- Annual Report of the Directors on the State of Affairs of Bank of Ceylon
- Directors’ Interest in Contracts
- Directors’ Statement on Internal Control Over Financial Reporting
- Independent Assurance Report
- Directors’ Responsibility for Financial Reporting
- Report of the Auditor General
- Statement of Profit or Loss
- Statement of Comprehensive Income
- Statement of Financial Position
- Statement of Changes in Equity
- Statement of Cash Flows
- Notes to the Financial Statements
Annual Report of the Directors on the State of Affairs of Bank of Ceylon
1. General
The Board of Directors of Bank of Ceylon take pleasure in presenting their report on the affairs of the Bank together with the Audited Consolidated Financial Statements for the year ended 31 December 2017 of the Bank and the Group and the Auditor General’s Report on those Financial Statements, conforming to the requirements of the Bank of Ceylon Ordinance No. 53 of 1938 and Banking Act No. 30 of 1988 and amendments thereto. The Report also includes certain disclosures laid down by the Colombo Stock Exchange Listing Rules and certain disclosures required to be made under the Banking Act Direction No. 11 of 2007 on Corporate Governance for licensed commercial banks issued by the Central Bank of Sri Lanka and subsequent amendments thereto. The Directors reviewed and approved the Financial Statements on 27 March 2018.
Bank of Ceylon is a licensed commercial bank under the Banking Act No. 30 of 1988 and amendments thereto and was duly incorporated on 1 August 1939 under Bank of Ceylon Ordinance No. 53 of 1938 and amendments thereto. The Bank is wholly owned by the Government of Sri Lanka. The unsecured subordinated redeemable debentures issued by the Bank are listed on the Colombo Stock Exchange.
2. Review of the Business
2.1 Principal Activities of the Bank
The principal activities of the Bank during the year were personal banking, corporate banking, development banking, offshore banking, trade financing, lease financing, primary dealing, investment banking and treasury operations, correspondence banking and money remittances, Islamic banking, bancassurance, pawning, credit card facilities, foreign currency operations, and other financial services.
2.2 Subsidiaries and Associates
The principal activities of Subsidiaries and Associates are given under Notes to the Financial Statements. There were no significant changes in the nature of the principal activities of the Bank and the Group during the year under review, other than changes mentioned under accounting policies.
2.3 Changes to the Group Structure
The changes to the Group structure during the year are given in Notes 30 and 31 to the Financial Statements of this Annual Report.
2.4 Vision, Mission and Corporate Conduct
The Bank’s Vision, Mission and Value Statements are given on Inner Front Cover of this Annual Report. The Bank maintains high ethical standards in its activities whilst pursuing the objectives stated under “Vision” and “Mission”.
2.5 Review of the Year’s Performance
The Chairman’s Message deals with the year’s performance of the Bank/Group and on the Sri Lankan economy. The General Manager’s Review provides a detailed description of the operations of the Bank during the year under review. The section titled “The Decisive Numbers” provides a detailed analysis of business operations of the Bank. These reports that provide a fair review of the Bank’s affairs form an integral part of the Annual Report.
2.6 Branch Expansion
The Bank extended its services through the addition of two new mobile branches during the period under review. The network was further expanded enhancing customer convenience. The Bank installed 86 ATMs, 45 CDMs and 182 School Sansada and 152 Mobile School Saving Units during the year across the island bringing out the totals to 764, 168, 1,223 and 152 respectively. This number does not include peer banks’ ATMs through which customers of Bank of Ceylon can transact.
2.7 Corporate Donations
The Bank has not granted donations for the year 2017 but the Bank has contributed LKR 127.5 million to facilitate Corporate Social Responsibility (CSR) activities during the period under review.
2.8 Directors’ Responsibility for Financial Reporting
The Directors are responsible for the preparation of Financial Statements that will reflect a true and fair view of the state of affairs. The Directors are of the view that these Financial Statements have been prepared in conformity with the requirements of the Sri Lanka Accounting
Standards, Banking Act No. 30 of 1988 and its amendments, Bank of Ceylon Ordinance No. 53 of 1938 and its amendments and the Listing Rules of the Colombo Stock Exchange. In the case
of Subsidiaries, the Financial Statements are prepared also in accordance with
the provisions of the Companies Act
No. 07 of 2007. The Statement of Directors’ Responsibility for Financial Reporting is given in the chapter on Financial Reports of this Annual Report and forms an integral part of this Report of the Directors.
