Sustained By Our Strengths · Our Achievements Our Partnerships We retained our status as a stable,...

Commercial Leasing & Finance PLCAnnual Report 2018/19

SustainedBy Our Strengths

http://clc.lk/InvesterRelations

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SustainedBy Our StrengthsCommercial Leasing & Finance PLC is no ordinary NBFI. For years, we have been

a dominant player in a very competitive industry sector, rising to the top in every

business segment in which we operate. And that’s saying a lot, for our portfolio

now includes everything from fixed deposits, savings accounts, loans, and leasing,

to factoring, microfinance, gold loans, business loans and alternate finance.

The reader will see that we have much to be proud of this year, including three

Gold awards at the IFFSA Awards 2018, two runner-up awards at the LankaPay

Technnovation Awards, the re-affirmation of the [SL]A rating with Stable Outlook

by ICRA Lanka and our ranking as one of the four best performing companies in

the LOLC Group, one of Sri Lanka’s largest most diversified conglomerates.

Today, we are able to leverage on the vast resources we access from the

myriad local and international partnerships owned by our Parent Company,

which continues to forge ahead as one of the nation’s fastest-growing business

conglomerates. That is why we look towards the future with so much confidence,

for it is these strengths that will sustain us, and drive us forward to deliver even

better value to our partners, associates and all our other stakeholders in the years

that lie ahead.

2 Commercial Leasing & Finance PLC

Our Strengths

At Commercial Leasing & Finance, we

know our strengths are instrumental

towards our success. Over the years

we have finely crafted these strengths

to become a dynamic force among the

nation’s foremost NBFIs, continuing to

forge a path of growth and enduring

success.

As you turn the pages of this report,

you will discover what transformed

Commercial Leasing & Finance into a

dominent player in the industry today

- and how these combined strengths

have helped us in our journey, are able

to help us thrive, and sustain us well

into the future.

3Annual Report 2018/19

Our Services

Our Reputation

Our Performance

Our Achievements

Our Partnerships

We retained our status as a stable, reputed entity, despite an uncertain economic environment - remaining a brand synonymous with trust and assurance among our stakeholders.

Our powerful, diversified portfolio of products was a key contributor to our performance, driving satisfaction across all customer segments, and establishing CLC as a one-stop-shop for financial solutions.

Our partnerships with our myriad stakeholders and associates continued to strengthen us during the year, ensuring our continued progress.

Delivering a commendable performance year on year, we continued to generate consistent shareholder value and returns.

We continued to be recognised and awarded for our efforts to uphold customer convenience and overall industry excellence, evidenced by our performance at the IFFSA Awards and LankaPay Technnovation Awards.

Contents

Overview

Financial Highlights 6

Chairman’s Message 8

Chief Executive Officer’s Review 12

Board of Directors 14

Management Team 16

Regional Management Team 21

Management Discussion & Analysis

Management Discussion & Analysis 24

Branch Network 31

Financial Review 32

Sustainability Report 37

Governance

Report on Corporate Governance 42

Enterprise Risk Management Report 71

Report of the Board of Directors 74

Report of the Audit Committee 77

Report of the Integrated Risk

Management Committee 78

Report of the Remuneration Committee 79

Report of the Related Party Transaction

Review Committee 80

Report of the Nomination Committee 81

Directors’ Statement on Internal Control

over Financial Reporting 82

Auditors’Assurance Report on the Directors’

Statement on Internal Control 84

Chief Executive Officer’s and Chief Financial

Officer’s Responsibility Statement 85

Independent Auditor’s Report 86

Financial Statements

Independent Auditor’s Report 86

Statement of Profit or Loss 90

Statement of Other Comprehensive Income 91

Statement of Financial Position 92

Statement of Changes in Equity 94

Statement of Cash Flows 98

Notes to the Financial Statements 100

Shareholder Information 178

Summarised Quarterly Statics 180

Ten-Year Summary 182

Sources and Distribution of Income 184

Statement of Value Added 185

Supplementary Information

Glossary Terms 186

Notice of Meeting 190

Form of Proxy 191


• Together with our people with diverse strengths, committed to achieving personnel excellence and the continuous growth of our enterprise.

• To soar into the future, giving wings to the dreams, hopes and aspirations of our people and everyone who has a stake in the success of our enterprise.

• To forge ahead to reach new frontiers, to touch new horizons, seeking new challenges and exploring new opportunities.

Vision

MissionTo be the catalyst in the financial services industry by creating superior shareholder value and contributing to the national development through the empowerment of individuals with financial solutions delivered by an inspired and dedicated team committed to excellence.

Values 1. To serve our customers with utmost care.

2. To serve our customers professionally.

3. To do work with utmost integrity.

4. Be performance driven.

5. To work as a team and treat fellow colleagues as one family.


Financial HighlightsFor the year ended 31 March 2015 2016 2017 2018 2019

Performance indicators (Rs. 'Mn)

Interest income 7,590 8,110 10,898 13,348 14,126

Interest expense 2,406 3,373 6,126 6,995 6,697

Net interest income 5,184 4,738 4,772 6,353 7,429

Other income including net income (expense) from other financial instruments at FVTPL

579 1,281 2,331 2,477 1,750

Profit before tax 1,728 2,008 2,205 2,905 2,041

Profit after tax 1,426 1,574 1,686 2,144 1,198

New executions (leases and loans) 22,762 31,986 32,833 44,670 33,609

Factoring funds in use 2,778 5,085 6,547 4,017 2,622

Financial position (Rs. 'Mn)

Total assets 42,385 84,359 77,761 73,508 70,856

Net lending portfolio 32,982 46,793 53,904 59,777 53,493

Outstanding borrowings 20,095 58,051 45,742 30,445 26,464

Deposits from customers 9,381 12,348 15,936 23,485 24,316

Shareholders' funds 10,115 11,797 14,176 16,506 17,459

Key financial indicators

Earnings per share(Rs.) 0.22 0.25 0.26 0.34 0.19

Net asset value per share (Rs.) 1.59 1.85 2.22 2.59 2.74

Closing price per share (Rs.) 4.00 3.80 2.60 2.70 2.60

Interest cover(times) 1.72 1.59 1.36 1.41 1.30

Debt to equity ratio (times) 2.91 6.43 4.75 3.45 2.99

Return on average shareholders' funds (ROE) (%) 15.03 14.37 12.99 13.98 7.05

Return on average assets (ROA) (%) 4.59 3.17 2.72 3.84 2.83

Gross non performing loan ratio (%) 2.74 1.09 1.93 2.62 4.90

Regulatory Ratios - Capital adequacy

Tier 1 capital ratio (%) minimum 6% from 1st July 2018 28.27 20.22 21.11 23.69 20.51

Total capital ratio (%) minimum 10% 25.57 18.42 19.49 21.74 19.52

Core capital (minimum Rs.1.5 Bn from 1st January 2019) 10,119 11,627 13,300 15,317 15,425


CAPITAL ADEQUACY RATIOS

Tier 1 Capital Ratio Total Capital Ratio

15

20

25

30

2015 2016 2017 2018 2019

(%)NET ASSET VALUE PER SHARE & CLOSING PRICE PER SHARE

Net Asset Vaue Per Share

Closing Price Per Share

(Rs.)

1.5

2.0

2.5

3.0

3.5

4.0

2015 2016 2017 2018 2019

0

20,000

40,000

60,000

80,000

100,000

NET LENDING PORTFOLIO TO TOTAL ASSETS

2015

Net Lending Portfolio

Total Assets

2016 2017 2018 2019

(Rs. Mn)

0

20,000

40,000

60,000

80,000

100,000

0

10,000

20,000

30,000

40,000

50,000

NEW EXECUTIONS(Rs. Mn)

20

14/1

5

20

15/1

6

20

16/1

7

20

17/1

8

20

18/1

9

NON PERFORMING PORTFOLIO TO PERFORMING PORTFOLIO

2015

Non Performing Portfolio

Performing Portfolio

2016 2017 2018 2019

(Rs. Mn)

0

10,000

20,000

30,000

40,000

50,000

60,000

500

1,000

1,500

2,000

2,500

3,000

CUSTOMER DEPOSITS & LIQUID ASSETS

2015

Customer Deposits

Liquid Assets

2016 2017 2018 2019

(Rs. Mn)

0

5,000

10,000

15,000

20,000

25,000


All in all, it was a satisfactory year for CLC as it sets about modernising the industry through digital innovation and world-class service standards.

“

Chairman’s Message

Dear Stakeholder,

“


I am pleased to welcome you to the 27th Annual General Meeting of your Company and to present the Audited Financial Statements for the Financial Year ended 31st March 2019. I feel a sense of pride in reporting on your Company’s operational and financial achievements during the year under review, where a profit of Rs. 2 Bn before tax has been recorded. Meanwhile, Profit After Tax was recorded as Rs. 1.2Bn, within a higher tax regime, with taxes introduced during the 2018 Government Budget getting implemented. The revenue performance was maintained at a modest growth rate of 6% YoY, despite the cost of funding through borrowings and customer deposits being on a slight downwards rate trend.

In terms of credit, it was not possible to maintain the very strong growth momentum in granting loans as observed during the two preceding years, since your Company had to take a conscious decision to be more selective in its lending approach, to mitigate the risks arising from the deteriorating asset quality, which was observed across the finance industry, in order to contain the levels of Non-Performing Loans (NPLs)

within the endurable risk appetite identified by the Board and the Management of your Company.

By the year-end, the recorded level of NPLs was contained well within the risk appetite of the company, at a ratio of 5.5%. It is noteworthy that this ratio is way below the recorded average gross NPL ratio of 7.8% recorded amongst the Finance Companies’ sub-sector. Greater resources have been deployed on recoveries to support the containment of NPLs. Moreover, a greater reliance was placed on collecting deposits domestically for funding requirements. Currently, Fixed Deposits and Savings account for nearly 50% of our funding requirements.

Amidst these developments, we have strengthened the internal structures of the institution, covering namely the areas of Risk Management, Credit Evaluation, Recoveries, Channels & Marketing, Internal Control and Fraud Risk Mitigation, Human Resource Development and Retention, strengthening the branch capabilities for greater outreach to the customer base and to extend more customer convenience

through greater digitalised financial services and prudent investments. These, I am confident, will augur well in the context of the future development and expansion of your Company, while enhancing customer convenience.

EXTERNAL ENVIRONMENT

The operating environment was challenging during 2018 for the entire Financial Services industry due to the volatility in both economic and political factors. These adverse developments had an impact on the industry, resulting in a deterioration of credit growth and an increase in NPLs, thereby leading to pressures on profitability. The increase in taxes has led to a slowdown in capital accretion, the gradual build-up of capital in financial institutions.

For the Licensed Finance Companies and the Specialised Leasing Companies sub-sector, their lending activities slowed down largely in response to fiscal and macro-prudential policy measures taken to curtail importation of motor vehicles and lending towards vehicles and the general slowdown in economic activities. The regulated LFC and SLC sub-sector also suffered from the impact of unethical and predatory lending practices of unscrupulous operators which functioned outside the ambit of the regulatory perimeter.

The macro-economic conditions, mainly the slowing down of the GDP growth generally affects the performance of the financial industry, as the demand for credit remains subdued while slowing down in business and household incomes tends to put pressure on their ability to settle loans when settlement become due. Investor confidence, which is a catalyst for seeking new loans, also remains low.

The GDP growth during year 2018 was 3.2% much slower than the growth rate of 3.4% experienced in the previous year. Currently

COMPANY GROSS NPL RATIO & INDUSTRY NPL RATIO

2015

Gross NPL Ratio

Industry NPL Ratio

2016 2017 2018 2019

(%)

1

2

3

4

5

6

7

8

0

3,000

6,000

9,000

12,000

15,000

INTEREST INCOME TO INTEREST EXPENSE

Interest IncomeInterest Expense

(Rs. Mn)

20

14/1

5

20

15/1

6

20

16/1

7

20

17/1

8

20

18/1

9


the island’s GDP growth is way below its potential GDP growth rate, which according to the Central Bank’s estimates is in the range of 6%-6.5%. The lagged effects of the weak performance of the Agriculture sector during the past four consecutive years and the very slow growth in manufacturing sector and the apparent stagnation of foreign remittances have all seemed to weigh down on the performance of the Small & Medium Enterprise (SME) segment, the main customer target group of your Company. This would be the major challenge in our forward march as well.

While Sri Lanka has made significant progress in maintaining price stability in the past decade, progress in terms of real economic performance has fallen below expectations in recent years, largely impacted by the continued delays in the implementation of the required structural reforms and inconsistent and unpredictable policies introduced from time to time. These irregularities have crippled the growth momentum of the economy, thus preventing Sri Lanka from progressing into a higher income as well as a more diversified economy.

BUILDING A FULL-SERVICE FINANCE COMPANY DURING THE YEAR

Customer convenience is a promise that your Company has unfailingly delivered

and we take pride in being the first LFC to receive approval for deposit-taking at the customer’s doorstep by field staff with an app that allows them to update transactions in real time. While reaching out to the wide geographically distributed customer base through a branch network numbering 65, which are uniformly equipped to offer an efficient and a quick range of services, the digitalisation initiative of financial services, marketing and recoveries at the field level have managed to extend the traditional brick and mortar confined service to a more inclusive level by availing the services to locations determined by the customer preference. This initiative has brought benefits to certain customer classes which, owing to their occupational demands, earlier found it inconvenient to visit branch locations.

Accordingly, when the customer requires our service, CLC is committed and geared to offer it, thereby assuring a swift service to the customers. While continuing to move from strength to strength, the traditional customer products of loans and flexicash, leasing, factoring and so, and on the products of more recent vintage namely microfinance and Islamic banking have now come to a more stabilised footing. It is noteworthy that a few high-end LFCs have also entered into offering digitalised financial services, and hence the competition in

offering the ‘Full-Service Finance Services’ is building up. Yet, your Company is confident of withstanding this competition and staying ahead due to the strong commitment placed on innovative delivery channels and also through Group support.

FUTURE PROSPECTS

Your Company has maintained continuously its Investment Grade rating of [SL] A with Stable outlook from ICRA Lanka Ltd., since 2015. The year ahead looks daunting, considering the Easter Sunday attacks which impacted the tourism industry directly and affected the economy. The precise economic impact will be known only much later. Looking ahead at 2019/20, a lot depends on political stability in an election year, but one hopes a stable government will further stabilise the economy and spur business momentum. It is too early to forecast the outcome but macro-economic numbers seem stable while the trade deficit seems to have narrowed in the last quarter of 2018/19 due to the Central Bank’s decision to cut down imports of vehicles and certain non essential items. Nevertheless, we remain optimistic about prospects for the economy and for your Company specifically, as we remain poised to partner our customers to rebuild their livelihoods, as we see the early signs of interest rates coming down and the appetite for credit improving.

Chairman’s Message

TOTAL ASSETS SHAREHOLDERS' FUNDS PROFIT BEFORE TAX

70.8Bn 17.4Bn 2BnRs. Rs. Rs.


Your Company’s focus will remain unwavering on making steady progress in offering fin-tech products and services for greater customer convenience and to enhance efficiencies for staff. Our aim is to provide unimpeded access to our financial services and we will continue to innovate and pioneer solutions that bring financial security to all customers. At the same time, we remain hopeful that the Government will continue to build and develop cyber security protection alongside to secure the digitalisation journey we have embarked upon. The backing of the LOLC Group, a conglomerate which has expanded stridently in overseas markets, gives us the knowhow, confidence and best practices to remain at the cutting edge into the future.

Overall, the risk appetite of the Company is considered low, given its risk management framework, maintenance of capital way above regulatory capital requirements, consistent healthy liquidity levels and adequate levels of earnings to support the internal capital generation process and operations of the Company. Thus, we are on a stable platform to launch to greater heights along with the expected improvements in the external environment.

APPRECIATION

I would like to place on record my gratitude to the Central Bank of Sri Lanka and the Department of Non Bank Supervision and other bodies for their help and guidance during the period under consideration. I would like to thank our funding partners for their unwavering support and trust in the capabilities of the management at CLC and its potential. As Chairman of the Board of Directors, I appreciate contributions of board members as well as board appointed committees in ensuring total compliance. I commend Key Management Personnel who have managed to orchestrate focused programmes, and at the Group level, the Deputy Chairman and Managing Director and others connected to us through shared services for their faith in us. Our precious

employees are our biggest asset, spread across all the provinces of the country, to whom we pledge equality and fairness. CLC treasures customer loyalty and will continue to earn it by exceeding expectations at all times. All in all, it was a satisfactory year for CLC as it sets about modernising the industry through digital innovation and world-class service standards.

Priyantha FernandoChairman/ Independent Non-Executive Director


Chief Executive Officer’s Message

Our performance when compared to the industry was one of the best, which demonstrates the resilience and strength of CLC. We are geared to face the challenges thrown at us, and prepared to seize opportunities.

“ Dear Stakeholder,

“


I believe there are only two ways to look back on the 2018/19 financial year - glass half empty or half full. For CLC - it was half full. The need of the hour was most certainly consolidation and sustaining our core business. Our performance when compared to the industry was one of the best, which demonstrates the resilience and strength of CLC.

The confidence placed in us by our funding partners, Development Finance Institutions (DFIs) and Banks was further strengthened with a sustained rating of [SL]A with stable outlook by ICRA Lanka in March 2019, which is a testimonial to the resilient performance and financial stability of the company. I am happy that during the year under review, we succeeded in adding value to all our stakeholders - with shareholder capital reaching Rs. 17.4 Bn.

Our clients were richly serviced with all products across SME finance, Microfinance, Islamic Finance, Gold loans and other categories. Last but not least, our staff strength grew by 2% and unlike the heightened job insecurity in the finance industry, the job security of our employees was never in doubt.

PERFORMANCE

During the year under review, CLC’s turnover increased by 6% to Rs.14Bn whereas cost of funds decreased by 4%. However, the additional gross returns were expended due to the high cost of impairment. Sans this, the other overheads were managed only with a 3.5% growth while ending the year with a profit before tax of Rs.2Bn which is a decline of 30% over the previous year. However, the drop in profits was also as a result of additional tax of Rs. 131Mn and a one-off sale of the subsidiary LOLC Development Finance PLC(Previously known as BRAC Lanka), which accounted for Rs. 243 Mn in the year 2017/18. On a like to like basis, the drop-in profit before tax was marginal at 18%.

CHALLENGES ABOUND

The industry is poised at a defining point in its history and at this critical juncture, both the industry players and the regulator need to take measured steps. The future of individual companies and the industry will depend on how the regulator and the players face the situation. At CLC, we are geared to face most of the challenges thrown at us and even prepared to seize opportunities. To quantify this fact, I would like to emphasise a key few developments that took place in the recent past:

• The microfinance industry was affected badly during the period under consideration, with the loan concessions promised by the Ministry of Finance. With that, many unregulated microfinance entities and even some of the regulated microfinance entities went out of business. They were further affected with the rate cap of 35% introduced in the microfinance industry. Yet, we believe this gives CLC an enormous advantage as a typical low-cost provider of microfinance who can provide inclusive finance to this segment

while staying within the ambit of the regulatory framework.

• Deposit interest rates were reduced and the differential between NBFI and bank rates were brought to minimal levels. Many in the NBFI sector could face liquidity issues or difficulties, but CLC, with its strong balance sheet, capital structure, brand name, rating and parent company standings, will not be affected and should continue to attract public and granular deposits.

• The regulator is determined to create a stronger NBFI industry and keeps raising the bar in terms of capital requirements, governance, product and process quality, overhead management etc. I am happy to say CLC is a role-model in the eyes of the regulator in terms of capital adequacy, governance and other factors.

ACKNOWLEDGEMENTS

The industry needs further consolidation and also needs to be lucrative enough to attract investors and shareholders by leveraging on high tech platforms, unique products and services, professional staff and management. CLC is undoubtedly is geared with all these factors, a fact that has been reaffirmed with the [SL] A stable rating by ICRA Lanka. The continuous backing of our bankers and DFIs and steady patronage by our customers emboldens us for the future. Our steady progress is made possible by my able and loyal staff, under the direction and guidance of Board of Directors of CLC. We thank them profusely for a job well done amidst a challenging year.

Krishan ThilakaratneDirector/ Chief Executive Officer

SHAREHOLDERS' FUNDS

2015 2016 2017 2018 2019

(Rs. Mn)

0

5,000

10,000

15,000

20,000


Board of Directors

PRIYANTHA FERNANDOChairman/Independent Non-Executive Director

LUXHMAN JAYARATNEIndependent Non-Executive Director

01 02

Mr. Priyantha Fernando has more than 35 years of experience at the Central Bank where he rose to the position of the Deputy Governor. He was the Deputy Governor of the Central Bank in 2010-2011 in charge of the Financial System Stability and the Corporate Services clusters. Mr. Fernando has extensive experience and expertise in the fields of Banking and Financial Sectors, particularly at the policy-making levels in financial regulation and supervision, Information technology, national accounting, macro-economic analysis and statistics, finance and fund management. At the Central Bank, he was the Chairman of the Financial Stability Committee, member of the Monetary Policy Committee, member of the Risk Management Committee and Chairman of the National Payment Council. He also functioned as the Secretary to the Monetary Board during 2009/2010. He holds a M.Sc in Statistics from the University of Birmingham, England and a B.Sc. (2nd Class Upper Div) from the University of Peradeniya, Sri Lanka.

He was an ex-officio board member in several regulatory organisations namely the Securities and Exchange Commission, the

Mr. Luxhman Jayaratne has over 37 years of banking experience. He has worked in several countries in Asia, Europe and Africa, focusing on Management of Operations and Technology areas with involvement in product management. He had been directly involved in setting up Citibank in Sri Lanka, and Romania. He had also been the Head of Operations and Technology of Africa Citibank covering 14 countries before joining Union Bank of Nigeria PLC.

Mr. Jayaratne specialises in operations and technology management, process regionalisation and centralisation and commercial banking.

Insurance Board of Sri Lanka, the Chairman of the Credit Information Bureau, Institute of Bankers–Sri Lanka and has also served as a Board Member of the Employees' Trust Fund, Lanka Clear (Pvt) Ltd. and Lanka Financial Services Bureau.

During his career he has initiated and spearheaded several key projects of national importance, especially in the area of developing the infrastructure for the national payments and settlement system.

Mr. Fernando has served a number of committees at national level covering a range of subjects representing the Central Bank.

He has been appointed Chairman of Golden Key Credit Card Company and currently serves on the boards of Union Bank of Colombo PLC (as Deputy Chairman), Ambeon Capital PLC, Ceylon Leather Products PLC, Golden Key Hospitals Ltd, Thomas Cook Travels Sri Lanka, Imperial Institute of Higher Education (Pvt) Ltd and Millennium Information Technologies (Pvt) Ltd.


EBERT SILVAIndependent Non-Executive Director

KRISHAN THILAKARATNEExecutive Director/ CEO

THAMOTHARAMPILLAI SANAKANIndependent Non-Executive Director

03 04 05

Mr. Ebert Silva has over 30 years of experience in Banking, Regulatory and Financial Reporting, Human Resource Management and Administration as a former official of the Central Bank of Sri Lanka. He joined CBSL in 1986 and has worked in the Bank Supervision, Employees’ Provident Fund, Facilities Management departments and in the Centre for Banking Studies until his retirement in year 2017.

He holds a B.Sc. degree in Business Administration from the University of Sri Jayawardenapura and has read for his M.A in Economics from the University of Ohio, USA.

Mr. Krishan Thilakaratne is the Director/CEO of Commercial Leasing and Finance PLC and a Member of the Senior Management Team of LOLC Holdings PLC.

Mr. Thilakaratne is a Board member of Seylan Bank PLC and Credit Information Bureau of Sri Lanka (CRIB). He further serves in the Board of Commercial Insurance Brokers (Pvt) Ltd the largest Insurance brokering company in Sri Lanka. He is the immediate past Chairman of the Finance Houses Association of Sri Lanka (FHASL), the Apex body for Non-Bank Financial Institutions (NBFIs) in Sri Lanka.

Mr. Thilakaratne further serves in the board of Prasac Micro Finance Cambodia Ltd the second largest financial institution in Cambodia.

He is a Member of the Associateship of Institute of Bankers of Sri Lanka (AIB). He has followed Strategic Leadership training programme in Micro Finance at Harvard Business school USA and counts over 25 years of experience in Management, Credit, Channel Management, Marketing, Factoring, Portfolio Management and Islamic Finance.

He counts for over 20 years of experience at top management level in multiple industries such as Financial Services, Trading, Manufacturing, Healthcare and Consumer. Presently he serves as the Group Chief Financial Officer of the Browns Group of Companies and he was involved in directing Browns business lines for profitability, growth and sustainability through strategic finance directives. He was directly involved in setting up LOLC Securities Ltd., which deals with capital markets. He previously held the position of Chief Operating Officer at LOLC Securities Ltd. and served as a Rule setting committee member at the Securities and Exchange Commission of Sri Lanka.

He excels in the areas of channel management, new business start-ups, business process re-engineering, project management and strategic business management. He also serves on the boards of Associated Battery Manufacturers (Ceylon) Ltd., Browns Pharmaceuticals Ltd. and Browns Pharma Ltd, He is an Associate Member of Chartered Institute of Management Accountants of UK and Chartered Global Management Accountants of USA.


Management Team

02

07

01

08 09

MRS. DEEPAMALIE ABHAYAWARDHANA Deputy General Manager

Factoring

MR. LAL ABEYRATNEAssistant General Manager

Factoring Marketing

MR. NIHAL WEERAPANADeputy General Manager

Recoveries

MR. PRASANNA DAYARATNEAssistant General Manager

Factoring Operations

MR. TERENCE KAUSHALYAAssistant General Manager

Savings & Deposits

03

MRS. NISHANTHI KARIYAWASAMDeputy General Manager

Finance


10 11 12

06

MR. HARSHA THILAKUMARAGEAssistant General Manager

Microfinance

MRS. RAVEENDRINI SENEVIRATNEAssistant General Manager

Company Secretariat

MR. RAJSURENDRA KASTHURIARACHCHIAssistant General Manager

Credit

MR. UPUL SAMARASINGHEAssistant General Manager

Credit

04

MR. PRASANNA KARANDAGOLLADeputy General Manager

Channels

05

MR. THARANGA INDRAPALAAssistant General Manager

Operations


15

19 2120

MR. HIRANTHA PERERAChief Manager

Legal

MR. SARATH WIJENAYAKEAssistant General Manager

Microfinance

MR. CHATHURA PERERAAssistant General Manager

Credit

MRS. CHAMILA RODRIGOManager

Enterprise Risk Management

MR. HASITHA HEMASIRIManager

Customer Service

MR. OSHANKA DE SILVAManager Treasury

Management Team

13 14


17 1816

2422 23

MR. TYRONNE FONSEKAChief Manager

Gold Loans

MR. ANURADHA GAMAGEChief Manager

Recoveries

MRS. ROMAINE BAPTISTEChief Manager

HR

MR. PRASAD PERERAManager

Marketing Communications

MRS. DESHANGI RANASINGHEManager Finance

MRS. RASIKA RANATUNGAManager

HR


MR. THUVAGAR ASOHANManager

Gold Loans

MR. NALEEN AMUNUGAMAManager

Finance Operations

2726

Management Team

28

MR. RANJAN GUNATHILAKAAssistant Manager

Administration

29

MR. DILAN JAYAWARDENASenior Business System Analyst

25

MR. ILSAM AWFERManager

Islamic Business Division


Regional Management Team

01 02

MR. PRADEEP MADURASINGHEAssistant General Manager -

Negombo Region

MR. SAMITHA ARUGGODAAssistant General Manager -

Kelaniya Region

03

MR. PRASANNA GOONETILLEKEAssistant General Manager -

Central & Eastern Region

05

MR. SUNIL SHANTHAAssistant General Manager -

Ambalangoda Region

04

MR. SUNEETHA SAMARAWICKRAMAAssistant General Manager -

Colombo Region

08

MR. SAMPATH PALLIYAGURUGERegional Manager -

Matara Region


Regional Management Team

07 08 09

12

MR. ARUMUGANATHAN PRANAVANRegional Manager -

Northern Region

MR. CHANDRAKUMARA SIRISENARegional Manager -

North Central Region

MR. LANKESH ATAPATTURegional Manager - Avissawella Region

MR. AMILA FERNANDOAssistant Regional Manager -

Negombo Region

11

MR. FLOYD BARTHELOTAssistant Regional Manager -

Eastern Region

10

MR. JANAKA KARUNARATHNAAssistant Regional Manger -

Kandy Region


Sustained By Our Services

[MANAGEMENT DISCUSSION & ANALYSIS]


Management Discussion & AnalysisCommercial Leasing & Finance PLC (CLC), a member of the LOLC Group, is one of Sri Lanka’s leading financial service providers offering a broad portfolio of financial products and services that are transforming lives across the island. With 65 customer touch points spread across the country, CLC has become a trusted brand, synonymous with stability and dependability. CLC plays an invaluable role as a key catalyst in financial empowerment.

MACRO-ECONOMIC OVERVIEW

The vulnerability of the Sri Lankan economy to global and domestic disturbances became increasingly visible in 2018, with a modest expansion in real economic activity amidst a low inflation environment during the year. Real GDP growth was recorded at 3.2% in 2018, compared to 3.4% in the previous year. This growth was largely supported by services activities that expanded by 4.7% and the recovery in agriculture activities, which recorded a growth of 4.8%. Industry activities slowed down significantly to 0.9% during the year, mainly as a result of the contraction in construction. The total size of the Sri Lankan economy was estimated at US dollars 88.9 billion, while the per capita GDP was recorded at US dollars 4,102 in 2018, which was marginally lower than in the previous year. The external sector of the economy was volatile during the year due to both global and domestic factors.

Globally, monetary policy normalisation, particularly in USA, resulted in global financial conditions tightening, thus causing capital outflows from emerging market economies and increased pressure on exchange rates of twin deficit economies, in particular. Sri Lanka also experienced these headwinds, particularly from mid-April 2018, which were exacerbated following the political uncertainties and the downgrade of the country’s Sovereign rating in the fourth quarter of the year.

Domestically, the trade deficit surpassed US dollars 10 billion for the first time in history with higher growth in import expenditure outpacing the growth in export earnings, which were at a record level in nominal terms. Although services exports are estimated to have grown substantially, the deficit in the merchandise trade balance, stagnant workers’ remittances and rising foreign interest payments resulted in a widened current account. In order to address the widening trade deficit, the Central Bank and the government implemented a series of measures to curb non-essential imports by increasing tariffs, imposing margin requirements, tightening loan-to-value ratios on selected types of lending, and suspending the issuance of letters of credit (LCs) on concessionary permits for vehicle imports.

In response to these measures and the global financial markets becoming less unfavourable, the pressure on the BOP and the exchange rate subsided during late 2018 and early 2019, and the Sri Lankan rupee appreciated against major currencies during the first quarter of 2019, thus correcting the overshooting of the exchange rate observed in the previous year to some extent. The Central Bank strengthened the prudential policy measures, including the implementation of Basel III requirements and the adoption of Sri Lanka Accounting Standard-SLFRS 9 during the year.

INDUSTRY PERFORMANCE

The growth of the Licensed Finance Companies (LFCs) and Specialised Leasing Companies (SLCs) sector slowed in 2018, with the decline in credit growth and profitability during the year. Lending activities of the sector decelerated mainly due to recent fiscal and macro prudential policy measures, which were taken to curtail the imports of motor vehicles and credit facilities for purchasing vehicles. The

profitability of the sector declined during the year mainly due to increased funding cost and higher loan loss provisions made against NPLs. Signs of stress towards the sector’s profitability during the year were reflected by the decrease in ROA and ROE.

The Central Bank continued to strengthen the supervisory and regulatory framework of LFCs and SLCs and took action to revive or close down weak LFCs. Other sectors of the financial system, including superannuation funds, insurance and primary dealers expanded moderately during 2018. The imposition of the margin requirement on Letters of Credit (LCs) on the importation of motor vehicles and the statutory requirement that such deposits be maintained with the Central Bank also contributed to the liquidity deficit to some extent.

Meanwhile, the Colombo Stock Exchange recorded a dismal performance in 2018, impacted by significant foreign outflows driven by increased pressure on the exchange rate, political uncertainty and the shift in investor sentiments due to domestic and global developments. The negative developments were reflected by the decline in most indicators including share prices, turnover, market capitalisation and Price to Earnings (PE) ratios throughout the year. (Source: Central Bank of Sri Lanka Annual Report 2018)

OPERATIONS

In a year marked by intensifying pressures, political uncertainty, regulatory changes and a variety of other unfavourable macro factors, operational success can be determined by how these risks were mitigated while ensuring core systems and processes and employee remained strong and resilient. Considered one of the most trusted Non Bank Finance Institute (NBFI) in the country, CLC safeguards its reputation by ensuring it remains future-ready at all


times. In the year 2018/19, the Company sustained its approach to consolidate internal processes while strengthening external partnerships to retain its stable foundation and its resilience despite a difficult business climate.

Customer service enhancement was at the core of the Company’s objectives during the year, while conducting continuous process development exercises to minimise time taken for customer transactions to the bare minimum to enhance speed of service and customer convenience. The Company had already adopted the electronic payment systems to make real-time vendor payments with SLIPS and CEFTS. Documentation needed from customers while extending loans or leases was kept to the minimum for a hassle-free transaction. The new paperless transaction initiative was piloted at several branches during the year and this will be rolled out to the entire branch network in due course. Moreover, the Central Bank of Sri Lanka set out a new regulation for all finance companies to abide by and CLC is at the forefront of compliance, having already adhered to the customer charter.

BUSINESS CHANNELS

The Company’s entire product and service portfolio is distributed through its network of 65 branches along with the introducer network. The extreme external challenges arising out of the drought conditions in the north and east, regulatory restrictions such as the Loan To Value (LTV), duty increases on vehicle imports, etc. put tremendous pressure on the financial services industry, forcing the Company to bring down portfolio volumes to mitigate risk. Considering the negative market liquidity conditions, the company focused on collections because as per readjusted company forecasts, the end of financial year under review would see a worsened situation.

The Company reduced business volumes and brought down the lending portfolio from Rs. 59 Bn to Rs. 54 Bn from November 2018 onwards. Until such time, month on month execution has been Rs. 3 Bn per month and the total portfolio was increased to Rs. 60Bn. As a result of bringing down investments and business executions such as loans and leases in the latter half of the year, closer attention was focused on collections and on growing the deposit base. Overall, the entire portfolio dipped by Rs.6.2 Bn. The tough conditions in the market impacted the payment capacity of customers and high Non-Performing Loans (NPLs) became the norm across the industry. However, CLC managed to retain its NPL ratio at 4.9%, well under industry average, through astute collection strategies.

During the year under review, the Company received the approval from the Central Bank of Sri Lanka to open new branches in Nikaweratiya, Nittambuwa, Digana and Horana. The branches at Nikaweratiya and Horana were duly inaugurated, and the Matale branch was relocated, As a hedge against uncertain economic conditions as those experienced during the year, the Company launched Gold Loans as a secure product to give customers a wider choice. This exercise was achieved with speed and agility as we had excess resources on account of slowing down lease executions and those resources were deployed to test and pilot the Gold Loans product.

Going ahead, greater thrust will be placed on the Gold Loans product to carve out a larger share of the market. The Company plans to roll out this product to 48 branches in the next financial year. The company also plans to infuse greater automation and technology to optimise resources. Already, six Cash Deposit machines (CDMs) have been deployed at branches and the numbers

will be further increased in the next year. The credit appraisal process will be digitalised while all branches will become paperless. A high level of experience in the field and technical expertise held within the company helped CLC tide over a challenging year with minimum impact.

DEPOSITS

Deposit mobilisation was a challenge during the year as the interest rate differential between banks and financial companies shrank drastically, leaving little incentive for depositors to select the latter. Nevertheless, the Company’s strong credentials in the market and brand reputation led to a growth in the deposit base. A major savings campaign was launched during the year which was communicated island-wide and received a favourable response from depositors, offering high returns and a secure financial future. CLC has consistently promoted the savings habits amongst citizens, providing savings products for all age categories – from newborn to seniors.

Furthermore, special attention was paid to retaining existing customers by serving their financial needs through personalized

LankaPay Technnovation Awards 2018


customer services and a solid IT platform. Moreover, customer retention rates remained high due to impeccable service standards offered by CLC staff. Continuously improving internal processes and procedures and improving the technology platform were key endeavours that lent CLC the competitive edge needed in the high pressure operating climate during 2018/19.

The introduction of the Mobile app, Cash Deposit Machines (CDMs) and online facilities showed swift adoption by customers to carry out financial transactions 24/7, 365 days of the year.

CLC was awarded Runner Up for ‘Financial Institute of the Year for Customer Convenience’ at the Lanka Pay Technnovation Awards 2018. The award shows the commitment to customer convenience and the use of technology to provide an excellent service.

In addition, CLC won the Overall Runner Up award for excellence in interbank payments. The achievement has manifested the Company’s commitment to new age technology, product development and and service excellence towards its customers.

Technology has played a pivotal role in CLC’s growth during the year while helping the company reap benefits of the advanced technology platform.

CREDIT

Credit came under severe pressure in the year under review, coupled with greater competition in the sector. If 2017/18 was a challenging year beset with natural disasters, the year under review proved to be even more challenging, as the economy recorded inadequate GDP growth. The NPLs in the finance sector rose and increase in interest rates and restriction on vehicle imports impacted the business, although CLC managed its portfolio expertly to mitigate NPLs to the greatest extent possible. As for regulation, the LTV ratio remained unchanged from the previous year as no relief was accorded in the budget. Rupee depreciation and higher corporate taxes were other factors which caused a credit crunch.

During the year under review, the Company turned its focus inward to strengthen internal assets. Training and development was continued aggressively through the year for staff while conducting credit

audits, post lessons learnt, etc. Although lending was consciously slowed down, the Company slowly opened its lending book through selectively lending to safeguard balance sheet quality and portfolio. Greater usage of cashflow analysis and other tools helped mitigate any future negative impact. The marketing team remained agile and proactive through the period under consideration, acquiring new business and cross-selling products. CLC continues to sustain its own high standards of conducting business in an ethical and transparent manner.

Although the challenging conditions are expected to prevail into the next financial year as well, the Company will keep its focus on maintaining a healthy portfolio.

MICROFINANCE

Microfinance brings credit, savings, and other essential financial services to those who are generally excluded from traditional banking channels because of their low, irregular and unpredictable income. Companies engaged in microfinance aim to expand and improve income generation activities and capacities of low-income customers. As a result of easy access to microfinance and the financial support, many entrepreneurs at the grassroots have given wings to their aspirations.

As a result of this situation, the company’s microfinance portfolio declined during the year. Undeterred by the high pressure environment in the sector, which caused many microfinance operators to exit the market, CLC instead developed three new products which were customiSed to suit the evolving market conditions.

Going ahead, the Company expects 100% portfolio growth once all the products are launched in the next financial year. Simultaneously, approximately 40 Divibala


LankaPay Technnovation Awards 2018


technical assistance programmes were conducted for customers covering most of the branches to strengthen their confidence and knowhow. The Divibala programmes impart technical knowledge to micro clients in different fields to start their own business. The objective of the programme was to allocate part of company profits for assisting CLC micro clients to develop their own business, to improve their ongoing business and thereby, to develop their income and living standards. All programmes included theory and practical sessions. As at 31st March 2019, 35 Divibala programmes were conducted island wide and over 1,350 clients benefited. Programmes such as sewing of school uniforms, bags, pillow covers and bed sheets, kid’s cloths, saree jackets etc. and production of mushroom, bites and mixture, mosquito repellents, incense sticks, slippers and shoes were covered. CLC engages with customers and local communities with such knowledge enhancement initiatives to improve their competitiveness and boost the entrepreneurial spirit at the grassroots.

CLIENT PROTECTION PRINCIPLES (CPP)

CLC is working towards acquiring CPP certification and has implemented a range of client protection practices for the benefits of clients. Further, the Company has established a proper complaint mechanism where clients have the opportunity to share their grievances/make complaints directly

to the Head office. All staff were educated and trained to implement best practices for protecting clients and all these steps are initiated from the point of induction.

CLC has entrenched its credentials as a dependable and secure finance company in the microfinance sector and believes its strong track record and goodwill generated thus far will serve to attract customers as the economic challenges in the industry ease with time.

ISLAMIC FINANCE

CLC-Islamic Finance, the Islamic financing arm of the Company, managed to conclude the financial year with decent performance amidst the challenging macro economic and social environment. CLC commenced Islamic Businesses in 2015 launching the Islamic Business Division under the brand name ‘CLC-Islamic Finance’ under the approval of a three-member advisory panel to promote non-interest alternate financial solution to a target customer segment.

The Islamic Business Division (IBD) of CLC recorded a balance sheet growth of 9.87% for the period under review. Revenue grew by 65% in the first six months, during which time the IBD brought the portfolio up from Rs. 3.6 Bn in the preceding year to Rs.4.2Bn till September 2018, Overall income as at end of the financial year grew to Rs. 945 Mn as compared to Rs. 647 Mn in the previous year. Portfolio grew to Rs. 3,9Bn from Rs. 3,6Bn in the previous year. grew from Rs. 1.1Bn to Rs. 1.9Bn, reflecting a 70% rise in deposits. Meanwhile, Profit before tax rose to Rs. 400 Mn in 2018/19 from Rs. 385 Mn in 2017/18, reflecting a decent growth compared to the last financial year.

The performance by the IBD was reflected by receiving three Gold awards at the prestigious Islamic Finance Forum for South Asia (IFFSA) Awards 2018. IBD received the

above accolade for the Best Islamic Finance Entity, Best Islamic Finance Window/Unit and the Best Islamic Leasing Company. IFFSA is a platform for all South Asian Islamic banking, finance, insurance and other industry practitioners, which makes the award a highly prestigious one.

During the year under review, the IBD sustained its regional awareness programmes for existing and new stakeholders conducting 15 programmes successfully around the island and embarked on raising awareness of the Islamic Finance concept and extended its mission to schools by concluding four school awareness programmes educating children on this globally accepted concept and its’ features. Further IBD also delivered necessary product knowledge for selected branches during its branch training program.

CLC-Islamic finance is among the top five players offering Islamic finance in the country and offers a fully-fledged product range to serve all customer requirements. Islamic Finance is offered from more than 40 CLC branches island-wide by 30+ dedicated Islamic finance marketers and regular marketing staff. Having positive thoughts for the coming financial year, IBD plans to develop its balance sheet, maintain the profit growth which it has sustained for the last four years and touch the untapped potential

IFFSA Awards 2018

Divibala technical assistance programme Polonnaruwa



in the market by expanding business to Muslim populated areas.

RECOVERIES

As a result of the operating conditions detailed above, the Recoveries unit of the Company was in high gear through the year under review. The rising NPLs demanded prudent management of collections to minimise any negative impact. However, the Recoveries team along with support from the Marketing team effected strong recoveries in the market. Although the Company’s NPLs rose, compared to industry levels they remained at a more reasonable level.

Besides the focus on recoveries in the field, the unit also sustained training programmes for staff. During the year, the Recoveries team drilled down to each product and framed its recovery strategy accordingly to bring about better results. The customer selection process was further strengthened while the legal capability in the company too was reinforced. Furthermore, commercial vehicles were sold for higher value to record better prices for end consumers. The Recoveries division now has dedicated teams across 10 regions focused purely on recoveries through daily monitoring.

Notwithstanding the challenges faced by the Recoveries team during the period under consideration, the right leadership, sustained focus on the task at hand and a dedicated team successfully delivered its objectives.

The centralised call centre operated smoothly through the year under review to aid recoveries. It plays a critical role in payment collections and lease renewals, making daily calls to customers to ensure a personalised customer service. Their dedication and determination to achieve targets is motivational for the rest of the Company.

LEASING

Restrictions on vehicle imports imposed by the Central Bank of Sri Lanka during the year under review coupled with duty increases and the high LTV ratio served to slow down the leasing sector as a whole. As a result, the company too eased out on leasing operations. Encouraged by the expanding customer base and interest in its portfolio of leasing products, the Company is in the process of developing a digital platform for customers to be able to buy and to sell vehicles online with ease. This platform will further enhance the Company’s vehicle supplier engagement.

Meanwhile, the leasing arm persisted with car sales events in Kandy, Peliyagoda and Nawala, running campaigns on weekends to attract both buyers and sellers of vehicles. The Company facilitated sellers to park their cars at the three venues for free until such time the vehicles are sold. These car sales offer prospective buyers and sellers an opportunity to access unregistered cars without requiring travel to main city centres to visit large car dealers.

Potential customers in these areas were delighted to be able to visit and examine the cars for themselves. This initiative encouraged our staff to be trained in better sales and marketing techniques to enhance their experience and exposure. The car sales at the three locations also provided a one-stop-shop with valuation, leasing and insurance facilities for greater customer convenience.

During the year under review, the Company strengthened its relationships with leasing partners and customers, ensuring service levels remained high despite the challenging environment for the business.

FACTORING

The Factoring arm took a very cautious stance towards securing new business due to the prevailed unfavourable market conditions during the year under review. Greater emphasis was placed to secure the existing portfolio and to mitigate possible risks. Amidst the challenges, the CLC Gross Factoring portfolio was consciously dropped further from Rs. 4 Bn to Rs. 2.6 Bn by year-end.

Despite the operational constraints, the Factoring arm managed to attract incremental new business as a result of many factoring operators exiting the sector due to the industry conditions. CLC Factors has been swiftly moving in to capture these customers who are looking for a factoring

IFFSA Awards 2018


operation that will partner them for the long haul. Even though conditions during the year under review were not conducive to the Factoring business, it has the potential to be a highly-ucrative business channel as witnessed in the past and the company is waiting patiently for the business activities to return to healthy levels to proactively canvas for business. In fact, as the economy revives and businesses commence normal operations, entrepreneurs will have greater need for factoring services – a fact that the Company is cognisant of and fully prepared to address.

CUSTOMER SERVICE

In today’s fast-paced world, companies need to use an array of customer engagement strategies and tactics to engage customers. The Company’s service offering is one of the main contributors to the Company’s success, enabling it to emerge among the top five NBFIs in the country, inspiring us to pursue service excellence. The staff is well trained on addressing customer inquiries and fulfilling their needs. The customer service team is responsible for managing lease contract settlements and loans, which is a specific function at the end of the contract. The customer service assistants from branches and the head office are also responsible for canvassing customers for lending products.

The Customer Service team assisted the Deposits team run fixed deposit campaigns. Account management activities are also handled by the Customer service team. Currently, the fixed deposit base canvassed by the department stands at Rs. 1.6 Bn as at year-end, which is a strong performance as compared to previous year. The savings product range was further augmented with a mobile app for customer convenience to transact on the go and real time money transfers for savings and fixed deposits. Continuous training keeps our staff at the cutting edge of service standards by

undergoing both internal and external training programmes. A knowledge sharing portal was launched during the year under review for staff to discuss, share and debate issues.

Factors such as frequent fluctuations in interest rates are an obstacle to attracting depositors, however, CLC continues to garner new business by offering superior customer service by leveraging on the latest technology.

MARKETING COMMUNICATIONS

CLC’s integrated MarCom strategies are deployed across various channels whilst strengthening community involvement, strategic partnerships and developing innovative promotions and advertising campaign for a strong brand identity. The MarCom unit supports all departments in the company to achieve the brand management strategy by ensuring precise, engaging, ethical and transparent communication with target segments.

Over the years, the MarCom team has evolved to keep pace with new distribution channels such as online, digital and mobile communications apart from traditional channels to connect with potential and existing customers.

During the year under review, focus was sustained on building credibility for CLC as a fully-fledged finance company offering the entire gamut of products and services supported by a strong technology platform. The company’s holistic, consistent and integrated approach to branding, and focus on excellent and personalised customer service, strengthens it brand identity and recognition in the industry. The Company mainly focused on strengthening the CLC corporate brand, the positive outcome of which was apparent in notable recognition bestowed on the company. CLC was ranked 47th in the Top 100 Brands Annual with

brand rating of’ ‘A’. The LMD 100 issue in December 2018 ranked CLC as No. 58th.

Moreover, a major campaign was launched to mobilise deposits and savings during the year under review. The campaign portrayed the best of both worlds – security and returns – that customers enjoy when depositing with CLC and received an overwhelming response from customers. A host of advertising and marketing initiatives were launched through the year to remain closely engaged with customers. The CLC Online App is available in all three languages of English, Sinhala and Tamil for greater customer convenience.

As for the future of MarCom, digital is the way to go, considering that Sri Lanka has 7.8 million internet users. Improving the digital component of the company will be a key focus in the next financial year.

Furthermore, all communications emanating from the Company are in line with responsible communication framework set out by the regulator in the customer charter. Apart from practising financial inclusion at the grassroots, the Company also reached out to communities through targeted engagement programmes which have a positive effect on communities. (Please refer to the Sustainability Report on Page no. 37 for more details.)

