Financial Reports

1. Reporting Entity

1.1 Corporate Information

Commercial Bank of Ceylon PLC (the ‘Bank’) is a public limited liability company listed on the Colombo Stock Exchange, incorporated on June 25, 1969, (and domiciled) in Sri Lanka. It is a licensed commercial bank regulated under the Banking Act No. 30 of 1988 and amendments thereto. The Bank was re-registered under the Companies Act No. 07 of 2007. The registered office of the Bank is situated at ‘Commercial House’, No. 21, Sir Razik Fareed Mawatha, Colombo 01, Sri Lanka. The ordinary shares of the Bank have a primary listing on the Colombo Stock Exchange. For further information please refer inner back cover of this Annual Report.

The staff strength of the Bank as at December 31, 2013 was 4,730 (4,602 as at December 31, 2012).

1.2 Consolidated Financial Statements

The Consolidated Financial Statements as at and for the year ended December 31, 2013, comprise the Bank (Parent Company) and its Subsidiaries (together referred to as the ‘Group’ and individually as ‘Group entities’), and the Group’s interest in its Associates.

The Bank does not have an identifiable Parent of its own.

1.3 Principal Business Activities and Nature of Operations of the Bank, its Subsidiaries and Associates

Entity	Principal Business Activities
Bank	The Bank provides a comprehensive range of financial services encompassing accepting deposits, personal banking, trade financing, off-shore banking, resident and non-resident foreign currency operations, travel-related services, corporate and retail credit, syndicated financing, project financing, development banking, lease financing, hire purchase financing, rural credit, issuing of local and international debit and credit cards, tele-banking facilities, internet banking, mobile banking, money remittance facilities, dealing in Government Securities and treasury-related products, salary remittance package, bullion trading, export and domestic factoring, pawning, margin trading, e-banking services, Bancassurance and Islamic banking products and services, etc.
Subsidiaries
Commercial Development Company PLC	Property development and related ancillary services and outsourcing of staff for non-critical functions of the Bank.
ONEzero Company Ltd.	Providing IT-related services.
Commex Sri Lanka S.R.L.	Acting as an agent to the Bank and providing money transfer services, opening accounts, issuance and encashment of foreign currencies and Travellers’ Cheques and collecting applications for credit facilities. The commercial operations of this company are yet to be commenced.
Associates
Equity Investments Lanka Ltd.	Fund management.
Commercial Insurance Brokers (Pvt) Ltd.	Insurance brokering.
There were no significant changes in the nature of the principal business activities of the Bank and the Group during the financial year under review.

2. Basis of Preparation

2.1 Statement of Compliance

The Consolidated Financial Statements of the Group and the separate Financial Statements of the Bank, have been prepared and presented in accordance with the Sri Lanka Accounting Standards (SLFRS) laid down by The Institute of Chartered Accountant of Sri Lanka and in compliance with the requirements of the Companies Act No. 07 of 2007 and the Banking Act No. 30 of 1988 and amendments thereto, and provide appropriate disclosures as required by the Listing Rules of the Colombo Stock Exchange. These SLFRS are available at www.casrilanka.com.

The Group and the Bank did not adopt any inappropriate accounting treatments which are not in compliance with the requirements of the SLFRSs, and regulations governing the preparation and presentation of the Financial Statements.

The formats used in the preparation of the Financial Statements and the disclosures made therein also comply with the specified format prescribed by the Central Bank of Sri Lanka for the Preparation, Presentation and Publication of Annual Audited Financial Statements of Licensed Commercial Banks.

2.2 Responsibility for Financial Statements

The Board of Directors is responsible for the preparation and presentation of the Financial Statements of the Group and the Bank as per the provisions of the Companies Act No. 07 of 2007 and SLFRS.

The Board of Directors acknowledges their responsibility as set out in the ‘Annual Report of the Board of Directors’, “Statement of Directors’ Responsibility” and the certification on the Statement of Financial Position.

These Financial Statements include the following components:

• an Income Statement and a Statement of Comprehensive Income providing the information on the financial performance of the Group and the Bank for the year under review;
• a Statement of Financial Position providing the information on the financial position of the Group and the Bank as at the year-end;
• a Statement of Changes in Equity depicting all changes in shareholders’ funds during the year under review of the Group and the Bank;
• a Statement of Cash Flows providing the information to the users, on the ability of the Group and the Bank to generate cash and cash equivalents and the needs of entities to utilise those cash flows; and
• Notes to the Financial Statements comprising Accounting Policies and other explanatory information set out below.

2.3 Approval of Financial Statements by the Board of Directors

The Financial Statements of the Group and the Bank for the year ended December 31, 2013 (including comparatives) were approved and authorised for issue by the Board of Directors on February 24, 2014.

2.4 Basis of Measurement

The Financial Statements of the Group and the Bank have been prepared on the historical cost basis except for the following material items in the Statement of Financial Position:

Items	Measurement Basis	Note No./s
Held for Trading financial instruments	Fair value	24
Available-for-sale financial investments	Fair value	27
Land and Buildings	Stated at valuation	30
Net defined benefit (asset)/liability	Liability for defined benefit obligations is recognised as the present value of the defined benefit obligation less the net total of the plan assets, plus unrecognised actuarial gains, less unrecognised past service cost and unrecognised actuarial losses	40

2.5 Functional and Presentation Currency

Items included in the Financial Statements of the Group and the Bank are measured using the currency of the primary economic environment in which the Bank operates (the functional currency). These Financial Statements are presented in Sri Lankan Rupees, the Group’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the Financial Statements of these entities are measured using that functional currency. There was no change in the Group’s presentation and functional currency during the year under review.

The information presented in US Dollars in the Section on ‘Annexes’ does not form part of the Financial Statements and is solely for the information of stakeholders.

2.6 Presentation of Financial Statements

The assets and liabilities of the Group and the Bank presented in its Statement of Financial Position are grouped by nature and listed in an order that reflects their relative liquidity and maturity pattern. No adjustments have been made for inflationary factors affecting the Financial Statements. An analysis on recovery or settlement within 12 months after the Reporting date and more than 12 months after the Reporting date is presented in Note 50.

Financial assets and financial liabilities are offset and the net amount reported in the Consolidated 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 liability simultaneously. Income and expenses are not offset in the consolidated Statement of Comprehensive Income unless required or permitted by an Accounting Standard or interpretation, and as specifically disclosed in the Accounting Policies of the Bank.

2.7 Materiality and Aggregation

Each material class of similar items is presented separately in the Financial Statements. Items of dissimilar nature or function are presented separately unless they are immaterial as permitted by the Sri Lanka Accounting Standard - LKAS 1 on ‘Presentation of Financial Statements’.

2.8 Rounding

The amounts in the Financial Statements have been rounded-off to the nearest Rupees thousand, except where otherwise indicated as permitted by the Sri Lanka Accounting Standard - LKAS 1 on ‘Presentation of Financial Statements’.

2.9 Use of Judgments and Estimates

In preparing the Financial Statements of the Group and the Bank in conformity with SLFRSs the management has made judgments, estimates and assumptions that affect the application of Accounting Policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively.

Information about significant areas of estimation, uncertainty and critical judgments in applying Accounting Policies that have most significant effect on the amounts recognised in the Financial Statements of the Group and the Bank are as follows:

2.9.1 Going Concern

The management has made an assessment of its ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as a going concern. Therefore, the Financial Statements continue to be prepared on a going concern basis.

2.9.2 Fair Value of Financial Instruments

The determination of fair values of financial assets and financial liabilities recorded on the Statement of Financial Position for which there is no observable market price are determined using a variety of valuation techniques that include the use of mathematical models. The valuation of financial instruments is described in more detail in Note 3.3.9.

The Bank measures fair value using the fair value hierarchy that reflects the significance of input used in making measurements, as described in Note 3.3.9.

2.9.3 Financial Assets and Liabilities Classification

The Bank’s Accounting Policies provide scope for assets and liabilities to be classified at inception into different accounting categories in certain circumstances.

• In classifying financial assets or liabilities at ‘Fair value through profit or loss’, and within that category as ‘Held-for-Trading’ the Bank has determined that it has met the criteria for this designation set out in Notes 3.3.3.1 and 3.3.9.
• In classifying financial assets as ‘Held-to-Maturity’, the Bank has determined that it has both the positive intention and ability to hold the assets until their maturity date as required by Note 3.3.3.5.

2.9.4 Impairment Losses on Loans and Advances

The Bank reviews its individually significant loans and advances at each Reporting date to assess whether an impairment loss should be provided for in the Statement of Comprehensive Income. In particular, management’s judgment is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the provisions made.

The individual component of the total provision for impairment applies to financial assets evaluated individually for impairment and is based on management’s best estimate of the present value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgments about a borrower’s financial situation and the net realisable value of any underlying collateral. Each impaired asset is assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable. A collective component of the total provision is established for:

• groups of homogeneous loans that are not considered individually significant; and
• groups of assets that are individually significant but that were not found to be individually impaired

The collective provision for groups of homogeneous loans is established using statistical methods or, a formula approach based on historical loss rate experience, using the statistical analysis of historical data on delinquency to estimate the amount of loss. Management applies judgment to ensure that the estimate of loss arrived at on the basis of historical information is appropriately adjusted to reflect the economic conditions and product mix at the reporting date. The loss rates are regularly benchmarked against actual loss experience.

In assessing the need for collective loss provision, management considers factors such as credit quality (such as loan to collateral ratio, level of restructured performing loans etc.) portfolio size, concentrations and economic factors. To estimate the required provision, assumptions are made to define how inherent losses are modelled and to determine the required input parameters, based on historical experience and current economic conditions (including policy rates, inflation, growth in GDP, sovereign rating, etc.).

The accuracy of the provision depends on the model assumptions and parameters used in determining the collective provision.

The impairment loss on loans and advances is disclosed in more detail in Note 26.2.

2.9.5 Impairment Losses on Other Assets

The Group assesses whether there are any indicators of impairment for an asset or a cash-generating unit at each Reporting date or more frequently, if events or changes in circumstances necessitate to do so. This requires the estimation of the ‘value in use’ of such individual assets or the cash-generating units. Estimating value in use requires management to make an estimate of the expected future cash flows from the asset or the cash-generating unit and also to select a suitable discount rate in order to calculate the present value of the relevant cash flows. This valuation requires the Group to make estimates about expected future cash flows and discount rates, and hence, they are subject to uncertainty.

Specific Accounting Policies on impairment of assets are discussed in Notes 3.3.10 and 3.8.

2.9.6 Deferred Tax Assets

Deferred tax assets are recognised in respect of tax losses to the extent that it is probable that future taxable profit will be available against which such tax losses can be utilised. Judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits, together with future tax-planning strategies (Refer Note 5.2).

2.9.7 Defined Benefit Obligation

The cost of the defined benefit plans is determined using an actuarial valuation. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Due to the long term nature of these plans, such estimates are subject to significant uncertainty. Refer Note 51 for the assumptions used.

2.9.8 Provisions for Liabilities and Contingencies

The Group receives legal claims against it in the normal course of business. Management has made judgments as to the likelihood of any claim succeeding in making provisions. The time of concluding legal claims is uncertain, as is the amount of possible outflow of economic benefits. Timing and cost ultimately depend on the due process in respective legal jurisdictions.

Information about significant areas of estimation uncertainty and critical judgments in applying Accounting Policies other than those stated above that have significant effects on the amounts recognised in the Consolidated Financial Statements are described in Notes 3.14 and 3.15.

2.10 Events after the Reporting Period

Events after the Reporting Period are those events, favourable and unfavourable, that occur between the Reporting date and the date when the Financial Statements are authorised for issue.

In this regard, all material and important events that occurred after the Reporting Period have been considered and appropriate disclosures are made in Note 54 where necessary.

Significant Accounting Policies

The Accounting Policies set out below have been applied consistently to all periods presented in the Financial Statements of the Group and the Bank, unless otherwise indicated.

These Accounting Policies have been applied consistently by Group entities.

3. Significant Accounting Policies - Recognition of Assets and Liabilities

3.1 Basis of Consolidation

The Group’s Financial Statements comprise consolidation of the Financial Statements of the Bank, its Subsidiaries in terms of the Sri Lanka Accounting Standard - LKAS 27 on ‘Consolidated and Separate 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’. The Bank’s Financial Statements comprise the amalgamation of the Financial Statements of the Domestic Banking Unit, the Off-Shore Banking Centre and the international operations of the Bank.

3.1.1 Business Combinations and Goodwill

Acquisitions on or after January 1, 2010

For acquisitions on or after January 1, 2010, the Group measures goodwill as the fair value of the consideration transferred including the recognised amount of any non-controlling interests in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date in terms of the Sri Lanka Accounting Standard - SLFRS 3 on ‘Business Combinations’.

The Group elects on a transaction-by-transaction basis whether to measure non-controlling interests at its fair value, or at its proportionate share of the recognised 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 Group incurs in connection with a business combination are expensed as incurred.

The Sri Lanka Accounting Standard - SLFRS 3 on ‘Business Combinations’ requires that following the initial recognition, goodwill is to be measured at cost, less any accumulated impairment losses and goodwill to be reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

However, acquired goodwill, if any, is written-off in full in the year of acquisition, since the Bank is not permitted to pay dividends otherwise, as per the Section 22 of the Banking Act No. 30 of 1988.

When the excess is negative, a gain from a bargain purchase is recognised immediately in profit or loss.

When Subsidiaries/Associates/Other Business Units are disposed off, the difference between the proceeds on disposal and the net assets plus cumulative translation differences which have been directly recognised in equity and unimpaired goodwill, if any, is recognised in the Statement of Comprehensive Income in the year of disposal.

Acquisitions prior to January 1, 2010

As part of its transition to SLFRSs, the Group elected to restate only those business combinations that occurred on or after January 1, 2010. In respect of acquisitions prior to January 1, 2010, goodwill represents the amount recognised under the Group’s previous accounting framework (i.e.; Sri Lanka Accounting Standards (SLASs) that were in force up to December 31, 2010).

No goodwill/gain from a bargain purchase arose from the treatment of Associates under the Equity Method since the Group had the respective percentages of ownership in Associates from the commencement of those Associates.

3.1.2 Subsidiaries

Subsidiaries are entities controlled by the Group. The Financial Statements of Subsidiaries are fully consolidated from the date on which control is transferred to the Bank and continue to be consolidated until the date when such control ceases. Control is achieved where the Bank has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

3.1.3 Non-Controlling Interests

Non-controlling interests represent the portion of profit or loss and net assets of Subsidiaries not owned, directly or indirectly, by the Bank.

Non-controlling interests are presented separately in the Consolidated Statement of Comprehensive Income and within equity in the Consolidated Statement of Financial Position, but separate from Parent shareholders’ equity. Any losses applicable to the non-controlling interests are allocated against the interests of the non-controlling interests even if this results in a deficit balance. Acquisitions of non-controlling interests are accounted for using the Parent entity extension method, whereby the difference between the consideration and the fair value of the share of the net assets acquired is recognised as equity. Therefore, no goodwill recognised as a result of such transactions.

The Financial Statements of the Bank’s Subsidiaries are prepared for the same reporting year, using consistent Accounting Policies.

The Financial Statements of all Subsidiaries in the Group have a common financial year which ends on December 31.

All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions, income and expenses are eliminated in full.

There are no significant restrictions on the ability of Subsidiaries to transfer funds to the Parent (the Bank) in the form of cash dividend or repayment of loans and advances.

All Subsidiaries of the Bank have been incorporated in Sri Lanka except Commex Sri Lanka S.R.L. which was incorporated in Italy.

A listing of the Bank’s Subsidiaries together with contingencies of Subsidiaries is set out in Notes 28 and 48.3 (a) to the Financial Statements.

The Bank’s interests in all its Subsidiaries together with the summarised financial information including total assets, total liabilities, revenue, profit or loss and the dividends paid are given in the Section on ‘Group Structure’.

3.1.4 Associates

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity.

Investments in Associates are accounted for using the equity method and are recognised initially at cost, in terms of Sri Lanka Accounting Standards - LKAS 28 on ‘Investments in Associates’. The Group’s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The Consolidated Financial Statements include the Group’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 Group, from the date that significant influence commences until the date that significant influence ceases. Accordingly, under the Equity Method, investments in Associates are carried at cost plus post-acquisition changes in the Group’s share of net assets of the Associates and are reported as a separate line item in the Statement of Financial Position. The Statement of Comprehensive Income reflects the Group’s share of current year’s profit or loss of the Associates.

When the Group’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 nil, and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. If the Associate subsequently reports profits, the Bank resumes recognising its share of those profits only after its share of the profits equal the share of losses not recognised previously.

The Group discontinues the use of the Equity Method from the date that it ceases to have significant influence over an Associate and accounts for such investments in accordance with the Sri Lanka Accounting Standard - LKAS 39 on ‘Financial Instruments: Recognition and Measurement’.

Where there has been a change recognised directly in the equity of the Associate, the Bank recognises its share of any such changes and discloses same, when applicable, in the Consolidated Statement of Changes in Equity.

Profits and losses resulting from transactions between the Bank and the Associates are eliminated to the extent of the interest in such Associate.

The Financial Statements of all Associates in the Group have a common financial year which ends on December 31.

There are no significant restrictions on the ability of the Associates to transfer funds to the Parent (the Bank) in the form of cash dividend or repayment of loans and advances.

A listing of the Group’s Associates together with their fair values and the Group’s share of contingent liabilities of such Associates are set out in Notes 29 and 48.3 (b) to the Financial Statements.

Summarised financial information of all Associates of the Bank together with the Bank’s interests is given in the Section on ‘Group Structure’.

3.1.5 Loss of Control

Upon the loss of control, the Group derecognises the assets and liabilities of the Subsidiary, any non-controlling interests and the other components of equity related to the Subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the previous Subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an Associate or in accordance with the Group’s accounting policy for financial instruments (see Accounting Policy 3.1.3 above) depending on the level of influence retained.

3.1.6 Transactions Eliminated on Consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in full in preparing the Consolidated Financial Statements. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

3.1.7 Material Gains or Losses, Provisional Values or Error Corrections

There were no material gains or losses, provisional values or error corrections recognised during the year in respect of the business combinations that took place in previous periods.

3.2 Foreign Currency

3.2.1 Foreign Currency Translations

The Group’s Consolidated Financial Statements are presented in Sri Lankan Rupees, which is also the Bank’s functional currency. Each entity in the Group determines its own functional currency and items included in the Financial Statements of each entity are measured using that functional currency. The Group has elected to recycle the gain or loss that arises from the direct method of consolidation, which is the method the Group uses to complete its consolidation. The Financial Statements of the Off-Shore Banking Unit of the Bank and the Financial Statements of the Foreign Operations of the Bank have been translated into the Group’s presentation currency as explained under Notes 3.2.2 and 3.2.3 below:

3.2.2 Foreign Currency Transactions and Balances

Foreign currency transactions are translated into the functional currency, which is Sri Lankan Rupees, using the exchange rates prevailing at the dates of the transactions. In this regard, the Bank’s practice is to use the middle rate of exchange ruling at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies at the Reporting date are retranslated to the functional currency at the middle exchange rate of the functional currency ruling at the Reporting date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the year adjusted for effective interest and payments during the year, and the amortised cost in foreign currency translated at the exchange rate at the Reporting date.

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. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments, a financial liability designated as a hedge of the net investment in a foreign operation, or qualifying cash flow hedges, which are recognised in Other Comprehensive Income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

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 are translated at the exchange rates ruling at the Reporting date.

3.2.3 Transactions of the Off-Shore Banking Centre

These have been recorded in accordance with Note 3.2.1 above, except the application of the annual weighted average exchange rate for translation of the Statement of Comprehensive Income. Net gains and losses are dealt through the Statement of Comprehensive Income.

3.2.4 Foreign Operations

The results and financial position of overseas branch operations that have a functional currency different from the Bank’s presentation currency are translated into the Bank’s presentation currency as follows:

• Assets and liabilities are translated at the rates of exchange ruling at the Reporting date.
• Income and expenses are translated at the average exchange rate for the period, unless this average rate is not a reasonable approximation of the rate prevailing at the transaction date, in which case income and expenses are translated at the exchange rate ruling at the transaction date.
• All resulting exchange differences are recognised in the Foreign Currency Translation Reserve, which is a separate component of Equity.

When a foreign operation is disposed off, the deferred cumulative translation gain or loss recognised in Equity relating to that particular foreign operation is recognised in the Statement of Comprehensive Income as part of the gain or loss on disposal.

3.3 Financial Instruments - Initial Recognition, Classification and Subsequent Measurement

3.3.1 Date of Recognition

All financial assets and liabilities except ‘Regular way trades’ are initially recognised on the trade date, i.e., the date that the Group becomes a party to the contractual provisions of the instrument. 'Regular way trades' means 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. Those trades are initially recognised on the settlement date.

3.3.2 Initial Measurement of Financial Instruments

The classification of financial instruments at initial recognition depends on their purpose and characteristics and the management’s intention in acquiring them. Please refer Notes 3.3.3 and 3.3.4 below for further details on classification of Financial Instruments.

All financial instruments are measured initially at their fair value plus transaction costs that are directly attributable to acquisition or issue of such financial instrument, except in the case of financial assets and financial liabilities at fair value through profit or loss as per the Sri Lanka Accounting Standard - LKAS 39 on ‘Financial Instruments: Recognition and Measurement’.

Transaction cost in relation to financial assets and financial liabilities at fair value through profit or loss are dealt with through the Statement of Comprehensive Income.

3.3.2.1 ‘Day 1’ Profit or Loss

When the transaction price differs from the fair value of other observable current market transactions in the same instrument, or based on a valuation technique whose variables include only data from observable markets, the Bank recognises the difference between the transaction price and fair value (a ‘Day 1’ profit or loss) in ‘Interest Income and Personnel Expenses’. In cases where fair value is determined using data which is not observable, the difference between the transaction price and model value is only recognised in the Statement of Comprehensive Income when the inputs become observable, or when the instrument is derecognised. The ‘Day 1 loss’ arising in the case of loans granted to employees at concessionary rates under uniformly applicable schemes is deferred and amortised using Effective Interest Rates (EIR) over the remaining service period of the employees or tenure of the loan whichever is shorter.

3.3.3 Classification and Subsequent Measurement of Financial Assets

At inception a financial asset is classified into one of the following categories:

• At fair value through profit or loss:
• Held-for-trading; or
• Designated at fair value through profit or loss.
• Loans and receivables;
• Available-for-sale; or
• Held-to-maturity

The subsequent measurement of financial assets depends on their classification.

Please refer Accounting Policies 3.3.3.1, 3.3.3.2, 3.3.3.3, 3.3.3.4 and 3.3.3.5.

3.3.3.1 Financial Assets at Fair Value through Profit or Loss

Financial assets at fair value through profit or loss includes financial assets held-for-trading and financial assets designated upon initial recognition at fair value through profit or loss which are discussed in 3.3.3.1.1 and 3.3.3.1.2 below.

3.3.3.1.1 Financial Assets Held-for-Trading

Financial assets are classified as held-for-trading if they are acquired principally for the purpose of selling or repurchasing in the near term or holds as a part of a portfolio that is managed together for short-term profit or position taking. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by the Sri Lanka Accounting Standard - LKAS 39 on ‘Financial Instruments: Recognition and Measurement’.

Financial assets held-for-trading are recorded in the Statement of Financial Position at fair value. Changes in fair value are recognised in profit or loss. Interest and dividend income is recorded in ‘Net trading income’ according to the terms of the contract, or when the right to receive the payment has been established.

The Group evaluates its financial assets held-for-trading, other than derivatives, to determine whether the intention to sell them in the near term is still appropriate. When the Group is unable to trade these financial assets due to inactive markets and management’s intention to sell them in the foreseeable future significantly changes, the Group may elect to reclassify these financial assets in rare circumstances.

Financial assets held-for-trading include instruments such as Government and other debt securities and equity instrument that have been acquired principally for the purpose of selling or repurchasing in the near term and derivatives, including separated embedded derivatives explained below unless they are designated as effective hedging instruments.

Details of financial assets held-for-trading are given in Note 24 and on the face of the Statement of Financial Position.

Derivatives Recorded at Fair Value through Profit or Loss

The Bank uses derivatives such as interest rate swaps, foreign currency swaps and forward foreign exchange contracts, etc. Derivatives are recorded at fair value and carried as assets when their fair value is positive and as liabilities when their fair value is negative. Changes in the fair value of derivatives are included in ‘Net trading income’.

Derivatives embedded in other financial instruments are treated as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contract, and the host contract is not itself held-for-trading or designated at fair value through profit or loss. The embedded derivatives separated from the host are carried at fair value in the trading portfolio with changes in fair value recognised in the Statement of Comprehensive Income.

Details of derivatives recorded at fair value through profit or loss are given in Notes 23 and 36.

3.3.3.1.2 Financial Assets Designated at Fair Value through Profit or Loss

The Group designates financial assets at fair value through profit or loss in the following circumstances:

• the assets are managed, evaluated and reported internally at fair value;
• the designation eliminates or significantly reduces an accounting mismatch, which would otherwise have arisen; or
• the asset contains an embedded derivative that significantly modifies the cash flows that would otherwise have been required under the contract.

Financial assets designated at fair value through profit or loss are recorded in the Statement of Financial Position at fair value. Changes in fair value are recorded in ‘Net gain or loss on financial assets and liabilities designated at fair value through profit or loss’. Interest earned is accrued in ‘Interest Income’, using the EIR, while dividend income is recorded in ‘other operating income’ when the right to receive the payment has been established.

The Group has not designated any financial assets upon initial recognition as at fair value through profit or loss.

3.3.3.2 Loans and Receivables to Banks and Other Customers

‘Loans and receivables to banks and other customers’ include non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than:

• Those that the Group intends to sell immediately or in the near term and those that the Group, upon initial recognition, designates as at fair value through profit or loss
• Those that the Group, upon initial recognition, designates as available-for-sale
• Those for which the Group may not recover substantially all of its initial investment, other than because of credit deterioration.

‘Loans and receivable to banks and other customers’ include Loans and Advances, Bills of Exchange and Lease Receivable of the Group.

When the Group is the lessor in a lease agreement that transfers substantially all of the risks and rewards incidental to ownership of the asset to the lessee, the arrangement is classified as a finance lease. Amounts receivable under finance leases net of initial rentals received, unearned lease income and provision for impairment are classified as lease receivable and are presented within ‘loans and receivables to customers’ in the Statement of Financial Position.

After initial measurement, ‘loans and receivables to banks and other customers’ are subsequently measured at amortised cost using the EIR, less provision for impairment except when the Group 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 Comprehensive Income. The losses arising from impairment are recognised in the Statement of Comprehensive Income in ‘impairment charges for loans and other losses’.

The Bank may enter into certain lending commitments where the loan, on draw down, is expected to be classified as held-for-trading because the intent is to sell the loans in the short term. These commitments to lend, if any, are recorded as derivatives and measured at fair value through profit or loss. Where the loan, on drawdown, is expected to be retained by the Bank, and not sold in the short term, the commitment is recorded only when it is an onerous contract that is likely to give rise to a loss.

Details of ‘loans and receivables to banks and other customers’ are given in Notes 25 and 26.

3.3.3.3 Other Financial Investments Classified as Loans and Receivables

‘Other financial investments classified as loans and receivables’ include unquoted debt instruments. After initial measurement, these are subsequently measured at amortised cost using the EIR, less provision for impairment. 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 Comprehensive Income. The losses arising from impairment are recognised in the Statement of Comprehensive Income in ‘impairment charges for loans and other losses’.

Details of ‘Other Financial Investments Classified as Loans and Receivables’ are given in Note 26.

3.3.3.4 Available-for-Sale Financial Investments

Available-for-sale financial investments include equity and debt securities. Equity investments classified as available-for-sale are those which are neither classified as held-for-trading nor designated at fair value through profit or loss. Debt securities in this category are intended to be held for an indefinite period of time and may be sold in response to needs for liquidity or in response to changes in the market conditions.

The Group has not designated any loans or receivables as available- for-sale.

After initial measurement, available-for-sale financial investments are subsequently measured at fair value.

Unrealised gains and losses are recognised directly in Equity through Other Comprehensive Income in the ‘available-for-sale reserve’. When the financial investment is disposed of, the cumulative gain or loss previously recognised in Equity is recognised in the Statement of Comprehensive Income in ‘Other operating income’. Where the Group holds more than one investment in the same security, they are deemed to be disposed of on a first-in first-out basis. Interest earned whilst holding available-for-sale financial investments is reported as ‘Interest Income’ using the EIR. Dividends earned whilst holding Available-for-Sale financial investments are recognised in the Statement of Comprehensive Income as ‘other operating income’ when the right to receive the payment has been established. The losses arising from impairment of such investments are recognised in the Statement of Comprehensive Income in ‘Impairment losses on financial investments’ and removed from the ‘Available-for-Sale reserve’.

Details of available-for-sale financial investments are given in Note 27.

3.3.3.5 Held-to-Maturity Financial Investments

Held-to-Maturity financial investments are non-derivative financial assets with fixed or determinable payments and fixed maturities, which the Group 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. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the EIR. The amortisation is included in ‘Interest Income’ in the Statement of Comprehensive Income. The losses arising from impairment of such investments are recognised in the Statement of Comprehensive Income in ‘impairment charges for loans and other losses’.

If the Group were to sell or reclassify more than an insignificant amount of held-to-maturity investments before maturity (other than in certain specific circumstances permitted in the Sri Lanka Accounting Standard - LKAS 39 on ‘Financial Instruments: Recognition and Measurement’), the entire category would be tainted and would have to be reclassified as Available-for-sale. Furthermore, the Group would be prohibited from classifying any financial asset as held-to-maturity during the following two years.

The Group has not designated any financial instrument as Held-to-Maturity Financial Investment.

3.3.3.6 Cash and Cash Equivalents

Cash and cash equivalents include cash in hand, placements with banks and loans at call and at short notice that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. They are brought to Financial Statements at their face values or the gross values, where appropriate. There were no cash and cash equivalents held by the Group companies that were not available for use by the Group.

Cash and cash equivalents are carried at amortised cost in the Statement of Financial Position.

Details of cash and cash equivalents are given in Note 20 to the Financial Statements.

