Financial Reports

Annual Report of the Board of Directors

ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANY AND STATEMENT OF COMPLIANCE OF THE CONTENTS OF THE ANNUAL REPORT

1. GENERAL

The Directors of Commercial Bank of Ceylon PLC (the Bank) have pleasure in presenting to the shareholders this Report together with the Audited Financial Statements and the Consolidated Financial Statements for the year ended December 31, 2010 of the Bank and the Group and the Auditors’ Report on those Financial Statements, conforming to the requirements of the Companies Act No. 07 of 2007, Banking Act No. 30 of 1998 & amendments thereto and the Directions issued thereunder.

The Commercial Bank of Ceylon PLC is a Licensed Commercial Bank registered under the Banking Act No. 30 of 1988 and was incorporated as a public limited liability Company in Sri Lanka on June 25, 1969 under the Companies Ordinance No. 51 of 1938 and was re-registered as per the Companies Act No. 07 of 2007 on January 23, 2008, under the Company Registration No. PQ 116. The ordinary (voting and non-voting) shares of the Bank are quoted on the main board of the Colombo Stock Exchange since March 1970. The unsecured subordinated redeemable debentures issued by the Bank are also listed on the Colombo Stock Exchange. The Bank’s implied long term unsecured senior debt has been assigned AA (lka) by Fitch Ratings Lanka Ltd.

The registered office of the Bank is at No. 21, “Commercial House”, Bristol Street, Colombo 1, at which the Bank’s Head Office too is situated.

This Report provides the information as required by the Companies Act No. 07 of 2007, Banking Act Direction No. 11 of 2007 on Corporate Governance for Licensed Commercial Banks, Listing Rules of the Colombo Stock Exchange and the recommended best practices on Corporate Governance. This Report was approved by the Board of Directors on February 15, 2011.

This information is disclosed under the Section 168 of the Companies Act No. 07 of 2007, which requires the following information to be published in the Annual Report prepared for the year under review (i.e., for the year ended December 31, 2010):

Information required to be disclosed as per the Companies Act No. 7 of 2007 Reference to the
Companies Act
Extent of Compliance
by the Bank
(i) The nature of the business of the Bank and its Subsidiaries together with any change
     thereof during the Accounting Period
Section 168 (1) (a) Refer Item 2.2.1 below
(ii) Signing of Financial Statements of the Group and the Bank Section 168 (1) (b) Refer Item 2.3 below
(iii) Auditors’ Report on Financial Statements of the Group and the Bank Section 168 (1) (c) Refer Item 2.5 below
(iv) Accounting Policies and any changes therein of the Bank and its Subsidiaries Section 168 (1) (d) Refer Item 2.6 below
(v) Entries made in the Interests Register Section 168 (1) (e) Refer Item 2.7 below
(vi) Remuneration and other benefits of Directors of the Bank and its Subsidiaries Section 168 (1) (f) Refer Item 2.8 below
(vii) Amount of donations made by the Bank and its Subsidiaries Section 168 (1) (g) Refer Item 2.9 below
(viii) Information of Directorate of the Bank and its Subsidiaries Section 168 (1) (h) Refer Item 11 below
(ix) Amounts payable to the Auditor as Audit Fees and Fees for other services rendered Section 168 (1) (i) Refer Item 20 below
(x) Auditors’ relationship or any interest with the Bank and its Subsidiaries
      - Audit Fee/Non-Audit Fee
Section 168 (1) (j) Refer Item 20 below
(xi) Acknowledgement of the Contents of the Report Section 168 (1) (k) Refer Item 27 below

 

2. REVIEW OF BUSINESS

2.1 Vision, Mission and Corporate Conduct

The Bank’s Vision and Mission are given on Home page. The business activities of the Bank and the Group are conducted maintaining the highest level of ethical standards in achieving its Vision and Mission as set out in the Bank’s Code of Ethics. The Bank has issued a copy of its Code of Ethics to each and every staff member.

2.2 Review on Operations of the Bank and the Group

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

2.2.1 Principal Activities of the Bank and the Group

The following table provides details on the nature of the principal business activities of the Bank and the Group as required by the Section 168 (1) (a) of the Companies Act No. 07 of 2007. There were no significant changes in the nature of the principal activities of the Bank and the Group during the financial year under review.

