Stewardship

Annual Report of the Board of Directors

Annual Report of the Board of Directors on the affairs of the Company and Statement of Compliance of the contents of the Annual Report as required by Section 168 of the Companies Act No. 07 of 2007

1. General

The Directors of Commercial Bank of Ceylon PLC have pleasure in presenting to the shareholders this Report together with the Audited Financial Statements and the Audited Consolidated Financial Statements for the year ended December 31, 2013 of the Bank and the Group and the Auditors’ Report on those Financial Statements, conforming to the requirements of the Companies Act No. 07 of 2007, Banking Act No. 30 of 1988 and amendments thereto and the Directions issued thereunder.

The Commercial Bank of Ceylon PLC (the Bank) is a Licensed Commercial Bank registered under the Banking Act No. 30 of 1988 and was incorporated as a public limited liability company in Sri Lanka on June 25, 1969 under the Companies Ordinance No. 51 of 1938 and was re-registered as per the requirements of the Companies Act No. 07 of 2007 on January 23, 2008, under the Company Registration No. PQ 116.

The ordinary shares (both voting and non-voting) of the Bank are quoted on the main Board of the Colombo Stock Exchange since March 1970. The unsecured subordinated redeemable debentures issued by the Bank are also listed on the Colombo Stock Exchange. Fitch Ratings Lanka has affirmed Bank’s National long-term rating at ‘AA(lka)’ with a stable outlook and subordinated debentures at ‘AA-(lka)’. RAM Ratings Lanka Ltd. has reaffirmed Bank’s long and short term financial institution ratings at AA+ and P1, respectively; the long term rating has a stable outlook.

The registered office of the Bank is at No. 21, ‘Commercial House’, Sir Razik Fareed Mawatha, Colombo 01, at which the Bank’s Head Office too is situated.

This Report provides the information as required by the Companies Act No. 07 of 2007, Banking Act Direction No. 11 of 2007 on ‘Corporate Governance for Licensed Commercial Banks’ and subsequent amendments thereto, Listing Rules of the Colombo Stock Exchange and the recommended best practices on Corporate Governance. This Report was approved by the Board of Directors on February 24, 2014.

Section 168 of the Companies Act No. 07 of 2007, requires the following information to be published in the Annual Report prepared for the year under review (i.e., for the year ended December 31, 2013):

Information required to be disclosed as per the Companies Act No. 07 of 2007	Reference to the Companies Act	Extent of Compliance by the Bank

(i) The nature of the business of the Group and the Bank together with any change thereof during the accounting period	Section 168 (1) (a)	Refer Item 2.2.1
(ii) Signed Financial Statements of the Group and the Bank for the accounting period completed	Section 168 (1) (b)	Refer Item 2.3
(iii) Auditors’ Report on Financial Statements of the Group and the Bank	Section 168 (1) (c)	Refer Item 2.5
(iv) Accounting Policies and any changes therein (Group also included)	Section 168 (1) (d)	Refer Item 2.6
(v) Particulars of the entries made in the Interests Register during the accounting period	Section 168 (1) (e)	Refer Item 2.7
(vi) Remuneration and other benefits paid to Directors of the Bank and its Subsidiaries during the accounting period	Section 168 (1) (f)	Refer Item 2.8
(vii) Amount of donations made by the Bank and its Subsidiaries during the accounting period	Section 168 (1) (g)	Refer Item 2.9
(viii) Information on Directorate of the Bank and its Subsidiaries during and at the end of the accounting period	Section 168 (1) (h)	Refer Item 11.1
(ix) Separate disclosure on amounts payable to the Auditor as Audit Fees and Fees for other services rendered during the accounting period by the Bank and its Subsidiaries	Section 168 (1) (i)	Refer Item 19
(x) Auditor’s relationship or any interest with the Bank and its Subsidiaries - Audit Fee/Non-Audit Fee	Section 168 (1) (j)	Refer Item 19
(xi) Acknowledgement of the Contents of this Report/Signatures on behalf of the Board	Section 168 (1) (k)	Refer Item 27

2. Review of Business

2.1 Vision, Mission and Corporate Conduct

The Bank’s Vision and Mission are given under About the Bank section The business activities of the Group and the Bank are conducted maintaining the highest level of ethical standards in achieving its Vision and Mission, which reflects our commitment to high standards of business conduct and ethics. The Bank issues a copy of its Code of Ethics to each and every staff member and employees are required to abide by the Bank’s Code of Conduct.

