s economy

tabled a resilient performance,

having weathered the negative global

headwinds that took a toll on the

economy causing a drop in exports and

remittances in the wake of falling oil

prices.

Despite a contraction in exports, GDP

growth is expected to reach 4.5%

by end 2016, buttressed by a strong

expansion in both manufacturing and

service sectors together with a steady

increase in tourist arrivals throughout

the year. Inflation is predicted to remain

intact at mid-single digit levels for the

fourth consecutive year, while

per-capita income reached USD 3,870

all clear signs that Sri Lanka is on track

to reach its goal of becoming a middle

income economy by 2020.

is the marrying of our corporate goals

with the aspirations of our stakeholders,

which prompted us to leverage on four

key pivots; strengthen topline, enhance

digital capability, boost core capital and

expand bottom line.

To grow the topline in 2016, we

continued to orient ourselves more

consistently toward both retail and

corporate customers in all core

markets.

At the same time, to strengthen our

roots as a commercial bank, we

adopted a two-pronged approach;

firstly to increase our penetration and

capture market share in selected retail

segments. And secondly to be the

first-mover to promote unique, as well

as structured solutions to capture the

corporate segment. At the same time,

we looked to grow our outreach beyond

Sri Lanka by expanding our offshore

operations across the region, as part of

our medium term growth objectives.

CHAIRMAN’S MESSAGE

Further, I remain optimistic about the

wider implications of the tight monetary

controls and ongoing key policy

reforms imposed by the Government.

I believe, these will pave the way for

much needed fiscal consolidation and

greater economic stability in the years

to come.

STRATEGIC IMPERATIVES

FOR 2016

As a top-tier bank in Sri Lanka, we

have always taken a proactive stance

towards improving our strategic

alignment to drive stronger growth

and deliver the greatest impact on

stakeholder value.

In the year under review, we embraced

a broader performance-driven strategy

to transform all key business pillars and

support services, and to sharpen their

alignment with our vision to “be the

growing force in Sri Lankan financial

services”. At the heart of our strategy

GDP GROWTH (%)

0

1

2

3

4

5

62014

2013

2015

2016

3.4

4.9

4.84.5

MARKET SHARE OF THE BANK (%)

6.0

6.5

7.0

7.5

8.0

8.5

9.0

2014

2013

2015

2016

Market Share - DepositsMarket Share - Loans

7.9

8.0

8.28.4

7.3 7.3

7.6

8.0


35Hand-in-hand with this volume-

driven strategy we enhanced

digital capabilities, for which our IT

transformation programme became

the key enabler. Underpinning our

capacity to continuously develop

competitive digital products, services

and channels, our IT transformation

programme also spearheads our

efforts to differentiate ourselves from

peers. Further, investments in digital

technology were aimed at enhancing

customer service, augmenting the risk

management framework and improving

employee productivity.

Equally important to our long-term

success is our cost structure. Ongoing

cost control efforts in 2016 were aimed

at reducing our cost-to-income ratio,

which, combined with topline growth,

were instrumental in meeting bottom

line targets for the year.

strengthens the Bank’s Tier II capital by

1.21% as at 31st December 2016.

EMBRACING INNOVATION

Innovation has, is and will always be

the cornerstone of our success. It

supports our efforts to build tangible

and intangible infrastructure and to

integrate relevant economic, social and

environmental issues into our strategic

planning process and articulate them

through our day-to-day operations.

In doing so, we have leveraged on

innovation to build a fully integrated

multi-channel banking system

that combines traditional and

digital channels, giving rise to an

unprecedented level of customer

convenience.

Innovation has helped us to simplify

our procedures, reduce organizational

layers and delegate more decision-

making powers to our branches,

enabling us to respond to customers’

needs faster than ever before.

Meanwhile, amidst the growing risk

of cyber security threats, we have

begun to rely on innovation to preserve

customer privacy and data security as

well.

Furthermore, our desire to innovate has

led us to explore new ways in which

to promote greater financial inclusion

in Sri Lanka, prompting the launch of

the “My Bank” mechanism in January

2016. A first for Sri Lanka, “My Bank”

is a revolutionary new agent-assisted

banking concept geared to reach

the vast numbers of unbanked and

under-banked rural masses across the

country.

Innovation also drives our efforts to

make Sampath Bank an inspiring place

to work and develop a talent pipeline

that will drive future corporate ambition.

Thanks to innovation our employees

now have a deeper understanding of

the Bank’s strategy. This has paved

the way for a more productive work

culture, that relies on delegated

authority, effective decision-making

and greater accountability at all levels

of the business. The new team-based

performance incentive scheme

implemented in 2016 is just one

example of how innovation is improving

the sustainability of our workforce.

BECOMING A MORE

SUSTAINABLE BANK

While presenting ourselves as a

future-friendly bank is a key priority,

our reputation as a sustainable bank

is also important to us. In positioning

ourselves as such, we strive to

demonstrate beyond question that

we are conducting our business in

a sustainable way and generating

greater prosperity for our customers,

employees and the communities in

which we live and work.

For us, this means contributing to real

economic growth by making financial

services accessible to individuals

and businesses, helping communities

to grow together with the Bank and

finding solutions to address the socio-

economic challenges of our country.

We have always understood that

supporting our ambitious plans will

most certainly depend how well we

manage our capital requirements

now and in the future. Based on

this premise, we raised Rs 6 Bn

through an unsecured, subordinated

and redeemable debenture, which

WE HAVE ALWAYS UNDERSTOOD THAT SUPPORTING OUR AMBITIOUS PLANS WILL MOST CERTAINLY DEPEND HOW WELL WE MANAGE OUR CAPITAL REQUIREMENTS NOW AND IN THE FUTURE

DIVIDEND PAYOUT RATIO(%)

20

25

30

35

40

45

50

2014

2013

2015

2016

39.1

37.6

36.5

36.8

36 SAMPATH BANK PLC

ANNUAL REPORT 2016

We remain firm in our commitment to

control our impact on the environment

and sharpen our community investment

goals to address socio-economic

issues raised at a national level.

Demonstrating our commitment to

the concept of shared growth we

have integrated such concerns into

our business model. Our citizenship

activities focus specifically on health,

education, community infrastructure

and livelihood development; all areas

that have been featured in the UNDP’s

Millennium Development Goals and

the 2030 agenda for Sustainable

Development for Sri Lanka. In 2016

we invested over Rs 29 Mn centred on

three key themes – empowerment of the

community, education for development

and entrepreneur development.

STRONG GOVERNANCE

Our Corporate Governance framework

is central to our efforts to build a 21st

century bank. Effective corporate

governance remains fundamental to our

success and provides proper oversight

and accountability, strengthens internal

and external relationships, builds trust

and safeguards the long-term interests

of all our stakeholders, thus enabling

us to live our values through everything

we do.

Further, we continue to make every

effort to subscribe to global best

practices for Corporate Governance.

For example, we have not restricted

ourselves to the number of sub

committees stipulated by the Central

Bank of Sri Lanka (CBSL) and the

Colombo Stock Exchange (CSE), but

exercise considerable flexibility in

establishing additional sub committees

to provide oversight for new concerns

that may arise as our business grows.

This places Sampath Bank on par with

governance practices followed by

many international banks around the

world.

PROGRESSIVE VALUE

Following through on our promise of

shared growth, a cash dividend of

Rs 4.75 per share has been proposed

for 2016, subject to the approval of the

shareholders at the upcoming AGM

on 31st March 2017. The Board also

declared an interim scrip dividend of

Rs 14.00 per share, which is subject to

the approval of shareholders at the EGM

to be held on 28th February 2017.Thus,

the total dividend per share declared for

the year 2016 amounted to Rs 18.75 as

compared to Rs 13.00 in 2015.

By using the dividend-pay-out ratio

as our yardstick to determine annual

dividend, we have been tabling a year-

on-year increase in dividend per share

for the past 3 consecutive years.

RECOGNITION FOR OUR

ACHIEVEMENTS

In 2016, Sampath Bank received

several accolades too numerous

to mention here. However, I wish to

name a few that showcase how we

are excelling in every aspect of our

business.

“Best Bank in Sri Lanka 2016”

- awarded to Sampath Bank

by the prestigious Business

Magazine “The Euromoney”,

at the “Euromoney Awards for

Excellence 2016”. This award

recognizes the top performing

Award for the “Best Bank in Sri Lanka

- 2016” from the prestigious Business

Magazine “The Euromoney”

Best Corporate Citizen Sustainability

Award from the Ceylon Chamber of

Commerce

CHAIRMAN’S MESSAGE


37financial institutions in the world,

based on stringent selection

criteria to evaluate both

quantitative and qualitative

aspects of the business.

National HR Excellence Awards

2016 - Sampath Bank received

the Gold award.

Sampath Bank was recognized

among the Ten Best Corporate

Citizens at the Best Corporate

Citizen Sustainability Awards

Ceremony 2016, organized

by the Ceylon Chamber of

Commerce.

FUTURE OUTLOOK

Moving forward, we have mapped out

our strategies to catalyze our growth

for the next 3 years. We will however,

continue maintaining a degree of

flexibility that will allow us to re-orient

our strategic focus in response to

the changes in the macro-economic

climate in the medium term.

Regardless, the overarching emphasis

would be to maintain our growth

momentum, both in terms of the top

line as well as the bottom line and to

become an even stronger financial

entity in the future. Cognizant of this

goal, the Bank will also actively pursue

organic growth opportunities both

locally as well as in the region.

From a sustainability perspective, I

firmly believe that a combination of

our focused strategy and diversified

business model will spearhead long-

term value for our stakeholders. Having

set ambitious goals for the future,

we will strive to become the best-

rated bank for quality of service. This

would require as a priority, substantial

investments in developing our people

to enhance their capacity as agents of

change for the Bank’s future.

Further, we also intend to lead our

industry in multichannel offerings

– particularly in digital banking. To

achieve this, we will continue to invest

in new technology over the next

three years to further develop our

digital platform, even as our digital

transformation journey continues to

build capabilities and enhance the

sustainability of our business in the

years ahead.

APPRECIATIONS

On behalf of Sampath Bank PLC, I

wish to extend our gratitude to our

customers, who have made us what we

are today. Your support has inspired us

to strive for even greater heights in the

years ahead.

I also take this opportunity to express

my sincere appreciation to the outgoing

Chairman, Mr Dhammika Perera, for

his invaluable contribution to Sampath

Bank during his tenure as Chairman

for the past 5 years. His wisdom and

business acumen set the Bank on its

accelerated growth path, which will

no doubt pave the way for exponential

growth in the coming years.

I would also like to extend a special

word of thanks to Mr Aravinda Perera,

who retired from his post as Managing

Director in September 2016. Mr Perera’s

retirement comes after 29 years of loyal

service to the Bank, including 5 years

as Managing Director, where he led

from the front to steer the Bank to new

heights of corporate success.

At the same time, I also wish to thank

my colleagues on the Board for their

enthusiastic participation and inputs in

all Board matters.

I wish to thank Team Sampath,

unquestionably our most valuable

asset. The Board joins me in

applauding the efforts of the corporate

management, senior management and

all our employees for their unwavering

commitment to fulfill our strategic

purpose and deliver value to our

stakeholders.

I would also like to acknowledge the

Central Bank of Sri Lanka for their

support and guidance throughout 2016.

Finally, I wish to thank our shareholders

for their patronage, as well as for the

trust and confidence placed in us. I rely

on your continued support to help us

realise our vision as “The growing force

in Sri Lankan financial services”.

CHANNA PALANSURIYA

Chairman

Colombo, Sri Lanka

13th February 2017

38 SAMPATH BANK PLC

ANNUAL REPORT 2016

NANDA FERNANDO Managing Director

ANOTHER GOOD YEAR WHERE WE MADE STEADY PROGRESS IN ACHIEVING OUR GOALS BUOYED BY ROBUST PERFORMANCE IN THE BANKING INDUSTRY


39

Profit After Tax grew by

48.8%to Rs 9.1 Bn

Cost to Income Ratio reduced by

9.3%to 47.8%

ROA grew by

21.1%to 1.6%

Setting out to rewrite the annals of Sri

Lanka’s banking industry, Sampath

Bank has, for nearly three decades

been breaking new grounds and

challenging stereotypes in the local

banking industry.

As I look back to the early years, a time

when the local industry was stagnating

under the burden of archaic banking

practices, I note with much satisfaction

that Sampath Bank’s legacy of firsts has

played a pivotal role in bringing forth a

new banking paradigm in the country.

To name a few; in 1987 we were the

first to announce daily banking hours

until 3.00 pm, when competitors were

closing their doors by 1.30 pm each

day. We also revolutionized the industry

by doing away with the traditional

banking model and pioneering in

its place, the uni-banking concept,

which facilitates seamless connectivity

between branches, allowing the

customer to bank at any branch across

the country. Continuing to break new

frontiers in technology and innovation,

Sampath Bank was the first local bank

to change the cash access platform

with the roll out of a round-the-clock

ATM network in 1988.

While these milestones have given us

reasons to be proud, more importantly

A DREAM THAT WON’T GO AWAYMANAGING DIRECTOR’S REVIEW

they have fuelled in us the desire to

always be a cut above the rest. To

strengthen our legacy and build our

capabilities, over the years we have

pursued a clear strategy, differentiating

ourselves from our peers. We have

ensured that our business model is well

anchored to our growth agenda. And

thanks to our steadfast commitment

to our core values, Sampath Bank is

now stronger, and better positioned

to deliver long-term value to all

stakeholders.

RESULTS FOR 2016

2016 was another good year where we

made steady progress in achieving our

goals, buoyed by robust performance

in the banking industry. In fact 2016

marked the second consecutive year

in which we were able to exceed our

targets, notwithstanding the macro-

economic uncertainty and increasing

regulatory pressures.

Swift action on our part to seize market

opportunities helped us to capitalise on

a heightened credit demand and grow

our advances portfolio, which tabled

a healthy growth of 21.3% in 2016,

well ahead of the industry average of

17.5%. At the same time, we continued

to maintain good credit quality, with the

40 SAMPATH BANK PLC

ANNUAL REPORT 2016

NPL ratio settling at 1.61%, well below

the industry average of 2.6% for the

year.

up by 26.1% from a year ago. Much of

this growth came from term deposits,

with a notable drop in current accounts

and savings accounts (CASA) bringing

pressure on Net Interest Margins (NIMs).

adopted by the Bank’s “Asset & Liability

Management Committee” (ALCO),

helped boost NIMs to above that of the

previous year.

Net Interest Income (NII), the Bank’s

primary source of income registered

growth, driven by higher NIMs and

steady portfolio growth. Net fee-based

income too recorded a solid 24.6%

increase spearheaded by aggressive

efforts to promote credit cards, trade

services and electronic channels.

Meanwhile, pivoted on our prudent

cost management strategies, we were

able to bring down the cost-to-income

ratio to below 50% for the first time in 6

years.

Our deposit mobilisation strategies also

yielded good results with the deposit

portfolio crossing the historical

Rs 500 Bn milestone, to reach

Rs 516 Bn as at 31st December 2016,

Nonetheless, automatic re-pricing of

term loans in line with PLR together with

effective fund management strategies

Driven by strong revenue growth and

comparatively lower costs, the Bank’s

bottom line grew by 48.8%, compared

to the previous year. As a result our

return on equity increased to 23.5%, its

highest level since 2011, and return on

assets increased to 1.6%.

The Bank declared an interim scrip

dividend amounting to Rs 2.5 Bn

MANAGING DIRECTOR’S REVIEW

CREDIT GROWTH - INDUSTRY VS BANK (%)

0

6

12

18

24

30

2014

2013

2015

2016

21.3

24.0

14.6

25.0

BankIndustry

8.813.7

21.1

17.5

NPL - INDUSTRY VS BANK (%)

0

1

2

3

4

5

6

2014

2013

2015

2016

1.6

1.6

1.9

2.7

NPL - BankNPL - Industry

5.6

4.2

3.2

2.6

TOTAL DEPOSITS(Rs Bn)

0

100

200

300

400

500

600

2014

2013

2015

2016

516

409

342

302 NET INTEREST INCOME

(Rs Bn)

0

5

10

15

20

25

2014

2013

2015

2016

22.8

17.4

15.7

15.3


DEMAND & SAVING DEPOSITS

0

50

100

150

200

2014

2013

2015

2016

Demand Deposits

Saving Deposits

131.5

32.8

160.7

34.9

163.32

5.5

83.21

7.1

(Rs Bn)

41

(DPS Rs 14.00) on 2nd February 2017

and further proposed a final cash

dividend of Rs 0.9 Bn (DPS Rs 4.75 ) on

13th February 2017.The total dividend

declared out of 2016 profits, therefore

stands at Rs 3.4 Bn.

We ended the year with a healthy

balance sheet, with our core capital

ratios meeting expected limits. During

the year, we strengthened our Tier II

capital by raising Rs 6 Bn through an

unsecured redeemable debenture

issue. Further, USD 100 Mn was raised

by way of a three-year syndicated loan.

These measures will go on to support

our medium term objectives.

A GROWTH-FOCUSED

APPROACH

We began 2016 with a growth-focused

approach that would set the pace

for the rest of the year. Our priority

was to reinforce core fundamentals

in a manner that would translate into

better business value. The crux of

our strategy was to leverage on our

key competencies and consolidate

activities in order to fuel growth.

This meant getting the basics right – a

well-anchored business model that is

both innovative and dynamic enough

to sustain growth, build resilience and

produce consistent returns that will add

value to the Sampath brand.

In meeting these core growth

objectives for the current financial

year, we focused on fortifying our

capabilities across our value chain and

strengthening operations at all levels of

the business.

PRODUCTS, SERVICES AND

DELIVERY CHANNELS

We believe that the growth of our

business is directly linked to the

way we respond to the needs of our

customers. Hence, our number1 priority

is to improve the customer experience

by giving them the opportunity to

choose from a range of options best

suited to their individual lifestyles.

From a business perspective, our

goal is to grow market share vis-à-vis

relevant affordable products, services

and innovative delivery channels that

are designed to give to all customer

segments across Sri Lanka, easier

access to financial services.

In keeping with our track record of

industry-firsts, in 2016 we pioneered a

series of initiatives, key among them;

“Missed Call Banking” and the “Instant

Loan Facility”. These unique offerings

underpin our efforts to broaden our

products, services and delivery channels

to deliver an exceptional client experience.

Meanwhile, in line with our strategy to

consolidate our branch model, branch

expansion was moderated, with only 4

branches being added to the network

in 2016.

More importantly, in response to the

speed at which client demands are

changing, we felt the need to enhance

our client interfaces and expand our

digital suite. As the emphasis shifted

towards electronic delivery channels,

we accelerated efforts to strengthen

our digital platform, making sizable

investments to expand the scope of

activities of the Sampath Vishwa online

banking portal, thus enabling both retail

and corporate segments to benefit from

24/7, 365 connectivity in an always-on,

always-connected world.

IT INFRASTRUCTURE

We are aware that our IT infrastructure

is the backbone of our business. It is

what enables us to build resilience and

stay competitive in the long term.

COST TO INCOME(%)

30

35

40

45

50

55

60

2014

2013

2015

2016

47

.8

52

.7

54

.8

51

.2

EPS & DPS(Rs)

0

10

20

30

40

50

60

2014

2013

2015

2016

Earnings per ShareDividend per Share

20.45

28.52 34.66

51.56

8.0011.00

13.00

18.75

NET ASSET VALUE PER SHARE (Rs)

100

140

180

220

260

300

2014

2013

2015

2016

169.37

179.39198.47

251.38

42 SAMPATH BANK PLC

ANNUAL REPORT 2016

In the year under review, we made

steady progress in the implementation

of our ongoing IT infrastructure

transformation programmes, where

investments were twofold; to streamline

business processes and improve

productivity. We continued automating

manual processes, while at the same

time updating many of the legacy

systems currently in use, replacing

them with more sophisticated, less

complex software architecture.

With our reputation as the most

innovative bank, also hinging on our

IT infrastructure, we then turned to our

IT framework to support our strategic

objectives and uphold brand equity.

Key initiatives for 2016 include;

The launch of the “My Bank”

concept, a revolutionary new

mechanism to promote greater

financial inclusion by expanding

our island-wide reach.

Implementation of a broad

ranging new cyber security

strategy to ensure data security

and safeguard customer privacy.

WE UNDERSTAND THAT WORKING IN A FAST-PACED AND HIGHLY COMPETITIVE INDUSTRY PLACES NUMEROUS DEMANDS ON OUR PEOPLE

PEOPLE AND PROCESSES

Team Sampath remains our most

valuable asset. It is their commitment

and expertise that delivers our brand

proposition to our customers each and

every day. It is also their individual and

collective contribution that drives our

strategy.

We understand that working in a

fast-paced and highly competitive

industry places numerous demands

on our people. It is why retaining and

developing a talented, diverse and

inclusive workforce remains a strategic

imperative for Sampath Bank. Without

exception, we give all our employees

the support they need to build a career,

achieve their goals, and help them to

improve their lives and the lives of their

families.

Having labelled HR as a strategic

business partner in the previous year,

we continued to reinforce this concept

in 2016, by implementing a number

of follow up initiatives to encourage

outstanding performance. Central to

this was the roll out of the team-based

performance incentive scheme, which

we hope will inspire a new breed of

employees. I am indeed happy to

note that following the introduction

of the scheme, a notable increase in

employee morale was also observed.

Furthermore, we invested

Rs 69.1 Mn on training and selected

261 employees for our talent

development programme, which seeks

to build the next generation of Sampath

brand ambassadors.

CA Sri Lanka Annual Report

Awards 2016

Award for the ‘Best Commercial Bank

2016’ and ‘Best Retail Bank 2016’ in

Sri Lanka for the third consecutive year

by the World Finance Magazine, UK

MANAGING DIRECTOR’S REVIEW


43RISK AND GOVERNANCE

Digitalisation and the increasing

sophistication of financial services

has no doubt made our operations

more complex and in recent years has

brought to the fore potential new risks

that we have to face as a business.

The need to understand and mitigate

such risks has prompted us to

expand our risk culture in order to

ensure we maintain a strong risk

management discipline. We continue

to invest heavily to improve our risk

management practices, emphasizing

our commitment to develop strong risk

management capabilities across the

business.

As part of this commitment, in 2016

several initiatives were taken to embed

risk skills deeper into our business

units and operational functions

across the Bank. I am confident

that this integration will sharpen our

decision-making capabilities, ensure

accountability and enforce better

governance practices throughout our

operations.

From a governance perspective,

the Board remains the apex body

responsible for all activities of the

Bank. As always, the Board provides

continuous oversight, playing an active

role in reviewing strategy, operating

environment and the progress made

towards achieving our goals.

OFFSHORE INVESTMENTS

Offshore expansion forms part of a

road map to broad base the business

through inorganic growth. Thus far,

our focus has been to establish a

presence in South Asia, where we

continue to proceed with caution, first

testing market potential before making

strategic investments.

In the year under review, we

consolidated functions of the

Representative Office in Myanmar,

which for now will act as a conduit

for bi-lateral trade between the two

countries.

FUTURE OUTLOOK

The year ahead is likely to present an

uncertain operating environment. We

are also likely to experience strong

competitive pressures, not only from

peers in the banking industry, but also

from telcos that appear to be intruding

into our territory. Nonetheless, we stand

firm in our determination to maintain

our growth momentum, both in terms

of the top line as well as the bottom

line. Additionally, cost management

and the promotion of electronic delivery

channels will continue to be absolute

priorities in our medium term growth

agenda.

The Bank will also actively look at

in-organic growth opportunities, both

locally as well as in the region.

Further we will continue to strengthen

our foundation of integrity, trust and

ethical behaviour that will underpin

success at all levels of our business.

To achieve this, we remain deeply

committed to invest in IT infrastructure

and focus on supporting our people

in order to serve our clients better and

grow our business in the coming years.

We are confident that our strategy

is sound. By executing our strategy

well, and making meaningful progress

against our focus priorities, I believe,

Sampath Bank is well positioned to

achieve medium term performance

objectives and sustain even greater

value for all stakeholders in the long

term.

APPRECIATIONS

In closing, I would like to take

this opportunity to recognise the

contributions made by my predecessor,

Mr Aravinda Perera. I am honoured

to have succeeded Mr Perera, who

retired this year after 29 years of loyal

service to the Bank, including 5 years

as Managing Director, during which

time he put Sampath Bank on an

accelerated growth path. I would like

to thank him for his leadership and

distinguished service to the Bank.

I also wish to thank our former

Chairman, Mr Dhammika Perera for his

foresight and exemplary leadership that

steered the Bank towards new heights.

While thanking my colleagues on

the Board, for their wise counsel and

unstinted support given to me at all

times, I would like to extend a special

word of thanks to Team Sampath for

their exceptional commitment and

loyalty towards the Bank and for

delivering the Sampath promise to our

stakeholders.

My sincere appreciation also to all

our shareholders for the trust and

confidence placed in Sampath Bank

PLC. I seek your continued patronage

in the coming years as we work towards

realising the Bank’s vision for the future.

NANDA FERNANDO

Managing Director

Colombo, Sri Lanka

13th February 2017

44 SAMPATH BANK PLC

ANNUAL REPORT 2016

GREEN RECOGNITION

As part of the ongoing commitment to achieve a Net Zero Carbon Footprint,

the Sampath Bank Annual Report 2016 was declared a Carbon Neutral Product,

following an independent verification by the Sri Lanka Climate Fund Private Limited.

This is the second consecutive year in which the Annual Report has been

declared as a Carbon Neutral Product.


SAMPATH BANK PLC ANNUAL REPORT 2016- A CARBON NEUTRAL PRODUCT

45

SUSTAINABILITY FRAMEWORK

At Sampath Bank we consider

ourselves agents of change for our

country and all its citizens. We want to

be a trusted and reliable catalyst to our

customers, shareholders, employees

and society at large. We believe that

the prosperity of our stakeholders truly

defines how successful we are as a

bank.

That is why we are striving to reinvent

ourselves as a more sustainable

business and sharpen our competitive

edge in the market. Therefore, we have

begun gauging the consequences of

our actions and taking responsibility for

how our business decisions affect our

shareholders, regulators, customers,

employees, suppliers and service

providers, society and the environment.

Our ultimate goal is to be able to

derive and sustain economic, social

and environmental value, long into the

future.

To bridge the gap between where we

are now and where we want to be, we

have adopted a 3600 sustainability

matrix that begins with our stakeholder

engagement mechanism where we

identify key sustainability trends and

determine the opportunities and threats

arising therefrom. These are embedded

into our corporate objectives via our

strategic planning process and then

carried out on a day-to-day basis under

the purview of our governance, risk

management and product stewardship

pillars.

OUR SUSTAINABILITY VISION - 3600 APPROACH TO SUSTAINABILITY

Sustainability

Trends

Stakeholder

Engagement

Opportunities

and Threats

Corporate

Objectives

Strategic

Planning

Process

Governance

Risk

Management

Product

Stewardship

3600

APPROACH TO

SUSTAINABILITY

STRATEGIC FOCUS ON TRIPLE BOTTOM LINE

People

Pla

net

VISION:

Work to create a

healthier planet

by supporting the

environment that

supports us. In

doing so, we strive

to challenge the

way people think

about the role of

banks in building

a greener planet

VISION:

Focus on providing

real solutions that

enrich the lives

of our customers,

shareholders,

employees,

suppliers,

business partners

and communities

connected to our

work

VISION:

Use our financial prowess to trigger

sustainable nation-wide development so as

to raise Sri Lanka’s socio-economic position

in the long term

Profit

Profit

46 SAMPATH BANK PLC

ANNUAL REPORT 2016

STAKEHOLDER ENGAGEMENT

We believe all our stakeholders are

key partners in our journey towards

attaining our vision to “Be the Growing

Force in Sri Lankan Financial Services”.

Effective stakeholder management is

therefore paramount to our success

and crucial in ensuring we remain

a sustainable business in the years

ahead.

Bearing in mind, the management

thinking for each stakeholder

category, we engage openly with our

stakeholders in an effort to develop

co-operative and mutually supportive

relationships that will help us

understand and proactively respond to

their expectations at all times.

PLANETPEOPLE PROFIT

Stage 1 - Classify

Stage 2 - Respond

Stage 3 - Assess

Identify - Stakeholders

Project Planning - CSR and Sustainability Committee *

(Please refer page 88)

Continuous monitoring and control of project parameters

Engage with Stakeholders to determine matters of

relevance (Please refer pages 47 to 49)

Integrate Project - into Sustainability Framework

Reporting Actual vs. Targets

Rank - Material issues


Execution of Project - Respective CSR Pillar

Database for future reference

TRIPLE BOTTOM-LINE IMPACT ASSESSMENT

STAKEHOLDER MANAGEMENT PROCESS

* CSR AND SUSTAINABILITY

COMMITTEE

Senior DGM - Consumer

Banking - Pillar Head,

Entrepreneurship Development/

Overall Management

Group Chief Human Resource

Officer - Pillar Head, Education

for Development

AGM - Branch Banking - Pillar

Head, Empowerment of the

Community

Chief Manager - Branch Banking

- Pillar Head, Ethics & Values

Chief Manager - Human

Resource - Pillar Head,

Environment Protection &

Conservation

Senior Executive - CSR &

Sustainability

Officer - CSR & Sustainability

Junior Executive - Assistant CSR

& Sustainability

CSR & Sustainability Committee of the

Bank review of all sustainability aspects

to verify the accuracy of sustainability

parameters that are included in the

annual report.

G4 - 36,42,47,48


47STAKEHOLDER ENGAGEMENT MECHANISM

Engagement Mechanism Frequency of

Engagement

Matters Relevant to

Stakeholders

Our Strategic Response Page

EM

PL

OY

EE

Managem

ent

Philo

sophy: C

om

mitm

en

t to

cre

ate

an

enviro

nm

en

t

conduciv

e for

em

plo

yees to d

eve

lop

an

d r

ea

ch

th

eir p

ote

ntia

l, b

oth

pro

fessio

nally

an

d p

ers

on

ally

Open door policy R Ethical employment

practices

Career

development

Employee

communications

Rewards /

recognition

Employee well

being

Work-life balance

Competitive rewards

and benefits to attract

the best talent in the

market

Promoting greater

diversity and inclusion

Develop from within

through training &

development

Encourage greater

engagement

Performance-based

incentives

Effective handling of

grievances

Maintain high

standards of

occupational health &

safety

Ensure employee

welfare

Foster a sense of

belongingness

73 to 81

Employee forums P

Employee suggestions

schemes

R

Grievance handling

procedure

R

Employee social

committees

R

Feedback forms A

Business unit level

meetings

R

Intranet 24/7

Memorandums / Circulars R

News letters Q

Training R

Get-together / Events R

Sampath Employee

Notification System (SENS)

24/7

CSR projects R

CU

ST

OM

ER

Managem

ent P

hilo

sophy: U

phold

the c

usto

mers

rig

ht

to d

em

and a

sta

ble

an

d p

rogre

ssiv

e b

ankin

g e

nvironm

ent

whic

h p

rovid

es a

superi

or

serv

ice p

latform

and p

rom

ote

s c

usto

mer

choic

e /

conve

nie

nce

One-to-one feedback from

customers who visit the

Bank

R Customer service

Satisfaction with

existing products

Brand perception

and reputation

Customer

convenience

Need for innovation

and customized

solutions

Communication

methods

Special promotions

Timely and relevant

information on

products and

services

Customer touch-

points

Customer benefits

and rewards

Loyalty recognition

Effective complaint

resolution

Maintain service

excellence

Deliver technology-

driven banking

solutions

Continuous

introduction of

innovative products

that promote greater

customer convenience

Effective marketing

communication

Maintaining data

security and customer

privacy

Promoting island-wide

customer inclusiveness

Better market share

82 to 85

Customer surveys

conducted via traditional

or non traditional research

techniques

P

Social media interactions 24/7

Customer complaint

handling mechanism

24/7

ATL, BTL & digital

communications

R

Feedback forms-paper

based / electronic

mediums

R

Correspondence R

SMS alerts 24/7

Corporate website 24/7

Sampath Vishwa (Internet

Banking) portal

24/7

Customer call centre 24/7

CSR projects R

A - Annually P - Periodically Q - Quarterly R - Regularly 24/7 - 24 hours 7 days

G4 - 24,25,26,27

48 SAMPATH BANK PLC

ANNUAL REPORT 2016

Engagement Mechanism Frequency of

Engagement

Matters Relevant to

Stakeholders


SH

AR

EH

OL

DE

RS

& O

TH

ER

IN

VE

ST

OR

S

Managem

ent

Philo

sophy: E

nsuri

ng

lo

ng

te

rm s

ha

reh

old

er

valu

e a

nd

uphold

ing t

he r

ights

of

the s

hare

ho

lde

r a

nd

su

pp

ort

ing

a b

roa

de

r

share

hold

er

constitu

ency to e

nsu

re t

he

ir w

ea

lth

ma

xim

iza

tio

n

Shareholder relation

forums

P Shareholder

satisfaction

regarding the

Bank’s financial

position

Shareholder views

on key governance

and policy matters

Development

of shareholder

communication

channels

Return on equity &

interest gains

Strategy and

continuity

Financial

performance

Maintaining a

consistent bottom line

Ensuring sustainable

return on investment

Engaging in greater

transparency

and responsible

stewardship

Maintaining the

Bank’s reputation and

credibility

Safeguarding asset

quality

123 to

133

General meetings A/P

Annual report A

Interim financial

statements

Q

Disclosures and

announcements on CSE

P

Corporate website 24/7

General correspondence R

CSR projects R

SU

PP

LIE

RS

& S

ER

VIC

E P

RO

VID

ER

S

Managem

ent P

hilo

sophy: S

trik

ing t

he r

ight

bala

nce b

etw

een

cost and q

ualit

y a

nd p

rom

oting e

thic

al and t

ranspare

nt

sourc

ing p

ractices

Interactions through the

purchasing policy

R Developing

strategic

partnerships

Promoting

transparent

and ethically

responsible

business practices

Continuous

communication with

suppliers & service

providers

Engaging in fair and

equitable procurement

Supplier risk

assessment

mechanism

Contractual

agreements to

promote sustainable

procurement

Local sourcing

Registration of multiple

suppliers and service

providers as a BCP

measure

Maintenance of a

supplier, service

provider registry

86

Feedback forms As and when

required

Meetings R

Visits to supplier

workshops / offices

P




49Engagement Mechanism Frequency of

Engagement

Matters Relevant to

Stakeholders


CO

MM

UN

ITY

AN

D E

NV

IRO

NM

EN

T

Managem

ent P

hilo

so

phy: W

ork

ing

in

ta

nd

em

with

glo

ba

l a

nd

local m

andate

s t

ha

t sa

feg

ua

rd t

he

enviro

nm

en

t a

nd

pro

mo

te

co

mm

un

ity e

mp

ow

erm

en

t

Ground-level interactions

with community leaders

by staff

R Community

capacity building

Community

empowerment

Social welfare of

communities

Environmental

projects

Preservation of

local culture

Socially responsive

transformative CSR

model

Transparency and

governance

Community

engagement

Employee volunteerism

Become a catalyst for

change

87 to 93

Interactions with social

groups and volunteer

organisations

R

Feedback forms /

environment grievance

handling mechanism

R

Discussions

with government

representatives

R

Discussion with other

organisations, community

and opinion leaders on

community development

efforts

R

Media based forums R

CSR projects R

CB

SL

& O

TH

ER

GO

VE

RN

ME

NT

IN

ST

ITU

TIO

NS

Managem

ent

Philo

sophy:

Ensure

com

plia

nce w

ith a

ll le

gal and r

egula

tory

requirem

ents

Policy directives /

circulars, guidelines and

operating instructions

R Policy decisions

affecting the

financial sector

Fiscal consolidation

laws

Submission of

returns

Taxes paid to the

government

Compliance with

regulations

Rectification actions on

supervisory concerns

On-time submission of

statutory returns and

statutory payments

Response and

contribution at

meetings / forums and

to initiatives of the

regulators

MSME lending &

entrepreneurship

development

Supporting the NCRE

sector

Support to maintain

stability in money and

foreign exchange

markets

Help investors to make

better investment

decisions

Meetings and forums P

Press releases R

Periodic and one-off

returns

P / As and

when

required

On-site and off-site

supervision

A / As

and when

required

Training programmes R


50 SAMPATH BANK PLC

ANNUAL REPORT 2016

FINANCIAL CAPITAL

Pages 60 to 63

INTELLECTUAL CAPITAL

Pages 70 to 72

SOCIAL & RELATIONSHIP

CAPITAL

Pages 82 to 93

MANUFACTURED CAPITAL

Pages 64 to 69

HUMAN CAPITAL

Pages 73 to 81

NATURAL CAPITAL

Pages 94 to 97

Review & Reporting

FU

ND

AM

EN

TA

L IN

PU

TS

TO

TH

E B

US

INE

SS

PR

OC

ES

S

REWORK ON CAPITAL

VALUE CREATION PROCESS

INTERNAL ENVIRONMENT

Pages 39 to 43

CHALLENGES & OPPORTUNITIES

Page 51

VISION

Page 12

VALUES

Page 12

RISK MANAGEMENT GOVERNANCE

STAKEHOLDER

ENGAGEMENT

Page 46 to 49

STRATEGIC

FOCUS

Page 51

OUTCOMEINPUT

EXTERNAL ENVIRONMENT

Pages 56 to 58

IMPACT

ASSESSMENT

NE

GA

TIV

E IM

PA

CT

P

OS

ITIV

E I

MP

AC

T

KEY BUSINESS PILLARS

Personal Banking

Corporate Banking

Development Banking

Global Business

Treasury

Pages 99 to 114

SUBSIDIARIES

Siyapatha Finance PLC

SC Securities (Pvt) Ltd

Sampath Centre Ltd

Sampath Information

Technology Solutions Ltd

Pages 118 to 122

BUSINESS MODEL

SUPPORTING SERVICES

Human Resources and

Training

Operations

Marketing

Administration and

Engineering

Research and Development

IT System Development

Legal

Recoveries

Finance

Internal Audit

Risk

Compliance

Network Service Centre

Central Cash Department

Pages 115 to 117

G4 - 17


51

KEY RISKS

Key Risks Management Focus for 2016

Credit Risk Strengthening credit

evaluation and borrower

rating processes

Market Risk Combined stress testing

scenarios and limit

framework

Foreign Enhanced limit

Exchange Risk monitoring

Interest Rate Risk Re-structured monitoring

mechanisms

Operational Risk Improved internal

process

Compliance Risk Monitoring and

reporting framework

CHALLENGES AND OPPORTUNITIES

Challenges Opportunities

Macro-economic Technology and

changes innovation

Regulatory Customer expectations

changes

Competition from Sustainability trends

peers

Cyber security

threats

Workforce

management

STRATEGY AND FOCUS

Become a more resilient and

adaptable business

Effective management of regulatory

changes

Become more customer-centric

Embrace innovation

Invest in information technology and

digitalization

Develop human capital

Exemplify Sampath Bank values

through corporate citizenship

VALUE CREATED FOR STAKEHOLDERS – HIGHLIGHTS

2016 2015

Shareholders

Return on Assets (ROA) 1.55% 1.28%

Earning per Share (EPS) 51.56 34.66

Return on Equity (ROE) 23.47% 18.42%

Dividend per Share (DPS) (Rs) 18.75 13.00

Market capitalisation (Rs Mn) 46,086 42,734

Direct economic value generated (Rs Mn) 67,553 47,202

EmployeesTraining investment (Rs Mn) 69 47

Employee salaries and benefits (Rs Mn) 7,333 6,141

Customers

Growth in deposits 26.10% 19.73%

Growth in advances 21.39% 24.07%

Number of branches 229 225

Number of ATMs 381 370

Community & Environment

Total investment from CSR fund (Rs Mn) 20 15

Number of CSR projects 121 60

Employee volunteerism for CSR (man hours) 24,431 7,284

Carbon footprint indicator (tCO2e) - Head Office - 3,753

Carbon footprint indicator (tCO2e) - Entire Bank 11,613 -

Green house gas reduction from paper recycling (Kg) 44,863 70,804

RegulatorsTaxes paid to the Government (Rs Bn) 6.27 3.02

Taxes collected on behalf of the Government (Rs Bn) 1.43 1.40

FINANCIAL CAPITAL

Ensure adequate financial resources are available to support our business activities and execute our strategies Retained earnings -

Rs 4.4 Bn Debenture issued in

2016 – Rs 6.0 Bn Syndicated Loan -

USD 100 Mn General Reserve -

Rs 27.7 Bn


Strengthen tangible and intangible infrastructure that we use to conduct our business activities, including our branch and ATM network, and digital channels 04 new branch

openings Installation of 06

new off-site ATM’s Enhancements

to retail banking portfolio

Improvements to the corporate banking suite

Facilitating e-commerce & m-commerce


Uphold innovativeness Rs 105 Mn invested

in IT to streamline business processes to improve productivity of employees

HUMAN CAPITAL

Develop competencies of our people and their level of commitment to ensure execution of the corporate strategies Rs 69.1 Mn invested

in training and development

261 team members included in the Executive Talent Development Programme

Planned activities to promote greater employee engagement and commitment

SOCIAL & RELATIONSHIP CAPITAL

Connect with external stakeholders as a basis for sustainable growth Corporate

citizenship activities that demonstrate the commitment towards customers, suppliers and the community

121 CSR initiatives

NATURAL CAPITAL

Minimize the destruction of natural resources resulting from business activities Invest in energy-

saving technology Adopt best practices

for paperless banking

Green lending Encourage all

stakeholders to subscribe to the green movement

Sustainable lending on NCRE

VALUE CREATION THROUGH OUR BUSINESS MODEL

52 SAMPATH BANK PLC

ANNUAL REPORT 2016

MATERIALITY ASSESSMENT

IDENTIFY

RANK

Material matters are identified through

an external and internal assessment

mechanism, which takes into account

the issues raised by our stakeholders

as a result of the interactions we

have with each stakeholder category.

A matter is deemed to be material

when it has the ability to influence our

financial performance, our reputation,

or impact on the sustainability of our

business. The process for identifying

Materiality is given below.

Degree of materiality is gauged and

issues are assigned a rank, taking

cognizance of the opportunities and

threats in the operating environment,

strategy, business model, risk,

governance and compliance

frameworks.

INTEGRATE

Material issues are integrated into our

strategic agenda through our 3600

Sustainability Matrix that connects

stakeholder expectations to our

strategic objectives. Please refer

page 45.

INTERNAL ASSESSMENT EXTERNAL ASSESSMENT

BUSINESS UNITS

TEST 01

TIER 01 - IDENTIFY TIER 02 - RANK TIER 03 - INTEGRATE

TEST 02 TEST 03 TEST 04

STAKEHOLDERS

Primary engagement

mechanism

Identifying the stakeholdersDeveloping and ranking strategies

relevant to the stakeholdersEstablish sustainable goals

Frequency of

engagementRelevance of matters

Prioritize the relevant material

aspects

Reporting & record keeping

G4 - 18


53

Improve social relevance and

enhance corporate citizenship

Community Socially responsible CSR

model

Social & Relationship

Capital

Transparency and

governance

Community engagement

Employee volunteerism

Customer Product responsibility

Marketing communication

Customer privacy and data

security

Customer service

Customer centricity

Supplier Fair and equitable

procurement

Supplier risk assessment

Contractual agreements

Local sourcing

Material Matters Identified Material Aspect Supporting Capital

Withstanding tough economic

headwinds

Economic performance

Financial Capital

Indirect economic impact

Minimizing the direct and indirect

impact on the environment

Energy saving

Natural Capital

Reduction of paper waste

Carbon footprint calculation

Employee engagement

Sustainable lending

Customer engagement

Environmental CSR

Securing the commitment of

employees to meet corporate

objectives and deliver stakeholder

value

Salary, benefits, rewards and recognition

Human Capital

Training and development

Leadership development

Employee engagment

Diversity and inclusion

Safety and wellness

Leverage on innovation to achieve

market leadership

IT systems

Intellectual Capital

Develop tangible and intangible

infrastructure to support business

goals

Digital channels

Manufactured Capital

Customer touch-points

Periodic internal surveys

54 SAMPATH BANK PLC

ANNUAL REPORT 2016

H

M

M

L

L H

15

1117

22

27

1220

38

1323

410

1625

614

1829

915

21

30

31

H

M

L

High

Medium

Low24 26 27 28

3219


MA

TE

RIA

L L

EV

EL

WIT

HIN

TH

E O

RG

AN

ISA

TIO

N

MATERIAL LEVEL OUTSIDE THE ORGANISATION

1 Economic performance

2 Indirect economic impact

3 Energy saving

4 Reduction of paper waste

5 Carbon footprint calculation

6 Employee engagement -

environment

7 Sustainable lending

8 Customers engagement -

environment

9 Environmental CSR

10 Salary, benefits, rewards and

recognition

11 Training and development

12 Leadership development

13 Employee engagement - CSR

14 Diversity and inclusion

15 Safety and wellness

16 IT systems

17 Digital channels

18 Customer touch-points

19 Periodic internal surveys

20 Socially responsible CSR model

21 Transparency and governance

22 Community engagement

23 Employee volunteerism

24 Product responsibility

25 Marketing communication

26 Customer privacy and data security

27 Customer service

28 Customer - centricity

29 Fair and equitable procurement

30 Supplier risk assessment

31 Contractual agreements

32 Local sourcing

Financial Capital Natural Capital Human Capital Intellectual Capital Manufactured Capital Social & Relationship Capital

Please refer page 408 for Comprehensive Materiality Assessment


IMAGINFINITE

[ MANAGEMENT DISCUSSION & ANALYSIS ]This section describes the Bank’s extensive operations and includes the Capital

Management and Business Reports as well as information about our stakeholders.

Operating Environment 56

Capital Management Reports 59

Business Reports 98

56 SAMPATH BANK PLC

ANNUAL REPORT 2016

OPERATING ENVIRONMENT

COUNTRY REVIEW

2016 was a very challenging year for

Sri Lanka, with the country’s GDP for

the year expected to reach only 4.5%

down from the 4.8% recorded in 2015.

The decline can be attributed to severe

external headwinds that put pressure

on many key sectors in the economy.

remittances recorded a modest YoY

growth rate of 3.7% by December

2016, despite the sluggish economic

conditions in the Middle Eastern region.

investment goods such as machinery

and building materials. Nonetheless

total import expenditure for 2016 was

less than 2015, which helped stabilize

the balance-of-payments and reduce

the volatility of the rupee in the first

three quarters of the year. However, a

sharper than expected depreciation

in the rupee was seen in the 4th

quarter, partly due to large scale

capital outflows triggered by the highly

anticipated rate hike by the Federal

Reserve. Despite this however, the

rupee depreciated by a moderate 4.0%

in 2016, compared with 9.9% the year

before.

Figures available at present appear

to suggest that the services sector

and Industry sectors tabled growth in

2016, while the Agriculture sector, hit

by long dry spells and flood conditions

throughout the year, recorded de-growth.

The performance of the External sector,

mainly exports and inward remittances,

also fell below expectations for 2016.

The downward spiral of the traditional

export sectors (Tea & Rubber / Rubber

products) continued, as weak oil prices,

unfavourable currency movements, and

growing political instability continued

to diminish demand in key markets in

the Middle East, Europe and Russia.

On a positive note, however inward

The Apparel industry, the 2nd largest

foreign exchange earner, was another

segment that came under pressure in

2016, amidst increased uncertainty

across key European markets following

the unexpected outcome of the

Brexit vote in June 2016. However,

here too, signs of optimism and slow

improvement were visible in the latter

part of the year, buoyed by the growing

anticipation of the GSP+ concessions

being reinstated in 2017.

Total imports witnessed a decline

during the first nine months of 2016,

largely due to the high import duties

imposed by the Government to curb

vehicle imports. A further decline

in oil prices during the first half of

the year also proved to be another

contributing factor in curbing import

expenditure. On the other hand, total

non-oil imports increased slightly

during the period driven by demand for

Inflation remained in mid-to-low single

digit territory, recording 4.2% YoY

(NCPI) by end - December 2016.

Amidst declining external reserves,

the Government successfully

negotiated with the IMF, and entered

into an Extended Fund Facility (EFF)

arrangement to receive USD 1,450Mn

over a period of three years. The

arrangement, which was approved in

June 2016, facilitates the Government’s

IMPORT EXPENDITURE & EXPORT EARNINGS

0

5

10

15

202014

2013

2015

2016*

Import Expenditure

Export Earnings

11.1

18.9

10.5

19.2

10.3

19.4

10.4

18.0

(USD Bn)

*Estimated

USD / LKR MOVEMENT (Rs)

100

112

124

136

148

1602014

2013

2015

2016

130.75

131.20

144.20

150.00

WORKERS' REMITTANCES(USD Mn)

3,000

4,000

5,000

6,000

7,000

8,000

2014

2013

2015

2016

7,2

42

6,9

80

7,0

18

6,4

07

MANAGEMENT DISCUSSION & ANALYSIS

57

reform program that aims to reduce

the fiscal deficit, rebuild foreign

exchange reserves, and introduce a

simpler, more equitable tax system to

restore macroeconomic stability and

promote inclusive growth. In November

2016, the IMF completed its first

review of the arrangement, enabling

the disbursement of second tranche

of USD 162.6 Mn, bringing the total

disbursements under the arrangement

to USD 325.1 Mn.

REVIEW OF THE

PERFORMANCE OF THE

BANKING INDUSTRY

Sri Lanka’s banking industry, one of

the fastest growing segments of the

economy, made steady progress in

2016 as well. Industry-wide liquidity

levels reduced during the year as

a result of stricter liquidity control

measures imposed by the CBSL, such

as increasing the Statutory Reserve

Ratio by 1.5% to 7.5%, a decision that

came into effect from 16th January

2016. The Statutory Liquid Asset Ratio

as at the end 2016 was 30.0%, slightly

below the 33.9% recorded at the end of

2015, signalling the continuing stability

of the banking industry.

The key highlight for 2016 was however

the buoyant credit growth seen across

the industry. Industry-wide credit growth

for 2016 reached a robust 17.5% YoY

by December 2016, compared to 21.1%

YoY growth tabled in the previous

year. A strong demand for credit from

the private sector came mainly from

the Industry (Construction and SME

subsectors) and Services (Tourism and

Non Conventional Renewable Energy

subsectors). A substantial growth in

personal loans and advances was also

responsible for driving credit expansion

for the year.

Remarkably, despite this rapid growth,

credit quality in the banking industry

also appeared to improve in 2016,

compared to 2015. The sector-wide

NPL ratio declined to 2.6% by 2016

from 3.2% recorded by the end of

2015, pointing to more effective credit

management strategies and better

financial discipline being practiced

across the industry.

Given the high growth in private sector

credit demand, deposit mobilization

remained the key source of funding for

the industry, with term deposits being

the favoured choice and CASA taking a

back seat.

As the decision by the Monetary Board

to increase the Standing Deposit

Facility Rate (SDFR) by 50 basis points,

in February 2016, and a further 50

basis points hike in July 2016 came

into effect, the AWDR shot up to 8.17%

by end-December 2016, an increase

of 197bps compared to the previous

year end rate of 6.20%. Alongside the

upward adjustment in deposit rates,

industry-wide CASA segment came

under pressure as higher deposit rates

continued to attract a steady flow of

term deposits. Further, a higher AWDR

meant the industry had to contend with

sharp increase in the cost of funds, in

turn putting pressure on profitability.

Additionally, changes to the tax

structure alongside the increase of the

Financial Services Value Added Tax

(FSVAT) from 11% to 15% also had

an adverse impact on industry-wide

profitability in 2016.

INFLATION (BASED ON CCPI) (%)

0

1

2

3

4

5

6

2014

2013

2015

2016

4.7

2.1

2.8

4.1

INDUSTRY SLAR & SRR(%)

0

5

10

15

20

25

30

35

40

45

2014

2013

2015

2016

Statutory Liquid Asset

Requirement (SLAR) - DBU

Statutory Reserve Requirement (SRR)

37.7

39.5

33.930.0

8.0

6.0

6.0

7.5

CASA - INDUSTRY VS BANK (%)

20

25

30

35

40

45

50

2014

2013

2015

2016

IndustryBank

45.947.3

40.3

38.4

33.2

39.3

37.133.9

58 SAMPATH BANK PLC

ANNUAL REPORT 2016

OPERATING ENVIRONMENT

OUTLOOK FOR 2017

Moving forward, 2017 looks to be

another challenging year, with both

domestic and external factors expected

to have a negative impact on banking

sector growth.

Domestically, the Central Bank would

likely take prudential measures

to control credit growth and fiscal

consolidation will likely contain excess

demand. While, both policies will

certainly help Sri Lanka achieve and

sustain above average growth in the

long run, it will nevertheless lead to a

slower growth in the short term.

On the global front, Brexit discussions,

US economic and trade policies,

China’s growth and debt worries and

the direction of oil prices would remain

the chief concerns for the country in

2017.

With Britain expected to take the final

steps to formally exit from the EU and

commence negotiation on the terms

of exit, speculation is likely to have a

negative impact on Euro area growth,

again putting Sri Lanka’s export sector

at risk. Meanwhile, as the US economy

continues to pick up after years of

stagnation, growth is likely to remain

fragile amidst brewing uncertainty

regarding new economic and trade

policies introduced by the Trump

administration. These would likely affect

not only the US economy but also

have a cascading effect on the global

economy as well.

To some extent, global growth in 2017

would also be contingent on the growth

trajectory of China, where the economic

slowdown of the past two years and

the resultant drop in investments and

demand for commodities continue to

bring fresh worries for many countries

across the globe.

Meanwhile, although oil prices have

picked up in recent months, the

oversupply situation in the market

remains a major concern. In addition,

regional uncertainties are also likely to

have a major impact on the direction of

oil prices in 2017.

Nevertheless, opportunities for growth

would likely materialize. And as Sri

Lanka achieves greater political and

economic stability, the island would be

perceived as an attractive destination

for foreign direct investments, amidst

growing uncertainty across other

emerging economies across the

world. Moreover, Sri Lanka, being

in the middle of the fastest growing

region in the world has many unique

characteristics that are likely to appeal

to foreign investors who would be

considering potential destinations

for capital investments in the coming

years.

ON THE GLOBAL FRONT, BREXIT DISCUSSIONS, US ECONOMIC AND TRADE POLICIES, CHINA’S GROWTH AND DEBT WORRIES AND DIRECTION OF OIL PRICES WOULD REMAIN THE CHIEF CONCERNS FOR THE COUNTRY IN 2017

INTEREST RATES(%)

Feb

-16

Jan-1

6

Dec-1

5

Mar-

16

Ap

r-16

May-1

6

Jun-1

6

Jul-16

Aug

-16

Sep

-16

Oct-

16

Nov-1

6

Dec-1

6

0

5

10

15

Standing Deposit Facility Rate (SDFR)

Average Weighted Prime Lending Rate (AWPLR)

Standing Lending Facility Rate (SLFR)

Average Weighted Fixed Deposit Rate (AWFDR)


SAMPATH BANK REPORTS ON HOW WE CREATE VALUE BY ANALYSING THE SIX CAPITALS: FINANCIAL, MANUFACTURED, INTELLECTUAL, HUMAN, SOCIAL AND RELATIONSHIP AND NATURAL

IMAGINCREASE[CAPITAL MANAGEMENT REPORTS]Financial Capital 60

Manufactured Capital 64

Intellectual Capital 70

Human Capital 73

Social and Relationship Capital 82

Natural Capital 94

60 SAMPATH BANK PLC

ANNUAL REPORT 2016

FINANCIAL CAPITAL

What we consider Financial Capital is,

essentially the pool of funds available

to Sampath Bank. This includes, the

capital raised through financing (equity,

debt), operations and investments.

Each year, we continue to implement

financial strategies that enhance our

financial capital to enable us to carry

out the day-to-day business activities of

the Bank and strengthen our ability to

create value for all the stakeholders of

our business.

Doing so requires us to effectively

manage our risks, assess the wider

economic impacts of our activities

on society and maintain a balance

between good corporate governance,

while at the same time staying true to

the values on which our business is

built.

Given below are some key financial

indicators that demonstrate our

ongoing efforts to enhance our financial

capital.

KEY FINANCIAL INDICATORS

TOTAL ASSETS

Sampath Bank’s total asset base

surpassed the Rs 600 Bn mark, to

reach Rs 659 Bn as at 31st December

2016, a growth of 25.4% compared to

industry-wide asset growth of 12%.

This was the result of swift action

to leverage on the strong credit

momentum seen across the industry,

which helped the Bank record a 21.3%

growth in credit for 2016, well in excess

of the industry average of 17.5%. All

loan products except hire-purchase

contributed to this achievement by

posting healthy growth rates compared

to the previous year.

NON-PERFORMING LOANS (NPLs)

Despite the expansion in the loan book,

the Bank was successful in maintaining

and even marginally improving credit

quality, as evidenced by the Non

Performing Loan (NPL) ratio of 1.61%,

compared to the industry average of

2.6% as at 31st December 2016.

IMPAIRMENT LOSSES

Provision for impairment on loans to

and receivables from other customers

increased by 52.0% partially due

to an increase in portfolio size and

partially due to improvements made

to the impairment calculation models.

During the year, the Bank revisited the

assumptions used in its impairment

models in order to ensure they are

up-to-date vis-à-vis the changes taking

place in the business environment.

DEPOSITS

In yet another landmark achievement,

Sampath Bank’s deposit base crossed

the Rs 500 Bn mark for the first time

in the Bank’s history. At 26.1%, the

Bank’s deposit growth for the year

under review, once again surpassed

the industry growth rate of 16.5% for

the same period. Higher growth in the

deposit base was mainly triggered

by an increase in term deposits.

Meanwhile, the CASA ratio declined

TOTAL ASSETS

0

100

200

300

400

500

600

700

2014

2013

2015

2016

9.2

37

7.4

9.1

45

8.8

10.8

30

2.4

9.6 2

60

.0

13

8.8 1

88

.9

12

0.4

11

2.4

Loans & ReceivablesOther Financial Assets

Non Financial Assets

(Rs Bn)

LOAN IMPAIRMENT (Rs Mn) (Rs Mn)

0

1,000

2,000

3,000

4,000

5,000

2014

2013

2015

2016

1,4

30

941

1,3

72

4,1

81

Impairment Charge for the Year

Impairment Provision as

at 31st December

0

2,000

4,000

6,000

8,000

10,0009,980

7,008 6,997

7,726

ADVANCE MIX

Term LoansOverdraftsImport LoansHousing LoansExport LoansLeasing

Pawning Money Market LoansCredit CardsRefinance LoansStaff Loans Others

44

11

5

18

22

4

43322

(%)


61

from 47.3% in 2015 to 38.4% this year

due to higher market rates offered for

fixed deposits. Nonetheless, Sampath

Bank’s CASA ratio was slightly above

the industry average of 37.1%.

REVENUE

Net Interest Income (NII), the main

source of income representing more than

70% of the total operating income of the

Bank, recorded an increase of Rs 5.4 Bn

(30.8%) during the period under review.

Accordingly, the Bank managed to record

an NII of Rs 22.8 Bn in 2016, compared

to Rs 17.4 Bn recorded in 2015.

Net Interest Margin (NIM) also

improved from 3.64% in 2015 to 3.87%

in 2016 notwithstanding the drop in

the CASA balances. This was made

possible by the strong growth recorded

in advances, coupled with timely

re-pricing of asset and liability products

and effective fund management

strategies adopted by the ALCO.

Moreover, the contribution from net fee

based income increased by

Rs 1.3 Bn to Rs 6.6 Bn in 2016 from

Rs 5.3 Bn in 2015. Net trading income

also contributed positively to the topline.

However, Other Operating Income

decreased marginally due to a decline

in exchange income, being the result of

a greater stability achieved by the rupee

in 2016, in comparison to 2015.

EQUITY AND BORROWINGS

Shareholders’ funds, which stood at

Rs 35.1 Bn as at 31st December 2015,

recorded a 26.7% increase during

the year, to reach Rs 44.5 Bn by 31st

December 2016.

The Bank’s funding requirements for the

year were met by a combination of term

deposits and long-term borrowings,

consisting of a syndication loan of USD

100 Mn and Rs 6 Bn raised by way

of an unsecured, subordinated and

redeemable debenture.

NET INTEREST MARGIN (NIM) ALSO IMPROVED FROM 3.64% IN 2015 TO 3.87% IN 2016 NOTWITHSTANDING THE DROP IN THE CASA BALANCES

DEPOSIT GROWTH - INDUSTRY VS BANK(%)

0

5

10

15

20

25

30

2014

2013

2015

2016

IndustryBank

24.2

13.1

19.7

26.1

15.0

12.4

15.316.5

SHAREHOLDERS' FUND

0

10,000

20,000

30,000

40,000

50,000

2014

2013

2015

2016

44,4

89

35,1

25

30,9

12

28,4

18

(Rs Mn)

NII & NIM(Rs Bn) (%)

0

5

10

15

20

25

2014

2013

2015

2016

22.8

17.4

15.7

15.3

Net Interest Income (NII)

Net Interest Margin (NIM)

0

1

2

3

4

5

4.393.95

3.643.87

PROFIT BEFORE TAX AS A % OF GROSS INCOME (%)

0

5

10

15

20

25

2014

2013

2015

2016

9.5

15.1

19.4

18.6

62 SAMPATH BANK PLC

ANNUAL REPORT 2016

OPERATING EXPENSES

The Bank’s Operating expenses grew

by 16%, from Rs 13.3 Bn in 2015

to Rs 15.5 Bn in 2016, mainly due

to the higher personnel expenses

triggered by salary increments and

the introduction of the team-based

performance bonus scheme and

general price hikes.

However, the Cost to Income ratio

excluding VAT and NBT on financial

services improved by about 500 bps

to 47.8% during the period from 52.7%

recorded in 2015, testifying to the

efficient use of the cost base during the

year under review. Recording a Cost to

Income ratio below 50% is considered to

be a major achievement, particularly in

view of the fact that Sampath Bank has

one of the youngest branch networks

compared to its closest competitors.

PROFITABILITY

The Bank registered Rs 12.6 Bn in Profit

before Tax (PBT), a growth of 38.4%,

as against Rs 9.1 Bn earned in 2015.

Meanwhile, post tax profit grew by an

impressive 48.8% from Rs 6.1 Bn in 2015

to Rs 9.1 Bn in 2016. The main reason for

higher PAT growth compared to the PBT

growth is the reversal of excess income

tax provisions made in previous years.

LIQUIDITY

Despite the pressure on the Bank’s

statutory liquid assets ratio caused by

tight liquidity controls imposed by the

CBSL, prudent strategies enabled the

Bank to maintain the liquid asset ratio

well above the regulatory minimum

level of 20% throughout the year.

CAPITAL ADEQUACY

Despite growth in the lending book

which resulted in increase of risk

weighted assets during the year, both

Core Capital (Tier 1) & Total Capital

(Tier 1 & Tier 2) adequacy ratios were

maintained at 8.31% and 12.87%

respectively as at 31st December 2016,

a slight improvement from 7.90% and

12.26% reported a year ago. Retention

of a portion of the dividends declared

in 2015 by way of a scrip dividend and

profits earned during the year could

be cited as the main reason behind

this improvement. Moreover, the Rs 6

Bn debenture issue that concluded in

June 2016, also contributed towards

strengthening the Total Capital

Adequacy ratio for the year.

TAXATION

VAT and NBT on financial services

expenses increased by 47.8% to Rs 2.8

Bn in 2016 due to increases in both the

income base and FSVAT rates during the

year under review.

OPERATING EXPENSES & COST TO INCOME(Rs Mn) (%)

0

5,000

10,000

15,000

20,000

2014

2013

2015

2016

15,4

71

13,3

39

11,7

29

10,6

34

Operating ExpensesCost to Income

0

10

20

30

40

50

60

51.2

54.852.7

47.8

RETURN ON EQUITY (%)

0

5

10

15

20

25

2014

2013

2015

2016

12.88

16.35

18.42

23.47

RETURN ON ASSETS(%)

0.0

0.5

1.0

1.5

2.0

2014

2013

2015

2016

0.98

1.231.28

1.55

FINANCIAL CAPITAL

DEPOSITS & LIQUID ASSET RATIO(Rs Bn) (%)

0

100

200

300

400

500

600

2014

2013

2015

2016

516

409

342

302

Total Deposits Liquid Asset Ratio

0

5

10

15

20

25

3027.6

24.5

22.121.8


63

DIVIDEND

The Bank proposed an interim scrip

dividend of Rs 14.00 per share on 2nd

February 2017 subject to the approval

of the shareholders at the EGM to be

held on 28th February 2017. Further,

the Directors have recommended a

final cash dividend of Rs 4.75 per share

(Effective Rs 5.00 per share) for the

year 2016, subject to the approval of

shareholders at the Annual General

Meeting to be held on 31st March 2017.

FOREIGN BORROWINGS & LOCAL BORROWINGS

0

5

10

15

20

25

30

35

40

2014

2013

2015

2016

Foreign Borrowings

Local Borrowings

20.7

24.2

32.8

35.4

36.8

15.6

16.5

22.3

(Rs Bn)

TOTAL CAPITAL (TIER I + TIER II) (Rs Mn)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2014

2013

2015

2016

61,3

32

48,4

90

40,8

97

32,3

21

PROFIT AFTER TAX & DIVIDEND PER SHARE(Rs Mn) (Rs)

0

2,000

4,000

6,000

8,000

10,000

2014

2013

2015

2016

9,1

25

6,1

34

4,9

14

3,4

30

Profit After Tax

Dividend per Share

0

5

10

15

20

8.00

11.00

13.00

18.75

EARNINGS PER SHARE & NET ASSET VALUE PER SHARE

0

50

100

150

200

250

300

2014

2013

2015

2016

Earnings per Share

Net Asset Value per Share

179.3

9

34.6

6198.4

7 51

.56

251.3

8

28.5

2

169.3

720.4

5

(Rs)

THE BANK REGISTERED RS 12.6 BN IN PROFIT BEFORE TAX (PBT), A GROWTH OF 38.4%, AS AGAINST RS 9.1 BN EARNED IN 2015 Notably, the Core Capital & Total

Capital ratios for 2016 are also well

above the statutory required levels of

5% and 10% respectively.

PERFORMANCE OF THE SHARE

The market price of a Sampath Bank

share as at 31st December 2016 stood

at Rs 260.40, compared to the last

traded price of Rs 248.00 at the end

of 2015.

Earnings per share for 2016 stood at

Rs 51.56, 48.8% higher than the

Rs 34.66 recorded in the previous

year, while Net Asset Value per share

as at 31st December 2016 recorded

a growth of 26.7% from Rs 198.47 per

share in 2015 to Rs 251.38 per share as

at end 2016.

64 SAMPATH BANK PLC

ANNUAL REPORT 2016


We define Manufactured Capital as the

physical infrastructure that supports our

day-to-day business activities, namely,

our head office, branch network, ATMs

and other delivery channels, including

digital channels.

BRANCH NETWORK

With the network reaching a stage of

consolidation, the Bank continued its

restrained approach towards branch

expansion, with only 4 new branches

being opened during the year. This

brings the branch count to 229 as at

end-December 2016.

The key focus for the year therefore

was branch location, which saw a

concerted effort being made to ensure

that all new branches would be situated

in areas with a higher population

density. Accordingly, four new

branches were opened in Ratnapura

(2nd branch), Kelaniya, Polgahawela,

and Hikkaduwa. These were selected

mainly for their potential to reach out to

a wider geographical populace in their

respective areas.

Kandy District

Nuwara Eliya

District

Badulla

District

Puttalam

District

Kurunegala

District

Kalutara

District

Hambantota

District

Anuradhapura

District

Trincomalee

District

Polonnaruwa

District

Ratnapura

District

Mullaitivu

District

Matale

District

Mannar

District

Ampara

DistrictGampaha

District

Galle

District

Matara

District

Batticaloa

District

Colombo

District

Moneragala

District

Jaffna

District

Kegalle

District

Vavuniya

District

229Branches

381ATMs

Scan this QR code for a more comprehensive

view of our Branch and ATM network

www.sampath.lk

8 10

1 1

1 1

1 12 2

6 7

3 4

4 4

3 3

6 7

7 7

4 5

5 7

4 5

15 22

6 7

62 150

8 11

8 10

6 728 45

13 18

10 20

10 15

8 11

Kilinochchi District

GEOGRAPHICAL DISTRIBUTION OF THE BRANCH NETWORK

WesternSouthernCentral UvaNorth WesternEasternSabaragamuwa

NorthernNorth Central

100

22

21

24

9

9

17

14

13

G4 -08,13


65

NO. OF BRANCHES

200

206

212

218

224

230

2014

2013

2015

2016

229

225

220

212

Given the emphasis on location, a

number of existing branches were also

relocated, a move aimed at promoting

greater uniformity across the network,

while strengthening brand visibility in

the selected areas.

Having built a strong branch presence

that reaches millions of Sri Lankans

across the island every day, the

main priority for the network then

shifted towards enhancing the value

proposition offered by the branch.

Appended to this goal, a series of

investments were made to strengthen

branch infrastructure, including a

new initiative to install digital display

screens at branches, to present key

financial information and data, which

was completed during the year. As

HAVING BUILT A STRONG BRANCH PRESENCE THAT REACHES MILLIONS OF SRI LANKANS ACROSS THE ISLAND EVERY DAY, THE MAIN PRIORITY FOR THE NETWORK THEN SHIFTED TOWARDS ENHANCING THE VALUE PROPOSITION OFFERED BY THE BRANCH

part of the ongoing investments, new

Cash Deposit kiosks were installed at

66 branches, while new safety lockers

were installed at 5 branches in 2016,

bringing the total Cash Deposit kiosks

and safety lockers to 108 and 5,623

respectively as at the year end.

The Super Branch concept continues to

be a phenomenal success, with all 12

super branches tabling unprecedented

results for 2016.

ATM NETWORK

In recent years the Bank has come to

rely heavily on the ATM network as a

key driver in expanding the number

of touch points across the island.

Accordingly, 6 new off-site ATMs were

commissioned during the year, bringing

the total network to 381 as at end-

December 2016.

Underpinning the Bank’s strategic

objective that each ATM should reach

the widest possible target audience,

the new installations were done in

Katuwawela - Werahera, Elapitiwela

Junction (Ragama), Cancer Hospital

Junction (Maharagama), Habarakada

Homagama, Arcade Independence

Square, Mona Plastics premises at

Attidiya and Maligawatte, all areas

with a comparatively high level of

foot traffic, which demonstrates the

Bank’s commitment to deliver greater

convenience to all customer segments.

Additionally, the alliance with Lanka Pay

Common ATM Switch (CAS) provides

customers a further 3,700+ access

points across Sri Lanka.

Super Branches

12

Opening of the Kelaniya Branch

66 SAMPATH BANK PLC

ANNUAL REPORT 2016

Meanwhile the Bank has also invested

in 11 ATMs, and 1 foreign currency

exchange ATM in 2016, aimed at

enhancing the value proposition of the

ATM model.

Moreover a new 24 hour CCTV

monitoring system was approved

for installation at all off-site ATMs.

The first phase of the project, which

commenced in December 2016 saw

15% of the network being covered by

end-December 2016, with the balance

due to be completed by mid-2017.


Digital Bank of Distinction award by the

Global Finance Magazine

ON-SITE & OFF-SITE ATMS

0

50

100

150

200

250

300

350

400

2014

2013

2015

2016

41

293

77

298

83

285

11

315

Off-Site ATMsOn-Site ATMs

Opening of the Maharagama Off-Site ATM

MEANWHILE THE BANK HAS ALSO INVESTED IN 11 ATMS, AND 1 FOREIGN CURRENCY EXCHANGE ATM IN 2016, AIMED ENHANCING THE VALUE PROPOSITION OF THE ATM MODEL

DIGITAL BANKING

Widely regarded as a pioneer of Sri

Lanka’s Digital Banking transformation,

Sampath Bank continues to be

a trailblazer in the industry, with

innovative offerings and dynamic tools

that allow for an unparalleled banking

experience. As testimony to this fact,

Sampath Bank was recognized by

The Global Finance Magazine, as

the “Digital Bank of Distinction” in the

Consumer Banking category for 2016.

Despite these achievements,

maintaining a clear advantage

remains a key priority. Accordingly

the Bank continues to look beyond

the conventional brick and mortar

banking structure to strengthen its

digital banking model vis-à-vis the use

of the latest cutting-edge technology

architecture that will deliver increasingly

convenient banking products and

customer service.


67RETAIL INTERNET BANKING

Underpinning the main strategic

thrust is the need to create a “Retail

Lifestyle Brand” that offers the greatest

possible convenience to the customer.

Developing a superior online banking

proposition by combining recent

developments in both Internet and

Mobile Banking was therefore the

main strategic thrust for the year under

review.

Consequently, many of the initiatives

taken in 2016 were aimed at expanding

the scope of activities offered by the

Sampath Vishwa Internet Banking

model, mainly to encourage customers

to migrate to paperless bill payments in

cognizance with the national initiative to

promote cashless banking. As a result,

the number of billers in the list of bill

payments increased by 36%, making

Sampath Vishwa the No. 1 bill payment

facilitator in the country in 2016. At

the same time, transaction limits for

fund transfers and bill payments were

revised in keeping with the market

demand, while additional security

protocols were introduced to safeguard

against the threat of cybercrime.

Following these new developments,

a substantial increase in the volume

of online financial and non-financial

transactions was observed, with

volumes for 2016 being 78% higher

than those recorded in the previous

year. Moreover, a notably higher

number of customers were found

registering for the online banking

services, particularly from all provinces

across the country, further testament to

the versatility of the Sampath Vishwa

online banking model.

To complement these efforts, the

‘Sampath Instant Loan Facility’ was

introduced, a revolutionary new self-

service banking concept that allows

Sampath Missed Call Banking Facility

Sampath Pay Easy

customers to obtain a loan instantly

without ever visiting a branch. This

is the first time in Sri Lanka that all

documentation was done electronically

when disbursing a bank loan.

The Bank also stepped up efforts to

popularize the SMS Alertz service by

encouraging clients to embrace its

advanced security features.

The launch of “Missed Call Banking”

tool, another first in the market,

added a new dimension to customer

convenience where a mere missed

call would fetch bank balances of all

operative accounts. The cost saving

and convenience to the customer was

evident by the exponential growth of

the product in the few months of its

existence.

68 SAMPATH BANK PLC

ANNUAL REPORT 2016

THE LAUNCH OF “MISSED CALL BANKING” TOOL, ANOTHER FIRST IN THE MARKET, ADDED A NEW DIMENSION TO CUSTOMER CONVENIENCE WHERE A MERE MISSED CALL WOULD FETCH BANK BALANCES OF ALL OPERATIVE ACCOUNTS

Sampath Bank Secure Payment Gateway

ensure greater customization and quick

deployment have now become the

hallmark of Sampath Vishwa Corporate,

giving it a leading edge over other

offerings in the market.

Additional efforts to enhance general

functionality saw Sampath Vishwa

being promoted as a payment channel

to give users the option to pay directly

without the use of a credit card. While

allowing corporates to broad base

their offerings and appeal to a wider

market, the initiative also ties in with

the national endeavour to promote a

cashless society. Meanwhile, to expand

the B2G (Business to Government)

business model, the BOI was added to

the existing list of Government payment

options under Sampath Vishwa, making

it easier for companies who have to

make payments to BOI to perform such


NEW CUSTOMERS FOR SMS ALERTZ SERVICE

0

50,000

100,000

150,000

200,000

250,000

300,000

2014

2013

2015

2016

To cater to the rising number of online

bill payments, the PayEasy bill payment

portal was re-launched. The new and

improved web portal includes modern

architecture and responsive design

elements, making it accessible by

any device. The unique feature of the

payeasy.lk portal is that Sampath Bank

customers as well as non-account

holders can use a Credit or Debit card

issued by any other bank to make a

payment through the portal.

CORPORATE INTERNET BANKING

For Corporate clients, the main focus

was the customization of the Sampath

Vishwa Corporate as a total financial

supply management system to cater to

the highly specific needs of the client.

In fact, steps taken over the years to


69

Cocktail party hosted by Sampath Bank for Vishwa Customers

payments online and benefit from real

time convenience.

FACILITATION OF E-COMMERCE

Efforts to facilitate e-commerce in

Sri Lanka saw the Bank focus on

enhancing the functionality of the

Internet Payment Gateway. Among the

key developments was the launch of

new payment platform where customers

can perform e-commerce transactions

using their Sampath Vishwa credentials

and using CASA as the source of funds

for payments. Meanwhile continuing

with efforts to propagate e-Commerce,

customized operational models

were developed to cater to startups

identified as a high potential area in the

e-commerce marketplace.

70 SAMPATH BANK PLC

ANNUAL REPORT 2016


STRENGTHENING ALL ASPECTS OF OUR INTELLECTUAL CAPITAL REMAINS A STRATEGIC IMPERATIVE, WHICH CALLS FOR BROAD RANGING INVESTMENTS, ESPECIALLY IN IT

Our Intellectual Capital comprises of

the intangible factors that are unique to

Sampath Bank: Our values, our culture,

knowledge of our people, our processes

and the specific way we conduct

our business, all of which cannot be

easily quantified, but go a long way in

determining our competitive position

and sustainability in the long term.

Therefore, strengthening all aspects

of our Intellectual Capital remains a

strategic imperative, which calls for

broad ranging investments, especially

in IT.

In a world where access to critical

information and the ability to act

National Best Quality Software Awards 2016

quickly and effectively are becoming

the key differentiators, the main priority

for Sampath Bank’s IT Division is to

sharpen the technology focus and

transform the business today, in a

way that would reshape the Bank of

tomorrow.

This means leveraging on

groundbreaking new technologies in

cloud, security, service architecture,

systems management and business

analytics, to tap into new opportunities

and create new bases of competition

that would provide a leading edge in

the market. All activities carried out in

2016 were twofold and aimed at;

STREAMLINING BUSINESS

PROCESSES TO IMPROVE

EMPLOYEE PRODUCTIVITY

The following projects were completed

in 2016;

Launch of the “e-Mandate”,

a new user-friendly online

tool allowing the customer to

complete all account-opening

forms, thus relieving the branch

staff from the need to perform a

manual task. This electronic data

entry and storage mechanism

also reduces errors that are likely

to occur due to manual data

entry, thereby saving time and

leading to service efficiency. The

operations currently covered

under the e-Mandate mechanism

are: Application for opening

of Current Accounts, Savings

Accounts and FDs, Debit

Card application, SMS Alertz

application and the Telebanking

application

Introduction of the Online

transaction upload system, which

gives the Electronic Banking Unit

(EBU) the ability to automate

the responses coming from the

biller’s applications and easily

handle reversals

Measures introduced with the

assistance of specialist third party

vendors include;

e-Operational Guide, an online

tool that enables employees

to search for Operational

Guidelines, Circulars, Directives

etc. to improve their knowledge

and perform their job functions

accurately and effectively


71 e-Library System, an online

data base of books and other

reference materials, to encourage

employees to embrace a

continuous learning approach

The following projects were initiated

during the year and are scheduled to

be completed in 2017;

Trade CAS (Credit Approval

System), a workflow process

management system to expedite

the approval process for LCs

(Letter of Credit), import bill

settlements and other trade

related credits in the Foreign

Currency Banking Unit and

the Trade Services, Corporate

Credit and Commercial Credit

Departments

Digitalization projects

Digitalization of the

LC issuance process,

Accounts Opening

process, Personal Loan

disbursement process

and integration of these

processes with the

core banking system

to enable seamless

data transmission. The

digitalization process

also includes automation

of data scrutiny and

approval systems for these

processes

OCR (Optical Character

Recognition) and ICR

(Intelligent Character

Recognition) to convert

data from handwritten

forms, which will result in

significant time savings as

opposed to manual data

entry

Improvements to the

Bancassurance Mechanism

to reduce manipulations and

malpractices and minimize

delays through continuous

monitoring and proper control

Improvements to the Katunayake

Pay Office (KPO) workflow

management system to automate

key processes, improve data

recording and integrate the KPO

operations into the core banking

system

Automating the transaction

unlock feature for e-Remittances

in order to replace the

cumbersome and time-

consuming manual process

FACILITATING SUPPORT

SYSTEMS THAT WILL ENABLE

THE BANK TO FULFILL ITS

STRATEGIC OBJECTIVES

Activities for the year were driven by

the following strategic objectives;

PROMOTING FINANCIAL INCLUSION

IN SRI LANKA

The involvement of the IT Department

was mainly to facilitate the necessary

framework and develop software that

would support the “MyBank” concept,

an agent assisted banking mechanism

launched in 2016 with the aim of

reaching out to the vast numbers of

rural unbanked people.

IMPROVING CUSTOMER

CONVENIENCE

The Visa Pay Wave card, which

for the first time in Sri Lanka,

uses NFC technology to enable

faster processing of payments,

enabling faster check out at

merchant points

Sampath Missed Call Banking,

another unique mobile banking

feature, which uses the latest

mobile technology to allow

existing customers to receive

information on their bank

balances via their mobile

phones.

Sampath Instant Loan - an

online real-time lending facility

implemented using the latest

technology. Introduced to Sri

Lanka’s financial sector for the

first time, this unique facility

allows Sampath Vishwa online

banking users to obtain loans

against their fixed deposits by

simply submitting the Instant

Loan application through the

Bank’s secure online platform

STRENGTHENING CUSTOMER

CONNECTIVITY

Working closely with Lanka Clear

(Pvt) Ltd., steps were taken to fully

integrate the CEFTS platform (Common

Electronic Fund Transfer Switch), which

led to Sampath Bank being appointed

as one of the facilitators of this inter-

bank fund transfer system. Moreover,

as per the direction issued by the

CBSL, Sampath Bank joined Lanka

Clear CAS (Common ATM Switch)

enabling interbank ATM transactions to

be carried out through Lanka Clear

National Best Quality

Software Awards (NBQSA)

– 2016 - Silver Award for

“Sampath Missed call Banking

Application” in the In-house

Application category

Finacle Client Innovation

Awards 2016 - Two accolades

at the recently concluded

Finacle Client Innovation

Awards 2016 hosted by the

Finacle Forum 2016 in India.

Winner of the Innovative

Customer Component category

for the Automated Teller Safe

(ATS) machine

Runner-up award in the

Customer Service Innovation

category for the ‘Instant Loan

Application’ developed in-

house.

72 SAMPATH BANK PLC

ANNUAL REPORT 2016

BUSINESS CONTINUITY PLANNING

Ongoing monitoring and compliance

of the Business Continuity Plan (BCP)

continued throughout the year, with

regular testing being done to ensure

proper maintenance of the back up

and disaster recovery mechanism. In

addition:

Subscribing to international

best practices; ISO

27001:2013 certification

This process which commenced in the

previous year was completed in the

year under review, making Sampath

Bank one of the few banks in Sri Lanka

to have obtained ISO certification for

information security management for

bank-wide IT systems

Preventing Cyber Security

Threats

To overcome increased cyber security

threats, an Intrusion Prevention System

was implemented covering the entire

network, making Sampath Bank the first

Sri Lankan bank to implement such a

secure environment.

Sampath My Doc (Digital Health App) Payment Gateway



73

HUMAN CAPITAL

We understand that realizing our vision

to be “the growing force in Sri Lankan

financial services” depends largely on

our human capital. It is why we strive

to develop and nurture a healthy and

inclusive culture that can inspire our

people to learn and grow. Therefore,

our talent management strategies are

geared to ensure that the right people,

with the right skills and capabilities, are

in the right roles and are engaged and

focused on the right activities.

We are committed to driving a culture

where our people feel valued, have a

clear sense of belonging, know what is

expected of them and are recognized

and rewarded for their contribution.

However, creating such an environment

is not without its challenges,

particularly in today’s context where

digitalization and the growing threat

of telecommunication operators have

begun to influence the way we work.

Our response to such challenges has

always been to ensure that our people

management strategies evolve in

tandem with such change.

We continue to work with a clear

purpose and are driven by one

overarching goal; to make Sampath

Bank an employer of choice. In doing

so, we focus on the following key

pivots;

REWARDS AND

RECOGNITION

Sampath Bank’s benefit structure

provides market competitive pay and

rewards, in order to retain the best

talent. At the same time we continue to

work towards improving benefit plans

offered to our employees to ensure that

they are properly recompensed and to

secure their commitment towards the

Bank’s success.

In 2016, a 10.5% salary increment

was implemented across the board,

while the roll out of a “Team Based

Performance Bonus Scheme”

was introduced to emphasize a

performance-based culture that

would lead to improved productivity

at all levels of the business. Under

the scheme, the SBUs (Strategic

Business Units) are assigned with

SMART objectives along with KPIs (Key

Performance Indicators) that serve

as the collective deliverables for the

year. Mid-year reviews are conducted

to ensure alignment with set targets,

followed by the annual reviews, the

results of which determine the annual

bonus entitlement for members of a

particular unit or team.

Efforts to further refine the benefit

structure prompted the introduction of a

number of monetary and non monetary

benefits including;

Sampath Bank Benefit Structure

Permanent

Employees

Contract

Employees

Differently-abled

Employees

MO

NE

TA

RY

BE

NE

FIT

S

Profit bonus √ √ √

Salary increments √On renewal of

agreement√

Allowances (as applicable) for professional examinations /

postgraduate studies√ √ √

Reimbursement of course fees / examination fees √ - √

Medical facilities (staff & family) √ - √

Insurance facilities (24 hour) √ √ √

NO

N-M

ON

ETA

RY

BE

NE

FIT

S

Holiday bungalow facilities √ √ √

Special non-technical training on meditation, yoga, first aid,

life skills, etc√ √ √

Special programs for children of team Sampath (i.e. Daru

Daskam, Rewards for Children and the Yong Leadership

Development Program, etc.)

√ √ √

G4 - LA 02

74 SAMPATH BANK PLC

ANNUAL REPORT 2016

TRAINING AND

DEVELOPMENT

Our training and development

agenda is designed to support our

employees starting from their first day

of employment at the Bank and from

thereon to provide continuous training

and development vis-à-vis a range of

technical and non-technical areas.

Our strategy is to provide timely and

focused training and development

that will help our employees sharpen

their skills and fulfill their personal and

professional development goals. A

Training Needs Analysis is conducted

annually, based on competency

assessments, customer expectations

and developments in the Bank and the

financial sector. This process facilitates

the annual training plan, which

ensures that timely and appropriate

training received by Team Sampath.

The training plan features technical

and non-technical training, which are

deployed through a combination of;

In-house Training - In-house

training includes induction

training, certification level

training, experience sharing

sessions, panel discussions etc.

In designing and conducting

the internal training, the Bank

make use of the experience and

expertise of the team members of

the faculty of internal trainers as

well as external trainers as and

when needed.

External Training Programs -

External training programmes

conducted by accredited

professional institutions to

expose participants to best

practices and innovations and to

promote interaction with expert

trainers, competitors and market

leaders.

Regional Training - catering

to the cluster of branches

(approximately 10) coming under

the same geographical location

and thus target regionally

specific training needs. Regional

managers, regional training

coordinators or other officers

from the respective regions

conduct programmes, which

allow the learner to share local

experiences and find solutions

for local issues. Effective

2016, all course material for

these programmes have been

designed centrally, a move

aimed at enhancing training

standards and creating greater

uniformity across modules.

Overseas Training - In order

to expose our team members

to global practices in Banking

and Finance and to ensure

competitiveness in the market

by capitalising on knowledge

gathered during training.

Identified team members

undergo training in recognized

institutions and internationally

acclaimed universities. These

institutions provide a varied

number of programmes through,

corporate training, conferences,

workshops, seminars and

customized programmes.

OUR TRAINING AND DEVELOPMENT AGENDA IS DESIGNED TO SUPPORT OUR EMPLOYEES STARTING FROM THEIR FIRST DAY OF EMPLOYMENT AT THE BANK

“Sampath Tharu - 2016” - Talent show of our own team members

HUMAN CAPITAL G4 - LA 10


75

e-Learning - interactive animated

e-learning modules are made

available, covering both

technical and non-technical

aspects to allow team members

to learn at their own pace. These

modules are especially designed

and developed internally and

take the form of an interesting

narrative that uses animation to

illustrate key areas. Cloud based

technology provides employees

access to e-learning modules

through their mobile phones from

anywhere and at any time.

Online Learning - an online

version of the English Proficiency

Programme is available to all

our team members to enhance

their English language skills

in collaboration with a market

leader – “Ingrisi.com”.

The “Ingrisi.com” initiative is

especially designed for Sinhala

speaking team members while

the Tamil version “Angilam.com”,

is also made available for Tamil

speaking team members.

Both online versions have been

coupled with a special speech

craft programme conducted

by our internal Toastmasters

Club in order to develop the

conversational skills of the

participants.

Library Facilities -

a comprehensive reference

Library is maintained at the Head

Office along with peripheral

libraries at Regional Offices/

Branches. “Online” library

facilities were introduced with

access to the main library

located at the Head Office.

Central Database of Case

Studies - An initiative that captures

and retains the tacit knowledge

of employees who are leaving or

retiring. It is intended to serve as

a reference portal accessible to

senior managers and corporate

management in the future.

In 2016, a sum of Rs 69.13 Mn was

invested in all training, 47% more than

in the previous year.

LEADERSHIP DEVELOPMENT

With our business reaching a certain

stage in the growth cycle, we are now

facing the challenges associated with

business consolidation as opposed

to expansion, and one of the key

concerns is adequate succession

planning for our employees. Hence,

for the past few years we have

begun to employ a robust leadership

management framework to assist

leadership development from executive

level to senior management and

corporate management positions

underscoring our belief in developing

leaders at all levels.

In line with our “Develop from within”

rationale, we give every member of

the workforce access to leadership

development opportunities that will

pave the way for career progression

within the Bank.

The Executive Talent

Development Programme

(ETDP) - the key facilitator of

the Bank’s leadership pipeline

seeks to create a pool of talented

Senior Executives / Senior

Managers capable of supporting

the Bank’s long-term business

requirements. The programme

targets candidates who are

currently serving within the senior

executive to senior manager

grades (both inclusive). The

chosen candidates are then

developed through a strategic

career mapping process.

Sampath Service Awards - 2016

Sampath Bank Quiz Competition - 2016

76 SAMPATH BANK PLC

ANNUAL REPORT 2016

The Harvard Business School,

USA, Scholarship Programme -

provides additional development

opportunities for employees to

gain an extra edge.

The Harvard Business School

e-Learning Module - seeks to

foster a continuous learning

environment and cultivate

the concept of continuous

professional development among

senior managers.

Professional Development -

employees are encouraged to

pursue their education goals

and the Bank fully supports

their efforts by reimbursing

course fees and professional

memberships for accredited

courses relevant to their field.

EMPLOYEE ENGAGEMENT

We realize that maintaining good

employee relations helps to reduce

workplace conflict, raises staff morale

and increases overall productivity.

Therefore, to stay connected to all our

employees, we encourage two-way

communication across all levels. In

order to foster healthy relationships

the Bank has in place a broad-ranging

employee engagement mechanism,

which include;

Meetings with representatives

of Sampath Bank Employees’

Association (SBEA) - The SBEA

comprises of approximately 98%

of our team and although no

formal agreement exists between

the two parties, the relationship

between the Bank and the SBEA

remains excellent

Mentoring Programme for Junior

Executives

“Helping Hands” Counselling

Cell to address the issues faced

by employees and to provide

psychological support

Employee Grievance Handling

Procedure

Regular meetings with SBU

heads eg: planning meetings,

budget meetings etc

Regional HR coordinator

programmes

Performance appraisal meetings

Sampath Sandeshaya - quarterly

employee in-house news

magazine

Sampath Employee Notification

System (SENS)

“Sampath Chinthana”, a channel

introduced to receive employee

suggestions and feedback

Our employee engagement

programmes extend to the families of

our employees as well through;

Sampath “Daru Daskam” -

A competitive event organized

by Sampath Bank and held every

two years to recognize special

talents of children of Team

Members

“Rewards For Children” -

A special award scheme to

recognize achievements of

children of team members who

have excelled in competitive

examinations and / or sports,

in a given year. In 2016 a total

of 29 children were felicitated,

being those who excelled in

the 2015 year-05 Scholarship

examination, 2015 Advanced

Level candidates accepted to

local Universities and Sports,

achievers for 2015.

“Yong Leadership Development

Program” - A leadership

development program conducted

for children of Sampath team

members with the assistance

of Sampath Bank in-house

Toastmasters Club. Children

between the ages of 13 and 16

were participated in this, special

programme.

HUMAN CAPITAL

Rewards for children - 2016


77DIVERSITY AND INCLUSION

As part of our strategy to ensure a more

inclusive work environment, we remain

committed to uphold the fundamental

human rights of all our employees and

therefore have aligned ourselves to

the universal principles and norms that

protect human rights in employment.

We have adopted a non-discriminatory

approach where we will not

discriminate against any employee

or potential employee. Further, as an

equal opportunity employer, we will

ensure that all qualified applicants

receive fair consideration regardless

of race, colour, religion or gender.

Our commitment to maintain equal

opportunity and greater diversity

extends to all levels of our business,

where our priorities are;

Gender Equality - to promote

greater gender equality we

have put in place an equal

remuneration policy to ensure

that men and women who

perform the same job are

compensated and recognized in

the same way

Local Hiring - our recruitment

policies are structured to

promote local hiring from all

regions across the country. In this

regard, we strive to ensure that

as many employees as possible,

travel from home

Differently - abled Employees - all

differently-abled employees at

Sampath Bank are considered

on par with other employees

and entitled to all remuneration

and benefits applicable to the

positions they hold. They are

afforded equal opportunities

throughout their employment

lifecycle.

SAFETY AND WELLNESS

Providing our employees with safe

working conditions are at the core of

our human capital value proposition.

As such, we continue investing in

programmes to ensure the safety

and wellbeing of team Sampath while

at work. In 2016 we carried out the

following activities;

Annual fire drill with the

participation of approximately

960 employees

First aid-training programme, for

44 employees

Meanwhile, through our Employee

Welfare Policy we remain committed to

provide an environment that enriches

the wellbeing of the team members

thereby improving their quality of life.

These strategies are deemed to be a

key motivating factor that would likely

secure employee commitment, improve

productivity and result in a higher-level

of employee retention in the long term.

In addition to the non-monetary benefits

listed on page 73 above, the following

initiatives were carried out in 2016

to improve the wellbeing of Team

Sampath;

Annual Health Conference under

the theme “Unleash the Vigour in

You”, which saw the participation

of more than 200 employees

Launch of a quarterly e-Health

Bulletin - “ Health And You”

Launch of the “MyDoc” platform

- A revolutionary new medical

consultation solution that gives

corporate employees online

real-time access to medical

specialists across the country at

zero cost

FOSTERING A SENSE OF

COMMUNITY

Our robust event calendar provides

a range of social and sports activities

through which we build team spirit and

camaraderie among employees at all

levels. These include;

Annual Inter Department / Branch

Six-A-Side Cricket and Netball

tournament

Annual inter Branch / Department

quiz competition

“Sampath Night” - Annual Dinner

Dance

Sampath Service Awards - In

2016, 56 employees who

completed 25 years of service

were felicitated at the “Sampath

Service Awards - 2016”

Annual Health Conference 2016

78 SAMPATH BANK PLC

ANNUAL REPORT 2016

HUMAN CAPITAL

NEW RECRUITS 2016

NEW RECRUITS - AGE GROUP AND GENDER

Age Group Male Female Total

Above 55 - - -

51-55 - - -

41-50 1 1 2

31-40 6 2 8

21-30 111 54 165

18-20 6 4 10

Total 124 61 185

Percentage 67 33 100

NEW RECRUITS - REGION AND GENDER

Province Male Female Total

Central 2 4 6

Eastern 9 1 10

North Central 4 2 6

North Western 2 2 4

Northern 6 2 8

Sabaragamuwa 5 2 7

Southern 8 6 14

Uva 6 - 6

Western 82 42 124

Total 124 61 185


TURNOVER 2016

TURNOVER - AGE AND GENDER

Age Group Male Female Total

Above 55 1 - 1

51-55 8 11 19

41-50 5 1 6

31-40 39 29 68

21-30 76 41 117

18-20 2 1 3

Total 131 83 214


TURNOVER - REGION AND GENDER

Province Male Female Total

Central 5 3 8

Eastern 8 - 8

North Central 5 2 7

North Western 5 2 7

Northern 7 2 9

Sabaragamuwa 1 3 4

Southern 9 5 14

Uva 3 - 3

Western 88 66 154

Total 131 83 214


G4 - LA 01


79REASON FOR TURNOVER

REASON FOR TURNOVER VS GENDER

Reason for Turnover Male Female Total

To join other competitor organizations 25 5 30

To join other organizations 33 11 44

Migration 23 17 40

Higher studies 13 5 18

Personal reasons 13 26 39

Retirement 8 11 19

Other 16 8 24

Total 131 83 214


RETURN TO WORK AND RETENTION RATES AFTER PARENTAL LEAVE

Description 2016 2015

Employees entitled to maternity leave 1,374 1,398

Employees taking maternity leave 109 121

Employees returning to work after maternity leave 108 121

Employees still employed 12 months after taking maternity leave 106 107

Return to work rate 99% 100%

Retention rate 97% 89%

LOST DAYS AND ABSENTEEISM DUE TO HEALTH AND SAFETY ISSUES - NONE

Average Hours of Training per Year per Employee by Gender and by Employee Category

No.

Participants Training Hours Grade

Co

mp

ete

ncy

Are

a

Ma

le

Fe

ma

le

Ma

le

Fe

ma

le

Co

rpo

rate

Ma

na

ge

me

nt

Se

nio

r

Ma

na

ge

me

nt

Exe

cu

tive

Ma

na

ge

me

nt

Mid

dle

Ma

na

ge

me

nt

Ju

nio

r

Ma

na

ge

me

nt

Op

era

tio

na

l

Sta

ff

Oth

er

Gra

de

s

Tota

l

1 Human Rights 37 20 330 178 80 48 48 312 16 4 - 508

2 Branch Banking 20,836 11,219 46,526 25,053 126 1,857 3,173 8,631 11,427 46,028 337 71,579

3 Legal & Good Governance 132 71 421 227 41 118 102 261 62 61 3 648

4 Risk & Compliance 1,437 774 1,472 793 43 161 287 514 546 706 8 2,265

5 Audit, Finance &

Accounting Procedures 210 113 1,147 618 81 217 347 445 427 248 - 1,765

6 Customer Service, Selling

Skills & Marketing 4,433 2,387 25,171 13,554 - 141 626 1,838 1,632 33,802 686 38,725

7 Knowledge on

Development of

Managerial & Leadership 4,828 2,600 6,718 3,617 186 4,593 1,254 1,832 972 1,324 174 10,335

8 IT Skills 71 38 3,538 1,905 96 660 1,321 2,348 499 508 11 5,443

9 Other Areas 2,057 1,108 3,252 1,751 259 1,048 907 1,229 507 1,003 50 5,003

Total 34,041 18,330 88,575 47,696 912 8,843 8,065 17,410 16,088 83,684 1,269 136,271

Percentage 65 35 65 35 1 6 6 13 12 61 1 100

G4 - LA 03

G4 - LA 06

G4 - LA 09 HR 02

80 SAMPATH BANK PLC

ANNUAL REPORT 2016

HUMAN CAPITAL

COMPETENCY AREA-WISE SUMMARY

No. Competency Area Participants

Total

Training Hours

Total

1 Corporate Banking 1 80 2 Business Continuity 6 136 3 Procedural Aspects on Risk Management and Compliance 203 1,743 4 Banking Internal Systems, Processes and Related Procedures 135 814 5 Credit Card Operations 94 230 6 Critical Skills Development 855 8,793 7 Procedural Aspects in Branch Operations 1,077 16,377 8 Procedural Aspects in Local and Foreign Currency Management 29 272 9 Advance Information Communication Technology Systems 85 5,183

10 Basic IT Skills 24 260 11 Buildings and Maintenance 7 60 12 Logistics Management 6 48 13 Accounting and Audit Procedures 188 1,126 14 Advance Human Resource Management 50 372 15 Advance Marketing Skills 4 3116 Financial Budgeting and Forecasting 135 639 17 Legal and Good Corporate Governance 203 648 18 Customer Service Excellence 1,201 6,304 19 Selling Skills & CRM 761 4,114 20 Development of Managerial & Leadership 955 6,474 21 Familiarization on Banking and Other Environments 393 10,920 22 Import and Export Operations 246 1,923 23 Investments and Treasury Operations 26 538 24 Procedural Aspects on Credit / Recovery Operations 525 4,026 25 Seminars and Conferences 397 3,410 26 e-Learning & Other Distance Learning 44,765 61,751

Total 52,371 136,271

All Employees receive regular feedback on performance and career development and their level of performance is assessed

on annual basis.

Composition of Governance Bodies and Breakdown of Employees per Employee Category According to Gender, Age Group,

Minority Group Membership, and Other Indicators of Diversity.