ADMINISTRATION

Overall, administration costs increased marginally during the period under review due to branch relocations and refurbishments. Branch refurbishments were carried out at Matara, Kaduwela, Kalutara, Serunuwara, Tissamaharama and Vavuniya, while the Matale branch was relocated. Two new fully-fledged branches were opened in Nikaweratiya and Horana. These branches have high visibility, ample car parking and offer a comprehensive range of products and services for customers under one roof.



In keeping with business continuity plan (BCP) requirements, a fire programme was conducted covering the entire CLC footprint islandwide, ensuring staff preparedness in the eventuality of a fire. In order to enhance the CLC experience for customers, service and security staff was trained in soft skills and in interactions with customers.

During the year under review, Vehicle Sales Centres were opened in Peliyagoda and Kandy in partnership with Asset Backed Finance for customers to visit and virtually observe the vehicles by bringing them systematically to the point of purchase. Moreover, Galle, Kelaniya and Kalutara branches were the first to offer the new Gold Loan product and to aid this, new security infrastructure was put in place to offer privacy to Gold Loan customers.

The company is in the process of implementing the 5S programme at the Head Office which will be launched in the next financial year. CLC entered into a tie-up with Abans for waste paper recycling at the Head Office as a pilot project and this continued through the year under review. Abans provides purpose-built waste paper boxes which are regularly cleared for recycling is sent there to be recycled. In time to come, this initiative will be rolled out at the branch level as well.

Progressing on its sustainability drive, energy savings initiatives are undertaken and e-bills adopted to reduce paper usage. The Administration team ensures a total of 160 kg recycled paper is achieved monthly. Moreover, outbound staff training was conducted for key staff.

The Administration department is responsible for organising the annual pirith chanting, which was held successfully during the year.

Another innovation that delivered a tremendous saving was the introduction of special data packages for employees which has brought down internet costs for the Company and the employees.

FUTURE OUTLOOK

This Annual Report has detailed the high pressure external environment in which the Company had to operate in the 2018/19 financial year. Nevertheless, the Company increased turnover successfully. More importantly, all internal processes were improved to deliver greater customer convenience, speed and flexibility. The service standards of the Company were further elevated to ensure CLC retains its reputation for industry-best customer care.

An uncertain economic and political climate weakened the overall performance of the Financial Services sector in 2018/19. The Central Bank of Sri Lanka has strengthened the NBFI industry during the year under review. However, certain regulations are hindering the industry from reaching its full potential. Although the Company is fully geared to seize emerging growth opportunities, it remains hopeful that economic conditions will improve in the coming months and political stability will be restored so that the Financial Services industry might achieve its former strong footing once again.


Nelliady

Jaffna

Kilinochchi

Mannar Parakramapura

Thambuththegama

Trincomalee

Serunuwara

Batticaloa

Kalmunai

Ampara

Monaragala

BadullaNuwara Eliya

Welimada

RatnapuraMaharagama

Kalutara

NugegodaBambalapitiya

Pettah

KiribathgodaBorella

BattaramullaKaduwela

Avissawella

Kalawana

Tissamaharama

Embilipitiya

Udugama

AmbalangodaPitigala

Baduraliya

GalleMatara Tangalle

Anuradhapura

Nochchiyagama

DambullaPolonnaruwa

Bakamuna

Puttalam

ChilawKurunegala

Nikaweratiya

Matale

Mahiyanganaya

KandyWarakapola

Gampaha

Kuliyapitiya

Negombo

Wennappuwa

Medawachchiya

Vavuniya

CLC Branches

DehiwalaPiliyandala

Grandpass

MinuwangodaKegalle

Gampola

Nawala

Branch Network

Horana

Wattala


PROFIT BEFORE TAX

Rs. 2 Bn

TIER 1 CAPITAL RATIO

20.51%

TOTAL CAPITAL RATIO

19.52%

CUSTOMER DEPOSITS

Rs. 24.3 Bn

SHAREHOLDER'S FUNDS

Rs.17.4 Bn

NET LENDING PORTFOLIO

Rs. 53.4 Bn

TOTAL ASSETS

Rs. 70.8 Bn

Financial Review

OVERVIEW

The Company has achieved a pre-tax profit of Rs.2.04Bn in the FY 2018/19, a 30% drop from Rs.2.90Bn reported in the FY 2017/18. The dip was largely due to the higher impairment provisions owing to increase non-performing loans and direct taxes including the Debt Repayment Levy (DRL) and a decline in the lending portfolio. As a result, post-tax profit reduced by 44% to Rs. 1.19Bn from Rs.2.14Bn. However, the operating profit before impairment charges and direct taxes for the period reported a marginal improvement by 6% from Rs.4.41 Bn to Rs.4.67Bn.

The Company’s interest in LOLC Development Finance PLC (formerly known as BRAC Lanka Finance PLC) remains at 44.33% subsequent to the rights issue in the FY 2017/18. This investment classified under Equity Accounted Investee, contributed a loss of Rs.68Mn compared to a profit of Rs.142 Mn recorded in the previous year. 40% owned Commercial Insurance Brokers Ltd contributed Rs.13.1Mn to the share of profit of equity accounted investees totaling up to a loss Rs.54.9Mn for FY 2018/19.

Regulatory minimum 6%

Regulatory minimum 10%


INTEREST INCOME

Interest income, the primary income of the Company improved marginally by 6% from Rs. 13.34Bn to Rs. 14.12Bn despite the gradual decline in the loan book from Rs.59.78Bn to Rs.53.49 Bn by 31 March 19.The Company has followed a more cautious approach in expanding its lending portfolio in view of the challenging economic conditions.

Interest income Rs. Mn

FY 2018/2019

FY 2017/2018

Variance %

Leasing & hire purchase 3,270 2,874 14%

Loans & advances 8,915 8,222 8%

Factoring 701 1,296 (46%)

Overdue interest 991 791 25%

Rentals & sales proceeds - contracts written off 249 165 51%

Total interest income 14,126 13,348 6%

A slight growth in interest income from leasing & hire purchase, loans and advances by 14% and 8% respectively, was witnessed compared to the last financial year. The Factoring income dipped significantly from Rs.1.296Mn to Rs.701Mn, by 46% with the decline in the portfolio.

INTEREST EXPENSE

Interest expense of the Company, accounted for 47.41% and 42.18% of the interest income and total income (including other income) respectively. Interest expense decreased by 4% from Rs. 6.99Bn to Rs. 6.69Bn with the borrowing base decreasing from Rs.30.44Bn to Rs.26.46Bn.

Net Interest Income

Rs. Mn FY 2018/2019

FY 2017/2018

Variance %

Interest income 14,126 13,348 6%

Interest expense (6,697) (6,995) (4%)

Net interest income 7,429 6,353 17%

The Company has been able to maintain a healthy growth in the net interest income(NII), a 17% increase over the previous year with the increase in the portfolio yield including fee income and a reduction in interest expense. The Company generated NII of Rs.7.42Bn

compared to Rs.6.35Bn recorded last year. The opening net portfolio of Rs.59.78Bn as at 31.03.2018 decreased gradually and settled at Rs. 53.49Bn as at 31.03.2019.

OTHER INCOME INCLUDING NET INCOME (EXPENSE) FROM OTHER FINANCIAL INSTUMENTS AT FVTPL

Profit before tax of the Company includes other income which comprises of fee income, interest on government securities, debentures, capital gains and losses arising from marked to market valuation of quoted shares, unit trusts held for trading purposes and change in fair value of investment properties.

Fee income relating to the lending portfolio decreased by 12% from Rs.913Mn to Rs.808Mn with the decline in the lending portfolio and the reduction in business expansion in leases, loans and microfinance loans.Total other income reduced by 29% to Rs. 1.75Bn from Rs. 2.47Bn, due to the decrease in investment income with the decline in interest rates together with an one-off surplus of Rs.243Mn recorded on deemed disposal of LOLC Development Finance PLC in last year.

“ The Company has been able to maintain a healthy growth in the net interest income(NII), a 17% increase over the previous year with the increase in the portfolio yield including fee income and a reduction in interest expense.

“ NET INTEREST INCOME

20

14/1

5

20

15/1

6

20

16/1

7

20

17/1

8

20

18/1

9

(Rs. Mn)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000


Financial Review

Other Income Including Net income (expense) from other Financial Instruments at FVTPL Rs. Mn

FY 2018/2019

FY 2017/2018

Variance %

Fee income 808 913 (12%)

Other income 942 1,564 (40%)

Total other income 1,750 2,477 (29%)

OPERATIONAL EFFICIENCY

Expenses Rs. Mn

FY 2018/2019

FY 2017/2018

Variance %

Direct expenses 410 585 (30%)

Premises, equipment & establishment expenses 417 398 5%

Personnel costs 1,515 1,387 9%

Allowance for impairment & write offs 1,885 1,056 79%

Depreciation and amortization 130 113 15%

Other operating expenses 2,032 1,927 5%

VAT on financial services 693 611 13%

Total operating expenses 7,082 6,077 17%

Operating expenses of the Company increased by Rs. 1Bn to Rs. 7.08Bn mainly due to the increases in impairment charges and personnel cost. Personnel costs grew by 9% to Rs. 1.51Bn from Rs. 1.38Bn with the salary increments and ex-gratia payments granted to employees based on performance. Capital expenditure incurred for the year was Rs.106Mn, with the opening of two new branches in Horana, Nikaweratiya and a few refurbishments and relocation of branches. The increase in depreciation is minimal.

Direct taxes including VAT on financial services, crop insurance levy and debt repayment levy (DRL)increased by 13% with the introduction of DRL from 01st October 2018 which cost Rs.131Mn additionally to the Company. Amidst the above operational expenses, the cost to income ratio remained at 57% for the period under review.

ASSET QUALITY-QUALITY OF LOAN PORTFOLIO

The allowance for impairment on leases, loans and factoring receivables, increased by 79% to Rs.1.88Bn from Rs.1.05Bn reported in the previous year with the increase non-performing loans and early recognition of impairment provisions as required by the expected credit loss method under IFRS9.

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Direct expensesPremises,equipment& establishment expPersonal expensesAllowance of impairement & write o�sDepreciation and amortisationOther operating expensesValue added tax on fin.services and NBT

COMPOSITION OF OPERATING EXPENSES(Rs. Mn)

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

NON PERFORMING PORTFOLIO TO PERFORMING PORTFOLIO

2015

Non Performing Portfolio

Performing Portfolio

2016 2017 2018 2019

(Rs. Mn)

0

10,000

20,000

30,000

40,000

50,000

60,000

500

1,000

1,500

2,000

2,500

3,000

COST TO INCOME RATIO

40

50

60

2015 2016 2017 2018 2019

(%)OPERATING EXPENSES INCLUDING ALLOWANCE FOR IMPAIRMENT

4,000

5,000

6,000

7,000

8,000

(Rs. Mn)

20

14/1

5

20

15/1

6

20

16/1

7

20

17/1

8

20

18/1

9


Composition of Assets and Liabilities

As at 31-03-2019

Share As at 31-03-2018

Share Change

Item Rs.Mn % Rs.Mn % %

Assets

Loans & Advances-net 53,492.95 75% 59,777.23 81% (11%)

Investments 9,824.13 14% 6,659.21 9% 48%)

Investments in associate and subsidiary company

1,440.87 2% 1,506.85 2% (4%)

Investment Properties, Intangible Assets and Property plant & euipment

3,307.02 5% 2,863.49 4% 15%

Other assets 2,791.39 4% 2,701.67 4% 3%

70,856.35 73,508.45 (4%)

Liabilities

Cusomer deposits 24,316.11 34% 23,485.11 32% 4%

Borrowings 26,464.23 37% 30,444.86 41% (13%)

Equity 17,458.53 25% 16,506.02 22% 6%

Total Funds 68,238.87 96% 70,435.99 96% (3%)

Other 2,617.48 4% 3,072.45 4% (15%)

Total Liabilities and Equity 70,856.35 100% 73,508.45 100% (4%)

As at 31st March 2019 2018

Gross Non-Performing Accommodations Rs.Mn 2,730 1,592

Gross Non-Performing Accommodations Ratio % 4.9 2.62

Net Non-Performing Accommodation Ratio % 0.99 1.00

PROVISION COVER

40

60

80

100

120

2015 2016 2017 2018 2019

(%)

COMPOSITION OF TOTAL ASSSETS(Rs. Mn)

0

20,000

40,000

60,000

80,000

100,000

Loans & Advances-netInvestments Investments in associate and subsidiary companyInvestment Properties,Intangible Assets and Property plant & euipmentOther assets

2015 2016 2017 2018 2019

The slowdown in economic growth, collection difficulties experienced by many industries as well as the impact from the extreme weather conditions experienced in previous years have resulted in higher non-performing loans(NPL) in the Company.

The gross non-performing accommodations in absolute terms increased by Rs.1.13Bn compared to the previous year. Accordingly, the Gross Non-performing loan ratio increased from 2.62% to 4.90%. NPL includes facilities backed by property mortgages amounting to Rs. 1.09Bn. The NPL ratio has however been managed at a level below the industry average of 7.80% as at 31st March 2019.

TAX EXPENSE

The current year’s profit after tax reached Rs.1.19Bn after providing Rs.656.1Mn for income taxes and Rs.187.2Mn as deferred tax. The Company’s tax expense increased by 11%, from Rs.760.7Mn to Rs.843.3Mn.

ASSET GROWTHThe asset base mainly consists of the lending portfolio, which is 75% of the company’s assets compared to 81% the previous year.

The Company’s lending portfolio decreased by 11% from Rs.59.77Bn to Rs.53.49Bn recording a negative rupee growth of Rs.6.28Bn. The Company has not recorded a growth in the portfolio of leases, loans and advances due to the consolidation approach implemented to improve the quality of the loan book.

The investment portfolio comprising of investments in equities, corporate debt instruments, government securities and investment in LOLC Myanmar Microfinance Company Ltd, enhanced to 14% from 9% of the asset portfolio, reported a positive growth of 48% with the investment of Rs. 2.5Bn in unit trusts as well as in government securities. Accordingly, the total asset base of the Company has decreased by 4% compared to 31st March 2018 mainly due to drop in the lending portfolio.

Net assets value per share of the Company improved to Rs. Rs.2.74, up from Rs. 2.59 as at 31.03.2018. Profitability in terms of Return on Assets (before tax) and Return on Equity (after tax) were recorded at 2.83% and 7.05% respectively compared to 3.84% and 13.98% last year.


Regulatory Capital Adequacy


Core Capital (Tier 1 Capital) Rs. Mn 15,425 15,317

Total Capital Base Rs. Mn 14,679 14,050

Core Capital Adequacy Ratio,as % of Risk Weighted Assets (Minimum Requirement, 6%)

20.51% 23.69%

Total Capital Adequacy Ratio,as % of Risk Weighted Assets (Minimum Requirement, 10%)

19.52% 21.74%

Capital Funds to Deposit Liabilities Ratio (Minimum Requirement,10%)

63.44% 65.22%

The Company remains well capitalised with a strong core capital adequacy ratio of 20.51% and a total capital adequacy ratio of 19.52%, calculated under the revised direction issued by the Central Bank of Sri Lanka. This is well above the stipulated regulatory minimum of 6% and 10% each.

Regulatory Liquidity-In Rs.Mn 31.03.2019 31.03.2018

Required minimum amount of Liquid assets 3,071 3,259

Available amount of Liquid Assets 8,715 6,484

Required minimum amount of Government Securites 3,962 5,094

Available amount of Government Securities 6,165 5,487

The available liquid assets of the Company exceed the required minimum amount.

The earnings per share deteriorated to Rs. 0.19 from Rs. 0.34. over the previous year

The market capitalization of the Company exceeded Rs.16Bn as at 31st March 2019 with a closing share price of Rs.2.60(As at 31.03.2018 - Rs.2.70), which resulted in a Price Earning(PE) ratio of 14 (times) compared to 8(times) in year 2018.

ICRA Lanka Ltd. reviewed company’s rating and reaffirmed the rating at [SL] A with a stable outlook.

Financial Review

CUSTOMER DEPOSITS

Customer deposits reached Rs.24.31Bn with a moderated 4% growth from Rs.23.48Bn despite intense competition seen throughout the year. Customer deposits accounted for 48% of the funding mix compared to 43% in the previous year.

BANK BORROWINGS AND FOREIGN FUNDING

The funding base of the company further decreased from Rs.30.44Bn to Rs.26.46Bn due to certain capital repayments of foreign borrowing and settlement of short-term loans. The Company obtained few securitisation facilities during the year. Foreign borrowings accounted for 31% of the total borrowing including customer deposits. Exchange rate risk was managed by converting foreign currency fixed deposits backed loans into foreign currency swaps.

FUNDING MIX

Foreign funding Securitisation & othersOther long term fundingShort term fundingCustomer depositsDebenture

10%

As at 31.3.2018

As at 31.3.2019

36%

1%3%36%

17%

7%

40%31%

2%8%

48%

10%

1%

1%

6%

43%

9%

(%)

SHAREHOLDER FUNDS, CAPITAL ADEQUACY AND LIQUIDITY

The shareholder funds of the Company reached Rs.17.46Bn from Rs.16.50Bn with the earnings from its operations and increase in reserves. As permitted by the transitional provision of SLFRS 9, the impact of adopting SLFRS 9 was considered as an adjustment to equity as at 01st April 2018, without restating the comparative information and the impact on transition to SLFRS9 on retained earnings as at 01st April 2018 was Rs.461Mn.

The Company’s rich repository of capital continues to strengthen the Company’s growth prospects.

RISK WEIGHTED ASSETS TO TOTAL ASSETS

2015

Risk weighted assets

Total assets

2016 2017 2018 2019

(Rs. Mn)

0

20,000

40,000

60,000

80,000

100,000


Sustainability Report

At Commercial Leasing & Finance (CLC), we believe our strong relationships with our stakeholders and our standing in the Financial Services industry grant us immense leverage for change. With each passing year, we have ensured that our inclusive approach to sustainable business does not leave anyone behind and that human rights of all people in local communities are respected. Our triple bottomline approach to People, Planet and Profits guides our business impact and has earned the Company respect and industry leadership. While the Financial Review section of this report details the Company’s financial performance during the year, this Sustainability Report will elaborate on our approach to our People and our Planet.

OUR PEOPLE

Our EthosIn order for CLC to succeed, each and every employee in the Company needs to thrive in the workplace. This realisation has inspired the Company to optimise individual performance of each employee and thus optimize the performance of our Company as a whole. Establishing clear KPIs and creating a great organisation with efficient systems and processes are important elements of optimising performance at CLC.

A culture of trust and respect pervades the organisation, while a spirit of innovation and dynamism makes CLC one of the most preferred employers in the country.

Achieving the Company’s vision drives our performance, but within this framework, the Company is responsive to evolving trends when it comes to recruitment and retention of talent. In order to achieve this, CLC provides a motivating and inclusive workplace where talent is given due recognition. A culture of open and honest feedback promotes understanding and ensures human resources are always growing and learning. CLC’s stellar growth

has been the result of an excellent team of professionals working together to achieve the Company’s corporate objectives.

Recruitment & RetentionThe 2018/19 financial year was marked by extensive training and development of staff to keep their morale high amidst a stressful operating climate due to macroeconomic and industry factors. In keeping with demographic changes and the rising influence of technology, CLC conducts recruitment across various channels in its search for the best industry talent. The various channels span advertising jobs across media, leveraging on employment and recruitment agencies, participating in career fairs (both local and Government institutes), social media and other network platforms and walk-in interviews. Apart from looking for specific skills in keeping with the job description, the Company recruits based on the right mindset which determines how well the recruited candidates will fit into CLC’s work culture. The Company is an equal opportunity employer irrespective of gender, race and religion, and promotes a zero tolerance policy against discrimination of potential or existing employees on any grounds whatsoever.

The Company attaches special importance to recognising the talents of its employees and to develop them further. In order to

CLC Green, Island wide Schools Tree Planting Progrmme

CLC HR Day at the Chilaw Branch


ensure talent retention, the Company offers new and exciting areas of responsibility, career paths, and skills development opportunities. The result is a talent and knowledge-based culture, which ensures employees have the right technical and leadership skills and knowledge about industry developments to take informed decisions for the benefit of the Company.

CLC provides a strong leadership structure that enables managers to support and encourage their employees. Managers are responsible for leading their employees to success, and for supporting them in their professional development, supported by the guidance and tools they need to succeed.

Training and DevelopmentCLC has established a learning and development culture aligned with its values and strategy, thus transforming employees into high performers. By placing people in the precise roles to suit their skills, the Company further invests a lot in training and career management to continually optimise their career growth through knowledge sharing and technical training sessions.

At CLC, a budgetary allocation is slated for training and development programmes to keep the staff updated with the latest regulatory changes, technical expertise, product knowledge, and soft skills to ensure staff remain at the cutting edge of service standards. Training programmes are conducted both in-house and with the help of external resources depending on the nature of the training. These programmes encompass formal training, on-the-job experience and coaching and mentoring. Overseas training is extended to Management staff as foreign exposure offers them an insight into global industry trends.

Total Training Hours - 2018/2019: 27,954 hrs

Types of Training : Soft-skills, knowledge sharing, public

programs, oversees trainings on leadership training and risk management

Total staff Nos. that underwent trainining: 1,295 employees

Employees undergo other essential soft skills programmes such as leadership development to develop their emotional intelligence and to develop critical skills for success. The Company identifies high-performing employees, matches their skills to its business needs and helps them achieve their development goals. Training needs are analysed across the business annually, to identify priorities and to ensure that learning plans support business strategy. Developing the skills of employees with strong leadership potential is a key focus to strengthen our succession planning.

During the 2018/19 financial year, training sessions were held to impart further knowledge about microfinance products for the field force. Moreover, adventurous Outbound Training Programmes were held for both field based and back-office staff so that they too could experience and learn in a new setting. Another unique Outbound Training Programme was organised for all the staff from the northern region.

Moreover, the Company is actively striving to adhere to the Central Bank’s Customer Protection Principles and anti money laundering awareness sessions by putting in place the necessary processes and trainings. During the period under consideration, anti-money laundering training was imparted region-wise and branch-wise as per the requirement of the regulator. Half the number of branches was covered during the year and the other half will be completed early in the next financial year. Overall, the year was focused on meeting regulatory requirements and ensuring staff remained motivated in the face of volatile industry conditions.

Promoting ExcellenceA comprehensive employee appraisal process helps to closely track career progression and an employee feedback channel provides further feedback on the employee satisfaction levels. Employees who have made exceptional contributions receive promotions and are awarded on a Company-wide platform at the annual Employee Long Service and Excellence Awards, which is a key event in the Company’s calendar. CLC offers competitive and fair remuneration and benefits to attract and retain the best people.


CLC Annual Awards Ceremony 2018


Employee FeedbackAn employee feedback mechanism encourages staff to express themselves freely to better engagement. Our open door culture encourages employees to interact with Senior Management for advice or to air grievances. HR Day is organised at Branch locations and conduct individual interviews with each staff member. At this interview, every employee is given a chance to express their ideas to the HR representative openly. Information gathered is collated by the respective HR representative and a report submitted to the Management for consideration.

The Group’s Grievance Redress Procedure has created a solid and trustworthy platform for employees to raise any grievance that affects effective discharge of their duties/employment. Employees have been assured of the confidentiality of the issues raised.

The Whistle Blowing Policy that is applicable to the entire Group is another important policy made available for our employees. The policy encourages all employees to inform the Enterprise Risk Management Unit of any activity or possible activity that might be detrimental to the best interest of the Group, including but not limited to financial irregularities or fraud, corruption or

mismanagement, non-conformity with legal provisions, rules and regulation, company policies, etc. The said policy has paved way to strengthen the Corporate Governance culture across the Group. The Enterprise Risk Management Department has been empowered to take timely and necessary actions to address any sort of undesirable situations.

Employee EngagementCLC’s top Management reflect its high retention rates and this wealth of experience and wisdom is key to creating an open and empowering culture for the rest of the staff. The close-knit CLC employee base thrives in an environment of open communication and frequent interaction with management. Branch visits by the Senior Management team, the heads of departments and the shared services team infuse a sense of belonging and pride. Regular meetings are held amongst regional managers, branch managers, middle and top Management to discuss issues and strategize. At every meeting, the management is committed to addressing any grievances or outstanding performance by staff. In addition, regional managers make it a point to visit the branches at least once a week, which gives them an opportunity to meet the branch staff to discuss any concerns. The meeting

also enables the regional manager to share any vital Company information with the branch.

Maintaining optimal work-life balance, it is mandatory for all staff members to take annual leave during the year. The Company also offers medical benefits for employee and his/her family. A Club Membership reimbursement facility is provided to employees, thereby, encouraging them to take some time off their work and engage in recreational and social activities. CLC promotes sports activities such as cricket, badminton, netball, bowling, and athletics for all employees and proactively takes part in many tournaments.

Further, CLC employees can avail of Group synergies, such as discounted rates from the LOLC Group’s leisure properties, to spend quality time with their families. CLC have created a culture where ample opportunities are available for staff to develop their knowledge and skills. CLC also provides higher education expenses upon completing their relevant study course.

There is a higher education policy in place, which provides staff the opportunity to claim educational expenses, after completing their Master’s Degree. Employees have made use of this opportunity to gain the necessary qualifications.

Furthermore, case studies and other similar tasks have exposed employees to various complex scenarios, which improve their skills in decision making.

Employee Recreation and Well-being Activities

Annual Pirith chanting ceremony at the CLC Head Office

Kapruk puja, Katinapinkam and Dansala events were also held

Ifthar event held to promote multi cultural diversity

Pirith Ceremony at the CLC Head Office


A Christmas party is held every year as a social event for staff and their families

Staff awards ceremony for long service and performance awards for all staff. In 2018/19, the awards ceremony was held at Stein Studios with 1,300 employees and with the participation of all 65 branches.

Avurudu celebrations were held during the year under review at the Kurunegala Welagedara grounds for all 1,300 employees, where traditional Avurudu games and Kumaraya and Kumariya activities were held. All employees participated enthusiastically.

A Softball Cricket Carnival was held at Mahaweli grounds in Digama with 600 plus microfinance employees. Each team has to have a female employee to ensure inclusiveness. The fun day ended with a gala musical show.

30th anniversary celebrations were conducted at the regional level with traditional sweetmeats with the main celebration from the Head-Office being relayed to all branches in real-time.

OUR ENVIRONMENT

CLC’s desire to be a respected environmental steward in the local community has led it to conceptualise a unique environmentally-friendly project.

Today, deforestation is considered as one of the most serious environmental issues in the country and the concerns keep growing. From 1990 to 2005, it was revealed that Sri Lanka’s deforestation rate of primary forests was one of the highest in the world. In 2010, Sri Lanka had 2,900 kha of tree cover, extending over 43.5% of its land area. In 2016, it lost 17 kha of forest, equivalent to 1.1 Mt of CO₂ of emissions. Clearing of tree cover has significant damaging effects on the water flow of small streams. Exposed soils dry out quicker, the water table drops and wells become less productive. The impact of rapid deforestation is now being felt throughout the island and the following could be cited as direct consequences of deforestation.

• Affects the rainwater cycle

• Desertification and salinisation due to water scarcity

• Soil instability leading to landslides and erosion

• Rise of local temperature levels resulting in global warming

• Loss of valuable species of flora and fauna

Having recognised the severity of the deforestation issue at national level, CLC decided to embark on an islandwide tree planting mission by making use of its branch network and customer base to promote forest resources.

CLC Green Island wide Schools Tree Planting InitiativeCLC conceptualised an island-wide tree planting initiative to contribute to the forest cover of Sri Lanka through its extensive branch network, covering nearly 200 locations. Recognising the timely need for corporates to start giving back to


the environment around us, CLC’s timely initiative was launched under the title ‘CLC Green – To earn sustainable profit’. As a member of the LOLC Group, CLC Green’s initiative is in accordance with the wide-reaching sustainability campaign headed by LOLC’s own Sustainability Committee.

The initiative commenced with the planting of over 100 trees at Royal College, Polonnaruwa. The Project Committee planted 820 fruit trees covering 82 schools island-wide during the initial year 2018/19. The trees ranged from selected mango varieties (Willard, Kartha Kolomban, Vella Kolomban, Dampara, Alphonso and Tom EJC), with saplings sourced from the Agricultural Department’s regional nurseries. CLC is working with other partners in project.

Schools were identified within a radius of five Kilometers to the branches of CLC by the Branch Managers and the staff and given the sole responsibility for appropriately maintaining and caring for the plants with the help of respective schools. With the participation of staff members of CLC, 100 schools were selected from all districts covering the entire Island. CLC’s 65 branches cover 10 regions across Sri Lanka and each branch was given the task of selecting a minimum of two schools within a radius of five Km.

The branch works closely with the administrators of the schools who together select suitable tree varieties and planting locations. They are expected to arrange an orientation session with the schools in order to give the school authorities and the students a sense of ownership and responsibility for the project.

Once planted, the respective branch staff is expected to visit the schools on a monthly

CLC Green Island wide Schools Tree planting projects launch at Pitigala


basis to monitor the growth of the plants for at least, a period of six months initially. The progress of the project will be monitored through a project coordination committee and the updates will be made available in the Company’s website.

The overall goal is to create a greener Sri Lanka whilst making Sri Lankans live healthier. Furthermore, with the launch of this project, it is expected to inculcate the habit of tree planting amongst the youth with a view to contribute towards reducing the global warming and also to gain other environmental benefits. As a whole, this sustainable initiative will be in line with LOLC’s triple bottom line approach; the people, the planet and profit. CLC’s mission is to commit towards a sustainable future by meeting the needs of the present without compromising the needs of the future generations to meet their own.

With the aim of conserving Sri Lanka’s biodiversity and enhancing the natural eco-system, this new initiative will also go some way in raising the living standards of the island’s inhabitants across the country.

In fact, CLC Green will go beyond just reforestation, as it also aims to teach the next generation the importance of the environment around us.

Each school under the program will also be allocated fencing and fertiliser, to ensure that the protection and growth of each sapling is guaranteed. The second phase of the project will involve the recognition of those who have contributed positively to the growth of their trees, as well as recognising good maintenance habits in collaboration with the school, and their appointed monitors.

Tree Planting Progrmme in Kandy


Commercial Leasing & Finance PLC (CLC) continued to maintain high standards of corporate governance and ethical business conduct across all aspects of its operations and decision-making processes during the year under review.

STRUCTUREThe governance structure of CLC ensures alignment of its business strategy and direction through effective engagement and communication with its stakeholders, Board of Directors, Board Sub-Committees and Management.

The Corporate Governance philosophy of CLC is within a framework of compliance and conformance, which has been established at all levels through a strong set of corporate values and a written Code of Conduct. All employees are required to embrace this philosophy in the performance of their official duties and in other situations that could affect the Company’s image.

INSTRUMENTS OF GOVERNANCEThe Corporate Governance framework of CLC encompassing external and internal instruments of governance, enables the Board to provide assurance to investors that they have discharged their duties responsibly. The Board of Directors of CLC and staff at all levels consider it their duty and responsibility to act in the best interests of the Company. It is this strong set of values that has facilitated the trust that our stakeholders have continued to place on the core values underlying our corporate activities.

The external instruments of governance at CLC include the Companies Act No. 7 of 2007, the Finance Business Act No. 42 of 2011, the Finance Leasing Act No. 56 of 2000, the Foreign Exchange Act No. 12 of 2017, the Payment and Settlement Systems Act No. 28 of 2005, the Securities and Exchange Commission of Sri Lanka Act No. 36 of 1987, and any amendments thereto, including rules and directions issued to finance companies from time-to-time by the Monetary Board of the Central Bank of Sri Lanka and the Listing Rules of the Colombo Stock Exchange. The

Report on Corporate Governanceinternal instruments of governance include the Articles of Association, the Role of the Board, Board Approved Policies, Procedures, and Processes for internal controls and anti- money laundering.

Policies and procedures have been established taking into consideration governance principles that define the structure and responsibility of the Board to ensure legal and regulatory compliance, to protect stakeholder interests, to manage risk and enhance the integrity of financial reporting. A whistle-blowing policy has been introduced and the number of the related ‘hotline’ has been shared with all employees. This was done to enhance accountability, so that deliberate deviations from controls and/or processes and procedures could be highlighted by any employee and thus addressed promptly.

BOARD OF DIRECTORSThe Board is responsible for the stewardship of the Company and the Directors ensure good governance at Board level and below on the basis of sound principles that provide the framework of how the business is conducted.

The members of the Board consist of persons with multiple industrial/professional backgrounds in which they have achieved eminence, who contribute effectively to decisions made by the Board to guide CLC towards achieving its objectives. In accordance with best practices, the offices of Chairman and Chief Executive Officer are separate, and the Chairman is an Independent Non-Executive Director. This ensures a balance of power and enhances accountability.

The appointment of Directors is subject to Central Bank approval with subsequent approval taken from the shareholders (for re-election) at an Annual General Meeting (AGM). At these meetings, an opportunity is given to all shareholders (public and nonpublic) to approve or to reject such appointments. Resolutions on new appointments/re-appointment are

communicated to the shareholders through the “Notice of the Annual General Meeting”, with due prior notice.

MONITORING AND EVALUATION BY THE BOARDCLC has in place a number of mandatory and voluntary Board Sub-Committees to fulfil regulatory requirements and for better governance of its activities. These committees meet periodically to deliberate on matters falling within their respective charters/ terms of reference and their recommendations are duly communicated to the main Board. The main Board held 12 scheduled monthly meetings during the year.

AUDIT COMMITTEEThe Audit Committee was established for the purpose of assisting the Board in fulfilling their responsibilities relating to financial governance. The Committee held five meetings during the year.

INTEGRATED RISK MANAGEMENT COMMITTEEThe Integrated Risk Management Committee was established to assist the Board in performing its oversight function in relation to different types of risk faced by the Company in its business operations and ensures adequacy and effectiveness of the risk management framework of the Company. The Committee held four meetings during the year.

REMUNERATION COMMITTEEThe Remuneration Committee was established to assist the Board in evaluating and recommending remuneration for Board Members including the Chief Executive Officer. The Committee held one meeting during the year.

RELATED PARTY TRANSACTION REVIEW COMMITTEEOn behalf of the Board, the Committee ensures that all related party transactions of the Company are consistent with the Code of Best Practice on Related Party Transactions issued by the SEC. The Committee held four meetings during the year.


NOMINATION COMMITTEEThe Nomination Committee was established to assist the Board in assessing the skills required and recommending Director Nominees for election to the Board and to nominate members to its Sub-Committees to effectively discharge their duties and responsibilities. The Committee held one meeting during the year.

Moreover, the following mechanisms in place enables the Board to oversee the accomplishment of the targets in the business plan: review the performance of CLC at monthly Board meetings; seeking recommendations through Board appointed Sub-Committees on governance, including compliance with internal controls, human resources, risk management, credit and IT; review of statutory and other compliances through a monthly paper on compliance submitted to the Board covering the operations of CLC. The Company has also established two management level committees: the Credit Committee and the Asset & Liability Committee, to manage matters relating to credit and liquidity.

SKILLS AND PERFORMANCE OF THE BOARDThe updating of the skills and knowledge of all Directors is achieved by updates on proposed/new regulations, industry best practices, market trends and changes in the macro environment. It is also facilitated by providing them access to external and internal auditors, access to other external professional advisory services and the Company Secretaries, keeping them fully briefed on important developments in the business activities of the Company and by periodic reports on performance, and opportunities to meet Senior Management.

As required by the Finance Companies Corporate Governance Direction, CLC has established a well-defined self evaluation mechanism undertaken by each Director annually to evaluate performance of the Board. These evaluations are subsequently tabled at a Board meeting for review and to address areas that require improvement. Related records are maintained by the

Company Secretaries. In addition to the overall self evaluation by the Board Members, an additional evaluation is carried out by the members of the Audit Committee as a tool to evaluate its performance.

AVOIDING CONFLICTS OF INTERESTThe governance structure at CLC ensures that the Directors take all necessary steps to avoid conflicts of interest in their activities with, and commitments to other organisations or related parties. If a Director has a conflict of interest in a matter to be considered by the Board, such matters are disclosed and discussed at Board Meetings, where Independent Directors who have no material interest in the transaction are present.

ENGAGEMENT WITH SHAREHOLDERSThe shareholders of CLC have multiple ways of engaging with the Board: the Annual General Meetings which are the main forum at which the Board maintains effective communication with its shareholders on matters which are relevant and of concern to the general membership such as the performance and their return on investment of CLC; access to the Board and the Company Secretaries; written correspondence from the Company Secretaries to inform shareholders of relevant matters; the website of CLC which is accessible by all stakeholders and the general public; and disclosures disseminated through the Colombo Stock Exchange including interim reporting.

ENGAGEMENT WITH EMPLOYEESCLC recognises that employee involvement is a critical pre-requisite towards ensuring the effectiveness of the Corporate Governance system and therefore attaches great importance to employee communications and employee awareness of key events and significant developments.

The necessity of sincere and regular communication in gaining employee commitment to organisational goals and values are stressed extensively and intensively through various communiques issued periodically by the Directors’ Office. CLC follows an open-door policy for its

employees at all levels. Regular dialogue is also maintained on work related issues as well as on matters pertaining to general interest that affect employees and their families.

In terms of engaging with the employees, the key channels used by the Board include the Executive Director/CEO who is an employee director and the main link between the Board and the rest of the employees; and the Board Members and Board Sub-Committees who conduct effective dialogue with the members of the Management on matters of strategic direction.

EXTERNAL AUDITM/s KPMG, Chartered Accountants were re-appointed as External Auditors of the Company by the shareholders at the Annual General Meeting held in September 2018. Their services were also engaged to seek:

a) an assessment of the Company’s compliance with the requirements of the Finance Companies Corporate Governance Direction No. 3 of 2008 issued by the Monetary Board and

b) the Company’s level of adherence to the internal controls on financial reporting.

The External Auditors’ certification on the effectiveness of the Internal Control Mechanisms in respect of the audited financial statements released has been published in this Annual Report in compliance with the requirements of the aforesaid Direction. Furthermore, based on a report issued by the External Auditors on Factual Findings on the Level of Compliance of the Corporate Governance Direction, the Board has determined that CLC has in fact adhered to its requirements.

The Directors confirm that no significant deviations have been observed by the External Auditors and that the Company has not engaged in any activity that contravenes any applicable law or regulation. To the best of the knowledge of the Directors the Company has been in compliance with all prudential requirements, regulations and laws.

The following chart gives more details on the Company’s compliance:


Direction No.

Reference to the Finance Companies Corporate Governance Direction No. 3 of 2008

CLC’s Level of Compliance

2 THE RESPONSIBILITIES OF THE BOARD OF DIRECTORS

2.1 The Board of Directors shall strengthen the safety and soundness of the finance company by:

a. Approving and overseeing the finance company’s strategic objectives and corporate values and ensuring that such objectives and values are communicated throughout the finance company;

Complied withStrategic objectives, corporate values, overall business strategy and policies of the Company set by the Board are regularly overseen by the Board and are communicated to all levels of the Company.

The Company has developed a policy on Code of Conduct and Ethics for all employees, in line with strategic objectives & corporate values of the company.

b. approving the overall business strategy of the finance company, including the overall risk policy and risk management procedures and mechanisms with measurable goals, for at least immediate next three years;

Complied withA financial forecast for the period 2018/19 to 2020/21 has been approved by the Board.

All identified risks have been taken into account when preparing this forecast.

Further, a Risk Management Policy has been approved by the Board which includes risk management procedures and mechanisms.

c. identifying risks and ensuring implementation of appropriate systems to manage the risks prudently;

Complied withThe Board has delegated this function to its Sub-Committee, the Integrated Risk Management Committee (IRMC).

Approved minutes of the quarterly meetings of IRMC are tabled at Board Meetings for review and guidance.

Risk Management Reports on liquidity and maturity of deposits are submitted to the Board on a monthly basis.

d. approving a policy of communication with all stakeholders, including depositors, creditors, shareholders and borrowers;

Complied withThe Board is responsible for ensuring effective communication with all stakeholders including depositors, creditors, shareholders and borrowers. A Board approved stakeholder communication policy is in place and reviewed, as and when required.

The Annual General Meeting is used to have an effective dialogue with the shareholders on matters which are relevant and of concern to the general membership.

e. reviewing the adequacy and the integrity of the finance company’s internal control systems and management information systems;

Complied withThe Board is of the view that the system of internal controls and management information systems in place are sound and adequate to provide reasonable assurance regarding the reliability of management information and financial reporting.

Report on Corporate Governance


Direction No.



e. The key processes that have been established by the Board to review the adequacy and integrity of the Company’s Internal Controls and Management Information Systems, include the following:

1. The Board Audit Committee and the Board Integrated Risk Management Committee ensures that the Company’s controls and risks are being appropriately managed and actions proposed for mitigation of risks.

These two Committees facilitate an ongoing process for identifying, evaluating and managing significant risks faced by the Company, including enhancing the system to cater to changes in the business and regulatory environment.

2. The CEO through the Heads of Departments ensures that approved business strategies are implemented and that agreed policies and procedures on risk/internal control are implemented and adhered to.

The Heads of Departments are therefore accountable and responsible for their respective areas of operation, including the accuracy of information presented to the Management/ Board, and managing risk in their day-to-day activities through established processes and controls. In addition, the Internal Audit ensures that staff adheres to such processes and controls.

Where there is a breach of authority, such issues are escalated to the Board through the Board Audit Committee.

3. The Internal Audit performs a comprehensive exercise that entails reviewing of all aspects of MIS including operational and regulatory risks. Product-wise MIS reviews have been periodically carried out by the Internal Audit.

The Internal Audit also provides an independent assurance that the Company’s risk management, governance and internal control processes are operating effectively and fit for purpose.

f. identifying and designating key management personnel, who are in a position to:

(i) influence policy;(ii) direct activities; and(iii) exercise control over business activities,

operations and risk management

Complied withBoard Members including the CEO and Heads of Core Functions have been identified and designated as Key Management Personnel (KMP) by the Board as defined in the Sri Lanka Accounting Standards.

Their appointments have been approved by the Central Bank of Sri Lanka.


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g. defining the areas of authority and key responsibilities for the Board and for the key management personnel;

Complied withArticles 76-78 of the Company’s Articles of Association define the powers and duties of the Board of Directors.

Further, the responsibilities of the Board have been defined and approved.

The areas of authority and responsibilities of the Key Management Personnel defined in individual job descriptions have been approved by the Board.

h. ensuring that there is appropriate oversight of the affairs of the finance company by key management personnel, that is consistent with the finance company’s policy;

Complied withThe Company has a policy on oversight of the affairs of the Company by KMPs including a process to review the delegation process approved by the Board.

Delegated authority given to KMPs is reviewed periodically by the Board to ensure that they remain relevant to the needs of the Company.

i. periodically assessing the effectiveness of its governance practices, including:

(i) the selection, nomination and election of Directors and appointment of key management personnel;

(ii) the management of conflicts of interests; and

(iii) the determination of weaknesses and implementation of changes where necessary;

Complied withA Board approved procedure is in place for the appointment of Directors. Election of Directors is effected in accordance with the requirements of the directions issued by the Central Bank of Sri Lanka and the Companies Act No. 7 of 2007.

Directors are selected and nominated to the Board for skills and experience in order to bring about an objective judgment on issues of strategy, performance and resources. Effectiveness of this process is ascertained by their contribution at Board meetings in their respective fields.

A Nomination Committee has been appointed to assist the Board in identifying qualified individuals as potential Directors.

KMPs are selected and recruited in terms of the HR Policy of the Company. KMPs directly report to the CEO and performance appraisals are completed at least twice a year.

Conflicts of interest are managed on a monthly basis where Directors disclose their directorships in other companies. KMPs declare any interest annually. Weaknesses are identified from the above processes and changes may be implemented where necessary.

Annual self-evaluations of Directors were tabled subsequent to the financial year end, to determine any weaknesses of the above process and to implement changes where necessary.

j. ensuring that the finance company has an appropriate succession plan for key management personnel;

Complied withA Board approved succession plan is available. This will be reviewed to take into account any changes in the organisation structure, when necessary.



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k. meeting regularly with the key management personnel to review policies, establish lines of communication and monitor progress towards corporate objectives;

Complied withKey Management Personnel are called in by the members of the Board during Board and Board Committee Meetings when the need arises to explain matters relating to their area of functions.

l. understanding the regulatory environment; Complied withAs a practice, the Company Secretary includes an agenda item in monthly Board Meetings tabling correspondence with regulators which enable the Directors to understand the regulatory environment, concerns and changes and make appropriate decisions.

A monthly compliance report is also submitted to the Board. This report includes details of weekly, monthly, and annual returns duly submitted to the CBSL and the requirements of all the directions issued by the Monetary Board, and the Company’s current position with regard to each direction.

A monthly confirmation is provided by the Head of Finance of statutory payments made such as VAT, VAT on financial services, WHT on FDs and savings interest, EPF, ETF, PAYE Stamp duty and Economic Service Charge.

m. Exercising due diligence in the hiring and oversight of external auditors.

Complied withThe Board Audit Committee is responsible for hiring and overseeing the External Auditors.

Section 122 of the Company’s Articles of Association lays down a process for appointing of External Auditors at the AGM.

The Audit Committee has recommended that the auditors be re- appointed for 2018/19.

The Audit Committee is governed by a Board approved Audit Charter/ TOR. This is periodically reviewed by the Board to ensure that it remains relevant.

The last review was carried out in March 2019.

2.2 The Board shall appoint the chairman and the chief executive officer and define and approve the functions and responsibilities of the chairman and the chief executive officer in line with paragraph 7 of this Direction.

Complied withThe Chairman and CEO have been duly appointed and their functions and responsibilities have been defined and approved by the Board.

2.3 There shall be a procedure determined by the Board to enable directors, upon reasonable request, to seek independent professional advice in appropriate circumstances, at the finance company’s expense. The Board shall resolve to provide separate independent professional advice to Directors to assist the relevant Director(s) to discharge the duties to the finance company.

Complied withA Board-approved detailed procedure has been established to obtain independent professional advice when necessary.


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2.4 A Director shall abstain from voting on any Board resolution in relation to a matter in which he or any of his relatives or a concern in which he has substantial interest, is interested, and he shall not be counted in the quorum for the relevant agenda item at the Board meeting.

Complied withArticle 79 of the Company’s Articles of Association requires an interested Director to disclose his/her interest at Board Meetings.

Article 83 requires such a Director to abstain from voting on any Board resolution. He/she will not to be counted in the quorum.

In addition, a Board approved procedure is established to manage conflicts of interest of the Board Members.

2.5 The Board shall have a formal schedule of matters specifically reserved to it for decision to ensure that the direction and control of the finance company is firmly under its authority.

Complied withThe Board has put in place systems and controls to facilitate the effective discharge of Board functions. Pre-set agenda of meetings ensure the direction and control of the Company is firmly under Board control and authority.

The agenda of the monthly Board Meetings includes reports on performance and on compliance with relevant regulations. This enables the Board to ensure that the company performs at an optimal level, while being fully compliant.

2.6 The Board shall, if it considers that the finance company is, or is likely to be, unable to meet its obligations or is about to become insolvent or is about to suspend payments due to depositors and other creditors, forthwith, inform the Director of the Department of Supervision of Non-Bank Financial Institutions of the situation of the finance company prior to taking any decision or action.

This situation has not arisen during the year.The Board has implemented a procedure to alert them of any such event - in that, the Compliance Officer reports in the monthly compliance statement that the Company could remain as a going concern.

2.7 The Board shall include in the finance company’s Annual Report, an annual corporate governance report setting out the compliance with this Direction.

Complied withThis report serves the said requirement

2.8 The Board shall adopt a scheme of self-assessment to be undertaken by each Director annually, and maintain records of such assessments.

Complied withThe Directors carry out a self-evaluation annually. Self-evaluations for the year 2018/19 have been obtained and were submitted to the Board for their review. Areas that require improvement have been noted and necessary action taken. Related records are in the custody of the Company Secretaries.

3 MEETINGS OF THE BOARD

3.1 The Board shall meet at least twelve times a financial year at approximately monthly intervals. Obtaining the Board’s consent through the circulation of written or electronic resolutions/papers shall be avoided as far as possible.

Complied withThe Board met 12 times during the year. Please see page 69 for further details.

Approvals obtained through the circulation of resolutions (25) were subsequently tabled at the following Board Meeting.



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3.2 The Board shall ensure that arrangements are in place to enable all Directors to include matters and proposals in the agenda for regular Board meetings where such matters and proposals relate to the promotion of business and the management of risks of the finance company.

Complied withA Board approved Policy on Board’s relationship with the Company Secretary is in place to enable all Directors to include matters and proposals in the agenda for regular Board Meetings.