2.2 Review on Operations of the Group and the Bank

The ‘Letter from the Chairman’ the ‘Managing Director’s Review’, and the ‘Management Discussion and Analysis’, provide an overall assessment on the financial performance and financial position of the Group and the Bank and the state of affairs together with important events that took place during the year in detail as required by the Section 168 of the Companies Act No. 07 of 2007 and the recommended best accounting practices. These Sections form an integral part of the Annual Report.

2.2.1 Principal Business Activities of the Group and the Bank

The nature of the principal business activities of the Group and the Bank as required by the Section 168 (1) (a) of the Companies Act No. 07 of 2007 is given in Note 1.3 to the Financial Statements. There were no significant changes in the nature of the principal business activities of the Group and the Bank during the financial year under review.

2.3 Financial Statements of the Group and the Bank

The Financial Statements of the Group and the Bank, which are duly certified by the Chief Financial Officer and approved by the Board of Directors and signed by three members of the Board of Directors including the Chairman and the Deputy Chairman, together with the Company Secretary in compliance with the requirements of the Sections 151, 152 and 168 (1) (b) of the Companies Act No. 07 of 2007.

2.4 Directors’ Responsibility for Financial Reporting

The Directors are responsible for the preparation of the Financial Statements of the Group and the Bank, which reflect a true and fair view of the state of its affairs. The Directors are of the view that the Income Statement, Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flow, Significant Accounting Policies and Notes have been prepared in conformity with the requirements of the Sri Lanka Accounting Standards as mandated by the Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995 and the Companies Act No. 07 of 2007. Further, these Financial Statements also comply with the requirements of the Banking Act No. 30 of 1988 and amendments thereto and the Listing Rules of the Colombo Stock Exchange. The “Statement of Directors’ Responsibility for Financial Reporting” forms an integral part of this Report.

2.5 Auditors’ Report

The Bank’s Auditors, Messrs KPMG performed the audit on the Consolidated Financial Statements for the year ended December 31, 2013, and the Auditors’ Report issued as required by the Section 168 (1) (c) of the Companies Act No. 07 of 2007.

2.6 Accounting Policies and Changes during the Year

The Group and the Bank prepared the Financial Statements in accordance with Sri Lanka Accounting Standards (SLFRS/LKAS). The Significant Accounting Policies adopted in the preparation of the Financial Statements of the Group and the Bank. As required by the Section 168 (1) (d) of the Companies Act No. 07 of 2007, the Board of Directors wish to confirm that there were no changes to the Accounting Policies used by the Group and the Bank during the year.

2.7 Entries in the Interests Register of the Bank

An Interests Register is maintained by the Bank, as required by the Companies Act No. 07 of 2007. All Directors have made declarations as provided for in the Sections 192 (1) & (2) of the Companies Act aforesaid. All related entries were made in the Interests Register during the year under review. The share ownership of Directors is disclosed under the Annual Report of the Board of Directors. The Interests Register is available for inspection by shareholders or their authorised representatives as required by the Section 119 (1) (d) of the Companies Act No. 07 of 2007.

2.8 Directors’ Remuneration and other Benefits

Directors’ remuneration and other benefits, in respect of the Group and the Bank for the financial year ended December 31, 2013, are given in Note 14 to the Financial Statements as required by the Section 168 (1) (f) of the Companies Act No. 07 of 2007.

2.9 Corporate Donations by the Bank

During the year, the Bank made donations amounting to Rs. 51,319,012/- (Rs. 51,066,000/- in 2012) in terms of the Resolution passed at the last Annual General Meeting. The donations made to Government approved charities out of the above amount was Rs. 150,000/- (Rs. 435,728/- in 2012). The information given above on donations forms an integral part of the Report of the Board of Directors as required by the Section 168 (1) (g) of the Companies Act No. 07 of 2007.

3. ATMs, Delivery Points etc. and Future Developments

During the year, 8 new delivery points were opened (14 in 2012), bringing the total number of delivery points in Sri Lanka to 235 at the end of 2013 (227 at the end of 2012). In addition, the Bank installed 30 new ATMs (55 in 2012) bringing the total number of ATMs in Sri Lanka to 585 by the end of 2013 (555 at the end of 2012). This is the single largest ATM network in the country. In addition to above, the Bank has 18 delivery points (17 in 2012) and 19 ATMs (17 in 2012) at the end of 2013, in Bangladesh.