Entity Principal Business Activities
Bank The principal activities of the Bank continued to be banking and related activities such as accepting deposits, personal banking, trade financing, off-shore banking, resident and non-resident foreign currency operations, travel-related services, corporate and retail credit, syndicated financing, project financing, development banking, lease financing, rural credit, issuing of local and international debit and credit cards, telebanking facilities, Internet banking, money remittance facilities dealing in Government Securities and treasury-related products, salary remittance package, bullion trading, pawning, export and domestic factoring, margin trading, e-banking services, Bancassurance, etc.
Subsidiaries
Commercial Development Company PLC
Property development and related ancillary services.
ONEzero Company Ltd. Providing IT - related services.
Commex Sri Lanka S.R.L. To act as an agent to the Bank and provide money transfer services, open accounts, issuance and encashment of foreign currencies & travellers’ cheques and collecting applications for credit facilities.
Associates
Equity Investments Lanka Ltd.
Fund management.
Commercial Insurance Brokers (Pvt) Ltd. Insurance brokering.

 

2.3 Financial Statements of the Group and the Bank

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

2.4 Directors’ Responsibility for Financial Reporting

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

2.5 Auditors’ Report

The Bank’s Auditors, Messrs Ernst & Young performed the audit on the Consolidated Financial Statements for the year ended December 31, 2010, and the Auditors’ Report issued thereon as required by the Section 168 (1) (c) of the Companies Act No. 07 of 2007.

2.6 Accounting Policies and Changes During the Year

The Significant Accounting Policies adopted in the preparation of the Financial Statements of the Group and the Bank are given on Notes to the Financial Statements of the Annual Report as required by the Section 168 (1) (d) of the Companies Act No. 07 of 2007. In the year under review, there were no changes in the Accounting Policies adopted which were consistent with those adopted in the previous financial year as required by the Sri Lanka Accounting Standard No. 3 (Revised 2005) on ‘Presentation of Financial Statements’.

2.7 Entries in the Interests Registers of the Group and the Bank

The Interests Registers are maintained by the Group and the
Bank, as required by the Section 168 (1) (e) of Companies Act No. 07 of 2007. All Directors have made declarations as provided for in the Section 192 (2) of the Companies Act aforesaid. The related entries were made in the respective Interests Registers during the year under review. The share ownership of Directors is disclosed on Note 12 below. The Interests Registers are available for inspection as required by the Section 119 (1) (d) of the Companies Act No. 07 of 2007.

2.8 Directors’ Remuneration and Other Benefits

Directors’ remuneration and other benefits, in respect of the Group and the Bank for the financial year ended December 31, 2010, are given in Note 7 to the Financial Statements as required by the Section 168 (1) (f) of the Companies Act No. 07 of 2007.

2.9 Corporate Donations by the Group and the Bank

During the year, the Bank made donations amounting to Rs. 57,378,600/- (Rs. 22,442,458/- in 2009) in terms of the Resolution passed at the last Annual General Meeting. The donations made to Government approved charities from the above amounted to Rs. 1,925,000/- (Rs. 628,250/- in 2009). The information given above on donations forms an integral part of the Report of the Board of Directors as required by the Section 168 (1) (g) of the Companies Act No. 07 of 2007. The Subsidiaries of the Bank did not make any donations during the year under review.

3. Future Developments

During the year, 15 new Branches were opened, bringing the total number of branches to 187 at the end of 2010. In addition, the Bank installed 32 new ATMs during 2010 bringing the total number of ATMs to 400 by the end of the year. Further, as a result of these initiatives taken, the Bank is now able to offer customers in 07 countries and over 210 locations, the ability to transfer funds via the Internet. The Bank intends to expand its branch network both in Sri Lanka and in Bangladesh by employing client-focused strategy with effective management of capital, liquidity and risk. The Bank will continue to develop its customer-centric model, for doing business with the objective of delighting our customers. Please refer Sections in the Letter from the Chairman, Managing Director’s Review, and the Management Discussion & Analysis for further information on future developments.

4. Gross Income

The gross income of the Group for 2010 was Rs. 41,481.762 Mn. (Rs. 43,614.562 Mn. in 2009) while the Bank’s gross income was Rs. 41,521.531 Mn. (Rs. 43,740.933 Mn. in 2009). Analysis of the income is given in Note 2 to the Financial Statements.

The sources of external operating income, net operating profit and asset allocation of the Group among substantially different classes of business together with their proportions are given in Note 39 to the Financial Statements.