Range

Corp

ora

te

Managem

ent

Senio

r

Managem

ent

Exe

cutive

Managem

ent

Mid

dle

Managem

ent

Junio

r

Managem

ent

Opera

tional

Sta

ff

Oth

er

Gra

nd

To

tal

Male

Fem

ale

Male

Fem

ale

Male

Fem

ale

Male

Fem

ale

Male

Fem

ale

Male

Fem

ale

Male

Fem

ale

18 - 20 6 4 10

21 - 30 2 17 5 114 74 1,201 427 4 14 1,858

31 - 40 2 2 29 5 281 101 349 204 216 260 12 38 1,499

41 - 50 10 3 72 16 95 38 102 64 13 33 1 3 15 45 510

51 - 55 7 1 9 4 7 7 7 2 1 9 24 78

Above 55 1 2 2 5

Total 18 4 85 22 133 50 407 172 477 311 1424 694 42 121 3,960

Percentage 82 18 79 21 73 27 70 30 61 39 67 33 26 74

G4 - LA 11

G4 - 09 LA 12


81

Type of Employment 2016

Male Female Total

Fixed Term Contract 12 12 24

Permanent 2,424 1,270 3,694

Probationers 13 30 43

Trainees 137 62 199

Total 2,586 1,374 3,960

Region 2016

No. of Branches /

Units

No. of Employees Total

Male Female

Central 24 175 92 267

Eastern 19 123 27 150

North Central 10 89 17 106

North Western 22 158 81 239

Northern 15 85 27 112

Sabaragamuwa 15 110 36 146

Southern 27 191 90 281

Uva 10 79 14 93

Western 157 1,575 990 2,565

Overseas Operations 1 1 - 1

Total 300 2,586 1,374 3,960

BASIC SALARY & REMUNERATION RATIO BY GENDER & EMPLOYEE CATEGORY

Level Female Male

Corporate Management 1 1.12

Senior Management 1 1.05

Executive Management 1 0.93

Middle Management 1 0.98

Junior Management 1 0.99

Operational Staff 1 0.92

The Bank has given an equal opportunity for all employees and does not tolerate any form of unfair discrimination on the basis

of race, gender or disability. The ratio of basic salary at the entry level for male and female is 1:1. However, this ratio may

change due to different service period of employees in the Bank and at a particular salary grade.

Average training hours per employee 34.41

Average training hours per female 34.71

Average training hours per male 34.25

AVERAGE TRAINING HOURS PER EMPLOYEE - CATEGORY WISE

Corporate Management 41.45

Senior Management 82.65

Executive Management 44.07

Middle Management 30.07

Junior Management 20.42

Operational Staff 39.51

Other Grades 7.79

G4 - 10

G4 - LA 13

82 SAMPATH BANK PLC

ANNUAL REPORT 2016

SOCIAL AND RELATIONSHIP CAPITAL - CUSTOMER

We aspire to be the bank that can

fully support our nation by helping all

citizens who want to make a difference.

Our goal is essentially to go beyond

providing traditional banking facilities

and create real value for individuals

and businesses that bank with us. This

requires us above all, to become a

sustainable bank capable of serving

today’s customers, as well as paving

the way for future generations of

Sri Lankans to succeed in an ever-

changing world.

As we continue to realign, strategise

and make changes in the way we

do business, our intention is to

keep pace with the growing needs

of all our customers; retail and

corporate. Underpinned by our

customer philosophy: “To uphold the

customers’ right to demand a stable

and progressive banking environment

based on enhanced customer choice /

convenience and superior service”, we

focus on the following key priorities;

PRODUCT RESPONSIBILITY

We accept that in order to retain

existing customers and acquire new

ones, it is imperative that we stay

relevant by offering appropriate,

innovative, products and services at the

right cost and at the right time.

To determine how effective our

products and services are to our

customers, we rely on our Product

Policy, which sets out guidelines for

the introduction, maintenance and

discontinuation of our offerings. Further,

by continuous monitoring of each and

every product or service at varying

stage of its life cycle in addition to

ongoing investments in research and

development, we make sure that all

our products and services continue to

remain beneficial to the target market,

at all times.

RETAIL SEGMENT

(INITIATIVES FOR 2016)

Launch of the Ladies 1st Account

- A unique savings account for

the modern Sri Lankan woman,

offering the promise of more

financial freedom, convenience,

and advantages, including;

premium interest rates, structured

investment plans, discounted

rates for housing loans, personal

loans, etc. along with a host of

other value added benefits.

Launch of Missed Call Banking -

Introduced for the first time in Sri

Lanka, the Missed Call Banking

facility gives the customer the

opportunity to simply dial 011

2303080, automatically triggering

a Missed Call after three rings.

The customer will then receive an

instantaneous response via text

message to his/her mobile phone

giving their account balance for

all active accounts.

Introduction of the Instant Online

Loan Facility - A first for Sri Lanka,

the Sampath Bank Instant Loan

facility is an instant cash margin

loan facility that can be obtained

against an existing rupee fixed

deposit (excluding Kalin Cash

and Easy FD), through Sampath

Vishwa Online Banking.

Re-launch of the

www.payeasy.lk Portal - where

Sampath Bank customers as well

as non-customers can now use

Visa & Mastercards issued by

another bank to make a payment

through this portal.

The Sampath Visa payWave

Card - Launched at a grand gala

ceremony hosted on the 9th &

10th July at the newly opened,

Shangri-La Hotel, Hambantota,

the Visa payWave, provides

customers and merchants a

range of unprecedented benefits.

Visa payWave, accepted both

locally and internationally, is a

contactless card transaction

technology that does not need

Sampath Instant Loan Facility


83

the card to ever leave the hands

of the cardholder, thus ensuring

complete security, minimizing

fraud and reducing the risks

associated with credit card

skimming. Being a tap-and-go

option, it also reduces customer

queuing time, as it is a faster

way to pay. For transactions up

to Rs 5,000/-, Visa payWave

cardholders can use their

contactless cards without

having to enter the pin or sign

transaction receipts.

Introduction of the My Bank

Mechanism - The goal of the

My Bank mechanism is to reach

the un-banked population of the

country, and expand the Bank’s

accessibility to the general

public, through a network of

agents. My Bank delivers basic

financial services (deposits &

withdrawals) through agent-

assisted banking with the use

of POS machines to support

Stored Value Card Accounts

for non-account holders. In this

way, My Bank strives to integrate

basic banking principles into the

lifestyle of the unbanked masses

and bring about greater financial

inclusion across a broader

cross-section of both rural and

suburban markets.

Strategic Alliances with Mobitel

M-Cash, Sri Lankan Airlines,

Dialog ez Cash, Prime Lands,

wow.lk, Air Asia to expand

e-commerce.

CORPORATE SEGMENT

(INITIATIVES FOR 2016)

Export Bonanza - A special

concession scheme offered to

both existing and potential export

customers from 1st March 2016

to 31st December 2016. Under

this scheme, existing export

customers who have recorded

higher volumes of export bills

and export related TTs for a

month or more became eligible

for a 100% commission waive-off

during the promotional period.

The waiver was applicable

for any increased turnover

throughout the same period

last year. New customers were

offered an attractive 50% waive-

off on commission for their new

export business routed through

the Bank.

Export Direct – Enabling

customers to route their Export

Bills direct to their buyer’s

bank on behalf of Sampath

Bank, thus eliminating the

need to visit the Bank. It is also

structured to allow customers

to dispatch documents even

on a non-banking day at their

convenience.

Export House – A dedicated

unit to assist our branch network

to serve exporters in the SME

sector. The scope of the unit also

extends to helping exporters to

find markets, supporting product

development, financing and

providing consultation to assist in

their supply chain management

activities.

MARKETING

COMMUNICATION

All customer communication activities

are governed by the Board approved

Communication Policy, which defines

the protocol applicable for all external

communications including marketing

and promotional advertising activities.

In this regard, the policy dictates

that the customer is provided with

comprehensive information on each

product or service, so that they are

able to fully understand each value

proposition and be able to make an

informed decision. It also states that

in conveying this message, the Bank

may employ a suitable mix of both ATL

and BTL channels, based on the nature

of product / service and the target

audience.

AS WE CONTINUE TO REALIGN, STRATEGIZE AND MAKE CHANGES IN THE WAY WE DO BUSINESS, OUR INTENTION IS TO KEEP PACE WITH THE GROWING NEEDS OF ALL OUR CUSTOMERS

The Sampath Visa payWave Card

G4 - EC 08

84 SAMPATH BANK PLC

ANNUAL REPORT 2016

Category

Advertising Campaigns (2016)

CampaignMedium

Press TV Radio Social

Media

BTL Digital PR

Deposits

Sanhinda Saver communication (re-launch) √ √ √ √ √ √ √

Launch of Ladies 1st account √ √ √ √ √ √ √

Avurudu gift promotion √ √ √ √ √ √ √

Thrift month gift promotion √ √ √ √ √ √ √

Year 5 scholarship rewards scheme √ √ √ √ √ √ √

Year 5 scholarship seminar series √ √ √ √ √

Sanhinda Saver rate revision √ √ √ √ √

Hit Saver rate revision √ √ √ √ √ √

Advances

Leasing quarter campaign √ √ √ √ √ √ √

Condominium campaign √ √ √ √ √ √ √

Pawning communication with a new concept √ √ √ √ √ √ √

Cards

Seasonal campaign √ √ √ √ √ √ √

Town on Sale √ √ √ √ √ √

Visa PayWave launch √ √ √ √ √ √

Debit card re-launch as a Smart Shopper debit card √ √ √ √ √ √ √

Channels

e-Remittance Cash Wasi √ √ √ √ √ √ √

Z-Reload thematic campaign √ √ √ √ √ √

Missed Call Banking launch √ √ √ √ √ √

Online loan application √ √ √ √ √ √

Trade Export Bonanza √ √ √ √ √ √

CUSTOMER PRIVACY AND

DATA SECURITY

As a bank we are in possession of

large volumes of information relating to

our customers, most of which are of a

highly sensitive nature. Safeguarding

such personal information and

providing our customers with a safe

and secure banking environment

amidst growing cyber security threats,

is therefore one of our fundamental

responsibilities. Accordingly,

maintaining customer privacy and

digital data security are issues that

Sampath Bank takes very seriously.

To reaffirm our commitment, we

have established a Board approved

Online Privacy Policy, which seeks to

reassure our customers and help them

understand the terms and conditions

surrounding the capture and use of

personal information. The policy is

made available through our corporate

website and explains how Sampath

Bank collects, uses and shares

information about those who use or

access our digital platforms, including

the corporate website and any other

online interface maintained by Sampath

Bank.

We remain fully compliant with all

applicable data protection and privacy

laws, and in order to ensure complete

data security, we have integrated

among other processes the following in

to our day-to-day operations; Terminal

Line Encrypted (TLE) POS machines,

chip-enabled credit cards, SMS Alertz

and a direct callout system to verify the

authenticity of high-value transactions

with the customer.

At the same time, we continue to invest

in transforming our IT systems with the

latest technology that will strengthen

our client interfaces and enhance our

data security platforms to prevent cyber

security threats.

SOCIAL AND RELATIONSHIP CAPITAL - CUSTOMER


85Key initiatives for 2016:

Introduction of the ACS (Access

Control Server) security

application to facilitate an

additional security layer for

e-commerce transactions for

credit cards.

Signing up for the Visa Risk

Module, an online monitoring

mechanism linked with Visa

International to minimize the risk

of fraud.

Strengthening the compliance

framework to minimize the

security issues associated with

the SWIFT Telegraphic Transfer

process.

Introduction of a new sanction

screening mechanism for SWIFT

transfers, aimed at preventing

the use of TTs being used for

illegal financial activities.

CUSTOMER SERVICE

Customer service is central to our long-

term growth strategy. And as products

and service offered by banks become

increasingly generic, exceptional

customer service is fast becoming the

single most important differentiator that

sets us apart from our peers. That is

why we strive to delight our customers

with the next level of customer service

at all time.

We remain focused on augmenting

the customer experience by investing

in new technology that will simplify

and rationalize our internal processes

and transform the way we serve our

customers, today, tomorrow and into

the future.

Key initiatives for 2016:

Installation of 60 new Deposit

Kiosks at branches across the

country.

Upgraded system connectivity

with service partners through

an online real time interface

supported by a web service

platform to expedite Inward

Remittances.

Initial groundwork to introduce

a New Workflow solution – to

minimize procedural complexity,

reduce the paperwork and

expedite the end-to-end LC

opening process.

Initial groundwork to introduce

a new Workflow Management

System and a new core banking

solution, which together will

improve the efficiency of the TT

processing mechanism and allow

faster turnaround times.

Relocating the Customer Call

Center, in order to expand the

operational framework.

Introduction of an electronic

data submission mechanism

to support the cheque clearing

process.

Launch of e- mandate - A

mechanism to eliminate the

need for manual form filling,

minimising the duplication of

information and possible data

entry errors. Made available in

the trilingual format, e-mandate

represents the ultimate in

customer convenience, where

the customer is required only

to place his/her signature to

complete the process.

Commenced installation of 24

hour CCTV monitoring systems at

all off site ATMs.

CUSTOMER HEALTH AND

SAFETY

Being a bank, we are unable to clearly

assess how our products, services and

channels impact the health and safety

of the customer. Nevertheless, effective

management of health and safety

is deemed to be a sound business

principle that makes a significant

contribution to our profitability. As such,

we continue to work towards improving

the safety profile of our offerings in

order to ensure the wellbeing of our

customers at all times.

Key Initiatives for 2016:

Signing up with GT Nexus, the

world’s largest cloud based

business network and execution

platform for global trade. A

common platform that provides

a secure link that connects

suppliers, buyers, financiers and

other stakeholders of a particular

trade transaction, assisting the

customer to attract working

capital financing on time by

eliminating the risks associated

with “open account” trading, to a

great extent.

86 SAMPATH BANK PLC

ANNUAL REPORT 2016

SOCIAL AND RELATIONSHIP CAPITAL - SUPPLIER

Being a bank, our offerings are largely

developed in-house and unlike in

a manufacturing organization, our

products and services do not require

the sourcing of external components.

However for practical reasons, we

do work with suppliers and service

providers for certain day-to-day

operations.

We follow an inclusive procurement

strategy where we look to strike the

right balance between cost and quality,

while at the same time giving suppliers

the opportunity to increase their own

wealth creation capacity. Our goal

is to develop sustainable business

partnerships and ensure our suppliers

and business partners work in a way

that is consistent with our expectations.

Our procurement framework is based

on following principles;

FAIR AND EQUITABLE

PROCUREMENT

To ensure fair and equitable purchasing

practices, our procurement policy is

based on a Tender procedure that

creates a healthy level of competition,

where all applicants are considered on

an equal basis. We maintain a registry

of suppliers / service providers who

have made submissions through our

Tender process. The registry contains a

minimum of three potential candidates

for a designated activity and assigns

clearly defined approval limits for each

supplier / service provider based on

their track record with the Bank. At

three year intervals, the Bank publishes

newspaper advertisements in all three

languages inviting suppliers and

service providers to register with the

Bank in order to give a fair opportunity

to new suppliers and service providers.

SUPPLIER RISK

ASSESSMENT

The Bank’s Procurement Committee

is responsible for the screening and

selection of suitable suppliers / service

providers, a process that allows us to

assess the risks involved in purchasing

from different sources. This helps us

identify and work with those who are

deemed to be the most sustainable

and have the greatest positive impact

on our value chain. As a BCP measure,

for all critically important supplies and

services, the Bank has registered more

than one supplier or service provider

in order to obtain services without

interruption.

CONTRACTUAL

AGREEMENTS

Depending on the product or service

being procured, Sampath Bank may

enter into contractual agreements

with the supplier or service provider,

for a stipulated period of time. Such

contracts are reviewed prior to

expiration and renewed only if the

relationship is deemed sustainable and

financially viable for the foreseeable

future.

LOCAL SOURCING

Local sourcing is a key driver of our

inclusive sourcing strategy. Whenever

possible and practical, we engage

in local sourcing to procure services

mainly required at branch level.

Services such as re-painting and

general repairs to branch buildings, the

purchase of miscellaneous stationery

items, household equipment and

furniture required on urgent basis for

managers’ and staff quarters etc. are

purchased locally, upon approval from

the central purchasing unit.

Frequent inspections of suppliers are carried out by the Logistics Department


87

SOCIAL AND RELATIONSHIP CAPITAL - COMMUNITY

As a bank, our fundamental purpose

is to be socially relevant in every

possible way and to make a

meaningful difference in the lives of the

communities we serve. It is why in our

core business operations, we focus

on simplifying our products, services

and delivery channels in order to give

communities access to much needed

financial assistance. Moreover, as

a responsible corporate citizen, we

understand our duty to do more to

address the challenges that hinder the

progress of our people by working to

help them grow and prosper.

SOCIALLY RESPONSIVE CSR

MODEL

Inspired by our transformational CSR

strategy, we seek to further address the

broader systemic issues and socio-

economic challenges that affect our

communities. In deciding what areas

we should focus on, and in formulating

our broader CSR vision, we are guided

by the Millennium Development Goals

and the 2030 Agenda for Sustainable

Development, both part of the UNDP’s

development road map for Sri Lanka.

Simply put, our aim is to bring positive

change across a broader community

demographic through our socially

responsive CSR model.

SOCIALLY

RESPONSIVE CSR

MODEL

TRANSPARENCY

&

GOVERNANCE

COMMUNITY

ENGAGEMENTEMPLOYEE

VOLUNTEERISM

KEY CSR

ACTIVATIONS

SAMPATH BANK PLC CORPORATE SOCIAL RESPONSIBILITY FRAMEWORK

SOCIALLY RESPONSIVE CSR MODEL

Education for

Development

Dissemination of

knowledge and

information at a grass

root level in order to

reduce social and

economic inequalities

and bridge the

poverty gap.

Empowerment of

Community

Address grass

root level issues

by providing basic

infrastructure or

necessities to enable

the community to

improve its lifespan

Entrepreneurship

Development

Educate entrepreneurs

to facilitate their

development and

pave the way for

wealth creation

rather than increase

dependency on

borrowings

Ethics & Values

Accomplishment of

prospective principles,

values, integrity,

ethical behaviour

and professional

advancement

Environment

Protection &

Conservation

Minimize environmental

issues based on social

priorities, extend the

message to a large

captive audience of

stakeholders and thereby

create knowledge

about environment

conservation

THE 2030 AGENDA FOR SUSTAINABLE DEVELOPMENT

88 SAMPATH BANK PLC

ANNUAL REPORT 2016

TRANSPARENCY AND

GOVERNANCE

Specific CSR activities are carried

out by the Sampath Bank CSR fund,

which receives an allocation of 1%

of the annual post-tax profits. The

stewardship of the fund is listed under

the CSR steering committee led by the

Managing Director. In accordance with

our top-down approach, all projects

are evaluated and implemented by

the CSR committee, following a highly

transparent Project Management

Process.

COMMUNITY ENGAGEMENT

Community engagement is fundamental

to the success of our socially

responsible CSR model. It allows us

to establish a connection with the

communities we are trying to reach

while understanding their grievances

and to determine how best we can

intervene to improve their lives. In fact,

most of our CSR projects originate

at Department / Branch level mainly

due to the close interactions between

branch staff and the communities they

serve, while large scale projects that

address issues of national importance

are brought to our attention through

various stakeholder groups and

interested parties within the community.

EMPLOYEE VOLUNTEERISM

At Sampath Bank, we see employee

participation and volunteering as

yet another way in which we can

reach out and positively impact the

communities in which we operate. We

offer a range of CSR initiatives to give

our people the opportunity to actively

participate in making a difference in the

Achieving the desired objectives of our socially responsible CSR model is contingent on the following;

Education

for

Development

Ethics and

Values

Empowerment

of CommunityEntrepreneurship

Development

Project Evaluation, Implementation, Monitoring & Stakeholder Engagement

CSR and Sustainability Committee (please refer page 46)

Assigning a Unit Level CSR Committee, comprising of Sampath team

members, Community leaders and Customers / Social (non-political)

interested parties representing the area

Preparation of a priority list based on our study findings / observations

and community members' views

Assigning project objectives, key actions, resource requirements, time

frame and involvement of Sampath team members

Assessment of the project against corporate CSR guidelines, resource

requirements and team involvement

Implementing the project in line with a detailed action plan and timeline

Continuous monitoring and evaluation of project credentials

Grievance Solved?Impact Assessment

Reporting and Record Keeping

NO

YES

Environment

Protection and

Conservation

Step 1

Step 2

Step 3

Step 4

Step 5

Step 6

IDENTIFICATION AND CATEGORIZATION OF COMMUNITY GRIEVANCES / ISSUES(CRITICAL CONCERNS / BURDEN ISSUES)

PROJECT MANAGEMENT PROCESS

communities in which they work and

live. In 2016, 1,352 employees (34% of

our permanent workforce) volunteered

24,431 hours of their time in supporting

their chosen community projects.


G4 - 35,36,37,42,49,50


89

“HOPE FOR A LIFE” - ASSISTANCE

FOR THE NATIONAL HOSPITAL,

ANURADHAPURA

INVESTMENT:

Rs 1.480 Mn

OBJECTIVES:

Assist patients suffering from Chronic Kidney

Disease (CKD) to receive necessary treatment.

Implementing an early-detection and prevention

mechanism for CKD.

ACTIVATIONS:

Endowment of essential medical testing equipment to

facilitate early detection of CKD and creating widespread

awareness regarding the prevention of CKD.

“HOPE FOR A LIFE” – RECONSTRUCTION

OF THE MADUELLA BRIDGE

INVESTMENT:

Rs 0.327 Mn

OBJECTIVE:

Providing access to the main Badulla road for over 125

farming families living in the villages of “Agathewela”

“Ellekumbura” and “Kirioruwa, in the Badulla district.

ACTIVATIONS:

Construction of a 63 foot bridge with the support of

villagers.

KEY CSR ACTIVATIONS

In 2016, we focused our efforts mainly on three of our five key pillars – empowerment of community, education for development

and entrepreneur development. The key highlights are as follows.

Total Investment in CSR Number of CSR Projects

121

Community Engagement

566,000Beneficiaries

68Partners

Employee Volunteerism

24,431Man Hours

20.3Rs Mn

27.3Rs Mn

From CSR

Fund

From Bank’s

Other Funds More than

G4 - SO 1 EC 07,08

90 SAMPATH BANK PLC

ANNUAL REPORT 2016

“HELPING HANDS” PROJECT - DISASTER

RELIEF

INVESTMENT:

Rs 1.885 Mn

OBJECTIVE:

Supporting over 3,000 families who were affected by

floods and landslide in Aranayaka.

ACTIVATIONS:

28 “Helping Hands” projects were initiated in affected

areas by volunteer staff to distribute food, dry rations,

clothing, medicine, essential goods, services etc.

“SAMPATH PASALA” - UPGRADING THE

FACILITIES OF WELIWEWA KANISHTA

VIDYALAYA, SOORIYAWEWA

INVESTMENT:

Rs 0.675 Mn

OBJECTIVE:

Uplifting the educational standards of underprivileged

schools in Sri Lanka.

ACTIVATIONS:

Providing drinking water facilities and upgrading

sanitary facilities

Securing the structures of school buildings and

colour washing the school premises

Constructing gabion walls to prevent soil erosion

Repairing the desks and chairs of higher grade

classes

Providing library facilities

MY BOOK CLUB

INVESTMENT:

Rs 0.457 Mn

OBJECTIVES:

Form a readers’ club in Sri Lanka

Enhance the reading habit among Sri Lankans

ACTIVATIONS:

Launch of the “My Book Club” loyalty card at the Colombo

International Book Fair 2016 with the collaboration of Sri

Lanka Book Publishers’ Association and Independent

Television Network (ITN), as a platform to engage book

lovers who are regular visitors to this annual event.



91“ACCESS FOR SUCCESS” - ISLANDWIDE

SEMINAR SERIES FOR O/L STUDENTS

INVESTMENT:

Rs 2.3 Mn

OBJECTIVES:

Improving the pass rate of O/L mathematics and

science subjects

Increasing the percentage of students qualifying

to sit for the A/L examination each year

Motivating students through positive reinforcement

Knowledge expansion among youth

ACTIVATIONS:

Conducted 13 seminars in collaboration with Rupavahini

Corporation and more than 8,000 students actively

participated in the programme.

“PAHE SHISHSHATHWA” - GRADE 5

SCHOLARSHIP SUPPORT PROGRAMME

INVESTMENT:

Rs 9.6 Mn

OBJECTIVE:

Improve the standard of primary education at provincial

and rural level by providing exam support for students

sitting for the annual grade 5 scholarship exam.

ACTIVATIONS:

A total of 7 programmes were conducted in collaboration

with Neth FM and more than 9,000 students participated

in the programme.

“ESPERANZA 2016” - ALL ISLAND INTER-

SCHOOL COMMERCE QUIZ COMPETITION

INVESTMENT:

Rs 0.4 Mn

OBJECTIVES:

Promote commerce education among A/L

students

Develop competencies of A/L students

Cultivate academic and soft skills of

undergraduates

Encourage greater knowledge sharing

ACTIVATIONS:

Conducted a quiz programme in partnership with the

Accounting and Financial Management Association of

the University of Sri Jayewardenepura. This programme

was held over a period of 8 weeks and saw the

participation of 700 schools across the country.

92 SAMPATH BANK PLC

ANNUAL REPORT 2016

“SOAR ABOVE THE REST” – SAMPATH

BANK INTERNSHIP PROGRAMME FOR

SCHOOL LEAVERS

INVESTMENT:

Rs 8.2 Mn

OBJECTIVE:

Enhance the future employability of school leavers by

providing on-the-job training and appropriate skills

development opportunities.

ACTIVATIONS:

Deployment of school–leavers in order to provide

successful training related to banking/non- banking

functions. 304 school leavers were trained during the

year.

“DEVELOPING LEADERS OF TOMORROW”

– SAMPATH BANK INTERNSHIP

PROGRAMME FOR UNDERGRADUATES

INVESTMENT:

Rs 7.0 Mn

OBJECTIVE:

Improve future employment prospects of undergraduates

by providing suitable on-the-job training and developing

leadership skills.

ACTIVATIONS:

Deployment of undergraduates and provision of training

on the functions of the Bank including banking/non-

banking functions so as to fulfill the objectives of their

degree programme.173 undergraduates were trained

during the year.


INVESTMENT ON CSR INITIATIVES (FROM CSR FUND)

CSR Pillar Investment

Rs Mn

Education for development 7.84

Empowerment of community 7.08

Entrepreneurship development 1.98

Ethics and values 0.39

Environment protection and conservation 3.05

G4 - EN 31 EC 07


93“SAMPATH SAVIYA” – ENTREPRENEURSHIP

DEVELOPMENT PROGRAMME

INVESTMENT:

Rs 1.8 Mn

OBJECTIVES:

Strengthening the MSME sector in order to enhance

inclusive economic development and thus facilitate

employment and higher income generation

Promoting high potential, viable and promising

sectors

Motivate and encourage export oriented or import

substitution enterprises and industries

Assistance in achieving regionally balanced growth

across Sri Lanka

ACTIVATIONS:

Launched in 2013, “Sampath Saviya” provided training to

293 number of MSMEs & business initiators in 2016 with

the support of CEFE Net Sri Lanka and other like-minded

organizations, including community groups, government

bodies and private institutions. Using the globally accepted

“CEFE” (Competency-based Economies through Formation

of Enterprise) training methodology, the programme scope

covers key aspects such as business planning tools, basic

financial planning & record keeping, eco-friendly business

practices and good labour management practices, while

continuous counselling for project beneficiaries ensure they

remain on track to achieve their commercial aspirations.

Further, during the year credit facilities to the value of

Rs 4.93 Mn were granted to 51 MSMEs under the

“Saubaghya Credit Scheme”.

PROJECT: “SAMPATH DAHAM THILINA

PROGRAMME”

Sampath Bank was honoured by the Ministry

of Buddha Sasana and Samastha Lanka

Shasanarakshaka Mandalaya, for its longstanding

contributions made to Buddhist affairs through

its “Sampath Daham Thilina” programme. The

appreciation award was presented at a ceremony

held on 27th December 2016 at the Town Hall, Galle.

“Sampath Daham Thilina” gives recognition to winners

of the annual All Island Dhamma School Competition.

The programme has been conducted at a circuit level

for the past 16 years and this is the 7th consecutive

year which Sampath Bank contributed towards the All

Island Dhamma School Competition.

94 SAMPATH BANK PLC

ANNUAL REPORT 2016

NATURAL CAPITAL

Due to the nature of our products and

services, Sampath Bank makes only

a limited impact on the environment

and is therefore considered to be a low

contributor to overall GHG emissions.

We do realize however that this does

not in any way reduce our responsibility

towards the environment. It is why we

strive to assess the impact our actions

may have on the environment and

based on the results of these findings

we then look for ways to improve the

way we operate.

Spearheading the entire effort is a

broad-ranging environmental strategy

aimed at reducing the Bank’s carbon

footprint. Focusing on what we

consider to be material environmental

aspects relevant to our business,

the strategy seeks to ensure that our

impact on environment is minimal.

This is not only to help the Bank to

lighten its environmental footprint, but

also to create a strong social impact

that will convey a positive benefit for

stakeholders of our business.

THE MAIN PILLARS OF OUR

ENVIRONMENTAL STRATEGY

ENERGY SAVING

Commitment

Electricity is one of the largest

contributors to the Bank’s carbon

footprint, and in striving to control the

environmental impact resulting from the

consumption of electricity the Bank will

adopt appropriate measures to reduce

energy consumption levels, set annual

targets and take necessary action to

achieve these targets. This may include

strategies to explore energy efficient

lighting solutions and alternative energy

sources.

Key Drivers

1. Installation of LED lighting

solutions

2. Upgrading of air conditioning

units at branches

3. Installation of energy-control

equipment to optimize energy

utilization at branches

REDUCE PAPER WASTE

Commitment

Paper usage forms a significant part

of Sampath Bank’s environmental

footprint, given the large volumes

used for internal and external

communication. The Bank calls upon all

business units and branches to reduce

paper consumption by reorganizing

internal procedures, engaging in

suitable paper procurement practices

and promoting recycling whenever

possible and practical in order to

minimise usage of paper.

Key Drivers

1. Carbon Neutral Annual Report

2015 and 2016

2. E-statements and combined

statements for customers in order

to reduce paper usage

3. e-vault book instead of paper

based vault book

4. Just-in-time printing policy at

branches which eliminate the

wastage of printed mandates/

applications/forms by 25%

5. Expanding the e-learning

framework to cover technical &

non-technical areas and enabling

all team members 24/7 access

6. Usage of cloud technology to

convert paper based storage to

digital storage with live access

7. Increase the number of self

service cash deposit kiosks and

thereby reduce paper usage in

printing deposit slips by 75%

8. Enhance usage of social media

to replace traditional printed

advertisements

9. Enhance usage of digital

informative hoardings instead of

flex hoardings

10. Increase the use of web banners

instead of cloth and flex banners

CARBON FOOTPRINT CALCULATION

Commitment

We believe it is our duty to act

responsibly to monitor, manage and

review the impact our business has

on nature and its resources. Therefore

since 2013 we have adopted the

Carbon Footprint Calculation process.

In 2016, we have expanded Carbon

Footprint calculation process to all

branches.

SAMPATH BANK MAKES ONLY A LIMITED IMPACT ON THE ENVIRONMENT AND IS THEREFORE CONSIDERED TO BE A LOW CONTRIBUTOR TO OVERALL GHG EMISSIONS


95

ENGAGING EMPLOYEES

Commitment

Introducing an environmentally

conscious mindset among employees

to ensure that the team is aligned to the

Bank’s environmental goals

Key Drivers

1. The Sampath Bank

“Environmental Pledge”, which all

new employees are encouraged

to subscribe to

2. The “Six eco guidelines”, which

all employees are requested to

embed into their day-to-day work

ethics

3. Launch of “Sampath Energy Star”

– a competition to encourage

team members (and their

families) to cultivate the habit of

energy saving at domestic level

4. Providing training to educate

employees regarding

environmental issues

5. The Sampath Bank Nature

Protection Club (SNaPC), the

environmental arm of the Bank,

which encourages employees to

become “Green” champions

6. Promoting employee participation

in the Bank’s CSR initiatives

in Environment protection and

conservation

SUSTAINABLE LENDING

Commitment

Structured financing solutions for large-

scale renewable energy generation

projects as well as funding of energy

efficiency initiatives undertaken by

small and medium enterprises (SMEs).

Key Drivers

1. Lending to the NCRE (non-

conventional renewable energy)

sector

2. Green energy loan scheme for

individuals

3. Solar Rooftop Power Generation

Project, an ADB funded project

carried out in partnership with

the Sri Lanka Sustainable Energy

Authority (SLSEA)

ENGAGING CUSTOMERS

Commitment

To enable customers to migrate towards

more eco-friendly business practices,

giving them the opportunity to mitigate

their emissions, save energy and

minimize waste along with the added

advantage of lowering cost in the long

term

Key Drivers

1. Verifying the environmental

credentials of clients submitting

applications for clean energy

projects. These include;

environmental impact reports,

Renewable Energy permits

issued by the Sri Lanka

Sustainable Energy Authority,

and where relevant, the

necessary approvals from other

authorities, including; Forest

Dept., Wild Life Conservation

Dept., Department of Agrarian

Services, Irrigation Dept.,

National Building Research

Organization etc.

2. Improvements to the “Sampath

Vishwa” corporate portal where

an inbuilt transfer facility allows

corporates to make direct

transfers to their clients via the

mobile cash facility, a move that

allows them to cut their volume of

paper cheques by almost 70%

3. Expanding the e-commerce

platform through Sampath

Internet Payment Gateway

(SIPG) and Sampath Payeasy

to encourage customers to

engage in cashless banking and

e-commerce.

4. Improvements to Sampath

Vishwa online banking portal

5. Sampath Mobile App

6. Sampath Mobile Cash

7. Introduction of the Sampath

Instant loan scheme through

Sampath Vishwa which reduce

documentation and paper usage

8. The “Carbon-Neutral Hotel

Stay” programme, where the

Bank undertakes to completely

Launch of “Sampath Energy Star” - A competition to encourage team members (and their

families) to cultivate the habit of energy saving at domestic level

96 SAMPATH BANK PLC

ANNUAL REPORT 2016

NATURAL CAPITAL

The first-ever Carbon Neutral Hotel stay programme in Sri Lanka

offset the carbon emissions of

any hotel stay made through

Sampath credit cards, allowing

users a truly guilt-free holiday

experience. A hotel stay

carbon footprint consists of

emissions associated with

energy consumption in terms

of fuel and electricity usage

and waste generation, during

an overnight stay of a guest

in a paid accommodation

in the Hospitality & Tourism

Industry. Teaming up with The

Carbon Consulting Company, a

leading provider of Corporate

Sustainability Solutions, the

average CO2 emissions per

different types of accommodation

were assessed based on a study

done by the United Nations

Environment Programme (UNEP)

and World Tourism Organization

(UNWTO). Using this research

and providing for a significant

buffer, Sampath Bank will commit

to bringing the carbon emissions

of their customers’ hotel stay to

“Net Zero” status by investing

in local and international green

energy projects through the

internationally recognized

mechanism of Carbon Credits.

All what Sampath Credit Card

customers have to do, is to pay

for their hotel stay using the

credit card and Sampath Bank

will retire the necessary amount

of carbon credits corresponding

to that stay through the Carbon

Consulting Company.

ENVIRONMENTAL CSR

Commitment

To identify and address critical

ecological challenges that are likely

to cause destruction to the natural

composition of air, water or the earth.

Key Drivers

1. “Surakimu Sundara Polhena”, an

ongoing initiative to restore the

damaged coral reef along a

2 Km stretch of the Polhena

beach in Matara

Members of Sampath team involved in a Tree Planting programme


97

2. Supporting the Bird Trail, a

programme carried out by the

University of Ruhuna to create

an awareness with regard to bird

species in Sri Lanka

3. Commemoration of World

Environment Day 2016, in

partnership with Bio Diversity Sri

Lanka and the Ceylon Chamber

of Commerce

4. Support extended to the Field

Ornithology Group of Sri Lanka

(FOGSL) to host the Birdlife

International Global Council,

which comprised of a series of

events held to mark the 40th

anniversary of the FOGSL

5. Hosting the “Butterfly, Dragonfly

Race 2016”, in collaboration

with the Butterfly Conservation

Society of Sri Lanka to create

awareness and interest regarding

various Butterfly and Dragonfly

species in the country

6. “Our Wetlands – Our Future”

– an ongoing conservation

programme to safeguard the

Bolgoda Wetland Complex by

creating awareness among

community stakeholders

7. Banner re-use programme


Coral restoration project “Surakimu Sundhara Polhena”

HOSTING THE “BUTTERFLY, DRAGONFLY RACE 2016”, IN COLLABORATION WITH THE BUTTERFLY CONSERVATION SOCIETY OF SRI LANKA TO CREATE AWARENESS AND INTEREST REGARDING VARIOUS BUTTERFLY AND DRAGONFLY SPECIES IN THE COUNTRY

THE BUSINESS REPORT ANALYSES THE PERFORMANCE OF EVERY FINANCIAL PRODUCT AND SERVICE WE PROVIDE

IMAGINNOVATE[BUSINESS REPORTS]Personal and Branch Banking 99

Corporate Banking 103

Development Banking 107

Global Business 109

Treasury 114

Operational Support 115

Performance of Subsidiaries 118

Investor Information 123

Future Outlook 134

99

PERSONAL AND BRANCH BANKING - DEPOSITS

A good year for Deposits, where rising

interest rates created a supportive

environment through which to grow

the Bank’s Deposit book. Bolstered by

a consistently high AWDR, Sampath

Bank’s Deposit portfolio grew by 26.1%

compared to the previous year. While

outpacing the industry average of

13.7% for 2016, this performance was

well ahead of the target for the twelve

months ended 31st December 2016.

A further analysis of the results reveals

that much of the growth came from term

deposits, driven by a robust growth in

almost all deposit products.

From a CASA perspective the main

thrust for the year was to grow savings

and an aggressive branch-led drive

to promote all savings products was

initiated, underpinned by a series of

targeted campaigns. The move led to

a healthy increase in volumes, in turn

allowing the Bank to maintain one of the

highest CASA ratios.

Meanwhile, having found that over 50%

of the saver population are female, the

‘Ladies First” product, a new savings

proposition geared for young and

financially active women in the country,

was also launched during the year.

Well received by the target market, the

product continues to show signs of

strong growth.

Efforts to inculcate the savings culture

among a wider audience saw the

unveiling of the “My Bank” concept as

a pilot project in the Western Province.

Targeting mainly the BOP (Bottom of

the Pyramid) and under banked market

segments, “My Bank” is a revolutionary

new savings proposition distributed

to the masses through a network of

appointed agents who are equipped

to provide basic banking services.

Coinciding with the introduction of “My

Bank”, the “My Book Club” loyalty card

was also launched at the Colombo

Book Fair in October 2016. Acting as a

virtual saving tool, the “My Book Club”

card is yet another initiative to stimulate

savings among the masses. In this

context, both “My Bank” and “My Book

Club” concepts are expected to be

the main catalysts in carrying out the

Bank’s financial inclusion strategy in the

years ahead.

EFFORTS TO INCULCATE THE SAVINGS CULTURE AMONG A WIDER AUDIENCE SAW THE UNVEILING OF THE “MY BANK” CONCEPT AS A PILOT PROJECT IN THE WESTERN PROVINCE

Ladies 1st savings account for the modern

Sri Lankan woman

TOTAL DEPOSITS VS CASA(Rs Bn) (%)

0

100

200

300

400

500

600

2014

2013

2015

2016

516

409

342

302

Total DepositsCASA

0

10

20

30

40

50

33.2

45.9 47.3

38.4

DEPOSIT MIX

Fixed DepositsSaving DepositsDemand DepositsCertificates of DepositsCall Deposits

57

32

7 3

1

(%)

100 SAMPATH BANK PLC

ANNUAL REPORT 2016

PERSONAL AND BRANCH BANKING - LOANS AND ADVANCES

It was a rewarding year for the Loans

and Advances book, despite the

challenges that came with the rising

PLR throughout 2016. Responding

to these challenges, the Bank took

proactive steps to re-price a number

of loan products in order to secure a

competitive advantage. The strategy

delivered good results with the overall

portfolio growing by 21.3% year-on-year,

driven entirely by the branch network.

partnerships with developers, that would

simplify the housing loan process for

the customer. To spearhead the effort,

an aggressive mass media promotional

campaign was carried out in the second

half of 2016, to increase awareness

among target customer segments.

Growth in the Leasing portfolio

meanwhile was affected by the

Government’s decision to curtail the

import of vehicles, where the spill over

effects of the 70% loan-to-value ratio

An analysis of each loan book however

shows that while all segments did grow in

2016, some did so at a faster pace than

others. Of particular note is the growth

in the SME lending book, where both

long-term loans and short term advances

demonstrated robust growth of 51.2%

and 52.1% respectively for the year.

The Housing loan portfolio too registered

strong year-on-year growth of 25.7%,

supported by targeted strategies

aimed at capturing emerging trends

in the country’s housing and real

estate market. The main focus in this

regard was to tap into the fast-growing

condominium market through strategic

and the import duty hike introduced

in late 2015 along with the new import

duty tariff revision that came into effect

in May 2016, all had a bearing on the

leasing portfolio. Measures taken by

the Bank to curb this negative impact

included a number of Above the

Line (ATL) and Below the Line (BTL)

activities, particularly to promote the

concept of structured leasing. These

activities helped boost volumes leading

to a year-on-year growth of 2.9% in the

leasing portfolio as at 31st December

2016, still only a fraction of the 124.6%

growth recorded in the previous year.

The Bank also managed to increase its

pawning book by 14.9% from

Rs 13.5 Bn as at 31st December 2015

to Rs 15.5 Bn as at year end.

Sampath Instant Loan is another first for Sri Lanka-providing an online real-time lending facility

GROSS ADVANCES VS NPL RATIO(Rs Bn) (%)

0

100

200

300

400

500

2014

2013

2015

2016

469

386

311

272

Gross AdvancesNPL

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2.68

1.93

1.64

1.61

PAWNING ADVANCES (Rs Bn) (%)

0

10

20

30

40

50

60

2014

2013

2015

2016

15

13

25

53

Pawning Advances Pawning as a % of Total Advances

0

5

10

15

20 19.7

7.9

3.5

3.3


101

PERSONAL AND BRANCH BANKING - CARDS

SampathCards continued to maintain

its strong position as one of the

most accepted cards in the market.

Meanwhile, in response to the rising

competition from peer banks, an

aggressive drive was initiated to

grow volumes and the Card portfolio

registered a healthy YoY increase

of 20.6% in 2016. Notably, while the

removal of the stamp duty of 1.5%

on local transactions with effect from

1st January 2016 did help to boost

the number of local transactions, the

impact of the imposition of stamp duty

on overseas transactions is yet to be

seen.

Another factor contributing to the higher

transaction volumes was the sharp

increase in e-commerce transactions,

bolstered by the aggressive

promotional efforts initiated in the

current year.

The ensuing result of higher transaction

volumes throughout the year was a

strong year-on-year topline growth.

However, with the regulatory 24%

interest rate cap still in place, the rising

cost of borrowings did apply some

stress on the bottom line, especially in

the second half of the year, prompting

the Card Center to deploy a series of

highly focused issuance strategies

to grow the card base in 2016. As

always, the key strategic thrust in this

regard continued to be; to improve the

value proposition of SampathCards

vis-à-vis the release of new products

complemented by timely and relevant

promotional activities.

Among the key efforts was the launch of

the Sampath Bank Visa payWave Card

in July 2016. The first-ever contactless

card to be launched in Sri Lanka, where

cardholders can simply tap their Visa

payWave card at a payWave enabled

POS terminal to pay for their purchases,

with the transaction being completed

in mere seconds. Initially this was

presented only to the Visa Infinite

segment. Meanwhile, concurrent to the

launch, steps were taken to expand

the number of merchants offering the

Visa payWave facility. Accordingly, over

200 merchants were equipped with

payWave POS terminals as at end-

December 2016, a figure that is likely to

rise in the forthcoming year.

levels among existing users. Targeted

activities for the year included; the

2016 “Town-on-sale” campaign held

in Ampara (23rd and 24th October

2016) and the seasonal (April and

December) discount offers under the

theme of “Big Celebrations, Bigger

Discounts, Biggest Offers” for Clothing,

Shoes, Jewellery, Watches, Bedding,

Electronics, Furniture, Online Shopping,

Travel, and Hotels. As part of this

targeted strategy, SampathCards

also signed up for sponsorships at

Consumer Week 2016, the Colombo

International Book Fair 2016, the Future

Minds Forum, the Colombo Shopping

Festival 2016 and the Singer Lifestyle

Fiesta.

This was in addition to the year-round

hotel offers, 0% installment plans

with selected lifestyle stores, the

ongoing promotional offers for daily

essentials with Cargills FoodCity and

special promotional offers on selected

e-commerce sites including www.

findmyfare.com, www.mydeal.lk, www.

mystore.lk, www.4n.lk, www.wow.lk,

www.retailgenius.com, www.takas.lk.

PROMOTIONAL OFFERS

Seasonal “Big Celebrations,

Bigger Discounts, Biggest

Offers” Campaign with over 100

brands – April and December.

Year-round great hotel offers

with individual properties and

chain hotels (Uga Escape Hotels,

Amaya Resorts & Spas, Theme

Resorts, Anilana Hotels, Colombo

Fort Hotels, The Blue Water

Hotel, Suriya Resort etc.).

Offer for all Apple products at

Abans, Dialog etc.

Partnership / Sponsorship to the

Consumer Affairs Authority for

the Consumer Week 2016.

CREDIT CARD ADVANCE PORTFOLIO(Rs Mn)

0

2,000

4,000

6,000

8,000

10,000

2014

2013

2015

2016

The Association of Medical Specialists

(AMS) Visa Signature Affinity Credit

Card, a product exclusively for medical

specialists in Sri Lanka was yet another

new offering presented to the target

market at a soft launch event held

in March 2016. A niche product that

caters to the specific needs of medical

professionals was initially offered

to existing customers and was well

received, prompting efforts to extend

the offering to potential customers

across the island.

At the same time, key promotional

activities continued throughout the year

and were aimed at boosting usage


ANNUAL REPORT 2016

Partnerships with exhibitions

(Colombo International Book Fair,

Future Minds, Colombo Shopping

Festival, Singer Lifestyle Fiesta).

Cargills FoodCity discount offers.

Year-round online partner

promotions with www.findmyfare.

com,www.mydeal.lk, www.

mystore.lk, www.4n.lk, www.wow.

lk, www.retailgenious.com, www.

takas.lk.

Offers at World Duty Free - May,

June, November and December.

Town on Sale at Ampara -

discounts at 10 merchant

categories (supermarket/home

appliances/furniture/clothing/

footwear/hardware/ optical wear/

automobile/bookshops/hotels).

Offers at Lifestyle product

partners – Singer, Abans, Damro.

SampathCards Town-on-Sale Promotion

NO. OF CREDIT CARDS

0

50,000

100,000

150,000

200,000

250,000

2014

2013

2015

2016

PERSONAL AND BRANCH BANKING - CARDS


103

CORPORATE BANKING - CORPORATE FINANCE

The performance of the Corporate

Finance Division for the year was

as expected, with all main activities

meeting relevant KPIs set for 2016.

From a lending perspective, it was a

combination of growth and profitability

focused approach that prompted the

Corporate Finance Division to capitalize

on fast growing sectors in the economy

and aggressively pursue direct lending

opportunities albeit selectively, to

ensure a satisfactory return. The

Corporate Finance loan book continued

to grow with much of this new lending

being driven by three sectors; Leisure,

Education and Healthcare.

The emphasis on fee based income

continued in this year with a concerted

effort being made to strengthen

the custodian services segment. In

this context, the Corporate Finance

Division leveraged on the Sampath

Bank IT platform to provide clients with

integrated solutions which enhanced

the value proposition of the custodian

services model. These measures

culminated in a YoY growth of 20% in

the Custodian Services portfolio.

Meanwhile, as rising interest rates

made investments in fixed income

instruments less attractive, the demand

for structured debt instruments

continued to be moderate. This had

a cascading effect on the growth of

the Bank’s investment portfolio and

the resulting fee-income generated

was lower than in the previous year.

However, a notable new addition to

the Corporate Advisory services suite;

structured securitisations helped

bolster fee-income in the latter part of

the year, as the new concept gained

traction in certain sectors within Sri

Lanka’s corporate space.

Aside from servicing the Corporate

Sector, the Sampath Bank Corporate

Finance Division continues to be the

key facilitator of the Bank’s funding

requirements both in terms of short

and long term including Tier II Capital.

In line with this mandate Rs 6 Bn was

raised by way of a Debenture issue

in June 2016. This forms part of the

base for Bank’s long term growth

strategy and the funds raised by way

of this debenture have strengthened

the Bank’s Tier II Capital and provide

financing for future asset growth.

The division facilitated the Bank’s

first offshore Syndicated Term Loan

working with Standard Chartered

Bank, Colombo as Lead Arranger.

The deal raised USD 100 Mn for the

Bank. Subscribers to the loan included

11 offshore financial institutions from

the Middle East and India as well as

a Swiss fund. The funds obtained on

a three-year tenure are expected to

underpin both domestic lending as well

as to accelerate medium term growth

targets for FCBU.

Leveraging on the strength of the Bank

and its global trade operations, another

funding line was negotiated through

the IFC by way of a bi-lateral revolving

borrowing agreement that secured an

amount of USD 20 Mn which boosted

its export business and other short term

trade related asset growth.

As is the case with local corporate

clients, the Corporate Finance Division

continued to provide Corporate

Advisory services to clients on offshore

investments and operations. These

services, which are extended to local

clients undertaking offshore projects

as well as overseas clientele, are

structured to assist the client to improve

and safeguard their financial position

as well as their business operations,

which finally help the Bank to manage

the clients’ overall risk profile.

USD 100 Mn Syndicated Off-Shore Term loan raised by Sampath Bank

SECTOR-WISE CORPORATE FINANCE LOAN PORTFOLIO

Tourism & HotelsFinancial & Business Construction HealthTelecommunication & ITInfrastructure

ManufacturingOther Services

28

15

11

23

2

1

11

9

(%)


ANNUAL REPORT 2016

CORPORATE BANKING - CORPORATE CREDIT

Despite the prevalent uncertainty

and volatility in the market in 2016,

Corporate Credit was able to maintain

expected performance targets for

the year, in almost all segments. A

moderate growth in Advances was

agreed upon at the outset in respect

of corporate lending, with greater

emphasis on high-margin retail lending.

The overall lending portfolio recorded the

desired increase. Despite recording only

moderate growth in volumes, stringent

management and tighter controls

ensured that margins were maintained,

exceeding expectations for the year.

The sector-wise lending mix however

registered a notable change compared

to the previous year. This was mainly

the result of the ongoing slowdown

in the construction sector and its

cascading effect on many other

industries. Nevertheless the large

contractors were seen rearranging/

enhancing their limits in anticipation of

upcoming Government infrastructure

projects, which augurs well for the year

ahead. Further efforts to grow the loan

book saw the Corporate Credit Division

enter into selective partnerships with

Real Estate Development projects

in Colombo and suburbs, a move

aimed at tapping into the fast-growing

condominium market. Demand

from the Financial Services sector,

which occupies a large chunk of

the corporate loan book, remained

steady throughout the year, indicative

of the greater stability of the sector.

Meanwhile, demand for credit from

the leisure sector continued to grow,

bolstered by new hotel construction

(both large and small scale) as well as

renovation projects of existing hotels.

From a CASA perspective it was a

challenging year, where prompted by

uncertainty caused by rising interest

rates and low market liquidity levels,

many leading corporates were opted

for a wait-and-see approach.

The focus on Trade Financing in both

imports and exports, continued this

year as well, in a bid to grow volumes

in the aftermath of the (70%) loan-to-

value ratio and the vehicle import duty

hike that came into effect in the latter

part of 2015, causing a sharp drop in

the demand for vehicle leasing facilities

and also leading to lower imports by

the large vehicle importers.

At the same time, the April 2016

decision by the Government calling

for the repatriation of export proceeds

back to the country within 90 days

from the date of exports, gave rise

to further tensions among exporters

and lowered the demand for export

financing facilities. In response to

these challenges, the Corporate Credit

Division initiated short term financing

Capital Seven Condominium Housing Complex by Sanken Constructions (Pvt) Ltd

SECTOR-WISE CORPORATE CREDIT LOAN PORTFOLIO

Financial & Business TradersOther Services Telecommunication

& ITAgricultureManufacturing

Tourism & HotelsConstructionInfrastructure

32

13

12

17

3

2

8

8

5

(%)

strategies jointly with the Corporate

Finance Division to assist exporters in

their export financing requirements.

This, coupled with the Bank wide export

drive led by the “Export Bonanza”

enabled a 22% growth in exports for

2016, and also facilitated a significant

growth of the ‘exporter’ clientele base

compared to the previous year.

Amidst this environment, the strategic

thrust shifted from aggressive volume-

driven strategy to a more margin-

focused approach. To complement

this goal the Corporate Credit

Division continued to strengthen

relationships with existing customers,

while simultaneously enhancing the

functionality of the Sampath Vishwa

corporate solutions portal to allow the

client the flexibility of customizing their

requirements. The Bancassurance

model was also introduced as a

value-added feature to fulfill the client’s

insurance requirements, while a

number of service enhancements were

brought in to improve the quality of

the services offered to Margin Trading

clients, in order to retain existing

customers as well as to capture a

larger chunk of business volumes from

existing customers.


105

Given the impact of changing duty

tariffs, interest rates etc. the mid sized

corporates served by this division were

thrust into a challenging environment

and overall credit growth for this

segment in 2016 was somewhat slow.

Nevertheless having identified potential

growth opportunities in the market, the

foresighted strategies deployed by

the Commercial Credit Division helped

meet expected volume targets for the

year.

Consumer durables was one such

area that continued to grow despite

the import tariffs, which in turn created

potential business opportunities for

the mid sized corporates in this sector.

This proved to be an opportunity for

commercial credit to boost import trade

volumes and related lending.

Meanwhile, tapping into the thriving

housing & condominium market to

grow housing loan volumes and

lending to new areas such as software

development, helped to counteract the

slow growth in the leasing portfolio.

Further, by leveraging on its tried and

tested Relationship Management model

the Commercial Credit Division stepped

up efforts to provide client advisory

services, mainly to advise clients on how

to continue to grow in challenging times.

This was also coupled with efforts to

CORPORATE BANKING - COMMERCIAL CREDIT

‘cross-sell’ personal banking products

etc. to nurture a stronger relationship

with employees of these companies,

which will translate into sustainable long-

term growth for the Bank.

NEVERTHELESS HAVING IDENTIFIED POTENTIAL GROWTH OPPORTUNITIES IN THE MARKET, FORESIGHTED STRATEGIES DEPLOYED BY THE COMMERCIAL CREDIT DIVISION HELPED MEET EXPECTED VOLUME TARGETS FOR THE YEAR

SECTOR-WISE COMMERCIAL CREDIT LOAN PORTFOLIO

Traders ManufacturingConstruction

Transport Telecommunication

& IT

Health

Other ServicesFinancial &

BusinessAgriculture

28

11

9

19

5

3

9

8

8

(%)


ANNUAL REPORT 2016

CORPORATE BANKING - FCBU

Contributing almost 13.7% to the Bank’s

overall bottom line, the FCBU Division

continued to maintain a steady pace

of growth throughout 2016. It was a

busy year where the focus was twofold;

broadening the scope of local lending

activities mainly to the BOI qualified

export sector, and reaching regional

markets for lending opportunities in

other geographical locations.

From the local market perspective,

the main strategic thrust for the FCBU

Division was to widen its reach through

the branch network and penetrate

untapped customer segments across

the island.

The overarching emphasis in this

regard was to grow volumes from the

export sector. Stemming from this, the

Division kicked off a highly focused

Export Drive, which was launched at

a special event attended by leading

exporters in the country. The Export

Drive features benefits schemes

and concessionary offers aimed at

supporting the country’s export sector

comprising both eligible ‘FCBU’ clients

as well as non - FCBU exporters who

were supported and financed by the

Bank’s Domestic Banking Unit.

The year saw a series of support

activities, including the establishment

of the Export Drive team tasked with

training branch staff to sharpen their

skills to assist clients with their export

requirements and advisory services

to up and coming SME exporters.

Setting up an “Export House” to cater

to potential exporters, assisting them

to find potential foreign markets and

advising them on mitigating risks

through SLECIC etc were some of the

unique initiatives of the focused export

growth drive – a need of the hour for

both the country and the Bank.

These initiatives were well timed, and

came amidst other favourable macro-

economic factors such as the lifting of

the EU fishing ban on Sri Lanka, which

helped boost business activities in the

second half of 2016, with year-on-year

growth in export volumes, well ahead of

the industry average.

Meanwhile, given the limited

opportunities for asset growth for

offshore banking within Sri Lanka, the

Division actively focused on growing

its asset book in other regional markets

mainly in the Maldives, Myanmar,

Cambodia and Bangladesh. This

strategy also helped Sri Lankan

corporates who ventured into these

markets to tap into the potential of fast

growing sectors in such countries.

Accordingly during the year, the Bank

took up exposures in the lucrative

and fast growing leisure sector in the

Maldives and the micro finance sector

in Cambodia. The plan is to venture

into other identified locations in the

near future i.e. Myanmar to explore the

possibilities in leisure and agriculture,

both of which are considered to be fast-

growing sectors in that country.

Sampath Bank PLC partners with GT Nexus to deliver financial services for exporters

SECTOR-WISE FCBU LOAN PORTFOLIO

Manufacturing AgricultureTourism & HotelsOther Services

InfrastructureTelecommunication

& ITTransport

45

25

17

31

5

4

(%)


107

“Sampath Saviya” Programme

DEVELOPMENT BANKING - MSME DEVELOPMENT

In 2016, the Bank made steady

progress in achieving its MSME

Development goals, supported by

two existing credit lines; the SMILE 3

(Revolving Fund) mainly for MSMEs

and the Saubaghya schemes.

In the year under review, the Bank

also participated in two new credit

lines; the CBSL’s SEPI Scheme and

the ADB-SME credit line, both part

of the Government’s medium term

development plan to accelerate

MSME sector growth. All credit lines

collectively added approximately

Rs 936 Mn to the Bank’s funding base.

Following the enhancement to its fund

base, steps were taken to sharpen

the alignment of the lending model

as a targeted response to the needs

of specific groups within the MSME

segment. Stemming from this, a more

focused lending model was adopted,

and a number of structured lending

schemes were rolled out during the

year. This also meant expanding

the scope of “Sampath Saviya” and

other Entrepreneur Development

Programmes, in order to facilitate

the needs of MSME start-ups from

underserved communities, developing

women entrepreneurs and supporting

existing MSMEs who were looking to

expand their business.

These strategies accompanied an

aggressive lending push driven by the

island-wide branch network, which

put the Bank within reach of its goal to

assist a minimum of 500 entrepreneurs

annually under the “Sampath Saviya”

scheme. All support activities and

training workshops that go hand-

in-hand with the “Sampath Saviya”

programme continued to provide

entrepreneurial support throughout the

year, with 293 participants attending

the 10 workshops held during the

course of 2016.

IN THE YEAR UNDER REVIEW, THE BANK ALSO PARTICIPATED IN TWO NEW CREDIT LINES; THE CBSL’S SEPI SCHEME AND THE ADB-SME CREDIT LINE, BOTH PART OF THE GOVERNMENT’S MEDIUM TERM DEVELOPMENT PLAN TO ACCELERATE MSME SECTOR GROWTH

SECTOR-WISE MSME LOANS GRANTED IN 2016

InfrastructureManufacturingTraders Tourism & Hotels

Other ServicesAgricultureTelecommunication

& IT

26

17

14

51

12

(%)

25

G4 - EC 08


ANNUAL REPORT 2016

DEVELOPMENT BANKING - PROJECT FINANCE

Registering a solid 22% increase in the

portfolio, the Project Finance Division

tabled a healthy performance for the

year ended 31st December 2016.

Widely known in the market as the

leading financier for renewable

energy projects, the key focus for

Sampath Bank’s Project Finance

continues to be; the development

of the Non-conventional Renewable

Energy (NCRE) sector in the country.

Working closely with key stakeholders

in the NCRE sector, in 2016 the

Project Finance Division financed 9

hydropower projects to generate and

supply electricity to the national grid

with a total capacity of 17.73 Mw.

ASIDE FROM THE INVESTMENTS IN HYDROPOWER GENERATION, THE DIVISION ALSO LOOKED TO ENHANCE ITS POSITION IN OTHER ALTERNATIVE ENERGY PROJECTS, WHICH LED TO THE FINANCING OF A LARGE SOLAR POWER PROJECT...

Aside from the investments in

hydropower generation, the division also

looked to enhance its position in other

alternative energy projects, which led

to the financing of a large solar power

project at Welikanda and the Dendro

power project in the Rathnapura District.

Both projects generate power with a

total capacity of 12 Mw.

Moreover, utilizing the ADB funded

clean energy credit line, the Division

disbursed Rs 45.7 Mn for 8 projects,

as part of the Solar Rooftop Power

Generation Pilot Project carried out

in partnership with the Sri Lanka

Sustainable Energy Authority (SLSEA).

While consolidating its position in the

NCRE sector, the Division leveraged

on its expertise in an effort to penetrate

other emerging sectors in the economy.

The strategy proved successful,

leading to investments in mass

media communication, real estate,

infrastructure and mixed development

projects, in the second half of the year.

The first Solar Power Project in Sri Lanka with Single Axis Tilting Facility at Welikanda,

Polonnaruwa

SECTOR-WISE PROJECT FINANCE LOANS GRANTED IN 2016

InfrastructureManufacturingTelecommunication & IT

ConstructionOther ServicesAgricultureTraders

59

16

8

32

7

5

(%)


109

GLOBAL BUSINESS - INTERNATIONAL OPERATIONS

CAPITALISING ON THE GLOBAL TREND FAVOURING OPEN ACCOUNT PAYMENT TERMS, THE DIVISION RECORDED A YEAR-ON-YEAR GROWTH OF 33.0% IN IMPORT-RELATED TT VOLUMES...

In tandem with the growth in trade

volumes, the International Operations

Division also received a boost, with

both inward and outward Telegraphic

Transfers (TT) seeing steady growth

throughout 2016.

Capitalising on the global trend

favouring open account payment terms,

the division recorded a year-on-year

growth of 33.0% in import-related TT

volumes, while non-trade related Inward

TTs also rose by 68.5% compared to

the previous year.

Meanwhile, export related TT volumes

shot up by 16.4%, compared to the

previous year, spearheaded by the

launch of the “Export Bonanza” offer

launched as part of the Bank’s export

drive.

Non-trade related outward TT volumes

also grew by 21.4% year-on-year.

This was partly due to the easing of

exchange control regulations allowing

individuals and local corporate bodies

to make offshore investments using the

funds in their foreign currency accounts

maintained in Sri Lanka, a move that

saw many opting to use TTs as the

preferred mode of transferring funds.

The cumulative result of this volume

growth was a 20.6% increase in

fee-based income compared to the

previous year.

TRADE & NON-TRADE RELATED TT VOLUMES

0

50

100

150

200

2014

2013

2015

2016

Turnover - Trade

Turnover - Non Trade

85

119

113

142

162

93

79

77

(Rs Bn)


ANNUAL REPORT 2016

Sampath Bank’s Bank Notes Operation

(BNO) continues to be the market

leader in the currency import and

repatriation business. However, in 2016

stiff competition and other unforeseen

challenges had an impact on the BNO’s

business of import and repatriation of

currencies.

BNO’s Currency Import segment had

to contend with a drop in the demand

for currencies in the local market, which

was largely the result of lower retail

sales, corporate sales (Cash to Master)

and also lack of demand from other

banks for currencies. Consequently,

no foreign currency imports were

needed in the first nine months of the

year. However, a pick-up in demand in

the final quarter did help boost import

volumes leading to a marginal increase

in total volumes for 2016, compared to

the previous year.

The performance of the Katunayake

Pay Office (KPO) also took a hit in

2016, where despite the higher volumes

achieved, the BNO had to contend with

lower margins.

Currency export volumes on the other

hand jumped by 73.1% compared to

the previous year. Despite the increase

in volumes however, the drop in the

value of the Euro following the Brexit

A PICK-UP IN DEMAND IN THE FINAL QUARTER DID HELP BOOST IMPORT VOLUMES LEADING TO A MARGINAL INCREASE IN TOTAL VOLUMES FOR 2016, COMPARED TO THE PREVIOUS YEAR

vote in June 2016 followed by US

election results, put a squeeze on

margins in the second half of the year.

Meanwhile, the division introduced

new, less volatile currencies such as

South Korean Won, Indonesian Rupiahs

and the Philippine Peso. in an effort to

safeguard the bottom line against such

unexpected shocks.

GLOBAL BUSINESS - BANK NOTES OPERATIONS


111

GLOBAL BUSINESS - REMITTANCES

In 2016 Sampath Bank’s inward

remittances business tabled growth

of 7.2% in absolute terms. Although

this was lower than the 11.9% growth

recorded in 2015, it was nevertheless a

commendable feat, amidst competitive

Meanwhile, transaction volumes

registered only a marginal increase, in

effect the result of two key factors; firstly

the economic instability in the oil-rich

Middle East, which continued to affect

the earning capacity of migrant workers

in GCC (Gulf Corporation Council)

countries which in turn led to less

frequent remittances being made to Sri

Lanka. Secondly the drop in the volume

of remittances from Italy, another key

source market for Sampath Bank.

This was mainly due to the unrealistic

pricing tactics deployed by other local

competitor banks seeking to gain a

foothold in the Italian market, a course

of action deemed unsustainable for

Sampath Bank to follow.

To make up for the loss in transaction

volumes, the Bank took steps to

strengthen relationships with existing

partners in the GCC region as well as

stepping to new Asian territories as part

of the strategy to bolster remittance

volumes for 2016 and beyond.

Sampath e-Remittances “Cash Wasi”

TRANSACTION VOLUMES REGISTERED ONLY A MARGINAL INCREASE, IN EFFECT THE RESULT OF TWO KEY FACTORS; FIRSTLY THE ECONOMIC INSTABILITY IN THE OIL-RICH MIDDLE EAST COUNTRIES, AND SECONDLY THE DROP IN THE VOLUME OF REMITTANCES FROM ITALY...

threats from Telcos and smaller

banks in the market, who have been

found resorting to copycat marketing

strategies and price wars in a bid to

penetrate Sampath Bank’s traditional

source markets.


ANNUAL REPORT 2016

NET FEE & COMMISSION INCOME - TRADE SERVICES & INTERNATIONAL OPERATIONS

0

300

600

900

1,200

1,500

2014

2013

2015

2016

1,4

61

1,4

54

1,1

56

632

(Rs Mn)

GLOBAL BUSINESS - TRADE SERVICES

Seemingly unaffected by the ongoing

decline in Sri Lanka’s import and export

earnings, the Trade Services Division

registered an impressive performance

in 2016. However, a notable shift in the

import-export mix was observed during

the year.

Recording a healthy year-on-year

growth of 21.9%, the Export segment

was on par with growth targets set for

2016. This was the result of a series

of initiatives aimed at doubling export

volumes over the next three years, a

move that would help bridge the gap

between import outflows and export

inflows and reduce the Bank’s net open

position.

The main thrust for the year was the

launch of the “Export Bonanza”, a

special concession scheme offered

to both existing as well as potential

export customers, which was launched

at a special event held in March 2016.

The scheme proved to be immensely

popular, becoming a major volume

driver in the second half of the year.

Another initiative was the “Export

Direct” scheme introduced in

September 2016, to enable Customers

to route their Export bills direct to their

buyer’s bank on behalf of Sampath

Bank. Further, the “Export House”

which was set up in 2016 underpins

efforts to broad base the offerings by

assisting the branch network to serve

exporters in SME sector.

Meanwhile, imports tabled growth of

only 11.3% compared to the 24.8%

recorded in the previous year. This was

mainly due to the increase in vehicle

import duties that came into effect

as part of the 2015 budget, followed

by a further hike in May 2016. This,

coupled with the higher interest rates

and the depreciation of the rupee,

had a cascading effect resulting in a

substantial reduction in the volume of

imports compared to the previous year.

With the branch network responsible

for over 54% of the annual volumes, a

number of branch-led initiatives were

deployed to stimulate the demand

for imports in specific sectors, while

special concessions and value

added services were offered to those

importing vehicles using government

permits.

Moreover, further value added features

were brought in to the warehouse

financing product in an effort to

promote imports in the industrial sector.

ANOTHER INITIATIVE WAS THE “EXPORT DIRECT” SCHEME INTRODUCED IN SEPTEMBER 2016, TO ENABLE CUSTOMERS TO ROUTE THEIR EXPORT BILLS DIRECT TO THEIR BUYER’S BANK ON BEHALF OF SAMPATH BANK

Forum on “Emerging Trends in International Trade”


113

NOSTRO ACCOUNTS, CORRESPONDENT BANKS AND EXCHANGE COMPANIES

215Correspondent

Banks

109Exchange Companies

34NostroAccounts

15 5 1

7 1

8 2 18

125 14 78

57 12 12

3

G4 - 06

Scan this QR code for a more comprehensive

view of our Nostro Accounts, Correspondent

Banks and Exchange Companies

www.sampath.lk


ANNUAL REPORT 2016

TREASURY

It was a challenging year, where the main

focus for the Bank’s Treasury Department

was maintaining the bottom line, as

tighter monetary controls and stricter

fiscal consolidation programmes initiated

by the Government began to take effect.

Among the key concerns in this regard,

was the decision by the Monetary

Board to increase both the Standing

Deposit Facility Rate (SDFR) and the

Standing Lending Facility Rate (SLFR)

of the Central Bank by 50 basis points

each, in February 2016, followed by a

further 50 basis points hike each in July

2016. As an immediate response, the

Prime Lending Rate shot up and with it

some degree of volatility occurred in the

market, which put a squeeze on liquidity

levels. However, prudent liquidity

management strategies deployed by the

Treasury Department ensured the Bank’s

liquidity parameters were maintained

throughout the year.

Another concern was the Government’s

decision to not raise funds through

external sources such as Sri Lanka

Development Bonds during the latter

part of the year, which left the Treasury

Department looking for alternative

investment opportunities to supplement

the interest income. Consequently, the

main strategic thrust shifted towards

investments in T-Bills/T-Bonds, a move

that yielded good results for the Bank’s

interest income.

Meanwhile, the exchange rate having

reached an all time high following its free

float late last year, saw the rupee settle at

Rs150.00 per USD as at 30th December

2016, a mere 4.02% lower than the a year

ago. In direct correlation to this, forward

premiums also remained volatile with

an upward trend throughout the year,

enabling the Treasury Department to

realize a net revaluation gain through its

foreign currency transactions.

In 2016, a key challenge on the global

front arose as a result of the negative

impact from Brexit, the uncertainties

surrounding the US election, the Italian

referendum and the highly anticipated

rate hike by the US Federal Reserve.

The accompanying geo political

undercurrents left global markets

traversing uncertain territory and caused

widespread confusion across all key

markets in the world. The interest rate

cuts by the Bank of England and The

Reserve Bank of India, were a few of the

other major concerns for the year. In the

Sri Lankan context the budget proposal

on notional taxes on fixed income

securities still remains unresolved which

will have significant impact on interest

income to the treasury.

As continued uncertainties began

to affect the Bank’s foreign currency

trading prospects in the second half

of the year, the Treasury Department

accelerated efforts to expand the forex

business, mainly through inter-bank

trading, in order to meet assigned

targets for the year. Moreover, a series

of cautious capital market strategies

were also initiated to safeguard against

volatile market movements and to soften

the blow from unexpected shocks that

could occur as a ripple effect of the

aforementioned challenges.

In the Bank Notes Operation (BNO) a

competitive pricing strategy was adopted

to drive volumes and stem the weakening

prospects of the import and repatriation

of bank notes, amidst negative market

sentiments on the back of global

uncertainty, growing competition and

unforeseen regulatory changes.

Notably however, despite tough market

conditions, the Treasury department

remained proactive throughout the year.

Prudent strategies to seize all available

market opportunities yielded good

results, allowing the Treasury unit to

achieve all KPIs and make a significant

contribution to the Bank’s bottom line in

2016.

LIQUID ASSETS & LIQUID ASSET RATIO(Rs Mn) (%)

0

30,000

60,000

90,000

120,000

150,000

2014

2013

2015

2016

126,5

94

99,8

42

88,7

36

88,6

99

Liquid AssetsLiquid Asset Ratio

0

5

10

15

20

25

3027.6

24.5

22.1 21.8

USD / LKR MOVEMENT IN 2016 (Rs)

130

135

140

145

150

155

146.75

146.05148.05

146.10

146.05

145.55146.55

148.10

148.95

150.00

144.24

143.97

144.20

Feb

-16

Jan-1

6

Dec-1

5

Mar-

16

Ap

r-1

6

May-1

6

Jun-1

6

Jul-1

6

Aug

-16

Sep

-16

Oct-

16

Nov-1

6

Dec

-16


115

OPERATIONAL SUPPORT - NSC AND CCD

NETWORK SERVICES

CENTRE (NSC)

The NSC provides critical operational

support for day-to-day core banking

and non-core functions of the Bank.

Among the key core banking functions

performed by NSC is the cheque

clearing process. As the key facilitator

for the daily cheque clearing process,

the main focus for NSC is to improve

the efficiency of the process. Efforts

for the year included the introduction

of a new electronic data submission

mechanism, which enables cheque

images to be scanned and submitted

to Lanka Clear (Pvt) Ltd, online

through a dedicated portal, replacing

the previous practice of manually

submitting data at the end of each

day. Aside from expediting the cheque

clearing process, the new online

submissions now allow branches to be

more flexible about their cut-off time for

accepting cheques from customers.

The NSC was also instrumental in

facilitating the CEFTS (Common

Electronic Fund Transfer System) and

CAS (Common ATM Switch) platforms,

both of which are major breakthrough

products that have significantly

enhanced customer accessibility.

Further efforts to strengthen the NSC’s

services model and improve the

efficiency of the payment process saw

the commissioning of a new remote

Disaster Recovery Center (DRC).

Located at the Main Street branch, all

testing of the DRC was completed with

the system going live with effect from

12th May 2016, enabling the NSC to

provide uninterrupted service even

during possible emergencies.

The NSC also handles a number of

non-core functions, including among

other things; a Bank-wide document

management mechanism. With the

volume of documents generated across

the Bank increasing each year, in 2016

the NSC invested in a new electronic

document storage system to streamline

the inflow and outflow of documents

and improve the overall efficiency of the

document storage mechanism.

THE NSC WAS ALSO INSTRUMENTAL IN FACILITATING THE CEFTS (COMMON ELECTRONIC FUND TRANSFER SYSTEM) AND CAS (COMMON ATM SWITCH) PLATFORMS, BOTH OF WHICH ARE MAJOR BREAKTHROUGH PRODUCTS THAT HAVE SIGNIFICANTLY ENHANCED CUSTOMER ACCESSIBILITY

CHEQUE RETURN RATIO - INDUSTRY VS BANK(%)

0

1

2

3

4

5

2014

2013

2015

2016

2.9

2.8

3.5

4.5

Cheque Return Ratio - BankCheque Return Ratio - Industry

4.8

4.0

3.33.5

Network Services Centre (NSC)


ANNUAL REPORT 2016

OPERATIONAL SUPPORT - NSC AND CCD

CENTRAL CASH

DEPARTMENT (CCD)

The CCD is responsible for sorting of

all currency notes that come through

the Bank. A highly time consuming

and tedious process, the sorting of

currency notes has become more and

more cumbersome as the volumes

continue to increase every year. The

main priority for the CCD is therefore to

look for ways in which the efficiency of

the sorting process can be enhanced.

This prompted the decision in 2016,

to outsource the sorting of especially

smaller denominations to specialized

third parties.

Cash sorting at the Central Cash Department

Cash loading of off-site ATMs, another

function of the CCD was also fully

outsourced in 2016.

In both cases a visible improvement in

overall efficiency was seen, while both

measures proved to be cost effective

alternatives to retaining dedicated staff

for this purpose.


117

OPERATIONAL SUPPORT - RECOVERIES

The Bank’s Recoveries Department

is tasked with maintaining the quality

of the loan portfolio and ensuring that

NPAs are within acceptable levels at all

times. Working towards these goals, the

strategic thrust for 2016 was twofold;

Firstly, strengthen the early warning

mechanism to be able to spot potential

defaulters and then initiate immediate

efforts to rehabilitate such clients.

Secondly, strengthen the recovery

process of default clients. Stemming

from this, the following measures were

implemented to reduce NPA’s;

1. Reorganized the Credit Control

Unit to monitor defaulters and

identify clients who reach

the “two months in arrears”

position enabling the Branches/

Credit departments to begin

immediate rehabilitation efforts

for reschedulments.

2. Special focus to rehabilitate

clients from ailing sectors

which were affected by global

economies.

3. Strict monitoring of the DMS

(Delinquency Management

System) to ensure branch

managers remain proactive in

using MIS to follow up on the

credit portfolio.

4. A dynamic process to route

default clients to a centralized

recovery department to institute

immediate recovery action by

specialists in that area.

A culmination of these efforts resulted

in NPA of 1.61% as at 31st December

2016 compared to the industry average

of 2.6% for the same period.

A DYNAMIC PROCESS TO ROUTE DEFAULT CLIENTS TO A CENTRALIZED RECOVERY DEPARTMENT TO INSTITUTE IMMEDIATE RECOVERY ACTION BY SPECIALISTS IN THAT AREA

ADVANCES - PERFORMING VS NON - PERFORMING(Rs Bn) (Rs Bn)

0

100

200

300

400

500

2014

2013

2015

2016

461.1

379.2

304.5

264.4

PerformingNon-Performing

0

1

2

3

4

5

6

7

87.6

6.56.8

7.9


ANNUAL REPORT 2016

PERFORMANCE OF SUBSIDIARIES - SIYAPATHA FINANCE

As passive market sentiments,

economic uncertainty and rising

interest rates brought with them a

number of challenges for all in Sri

Lanka’s NBFI sector, the key worry for

Siyapatha Finance PLC was the higher

cost of funds, mainly due to upward

revision in AWPLR. The company, which

relies on Bank Borrowings as the main

source of funds, had to contend with

a higher cost of funds, which drove up

interest expenses by 96.5% compared

to the previous year.

Meanwhile, the Loan-to-value ratio,

the duty hike and the free float of the

exchange rate, which came into effect

in the latter part of 2015, together with

the new changes to the vehicle import

duty structure introduced in May 2016,

all had a bearing on the company’s

leasing portfolio. With a significant

portion of the company’s business

coming from leasing, interest income

registered a growth of 43.8% compared

to the previous year. However, the

increase in the cost of funds due to

the upward revision in AWPLR, led to

a sizable erosion of the net interest

margins for the year.

Efforts to relieve the stress on the

bottom line were thus focused

mainly on minimizing the funding

mismatch, prompting the launch of a

rated unsecured senior redeemable

debenture in September 2016. With 3

and 5 year tenures, the Debenture was

initially aimed at raising only

Rs 2 Bn, but was subsequently

increased to Rs 2.5 Bn owing to the

level of oversubscription.

Meanwhile, steps taken to broad base

the lending model and reduce the

dependence on leasing saw a number

of new loan products being introduced

targeting SMEs, including Personal

Loans and Business Loans. Among the

key developments in this regard was

the “Gold Dream” product, which unlike

the traditional pawning concept, allows

the customer to obtain a direct loan to

purchase gold items.

In tandem with these changes; the

company also made steady progress

in its branch expansion strategy,

opening 4 new branches in Gampaha,

Trincomalee, Kalutara and Wellawatte

bringing the total branch footprint to

24 as at 31st December 2016. Further,

the company procured a property in

Colombo 8, the proposed site for the

corporate office, due to be completed

by 2018.

With the widening business focus

and expanding network, the main

operational thrust was to improve

efficiency and reduce costs.

Steps taken in this regard saw

the establishment of a centralized

Credit Administration function to

improve overall efficiency and

reinforce document security. Further,

the automation of key operational

procedures, including the loan process

and the lease application procedure

aims to minimize waste and reduce

duplication of resources, while

outsourcing of the recovery function is

expected to deliver considerable cost

savings and improve efficiency in the

longer term.

PERFORMANCE - SIYAPATHA FINANCE

2016 (Rs Mn) 2015 (Rs Mn) Variance (%)

Total Operating Income 1,531.0 1,381.5 10.8%

Profit Before Tax 643.7 652.5 -1.3%

Profit After Tax 327.3 384.5 -14.9%

Asset Base 20,790.7 14,639.3 42.0%

NPL Ratio 2.7% (Industry 5.7%) 1.3% (Industry 6.4%)

TOTAL ASSETS - SIYAPATHA FINANCE PLC (Rs Bn)

0

5

10

15

20

25

2014

2013

2015

2016

20.8

14.6

10.4

9.0


119

PERFORMANCE OF SUBSIDIARIES - SC SECURITIES

It was a difficult year for SC Securities

(Pvt) Ltd, the stock broking arm of

the Sampath Group, as weak trading

conditions at the Colombo Stock

Exchange continued for the second

consecutive year.

Share trading activity remained

subdued as the CBSL’s decision to

raise benchmark interest rates led

many local investors to reconsider

investing in the share market. The lack

of IPOs in 2016 also contributed to

market inactivity.

SHARE TRADING ACTIVITY REMAINED SUBDUED AS THE CBSL’S DECISION TO RAISE BENCHMARK INTEREST RATES LED MANY LOCAL INVESTORS TO RECONSIDER INVESTING IN THE SHARE MARKET

Meanwhile, foreign participation in

the market also showed a significant

decline in 2016. While no new entrants

were seen coming into the market,

many were found pulling out ahead of

the rate hike by the US Federal Reserve

in December 2016, which began

attracting large chunks of foreign

investor capital. However, the Colombo

Stock Exchange recorded net foreign

inflow of Rs 2.5 Bn in 2016 compared to

a foreign outflow of Rs 5.4 Bn in 2015.

PERFORMANCE - SC SECURITIES


Turnover 22.1 40.1 -44.9%

Profit After Tax (61.5) (17.4) -253.4%

Asset Base 206.8 275.3 -24.9%

The cumulative effect of these factors

saw the All Share Price Index (ASPI)

and the S&P SL20 index ending 2016 at

6,228 and 3,496 respectively, signalling

a drop of 9.3% and 2.9% respectively

compared to the previous year.

In this environment, SC Securities

tabled a turnover of Rs 22.1 Mn for the

year, a year-on-year drop of 44.9%,

while the loss grew from Rs 17.4 Mn in

the previous year to Rs 61.5 Mn as at

31st December 2016.


ANNUAL REPORT 2016

PERFORMANCE OF SUBSIDIARIES - SAMPATH CENTRE

Sampath Centre Ltd owns and

manages the building at No. 110, Sir

James Peiris Mawatha, Colombo 02.

Sampath Bank occupies all 8 floors of

the building, which houses the Bank’s

Head Office and Corporate branch.

The main source of income for Sampath

Centre is the rental income generated

by renting out this space to the Bank

and a 10.5% increase in rental, which

came into effect from January 2016

added a considerable boost to the

company’s topline in the year under

review.

Among other key developments for

2016 was the decision taken by the

Board of Directors to extend the floor

area of the building by a further 77,120

square feet. At an estimated cost of

Rs 1,190 Mn the project would see the

construction of five additional floors,

including a new auditorium and training

centre with a seating capacity of 250.

The project also includes efforts to

reduce the carbon footprint of the

entire building by commissioning a new

energy efficient air conditioning system,

upgrading the backup generators,

installing new capacitor banks to

optimize energy usage and renovating

the external façade to minimize the

heat load generated by solar rays. It is

hoped that these changes would pave

the way for the structure to be certified

as a “Green Building”, upon completion

of the project in 2018.

Following another Board decision,

the scope of business undertaken

by Sampath Center Ltd was also

extended. Accordingly, moving forward

the company would undertake the

construction of buildings on a turnkey

basis, to meet the requirements of the

Sampath Group.

Meanwhile, the following operational

initiatives were carried out in 2016,

as part of the ongoing maintenance

framework;

Investments to commission a

new CCTV security system to

replace the existing system.

Ongoing upgrades to the Visitor

Pass mechanism.

Annual Fire Drill conducted on

21st September 2016.

PERFORMANCE - SAMPATH CENTRE


Profit Before Tax 197.8 180.8 9.4%

Profit After Tax 181.0 169.6 6.8%

Asset Base 4,447.8 3,398.3 30.9%

Operational support services by Sampath Centre


121

PERFORMANCE OF SUBSIDIARIES - SITS

Celebrating its 10th year in operation,

Sampath Information Technology

Solutions Limited (SITS) Member

Company of Sampath Bank Group,

the ICT related service provider tabled

strong growth, which propelled the

company to achieve all KPIs for the

year.

Underpinning this performance were

the aggressive client acquisition

strategies aimed at growing the client

portfolio and ultimately the top line, and

also the emphasis on client retention,

which pushed up revenue-per-client.

To support these strategies, a number

of new solutions were launched, key

among them being the MyDoc pilot

project roll out at Sampath Bank. A

revolutionary new concept, MyDoc is

a medical consultation solution that

enables corporates to provide their

employees with online real-time access

to renowned medical specialists across

the country, at a fraction of the cost.

Parallel to the launch of these solutions,

a series of new programme updates

including snail mail tracking, inventory

solutions, gold loan solution etc. were

also introduced in order to facilitate

the needs of broader cross section of

sectors and industries.

RECOGNITIONS IN 2016

Underscoring the uniqueness of SITS

Hardware Infrastructure Management

solutions, SITS was recognized both

locally and internationally and won the

following awards in 2016;

SITS was recognized as the Best

Business ICT Provider of the Year

by the South Asian Partnership

Summit and Business

Awards at a ceremony held in

Colombo 2016. Celebrating

IT achievements from around

the region, the prestigious

award recognizes outstanding

companies, organizations and

leaders in the South Asian

business world.

SITS was also recognized at

the NBQSA awards 2016 for

the internally developed “FIN

Bank Leasing & Hire Purchase

Solution”.

SITS was recognized at the HP

yearly awards ceremony for

Significant Performance in the

PC category.

From an operational perspective,

the ISO certification process was

successfully completed, bringing SITS

on par with the ISO 9001: 2008, Quality

Management Standards.

Meanwhile, in an effort to provide

clients with a fully-fledged value

proposition, the corporate office was

shifted to more convenient and easily

accessible location at No. 292, R A De

Mel Mawatha, Colombo 3.

Recognitions in 2016

REVENUE - SAMPATH INFORMATION TECHNOLOGY SOLUTIONS LIMITED(Rs Mn)

0

100

200

300

400

500

2014

2013

2015

2016

412

267

149

102


ANNUAL REPORT 2016

PERFORMANCE OF SUBSIDIARIES - SITS

SITS - CSR PROJECTS:

SITS donated computers as a CSR

project in 2016 as following;

Computers to the Sri Lanka

Council for the Blind.

A computer to an under

privileged student to enhance his

ICT skills.

PERFORMANCE - SITS


Revenue 411.7 266.9 54.3%

Profit After Tax 17.5 23.1 -24.1%

Asset Base 892.6 416.0 114.6%

SITS donated computers as a CSR project


123

VALUE CREATION FOR SHAREHOLDERS

2016 2015 Change %

Net asset value per share (Rs) 251.38 198.47 26.66

Group earnings per share - Basic (Rs) 53.66 37.42 43.37

Dividend per share (Rs) 18.75 13.00 44.23

Market price per share as at 31st December (Rs) 260.40 248.00 5.00

BANK’S MARKET CAPITALISATION IN COMPARISON TO CSE - AS AT 31ST DECEMBER

2016 2015 2014 2013 2012 2011

Sampath Bank’s market capitalisation (Rs Mn) 46,086 42,734 39,677 28,843 32,628 30,587

Increase / (decrease) % in market capitalisation 8% 8% 38% (12%) 7% (26%)

CSE market capitalisation (Rs Mn) 2,745,410 2,938,000 3,104,860 2,459,900 2,167,581 2,213,873

As a % of CSE market capitalisation 1.68% 1.45% 1.28% 1.17% 1.50% 1.38%

Market capitalisation rank 12 15 17 16 13 16

INVESTOR INFORMATION

BANK’S MARKET CAPITALISATION RANK

0

5

10

15

20

2014

2013

2015

2016

16

17

15

12

DIVIDEND PER SHARE

0

5

10

15

20

2014

2013

2015

2016

8.00

11.00

13.00

18.75

(Rs) (Rs)

0

10

20

30

40

50

60

2014

2013

2015

2016

53.7

37.4

30.6

21.7

Earnings per Share - Group Highest Market Price per Share - Bank

EARNINGS & HIGHEST MARKET PRICE PER SHARE (Rs)

0

50

100

150

200

250

300

242.00

252.00

279.90268.70

G4 - 09,13


ANNUAL REPORT 2016

ANALYSIS OF SHAREHOLDERS

RESIDENT / NON RESIDENT

31st December 2016 31st December 2015

No. of

Shareholders

No. of

Shares

% No. of

Shareholders

No. of

Shares

%

Resident shareholders 17,107 147,341,639 83.25 17,177 141,053,133 81.86

Non resident shareholders 349 29,639,430 16.75 338 31,259,522 18.14

17,456 176,981,069 100.00 17,515 172,312,655 100.00

INDIVIDUALS / INSTITUTIONS


No. of

Shareholders

No. of

Shares

% No. of

Shareholders

No. of

Shares

%

Individuals 16,887 59,556,386 33.65 16,933 58,173,217 33.76

Institutions 569 117,424,683 66.35 582 114,139,438 66.24

17,456 176,981,069 100.00 17,515 172,312,655 100.00

SHAREHOLDERS' FUND

(Rs Mn)

0

10,000

20,000

30,000

40,000

50,000

2014

2013

2015

2016

28

,41

8

30

,91

2

35

,12

5

44

,48

9

COMPOSITION OF SHARE OWNERSHIP - 2016(NO. OF SHAREHOLDERS)

Shares 500 & LessShares 501 - 5,000Shares 5,001 - 10,000

More than 10,000 Shares

52.2

38.3

5.0

4.5

(%)

BANK’S ROE & MARKET INTEREST RATES

0

5

10

15

20

25

2014

2013

2015

2016

Average of 12 Months AWFDR

Average of 12 Months T.B. Rate

6.6

7.2

6.6

8.9

10

.0

9.1

10

.513

.1

(%)

ROE

12.9

16.4 18.4

23.47



125COMPOSITION OF SHARE OWNERSHIP


No. of

Shareholders

% No. of

Shares

% No. of

Shareholders

% No. of

Shares

%

Shares 500 & less 9,117 52.23 1,719,768 0.97 8,947 51.08 1,701,151 0.98

Shares 501 - 5,000 6,693 38.34 10,828,407 6.12 6,861 39.17 11,125,275 6.46

Shares 5,001 - 10,000 787 4.51 5,533,116 3.13 820 4.68 5,755,486 3.34

More than 10,000 shares 859 4.92 158,899,778 89.78 887 5.07 153,730,743 89.22

17,456 100.00 176,981,069 100.00 17,515 100.00 172,312,655 100.00

SHARE TRADING

MARKET

2016 2015 2014 2013 2012

No. of transactions 1,056,849 1,506,790 1,982,709 1,421,303 1,857,384

No. of shares traded 7,195,805,445 9,414,661,048 16,721,524,209 9,054,193,822 9,691,236,634

Value of shares traded (Rs Mn) 176,935 253,251 340,917 200,468 213,827

BANK’S MARKET CAPITALISATION

(Rs Mn)

0

10,000

20,000

30,000

40,000

50,000

2014

2013

2015

2016

28,8

43

39,6

77

42,7

34

46,0

86

SHARE TRADING - SAMPATH BANK PLCNO. OF SHARES TRADED

0

10

20

30

40

50

2014

2013

2015

2016

48

28

27

19

(Mn)

COMPOSITION OF SHARE OWNERSHIP - 2016(NO. OF SHARES)

Shares 500 & LessShares 501 - 5,000Shares 5,001 - 10,000

More than 10,000 Shares

1.0

89.86.1

3.1

(%)


ANNUAL REPORT 2016

BANK

2016 2015 2014 2013 2012

No. of transactions 10,698 14,460 18,403 19,212 13,473

No. of shares traded 18,830,195 26,898,512 27,712,319 47,891,453 28,871,254

As a % of total shares in issue 10.64 15.61 16.50 28.54 17.74

Average daily turnover (Rs Mn) 18.77 29.22 24.34 39.75 22.55

Value of shares traded (Rs Mn) 4,484.95 6,982.39 5,866.37 9,620.18 5,457.94

SAMPATH BANK'S SHARE PRICE FLUCTUATION

2016 2015 2014 2013 2012

Lowest market price (Rs) 210.00 235.20 164.20 161.60 148.50

Highest market price (Rs) 268.70 279.90 252.00 242.00 216.00

Closing price as at 31st

December (Rs) 260.40 248.00 236.30 171.90 200.50

GROSS DIVIDEND

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2014

2013

2015

2016

1,3

43

1,8

47

2,2

40

3,3

62

(Rs Mn)

SHAREHOLDING OF INDIVIDUALS & INSTITUTIONS

0

20

40

60

80

100

2014

2013

2015

2016

33.8

33.7

35.5

35.4

66.2

66.3

64.5

64.6

IndividualsInstitutions

(%)


PRICE EARNING RATIO

0

50

100

150

200

250

300

2014

2013

2015

2016

Market Price per Share - Bank

Earnings per Share - Bank

28.5

2

248.0

034.6

6

260.4

0 51.5

6

236.3

0

20.4

5171.9

0(Rs)

0

2

4

6

8

10

12

Price Earning Ratio (Times) - Bank

8.4 8.3

7.2

5.1


127

SAMPATH BANK PLC - ORDINARY SHARES

Frequency Distribution of Shareholders as at 31st December 2016

Share Range Resident Non Resident Total

No. of

Share

hold

ers

% No. of

Share

s

% No. of

Share

hold

ers

% No. of

Share

s

% No. of

Share

hold

ers

% No. of

Share

s

%

1-250 4,934 28.27 359,743 0.20 76 0.43 6,469 0.00 5,010 28.70 366,212 0.21

251-500 4,053 23.22 1,334,649 0.75 54 0.31 18,907 0.01 4,107 23.53 1,353,556 0.76

501-1,000 2,697 15.45 1,874,014 1.06 47 0.27 34,798 0.02 2,744 15.72 1,908,812 1.08

1,001-2,000 2,079 11.91 3,000,195 1.70 46 0.26 66,089 0.04 2,125 12.17 3,066,284 1.73

2,001-5,000 1,776 10.17 5,690,164 3.22 48 0.27 163,147 0.09 1,824 10.45 5,853,311 3.31

5,001-10,000 767 4.39 5,405,678 3.05 20 0.11 127,438 0.07 787 4.51 5,533,116 3.13

10,001-20,000 410 2.35 5,694,151 3.22 16 0.09 224,528 0.13 426 2.44 5,918,679 3.34

20,001-30,000 143 0.82 3,450,805 1.95 8 0.05 204,411 0.12 151 0.87 3,655,216 2.07

30,001-40,000 65 0.37 2,259,088 1.28 4 0.02 145,392 0.08 69 0.40 2,404,480 1.36

40,001-50,000 23 0.13 1,028,826 0.58 5 0.03 222,212 0.13 28 0.16 1,251,038 0.71

50,001-100,000 75 0.43 5,032,545 2.84 4 0.02 279,597 0.16 79 0.45 5,312,142 3.00

100,001-1,000,000 71 0.41 21,670,197 12.24 15 0.09 6,920,091 3.91 86 0.49 28,590,288 16.15

1,000,001-Over 14 0.08 90,541,584 51.16 6 0.03 21,226,351 11.99 20 0.11 111,767,935 63.15

Total 17,107 98.01 147,341,639 83.25 349 1.99 29,639,430 16.75 17,456 100.00 176,981,069 100.00

BANK'S SHARE PRICE FLUCTUATION

0

50

100

150

200

250

300

2014

2013

2015

2016

242.00252.00

279.90268.70

161.60 164.20

235.20

210.00

(Rs)

Lowest Market Price Closing Price as at 31st December

Highest Market Price

SHARE TRADING - SAMPATH BANK PLC

0

1

2

3

4

5

6

7

8

Dec 1

4

Dec 1

3

Dec 1

2

Dec 1

5

Dec 1

6

Turnover (Rs Mn)

Volume Traded (No. of Shares Mn)

0

200

400

600

800

1,000

1,200

PRICE TO BOOK VALUE

0

50

100

150

200

250

300

2014

2013

2015

2016

Market Price per Share - Bank

Net Asset Value per Share - Bank

17

9.3

9

24

8.0

01

98

.47

26

0.4

02

51

.38

23

6.3

0

16

9.3

7 1

71

.90

(Rs)

0.0

0.5

1.0

1.5

Price to Book Value Ratio (Times) - Bank

1.01

1.321.25

1.04


ANNUAL REPORT 2016

SAMPATH BANK PLC (ORDINARY SHARES)

Top 20 Shareholders as at 31st December 2016

No. Shareholder name 31st December 2016 31st December 2015*

No. of Shares Ratio (%) No. of Shares Ratio (%)

1 VALLIBEL ONE PLC 26,463,803 14.95 25,765,740 14.95

2 MR Y S H I SILVA 17,660,616 9.98 17,194,764 9.98

3 EMPLOYEES PROVIDENT FUND 17,649,607 9.97 17,184,045 9.97

4 ROSEWOOD (PVT) LIMITED-ACCOUNT NO.1 11,756,360 6.64 11,697,866 6.79

5 HSBC INTL NOM LTD-BBH-MATTHEWS INTERNATIONAL

FUNDS-MATTHEWS ASIA GROWTH FUND 8,111,192 4.58 7,897,235 4.58

6 HSBC INTL NOM LTD-STATE STREET LUXEMBOURG

C/O SSBT -ABN AMRO MULTI -MANAGER FUNDS 4,611,931 2.61 4,490,278 2.61

7 HSBC INTL NOM LTD-BBH-MATTHEWS EMERGING

ASIA FUND 3,087,719 1.74 2,483,749 1.44

8 SAMPATH BANK PLC ACCOUNT NO. 04 (SAMPATH

BANK PENSION FUND) 2,882,902 1.63 2,806,857 1.63

9 AKBAR BROTHERS PVT LTD A/C NO. 1 2,681,122 1.51 2,166,038 1.26

10 CITIBANK NEW YORK S/A NORGES BANK ACCOUNT 2 2,600,052 1.47 1,039,481 0.60

11 EMPLOYEES TRUST FUND BOARD 1,967,514 1.11 1,595,032 0.93

12 JINADASA BROTHERS (PVT) LTD 1,683,422 0.95

13 MR B A MAHIPALA 1,553,468 0.88 1,707,215 0.99

14 KEYSTONE (PRIVATE) LIMITED 1,513,665 0.86 1,473,738 0.86

15 MELLON BANK N.A.-UPS GROUP TRUST 1,433,309 0.81 1,395,502 0.81

16 BNYMSANV RE-BUTTERFIELD TRUST ( BERMUDA )

LIMITED 1,382,148 0.78 1,345,690 0.78

17 UNION ASSURANCE PLC/NO-01A/C 1,264,695 0.71

18 NATIONAL SAVINGS BANK 1,230,988 0.70 1,153,517 0.67

19 J B COCOSHELL (PVT) LTD 1,146,488 0.65

20 THE CEYLON INVESTMENT PLC A/C NO. 02 1,086,934 0.61

111,767,935 63.15 101,396,747 58.84

Total No. of shares registered 176,981,069 172,312,655 100.00

Total No. of shares unregistered - - - -

Total No. of shares issued 176,981,069 - 172,312,655 100.00

Shares held by Directors 33,643 0.02 105,250 0.06

Shares held by Institutions 117,424,683 66.35 114,139,438 66.24

Balance held by Public 59,522,743 33.63 58,067,967 33.70

Total No. of shares issued 176,981,069 100.00 172,312,655 100.00

% Shares held by Public 83.36 83.33

% Shares held by Directors and Related Parties 16.64 16.67

* Shareholding as at 31st December 2015 of the top twenty shareholders as at 31st December 2016.



129DIVIDEND PAYMENT DETAILS

Year Total Dividend

Paid

Rs Mn

Dividend per

Share

Rs

Profit for the

Period

Rs Mn

Dividend

Payout Ratio

2000 58.70 1.75 402 14.60%

2001 52.14 1.75 322 16.19%

2002 88.57 2.00 441 20.08%

2003 (Interim) 59.78 2.00 561 14.58%

2003 (Final) 21.99

2004 (Interim) 65.98 2.00 621 16.15%

2004 (Final) 34.30

2005 (Interim) 87.14 2.00 821 14.54%

2005 (Final) 32.21

2006 155.47 2.50 1,028 15.12%

2007 206.66 3.00 1,052 19.64%

2008 256.65 4.00 1,414 18.15%

2009 436.19 6.25 2,098 20.79%

2010 1,235.86 8.09 3,303 37.42%

2011 1,426.98 9.00 3,819 37.37%

2012 1,954.10 12.00 5,230 37.36%

2013 1,342.63 8.00 3,430 39.13%

2014 1,847.01 11.00 4,914 37.59%

2015 2,240.06 13.00 6,134 36.52%

2016 (Proposed Interim) 2,477.73 18.75 9,125 36.85%

2016 (Proposed Final) 884.41

RECORD OF SCRIP ISSUES

Capitalised Year Issue Basis New No.

of Shares

Stated Capital

(Rs Mn)

Reason for Issue

2010 Interim Scrip Dividend for 2010 1 for 120.74 627,596 1,786.25 Increase stated capital

2011 Final Scrip Dividend for 2010 1 for 43.39 3,521,294 2,701.79 Increase stated capital





2017 (Proposed) Interim Scrip Dividend for 2016 1 for 19.22 9,209,419 8,704.94 Increase stated capital

RECORD OF SUBDIVISIONS

Year Issue Basis New No.

of Shares

Stated Capital

(Rs Mn)

Reason for Issue

2010 Consolidation and subdivision 11 for 10 6,888,762 1,581.65 Increase in liquidity

2010 Subdivision 1 for 1 76,403,986 1,786.25 Gift benefit to

shareholders


ANNUAL REPORT 2016

EMPLOYEE SHARE OPTION PLAN 2010

Year Issue Basis New No.

of Shares

Stated Capital

(Rs Mn)

Reason for Issue

2011 ESOP 2% of issued shares 524,924 2,743.78 Benefit for staff members

2012 ESOP 2% of issued shares 2,200,436 3,564.17 Benefit for staff members



RELATED PARTY TRANSACTIONS EXCEEDING 10% OF THE EQUITY OR 5% OF THE TOTAL ASSETS OF THE BANK

(THIS DISCLOSURE IS AS PER SECTION 9 OF THE CSE LISTING RULES)

None of the transactions carried out by the Bank with the Related Parties have exceeded the aggregate monetary value of

10% of the shareholders’ equity of the Bank or 5% of the total assets of the Bank as at 31st December 2016.