The Bank actively promoted to use Internet banking, Mobile banking and Online Bill payment features to enable customers’ easy access to most banking services 24/7.

The Bank intends to expand its network of delivery channels both in Sri Lanka and in Bangladesh by employing client-focused strategy with effective management of capital, liquidity and risk. The Bank will continue to develop its customer-centric model for doing business with the objective of delighting its customers. Please refer sections on ‘Letter from the Chairman’, ‘Managing Director’s Review’, and the ‘Management Discussion and Analysis’ for further information on future developments.

4. Gross Income

The gross income of the Group for 2013 was Rs. 73.101 Bn. (Rs. 63.374 Bn. in 2012) while the Bank’s gross income was Rs. 73.160 Bn. (Rs. 63.395 Bn. in 2012).

The sources of external operating income, net operating profit and asset allocation of the Group among substantially different classes of business together with their proportions are given in Note 52 to the Financial Statements.

5. Dividends and Reserves

5.1 Profit and Appropriations

The net profit before tax of the Group and the Bank increased by 2.65% and 1.51%, respectively in 2013. Further, net profit after tax of the Group and the Bank increased by 4.88% and 3.44%, respectively in 2013.

Details of appropriation of Profit relating to the Bank are given below:

	2013 Rs.	2012 Rs.
Profit for the year after payment of all expenses of management and providing for depreciation, impairment on loans and advances, Financial VAT and contingencies	14,510,519,718	14,295,337,395
Less: Provision for taxation	(4,065,008,430)	(4,197,004,538)
Net profit after taxation	10,445,511,288	10,098,332,857
Balance brought forward from previous year (net of adjustments arising from conversion to SLFRS)	6,821,651	(314,877,082)
Profit available for appropriation	10,452,332,939	9,783,455,775

Less: Appropriations
Transfer to the Statutory Reserve Fund	(522,275,564)	(504,916,643)
Transfer to Special Risk Reserve of Primary Dealer Unit	(78,943,244)	(38,172,578)
Transfer to the Special Reserve of Primary Dealer Unit	(236,829,732)	(114,517,734)
Transfer to the Investment Fund Account	(1,991,758,027)	(1,652,606,995)
Transfer to General Reserve	(2,095,000,000)	(2,045,000,000)

Dividends on Ordinary Shares
1st Interim Dividend paid - Rs. 1.50 per share in cash (Rs. 1.50 in 2012)	(1,273,491,054)	(1,250,160,393)
2nd Interim Dividend paid - Rs. 1.00 per share in cash	–	(833,608,537)
Proposed 2nd Interim Dividend - Rs. 1.00 per share in cash	(849,148,678)	–
Final Dividend - Rs. 2.00 per share in cash (Rs. 2.00 in 2012)	(1,698,297,356)	(1,668,825,622)
- Rs. 2.00 per share in shares (Rs. 2.00 in 2012)	(1,698,297,356)	(1,668,825,622)
Balance carried forward	8,291,928	6,821,651

On this basis, the cash dividend payout ratio amounts to 36.58% of the profit after tax of 2013, compared to 37.16% for 2012, while total dividend payout ratio amounts to 52.84% for 2013 compared to 53.69% for 2012. This is well above the minimum dividend payout ratio of 10%, (10% in 2012) stipulated in the Deemed Dividend Tax Rule.

5.2 Provision for Taxation

The Income Tax rate applicable on the profits earned in Sri Lanka (i.e., the profits of both Domestic Banking operation as well as the profits of the Off-Shore Banking Centre) is 28% (28% in 2012). The profit of the Bank’s Bangladesh Operation is taxed at 42.5% (42.5% in 2012). The profit of the Sri Lankan Operation of the Bank is also liable for Value Added Tax on Financial Services at the rate of 12% (12% in 2012) and Crop Insurance Levy of 1%.

The Group has also provided deferred tax on all known temporary differences under the liability method, as permitted by the Sri Lanka Accounting Standard - LKAS 12 on ‘Income Taxes’.

Information on Income Tax Expense and Deferred Taxes of the Group and the Bank is given in Notes 15 and 33 to the Financial Statements respectively.