3.3 A notice of at least 7 days shall be given of a regular Board meeting to provide all Directors an opportunity to attend. For all other Board meetings, a reasonable notice shall be given.

Complied withA schedule of all meetings for the coming year is circulated to all Directors at the end of December or beginning of January. At the beginning of each month, a reminder of all meetings during that month is also sent out. In addition, notices are sent out 7 days prior to the meeting. All these enable any Director to seek to include matters in the Agenda.

3.4 A Director who has not attended at least two-thirds of the meetings in the period of 12 months immediately preceding or has not attended the immediately preceding three consecutive meetings held, shall cease to be a Director. Provided that participation at the Directors’ meetings through an Alternate Director shall, however, be acceptable as attendance.

Complied withAll the members have attended two-thirds or more of the meetings during the year. Please see page 69 for further details.

3.5 The Board shall appoint a Company Secretary whose primary responsibilities shall be to handle the secretarial services to the Board and shareholder meetings and to carry out other functions specified in the statutes and other regulations.

Complied withL O L C Corporate Services (Pvt) Ltd has been appointed as Company Secretaries to the Company.

3.6 If the chairman has delegated to the Company Secretary the function of preparing the agenda for a Board meeting, the Company Secretary shall be responsible for carrying out such function.

Complied withThe Board approved Policy on Board’s relationship with the Company Secretary provides powers to the Chairman to delegate authority to the Company Secretary for preparation of agenda for Board Meetings.

3.7 All Directors shall have access to advice and services of the Company Secretary with a view to ensuring that Board procedures and all applicable laws, directions, rules and regulations are followed.

Complied withThe Board approved Policy on Board relationship with the Company Secretary provides that all Directors shall have access to the advice/ services of the Company Secretary.

3.8 The Company Secretary shall maintain the minutes of Board meetings and such minutes shall be open for inspection at any reasonable time, on reasonable notice by any Director

Complied withThe Company Secretary maintains the minutes of the Board Meetings and Directors have full access to inspect the Minutes of the Board Meetings at any reasonable time, at short notice.


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3.9 Minutes of Board meetings shall be recorded in sufficient detail so that it is possible to gather from the minutes, as to whether the Board acted with due care and prudence in performing its duties. The minutes of a Board meeting shall clearly contain or refer to the following:

(a) a summary of data and information used by the Board in its deliberations;

(b) the matters considered by the Board;

(c) the fact-finding discussions and the issues of contention or dissent which may illustrate whether the Board was carrying out its duties with due care and prudence;

(d) the explanations and confirmations of relevant executives which indicate compliance with the Board’s strategies and policies and adherence to relevant laws and regulations;

(e) the Board’s knowledge and understanding of the risks to which the finance company is exposed and an overview of the risk management measures adopted; and

(f) The decisions and Board resolutions.

Complied withDetailed minutes are kept covering the given criteria.

4 COMPOSITION OF THE BOARD

4.1 The number of Directors on the Board shall not be less than 5 and not more than 13.

Complied withThe Board comprised five directors as at 31st March 2019.

4.2 The total period of service of a director other than a Director who holds the position of Chief Executive Officer or Executive Director shall not exceed nine years. The total period in office of a Non-Executive Director shall be inclusive of the total period of service served by such Director up to the date of this Direction.

Complied withNone of the Non Executive Directors have completed 9 years of Service during the financial year under review.

4.3 An employee of a finance company may be appointed, elected or nominated as a Director of the finance company (hereinafter referred to as an “Executive Director”) provided that the number of Executive Directors shall not exceed one-half of the number of Directors of the Board. In such an event, one of the Executive Directors shall be the Chief Executive Officer of the Company.

Complied withThere is one Executive Director (the CEO) and four Non-Executive Directors on the Board.



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4.4 The number of independent Non-Executive Directors of the Board shall be at least one fourth of the total numbers of Directors. . A Non-Executive Director shall not be considered independent if such Director:

a) has shares exceeding 2% of the paid up capital of the finance company or 10% of the paid up capital of another finance company;

b) has or had during the period of two years immediately preceding his appointment as Director, any business transactions with the finance company as described in paragraph 9 hereof, aggregate value outstanding of which at any particular time exceeds 10% of the capital funds of the finance company as shown in its last audited balance sheet;

c) has been employed by the finance company during the two year period immediately preceding the appointment as Director;

d) Has a relative, who is a Director or Chief Executive Officer or a key management personnel or holds shares exceeding 10% of the paid up capital of the finance company or exceeding 12.5% of the paid up capital of another finance company.

e) represents a shareholder, debtor, or such other similar stakeholder of the finance company;

f) is an employee or a Director or has a shareholding of 10% or more of the paid up capital in a company or business organisation:

(i) which has a transaction with the finance company as defined in paragraph 9, aggregate value outstanding of which at any particular time exceeds 10% of the capital funds as shown in its last audited balance sheet of the finance company; or

(ii) in which any of the other Directors of the finance company is employed or is a Director or holds shares exceeding 10% of the capital funds as shown in its last audited balance sheet of the finance company; or

(iii) in which any of the other Directors of the finance company has a transaction as defined in paragraph 9, aggregate value outstanding of which at any particular time exceeds 10% of the capital funds, as shown in its last audited balance sheet of the finance company.

Complied withThere are four Independent Non-Executive Directors on the Board as at 31st March 2019 exceeding one fourth of the total number of directors on the Board:

• Mr. P D J Fernando,

• Mr. L Jayaratne

• Mr. U H E Silva

• Mr. T Sanakan

Based on the approval granted by the Central Bank of Sri Lanka and a review of the annual declarations provided by the these directors, the Board has determined that they are independent as per criteria set in sections (a) to (f) of 4.4 in the Corporate Governance Direction and the Rules of the Colombo Stock Exchange.


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4.5 In the event an Alternate Director is appointed to represent an independent Non-Executive Director, the person so appointed shall also meet the criteria that apply to the independent Non-Executive Director.

During the reporting period no such requirement has arisen. Will comply in the event an alternate director is appointed for an independent director

4.6 Non-Executive Directors shall have necessary skills and experience to bring an objective judgment to bear on issues of strategy, performance and resources.

Complied withDirectors profiles are provided on pages 14 to 15.

4.7 A meeting of the Board shall not be duly constituted, although the number of Directors required to constitute the quorum at such meeting is present, unless at least one half of the number of Directors that constitute the quorum at such meeting are Non-Executive Directors.

Complied withThe Company’s Articles of Association (Article 98) provide that a quorum for a meeting is a majority provided that half of such quorum is made up Non-Executive.

The quorum had been maintained at all Board Meetings held during the financial year 2018/19.

Details of attendance at meetings are provided on page 69.

4.8 The independent Non-Executive Directors shall be expressly identified as such in all corporate communications that disclose the names of Directors of the finance company. The finance company shall disclose 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 in the annual corporate governance report which shall be an integral part of its Annual Report.

Complied withThe current directorate is as given below :

Mr. P D J Fernando, Independent Non-Executive Chairman

Mr. L Jayaratne, Independent Non-Executive Director

Mr. U H E Silva, Independent Non-Executive Director

Mr. T Sanakan, Independent Non-Executive Director

Mr. D M D K Thilakaratne, Executive Director/CEOThe Directors profiles are given on pages 14 to 15.

4.9 There shall be a formal, considered and transparent procedure for the appointment of new Directors to the Board. There shall also be procedures in place for the orderly succession of appointments to the Board.

Complied withA Board-approved procedure is in place for the Board Members to select and appoint new Directors to the Board. The Company’s Articles 70-74 address the general procedure for appointment and removal of Directors to the Board.

The Board has also formed a Nomination Committee to assist in assessing the skills required and recommending nominees for election to the Board and to nominate members to its Sub-Committees to effectively discharge their duties and responsibilities.

Furthermore, the Company adheres to the Finance Companies (Fitness and Propriety of Directors and Officers performing Executive Functions) Direction No. 3 of 2011 when appointing new Directors.

4.10 All Directors appointed to fill a casual vacancy shall be subject to election by shareholders at the first general meeting after their appointment.

Complied withArticle 70 of the Company’s Articles of Association provides that Directors appointed shall be subject to election by shareholders at the first AGM.

Mr. T Sanakan who was appointed on 23rd May 2018 was re-elected by the shareholders at the AGM held on 28th September 2018.



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4.11 If a Director resigns or is removed from office, the Board shall announce to the shareholders and notify the Director of the Department of Supervision of Non-Bank Financial Institutions of the Central Bank of Sri Lanka, regarding the resignation of the Director or removal and the reasons for such resignation or removal, including but not limited to information relating to the relevant Director’s disagreement with the Board, if any.

Complied withDirectors’ resignation and the reason for such resignation are duly informed to the Central Bank of Sri Lanka (CBSL) and Colombo Stock Exchange (CSE).

The Board announces such situations to the shareholders through its Annual Report.

Changes to the directorate during the year (appointment of Mr. T Sanakan) were approved by the Central Bank of Sri Lanka.

5 CRITERIA TO ASSESS THE FITNESS AND PROPRIETY OF DIRECTORS

5.1 Subject to the transitional provisions contained herein, a person over the age of 70 years shall not serve as a Director of a finance company

Complied withThe Board of Directors have been assessed as fit and proper in terms of the Finance Companies (Assessment of Fitness and Propriety of Directors and Officers Performing Executive Functions) Direction No.3 of 2011.

The age of the current Directors is within the period permitted under this direction.

5.2 A director of a finance company shall not hold office as a director or any other equivalent position in more than 20 companies/societies/bodies corporate, including associate companies and subsidiaries of the finance company.

Complied withNo Director holds directorships of more than 20 companies/ entities/ institutions inclusive of subsidiaries or associate companies.

6 DELEGATION OF FUNCTIONS

6.1 The Board shall not delegate any matters to a Board committee, Chief Executive Officer, Executive Directors or key management personnel, to an extent that such delegation would significantly hinder or reduce the ability of the Board as a whole to discharge its functions.

Complied withThe Board has established a procedure under which powers have been delegated to the Director/CEO as sanctioned by the Company’s Articles of Association.

Article 77 of the Company’s Articles of Association empowers the Board to delegate its powers to a Committee of Directors or to a Director or employee upon such terms and conditions and with such restrictions as the Board may think fit.

6.2 The Board shall review the delegation processes in place on a periodic basis to ensure that they remain relevant to the needs of the finance company.

Complied withThe delegated powers are reviewed periodically by the Board and a process to review the delegation process has been approved by the Board.

7 THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER

7.1 The roles of Chairman and Chief Executive Officer shall be separated and shall not be performed by the one and the same person.

Complied withThe roles of Chairman and CEO are separate and held by two individuals appointed by the Board.


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7.2 The Chairman shall be a Non-Executive Director. In the case where the Chairman is not an Independent Non-Executive Director, the Board shall designate an Independent Non-Executive Director as the Senior Director with suitably documented terms of reference to ensure a greater independent element. The designation of the Senior Director shall be disclosed in the finance company’s Annual Report.

Complied withThe Chairman is an Independent Non-Executive Director.

7.3 The Board shall disclose in its Corporate Governance Report, which shall be an integral part of its Annual Report, the name of the Chairman and the Chief Executive Officer and the nature of any relationship [including financial, business, family or other material/ relevant relationship(s)], if any, between the chairman and the Chief Executive Officer and the relationships among members of the Board.

Complied withThe Company as a practice discloses relationships in the Annual Corporate Governance Report.

There is no financial, business, family or other relationship between the Chairman and the CEO.

There is no financial, business, family or other material relationship between any other members of the Board.

A process has been developed for Directors to disclose any relationships between the Chairman and the CEO and or between any other Board Members.

7.4 The Chairman shall:(a) provide leadership to the Board;(b) ensure that the Board works effectively and

discharges its responsibilities; and(c) Ensure that all key issues are discussed by the Board

in a timely manner.

Complied withThe Chairman is responsible to lead, direct and manage the Board to ensure that it operates effectively and fully discharges its legal & regulatory requirements.

7.5 The Chairman shall be primarily responsible for the preparation of the agenda for each Board meeting. The Chairman may delegate the function of preparing the agenda to the Company Secretary.

Complied withThe Chairman has delegated this function to the Company Secretary. This has been included in the ‘Policy on Board’s relationship with the Company Secretary’ approved by the Board.

7.6 The Chairman shall ensure that all Directors are informed adequately and in a timely manner of the issues arising at each Board meeting.

Complied withThe Chairman ensures that all Directors are properly briefed on issues arising at Board Meetings by submission of the agenda and board papers with sufficient time prior to meetings.

Further, minutes of previous month’s Board Meeting are distributed to the Board Members and tabled at the next Board Meeting for review and approval.

7.7 The Chairman shall encourage each Director to make a full and active contribution to the Board’s affairs and take the lead to ensure that the Board acts in the best interests of the finance company.

Complied with

7.8 The Chairman shall facilitate the effective contribution of Non-Executive Directors in particular and ensure constructive relationships between Executive and Non- Executive Directors.

Complied withThe Company’s self-evaluation process assesses the contribution of Non-Executive Directors.



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7.9 Subject to the transitional provisions contained herein, the Chairman, shall not engage in activities involving direct supervision of key management personnel or any other executive duties whatsoever.

Complied with

7.10 The Chairman shall ensure that appropriate steps are taken to maintain effective communication with shareholders and that the views of shareholders are communicated to the Board.

Complied withA Board approved communication policy covers this aspect.

The Annual General Meeting of the Company is the main forum at which the Board maintains effective communication with shareholders.

Periodic announcements made to the Colombo Stock Exchange also contributes towards this purpose.

7.11 The Chief Executive Officer shall function as the apex executive-in-charge of the day-to-day-management of the finance company’s operations and business.

Complied withThe Chief Executive Officer functions as the apex executive in charge of the day-to-day management of the Company’s operations and business.

8 BOARD APPOINTED COMMITTEES

8.1 Every finance company shall have at least the two Board committees set out in paragraphs 8(2) and 8(3) hereof. Each committee shall report directly to the Board. Each committee shall appoint a secretary to arrange its meetings, maintain minutes, records and carry out such other secretarial functions under the supervision of the chairman of the committee. The Board shall present a report on the performance, duties and functions of each committee, at the annual general meeting of the Company.

Complied withThe Company has established the following committees:• Board Audit Committee• Integrated Risk Management Committee• Remuneration Committee• Related Party Transaction Review Committee• Nomination Committee

Reports of these committees have been submitted to the main Board for their review.

Please refer the Reports on pages 77 to 81.

8.2 Audit Committee Please refer page 77 for the Committee Report

a. The chairman of the committee shall be a Non-Executive Director who possesses qualifications and experience in accountancy and/or audit.

Complied withMr. P D J Fernando, Independent Non-Executive Director, has been appointed as the Chairman of the Audit Committee by the Board.

His qualifications are as follows:

• MSc in Statistics: University of Birmingham, England

• BSc (2nd Class Upper Div): University of Peradeniya, Sri Lanka

• Central Bank of Sri Lanka: Deputy Governor – 2010 to 2011

• Central Bank of Sri Lanka: Assistant Governor – 2004 to 2009

b. The Board members appointed to the committee shall be Non-Executive Directors.

Complied withThe remaining members of the Committee are:

• Mr. L Jayaratne, Independent Non-Executive Director

• Mr. U H E Silva, Independent Non-Executive Director

• Mr. T Sanakan, Independent Non-Executive Director (appointed to the Committee with effect from 28th May 2018)


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c. The committee shall make recommendations on matters in connection with:

(i) the appointment of the external auditor for audit services to be provided in compliance with the relevant statutes;

(ii) the implementation of the Central Bank guidelines issued to auditors from time to time;

(iii) the application of the relevant accounting standards; and

(iv) the service period, audit fee and any resignation or dismissal of the auditor, provided that the engagement of an 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 withA formal Agenda for Audit Committee meetings including items prescribed by the Direction is followed for the conduct of Audit Committee meetings.

The implementation of CBSL guidelines and relevant accounting standards; and the evaluation of the service period, fees and rotation of External Auditors are carried out by the Audit Committee in consultation with the Chief Financial Officer.

d. The committee shall review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit processes in accordance with applicable standards and best practices.

Complied withThe external Auditors are independent as they are not engaged in providing any other service to the Company and report direct to the Audit Committee of the Board.

Further, the Auditor’s Engagement Letter submitted to the committee evidence the External Auditor’s independence, and that the audit is carried out in accordance with SLAuS.

e. The committee shall develop and implement a policy with the approval of the Board on the engagement of an external auditor to provide non-audit services that are permitted under the relevant statutes, regulations, requirements and guidelines. In doing so, the committee shall ensure that the provision by an external auditor of non-audit services does not impair the external auditor’s independence or objectivity. When assessing the external auditor’s independence or objectivity in relation to the provision of non-audit services, the committee shall consider:

(i) whether the skills and experience of the auditor make it a suitable provider of the non-audit services;

(ii) whether there are safeguards in place to ensure that there is no threat to the objectivity and/or independence in the conduct of the audit resulting from the provision of such services by the external auditor; and

Complied withThe Board has approved a specific procedure for engagement of the External Auditors for providing non-audit services.



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(iii) Whether the nature of the non-audit services, the related fee levels and the fee levels individually and in aggregate relative to the auditor, pose any threat to the objectivity and/or independence of the external auditor.

f. The committee shall, before the audit commences, discuss and finalise with the external auditors the nature and scope of the audit, including:

(i) an assessment of the finance company’s compliance with Directions issued under the Act and the Management’s internal controls over financial reporting;

(ii) the preparation of financial statements in accordance with relevant accounting principles and reporting obligations; and

(iii) The co-ordination between auditors where more than one auditor is involved.

Complied withThe Board Audit Committee, before the audit commenced, discuss and finalise with the external auditors the nature and scope of the audit.

g. The committee shall review the financial information of the finance company, in order to monitor the integrity of the Financial Statements of the finance company,

Its Annual Report, accounts and periodical reports prepared for disclosure, and the significant financial reporting judgments contained therein. In reviewing the finance company’s Annual Report and accounts and periodical reports before submission to the Board, the committee shall focus particularly on:

(i) major judgmental areas;

(ii) any changes in accounting policies and practices;

(iii) significant adjustments arising from the audit;

(iv) the going concern assumption; and

(v) The compliance with relevant accounting standards and other legal requirements.

Complied withThe Committee has a process to review financial information of the Company when the quarterly and annual audited Financial Statements and the reports including accounting policies and changes to policies, significant assumptions/ judgments prepared for disclosure are presented to the Committee.

h. The committee shall discuss issues, problems and reservations arising from the interim and final audits, and any matters the auditor may wish to discuss including those matters that may need to be discussed in the absence of key management personnel, if necessary.

Complied withOut of the five meetings held during the year, the Committee met the External Auditors at four meetings.

On two occasions, the Auditors met the Committee in the absence of the Executive Management.

i. The committee shall review the external auditor’s management letter and the Management’s response thereto.

Complied withThe management letter for 2017/18 has been reviewed by the Audit Committee.


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j. The committee shall take the following steps with regard to the internal audit function of the finance company:

(i) Review the adequacy of the scope, functions and resources of the internal audit department, and satisfy itself that the department has the necessary authority to carry out its work;

(ii) Review the internal audit program and results of the internal audit process and, where necessary, ensure that appropriate actions are taken on the recommendations of the internal audit department;

(iii) Review any appraisal or assessment of the performance of the head and senior staff members of the internal audit department;

(iv) Recommend any appointment or termination of the head, senior staff members and outsourced service providers to the internal audit function;

(v) Ensure that the committee is apprised of resignations of senior staff members of the internal audit department including the chief internal auditor and any outsourced service providers, and to provide an opportunity to the resigning senior staff members and outsourced service providers to submit reasons for resigning;

(vi) Ensure 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 with

The Committee has considered the scope of the internal audit function and noted the adequacy of resources and that necessary authority had been allocated to carry out its work.

The Audit Plan for 2018/19 was tabled by the Head of Internal Audit and discussed at a Committee meeting and results of the internal audit process has been reviewed and appropriate actions obtained where necessary.

An overall assessment of performance of the senior staff members and the Head of Internal Audit for the year 2018/19 has been carried out by the Committee.

No such situation has arisen during the year.

No such situation has arisen during the year.

The Committee is satisfied that the Internal Audit function is performed with independence, impartiality and proficiency.

The Internal Auditor reports direct to the Board Audit Committee.

k. The committee shall consider the major findings of internal investigations and management’s responses thereto;

Complied withEvery meeting the Committee consider the major findings of internal investigations and management responses if there’s any.

l. The Chief Finance Officer, the Chief Internal Auditor and a representative of the external auditors may normally attend meetings. Other Board members and the Chief Executive Officer may also attend meetings upon the invitation of the committee. However, at least once in six months, the committee shall meet with the external auditors without the Executive Directors being present.

Complied withThe Committee has had four meetings with the External Auditors during the year and on two such occasions, met the BAC without the presence of the Executive Directors and the management.



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m. The committee shall have:

(i) explicit authority to investigate into any matter within its terms of reference;

(ii) the resources which it needs to do so;

(iii) full access to information; and

(iv) authority to obtain external professional advice and to invite outsiders with relevant experience to attend, if necessary.

Complied withThe Board approved Terms of Reference of the Audit Committee ensures that it has the authority for points (i) to (iv) as required by the direction.

n. The committee shall meet regularly, with due notice of issues to be discussed and shall record its conclusions in discharging its duties and responsibilities.

Complied withDuring the year 2018/19, the Committee has held five meetings and conclusions of such meetings have been recorded by the Company Secretary in the minutes of the relevant meetings.

o. The Board shall, in the Annual Report, disclose in an informative way,

(i) details of the activities of the audit committee;

(ii) the number of audit committee meetings held in the year; and

(iii) details of attendance of each individual member at such meetings.

Complied withPlease refer Report on page 77.

p. The secretary to the committee (who may be the company secretary or the head of the internal audit function) shall record and keep detailed minutes of the committee meetings.

Complied withThe company secretary records and maintains detailed minutes of every committee meeting properly.

q. The committee shall review arrangements by which employees of the finance company may, in confidence, raise concerns about possible improprieties in financial reporting, internal control or other matters. Accordingly, the committee shall ensure that proper arrangements are in place for the fair and independent investigation of such matters and for appropriate follow-up action and to act as the key representative body for overseeing the finance company’s relations with the external auditor.

Complied withA whistle-blowing policy has been introduced and the number of the related “hot line” has been publicised to all Company employees. This was done to enhance accountability, so that deliberate deviations from controls and/or processes and procedures could be highlighted by any employee and thus addressed promptly.

The related policy is periodically reviewed and strengthened to cover the method of reporting any matters investigated to the Board Audit Committee.


Direction No.



8.3 Integrated Risk Management Committee Please refer page 78 for the Committee Report

a. The committee shall consist of at least one Non-Executive Director, CEO and key management personnel supervising broad risk categories, i.e., credit, market, liquidity, operational and strategic risks. The committee shall work with key management personnel closely and make decisions on behalf of the Board within the framework of the authority and responsibility assigned to the committee.

Complied withThe Integrated Risk Management Committee comprises:

Mr. L Jayaratne Committee Chairman/ Independent Non-Executive Director

Mr. P D J Fernando Independent Non-Executive DirectorMr. U H E Silva Independent Non-Executive DirectorMr. D M D K Thilakaratne Executive Director/CEOMrs. N Kariyawasam Head of Finance/ Compliance OfficerMrs. C Rodrigo Head of Enterprise Risk ManagementMr. N Weerapana Head of RecoveriesMr. U Samarasinghe Head of CreditMr. P Karandagolla Head of Channels Mr. O De Silva Head of TreasuryMr. T Indrapala Head of OperationsMr. T Kaushalya Head of Savings & FDs

b. The committee shall assess all risks, i.e., credit, market, liquidity, operational and strategic risks to the finance company on a monthly basis through appropriate risk indicators and management information. In the case of subsidiary companies and associate companies, risk management shall be done, both on the finance company basis and group basis.

Complied withAs delegated by the Committee, the Head of ERM assesses risks which have been identified by Heads of Divisions on a monthly basis and summarised and submitted to the quarterly Committee meetings.

ERM has set up number of risk indicators and stress testing under different risk categories as follows.

• Liquidity Risk• Operational Risk• Strategic Risk• Credit Risk• Business Risk• Profitability Risk

c. The committee shall review the adequacy and effectiveness of all management level committees such as the credit committee and the asset-liability committee to address specific risks and to manage those risks within quantitative and qualitative risk limits as specified by the committee

During the year, the Committee monitored the activities of the ALCO through direct reports and minutes of ALCO meetings which are tabled at the quarterly IRMC meetings.

Matters reported by the ALCO include:

• Funding Gap analysed through Maturity Gap Analysis• Foreign Currency Position• Inter-company Exposures• Cost of Funds• Investments• Borrowings



Direction No.



The lending rates are also periodically reviewed by the ALCO in line with regulatory requirements and market trends. Credit facilities are approved based on rates decided by the ALCO within the delegated authority limits.

Treasury dealer limits have already been established and approved by the Board. Furthermore a new treasury management system has been implemented which would cover limit for total Net Open Position (NOP) USD/LKR intraday and overnight limits; limits for Total Net Open Position of other currencies; Aggregate Gap Limits (AGL);

Loss limits for FX operations; Loss Limits on marked-to-market (MtM) and counter party limits.

During the Year the Committee also reviewed the activities of the Credit Committee against its TOR/ Policies and through periodic reports of facilities approved by it; and made recommendations to revise procedures and policy for better credit governance.

d. The committee shall take 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 finance company’s policies and regulatory and supervisory requirements.

Complied withDecisions taken at Committee Meetings are followed up by the ERM team. All reported risks are constantly monitored and remedial corrective action is taken if an adverse movement of the risk is evident.

This process was further strengthened by establishing key risk indicators and risk appetite limits for credit, market, liquidity and operations. These are presently monitored by ERM, and those which are not within the specific limits are reported to the Committee for necessary action.

e. The committee shall meet at least quarterly to assess all aspects of risk management including updated business continuity plans.

Complied withFour meetings were held during the financial year 2018/19.

f. The committee shall take appropriate actions against the officers responsible for failure to identify specific risks and take prompt corrective actions as recommended by the committee, and/or as directed by the Director of the Department of Supervision of Non-Bank Financial Institutions of the Central Bank of Sri Lanka.

Complied withSpecific risks and limits are identified by the IRMC and decisions are taken collectively.

Moreover, a formal documented disciplinary action procedure involving Internal Audit & HR is in place.

g. The committee shall submit a risk assessment report within a week of each meeting to the Board seeking the Board’s views, concurrence and/or specific directions

Complied withThe Head of ERM submits a summary report to the Members of the Board after the Committee meeting. This includes the risks discussed at the meeting, mitigation actions proposed by ERM and the responses received from the risk owners. Further, approved Committee minutes are tabled at the subsequent Board Meeting seeking the Board’s views and specific direction.


Direction No.



h. The committee shall establish a compliance function to assess the finance company’s compliance with laws, regulations, directions, rules, regulatory guidelines, internal controls and approved policies on all areas of business operations. A dedicated compliance officer selected from key management personnel shall carry out the compliance function and report to the committee periodically.

Complied withA Compliance Officer has been appointed by the Board. She monitors compliance of CBSL rules, regulations and directions issued under the Finance Business Act and submits a monthly and quarterly compliance report to the Board and the IRMC respectively for their review.

Monitoring compliance of other applicable laws, internal controls and approved policies on all areas of business operations is carried out by the ERM Division under the supervision of the Head of ERM.

9 RELATED PARTY TRANSACTIONS

9.1 The following shall be in addition to the provisions contained in the Finance Companies (Lending) Direction, No. 1 of 2007 and the Finance Companies (Business Transactions with Directors and their Relatives) Direction, No. 2 of 2007 or Such other directions that shall repeal and replace the said directions from time to time.

9.2 The Board shall take the necessary steps to avoid any conflicts of interest that may arise from any transaction of the finance company with any person, and particularly with the following categories of persons who shall be considered as “related parties” for the purposes of this Direction:

a) A subsidiary of the finance company;b) Any associate company of the finance company;c) A director of the finance company;d) A key management personnel of the finance company;e) A relative of a director or a key management

personnel of the finance company;f) A shareholder who owns shares exceeding 10% of the

paid up capital of the finance company;g) A concern in which a director of the finance company

or a relative of a director or a shareholder who owns shares exceeding 10% of the paid up capital of the finance company, has substantial interest.

Complied withA Board approved process is in place to ensure that the Company does not engage in related party transactions as defined in this direction and to enable Directors to take measures to avoid a conflict of interest.

Transactions with related parties are made with the sanction of the Board subject to such transactions being in the normal course of business.

Further, Directors are individually requested to declare their transactions with the Company at each Board Meeting and in the Annual Declaration.

A Board approved procedure is in place to ensure that the Directors and the CEO make relevant disclosures in a timely manner, in the event they make an acquisition or disposal of shares in the entity, to facilitate disclosure.

9.3 The transactions with a related party that are covered in this Direction shall be the following:

a) Granting accommodation,b) Creating liabilities to the finance company in the form

of deposits, borrowings and investments,c) providing financial or non-financial services to the

finance company or obtaining those services from the finance company,

d) Creating or maintaining reporting lines and information flows between the finance company and any related party which may lead to share proprietary, confidential or otherwise sensitive information that may give benefits to such related party.

Complied withThe Board appointed a Related Party Transaction Review Committee comprising the following membership:Mr. U H E Silva - Committee Chairman/Independent Non- Executive DirectorMr. L Jayaratne - Independent Non-Executive DirectorMr. T Sanakan - Independent Non-Executive DirectorMr. D M D K Thilakaratne – Executive Director/CEO

The following personnel are invited to participate at these meetings and recommend such facilities:Mrs. N Kariyawasam - Head of Finance & Compliance OfficerMr. O de Silva – Head of TreasuryMr. U Samarasinghe – Head of Credit Risk Management

The Committee was formed in order to adhere to the Code of BestPractice on Related Party Transactions (RPTs) issued by the Securities & Exchange Commission of Sri Lanka.During the financial year, the Committee has held four meetings.



Direction No.



9.4 The Board shall ensure that the finance company does not engage in transactions with a related party in a manner that would grant such party “more favourable treatment” than that is accorded to other similar constituents of the finance company. For the purpose of this paragraph, “more favourable treatment” shall mean:

a) Granting of “total net accommodation” to a related party, exceeding a prudent percentage of the finance company’s regulatory capital, As determined by the Board. The “total net accommodation” shall be computed by deducting from the total accommodation, the cash collateral and investments made by such related party in the finance company’s share capital and debt instruments with a remaining maturity of five years or more.

b) Charging of a lower rate of interest than the finance company’s best lending rate or paying a rate of interest exceeding the rate paid for a comparable transaction with an unrelated comparable counterparty;

c) Providing preferential treatment, such as favourable terms, covering trade losses and/or waiving fees/ commissions, that extends beyond the terms granted in the normal course of business with unrelated parties;

d) Providing or obtaining services to or from a related party without a proper evaluation procedure;

e) Maintaining reporting lines and information flows between the finance company and any related party which may lead to share proprietary, confidential or otherwise sensitive information that may give benefits to such related party, except as required for the performance of legitimate duties and functions.

Complied withThe Directors confirm that any related party transaction entered into is compliant with the relevant rules of the Code of Best Practice on Related Party Transactions issued by the Securities & Exchange Commission of Sri Lanka. Where necessary, disclosures are made on the Colombo Stock Exchange.

The Company will further strengthen the favourable treatment monitoring mechanism by implementing an on-line system.

For further details, please refer reporting pages 62 and 63.

10 DISCLOSURES

10.1 The Board shall ensure that: (a) annual audited financial Statements and periodical Financial Statements are prepared and published in accordance with the formats prescribed by the regulatory and supervisory authorities and applicable accounting standards, and that (b) such statements are published in the newspapers in an abridged form, in Sinhala, Tamil and English.

Complied withThe Financial Statements are prepared in accordance with the Sri Lanka Accounting Standards (SLFRSs/LKASs) and the formats prescribed by the regulators.

Annual Financial Statements are disclosed in the Annual Report; biannual (unaudited) Financial Statements are published in newspapers in all three languages (Dinamina/ Daily News/Thinakaran News Papers) and the quarterly statements are posted on the CSE website.


Direction No.



10.2 The Board shall ensure that at least the following disclosures are made in the Annual Report:

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

Complied withPlease refer the Directors’ Report on pages 74 to 76.

b. A report by the Board on the finance company’s internal control mechanism that confirms that the financial reporting system has been designed to provide a reasonable assurance regarding the reliability of financial reporting, and that the preparation of financial statements has been done in accordance with relevant accounting principles and regulatory requirements.

Complied withPlease refer the Directors’ Statement on Internal Controls on page 82 and 83.

c. The external auditor’s certification on the effectiveness of the internal control mechanism in respect of any statements prepared or published after 31st March 2010.

Complied withThe Company has obtained a certification on the effectiveness of the internal controls over financial reporting from M/s KPMG, Chartered Accountants.

Please refer page 84 for the report.

d. Details of directors, including names, transactions with the finance company.

Complied withDirectors’ names and details are given in pages 14 to 15.

Transactions with Directors during the year are as follows.• Remuneration paid - Rs. 28,962,853/-• Accommodations granted - Nil• Deposits with the Company - Rs. 38,766,819.67• Interest for the year – Rs. 4,408,739.45

e. Fees/remuneration paid by the finance company to the Directors in aggregate, in the Annual Reports published after 1st January 2010.

Complied withRemuneration paid amounted to Rs. 28,962,853/-

f. Total net accommodation as defined in paragraph 9(4) outstanding in respect of each category of related parties and the net accommodation outstanding in respect of each category of related parties as a percentage of the finance company’s capital funds.

Complied withNet accommodations granted to each category of related parties as a percentage of capital funds of the Company at the year-end was 12.33%. (Disclosed on pages 156 to 158)

g. The aggregate values of remuneration paid by the finance company to its key management personnel and the aggregate values of the transactions of the finance company with its key management personnel during the financial year, set out by broad categories such as remuneration paid, accommodation granted and deposits or investments made in the finance company.

Complied with• Remuneration paid Rs. 34,480,446/-• Accommodations granted Nil• Deposits with the Company Rs. 9,553,841.79• Interest for the year - Nil



Direction No.



h. A report setting out details of the compliance with prudential requirements, regulations, laws and internal controls and measures taken to rectify any non-compliances.

Complied withStatus of compliance with prudential requirements, regulations and laws are in the Directors’ Report set out on pages 74 to 76.

i. A statement of the regulatory and supervisory concerns on lapses in the finance company’s risk management, or non-compliance with the Act, and rules and directions that have been communicated by the Director of the Department of Supervision of Non-Bank Financial Institutions, if so directed by the Monetary Board to be disclosed to the public, together with the measures taken by the finance company to address such concerns.

Complied withThere were no significant supervisory concerns/lapses in the Company’s risk management and compliance with this direction to be directed by the Monetary Board to be disclosed to the public.

j. The external auditor’s certification of the compliance with the Act and rules and directions issued by the Monetary Board in the annual corporate governance reports published after 1st January 2011.

Complied withThe Company has obtained a report on factual findings from the External Auditors on the Company’s level of compliance with the Finance Companies Corporate Governance Direction No. 3 of 2008 issued by the Monetary Board.

Sec. No. Rules of the Colombo Stock Exchange CLC’s Level of Compliance

7.10 Corporate Governance Statement confirming that as at the date of the Annual Report that the Company is in compliance with these rules.

The Company is in compliance with the listing rules of the Colombo Stock Exchange, except for the requirements relating to the Minimum Public Float.

7.10.1 Non-Executive DirectorsThe Board of Directors of a listed entity shall include at least: two Non-Executive Directors; or such number of Non-Executive Directors equivalent to one-third of the total number of Directors whichever is higher.

Complied withAs at 31st March 2019 the Board comprised five directors of whom four were Non-Executive Directors.

7.10.2 Independent DirectorsWhere the Constitution of the Board of Directors includes only two Non-Executive Directors in terms of 7.10.1, both such Non-Executive Directors shall be independent. In all other instances two or 1/3rd of the no Executive Directors appointed to the Board, whichever is higher shall be independent.

Complied withAs at 31st March 2019 the Board comprised four Independent Directors from whom signed declarations of independence were obtained.

7.10.3-4 Disclosures Relating to Directorsa. The Board shall make a determination annually

as to the independence or non-independence of each director based on such declaration and other information available to the board and shall set out in the annual report the names of directors determined to be ‘independent’.

Complied withDeclarations of Independence from the four directors were assessed by the full Board.



b. In the event a director does not qualify as ‘independent’ against any of the criteria set out below but if the board, taking account all the circumstances, is of the opinion that the director is nevertheless ‘independent’, the board shall specify the criteria not met and the basis of its determination in the annual report.

c. In addition to disclosures relating to the independence of a director set out above, the board shall publish in its annual report a brief resume of each director on its board which includes information on the nature of his/her expertise in relevant functional areas.

d. Upon appointment of a new director to its board, the Entity shall forthwith provide to the Exchange a brief resume of such director for dissemination to the public. Such resume shall include information on the matters itemized in paragraphs (a), (b) and (c) above.

The Board has reviewed and satisfied itself of the independent status of these non-executive directors whose names are disclosed in the Directors Report on page 74.

Please refer directors' profiles on pages 14 to 15.

The Company complies with this requirement, in the event a new director is appointed to the Board.

7.10.5 Remuneration Committee

(a) CompositionShall comprise of a minimum of two Independent Non-Executive Directors or of Non-Executive Directors a majority of whom shall be independent, which ever shall be higher.

Complied withAs at 31st March 2019 the Committee comprised two Independent Non-Executive Directors.

(b) FunctionsThe Remuneration Committee shall recommend the remuneration payable to the executive directors and Chief Executive Officer of the Listed Entity and/or equivalent position thereof, to the board of the Listed Entity which will make the final determination upon consideration of such recommendations.

The Committee periodically reviews Board remuneration and makes recommendations to the Board.

(c) Disclosure in the Annual ReportThe annual report should set out the names of directors (or persons in the parent company’s committee in the case of a group company) comprising the remuneration committee, contain a statement of the remuneration policy and set out the aggregate remuneration paid to executive and non-executive directors.

The Committee comprises Independent Non-Executive Directors, Mr P D J Fernando and Mr L Jayaratne.

The Committee is guided by the Board approved Remuneration Policy.

The aggregate remuneration paid to executive and non-executive directors is disclosed in the Directors Report on page 74




7.10.6 Audit Committee

(a) CompositionShall comprise of a minimum of two independent Non-Executive Directors or of Non-Executive Directors a majority of whom shall be independent, which ever shall be higher.

Complied withAs at 31st March 2019 the Committee comprised Four Independent Non-Executive Directors.

(b) FunctionsOverseeing of the preparation, presentation and adequacy of disclosures in the financial statements of a Listed Entity, in accordance with Sri Lanka Accounting Standards.

Overseeing of the Entity’s compliance with financial reporting requirements, information requirements of the Companies Act and other relevant financial reporting related regulations and requirements.

Overseeing the processes to ensure that the Entity’s internal controls and risk management are adequate, to meet the requirements of the Sri Lanka Auditing Standards.

Assessment of the independence and performance of the Entity’s external auditors.

To make recommendations to the board pertaining to appointment, re-appointment and removal of external auditors and to approve the remuneration and terms of engagement of external auditors.

The Committee is guided by a board approved Audit Committee Charter which includes the functions of those listed here.

(c) Disclosure in the Annual ReportThe names of the directors (or persons in the parent company’s committee in the case of a group company) comprising the audit committee should be disclosed in the annual report.

The committee shall make a determination of the independence of the auditors and shall disclose the basis for such determination in the annual report.

The annual report shall contain a report by the audit committee, setting out the manner of compliance by the Entity in relation to the above, during the period to which the annual report relates.

The Committee comprises Independent Non Executive Directors Mr P D J Fernando, Mr L Jayaratne, Mr U H E Silva and Mr T Sanakan, while Mr Fernando serves as the Committee Chairman.

The Committee has made this determination. Please refer the Committee report on page 77.



7.13.1 (b)

Minimum Public Holding RequirementDisclosure in terms of rule 7.13.02 of the Listing Rules of the Colombo Stock Exchange (‘CSE”)

Not CompliedIn accordance with the requirements of the above rule, we provide below the following details as at 31st March 2019:

The Company is not compliant with the Minimum Public Holding Requirement stipulated in CSE Rule 7.13.1 (b). ). Please refer Directors Report on Page no. 74 for more details.

9.2.2-9.2.4

Related Party Transactions Review CommitteeThe Committee should comprise a combination of Non-Executive Directors and Independent Non-Executive Directors. The composition of the Committee may also include Executive Directors, at the option of the Listed Entity. One Independent Non-Executive Director shall be appointed as Chairman of the Committee.

Disclosures in the Annual Reporta) Non-recurrent Related Party Transactions if

aggregate value exceeds 10% of the equity or 5% Total assets whichever is lower.

b) Recurrent Related Party Transactions – If aggregate value exceeds 10% Gross/income as in the latest audited accounts.

c) The Annual report shall contain a Report of the Related Party Transactions Review Committee in the prescribed manner.

d) A declaration by the Board of Directors as an affirmative statement of the compliance with the rules pertaining to related party transactions:

Complied with As at 31st March 2019, the Committee comprised three Independent Non-Executive Directors, one of whom serves as the Chairman and 1 Executive director.

A separate committee has been established by the Company.Functions of the Committee and details of meetings held are included in the Committee Report on page 80.

a) Please refer note no. 41.3 of page 158

b) Please refer note no. 41.4 of page 158

c) Please refer Committee Report on page 80.

d) Please refer the Directors Report on pages 74 - 76.



Audit Committee Meetings

Name of the Director Meeting Dates Total05

25/05/2018 26/07/2018 23/10/2018 23/01/2019 27/02/2019

Mr. P D J Fernando 05

Mr. L Jayaratne 05

Mr. U H E Silva 05

Mr. T Sanakan 05

Mr. D M D K Thilakaratne – by invitation 05

Mrs. N Kariyawasam (HOF) – by invitation 05

Remuneration Committee Meetings

Name of the Director Meeting Date25/03/2019

Total01


Mr. L Jayaratne 01

MEMBER ATTENDANCE AT MEETINGS

Board Meetings

Name of the Director IN NI EX NEX Date of appointment

Meeting dates Total

25/0

4/20

18

28/0

5/20

18

21/0

6/20

18

30/0

7/20

18

29/0

8/20

18

18/0

9/20

18

30/1

0/2

018

26/1

1/20

18

18/1

2/20

18

28/0

1/20

19

27/0

2/20

19

25/0

3/20

19

(12)

Mr. P D J Fernando 30/03/2012 12

Mr. L Jayaratne 22/03/2017 12

Mr. U H E Silva 09/10/2017 12

Mr. T Sanakan (a.w.e.f 23.05.2018)

23/05/2018 - 10

Mr. D M D K Thilakaratne 06/03/2012 12

EX Executive Director NEX Non-Executive DirectorIN Independent Director NI Non-Independent Director


Integrated Risk Management Committee Meetings

Name of the Director Meeting Dates Total0425/04/2018 21/08/2018 19/11/2018 06/03/2019

Mr. L Jayaratne 04

Mr. U H E Silva 04


Mr. D M D K Thilakaratne 04

Mrs. N Kariyawasam 04

Mr. N Weerapana 04

Mr. T Indrapala 04

Mr. U Samarasinghe 04

Mrs. S Wickremasekera/Mrs. C Rodrigo 04

Mr. O de Silva 04

Mr. P Karandagolla - 03

Mr. T Kaushalya - - 02

Mr. T Sanakan - by invitation (a.w.e.f 23.05.2018) - - 02

Nomination Committee Meetings

Name of the Director Meeting Dates21/03/2018

Total02


Mr. L Jayaratne 01

Related Party Transaction Review Committee Meetings

Name of the Director Meeting Dates Total0425/05/2018 26/07/2018 23/10/2018 23/01/2019

Mr. U H E Silva 04

Mr. L Jayaratne 04

Mr. T Sanakan 04

Mr. D M D K Thilakaratne 04

Mr. P D J Fernando - by invitation 04

Mrs. N Kariyawasam (HOF) – by invitation 04



Evolution of risk management entails organisations to be agile and responsive in order to ensure sustainability in any business climate. Thus, we believe that the process of risk management should be geared to respond to organisation dynamics in an efficient and effective manner. LOLC group arches the overall risk management in the group and its individual entities. The risk governance structures in place allows for group level policies and decisions taken with regard to risk management initiatives to cascade down to entities in the group with minimum lead time and any structural changes and process level changes can be replicated at any entity in the group. This strategy allows us to optimise our resource utilisation.

The Risk Governance structures adopted at Commercial Leasing & Finance PLC. (CLC) clearly segregates Risk Management function and audit functions enabling independence through their operational and reporting lines. Henceforth this permits the Board of Management to assess organisational risks with an impartiality and ensure effectiveness and the efficacy of the internal control structures implemented within the organization. The Board of Management energises the effort of risk governance through the Integrated Risk Management Committee (IRMC) and the Board Audit Committee (BAC).

Instigating Risk Governance structures at CLC embrace a combination of Risk Management, Internal Audit and Information Systems Audits which forms the Enterprise risk management Department (ERM). The Audit function and the Risk Management function work interdependently where both Internal Audit and Risk Management mutually benefit from each other while they maintaining their autonomous identity.

The risks that could encumber the realisation of the tactical and the strategic objectives are identified by the Risk Management

Enterprise Risk Management Function, it appraises the impact of crystallisation of the identified risks and the mitigation strategies available. The Integrated Risk Management Committee together with the ultimate risk owners decides on the best possible risk mitigation strategy and the internal controls to be implemented. The Board of Directors are kept informed through regular communications of the activities of the Integrated Risk Management Committee.

Enterprise Risk Management at CLC has a participative approach with the intervention of all key stakeholders. The views and perceptions of risks and process owners are taken in to consideration and compulsory monthly reporting requirements are established, which require them to submit perceived risk-related information to ERM for further analysis and for the submission to the Board of Directors through the Integrated Risk Management Committee.

Our vision in risk management, “Building an organisational Culture where Protection, Assurance, Reliability, Accountability, Transparency and Confidentiality are treasured and lasting values “, assists in inculcating a risk culture amongst the employees of the company. This is accomplished by enlightening the employees at all levels of the organisation regarding fundamentals of risk management via induction and other trainings conducted by ERM with the coordination of the Human Resource Department and other business units at various junctures during a financial year. The Enterprise risk management department firmly believes proper risk awareness facilitates the appropriate risk response within the organisation.

We strongly believe in that there are no limits to improvements and risk management process is no exception and in order to add value to the business we incorporated risk department participations in an advisory capacity for major product

or process formulations to formulate appropriate risk control and internal control structures within the organisation.

The Internal Audit is entrusted with providing the management a reasonable assurance of the reliability, consistency and effectiveness of the internal control frame work. The audit teams adopt a three pronged strategy and consists of teams that engages in process level /department level audits, branch-based audits and region based audits. This strategy has allowed us to maintain a more frequent presence in different level of operations at any given time. The data analytics techniques are used for auditing purposes which facilitate the analysis of the entire audit universe rather than sampling.

Information Systems Audit function reviews information systems and critical system infrastructure and, plays a supporting role to general audits in reviewing the relevant processes and controls which are supported by computer systems.

A corporate whistle blower hotline is available for employees to report any irregularity or suspicious activities and a customer feedback line too is operational for customers to escalate any dissatisfaction of any fact which needs the attention of the management. These lines are operated by ERM and any information provided are treated confidentially. All complaints are followed up until resolution. Continuous quality, knowledge and skill improvements are prerequisite of an effective risk management strategy and the ERM staff are continuously trained and opportunities/facilities provided for enhancement of their skills and knowledge inventory. An internal quality assurance system is well operational within the department which enable us to maintain consistent and uniformity in our processes.


RISK PROFILE

The following is based on the perceived risk and is a high level categorisation of risk used only for the illustration purposes of this report.