3.3.3.7 Balances with Central Banks

The Monetary Law Act requires that all commercial banks operating in Sri Lanka to maintain a statutory reserve equal to 6% on all deposit liabilities denominated in Sri Lankan Rupees (8% in 2012). The Bank’s Bangladesh operation is required to maintain the statutory liquidity requirement of 19% (19% in 2012) on time and demand liabilities (both local and foreign currencies), inclusive of 6% (6% in 2012) in the form of a Cash Reserve Requirement and the balance 13% (13% in 2012) by way of foreign currency and/or in the form of unencumbered securities held with the Bangladesh Bank.

Balances with Central Banks are carried at amortised cost in the Statement of Financial Position.

Details of the balances with Central Banks are given in Note 21 to the Financial Statements.

3.3.4 Classification and Subsequent Measurement of Financial Liabilities

At inception a financial liability is classified into one of the following categories:

• At fair value through profit or loss, or
• Held-for-trading; or
• Designated at fair value through profit or loss
• At amortised cost.

The subsequent measurement of financial liabilities depends on their classification.

Please refer Accounting Policies 3.3.4.1 and 3.3.4.2 as detailed below.

3.3.4.1 Financial Liabilities at Fair Value through Profit or Loss

Financial liabilities at fair value through profit or loss include financial liabilities held-for-trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held-for-trading if they are acquired principally for the purpose of selling or repurchasing in the near term or holds as a part of a portfolio that is managed together for short-term profit or position taking. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by the Sri Lanka Accounting Standard - LKAS 39 on ‘Financial Instruments: Recognition and Measurement’. Separated embedded derivatives are also classified as held-for-trading unless they are designated as effective hedging instruments.

Gains or losses on liabilities held-for-trading are recognised in the Statement of Comprehensive Income.

The Group has not designated any financial liabilities upon initial recognition as at fair value through profit or loss.

3.3.4.2 Financial Liabilities at Amortised Cost

Financial instruments issued by the Bank that are not designated at fair value through profit or loss, are classified as liabilities under ‘Due to Banks’, ‘Debt Securities Issued’ or ‘Subordinated Liabilities’ as appropriate, where the substance of the contractual arrangement results in the Bank having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.

After initial recognition, such financial liabilities are subsequently measured at amortised cost using the EIR method. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in ‘Interest Expenses’ in the Statement of Comprehensive Income. Gains and losses are recognised in the Statement of Comprehensive Income when the liabilities are derecognised as well as through the EIR amortisation process.

The details of the Bank’s Financial liabilities at amortised cost is disclosed in Notes 35, 37, 38 and 42.

3.3.5 Reclassification of Financial Instruments

The Bank reclassifies non-derivative financial assets out of the ‘held-for-trading’ category and into the ‘available-for-sale’, ‘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 Bank 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 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 the Statement of Comprehensive Income.

The Bank 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 Bank 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 Bank 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 management, and is determined on an instrument-by-instrument basis.

The Bank does not reclassify any financial instrument into the fair value through profit or loss category after initial recognition. Further, the Bank 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.

3.3.6 Derecognition of Financial Assets and Financial Liabilities

3.3.6.1 Financial Assets

A 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; or
• The Bank 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 Bank has transferred substantially all the risks and rewards of the asset; or
  • The Bank has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset transferred), and consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in Other Comprehensive Income is recognised in profit or loss.

When the Bank 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 of the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Bank’s continuing involvement in the asset. In that case, the Bank 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 Bank 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 Bank could be required to repay.

3.3.6.2 Financial Liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expired.

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 a 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, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss.

3.3.7 Securities Purchased Under Resale Agreements (Reverse Repos)

When the Group purchases a financial asset and simultaneously enters into an agreement to resale the asset (or a similar asset) at a fixed price on a future date, the arrangement is accounted for as a financial asset in the Group’s Statement of Financial Position reflecting the transaction’s economic substance as a loan granted by the Group. Subsequent to initial recognition, these securities issued are measured at their amortised cost using the EIR method with the corresponding interest receivable being recognised as interest income in profit or loss.

Details of ‘Securities purchased under resale agreements’ are given in Note 26.4 (a) to the Financial Statements.

3.3.8 Offsetting of Financial Instruments

Financial assets and financial liabilities are offset and the net amount reported in the Consolidated 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 assets and settle the liabilities simultaneously.

Income and expenses are presented on a net basis only when permitted under SLFRSs, or for gains and losses arising from a group of similar transactions such as in the Group’s trading activity.

3.3.9 Determination of Fair Value

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.

Fair Value Measurement Hierarchy

Level 1

When available, the Group measures the fair value of an instrument using active quoted prices or dealer price quotations (assets and long positions are measured at a bid price; liabilities and short positions are measured at an asking price), without any deduction for transaction costs. 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.

Level 2

If a market for a financial instrument is not active, then the Group establishes fair value using a valuation technique. 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, credit models, option pricing models and other relevant valuation models. The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the Group, incorporates all factors that market participants would consider in setting a price, and is consistent with accepted economic methodologies for pricing financial instruments. Inputs to valuation techniques reasonably represent market expectations and measures of the risk-return factors inherent in the financial instrument. The Group calibrates valuation techniques and tests them for validity using prices from observable current market transactions in the same instrument or based on other available observable market data.

Level 3

Certain financial instruments are recorded at fair value using valuation techniques in which current market transactions or observable market data are not available. There fair value is determined by using valuation models that have been tested against prices or inputs to actual market transactions and also using the best estimate of the most appropriate model assumptions. Models are adjusted to reflect the spread for bid and ask prices to reflect costs to close out positions, credit and debit valuation adjustments, liquidity spread and limitations in the models. Also, profit or loss calculated when such financial instruments are first recorded (‘Day 1’ profit or loss) is deferred and recognised only when the inputs become observable or on derecognition of the instrument (Refer Note 3.3.2.1).

An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 3.3.

3.3.10 Impairment of Financial Assets

At each Reporting date the Group assesses whether there is 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 have occurred after the initial recognition of the asset (an ‘incurred loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

Objective evidence that financial assets (including equity securities) are impaired can include:

• significant financial difficulty of the borrower or issuer,
• reschedulement of credit facilities,
• default or delinquency by a borrower,
• restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider,
• indications that a borrower or issuer will enter bankruptcy,
• the disappearance of an active market for a security, or
• other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the Group, or economic conditions that correlate with defaults in the Group.

In general, the Group 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.

3.3.10.1 Impairment of Financial Assets Carried at Amortised Cost

For financial assets carried at amortised cost (such as amounts due from banks, loans and advances to customers as well as held-to-maturity investments, if any), the Group/Bank 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 Group/Bank 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 asset’s 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 a provision account and the amount of impairment loss is recognised in the Statement of Comprehensive Income. Interest income continues to be accrued on the reduced carrying amount/impaired balance 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 in ‘Interest income’.

Loans together with the associated provision are written-off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Bank. 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 provision account. If a future write-off is later recovered, the recovery is credited to ’Other Income’.

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 Bank 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 foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Bank’s internal credit grading system, that considers credit risk characteristics such as asset type, industry, geographical location, collateral type, 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 policy rates, inflation, growth in GDP, sovereign rating, 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.

Details of impairment losses on financial assets carried at amortised cost and an analysis of the impairment provision on loans and advances by class are given in Note 12.

Impairment of Rescheduled Loans and Advances

Where possible, the Bank seeks to reschedule loans and advances rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. In case of individually significant rescheduled credit facilities, once the terms have been renegotiated, any impairment is measured using the original EIR as calculated before the modification of terms and the loan/advance is no longer considered past due. Management continually reviews renegotiated loans and advances to ensure that all criteria are met and that future payments are likely to occur.

Collateral Valuation

The Bank seeks to use collateral, where possible, to mitigate its risks on financial assets. The collateral comes in various forms such as cash, gold, Government securities, letters of credit/guarantees, real estate, receivables, inventories, other non-financial assets and credit enhancements such as netting agreements. The fair value of collateral is generally assessed, at a minimum, at inception and based on the Bank’s annual reporting schedule.

To the extent possible, the Bank uses active market data for valuing financial assets, held as collateral. Other financial assets which do not have a readily determinable market value are valued using models. Non-financial collateral, such as real estate, is value-based on data provided by third parties such as professional valuers, Audited Financial Statements, and other independent sources.

Collateral Repossessed

The Bank’s policy is to carry collaterals repossessed at fair value at the repossession date and such assets will be disposed at the earliest possible opportunity. These assets are recorded under assets held-for-sale as per the Sri Lanka Accounting Standard - SLFRS 5 on ‘Non-Current Assets Held for Sale and Discontinued Operations’.

3.3.10.2 Impairment of Financial Investments - Available-for-Sale

For available-for-sale financial investments, the Bank 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 Bank 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 Statement of Comprehensive Income. Future interest income is based on the reduced carrying amount/impaired balance 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 on such assets too is recorded within ‘Interest income’. If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to a credit event occurring after the impairment loss was recognised in the Statement of Comprehensive Income, the impairment loss is reversed through the Statement of Comprehensive Income.

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 impairment loss on that investment previously recognised in Equity through Other Comprehensive Income is removed from Equity and recognised in the Income Statement. However, any subsequent recovery in the fair value of an impaired Available-for-sale equity security is recognised in Other Comprehensive Income.

The Group writes-off certain Financial Investments - Available-for-Sale when they are determined to be uncollectible.

3.4 Non-Current Assets Held-for-Sale and Disposal Groups

The Group/Bank intends to recover the value of Non-current Assets and disposal groups classified as held-for-sale as at the Reporting date principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition, management has committed to the sale, and the sale is expected to have been completed within one year from the date of classification.

As per the Sri Lanka Accounting Standard - SLFRS 5 on ‘Non-current Assets Held-for-Sale and Discontinued Operations’, these assets are measured at the lower of the carrying amount and fair value, less costs to sell. Thereafter, the Group/Bank assesses at each Reporting date or more frequently if events or changes in circumstances indicate that the investment or a group of investment is impaired. The Group/Bank recognises an impairment loss for any initial or subsequent write down of the assets to fair value less costs to sell and also recognises a gain for any subsequent increase in fair value less costs to sell of an asset, only to the extent of the cumulative impairment losses that have been recognised previously. As a result, once classified, the Group/Bank neither amortise nor depreciate the assets classified as held-for-sale.

In the Consolidated Statement of Comprehensive Income of the Reporting period, and of the comparable period of the previous year, income and expenses from discontinued operations are reported separately from income and expenses from continuing operations, down to the level of profit after taxes, even when the Bank retains a non-controlling interest in the subsidiary after the sale. The resulting profit or loss (after taxes) is reported separately in the Statement of Comprehensive Income.

3.5 Leasing

The determination of whether an arrangement is a lease, or it contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

3.5.1 Operating Leases - Bank as a Lessee

Leases that do not transfer to the Bank substantially all the risks and benefits incidental to ownership of the leased assets are operating leases. Operating lease payments are recognised as an expense in the Income Statement on a straight-line basis over the lease term. Contingent rental payable is recognised as an expense in the period in which they are incurred.

Details of Operating Leases - Bank as a lessee are given in Note 32.

3.5.2 Operating Leases - Bank as a Lessor

Leases where the Bank does not transfer substantially all of the risk and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income.

Contingent rents are recognised as revenue in the period in which they are earned.

3.6 Property, Plant & Equipment

The Group applies the requirements of the Sri Lanka Accounting Standard - LKAS 16 on ‘Property, Plant & Equipment’ in accounting for its owned assets (including buildings under operating leases where the Bank is the lessee) which are held for and use in the provision of services, for rental to others or for administrative purposes and are expected to be used for more than one year.

3.6.1 Basis of Recognition

Property, Plant & Equipment are recognised if it is probable that future economic benefits associated with the asset will flow to the Group and cost of the asset can be reliably measured.

3.6.2 Basis of Measurement

An item of Property, Plant & Equipment that qualifies for recognition as an asset is initially measured at its cost. Cost includes expenditure that is directly attributable to the acquisition of the asset and subsequent costs (excluding the costs of day-to-day servicing) as explained in Note 3.6.3 below. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use and the costs of dismantling and removing the items and restoring the site on which they are located and capitalised borrowing costs. Purchased software which is integral to the functionality of the related equipment is capitalised as part of Computer Equipment.

When parts of an item of property or equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.

3.6.2.1 Cost Model

The Group applies the cost model to all Property, Plant & Equipment except freehold land and freehold and leasehold buildings and records at cost of purchase together with any incidental expenses thereon, less accumulated depreciation and any accumulated impairment losses.

3.6.2.2 Revaluation Model

The Group applies the Revaluation Model for the entire class of freehold land and freehold and leasehold buildings for measurement after initial recognition. Such properties are carried at revalued amounts, being their fair value at the date of revaluation, less any subsequent accumulated depreciation on buildings and any accumulated impairment losses charged subsequent to the date of valuation. Freehold land and buildings of the Group are revalued every five to seven years or more frequently if the fair values are substantially different from their carrying amounts to ensure that the carrying amounts do not differ from the fair values at the Reporting date.

On revaluation of an asset, any increase in the carrying amount is recognised in Other Comprehensive Income and presented in Revaluation Reserve in Equity or used to reverse a previous loss on revaluation of the same asset, which was charged to the Income Statement. In this circumstance, the increase is recognised as income only to the extent of the previous write down in value. Any decrease in the carrying amount is recognised as an expense in the Income Statement or charged in Other Comprehensive Income and presented in Revaluation Reserve in Equity only to the extent of any credit balance existing in the Revaluation Reserve in respect of that asset. Any balance remaining in the Revaluation Reserve in respect of an asset, is transferred directly to Retained Earnings on Retirement or disposal of the asset.

The Group last revalued all its freehold land and buildings as at December 31, 2011.

3.6.3 Subsequent Cost

These are costs that are recognised in the carrying amount of an asset if it is probable that the future economic benefits embodied within that part of the cost will flow to the Group and it can be reliably measured. The costs of the day-to-day servicing of property and equipment are recognised in profit or loss as incurred.

3.6.4 Derecognition

An item of Property, Plant & Equipment is derecognised upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognising of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset), is recognised in ‘Other Income/Expenses’ in profit or loss in the year the asset is derecognised.

When replacement costs are recognised in the carrying amount of an item of Property, Plant & Equipment, the remaining carrying amount of the replaced part is derecognised as required by Sri Lanka Accounting Standard - LKAS 16 on ‘Property, Plant & Equipment’.

3.6.5 Capital Work-in-Progress

These are expenses of a capital nature directly incurred in the construction of buildings, major plant and machinery and system development, awaiting capitalisation. These are stated in the Statement of Financial Position at cost.

3.6.6 Depreciation

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property and equipment since this method most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Leased assets under finance leases are depreciated over the shorter of the lease term and their useful lives. Freehold land is not depreciated.

The estimated useful lives for the current and comparative years are as follows:

Class of Asset	% Per Annum	Period
Freehold and leasehold buildings	2.5	40 years
Motor vehicles	20	5 years
Computer equipment	20	5 years
Office equipment	20	5 years
Furniture & fittings	10	10 years
Office interior work	10	10 years
Machinery & equipment	10	10 years

The above rates are compatible with the rates used by all Group entities.

The depreciation rates are determined separately for each significant part of an item of Property, Plant & Equipment and commence to depreciate when it is available-for-use, i.e., when it is in the location and condition necessary for it to be capable of operating in the manner intended by the management. Depreciation of an asset ceases at the earlier of the date that the asset is classified as held-for-sale or the date that the asset is derecognised.

Depreciation methods, useful lives and residual values are reassessed at each Reporting date and adjusted if appropriate.

All classes of Property, Plant & Equipment together with the reconciliation of carrying amounts and accumulated depreciation at the beginning and at the end of the year are given in Note 30.

3.7 Intangible Assets

The Bank’s intangible assets include the value of computer software and copy rights.

3.7.1 Basis of Recognition

An intangible asset is recognised if it is probable that future economic benefits that are attributable to the asset will flow to the entity and the cost of the asset can be measured reliably in accordance with the Sri Lanka Accounting Standard - LKAS 38 on ‘Intangible Assets’.

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, these assets are stated in the Statement of Financial Position at cost, less accumulated amortisation and accumulated impairment losses, if any.

3.7.2 Subsequent Expenditure

Subsequent expenditure on intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

3.7.3 Useful Economic Lives, Amortisation and Impairment

The useful economic lives of intangible assets are assessed to be either finite or indefinite. The Group does not possess intangible assets with indefinite useful economic lives. Useful economic lives, amortisation and impairment of finite and indefinite intangible assets are described below:

3.7.3.1 Intangible Assets with Finite Lives and Amortisation

Intangible assets with finite lives are amortised over the useful economic lives. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each Reporting date. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is expensed as incurred.

3.7.3.1.1 Computer Software

All computer software costs incurred, licensed for use by the Group, which are not integrally related to associated hardware, which can be clearly identified, reliably measured and it is probable that they will lead to future economic benefits, are included in the Statement of Financial Position under the category of Intangible Assets and carried at cost, less accumulated amortisation and accumulated impairment losses, if any.

3.7.3.1.2 Amortisation of Intangible Assets

Intangible assets are amortised using the straight-line method to write down the cost over its estimated useful economic lives at the rates specified below:

Class of Asset	% Per Annum	Period
Computer software	20	5 years

Above rate is in consistent with the rates used in the comparative years.

The unamortised balances of intangible assets with finite lives are reviewed for impairment whenever there is an indication for impairment and recognised in profit or loss to the extent that they are no longer probable of being recovered from the expected future benefits.

3.7.3.2 Intangible Assets with Indefinite Useful Lives

Intangible assets with indefinite useful lives are not amortised but are tested for impairment annually either individually or at the cash-generating unit level as appropriate, when circumstances indicate that the carrying value is impaired. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

The Group/Bank does not have Intangible Assets with indefinite useful lives.

3.7.4 Derecognition of Intangible Assets

Intangible assets are derecognised on disposal or when no future economic benefits are expected from their use. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss.

The Group has only acquired intangible assets, a list of which with the reconciliation of carrying amounts, accumulated amortisation at the beginning and at the end of the periods is given in Note 31.

Amortisation recognised during the year in respect of intangible assets is included under the item of ‘Amortisation of intangible assets’ in the Statement of Comprehensive Income.

3.8 Impairment of Non-Financial Assets

The carrying amounts of the Group’s non-financial assets, other than deferred tax assets are reviewed at each Reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use. Where the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.

Impairment losses of continuing operations are recognised in profit or loss under those expense categories consistent with the function of the impaired asset, except for property previously revalued where the gain or loss on revaluation was taken to Equity. In this case, the impairment is also recognised in Equity up to the extent of any previously recognised revaluation gains.

For assets excluding goodwill, an assessment is made at each Reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or cash-generating Unit’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation/amortisation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss.

3.9 Deposits, Borrowings, Debt Securities Issued and Subordinated Liabilities

Deposits, borrowings, debt securities issued and subordinated liabilities are the Group’s sources of debt funding.

3.9.1 Due to Banks and Other Financial Institutions

These represents refinance borrowings, call 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.

Details of the ‘Due to banks and other financial institutions’ are given in Notes 35 and 37.

3.9.2 Due to Customers

These 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 Group designates liabilities at fair value through profit or loss. Interest paid/payable on these deposits is recognised in profit or loss.

Details of ‘Deposits from customers’ are given in Note 37.

3.9.3 Debt Securities Issued

These represent the funds borrowed by the Bank for long-term funding requirements. Subsequent to initial recognition debt securities issued are measured at their amortised cost using the EIR method, except where the Group designates debt securities issued at fair value through profit or loss. Interest paid/payable is recognised in profit or loss.

3.9.4 Securities Sold Under Repurchase Agreements (Repos)

When the Group sells a financial asset and simultaneously enters into an agreement to repurchase the asset (or a similar asset) at a fixed price on a future date (Repo), the arrangement is accounted for as a financial liability, and the underlying asset continues to be recognised in the Group’s Financial Statements as the Group retains substantially all of the risks and rewards of ownership. The corresponding cash received is recognised in the Consolidated Statement of Financial Position as an asset with a corresponding obligation to return it as a liability under ‘Securities sold under repurchase agreements’, reflecting the transaction’s economic substance as a loan to the Group.

Subsequent to initial recognition, these securities sold are measured at their amortised cost using the EIR method with the corresponding interest payable is recognised as interest expense in profit or loss.

Details of ‘Securities sold under repurchase agreements’ are given in Note 35 and 38.

3.10 Dividends Payable

Dividends on ordinary shares are recognised as a liability and deducted from Equity when they are recommended and declared by the Board of Directors and approved by the shareholders. Interim dividends are deducted from Equity when they are declared and no longer at the discretion of the Bank.

Dividends for the year that are approved after the Reporting date are disclosed as an event after the Reporting Period in accordance with the Sri Lanka Accounting Standard - LKAS 10 on ‘Events after the Reporting Period’.

3.11 Other Liabilities

Other Liabilities include interest, fees and expenses and amounts payable for gratuity/pensions and other provisions. These liabilities are recorded at amounts expected to be payable at the Reporting date.

Details of ‘Other Liabilities’ are given in Note 40.

3.12 Provisions

A provision is recognised in the Statement of Financial Position when the Group has a legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation and the amount of the provision can be measured reliably in accordance with the Sri Lanka Accounting Standard - LKAS 37 on ‘Provisions, Contingent Liabilities and Contingent Assets’. The amount recognised 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. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is determined based on the present value of those cash flows.

A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract.

3.13 Employee Benefits

3.13.1 Defined Benefit Plans (DBPs)

A Defined Benefit Plan is a post-employment benefit plan other than a Defined Contribution Plan as defined in the Sri Lanka Accounting Standard - LKAS 19 on ‘Employee Benefits’.

3.13.1.1 Defined Benefit Pension Plans

3.13.1.1.1 Description of the Plans and Employee Groups Covered

The Bank operates three types of Defined Benefit Pension Plans for its employees as described below:

1. a. The Bank has an approved Pension Fund, which was established in 1992. As per the Deed of Trust, only those employees who were less than 45 years of age as at January 1, 1992 were covered by the Pension Fund in order to leave a minimum contribution for a period of 10 years before they are eligible to draw pension from the Pension Fund. Further, only the employees who joined the Bank on or before December 31, 2001, were in pensionable service of the Bank.
2. During 2006, the Bank offered a restructured pension scheme to convert the Defined Benefit Plan (DBP) to a Defined Contribution Plan (DCP) for the pensionable employees of the Bank and over 99% of them accepted it. As a result, the above Pension Fund now covers only those employees who did not opt for the restructured pension scheme and those employees who were covered by the Pension Fund previously but retired before the restructured pension scheme came into effect.
3. b. Provision for pensions has been made for those employees who retired on or before December 31, 2001, and on whose behalf the Bank could not make contributions to the Retirement Pension Fund for more than 10 years. This liability although not funded has been provided for in full in the Financial Statements.
4. c. Provision has been made in the Financial Statements for Retirement Gratuity from the first year of service for all employees who joined the Bank on or after January 1, 2002, as they are not in pensionable service of the Bank under either the DBP or DCP. However, if any of these employees resigns before retirement, the Bank is liable to pay gratuity to such employees. This liability although not funded has been provided for in full in the Financial Statements.

The Subsidiaries of the Bank do not operate Pension Funds.

The Bank’s net obligation in respect of Defined Benefit Pension Plans is calculated separately for each plan by using the Projected Unit Credit Actuarial Valuation Method, as per the Sri Lanka Accounting Standard - LKAS 19 on ‘Employee Benefits’. This method involves 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 as detailed in Note 51.

The past service cost is recognised as an expense on a straight-line basis over the period until the benefits become vested. If the benefits are already vested following the introduction of, or changes to, a pension plan, past service cost is recognised immediately.

3.13.1.1.2 Recognition of Actuarial Gains or Losses

Actuarial gains or losses are recognised in the Other Comprehensive Income in the period in which they arise.

3.13.1.1.3 Recognition of Retirement Benefit Obligation

The defined benefit asset or liability comprises the present value of the defined benefit obligation, less past service cost not yet recognised and less the fair value of plan assets out of which the obligations are to be settled directly. The value of any asset is restricted to the sum of any past service cost not yet recognised and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan.

3.13.2 Defined Contribution Plans (DCPs)

A Defined Contribution Plan is a post-employment plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligations to pay a further amount. Obligations to DCPs are recognised in the profit or loss as incurred. The Group has three such plans as explained in Notes 3.13.2.1, 3.13.2.2 and 3.13.2.3 below.

Amounts recognised in profit or loss as expenses on DCPs are given in Note 13.

3.13.2.1 Defined Contribution Pension Plans

As explained in Note 3.13.1.1.1.a, during 2006, the Bank restructured its pension scheme which was a DBP to a DCP. This restructured plan was offered on a voluntary basis to the eligible employees of the Bank. The scheme provides for lump sum payments instead of commuted/monthly pensions to the eligible employees at the point of their separation, in return for surrendering their pension rights. The lump sum offered consisted of a past service package and a future service package. The shortfall on account of the past service package in excess of the funds available in the Pension Fund was borne by the Bank in 2006.

The future service package includes monthly contributions to be made by the Bank for the employees who accepted the offer, to be made during their remaining period of service, at pre-determined contribution rates to be applied for on their salaries, which are estimated to increase for this purpose at 10% p.a. based on the salary levels that prevailed as at the date of implementation of this scheme. In addition, interest to be earned on the assets of the DCP is also allocated to the employees who opted for the restructured scheme.

The assets of this Fund are held separately from those of the Bank and are independently administered by the Trustees as per the provisions of the Trust Deed.

3.13.2.2 Employees’ Provident Fund

The Bank and employees contribute to the approved Private Provident Fund at 12% and 8% respectively, on the salaries of each employee. Other entities of the Group and their employees contribute at the same percentages as above to the Employees’ Provident Fund managed by the Central Bank of Sri Lanka.

3.13.2.3 Employees’ Trust Fund

The Bank and other entities of the Group contribute at the rate of 3% of the salaries of each employee to the Employees’ Trust Fund managed by the Central Bank of Sri Lanka.

3.13.3 Other Long-Term Employee Benefits

The Group’s net obligation in respect of long-term employee benefits other than pension plans is the amount of future benefits that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate used as the yield at the Reporting date was the current market rate that has been extrapolated to reflect long-term rate of discount based on market rates of interest on short-term corporate/government bonds and anticipated long-term rate of inflation. The calculation is performed using the Projected Unit Credit Method. Any actuarial gains and losses are recognised in profit or loss in the period in which they arise.

The Group does not have any other long-term employee benefit plans.

3.13.4 Terminal Benefits

Termination benefits are recognised as an expense when the Group is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable after more than one year from the Reporting date, then they are discounted to their present value.

3.13.5 Other Short-Term Employee Benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group 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.

3.13.6 Equity Compensation Benefits

Share-based payment arrangements in which the Bank receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments are obtained by the Bank. Employees (including Senior Executives) of the Bank receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions). The Bank does not operate any cash-settled share-based payment transactions.

The Bank applies the requirements of the Sri Lanka Accounting Standard - SLFRS 2 on ‘Share-Based Payment’ in accounting for equity settled share-based payment transactions, if any, that were granted after January 1, 2012 and had not vested at the same date. As per the Sri Lanka Accounting Standard - SLFRS 2 on ‘Share-Based Payment’, on the grant date fair value of equity-settled share-based payment awards (i.e., share options) granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period in which the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of share awards for which the related service and non-market performance vesting conditions are expected to be met such that the amount ultimately recognised as an expense is based on the number of share awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

As the Bank did not grant any share-based payment transaction after January 1, 2012, it did not apply the above accounting treatment during the year and the proceeds received by the Bank in consideration for the shares issued were accounted for as Stated Capital within equity.

The details of Employee Share Option Plans are given in Notes 43.2.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share as disclosed in Note 16.

3.14 Commitments

All discernible risks are accounted for in determining the amount of other liabilities as explained in Note 3.15 below.

Details of the commitments are given in Note 48.2 to the Financial Statements.

3.15 Contingent Liabilities and Commitments for Leasing Arrangements

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 readily measured as defined in the Sri Lanka Accounting Standard - LKAS 37 on ‘Provisions, Contingent Liabilities and Contingent Assets’.

To meet the financial needs of customers, the Bank enters into various irrevocable commitments and contingent liabilities. These consist of financial guarantees, letters of credit and other undrawn commitments to lend. Letters of credit and guarantees commit the Bank to make payments on behalf of customers in the event of a specific act, generally related to the import or export of goods. Guarantees and standby letters of credit carry a similar credit risk to loans.

Contingent liabilities are not recognised in the Statement of Financial Position but are disclosed unless its occurrence is remote.

Operating lease commitments of the Bank (as a lessor and as a lessee) and pending legal claims against the Bank too form part of commitments of the Bank.

Even though these obligations may not be recognised on the Statement of Financial Position, they do contain credit risk and are therefore part of the overall risk of the Bank as disclosed in Note 48.1.

All discernible risks are accounted for in determining the amount of other liabilities as explained in Note 39.

3.15.1 Legal Claims

Litigation is a common occurrence in the banking industry due to the nature of the business undertaken. The Bank has formal controls and policies for managing legal claims. Once professional advice has been obtained and the amount of loss reasonably estimated, the Bank makes adjustments to account for any adverse effects which the claims may have on its financial standing. At the Reporting date the Bank had several unresolved legal claims. The significant unresolved legal claims against the Bank for which legal advisor of the Bank advised as the loss is possible, but not probable, that the action will succeed. Accordingly, no provision for any claims has been made in these Financial Statements.

A detailed list of significant pending litigations against the Bank is given in Note 49.

3.15.2 Contingent Liabilities, Commitments of Other Group Entities

The Bank’s share of any contingencies and capital commitments of a Subsidiary or an Associate for which the Bank is also liable severally or otherwise is included with appropriate disclosures.

Details of the commitments and contingencies of other Group entities are given in Note 48.3.

3.16 Earnings Per Share (EPS)

Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.

Details of earnings per share are given in Note 16.

3.17 Operating Segments

An operating segment is a component of the Group 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 Group’s other components, whose operating results are reviewed regularly by the Group Management Committee (being the chief operating decision-maker) to make decisions about resources allocated to each segment and assess its performance, and for which discrete financial information is available.

For each of the strategic divisions, the Group’s management monitors the operating results separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profits or losses which, in certain respects, are measured differently from operating profits or losses in the Consolidated Financial Statements. Income taxes are managed on a group basis and are not allocated to operating segments.