5.3 Dividends on Ordinary Shares

The Directors recommend a dividend of Rs. 4.00 per share as the final dividend for the year 2013 which consists of a cash dividend of Rs. 2.00 per share and the balance entitlement of Rs. 2.00 per share satisfied in the form of issue and allotment of new shares. (The Bank paid a final dividend of Rs. 4.00 per share in 2012 and this was satisfied by way of Rs. 2.00 per share in the form of cash and the balance entitlement of Rs. 2.00 per share in the form of issue and allotment of new shares). The Bank paid two interim dividends i.e. Rs. 1.50 per share and Rs. 1.00 per share each in cash in November 2013 and in January 2014, respectively (two interim dividends of Rs. 1.50 and Rs. 1.00 per share each in cash were paid in November 2012 and February 2013). Details of information on dividends are given in Note 17 to the Financial Statements.

The interim dividends were paid out of the profits of the Bank, hence, subjected to a 10% withholding tax.

The Directors recommend to pay a final dividend of Rs. 4.00 per share of which Rs. 2.00 is to be paid in cash which will be paid partly out of dividends received and partly out of exempt/taxable profits of the Bank. The dividends paid out of taxable profits of the Bank will be subject to a 10% withholding tax.

The balance dividend of Rs. 2.00 per share is proposed to be satisfied by issue and allotment of new shares, subject to a 10% withholding tax.

The Board of Directors fulfilled the requirement of the Solvency Test in terms of the Section 31 (3) of the Companies Act No. 07 of 2007 immediately after the payment of interim dividends and would ensure the compliance of Solvency Test after the payment of aforesaid final dividend proposed to be paid in April 2014.

The Board of Directors provided the Statement of Solvency to the Auditors and obtained Certificates of Solvency from the Auditors in respect of each dividend payment conforming to the statutory provisions.

5.4 Reserves

A summary of the Group’s reserves is given below:

	2013 Rs. ’000	2012 Rs. ‘000

Statutory Reserve Fund	3,768,094	3,245,818
Special Risk Reserve of Primary Dealer Unit	266,520	187,577
Special Reserve of Primary Dealer Unit	1,082,513	845,683
Revaluation Reserve	4,615,947	4,737,125
General Reserve	21,298,306	19,203,306
Foreign Currency Translation Reserve	(393,758)	(755,101)
Available-for-Sale Reserve	2,023,468	475,467
Investment Fund Reserve	4,838,693	2,846,935
Retained Earnings	4,359,632	4,172,814
Total	41,859,415	34,959,624

Information on the movement of reserves is given in the ‘Statement of Changes in Equity’ and in Notes 44 to 46 respectively to the Financial Statements.

6. Property, Plant & Equipment, Leasehold Property and Intangible Assets

Capital expenditure incurred on Property, Plant & Equipment (including Capital Work-in-Progress), Intangible Assets and Leasehold Property of the Bank amounted to Rs. 958.204 Mn., Rs. 119,449 Mn.,and Rs. Nil., respectively (Rs. 1,197.639 Mn., Rs. 203.032 Mn., and Rs. Nil, in 2012), details of which are given in Notes 30.3, 31 and 32 on the Financial Statements. Capital expenditure approved and contracted for are given in Note 48.2.2 to the Financial Statements.

7. Market Value of Freehold Properties

All freehold land and buildings of the Bank were revalued by professionally qualified independent valuers as at December 31, 2011, and brought into Financial Statements with the concurrence of the Central Bank of Sri Lanka. The Directors are of the opinion that the revalued amounts are not in excess of the current market values of such properties. The details of freehold properties owned by the Bank are given in Note 30.5 to the Financial Statements.

8. Issue of Shares and Debentures

8.1 Issue of Shares and Debentures by the Bank

Details of the shares issued by the Bank are given in the table below:

		2013		2012
Reason for the Issue	Details of the Share Issue	Voting Ordinary Shares	Non-Voting Ordinary Shares	Voting Ordinary Shares	Non-Voting Ordinary Shares
Exercise of options by employees	Number of Shares issued	1,445,398	N/A	1,341,768	N/A
Under the Employee Share Option Plans	Consideration Received (Rs. ’000)	76,074	N/A	62,942	N/A

The Bank did not issue any debentures during the year 2013 or in year 2012.