BUSINESS RISKS

Legal Risk

Systemic Risk

Image Risk

Industry Risk Policy Risk

Financial Infrastructure Risk

5

4

3

2

1

0

FINANCIAL RISKS

Currency Risk

Market Risk

Liquidity Risk

Credit Risk

Capital Adequacy Risk

Profitability& Income Risk

Asset & Liability Risk

Interest Rate Risk

5

4

3

2

1

0

Technology Risk

Business Strategy Risk

Internal Systems &Operational Risk

Mismanagement &Fraud Risk

OPERATIONAL RISKS

5

4

3

2

1

0

EVENT RISKS

Disaster Management & Business Risk

Political Risk

Contagion Risk

Exogenous Risk

5

4

3

2

1

0

Risk Levels Risk Score

Very High 5High 4Medium 3Low 2Very Low 1

Enterprise Risk Management


Sustained By Our Performance

[FINANCIAL INFORMATION]

FINANCIAL CALENDAR 2018/19

1st Quarter Results 2018/2019 released on 15th August 2018

2nd Quarter Results 2018/2019 released on 15th November 2018

3rd Quarter Results 2018/2019 released on 15th February 2019

4th Quarter Results 2018/2019 released on 31st May 2019

Annual Report for 2018/2019 released in August 2019

27th Annual General Meeting in September 2019

PROPOSED FINANCIAL CALENDAR 2019/20

1st Quarter Results 2019/2020 released on 15th August 2019

2nd Quarter Results 2019/2020 will be released on 15th November 2019

3rd Quarter Results 2019/2020 will be released on 14th February 2020

4th Quarter Results 2019/2020 will be released on 29th May 2020

Annual Report for 2019/2020 will be released in August 2020

28th Annual General Meeting in September 2020


DIRECTORS REPORT

Your Directors have pleasure in presenting their Annual Report together with the Audited Financial Statements for the year ended 31st March 2019.

PRINCIPAL ACTIVITIES AND NATURE OF OPERATIONS

During the year the principal activities of the Company comprised provision of leasing, loans, receivable financing, mobilising of fixed and savings deposits, Islamic financing and micro financing.

MARKETS SERVED

The Company operates in all provinces of Sri Lanka with the largest concentration of branches being in Western and North Central Provinces.

DIRECTORATE

The Directors during the year under review were as follows:

1. Mr. P D J Fernando

Chairman/ Independent Non-Executive Director

2. Mr. L Jayaratne Independent Non- Executive Director

3. Mr. U H E Silva Independent Non- Executive Director

4. Mr. T Sanakan Independent Non- Executive Director

5. Mr. D M D K Thilakaratne

Executive Director/ CEO

RECOMMENDATIONS FOR RE-ELECTION OF DIRECTORS

In terms of Article 75 of the Articles of Association Mr P D J Fernando and Mr U H E Silva retire by rotation and being eligible offer themselves for re-election.

The Board recommends their re-election. The approval of the Central Bank of Sri

Report of the Board of Directors

Lanka has been obtained for these re-elections.

DIRECTORS INTERESTS IN CONTRACTS

The Directors have made the declarations required by the Companies Act No. 7 of 2007. These have been noted by the Board, recorded in the Minutes and entered into the Interest Register which is maintained by the Company.

Lists of companies on which these Directors serve have been included on page 76.

DIRECTORS’ REMUNERATION

The Company paid Rs. 28,962,853/- as Directors’ remuneration for the financial year ended 31st March 2019.

The Company has a Board approved Remuneration Policy. This policy stipulates that remuneration should be linked to competence and contribution, while serving to incentivise and motivate. This policy has been taken into account when determining remuneration for both staff and directors.

DIRECTORS SHAREHOLDING

Directors Name As at 31.03.2019

As at 31.03.2018

1. Mr. P D J Fernando

Nil Nil

2. Mr. L Jayaratne Nil Nil

3. Mr. U H E Silva Nil Nil

5. Mr. T Sanakan Nil Nil

4. Mr. D M D K Thilakaratne

Nil Nil

SHAREHOLDING STRUCTURE

The stated capital of the Company is Rs. 1,425,946,629/- divided into 6,377,711,170 shares.

MEETINGS OF THE BOARD OF DIRECTORS

Twelve regular monthly meetings were held during the year. A schedule of Directors’

attendance at Board Meetings and Sub Committee Meetings has been included on pages 69 to 70.

CORPORATE GOVERNANCE

CLC is governed by the requirements of the Finance Companies (Corporate Governance) Direction No. 3 of 2008 and the Listing Rules of the Colombo Stock Exchange and subsequent amendments thereto. The manner in which CLC ensures adherence with the above requirements has been disclosed on pages 42 to 70.

BOARD SUB COMMITTEES

In compliance with regulatory guidelines and also with best practices, the Board has formed the following sub committees:

• The Audit Committee

• The Integrated Risk Management Committee

• The Remuneration Committee

• The Related Party Transaction Review Committee

• The Nomination Committee

These Committees assist the Board with its role of oversight of the Company’s performance and conformance. Minutes of the meetings of these Committees are tabled at the next Board meeting, enabling the Board to benefit from the focused review of these Committees on the areas and issues within their purview. These subcommittees have met quarterly or as and when necessary.

The Reports of these Committees can be found on pages 77 to 81.

The Company has the following Management Level Committees:

• Credit Committee

• Asset Liability Committee


COMPLIANCE WITH LAWS AND REGULATIONS

The Company has not engaged in any activity that contravenes any applicable law or regulation, and to the best of the knowledge of the Directors, the Company has been in compliance with all prudential requirements, regulations and laws, except for Rule No. 7.13.1 (b) in terms of the Listing Rules of the Colombo Stock Exchange. Please refer page 65 to 68 for further details.

DISCLOSURE IN TERMS OF RULE 7.13.2 OF THE CONTINUOUS LISTING RULES OF THE COLOMBO STOCK EXCHANGE (“CSE”):

In accordance with the requirements of the above rule, we provide below the following details as at 31st March 2019:

The Company is not compliant with the Minimum Public Holding Requirement stipulated in CSE Rule 7.13.1 (b).

• The Public Holding percentage is 0.45%.

• The number of Public Shareholders are 1,011.

• The Float Adjusted Market Capitalization is Rs.75mn.

The Company has been transferred to the CSE’s Watch List with effect from July 2018 with a period of 20 months to comply. Subject to requisite regulatory approvals, the Board of Directors propose to list debt securities and remove all equity securities, to ensure that the Company is not in violation of the Listing Rules of the Colombo Stock Exchange, while complying with the directions of the Central Bank of Sri Lanka. Failure on the part of the listed entity to comply with rule 7.13 can result in a trading suspension of its securities and a referral to the Board of Directors of the CSE for a determination in terms of rule 10.3 (a) of their rules.

ASSOCIATE COMPANIES

LOLC Development Finance PLCThe Company held 99.76% of the issued share capital of LOLC DEVELOPMENT FINANCE PLC (LODF) as at 31st March 2017. In May 2017 LODF had a rights issue of which the company was entitled to 131,873,685 new shares.

However, as the resultant increase in investment if the Company were to subscribe would negatively impact its capital adequacy ratio, the Board of Directors agreed to refrain from subscribing to the entitlement.

The parent company, LOLC Holdings PLC, purchased all unsubscribed shares primarily to ensure that the LODF requirement for increased capital was met whilst maintaining Group control. Consequently, the Company’s holding diluted to 44.33%.

Commercial Insurance Brokers (Private) Limited The Company holds 40% of the equity of Commercial Insurance Brokers (Private) Limited. Mr D M D K Thilakaratne and Mr N Weerapana have been nominated to its Board by the Company. During the past 31 years CIB has been engaged in the business of life and general insurance. It is one of the premier insurance broking firms in the country.

EVENTS AFTER THE REPORTING DATE

No circumstances have arisen since the reporting date that would require disclosure.

HUMAN RESOURCES

The total staff strength of the Company as at 31st March 2019 was 1348 (2018 – 1,327).

GOING CONCERN

The Directors after making necessary inquiries have the expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Therefore, the going

concern basis has been adopted in the preparation of the Financial Statements.

FINANCIAL STATEMENTS & AUDITOR’S REPORT AND DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING

The Financial Statements and the Auditor’s Report are given on pages 86 to 177.

The Directors are responsible for the preparation of Financial Statements of the Company to reflect a true and fair view of the state of its affairs. The Directors are of the view that the financials have been prepared in accordance with the requirements of the Sri Lanka Accounting Standards, the Companies Act No. 7 of 2007, the Finance Business Act No. 42 of 2011 and all relevant directions of the Central Bank of Sri Lanka.

SIGNIFICANT ACCOUNTING POLICIES

The Accounting Policies adopted in the preparation of the Financial Statements and any changes thereof where applicable have been included in the Notes to the Financial Statements on pages 100 to 177.

TRANSACTIONS WITH RELATED PARTIES

The Directors confirm that any related party transaction entered into is compliant with the relevant rules. Where necessary, disclosures are made on the Colombo Stock Exchange.

Details of related party transactions are disclosed in the Financial Statements under Note 41 on page 156 to 158.

INTERNAL CONTROLS

The Enterprise Risk Management Division regularly reviews all aspects of operations, including controls, and compliance with relevant regulations. These reports are taken up for discussion by the Audit Committee or the Integrated Risk Management Committee as appropriate.


The Board could also seek the support of the external auditors to review and advise on any improvements needed to existing controls.

The Risk Management Report is on pages 71 to 72.

STATUTORY PAYMENTS

For the year under review, all known statutory payments have been made and all retirement gratuities have been provided for. Further, all management fees and payments to related parties for the year under review have been reflected in the accounts.

AUDITORS

M/s KPMG, the Auditors of the company retire and offer themselves for reappointment. The Board recommends their re-appointment for the year 2019/2020 at a fee to be decided upon by the Board.

Auditor’s remuneration is given in the Note No. 11 to the Audited financial statements on page 125.

As far as the Directors are aware, the Auditors do not have any other relationship with the Company or any of its subsidiaries nor do they have any interest in contracts with the Company or any of its subsidiaries.

ANNUAL GENERAL MEETING

The Annual General Meeting of the Company will be held on 19th September 2019 at 11.00 am, at the LOLC Auditorium, No.100/1, Sri Jayawardenapura Mawatha, Rajagiriya. Should you be unable to attend, please complete the Proxy Form in the manner instructed therein and return it to the Company.

Name Directorships held

Mr P D J Fernando Chairman:Commercial Leasing & Finance PLCGolden Key Credit Card Company

Deputy Chairman:Union Bank of Colombo PLC

Director:Ambeon Capital PLC Ceylon Leather Products PLC Golden Key Hospitals LtdThomas Cook Travels Sri Lanka Imperial Institute of Higher Education (Pvt) LtdMillennium Information Technologies (Pvt) Ltd

Mr L Jayaratne Director:Commercial Leasing & Finance PLC

Mr U H E Silva Director:Commercial Leasing & Finance PLC

Mr T Sanakan Director:Commercial Leasing & Finance PLCAssociated Battery Manufactures (Ceylon) Ltd Browns Pharmaceuticals LtdBrowns Pharma Ltd

Mr D M D K Thilakaratne Director:Commercial Leasing & Finance PLC Seylan Bank PLCCommercial Insurance Brokers (Pvt) Ltd Commercial Factors (Pvt) LtdPrasac Micro Finance Ltd Cambodia

Report of the Board of Directors

For and on behalf of the Board of Directors of Commercial Leasing & Finance PLC

D M D K Thilakaratne P D J FernandoDirector/ CEO Chairman

27th June 2019Colombo 04


Report of the Audit Committee

COMPOSITION

The Audit Committee was established for the purpose of assisting the Board in fulfilling their responsibilities relating to financial governance. The Committee comprises the following members:

Mr. P D J Fernando Committee Chairman/ Independent Non-Executive Director

Mr. L Jayaratne Independent Non-Executive Director

Mr. U H E Silva Independent Non-Executive Director

Mr. T Sanakan Independent Non-Executive Director

The Audit Committee Chairman counts thirty five years’ experience at the Central Bank where he rose to the position of the Deputy Governor. He was the Deputy Governor of the Central Bank in 2010-2011, in charge of the Financial System Stability and the Corporate Services clusters. Mr. Fernando has extensive experience and expertise in the fields of Banking and the Financial Sector, particularly at the policy making levels in financial regulation and supervision, Information technology, national accounting, macro-economic analysis and statistics. At the Central Bank, he was the Chairman of the Financial Stability Committee, member of the Monetary Policy Committee, member of the Risk Management Committee and Chairman of the National Payment Council. He also functioned as the Secretary to the Monetary Board during 2008/2009. He was an ex- officio board member in several regulatory organisations namely the Securities and Exchange Commission, the Insurance Board of Sri Lanka, the Chairman of the Credit Information Bureau, Institute of Bankers–Sri Lanka and has also served as a Board Member at Employees Trust Fund, Lanka Clear (Pvt) Ltd and Lanka Financial Services Bureau.

TERMS OF REFERENCE

The Audit Committee is governed by the Audit Charter which defines its Terms of Reference. The composition of the

Committee meets the requirements set out in the Finance Companies Corporate Governance Direction No. 3 of 2008 and the Listing Rules of Colombo Stock Exchange. The Committee Charter was last reviewed and revised by the Board in March 2019.

The Committee has been mandated to ensure that a sound Financial Reporting System is established by reviewing the appropriateness of procedures in place for the identification, evaluation and management of business risks ensuring that internal controls relating to all areas of operations, including Human Resources and IT, enhance good governance while not impeding business seeking assurance that agreed control systems are in place, are operating efficiently and are regularly monitored ensuring that appropriate controls are put in place prior to the implementation of significant business changes, facilitating monitoring of the changes reviewing internal and external audit functions and ensuring compliance with applicable laws, regulations, listing rules and established policies of the Company.

ACTIVITIES OF THE COMMITTEE

During the year, the Committee reviewed interim and annual financial statements prior to publication, checking and recommending changes in accounting policies, significant estimates and judgments made by the management, compliance with relevant accounting standards/regulatory requirements, and issues arising from internal and external audit.

Effectiveness of the Company’s internal controls was evaluated through reports provided by the Management, and by the Internal and External Auditors. The Committee is satisfied that an effective system of internal control is in place to provide the assurance on safeguarding the assets and the integrity of financial reporting. On behalf of the Audit Committee, the Internal Auditor performs a comprehensive exercise that entails reviewing of all aspects of MIS including operational and regulatory risks.

The Committee addressed the External Auditor’s findings reported in the Management Letter relating to the previous financial year’s (2017/18) audit.

The Committee reviewed the independence and objectivity of the External Auditors, M/s KPMG, Chartered Accountants and has received a declaration confirming that they do not have any relationship or interest in the Company as required by the Companies Act No. 7 of 2007. The Audit Committee has determined that the External Auditors are in fact independent as:

they are not engaged in providing any non audit services to the Company; and

the fees charged for audit assignments are not significant to impair their judgement/independence.

In accordance with good governance initiatives, Audit Partner rotation is practiced and the need for Auditor rotation is considered every 7 years.

The Committee meets quarterly; and additional meetings are held as and when a need arises. Five meetings were held during the year and the members’ attendance at Audit Committee meetings is provided on page 69. The CEO and the Head of Finance were present at all five meetings. Minutes of such meetings which include details of matters discussed are reported regularly at Board meetings. The Audit Partner was invited to attend four such meetings and on two occasions the auditors were able to meet with the Audit Committee members without the presence of the other Directors and members of the Management.

P D J FernandoChairmanAudit Committee

Colombo27th June 2019


COMPOSITION

The Integrated Risk Management Committee (IRMC) was established to assist the Board in performing its oversight function in relation to the risk management framework of the Company. The Committee comprises the following members:

Mr. L Jayaratne Committee Chairman/ Independent Non-Executive Director

Mr. P D J Fernando Independent Non-Executive Director

Mr. U H E Silva Independent Non-Executive Director

Mr. D M D K Thilakaratne Executive Director/CEO

Mrs. N Kariyawasam Head of Finance/ Compliance Officer

Mrs. C Rodrigo Head of Enterprise Risk Management

Mr. N Weerapana Head of Recoveries

Mr. U Samarasinghe Head of Credit

Mr. P Karandagolla Head of Channels

Mr. O De Silva Head of Treasury

Mr. T Indrapala Head of Operations

Mr. T Kaushalya Head of Savings & FDs

TERMS OF REFERENCE

The IRMC has adopted the provisions of Section 8 (3) of the Finance Companies Corporate Governance Direction No. 3 of 2008 issued by the Monetary Board of the Central Bank of Sri Lanka as its Terms of Reference. The composition and the scope of work of the Committee are in conformity with the provisions of the aforesaid Direction.


The Committee is responsible for identifying, assessing and managing broad risk categories, i.e., credit, market, liquidity, operational and strategic risks through risk indicators reviewing the adequacy and effectiveness of all management level committees such as the Credit Committee and the Asset-Liability Committee to address specific risks and to manage those risks within quantitative and qualitative risk limits taking 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 Company’s policies taking appropriate actions against the officers responsible for failure to identify specific risks and take prompt corrective actions; and establishing a compliance function to assess the Finance Company’s compliance with laws, regulations, directions, rules, regulatory guidelines, internal controls and approved policies on all areas of business operations.

The Committee works closely with the key management personnel and the Board in fulfilling its duties in risk management. Credit, operational, market and liquidity risks were monitored by Divisional Heads and reported to ERM on a monthly basis. These risks were then reviewed and assessed monthly by the Head of ERM and summarised reports were submitted quarterly to the Committee for concurrence and/or specific directions in order to ensure that the risks

Report of the Integrated Risk Management Committee

are managed appropriately. As delegated by the Committee, the Manager ERM submitted a risk assessment report to the Board, subsequent to each meeting within a week of each meeting, stating the risk mitigation actions pursued and seeking the Board’s views. In addition, proceedings of meetings were also tabled at a subsequent meeting of the Board. During the year, the Committee met four times on a quarterly basis.

The attendance of members at meetings is stated on page 70.

L JayaratneChairmanIntegrated Risk Management Committee



Report of the Remuneration Committee

COMPOSITION

The Remuneration Committee was established to assist the Board in evaluating and recommending remuneration for Board members. The Committee comprises the following members:

Mr. P D J Fernando

Committee Chairman/ Independent Non- Executive Director

Mr. L Jayaratne Independent Non- Executive Director

TERMS OF REFERENCE

The Remuneration Committee is governed by its Remuneration Policy which has vested it with powers to evaluate, assess and recommend to the Board for approval any fee, remuneration and ex-gratia to be paid out to its Directors including the Chief Executive Officer based on the need of the Company to be competitive the need to attract, motivate and retain talent and the need to encourage and reward high levels of performance and achievement of corporate goals and objectives.


The Committee is responsible for determining the remuneration policy relating to the Director/CEO periodically evaluating the performance of the Director/CEO against the set targets and goals and determining the basis for revising remuneration, benefits and other payments of performance based incentives; determining the Remuneration Policy relating to Executive and Non-Executive Directors and recommending these to the Board for adoption. All independent Directors receive a fee for attending Board meetings and Committee meetings. They do not receive any performance or incentive payments. Directors’ emoluments have been disclosed on page 125. One Remuneration Committee meeting was held during the

year under review and the members’ attendance at this meeting is provided on page 69. Proceedings of the meeting was also tabled at a subsequent meeting of the Board.

P D J FernandoChairmanRemuneration Committee



Report of the Related Party Transaction Review Committee

COMPOSITION

The Related Party Transaction Review Committee was formed to comply with the related rules of the Colombo Stock Exchange. The Committee Comprises the following Members:

Mr. U H E Silva Committee Chairman/ Independent Non - Executive Director

Mr. L Jayaratne Independent Non - Executive Director

Mr. T Sanakan Independent Non - Executive Director

Mr. D M D K Thilakaratne

Executive Director/ CEO

TERMS OF REFERENCE

The Committee has adopted the Code of Best Practice on Related Party Transactions (RPTs) issued by the Securities and Exchange Commission of Sri Lanka as its Terms of Reference.

On behalf of the Board, the Committee has established policies and procedures consistent with its business model to ensure that all related party transactions of the Company are carried out in compliance with the requirements of this Code and the Central Bank of Sri Lanka (CBSL) Directions issued to Finance Companies on Lending/Single Borrower Limits.


The Committee has reviewed quarterly all recurrent and non recurrent RPTs of the Company and was satisfied that such transactions had been carried out at market rates; and where applicable, the regulations of the CBSL, the guidelines of the CSE and the Sri Lanka Accounting Standards had been complied with in relation to approvals/reporting/ disclosure.

The Committee in discharging its functions relied on processes that have been validated from time to time to ensure compliance with the Code; protection of shareholder interests; and maintaining fairness and transparency.

MEETINGS

The Committee held four meetings during the financial year. Information on the attendance of these meetings by the members of the Committee is given on page 70. The activities and views of the Committee have been communicated to the Board of Directors quarterly through verbal briefings, and by tabling the minutes of the Committee’s meetings.

U H E SilvaChairmanRelated Party Transaction Review Committee



Report of the Nomination Committee

COMPOSITION

The Nomination Committee has been set up to assist the Board in assessing the skills required and recommending nominees for election to the Board and to its Sub- Committees to effectively discharge their duties and responsibilities. The Committee comprises the following members:

Mr. P D J Fernando

Committee Chairman/ Independent Non- Executive Director

Mr. L Jayaratne Independent Non- Executive Director

TERMS OF REFERENCE

The Committee is governed by its Charter which defines its terms of reference. The Committee is responsible for assisting the Board in identifying qualified individuals to become Board members and determining the composition of the Board of Directors and its Committees; oversight of the evaluation of the Board and its Committees, as well as Senior Management of the Company; including succession planning annually review the composition of each Sub-Committee and present recommendations/nominations for committee memberships to the Board; maintain records and minutes of meetings and activities of the Committee; perform any other activities consistent with this Charter.


During the year, the Committee assessed the composition of the Board and its Sub- Committees in terms of the requirements of the relevant regulations of the Central Bank of Sri Lanka and the Colombo Stock Exchange. Proceedings of meetings were also tabled at a subsequent meeting of the Board. One Committee meeting was held during the year under review and proceedings of the meeting were reported

to the Board. Attendance of the Committee Members at meetings is on page 70.

P D J FernandoChairmanNomination Committee



RESPONSIBILITY

In line with the Finance Business Act No. 42 of 2011; Finance Companies (Corporate Governance) Direction No.03 of 2008; the Board of Directors presents this Report on Internal Control over Financial Reporting.

The Board of Directors (Board) is responsible for the adequacy and effectiveness of the Commercial Leasing and Finance PLC (‘the Company’) system of internal controls. However, such a system is designed to manage the Company’s key areas of risk within an acceptable risk profile. Accordingly, the system of internal controls can only provide reasonable but not absolute assurance against material misstatement of management and financial information and records or against financial losses or fraud.

The Board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company and this process includes enhancing the system of internal controls as and when there are changes to business environment or regulatory guidelines. The process is regularly reviewed by the Board and Board appointed sub committees.

The Board is of the view that the system of internal controls in place is sound and adequate to provide reasonable assurance regarding the reliability of financial reporting, and that the preparation of Financial Statements for external purposes and 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 pertaining to Internal Control over Financial Reporting. The management is continuously in the process of enhancing the documentation of the system of Internal Control over Financial Reporting. In

assessing the Internal Control System over Financial Reporting, identified officers of the Company collated all procedures and controls that are connected with significant accounts and disclosures of the Financial Statements of the Company. These in turn are being observed and checked by the Internal Auditors of the Company for suitability of design and effectiveness on an ongoing basis

Key features of the process adopted in applying and reviewing the Design and Effectiveness of Internal Control System on Financial ReportingThe key processes that have been established in reviewing the adequacy and integrity of the system of internal controls with respect to financial reporting include the following:

• The Board is assisted by the board sub committees established by the board in ensuring the effectiveness of Company’s daily operations and that the Company’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 as required.

• The Internal Audit function of the Company checks for compliance with policies and procedures and the effectiveness of the internal control systems on an ongoing basis using samples and rotational procedures and highlight significant findings in respect of any noncompliance. Audits are carried out on all units and branches, the frequency of which is determined by the level of risk previously 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 are submitted to the Board Audit Committee for review at their periodic

Directors’ Statement on Internal Control over Financial Reporting

meetings, while the confirmed minutes of the Board Audit Committee are presented to the Board.

• The Board Audit Committee of the Company reviews internal control issues identified by the Internal Audit Division, regulatory authorities and management, and evaluates the adequacy and effectiveness of the risk management/ management committees and internal control systems. They also review the internal audit functions with particular emphasis on the scope of audits and quality of internal audits. The Minutes of the Board Audit Committee meetings are tabled at the meetings of the Board of Directors of the Company. Further, details of the activities undertaken by the Board Audit Committee of the Company are set out in the ‘Board Audit Committee Report’ which appears on page 77.

• In assessing the internal control system, identified officers of the Company continued to review and update all procedures and controls that are connected with significant accounts and disclosures of the Financial Statements of the Company. The Internal Audit Department continued to verify the suitability of design and effectiveness of these procedures and controls on an ongoing basis.

• The Company adopted SLFRS 9 –“Financial Instruments” with effect from 1st April 2018. SLFRS 9 replaces the “incurred loss” model as per LKAS 39 with the “expected credit loss” model. The day 1 impact were adjusted through the equity statement and the comparative figures in the statement of financial position was not adjusted as allowed by the accounting standards. This new methodology had a significant impact on the Company's methodology


designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Financial Statements for external purposes has been done in accordance with the Sri Lanka Accounting Standards and regulatory requirements of the Central Bank of Sri Lanka.

REVIEW OF THE STATEMENT BY EXTERNAL AUDITORS

The External Auditors have reviewed the above Directors’ Statement on Internal Controls included in the Annual Report of the Company for the year ended 31st March 2019 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 review of the design and effectiveness of the internal control system over financial reporting of the Company.

By order of the Board

Priyantha Fernando Chairman

Krishan Thilakaratne Director/CEO 27th June 2019

on calculating the impairment losses for loans and advances. The Company implemented a process to make required adjustment to impairment calculation methodology of the Company during the year with the implementation of SLFRS 9.

The Board continuously monitored SLFRS 9 implementation process throughout the year after a comprehensive assessment of the gaps and expected impact to the Financial Statements as a result of adopting SLFRS 9. The Board ensured the models developed to calculate the impairment provisions due to adoption of SLFRS 9 have been adequately tested and calibrated. All required adjustments as per SLFRS 9 are made with the necessary disclosures in the annual Financial Statements for the year ended 31st March 2019.

The process for quantifying the necessary adjustments to the Financial Statements was based on spread sheet application. However, the formal documentation of the process followed by the Company for quantification of adjustments and testing of such process by the internal audit is not complete as at the date of this Report and this will be addressed on an ongoing basis from the ensuing financial year.

• The comments made by the External Auditors in connection with internal control system during the financial year 2018/2019 were taken into consideration and appropriate steps will be taken to incorporate them where appropriate during the ensuing year.

CONFIRMATION

Based on the above processes, the Board of Directors confirms that the financial reporting system of the Company has been


Auditors’Assurance Report on the Directors’ Statement on Internal Control

TO THE BOARD OF DIRECTORS OF COMMERCIAL LEASING & FINANCE PLCREPORT ON THE DIRECTORS’ STATEMENT ON INTERNAL CONTROL We were engaged by the Board of Directors of Commercial Leasing & Finance PLC (“the Company”) to provide assurance on the Directors’ Statement on Internal Control (“Statement”) included in pages 82 and 83 of the annual report for the year ended 31st March 2019.

MANAGEMENT’S RESPONSIBILITYManagement is responsible for the preparation and presentation of the Statement in accordance with the “Guidance for Directors of License Finance Co mpany on the Directors’ Statement on Internal Control” issued in compliance with the section 10 (2) (b) of the Finance Companies Direction no. 3 of 2008, by the Institute of Chartered Accountants of Sri Lanka.

OUR INDEPENDENCE AND QUALITY CONTROLWe have complied with the independence and other ethical requirement of the Code of Ethics for Professional Accountants issued by the Institute of Chartered Accountants of Sri Lanka, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior.

The firm applies Sri Lanka Standard on Quality Control 1 and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

AUDITORS’ RESPONSIBILITIES Our responsibility is to assess whether the Statement is both supported by the documentation prepared by or for directors and appropriately reflects the process the directors have adopted in reviewing the design and effectiveness of the internal control of the Company.

We conducted our engagement in accordance with Sri Lanka Standard on Assurance Engagements (SLSAE) 3051, Assurance Report for License Finance Companies and Finance Leasing Companies on Directors’ Statement on Internal Control, issued by the Institute of Chartered Accountants of Sri Lanka.

This standard requires that the auditors plan and perform procedures to obtain limited assurance about whether Management has prepared, in all material respects, the Statement on Internal Control.

For purposes of this engagement, we are not responsible for updating or reissuing any reports, nor have we, in the course of this engagement, performed an audit or review of the financial information.

SUMMARY OF WORK PERFORMEDOur engagement has been conducted to assess whether the Statement is both supported by the documentation prepared by or for directors and appropriately reflects the process the directors have adopted in reviewing the system of internal control of the Company.

To achieve this objective, appropriate evidence has been obtained by performing the following procedures:

(a) Enquired the Directors to obtain an understanding of the process defined by the Board of Directors for their review of the design and effectiveness of internal control and compared their understanding to the Statement made by the Directors in the Annual Report.

(b) Reviewed the documentation prepared by the Management to support their Statement made.

(c) Related the Statement made by the Directors to our knowledge of the Company obtained during the audit of the Financial Statements.

(c) Reviewed the minutes of the meetings of the Board of Directors and of relevant Board Committees.

(e) Considered whether the Directors’ Statement on Internal Control covers the year under review and that adequate processes are in place to identify any significant matters arising.

(f) Obtained written representations from Directors on matters material to the Statement on Internal Control where other sufficient appropriate audit evidence cannot reasonably be expected to exist.

SLSAE 3051 does not require us to consider whether the Statement covers all risks and controls, or to form an opinion on the effectiveness of the Company’s risk and control procedures. SLSAE 3051 also does not require us to consider whether the processes described to deal with material internal control aspects of any significant problems disclosed in the annual report will, in fact, remedy the problems.

The procedures selected depend on the auditor’s judgment, having regard to the auditor’s understanding of the nature of the Company, the event or transaction in respect of which the Statement has been prepared.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion.

AUDITOR’S CONCLUSIONBased 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 the Board of Directors have adopted in the review of the design and effectiveness of internal control of the Company.

Chartered Accountants Colombo27th June 2019


The financial statements are prepared in compliance with the Sri Lankan Financial Reporting Standards (SLFRS/LKAS) issued by the institute of Chartered accountant of Sri Lanka, the requirements of the Companies Act No.7 of 2007, the Finance Business Act No.42 of 2011 and the Listing Rules of the Colombo Stock Exchange.

Accordingly, the company has prepared financial statements which comply with SLFRSs/ LKASs and related interpretations applicable for period ended 31 March 2019, together with the comparative period data as at and for the year ended 31 March 2018, as described in the accounting policies.

We accept responsibility for the integrity and accuracy of these financial statements. Significant accounting policies have been applied consistently. Application of significant accounting policies and estimates that involve a high degree of judgment and complexity were discussed with the Audit Committee and the external auditors. Estimate and judgment relating to the financial statements were made on a prudent and reasonable basis, in order to ensure that the financial statements are true and fair. To ensure this, our internal auditors have conducted periodic audits to provide reasonable assurance that the established policies and procedures of the company were consistently followed.

We confirm that to the best of our knowledge, the financial statements and other financial information included in this annual report, fairly present in all material respects the financial position, results of operations and cash flows of the company as of, and for, the periods presented in this annual report.

We are responsible for establishing and maintaining internal controls and procedures. We have designed such controls and procedures, or caused such controls and procedures to be designed under our supervision, to ensure that

material information relating to the company is made known to us and for safeguarding the company’s assets and preventing and detecting fraud and error. We have evaluated the effectiveness of the company’s internal controls and procedures and are satisfied that the controls and procedures were effective as of the end of the period covered by this annual report. We confirm, based on our evaluations that there were no significant deficiencies and material weaknesses in the design or operation of internal controls and any fraud that involves management or other employees.

The financial statements were audited by Messrs.KPMG, Chartered Accountants, the Independent Auditors. The Audit Committee pre - approves the audit and non-audit services provided by KPMG in order to ensure that the provision of such services does not impair KPMG’s independence and objectivity. The Audit Committee also reviews the external audit plan and the management letters and follows up on any issues raised during the statutory audit. The Audit Committee also meets with the external and internal auditors to review the effectiveness of the audit.

We confirm that the company has complied with all applicable laws and regulations and guidelines and that there are no material litigations that are pending against the company other than those arising in the normal course of conducting business.

N P KariyawasamHead of Finance

Krishan ThilakaratneDirector/CEO

27 June 2019

Chief Executive Officer’s and Head of Finance’s Responsibility Statement


Independent Auditor’s Report

TO THE SHAREHOLDERS OF COMMERCIAL LEASING & FINANCE PLC

Report on the Audit of the Financial Statements

OPINION

We have audited the financial statements of Commercial Leasing & Finance PLC (“the Company”), which comprise the statement of financial position as at 31st March 2019, and the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies set out on pages 90 to 177 in the Annual Report.

In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Company as at 31st March 2019, and of its financial performance and its cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

BASIS FOR OPINION

We conducted our audit in accordance with Sri Lanka Auditing Standards (SLAuSs). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by CA Sri

Lanka (“Code of Ethics”) and we have fulfilled our other ethical responsibilities in accordance with the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

KEY AUDIT MATTERS

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

IMPAIRMENT OF RENTAL RECEIVABLES ON LEASES AND HIRE PURCHASES, LOANS AND ADVANCES AND FACTORING RECEIVABLES AND TRANSITION IMPACT ON THE ADOPTION OF SLFRS 9 – "FINANCIAL INSTRUMENTS"

(Refer to significant accounting policies and explanatory Note 3.3.7,19 and 20 to the financial statements).

RISK DESCRIPTION

As disclosed in Note 19 and 20 to the financial statements, the Company has recorded impairment provision of Rs. 2,202,910,600/- relating to rental receivable on leases and hire purchases, loans and advances and factoring

receivables of Rs. 55,695,859,269 /- as at 31st March 2019. As permitted by the transitional provision of SLFRS 9, the impact of adopting SLFRS 9 is considered as an adjustment to equity as at 1st April 2018, without restating the comparative information. The Note 46 to these financial statements provides the impact on transition to SLFRS 9 - “Financial Instruments” on retained earnings as at 1st April 2018 of Rs. 461,475,889/-.

SLFRS 9 – “Financial Instruments” introduces an ECL model which takes into account judgments in setting the assumptions such as forward looking probability of default (PD), loss given default (LGD), macroeconomic scenarios including their weighting and judgments over the use of data inputs required. The Company has applied new accounting policies, including transition option elections and practical expedients with the application of new significant judgments and estimates which are subject to estimation uncertainty and management bias.

Impairment of rental receivables on leases and hire purchases, loans and advances and factoring receivables and transition impact are considered to be a key audit matter owning to the significance of rental receivables on leases and hire purchases, loans and advances and factoring receivables and the high degree of complexity and judgments used by the management.


Our audit procedures included;

• Evaluating the appropriateness of the accounting policies and methodology applied based on the requirements of SLFRS 9 with our business understanding and industry practices.

• Challenging the criteria used to allocate assets to stage 1, 2 or 3 in accordance with SLFRS 9 and assessing the appropriateness of model design and formulas used and recalculating the Probability of Default, Loss Given Default and Exposure at Default for selected sample of models.

• Evaluating the appropriateness and testing the mathematical accuracy of the estimation of provision for impairment.

• Evaluating the completeness, accuracy and relevance of data used for the calculation of impairment provision and transition adjustments.

• Assessing adequacy of the disclosures in the financial statements with reference to the requirements of SLFRS 9 including transition disclosures.

VALUATION OF INVESTMENT PROPERTY

(Refer to significant accounting policies and explanatory Notes 3.4 and 26 to the financial statements).

Risk DescriptionAs disclosed in Note 26 to the financial statements, fair value of Investment properties of the Company is Rs. 2,100,080,280/- and fair value gain derived from investment properties for the year ended 31st March 2019 is Rs. 114,657,720/-.

Management’s assessment of fair value of investment properties is based on valuations performed by qualified independent

property valuers in accordance with recognized industry standards.

We identified valuation of investment properties as a key audit matter because the determination of the fair values involves significant judgments and estimation, particularly determining the appropriate valuation methodology to be used, and in estimating the underlying assumptions to be applied. These key assumptions include market comparables used, taking into consideration the differences such as location and size. A change in the key assumptions will have a significant impact on the fair value of investment properties.

Our audit procedures included;

• Assessing the objectivity, independence, competency and qualifications of the external valuers engaged by the Company.

• Evaluating the appropriateness of the valuation techniques used by the external valuers, taking into account the profile of investment properties.

• Assessment of key assumptions applied by the external valuers in deriving the fair value of properties and comparing the same with evidence of current market values.

• Assessing the adequacy of disclosures made in relation to the fair value of investment properties in the financial statements, including the description and appropriateness of the inherent degree of subjectivity and key assumptions used in the estimates.

IT SYSTEMS AND CONTROLS OVER FINANCIAL REPORTING

The Company’s key financial accounting and reporting processes are highly dependent on

the automated controls over the Company’s information systems. Automated accounting procedures and IT environment controls, which include IT governance, controls over programme development and changes, access to programmes and data and IT operations, are required to be designed and to operate effectively to ensure accurate financial reporting.

System calculations including interest calculations and interfaces between business management systems and accounting systems are the significant areas which could result in the financial records being materially misstated.

We identified IT systems and controls over financial reporting as a key audit matter because the Company’s financial accounting and reporting systems are fundamentally reliant on complex IT systems and control processes which are driven by significant transaction volumes caused by the size of the customer base.

We used our own IT specialists to perform audit procedures to assess IT systems and controls over financial reporting, which included

• assessing the design, implementation and operating effectiveness of key internal controls over the continued integrity of all major IT systems fundamental to dealing with the financial data, particularly financial reporting

• examining the framework of governance over the Company’s IT organisation and the controls over programme development and changes, access to programmes and data and IT operations, including compensating controls where required


• evaluating the design, implementation and operating effectiveness of the significant accounts related IT process controls by assessing the operating effectiveness of IT application controls, assessing the operating effectiveness of certain automated controls and system calculations which are relevant to the Company’s compliance activities.

• assessing the availability and stability of key operating systems, taking into consideration the rapid development of businesses types and transactions volumes as well as IT projects that have a significant impact on business continuity

• testing the access rights given to staff by checking them to approved records, and inspecting the reports over the granting and removal of access right

• testing preventing controls designed to enforce segregation of duties between users within particular systems

OTHER INFORMATION

Management is responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially

inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE FINANCIAL STATEMENTS

Management is responsible for the preparation of financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

AUDITORS’ RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that

includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SLAuSs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with SLAuSs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

Independent Auditor’s Report


• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with ethical requirements in accordance with the Code of Ethics regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

As required by section 163 (2) of the Companies Act No. 07 of 2007, 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 Company.

CA Sri Lanka membership number of the engagement partner responsible for signing this independent auditor’s report is 3029.

Chartered Accountants Colombo, Sri Lanka 27th June 2019


Statement of Profit or Loss

Group Company

For the year ended 31st March Note 2018 2019 2018

Rs. Rs. Rs.

Interest income 5 13,320,336,074 14,126,491,439 13,347,777,718

Interest expense 6 (6,994,794,629) (6,696,838,209) (6,994,794,629)

Net interest income 6,325,541,445 7,429,653,230 6,352,983,089

Net income/(expense) from other financial instruments at FVTPL 7 141,072,219 (3,459,957) 141,072,219

Other income 8 2,093,352,030 1,753,858,005 2,335,999,840

Operating expenses

Allowance for impairment and write offs 9 (1,055,991,702) (1,885,550,698) (1,055,991,702)

Direct expenses (585,305,241) (409,861,536) (585,305,241)

Premises, equipment and establishment expenses (398,438,042) (417,408,887) (398,438,042)

Personnel expenses 11.1 (1,387,268,219) (1,515,141,655) (1,387,268,219)

Depreciation and amortization 10 (113,660,958) (130,407,159) (113,660,958)

Other operating expenses (1,926,668,688) (2,031,881,007) (1,926,668,688)

Results from operating activities before value added tax (VAT), nations building tax (NBT) on financial services and debt recovery levy

3,092,632,845 2,789,800,334 3,362,722,298

VAT and NBT on financial services and debt recovery levy 12 (610,955,235) (693,417,414) (610,955,235)

Results from operating activities 2,481,677,610 2,096,382,920 2,751,767,063

Share of profit/ (Loss) of equity accounted investee, net of tax 25 153,267,666 (54,968,260) 153,267,666

Profit before Tax 2,634,945,276 2,041,414,660 2,905,034,729

Income tax expense 13 (760,711,882) (843,318,119) (760,711,882)

Profit for the year from continuing operations 1,874,233,394 1,198,096,541 2,144,322,847

Discontinued operations

Loss from discontinued operations 14 (81,495,104) - -

Profit for the year 1,792,738,290 1,198,096,541 2,144,322,847


Statement of Other Comprehensive Income

Group Company

For the year ended 31st March Note 2018 2019 2018

Rs. Rs. Rs.

Other comprehensive income

Items that will not be reclassified to profit or loss

Revaluation of property, plant and equipment 28.2 77,008,499 - 77,008,499

Actuarial losses on defined benefit plan 36.2 (6,094,101) (8,158,451) (6,094,101)

Effective portion of changes in fair value of cash flow hedges (114,212,830) 7,459,186 (114,212,830)

Items that are or may be reclassified subsequently to profit or loss

Net change in fair value of available for sale finance assets 150,432,262 (3,701,143) 149,781,387

Share of other comprehensive income from equity accounted investee 11,933,238 (5,856,005) 11,933,238

Income tax recognised in other comprehensive income 35.2.1 67,750,875 (46,310,253) 67,750,875

Total other comprehensive income/(Expense) for the year, net of tax 186,817,943 (56,566,666) 186,167,068

Total comprehensive income for the year 1,979,556,232 1,141,529,875 2,330,489,915

Profit attributable to;

Equity holders of the company 1,792,638,207 1,198,096,541 2,144,322,847

Non controlling interest 100,082 - -

1,792,738,290 1,198,096,541 2,144,322,847

Total comprehensive income attributable to;

Equity holders of the company 1,979,454,588 1,141,529,875 2,330,489,915

Non controlling interest 101,644 - -

1,979,556,232 1,141,529,875 2,330,489,915

Basic and diluted earnings per share 15 0.28 0.19 0.34

Earnings per share from continuing operations 15.2 0.29 0.19 0.34

The notes on pages 100 to 177 form an integral part of these financial statements. Figures in brackets indicate deductions.


2019 2018

As at 31st March Note Rs. Rs.

Assets

Cash and cash equivalents 16.1 2,550,274,316 2,377,557,530

Financial assets recognised through profit or loss (FVTPL)/ Financial assets held for trading 17 2,826,494,131 153,996,501

Investment securities/Other investments 18 6,686,282,569 6,505,214,249

Financial assets at amortised cost/ Finance lease receivables and hire purchases 19 13,917,880,997 14,983,512,091

Financial assets at amortised cost/ loans, advances and factoring receivables 20 39,575,067,674 44,793,716,492

Derivative assets held for risk management 21 311,352,151 -

Amount due from related company 22 - 370

Value added tax (VAT) recoverable 52,571,883 94,646,134

Current tax assets 23 17,945,394 89,836,635

Other current assets 24 170,594,780 139,629,894

Equity accounted investees 25 1,440,865,355 1,506,849,622

Investment properties 26 2,100,080,280 1,632,000,000

Intangible assets 27 1,891,327 3,910,108

Property, plant and equipment 28 1,205,048,043 1,227,575,523

Total assets 70,856,348,900 73,508,445,150

Liabilities and Equity

Liabilities

Bank overdraft 16.2 390,069,910 1,353,451,358

Derivative liabilities held for risk management 29 179,560,616 271,625,120

Financial Liabilities at Amortised Cost/ Deposits liabilities 30 24,316,106,104 23,485,108,879

Loans and borrowings-current 31.2 9,520,443,043 9,619,669,022

Loans and borrowings- non current 31.2 16,439,664,932 19,312,993,198

Current tax liabilities 32 427,501,928 519,857,489

Amount due to related companies 33 114,050,965 158,747,591

Trade and other payables 34 1,297,865,616 1,714,303,031

Deferred tax liabilities 35.1.1 597,568,005 477,339,023

Retirement benefit obligation 36 114,984,766 89,326,490

Total liabilities 53,397,815,885 57,002,421,201

Statement of Financial Position


2019 2018

As at 31st March Note Rs. Rs.

Equity

Stated capital 37 1,425,946,629 1,425,946,629

Reserves 38 2,017,114,451 1,995,771,184

Retained earnings 39 14,015,471,935 13,084,306,136

Total equity 17,458,533,015 16,506,023,949

Total liabilities and equity 70,856,348,900 73,508,445,150

Net assets value per share 2.74 2.59

The notes on pages 100 to 177 form an integral part of these financial statements. These financial statements are prepared and presented in compliance with the requirements of Companies Act No 7 of 2007 and Finance Business Act No. 42 of 2011.

Mrs. N.P. Kariyawasam Head of Finance The board of directors is responsible for the preparation and presentation of these financial statements. Approved and signed for and on behalf of the Board by;

Mr. T. Sanakan Mr. D.M.D.K Thilakaratne Director Director/CEO

Colombo 27th June 2019


For the year ended 31st March Stated capital

Reserves Retained earnings

Total equity Revaluation

reserve Hedging

reserve FVOCI/ Available-

for-sale reserve General reserve

Statutory reserve fund

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at 1st April 2017 1,425,946,629 872,381,596 47,766,933 (127,214,307) 288,079,789 628,919,447 11,039,653,947 14,175,534,034

Total comprehensive income for the year

Profit for the year - - - - - - 2,144,322,847 2,144,322,847

Other comprehensive income for the year

Revaluation of property, plant and equipment - 77,008,499 - - - - - 77,008,499

Other comprehensive income for the year - - (114,212,830) 149,781,387 - - (6,094,101) 29,474,456

Share of other comprehensive income from equity accounted investee (Note 25)

- - - - - - 11,933,238 11,933,238

Tax impact on other comprehensive income - (1,507,493) 67,552,021 - - - 1,706,347 67,750,875

Total comprehensive income for the year - 75,501,006 (46,660,809) 149,781,387 - - 2,151,868,331 2,330,489,915

Transactions with owners directly recorded in the equity

Transferred to/(from) during the year (Note 39) - - - - - 107,216,142 (107,216,142) -

Balance as at 31st March 2018 1,425,946,629 947,882,602 1,106,124 22,567,080 288,079,789 736,135,589 13,084,306,136 16,506,023,949

Statement of Changes in Equity





reserve Hedging





Balance as at 1st April 2017 1,425,946,629 872,381,596 47,766,933 (127,214,307) 288,079,789 628,919,447 11,039,653,947 14,175,534,034




Revaluation of property, plant and equipment - 77,008,499 - - - - - 77,008,499

Other comprehensive income for the year - - (114,212,830) 149,781,387 - - (6,094,101) 29,474,456


- - - - - - 11,933,238 11,933,238

Tax impact on other comprehensive income - (1,507,493) 67,552,021 - - - 1,706,347 67,750,875

Total comprehensive income for the year - 75,501,006 (46,660,809) 149,781,387 - - 2,151,868,331 2,330,489,915



Balance as at 31st March 2018 1,425,946,629 947,882,602 1,106,124 22,567,080 288,079,789 736,135,589 13,084,306,136 16,506,023,949





reserve Hedging





Balance as at 1st April 2018 1,425,946,629 947,882,602 1,106,124 22,567,080 288,079,789 736,135,589 13,084,306,136 16,506,023,949

Impact of adoption of SLFRS 9 (Note 46)

Impact of reclassifying financial investment from AFS to FVTPL

- - - - - - 159,157,592 159,157,592

Deferred Tax on valuation of equity instrument - - - - - - (15,915,759) (15,915,759)

Recognition of SLFRS 9 ECLs including those measured at FVOCI

- - - - - - (461,475,889) (461,475,889)

Differed tax on Recognition of SLFRS 9 ECLs including those measured at FVOCI

- - - - - - 129,213,249 129,213,249

- - - - - - (189,020,807) (189,020,807)

Adjusted balance as at 1st April 2018 1,425,946,629 947,882,602 1,106,124 22,567,080 288,079,789 736,135,589 12,895,285,329 16,317,003,142




Other comprehensive income - - 7,459,186 (3,701,143) - - (8,158,451) (4,400,409)


- - - - - - (5,856,005) (5,856,005)

Tax on other comprehensive income - - (3,380,774) (38,798,333) (140,444) - - (3,990,702) (46,310,253)

Total comprehensive income for the year 1,425,946,629 (3,380,774) (31,339,148) (3,841,587) 288,079,789 736,135,589 1,180,091,383 1,141,529,875



Balance as at 31st March 2019 1,425,946,629 944,501,828 (30,233,024) 18,725,492 288,079,789 796,040,366 14,015,471,935 17,458,533,015

The notes n pages 100 to 177 form an integral part of these financial statements.Figures in brackets indicate deductions.