Interest income is reported on a net basis as management primarily relies on net interest income as a performance measure and not the gross income and expense.

Inter-segment transactions are accounted for at fair market prices charged to inter-bank counterparts for similar services on an arm’s length basis. Such transfers are eliminated on consolidation.

No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Bank’s total revenue in 2013 or 2012.

Detailed information on the results of each reportable segment as required by the Sri Lanka Accounting Standard - SLFRS 8 on ‘Operating Segments’ is provided in Note 52.

3.18 Fiduciary Assets

The Bank provides trust and other fiduciary services that result in the holding or investing of assets on behalf of its clients. Assets held in a fiduciary capacity are not reported in these Financial Statements as they do not belong to the Bank.

3.19 New Accounting Standards Issued Not Yet Adopted

There are a number of new Accounting Standards, amendments to standards, which have been issued but not yet effective as at the Reporting date have not been applied in preparing these Consolidated Financial Statements. The Group and the Bank will adopt the following new/revised Accounting Standards which will be effective from January 1, 2014/2015. Accordingly, these Accounting Standards have not been applied in preparing these Financial Statements.

• SLFRS 9 - Financial Instruments
• SLFRS 10 - Consolidated Financial Statements
• SLFRS 11 - Joint Arrangements
• SLFRS 12 - Disclosure of Interest in Other Entities
• SLFRS 13 - Fair Value Measurement

Pending a detailed review on these new/revised Accounting Standards, the financial impact is not reasonably estimable as at the date of publication of these Consolidated Financial Statements.

Sri Lanka Accounting Standard - SLFRS 9 ‘Financial Instruments’

The objective of this Accounting Standard is to establish principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of Financial Statements for their assessment of the amounts, timing and uncertainty of an entity’s future cash flows.

An entity shall apply this SLFRS to all items within the scope of LKAS 39 ‘Financial Instruments: Recognition and Measurement’.

The effective date of this Accounting Standard has been deferred as at the date of publication of these Consolidated/Separate Financial Statements.

Sri Lanka Accounting Standard - SLFRS 10 ‘Consolidated Financial Statements’

The objective of this Accounting Standard is to establish principles for the presentation and preparation of Consolidated Financial Statements when an entity controls one or more other entities.

SLFRS 10 is effective from January 1, 2014.

Sri Lanka Accounting Standard - SLFRS 11 ‘Joint Arrangements’

The objective of this Accounting Standard is to establish principles for financial reporting by entities that have an interest in arrangements that are controlled jointly (i.e., joint arrangements).

SLFRS 11 is effective from January 1, 2014.

Sri Lanka Accounting Standard - SLFRS 12 ‘Disclosure of Interests in Other Entities’

The objective of this Accounting Standard is to require an entity to disclose information that enables users of its Financial Statements to evaluate the nature of, and risks associated with its interests in other entities; and the effects of those interests on its financial position, financial performance and cash flows.

SLFRS 12 will become effective from January 1, 2014.

Sri Lanka Accounting Standard - SLFRS 13, ‘Fair Value Measurement’

This Accounting Standard defines fair value, sets out in a single SLFRS a framework for measuring fair value; and requires disclosures about fair value measurements.

This SLFRS will become effective from January 1, 2014 and shall be applied prospectively as of the beginning of the annual period in which it is initially applied. The disclosure requirements of this SLFRS need not be applied in comparative information provided for periods before initial application of this SLFRS.

4. Significant Accounting Policies - Recognition of Income and Expenses

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

4.1 Interest Income and Expense

For all financial instruments measured at amortised cost, interest income and expense are recognised in profit or loss using the EIR method. The EIR is the rate that exactly discounts the estimated future cash receipts and payments 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 EIR, the Group estimates future cash flows considering all contractual terms of the financial instruments, but not future credit losses.

The calculation of the EIR takes into account all contractual terms of the financial instruments (for example, prepayment options) and includes all material transaction costs and fees that are an integral part of the EIR. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability.

The carrying amount of the financial asset or financial liability is adjusted if the Group revises its estimates of receipts or payments. The adjusted carrying amount is calculated based on the original EIR and the change in carrying amount is recorded in ‘Interest Income’ for financial assets and in ’Interest Expenses’ for financial liabilities. However, for a reclassified financial asset for which the Bank 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.

Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

4.2 Fees and Commission Income and Expense

Fees and commission income and expense that are integral to the EIR on a financial asset or liability are included in the measurement of the EIR.

Other fees and commission income, including account servicing fees, investment management fees, sales commission, placement fees and syndication fees, are recognised as the related services are performed. Fees earned for the provision of services over a period of time are accrued over that period. Loan commitment fees for loans that are likely to be drawn down and other credit related fees are deferred (together with any incremental costs) and recognised as an adjustment to the EIR on the loan. When it is unlikely that a loan will be drawn down, the loan commitment fees are recognised over the commitment period on a straight-line basis.

Other fees and commission expense relate mainly to transaction and service fees, which are expensed as the services are received.

4.3 Net Trading Income

Results arising from trading activities include all realised and unrealised gains and losses from changes in fair value and related interest income or expense, dividends and foreign exchange differences for financial assets and financial liabilities ‘held-for-trading’.

4.4 Dividend Income

Dividend income is recognised when the Group’s/Bank's right to receive the payment is established. Usually, this is the ex-dividend date for equity securities.

Dividends are presented in ‘net trading income’ for financial instruments at fair value through profit or loss held-for-trading. Dividends on available-for-sale equity securities are presented in ‘other operating income’ in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment, in which case it is presented as a reduction in the value of the investment.

4.5 Lease Income

In terms of the provisions of the Sri Lanka Accounting Standard - LKAS 17 on ‘Leases’, the recognition of finance income on leasing is accounted, based on a pattern reflecting a constant periodic rate of return on capital outstanding.

The excess of aggregate lease rentals receivable over the cost of the leased assets constitutes the total unearned finance income at the commencement of a lease. The unearned finance income included in the lease rentals receivable is recognised in profit or loss over the term of the lease commencing from the month in which the lease is executed using EIR.

4.6 Lease Payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.

4.7 Rental Income and Expense

Rental income and expense are recognised in the profit or loss on an accrual basis.

4.8 Borrowing Costs

As per the Sri Lanka Accounting Standard - LKAS 23 on ‘Borrowing Costs’, the Group/Bank capitalises borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of the asset. A qualifying asset is an asset which takes a substantial period of time to get ready for its intended use or sale. Other borrowing costs are recognised in the profit or loss in the period in which they occur.

5. Significant Accounting Policies - Income Tax Expense

As per the Sri Lanka Accounting Standard - LKAS 12 on ‘Income Taxes’, tax expense (tax income) is the aggregate amount included in determination of profit or loss for the period in respect of current and deferred taxes. Income tax expense is recognised in the Income Statement except to the extent it relates to items recognised directly in Equity or in Other Comprehensive Income (OCI), in which case it is recognised in Equity or in OCI.

5.1 Current Taxation

Current tax assets and liabilities consist of amounts expected to be recovered from or paid to the taxation authorities in respect of the current as well as prior years. The tax rates and tax laws used to compute the amounts are those that are enacted or substantially enacted by the Reporting date. Accordingly, provision for taxation is made on the basis of the accounting profit for the year as adjusted for taxation purposes in accordance with the provisions of the Inland Revenue Act No. 10 of 2006 and the amendments thereto, at the rates specified in Note 15. This Note also includes the major components of tax expense, the effective tax rates and a reconciliation between the profit before tax and tax expense as required by the Sri Lanka Accounting Standard - LKAS 12 on ‘Income Taxes’.

Provision for taxation on the overseas branch operations is made on the basis of the accounting profit for the year as adjusted for taxation purposes in accordance with the provisions of the relevant statutes in those countries.

5.2 Deferred Taxation

Deferred tax is provided on temporary differences at the Reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes for all Group entities.

Deferred tax liabilities are recognised for all temporary differences, except:

• Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and at the time of the transaction, affects neither the accounting profit or loss nor taxable profit or loss; and
• In respect of taxable temporary differences associated with investments in Subsidiaries and Associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible differences, unused tax credits and unused tax losses carried forward, if any, to the extent that it is probable that taxable profits will be available against which the deductible temporary differences and the unused tax credits and unused tax losses carried forward can be utilised, except:

• Where the deferred tax assets relating to the deductible temporary difference arise from the initial recognition of an asset or liability in a transaction that is not a business combination and at the time of the transaction, affects neither the accounting profit nor the taxable profit or loss; and
• In respect of deductible temporary differences associated with investments in Subsidiaries and Associates, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profits will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each Reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax assets to be utilised. Unrecognised deferred tax assets are reassessed at each Reporting date and are recognised to the extent that it is probable that future taxable profits will allow the deferred tax assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the assets are realised or the liabilities are settled, based on tax rates and tax laws that have been enacted or substantially enacted at the Reporting date.

Current tax and deferred tax relating to items recognised directly in equity are also recognised in equity and not in the Statement of Comprehensive Income.

Deferred tax assets and deferred tax liabilities are set-off, if a legally enforceable right exists to set-off current tax assets against current tax liabilities and they relate to 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 realised simultaneously.

Details of Deferred Tax Assets and Liabilities as at the Reporting date are given in Note 33.

5.3 Tax Exposures

In determining the amount of current and deferred tax, the Group/Bank considers the impact of tax exposures, including whether additional taxes and interest may be due. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the Group/Bank to change its judgment regarding the adequacy of existing tax liabilities. Such changes to tax liabilities would impact tax expense in the period in which such a determination is made.

5.4 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 1, 2013 and is payable to the National Insurance Trust Fund. Currently, the CIL is payable at 1% of the profit after tax.

5.5 Withholding Tax on Dividends, Distributed by the Bank, Subsidiaries and Associates

• Withholding tax on dividends distributed by the Bank.
  Withholding tax that arises from the distribution of dividends by the Bank is recognised at the time the liability to pay the related dividend is recognised.
• Withholding tax on dividends distributed by the Subsidiaries and Associates.
  Dividends received by the Bank from its Subsidiaries and Associates, have attracted a 10% deduction at source.

5.6 Economic Service Charge (ESC)

As per the provisions of the Finance Act No. 11 of 2004, and amendments thereto, the ESC was introduced with effect from April 1, 2004. Currently, the ESC is payable at 0.25% on ‘Exempt Turnover’ and is deductible from the income tax payments. Unclaimed ESC, if any, can be carried forward and set-off against the income tax payable in the five subsequent years.

5.7 Value Added Tax on Financial Services

The base for the computation of Value Added Tax on Financial Services is the accounting profit before emoluments paid to employees and income tax, which is adjusted for the depreciation computed on prescribed rates. The amount of Value Added Tax charged in determining the profit or loss for the period is given in the Income Statement.

6. Statement of Cash Flows

The Statement of Cash Flows has been prepared by using the ‘Indirect Method’ of preparing cash flows in accordance with the Sri Lanka Accounting Standard - LKAS 7 on ‘Statement of Cash Flows’. Cash and cash equivalents comprise of 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 as referred to in the Statement of Cash Flows are comprised of those items as explained in Note 20.

Refer the Statement of Cash Flows.

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
7. Net Interest Income
Interest Income
Cash and cash equivalents	290,537	470,764	290,537	470,764
Placements with banks	65,013	339,115	65,013	339,115
Derivative financial instruments	–	314	–	314
Other financial instruments held-for-trading	447,257	421,315	447,257	421,315
Loans and receivables to banks	6,412	19,557	6,412	19,557
Loans and receivables to other customers	49,973,484	45,037,407	49,980,422	45,057,595
Financial investments - Available-for-sale	11,392,946	6,374,471	11,392,946	6,374,471
Other interest income	1,812	21	4,370	2,296
Total interest income	62,177,461	52,662,964	62,186,957	52,685,427

Interest Expenses

Due to banks	439,102	226,606	439,102	226,606
Derivative financial instruments	–	314	–	314
Due to other customers	32,097,921	25,284,506	32,103,850	25,289,941
Other borrowings	3,699,055	4,167,073	3,716,677	4,180,730
Subordinated liabilities	619,126	132,806	619,126	132,806
Total interest expenses	36,855,204	29,811,305	36,878,755	29,830,397
Net interest income	25,322,257	22,851,659	25,308,202	22,855,030

 

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
7.1 (a) Net Interest Income from Sri Lanka Government Securities
Interest income	14,159,223	8,504,143	14,159,223	8,504,143
Less: Interest expenses	3,187,878	3,421,816	3,205,500	3,421,816
Sub total	10,971,345	5,082,327	10,953,723	5,082,327

 

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
7.1 (b) Net Interest Income from Bangladesh Government Securities
Interest income	1,121,953	773,254	1,121,953	773,254
Less: Interest expenses	7,875	19,715	7,875	19,715
Sub total	1,114,078	753,539	1,114,078	753,539

 

7.2 Interest Income from Other Financial Instruments at Fair Value through Profit or Loss

Derivative financial instruments	–	314	–	314
Other financial instruments held-for-trading	447,257	421,315	447,257	421,315
Sub total	447,257	421,629	447,257	421,629

 

7.3 Interest Income on Impaired Financial Assets

Interest income from impaired loans and receivables to other customers	304,712	249,760	304,712	249,760
Sub total	304,712	249,760	304,712	249,760

 

8. Net Fees and Commission Income

Fees and commission income [Refer Note 8.1]	4,880,093	4,146,878	4,876,517	4,146,525
Less: Fees and commission expenses [Refer Note 8.2]	627,235	548,560	627,235	548,560
Net fees and commission income	4,252,858	3,598,318	4,249,282	3,597,965

 

8.1 Fees and Commission Income

Loans and advances	346,034	370,601	346,034	370,601
Credit and debit cards	1,455,167	1,141,231	1,455,167	1,141,231
Trade and remittances	1,794,432	1,661,914	1,794,432	1,661,914
Deposits	579,589	330,976	579,640	331,028
Guarantees	481,550	439,225	481,550	439,225
Other financial services	223,321	202,931	219,694	202,526
Sub total	4,880,093	4,146,878	4,876,517	4,146,525

 

8.2 Fees and Commission Expenses

Loans and advances	35,066	30,396	35,066	30,396
Credit and debit cards	491,364	425,589	491,364	425,589
Trade and remittances	38,287	30,295	38,287	30,295
Other financial services	62,518	62,280	62,518	62,280
Sub total	627,235	548,560	627,235	548,560

 

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
9. Net Gains/(Losses) from Trading
Foreign exchange
From banks	–	–	–	–
From other customers	(1,866,386)	2,334,295	(1,866,386)	2,334,295
Interest rates
Net mark to market gains/(losses)	83,268	44,794	83,268	44,794
Net capital gains/(losses)	131,488	86,374	131,488	86,374
Equities
Net mark to market gains/(losses)	2,225	15,945	2,225	15,945
Net capital gains/(losses)	13,644	3,864	13,644	3,864
Dividend income	9,835	9,026	9,835	9,026
Total	(1,625,926)	2,494,298	(1,625,926)	2,494,298

 

10. Net Gains/(Losses) from Financial Investments

Financial Investments - Available-for-sale
Government securities	544,903	–	544,903	–
Equities	790,358	2,584	790,358	2,584
Loans and receivables
Government securities	–	–	–	–
Debt securities	14,256	28,949	14,256	28,949
Total	1,349,517	31,533	1,349,517	31,533

 

11. Other Income (Net)

Gains/(losses) on sale of property, plant & equipment	11,115	10,385	233	(3,866)
Gains/(losses) on revaluation of foreign exchange	3,862,003	2,352,716	3,862,435	2,352,716
Reversal of impairment charges and loans written-off	2,228,281	1,475,232	2,228,281	1,475,232
Dividend from subsidiaries	–	–	70,451	70,428
Dividend from associates	2,691	8,615	2,079	8,002
Rental and other income	218,834	199,747	209,036	134,752
Less: Dividends received from associates transferred to investment	(2,691)	(8,615)	–	–
Total	6,320,233	4,038,080	6,372,515	4,037,264

 

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
12. Impairment Charges for Loans and Other Losses
Loans and receivables
To banks [Refer Note 25.2]	–	–	–	–
To other customers	4,600,332	3,158,291	4,600,332	3,158,291
Charge/(write back) to the Income Statement on Individual Impairment [Refer Note 26.2]	3,021,394	1,296,697	3,021,394	1,296,697
Charge/(write back) to the Income Statement on Collective Impairment [Refer Note 26.2]	1,479,914	1,856,688	1,479,914	1,856,688
Direct write-offs	99,024	4,906	99,024	4,906
Investment in subsidiaries [Refer Note 28.1]	–	–	14,184	32,942
Due from subsidiaries	–	–	12,809	5,527
Total	4,600,332	3,158,291	4,627,325	3,196,760

 

13. Personnel Expenses

Salary and bonus [Refer Note 13.1]	6,170,603	5,881,820	6,108,648	5,837,733
Pension costs
Contributions to defined contribution/ benefit plans - Funded schemes	904,919	868,352	900,844	863,018
Contributions to defined benefit plans - Unfunded schemes	165,791	228,793	160,113	224,390
Other	1,024,692	858,179	1,016,600	844,647
Total	8,266,005	7,837,144	8,186,205	7,769,788

 

13.1 Salary and Bonus

Salary and bonus and contributions to defined contribution/benefit plans, reported above includes the amounts paid to and contribution made on behalf of Executive Directors.

 

14. Other Expenses

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Directors’ emoluments [Refer Note 14.1]	24,453	20,549	23,058	19,524
Auditors’ remunerations	22,856	21,210	19,890	17,235
Audit fees and expenses	10,823	11,207	8,596	7,929
Audit related fee and expenses	6,654	5,631	6,405	5,230
Non-audit fee and expenses	5,379	4,372	4,889	4,076
Professional and legal expenses	251,068	280,154	305,450	275,987
Depreciation of property, plant and equipment [Refer Note 30]	717,583	942,765	786,024	859,675
Amortisation of leasehold property [Refer Note 32]	1,452	1,452	942	942
Amortisation of intangible assets [Refer Note 31]	149,347	174,104	149,291	174,055
Office administration and establishment expenses	4,140,883	3,536,867	4,211,399	3,663,775
Maintenance of fixed assets	790,373	753,485	864,533	755,703
Total	6,098,015	5,730,586	6,360,587	5,766,896

 

14.1 Directors’ Emoluments

Directors emoluments represent the fees paid to both the Executive and Non-Executive Directors of the Bank/Group.

 

15. Income Tax Expense

15.1 Entity-wise Breakup of the Income Tax Expense

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Bank Current Year Tax expense
Current year Income tax expense of Domestic banking unit	2,869,752	3,082,348	2,869,752	3,082,348
Current year Income tax expense of Off-shore banking centre	191,760	204,960	191,760	204,960
Current year Income tax expense of Bangladesh operation	960,937	827,480	960,937	827,480
Profit remittance tax of Bangladesh operation	–	81,406	–	81,406
Prior years
Under/(over) provision of taxes in respect of prior years	(161,504)	(140,315)	(161,504)	(140,315)
	3,860,945	4,055,879	3,860,945	4,055,879
Deferred Tax Expense
Effect of change in tax rates	–	–	–	–
Temporary differences	204,063	141,125	204,063	141,125
	4,065,008	4,197,004	4,065,008	4,197,004
Subsidiaries
Income tax expense of Commercial Development Company PLC	46,266	25,216	–	–
Income tax expense of ONEzero Company Ltd.	6,187	8,456	–	–
Associates
Share of income tax expense of Equity Investments Lanka Ltd.	(33)	18	–	–
Share of income tax expense of Commercial Insurance Brokers (Pvt) Ltd.	1,866	1,053	–	–
Total income tax expense	4,119,294	4,231,747	4,065,008	4,197,004
Effective tax rate (excluding deferred tax)			26.61%	28.37%

 

The Bank’s and Subsidiary’s, income tax for 2013 and 2012 have been provided on the taxable income at the rates shown below:

	2013	2012
	%	%
Domestic operations of the Bank	28.0	28.0
Off-shore banking centre of the Bank	28.0	28.0
Bangladesh operation of the Bank	42.5	42.5
Commercial Development Company PLC	28.0	28.0
ONEzero Company Ltd.	28.0	28.0

 

15.2 Notional Tax Credit for Withholding Tax on Government Securities on Secondary Market Transactions

The Inland Revenue Act No. 10 of 2006 and the amendments thereto, provide that a company which derives interest income from the secondary market transactions on Government Securities (on or after April 1, 2002) would be entitled to a notional tax credit (being one-ninth of the net interest income), provided such interest income forms part of statutory income of the Company for that year of assessment.

Accordingly, the net interest income earned by the Group and the Bank from the secondary market transactions in Government Securities for the year, has been grossed up in these Financial Statements and the resulting notional tax credit amounted to Rs. 905.425 Mn. and Rs. 903.649 Mn. respectively (Rs. 331.288 Mn. and Rs. 329.922 Mn. respectively in 2012).

 

15.3 A Reconciliation between Tax Expense and the Product of Accounting Profit Multiplied by the Statutory Tax Rate:

	Tax Rate		GROUP		BANK
	2013	2012	2013	2012	2013	2012
	%	%	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Accounting profit before tax from operations			14,692,751	14,312,914	14,510,519	14,295,333
Tax effect at the statutory income tax rate			4,430,380	4,333,483	4,389,700	4,300,497
Domestic operations of the bank	28	28	3,256,166	3,287,958	3,256,166	3,287,958
Operations of the off–shore banking centre of the bank	28	28	167,244	189,513	167,244	189,513
Bangladesh operation	42.5	42.5	966,290	823,026	966,290	823,026
Subsidiaries	28	28	40,680	32,986	–	–
Tax effect of exempt income			(887,400)	(574,543)	(887,400)	(574,543)
Tax effect of non-deductible expenses			4,359,378	4,301,816	4,344,749	4,279,897
Tax effect of deductible expenses			(3,842,137)	(3,919,113)	(3,824,600)	(3,891,063)
Remittance tax of Bangladesh operation			–	81,406	–	81,406
Share of income tax expense of Associates			1,833	1,070	–	–
(Over)/under provision of taxes in respect of prior years			(149,266)	(140,243)	(161,504)	(140,315)
Deferred tax expense [Refer Note 33]			206,506	147,871	204,063	141,125
Income tax expense reported in the income statement at the effective income tax rate			4,119,294	4,231,747	4,065,008	4,197,004

 

16. Earnings Per Share (EPS)

	GROUP		BANK
	2013	2012	2013	2012
Amounts used as the numerator:
Net profit attributable to equity holders of the Parent (Rs. ’000)	10,563,378	10,079,829	10,445,511	10,098,329
Profit for the year attributable to equity holders of the Parent for basic and diluted earnings per share (Rs. ’000)	10,563,378	10,079,829	10,445,511	10,098,329
Number of ordinary shares used as the denominator:
Weighted average number of Ordinary shares	848,528,406	832,618,649	848,528,406	832,618,649
Weighted average number of Ordinary shares for basic earnings per share calculation	848,528,406	832,618,649	848,528,406	832,618,649
Effect of dilution:
Bonus element on number of outstanding options under ESOP 2008 as at the year-end	1,334,722	1,035,169	1,334,722	1,035,169
Weighted average number of ordinary shares adjusted for the effect of dilution	849,863,128	833,653,818	849,863,128	833,653,818
Basic earnings per ordinary share (Rs.)	12.45	12.11	12.31	12.13
Diluted earnings per ordinary share (Rs.)	12.43	12.09	12.29	12.11

 

17. Dividends

	GROUP		BANK
	2013 Second Interim Rs. 1.00 Per share for 2012	2012 First Interim Rs. 1.50 Per share for 2012	2013 Second Interim Rs. 1.00 Per share for 2012	2012 First Interim Rs. 1.50 Per share
	(Paid during 2013)	(Paid during 2012)	(Paid during 2013)	(Paid during 2012)
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
On Ordinary Shares
Net dividend paid to the ordinary shareholders	755,339	1,132,618	755,339	1,132,618
Withholding tax deducted at source	78,270	117,543	78,270	117,543
Gross ordinary dividend paid	833,609	1,250,161	833,609	1,250,161

 

	First Interim Rs. 1.50 Per share for 2013		First Interim Rs. 1.50 Per share for 2013
	(Paid during 2013)		(Paid during 2013)
	Rs. ’000		Rs. ’000
On Ordinary Shares
Net dividend paid to the ordinary shareholders	1,152,615	–	1,152,615	–
Withholding tax deducted at source	120,876	–	120,876	–
Gross ordinary dividend paid	1,273,491	–	1,273,491	–
Total Gross ordinary dividend paid	2,107,100	1,250,161	2,107,100	1,250,161

 

The Bank declared and paid a second interim dividend of Rs. 1.00 per share on January 27, 2014 to both voting and non-voting ordinary shareholders of the Bank. (The second interim dividend for the year 2012 was Rs. 1.00 per share and was paid on February 18, 2013).

The Board of Directors of the Bank have recommended the payment of a final dividend of Rs. 4.00 per share which consist of a cash dividend of Rs. 2.00 per share and the balance entitlement of Rs. 2.00 per share that will be satisfied in the form of issue and allotment of new shares for both the voting and non-voting ordinary shareholders of the Bank for the year ended December 31, 2013 (Bank declared 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 Rs. 2.00 per share in the form of shares). The total dividend recommended by the Board is to approved at the forthcoming Annual General Meeting to be held on March 31, 2014. In accordance with provisions of the Sri Lanka Accounting Standard No. 10 on ‘Events after the Reporting Period’, the second interim dividend declared and paid in January 2014 and the proposed final dividend have not been recognised as a liability as at the year-end. Final dividend payable for the year 2013 has been estimated at Rs. 3,396.595 Mn. (Actual final dividend for 2012 amounted to Rs. 3,337.651 Mn.).

 

18. Classification of Financial Assets and Financial Liabilities

18.1 Classification of Financial Assets and Financial Liabilities - Group

The tables below provide a reconciliation between line items in the Statement of Financial Position and categories of financial assets and financial liabilities of the Group.

 

18.1 (a) Group - 2013

		Held-for-Trading (HFT)	Amortised Cost	Available-for-Sale (AFS)	Total
	Note	Rs.’000	Rs.’000	Rs.’000	Rs.’000
Financial Assets
Cash and cash equivalents	20	–	14,263,533	–	14,263,533
Balances with central banks	21	–	18,431,936	–	18,431,936
Placements with banks	22	–	4,131,814	–	4,131,814
Derivative financial instruments	23	837,694	–	–	837,694
Other financial instruments held-for-trading	24	6,379,058	–	–	6,379,058
Loans and receivables to banks	25	–	546,270	–	546,270
Loans and receivables to other customers	26	–	418,944,215	–	418,944,215
Financial investments - Available-for-sale	27	–	–	123,748,290	123,748,290
Total financial assets		7,216,752	456,317,768	123,748,290	587,282,810
Financial Liabilities
Due to banks	35	–	14,194,219	–	14,194,219
Derivative financial instruments	36	1,411,916	–	–	1,411,916
Due to other customers	37	–	451,098,946	–	451,098,946
Other borrowings	38	–	53,997,503	–	53,997,503
Subordinated liabilities	42	–	11,056,847	–	11,056,847
Total financial liabilities		1,411,916	530,347,515	–	531,759,431

 

18.1 (b) Group - 2012

		Held-for-Trading (HFT)	Amortised Cost	Available-for-Sale (AFS)	Total
	Note	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Financial Assets
Cash and cash equivalents	20	–	19,752,205	–	19,752,205
Balances with central banks	21	–	18,168,039	–	18,168,039
Placements with banks	22	–	16,162,970	–	16,162,970
Derivative financial instruments	23	1,351,095	–	–	1,351,095
Other financial instruments held-for-trading	24	6,041,110	–	–	6,041,110
Loans and receivables to banks	25	–	628,760	–	628,760
Loans and receivables to other customers	26	–	372,857,337	–	372,857,337
Financial investments - Available-for-sale	27	–	–	57,963,192	57,963,192
Total financial assets		7,392,205	427,569,311	57,963,192	492,924,708
Financial Liabilities
Due to banks	35	–	4,893,945	–	4,893,945
Derivative financial instruments	36	84,291	–	–	84,291
Due to other customers	37	–	390,568,682	–	390,568,682
Other borrowings	38	–	47,435,565	–	47,435,565
Subordinated liabilities	42	–	1,106,016	–	1,106,016
Total financial liabilities		84,291	444,004,208	–	444,088,499

 

18.2 Classification of Financial Assets and Financial Liabilities - Bank

The tables below provide a reconciliation between line items in the Statement of Financial Position and categories of financial assets and financial liabilities of the Bank.

 

18.2 (a) Bank - 2013

		Held-for-Trading (HFT)	Amortised Cost	Available-for-Sale (AFS)	Total
	Note	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Financial Assets
Cash and cash equivalents	20	–	14,261,549	–	14,261,549
Balances with central banks	21	–	18,431,936	–	18,431,936
Placements with banks	22	–	4,131,814	–	4,131,814
Derivative financial instruments	23	837,694	–	–	837,694
Other financial instruments held-for-trading	24	6,379,058	–	–	6,379,058
Loans and receivables to banks	25	–	546,270	–	546,270
Loans and receivables to other customers	26	–	418,959,675	–	418,959,675
Financial investments - Available-for-sale	27	–	–	123,748,290	123,748,290
Total financial assets		7,216,752	456,331,244	123,748,290	587,296,286
Financial Liabilities
Due to banks	35	–	14,194,219	–	14,194,219
Derivative financial instruments	36	1,411,916	–	–	1,411,916
Due to other customers	37	–	451,152,923	–	451,152,923
Other borrowings	38	–	54,173,175	–	54,173,175
Subordinated liabilities	42	–	11,056,847	–	11,056,847
Total financial liabilities		1,411,916	530,577,164	–	531,989,080

 

18.2 (b) Bank - 2012

		Held-for-Trading (HFT)	Amortised Cost	Available-for-Sale (AFS)	Total
	Note	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Financial Assets
Cash and cash equivalents	20	–	19,732,834	–	19,732,834
Balances with central banks	21	–	18,168,039	–	18,168,039
Placements with banks	22	–	16,162,970	–	16,162,970
Derivative financial instruments	23	1,351,095	–	–	1,351,095
Other financial instruments held-for-trading	24	6,041,110	–	–	6,041,110
Loans and receivables to banks	25	–	628,760	–	628,760
Loans and receivables to other customers	26	–	372,915,081	–	372,915,081
Financial investments - Available-for-sale	27	–	–	57,963,192	57,963,192
Total financial assets		7,392,205	427,607,684	57,963,192	492,963,081
Financial Liabilities
Due to banks	35	–	4,893,945	–	4,893,945
Derivative financial instruments	36	84,291	–	–	84,291
Due to other customers	37	–	390,611,548	–	390,611,548
Other borrowings	38	–	47,582,819	–	47,582,819
Subordinated liabilities	42	–	1,106,016	–	1,106,016
Total financial liabilities		84,291	444,194,328	–	444,278,619

 

19. Fair Values of Financial Instruments

Financial Instruments Measured at Fair Value - Fair Value Hierarchy

The table below analyses financial instruments measured at fair value at the reporting date, by the level in the fair value hierarchy into which the fair value measurement is categorised. The amounts are based on the values recognised in the Statement of Financial Position.