8.2 Issue of Shares and Debentures by the Subsidiaries and Associates

The Subsidiaries and Associates of the Bank did not make any share or debenture issues during the year.

8.3 Stated Capital and Debentures

The Stated Capital as at December 31, 2013 was Rs. 19,586.813 Mn., comprising of 794,535,819 Ordinary Voting Shares and 54,543,222 Ordinary Non-Voting Shares (Rs. 18,008.796 Mn. as at December 31, 2012 comprising of 780,014,232 Ordinary Voting Shares and 53,473,748 Ordinary Non-Voting Shares). The details of the Stated Capital are given in Note 43 to the Financial Statements.

The Bank had in issue 972,660 unsecured, subordinated, redeemable debentures of Rs. 1,000/- each to the value of Rs. 972.660 Mn., as at December 31, 2013 (973,210 debentures to the value of Rs. 973.210 Mn., as at December 31, 2012). The details of debentures redeemed during the year 2013 and those outstanding as at December 31, 2013 are given in Note 42 to the Financial Statements.

The debenture issues addressed the needs in relation to long-term funds required for bridging the maturity gaps and to strengthen the supplementary capital base of the Bank at the time of issue.

9. Share Information

Information relating to earnings, dividend, net assets and market value per share is given in ‘Financial Highlights’. Information on the trading of the shares and movement in the number of shares represented by the Stated Capital of the Bank is given in the section on ‘Investor Relations Supplement’.

10. Substantial Shareholdings

Details of the top twenty shareholders for both voting and non-voting ordinary shares, percentages of their respective holdings and percentage holding of the public are given in the section on ‘Investor Relations Supplement’.

10.1 Information on the Top Twenty Shareholders

10.2 Distribution Schedule of Shareholdings

Information on the distribution of shareholding and the respective percentages are given in the section on ‘Investor Relations Supplement’.

11. Directors

11.1 Information on Directors of the Group and the Bank

11.1.1 List of Directors

The Board of Directors of the Bank as at December 31, 2013 consisted of eight Directors (eight Directors as at December 31, 2012) with wide financial and commercial knowledge and experience. The qualifications and experience of the Directors are given in the ‘Board of Directors - Profiles’.

Names of the Directors of the Bank as at the end of 2013, as required by the Section 168 (1) (h) of the Companies Act No. 07 of 2007, are given below:

Name of the Director	Executive/ Non-Executive Status	Independence/ Non-Independence Status
Mr. D.S. Weerakkody - Chairman	Non-Executive	Independent
Mr. K.G.D.D. Dheerasinghe - Deputy Chairman	Non-Executive	Independent
Mr. W.M.R.S. Dias - Managing Director/CEO	Executive	Non-Independent
Prof. U.P. Liyanage	Non-Executive	Non-Independent up to March 30, 2013 and Independent from March 31, 2013
Mr. L. Hulugalle	Non-Executive	Independent
Mr. M.P. Jayawardena	Non-Executive	Non-Independent up to October 30, 2013 and Independent from October 31, 2013
Mr. J. Durairatnam	Executive	Non-Independent
Mr. S. Swarnajothi	Non-Executive	Independent

11.1.2 New Appointments and Resignations

The information on new appointments and resignations to and from the Board of Directors of the Bank given below forms an integral part of this ‘Annual Report of the Board of Directors’ in terms of the Section 168 (1) (h) of the Companies Act No. 07 of 2007.

New Appointments during 2013 - None

Resignations/Relinquishments/Cessations during 2013 - None

11.1.3 List of Directors of Subsidiaries and Associates of the Bank

Names of the Directors of all Subsidiaries and Associates of the Bank are given in the Section on ‘Group Structure’.

11.1.4 Recommendations for Re-election

1. Directors who were appointed to fill casual vacancies

None

2. Directors to retire by rotation

(i) In terms of Article 85 of the Articles of Association, two Directors are required to retire by rotation at each AGM. Article 86 provides that the Directors to retire by rotation at an AGM shall be those who, (being subject to retirement by rotation), have been longest in office, since their last election or appointment.
(ii) The Board recommended the re-election of the following Directors, after considering the contents of the Affidavits and Declarations submitted by them and all other related issues:
- Mr. D.S. Weerakkody
- Mr. M.P. Jayawardena

In terms of the Banking Act Direction No. 11 of 2007 (Corporate Governance for licensed Commercial Banks in Sri Lanka), the total period of service of a Director (other than a Director who holds the position of Chief Executive Officer) shall not exceed 9 years.