Statement of Changes in Equity





reserve Hedging





Balance as at 1st April 2018 1,425,946,629 947,882,602 1,106,124 22,567,080 288,079,789 736,135,589 13,084,306,136 16,506,023,949

Impact of adoption of SLFRS 9 (Note 46)

Impact of reclassifying financial investment from AFS to FVTPL

- - - - - - 159,157,592 159,157,592

Deferred Tax on valuation of equity instrument - - - - - - (15,915,759) (15,915,759)

Recognition of SLFRS 9 ECLs including those measured at FVOCI

- - - - - - (461,475,889) (461,475,889)

Differed tax on Recognition of SLFRS 9 ECLs including those measured at FVOCI

- - - - - - 129,213,249 129,213,249

- - - - - - (189,020,807) (189,020,807)

Adjusted balance as at 1st April 2018 1,425,946,629 947,882,602 1,106,124 22,567,080 288,079,789 736,135,589 12,895,285,329 16,317,003,142




Other comprehensive income - - 7,459,186 (3,701,143) - - (8,158,451) (4,400,409)


- - - - - - (5,856,005) (5,856,005)

Tax on other comprehensive income - - (3,380,774) (38,798,333) (140,444) - - (3,990,702) (46,310,253)

Total comprehensive income for the year 1,425,946,629 (3,380,774) (31,339,148) (3,841,587) 288,079,789 736,135,589 1,180,091,383 1,141,529,875



Balance as at 31st March 2019 1,425,946,629 944,501,828 (30,233,024) 18,725,492 288,079,789 796,040,366 14,015,471,935 17,458,533,015

The notes n pages 100 to 177 form an integral part of these financial statements.Figures in brackets indicate deductions.


For the year ended 31st March 2019 2018

Note Rs. Rs.

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before income tax 2,041,414,660 2,905,034,729

Adjustment for:

Profit on disposal of property, plant and equipment 8 (2,650,000) (10,646,161)

Depreciation of property, plant and equipment 28 128,370,878 111,627,578

Amortization of intangible assets 27 2,036,281 2,033,280

Provision for retirement benefit obligations 36.1 21,146,079 17,865,691

Net impairment loss on financial assets 9 1,885,550,698 1,055,991,702

Change in fair value of investments 17.1 3,459,957 (47,242,344)

Dividend income 8 (7,733,981) (6,199,403)

Interest expense 6 6,696,838,209 6,994,794,629

Investment income 8 (539,089,253) (950,953,503)

Adjustment for unamortized finance cost - long term borrowings 48,963,541 91,509,210

Fair value gain on investment property 26 (114,657,720) (59,882,000)

Share of equity accounted investee 25 54,968,260 (153,267,666)

Profit on deemed disposal of BRAC Lanka Finance PLC - (242,647,810)

Cash flows from operating activities before working capital changes 10,218,617,609 9,708,018,032

(Increase) / decrease in operating assets and liabilities

Decrease in leases, hire purchase receivables 743,816,694 257,613,523

Decrease/(Increase) in advances and other loans receivable 2,162,652,398 (7,745,503,369)

Decrease in factoring receivable 1,030,987,924 2,039,390,136

Decrease/(Increase) in other receivables and related party receivables 90,459,792 (1,204,292,284)

Increase/(Decrease) in trade and other payables and related party payable (553,198,174) 1,057,974,975

Increase in customer deposits 830,997,225 7,549,166,445

Cash generated from operations 14,524,333,468 11,662,367,458

Finance cost paid (6,464,430,149) (6,602,891,628)

Income tax paid 32 (748,457,461) (282,413,797)

Retiring Gratuity paid 36 (3,646,254) (6,933,364)

Net cash generated from operating activities 7,307,799,604 4,770,128,669

Statement of Cash Flows



Note Rs. Rs.

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of property, plant and equipment (105,843,399) (328,093,981)

Acquisition of intangible assets (17,500) -

Net additions to financial Instruments (2,829,450,181) 11,636,255,118

Acquisition of investment properties 26 (353,422,560) (483,118,000)

Proceeds from the sale of property, plant and equipment 2,650,000 10,777,352

Dividend received from investments 8 12,893,981 13,597,365

Interest received 355,414,132 1,125,198,256

Net cash flows generated from/(used in) investing activities (2,917,775,527) 11,974,616,110

CASH FLOWS FROM FINANCING ACTIVITIES

Net cash repayments from short-term interest bearing loans and borrowings (1,000,000,001) (15,817,680,813)

Proceeds from long-term interest bearing loans and borrowings 3,792,058,039 -

Repayments of long-term interest bearing loans and borrowings (6,045,983,881) -

Net cash flows used in financing activities (3,253,925,843) (15,817,680,813)

Net increase in cash and cash equivalents 1,136,098,234 927,063,966

Cash and cash equivalents at the beginning of the year 1,024,106,172 97,042,206

Cash and cash equivalents at the end of the year (Note A) 2,160,204,406 1,024,106,172

Note A

Cash in hand and favorable bank balances 16.1 2,550,274,316 2,377,557,530

Unfavorable bank balances used for cash management purposes 16.2 (390,069,910) (1,353,451,358)

Cash and cash equivalents at the end of the year 2,160,204,406 1,024,106,172

The notes on pages 100 to 177 form an integral part of these financial statements.

Figures in brackets indicate deductions.


1. CORPORATE INFORMATION

1.1 GeneralCommercial Leasing & Finance PLC was incorporated as a Private Limited Company in April 1988 and domiciled in Sri Lanka, in 1992 converted into a Public Limited Company and listed in the Colombo Stock Exchange. In 2008 with the acquisition by LOLC Holdings PLC (formerly known as Lanka Orix Leasing Company PLC), the company submitted an application to delist from Colombo Stock Exchange and it was treated as de-listed with effect from July 01, 2009.

Further to Finance Leasing Act No 56 of 2000, on 7th December 2011, the Company has obtained the License to carry on Finance Business under the Finance Business Act No 42 of 2011. The Company has relisted in Colombo Stock Exchange in June 2012 in compliance with the CBSL Directions with the divestment of 10% of the stated capital.

Ordinary shares of the Company are listed on the Diri savi board of the Colombo Stock Exchange (CSE).

The Financial Statements of the Company as at and for the year ended 31st March 2019 comprise of the Company and Company’s interest in associates.

The registered office and the principal place of business of the Company is located at No. 68, Bauddhaloka Mawatha, Colombo 4.

1.2 Parent entity and Ultimate Parent CompanyLOLC Holdings PLC is the holding company of the Company and therefore, it does not have an identifiable immediate or ultimate parent of its own.

1.3 Principal Activities and Nature of OperationsThe principal activities of the Company comprised of leasing, loans, factoring,

Notes to the Financial Statements

Islamic financing, micro financing and mobilization of public deposits.

Description of the nature of operations and principal activities of associate company are given on note 25 to these Financial Statements with any changes to the principal activities during the financial year under review.

1.4 Number of EmployeesThe staff strength of the Company as at 31st March 2019 was 1,348. (31.03.2018 – 1,327).

2. BASIS OF PREPARATION

2.1 Statement of ComplianceThe Financial Statements of the Company are prepared in accordance with the Sri Lanka Accounting Standards (LKASs/SLFRSs) laid down by the Institute of Chartered Accountants of Sri Lanka (ICASL) and the requirements of the Companies Act No.7 of 2007. These SLFRSs and LKASs are available at www.casrilanka.com.

The presentation of these Financial Statements is also in compliance with the requirements of the Finance Business Act No 42 of 2011 and the listing rules of the Colombo Stock Exchange. These Financial Statements, except for information on cash

flows have been prepared following the accrual basis of accounting.

The Company did not adopt any inappropriate accounting treatments, which are not in compliance with the requirements of the SLFRSs and LKASs, regulations governing the preparation and presentation of the Financial Statements.

2.2 Presentation of Financial StatementsThe assets and liabilities of the Company presented in the Statement of Financial Position are grouped by nature and listed in-order to reflect their relative liquidity and maturity pattern. An analysis regarding recovery or settlement within twelve months after the reporting date (current) and more than twelve months after the reporting date (non-current) is presented in Note 40 (Maturity analysis)).

2.3 Basis of Measurement The Financial Statements of the Company has been prepared on the historical cost basis and applied consistently with no adjustments being made for inflationary factors affecting the financial Statements, except for the following material items in the Statement of Financial Position;

Items Basis of measurement Note

Financial Assets recognised through profit or loss (From 1st April 2018)

Financial Assets Held-for-trading (Up to 31st March 2018)

Fair value 17

Financial assets measured at fair value through other comprehensive income. (From 1st April 2018)

Financial Investments Available for sale. (Up to March 31, 2018)

Fair value 18.1


Items Basis of measurement Note

Financial assets at amortised cost (From 1st April 2018)

Loans and receivables (Up to 31st March 2018)

Amortized Cost 18.2

Retirement Benefit Obligation Net liability for defined benefit obligations are recognised as the present value of the defined benefit obligation, plus unrecognised actuarial gains, less unrecognised past service cost, and unrecognised actuarial losses

36

Lands and buildings Measured at cost at the time of acquisition and subsequently at revalued amounts which are the fair values at the date of revaluation

28

Investment properties Fair value 26

2.4 Functional and presentation currencyThe functional currency is the currency of the primary economic environment in which the entities of the Company operates. These Financial Statements are presented in Sri Lankan Rupees (LKR), which is the Company’s functional currency and the presentation currency. All financial information has been rounded to the nearest Rupee unless stated otherwise.

2.5 Use of Significant Judgments, Estimates and AssumptionsThe preparation of the financial statements in conformity with SLFRSs/LKASs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results which form the basis of making the judgments about the carrying amount of assets and liabilities that are not readily apparent from other sources.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Information about critical judgments, estimates and assumptions in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements are included in the following notes to these Financial Statements.

Critical accounting estimate/judgment Disclosure reference

Classification of financial assets and liabilities 2.14.1

Fair Value of financial instruments 3.3.11

Revaluation of property, plant and equipment 3.6.1.4

Determination in fair value of Investment properties 3.4

Useful lives of intangible assets 3.5.2

Useful lives of property, plant and equipment 3.6.1.7

Retirement benefit obligation 3.15.2

Deferred tax on undistributed profits of equity accounted investee 3.8.2

Write-off policy 3.3.7.5

Impairment losses on financial assets 3.3.7

Impairment of non-financial assets 3.7

Provisions for liabilities, commitments and contingencies 3.26

2.6 Comparative InformationComparative information including quantitative, narrative and descriptive information is disclosed in respect of the previous period in the Financial Statements in order to enhance the understanding of the current period’s Financial Statements and to enhance the inter period comparability. The presentation and classification of the Financial Statements of the previous year are amended, where relevant for better presentation and to be comparable with those of the current year.

The share of results of equity accounted investees in the income statement and other comprehensive income statement are shown net of all related taxes.

2.7 Materiality, Presentation and AggregationAs per LKAS – 1 “Presentation of Financial Statements”, each material class of similar items are presented separately in the Financial Statements. Items of dissimilar nature or function are presented separately unless they are immaterial.


Notes to the Financial Statements are presented in a systematic manner which ensures the understandability and comparability of Financial Statements of the Company. Understandability of the Financial Statements is not compromised by obscuring material information with immaterial information or by aggregating material items that have different natures or functions.

2.8 OffsettingFinancial assets and financial liabilities are offset and the net amount reported in the Statement of Financial Position, only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or to realise the assets and settle the liabilities simultaneously. Income and expenses are not offset in the Income Statement, unless required or permitted by an Accounting Standard or Interpretation (issued by the International Financial Reporting Interpretations Committee and Standard Interpretations Committee) and as specifically disclosed in the Significant Accounting Policies of the Company.

2.9 RoundingThe amounts in the Financial Statements have been rounded off to the nearest Rupees, except where otherwise indicated as permitted by the Sri Lanka Accounting Standard LKAS 1 on ‘Presentation of Financial Statements’.

2.10 Going Concern The Board of Directors is satisfied that the Company has adequate resources to continue its operations in the foreseeable future and management is not aware of any material uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern. Therefore, going-concern basis has been adopted in preparing these Financial Statements.


2.11 Directors’ Responsibility for the Financial Statements The Board of Directors is responsible for the preparation and fair presentation of these Financial Statements in accordance with Sri Lanka Accounting Standards and as per the provisions of the Companies Act No. 07 of 2007. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of Financial Statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

The Board of Directors acknowledges their responsibility as set out in the “Annual Report of the Board of Directors on the Affairs of the Company” and “Director’s Responsibility for Financial Reporting”.

These Financial Statements include the following components;

• A Statement of Financial Position providing the information on the financial position of the Company as at the yearend;

• A Statement of Profit or Loss providing the information on the financial performance of the Company for the year under review;

• A Statement of Other Comprehensive Income providing the information of the other comprehensive income of the Company;

• A Statement of Changes in Equity depicting all changes in shareholders’ funds during the year under review of the Company;

• A Statement of Cash Flows providing the information to the users, on

the ability of the Company and the Company to generate cash and cash equivalents and the needs of entities to utilize those cash flows, and

• Notes to the Financial Statements comprising Accounting Policies and other explanatory information.

2.12 Approval of Financial Statements by the Board of DirectorsThe Financial Statements of the Company for the year ended 31st March 2019 (including comparatives) were approved and authorized for issue by the Board of Directors on 27th June 2019.

2.13 Events after the Reporting DateEvents after the Reporting Date are those events, favorable and unfavorable, that occur between the Reporting date and the date when the Financial Statements are authorised for issue. In this regard, all material and important events that occurred after the reporting period are considered and appropriate disclosures are made where necessary.

2.14 Changes in Accounting PoliciesThe Company has consistently applied the accounting policies as set out in Note 3 to all periods presented in these financial statements except for the changes arising out of transition to SLFRS 9 "Financial Instruments" – SLFRS 15 “Revenue from Contracts with Customers” as set out below.

The adoption of SLFRS 15 did not impact to the financial statements. Accordingly the impact on the comparative information is limited to new disclosure requirements.

The effect of initially applying these standards is mainly attribute to the followings;

• On increase in impairment losses recognised on financial statements.


• Additional disclosures related to SLFRS 9.

• Additional disclosures related to SLFRS 15.

The impact on classification and measurement of financial assets due to adoption of SLFRS 9 is disclosed in Note 47.

Except for the changes below, the Company has consistently applied the accounting polices set out in Note 3 to all period presented in these financial statements.

2.14.1 SLFRS 9 – “Financial Instruments”SLFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces LKAS 39 “Financial Instruments: Recognition and Measurement”. The requirements of SLFRS 9 represent a significant change from LKAS 39. The new standard brings fundamental changes to the accounting for financial assets and to certain aspects of the accounting for financial liabilities.

2.14.1.1 Changes to Classification and measurementTo determine their classification and measurement category, SLFRS 9 requires all financial assets, except equity instruments and derivatives, to be assessed based on a combination of the entity’s business model for managing the assets and the instruments’ cash flow characteristics.

Classification and measurement categories as specified in LKAS 39 for financial assets (FVTPL, HTM, L&R and AFS) have been replaced by;

• Financial assets measured at amortised cost

• Financial assets measured at Fair value through other comprehensive income (FVOCI)

• Financial assets measured at Fair value through profit or loss (FVTPL)

FVOCI includes debt and equity instruments measured at fair value through other comprehensive income. On derecognition of debt instruments measured at FVOCI, cumulative gains or losses are recycled to profit or loss. However, cumulative gains or losses on derecognition of equity instruments measured at FVOCI are not reclassified to profit or loss and transferred directly to retained earnings.

SLFRS 9 largely retains the existing requirements in LKAS 39 for the classification of financial liabilities. However, under LKAS 39, all fair value changes of liabilities designated under the fair value option were recognized in profit or loss. Under SLFRS 9 fair value changes are generally presented as follows:

• The amount of change in the fair value that is attributable to changes in the credit risk of the liability is presented in Other Comprehensive Income (OCI); and

• The remaining amount of change in the fair value is presented in profit or loss.

Note 47 provides an explanation on how the Company classifies financial liabilities under SLFRS 9.

2.14.1.2 Impairment of financial assetsSLFRS 9 replaces the “incurred loss” model in LKAS 39 with an “expected credit loss” model. The new impairment model also applies to certain loan commitments and financial guarantee contracts but not to equity investments.

Under SLFRS 9, credit losses are recognised earlier than under LKAS 39. For an explanation of how the Company applies the impairment requirements of SLFRS 9, refer Note 3.3.7.

2.14.1.3 Changes to the Impairment of financial assets SLFRS 9 brings out the concept of expected loss against the incurred loss principle used in LKAS 39.

Accordingly,

• Life Time Expected Credit Loss (ECL) to be provided for all loans. However, if loans credit risk has not increased significantly from the grant date, the expected loss should be restricted only to 12 months’ period.

• The provision should be based on Exposure at Default (EAD) instead of outstanding balance used under LKAS 39. As a result, undrawn loan commitments/unutilised credit facilities would attract provisions.

• Expected loss to be measured by internal estimates of following loss statistics:

- Probability of Default (PD) derived through age bucket transition matrix

- Loss Given Default (LGD)-based on historical recoveries of defaulted loans

• Incorporate forward looking information to adjust loss statistics calculated by the Company. These forward looking information include macroeconomic factors such as gross domestic production, inflation etc.

• SLFRS 9 requires provision to be made for all financial assets including foreign currency denominated Government Securities and corporate debentures.

2.14.1.4 TransitionChanges in accounting policies resulting from the adoption of SLFRS 9 have been applied retrospectively, except as described below:

• The Company used the exemption not to restate comparatives. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of SLFRS 9 are recognised in retained earnings and reserves as at 1st April 2018. Accordingly, the information


presented for 2018 does not reflect the requirements of SLFRS 9 and therefore is not comparable to the information presented for 2019 under SLFRS 9.

- The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application:

- The determination of the business model within which a financial asset is held.

- The designation and revocation of previous designations of certain financial assets and financial liabilities as measured at FVTPL.

- The designation of certain investments in equity instruments not held for trading as at FVOCI.

- For financial liabilities designated as at FVTPL, the determination of whether presenting the effects of changes in the financial liability’s credit risk in OCI would create or enlarge an accounting mismatch in profit or loss.

- If a debt security had low credit risk at the date of initial application of SLFRS 9, then the Company has assumed that credit risk on the asset had not increased significantly since its initial recognition.

More information and details on the changes and implications resulting from the adoption of SLFRS 9 is given in Note 47.

2.14.2 SLFRS 15 – ‘Revenue from Contracts with Customers’SLFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. New qualitative and quantitative disclosure requirements aim to enable Financial Statements users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. It replaces existing revenue

recognition guidance, including LKAS 18 on ‘Revenue’ and LKAS 11 on ‘Construction Contracts’ and IFRIC 13 on ‘Customer Loyalty Programmes’.

Entities will apply five-step model to determine when to recognize revenue and at what amount. The model specified that revenue is recognised when or as an entity transfers control of goods and services to a customer at the amount to which the entity expects to be entitled. Depending on whether certain criteria are met, revenue is recognized.

The Company does not have significant impact on its Financial Statements resulting from the application of SLFRS 15.Accordingly comparative information has not been restated in this regard.

3. SIGNIFICANT 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 Consolidation3.1.1 Business combinationsThe Company’s Financial Statements comprise, Financial Statements of the Company in terms of the Sri Lanka Accounting Standard – SLFRS 10 on ‘Consolidated Financial Statements’ and the proportionate share of the profit or loss and net assets of its Associates in terms of the Sri Lanka Accounting Standard – LKAS 28 on ‘Investments in Associates and Joint Ventures’.

The Company measures goodwill as the fair value of the consideration transferred including the recognized amount of any non-controlling interest in the acquiree, less the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is recognized immediately in Profit or Loss.

The Company elects on a transaction-by-transaction basis whether to measure non-controlling interest at its fair value, or at its proportionate share of the recognized amount of the identifiable net assets, at the acquisition date.

Transaction costs, other than those associated with the issue of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred.

3.1.2 SubsidiariesSubsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operational policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account.

Control over an investee is achieved when the Company 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.

Specifically, the Company controls an investee if, and only if, the Company has:

• Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee)

• Exposure, or rights, to variable returns from its involvement with the investee

• The ability to use its power over the investee to affect its returns

When the Company has less than a majority of the voting or similar rights of an investee, the Company considers all relevant facts and circumstances in assessing whether it has power over an investee, including:



• The contractual arrangement with the other vote holders of the investee;

• Rights arising from other contractual arrangements; and

• The Company’s voting rights and potential voting rights

The Financial Statements of subsidiaries are included in the consolidated Financial Statements from the date that control commences until the date that control ceases. Acquisition of subsidiaries is accounted for using the acquisition method of accounting.

The accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by the Company. If a member of the company uses accounting policies other than those adopted in the consolidated Financial Statements for similar transactions and events in similar circumstances, appropriate adjustments are made to its Financial Statements in preparing the consolidated Financial Statements.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.

3.1.3 Non-Controlling InterestsNon-controlling Interests is the equity in a subsidiary not attributable, directly or indirectly, to the parent are presented in the Statement of Financial Position within Equity, separately from the Equity attributable to Shareholders Holders of the Parent.

3.1.4 Acquisition of Non-Controlling interestsSubsequent to the acquisition of control, any further acquisition of net assets from

non-controlling interest is accounted for as transactions with owners in their capacity as owners. Therefore, no goodwill or gain on bargain purchase is recognized as a result of such transactions.

Any difference between the amount by which the non-controlling interests is adjusted and the fair value of the consideration paid or received shall be recognized directly in equity and attributed to the owners of the parent.

3.1.5 Transactions do not result a change in controlChanges in the Company’s interest in a subsidiary that do not result in a loss of control status are accounted for as transactions with owners in their capacity as owners. Adjustments to non-controlling interests and parent’s equity are based on a proportionate amount of the net assets of the subsidiary. No adjustments are made to goodwill recognized and no gain or loss is recognized in Profit or Loss.

3.1.6 Common control transactionsA business combination involving entities or businesses under common control is a business combination in which all of the combining entities or businesses ultimately are controlled by the same party or parties both before and after the combination, and that control is not transitory.

The acquirer of the common control transaction applies book value accounting for all common control transactions.

In applying book value accounting, no entries are recognized in Profit or Loss; instead, the result of the transaction is recognized in equity as arising from a transaction with shareholders.

3.1.7 Loss of ControlThe parent can lose control of a subsidiary with or without a change in absolute or relative ownership levels. Upon the loss of control, the Company derecognizes the

assets and liabilities of the subsidiary, any minority interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in the Statement of Profit or Loss.

If the Company retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or as other financial asset depending on the level of influence retained.

3.1.8 Equity accounted Investees - AssociatesAssociates are those entities in which the Company has significant influence, but not control, over the financial and operating activities. Significant influence is presumed to exist when the Company holds between twenty and fifty percent of the voting power of another entity.

Associates are accounted for using the equity method (equity accounted investees) and are initially recognized at cost in the terms of Sri Lanka Accounting Standards – LKAS 28 on “Investment in Associates”. The Company’s investment in associate includes goodwill identified on acquisition, net of any accumulated impairment losses.

The Consolidated Financial Statements include the Company’s share of the income and expenses and equity movements of equity accounted investees, after adjustments to align the accounting policies with those of the Company, from the date that significant influence commences until the date that significant influence ceases.

Acquisitions of additional stakes of equity accounted investees, until the control is established, are accounted as goodwill within the equity accounted investment if consideration paid is more than the net asset acquired or taken into to profit or loss as gain on bargain purchase if the net asset acquired is more than the consideration paid.


When the Company’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to zero and the recognition of further losses is discontinued except to the extent that the Company has an obligation or has made payments on behalf of the investee. Associate Companies of the Group which have been accounted for under the equity method of accounting are disclosed under Note 25 to these Financial Statements.

3.1.9 Reporting DateThe financial year of equity accounted investees namely; Commercial Insurance Brokers Limited and LOLC Development Finance PLC previously known as BRAC Lanka PLC ends in 31st December and 31st March respectively.

The difference between the reporting date of the above companies and that of the parent does not exceed three months.

However, for the Company financial reporting purposes; the Financial Statements ending 31st March of the above mentioned subsidiaries and associates are considered.

3.1.10 Balances and Transactions Eliminated on ConsolidationIntragroup balances and transactions, including income, expenses and dividends, are eliminated in full. Profits and losses resulting from intragroup transactions that are recognized in assets, such as inventory and fixed assets, are eliminated in full.

Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Company’s interest in the investee.

3.1.11 Business CombinationsAll business combinations have been accounted for by applying the acquisition

method in accordance with the SLFRS 3 - Business Combinations. Applying this method involves the entity that obtains control over the other entity to recognize the fair value of assets acquired and liabilities and contingent liabilities assumed, including those not previously recognized.

3.1.12 Cost of AcquisitionThe cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. This excludes any transaction costs incurred.

3.2 Foreign currency 3.2.1 Foreign Currency TransactionsTransactions in foreign currencies are translated to the respective functional currency (Sri Lankan Rupees-LKR) at exchange rates at the dates of the transactions.

Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items are the difference between amortized cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortized cost in foreign currency translated at the exchange rate at the end of the year.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction.

Foreign currency differences arising on retranslation are recognized in Statement of Profit or Loss.

3.3 Financial Instruments3.3.1 Initial Recognition, Classification and Subsequent Measurement3.3.1.1 Date of recognition All financial assets and liabilities are initially recognised on the trade date, i.e., the date that the Company becomes a party to the contractual provisions of the instrument. This includes “regular way trades”: purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.

3.3.1.2 Initial measurement of financial Instruments The classification of financial instruments at initial recognition depends on the purpose and the management’s intention for which the financial instruments were acquired and their characteristics. All financial instruments are measured initially at their fair value plus transaction costs, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss.

3.3.2 Classification and subsequent Measurement (Policy adopted from 1st April 2018) Financial AssetsOn initial recognition, a financial asset is classified as measured at: amortised cost, FVOCI or FVTPL.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

• the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and

• the contractual terms of the financial asset give rise on specified dates to cash flows that are Assessment of whether Contractual Cash Flows are Solely Payments of Principal and Interest (“SPPI”).



A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated as at FVTPL: and

• the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.

On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in fair value in OCI. This election is made on an investment by-investment basis. All other financial assets are classified as measured at FVTPL.

In addition, on initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

3.3.2.1 Business Model AssessmentThe Company makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to Management.

The information considered includes:

• the stated policies and objectives for the portfolio and the operation of those policies in practice. In particular, whether Management’s strategy focuses on earning contractual interest revenue, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of the liabilities that are funding those assets or realising cash flows through the sale of the assets;

• how the performance of the portfolio is evaluated and reported to the Company’s Management;

• the risks that affect the performance of the business model (and the financial assets held within that business model) and its strategy for how those risks are managed;

• how managers of the business are compensated (e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected); and

• the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Company’s stated objective for managing the financial assets is achieved and how cash flows are realised.

Financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis are measured at FVTPL because they are neither held to collect contractual cashflows nor held both to collect contractual cash flows and to sell financial assets.

3.3.3 Policy adopted before 1st April 2018 Company classifies financial assets into one of the following categories:

• Financial Assets at fair value through profit or loss, and within this category as;

• held for trading; or - are recorded in the statement of financial position at fair value. Changes in fair value are recognised in ‘Net operating income’.

• designated at fair value through profit or loss. - The Company has not designated any financial assets and liabilities upon

initial recognition as at fair value through profit or loss.

• Loans and receivables; - After initial measurement, amounts ‘Loans and advances to customers’ are subsequently measured at amortised cost using the EIR, less allowance for impairment

• Held-to-maturity; - non–derivative financial assets with fixed or determinable payments and fixed maturities, which the Company has the intention and ability to hold to maturity.

After initial measurement, held–to–maturity financial investments are subsequently measured at amortised cost using the EIR, less impairment.

• Available-for-sale; - After initial measurement, available-for-sale financial investments are subsequently measured at fair value.

3.3.4 Derivatives recorded at fair value through profit or loss Derivatives held for risk management purposes. Derivatives held for risk management purposes include all derivative assets and liabilities that are not classified as trading assets or liabilities. Derivatives held for risk management purposes are measured at fair value in the statement of financial position.

Other derivatives If a derivative is not held for trading, and is not designated in a qualifying hedge relationship, then all changes in its fair value are recognised immediately in profit or loss as a component of net income from other financial instruments at FVTPL.

3.3.5 Financial AssetsFinancial assets are within the scope of SLFRS 9 are classified appropriately as Financial assets recognised through profit or loss, Financial assets measured at fair value


through other comprehensive income and Financial assets at amortised cost.

All the financial assets are recognized at fair value at its initial recognition.

3.3.5.1 Financial assets recognised through profit or loss/Trading assets - fair value through profit or lossA financial asset is classified at fair value through Profit or Loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through Profit or Loss if the Company manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Company’s documented risk management or investment strategy. Upon initial recognition, transaction costs are recognized in Profit or Loss as incurred.

Financial assets at fair value through Profit or Loss are measured at fair value, and subsequent therein are recognized in Profit or Loss.

The Company’s investments in certain equity securities and derivative instruments which are not accounted under hedge accounting are classified under fair value through profit or loss.

3.3.5.2 Financial assets at amortised cost / Loans & receivablesFinancial assets at amortised cost /Loans & receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses.

Loans and receivables of the Company comprise of the followings,

3.3.5.3 Rental receivables on Finance Leases and Hire purchasesAssets leased to customers which transfer substantially all the risks and rewards associated with ownership other than legal title, are classified as finance leases. Amounts receivable under finance leases are included under “Lease Rentals Receivable”. Leasing balances are stated in the Statement of Financial Position after deduction of initial rentals received, unearned lease income and the provision for impairment.

Assets sold to customers under fixed rate hire agreements, which transfer all risk and rewards as well as the legal title at the end of such contractual period are classified as ‘Hire Purchase Receivable’. Such assets are accounted for in a similar manner as finance leases.

3.3.5.4 Rental receivables on Operating Leases Leases where the Company as the lessor effectively retains substantially all the risk and rewards incidental to the ownership are classified as operating leases. Lease rentals from operating leases are recognized as income on a straight-line basis over the lease term.

3.3.5.5 Advances and Other Loans to CustomersAdvances and other loans to customers comprised of revolving loans, loans with fixed installments. Revolving loans to customers are reflected in the statement of financial position at amounts disbursed less repayments and allowance for impairment losses. Loans to customers with fixed installments are stated in the statement of financial position net of possible loan losses and net of interest, which is not accrued to revenue.

After initial measurement, ‘loans and advances’ are subsequently measured at amortised cost using the EIR, less allowance

for impairment except when the Company recognises loans and receivables at fair value through profit or loss. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR. The amortisation is included in ‘Interest Income’ in the Statement of Profit or Loss. The losses arising from impairment are recognised in the Statement of Profit or Loss.

3.3.5.6 Trade ReceivablesTrade receivables are stated at the amounts they are estimated to realize, net of provisions for impairment. An allowance for impairment losses is made where there is objective evidence that the Company will not be able to recover all amounts due according to the original terms of receivables. Impaired receivables are written-off when identified.

3.3.5.7 Financial assets measured at fair value through other comprehensive income/Available-for-sale investment securitiesAvailable-for-sale financial assets are non-derivative financial assets that are designated as available for- sale and that are not classified in any of the previous categories of financial assets. Available-for-sale financial assets are recognised initially at fair value plus any directly attributable transaction costs.

Subsequent to initial recognition, these are measured at fair value and changes therein, other than impairment losses are recognized in other comprehensive income and presented within equity in the fair value reserve. When an investment is derecognized, the cumulative gain or loss in other comprehensive income is transferred to Profit or Loss.

Available-for-sale financial assets comprise of Treasury Bonds.



3.3.5.8 Cash and Cash EquivalentsCash and cash equivalents comprise of cash in hand and cash at banks and other highly liquid financial assets which are held for the purpose of meeting short-term cash commitments with original maturities of less than three months which are subject to insignificant risk of changes in their fair value.

Bank overdrafts that are repayable on demand and form an integral part of the Company cash management are included as a component of cash and cash equivalents for the purpose of the Statement of Cash Flows.

3.3.6 Financial Liabilities The Company initially recognizes debt securities, deposits from customers and loans & borrowings on the date that they are originated. All other financial liabilities are recognized at initially on the trade date, which is the date that the Company becomes party to the contractual provisions of the instruments.

The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled or expired.

The Company classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognized initially at fair value plus any directly attributable transaction cost. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using effective interest rate method.

Other financial liabilities comprise of loans & borrowings, debenture issued, bank overdraft, customer deposits and trade and other payables.

3.3.6.1 Recognition and measurement of financial liabilitiesPolicy applicable after 1st April 2018

On initial recognition, the Company classifies financial liabilities, other than financial guarantees and loan commitments, into one of the following categories:

• Financial liabilities at amortised cost; and

• Financial liabilities at fair value through profit or loss,

Policy applicable before 1st April 2018Company classifies financial liabilities into one of the following categories:

• Financial liabilities at fair value through profit or loss, and within this category as;

• Held-for-trading; or

• Designated at fair value through profit or loss.

• Financial liabilities at amortised cost

A financial liability is measured initially at fair value plus, transaction costs that are directly attributable to its acquisition or issue. Subsequent measurement of financial liability is at fair value or amortised cost. The amortised cost of a financial liability is the amount at which the financial liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the initial amount and the maturity amount.

3.3.6.1.1 Classification and subsequent measurement of financial liabilities The subsequent measurement of financial liabilities depends on their classification.

3.3.6.2 Financial liabilities at amortised costFinancial Liabilities issued by the Company that are not designated at fair value through profit or loss are recognised initially at fair value plus any directly attributable transaction costs, by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest

method. Deposit liabilities including savings deposits, current deposits, fixed/time deposits, call deposits, certificates of deposit and debentures are classified as financial liabilities measured at amortised cost.

The EIR amortisation is included in “Interest expense” in the income statement. Gains and losses too are recognised in the income statement when the liabilities are derecognized as well as through the EIR amortization process.

3.3.6.3 Financial liabilities at fair value through profit or lossFinancial liabilities at fair value through profit or loss include derivative liabilities held for risk management purposes.

3.3.6.4 Deposits and borrowingsDeposits and borrowings are the Company’s resources of funding.

3.3.6.4.1 Due to banks and other financial institutionsThese represents refinance borrowings, called money borrowings, credit balances in Nostro Accounts and borrowings from financial institutions. Subsequent to initial recognition deposits are measured at their amortised cost using the EIR method. Interest paid/payable on these borrowings is recognised in profit or loss.

3.3.6.4.2 Due to customersThese include non-interest-bearing deposits, savings deposits, term deposits, deposits payable at call and certificates of deposit. Subsequent to initial recognition deposits are measured at their amortised cost using the EIR method, except where the Company designates liabilities at fair value through profit or loss. Interest paid/ payable on these deposits is recognised in profit or loss.

3.3.6.5 Reclassification of Financial Assets and LiabilitiesPolicy applicable after 1st April 2018 Financial assets are not reclassified subsequent to their initial recognition,


except and only in those rare circumstances when the Company’s changes its objective of the business model for managing such financial assets. Financial Liabilities are not reclassified as such reclassifications are not permitted by SLFRS 9.

Policy applicable before 1st April 2018The Company reclassifies non-derivative financial assets out of the ‘held-for-trading’ category and into the ‘available-forsale’, ‘loans and receivables’, or ‘held to maturity’ categories as permitted by the Sri Lanka Accounting Standard - LKAS 39 on ‘Financial Instruments: Recognition and Measurement’. Further, in certain circumstances, the Company is permitted to reclassify financial instruments out of the ‘available-for-sale’ category and into the ‘loans and receivables’ category. Reclassifications are recorded at fair value at the date of reclassification, which becomes the new amortised cost.

For a financial asset with a fixed maturity reclassified out of the ‘available-for-sale’ category, any previous gain or loss on that asset that has been recognised in Equity is amortised to profit or loss over the remaining life of the asset using the EIR. Any difference between the new amortised cost and the expected cash flows is also amortised over the remaining life of the asset using the EIR. In the case of a financial asset that does not have a fixed maturity, the gain or loss is recognised in the profit or loss when such financial asset is sold or disposed of. If the financial asset is subsequently determined to be impaired, then the amount recorded in Equity is recycled to profit or loss.

The Company may reclassify a non-derivative trading asset out of the ‘held-for trading’ category and into the ‘loans and receivables’ category if it meets the definition of loans and receivables and the Company has the intention and ability to hold the financial asset for the foreseeable future or until maturity. If a financial asset is reclassified and if the Company

subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognised as an adjustment to the EIR from the date of the change in estimate.

Reclassification is at the election of the Management and is determined on an instrument-by-instrument basis.

The Company does not reclassify any financial instrument into the fair value through profit or loss category after initial recognition. Further, the Company does not reclassify any financial instrument out of the fair value through profit or loss category if upon initial recognition it was designated as at fair value through profit or loss.

3.3.7 Impairment of Financial Assets Policy adopted from 1st April 2018

3.3.7.1. Recognition of ECL The Company recognises allowances for Expected Credit Losses (ECL) on the following financial instruments that are not measured at FVTPL:

• financial assets that are debt instruments;

• lease receivables;

• financial guarantee contracts issued; and

• undrawn credit commitments.

No impairment loss is recognised on equity investments.

The Company measures loss allowances at an amount equal to lifetime ECL, except for the following, for which they are measured as 12-month ECL:

• debt investment securities that are determined to have low credit risk at the reporting date; and

• other financial instruments on which credit risk has not increased significantly since their initial recognition.

The Company considers a debt investment security to have low credit risk when its credit risk rating is equivalent to the definition of “investment grade”. The Company does not apply the low credit risk exemption to any other financial instruments. 12-month ECL are the portion of ECL that result from default events on a financial instrument that are possible within the 12 months after the reporting date.

Financial instruments for which a 12-month ECL is recognised are referred to as “Stage 1 financial instruments”.

Life-time ECL are the ECL that result from all possible default events over the expected life of the financial instrument. Financial instruments for which a lifetime ECL is recognised but which are not credit-impaired are referred to as “Stage 2 financial instruments”.

3.3.7.2. Measurement of ECL ECL are a probability-weighted estimate of credit losses. They are measured as follows:

• financial assets that are not credit impaired at the reporting date: as the present value of all cash shortfalls (i.e, the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Company expects to receive);

• financial assets that are credit impaired at the reporting date: as the difference between the gross carrying amount and the present value of estimated future cash flows;

• undrawn loan commitments: as the present value of the difference between the contractual cash flows that are due to the Company if the commitment is drawn down and the cash flows that the Company expects to receive; and

• financial guarantee contracts: the expected payments to reimburse



the holder less any amounts that the Company expects to recover.

3.3.7.3. Credit-Impaired Financial AssetsAt each reporting date, the Company assesses whether financial assets carried at amortised cost and debt financial assets carried at FVOCI, and finance lease receivables are credit-impaired (referred to as “Stage 3 financial assets”). A financial asset is “credit-impaired” when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable data: – significant financial difficulty of the borrower or issuer

• a breach of contract such as a default or past due event;

• it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or

• the disappearance of an active market for a security because of financial difficulties.

3.3.7.4 Presentation of Allowance for ECL in the Statement of Financial Position Loss allowances for ECL are presented in the Statement of Financial Position as follows:

• financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets;

• loan commitments and financial guarantee contracts: as a provision under other liabilities;

• debt instruments measured at FVOCI: no loss allowance is recognised in the Statement of Financial Position because the carrying amount of these assets is their fair value. However, the loss

allowance is disclosed and is recognised in the reserves.

3.3.7.5. Write-offLoans and debt securities are written off (either partially or in full) when there is no reasonable expectation of recovering a financial asset in its entirety or a portion thereof. This is generally the case when the Company determines that the borrower does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the writeoff. This assessment is carried out at the individual asset level.

Recoveries of amounts previously written off are included in “impairment losses on financial instruments” in the Statement of Profit or Loss.

Financial assets that are written off could still be subject to enforcement activities in order to comply with the Company’s procedures for recovery of amounts due.

Policy adopted before 1st April 2018Impairment of Financial Assets The Company assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets not carried at fair value through profit or loss are impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has 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 flows of the financial asset or the group of financial assets that can be reliably estimated.

Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, the probability that they will enter bankruptcy or other financial reorganisation, default or delinquency in

interest or principal payments and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is considered as an objective evidence of impairment. In general, the Company considers a decline of 20% to be ‘significant’ and a period of nine months to be ‘prolonged’. However, in specific circumstances a smaller decline or a shorter period may be appropriate.

Impairment of financial assets carried at amortised costFor financial assets carried at amortised cost (such as loans and advances to customers as well as held-to-maturity investments), the Company first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are 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.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets’ carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. Interest income continues to be accrued on


the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of ‘Interest Income’.

Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Company. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write–off is later recovered, the recovery is credited to the ’Income Statement’.

The present value of the estimated future cash flows is discounted at the financial asset’s original EIR. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR. If the Company has reclassified trading assets to loans and advances, the discount rate for measuring any impairment loss is the new EIR determined at the reclassification date. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from fore closure less costs for obtaining and selling the collateral, whether or not fore closure is probable.

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Company’s credit risk characteristics such as asset type, industry, geographical location, past–due status and other relevant factors.

Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with

credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently.

Estimates of changes in future cash flows reflect, and are directionally consistent with, changes in related observable data from year to year (such as changes in unemployment rates, property prices, commodity prices, payment status, or other factors that are indicative of incurred losses in the group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

Impairment of available-for-sale financial investmentsFor available-for-sale financial investments, the Company assesses at each reporting date whether there is objective evidence that an investment is impaired.

In the case of debt instruments classified as available-for-sale, the Company assesses individually whether there is objective evidence of impairment based on the same criteria as financial assets carried at amortised cost.

However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement. Future profit income is based on the reduced carrying amount and is accrued using the rate of return used to discount the future cash flows for the purpose of measuring the impairment loss.

In the case of equity investments classified as available-for-sale, objective evidence

would also include a ‘significant’ or ‘prolonged’ decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement – is removed from equity and recognised in the income statement.

Impairment losses on equity investments are not reversed through the income statement; increases in the fair value after impairment are recognised in other comprehensive income.

3.3.8 Derecognition of Financial Assets and Financial Liabilities3.3.8.1 Financial assetsA financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:

• The rights to receive cash flows from the asset have expired.

• The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass–through’ arrangement; and either:

• The Company has transferred substantially all the risks and rewards of the asset, or

• The Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass– through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the



asset, the asset is recognised to the extent of the Company’s continuing involvement in the asset. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.

3.3.8.2 Financial liabilitiesA financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognised in profit or loss.

3.3.9 Offsetting financial instrumentsFinancial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, therefore, the related assets and liabilities are presented gross in statement of financial position.

3.3.10 Amortized cost measurementThe amortized cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortization

using the effective interest method of any difference between the initial amount recognized and the maturity amount, minus any reduction for impairment.

3.3.11 Fair value measurement SLFRS 13 Fair Value Measurement applies to SLFRSs that require or permit fair value measurement or disclosures and provides a single SLFRS framework for measuring fair value and disclosures on fair value measurement. The Standard defines fair value on the basis of an 'exit price' notion and uses a 'fair value hierarchy', which results in a market-based, rather than entity-specific, measurement.

SLFRS 13, defines fair value, sets out in a single SLFRS a framework for measuring fair value disclosures on fair value measurements.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction on the measurement date.

When available, the Company measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm's length basis.

If a market for a financial instrument is not active, the Company establishes fair value using valuation techniques. Valuation techniques include using recent arm's length transactions between knowledgeable, willing parties (if available), reference to the current fair value of other instruments that are substantially the same, discounted cash flow analysis and other equity pricing models.

The chosen valuation technique makes maximum use of market inputs, relies as

little as possible on estimates specific to the Company, incorporates all factors that market participants would consider in setting a price, and is consistent with accepted economic methodologies for pricing financial instruments.

The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, i.e. the fair value of the consideration given or received, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets. When transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently recognized in Statement of Financial position.

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.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. External professional valuers are involved for valuation of significant assets such as land and building.

An analysis of fair value measurement of financial and non-financial assets and liabilities is provided in Note 49.

3.3.12 Valuation of Financial InstrumentsThe Company measures the fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements.


Level 1 – Quoted market price (unadjusted) in an active market of an identical instrument.

Level 2 – Valuation techniques based on observable inputs, either directly (i.e., as prices) or indirectly (i.e., derived from prices), this category included instruments valued using: quoted market prices in active markets similar instruments; quoted prices for identical or similar instruments in markets are considered less than active: or other valuation techniques where all significant inputs are directly observable from market data.

Level 3 – Valuation techniques use significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation.

This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Company determines fair values using valuation techniques

Valuation techniques include comparison to similar instruments for which market observable prices exist, other equity pricing models and other valuation models.

The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instruments at the reporting date that would have been determined by market participants acting at arm’s length.

The Company widely recognized valuation models for determining the fair value

of common and more simple financial instruments. Observable prices and model inputs are usually available in the market for listed debt and equity securities. Availability of observable market inputs reduces the need of management judgment and estimation and also reduces the uncertainty associated with determination of fair values. Availability of observable market prices and inputs varies depending on the products and markets are prone to changes based on specific events and general conditions in the financial markets.

3.3.13 Accounting for Derivative Financial InstrumentsDerivatives are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at their fair value. Fair values are obtained from quoted market prices in active markets, or using valuation techniques. All derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

3.3.14 Hedge accountingThe Company holds derivative financial instruments to hedge its foreign currency risk exposure. On initial designation of the derivative as the hedge instrument, the company formally documents the relationship between the hedging instrument and hedged item, its risk management objective and its strategy in undertaking the hedge.

Central treasury documents the assessment, both at hedge inception and on an on-going basis, of whether or not the hedging instruments, primarily forward rate contracts, that are used in hedging transactions are highly effective in offsetting the changes attributable to the hedged risks in the fair values or cash flows of the hedged items.

Derivatives are recognised initially at fair value; any attributable transaction costs are recognised in profit or loss as incurred.

Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

3.3.15 Cash flow hedgeWhen a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.

When the hedged item is a non-financial asset, the amount accumulated in equity is retained in other comprehensive income and reclassified to profit or loss in the same period or periods during which the non-financial item affects profit or loss. In other cases as well, the amount accumulated in equity is reclassified to profit or loss in the same period that the hedged item affects profit or loss.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the balance in equity is reclassified to profit or loss.

3.3.16 Hedge Effectiveness TestingTo qualify for hedge accounting, at the inception of the hedge and throughout its life, each hedge must be expected to be highly effective and demonstrate actual effectiveness on an on-going basis. The documentation of each hedging relationship sets out how the effectiveness of the hedge is assessed.



The method adopted by the Company to assess hedge effectiveness is based on its risk management strategy. For expected effectiveness, the hedging instrument must be expected to be highly effective in offsetting changes in cash flows attributable to the hedged risk during the period for which the hedge is designated. For actual effectiveness to be achieved, the changes in fair value or cash flows must offset each other in the range of 80% to 125%. The ineffective portion will be recognised immediately in income statement. In measuring the effectiveness, the forecasted transaction of entering into another forward contract is also taken into consideration.

3.3.17 Non-Financial ReceivablesOther receivable balances are stated at estimated amounts receivable after providing for impairment.

3.4 Investment Properties3.4.1 Basis of RecognitionInvestment property is the property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes.

3.4.2 Basis of Measurement3.4.2.1 Fair value ModelInvestment properties are initially recognized at cost. Subsequent to initial recognition the investment properties are stated at fair values, which reflect market conditions at the reporting date. Gains or losses arising from changes in fair value are included in the Statement of Profit or Loss in the year in which they arise.

Where Company occupy a significant portion of the investment property of a subsidiary, such investment properties are treated as property, plant and equipment in the Consolidated Financial Statements, and accounted for as per LKAS 16- Property, Plant and Equipment.

3.4.2.2 De-recognition Investment properties are de-recognized when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in the Statement of Profit or Loss in the year of retirement or disposal.

3.4.2.3 Subsequent Transfers to/from Investment PropertyTransfers are made to investment property when, and only when, there is a change in use, evidenced by the end of owner occupation, commencement of an operating lease to another party or completion of construction or development.

Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner occupation or commencement of development with a view to sale.

For a transfer from investment property to owner occupied property or inventories, the deemed cost of property for subsequent accounting is its fair value at the date of change in use. If the property occupied by the Company as an owner occupied property becomes an investment property, the Company, accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use.

For a transfer from inventories to investment property, any difference between the fair value of the property at that date and its previous carrying amount is recognized in the Statement of Profit or Loss. When the Company completes the construction or development of a self-constructed investment property, any difference between the fair value of the property at that date and

its previous carrying amount is recognized in the Statement of Profit or Loss.