DEBENTURE INFORMATION

(A) MARKET VALUES

Debentures - 2012/2017 Highest (Rs) Lowest (Rs) Year End (Rs)

2016 2015 2016 2015 2016 2015

Fixed - 16.5% 106.60 110.00 101.50 100.00 102.00 107.00

Fixed - 15.0% 101.00 121.00 98.00 106.00 98.00 106.00

Floating NT NT NT NT NT NT

NT - Not Traded


2016 2015 2016 2015 2016 2015

Fixed - 13.4% 98.50 NT 98.50 NT 98.50 NT

Fixed - 13.0% 105.25 107.85 105.25 107.85 105.25 107.85

NT - Not Traded


2016 2015 2016 2015 2016 2015

Fixed - 8.25% 90.00 100.95 87.00 94.66 87.00 94.66

Fixed - 8.10% 85.00 94.08 85.00 94.08 85.00 94.08


2016 2015 2016 2015 2016 2015

Fixed - 9.90% NT 99.87 NT 99.87 NT 99.87

Floating NT NT NT NT NT NT

NT - Not Traded



131Debentures - 2016/2021 Highest (Rs) Lowest (Rs) Year End (Rs)

2016 2015 2016 2015 2016 2015

Fixed - 12.75% 99.94 NA 99.94 NA 99.94 NA

Floating NT NA NT NA NT NA

NA - Not Applicable NT - Not Traded

(B) INTEREST RATES

Debentures - 2012/2017 2016 2015

Coupon Rate Effective Rate Coupon Rate Effective Rate

Fixed - 16.5% 16.50% 16.50% 16.50% 16.50%

Fixed - 15.0% 15.00% 16.08% 15.00% 16.08%

Floating rate * * * *

*Floating rate is equivalent to the six month treasury bill rate (gross) plus 2.0% p.a. payable half yearly

Debentures - 2013/2018 2016 2015


Fixed - 13.4% 13.40% 13.40% 13.40% 13.40%

Fixed - 13.0% 13.00% 13.42% 13.00% 13.42%

Debentures - 2014/2019 2016 2015


Fixed - 8.25% 8.25% 8.25% 8.25% 8.25%

Fixed - 8.10% 8.10% 8.26% 8.10% 8.26%

Debentures - 2015/2020 2016 2015


Fixed - 9.90% 9.90% 10.15% 9.90% 10.15%

Floating * * * *

*Floating rate is equivalent to the six month treasury bill rate (net) plus 1.25% p.a. payable half yearly

Debentures - 2016/2021 2016 2015


Fixed -12.75% 12.75% 12.75% NA NA

Floating * * NA NA

NA - Not Applicable

*Floating rate is equivalent to the six month treasury bill rate (gross) plus 1.0% p.a. payable half yearly


ANNUAL REPORT 2016

(C) INTEREST RATE OF COMPARABLE GOVERNMENT SECURITIES - GROSS RATES

2016 2015

3 Month Treasury Bill 9.69% 7.09%

6 Month Treasury Bill 10.70% 7.43%

(D) CURRENT YIELD AND YIELD TO MATURITY

Debentures - 2012/2017 Fixed

16.50%

Fixed

15.00%

Floating

2016 2015 2016 2015 2016 2015

Current yield 16.18% 15.57% 16.41% 15.03% NT NT

Yield to maturity of last trade 14.27% 12.53% 18.36% 11.87% NT NT

NT - Not Traded

Debentures - 2013/2018

Fixed

13.40%

Fixed

13.00%

2016 2015 2016 2015

Current yield 13.60% NT 12.75% 12.44%

Yield to maturity of last trade 14.17% NT 10.84% 9.91%

NT - Not Traded

Debentures - 2014/2019

Fixed

8.25%

Fixed

8.10%

2016 2015 2016 2015

Current yield 9.17% 8.72% 9.72% 9.78%

Yield to maturity of last trade 11.55% 9.92% 13.23% 9.92%

Debentures - 2015/2020 Fixed

9.90%

Floating

2016 2015 2016 2015

Current yield NT 10.16% NT NT

Yield to maturity of last trade NT 9.93% NT NT

NT - Not Traded



133Debentures - 2016/2021 Fixed

12.75%

Floating

2016 2015 2016 2015

Current yield 12.76% NA NT NA

Yield to maturity of last trade 12.75% NA NT NA

NA - Not Applicable NT - Not Traded

(E ) RATIOS - BANK

2016 2015

Debt to equity ratio (%) 80.86 88.80

Interest cover (Times) 6.31 6.02

Quick asset ratio (%) 81.10 78.64


ANNUAL REPORT 2016

FUTURE OUTLOOK

FOR THE

BUSINESS

GOAL:

Lay the foundation for solid growth

Key priorities;

Revenue growth and continued cost management to improve our cost-to-income ratio.

Invest in innovative new financial solutions that will drive key growth objectives and

maintain brand equity

Modernize IT platforms and network infrastructure to improve efficiency and build resilience

Use customer insights identified through data analytics to initiate process improvements to

reduce costs

Strengthen the risk management and governance frameworks

FOR THE

CUSTOMER

GOAL:

Evolve as a multi-channel bank that would reinforce the uniqueness of the Sampath brand and

set us apart from our peers.

Key priorities;

Develop long-term banking relationships with customers by providing products and

services that meet their needs at different stages of their lives

Expand digital channels, including online platforms, ATMs and mobile solutions to enhance

the customer experience

Encourage a greater number of corporate clients to embrace electronic channels

Improve customer-centricity of the branch model

Set the industry-wide standard for customer service

Safeguard customer privacy

FOR EMPLOYEES GOAL:

Drive a high-performance culture, where talented and committed people can build fulfilling

careers.

Key priorities;

Strengthen our training agenda to improve employee productivity

Build our leadership pipeline

Continue to enhance HR systems capabilities and process effectiveness

Enhance employee engagement in order to support a robust feedback culture

FOR THE

SHAREHOLDER

GOAL:

Produce consistent returns that would build confidence and secure the long-term commitment

of the shareholder

Key priorities;

Strong capital ratios to ensure the health of the balance sheet

Improve ROE and ROA

Maintain Dividend-payout-ratio


IMAGINTEGRITY

[ RISK & GOVERNANCE ]This section looks at how we ensure that good

governance, risk management and long term sustainability

are prioritised in all of the Bank’s activities.

Risk Management Report 136

Compliance Review 151

Corporate Governance 153

Board Audit Committee Report 198

Board Human Resources and Remuneration Committee Report 202

Board Nomination Committee Report 204

Board Integrated Risk Management Committee Report 206

Board Related Party Transactions Review Committee Report 209

Board Credit Committee Report 210

Board Strategic Planning Committee Report 212

Board Shareholder Relations Committee Report 214

Board Treasury Committee Report 216

Board Marketing Committee Report 217


ANNUAL REPORT 2016

RISK MANAGEMENT REPORT

INTEGRATED RISK

MANAGEMENT FRAMEWORK

The Integrated Risk Management

(IRM) Framework at Sampath Bank,

and the Group is viewed as a

means of ensuring that sustainable

value is created for stakeholders

in a responsible manner through

effectively monitoring, managing and

controlling the risks faced by the Bank/

Group. The IRM process advocates a

structured and disciplined approach

to risk management by aligning

strategy, policies, processes, people,

technology and knowledge vis-à-vis the

opportunities, threats and uncertainties

faced by Sampath Bank. The primary

objectives of the framework are:

Protecting the Bank / Group

against possible losses;

Integrating risk management at

all levels of decision-making;

Anticipating and mitigating risk

events before they become a

reality;

Ensuring earnings stability

Optimising use of capital

These goals are cascaded down into

framework, policies, methodologies,

allocation of responsibilities,

governance and reporting structures

that have been developed in line with

all applicable regulatory requirements

and international best practices,

including the Basel II and III Accords.

The Integrated Risk Management Unit

(IRMU), under the supervision of the

Group Risk Officer is responsible for

driving the IRM framework across the

Bank as well as the Group.

FUNCTIONAL STRUCTURE OF THE RISK MANAGEMENT FRAMEWORK OF THE BANK/GROUP

Head of Risk & Compliance -


Chief Accountant

SC Securities (Pvt) Ltd

CEO - Sampath Information

Technology Solutions Ltd

Manager -

Sampath Centre Ltd

Managing Director

Group Compliance Officer Group Risk Officer

AML and Compliance Unit Integrated Risk Management Unit

Credit Risk Management Unit Market Risk Management Unit Operational Risk Management Unit

Credit Risk Management Function Credit Risk Review Function


Committee (BIRMC)

BOARD OF DIRECTORS

G4 - 46

RISK & GOVERNANCE

137RISK CULTURE

A sound risk culture is a core element of

the IRM framework and is deemed to be

vital in building resilience and creating

a scalable platform for future growth for

Sampath Bank and the Group.

Risk Management is seen as the

responsibility of every employee. In this

regard, the IRMU seeks to promote a

culture where employees are aware of

potential threats related to their actions

and work towards minimizing them by

exercising the right controls at the right

time.

RISK GOVERNANCE

The responsibility for ensuring that

risks are adequately identified,

measured, managed and monitored

and maintaining the good governance

ultimately lies with the Board of

Directors. The Board discharges its

duties through policies and procedures

enacted by several Board Committees,

with the Board Integrated Risk

Management Committee (BIRMC)

being the apex body for all risk related

matters.

Moreover, a number of subcommittees

have also been appointed and a

comprehensive internal control

mechanism established to guide

Corporate Management in the day-to-

day management of the business.

These measures seek to promote

an awareness of risk and good

governance in every area of the

business, and reinforce a culture of

compliance among all employees

across the Bank and the Group.

SAMPATH BANK

Credit Policy, Risk and Portfolio

Review Committee

Executive Advances Committee

Advances Committee

Asset & Liability Management

Committee (ALCO)

Investment Committee

IT Steering Committee

Internal Capital Adequacy Assessment

Process (ICAAP) Committee

Outsourcing Committee

Procurement Committee

Sri Lanka Financial Reporting

Standards (SLFRS) Committee

Management Committee

RISK GOVERNANCE COMMITTEES

Board Integrated Risk


Board Audit Committee

Board Treasury Committee

Board Credit Committee

Board Related Party

Transactions Review Committee

Board Strategic Planning

Committee

Board Human Resources &

Remuneration Committee

Board Nomination

Committee

Board Shareholder

Relations Committee


BO

AR

D L

EV

EL

CO

MM

ITT

EE

SE

XE

CU

TIV

E L

EV

EL

CO

MM

ITT

EE

S


ANNUAL REPORT 2016

RISK MANAGEMENT

RESPONSIBILITIES

The foundation of our Risk Management

framework is built on the ‘Three Lines

of Defence’ model, which promotes

transparency, accountability and

consistency, the building blocks for a

strong relationship with stakeholders.

Identification, management and

reporting of both current and potential

risks at business are managed effectively

as close as possible to the source of risk.

Key Risk Management responsibilities

for the business units include;

Self-assessment and reporting of risks

and control effectiveness

Compliance with all policies and

procedures

Promoting a strong risk culture and

awareness of risk elements through

effective communication and training.

Identifying and implementing both

proactive and reactive risk evaluation,

monitoring, and controls , coordinating

with Business Heads and Risk

Management

Centralised supervision by the Risk

/ Compliance functions to ensure

the implementation of governance

standards, frameworks and policies for

each type of risk that the Bank / Group is

exposed to, while ensuring consistency

in Risk Management across all areas.

This is done through;

Ongoing Formulation and

implementation of the IRM framework

Review of Key Risk Indicators of the

business units, products, processes,

systems and reporting to the business

units, management committees and

BIRMC, as required.

Challenging the Risk & Control Self

Assessments, inherent risks of business

units

Independently identifying and assessing

the risks the Bank is exposed to, also

considering the Board approved Risk

Appetite and recommending action to

maintain risks within appetite levels

Overseeing the development of a risk-

culture and its links with the anti-fraud

framework

Issuing an independent ‘Risk Opinion’

for all Credit Appraisals, Operational

Processes, Legal Agreements and New

Products/ Systems

Conducting post disbursement reviews

on loan and other credit facilities to

ascertain compliance to covenants and

ensuring maintenance of credit quality

Providing independent verification on

the process and level of impairment

carried out by the business units for

individually significant borrowers

Independent monitoring of Treasury

operations, adherence to Treasury limits,

exposure to Liquidity, Foreign Exchange

Rate, Interest Rate, Equity Price Risks

and implementing or recommending

appropriate actions to mitigate Market /

Liquidity Risks within Risk Appetite

Group-wide oversight of Risk

Management, reporting and providing

recommendations to BIRMC

Internal Compliance, regulatory

compliance, regulatory reporting, and

Anti-Money Laundering measures

Monitoring Compliance with the Bank’s

overall Risk Management framework

Internal Audit providing independent

and objective assurance on the Risk

Management /Compliance processes

and practices in place. Audit has

the authority to communicate with

the External Auditors, Board Audit

Committee and BIRMC. Assurance is

provided through;

Internal Audit

Anti-Fraud and monitoring

Assessment of the robustness of the

Risk Management and Compliance

tools and techniques in place.

1ST LINE OF DEFENCE 2ND LINE OF DEFENCE 3RD LINE OF DEFENCE


RISK & GOVERNANCE

139RISK APPETITE

An integral component of the overall

strategy formulation process, the Bank’s

Risk Appetite provides measurable

targets and tolerance thresholds across

all material risk categories. This creates

a framework where optimal growth

options can be evaluated alongside

the risks involved in order to drive

sustainable performance.

The main aim of setting a Risk Appetite

is to ensure that risks are proactively

managed as per the Board approved

tolerance limits for each material risk

category. Risk Appetite tolerance levels

are set at different trigger levels, with

clearly defined escalation requirements,

which enable appropriate actions to be

defined and implemented as required.

In cases where the tolerance levels

are breached, it is the responsibility of

the Group Risk Officer to bring them to

the attention of the Management and

respective Board Sub Committees, and

the Board for necessary action.

The Board is tasked with reviewing

and approving the Risk Appetite

annually, to ensure alignment with the

Group strategy, business environment

and stakeholder requirements.

Any amendments to Risk Appetite

are arrived at through discussions

between Business Line Heads, the

relevant Board Sub Committees and

Group Risk Officer and are thereafter

recommended for approval by the

Board.

Risk Appetite-Criteria Limit/Range

CREDIT RISK

Credit Quality and Concentration

Single Borrower Exposure (Individual) 25% of the Capital Base of the Bank

Single Borrower Exposure (Group) 35% of the Capital Base of the Bank

Aggregate Exposure (funded +non funded) to Large

Borrowers / Total Exposure (funded +non funded) (%)

(Large Borrowers are defined as having a credit

exposure of more than 15% of Bank’s Capital Base)

55% Maximum

Lending to Agriculture (%) – mandatory requirement 10% 10% - 12%

Exposure Against Shares / Credit Portfolio (%) <= 7.5%

Sector-wise Concentration (HHI Score *) Below 1,400

Product-wise Concentration (HHI Score *) Below 1,400

Market Risk

Net Open Position USD 11 Mn as per CBSL regulations

Liquid Assets Ratio 21% minimum

Net Loans to Total Assets Less than 75%

Total Loans to Customer Deposits 85% - 95%

Liquid Assets to Short Term Liabilities 30% - 35%

Bulk Deposits to Total Deposits Less than 15%

Purchased Funds to Total Assets Less than 12%

Commitments to Total Loans Less than 45%

Operational Risk

Internal Fraud Rs 10 Mn Maximum**

External Fraud Rs 25 Mn Maximum**

Employment Practices and Workplace Safety Rs 5 Mn Maximum**

Clients, Products & Business Practices Rs 5 Mn Maximum**

Damage to Physical Assets Rs 5 Mn Maximum**

Business Disruption and System Failures Rs 5 Mn Maximum**

Execution, Delivery & Process Management Rs 10 Mn Maximum**

* Herfindahl- Hirschman Index – HHI scores range from 0 to 1. We multiply the scores by 10,000 for easy readability. Scores below 1,000 are

considered un-concentrated while over 1,800 is considered highly concentrated. Our computations have been carried-out on lending products

and sectors

** All limits are annual limits based on Basel categories. Overall cumulative Operational Risk Appetite Limit is Rs 50 Mn a year.


ANNUAL REPORT 2016

RISK MEASUREMENT

THROUGH STRESS TESTING

Stress testing is used as a primary

means to assess the Bank’s vulnerability

to potential but plausible events and

to determine how potential adverse

developments may impact the Capital

Adequacy Ratio (CAR). In addition,

stress tests also act as conduits from

which the Bank assesses changes in

the Risk Profile and determines Risk

Appetite tolerance levels.

Stress testing is conducted regularly

for all major Risk categories, while

portfolio-specific stress testing is

conducted quarterly for highly sensitive

portfolios; mainly, lending, foreign

exchange, interest sensitive asset/

liability and liquidity while for all other

areas, stress tests are conducted as

and when it is deemed necessary.

Impact

Assessm

ent

CAPITAL ADEQUACY RATIO

Default

Risk

Concentration

Risk

Security

Value

Risk

Liquidity

Risk

Interest

Rate

Risk

Equity

Risk

Foreign

Exchange

Risk

Operational

Risk

Low

, M

ediu

m a

nd H

igh

Str

essed S

cenari

os

Large

exposure

default

Increase in

HHI score

Fall in

Forced Sale

Value of

Mortgaged

Collateral

Large

Deposit

withdrawals

prior to

Maturity

Interest

Rate shocks

on interest

sensitive

assets

Price shock

on equity

portfolio

Exchange

Rate shock

on net open

position

Increase in

Operational

Losses

Asset quality

downgrade

Loan roll-

overs

Interest

Rate shocks

on interest

sensitive

liabilities

IMPROVING RISK

PERFORMANCE

As a part of the ongoing efforts to

improve the Bank’s risk performance

and strengthen the overall Risk

Management Framework, a number of

new initiatives were undertaken in 2016.

CREDIT RISK MANAGEMENT

Credit Risk refers to the potential loss

that may result owing to the failure by a

counterparty or customer to meet their

obligations to the Bank in accordance

with agreed terms.

The policy guidelines are used to

manage the incidence of Credit Risk,

which are spelt out in the Credit

Risk Management Policy, which

ensures stringent pre/post Credit

Risk Management in line with the Risk

Appetite of the Bank, the Regulations of

Central Bank of Sri Lanka and globally

accepted Basel guidelines.

Steps taken in 2016 to strengthen the

Credit Risk Management framework,

were three-fold;

1. Strengthening the Pre-credit

evaluation process

Recommendations of an independent

consultant, provided after validating

effectiveness of our Internal Rating

Models were implemented during

the year. A highly focused effort to

reinforce the rating mechanism led

to the implementation of an improved

Risk Rating system to assess the Credit

Risk of all borrowers. The initiative,

which commenced in 2015, was fully

completed by end 2016. To strengthen

the credentials of the Cash Margin and

Staff Loans processes, two specific

Credit Rating models were introduced.


RISK & GOVERNANCE

141Moreover, efforts to benchmark against

internationally accepted best practices

led to the IRBF (Internal Rating Based

Foundation) Approach being used for

test computing Credit Risk Weighted

Assets, with a 5 year data analysis

which has also been presented to both

Internal and External auditors for their

review.

Meanwhile, in a bid to assess how

different sectors are impacted by

adverse market conditions and other

macro-economic implications, a series

of improvements were made to the

Stress Testing mechanism.

Steps were taken to improve the back-

end operations which ensured that the

impairment process was integrated into

the core banking system as well as the

Credit Risk Management system. At

the same time, post-mortem analysis

was conducted on selected high-value

NPA customers, as part of the learning

exercise to help identify critical factors

that cause customers to default, and

what type of follow-up actions are best

suited for handling such situations.

The process of managing Market

Risk is underpinned by; the Market

Risk Management Policy, the Asset

and Liability Management Policy, the

Investment Policy and the Treasury

Policy.

In 2016, several stress tests were done

in order to understand the impact that

potential stress events could have on

various portfolios. This included new

combined Stress Testing Scenarios for

Market Risk and Operational Risk.

LIQUIDITY RISK

MANAGEMENT

Liquidity risk is the potential risk arising

from the inability to meet obligations

in a timely manner as and when they

become due, mainly on account of

mismatches between the maturities of

the Bank’s assets and liabilities.

Therefore managing Liquidity Risk is a

crucial part of the day-to-day activities

of the Bank. The ALCO is the main

Executive Level committee mandated

to oversee the Bank’s liquidity position

and to ensure it is in line with the internal

targets. Board Approved Liquidity

Gap Limits are also used to ensure

compliance with Central Bank regulatory

requirements, and the Bank’s Risk

Appetite.

FOREIGN EXCHANGE RATE

RISK MANAGEMENT

Classified as the loss arising as a result

of mismatches in assets and liabilities

in specific foreign currencies, Foreign

Exchange Rate Risk is managed

through a Board approved Policy and

Limit Framework.

To improve the monitoring and

control aspects and to enhance the

standards of Treasury Limit monitoring

mechanisms, a new project was

commenced in 2016 to upgrade the

Treasury operations system. The

imitative, which was launched in the

early part of the year is expected to

be fully completed by early 2017.

2. Improving the post-credit

evaluation process

Among the key activities carried out

during the year was the alternative

scenario analysis to asses/forecast the

impact on service of loans from Gearing

levels in the event of a hike in average

interest rates.

Portfolio-specific initiatives included

a special stress test to evaluate

the Bank’s risk exposure to the

Condominium and Housing markets,

while general industry analysis helped

to determine the adequacy of risk

appetite thresholds.

3. Compliance with BASEL

regulations

A series of awareness sessions were

conducted to educate Risk Governance

Committees and Corporate

Management regarding international

best practices and applicable

standards.

MARKET RISK MANAGEMENT

Market Risk is the likelihood of loss

in earnings that could arise from the

possible fall in value of investment

or trading portfolios, as a direct

consequence of changes in market

variables such as interest rates, equity

prices and foreign exchange rates.

RISK GRADE WISE DISTRIBUTION OF BORROWERS

A+ to AA- to B+B to C+

Below C+Unrated

21

3638

2

3

(%)

SECTORWISE DISTRIBUTION OF POST CREDIT EVALUATION DURING 2016

Financial & Business

Construction

Traders

Agriculture

Manufacturing

Infrastructure

Tourism

Other Customers

Other Services

New Economy

Transport

20

19

17

11

7

4

2

3

5

5

7

(%)


ANNUAL REPORT 2016

In addition, a new rate scan report

was also introduced, to validate the

Exchange Rates quoted by Dealers

against market rate movements on a

given day.

INTEREST RATE RISK

MANAGEMENT

Interest Rate Risk is the potential

for loss resulting from the Bank’s

assets and liabilities having different

re-pricing characteristics. The Bank is

exposed to interest rate risk through its

lending assets, deposit liabilities and

trading securities. Given this broad

scope, Interest Rate Risk which is

pivoted on the changes in the macro

environment is managed through a

Board approved Policy Framework.

Being a highly sensitive area,

strengthening the monitoring process

remained a priority for 2016, which saw

the Yield Curve Risk and Re-pricing

Risk monitoring mechanisms being

adopted as a part of the regular Interest

Rate Risk monitoring mechanism, and

the introduction of an improved limit

based monitoring framework for Interest

Rate Risk.

EQUITY RISK MANAGEMENT

From the Bank’s perspective, Equity

Risk refers to the potential losses that

may arise in the investment portfolio

owing to adverse movements in value

of equity investments. The Board

approved Investment Policy offers

a comprehensive guideline of the

management of Equity Risk within

appetite levels.

OPERATIONAL RISK

MANAGEMENT

Operational Risk is the potential Risk

arising from the inadequacy of internal

processes, controls, IT systems, people

or even external events that may impact

the Bank.

The Operational Risk Management

Framework and processes are

conducted in accordance with the

Banks’ Operational Risk Management

Policy, other related Policies approved

by the Board and applicable

regulations.

Among the steps taken in 2016 to

widen the scope of the Operational Risk

Management Framework was the new


RISK MANAGEMENT IS SEEN AS THE RESPONSIBILITY OF EVERY EMPLOYEE. WE STRIVE TO PROMOTE A CULTURE WHERE EMPLOYEES ARE AWARE OF POTENTIAL THREATS ARISING FROM THEIR ACTIONS AND WORK TOWARDS MINIMIZING THEM BY EXERCISING THE RIGHT CONTROLS AT THE RIGHT TIME

combined Stress Testing mechanism

for Market Risk and Operational Risk.

The Internal Loss Event Data Reporting

(ILEDR) mechanism, a key source of

information in managing Operational

Risks, was further improved, while

Board approval for KRI’s (Key Risk

Indicators) and RCSA (Risk and Control

Self-Assessments) were reviewed as

part of the continuous development

of our Operational Risk Management

Framework.

Meanwhile, regulatory approval

from the CBSL was sought to adopt

advanced approaches for the

computation of Capital Adequacy

as per the Basel II Operational Risk

Capital Calculation approaches.

OPERATIONAL RISK REVIEWS IN 2016

Service Level Agreements / MOU / NDAPolicies, Procedures, DirectivesSign Off for Products / Concept PapersSystem Requirement Specifications / RFPProduct / Customer Applications

38

34

14

13

1

(%)

RISK & GOVERNANCE

143

KEY RISK INDICATOR LIMIT FRAMEWORK

Area Indicator Threshold (Quarterly)

Retail Banking: Adequacy of HR staffing

levels to meet work load/plans

Staff turnover in executive grades. Warning : 0.875%

Critical : 1.00%

Retail Banking: Compliance and Legal -

Staff breaches of code of conduct

including ethical standards, integrity

and confidentiality

Number of internal frauds per business/

functional unit

Total fraud value reported during the

quarter, per business/functional unit

Warning : 0.009

Critical : 0.012

Warning : Rs 7,500

Critical : Rs 9,000

Retail Banking: Technology Total number of breakdowns per ATM Branches

Cause Warning Critical

Hardware 0.652 0.685

Software 0.035 0.050

Cash low 0.019 0.020

Communication 0.021 0.030

Power 0.050 0.060

Off-site

Cause Warning Critical

Hardware 1.500 2.000

Software 0.075 0.090

Cash low 0.356 0.392

Communication 0.241 0.266

Power 1.345 1.480

The risks associated with the

ownership, use, operation,

involvement and adoption of

IT systems within the Bank.

This includes breakdowns

and failures in IT systems,

technological obsolescence,

and inadequate infrastructure

to support business volumes,

among others. The Bank’s IT

framework is governed by its

IT policies and procedures,

which are reviewed and

monitored by the IT Steering

Committee and IT Department

The result of improper management of human resources, failure to comply with related

regulations, inappropriate actions, non adherence to formal procedures, lack of competencies

and any other conduct of employees that may pose a threat to the Bank.

To minimize People Risk the Bank relies on its integrated HR framework

The Risks arising from inadequate or failed internal processes, and controls. Process risk is managed through the

Operational Risk Management Policy and the other related policies, procedures and internal directives in line with the

three lines of defence framework.

The risks arising from non-

compliance with regulatory/

statutory provisions,

uncertainty due to legal

actions or uncertainty in the

applicability or interpretation

of relevant laws applicable to

the Bank.

Legal Risk Management

is implemented in line with

Legal Risk Management

Policy, through its

comprehensive framework

of internal procedures and

directives

Process Risk

Technology

Risk

People Risk

Legal Risk

G4 - SO 03


ANNUAL REPORT 2016

Area Indicator Threshold (Quarterly)

Retail Banking: Credit Operations

including Pawning

Value of Dud and Stolen Pawned

articles reported

Value of Dud and Stolen articles

reported compared to total Pawning

Advances

Number of credit defaults handed over

to recoveries for recovery and legal

action, per Branch/Credit Department

Value of the credit defaults handed over

to recoveries for recovery and legal

action compared to Advance Portfolio

Warning : Rs 1.0 Mn

Critical : Rs 1.5 Mn

Warning : 0.005%

Critical : 0.010%

Warning : 0.72

Critical : 0.90

Warning : 0.175%

Critical : 0.35%

Retail Banking: Credit Card Operations Reported total number of credit cards

lost/stolen compared to total number of

credit cards

Value of counterfeit and CNP (card not

presented) credit card frauds compared

to total Credit Card advances.

Reported total number of counterfeit

credit cards compared to total credit

card base

Total number of credit cards used for

CNP frauds compared to total Credit

Card Base.

Warning : 0.009%

Critical : 0.010%

Warning : 0.04%

Critical : 0.05%

Warning : 0.043%

Critical : 0.058%

Warning : 0.045%

Critical : 0.054%

KEY RISK INDICATOR LIMIT FRAMEWORK CONTD.

COMPLIANCE RISK

MANAGEMENT

Compliance Risk is managed by the

Compliance Unit of the Bank, headed

by the Group Compliance Officer.

The Compliance Review on pages 151

& 152 of this report is designed to offer

a more detailed view.

STRATEGIC AND

REPUTATIONAL RISK

MANAGEMENT

Strategic risks are the potential losses

arising from the possibility of the Bank’s

future business plans and strategies

being inadequate, inappropriate, or not

based on sound assumptions. Strategic

risks can also arise from not responding

promptly to external events likely to

impact our strategies, or due to weak

implementation of strategies.

Commencing this year, we have

enhanced the assessment and

monitoring of Strategic Risk through a

detailed analysis of the Bank’s strategic

plan and by providing our feedback

and recommendations to the Board, so

that future strategies are adopted with

full understanding of potential risks.

Reputational risks impact the Bank’s

current or prospective earnings

capacity, resulting from damage

or breakdown in relationships with

transactional stakeholders.

The Strategic Risk Management Policy

outlines the structures and processes

to manage the strategic risks faced

by the Bank, while the Banks’ code of

ethics and value culture along with the

Reputational Risk Management Policy

play crucial roles in managing

Reputational Risks.

GROUP RISK MANAGEMENT

The objective of the Group Risk

Management function is to ensure that

the risk and control mechanisms of


RISK & GOVERNANCE

145 The BIRMC periodically

reviews the Risk Profile of each

subsidiary, the Quarterly Group

Risk Reports submitted by the

Group Risk Officer and makes

recommendations to the main

Board

The Bank’s Board of Directors

have access to the Board

Minutes of all subsidiaries

each subsidiary remain aligned to the

core Risk Management Framework of

Sampath Bank at all times. To support

this goal the following practices are in

place;

The Bank nominates Directors

to the Boards of each of the

group entities depending on the

required level of oversight

A Group Risk Officer is appointed

as the main coordinator of risk

management mechanisms with

the subsidiaries (Siyapatha

Finance PLC, being the largest

subsidiary in the Group has its

own Integrated Risk Management

Committee, where the Group Risk

Officer is invited to meetings)

Risk Factor Impact Risk Management / Assessment Risk Mitigating Factors Risk

Rating

CREDIT RISK

Risk of borrower

default

High 1. Key Committees: BIRMC,

Credit Committees, Credit &

Policy Review Committees

2. Credit Risk Management Unit

(CRMU)

3. Structured & standardised

credit sanction process.

4. Internal Risk Rating

5. Pre-Credit Risk Evaluation

by specialised staff at Credit

Departments & Regional

Offices.

6. Post-Credit monitoring and

Loan Review Mechanism

1. Board approved credit policies/

procedures, framework, annual

review

2. Delegated authority levels,

Segregation of duties between loan

origination, Administration & Risk.

3. Key input from the Risk Department

for pre/post credit risk

4. Independent Pre-credit Risk

evaluation by CRMU for over Rs

100 Mn

5. Watch listing, Early Warning

Signals (EWS)

6. Portfolio Risk Management and

Reporting

Medium

CREDIT CONCENTRATION RISK

Credit

exposure being

concentrated

on one or few

lending sectors,

groups, insufficient

diversification

High 1. Review the Bank’s

concentration in a number of

areas, such as Top 20 exposure

as a % of total portfolio,

product-wise, sector-wise

region-wise, collateral-wise etc.

2. Identify principal Risk factors

which affect the portfolio and

required to be stressed.

3. Concentration risk assessed

based on Herfindahl - Hirshman

Index (HHI)

1. Board approved limits on

maximum exposure guidelines

2. Setting of prudential limits, on

maximum exposure, reviewed

annually.

3. CBSL guidelines - single borrower/

related party

4. Classification of borrower – sector/

subsector

5. Monitoring of exposure against

the limits and NPAs on MoM & YoY

basis.

6. Trend analysis reported to BIRMC.

7. Stress testing/Sensitivity analysis

results reported to Management

/ BIRMC on quarterly basis for

necessary action.

Low

RISK PROFILE / RISK REGISTER

The Bank’s overall Risk Profile could be summarised as follows.


ANNUAL REPORT 2016


Rating

COUNTRY RISK

A collection of

risks associated

with investing in

or lending to a

foreign country.

These risks

include political

risk, exchange

rate risk, economic

risk, sovereign risk

and transfer risk.

Low 1. Sovereign Risk rating

2. Monitoring of specific sanctions

on countries

3. Assessment of political and

economic situations

1. Limitations on lending/caps on

lending.

2. Monitoring of country-wise

exposure

Low

MARKET RISKS

LIQUIDITY RISK

Inability to meet

obligations as and

when they fall due

High 1. Board Approved Policies

2. Measurement through key ratios

such as Net Loans to Assets,

Loans to Customer Deposits,

Liquid Assets to Short Term

Liabilities etc.

3. Preparation of maturities of

assets and liabilities statement

into time bands

4. Measurement of liquidity in all

major currencies

5. Assessment of Liquidity Risk

during Economic Capital

Calculation under Internal

Capital Adequacy Assessment

Process (ICAAP)

1. Monitoring of Board Approved

Liquidity Risk Appetite Limits

2. Measurement of liquidity in all

major currencies reported to ALCO,

analysed and decisions taken at

ALCO.

3. Stress Testing results on Liquidity

Risk are reported to BIRMC and

appropriate risk mitigation decisions

made.

4. Board approved Liquidity

Contingency plan.

5. Planning and readiness for Basel III

liquidity requirements.

Medium

INTEREST RATE RISK

Potential loss

resulting from the

Bank’s Assets and

Liabilities having

different re-pricing

characteristics

Medium 1. Board approved Policies

2. Prudential limits i.e. maximum

maturity, duration etc.

3. Assessment of Interest Rate

Risk during Economic Capital



Process (ICAAP)

1 Maturity gap analysis (various time

bands) – residual term maturity

(Fixed Rate) / or next re-pricing

(floating rate)

2. Interest rate risk related reporting,

Limit monitoring and analysis at

ALCO and BIRMC

3. Stress Testing and Scenario Analysis,

and the results are reported to

BIRMC and appropriate decisions

are made to mitigate risks.

4. VAR calculations on Treasury

Bill/Bond portfolios and related

monitoring against BOD approved

Limits

Medium


RISK & GOVERNANCE

147Risk Factor Impact Risk Management / Assessment Risk Mitigating Factors Risk

Rating

EQUITY RISK

Impact to the

value of the Bank’s

Equity Portfolio

(investments in

Share Market)

due to adverse

movements in

stock market

prices

Medium 1. Board Approved Policies

2. Equity Portfolio Performance

Review

3. Investment Committee

4. Mark to market of the

investment portfolio

5. Assessment of Equity Risk

during Economic Capital



Process (ICAAP)

1. Return of equity portfolio /

movements in stock market

monitored by Investment

Committee and risk mitigation

decisions made

2. Stress Testing on a regular basis,

and reported/decisions made at

BIRMC

Low

FOREIGN EXCHANGE RATE RISK

Risk arising from

mismatches

in assets and

liabilities in

specific foreign

currencies, where

the value of such

net exposures

will fluctuate due

to exchange rate

movements.

High 1. Board Approved Policies

2. Assessment of Foreign

Exchange Rate Risk

considered in setting Treasury

Limits and Products

3. Regular revaluation of open

positions

4. Assessment of Foreign

Exchange Rate Risk during

Economic Capital Calculation

under Internal Capital

Adequacy Assessment Process

(ICAAP)

5. Value at Risk (VAR) calculation

on Foreign Exchange Rate

Sensitive portfolios through IT

Systems.

1. Continuous Monitoring of Board

approved limit framework as per

CBSL requirements depending on

the capital requirements & Risk

Management capability.

2. Regular stress testing for key

variables, reporting to BIRMC, and

appropriate decisions made.

3. Segregation of responsibilities

between Front Office, Middle Office

& Back Office

4. IT System in place enables tracking

and monitoring of exposures

5. Monitoring exposures including

monitoring of forex exposures with

preparation of maturity of assets &

liabilities

6. Monitoring of Risk Appetite Limits

for Foreign Exchange Rate Risk

and BOD approved VAR limits

Medium

CAPITAL RISK

Risk of insufficient

capital resources,

to ensure the Bank

is well capitalised

relative to

the minimum

regulatory

requirements

High 1. Capital adequacy ratios

computed regularly.

2. Stress testing under various

adverse scenarios

1. Fluctuation in Capital Adequacy

ratios are monitored regularly

(Finance & Planning Department)

2. Capital augmentation measures

are put in place depending on the

outcome of monitoring (Finance &

Planning Department / ALCO)

3. Regular Economic Capital

Calculation under Internal Capital

Adequacy Assessment Process

(ICAAP) as per CBSL Guidelines

4. Planning and readiness for

improved capital requirements

under Basel III commencing from

1st July 2017

Medium


ANNUAL REPORT 2016


Rating

OPERATIONAL RISK

The risk of loss

resulting from

inadequate or

failed internal

processes, people

and systems or

from external

events. This

definition includes

legal risk, but

excludes strategic

and reputational

risk

High 1. Adequacy & effectiveness of

Operational Risk Policies are

regularly assessed by IRMU

and at BIRMC meetings

2. Operational Risk is managed

by business units in

accordance with internal control

requirements

3. Risk and Control Self

Assessments (RCSA) provided

by the respective business

units, and Key Risk Indicators

(KRI)

1. Operational Risk Policies reviewed

annually or more frequently based

on the need.

2. Risk Management monitoring

through Operational Risk

IT System. Comprehensive

operational loss database is

maintained in the System to track

losses by Event Type and Business

Line as per Basel II

3. Material losses regularly analysed

by cause, and action taken to

improve system and controls to

prevent future recurrence

4. Risk review on new products,

processes, external suppliers/

outsourced service providers.

5. Monitoring and Reporting of

Operational Risk Appetite Limits

and Key Risk Indicator Limits

Medium

PEOPLE RISK

Lack of

appropriate

human resources,

failure to manage

performance

and reward link,

unauthorised or

inappropriate

employee activity

and failure to

comply with

employment

related

requirements

High 1. Manpower planning in line with

expansion and changes in

business requirements.

2. Upgrading of minimum

qualifications and skill levels

3. Recognition of specialised skills

4. Bi-annual reviews/ assessment

of performance

5 Performance management

systems in place to recognise

and reward performance and

identify training needs

6. Succession and development

plans

1. Robust HR policies, governance

structures, programmes and

processes in place and policies are

applied in a consistent manner.

2. Recruitment, Pre employment

screening, Employer feedback/Exit

interviews

3. Proactive HR programmes to

engage and receive feedback from

staff throughout the Bank

4. Strong staff development

programmes in place combining

e-learning, classroom training and

on the job training. Programmes

cover both general and specialised

areas and soft skills

5. Maintaining a low staff turnover

ratio

6. Consistently applied disciplinary

procedures

Medium

RISK MANAGEMENT REPORT G4 - 02

RISK & GOVERNANCE

149Risk Factor Impact Risk Management / Assessment Risk Mitigating Factors Risk

Rating

TECHNOLOGY RISK

Risk arising from

non-availability

of IT systems,

systems break

downs and

disruptions, or not

keeping in line

with the trends in

technology and

delivery channels.

High 1. Technology planning is

conducted during the annual

strategic planning

2. Performing systems audits for

every system before deploying

into production environment

3. External/Internal vulnerability

assessment with Risk

Management process of

identifying and assessing risk.

4. IT and Systems Audit

continuously reviews and

analyses new cost efficient

delivery channels

5. IT Steering Committee

6. Risk reviews on new / amended

systems during requirement

specification or procurement

stage

1. Technology planning as a part of

annual strategic planning process

which covers a 3 year period

2. Systems audits are performed for

every system before deploying into

production environment

3. Bank’s IT Department/ IT Steering

Committee together with the

business lines, continuously review

and analyse new cost efficient

delivery channels

4. Based on the outcome of the

systems audit, necessary controls

are implemented before live

implementation

5. External vulnerability assessment

carried out by external consultants

based on the need

6. IT Policies/ procedures investment

in latest technology, IT systems, in

line with ISO standards to ensure

competitive advantage.

7. Back up & Disaster Recovery

Planning & testing in place. (BCP)

Medium

LEGAL RISK

Risk arising from

litigation against

the Bank, faulty

documentation or

business not being

conducted as per

the applicable

laws

High 1. Independent Legal Department

2. Specialist legal advice obtained

from external consultants on a

need basis.

3. Adequacy and effectiveness

of the controls reviewed by the

Legal Department.

1. Board Approved Legal Risk

Management Policy being applied

in all legal matters

2. Adequacy and effectiveness of

the controls reviewed by the Legal

Department

3. Policies and procedures in place

to ensure that business activities

with legal impact are properly risk

assessed and executed.

4 All legal documents/ Service

Level Agreements are specifically

approved by the respective

Business Line Heads and the Chief

Legal Officer, and also signed off

by Risk & Compliance Departments

5. Company Secretary function/

compliance to ensure compliance

with specific regulatory

requirements

Low


ANNUAL REPORT 2016


Rating

STRATEGIC RISK

Failure to manage

medium / long

term strategic

goals of the

business

High 1. Bank’s 2-3 year strategic

plan approved by the Board

covering all business units.

1. Board approved Strategic Risk

Management Policy

2. Strategic Risk Assessment in

ICAAP and provisions under

Economic Capital

3. Regular monitoring by business

line heads/ Planning Division

4. Accuracy of Financial reporting

ensured by internal controls

and the adoption of Sri Lanka

Accounting Standards

5. Monthly / quarterly reporting on

the progress of the Strategic Plan

achievements are submitted to the

Board of Directors.

6. Strategic Plans are independently

reviewed by Risk Management

Function, and comments/

recommendations are provided

to the Board Strategic Planning

Committee/Board.

7. Periodic review actions/plans

depending on the assessment

of progress and any external,

economic environment changes.

Low

REPUTATIONAL RISK

Negative effects

of public opinion,

customer opinion

and market

reputation and the

damage caused to

brands by failure

to manage public

relations.

High 1. Complaint handling policy/

procedure is in place in terms

of the customer charter as per

CBSL guidelines.

2. Procedure for receiving

customer complaints and

resolution mechanism is in

place.

3. Complaints and process of

resolution relating to operational

risk / compliance if significant,

is escalated to Corporate

Management / BIRMC.

1. Timely & efficient communications

among all stakeholders.

2. Corporate Governance practices

3. Reputational Risk Management

Policy, and Procedure for receiving

customer complaints and resolution

mechanism is in place.

4. Reputational Risk Assessment

in ICAAP and provisions under

Economic Capital

5. Business Continuity Planning

6. Training and capacity building.

7. Code of conduct for the Board and

all staff members

Low


RISK & GOVERNANCE

151

KEY FOCUS AREAS OF COMPLIANCE FUNCTION

Compliance

monitoring and

testing

Putting the required

policies procedures

and controls in

place

Regular interaction

and coordination

with regulators

Compliance

reviews

Compliance

training

Reporting and

communication KEY FOCUS

AREAS

COMPLIANCE REVIEW

OVERVIEW

Compliance is a fundamental building

block in the Bank’s governance model.

The Compliance Unit plays a vital

role in mitigating the compliance risk

arising out of day-to-day operations,

thereby preserving the integrity and

reputation of the Bank in the eyes of

its stakeholders. AML (Anti-Money

Laundering) Compliance, Exchange

Control Compliance, Regulatory

Compliance, FATCA reporting, CRIB

Compliance and Financial Ombudsman

Compliance are the key functions of the

Department.

In carrying out its duties, the

Compliance Department is guided by

the Bank’s Compliance procedures

and guidelines, clearly set out in the

Board approved Compliance Policy,

which is reviewed periodically, and

updated as and when necessary. The

Policy spells out roles, responsibilities,

structure, processes, reporting lines,

risk identification and methods for risk

mitigation, among others. A Group

Compliance Policy is also in place,

which outlines Group-wide compliance

principles that all subsidiaries are

required to adopt.

Operating independently of all

business lines, the Compliance Unit

is headed by a Group Compliance

Officer (GCO) who reports directly to

the Board Integrated Risk Management

Committee. The compliance function

forms the 2nd line of defence, in the

Bank’s Risk Management Framework

outlined on page 136 of this report and

remains independent and distinct from

the Internal Audit Function, which acts

as the 3rd line of defence.

APPROACH

CREATING AN UBIQUITOUS

COMPLIANCE CULTURE

In striving to promote a Bank-wide

compliance culture, Sampath Bank

PLC advocates greater accountability

and demands that all team members

perform their duties honestly and with

integrity at all times. In this regard, the

Bank follows a top-down approach

towards compliance, where the Board

of Directors and Senior Management

lead by example in maintaining the

highest standards of ethical conduct

in relation to matters pertaining to

the Bank or the Group. Training

and knowledge sharing are also

seen as key elements in nurturing a

compliance-driven culture.

OPERATING INDEPENDENTLY OF ALL BUSINESS LINES, THE COMPLIANCE UNIT IS HEADED BY A GROUP COMPLIANCE OFFICER (GCO) WHO REPORTS DIRECTLY TO THE BOARD INTEGRATED RISK MANAGEMENT COMMITTEE


ANNUAL REPORT 2016

MONITORING AND REVIEW

A number of new compliance-related

projects were put in place in 2016, to

ensure the ongoing review of regulatory

requirements and to identify potential

gaps and the rectification of such gaps.

Among the key initiatives was the

setting up of a structured review

mechanism, which includes a periodic

reporting process that paves the way

for continuous oversight of the status

of statutory payments and mandatory

reporting requirements pertaining to the

Bank and the Group.

The staff cadre of the Compliance

Department was also strengthened,

particularly in the areas of Legal and

IT. The move is expected to strengthen

the team’s business scope regarding

regulatory compliance and to improve

the system processes related to

compliance function to ensure that the

Bank is adequately equipped to carry

out its responsibilities by monitoring

and testing compliance of the business

lines more effectively.

A routine review process was

initiated under the supervision of the

Compliance Department to measure

branch compliance levels through

branch visits and to determine possible

gaps. A comprehensive process that

among others includes; interviews

with those handling transactions and

with their supervisors to determine

their knowledge of the legislative

requirements and the Bank’s policies

COMPLIANCE REVIEW

and procedures. These efforts were

focused mainly on areas where there

is a greater risk of non-compliance

and where failure to comply could

have significant impact on the ability to

detect money laundering and terrorist

financing.

OUTCOMES

These steps proved successful with all

statutory and regulatory compliance

requirements for 2016 being fulfilled.

Furthermore, the diligent efforts of the

Compliance Department ensured that a

high level of compliance was observed

across the Bank, yielding real results

that would protect stakeholders now

and in the future.

Moving forward, the Compliance

Department would focus on Micro-

level compliance requirements, which

are emerging as key challenges in

the fast-changing world of Risk Based

Compliance.

RISK & GOVERNANCE

153

CORPORATE GOVERNANCE

THE BANK’S BOARD COMPRISES OF PROFESSIONAL AND QUALIFIED INDIVIDUALS WHO CHALLENGE, MOTIVATE AND GUIDE THE BUSINESS ALIGNED WITH THE BANK’S VISIONDear Stakeholders,

At Sampath Bank, we believe that

good Governance is crucial to the

soundness and long term sustainability

of our business. Driven by this belief,

we continue to work towards building

a robust and meaningful corporate

governance framework that would

spearhead progress across all aspects

of our business.

In this section of the Annual Report

I wish to touch on our governance

principles and highlights of our

activities during 2016, which

demonstrate our ongoing commitment

to uphold best practices in Corporate

Governance at all times.

THE ROLE OF THE BOARD

The Bank’s Board comprises of

professional and qualified individuals

who challenge, motivate and guide

the business aligned with the Bank’s

vision. The Board is collectively

responsible to all stakeholders for the

sustainable achievement of the Bank’s

strategic objectives. In this context, the

Board remains committed to maintain

the highest standards of corporate

governance and most importantly, to

embed these standards consistently at

all levels of the business.

In doing so, the Board provides

necessary guidance to Corporate

Management to ensure the efficient

use of resources, effective internal

control procedures and a proactive

risk management mechanism in line

with the Bank’s strategic priorities. The

Board is also accountable for promoting

a transparent reporting framework

that will present a fair, balanced and

understandable assessment of the

Bank’s position and prospects.

As part of this overall commitment,

the Board has appointed several Sub

Committees to assist the Board in the

discharge of its duties, with roles and

responsibilities for all Sub Committees

clearly defined and a Chairperson of

each Sub Committee assigned with

the duty of providing feedback to the

Board. The Board and Sub Committees

convene regular meetings to discuss

matters of relevance, including the

Bank’s performance, credit quality,

asset and liability management, risk

management, strategy and compliance.

To achieve the desired objectives,

clearly defined structures have

been established for the allocation

of responsibilities relating to diverse

aspects of the banking business. The

Board requires all employees of the

Bank to adhere to high standards of

ethics and business integrity in the

discharge of their duties, acting within

the said structures and framework.

Moreover, the Board agrees that

stakeholder engagement plays

a crucial role in ensuring that the

business remains sustainable in

the long term. As such, the Bank

engages in regular dialogue with

its stakeholders. These interactions

provide valuable insights into

stakeholder concerns and enable

the Bank to be more proactive in

responding to the concerns raised by

them.

KEY PRIORITIES FOR 2016

In the year under review, the Bank

renewed its focus on Corporate

Governance and the Board spent

a significant proportion of its time

streamlining and strengthening

processes, to further support good

governance.

During the year, the Bank continued

with efforts to create more structured

reporting lines and embrace a risk-

based approach in the compliance

function as part of the day-to-day

operations of the business. This

was both a top-down and bottom-

up exercise to ensure that the right

people are making the right decisions

at the right time. I am happy to report

that these initiatives have given our

employees a better understanding of

their duties and responsibilities, leading

to greater transparency within the Bank.

STATUTORY COMPLIANCE

The Bank has complied with the

requirements imposed by all regulatory

authorities concerning matters relevant

to the Bank’s business and no penalties

were imposed on the Bank by the

regulators during the reporting period.

DECLARATION

I Channa Probodha Palansuriya,

Chairman of Sampath Bank PLC,

hereby declare that all the members

of the Board of Directors and all Bank

personnel have acted in compliance

with the applicable regulatory and

statutory requirements and have

discharged their duties in accordance

with the polices, procedures and

standards embodied in the Bank’s

internal Code of Conduct.

CHANNA PALANSURIYA

Chairman

Colombo, Sri Lanka

13th February 2017

G4 - 45


ANNUAL REPORT 2016

GOVERNANCE STRUCTURE

Group Finance Director

Snr DGM

Corporate Banking

Snr DGM Consumer

Banking

Bo

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Board

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Managing Director


G4 - 34,35,36

RISK & GOVERNANCE

155GOVERNANCE FRAMEWORK

Sampath Bank PLC’s strong

governance culture and framework

underpins effective decision making,

facilitates greater transparency and

promotes accountability across all

aspects of the business. In essence,

it embodies the commitment to

uphold stakeholder rights and create

sustainable value for all stakeholders,

while maintaining best practices in

business and professional ethics at all

times.

STAKEHOLDERS’ RIGHTS

FRAMEWORK

The Board recognises the rights of

all stakeholders established by law

or through mutual agreements and

has in place a Corporate Governance

framework which encourages active

co-operation between the Bank and its

stakeholders. The commitment of the

Bank in this regard, is as follows:

Shareholders

Customers

Employees

Community

The Bank is committed to enhance long term shareholder value and facilitate the exercise

of shareholders’ rights.

The Bank is committed to maintain and enhance its public image as a sound, high quality,

progressive, friendly place to conduct banking business.

The Bank is committed to build a work environment where people can make a difference

both as individuals and as part of a team.

The Bank is committed to meet its corporate responsibility and decisions on social and

economic issues concerning activities of the Bank are developed and adopted by its

governance bodies with the participation of Bank personnel.

KEY GOVERNANCE PILLARS:

Compliance Standards and Principles

STANDARDS AND PRINCIPLES

Internal External

Vision and Values Companies Act No. 7 of 2007

Articles of Association Banking Act No. 30 of 1988 and amendments thereto, Anti Money

Laundering Laws and Regulations

Code of Conduct Banking Act Direction No. 11 of 2007 on Corporate Governance for

Licensed Commercial Banks

Code of Ethics Listing Rules of the Colombo Stock Exchange

Board Procedures and Board Sub Committee Terms

of Reference

Code of Best Practice on Corporate Governance issued by the

ICASL and the SEC

Policies

Procedures

Directives

Integrated Reporting Framework issued by the International

Integrating Reporting Council (IIRC)

G4 Standards for Sustainability reporting issued by the Global

Reporting Initiative

BANK’S COMMITMENTSTAKEHOLDER

The Bank is committed to enhance long term shareholder value and to facilitate the

exercise of shareholders’ rights.

The Bank is committed to maintain and enhance its public image as a sound, high quality,

progressive, friendly place to conduct banking business.

The Bank is committed to build a work environment where people can make a difference

both as individuals and as part of a team.

The Bank is committed to meet its corporate responsibility and decisions on social and

economic issues concerning activities of the Bank are developed and adopted by its

governance bodies with the participation of Bank personnel.


ANNUAL REPORT 2016

STRATEGIC PLANNING PROCESS

The Strategic Planning Process aims

to sharpen the strategic alignment with

the Bank’s overall mission. conducted

annually, the process is driven by an

interactive bottom-up approach that

encourages the active participation of

employees at all levels.

Strategic Sponsors (who are

also members of the Corporate

Management in charge of strategically

important segments of the Bank’s

business model) are expected to

translate the strategic direction

outlined by the Board, and set clear,

measurable goals and targets for each

team under their purview.

Implementation and achievement of the

sectional strategies are monitored by

the Planning Department, with quarterly

reviews being carried out to assess the

effectiveness of the strategic plan.

INTEGRATED RISK MANAGEMENT

FRAMEWORK

The Integrated Risk Management

Framework advocates a structured

and disciplined approach to risk

management by aligning strategy,

processes, people, technology and

knowledge vis-à-vis the opportunities,

threats and uncertainties faced by the

Bank. More details are given on pages

136 to 150 of this report.

IT GOVERNANCE MECHANISM

The IT Governance Mechanism

subscribes to internationally accepted

best practices to effectively manage the

Bank’s IT framework in a way that would

support the Bank’s strategic objectives

and secure a definitive competitive

advantage in the market.

CODE OF CONDUCT FOR

EMPLOYEES

All employees including the Executive

Directors are bound to abide by the

ethics, values and expectations set out

in the Employee Code of Conduct. A

formal document, the Code is made

available to all employees to ensure

that the highest standards of integrity

and conduct are maintained in dealings

and interactions with all stakeholders.

The Code of Conduct addresses a

range of fair dealing and compliance

matters, among others.

WHISTLE BLOWING POLICY

The policy serves as an early warning

mechanism to identify corporate

fraud or risk by encouraging

employees to report their genuine

concerns in relation to activities, which

they feel are wrongful or illegal or

otherwise harmful to the interests of the

Bank, its employees, customers or any

other stakeholders.

ANTI-MONEY LAUNDERING POLICY

The main aim of the policy is to prevent

the Bank’s business channels / products

/services from being used as channels

for money laundering and to protect

the Bank’s reputation. Accordingly, the

Bank’s Anti-money Laundering Policy

spells out a comprehensive set of

procedures and controls to manage

the day-to-day operations of the Bank

and to ensure strict compliance with the

applicable laws and regulations in force

from time to time.

ANTI-FRAUD POLICY

The purpose of this policy is to

establish Management and Board

oversight to enforce controls and to

aid in the prevention and detection of

frauds and corrupt practices against

the Bank. The policy applies to any

fraudulent and corrupt practice

involving an employee, consultant,

vendor, contractor, or any outside

agency or person including outsourced

service providers doing business with

the Bank or in any other relationship

with the Bank.

CUSTOMER CHARTER

The Customer Charter sets key

standards of fair banking practices

envisaged by customers when they

engage in transactions with the Bank

and provides guidance to them with

regard to matters relating to customer

protection.

PRODUCT POLICY

The main aim of the Product Policy

is to ensure that the Bank’s products

remain timely and relevant in response

to the needs of the market. Hence the

Product Policy provides a guideline

for the introduction, maintenance and

discontinuation of all banking products

and services of the Bank.

COMMUNICATION POLICY

The Bank strives at all times to maintain

its corporate credibility and instill

investor confidence in the Group by

practicing a structured approach to the

communication of material information.

Bank’s Communication Policy spells

out the process through which timely,

transparent, consistent and credible

information on corporate strategies,

trends, operational performance and

financial data to the investing public is

communicated.

Currently, the Bank communicates with

its stakeholders through the following

mechanisms;

The quarterly results published

in the Newspapers in all three

languages and released to the

Colombo Stock Exchange (CSE)


RISK & GOVERNANCE

157 Financial results displayed on

www.sampath.lk in an area of

the website devoted to Investor

Relations

Financial results and business

strategies of the Bank are

explained to investors, business

leaders and media personnel

through Investor Forums and

press releases

Management Discussion and

Analysis (Pages 55 to 134 of this

Annual Report)

Shareholder Relations Forums

The governance framework and the

effectiveness of all its key pillars are

thoroughly and comprehensively

reviewed annually, with any changes

being made subject to approval of the

Board of Directors.

GOVERNANCE STRUCTURE

BOARD OF DIRECTORS

The Board of Directors is the apex body

responsible for the execution of Bank’s

Corporate Governance Framework.

Moreover, the Board is responsible for

setting out strategic and management

guidelines for the Bank and the

Group and for monitoring general

performance, as well as defining and

applying the Corporate Governance

rules and examining internal audit

procedures. The Board is tasked with

approving strategic plans, governance

structures, risk appetite limits, policies

and procedures, delegation of authority

and providing a framework for decision

making amongst others.

The Board has full ordinary and

extraordinary administrative powers

to manage the activities of the

Bank in a way that would achieve

its corporate purpose. Further, as

the highest governance body of the

Bank, the Board is expected to use

its skills and expertise to determine

the wider social, environmental and

economic implications that may arise

of all business decisions. The Board

is therefore, the principal authority

providing oversight to the Corporate

Management team that directs and

executes all functions within the Bank.

BOARD AND BOARD SUB COMMITTEE ATTENDANCE BY DIRECTORS

Directo

rs

Cla

ssific

ation

Board

Meetings

Board

Audit

Com

mitt

ee

Board

HR

&

Rem

unera

tion

Com

mitt

ee

Board

Nom

ination

Com

mitt

ee

Board

Inte

gra

ted

Ris

k M

anagem

ent

Com

mitt

ee

Board

Rela

ted P

art

y

Tra

nsaction R

evie

w

Com

mitt

ee

Board

Cre

dit

Com

mitt

ee

Board

Str

ate

gic

Pla

nnin

g C

om

mitt

ee

Board

Share

hold

er

Rela

tions

Com

mitt

ee

Board

Tre

asury

Com

mitt

ee

Board

Mark

eting

Com

mitt

ee

Mr Dhammika Perera1 NED/NID 11/11 01/05 00/01

Mr Channa Palansuriya2 NED/NID 13/13 04/08 06/07 11/12 03/03 02/02

Prof Malik Ranasinghe3 NED/IND 17/17 08/08 02/03 04/04 17/17 04/04 02/02 06/06

Mr Sanjiva Senanayake4 NED/IND 17/17 01/01 07/07 10/10 04/04 03/04 01/01 06/06

Mr Deepal Sooriyaarachchi NED/IND 16/17 08/08 10/10 07/07 03/03 01/01 02/03

Mrs Dhara Wijayatilake NED/IND 15/17 07/08 08/08 11/11 03/03 04/04 10/12 03/04

Miss Annika Senanayake NED/IND 17/17 10/10 11/11 05/07 02/05 04/04 02/03 03/03

Mr Deshal De Mel NED/NID 17/17 09/10 14/17 04/04 02/02 06/06 03/03

Mr Ranil Pathirana NED/IND 12/17 08/08 03/07 02/04 00/01

Mrs Saumya Amarasekera NED/NID 16/17 08/08 08/11 05/07 02/03

Mr Aravinda Perera5 ED 13/13 02/02 06/07 10/10 02/02 01/01 05/05

Mr. Nanda Fernando6 ED 04/04 02/03 04/06 02/02 01/01

Mr Ranjith Samaranayake ED 17/17 09/10 04/04 17/17 04/04 06/06

Total No. of Meetings 17 08 10 11 10 04 17 04 02 06 03

BOARD MEETINGS

The Board of Directors held 17 Board

meetings during the period 01st January

2016 to 31st December 2016, with Retail

Growth, Digitalization and Performance

Optimization being some of the key

topics of discussion. Meanwhile, the

Board Sub Committees held a total of 75

meetings during the same period.

BOARD SUB COMMITTEES

To assist the Board in its supervisory

role, a number of Sub Committees

have been appointed by the Board.

An integral component of the Bank’s

Corporate Governance Framework,

each Sub Committee is required

to report to the Board with detailed

information on its activities.

Sub Committee members are selected

from a mix of Board members except

in the instance of the Board Integrated

Risk Management Committee.

Members of each Sub Committee are

held collectively responsible for their

designated area of activity. Currently,

the Board has established a total of

1. Chairman until 31.07.2016

2. Chairman since 01.08.2016

3. Deputy Chairman since 01.08.2016

4. Senior Independent Director

5. Managing Director until 12.09.2016

6. Managing Director since 13.09.2016


ANNUAL REPORT 2016

10 Board Sub Committees to carry

out specific functions, with each Sub

Committee being headed by a Non

Executive Director.

The following changes took place in the

membership of the Board and its Sub

Committees during the year:

BOARD

Mr Dhammika Perera

served until 31.07.2016

Mr Channa Palansuriya

appointed on 28.04.2016 and

appointed as Chairman on 01.08.2016

Mr Aravinda Perera


Mr Nanda Fernando

appointed on 13.09.2016

BOARD AUDIT COMMITTEE

Mr Sanjiva Senanayake


BOARD HR & REMUNERATION

COMMITTEE



Mrs Dhara Wijayatilake


Mrs Saumya Amarasekera


Mr Aravinda Perera


BOARD NOMINATION

COMMITTEE

Mr Dhammika Perera







BOARD INTEGRATED RISK

MANAGEMENT COMMITTEE



Prof Malik Ranasinghe


Mr Deepal Sooriyaarachchi




Miss Annika Senanayake


Mr Ranil Pathirana




Mr Aravinda Perera


Mr Nanda Fernando


BOARD RELATED PARTY

TRANSACTIONS REVIEW

COMMITTEE


appointed on 09.05.2016 and served

until 07.07.2016



BOARD CREDIT COMMITTEE









Mr Aravinda Perera


Mr Nanda Fernando


BOARD STRATEGIC

PLANNING COMMITTEE

Mr Dhammika Perera



appointed on 09.05.2016 and




Mr Aravinda Perera


Mr Nanda Fernando


BOARD SHAREHOLDER

RELATIONS COMMITTEE



Mr Aravinda Perera


until 12.09.2016

Mr Nanda Fernando


BOARD TREASURY

COMMITTEE

Mr Ranil Pathirana


until 07.07.2016



Mr Aravinda Perera


Mr Nanda Fernando


BOARD MARKETING

COMMITTEE

Mr Deshal de Mel




RISK & GOVERNANCE

159The above Sub Committees come

under the purview of the Board.

Most Board Sub Committees function

in a supervisory capacity, overseeing

the Key Management Personnel in

charge of the day-to-day operational

and functional aspects of the business.

In this context, the Board Audit

Committee oversees the functions of

the Head of Internal Audit, whilst the


Committee supervises the functions of

the Group Risk Officer and the Group

Compliance Officer.

COMPANY SECRETARY

The Company Secretary is an

independent party who acts as a

conduit between the Board and the

Bank. The Company Secretary is

responsible for Board administration,

liaison with the Registrar of Companies

and other relevant regulators and

facilitating Board members with access

to legal and other expertise, as and

when required.

The Company Secretary, Mrs Anuja

Goonetilleke, also acts as the Secretary

to all the Board Sub Committees

and the Minutes of meetings are

retained in her custody. Written Terms

of Reference that comply with the

Corporate Governance requirements

of the Central Bank of Sri Lanka are

available for the Sub Committees with

the Company Secretary.

NANDA FERNANDO

Managing Director

Colombo, Sri Lanka

13th February 2017


ANNUAL REPORT 2016

THE CODE OF BEST PRACTICE ON CORPORATE GOVERNANCE ISSUED JOINTLY BY THE SECURITIES AND

EXCHANGE COMMISSION OF SRI LANKA AND THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA

Principle SEC & CA

Sri Lanka

Code

Reference

Compliance & Implementation Status

A. DIRECTORS

A.1 THE BOARD

(1) Effective Board A.1 The Board of Directors comprises 11 Directors of whom 9 are Non

Executive Directors including the Chairman. The two Executive Directors

are the Managing Director and the Group Finance Director who are also

part of the Corporate Management to whom the day to day running of

the organisation has been delegated. The Board has appointed Board

Sub Committees to assist in discharge of their collective duties and also

approves policies, governance structures and the delegation of authority

to provide a conducive business environment for effective performance of

the Bank. The Board is closely involved in developing strategy and setting

the short, medium and long term goals of the Bank and regularly monitors

performance against pre-determined Key Performance Indicators which

include both quantitative and qualitative measures on a regular basis.

Complied


ATTENDANCE PERCENTAGE AT BOARD MEETING DURING 2016(%)

1 2 3 4 5 6 7 8 9 10 11 12 13

Meetings Attended Meetings Not Attended

1. Mr Dhammika Perera (Director until 31.07.2016)2. Mr Channa Palansuriya (Director since 28.04.2016)3. Mr Sanjiva Senanayake 4. Mr Deepal Sooriyaarachchi 5. Prof Malik Ranasinghe 6. Mrs Dhara Wijayatilake 7. Miss Annika Senanayake 8. Mr Deshal De Mel 9. Mr Ranil Pathirana 10. Mrs Saumya Amarasekera 11. Mr Aravinda Perera (Director until 12.09.2016)12. Mr Nanda Fernando (Director since 13.09.2016)13. Mr Ranjith Samaranayake

0

20

40

60

80

100

G4 - 44

RISK & GOVERNANCE

161

Principle SEC & CA

Sri Lanka

Code

Reference


(2) Regular

meetings

A.1.1 Board meetings are held monthly whilst special Board meetings are

convened as the need arises. During 2016 the Board held 17 scheduled

meetings and 04 strategic planning committee meetings. The following

Board Sub Committees met regularly:

Board Audit Committee

Board Human Resources & Remuneration Committee

Board Nomination Committee

Board Integrated Risk Management Committee

Board Related Party Transactions Review Committee

Board Credit Committee


Board Shareholder Relations Committee

Board Treasury Committee


The Board members use iPads to access Board papers via secure

connections and are able to join meetings even through remote access.

Details of Board Meetings, Sub Committee Meetings and attendance are

given on page 157 of this report.

Complied

Board’s Responsibilities: The following procedures are carried out to strengthen the safety and soundness of the Bank

(3) Ensure the

formulation and

implementation of

sound business

strategy

A.1.2 The Board is responsible for setting strategy, policies and for monitoring

performance against agreed goals and KPIs. During the year, the Board

had 04 strategic planning sessions, where they reviewed the progress

of the Strategic Plan 2016 - 2018 and proposals of the Corporate

Management and re-aligned strategy and formulated and approved the

medium term strategy for the period 2017 to 2019 and long term strategy

up to 2020.

Complied

(4) Ensure that the

Chief Executive

Officer (CEO) /

Managing

Director (MD) and

Management team

possess the skills,

experience and

knowledge to

implement the

strategy

A.1.2 The Board Nomination Committee ensures that the Board Members and

Key Management Personnel have the required skills, experience and

knowledge to implement strategy.

Complied

(5) Ensure effective

CEO/MD and Senior

Management

succession strategy

A.1.2 A Board approved Procedure on Selection and Appointment of CEO and

Key Management Personnel is in place.

Complied

G4 - 40,44,45


ANNUAL REPORT 2016

Principle SEC & CA

Sri Lanka

Code

Reference


A. DIRECTORS


systems to

secure integrity of

information, internal

controls and risk

management

A.1.2 Board Audit Committee reviews Internal Audit reports submitted by the

Internal Audit Department and monitors follow up action. Further, based

on the assessment of Internal Control Over Financial Reporting (ICOFR),

Directors concluded that the Bank’s Internal Control Over Financial

Reporting is effective. A descriptive account of the measures taken in this

regard is contained in the Board Integrated Risk Management Committee

Report given on pages 206 to 208.

Complied

(7) Ensure

compliance with

laws, regulations

and ethical

standards

A.1.2 An independent Compliance function headed by the Group Compliance

Officer reporting directly to the Board Integrated Risk Management

Committee, which has responsibility for compliance, has been

established.

Complied

(8) Ensure all

stakeholder

interests are

considered in

corporate decisions

A.1.2 The Articles of Association of the Bank require the Directors to take

decisions, taking into account the interests of customers, shareholders,

employees and the community. Additionally, a Customer Charter, the

Board Shareholder Relations Committee, HR Policy, a Policy on Managing

Conflicts of Interest as well as the Board Related Party Transactions

Review Committee are in place in order to uphold the interests of these

key stakeholders.

Complied

(9) Ensure that the

company’s values

and standards are

set with emphasis

on adopting

appropriate

accounting policies

and fostering

compliance

with financial

regulations

A.1.2 The Board Audit Committee and the Board review accounting policies

annually or as and when required to ensure that they are in line with

the business model of the Bank and evolving international and local

accounting standards and industry best practices.

Complied

(10) Fulfill such

other Board

functions as are

vital, given the

scale, nature

and complexity

of the business

concerned

A.1.2 The Board is committed to fulfill its functions in line with the laws,

regulations and good governance practices adopted by the Bank.

Complied


RISK & GOVERNANCE

163Principle SEC & CA

Sri Lanka

Code

Reference


(11) Act in

accordance with

laws

relevant to the

organisation and

procedure

for Directors to

obtain independent

professional

advice at company

expense

A.1.3 The Board has put in place a framework of policies, procedures and a risk

management framework to ensure compliance with relevant laws, CBSL

guidelines and international best practices with regard to the operations

of the Bank. The Board obtains independent professional advice as

and when necessary in accordance with the Board approved policy on

Obtaining Independent Professional Advice and these functions are

co-ordinated through the Company Secretary. Independent professional

advisory services were sought on matters including the implementation

of SLFRS 9 and SLFRS 15, review of Related Party Transactions and

projected economic conditions during the year in accordance with the

above provision.

Complied.

(12) Access to

and appointment

or removal of

Company Secretary

A.1.4 All Directors have the opportunity to obtain the advice and services of

the Company Secretary, Mrs Anuja Goonetilleke, who is an Attorney at

Law. She is responsible for ensuring follow up of Board procedures,

compliance with relevant rules and regulations, directions and statutes,

keeping and maintaining Minutes and relevant records of the Bank.

The Articles of Association of the Bank specify that the appointment and

removal of the Company Secretary should be by resolution involving the

entire Board.

Complied

(13) Independent

judgement

A.1.5 The Directors of the Bank have no vested interests and take decisions on

matters before them using independent judgement.

Complied

(14) Dedicate

adequate time and

effort to matters of

the

Board and the

Company,

A.1.6 Dates of regular Board meetings and regular Board Sub Committee

meetings are scheduled well in advance and the relevant papers are

circulated a week prior to the meeting. There is provision to circulate

papers closer to the meeting on an exceptional basis.

It is estimated that Non Executive Directors dedicated not less than 91

hours per annum for the affairs of the Bank and those Directors who

are also on Sub Committees dedicate not less than 164 hours for the

affairs of the Bank. The attendance at meetings for the Board and its Sub

Committees is given in page 157.

Complied

(15) Training for

Directors

A.1.7 The Company Secretary in consultation with the Chairman recommends

Directors to attend training sessions/seminars. During 2016 the following

areas were covered

Directors’ Responsibilities with regard to Related Party Transactions

State of the economy and future outlook

Familiarisation and gap analysis on key new accounting standards to

be implemented in the near future, SLFRS 9 and SLFRS 15

Additionally, the Board encourages knowledge sharing amongst the

Directors. They also participate in the sessions organised by professional

bodies and Sri Lanka Institute of Directors. One Director participated in

the Annual Corporate Governance & Directors’ Duties Excellence 2016

held in Malaysia .The annual self-assessment by Directors also covers

aspects on training to identify training needs.

Complied


ANNUAL REPORT 2016

Principle SEC & CA

Sri Lanka

Code

Reference


A. DIRECTORS

A.2 DIVISION OF RESPONSIBILITIES BETWEEN CHAIRMAN AND MD

(16) Conducting

the business of the

Board separately;

to the executive

responsibilities of

the management of

the Company

A.2 The positions of the Chairman and the MD have been separated in line

with best practices in order to maintain a balance of power and authority.

The Chairman is a Non Executive Director whilst the MD is an Executive

Director.

Complied

A.3 CHAIRMAN’S ROLE

(17) Chairman’s

role in preserving

good corporate

governance

A.3 The Chairman’s Functions and Responsibilities which include all aspects

specified in the Code, the continuing listing requirements of the CSE and

the Banking Act Direction No. 11 of 2007 on Corporate Governance for

Licensed Commercial Banks in Sri Lanka have been documented and

duly approved by the Board.

Complied

(18) Conduct Board

proceedings in a

proper manner

A.3 Board proceedings are conducted according to the Agenda. The papers

for discussion and the Agenda are circulated Seven (07) days prior to the

meeting.

Complied

A.4 FINANCIAL ACUMEN

(19) Availability of

financial acumen

and knowledge to

offer guidance on

matters of finance

A.4 Financial acumen has been a key attribute of the successful careers

of the following Directors who have held senior management positions

related to finance in other leading financial institutions:

1. Mr Sanjiva Senanayake

2. Mr Deepal Sooriyaarachchi

3. Mr Ranil Pathirana

4. Mr Aravinda Perera (who served on the Board until 12th

September 2016)

5. Mr Ranjith Samaranayake

Additionally Mr Dhammika Perera, who served as Chairman until 31st July

2016 has served on the Boards of two Banks. Mr Sanjiva Senanayake

has served in key managerial positions in several local and foreign banks

including the International Finance Corporation. Three Directors, including

the MD, hold MBAs, one Director is a Fellow Member of the Chartered

Institute of Management Accountants - UK and another Director

possesses a Bachelor’s Degree in Commerce (Accounting Special)

Complied


RISK & GOVERNANCE


Sri Lanka

Code

Reference


A.5 BOARD BALANCE

(20) Non Executive

Directors of

sufficient calibre

and number

A.5.1 &

A.5.2

The Board comprises the 9 Non Executive Directors including the

Chairman and 2 Executive Directors who are the CEO/MD and the

Group Finance Director. The Non Executive Directors are professionals/

academics/business leaders, holding senior positions in their respective

fields and are therefore deemed to be of sufficient calibre. As the majority

of the Board comprises Non Executive Directors, their opinions and views

carry significant weight in the Board decisions.

Complied

(21) Independence

of Non Executive

Directors

A.5.3 6 of the Non Executive Directors are independent of management and

free of any business or other relationship that could materially interfere

with or could reasonably be perceived to materially interfere with the

exercise of their unfettered and independent judgement.

Complied

EXECUTIVE DIRECTORS & NON EXECUTIVE DIRECTORS

Executive DirectorsNon Executive Directors

9

2

INDEPENDENT DIRECTORS & NON INDEPENDENT DIRECTORS

Independent DirectorsNon Independent Directors

6

5


ANNUAL REPORT 2016

Principle SEC & CA

Sri Lanka

Code

Reference


A. DIRECTORS

(22) Annual

declarations of

independence from

Directors

A.5.4 Annual declarations of independence or non-independence have been

obtained from the Independent Directors for 2016.

Complied

(23) Annual

evaluation of

independence

A.5.5 The Board makes an annual evaluation of independence of the Directors

based on the submission of the annual declarations. Based on these, the

following Directors are deemed to be independent:






Mr Ranil Pathirana

There were no Directors deemed Independent where all criteria were

not met.

Complied

(24) Senior

Independent

Director

A.5.6

&

A.5.7

Mr Sanjiva Senanayake has been appointed as Senior Independent

Director (SID) in view of the requirements of the Banking Act Direction No.

11 of 2007.

Complied

(25) Senior

Independent

Director (SID)

meeting with other

Directors

A.5.8 The Directors met SID during the year. Complied

(26) Chairman to

hold meetings with

Non

Executive Directors,

without Executive

Directors being

present

A.5.9 Chairman met Non Executive Directors without the Executive Directors

being present, on a need basis. The Non Executive Directors met the

Chairman once without the Executive Directors being present during the

year 2016.

Complied

(27) Recording of

Directors’ concerns

in Board Minutes

A.5.10 Board Minutes are prepared in order to record any concerns of the Board

as a whole or those of individual Directors regarding matters placed for

their approval/guidance/action. These Minutes are circulated and formally

approved at the subsequent Board meeting, Additionally, Directors have

access to the past Board papers and Minutes in case of need at all times.

If a Director resigns over an unresolved issue, the Chairman will bring the

issue to the attention of the Board. The Director concerned is also required

to provide a written statement to the Chairman for circulation to the Board.

During the year 2016, there was no occasions to take such steps.

Complied


RISK & GOVERNANCE

167

Principle SEC & CA

Sri Lanka

Code

Reference


A.6 SUPPLY OF RELEVANT INFORMATION

(28) Provision of

appropriate and

timely information

A.6.1 The management provides comprehensive information including both

quantitative and qualitative information for the monthly Board Meetings,

generally 7 days prior to the Board / Sub Committee meetings. The

Directors also have free and open access to Management at all levels

to obtain further information or clarify any concerns they may have.

As described above, they also have the right to seek independent

professional advice at the Company’s expense and copies of advice

obtained in this manner are circulated to other Directors who request it.

Complied

(29) Chairman to

ensure all Directors

are properly

briefed on issues

arising at Board

meetings

A.6.1 All Directors are adequately briefed on matters arising at Board

meetings through comprehensive Board papers. Additionally, the

relevant members of the Management team are on standby for further

clarifications as may be required by Directors or will make presentations

at Board meetings.

Any Director who does not attend a meeting is updated on proceedings

prior to the next meeting through:

Formally documented Minutes of meetings.

A separate Board paper is prepared highlighting the items which need

to be completed and need follow-up action of the previous meetings.

This is taken up immediately after confirmation of Minutes.

Archived Minutes and Board papers are accessible electronically at

the convenience of the Directors.

Non Executive Directors have an open invitation to attend the meetings

of the Management Committees and have the opportunity to interact with

senior management after Board Meetings.

Complied

(30) Board papers

and agenda to be

circulated 7 days

prior to meetings.

A.6.2 As described above, Board papers are generally circulated 7 days before

the meeting. There is provision for circulation of urgent papers within a

shorter time frame and also for approval of matters by circulation, but

such instances are the exception and not the rule.

Complied

A.7 APPOINTMENTS TO THE BOARD

(31) Formal

and transparent

procedure for new

Appointments

through an

established

Nomination

Committee

A.7.1 The Board has established a Board Nomination Committee whose Terms

of Reference comply with the Specimen given in the Code and the

Banking Act Direction on Corporate Governance. Membership of this

important Board Sub Committee is given on pages 204 & 205 of the

Annual Report. Accordingly, new Directors including Executive and Non

Executive Directors are appointed by the Board upon consideration of

recommendations by the Board Nomination Committee. To support this

process a Board approved Policy on Selection, Nomination, Appointment

and Election of Directors is in place.

Complied

(32) Annually

assess Board

composition

A.7.2 The Board annually assesses its composition to ascertain whether the

combined knowledge and experience of the Board match the strategic

demands facing the Bank and is satisfied that it complies with the criteria.

Complied

G4 - 40


ANNUAL REPORT 2016

Principle SEC & CA

Sri Lanka

Code

Reference


A. DIRECTORS

(33) Disclosure

of information to

shareholders upon

appointment of new

Directors

A.7.3 All new appointments are communicated to the shareholders via the

Colombo Stock Exchange in the English language. The profiles of the

current Directors are given on pages 16 to 21 in this report which has also

been translated into Sinhala as well, in keeping with the tradition of the

Bank.

Complied

A.8 RE-ELECTION

(34) All Directors

should submit

themselves for re-

election at regular

intervals

A.8 As per the Articles of Association of the Bank, 1/3rd of the Directors should

retire at each Annual General Meeting and be subject to re-election. Such

Directors who retire are those who held office for the longest time period

since the election / re-appointment. In accordance with this provision, the

following Directors retire and offer themselves for re-election:

Mr Ranil Pathirana




In addition, Mr Channa Palansuriya having been appointed to the Board

to fill up a casual vacancy, offers himself for election by shareholders in

accordance with Article 93 of the Articles of Association of the Company.

A brief resume of Directors standing for re-election is provided in English

and Sinhala to enable shareholders to make an informed decision.

The Board and the Board Nomination Committee are actively engaged

in succession planning for both Executive and Non Executive roles to

ensure that Board composition is periodically renewed and that the Board

retains its effectiveness at all times.

Complied

Complied

Complied

Complied

(35) Non Executive

Directors are

appointed for

specified terms

subject to re-

election

A.8.1 Non Executive Directors are appointed with approval of the Central

Bank of Sri Lanka (CBSL) and stands for re-election at Annual General

Meetings in terms of Articles of Association.

Complied

(36) All Directors

including Chairman

to be subject to

re-election at first

opportunity after

appointment and

re-election at least

every 3 years

thereafter

A.8.2 All Non-Executive Directors stand for re-election at Annual General

Meetings as described in response to A.8 above.

Complied


RISK & GOVERNANCE


Sri Lanka

Code

Reference


A.9 APPRAISAL OF BOARD PERFORMANCE

(37) Appraisal of

Board Performance

A.9.1 The Board annually appraises their own performance to ensure that they

are discharging their responsibilities satisfactorily. This process requires

each Director to fill a Board Performance Evaluation Form in line with the

provisions of this section of the Code. The responses are reviewed by the

Company Secretary who compiles a report which is discussed at a Board

Meeting.

Complied

(38) Appraisal

of Board Sub

Committees

A.9.2 The Board Sub Committees follow the same process and the reports are

retained by the respective Committee Chairpersons.

Complied

(39) Disclosure

of the method of

appraisal of the

Board and Board

Sub Committee

performance

A.9.3 As explained in A.9.1 & A.9.2 above Complied

A.10 DISCLOSURE OF INFORMATION IN RESPECT OF DIRECTORS

(40) Annual Report

to disclose specified

information

regarding Directors

A.10.1 Information specified in the Code with regard to Directors are disclosed

within this Annual Report as follows:

Name, qualifications, expertise, material business interests and brief

profiles are given on pages 16 to 21

Details of whether a Director is Executive, Non Executive / or

Independent, Non Independent are given on pages 16 to 21

Related Party Transactions are given on pages 326 to 330

Membership of Board Sub Committees is given on pages 198 to

217 and attendance at Board Meetings and Board Sub Committee

meetings are given on page 157

Complied

Complied

Complied

Complied

A.11 APPRAISAL OF CHIEF EXECUTIVE OFFICER / MANAGING DIRECTOR

(41) Set reasonable

financial and non-

financial targets to

be met by the

CEO / MD

A.11.1 The Board discussed and set financial and non-financial targets to be

achieved during the year by the MD with reference to the short, medium

and long term objectives of the Bank at the beginning of 2016. The

targets for 2017 have also been set at the end of 2016.

Complied

(42) Evaluate

performance of

the CEO/MD with

reference to targets

A.11.2 The performance evaluation of the Managing Director who was in

office until 12th September 2016 was carried out by the Board HR &

Remuneration Committee with reference to targets and goals achieved by

the Bank which was reported to the Board. The performance evaluation

of the Managing Director in office since 13th September 2016 will be

done after completion of an appropriate period in office.

Complied


ANNUAL REPORT 2016

Principle SEC & CA

Sri Lanka

Code

Reference


B. DIRECTORS’ REMUNERATION

B.1 REMUNERATION PROCEDURE

(43) Appointment

of a Remuneration

Committee

B.1.1 The Board has established a Board HR & Remuneration Committee to

develop policies and determine remuneration for the Directors and Key

Management Personnel respectively. No Director is involved in deciding

his own remuneration. The Terms of Reference of this committee

complies with Schedule C of the Code and other investor guidelines.

In support of this requirement, a Board approved Reward Management

Policy for Key Management Personnel is in place.

Further information regarding the Board HR & Remuneration Committee is

given in the Board HR & Remuneration Committee Report on pages 202 &

203.

Complied

Complied

(44) Remuneration

Committee

to comprise

exclusively Non

Executive Directors

B.1.2 &

B.1.3

The Board HR & Remuneration Committee comprises the following

Directors who are all Non Executive Directors.

Mr Deepal Sooriyaarachchi (Chairman)



Mr Deshal De Mel



Complied

(45) Remuneration

for Non Executive

Directors

B.1.4 Remuneration of Non Executive Directors is recommended by the Board

HR & Remuneration Committee for approval of the Board in line with market

practice. A Board approved Policy on Directors’ Remuneration is in place.

Complied

(46) Remuneration

of Executive

Directors

B.1.5 Remuneration of Executive Directors is determined by the Board HR &

Remuneration Committee who has access to professional advice from

within or outside the company in formulating their proposals which are

then discussed with the Chairman. A Reward Management Policy for Key

Management Personnel approved by the Board is in place.

Complied

B.2 THE LEVEL AND MAKE UP OF REMUNERATION

(47) Remuneration

for Executive

Directors should

attract, retain and

motivate

B.2.1 &

B.2.2

Remuneration for Executive Directors is designed to attract, retain and

motivate the Executive Directors as determined by the Board HR &

Remuneration Committee. Their remuneration comprises a fixed salary

component, which includes perquisites and allowances, The Board

HR & Remuneration Committee takes into account market practices

and seeks professional advice when required in order to discharge its

responsibilities.

Complied

(48) Positioning

company

remuneration levels

relative to other

companies

B.2.3 The Board HR & Remuneration Committee reviews the Bank’s

remuneration levels in relation to other banks in the country annually. A

salary survey followed by determination of salary bands for senior grades

was done in the year under review.

Complied


RISK & GOVERNANCE


Sri Lanka

Code

Reference


(49) Performance

related elements of

remuneration for

Executive Directors

B.2.4 A performance related element of remuneration for Executive Directors

has been implemented.

Complied

(50) Share option

schemes

B.2.5 There was no share option scheme during 2016 Complied

(51) Designing

schemes of

performance

related

remuneration

B.2.6 A scheme of team based performance related remuneration has been

implemented by the Bank during 2016.

Complied

(52) Early

termination of

Directors

B.2.7 Not applicable to the Board except for the MD and the Group Finance

Director who are employees of the Bank and their terms of employment

are governed by the respective contracts of service.

Complied

(53) Dealing with

early termination

B.2.8 Refer to B.2.7 above Complied

(54) Levels of

remuneration for

Non Executive

Directors

B.2.9 The Board HR & Remuneration Committee determines the levels of

remuneration for Non Executive Directors taking into account the time

commitment and responsibilities of their role and market practices.

Remuneration for Non Executive Directors does not include share options.

A Board approved policy on Directors’ Remuneration is in place.

Complied

B.3 DISCLOSURE OF REMUNERATION

(55) Composition

of Board HR &

Remuneration

Committee,

Remuneration Policy

and disclosure

of aggregate

remuneration paid

to Directors

B.3.1 The composition of the Board HR & Remuneration Committee and its

report is given on pages 202 & 203.

The aggregate remuneration to Executive and Non Executive Directors

are given in Note No. 49.3.1 to the Financial Statements on page 326.

Names of the Directors of the Board HR & Remuneration Committee are

disclosed on pages 202 & 203 the Annual Report.

Complied

Complied

Complied

C. RELATIONS WITH SHAREHOLDERS

C.1 CONSTRUCTIVE USE OF THE ANNUAL GENERAL MEETING (AGM) AND CONDUCT OF GENERAL MEETINGS

(56) Constructive

use of the AGM

& Other General

Meetings

C.1 The Annual General Meeting is the main forum of contact between

small shareholders and the Board. A separate Sub Committee of the

Board, Board Shareholder Relations Committee has been set up for the

purpose of building up relations with the shareholders and addressing

their concerns. This Committee conducts an open session with the

shareholders immediately after the AGM each year. In addition, the

Committee met twice in order to follow up on the proposals submitted by

the shareholders at the Shareholders’ forum in 2016.

The Annual Report is circulated to all shareholders 15 working days prior

to the AGM and a Sinhala version is published each year to meet the

needs of a diverse group of shareholders. Additionally, the Chairman’s

and MD’s messages are translated into Tamil each year.

Complied


ANNUAL REPORT 2016

Principle SEC & CA

Sri Lanka

Code

Reference


C. RELATIONS WITH SHAREHOLDERS

(57) Count of all

proxy votes lodged

C.1.1 All proxy votes lodged, together with the votes of shareholders present at

the AGM are considered for each resolution.

Complied

(58) Separate

resolutions for each

substantially

separate issue

C.1.2 A separate resolution is proposed at the AGM for each substantially

separate issue. The adoption of the report and accounts is proposed as

a separate resolution.

Complied

(59) Availability

of Board Sub

Committee

Chairperson at AGM

C.1.3 All Board Sub Committee Chairpersons are present at the AGM to answer

any questions raised at the AGM and will respond when requested to do

so by the Chairman.

Complied

(60) Circulation of

Notice of AGM and

related

documents to

shareholders

C.1.4 Notice of the AGM and related papers are sent to shareholders at least 15

working days prior to the meeting in accordance with the regulations.

Complied

(61) Summary

of procedures

governing voting

at the AGM

C.1.5 A summary of the procedures governing voting at the AGM is provided in

the Proxy Form, which is circulated to shareholders 15 working days prior

to the AGM.

Complied

C.2 COMMUNICATION WITH SHAREHOLDERS

(62) Channel

to reach all

shareholders of the

Bank

C.2.1 The Board has appointed a Sub Committee on Shareholder Relations

tasked with identifying and addressing the shareholders concerns. It

is the first listed company in Sri Lanka to have such a Committee. This

Committee conducts an annual Shareholder Relations Forum to identify

shareholder concerns. Additionally, the AGM is also a key forum for

contact with shareholders and the Bank has a proud history of well

attended AGMs where shareholders take an active role in exercising their

rights. The Annual Report is translated into Sinhala and the Chairman’s

and MD’s messages are translated into Tamil as well to facilitate greater

communication with shareholders.

The Bank posts on its website (www.sampath.lk) copies of annual

reports, interim reports etc. These are posted on the website as soon as

practicable after they have been released to the Stock Exchange.

Complied

(63) Policy and

methodology for

communication with

shareholders

C.2.2 The Bank provides fair disclosure with emphasis on the integrity,

accuracy, timeliness and relevance of the information provided. A Board

approved Policy on Communication is in place, in which provisions for

communication with shareholders are contained.

Complied


RISK & GOVERNANCE


Sri Lanka

Code

Reference


(64) Implementation

of the Policy and

methodology for

communication with

shareholders

C.2.3 Shareholders are consulted on their preference to receive the Annual

Report from the Bank either by means of a Compact Disk or in printed

form. Shareholders may elect to receive Annual Report from the Bank in

printed form free of charge at any time.

Interim Reports are published in all three languages (English, Sinhala and

Tamil) in leading newspapers within 60 days of the quarter end.

Complied

Complied

(65) Contact

person in relation to

shareholder matters

C.2.4 &

C.2.6

Shareholders may, at any time, direct questions to and request for

publicly available information from the Directors or management of the

Bank. They may also provide their comments and suggestions to the

Directors or management through the Company Secretary.

Complied

(66) Process

to make all

Directors aware

of major issues

and concerns of

shareholders

C.2.5 The Company Secretary maintains a record of all correspondences

received. She directs as soon as practicable such correspondences to

the Board, individual Directors or the relevant officers as applicable.

Complied

(67) Process of

responding to

shareholder matters

C.2.7 Please refer C.2.5 above. Complied

C.3 MAJOR AND MATERIAL TRANSACTIONS

(68) Disclosure of

major transactions

C.3.1 During the year 2016, the Bank did not engage in or commit any “Major

Related Party Transaction” which materially affected the Bank’s net asset

base.

Complied

D. ACCOUNTABILITY AND AUDIT

(69) Presence of

a balanced and

understandable

assessment of the

Bank’s financial

position,

performance and

prospects

D.1 The Bank’s position and prospects have been discussed in detail in the

following sections of this Annual Report.

Chairman’s Message is given on pages 32 to 37.

Managing Director’s Review is given on pages 38 to 43.

Management Discussion and Analysis are given on pages 55 to 134.

Complied

(70) Interim reports,

price-sensitive

public reports,

regulatory reports

and statutory

information

requirements

D.1.1 Interim reports were published within 45 days of each quarter end which

included information to assist shareholders gain an understanding of the

state of affairs of the Bank.

Price sensitive information was disclosed in a comprehensive but concise

manner to the Colombo Stock Exchange on a timely basis.

Reports required by the regulators including Central Bank, Inland

Revenue, Registrar of Companies, Colombo Stock Exchange were

all filed in a timely manner in compliance with their requirements and

these provided sufficient information for the user to obtain a balanced

assessment of the Bank`s operations.

Complied

Complied

Complied


ANNUAL REPORT 2016

Principle SEC & CA

Sri Lanka

Code

Reference



(71) Declaration in

Annual Report of the

Board of Directors

on the Affairs of the

Company

D.1.2 The Annual Report of the Board of Directors on the Affairs of the Company

on pages 221 to 230 contains the declarations as required by the Code.

Complied

(72) Responsibilities

of the Board for the

preparation and

presentation of

Financial

Statements and

statement by the

Auditors about their

reporting

responsibilities

D.1.3 The Statement of Directors’ Responsibility for Financial Reporting and

Report of the Auditors which includes a statement about their reporting

responsibilities are provided on pages 235 & 236 and 237 respectively.

Complied

(73) Include a

Management

Discussion &

Analysis

D.1.4 The Management Discussion and Analysis contained in pages 55 to 134

and covers the information specified in the Code as given below;

Industry structure and developments

Opportunities and threats

Risks and concerns

Internal control systems and their adequacy

Social and environmental protection activities carried out by the

Company

Financial performance

Material developments in human resource/industrial relations and

prospects for the future.

Complied

(74) Declaration of

the Directors that

the business is in

going concern

D.1.5 This information is provided in the Annual Report of the Board of Directors

on the affairs of the Company given on pages 221 to 230.

Complied

(75) Notify

shareholders in

case net assets of

the Bank fall below

50%

D.1.6 This situation has not risen. Complied


RISK & GOVERNANCE

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Principle SEC & CA

Sri Lanka

Code

Reference


(76) Related Party

Transactions

D.1.7 There is an approved documented process identifying related parties,

type of related party transaction and the mechanism to ensure that

no favourable treatment is granted to said parties in order for related

parties to avoid any conflict of interest in this regard. An effective and

comprehensive system of Internal Control for identifying, recording and

disclosing related party transactions too is in place.

A directive has been issued, explaining the procedure to be followed in

granting accommodation to Directors or to close relations of Directors.

Such accommodation requires approval at a meeting of the Board of

Directors, by not less than 2/3rds of the number of Directors other than

the Director concerned, voting in favour of such accommodation. The

terms and conditions of the facility include a condition that it will be

secured by such security as may from time to time be determined by the

Monetary Board as well.

Directors and KMPs submit declarations declaring their transactions to

the Bank on a quarterly and annual basis.

All related party transactions as defined in Sri Lanka Accounting

Standards - LKAS 24 (Related Party Transactions) are disclosed in Note

No. 49 to the Financial Statements on pages 326 to 330.

Complied

Complied

Complied

Complied

D.2 INTERNAL CONTROL

(77) Maintain a

sound system of

internal control to

safeguard

shareholders’

investments and the

Bank’s assets

(78) Review need

for Internal Audit

Function

D.2.1

D.2.2

The Board is responsible for formulating and implementing appropriate

and adequate internal control systems. The Board Audit Committee has

responsibility to the Board to ensure that the system of internal controls is

sufficient and effective.

The Bank has established an Internal Audit function over which Board

Audit Committee has oversight.

Complied

Complied

D.3 AUDIT COMMITTEE

(79) Establish

arrangements

for selection and

application of

accounting policies,

financial

reporting and

internal control

principles

D.3 The Bank has established its Board Audit Committee in keeping with

good governance since 1997. The principal responsibilities of the Board

Audit Committee include oversight over financial reporting, internal

controls and monitoring auditor independence. Its duties include gaining

assurance on control over financial processes, integrity of the Bank’s

financial reports, monitoring performance, objectivity and independence

of the External Auditor and reviewing work of the internal Auditor. The

Board Audit Committee Report is given on pages 198 to 201 in the Annual

Report.

Complied

G4 - 41


ANNUAL REPORT 2016

Principle SEC & CA

Sri Lanka

Code

Reference



(80) Composition

and Terms of

Reference for Board

Audit Committee

D.3.1 The Board Audit Committee consists of Non Executive Directors and

is chaired by an Independent Non Executive Director. Members are

selected to provide a broad set of financial, commercial and other

relevant experience to meet the Committee’s objectives. The MD, Group

Finance Director, CFO, Head of Internal Audit, Chief Manager - Systems

Audit and representatives of the External Auditors are invited to attend

the meetings. The Board Audit Committee has appointed an external

consultant during the year to advice the Committee.

Complied

(81) Review of

External Audit

function and

relationship with

External Auditors

D.3.2 The Committee has a key oversight role in relation to the External Auditor

Messrs Ernst & Young, whose primary relationship is with the Committee.

The Bank’s Auditor Independence Policy ensures that the independence

and objectivity of the Auditor is not impaired. The Committee has

responsibility for recommending to the Board the appointment /

re-appointment of the External Auditors and reviewing the nature, scope

and results of the annual External Audit. The audit fee is determined by

the Board Audit Committee which also assesses the effectiveness and the

independence of the External Auditors.

Complied

(82) Terms of

Reference

D.3.3 The Terms of Reference of the Board Audit Committee complies with the

Code of Best Practice on Corporate Governance issued by the SEC and

ICASL. Terms of Reference also complies with the Banking Act Direction

No. 11 of 2007 on Corporate Governance for Licensed Commercial Banks

issued by CBSL and relevant Colombo Stock Exchange Regulations.

These documents are available with the Company Secretary.

Complied

(83) Disclosures

regarding Board

Audit Committee

D.3.4 The Annual Report of the Board of Directors on the Affairs of the Company

given on pages 221 to 230 provides the following disclosures:

The composition of the Board Audit Committee

A statement regarding the independence of the Auditors

Complied

D.4 CODE OF BUSINESS CONDUCT AND ETHICS

(84) Code of

business conduct

and ethics for

Directors and staff

D.4.1 Codes of Conduct and Ethics are in place for the Directors and

employees.

Complied

D.5 CORPORATE GOVERNANCE DISCLOSURES

(85) Corporate

Governance Report

D.5.1 The Corporate Governance Report given on pages 153 to 197 provides

information regarding Corporate Governance practices in the Bank which

are in compliance with:

The Code of Best Practice on Corporate Governance issued jointly by

the Securities Exchange Commission of Sri Lanka and the Institute of

Chartered Accountants of Sri Lanka

The Banking Act Direction No. 11 of 2007 on Corporate Governance

for Licensed Commercial Banks issued by the CBSL

Complied


RISK & GOVERNANCE


Sri Lanka

Code

Reference


E. SHAREHOLDERS – INSTITUTIONAL INVESTORS

E.1 SHAREHOLDER VOTING

(86) Encourage

voting at AGM

E.1 The Bank has a history of active shareholder involvement at general

meetings and all shareholders are regularly encouraged to state their

intentions to vote and translate it into practice.