Mr. D.S. Weerakkody would complete 9 years on the Board on July 28, 2014.

Accordingly, Mr. Weerakkody is proposed to be re-elected from the conclusion of the Annual General Meeting up to July 28, 2014.

11.1.5 Directors’ Meetings

Details of Directors’ meetings which comprised Board meetings and all Board Sub-Committee meetings are presented under the Corporate Governance structure.

11.1.6 Board Sub-Committees

The Board of Directors of the Bank formed four mandatory Board Sub-Committees as required by the Banking Act Direction No. 11 of 2007 issued by the Monetary Board on ‘Corporate Governance for Licensed Commercial Banks in Sri Lanka’. These Committees play a critical role in order to ensure that the activities of the Bank at all times are conducted with the highest ethical standards and in the best interest of all its stakeholders. The Terms of Reference of these Sub-Committees conform to the recommendations made by various regulatory bodies, such as The Institute of Chartered Accountants of Sri Lanka, the Securities and Exchange Commission of Sri Lanka, the Central Bank of Sri Lanka and the Colombo Stock Exchange.

The composition of these mandatory Sub-Committees as at December 31, 2013 was as follows:

Board Human Resources and Remuneration Committee Members:

- Mr. D.S. Weerakkody - Chairman

- Mr. K.G.D.D. Dheerasinghe

- Prof. U.P. Liyanage

- Mr. W.M.R.S. Dias - Managing Director/CEO (By Invitation)

Refer the Report of the Board Human Resources and Remuneration Committee.

Board Integrated Risk Management Committee Members:

- Mr. K.G.D.D. Dheerasinghe - Chairman

- Mr. W.M.R.S. Dias - Managing Director/CEO

- Prof. U.P Liyanage

- Mr. M. P. Jayawardena

- Mr. L. Hulugalle

- Mr. S. Swarnajothi

- Mr. J. Durairatnam - Executive Director/Chief Operating Officer

- Mr. K.D.N. Buddhipala - Chief Financial Officer/Secretary

- Mr. S.C.U. Manatunga - Chief Risk Officer

Refer the Report of the Board Integrated Risk Management Committee.

Board Nomination Committee Members:

- Mr. D.S. Weerakkody - Chairman

- Mr. K.G.D.D. Dheerasinghe

- Prof. U.P. Liyanage

- Mr. W.M.R.S. Dias - Managing Director/CEO (By Invitation)

Refer the Report of the Board Nomination Committee.

Board Audit Committee Members:

- Mr. S. Swarnajothi - Chairman

- Mr. L. Hulugalle

- Mr. M.P. Jayawardena

- Prof. U.P. Liyanage

- Mr. W.M.R.S. Dias - Managing Director/CEO (By invitation)

- Mr. H.M.A. Jayesinghe - Consultant

Refer the Report of the Board Audit Committee.

In addition to above mandatory Board Sub-Committees, the Bank has set up the following Board Sub-Committees too.

Board Credit Committee:

- Mr. K.G.D.D. Dheerasinghe - Chairman
- Mr. M.P. Jayawardena
- Mr. W.M.R.S. Dias - Managing Director/CEO

Board Technology Committee:

- Prof. U.P. Liyanage - Chairman
- Mr. W. M. R. S. Dias - Managing Director/CEO
- Mr. J. Durairatnam - Executive Director/Chief Operating Officer
- Mr. R. Muttiah - Chief Information Officer
- Mr. L.H. Munasinghe - Deputy General Manager-Marketing
- Mr. M.E.P. Perera - Assistant General Manager - Operations

Board Investment Committee:

- Mr. K.G.D.D. Dheerasinghe - Chairman
- Mr. W.M.R.S. Dias - Managing Director/CEO
- Mr. J. Durairatnam - Executive Director/Chief Operating Officer
- Mr. K.D.N. Buddhipala - Chief Financial Officer
- Mr. S.C.U. Manatunga - Chief Risk Officer
- Mr. Prins Perera - Head of Global Markets
- Mr. A.N.P. Sooriyaarachchi - Assistant General Manager - Corporate and Investment Banking
- Mr. S. Balasuriya - Head of Global Treasury/Secretary