5. Dividends and Reserves

5.1 Profit and Appropriations

The net profit before tax of the Group and the Bank increased by 30.44% and 29.56% respectively (in comparison to the negative growth of 3.86% and 4.37% in 2009). Further, net profit after tax of the Group and the Bank increased by 31.41% and 28.30% respectively (in comparison to the positive growth of 1.76% and 0.86% in 2009).

Details of profit relating to the Bank are given below:

2010
Rs.
2009
Rs.
Profit for the year after payment of all expenses of management and providing for depreciation, possible loan losses, Financial VAT and contingencies 9,317,393,816 7,191,841,960
Less: provision for taxation (3,794,100,581) (2,886,852,463)
Net profit after taxation 5,523,293,235 4,304,989,497
Balance brought forward from previous year 2,217,412 5,873,085
Profit available for appropriation 5,525,510,647 4,310,862,582
Less: Appropriations
Transfer to the Statutory Reserve Fund (276,164,412) (215,249,475)
Transfer to Special Risk Reserve of Primary Dealer Unit (31,528,615) (52,982,068)
Transfer to the Special Reserve of
Primary Dealer Unit
(94,585,845) (158,946,205)
Transfer to General Reserve (2,475,000,000) (2,130,000,000)
Dividends on Ordinary Shares
1st Interim Dividend of Rs. 1.50 per share (Rs. 1.50 in 2009) (566,082,116) (374,719,050)
2nd Interim Dividend of Rs. 1.50 per share (Rs. 1.50 in 2009) (566,220,723) (374,849,180)
Final Dividend of Rs. 4.00 per share (Rs. 4.00 in 2009) (1,509,946,328) (1,001,899,192)
Balance carried forward 5,982,608 2,217,412
     

The dividend payout ratio amounts to 47.84% of the profit after tax of 2010, compared to 40.64% for 2009, which is well above the minimum dividend payout ratio of 25%, stipulated in the Deemed Dividend Tax Rule.

5.2 Provision for Taxation

The Income tax rate applicable on the Bank’s domestic operations and on-shore profits of the Off-Shore Banking Centre is 35%. The off-shore profits of the Off-Shore Banking Centre are subjected to an income tax at the rate of 20%. The profit of the Bank’s Bangladesh Operations is taxed at 42.5% effective January 01, 2009 (previously 45%). The profit of the Sri Lankan operation of the Bank is also liable for Value Added Tax at the rate applicable for Financial Services which is 20%.

In terms of the Government Budget Proposals announced in November 2010, substantial changes were proposed. However, these changes are yet to be enacted. Salient features related to income tax and Value Added Tax rates on Financial Services of the Sri Lankan operation applicable from January 01, 2011 are given below for information of the shareholders.


The Group has also provided deferred tax on all known temporary differences under the liability method, as permitted by the Sri Lanka Accounting Standard No. 14 on Income Taxes.

Information on Income Tax Expense and Deferred Taxes of the Group is given in Notes 11 and 29, to the Financial Statements respectively.

5.3 Dividends on Ordinary Shares

The Directors recommend a dividend of Rs. 4.00 per share (Rs. 2.00 per share in the form of a cash dividend and Rs. 2.00 per share in the form of a scrip dividend) as the final dividend for the year 2010 (a cash dividend of Rs. 4.00 in 2009). Two interim dividends of Rs. 1.50 per share each were paid in November and December 2010 (two interim dividends of Rs. 1.50 per share each were paid in 2009 as well). Information on dividends is given in Note 13 to the Financial Statements.

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

The Directors have proposed to pay Rs. 2.00 out of the proposed final dividend of Rs. 4.00 per share partly out of dividends received and partly out of taxable profits of the Bank. The dividends paid out of taxable profits of the Bank will be subject to a 10% withholding tax. The balance dividend of Rs. 2.00 per share is proposed to be paid in the form of a scrip dividend, subject to a 10% withholding tax.

The Board of Directors fulfilled that the Bank would meet the requirement of the Solvency Test in terms of the Section 31 (3) of the Companies Act No. 07 of 2007 immediately after the payment of interim dividends and would ensure the compliance of solvency after the payment of the final dividend proposed to be paid in April 2011. The Board of Directors provided the Statement of Solvency to the Auditors and obtained Certificates of Solvency from the Auditors in respect of each dividend payment conforming to the statutory provision.