3.4.2.4 Determining Fair Value External and independent valuers, having appropriate recognized professional qualifications and recent experience in the location and category of property being valued, values the investment property portfolio as at each reporting date. In financial periods within that period the fair value is determined by the Board of Directors.

The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably.

3.5 Intangible Assets3.5.1 Basis of RecognitionAn intangible asset is recognized if it is probable that future economic benefits that are attributable to the assets will flow to the entity and the cost of the assets can be measured reliably.

3.5.2 Basis of MeasurementIntangible assets acquired separately are measured as initial recognition at cost. Following initial recognition intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. The useful life of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite useful life are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the method for an intangible asset with a definite useful life is reviewed at least at each financial year end. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash generating unit level.


3.5.3 Subsequent ExpenditureSubsequent expenditure on intangible assets are capitalized only when it increases the future economic benefits embodied these assets. All other expenditure are expensed when incurred.

3.5.4 De-recognitionIntangible assets are de-recognized on disposal or when no future economic benefits are expected from its use. The gain or loss arising from de-recognition of intangible assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset.

3.5.5 AmortizationAmortization is recognized in the Statement of statement of profit or loss on a straight-line basis over the estimated useful life of intangible assets, other than goodwill, from the date that they are available for use.

The estimated useful life of each intangible asset is as follows;

Computer Software 5 years

License and Fees 20 years

Amortization methods, useful lives and residual values are reviewed at each reporting date and are adjusted as appropriate.

3.6 Property, Plant and Equipment 3.6.1 Freehold Property, Plant & Equipment3.6.1.1 Basis of Recognition Property, plant and equipment are recognized if it is probable that future economic benefits associated with the asset will flow to the Company and cost of the asset can be reliably measured.

3.6.1.2 Basis of MeasurementItems of property, plant and equipment are measured at cost/revaluation less accumulated depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site at which they are located and capitalized borrowing costs.

Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

3.6.1.3 Cost ModelThe Company applies the cost model to all property, plant and equipment except freehold land and buildings; which records at cost of purchase together with any incidental expenses thereon less any accumulated depreciation and accumulated impairment losses if any.

3.6.1.4 Revaluation ModelThe Company revalues its land and buildings which are measured at its fair value at the date of revaluation less any subsequent accumulated depreciation and accumulated impairment losses. Revaluations are made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the reporting date.

On revaluation of lands and buildings, any increase in the revaluation amount is credited to the revaluation reserve through other comprehensive income in shareholder’s equity unless it off sets a previous decrease in value of the same asset that was recognized in the Statement of Profit or Loss. A decrease in value is recognized in the Statement of Profit or Loss

where it exceeds the increase previously recognized in the revaluation reserve. Upon disposal, any related revaluation reserve is transferred from the revaluation reserve to retained earnings and is not taken into account in arriving at the gain or loss on disposal.

3.6.1.5 Subsequent Cost Subsequent expenditure is capitalized only when it is probable that the future economic benefits associated with the expenditure will flow to the Company. Ongoing repairs and maintenance are expensed as incurred.

3.6.1.6 Reclassification to investment propertyWhen the use of a property changes from owner-occupied to investment property, the property is re-measured to fair value and reclassified as investment property. Any gain arising on re-measurement is recognized in Profit or Loss to the extent that it reverses a previous impairment loss on the specific property, with any remaining gain recognized and presented in the revaluation reserve in equity. Any loss is recognized immediately in Profit or Loss.

3.6.1.7 Depreciation Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately.Depreciation is recognized in Profit or Loss on a straight-line basis over the estimated useful life of each component of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. Lands are not depreciated.

Depreciation of an asset begins when it is available for use and ceases at the earlier of



the date that the asset is classified as held for sale and the date that the asset is de-recognized.

Depreciation methods, useful life values are assessed at the reporting date. The estimated useful lives for the current year are as follows:

Free-hold building 40 yearsFixtures 05 yearsOffice Furniture 05 years Office Equipment 05 years Free-hold motor Vehicles 04 years Computer Equipment 05 yearsCommunication Equipment 01 years

3.6.1.8 De-recognitionAn item of property, plant and equipment is de-recognized upon disposal or when no future economic are expected from its use or disposal.

The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment, and is recognized net within other income/other expenses in the Statement of Profit or Loss. When revalued assets are sold, the amounts included in the revaluation surplus reserve are transferred to retained earnings.

3.6.2 Operating Lease AssetsWhen acting as lessor, the Company 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.

3.6.3 Capital Work-in-ProgressCapital work-in-progress represents the accumulated cost of materials and other costs directly related to the construction of an asset. Capital work in progress is

transferred to the respective asset accounts at the time it is substantially completed and ready for its intended use.

3.7 Impairment of Non-financial AssetsThe carrying amounts of the Company’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. An impairment loss is recognized if the carrying amount of an asset or its related Cash-Generating Unit (CGU) exceeds its estimated recoverable amount.

The Company’s corporate assets do not generate separate cash inflows and are utilized by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated.

Impairment losses are recognized in Profit or Loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.

An impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognized.

3.8 Tax expenseTax expense comprises current, deferred tax and other statutory taxes. Income tax

and deferred tax expense is recognized in Statement of Profit or Loss except to the extent that it relates to items recognized in the Statement of Other Comprehensive Income or Statement of Changes in in equity.

3.8.1 Current tax expenseCurrent tax is the expected tax payable or recoverable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the tax on dividend income.

The provision for income tax is based on the elements of income and expenditure as reported in the Financial Statements and computed in accordance with the provisions of the Inland Revenue Act. No 10 of 2006 and subsequent amendments thereto.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the Commissioner General of Inland Revenue.

3.8.2 Deferred taxDeferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for:

• Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

• Temporary differences related to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and


• Taxable temporary differences arising on the initial recognition of goodwill.

• Taxable temporary differences arising on subsidiaries, associates or joint ventures who have not distributed their entire profits to the parent or investor.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Deferred tax assets and liabilities are not discounted.

The net increase in the carrying amount of deferred tax liability net of deferred tax asset is recognized as deferred tax expense and conversely any net decrease is recognized as reversal to deferred tax expense, in the Statement of Profit or Loss.

3.8.2.1 Deferred Tax on Undistributed Profits of Equity Accounted InvesteesThe Company does not control its equity accounted investees. It is therefore generally

not in a position to control the timing of the reversal of a possible taxable temporary difference relating to the undistributed profits of the equity accounted investees.

The Company calculates deferred tax based on the most likely manner of reversal, taking into account management's intent and the tax jurisdiction applicable to relevant equity accounted investees.

The management intends to recover the carrying amount of the investment primarily through sale of the investment rather than through dividends. The deferred tax implications are evaluated based on the tax consequences on the sale of investments.

Since the carrying amount is expected to be recovered through a sale transactions which has no tax consequences, no temporary difference arise on the equity accounted investees and no deferred tax is provided.

3.8.3 Withholding Tax on DividendsDividend distributed out of taxable profit of the local companies attracts a 14% deduction at source and is not available for set off against the tax liability of the Company. Withholding tax that arises from the distribution of dividends by the Company is recognized at the same time as the liability to pay the related dividend is recognized.

3.8.4 Economic Service Charge (ESC)As per the provisions of Economic Service Charge Act No. 13 of 2006 and subsequent amendments thereto, ESC is payable on the liable turnover at specified rates. ESC is deductible from the income tax liability. Any unclaimed amount can be carried forward and set off against the income tax payable in the five subsequent years as per the relevant provision in the Act.

3.8.5 Nation Building Tax (NBT)As per the provisions of the Nation Building Tax Act, No. 9 of 2009 and the subsequent

amendments thereto, Nation Building Tax should be payable at the rate of 2% with effect from 1 January 2011 on the liable turnover as per the relevant provisions of the Act.

3.8.6 Value Added Tax on Financial Services (VAT on FS)VAT on Financial Services is calculated in accordance with the amended VAT Act No. 7 of 2003 and subsequent amendments thereto. The base for the computation of VAT on Financial Services is the accounting profit before income tax adjusted for the economic depreciation and emoluments of employees. VAT on financial services is computed on the prescribed rate of 15%.

The VAT on Financial service is recognized as expense in the period it becomes due.

3.8.7 Crop Insurance Levy (CIL)As per the provisions of the Section 14 of the Finance Act No. 12 of 2013, the CIL was introduced with effect from April 01, 2013 and is payable to the National Insurance Trust Fund. Currently, the CIL is payable at 1% of the profit after tax.

3.8.8 Debt Repayment Levy (DRL) on financial servicesAs per the Finance Act No. 35 of 2018, with effect from October 1, 2018, DRL of 7% was introduced on the value addition attributable to the supply of financial services by each financial institution. DRL is chargeable on the same base used for calculation of VAT on financial services as explained in Note 3.8.6 above.

3.9 Borrowing CostsBorrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets that take a substantial period of time to get ready for its intended use or sale, are capitalized as part of the assets.



Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in Profit or Loss using the effective interest method.

3.10 Other Non-Financial Liabilities and ProvisionsLiabilities are recognized in the Statement of Financial Position when there is a present obligation as a result of a past event, the settlement of which is expected to result in an outflow of resources embodying economic benefits. Obligations payable at the demand of the creditor within one year of the reporting date are treated as current liabilities. Liabilities payable after one year from the reporting date are treated as non-current liabilities.

3.11 Deposits due to CustomersDeposits include term deposits and certificates of deposits. They are stated in the Statement of Financial Position at amount payable. Interest paid / payable on these deposits based on effective interest rate is charged to the Statement of Profit or Loss.

3.12 Deposit Insurance Scheme In terms of the Finance Companies Direction No 2 of 2010 “Insurance of Deposit Liabilities” issued on 27th September 2010, all Registered Finance Companies 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 to 32E of the Monetary Law Act with effect from 1st October 2010.

Deposits to be insured include time and savings deposit liabilities and exclude the following.

• Deposit liabilities to member institutions

• Deposit liabilities to Government of Sri Lanka

• Deposit liabilities to shareholders, directors, key management personnel and other related parties as defined in Finance Companies Act Direction No 03 of 2008 on Corporate Governance of Registered Finance Companies

• Deposit liabilities held as collateral against any accommodation granted

• Deposit liabilities falling within the meaning of dormant deposits in terms of the Finance Companies Act, funds of which have been transferred to Central Bank of Sri Lanka

Registered Finance Companies are required to pay a premium of 0.15% on eligible deposit liabilities as at end of the month to be payable within a period of 15 days from the end of the respective month.

3.13 Debt Securities IssuedThese represent the funds borrowed by the Company for long-term funding requirements. Subsequent to initial recognition debt securities issued are measured at their amortised cost using the effective interest method, except where the Company designates debt securities issued at fair value through profit or loss. Interest paid/payable is recognised in profit or loss.

3.14 Other LiabilitiesOther liabilities are recorded at amounts expected to be payable at the Reporting date.

3.15 Employee Benefits3.15.1 Defined Contribution Plans A Defined Contribution Plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to Defined Contribution Plans are recognized as an employee benefit expense in the Statement of Profit or Loss in the periods during which services are rendered by employees.

3.15.1.1 Employees’ Provident Fund (EPF)The Company and employees contribute 12% and 8% respectively on the salary of each employee to the above mentioned funds.

3.15.1.2 Employees’ Trust Fund (ETF)The Company contributes 3% of the salary of each employee to the Employees’ Trust Fund.

3.15.2 Retirement Benefits Plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company's net obligation in respect of defined benefit pension plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognized past service costs are deducted.

The calculation is performed every three years by a qualified actuary using the projected unit credit method. For the purpose of determining the charge for any period before the next regular actuarial valuation falls due, an approximate estimate provided by the qualified actuary is used.

When the benefits of a plan are improved, the portion of the increased benefit related to past service by employees is recognized in Profit or Loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognized immediately in Profit or Loss.

The Company recognizes all actuarial gains and losses arising from the defined benefit plan in other comprehensive income (OCI) and all other expenses related to defined benefit plans are recognize as personnel expenses in Statement of Profit or Loss. This retirement benefit obligation is not externally funded.


However, according to the Payment of Gratuity Act No.12 of 1983, the liability for the gratuity payment to an employee arises only on the completion of 5 years of continued service with the Company.

3.15.3 Short-term Employee BenefitsShort-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus if the company has a present 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.

3.16 Provisions, Contingent Assets and Contingent LiabilitiesProvisions are made for all obligations (legal or constructive) existing as at the reporting date when it is probable that such an obligation will result in an outflow of resources and a reliable estimate can be made of the quantum of the outflow. The amount recognized is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation at that date.

All contingent liabilities are disclosed as a note to the Financial Statements unless the outflow of resources is remote. Contingent assets are disclosed, where inflow of economic benefit is probable.

Statement of Profit or Loss and Other Comprehensive Income

3.17 Revenue RecognitionRevenue is recognized to the extent that it is probable that the economic benefits will flow to the Company, and the revenue and associated costs incurred or to be incurred can be reliably measured. Revenue is measured at the fair value of the

consideration received or receivable, taking into account contractually defined terms of payment.

3.17.1 Interest Income on Leases, Hire Purchases, Loans and AdvancesInterest income and expense are recognized in Profit or Loss using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. When calculating the effective interest rate, the Company estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses.

The calculation of the effective interest rate includes all transaction costs and fees paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability.

Interest income and expense presented in the Statement of Profit or Loss includes,

• interest on financial assets and financial liabilities measured at amortized cost calculated on an effective interest basis

• interest on available for sale investment securities calculated on an effective interest basis

Interest income and expense on all trading assets and liabilities are considered to be incidental to the Company's trading operations and are presented together with all other changes in the fair value of trading assets and liabilities in net trading income.

Fair value changes on other derivatives held for risk management purposes, and other financial assets and liabilities carried

at fair value through Profit or Loss, are presented in net income from other financial instruments at fair value through Profit or Loss in the Statement of Profit or Loss.

The excess of aggregated contract receivable over the cost of the assets constitutes the total unearned income at the commencement of a contract. The unearned income is recognized as income over the term of the facility commencing with the month that the facility is executed in proportion to the declining receivable balance, so as to produce a constant periodic rate of return on the net investment.

3.17.2 Service charge and facility fee from micro finance facilitiesCollection on service charge and facility fee from micro finance facilities are accounted on cash basis.

3.17.3 Fees and Other IncomeFees and commission income and expense that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate.

Other fees and commission income, including account servicing fees are recognized as the related services are performed.

Profit or loss on contracts terminated, collections on contracts written off, interest on overdue rentals, interest earned on property sale and buy back agreements are accounted for on cash basis.

3.17.4 Net income from other financial instruments at fair value through Profit or LossNet income from other financial instruments at fair value through Profit or Loss relates to non-trading derivatives held for risk management purposes that do not form part of qualifying hedge relationships and financial assets and liabilities designated



at fair value through Profit or Loss, and include all realized and unrealized fair value changes, interest, dividends and foreign exchange differences.

3.17.5 Factoring IncomeRevenue is derived from two sources, Funding and providing Sales Ledger Related Services.

Funding - Discount income relating to factoring transactions is recognized at the end of a given accounting month. In computing this discount, a fixed rate agreed upon at the commencement of the factoring agreement is applied on the daily balance in the client’s current account.

Sales Ledger Related Services - A service charge is levied as stipulated in the factoring agreement.

Income is accounted for on an accrual basis and deemed earned on disbursement of advances for invoices factored.

The above revenue components are accounted on an accrual basis and deemed earned on disbursement of advances for invoices factored.

3.17.6 Other IncomeRent income and non-operational interest income are accounted for on accrual basis.

Dividend income is recognized when the right to receive payment is established.

Gain on disposal of property, plant and equipment and other non-current assets, including investments held by the Company have been accounted for in the Statement of Profit or Loss Income, after deducting from the net sales proceeds on disposal of the carrying amount of such assets.

3.17.7 Rental IncomeRental income from investment property is recognized in Profit or Loss on a straight-

line basis over the term of the lease. Lease incentives granted are recognized as an integral part of the total rental income, over the term of the lease. Rental income from subleased property is recognized as other income.

3.18 Expenses RecognitionExpenses are recognized in the Statement of Profit or Loss on the basis of a direct association between the cost incurred and the earning of specific items of income. All expenditure incurred in the running of the business and in maintaining the property, plant & equipment in a state of efficiency has been charged to income in arriving at the profit for the year.

For the presentation of the Statement of Profit or Loss the Directors are of the opinion that the nature of the expenses method present fairly the element of the Company’s performance, and hence such presentation method is adopted.

3.19 Earnings per ShareThe Company presents basic earnings per share data for its ordinary shares. Basic earnings per share is calculated by dividing the Profit or Loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year.

3.20 Statement of Cash FlowsThe Cash Flow Statement has been prepared using the 'Indirect Method' of preparing Cash Flows in accordance with the Sri Lanka Accounting Standard 7 'Cash Flow Statements.' Cash and cash equivalents comprise short term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.

Cash and cash equivalents comprise of cash in hand and cash at banks and other highly liquid financial assets which are held for the purpose of meeting short-term cash

commitments with original maturities of less than three months which are subject to insignificant risk of changes in their fair value.

3.21 Movement of Reserves Movement of Reserves is disclosed in the Statement of Changes in Equity.

3.22 Related Party TransactionsTransactions with related parties are conducted on normal business terms. The relevant disclosures are given in Note 41 to the Financial Statements.

3.23 Transactions with Related PartiesThe Company carries out transactions in the ordinary course of its business with parties who are defined as related parties in Sri Lanka Accounting Standard 24.

3.23.1 Transactions with Key Management PersonnelAccording to Sri Lanka Accounting Standard 24 “Related Party Disclosures”, Key management personnel, are those having authority and responsibility for planning, directing and controlling the activities of the entity. Accordingly, the company has pre-defined approved list of key management personal.

3.24 Operating SegmentsAn operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other components. All operating segments operating results are reviewed regularly by Board of Directors of the Company to make decisions about resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available.

Accordingly, the segment comprises of financial services are described in Note 48.


Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.

Expenses that cannot be directly identified to a particular segment are allocated on bases decided by the management and applied consistently throughout the year.

3.25 Subsequent Events All material subsequent events have been considered and where appropriate adjustments or disclosures have been made in the respective Notes to the Financial Statements.

3.26 Commitments and ContingenciesAll discernible risks are accounted for in determining the amount of all known liabilities. Contingent Liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is not probable or cannot be reliably measured. Contingent Liabilities are not recognized in the statement of financial position but are disclosed unless they are remote.

3.27 Capital Management The Board of Directors monitor the return on capital investment on a month basis. This review is mainly carried out through return on investment analysis prepared on a quarterly basis. The plan forecasts are also reviewed on a monthly basis to ensure that targets are met in order to manage the capital invested on the Company.

The Board of Directors also decides and monitors the level of dividends to ordinary shareholders. The Company does not subject to any externally impose capital

requirements. However, companies within the company have such requirement based on the industry in which such company established. The Company which require externally imposed capital will monitor such requirement on a regular basis and report to respective legal authority in order to ensure compliance with such regulatory requirement.

4. NEW ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE AS AT THE REPORTING DATE

Following Standard is effective for annual period beginning after 1st April 2019 and earlier application permitted, however, the Company has not early adopted the new standards in preparing these financial statements of those standards that are not yet effective, SLFRS 16 is expected to have a material impact on the Company’s financial statements in the period of initial application.

SLFRS 16 – ‘Leases’The Company is required to adopt SLFRS 16 Leases from 1st April 2019. Based on the high level impact assessment performed, the Company has not assessed the impact on SLFRS 16 adoption except for the capitalisation of operating lease commitments.

SLFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognised a right-of-use asset representing its right to use the underlying assets and lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating leases.

SLFRS 16, replace existing leasing guidance, including LKAS 17 lease, IFRIC 4 Determining whether as arrangement contains a lease,


SIC -15 Operating leases – Incentives and SIC-27 Evaluating the substance of transactions involving the legal form of a lease.

i. Lease in which the Company is a lesseeThe Company will recognise new assets and liabilities for its operating leases of head office and other facilities. The nature of expenses related to those leases will not change because the Company will recognise a depreciation charge for the right-of use assets and interest expenses on lease liabilities.

Previously, the Company has recognised operating lease expenses on a straight-line basis over the term of the lease, and liabilities only to the extent that there was a timing difference between actual lease payments and the expenses recognised.

In addition, the Company will no longer recognised provisions for operating leases that it assessed to be onerous. Instead, the Company will include the payments due under the lease in its lease liability.

ii. Lease in which the Company is a lessorThe Company will reassess the classification of sub-leases in which the Company is a lessor. Based on the information currently available, the Company expects that it will reclassify one sub-lease as a finance lease.

iii. TransitionThe Company plans to apply SLFRS 16 initially on 1st April 2019, using the modified retrospective approach. Therefore, the cumulative effect of adopting SLFRS 16 will be recognised as an adjustment to the opening balance of retained earnings as at 1st April 2019, without no restatements of comparative information.


Group Company

For the year ended 31st March 2018 2019 2018

Rs. Rs. Rs.

5 INTEREST INCOMEInterest income on;

Finance lease 2,855,538,892 3,266,004,759 2,855,538,892 Loans and advances 8,194,815,090 8,914,683,340 8,222,256,734 Hire rentals 17,967,053 4,770,935 17,967,053 Overdue rental 791,410,853 990,674,940 791,410,853 Factoring 1,295,537,680 701,127,703 1,295,537,680 Rentals and sales proceeds - contracts written off 165,066,506 249,229,762 165,066,506

13,320,336,074 14,126,491,439 13,347,777,718

6 INTEREST EXPENSEInterest on other financial liabilities due to customers 2,863,023,326 3,072,086,811 2,863,023,326 Interest on bank overdrafts and other short-term borrowings 665,978,828 137,726,950 665,978,828 Interest on long term borrowings 1,571,046,631 1,738,711,815 1,571,046,631 Debenture interests 478,944,034 490,891,919 478,944,034 Charges on forward rate contracts 1,415,801,810 1,257,420,714 1,415,801,810

6,994,794,629 6,696,838,209 6,994,794,629

7 NET INCOME (EXPENSE) FROM OTHER FINANCIAL INSTRUMENTS AT FVTPL Decrease in market value of quoted investments - shares (47,242,344) (25,693,391) (47,242,344)Appreciation in market value of quoted investments - unit trust 188,314,563 25,710,782 188,314,563 Fair value loss of LOLC Myanmar Micro-Finance Company Limited - (3,477,348) -

141,072,219 (3,459,957) 141,072,219

8 OTHER INCOMEDividend Income 6,199,403 7,733,981 6,199,403 Interest received from government securities 648,007,388 513,388,427 648,007,388 Interest income on fixed deposits and debentures 302,946,115 25,700,826 302,946,115 Profit on disposal of property, plant and equipment 10,646,161 2,650,000 10,646,161 Documentation fees 297,701,251 189,041,058 297,701,251 Commission Income 56,764,342 55,767,500 56,764,342 Sundry income 77,557,370 142,399,189 77,557,370 Foreign exchange gain 18,505,196 83,006,746 18,505,196 Change in fair value of investment properties 59,882,000 114,657,720 59,882,000 Transfer fees and profit on termination 615,142,804 619,512,558 615,142,804 Profit on deemed disposal on BRAC Lanka Finance PLC - - 242,647,810

2,093,352,030 1,753,858,005 2,335,999,840

9 ALLOWANCE FOR IMPAIRMENTLease receivables (Note 19.1.4) 212,256,723 217,869,046 212,256,723 Hire purchases (Note 19.2.3) 508,059 233,906 508,059 Advances and loans (Note 20.1.2) 299,876,221 996,721,509 299,876,221 Factoring (Note 20.2.2) 543,350,699 670,522,548 543,350,699 Impairment on Debenture (Note 18.2.3) - 203,689 -

1,055,991,702 1,885,550,698 1,055,991,702


2019 2018

For the year ended 31st March Stage 1 Stage 2 Stage 3 Total Total

Rs. Rs. Rs. Rs. Rs.

9.1 Impairment charge to the Income StatementInvestment securities 203,689 - - 203,689 -

Financial assets at amortised cost/ Finance lease receivables and hire purchasesFinance lease receivablesIndividual impairment (Note 19.1.3.1) - - 148,670,402 148,670,402 185,540,483 Collective impairment (Note 19.1.3.2) (4,373,008) (10,321,740) 83,893,393 69,198,644 26,716,240

Hire purchase receivablesIndividual impairment (Note 19.2.2.1) - - 240,308 240,308 1,244,186 Collective impairment (Note 19.2.2.2) - - (6,403) (6,403) (736,127)

Financial assets at amortised cost/ Advances and other loansAdvances and loansIndividual impairment (Note 20.1.1.1) - - 421,337,605 421,337,605 134,452,602 Collective impairment (Note 20.1.1.2) 69,417,232 54,713,641 451,253,030 575,383,904 165,423,619

Factoring receivablesIndividual impairment (Note 20.2.1.1) - - 530,295,456 530,295,456 533,931,531 Collective impairment (Note 20.2.1.2) 180,113 13,440,737 126,606,243 140,227,092 9,419,168

65,428,026 57,832,638 1,762,290,034 1,885,550,698 1,055,991,702

For the year ended 31st March Impairment Charge to Profit or

Loss for 2018/19Rs.

Written off during

the yearRs.

Charge to profit or loss net of

written offRs.

Provision impact as per

CBSLRs.

9.2 Comparision between provision for impairment as per SLFRS 09 and Central Bank (CBSL) requirement

Lease receivables 217,869,046 215,702,945 2,166,101 41,314,049

Hire purchases 233,906 2,069,689 (1,835,784) 437,337,128

Advances and loans 996,721,509 596,021,192 400,700,317 (510,417)

Factoring 670,522,548 363,596,364 306,926,184 163,948,349

Debenture Impairment 203,689 - 203,689 -

1,885,550,698 1,177,390,190 708,160,508 642,089,109

Group Company


Rs. Rs. Rs.

10 DEPRECIATION AND AMORTIZATIONDepreciation of property, plant and equipment (Note 28) 111,627,678 128,370,878 111,627,678 Amortization of intangible assets (Note 27) 2,033,280 2,036,281 2,033,280

113,660,958 130,407,159 113,660,958



Group Company


Rs. Rs. Rs.

11 RESULTS FROM OPERATING ACTIVITIES

Results from operating activities before value added tax (VAT), nations building tax (NBT) on financial services and debt recovery levy.

Directors' fees and other Emoluments 16,092,126 28,962,853 16,092,126

Auditors' remuneration - statutory audit 1,185,000 1,650,000 1,185,000

- audit related services 2,274,632 2,213,600 2,274,632

Depreciation and amortization 113,660,958 130,407,159 113,660,958

Legal and professional expenses 45,751,010 40,141,056 45,751,010

Personnel expenses (Note 11.1) 1,387,268,219 1,515,141,655 1,387,268,219

11.1 Personnel expenses

Salaries and other benefits 1,285,522,724 1,394,828,528 1,285,522,724

Defined contribution plan cost - EPF 67,103,843 79,333,638 67,103,843

- ETF 16,775,961 19,833,410 16,775,961

Defined benefit plan costs - Employee benefits 17,865,691 21,146,079 17,865,691

1,387,268,219 1,515,141,655 1,387,268,219

12 VAT AND NBT ON FINANCIAL SERVICES AND DEBT RECOVERY LEVY

Value added tax on financial services 535,606,180 496,452,427 535,606,180

Nation building tax on financial services 75,349,055 66,193,657 75,349,055

Debt recovery levy - 130,771,330 -

610,955,235 693,417,414 610,955,235

13 INCOME TAX EXPENSE

Current tax expense (Note 13.1) 552,667,262 656,101,900 552,667,262

Deferred tax charge (Note 35.2.1) 208,044,620 187,216,219 208,044,620

Income tax expense 760,711,882 843,318,119 760,711,882

Tax expense on discontinued operations (Note 14.1) 16,216,944 - -

Consolidated Current tax expense 568,884,206 656,101,900 552,667,262

The Company is liable for tax at the rate of 28% on its taxable income for the year 2018/19 in accordance with the Inland Revenue Act No 24 of 2017 and Company is liable for tax at the rate of 28% on its taxable income for the year 2017/18 in accordance with the Inland Revenue Act No 10 of 2006 and subsequent amendments made thereon.

Group Company


Rs. Rs. Rs.

13.1 Current tax expense

Current year income tax expense on ordinary activities (Note 13.2) 513,957,006 649,582,449 513,957,006

Under provision of taxes in respect of previous years 38,710,256 6,519,451 38,710,256

552,667,262 656,101,900 552,667,262


Group Company


Rs. Rs. Rs.

13.2 Numerical reconciliation of accounting profits to income tax expense

Accounting profit before income tax 2,634,945,276 2,041,414,660 2,905,034,729

Aggregate disallowable expenses 8,944,828,348 7,249,707,462 8,944,828,348

Aggregate tax deductible expenses (5,428,766,931) (3,603,554,430) (5,428,766,931)

Tax exempt income (4,394,347,708) (2,752,202,708) (4,394,347,708)

(-) Allowable tax credits (838,642,856) (615,427,667) (838,642,856)

(+/-) Other adjustments 917,544,607 - 647,455,154

Taxable profit 1,835,560,735 2,319,937,317 1,835,560,736

Income tax at 28 % 513,957,006 649,582,449 513,957,006

13.3 Deferred tax has been computed using the enacted tax rate of 28% (2017/18 : 28%)

14 DISCONTINUED OPERATIONS

The Company held 99.76% of the issued share capital of LOLC Development Finance PLC (formly known as BRAC Lanka Finance PLC) and it's holding diluted to 44.33% in May 2017 with the non subscription of rights issued by LOLC Development Finance PLC, "the parent Company". LOLC Holdings PLC purchased all unsubscribed shares in order to maintain group control and to ensure that LOLC Development Finance PLC meets the requirement for increased capital.

2 months ended31st May 2018

Rs.

14.1 Loss for the period from discontinued operations

Interest income 621,834,234

Interest expense (184,961,256)

Net interest income 436,872,978

Other income 28,180,508

Allowance for impairment & write offs (148,009,821)

Expenses (231,684,370)

Profit before tax 85,359,295

Income tax expense (16,216,944)

Profit after tax 69,142,351

Results on divestment of group investments (Note 14.3) (150,637,455)

Loss for the period from discontinued operations (81,495,104)

Loss per share from discontinued operations (0.01)

Net cash from operating activities from discontinuing operations (51,620,975)

Net cash used in investing activities from discontinuing operations (260,780,033)

Net cash from financing activities from discontinuing operations 925,118,908



As at 31st May 2018 Rs.

14.2 Effect of the disposal on the financial position of the Group

Property, plant and equipment (149,863,455)

Rentals receivable on lease assets, hire purchases ,operating leases advances and other loans (11,037,439,340)

Investment securities (1,220,413,497)

Investment in term deposits (1,374,516,382)

Cash and cash equivalents (216,458,574)

Trade and other current assets (198,856,704)

Bank overdrafts 410,138,019

Deposits from customers 3,396,330,685

Interest bearing loans & borrowings 4,398,438,955

Provision for taxation 118,329,295

Deferred tax liability 10,821,573

Trade and other payables 3,350,599,441

Retirement benefit obligations 24,769,828

Net Assets and Liabilities (2,488,120,156)

Less - Stated Capital increased due to right issue 1,321,907,080

Net Assets disposed (1,166,213,076)

2 months ended 31st May 2018Rs.

14.3 Results on divestment of group investments

Fair value of BRAC Lanka Finance PLC 1,265,987,676

Less - Net Assets disposed (1,166,213,076)

Goodwill on acquisition (253,210,966)

Add - Non controlling interest 2,798,911

(150,637,455)

Group Company


15 EARNINGS PER SHARE

15.1 Net profit attributable to equity holders of the Company (Rs.) 1,792,638,207 1,198,096,541 2,144,322,847

Weighted average number of ordinary shares in issue (shares) 6,377,711,170 6,377,711,170 6,377,711,170

Earnings per Share (Rs.) 0.28 0.19 0.34

Basic earnings per share is calculated by dividing the net profit for the year attributable to the ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.


Group Company


15.2 Earnings per share from continuing operations

Profit for the year from continuing operations 1,874,233,394 1,198,096,541 2,144,322,847

Profit/ (loss) for the period from discontinued operations (81,494,206) - -

Profit for the year 1,792,739,188 1,198,096,541 2,144,322,847

Weighted average number of ordinary shares in issue (shares) 6,377,711,170 6,377,711,170 6,377,711,170

Earnings per Share from continuing Operations (Rs.) 0.29 0.19 0.34

15.3 Earnings / (loss) per share from discontinuing operations

Profit/ (loss) attributable to equity holders of the company (81,299,516) - -

Weighted average number of ordinary shares in issue (shares) 6,377,711,170 - -

Earnings per Share from discontinuing Operations (0.01) - -


Rs. Rs.

16 CASH AND CASH EQUIVALENTS

Components of cash equivalents

16.1 Favorable cash and cash equivalent balances

Cash in hand 127,136,035 171,636,959

Balances with banks 2,423,138,281 2,205,920,571

2,550,274,316 2,377,557,530

16.2 Unfavorable cash and cash equivalent balances

Bank overdraft (390,069,910) (1,353,451,358)

Total cash and cash equivalents in the cash flow statement 2,160,204,406 1,024,106,172


Rs. Rs.

17 FINANCIAL ASSETS RECOGNISED THROUGH PROFIT OR LOSS (FVTPL)/ FINANCIAL ASSET HELD FOR TRADING

Equity shares (Note 17.1) 350,783,353 153,996,501

Unit trust (Note 17.2) 2,475,710,778 -

2,826,494,131 153,996,501




No. of % Cost Fair Value No. of % Cost Fair Value

Shares Rs. Rs. Shares Rs. Rs.

17.1 Equity shares

Colombo Dockyard PLC 4,315 0.006% 85,997 228,695 4,315 0.006% 85,997 358,145

DFCC Bank PLC 38 0.000% 380 2,660 38 0.000% 380 4,438

Overseas Realty Ceylon PLC 113,680 0.009% 1,664,891 1,864,352 113,680 0.009% 1,664,891 2,057,608

Seylan Bank PLC 79,978 0.042% 1,104,210 2,871,210 74,261 0.039% 1,104,210 4,233,609

Hayleys PLC 734,144 0.979% 216,803,911 123,336,192 734,144 0.979% 216,803,911 147,342,701

LOLC Myanmar Micro-Finance Company Limited (Note 17.1.1)

519,520 4.04% 66,800,000 222,480,244 - - - -

219,659,389 350,783,353 219,659,389 153,996,501

17.1.1 LOLC Myanmar Micro-Finance Company Limited

The Company has recognized investment in LOLC Myanmar Micro-Finance Company Limited as financial asset recognized through profit or loss in the year ended 31st March 2019 which was classified as Available-for-sale investment securities in previous year.

Fair value of unquoted shares valued based on Residual Income approach. Equity Risk Premium used for the fair valuation is 19.83% and Terminal Growth rate is 3%.


No. of Cost Fair Value No. of Cost Fair Value

Units Rs. Rs. Units Rs. Rs.

17.2 Unit trust

CAL High Yield Fund 51,309,943 1,000,000,000 1,012,535,019 - - -

CAL Investment Grade Fund 45,092,372 1,000,000,000 1,011,259,565 - - -

Invest trust Money market fund

294,800 449,999,996 451,916,194 - - -

2,449,999,996 2,475,710,778 - -


Rs. Rs.

18 INVESTMENT SECURITIES / OTHER INVESTMENTSFinancial assets measured at fair value through other comprehensive income/Financial Investments-available-for-sale (Note 18.1)

3,755,998,435 1,900,074,031

Financial assets at amortised cost /Loans and receivables (Note 18.2) 2,930,284,133 4,605,140,218

6,686,282,568 6,505,214,249

18.1 Financial assets measured at fair value through other comprehensive income/ Available-for-sale investment securities

Treasury bonds (Note 18.1.1) - 40,182,554

Treasury bills (18.1.2) 3,755,819,685 1,792,912,727

Unquoted shares (Note 18.1.3) 178,750 66,978,750

3,755,998,435 1,900,074,031



2019 2018

Cost Fair Value Cost Fair Value

Rs. Rs. Rs. Rs.

18.1.1 Treasury bonds

Softlogic Finance PLC - - 39,740,200 40,182,554

- - 39,740,200 40,182,554

18.1.2 Treasury bills

First Capital Treasures Limited 3,545,633,300 3,755,819,685 1,763,311,300 1,792,912,727

3,545,633,300 3,755,819,685 1,763,311,300 1,792,912,727

2019 2018No. of % Cost Fair Value No. of % Cost Fair Value

Shares Invested Rs. Rs. Shares Invested Rs. Rs.

18.1.3 Unquoted shares

Equity Investments Lanka Limited 16,875 - 168,750 168,750 16,875 - 168,750 168,750

Credit Information Bureau 100 - 10,000 10,000 100 - 10,000 10,000

LOLC Myanmar Micro-Finance Company Limited (Note 17.1.1)

- - - - 519,520 5.66% 66,800,000 66,800,000

178,750 178,750 66,978,750 66,978,750


Rs. Rs.

18.2 Financial assets at amortized cost/Loans and receivables

Government securities (Note 18.2.1) 2,409,024,492 3,654,437,478

Investments in term deposits (Note 18.2.2) - 950,702,740

Debentures (Note 18.2.3) 521,259,641 -

2,930,284,133 4,605,140,218

2019 2018

Year of Cost Fair Value Year of Cost Fair Value

Maturity Rs. Rs. Maturity Rs. Rs.

18.2.1 Government securities

REPOs 2019 2,409,024,492 2,409,024,492 2018 3,654,437,478 3,654,437,478

2,409,024,492 2,409,024,492 3,654,437,478 3,654,437,478

2019 2018

Rs. Rs.

18.2.2 Investments in Term Deposits

Fixed Deposits - 950,702,740

- 950,702,740



Rs. Rs.

19 FINANCIAL ASSETS AT AMORTISED COST/ FINANCE LEASE RECEIVABLES AND HIRE PURCHASESGross Portfolio - 15,170,152,566

Stage 1 12,724,803,743 -

Stage 2 1,082,774,566 -

Stage 3 400,984,928 -

14,208,563,237 15,170,152,566

Less: Expected credit loss/impairment allowance

Stage 1 (80,178,280) -

Stage 2 (84,031,470) -

Stage 3 (126,472,490) -

Provision for individual impairment (Note 19.1.3 & 19.2.2.1) - (146,611,487)

Provision for collective impairment (Note 19.1.4 & 19.2.2.2) - (40,028,988)

(290,682,240) (186,640,475)

Net Portfolio 13,917,880,997 14,983,512,091

Analysis of Gross Portfolio - By Product

Finance lease receivables (Note 19.1) 13,917,880,997 14,983,134,443

Hire purchase receivables (Note 19.2) - 377,648

13,917,880,997 14,983,512,091

Rentals receivable on leases and hire purchases

Gross rental receivables 19,268,884,285 20,592,152,868

Unearned income (5,060,321,048) (5,422,000,302)

Total rentals receivable ( Note 19.4) 14,208,563,237 15,170,152,566

Allowance for impairment (Note 19.3) (290,682,240) (186,640,475)

Net receivables 13,917,880,997 14,983,512,091

2019 2018

Year of Cost Amortised cost Year of Cost Amortised cost

Maturity Rs. Rs. Maturity Rs. Rs.

18.2.3 Debentures

Dunamis Capital PLC 2019 / 2020 251,008,185 259,310,597 - - -

Citizens Development Business Finance PLC 2021 251,054,500 262,152,733 - - -

502,062,685 521,463,330

Less: Provision for impairment (Note 18.2.3.1) - (203,689) - -

502,062,685 521,259,641 - -


Rs. Rs.

18.2.3.1 Movement in provision for impairment during the year

Balance as at 1st April - -

ECL allowance for the year (203,689) -

Balance as at 31st March (203,689) -



Rs. Rs.

19.1 Finance lease receivables

Gross rentals receivable 19,268,884,285 20,589,929,519

Unearned income (5,060,321,048) (5,422,000,302)

14,208,563,237 15,167,929,217

Allowance for impairment (Note 19.1.3) (290,682,240) (184,794,774)

13,917,880,997 14,983,134,443

Finance lease receivables

Receivables within one year (Note 19.1.1) 5,337,808,164 4,232,355,256

Receivable from one to five years (Note 19.1.2) 8,279,875,019 10,439,425,477

Overdue rental receivable 590,880,054 496,148,484

14,208,563,237 15,167,929,217

(-) Allowance for impairment (Note 19.1.3) (290,682,240) (184,794,774)

13,917,880,997 14,983,134,443

19.1.1 Receivables within one year


Unearned income (2,738,582,190) (2,669,962,422)

5,337,808,164 4,232,355,256

19.1.2 Receivable from one to five years


Unearned income (2,321,738,858) (2,752,037,880)

8,279,875,019 10,439,425,477

19.1.3 Expected credit loss/ impairment allowance

19.1.3.1 Allowance for individually significant impairment

Balance as at 1st April 144,807,205 64,040,405

Impact on initial application of SLFRS 9 (62,205,748) -

Charge for the year (Note 19.1.4) 148,670,402 185,540,483

Reversal for write off during the year (162,959,206) (104,773,683)

Balance as at 31st March 68,312,653 144,807,205

19.1.3.2 Allowance for individually non-significant impairment


Impact on initial application of SLFRS 9 165,927,113 -


Reversal for write off during the year (52,743,739) (79,818,877)


Total allowances for impairment 290,682,240 184,794,774

19.1.4 Allowance for impairment during the year

Allowance for individually significant impairment 148,670,402 185,540,483

Allowance for individually non-significant Impairment 69,198,644 26,716,240

217,869,046 212,256,723




Rs. Rs.

Movements in expected credit loss/ Impairment allowance during the year

Stage 1

Balance as at 1st April 15,314,589 -


Adjusted balance as at 1st April 84,551,289 -

Write back to income statement (4,373,008) -

Balance as at 31st March 80,178,281 -

Stage 2



Adjusted balance as at 1st April 94,353,211

Write back to income statement (10,321,740) -


Stage 3


Impact on initial application of SLFRS 9 - -


Charge for the year 232,563,795 -

Reversal for written-off during the year (215,702,945) -


Stage 3 - Individually non-significant





Reversal for written-off during the year (52,743,739) -


Stage 3 - Specific allowance for impairment



Adjusted balance as at 1st April 82,601,457 64,040,405

Charge for the year 148,670,402 185,540,483

Reversal for Write-offs during the year (162,959,206) (104,773,683)


Collective allowance for impairment

Balance as at 1st April - 93,090,206

Charge for the year - 26,716,240

Reversal for Write-off during the year - (79,818,877)

Balance as at 31st March - 39,987,569




Rs. Rs.

19.2 Hire purchases receivablesGross rentals receivable - 2,223,347

Allowance for impairment (Note 19.2.3) - (1,845,699)

- 377,648

Hire purchase receivables

Receivables within one year (Note 19.2.1) - 1,264,401

Receivables from one to five years - 958,946

Overdue rental receivable - 2,223,347

(-) Allowance for impairment (Note 19.2.3) - (1,845,699)

- 377,648

19.2.1 Receivables within one year

Gross rentals receivable - 1,264,401 Unearned income - - Collective allowance for impairment - 1,264,401

19.2.2 Allowance for impairment19.2.2.1 Allowance for individually significant impairment

Balance as at 1st April 1,804,281 31,114,524 Charge for the year 240,308 1,244,186 Reversal for written-off during the year (2,044,589) (30,554,429)Balance as at 31st March - 1,804,281

19.2.2.2 Allowance for individually non-significant impairmentBalance as at 1st April 41,418 31,466,620 Impact on initial application of SLFRS 9 (9,915) - Write back to income statement (6,403) (736,127)Reversal for write-off during the year (25,100) (30,689,075)Balance as at 31st March - 41,418 Allowances for impairment during the year - 1,845,699

19.2.3 Impairment charge for the yearAllowance for individually significant impairment 240,308 1,244,186 Allowance for individually non-significant Impairment (6,403) (736,127)

233,905 508,059




Rs. Rs.


Stage 3


Impact on initial application of SLFRS 9 (9,916) -


Charge for the year 233,906 -

Reversal for write-off during the year (2,069,690) -



Balance as at 1st April 41,419 -


Adjusted balance as at 1st April 31,503 -

Charge for the year (6,403) -

Reversal for write-off during the year (25,100) -

Balance as at 31st March - -





Charge for the year 240,308 1,244,186

Reversal for Write-off during the year (2,044,589) (30,554,429)



Balance as at 1st April 41,419 31,466,620


Adjusted balance as at 1st April 31,503 31,466,620

Write back to income statement (6,403) (736,127)

Reversal for Write-offs during the year (25,100) (30,689,075)

Balance as at 31st March - 41,419

Total allowances for impairment - 1,845,701

19.3 Allowance for impairment for leases and hire purchases receivablesBalance as at 1st April 186,640,475 219,711,755 Impact on initial application of SLFRS 9 103,711,450 - Charge for the year 218,102,952 212,764,783 Reversal for Write-offs during the year (217,772,635) (245,836,063)Balance as at 31st March 290,682,242 186,640,475


As at 31st March % Gross amount 2019 % Gross amount 2018

Rs. Rs.

19.4 Concentration by sector

Manufacturing 11% 1,553,765,555 7% 1,110,152,936

Agriculture 8% 1,198,506,033 24% 3,620,113,104

Trade 14% 1,954,776,818 16% 2,370,425,536

Transport 14% 2,012,002,692 14% 2,084,796,934

Construction 20% 2,860,252,635 3% 468,029,016

Services 27% 3,879,251,757 30% 4,506,119,524

Micro and others 5% 750,007,747 7% 1,010,515,516

14,208,563,237 15,170,152,566

Lease & hire purchase receivables amounting to Rs. 7,556,156,769/- assigned under funding arrangement (2018- Rs.11,251,780,305 /-) also included under lease and hire purchase receivables.


Rs. Rs.

20 FINANCIAL ASSETS AT AMORTISED COST/ LOANS, ADVANCES AND FACTORING RECEIVABLES

Gross Portfolio - 41,623,875,203

Stage 1 35,534,683,298 -

Stage 2 2,433,849,197 -

Stage 3 3,518,763,537 -

41,487,296,032 41,623,875,203

Expected credit loss/impairment allowance

Stage 1 (324,493,389) -

Stage 2 (199,324,672) -

Stage 3 (1,388,410,297) -

Provision for individual impairment - (287,390,480)

Provision for collective impairment - (127,684,563)

(1,912,228,358) (415,075,043)

Net Portfolio 39,575,067,674 41,208,800,160

Analysis of gross portfolio - By product

Advances and loans (Note 20.1) 37,738,243,987 41,208,800,160

Factoring receivables (Note 20.2) 1,836,823,687 3,584,916,333

39,575,067,674 44,793,716,493




Rs. Rs.

20.1 Rentals receivable on loans to customers

Rentals receivable on loans to customers 37,172,189,713 40,374,967,327

Overdue loan installments 1,693,011,899 1,248,907,876

Total rentals receivable (Note 20.1.3) 38,865,201,612 41,623,875,203

Allowance for impairment (Note 20.1.1) (1,126,957,625) (415,075,043)

37,738,243,987 41,208,800,160

20.1.1 Allowance for impairment



Adjustment on initial application of SLFRS 9 (101,953,556) -




20.1.1.2 Allowance for individually non-significant Impairment


Adjustment on initial application of SLFRS 9 413,135,821 -




Total allowances for impairment 1,126,957,625 415,075,043

20.1.2 Allowance for Impairment during the year



996,721,509 299,876,221


Stage 1






Stage 2









Rs. Rs.

20.1.2 Allowance for Impairment during the year (Contd.)

Stage 3





Reversal for Write-off during the year (596,021,192) -







Reversal for Write-off during the year (313,824,476) -












Reversal for Write-off during the year - (131,443,220)


Total allowances for impairment 1,126,957,625 415,075,043



Rs. Rs.

20.2 Factoring receivables

Factoring receivables (Note 20.2.3) 2,622,094,420 4,016,678,708

Allowance for impairment (Note 20.2.1) (785,270,733) (431,762,375)

1,836,823,687 3,584,916,333

20.2.1 Allowance for impairment

For the year ended 31 March



Adjustment on initial application of SLFRS 9 - -


Overdue interest adjustment - (58,873,863)

Write off (363,596,364) (431,985,845)

565,875,106 399,176,014

20.2.1.2 Allowance for individually non-significant impairment


Impact on initial application of SLFRS 09 46,582,174 9,419,168

Charge for the year (Note 20.2.2) 140,227,092 -



20.2.2 Allowance for Impairment during the year



670,522,548 543,350,699


Stage 1




Charge for the year 180,113 -





Rs. Rs.