Complied

(87) Regular

structured dialogues

with institutional

investors

E.1.1 The MD has regular structured meetings with institutional shareholders.

Board members are briefed about the matters discussed at such

meetings.

Complied

E.2 EVALUATION OF GOVERNANCE DISCLOSURES

(88) Encourage

institutional

investors to

give due weight to

relevant governance

arrangements

E.2 Institutional investors are kept apprised of the Bank’s governance

practices through the Annual Report and any new initiatives are

highlighted at regular meetings to ensure that due weightage is given to

good corporate governance.

Complied

F. SHAREHOLDER RELATIONS – INDIVIDUAL SHAREHOLDERS

F.1 INVESTING / DIVESTING DECISION

(89) Individual

shareholders are

encouraged to do

their own analysis or

seek independent

advice

F.1 The Annual Report contains sufficient information for a potential investor

to carry out their own analysis. The Annual Report is published in both

English and Sinhala to facilitate better comprehension of retail investors.

This, together with the interim financial statements provided each quarter,

provide sufficient information to enable retail investors to make informed

judgements regarding the performance of the Bank.

Additionally, there is a separate part of the company website dedicated

to Investor Relations which provides this information online to all investors.

Shareholders can contact, the Company Secretary for further information

if required.

Complied

F.2 SHAREHOLDER VOTING

(90) Encourage

shareholders to

participate and vote

at the AGM

F.2 It is a tradition at Sampath Bank to encourage retail investors to

participate and vote at the AGM. Additionally, they are encouraged to

participate in the Bank’s affairs by way of submitting proposals through

Stakeholder Feedback Forms, and Shareholder Relation Forums.

Complied

G. SUSTAINABILITY REPORTING

G.1 PRINCIPLES OF SUSTAINABILITY

Sustainability is a business approach that creates long term stakeholder value by embracing opportunities and managing

risks derived from economic, environmental and social developments and their potential implications and impacts on the

business activities of the entity.

Sustainability reporting is the practice of recognising, measuring, disclosing and being accountable to internal and external

stakeholders for organisational performance towards the goals of sustainable development in the context of the overall

business activities and strategy of the entity and be directed to the target stakeholders; usually shareholders, employees,

consumers, society and Government.

(91) Economic

Sustainability

G.1.1 Please refer pages 238 to 376. Complied


ANNUAL REPORT 2016

Principle SEC & CA

Sri Lanka

Code

Reference


G. SUSTAINABILITY REPORTING

(92) The

Environment


(93) Labour Practice G.1.3 Please refer pages 73 to 81. Complied

(94) Society G.1.4 Please refer pages 87 to 93. Complied

(95) Product

& Service

Responsibility


(96) Stakeholder

identification,

engagement

& effective

communication


(97) Sustainable

reporting &

disclosure



RISK & GOVERNANCE

179

THE BANKING ACT DIRECTION NO. 11 OF 2007 AND SUBSEQUENT AMENDMENTS THERETO ON CORPORATE

GOVERNANCE FOR LICENSED COMMERCIAL BANKS IN SRI LANKA ISSUED BY THE CENTRAL BANK

Corporate Governance

Principle

CBSL

Direction

Reference

Compliance and Implementation Status

3(1) Responsibilities of the Board

(1) Strategic objectives

and corporate values

3(1)(i)(a) The Bank’s strategic objectives and corporate values are

determined by the Board and are given on pages 50 & 51 and 12

in the Annual Report. These are communicated to all levels of staff

through regular briefing sessions and reinforced by the Corporate

Management Team.

Complied

(2) Overall Business

Strategy including Risk

Policy and Management

3(1)(i)(b) The Bank’s strategy is set by the Board in consultation with the

Corporate Management and the Strategic Plan for the period

2017 -2019 has been approved by the Board. Risk management

framework and mechanisms have also been approved by the

Board in line with the Strategic Plan. Measurable goals for the

Bank as a whole have been set and performance is measured in

line with these goals on a monthly basis.

Complied

(3) Risk Management 3(1)(i)(c) The Board has appointed a Board Integrated Risk Management

Committee tasked with approving the Bank’s Risk Policy, defining

the risk appetite, identifying principal risks, setting governance

structures and implementing systems to measure, monitor and

manage the principal risks. The following reports provide further

insights in this regard.

Risk Management Report on pages 136 to 150.

Board Integrated Risk Management Committee Report on

pages 206 to 208.

A mechanism/process to identify and mitigate the risks arising out

of new strategies are in place at Board level.

Complied

(4) Communication with all

stakeholders

3(1)(i)(d) There is a Board approved Communication Policy in place with all

stakeholders, including depositors, creditors, shareholders and

borrowers.

The Board has approved and implemented the following

communication channels:

Shareholders - The Board has appointed a Sub Committee on

Shareholder Relations tasked with identifying and addressing

the shareholders’ concerns. It is the first listed company in Sri

Lanka to have such a Committee. This Committee conducts

an annual Shareholder Relations Forum to identify shareholder

concerns. Additionally, the AGM is also a key forum to contact

shareholders and the Bank has a proud history of well attended

AGMs where shareholders take an active role in exercising their

rights. The Annual Report is translated into Sinhala and the

Chairman’s and CEO/MD’s messages are translated into Tamil

as well to facilitate greater communication with shareholders.

Complied

G4 - 49


ANNUAL REPORT 2016


Principle

CBSL

Direction

Reference



(4) Communication with all

stakeholders Contd.

Customers - Customers include depositors, creditors and

borrowers. The Bank has a Customer Complaint Handling

Policy. The customer complaint handling procedure which has

been printed in all three languages and disseminated to all

customer contact points of the Bank. This document outlines

the complaints handling Policy of the Bank, provides contact

numbers of the Bank for this purpose and also of the Financial

Ombudsman. There is a 24 hour trilingual customer hotline for

this purpose and reports are reviewed by the Board Integrated

Risk Management Committee. Additionally, a customer

satisfaction survey is carried out by External consultants to

evaluate service levels provided by the Bank.

Staff - Staff members are given access to the management to

voice their concerns through the Whistle Blower Policy and the

Grievance Handling Procedure.

(5) (a) Internal Control

System

3(1)(i)(e) The Board is tasked with reviewing the adequacy and the integrity

of the Bank’s internal control systems and management information

systems. Accordingly the Board Audit Committee reviews Internal

Audit reports submitted by the Internal Audit Department and

monitors follow up action further based on the assessment of Internal

Control Over Financial Reporting (ICOFR). Directors concluded that

the Bank’s Internal Control Over Financial Reporting is effective.

Complied

(5) (b) Management

Information Systems

3(1)(i)(e) The Bank has established a valid process to review the adequacy

and accuracy of all financial and non-financial information. This

process will be further improved during 2017.

Complied

(6) Key Management

Personnel

3(1)(i)(f) The Board has identified members of the Corporate Management,

Group Risk Officer & Group Compliance Officer and the Exchange

Control Compliance Officer as Key Management Personnel being

Officers Performing Executive Functions of Licensed Commercial

Banks (LCB) as required by CBSL Guideline dated 2nd December

2015 and the letter dated 17th June 2013 issued by the Controller

of Exchange - CBSL respectively. All appointments of designated

Key Management Personnel are recommended by the Board

Nomination Committee and approved by the Board.

Complied

(7) Define areas of

authority and Key

Responsibilities for

Directors and Key

Management Personnel

3(1)(i)(g) Areas of authority and key responsibilities have been defined for

Directors and Key Management Personnel.

Complied

(8) Oversight of affairs

of the Bank by Key


3(1)(i)(h) Key Management Personnel make regular presentations to the Board

on matters under their purview and are regularly called in by the

Board to explain matters relating to their areas when need arises.

Complied


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Principle

CBSL

Direction

Reference


(9) Assesses effectiveness

of own Governance

practices including

selection and nomination

of Directors and KMPs,

Management of conflict of

interest and determination

of weaknesses

3(1)(i)(i) Selection, nomination and election of Directors are made by the

Board Nomination Committee based on their field of expertise in

accordance with the Board approved Procedure. Directors’ interests

are disclosed to the Board at the commencement of every meeting.

A Director who has a particular interest abstains from voting in such

a situation and he/she is not counted in the quorum.

A Policy on Managing Conflicts of Interest is in place.

The Board appraises its own performance by filling the Self

Evaluation Form by each Director in relation to business strategy and

contributions of the members based on their field of expertise. The

responses are collated by the Company Secretary and submitted to

the Board Nomination Committee for their review. Matters of concern

are brought to the attention of the Board by the Committee.

Complied

Complied

Complied

(10) Succession plan

for Key Management

Personnel

3(1)(i)(j) The structure of the Bank which was recommended by the Board

Nomination Committee has been approved by the Board in

principle. A succession plan is being implemented based on the

Board approved Procedure for same.

Complied

(11) Regular meetings

with Key Management

Personnel

3(1)(i)(k) Key Management Personnel are called on need basis for

discussions at the meetings of the Board and its Sub Committees

to review policy and other matters relating to their areas. Progress

towards corporate objectives is a regular agenda item in the Board

and the Key Management Personnel are regularly involved in the

Board level discussions on the same.

Complied

(12) Regulatory

environment and

maintaining an effective

relationship with regulator

3(1)(i)(l) Directors are briefed about developments in the regulatory

environment at Board Meetings to ensure that their knowledge

is updated regularly to facilitate the effective discharge of their

responsibilities.

Compliance Reports submitted to the CBSL which include all

returns to regulators are presented to the Board quarterly and

monitored closely by the Board.

The CEO/MD attended all CEO/MD forums on Governance

organized by CBSL and briefed the Board.

Complied

Complied

Complied

(13) Hiring External

Auditors

3(1)(i)(m) The Board Audit Committee carries out necessary due

diligence regarding the hiring of the External Auditor and makes

recommendations to the Board. The appointment of the External

Auditor is made at the Annual General Meeting. Oversight of the

External Auditor is carried out by the Board Audit Committee

(BAC) and the Board is briefed of any concerns in this regard if a

necessity arises. To ensure greater independence of the BAC, an

independent consultant too has been appointed to the BAC.

Complied

(14) Appointment of

Chairman and CEO

and their functions and

responsibilities

(3)(1)(ii) The Board has appointed the Chairman and the Chief Executive

Officer / MD and has approved their functions and responsibilities,

maintaining the balance of power between the two roles.

Complied

G4 - 40,41


ANNUAL REPORT 2016


Principle

CBSL

Direction

Reference



(15) Board Meetings (3)(1)(iii) Regular Board Meetings are held and special meetings are

scheduled if the need arises. The Board met 17 times during 2016.

The Bank has minimized obtaining approval via circular resolutions

and it is done only on an exceptional basis and such resolutions

are ratified by the Board at the subsequent meeting.

Complied

(16) Arrangements for

Directors to include

proposals in the agenda

(3)(1)(iv) A Board approved procedure is in place to enable all Directors to

include matters and proposals in the agenda.

Monthly meetings are scheduled and informed to the Board

at the beginning of each calendar year to enable submission

of proposals in the agenda for regular meetings where such

matters and proposals relate to the promotion of business and the

management of risk of the Bank.

Complied

Complied

(17) Notice of Meetings (3)(1)(v) Notice of Meetings and the agenda for the Board Meetings are

circulated amongst the Directors 7 days prior to the meeting,

giving Directors time to attend and submit any urgent proposals.

Additionally, Notices, Agenda and all related Board papers are

loaded through a secure line onto iPads for Directors to access.

Complied

(18) Directors Attendance (3)(1)(vi) The Directors are apprised of their attendance in accordance with

the Articles of Association of the Company and the Corporate

Governance Code. Details of the Directors’ attendance is set out

on page 157.

All Directors have attended at least 2/3rds of the total number of

Board meetings during the preceding year.

Complied

Complied

(19) Company Secretary (3)(1)(vii) The Board has appointed the Company Secretary of the Bank, who is

an Attorney-at-Law of the Supreme Court of Sri Lanka, who satisfies

the provisions of Section 43 of the Banking Act No. 30 of 1988. The

Company Secretary’s primary responsibilities shall be to handle the

secretarial services to the Board and Shareholders and carry out

other functions specified in the statutes and other regulations.

Complied

(20) Directors access to

advice and services of

Company Secretary

(3)(1)(viii) All members of the Board have the opportunity to obtain the

advice and services of the Company Secretary who is an Attorney-

at-Law and who is responsible to the Board for follow up of Board

Procedures, Compliance with relevant Rules and Regulations,

Directions and Statutes and keeping and maintaining Minutes and

relevant records of the Bank.

Complied


RISK & GOVERNANCE

183


Principle

CBSL

Direction

Reference


(21) Maintenance of Board

Minutes

(3)(1)(ix) The Company Secretary maintains the Minutes of the Board

Meetings and circulates the same amongst all Board Members.

Additionally, the Directors have access to the past Board papers

and Minutes through a secure electronic link.

Complied

(22) Minutes to be of

sufficient detail and

serve as a reference for

regulators and supervisory

authorities

(3)(1)(x) The detailed Minutes of the meetings include:

A summary of data and information used by the Board in its

deliberations

The matters considered by the Board

The fact-finding discussions and the issues of contention or

dissent

The testimonies and confirmations of relevant executives with

regard to the Board’s strategies and policies and adherence to

relevant laws and regulations

Matters regarding the risks to which the Bank is exposed and

an overview of the risk management measures including reports

of the Board Integrated Risk Management Committee

The decisions and Board resolutions including reports of all

Board Sub Committees.

Complied

(23) Directors’ ability

to seek independent

professional advice

(3)(1)(xi) The Bank has adopted a Board approved Policy for “Directors’

Access to Independent Professional Advise” and the Board resorts

to such advice when deemed necessary.

The Board Sub Committees and various professionals in

Corporate and Senior Management advise the Board on various

matters relevant to them. In addition, Directors are able to obtain

independent professional advice, as and when necessary, in

discharging their responsibilities. These meetings are coordinated

by the Company Secretary.

Complied

Complied

(24) Dealing with Conflicts

of Interest

(3)(1)(xii) The Directors are conscious of their obligation to deal with situations

where there is a conflict of interest in accordance with the Articles

of Association of the Bank and the Banking Act Direction No.

11 of 2007. The Bank maintains a register of Directors’ and Key

Management Personnel’s Interests which is regularly updated and

includes interests of the spouse, dependent children under 18

years of age and their business concerns. Directors abstain from

participating in the discussions, voicing their opinion or approving in

situations where there is a conflict of interest. Additionally he/she is

not counted in the quorum in such instances.

Complied

(25) Schedule of matters

reserved for Board

decision

(3)(1)(xiii) The Board has a schedule of matters specifically reserved for its

decision to ensure that the direction and control of the Bank is

within its authority in line with regulatory codes, guidelines and

international best practice.

Complied

(26) Inform Central Bank if

there are solvency issues

(3)(1)(xiv) The Board is aware of the need to inform the Director of Banking

Supervision prior to taking any decision or action if the Bank is

about to become insolvent or about to suspend payments to its

depositors and other creditors and such a situation has not arisen

during the year 2016.

Complied

G4 - 41


ANNUAL REPORT 2016


Principle

CBSL

Direction

Reference


(27) Compliance with

Capital Adequacy

(3)(1)(xv) The Board monitors capital adequacy and other prudential

measures viz-a-viz regulatory requirement, the Bank’s defined risk

appetite and industry benchmarks on a quarterly basis. At present

the Bank is in compliance with the minimum capital requirements.

Complied

3(1) Responsibilities

(28) Publish Corporate

Governance Report in

Annual Report

(3)(1)(xvi) The Board publishes the Corporate Governance Report in the

Bank’s Annual Report. This report is given on pages 153 to 197.

Complied

(29) Self-assessment of

Directors

(3)(1)(xvii) The Board has adopted a scheme of self-assessment to be

undertaken by each Director annually and records of these

assessments are maintained with the Company Secretary. The

Chairman discusses these with the Directors at Board level.

Complied

3(2) The Boards’ Composition

(30) Number of Directors 3(2)(i) As per CBSL Corporate Governance Direction, the number of

Directors should not be less than 7 or more than 13. The Bank’s Board

comprised 12 Directors up to end July 2016 and 11 thereafter.

Complied

(31) Period of service of a

Director

3(2)(ii) The period of service of a Director excluding the Managing

Director and Executive Directors is limited to 9 years as per the

Direction on Corporate Governance. On 31st July 2016, one

Director completed his tenure of office and stepped down from

directorship, There are no other Directors whose tenure of service

has exceeded 9 years on the Board. Details of their tenures of

service are given on pages 16 to 21.

Complied

(32) Board Balance 3(2)(iii) There are 2 Executive Directors and 9 Non Executive Directors

which is well within the requirement to limit the number of

Executive Directors to 1/3rd of the total.

Complied

(33) Independent Non

Executive Directors

3(2)(iv) The Board has 6 Independent Non Executive Directors which

complies with the requirement.

Complied

(34) Alternate Directors 3(2)(v) There were no alternate Directors appointed during the year 2016. Complied

(35) Criteria for Non

Executive Directors

3(2)(vi) Non Executive Directors are persons with credible track

records who have necessary skills and experience to bring an

independent judgment to bear on issues of strategy, performance

and resources. The profiles of the Non Executive Directors are

detailed on pages 16 to 21.

The Board has approved a procedure to appoint Directors

including Independent Directors.

Complied

Complied

(36) Quorum for the Board

meeting is more than 50%

of Directors and more

than half the quorum to

comprise Non Executive

Directors

3(2)(vii) This requirement is strictly observed and the attendance of the

Board members at the meetings for the year 2016 evidence

compliance with the requirement.

Complied


RISK & GOVERNANCE

185Corporate Governance

Principle

CBSL

Direction

Reference


(37) Identify Independent

Non Executive Directors

in communications and

disclose the categories of

Directors in Annual Report

3(2)(viii) The Independent Non Executive Directors are expressly identified

as such in all corporate communications that disclose the

names of Directors of the Bank. The composition of the Board,

by category of Directors, including the names of the Chairman,

Executive Directors, Non Executive Directors and Independent

Non Executive Directors are given on page 157 of the Corporate

Governance Report.

Complied

(38) Succession planning

and appointments to the

Board

3(2)(ix) The Board has established a Board Nomination Committee whose

Terms of Reference comply with the Code of Best Practice on

Corporate Governance. Accordingly, new Directors including the

CEO/MD and Group Finance Director are appointed by the Board

upon consideration of recommendations by the Board Nomination

Committee.

Complied

(39) Re-election of

Directors filling casual

vacancies

3(2)(x) Directors appointed to the Board since the AGM will stand for

election at the first AGM in accordance with the provisions in the

Articles of Association and CBSL Direction.

Complied

(40) Communication of

reasons for removal or

resignation of Director

3(2)(xi) Resignations of Directors and the reasons for same are informed

to the regulatory authorities and shareholders as per CSE

requirements together with a statement confirming whether or not

there are any matters that need to be brought to the attention of

shareholders.

Complied

(41) Prohibition of

Directors or Employees

of a bank becoming a

Director at another bank

3(2)(xii) The Board and the Board Nomination Committee take into

account this requirement in their deliberations when considering

appointments of Directors. The Employee Code of Conduct (Blue

Book) prohibits employees to be elected/nominated as a director

of another bank.

Complied

3(3) Criteria to Assess Fitness and Propriety of Directors

(42) Age of Director

should not exceed 70

3(3)(i) There were no Directors who are over 70 years of age. Complied

(43) Directors should not

hold Directorships of more

than 20 companies

3(3)(ii) None of the Directors hold office as a director in more than 20

companies.

Complied

3(4) Management Functions Delegated by the Board

(44) Understand and

study delegation

arrangements

(45) Extent of delegation

should not hinder Board

ability to discharge its

functions

(46) Review delegation

arrangements periodically

to ensure relevance to

operations of the Bank

3(4)(i)

3(4)(ii)

3(4)(iii)

The Board periodically reviews and approves the delegation

arrangements in place and ensures that the extent of delegation

addresses the needs of the Bank whilst enabling the Board to

discharge their functions effectively.

Complied


ANNUAL REPORT 2016


Principle

CBSL

Direction

Reference


3(5) The Chairman and Chief Executive Officer/Managing Director

(47) Separation of roles 3(5)(i) The roles of the Chairman and CEO/MD are separate. Complied

(48) Non Executive

Chairman and

appointment of a Senior

Independent Director

3(5)(ii) The Chairman is a Non Executive Director but not an Independent

Director as he is also a Director of a fully owned subsidiary of the

Bank. The Board has appointed Mr Sanjiva Senanayake as Senior

Independent Director with suitable Terms of Reference to ensure

the independent element which has been disclosed in the Annual

Report.

Complied

(49) Disclosure of the

identity of the Chairman

and CEO / MD and any

relationships with the

Board members

3(5)(iii) The identity of the Chairman and CEO/MD are disclosed in the

Annual Report on pages 16 to 21 and there are many references to

these roles throughout.

There is no material financial, business or family relationships

between the Chairman, CEO/MD and other members of the Board

other than those disclosed on pages 16 to 21 and in Note No.

49 to the Financial Statements given on pages 326 to 330 as per

annual declarations and the register of Directors Interests which is

updated regularly.

Complied

Complied

(50) Chairman to:

a) Provide leadership to

the Board;

b) Ensure that the Board

works effectively

and discharges its

responsibilities;

c) Ensure that all key and

appropriate issues are

discussed by the Board

in a timely manner.

3(5)(iv) The Board approved the key responsibilities of the Chairman and

this document includes the matters identified in relevant guidelines

and codes. The self-evaluation process ensures that the Chairman

provides leadership to the Board. The Board works effectively and

discharges its responsibilities and all key and appropriate issues

are discussed by the Board in a timely manner.

Complied

(51) Responsibility for

agenda lies with Chairman

but may

be delegated to the

Company Secretary

3(5)(v) The Company Secretary draws up the agenda for the meetings in

consultation with the Chairman.

Complied

(52) Ensure that Directors

are properly briefed and

provided with adequate

information

3(5)(vi) The Chairman ensures that the Board is adequately briefed and

informed regarding the matters arising at Board meetings. The

following procedures are in place to ensure this:

Agenda and Board papers are circulated 7 days prior to Board

Meetings.

Relevant members of the Management team are available for

explanations and clarifications if required.

Management information is provided in agreed formats on a

regular basis to enable Directors to assess the performance

and stability of the Bank.

Complied


RISK & GOVERNANCE


Principle

CBSL

Direction

Reference


(53) Encourage active

participation by all

Directors and lead in

acting in the interests of

the Bank.

3(5)(vii) The Board has a self-evaluation process that encourages all

Directors to make a full and active contribution. This is evident in

the self-evaluation forms submitted by each Director at the year

end.

Complied

(54) Encourage

participation of Non

Executive Directors and

relationships between Non

Executive and Executive

Directors

3(5)(viii) 9 of the 11 members of the Board are Non Executive Directors

which creates a conducive environment for active participation

by the Non Executive Directors. All Non Executive Directors

participate in Sub Committees of the Board providing further

opportunity for active participation. The Bank has also appointed

Senior Independent Director which supports the participation of

the Non Executive Directors.

Complied

(55) Refrain from direct

supervision of Key


and executive duties

3(5)(ix) The Chairman does not get involved in the supervision of Key

Management Personnel or any other executive duties.

Complied


communication with

shareholders

3(5)(x) The Bank historically has active shareholder participation at

the AGM and at the Shareholder Relations Meeting which is

held immediately after the AGM where shareholder issues are

discussed. A Board Sub Committee has been appointed to ensure

that there is effective communication with shareholders.

Complied

(57) CEO/MD functions

as the apex executive in

charge of the day to day

operations

3(5)(xi) The day to day operations of the Bank have been delegated to the

CEO/MD.

Complied

3(6) Board Appointed Committees

(58) Establishing Board

Sub Committees, their

functions and reporting

3(6)(i) Ten Sub Committees have been established by the Board with

written terms of reference for each. The Company Secretary serves

as the Secretary for all Sub Committees and maintains Minutes

and records with oversight by the respective Chairpersons. The

reports of the Sub Committees are included in the Annual Report

Board Audit Committee on pages 198 to 201.

Board Human Resources & Remuneration Committee on pages

202 & 203.

Board Nomination Committee on pages 204 & 205.

Board Integrated Risk Management Committee on pages 206

to 208.

Board Related Party Transaction Review Committee on

page 209.

Board Credit Committee on pages 210 & 211.

Board Strategic Planning Committee on pages 212 & 213.

Board Shareholder Relations Committee on pages 214 & 215.

Board Treasury Committee on page 216.

Board Marketing Committee on page 217.

The Chairpersons of the Sub Committees are present at the

AGM to clarify any matters that may be referred to them by the

Chairman.

Complied


ANNUAL REPORT 2016


Principle

CBSL

Direction

Reference



3(6)(ii) Board Audit Committee

(59) Chairman to be

an Independent Non

Executive Director

with qualifications

and experience in

accountancy and/or audit

3(6)(ii)(a) The Chairman of the Board Audit Committee is an Independent

Non Executive Director who is a fellow member of the Chartered

Institute of Management Accountants, UK.

Complied

(60) Committee to

comprise solely of Non

Executive Directors

3(6)(ii)(b) All members of the Board Audit Committee are Non Executive

Independent Directors.

Complied

(61) Audit Committee

functions

3(6)(ii)(c) In accordance with the Terms of Reference, the Board Audit

Committee has made the following recommendations on matters

In connection with:

The appointment of the External Auditor for audit services to be

provided in compliance with the relevant statutes;

The implementation of the Central Bank guidelines issued to

Auditors from time to time;

The application of the relevant accounting standards; and

The service period, audit fee and any resignation or dismissal of

the Auditor

The Board Audit Committee ensures that the service period of

the engagement of the External Audit partner shall not exceed

five years, and that the particular Audit partner is not re-engaged

for the audit before the expiry of three years from the date of the

completion of the previous term.

Complied

(62) Review and monitor

External Auditor’s

independence and

objectivity and the

effectiveness of the audit

processes

3(6)(ii)(d) The Board Audit Committee (BAC) obtains representations from

the External Auditor on their independence and that the audit

is carried out in accordance with the Sri Lanka Accounting

Standards.

Complied

(63) Provision of non-

audit services by External

Auditor

3(6)(ii)(e) There is a policy in place approved by the Board in this regard.

When such services are obtained from External Auditors

prior approval is obtained from the Board Audit Committee in

accordance with regulations.

Complied


RISK & GOVERNANCE


Principle

CBSL

Direction

Reference


(64) Determines scope of

audit

3(6)(ii)(f) The Committee discussed and finalized with the External Auditors

the nature and scope of the audit to ensure that it includes:

An assessment of the Bank’s compliance with the relevant

Directions in relation to Corporate Governance and Internal

Controls Over Financial Reporting;

The preparation of financial statements for External purposes in

accordance with relevant accounting principles and reporting

obligations;

As all audits within the group are carried out by the same External

Auditor, there was no requirement to discuss arrangements for

coordinating activities with other auditors.

Complied

(65) Review financial

information of the Bank

3(6)(ii)(g) The Board Audit Committee reviews the financial information of the

Bank, in order to monitor the integrity of the Financial Statements

of the Bank, its Annual Report, accounts and quarterly reports

prepared for disclosure, and the significant financial reporting

judgments contained therein. The review focuses on the following:

Major judgemental areas

Any changes in accounting policies and practices

Significant adjustments arising from the audit

The going concern assumption

The compliance with relevant accounting standards and other

legal requirements.

The Board Audit Committee makes recommendations to the

Board on the above on a quarterly basis.

Complied

(66) Discussions

with External Auditor

without the executive

management on interim

and final audits

3(6)(ii)(h) The Board Audit Committee discusses issues, problems and

reservations (If any) arising from the interim and final audits with

the External Auditor. The Committee met the External Auditors

in the absence of executive management of the Bank on three

occasions.

Complied

(67) Review of

Management Letter and

Bank’s response

3(6)(ii)(i) The Board Audit Committee has reviewed the External Auditor’s

management letter and the managements’ responses thereto.

Complied


ANNUAL REPORT 2016


Principle

CBSL

Direction

Reference



(68) Review of Internal

Audit function

3(6)(ii)(j) The Board Audit Committee has oversight of the Internal Audit

function and has the following responsibilities with regard to the same:

Reviews the adequacy of the scope, functions and resources

of the Internal Audit Department, and ensures that the

Department has the necessary authority to carry out its work;

Reviews the Internal Audit programme and results of the

audits and ensures that appropriate actions are taken on the

recommendations of the Internal Audit Department;

Reviews appraisals of the performance of the head and senior

staff members of the Internal Audit Department;

Recommends any appointment or termination of the head,

senior staff members

Ensures that the Committee is apprised of resignations of senior

staff members of the Internal Audit Department including the

Head of Internal Audit, and provides an opportunity to the

resigning senior staff members to submit reasons for resigning;

Ensures that the Internal Audit function is independent of the

activities, it audits and that it is performed with impartiality,

proficiency and due professional care.

Complied

(69) Internal Investigations 3(6)(ii)(k) The Board Audit Committee has reviewed the major findings

of internal investigations during the year and management’s

responses thereto. It has also ensured that the recommendations

of such investigations are implemented.

Complied

(70) Attendees at Audit

Committee Meetings

3(6)(ii)(l) The CEO/MD, Group Finance Director, CFO, Head of Internal Audit,

Chief Manager - Systems Audit and a representative of the External

Auditors normally attend meetings. Other Board members may

also attend meetings upon the invitation of the Committee. The

Committee met the External Auditors without the Executive Directors

being present in terms of the Corporate Governance Code.

Complied

(71) Explicit authority,

resources and access to

information

3(6)(ii)(m) The Board Audit Committee has:

Explicit authority to investigate into any matter within its terms of

reference;

The resources which it needs to do so;

Full access to information; and

Authority to obtain External professional advice and to invite

outsiders with relevant experience to attend, if necessary

Complied

(72) Regular meetings 3(6)(ii)(n) The Board Audit Committee has scheduled regular quarterly

meetings and additional meetings are scheduled when required.

Accordingly, the Committee met 8 times during the year. Members

of the Board Audit Committee are served with due notice of issues

to be discussed and the conclusions in discharging its duties

and responsibilities are recorded in the Minutes of the meetings

maintained by the Company Secretary.

Complied


RISK & GOVERNANCE


Principle

CBSL

Direction

Reference


(73) Disclosure in Annual

Report

3(6)(ii)(o) The Report of the Board Audit Committee on pages 198 to 201

includes the following:

Details of the activities of the Board Audit Committee;

The number of Board Audit Committee meetings held in the

year; and

Details of attendance of each individual Director at such

meeting is given on page 157

Complied

(74) Maintain Minutes of

meetings

3(6)(ii)(p) The Company Secretary and, in her absence the Head of Internal

Audit serves as the Secretary to the Board Audit Committee and

maintains Minutes of the Committee meetings.

Complied

(75) Whistle Blowing

Policy and relationship

with External Auditor

3(6)(ii)(q) The Bank has a Board approved Whistle Blowing Policy whereby

an employee of the Bank may, in confidence, raise concerns

about possible improprieties in financial reporting, internal

control or other matters. The Company Secretary forwards all

communications received in this regard, including anonymous

communications, to the Chairman of the Board Audit Committee

who addresses the issue in an appropriate manner. This policy is

annually reviewed by the Board Audit Committee.

The Board Audit Committee is the key representative body for

overseeing the Bank’s relations with the External Auditor and

meets the Auditor on a regular basis to discharge this function.

Complied

3(6)(iii) Board Human Resources and Remuneration Committee (BHR & RC)

(76) (a) Policy to

determine

the remuneration of

Directors.

3(6)(iii) (a) A Board approved Policy to determine the remuneration (salaries,

allowances and other financial payments) relating to Directors is in

place.

Complied

(76) (b) Policy to determine

the remuneration for CEO

and KMPs.

3(6)(iii) (a) A Board approved Policy to determine the remuneration (salaries,

allowances and other financial payments) of CEO and KMPs is in

place.

Complied

(77) Goals and targets

for the Directors, MD and

KMPs

3(6)(iii) (b) Goals and targets for the CEO/MD and the KMPs for the year

2016 are documented under the performance objective setting

for the year approved by the committee. There are no targets set

for the Non Executive Directors since they are not expected to get

involved in executive functions.

Complied

(78) Evaluation of the

performance of the MD/

CEO and KMPs against

the set targets and goals.

3(6)(iii) (c) Performance evaluation of the CEO/MD who held office until 12th

September 2016 was done by the Committee and KMPs for the year

ended 31st December 2016 will be reviewed by the Committee. The

performance evaluation of the incumbent CEO/MD will be done by

the Committee upon completing an appropriate period in office.

The performance evaluation of the KMP’s for the year ended

2015 was done within the first quarter of 2016. Their performance

evaluation for the year ended 31st December 2016 will be done

within the first quarter of 2017.

Complied

Complied

(79) “Terms of Reference”

provides that the MD is not

present at meetings when

matters relating to the MD

are being discussed

3(6)(iii) (d) Terms of Reference of the Committee provides that the CEO/MD

should not be present at meetings of the Committee, when matters

relating to him are being discussed. CEO/MD was not present

when matters relating to him were discussed during the year.

Complied


ANNUAL REPORT 2016


Principle

CBSL

Direction

Reference


3(6)(iv) Board Nomination Committee

(80)(a) Procedure to

appoint Directors

3(6)(iv)(a) The Board Nomination Committee has developed and implemented

a Board approved procedure to appoint new Directors.

Complied

(80)(b) Procedure to

appoint CEO and Key

Management Personnel.

3(6)(iv)(a) A Board approved procedure to select CEO/ MD and Key

Management Personnel is in place.

Complied

(81) Re-election of

Directors

3(6)(iv)(b) The Committee makes recommendations regarding the re-election

of current Directors, taking into account the performance and

contribution made by the Director concerned towards the overall

discharge of the Board’s responsibilities.

Complied

(82) Eligibility criteria

for appointments to key

managerial positions

including the CEO

3(6)(iv)(c) The Committee sets the eligibility criteria to be considered,

including qualifications, experience and key attributes, for

appointment or promotion to key managerial positions and the

CEO/MD. The Committee considers the applicable statutes and

guidelines in setting the criteria.

These have been documented and included in the job

descriptions completed for the CEO/MD and Key Management

Personnel.

Complied

(83) Fit & Proper criteria

for Directors, CEO and

KMPs

3(6)(iv)(d) The Committee obtains annual declarations from Directors,

CEO/ MD and HR Department obtains declarations from Key

Management Personnel to ensure that they are fit and proper

persons to hold office as specified in the criteria given in Banking

Act Direction No. 11 of 2007, Section 3(3) and as set out in the

statutes.

Complied

(84) Succession Plan for

retiring Directors, CEO/MD

and KMPs

3(6)(iv)(e) Structural changes of the Bank recommended by the Board

Nomination Committee has been approved by the Board. Board

approved procedures covering Succession Planning for retiring

Directors, CEO/MD and KMPs are in place.

Complied

(85) Committee

Chairperson and other

members

3(6)(iv)(f) The Committee is chaired by an Independent Director. Among the

other members, 2 members are Independent and other 2 members

are not Independent. The MD attends meetings by invitation.

Complied

3(6)(v) Board Integrated Risk Management Committee (BIRMC)

(86) Composition of Risk


3(6)(v)(a) The Board Integrated Risk Management Committee comprises 5

Non Executive Directors, 2 Executive Directors, Group Risk Officer

and Group Compliance Officer. The Committee works closely with

Key Management Personnel within the framework of authority and

responsibility assigned to the Committee.

Complied

(87) Risk Assessment

of the Bank, subsidiary

companies and associate

companies

3(6)(v)(b) Credit Risk, Market Risk, Liquidity and the Operational Risks are

assessed and the reports submitted to the BIRMC through the

Group Risk Officer. Risks are assessed at the BIRMC and the

relevant reports are submitted by the Risk Management Unit to the

Committee.

Complied


G4 - 40

RISK & GOVERNANCE


Principle

CBSL

Direction

Reference


(87) Risk Assessment

of the Bank, subsidiary

companies and associate

companies contd.

The Committee has approved the policies on Credit Risk

Management, Market Risk Management and Operational Risk

Management which provides a framework for management and

assessment of risks. Accordingly, quarterly information on pre-

established risk indicators are reviewed by the Committee.

The Committee has a process to assess and evaluate all risks of

the Bank and the findings and issues are submitted to the Board

for their review and action if any. The Committee evaluates the risk

management of Subsidiary companies both at the Bank level and

Group level.

(88) Review the adequacy

and effectiveness of

management level

committees

3(6)(v)(c) The Committee reviews the adequacy and the effectiveness of

all management level committees including the Credit Policy

Risk and Portfolio Review Committee and the ALCO to address

specific risks and to manage those risks within the laid down limits

specified by the Committee as required by the Direction.

Not

Complied

(89) Corrective action to

mitigate risks exceeding

prudential levels

3(6)(v)(d) The Committee takes prompt corrective action to mitigate the

effects of specific risks in the case such risks are at levels beyond

the prudent levels decided by the Committee on the basis of the

Bank’s policies and regulatory and supervisory requirements. The

key risk indicators designed by the Committee will be approved by

the Committee and the Board.

Complied

(90) Frequency of

meetings

3(6)(v)(e) The Committee has regular meetings and schedules additional

meetings when required. The agenda covers matters assessing

all aspects of risk management including updated business

continuity plans.

Complied

(91) Officers responsible

for failure to identify

specific risks or implement

corrective action

3(6)(v)(f) Since all decisions on risk identification are taken collectively,

taking action against individual officers does not arise.

Complied

(92) Risk assessment

report to Board

3(6)(v)(g) A detailed report of the meeting is submitted to the Board after

each Committee meeting by the Secretary of the Committee for

their information, views, concurrence or specific directions.

Complied

(93) Compliance function 3(6)(v)(h) The Compliance Unit established, assesses the Bank’s compliance

with laws, regulations, and regulatory guidelines. The Compliance

unit will have to assess the Bank’s compliance with internal

controls and approved policies on all areas of business operations.

This function is headed by a dedicated Group Compliance Officer

who reports to the Board Integrated Risk Management Committee

(BIRMC) and is responsible for providing the following:

A detailed quarterly report on statutory and mandatory reporting

requirements indicating the status of compliance to the Board;

A monthly compliance certificate with sign-off from all business

unit heads to the Committee

Complied


ANNUAL REPORT 2016


Principle

CBSL

Direction

Reference


3(7) Related Party Transactions

(94) Categories of related

parties and avoid conflict

of interest

3(7)(i) A Board approved, documented process is in place on categories

of related parties in order for the Bank to avoid any conflicts of

interest that may arise from any transaction with the relevant parties.

Further, Directors are individually requested to declare their

transactions with the Bank on a quarterly and annual basis and the

Bank’s Corporate web is updated with the information obtained.

Complied

(95) Related Party

Transactions covered by

direction

3(7)(ii) Related Party Transactions covered for the purpose of the above

process with Directors and Key Management Personnel include:

The grant of any type of accommodation, as defined in

the Monetary Board’s Directions on maximum amount of

accommodation.

The creation of any liabilities of the Bank in the form of deposits,

borrowings and investments.

The provision of any services of a financial or non-financial

nature provided to the Bank or received from the Bank.

The creation or maintenance of reporting lines and information

flows between the Bank and any related parties which may lead

to the sharing of potentially proprietary, confidential or otherwise

sensitive information that may give benefits to such related parties

Complied

(96) Monitoring of Related

Party Transactions defined

as more favourable

treatment

3(7)(iii) The Bank has to implement either a preventive or a detective

system to ensure that no favourable treatment is offered to related

parties noted in 3(7)(i) above.

Not

Complied

(97) Granting

accommodation to a

Director or close relation

to a Director

3(7)(iv) A procedure is in place for granting accommodation to Directors

or to close relations of Directors. Such accommodation requires

approval at a meeting of the Board of Directors, by not less

than 2/3rds of the number of Directors other than the Director

concerned, voting in favour of such accommodation. The terms

and conditions of the facility include a provision that it will be

secured by such security as may from time to time be determined

by the Monetary Board as well.

Complied

(98) (a) Accommodation

granted to persons, or

concerns of persons, or

close relations of persons,

who subsequently are

appointed as Directors of

the Bank

3(7)(v) The Company Secretary obtains declarations/affidavits from all

Directors prior to their appointment and they are requested to

declare any future transactions.

Employees of the Bank are aware of the requirement to obtain

necessary security as defined by the Monetary Board if the need

arises.

Complied

Complied


G4 - 41

RISK & GOVERNANCE


Principle

CBSL

Direction

Reference


(98) (b) Accommodation

granted to persons, or

concerns of persons, or

close relations of persons,

who subsequently are

appointed as Directors of

the Bank contd.

A process to monitor compliance with this regulation by the

Compliance Unit has to be established.

Not

Complied

(99) Favourable treatment

or accommodation to

Bank employees or their

close relations

3(7)(vi) No favourable treatment / accommodation are provided to Bank

employees other than staff benefits. Employees of the Bank are

informed through operational circulars to refrain from granting

favourable treatment to other employees or their close relations

or to any concern in which an employee or close relation has a

substantial interest.

Complied

3(7) Related Party Transactions

(100) Remission of

accommodation subject to

Monetary Board approval

3(7)(vii) The situation has not arisen in the Bank to date Complied

3(8)(i) Disclosures

(101) Publish annual

and quarterly Financial

Statements

3(8)(i) 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.

Complied

3(8)(ii) Disclosures in Annual Report

(102) 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.

3(8)(ii)(a) A statement to this effect is included in the following:

Statement of Directors Responsibility for Financial Reporting

given on pages 235 & 236.

Annual Report of the Board of Directors on the Affairs of the

Company given on pages 221 to 230.

Managing Director’s and Chief Financial Officer’s Responsibility

Statement given on page 234.

Complied

(103) Report by the Board

on the Bank’s internal

control mechanism

3(8)(ii)(b) The Annual Report includes the following reports where the Board

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:

Statement of Directors’ Responsibility on Financial Reporting

given on pages 235 & 236.

Annual Report of the Board of Directors on the Affairs of the

Company given on pages 221 to 230.

Complied

(104) Assurance Report

issued by the Auditors

under ‘Sri Lanka

Standard on Assurance

Engagements SLSAE 3050

3(8)(ii)(c) The Board has obtained an assurance report on the effectiveness

of Internal Controls Over Financial Reporting which is published on

page 233.

Complied


ANNUAL REPORT 2016


Principle

CBSL

Direction

Reference


(105) Details of Directors 3(8)(ii)(d) Details of Directors are given on pages 16 to 21.

Directors’ interests in contracts with the company are given

below; (Including Executive - Directors)

Category Amount

Rs 000

Loans 1,770

Deposits 172,482

Credit cards 588

Interest income 111

Interest expense 14,815

Share based payments

Cash dividend 632

Scrip dividend (Number of shares) 2,849

Aggregate value of remuneration / fees

paid by the Bank

111,229

Post employment benefits paid 16,799

Complied

(106) Total

accommodation granted

to each category of

related parties and as a

percentage of the Bank’s

regulatory capital

3(8)(ii)(e) Related Party Transactions are given in Note No. 49 to the

Financial Statement on Pages 326 to 330.

Net accommodation granted to related parties are given below;

Category of related party

transaction

As a % of regulatory

capital of the Bank

Rs 000

Directors and Close

Family Members

0.02 13,620

KMPs & Close Relations 0.22 133,607

Subsidiaries 6.95 4,264,906

Shareholders owning

material interest in the

Bank - -

Concern in which any of

the Bank’s Directors or

a close relation of any

of the Bank’s Directors

or any of its material

shareholders has a

substantial interest. 3.19 1,953,993

Complied


RISK & GOVERNANCE

197


Principle

CBSL

Direction

Reference


(107) Aggregate values

of remuneration paid to,

and transactions with Key


3(8)(ii)(f) Nature of transaction Rs 000

Short term employment benefits 245,145

Post-employment benefits 29,677

Loan & advance including credit cards 71,794

Deposits & investments 168,764

Cash dividend paid 1,689

Scrip dividend paid (Number of shares) 53,194

Interest expense 11,437

Interest income 3,798

The remuneration paid to, and transactions with Executive

Directors are included in 3(8)(ii)(d) above.

Complied

(108) Confirmation by

the Board on the annual


report

3(8)(ii)(g) The Bank has obtained certification from the External Auditors of

compliance with Corporate Governance Directions.

Complied

(109) Report confirming

compliance with

prudential requirements,

regulations, laws and

internal controls

3(8)(ii)(h) The Statement of Directors’ Responsibility on Financial Reporting

given on pages 235 & 236 clearly sets out details regarding

compliance with prudential requirements, regulations, laws

and internal controls. There were no instances of material non-

compliance to report on corrective action taken during the year.

Complied

(110) Measures taken

to rectify non-compliant

issues

3(8)(ii)(i) There were no supervisory concern lapses in the Bank’s Risk

Management System or non-compliance with these directions that

have been pointed out by the Director-Bank Supervision required

to be disclosed by the Bank, during the year.

Complied

G4 - 44

CHANNA PALANSURIYA NANDA FERNANDO

Chairman Managing Director

Colombo, Sri Lanka

13th February 2017


ANNUAL REPORT 2016

BOARD AUDIT COMMITTEE REPORT

The Board Audit Committee (The

Committee) which was established on

10th April 1997, is appointed by and

responsible to the Board of Directors

(The Board). The Committee comprises

4 Non Executive Independent Directors,

who conduct Committee proceedings

in accordance with the Terms of

Reference approved by the Board. The

Committee’s composition as at 31st

December 2016 is:

Mr Ranil Pathirana

(Chairman) (IND/NED)


(IND/NED)


(IND/NED) - served on the

Committee until 31st March 2016


(IND/NED)


(IND/NED)

(IND - Independent Director, NED - Non

Executive Director)

Mrs Ranjani Joseph, representing

Messrs KPMG Chartered Accountants,

was appointed as a consultant to the

Committee w.e.f. 1st September 2016.

Brief profiles of the members are

given on pages 16 to 21 of the Annual

Report. The Company Secretary and

in her absence the Head of Internal

Audit functions as the Secretary to the

Committee.

The Chairman of the Committee,

Mr Ranil Pathirana who is an

Independent Non Executive Director,

is a Fellow Member of the Chartered

Institute of Management Accountants,

UK and counts many years of

experience in the Financial Services

industry.

MEETINGS

The Committee met on 8 occasions

during the year. Attendance by the

Committee members at these meetings

is given in the table on page 157 of

the Annual Report. The Managing

Director, Group Finance Director, Chief

Financial Officer, Head of Internal Audit,

Chief Manager - Systems Audit and

the External Auditors also attended

these meetings by invitation. 4 of these

meetings were held to consider and

recommend to the Board of Directors,

the Bank’s quarterly and Annual

Financial Statements.

TERMS OF REFERENCE

The establishment, role and functions

of the Board Audit Committee are

regulated by the Banking Act Direction

No. 11 of 2007, the Mandatory Code

of Corporate Governance for Licensed

Commercial Banks issued by the

Central Bank of Sri Lanka, the Rules

on Corporate Governance as per section

7.10 of Listing Rules issued by 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 Committee

reports on its activities to the Board

regularly. Committee also assists

the Board in its general oversight of

financial reporting, internal controls

and functions relating to internal and

external audits.

ROLE AND

RESPONSIBILITIES

The Committee is responsible for:

1. Reviewing financial information

of the Bank, in order to monitor

the integrity of the Financial

Statements of the Bank, its

Annual Report, accounts and

quarterly reports prepared for

disclosure.

2. Reporting to the Board on the

quality and acceptability of the

Bank’s accounting policies and

practices.

3. Assessing the reasonableness

of the underlying assumptions

for estimates and judgments

made in preparing the Financial

Statements.

4. Reviewing accounting and

financial reporting, risk

management processes and

regulatory compliance.

5. Reviewing of the Financial

Statements (including quarterly

interim statements) prior to

publication to ensure compliance

with statutory provisions,

accounting standards and

accounting policies which are

consistently applied.

6. Reviewing internal audit

reports and liaising with

Corporate Management of the

Bank in taking precautionary

measures to minimize and

control weaknesses, procedure

violations, frauds and errors.

7. Assessing the independence

and monitoring the performance

and functions of Internal Audit,

including overseeing the

appointment of the Head of

Internal Audit.

8. Overseeing the appointment,

compensation, resignation and

dismissal of the External Auditor,

including review of the external

audit function, its cost and

effectiveness and monitoring

of the External Auditor’s

independence.

9. Reviewing the effectiveness of

the Bank’s system of Internal

Control Over Financial Reporting

to provide reasonable assurance

G4 - 14

RISK & GOVERNANCE

199regarding the reliability of

financial reporting and that

the preparation of Financial

Statements for external purposes

have been done in accordance

with applicable accounting

standards and regulatory

requirements.

10. Engaging independent advisors

for specialized functions where it

deems necessary.

FINANCIAL REPORTING

The Committee, as part of its

responsibility to oversee the Bank’s

financial reporting process on behalf

of the Board of Directors, has reviewed

and discussed with the Management

and the External Auditors the quarterly

and the Annual Financial Statements

prior to their release. The review

included the quality and acceptability of

accounting policies and practices, the

clarity of the disclosures and the extent

of compliance with financial reporting

standards, the Companies Act No. 7 of

2007, the Banking Act No. 30 of 1988

and amendments thereto and other

relevant financial and governance

reporting requirements. To facilitate

the review, the Committee considered

reports from the Group Finance Director

and Chief Financial Officer and also

reports from the External Auditors on

the outcome of the half-year review and

annual audit.

CASL has issued the Sri Lanka

Accounting Standard - SLFRS 9

(Financial Instruments) which would be

effective from 1st January 2018. The

Bank commenced working towards

this goal during the year with the help

of an external consultant. The Bank

has disclosed the relevant details on

potential implications in the Financial

Statements for the year ended 31st

December 2016 as required by the

reporting framework.

PERFORMANCE

INTERNAL CONTROL OVER

FINANCIAL REPORTING (ICOFR)

The Bank is required to comply with

Section 3(8)(ii)(b) of the said Banking

Act Direction No. 11 of 2007 and

assess the effectiveness of Internal

Control Over Financial Reporting as of

31st December 2016.

The Bank assessed the effectiveness

of its Internal Control Over Financial

Reporting as of 31st December 2016

based on the criteria set out in the

Guidance for Directors of Banks on

“The Directors’ Statement of Internal

Control”, issued by the Institute of

Chartered Accountants of Sri Lanka

(ICASL) in 2010.

The Bank’s assessment was based

on processes documented by the

respective process owners. For the

successful implementation of this

task, a steering committee (Internal

Control Over Financial Reporting

Steering Committee) headed by the

Group Finance Director comprising

of Corporate Management and other

relevant Department Heads was

formulated in 2010 with the guidance

of the Bank’s External Auditor (Ernst

& Young). At present, Group Finance

Director, Chief Financial Officer,

Head of Internal Audit, Group Risk

Officer, Group Compliance Officer

and Company Secretary serve in

the Internal Control Over Financial

Reporting Steering Committee. The

Internal Audit Department carried out

walk through tests on the documented

processes to establish their adequacy

and commented where necessary.

Based on Internal Auditors’ and

External Auditors’ assessments, the

Board has concluded that, as of 31st

December 2016, the Bank’s Internal

Control Over Financial Reporting is

effective. Directors’ Report on the

Bank’s Internal Control Over Financial

Reporting is provided on pages 231

& 232. The Bank’s External Auditors

have audited the effectiveness of the

Bank’s Internal Control Over Financial

Reporting and have reported to

the Board that nothing has come to

their attention that causes them to

believe that the financial reporting is

inconsistent with their understanding

of the processes adopted by the

Board in the review of the design and

effectiveness of the internal control

system of the Bank. The External

Auditor’s Report on the Bank’s Internal

Control Over Financial Reporting is

provided on page 233.

ANNUAL CORPORATE

GOVERNANCE REPORT

As required by Section 3(8)(ii)(g) of

the Banking Act Direction No. 11 of

2007, on Corporate Governance for

Licensed Commercial Banks issued

by the Central Bank of Sri Lanka, the

Annual Corporate Governance Report

for 2016 is provided on pages 179

to 197. The External Auditors of the

Bank have performed procedures

set out in Sri Lanka Related Services

Practice Statement 4750 issued by

the Institute of Chartered Accountants

of Sri Lanka (SLRSPS 4750), to meet

the compliance requirement of the

said Corporate Governance directive.

Their findings presented in their report

dated 13th February 2017 addressed

to the Board are consistent with the

matters disclosed above and any

inconsistencies to those reported by

the Board on pages 179 to 197 have

not been identified.

INTERNAL AUDIT

The Board Audit Committee monitored

and reviewed the scope, extent and

effectiveness of the activity of the

Bank’s Internal Audit Department.

This included reviewing of updates

on audit activities and achievements

against the Bank’s audit plan, advising

Corporate Management to take

precautionary measures on significant

audit findings and assessment of

resource requirements of the Internal


ANNUAL REPORT 2016

Audit Department. The Committee had

necessary interactions with the Head of

Internal Audit throughout the year.

During the year, the Committee

reviewed the internal audit plan and

monitored the implementation of it on

a regular basis. The sections covered

and the regularity of audits depends

on the risk level of each section, with

higher risk sections being audited more

frequently.

The Internal Audit Department

comprises four broad areas namely:

1. System Audits

2. Branch, Regional office Audits

3. Departments including Trade

Finance and Treasury Audits and

4. Forensic and Fraud

Investigations.

In 2016, the Committee reviewed

internal audit reports of 115 Branches,

44 Departments and 04 Subsidiaries.

Audit findings presented in the reports

are prioritised based on the level of

risk. The Committee followed up on

Internal Audit recommendations with

the Corporate Management. Internal

Audit reports are made available to

External Auditors as well.

The Internal Audit Department has

maintained an average audit cycle

of approximately one audit every 12

months.

Trade Finance and Treasury Audits

are assigned with equal importance

and emphasis considering their

complexities and importance in

the context of current economic

environment.

EXTERNAL AUDITORS

With regard to the external audit

function of the Bank, the role played by

the Committee is as follows:

1. Undertook the annual evaluation

of the independence and

objectivity of the External Auditor

and the effectiveness of the audit

process.

2. Met with the External Auditor to

discuss their audit approach and

procedure, including matters

relating to the scope of the audit

and Auditors’ independence.

3. Reviewed the audited Financial

Statements with the External

Auditor who is responsible for

expressing an opinion on its

conformity with the Sri Lanka

Accounting Standards.

4. Reviewed the Management

Letters issued by the

External Auditor together with

management responses thereto.

5. Met the External Auditors on

2 occasions during the year

without the Executive Directors

and the Corporate Management

being present to ensure that

there was no limitation of scope

in relation to the Audit and to

allow for full disclosure of any

incidents which could have

had a negative impact on the

effectiveness of the external

audit. It was concluded that there

was no cause for concern.

6. Reviewed the Non-Audit Services

provided by the External Auditor

and was of the view that such

services were not within the

category of services identified as

prohibited under:

The guidelines issued by the

Central Bank of Sri Lanka for

External Auditor relating to

their statutory duties in terms of

Section 39 of the Banking Act

No. 30 of 1988 and amendments

thereto.

The Guideline for Listed

Companies on Audit and

Audit Committees issued by

the Securities and Exchange

Commission of Sri Lanka.

7. Reviewed the Letter of

Representation issued to the

External Auditors by the Board.

8. Reviewed the Letter of

Independence Confirmation

issued by the External Auditor as

required by the Companies Act

No. 7 of 2007, confirming that

they do not have any relationship

or interest in the company,

which may have a bearing on

their independence within the

meaning of the Code of Conduct

and Ethics of the Institute of

Chartered Accountants of Sri

Lanka.

The Committee has recommended

to the Board that Messrs Ernst and

Young, Chartered Accountants, be

reappointed for the financial year

ending 31st December 2017, subject to

the approval of shareholders at the next

Annual General Meeting.

WHISTLE BLOWING

The Bank’s Whistle Blowing Policy

continued to be implemented as a

component of the corporate fraud risk

management framework. The Policy

allows any team member who has

a legitimate concern on an existing

or potential “wrong doing”, by any

person within the Bank, to come

forward voluntarily, and bring such

concern to the notice of the Board

Audit Committee Chairman through

the Company Secretary. Concerns

raised are investigated and the identity

of the person raising the concern is

kept confidential, as even anonymous

complaints are investigated. This

procedure is monitored by the Board

Audit Committee.

BOARD AUDIT COMMITTEE REPORT

RISK & GOVERNANCE

201REPORTING TO THE BOARD

The Minutes of the Committee meetings

are tabled at Board meetings enabling

all Board members to have access to

them.

PROFESSIONAL ADVICE

The Committee has the authority to

seek external professional advice on

matters within its purview and from time

to time during the year consultations

were held with various parties.

BOARD AUDIT COMMITTEE

EVALUATION

The annual evaluation of the Committee

was conducted by the Board Audit

Committee during the year and

concluded that its performance was

effective.

APPRECIATION

The Committee wishes to thank

Mr Sanjiva Senanayake who served

the Committee for his valuable

contributions over the years.

On behalf of the Board Audit Committee

RANIL PATHIRANA

Chairman - Board Audit Committee

Colombo, Sri Lanka

13th February 2017


ANNUAL REPORT 2016

BOARD HUMAN RESOURCES AND REMUNERATION COMMITTEE REPORT

The Board Salary Revision Committee

was formed on 18th May 1988 and was

re-titled as Board Human Resources

and Remuneration Committee (the

Committee) on 12th December 2002.

Mr Deepal Sooriyaarachchi chairs

the Committee as at this date. This

Committee comprises 6 Non Executive

Directors. The Committee’s composition

during the period ended 31st

December 2016 is:




(NID/NED) - serves on the

Committee from 9th May 2016


(IND/NED) - serves on the



(IND/NED)

Mr Deshal De Mel

(NID/NED)




Mr Aravinda Perera

(ED) - served on the Committee

until 9th May 2016

(NID - Non Independent Director, IND -

Independent Director, NED - Non Executive

Director and ED - Executive Director)



Report. The Company Secretary of the

Bank functions as the Secretary to the

Committee.

MEETINGS

During the financial year ended 31st

December 2016, 10 meetings were

held. The attendance of the members

of these meetings is given on page 157

of the Annual Report. The Managing

Director (MD), the Group Finance

Director and the Group Chief Human

Resource Officer as well as other

executive staff attend meetings by

invitation on a need basis and assist in

their deliberations by providing relevant

information and participating in the

analysis of information, except when

their own compensation packages

or other matters relating to them are

reviewed.

TERMS OF REFERENCE

The role and functions of the

Committee are regulated by the

Banking Act Direction No. 11 of 2007,

the mandatory Code of Corporate

Governance for Licensed Commercial

Banks issued by the Central Bank

of Sri Lanka, under Section 46(1) of

the Banking Act No. 30 of 1988 as

amended.

ROLE AND

RESPONSIBILITIES

The overall scope of the Committee is

to provide strategic direction to build an

effective and efficient Human Resource

background for the Bank. Based on

the said Direction No. 11 of 2007, the

Committee at its meeting held on 9th

August 2011 adopted the following

scope and responsibilities:

SCOPE

1. The Committee shall determine

the remuneration policies

(salaries, allowances and other

financial payments) relating

to Directors, Chief Executive

Officer (CEO) / MD and Key

Management Personnel of the

Bank.

2. The Committee shall set goals

and targets for CEO / MD and

Key Management Personnel.

3. The Committee shall evaluate

the performance of the CEO and

Key Management Personnel

against set targets and goals

periodically and determine the

basis for revising remuneration,

benefits and other payments of

performance based incentives.

4. The Committee reviews

recommendations by the

Management with regard to

remuneration and other benefits

afforded to the staff and present

same for approval of the Board

as well as providing guidance

to the Management on required

changes to salaries and other

benefits, having considered the

strategic priorities and direction

of the Bank.

5. The Committee shall take on any

other areas and enlarge its scope

in cases where, in its view or in

the Board’s view it is appropriate

if it were to be handled by the

Committee.

RISK & GOVERNANCE

203PERFORMANCE

ORGANIZATION STRUCTURE

Brought in a dynamic process to ensure

the organization structure and identified

a talent pool which is aligned to the

strategies envisaged by the Bank.

CAREER AND SUCCESSION

PLANNING

Continued the Executive Talent

Development Program to ensure at

least 1:1 back up ratio for the key

managerial positions of the Bank.

ENHANCED COMPETENCY

DEVELOPMENT

A vast array of initiatives were taken to

enhance overall capabilities (technical

and non-technical) of team Sampath

in order to drive business objectives

successfully. Focus was on the

“Develop Within” Concept.

REWARDS FOR INNOVATION AND

PERFORMANCE

Introduced a comprehensive reward

mechanism (Sampath Special

Thanks and Recognition Scheme) to

motivate and drive team Sampath to

achieve higher levels of performance,

progressing beyond set targets and

to recognize team members who

undertake special projects on cost

reduction/income generation.

PERFORMANCE MANAGEMENT

SYSTEM

Steps were taken to determine

leadership competencies of the Senior

and Corporate Management of the

Bank by introducing a 360 degree

feedback evaluation system. The

Bank launched a unique Team Based

Performance Based Reward scheme

for the team, having successfully

introduced such a scheme for the

Corporate Management.

SPECIAL RECOGNITIONS/

ACHIEVEMENTS

1 Award for Talent Management

at Chief Marketing Officer Asia

Awards 2016

2. National HR Excellence Gold

Award 2016

3. Best Employer Brand Award Sri

Lanka at South Asian Partnership

Summit & Business Excellence

Awards 2016

REPORTING TO THE BOARD




them.

PROFESSIONAL ADVICE



matters within its purview.

APPRECIATION


Mr Aravinda Perera who served

on the Committee for his valuable


On behalf of the Board Human

Resources and Remuneration

Committee

DEEPAL SOORIYAARACHCHI

Chairman – Board Human Resources

and Remuneration Committee

Colombo, Sri Lanka

13th February 2017


ANNUAL REPORT 2016

The Board Nomination Committee

(the Committee) was formed on 10th

January 2002 which comprises 5 Non-

Executive Directors. The composition

of the Committee as at 31st December

2016 is:


(Chairperson) (IND/NED)

Mr Dhammika Perera

(NID/NED) - served on the

Committee until 31st July 2016



Committee from 25th August

2016





(IND/NED)


(NID/NED)

(NID - Non Independent Director, IND

- Independent Director and NED - Non

Executive Director)

The Managing Director (MD) attends

meetings by invitation.





Committee.

MEETINGS

During 2016 the Committee held

11 meetings. Attendance by the

Committee members at each of these

meetings is given in the table on page

157 of the Annual Report.

BOARD NOMINATION COMMITTEE REPORT

TERMS OF REFERENCE

The role and functions of the Committee

are regulated by the Banking Act

Direction No. 11 of 2007, the mandatory

Code of Corporate Governance for

Licensed Commercial Banks issued by

the Central Bank of Sri Lanka (CBSL).

ROLE AND

RESPONSIBILITIES

1. Continuously reviews the

structure and composition of

the Board. The Committee also

reviews the skills, knowledge,

expertise and experience of the

Board of Directors (the Board)

required in comparison to the

current banking environment.

The Committee also makes

recommendations to the Board

with regard to any changes it

considers appropriate for the

progress and success of the

Bank.

2. Recommends suitable persons

after careful consideration based

on the competencies required for

a particular job and the Bank’s

business need.

3. Considers and recommends the

requirements of additional/new

expertise of existing Directors

and recommends succession

planning for Directors resigning

or relinquishing their positions.

4. Carefully reviews management

progression and succession

planning for the Key

Management Personnel.

The Committee ensures that

management personnel of high

calibre are appointed to guide

the Bank to achieve greater

heights.

5. The Committee sets criteria

including qualifications,

experience and key attributes

required for eligibility to be

considered for appointment or

promotion to the post of MD

and other Key Management

Personnel (“KMPs”).

6. The Committee is also

responsible for selecting

Directors, MD and KMPs as and

when a vacancy occurs. It is

mandatory for the Committee to

evaluate the balance of skills,

knowledge and experience

on the Board before such

appointment. The Committee

is accountable for making a

description of the role / position

that is vacated; it should clearly

analyse the capabilities and

skills required for a particular

appointment.

7. The Committee is accountable

for making recommendations

after review to re-appoint

Non-Executive Directors annually

as recommended by CBSL

guidelines and when they are

due for re-appointment as per

the Articles of Association of the

Bank.

8. The Committee is responsible for

ensuring that Directors, MD and

KMPs are fit and proper persons

to hold office in compliance

with the regulatory and statutory

provisions.

9. The Committee is responsible

for ensuring that it is chaired by

an Independent Director and

be constituted with a majority of

Independent Directors.

10. To make recommendations on

any other matter delegated by

the Board of Directors.

RISK & GOVERNANCE

205PERFORMANCE

The members of the Committee work

closely with the Board, in reviewing

the structure and skills needed for

a steadfast, strong and successful

organisation. Further, the Committee

also reviews its own performance,

constitution and Terms of Reference to

ensure that it is operating effectively,

and if required recommends necessary

changes.

During the year under review, the

Committee has continued focusing

on a progressive organisational plan

in keeping with the forward and

evolutionary momentum of the Sri

Lankan Banking industry.


The Minutes of the Board Nomination

Committee meetings are tabled at

Board meetings enabling all Board

members to have access to them.

PROFESSIONAL ADVICE



matters under its purview.

APPRECIATION


Mr Dhammika Perera who served

on the Committee for his valuable


On behalf of the Board Nomination

Committee

ANNIKA SENANAYAKE

Chairperson - Board Nomination

Committee

Colombo, Sri Lanka

13th February 2017


ANNUAL REPORT 2016

BOARD INTEGRATED RISK MANAGEMENT COMMITTEE REPORT

The Board Integrated Risk Management

Committee (the Committee) was

established on 27th March 2008

as a sub-committee of the Board of

Directors (the Board) in compliance

with the Banking Act Direction No. 11

of 2007 on Corporate Governance for

Licensed Commercial Banks in Sri

Lanka. A review of the Integrated Risk

Management process of the Bank has

been detailed in pages 136 to 150 of

the Annual Report.

MEMBERS:

The Committee comprises 5

Non-Executive Directors, 2 Executive

Directors and 2 members from the

Management as given below.

BOARD REPRESENTATIVES:


(IND/NED) (Chairman - w.e.f. 9th

May 2016)


(IND/NED) (Served on the

committee until 9th May 2016)






Committee until 9th May 2016 as

the Chairperson




Mr Ranil Pathirana






Mr Aravinda Perera


until 12th September 2016

Mr Nanda Fernando

(ED) - serves on the Committee

from 30th September 2016

Mr Ranjith Samaranayake

(ED)

MANAGEMENT REPRESENTATIVES:

Mr Priam Kasturiratna

(Group Risk Officer)

Mr Lasantha Senaratne

(Group Compliance Officer)

(NID - Non Independent Director, IND - Independent Director ,NED - Non Executive


Key Management Personnel supervising

Credit, Market, Liquidity, Operational,

Strategic and Reputational Risks also

attended meetings of the Committee, by

invitation.

Brief profiles of the Directors

representing the Committee are given

on pages 16 to 21 of the Annual Report.

The Company Secretary functions as

the Secretary to the Committee.

MEETINGS

The Committee held 10 meetings

during the year 2016. The attendance

of the Committee members at each of

these meetings is given in the table on

page 157 of the Annual Report.

TERMS OF REFERENCE

The responsibilities of the Committee as

mandated by the Board include:

1. To assess all risks including

credit, market, liquidity,

operational and strategic

risks to the Bank on a monthly

basis through appropriate risk

indicators and management

information and in the instance of

subsidiary/associate companies,

on Bank and Group basis.

2. To review the adequacy and

effectiveness of all management

level committees such as Credit

Policy, Risk and Portfolio Review

Committee, ALCO etc. to

address specific risks and

manage those risks within

quantitative and qualitative

risk limits specified by the

Committee.

3. To take or recommend prompt

corrective action to mitigate the

effects of specific risks and when

such risks are at levels beyond

the prudent levels decided by

the Committee on the basis of

the Bank’s policies, at such levels

in compliance with regulatory,

supervisory and corporate

governance requirements.

4. To assess all aspects of Risk

Management and Compliance in

the Bank including the updated

Business Continuity Plan.

5. To review and recommend

to the Board, to update Risk

Management policies of the

Bank pertaining to Credit,

Market, Liquidity Operational,

Reputational and Compliance

Risks, Business Continuity Plan

and Disaster Recovery plan.

6. To ensure effective design

and implementation of a Risk

Management Framework with

respect to Integrated Risk

Management, Risk Appetite,

Internal Capital Adequacy

Assessment Process (ICAAP)

and Stress Testing.

7. To review migration to the

advanced approaches under

Basel II and Basel III, Risk Return

profile of the Bank, outsourcing

activities, compliance with CBSL

guidelines pertaining to Credit,

Market and Operational Risk

Management Systems.

8. To review the level and direction

of major Risks pertaining

to Credit, Market, Liquidity,

Operational, Compliance and

Capital at Risk as part of Risk

profile templates.

G4 - 46

RISK & GOVERNANCE

207 9. To cultivate a proactive risk

management culture within the

Bank

10. Ensure compliance with all

relevant laws and regulations.

GOVERNANCE

The governance structure for the

management of Risk at the Bank is set

out on page 137.

ROLE AND RESPONSIBILITIES

The Committee receives periodic

reports on the Bank’s performance

against Key Risk Indicators from

the Risk and Compliance Units. The

reports and the relevant background

information have been reviewed in

depth and necessary Risk Mitigation

measures have been initiated where

necessary, in order to maintain the

Bank’s exposure to Risk within its Risk

Appetite and to facilitate compliance

with regulatory requirements, while

facilitating the achievement of sound

business results.

The Committee is supported by the

Integrated Risk Management Unit and

Compliance Unit of the Bank, headed

by the Group Risk Officer and the

Group Compliance Officer respectively,

in discharging its responsibilities.

RESPONSIBILITIES OF INTEGRATED

RISK MANAGEMENT UNIT:

1. Formulate the policy framework

addressing multiple and

interdependent risks and

recommend such policies to the

Committee.

2. Measure and monitor risks

faced by the Bank/Group as an

ongoing activity.

3. Ensure that Risk Management

within the Bank is adequate and

duly report any areas requiring

attention of the Management and

the Committee / Board along with

recommendations.

4. Ensure benchmarking with

international best practices.

RESPONSIBILITIES OF THE

COMPLIANCE UNIT:

1. Formulate compliance

related policy framework

and recommend same to the

Committee.

2. Ensure compliance with

regulatory and supervisory

requirements.

3. Ensure benchmarking with

international best practices.

RISK APPETITE

The Risk Appetite of the Bank in all

key risk areas, namely, Credit Risk,

Market Risk and Operational Risk have

been defined and approved by the

Board on the recommendation of the

Committee. Regular reports have been

provided to the Committee on the actual

performance of identified risk areas.

PERFORMANCE

The Committee undertook the

following activities in discharging its

responsibilities during the year.

1. RISK APPETITE:

Risk Appetite limits and Key Risk

Indicators for all key risk areas were set

and periodically monitored.

2. RISK MANAGEMENT

POLICIES:

Policies related to Risk Management

and Compliance areas were reviewed

during the year and amended

as appropriate and have been

incorporated.

3. STRESS TESTING:

The overall Stress Testing Framework

was reviewed during the year and the

results of the tests were monitored.

Necessary recommendations

to improve the Bank’s Stress

tolerance levels were discussed and

implemented as required.

4. PROGRESS ON BASEL II/

BASEL III COMPLIANCE:

Progress on the implementation of key

components of Basel II/Basel III against

targets set was reviewed and monitored

to ensure that the Bank is able to meet

the timelines set by the Central Bank of

Sri Lanka (CBSL).

5. IT SYSTEMS SUPPORT:

Recommendations were made to

enhance efficiency of monitoring and to

reduce/avoid risks through the use of IT

Systems of Credit and Operational Risk

Management in the Bank.

6. INTERNAL CAPITAL

ADEQUACY ASSESSMENT

PROCESS (ICAAP):

ICAAP document for both the Bank and

the Group was developed for 2015 year

end position, and was reviewed and

approved by the Committee and the

Board. This document was forwarded

to the Regulator in 2016 well before the

regulatory timeline.

7. COMPLIANCE:

The Committee received compliance

reports from the Group Compliance

Officer and reviewed same to assess

the extent of compliance with the

regulatory requirements.

8. INTERNAL CONTROLS:

Internal loss event reports and

the adequacy of internal control

and procedures (except Internal

Controls Over Financial Reporting

which is handled by Board

Audit Committee) were reviewed

regularly and recommendations for

improvements were made. Progress on

implementation of recommendations

was also monitored.

9. CUSTOMER COMPLAINTS:

The implementation of the Customer

Complaints Policy was monitored.


ANNUAL REPORT 2016

BOARD INTEGRATED RISK MANAGEMENT COMMITTEE REPORT

10. OUTSOURCED ACTIVITIES:

The implementation of the Outsourcing

Policy was monitored to ensure

compliance with CBSL directives and

guidelines.





them.

PROFESSIONAL ADVICE




APPRECIATION


Mrs Dhara Wijayatilake, Prof Malik

Ranasinghe and Mr Aravinda Perera

for their valuable contributions over the

years.

On behalf of the Board Integrated Risk


SANJIVA SENANAYAKE

Chairman - Board Integrated Risk


Colombo, Sri Lanka

13th February 2017

RISK & GOVERNANCE

209

The Board Related Party Transactions

Review Committee (the Committee)

was formed on 30th July 2015 in

terms of the Code of Best Practice on

Related Party Transactions issued by

the Securities & Exchange Commission

of Sri Lanka (the “Code”) and Section

9 of the Listing Rules of the Colombo

Stock Exchange (the “Rules”). The

Committee comprises 4 Non Executive

Directors and 1 Executive Director. The


December 2016 is:


(Chairperson) (IND/NED)


(NID/NED) (Served on the

Committee from 9th May 2016 to

7th July 2016)


(IND/NED)


(IND/NED)





(ED)

(IND - Independent Director, NID - Non



The above composition is in

compliance with the provisions of the

Code and the Rules regarding the

composition of the Committee. Brief

profiles of the members are given on

pages 16 to 21 of the Annual Report.



MEETINGS

During 2016 the Committee held

4 meetings. Attendance by the




TERMS OF REFERENCE

The role and functions of the Committee

are regulated by the Code and the

Rules.

ROLE AND

RESPONSIBILITIES

The mandate of the Committee is

derived from the Code and the Rules

and includes mainly the following:

1. Developing and maintaining a

Related Party Transactions Policy

consistent with the provisions

of the Code and the Rules

for adoption by the Board of

Directors of the Bank (the Board)

and its listed subsidiaries.

2. Reviewing all proposed Related

Party Transactions (“RPTs”) in

compliance with the provisions of

the Code and the Rules.

3. Advising the Board on making

immediate Market Disclosures

and Disclosures in the Annual

Report where necessary, in

respect of RPTs, in compliance

with the provisions of the Code

and the Rules, Procedures and

Directives/ Guidelines Adopted

by the Committee for reviewing

RPTs.

4. Ensuring that Procedures /

Directives/Guidelines are issued

to compel all RPTs to be referred

to the Committee for review.

REVIEW FUNCTION OF THE

COMMITTEE

Review of the relevant RPTs by the

Committee takes place quarterly.

The Committee has communicated

its observations to the Board RPTs

published in the Note 49 to the

Financial Statements.





same.

PROFESSIONAL ADVICE


seek external professional advice

on matters under its purview. The

Committee consulted and sought

advice with regard to the identification

of RPTs and Reporting Requirements

from Head of Listings and Corporate

Affairs of the Colombo Stock Exchange

and Bank’s External Auditors, Messrs

Ernst & Young.

On behalf of the Board Related Party


DHARA WIJAYATILAKE

Chairperson – Board Related Party


Colombo, Sri Lanka

13th February 2017

BOARD RELATED PARTY TRANSACTIONS REVIEW COMMITTEE REPORT


ANNUAL REPORT 2016

BOARD CREDIT COMMITTEE REPORT

In pursuance of a Board decision,

the Credit Committee was formed

on 9th December 1987 which was

subsequently re-titled as the Board

Credit Committee (the Committee)

on 22nd October 2008. Prof Malik

Ranasinghe who was appointed as the

Chairman of the Committee on 30th

January 2012 continues as Chairman

thereof. The Committee comprises

4 Non Executive Directors and 2

Executive Directors. The Committee’s

composition during the period ended

31st December 2016 is as follows:




(NID/NED) (Serves on the

Committee from 9th May 2016)









Committee until 9th May 2016

Mr Deshal De Mel

(NID/NED)

Mr Aravinda Perera



Mr Nanda Fernando

(ED) - Serves on the Committee



(ED)

(NID-Non Independent Director, IND-

Independent Director, NED-Non Executive

Director and ED-Executive Director)

Mr Aravinda Perera has been

appointed as a consultant to the

Committee w.e.f. 13th September 2016.





Committee

MEETINGS

During the year, the Committee met on

17 occasions. The attendance of the

Committee members is stated in the

Corporate Governance Report on page

157 of the Annual Report. Members of

the Senior and Corporate Management

of the Bank are invited to participate at

the meetings as and when required.

TERMS OF REFERENCE

The Credit Policy of the Bank sets

out the Terms of Reference of the

Committee. The Board periodically

reviews the Credit Policy. The

Committee is responsible to the Board

of Directors (the Board) and reports on

its activities regularly. The Committee

also assists the Board in its general

oversight of recommending Credit

Policy of the Bank and any changes to

the Policy, reviewing Single Borrower

and Delegated Authority Limits of the

Bank.

ROLE AND

RESPONSIBILITIES

The main function of the Committee

is to oversee the credit and lending

strategies and objectives of the Bank.

This includes:

1. Overseeing the credit

management of the Bank,

including review of internal credit

policies and establishing portfolio

limits.

2. Reviewing the quality and

performance of the Bank’s credit

portfolio.

In addition, the Committee is

responsible for any other matters

delegated to it by the Board. Hence, it

is the responsibility of the Committee to:

1. Operate a sound credit granting

process

Review and approve or

recommend for Board approval,

as the case may be, credit

proposals in accordance with

Board approved policies and

standards.

Review of credit policy changes

initiated by the management of

the Bank and recommend them

with or without modifications to

the Board for approval.

Ensure compliance of the Bank’s

credit policy with the statutory

requirements prescribed by

the regulatory/supervisory

authorities.

Request rapid portfolio reviews

or sector/industry reviews, where

deemed appropriate.

2. Maintain adequate controls over

credit risk

Monitor capital allocation and

define limits in line with the

approved risk appetite limits.

Ensure that credit risk exposure

is kept within acceptable limits

to maximize the Bank’s risk

adjusted rate of return.

Ensure that stress tests are

conducted, where deemed

appropriate.

3. Maintain appropriate credit

administration, measuring and

monitoring process.

Review credit approval

framework and assign credit

delegated limits and Single

Borrower Limits in line with the

Bank’s policy.

RISK & GOVERNANCE

211 Review and recommend to the

Board, facilities that it believes

should have Board approval.

4. Identification and administration

of problem credits

Monitor on an ongoing basis,

the Bank’s credit quality,

review periodic credit portfolio

reports and assess portfolio

performance.

Ensure that post-credit

monitoring and postmortem

reviews are performed, where

deemed appropriate.

5. Understanding the cyclical

aspects of the economy (both

internal and external)

Monitor the resulting shifts in the

composition and quality of the

loan portfolio.

6. Proper evaluation of new

business opportunities

Ensure all new credit risk

related products are reviewed

from a credit risk management

perspective.


The minutes of the meetings of the

Committee are tabled at Board

Meetings enabling all Board members

to have access to same.

REVIEW OF THE COMMITTEE

Members of the Committee work closely

with the Board of Directors to maintain

proper credit standards for the Bank.

The Board undertakes a review of the

Committee’s performance, objectives

and responsibilities according to its

Terms of Reference to ensure that it is

operating effectively.

PROFESSIONAL ADVICE



matters within its purview.

APPRECIATION


Mr Sanjiva Senanayake, Miss Annika

Senanayake and Mr Aravinda Perera

who served on the Committee during

the year for their valuable contributions

over the years.

On behalf of the Board Credit

Committee


Chairman – Board Credit Committee

Colombo, Sri Lanka

13th February 2017


ANNUAL REPORT 2016

BOARD STRATEGIC PLANNING COMMITTEE REPORT

Pursuant to a decision at the Board

meeting held on 30th January 1997, the


(the Committee) was formed. The

Committee comprises 6 Non-Executive

Directors and 2 Executive Directors.

The composition of the Committee as at

31st December 2016 is:


(Chairman) (NID/NED) - serves

on the Committee from 9th

May 2016; Chairman since 8th

September 2016

Mr Dhammika Perera

(NID/NED) - served on the

Committee until 31st July 2016


(IND/NED)





(IND/NED)


(IND/NED)

Mr Deshal De Mel

(NID/NED)

Mr Ranil Pathirana

(IND/NED)

Mr Aravinda Perera



Mr Nanda Fernando




(ED)




Mr Aravinda Perera was appointed as a

Consultant to the Committee w.e.f. 13th

September 2016.





Committee.

MEETINGS

During the year the Committee met on

four occasions and the attendance of

the Committee members is stated in the



TERMS OF REFERENCE

The Committee is responsible to the

Board of Directors and reports on its

activities regularly. The Committee

also assists the Board in its general

oversight of setting Strategic Direction,

Budgeting and Monitoring.

ROLE AND

RESPONSIBILITIES

1. Evaluate both local and

international developments,

trends, opportunities and threats,

impacting the macro economic

conditions and the banking

industry in general and examine

periodically, the current strategic

direction and market positioning

with the vision and mission of the

Bank.

2. In the light of the above, formulate

future strategy of the Bank and

the Group for the long, medium

and short term and advise the

Board accordingly, facilitating the

Board to finalize same.

3. Guide the Corporate Management

on the preparation of the Strategic

Plan and the Annual Budget of the

Bank, within the agreed strategic

framework.

4. Monitor and assess periodically

the implementation of these

strategic initiatives of the

Strategic Plan and evaluate

their effectiveness in the light of

achievements.

5. Monitor and assess achievement

of the financial goals & targets of

the Annual Budget.

6. Review adequacy and

composition of the Bank’s capital

structure in the context of the

growth targets and developments

in the regulatory framework and

where necessary, recommend

capital augmentation plans for

approval of the Board.

7. Review and evaluate the

strategic investment decisions

and overseas expansion projects

of the Bank and advise the Board

accordingly.

PERFORMANCE

The Committee engaged in discussions

with the Corporate Management and

Strategic Planning Team to determine

the strategic direction of the Bank

for the period 2017 to 2019 and this

formed the basis for the development

of the Strategic Plan for this period. The

Committee reviewed the performance

of the Bank during the year against

the three year rolling plan and annual

budget for 2017 to identify areas of

concern which needed changes in

strategic direction. The three year

rolling plan was submitted to the Board

of Directors for its information and

approval was obtained for the annual

budget for 2017 which was developed

in line with the strategy document.

RISK & GOVERNANCE


Minutes of the Committee meetings are

circulated to the Committee members

by the Secretary and the confirmed

Minutes are reported to the Board of

Directors regularly for concurrence.

The confirmed Minutes are available

for review by any regulatory authority

having jurisdiction over the affairs of the

Bank.

PROFESSIONAL ADVICE



matters under its purview. This year

too, the Committee engaged Frontier

Research for an analytical discussion

on the current economic trends in the

country.

APPRECIATION


Mr Dhammika Perera, Mr Sanjiva

Senanayake and Mr Aravinda Perera

for their valuable contribution over the

years.

On behalf of the Board Strategic

Planning Committee

CHANNA PALANSURIYA

Chairman – Board Strategic Planning

Committee

Colombo, Sri Lanka

13th February 2017


ANNUAL REPORT 2016

BOARD SHAREHOLDER RELATIONS COMMITTEE REPORT

The Bank, being the first listed

Company in Sri Lanka to setup a Board

Shareholder Relations Committee

(the Committee) to acknowledge and

address shareholders’ concerns and

suggestions, formed the Committee

on 28th August 2008. The Committee

comprises 3 Non Executive Directors

and 1 Executive Director. The


December 2016 is:






Mr Deshal De Mel

(NID/NED)

Mr Aravinda Perera


from 09th May 2016 until 12th

September 2016

Mr Nanda Fernando






Brief profiles of the members are given

on pages 16 to 21 of the Annual Report.



MEETINGS

The Committee met on two occasions.

Meetings are held when deemed

appropriate. The attendance of the




TERMS OF REFERENCE

Providing suggestions to the Board

to improve Shareholders / Investor

relations of the Bank. Organising

forums that encourage dialogue

between the Board of Directors and

Shareholders / Investors. Providing

guidance to the Board on matters of

investor relations. Perform such other

functions as expressly delegated to it

from time to time by the Board relating

to shareholder relations matters.

ROLE AND

RESPONSIBILITIES

The Committee being an advisory and

consultative Committee, considers

proposals of shareholders on

improvement of the Bank’s corporate

governance as well as requirements

and needs of shareholders

whenever necessary. It provides

recommendations to the Board

on enforcement and protection of

rights and legitimate interests of the

Bank’s shareholders. The Committee

contributes to clarify the Bank’s

policy and development strategy on

shareholder relations matters.

The Committee ensures that the

Bank’s latest information and financial

results are swiftly communicated to

the shareholders through Interim and

Annual Reports, notifications to the

Colombo Stock Exchange and timely

press releases. In addition to these

avenues of information, shareholders

have easy access through the Bank’s

corporate website, www.sampath.lk

to all relevant information, which also

gives the shareholders access to the

Bank for any query. Shareholders have

the liberty to raise any questions to

the Board, either at the Shareholder

Relations Forums or through written

communication. These forums also

encourage the shareholders to openly

voice concerns and make suggestions

and requests.

The Committee supports shareholders

to enhance their investment

attractiveness. The Committee’s

activities aim at protecting the Bank’s

shareholders’ rights and interests.

Two-way dialogue between the

shareholders and the Board has taken

place this year too. The Company

Secretary has kept the Board informed

of shareholder outlook through regular

reports.

PERFORMANCE

The Committee meets as and when

necessary and reports on its activities

to the Board. The Shareholders’ Forum

was held soon after the Annual General

Meeting on 31st March 2016.

The following concessions are

available on banking transactions to

shareholders:

1. All commissions to be on actual

cost basis, waiving off all internal

commission and charges.

However, in the case of foreign

bank charges and other local

bank charges, the actual cost

will be collected. This excludes

cheque return commissions and

postage charges.

2. 50% on the annual fee charged

for VISA credit cards will be

waived off.

3. On opening of current accounts,

the initial deposit will be 50%

of the usual initial deposit

requirement.

4. SET cards are issued free of

charge. However, this does not

include the per transaction fee.

RISK & GOVERNANCE





them.

PROFESSIONAL ADVICE




APPRECIATION


Mr Aravinda Perera who served on the

Committee during the year for their

valuable contributions over the years.

On behalf of the Shareholder Relations

Committee


Chairman - Board Shareholder

Relations Committee

Colombo, Sri Lanka

13th February 2017


ANNUAL REPORT 2016

with most banks. In addition, the

decline of the Sri Lankan Rupee and

illiquidity in the Foreign Exchange

market during the latter part of the

year posed challenges in meeting the

requirements of customers and the

Bank. Volatile market conditions, further

exacerbated by increasing economic

and policy uncertainties arising local

political events as well as external

developments were experienced during

the year. Much headway was made

in refining a comprehensive model

for analysis of the Bank’s revenue by

products and customers, which will be

used to guide future asset growth.


Minutes of the Committee are regularly

reported to the Board and approval

sought for policies recommended and

for other relevant matters.

PROFESSIONAL ADVICE




APPRECIATION


Mr Aravinda Perera, who served on

the Committee until his retirement

in September, for his valuable


On behalf of the Board Treasury

Committee

SANJIVA SENANAYAKE

Chairman – Board Treasury Committee

Colombo, Sri Lanka

13th February 2017

The Board Treasury Committee (the

Committee) which was formed on 31st

May 2012 comprises 4 Non Executive

Directors and 2 Executive Directors.

The Committee’s composition as at 31st

December 2016 is:




(IND/NED)



Committee from 7th July 2016

Mr Deshal De Mel

(NID/NED)

Mr Ranil Pathirana

(IND/NED) served on the


until 7th July 2016

Mr Aravinda Perera



Mr Nanda Fernando




(ED)






Report. The Company Secretary serves

as the Secretary to the Board Treasury

Committee.

MEETINGS

During the year, the Committee met on

six occasions. The attendance of the



157 of the Annual Report. Other officials

of the Bank too were invited to attend

as deemed necessary.

TERMS OF REFERENCE

The Board Treasury Committee will

review the Bank’s Treasury Policy

BOARD TREASURY COMMITTEE REPORT

and recommend amendments to

the Board of Directors. It will also

review management of all treasure

related matters, especially liquidity

management and asset liability

management.

ROLE AND RESPONSIBILITIES

The Committee is instituted to provide

guidance to the Bank’s Treasury

in carrying out its functions and to

monitor its performance with a view

of optimizing earnings, stability and

growth of the Bank.

The main responsibilities of the

Committee are:

1. Establish Treasury Management

policies on behalf of the Board.

2. Monitor Treasury Dealing

Room operations and review

whether they are carried out in

accordance with such policies.

3. Monitor the liquidity position of

the Bank and advise the Treasury

accordingly.

4. Monitor the management of

Foreign Exchange and Interest

Rate Risks by the Bank.

5. Monitor compliance with Central

Bank regulations managed by

the Treasury including capital

adequacy ratio, statutory reserve

ratio and statutory liquid assets

ratio.

6. Provide guidance to the Asset

and Liability Management

Committee (ALCO), consisting

of Corporate Management, to

optimize performance.

7. Review internal pricing of funds

to provide desired incentive

internally and better evaluate

performance of business units.

During 2016, efforts were focused

on responses the Treasury had to

implement to adjust to the lower Sri

Lankan Rupee Interest rate environment

and managing the excess liquidity

that the Bank experienced along

RISK & GOVERNANCE

217

BOARD MARKETING COMMITTEE REPORT

The Board Marketing Committee (the

Committee) was formed on 28th June

2012. The Committee comprises 5 Non

Executive Directors. The Committee’s

composition as at 31st December 2016

is:

Mr Deshal de Mel

(NID /NED) - Chairman

w.e.f 09th May 2016





(IND /NED) - Chairman

until 08th May 2016


(IND/NED)


(NID/NED)



Director)

The Managing Director (MD) attends

meetings on invitation.





Committee.

MEETINGS

The Committee met on three occasions

during the year. Attendance by the




TERMS OF REFERENCE

Review the customer strategy and

performance against set objectives.

Review Brand strategy and its

performance. Monitor customer service

and customer service strategies in

line with the customer charter. Provide

oversight to marketing expenditure.

Review market research pertaining

to the brand, customer, products and

competition.

ROLE AND

RESPONSIBILITIES

The Committee functions as a

facilitating and a guiding body to the

management in an effort to strongly

align the activities of the marketing

function towards the strategic focus

of the Bank, following best practices.

The Committee acts as a conduit to the

main Board in providing updates on

various consumer behaviour trends and

their implications to the Bank.

During the year Committee provided

oversight for the following:

1. Establishment of a regular brand

equity tracking process.

2. Commencement of a

comprehensive brand identity

management process.

3. Establishing marketing

expenditure justification process.





them.

PROFESSIONAL ADVICE




APPRECIATION


Mr Deepal Sooriyaarachchi who

chaired the Committee until 09th May

2016 for his guidance and contribution

over the years.

On behalf of the Board Marketing

Committee

DESHAL DE MEL

Chairman - Board Marketing Committee

Colombo, Sri Lanka

13th February 2017

[ FINANCIAL INFORMATION ]We are proud to see that yet again the Bank has exceeded all

expectations, delivering exceptional results for the year under

review.

Financial Calendar 220

Annual Report of the Board of Directors on

the Affairs of the Company 221

Directors’ Interest in Contracts with the Bank 230

Directors’ Statement on Internal Control Over Financial Reporting 231

Independent Assurance Report to the Board of Directors of

Sampath Bank PLC 233

Managing Director’s and Chief Financial Officer’s

Responsibility Statement 234

Statement of Directors’ Responsibility for Financial Reporting 235

Independent Auditors’ Report to the Shareholders of

Sampath Bank PLC 237

Statement of Profit or Loss 238

Statement of Comprehensive Income 239

Statement of Financial Position 240

Statement of Cash Flows 242

Statement of Changes in Equity 244

Notes to the Financial Statements 246


ANNUAL REPORT 2016

FINANCIAL CALENDAR

Financial Calendar - 2016

2015 Annual Report and Audited Financial Statements signed on 16th February 2016

30th Annual General Meeting held on 31st March 2016

Rs 6.00 per share Cash Dividend for 2015 distributed on 31st March 2016

Rs 7.00 per share Scrip Dividend for 2015 distributed on 31st March 2016

2016 Annual Report and Audited Financial Statements signed on 13th February 2017

Extra Ordinary General Meeting to be held on 28th February 2017

31st Annual General Meeting to be held on 31st March 2017

Rs 14.00 per share Interim Scrip Dividend for 2016 distributable on 28th February 2017*

Rs 4.75 per share Final Cash Dividend for 2016 distributable on 31st March 2017*

Interim Financial Statements published in terms of Rule 7.4 of the Colombo Stock Exchange (CSE) and as per the requirements of the Central Bank of Sri Lanka:

Colombo StockExchange

News Papers (as required by CBSL)

English Sinhala Tamil

2015 4th Quarter interim results released on 17th February 2016 29th February 2016 29th February 2016 29th February 2016

2016 1st Quarter interim results released on 06th May 2016 10th May 2016 12th May 2016 12th May 2016

2016 2nd Quarter interim results released on 02nd August 2016 05th August 2016 08th August 2016 08th August 2016

2016 3rd Quarter interim results released on 04th November 2016 09th November 2016 11th November 2016 11th November 2016

Proposed Financial Calendar - 2017

2017 Annual Report and Audited Financial Statements to be signed in February 2018

32nd Annual General Meeting to be held in March 2018

Dividend for 2017 to be payable in April 2018**

Interim Financial Statements to be published in terms of Rule 7.4 of the Colombo Stock Exchange and as per the requirements of the Central Bank of Sri Lanka:

Colombo StockExchange

News Papers (as required by CBSL)

English Sinhala Tamil

2016 4th Quarter interim results to be released on or before

28th February 2017 31st March 2017 31st March 2017 31st March 2017

2017 1st Quarter interim results to be released on or before

15th May 2017 31st May 2017 31st May 2017 31st May 2017

2017 2nd Quarter interim results to be released on or before

15th August 2017 31st August 2017 31st August 2017 31st August 2017

2017 3rd Quarter interim results to be released on or before

15th November 2017 30th November 2017 30th November 2017 30th November 2017

2017 4th Quarter interim results to be released on or before

28th February 2018 31st March 2018 31st March 2018 31st March 2018

FINANCIAL INFORMATION

221

ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANY

1. GENERAL

The Board of Directors of Sampath Bank PLC has pleasure in presenting its Annual

Company to the members of Sampath

31st December 2016, together with the audited Financial Statements of the Bank, Consolidated Financial Statements of the Group for that year and the Auditors’ Report on those Financial Statements, conforming to the requirements of the Companies Act No. 7 of 2007 and the Banking Act No. 30 of 1988. The Financial Statements were reviewed and approved by the Board of Directors on 13th February 2017.

This report includes the information required by the Companies Act No. 7 of 2007, Banking Act Direction No. 11 of 2007 on Corporate Governance for Licensed Commercial Banks and subsequent amendments thereto, Listing Rules of the Colombo Stock Exchange and is also guided by the recommended best practices on Corporate Governance.

This Report was approved by the Board of Directors on 13th February 2017. The appropriate number of copies of the Annual Report will be submitted to the Colombo Stock Exchange, Registrar of Companies and to the Sri Lanka Accounting and Auditing Standard Monitoring Board within the statutory deadlines.

Sampath Bank PLC (“the Bank”) is a Licensed Commercial Bank registered under the Banking Act No. 30 of 1988 (“Banking Act”) and was incorporated as a public limited liability company in Sri Lanka on 10th March 1986 under the Companies Act No. 17 of 1982. The Company was re-registered as per the requirements of the Companies Act No. 7 of 2007 (“Companies Act”) on 28th April 2008 under the name Sampath Bank PLC with the Registrar General of Companies. The re-registration number of the Bank is PQ 144.

The ordinary shares of the Bank are listed on the main board of the Colombo Stock Exchange in Sri Lanka. The Bank’s unsecured subordinated redeemable debentures are also listed on the Colombo Stock Exchange.

Bank’s National Long Term Rating of A+ (lka) with negative outlook and subordinated debentures at ‘A(lka)’. Moody’s Investors Service (“Moody’s”) has assigned an Issuer and Long Term Local Currency Deposit Rating of B1 with negative outlook.

James Peiris Mawatha, Colombo 02, Sri Lanka.

2. VISION, VALUES AND CORPORATE CONDUCT

The Bank’s Vision and Values are given in page 12 of the Annual Report. The business activities of the Bank are conducted at a high level of ethical standards in achieving its Vision.

3. PRINCIPAL BUSINESS ACTIVITIES

The principal business activities of the Bank and the Group during the year are given below as required by the Section 168 (1) (a) of the Companies Act.

3.1 BankThe principal activities of the Bank include accepting deposits, corporate and retail

treasury and investment services, issuing of local and international credit and debit cards,

foreign currency operations, electronic banking services: such as telephone banking, internet banking, mobile banking, payment gateway, money remittance facilities, pawning, leasing, factoring, hire purchase, travel related services and dealing in government securities etc.

3.2 SubsidiariesThe Bank has four Subsidiaries as at 31st December 2016. Names of the Subsidiaries and their principal business activities are as tabulated below:

Entity Principal Business Activities

Siyapatha Finance PLC Granting leasing, factoring, hire purchase and other loan facilities

& accepting deposits

Sampath Centre Ltd Renting of commercial property

S C Securities (Pvt) Ltd Stock broking

Sampath Information Technology Solutions Ltd Developing software solutions and maintenance of hardware

4. CHANGES TO THE GROUP STRUCTURE

The Bank purchased the balance 2.86% of shares of Sampath Centre Ltd on 30th December 2016. With the purchase of these shares Sampath Centre Ltd became a fully owned subsidiary of the Bank. There were no other changes made to the Group structure during the year under review.

5. REVIEW OF OPERATIONS

performance of the Bank and the Group together with important events that took place during the year 2016 as required by the Section 168 (1) (a) of the Companies Act are contained in the Chairman’s Message (pages 32 to 37), the Managing Director’s Review (pages 38 to 43), and Management Discussion and Analysis

(pages 55 to 134). These reports form an integral part of the Annual Report of the Board of Directors.

6. FUTURE DEVELOPMENTS

The Bank focuses on a business expansion drive through the existing Branch Network, concentrating mainly on its core banking operations to increase its market share


ANNUAL REPORT 2016

supplemented by a more vigorous drive on innovative product development, process

customer needs in the challenging market conditions and maximizing the value that we create for all the stakeholders. 4 new branches were opened during the year. Further as required under Section 168 (1) (a) of the Companies Act, an overview of the future development of the Bank and the Group is given in the Chairman’s Message (pages 32 to 37), the Managing Director’s Review (pages 38 to 43), and Management Discussion and Analysis (pages 55 to 134). These reports form an integral part of the Annual Report of the Board of Directors.

7. FINANCIAL STATEMENTS

The Financial Statements of the Group and the Bank have been prepared in accordance with the Sri Lanka Accounting Standards (SLFRSs & LKASs) laid down by the Institute of Chartered Accountants of Sri Lanka, and comply with the requirements of the Companies Act No. 7 of 2007 and the Banking Act No. 30 of 1988. The aforementioned Financial Statements for the year ended 31st December 2016 duly

Directors of the Bank and the Company Secretary are given on pages 238 to 376 which form an integral part of this Annual Report of the Board of Directors (as per the Section 168 (1) (b) of the Companies Act).

8. DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING

The Directors are responsible for the preparation of Financial Statements of the

are of the view that these Financial Statements appearing on pages 238 to 376 have been prepared in conformity with the requirements of the Sri Lanka Accounting Standards, Companies Act, Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, the Banking Act and amendments thereto, the Listing Rules of the Colombo Stock Exchange and the Corporate Governance Code for Licensed Commercial Banks issued by the Central Bank of Sri Lanka (CBSL). The Statement of Directors’ Responsibility for Financial Reporting is given on pages 235 & 236 and forms an integral part of the Annual Report of the Board of Directors.

9. AUDITORS’ REPORT

The Auditors of the Bank are Messrs Ernst & Young, Chartered Accountants. Messrs Ernst & Young carried out the audit on the Financial Statements of the Group and the Bank for the year ended 31st December 2016 and their report on those Financial Statements, as required by Section 168 (1) (c) of the Companies Act is given on page 237.

10. SIGNIFICANT ACCOUNTING POLICIES

adopted in the preparation of the Financial Statements are given on pages 246 to 376 which comply with Section 168 (1) (d) of the Companies Act.