5.4 Reserves

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

2010
Rs. ’000
2009
Rs. ’000
Statutory Reserve Fund 2,338,510 2,062,346
Special Risk Reserve of Primary Dealer Unit 133,320 101,791
Revaluation Reserve 2,943,222 1,533,746
Special Reserve of Primary Dealer Unit 682,912 588,327
General Reserve 15,678,306 13,219,440
Foreign Currency Translation Reserve (549,738) (371,527)
Retained Profits 1,474,851 978,832
Total 22,701,383 18,112,955
     

Information on the movement of reserves is given in the Statement of Changes in Equity and in Note 34 to the Financial Statements.

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

Capital expenditure on Property, Plant & Equipment (including Capital Work-in-Progress), Leasehold Property and Intangible Assets of the Bank amounted to Rs. 862,678 Mn., Rs. Nil and Rs. 116.585 Mn., respectively (Rs. 726.752 Mn., Rs. Nil and Rs. 164.185 Mn., in 2009). Details of these are given in Notes 23, 24 and 26 to the Financial Statements. Capital expenditure approved and contracted for are given in Note 36.1 to the Financial Statements.

7. Market Value of Freehold Properties

Except for the land and buildings which were revalued during 2010, all other freehold land and buildings of the Bank were last revalued by professionally qualified independent valuers as at December 31, 2004, and brought into Financial Statements with the concurrence of the Central Bank of Sri Lanka. The Directors are of the opinion that the revalued amounts are not in excess of the current market values of such properties. The details of freehold properties owned by the Bank are given in Note 23.3 to the Financial Statements.

8. Issue of Shares and Debentures

8.1 Issue of Shares and Debentures by the Bank

Details of the shares issued by the Bank are given in the table below. No debentures were issued by the Bank during the year under review.

2010 2009
Class of Share Voting Ordinary
Shares
Voting Ordinary
Shares
Number of Shares Issued 2,081,508 540,045
Consideration Received (Rs. ’000) 203,401 59,669
Reason for the Issue Exercise of options by employees under the Employee Share Option Plans

 

8.2 Issue of Shares and Debentures by the Subsidiaries and Associates

Neither shares nor debentures were issued by the Subsidiaries and Associates of the Bank during the above periods.

8.3 Stated Capital and Debentures

The Stated Capital as at December 31, 2010, was Rs. 10,811.193 Mn., consisting of 353,305,387 Ordinary Voting Shares and 24,181,195 Ordinary Non-Voting Shares (Rs. 10,607.792 Mn. as at December 31, 2009 consisting of 233,821,271 Ordinary Voting Shares and 16,120,797 Ordinary Non-Voting Shares). The details of the Stated Capital are given in Note 32 to the Financial Statements.

The Bank had in issue 2,127,030 unsecured, subordinated, redeemable debentures of Rs. 1,000/- each to the value of
Rs. 2,127.030 Mn., as at December 31, 2010 (3,436,030 debentures to the value of Rs. 3,436.030 Mn., as at December 31, 2009). The details of debentures are given in Note 30 to the Financial Statements.

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

9. Share Information

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

10. Substantial Shareholdings

10.1 Information on the Top Twenty Shareholders

The list of the top twenty shareholders for both voting and non-voting ordinary shares, percentages of their respective holdings and percentage holdings by the public are given in the Section on ‘Investor Relations’.

10.2 Distribution Schedule of Shareholdings

Information on the distribution of shareholding and the respective percentages is given in the Section on ‘Investor Relations’.

10.3 Equitable Treatment of Shareholders

All shareholders in each category have been treated equitably in accordance with the original Terms of Issue.

11. Directors

11.1 Information on Directors of the Group and the Bank

11.1.1 List of Directors

The Board of Directors of the Bank as at December 31, 2010 consisted of nine Directors with wide financial and commercial knowledge and experience. The qualifications and experience of the Directors are given in the ‘Board of Directors - Profiles’.