20.2.2 Allowance for Impairment during the year (Contd.)

Stage 2

Balance as at 1st April 620,857 -





Stage 3




Charge for the year - -

Charge/(Write back) to income statement 656,901,699 -

Net write-off/(recoveries) during the year (363,596,364) -

Balance as at 31st March 1,215,266,013 -












Overdue interest Adjustment - (58,873,863)

Reversal for Write-offs (363,596,364) (431,985,845)








As at 31st March % Gross amount 2019 % Gross amount 2018

Rs. Rs.

20.2.3 Concentration by sector

Agriculture 11% 4,438,248,299 10% 4,291,001,445

Manufacturing 6% 2,553,147,113 7% 2,754,199,081

Services 22% 9,076,416,101 23% 9,757,546,278

Trading 10% 4,078,611,255 9% 3,901,268,927

Transport 7% 3,056,305,379 5% 1,951,862,823

Construction 36% 14,790,042,321 36% 15,140,838,424

Micro and Others 8% 3,494,525,565 9% 3,827,158,225

41,487,296,032 41,623,875,203

Loan receivables amounting Rs.5,693,646,676/- assigned under funding arrangement (2018- Rs.9,024,633,560/-) also included under loan receivables


Rs. Rs.

21 DERIVATIVE ASSETS HELD FOR RISK MANAGEMENT

Forward rate contracts (Note.21.1) 311,352,151 -

21.1 Forward rate contractsThe Company entered into forward exchange contracts in order to hedge the risk of variability in functional currency equivalent cash flows associated with the foreign currency - denominated loan.The forward contract is designed as a hedge of the changes in the cash flows relating to the changes in foreign currency rates relating to the loans.

Classification of derivativesDerivatives are only used for economic hedging purposes and not as speculative investments. However, where derivatives do not meet the hedge accounting criteria, they are classified as ‘held for trading’ for accounting purposes and are accounted for at fair value through profit or loss. They are presented as current assets or liabilities to the extent they are expected to be settled within 12 months after the end of the reporting period.

Fair value measurementFor information about the methods used in determining the fair value of derivatives refer to Note 48.

Hedge effectivenessHedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument.

For hedges of foreign currency purchases, the Company enters into hedge relationships where the critical terms of the hedging instrument match exactly with the terms of the hedged item through revolving arrangements. The Company therefore performs a qualitative assessment of effectiveness. If changes in circumstances affect the terms of the hedged item such that the critical terms no longer match exactly with the critical terms of the hedging instrument, the Company uses the hypothetical derivative method to assess effectiveness.

Details Description of the hedgeHedge instruments Forward foreign exchange contracts Hedge items Foreign currency denominated borrowings


21.1 Forward rate contracts (Contd.)

The company uses a mixture of forward foreign exchange contracts to hedge the foreign currency translation risk on its foreign borrowings.

The fair value of the derivatives designated as cash flow hedges are as follows;

2019 2018

As at 31st March Assets Liabilities Assets Liabilities

Rs. Rs. Rs. Rs.

The fair value of the derivatives designated as cash flow hedges 311,352,151 179,560,616 - 271,625,120

The time periods in which the hedged cash flows are expected to occur and affect the statement of comprehensive income are as follows;

2019 2018

As at 31st March Within 1 year 1-5 Years Over 5 Years Within 1 Year 1-5 Years Over 5 Years

Rs. Rs. Rs. Rs. Rs. Rs.

Maturity of Cash Flow Hedges 16,154,006,722 - - 22,173,892,831 - -

For the year ended 31st March 2019 net gain of Rs.7.5 Mn (2018: Net loss of Rs. 114.2Mn) relating to the effective portion of cash flow hedges were recognised in other comprehensive income.


Rs. Rs.

22 DUE FROM RELATED COMPANY

Dikwella Resort (Private) Limited - 370

- 370

23 CURRENT TAX ASSETS

With-holding tax recoverable 17,945,394 89,836,635

17,945,394 89,836,635

24 OTHER CURRENT ASSETS

Financial assets

Advances to employees (Note 24.1) 1,293,567 1,196,787

1,293,567 1,196,787

Non-financial Assets

Prepayments and advances 148,040,504 126,926,465

Other non-financial receivables 16,661,259 7,628,042

Inventories 4,599,450 3,878,600

169,301,213 138,433,107

Total other current assets 170,594,780 139,629,894




Rs. Rs.

24.1 Advances to employees

Balance at 1st April 1,196,787 1,275,545

Advances granted during the year 6,436,900 7,893,253

Advances recovered during the year (6,340,120) (7,972,011)

Balance at 31st March 1,293,567 1,196,787

24.2 As per the memorandum of understanding agreement entered for Government Debt Relief Scheme on 8th January 2019, Rs. 21,883,711.78 had to be received from Ministry of Finance and out of that Rs. 4,376,742.22 received on 18th March 2019. Balance part is included in "Other receivables".

2019 2018

For the year ended 31st March Holding No. ofShares

Balance Holding No. ofShares

Balance

% Rs. % Rs.

25 EQUITY ACCOUNTED INVESTEECommercial Insurance Brokers Limited347, Dr. Colvin R. De Silva Mawatha, Union Place, Colombo 02

40% 240,000 800,000 40% 240,000 800,000

Add : share of profits applicable to the companyBalance at 1st April 90,010,410 82,259,004 Current year's share of profits before taxation 22,785,881 17,639,361 Taxation (9,654,712) (6,221,388)Current year's share of profits after taxation 13,131,169 11,417,973 Actuarial loss (181,867) (92,455)Income tax on other comprehensive income 50,923 25,888 Dividends received during the year (5,160,000) (3,600,000)Sub total 97,850,634 90,010,410 Balance at 31st March 98,650,634 90,810,410

LOLC Development Finance PLC (formly known as BRAC Lanka Finance PLC)No. 481, TB Jayah Mawatha, Colombo 10

44.33% 105,499,048 1,265,987,676 44.33% 105,499,048 1,265,987,676

Add : share of profits applicable to the CompanyBalance at 1st April 2018 150,051,536 - Current year's share of profits before taxation (61,881,996) 227,326,133 Taxation (6,217,434) (85,476,441)Current year's share of profits after taxation (68,099,429) 141,849,693 Actuarial loss 6,631,139 553,069 Fair value gains/(losses) that arose during the year (10,499,481) 11,601,596 Income tax on other comprehensive income (1,856,720) (154,859)Dividends received during the year - (3,797,962)Sub total 76,227,045 150,051,536 Balance at 31st March 1,342,214,721 1,416,039,212 Total 1,440,865,355 1,506,849,622



25 EQUITY ACCOUNTED INVESTEE (CONTD.)The principal activities of the equity accounted investees are as follows,Commercial Insurance Brokers Limited - Insurance BrokeringLOLC Development Finance PLC - Leasing / Loans and Deposit Mobilization

25.1 Current year's share of profitThe Share of equity accounted investee profit is based on the audited financial statements of respective companies.Summarized financial data as at financial year end of Commercial Insurance Brokers Private Limited is stated below.

For the year ended 31st December 2018 2017

Rs. Rs.

Revenue 268,138,948 251,923,383 Profit before tax 56,964,702 44,329,541 Profit after tax 32,827,923 28,711,353 Current Assets 144,361,263 141,210,856 Non Current Assets 199,647,666 162,353,110 Total assets 344,008,929 303,563,966 Current Liabilities 61,266,505 47,072,334 Non Current Liabilities 27,235,365 23,485,135 Total liabilities 88,501,870 70,557,469

Summarized financial data as at financial year end of LOLC Development Finance PLC is stated below.


Rs. Rs.

Revenue 3,994,642,027 3,690,624,940 Profit before tax (139,593,944) 512,804,271 Profit after tax (153,619,286) 319,636,439 Total assets 13,839,228,112 16,493,680,720 Total liabilities 11,280,194,793 13,668,023,252

Fair Value 2019 2018Fair Value No. of Fair Value No. of Fair Value

Shares Rs. Shares Rs.

LOLC Development Finance PLC 105,499,048 4,114,462,872 105,499,048 3,143,871,630


Rs. Rs.

26 INVESTMENT PROPERTIESBalance as at 1st April 1,632,000,000 46,000,000 Additions during the year 353,422,560 483,118,000 Transfers from property plant and equipment - 1,043,000,000 Change in fair value during the year 114,657,720 59,882,000 Balance as at 31st March 2,100,080,280 1,632,000,000

26.1 Valuation of investment propertiesThe fair value of the investment properties were determined as at 31st March 2019, by Mr.W.M Chandrasena , R.I.C.S and D.C Sosa (F.I.V) an independent valuers who hold recognized and relevant professional qualification and have recent experience in the location and category of the investments properties.


Pro

pert

y an

d lo

catio

n M

arke

t C

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uild

ing

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toric

al

Fair

valu

e

valu

atio

nex

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Bui

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gsex

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co

st20

1920

18

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Rs.

1N

o 10

,Thi

rd L

ane,

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r per

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dR

s. 1,

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,00

0M

arke

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R-

35.18

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647

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00

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2,0

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26.2 The amounts recognised in profit or loss for rental income from investment property and direct operating expenses arising from investment property

Location No. of Buildings Rental Income from investment property (Rs.)

Direct Operating Expense (Rs.)

1 No. 156 & 122, Kolonnawa Rd, Gothetuwa 1 3,000,000 N/A

2 No. 28A, Badulla Rd, Nuwara Eliya 1 N/A 3,220,060

26.3 In 2016, following Investment property at Imaduwa, Galle amounted to Rs. 13.5 had been impaired fully. Legal action has already been taken to secure the title from a third party.

Property & location Land extent Building extent Historical cost (Rs.)

Kodagoda, Imaduwa, Galle 0A. 0R 30P N/A 7,500,000

Imaduwa, Galle 0A. 0R 3.66P N/A 6,000,000

Computer Software License and fees Total 2019 Total 2018

Rs. Rs. Rs. Rs.

27 INTANGIBLE ASSETS

Cost

Balance as at 1st April 3,825,000 6,341,400 10,166,400 10,166,400

Additions 17,500 - 17,500 -

Transfers - - - -

Balance as at 31st March 3,842,500 6,341,400 10,183,900 10,166,400

Accumulated amortization and impairment losses

Balance as at 1st April 2,084,671 4,171,621 6,256,292 4,223,012

Amortization charged 768,001 1,268,280 2,036,281 2,033,280

Transfers - - - -

Balance as at 31st March 2,852,672 5,439,901 8,292,573 6,256,292

Carrying amount

As at 31st March 2019 989,828 901,499 1,891,327

As at 31st March 2018 1,740,329 2,169,779 3,910,108

27.1 There are no fully depreciated intangible assets as at 31st March 2019.


As

at 3

1st

Mar

chFr

eeho

ldLa

nds

Free

hold

Bui

ldin

gs

Free

hold

Mot

orV

ehic

les

Furn

iture

an

dFi

ttin

gsO

ffice

Equi

pmen

tC

ompu

ters

Ass

ets

held

for

Ope

ratin

gLe

ases

Tota

l20

19To

tal

2018

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

28PR

OPE

RTY,

PLA

NT

AN

D

EQU

IPM

ENT

Cos

t/va

luat

ion

Bal

ance

as

at 1s

t Apr

il

651

,30

5,0

00

2

15,8

75,0

00

8

3,0

93,14

5 2

07,

149,

695

286

,185,

082

2

82,3

54,8

03

52,

442,

595

1,77

8,40

5,32

0 2

,50

6,28

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1

Add

ition

s du

ring

the

year

-

-

-

29,

611,0

98

43,

019

,034

3

3,21

3,26

6 -

10

5,84

3,39

9 3

28,0

93,9

81

Rev

alua

tions

dur

ing

the

year

-

-

-

-

-

-

-

-

68,

552,

223

Dis

posa

ls d

urin

g th

e ye

ar -

-

(

4,15

6,63

4) (

2,76

8,78

1) (

4,0

31,14

2) (

1,10

1,370

) -

(

12,0

57,9

27)

(30

,894

,184)

Tran

sfer

s/ o

ther

adj

ustm

ents

-

-

-

-

-

-

-

-

(50

,630

,181)

Rec

lass

ifica

tions

-

-

-

-

-

-

-

-

(1,0

43,0

00,0

00)

Bal

ance

as

at 3

1st

Mar

ch

651

,30

5,0

00

2

15,8

75,0

00

7

8,93

6,51

1 2

33,9

92,0

12

325

,172,

974

314

,466

,699

5

2,44

2,59

5 1,

872,

190,

792

1,77

8,40

5,32

0

Acc

umul

ated

dep

reci

atio

n

Bal

ance

as

at 1s

t Apr

il -

-

7

3,97

4,53

1 11

1,567

,535

16

7,15

5,84

8 16

8,22

4,59

6 2

9,90

7,28

7 5

50,8

29,7

97

530

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Cha

rge

for t

he y

ear

-

8,8

66,5

28

3,5

60,6

26

31,4

34,13

8 4

3,54

5,55

6 3

8,12

8,24

4 2

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,788

12

8,37

0,87

8 11

1,627

,678

Rev

alua

tions

dur

ing

the

year

-

-

-

-

-

-

-

-

(8,

456,

276)

Dis

posa

ls d

urin

g th

e Y

ear

-

-

(4,

156,

634)

(2,

768,

781)

(4,

031

,142)

(1,1

01,3

70)

-

(12

,057

,927

) (

30,7

62,9

93)

Tran

sfer

s/ o

ther

adj

ustm

ents

-

-

-

-

-

-

-

-

(52

,077

,997

)

Bal

ance

as

at 3

1st

Mar

ch

-

8,8

66,5

28

73,

378,

523

140

,232

,892

2

06,

670

,261

2

05,

251,4

70

32,

743,

075

6

67,14

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9 5

50,8

29,7

97

Car

ryin

g va

lue

As

at 3

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Mar

ch 2

019

651

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5,0

00

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07,

00

8,47

2 5

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9

3,75

9,12

0

118,

502,

713

109,

215,

229

19,6

99,5

20

1,20

5,04

8,04

3

As

at 3

1st

Mar

ch 2

018

651

,30

5,0

00

2

15,8

75,0

00

9

,118,

614

95,

582,

160

11

9,0

29,2

34

114,

130

,20

7 2

2,53

5,30

8 1,

227,

575,

523


Notes to the Financial Statements28

.1 Pr

oper

ty, p

lant

and

equ

ipm

ent i

nclu

ded

fully

dep

reci

ated

ass

ets

that

are

stil

l in

use

havi

ng a

gro

ss a

mou

nt o

f Rs.

384

,031

,357

/- a

s at

31s

t Mar

ch 2

019

(20

17/1

8-

Rs.

349

,324

,832

/-)

28.2

La

nd a

nd b

uild

ings

of t

he c

ompa

ny a

re s

tate

d ba

sed

on a

val

uatio

n pe

rfor

med

by

Mr.W

.M C

hand

rase

na, R

I C

S (

Sri

Lank

a) a

n In

depe

nden

t Cha

rter

ed

Val

uer,

as a

t 31s

t Mar

ch 2

018

. The

det

ails

of w

hich

are

as

follo

ws,

Loca

tion

Val

uatio

n of

Net

Boo

k V

alue

of

Rev

alua

tion

No.

ofEx

tent

Exte

ntM

arke

t C

ompa

rabl

e M

etho

dA

ccom

mod

atio

n

Land

Bui

ldin

gTo

tal

Land

Bui

ldin

gSu

rplu

sBu

ildin

gsLa

ndB

uild

ing

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

(Sq.

Ft)

No.

68, B

audd

halo

ka

Maw

atha

,Col

ombo

-04

342,

000,

000

208

,000

,000

550

,000

,000

31

3,50

0,00

0 1

97,6

87,2

96

38,

812,

704

10A

- 0R-

19.0

0P 2

5,24

0 P

rice

per p

erch

for l

and

Pric

e pe

r squ

are

foot

for b

uild

ing

Dep

reci

atio

n ra

te

Rs.

16,5

00

,00

0

Rs.

9,5

00

15%

Hea

d O

ffice

No.

04,

UC

Hou

ses,

New

Tow

n A

nura

dhap

ura.

75,

280,

000

Ba

re la

nd 7

5,28

0,00

0

- -

- N

/A0A

- 0R-

14.0

3P -

Pric

e pe

r per

ch

for l

and

Rs.

4,2

00

,00

0A

nura

dhap

ura

No

24,A

bhay

a

Plac

e,A

nura

dhap

ura

44,

900,

000

Ba

re la

nd 4

4,90

0,00

0

- -

- N

/A0A

- 0R-

14.71

P -

A

nura

dhap

ura

No

74,C

olom

bo

Roa

d,N

egom

bo

189,

125,

000

7

,875

,000

19

7,00

0,00

0

151,0

00,0

00

7,8

04,2

05

38,

195,

795

1 0

A- 1

R- 3

3.65

P 3

,740

Pric

e pe

r per

ch

for l

and

Pric

e pe

r squ

are

foot

for b

uild

ing

Dep

reci

atio

n ra

te

Rs.

2,0

00

,00

0

Rs.

3,50

0

40%

Neg

ombo

651

,305

,000

2

15,8

75,0

00

867

,180,

000

464

,500

,000

205

,491

,501

7

7,00

8,49

9

If la

nd a

nd b

uild

ings

are

mea

sure

d us

ing

the

cost

mod

el,th

e ca

rryi

ng a

mou

nts

wou

ld b

e as

follo

ws:

2019

2018

Cos

t A

ccum

ulat

ed

Dep

reci

atio

n N

et B

ook

Val

ueC

ost

Acc

umul

ated

D

epre

ciat

ion

Net

Boo

kV

alue

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Cla

ss o

f Ass

et

Free

hold

land

s 3

32,9

46,0

00

-

3

32,9

46,0

00

3

32,9

46,0

00

-

3

32,9

46,0

00

Free

hold

bui

ldin

gs 2

0,4

32,0

00

(

13,2

80,8

00

) 7

,151,2

00

2

0,4

32,0

00

(

12,7

70,0

00

) 7

,662

,00

0

353

,378

,00

0

(13

,280

,80

0)

340

,097

,20

0

353

,378

,00

0

(12

,770

,00

0)

340

,60

8,0

00


28.4 There were no restrictions on the title of property plant and equipment as at the reporting date. Further there were no items pledged as securities for liabilities.

28.5 The initial costs of fully depreciated property plant and equipment and intangible assets as at 31st March which are still in use as follows;


Rs. Rs.

Freehold Motor Vehicles 62,912,239 68,016,784

Furniture and Fittings 68,668,812 60,885,788

Office Equipment 120,399,686 101,494,034

Computers 118,173,366 105,050,972

Assets for Operating Leases 13,877,254 13,877,254

Total fully depreciated property plant and equipment 384,031,357 349,324,832

Total fully depreciated assets 384,031,357 349,324,832


Rs. Rs.

29 DERIVATIVE LIABILITIES HELD FOR RISK MANAGEMENTDerivative liabilities held for risk management (Note 21.1) 179,560,616 271,625,120

179,560,616 271,625,120

30 FINANCIAL LIABILITIES AT AMORTISED COST/ DEPOSITS LIABILITIESFixed and savings deposits at amortised costFixed deposits 22,688,654,963 21,921,908,118 Saving deposits 956,692,017 788,591,008 Interest payable on customer deposits 670,759,124 774,609,753

24,316,106,104 23,485,108,879

31 LOANS AND BORROWINGSShort-term loans and others - 2,004,131,507 Debentures (Note 31.3) 5,116,377,048 5,112,985,130 Long-term borrowings (Note 31.1) 20,843,730,927 21,815,545,583

25,960,107,975 28,932,662,220

31.1 Long-term borrowingsBalance as at 1st April 22,053,375,750 26,340,684,137 Loans obtained during the year 4,954,708,039 - Repayments during the year (6,208,633,881) (4,284,357,313)Amortized interest 233,147,645 (2,951,074)Gross Balance at the end of the year 21,032,597,553 22,053,375,750 Unamortized finance cost (188,866,626) (237,830,167)Balance as at 31st March 20,843,730,927 21,815,545,583

31.2 Loans and borrowingsLoans and borrowings- Current 9,520,443,043 9,619,669,022Loans and borrowings- Non current 16,439,664,932 19,312,993,198 Total loans and borrowings 25,960,107,975 28,932,662,220



Interest rate of comparable government security Buying and selling prices of treasury bond as at 31st March 2019.

5 Year Bond Price Rs.

Yield%

Buying 102.00 10.88

Selling 102.40 10.76

Market prices and yield during the year

5 Year Bond 102.20 10.82

Ratio Analysis 2019 2018

Debt to equity ratio 2.9 times 3.25 times

Quick asset ratio 0.81 times 1 times

Interest cover 1.3 times 1.42 times


Rs. Rs.

32 CURRENT TAX LIABILITIES

Tax payable as at 1st April 519,857,489 413,645,436

Current tax expense for the year (Note 13.2) 649,582,449 552,667,262

Under/ (Over) Provision in respect of previous year 6,519,451 (164,041,412)

Tax paid during the year (748,457,461) (282,413,797)

Tax payable as at 31st March 427,501,928 519,857,489

33 AMOUNT DUE TO RELATED COMPANIES

LOLC Holdings PLC 99,193,692 142,002,355

LOLC Motors Limited 1,942,471 3,002,161

2019 2018

Face Value Amortized Cost Face Value Amortized Cost

31.3 Debentures

Rated, Senior, Unsecured, Redeemable debenture 5,000,000,000 5,116,377,048 5,000,000,000 5,112,985,130

Debentures Year of Issue

Year ofRedemption

Type of Issue

Fixed Rate SemiAnnually

Rated, Senior, Unsecured, Redeemable debenture 2015 2020 Senior -Unsecured -Redeemable

9.75%

Debentures Highest Price Lowest Price Last Traded Price Last Traded Date

Market summary 101.58 100.67 96.34 29-Mar-19


2019 2018

Recognised deferred tax liabilities TemporaryDifference

Tax Effect

TemporaryDifference

Tax Effect

Rs. Rs. Rs. Rs.

35 DEFERRED TAX ASSETS AND LIABILITIES

Property, Plant and Equipment 353,347,920 98,937,418 169,774,776 47,536,938

Lease receivables 1,769,374,453 495,424,847 1,694,273,222 474,396,504

Retirement Benefit Obligation (114,984,766) (32,195,734) (95,420,547) (26,717,753)

Revaluation of Property, plant and equipment 137,241,005 38,427,481 116,710,553 32,678,955

Derivative Asset / (Liability) (41,990,315) (11,757,288) (180,555,790) (50,555,621)

Financial Assets - Fair value through OCI 501,585 140,444 - -

Investment in LOLC Mynmar Micro Finance Co. Ltd 155,680,245 15,568,024 - -

Investment Property 114,657,720 11,465,772 - -

Provision for Impairment - Collective Impairment (65,867,710) (18,442,959) - -

2,307,960,137 597,568,005 1,704,782,214 477,339,023


Rs. Rs.

35.1.1 Movement in recognised deferred tax liabilities


Originations during the year (Note 35.2.1) 120,228,982 140,293,745



Rs. Rs.

LOLC Finance PLC 2,369,599 -

LOLC Technology Services 9,980,975 10,831,909

Prosper Realty Limited - 1,584,184

LOLC Micro Credit Limited - 762,755

LOLC Corporate Services (Private) Limited 564,228 564,227

114,050,965 158,747,591

34 TRADE AND OTHER PAYABLES

Financial liabilities

Accrued Expenses 335,414,766 361,857,648

Creditors for cost of equipment 322,515,560 686,308,175

Other payables 362,678,104 337,459,353

1,020,608,430 1,385,625,176

Non-financial liabilities

Other payables 277,257,186 328,677,855

277,257,186 328,677,855

Total trade and other payables 1,297,865,616 1,714,303,031



Rs. Rs.

35.1 Deferred tax expense

Deferred tax liabilities

Originations / reversal during the year (Note 35.2.1) 120,228,982 140,293,745

120,228,982 140,293,745

35.2.1 Amount originating / (reversing) during the year

Recognised in profit and loss 187,216,219 208,044,620

Total Recognised in profit and loss 187,216,219 208,044,620

Recognised in other comprehensive income 46,310,253 (67,750,875)

Total Recognised in other comprehensive income 46,310,253 (67,750,875)

Recognized directly in Equity (113,297,490) -

Total Recognised directly in equity (113,297,490) -

120,228,982 140,293,745


Rs. Rs.

36 RETIREMENT BENEFIT OBLIGATION

Present value of unfunded gratuity


Benefit paid during the year (3,646,254) (6,933,364)

Expense recognised in the income statement (Note 36.1) 21,146,079 17,865,691

Expense recognised in the other comprehensive income (Note 36.2) 8,158,451 6,094,101

114,984,766 89,326,490

36.1 Expense recognised in the income statement

Current service cost 11,320,166 9,189,684

Interest on obligation 9,825,913 8,676,007

21,146,079 17,865,691

36.2 Expenses recognized in other comprehensive income

Actuarial loss / (gain) 8,158,451 8,227,464

Adjustment - (2,133,363)

8,158,451 6,094,101

The retirement benefit obligation was actuarial valued under the projected unit credit (PUC) method by professionally qualified actuary firm Messes Piyal S. Goonethilake and Associates on 31st March 2019.

The principle fnancial assumptions used in the valuation for the current and comparative years are as follows;




Actuarial assumptions

Rate of discount 11.0% 11.0%

Salary increment rates 9.0% 9.0%

Retirement age 55 years 55 years

36.3 Sesivitity of the actuarial assumptions

Sensitivity analysis on discounting rate and salary increment rate to statement of financial position and statement of profit and Loss.

2019 2018

As at 31st March Rate change Financial Position- Liability

Rs.

Rate change Financial Position - Liability

Rs.

Discount rate +1 100,306,662 +1 82,891,111

-1 116,897,721 -1 99,673,153

Future salary increases +1 118,390,639 +1 82,335,746

-1 98,906,511 -1 97,196,376

There are no material issues pertaining to employees and industrial relations of the company.


Rs. Rs.

37 STATED CAPITALIssued and fully paid (Note 37.1) 1,425,946,629 1,425,946,629

Number of shares (Note 37.2) 6,377,711,170 6,377,711,170

All shares rank equally with regard to the company’s residual assets. The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the company.


Rs. Rs.

37.1 Movement in stated capital

Balance as at 1st April 2018 1,425,946,629 1,425,946,629

Balance as at 31st March 2019 1,425,946,629 1,425,946,629

37.2 Movement in number of ordinary shares

No of shares as at 1st April 2018 6,377,711,170 6,377,711,170

No of shares as at 31st March 2019 6,377,711,170 6,377,711,170

38 RESERVESStatutory reserve (Note 38.1) 796,040,366 736,135,589

Revaluation reserve (Note 38.2) 944,501,828 947,882,602

General reserve (Note 38.3) 288,079,789 288,079,789

Fair value reserve on FVTOCI (Note 38.4) 18,725,492 22,567,080

Hedging reserve (Note 38.5) (30,233,024) 1,106,124

Balance as at 31st March 2,017,114,451 1,995,771,184


38.1 Statutory reserve

The reserve is created according to Direction No.1 of 2003 issued under the Finance Business Act No.42 of 2011. The Company transfers 5% of its annual net profit after tax to this reserve in compliance with this direction.

38.2 Revaluation reserve

The revaluation reserve relates to the revaluation surplus of Property, Plant and Equipments and the long term investments. Once the respective revalued items have been disposed, the relevant portion of revaluation surplus is transferred to retained earnings.

38.3 General reserve

General reserves are the retained earnings of a Company which are kept aside out of Company’s profits to meet future (known or unknown) obligations

38.4 Fair value reserve on Fair value through other comprehensive income/available for sale

This reserve is maintained to recognize the fair value changes of available for sale financial assets.

38.5 Hedging reserve

The hedging reserve comprises of the effective portion of the cumulative net change in fair value of cash flow hedging instruments related to hedge transactions that have not yet affected the profit or loss.


Rs. Rs.

39 RETAINED EARNINGS

Balance as at 1st April 13,084,306,136 11,039,653,947

Impact of adoption of SLFRS 9 (189,020,807) -

Adjusted balance as a 1st April 12,895,285,329 11,039,653,947

Net profit for the year 1,198,096,541 2,144,322,847

Other comprehensive income (8,158,451) (6,094,101)

Share of other comprehensive income from equity accounted investee (5,856,005) 11,933,238

Transferred to/(from) during the year (59,904,777) (107,216,142)

Tax on other comprehensive income (3,990,702) 1,706,347

Balance as at 31st March 14,015,471,935 13,084,306,136

The carrying amount of the retained earnings represents the undistributed earnings held by the Company. This could be used to absorb future losses and dividend declaration.

40 MATURITY ANALYSIS OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES

` An analysis of the interest bearing assets and liabilities employed by the Company as at 31st March 2019, based on the remaining period at the reporting date to the respective contractual maturity date is given below.



As

at 3

1st

Mar

chC

arry

ing

amou

nt 2

019

Less

tha

n 1

mon

th1-

3 m

onth

s4

- 12

m

onth

s13

- 6

0

mon

ths

Mor

e th

an

60 m

onth

sC

arry

ing

amou

nt 2

018

Rs.

R

s.

Rs.

R

s.

Rs.

R

s.

Rs.

Mat

urity

ana

lysi

s of

fina

ncia

l ass

ets

Inte

rest

ear

ning

ass

ets

Cas

h an

d ca

sh e

quiv

alen

ts (

Not

e 16

.1) 2

,550

,274

,316

2

,550

,274

,316

-

-

-

-

2

,377

,557

,530

Fina

ncia

l ass

ets

reco

gnis

ed t

hrou

gh p

rofit

or

loss

/Tr

adin

g as

sets

- fa

ir va

lue

thro

ugh

profi

t or

loss

Equi

ty s

ecur

ities

(N

ote

17.1)

350

,783

,353

3

50,7

83,3

53

-

-

-

-

153,

996,

501

Uni

t Tru

st (

Not

e 17

.2)

2,4

75,7

10,7

78

2,4

75,7

10,7

78

-

-

-

-

-

Der

ivat

ive

asse

ts h

eld

for r

isk

man

agem

ent (

Not

e 21

) 3

11,35

2,15

1 18

1,40

9,35

0

81,3

53,9

00

4

8,58

8,90

1 -

-

-

Inve

stm

ent

secu

ritie

s

Fina

ncia

l ass

ets

mea

sure

d at

fair

valu

e th

roug

h ot

her

com

preh

ensi

ve in

com

e/A

vaila

ble-

for-

sale

inve

stm

ent s

ecur

ities

(Not

e 18

.1)

3,7

55,9

98,4

35

-

-

2,5

69,6

66,5

35

1,18

6,15

3,15

1 17

8,75

0

1,90

0,0

74,0

31

Fina

ncia

l ass

ets

at a

mor

tised

cos

t /Lo

ans

& re

ceiv

able

s (N

et)

(Not

e 18

.2)

2,9

30,2

84,13

3 2

,40

9,0

24,4

92

262

,087

,974

15

8,80

8,40

1 10

0,3

63,2

66

-

4,6

05,

140

,218

Fina

nce

leas

e re

ceiv

able

s, h

ire p

urch

ases

and

ope

ratin

g le

ases

Fina

nce

leas

e re

ceiv

able

s (G

ross

) (N

ote

19)

14,2

08,5

63,2

37

1,12

8,12

3,48

6 9

76,2

63,6

67

3,8

24,3

01,0

65

8,2

56,4

20,4

39

23,

454,

580

15

,167,

929,

217

Hire

pur

chas

e re

ceiv

able

s (G

ross

) -

-

-

-

-

-

2

,223

,347

Adv

ance

s an

d ot

her

loan

s

Loan

s an

d ad

vanc

es (

Gro

ss)

(Not

e 20

.1) 3

8,86

5,20

1,612

1,

129,

366,

601

1,88

4,68

7,29

6 10

,174,

605,

837

25,

201,4

28,7

45

475

,113,

733

41,6

23,8

75,2

03

Fact

orin

g re

ceiv

able

s (G

ross

) (N

ote

20.2

) 2

,622

,094

,420

1,0

60,5

41,17

622

4,19

1,086

259,

784,

501

1,077

,577

,657

-

4,0

16,6

78,7

08

Trad

e an

d ot

her

curr

ent

asse

ts

Loan

s to

sta

ff 1,

293,

567

1,29

3,56

7 -

-

-

-

1,

196,

787

68,

071,5

56,0

02

11,2

86,5

27,11

9 3

,428

,583

,923

17

,035

,755

,240

3

5,82

1,943

,258

4

98,7

47,0

63

69,

848,

671,5

41

Mat

urity

ana

lysi

s of

fina

ncia

l lia

bilit

ies

Inte

rest

bea

ring

liabi

litie

s

Non

-der

ivat

ive

liabi

litie

s

Ban

k ov

erdr

afts

(N

ote

16.2

) 3

90,0

69,9

10

390

,069

,910

-

-

-

-

1,

353,

451,3

58

Trad

ing

liabi

litie

s -

fair

valu

e th

roug

h pr

ofit

or lo

ss

Der

ivat

ive

liabi

litie

s he

ld fo

r ris

k m

anag

emen

t (N

ote

29)

179,

560,

616

-

114,

114,

116

65,

446,

500

-

-

2

71,6

25,12

0

Dep

osits

liab

ilitie

s

Dep

osits

from

cus

tom

ers

(Not

e 30

) 2

4,31

6,10

6,10

4 4

,622

,191,6

66

3,2

15,0

39,7

68

11,7

49,9

88,4

39

4,7

28,8

86,2

31

-

23,4

85,10

8,87

9

Inte

rest

bea

ring

borr

owin

gs

Shor

t ter

m lo

ans

and

othe

rs -

-

-

-

-

-

2

,00

4,13

1,50

6

Deb

entu

res

(Not

e 31

.3)

5,11

6,37

7,04

8 -

-

11

6,37

7,0

48 5

,00

0,0

00

,00

0

-

5,11

2,98

5,13

0

Long

-ter

m b

orro

win

gs (

Not

e 31

.1) 2

0,84

3,73

0,92

7 2

05,

497,

833

4,3

58,8

67,3

38

4,8

39,7

00

,723

11

,439

,665

,033

-

2

1,815

,545

,583

Oth

er c

urre

nt li

abili

ties

436

,566

,525

11

4,0

50,9

65

322

,515

,560

-

-

-

8

45,0

55,7

66

51,2

82,4

11,13

0

5,3

31,8

10,3

74

8,0

10,5

36,7

82

16,7

71,5

12,7

10 2

1,168

,551

,264

-

54,

887,

903,

342



41 RELATED PARTY TRANSACTIONS

The company carried out transactions in the ordinary course of it's business with parties who are defined as related parties as per Sri Lanka Accounting Standard 24 (LKAS 24) ' Related Party Disclosures', the details of which are reported below.

Terms & Conditions of Transactions with related parties Transactions with related parties are carried out in the ordinary course of business on arm's length basis. Outstanding current account

balances are unsecured and all accommodations are granted on secured basis. Settlements occurs in cash. Corporate guarantees worth of Rs. 1,249 Mn received from fellow subsidiaries for the accommodations granted.

41.1 Identity of related parties The company has related party transactions with, its equity accounted investee LOLC Development Finance PLC and Commercial

Insurance Brokers Private Limited and LOLC Holdings PLC the main shareholder of the Company and with its Directors.

41.2 Transactions with key management personnel According to Sri Lanka Accounting Standard (LKAS) 24 'Related Party Disclosures', key management personnel are those having

authority and responsibility for planning, directing and controlling the activities of the entity. Accordingly, the Board of Directors (including Executive and Non-Executive) and the heads of its core functions have been identified as key management personnel of the company. Independent transaction with key management personnel, are disclosed as follows,

(i) Loans to directors No loans have been given to the directors of the company.

(ii) Compensation of key management personnelShort term employment benefits


Rs. Rs.

Directors fees and other emoluments 28,962,853 16,092,126

Other KMP emoluments 34,480,446 24,207,448

63,443,299 40,299,574

Long-term employment benefits There are no long term employment benefits to key management personnel during the year.

(iii) Related party transactions Accordingly, the value of all transactions carried out by the company with its related companies during the year ended 31st March 2019

are summarized bellow.

Name of the company

Relationship Nature of the transaction Transactionvalue

Amount duefrom/(to)

Amount duefrom/(to)

2019 Rs.

2019Rs.

2018Rs.

LOLC Holdings PLC Parent Interest expense (19,900,253)

Transfer of funds 4,016,517,597

Funds received (3,312,845,003)

Handling fee (490,929,331)

Guarantee fees (12,000,000)

Asset hire expenses (21,821,997)

Show back Charge (61,349,600)

Settlement of expenses by LOLC (54,862,749) (99,193,692) (142,002,355)


Name of the company

Relationship Nature of the transaction Transactionvalue

Amount duefrom/(to)

Amount duefrom/(to)

2019 Rs.

2019Rs.

2018Rs.

LOLC Development Finance PLC

Associate Accommodations Recovered (700,000,000)

Interest on Accommodations 46,270,191 - -

Commercial Insurance Brokers Private Limited

Associate Insurance commission received 55,760,000 - -

LOLC Motors Limited Fellow Subsidiary Accommodations Granted 252,725,000

Interest on Accommodations 95,806,950

Accommodations Recoverd (140,230,955)

Valuation fee income 4,983,909

Settlement of expenses (6,985,441)

Rent Income 3,061,224 (1,942,469) (3,002,161)

LOLC Technology Services Limited

Fellow Subsidiary Provision for information services (125,439,195)

Payments 137,928,382

Expenses shared (11,638,254) (9,980,977) (10,831,909)

Browns & Company PLC

Fellow Subsidiary Accommodations Granted 1,000,000,000

Loan recovered (1,027,060)

Interest income received 32,306,274

Lease vehicle purchased 446,028,000 - -

Ishara Traders Other Related Party

Lease vehicle purchased 5,375,000 - -

LOLC Finance PLC Fellow Subsidiary Provision for rent (17,439,796)

Provision for Yard fee (8,396,939)

Expenses shared 26,656,220

Settlement of expenses (2,426,325) (2,369,595) (762,755)

Prosper Realty (Pvt) Limited

Fellow Subsidiary Provision for rent (4,752,551)

Fund transfer settlement of rent 6,336,735 - (1,584,184)

LOLC Corporate Services (Pvt) Limited

Fellow Subsidiary Provision for secretarial fees (6,211,409)

Tax on shared service (559,321)

Fund transfer (Settlement of expenses by CLC)

6,770,731 (564,227) (564,227)

Galoya Plantations (Pvt) Limited

Fellow Subsidiary Accommodations recoverd (32,603,267)

Interest income received 56,524,471 - -

Ajax Engineers (Pvt) Limited

Fellow Subsidiary Accommodations recoverd (1,504,260)

Loan interest income 152,852 - -



41.3 Non-recurrent related party transactions There were no any non-recurrent related party transactions which aggregate value exceeds 10% of the equity or 5% of the total assets

whichever is lower as per 31 March 2018 audited financial statements of the Company, which required additional disclosure in 2018/19 Annual Report under Colombo Stock Exchange listing rule 9.3.2 (a)

41.4 Recurrent related party transactions All the transactions which are disclosed under note 41.2(iii) with related parties are recurrent, of revenue or trading nature and which is

necessary for day-to-day operations of the Company and fellow subsidiaries, associates. In the opinion of the Related Party Transaction Review Committee, terms for these transactions are not favourable to the related party than those generally available to the public.

Except the above, there were no any recurrent related party transactions which in aggregate value exceeds 10% of the revenue of the Company as per 31 March 2019 audited financial statements, which required additional disclosers in 2018/19 Annual Report under Colombo Stock Exchange listing rule 9.3.2 (b).

41.5 The terms and conditions of the transactions with key management personnel and their related parties were no more favorable than

those available, or which might reasonably be expected to be available, on similar transactions to non-key management personnel related entities on an arm’s length basis.


Rs. Rs.

42 CONTINGENT LIABILITIES

Guarantees issued to banks and other institutions 191,288,445 185,553,100

43 CAPITAL COMMITMENTS There were no significant capital commitments which have been approved or contracted for by the company as at the reporting date

except for the following.


Rs. Rs.

Forward exchange contracts 17,102,953,393 19,053,392,831

Facility limits not utilized 4,807,236,289 5,153,077,599

21,910,189,681 24,206,470,430

44 LITIGATION AND CLAIMS Litigation is a common occurrence in the finance industry due to the nature of the business undertaken. The Company has formal

controls and policies for managing legal claims. Once professional advice has been obtained and the amount of loss reasonably estimated, the Company makes adjustments to account for any adverse effects which the claims may have on its financial standing.

45 EVENTS AFTER THE REPORTING DATE No circumstances have arisen subsequent to the reporting date which would require adjustments to or disclosure in the financial

statements.


46 IMPACT ON ADOPTING SLFRS 9 – “FINANCIAL INSTRUMENTS” Impact on Adopting SLFRS 9 – “Financial Instruments” on Fair Value Through Other Comprehensive Income Reserves and Retained

Earnings The Company initially adopted SLFRS 9 from 1st April 2018. As permitted by the transitional provision of SLFRS 9, the impact of

adopting SLFRS 9 is considered as an adjustment to equity on 1st April 2018, without restating the comparative information. The following table shows the impact on transition of SLFRS 9 - “Financial Instruments” on fair value through other comprehensive

income reserves and retained earnings as at 1st April 2018.

Retained Earnings

Rs.

Balance as per LKAS 39 as at 31st March 2018 13,084,306,136

Transitional Adjustment for expected Credit loss on Financial Assets at amortised cost

Expected credit loss allowance under SLFRS 9 for

- Finance lease receivables (103,721,365)

- Hire purchase receivables 9,917

- Advances and loans (311,182,267)

- Factoring receivables (46,582,174)

Deferred tax on transitional adjustments 129,213,249

Impact of reclassifying financial investment from AFS to FVTPL 159,157,592

Deferred Tax in relation to Fair value change of reclassifying financial investment from AFS to FVTPL (15,915,759)

Total impact on adopting SLFRS 9 “Financial Instruments” (189,020,807)

Balance as per SLFRS 9 as at 31st April 2018 12,895,285,329

46.1 Classification of financial assets and financial liabilities on the date of Initial Application of SLFRS 9 The following table shows the original measurement categories in accordance with LKAS 39 and the new measurement categories

under SLFRS 9 for the Company’s financial assets and financial liabilities as at 1st April 2018. As permitted by the transitional provision, the remeasurement impact of adopting SLFRS 9 is considered as an adjustment on 1st April 2018, without restating the comparative information.

Other than the mater mentioned above there are no significant changes to comparative information.


46.1

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Group Business Segment

For the year ended 31st March 2018 Conventional Financial Services

Islamic Financial Services

Factoring Business

Others/ Adjustments

Total

Rs. Rs. Rs. Rs. Rs.

47 SEGMENT INFORMATIONContinuing Operations

Total Income including net income/ (expense) from other financial instruments at FVTPL

13,592,190,184 663,014,831 1,299,555,308 - 15,554,760,323

Net interest cost (6,485,667,636) (91,690,031) (417,436,962) - (6,994,794,629)

Profit before operating expenses 7,106,522,548 571,324,800 882,118,346 - 8,559,965,694

Operating expenses (4,386,009,915) (97,280,840) (984,042,095) - (5,467,332,850)

Value added tax on financial services and NBT (552,500,362) (21,815,112) (36,639,762) - (610,955,235)

Profit from operations 2,168,012,271 452,228,848 (138,563,509) - 2,481,677,610

Discontinued Operations

Profit from operations of discontinued operations (net of Tax)

(81,495,104) - - - (81,495,104)

Capital expenditure - - - 318,764,443 318,764,443

Depreciation of property plant and equipment

- - - 113,660,958 113,660,958

Provision for/(reversal of provision for)doubtful debts and bad debts written off

487,874,892 24,766,111 543,350,699 - 1,055,991,702

Company Business Segment



Factoring Business

Others/ Adjustments

Total

Rs. Rs. Rs. Rs. Rs.

Total Income including net income/ (expense) from other financial instruments at FVTPL

14,026,767,924 958,277,454 891,844,109 - 15,876,889,487





Profit from operations (5,872,753,567) (314,247,639) (896,667,152) - 2,096,382,920

For the year ended 31st March 2018

Total revenue 13,862,279,638 663,014,831 1,299,555,308 - 15,824,849,777





Profit from operations 2,438,100,723 452,228,849 (138,562,511) - 2,751,767,063


47 SEGMENT INFORMATION (CONTD.)

Company Business Segment



Factoring Business

Others/ Adjustments

Total

Rs. Rs. Rs. Rs. Rs.



- - - 130,407,159 130,407,159


1,089,078,443 131,594,806 664,877,449 - 1,885,550,698

For the year ended 31st March 2018



- - - 113,660,958 113,660,958


487,874,892 24,766,111 543,350,699 - 1,055,991,702

As at 31st March 2019

Total assets 47,435,480,109 4,220,643,873 1,836,823,686 17,363,401,232 70,856,348,900

Total liabilities 44,823,073,274 3,339,232,677 1,735,664,580 3,499,845,354 53,397,815,885

As at 31st March 2018

Total assets 52,383,673,626 3,808,507,424 3,584,916,332 13,731,347,768 73,508,445,150

Total liabilities 49,384,920,832 3,194,025,295 3,336,954,073 1,086,521,001 57,002,421,201

48 FAIR VALUE DISCLOSURES

Valuation Models ‘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 in the principal or, in its absence, the most advantageous market to which the Bank has access at that date. The fair value of a liability reflects its non-performance risk.

The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of

valuation techniques as described in accounting policy Note 3.3.4. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. The fair value hierarchy of financial instruments is given below:



Level 1 : Fair value measurements using quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 : Fair value measurements using inputs other than quoted prices included within Level 1 that are observable for the asset

or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3 : Fair value measurements using inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs).

Assets and Liabilities Measured at Fair Value - Fair Value Hierarchy The following table analyses financial instruments measured at fair value at the reporting date, by the level in the fair value hierarchy

in to which the fair value measurement is categorized. The amounts are based on the values recognized in the statement of financial position. The fair values include any defferred differences between any transaction price and the fair value on initial recognition when the fair value is based on a valuation technique that uses unobservable input.

As at 31st March 2019 Note Carrying amount

Level 1 Level 2 Level 3 Total

Rs. Rs. Rs. Rs. Rs.

Financial assets

Cash and Cash Equivalent 16.1 2,550,274,316 - 2,550,274,316 - 2,550,274,316

Financial Assets recognized through Profit or Loss (FVTPL/ Financial Assets hed for trading)

Equity securities 17.1 350,783,353 128,303,109 - 222,480,244 350,783,353

Unit trust 17.2 2,475,710,778 - 2,475,710,778 - 2,475,710,778

Derivative assets held for risk management 21 311,352,151 - 311,352,151 - 311,352,151

3,137,846,282 128,303,110 2,787,062,929 222,480,243 3,137,846,282

Investment securities

Treasury bills 18.1.2 3,755,819,685 3,755,819,685 - - 3,755,819,685

Unquoted equity securities 18.1.3 178,750 - - 178,750 178,750

3,755,998,435 3,755,819,685 - 178,750 3,755,998,435

Non Financial Assets

Investment properties 26 2,100,080,280 - - 2,100,080,280 2,100,080,280

Property Plant & Equipment 28 1,205,048,043 - - 1,205,048,043 1,205,048,044

10,720,232,681 128,303,110 7,064,142,255 3,527,787,316 10,720,232,682

Financial Liabilities

Bank Overdraft 16.2 390,069,910 - 390,069,910 - 390,069,910

Derivative liabilities held for risk management 29 179,560,616 - 179,560,616 - 179,560,616

179,560,616 - 179,560,616 - 179,560,616



48 FAIR VALUE DISCLOSURES (CONTD.)

As at 31st March 2018 Note Carrying amount

Level 1 Level 2 Level 3 Total

Rs. Rs. Rs. Rs. Rs.

Trading assets - fair value through profit or loss

Cash and Cash Equivalent 16.1 2,550,274,316 - 2,550,274,316 - 2,550,274,316

Equity securities 17.1 153,996,501 153,996,501 - - 153,996,501

2,704,270,817 153,996,501 2,550,274,316 - 2,704,270,817

Other Investment

Corporate bonds 18.1.1 40,182,554 - 40,182,554 - 40,182,554

Treasury bills 18.1.2 1,792,912,727 1,792,912,727 - - 1,792,912,727

Unquoted equity securities 18.1.3 66,978,750 - - 66,978,750 66,978,750

1,900,074,031 1,792,912,727 40,182,554 66,978,750 1,900,074,031

Non Financial Asset

Investment properties 26 1,632,000,000 - - 1,632,000,000 1,632,000,000

Land and Buildings 28 1,227,575,523 - - 1,227,575,523 1,227,575,523

4,913,646,055 153,996,501 1,833,095,281 2,926,554,273 4,913,646,055


Trading liabilities - fair value through profit or loss/ Derivative liabilities

Derivative liabilities held for risk management

29 271,625,120 - 271,625,120 - 271,625,120

271,625,120 - 271,625,120 - 271,625,120

Level 3 Fair Value MeasurementsReconcillation The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements in level 3 of the fair value hierarchy.