12. Disclosure of Directors’ Dealing in Shares and Debentures

12.1 Directors’ Interests in Ordinary Voting Shares of the Bank

Individual ordinary voting shareholdings of Directors were as follows:

As at December 31,	2013	2012

Mr. D.S. Weerakkody (Chairman)	26,452	26,017
Mr. K.G.D.D. Dheerasinghe (Deputy Chairman)	20,334	20,000
Mr. W.M.R.S. Dias (Managing Director/CEO)	696,594	685,123
Prof. U.P. Liyanage	Nil	Nil
Mr. L. Hulugalle	Nil	Nil
Mr. M.P. Jayawardena	Nil	Nil
Mr. J. Durairatnam	344,336	309,782
Mr. S. Swarnajothi	Nil	Nil
Percentage Shareholding of the Directors
Ordinary Voting Shares (%)	0.14	0.13

Directors’ shareholdings in Ordinary Voting Shares have not changed subsequently to the date of the Statement of Financial Position up to February 6, 2014, the date being one month prior to the date of Notice of the Annual General Meeting.

12.2 Directors’ Interests in Ordinary Non-Voting Shares

Individual ordinary non-voting shareholdings of Directors were as follows:

As at December 31,	2013	2012

Mr. D.S. Weerakkody (Chairman)	12,220	11,981
Mr. K.G.D.D. Dheerasinghe (Deputy Chairman)	Nil	Nil
Mr. W.M.R.S. Dias (Managing Director/CEO)	Nil	Nil
Prof. U.P. Liyanage	Nil	Nil
Mr. L. Hulugalle	Nil	Nil
Mr. M.P. Jayawardena	Nil	Nil
Mr. J. Durairatnam	Nil	Nil
Mr. S. Swarnajothi	8,332	8,169
Percentage Shareholding of the Directors
Ordinary Non-Voting Shares (%)	0.04	0.04

Directors’ shareholdings in Ordinary Non-Voting shares have not changed subsequent to the date of the Statement of Financial Position and up to February 6, 2014, the date being one month prior to the date of Notice of the Annual General Meeting.

12.3 Directors’ Interests in Debentures

There were no debentures registered in the name of any Director as at the beginning and at the end of the year.

13. Employee Share Option Plans and Profit Sharing Plans

The Bank implemented two Employee Share Option Plans for the Corporate Management and the Executive Officers in Grade III and above in 2008, based on the Bank achieving certain pre-determined performance criteria. The approval of the shareholders was obtained for this scheme to offer share options up to 3% of the ordinary voting shares of the Bank.

The details of the existing Employee Share Option Plans are given in Notes 43.2 to the Financial Statements.

The Group and the Bank do not have any employee profit sharing plan, except the Variable Bonus Scheme.

14. Directors’ Interests In Contracts or Proposed Contracts

Directors’ interests in contracts or proposed contracts with the Company, both direct and indirect are disclosed. These interests have been declared quarterly at Directors’ meetings. As a practice, Directors have refrained from voting on matters in which they were materially interested. Directors have no direct or indirect interest in any other contract or proposed contract with the Company.

There are no arrangements enabling the Non-Executive Directors of the Group and the Bank to acquire shares or debentures of the Bank or its Subsidiaries, other than via the market.

Directors’ remuneration and other benefits, in respect of the Group and the Bank for the financial year ended December 31, 2013 are given in Note 14 to the Financial Statements.

There are no restrictions on the approval of loans to Directors in the Bank’s ordinary course of business, subject to compliance with all applicable regulations.

15. Environmental Protection

The Group and the Bank have not, to the best of their knowledge, engaged in any activity, which was detrimental to the environment. Specific measures taken to protect the environment are given under Management Approach to Economic, Social and Environmental Parameters.

16. Statutory Payments

The Directors, to the best of their knowledge and belief are satisfied that all statutory payments due to the Government, other regulatory institutions and related to the employees have been made on time.

17. Events after the Date of the Statement of Financial Position

No event of material significance that require adjustments to the Financial Statements, has occurred subsequent to the date of the Statement of Financial Position, other than those disclosed in Note 54 to the Financial Statements.

18. Appointment of Auditors

The Board of Directors of the Bank decided to adopt a Policy of rotation of Auditors, once in every five years, in keeping with the principles of good Corporate Governance. The present Auditors Messrs KPMG were appointed as Auditors of the Bank, at the Annual General Meeting held in March 2013 to carry out the audit of the Bank for the year ended December 31, 2013.