Names of the Directors, who were the Directors at any time during the year 2010 of the Bank as required by the Section 168
(1) (h) of the Companies Act No. 07 of 2007, are given below:

Name of the Director Executive/Non-Executive Status Status of Independence
Mr. M.J.C. Amarasuriya (Chairman) Non-Executive Independent
Mr. B.R.L. Fernando (Deputy Chairman) Non-Executive Non-Independent
Mr. A.L. Gooneratne (Managing Director) Executive Non-independent
Dr. H.S. Wanasinghe Non-Executive Independent
Mr. D.S. Weerakkody Non-Executive Non-Independent
Mr. P.M. Martelli Non-Executive Non-Independent
Mr. R.M.S. Fernando Non-Executive Independent
Prof. U.P. Liyanage (Appointed w.e.f. December 14, 2010) Non-Executive Non-Independent
Mr. W.M.R.S. Dias (Appointed w.e.f. December 14, 2010) Executive Non-independent
Mrs. S.N. Wickramasinghe (Resigned w.e.f. May 26, 2010) Non-Executive Non-Independent
Ms. J. Kuruppu (Resigned w.e.f. July 15, 2010) Non-Executive Independent

 

11.1.2 New Appointments and Resignations

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

New Appointments during 2010

Prof. U. P Liyanage (Appointed w.e.f. December 14, 2010)
Mr. W.M.R.S. Dias (Appointed w.e.f. December 14, 2010)

Resignations during 2010

Mrs. S.N. Wickramasinghe (Resigned w.e.f. May 26, 2010)
Ms. J. Kuruppu (Resigned w.e.f July 15, 2010)

11.1.3 List of Directors of Subsidiaries and Associates of the Bank

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

11.1.4 Recommendations for Re-election

1. Mr. M.J.C. Amarasuriya - Chairman

Mr. Amarasuriya reached 70 years of age on December 19, 2010.

The Central Bank has confirmed in writing that Mr. Amarasuriya is entitled to hold office until the end of the year 2011, notwithstanding that he has reached the age of 70 years.

Mr. Amarasuriya will however be required, in terms of Section 210 of the Companies Act No. 07 of 2007, to vacate the Office of Director at the Annual General Meeting to be held on March 30, 2011 and to be re-elected to such Office by the Bank’s shareholders. In terms of the written Directions of the Central Bank, as aforementioned, such appointment will be valid only until the end of the year 2011.

In terms of the relevant statute, it is not mandatory for a shareholder to give Special Notice of his intention to move an ordinary resolution for the appointment of Mr. Amarasuriya to the Office of Director. In the absence of a specific statutory prohibition, the adoption of such a course of action will be in order.

2. Dr. H.S. Wanasinghe - Director

As per the Central Bank’s Direction Dr. Wanasinghe too is entitled to hold office until the end of the year 2011.

He too will be required, in terms of Section 210 of the Companies Act No. 07 of 2007 to vacate the Office of Director at the Annual General Meeting to be held on March 30, 2011, and to be re-elected to such Office by the Bank’s shareholders. In terms of the said Directions of the Central Bank, such appointment too will be valid only until the end of the year 2011.

3. Professor U.P. Liyanage - Director

Professor Liyanage was appointed to the Bank’s Board in December 2010, under and in terms of Article 92, to fill a casual vacancy. Accordingly, he is required, in terms of the stated Article and of the Banking Act Direction No. 11 of 2007 on Corporate Governance, to retire from the Office of Director at the Annual General Meeting to be held on March 30, 2011 immediately following his appointment and to be elected thereat by the Bank’s shareholders.

Professor Liyanage will, in his capacity as a Non-Executive Director, be subject thereafter to retire by rotation as per provisions contained in the Bank’s Articles of Association.

4. Mr. W.M.R.S. Dias - Executive Director

Mr. Ravi Dias, an employee of the Bank, was appointed to the Board in December, 2010 to fill a casual vacancy. Accordingly, he holds office as an Executive Director of the Bank, until the Annual General Meeting to be held on March 30, 2011 immediately following his appointment.

Mr. Dias will retire, in his capacity as an Executive Director, at the Annual General Meeting to be held on March 30, 2011 and offer himself for election thereat by the Bank’s shareholders.

5. Mr. B.R.L. Fernando and Mr. R.M.S. Fernando - Directors

Mr. B.R.L. Fernando and Mr. R M S Fernando retire in terms of Article 85 and 86 and offer themselves for re-election.

11.1.5 Directors’ Meetings

Details of Directors’ meetings which comprise Board meetings and Board Sub-Committee meetings of the Audit Committee, the Human Resources and Remuneration Committee, the Integrated Risk Management Committee and the Nomination Committee are presented on Board Sub-Committees.