11. FINANCIAL RESULTS AND APPROPRIATIONS

11.1 IncomeThe gross income of the Group for 2016 was Rs 70,445,341,000/- (2015: Rs 49,101,837,000/-) while the Bank’s gross income was Rs 67,584,689,000/- (2015: Rs 47,031,516,000/-). An analysis of the gross income is given in Note 6 to the Financial Statements.

43.3% respectively in 2016. The Bank’s

year too recorded a growth of 38.4% and 48.8% respectively over 2015. Group’s Total Comprehensive Income (net of tax) for the year is Rs 11,760,912,000/- (2015: Rs 6,319,668,000/-), while the Bank has recorded a total comprehensive income (net of tax) of Rs 10,484,794,000/- (2015: Rs 5,825,708,000/-). A detailed breakup of the

below:

2016

Rs 000

2015

Rs 000

Profit for the year after payment of all operating expenses and provision for

depreciation and contingencies

12,599,858 9,100,873

Less: Income tax expense 3,475,188 2,966,932

Net profit after taxation 9,124,670 6,133,941

Other comprehensive income (OCI)

Actuarial gain on defined benefit plans 564,648 115,940

Deferred tax effect on above (158,102) (32,463)

9,531,216 6,217,418

Unappropriated balance brought forward from previous year 3,066,297 3,182,746

Less: Super Gain Tax - (676,765)

Balance available before appropriation / adjustments 12,597,513 8,723,399



223

12. TAXATION

Income tax rate applicable on the Bank’s

Centre is 28% (2015: 28%). The Bank is

services at 15% (2015: 11%) and 2% (2015: 2%) respectively.

The Group has also provided deferred

under the liability method, as permitted by the Sri Lanka Accounting Standard - LKAS 12 (Income Taxes).

13. DIVIDEND

The Board of Directors of the Bank has recommended an interim scrip dividend of Rs 14.00 per share to be paid for the

Further, in compliance with the Bank’s Articles of Association this dividend is to be approved by the shareholders at the Extraordinary General Meeting to be held on 28th February 2017.

The Board of Directors of the Bank has

dividend of Rs 4.75 per share as well to

December 2016. This dividend is to be approved by the shareholders at the Annual General Meeting to be held on 31st March 2017. (2015: Rs 6.00 in the form of cash

dividend and balance Rs 7.00 in the form of scrip dividend).

that the Bank would meet the solvency test immediately after the interim and

paid in February 2017and March 2017 respectively in terms of the Section 31 (3) of the Companies Act. The Board provided the Statements of Solvency to the Auditors

the Auditors in respect of the dividend payments conforming to the statutory provision. With these dividend payments,

dividend requirement according to the provisions of Inland Revenue Act. Further details are given in Note 18 to the Financial Statements.

2016

Rs 000

2015

Rs 000

Appropriations

Transfer to Statutory Reserve Fund (460,000) (310,000)

Transfer to General Reserve (5,500,000) (3,500,090)

Dividend

Final cash dividend - 2014 (Rs 5.00 per share) - (839,551)

Final scrip dividend - 2014 (Rs 6.00 per share) - (1,007,461)

Final cash dividend - 2015 (Rs 6.00 per share) (1,033,876) -

Final scrip dividend - 2015 (Rs 7.00 per share) (1,206,188) -

Unappropriated balance carried forward 4,397,449 3,066,297

Proposed dividend

Final cash dividend - 2015 (Rs 6.00 per share) 1,033,876

Final scrip dividend - 2015 (Rs 7.00 per share) 1,206,188

Interim scrip dividend - 2016 (Rs 14.00 per share) 2,477,735

Final cash dividend - 2016 (Rs 4.75 per share) 884,405

14. RESERVES

A summary of the Group’s Reserves is given below:

2016

Rs 000

2015

Rs 000

Statutory Reserve Fund 2,336,422 1,860,058

Revaluation Reserve 5,653,471 4,202,261

Available for Sale Reserve 1,271,319 875,723

General Reserve 27,694,236 22,165,001

Retained Profit 6,315,429 4,624,088

Total 43,270,877 33,727,131


ANNUAL REPORT 2016

15. CAPITAL EXPENDITURE

The total capital expenditure on acquisition of property, plant and equipment and intangible assets of the Group and the Bank amounted to Rs 1,469,514,000/- and Rs 762,508,000/- respectively (2015 Group: Rs 1,190,589,000/- and Bank: Rs 884,374,000/-). Details are given in Notes 33 and 34 to the Financial Statements.

16. CAPITAL COMMITMENTS

The capital expenditure approved and contracted for, as at the reporting date is given in Note 48.3 to the Financial Statements.

17. PROPERTY, PLANT AND EQUIPMENT (PPE)

Details of property, plant and equipment are given on Note 33 to the Financial Statements.

18. MARKET VALUE OF FREEHOLD PROPERTIES

All freehold lands and buildings of the Group and the Bank were revalued in November /

independent valuers, and brought into the Financial Statements. The Directors are of the opinion that the revalued amounts are not in excess of the current market values of such properties. The details of freehold properties owned by the Bank are given in Note 33.4 to the Financial Statements.

19. STATED CAPITAL, DEBENTURES AND BONDS

19.1 Stated Capital - BankThe Stated Capital of the Bank as at 31st December 2016 amounted to Rs 6,471,200,000/- consisting of 176,981,069 ordinary shares (2015: Rs 5,381,405,000/- consisting of 172,312,655 ordinary shares). The number of shares in issue of the Bank increased from 172,312,655 ordinary shares to 176,981,069 ordinary shares as a result

2015.

The details of the shares issued are given in Note 43.1 to the Financial Statements.

19.2 Debt Capital - BankThe Bank had issued rated, unsecured, subordinated, redeemable debentures to the value of Rs 26,500,000,000/- as at 31st December 2016 (2015: Rs 20,500,000,000/-), which are listed in the Colombo Stock Exchange.

The details of the debentures outstanding as at 31st December 2016 are given in Note 39.1 to the Financial Statements. These debentures are eligible for the Tier II Capital of the Bank.

The Bank had issued a deep discounted zero coupon bond with a maturity value of Rs 3,458,108,968/- for 20 years. The present paid up value of this bond is Rs 1,942,931,000/- (2015: Rs 1,780,008,000/) and this forms part of the Tier II Capital. The above Bond was issued in August 2003 and will mature in August 2023. The details are given in Note 39.2 to the Financial Statements.

19.3 Issue of Shares and Debt Capital – Subsidiaries

The Subsidiaries of the Bank did not make any share or debenture issues during the year other than those mentioned below. Siyapatha Finance PLC issued 1,624,726 Ordinary Shares by way of a scrip dividend during the year. As a result their stated capital increased by Rs 51,975,000 from Rs 525,000,000 as at 31st December 2015 to Rs 576,975,000 as at 31st December 2016. Siyapatha Finance PLC had issued unsecured, senior, redeemable debentures to the value of Rs 2,500,000,000 during the year, which are listed on the Colombo Stock Exchange.

20. SHARE INFORMATION

Information relating to earnings, dividend, net assets and market value per share is

6. Information on the trading of the shares and movement in the number of shares of the Bank is given in the Investor Information section on pages 123 to 133.

21. SHAREHOLDING

There were 17,456 registered ordinary shareholders as at 31st December 2016 (2015: 17,515). Information on

the distribution of shareholding and the respective percentages are given on pages 124, 125 and 127 of the Annual Report. Details of top twenty shareholders, percentages of their holdings and percentage holding of the public too are given in the Investor Information section on page 128.

22. EQUITABLE TREATMENT TO SHAREHOLDERS

The Bank has at all times ensured that all shareholders are treated equitably.

23. THE BOARD OF DIRECTORS

The Board of Directors of the Bank comprises eleven (2015: eleven) Directors

knowledge and experience. The names of the Directors of the Bank during the period 1st January 2016 to 31st December 2016 are given below as per Section 168 (1) (h)

are given on pages 16 to 21 of the Annual

into Executive (ED), Non-Executive (NED) and Independent (IND), Non-Independent Directors (NID) is given against the names as per Listing Rules and Corporate Governance Rules of Colombo Stock Exchange and Banking Act Direction No. 11 of 2007 issued by the Central Bank of Sri Lanka.



225

Name of the Director Remarks

Mr Dhammika Perera NED/NID Director from 01.08.2007; Chairman from 01.01.2012. Retired on 31.07.2016

Mr Channa Palansuriya NED/NID Director from 01.01.2012; Deputy Chairman from 26.01.2012 up to 12.11.2015. Re-appointed as a Director on 28.04.2016 and Chairman since 01.08.2016

Prof Malik Ranasinghe NED/IND Director since 30.08.2011. Deputy Chairman since 01.08.2016

Mr Sanjiva Senanayake NED/IND Director since 01.01.2012; Senior Director since 26.01.2012

Mr Deepal Sooriyaarachchi NED/IND Director since 05.08.2010

Mrs Dhara Wijayatilake NED/IND Director since 30.08.2011

Miss Annika Senanayake NED/IND Director since 01.01.2012

Mr Deshal De Mel NED/NID Director since 01.01.2012

Mr Ranil Pathirana NED/IND Director since 01.01.2012, Independent Director since 31.01.2015

Mrs Saumya Amarasekera NED/NID Director since 01.06.2012

Mr Aravinda Perera ED Executive Director from 25.11.2008; Managing Director from 01.01.2012; Retired on 12.09.2016

Mr Nanda Fernando ED Managing Director since 13.09.2016

Mr Ranjith Samaranayake ED Executive Director since 01.01.2009

24. CHANGES IN DIRECTORATE

The Bank has disclosed the names of the

Bank as at the end of the accounting period and the names of any persons who ceased

during the accounting period in terms of Section 168 (1) (h) of the Companies Act.

Mr Channa Probodha Palansuriya (Deputy Chairman) was appointed to the Board

casual vacancy that occurred in the Board and Mr Nanda Fernando (Managing Director)

from 13th September 2016. Mr Dhammika Perera (Chairman) and Mr Aravinda Perera (Managing Director) retired from the Board

September 2016 respectively. Mr Channa Probodha Palansuriya was appointed as the Chairman and Prof Malik Ranasinghe was appointed as the Deputy Chairman with

25. RETIREMENT AND RE-ELECTION / RE-APPOINTMENT OF DIRECTORS

In terms of Article No. 86 and 87 of the Articles of Association of the Company, Mr Ranil Pathirana, Mr Deepal Sooriyaarachchi, Prof Malik Ranasinghe and Mrs Dhara

Wijayatilake retire by rotation and being

on the unanimous recommendation of the Board Nomination Committee and the Board of Directors.

Mr Channa Probodha Palansuriya (Deputy Chairman) having been appointed to the

shareholders in terms of Article 93 of the Articles of Association of the Company.

Sections 210 and 211 of the Companies Act do not apply to the company, in view of the more stringent provision contained in Section 3 (3) (i) of Banking Act Direction No. 11 of 2007 on Corporate Governance for Licensed Commercial Bank, which restricts the age of a Director of a Licensed Commercial Bank to 70 years.

26. LIST OF DIRECTORS OF THE SUBSIDIARIES OF THE BANK

Names of the Directors of Subsidiary companies are as follows:

26.1 Siyapatha Finance PLCMr Aravinda Perera (Chairman)Mr M A Abeynaike (Deputy Chairman)Mr S G Wijesinha


Mr P M A Sirimane

Mr W M P L De AlwisMr Ranjith SamaranayakeMr Tharaka Ranwala

26.2 Sampath Centre LtdMr I W Senanayake (Chairman) Mr S G WijesinhaMr S P KannangaraMr D Ihalalanda Mr R Silva

26.3 S C Securities (Pvt) LtdMr D J Gunaratne (Chairman)

CEO)Dr S KelegamaMr Deshal De Mel Mr Aravinda Perera Mr M N R Fernando

26.4 Sampath Information Technology Solutions Ltd

Mr D J GunaratneMr M V IndrasomaMr M A SalgadoMr Ranjith Samaranayake (appointed w.e.f. 31.08.2016)


ANNUAL REPORT 2016

27. REGISTER OF DIRECTORS AND SECRETARIES

As required under Section 223 (1) of the Companies Act, the Bank maintains a Register of Directors and Secretaries which contain the name, surname, former name (if any), residential address, business, occupation, dates of appointment and dates of resignation (if applicable) of each Director and the Secretary.

28. BOARD SUB COMMITTEES

The Board, while assuming the overall responsibility and accountability for the management oversight of the Bank, has also appointed Board Sub Committees to ensure that the activities of the Bank at all times are conducted with the highest ethical standards and the best interests of all its stakeholders. The Board formed many Sub Committees including the following four mandatory Board Sub Committees as required by the Banking Act Direction No. 11 of 2007. The compositions of these four Sub Committees as at 31st December 2016 were as follows:

28.1 Board Audit Committee Mr Ranil Pathirana (Chairman) Prof Malik RanasingheMr Sanjiva Senanayake (until 31.03.2016)Mr Deepal SooriyaarachchiMrs Dhara Wijayatilake

The Report of the Board Audit Committee is given on pages 198 to 201 which forms an integral part of the Annual Report of the Board of Directors.

28.2 Board Human Resources and Remuneration Committee

Mr Deepal Sooriyaarachchi (Chairman) Mr Channa Palansuriya (w.e.f. 09.05.2016)Mrs Dhara Wijayatilake (w.e.f. 09.05.2016)Miss Annika SenanayakeMr Deshal De MelMrs Saumya Amarasekera (w.e.f. 09.05.2016)Mr Aravinda Perera (until 09.05.2016)

and Remuneration Committee is given on pages 202 & 203 which forms an integral part of the Annual Report of the Board of Directors.

28.3 Board Nomination Committee Miss Annika Senanayake (Chairperson) Mr Dhammika Perera (until 31.07.2016)Mr Channa Palansuriya (w.e.f. 02.08.2016) Mr Sanjiva Senanayake (w.e.f. 09.05.2016)Mrs Dhara WijayatilakeMrs Saumya Amarasekera

The Report of the Board Nominations Committee is given on pages 204 & 205 which forms an integral part of the Annual Report of the Board of Directors.

28.4 Board Integrated Risk Management Committee

Mr Sanjiva Senanayake (Chairman w.e.f. 09.05.2016)Prof Malik Ranasinghe (until 09.05.2016) Mr Deepal Sooriyaarachchi (w.e.f. 09.05.2016)Mrs Dhara Wijayatilake (Chairperson until 09.05.2016) Miss Annika Senanayake (w.e.f. 09.05.2016)Mr Ranil Pathirana (w.e.f. 09.05.2016)Mrs Saumya Amarasekera (w.e.f. 09.05.2016)Mr Aravinda Perera (until 12.09.2016)Mr Nanda Fernando (w.e.f. 30.09.2016)Mr Ranjith Samaranayake

The Report of the Board Integrated Risk Management Committee is given on pages 206 to 208 which forms an integral part of the Annual Report of the Board of Directors.

Further, in order to comply with the Section 9 of the Colombo Stock Exchange Listing Rules, Board Related Party Transactions Review Committee was formed on 30th July 2015.

28.5 Board Related Party Transactions Review Committee

Mrs Dhara Wijayatilake (Chairperson) Mr Channa Palansuriya (appointed

07.07.2016)Prof Malik RanasingheMr Sanjiva SenanayakeMr Deepal Sooriyaarachchi (w.e.f. 09.05.2016)Mr Ranjith Samaranayake

The Report of the Board Related Party Transactions Review Committee is given on page 209 which forms an integral part of the Annual Report of the Board of Directors.

Sub Committees, the Board has also

Board Sub Committees:

28.6 Board Credit Committee Prof Malik Ranasinghe (Chairman) Mr Channa Palansuriya (w.e.f. 09.05.2016) Mr Sanjiva Senanayake (until 31.03.2016)Mrs Dhara Wijayatilake (w.e.f. 09.05.2016) Miss Annika Senanayake (until 09.05.2016)Mr Deshal De MelMr Aravinda Perera (until 12.09.2016)Mr Nanda Fernando (w.e.f. 30.09.2016) Mr Ranjith Samaranayake The Report of the Board Credit Committee is given on pages 210 & 211 which forms an integral part of the Annual Report of the Board of Directors.

28.7 Board Strategic Planning Committee

Mr Channa Palansuriya (w.e.f. 09.05.2016

Mr Dhammika Perera (Chairman until 31.07.2016) Prof Malik Ranasinghe Mr Sanjiva Senanayake (until 31.03.2016)Mrs Dhara Wijayatilake Miss Annika Senanayake Mr Deshal De MelMr Ranil PathiranaMr Aravinda Perera (until 12.09.2016)Mr Nanda Fernando (w.e.f. 30.09.2016)Mr Ranjith Samaranayake

The Report of the Board Strategic Planning Committee is given on pages 212 and 213 which forms an integral part of the Annual Report of the Board of Directors.

28.8 Board Shareholder Relations Committee

Prof Malik Ranasinghe (Chairman) Mr Deepal Sooriyaarachchi (w.e.f. 09.05.2016)Mr Deshal De MelMr Aravinda Perera (w.e.f. 09.05.2016 until 12.09.2016)Mr Nanda Fernando (w.e.f. 30.09.2016)

The Report of the Board Shareholder Relations Committee is given on pages 214 & 215 which forms an integral part of the Annual Report of the Board of Directors.



227

28.9 Board Treasury Committee Mr Sanjiva Senanayake (Chairman) Prof Malik RanasingheMiss Annika Senanayake (w.e.f. 07.07.2016)Mr Deshal De MelMr Ranil Pathirana (w.e.f. 09.05.2016 until 07.07.2016)Mr Aravinda Perera (until 12.09.2016)Mr Nanda Fernando (w.e.f 30.09.2016)Mr Ranjith Samaranayake

The Report of the Board Treasury Committee is given on page 216 and forms an integral part of the Annual Report of the Board of Directors.

28.10 Board Marketing Committee Mr Deshal de Mel (Chairman

Mr Channa Palansuriya (w.e.f. 09.05.2016)Mr Deepal Sooriyaarachchi (Chairman until 09.05.2016)Miss Annika SenanayakeMrs Saumya Amarasekera

The Report of the Board Marketing Committee is given on page 217 which forms an integral part of the Annual Report of the Board of Directors.

The duties, responsibilities and performance of the above Board Sub Committees are discussed in the respective Board Sub Committee reports.

29. DIRECTORS’ MEETINGS

The details of Directors meetings which comprise Board meetings and the Board Sub Committee meetings and the attendance of Directors at these meetings are given in the Corporate Governance Report on page 157 of the Annual Report.

30. DIRECTORS’ INTEREST REGISTER AND DIRECTORS’ INTEREST IN CONTRACTS OR PROPOSED CONTRACTS

The Bank maintains the Directors’ Interest Register as required under the provisions of Section 168 (1) (e) of the Companies Act. Directors of the Bank have made necessary declarations of their interest in contracts or proposed contracts, in terms of the Sections 192 (1) and 192 (2) of the Companies Act. These interests have been recorded in the Interest Register which is available for inspection in terms of the Act.

The particulars of the Directors’ Interest in Contracts are given on page 230 of the Annual Report and form an integral part of the Annual Report of the Board of Directors. As a practice and in terms of Corporate Governance, Directors have refrained from voting on matters in which they were materially interested. The Directors have no direct or indirect interest in a contract or a proposed contract with the Bank other than those disclosed.

31. RELATED PARTY TRANSACTIONS

Directors have also disclosed transactions

party transactions in terms of Sri Lanka Accounting Standard - LKAS 24 (Related Party Disclosure) which is adopted in preparation of the Financial Statements. Those transactions disclosed by the Directors are given in Note 49 to the Financial Statements which form an integral part of the Annual Report of the Board of Directors.

32. DIRECTORS’ INTEREST IN ORDINARY SHARES AND DEBENTURES

The shareholdings of Directors as at 31st December 2016 were as follows:

No. of Shares as at 31stDecember 2016

No. of Shares as at 31stDecember 2015

Mr Channa Palansuriya - -

Prof Malik Ranasinghe - -

Mr Sanjiva Senanayake - -

Mr Deepal Sooriyaarachchi - -

Mrs Dhara Wijayatilake - -

Miss Annika Senanayake - -

Mr Deshal De Mel - -

Mr Ranil Pathirana 9,929 9,668

Mrs Saumya Amarasekera - -

Mr Nanda Fernando 1,250 N/A

Mr Ranjith Samaranayake 22,464 21,872

N/A – Not ApplicableNone of the Directors directly hold any debentures issued by the Bank.


ANNUAL REPORT 2016

33. DIRECTORS’ INTEREST IN SHARES AND DEBENTURES OF SUBSIDIARIES

Mr Aravinda Perera who retired on 12.09.2016 and Mr Ranjith Samaranayake hold one share each in Siyapatha Finance PLC and one share each in Sampath Information Technology Solutions Ltd, as subscribers. These shares are held in trust for Sampath Bank. Mr Aravinda Perera who was a Director until 12.09.2016 also holds one share each in S C Securities (Pvt) Ltd and Sampath Centre Ltd for and on behalf of the Bank.

34. DIRECTORS’ REMUNERATION

As required under the Section 168 (1) (f), details of Directors’ emoluments and other

review are given in Note 49.3.1 to the Financial Statements.

35. OUR TEAM MEMBERS

The Bank believes that its real potential rests on the strength and capabilities of its team members in a rapidly changing

having a motivated and competent team in order to grow and achieve results as projected in the Strategic Plan and the Budget. As at 31st December 2016, the number of employees on the payroll of the Bank was 3,960 (2015: 3,993).

36. ESOPS

The Bank did not have any Employee Share Ownership / Option Plans during the year.

37. ENVIRONMENTAL PROTECTION

To the best knowledge of the Board, the Bank has not engaged in any activity that is harmful or hazardous to the environment.

of their knowledge and belief the Bank has complied with the relevant environmental laws and regulations.

38. STATUTORY PAYMENTS

The Directors, to the best of their knowledge

payments due to the Government, other regulatory bodies and related to the employees have been paid on a timely basis.

39. OUTSTANDING LITIGATION

In the opinion of the Directors and in consultation with the Bank’s lawyers, litigation currently pending against the Bank will not have a material impact on

operations of the Bank. Details of litigation pending against the Bank are given in Note 48.2 to the Financial Statements.

40. EVENTS AFTER THE REPORTING PERIOD

No circumstances have arisen since the Statement of Financial Position date which would require adjustments to, or disclosure in, the accounts, except those disclosed in Note 51 to the Financial Statements.

41. GOING CONCERN

The Directors after making necessary inquiries and reviews including reviews of the budget for the ensuing year, capital expenditure requirements, future prospects

matters required to be addressed in the Code of Best Practice on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka and the Direction on Corporate Governance issued by the CBSL are

resources to continue operations into the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Financial Statements.

42. DONATIONS

As required by the Section 168 (1) (g) of the Companies Act, information pertaining to donations made by the Bank during the year is given below. During the year the Bank made donations to the value of Rs 2,589,000/- (2015: Rs 2,487,000/-) in terms of the resolution passed at the last Annual General Meeting. Out of the aforementioned sum, the donations made

by the Bank to Government approved charities amounted to Rs Nil (2015: Rs Nil). The Bank does not make donations for political purposes.

43. SIGNIFICANT SHAREHOLDINGS IN OTHER ORGANIZATIONS

The Bank continues to hold 9.47% shareholding in LankaBangla Finance Limited in Bangladesh. Details are given in Note 29.3 to the Financial Statements.

44. RISK MANAGEMENT AND INTERNAL CONTROL

44.1 Material Foreseeable Risk Factors

The Bank has an ongoing process in place to identify, evaluate and manage the risks that are faced by the Bank. This process is detailed in the Risk Management Report on pages 136 to 150. The Directors, on a regular basis review the above mentioned process through the Board Integrated Risk Management Committee.

44.2 Internal ControlsThe Directors of the Bank have taken reasonable steps open to them to safeguard the assets of the Group and the Bank and to prevent and detect frauds and any other irregularities. For this purpose

comprehensive systems of internal controls for identifying, recording, evaluating and

Bank / Group throughout the year and it is being regularly reviewed by the Board of Directors.

This comprises internal reviews, internal

and other controls required to carry on the operations in an orderly manner, safeguard the assets, prevent and detect frauds and other irregularities and secure, as far as practicable, the accuracy and reliability of the records.

45. CORPORATE GOVERNANCE

The Directors of the Bank are committed

Governance Framework and implementing processes required to ensure that the



229

Bank is compliant with the Code of Best Practices on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka and the Direction on Corporate Governance issued by the CBSL. Details are given on Corporate Governance Report on pages 153 to 197 of this Annual Report.

As required by Section 3(8) (ii) (g) of the Banking Act Direction No. 11 of 2007 on Corporate Governance for Licensed Commercial Banks, issued by the CBSL,

of auditors issued under “Sri Lanka Related Services Practice Statement 4750” have been incorporated in the annual Corporate Governance Report on pages 179 to 197 of this Annual Report.

46. AUDITORS

The Auditors of the Bank during the year were Messrs Ernst & Young, Chartered Accountants. They also function as the Auditors for the Bank’s Subsidiary companies namely, Sampath Centre Ltd, SC Securities (Pvt) Ltd, Siyapatha Finance PLC and Sampath Information Technology

Solutions Ltd. Audit fees paid to Messrs Ernst & Young for the year ended 31st December 2016 by the Group and the Bank amounted to Rs 15,152,000/- (2015: Rs 14,798,000/-) and Rs 12,495,000/- (2015: Rs 11,299,000/-) respectively.

Further the Group and the Bank paid Rs 6,293,000/- (2015: Rs 5,379,000/-) and Rs 5,122,000/- (2015: Rs 4,997,000/-) respectively to Messrs Ernst & Young as Audit related fees and expenses. In addition, they were paid Rs 5,975,000/- (2015: Rs 8,113,000/-) and Rs 4,617,000/- (2015: Rs 4,969,000/-) by the Group and the Bank respectively for permitted non-audit related services including tax consultancy services. Details of the Audit fees paid are given on Note 14.1 to the Financial Statements.

Based on the declaration provided by Messrs Ernst & Young, and as far as the Directors are aware, the Auditors do not have any relationship with or interest with the Bank that in their judgments, may reasonably be thought to have a bearing on their independence within the meaning of the Code of Professional Conduct and Ethics issued by the Institute of Chartered Accountants of Sri Lanka, applicable on the date of this report.

The retiring Auditors, Messrs Ernst & Young, have expressed their willingness

election at the Annual General Meeting, with the recommendation of the Board Audit Committee and the Board of Directors. In accordance with the Companies Act, a resolution proposing the re-appointment of Messrs Ernst & Young, Chartered Accountants, as Auditors is being proposed at the Annual General Meeting.

47. NOTICE OF MEETING

The 31st Annual General Meeting of the

Kingsbury, No. 48, Janadhipathi Mawatha, Colombo 1 on 31st March 2017. The Notice of Meeting is given on page 418 of the Annual Report.

As required by Section 168 (1) (k) of the Companies Act the Board of Directors hereby acknowledge the contents of this report.

For and on behalf of the Board of Directors

CHANNA PALANSURIYA PROF MALIK RANASINGHE NANDA FERNANDO ANUJA GOONETILLEKEChairman Deputy Chairman Managing Director Company Secretary

Colombo, Sri Lanka13th February 2017


ANNUAL REPORT 2016

DIRECTORS’ INTEREST IN CONTRACTS WITH THE BANK

Related party disclosures as required by the Sri Lanka Accounting Standard - LKAS 24 (Related Party Disclosures) are detailed in Note 49 to the Financial Statements. In Addition, the Bank carries out transactions in the ordinary course of business in an arm’s length basis with entities where the Chairman or Director of the Bank is the Chairman or a Director of such entities as detailed below.

Company Relationship Nature of the Facility Current Limit Balance Outstanding

as at 31.12.2016

Balance Outstanding

as at 31.12.2015

Rs 000 Rs 000 Rs 000


Access Engineering PLC Independent Non- executiveDirector

Indirect Facilities 3,100,000 527,603 1,132,962 Investment in Debentures 303,707 303,707 Debentures issued by the Bank 100,000 100,000 Deposits 41,681 619,946

Resus Energy PLC Independent Non- executiveDirector

Loan & Receivables 100,000 - -

Deposits 4,495 -

United Motors Lanka PLC Independent Non- executive Director Deposits 177 -

Mr Ranil PathiranaCeylon Knit Trend (Pvt) Ltd Director Deposits 123 156 CKT Apparel (Pvt) Ltd Director Deposits 4 12 Esna Power (Pvt) Ltd Non- executive Director Deposits 4,940 5,005

Director Deposits 491 497 Director Deposits 9 17

Exports (Pvt) Ltd Director Deposits 1,790 73,281 Rosewood (Pvt) Ltd Director Deposits 2,725 396 Star Packaging (Pvt) Ltd Non- executive Director Loan & Receivables 102,521 55,785 105,247

Deposits 2,312 198 Windforce (Pvt) Ltd Non- executive Director Deposits 563 1,417

Odel PLC Non- executive Director Loan & Receivables 75,000 30,402 -Deposits 4,964 2,123

Non- executive Director Deposits 172 -

Mr Deepal SooriyaarachchiPan Asia Power PLC Independent Non- executive

DirectorLoan & Receivables 700,000 700,000 635,000 Deposits 2,536 25,483

Singer (Sri Lanka) PLC Independent Non- executive Director

Loan & Receivables 500,000 83,013 988,991 Investment in Debentures 754,621 758,672 Indirect Facilities 300,000 226,675 15,332

AIA Insurance Lanka PLC Independent Non- executive Director

Debentures issued by the Bank 1,246,720 1,246,720

Mr Channa PalansuriyaOrit Trading Lanka (Pvt) Limited Non- executive Director Loan & Receivables 1,050,000 645,693 *

Deposits 227,051 * Orit Apparel Lanka (Pvt) Limited Non- executive Director Deposits 247 *

Mr Nanda FernandoInstitute of Bankers of Sri Lanka Governing Board Director Deposits 1,659 -

Repo 16,664 -Lanka Financial Services Bureau Ltd Director Deposits 5,214 -

Investment in Shares 2,250 -

*Included under Note 49 to the Financial Statements, “Related Party Disclosures”.


231

DIRECTORS’ STATEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

RESPONSIBILITY

In line with the Banking Act Direction No. 11 of 2007, section 3 (8)(ii)(b), the Board of Directors presents this report on Internal Control Over Financial Reporting.

The Board of Directors (“the Board”) is responsible for the adequacy and

mechanism in place at Sampath Bank PLC, (“the Bank”). In considering such

recognises that the business of banking requires reward to be balanced with risk on a managed basis and as such the internal control systems are primarily designed with a view to highlighting any deviations from the limits and indicators which comprise the risk appetite of the Bank. In this light, the system of internal controls can only provide reasonable, but not absolute assurance,

losses or fraud.

The Board has established an ongoing process for identifying, evaluating and

Bank and this process includes enhancing the system of Internal Control Over Financial Reporting as and when there are changes to business environment or regulatory guidelines. The process is regularly reviewed by the Board and accords with the “Guidance for Directors of Banks on the Directors’ Statement on Internal Control” issued by the Institute of Chartered Accountants of Sri Lanka. The Board has assessed the Internal Control Over Financial Reporting taking into account principles for the assessment of internal control system as given in that guidance.

The Board is of the view that the system of Internal Controls Over Financial Reporting in place is sound and adequate to provide reasonable assurance regarding the

for external purposes is in accordance with relevant accounting principles and regulatory requirements.

The Management assists the Board in the implementation of the Board’s policies and procedures on risk and control by identifying and assessing the risks faced,

and in the design, operation and monitoring of suitable internal controls to mitigate and control these risks.

KEY FEATURES OF THE PROCESS ADOPTED IN APPLYING AND REVIEWING THE DESIGN AND EFFECTIVENESS OF THE INTERNAL CONTROL SYSTEM OVER FINANCIAL REPORTING

The key processes that have been established in reviewing the adequacy and integrity of the system of internal controls

the following: Various Committees are established

by the Board to assist the Board in

daily operations and that the Bank’s operations are in accordance with the corporate objectives, strategies and the annual budget as well as the policies and business directions that have been approved.

The Internal Audit Division of the Bank checks for compliance with policies and procedures and the

systems on an ongoing basis using samples and rotational procedures

in respect of any non-compliance. Audits are carried out on all units and branches, the frequency of which is determined by the level of risk assessed, to provide an independent and objective report. The annual audit plan is reviewed and approved by the Board Audit Committee. Findings of the Internal Audit Department are submitted to the Board Audit Committee for review at their periodic meetings.

The Board Audit Committee of the Bank reviews internal control

Audit Department, the External Auditors, regulatory authorities and the Management; and evaluates

the risk management and internal control systems. They also review the internal audit functions with particular emphasis on the scope of audits and quality of the same.

The minutes of the Board Audit Committee meetings are forwarded to the Board on a periodic basis. Further details of the activities undertaken by the Board Audit Committee of the Bank are set out in the Board Audit Committee Report on pages 198 to 201.

In assessing the internal control

collated all procedures and controls

accounts and disclosures of the

These in turn were observed and checked by the internal audit department for suitability of

ongoing basis. The Internal Audit

issues (if any) to the “Internal Control Over Financial Reporting Steering Committee” before submitting their

Financial Reporting to the Board Audit Committee & the External Auditors. The Bank adopted the new Sri Lanka Accounting Standards comprising LKAS and SLFRS in 2012. The processes and procedures initially applied to adopt the aforementioned Accounting Standards were further strengthened during the years 2013, 2014, 2015 and 2016 based on the feedback received from the external auditors, internal audit department, regulators and the Board Audit Committee. The Bank has documented procedures pertaining to these new requirements and updates the relevant procedure manuals as and when necessary. The Board has also recognised the need to introduce an automated

to comply with the requirements of recognition, measurement,

currently reviewing various options

reporting process. The assessment did not include subsidiary companies of the Bank.


ANNUAL REPORT 2016

DIRECTORS’ STATEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The comments made by the External Auditors in connection with internal control system over

years were reviewed during the year and appropriate steps have been taken to rectify them. The recommendations made by the External Auditors in 2016 in connection with the internal control

be dealt with in the future.

CONFIRMATION

Based on the above processes, the Board

of the Bank has been designed to provide a reasonable assurance regarding the

external purposes and has been done in accordance with Sri Lanka Accounting Standards and regulatory requirements of the Central Bank of Sri Lanka.

REVIEW OF THE STATEMENT BY EXTERNAL AUDITORS

The External Auditors, Messrs Ernst & Young, have reviewed the above Directors Statement on Internal Control over Financial Reporting included in the Annual Report of the Bank for the year ended 31st December 2016 and reported to the Board that nothing has come to their attention that causes them to believe that the statement is inconsistent with their understanding of

the process adopted by the Board in the

of the Bank. Their Report on the Statement of Internal Control over Financial Reporting is given on page 233 of this Annual Report.

By order of the Board,

RANIL PATHIRANA CHANNA PALANSURIYA SANJIVA SENANAYAKEChairman - Board Audit Committee Chairman Senior Director

NANDA FERNANDO ANUJA GOONETILLEKEManaging Director Company Secretary



233

the Board of Directors has adopted in the

the Bank.

Ernst & YoungChartered Accountants

13 February 2017Colombo

INDEPENDENT ASSURANCE REPORT TO THE BOARD OF DIRECTORS OF SAMPATH BANK PLC

INTRODUCTION

We were engaged by the Board of Directors of Sampath Bank PLC (the “Bank”) to provide assurance on the Directors’ Statement on Internal Control over Financial Reporting (the “Statement”) included in the annual report for the year ended 31 December 2016.

MANAGEMENT’S RESPONSIBILITY

Management is responsible for the preparation and presentation of the Statement in accordance with the “Guidance for Directors of Banks on the Directors’ Statement on Internal Control” issued in compliance with section 3(8)(ii)(b) of the Banking Act Direction No. 11 of 2007, by the Institute of Chartered Accountants of Sri Lanka.

OUR RESPONSIBILITIES AND COMPLIANCE WITH SLSAE 3050

Our responsibility is to issue a report to the Board on the Statement based on the work performed. We conducted our engagement in accordance with Sri Lanka Standard on Assurance Engagements SLSAE 3050 – Assurance Report for Banks on Directors’ Statement on Internal Control issued by the Institute of Chartered Accountants of Sri Lanka.

SUMMARY OF WORK PERFORMED

We conducted our engagement to assess whether the Statement is supported by the documentation prepared by or for Directors;

the Directors have adopted in reviewing

reporting of the Bank.

The procedures performed were limited primarily to inquiries of Bank personnel and the existence of documentation on a sample basis that supported the process adopted by the Board of Directors.

SLSAE 3050 does not require us to consider whether the Statement covers all risks and controls or to form an opinion

control procedures. SLSAE 3050 also does not require us to consider whether the processes described to deal with material

problems disclosed in the annual report will, in fact, remedy the problems.

OUR CONCLUSION

Based on the procedures performed, nothing has come to our attention that causes us to believe that the Statement included in the annual report is inconsistent with our understanding of the process


ANNUAL REPORT 2016

MANAGING DIRECTOR’S AND CHIEF FINANCIAL OFFICER’S RESPONSIBILITY STATEMENT

The Financial Statements of Sampath Bank PLC (“the Bank”) and the Consolidated Financial Statements of the Bank and its Subsidiaries (“the Group”) as at 31st December 2016 are prepared in compliance with the requirements of the following:

Sri Lanka Accounting Standards issued by the Institute of Chartered Accountants of Sri Lanka;

Companies Act No. 7 of 2007 (Companies Act);

Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995;

Banking Act No. 30 of 1988 and amendments thereto;

The Listing Rules of the Colombo Stock Exchange;

The Code of Best Practice on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka, the Securities and Exchange Commission of Sri Lanka; and Section 3(8)(ii)(g) of the Banking Act Direction No. 11 of 2007 on Corporate Governance issued by the Central Bank of Sri Lanka.

The formats used in the preparation of the Financial Statements and disclosures made comply with the formats prescribed by the Central Bank of Sri Lanka, which is also in compliance with the disclosure requirements of the Sri Lanka Accounting Standard - LKAS 1 (Presentation of Financial Statements).

The Accounting Policies used in the preparation of the Financial Statements are appropriate and are consistently

accounting policies and estimates that involve a high degree of judgment and complexity were discussed with the Board Audit Committee and External Auditors. Comparative information has been restated wherever necessary to comply with the current presentation and material departures, if any, have been disclosed and explained in the note 55 to

to the best of our knowledge, the Financial Statements give a true and fair view of the

Group. We have reasonable grounds to believe that the Bank and its Subsidiaries have adequate resources to continue in operational existence for the foreseeable future. Accordingly, we continue to adopt the going concern basis in preparing the Financial Statements.

The estimates and judgments relating to the Financial Statements were made on a prudent and reasonable basis; in order that

and fair manner, the form and substance of transactions and that the Bank’s state of

this, the Bank and all of its Subsidiaries

installing a system of internal controls and procedures for safeguarding assets, preventing and detecting frauds and / or errors as well as other irregularities which are reviewed, evaluated and updated on an ongoing basis. Our Internal Auditors have conducted periodic audits to provide reasonable assurance that the established policies and procedures were consistently

limitations that should be recognised in weighing the assurances provided by any system of internal controls and accounting.

(ii)(b) of the Banking Act Direction No. 11 of 2007 on Corporate Governance (Internal Control Over Financial Reporting - ICOFR) issued by the Central Bank of Sri Lanka as of 31st December 2016 and that the Bank’s Internal Controls Over Financial

Annual Report of the Directors on pages

Internal Control Over Financial Reporting. In addition, Directors’ Statement on Internal Control Over Financial Reporting is provided on pages 231 & 232. The Bank’s External Auditors, Messrs Ernst & Young, have

Internal Controls Over Financial Reporting

page 233 of this Annual Report.

The Financial Statements of the Group were audited by Messrs Ernst & Young, Chartered Accountants, the independent External Auditors. Their report is given on page 237 of this Annual Report.

The Board Audit Committee of the Bank meets periodically with the Internal Auditors and the independent External Auditors to review the manner in which these auditors are performing their responsibilities and to discuss issues relating to auditing, internal

To ensure complete independence, the External Auditors and the Internal Auditors have full and free access to the members of the Board Audit Committee to discuss any matter of substance. The Board Audit Committee report is given on pages 198 to 201.

The Board Audit Committee approves the audit and non-audit services provided by Messrs Ernst & Young, in order to ensure that the provision of such services does not impair Messrs Ernst & Young’s independence.

knowledge: The Group has complied with all

applicable laws, regulations and prudential requirements;

There are no material non compliances; and

There are no material litigations that are pending against the Group other than those disclosed in Note 48.2 to the Financial Statements in the Annual Report.

NANDA FERNANDOManaging Director

AJANTHA DE VAS GUNASEKARA

Colombo, Sri Lanka 13th February 2017


235

STATEMENT OF DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING

The responsibilities of the Directors in relation to the Financial Statements of Sampath Bank PLC (“the Bank”) and the Consolidated Financial Statements of the Bank and its Subsidiaries (“the Group”) are set out in the following Statement. The responsibility of the Auditors in relation to the Financial Statements is set out in the Report of the Auditors given on page 237.

As per the provisions of the Companies Act No. 7 of 2007 (Companies Act), the Directors of the Bank are responsible for ensuring that the Bank and the Group keep proper books of account of all the transactions and they are required to prepare Financial Statements that give a

of the Bank and the Group as at end of

general meeting. The Financial Statements comprise of the Statement of Financial

Comprehensive Income, Statement of Cash Flows, Statement of Changes in Equity for

The Financial Statements are prepared under the supervision of the Chief Financial

that the Financial Statements of the Bank and the Group give a true and fair view of:

the Group as at 31st December 2016: and

year ended 31st December 2016

The Financial Statements of the Bank and

for their preparation, as required by the Companies Act. The accounts have been circulated and reviewed by the Board Audit Committee and Board of Directors. Further, the Financial Statements of the Bank and the Group have been signed by three Directors and the Company Secretary in conformity with the requirements of the Companies Act.

In preparing these Financial Statements, the Directors are required to ensure that:

The appropriate accounting policies have been selected and applied in a consistent manner and material departures, if any, have been disclosed and explained;

The Financial Statements are presented in accordance with Sri Lanka Accounting Standards (SLFRS/LKAS) and are consistent with the underlying books of account;

Reasonable and prudent judgments and estimates have been made so that the form and substance of

The Financial Statements provide the information required by the Companies Act, Banking Act No. 30 of 1988 (Banking Act) and the Listing Rules of the Colombo Stock Exchange.

The companies within the Group

position of the Group with reasonable accuracy.

The Directors are also required to ensure that the Bank and the Group have adequate resources to continue in operation and to justify applying the going concern basis in preparing these Financial Statements.

Financial Statements for the year 2016, prepared and presented in this Annual Report are consistent with the underlying books of account and are in conformity with the requirements of Sri Lanka Accounting Standards, Companies Act, Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, Banking Act and amendments thereto, the continuing Listing Rules of the Colombo Stock Exchange (CSE) and the Code of Best Practice on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka (ICASL) & the Securities and Exchange Commission of Sri Lanka (SEC). Further these Financial Statements comply with the prescribed format issued by the Central Bank of Sri Lanka (CBSL) for the preparation of annual Financial Statements of licensed commercial banks. The Directors accept

responsibility for the integrity and objectivity of the Financial Statements published in this

preparing the Financial Statements given on pages 238 to 376, appropriate accounting policies have been selected and applied

framework on a consistent basis, while reasonable and prudent judgments have been made so that the form and substance

The Directors have taken appropriate steps to ensure that the Bank and the Group maintain proper books of account and

by them at their regular meetings and also through the Board Audit Committee. The Report of the Board Audit Committee is given on pages 198 to 201. The Board of Directors also approves the Interim Financial Statements prior to their release, following a review and recommendation by the Board Audit Committee.

The Directors have taken all reasonable steps open to them to safeguard the assets of the Bank and the Group and to prevent and detect frauds and any other irregularities. For this purpose the Directors

systems of internal controls for identifying, recording, evaluating and managing

throughout the year and it is being under regular review of the Board of Directors. This comprises internal reviews, internal

and other controls required to carry on the operations in an orderly manner, safeguard the assets, prevent and detect frauds and other irregularities and secure as far as practicable the accuracy and reliability of the records.

Based on their assessment of Internal Control Over Financial Reporting (ICOFR), in compliance with section 3(8)(ii)(b) of the Banking Act Direction No. 11 of 2007 on Corporate Governance, the Directors have concluded that, as of 31st December 2016, the Group’s internal controls over

Directors’ Statement on Internal Control Over Financial Reporting and Annual Report


ANNUAL REPORT 2016

STATEMENT OF DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING

the Company are provided on pages 231 & 232 and pages 221 to 230 respectively of this Annual Report. The External Auditors’ Independent Assurance Report on the “Directors’ Statement on Internal Control Over Financial Reporting” is given on page 233 of this Annual Report.

As required by section 56(2) of the Companies Act, the Directors have made an assessment of the Solvency of the Bank, immediately after the proposed interim and

Section 57 of Companies Act. The Directors

Solvency from the External Auditors of the Bank, Messrs Ernst & Young.

Messrs Ernst & Young, Chartered Accountants, the External Auditors of the Bank were provided with every opportunity to undertake the inspections they considered appropriate. They have examined the Financial Statements made available to them by the Directors

data, minutes of the Shareholders’ meetings, Directors’ meetings, Board Audit Committee meetings and other Board Sub Committee meetings and expressed their opinion as reported by them in the Annual Report on page 237.

COMPLIANCE REPORT

their knowledge, all taxes, duties and levies payable by the Bank and its Subsidiaries, all contributions, levies and taxes payable on behalf of and in respect of the employees of the Bank and its Subsidiaries and all other known statutory dues as were due and payable by the Bank and its Subsidiaries as at reporting date have been paid or, where

in Note 48 to the Financial Statements covering contingent liabilities. The Directors

the accounting controls are adequate

and nothing has come to their attention to indicate that any breakdown in the functioning of these controls, resulting in material loss to the Bank. The Directors also

resources to continue in operational existence and as a going concern for the foreseeable future.

The Directors are of the view that they have discharged their responsibilities as set out in the above statement.

By order of the Board,

ANUJA GOONETILLEKECompany Secretary



237

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS As required by Section 163(2) of the Companies Act No. 7 of 2007, we state the following: a) The basis of opinion, scope and

limitations of the audit are as stated above.

b) In our opinion : we have obtained all the information

and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Bank,

Bank give a true and fair view

year then ended in accordance with Sri Lanka Accounting Standards, and

and the Group, comply with the requirements of Section 151 and 153 of the Companies Act No. 7 of 2007.



INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF SAMPATH BANK PLC

REPORT ON THE FINANCIAL STATEMENTS

We have audited the accompanying

PLC, (the “Bank”), and the consolidated

subsidiaries (the “Group”), which comprise

31 December 2016, and the statement of

income, statement of changes in equity

accounting policies and other explanatory information set out on pages 238 to 376.

BOARD’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The Board of Directors (the “Board”) is responsible for the preparation of these

fair view in accordance with Sri Lanka Accounting Standards, and for such internal controls as Board determines is necessary

statements that are free from material misstatement, whether due to fraud or error.

AUDITORS’ RESPONSIBILITY

Our responsibility is to express an opinion

on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain

reasonable assurance about whether the

misstatement.

An audit involves performing procedures to obtain audit evidence about the

statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of

statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant

statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion

control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board, as well as evaluating the overall presentation of the

We believe that the audit evidence we have

provide a basis for our audit opinion.

OPINION

statements give a true and fair view of

then ended in accordance with Sri Lanka Accounting Standards.


ANNUAL REPORT 2016

STATEMENT OF PROFIT OR LOSS

Note Bank Group

For the year ended 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Gross income 6 67,584,689 47,031,516 70,445,341 49,101,837

Interest income 56,529,281 37,943,691 58,976,384 39,706,286Less: Interest expense 33,775,753 20,541,894 35,021,019 21,155,900Net interest income 7 22,753,528 17,401,797 23,955,365 18,550,386

Fee & commission income 8,049,148 6,487,873 8,202,842 6,620,894Less: Fee & commission expense 1,464,601 1,201,320 1,467,464 1,203,683Net fee & commission income 8 6,584,547 5,286,553 6,735,378 5,417,211

Net trading gain / (loss) 9 233,850 (341,316) 233,850 (341,316)10 129,306 98,468 129,371 98,528

Other operating income 11 2,643,104 2,842,800 2,902,894 3,017,445

Total operating income 32,344,335 25,288,302 33,956,858 26,742,254

Less: Net impairment charge for loans & other losses 12 1,459,825 943,569 1,535,014 992,844Net operating income 30,884,510 24,344,733 32,421,844 25,749,410

Less: Operating expensesPersonnel expenses 13 7,332,627 6,141,259 7,834,670 6,524,403Other operating expenses 14 8,138,002 7,198,177 8,431,122 7,437,635Total operating expenses 15,470,629 13,339,436 16,265,792 13,962,038

15,413,881 11,005,297 16,156,052 11,787,372

15 2,814,023 1,904,424 2,942,523 1,997,72912,599,858 9,100,873 13,213,529 9,789,643

Less: Income tax expense 16 3,475,188 2,966,932 3,712,283 3,161,4539,124,670 6,133,941 9,501,246 6,628,190

Attributable to:Equity holders of the Bank 9,124,670 6,133,941 9,496,073 6,623,346Non - controlling interest 5,173 4,844

9,124,670 6,133,941 9,501,246 6,628,190

Earnings per share : Basic / Diluted (Rs) 17 51.56 34.66 53.66 37.42

Dividend per share 18

Dividend per share: Gross (Rs) 18.75* 13.00 Dividend per share: Net (Rs) 16.90* 11.75

28th February 2017) and the Annual General Meeting (to be held on 31st March 2017) respectively.

The Notes to the Financial Statements from pages 246 to 376 form an integral part of these Financial Statements.


239

STATEMENT OF COMPREHENSIVE INCOME

Bank Group


Rs 000 Rs 000 Rs 000 Rs 000

9,124,670 6,133,941 9,501,246 6,628,190

Other comprehensive income

382,982 (423,771) 382,982 (423,771)

(3,376) - (3,376) -

15,990 32,061 15,990 32,061

395,596 (391,710) 395,596 (391,710)

564,648 115,940 565,971 115,215

(158,102) (32,463) (158,460) (32,027)

406,546 83,477 407,511 83,188

Surplus from revaluation of property, plant & equipment 602,205 - 1,500,782 -

(44,223) - (44,223) -

557,982 - 1,456,559 -

964,528 83,477 1,864,070 83,188

Other comprehensive income net of tax 1,360,124 (308,233) 2,259,666 (308,522)

Total comprehensive income for the year net of tax 10,484,794 5,825,708 11,760,912 6,319,668

Attributable to:

Equity holders of the Bank 10,484,794 5,825,708 11,730,064 6,314,800

Non - controlling interest - - 30,848 4,868

10,484,794 5,825,708 11,760,912 6,319,668 The Notes to the Financial Statements from pages 246 to 376 form an integral part of these Financial Statements.


ANNUAL REPORT 2016

STATEMENT OF FINANCIAL POSITION

Note Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

ASSETS

Cash & cash equivalents 20 17,064,013 13,588,075 17,221,809 13,713,456

Balances with Central Bank of Sri Lanka 21 33,724,856 21,341,882 33,724,856 21,341,882

Placements with banks 22 8,749,763 5,193,369 8,749,763 5,193,369

Reverse repurchase agreements 33,860,083 - 34,629,422 -

23 109,872 319,461 109,872 319,461

Financial assets - held for trading 24 28,109,193 1,889,058 28,117,789 1,898,074

Financial assets - held for trading pledged as collaterals 25 10,380,213 2,702,785 10,371,617 2,693,769

Loans to & receivables from banks 26 2,641,733 1,651,205 2,641,733 1,651,205

Loans to & receivables from other customers 27 456,189,052 375,696,530 472,754,947 386,277,744

Other loans & receivables 28 38,708,440 33,368,274 38,708,440 33,368,274

Financial assets - available for sale 29 14,270,190 51,250,411 14,329,468 51,941,479

Financial assets - available for sale pledged as collaterals 30 657,903 7,210,585 598,681 6,519,573

Financial assets - held to maturity 31 - - 16,933 63,121

Investment in subsidiaries 32 1,227,896 1,079,921 - -

Property, plant & equipment 33 5,971,517 5,313,491 10,709,207 8,696,577

Intangible assets 34 337,348 342,193 356,131 368,369

Current tax receivables 40 - - 10,365 2,249

Deferred tax assets 35 - - 857 23,368

Other assets 36 6,510,214 4,329,933 7,046,611 4,575,482

Total Assets 658,512,286 525,277,173 680,098,501 538,647,452

LIABILITIES

Due to banks 37 6,023,932 3,418,499 6,071,196 3,418,499

23 63,611 457,058 63,611 457,058

Securities sold under repurchase agreements 10,159,225 9,316,122 10,095,117 8,662,930

Due to other customers 38 510,566,655 406,323,019 513,433,826 407,163,665

Debt issued & other borrowed funds 39 72,128,237 57,016,284 84,179,232 65,170,977

Dividend payable 84,860 90,969 84,860 90,969

Current tax liabilities 40 4,316,297 4,939,539 4,386,251 5,021,362

Deferred tax liabilities 35 872,794 313,181 1,077,674 433,175

Other liabilities 41 9,059,401 7,216,643 10,182,582 7,932,992

Other provisions 42 748,440 1,060,785 782,075 1,092,626

Total Liabilities 614,023,452 490,152,099 630,356,424 499,444,253


241

Note Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

EQUITY

Stated capital 43 6,471,200 5,381,405 6,471,200 5,381,405

Reserves

Statutory reserve 44 2,250,000 1,790,000 2,336,422 1,860,058

Other reserves 45 31,370,185 24,887,372 34,619,026 27,242,985

Retained earnings 46 4,397,449 3,066,297 6,315,429 4,624,088

Total equity attributable to equity holders of the Bank 44,488,834 35,125,074 49,742,077 39,108,536

Non - controlling interest 47 - 94,663

Total Equity 44,488,834 35,125,074 49,742,077 39,203,199

Total Liabilities & Equity 658,512,286 525,277,173 680,098,501 538,647,452

Commitments & contingencies 48 343,980,307 313,112,257 345,115,627 312,277,002

Net asset value per share (Rs) 251.38 198.47 281.06 220.98

The Notes to the Financial Statements from pages 246 to 376 form an integral part of these Financial Statements. I certify that these Financial Statements are presented in compliance with the requirements of the Companies Act No. 07 of 2007. AJANTHA DE VAS GUNASEKARA

The Board of Directors is responsible for the preparation & presentation of these Financial Statements. Approved and signed for and on behalf of the Board,

CHANNA PALANSURIYA NANDA FERNANDO RANJITH SAMARANAYAKE ANUJA GOONETILLEKEChairman Managing Director Group Finance Director Company Secretary Colombo, Sri Lanka 13th February 2017


ANNUAL REPORT 2016

STATEMENT OF CASH FLOWS

Note Bank GroupFor the year ended 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Interest receipts 54,848,251 37,700,779 57,238,318 39,476,071Net commission receipts 6,674,692 5,393,014 6,825,523 5,523,670Interest payments (28,423,817) (18,487,346) (29,473,406) (19,054,339)Receipts from other operating activities 2,560,571 2,796,738 2,902,596 3,030,137Cash payments to employees (6,042,617) (5,193,685) (6,535,276) (5,569,494)Cash payments to other operating activities (7,360,131) (6,274,449) (7,286,587) (6,344,200)

(2,458,537) (1,818,804) (2,576,492) (1,912,109)

liabilities (Note a) 19,798,412 14,116,247 21,094,676 15,149,736

Increase in operating assetsBalances with Central Bank of Sri Lanka (12,382,974) (3,734,631) (12,382,974) (3,734,631)Loans to & receivables from banks (988,151) (716,229) (988,151) (716,229)Loans to & receivables from other customers (80,775,123) (75,306,945) (86,797,280) (77,815,363)Other assets (1,979,038) (1,044,839) (2,241,175) (991,178)

(96,125,286) (80,802,644) (102,409,580) (83,257,401)

Increase / (decrease) in operating liabilitiesDue to banks 2,573,796 1,111,503 2,573,796 1,111,503 Re-purchase agreements 843,683 (3,697,910) 1,432,767 (3,850,060)Due to other customers 99,745,295 64,698,283 101,696,500 65,802,936 Other liabilities 386,357 1,170,695 646,217 1,541,506

103,549,131 63,282,571 106,349,280 64,605,885

Net cash generated from / (used in) operating activities before income tax 27,222,257 (3,403,826) 25,034,376 (3,501,780)Income tax & super gain tax paid (3,741,142) (1,136,662) (3,891,183) (1,434,121)Net cash generated from / (used in) operating activities 23,481,115 (4,540,488) 21,143,193 (4,935,901)

Net investments in placements with banks (Maturity more than three months) (976,185) - (976,185) -

(33,837,000) 31,045,000 (34,599,901) 31,045,000(33,849,866) 25,545,069 (33,849,865) 25,545,008

- 971,817 46,189 912,895(5,066,087) (8,965,690) (5,066,087) (8,965,690)

43,902,279 (57,026,686) 43,902,279 (57,026,687)61,919 56,413 61,984 56,473

Dividend received from subsidiaries 30,600 58,950 - -Investment in subsidiary 47 (100,000) (20,000) (100,000) -Purchase of property, plant & equipment 33 (657,344) (815,127) (1,361,503) (1,113,213)Purchase of intangible assets 34 (105,164) (69,247) (108,011) (77,376)Proceeds from disposal of property plant & equipment 4,258 14,322 6,640 14,747 Net cash used in investing activities (30,592,590) (9,205,179) (32,044,460) (9,608,843)

Dividend paid to non - controlling interest 47 - - (1,000) (1,000)Decrease in commercial papers - - (206) (648,116)Increase in debentures 39.1 6,000,000 7,000,000 8,500,000 6,732,670Increase in other borrowed funds 8,328,324 13,294,302 9,604,473 15,068,622Dividend paid (1,150,269) (935,758) (1,150,269) (935,758)

13,178,055 19,358,544 16,952,998 20,216,418

Net cash generated / (used) during the year 6,066,580 5,612,877 6,051,731 5,671,674Cash & cash equivalents at the beginning of the year 18,450,837 12,837,960 18,576,218 12,904,544Cash & cash equivalents at the end of the year (Note b) 24,517,417 18,450,837 24,627,949 18,576,218 The Notes to the Financial Statements from pages 246 to 376 form an integral part of these Financial Statements.


243

NOTE (a) - RECONCILIATION OF OPERATING PROFIT BEFORE CHANGES IN OPERATING ASSETS AND LIABILITIES

Note Bank GroupFor the year ended 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

12,599,858 9,100,873 13,213,529 9,789,643 Interest income accrued on impaired loans & receivables 7.1 (261,567) (212,711) (261,580) (212,873)Net trading gain / (loss) 9 Forward exchange contract revaluation (gain) / loss (183,858) 262,642 (183,858) 262,642 Capital gain (16,942) (76,249) (16,942) (76,249) Dividend income (2,295) (15,505) (2,295) (15,505) Net mark to market (gain) / loss (30,755) 170,428 (30,755) 170,428

10 (125,052) (81,049) (125,117) (81,109)

(3,376) (17,419) (3,376) (17,419) Capital gain - other loans & receivables (878) - (878) - Other operating income 11 Dividend income from Subsidiaries (82,575) (58,950) - -

42 (4,531) (298) (4,787)Net impairment charge for loans & other losses 12 1,459,825 943,569 1,535,014 992,844 Other operating expenses 14 Depreciation of property, plant & equipment 599,081 604,945 845,172 766,527 Amortisation of intangible assets 110,009 95,216 120,249 103,339 Accrual for interest and commission income (1,329,318) 76,258 (1,386,341) 89,117 Accrual for interest expense 5,351,936 2,054,548 5,547,613 2,101,622 Accrual and non - cash expenses for personnel and other expenses 1,714,277 1,274,182 1,844,539 1,281,516

liabilities 19,798,412 14,116,247 21,094,676 15,149,736

NOTE (b) - RECONCILIATION OF CASH AND CASH EQUIVALENTS

Note Bank GroupAs at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Local currency in hand 20 6,822,773 7,499,502 6,971,898 7,582,388 Foreign currency in hand 20 594,551 1,454,651 594,551 1,454,651 Balances with local banks 20 458,375 61,267 467,046 103,762 Balances with foreign banks 20 2,709,271 1,642,172 2,709,271 1,642,172 Money at call & short notice 20 6,479,043 2,930,483 6,479,043 2,930,483 Placements less than three months 22 7,770,904 5,193,369 7,770,904 5,193,369 Unfavourable balances with local & foreign banks 37 (317,500) (330,607) (364,764) (330,607)Cash & cash equivalents at the end of the year 24,517,417 18,450,837 24,627,949 18,576,218

The Notes to the Financial Statements from pages 246 to 376 form an integral part of these Financial Statements.


ANNUAL REPORT 2016B

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Fin

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STATEMENT OF CHANGES IN EQUITY


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The

Not

es to

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Fina

ncia

l Sta

tem

ents

from

pag

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46 to

376

form

an

inte

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par

t of t

hese

Fin

anci

al S

tate

men

ts.


ANNUAL REPORT 2016

NOTES TO THE FINANCIAL STATEMENTS

1 REPORTING ENTITY

1.1 GeneralSampath Bank PLC (‘The Bank’), is a domiciled, public limited liability company incorporated in Sri Lanka on 10th March 1986 under the Companies Act No. 17 of 1982. It is a Licensed Commercial Bank registered under the Banking Act No. 30 of 1988 (Banking Act) and amendments thereto. The Bank was re-registered with the Registrar General of Companies as per the requirements of the Companies Act No. 7 of 2007 (Companies Act) on 28th April 2008 under the name of Sampath Bank

is located at No. 110, Sir James Peiris Mawatha, Colombo 02. The shares of the Bank have a primary listing on the Colombo

Bank as at 31st December 2016 was 3,960 (2015: 3,993).

1.2 Consolidated Financial Statements

The Consolidated Financial Statements of the Bank as at and for the year ended 31st December 2016 comprise the Bank (Parent Company) and its Subsidiaries (together referred to as the “Group” and individually as “Group entities”). The Subsidiaries of the Bank as at 31st December 2016 were Sampath Centre Ltd, S C Securities (Pvt) Ltd, Siyapatha Finance PLC and Sampath Information Technology Solutions Ltd.

Sampath Bank PLC is the ultimate parent of the Group.

The Financial Statements of all companies

which ends on 31st December.

1.3 Principal Activities and Nature of Operations

1.3.1 BankThe Bank provides a comprehensive

accepting deposits, corporate and retail

treasury and investment services, issuing

banking, resident and non-resident foreign currency operations, electronic banking services such as: telephone banking, internet banking, mobile banking and money remittance facilities, pawning, leasing, factoring, hire purchase, travel related services and dealing in government securities etc.

1.3.2 SubsidiariesOwnership of Subsidiaries as of 31st December 2016 and 31st December 2015 is given in Note 32 to the Financial

changes in the nature of the principal

year under review.

2 BASIS OF PREPARATION

2.1 Statement of Compliance The Consolidated Financial Statements of the Group and the Separate Financial Statements of the Bank, which comprise the Statement of Financial Position,

of Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flows and Notes to the Financial Statements have been prepared and presented in accordance with Sri Lanka Accounting Standards (SLFRSs and LKASs) laid down by the Institute of Chartered Accountants of Sri Lanka and in compliance with the requirements of the Companies Act No. 7 of 2007. The presentation of the Financial Statements is also in compliance with the requirements of the Banking Act No. 30 of 1988 and amendments thereto.

2.2 Responsibility for Financial Statements

The Board of Directors is responsible for the preparation and presentation of Financial Statements of the Group and the Bank as per Sri Lanka Accounting Standards and the provisions of the Companies Act No. 7 of 2007.

2.3 Approval of Financial Statements by Directors

The Financial Statements of the Group as at and for the year ended 31st December 2016 were authorized for issue by the Board of Directors in accordance with the resolution of the Directors on 13th February 2017.

2.4 Basis of MeasurementThe Financial Statements of the Group have been prepared on the historical cost basis, except for the following material items in the Statement of Financial Position:

measured at fair value (Note 23) Available for sale investments are

measured at fair value (Note 29 & Note 30)

measured at fair value (Note 24 & Note 25)

Land and buildings which are measured at cost at the time of acquisition subsequently measured at revalued amounts, which are the fair values at the date of revaluation (Note 33)

obligations are recognised at the

obligation less the fair value of the plan assets (Note 42)

2.5 Functional and Presentation Currency

The Financial Statements of the Group are presented in Sri Lankan Rupees (Rs), which is the currency of the primary economic environment in which Sampath Bank PLC operates. Financial information presented in Sri Lankan Rupees has been rounded to the nearest thousand unless indicated otherwise. There was no change in the Group’s presentation and functional currency during the year under review.

2.6 Presentation of Financial Statements

The assets and liabilities of the Group presented in the Statement of Financial Position are grouped by nature and listed in

and maturity pattern. No adjustments have

the Financial Statements. An analysis on recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non-current) is presented in the Note 54.

2.7 Materiality and AggregationIn compliance with Sri Lanka Accounting Standard - LKAS 01 (Presentation of Financial Statements), each material class of similar items is presented separately in the Financial Statements. Items of dissimilar nature or functions too are presented separately unless they are immaterial.

the Statement of Financial Position only when there is a legally enforceable right to

is an intention to settle on a net basis, or to realise the assets and settle the liability simultaneously. Income and expenses


247

Loss unless required or permitted by an Accounting Standard.

2.8 Comparative Information

wherever necessary to conform to the current year’s presentation the details of which are given in Note 55 to the Financial Statements.

2.9 Statement of Cash Flow

prepared by using the direct method in accordance with the Sri Lanka Accounting Standard - LKAS 7 (Statement of Cash Flows), whereby gross cash receipts and gross cash payments of operating

activities have been recognised. Cash and cash equivalents comprise short term, highly liquid investments that are readily convertible to known amounts of cash

changes in value.

Cash and cash equivalents include cash in hand, balances with banks, placements with banks (less than 3 months), money at call and short notice net of unfavourable local & foreign bank balances.

Judgments, Estimates and Assumptions

The preparation of Financial Statements of the Group in conformity with Sri Lanka Accounting Standards requires the management to make judgments, estimates

of accounting policies and the reported amounts of assets, liabilities, income and

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

uncertainty and critical judgments in applying accounting policies that have

recognised in the Financial Statements of the Group are as follows:

2.10.1 Going ConcernThe Directors have made an assessment of the Group’s ability to continue as a going

resources to continue in business for the foreseeable future. Furthermore, Board is not aware of any material uncertainties

Group’s ability to continue as a going concern and they do not intend either to liquidate or to cease operations of the Group. Therefore, the Financial Statements continue to be prepared on the going concern basis.

2.10.2 Impairment Losses on Loans and Advances

loans and advances at each reporting date to assess whether an impairment loss should be recorded in the Statement of

judgment is required in the estimation of

when determining the impairment loss.

These estimates are based on assumptions about a number of factors and actual

changes to the impairment allowance made.

Loans and advances that have been assessed individually and found to be not

loans and advances are then assessed collectively, by categorising them into groups of assets with similar risk characteristics, to determine whether a provision should be made due to incurred loss events for which there is

which are not yet evident. The collective assessment takes account of data from the loan portfolio such as credit quality, portfolio size, concentration etc. as well as judgments based on current economic conditions. Impairment of loans and advances is discussed in detail under Note 3.3.8 to the Financial Statements.

2.10.3 Impairment of Available for Sale Investments

The Group reviews its debt securities

reporting date to assess whether they are impaired. Objective evidence that an available for sale debt security is impaired

contract such as a default or delinquency in interest or principal payments etc. The Group also records impairment charges on available for sale equity investments

decline in fair value below their cost. The

‘prolonged’ requires judgment. The Group

more and ‘prolonged’ as greater than six months. In addition, the Group evaluates, among other factors, historical share price movements, duration and extent up to which the fair value of an investment is less than its cost.

2.10.4 Fair Value of Financial Instruments

on the Statement of Financial Position for which there is no observable market price are determined using a variety of valuation techniques that include the use of mathematical models. The valuation of

detail in Note 52.

The Group measures fair value using the fair

of input used in making measurements. The fair value hierarchy is given in Note 52.4.

2.10.5 Financial Assets and Liabilities

The Group’s accounting policies provide scope for assets and liabilities to be

19, ‘Analysis of Financial Instruments by Measurement Basis’.

2.10.6 TaxationThe Group is subject to income tax and judgment is required to determine the total provision for current, deferred and other taxes due to the uncertainties that exist with respect to the interpretation of the applicable tax laws, at the time of preparation of these Financial Statements.

the present value of their obligations are determined using actuarial valuations.


ANNUAL REPORT 2016

The actuarial valuation involves making assumptions about discount rates, future salary increases, mortality rates and possible future pension increases if any. Due to the long term nature of these plans,

uncertainty. All assumptions are reviewed at each reporting date.

In determining the appropriate discount rate, management considers the interest rates of Sri Lanka government bonds with maturities corresponding to the expected

The mortality rate is based on publicly available mortality tables. Future salary increases and pension increases are

expected future salary increase rates of the Group.

2.10.8 Fair Value of Property, Plant and Equipment

The freehold land and buildings of the

date of revaluation less any accumulated depreciation and impairment losses. The Group engages independent valuation specialists to determine fair value of freehold lands and buildings in terms of the Sri Lanka Accounting Standard -SLFRS 13, (Fair Value Measurement). The details of freehold land and buildings including methods of valuation are given in Note 33.3 to the Financial Statements.

2.10.9 Useful Life-time of the Property, Plant and Equipment

The Group reviews the residual values, useful lives and methods of depreciation of property, plant and equipment at each reporting date. Judgment of the management is exercised in the estimation of these values, rates, methods and hence they are subject to uncertainty.

2.10.10 Commitments and Contingencies

All discernible risks are accounted for in determining the amount of all known liabilities. Contingent liabilities are possible obligations whose existence will be

or present obligations where the transfer of

be reliably measured. Contingent liabilities are not recognised in the Statement of Financial Position but are disclosed unless they are remote. Details of commitments and contingencies are given in Note 48.

PropertiesManagement requires using its judgment

as an investment property. The Group has developed criteria so it can exercise its judgment consistently. A property that is held to earn rentals or for capital appreciation or both and which generates

the other assets held by the Group are accounted for as investment properties. On the other hand, a property that is used for operations or in the process of providing services or for administrative purposes and which do not directly generate cash

for as property, plant and equipment. The Group assesses on an annual basis the

taking into consideration the current use of such properties. Currently the Group does not have any investment property.

3 GENERAL ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented in these Financial Statements, unless otherwise indicated.

3.1 Basis of ConsolidationThe Group’s Financial Statements comprise consolidation of the Financial Statements of the Bank and its Subsidiaries in terms of the Sri Lanka Accounting Standard - SLFRS 10 (Consolidated Financial Statements). The Bank’s Financial Statements comprise the amalgamation of the Financial Statements of the Domestic Banking Unit and the

3.1.1 Business Combinations and Goodwill

Business combinations are accounted for using the acquisition method as per the requirements of Sri Lanka Accounting Standard - SLFRS 03 (Business Combinations).

The Group measures goodwill as the fair value of the consideration transferred including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair

and liabilities assumed, all measured as of the acquisition date. When the excess

is negative, a bargain purchase gain is

controlling power is acquired.

The changes in Parent’s ownership interest in a Subsidiary that do not result in the Parent losing control of the Subsidiary are equity transactions

The Group elects on a transaction-by- transaction basis whether to measure non-controlling interest at its fair value, or at its proportionate share of the recognised

the acquisition date. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally

costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

3.2 Foreign Currency Transactions and Balances

All foreign currency transactions are translated into the functional currency, which is Sri Lankan Rupees, using the exchange rates prevailing at the dates of

Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to Sri Lanka Rupees using the spot foreign exchange rate ruling at

non-trading activities are taken to ‘Other operating income’ in the Statement of

between amortised cost in the functional currency at the beginning of the period,

during the period, and the amortised cost in foreign currency translated at the rates of exchange prevailing at the end of the reporting period.

Non - monetary items in a foreign currency that are measured in terms of historical cost are translated using the exchange rates as at the dates of the initial transactions. Non - monetary items in foreign currency measured at fair value are translated using the exchange rates at the date when the fair value was determined.

settlement or reporting of monetary items at



249

recorded are dealt with in the Statement of

designated as a hedge of a net investment in a foreign operation, or qualifying cash

comprehensive income.

Forward exchange contracts are valued at the forward market rates ruling on the reporting date. Resulting net unrealised gains or losses are dealt within the

trading gain / loss’.

3.3 Financial Instruments - Initial

and Subsequent Measurement

3.3.1 Date of Recognition

recognised on the trade date, i.e. the date that the Group becomes a party to the contractual provisions of the instrument. This includes ‘regular way trades’. Regular way trade means purchases or sales of

assets within the time frame generally established by regulation or convention in the market place.

3.3.2 Recognition and Initial Measurement of Financial Instruments

at the initial recognition depends on their purpose and characteristics and the management’s intention in acquiring

are given under Note 3.3.3 & Note 3.3.4

are measured initially at their fair value plus transaction costs that are directly attributable to acquisition or issue of such

Sri Lanka Accounting Standard - LKAS 39 (Financial Instruments: Recognition and Measurement). Transaction cost in relation

the fair value of other observable current

market transactions in the same instrument, or based on a valuation technique whose variables include only data from observable markets, the Group recognises the

interest rate method. In cases where fair value is determined using data which is

transaction price and model value is only

Loss when the inputs become observable, or when the instrument is derecognised.

Measurement of Financial Assets

a. Financial assets at fair value through

i. Financial assets held for trading

ii. Financial assets designated

loss

c. Loans and receivablesd. Financial assets available for sale

or loss.

trading if they are acquired principally for the purpose of selling or repurchasing in the near term or holds as a part of a portfolio that is managed together for

instruments entered into by the Group that are not designated as hedging instruments

Lanka Accounting Standard - LKAS 39 (Financial Instruments: Recognition and Measurement).

Financial assets held for trading are recorded in the Statement of Financial Position at fair value. Changes in fair value are recognised in ‘Net trading gain / loss’. Dividend income is recorded in ‘Net trading gain / loss’ when the right to receive the payment has been established. Interest

trading is recorded under ‘Interest income: Financial assets held for trading’ using the

The Group evaluates its held for trading asset portfolio, other than derivatives, to determine whether the intention to sell them in the near future is still appropriate. When the Group is unable to trade these

management’s intention to sell them in the

assets.

Financial assets held for trading include instruments such as government securities and equity instruments that have been acquired principally for the purpose of selling or repurchasing in the near term and derivatives, including separated embedded derivatives unless they are designated as

are given in Notes 24 & 25 to the Financial Statements.

following circumstances: Such designation eliminates or

or recognition inconsistency that would otherwise arise from measuring the assets

The assets are part of a group of

or both, which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy

The asset contains one or more embedded derivatives that

that would otherwise have been required under the contract


ANNUAL REPORT 2016

Financial assets designated at fair value

Statement of Financial Position at fair value. Changes in fair value are recorded

Interest earned is accrued under ‘Interest

method, while dividend income is recorded under ‘Other operating income’ when the right to receive the payment has been established.

The Group has not designated any

loss.

maturities, which the Group has the intention and ability to hold to maturity. After the initial recognition, held to maturity

measured at amortised cost using the

The amortization is included in ‘Interest

The losses arising from impairment of such investments are recognised in the

Details of ‘Financial investments - held to maturity’ are given in Note 31 to the Financial Statements.

Loans and receivables include non

determinable payments that are not quoted in an active market, other than: Those that the Group intends to sell

immediately or in the near term and those that the Group, upon initial recognition, designates as fair value

Those that the Group, upon initial recognition, designates as available for sale

Those for which the Group may not recover substantially all of its initial investment through contractual cash

deterioration

After initial measurement, loans and receivables are subsequently measured

interest rate, less allowance for impairment. The amortisation is included in ‘Interest

The losses arising from impairment are recognised in ‘Impairment charge / reversal for loans and other losses’ in the Statement

Loans and receivables include cash & cash equivalents, balances with Central Bank, placement with banks, reverse repurchase agreements, loans to & receivables from banks and other customers etc.

equity and debt securities. Equity

in this category are intended to be held

be sold in response to needs for liquidity or in response to changes in the market conditions. The Group has not designated any loans or receivables as available for sale.

After initial measurement, available for sale

measured at fair value. Unrealised gains and losses are recognised directly in equity through ‘Other comprehensive income / expense’ in the ‘Available for sale reserve’. When the investment is disposed of, the cumulative gain or loss previously recognised in equity is recognised in the

Group holds more than one investment in the same security, they are deemed to

Interest earned whilst holding ‘Available

interest rate. Dividend earned whilst holding

are recognised in the Statement of

investments’ when the right to receive the payment has been established. The losses arising from impairment of such investments

Loss under ‘Impairment charge for loans and other losses’ and removed from the ‘Available for sale reserve’.

Details of ‘Financial assets - available for sale’ are given in Note 29 & Note 30 to the Financial Statements.

Measurement of Financial Liabilities

At the inception, the Group determines

as:

a. Financial liabilities at fair value

i. Financial liabilities held for trading

ii. Financial liabilities designated

lossb. Financial liabilities at amortised cost

upon initial recognition as fair value

value and changes there in are recognised

trading if they are acquired principally for the purpose of selling or repurchasing in the near term or holds as a part of a portfolio that is managed together for short-term

entered into by the Group that are not designated as hedging instruments in

Lanka Accounting Standard - LKAS 39 (Financial Instruments: Recognition and Measurement).

following circumstances: Such designation eliminates or

or recognition inconsistency that would otherwise arise from measuring the liabilities



251

The liabilities are part of a group of

or both, which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy

The liability contains one or more embedded derivatives that

that would otherwise have been required under the contract

liabilities upon initial recognition as fair value

Financial instruments issued by the Group

liabilities at amortised cost under ‘Due to banks, ‘Due to other customers’, ‘Securities sold under repurchase agreements’ and ‘Debt issued and other borrowed funds’ as appropriate, where the substance of the contractual arrangement results in the Group having an obligation either to deliver

conditions that are potentially unfavourable to the entity or settling the obligation by delivering variable number of entity’s own equity instruments.

liabilities are subsequently measured at

rate method. Amortisation is included in ‘Interest expenses’ in the Statement

Loss when the liabilities are derecognised.

at amortised cost are shown in Note 37 (Due to banks), Note 38 (Due to other customers) and Note 39 (Debt issued and other borrowed funds) to the Financial Statements.

Instruments

The Group does not reclassify derivative

held or issued.

or loss upon initial recognition are not

The Group may, in rare circumstances,

such instruments are no longer held for the purpose of selling or repurchasing in the near term notwithstanding that

been acquired principally for the purpose of selling or repurchasing in the near

recognition which would have also met the

Group has the intention and ability to hold such asset for the foreseeable future or until maturity.

or loss already recognised in respect of the

the Group subsequently increases its estimates of future cash receipts as a result of increased recoverability of those

is recognised as an adjustment to the

the change in estimate rather than an adjustment to the carrying amount of the asset at the date of change in estimate.

or loss’ category after initial recognition.

out of available for sale category as a result of change in intention or ability or in rare circumstances that a reliable measure of fair value is no longer available.

of loans and receivables at the initial

available for sale category to the loans and receivables category if the Group has the intention and ability to hold such asset for the foreseeable future or until maturity.

between the new amortised cost and the maturity value is amortised over the

interest rate. Any gain or loss already recognised in Other Comprehensive Income

is accounted as follows.

maturity: Gain or loss recognised

the remaining life of the investment

impaired, any previous gain or loss that has been recognised in other

maturity: Gain or loss recognised

asset is subsequently impaired, any previous gain or loss that has been recognised in other comprehensive

the Group subsequently increases its estimates of future cash receipts as a result of increased recoverability of those


ANNUAL REPORT 2016

is recognised as an adjustment to the

the change in estimate rather than an adjustment to the carrying amount of the asset at the date of change in estimate.

As a result of a change in intention or ability, if it is no longer appropriate to classify an investment as held to maturity, Group may

for sale and re- measured at fair value. Any

fair value is recognised in equity through other comprehensive income.

amount of held to maturity investments before maturity [other than in certain

Sri Lanka Accounting Standard - LKAS 39 (Financial Instruments: Recognition and Measurement)], the entire category would

as ‘Available for sale’. Furthermore, the Group would be prohibited from classifying

during the following two years.

of management and determined on an instrument by instrument basis. The Group

during the year.

3.3.6 Derecognition of Financial Assets and Liabilities

assets) when:

the asset have expired; or the Group has transferred its rights to

has assumed an obligation to

without material delay to a third party under a ‘pass-through’ arrangement and either the Group has transferred substantially all the risks and rewards of the asset or the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset

the asset (or the carrying amount allocated to the portion of the asset derecognised) and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in other comprehensive income is recognised

When the Group has transferred its rights

entered into a pass-through arrangement and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability

rights and obligations that the Group has retained.

When the Group’s continuing involvement that takes the form of guaranteeing the transferred asset, the extent of the continuing involvement is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration received by the Group that the Group could be required to repay.

obligation under the liability is discharged or cancelled or expired. Where an existing

terms or the terms of an existing liability are

the original liability and the recognition of a new liability.

loss.

Securities sold under agreement to

not derecognised from the Statement of Financial Position as the Group retains substantially all of the risks and rewards of ownership. The corresponding cash received is recognised in the Statement of Financial Position as a liability with a corresponding obligation to return it, including accrued interest under ‘Securities sold under repurchase agreements’,

between the sale and repurchase prices is treated as interest expense and is accrued over the life of the agreement using the

the right to sell or repledge the securities,

Statement of Financial Position as ‘Financial assets held for trading pledged as collateral (Note 25)’ or ‘Financial assets available for sale pledged as collateral (Note 30)’, as appropriate.

Conversely, securities purchased under

date are not recognised in the Statement of Financial Position. The consideration paid, including accrued interest, is recorded in the Statement of Financial Position, under

the transaction’s economic substance to

purchase and resale prices is recorded as ‘Interest income’ and is accrued over the

interest rate. If securities purchased under agreement to resell are subsequently sold to third parties, the obligation to return the securities is recorded as a short sale within ‘Financial liabilities held for trading’ and measured at fair value with any gains or losses included in ‘Net trading gain / loss’.

Instruments

the Statement of Financial Position when and only when the Group has a legal right

intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted under LKASs / SLFRSs or for gains and losses arising from a group of similar transactions such as in the Group’s trading activity.



253

3.3.8 Impairment of Financial AssetsThe Group assesses at each reporting date, whether there is any objective evidence

assets not carried at fair value through

be impaired if and only if there is objective evidence of impairment as a result of one or more events, that have occurred after the initial recognition of the asset (an ‘incurred loss event’) and that loss event (or events) has an impact on the estimated future cash

estimated.

cost, such as amounts due from banks, loans and advances taken by customers, held to maturity investments etc., the

objective evidence of impairment exists

In the event the Group determines that no objective evidence of impairment exists for

assets with similar credit risk characteristics and collectively assesses them for

individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

The criteria used to determine whether there is objective evidence of impairment include and not limited to:

experienced by the borrower; Past due contractual payments of

either principal or interest; Breach of loan covenants or

conditions; The probability that the borrower will

reorganisation; and

rating by an external credit rating agency.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured by

interest rate and comparing the resultant

current carrying amount. The impairment

accounts are reviewed more regularly when circumstances require. This normally encompasses re-assessment of the enforceability of any collateral held and the timing and amount of actual and anticipated receipts. Individually assessed impairment allowances are only released when there is reasonable and objective evidence of a reduction in the established loss estimate. Interest on impaired assets continues to be recognised through the unwinding of the discount.

When impairment losses are determined

evidence of impairment exists, the following factors are considered: Bank’s aggregate exposure to the

customer; The viability of the customer’s

business model and their capacity

The amount and timing of expected receipts and recoveries;

The extent of other creditors’ commitments ranking ahead of, or pari-passu with the Bank and the likelihood of other creditors continuing to support the company;

The complexity of determining the aggregate amount and ranking of all creditor claims and the extent to which legal and insurance uncertainties are evident;

The realisable value of security (or other credit mitigants) and likelihood of successful repossession;

The likely deduction of any costs involved in recovery of amounts outstanding;

The ability of the borrower to obtain and make payments in the currency of the loan if not denominated in local currency; and

The likely dividend available on liquidation or bankruptcy

Impairment is assessed on a collective basis in two circumstances: To cover losses which have been

incurred but have not yet been

individual assessment; and For homogeneous groups of loans

that are not considered individually

for which no evidence of loss has been

are grouped together according to their credit risk characteristics for the purpose of calculating an estimated collective loss. This

has incurred as a result of events occurring before the reporting date, which the Group is not able to identify on an individual loan basis and that can be reliably estimated.

These losses will only be individually

information becomes available which

assets are removed from the group and assessed on an individual basis for impairment.

The collective impairment allowance is determined after taking into account:

portfolios of similar credit risk; and Management’s experienced

judgment as to whether current economic and credit conditions are such that the actual level of inherent losses at the reporting date is like to be greater or less than that suggested by historical experience.

Statistical methods are used to determine impairment losses on a collective basis for

are recorded on an individual basis when

at which point they are removed from the group.


ANNUAL REPORT 2016

Two alternative methods are used to calculate historical loss experience on a collective basis:

by nature long term, the Group uses migration analysis method. Under this methodology the movements in number of customers into bad categories over the periods are used

assets that will eventually be written

before the reporting date which the Group is not able to identify on an

that can be reliably estimated.

When the group of loan by nature short term, the Group uses net

methodology the movement in the outstanding balance of customers into bad categories over the periods are used to estimate the amount of

occurring before the reporting date which the Group is not able to identify on an individual loan basis and that can be reliably estimated.

Under both methodologies, loans are grouped into ranges according to the number of days in arrears and statistical analysis is used to estimate the likelihood that loans in each range will progress through the various stages of delinquency and ultimately prove irrecoverable.

Current economic conditions and portfolio risk factors are also evaluated when calculating the appropriate level of allowance required to cover inherent loss. These additional macro and portfolio risk factors may include:

Recent loan portfolio growth and product mix

Unemployment rates Gross Domestic Production (GDP)

growth Exchange rates Interest rates Changes in government laws and

regulations

If the amount of an impairment loss decreases in a subsequent period and the decrease can be related objectively to an event occurring after the impairment was

recognised, the excess is written back by

allowance account accordingly. The write- back is recognised in the Statement of

Financial assets (and the related impairment allowance accounts) are normally written

no realistic prospect of recovery. Where

after receipt of any proceeds from the realisation of security.

Where possible, the Group seeks to rescheduled loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated, any impairment is measured using the

the loan is no longer considered past due. Management continually reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subjected to individual or collective impairment assessment, calculated using

The Group seeks to use collateral, where

assets. The collateral comes in various forms such as cash, gold, securities, letters of credit/guarantees, real estate,

assets and credit enhancements such as netting agreements. The fair value of collateral is generally assessed, at a minimum, at inception and based on the guidelines issued by the Central Bank of Sri Lanka.

To the extent possible, the Group uses

assets which do not have readily determinable market value are valued

such as real estate, is valued based on data provided by third parties such as independent valuers, Audited Financial Statements and other independent sources.

The Group’s policy is to determine whether a repossessed asset is best used for its internal operations or should be sold. Assets determined to be useful for the internal operations are transferred to the relevant asset category at the lower of the repossessed value or the carrying value of the original secured asset.

the Group assesses at each reporting date whether there is objective evidence that an investment is impaired. In the case of debt

the Group assesses individually whether there is objective evidence of impairment

the amount recorded for impairment is the

between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in the

income is based on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash

impairment loss. If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to a credit event occurring after the impairment loss was recognised, the impairment loss is reversed through the

as available for sale, objective evidence

‘prolonged’ decline in the fair value of the investment below its cost. The

‘prolonged’ is explained in Note 2.10.3. Where there is evidence of impairment, the

between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in

in the fair value of an impaired available for sale equity security is recognised in other comprehensive income.

determined to be uncollectible.



255

3.3.9 Hedge AccountingThe Group designates certain derivatives as either:

commitments (fair value hedge);

recognised asset or liability, or a

hedge); or

foreign operation (net investment hedges)

designated in this way provided certain criteria are met. The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly

The Group did not designate any derivate as a hedging instrument during the year ended 31st December 2016.

3.3.10 Amortised Cost Measurement

asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation

recognised and the maturity amount, minus any reduction for impairment.

3.3.11 Fair Value Measurement‘Fair value’ is the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at

its non-performance risk. When available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument (Level 01 valuation). A market is regarded as active if transactions for the asset or liability

volume to provide pricing information on an ongoing basis.

If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.

The best evidence of the fair value of a

normally the transaction price - i.e. the fair value of the consideration given or received. If the Group determines that the fair value at

price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability (Level 01 valuation) nor based on a valuation technique that uses only data from observable markets

instrument is initially measured at fair value,

the fair value at initial recognition and the transaction price. Subsequently, that

on an appropriate basis over the life of the instrument but not later than when the valuation is wholly supported by observable market data or the transaction is closed out.

instrument and include adjustments to take account of the credit risk of the Group entity and the counterparty where appropriate. Fair value estimates obtained from models are adjusted for any other factors, such as liquidity risk or model uncertainties; to the extent that the Group believes a third-party market participant would take them into account in pricing a transaction.

The fair value of a demand deposit is not less than the amount payable on demand,

amount could be required to be paid.

A fair value measurement of a non-

participant’s ability to generate economic

and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred.

3.4 Finance and Operating Leases

The determination of whether an arrangement is a lease, or it contains a lease, is based on the substance of the arrangement and requires an assessment of

assets and the arrangement conveys a right to use the asset.

3.4.1 Finance LeaseAgreements which transfer to counterparties substantially all the risks and rewards incidental to the ownership of assets, but not necessarily legal title,

the amounts due under the leases, after deduction of unearned interest income, are included in Note 26, ‘Loans to & receivables from banks and Note 27, ‘Loans to & receivables from other customers’, as appropriate. Interest income receivable is recognised in ‘Net interest income’ over the periods of the leases so as to give a constant rate of return on the net investment in the leases.

leases, the leased assets are capitalised and included in ‘Property, plant and equipment’ and the corresponding liability to the lessor is included in ‘Other liabilities’.

liability are recognised initially at the fair value of the asset or if lower, the present value of the minimum lease payments. Finance charges payable are recognised in ‘Interest expenses’ over the period of the lease based on the interest rate implicit in the lease so as to give a constant rate of interest on the remaining balance of the liability.

3.4.2 Operating Lease

leases. When acting as lessor, the Group includes the assets subject to operating leases in ‘Property, plant and equipment’ and accounts for them accordingly. Impairment losses are recognised to the extent that residual values are not fully recoverable and the carrying value of the assets is thereby impaired.


ANNUAL REPORT 2016

When the Group is the lessee, leased assets are not recognised on the Statement of Financial Position.

Rentals payable and receivable under operating leases are accounted for on a straight-line basis over the periods of the leases and are included in ‘Other operating expenses’ and ‘Other operating income’, respectively.

3.5 Fiduciary Assets

result in the holding of assets on behalf

capacity are not reported in the Financial Statements, as they are not assets of the Group.

3.6 ProvisionsA 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

be required to settle the obligation. The amount recognised is the best estimate of the consideration required to settle the present obligation at the reporting date, taking in to account the risks and uncertainties surrounding the obligation at that date. Where a provision is measured

present obligation, its carrying amount is determined based on the present value of

contracts is recognised when the expected

a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured as 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. The expense relating to any provision is

net of any reimbursement.

3.7 Operational Risk EventsProvisions for operational risk events are recognised for losses incurred by the Bank which do not relate directly to amounts of principal outstanding for loans and advances. The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation as at the reporting date, taking

into account the risks and uncertainties that surround the events and circumstances that

3.8 Recognition of Income Revenue is recognised to the extent that

criteria that must be met before revenue is recognised is discussed under Note 07 -Net Interest Income, Note 08 - Net Fee and Commission Income, Note 09 - Net Trading Gain / Loss’ and Note 10 - Net Gain from Financial Investments.

3.9 Other Taxes3.9.1 Withholding Tax (WHT) on

Dividend

deducted at source, on the dividends distributed by the Subsidiaries is charged

Loss as a consolidation adjustment.

dividend by the Bank are recognised at the same time as the liability to pay the related dividend is recognised.

3.9.2 Economic Service Charge (ESC)

As per provisions of the Economic Service Charge (ESC) Act No. 13 of 2006 and subsequent amendments thereto, ESC is payable on aggregate turnover of the Bank at 0.5% and is deductible from income tax payable.

3.10 Regulatory Provisions3.10.1 Deposit Insurance and

Liquidity Support SchemeIn terms of the Banking Act Direction No. 5 of 2010 “Insurance of Deposit Liabilities” issued on 27th September 2010 and subsequent amendments there to, all Licensed Commercial Banks are required to insure their deposit liabilities in the Deposit Insurance Scheme operated by the Monetary Board in terms of Sri Lanka Deposit Insurance Scheme Regulations No. 1 of 2010 issued under Sections 32A

from 1st October 2010. The said scheme was renamed as the “Sri Lanka Deposit Insurance and Liquidity Support Scheme” as per the Sri Lanka Deposit Insurance and Liquidity Support Scheme Regulation No. 1 of 2013.

Deposits to be insured include demand, time and savings deposit liabilities and exclude the following;

a) deposit liabilities to member institutions

b) deposit liabilities to government of Sri Lanka

c) deposit liabilities to Directors, key management personnel and other

Act Direction No. 11 of 2007 on Corporate Governance of Licensed Commercial Banks

d) deposit liabilities held as collateral against any accommodation granted

e) deposit liabilities falling within the meaning of abandoned property in terms of the Banking Act and dormant deposits in terms of the Finance Business Act, funds of which have been transferred to Central Bank of Sri Lanka.

Licensed Commercial Banks are required to pay a premium of 0.10% on eligible deposit liabilities if the Bank maintains a capital adequacy ratio of 14% or above as at the

year and a premium of 0.125% on eligible deposit liabilities for all other Licensed Commercial Banks calculated on the total amount of eligible deposits as at the end of the quarter within a period of 15 days from the end of the quarter.

3.10.2 Crop Insurance LevyIn terms of the Finance Act No. 12 of 2013, all institutions under the purview of Banking Act No. 30 of 1988, Finance Business Act No. 42 of 2011 and Regulation of Insurance Industry Act No. 43 of 2000 are required

Insurance Levy to the National Insurance

2013.

4 STANDARDS ISSUED BUT NOT YET EFFECTIVE AS AT 31ST DECEMBER 2016

The following Sri Lanka Accounting Standards have been issued by the Institute of Chartered Accountants of Sri

31st December 2016. Accordingly these accounting standards have not been applied in the preparation of the Financial Statements for the year ended 31st December 2016.



257

4.1 SLFRS 15 - Revenue from Contracts with Customers

The objective of this Standard is to establish the principles that an entity shall apply to report useful information to users of Financial Statements about the nature, amount, timing and uncertainty of revenue

customers.

for revenue recognition from contracts with customers and replaces all other currently applicable revenue Standards and related interpretations.

January 2018. The Bank carried out an impact analysis with the assistance of an external consultant during the year ended 31st December 2016. The analysis basically focused on the material fee & commission income categories such as credit cards, operation related, e-remittance, electronic banking and Bancassurance. The relevant agreements were analysed and compared the current accounting treatment with the requirements of SLFRS 15. According to the above analysis the Bank does not have any material impact from the adoption of SLFRS 15 in the year 2018.

4.2 SLFRS 9 - Financial Instruments

This standard will replace Sri Lanka Accounting Standard - LKAS 39 (Financial Instruments: Recognition and Measurement). The improvements introduced by SLFRS 9 includes a logical

a single, forward-looking ‘expected loss’ impairment model and a substantially - reformed approach to hedge accounting which are detailed below.

January 2018.

Measurement

for in the Financial Statements and, in particular, how they are measured on an ongoing basis. SLFRS 9 introduces

characteristics and the business model in which an asset is held. This single, principle-based approach replaces existing rule-based requirements that are complex

assets are measured at amortised cost, fair value through other comprehensive income

(‘FVPL’).

measurement outcomes will be similar to LKAS 39 in many instances, the

the business model and the contractual

cost or fair value compared to LKAS 39.

/ Group is not expected to have a material

measurement principles introduced by SLFRS 09.

4.2.2 ImpairmentSLFRS 9 introduces a new, expected loss impairment model that will require more timely recognition of expected credit losses.

entities to account for expected credit

assets measured at amortised cost and FVOCI, lease receivables and certain loan

contracts.

At initial recognition, allowance (or provision in the case of commitments and guarantees) is required for expected credit losses (‘ECL’) resulting from default events that are possible within the next 12 months

which impairment requirement is applied. In

risk, allowance (or provision) is required for ECL resulting from all possible default

instrument (‘lifetime ECL’).

The assessment of whether credit risk

recognition is performed for each reporting period by considering the change in the risk of default occurring over the remaining life

The assessment of credit risk and the estimation of ECL are required to be unbiased and probability-weighted, and should incorporate all available information which is relevant to the assessment including information about past events,

current conditions and reasonable and supportable forecasts of economic conditions at the reporting date. In addition, the estimation of ECL should take into account the time value of money. As a result, the recognition and measurement of impairment is intended to be more forward-looking than under LAKS 39 and the resulting impairment charge will tend to be more volatile. It will also tend to result in an increase in the total level of impairment

be assessed for at least 12-month ECL

which lifetime ECL applies is likely to be larger than the population for which there is objective evidence of impairment in accordance with LKAS 39.

Given the complexities andtechnical expertise required in the process of convergence with SLFRS 09, an initial impact analysis is being carried out with the assistance of an external consultant based on 2016 December balances.

The Bank has set up a multidisciplinary implementation team during the year ended 31st December 2016 with members

operation departments in order to drive the SLFRS 9 implementation project. The

individual work streams within two sub-

and impairment. The initial assessment and analysis stage was completed in 2016.

already started the process of developing models / solutions based on the diagnostic

impairment calculation models and quantify the impairment provision for 2016 based on SLFRS 9 by the end of September 2017.

4.2.3 Hedge accounting SLFRS 9 introduces a substantially- reformed model for hedge accounting with enhanced disclosures about risk management activity. The new model represents a substantial overhaul of hedge accounting that aligns the accounting treatment with risk management activities,

activities in their Financial Statements. In addition, as a result of these changes, users of the Financial Statements will be provided with better information about

accounting on the Financial Statements.


ANNUAL REPORT 2016

The Bank is not presently following hedge accounting for its derivatives portfolio and hence implementation of SLFRS 09 is not expected to have a material impact on the Consolidated / Separate Financial Statements of the Group / Bank respectively.

4.3 SLFRS 16 – LeasesSLFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (‘lessee’) and the supplier (‘lessor’). SLFRS 16 will replace Sri Lanka Accounting Standard – LKAS 17 (Leases) and related interpretations. SLFRS 16 introduces a single accounting model for the lessee, eliminating the present

The new Standard requires a lessee to: recognise assets and liabilities for all

leases with a term of more than 12 months, unless the underlying asset is of low value.

present depreciation of lease assets separately, from interest on lease liabilities in the income statement.

SLFRS – 16 substantially carries forward the lessor accounting requirement in LKAS – 17. Accordingly, a lessor continue to classify its leases as operating leases or

1st January 2019. The impact on the implementation of the above Standard has

In addition to the above, Institute of Chartered Accountants of Sri Lanka has introduced following amendments to the

from 01st January 2017.

4.4 LKAS 7 - Statement of Cash Flows

The amendment requires an entity to disclose information that enables users of

including both changes arising from cash

Accordingly, an entity shall disclose the following changes in liabilities arising from

(b) changes arising from obtaining or losing control of subsidiaries or other businesses

exchange rates(d) changes in fair values and (e) other changes

4.5 LKAS 12 - Income TaxesWhen an entity assesses whether taxable

the entity shall consider whether tax law

against which it may make deductions on the reversal of that deductible temporary

If tax law imposes no such restrictions, entity may assess the deductible temporary

if tax law restricts the utilisation of losses

assessed in combination only with other

appropriate type.

Further the amendment requires an entity to compare the deductible temporary

excludes tax deductions resulting from the reversal of those deductible temporary

future periods. This comparison shows the

amounts resulting from the reversal of those

According to the amendment introduced, the estimate of probable future taxable

of an entity’s assets for more than their

evidence that it is probable that the entity will achieve this. For example, when an asset is measured at fair value, the entity

evidence to conclude that it is probable that the entity will recover the asset for more than its carrying amount.

The Bank is not expected to have a material

as at 31st December 2016.


5 NEW ACCOUNTING STANDARDS / AMENDMENTS TO EXISTING ACCOUNTING STANDARDS EFFECTIVE FROM 1ST JANUARY 2016

5.1 New Accounting Standards

2016

5.1.1 SLFRS 14 – Regulatory Deferral Accounts

The objective of this Standard is to specify

regulatory deferral account balances that arise when an entity provides goods or services to customers at a price or rate that is subject to rate regulation.