The retiring Auditors, Messrs KPMG have signified their willingness to continue to function as the Auditor to the Bank.

A resolution to re-appoint KPMG as Auditors and granting authority to the Directors to fix their remuneration will be proposed at the forthcoming Annual General Meeting.

19. Auditors’ Remuneration and Interest in Contracts with the Company

The Auditors, Messrs KPMG were paid Rs. 8.596 Mn. for the year ended December 31, 2013 as audit fees by the Bank. In addition, they were paid Rs. 11.294 Mn., by the Bank, for permitted non-audit-related services including tax consultancy services as disclosed in Note 14 to the Financial Statements. This information is disclosed as required by the Section 168 (1) (i) of the Companies Act No. 07 of 2007.

As far as the Directors are aware, the Auditors do not have any other relationship or interest in contracts with the Bank, or any of its Subsidiaries or Associates other than being the Auditors for Bank’s Subsidiaries and Associates.

This information is disclosed as required by the Section 168 (1) (j) of the Companies Act No. 07 of 2007.

20. Risk Management and System of Internal Controls

20.1 Risk Management

The Bank has an ongoing process in place to identify, evaluate and manage the risks that are faced by the Bank. The Directors continuously review this process through the Board Integrated Risk Management Committee. Specific steps taken by the Bank in managing both banking and non-banking risks are detailed in the section on ‘Managing Risk at Commercial Bank’ and in the ‘Board Integrated Risk Management Committee Report’.

21. Corporate Governance

Directors’ Declarations

The Directors declare that:

a. the Company complied with all applicable laws and regulations in conducting its business and have not engaged in any activity contravening the relevant laws and regulations. Officers responsible for ensuring compliance with the provisions in various laws and regulations, confirm compliance in each quarter to the Board Integrated Risk Management Committee.
b. the Directors have declared all material interests in contracts involving the Company and refrained from voting on matters in which they were materially interested.
c. all endeavours have been made to ensure that shareholders in each category have been treated equitably in accordance with the original Terms of Issue.
d. the business is a going concern with supporting assumptions or qualifications as necessary, and that the Board of Directors has reviewed the Bank’s Corporate/Business plans and is satisfied that the Bank has adequate resources to continue its operations in the foreseeable future. Accordingly, the Financial Statements of the Bank, its Subsidiaries and Associates are prepared based on the going concern concept, and
e. they have conducted a review of internal controls covering financial, operational & compliance controls, risk management and have obtained a reasonable assurance of their effectiveness and proper adherence.

The measures taken and the extent to which the Bank has complied with the Codes of Best Practice on Corporate Governance issued by The Institute of Chartered Accountants of Sri Lanka, the Securities and Exchange Commission of Sri Lanka, the Colombo Stock Exchange and the Central Bank of Sri Lanka are given in the Section on ‘Corporate Governance’.

22. Human Resources

The Bank continues to invest in Human Capital Development and implement effective Human Resource Practices and Policies to improve work force efficiency, effectiveness and productivity and also to foster collaborative partnerships that enrich the work and learning environment for our staff.

Specific measures taken in this regard are detailed in the ‘Human Resources and Remuneration Committee Report’.

23. Technology

Our Bank's business processes are underpinned by technology. All of our processes involve information technology and we use technology to deliver superior products and services to our customers. Correspondingly, the nature of the business is more heavily intertwined with technology than ever before. Key achievement for the year are detailed in the ‘Technology Committee Report’.

24. Operational Excellence

To increase efficiency and reduce operating cost the Bank has ongoing initiatives to drive policy and process standardisation and to optimise the use of existing technology platforms.

25. Outstanding Litigation

In the opinion of the Directors and in consultation with the Bank’s lawyers, litigation currently pending against the Bank will not have a material impact on the reported financial results or future operations of the Bank. Details of Litigations Pending against the Bank are given in Note 49 to the Financial Statements.

26. Notice of Meeting

Notice relating to the Forty-Fifth Annual General Meeting of the Bank is enclosed herewith.

27. Acknowledgement of the Contents of the Report

As required by the Section 168 (1) (k) of the Companies Act No. 07 of 2007, the Board of Directors does hereby acknowledge the contents of this Annual Report.

Signed in accordance with a resolution adopted by the Directors.