11.1.6 Board Subcommittees

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

The composition of the subcommittees as at December 31, 2010, was as follows:

Board Audit Committee Members:

Mr. R.M.S. Fernando (Chairman)
Mr. B.R.L. Fernando
Dr. H.S. Wanasinghe
Mr. D.S. Weerakkody
Mr. A.L. Gooneratne (by invitation)

The Report of the Board Audit Committee is given in the Stewardship Section.

Board Human Resources and Remuneration Committee Members:

Mr. M.J.C. Amarasuriya (Chairman)
Dr. H.S. Wanasinghe
Mr. D.S. Weerakkody
Mr. A.L. Gooneratne

The Report of the Board Human Resources and Remuneration Committee is given in the Stewardship Section.

Board Nomination Committee Members:

Mr. M.J.C. Amarasuriya (Chairman)
Mr. B.R.L. Fernando
Mr. A.L. Gooneratne (by invitation)
The Report of the Board Nomination Committee is given in the Stewardship Section.

Board Integrated Risk Management Committee Members:

Mr. M.J.C. Amarasuriya (Chairman)
Mr. B.R.L. Fernando
Mr. R.M.S. Fernando
Mr. A.L. Gooneratne
Mr. W.M.R.S. Dias
Mr. K.D.N. Buddhipala
Mr. S. Renganathan

The Report of the Board Integrated Risk Management Committee is given in the Stewardship Section.

12. Disclosure of Directors’ Dealing in Shares and Debentures

12.1 Directors’ Interests in Ordinary Voting Shares of the Bank

Individual ordinary voting shareholdings of Directors were as follows:

As at December 31, 2010 2009
Mr. M.J.C. Amarasuriya (Chairman) 670,645 447,097
Mr. B.R.L. Fernando (Deputy Chairman) Nil  Nil
Mr. A.L. Gooneratne (Managing Director) 1,373,620 806,216
Dr. H.S. Wanasinghe Nil  Nil
Mr. D.S. Weerakkody 10,000 1,000
Mr. P.M. Martelli Nil  Nil
Mr. R.M.S. Fernando Nil Nil
Prof. U.P. Liyanage Nil  N/A
Mr. W.M.R.S. Dias 310,349  N/A
Percentage Shareholding of the Directors
Ordinary Voting Shares
0.67% 0.54%
     

Directors’ shareholdings in ordinary voting shares have not changed subsequently to the date of the Balance Sheet up to January 15, 2011, the latter date being one month prior to the date of Notice of the Annual General Meeting.

12.2 Directors’ Interests in Ordinary Non-Voting Shares

Individual Ordinary Non-Voting shareholdings of Directors were as follows:

As at December 31, 2010 2009
Mr. M.J.C. Amarasuriya (Chairman) 227,821 151,881
Mr. B.R.L. Fernando (Deputy Chairman) 12,621 8,414
Mr. A.L. Gooneratne (Managing Director) 57,042 38,028
Dr. H.S. Wanasinghe Nil Nil
Mr. D.S. Weerakkody Nil Nil
Mr. P.M. Martelli Nil Nil
Mr. R.M.S. Fernando Nil Nil
Prof. U.P. Liyanage Nil N/A
Mr. W.M.R.S. Dias Nil N/A
Percentage Shareholding of the Directors
Ordinary Non-Voting Shares 1.23% 1.23%


Directors’ shareholdings in Ordinary Non-Voting Shares have not changed subsequent to the date of the Balance Sheet and up to January 15, 2011, the latter date being one month prior to the date of Notice of the Annual General Meeting.

12.3 Directors’ Interests in Debentures

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

13. Employee Share Option Plans and profit sharing plans

In 2009, the Bank implemented a new Employee Share Option Plan for the Corporate Management and the Executive Officers in Grade III and above, based on the Bank achieving certain pre-determined performance criteria. The approval of the shareholders was obtained for this scheme and to offer share options up to 3% of the ordinary voting shares of the Bank. These share options could be exercised in a minimum of 3 or a maximum of 5 tranches, commencing March 31, 2009.

The details of the existing Employee Share Option Plans are given in Note 32 (b) and (c) to the Financial Statements.

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

14. Directors’ Interests in Contracts or Proposed Contracts

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

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

Directors’ remuneration and other benefits, in respect of the Group and the Bank for the financial year ended December 31, 2010 are given in Note 7 to the Financial Statements.