		GROUP				BANK
		Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
	Note	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
As at December 31, 2013
Assets
Derivative financial instruments	23		837,694		837,694		837,694		837,694
Other financial instruments held-for-trading	24	6,379,058			6,379,058	6,379,058			6,379,058
Financial investments - Available-for-sale*	27	123,703,198			123,703,198	123,703,198			123,703,198
Total assets at fair value		130,082,256	837,694	–	130,919,950	130,082,256	837,694	–	130,919,950
Liabilities
Derivative financial instruments	36		1,411,916		1,411,916		1,411,916		1,411,916
Total liabilities at fair value		–	1,411,916	–	1,411,916	–	1,411,916	–	1,411,916
As at December 31, 2012
Assets
Derivative financial instruments	23		1,351,095		1,351,095		1,351,095		1,351,095
Other financial instruments held-for-trading	24	6,041,110			6,041,110	6,041,110			6,041,110
Financial investments - Available-for-sale*	27	57,927,513			57,927,513	57,927,513			57,927,513
Total assets at fair value		63,968,623	1,351,095	–	65,319,718	63,968,623	1,351,095	–	65,319,718
Liabilities
Derivative financial instruments	36		84,291		84,291		84,291		84,291
Total liabilities at fair value		–	84,291	–	84,291	–	84,291	–	84,291

 

* Unquoted share value of Rs. 45.092 Mn., in Group and Bank for the year 2013 (for the year 2012 was Rs. 35.679 Mn.) categorised under Financial Investments - Available-for-sale in the Statement of Financial Position has not been considered for above note due to non-availability of reliable market values.

 

19.1 Fair Value of Financial Assets not Carried at Fair Value

Financial assets not carried at fair value are disclosed under the category Amortised Cost. The values reported under Amortised Cost category are comparable to their fair value.

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
20. Cash and Cash Equivalents
Cash in hand
Coins and notes held in local currency	9,643,069	9,993,872	9,641,519	9,974,501
Coins and notes held in foreign currency	1,866,981	1,100,258	1,866,547	1,100,258
Balances with banks	2,635,082	4,140,608	2,635,082	4,140,608
Money at call and short notice	118,401	4,517,467	118,401	4,517,467
Total	14,263,533	19,752,205	14,261,549	19,732,834

 

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
21. Balances with Central Banks
Statutory balances with central banks
Central Bank of Sri Lanka	15,449,704	15,786,899	15,449,704	15,786,899
Bangladesh Bank	2,982,232	2,381,140	2,982,232	2,381,140
Non-statutory balances with central banks
Central Bank of Sri Lanka	–	–	–	–
Bangladesh Bank	–	–	–	–
Total	18,431,936	18,168,039	18,431,936	18,168,039

As required by the provisions of Section 93 of the Monetary Law Act, a cash balance is maintained with the Central Bank of Sri Lanka. As at December 31, 2013, the minimum cash reserve requirement was 6.00% of the rupee deposit liabilities (8.00% in 2012). There is no reserve requirement for foreign currency deposit liabilities of the Domestic Banking Unit and the deposit liabilities of the Off-shore Banking Centre in Sri Lanka.

As per the Bangladesh Bank regulations, the Statutory Liquidity Requirement as at December 31, 2013 was 19.00% (19.00% in 2012) on time and demand liabilities (both local and foreign currencies), which includes a 6.00% (6.00% in 2012) cash reserve requirement and the balance 13.00% is permitted to be maintained in foreign currency and/or also in unencumbered securities held with the Bangladesh Bank.

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
22. Placements with Banks
Placements - Within Sri Lanka	–	3,584,000	–	3,584,000
Placements - Outside Sri Lanka	4,131,814	12,578,970	4,131,814	12,578,970
Total	4,131,814	16,162,970	4,131,814	16,162,970

 

23. Derivative Financial Instruments

Interest rate derivatives
Interest rate swaps	–	–	–	–
Foreign currency derivatives
Forward foreign exchange contracts	837,694	1,351,095	837,694	1,351,095
Total	837,694	1,351,095	837,694	1,351,095

 

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
24. Other Financial Instruments Held-for-Trading
Government Securities [Refer Note 24.1]	6,044,651	5,718,231	6,044,651	5,718,231
Equity shares [Refer Note 24.2]	334,407	322,879	334,407	322,879
Total	6,379,058	6,041,110	6,379,058	6,041,110

 

24.1 Government Securities

Treasury bills	4,788,578	4,175,815	4,788,578	4,175,815
Treasury bonds	1,256,073	1,542,416	1,256,073	1,542,416
Sub total	6,044,651	5,718,231	6,044,651	5,718,231

 

24.2 Equity Shares

	GROUP				BANK
	As at December 31, 2013		As at December 31, 2012		As at December 31, 2013		As at December 31, 2012
	Cost	Market Value	Cost	Market Value	Cost	Market Value	Cost	Market Value
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Quoted:
Shares
Tokyo Cement Company (Lanka) PLC	15,502	13,772	15,502	10,326	15,502	13,772	15,502	10,326
(588,555 Non-Voting Ordinary Shares)		(@ Rs. 23.40)		(@ Rs. 19.30)		(@ Rs. 23.40)		(@ Rs. 19.30)
(535,050 Non-Voting Ordinary Shares as at December 31, 2012)
Dipped Products PLC	24,239	18,000	24,239	22,000	24,239	18,000	24,239	22,000
(200,000 Ordinary Shares)		(@ Rs. 90.00)		(@ Rs. 110.00)		(@ Rs. 90.00)		(@ Rs. 110.00)
(200,000 Ordinary Shares as at December 31, 2012)
Lanka IOC PLC	15,013	22,706	6,740	7,020	15,013	22,706	6,740	7,020
(685,984 Ordinary Shares)		(@ Rs. 33.10)		(@ Rs. 19.50)		(@ Rs. 33.10)		(@ Rs. 19.50)
(360,009 Ordinary Shares as at December 31, 2012)
Dialog Axiata PLC	15,193	18,984	19,243	24,063	15,193	18,984	19,243	24,063
(2,109,322 Ordinary Shares)		(@ Rs. 9.00)		(@ Rs. 8.30)		(@ Rs. 9.00)		(@ Rs. 8.30)
(2,899,098 Ordinary Shares as at December 31, 2012)
ACL Cables PLC	14,096	11,131	10,288	8,176	14,096	11,131	10,288	8,176
(171,516 Ordinary Shares)		(@ Rs. 64.90)		(@ Rs. 67.40)		(@ Rs. 64.90)		(@ Rs. 67.40)
(121,300 Ordinary Shares as at December 31, 2012)
Pelwatte Sugar Industries PLC	351	1	351	289	351	1	351	289
(12,300 Ordinary Shares)		(@ Rs. 0.10)		(@ Rs. 23.50)		(@ Rs. 0.10)		(@ Rs. 23.50)
(12,300 Ordinary Shares as at December 31, 2012)
Overseas Reality Ceylon PLC	2,512	3,184	2,512	2,506	2,512	3,184	2,512	2,506
(174,000 Ordinary Shares)		(@ Rs. 18.30)		(@ Rs. 14.40)		(@ Rs. 18.30)		(@ Rs. 14.40)
(174,000 Ordinary Shares as at December 31, 2012)
Distilleries Company of Sri Lanka PLC	44,929	54,328	69,341	71,449	44,929	54,328	69,341	71,449
(281,490 Ordinary Shares)		(@ Rs. 193.00)		(@ Rs. 166.00)		(@ Rs. 193.00)		(@ Rs. 166.00)
(430,417 Ordinary Shares as at December 31, 2012)
Lanka Milk Foods (CWE) PLC	27,866	26,325	27,866	25,000	27,866	26,325	27,866	25,000
(250,000 Ordinary Shares)		(@ Rs. 105.30)		(@ Rs. 100.00)		(@ Rs. 105.30)		(@ Rs. 100.00)
(250,000 Ordinary Shares as at December 31, 2012)
Chemical Industries Colombo PLC	11,692	5,568	11,692	8,909	11,692	5,568	11,692	8,909
(161,400 Non-Voting Ordinary Shares)		(@ Rs. 34.50)		(@ Rs. 55.20)		(@ Rs. 34.50)		(@ Rs. 55.20)
(161,400 Non-Voting Ordinary Shares as at December 31, 2012)
Haycarb PLC	15,914	20,328	31,748	35,070	15,914	20,328	31,748	35,070
(107,100 Ordinary Shares)		(@ Rs. 189.80)		(@ Rs. 171.10)		(@ Rs. 189.80)		(@ Rs. 171.10)
(204,968 Ordinary Shares as at December 31, 2012)
Ceylon Hospitals PLC	16,665	17,259	16,665	14,435	16,665	17,259	16,665	14,435
(156,900 Ordinary Shares )		(@ Rs. 110.00)		(@ Rs. 92.00)		(@ Rs. 110.00)		(@ Rs. 92.00)
(156,900 Ordinary Shares as at December 31, 2012)
Ceylon Hospitals PLC	4,423	4,583	4,423	4,094	4,423	4,583	4,423	4,094
(61,100 Non-Voting Ordinary Shares)		(@ Rs. 75.00)		(@ Rs. 67.00)		(@ Rs. 75.00)		(@ Rs. 67.00)
(61,100 Non-Voting Ordinary Shares as at December 31, 2012)
Lanka Walltile PLC	5	3	5	4	5	3	5	4
(60 Ordinary Shares)		(@ Rs. 53.90)		(@ Rs. 60.80)		(@ Rs. 53.90)		(@ Rs. 60.80)
(60 Ordinary Shares as at December 31, 2012)
Kotagala Plantations PLC	9,172	7,465	156	104	9,172	7,465	156	104
(201,750 Ordinary Shares)		(@ Rs. 37.00)		(@ Rs. 74.00)		(@ Rs. 37.00)		(@ Rs. 74.00)
(1,400 Ordinary Shares as at December 31, 2012)
Royal Ceramics Lanka PLC	30,676	22,410	7,772	5,445	30,676	22,410	7,772	5,445
(264,896 Ordinary Shares)		(@ Rs. 84.60)		(@ Rs. 99.00)		(@ Rs. 84.60)		(@ Rs. 99.00)
(55,000 Ordinary Shares as at December 31, 2012)
COCO Lanka PLC	7,062	6,633	7,062	7,316	7,062	6,633	7,062	7,316
(402,000 Ordinary Shares)		(@ Rs. 16.50)		(@ Rs. 36.40)		(@ Rs. 16.50)		(@ Rs. 36.40)
(201,000 - Ordinary Shares as at December 31, 2012)
COCO Lanka PLC	15	13	15	15	15	13	15	15
(1,000 Non-Voting Ordinary Shares)		(@ Rs. 13.10)		(@ Rs. 29.50)		(@ Rs. 13.10)		(@ Rs. 29.50)
(500 Non-Voting Ordinary Shares as at December 31, 2012)
Citizen Development Bank PLC	4,130	4,413	4,130	3,719	4,130	4,413	4,130	3,719
(123,950 Non-Voting Ordinary Shares)		(@ Rs. 35.60)		(@ Rs. 30.00)		(@ Rs. 35.60)		(@ Rs. 30.00)
(123,950 Non-Voting Ordinary Shares as at December 31, 2012)
Lanka Venture PLC	3,033	4,100	3,033	3,200	3,033	4,100	3,033	3,200
(100,000 Ordinary Shares)		(@ Rs. 41.00)		(@ Rs. 32.00)		(@ Rs. 41.00)		(@ Rs. 32.00 )
(100,000 Ordinary Shares as at December 31, 2012)
Renuka Holdings PLC	2,477	2,070	2,477	2,450	2,477	2,070	2,477	2,450
(100,000 Non-Voting Ordinary Shares)		(@ Rs. 20.70)		(@ Rs. 24.50)		(@ Rs. 20.70)		(@ Rs. 24.50)
(100,000 Non-Voting Ordinary Shares as at December 31, 2012)
Renuka Holdings PLC	1,770	1,530	1,770	1,805	1,770	1,530	1,770	1,805
(50,000 Ordinary Shares)		(@ Rs. 30.60)		(@ Rs. 36.10)		(@ Rs. 30.60)		(@ Rs. 36.10)
(50,000 Ordinary Shares as at December 31, 2012)
Hemas Power PLC	6,748	5,925	4,622	4,864	6,748	5,925	4,622	4,864
(336,657 Ordinary Shares)		(@ Rs. 17.60)		(@ Rs. 21.90)		(@ Rs. 17.60)		(@ Rs. 21.90)
(222,100 Ordinary Shares as at December 31, 2012)
Hatton National Bank PLC	12	12	29,925	30,728	12	12	29,925	30,728
(82 Ordinary Shares)		(@ Rs. 147.00)		(@ Rs. 148.00)		(@ Rs. 147.00)		(@ Rs. 148.00)
(207,623 Ordinary Shares as at December 31, 2012)
Property Developments Ltd.	4,693	5,494	4,693	3,929	4,693	5,494	4,693	3,929
(83,235 Ordinary Shares)		(@ Rs. 66.00)		(@ Rs. 47.20)		(@ Rs. 66.00)		(@ Rs. 47.20)
(83,235 Ordinary Shares as at December 31, 2012)
Nations Trust Bank PLC	16,238	16,316	–	–	16,238	16,316	–	–
(262,314 Ordinary Shares)		(@ Rs. 62.20)	–	–		(@ Rs. 62.20)	–	–
(2012- Nil)
Colombo Dockyard PLC	16,685	14,220	–	–	16,685	14,220	–	–
(75,000 Ordinary Shares)		(@ Rs. 189.60)	–	–		(@ Rs. 189.60)	–	–
(2012 - Nil)
Hemas Holdings PLC	23,242	21,616	–	–	23,242	21,616	–	–
(635,750 Ordinary Shares)		(@ Rs. 34.00)	–	–		(@ Rs. 34.00)	–	–
(2012 - Nil)
Sampath Bank PLC	4,298	4,298	–	–	4,298	4,298	–	–
(25,000 Ordinary Shares)		(@ Rs. 171.90)	–	–		(@ Rs. 171.90)	–	–
(2012 - Nil)
John Keells Hotels PLC	1,638	1,720	–	–	1,638	1,720	–	–
(137,608 Ordinary Shares)		(@ Rs. 12.50)	–	–		(@ Rs. 12.50)	–	–
(2012 - Nil)
NDB Bank PLC	–	–	13,348	13,790	–	–	13,348	13,790
(2013 - Nil)	–	–		(@ Rs. 137.90)	–	–		(@ Rs. 137.90)
(100,000 Ordinary Shares as at December 31, 2012)
Hatton National Bank PLC	–	–	5,013	6,031	–	–	5,013	6,031
(2013 - Nil)	–	–		(@ Rs. 112.50)	–	–		(@ Rs. 112.50)
(53,608 Ordinary Shares as at December 31, 2012)
DFCC Bank PLC	–	–	6,353	6,142	–	–	6,353	6,142
(2013 - Nil)	–	–		(@ Rs. 112.90)	–	–		(@ Rs. 112.90)
(54,400 Ordinary Shares as at December 31, 2012)
Sub total	340,289	334,407	330,984	322,879	340,289	334,407	330,984	322,879
Mark to market gains/(losses)	(5,882)		(8,105)		(5,882)		(8,105)
Total	334,407	334,407	322,879	322,879	334,407	334,407	322,879	322,879

 

	GROUP				BANK
	As at December 31, 2013		As at December 31, 2012		As at December 31, 2013		As at December 31, 2012
	Cost	Market Value	Cost	Market Value	Cost	Market Value	Cost	Market Value
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
24.3 Equity Shares - Composition
Banks	24,678	25,039	58,769	60,410	24,678	25,039	58,769	60,410
Corporate Entities	315,611	309,368	272,215	262,469	315,611	309,368	272,215	262,469
Sub total	340,289	334,407	330,984	322,879	340,289	334,407	330,984	322,879
Add/(less): Mark to market gains/(losses)	(5,882)	–	(8,105)	–	(5,882)	–	(8,105)	–
Total	334,407	334,407	322,879	322,879	334,407	334,407	322,879	322,879

 

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
25. Loans and Receivables to Banks
Gross loans and receivables	546,270	628,760	546,270	628,760
Less: Provision for impairment [Refer Note 25.2]	–	–	–	–
Net loans and receivables	546,270	628,760	546,270	628,760

 

25.1 Analysis

25.1 (a) By product

Loans and advances
Overdrafts	–	–	–	–
Short-term loans	–	–	–	–
Long-term loans	–	–	–	–
Reverse repo agreements	–	–	–	–
Others
Sri Lanka Government Securities	–	–	–	–
Investments [Refer Note 25.3]	–	95,000	–	95,000
Others (*)	546,270	533,760	546,270	533,760
Total	546,270	628,760	546,270	628,760

(*) The Bank did not make payments to counterparty banks for the oil hedging transactions with effect from June 2, 2009 in response to a Directive received from the Exchange Controller of the Central Bank of Sri Lanka. Consequently, one of the counterparty banks appropriated US$ 4.170 Mn. (Rs. 546.270 Mn.) which was kept as a deposit with them. This action has been contested by the Bank. In view of the stance taken by the Bank in this regard, both the deposit (made by the Bank) and the amount due to the said counterparty bank have been recorded in the Statement of Financial Position.

 

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
25.1 (b) By currency
Sri Lankan Rupee	–	95,000	–	95,000
United States Dollar	546,270	533,760	546,270	533,760
Great Britain Pound	–	–	–	–
Bangladesh Taka	–	–	–	–
Other currencies	–	–	–	–
Total	546,270	628,760	546,270	628,760
25.2 Movement in Provision for Impairment
Opening balance	–	–	–	–
Charge/(write back) to the Income Statement	–	–	–	–
Write-off during the year	–	–	–	–
Other movements	–	–	–	–
Closing balance	–	–	–	–

 

25.3 Investments

	GROUP				BANK
	As at December 31, 2013		As at December 31, 2012		As at December 31, 2013		As at December 31, 2012
	Cost	Market Value	Cost	Market Value	Cost	Market Value	Cost	Market Value
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Nations Trust Bank PLC (20.53% - 2013)	–	–	95,000	95,000	–	–	95,000	95,000
(2013 - Nil)				(@ Rs. 1,000.00)				(@ Rs. 1,000.00)
(95,000 Debentures as at December 31, 2012)
Total	–	–	95,000	95,000	–	–	95,000	95,000

 

26. Loans and Receivables to Other Customers

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Gross loans and receivables [Refer Note 26.1]	434,731,383	386,358,564	434,746,843	386,416,308
Less: Provision for individual impairment [Refer Note 26.2]	4,204,654	3,402,168	4,204,654	3,402,168
Provision for collective impairment [Refer Note 26.2]	11,582,514	10,099,059	11,582,514	10,099,059
Net loans and receivables	418,944,215	372,857,337	418,959,675	372,915,081

 

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
26.1 Analysis
26.1 (a) By product
Loans and advances
Overdrafts	72,420,675	69,476,949	72,420,675	69,477,242
Trade finance	47,957,137	39,006,056	47,957,137	39,006,056
Lease receivable [Refer Note 26.3]	21,778,745	25,188,248	21,795,710	25,245,649
Credit cards	3,999,619	2,779,375	3,999,619	2,779,375
Pawning	6,995,603	10,947,448	6,995,603	10,947,448
Staff loans	3,885,911	3,175,953	3,885,911	3,175,953
Housing loans	27,729,953	25,466,504	27,729,953	25,466,504
Personal loans	16,517,343	18,016,009	16,517,343	18,016,009
Term loans
Short-term	30,636,267	29,144,209	30,636,267	29,144,259
Long-term	133,326,027	111,155,039	133,324,522	111,155,039
Bills of Exchange	5,043,658	5,685,865	5,043,658	5,685,865
Securities purchased under resale agreements	8,946,499	3,697,682	8,946,499	3,697,682
Sub total	379,237,437	343,739,337	379,252,897	343,797,081
Others
Government securities [Refer Note 26.5]	51,116,932	39,283,936	51,116,932	39,283,936
Investments [Refer Note 26.6]	4,377,014	3,335,291	4,377,014	3,335,291
Sub total	55,493,946	42,619,227	55,493,946	42,619,227
Total of gross loans and receivables	434,731,383	386,358,564	434,746,843	386,416,308

 

26.1 (b) By currency

Sri Lanka Rupee	314,608,021	285,107,232	314,623,481	285,164,976
United States Dollar	78,911,348	69,930,980	78,911,348	69,930,980
Great Britain Pound	871,965	525,914	871,965	525,914
Euro currency	1,466,964	867,484	1,466,964	867,484
Australian Dollar	46,234	105,795	46,234	105,795
Japanese Yen	613	12,111	613	12,111
Singapore Dollar	5,127	715	5,127	715
Bangladesh Taka	38,821,111	29,779,782	38,821,111	29,779,782
Other Currencies	–	28,551	–	28,551
Sub total	434,731,383	386,358,564	434,746,843	386,416,308

 

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
26.1 (c) By Industry (*)
Agriculture and fishing	38,013,743	37,799,861	38,013,743	37,799,861
Manufacturing	49,650,801	43,557,515	49,650,801	43,557,515
Tourism	14,242,671	12,203,840	14,242,671	12,203,840
Transport	10,157,863	5,665,451	10,174,829	5,665,451
Construction	35,601,502	29,425,050	35,601,502	29,425,050
Traders	52,367,237	49,426,885	52,367,237	49,426,885
New economy	6,440,151	5,456,003	6,440,151	5,456,003
Financial and business services	16,415,452	15,112,163	16,415,452	15,112,163
Infrastructure	12,814,953	6,917,962	12,814,953	6,917,962
Other services	30,420,543	27,135,490	30,420,543	27,135,490
Other customers	113,112,521	111,039,117	113,111,015	111,096,861
Sub total	379,237,437	343,739,337	379,252,897	343,797,081

 

(*) Industry-wise breakdown is provided only for loans and advances.

26.2 Movement in Provision for Individual and Collective Impairment during the Year

Movement in Provision for Individual Impairment
Opening balance	3,402,168	3,363,859	3,402,168	3,363,859
Charge/(write back) to the income statement	3,021,394	1,296,697	3,021,394	1,296,697
Net write-off/(recoveries) during the year	(2,320,881)	(1,491,247)	(2,320,881)	(1,491,247)
Exchange rate variance on foreign currency provisions	18,792	14,807	18,792	14,807
Interest accrued/(reversals) on impaired loans and advances	(304,712)	(249,760)	(304,712)	(249,760)
Other movements	387,893	467,812	387,893	467,812
Closing balance	4,204,654	3,402,168	4,204,654	3,402,168
Movement in Provision for Collective Impairment
Opening balance	10,099,059	8,237,033	10,099,059	8,237,033
Charge/(write back) to the income statement	1,479,914	1,856,688	1,479,914	1,856,688
Exchange rate variance on foreign currency provisions	3,541	5,338	3,541	5,338
Other movements	–	–	–	–
Closing balance	11,582,514	10,099,059	11,582,514	10,099,059
Total of individual and collective impairment	15,787,168	13,501,227	15,787,168	13,501,227

 

26.3 Lease Receivable

26.3 (a) Gross Lease Receivable

Within one year	8,805,101	8,488,519	8,822,066	8,521,928
From one to five years	12,968,682	16,699,526	12,968,682	16,723,518
Over five years	4,962	203	4,962	203
Total gross lease receivable (before the impairment provision)	21,778,745	25,188,248	21,795,710	25,245,649

 

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
26.3 (b) Lease Receivable within One Year
Total lease receivable within one year	11,668,279	11,803,820	11,685,244	11,837,229
Less: Unearned lease income	2,863,178	3,315,301	2,863,178	3,315,301
Provision for individual impairment	21,428	16,366	21,428	16,366
Provision for collective impairment	311,517	192,440	311,517	192,440
Sub total	8,472,156	8,279,713	8,489,121	8,313,122

 

26.3 (c) Lease Receivable from One to Five Years

Total lease receivable from one to five years	15,327,002	20,005,414	15,327,002	20,029,406
Less: Unearned lease income	2,358,320	3,305,888	2,358,320	3,305,888
Provision for individual impairment	32,876	33,735	32,876	33,735
Provision for collective impairment	477,954	396,667	477,954	396,667
Sub total	12,457,852	16,269,124	12,457,852	16,293,116

 

26.3 (d) Lease Receivable after Five Years

Total lease receivable after five years	5,667	209	5,667	209
Less: Unearned lease income	705	6	705	6
Provision for individual impairment	13	–	13	–
Provision for collective impairment	183	5	183	5
Sub total	4,766	198	4,766	198
Total gross lease receivable	21,778,745	25,188,248	21,795,710	25,245,649
Total net lease receivable	20,934,774	24,549,035	20,951,739	24,606,436

 

26.3 (e) Movement in Provision for Individual Impairment on Lease Receivable

Opening balance	50,100	34,337	50,100	34,337
Charge/(write back) to the income statement	124,732	74,471	124,732	74,471
Net write-off/(recoveries) during the year	(121,122)	(58,114)	(121,122)	(58,114)
Exchange rate variance on foreign currency provisions	–	–	–	–
Interest accrued on impaired loans and advances	(2,891)	(1,270)	(2,891)	(1,270)
Other movements	3,498	676	3,498	676
Closing balance	54,317	50,100	54,317	50,100

 

26.3 (f) Movement in the Provision for Collective Impairment on Lease Receivable

Opening balance	589,113	357,719	589,113	357,719
Charge/(write back) to the income statement	200,541	231,394	200,541	231,394
Exchange rate variance on foreign currency provisions	–	–	–	–
Other movements	–	–	–	–
Closing balance	789,654	589,113	789,654	589,113
Total of individual and collective impairment on lease receivable	843,971	639,213	843,971	639,213

 

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
26.4 Summary of Gross Loans and Receivables to Other Customers
26.4 (a) Gross Loans and Receivables to Other Customers
Bills of exchange	5,043,658	5,685,865	5,043,658	5,685,865
Loans and advances	343,468,535	309,167,542	343,467,030	309,167,885
Lease receivable	21,778,745	25,188,248	21,795,710	25,245,649
Securities purchased under resale agreements	8,946,499	3,697,682	8,946,499	3,697,682
Total gross loans and advances	379,237,437	343,739,337	379,252,897	343,797,081

 

26.4 (b) Gross Other Receivables

Government securities [Refer Note 26.5]	51,116,932	39,283,936	51,116,932	39,283,936
Investments [Refer Note 26.6]	4,377,014	3,335,291	4,377,014	3,335,291
Total gross other receivables	55,493,946	42,619,227	55,493,946	42,619,227
Total gross loans and receivables to other customers	434,731,383	386,358,564	434,746,843	386,416,308

26.5 Government Securities

Government Securities - Sri Lanka

Treasury bills	39,751	17,000	39,751	17,000
Treasury bonds	605,859	605,859	605,859	605,859
Sri Lanka development bonds	42,502,838	33,694,269	42,502,838	33,694,269
Sub total	43,148,448	34,317,128	43,148,448	34,317,128

Investments in Government Securities - Bangladesh

Treasury bills and bonds	7,968,484	4,966,808	7,968,484	4,966,808
Sub total	7,968,484	4,966,808	7,968,484	4,966,808
Total government securities	51,116,932	39,283,936	51,116,932	39,283,936

26.6 Investments

Debentures [Refer Note 26.6 (a)]	3,273,401	447,296	3,273,401	447,296
Lease backed securities [Refer Note 26.6 (b)]	–	106,477	–	106,477
Trust certificates [Refer Note 26.6 (c)]	1,029,072	2,137,534	1,029,072	2,137,534
Corporate debts [Refer Note 26.6 (d)]	–	539,831	–	539,831
Corporate bonds in Bangladesh [Refer Note 26.6 (e)]	74,541	104,153	74,541	104,153
Total investments	4,377,014	3,335,291	4,377,014	3,335,291

 

	GROUP				BANK
	As at December 31, 2013		As at December 31, 2012		As at December 31, 2013		As at December 31, 2012
	Cost	Market Value	Cost	Market Value	Cost	Market Value	Cost	Market Value
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
26.6 (a) Debentures
Quoted - Debentures
Urban Development Authority (11% - 2015)	447,296	447,296	447,296	428,427	447,296	447,296	447,296	428,427
People’s Leasing & Finance PLC	541,589	541,589	–	–	541,589	541,589	–	–
Senkadagala Finance PLC	41,869	41,869	–	–	41,869	41,869	–	–
Singer (Sri Lanka) PLC	181,005	181,005	–	–	181,005	181,005	–	–
Central Finance PLC	273,078	273,078	–	–	273,078	273,078	–	–
Lion Brewery (Ceylon) PLC	1,031,658	1,031,658	–	–	1,031,658	1,031,658	–	–
Hayleys PLC	91,575	91,575	–	–	91,575	91,575	–	–
Singer Finance (Lanka) PLC	355,756	355,756	–	–	355,756	355,756	–	–
Nawaloka Hospitals PLC	237,256	237,256	–	–	237,256	237,256	–	–
Abans Ltd.	72,319	72,319	–	–	72,319	72,319	–	–
Sub total	3,273,401	3,273,401	447,296	428,427	3,273,401	3,273,401	447,296	428,427
The above debentures are stated at cost and classified under loans and receivables due to the inactive market.
26.6 (b) Lease Backed Securities
People’s Leasing Company PLC	–	–	106,477	106,477	–	–	106,477	106,477
Sub total	–	–	106,477	106,477	–	–	106,477	106,477
26.6 (c) Trust Certificates
People’s Leasing Company PLC	629,717	629,717	1,297,269	1,297,269	629,717	629,717	1,297,269	1,297,269
LB Finance PLC	297,415	297,415	573,835	573,835	297,415	297,415	573,835	573,835
Softlogic Finance PLC	101,940	101,940	184,879	184,879	101,940	101,940	184,879	184,879
Central Finance PLC	–	–	81,551	81,551	–	–	81,551	81,551
Sub total	1,029,072	1,029,072	2,137,534	2,137,534	1,029,072	1,029,072	2,137,534	2,137,534
26.6 (d) Corporate Debts
Singer Sri Lanka PLC - 2012/13	–	–	539,831	539,831	–	–	539,831	539,831
Sub total	–	–	539,831	539,831	–	–	539,831	539,831
26.6 (e) Corporate Bonds in Bangladesh
Corporate Bonds in Bangladesh	74,541	74,541	104,153	104,153	74,541	74,541	104,153	104,153
Sub total	74,541	74,541	104,153	104,153	74,541	74,541	104,153	104,153

 

	BANK
	2013		2012
	Individually Impaired Loans and Receivables	Individual Impairment	Individually Impaired Loans and Receivables	Individual Impairment
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
26.7 Summary of Individually Impaired Loans and Receivables
Loans and Advances
Overdrafts	1,011,562	755,677	999,942	594,264
Trade finance	495,877	355,102	1,958,765	1,142,987
Lease receivable	135,148	54,317	105,247	50,099
Credit cards	–	–	–	–
Pawning	–	–	–	–
Staff loans	–	–	–	–
Housing loans	23,456	4,182	–	–
Personal loans	2,148	1,476	1,927	1,927
Term loans	5,134,833	3,033,900	2,905,405	1,612,891
Bills of exchange	–	–	–	–
Securities purchased under resale agreements	–	–	–	–
Total impaired loans and advances	6,803,024	4,204,654	5,971,286	3,402,168
Other receivables
Government securities	–	–	–	–
Investments	–	–	–	–
Total Impaired other receivables	–	–	–	–
Total impaired loans and receivables	6,803,024	4,204,654	5,971,286	3,402,168

 

27. Financial Investments - Available-for-Sale

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Government securities [Refer Note 27.1]	123,557,706	57,923,776	123,557,706	57,923,776
Equity securities [Refer Note 27.2]	190,584	39,416	190,584	39,416
Quoted shares - (Mark to market value)	145,492	3,737	145,492	3,737
Unquoted shares - (at cost)	45,092	35,679	45,092	35,679
Total	123,748,290	57,963,192	123,748,290	57,963,192

 

There were no impairment losses on financial investments - available-for-sale as at December 31, 2013 (2012 - Nil).