2016. This Standard did not have any impact on the Consolidated / Separate Financial Statements of the Group / Bank.

5.2 Amendments to Existing Accounting Standards

2016Amendments to existing Accounting

2016 as published by the Institute of Chartered Accountants of Sri Lanka did not have any impact on the Consolidated / Separate Financial Statements of the Group / Bank.


259

6 GROSS INCOME

Bank Group


Rs 000 Rs 000 Rs 000 Rs 000

Interest income (Note 7.1) 56,529,281 37,943,691 58,976,384 39,706,286

Fee & commission income (Note 8.1) 8,049,148 6,487,873 8,202,842 6,620,894

Net trading gain / (loss) (Note 9) 233,850 (341,316) 233,850 (341,316)

129,306 98,468 129,371 98,528

Other operating income (Note 11) 2,643,104 2,842,800 2,902,894 3,017,445

67,584,689 47,031,516 70,445,341 49,101,837

7 NET INTEREST INCOME

Accounting Policy

Recognition of Interest Income and Interest Expense

interest rate, but not future credit losses.

7.1 Interest Income

Bank Group


Rs 000 Rs 000 Rs 000 Rs 000

Placements with other banks 341,160 298,022 341,160 298,202

Financial assets - held for trading 1,722,065 1,276,853 1,722,065 1,276,853

Loans to & receivables from other customers 47,926,907 31,997,675 50,351,904 33,755,908

Other loans & receivables 2,476,058 1,785,920 2,476,058 1,785,920

Interest income accrued on impaired loans & receivables (Note 27.2.1) 261,567 212,711 261,580 212,873

Reverse repurchase agreements 419,358 483,244 439,965 483,643

Financial assets - held to maturity - 19,835 1,486 23,456

Financial assets - available for sale 3,382,166 1,869,431 3,382,166 1,869,431

56,529,281 37,943,691 58,976,384 39,706,286


ANNUAL REPORT 2016


7 NET INTEREST INCOME CONTD.

7.2 Interest Expense

Bank Group


Rs 000 Rs 000 Rs 000 Rs 000

Due to other customers 28,716,506 17,255,719 28,929,791 17,274,714

Term borrowings 1,618,890 963,425 2,525,166 1,477,324

273,722 243,598 273,722 243,598

Securities sold under repurchase agreements 574,016 532,334 514,130 491,426

Redeemable debentures (Note 39.1) 2,592,619 1,546,818 2,778,210 1,668,838

33,775,753 20,541,894 35,021,019 21,155,900

Net interest income 22,753,528 17,401,797 23,955,365 18,550,386

7.3 Net Interest Income from Sri Lanka Government Securities

Bank Group


Rs 000 Rs 000 Rs 000 Rs 000

Interest income 6,903,853 4,512,112 6,925,946 4,516,132

Less: Interest expense 574,016 532,334 514,130 491,426

Net interest income 6,329,837 3,979,778 6,411,816 4,024,706

7.4 Notional Tax Credit for Withholding Tax on Government Securities on Secondary Market Transactions Section 137 of the Inland Revenue Act No. 10 of 2006 provides that a company which derives interest income from the secondary market transactions in government securities be entitled to a notional tax credit (being one ninth of the net interest income) provided such interest income forms part of the statutory income of the company for that year of assessment.

Accordingly, net interest income earned from secondary market transactions in government securities for the year by the Bank and it’s subsidiaries has been grossed up in the Financial Statements and the resulting notional tax credit amounted to Rs 110.88 Mn (2015: Rs 25.70 Mn) and Rs 119.08 Mn (2015: Rs 30.16 Mn) for the Bank and the Group respectively.


261

8 NET FEE AND COMMISSION INCOME

Accounting Policy

Fee Income Earned from Services that are Provided over a Certain Period of Time Fees earned for the provision of services over a period of time are accrued over that period. These fees include professional fees, trade service fees, commission income and asset management fees etc. Loan commitment fees for loans that are likely to be drawn down and

of the loan. When it is unlikely that a loan will be drawn down, the loan commitment fees are recognised over the commitment period on a straight line basis.

Fee Income from Providing Transaction ServicesFees arising from negotiating or participating in the negotiation of a transaction for a third party, such as the arrangement of an acquisition of shares or other securities or the purchase or sale of businesses, are recognised on completion of the underlying transaction. Fees or components of fees that are linked to a certain performance are recognised as the related services are performed.

Expenses on Account of Customer Loyalty Programmes

are granted. The fair value of the consideration received in respect of the initial sale is allocated between the award credits and the other components of the sale. Expense incurred for customer loyalty programmes is accounted under ‘Fee and commission expense’.

Other Fee and Commission ExpenseOther Fee and commission expense relate mainly to transactions and services fees which are expensed as the services are received. Fee and commission expense are recognised on an accrual basis.

8.1 Fee and Commission Income

Bank Group


Rs 000 Rs 000 Rs 000 Rs 000

Trade related services 1,461,386 1,454,404 1,461,386 1,454,404

Foreign remittance related services 247,399 227,707 247,399 227,707

Credit & debit card services 3,017,176 2,448,267 3,017,176 2,448,267

3,323,187 2,357,495 3,476,881 2,490,516

8,049,148 6,487,873 8,202,842 6,620,894

8.2 Fee and Commission Expense

Bank Group


Rs 000 Rs 000 Rs 000 Rs 000

Credit & debit card services 1,316,476 1,115,552 1,316,476 1,115,552

148,125 85,768 150,988 88,131

1,464,601 1,201,320 1,467,464 1,203,683

Net fee & commission income 6,584,547 5,286,553 6,735,378 5,417,211


ANNUAL REPORT 2016


9 NET TRADING GAIN / (LOSS)

Accounting Policy

Bank & Group

For the year ended 31st December 2016 2015

Rs 000 Rs 000

Forward exchange contract revaluation gain / (loss) 183,858 (262,642)Capital gain 16,942 76,249 Dividend income 2,295 15,505 Net mark to market gain / (loss) 30,755 (170,428)

233,850 (341,316)

10 NET GAIN FROM FINANCIAL INVESTMENTS

Accounting Policy

Bank Group


Rs 000 Rs 000 Rs 000 Rs 000

125,052 81,049 125,117 81,109

3,376 17,419 3,376 17,419

- Other loans & receivables 878 - 878 -

129,306 98,468 129,371 98,528

11 OTHER OPERATING INCOME

Bank Group


Rs 000 Rs 000 Rs 000 Rs 000

Exchange income 2,405,127 2,728,553 2,405,127 2,728,553 Dividend income from subsidiaries 82,575 58,950 - -

(42) 4,531 298 4,787 Rental & other income 155,444 50,766 497,469 284,105

2,643,104 2,842,800 2,902,894 3,017,445

11.1 Exchange income represents both revaluation gain / (loss) on the Bank’s net open position and realised exchange gain / (loss) on foreign exchange contracts including the Bank’s currency notes operation. Gain on forward exchange contracts amounting to Rs 183.9 Mn (2015 : loss of Rs 262.6 Mn) is reported under Note 9, ‘Net trading gain / (loss)’ as required by the Sri Lanka Accounting Standard LKAS 39 (Financial Instruments - Recognition and Measurement). Accordingly total exchange income of the Bank / Group for the year ended 31st December 2016 amounted to Rs 2,589.0 Mn (2015 : Rs 2,465.9 Mn).


263

12 NET IMPAIRMENT CHARGE / (REVERSAL) FOR LOANS AND OTHER LOSSES

Bank Group


Rs 000 Rs 000 Rs 000 Rs 000

Banks - - - -

Other customers

930,035 513,348 949,745 551,237

Collective loan impairment (Note 27.2.2) 500,311 427,832 559,790 439,218

Property plant & equipment (Note 33.3) (2,036) - (2,036) -

Investment in subsidiary (Note 32.1) 4,000 - - -

Financial assets - available for sale (Note 29.4) 27,515 2,389 27,515 2,389

1,459,825 943,569 1,535,014 992,844

13 PERSONNEL EXPENSES

Accounting Policy

legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

employees and is recorded as an expense under ‘Personnel expenses’ as and when they become due. Unpaid contributions are recorded as a liability under ‘Other liabilities’ in Note 41. The Group contributes 3% of the salary of each employee to the Employees’ Trust Fund. Further, the Subsidiary companies contribute


ANNUAL REPORT 2016


13 PERSONNEL EXPENSES CONTD.

Pension Fund The Bank has a pension fund for all members who joined the Bank for permanent employment before 1st June 2003. A member is eligible for a monthly pension after attainment of 55 years of age and completion of 10 years uninterrupted service. The Bank measures the present

An actuarial valuation is carried out at every year end to ascertain the full liability under the Fund.

deducting the fair value of any plan assets to determine the net amount to be shown in the Statement of Financial Position. The value of any

plan, or on settlement of the plan liabilities.

annual period. The discount rate is the yield at the reporting date on government bonds (20 years) that have maturity dates approximating to the terms of the Bank’s obligations.

The increase in the pension fund liabilities attributable to the services provided by employees, who are members of the Fund, during the

together with the net interest income / expense.

The Bank recognises the total actuarial gain and loss that arise in calculating the Bank’s obligation in respect of a plan in other comprehensive income during the period in which it occurs.

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.

The assets of the fund are held separately from those of the Bank’s assets and are administered independently.

The Subsidiaries do not operate pension funds.

Gratuity

employees who joined the Bank on or after 1st June 2003, as they are not in pensionable service of the Bank.

pension resign before retirement age, the Bank is liable to pay gratuity to such employees.

An actuarial valuation is carried out at every year end to ascertain the full liability under gratuity.

The gratuity liability is not externally funded. All Subsidiary companies too carry out actuarial valuations to ascertain their respective gratuity liabilities.

yield at the reporting date on government bonds (10 years) that have maturity dates approximating to the terms of the Group’s obligations.


265

The increase in gratuity liabilities attributable to the services provided by employees during the year ended 31st December 2016 (current

The Group recognises the total actuarial gain and loss that arise in calculating the Group’s obligation in respect of gratuity in other comprehensive income during the period in which it occurs.

The demographic assumptions underlying the valuation are retirement age (55 yrs), early withdrawals from service and retirement on medical grounds etc.

Employees’ Provident Fund - Bank Employees’ Provident Fund is an approved private provident fund which has been set up to meet the provident fund liabilities of the Bank to which the Bank and employees contribute 12% and 8% respectively on the salary of each employee. Employees who are members of the

liability and an actuarial valuation was conducted to value the Bank’s obligation on the same.

Unutilised Accumulated Leave The Bank’s liability towards the accumulated leave which is expected to be utilised beyond one year from the end of the reporting period is

the terms of the Bank’s obligation. The calculation is performed using the Projected Unit Credit method. Net change in liability for unutilised

period in which they arise.

The Group’s net obligation to gratuity, EPF interest guarantee and unutilised accumulated annual leave is disclosed under Note 42 to the Financial Statements. Net amount recoverable from the pension fund as at 31st December 2016 is reported under Note 36 to the Financial Statements.

Share Based Payment Transactions The Bank does not have any share based payment transactions in force as at 31st December 2016.

Bank Group


Rs 000 Rs 000 Rs 000 Rs 000

Salaries & bonus 5,779,461 4,761,458 6,188,418 5,076,036

Contributions to EPF & ETF 557,806 505,189 595,256 533,466

Provision for gratuity & pension 372,602 354,986 382,082 362,298

Others 622,758 519,626 668,914 552,603

7,332,627 6,141,259 7,834,670 6,524,403


ANNUAL REPORT 2016


14 OTHER OPERATING EXPENSES

Accounting Policy

Depreciation of Property, Plant and Equipment The Group provides depreciation from the date the assets are available for use up to the date of disposal, at the following rates on a straight

expected to be consumed by the Group.

Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term.

Freehold lands are not depreciated.

derecognised. Depreciation does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated.

Depreciation Rate per Annum (%)

Asset Category 2016 2015

Freehold buildings 2.00 - 2.50 2.00 - 2.50

Improvements to leasehold properties 20.00 - 25.00 20.00 - 25.00

Computer equipment 15.00 - 25.00 15.00 - 25.00

Motor vehicles 12.50 - 20.00 12.50

2.50 - 25.00 2.50 - 25.00

12.50 - 20.00 12.50 - 20.00

Amortisation of Intangible Assets

consumed by the Group. The Group assumes that there is no residual value for its intangible assets.

Depreciation Rate per Annum (%)

Asset Category 2016 2015

Computer software 10.00 - 25.00 10.00 - 25.00

Licenses 5.00 - 20.00 5.00 - 20.00

Changes in EstimatesDepreciation / amortisation methods, useful lives and residual values are reassessed at each reporting date and adjusted if appropriate.


267

Bank GroupFor the year ended 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Directors' fees & expenses 52,697 53,935 77,073 69,950 Auditors' remuneration (Note 14.1) 22,234 21,265 27,420 28,290 Professional & legal expenses 75,373 75,940 90,697 92,757 Depreciation of property, plant & equipment (Note 33) 599,081 604,945 845,172 766,527 Amortisation of intangible assets (Note 34) 110,009 95,216 120,249 103,339 Deposit insurance premium 533,919 428,670 537,376 429,373 Donations 2,589 2,487 2,589 2,487 Operating lease expenses 1,053,242 893,184 853,533 693,200

2,753,527 2,316,169 2,811,701 2,404,008 Other expenses (Note 14.2) 2,935,331 2,706,366 3,065,312 2,847,704

8,138,002 7,198,177 8,431,122 7,437,635

14.1 Auditors’ Remuneration


Rs 000 Rs 000 Rs 000 Rs 000

Audit fees 12,495 11,299 15,152 14,798 Audit related fees & expenses 5,122 4,997 6,293 5,379 Non - audit expenses 4,617 4,969 5,975 8,113

22,234 21,265 27,420 28,290

14.2 Other expensesOther expenses include advertising and business promotion expenses, credit card related expenses and other overhead expenses incurred on day to day operations of the Bank / Group.

15 VALUE ADDED TAX (VAT) AND NATION BUILDING TAX (NBT) ON FINANCIAL SERVICES

Accounting Policy

Value Added TaxVAT on Financial Services is calculated in accordance with Value Added Tax (VAT) Act No. 14 of 2002 and subsequent amendments thereto.

Nation Building Tax


Rs 000 Rs 000 Rs 000 Rs 000

2,425,799 1,611,436 2,534,832 1,689,303

388,224 292,988 407,691 308,426

2,814,023 1,904,424 2,942,523 1,997,729


ANNUAL REPORT 2016


16 INCOME TAX EXPENSE

Accounting Policy

except to the extent it relates to items recognised directly in equity or other comprehensive income in which case it is recognised in equity or in other comprehensive income.

Current TaxationCurrent tax assets and liabilities consist of amounts expected to be recovered from or paid to the Commissioner General of Inland Revenue in respect of the current year, using the tax rates and tax laws enacted or substantively enacted on the reporting date and any adjustment to tax payable in respect of prior years.

Deferred Taxation

except:

Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a

forward unused tax credits and unused tax losses can be utilised except:

recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

authority, there is a legal right and intentions to settle on a net basis and it is allowed under the tax law of the relevant jurisdiction. Details of current tax liabilities / (receivables) and deferred tax liabilities / (assets) are given in Note 40 and Note 35 to the Financial Statements respectively.


269

Bank Group


Rs 000 Rs 000 Rs 000 Rs 000

Current tax expense

3,691,014 2,829,791 3,825,441 2,980,191

(Over) / under provision in respect of previous years (573,114) - (577,485) 3,759

Current tax expense (Note 16.1) 3,117,900 2,829,791 3,247,956 2,983,950

Deferred tax expense

Transfer to deferred taxation (Note 35.1) 357,288 137,141 464,327 177,503

Income tax expense 3,475,188 2,966,932 3,712,283 3,161,453

27.6% 32.6% 28.1% 32.3%

24.7% 31.1% 24.6% 30.5%

Bank Group


% Rs 000 % Rs 000 % Rs 000 % Rs 000

12,599,858 9,100,873 13,213,529 9,789,643

28.0 3,527,960 28.0 2,548,244 28.0 3,699,788 28.0 2,741,100

- - - - 5,622 - 5,192

Disallowable expenses 11.8 1,484,362 13.0 1,185,408 12.0 1,580,894 12.8 1,255,056

Tax deductible expenses (5.0) (628,249) (4.3) (395,695) (5.5) (723,789) (4.8) (468,605)

Exempt income (5.5) (693,059) (5.6) (508,166) (5.2) (693,059) (5.1) (508,166)

Income from other sources - - - - - 362 - 273

- - - - (0.3) (44,256) (0.4) (44,568)

Tax losses - - - - - (121) - (91)

29.3 3,691,014 31.1 2,829,791 29.0 3,825,441 30.5 2,980,191

(Over) / under provision in respect of previous years (4.6) (573,114) - - (4.4) (577,485) - 3,759

24.7 3,117,900 31.1 2,829,791 24.6 3,247,956 30.5 2,983,950

16.1.1 Applicable Income Tax Rates

2016 2015

Sampath Bank PLC 28% 28%

Siyapatha Finance PLC 28% 28%

S C Securities (Pvt) Ltd 28% 28%

Sampath Information Technology Solutions Ltd 28% 28%


ANNUAL REPORT 2016


16 INCOME TAX EXPENSE CONTD.

16.1.2 Income Tax on Sampath Centre LtdSampath Centre Ltd is a company approved under BOI Law and the company was exempted from income tax for a period of seven years

whichever is earlier. Accordingly, Sampath Centre Ltd is liable for income tax at the rate of 2.0% of the rental income commencing from the year of assessment 2006 / 2007. Income other than rental income is liable for tax at the rate of 28%.

17 EARNINGS PER SHARE

Accounting Policy

loss attributable to ordinary equity holders of the Bank by the weighted average number of ordinary shares outstanding during the period.

17.1 Earnings per Share: Basic / Diluted

Bank Group

2016 2015 2016 2015

Amount used as the numerator

9,124,670,243 6,133,941,288 9,496,073,323 6,623,345,841

No. of ordinary shares used as the denominator

Weighted average number of ordinary shares (Note 17.1.1) 176,981,069 176,981,069 176,981,069 176,981,069

Basic / diluted earnings per ordinary share (Rs) 51.56 34.66 53.66 37.42

17.1.1 Weighted Average Number of Ordinary Shares for Basic / Diluted EPSBank & Group

2016Outstanding /

Weighted Average

2015Outstanding/

Weighted Average

Number of shares held as at 1st January 172,312,655 167,910,253

2014 (Note 43.1) - 4,402,402

172,312,655 172,312,655

2015 (Note 43.1) 4,668,414 4,668,414

Number of shares held as at 31st December 176,981,069 176,981,069

There have been no transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of the


271

18 DIVIDEND PAID AND PROPOSED

Accounting Policy

accordance with Companies Act No. 07 of 2007.

2016 2015

GrossDividend

DividendTax

Net Dividend

Gross Dividend

Dividend Tax

Net Dividend

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Final dividend paid for the years 2015 & 2014 respectively

Out of dividend received - free of tax 78,465 - 78,465 83,194 - 83,194

2,161,599 214,472 1,947,127 1,763,818 176,382 1,587,436

Scrip / cash dividend paid 2,240,064 214,472 2,025,592 1,847,012 176,382 1,670,630

Dividend per Ordinary Share (Rs) 13.00 11.75 11.00 9.95

Interim dividend proposed for the year 2016 (Note 18.1)

Out of dividend received - free of tax 37,832 - 37,832 - - -

2,439,903 243,990 2,195,913 - - -

Scrip dividend payable 2,477,735 243,990 2,233,745 - - -

Dividend per Ordinary Share (Rs) 14.00 12.62 - - -

2016 (Note 18.2) & 2015 respectively

Out of dividend received - free of tax - - - 78,465 - 78,465

884,405 88,441 795,964 2,161,599 214,472 1,947,127

Scrip / cash dividend payable 884,405 88,441 795,964 2,240,064 214,472 2,025,592

Dividend per Ordinary Share (Rs) 4.75 4.28 13.00 11.75

Total dividend per Ordinary Share (Rs) 18.75 16.90 13.00 11.75

Note 18.1The Board of Directors of the Bank has recommended the payment of an interim scrip dividend of Rs 14.00 per share for the year ended 31st December 2016, a distribution of Rs 2,477.7 Mn.

Under the Inland Revenue Act No. 10 of 2006, a Withholding Tax of 10% has been imposed on interim dividend declared.

Note 18.2

year ended 31st December 2016, a distribution of approximately Rs 884.4 Mn.

Note 18.3

dividends have not been recognised as a liability as at the year end. Necessary disclosures have been made under Note 51 to the Financial Statements, “Events after reporting period” as required by the said Standard.


ANNUAL REPORT 2016


19 ANALYSIS OF FINANCIAL INSTRUMENTS BY MEASUREMENT BASIS

Financial instruments are measured on an ongoing basis either at fair value or at amortised cost. The Accounting Policies describe how

LKAS 39 (Financial Instruments: Recognition & Measurement) under headings of the Statement of Financial Position.

19.1 Analysis of Financial Instruments by Measurement Basis - Bank

As at 31st December 2016

Note Held for Trading

Amortised Cost

Held to Maturity

Available for Sale

Total

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Financial Assets

Cash & cash equivalents 20 - 17,064,013 - - 17,064,013

Balances with Central Bank of Sri Lanka 21 - 33,724,856 - - 33,724,856

Placements with banks 22 - 8,749,763 - - 8,749,763

Reverse repurchase agreements - 33,860,083 - - 33,860,083

23 109,872 - - - 109,872

Financial assets - held for trading 24 28,109,193 - - - 28,109,193

Financial assets - held for trading pledged as collaterals 25 10,380,213 - - - 10,380,213

Loans to & receivables from banks 26 - 2,641,733 - - 2,641,733

Loans to & receivables from other customers 27 - 456,189,052 - - 456,189,052

Other loans & receivables 28 - 38,708,440 - - 38,708,440

Financial assets - available for sale 29 - - - 14,270,190 14,270,190

Financial assets - available for sale pledged as collaterals 30 - - - 657,903 657,903

Financial assets - held to maturity 31 - - - - -

Other assets - 3,257,948 - - 3,257,948

Total Financial Assets 38,599,278 594,195,888 - 14,928,093 647,723,259

Financial Liabilities

Due to banks 37 - 6,023,932 6,023,932

23 63,611 - 63,611

Securities sold under repurchase agreements - 10,159,225 10,159,225

Due to other customers 38 - 510,566,655 510,566,655

Debt issued & other borrowed funds 39 - 72,128,237 72,128,237

Dividend payable - 84,860 84,860

Other liabilities - 5,817,157 5,817,157

Total Financial Liabilities 63,611 604,780,066 604,843,677


273

19.2 Analysis of Financial Instruments by Measurement Basis - Bank



Amortised Cost

Held to Maturity

Available for Sale

Total

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Financial Assets




Reverse repurchase agreements - - - - -

23 319,461 - - - 319,461







Financial assets - available for sale pledged as collaterals 30 - - - 7,210,585 7,210,585

Financial assets - held to maturity 31 - - - - -

Other assets - 1,964,787 - - 1,964,787

Total Financial Assets 4,911,304 452,804,122 - 58,460,996 516,176,422


Due to banks 37 - 3,418,499 3,418,499

23 457,058 - 457,058








ANNUAL REPORT 2016


19 ANALYSIS OF FINANCIAL INSTRUMENTS BY MEASUREMENT BASIS CONTD.

19.3 Analysis of Financial Instruments by Measurement Basis - Group



Amortised Cost

Held to Maturity

Available for Sale

Total

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Financial Assets

Cash & cash equivalents 20 - 17,221,809 - - 17,221,809 Balances with Central Bank of Sri Lanka 21 - 33,724,856 - - 33,724,856

Placements with banks 22 - 8,749,763 - - 8,749,763 Reverse repurchase agreements - 34,629,422 - - 34,629,422

23 109,872 - - - 109,872 Financial assets - held for trading 24 28,117,789 - - - 28,117,789 Financial assets - held for trading pledged as collaterals 25 10,371,617 - - - 10,371,617 Loans to & receivables from banks 26 - 2,641,733 - - 2,641,733 Loans to & receivables from other customers 27 - 472,754,947 - - 472,754,947 Other loans & receivables 28 - 38,708,440 - - 38,708,440 Financial assets - available for sale 29 - - - 14,329,468 14,329,468 Financial assets - available for sale pledged as collaterals 30 - - - 598,681 598,681 Financial assets - held to maturity 31 - - 16,933 - 16,933 Other assets - 3,507,676 - - 3,507,676 Total Financial Assets 38,599,278 611,938,646 16,933 14,928,149 665,483,006


Due to banks 37 - 6,071,196 6,071,196 23 63,611 - 63,611

Securities sold under repurchase agreements - 10,095,117 10,095,117 Due to other customers 38 - 513,433,826 513,433,826 Debt issued & other borrowed funds 39 - 84,179,232 84,179,232 Dividend payable - 84,860 84,860 Other liabilities - 6,681,111 6,681,111 Total Financial Liabilities 63,611 620,545,342 620,608,953


275

19.4 Analysis of Financial Instruments by Measurement Basis - Group



Amortised Cost

Held to Maturity

Available for Sale

Total

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Financial Assets




Reverse repurchase agreements - - - - -

23 319,461 - - - 319,461







Financial assets - available for sale pledged as collaterals 30 - - - 6,519,573 6,519,573

Financial assets - held to maturity 31 - - 63,121 - 63,121

Other assets - 2,099,327 - - 2,099,327

Total Financial Assets 4,911,304 463,645,257 63,121 58,461,052 527,080,734


Due to banks 37 - 3,418,499 3,418,499

23 457,058 - 457,058








ANNUAL REPORT 2016


20 CASH AND CASH EQUIVALENTS

Accounting Policy

risk of changes in their value. Cash and cash equivalents are carried at amortised cost in the Statement of Financial Position.

placements with banks (less than 3 months), net of unfavourable balances with local & foreign banks.

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Local currency in hand 6,822,773 7,499,502 6,971,898 7,582,388

Foreign currency in hand 594,551 1,454,651 594,551 1,454,651

Balances with local banks 458,375 61,267 467,046 103,762

Balances with foreign banks 2,709,271 1,642,172 2,709,271 1,642,172

Money at call & short notice 6,479,043 2,930,483 6,479,043 2,930,483

17,064,013 13,588,075 17,221,809 13,713,456

21 BALANCES WITH CENTRAL BANK OF SRI LANKA

Accounting Policy

As required by the provisions of Section 93 of the Monetary Law Act, a cash balance is maintained with the Central Bank of Sri Lanka. As at 31st December 2016, the minimum cash reserve requirement was 7.5% (2015: 6%) of the rupee deposit liabilities. There is no reserve requirement for foreign currency deposit liabilities of the Domestic Banking Unit (DBU) and the deposit liabilities of the Foreign Currency Banking Unit (FCBU).

Balances with Central Bank of Sri Lanka are carried at amortised cost in the Statement of Financial Position.

Bank & Group

As at 31st December 2016 2015

Rs 000 Rs 000

Statutory reserve requirement 33,724,856 21,341,882

33,724,856 21,341,882


277

22 PLACEMENTS WITH BANKS

Bank & Group


Rs 000 Rs 000

Maturity less than three months

Placements - in Sri Lanka 2,251,564 -

Placements - out side Sri Lanka 5,519,340 5,193,369

7,770,904 5,193,369

Maturity more than three months

Placements - in Sri Lanka - -

Placements - out side Sri Lanka 978,859 -

978,859 -

8,749,763 5,193,369

23 DERIVATIVE FINANCIAL INSTRUMENTS

Accounting Policy

foreign exchange rates, credit risk and indices. Derivatives are categorised as trading unless they are designated as hedging instruments.

is recognised within other comprehensive income). Fair values may be obtained from quoted market prices in active markets, recent market

recognised fair value of a derivative contract is based on a valuation model that uses inputs that are not observable in the market, it follows

is positive and as liabilities when fair value is negative.

separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host

disclosed or included within derivatives. The Group did not have separated embedded derivatives as at 31st December 2016.

their notional amounts. The notional amounts indicate the volume of transactions outstanding at the year end and are indicative of neither the market risk nor the credit risk.

Bank & Group

As at 31st December 2016 2015Assets Liabilities Notional

AmountAssets Liabilities Notional

Amount

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Forward foreign exchange contracts Sales 27,007 19,386 7,896,836 17,137 196,952 11,466,029 Purchases 5,617 15,389 3,351,723 103,876 20,537 4,391,390 Currency SWAPS Sales 12,781 27,882 9,985,909 358 239,256 14,967,515 Purchases 64,467 954 9,444,636 198,090 313 13,421,768

109,872 63,611 30,679,104 319,461 457,058 44,246,702


ANNUAL REPORT 2016


24 FINANCIAL ASSETS - HELD FOR TRADING

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Government securities - treasury bills (Note 24.1) 28,011,024 1,767,317 28,019,620 1,776,333

Quoted equity securities (Note 24.2) 98,169 121,741 98,169 121,741

28,109,193 1,889,058 28,117,789 1,898,074

24.1 Government Securities - Treasury Bills

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Amortised cost 27,971,916 1,767,522 27,980,501 1,776,536

(Loss) / gain from mark to market valuation as at 1st January (205) 12,696 (203) 12,696

Movement during the year 39,313 (12,901) 39,322 (12,899)

Gain / (loss) from mark to market valuation as at 31st December 39,108 (205) 39,119 (203)

Market value 28,011,024 1,767,317 28,019,620 1,776,333

24.2 Quoted Equity SecuritiesBank & Group


No. of Ordinary

Shares

Cost of Investment

Market Value

No. of Ordinary

Shares

Cost of Investment

Market Value

Rs 000 Rs 000 Rs 000 Rs 000

Name of the Company

Banks, Finance & Insurance

National Development Bank PLC 600,000 107,943 93,600 600,000 107,943 116,460

107,943 93,600 107,943 116,460

Vallibel One PLC 245,600 6,140 4,569 245,600 6,140 5,281

6,140 4,569 6,140 5,281

Total 114,083 98,169 114,083 121,741

Gain from mark to market valuation as at 1st January 7,658 157,923

Movement during the year (23,572) (150,265)

(Loss) / gain from mark to market valuation as at 31st December (15,914) 7,658

Market value 98,169 121,741


279

25 FINANCIAL ASSETS - HELD FOR TRADING PLEDGED AS COLLATERALS

The Bank pledges assets that are in its Statement of Financial Position in day to day transaction which are conducted under the usual terms and conditions applying such agreements. The Bank has pledged the investments in government securities held for trading purposes against securities hold under repurchase agreements. Market value of the pledged securities are given below;

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Amortised cost 10,364,749 2,702,335 10,356,164 2,693,321

Gain from mark to market valuation as at 1st January 450 7,712 448 7,712


Gain from mark to market valuation as at 31st December 15,464 450 15,453 448

Market value 10,380,213 2,702,785 10,371,617 2,693,769

26 LOANS TO AND RECEIVABLES FROM BANKS

Bank & Group


Rs 000 Rs 000

Gross loans & receivables (Note 26.1) 2,641,733 1,651,205

Provision for impairment losses - -

2,641,733 1,651,205

26.1 At Amortised Cost


Rs 000 Rs 000

Leasing 11,134 8,265

Term loans 2,283,124 1,543,325

Overdraft 47,229 99,615

Money market loans 300,246 -

2,641,733 1,651,205


ANNUAL REPORT 2016


27 LOANS TO AND RECEIVABLES FROM OTHER CUSTOMERS

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Gross loans & receivables 465,875,708 384,605,379 482,883,380 395,565,780

(1,960,290) (1,911,559) (1,966,756) (1,911,559)

463,915,418 382,693,820 480,916,624 393,654,221

(3,385,046) (3,019,615) (3,473,520) (3,095,730)

Collective loan impairment (Note 27.2.2) (4,341,320) (3,977,675) (4,688,157) (4,280,747)

Total impairment (Note 27.2) (7,726,366) (6,997,290) (8,161,677) (7,376,477)

Net loans & receivables 456,189,052 375,696,530 472,754,947 386,277,744

27.1 At Amortised Cost

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 % Rs 000 % Rs 000 % Rs 000 %

Bills of exchange 3,630,345 0.78 3,380,096 0.88 3,630,345 0.75 3,380,096 0.85

Leasing (Note 27.4) 19,214,862 4.12 18,674,969 4.86 33,314,624 6.90 27,984,868 7.07

25,374,582 5.45 20,181,623 5.25 25,374,582 5.25 20,181,623 5.10

Export loans 19,809,405 4.25 16,851,433 4.38 19,809,405 4.10 16,851,433 4.26

Import loans 50,853,973 10.92 44,276,694 11.51 50,839,778 10.53 44,276,694 11.19

9,016,678 1.94 7,897,118 2.05 9,016,678 1.87 7,897,118 2.00

Term loans 205,751,571 44.16 156,978,522 40.82 205,841,301 42.63 154,054,403 38.95

499,323 0.11 818,160 0.21 1,408,369 0.29 2,955,576 0.75

Loans against investment fund account (IFA) 742,281 0.16 1,240,321 0.32 744,922 0.15 1,252,356 0.32

Overdraft 85,032,667 18.26 66,577,001 17.31 84,700,187 17.54 66,403,013 16.78

7,140,851 1.53 6,573,733 1.71 7,222,750 1.50 6,645,599 1.68

Pawning 15,479,487 3.32 13,471,959 3.50 15,479,487 3.21 14,262,043 3.61

Credit cards 9,468,068 2.03 7,852,432 2.04 9,468,068 1.96 7,852,432 1.99

Money market loans 11,042,976 2.37 18,211,645 4.74 11,042,976 2.29 18,211,645 4.60

Factoring 2,564,273 0.55 1,382,810 0.36 4,635,379 0.96 2,619,645 0.66

Others 254,366 0.05 236,863 0.06 354,529 0.07 737,236 0.19

465,875,708 100.00 384,605,379 100.00 482,883,380 100.00 395,565,780 100.00

(1,960,290) (1,911,559) (1,966,756) (1,911,559)

463,915,418 382,693,820 480,916,624 393,654,221

Provision for impairment losses (Note 27.2) (7,726,366) (6,997,290) (8,161,677) (7,376,477)

456,189,052 375,696,530 472,754,947 386,277,744


281

27.2 Provision for Impairment Losses

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

3,385,046 3,019,615 3,473,520 3,095,730

Collective loan impairment (Note 27.2.2) 4,341,320 3,977,675 4,688,157 4,280,747

Total impairment (Note 27.3) 7,726,366 6,997,290 8,161,677 7,376,477

Bank Group

2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Balance as at 1st January 3,019,615 2,878,898 3,095,730 2,913,195

930,035 513,348 949,745 551,237

(467,113) (260,357) (467,113) (260,357)

Interest income accrued on impaired loans & receivables (Note 7.1) (261,567) (212,711) (261,580) (212,873)

Other movements 164,076 100,437 156,738 104,528

Balance as at 31st December 3,385,046 3,019,615 3,473,520 3,095,730

Gross amount of loans individually determined to be impaired, before deducting the individually assessed impairment provision

7,541,722 4,919,097 7,958,764 5,506,819

27.2.2 Collective Loan Impairment

Bank Group

2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000


500,311 427,832 559,790 439,218

(142,155) (590,252) (156,930) (590,252)

Other movements 5,489 11,414 4,550 11,579



ANNUAL REPORT 2016


27 LOANS TO AND RECEIVABLES FROM OTHER CUSTOMERS CONTD.

27.3 Movement in Provision for Impairment Losses - by Product

Bank Leasing &Hire purchase

Loans & Receivables

2016Total

2015Total

Rs 000 Rs 000 Rs 000 Rs 000

Balance as at 1st January 140,678 6,856,612 6,997,290 7,007,579

247,002 1,183,344 1,430,346 941,180

- (609,268) (609,268) (850,609)

Interest income accrued on impaired loans & receivables (Note 7.1) - (261,567) (261,567) (212,711)

Other movements - 169,565 169,565 111,851

Balance as at 31st December 387,680 7,338,686 7,726,366 6,997,290

Group Leasing &Hire purchase

Loans & Receivables

2016Total

2015Total

Rs 000 Rs 000 Rs 000 Rs 000

Balance as at 1st January 286,681 7,089,796 7,376,477 7,333,397

292,222 1,217,313 1,509,535 990,455

- (624,043) (624,043) (850,609)

Interest accrued on impaired loans & receivables (Note 7.1) - (261,580) (261,580) (212,873)

Other movements (938) 162,226 161,288 116,107

Balance as at 31st December 577,965 7,583,712 8,161,677 7,376,477

27.4 Leasing

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Total lease rentals receivable 22,975,713 22,443,211 41,502,703 34,436,790

Unearned lease interest income (3,760,851) (3,768,242) (8,188,079) (6,451,922)

Gross lease receivable 19,214,862 18,674,969 33,314,624 27,984,868

Impairment allowance for lease receivable (378,137) (134,998) (528,119) (227,155)

Net lease receivable 18,836,725 18,539,971 32,786,505 27,757,713

Gross lease receivable within one year (Note 27.4.1) 6,506,345 5,398,278 10,493,297 7,969,809

Gross lease receivable after one year (Note 27.4.2) 12,708,517 13,276,691 22,821,327 20,015,059

19,214,862 18,674,969 33,314,624 27,984,868


283

27.4.1 Gross Lease Receivable within One Year

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Total lease rentals receivable within one year from reporting date 8,363,553 7,081,283 14,333,611 10,831,195


Gross lease receivable within one year (Note 27.4) 6,506,345 5,398,278 10,493,297 7,969,809


Net lease receivable within one year 6,378,304 5,359,255 10,321,617 7,902,039

27.4.2 Gross Lease Receivable after One Year

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Total lease rentals receivable after one year from reporting date 14,612,160 15,361,928 27,169,092 23,605,595


Gross lease receivable after one year (Note 27.4) 12,708,517 13,276,691 22,821,327 20,015,059


Net lease receivable after one year 12,458,421 13,180,716 22,464,888 19,855,674

27.5 Hire Purchase

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Total hire purchase rentals receivable 580,808 1,000,204 1,629,819 3,642,230

Unearned hire purchase interest income (81,485) (182,044) (221,450) (686,654)

Gross hire purchase receivable 499,323 818,160 1,408,369 2,955,576

Impairment allowance for hire purchase receivable (9,543) (5,680) (49,846) (59,526)

Net hire purchase receivable 489,780 812,480 1,358,523 2,896,050

Gross hire purchase receivable within one year (Note 27.5.1) 235,539 260,619 721,919 1,191,985

Gross hire purchase receivable after one year (Note 27.5.2) 263,784 557,541 686,450 1,763,591

499,323 818,160 1,408,369 2,955,576


ANNUAL REPORT 2016



27.5.1 Gross Hire Purchase Receivable within One Year

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Total hire purchase rentals receivable within one year from reporting date 286,958 351,504 873,880 1,597,529


Gross hire purchase receivable within one year (Note 27.5) 235,539 260,619 721,919 1,191,985


Net hire purchase receivable within one year 231,037 258,809 695,039 1,164,949

27.5.2 Gross Hire Purchase Receivable after One Year

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Total hire purchase rentals receivable after one year from reporting date 293,850 648,700 755,939 2,044,701


Gross hire purchase receivable after one year (Note 27.5) 263,784 557,541 686,450 1,763,591


Net hire purchase receivable after one year 258,743 553,671 663,484 1,731,101

27.6 Loans to and Receivables from Other Customers - by Currency

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Sri Lankan Rupee 407,416,379 336,021,611 424,424,051 346,982,012

United States Dollar 53,937,502 46,393,449 53,937,502 46,393,449

Euro 1,999,707 1,431,338 1,999,707 1,431,338

Great Britain Pounds 2,229,461 725,310 2,229,461 725,310

Australian Dollar 277,491 33,627 277,491 33,627

United Arab Emirates Dirham 15,168 - 15,168 -

Swiss Franc - 44 - 44

465,875,708 384,605,379 482,883,380 395,565,780


285

27.7 Loans to and Receivables from Other Customers - by Product

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 % Rs 000 % Rs 000 % Rs 000 %

By Product - LKR

Bills of exchange 910,851 0.20 602,014 0.16 910,851 0.19 602,014 0.15

Leasing 19,214,862 4.12 18,674,969 4.86 33,314,624 6.90 27,984,868 7.07

25,071,539 5.38 19,998,739 5.20 25,071,539 5.19 19,998,739 5.05

Export loans 994,794 0.21 929,341 0.24 994,794 0.20 929,341 0.23

Import loans 47,175,388 10.13 40,114,922 10.43 47,161,193 9.77 40,114,922 10.14

9,016,678 1.94 7,897,118 2.05 9,016,678 1.87 7,897,118 2.00

Term loans 175,744,276 37.72 133,581,764 34.74 175,834,006 36.42 130,657,645 33.04

499,323 0.11 818,160 0.21 1,408,369 0.29 2,955,576 0.75

Loans against investment fund account (IFA) 742,281 0.16 1,240,321 0.32 744,922 0.15 1,252,356 0.32

Overdraft 82,285,004 17.67 64,580,408 16.79 81,952,524 16.97 64,406,420 16.28

7,140,851 1.53 6,573,733 1.71 7,222,750 1.50 6,645,599 1.68

Pawning 15,479,487 3.32 13,471,959 3.50 15,479,487 3.21 14,262,043 3.61

Credit cards 9,468,068 2.03 7,852,432 2.04 9,468,068 1.96 7,852,432 1.99

Money market loans 11,042,976 2.37 18,211,645 4.74 11,042,976 2.29 18,211,645 4.60

Factoring 2,564,273 0.55 1,382,810 0.36 4,635,379 0.96 2,619,645 0.66

Others 65,728 0.01 91,276 0.02 165,891 0.03 591,649 0.15

Sub total 407,416,379 87.45 336,021,611 87.37 424,424,051 87.90 346,982,012 87.72

By Product - Foreign Currency

Bills of exchange 2,719,494 0.58 2,778,082 0.72 2,719,494 0.56 2,778,082 0.70

303,043 0.07 182,884 0.05 303,043 0.06 182,884 0.05

Export loans 18,814,611 4.04 15,922,092 4.14 18,814,611 3.90 15,922,092 4.03

Import loans 3,678,585 0.79 4,161,772 1.08 3,678,585 0.76 4,161,772 1.05

Term loans 30,007,295 6.44 23,396,758 6.08 30,007,295 6.21 23,396,758 5.91

Overdraft 2,747,663 0.59 1,996,593 0.52 2,747,663 0.57 1,996,593 0.50

Others 188,638 0.04 145,587 0.04 188,638 0.04 145,587 0.04

Sub total 58,459,329 12.55 48,583,768 12.63 58,459,329 12.10 48,583,768 12.28

Total 465,875,708 100.00 384,605,379 100.00 482,883,380 100.00 395,565,780 100.00


ANNUAL REPORT 2016



27.8 Loans to and Receivables from Other Customers - By Industry

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 % Rs 000 % Rs 000 % Rs 000 %

Agriculture & related 43,832,852 9.41 39,028,789 10.15 45,202,464 9.36 39,806,376 10.06

Manufacturing 68,034,295 14.60 56,131,661 14.59 69,391,132 14.37 56,692,291 14.33

Tourism 36,269,354 7.79 23,906,626 6.22 36,628,630 7.59 24,026,527 6.07

Transport 6,099,152 1.31 9,333,403 2.43 6,121,094 1.27 9,582,623 2.42

Construction 72,751,253 15.62 53,484,404 13.91 73,621,495 15.25 53,823,140 13.61

Traders 113,974,071 24.46 95,369,936 24.80 117,633,201 24.36 97,410,518 24.63

Financial and business services 35,245,615 7.57 27,068,203 7.04 32,991,815 6.83 24,235,514 6.13

Government 617,236 0.13 495,801 0.13 617,236 0.13 495,801 0.13

Infrastructure 18,853,554 4.05 13,542,815 3.52 19,702,294 4.08 13,542,815 3.42

Other services 19,465,960 4.17 15,459,626 4.01 28,460,268 5.88 25,166,060 6.36

Consumers 50,732,366 10.89 50,784,115 13.20 52,513,751 10.88 50,784,115 12.84

465,875,708 100.00 384,605,379 100.00 482,883,380 100.00 395,565,780 100.00

28 OTHER LOANS AND RECEIVABLES

Bank & Group


Rs 000 Rs 000

Debentures - quoted (Note 28.1) 7,171,286 7,182,407

Preference shares (Note 28.2) - -

Sri Lanka Development Bonds (SLDBs) 28,389,925 22,642,983

2,629,514 3,542,884

Commercial papers (Note 28.4) 517,715 -

38,708,440 33,368,274


287

28.1 Debentures - Quoted

Bank & Group


Amortised Cost

Amortised Cost

Rs 000 Rs 000

Name of the Company

Banks, Finance & Insurance

Alliance Finance PLC 146,666 254,447

Central Finance Company PLC 303,052 347,876

Commercial Leasing & Finance PLC 495,280 470,935

DFCC Vardhana Bank 224,916 224,863

318,694 347,061

Lanka Orix Leasing Company PLC 511,311 511,342

Orient Finance PLC 400,595 418,745

Pan Asia Banking Corporation PLC 50,147 49,790

People’s Leasing & Finance PLC 742,482 742,520

Senkadagala Finance PLC 20,121 41,052

Singer Finance PLC 247,449 237,083

Softlogic Finance PLC 426,340 425,248

Vanik Incorporation Ltd (Note 28.1.1) - 750

3,887,053 4,071,712

Constructions & Engineering

Access Engineering PLC 303,707 303,707

MTD Walkers PLC 512,421 512,421

816,128 816,128

Abans PLC 604,886 731,072

507,911 204,872

12,662 12,662

Singer Sri Lanka PLC 754,621 758,672

1,880,080 1,707,278

Others

Kotagala Plantations PLC 78,131 78,146

Lion Brewery Ceylon PLC 509,894 509,893

588,025 588,039

Total 7,171,286 7,183,157

Provision for impairment - (750)

7,171,286 7,182,407

28.1.1


ANNUAL REPORT 2016


28 OTHER LOANS AND RECEIVABLES CONTD.

28.2 Preference SharesBank & Group


Amortised Cost

Amortised Cost

Rs 000 Rs 000

Texpro Industries Ltd - 12,604

(15% non - cumulative redeemable preference shares of Rs 10/- each redeemable over a period of 6 years commencing from 30th June 2003)

- 12,604

Provision for impairment - (12,604)

- -

Bank & Group


Amortised Cost

Amortised Cost

Rs 000 Rs 000

Citizens Development Business Finance PLC - 206,090

People's Leasing & Finance PLC 2,167,427 2,834,301

Associated Motor Finance Company PLC 114,532 226,893

Commercial Credit & Finance PLC 179,197 -

UB Finance Co Ltd 168,358 275,600

2,629,514 3,542,884

Provision for impairment - -

2,629,514 3,542,884

28.4 Commercial PapersBank & Group


Amortised Cost

Amortised Cost

Rs 000 Rs 000

517,715 -

517,715 -

Provision for impairment - -

517,715 -


289

29 FINANCIAL ASSETS - AVAILABLE FOR SALE

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Government securities - treasury bills (Note 29.1) 7,723,232 44,649,558 7,782,454 45,340,570

Government securities - treasury bonds (Note 29.2) 4,786,690 5,327,185 4,786,690 5,327,185

Quoted equity securities (Note 29.3) 1,729,560 1,217,611 1,729,560 1,217,611

Unquoted equity securities (Note 29.4) 30,708 56,057 30,764 56,113

14,270,190 51,250,411 14,329,468 51,941,479


Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Amortised cost 7,710,836 44,653,195 7,769,928 45,344,754

Loss from mark to market valuation as at 1st January (3,637) - (4,184) -


(2,204) - (2,204) -

Gain / (loss) from mark to market valuation as at 31st December 12,396 (3,637) 12,526 (4,184)

Market value 7,723,232 44,649,558 7,782,454 45,340,570

29.2 Government Securities - Treasury BondsBank & Group


Rs 000 Rs 000

Amortised cost 4,894,918 5,328,569

Loss from mark to market valuation as at 1st January (1,384) -

Movement during the year (105,672) (1,384)

(1,172) -

Loss from mark to market valuation as at 31st December (108,228) (1,384)

Market value 4,786,690 5,327,185


ANNUAL REPORT 2016


29 FINANCIAL ASSETS AVAILABLE FOR SALE CONTD.

29.3 Quoted Equity SecuritiesQuoted equity securities include the investment in ordinary shares of LankaBangla Finance Ltd in Bangladesh.

Bank & Group


No. of Ordinary

Shares Rs 000

No. of Ordinary

Shares Rs 000

Cost of the investment as at 1st January 22,792,770 355,544 20,720,700 289,628

Exchange gain 15,990 32,061

Scrip dividend received during the year 3,418,915 63,281 2,072,070 33,855

Cost of the investment as at 31st December 26,211,685 434,815 22,792,770 355,544

Gain from mark to market valuation as at 1st January 862,067 1,244,235

Movement during the year 432,678 (382,168)

Gain from mark to market valuation as at 31st December 1,294,745 862,067

Market Value 1,729,560 1,217,611


291

29.4 Unquoted Equity Securities


No. of Ordinary

Shares

Cost of Investment

Market Value

No. of Ordinary

Shares

Cost of Investment

Market Value

Rs 000 Rs 000 Rs 000 Rs 000

Bank

Name of the Company

LankaBangla Securities Ltd 266,805 44,600 1,107 242,550 42,434 10,940

Credit Information Bureau 1,700 170 170 1,700 170 170

SWIFT 26 6,556 6,556 26 6,556 6,556

Fitch Ratings Lanka Ltd 62,500 625 625 62,500 625 625

Lanka Clear (Pvt) Ltd 2,000,000 20,000 20,000 2,000,000 20,000 20,000

Lanka Financial Services Bureau Ltd 225,000 2,250 2,250 225,000 2,250 2,250

Lanka Rating Agency Ltd 1,241,263 15,516 - 1,241,263 15,516 15,516

Total 89,717 30,708 87,551 56,057

Impairment provision as at 1st January (31,494) (29,105)

Movement during the year (Note 12) (27,515) (2,389)

Impairment provision as at 31st December (59,009) (31,494)


Group

Name of the Company

LankaBangla Securities Ltd 266,805 44,600 1,107 242,550 42,434 10,940

Credit Information Bureau 1,800 226 226 1,800 226 226

SWIFT 26 6,556 6,556 26 6,556 6,556

Fitch Ratings Lanka Ltd 62,500 625 625 62,500 625 625

Lanka Clear (Pvt) Ltd 2,000,000 20,000 20,000 2,000,000 20,000 20,000

Lanka Financial Services Bureau Ltd 225,000 2,250 2,250 225,000 2,250 2,250

Lanka Rating Agency Ltd 1,241,263 15,516 - 1,241,263 15,516 15,516

Total 89,773 30,764 87,607 56,113

Impairment provision as at 1st January (31,494) (29,105)

Movement during the year (Note 12) (27,515) (2,389)

Impairment provision as at 31st December (59,009) (31,494)


Directors of the Bank carried out an impairment assessment of the unquoted share investments held by the Bank and concluded that a further impairment of Rs 27.5 Mn (Note 12) to be made against the investment in LankaBangla Securities Ltd (Rs 12 Mn) and Lanka Rating Agency Ltd (Rs 15.5 Mn) since there is a permanent decline in value of the investment. Other unquoted available for sale equity securities are recorded at cost since it is the most reasonable value available to represent the market value of these investments as at the reporting date.


ANNUAL REPORT 2016


30 FINANCIAL ASSETS - AVAILABLE FOR SALE PLEDGED AS COLLATERALS

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Government securities - treasury bills (Note 30.1) 657,903 2,758,241 598,681 2,067,229

Government securities - treasury bonds (Note 30.2) - 4,452,344 - 4,452,344

657,903 7,210,585 598,681 6,519,573


Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Amortised cost 656,746 2,759,110 597,654 2,067,551

Loss from mark to market valuation as at 1st January (869) - (322) -

Movement during the year 2,026 (869) 1,349 (322)

Gain / (loss) from mark to market valuation as at 31st December 1,157 (869) 1,027 (322)

Market value 657,903 2,758,241 598,681 2,067,229

30.2 Government Securities - Treasury BondsBank & Group


Rs 000 Rs 000

Amortised cost - 4,488,057

Loss from mark to market valuation as at 1st January (35,713) -

Movement during the year 35,713 (35,713)

Loss from mark to market valuation as at 31st December - (35,713)

Market value - 4,452,344

31 FINANCIAL ASSETS - HELD TO MATURITY

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Government securities - treasury bills & bonds - - 16,933 63,121

- - 16,933 63,121


293

32 INVESTMENT IN SUBSIDIARIES

Accounting Policy

Subsidiaries are entities that are controlled by the Bank. The Bank is presumed to control an investee when it is exposed or has rights to

reporting date the Bank reassesses whether it controls an investee if facts and circumstances indicate that there are changes to one ormore elements of control mentioned above.

The Financial Statements of Subsidiaries are fully consolidated from the date on which control is transferred to the Bank and continue to be consolidated until the date when such control ceases. The Financial Statements of the Bank’s Subsidiaries are prepared for the same reporting year as per the Bank, using consistent accounting policies.

The cost of acquisition of a Subsidiary is measured as the fair value of the consideration, including contingent consideration, given on the

acquisition. Subsequent to the initial measurement, the Bank continues to recognise the investments in Subsidiaries at cost.

The total assets and liabilities of the Subsidiaries as at the reporting date are included in the Consolidated Statement of Financial Position.

interest is presented in the Consolidated Statement of Financial Position within equity, separately from the equity attributable to the equity

Income. Total comprehensive income is allocated to the owners of the parent and to the non-controlling interests even if this results in non-

Intra-group balances and any income and expenses 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. When a Subsidiary is acquired or sold during the year, operating results of such Subsidiary is included from the date of acquisition or to the date of disposal. Upon the loss of control, the Group derecognises the assets and liabilities of

the loss of control is recognised in the Statement of Changes in Equity.

If the Group retains any interest in the previous Subsidiary, then such interest is measured at fair value at the date that control is lost.

The Bank acquired the total non-controlling interest (2.86%) of the Subsidiary, Sampath Centre Ltd for a consideration of Rs 100 Mn on 30th December 2016. Accordingly the carrying value of the non-controlling interest as at 30th December 2016 in excess of the consideration paid was transferred to shareholders’ funds.

Apart from the above the Group did not acquire / dispose any Subsidiary during the years ended 31st December 2016 and 31st December 2015.

of loans and advances.

All Subsidiaries of the Bank have been incorporated in Sri Lanka.


ANNUAL REPORT 2016


32 INVESTMENT IN SUBSIDIARIES CONTD.

32.1 Bank


Subsidiary Principal Activities Ownership Cost Directors' Valuation

Ownership Cost Directors' Valuation

Rs 000 Rs 000 Rs 000 Rs 000

Siyapatha Finance PLC Granting leasing, factoring, hire purchase & other loan facilities & accepting deposits 100.00% 576,975 1,930,355 100.00% 525,000 1,548,750

Sampath Centre Ltd Renting of commercial property 100.00% 547,000 4,357,835 97.14% 447,000 3,231,700

S C Securities (Pvt) Ltd Stock broking 100.00% 78,921 75,154 100.00% 78,921 145,928

Sampath Information Technology Solutions Ltd

Developing software solutions & maintenance of hardware 100.00% 29,000 105,068 100.00% 29,000 85,028

1,231,896 6,468,412 1,079,921 5,011,406

Impairment provision as at 1st January - -

Movement during the year (Note 12) (4,000) -

Impairment provision as at 31st December (4,000) -

Net investment in Subsidiaries 1,227,896 1,079,921

Subsidiaries are not quoted in the Colombo Stock Exchange except Siyapatha Finance PLC. The Directors’ valuation of investments in Subsidiaries has been carried out on net asset basis as at 31st December 2016 (2015 : as at 30th September) and accordingly the Bank has recognised an impairment charge of Rs 4 Mn against the investment in SC Securities (Pvt) Ltd.

Summarised Financial Statements of Subsidiaries within the Group are given in Note 32.2.


295

32.2 Summarised Financial Information of Subsidiaries

Siyapatha Finance PLC Sampath Centre Ltd S C Securities (Pvt) Ltd Sampath Information Technology Solutions Ltd

For the year ended 31st December 2016 2015 2016 2015 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Net operating income 1,451,798 1,332,263 320,821 281,244 16,559 35,559 233,471 155,214

Less : Operating expenses 808,111 679,804 123,022 100,442 56,206 52,792 205,392 123,666

643,687 652,459 197,799 180,802 (39,647) (17,233) 28,079 31,548

Less: Taxes 316,404 267,934 16,750 11,249 21,869 171 10,571 8,473

327,283 384,525 181,049 169,553 (61,516) (17,404) 17,508 23,075

Other comprehensive income (net of tax) (2,279) (1,980) 898,623 834 2,242 609 956 248

Total comprehensive income 325,004 382,545 1,079,672 170,387 (59,274) (16,795) 18,464 23,323

Siyapatha Finance PLC Sampath Centre Ltd S C Securities (Pvt) Ltd Sampath Information Technology Solutions Ltd

As at 31st December 2016 2015 2016 2015 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Loans to & receivables from other customers 19,353,684 13,680,275 - - - - - -

PPE & intangible assets 366,620 139,586 3,798,734 2,942,204 9,627 12,031 581,491 315,442

Other assets 1,070,436 819,465 649,026 456,076 197,164 263,222 311,157 100,516

Total assets 20,790,740 14,639,326 4,447,760 3,398,280 206,791 275,253 892,648 415,958

Debt issued & other borrowed funds 14,187,266 10,925,421 1,324 1,064 53,772 71,210 521,571 271,840

Other liabilities 4,673,121 2,102,773 88,601 84,053 77,865 56,888 266,009 57,515

Total liabilities 18,860,387 13,028,194 89,925 85,117 131,637 128,098 787,580 329,355

Total equity 1,930,355 1,611,132 4,357,835 3,313,163 75,154 147,155 105,068 86,603

Total liabilities & equity 20,790,740 14,639,326 4,447,760 3,398,280 206,791 275,253 892,648 415,958

33 PROPERTY, PLANT AND EQUIPMENT

Accounting Policy

RecognitionProperty, plant and equipment are tangible items that are held for use in the production or supply of services, for rental to others or for administrative purposes and are expected to be used during more than one period. The Group applies the requirements of the Sri Lanka Accounting Standard - LKAS 16 (Property, Plant and Equipment) in accounting for these assets. Property, plant and equipment are

reliably measured. Measurement

that is directly attributable to the acquisition of the asset and cost incurred subsequently to add to, replace part of an item of property, plant & equipment. 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

components) of property, plant and equipment.


ANNUAL REPORT 2016


33 PROPERTY, PLANT AND EQUIPMENT CONTD.

Cost ModelThe Group applies cost model to property, plant and 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 ModelThe Group applies the revaluation model to 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

from the fair values at the reporting date. The Group has revalued its freehold land & building during the year 2016 and details of the revaluation are given in Note 33.3.

On revaluation of an asset, any increase in the carrying amount is recognised in ‘Other comprehensive income’ and accumulated in equity, under revaluation reserve or used to reverse a previous revaluation decrease relating to the same asset, which was charged to

income to the extent of any credit balance existing in the capital reserve in respect of that asset.

The decrease recognised in other comprehensive income reduces the amount accumulated in equity under capital reserves. Any balance remaining in the revaluation reserve in respect of an asset is transferred directly to retained earnings on retirement or disposal of the asset.

Subsequent CostThe subsequent cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of the item

Derecognition

expected from its use. The gain or loss arising from de-recognition of an item of property, plant and equipment is included in the Statement

plant and 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.

Capital Work in ProgressThese are expenses of capital nature directly incurred in the construction of buildings, major plant, machinery and system development, awaiting capitalisation. Capital work-in-progress would be transferred to the relevant asset when it is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Capital work-in-progress is stated at cost less any accumulated impairment losses.

Borrowing CostsBorrowing 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 - LKAS 23 (Borrowing Costs). A qualifying asset is an asset which takes substantial period of time to get ready for its intended use or sale. Capitalisation of borrowing costs ceases when substantially

or loss in the period in which they are incurred.

There were no capitalized borrowing costs related to the acquisition of property, plant and equipment during the year.

Rates of depreciation for each category of property, plant and equipment is given in Note 14, ‘Other operating expenses’.


297

33.1 Bank

Freehold Land &

Improvementsto Leasehold

Computer Equipment Equipment

Fixtures &Fittings

Motor Vehicles

Capital Work-in

2016Total

2015Total

Buildings properties ProgressRs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Cost / ValuationBalance as at 1st January 3,529,953 1,050,787 2,320,558 1,830,125 178,393 209,706 - 9,119,522 8,492,096 Additions & improvements 50,044 69,997 251,341 166,876 32,665 49,018 37,403 657,344 815,127 Disposals during the year - (5,862) (2,442) (9,537) (906) (8,837) - (27,584) (68,798)

- - (732) (815) - - - (1,547) (118,651)Revaluation adjustment on accumulated depreciation (75,015) - - - - - - (75,015) - Revaluation surplus 604,243 - - - - - - 604,243 - Transfers / adjustments - (19) (93) 247 143 - - 278 (252)Cost / valuation as at 31st December 4,109,225 1,114,903 2,568,632 1,986,896 210,295 249,887 37,403 10,277,241 9,119,522

Accumulated DepreciationBalance as at 1st January 49,923 816,430 1,573,626 1,132,902 121,568 111,582 - 3,806,031 3,350,248 Charge for the year 28,097 97,473 223,949 202,564 21,997 25,001 - 599,081 604,945 Disposals during the year - (5,813) (2,341) (8,721) (862) (5,547) - (23,284) (54,878)

- - (732) (752) - - - (1,484) (94,284)Revaluation adjustment on accumulated depreciation (75,015) - - - - - - (75,015) - Transfers / adjustments - - 14 247 134 - - 395 - Accumulated depreciation as at 31st December 3,005 908,090 1,794,516 1,326,240 142,837 131,036 - 4,305,724 3,806,031 Net book value as at 31st December 2016 4,106,220 206,813 774,116 660,656 67,458 118,851 37,403 5,971,517 Net book value as at 31st December 2015 3,480,030 234,357 746,932 697,223 56,825 98,124 - 5,313,491

revaluation surplus amounting to Rs 602 Mn had been credited to the revaluation reserve account in 2016. Net impairment reversal of

33.1 (a) The carrying amount of Bank’s revalued freehold land and buildings, if they were carried at cost less accumulated depreciation, would be as follows:


Cost Accumulated Carrying Cost Accumulated Carrying

Depreciation Value Depreciation Value

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Freehold lands 855,934 - 855,934 855,934 - 855,934

Freehold buildings 1,003,126 172,349 830,777 953,082 147,879 805,203

Total 1,859,060 172,349 1,686,711 1,809,016 147,879 1,661,137


ANNUAL REPORT 2016



33.2 Group

Freehold Land &

Improvementsto Leasehold

Computer Equipment Equipment

Fixtures &Fittings

Motor Vehicles

Capital Work-in

2016Total

2015Total

Buildings properties ProgressRs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Cost / ValuationBalance as at 1st January 6,518,451 1,050,787 2,840,495 1,973,054 249,975 244,594 - 12,877,356 11,959,039 Additions & improvements 262,578 69,997 683,676 183,292 75,539 49,018 37,403 1,361,503 1,113,213 Disposals during the year - (5,862) (2,442) (9,562) (906) (13,147) - (31,919) (70,274)

- - (732) (815) - - - (1,547) (124,370)Revaluation adjustment on accumulated depreciation (216,936) - - - - - - (216,936) -Revaluation surplus 1,502,820 - - - - - - 1,502,820 -Transfers / adjustments - (19) (93) 247 143 - - 278 (252)Cost / valuation as at 31st December 8,066,913 1,114,903 3,520,904 2,146,216 324,751 280,465 37,403 15,491,555 12,877,356

Accumulated DepreciationBalance as at 1st January 148,304 816,430 1,771,209 1,173,620 143,324 127,892 - 4,180,779 3,570,441 Charge for the year 80,107 97,473 378,371 216,776 41,171 31,274 - 845,172 766,527 Disposals during the year - (5,813) (2,341) (8,747) (862) (7,815) - (25,578) (56,186)

- - (732) (752) - - - (1,484) (100,003)Revaluation adjustment on accumulated depreciation (216,936) - - - - - - (216,936) -Transfers / adjustments - - 14 247 134 - - 395 - Accumulated depreciation as at 31st December 11,475 908,090 2,146,521 1,381,144 183,767 151,351 - 4,782,348 4,180,779 Net book value as at 31st December 2016 8,055,438 206,813 1,374,383 765,072 140,984 129,114 37,403 10,709,207 Net book value as at 31st December 2015 6,370,147 234,357 1,069,286 799,434 106,651 116,702 - 8,696,577

revaluation surplus amounting to Rs 1,500.8 Mn had been credited to the revaluation reserve account in 2016. Net impairment reversal of

33.2 (a) The carrying amount of Group’s revalued freehold land and buildings, if they were carried at cost less accumulated depreciation, would be as follows:


Cost Accumulated Carrying Cost Accumulated Carrying

Depreciation Value Depreciation Value

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Freehold lands 1,195,013 - 1,195,013 990,934 - 990,934

Freehold buildings 1,743,495 345,464 1,398,031 1,684,997 306,186 1,378,811

Total 2,938,508 345,464 2,593,044 2,675,931 306,186 2,369,745


299

33.3 Details of Bank’s / Group’s Land and Buildings Stated at Valuation

Location Date of Valuation

Method of Valuation Net Book Value Before Revaluation

Revaluation Amount

Revaluation Gain / (Loss)

Revaluation Gain / (Loss)

Recognised inLand Building Land Building Land Building Total

LossOCI

Rs Mn Rs Mn Rs Mn Rs Mn Rs Mn Rs Mn Rs Mn Rs Mn Rs Mn

BankValuer - P B KalugalagedaraNo. 261, Galle Road, Ratmalana 30.11.2016 Market Comparable Method 22.00 20.05 30.00 23.00 8.00 2.95 10.95 - 10.95

Valuer - C WellappiliNo.1022, Maradana Road, Borella 29.11.2016 Market Comparable Method 140.25 65.44 255.00 100.11 114.75 34.67 149.42 - 149.42 No.05, Wakwella Road, Galle 01.12.2016 Market Comparable Method 78.66 20.42 104.88 29.84 26.22 9.42 35.64 - 35.64

12.11.2016 Market Comparable Method 31.00 - 41.50 - 10.50 - 10.50 - 10.50

Maharagama 29.11.2016 Market Comparable Method 46.35 24.65 67.30 35.89 20.95 11.24 32.19 - 32.19

Valuer - E M Wimalasena“Nuwarawewakele”, Maithreepala Senanayake Mw, Anuradhapura 30.11.2016 Market Comparable Method 123.85 69.21 165.00 69.00 41.15 (0.21) 40.94 (0.21) 41.15

Valuer - G M GamageNo. 69, Main Street, Deniyaya 01.12.2016 Market Comparable Method 16.64 26.74 21.90 25.78 5.26 (0.96) 4.29 (0.96) 5.26

Ihalagama Road, Deniyaya 01.12.2016 Market Comparable Method 6.00 - 0.60 - (5.40) - (5.40) (0.33) (5.07) 01.12.2016 Market Comparable Method 131.15 29.00 166.92 37.59 35.77 8.59 44.35 - 44.35

No. 25-27, Main Street, Thissamaharama. 01.12.2016 Market Comparable Method 14.43 26.93 17.76 33.49 3.33 6.56 9.89 - 9.89

Valuer - Sarath FernandoNo. 7/5, Giriulla Road, Alawwa 21.11.2016 Market Comparable Method 16.52 20.06 20.50 26.50 3.98 6.44 10.42 - 10.42 No. 103, Dharmapala Mawatha,

02.12.2016 Market Comparable Method 645.40 67.37 700.00 68.00 54.60 0.63 55.23 - 55.23 No. 150, Colombo Road, Gampaha 02.12.2016 Market Comparable Method 49.80 40.14 62.00 41.00 12.20 0.86 13.06 - 13.06 No. 312/A, Galle Road, Kalutara 21.11.2016 Market Comparable Method 67.50 61.00 75.00 68.00 7.50 7.00 14.50 - 14.50 No. 29, Cross Street, Kandy 21.11.2016 Market Comparable Method 228.50 87.53 240.00 97.50 11.50 9.97 21.47 - 21.47 No. 187, Madawala Road, Katugastota 21.11.2016 Market Comparable Method 63.80 61.24 69.60 66.70 5.80 5.46 11.26 - 11.26 No. 31 & 33, Negombo Road, Kurunegala 03.12.2016 Market Comparable Method 121.80 89.68 130.50 91.00 8.71 1.32 10.03 - 10.03 No. 475, Elvitigala Mawatha, Narahenpita 21.11.2016 Market Comparable Method 85.00 56.00 94.00 63.00 9.00 7.00 16.00 - 16.00 No. 408, Main Street, Negombo 21.11.2016 Market Comparable Method 72.63 - 103.75 - 31.13 - 31.13 - 31.13 No. 371, Old Moor St, Masangasweediya, Colombo 12 21.11.2016 Market Comparable Method 126.00 24.07 132.00 28.00 6.00 3.93 9.93 - 9.93 No. 373 A, Galle Road, Panadura 21.11.2016 Market Comparable Method 54.00 47.16 61.50 52.50 7.50 5.34 12.84 1.42 11.42 No. 85/87, Panchikawatta Road, Colombo 10 03.12.2016 Market Comparable Method 65.00 12.31 66.00 31.94 1.00 19.63 20.63 - 20.63 No. 180(part), Bodiraja Mawatha, Pettah 21.11.2016 Income Basis - 58.28 - 69.89 - 11.62 11.62 - 11.62 No. 61A, Moratuwa Road, Piliyandala 21.11.2016 Market Comparable Method 56.00 30.97 65.00 34.00 9.00 3.03 12.03 - 12.03 No. 1/87, Victoria Range, Digana, Kandy 21.11.2016 Market Comparable Method 5.50 9.65 7.00 10.80 1.50 1.15 2.65 - 2.65 No. 256/1, Negombo Road, Wattala 03.12.2016 Market Comparable Method 80.00 38.87 89.00 41.00 9.00 2.13 11.13 2.13 9.00 No. 591, Galle Road, Wellawatta 21.11.2016 Market Comparable Method 113.00 57.43 118.00 60.00 5.00 2.57 7.57 - 7.57 Total - Bank 2,460.78 1,044.20 2,904.71 1,204.53 443.94 160.34 604.27 2.05 602.23

SubsidiariesValuer - P B KalugalagedaraSampath Centre Ltd. - No. 110, Sir James Peiris Mawatha, Colombo 2 31.12.2016 Income basis 1,265.00 1,532.42 1,972.00 1,724.00 707.00 191.58 898.58 - 898.58

Valuer - C WellappiliSiyapatha Finance PLC - No. 534, Bauddhaloka Mawatha, Colombo 8 31.12.2016 Market Comparable Method 204.08 - 204.08 - - - - - -Total - Group 3,929.86 2,576.62 5,080.79 2,928.53 1,150.94 351.92 1,502.85 2.05 1,500.81


ANNUAL REPORT 2016



33.4 Freehold Land and Buildings

Location Land Buildings Cost / Cost / Total Accumulated 2016 As a % 2015

Extent Revaluation Revaluation Value Depreciation Net Book of Total Net Book

of Land of Buildings Value NBV Value

Perches Sq.ft Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Bank

1 Pettah - 5,124 - 69,892 69,892 237 69,655 0.9% 59,152

No. 180 (part), Bodiraja Mawatha,

Pettah

2 Borella 25.5 16,245 255,000 100,113 355,113 243 354,870 4.4% 207,317

No. 1022, Maradana Road, Borella

3 Kurunegala 37.4 16,202 130,500 91,000 221,500 221 221,279 2.7% 198,107

No. 31 & 33, Negombo Road,

Kurunegala

4 Wattala 42.5 5,314 89,000 41,000 130,000 87 129,913 1.6% 119,838

No. 256/1, Negombo Road, Wattala

5 Matara 47.7 11,141 166,915 37,585 204,500 80 204,420 2.5% 160,153

6 Maharagama 13.5 6,310 67,300 35,888 103,188 87 103,101 1.3% 71,613

Maharagama

7 Deniyaya 17.5 5,325 21,900 25,780 47,680 55 47,625 0.6% 44,051

No. 69, Main Street, Deniyaya

8 Deniyaya 40.0 Bare Land 600 - 600 - 600 0.0% 6,000

Ihalagama Road, Deniyaya

9 Ratmalana 10.9 5,520 30,000 23,000 53,000 51 52,949 0.7% 42,381

No. 261, Galle Road, Ratmalana

10 Piliyandala 37.5 8,138 65,000 34,000 99,000 83 98,917 1.2% 87,238

No. 61A, Moratuwa Road, Piliyandala

11 Anuradhapura 41.3 8,982 165,000 69,000 234,000 147 233,853 2.9% 194,748

“Nuwarawewakele”, Maithreepala

Senanayake Mw, Anuradhapura

12 Panadura 27.3 6,020 61,500 52,500 114,000 127 113,873 1.4% 102,081

No. 373 A, Galle Road, Panadura

13 Old Moor Street 24.0 10,180 132,000 28,000 160,000 159 159,841 2.0% 150,647

No. 371, Old Moor St,

Masangasweediya, Colombo 12

14 Tissamaharama 22.2 10,815 17,760 33,485 51,245 71 51,174 0.6% 42,027

No. 25-27, Main Street,

Tissamaharama

15 Katugastota 23.2 7,811 69,600 66,700 136,300 142 136,158 1.7% 126,554

No. 187, Madawala Road, Katugastota

16 Galle 17.5 5,400 104,880 29,835 134,715 72 134,643 1.7% 98,663

No. 05, Wakwella Road, Galle

17 Wellawatte 21.5 7,776 118,000 60,000 178,000 134 177,866 2.2% 171,853

No. 591, Galle Road, Wellawatta


301

Location Land Buildings Cost / Cost / Total Accumulated 2016 As a % 2015

Extent Revaluation Revaluation Value Depreciation Net Book of Total Net Book

of Land of Buildings Value NBV Value

Perches Sq.ft Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

18 Narahenpita 18.9 9,600 94,000 63,000 157,000 141 156,859 1.9% 142,359

No. 475, Elvitigala Mawatha,

Narahenpita

19 Kalutara 30.0 8,715 75,000 68,000 143,000 152 142,848 1.8% 110,713

No. 312/A, Galle Road, Kalutara

20 Alawwa 20.7 8,190 20,500 26,500 47,000 113 46,887 0.6% 37,080

No. 7/5, Giriulla Road, Alawwa

21 Horana 20.8 Bare Land 41,500 - 41,500 - 41,500 0.5% 31,000

22 Kandy Metro 25.4 15,026 240,000 97,500 337,500 237 337,263 4.2% 318,081

No. 29, Cross Street, Kandy

23 Colombo 7 119.4 6,620 700,000 68,000 768,000 144 767,856 9.5% 714,426

No. 103, Dharmapala Mawatha,

24 Gampaha 25.0 5,680 62,000 41,000 103,000 87 102,913 1.3% 90,932

No. 150, Colombo Road, Gampaha

25 Victoria Range 20.1 2,320 7,000 10,800 17,800 26 17,774 0.2% 15,391

No. 1/87, Victoria Range, Digana,

Kandy

26 Panchikawatta 9.8 7,020 66,000 31,942 97,942 109 97,833 1.2% 65,000

No. 85/87, Panchikawatta Road,

Colombo 10

27 Negombo 41.5 WIP 103,750 - 103,750 - 103,750 1.3% 72,625

No. 408, Main Street, Negombo

Total - Bank 781.1 199,474 2,904,705 1,204,520 4,109,225 3,005 4,106,220 51.0% 3,480,030

Subsidiaries

Sampath Centre Ltd

28 Colombo 2

No. 110, Sir James Peiris Mawatha,

Colombo 2

157.8 220,301 1,972,000 1,781,609 3,753,609 8,470 3,745,139 46.5% 2,890,117


29 Borella 29.1 Bare Land 204,079 - 204,079 - 204,079 2.5% -

No. 534, Bauddhaloka Mawatha,

Colombo 8

Total - Group 968.0 419,775 5,080,784 2,986,129 8,066,913 11,475 8,055,438 100.0% 6,370,147


ANNUAL REPORT 2016



33.5 (a) Improvements to Leasehold Properties

Bank & Group

As at 31st December Cost of Accumulated 2016 2015

Buildings Depreciation Net Book Net Book

Value Value

Rs 000 Rs 000 Rs 000 Rs 000

01 - 05 years 229,320 197,703 31,617 42,295

06 - 10 years 587,083 499,042 88,041 172,464

Above 10 years 298,500 211,345 87,155 19,598

Total 1,114,903 908,090 206,813 234,357

33.5 (b) Fully Depreciated Property, Plant and Equipment A class-wise analysis of the initial cost of fully depreciated property, plant and equipment of the Bank which are still in use as at reporting date is as follows.

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Asset class

Improvements to leasehold properties 672,383 514,857 672,383 514,857

Computer equipment & software 1,842,189 1,611,528 1,882,420 1,650,977

541,405 409,502 551,869 415,513

92,333 72,632 95,856 77,872

Motor vehicles 44,592 11,307 53,034 13,383

Total 3,192,902 2,619,826 3,255,562 2,672,602

33.5 (c) Temporarily Idle Property, Plant and Equipment - Bank / Group

to construct a branch in Deniyaya land as it was severely earth slipped. Any future construction on this land is subjected to NBRO (National

33.5 (d) Property, Plant and Equipment Retired from Active Use - Bank / Group There were no property, plant and equipment retired from active use as at the reporting date (2015: NIL)

33.5 (e) Title Restriction on Property, Plant and Equipment - Bank / Group There were no restriction on the title of property, plant and equipment as at 31st December 2016.

33.5 (f) Property, Plant and Equipment Pledged as Security for Liabilities - Bank / Group There were no items of property, plant and equipment pledged as securities for liabilities.

33.5 (g) Compensation from Third Parties for Items of Property, Plant and Equipment - Bank / Group There were no compensation received during the year from third parties for items of property, plant and equipment that were impaired, lost or given up (2015: Nil).


303

34 INTANGIBLE ASSETS

Accounting Policy

Recognition

or services, for rental to others or for administrative purposes. An intangible asset is recognised if it is probable that the future economic

initially measured at cost. Expenditure incurred on an intangible item that was initially recognised as an expense by the Group in previous annual Financial Statements or interim Financial Statements are not recognised as part of the cost of an intangible asset at a later date.

Computer SoftwareCost of purchased licenses and all computer software costs incurred, licensed for use by the Group, which are not integrally related to

included in the Statement of Financial Position under the category ‘Intangible assets’ and carried at cost less accumulated amortisation and any accumulated impairment losses.

GoodwillGoodwill, if any that arises upon the acquisition of Subsidiaries is included in intangible assets. Goodwill is measured at initial recognition in accordance with Note 3.1.1.

Subsequent ExpenditureExpenditure incurred on software is capitalised only when it is probable that this expenditure will enable the asset to generate future

asset reliably. All other expenditure is expensed as incurred.

Goodwill is measured at cost less accumulated impairment losses.

Derecognition of Intangible Assets

is derecognised.

There were no restrictions on the title of the intangible assets as at the reporting date. Further, there were no items pledged as securities for liabilities.

Intangible assets reported below only include computer software and cost of licenses. Rates of amortisation for computer software and licenses are given in Note 14, ‘Other operating expenses’.

Bank Group

2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Cost


Additions & improvements 105,164 69,247 108,011 77,376

Cost as at 31st December 1,294,959 1,189,795 1,359,300 1,251,289

Accumulated amortisation

Balance as at 1st January 847,602 752,386 882,920 779,581

Charge for the year 110,009 95,216 120,249 103,339

Accumulated amortisation as at 31st December 957,611 847,602 1,003,169 882,920

Net book value as at 31st December 337,348 342,193 356,131 368,369


ANNUAL REPORT 2016


35 DEFERRED TAX LIABILITIES / (ASSETS)

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Recognised under assets - - (857) (23,368)

Recognised under liabilities 872,794 313,181 1,077,674 433,175

872,794 313,181 1,076,817 409,807

Financial Position.

35.1 Movement in Deferred Tax Liabilities / (Assets)

Bank Accelerated Depreciation for Tax

Purpose

Revaluation on

Buildings

Retirement

Obligation

Tax Losses on

Leasing Operation

Others Total

Property, Plant &

Equipment

Leased Assets

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Balance as at 01st January 2015 325,887 446,706 74,410 (313,404) (114,034) (275,988) 143,577

(25,810) 371,231 - (16,080) (283,150) 90,950 137,141

Other comprehensive income - - - 32,463 - - 32,463

Balance as at 31st December 2015 300,077 817,937 74,410 (297,021) (397,184) (185,038) 313,181


40,721 89,497 - (31,861) 89,165 169,766 357,288

Other comprehensive income - - 44,223 158,102 - - 202,325

Balance as at 31st December 2016 340,798 907,434 118,633 (170,780) (308,019) (15,272) 872,794


305

Group Accelerated Depreciation for Tax

Purpose

Revaluation on

Buildings

Retirement

Obligation

Tax Losses on

Leasing Operation

Others Total

Property, Plant &

Equipment

Leased Assets

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000


(25,810) 596,988 - 2,528 (474,882) 78,679 177,503

Other comprehensive income - - - 32,027 - - 32,027

Balance as at 31st December 2015 300,077 1,219,942 74,410 (294,281) (645,956) (244,385) 409,807

Balance as at 01st January 2016 300,077 1,219,942 74,410 (294,281) (645,956) (244,385) 409,807

77,021 349,770 - (43,768) (109,867) 191,171 464,327

Other comprehensive income - - 44,223 158,460 - - 202,683

Balance as at 31st December 2016 377,098 1,569,712 118,633 (179,589) (755,823) (53,214) 1,076,817

36 OTHER ASSETS

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Pre-paid expenses 480,434 246,869 530,250 274,441

Reimbursement receivable under special senior citizen deposit scheme 2,045,253 790,178 2,045,253 790,178

Other debtors 1,686,734 1,178,419 2,211,133 1,453,518

Net assets of pension fund (Note 42.4.1) 138,511 - 138,511 -

1,960,290 1,911,559 1,966,756 1,911,559

Refundable deposit at fair value 80,902 75,884 36,618 18,762

Pre-paid cost on refundable deposit 2,720 2,915 2,720 2,915

115,370 124,109 115,370 124,109

6,510,214 4,329,933 7,046,611 4,575,482

Bank Group

2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000


Add : Adjustment for new grants (net of settlements) 289,247 115,709 298,130 115,709

Charge to personnel expenses (240,516) (247,782) (242,933) (247,782)

Balance as at 31st December (Note 27) 1,960,290 1,911,559 1,966,756 1,911,559


ANNUAL REPORT 2016


36 OTHER ASSETS CONTD.

36.2 Commission Receivable on Financial GuaranteesBank & Group

2016 2015

Rs 000 Rs 000

Balance as at 1st January 124,109 131,479

Interest income 10,212 10,852

Commission received (18,951) (18,222)

Balance as at 31st December 115,370 124,109

37 DUE TO BANKS

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Call & time deposits 5,706,432 3,087,892 5,706,432 3,087,892

Unfavourable balances with local & foreign banks 317,500 330,607 364,764 330,607

6,023,932 3,418,499 6,071,196 3,418,499

38 DUE TO OTHER CUSTOMERS

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Local Currency Deposits

Demand deposits 30,561,191 29,511,406 30,557,062 29,409,394

Saving deposits 147,256,035 146,551,907 147,127,848 146,539,292

Call deposits 272,092 674,388 272,092 674,388

Fixed deposits 269,073,258 178,534,080 272,074,535 179,490,003

14,842,324 13,025,445 14,842,324 13,025,445

Margin deposits 1,201,267 1,382,811 1,199,517 1,382,811

Total local currency deposits 463,206,167 369,680,037 466,073,378 370,521,333

Foreign Currency Deposits

Demand deposits 4,306,679 3,289,832 4,306,679 3,289,832

Saving deposits 16,087,604 14,139,760 16,087,564 14,139,110

Call deposits 659,389 60,565 659,389 60,565

Fixed deposits 26,291,326 19,076,628 26,291,326 19,076,628

Margin deposits 15,490 76,197 15,490 76,197

Total foreign currency deposits 47,360,488 36,642,982 47,360,448 36,642,332

Total deposits 510,566,655 406,323,019 513,433,826 407,163,665


307

38.1 Current Accounts and Savings Accounts (CASA)

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

CASA

Local currency deposits 177,817,226 176,063,313 177,684,910 175,948,686

Foreign currency deposits 20,394,283 17,429,592 20,394,243 17,428,942

198,211,509 193,492,905 198,079,153 193,377,628

Total Deposits

Due to other customers 510,566,655 406,323,019 513,433,826 407,163,665

Due to banks - Call & time deposits (Note 37) 5,706,432 3,087,892 5,706,432 3,087,892

516,273,087 409,410,911 519,140,258 410,251,557

CASA as a percentage (%) of total deposits 38.4 47.3 38.2 47.1

39 DEBT ISSUED AND OTHER BORROWED FUNDS

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Commercial papers - - - 206

Redeemable debentures (Note 39.1) 27,009,027 20,581,099 30,624,287 21,601,700

Long term bond (Note 39.2) 1,942,931 1,780,008 1,942,931 1,780,008

Call borrowings 552,712 3,200,561 552,712 3,200,561

Term borrowings 3,176,712 3,081,384 11,612,447 10,215,270

Foreign currency borrowings 35,363,132 24,179,687 35,363,132 24,179,687

4,083,723 4,193,545 4,083,723 4,193,545

72,128,237 57,016,284 84,179,232 65,170,977

The Group / Bank has not had any default of principal, interest or other breaches with regard to any liability during 2015 and 2016.


ANNUAL REPORT 2016


39 DEBT ISSUED AND OTHER BORROWED FUNDS CONTD.

39.1 Redeemable Debentures

Bank Group

2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000


Debentures issued 6,000,000 7,000,000 8,500,000 7,000,000

Debentures redeemed - - - (267,330)

26,581,099 20,500,000 30,101,700 21,500,000

Interest accrued during the year (Note 7.2) 2,592,619 1,546,818 2,778,210 1,668,838

Interest paid (2,164,691) (1,465,719) (2,255,623) (1,567,138)


Details of debenture issued

Amortised Cost

Note No. of Debentures

Face ValueRs 000

2016Rs 000

2015Rs 000

Debentures issued in 2012 39.1.1 15,000,000 1,500,000 1,500,000 1,500,000




Debentures issued in 2016 39.1.5 60,000,000 6,000,000 6,425,433 -

Total debentures issued by the Bank 26,500,000 27,009,027 20,581,099

Debentures issued by the Subsidiary, Siyapatha Finance PLC


Debentures issued in 2016 39.1.7 25,000,000 2,500,000 2,593,233 -

Total debentures issued by the Subsidiary 3,500,000 3,615,260 1,020,601

Total debentures issued by the Group 30,000,000 30,624,287 21,601,700


309

Debentures Issued by the Bank:39.1.1 Debentures Issued in 2012Rated unsecured subordinated redeemable 5-year debentures of Rs 100/- each issued in 2012. The debentures are quoted on the Colombo Stock Exchange.

No. of Face Amortised Cost Allotment Maturity Rate of Interest

Debentures ValueRs 000

2016Rs 000

2015Rs 000

Date Date

10,776,800 1,077,680 1,077,680 1,077,680 12-Oct-12 11-Oct-17 Fixed - 16.5 % per annum payable annually

2,477,900 247,790 247,790 247,790 12-Oct-12 11-Oct-17 Fixed - 15.0 % per annum payable monthly

1,745,300 174,530 174,530 174,530 12-Oct-12 11-Oct-17 Floating rate is equivalent to the six months treasury bill rate (gross) plus 2.0 % per annum payable semi-annually

15,000,000 1,500,000 1,500,000 1,500,000

39.1.2 Debentures Issued in 2013Rated unsecured subordinated redeemable 5-year debentures of Rs 100/- each issued in 2013. The debentures are quoted on the Colombo Stock Exchange.



2016Rs 000

2015Rs 000

Date Date

15,541,900 1,554,190 1,554,190 1,554,190 04-Dec-13 04-Dec-18 Fixed - 13.00 % per annum payable semi-annually

34,458,100 3,445,810 3,445,810 3,445,810 04-Dec-13 04-Dec-18 Fixed - 13.40 % per annum payable annually

50,000,000 5,000,000 5,000,000 5,000,000




2016Rs 000

2015Rs 000

Date Date

31,765,500 3,176,550 3,176,550 3,176,550 15-Dec-14 14-Dec-19 Fixed - 8.25% per annum payable annually

38,234,500 3,823,450 3,823,450 3,823,450 15-Dec-14 14-Dec-19 Fixed - 8.10% per annum payable semi annually

70,000,000 7,000,000 7,000,000 7,000,000


ANNUAL REPORT 2016


39 DEBT ISSUED AND OTHER BORROWED FUNDS CONTD.




2016Rs 000

2015Rs 000

Date Date

67,412,700 6,741,270 6,821,502 6,819,894 18-Nov-15 17-Nov-20 Fixed - 9.90% per annum payable semi annually

2,587,300 258,730 262,092 261,205 18-Nov-15 17-Nov-20 Floating rate is equivalent to the six months treasury bill rate (net) plus 1.25 % per annum payable semi-annually

70,000,000 7,000,000 7,083,594 7,081,099




2016Rs 000

2015Rs 000

Date Date

59,526,500 5,952,650 6,377,752 - 10-Jun-16 09-Jun-21 Fixed - 12.75% per annum payable annually

473,500 47,350 47,681 - 10-Jun-16 09-Jun-21 Floating rate is equivalent to the six months treasury bill rate (gross) plus 1% per annum payable semi-annually

60,000,000 6,000,000 6,425,433 -

Debentures Issued by the Subsidiary, Siyapatha Finance PLC:




2016Rs 000

2015Rs 000

Date Date

10,000,000 1,000,000 1,022,027 1,020,601 24-Dec-14 24-Dec-19 Fixed - 8.90% per annum payable annually

10,000,000 1,000,000 1,022,027 1,020,601


311

39.1.7 Debentures Issued in 2016Rated unsecured senior transferable fully paid redeemable 5 year & 3 year debentures of Rs 100/- each issued in 2016. The debentures are quoted on the Colombo Stock Exchange.



2016Rs 000

2015Rs 000

Date Date

14,219,900 1,421,990 1,474,156 - 20-Sep-16 19-Sep-19 Fixed - 13.00% per annum payable annually

10,780,100 1,078,010 1,119,077 - 20-Sep-16 19-Sep-21 Fixed - 13.50% per annum payable annually

25,000,000 2,500,000 2,593,233 -

39.2 Long Term Bond The Bank has issued a redeemable zero coupon bond in 2003 with a redemption value of Rs 3,458 Mn which will be matured on 1st August 2023.

Bank & Group

2016 2015

Rs 000 Rs 000

Balance as at 1st January 1,780,008 1,630,747

Interest accrued 162,923 149,261

Balance as at 31st December 1,942,931 1,780,008

40 CURRENT TAX LIABILITIES / (RECEIVABLES)

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Current tax liabilities 4,316,297 4,939,539 4,386,251 5,021,362

Current tax receivables - - (10,365) (2,249)

Net current tax liability (Note 40.1) 4,316,297 4,939,539 4,375,886 5,019,113

40.1 Current Tax Liabilities / (Receivables)

Bank Group

2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000


- 250,000 - 250,000

3,691,014 2,829,791 3,825,441 2,980,191

(Over) / under provision in respect of previous years (Note 16) (573,114) - (577,485) 3,759

Payment of tax (3,741,142) (459,897) (3,891,183) (650,871)



ANNUAL REPORT 2016


41 OTHER LIABILITIES

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Deposit insurance premium 143,654 115,822 144,035 115,973 Deferred guarantee income 364,726 293,525 364,773 293,525 Accrued expenses 2,827,915 1,738,123 3,654,849 2,289,189 Bills payable 1,947,686 1,718,205 1,947,686 1,718,205 Items in transit 790,531 470,254 790,531 470,254 Other payable 2,984,889 2,880,714 3,280,708 3,045,846

9,059,401 7,216,643 10,182,582 7,932,992

42 OTHER PROVISIONS

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Provision for gratuity (Note 42.1) 497,993 414,373 531,628 446,214 Leave accrual plan (Note 42.2) 167,503 140,186 167,503 140,186 EPF interest guarantee plan (Note 42.3) 82,944 78,992 82,944 78,992 Liability for pension fund (Note 42.4) - 427,234 - 427,234

748,440 1,060,785 782,075 1,092,626

42.1 Provision for Gratuity

Bank Group

2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Balance as at 1st January 414,373 322,384 446,214 346,893Provision made during the year (Note 42.1.1) 133,678 132,502 141,835 140,539

548,051 454,886 588,049 487,432 (50,058) (40,513) (56,421) (41,218)

Balance as at 31st December (Note 42.1.2) 497,993 414,373 531,628 446,214

42.1.1 Provision made during the year

Bank Group


Rs 000 Rs 000 Rs 000 Rs 000

Current service cost 48,856 41,742 55,046 46,692 40,609 29,820 43,899 32,182 89,465 71,562 98,945 78,874


313

Bank Group


Rs 000 Rs 000 Rs 000 Rs 000

Actuarial loss / (gain) due to changes in assumptions*

- Financial assumptions 18,600 (109) 14,318 (3,786)

- Demographic assumptions 5,203 - 4,974 -

Actuarial experience loss arising during the year 20,410 61,049 23,598 65,451

Total actuarial loss recognised in OCI 44,213 60,940 42,890 61,665

Provision made during the year 133,678 132,502 141,835 140,539

Bank Group

2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Balance as at 1st January 414,373 322,384 446,214 346,893

Current service cost 48,856 41,742 55,046 46,692

Interest cost 40,609 29,820 43,899 32,182

(50,058) (40,513) (56,421) (41,218)

Actuarial loss / (gain) due to changes in assumptions

- Financial assumptions 18,600 (109) 14,318 (3,786)

- Demographic assumptions 5,203 - 4,974 -

Actuarial experience loss 20,410 61,049 23,598 65,451

Balance as at 31st December 497,993 414,373 531,628 446,214

An actuarial valuation of the gratuity fund of the Bank was carried out as at 31st December 2016 by Mr. Piyal S Goonetilleke (Fellow of Society

42.1.3 Actuarial Assumptions - Bank


Financial assumptions

Discount rate 11.90% 9.80%

Future salary increment rate 11.30% 8.80%

Demographic assumptions

Mortality RP 2000 Mortality Table GA 1983 Mortality Table

Retirement age 55 years 55 years

Expected average future working life of the active participants is 11.1 years.


ANNUAL REPORT 2016


42 OTHER PROVISIONS CONTD.

42.1.4 Sensitivity of assumptions employed in gratuity valuation - Bank

Increase /(Decrease) inDiscount rate

Increase / (Decrease) in

Salary IncrementRate

2016 2015

on Comprehensive Income Statement


Comprehensive Income for the Year

on Gratuity Liability Increase /

(Decrease) in Liability




on Gratuity Liability Increase /

(Decrease) in Liability

Rs Mn Rs Mn Rs Mn Rs Mn

1% - 52.0 (52.0) 39.6 (39.6)

(1%) - (62.5) 62.5 (47.7) 47.7

- 1% (61.2) 61.2 (47.0) 47.0

- (1%) 52.0 (52.0) 39.8 (39.8)

sensitivity of the assumptions have been given only for the gratuity fund of the Bank since Subsidiary gratuity liabilities do not have a material impact on the Group Financial Statements.

42.2 Leave Accrual Plan42.2.1 Net Liability Recognised in the Statement of Financial Position

Bank & Group

2016 2015

Rs 000 Rs 000


Provision made during the year 27,317 13,947


42.3 EPF Interest Guarantee Plan Employees’ Provident Fund (EPF) is an approved private provident fund which has been set up to meet the provident fund liabilities of the Bank to which the Bank and employees contribute 12% and 8% respectively on the salary of each employee. Employees who are members

shall contribute any shortfall in the revenue account of the fund, after payment of interest at the said rate and other cost of administering the fund. Thus the Bank’s obligation to EPF is not limited to the 12% contribution referred to above and accordingly the fund was treated as a

value the Bank’s additional obligation arising from Section 8 of the EPF constitution as at 31st December 2016.


315

42.3.1 Net Liability Recognised in the Statement of Financial PositionBank & Group


Rs 000 Rs 000

Fund obligation 9,048,799 8,143,400

Fair value of plan assets (8,965,855) (8,064,408)

Net liability recognised in the Statement of Financial Position 82,944 78,992

Bank & Group


Rs 000 Rs 000

Current service cost 6,190 5,185

7,741 6,022

13,931 11,207

42.3.3 Amounts Recognised in Other Comprehensive IncomeBank & Group


Rs 000 Rs 000

Actuarial (gain) / loss due to changes in assumptions*

- Financial assumptions (4,509) 5,544

- Demographic assumptions 93 -

Actuarial gain due to experience adjustments (5,563) (2,862)

Total (gain) / loss recognised in OCI (9,979) 2,682

42.3.4 Movement of the Net Liability Recognised in the Statement of Financial PositionBank & Group

2016 2015

Rs 000 Rs 000


Current service cost and interest cost 13,931 11,207

Actuarial (gain) / loss (9,979) 2,682



ANNUAL REPORT 2016



42.3.5 Actuarial Assumptions - Bank





Return from EPF investments 10.75% 8.21%

Long term guaranteed EPF interest rate (net of tax) 11.00% 8.46%




42.3.6 Sensitivity of Assumptions Employed in EPF Interest Guarantee Plan Valuation


Discount rate


Salary Increment Rate

2016 2015




on Employment


Liability




on Gratuity Liability


Liability


1% - 8.2 (8.2) 8.1 (8.1)

(1%) - (9.5) 9.5 (9.4) 9.4

- 1% (1.5) 1.5 (1.4) 1.4

- (1%) 1.4 (1.4) 1.3 (1.3)

42.4 Pension Fund42.4.1 Net Liability Recognised in the Statement of Financial PositionBank & Group


Rs 000 Rs 000

5,587,056 5,597,014

Fair value of plan assets as at 31st December (Note 42.4.5) (5,725,567) (5,169,780)

Funded status (138,511) 427,234

- -

Net (asset) / liability recognised in the Statement of Financial Position (138,511) 427,234

The Bank is expecting to recover the above surplus by way of reduced future contributions to the pension fund and accordingly the Bank recognised a net receivable of Rs 138.5 Mn from the pension fund as the present value of the reduction in future contributions.


317

Bank & Group


Rs 000 Rs 000


48,531 57,499

283,137 283,424

42.4.3 Amounts Recognised in Other Comprehensive IncomeBank & Group


Rs 000 Rs 000

Actuarial (gain) / loss due to changes in assumptions*

- Financial assumptions (929,552) (213,954)

- Demographic assumptions 82,300 -

Actuarial loss due to experience adjustments 178,743 16,802

Actuarial loss from plan assets 69,627 17,590

Total amount recognised in OCI (598,882) (179,562)

Bank & Group

2016 2015

Rs 000 Rs 000

5,597,014 5,184,821


Interest cost 548,507 479,596

(124,562) (96,176)

Actuarial (gain) / loss due to changes in assumptions

- Financial assumptions (929,552) (213,954)

- Demographic assumptions 82,300 -

Actuarial loss due to experience adjustments 178,743 16,802

5,587,056 5,597,014


ANNUAL REPORT 2016



42.4.5 Fair Value of Plan Assets ReconciliationBank & Group

2016 2015

Rs 000 Rs 000

Fair value of plan assets as at 1st January 5,169,780 4,661,449

Income on plan assets 499,976 422,097

Actual employer contributions 250,000 200,000

(124,562) (96,176)

Actuarial loss from plan assets (69,627) (17,590)

Fair value of plan assets as at 31st December 5,725,567 5,169,780

An actuarial valuation of the Pension Fund was carried out as at 31st December 2016 by Mr. Piyal S Goonetilleke (Fellow of Society of

42.4.6 Actuarial Assumptions





Expected return on assets 12.30% 9.80%



Retirement age Normal retirement age or age on valuation date, if greater

Normal retirement age or age on valuation date, if greater

The plan assets consists of term deposits, repurchase agreements , investments in listed debentures and listed equity.



319

42.4.7 Sensitivity of Assumptions Employed in Pension Fund Valuation


Discount Rate


Salary Increment Rate

2016 2015

on Statement of Comprehensive

Income Increase /

(Decrease) in Comprehensive Income for the

Year

on Employment

Increase / (Decrease) in Net Pension Liability

on Statement of Comprehensive

Income Increase /

(Decrease) in Comprehensive Income for the

Year

on Employment

Increase / (Decrease) in Net Pension Liability


1% - 583.8 (583.8) 663.7 (663.7)

(1%) - (692.2) 692.2 (804.5) 804.5

- 1% (335.5) 335.5 (372.1) 372.1

- (1%) 308.2 (308.2) 339.0 (339.0)

43 STATED CAPITALBank & Group

2016 2015

Rs 000 Rs 000

Balance as at 1st January 5,381,405 4,470,151

Scrip dividend 1,089,795 911,254

Balance as at 31st December 6,471,200 5,381,405

Rights, preferences and restrictions of classes of capital The holders of ordinary shares have the right to receive dividend as declared from time to time and are entitled to one vote per share at the Annual General Meeting of the Bank.