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

15. Environmental Protection

The Bank/Group has not to the best of its knowledge, engaged in any activity, which is detrimental to the environment. Specific measures taken to protect the environment are given in the ‘Sustainability Supplement’.

16. Statutory Payments

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

17. Events after the Balance Sheet Date

No event of material significance that require adjustments to the Financial Statements, other than those disclosed, in Note 41 to the Financial Statements, has occurred subsequent to the date of the Balance Sheet.

18. Going Concern

The Board of Directors has reviewed the Bank’s business plans and is satisfied that the Bank has adequate resources to continue its operations in the foreseeable future. Accordingly, the Financial Statements of the Bank, its Subsidiaries and Associates are prepared based on the going concern concept.

19. Appointment of Auditors

The retiring Auditors, Messrs Ernst & Young have signified their willingness to continue functioning as the Auditor to the Bank.

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

20. Auditors’ Remuneration and interest in contracts with the company

The Auditors, Messrs Ernst & Young were paid Rs. 7.313 Mn. for the year ended December 31, 2010 (Rs. 6.341 Mn. in 2009) as audit fees by the Bank. In addition, they were paid Rs. 3.477 Mn. (Rs. 1.286 Mn. in 2009) by the Bank, for permitted non-audit-related services including tax consultancy services.

As far as the Directors are aware, the Auditors do not have any other relationship or interest in contracts with the Bank, or any of its subsidiaries or associates.

The Board has taken a decision to change the auditor every 5 years.

21. Risk Management and System of Internal Controls

21.1 Risk Management

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

21.2 System of Internal Controls

The Board of Directors has taken steps to oversee the implementation of an effective and comprehensive system of Internal Controls covering financial operations and compliance controls required to carry on the business of banking in an orderly manner, safeguard its assets and secure as far as possible the accuracy and reliability of the records. The Board of Directors is satisfied of the effectiveness of the internal controls over financial reporting during the year under review and up to the date of approval of the Annual Report and the Financial Statements to ensure the soundness in financial reporting process. The Directors have outsourced a part of the internal audit function to five leading firms of Chartered Accountants who review and report on the effectiveness of the financial, operational and compliance controls. More details in this regard are given in the ‘Board Audit Committee Report’.

22. Corporate Governance

Systems and procedures are in place to ensure that Corporate Governance is adequately and practically enforced. The Board of Directors has provided the necessary resources and installed appropriate processes, to ensure that the Bank is compliant with the relevant Codes of Best Practice on Corporate Governance issued by regulatory and professional bodies. The measures taken and the extent to which the Bank has complied with the Codes of Best Practices on Corporate Governance issued jointly by The Institute of Chartered Accountants of Sri Lanka, the Securities and Exchange Commission of Sri Lanka, the Colombo Stock Exchange and the Central Bank of Sri Lanka are given in the Section on ‘Corporate Governance’.

23. Human Resources

The Bank continues to invest in Human Capital Development and implement effective Human Resource Practices and Policies to develop and build an efficient and effective workforce aligned to the Bank’s business priorities and to ensure that its employees are developing the skills and knowledge required to ensure the future success of the Bank. Specific measures taken in this regard are detailed in the ‘Sustainability Supplement’ and the ‘Human Resources and Remuneration Committee Report’.

24. Compliance with Laws and Regulations

The Bank/Group has not engaged in any activity contravening the relevant laws and regulations. Officers responsible for ensuring compliance with the provisions in various laws and regulations, confirm compliance in each quarter to the Board Audit Committee.

25. Outstanding Litigation

In the opinion of the Directors and in consultation with the Bank lawyers, litigation currently pending against the Bank will not have a material impact on the reported financial results or future operations of the Bank. Details of litigation pending against the Bank are given on Note 37 to the Financial Statements.

26. Notice of Meeting

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

27. Acknowledgement of the contents of the report

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

Signed in accordance with a resolution adopted by the Directors.


M.J.C. Amarasuriya
Chairman

B.R.L. Fernando
Deputy Chairman

A.L. Gooneratne
Managing Director

Dr. H.S. Wanasinghe
Director

D.S. Weerakkody
Director

R.M.S. Fernando
Director

Prof. U.P. Liyanage
Director

W.M.R.S. Dias
Director

Mrs. R.R. Dunuwille
Company Secretary

 

Colombo
February 15, 2011

 

 

 

 

 

 

 

 

 

 

 

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