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
27.1 Government Securities
Treasury bills	81,742,889	29,872,941	81,742,889	29,872,941
Treasury bonds	39,902,375	28,050,835	39,902,375	28,050,835
Sri Lanka sovereign bonds	1,912,442	–	1,912,442	–
Total	123,557,706	57,923,776	123,557,706	57,923,776

 

27.2 Equity Securities

	GROUP				BANK
	As at December 31, 2013		As at December 31, 2012		As at December 31, 2013		As at December 31, 2012
	Cost	Market Value/Manager’s Buying Price	Cost	Market Value/Manager’s Buying Price	Cost	Market Value/Manager’s Buying Price	Cost	Market Value/Manager’s Buying Price
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Quoted Shares:
Hatton National Bank PLC	315	1,729	315	1,740	315	1,729	315	1,740
(11,760 Ordinary Shares)		(@ Rs. 147.00)		(@ Rs. 148.00)		(@ Rs. 147.00)		(@ Rs. 148.00)
(11,760 Ordinary Shares as at December 31, 2012)
Sampath Bank PLC	72	638	72	723	72	638	72	723
(3,714 Ordinary Shares)		(@ Rs. 171.90)		(@ Rs. 200.50)		(@ Rs. 171.90)		(@ Rs. 200.50)
(3,606 Ordinary Shares as at December 31, 2012)
Seylan Bank PLC	24	65	24	56	24	65	24	56
(1,015 Ordinary Shares)		(@ Rs. 64.20)		(@ Rs. 56.00)		(@ Rs. 64.20)		(@ Rs. 56.00)
(1,000 Ordinary Shares as at December 31, 2012)
DFCC Bank PLC	155	451	155	395	155	451	155	395
(3,496 Ordinary Shares)		(@ Rs. 129.00)		(@ Rs. 112.90)		(@ Rs. 129.00)		(@ Rs. 112.90)
(3,496 Ordinary Shares as at December 31, 2012)
Nations Trust Bank PLC	22	83	22	75	22	83	22	75
(1,333 Ordinary Shares)		(@ Rs. 62.20)		(@ Rs. 56.00)		(@ Rs. 62.20)		(@ Rs. 56.00)
(1,333 Ordinary Shares as at December 31, 2012)
NDB Bank PLC	215	871	215	748	215	871	215	748
(5,424 Ordinary Shares)		(@ Rs. 160.50)		(@ Rs. 137.90)		(@ Rs. 160.50)		(@ Rs. 137.90)
(5,424 Ordinary Shares as at December 31, 2012)
VISA Inc.	–	141,655	–	–	–	141,655	–	–
(4,856 Class C Common Stock)		(@ US$. 222.68)				(@ US$. 222.68)
(2012- Nil )
Sub total	803	145,492	803	3,737	803	145,492	803	3,737
Unquoted Shares:
Credit Information Bureau of Sri Lanka	440	440	440	440	440	440	440	440
(4,400 Ordinary Shares)		(@ Rs. 100.00)		(@ Rs. 100.00)		(@ Rs. 100.00)		(@ Rs. 100.00)
(4,400 Ordinary Shares as at December 31, 2012)
Fitch Ratings Lanka Ltd.	625	625	625	625	625	625	625	625
(62,500 Ordinary Shares)		(@ Rs. 10.00)		(@ Rs. 10.00)		(@ Rs. 10.00)		(@ Rs. 10.00)
(62,500 Ordinary Shares as at December 31, 2012)
Lanka Clear (Pvt) Ltd.	10,000	10,000	10,000	10,000	10,000	10,000	10,000	10,000
(1,000,000 Ordinary Shares)		(@ Rs. 10.00)		(@ Rs. 10.00)		(@ Rs. 10.00)		(@ Rs. 10.00)
(1,000,000 Ordinary Shares as at December 31, 2012)
Lanka Financial Service Bureau Ltd.	2,250	2,250	2,250	2,250	2,250	2,250	2,250	2,250
(225,000 Ordinary Shares)		(@ Rs. 10.00)		(@ Rs. 10.00)		(@ Rs. 10.00)		(@ Rs. 10.00)
(225,000 Ordinary Shares as at December 31, 2012)
Society for Worldwide Interbank Financial Telecommunication (SWIFT)	7,259	7,259	7,259	7,259	7,259	7,259	7,259	7,259
(47 Ordinary Shares)		(@Rs. 154,446)		(@Rs. 154,446)		(@Rs. 154,446)		(@Rs. 154,446)
(47 Ordinary Shares as at December 31, 2012)
RAM Ratings (Lanka) Ltd.	8,620	8,620	–	–	8,620	8,620	–	–
(689,590 Ordinary Shares)		(@ Rs. 12.50)	–	–		(@ Rs. 12.50)	–	–
(2012 - Nil)
Central Depository of Bangladesh Ltd.
(3,427,083 Shares of Bangladesh Taka 2.75 each, converted @ Rs. 1.68825 per Taka)	15,898	15,898	15,105	15,105	15,898	15,898	15,105	15,105
(3,427,083 Shares of Bangladesh Taka 2.75 each, converted @ Rs. 1.60411 per Taka as at December 31, 2012)
Sub total	45,092	45,092	35,679	35,679	45,092	45,092	35,679	35,679
Total	45,895	190,584	36,482	39,416	45,895	190,584	36,482	39,416

 

28. Investments in Subsidiaries

		GROUP				BANK
		As at December 31, 2013		As at December 31, 2012		As at December 31, 2013		As at December 31, 2012
	Holding	Cost	Market Value/Directors’ Valuation	Cost	Market Value/Directors’ Valuation	Cost	Market Value/Directors’ Valuation	Cost	Market Value/Directors’ Valuation
	%	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Local Subsidiaries:
Quoted:
Commercial Development Company PLC	94.55	–	–	–	–	274,393	752,220	274,393	692,088
(11,345,705 Ordinary Shares)							(@ Rs. 66.30)		(@ Rs. 61.00)
(11,345,705 Ordinary Shares as at December 31, 2012)
Unquoted:
ONEzero Company Ltd.	100.00	–	–	–	–	5,000	5,000	5,000	5,000
(500,001 Ordinary Shares)							(@ Rs. 10.00)		(@ Rs. 10.00)
(500,001 Ordinary Shares as at December 31, 2012)
Foreign Subsidiary:
Unquoted:
Commex - Sri Lanka S.R.L. (Incorporated in Italy) *	100.00	–	–	–	–	95,133	95,133	95,133	95,133
Gross Total		–	–	–	–	374,526	852,353	374,526	792,221
Less: Provision for impairment [Refer Note 28.1]		–	–	–	–	(85,580)	(85,580)	(71,396)	(71,396)
Net Total		–	–	–	–	288,946	766,773	303,130	720,825

 

* The Bank is yet to commence intended commercial operations in Italy and as such made provisions for the expenses incurred on account of Italy operations before finalising the Bank‘s Financial Statements. All arrangements have been made to submit the new application to ‘Bank of Italy’ to obtain Money Transfer License during the first half of 2014 and it is expected to commence commercial operations during the second half of 2014.

28.1 Movement in Provision for Impairment during the Year

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Opening balance	–	–	71,396	38,454
Charge/(write back) to the income statement	–	–	14,184	32,942
Closing balance	–	–	85,580	71,396

 

29. Investments in Associates

		GROUP				BANK
		As at December 31, 2013		As at December 31, 2012		As at December 31, 2013		As at December 31, 2012
	Holding	Cost	Market Value/Directors’ Valuation	Cost	Market Value/Directors’ Valuation	Cost	Market Value/Directors’ Valuation	Cost	Market Value/Directors’ Valuation
	%	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Local Associates:
Unquoted:
Equity Investments Lanka Ltd.	22.92	44,331	60,411	44,331	62,711	44,331	60,411	44,331	62,711
(4,110,938 Ordinary Shares)
(4,110,938 Ordinary Shares as at December 31, 2012)
Add: Share of profit applicable to the Bank:
Balance at the beginning of the year		18,380		47,580
Current year’s share of profit/(loss) after tax		(221)		(21,198)
Less: Dividend received during the year		(2,079)		(8,002)
Current year’s retained profit		(2,300)		(29,200)
Balance at the end of the year		16,080		18,380
Total		60,411	60,411	62,711	62,711	44,331	60,411	44,331	62,711
Commercial Insurance Brokers (Pvt) Ltd.	18.91	100	33,762	100	31,001
(120,000 Ordinary Shares)
(120,000 Ordinary Shares as at December 31, 2012)
Add: Share of profit applicable to the Bank:
Balance at the beginning of the year		30,901		27,970
Current year’s share of profit after tax		3,374		3,544
Less: Dividend received during the year		(613)		(613)
Current year’s retained profit		2,761		2,931
Balance at the end of the year		33,662		30,901
Total		33,762	33,762	31,001	31,001
Total value of Investments in Unquoted associates at carrying value on equity basis		94,173		93,712		44,331		44,331
Less: provision for impairment		–		–		–		–
Net Total		94,173		93,712		44,331		44,331
Total market value/Directors’ Valuation of Investments in Associates			94,173		93,712		60,411		62,711

The Group recognises the share of net assets of associates under equity method to arrive at the Director’s valuation.

 

30. Property, Plant & Equipment

30.1 Group - 2013

	Freehold Land	Freehold Buildings	Leasehold Buildings	Computer Equipment	Motor Vehicles	Office Equipment - Furniture & Fixtures	Capital Work-in-Progress	Total 31.12.2013	Total 31.12.2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs.’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Cost/Valuation
Opening balance	3,502,740	2,209,630	838,626	3,170,031	367,490	3,542,095	119,003	13,749,615	12,719,314
Additions during the year	51,658	20,389	–	348,577	20,858	384,674	132,863	959,019	1,260,079
Surplus on revaluation of property	–	–	–	–	–	–	–	–	192,237
Disposals during the year	–	–	–	(137,017)	(58,843)	(86,011)	–	(281,871)	(396,409)
Exchange rate variance	–	–	–	6,580	2,357	13,874	1,399	24,210	58,524
Transfers/adjustments	–	–	–	(59)	–	235	(2,102)	(1,926)	(84,130)
Closing balance	3,554,398	2,230,019	838,626	3,388,112	331,862	3,854,867	251,163	14,449,047	13,749,615
Accumulated Depreciation
Opening balance	–	67,722	146,515	2,351,033	236,328	2,001,136	–	4,802,734	4,216,103
Charge for the year	–	69,132	21,949	337,730	48,169	359,948	–	836,928	942,765
Reversal of over provided depreciation	–	–	(119,345)	–	–	–	–	(119,345)	–
Disposals during the year	–	–	–	(136,262)	(50,221)	(75,072)	–	(261,555)	(336,079)
Exchange rate variance	–	–	–	5,710	1,746	7,663	–	15,119	31,849
Transfers/adjustments	–	–	–	(59)	–	–	–	(59)	(51,904)
Closing balance	–	136,854	49,119	2,558,152	236,022	2,293,675	–	5,273,822	4,802,734
Net book value as at 31.12.2013	3,554,398	2,093,165	789,507	829,960	95,840	1,561,192	251,163	9,175,225
Net book value as at 31.12.2012	3,502,740	2,141,908	692,111	818,998	131,162	1,540,959	119,003		8,946,881

 

30.2 Group - 2012

	Freehold Land	Freehold Buildings	Leasehold Buildings	Computer Equipment	Motor Vehicles	Office Equipment - Furniture & Fixtures	Capital Work-in-Progress	Total 31.12.2012	Total 31.12.2011
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Cost/Valuation
Opening balance	3,340,369	2,118,829	626,755	2,991,766	407,363	3,172,049	62,183	12,719,314	10,277,801
Additions during the year	169,371	83,801	3,547	362,217	85,743	468,513	86,887	1,260,079	1,391,393
Transfer of accumulated depreciation on assets revalued	–	–	–	–	–	–	–	–	(161,279)
Surplus on revaluation of property	–	–	192,237	–	–	–	–	192,237	1,669,182
Disposals during the year	–	–	–	(199,527)	(131,485)	(65,397)	–	(396,409)	(34,387)
Exchange rate variance	–	–	–	15,064	5,869	34,977	2,614	58,524	(42,102)
Transfers/adjustments	(7,000)	7,000	16,087	511	–	(68,047)	(32,681)	(84,130)	(381,294)
Closing balance	3,502,740	2,209,630	838,626	3,170,031	367,490	3,542,095	119,003	13,749,615	12,719,314
Accumulated Depreciation
Opening balance	–	–	111,792	2,087,949	259,938	1,756,424	–	4,216,103	3,688,573
Charge for the year	–	67,722	34,723	448,211	59,589	332,520	–	942,765	734,115
Transfer of accumulated depreciation on assets revalued	–	–	–	–	–	–	–	–	(161,279)
Disposals during the year	–	–	–	(197,489)	(86,744)	(51,846)	–	(336,079)	(22,654)
Exchange rate variance	–	–	–	12,081	3,545	16,223	–	31,849	(22,594)
Transfers/adjustments	–	–	–	281	–	(52,185)	–	(51,904)	(58)
Closing balance	–	67,722	146,515	2,351,033	236,328	2,001,136	–	4,802,734	4,216,103
Net book value as at 31.12.2012	3,502,740	2,141,908	692,111	818,998	131,162	1,540,959	119,003	8,946,881
Net book value as at 31.12.2011	3,340,369	2,118,829	514,963	903,817	147,425	1,415,625	62,183		8,503,211

 

The carrying amount of Group’s revalued assets that would have been included in the Financial Statements had the assets been carried at cost less depreciation is as follows:

	2013			2012
	Cost	Accumulated Depreciation	Net Book Value	Cost	Accumulated Depreciation	Net Book Value
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Class of Asset
Freehold Land	608,588	–	608,588	556,930	–	556,930
Freehold buildings	1,027,212	269,653	757,559	1,006,822	243,973	762,849
Leasehold buildings	259,759	136,567	123,192	255,908	128,348	127,560
Total	1,895,559	406,220	1,489,339	1,819,660	372,321	1,447,339

 

30.3 Bank - 2013

	Freehold Land	Freehold Buildings	Leasehold Buildings	Computer Equipment	Motor Vehicles	Office Equipment - Furniture & Fixtures	Capital Work-in-Progress	Total 31.12.2013	Total 31.12.2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Cost/Valuation
Opening balance	3,502,740	2,209,630	104,625	3,165,537	127,704	3,539,146	98,604	12,747,986	11,793,172
Additions during the year	51,658	20,389	–	348,142	20,858	384,294	132,863	958,204	1,197,639
Disposals during the year	–	–	–	(137,017)	(4,435)	(86,011)	–	(227,463)	(266,664)
Exchange rate variance	–	–	–	6,580	2,357	13,789	–	22,726	55,788
Transfers/adjustments	–	–	–	(59)	–	235	(2,102)	(1,926)	(31,949)
Closing balance	3,554,398	2,230,019	104,625	3,383,183	146,484	3,851,453	229,365	13,499,527	12,747,986
Accumulated Depreciation
Opening balance	–	67,722	27,170	2,348,915	83,297	1,999,764	–	4,526,868	3,886,142
Charge for the year	–	69,132	3,599	337,145	16,479	359,669	–	786,024	859,675
Disposals during the year	–	–	–	(136,262)	(4,435)	(75,072)	–	(215,769)	(251,075)
Exchange rate variance	–	–	–	5,710	1,746	7,663	–	15,119	31,849
Transfers/adjustments	–	–	–	(59)	–	–	–	(59)	277
Closing balance	–	136,854	30,769	2,555,449	97,087	2,292,024	–	5,112,183	4,526,868
Net book value as at 31.12.2013	3,554,398	2,093,165	73,856	827,734	49,397	1,559,429	229,365	8,387,344
Net book value as at 31.12.2012	3,502,740	2,141,908	77,455	816,622	44,407	1,539,382	98,604		8,221,118

 

30.4 Bank - 2012

	Freehold Land	Freehold Buildings	Leasehold Buildings	Computer Equipment	Motor Vehicles	Office Equipment - Furniture & Fixtures	Capital Work-in-Progress	Total 31.12.2012	Total 31.12.2011
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Cost/Valuation
Opening balance	3,340,369	2,118,829	104,625	2,987,702	95,111	3,102,138	44,398	11,793,172	9,351,129
Additions during the year	169,371	83,801	–	361,787	28,464	467,329	86,887	1,197,639	1,379,607
Accumulated depreciation	–	–	–	–	–	–	–	–	(161,279)
Surplus on revaluation of property	–	–	–	–	–	–	–	–	1,654,329
Disposals during the year	–	–	–	(199,527)	(1,740)	(65,397)	–	(266,664)	(7,682)
Exchange rate variance	–	–	–	15,064	5,869	34,855	–	55,788	(42,075)
Transfers/adjustments	(7,000)	7,000	–	511	–	221	(32,681)	(31,949)	(380,857)
Closing balance	3,502,740	2,209,630	104,625	3,165,537	127,704	3,539,146	98,604	12,747,986	11,793,172
Accumulated Depreciation
Opening balance	–	–	23,571	2,086,344	68,923	1,707,304	–	3,886,142	3,421,568
Charge for the year	–	67,722	3,599	447,698	12,569	328,087	–	859,675	648,543
Transfer of accumulated depreciation on assets revalued	–	–	–	–	–	–	–	–	(161,279)
Disposals during the year	–	–	–	(197,489)	(1,740)	(51,846)	–	(251,075)	(38)
Exchange rate variance	–	–	–	12,081	3,545	16,223	–	31,849	(22,594)
Transfers/adjustments	–	–	–	281	–	(4)	–	277	(58)
Closing balance	–	67,722	27,170	2,348,915	83,297	1,999,764	–	4,526,868	3,886,142
Net book value as at 31.12.2012	3,502,740	2,141,908	77,455	816,622	44,407	1,539,382	98,604	8,221,118
Net book value as at 31.12.2011	3,340,369	2,118,829	81,054	901,358	26,188	1,394,834	44,398		7,907,030

 

The carrying amount of Bank’s revalued assets that would have been included in the Financial Statements had the assets been carried at cost less depreciation is as follows:

	2013			2012
	Cost	Accumulated Depreciation	Net Book Value	Cost	Accumulated Depreciation	Net Book Value
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Class of Asset
Freehold Land	608,588	–	608,588	556,930	–	556,930
Freehold buildings	1,027,212	269,653	757,559	1,006,822	243,973	762,849
Leasehold buildings	102,726	38,437	64,289	102,726	35,869	66,857
Total	1,738,526	308,090	1,430,436	1,666,478	279,842	1,386,636

 

30.5 (a) Information on Freehold Land and Buildings of the Bank - Extents and Locations

[As required by Rule No. 7.6 (viii) of the ‘Continuing Listing Requirements’ of the Colombo Stock Exchange]

Location	Extent (Perches)	Buildings (Square Feet)	Revalued Amounts Land Rs. ’000	Revalued Amounts Buildings Rs. ’000	Net Book Value Rs. ’000	As a % of Total NBV
CEO’s Bungalow - No. 27, Queens Road, Colombo 3	64	5,616	416,650	8,350	422,637	7.48
Holiday Bungalow - Bandarawela	423	5,546	51,400	11,400	61,890	1.10
Ambatenne Estate, Bandarawela
Holiday Bungalow - Haputale	207	4,533	25,700	15,300	39,475	0.70
No. 23, Lily Avenue, Welimada Road, Haputale
Branch Buildings
Battaramulla - No. 213, Kaduwela Road, Battaramulla	14	11,216	24,517	61,483	81,910	1.45
Borella - No. 92, D.S. Senanayake Mawatha, Borella, Colombo 8	16	12,566	70,335	62,202	128,399	2.27
Chilaw - No. 44, Colombo Road, Chilaw	35	10,000	61,750	70,104	128,312	2.27
Galewela - No. 49/57, Matale Road, Galewela	99	6,380	19,800	13,200	32,341	0.57
Galle City - No. 130, Main Street, Galle	7	3,675	33,750	7,250	40,518	0.72
Galle Fort - No. 22, Church Street, Fort, Galle	100	11,625	100,000	50,000	147,504	2.61
Gampaha - No. 51, Queen Mary’s Road, Gampaha	33	9,000	51,658	10,101	61,715	1.10
Hikkaduwa - No. 217, Galle Road, Hikkaduwa	37	6,713	16,740	21,260	36,939	0.65
Ja-Ela - No. 140, Negombo Road, Ja–Ela	13	7,755	23,187	16,813	39,161	0.69
Jaffna - No. 474, Hospital Road, Jaffna	77	5,146	272,135	12,865	283,971	5.03
Kandy - No. 120, Kotugodella Veediya, Kandy	45	44,500	342,000	231,000	557,632	9.87
Kegalle - No. 186, Main Street, Kegalle	85	2,650	115,000	7,000	121,533	2.15
Keyzer Street - No. 32, Keyzer Street, Colombo 11	7	5,608	45,000	25,000	68,752	1.22
Kollupitiya - No. 285, Galle Road, Colombo 3	17	16,254	100,000	63,000	159,855	2.83
Kotahena - No. 198, George R. De Silva Mawatha, Kotahena, Colombo 13	28	33,017	110,000	219,768	318,781	5.64
Kurunegala - No. 4, Suratissa Mawatha, Kurunegala	15	8,916	140,000	85,000	220,757	3.91
Maharagama - No. 154, High Level Road, Maharagama	18	8,000	62,125	43,200	102,451	1.81
Matale - No. 70, King Street, Matale	51	9,950	60,000	62,000	118,905	2.11
Matara - No. 18, Station Road, Matara	37	8,137	28,155	24,145	51,080	0.90
Minuwangoda - No. 42, Siriwardena Mawatha, Minuwangoda	25	4,950	37,500	36,958	72,591	1.29
Mutwal - No. 160, St. James Street, Colombo 15	17	Bare Land	22,300	–	22,300	0.39
Narahenpita - No. 201, Kirula Road, Narahenpita, Colombo 5	22	11,193	99,225	70,775	165,291	2.93
Narammala - No. 55, Negombo Road, Narammala	43	5,760	44,550	15,450	59,229	1.05
Negombo - No. 24, 26, Fernando Avenue, Negombo	37	14,439	49,500	27,004	74,806	1.32
Nugegoda - No. 100, Stanley Thilakaratne Mawatha, Nugegoda	39	11,138	195,000	44,552	235,997	4.18
Nuwara Eliya - No. 36, Buddha Jayanthi Mawatha, Nuwara Eliya	42	10,184	72,000	69,000	137,555	2.44
Panadura - No. 375, Galle Road, Panadura	12	6,168	18,450	19,735	36,215	0.64
Pettah - People’s Park Shopping Complex, Colombo 11	–	3,183	–	50,000	47,148	0.83
Pettah - Stores - People’s Park Shopping Complex, Colombo 11	–	218	–	4,000	3,681	0.07
Pettah - Main Street - No. 280, Main Street, Pettah, Colombo 11	30	22,760	169,371	73,704	240,512	4.27
Trincomalee - No. 474, Power House Road, Trincomalee	100	Bare Land	75,000	–	75,000	1.33
Union Place - No. 1, Union Place, Colombo 2	30	63,385	360,000	640,000	957,422	16.95
Wellawatte - No. 343, Galle Road, Colombo 6	45	15,050	204,100	35,900	236,421	4.19
Wennappuwa - No. 262, 264, Colombo Road, Wennappuwa	36	8,852	37,500	22,500	58,877	1.04
Total			3,554,398	2,230,019	5,647,563	100.00

 

30.5 (b) Information on Freehold Land and Buildings of the Bank - Valuations

[As required by Rule No. 7.6 (viii) of the ‘Continuing Listing Requirements’ of the Colombo Stock Exchange.]

Date of Valuation December 31, 2011

				Net Book Value before Revaluation		Revalued Amount of		Revaluation Gain/(Loss) Recognised on
Location	Address	Name of Professional Valuer	Method of Valuation	Land	Buildings	Land	Buildings	Land	Buildings
				Rs. ‘000	Rs. ‘000	Rs. ‘000	Rs. ‘000	Rs. ‘000	Rs. ‘000
CEO’s Bungalow	No. 27, Queens Road, Colombo 3	Siri Nissanka	Depreciated Replacement Cost Method	352,550	4,967	416,650	8,350	64,100	3,383
Holiday Bungalow - Bandarawela	Ambatenne Estate, Bandarawela	Sarath G. Fernando	Comparative Method	8,468	2,347	51,400	11,400	42,932	9,053
Holiday Bungalow - Haputale	No. 23, Lily Avenue, Welimada Road, Haputale	Sarath G. Fernando	Comparative Method	5,189	945	25,700	15,300	20,512	14,355
Battaramulla	No. 213, Kaduwela Road, Battaramula	Siri Nissanka	Income Method/Depreciated Replacement Cost Method	11,208	31,453	24,517	61,483	13,309	30,030
Borella	No. 92, D.S. Senanayake Mawatha, Colombo 8	Ranjan J. Samarakone	Contractor’s Method	23,000	30,000	70,335	62,202	47,335	32,202
Chilaw	No. 44, Colombo Road, Chilaw	P.B. Kalugalagedara	Direct Capital Comparison Method	25,850	65,673	61,750	67,000	35,900	1,327
Galewela	No. 49/57, Matale Road, Galewela	W.S. Pemaratne	Contractor’s Method/Comparison Method	10,455	1,936	19,800	13,200	9,346	11,264
Galle City	No. 130, Main Street, Galle	S.A.S. Fernando	Comparison Method	5,064	4,445	33,750	7,250	28,687	2,805
Galle Fort	No. 22, Church Street, Fort, Galle	S.A.S. Fernando	Comparison Method	90,000	17,500	100,000	50,000	10,000	32,500
Hikkaduwa	No. 217, Galle Road, Hikkaduwa	S.A.S. Fernando	Comparison Method	1,303	4,293	16,740	21,260	15,439	16,965
Ja–Ela	No. 140, Negombo Road, Ja–Ela	W.D.P. Rupananda	Contractor’s Test Method	11,021	15,382	23,187	16,812	12,163	1,430
Jaffna	No. 474, Hospital Road, Jaffna	S.T. Sanmuganathan	Depreciated Replacement Cost Method/Investment Method	137,135	6,432	272,135	12,865	135,000	6,433
Kandy	No. 120, Kotugodella Veediya, Kandy	Sarath G. Fernando	Comparative Method/Income Method	333,832	181,078	342,000	231,000	8,168	49,922
Kegalle	No. 186, Main Street, Kegalle	Sarath G. Fernando	Comparative Method/Income Method	100,000	–	122,000	–	22,000	–
Keyzer Street	No. 32, Keyzer Street, Colombo 11	P.B. Kalugalagedara	Investment Method	14,940	6,401	45,000	25,000	30,060	18,599
Kollupitiya	No. 285, Galle Road, Colombo 3	P.B. Kalugalagedara	Investment Method	82,000	56,842	100,000	63,000	18,000	6,158
Kotahena	No. 198, George R. De Silva Mawatha, Kotahena, Colombo 13	P.B. Kalugalagedara	Investment Method	85,000	374,928	110,000	208,984	25,000	(165,944)
Kurunegala	No. 4, Suratissa Mawatha, Kurunegala	W.S. Pemaratne	Investment Method	39,481	10,542	140,000	85,000	100,519	74,458
Maharagama	No. 154, Highlevel Road, Maharagama	Ranjan J. Samarakone	Contractor’s Method	5,238	13,518	62,125	43,200	56,887	29,682
Matale	No. 70, King Street, Matale	Sarath G. Fernando	Comparative Method/Income Method	8,000	36,203	60,000	62,000	52,000	25,797
Matara	No. 18, Station Road, Matara	S.A.S. Fernando	Comparison Method	16,893	7,116	28,155	23,595	11,264	16,479
Minuwangoda	No. 42, Siriwardena Mawatha, Minuwangoda	P.B. Kalugalagedara	Direct Capital Comparison Method	8,575	4,348	37,500	32,500	28,925	28,152
Mutwal	No. 160, St. James Street, Colombo 15	P.B. Kalugalagedara	Direct Capital Comparison Method	20,592	–	22,300	–	1,708	–
Narahenpita	No. 201, Kirula Road, Narahenpita, Colombo 5	Siri Nissanka	Income Method/Depreciated Replacement Cost Method	88,200	59,593	99,225	70,775	11,025	11,182
Narammala	No. 55, Negombo Road, Narammala	W.S. Pemaratne	Investment Method	11,510	4,360	44,550	15,450	33,040	11,090
Negombo	No. 24, 26, Fernando Avenue, Negombo	W.D.P. Rupananda	Contractor’s Test Method	16,000	16,929	49,500	25,516	33,500	8,587
Nugegoda	No. 100, Stanley Thilakaratne Mawatha, Nugegoda	Ranjan J. Samarakone	Contractor’s Method	39,000	15,876	195,000	44,552	156,000	28,676
Nuwara Eliya	No. 36/3, Buddha Jayanthi Mawatha, Nuwara Eliya	Sarath G. Fernando	Comparative Method/Income Method	61,800	61,492	72,000	69,000	10,200	7,508
Panadura	No. 375, Galle Road, Panadura	Ranjan J. Samarakone	Contractor’s Method	8,930	11,592	18,450	19,735	9,520	8,143
Pettah	People‘s Park Shopping Complex, Colombo 11	W.D.P. Rupananda	Investment Method	–	11,288	–	54,000	–	42,712
Trincomalee	No. 474, Power House Road, Trincomalee	S.A.S. Fernando	Comparison Method	27,500	–	75,000	–	47,500	–
Union Place	No. 1, Union Place, Colombo 2	Siri Nissanka	Income Method/Depreciated Replacement Cost Method	300,000	554,464	360,000	640,000	60,000	85,536
Wellawatte	No. 343, Galle Road, Colombo 6	K.C.B. Condegama	Investment Method	187,375	33,444	204,100	35,900	16,725	2,456
Wennappuwa	No. 262, 264, Colombo Road, Wennappuwa	W.D.P. Rupananda	Contractor’s Test Method	8,665	14,710	37,500	22,500	28,835	7,790
Total				2,144,774	1,660,097	3,340,369	2,118,829	1,195,599	458,730

 

30.6 Title Restriction on Property, Plant & Equipment

There were no restrictions existed on the title of the property, plant & equipment of the Group as at the date of the Statement of Financial Position.