43.1 Reconciliation of Number of SharesBank & Group

2016 2015

Ordinary shares as at 1st January 172,312,655 167,910,253

4,668,414 4,402,402

Ordinary shares as at 31st December 176,981,069 172,312,655


ANNUAL REPORT 2016


44 STATUTORY RESERVE FUND

Bank Group

2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000


Transfer during the year 460,000 310,000 476,364 329,227


The statutory reserve fund is maintained as required by the section 20 (1) of the Banking Act No. 30 of 1988. A sum equivalent to not less

transferred to the statutory reserve until the amount of the said reserve fund is equal to the stated capital of the Bank.

45 OTHER RESERVES

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Revaluation reserve (Note 45.1) 2,404,631 1,846,649 5,653,471 4,202,261

Available for sale reserve (Note 45.2) 1,271,319 875,723 1,271,319 875,723

General reserve (Note 45.3) 27,694,235 22,165,000 27,694,236 22,165,001

31,370,185 24,887,372 34,619,026 27,242,985

45.1 Revaluation Reserve

Bank Group

2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000


Revaluation surplus (Net of tax) 557,982 - 1,430,885 -

Transfer of non - controlling interest - - 20,325 -


45.2 Available for Sale Reserve Bank & Group

2016 2015

Rs 000 Rs 000

Balance as at 1st January 875,723 1,267,433

382,982 (423,771)

(3,376) -

15,990 32,061

Balance as at 31st December 1,271,319 875,723


321

45.3 General ReserveThe Board of Directors decides the amount to be transferred to general reserve from retained earnings after retaining a substantial amount to pay proposed dividend. The purpose of setting up the general reserve is to meet the potential future unknown commitments.

Bank Group

2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000


Unclaimed dividend adjustments 29,235 (90) 29,235 (90)

Transfer during the year 5,500,000 3,500,090 5,500,000 3,500,090


46 RETAINED EARNINGS

Bank Group

2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000


Super gain tax - (676,765) - (781,760)

Balance after super gain tax 3,066,297 2,505,981 4,624,088 3,593,907

9,124,670 6,133,941 9,496,073 6,623,346

564,648 115,940 565,970 115,191

(158,102) (32,463) (158,460) (32,027)

Final dividend for 2014 : Cash - (839,551) - (839,551)

Final dividend for 2014 : Scrip - (1,007,461) - (1,007,461)

Final dividend for 2015 : Cash (1,033,876) - (1,033,876) -

Final dividend for 2015 : Scrip (1,206,188) - (1,206,188) -

Transfer of non - controlling interest - - 4,186 -

Transfers during the year (5,960,000) (3,810,090) (5,976,364) (3,829,317)



ANNUAL REPORT 2016


47 NON - CONTROLLING INTEREST

Non-controlling interest represented 2.86% of the net assets of the subsidiary, Sampath Centre Ltd. On 30th December 2016, the Bank has acquired this non-controlling interest and Sampath Centre Ltd became a fully owned Subsidiary of the Bank.

Group

2016 2015

Rs 000 Rs 000


Super gain tax - (1,490)

Balance after super gain tax 94,663 90,795

5,173 4,844

Other comprehensive income for the year 25,675 24

Dividend paid (1,000) (1,000)

Total consideration paid to acquire non - controlling interest (100,000) -

Transfer of remaining non - controlling interest to shareholders’ funds (24,511) -

Balance as at 31st December - 94,663

48 COMMITMENTS AND CONTINGENCIES

Accounting Policy

37 (Provisions, Contingent Liabilities and Contingent Assets).

carry a similar credit risk to loans. Operating lease commitments of the Bank (as a lessor and as a lessee) and pending legal claims against the Bank too form part of commitments of the Bank. Contingent liabilities are not recognised in the Statement of Financial Position but are disclosed unless they are remote. But these contingent liabilities do contain credit risk and are therefore form part of the overall risk of the Bank.

Financial guarantees are initially recognised in the Statement of Financial Position (within ‘other liabilities’) at fair value, being the premium received. Subsequent to initial recognition, the Bank’s liability under each guarantee is measured at the higher of the amount initially

line basis over the life of the guarantee.


323

48.1 Commitments and Contingencies

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Commitments

Commitment for unutilised facilities - Direct credit facilities 170,943,636 144,034,435 171,144,119 143,749,506

- Indirect credit facilities 54,074,330 48,473,733 54,074,330 48,473,733

Capital commitments (Note 48.3) 391,732 177,752 1,591,962 184,775

Operating lease commitments - as lessee (Note 48.4) 3,447,346 3,595,566 3,148,053 3,038,217

228,857,044 196,281,486 229,958,464 195,446,231

Contingent Liabilities

Acceptances 16,092,406 15,858,037 16,092,406 15,858,037

Documentary credit 21,855,180 17,049,372 21,855,180 17,049,372

Guarantees 46,496,574 39,676,660 46,530,474 39,676,660

84,444,160 72,584,069 84,478,060 72,584,069

Forward exchange contracts 11,248,558 15,857,419 11,248,558 15,857,419

Currency SWAPs 19,430,545 28,389,283 19,430,545 28,389,283

30,679,103 44,246,702 30,679,103 44,246,702

Total commitment & contingencies 343,980,307 313,112,257 345,115,627 312,277,002

48.2 Other Contingent Liabilities48.2.1 Litigation against the BankLitigation is a common occurrence in the banking industry due to the nature of the business undertaken. The Bank has formal controls and policies for managing legal claims. Once professional advice has been obtained and the amount of loss reasonably estimated, the

several unresolved legal claims. i. Commercial High Court Case No. HC (Civil) 11 / 2004 (1)

Case No. SC 06 / 2013 (f) and the hearing will be on 13th March 2017. ii. Following Cases are Filed against the Bank in Order to Recover Damages.

to the Civil Apellate Courts. Appeal is pending.

the spouse and the consent letter given by the spouse is challenging in Courts.

that the Bank has the right to increase the rate of interest.


ANNUAL REPORT 2016


48 COMMITMENTS AND CONTINGENCIES CONTD.

namely Jagath Robotics (Pvt) Ltd has been reported to the CRIB, under an irrelevant reference due to negligence of the Bank. The Bank is

acted all the time as per the provisions of law.

of Rs 40 Mn on the basis that the Bank illegally suspended his credit balance of Rs 299,209.43 and as a result, two cheques issued by him got returned. Over Rs 3 Mn is due to the Bank from the said customer on a charge back created through the payment gateway, which was utilized by the

Rs 250 Mn, on the basis that the Bank has illegally suspended operation of his current account and the payment gateway facility provided to him by the Bank. Over Rs 3 Mn is due to the Bank from the said customer on a charge back created through the payment gateway, which was utilized by

declaring that he is the owner of the land and property acquired by the Bank under Parate Execution. Further he claims that the Bank has

recover its dues:

2008 SC, SC 234 / 16.

153 / 11 MR, 427 / 15 / MR, 169 / 16 / MR, 270 / 16 / MR, 269 / 16 / MR, 278 / 16 / MR, 305 / 16 / MR, 477 / 16 / MR.


325

84 / 14 / DSP, 146 / 15 DSP, 721 / 15 MR, 11 / 15 DSP, 151 / 16 / DLM, 127 / 16 / DSP, 9 / 16 / Claim, 189 / 16 DLM, One in District Court of Kurunegala in Case No. 8660 / SP, Three in District Court of Marawila in Case Nos. 1613 / L, 1070 / S, 1747 / L, Four in District Court of Kandy in Case Nos. 228 / 10 DPA, 36599 / MR, 401 / 14 DMR, 1365 / 16 / MR, One in District Court of Monaragala in Case No. 1691 / SPL, One in District Court of Minuwangoda in Case No. 12 / SPL, One in District Court of Chilaw in Case No. 4127 / 11 / L, One in District Court of Kalutara in Case No. 4369 / SPL, One in District Court of Ratnapura in Case No. 30132 / M, Two in District Court of Matale in Case Nos. 6257 / L, 6048 / L, Two in District Court of Galle in Case No. 3480 / SP, 3589 / SP, Three in District Court of Gampaha in Case Nos. 1885 / L, 735 / L, 3066 / L, One in District Court of Batticaloa in Case No. 5487 / L / 11, One in District Court of Bandarawela in Case No. 302 / SPL, Two in District Court of Kegalle in Case Nos. 8031 / SPL, 8067 / SPL, One in District Court of Nikaweratiya in Case No. 37 / SPL, Two in the District Court of Ruwanwella in Case Nos. 168 / P, 262 / P, One in the District court of Wariyapola in Case No. 16 / L, One in the District court of Nawalapitiya in Case No. 62 / 14 / P, One in the District

of Attanagalla in Case Nos. 1093 / L, 1204 / L, One in the District Court of Kalmunai in Case No. 3053 / L, One in the District Court of Walasmulla in Case No. 193 / S, Two in the District Court of Mount Lavinia in Case Nos. 390 / 16 / Claim, 392 / 16 / Claim, One in the District Court of Kesbewa in Case No. 90 / SP, Two in the District Court of Dambulla in Case Nos. 170 / L, 172 / L.

48.2.2 Litigation against the Group

Group.

48.3 Capital CommitmentsCapital expenditure approved by the Board of Directors, for which provisions have not been made in the accounts are detailed below.

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Approved & contracted for 227,339 69,224 1,419,619 76,247

Approved but not contracted for 164,393 108,528 172,343 108,528

391,732 177,752 1,591,962 184,775

48.4 Operating Lease Commitments - As the Lessee

Bank Group

As at 31st December 2016 2015 2016 2015

Rs 000 Rs 000 Rs 000 Rs 000

Less than 1 year 993,139 866,936 730,510 608,880

1 - 5 years 2,011,278 2,320,934 1,913,636 1,921,464

More than 5 years 442,929 407,696 503,907 507,873

3,447,346 3,595,566 3,148,053 3,038,217


ANNUAL REPORT 2016


49 RELATED PARTY DISCLOSURES

Sri Lanka Accounting Standards - LKAS 24 (Related Party Disclosures), the details of which are reported below.

49.1 Terms and Conditions The pricing applicable to such transactions is based on the assessment of risk and pricing model of the Bank and is comparable with what is applied to transactions between the Bank / Group and its unrelated customers with similar credit standing.

49.2 Parent and Ultimate Controlling Party

49.3 Transactions with Key Management Personnel (KMP) As per Sri Lanka Accounting Standard - LKAS 24 (Related Party Disclosures), Key Management Personnel (KMP) are those having authority

considered as a KMP unless such person has both the authority and responsibility to carry out all the three activities mentioned in the above

Accordingly the Board of Directors of the Bank are considered as KMP of the Bank and the Group.

49.3.1 Compensation to KMP

Bank Group


Rs 000 Rs 000 Rs 000 Rs 000

Directors’ fees & expenses 52,697 53,935 55,132 55,095

58,532 40,665 58,532 40,665

16,799 3,372 16,799 3,372

Total 128,028 97,972 130,463 99,132


327

49.3.2 Transactions with KMP and their Close Family Members (CFM)

entity. They may include KMP’s domestic partner, children of the KMP’s domestic partner and dependents of the KMP. Aggregate value of the transactions with KMP and their CFMs are disclosed below.


Limit Average Balance

Closing Balance

Limit Average Balance

Closing Balance

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Other loans & receivables 5,770 2,030 1,770 4,000 - -

Credit cards 7,850 1,202 806 7,740 1,267 1,039

Deposits 278,192 222,877 254,253 269,158


Rs 000 Rs 000

Interest income 180 1

Interest expenses 18,513 14,500

Cash dividend paid 775 631

Scrip dividend paid (Number of shares) 3,494 3,303

No losses have been recorded against loan balances outstanding with KMP during the period and no provisions have been made for impairment losses against such balances as at the reporting date.


ANNUAL REPORT 2016

49 RELATED PARTY DISCLOSURES CONTD.

49.4 Transactions with SubsidiariesDetails of the Subsidiaries are given in Note 32. Aggregate value of the transactions with Subsidiaries are disclosed below.

2016 2015Subsidiary Company Nature of Facility / Transaction Average

Balance31st

DecemberAverageBalance

31stDecember

Rs 000 Rs 000 Rs 000 Rs 000

Siyapatha Finance PLC As atLoans & receivables 2,785,509 2,538,010 2,170,254 2,770,729 Deposits 17,288 11,577 - - Other liabilities 436,827 8,824 631,308 703,677 Commitment & contingencies 107,500 110,000 - - For the year endedDividend income (Gross) 57,750 31,500 Expenses & fees paid 57,722 39,335 Income & fees received 282,568 192,289

Sampath Centre Ltd As atLoans & receivables 1,271 1,324 5,093 - Other assets 62,754 62,754 62,754 63,172 Deposits 420,189 490,036 384,385 341,256 Other liabilities 111,954 133,074 48,282 39,961 For the year endedDividend income (Gross) 34,000 34,000 Income & fees received 29 - Expenses & fees paid 319,116 373,067

S C Securities (Pvt) Ltd As atLoans & receivables 56,886 53,772 58,358 61,007 Deposits 463 1,775 - 7 Commitment & contingencies 1,750 1,750 1,750 1,750 For the year endedIncome & fees received 7,029 7,564 Expenses & fees paid - 2,990

Sampath Information As atTechnology Solutions Ltd Loans & receivables 415,248 526,170 185,765 266,372

Deposits 476 40 426 650 Other liabilities 40,136 32,966 43,120 28,590 Commitment & contingencies 44,815 173,671 - - For the year endedIncome & fees received 55,134 19,851 Expenses & fees paid 172,055 114,973 Purchase of computer hardware & software 21,585 20,252

The Directors’ valuation of investments in Subsidiaries has been carried out on net asset basis as at 31st December 2016 and accordingly the Bank has recognised an impairment charge of Rs 4 Mn against the investment in SC Securities (Pvt) Ltd. Apart from the above, no losses have been recorded against balances due from Subsidiaries, during the year ended 31st December 2016 and no provisions have been made for impairment losses against balances with Subsidiaries as at the reporting date.



329

49.5 Transactions with Other Related Parties 49.5.1 Transactions with Entities Controlled and / or Jointly Controlled by KMP or their CFMs


Average Balance

Closing Balance

Average Balance

Closing Balance

Rs 000 Rs 000 Rs 000 Rs 000

Credit cards facilities 858 - 615 428

Other loans & receivables 3,666,766 - 3,176,441 2,633,870

Documentary credits 410,307 - 458,410 396,270

Bills of acceptance 599,084 - 401,958 634,144

Guarantees 475,884 - 491,080 682,452

Deposits 175,564 1,651 188,966 204,843

Siyapatha Finance PLC has not granted any facilities to entities which are controlled / jointly controlled by KMP / CFMs of KMP as at 31st December 2016 (2015 - Rs 0.9 Mn).


Rs 000 Rs 000

Interest income 209,888 197,747

Interest expense 8,630 3,400

Cash dividend paid 154,594 125,537

Payment for credit card promotional activities 309 33,157

Expenses on goods & services purchased 44,023 37,596

Scrip dividend paid (Number of shares) 698,063 658,286

Siyapatha Finance PLC and Sampath Centre Limited have paid Rs 18.1 Mn ( 2015 - Rs 22 Mn ) to entities which are controlled / jointly controlled by KMP / CFMs of KMP as expenses on goods and services purchased. Sampath Information Technology Solutions Ltd has received Rs 17.43 Mn (2015 : Rs 17.73 Mn) from entities which are controlled / jointly controlled by KMP / CFMs of KMP as income on goods and services sold. No losses have been recorded against loan balances outstanding with the entities controlled / jointly controlled by KMP / CFMs of KMP during the period and no provisions have been made for impairment losses against such balances as at the reporting date.


ANNUAL REPORT 2016

49 RELATED PARTY DISCLOSURES CONTD.

2016 2015Name of the Post Nature of Transaction Average

Balance31st

DecemberAverageBalance

31stDecember

Rs 000 Rs 000 Rs 000 Rs 000

Sampath Bank As at Employees’ Provident Deposits 2,817,684 2,919,006 894,657 3,226,994 Fund Investment in repo 130,069 60,253 553,563 1,431,300

Debentures 784,193 809,277 518,694 749,077 Interest payable 105,537 122,722 85,084 88,351 Other liabilities 1,653 2,417 745 -

For the year endedInterest expenses 413,281 149,012

Sampath Bank As atEmployees’ Pension Deposits 1,665,495 1,930,788 1,313,225 1,309,237 Fund Debentures 577,349 610,682 773,140 530,682

Investment in Sampath Bank shares - market value

695,140 749,555 718,646 696,101

Investment in repo 2,041,159 1,480,481 1,583,061 2,337,639 Interest payable 95,694 105,881 72,751 85,508 Net liability /(asset) in the Bank's Financial Statements (Note 42.4.1) 282,872 (138,511) 475,303 427,234

For the year endedDividend paid - Cash (Gross) 16,841 13,676 Interest expense 386,272 246,813

Dividend paid - Scrip (Number of shares) 76,045 71,712



331

50 SEGMENT INFORMATION

Accounting Policy

An operating segment is a component of the Group that engages in business activities from which it may earn revenue and incur expenses, including revenue and expenses that relate to transactions with any of the Group’s other components, whose operating results are reviewed regularly by the chief operating decision maker to make decisions about resources allocated to each segment and assess its performance,

Banking Leasing, hire purchase & factoring Dealing / Investment Others

activities of its Subsidiary, Siyapatha Finance PLC. Dealing / Investment involves activities such as stock broking, securities dealing, investment banking, venture capital businesses and foreign currency related services.

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation

and are not allocated to operating segments.

Interest income is reported net as management primarily relies on net interest revenue as a performance measure, not the gross income and expense. Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.

Revenue from transactions with a single external customer or counterparty did not exceed 10% or more of the Bank’s total revenue in 2016 or 2015.

50

SE

GM

EN

T IN

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ION

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ing

, Hir

e P

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Inve

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ns /

U

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cate

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tal

For

the

year

end

ed 3

1st

Dec

emb

er20

1620

1520

1620

1520

1620

1520

1620

1520

1620

1520

1620

15R

s 00

0R

s 00

0R

s 00

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s 00

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s 00

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s 00

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Net

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18,6

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--

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--

--

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556,

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15,

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Less

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12,6

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330,

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men

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12,1

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1,02

7,52

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9,49

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119

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2,52

31,

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Less

: Inc

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3,71

2,28

33,

161,

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9,50

1,24

66,

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190

Non

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g in

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)

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k9,

496,

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6,62

3,34

6

As

at 3

1st

Dec

emb

er

2016

2015

2016

2015

2016

2015

2016

2015

2016

2015

2016

2015

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Seg

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489,

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For

the

year

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ed 3

1st

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er

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Rs

000

2015

Rs

000

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Rs

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2015

Rs

000

2016

Rs

000

2015

Rs

000

2016

Rs

000

2015

Rs

000

2016

Rs

000

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Rs

000

2016

Rs

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Rs

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23,

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(4,5

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(57,

289)

(2

8,75

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9) (8

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(242

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) (7

49,0

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2,04

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) 1

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-

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apita

l exp

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ture

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3 3

49

6,7

72

427

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2

42,2

30

- -

1

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,514

1

,190

,589


ANNUAL REPORT 2016



333

51 EVENTS AFTER THE REPORTING PERIOD

Accounting Policy

Events after the reporting period are those events, favourable and unfavourable, that occur between the reporting date and the date when the Financial Statements are authorised for issue.

than those disclosed below.

51.1 Bank 51.1.1 Proposed Dividend - Interim

year ended 31st December 2016. Further in compliance with the Bank’s Articles of Association this dividend is to be approved by the shareholders at the Extra Ordinary General Meeting to be held on 28th February 2017.

Under the Inland Revenue Act No. 10 of 2006, a Withholding Tax of 10% has been imposed on interim dividend declared.

51.1.2 Proposed Dividend – Second and Final

year ended 31st December 2016. This dividend is to be approved by the shareholders at the Annual General Meeting to be held on 31st March 2017.

Under the Inland Revenue Act No. 10 of 2006, a Withholding Tax of 10% has been imposed on dividend declared.

have not been recognised as a liability as at 31st December 2016. As required by section 56 (2) of the Companies Act No. 7 of 2007, the

52 FAIR VALUE OF ASSETS AND LIABILITIES

52.1 Assets and Liabilities Recorded at Fair ValueThe following is a description of how fair values are determined for assets and liabilities that are recorded at fair value. These incorporate the Bank’s estimate of assumptions that a market participant would make when valuing assets and liabilities.

Derivatives - Assets and LiabilitiesDerivative products which consist of SWAPs, forward foreign exchange contracts and hedges are valued using a valuation technique with market-observable inputs. The most frequently applied valuation techniques include forward foreign exchange spot and forward premiums.

Financial Assets - Available for Sale

are valued using the yield curve published by the Central Bank of Sri Lanka. Quoted equity securities are valued using quoted market prices in the active markets as at the reporting date.

Unquoted equity securities are carried at cost less accumulated impairment losses since it is the most reasonable value available to represent the price of such securities.

Trading Assets and Other Assets Measured at Fair ValueTrading assets and other assets measured at fair value are the government securities and quoted equity securities. Government securities are valued using yield curve published by the Central Bank of Sri Lanka. For quoted equity securities, the Bank uses quoted market prices in the active market as at the reporting date.

Property, Plant and EquipmentFreehold land and buildings are carried at revalued amount, being their fair value at the revaluation date less any subsequent accumulated depreciation and subsequent accumulated impairment losses.


ANNUAL REPORT 2016


52 FAIR VALUE OF ASSETS AND LIABILITIES CONTD.

52.2 Valuation Model

independent price determination or validation is obtained. In an inactive market, direct observation of a traded price may not be possible. In

to information that is considered to be more relevant and reliable.

Fair value of freehold land and buildings was determined by using Market Comparable Method or Income Basis. These valuations

Standard - SLFRS 13 (Fair Value Measurement), based on the nature, characteristics and risks of the property.

Fair values are determined according to the following hierarchy: Level 1 – Quoted market price (unadjusted): quoted prices for identical assets and liabilities in active markets.Level 2 – Valuation technique using observable inputs: quoted prices for similar assets and liabilities in active markets or quoted prices

observable.

52.3 Valuation FrameworkThe Bank has an established control framework with respect to the measurement of fair values of trading and investment operations and all

changes to existing judgments, assumptions and models.

Periodic (at least quarterly) reviewing of fair value measurements against observable market data.

and assumptions.

Use of sophisticated software for fair value measurements of trading and investment securities and derivatives.

52.4 Assets and Liabilities Measured at Fair Value - Fair Value HierarchyThe following table shows an analysis of assets and liabilities recorded at fair value by level of the fair value hierarchy into which the fair value measurement is categorised. The amounts are based on the value recognised in the Statement of Financial Position.


33552

.4.1

B

ank

As

at 3

1st

Dec

emb

erD

ate

of

2016

2015

Val

uati

on

Fair

Val

ue M

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rem

ent

Usi

ngFa

ir V

alue

Mea

sure

men

t U

sing

Quo

ted

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(Lev

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Fina

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31st

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Cur

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-

77,

248

-

77,

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,767

,317

Q

uote

d eq

uity

sec

uriti

es 9

8,16

9 -

-

9

8,16

9 1

21,7

41

-

-

121

,741

S

ub T

otal

28,

109,

193

-

-

28,

109,

193

1,8

89,0

58

-

-

1,8

89,0

58

Fina

ncia

l ass

ets-

hel

d f

or

trad

ing

ple

dg

ed

a

s co

llate

rals

31st

Dec

embe

r

Gov

ernm

ent s

ecur

ities

10,

380,

213

-

-

10,

380,

213

2,7

02,7

85

-

-

2,7

02,7

85

Sub

Tot

al 1

0,38

0,21

3 -

-

1

0,38

0,21

3 2

,702

,785

-

-

2

,702

,785

Fina

ncia

l ass

ets-

ava

ilab

le f

or

sale

31st

Dec

embe

rG

over

nmen

t sec

uriti

es 1

2,50

9,92

2 -

-

1

2,50

9,92

2 4

9,97

6,74

3 -

-

4

9,97

6,74

3 Q

uote

d eq

uity

sec

uriti

es 1

,729

,560

-

-

1

,729

,560

1

,217

,611

-

-

1

,217

,611

U

nquo

ted

equi

ty s

ecur

ities

-

-

30,

708

30,

708

-

-

56,

057

56,

057

Sub

Tot

al 1

4,23

9,48

2 -

3

0,70

8 1

4,27

0,19

0 5

1,19

4,35

4 -

5

6,05

7 5

1,25

0,41

1

Fina

ncia

l ass

ets-

ava

ilab

le f

or

sale

ple

dg

ed a

s co

llate

rals

31st

Dec

embe

r

Gov

ernm

ent s

ecur

ities

657

,903

-

-

6

57,9

03

7,2

10,5

85

-

-

7,2

10,5

85

Sub

Tot

al 6

57,9

03

-

-

657

,903

7

,210

,585

-

-

7

,210

,585

fa

ir v

alue

53,

386,

791

109

,872

3

0,70

8 5

3,52

7,37

1 6

2,99

6,78

2 3

19,4

61

56,

057

63,

372,

300

31st

Dec

embe

rFr

eeho

ld la

nd &

bui

ldin

gs (i

nclu

ded

unde

r

pro

pert

y, p

lant

& e

quip

men

t)*

-

-

4,10

6,22

04,

106,

220

-

-

3,4

80,0

30

3,4

80,0

30

fair

val

ue -

-

4,

106,

220

4,10

6,22

0 -

-

3

,480

,030

3

,480

,030

Fina

ncia

l lia

bili

ties

mea

sure

d a

t fa

ir v

alue

31st

Dec

embe

r

Cur

renc

y S

WA

Ps

-

28,

836

-

28,

836

-

239

,569

-

2

39,5

69

Forw

ard

fore

ign

exch

ange

con

trac

ts -

3

4,77

5 -

3

4,77

5 -

2

17,4

89

-

217

,489

fa

ir v

alue

-

63,

611

-

63,

611

-

457

,058

-

4

57,0

58

Th

ere

wer

e no

mat

eria

l tra

nsfe

rs b

etw

een

leve

ls o

f fai

r va

lue

hier

arch

y du

ring

2015

and

201

6.

* Th

e in

depe

nden

t val

uers

pro

vide

the

fair

valu

e of

land

and

bui

ldin

gs o

nce

in th

ree

year

s ac

cord

ing

to th

e B

ank’

s po

licy.

Acc

ordi

ngly,

in

2016

val

uatio

ns w

ere

carr

ied

out b

y

rece

nt v

alua

tion

less

sub

sequ

ent a

ccum

ulat

ed d

epre

ciat

ion

and

impa

irmen

t los

ses

is c

onsi

dere

d as

the

fair

valu

e ex

ists

as

at th

e re

port

ing

date

(31s

t Dec

embe

r 20

16).


ANNUAL REPORT 201652

FA

IR V

ALU

E O

F A

SS

ET

S A

ND

LIA

BIL

ITIE

S C

ON

TD

.52

.4.2

G

roup

As

at 3

1st

Dec

emb

erD

ate

of

2016

2015

Val

uati

on

Fair

Val

ue M

easu

rem

ent

Usi

ngFa

ir V

alue

Mea

sure

men

t U

sing

Quo

ted

Pri

ces

in A

ctiv

e M

arke

tsO

bse

rvab

le

Inp

uts

Uno

bse

rvab

le

Inp

uts

Tota

l Q

uote

d P

rice

s in

Act

ive

Mar

kets

Ob

serv

able

In

put

sU

nob

serv

able

In

put

s

Tota

l

(Lev

el 1

) R

s 00

0(L

evel

2)

Rs

000

(Lev

el 3

)

R

s 00

0

Rs

000

(Lev

el 1

) R

s 00

0(L

evel

2)

Rs

000

(Lev

el 3

) R

s 00

0

R

s 00

0

Fina

ncia

l ass

ets

mea

sure

d a

t fa

ir v

alue

31st

Dec

embe

r

Cur

renc

y S

WA

Ps

-

77,

248

-

77,

248

-

198

,448

-

1

98,4

48

Forw

ard

fore

ign

exch

ange

con

trac

ts -

3

2,62

4 -

3

2,62

4 -

1

21,0

13

-

121

,013

S

ub T

otal

-

109

,872

-

1

09,8

72

-

319

,461

-

3

19,4

61

Fina

ncia

l ass

ets-

hel

d f

or

trad

ing

31st

Dec

embe

rG

over

nmen

t sec

uriti

es 2

8,01

9,62

0 -

-

2

8,01

9,62

0 1

,776

,333

-

-

1

,776

,333

Q

uote

d eq

uity

sec

uriti

es 9

8,16

9 -

-

9

8,16

9 1

21,7

41

-

-

121

,741

S

ub T

otal

28,

117,

789

-

-

28,

117,

789

1,8

98,0

74

-

-

1,8

98,0

74

Fina

ncia

l ass

ets-

hel

d f

or

trad

ing

ple

dg

ed

a

s co

llate

rals

31st

Dec

embe

r

Gov

ernm

ent s

ecur

ities

10,

371,

617

-

-

10,

371,

617

2,6

93,7

69

-

-

2,6

93,7

69

Sub

Tot

al 1

0,37

1,61

7 -

-

1

0,37

1,61

7 2

,693

,769

-

-

2

,693

,769

Fina

ncia

l ass

ets-

ava

ilab

le f

or

sale

31st

Dec

embe

rG

over

nmen

t sec

uriti

es 1

2,56

9,14

4 -

-

1

2,56

9,14

4 5

0,66

7,75

5 -

-

5

0,66

7,75

5 Q

uote

d eq

uity

sec

uriti

es 1

,729

,560

-

-

1

,729

,560

1

,217

,611

-

-

1

,217

,611

U

nquo

ted

equi

ty s

ecur

ities

-

-

30,

764

30,

764

-

-

56,

113

56,

113

Sub

Tot

al 1

4,29

8,70

4 -

3

0,76

4 1

4,32

9,46

8 5

1,88

5,36

6 -

5

6,11

3 5

1,94

1,47

9

Fina

ncia

l ass

ets-

ava

ilab

le f

or

sale

ple

dg

ed a

s co

llate

rals

31st

Dec

embe

r

Gov

ernm

ent s

ecur

ities

598

,681

-

-

5

98,6

81

6,5

19,5

73

-

-

6,5

19,5

73

Sub

Tot

al 5

98,6

81

-

-

598

,681

6

,519

,573

-

-

6

,519

,573

fa

ir v

alue

53,

386,

791

109

,872

3

0,76

4 5

3,52

7,42

7 6

2,99

6,78

2 3

19,4

61

56,

113

63,

372,

356

31st

Dec

embe

rFr

eeho

ld la

nd &

bui

ldin

gs (i

nclu

ded

unde

r

pr

oper

ty, p

lant

& e

quip

men

t)* -

-

8,

055,

438

8,05

5,43

8 -

-

6

,370

,147

6

,370

,147

fa

ir v

alue

-

-

8,05

5,43

88,

055,

438

-

-

6,3

70,1

47

6,3

70,1

47

Fina

ncia

l lia

bili

ties

mea

sure

d a

t fa

ir v

alue

31st

Dec

embe

r

Cur

renc

y S

WA

Ps

-

28,

836

- 2

8,83

6 -

2

39,5

69

-

239

,569

Fo

rwar

d fo

reig

n ex

chan

ge c

ontr

acts

-

34,

775

- 3

4,77

5 -

2

17,4

89

-

217

,489

fa

ir v

alue

-

63,

611

-

63,

611

-

457

,058

-

4

57,0

58

Th

ere

wer

e no

mat

eria

l tra

nsfe

rs b

etw

een

leve

ls o

f fai

r va

lue

hier

arch

y du

ring

2015

and

201

6.

* Th

e in

depe

nden

t val

uers

pro

vide

the

fair

valu

e of

land

and

bui

ldin

gs o

nce

in th

ree

year

s ac

cord

ing

to th

e G

roup

’s p

olic

y. A

ccor

ding

ly, i

n 20

16 v

alua

tions

wer

e ca

rrie

d ou

t

rece

nt v

alua

tion

less

sub

sequ

ent a

ccum

ulat

ed d

epre

ciat

ion

and

impa

irmen

t los

ses

is c

onsi

dere

d as

the

fair

valu

e ex

ists

as

at th

e re

port

ing

date

(31s

t Dec

embe

r 20

16).



337

52.5 Level 3 Fair Value Measurement52.5.1 Reconciliation The following table shows a reconciliation from the beginning balances to the ending balances of fair value measurements in Level 3 of the fair value hierarchy.

Bank Group

Assets Measured at Level 3 Assets Measured at Level 3

Unquoted Equity

Securities

Freehold Land and Buildings

Unquoted Equity

Securities

Freehold Land and Buildings

Rs 000 Rs 000 Rs 000 Rs 000

Balance as at 1st January 2015 47,759 3,286,161 47,815 6,196,504

Additions 10,687 218,972 10,687 241,936

Disposals / deductions - - - -

Impairment charge for the year (Note 12) (2,389) - (2,389) -

Depreciation of buildings - (25,103) - (68,293)

Balance as at 31st December 2015 56,057 3,480,030 56,113 6,370,147

Additions 2,166 50,044 2,166 262,578

Revaluation surplus credited to revaluation reserve - 602,207 - 1,500,784

Disposals / deductions - - - -

Impairment (charge) / reversal for the year (Note 12) (27,515) 2,036 (27,515) 2,036

Depreciation of buildings - (28,097) - (80,107)

Balance as at 31st December 2016 30,708 4,106,220 30,764 8,055,438


ANNUAL REPORT 2016


52 FAIR VALUE OF ASSETS AND LIABILITIES CONTD.

52.5.2 Unobservable Inputs Used In Measuring Fair Value

Level 3 of the fair value hierarchy.

Type of Asset BankFair Value as at 31st

December 2016

Rs 000

GroupFair Value as at 31st

December 2016

Rs 000

Valuation Technique Unobservable

Inputs

Weighted Average Range of Estimates

for Unobservable Inputs

Fair Value Measurement Sensitivity to

Unobservable Inputs

Property, plant & equipment - Freehold land 2,904,705 5,080,784 Market comparable

methodEstimated price per perch

Rs 15,000 - 10,000,000 *

- Freehold buildings 1,201,515 2,974,654 Market comparable method

Estimated price per sq.ft

Rs 2,750 - 13,640 *

Income basis Estimated rental value per sq.ftBank Rs 100 -175 *Subsidiary Rs 107 *

Expected market rental growthBank 1% *Subsidiary 0% - 5% *

Discount rateBank 6.50% **

Subsidiary 5.75% **

52.6 Fair Value of Financial Assets and Liabilities Carried at Amortised Cost

already recorded at fair value in the Financial Statements.

Assets of which Fair Value Approximates Carrying Value

Fixed Rate Financial Instruments

Variable Rate Financial Instruments

instruments.


33952

.6

Fair

Val

ue o

f Fi

nanc

ial A

sset

s an

d L

iab

iliti

es C

arri

ed a

t A

mo

rtis

ed C

ost

As

at 3

1st

Dec

emb

er 2

016

Ban

kG

roup

Fair

Val

ueC

arry

ing

Va

lue

Rs

000

Fair

Val

ueC

arry

ing

Va

lue

Rs

000

Leve

l 1

Rs

000

Leve

l 2

Rs

000

Leve

l 3R

s 00

0To

tal

Rs

000

Leve

l 1R

s 00

0Le

vel 2

Rs

000

Leve

l 3R

s 00

0To

tal

Rs

000

Fina

ncia

l Ass

ets

Loan

s to

& re

ceiv

able

s fro

m b

anks

-

2,6

41,0

50

-

2,6

41,0

50

2,6

41,7

33

-

2,6

41,0

50

-

2,6

41,0

50

2,6

41,7

33

Loan

s to

& re

ceiv

able

s fro

m o

ther

cu

stom

ers

-

453

,175

,076

-

4

53,1

75,0

76

456

,189

,052

-

4

69,4

72,8

93

-

469

,472

,893

4

72,7

54,9

47

Oth

er lo

ans

& re

ceiv

able

s -

3

8,15

0,12

0 -

3

8,15

0,12

0 3

8,70

8,44

0 -

3

8,15

0,12

0 -

3

8,15

0,12

0 3

8,70

8,44

0

Fina

ncia

l ass

ets-

hel

d to

mat

urity

-

-

-

-

-

16,

502

-

-

16,

502

16,

933

-

493

,966

,246

-

4

93,9

66,2

46

497

,539

,225

1

6,50

2 51

0,26

4,06

3 -

51

0,28

0,56

5 5

14,1

22,0

53

Fina

ncia

l Lia

bili

ties

Due

to o

ther

cus

tom

ers

- C

all,

-

3

11,0

92,1

71

-

311

,092

,171

3

11,1

38,3

89

-

314

,187

,722

-

3

14,1

87,7

22

314

,139

,666

Deb

t iss

ued

& o

ther

bor

row

ed

fu

nds

-

70,

293,

075

-

70,

293,

075

72,

128,

237

-

82,

329,

431

-

82,

329,

431

84,

179,

232

-

381

,385

,246

-

3

81,3

85,2

46

383

,266

,626

-

3

96,5

17,1

53

-

396

,517

,153

3

98,3

18,8

98

natu

re o

r re

-pric

ed to

cur

rent

mar

ket r

ates

freq

uent

ly.

Ass

ets

Liab

iliti

es

Cas

h &

cas

h eq

uiva

lent

sD

ue to

ban

ks

Bal

ance

s w

ith C

entr

al B

ank

of S

ri La

nka

Sec

uriti

es s

old

unde

r re

purc

hase

agr

eem

ents

Pla

cem

ents

with

ban

ksS

avin

gs, d

eman

d &

mar

gin

depo

sits

in “

Due

to

othe

r cu

stom

ers”

Rev

erse

repu

rcha

se a

gree

men

tsD

ivid

end

paya

ble


ANNUAL REPORT 2016


52

FAIR

VA

LUE

OF

AS

SE

TS

& L

IAB

ILIT

IES

CO

NT

D.

As

at 3

1st

Dec

emb

er 2

015

Ban

kG

roup

Fair

Val

ueC

arry

ing

Va

lue

Rs

000

Fair

Val

ueC

arry

ing

Va

lue

Rs

000

Leve

l 1

Rs

000

Leve

l 2

Rs

000

Leve

l 3R

s 00

0To

tal

Rs

000

Leve

l 1R

s 00

0Le

vel 2

Rs

000

Leve

l 3R

s 00

0To

tal

Rs

000

Fina

ncia

l Ass

ets

Loan

s to

& re

ceiv

able

s fro

m b

anks

-

1,6

50,8

81

-

1,6

50,8

81

1,6

51,2

05

-

1,6

50,8

81

-

1,6

50,8

81

1,6

51,2

05

Loan

s to

& re

ceiv

able

s fro

m o

ther

cust

omer

s -

3

75,8

22,0

35

-

375

,822

,035

3

75,6

96,5

30

-

386

,523

,879

-

3

86,5

23,8

79

386

,277

,744

Oth

er lo

ans

& re

ceiv

able

s -

3

3,42

6,85

7 -

3

3,42

6,85

7 3

3,36

8,27

4 -

3

3,42

6,85

7 -

3

3,42

6,85

7 3

3,36

8,27

4

Fina

ncia

l ass

ets-

hel

d to

mat

urity

-

-

-

-

-

63,

658

-

-

63,

658

63,

121

-

410

,899

,773

-

4

10,8

99,7

73

410

,716

,009

6

3,65

8 4

21,6

01,6

17

-

421

,665

,275

4

21,3

60,3

44

Fina

ncia

l Lia

bili

ties

Due

to o

ther

cus

tom

ers

- C

all,

-

2

11,4

42,5

57

-

211

,442

,557

2

11,3

71,1

06

-

212

,401

,734

-

2

12,4

01,7

34

212

,327

,029

Deb

t iss

ued

& o

ther

bor

row

ed

fu

nds

-

57,

243,

238

-

57,

243,

238

57,

016,

284

-

65,

412,

377

-

65,

412,

377

65,

170,

977

-

268

,685

,795

-

2

68,6

85,7

95

268

,387

,390

-

2

77,8

14,1

11

-

277

,814

,111

2

77,4

98,0

06

natu

re o

r re

-pric

ed to

cur

rent

mar

ket r

ates

freq

uent

ly.

Ass

ets

Liab

iliti

es

Cas

h &

cas

h eq

uiva

lent

sD

ue to

ban

ks

Bal

ance

s w

ith C

entr

al B

ank

of S

ri La

nka

Sec

uriti

es s

old

unde

r re

purc

hase

agr

eem

ents

Pla

cem

ents

with

ban

ksS

avin

gs, d

eman

d &

mar

gin

depo

sits

in “

Due

to

othe

r cu

stom

ers”

Rev

erse

repu

rcha

se a

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men

tsD

ivid

end

paya

ble


341

53 RISK MANAGEMENT

53.1 Introduction

Bank is accountable for the risk exposures relating to his or her responsibilities. The Bank is mainly exposed to Credit Risk, Liquidity Risk, Market Risk and Operational Risk which has disclosed in this note as summarised below.

Page No.

53.2 Credit Risk 34253.2.1 Impairment Assessment 34253.2.2 Credit–related Commitments Risks 34253.2.3 Collateral and Other Credit Enhancements 34253.2.4 Credit Quality by Class of Financial Assets 34553.2.5 Credit Risk Exposure for Each Internal Credit Risk Rating 34953.2.6 Analysis of Risk Concentration 35053.2.6.1 Country Risk - Geographical Analysis 35053.2.6.2 Industry Analysis 35453.2.7 Commitments and Contingencies 358

53.3 Liquidity Risk and Fund Management 35853.3.1 Statutory Liquid Assets Ratio (SLAR) 35853.3.2 Loans to & receivables from banks and other customers (Advances) to Due to banks and other customers (Deposits) Ratio 35853.3.3 Analysis of Financial Assets and Liabilities by Remaining Contractual Maturities 35953.3.4 Remaining Contractual Maturities of Commitments and Contingencies 36353.4 Market Risk 36753.4.1 Interest Rate Risk 36753.4.2 Currency Risk 37253.4.3 Equity Price Risk 37353.5 Operational Risk 37353.6 Capital Management 373

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 delegated its authority to Board Integrated Risk Management Committee (BIRMC) which is responsible for developing and monitoring Bank’s risk management policies. The Committee comprises of Executive and Non - Executive Directors. Meetings of BIRMC are held regularly, and the Board of Directors are duly updated of its activities.

The Bank’s risk management policies are established to identify and analyse the risks faced by the Bank, to set appropriate risk limits and

updates and maintains a disciplined and constructive control environment, in which all employees are assigned and made to understand their respective roles and responsibilities.

Integrated Risk Management Unit

Asset / Liability Management Committee (ALCO) ALCO is chaired by the Managing Director and has representatives from Treasury Department, Credit Departments, Marketing Department,

the ALCO. The Committee meets regularly to monitor and manage the assets & liabilities of the Bank and overall liquidity position to keep the Bank’s liquidity at healthy levels, whilst satisfying regulatory requirements.


ANNUAL REPORT 2016


53 RISK MANAGEMENT CONTD.

Risk Measurement and Reporting The Bank’s risks are measured using appropriate techniques based on the type of risk and industry best practices. The Bank also carries

reported to Board Integrated Risk Management Committee (BIRMC) on a periodic basis.

the business strategy and market environment of the Bank as well as the level of risk that the Bank is willing to accept (Risk Appetite).

Risk Mitigation As part of its overall risk management, the Bank obtains various types of collaterals to mitigate the risk. Details such as nature of the

source of repayment.

53.2 Credit Risk

obligations, and arises principally from the Bank’s loans and advances to customers/other banks and investments in debt securities. In addition to the credit risk from direct funding exposures, the Bank would also be exposed to indirect liabilities such as Letters of Credit, guarantees etc, which would carry credit risk.

The Bank considers and consolidates all elements of credit risk exposure (such as individual obligor default risk, country and sector concentration risks) to ensure stringent Credit Risk Management.

53.2.1 Impairment Assessment The methodology of the impairment assessment has explained in the Note No. 3.3.8 under Accounting Policies.

of Financial Position. With gross–settled derivatives, the Bank is also exposed to a settlement risk, being the risk that the Bank honours its obligation, but the counterparty fails to deliver the counter value.

53.2.2 Credit–related Commitments Risks The Bank makes available to its customers guarantees that may require that the Bank makes payments on their behalf and enters into commitments to extend credit lines to secure their liquidity needs. Letters of Credit and guarantees (including standby Letters of Credit)

Such commitments expose the Bank to risks similar to loans and are mitigated by the same control processes and policies.

53.2.3 Collateral and Other Credit Enhancements

The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are in place covering the acceptability and valuation of each type of collateral. The main types of collateral obtained are as follows:

For commercial lending: charges over real estate properties, inventory and trade receivablesFor retail lending: mortgages over residential properties

The Bank also obtains guarantees from parent companies as securities against loans guaranteed to their subsidiaries.

Management monitors the market value of collateral and will request additional collateral in accordance with the underlying agreement. It is the Bank’s policy to dispose repossessed properties in an orderly manner. The proceeds are used to recover the outstanding claim.


343

The following table shows the maximum exposure and net exposure (Net of fair value of any collaterals held) to credit risk by class of

Bank


Note Maximum exposure to

credit risk

Net exposure

Maximum exposure to

credit risk

Net exposure

Rs 000 Rs 000 Rs 000 Rs 000

Financial Assets



Reverse repurchase agreements 33,860,083 - - -

23 109,872 109,872 319,461 319,461

Financial assets - held for trading 24 28,109,193 28,109,193 1,889,058 1,889,058

Financial assets - held for trading pledged as collaterals 25 10,380,213 10,380,213 2,702,785 2,702,785





Financial assets - available for sale pledged as collaterals 30 657,903 657,903 7,210,585 7,210,585

Other assets 3,257,948 3,257,948 1,964,787 1,964,787

Total 613,998,403 314,139,244 494,834,540 286,974,495

Group


Note Maximum exposure to

credit risk

Net exposure

Maximum exposure to

credit risk

Net exposure

Rs 000 Rs 000 Rs 000 Rs 000

Financial Assets



Reverse repurchase agreements 34,629,422 - - -

23 109,872 109,872 319,461 319,461

Financial assets held for trading 24 28,117,789 28,117,789 1,898,074 1,898,074

Financial assets held for trading pledged as collaterals 25 10,371,617 10,371,617 2,693,769 2,693,769





Financial assets - available for sale pledged as collaterals 30 598,681 598,681 6,519,573 6,519,573

Financial assets - held to maturity 31 16,933 16,933 63,121 63,121

Other assets 3,507,676 3,507,676 2,099,327 2,099,327

Total 631,758,150 315,805,874 505,738,852 288,419,065


ANNUAL REPORT 2016



simultaneously.

arrangements and other similar secured lending and borrowing arrangements.

below.

Bank


Gross amount

Amount subject to

netting but do not qualify for

Net amount

Gross amount

Amount subject to


Net amount

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Financial Assets

Loans to & receivables from other customers 51,850,212 34,472,696 17,377,516 36,503,175 24,780,279 11,722,896


Securities sold under repurchase agreements 10,159,225 10,159,225 - 9,316,122 9,316,122 -

Group


Gross amount

Amount subject to


Net amount

Gross amount

Amount subject to


Net amount

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Financial Assets



Securities sold under repurchase agreements 10,095,117 10,095,117 - 8,662,930 8,662,930 -


34553

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17


ANNUAL REPORT 2016


53

RIS

K M

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AG

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119

,000

,272


ANNUAL REPORT 2016


53

RIS

K M

AN

AG

EM

EN

T C

ON

TD

.

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ther

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t D

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or

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de

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e

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s R

s 00

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Fina

ncia

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ets

Cas

h &

cas

h eq

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s 1

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0 -

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alan

ces

with

Cen

tral

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k of

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Lank

a 2

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-

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lace

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ts w

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Rev

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men

ts -

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86,6

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Fi

nanc

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sset

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for

trad

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1,8

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Fina

ncia

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ld fo

r tr

adin

g pl

edge

d as

col

late

rals

2,6

93,7

69

-

-

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-

-

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69

Loan

s to

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ceiv

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m b

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-

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15

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Loan

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138

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393

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O

ther

loan

s &

rece

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31,

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Fina

ncia

l ass

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aila

ble

for

sale

G

over

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t sec

uriti

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2,43

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Fina

ncia

l ass

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aila

ble

for

sale

ple

dged

as

colla

tera

ls 6

,519

,573

-

-

-

-

-

-

6

,519

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Fi

nanc

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sset

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held

to m

atur

ity

Gov

ernm

ent s

ecur

ities

63,

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-

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-

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63,

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Oth

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109

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2

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tal

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2,57

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9,79

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55,4

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534

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Pas

t D

ue b

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D

ays

31 t

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ays

61 t

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0 D

ays

Mo

re t

han

90 D

ays

To

tal

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Loan

s to

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ceiv

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s fro

m b

anks

1

14

-

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15

Loan

s to

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ceiv

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ther

cus

tom

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78,

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619,

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31

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03

105

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O

ther

Ass

ets

10,

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65,

213

50,

280

15,

213

141

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To

tal

78,

728,

233

16,

685,

027

5,1

66,6

11

4,6

75,6

16

105

,255

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34953

.2.5

Cre

dit

Ris

k E

xpo

sure

fo

r E

ach

Inte

rnal

Cre

dit

Ris

k R

atin

gIt

is th

e B

ank’

s po

licy

to m

aint

ain

accu

rate

and

con

sist

ent r

isk

ratin

gs a

cros

s th

e cr

edit

port

folio

. Thi

s fa

cilit

ates

focu

sed

man

agem

ent o

f the

app

licab

le r

isks

and

the

com

paris

on o

f cre

dit e

xpos

ures

acr

oss

all l

ines

of b

usin

ess,

geo

grap

hic

regi

ons

and

prod

ucts

. The

rat

ing

syst

em is

sup

port

ed b

y a

varie

ty o

f qua

litat

ive

as w

ell a

s qu

antit

ativ

e va

riabl

es fo

r th

e m

easu

rem

ent o

f cou

nter

part

y ris

k. A

ll in

tern

al r

isk

ratin

gs a

re ta

ilore

d to

var

ious

cat

egor

ies

and

are

deriv

ed in

acc

orda

nce

with

the

Ban

k’s

Rat

ing

Pol

icy.

The

ris

k ra

tings

of t

he b

usin

ess

borr

ower

s ar

e up

date

d at

leas

t ann

ually

or

earli

er if

requ

ired.

The

tabl

e be

low

sho

ws

the

Ban

k’s

inte

rnal

cre

dit r

atin

g of

the

loan

s to

& re

ceiv

able

s fro

m b

anks

and

loan

s to

& re

ceiv

able

s fro

m o

ther

cus

tom

ers.

Ban

k’s

Inte

rnal

Cre

dit

Rat

ing

Ban

k R

atin

gFi

tch

Rat

ing

His

tori

cal

Def

ault

Rat

eTo

tal

His

tori

cal

Def

ault

Rat

eTo

tal

As

at 3

1st

Dec

emb

er20

1620

1620

1520

15

%R

s 00

0%

Rs

000

Hig

h G

rad

e

Ris

k R

atin

g C

lass

1A

+A

AA

to A

A+

0.5

6 2

1,37

8,46

3 0

.27

13,

995,

620

Ris

k R

atin

g C

lass

2A

AA

to A

A-

0.4

5 6

7,84

6,61

8 0

.37

45,

917,

402

Ris

k R

atin

g C

lass

3A

-A

+ to

A 0

.43

63,

250,

945

0.4

6 5

9,07

0,61

8

Ris

k R

atin

g C

lass

4B

+A

- to

BB

B+

0.5

8 9

3,29

0,29

6 0

.63

60,

344,

556

Sta

ndar

d G

rad

e

Ris

k R

atin

g C

lass

5B

BB

B to

BB

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0.6

3 8

6,05

6,39

0 0

.72

72,

681,

236

Ris

k R

atin

g C

lass

6B

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B+

to B

B 1

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55,

711,

204

0.9

9 3

9,91

6,56

4

Ris

k R

atin

g C

lass

7C

+B

B-

to B

+ 1

.17

26,

050,

669

1.1

3 2

4,74

1,90

2

Sub

Sta

ndar

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rad

e

Ris

k R

atin

g C

lass

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4,0

54,6

66

Ris

k R

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lass

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CC

to C

C 0

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1,1

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60

0.9

0 1

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Unr

ated

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31,

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353

Imp

aire

d

Ris

k R

atin

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lass

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Exp

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No

t S

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ct f

or

Rat

ing

s

Paw

ning

1

5,47

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8 1

3,47

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9

Oth

ers

15,

963,

551

13,

399,

352

Tota

l 4

66,5

57,1

51

384

,345

,025


ANNUAL REPORT 2016


53

RIS

K M

AN

AG

EM

EN

T C

ON

TD

.

53.2

.6 A

naly

sis

of

Ris

k C

onc

entr

atio

n R

isk

conc

entr

atio

ns: m

axim

um e

xpos

ure

to c

redi

t ris

k w

ithou

t tak

ing

acco

unt o

f any

col

late

ral a

nd o

ther

cre

dit e

nhan

cem

ents

.

The

Con

cent

ratio

n ris

k is

mon

itore

d /

man

aged

thro

ugh

borr

ower

/ g

roup

, sec

tor,

prod

uct e

tc. M

axim

um e

xpos

ure

of b

oth

fund

ed a

nd n

on fu

nded

faci

litie

s to

a c

ompa

ny

and

a g

roup

as

at th

e re

port

ing

date

was

Rs

8,38

7 M

n an

d R

s 15

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Mn

resp

ectiv

ely.

The

follo

win

g ta

bles

sho

w th

e m

axim

um e

xpos

ure

to c

redi

t ris

k fo

r th

e co

mpo

nent

s of

the

Sta

tem

ent o

f Fin

anci

al P

ositi

on, i

nclu

ding

geo

grap

hy o

f cou

nter

part

y an

d se

ctor

.

Sri

Lan

kaE

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pe

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eric

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out

h A

sia

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a M

idd

le E

ast

& A

fric

aTo

tal

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Fina

ncia

l Ass

ets

Cas

h &

cas

h eq

uiva

lent

s 1

4,35

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2 2

57,8

65

1,2

83,0

08

350

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3 B

alan

ces

with

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tral

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k of

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Lank

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lace

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921

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23

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109

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nanc

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sset

s -

held

for

trad

ing

28,

109,

193

-

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109,

193

Fina

ncia

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ets

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ld fo

r tr

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g pl

edge

d as

col

late

rals

10,

380,

213

-

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-

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10,

380,

213

Loan

s to

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2,6

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717

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7 4

72,5

09

6,6

13,3

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321

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4

56,1

89,0

52

Oth

er lo

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& re

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able

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0 -

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-

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0 Fi

nanc

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sset

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avai

labl

e fo

r sa

le 1

2,53

9,52

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1

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0,19

0 Fi

nanc

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sset

s -

avai

labl

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r sa

le p

ledg

ed a

s co

llate

rals

657

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-

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-

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-

6

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03

Fina

ncia

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O

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3,1

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19,

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938

2,2

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9,1

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48

Tota

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81,

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302

3,6

30,5

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96,6

55

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376

4,3

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81

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**

Pro

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dow

n fo

r lo

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to &

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from

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usto

mer

s w

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Lank

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Pro

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351

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000

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000

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ncia

l Ass

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h &

cas

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229,

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304,

499

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entr

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ank

of S

ri La

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21,3

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men

ts w

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-3,

110,

333

747,

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335,

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193,

369

Rev

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gree

men

ts-

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282,

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33,8

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11,

168

1831

9,46

1Fi

nanc

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sset

s -

held

for

trad

ing

1,88

9,05

8-

--

--

1,88

9,05

8Fi

nanc

ial a

sset

s -

held

for

trad

ing

pled

ged

as c

olla

tera

ls2,

702,

785

--

--

-2,

702,

785

Loan

s to

& re

ceiv

able

s fro

m b

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1,65

1,20

5-

--

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1,65

1,20

5Lo

ans

to &

rece

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les

from

oth

er c

usto

mer

s**

372,

538,

253

-44

1,51

82,

460,

432

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6,32

737

5,69

6,53

0O

ther

loan

s &

rece

ivab

les

33,3

68,2

74-

--

--

33,3

68,2

74Fi

nanc

ial a

sset

s -

avai

labl

e fo

r sa

le50

,021

,859

--

1,22

8,55

2-

-51

,250

,411

Fina

ncia

l ass

ets

- av

aila

ble

for

sale

ple

dged

as

colla

tera

ls7,

210,

585

--

--

-7,

210,

585

Fina

ncia

l ass

ets

- he

ld t

o m

atur

ity-

--

--

--

Oth

er a

sset

s1,

806,

760

27,2

5596

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33,6

0091

24

1,96

4,78

7To

tal

504,

759,

562

3,40

1,31

62,

228,

305

3,87

2,26

81,

642,

318

272,

653

516,

176,

422

** P

rovi

ncia

l bre

akdo

wn

for

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s to

& re

ceiv

able

s fro

m o

ther

cus

tom

ers

with

in S

ri La

nka

Pro

vinc

e R

s 00

0 C

entr

al19

,987

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Eas

tern

6,24

9,03

0N

orth

Cen

tral

9,69

3,92

6N

orth

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tern

14,9

15,6

48N

orth

ern

5,56

6,65

1S

abar

agam

uwa

7,49

2,79

4S

outh

ern

17,6

30,8

12U

va6,

608,

062

Wes

tern

284,

394,

221

Tota

l37

2,53

8,25

3


ANNUAL REPORT 2016


53

RIS

K M

AN

AG

EM

EN

T C

ON

TD

.

Sri

Lan

kaE

uro

pe

Am

eric

aS

out

h A

sia

Asi

a M

idd

le E

ast

& A

fric

aTo

tal

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Fina

ncia

l Ass

ets

Cas

h &

cas

h eq

uiva

lent

s 1

4,51

2,52

8 2

57,8

65

1,2

83,0

08

350

,377

4

86,3

74

331

,657

1

7,22

1,80

9 B

alan

ces

with

Cen

tral

Ban

k of

Sri

Lank

a 3

3,72

4,85

6 -

-

-

-

-

3

3,72

4,85

6 P

lace

men

ts w

ith b

anks

2,2

51,5

64

1,1

12,4

36

1,7

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-

544

3

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R

ever

se re

purc

hase

agr

eem

ents

34,

629,

422

-

-

-

-

-

34,

629,

422

90,

921

18,

928

-

-

23

-

109

,872

Fi

nanc

ial a

sset

s -

held

for

trad

ing

28,

117,

789

-

-

-

-

-

28,

117,

789

Fina

ncia

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ets

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ld fo

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edge

d as

col

late

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10,

371,

617

-

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-

-

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10,

371,

617

Loan

s to

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able

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m b

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2,6

41,7

33

-

-

-

-

-

2,6

41,7

33

Loan

s to

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able

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ther

cus

tom

ers*

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4,83

4,70

217

2,50

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ANNUAL REPORT 2016


53

RIS

K M

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000

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,952

1

9,25

7,12

1 3

1,40

8,28

8 5

1,79

7,23

0 6

65,4

83,0

06


ANNUAL REPORT 2016



Ag

ricu

ltur

e a

nd

Rel

ated

Man

ufac

-tu

ring

T

our

ism

T

rans

po

rt

Co

nstr

uc-

tio

n T

rad

ers

Ban

ks,

Fina

ncia

l an

d

Bus

ines

s S

ervi

ces

Go

vt.

Infr

a-st

ruct

ure

Oth

er

Ser

vice

s C

ons

umer

s To

tal

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Fina

ncia

l Ass

ets

Cas

h &

cas

h eq

uiva

lent

s -

-

-

-

-

-

1

0,78

2,97

3 2

,930

,483

-

-

-

1

3,71

3,45

6

Bal

ance

s w

ith C

entr

al B

ank

of S

ri La

nka

-

-

-

-

-

-

-

21,

341,

882

-

-

-

21,

341,

882

Pla

cem

ents

with

ban

ks -

-

-

-

-

-

5

,193

,369

-

-

-

-

5

,193

,369

Rev

erse

repu

rcha

se a

gree

men

ts -

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

22,

836

296

,625

-

-

-

-

3

19,4

61

Fina

ncia

l ass

ets

- he

ld fo

r tr

adin

g

G

over

nmen

t sec

uriti

es -

-

-

-

-

-

-

1

,776

,333

-

-

-

1

,776

,333

Q

uote

d eq

uitie

s -

-

-

-

-

5

,280

1

16,4

61

-

-

-

-

121

,741

Fina

ncia

l ass

ets

- he

ld fo

r tr

adin

g pl

edge

d

as

col

late

rals

-

-

-

-

-

-

-

2,6

93,7

69

-

-

-

2,6

93,7

69

Loan

s to

& re

ceiv

able

s fro

m b

anks

-

-

-

-

-

-

1,6

51,2

05

-

-

-

-

1,6

51,2

05

Loan

s to

& re

ceiv

able

s fro

m o

ther

cust

omer

s 3

8,65

4,09

7 5

5,66

8,36

6 2

3,73

4,74

9 9

,463

,003

5

1,59

5,85

2 9

4,75

7,06

0 2

4,07

8,43

8 4

90,9

23

13,

235,

134

24,

795,

665

49,

804,

457

386

,277

,744

Oth

er lo

ans

& re

ceiv

able

s 7

8,14

6 5

09,8

93

-

-

816

,128

1

,707

,279

7

,613

,845

2

2,64

2,98

3 -

-

-

3

3,36

8,27

4

Fina

ncia

l ass

ets

- av

aila

ble

for

sale

G

over

nmen

t sec

uriti

es -

-

-

-

-

-

-

5

0,66

7,81

1 -

-

-

5

0,66

7,81

1

O

ther

equ

ity s

ecur

ities

-

-

-

-

-

-

1,2

28,5

52

-

-

45,

116

-

1,2

73,6

68

Fina

ncia

l ass

ets

- av

aila

ble

for

sale

pled

ged

as c

olla

tera

ls -

-

-

-

-

-

-

6

,519

,573

-

-

-

6

,519

,573

Fina

ncia

l ass

ets-

hel

d to

mat

urity

-

-

-

-

-

-

-

63,

121

-

-

-

63,

121

Oth

er a

sset

s -

-

-

-

-

-

6

9,42

6 -

-

1

,803

,374

2

26,5

27

2,0

99,3

27

Tota

l 3

8,73

2,24

3 5

6,17

8,25

9 2

3,73

4,74

9 9

,463

,003

5

2,41

1,98

0 9

6,49

2,45

5 5

1,03

0,89

4 1

09,1

26,8

78

13,

235,

134

26,

644,

155

50,

030,

984

527

,080

,734

357


ANNUAL REPORT 2016


53.2.7 Commitments and Contingencies

obligations may not be recognised in the Statement of Financial Position, they do contain credit risk and are, therefore, part of the overall risk of the Bank.

is called upon. The maximum exposure to credit risk relating to a loan commitment is the full amount of the commitment. In both cases, the

maximum credit risk exposure for commitments and contingencies are disclosed in the Note 48.1.

53.3 Liquidity Risk and Fund Management

developed internal control processes and contingency plans for managing liquidity risk. This incorporates an assessment of expected cash

The Bank maintains a portfolio of highly marketable and diverse assets assumed to be easily liquidated in the event of an unforeseen

Bank maintained a statutory deposit with the Central Bank of Sri Lanka equal to 7.5% of customer deposits. In accordance with the Bank’s policy, the liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors relating to

to meet the regulatory requirement (20%). Liquid assets consist of cash, short–term bank deposits and liquid debt securities available for immediate sale. Further the Statutory Liquid Assets Ratio of the Bank for the month of December 2016 is as follows. 53.3.1 Statutory Liquid Assets Ratio (SLAR) For the month of December 2016: 21.84% (2015: 22.05%) 53.3.2 Loans to & receivables from banks and other customers (Advances) to Due to banks and other customers

(Deposits) Ratio The Bank is aware of the importance of due to banks & other customers as a source of funds for its lending operations. This is monitored using the following ratio, which compares loans to & receivables from banks and other customers (Advances) as a percentage of due to banks & due to other customers (Deposits).

As at 31st December 2016: 90.37% (2015: 93.89%)



359

53.3.3 Analysis of Financial Assets and Liabilities by Remaining Contractual Maturities

Up to 3 Months

3 - 12 Months

1 - 3 Years

3 - 5 Years

Over 5 Years

Total

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Financial Assets

Cash & cash equivalents 17,067,680 - - - - 17,067,680

Balances with Central Bank of Sri Lanka 22,470,630 10,050,488 706,833 162,270 334,635 33,724,856

Placements with banks 7,772,998 984,483 - - - 8,757,481

Reverse repurchase agreements 33,883,972 - - - - 33,883,972

53,743 56,129 - - - 109,872

Financial assets - held for trading 28,109,193 - - - - 28,109,193

Financial assets - held for trading pledged as collaterals 10,380,213 - - - - 10,380,213

Loans to & receivables from banks 592,899 657,832 1,410,373 617,378 - 3,278,482


Other loans & receivables 12,686,789 15,058,902 12,572,383 2,071,751 - 42,389,825

Financial assets - available for sale 14,270,190 - - - - 14,270,190

Financial assets - available for sale pledged as collaterals 657,903 - - - - 657,903

Financial assets - held to maturity - - - - - -

Other assets 2,185,254 580,812 43,388 45,247 446,715 3,301,416

Total Financial Assets 360,849,428 116,161,231 141,998,385 63,600,062 60,063,757 742,672,863


Due to banks 5,626,562 565,000 - - - 6,191,562

47,399 16,212 - - - 63,611

Securities sold under repurchase agreements 9,223,433 1,000,953 - - - 10,224,386

Due to other customers 341,514,977 156,379,351 11,156,190 2,451,057 4,686,795 516,188,370

Debt issued & other borrowed funds 11,127,711 23,018,505 30,234,315 16,969,308 3,699,328 85,049,167

Dividend payable 84,860 - - - - 84,860

Other liabilities 2,662,221 2,217,986 309,359 - 253,015 5,442,581

Total Financial Liabilities 370,287,163 183,198,007 41,699,864 19,420,365 8,639,138 623,244,537

Total Net Financial Assets / (Liabilities) (9,437,735) (67,036,776) 100,298,521 44,179,697 51,424,619 119,428,326


ANNUAL REPORT 2016


Up to 3 Months

3 - 12 Months

1 - 3 Years

3 - 5 Years

Over 5 Years

Total

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Financial Assets



Placements with banks 3,974,566 1,228,966 - - - 5,203,532

Reverse repurchase agreements - - - - - -

177,969 141,492 - - - 319,461



Loans to & receivables from banks 262,742 414,058 812,204 447,918 - 1,936,922


Other loans & receivables 5,002,111 4,067,153 22,371,438 5,567,624 20,685 37,029,011


Financial assets - available for sale pledged as collaterals 7,210,585 - - - - 7,210,585

Financial assets - held to maturity - - - - - -

Other assets 741,515 679,128 44,562 43,487 509,914 2,018,606



Due to banks 2,918,371 520,942 - - - 3,439,313

179,982 277,076 - - - 457,058

Securities sold under repurchase agreements 8,834,839 531,967 - - - 9,366,806









361

Up to 3 Months

3 - 12 Months

1 - 3 Years

3 - 5 Years

Over 5 Years

Total

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Financial Assets



Placements with banks 8,542,336 984,483 - - - 9,526,819

Reverse repurchase agreements 33,883,972 - - - - 33,883,972

53,743 56,129 - - - 109,872



Loans to & receivables from banks 592,899 657,832 1,410,373 617,378 - 3,278,482


Other loans & receivables 12,686,789 15,058,902 12,572,383 2,071,751 - 42,389,825

Financial assets - available for sale 14,329,412 - - - 56 14,329,468

Financial assets - available for sale pledged as collaterals 598,681 - - - - 598,681

Financial assets - held to maturity 2,400 10,245 - 4,288 - 16,933

Other assets 2,287,116 584,087 227,001 49,885 383,960 3,532,049



Due to banks 5,927,990 565,000 - - - 6,492,990

47,399 16,212 - - - 63,611









ANNUAL REPORT 2016



Up to 3 Months

3 - 12 Months

1 - 3 Years

3 - 5 Years

Over 5 Years

Total

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Financial Assets



Placements with banks 3,974,566 1,228,966 - - - 5,203,532


177,969 141,492 - - - 319,461



Loans to & receivables from banks 262,742 414,058 812,204 447,918 - 1,936,922


Other loans & receivables 5,002,111 4,067,153 22,371,438 5,567,624 20,685 37,029,011


Financial assets - available for sale pledged as collaterals 6,519,573 - - - - 6,519,573

Financial assets - held to maturity 2,400 56,447 - - 4,274 63,121

Other assets 835,770 627,522 67,274 73,739 699,475 2,303,780



Due to banks 2,918,371 520,942 - - - 3,439,313

179,982 277,076 - - - 457,058









363

53.3.4 Remaining Contractual Maturities of Commitments and ContingenciesThe tables below show the contractual expiry by remaining maturity of the Bank’s contingent liabilities and commitments. Each undrawn

the maximum amount of the guarantee is allocated to the earliest period in which the guarantee could be called.

On Demand

Less than 3 Months

3 to 12 Months

1 to 5 Years

Over 5 Years

Total

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Contingencies

Guarantees 2,985,664 13,327,547 16,664,462 10,752,667 2,766,234 46,496,574

Acceptance 33,065 9,277,247 6,767,694 14,400 - 16,092,406

Forward contracts 10,119 20,101,293 10,567,691 - - 30,679,103

Documentary credit 2,688,732 15,129,792 3,840,939 195,717 - 21,855,180

Total Contingencies 5,717,580 57,835,879 37,840,786 10,962,784 2,766,234 115,123,263

Commitments

Undrawn overdrafts 38,499,451 - - - - 38,499,451

Undrawn loans 115,612,450 - - - - 115,612,450

Undisbursed cash loans 11,231 - - - - 11,231

Undrawn credit card limits 16,820,504 - - - - 16,820,504

Undrawn indirect credit facilities 54,074,330 - - - - 54,074,330

Capital Commitments 391,732 - - - - 391,732

Operating lease commitments - Bank as lessee - 253,622 739,517 1,840,183 614,024 3,447,346

Total Commitments 225,409,698 253,622 739,517 1,840,183 614,024 228,857,044

Total Commitments & Contingencies 231,127,278 58,089,501 38,580,303 12,802,967 3,380,258 343,980,307


ANNUAL REPORT 2016



On Demand

Less than 3 Months

3 to 12 Months

1 to 5 Years

Over 5 Years

Total

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Contingencies

Guarantees 3,806,464 12,568,497 12,529,043 4,941,850 5,830,806 39,676,660

Acceptance 25,608 11,249,117 4,566,008 17,304 - 15,858,037




Commitments


Undrawn loans 94,489,627 - - - - 94,489,627

Undisbursed cash loans - - - - - -








365

On Demand

Less than 3 Months

3 to 12 Months

1 to 5 Years

Over 5 Years

Total

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Contingencies

Guarantees 2,985,664 13,327,547 16,698,362 10,752,667 2,766,234 46,530,474

Acceptance 33,065 9,277,247 6,767,694 14,400 - 16,092,406




Commitments


Undrawn loans 115,018,730 - - - - 115,018,730

Undisbursed cash loans 11,231 - - - - 11,231


Undrawn commitments factoring 794,203 - - - - 794,203


Capital Commitments 1,591,962 - - - - 1,591,962





ANNUAL REPORT 2016



On Demand

Less than 3 Months

3 to 12 Months

1 to 5 Years

Over 5 Years

Total

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Contingencies

Guarantees 3,806,464 12,568,497 12,529,043 4,941,850 5,830,806 39,676,660

Acceptance 25,608 11,249,117 4,566,008 17,304 - 15,858,037




Commitments


Undrawn loans 93,989,627 - - - - 93,989,627

Undisbursed cash loans - - - - - -


Undrawn Commitments Factoring 315,071 - - - - 315,071







367

53.4 Market Risk

or non–trading portfolios and manages each of those portfolios separately.

53.4.1 Interest Rate Risk

The Bank’s policy is to continuously monitor positions on a daily basis and hedging strategies are used to ensure positions are maintained within prudential levels.

December 2015 to a reasonable possible change in interest rates, with all other variables held constant.

Rate Sensitive Assets (RSA) & Rate Sensitive Liabilities (RSL) as at 31st December 2016 2015

Rs 000 Rs 000

Rate Sensitive Assets (RSA)* 499,005,155 388,781,320

Rate Sensitive Liabilities (RSL)* 522,878,258 408,244,998

GAP (RSA - RSL) (23,873,103) (19,463,678)

2016 2015

Rs 000 Rs 000

Interest Rate Shock

0.50% 147,706 46,103

1.00% 295,411 92,206

(0.50%) (147,706) (46,103)

(1.00%) (295,411) (92,206)

* The above computation is based on the rate sensitive assets and liabilities which are matured or repriced within one year.

included at carrying amount and categorised by the earlier of contractual re–pricing or maturity dates.


ANNUAL REPORT 2016


53

RIS

K M

AN

AG

EM

EN

T C

ON

TD

.

Up

to

3

Mo

nths

3

- 1

2 M

ont

hs

1-3

Ye

ars

3 -

5

Year

s O

ver

5 Ye

ars

No

n In

tere

st

Bea

ring

To

tal

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Fina

ncia

l Ass

ets

Cas

h &

cas

h eq

uiva

lent

s 6

,479

,043

-

-

-

-

1

0,58

4,97

0 1

7,06

4,01

3

Bal

ance

s w

ith C

entr

al B

ank

of S

ri La

nka

-

-

-

-

-

33,

724,

856

33,

724,

856

Pla

cem

ents

with

ban

ks 7

,770

,903

9

78,8

60

-

-

-

-

8,7

49,7

63

Rev

erse

repu

rcha

se a

gree

men

ts 3

3,86

0,08

3 -

-

-

-

-

3

3,86

0,08

3

-

-

-

-

-

109

,872

1

09,8

72

Fina

ncia

l ass

ets

- he

ld fo

r tr

adin

g 2

8,01

1,02

4 -

-

-

-

9

8,16

9 2

8,10

9,19

3

Fina

ncia

l ass

ets

- he

ld fo

r tr

adin

g pl

edge

d

as c

olla

tera

ls 1

0,38

0,21

3 -

-

-

-

-

1

0,38

0,21

3

Loan

s to

& re

ceiv

able

s fro

m b

anks

2,6

31,2

40

2,0

67

5,7

36

2,6

90

-

-

2,6

41,7

33

Loan

s to

& re

ceiv

able

s fro

m o

ther

cust

omer

s 3

18,8

14,4

35

44,

347,

290

45,

928,

516

19,

269,

996

27,

562,

855

265

,960

4

56,1

89,0

52

Oth

er lo

ans

& re

ceiv

able

s 1

7,63

3,23

8 1

4,92

8,93

3 4

,960

,729

1

,185

,540

-

-

3

8,70

8,44

0

Fina

ncia

l ass

ets

- av

aila

ble

for

sale

12,

509,

923

-

-

-

-

1,7

60,2

67

14,

270,

190

Fina

ncia

l ass

ets

- av

aila

ble

for

sale

ple

dged

as c

olla

tera

ls 6

57,9

03

-

-

-

-

-

657

,903

Fina

ncia

l ass

ets

- he

ld t

o m

atur

ity -

-

-

-

-

-

-

Oth

er a

sset

s -

-

-

-

-

3

,257

,948

3

,257

,948

Tota

l Fin

anci

al A

sset

s 4

38,7

48,0

05

60,

257,

150

50,

894,

981

20,

458,

226

27,

562,

855

49,

802,

042

647

,723

,259

Fina

ncia

l Lia

bili

ties

Due

to b

anks

5,1

59,0

68

525

,644

-

-

-

3

39,2

20

6,0

23,9

32

-

-

-

-

-

63,

611

63,

611

Sec

uriti

es s

old

unde

r re

purc

hase

agre

emen

ts

9,1

96,0

78

963

,147

-

-

-

-

1

0,15

9,22

5

Due

to o

ther

cus

tom

ers

314

,975

,085

1

50,0

25,5

90

8,6

95,4

29

760

,917

2

5,00

9 3

6,08

4,62

5 5

10,5

66,6

55

Deb

t iss

ued

& o

ther

bor

row

ed fu

nds

32,

729,

428

9,3

04,2

18

13,

970,

131

13,

850,

623

2,2

73,8

37

-

72,

128,

237

Div

iden

d pa

yabl

e -

-

-

-

-

8

4,86

0 8

4,86

0

Oth

er li

abilit

ies

-

-

-

-

-

5,8

17,1

57

5,8

17,1

57

Tota

l Fin

anci

al L

iab

iliti

es 3

62,0

59,6

59

160

,818

,599

2

2,66

5,56

0 1

4,61

1,54

0 2

,298

,846

4

2,38

9,47

3 6

04,8

43,6

77

Inte

rest

Rat

e S

ensi

tivi

ty G

ap

76,

688,

346

(100

,561

,449

) 2

8,22

9,42

1 5

,846

,686

2

5,26

4,00

9 7

,412

,569

4

2,87

9,58

2


369 U

p t

o 3

M

ont

hs

3 -

12

Mo

nths

1

-3

Year

s 3

- 5

Ye

ars

Ove

r 5

Year

s N

on

Inte

rest

B

eari

ng T

ota

l

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Fina

ncia

l Ass

ets

Cas

h &

cas

h eq

uiva

lent

s2,

930,

483

--

--

10,6

57,5

9213

,588

,075

Bal

ance

s w

ith C

entr

al B

ank

of S

ri La

nka

--

--

-21

,341

,882

21,3

41,8

82

Pla

cem

ents

with

ban

ks3,

974,

515

1,21

8,85

4-

--

-5,

193,

369

Rev

erse

repu

rcha

se a

gree

men

ts-

--

--

--

--

--

-31

9,46

131

9,46

1

Fina

ncia

l ass

ets

- he

ld fo

r tr

adin

g1,

767,

317

--

--

121,

741

1,88

9,05

8

Fina

ncia

l ass

ets

- he

ld fo

r tr

adin

g pl

edge

d

as

colla

tera

ls2,

702,

785

--

--

-2,

702,

785

Loan

s to

& re

ceiv

able

s fro

m b

anks

1,64

3,86

81,

321

2,92

53,

091

--

1,65

1,20

5

Loan

s to

& re

ceiv

able

s fro

m o

ther

cust

omer

s25

0,22

9,79

042

,078

,447

41,3

58,2

2319

,837

,287

21,9

44,8

8924

7,89

437

5,69

6,53

0

Oth

er lo

ans

& re

ceiv

able

s5,

679,

504

19,3

67,1

084,

613,

790

3,68

9,67

718

,195

-33

,368

,274

Fina

ncia

l ass

ets

- av

aila

ble

for

sale

49,9

76,7

43-

--

-1,

273,

668

51,2

50,4

11

Fina

ncia

l ass

ets

- av

aila

ble

for

sale

ple

dged

as c

olla

tera

ls7,

210,

585

--

--

-7,

210,

585

Fina

ncia

l ass

ets

- he

ld t

o m

atur

ity-

--

--

--

Oth

er a

sset

s-

--

--

1,96

4,78

71,

964,

787

Tota

l Fin

anci

al A

sset

s 32

6,11

5,59

062

,665

,730

45,9

74,9

3823

,530

,055

21,9

63,0

8435

,927

,025

516,

176,

422

Fina

ncia

l Lia

bili

ties

Due

to b

anks

1,02

2,61

750

6,55

9-

--

1,88

9,32

33,

418,

499

--

--

-45

7,05

845

7,05

8

Sec

uriti

es s

old

unde

r re

purc

hase

agre

emen

ts

8,79

9,57

051

6,55

2-

--

-9,

316,

122

Due

to o

ther

cus

tom

ers

263,

474,

883

102,

508,

929

4,79

4,85

61,

263,

591

20,5

1434

,260

,246

406,

323,

019

Deb

t iss

ued

& o

ther

bor

row

ed fu

nds

20,5

53,0

0310

,862

,885

8,32

1,78

614

,921

,128

2,35

7,48

2-

57,0

16,2

84

Div

iden

d pa

yabl

e-

--

--

90,9

6990

,969

Oth

er li

abilit

ies

--

--

-5,

083,

897

5,08

3,89

7

Tota

l Fin

anci

al L

iab

iliti

es29

3,85

0,07

311

4,39

4,92

513

,116

,642

16,1

84,7

192,

377,

996

41,7

81,4

9348

1,70

5,84

8

Inte

rest

Rat

e S

ensi

tivi

ty G

ap

32,2

65,5

17(5

1,72

9,19

5)32

,858

,296

7,34

5,33

619

,585

,088

(5,8

54,4

68)

34,4

70,5

74


ANNUAL REPORT 2016


53

RIS

K M

AN

AG

EM

EN

T C

ON

TD

.

Up

to

3

Mo

nths

3

- 1

2 M

ont

hs

1-3

Ye

ars

3 -

5

Year

s O

ver

5 Ye

ars

No

n In

tere

st

Bea

ring

To

tal

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Fina

ncia

l Ass

ets

Cas

h &

cas

h eq

uiva

lent

s 6

,479

,043

-

-

-

-

1

0,74

2,76

6 1

7,22

1,80

9

Bal

ance

s w

ith C

entr

al B

ank

of S

ri La

nka

-

-

-

-

-

33,

724,

856

33,

724,

856

Pla

cem

ents

with

ban

ks 7

,770

,903

9

78,8

60

-

-

-

-

8,7

49,7

63

Rev

erse

repu

rcha

se a

gree

men

ts 3

4,62

9,42

2 -

-

-

-

-

3

4,62

9,42

2

-

-

-

-

-

109

,872

1

09,8

72

Fina

ncia

l ass

ets

- he

ld fo

r tr

adin

g 2

8,01

9,62

0 -

-

-

-

9

8,16

9 2

8,11

7,78

9

Fina

ncia

l ass

ets

- he

ld fo

r tr

adin

g

pl

edge

d as

col

late

rals

10,

371,

617

-

-

-

-

-

10,

371,

617

Loan

s to

& re

ceiv

able

s fro

m b

anks

2,6

31,2

40

2,0

67

5,7

36

2,6

90

-

-

2,6

41,7

33

Loan

s to

& re

ceiv

able

s fro

m o

ther

cust

omer

s 3

22,6

27,2

44

47,

866,

966

52,

135,

148

22,

227,

357

27,

632,

272

265

,960

4

72,7

54,9

47

Oth

er lo

ans

& re

ceiv

able

s 1

7,63

3,23

8 1

4,92

8,93

3 4

,960

,729

1

,185

,540

-

-

3

8,70

8,44

0

Fina

ncia

l ass

ets

- av

aila

ble

for

sale

12,

569,

145

-

-

-

56

1,7

60,2

67

14,

329,

468

Fina

ncia

l ass

ets

- av

aila

ble

for

sale

pled

ged

as c

olla

tera

ls 5

98,6

81

-

-

-

-

-

598

,681

Fina

ncia

l ass

ets

- he

ld t

o m

atur

ity 2

,400

1

0,24

5 -

4

,288

-

-

1

6,93

3

Oth

er a

sset

s -

-

-

-

-

3

,507

,676

3

,507

,676

Tota

l Fin

anci

al A

sset

s 4

43,3

32,5

53

63,

787,

071

57,

101,

613

23,

419,

875

27,

632,

328

50,

209,

566

665

,483

,006

Fina

ncia

l Lia

bili

ties

Due

to b

anks

5,2

06,3

33

525

,643

-

-

-

3

39,2

20

6,0

71,1

96

-

-

-

-

-

63,

611

63,

611

Sec

uriti

es s

old

unde

r re

purc

hase

agre

emen

ts

9,1

96,0

78

899

,039

-

-

-

-

1

0,09

5,11

7

Due

to o

ther

cus

tom

ers

316

,256

,315

1

51,2

79,0

46

8,8

68,4

74

926

,225

2

5,00

9 3

6,07

8,75

7 5

13,4

33,8

26

Deb

t iss

ued

& o

ther

bor

row

ed fu

nds

40,

626,

413

9,5

69,3

28

16,

791,

721

14,

917,

933

2,2

73,8

37

-

84,

179,

232

Div

iden

d pa

yabl

e -

-

-

-

-

8

4,86

0 8

4,86

0

Oth

er li

abilit

ies

-

-

-

-

-

6,6

81,1

11

6,6

81,1

11

Tota

l Fin

anci

al L

iab

iliti

es 3

71,2

85,1

39

162

,273

,056

2

5,66

0,19

5 1

5,84

4,15

8 2

,298

,846

4

3,24

7,55

9 6

20,6

08,9

53

Inte

rest

Rat

e S

ensi

tivi

ty G

ap

72,

047,

414

(98,

485,

985)

31,

441,

418

7,5

75,7

17

25,

333,

482

6,9

62,0

07

44,

874,

053


371 U

p t

o 3

M

ont

hs

3 -

12

Mo

nths

1

-3

Year

s 3

- 5

Ye

ars

Ove

r 5

Year

s N

on

Inte

rest

B

eari

ng T

ota

l

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Rs

000

Fina

ncia

l Ass

ets

Cas

h &

cas

h eq

uiva

lent

s2,

930,

483

--

--

10,7

82,9

7313

,713

,456

Bal

ance

s w

ith C

entr

al B

ank

of S

ri La

nka

--

--

-21

,341

,882

21,3

41,8

82

Pla

cem

ents

with

ban

ks3,

974,

515

1,21

8,85

4-

--

-5,

193,

369

Rev

erse

repu

rcha

se a

gree

men

ts-

--

--

--

--

--

-31

9,46

131

9,46

1

Fina

ncia

l ass

ets

- he

ld fo

r tr

adin

g1,

776,

333

--

--

121,

741

1,89

8,07

4

Fina

ncia

l ass

ets

- he

ld fo

r tr

adin

g pl

edge

d

as

colla

tera

ls2,

693,

769

--

--

-2,

693,

769

Loan

s to

& re

ceiv

able

s fro

m b

anks

1,64

3,86

81,

321

2,92

53,

091

--

1,65

1,20

5

Loan

s to

& re

ceiv

able

s fro

m o

ther

cust

omer

s25

2,17

7,92

444

,286

,641

45,8

05,6

7021

,573

,561

22,1

86,0

5424

7,89

438

6,27

7,74

4

Oth

er lo

ans

& re

ceiv

able

s5,

679,

504

19,3

67,1

084,

613,

790

3,68

9,67

718

,195

-33

,368

,274

Fina

ncia

l ass

ets

- av

aila

ble

for

sale

50,6

67,8

11-

--

-1,

273,

668

51,9

41,4

79

Fina

ncia

l ass

ets

- av

aila

ble

for

sale

ple

dged

as c

olla

tera

ls6,

519,

573

--

--

-6,

519,

573

Fina

ncia

l ass

ets

- he

ld t

o m

atur

ity2,

400

56,4

47-

-4,

274

-63

,121

Oth

er a

sset

s-

--

--

2,09

9,32

72,

099,

327

Tota

l Fin

anci

al A

sset

s 32

8,06

6,18

064

,930

,371

50,4

22,3

8525

,266

,329

22,2

08,5

2336

,186

,946

527,

080,

734

Fina

ncia

l Lia

bili

ties

Due

to b

anks

1,02

2,61

750

6,55

9-

--

1,88

9,32

33,

418,

499

--

--

-45

7,05

845

7,05

8

Sec

uriti

es s

old

unde

r re

purc

hase

agre

emen

ts

8,19

7,89

246

5,03

8-

--

-8,

662,

930

Due

to o

ther

cus

tom

ers

263,

256,

007

103,

505,

488

4,85

4,40

71,

267,

003

20,5

1434

,260

,246

407,

163,

665

Deb

t iss

ued

& o

ther

bor

row

ed fu

nds

27,5

48,8

4910

,899

,722

8,41

3,81

314

,930

,510

3,37

8,08

3-

65,1

70,9

77

Div

iden

d pa

yabl

e-

--

--

90,9

6990

,969

Oth

er li

abilit

ies

--

--

-5,

391,

243

5,39

1,24

3

Tota

l Fin

anci

al L

iab

iliti

es30

0,02

5,36

511

5,37

6,80

713

,268

,220

16,1

97,5

133,

398,

597

42,0

88,8

3949

0,35

5,34

1

Inte

rest

Rat

e S

ensi

tivi

ty G

ap

28,0

40,8

15(5

0,44

6,43

6)37

,154

,165

9,06

8,81

618

,809

,926

(5,9

01,8

93)

36,7

25,3

93


ANNUAL REPORT 2016



53.4.2 Currency Risk

Board has set limits on positions by currency. In accordance with the Bank’s policy, positions are monitored on a daily basis and hedging strategies are used to ensure positions are maintained within established limits.

potential increase.

2016 2015

Foreign Exchange Position as at 31st December Net Overall Long

Net Overall Short

Net Overall Long

Net Overall Short

Rs 000 Rs 000 Rs 000 Rs 000

Currency

USD 1,186,602 - 536,238 -

GBP 11,892 - 24,897 -

EUR 33,192 - 82,446 -

JPY 7,917 - 7,764 -

AUD 15,048 - 21,051 -

CAD 22,601 - 29,355 -

24,779 - 40,761 -

SGD 4,066 - 17,188 -

7,245 - 3,545 -

Sub Total 1,313,342 - 763,245 -

Other Currencies 78,338 - 112,621 -

Grand Total 1,391,680 - 875,866 -

Higher of Long or Short 1,391,680 - 875,866 -

2016 2015

Exchange Rate Shocks Net Open Position

(after Rate Shocks)

Impact on Statement of

for the Period ended 31st December

Net Open Position

(after Rate Shocks)

Impact on Statement of

for the Period ended 31st December

Rs 000 Rs 000 Rs 000 Rs 000

5% 1,461,264 69,584 919,659 43,793

10% 1,530,848 139,168 963,452 87,587

-5% 1,322,096 (69,584) 832,072 (43,793)

-10% 1,252,512 (139,168) 788,279 (87,587)


373

53.4.3 Equity Price Risk Equity price risk is the risk that the fair value of equities decreases as a result of changes in the level of equity indices and individual stocks. Investment Committee reviews and approves all equity investment decisions. Further the market value of the Bank’s equity portfolio as of 31st December 2016 is Rs. 98,168,160/- (2015: Rs 121,740,400/-). 53.5 Operational Risk Operational risk is the risk of losses arising from failed internal processes, systems failure, human error, fraud or external events. When

Strategic and Reputational Risks are not covered in Operational Risk.

Operational Risks of the Bank are mitigated and managed through a Board approved Operational Risk Management Policy control framework which consists of monitoring and responding to potential risks such as segregation of duties, access, authorisation and

managing Operational Risks of the Bank.

53.6 Capital ManagementThe Bank’s capital management objectives can be summarised as follows:

Provide additional capital to business segments of the Bank to achieve the overall strategic objectives

Regulatory CapitalThe Bank manages its capital considering the regulatory capital requirements. The Central Bank of Sri Lanka (CBSL) sets and monitors capital requirements for licensed commercial banks in Sri Lanka based on the Basel framework. Accordingly commercial banks in Sri Lanka need to maintain a minimum total capital adequacy ratio of 10% and a minimum core capital adequacy ratio (Tier I) of 5%. The Bank has always maintained the Capital Adequacy Ratio above the minimum regulatory requirements.


ANNUAL REPORT 2016


54 MATURITY ANALYSIS

Bank Group

Within 12 Months

After 12 Months

Total Within 12 Months

After 12 Months

Total

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Assets

Cash & cash equivalents 17,064,013 - 17,064,013 17,221,809 - 17,221,809

Balances with Central Bank of Sri Lanka 32,521,118 1,203,738 33,724,856 32,521,118 1,203,738 33,724,856

Placements with banks 8,749,763 - 8,749,763 8,749,763 - 8,749,763

Reverse repurchase agreements 33,860,083 - 33,860,083 34,629,422 - 34,629,422

109,872 - 109,872 109,872 - 109,872

Financial assets - held for trading 28,109,193 - 28,109,193 28,117,789 - 28,117,789

Financial assets - held for trading pledged as collaterals 10,380,213 - 10,380,213 10,371,617 - 10,371,617

Loans to & receivables from banks 979,426 1,662,307 2,641,733 979,426 1,662,307 2,641,733


Other loans & receivables 27,047,545 11,660,895 38,708,440 27,047,545 11,660,895 38,708,440

Financial assets - available for sale 14,270,190 - 14,270,190 14,329,468 - 14,329,468

Financial assets - available for sale pledged as collaterals 657,903 - 657,903 598,681 - 598,681

Financial assets - held to maturity - - - 12,645 4,288 16,933

Investment in subsidiaries - 1,227,896 1,227,896 - - -

Property, plant & equipment - 5,971,517 5,971,517 - 10,709,207 10,709,207

Intangible assets - 337,348 337,348 - 356,131 356,131

Current tax receivables - - - 10,365 - 10,365

Deferred tax assets - - - - 857 857

Other assets 3,880,939 2,629,275 6,510,214 4,278,320 2,768,291 7,046,611

Total Assets 447,003,952 211,508,334 658,512,286 455,955,753 224,142,748 680,098,501

Liabilities

Due to banks 6,023,932 - 6,023,932 6,071,196 - 6,071,196

63,611 - 63,611 63,611 - 63,611

Securities sold under repurchase agreements 10,159,225 - 10,159,225 10,095,117 - 10,095,117



Dividend payable 84,860 - 84,860 84,860 - 84,860

Current tax liabilities 4,316,297 - 4,316,297 4,386,251 - 4,386,251

Deferred tax liabilities - 872,794 872,794 - 1,077,674 1,077,674

Other liabilities 7,995,942 1,063,459 9,059,401 9,119,124 1,063,458 10,182,582

Other provisions - 748,440 748,440 - 782,075 782,075

Total Liabilities 551,192,614 62,830,838 614,023,452 559,238,658 71,117,766 630,356,424

Maturity Gap (104,188,662) 148,677,496 44,488,834 (103,282,905) 153,024,982 49,742,077

Cumulative Gap (104,188,662) 44,488,834 - (103,282,905) 49,742,077 -


375

54 MATURITY ANALYSIS CONTD.

Bank Group

Within 12 Months

After 12 Months

Total Within 12 Months

After 12 Months

Total

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Assets

Cash & cash equivalents 13,588,075 - 13,588,075 13,713,456 - 13,713,456

Balances with Central Bank of Sri Lanka 20,012,700 1,329,182 21,341,882 20,012,700 1,329,182 21,341,882

Placements with banks 5,193,369 - 5,193,369 5,193,369 - 5,193,369


319,461 - 319,461 319,461 - 319,461

Financial assets - held for trading 1,889,058 - 1,889,058 1,898,074 - 1,898,074

Financial assets - held for trading pledged as collaterals 2,702,785 - 2,702,785 2,693,769 - 2,693,769

Loans to & receivables from banks 554,045 1,097,160 1,651,205 554,045 1,097,160 1,651,205


Other loans & receivables 8,699,601 24,668,673 33,368,274 8,699,601 24,668,673 33,368,274

Financial assets - available for sale 51,250,411 - 51,250,411 51,941,479 - 51,941,479

Financial assets - available for sale pledged as collaterals 7,210,585 - 7,210,585 6,519,573 - 6,519,573

Financial assets - held to maturity - - - 58,847 4,274 63,121

Investment in subsidiaries - 1,079,921 1,079,921 - - -

Property, plant & equipment - 5,313,491 5,313,491 - 8,696,577 8,696,577

Intangible assets - 342,193 342,193 - 368,369 368,369

Current tax receivables - - - 2,249 - 2,249

Deferred tax assets - - - - 23,368 23,368

Other assets 1,782,343 2,547,590 4,329,933 1,933,215 2,642,267 4,575,482

Total Assets 338,129,565 187,147,608 525,277,173 342,998,685 195,648,767 538,647,452

Liabilities

Due to banks 3,418,499 - 3,418,499 3,418,499 - 3,418,499

457,058 - 457,058 457,058 - 457,058

Securities sold under repurchase agreements 9,316,122 - 9,316,122 8,662,930 - 8,662,930



Dividend payable 90,969 - 90,969 90,969 - 90,969

Current tax liabilities 3,691,556 1,247,983 4,939,539 3,773,379 1,247,983 5,021,362

Deferred tax liabilities - 313,181 313,181 - 433,175 433,175

Other liabilities 6,445,350 771,293 7,216,643 7,141,806 791,186 7,932,992

Other provisions - 1,060,785 1,060,785 - 1,092,626 1,092,626

Total Liabilities 429,948,202 60,203,897 490,152,099 437,545,778 61,898,475 499,444,253

Maturity Gap (91,818,637) 126,943,711 35,125,074 (94,547,093) 133,750,292 39,203,199

Cumulative Gap (91,818,637) 35,125,074 - (94,547,093) 39,203,199 -


ANNUAL REPORT 2016

55 COMPARATIVE INFORMATION

Note Bank Group

As disclosed in

2015

Adjustment As disclosed in

2015

Adjustment

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Other operating income 55.1.1 2,842,800 2,941,268 (98,468) 3,017,445 3,115,973 (98,528)

investment 98,468 - 98,468 98,528 - 98,528 55.1.1

investment.

55.2 Statement of Financial Position



377

[ SUPPLEMENTARY INFORMATION ]This section contains additional but important information, including

US$ statements, the GRI G4 Index and other reports. The Notice of

Meeting and Stakeholder Feedback Form are also included here.

IMAGINFLUENCE

Statement of Profit or Loss In US$ 378

Statement of Comprehensive Income in US$ 379

Statement of Financial Position in US$ 380

Economic Value Addition 381

Ten Years at a Glance 382

Quarterly Statistics 383

Capital Adequacy 385

GRI G4 Content Index 390

Other Sustainability Disclosures 398

Independent Assurance Report to the Shareholders

of Sampath Bank PLC 409

Glossary of Financial and Banking Terms 410

Abbreviations 416


ANNUAL REPORT 2016

STATEMENT OF PROFIT OR LOSS IN US$

Bank Group


US$ 000 US$ 000 US$ 000 US$ 000

Gross income 450,565 326,154 469,636 340,513

Interest income 376,862 263,132 393,176 275,356Less: Interest expense 225,172 142,454 233,474 146,712Net interest income 151,690 120,678 159,702 128,643

Fee & commission income 53,661 44,992 54,686 45,915 Less: Fee & commission expense 9,764 8,331 9,783 8,348 Net fee & commission income 43,897 36,661 44,903 37,567

Net trading gain / (loss) 1,559 (2,367) 1,559 (2,367)862 683 862 684

Other operating income 17,621 19,714 19,353 20,925 Total operating income 215,629 175,370 226,379 185,453

Less: Net impairment charge for loans & other losses 9,732 6,544 10,233 6,886 Net operating income 205,897 168,826 216,146 178,567

Less: Operating expensesPersonnel expenses 48,885 42,588 52,231 45,246 Other operating expenses 54,253 49,918 56,208 51,578 Total operating expenses 103,138 92,506 108,439 96,824

102,759 76,320 107,707 81,743

18,760 13,207 19,617 13,854 83,999 63,113 88,090 67,889

Less: Income tax expense 23,168 20,575 24,748 21,924 60,831 42,538 63,342 45,965

Attributable to:Equity holders of the Bank 60,831 42,538 63,308 45,932 Non - controlling interest 34 33

60,831 42,538 63,342 45,965

Earnings per share : Basic / Diluted (US$) 0.34 0.24 0.36 0.26

Dividend per share Dividend per share: Gross (US$) 0.12* 0.09Dividend per share: Net (US$) 0.11* 0.08

Exchange rate of US$ was Rs 150.00 as at 31st December 2016 (Rs 144.20 as at 31st December 2015)

28th February 2017) and the Annual General Meeting (to be held on 31st March 2017) respectively.