Unquoted equity securities - FVTPL

Unquoted equity securities - FVTOCI

Investment properties

Land and Buildings

Rs. Rs. Rs. Rs.

Balance as at 1st April 2018 225,957,592 178,750 1,632,000,000 867,180,000

Total gains or losses:

in profit or loss (3,477,348) - 114,657,720 -

in OCI - - - -

Purchases - - 353,422,560 -

Balance as at 31st March 2019 222,480,244 178,750 2,100,080,280 867,180,000


Level 3 Fair Value Measurements Reconcillation The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements in level 3 of the fair value hierarchy.

Unquoted equity securities -

FVTPL

Unquoted equity securities -

FVTOCI

Investment properties

Land and Buildings

Rs. Rs. Rs. Rs.

Balance as at 1st April 2017 - 66,978,750 46,000,000 1,719,000,000

Total gains or losses:

in OCI 159,157,592 - 59,882,000 -

Purchases - - 483,118,000 122,237,977

Transfers (to)/from property plant and equipment - - 1,043,000,000 (1,043,000,000)

Revaluations - - - 68,552,223

Transfers / other adjustments 66,800,000 (66,800,000) - 389,800

Balance as at 31st March 2018 225,957,592 178,750 1,632,000,000 867,180,000

Unobservable Inputs used in measuring fair value The following table sets out information about significant unobservable inputs used at 31st March 2019 and 2018 in measuring financial instruments categorized as level 3 in the fair value hierarchy.

Type of financial instrument Fair value at 31st March 2019Rs.

Valuation technique Significant unobservable input

Unquoted equity securities - FVTPL 222,480,244 Residual Income Equity Risk Premium - 19.83%Terminal Growth Rate - 3%

Unquoted equity securities 178,750 Cost Approach Cost per share

Investment properties 2,100,080,280 Market comparable method

Note 26

Property, plant and equipment 867,180,000 Market comparable method

Note 28.2

Significant unobservable inputs developed are as follows

Category Unobservable Input Increase / Decrease Impact to the profit or loss

Unquoted equity securities Residual Income 1% increase in risk premium (40,773,782)

1% decrease in risk premium 47,019,142




Land and Buildings and Investment Properties Valuation Method Land and Building in Property, plant and Equipment and Investment Property are valued using market approach with direct comparison method, making adjustments for points of difference to derive the fair value.

Under the Market Approach, estimated fair value would get increased/(decreased) if; Price per perch would get higher/(lower) Price per square foot would get higher/(lower) Depreciation rate for building would get lower/(higher)

Financial Instruments not measured at fair valueThe following table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the fair value hirarchy into which fair value measurement is categorized.

As at 31st March 2019 Note Total Fair value Total Carrying Amount

Rs. Rs.

Assets


Repos 18.2.1 2,409,024,492 2,409,024,492

Investment securities 18.2.2

Debentures 18.2.3 521,259,641 521,259,641

2,930,284,133 2,930,284,133

Finance lease receivables, hire purchases and operating leases

Finance lease receivables 19.1 13,538,462,789 13,917,880,997

Hire purchase receivables 19.2 - -

13,538,462,789 13,917,880,997

Advances and other loans

Advances and loans 20.1 35,479,191,470 37,738,243,987

Factoring receivables 20.2 2,622,094,420 1,836,823,687

38,101,285,890 39,575,067,674

54,570,032,812 56,423,232,804

Liabilities

Deposits liabilities 30 18,498,534,190 24,316,106,104

18,498,534,190 24,316,106,104

Interest bearing borrowings

Debentures 31 4,774,236,266 5,116,377,048

Long-term borrowings 31.1 20,734,847,903 20,843,730,927

25,509,084,169 25,960,107,975

44,007,618,359 50,276,214,079


As at 31st March 2018 Note Total Fair value Total Carrying Amount

Rs. Rs.

Assets


Repos 18.2.1 3,654,437,478 3,654,437,478

Investments in term deposits 18.2.3 950,702,740 950,702,740

4,605,140,218 4,605,140,218

Finance lease receivables, hire purchases and operating leases

Finance lease receivables 19.1 15,275,350,902 14,983,134,443

Hire purchase receivables 19.2 377,646 377,648

15,275,728,548 14,983,512,091

Advances and other loans

Advances and loans 20.1 40,968,312,121 41,208,800,160

Factoring receivables 20.2 3,584,916,333 3,584,916,333

Pawning advances 18 - -

44,553,228,454 44,793,716,493

64,434,097,220 64,382,368,802

Liabilities

Deposits liabilities 30 18,498,534,190 23,485,108,879

18,498,534,190 23,485,108,879

Interest bearing borrowings

Debentures 31 9,122,195,686 5,112,985,130

Short-term loans and others 31 2,004,131,506 2,004,131,506

Long-term borrowings 31.1 21,815,545,583 21,815,545,583

32,941,872,776 28,932,662,220

51,440,406,966 52,417,771,099



Analysis of financial instruments by measurement basisClassification of financial assets and liabilities as per SLFRS 9 - “Financial instruments”

As at 31st March 2019 Financial assets measured at fair

value through profit or loss (FVTPL)

Financial assets measured

at fair value through other

comprehensive income (FVOCI)

Financial assets measured at

amortised cost

Total

Rs. Rs. Rs. Rs.

Financial Assets

Cash and cash equivalents - - 2,550,274,316 2,550,274,316

Financial assets recognised through profit or loss / Trading assets - fair value through profit or loss

Equity shares 350,783,353 - - 350,783,353

Unit trust 2,475,710,778 - - 2,475,710,778

Derivative assets held for risk management 311,352,151 - - 311,352,151


Treasury bills - 3,755,819,685 - 3,755,819,685

Unquoted shares - 178,750 - 178,750

Government secutiries (REPO Investment) - - 2,409,024,492 2,409,024,492

Debentures - - 521,259,641 521,259,641

Financial assets at amortised cost/ Finance lease receivables, hire purchases and operating leases

- - 13,917,880,997 13,917,880,997

Financial assets at amortised cost/ Advances and other loans

- - 39,575,067,674 39,575,067,674

Total financial assets 3,137,846,282 3,755,998,435 58,973,507,120 65,867,351,837


Bank overdraft - - 390,069,910 390,069,910

Derivative Liabilities held for risk management 179,560,616 - - 179,560,616

Financial Liabilities at Amortised Cost - - 24,316,106,104 24,316,106,104

Total financial liabilities 179,560,616 - 24,706,176,014 24,885,736,630



Classification of financial assets and liabilities as per LKAS 39 - "Financial instruments : Recognition and measurement"

As at 31st March 2018 Held for trading (HFT)

Held to maturity

(HTM)

Loans and receivables

(L and R)

Available for sale

(AFS)

Total

Rs. Rs. Rs. Rs. Rs.

Financial Assets

Cash and cash equivalents - - 2,377,557,530 - 2,377,557,530

Financial assets recognised through profit or loss/Trading assets - fair value through profit or loss

Equity shares 153,996,501 - - - 153,996,501


Investments in treasury bonds - - - 40,182,554 40,182,554

Treasury bills - - - 1,792,912,727 1,792,912,727

Unquoted shares - - - 66,978,750 66,978,750

Government secutiries (REPO Investment) 3,654,437,478 - 3,654,437,478

Investments in term deposits - - 950,702,740 - 950,702,740

Financial assets at amortised cost/ Finance lease receivables, hire purchases and operating leases

- - 14,983,512,091 - 14,983,512,091


- - 44,793,716,492 - 44,793,716,492

Total financial assets 153,996,501 - 66,759,926,331 1,900,074,031 68,813,996,863

Held for trading (HFT)

Amortised cost

Total

Rs. Rs. Rs.


Bank overdraft - 1,353,451,358 1,353,451,358

Derivative Liabilities held for risk management 271,625,120 - 271,625,120

Financial Liabilities at Amortised Cost/ Deposits liabilities - 23,485,108,879 23,485,108,879

Total financial liabilities 271,625,120 24,838,560,237 25,110,185,357


49 FINANCIAL RISK MANAGEMENT

Overview The company has exposure to the following risks from financial instruments:

Credit risk Liquidity risk Market risk Operational risk This note presents information about the company’s exposure to each of the above risks, the company’s objectives, policies and

processes for measuring and managing risk, and the company’s management of capital. Risk management framework The board of directors has overall responsibility for the establishment and oversight of the company’s risk management framework.

The board has established the Integrated Risk Management Committee (IRMC), which are responsible for developing and monitoring company risk management policies in their specified areas. All board committees have both executive and non-executive members and report regularly to the board of directors on their activities.

The company’s risk management policies are established to identify and analyse the risks faced by the company, to set appropriate

risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.

The company audit committee and the IRMC are responsible for monitoring compliance with the company’s risk management policies

and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the company. The company audit committee is assisted in these functions by Enterprise Risk Management division (ERM). ERM undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the company audit committee.

Credit risk Credit risk is the risk of financial loss to the company if a customer or counterparty to a financial instrument fails to meet its contractual

obligations, and arises principally from the company’s loans and advances to customers and other company's, and investment debt securities. For risk management purposes, credit risk arising on trading assets is managed independently.

Management of credit risk Facilities granted to customers (Lease / Hire purchase / Loans/ Factoring) Credit department has a Credit committee formed internally, is responsible for management of the company’s credit risk, including: Formulating credit policies in consultation with Branch and Regional Heads, covering collateral requirements, credit assessment, risk

grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements. Establishing the authorization structure for the approval and renewal of credit facilities. Authorization limits are allocated to Branch

and Regional Heads, Senior Marketing Officers at Head Office. Larger facilities require approval by Company/Group Credit, Head of Company Credit, Company Credit Committee or the board of directors as appropriate.

Reviewing and assessing credit risk. company credit assesses all credit exposures in excess of designated limits, prior to facilities being

committed to customers by the business unit concerned. Renewals and reviews of facilities are subject to the same review process.



Limiting concentrations of exposure to counterparties, geographies and industries (for loans and advances), and by issuer, credit rating band and market liquidity (for investment securities).

Developing and maintaining the company’s risk grading in order to categorize exposures according to the degree of risk of financial loss

faced and to focus management on the attendant risks. The risk grading system is used in determining where impairment provisions may be required against specific credit exposures. The current risk grading framework consists of eight grades reflecting varying degrees of risk of default and the availability of collateral or other credit risk mitigation. The responsibility for setting risk grades lies with the final approving executive/committee as appropriate. Risk grades are subject to regular reviews by company Risk.

Reviewing compliance of business units with agreed exposure limits, including those for selected industries, country risk and product

types. Regular reports on the credit quality of local portfolios are provided to company credit who may require appropriate corrective action to be taken.

Providing advice, guidance and specialist skills to business units to promote best practice throughout the company in the management of credit risk.

Each Branch and Regional Head is required to implement company credit policies and procedures, with credit approval authorities

delegated from the company credit committee. Each Branch and Regional Head is responsible for the quality and performance of its credit portfolio and for monitoring and controlling all credit risks in its portfolios, including those subject to central approval.

Regular audits of business units and company credit processes are undertaken by ERM.

Allowances for impairment The company establishes an allowance for impairment losses on assets carried at amortized cost that represents its estimate of incurred losses in its lease and loan portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures, and, for assets measured at amortised cost,individually non-significant impairment established for groups of homogeneous assets as well as for individually significant exposures that were subject to individual assessment for impairment but not found to be individually impaired.

Write-off policy The company writes off a loan or an investment debt security balance, and any related allowances for impairment losses, when board

of directors determines that the loan or security is uncollectible. This determination is made after considering information such as the occurrence of significant changes in the borrower’s/issuer’s financial position such that the borrower/issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balance standardized loans, write-off decisions generally are based on a product-specific past due status.

Exposure to Credit Risk

As at 31st March Stage 1 Stage 2 Stage 3 2019 2018

Rs. Rs. Rs. Rs. Rs.

Financial assets at amortised cost/ Finance lease receivables and hire purchases

Performing (less than 180 days in arreas) 12,724,803,743 1,082,774,566 - 13,807,578,309 15,170,152,566

Non performing (more than 180 days) - - 400,984,928 400,984,928 -

Total gross loans and advances 12,724,803,743 1,082,774,566 400,984,928 14,208,563,237 15,170,152,566

Expected credit loss allowance/impairment (80,178,280) (84,031,470) (126,472,489) (290,682,240) (186,640,475)

Net Finance Lease & hire purchase receivable 12,644,625,463 998,743,096 274,512,439 13,917,880,997 14,983,512,091


49 FINANCIAL RISK MANAGEMENT (CONTD.)

As at 31st March Stage 1 Stage 2 Stage 3 2019 2018

Rs. Rs. Rs. Rs. Rs.


Performing (less than 180 days in arreas) 35,534,683,297 2,433,849,198 - 37,968,532,495 45,640,553,911

Non performing (more than 180 days) - - 3,518,763,537 3,518,763,537

Total gross loans and advances 35,534,683,297 2,433,849,198 3,518,763,537 41,487,296,032 45,640,553,911

Expected credit loss allowance/impairment (324,493,389) (199,324,672) (1,388,410,297) (1,912,228,358) (846,837,418)

Net advances and other loans 35,210,189,908 2,234,524,526 2,130,353,240 39,575,067,674 44,793,716,493

Measurement of Expected Credit Losses (ECL) Inputs, assumptions and techniques used for estimating impairment under SLFRS 9 is disclosed under Accounting Policies Note 2.14.1.3

Significant increase in credit risk When determining whether the risk of default on a financial instrument has increased significantly since initial recognition, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information. The Company uses a backstop of 90 days past due for determining whether there is a significant increase in credit risk.

Incorporation of forward-looking information The Company incorporates forward-looking information into both the assessment of whether the credit risk of an instrument has increased significantly since its initial recognition and the measurement of ECL. The Company has identified and documented key drivers of credit risk and credit losses for each portfolio of financial instruments and, using an analysis of historical data, has estimated relationships between macroeconomic variables and credit risk and credit losses. The key drivers for credit risk GDP growth, unemployment rates, inflation and interest rates. The Company formulates multiple economic scenarios to reflect base case, best case and worst case. The key inputs into the measurement of ECL are the term structure of the following variables: - Probability of Default (PD) - Loss Given Default (LGD) ; and - Exposure At Default (EAD) ECL for exposures in Stage 1 is calculated by multiplying the 12-month PD by LGD and EAD. Lifetime ECL is calculated by multiplying the lifetime PD by LGD and EAD. LGD is the magnitude of the likely loss if there is a default. The Bank estimates LGD parameters based on the history of recovery rates of claims against defaulted counterparties.



EAD represents the expected exposure in the event of a default. The Company derives the EAD from the current exposure to the counterparty and potential changes to the current amount allowed under the contract and arising from amortisation. The EAD of a financial asset is its gross carrying amount at the time of default. For lending commitments, the EADs are potential future amounts that may be drawn under the contract, which are estimated based on historical observations and forward-looking forecasts. For financial guarantees, the EAD represents the amount of the guaranteed exposure when the financial guarantee becomes payable. Where modelling of a parameter is carried out on a collective basis, the financial instruments are grouped on the basis of shared risk characteristics. The groupings are subject to regular review to ensure that exposures within a particular group remain appropriately homogeneous.

Collateral held and other credit enhancement The Company holds collateral against loans and advances to customers in the form of mortgage interests over property, other registered securities over assets, and guarantees. Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and are updated regularly. Collateral generally is not held over loans and advances to Company, except when securities are held as part of reverse repurchase and securities borrowing activity. Collateral usually is not held against investment securities. An estimate made at the time of borrowing of the fair value of collateral and other security enhancements held against loans and advances to customers is given below and the value of collateral has been restricted to the value of the loans outstanding balances.

Collateral type 2019 2018

Rs. Rs.

Immovable property, plant and machinery 2,636,303,808 2,099,662,391

Movable property-Motor Vehicle 47,278,005,223 51,166,308,124

Fixed, savings, other deposits 635,641,935 585,308,172

50,549,950,966 53,851,278,687

On clean basis 5,145,908,303 6,959,427,785

Total 55,695,859,269 60,810,706,472

Trade and other receivables The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Company’s customer base, including the default risk of the industry in which customers operate, as these factors may have an influence on credit risk. The Credit Committee has established a credit policy under which each new customer is analysed individually for creditworthiness before the Company’s standard payment and delivery terms and conditions are offered. The Company’s review includes external ratings, when available, and in some cases Company references. Purchase limits are established for each customer, which represents the maximum open amount without requiring approval from the Credit Committee ; these limits are reviewed quarterly. Customers that fail to meet the Company’s benchmark creditworthiness may transact with the Company only on a prepayment basis. In monitoring customer credit risk, customers are Companied according to their credit characteristics, including whether they are an individual or legal entity, whether they are a wholesale, retail or end-user customer, geographic location, industry, aging profile, maturity and existence of previous financial difficulties.

Cash and cash equivalents The Company held cash and cash equivalents of Rs.2,550 million at 31st March 2019 (2018 : Rs2,377 million) which represents its maximum credit exposure on these assets.



Excessive risk concentration Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Company’s performance to developments affecting a particular industry. In order to avoid excessive concentrations of risk, the Company’s policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly. Selective hedging is used within the Company to manage risk concentrations at both the relationship and industry levels.

Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.

Management of liquidity risk The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. Company Central Treasury receives information from other business units regarding the liquidity profile of their financial assets and liabilities and details of other projected cash flows arising from projected future business. Company Central Treasury then maintains a portfolio of short-term liquid assets, largely made up of short-term liquid investment securities, loans and advances to Company’s and other inter-Company facilities, to ensure that sufficient liquidity is maintained within the Company as a whole. The liquidity requirements of business units and subsidiaries are met through short-term loans from Company central Treasury to cover any short-term fluctuations and longer term funding to address any structural liquidity requirements. The Company relies on bank borrowings and deposits from customers and Company’s, as its primary sources of funding. While the Company’s bank borrowings have maturities of over one year, deposits from customers and Company’s generally have shorter maturities and a large proportion of them are repayable on demand. The short-term nature of these deposits increases the Company’s liquidity risk and the Company actively manages this risk through maintaining competitive pricing and constant monitoring of market trends.

Exposure to liquidity risk The key measure used by the Company for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose net liquid assets are considered as including cash and cash equivalents and Treasury bills and Repos maturing with in next financial year. A similar, but not identical, calculation is used to measure the Company’s compliance with the liquidity limit established by the Company’s lead regulator, [Central Bank of Sri Lanka - CBSL]. Details of the reported Company ratio of net liquid assets to deposits from customers at the reporting date and during the year were as follows:


Rs. Rs.

Net liquid assets to deposits from customers 35.84 37.54



Maturity analysis for financial assets and liabilities Note no 38 of the financials statements summarises the maturity profile of the undiscounted cash flows of the company’s financial assets and liabilities as at 31 March 2019. The Company’s expected cash flows on these instruments vary significantly from this analysis.

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 Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.

Management of market risksInterest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments. The company’s policy is to continuously monitor positions on a daily basis and hedging strategies are used to ensure positions are maintained within prudential levels. The following table demonstrates the sensitivity to a reasonable possible change in interest rates, with all other variables held constant, of the company’s income statement.

If Market rates up by 1% the effect of the

same to the Interest Income/

(Expense)

If Market rates drop by 1% the effect

of the same to the Interest Income/

(Expense)

Rs. Rs.

Effect on Rate sensitive Assets 296,959,448 (296,959,448)

Effect on Rate sensitive Liabilities (166,242,219) 166,242,219

Sensitivity of profit or loss 130,717,229 (130,717,229)

Operational RiskOperational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Company’s involvement with financial instruments, including processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. The Company’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Company’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity. The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Company standards for the management of operational risk in the following areas:




The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Company standards for the management of operational risk in the following areas:

Requirements for appropriate segregation of duties, including the independent authorisation of transactions;

Requirements for the reconciliation and monitoring of transactions;

compliance with regulatory and other legal requirements;

documentation of controls and procedures;

requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified;

requirements for the reporting of operational losses and proposed remedial action;

development of contingency plans;

training and professional development;

ethical and business standards; and

risk mitigation, including insurance where this is effective.

Compliance with Company standards is supported by a programme of periodic reviews undertaken by ERM. The results of ERM reviews are discussed with the department heads to which they relate, with summaries submitted to the Audit Committee and senior management of the Company.

Capital Management

The Company’s capital management is performed primarily considering regulatory capital.The Company’s lead regulator, the Central Bank of Sri Lanka (CBSL) sets and monitors capital requirements for the Company. The Company is required to comply with the provisions of the Finance Companies (Capital Funds) Direction No.01 of 2003, Finance Companies (Risk Weighted Capital Adequacy Ratio) Direction No.02 of 2006 and Finance Companies (Minimum Core Capital) Direction No.01 of 2011 in respect of regulatory capital. The Company’s regulatory capital consists primarily of tier 1 capital, which includes ordinary share capital, retained earnings and statutory reserves. The Company’s policy is to maintain a strong capital base so as to ensure investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders’ return is also recognized and the Company recognizes the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position.

The Company’s regulatory capital under the CBSL guidelines is as follows;



Rs. Rs.

Capital Element

Ordinary stated capital 1,425,946,629 1,425,946,629

Statutory reserve 796,040,366 736,135,590

General reserve 288,079,789 288,079,789

Retained earnings (Excluding share of profits of equity accounted investee) 13,841,394,254 12,844,244,190

Surplus/Loss after tax arising from the sale of fixed and long-term investments - 22,567,079

Less - Reevaluation gains/surplus of investment property (178,539,720) -

Tier I capital / Total Capital 16,172,921,318 15,316,973,277

Less -

Other intangible assets (net) (1,891,327) -

50% of investment in other banking and financial associates (745,670,895) -

Tier I Capital (after adjustment) 15,425,359,096 15,316,973,277

Less -

Investment in capital of other banks/financial associates - (1,265,987,676)

50% of investment in other banking and financial institutions (745,670,896) -

Total Capital 14,679,688,200 14,050,985,601

50 COMPARATIVE INFORMATION

The comparative information is reclassified whenever necessary to conform with the current year’s presentation. And the Company's shareholding in LOLC Development Finance PLC previously known as BRAC Lanka Finance PLC has decreased from 99.76% to 44.33% due to the rights issue held in the month of May 2017. Consequently, the Company's investment in LOLC Development Finance PLC previously known as BRAC Lanka Finance PLC has been transferred from Investment in subsidiary to investment in equity accounted investee. Accordingly, consolidated comparative figures for the previous year have been presented in the statement of profit or loss and other comprehensive income.


Shareholder Information

ANALYSIS OF ORDINARY SHARES AS AT 31ST MARCH

2019 2018

No. ofShareholders

No. ofShares

% ofShares

No. ofShareholders

No. ofShares

% ofShares

1 - 1,000 662 148,598 0.00 620 147,215 0.00

1,001 - 10,000 194 841,786 0.02 187 836,103 0.01

10,001 - 100,000 124 4,751,309 0.07 136 5,212,438 0.08

100,001 - 1,000,000 27 9,808,376 0.15 25 9,212,099 0.15

Over 1,000,000 Shares 7 6,362,161,101 99.76 7 6,362,303,315 99.76

Total 1,014 6,377,711,170 100.00 975 6,377,711,170 100.00

SHAREHOLDERS AS AT 31ST MARCH

2019 2018

No. ofShareholders

No. ofShares

% ofShares

No. ofShareholders

1. LOLC Holdings PLC 4,058,876,426 63.64 4,058,876,426 63.64

2. Hatton National Bank PLC/ LOLC Holdings PLC 2,250,000,000 35.28 2,250,000,000 35.28

3. Browns Investments PLC 40,000,000 0.63 40,000,000 0.63

4. Sinharaja Hills Plantation (Pvt) Ltd 5,445,851 0.09 5,445,851 0.09

5. Chemical Industries (Colombo) Ltd/CIC Charitable & Educational Trust Fund

4,000,000 0.06 4,000,000 0.06

6. Seylan Developments PLC 1,981,038 0.03 1,981,038 0.03

7. Ceylon Biscuits Limited 1,857,786 0.03 2,000,000 0.03

8. Mrs. N R Mather 1,000,000 0.02 1,000,000 0.02

9. Mrs. R L Mather 1,000,000 0.02 1,000,000 0.02

10. Mr. S R Mather 1,000,000 0.02 1,000,000 0.02

11. Mr. D N N Lokuge 890,660 0.01 890,660 0.01

12. Saakya Capital (Pvt) Ltd 800,050 0.01 NIL NIL

13. Mr. A N William 650,000 0.01 650,000 0.01

14. Mr. W Gunarathne 529,017 0.01 529,017 0.01

15. Mr. W V A N Fernando & Mrs. K M M V R Jayasuriya 500,000 0.01 500,000 0.01

16. Dr. H S D Soysa 400,100 0.01 400,100 0.01

17. Mr. P B Jayasundara 260,000 0 260,000 0

18. Mrs. A S Weerasuriya & Mr. G S Padumadasa 225,870 0 210,100 0

19. Mr. S M M Abdul Ghaffoor 200,000 0 200,000 0

20. Mr. H E P Babapulle & Mrs I J Babapulle 200,000 0 200,000 0

6,369,816,798 99.88 6,369,143,192 99.87


PUBLIC SHAREHOLDING

Information pertaining to public shareholding is as follows:

31-Mar-2019 31-Mar-2018

Public Holding Percentage 0.452% 0.449%

Number of Public Shareholders 1,011 971

Float Adjusted Market Capitalization 74,970,334 77,316,993

The Company is not compliant with the Minimum Public Holding requirement stipulated in the Listing Rule 17.13.1 (b) of the Colombo Stock Exchange. The Board of Directors is pursuing requisite regulatory approvals, to list debt securities and remove all equity securities, to ensure compliance with both the Listing Rules of the Colombo Stock Exchange and the directions of the Central Bank of Sri Lanka.

HIGHEST, LOWEST AND LAST TRADED SHARE PRICES AS AT 31ST MARCH

2019 2018

Rs. Rs.

Highest 3.00 3.30

Lowest 1.90 2.60

Last Traded 2.60 2.70

SHAREHOLDING AS AT 31ST MARCH

2019 2018

No. ofShares

% ofShares

No. ofShares

% ofShares

Residents 6,377,678,540 100.00 6,377,678,540 100.00

Non Residents 32,630 - 32,630 -

Total 6,377,711,170 100.00 6,377,711,170 100.00


Summarised Quarterly Statics

STATEMENT OF PROFIT OR LOSS (RS.‘000)

Company

2018/19 2017/18

For the 3 months ended 30-Jun 30-Sep 31-Dec 31-Mar 30-Jun 30-Sep 31-Dec 31-Mar

Gross income 3,466,318 3,570,524 3,699,245 3,390,404 3,077,378 3,280,032 3,487,111 3,503,257

Other Income/(Expenses) 483,001 436,986 212,939 562,504 854,184 656,729 509,553 609,874

Interest Costs (1,630,405) (1,706,988) (1,731,897) (1,627,548) (1,803,615) (1,843,487) (1,732,209) (1,615,484)

Profit before operating expences 2,318,914 2,300,522 2,180,287 2,325,360 2,127,947 2,093,274 2,264,455 2,497,647

Other operating expenses (1,633,632) (1,704,840) (1,837,961) (1,907,235) (1,271,791) (1,371,013) (1,616,177) (1,819,308)

Resutls from operating activities 685,282 595,682 342,326 418,124 856,156 722,261 648,278 678,339

Income tax expense (181,511) (176,528) (128,356) (356,923) (170,213) (187,615) (179,657) (223,227)

Net profit after tax 503,771 419,154 213,970 61,201 685,943 534,646 468,621 455,112

FINANCIAL POSITION (RS.'000)

As at 30-Jun-18 30-Sep-18 31-Dec-18 31-Mar-19 30-Jun-17 30-Sep-17 31-Dec-17 31-Mar-18

Assets 72,408,300 74,664,052 70,299,680 70,856,349 79,228,239 75,979,723 70,332,976 73,508,445

Liabilities 55,381,344 57,161,736 52,592,710 53,397,816 64,336,556 60,534,141 54,336,282 57,002,421

Net Assets 17,026,956 17,502,316 17,706,970 17,458,533 14,891,683 15,445,582 15,996,694 16,506,024

Share capital & reserves 17,026,956 17,502,316 17,706,970 17,458,533 14,891,683 15,445,582 15,996,694 16,506,024

Share capital 1,425,947 1,425,947 1,425,947 1,425,947 1,425,947 1,425,947 1,425,947 1,425,947

Reserves 15,601,009 16,076,369 16,281,023 16,032,586 13,465,736 14,019,635 14,570,747 15,080,077


STATEMENT OF PROFIT OR LOSS (RS.‘000)

Group

2018/19 2017/18

For the 3 months ended 30-Jun 30-Sep 31-Dec 31-Mar 30-Jun 30-Sep 31-Dec 31-Mar

Gross income - - - - 3,036,891 3,293,528 3,473,615 3,516,303

Other Income/(Expenses) - - - - 611,536 899,377 509,554 367,225

Interest Costs - - - - (1,803,615) (1,843,487) (1,732,209) (1,615,484)

Profit before operating expences - - - - 1,844,812 2,349,418 2,250,960 2,268,044

Other operating expenses - - - - (1,271,791) (1,371,013) (1,616,177) (1,819,308)

Resutls from operating activities - - - - 573,021 978,405 634,783 448,736

Income tax expense - - - - (170,213) (187,615) (179,657) (223,227)

Net profit after tax - - - - 402,808 790,790 455,126 225,509

FINANCIAL POSITION (RS.'000)

As at 30-Jun-18 30-Sep-18 31-Dec-18 31-Mar-19 30-Jun-17 30-Sep-17 31-Dec-17 31-Mar-18

Assets - - - - 94,846,042 95,984,480 98,704,697 88,890,701

Liabilities - - - - 82,368,880 83,131,680 85,428,208 74,361,397

Net Assets - - - - 12,477,162 12,852,800 13,276,489 14,529,304

Share capital,reserves & non controlling interest

- - - - 12,477,162 12,852,800 13,276,489 14,529,304

Share capital - - - - 1,425,947 1,425,947 1,425,947 1,425,947

Reserves - - - - 10,989,471 11,366,354 11,847,905 13,100,664

Non controlling interest - - - - 61,744 60,499 2,637 2,693


For the year ended 31st March

(Rs. 'Mn) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Operating Results

Profit before interest 1,722 2,047 5,405 4,110 4,321 4,132 5,373 8,320 9,747 8,793

Profit before tax 362 741 3,245 1,603 1,289 1,728 2,008 2,205 2,905 2,041

Profit after tax 354 664 2,964 1,168 936 1,426 1,574 1,686 2,144 1,198

Assets

Total assets 12,534 21,351 26,398 27,229 32,934 42,385 84,359 77,761 73,508 70,856

Liabilities

Total Liabilities 10,505 17,656 19,635 19,392 24,078 32,270 72,561 63,586 57,002 53,398

Shareholders' Funds

Stated capital 418 1,426 1,426 1,426 1,426 1,426 1,426 1,426 1,426 1,426

Reserves 1,612 2,269 5,337 6,411 7,430 8,689 10,371 12,750 15,080 16,033

Shareholders' funds 2,030 3,695 6,763 7,837 8,856 10,115 11,797 14,176 16,506 17,459

Investor Ratios

Long term borrowings to shareholders funds

0.69:1 1.85:1 1.43:1 0.58:1 0.83:1 0.66:1 2.32:1 1.83:1 1.32:1 1.19:1

Total borrowings to shareholders funds 4.55:1 4.19:1 2.73:1 1.87:1 1.62:1 2.91:1 5.97:1 4.35:1 3.27:1 2.91:1

Book value per share (Rs.) 0.32 0.58 1.06 1.23 1.39 1.59 1.85 2.22 2.59 2.74

Earnings per share(Rs.) 0.06 0.10 0.46 0.18 0.15 0.22 0.25 0.26 0.34 0.19

Return on capital employed(%) 19 23 57 16 11 15.03 14.37 12.99 13.98 7.05

Return on assets(%) 3 4 12 4 3 4.59 3.17 2.72 3.84 2.83

Non Financial Information

Number of branches (Including Service Centres)

26 40 50 53 53 58 60 61 63 65

Number of employees 388 413 511 539 610 670 801 1,099 1,327 1,348

Ten Year Summary


0

50,000

100,000

150,000

200,000

250,000

NUMBER OF ACTIVE CONTRACTS(No.)

2015 2016 2017 2018 2019

0

10

20

30

40

50

60

70

80

NUMBER OF BRANCHES (INCLUDING SERVICE CENTRES)(No.)

2015 2016 2017 2018 2019

0

300

600

900

1,200

1,500

NUMBER OF EMPLOYEES(No.)

2015 2016 2017 2018 2019

0

500

1,000

1,500

2,000

2,500

3,000

PROFIT BEFORE TAX & PROFIT AFTER TAX(Rs. Mn)

2015 2016 2017 2018 2019

Profit before tax

Profit after tax

0

20,000

40,000

60,000

80,000

100,000

TOTAL ASSETS TO TOTAL LIABILITIES(Rs. Mn)

2015 2016 2017 2018 2019

Total Assets

Total Liabilities

EQUITY COMPOSITION(Rs. Mn)

0

5,000

10,000

15,000

20,000

Stated capitalStatutory reservesRevaluation reserves

2015 2016 2017 2018 2019

Other reserves Retained earnings


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10%

FY - 2017/18

FY - 2018/19

To Employees

To Goverment

To Bank & Other lenders

To Expansion & Growth

36%

1%3%36%

17%

7%

14%

14%

60%

12%

12%

11%

58%

19%

DISTRIBUTION OF VALUE ADDED(%)

Statement of Value Added

Company

2018/19 (%) 2017/18 (%)

(Rs.'000) (Rs.'000)

Value added

Income 14,126,492 13,347,778

Other income 1,695,430 2,630,340

15,821,922 15,978,117

Cost of services (2,859,151) (2,910,412)

Provision for losses (1,885,551) (1,055,992)

11,077,220 12,011,714

Distribution of value added

To employees 14% 12%

Remuneration and other benefits 1,515,142 1,387,268

To government 14% 11%

Income tax,value added tax and VAT on financial services 1,536,736 1,371,667

To banks and other lenders 60% 58%

Interest and bank charges on borrowings 6,696,838 6,994,795

To providers of capital - -

Dividends to shareholders - -

To expansion and growth 12% 19%

Depreciation 130,407 113,661

Retained profits 1,198,097 2,144,323

11,077,219 12,011,714


Glossary Terms

AAccounting PoliciesThe specific principles, bases, conventions, rules and practices adopted by an entity in preparing and presenting financial statements.

Accrual BasisRecognizing the effects of transactions and events when they occur, without waiting for receipt or payment of cash or cash equivalents.

AmortisationThe systematic allocation of the depreciable amount of an intangible asset over its useful life.

Associate Company-Equity accounted investeeAn associate is an entity in which the investor has significant influence and which is neither a subsidiary nor an interest in a joint venture

Available- For-Sale Financial AssetsNon derivate 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.

CCash BasisRecognising the effects of transactions and events when receipts or payments of cash or cash equivalent occur.

Cash EquivalentsShort term highly liquid investment that are readily convertible to known amount of cash and which are subject to an insignificant risk in change in value

Collective ImpairmentImpairment assessment on a collective basis for homogeneous groups of loans and receivables that are not consideredindividually significant and to cover losses which have been incurred but have not yet been identified at the reporting date.

Consolidated Financial StatementsFinancial Statements of a Group presentedas those of a single company.

ContingenciesA condition or situation existing on the statement of financial position where the outcome will be confirmed only by occurrence or non occurrence of one or more future event.

Core CapitalCore capital is the minimum amount of capital that finance company should have on hand to comply with the regulatory requirement. Core capital consists of equity capital and declared reserves.

Corporate GovernanceThe process by which corporate entities are governed. It covers 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.

Credit RiskCredit Risk is the potential that a borrower or counterparty will fail to meet its obligations in accordance with agreed terms & conditions.

Currency SwapsThe 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 DepositsMoney deposited by account holders. Such funds are recorded as liabilities.

DDiffered TaxationSum set aside for tax in the financial statements that may become payable/receivable in a financial year other than the current financial year.

DepreciationDepreciation is the allocation of the depreciable amount of an asset over its estimated useful life.

DerecognitionThe 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 response to the variable, and that will be settled at a future date.

EExecutionsAdvances granted to customers under leasing, hire purchase and loan facilities.

Equity Method The equity method is a method of accounting whereby the investment is initially recognized at cost and adjusted thereafter for the post-acquisition changes 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.


FFair ValueFair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm’s length transaction.

Financial AssetsAny asset that is cash, an equity instrument of another entity or contractual right to receive cash or another financial asset from another entity.

Finance LeaseA contract where by a lessor conveys to the lessee the right to use an asset for rent over an agreed period of time which is sufficient to amortize the capital outlay of the lessor. The lessor retains ownership of the asset but transfers substantially all the risk and rewards incidental to ownership of the asset to the lessee.

Financial LiabilityIs a contractual obligation to deliver cash or another financial asset to another entity.

Foreign Exchange ContractsAgreement between two parties to exchange one currency for another at a future date at a rate agreed upon today.

GGoodwillAny excess of the cost of the acquisitionover the acquirer’s interest in the fair valueof the identifiable assets and liabilities acquired as at the date of the exchangetransaction and is recognized as an asset.

Gross PortfolioTotal rental receivable of the advances granted to customers under leasing, hire purchase and loan facilities.

HHedgingA strategy under which transactions are effected with the aim of providing coveragainst the risk of unfavourable price movements. (Interest rates, prices and commodities etc.).

Held to MaturityNon-derivative financial assets with fixed or determinable payments and a fixed maturity that an entity has the positive intentionand ability to hold to maturity.

Hire PurchaseA hire purchase is a contract between hirer and financier where the hirer takes on hire a particular article from the financier, with the option to purchase the article at the conclusion of the agreed rental payments.

IImpairmentAmount by which the carrying amount of an asset or cash generating unit exceeds its recoverable amount.

Impairment Provisions/AllowancesProvision held as a result of the raising of a charge against profit for the incurred loss. An impairment provision may either be identified or unidentified and individual (specific) or collective (portfolio).

Individual ImpairmentExposure to loss is assessed on all individually significant accounts that do not qualify for collective assessment.

Intangible AssetAn identifiable non-monetary asset without physical substance.

Interest CostThe sum of monies accrued and payable to the sources of borrowed working capital.

Interest Rate Risk The risk that the fair value or future cash flows of a financial instrument willfluctuate because of changes in the market interest rates.

Investment Propertyinvestment Property is a 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 purposes or sale in the ordinary course of business.

Investment Securities Securities acquired and held for yield or capital growth purposes and are usually held to maturity.

KKey Management PersonnelKey Management Personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly.

LLeaseA lease is an agreement whereby thelessor conveys to the lessee in return for apayment or series of payments the right touse an asset for an agreed period of time.

Liquid Assets Assets 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 RiskThe risk that an entity will encounter difficulty in meeting short-term obligations associated with financial liabilities.


MMarket CapitalisationTotal market value of a company’s outstanding shares.

NNegative GoodwillAny excess, as at the date of the exchangetransaction, of the acquirer’s interest inthe fair values of the identifiable assetsand liabilities acquired over the cost of theacquisition and is treated as income in theperiod it arises.

Net PortfolioTotal rental instalment receivable excluding interest of the advances granted to customers under leasing, hire purchase and loan facilities.

Non-Controlling InterestPart of the net results of operations andof net assets of a subsidiary attributableto interests who are not owned, directlyor indirectly through subsidiaries, by theParent.

Non Performing PortfolioFacilities granted to customers who are in default for more than six months.

OOperating LeaseAn operating lease is a lease other than a finance lease.

PParentA parent is an entity which has one or more subsidiaries.

ProvisionAmount set aside against possible losses or net receivable of facilities granted to customers, as a result of them becoming partly or wholly uncollectible.

RRelated PartiesParties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operating decisions.

Related Party TransactionsA transfer of resources or obligations between related parties, regardless of whether a price is charged.

Residual ValueThe estimated amount that is currently realisable from disposal of asset, after deducting estimated cost of disposal, if the asset was already of the age and in the condition expected at the end of its useful life.

SSegmental AnalysisAnalysis of financial information by segments of an enterprise specifically, the different industries and the different geographical areas in which it operates.

Shareholder's Funds(equity)Total of issued and fully paid ordinary share capital and reserves.

Stated CapitalAll amount received by the Company or due and payable to the Company-

(a) In respect of the issue of shares,

(b) In respect of calls on shares.

Subsidiary CompanySubsidiary is a company that is controlled(power to govern the financial andoperating policies of an enterprise so asto obtain benefits from its activities) byanother company known as the Parent.

Substance over FormThe consideration that the accounting treatment and the presentation in Financial Statements of transactions and the events should be governed by their substance and financial reality and not merely by legal form.

SubsidiaryAn entity that is controlled by another entity which is known as the parent.

TTier 1 CapitalCore capital representing permanent shareholders’ equity and reserves created or increased by appropriations of retained earnings or other surpluses.

Tier 11 CapitalSupplementary capital representing general provisions and other capital instruments which combine certain characteristics of equity and debt, such as hybrid capital instruments and unsecured subordinated term debt.

UUnearned IncomeUnearned interest is an accounting method used by lending institutions to deal with long-term, fixed-income securities. Initially recorded as a liability, the unearned interest will eventually be recorded as income in the lending institution's books over the life of the loan as time passes and the interest is earned.

VValue AdditionValue of wealth created by providing leasing and other related services considering the cost of providing such services.

Glossary Terms


RATIOSMethod of computation and indicates

CCapital Adequacy RatioThis is ratio between core capital and risk weighted assets.

Cost to Income RatioTotal operating expenses as a percentage of total operating income.

DDebt to Equity (Gearing) RatioTotal debts divided by equity. The extent to which debt contributes to fund total assets, compared to the contribution from equity.

EEarnings Per Share (EPS)Profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares outstanding during the year. Share of current year’s earnings attributable to an ordinary shares in use.

IInterest CoverEarnings before interest and tax divided by interest expense. Ability to cover or service interest charges of the debt holders.

MMarket CapitalizationNumber of ordinary shares in issue multiplied by market value of a share. Total market value of all ordinary shares in issue.

NNet Assets Value per Ordinary ShareOrdinary shareholders’ funds divided by the number of ordinary shares in issue. Book value of an ordinary share.

Non Performing RatioTotal gross non-performing portfolio divided by total gross portfolio. Percentage of total gross non-performing portfolio against the total gross portfolio.

PPrice Earnings Ratio (P/E Ratio)Market price of a share divided by earnings per share (EPS). Number of years that would be taken to recoup shareholders' capital outlay in the form of earnings.

RReturn on Assets (ROA)Net profit expressed as a percentage of average total assets. Overall effectiveness in generating profit with available assets; earning power of invested total capital.

Return on Equity (ROE)Net profit, less preference share dividends if any, expressed as a percentage of average ordinary share holders' funds. Earning power on shareholders’ book value of investment (equity).


NOTICE IS HEREBY GIVEN THAT THE 27TH ANNUAL GENERAL MEETING of Commercial Leasing & Finance PLC will be held on 19th September 2019 at 11.00 am, at the LOLC Auditorium, No. 100/1, Sri Jayawardenapura Mawatha, Rajagiriya for the following purposes:

1. To receive and consider the Annual Report and Financial Statements for the year ended 31st March 2019, with the Report of the Auditors thereon.

2. To re-elect as Director Mr. P D J Fernando, who retires by rotation in terms of Article 75 of the Articles of Association of the Company.

3. To re-elect as Director Mr. U H E Silva, who retires by rotation in terms of Article 75 of the Articles of Association of the Company.

4. To re-appoint as Auditors M/s KPMG, Chartered Accountants at a remuneration to be fixed by the Directors.

5. To approve in terms of the Companies (Donations) Act No.26 of 1951, the making of donations by the Directors as determined by them for the current Financial Year and until the next Annual General Meeting of the Company.

BY ORDER OF THE BOARDCommercial Leasing & Finance PLC

LOLC Corporate Services (Private) LimitedSecretaries

1st August 2019Rajagiriya (in the greater Colombo)

Note:

1) A member entitled to attend and vote at the Meeting is entitled to appoint a Proxy to attend and vote instead of him/her. A Proxy need not be a member of the Company.

2) The completed Form of Proxy should be deposited at the registered office of the Company, 68, Baudhaloka Mawatha, Colombo 04, not later than 11.00 am on 17th September 2019.

3) A Form of Proxy accompanies this Notice

Notice of Meeting


I / We ……………………….………………………………………………………………………………………………………………………………………………………............……………………………………………………...... of

……………………………………………………………………………………………………………………………………………………………………………….......................................... being a member/members

of the above named Company hereby appoint …..…………………………………………………………………………………………………….………………………………………………………………….....

…………………………………………………………………………………………… of …………………………………………………………………………………………………………………………………………. whom failing

Mr Priyantha Damian Joseph Fernando of Colombo or failing himMr Luxhman Jayaratne of Colombo or failing himMr Ulluvis Hewage Ebert Silva of Colombo or failing himMr Thamotharampillai Sanakan of Colombo or failing himMr Don Manuwelge Don Krishan Thilakaratne of Colombo

as my/our proxy to represent me/us and vote on my/our behalf at the Annual General Meeting of the Company to be held on 19th September 2019, and at any adjournment thereof and at every poll which may be taken in consequence of the aforesaid Meeting.

For Against 1 To re-elect as Director Mr. P D J Fernando, who retires by rotation in terms of Article 75 of the

Articles of Association of the Company.

2 To re-elect as Director Mr U H E Silva, who retires by rotation in terms of Article 75 of the Articles of Association of the Company.

3 To re-appoint as auditors M/s KPMG Chartered Accountants at a remuneration to be fixed by the Directors.

4 To authorize the Directors to make donations.

dated this ……….………………….. day of ………….....…., Two Thousand Nineteen.

……………………………………… Signature of Shareholder

Note:1) a proxy need not be a member of the Company2) Instruction as to completion appear on the reverse hereof

Form of Proxy


Form of Proxy

INSTRUCTIONS AS TO COMPLETION

1 Please return the completed Form of Proxy after filling in legibly your full name and address, signing on the space provided and filling in the date of signature.

2 The completed Form of Proxy should be deposited at the registered office of the Company, 68, Bauddhaloka Mawatha, Colombo 04 not less than 48 hours before the time appointed for the holding of the Meeting.

Designed & produced by

Printed by Printage (Pvt) LtdPhotography by Taprobane Street

NAME OF THE COMPANYCommercial Leasing & Finance PLC

COUNTRY OF INCORPORATIONSri Lanka

LEGAL FORMA quoted public company with limited liability

DATE OF INCORPORATION22nd April 1988

COMPANY REGISTRATION NO.PQ 131/PB/PQ

STOCK EXCHANGE LISTINGThe ordinary shares of the Company were listed on the Diri Savi Board of the Colombo Stock Exchange on 5th June2012.

CREDIT RATINGICRA Lanka assigned the company an issuer rating of (SL) A (Stable).

REGISTERED OFFICE AND HEAD OFFICENo. 68, Bauddhaloka Mawatha, Colombo04. Tel: 0114526500/526Fax: 0114526559Website: http://www.clc.lk

DIRECTORSMr. P D J FernandoMr. L JayaratneMr. U H E SilvaMr. T SanakanMr. D M D K Thilakaratne

SECRETARIESLOLC Corporate Services (Private) Limited100/1 Sri Jayawardenapura Mawatha, RajagiriyaTel: 011 5880354/6011 5880880 (General)

AUDITORSKPMG, Chartered Accountants

LAWYERSJulius & Creasy, Attorneys-at-LawNithya Partners

REGISTRARSPW Corporate Secretarial (Pvt) LtdNo. 3/17 Kynsey Road, Colombo 08. Tel: 011 4897733-5 PRINCIPAL ACTIVITIESDuring the year the principal activities of the Company comprised provision of leasing, loans, mobilising of fixed and savings deposits, Islamic financing and micro financing.

Corporate InformationBANKERSBank of CeylonCiti Bank N AHatton National Bank PLC Hongkong and Shanghai Banking Corporation LtdNation Trust Bank PLC Commercial Bank of Ceylon PLC NDB BankSeylan Bank PLC MCB BankSampath Bank PLC DFCC Vardhana BankUnion Bank of Colombo PLC People’s BankHabib Bank

www.clc.lk

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