 

30.7 Property, Plant & Equipment Pledged as Security for Liabilities

There were no items of property, plant & equipment pledged as securities for liabilities.

 

30.8 Compensation from Third Parties for Items of Property, Plant & Equipment

There were no compensation received/receivable from third parties for items of property, plant & equipment that were impaired, lost or given up.

 

30.9 Fully Depreciated Property, Plant & Equipment

The cost of fully-depreciated property, plant & equipment of the Bank which are still in use as at the date of the Statement of Financial Position is as follows:

	31.12.2013	31.12.2012
	Rs. ’000	Rs. ’000
Computer equipment	1,794,881	1,463,312
Office equipment, furniture & fixtures	1,127,494	986,218
Motor vehicles	38,486	36,494

30.10 Temporarily Idle Property, Plant & Equipment

Following property, plant & equipment of the Bank were temporarily idle (until the assets issue to business unit) as at the date of the Statement of Financial Position:

	31.12.2013	31.12.2012
	Rs. ’000	Rs. ’000
Computer equipment	70,862	46,637
Office equipment, furniture & fixtures	80,490	66,594

 

30.11 Property, Plant & Equipment Retired from Active Use

Following property, plant & equipment of the Bank were retired from active use as at the date of the Statement of Financial Position.

	31.12.2013	31.12.2012
	Rs. ’000	Rs. ’000
Computer equipment	32,726	67,773
Office equipment, furniture & fixtures	16,300	9,309
Motor vehicles	214	–

 

30.12 Borrowing Costs

There were no capitalised borrowing costs related to the acquisition of property, plant & equipment during the year 2013 (2012 - Nil).

31. Intangible Assets

31.1 Computer Software

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Cost/Valuation
At the beginning of the year	1,262,607	1,121,243	1,262,281	1,120,917
Additions during the year	216,162	139,161	215,708	139,161
Disposals during the year	–	–	–	–
Exchange rate variance	1,182	2,944	1,182	2,944
Transfers/adjustments	–	(741)	–	(741)
At the end of the year	1,479,951	1,262,607	1,479,171	1,262,281
Accumulated Amortisation
At the beginning of the year	906,586	731,326	906,427	731,216
Amortisation for the year	149,347	174,104	149,291	174,055
Disposals during the year	–	–	–	–
Exchange rate variance	785	1,298	785	1,298
Transfers/adjustments	–	(142)	–	(142)
At the end of the year	1,056,718	906,586	1,056,503	906,427
Net book value	423,233	356,021	422,668	355,854

 

31.2 Software Under Development

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Cost/Valuation
At the beginning of the year	150,140	85,121	141,184	77,313
Additions during the year	77,850	116,486	77,850	116,486
Transfers/adjustments during the year	(174,109)	(52,615)	(174,109)	(52,615)
Exchange rate variance	614	1,148	–	–
Disposals during the year	–	–	–	–
At the end of the year	54,495	150,140	44,925	141,184
Total intangible assets [Refer Notes 31.1 and 31.2]	477,728	506,161	467,593	497,038

 

There were no restrictions existed on the title of the intangible assets of the group as at the date of the Statement of Financial Position. Further, there were no items pledged as securities for liabilities. There were no capitalised borrowing costs related to the acquisition of intangible assets during the year 2013 (2012 - Nil).

32. Leasehold Property

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Cost/Valuation
At the beginning of the year	128,700	128,700	84,840	84,840
Additions during the year	–	–	–	–
At the end of the year	128,700	128,700	84,840	84,840
Accumulated Amortisation
At the beginning of the year	16,924	15,472	7,536	6,594
Amortisation for the year	1,452	1,452	942	942
At the end of the year	18,376	16,924	8,478	7,536
Net book value	110,324	111,776	76,362	77,304

 

33. Deferred Tax Assets and Liabilities

33.1 Summary of Net Deferred Tax Liability

	GROUP				BANK
	2013		2012		2013		2012
	Temporary Difference	Tax Effect	Temporary Difference	Tax Effect	Temporary Difference	Tax Effect	Temporary Difference	Tax Effect
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
At the beginning of the year	5,191,693	1,431,725	4,724,597	1,276,116	4,541,132	1,249,567	4,300,809	1,234,469
Amount originating/(reversing) to income statement	755,857	206,506	707,638	147,871	747,134	204,063	673,102	141,125
Amount originating/(reversing) to Statement of Comprehensive Income	(27,425)	(7,679)	–	–	(28,704)	(8,037)	–	–
Tax effect on revaluation surplus on property	–	–	192,237	133,765	–	–	–	–
Tax effect on pre-acquisition reserves	54,947	15,385	–	–	–	–	–	–
Unwinding of the deferred tax effect on revaluation surplus on Freehold Buildings	432,779	121,178	(432,779)	(121,178)	432,779	121,178	(432,779)	(121,178)
Exchange rate variance	–	(3,701)	–	(4,849)	–	(3,701)	–	(4,849)
At the end of the year	6,407,851	1,763,414	5,191,693	1,431,725	5,692,341	1,563,070	4,541,132	1,249,567

 

33.2 Reconciliation of Net Deferred Tax Liability

	GROUP
	Statement of Financial Position		Income Statement		Statement of Comprehensive Income
	2013	2012	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Deferred Tax Liabilities on:
Accelerated depreciation for tax purposes - Own assets	397,135	342,038	(55,097)	(412)	–	–
Accelerated depreciation for tax purposes - Leased assets	1,274,209	1,049,259	(224,950)	(237,157)	–	–
Revaluation surplus on freehold buildings	589,937	619,855	29,918	–	–	–
Tax effect on actuarial gains on Defined Benefit Plans	2,062	–	–	–	(2,062)	–
Tax effect on pre-acquisition reserves	15,385	–	–	–	–	–
Unwinding of the deferred tax effect on revaluation surplus on freehold buildings	–	(121,178)	–	–	–	–
Effect of exchange rate variance	9	9	(3,701)	(4,849)	–	–
	2,278,737	1,889,983	(253,830)	(242,418)	(2,062)	–
Deferred Tax Assets on:
Finance leases	2,004	5,090	(3,086)	2,882	–	–
Defined Benefit Plans	245,563	203,903	41,660	69,753	–	–
Tax effect on actuarial losses on Defined Benefit Plans	9,741	–	–	–	9,741	–
General provision on credit card advances	–	18,567	(18,567)	3,861	–	–
Specific provision on lease receivable	56,254	119,536	(63,282)	–	–	–
Leave encashment	153,608	111,162	42,446	18,051	–	–
Straight lining of lease rentals	8,739	–	8,739	–	–	–
De-recognition of commission income	39,414	–	39,414	–	–	–
	515,323	458,258	47,324	94,547	9,741	–
Deferred tax effect on comprehensive income			(206,506)	(147,871)	7,679	–
Net deferred tax liability	1,763,414	1,431,725

 

33.3 Reconciliation of Net Deferred Tax Liability

	Bank
	Statement of Financial Position		Income Statement		Statement of Comprehensive Income
	2013	2012	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Deferred Tax Liabilities on:
Accelerated depreciation for tax purposes - Own assets	366,494	312,132	(54,362)	11,998	–	–
Accelerated depreciation for tax purposes - Leased assets	1,274,208	1,049,259	(224,949)	(237,157)	–	–
Revaluation surplus on freehold buildings	427,927	457,845	29,918	–	–	–
Tax effect on actuarial gains on Defined Benefit Plans	1,510	–	–	–	(1,510)	–
Unwinding of the deferred tax effect on revaluation surplus on freehold buildings	–	(121,178)	–	–	–	–
Effect of exchange rate variance	9	9	(3,701)	(4,849)	–	–
	2,070,148	1,698,067	(253,094)	(230,008)	(1,510)	–
Deferred Tax Assets on:
Finance leases	–	–	–	–	–	–
Defined Benefit Plans	239,516	199,234	40,282	66,970	–	–
Tax effect on actuarial losses on Defined Benefit Plans	9,547	–	–	–	9,547	–
General provision on credit card advances	–	18,568	(18,568)	3,862	–	–
Specific provision on lease receivable	56,254	119,536	(63,282)	–	–	–
Leave encashment	153,608	111,162	42,446	18,051	–	–
Straight-lining of lease rentals	8,739	–	8,739	–	–	–
De-recognition of commission income	39,414	–	39,414	–	–	–
	507,078	448,500	49,031	88,883	9,547	–
Deferred tax effect on comprehensive income			(204,063)	(141,125)	8,037	–
Net deferred tax liability	1,563,070	1,249,567

 

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
34. Other Assets
Income receivable	22,335	34,999	22,335	34,999
Deposits and prepayments	1,518,412	1,365,559	1,521,526	1,358,727
Clearing account balance	2,999,575	4,126,806	2,999,575	4,126,806
Unamortised cost on staff loans	2,757,193	2,106,871	2,757,103	2,106,768
Other accounts	2,239,168	1,544,909	2,238,626	1,560,906
Total	9,536,683	9,179,144	9,539,165	9,188,206

 

35. Due to Banks

Borrowings	7,915,406	4,763,565	7,915,406	4,763,565
Local currency borrowings	–	65,018	–	65,018
Foreign currency borrowings	7,915,406	4,698,547	7,915,406	4,698,547
Securities sold under repurchase (repo) agreements	6,278,813	130,380	6,278,813	130,380
Total	14,194,219	4,893,945	14,194,219	4,893,945

 

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
36. Derivative Financial Instruments
Interest rate derivatives
Interest rate swaps	–	–	–	–
Foreign currency derivatives
Forward foreign exchange contracts	1,411,916	84,291	1,411,916	84,291
Total	1,411,916	84,291	1,411,916	84,291

 

37. Due to Other Customers

Local currency deposits	342,766,249	291,139,626	342,820,225	291,168,788
Foreign currency deposits	108,332,697	99,429,056	108,332,698	99,442,760
Total	451,098,946	390,568,682	451,152,923	390,611,548

 

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
37.1 Analysis of Due to Customers
(a) By product
Current account deposits	36,887,413	32,076,534	36,887,453	32,076,534
Savings deposits	159,395,267	141,810,844	159,421,958	141,840,006
Time deposits	251,250,263	208,095,610	251,277,509	208,109,314
Certificates of deposit	3,566,003	8,585,694	3,566,003	8,585,694
Sub total	451,098,946	390,568,682	451,152,923	390,611,548
(b) By currency
Sri Lanka Rupee	342,766,249	291,139,626	342,820,225	291,168,788
United States Dollar	59,873,350	52,783,593	59,873,351	52,797,297
Bangladesh Taka	6,556,111	24,964,651	6,556,111	24,964,651
Great Britain Pound	7,437,142	6,476,478	7,437,142	6,476,478
Australian Dollar	5,474,369	8,322,024	5,474,369	8,322,024
Euro	27,698,162	5,591,752	27,698,162	5,591,752
Other currencies	1,293,563	1,290,558	1,293,563	1,290,558
Sub total	451,098,946	390,568,682	451,152,923	390,611,548
(c) By institution/customers
Deposits from banks	1,704,408	2,957,256	1,704,408	2,957,256
Deposits from finance companies	3,736,661	3,004,452	3,736,661	3,004,452
Deposits from other customers	445,657,877	384,606,974	445,711,854	384,649,840
Sub total	451,098,946	390,568,682	451,152,923	390,611,548

 

The maturity analysis of Deposits is given in Note 50.

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
38. Other Borrowings
Refinance borrowings	6,427,536	7,633,595	6,427,536	7,633,595
Securities sold under repurchase (repo) agreements	39,054,967	31,481,970	39,230,639	31,629,224
Borrowings from International Finance Corporation (IFC)	8,515,000	8,320,000	8,515,000	8,320,000
Total	53,997,503	47,435,565	54,173,175	47,582,819

 

39. Other Provisions

Provision for contingencies	2,409	2,409	2,409	2,409
Total	2,409	2,409	2,409	2,409

 

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
40. Other Liabilities
Accrued expenditure	1,672,283	1,856,614	1,666,095	1,850,635
Cheques sent on clearing	2,974,099	4,150,799	2,974,099	4,150,799
Provision for gratuity payable [Refer Note 40.1]	624,642	494,507	604,324	478,506
Provision for unfunded pension scheme [Refer Note 40.2]	191,541	167,394	191,541	167,394
Payable on oil hedging transactions	812,719	794,108	812,719	794,108
Other payables	3,610,532	2,953,791	3,578,431	2,921,366
Total	9,885,816	10,417,213	9,827,209	10,362,808

 

40.1 Provision for Gratuity Payable

At the beginning of the year	494,507	317,115	478,506	303,774
Expense recognised in the income statement [Refer Note 40.1 (a)]	147,378	179,083	141,700	174,680
Exchange difference	7,294	9,509	7,294	9,509
Paid during the year	(19,528)	(11,200)	(17,784)	(9,457)
Expense recognised in other comprehensive income	(5,009)	–	(5,392)	–
At the end of the year	624,642	494,507	604,324	478,506

 

40.1 (a) Expense Recognised in the Income Statement - Gratuity

Interest cost	56,118	26,090	54,470	25,062
Current service cost	91,260	152,993	87,230	149,618
Total	147,378	179,083	141,700	174,680

 

40.2 Provision for Unfunded Pension Scheme

At the beginning of the year	167,394	141,072	167,394	141,072
Expense recognised in the income statement [Refer Note 40.2 (a)]	18,413	49,710	18,413	49,710
Paid during the year	(28,363)	(23,388)	(28,363)	(23,388)
Expense recognised in other comprehensive income	34,097	–	34,097	–
At the end of the year	191,541	167,394	191,541	167,394

 

40.2 (a) Expense Recognised in the Income Statement - Unfunded Pension Scheme

Interest cost	18,413	14,107		18,413	14,107
Current service cost	–	–		–	–
Actuarial loss	–	35,603		–	35,603
Total	18,413	49,710		18,413	49,710

 

40.3 Actuarial Gains/(Losses)

From 2013, actuarial gains/(losses) resulting from remeasurement of defined benefit liabilities/(assets) are recognised in the other comprehensive income. The comparatives have not been adjusted based on materiality.

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
41. Due to Subsidiaries
Local Subsidiaries
Commercial Development Company PLC	–	–	8,934	7,823
ONEzero Company Ltd.	–	–	6,752	14,441
Sub Total	–	–	15,686	22,264
Foreign Subsidiaries
Commex Sri Lanka S.R.L. - Italy	–	–	–	–
Sub Total	–	–	–	–
Total	–	–	15,686	22,264

 

42. Subordinated Liabilities

At beginning of the year	973,210	973,210	973,210	973,210
Redemptions during the year	(550)	–	(550)	–
Sub total [Refer Note 42.1]	972,660	973,210	972,660	973,210
Amount borrowed during the year [Refer Note 42.3]	9,825,000	–	9,825,000	–
Balance before adjusting for amortised interest	10,797,660	973,210	10,797,660	973,210
Net effect on amortised interest payable	259,187	132,806	259,187	132,806
At the end of the year	11,056,847	1,106,016	11,056,847	1,106,016

 

Outstanding debentures as at December 31, 2013, consisted of 972,660 (2012 - 973,210) Unsecured Subordinated Redeemable debentures of Rs. 1,000/- each issued by the Bank in 2006, details of which are given below:

42.1 Debenture Categories

	BANK
Debenture Categories	Colombo Stock Exchange Listing	Interest Payable Frequency	Allotment Date	Maturity Date	Effective Annual Yield		Value as at
					2013	2012	31.12.2013	31.12.2012
					%	%	Rs. ’000	Rs. ’000
Fixed Rate Debentures
2006/2016 - 13.25% p.a.	Not listed	Annually	16.05.2006	16.05.2016	13.25	13.25	505,000	505,000
2006/2016 - 14.00% p.a.	Listed	Annually	18.12.2006	18.12.2016	14.00	14.00	467,260	467,260
Debenture Redeemed in 2013
2006/2013 - 13.75% p.a.	Listed	Annually	18.12.2006	18.12.2013	13.75	13.75	–	250
							972,260	972,510
Floating Rate Debentures
2006/2016 - 12 months TB rate (Gross) + 1% p.a.	Listed	Annually	18.12.2006	18.12.2016	13.99	9.15	400	400
Debenture Redeemed in 2013
2006/2013 - 12 months TB rate (Gross) + 1% p.a.	Listed	Annually	18.12.2006	18.12.2013	13.99	9.15	–	300
							400	700
Sub total							972,660	973,210

 

The 12 Months TB Rate (Gross) - Twelve months Treasury Bill rate above is before deducting 10% Withholding Tax as published by the Central Bank of Sri Lanka immediately prior to the commencement of each interest period.

42.2 Debentures by Maturity

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Due within 1 year	–	550	–	550
Due after 1 year	972,660	972,660	972,660	972,660
Total	972,660	973,210	972,660	973,210

 

42.3 Other Subordinated Liabilities

	BANK
	Interest Payable Frequency	Allotment Date	Maturity Date	Effective Annual Yield		Value as at
				2013	2012	31.12.2013	31.12.2012
				%	%	Rs. ’000	Rs. ’000
Borrowings from International Finance Corporation (IFC)	Bi-annually	13.03.2013	14.03.2023	5.75 + LIBOR	–	9,825,000	–
Sub total						9,825,000	–

 

The above liabilities would in the event of the winding-up of the issuer, be subordinated to the claims of depositors and all other creditors of the issuer. The Bank has not had any defaults of principal, interest or other breaches with respect to its subordinated liabilities during the year ended December 31, 2013.

43. Stated Capital

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Opening balance	18,008,796	16,473,861	18,008,796	16,473,861
Issue of Ordinary Voting Shares under Employee Share Option Plan	76,074	62,942	76,074	62,942
Issue of Ordinary Shares as part of the final dividend satisfied in the form of issue and allotment of new shares	1,501,943	1,471,993	1,501,943	1,471,993
Closing Balance	19,586,813	18,008,796	19,586,813	18,008,796

 

43.1 Movement in Number of Ordinary Shares

	No. of Ordinary Voting Shares		No. of Ordinary Non-Voting Shares
	2013	2012	2013	2012
Opening balance	780,014,232	765,085,320	53,473,748	52,364,846
Issue of Ordinary Voting Shares under Employee Share Option Plan	1,445,398	1,341,768	–	–
Issue of Ordinary Shares as part of the final dividend satisfied in the form of issue and allotment of new shares	13,076,189	13,587,144	1,069,474	1,108,902
Closing Balance	794,535,819	780,014,232	54,543,222	53,473,748

 

The shares of Commercial Bank of Ceylon PLC are quoted in the Colombo Stock Exchange. The Non-Voting Ordinary Shares of the Bank, rank pari passu in respect of all rights with the Ordinary Voting Shares of the Bank except voting rights on resolutions passed at general meetings.

The Bank has issued employee share options. The holders of ordinary shares are entitled to receive dividends declared from time to time and are entitled to one vote per share at meetings of the Bank.

43.2 Employee Share Option Plan - 2008

The Bank obtained the approval of the shareholders at an Extraordinary General Meeting held on April 16, 2008, to introduce an Employee Share Option Plan for the benefit of all the Executive Officers in Grade III and above by creating up to 3% of the ordinary voting shares at the rate of 1% shares each year over a period of three to five years, upon the Bank achieving specified performance targets.

1/3 of the options offered under each tranche is vested to eligible employees after one year from the date of offer, second 1/3 of the options after two years from the date of offer and final 1/3 after three years from the date of offer as detailed below:

Option price is determined on the basis of the weighted average market price of Bank’s voting shares, during the period of ten market days immediately prior to each option offer date.

Number of options offered under each tranche is based on the overall performance of the Bank and the individual performance of the eligible employees in the preceding year. In the event of a rights issue of shares, capitalisation of reserves, stock splits or stock dividends by the Bank during the vesting period, the number of options offered and the price are suitably adjusted as per the applicable rules of ESOP - 2008 which have been drafted in line with the accepted market practices.

 

	Tranche I			Total
Date granted	April 30, 2008	April 30, 2008	April 30, 2008
Price (Rs.) - (**)	46.91	46.91	46.91
	1/3 of Options	1/3 of Options	1/3 of Options
Exercisable between	April 30, 2009 to April 29, 2013	April 30, 2010 to April 29, 2014	April 30, 2011 to April 29, 2015
Original number of options	777,308	777,308	777,308	2,331,924
Additions consequent to Splits and Rights issues	692,095	789,320	1,045,640	2,527,055
Number of options cancelled before vesting	(52,943)	(52,943)	(52,943)	(158,829)
Options vested	1,416,460	1,513,685	1,770,005	4,700,150
Options cancelled due to non-acceptance	–	–	–	–
Number of options exercised up to December 31, 2013	(1,416,460)	(1,310,853)	(1,408,442)	(4,135,755)
Number of options outstanding as at December 31, 2013	–	202,832	361,563	564,395

(**) Adjusted on account of the dividends declared in the form of issue and allotment of new shares, rights issue of shares and sub-division of shares.

 

	Tranche II			Total
Date granted	April 30, 2011	April 30, 2011	April 30, 2011
Price (Rs.)	132.33	132.33	132.33
	1/3 of Options	1/3 of Options	1/3 of Options
Exercisable between	April 30, 2012 to April 29, 2016	April 30, 2013 to April 29, 2017	April 30, 2014 to April 29, 2018
Original number of options	1,213,384	1,213,384	1,213,384	3,640,152
Additions consequent to share split made in September 2011	1,213,384	1,213,384	1,213,384	3,640,152
Options vested/to be vested as at December 31, 2013	2,426,768	2,426,768	2,426,768	7,280,304

 

	Tranche III			Total
Date granted	April 30, 2012	April 30, 2012	April 30, 2012
Price (Rs.)	104.63	104.63	104.63
	1/3 of Options	1/3 of Options	1/3 of Options
Exercisable between	April 30, 2013 to April 29, 2017	April 30, 2014 to April 29, 2018	April 30, 2015 to April 29, 2019
Original number of options	2,596,622	2,596,622	2,596,600	7,789,844
Number of options cancelled before vesting	–	(43,222)	(43,224)	(86,446)
Options vested	2,596,622	2,553,400	2,553,376	7,703,398
Number of options exercised up to December 31, 2013	(143,282)	–	–	(143,282)
Options vested/to be vested as at December 31, 2013	2,453,340	2,553,400	2,553,376	7,560,116

 

44. Statutory Reserves

44.1 Statutory Reserve Fund

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Opening balance	3,245,818	2,740,901	3,245,818	2,740,901
Transfers during the year	522,276	504,917	522,276	504,917
Closing Balance	3,768,094	3,245,818	3,768,094	3,245,818

The statutory reserve fund is maintained as per the requirements under Section 20 (1) of the Banking Act No. 30 of 1988. Accordingly, the fund is built up by allocating a sum equivalent to not less than 5% of the profit after tax, but before declaring any dividend or any profits that are transferred to elsewhere until the reserve is equal to 50% of the Bank’s stated capital and thereafter a further sum equivalent to 2% of such profit until the amount of said reserve fund is equal to the stated capital of the Bank.

The balance in the Statutory Reserve Fund will be used only for the purposes specified in the Section 20 (2) of the Banking Act No. 30 of 1988.

 

44.2 Primary Dealer Special Risk Reserve

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Opening balance	187,577	149,404	187,577	149,404
Transfers during the year	78,943	38,173	78,943	38,173
Closing balance	266,520	187,577	266,520	187,577
Total Statutory Reserves	4,034,614	3,433,395	4,034,614	3,433,395

As per the Direction issued by the Public Debt Department of Central Bank of Sri Lanka on April 18, 2005, with effect from July 1, 2005. Primary Dealers who maintain a capital above Rs. 300 Mn. are required to allocate 25% of post tax profits of the Primary Dealer Unit to a special risk reserve annually.

45. Retained Earnings

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Opening balance	4,172,814	2,588,194	4,178,080	2,547,336
Total comprehensive income	10,541,957	10,050,862	10,424,843	10,098,329
Profit for the year	10,563,378	10,079,829	10,445,511	10,098,329
Other comprehensive income	(21,421)	(28,967)	(20,668)	–
Transfer to other reserves	(4,924,807)	(4,355,215)	(4,924,807)	(4,355,215)
Dividends	(5,444,752)	(4,112,370)	(5,444,752)	(4,112,370)
Deferred tax effect on pre-acquisition reserves	(14,547)	–	–	–
Re-classification of retained earnings to available-for-sale reserve	28,967	–	–	–
Write-back of dividend payable	–	1,343	–	–
Closing Balance	4,359,632	4,172,814	4,233,364	4,178,080

 

46. Other Reserves

	GROUP			BANK
	Opening Balance	Movement/ Transfers	Closing Balance	Opening Balance	Movement/ Transfers	Closing Balance
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
46 (a) Current Year - 2013
Revaluation reserve [Refer Note 46.1]	4,737,125	(121,178)	4,615,947	4,343,232	(121,178)	4,222,054
General reserve [Refer Note 46.2]	20,048,989	2,331,830	22,380,819	20,048,989	2,331,830	22,380,819
Available-for-sale reserve [Refer Note 46.3]	475,467	1,548,001	2,023,468	475,467	1,579,100	2,054,567
Foreign currency translation reserve [Refer Note 46.4]	(755,101)	361,343	(393,758)	(757,894)	350,969	(406,925)
Investment fund reserve [Refer Note 46.5]	2,846,935	1,991,758	4,838,693	2,846,935	1,991,758	4,838,693
Total	27,353,415	6,111,754	33,465,169	26,956,729	6,132,479	33,089,208

 

46 (b) Previous Year - 2012

Revaluation reserve [Refer Note 46.1]	4,550,836	186,289	4,737,125	4,222,054	121,178	4,343,232
General reserve [Refer Note 46.2]	17,889,471	2,159,518	20,048,989	17,889,471	2,159,518	20,048,989
Available-for-sale reserve [Refer Note 46.3]	(143,969)	619,436	475,467	(143,969)	619,436	475,467
Foreign currency translation reserve [Refer Note 46.4]	(1,303,646)	548,545	(755,101)	(1,308,721)	550,827	(757,894)
Investment fund reserve [Refer Note 46.5]	1,194,328	1,652,607	2,846,935	1,194,328	1,652,607	2,846,935
Total	22,187,020	5,166,395	27,353,415	21,853,163	5,103,566	26,956,729

 

46.1 Revaluation Reserve

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Opening balance	4,737,125	4,550,836	4,343,232	4,222,054
Surplus on revaluation of freehold land and buildings	–	181,760	–	–
Deferred tax effect on revaluation surplus on freehold buildings	(121,178)	4,529	(121,178)	121,178
Closing balance	4,615,947	4,737,125	4,222,054	4,343,232

 

The revaluation reserve relates to revaluation of freehold land & buildings and represents the fair value changes of the land & buildings as at the date of revaluation.

The Bank carried out a revaluation of all its freehold lands & buildings and recognised Rs. 1,654 Mn. as revaluation surplus as at December 31, 2011. (The Bank recognised Rs. 1,739 Mn. as Revaluation Surplus on a revaluation carried out on selected freehold lands & buildings as at December 31, 2010.)

46.2 General Reserve

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Opening balance	20,048,989	17,889,471	20,048,989	17,889,471
Transfers during the year	2,331,830	2,159,518	2,331,830	2,159,518
Closing balance	22,380,819	20,048,989	22,380,819	20,048,989

 

The general reserve is the result of the Bank transferring a certain amount of profit from retained earnings account to general reserve account. The purpose of setting up the general reserve is to meet potential future unknown liabilities.