SUPPLEMENTARY INFORMATION

379

STATEMENT OF COMPREHENSIVE INCOME IN US$

Bank Group


US$ 000 US$ 000 US$ 000 US$ 000

60,831 42,538 63,342 45,965

Other comprehensive income

2,553 (2,939) 2,553 (2,939)

(23) - (23) -

107 223 107 223

2,637 (2,716) 2,637 (2,716)

3,764 804 3,773 799

(1,054) (225) (1,056) (222)

2,710 579 2,717 577

Surplus from revaluation of property, plant & equipment 4,015 - 10,005 -

(295) - (295) -

3,720 - 9,710 -

6,430 579 12,427 577

Other comprehensive income net of tax 9,067 (2,137) 15,064 (2,139)

Total comprehensive income for the year net of tax 69,898 40,401 78,406 43,826

Attributable to:

Equity holders of the Bank 69,898 40,401 78,200 43,792

Non - controlling interest 206 34

69,898 40,401 78,406 43,826



ANNUAL REPORT 2016

STATEMENT OF FINANCIAL POSITION IN US$

Bank Group

As at 31st December 2016 2015 2016 2015

US$ 000 US$ 000 US$ 000 US$ 000

ASSETSCash & cash equivalents 113,760 94,231 114,812 95,100 Balances with Central Bank of Sri Lanka 224,832 148,002 224,832 148,002 Placements with banks 58,332 36,015 58,332 36,015 Reverse repurchase agreements 225,734 - 230,863 -

732 2,215 732 2,215 Financial assets - held for trading 187,395 13,100 187,452 13,163 Financial assets - held for trading pledged as collaterals 69,201 18,743 69,144 18,681 Loans to & receivables from banks 17,612 11,451 17,612 11,451 Loans to & receivables from other customers 3,041,260 2,605,385 3,151,700 2,678,764 Other loans & receivables 258,056 231,403 258,056 231,403 Financial assets - available for sale 95,135 355,412 95,530 360,204 Financial assets - available for sale pledged as collaterals 4,386 50,004 3,991 45,212 Financial assets - held to maturity - - 113 438 Investment in subsidiaries 8,186 7,489 - - Property, plant & equipment 39,810 36,848 71,395 60,309 Intangible assets 2,249 2,373 2,374 2,555 Current tax receivables - - 69 16 Deferred tax assets - - 6 162 Other assets 43,403 30,028 46,978 31,729 Total Assets 4,390,083 3,642,699 4,533,991 3,735,419

LIABILITIESDue to banks 40,160 23,707 40,475 23,707

424 3,170 424 3,170 Securities sold under repurchase agreements 67,728 64,606 67,301 60,076 Due to other customers 3,403,778 2,817,774 3,422,892 2,823,604 Debt issued & other borrowed funds 480,855 395,397 561,195 451,949 Dividend payable 566 631 566 631 Current tax liabilities 28,775 34,255 29,242 34,822 Deferred tax liabilities 5,819 2,172 7,184 3,004 Other liabilities 60,396 50,045 67,884 55,012 Other provisions 4,990 7,356 5,214 7,577 Total Liabilities 4,093,491 3,399,113 4,202,377 3,463,552

EQUITYStated capital 43,141 37,319 43,141 37,319 Reserves Statutory reserve 15,000 12,413 15,576 12,899 Other reserves 209,135 172,589 230,794 188,925 Retained earnings 29,316 21,265 42,103 32,067 Total equity attributable to equity holders of the Bank 296,592 243,586 331,614 271,210Non - controlling interest - 657 Total Equity 296,592 243,586 331,614 271,867Total Liabilities & Equity 4,390,083 3,642,699 4,533,991 3,735,419

Commitments & contingencies 2,293,202 2,171,375 2,300,771 2,165,583Net asset value per share (US$) 1.68 1.38 1.87 1.53



381

ECONOMIC VALUE ADDITION

ECONOMIC VALUE ADDITION - BANK


Rs Mn Rs Mn

Average shareholders' funds 39,807 33,019 Provision for impairment losses 7,726 6,997

47,533 40,016

9,125 6,134 Net impairment charge for loans & other losses 1,460 944

(609) (851) 9,976 6,227

Economic cost (12 months average Treasury Bill rate plus 2% risk premium) 11.9% 8.6%Economic cost 5,669 3,441 Economic value addition 4,307 2,786

DIRECT ECONOMIC VALUE GENERATED & DISTRIBUTED - BANK

Information on the creation and distribution of economic value provides a basic indication of how the bank has created wealth for stakeholders.


Rs Mn Rs Mn

Direct Economic Value Generated Interest income 56,529 37,944 Foreign exchange income 2,589 2,466 Commission income 8,049 6,488 Investment income 231 249 Other income 155 55

67,553 47,202

Economic Value DistributedTo Depositors and LendersInterest expense 31,183 18,995

31,183 18,995

Operating CostsDepreciation & amortisation set aside 709 700 Fee & commission expense 1,465 1,201 Other operating expense 7,312 6,418

9,486 8,319

To EmployeesSalaries 4,599 4,133

2,734 2,008 7,333 6,141

Payments to GovernmentIncome tax expense 3,118 2,830

2,814 1,904 Crop insurance levy 95 61

6,027 4,795

To CommunitySocial responsibility projects 19 16 Donations 3 2

22 18

Payments to Providers of CapitalInterest to debenture holders 2,593 1,547 Dividend to shareholders 3,362 2,240

5,955 3,787

Economic Value Distributed 60,006 42,055 Economic Value Retained (after payment of dividend to shareholders) 7,547 5,147

67,553 47,202


ANNUAL REPORT 2016

SLAS SLFRSFor the year ended 31st December 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Operating results (Rs Mn)Gross income 17,400 22,243 25,213 24,333 27,577 38,796 47,509 44,597 47,032 67,585 Interest income 14,950 19,451 20,970 18,477 21,111 31,882 41,892 38,059 37,944 56,529 Interest expenses 9,947 12,801 13,165 9,953 12,168 20,269 26,556 22,335 20,542 33,776 Net interest income 5,003 6,650 7,805 8,525 8,943 11,613 15,336 15,724 17,402 22,754 Exchange income 505 647 774 498 837 2,154 520 1,283 2,466 2,589 Other income 1,944 2,144 3,469 5,357 4,792 4,105 4,901 4,387 5,421 7,002 Total operating income 7,452 9,441 12,048 14,380 14,572 17,872 20,757 21,394 25,288 32,344 Operating expenses 3,614 4,662 5,484 6,320 8,059 9,248 10,634 11,729 13,339 15,471 Impairment losses 1,003 1,252 1,203 1,944 618 65 4,736 1,401 944 1,460

2,218 2,564 3,976 4,502 4,994 7,401 4,491 6,727 9,101 12,600 Income tax expense 1,167 1,150 1,878 1,199 1,606 2,170 1,061 1,813 2,967 3,475

1,051 1,414 2,098 3,303 3,388 5,231 3,430 4,914 6,134 9,125

SLAS SLFRS

As at 31st December 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Assets (Rs Mn)Cash & cash equivalents including placements 9,108 6,923 5,868 6,048 16,073 19,220 10,094 13,348 18,781 25,814 Loans & Advances 93,430 95,655 98,685 - - - - - - - Loans to & receivables from banks - - - - 442 816 638 935 1,651 2,642 Loans to & receivables from other customers - - - 124,067 169,681 208,184 259,402 301,435 375,697 456,189 Investment in associates & subsidiaries 970 970 992 992 1,055 1,060 1,060 1,060 1,080 1,228 Property, plant & equipment 3,080 3,289 3,420 4,278 4,528 4,560 5,135 5,142 5,313 5,972 Other assets 26,608 31,702 47,197 55,929 55,879 75,570 105,713 110,106 122,755 166,667 Total assets 133,196 138,539 156,162 191,314 247,658 309,410 382,042 432,026 525,277 658,512

Liabilities (Rs Mn)Due to banks & other customers (Deposits Only) 99,419 107,380 126,091 153,310 195,900 243,575 302,429 341,946 409,411 516,273

4,157 4,592 4,819 - - - - - - - Other liabilities evidenced by paper 4,433 4,514 3,102 - - - - - - - Borrowings from banks & debt issued and other borrowed funds

- - - 8,702 20,225 29,206 39,194 36,846 57,347 72,446

Other liabilities 16,618 12,276 10,304 8,311 10,189 10,985 12,000 22,322 23,394 25,304 Total liabilities 124,627 128,762 144,316 170,323 226,314 283,766 353,623 401,114 490,152 614,023

Shareholders’ Fund (Rs Mn)Stated capital 1,582 1,582 1,582 1,786 2,744 3,564 4,460 4,470 5,381 6,471 Reserves 6,987 8,195 10,265 19,204 18,600 22,080 23,958 26,442 29,744 38,018

Investor InformationDividend paid / proposed (Rs Mn) 206.7 275.6 473.6 1,235.8 1,427.0 1,954.1 1,342.6 1,847.0 2,240.0 3,362.1Dividend cover (times) 5.1 5.1 4.4 2.7 2.4 2.6 2.6 2.6 2.7 2.7Net assets per share (Rs) 124.39 141.92 77.52 131.18 129.00 152.96 169.37 179.39 198.47 251.38

135.00 120.00 205.00 550.00 307.00 216.00 242.00 252.00 279.90 268.70 Market price per share (Rs) - Low 100.00 65.00 65.00 201.00 191.00 148.50 161.60 164.20 235.20 210.00 Market price as at 31st December (Rs) 120.00 68.00 204.25 271.90 195.00 200.50 171.90 236.30 248.00 260.40

Other InformationExchange rate (US $) 108.65 113.00 114.47 110.95 113.90 127.65 130.75 131.20 144.20 150.00

2,213 2,364 2,388 2,688 3,230 3,455 3,688 4,000 3,993 3,960 Number of branches as at 31st December 105 112 131 171 206 209 212 220 225 229

RatiosGrowth of income (%) 41.0 27.8 13.4 (3.5) 13.3 40.7 22.5 (6.1) 5.5 43.70Cost to income ratio with VAT and NBT on 56.8 59.6 57.0 55.8 61.5 58.2 55.5 62.0 60.3 56.5

Cost to income ratio without VAT and NBT on 48.5 49.4 45.5 44.0 55.3 51.7 51.2 54.8 52.7 47.8

Growth of deposits (%) 22.4 8.1 17.5 19.4 27.8 24.3 24.2 13.1 19.7 26.1Growth of advances (%) 23.0 2.4 3.2 30.3 37.1 22.9 24.4 16.3 24.8 21.6Dividend per share (Rs) 3.00 4.00 6.25 8.09 9.00 12.00 8.00 11.00 13.00 18.75 Return on average assets (after tax) (%) 0.87 1.04 1.42 1.94 1.55 1.88 0.98 1.23 1.28 1.55 Return on average equity (after tax) (%) 13.84 15.41 19.41 24.59 16.17 22.26 12.88 16.35 18.42 23.47 Property plant & equipment to shareholders’ fund (%) 35.9 33.6 28.9 20.4 21.2 17.8 18.1 16.6 15.1 13.4 Total assets to shareholders’ fund (Times) 15.5 14.2 13.2 9.1 11.6 12.1 13.4 14.0 15.0 14.8

Liquid assets ratio (%) 29.0 29.5 30.5 26.3 25.0 22.4 27.6 24.5 22.1 21.8

Capital adequacy ratios (%) - TIER I 7.58 8.10 10.40 10.71 10.24 11.80 10.08 8.83 7.90 8.31 - TIER I+II 11.58 11.95 13.45 12.91 11.45 13.61 14.22 13.62 12.26 12.87

TEN YEARS AT A GLANCE


383

QUARTERLY STATISTICS

2016

2015

As

at31

st D

ecem

ber

30th

Sep

tem

ber

30th

Ju

ne31

st

Mar

ch31

st

Dec

emb

er30

th S

epte

mb

er30

th

June

31st

M

arch

Rs

Mn

Rs

Mn

Rs

Mn

Rs

Mn

Rs

Mn

Rs

Mn

Rs

Mn

Rs

Mn

Sta

tem

ent

of

Fina

ncia

l Po

siti

on

Tota

l ass

ets

658

,512

61

7,38

358

3,58

155

5,83

6 5

25,2

77

489

,344

4

61,0

04

438

,703

Loan

s to

& re

ceiv

able

s fro

m b

anks

2,6

42

1,45

31,

329

1,42

6 1

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1

,682

1

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8

68

Loan

s to

& re

ceiv

able

s fro

m o

ther

cus

tom

ers

456

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43

1,39

441

3,68

639

5,11

4 3

75,6

97

343

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3

29,5

12

308

,704

Due

to o

ther

cus

tom

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510

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48

8,89

245

0,81

643

3,55

9 4

06,3

23

381

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3

62,3

91

348

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Tota

l equ

ity 4

4,48

9 41

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38,1

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35,

125

34,

500

32,

513

31,

070

2016

2015

For

the

thre

e m

ont

hs e

nded

31st

Dec

emb

er30

th S

epte

mb

er30

th

June

31st

M

arch

31st

D

ecem

ber

30th

Sep

tem

ber

30th

Ju

ne31

st

Mar

ch

Rs

Mn

Rs

Mn

Rs

Mn

Rs

Mn

Rs

Mn

Rs

Mn

Rs

Mn

Rs

Mn

Net

inte

rest

inco

me

6,6

34

5,92

45,

539

4,65

7 4

,416

4

,506

4

,433

4

,047

Net

fee

& c

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issi

on in

com

e 1

,880

1,

702

1,53

91,

464

1,4

53

1,3

95

1,2

20 1

,219

Net

trad

ing

inco

me

(59)

148

285

(140

) 4

0 (2

46)

115

(2

50)

23

3568

3

14

7

11

66

Oth

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56

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572

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5

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8,

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7,87

66,

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6,5

42

6,7

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6,3

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71

Less

: Im

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(reve

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loan

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553

34

634

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6 1

78

400

3

37

29

Net

ope

ratin

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com

e 8

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8,

028

7,53

16,

493

6,36

46,

348

5,99

05,

642

Less

: To

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ting

expe

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4,2

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4,08

03,

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3,40

8 3

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3

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352

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550

5

07

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6

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(85)

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(338

)

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3,4

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2,86

12,

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1,60

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1,98

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3



1620

15

For

the

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31st

Dec

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June

31st

M

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31st

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30th

Sep

tem

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st

Mar

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Mar

ket

pri

ce p

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hare

(Rs)

268

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266.

9024

0.00

253.

00 2

61.9

0 2

79.9

0 2

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0

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259

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30th

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30th

Ju

ne31

st

Mar

ch31

st

Dec

emb

er30

th S

epte

mb

er30

th

June

31st

M

arch

Net

Inte

rest

mar

gin

( % )

3.87

3.77

3.69

3.47

3.6

4 3

.75

3.8

0 3

.77

Ret

urn

on a

sset

s (b

efor

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x) (

% )

2.14

2.10

2.07

1.90

1.9

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1.9

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.00

Ret

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(afte

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18.

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19.

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19.

00

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Cap

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Ad

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atio

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I ( %

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977.

36 7

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7.9

5 8

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8.2

7

Tier

I +

II (

% )

12.8

711

.92

12.3

511

.46

12.

26

12.

12

12.

87

12.

78

Ass

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Qua

lity

Gro

ss N

PA r

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( %

)1.

611.

671.

801.

671.

641.

701.

711.

84

Net

NPA

rat

io (

% )

0.62

0.62

0.69

0.51

0.46

0.50

0.47

0.55

Reg

ulat

ory

Liq

uid

ity

Ban

k ( %

)21

.84

22.3

520

.71

21.1

422

.05

21.3

921

.06

22.8

3

Dom

estic

ban

king

uni

t ( %

)21

.19

21.7

220

.50

20.7

721

.84

21.1

420

.89

22.7

2

33.4

529

.16

23.1

327

.65

27.2

425

.98

26.3

726

.68

QUARTERLY STATISTICS


385

CAPITAL ADEQUACY

indicators which illustrates the soundness and the stability of a bank by measuring the adequacy of its capital to meet unexpected losses arising from various risks, associated with business of banking, such as credit risk, market risk, operational risk etc. The capital of a bank acts as a “cushion” or

from these risks and safeguarding the depositors’ funds.

Capital Adequacy Ratio (CAR) is a measure of the amount of a bank’s capital expressed as a percentage of its Risk-Weighted Assets (RWA).

TIER I CAPITAL

The Tier I Capital mainly consists of stated capital, non-redeemable and non-cumulative preference shares, other capital and revenue reserves after deducting the total value of intangible assets, 50% of the investments made in shares and

companies and unconsolidated banking

TIER II CAPITAL

Tier II Capital includes revaluation reserves approved by CBSL, general loan loss provisions, and subordinated term debts approved by CBSL, after deducting 50% of the investments made in shares and

companies and unconsolidated banking

Risk Weighted Assets (RWA)Risk Weighted Assets are a measure of the amount of the bank’s assets and

associated with them.

At present, Capital Adequacy computation is prepared as per the “BASEL Accord” which is a universally accepted framework put forward by the “Basel Committee on Bank Supervision (BCBS)” of the Bank for International Settlements (BIS).

BASEL I

In 1988, the BCBS published the 1988 Basel Accord for minimum capital requirement. This was enforced by law in the Group of Ten (G-10) countries in 1992. The Basel Accord also known as “Basel I” was adopted by Sri Lankan banks to compute the Capital Adequacy Ratios up to 31st December 2007.

Basel I accord was criticised mainly for taking a too simplistic approach to setting credit risk weights and for ignoring other types of risks.

These criticisms have led to the creation of a new Basel Capital Accord, known as “Basel II”, which added operational risk and

This new set of rules known as Basel II was later developed to replace the Basel I accord by the Basel Committee.

BASEL II

The Basel Committee on Bank Supervision (BCBS) published the International Convergence of Capital Measurement and Capital Standards, a revised framework (Basel II), in June 2004. Certain amendments to the above were introduced in June 2006. This is the basis currently used by Sri Lankan banks for the computation of Capital Adequacy Ratio

Basel II comprises three mutually reinforcing pillars, Pillar I - Minimum Capital

Requirement Pillar II - Supervisory Review process Pillar III - Market Discipline

Pillar I – Minimum Capital RequirementPillar-I deals with maintenance of regulatory capital calculated for three major components of risks that a bank faces: credit risk, operational risk, and market risk. Other risks are not considered fully at this stage.

The credit risk component can be

varying degrees of sophistication, namely Standardised Approach, Foundation IRB (Internal Rating-Based) Approach and Advanced IRB (Internal Rating-Based)

Approach. In accordance with the current regulatory framework in the country the Bank has adopted the Standardised Approach for calculating credit and market risk while the Basic Indicator Approach has been used in calculating operational risk.

Pillar II – Supervisory Review ProcessPillar - II sets forth the framework for the Supervisory Review Process (SRP) and the framework for Internal Capital Adequacy Assessment Process (ICAAP) of banks. Pillar - II recognises risks in a wider sense including risks not captured and accounted by Pillar - I. (e.g. credit concentration risk, liquidity risk, business and strategic risk etc.). It also covers the Stress Tests which are used to measure the impact on possible

scenarios.

Pillar III – Market Discipline Pillar - III presents a number of disclosure requirements. The objective is to raise the level of market discipline by giving external stakeholders a better understanding of capital adequacy calculations and the procedures involved in a bank. This Pillar is seen as particularly important because under the advanced approaches of Basel II, banks are allowed to rely more heavily on internal methods for determining risk, giving them greater discretion in determining their capital needs.

BASEL III

crisis, the BCBS agreed on reforms to “strengthen global capital and liquidity rules with the goal of promoting a more resilient banking sector”, which is being referred

of Basel III is to minimize the possibility of

IMPLEMENTATION OF BASEL III FRAMEWORK IN SRI LANKA

Commencing from 1st July 2017 capital ratios of licensed banks will be computed based on the Banking Act Direction No. 1 of 2016.

Tier I Capital + Tier II CapitalRisk Weighted Assets

CAR =


ANNUAL REPORT 2016

CAPITAL ADEQUACY

CO

MP

UTA

TIO

N O

F C

AP

ITA

L A

DE

QU

AC

Y R

ATIO

S -

BA

SE

L II

Ban

k G

roup

2016

20

15

2016

20

15

Risk

Wei

ghte

d As

sets

For

Cre

dit R

isk

Ass

ets

Ris

k W

eig

hted

Ass

ets

Ass

ets

Ris

k W

eig

hted

Ass

ets

Ass

ets

Ris

k W

eig

hted

Ass

ets

Ass

ets

Ris

k W

eig

hted

Ass

ets

Rs

Mn

Rs

Mn

Rs

Mn

Rs

Mn

Rs

Mn

Rs

Mn

Rs

Mn

Rs

Mn

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2


ANNUAL REPORT 2016

CAPITAL ADEQUACY

Bank Group

Risk-weighted amount for Market Risk 2016 2015 2016 2015


Interest rate risk 234 396 234 396

General risk 234 396 234 396

- - - -

Equity risk 2 2 2 2

General risk 1 1 1 1

1 1 1 1

Foreign exchange & gold risk 147 120 147 120

Total capital charge for market risk 383 518 383 518

Total risk-weighted amount for market risk (total capital charge X 10 ) 3,833 5,178 3,833 5,178

Bank Group

Risk-weighted amount for Operational Risk 2016 2015 2016 2015


26,342 22,480 27,768 23,652

Deductions: - - - -

134 139 134 139

Extraordinary / irregular item of income 4 5 4 5

Gross income 26,204 22,336 27,630 23,508

Total capital charge for operational risk (Gross income X 15%) 3,931 3,350 4,144 3,526

Total risk-weighted amount for operational risk (Total capital charge for operational risk X 10) 39,306 33,504 41,445 35,262

Computation of total risk-weighted amount

Risk-weighted amounts for credit risk 433,316 356,988 456,196 371,864

Risk-weighted amounts for market risk 3,833 5,178 3,833 5,178

Risk-weighted amounts for operational risk 39,306 33,504 41,445 35,262

Total risk-weighted amount 476,455 395,670 501,474 412,304


389

Bank Group

Computation of Capital Base 2016 2015 2016 2015


Core capital (Tier I)

Stated capital 6,471 5,381 6,471 5,381

Statutory reserve fund 2,250 1,790 2,336 1,860

4,082 2,751 6,395 4,261

General and other reserves 27,694 22,165 27,694 22,165

Minority interests (consistent with the above capital constituents) - - - 95

Deductions / Adjustments-Tier I - - Goodwill - - - -

Net deferred tax assets - - - -

Other intangible assets 337 342 356 368

subsidiary companies 288 263 - -

264 236 264 236

Total Core Capital 39,608 31,246 42,276 33,158

Supplementary capital (Tier II)

Revaluation reserves (as approved by CBSL) 427 427 427 427

General provisions 2,045 1,693 2,045 1,693

Approved subordinated term debt 19,804 15,623 20,043 16,579

Deductions-Tier II - -

subsidiary companies 288 263 - -

264 236 264 236

Eligible Tier II capital 21,724 17,244 22,251 18,463

Total capital ( Tier I + Tier II ) 61,332 48,490 64,527 51,621

Limits:(i) Approved subordinated term debt is limited to 50% of Total Tier I Capital.(ii) The total of Tier II supplementary elements should not exceed a maximum of 100% of Tier I elements.(iii) General provision should not exceed 1.25% of risk weighted assets.

Bank Group

Computation of Capital Adequacy Ratios 2016 2015 2016 2015

Core Capital Ratio (minimum ratio - 5%)

Core Capital (Tier I) x 100 39,608 x 100 31,246 x 100 42,276 x 100 33,158 x 100

Total Risk-weighted Assets 476,455 395,670 501,474 412,304

Total Capital Ratio (minimum ratio - 10%)

Total Capital x 100 61,332 x 100 48,490 x 100 64,527 x 100 51,621 x 100

Total Risk-weighted Assets 476,455 395,670 501,474 412,304

Core Capital (Tier I) Ratio (%) 8.31 7.90 8.43 8.04

Total Capital Ratio (%) 12.87 12.26 12.87 12.52


ANNUAL REPORT 2016

GRI G4 CONTENT INDEX

GRI

IndicatorGRI Disclosure Description

External

Assurance

Provided*

Page Reference

GRIOECD/UNGC

Principles

G4 GENERAL STANDARD DISCLOSURES

STRATEGY AND ANALYSIS

G4-1 Statement from the highest governance body Yes 33-37

G4-2 A description of key impacts, risks, and opportunities Yes 33-37,148 -150

ORGANIZATIONAL PROFILE

G4-3 Name of the organization Yes Inner Back Cover

G4-4 Primary brands, products and services Yes 14-15

G4-5 Location of the organization’s headquarters Yes Inner Back Cover

G4-6 Number of countries where the organization operates Yes 113

G4-7 Nature of ownership and legal form Yes Inner Back Cover

G4-8 Markets served Yes 64

G4-9 Scale of the organization Yes 80,123,238

G4-10 Workforce

UNGC Principle 06 – The elimination of discrimination in respect of

employment and occupation

Yes 81

76,402

G4-11 Total employees covered by collective bargaining agreements

OECD – Employment and industrial relations

UNGC Principle 03 – Businesses should uphold the freedom of

association and the effective recognition of the right to collective

bargaining

Yes 402

76,402

76,402

G4-12 Organization’s supply management procedures Yes 400

G4-13 Significant changes during the reporting period Yes 64,123

G4-14 Application of the precautionary principle Yes 198

G4-15 Details of externally developed economic, environmental and social

charters, principles, or other initiatives

Yes 4

G4-16 Memberships of associations Yes 5

IDENTIFIED MATERIAL ASPECTS AND BOUNDARIES

G4-17 Entities representing the consolidated performance of Sampath Bank

PLC

Yes 50

G4-18 Process for defining report content and aspect boundaries Yes 52,408

G4-19 Material aspects Yes 408

G4-20 Aspect boundaries within the Bank Yes 408

G4-21 Aspect boundaries outside the Bank Yes 408

G4-22 Effects of any restatements Yes 405

G4-23 Significant changes from previous reporting period Yes 408


G4-24 Stakeholder groups who engage by the organization Yes 47-49

G4-25 Basis for identification and selection of stakeholders Yes 47-49

G4-26 Organization’s approach to stakeholder engagement Yes 47-49

GLOBAL REPORTING INITIATIVE - GRI G4 : “IN ACCORDANCE - COMPREHENSIVE”


G4 - 32

391

GRI


External

Assurance

Provided*

Page Reference

GRIOECD/UNGC

Principles

G4-27 Key topics and concerns raised by stakeholders and the Bank's

response to these key topics and concerns

Yes 47-49

REPORT PROFILE

G4-28 Reporting period Yes 4

G4-29 Date of most recent previous report Yes 5

G4-30 Reporting cycle Yes 4

G4-31 Contact point for questions regarding the report or its content Yes Inner Back Cover

G4-32 “In Accordance” option selected Yes 390-397,4

G4-33 Assurance Yes 4,409

GOVERNANCE

G4-34 Governance structure including committees responsible for decision

making on economic, environmental and social impacts

Yes 154

G4-35 Process for delegating authority for economic, environmental and

social topics

Yes 88,154

G4-36 Executive-level positions responsible for economic, environmental

and social topics

Yes 46,88,154

G4-37 Processes for consultation between stakeholders and the highest

governance body

Yes 88

G4-38 Composition of the highest governance body and its committees Yes 18-21

G4-39 Chair and executive officer positions Yes 18

G4-40 Nomination and selection processes for Sampath Bank PLC’s Board

and its committees

Yes 161,167,

181,192

G4-41 Process to ensure conflicts of interest are avoided at Board level Yes 175,181,183,

194

G4-42 Development, approval and updating of matters related to economic,

environmental and social impacts

Yes 46,88

G4-43 Measures taken to develop and enhance the collective knowledge of

the Board on economic, environmental and social topics

Yes 405

G4-44 Processes for evaluation of the performance of the Board with regard

to economic, environmental and social topics and the actions taken

in response to the evaluation

Yes 160,161,197

G4-45 Highest governance body’s role in the identification and

management of economic, environmental and social impacts, risks,

and opportunities

Yes 153,161

G4-46 Highest governance body’s role in reviewing the effectiveness of the

organization’s risk management processes

Yes 136,206-207

G4-47 Frequency of the highest governance body’s review of economic,

environmental and social impacts, risks, and opportunities

Yes 46

G4-48 The committee that formally reviews and approves the sustainability

report to ensure that all material aspects are covered

Yes 46

G4-49 Process for communicating critical concerns to the Board Yes 88,179

G4-50 Scope and total number of critical concerns that were communicated

to the Board

Yes 88 (Partially)


ANNUAL REPORT 2016

GRI


External

Assurance

Provided*

Page Reference

GRIOECD/UNGC

Principles

G4-51 Remuneration policies applicable for the Board of Directors and

senior management

Yes **

G4-52 Process for determining remuneration Yes **

G4-53 Process of obtaining stakeholders’ views regarding remuneration Yes **

G4-54 Ratio of the annual total compensation for the highest-paid individual

as a percentage of the median annual total compensation for all

employees (excluding the highest-paid individual)

No **

G4-55 Ratio of the increase in annual total compensation for the highest-

paid individual as a percentage of the median increase in annual total

compensation for all employees (excluding the highest-paid individual)

No **

ETHICS AND INTEGRITY

G4-56 Values, principles, standards and norms of behaviour such as codes

of conduct

Yes 403,405

G4-57 Internal and external mechanisms for seeking advice on ethical and

lawful behaviour and matters related to the Bank's integrity

Yes 403,405

G4-58 Internal and external mechanisms for reporting concerns regarding

unethical or unlawful behaviour and matters related to the Bank's

integrity

Yes 403,405

G4 SPECIFIC STANDARD DISCLOSURES

CATEGORY: ECONOMIC

OECD – Taxation 267-270

DMA Disclosures on management approach

ASPECT: ECONOMIC PERFORMANCE

G4-EC1 Direct economic value generated and distributed Yes 381

G4-EC2 Risks and opportunities posed by climate change Yes 404

G4-EC3 Coverage of the Bank's defined benefit plan obligations Yes 247,317

G4-EC4 Financial assistance received from Government Yes 404

ASPECT: MARKET PRESENCE

G4-EC5 Standard entry level wage by gender Yes 405

G4-EC6 Senior management who hired from local community Yes 405

ASPECT: INDIRECT ECONOMIC IMPACTS

G4-EC7 Development and impact of infrastructure investments and services

supported

Yes 89-90,92

G4-EC8 Identified indirect economic impacts Yes 83,89 - 93,

107

ASPECT: PROCUREMENT PRACTICES

G4-EC9 Spending on local suppliers Yes 401

CATEGORY: ENVIRONMENTAL

OECD VI – Environment

UNGC Principle 07 – Precautionary approach to environmental challenges

UNGC Principle 08 – Initiatives to promote greater environmental responsibility

UNGC Principle 09 – Developments and diffusion of environmentally

friendly technologies

94-97

96-97

96-97

94,95



393

GRI


External

Assurance

Provided*

Page Reference

GRIOECD/UNGC

Principles


ASPECT: MATERIALS

G4-EN1 Materials use to produce primary products Yes 398

G4-EN2 Recycling mechanisms Yes 398

ASPECT: ENERGY

G4-EN3 Direct energy consumption Yes 399

G4-EN4 Indirect energy consumption Yes 399

G4-EN5 Energy intensity Yes 399

G4-EN6 Reduction of energy consumption statistics Yes 399

G4-EN7 Reduction in energy requirement of products & services Yes 398

ASPECT: WATER

G4-EN8 Total water withdrawal by source Yes 399

G4-EN9 Water sources are significantly affected from withdrawal of water Yes 399

G4-EN10 Percentage and total volume of water recycled and reused Yes 398

ASPECT: BIODIVERSITY

G4-EN11 Owned operational sites owned, leased, managed in, or adjacent

to protected areas and areas of high Biodiversity value outside

protected areas

Yes 399

G4-EN12 Significant impacts of activities, products, and services on

biodiversity in protected areas and areas of high biodiversity value

outside protected areas

Yes 399

G4-EN13 Habitats protected or restored Yes 399

G4-EN14 IUCN red list species and national conservation list species with

habitats in areas affected by operations

Yes 399

ASPECT: EMISSIONS

G4-EN15 Direct greenhouse gas (GHG) emissions (Scope 1) Yes 406

G4-EN16 Energy indirect greenhouse gas (GHG) emissions (Scope 2) Yes 406

G4-EN17 Other indirect greenhouse gas (GHG) emissions (Scope 3) Yes 406

G4-EN18 Greenhouse gas (GHG) emissions intensity Yes 406 - 407

G4-EN19 Reduction of greenhouse gas (GHG) emissions Yes 9

G4-EN20 Emissions of ozone-depleting substances (ODS) Yes 405

G4-EN21 NOX, SO

X, and other significant air emissions Yes 406 - 407

ASPECT: EFFLUENTS AND WASTE

G4-EN22 Total water discharge by quality and destination Yes 398

G4-EN23 Total weight of waste by type and disposal method Yes 398,400

G4-EN24 Total number and volume of significant spills Yes 398

G4-EN25 Weight of transported, imported, exported, or treated waste deemed

hazardous under the terms of the Basel convention 2

Yes 398

G4-EN26 Identity, size, protected status, and biodiversity value of water bodies

and related habitats significantly affected by the organization’s

discharges of water and runoff

Yes 398

ASPECT: PRODUCTS AND SERVICES

G4-EN27 Mitigation of environmental impacts of products and services Yes 398

G4-EN28 Product packaging Yes 398


ANNUAL REPORT 2016

GRI


External

Assurance

Provided*

Page Reference

GRIOECD/UNGC

Principles

ASPECT: COMPLIANCE

G4-EN29 Compliance Yes 398

ASPECT: TRANSPORT

G4-EN30 Environmental impact of transport Yes 398

ASPECT: OVERALL

G4-EN31 Expenditure incurred on environmental protection Yes 92

ASPECT: SUPPLIER ENVIRONMENTAL ASSESSMENT

G4-EN32 Environment screening of suppliers Yes 401

G4-EN33 Assessment of significant actual and potential negative

environmental impacts in the supply chain and actions taken

Yes 401

ASPECT: ENVIRONMENTAL GRIEVANCE MECHANISMS

G4-EN34 Environmental grievances Yes 400

CATEGORY: SOCIAL

SUB CATEGORY : LABOUR PRACTICES AND DECENT WORK


UNGC Principle 06 - The elimination of discrimination in respect of


74-81,402

402


ASPECT: EMPLOYMENT

G4-LA1 New employee hires and employee turnover Yes 78

G4-LA2 Benefits provided to full time employees Yes 73

G4-LA3 Parental leave Yes 79

ASPECT: LABOUR/MANAGEMENT RELATIONS

UNGC Principle 03 – Businesses should uphold the freedom of association

and the effective recognition of the right to collective bargaining

76,400

G4-LA4 Notice periods on operational changes specified in collective

agreements

Yes 402

ASPECT: OCCUPATIONAL HEALTH AND SAFETY

OECD – Environment 94-97

G4-LA5 Health and safety committees Yes 402

G4-LA6 Occupational diseases, lost days and absenteeism Yes 79

G4-LA7 Workers with high incidence or high risk of diseases related to their

occupation

Yes 402

G4-LA8 Health and safety topics covered in formal agreements with trade

unions

Yes 402

ASPECT: TRAINING AND EDUCATION

OECD – Environment 74,79,81

G4-LA9

-11

Training and education for employees Yes 74-75,79,80

ASPECT: DIVERSITY AND EQUAL OPPORTUNITY

UNGC – Women empowerment principles 93,107

G4-LA12 Diversity and equality of committees Yes 80

ASPECT: EQUAL REMUNERATION FOR WOMEN AND MEN

G4-LA13 Remuneration for women and men Yes 81



395

GRI


External

Assurance

Provided*

Page Reference

GRIOECD/UNGC

Principles

ASPECT: SUPPLIER ASSESSMENT FOR LABOUR PRACTICES

G4-LA14 Labour screening practices for suppliers Yes 401

G4-LA15 Assessment of potential negative impacts for labour practices in the

supply chain and actions taken

Yes 401

ASPECT: LABOUR PRACTICES GRIEVANCE MECHANISMS

G4-LA16 Number of grievances about labour practices filed, addressed and

resolved through formal grievance mechanisms

OECD – Bribe solicitation and extortion

Yes 402

-

SUB CATEGORY: HUMAN RIGHTS

OECD – Human rights

UNGC Principle 01 – Business support and respect towards the protection of

proclaimed human rights

UNGC Principle 02 – Ensure the non-complicit in human right abuses

79,400

79,400

400

ASPECT: INVESTMENT

G4-HR1 Significant investment agreements on human rights clauses Yes 402

G4-HR2 Training on human rights Yes 79,402

ASPECT: NON-DISCRIMINATION


UNGC Principle 06 - The elimination of discrimination in respect of


76,402

76,402

G4-HR3 Incidents of discrimination Yes 402

ASPECT: FREEDOM OF ASSOCIATION AND COLLECTIVE BARGAINING


UNGC Principle 03 – Businesses should uphold the freedom of association

and the effective recognition of the right to collective bargaining

76,402

76,402

G4-HR4 Operations and suppliers identified in which the right to exercise

freedom of association

Yes 401

ASPECT: CHILD LABOUR


UNGC Principle 05 – Effective abolition of child labour

76,402

403

G4-HR5 Measures taken to the effective abolition of child labour in operations

and suppliers

Yes 401,405

ASPECT: FORCED OR COMPULSORY LABOUR


UNGC Principle 04 – Elimination of all forms of forced and compulsory labour

76,405

403

G4-HR6 Measures taken to the elimination of all forms of forced or

compulsory labour

Yes 401,405

ASPECT: SECURITY PRACTICES

G4-HR7 Training of security personnel in relation to human rights policies or

procedures that are relevant to operations

Yes 402

ASPECT: INDIGENOUS RIGHTS

G4-HR8 Total number of incidents of violations involving rights of indigenous

people and actions taken

Yes 402


ANNUAL REPORT 2016

GRI


External

Assurance

Provided*

Page Reference

GRIOECD/UNGC

Principles

ASPECT: ASSESSMENT

UNGC principles and principles for responsible investment 400

G4-HR9 Total number and percentage of operations that have been subject

to human rights reviews or impact assessments

Yes 402

ASPECT: SUPPLIER HUMAN RIGHTS ASSESSMENT

UNGC principles and principles for responsible investment 400

G4-HR10 Supplier screening Yes 401

G4-HR11 Negative human rights impacts in the supply chain Yes 401

ASPECT: HUMAN RIGHTS GRIEVANCE MECHANISMS

G4-HR12 Human rights grievances Yes 402

SUB CATEGORY: SOCIETY


ASPECT: LOCAL COMMUNITIES

UNGC Principle 01 - Business support and respect towards the protection of

proclaimed human rights

400,401

G4-SO1 Local community engagement, impact assessments and

development programs

Yes 89-93

G4-SO2 Operations with significant actual and potential negative impacts on

local communities

Yes 405

ASPECT: ANTI-CORRUPTION


UNGC Principle 10 – Business works against all forms of corruption, including

extortion and bribery

-

401

G4-SO3 Operations assessed for risks related to corruption and the

significant risks identified

Yes 143

G4-SO4 Communication and training on anti-corruption policies and

procedures

Yes 402

G4-SO5 Confirmed incidents of corruption and actions taken Yes 403

ASPECT: PUBLIC POLICY


UNGC Principle 10 – Business works against all forms of corruption including

extortion and bribery

-

401

G4-SO6 Political contributions by country and recipient/beneficiary Yes 405

ASPECT: ANTI-COMPETITIVE BEHAVIOUR

OECD – Competition 401

G4-SO7 Legal actions for anti-competitive behaviour, anti-trust and monopoly

practices and their outcomes

Yes 403

ASPECT: COMPLIANCE

OECD – Competition 401

G4-SO8 Monetary value of significant fines and total number of non-monetary

sanctions for non-compliance with laws and regulations

Yes 398,403



397

GRI


External

Assurance

Provided*

Page Reference

GRIOECD/UNGC

Principles

ASPECT: SUPPLIER ASSESSMENT FOR IMPACTS ON SOCIETY

OECD - Human rights

OECD - Environment

OECD - Bribe solicitation and extortion

OECD - Competition

397-401

397-401

-

397-401

G4-SO9 Suppliers screened using criteria for impacts on society Yes 401

G4-SO10 Assessment of significant actual and potential negative impacts on

society in the supply chain and actions taken

Yes 401

ASPECT: GRIEVANCE MECHANISMS FOR IMPACTS ON SOCIETY

OECD - Human rights

OECD - Environment

OECD - Bribe solicitation and extortion

OECD - Competition

398,401

398

-

401

G4-SO11 Grievances about impacts on society filed, addressed and resolved

through formal grievance mechanisms

Yes 400

SUB CATEGORY: PRODUCT RESPONSIBILITY

OECD - Consumer interests 82-85,401


ASPECT: CUSTOMER HEALTH AND SAFETY

OECD - Environment 82-85,401

G4-PR1 Safety of products and services Yes 403

G4-PR2 Health and safety compliance Yes 404

ASPECT: PRODUCT AND SERVICE LABELLING

G4-PR3 Product information and labelling Yes 403

G4-PR4 Compliance Yes 404

G4-PR5 Results of surveys measuring customer satisfaction Yes 404

ASPECT: MARKETING COMMUNICATIONS

G4-PR6 Banned or disputed products Yes 403

G4-PR7 Compliance Yes 404

ASPECT: CUSTOMER PRIVACY

G4-PR8 Customer complaints on customer privacy Yes 398,404

ASPECT: COMPLIANCE

G4-PR9 Overall compliance of all aspects pertaining to product responsibility Yes 404

* All the standard disclosure and specific standard disclosure items in accordance to GRI-G4 have been assured by external

auditors, Ernst and Young. Please refer the page number 409 for the External Assurance Statement on sustainability in this

regard.

** Information cannot be disclosed.

SAMPATH BANK PLC


OTHER SUSTAINABILITY DISCLOSURES

As a bank, we have adopted the GRI

G4 guidelines to disclose only areas

that we consider as material to our

business. However, in the interest of

greater transparency, other aspects

covered under the G4 guidelines but

are not material to our business, are

listed below.

Aspect Sampath Bank Context

Material used by weight or volume & recycled materials used

for the production of primary product & services

Being a service organization, Sampath Bank does not report

on weight or volume of materials & recycled materials which

are used to production & packaging

Reduction of energy used in the provision of products &

services

Cannot be accurately calculated or measured in relation to

specific products or services

Percentage of total volume of water recycled, reused,

reduced

Treatment method used for the discharged water

Impact on bio-diversity and habitat resulting from operational

activities

Impact on bio-diversity and habitat resulting from

discharged water

No action taken in this regard during the reporting period

Being a service organization, water used by Sampath Bank

is for sanitation purposes only. Hence no action was taken in

this regard in 2016

None

None

Significant impact of business activities on biodiversity in

protected area

Sampath Bank does not operate in such areas and there

have been no reported incidents in 2016

Waste management Apart from recycling of paper and e-waste, all other waste

management activities are carried out directly by local

authorities

Information recorded on significant spills Not relevant to the business of banking

Reporting on hazardous waste (transport/ import/ exported

or treated)

Not relevant to the business of banking

Product responsibility through mitigation of environmental

impact

Aside from our ongoing efforts to expand paperless

processes and the green lending portfolio (please refer page

number 94 and 108 for more information), we are unable to

accurately quantify the mitigating impact of our products &

services on the environment

Environmental impact on products and services (transport /

packaging)

Not relevant to the business of banking

Compliance - environment / local communities / customer

privacy

No reported incidents of non-compliance with laws &

regulations of the country.

No fines or non-monetary sanctions have been imposed

against the Bank during the reporting period

G4 - EN 01,02,07,10,22,23,24,25,26,27,28,29,30 SO 08 PR 08

ENVIRONMENT


399ENERGY MANAGEMENT

ENERGY CONSUMPTION

Source – Renewable Non Renewable

Electricity Heating Cooling Steam Solar Power

Consumption 3,646,851 kWh

(Head Office)

No No No 51,430 kWh

Sold No No No No No

Reduction / Savings

(per employee

per annum in Head

Office)

67 kWh No No No Rs 1.12Mn

Using any standards / methodology and assumption used: No

Using any conversion factors: No

Energy used outside of the organization: No

2016 2015 Reduction

Energy Intensive Ratio (Electricity consumption per employee per annum):

[Total electricity consumption (Head Office) /

Total number of employees (Head Office)]

Base - Energy consumption per employee

Source - Electricity using within the organization

3,340 kWh 3,407 kWh 1.96%

WATER

Total volume of water withdrawn (consumption - Head Office) - 42,241 m3

Source - Municipal water supply

Water source significantly affected due to withdrawn water - No

Using any standards / methodology and assumption used - No

BIODIVERSITY

Sampath Bank does not have any operational sites and does not conduct business operations (owned, leased, managed),

adjacent to any protected restored high biodiversity/ habitats. Further the business activities carried by Sampath Bank does

not have any direct or indirect impact on IUCN red listed species. However, as a responsible corporate citizen, the Bank

remains committed to protect designated high biodiversity areas, through its environmental CSR programme. One such

initiative is the Bolgoda Wetland Conservation Project.

"OUR WETLANDS – OUR FUTURE” - BOLGODA WETLAND CONSERVATION PROJECT

Objective: To assist in restoring the degraded areas of the Bolgoda Wetland Complex in order to conserve biodiversity,

maintain watershed services and increase its resilience to climate change.

Description: The Bolgoda Wetland Complex (BWC) is the largest natural freshwater lake in the country. The lake, which

covers 400 Km2, comprises of two vast fresh water bodies, namely, the Bolgoda North Lake and the Bolgoda South Lake,

which are connected by the river Weras.

Strategic Partner: Ceylon Chamber of Commerce

Outcome: Habitat conservation (endogenous & critically endangers), reduction of pollution, support for community

agriculture and local industries eg: eco-tourism

G4 - EN 03,04,05,06

G4 - EN 08,09

G4 - EN 11,12,13,14

SAMPATH BANK PLC


WASTE MANAGEMENT

Recycle – Non Hazardous Paper - 44,863 Kg Neptune Recyclers

Recycle – Hazardous Computers & other electric items 180 Kg Think Green Pvt Ltd

Type of grievance Number of grievance received Number of grievances

addressed

Number of grievances

resolved

Environmental 10 10 10

Social 136 136 111

ENVIRONMENTAL / SOCIAL GRIEVANCES

Having identified certain material aspects and their significance, our environmental / social policy spells out fundamental

guidelines not only to help control and mitigate the environmental / social impact caused by our business, but also to address

underlying environmental / social grievances.

SUPPLIERS & SERVICE PROVIDERS

SUPPLY CHAIN MANAGEMENT

The Sampath Bank procurement policy sets high standards that ensure fair and equitable procurement and promote

sustainable supply chain management practices.

2016

Total number of registered suppliers / service providers 608

Type of suppliers / service providers Stationery/fixed assets/ outsourced services/IT &

telecommunication equipment/other utility services

Location of suppliers / service providers Sri Lanka

REUSE – HAZARDOUS WASTE

We launched another green initiative to reduce polythene waste

by re-using discarded flex materials of the Bank in a sustainable

manner.

For this purpose, the used flex materials such as flex banners,

x- pennants and backdrops will be reused to produce some

useful products like hand bags, purses etc. This task is entrusted

to an entrepreneur developed by Sampath Bank under “Sampath

Saviya” Entrepreneurship Development Programme.

G4 - EN 23

G4 - EN 34 SO 11

G4 - 12



401SAMPATH BANK SUPPLIER EVALUATION MODEL

Industrial Safety

and Environmental

Protection

Schedule / Volume

Effectiveness

Technical Handling

Packing

On Time Delivery

After Sales Services and

Availability of

Qualified Technical Staff

Documentation

Co-operation

Quality Management

Price

Quotation Behaviour

Contract

Processes

Co-operation

Resources

Product / Know-how

Innovative Power

Co-operation

Ris

k A

ssess

ment

Industrial

Safety

Quality

Logis

tics

Mechanis

m

Commercial

Viability

Innovation

CATEGORIES

AND

CRITERIA

Supply Chain Management

Supplier Quality

Management

Sup

plie

r

Per

form

ance

Man

agem

ent

Supply

Chain R

isk

Managem

ent

Financial Stability

Market / Dependability

Availability / Delivery

Capability

Human Resources

Supplier

Registry

Since many of our suppliers are

reputed companies, we work with the

assumption that they conduct their

business in an ethical manner. Hence

we do not cover the following areas

under our screening processes.

Significant risk for incident of

child labour / forced labour /

compulsory labour in suppliers

organizations

Human right / labour practice/

labour practice in the supply

chain / social / environmental

criteria / environmental aspect in

the supply chain

DECLARATION FOR 2016:

Results from our supplier risk

assessment mechanism indicate no

significant actual & potential negative

impact on society through our supply

chain. (for more details please refer

supplier section page 86).

No complaints were made against the

Bank with regard to breach of conduct.

There was no record of any collective

bargaining action initiated against the

Bank, by operations or suppliers.

PROCUREMENT PRACTICE

Whenever possible and practical

we engage in local sourcing to

procure based on the emergency of

requirement at branch level.

G4 - EN 32,33, LA 14,15 HR 04,05,06,10,11 SO 09,10 EC 09

SAMPATH BANK PLC


EMPLOYEE

SAMPATH BANK EMPLOYEES

ASSOCIATION

Sampath Bank Employees Association

(SBEA), comprising of approximately

98% of our team is regarded as a

key stakeholder of the business, and

as such is held equally accountable

for the Bank’s overall performance.

Although no collective agreement exists

between the two parties, the mutual

understanding between the Bank and

the SBEA has always been a productive

one. We continue to leverage on the

strength of this relationship to achieve

our corporate goals and broader

strategic vision.

Key Area Remarks

Minimum notice period regarding operational changes,

including collective agreements

No collective agreement in force, operational changes are

informed in advance

Workers with high incidence diseases related to the

occupation

No reported incidents in the reporting period

Health and safety topics covered in the formal agreement No collective agreement in force. Health and safety topics

covered from the employee relations policy & employee

welfare policy

Number of grievances regarding labour practices and human

rights practices addressed and resolved through formal

grievances mechanism

No reported incidents in the reporting period

Security personnel trained in the organization’s human right

policies

None. The Bank outsources the security services. Therefore

training is conducted by the respective service provider

Total number and percentage of operation that have been

subjected to human rights review or impact assessment

Human rights compliance is a key priority in our business.

We comply with the labour regulations of the country. We do

not conduct a review or impact assessment

OCCUPATIONAL HEALTH & SAFETY

Being a bank, there is a very low risk

of accidents arising directly from our

operations. Nevertheless, creating a

hazard free environment has always

been a key priority for Sampath Bank

PLC. Even though we do not have

an occupational health and safety

committee, we have set-out clear

guidelines to ensure the safety of all

those within our premises at any given

time.

Any injuries (office accidents,

occupational disease, work related

fatalities) relating to Sampath Bank

employees and/ or third party

contractors working on bank premises,

have not been reported in the reporting

period.

TRAINING ON HUMAN RIGHTS &

ANTI-CORRUPTION

During the year the Bank conducted

508 training and awareness

programmes for Senior Management

and other staff members on these

topics. Although these programmes

did not cover the Bank’s suppliers and

service providers, we intend to extend

such awareness campaigns to other

stakeholders, including suppliers &

service providers in future.

Human Rights clauses are incorporated

as appropriate in agreements prepared

by the Bank. However, there is no

mechanism in place to quantify

the degree or extent of the human

right clauses incorporate in these

agreements.

NON DISCRIMINATION

Given the strict code of ethics, during

the reporting period, there have been

no reported incidents of discrimination

or violation of human rights of any

member of our team or any person or

group in society including, the rights of

indigenous people.

G4 - 11 LA 04,07,08,16 HR 07,09,12

G4 - LA 05 HR 01,02,03,08 SO 04



403

ANTI – CORRUPTION

The Bank faces no significant risk

related to corruption since all the

employees perform their work efficiently

and act in accordance with the code

of conduct stipulated by the Bank.

Meanwhile, adherence to laws and

regulations of the country including

anti-corruption regulations, are seen as

an unconditional priority. Compliance

to these laws, rules and regulations

are well monitored and no incidents of

corruption were reported in 2016.

ANTI-COMPETITIVE BEHAVIOUR

Sampath Bank PLC does not engage in

or promote any kind of anti-competitive

behaviour, antitrust or monopolistic

practices. Therefore we have not been

subjected to any litigation in this regard,

during the reporting period.

CUSTOMER

PRODUCT & RESPONSIBILITY

Being a service organization, our

product responsibility initiatives are

intangible in nature. A health and safety

assessment of our products & services

was not carried out during the reporting

period (read more in customer section

pages 82 to 85).

Declaration for 2016:

The Bank has not been subjected to

any legal action during the reporting

period with regard to the breach of

customer privacy. Further no products

or services were banned in the market

as a result of violation of product

responsibility parameters.

PRODUCT & SERVICE LABELLING

Type of Information Yes No

The sourcing of components of the product or service

Content, particulars with regard to substance that might produce an environment or social impact N/A

Safe use of product or service

Disposal of the product and environment / social impact N/A

OUR GOAL IS ESSENTIALLY TO GO BEYOND PROVIDING TRADITIONAL BANKING FACILITIES AND CREATE REAL VALUE FOR INDIVIDUALS AND BUSINESSES THAT BANK WITH US.

IMPLEMENTING ETHICS AND INTEGRITY

Responsibility assigned to : Human Resources Department

Responsible person : Group Chief Human Resource Officer

Aspect Status

Providing all employees with the necessary training to enable

them to understand the corporate value culture, business

principles, standards and norms of behaviour unique to

Sampath Bank.

Yes

Ensure that all employees sign the official Employee Code

of Conduct, which confirms that employees have read and

understood the importance of upholding core values, business

principles, standards and norms of behaviour practiced by

Sampath Bank.

Yes

The Sampath Bank Annual Report

is published in Sinhala as well, in

order to create greater visibility

and give all stakeholders the

opportunity to read and understand

the contents of the report.

G4 - SO 05,07,08 PR 01,06

G4 - PR 03

G4 - 56,57,58

SAMPATH BANK PLC


COMPLIANCE

Compliance remains a key corporate

priority in safeguarding the health of our

business operations. It also reassures

customers of our commitment to adhere

to laws and regulations prevailing in the

country

BUSINESS CONTINUITY PLAN (BCP)

Sampath Bank’s BCP includes the

following activities;

Identify all business processes

within each business unit

Determine the financial,

customer, operational, legal and/

or regulatory impacts of each

process

Define key internal and external

relationships and ascertain

inter-dependencies between

processes

Establish a time frame to recover

business and technology

processes at a disaster

Assign necessary resources

required for the recovery of each

process within the predetermined

recovery time frame

Provide a foundation for the Risk

Assessment and Control Process

Carryout regular disaster

recovery drills to ensure the

business continuity in case of a

disaster

ECONOMIC

Being in the business of banking,

climate change does not have a

significant impact on our business.

Accordingly during the reporting

period, no records were maintained to

catalogue the effect of climate change

on our business.

FINANCIAL ASSISTANT RECEIVED

FROM THE GOVERNMENT

As we are a private sector organization,

there is no direct or indirect financial

assistance received from the

government. The Board is the apex

body that provides oversight for the

business.

Incentive Scheme Status

Tax relief No

Subsidies No

Investment grants /

research & development

grants

No

Royalty holiday No

Financial incentives No

BRAND EQUITY STUDY

PR 05

Research Agency - Quantum Consumer Solution (Pvt) Ltd

Period of Research - January to December 2016

Type of Research - Qualitative

Sample Size - 27 units (core Sampath users & lapsed users)

Coverage - Colombo, Galle, Batticaloa (urban / semi urban

& rural)

Criteria Fine or

Penalty

Charge

Warning

Issued

Voluntary

Codes

Violation

Non-

compliance of

Regulations

Monetary

Fine or

Penalty

Due to health & safety of the product & services

(please refer page 85)

No No No No No

Due to product and service information & labelling No No No No No

Due to marketing communication (please refer page 83) No No No No No

Due to breaching customer privacy (please refer page 403) No No No No No

G4 - PR 02,04,07,08,09

G4 - PR 05 EC 02,04



405MARKET PRESENCE

Term Used Relevance to Sampath Bank

Local Operation Sampath Bank operates within the boundary, the local term used to define the operation within the

Sri Lanka.

Significant Operation In the Sri Lankan market, this means every corner of the island through their branch network. (for

more details on the locations of operation, please refer page 64).

Senior Management At Sampath Bank, this refers to a designated authority in charge of a key business unit/function. All

senior managers of the Bank are local hires.

Entry Level Wage Remuneration paid to Sampath Bank new entrants joining the Bank as a Trainee Staff Assistant /

Junior Executive 1. The Bank does not distinguish between gender and both males and females in

this positions are entitled to the same entry level wage.

Note: Sampath Bank’s entry-level wage is higher than the minimum wage rate imposed by the

relevant regulatory bodies of Sri Lanka

OTHER DISCLOSURES

Key Area Remarks

Child labour or forced labour We do not engage child labour or forced labour in our

business operation

Actual & potential negative impact of local community

due to operational activities

No significant incidents report for the year

Monitory or non-monitory contribution made to

political parties

None

Changes or restatement in accounting policies and methods There are no changes to the accounting policies and

methods of computation since the publication of the annual

accounts for the year 2015.

Ozone depleting substances Emissions of Ozone Depleting Substances (ODS) are

insignificant, considering the nature of our business.

Ethics and integrity We have in place a strict ethics & integrity control

mechanism, which includes the employee Code of Conduct,

Whistle blowing policy etc., that ensures the highest level

of ethical behaviour is practiced across the business. As

such, there have been no reported incidents either internal or

external, regarding the breach of ethics or unlawful behaviour

by any of our employees, in a way that would bring into

question the integrity of the Bank.

GOVERNANCE

MEASURES TAKEN TO DEVELOP

AND ENHANCE THE KNOWLEDGE

OF HIGHEST GOVERNANCE BODY

Members of the highest governance

body are qualified professionals, who

are committed to further enhancing

their knowledge and skills through

continuous professional development

activities, including engaging with

professional bodies and industry

experts. They also participate in both

G4 - EC 05,06

G4 - 43

G4 - 22,56,57,58 SO 02,06 EN 20 HR 05,06

National / International conferences

which help to maximize their

knowledge on the economic, social

and environmental topics and enable

these aspects to be integrated into the

business in a fruitful manner.

SAMPATH BANK PLC


CARBON FOOTPRINT CALCULATION

ASSESSMENT PROFILE

Site Location Sampath Bank PLC

Assessment Type Organizational Greenhouse Gas Assessment

Applied Standards WBCSD/WRI GHG Protocol, ISO 14064-1

Consolidation Approach Operational control

Assessment Scope Purchased electricity, waste disposal, on site energy, employee commuting, third-party

deliveries, fugitive emissions, electricity transmission and distribution losses

Reporting Period 01-01-2016 to 31-12-2016

Intended User Management and stakeholders of Sampath Bank

Base Year 2016

GHG Protocol Scope Emission Source Data Quality

Scope 1 - Direct emissions Company owned vehicles Complete

On site energy - generators, LP gas Complete

Fugitive emissions - refrigerants, fire

extinguishers Complete

Leased vehicles Complete

Scope 2 - Purchased Energy Purchased electricity Complete

Scope 3 - Indirect Emissions Electricity transmission and distribution losses Complete

Hired vehicles Complete

Air travel Complete

Third-party deliveries Complete

Employee commuting Complete

Waste disposal Complete

Source Emissions (tonnes CO2 e)

CO2

CH4

N2O Total

Scope 1

Total: Onsite energy 226.53 0.009 0.004 227.18

Total: Company owned vehicle 996.51 0.055 0.067 1,016.83

Total: Leased vehicles 0.53 - - 0.53

Scope 2

Purchased electricity 7,634.175 - - 7,634.175

Scope 3

Total: Electricity transmission & distribution loss 954.272 - - 954.272

Total: Hired vehicles - - - -

Total: Third-party deliveries 136.40 - - 136.40

Total: Air travel 47.32 - - 47.32

Total: Employee commuting 1,468.487 3.17 0.1069 1,585.78

Total Waste disposal 10.43 - - 10.43

SPECIFIC KEY PERFORMANCE INDICATOR FOR SAMPATH BANK:

Emissions per employee - 2.93 tCO2e

Total Carbon Footprint for the year - 11,613 tCO2e

G4 - EN 15,16,17,18,21



407

SAMPATH BANK PLC



Material Aspect Boundary Material level within

the organization

Material level outside

the organization

1 Economic performance Sampath Bank High High

2 Indirect economic impact Sampath Bank/ Community High High

3 Energy saving Sampath Bank High High

4 Reduction of paper waste Sampath Bank High High

5 Carbon footprint calculation Sampath Bank High Medium

6 Employee engagement -

environment

Sampath Bank / Employee High High

7 Sustainable lending Sampath Bank / Community High Medium

8 Customers engagement -

environment

Sampath Bank / Community High Medium

9 Environmental CSR Sampath Bank / Community High High

10 Salary, benefits, rewards and

recognition

Sampath Bank / Employee High Medium

11 Training and development Sampath Bank / Employee High High

12 Leadership development Sampath Bank / Employee High High

13 Employee engagement - CSR Sampath Bank / Employee High High

14 Diversity and inclusion Sampath Bank / Employee High Medium

15 Safety and wellness Sampath Bank / Employee High Medium

16 IT systems Sampath Bank High High

17 Digital channels Sampath Bank / Customer High Medium

18 Customer touch-points Sampath Bank / Customer High High

19 Periodic internal surveys Sampath Bank / Customer Medium Medium

20 Socially responsible CSR model Sampath Bank / Community High Medium

21 Transparency and governance Sampath Bank / Community High High

22 Community engagement Sampath Bank / Community High High

23 Employee volunteerism Sampath Bank / Community High Medium

24 Product responsibility Sampath Bank / Customer High High

25 Marketing communication Sampath Bank / Customer High Medium

26 Customer privacy and data

security Sampath Bank / Customer High High

27 Customer service Sampath Bank / Customer High High

28 Customer-centricity Sampath Bank / Customer High High

29 Fair and equitable procurement Sampath Bank / Suppliers High Medium

30 Supplier risk assessment Sampath Bank / Suppliers High High

31 Contractual agreements Sampath Bank / Suppliers High Medium

32 Local sourcing Sampath Bank / Suppliers Medium High

To expand our sustainability parameters, we carried out and develop sustainability parameters which are relating to the bank.

Notably this exercise has led to a slight change in our materiality levels of the reporting period.

G4 - 18,19,20,21,23



409

Checking the calculations performed by the bank on a sample basis through recalculation.

Reconciling and agreeing the data on financial performance are properly derived from the bank’s audited financial statements for the year ended 31 December 2016.

Comparison of the content of the Report against the criteria for a Global Reporting Initiative G4 ‘In accordance’ - Comprehensive guidelines.

Our procedures did not include testing electronic systems used to collect and aggregate the information.

LIMITATIONS AND CONSIDERATIONSEnvironmental and social performance data are subject to inherent limitations given their nature and the methods used for determining, calculating and estimating such data.

CONCLUSIONBased on the procedures performed, as described above, we conclude that; The information on financial

performance as specified on page 381 of the Report are properly derived from the audited financial statements of the Bank for the year ended 31 December 2016.

Nothing has come to our attention that causes us to believe that other information presented in the Report are not fairly presented, in all material respects, in accordance with the Bank’s sustainability practices and policies some of which are derived from GRI-G4-‘In accordance’ Comprehensive Sustainability Reporting Guidelines.



INDEPENDENT ASSURANCE REPORT TO THE SHAREHOLDERS OF SAMPATH BANK PLC

INDEPENDENT ASSURANCE REPORT TO SAMPATH BANK PLC ON THE SUSTAINABILITY REPORTING CRITERIA PRESENTED IN THE INTEGRATED ANNUAL REPORT- 2016

INTRODUCTION AND SCOPE OF THE ENGAGEMENTThe management of Sampath Bank PLC (“the Bank”) engaged us to provide an independent assurance on the following elements of the sustainability reporting criteria presented in the annual report- 2016 (“the Report”). Reasonable assurance on the

information on financial performance as specified on page 381 of the Report.

Limited assurance on other information presented in the Report, prepared in accordance with the requirements of the Global Reporting Initiative G4 ‘In accordance’ - Comprehensive guidelines.

BASIS OF OUR WORK AND LEVEL OF ASSURANCE We performed our procedures to provide limited assurance in accordance with Sri Lanka Standard on Assurance Engagements (SLSAE 3000): ‘Assurance Engagements Other than Audits or Reviews of Historical Financial Information’, issued by the Institute of Chartered Accountants of Sri Lanka (“CASL”).

The evaluation criteria used for this limited assurance engagement are based on the Sustainability Reporting Guidelines (“GRI Guidelines”) and related information in particular, the requirements to achieve GRI G4 ‘In accordance’ - Comprehensive guideline publication, publicly available at GRI’s global website at “www.globalreporting.org”.

Our engagement provides limited assurance as well as reasonable assurance. A limited assurance engagement is substantially less in scope than a reasonable assurance engagement conducted in accordance with SLSAE-3000

and consequently does not enable to obtain assurance that we would become aware of all significant matters that might be identified in a reasonable assurance engagement. Accordingly, we do not express an opinion providing reasonable assurance.

MANAGEMENT OF THE BANK’S RESPONSIBILITY FOR THE REPORTThe management of the bank is responsible for the preparation of the self-declaration, the information and statements contained within the Report, and for maintaining adequate records and internal controls that are designed to support the sustaining reporting process in line with the GRI Sustainability Reporting Guidelines.

ERNST & YOUNG’S RESPONSIBILITYOur responsibility is to express a conclusion as to whether we have become aware of any matter that causes us to believe that the Report is not prepared in accordance with the requirements of the Global Reporting Initiative G4 ‘In accordance’ - Comprehensive guidelines. This report is made solely to the Bank in accordance with our engagement letter dated 15 July 2016. We disclaim any assumption of responsibility for any reliance on this report to any person other than the bank or for any purpose other than that for which it was prepared. In conducting our engagement, we have complied with the independence requirements of the Code for Ethics for Professional Accountants issued by the CASL.

KEY ASSURANCE PROCEDURES We planned and performed our procedures to obtain the information and explanations considered necessary to provide sufficient evidence to support our limited assurance conclusions. Key assurance procedures included:

Interviewing relevant the bank’s personnel to understand the process for collection, analysis, aggregation and presentation of data.

Reviewing and validation of the information contained in the Report.

SAMPATH BANK PLC


GLOSSARY OF FINANCIAL AND BANKING TERMS

A

ACCEPTANCES

The signature on a Bill of Exchange

indicates that the person on whom it

is drawn accepts the conditions of the

Bill. In other words a Bill of Exchange

that has been accepted.

ACCOUNTING POLICIES

The specific principles, bases,

conventions, rules and practices

adopted by an entity in preparing and

presenting Financial Statements.

ACCRUAL BASIS

Recognition of the effects of

transactions and other events when

they occur without waiting for receipt or

payment of cash or its equivalents.

ACTUARIAL ASSUMPTIONS

An entity’s unbiased and mutually

compatible best estimates of the

demographic and financial variable

that will determine the ultimate cost of

providing post-employment benefits.

AMORTISATION

The systematic allocation of the

depreciable amount of an intangible

asset over its useful life.

AMORTISED COST

The amortised cost of a financial asset

or financial liability is the amount at

which the financial asset or financial

liability is measured at initial recognition

minus principal repayments, plus or

minus the cumulative amortisation

using the effective interest method

of any difference between that initial

amount and the maturity amount, and

minus any reduction (directly or through

the use of an allowance account) for

impairment or uncollectability.

ASSET AND LIABILITY COMMITTEE

(ALCO)

A risk-management committee in a

bank that generally comprises the

senior-management levels of the

institution. The ALCO’s primary goal

is to evaluate, monitor and approve

practices relating to risk due to

imbalances in the capital structure.

Among the factors considered

are liquidity risk, interest rate risk,

operational risk and external events

that may affect the bank’s forecast and

strategic balance-sheet allocations.

ASSOCIATE COMPANY

An associate is an entity, including

an unincorporated entity such as a

partnership, over which the investor has

significant influence and that is neither

a subsidiary nor an interest in a joint

venture.

AVAILABLE FOR SALE (AFS)

FINANCIAL ASSETS

Non derivative financial assets that

are designated as available for sale

or are not classified as (a) loans

and receivables, (b) held-to-maturity

investments or (c) financial assets at

fair value through profit or loss.

AVERAGE WEIGHTED DEPOSIT

RATE (AWDR)

AWDR is calculated by the Central

Bank monthly based on the weighted

average of all outstanding interest

bearing deposits of commercial banks

and the corresponding interest rates.

AVERAGE WEIGHTED PRIME

LENDING RATE (AWPLR)

AWPLR is calculated by the Central

Bank weekly based on commercial

banks’ lending rates offered to their

prime customers during the week.

B

BASEL II

The capital adequacy framework

issued by the Basel Committee on

Banking Supervision (BCBS) in the

form of the ‘International Convergence

of Capital Measurement and Capital

Standards’.

BASEL III

The BCBS issued the Basel III rules

text, which presents the details

of strengthened global regulatory

standards on bank capital adequacy

and liquidity.

BILLS SENT FOR COLLECTION

A bill of exchange drawn by an

exporter usually at a term, on an

importer overseas and brought by the

exporter to his bank with a request to

collect the proceeds.

C

CAPITAL ADEQUACY RATIO

The percentage of risk-adjusted assets

supported by capital as defined under

the framework of risk-based capital

standards developed by the Bank for

International Settlement (BIS) and as

modified to suit local requirements by

the Central Bank of Sri Lanka.

CASH EQUIVALENTS

Cash equivalents are short-term,

highly liquid investments that are

readily convertible to known amounts

of cash and which are subject to an

insignificant risk of changes in value.

CASH FLOWS

Cash flows are inflows and outflows of

cash and cash equivalents.

COLLECTIVELY ASSESSED LOAN

IMPAIRMENT PROVISIONS

Also known as portfolio impairment

provisions. Impairment assessment on

a collective basis for homogeneous

groups of loans that are not considered

individually significant and to cover

losses that has been incurred but has

not yet been identified at the reporting

date. Typically assets within the

consumer banking business (housing,

personal, vehicle loans, credit cards

etc) are assessed on a portfolio basis.


411COMMERCIAL PAPER (CP)

An unsecured, short-term debt

instrument issued by a corporation,

typically for the financing of accounts

receivable, inventories and meeting

short-term liabilities. The debt is

usually issued at a discount, reflecting

prevailing market interest rates.

COMMITMENTS

Credit facilities approved but not yet

utilized by the clients as at the reporting

date.

CONSOLIDATED FINANCIAL

STATEMENTS

Consolidated financial statements are

the financial statements of a group

in which the assets, liabilities, equity,

income, expenses and cash flows

of the parent and its subsidiaries

are presented as those of a single

economic entity.

CONTINGENCIES

A condition or situation, the ultimate

outcome of which (gain or loss) will

be confirmed only on the occurrence

or non-occurrence of one or more

uncertain future events.

CONTRACT

An agreement between two or more

parties that creates enforceable rights

and obligations.

CONTROL

An investor controls an investee when

the investor is exposed, or has rights,

to variable returns from its involvement

with the investee and has the ability to

affect those returns through its power

over the investee.


The process by which corporate entities

are governed. It is concerned with the

way in which power is exercised over

the management and direction of entity,

the supervision of executive actions

and accountability to owners and

others.

CORRESPONDENT BANK

A bank in a foreign country that offers

banking facilities to the customers of a

bank in another country.

COST METHOD

A method of accounting whereby the

investment is recorded at cost. The

Income Statement reflects income from

the investment only to the extent that

the investor receives distributions from

accumulated net profits of the investee

arising subsequent to the date of

acquisition.

COST-PUSH INFLATION

A continuous increase in average price

levels due to an increase in production

costs.

COST TO INCOME RATIO

Operating expenses excluding

impairment charge for loans and

other losses as a percentage of total

operating income.

COUNTRY RISK

The risk that a foreign government will

not fulfil its obligations or obstructs the

remittance of funds by debtors, either

for financial reasons (transfer risk) or for

other reasons (political risk).

CREDIT RATING

An evaluation of a corporate’s ability

to repay its obligations or likelihood

of not defaulting, carried out by an

independent rating agency.

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.

CREDIT RISK MITIGATION

A technique to reduce the credit

risk associated with an exposure by

application of credit risk mitigants such

as collateral, guarantee and credit

protection.

CURRENCY RISK

The risk that the fair value or future

cash flows of a financial instrument will

fluctuate because of changes in foreign

exchange rates.

CURRENCY SWAPS

The simultaneous purchase of

an amount of a currency for spot

settlement and the sale of the same

amount of the same currency for

forward settlement.

CUSTOMER DEPOSITS

Money deposited by account holders.

Such funds are recorded as liabilities.

D

DEFERRED TAX

Sum set aside in the financial

statements for taxation that may

become payable/receivable in a

financial year other than the current

financial year. It arises because of

temporary differences between tax

rules and accounting conventions.

DELINQUENCY

A debt or other financial obligation

is considered to be in a state of

delinquency when payments are

overdue. Loans and advances are

considered to be delinquent when

consecutive payments are missed. Also

known as ‘Arrears’.

DEPRECIATION

The systematic allocation of the

depreciable amount of an asset over its

useful life.

DERECOGNITION

Derecognition is the removal of a

previously recognised financial asset

or financial liability from an entity’s

statement of financial position.

DERIVATIVES

A derivative is a financial instrument

or other contract, the value of which

changes in response to some

underlying variable (e.g. an interest

rate), that has an initial net investment

smaller than would be required for

other instruments that have a similar

SAMPATH BANK PLC


response to the variable, and that will

be settled at a future date.

DISCOUNT RATE

A rate used to place a current value on

future cash flows. It is needed to reflect

the fact that money has a time value.

DIVIDEND COVER

Profit after tax divided by gross

dividend. This ratio measures the

number of times dividend is covered by

the current year’s distributable profits.

DIVIDEND YIELD

Dividend earned per share as a

percentage of its market value.

DOCUMENTARY LETTERS OF

CREDIT (LCS)

Written undertakings by a bank on

behalf of its customers, authorising a

third party to draw on the Bank up to a

stipulated amount under specific terms

and conditions. Such undertakings

are established for the purpose of

facilitating international trade.

E

EARNINGS PER SHARE (EPS)

The profit attributable to each ordinary

share in the Bank, based on the

profit for the period after tax and

after deducting minority interest and

preference share Dividend.

ECONOMIC VALUE ADDED (EVA)

A measure of productivity which takes

into consideration cost of total invested

equity.

EFFECTIVE INTEREST RATE (EIR)

Rate that exactly discounts

estimated future cash payments or

receipts through the expected life

of the financial instruments or, when

appropriate, a shorter period to the net

carrying amount of the financial asset

or financial liability.

EFFECTIVE TAX RATE (ETR)

Provision for taxation excluding

deferred tax divided by the profit before

taxation.

EQUITY INSTRUMENT

An equity instrument is any contract

that evidences a residual interest in the

assets of an entity after deducting all of

its liabilities.

EQUITY METHOD

The equity method is a method of

accounting whereby the investment is

initially recognised at cost and adjusted

thereafter for the post-acquisition

change in the investor’s share of net

assets of the investee. The profit or loss

of the investor includes the investor’s

share of the profit or loss of the

investee.

ESOP (EMPLOYEE SHARE

OWNERSHIP PLAN)

A method of giving employees shares

in the business for which they work.

EVENTS AFTER THE REPORTING

PERIOD

Events after the reporting period

are those events, favourable and

unfavourable, that occur between the

end of the reporting period and the

date when the financial statements are

authorised for issue.

EXPECTED CREDIT LOSSES

The weighted average of credit losses

with the respective risks of a default

occurring as the weights.

EXPECTED LOSS (EL)

A regulatory calculation of the amount

expected to be lost on an exposure

using a 12 month time horizon and

downturn loss estimates. EL is

calculated by multiplying the Probability

of Default (a percentage) by the

Exposure at Default (an amount) and

Loss Given Default (a percentage).

EXPOSURE

A claim, contingent claim or position

which carries a risk of financial loss.

F

FAIR VALUE

Fair Value is the price that would

be received to sell an asset or

paid to transfer a liability in an

orderly transaction between market

participants at the measurement date.

FINANCE LEASE

A finance lease is a lease that transfers

substantially all the risks and rewards

incidental to ownership of an asset.

Title may or may not eventually be

transferred.

FINANCIAL GUARANTEE CONTRACT

A financial guarantee contract is a

contract that requires the issuer to

make specified payments to reimburse

the holder for a loss it incurs because a

specified debtor fails to make payment

when due in accordance with the

original or modified terms of a debt

instrument.

FINANCIAL INSTRUMENT

Financial instrument is any contract that

gives rise to a financial asset of one

entity and a financial liability or equity

instrument of another entity.

FIRM COMMITMENT

A firm commitment is a binding

agreement for the exchange of a

specified quantity of resources at a

specified price on a specified future

date or dates.

FOREIGN EXCHANGE INCOME

The realised gain recorded when

assets or liabilities denominated in

foreign currencies are translated into Sri

Lankan Rupees on the reporting date

at prevailing rates which differ from

those rates in force at inception or on



413the previous reporting date. Foreign

exchange income also arises from

trading in foreign currencies.

FORWARD EXCHANGE CONTRACT

Agreement between two parties to

exchange one currency for another at a

future date at a rate agreed upon today.

G

GLOBAL REPORTING INITIATIVE

(GRI)

GRI is a leading organization in the

sustainability field. GRI promotes

the use of sustainability reporting as

a way for organizations to become

more sustainable and contribute to

sustainable development.

GOING CONCERN

The financial statements are normally

prepared on the assumption that

an entity is a going concern and

will continue in operation for the

foreseeable future. Hence, it is

assumed that the entity has neither

the intention nor the need to liquidate

or curtail materially the scale of its

operations.

GROSS DIVIDEND

The portion of profits distributed to the

shareholders including the tax withheld.

GROUP

A group is a parent and its subsidiaries.

GUARANTEES

A promise made by a third party

(guarantor), who is not a party to a

contract between two others, that the

guarantor will be liable if the guarantee

fails to fulfil the contractual obligations.

H

HEDGING

A strategy under which transactions

are effected with the aim of providing

cover against the risk of unfavourable

price movements (interest rate, foreign

exchange rate, commodity prices, etc)

HELD TO MATURITY (HTM)

FINANCIAL ASSETS

Held-to-maturity investments are non-

derivative financial assets with fixed

or determinable payments and a fixed

maturity that an entity has the positive

intention and ability to hold to maturity.

HIGH QUALITY LIQUID ASSETS

(HQLA)

HQLA are assets that can be easily

and immediately converted into cash

at little or no loss of value, that can

be readily sold or used as collateral

to obtain funds in a range of stress

scenarios and are unencumbered, i.e.,

without legal, regulatory or operational

impediments.

I

IMPAIRED LOANS

Impaired loans are loans where the

Group does not expect to collect all

the contractual cash flows or expects

to collect them later than they are

contractually due.

IMPAIRMENT

This occurs when recoverable amount

of an asset is less than its carrying

amount.

IMPAIRMENT PROVISIONS

Impairment provisions are provisions

held on the Statement of Financial

Position as a result of the raising of a

charge against profit for the incurred

loss.

INDIVIDUALLY SIGNIFICANT LOAN

IMPAIRMENT PROVISION (SPECIFIC

IMPAIRMENT PROVISION)

Impairment is measured individually for

assets that are individually significant to

the Group.

INTANGIBLE ASSET

An intangible asset is an identifiable

non-monetary asset without physical

substance.

INTEREST COVER

A ratio showing the number of times

interest charges is covered by earnings

before interest and tax.

INTEREST MARGIN

Net interest income expressed as a

percentage of average interest earning

assets.

INTEREST RATE RISK

The risk that the fair value or future

cash flows of a financial instrument will

fluctuate because of changes in market

interest rates.

INTEREST RATE SWAP

An agreement between two parties

where one stream of future interest

payments is exchanged for another

stream of future interest payments

based on a specified principal amount.

INTEREST SPREAD

This represents the difference between

the average interest rate earned and

the average interest rate paid on funds.

INVESTMENT PROPERTIES

Investment property is property (land

or a building - or part of a building - or

both) held (by the owner or by the

lessee under a finance lease) to earn

rentals or for capital appreciation

or both, rather than for use in the

production or supply of goods or

services or for administrative services;

or sale in the ordinary course of

business.

K

KEY MANAGEMENT PERSONNEL

Key management personnel are

those persons having authority and

responsibility for planning, directing

and controlling the activities of the

entity.

L

LIFETIME EXPECTED CREDIT

LOSSES

The expected credit losses that result

from all possible default events over the

expected life of a financial instrument.

LIQUIDITY COVERAGE RATIO (LCR)

Banks are required to maintain an

adequate level of unencumbered High

Quality Liquid Assets (HQLA) that

can be converted into cash to meet

SAMPATH BANK PLC


their liquidity needs for a 30 calendar

day time horizon under a significantly

severe liquidity stress scenario. LCR

is computed by dividing the stock of

HQLA by the total net cash outflows

over the next 30 calendar days.

LIQUID ASSETS

Assets that are held in cash or in a form

that can be converted to cash readily,

such as deposits with other banks,

bills of exchange and treasury bills and

bonds.

LIQUIDITY RISK

The risk that an entity will encounter

difficulty in meeting obligations

associated with financial liabilities.

LOANS AND RECEIVABLES

Non derivative financial assets with

fixed or determinable payments that

are not quoted in an active market other

than those intends to sell immediately

or in the near term and designated

as fair value through profit or loss or

available sale on initial recognition.

LOSS GIVEN DEFAULT (LGD)

LGD is the percentage of an exposure

that a lender expects to lose in the

event of obligor default.

M

MARKET CAPITALISATION

The value of a company obtained by

multiplying the number of ordinary

shares in issue by its market value as

at a date.

MARKET RISK

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.

MATERIALITY

The relative significance of a

transaction or an event, the omission or

misstatement of which could influence

the decisions of users of financial

statements.

N

NET ASSET VALUE PER SHARE

Shareholders’ funds divided by the

number of ordinary shares in issue.

NET-INTEREST INCOME (NII)

The difference between what a bank

earns on assets such as loans and

securities and what it pays on liabilities

such as deposits, refinance funds and

inter-bank borrowings.

NOSTRO ACCOUNT

A bank account held in foreign country

by a domestic bank, denominated in

the currency of that country. Nostro

accounts are used to facilitate the

settlement of foreign exchange trade

transactions.

NON-CONTROLLING INTEREST

Non controlling interest is the equity in

a subsidiary not attributable, directly or

indirectly to a parent.

O

OPERATIONAL RISK

Operational risk refers to the losses

arising from fraud, negligence,

oversight, human error, process errors,

system failures, external events, etc.

P

PARENT

A parent is an entity that controls one or

more entities.

POWER

The Power is the existing rights that

give the current ability to direct the

relevant activities.

PRICE EARNINGS RATIO (P/E RATIO)

The current market price of the share

is divided by the earnings per share of

the Bank.

PROBABILITY OF DEFAULT (PD)

The probability that an obligor will

default within a one-year time horizon.

PROJECTED UNIT CREDIT METHOD

(PUC)

An actuarial valuation method that sees

each period of service as giving rise to

an additional unit of benefit entitlement

and measures each unit separately to

build up the final obligation.(sometimes

known as the accrued benefit method

pro-rated on service or as the benefit/

years of service method). Prudence

Inclusion of a degree of caution in the

exercise of judgment needed in making

the estimates required under conditions

of uncertainty, such that assets or

income are not overstated and liabilities

or expenses are not understated.

R

RELEVANT ACTIVITIES

Relevant activities are activities of the

investee that significantly affect the

investee’s returns.

REPURCHASE AGREEMENT

This is a contract to sell and

subsequently repurchase government

securities at a given price on a

specified future date.

RETURN ON AVERAGE ASSETS

(ROA)

Profit after tax expressed as a

percentage of average total assets,

used along with ROE, as a measure of

profitability and as a basis of intra-

industry performance comparison.



415RETURN ON AVERAGE EQUITY

(ROE)

Profit after tax less preferred share

dividends if any, expressed as a

percentage of average ordinary

shareholders’ equity.

REVENUE RESERVES

Reserves set aside for future

distribution and investment.

REVERSE REPURCHASE

AGREEMENT

Transaction involving the purchase of

government securities by a bank or

dealer and resale back to the seller at a

given price on a specific future date.

RIGHTS ISSUE

Issue of shares to the existing

shareholders at an agreed price,

generally lower than market price.

RISK-WEIGHTED ASSETS

Used in the calculation of risk-based

capital ratios. The face amount of lower

risk assets is discounted using risk

weighting factors in order to reflect a

comparable risk per rupee among all

types of assets. The risk inherent in

commitment & contingencies is also

recognised, first by adjusting notional

values to Statement of Financial

Position (or credit) equivalents and then

by applying appropriate risk weighting

factors.

S

SEGMENTAL ANALYSIS

Analysis of financial information by

segments of an enterprise specifically,

the different industries and the

different geographical areas in which it

operates.

SHAREHOLDERS’ FUNDS

Total of issued and fully paid share

capital and capital and revenue

reserves.

SINGLE BORROWER LIMIT

30% of capital base.

STATUTORY RESERVE FUND

A capital reserve created as per the

provisions of the Banking Act No. 30 of

1988.

SUBSIDIARY

A Subsidiary is an entity that is

controlled by another entity.

SUBSTANCE OVER FORM

The consideration that the accounting

treatment and the presentation in

financial statements of transactions and

events should be governed by their

substance and financial reality and not

merely by legal form.

T

TIER I CAPITAL (CORE CAPITAL)

Consists of the sum total of paid up

ordinary shares, non cumulative & non

redeemable preference shares, share

premium, statutory reserve funds,

published retained profits, general &

other reserves less goodwill.

TIER II CAPITAL (SUPPLEMENTARY

CAPITAL)

Supplementary capital includes,

approved revaluation reserves, general

provisions, hybrid (debt/equity) capital

items and approved subordinated term

debts.

TOTAL CAPITAL (CAPITAL BASE)

Capital base is summation of the core

capital (Tier I) and the supplementary

capital (Tier II).

TWELVE MONTH EXPECTED CREDIT

LOSSES

The portion of lifetime expected credit

losses that represent the expected

credit losses that result from default

events on a financial instrument that are

possible within the 12 months after the

reporting date.

U

UNIT TRUST

An undertaking formed to invest in

securities under the terms of a trust

deed.

USEFUL LIFE

Useful life is the period over which

an asset is expected to be available

for use by an entity or the number of

production or similar units expected to

be obtained from the asset by an entity.

V

VALUE ADDED

Wealth created by providing banking

and other 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.

VOSTRO ACCOUNT

A local currency account maintained

by a local bank for a foreign

(correspondent) bank. For the foreign

bank, it is a Nostro account. The

domestic bank acts as custodian or

manages the account of a foreign

counterpart.

Y

YIELD TO MATURITY

Discount rate at which the present

value of future payments would equal

the security’s current price.

SAMPATH BANK PLC


ABBREVIATIONS

24/7,365 At any time, all year round

ACS Advanced Card System / Access Control Server

ADB Asian Development Bank

ADB – SME

Asian Development Bank - Small and Medium Enterprises

AFS Available for Sale

AGM Assistant General Manager/Annual General Meeting (as appropriate)

AL Advance Level

ALCO Asset & Liability Management Committee

AML Anti Money Laundering

APP A self-contained program or piece of software designed

an application, especially as downloaded by a user to a mobile device.

ASPI All Share Price Index

ATL Above the Line

ATM Automated Teller Machine

AWDR Average Weighted Deposit Rate

AWPLR Average Weighted Prime Lending Rate

B2G Business to Government

BAC Board Audit Committee

BCBS Basel Committee on Bank Supervision

BCP Business Continuity Plan

BIRMC Board Integrated Risk Management Committee

BIS Bank for International Settlements

Bn Billions

BNO Bank Note Operation

BOD Board of Directors

BOP Bottom of the Pyramid

BPR Business Process Re-engineering

bps Basis Point

BRPTRC Board Related Party Transaction Review Committee

BTL Below the Line

CEFÉ Competency-based Economies through Formation of Enterprise

CAR Capital Adequacy Ratio

CAS Common ATM Switch

CASA Current Accounts and Savings Accounts

CASL Chartered Accountants of Sri Lanka (ICASL)

CBSL Central Bank of Sri Lanka

CCD Central Cash Department

CCTV Closed-circuit-television

CEA Central Environmental Authority

CEFTS Common Electronic Fund Transfer System

CEOCFMs Close Family Members

CFOCH4 Methane

CKD Chronic Kidney Disease

CO2 Carbon Dioxide

CO2e Carbon Dioxide equivalent, is a standard unit for measuring carbon footprints

CPU Central Processing Unit

CRIB Credit Information Bureau of Sri Lanka

CRMU Credit Risk Management Unit

CSE Colombo Stock Exchange

CSR Corporate Social Responsibility

DBU Domestic Banking Unit

Dept. Department

DGM Deputy General Manager

DMS Delinquency Management System

DPS Dividend per Share

DRC Disaster Recovery Centre

EAR Earnings at Risk

EBU Electronic Banking Unit

ECL Expected Credit Loss

ED Executive Director

EDP Electroinc Data Processing

EPF Employee Provident Fund

EPS Earnings per Share

ESC Economic Service Charges

ESG Economic Service Charges

ESOP Employee Share Option Plan

ETDP Executive Talent Development Programme

ETF Employee Trust Fund

EU European Union

EVE Economic Value of Equity

EWS Early Warning Signals

FATCA Foreign Account Tax Compliant Act

FCBU Foreign Currency Banking Unit

FD Fixed Deposit

FOGSL Field Ornithology Group of Sri Lanka

FSVAT Financial Services Value Added Tax

FVOCI Fair Value through Other Comprehensive Income

FVPLLoss

GCC Gulf Cooperation Council

GCOGDP Gross Domestic Production

GFD Group Finance Director

GHGGRI Global Reporting Initiative

GROHHIHRHTMIBC Inner Back Cover

i.e. That is

ICAAP Internal Capital Adequacy Assessment Process

ICASL The Institute of Chartered Accountants of Sri Lanka (CASL)

ICOFR Internal Control Over Financial Reporting

ICR Intelligent Character Recognition

ICT Information and communications technology

IFA Investment Fund Account

IIRC International Integrated Reporting Council

ILEDR Internal Loss Event Data Reporting

ILO International Labor Organization

IMF International Monetary fund

IND Independent Director

IRB Internal Rating - Based

IRBF Internal Rating Based Foundation


417IRMU Integrated Risk

Management Unit

ISO International Standards Organization

IT Information Technology

IUCN International Union for Conservation of Nature

Kg Kilogram

Km Kilometer

Km2 Square kilometer

KMP Key Management Personnel

KPI Key Performance Indicator

KPOKRI Key Risk Indicator

KWh Kilowatt-hour

KYC Know Your Customer

LC Letter of Credit

LCB Licensed Commercial Bank

LGD Loss Given Default

LKAS Sri Lanka Accounting Standard

LTV Ratio Loan to Value Ratio

m3 Cubic meter

MD Managing Director

Mn Millions

MoM Month on Month

mPOS Mobile Point of Sale

MSME Micro, Small and Medium Scale Entrepreneur

Mw Megawatt

N2O Nitrous Oxide

NBFI Non-Bank Financial Institution

NBSQA National Best Quality Software Awards

NBT Nations Building Tax

NCRE Non-Conventional Renewable Energy

NED Non Executive Director

NID Non Independent Director

NII Net Interest Income

NIM Net Interest Margin

NPA Non Performing Advances

NPL Non Performing Loans

NOx Nitrogen Oxides

NSC Network Service Centre

OCI Other Comprehensive Income

OCR Optical Character Recognition

ODS Ozone Depleting Substances

OECD Organization for Economic Co-operation and Development

OL Ordinary Level

p a Per Annum

P/E Ratio Price Earnings Ratio

PATPBTPD Probability of Default

PLC Public Limited Company

PLR Prime Lending Rate

POS Point of Sale

PPE Property, Plant & Equipment

Prof Professor

PUC Projected Unit Credit

RCSA Risk and Control Self Assessments

RO Plant Reverse Osmosis Drinking Water Plant

ROA Return on Average Assets

ROCE Return on Capital Employed

ROE Return on Equity

RPT Related Party Transaction/(s)

Rs Rupees

RSA Rate Sensitive Assets

RSL Rate Sensitive Liabilities

RWA Risk- Weighted Assets

S&P SL20 Standard & Poor’s Sri Lanka 20

SBEA Sampath Bank Employee Association

SBU Strategic Business Unit

SCEREmission Reductions

SDFR Standing Deposit Facility Rate

SEC Securities and Exchange Commission of Sri Lanka

SENS Sampath Employee

SEPI Self - Employment Promotion Initiative - a Loan Scheme

SID Senior Independent Director

SIPG Sampath Internet Payment Gateway

SITS Sampath Information Technology Solutions Ltd

SLAR Statutory Liquid Asset Ratio

SLAS Sri Lanka Accounting Standard

SLCF Sri Lanka Climate Fund

SLDB Sri Lanka Development Bonds

SLECIC Sri Lanka Export Credit Insurance Corporation

SLFR Standing Lending Facility Rate

SLFRS Sri Lanka Accounting Standard

SLIPS Sri Lanka Interbank Payments System

SLSAE Sri Lankan Standard on Assurance Engagements

SLSEA Sri Lanka Sustainable Energy Authority

SMARTAchievable, Realistic and Time bound

SME Small & Medium Enterprises

SMILE III Revolving Fund Loan Scheme For small & medium enterprises and micro enterprises

SMS Short Message Service

SNaPC Sampath Nature Protection Club

Snr Senior

SOx Sulfur Oxides

SRP Supervisory Review Process

SWIFT Society for Worldwide Interbank Financial Telecommunication

T. B, Treasury Bill

tCO2e Tonnes of carbon dioxide equivalent

TLE Terminal Line Encryption

Tn Trillion

TT Telegraphic Transfer

UNDP United Nations Development Programme

UNEP United Nations Environment Programme

UNGC United Nations Global Compact

UNWTO World Tourism Organization

US United States of America

USD / US$

United States Dollar

VAR Value at Risk

VAT Value Added Tax

Vis-à-vis in relation to, counterpart

WBCSD World Business Council on Sustainable Development

WHT Withholding Tax

WRI World Resources Institute

YoY Year on Year

SAMPATH BANK PLC


NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the

31st Annual General Meeting of

Sampath Bank PLC will be held at the

“Balmoral” Hall, The Kingsbury, No. 48,

Janadhipathi Mawatha, Colombo 01,

on 31st March 2017 at 9.30 a.m. for the

following purposes:

1. To receive and consider the

Annual Report of the Board of

Directors on the affairs of the

Company and the Statement of

Audited Accounts for the year

ended 31st December 2016

with the Report of the Auditors

thereon.

2. To approve the recommended

Cash dividend of Rs. 4.75 per

share as the second and final

dividend for the financial year

2016.

3. To elect Mr Channa Probodha

Palansuriya who was appointed

to the Board to fill up a casual

vacancy in the Board in terms of

Article No. 93 of the Articles of

Association of the Company.

4. To re-elect Mr Ranil Prasad

Pathirana who retires at the

Annual General Meeting as a

Director in terms of Article No. 87

of the Articles of Association of

the Company.

5. To re-elect Mr Deepal

Sooriyaarachchi who retires at

the Annual General Meeting as a



the Company.

6. To re-elect Professor Kulatilleke

Arthanayake Malik Kumar

Ranasinghe who retires at the




the Company.

7. To re-elect Mrs Dharani Shirantha

Wijayatilake who retires at the




the Company.

8. To approve the Donations and

Contributions made by the

Directors during the year under

review.

9. To re-appoint Messrs Ernst &

Young, Chartered Accountants

as Auditors of the Company for

the ensuing year and to authorize

the Directors to determine their

remuneration.

SPECIAL BUSINESS

10. To consider and approve an ex-

gratia payment of upto Rupees

Ten Million (Rs 10,000,000.00) for

the former Managing Director

Mr Mahawaduge Yasalal

Aravinda Perera, who retired

on 12th September 2016. [This

payment is made in terms of a

policy decision of the Company

and is in line with the Direction

issued by the Central Bank of Sri

Lanka].

11. To consider and approve the

sale of Mercedes Benz vehicle

used by the former Managing

Director Mr Mahawaduge

Yasalal Aravinda Perera to him

at 50% of the Net Book Value

of such vehicle, 50% of the Net

Book Value of the said vehicle

as at 12th September 2016

being Rupees Three Million

Three Hundred and Fifty Seven

Thousand Seven Hundred and

Thirty Nine and Cents Seventy

Three (Rs 3,357,739.73) [This

payment is made in terms of a

policy decision of the Company

and is in line with the Direction

issued by the Central Bank of Sri

Lanka].

12. To consider and approve an

ex-gratia payment of upto

Rupees Seven Million

(Rs 7,000,000.00) for the

Group Finance Director /

Executive Director Mr Ranjith

Samaranayake, who will be

retiring on 08th August 2017

upon reaching the age of 70

years. [This payment is made in

terms of a policy decision of the

Company and is in line with the

Direction issued by the Central

Bank of Sri Lanka].

13. To consider and approve the

sale of Mercedes Benz vehicle

used by the Group Finance

Director/ Executive Director Mr

Ranjith Samaranayake to him

at 50% of the Net Book Value

of such vehicle, 50% of the Net

Book Value of the said vehicle

as at 08th August 2017 being

Rupees One Million Six Hundred

and Eighty Four Thousand Eight

Hundred and Fifty Five and Cents

Thirty One (Rs 1,684,855.31)

[This payment is made in terms

of a policy decision of the

Company and is in line with the

Direction issued by the Central

Bank of Sri Lanka].

By Order of the Board

ANUJA GOONETILLEKE

Company Secretary

Colombo, Sri Lanka

13th February 2017

NOTE:-

A member is entitled to appoint a Proxy to attend and vote on his/her behalf and a Proxy need not be a member of the Company. A Form of

Proxy is enclosed for this purpose. The instrument appointing a Proxy must be deposited at the Registered Office of the Company at No. 110,

Sir James Peiris Mawatha, Colombo 02, not less than forty eight (48) hours before the time fixed for holding of the Meeting.

You are kindly requested to bring with you, your National Identity Card or any valid source of identification. (eg. Driving license, Passport)

419

STAKEHOLDER FEEDBACK FORM

To request information or submit a comment / query to the Bank, please complete the following and return this page to:

Company Secretary,

Sampath Bank PLC,


Colombo 02, Sri Lanka.

e-mail: [email protected]

Tel: +94 11 4730418 / 420 / 548

We also appreciate your comments on this Annual Report.

WHICH STAKEHOLDER GROUP/S DO YOU BELONG TO? (YOU MAY TICK MORE THAN ONE)

Employee Public Authority

Shareholder Regulatory Body

Investor Student

Customer Journalist

Supplier NGO

Service Provider Special Interest Group

Community Other

RATE YOUR OVERALL IMPRESSION OF THIS REPORT IN TERMS OF:

Excellent Good Fair Poor

CONTENT AND SCOPE

Informative

Transparent

Trustworthy

Comprehensive

User Friendly

DESIGN AND LAYOUT

SAMPATH BANK PLC


COMMENTS / QUERIES

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YOUR DETAILS

Name : .........................................................................................................................................

Address : .........................................................................................................................................

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CONTACT NUMBERS

Residence : .........................................................................................................................................

Office : .........................................................................................................................................

Mobile : .........................................................................................................................................

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STAKEHOLDER FEEDBACK FORM

NAME OF COMPANYSampath Bank PLC

LEGAL FORMA Public Limited Liability Company

incorporated in Sri Lanka on 10th

March 1986 under the Companies

Act No. 17 of 1982 and listed in the

Colombo Stock Exchange. A Licensed

Commercial Bank under the Banking

Act No. 30 of 1988. Re-registered on

28th April 2008 under the Companies

Act No. 7 of 2007.

COMPANY REGISTRATION NUMBERPQ 144

HEAD OFFICE & REGISTERED OFFICENo.110, Sir James Peiris Mawatha,

Colombo 02, Sri Lanka

TELEPHONE+94 (011) 2300260

+94 (011) 2358358

+94 (011) 4730630

+94 (011) 5331441

+94 (011) 5600600

FAX+94 (011) 2303085

SWIFT CODEBSAMLKLX

[email protected]

[email protected]

WEB PAGEwww.sampath.lk

AUDITORSMessrs Ernst & Young

Chartered Accountants

LAWYERSMessrs Nithya Partners

Attorneys-at-Law

COMPANY SECRETARYMrs Anuja Goonetilleke

Attorney-at-Law

CORPORATE INFORMATION

STOCK EXCHANGE LISTINGS176,981,069 Ordinary Shares

15,000,000 Listed Unsecured

Subordinated Redeemable Debentures

of Rs 100/- each - 2012/2017



of Rs 100/- each - 2013/2018



of Rs 100/- each - 2014/2019



of Rs 100/- each - 2015/2020



of Rs 100/- each - 2016/2021

VAT REGISTRATION NUMBER134001194 - 7000

CREDIT RATINGFitch Rating: Fitch Rating Lanka Limited

has affirmed National Long Term Rating

of A+ (lka) negative outlook to Sampath

Bank PLC

Moody’s Rating: Moody’s Investors

Services has issued Long Term Local

Currency Deposit Rating of B1 with

negative outlook.

BOARD OF DIRECTORSMr Channa Palansuriya

- Chairman / Non Executive Director


- Deputy Chairman / Non Executive,



- Senior Director / Non Executive,



- Non Executive, Independent Director





Mr Deshal De Mel

- Non Executive Director

Mr Ranil Pathirana



- Non Executive Director

Mr Nanda Fernando

- Managing Director (Executive

Director)


- Group Finance Director (Executive

Director)

SUBSIDIARY COMPANIES

Name of the

Company

Holding

%

Nature of

Business

Sampath

Centre Ltd

100.00 Renting of

commercial

property

SC

Securities

(Pvt) Ltd

100.00 Stock broking

Siyapatha

Finance

PLC

100.00 Granting

leasing,

factoring, hire

purchase &

other loan

facilities &

accepting

deposits

Sampath

Information

Technology

Solutions

Ltd

100.00 Developing

software

solutions &

maintenance

of hardware

FOR INVESTOR RELATIONS AND CLARIFICATIONS ON THE REPORT, PLEASE CONTACT: The Company Secretary,

Sampath Bank PLC,


Colombo 02, Sri Lanka

E-mail: [email protected]

Tel: +94 (011) 4730418/420/548

www.sampath.lk

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