46.3 Available-for-sale Reserve

Opening balance	475,467	(143,969)	475,467	(143,969)
Net gains/(losses) on remeasuring available-for-sale financial investments	1,576,968	619,436	1,579,100	619,436
Re-classification of retained earnings to available-for-sale reserve	(28,967)	–	–	–
Closing balance	2,023,468	475,467	2,054,567	475,467

 

The available-for-sale reserve comprises the cumulative net change in fair value of available-for-sale financial investments, until the assets are derecognised or impaired.

46.4 Foreign Currency Translation Reserve

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Opening balance	(755,101)	(1,303,646)	(757,894)	(1,308,721)
Transfer of translation gains/(losses)	–	–	–	–
Net unrealised gains/(losses) from the translation of Financial Statements of the Foreign operation	361,343	548,545	350,969	550,827
Closing balance	(393,758)	(755,101)	(406,925)	(757,894)

 

The foreign currency translation reserve comprises of all foreign currency differences arising from the translation of the Financial Statements of foreign operations.

As at the reporting date, the assets and liabilities of the Bank’s Bangladesh Operation and Commex - Sri Lanka S.R.L Italy, a subsidiary of the Bank were translated in to the presentation currency (Sri Lankan Rupee) at the exchange rate ruling at the date of the Statement of Financial Position and the Income Statement is translated at the average exchange rate for the period. The exchange differences arising on the translation are taken directly to Foreign Currency Translation Reserve which is classified as part of Equity.

46.5 Investment Fund Reserve

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Opening balance	2,846,935	1,194,328	2,846,935	1,194,328
Transfers during the year	1,991,758	1,652,607	1,991,758	1,652,607
Closing balance	4,838,693	2,846,935	4,838,693	2,846,935

 

Banks are required to transfer 8% of the profits calculated for the payment of Value Added Tax (VAT) on financial services and 5% of the profits before tax calculated for the payment of income tax to a fund identified as "Investment Fund Account" (IFA) as per a proposal made in the Government Budget 2011. The guidelines have also been issued by the Central Bank of Sri Lanka on utilisation of funds in this account.

The Bank provided funds for several projects utilising funds available in Investment Fund Account (IFA). The details of loans granted under IFA are as follows:

Sector	Granted Amount Rs. ’000	Rate of Interest (%)	Tenure of Loan
Infrastructure development	2,767,945	9 - 13.57	14 - 14 1/2 Years
Factory/mills modernisation/establishment/expansion	485,588	11.54 - 12.54	5 - 5 1/2 Years
Construction of hotels and for related purposes	78,100	11.54 - 12.79	7 Years
Agriculture/livestock and fisheries	65,340	11.04	5 1/2 Years
Total	3,396,973

 

47. Non-Controlling Interest

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Commercial Development Company PLC	38,778	32,141	–	–
Total	38,778	32,141	–	–

 

48. Contingent Liabilities and Commitments

In the normal course of business, the Bank makes various irrevocable commitments and incurs certain contingent liabilities with legal recourse to its customers. Even though these obligations may not be recognised on the Statement of Financial Position, they do contain credit risk and are therefore form part of the overall risk profile of the Bank.

48.1 Contingencies

	GROUP		BANK
As at December 31,	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Contingent Liabilities:
Guarantees	26,393,171	23,997,143	26,393,171	23,997,143
Performance bonds	8,975,403	7,698,090	8,975,403	7,698,090
Documentary credits	20,795,460	19,566,782	20,795,460	19,566,782
Other contingent liabilities [Refer Note 48.1(a)]	166,957,995	166,060,094	166,957,995	166,060,094
Total contingent liabilities	223,122,029	217,322,109	223,122,029	217,322,109

 

48.1 (a) Other Contingent Liabilities

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Other contingent liabilities:
Acceptances	17,682,089	16,255,563	17,682,089	16,255,563
Bills for collection	14,012,211	12,251,283	14,012,211	12,251,283
Stock travellers’ cheques	258,944	766,799	258,944	766,799
Sub total	31,953,244	29,273,645	31,953,244	29,273,645

 

Forward exchange contracts:
Forward exchange sales	59,482,518	68,318,546	59,482,518	68,318,546
Forward exchange purchases	75,522,233	68,467,903	75,522,233	68,467,903
Sub total	135,004,751	136,786,449	135,004,751	136,786,449

 

Total other contingent liabilities

166,957,995

166,060,094

166,957,995

166,060,094

 

48.2 Commitments

48.2.1 Direct and Indirect Advances:

Undrawn Commitments - Direct Advances	54,249,566	51,021,034	54,249,566	51,021,034
Undrawn Commitments - Indirect Advances	16,990,485	10,853,593	16,990,485	10,853,593
Total	71,240,051	61,874,627	71,240,051	61,874,627

 

48.2.2 Capital Commitments

The Group has commitments for acquisition of Property, Plant & Equipment and intangible assets incidental to the ordinary course of business, as follows:

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
48.2.2 (a) Capital Expenditure Commitments in relation to Property, Plant & Equipment
Approved and contracted for	496,260	43,986	496,260	43,986
Approved but not contracted for	525,132	312,779	525,132	312,779
Total	1,021,392	356,765	1,021,392	356,765

 

48.2.2 (b) Capital Expenditure Commitments in relation to Intangible Assets

Approved and contracted for	68,483	39,611	68,483	39,611
Approved but not contracted for	–	–	–	–
Total	68,483	39,611	68,483	39,611
Total of capital commitments	1,089,875	396,376	1,089,875	396,376
Total commitments	72,329,926	62,271,003	72,329,926	62,271,003
Total contingent liabilities and commitments	295,451,955	279,593,112	295,451,955	279,593,112

 

48.3 Commitments of Subsidiaries and Associates

48.3 (a) Contingencies of Subsidiaries

The Subsidiaries of the Group do not have any contingencies as at the year end.

48.3 (b) Contingencies of Associates

The Associates of the Group do not have any contingencies as at the year end.

49. Litigation Against the Bank

Litigation is a common occurrence in the banking industry due to the nature of the business. The Bank has an established protocol for dealing with such legal claims. In respect of pending legal claims where the Bank had already made provisions for possible losses in its Financial Statements or has a realisable security to cover the damages are not included below as the Bank does not expect cash outflows from such claims. However, further adjustments are made to Financial Statements if necessary on the adverse effects of legal claims based on the professional advice obtained on the certainty of the outcome based on a reasonable estimate.

Set out below are unresolved legal claims against the Bank as at December 31, 2013 for which adjustments to the Financial Statements have not been made due to the uncertainty of its outcome.

1. Court action has been initiated by a third party in proceedings No. 0122/2009/DLM to claim the title of a property which has been mortgaged to the Bank by the present owner for several facilities granted. The value of action is Rs. 85.000 Mn. Written submissions of all parties are due on March 3, 2014. Court granted permission to amend the plaint as per the request made by the plaintiff, subject to a cost of Rs. 10,000.00 payable to each and every defendant.
2. Court action has been initiated by a customer in proceedings No. 236/2011/MR challenging the Bank for transferring a vehicle in the name of a relation of the Plaintiff upon settlement of full amount due in respect of a lease facility obtained from the Bank. The Bank has executed the transfer on the strength of a letter issued by the Plaintiff who is challenging the letter. The value of the action is Rs. 3.500 Mn. Further trial is fixed for May 05, 2014.
3. Court action has been initiated by a customer in proceeding number 25831/MR to claim a refund of Overdraft Interest amounting to Rs. 2.880 Mn. The Bank lost the case in the lower courts and now has appealed (Appeal No. 133/2010) to the Supreme Court. Arguments re-fixed for March 24, 2014.
4. Court action has been initiated for BDT 9.153 Mn. (Rs. 15.452 Mn. approximately) in proceedings number 149/05 against the Credit Agricole Indusuez (Commercial Bank acquired Bangladesh operations from Credit Agricole Indusuez) and the Bank for the breach of contract due to improper termination of a contract between Credit Agricole Indusuez and the plaintiff on network facility provided for Electronic Fund Transfer (EFT). As the Bank was not a party to the contract, the Bank has filed a statement to the court requesting for a dismissal. Next date of the case has not been fixed by the court yet.
5. Court action has been initiated by a third party in proceedings number 52/10 to claim a sum of BDT 35.328 Mn. (approx. Rs. 59.642 Mn.) from the Bank for illegal withdrawal of money from their account with forged signatures. The Bank is of the view that the Bank is not responsible for any losses occurring due to inadequacy of the security of cheque books. Next date of the case is fixed for March 11, 2014.
6. Court action has been initiated by the plaintiff in proceedings number 571/2008/MR to prevent the Bank from exercising the right of lien and set off a deposit of the plaintiff amounting to US$ 15.000 Mn. against a claim made by the Bank in terms of a hedging Agreement. Commercial High Court issued the judgment in favour of the Bank and dismissed plaintiff’s application for an interim injunction. The parties have filed their initial pleadings and the matter is now fixed for Trial. Next trial date is February 24, 2014.
7. Court action has been initiated by a customer in proceedings No. 36/96 (1) to claim a sum of Rs. 183.050 Mn. on account of a forward exchange contract. Judgment was delivered in favour of the Bank dismissing the plaintiff’s action but the plaintiff has appealed against the judgment in Supreme Court. The appeal is now fixed for argument on May 26, 2014.
8. Court action has been initiated by a third party in proceedings number 112/2005(1) to claim Rs. 5.584 Mn. plus Rs. 10.000 Mn. as damages for disposing of the shares owned by her which were held under lien to the Bank. Plaintiff alleges that the transaction has taken place without obtaining her consent. Judgment was delivered in favour of the Plaintiff. Bank has appealed against the judgment delivered. The plaintiff has filed an application for the issue of Writ Pending Appeal. Bank had agreed to issue a guarantee for Rs. 5.000 Mn. in favour of plaintiff, to be claimed only on the final determination of the appeal file in Supreme Court. Accordingly, terms of settlement were recorded in courts.

50. Maturity Analysis

(a) Group

(i) Remaining contractual period to maturity as at the date of Statement of Financial Position of the assets employed by the Group is detailed below:

	Up to 3 Months	3 to 1 2 Months	1 to 3 Years	3 to 5 Years	More than 5 Years	Total as at 31.12.2013	Total as at 31.12.2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Interest earning assets:
Cash and cash equivalents	135,564	–	–	–	–	135,564	5,315,236
Balances with Central Banks	734	73	–	–	–	807	3,798
Placements with banks	4,131,814	–	–	–	–	4,131,814	16,162,970
Other financial instruments held-for trading	6,044,652	–	–	–	–	6,044,652	5,718,232
Loans and receivables to banks	–	–	–	–	–	–	95,000
Loans and receivables to other customers	178,948,201	60,777,855	115,477,158	43,096,409	20,644,592	418,944,215	372,857,337
Financial investments - Available-for-sale	33,508,356	67,404,741	8,962,927	10,828,935	2,994,403	123,699,362	57,923,774
Total interest earning assets as at 31.12. 2013	222,769,321	128,182,669	124,440,085	53,925,344	23,638,995	552,956,414
Total interest earning assets as at 31.12. 2012	206,920,007	88,774,249	108,537,815	36,238,894	17,605,382		458,076,347
Non-interest earning assets:
Cash and cash equivalents	14,127,969	–	–	–	–	14,127,969	14,436,969
Balances with Central Banks	12,239,128	5,247,753	332,558	296,785	314,905	18,431,129	18,164,241
Derivative financial instruments	396,311	441,067	316	–	–	837,694	1,351,095
Other financial instruments held-for-trading	334,406	–	–	–	–	334,406	322,878
Loans and receivables to banks	–	–	546,270	–	–	546,270	533,760
Financial investments - Available-for-sale	–	–	–	15,898	33,030	48,928	39,418
Investments in associates	–	–	–	–	94,173	94,173	93,712
Property, plant & equipment	–	–	–	–	9,175,225	9,175,225	8,946,881
Intangible assets	–	–	–	–	477,728	477,728	506,161
Leasehold property	–	–	–	–	110,324	110,324	111,776
Deferred tax assets	28,038	29,903	127,512	87,511	242,359	515,323	458,258
Other assets	5,641,299	207,188	483,175	442,444	2,762,577	9,536,683	9,179,144
Total non-interest earning assets as at 31.12.2013	32,767,151	5,925,911	1,489,831	842,638	13,210,321	54,235,852
Total non-interest earning assets as at 31.12.2012	34,108,979	5,368,128	1,155,285	537,400	12,974,501		54,144,293
Total assets - as at December 31, 2013	255,536,472	134,108,580	125,929,916	54,767,982	36,849,316	607,192,266
Total assets - as at December 31, 2012	241,028,986	94,142,377	109,693,100	36,776,294	30,579,883		512,220,640
Percentage - as at December 31, 2013*	42.08	22.09	20.74	9.02	6.07	100.00
Percentage - as at December 31, 2012*	47.05	18.38	21.42	7.18	5.97		100.00

*Total percentage of each maturity bucket out of total assets employed by the Group.

(ii) Remaining contractual period to maturity as at the date of Statement of Financial Position of the liabilities and share holders’ funds employed by the group is detailed below:

	Up to 3 Months	3 to 12 Months	1 to 3 Years	3 to 5 Years	More than 5 Years		Total as at 31.12.2013	Total as at 31.12.2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000		Rs. ’000	Rs. ’000
Interest bearing liabilities:
Due to banks	9,575,006	2,620,000	–	–	–		12,195,006	1,354,651
Due to other customers	268,750,885	124,388,355	8,158,766	6,461,491	7,568,542		415,328,039	358,505,365
Other borrowings	26,434,100	14,416,936	5,235,806	5,030,065	2,880,596		53,997,503	47,565,945
Subordinated liabilities	132,385	126,802	972,660	–	9,825,000		11,056,847	1,106,016
Total interest bearing liabilities as at 31.12.2013	304,892,376	141,552,093	14,367,232	11,491,556	20,274,138		492,577,395
Total interest bearing liabilities as at 31.12.2012	265,924,501	108,514,627	10,299,962	11,395,522	12,397,365			408,531,977
Non-interest bearing liabilities:
Due to banks	1,995,928	3,285	–	–	–		1,999,213	3,408,914
Derivative financial instruments	1,035,182	376,734	–	–	–		1,411,916	84,291
Due to other customers	35,770,907	–	–	–	–		35,770,907	32,063,317
Current tax liabilities	1,082,016	698,851	–	–	–		1,780,867	2,821,975
Deferred tax liabilities	–	–	–	1,673,415	605,322		2,278,737	1,889,983
Other provisions	2,409	–	–	–	–		2,409	2,409
Other liabilities	6,774,740	994,380	1,062,608	230,361	823,727		9,885,816	10,417,213
Stated capital	–	–	–	–	19,586,813		19,586,813	18,008,796
Statutory reserves	–	–	–	–	4,034,614		4,034,614	3,433,395
Retained earnings	–	–	–	–	4,359,632		4,359,632	4,172,814
Other reserves	–	–	–	–	33,465,169		33,465,169	27,353,415
Non-controlling interest	–	–	–	–	38,778		38,778	32,141
Total non-interest bearing liabilities as at December 31, 2013	46,661,182	2,073,250	1,062,608	1,903,776	62,914,055		114,614,871
Total non-interest bearing liabilities as at December 31, 2012	44,078,882	2,889,431	1,109,164	1,743,660	53,867,526			103,688,663
Total liabilities and equity - as at 31.12.2013	351,553,558	143,625,343	15,429,840	13,395,332	83,188,193		607,192,266
Total liabilities and equity - as at 31.12.2012	310,003,383	111,404,058	11,409,126	13,139,182	66,264,891			512,220,640
Percentage - as at December 31, 2013*	57.90	23.65	2.54	2.21	13.70		100.00
Percentage - as at December 31, 2012*	60.51	21.75	2.23	2.57	12.94			100.00

*Total percentage of each maturity bucket out of total liabilities and share holders' funds employed by the Group

(b) Bank

(i) Remaining contractual period to maturity as at the date of Statement of Financial Position of the assets employed by the Bank is detailed below:

	Up to 3 Months	3 to 12 Months	1 to 3 Years	3 to 5 Years	More than 5 Years	Total as a t 31.12.2013	Total as at 31.12.2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Interest earning assets:
Cash and cash equivalents	135,148	–	–	–	–	135,148	5,295,865
Balances with Central Banks	734	73	–	–	–	807	3,798
Placements with banks	4,131,814	–	–	–	–	4,131,814	16,162,970
Other financial instruments held-for-trading	6,044,652	–	–	–	–	6,044,652	5,718,232
Loans and receivables to banks	–	–	–	–	–	–	95,000
Loans and receivables to other customers	178,953,027	60,786,281	115,479,366	43,096,409	20,644,592	418,959,675	372,915,081
Financial investments - Available-for-sale	33,508,356	67,404,741	8,962,927	10,828,935	2,994,403	123,699,362	57,923,774
Total interest earning assets as at 31.12.2013	222,773,731	128,191,095	124,442,293	53,925,344	23,638,995	552,971,458
Total interest earning assets as at 31.12.2012	206,909,722	88,798,920	108,561,802	36,238,894	17,605,382		458,114,720
Non-interest earning assets:
Cash and cash equivalents	14,126,401	–	–	–	–	14,126,401	14,436,969
Balances with Central Banks	12,239,128	5,247,753	332,558	296,785	314,905	18,431,129	18,164,241
Derivative financial instruments	396,311	441,067	316	–	–	837,694	1,351,095
Other financial instruments held-for-trading	334,406	–	–	–	–	334,406	322,878
Loans and receivables to banks	–	–	546,270	–	–	546,270	533,760
Financial investments - Available-for-sale	–	–	–	15,898	33,030	48,928	39,418
Investments in subsidiaries	–	–	–	–	288,946	288,946	303,130
Investments in associates	–	–	–	–	44,331	44,331	44,331
Property, plant & equipment	–	–	–	–	8,387,344	8,387,344	8,221,118
Intangible assets	–	–	–	–	467,593	467,593	497,038
Leasehold property	–	–	–	–	76,362	76,362	77,304
Deferred tax assets	28,038	29,903	126,907	84,709	237,521	507,078	448,500
Other assets	5,643,781	207,188	483,175	442,444	2,762,577	9,539,165	9,188,206
Total non-interest earning assets as at 31.12.2013	32,768,065	5,925,911	1,489,226	839,836	12,612,609	53,635,647
Total non-interest earning assets as at 31.12.2012	34,108,979	5,368,128	1,154,818	531,843	12,464,220		53,627,988
Total assets - as at December 31, 2013	255,541,796	134,117,006	125,931,519	54,765,180	36,251,604	606,607,105
Total assets - as at December 31, 2012	241,018,701	94,167,048	109,716,620	36,770,737	30,069,602		511,742,708
Percentage - as at December 31, 2013*	42.12	22.11	20.76	9.03	5.98	100.00
Percentage - as at December 31, 2012*	47.09	18.40	21.44	7.19	5.88		100.00

* Total percentage of each maturity bucket out of total assets employed by the Bank.

(ii) Remaining contractual period to maturity as at the date of Statement of Financial Position of the liabilities and shareholders’ funds employed by the Bank is detailed below:

	Up to 3 Months	3 to 12 Months	1 to 3 Years	3 to 5 Years	More than 5 Years	Total as at 31.12.2013	Total as at 31.12.2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Interest bearing liabilities:
Due to banks	9,575,006	2,620,000	–	–	–	12,195,006	1,354,651
Due to other customers	268,795,021	124,398,156	8,158,766	6,461,491	7,568,542	415,381,976	358,547,839
Other borrowings	26,594,769	14,431,939	5,235,806	5,030,065	2,880,596	54,173,175	47,713,199
Subordinated liabilities	132,385	126,802	972,660	–	9,825,000	11,056,847	1,106,016
Total interest bearing liabilities as at 31.12.2013	305,097,181	141,576,897	14,367,232	11,491,556	20,274,138	492,807,004
Total interest bearing liabilities as at 31.12.2012	266,105,525	108,523,331	10,299,962	11,395,522	12,397,365		408,721,705
Non-interest bearing liabilities:
Due to banks	1,995,928	3,285	–	–	–	1,999,213	3,408,914
Derivative financial instruments	1,035,182	376,734	–	–	–	1,411,916	84,291
Due to other customers	35,770,947	–	–	–	–	35,770,947	32,063,709
Current tax liabilities	1,059,723	698,851	–	–	–	1,758,574	2,801,541
Deferred tax liabilities	–	–	–	1,642,221	427,927	2,070,148	1,698,067
Other provisions	2,409	–	–	–	–	2,409	2,409
Other liabilities	6,736,452	994,380	1,060,576	228,329	807,472	9,827,209	10,362,808
Due to subsidiaries	15,686	–	–	–	–	15,686	22,264
Stated capital	–	–	–	–	19,586,813	19,586,813	18,008,796
Statutory reserves	–	–	–	–	4,034,614	4,034,614	3,433,395
Retained earnings	–	–	–	–	4,233,364	4,233,364	4,178,080
Other reserves	–	–	–	–	33,089,208	33,089,208	26,956,729
Total non-interest bearing liabilities as at 31.12.2013	46,616,327	2,073,250	1,060,576	1,870,550	62,179,398	113,800,101
Total non-interest bearing liabilities as at 31.12.2012	44,026,699	2,889,431	1,109,164	1,713,754	53,281,955		103,021,003
Total liabilities and equity - as at 31.12.2013	351,713,508	143,650,147	15,427,808	13,362,106	82,453,536	606,607,105
Total liabilities and equity - as at 31.12.2012	310,132,224	111,412,762	11,409,126	13,109,276	65,679,320		511,742,708
Percentage - as at 31.12.2013*	57.99	23.68	2.54	2.20	13.59	100.00
Percentage - as at 31.12.2012*	60.61	21.77	2.23	2.56	12.83		100.00

* Total percentage of each maturity buckets out of total liabilities and shareholders’ funds employed by the Bank.

51. Employee Retirement Benefits

51.1 Pension Fund - Defined Benefit Plan

An actuarial valuation of the retirement Pension Fund was carried out as at December 31, 2013 by Mr. M Poopalanathan, AIA, Messrs Actuarial & Management Consultants (Pvt) Ltd., a firm of professional actuaries. The valuation method used by the actuaries to value the fund is the ‘Projected Unit Credit Method (PUC)‘, the method recommended by the Sri Lanka Accounting Standard LKAS 19 on ‘Employee Benefits’.

The assets of the fund, which are independently administered by the Trustees as per the provision of the Trust Deed are held separately from those of the Bank.

51.1 (a) Actuarial Assumptions - Demographic

Mortality

In service A 67/70 Mortality Table issued by the Institute of Actuaries, London

After retirement A (90) Annuities Table (Males & Females) issued by the Institute of Actuaries, London

Staff Turnover

The withdrawal rate at an age represents the probability of an active employee leaving within one year of that age due to reasons other than death, ill health and normal retirement. The same withdrawal rates which were used in the last valuation (December 31, 2012) to determine the liabilities of the active employees in the funded scheme, were used in the actuarial valuation as at December 31, 2013.

Disability

Assumptions similar to those used in other comparable schemes for disability were used as the data required to do a ‘scheme specific’ study was not available.

Normal Retirement Age

55 or 60 years as indicated in the data file of active employees.

51.1 (b) Actuarial Assumptions - Financial

Rate of Discount

In the absence of a deep market in long-term Bonds in Sri Lanka, a long-term rate of 10% p.a. (2012 - 11% p.a.) has been used to discount future liabilities considering anticipated long-term rate of inflation.

Salary Increases

A salary increment of 9% p.a. (2012 - 10% p.a.) has been used in respect of the active employees.

Post-Retirement Pension Increase Rate

There is no agreed rate of increase even though the pension payments are subject to periodic increases, and increases are given solely at the discretion of the Bank. Therefore, no specific rate was assumed for this valuation.

	2013	2012
	Rs. ’000	Rs. ’000
51.1 (c) Movement in the Present Value of Defined Benefit Obligations
Opening balance	112,014	91,937
Interest cost	12,321	9,194
Current service cost	2,102	2,325
Benefits paid during the year	(8,119)	(7,000)
Actuarial loss	6,360	15,558
Closing balance	124,678	112,014

 

	2013	2012
	Rs. ’000	Rs. ’000
51.1 (d) Movement in the Fair Value of Plan Assets
Fair value as at the beginning of the year	94,899	85,845
Expected return on plan assets	10,439	8,584
Contribution paid into plan	1,411	1,704
Benefits paid by the plan	(8,119)	(7,000)
Actuarial gain on plan assets	19,270	5,766
Fair value as at the end of the year	117,900	94,899

 

51.1 (e) Liability Recognised in the Statement of Financial Position

Present value of defined benefit obligations as at the end of the year	124,678	112,014
Fair value of plan assets as at the end of the year	(117,900)	(94,899)
Unrecognised actuarial gains/(losses)	–	–
Net liability recognised in the Statement of Financial Position	6,778	17,115

 

51.1 (f) Plan Assets Consist of the Following:

Government Treasury Bills	42,512	38,632
Deposits held with the Bank	75,388	56,267
Total	117,900	94,899

 

52. Operating Segments

The group has the following strategic divisions which are reportable segments. These divisions offer different products and services and are managed separately based on the group’s management and internal reporting structure.

The following table presents the income, profit and asset and liability information on the Group’s business segments for the year ended December 31, 2013 and comparative figures for the year ended December 31, 2012.

	Banking		Leasing		Dealing/Treasury		Investments		Total/Consolidated
For the year ended December 31,	2013	2012	2013	2012	2013	2012	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
External operating income:
Net interest income	22,240,114	21,385,560	944,807	911,261	1,648,811	111,621	488,525	443,217	25,322,257	22,851,659
Foreign exchange profit	3,715,933	2,091,074	–	–	(1,720,316)	2,595,937	–	–	1,995,617	4,687,011
Net fees and commission income	4,244,029	3,590,315	–	–	8,829	8,003	–	–	4,252,858	3,598,318
Other income	2,539,281	1,360,254	121,122	58,940	214,756	131,168	42,955	60,369	2,918,114	1,610,731
Operating income by segment	32,739,357	28,427,203	1,065,929	970,201	152,080	2,846,729	531,480	503,586	34,488,846	32,747,719
Eliminations/unallocated									1,130,093	266,169
Total operating income									35,618,939	33,013,888
Credit loss expenses	(4,274,451)	(3,083,820)	(325,881)	(74,471)	–	–	–	–	(4,600,332)	(3,158,291)
Net operating income	28,464,906	25,343,383	740,048	895,730	152,080	2,846,729	531,480	503,586	31,018,607	29,855,597
Segment result	16,069,622	15,702,646	740,048	895,730	1,751,483	1,617,091	474,559	449,652	19,035,712	18,665,119
Unallocated operating expenses									(4,350,079)	(4,364,565)
Operating profit									14,685,633	14,300,554
Share of profit of associates - (before tax)									7,118	12,360
Income tax expense									(4,119,294)	(4,231,747)
Non-controlling interest									(10,079)	(1,338)
Net profit for the year, attributable to equity holders of the Parent									10,563,378	10,079,829

 

	Banking		Leasing		Dealing/Treasury		Investments		Total/Consolidated
As at December 31,	2013	2012	2013	2012	2013	2012	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Other information
Segment assets	335,270,625	291,972,329	21,778,745	25,043,149	192,541,792	132,898,416	4,996,180	3,836,916	554,587,342	453,750,810
Investments in associates	–	–	–	–	–	–	94,173	93,712	94,173	93,712
Unallocated assets	–	–	–	–	–	–	–	–	52,510,751	58,376,118
Total assets	335,270,625	291,972,329	21,778,745	25,043,149	192,541,792	132,898,416	5,090,353	3,930,628	607,192,266	512,220,640
Segment liabilities	322,236,766	292,636,055	21,778,745	25,043,149	192,541,792	132,898,416	5,090,353	3,930,628	541,647,656	454,508,248
Unallocated liabilities	–	–	–	–	–	–	–		4,059,604	4,711,831
Total liabilities	322,236,766	292,636,055	21,778,745	25,043,149	192,541,792	132,898,416	5,090,353	3,930,628	545,707,260	459,220,079

 

	Banking		Leasing		Dealing/Treasury		Investments		Total/ Consolidated
For the year ended December 31,	2013	2012	2013	2012	2013	2012	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Information on cash flows
Cash flows from operating activities	51,449,579	10,402,702	3,409,503	(3,660,659)	805,457	(301,398)	(64,543,946)	3,976,690	(8,879,407)	10,417,335
Cash flows from investing activities	–	–	–	–	–	–	(1,025,995)	471,849	(1,025,995)	471,849
Cash flows from financing activities	9,464,350	–	–	–	(132,645)	(132,429)	–	–	9,331,705	(132,429)
Capital expenditure-
Property, plant & equipment	–	–	–	–	–	–	–	–	(925,721)	(1,157,138)
Intangible assets	–	–	–	–	–	–	–	–	(119,903)	(202,433)
Eliminations/ unallocated	–	–	–	–	–	–	–	–	(3,869,351)	(2,579,974)
Net cash flow generated during the year									(5,488,672)	6,817,210

 

Geographical Segments

The following table presents the distribution of total assets, income, profit before tax and profit after tax of the Group/Bank by geographical segment, allocated based on the location in which the transaction assets and liabilities are recorded for the year ended December 31, 2013 together with comparative figures for the year ended December 31, 2012.

	GROUP				BANK
	2013		2012		2013		2012
	Rs. ’000	%	Rs. ’000	%	Rs. ’000	%	Rs. ’000	%
Assets
Sri Lankan operations	561,016,955	92.40	471,153,270	91.98	560,465,291	92.39	470,726,049	91.98
International operations	46,175,311	7.60	41,067,370	8.02	46,141,814	7.61	41,016,659	8.02
Total	607,192,266	100.00	512,220,640	100.00	606,607,105	100.00	511,742,708	100.00
Income
Sri Lankan operations	67,430,397	92.24	58,574,030	92.43	67,492,236	92.25	58,595,750	92.43
International operations	5,670,981	7.76	4,799,723	7.57	5,667,344	7.75	4,799,297	7.57
Total	73,101,378	100.00	63,373,753	100.00	73,159,580	100.00	63,395,047	100.00
Profit before tax
Sri Lankan operations	12,437,041	84.65	12,416,243	86.75	12,229,347	84.28	12,358,802	86.45
International operations	2,255,710	15.35	1,896,671	13.25	2,281,172	15.72	1,936,531	13.55
Total	14,692,751	100.00	14,312,914	100.00	14,510,519	100.00	14,295,333	100.00
Profit after tax
Sri Lankan operations	9,212,231	87.13	9,061,030	89.88	9,058,823	86.72	9,038,332	89.50
International operations	1,361,226	12.87	1,020,137	10.12	1,386,688	13.28	1,059,997	10.50
Total	10,573,457	100.00	10,081,167	100.00	10,445,511	100.00	10,098,329	100.00

 

 

53. Related Party Disclosures

The Bank carried out transactions in the ordinary course of business on an arm’s length basis at commercial rates with parties who are defined as Related Parties as per the Sri Lanka Accounting Standard - LKAS 24 ‘Related Party Disclosures’, except for the transactions that Key Management Personnel (KMPs) have availed under schemes uniformly applicable to all staff at concessionary rates.

53.1 Parent and Ultimate Controlling Party

The Bank does not have an identifiable parent of its own.

53.2 Transactions with Key Management Personnel (KMPs)

Key Management Personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Bank directly or indirectly.

Accordingly the Bank’s KMPs include the Board of Directors (including Executive and Non-Executive Directors) and selected key employees who meet the criteria above.

Close Family Members (CFM) of a KMP are those family members who may be expected to influence, or be influenced by, that KMP in their dealings with the Bank. They may include KMPs domestic partner and children, children of the KMPs domestic partner and dependants of the KMP or the KMPs domestic partner.

As the Bank is the ultimate parent of the Subsidiaries, the Board of Directors of the Bank have the authority and responsibility for planning, directing and controlling the activities of the Group directly or indirectly. Accordingly the Board of Directors of the Bank (Including Executive and Non-Executive) are also KMPs of the Group.

53.2.1.1 Compensation of Directors - Bank

	2013	2012
	Rs. ’000	Rs. ’000
Short term employment benefits	91,590	92,869
Post-employment benefits	5,463	6,459
Total	97,053	99,328

 

53.2.1.2 Compensation of other KMPs - Bank

Short term employment benefits	170,457	161,328
Post-employment benefits	18,073	16,960
Total	188,530	178,288

 

53.2.1.3 Compensation of KMPs - Group

Short term employment benefits	91,912	93,169
Post-employment benefits	5,463	6,459
Total	97,375	99,628

 

In addition to the above the Bank/Group provide non-cash benefits to the KMPs.

53.2.2 Transactions, Arrangements and Agreements Involving KMPs, and their Close Family Members (CFMs)

CFMs of a KMP are those family members who may be expected to influence, or be influenced by, that KMP in their dealings with the entity. They may include KMPs domestic partner and children, children of the KMPs domestic partner and dependents of the KMP or the KMPs domestic partner.

 

53.2.2.1 Statement of Financial Position - Bank

	Year-end Balance		Average Balance
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Assets
Loans and advances	89,564	87,789	90,286	86,625
Credit cards	722	1,774	1,704	194
Total	90,286	89,563	91,990	86,819
Liabilities
Deposits	176,362	154,173	163,139	175,844
Securities sold under re-purchase agreements	32,120	34,014	33,920	118,872
Debentures	200	200	200	200
Total	208,682	188,387	197,259	294,916

 

53.2.2.2 Commitments and Contingencies - Bank

Letters of credit	–	–	–	359
Undrawn facilities	21,255	26,488	30,227	28,757
Total	21,255	26,488	30,227	29,116

 

53.2.2.3 Direct and Indirect Accommodation - Bank

Direct and indirect accommodation as a % of the Bank’s Regulatory Capital

0.17%

0.24%

No impairment losses have been recorded against balances outstanding during the period with KMP, and no specific provision has been made for impairment losses on balances with KMP and their CFMs.

53.2.2.4 Income Statement

	For the Year Ended
	2013	2012
	Rs. ’000	Rs. ’000
Interest income	8,715	8,186
Interest expenses	20,870	26,175
Other income	177	111
Compensation to KMPs [Refer Notes 53.2.1.1 and 53.2.1.2]	285,583	277,616

 

53.2.2.5 Share-Based Benefits to KMPs

	As at the Year End
	2013	2012
Number of ordinary shares held	3,848,833	4,030,871
Dividends paid (In Rs. ’000)	28,144	34,158
Number of cumulative exercisable options under the Employee Share Option Plan (ESOP) 2008 - Tranche I	532,196	817,581
Tranche II	324,719	387,828
Tranche III	422,500	–

53.3 Transactions with Group Entities

The Group entities include the Subsidiaries and Associates of the Bank.

53.3.1 Transactions with Subsidiaries

53.3.1.1 Statement of Financial Position

	Year-end Balance		Average Balance
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Assets
Loans and advances	–	343	1,478	1,503
Lease receivable	16,965	57,401	32,736	89,051
Other	34,504	37,859	36,181	52,120
Total	51,469	95,603	70,395	142,674
Liabilities
Deposits	53,937	42,866	60,395	61,786
Securities sold under re–purchase agreements	175,672	142,721	174,998	113,053
Other	15,686	22,264	18,975	18,632
Total	245,295	207,851	254,368	193,471

 

53.3.1.2 Commitments and Contingencies

Undrawn facilities	–	25,000	15,638	20,833
Total	–	25,000	15,638	20,833

 

53.3.1.3 Direct and Indirect Accommodation

Direct and indirect accommodation as a % of the Bank’s Regulatory Capital

0.03%

0.17%

53.3.1.4 Income Statement

	For the Year Ended
	2013	2012
	Rs. ’000	Rs. ’000
Interest income	7,244	20,189
Interest expenses	23,550	19,092
Other income	70,465	70,437
Expenses paid	345,007	246,574

 

53.3.1.5 Other Transactions

Payments made to ONEzero Company Ltd. in relation to purchase of computer hardware, software and maintenance agreements

99,877

168,691

 

53.3.2 Transactions with Associates

53.3.2.1 Statement of Financial Position

	Year-end Balance		Average Balance
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Assets
Loans and advances	11	11,570	22	12,232
Lease receivables	1,010	2,600	3,988	4,962
Total	1,021	14,170	4,010	17,194
Liabilities
Deposits	78,600	52,707	43,087	83,048
Securities sold under re-purchase agreements	6,840	4,096	14,300	17,393
Total	85,440	56,803	57,387	100,441

 

53.3.2.2 Direct and Indirect Accommodation

Direct and indirect accommodation as a % of the Bank’s Regulatory Capital

0.00%

0.03%

 

53.3.2.3 Income Statement

	For the Year Ended
	2013	2012
	Rs. ’000	Rs. ’000
Interest income	615	2,773
Interest expenses	6,112	11,507
Other income	28,885	55,971

 

53.3.2.4 Other Transactions

Number of ordinary shares held as at the year end		4,408	4,246
Dividend paid (Rs. ’000)		28	21

 

53.4 Transactions with Other Related Entities

Other related entities include significant investors (either entities or individuals) that have control, joint control or significant influence, post-employment benefit plans for the Bank’s employees.

53.4.1 Transactions with the Post-Employment Benefit Plans for the Employees of the Bank

53.4.1.1 Statement of Financial Position

	Year-end Balance		Average Balance
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Assets
Loans and Advances	–	–	–	–
Total	–	–	–	–
Liabilities
Deposits	2,296,724	1,592,507	1,512,629	1,198,568
Securities sold under repurchase agreements	60,042	141,160	11,906	75,644
Total	2,356,766	1,733,667	1,524,535	1,274,212

 

53.4.1.2 Income Statement

	For the Year Ended
	2013	2012
	Rs. ’000	Rs. ’000
Interest income	–	–
Interest expenses	197,602	136,174
Contribution made/taxes paid by the Bank	795,675	782,339

 

54. Events After the Reporting Period

No circumstances have arisen since the reporting date which would require adjustments to or disclosure in the Financial Statements other than those disclosed below:

54.1 Second Interim Dividend - 2013

The Bank declared and paid a second interim dividend of Rs. 1.00 per share on January 27, 2014 to both the voting and non-voting ordinary shareholders of the Bank.

54.2 Final Dividend - 2013

The Board of Directors of the Bank have recommended the payment of a final dividend of Rs. 4.00 per share which consist of a cash dividend. Rs. 2.00 per share and the balance entitlement of Rs. 2.00 per share that will be satisfied in the form of issue and allotment of new shares for both the voting and non-voting ordinary shareholders of the Bank for the year ended December 31, 2013. (Further, this dividend is to be approved at the Annual General Meeting to be held on March 31, 2014). In accordance with the Sri Lanka Accounting Standard 10 on ‘Events after the Reporting Period’. The above second interim dividend and the proposed final dividend for 2013 have not been recognised as a liabilities as at December 31, 2013. Under the Inland Revenue Act No. 10 of 2006, a withholding tax of 10% has been imposed on dividends declared.

Compliance with Sections 56 and 57 of Companies Act No. 07 of 2007

As required by Section 56 of the Companies Act No. 07 of 2007, the Board of Directors of the Bank satisfied the solvency test in accordance with Section 57, prior to recommending the final dividend. A statement of solvency completed and duly signed by the Directors on February 25, 2014 has been audited by KPMG Sri Lanka.

55. Net Assets Value Per Ordinary Share

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Amounts used as the numerator:
Total equity attributable to equity holders of the Bank	61,446,228	52,968,420	60,943,999	52,577,000
Number of ordinary shares used as the denominator:
Total number of shares	849,079,041	833,487,980	849,079,041	833,487,980
Net assets value per share	72.37	63.55	71.78	63.08

 

56. Financial Risk Management

This note presents information about the Bank’s exposure to financial risks and the Bank’s management of capital.

Credit risk:
(A) Analysis of credit quality
(B) Credit concentration risk
(C) Collateral held and their financial effect
(D) Impaired loans and receivables
Market risk
Liquidity risk
Capital management

 

Bank’s Financial Risk Management Framework

The Risk Management Framework of the Bank has been optimised through the application and the embedment of the risk management processes including risk identification, risk assessment/risk measurement, risk monitoring, risk mitigation and risk control.

By using appropriate systems, tools and procedures, all the components of the risk framework are subject to continuous monitoring and review, including formal audits to ensure integrity of the overall risk management function.

The Bank identifies the following key financial risks in its business operations:

1. Credit Risk
2. Market Risk
3. Liquidity Risk
4. Capital Management

Key Risk Area	Risk Management Process
Credit Risk	Apart from the risk identification, risk evaluation and risk mitigations adopted by the Lending Officers as the ‘risk owners’, Credit Risk is managed at the Bank in two fronts. Pre disbursement evaluation of credit proposals above a certain threshold level is employed to provide an independent insight to the credit proposals. Risk approval is being provided with independent assessment on the proposal to facilitate approving authority to have a broader understanding of the credit proposal prior to sanctioning. Post disbursement Credit Risk Reviews are being carried out to ensure adherence to Credit Policy and Lending Guidelines of the Bank in general and to ascertain adoption of uniform practices throughout the Bank with a view to maintain and preserve the quality of credit portfolios while inculcating a sound credit culture.
Market Risk/Liquidity Risk	Middle Office and Market Risk Management Unit of the Bank is entrusted with independently identifying risk factors associated with the market volatilities in addition to the roles played by the Treasury Front Office as the primary ‘risk owners’. The management process includes monitoring and reporting in addition to carrying out scenario analysis/stress testing on market factors to facilitate proactive decision making. Liquidity risk too is managed by the Bank under the supervision of the ALCO, by using threshold levels and Management Action Triggers through policy framework supported by a robust MIS.
Capital Management	The Bank realises the importance of managing capital as it restricts the business growth unlike any other commercial organisation. All large credit proposals are evaluated with the capital charge and lending decisions are taken on the basis of sufficient return on capital. Even the expansion projects in terms of new buildings and software purchases are evaluated against sufficient return on capital. The Bank always maintains a relatively higher level of free capital which will be utilised for lending activities thereby improving the net interest income of the Bank. Further, the Bank also maintains an effective balance between dividend payment and retention of profits ensuring sufficient plough back of profits.

Credit Risk:

The Bank strives to optimise a well structured credit risk management process through assessing, evaluating, pricing, mitigating, monitoring and managing credit risk in a consistent manner. Bank’s general policy is to assume credit exposures with short to medium-term maturities. This reduces the overall credit risk in the portfolios to a great extent.

(A) Analysis of Credit Quality:

(i) Loans and Receivables

The table below sets out the information about the credit quality of financial assets and the allowance for impairment held by the Bank against those assets.

Credit Quality Analysis	Internal	Loans and Receivables to Other Customers		Loans and Receivables to Banks
	Risk Grade	2013	2012	2013	2012
		Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Maximum exposure to credit risk
Carrying amount		418,959,675	372,915,081	546,270	628,760
Amount committed/guaranteed
		418,959,675	372,915,081	546,270	628,760
At amortised cost
Risk grading:
Very Good - Average	0-6 & G	414,550,983	370,794,319	546,270	628,760
Special mention	S	2,251,920	3,149,428	–	–
Substandard	7	3,208,215	1,738,362
Doubtful	8	2,192,363	1,043,926	–	–
Loss	9	12,543,359	9,690,273	–	–
Total gross amount		434,746,840	386,416,308	546,270	628,760
Allowance for impairment		15,787,165	13,501,227	–	–
Net carrying amount		418,959,675	372,915,081	546,270	628,760

 

(ii) Held-for-Trading Financial Instruments

The trading portfolio of the Bank’s Sri Lankan operations mainly consists of Government Securities (Rs. 4.06 Bn.), selective trading being carried out on other marketable securities such as Debentures and shares. Distribution of such trading portfolio based on Fitch Rating or equivalent ratings as at December 31, 2013 is given below:

Fitch Rating Nomenclature or Equivalent	Trading Portfolio - Shares as at December 31, 2013 Rs. ’000
A	35,656
AA-	4,310
AAA	73,312
Unrated	221,129
Total	334,407

The Bank does not have any counterparty credit exposure arising from derivative transactions.

(iii) Non-Performing Asset Ratio

The distribution of the credit portfolio based on the internal rating system adopted by the Bank indicates that as of December 31, 2013, 96% of the loans and receivables are rated 0-6 (i.e. Average/Generally Accepted) or above, indicating a healthy Loans and Receivables portfolio.

NPA percentage movement which depicts the quality of credit portfolio of the Bank over the past 2-year period is given below:

NPA ratios are calculated on gross and net basis. Gross NPA advances including interest receivable on NPA and net of interest in suspense forms the numerator (considering the loans and receivables rated risk gradings 7,8,9) of the gross NPA ratio. Net NPA is arrived after discounting the specific provision from the gross NPA as calculated above to form the numerator of the Net NPA ratio.

Denominator of both ratios consists of total advances including the interest receivable net of interest in suspense.

(B) Credit Concentration Risk:

The Bank considers maintaining credit concentration risk at appropriate levels as a key component of its overall credit risk management process.

The Bank’s loan portfolio spreads over a well diversified range of products with different risk profiles. Even though the long-term loans (loans having remaining term to maturity periods over 12 months) appear to be the major part of the portfolio, these loans are granted to a diversified pool of borrowers across different industry segments thus reducing potential concentration risks. The majority of such loans have remaining term to maturity periods less than 5 years. Although Western Province is vested with highest credit concentration, we believe that a sizable portion of these lending has been utilised to facilitate industries scattered around the country. For example, most of the large corporates which have island-wide operations are being accommodated by the Branches and Corporate Banking Division situated in the Western Province thus reflecting a fairly diversified geographical concentration on such borrowers.

Country-wise Exposure

(C) Collateral Held and Their Financial Effect

As a general principle, the Bank endeavours to obtain adequate collateral to secure its credit portfolios. The Bank focuses on quality and realisability of such collateral to mitigate potential credit losses. A reasonable margin of safety is maintained in collateral values which are reviewed at frequent intervals.

Cash, marketable securities and property mortgages (residential and commercial) account for a major portion of the collateral portfolios. Out of these collaterals, eligible financial collateral and mitigants in computing Basel II related credit risk exposures are given below:

Eligible Financial Collaterals/Mitigants	Value of Collateral (Rs. Bn.)
Cash	34.4
Gold	6.5
Government Securities	1.6
Residential Properties	31.6
Shares (Rated)	9.1
Guarantees (Rated) - Corporate/Bank/Government	5.4
Provident Fund Balances	0.1
Total	88.7

The Bank always strives to adopt prudential norms in deciding the Loan to Value (LTV) ratio when collaterals are considered as a means of credit risk mitigatory measure to safeguard the interest of the Bank in an eventuality.

Forced Sale Value (FSV) of the assets obtained by the Bank by taking possession of collateral held as security against loans and advances and held in possession as at December 31, 2013 is Rs. 579.7 Mn. Out of these, properties having FSV of Rs. 91.6 Mn. are readily available for disposal free of legal encumbrances.

(D) Impaired Loans and Receivables

The table below sets out reconciliation of changes in the carrying amount of individually impaired loans and receivables to customers.

	2013	2012
	Rs. ’000	Rs. ’000
Impaired loans and advances to other customers at January 1,	2,569,121	2,108,544
Classified as impaired during the year	2,238,689	1,649,436
Change in provision for impairment	(3,021,394)	(1,296,697)
Net payment, write-off and recoveries and other movement during the year	811,958	107,837
Impaired loans and advances to other customers at December 31,	2,598,374	2,569,121

For details of impairment for loans and receivables to customers, see Note 26.2.

Set out below is an analysis of the gross (Net of provision for impairment) amounts of individually impaired loans and receivables by risk grade.

		Loans and Receivables to Customers
	Internal Risk Grade	Gross	Net
		Rs. ’000	Rs. ’000
December 31, 2013
Risk grading:
Very Good - Average	0-6 & G	653,836	297,306
Special mention	S	215,859	125,664
Substandard	7	1,032,094	752,983
Doubtful	8	618,735	425,823
Loss	9	4,282,500	996,597
Total		6,803,024	2,598,374
December 31, 2012
Risk grading:
Very Good - Average	0-6 & G	1,860,856	1,011,367
Special mention	S	369,610	166,913
Substandard	7	168,638	94,934
Doubtful	8	212,308	142,694
Loss	9	3,359,873	1,153,213
Total		5,971,285	2,569,121

 

Market Risk:

Market risk encompasses Interest Rate Risk, Foreign Exchange Risk, Commodity Risk and Equity Risk that may arise as a result of change in the financial market conditions such as change in interest rates, change in Foreign Exchange rates, change in commodity prices or change in share prices.

Out of the risks listed above under market risk, Interest Rate Risk is considered as the major risk in this category followed by the Foreign Exchange Risk due to the inherent nature of the Statement of Financial Position of the Bank. As the Bank’s equity portfolio is nominal compared to the total market risk exposures and due to the fact that the Bank refrains from trading in commodities, these two risk types do not significantly expose the Bank to uncertainties in its earnings and/or capital.

The Bank carries a trading book mainly consisting of Government Securities and therefore volatilities in interest rates could impact the profitability of the Bank. However, processes are in place to independently mark to market these portfolios on a daily basis to make timely decisions to minimise any large adverse impact.

(A) Sensitivity Analysis

The graph below depicts the sensitivity analysis carried out on the Statement of Financial Position of the Sri Lankan Operation of the Bank (including Trading Book) on the change of interest rate right across the market in a hypothetical situation. The Bank could withstand this kind of impact arising out of sudden interest rate movement due to the availability of large Current Account and Savings (CASA) base and having a healthy asset and liability mix which could be re-priced. The sensitivity analysis factors in re-pricing terms on floating rate assets and liabilities to ensure rate shock reflects the correct moment in time that the relevant instrument will get impacted. The time horizon of the study is restricted to a 12 month period. The Bank undertakes varying degrees of such rate shocks and evaluates with the established limit structures to ensure that the risk exposures are within the risk appetite of the Bank as compared to the anticipated market rate movements.

	100 bp Parallel Increase/ Decrease (*)
Sensitivity to Projected Net Interest Income	2013	2012
	Rs. Mn.	Rs. Mn.
As at December 31,	+/- 1,027.93	+/- 850.98
Average for the year	+/- 836.99	+/- 840.30
Maximum for the year	+/- 1,027.93	+/- 945.46
Minimum for the year	+/- 751.33	+/- 687.95

 

(*) Parallel increase in rates would have a positive impact on the earnings while a parallel decrease negatively affecting the earnings.

In arriving at the above results, the Bank considered items such as capital, reserves, bills payable, inter branch adjustments, staff loans, provisions and interest in suspense as rate non-sensitive. Similarly cash, current accounts, fixed assets too are considered to be non-rate sensitive.

(B) Exposure to Interest Rate Risk - Non-Trading Portfolio

Interest rate gap position of the non-trading portfolio of the Bank is given below:

Bank

As at December 31,	Up to 3 months	3 to 12 months	1 to 3 years	3 to 5 years	More than 5 years	Total as at 31.12.2013
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Assets
Interest earning assets:
Cash and cash equivalents	135,148	–	–	–	–	135,148
Loans and receivables to banks	–	–	–	–	–	–
Loans and receivables to other customers	178,953,027	60,786,281	115,479,366	43,096,409	20,644,592	418,959,675
Financial investments - Available-for-sale	33,508,356	67,404,741	8,962,927	10,828,935	2,994,403	123,699,362
Total interest earning assets as at December 31, 2013	212,596,531	128,191,022	124,442,293	53,925,344	23,638,995	542,794,185
Liabilities
Interest bearing liabilities:
Due to banks	9,575,006	2,620,000	–	–	–	12,195,006
Due to other customers	268,795,021	124,398,156	8,158,766	6,461,491	7,568,542	415,381,976
Debt securities issued	–	–	–	–	–	–
Subordinated liabilities	132,385	126,802	972,660	–	9,825,000	11,056,847
Total Interest bearing liabilities as at December 31, 2013	278,502,412	127,144,958	9,131,426	6,461,491	17,393,542	438,633,829
	(65,905,881)	1,046,064	115,310,867	47,463,853	6,245,453	104,160,356

 

As at December 31,	Up to 3 months	3 to 12 months	1 to 3 years	3 to 5 years	More than 5 years	Total as at 31.12.2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Assets
Interest earning assets:
Cash and cash equivalents	5,169,379	126,486	–	–	–	5,295,865
Loans and receivables to banks	–	95,000	–	–	–	95,000
Loans and receivables to other customers	156,622,403	67,596,689	98,596,707	33,821,496	16,277,786	372,915,081
Financial investments - Available-for-sale	23,233,313	20,980,372	9,965,095	2,417,398	1,327,596	57,923,774
Total interest earning assets as at December 31, 2012	185,025,095	88,798,547	108,561,802	36,238,894	17,605,382	436,229,720
Liabilities
Interest bearing liabilities:
Due to banks	1,354,651	–	–	–	–	1,354,651
Due to other customers	240,404,347	99,316,446	5,906,406	5,837,521	7,083,119	358,547,839
Debt securities issued	–	–	–	–	–	–
Subordinated liabilities	132,806	550	–	972,660	–	1,106,016
Total Interest bearing liabilities as at December 31, 2012	241,891,804	99,316,996	5,906,406	6,810,181	7,083,119	361,008,506
	(56,866,709)	(10,518,449)	102,655,396	29,428,713	10,522,263	75,221,214

 

(C) Foreign Exchange Risk

Foreign Exchange Risk of the Bank arising out of Net Open Position (NOP) of foreign currency denominated assets and liabilities is evaluated against thresholds established according to the risk appetite of the Bank after carrying out sensitivity analysis of change in 1% of US $ rate as depicted below:

The Bank is in the process of embracing VaR computations for Fixed Income, Foreign Exchange Position and Equities with the implementation of the market risk software solution to embed more robust risk assessment in quantifying and predicting with the ultimate objective of estimating Economic Capital required for absorbing unexpected losses over a certain time horizon at a given confidence interval.

Liquidity Risk

As a financial intermediary, it is important for the Bank to manage liquidity risk on a day-to-day basis through a robust reporting and limit monitoring framework. In addition to the daily limit monitoring and Management Information System supported decision-making process, the Bank makes use of rigorous stress testing to evaluate its resilience to potential liquidity stress scenarios to facilitate proactive decision-making with a view to avoiding unforeseen adverse surprises in relation to liquidity. Contingency funding plans are in place to facilitate smooth functioning of the banking operation even in an unlikely event of a severe liquidity constraint.

Maturity Analysis of the Bank (Please refer Note 50 on Maturity Analysis).

Capital Management

Capital is a scarce resource for any organisation. For a bank, it has a more broad meaning as capital restricts the expansion of the business unlike any other commercial organisation. The worldwide accepted parameter for measurement of capital is the Capital Adequacy Ratio (CAR) calculated based on Guidelines issued by the Basel Committee.

Historically the Bank has been maintaining a relatively higher CAR when compared to other commercial banks. The unhindered growth of the Bank partly would have contributed to the higher level of capital maintained by the Bank. Further, the Bank deliberately maintains part of the capital in US $ to mitigate the adverse impact of depreciation of the local currency as well as to facilitate the overseas expansion plans.

The Bank has a well structured Corporate Planning and Budgeting procedure. Large capital budgeting decisions are arrived at after evaluating the impact of such decisions on the capital position of the Bank.

The Bank always strives to achieve an optimum balance between Tier I and Tier II capital. In 2013, the Bank raised a subordinated liability of US $ 75.0 Mn. from IFC which would qualify to be treated under Tier II capital of the Bank. Due to the above mentioned efforts, the Bank was able to maintain a CAR of approximately 17%, one of the highest in the banking industry in Sri Lanka today.

	BANK
	2013	2012
	Rs. ’000	Rs. ’000
Computation of Capital Base
Tier I: Core Capital
Paid-up ordinary shares/common stock/assigned capital	19,586,813	18,008,797
Statutory reserve fund	3,768,094	3,245,819
General and other reserves/published retained profits/(accumulated losses)	28,595,196	24,311,605
Less:
Other intangible assets	(467,594)	(497,038)
Advances granted to employees of the Bank for the purchase of shares of the Bank	(1,122)	(1,548)
50% investments in the capital of other banks and financial institutions	(402)	(402)
Total eligible core capital (Tier I Capital)	51,480,986	45,067,233
Tier II: Supplementary capital
Revaluation reserves (as approved by CBSL)	2,034,231	2,034,231
General provisions	1,656,465	1,500,098
Approved subordinated term debt	10,408,596	778,238
Less:
50% investments in the capital of other banks and financial institutions	(402)	(402)
Eligible supplementary capital (Tier II capital)	14,098,890	4,312,165
Total capital base	65,579,876	49,379,398
Computation of Ratios
Total risk-weighted assets (RWA)
Total risk-weighted assets for credit risk	341,584,473	318,906,288
Total risk-weighted assets market risk	5,312,861	3,082,784
Total risk-weighted assets operational risk	40,989,114	34,629,967
Sub total	387,886,447	356,619,039
Minimum Capital Charge
Minimum capital charge for credit risk	34,158,447	31,890,629
Minimum capital charge for market risk	531,286	308,278
Minimum capital charge for operational risk	4,098,911	3,462,997
Sub total	38,788,645	35,661,904
Total Capital Available to Meet the Capital Charge for Credit Risk
Total eligible core capital (Tier I capital)	51,480,986	45,067,233
Total eligible supplementary capital (Tier II capital)	14,098,890	4,312,165
Total capital base	65,579,876	49,379,398
Core Capital Ratio (minimum requirement 5%)
Total eligible core capital (Tier I capital)	51,480,986	45,067,233
Total risk-weighted assets	387,886,447	356,619,038
	13.27%	12.64%
Total Capital Ratio (minimum requirement 10%)
Total capital base	65,579,876	49,379,398
Total risk-weighted assets	387,886,447	356,619,039
	16.91%	13.85%

Fair values of Financial Assets not carried at fair value

Treatment for fair value of financial assets not carried at fair value is given in the Note 19.1.

57. Non-Cash Items Included in Profit Before Tax

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Depreciation of property, plant & equipment	717,583	942,765	786,024	859,675
Amortisation of leasehold property	1,452	1,452	942	942
Amortisation of intangible assets	149,347	174,104	149,291	174,055
Impairment losses on loans and advances	4,600,332	3,158,291	4,600,332	3,158,291
Other impairment	–	–	26,993	38,469
Contributions to defined benefit plans - Unfunded schemes	165,791	228,793	160,113	224,390
Exchange rate variances on property, plant & equipment	(9,091)	(26,675)	(7,607)	(23,939)
Exchange rate variances on intangible assets	(1,011)	(2,794)	(397)	(1,646)
Exchange rate variances on defined benefit plans	7,294	9,509	7,294	9,509
Exchange rate variances on associates	–	(23)	–	–
Total	5,631,697	4,485,422	5,722,985	4,439,746

 

58. Change in Operating Assets

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Net (increase)/decrease in derivative financial instruments	(513,401)	1,311,483	(513,401)	1,311,483
Net (increase)/decrease in balances with Central Banks	263,897	825,080	263,897	825,080
Net (increase)/decrease in placements with banks	(12,031,156)	4,488,607	(12,031,156)	4,488,607
Net (increase)/decrease in other financial assets held-for-trading	337,948	(376,900)	337,948	(376,900)
Net (increase)/decrease in loans and receivables to banks	(82,490)	48,602	(82,490)	48,602
Net (increase)/decrease in loans and receivables to customers	49,661,215	62,160,479	49,618,931	62,059,254
Net (increase)/decrease in financial investments available-for-sale	64,205,998	(4,071,639)	64,205,998	(4,071,639)
Net (increase)/decrease in other assets	357,539	1,888,846	363,768	1,903,219
Total	102,199,550	66,274,558	102,163,495	66,187,706

 

59. Change in Operating Liabilities

	GROUP		BANK
	2013	2012	2013	2012
	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Net increase/(decrease) in due to banks	9,300,274	(6,810,540)	9,300,274	(6,810,540)
Net increase/(decrease) in derivative financial instruments	1,327,625	(350,880)	1,327,625	(350,880)
Net increase/(decrease) in deposits from banks, customers and debt securities issued	60,530,264	66,871,054	60,541,375	66,856,800
Net increase/(decrease) in other borrowings	6,561,938	(1,889,060)	6,590,356	(1,889,943)
Net increase/(decrease) in other provisions	–	1,874	–	1,874
Net increase/(decrease) in other liabilities	(685,678)	2,000,842	(685,564)	1,999,373
Net increase/(decrease) in due to subsidiaries	–	–	(6,578)	(7,470)
Total	77,034,423	59,823,290	77,067,488	59,799,214