2.9 Auditor’s Report
The Auditor General is the Auditor of Bank of Ceylon in terms of the provisions of Article 154 of the Constitution of the Democratic Socialist Republic of Sri Lanka.
Report of the Auditor General on the Financial Statements of the Bank and the Consolidated Financial Statements of the Bank and its Subsidiaries as at 31 December 2017 is given in the chapter on Financial Reports of this Annual Report.
2.10 Accounting Policies
The Group and the Bank prepared their Financial Statements in accordance with Sri Lanka Accounting Standards (LKASs) and Sri Lanka Financial Reporting Standards (SLFRSs).
The accounting policies adopted in the preparation of Financial Statements are given in the section on Notes to the Financial Statements. There have been no material changes in the accounting policies adopted by the Bank during the year under review.
3. Planned Developments
An overview of the developments planned by the Bank for the future is presented in the Chairman’s Message and General Manager’s Review of this Annual Report.
4. Total Income
The total income of the Group for the year 2017 was LKR 197,013.0 million as against LKR 159,701.2 million in the previous year. The Bank’s total income accounted for 96.0% (2016 – 96.5%) of the total income of the Group. The main income of the Group is interest income, which comprises 90.2% of the total income.
5. Dividends and Reserves
5.1 Profit and Appropriations
The Bank recorded a profit before tax of LKR 30,343.0 million in 2017 reflecting a decrease of 2.7%, compared to LKR 31,188.7 million recorded for the previous year. After deducting LKR 9,030.7 million (2016 – LKR 6,397.7 million) for income tax, the profit after tax for the year 2017 amounted to LKR 21,312.3 million, which is a 14.0% decrease compared to LKR 24,791.0 million profit after tax reported in 2016. Details of the profit relating to the Bank and the Group are given in the table below:
| Bank | Group | |||
| For the year ended 31 December | 2017 LKR million |
2016 LKR million |
2017 LKR million |
2016 LKR million |
| Profit for the year after payment of all expenses, providing for depreciation, amortisation, impairment on loans and other losses, contingencies and before taxes | 37,592 | 37,454 | 38,195 | 36,431 |
| Value Added Tax (VAT) and Nation Building Tax (NBT) on financial services | (7,249) | (6,265) | (7,431) | (6,377) |
| Share of profits/(losses) of associate companies net of tax |
– | – | 52 | 63 |
| Profit before income tax | 30,343 | 31,189 | 30,816 | 30,117 |
| Income tax expense | (9,031) | (6,398) | (9,329) | (6,731) |
| Profit for the year | 21,312 | 24,791 | 21,487 | 23,386 |
| Other comprehensive income for the year, net of tax |
4,340 | (1,080) | 4,833 | (706) |
| Total comprehensive income for the year | 25,652 | 23,711 | 26,320 | 22,680 |
| Appropriations | ||||
| Transfers to permanent reserve fund | (2,431) | (2,786) | (2,431) | (2,786) |
| Transfers to statutory reserve | – | – | (22) | (35) |
| Dividends | (12,346) | (17,346) | (12,346) | (17,346) |
The profit before tax of the Group increased from LKR 30,117.0 million to LKR 30,815.6 million, an increase of 2.3% in comparison to the previous year. After deducting LKR 9,328.9 million for income tax (2016 – LKR 6,731.1 million) the profit after tax for the year of the Group decreased to LKR 21,486.6 million in 2017 from the profit after tax of LKR 23,385.9 million reported in 2016.
5.2 Dividends
The Bank determines the dividends in consultation with the Government, the shareholder of the Bank, prudently, based on profits after deduction of tax, loan loss provision and any such portion for reserves. Accordingly, a sum of LKR 12,346.4 million has been paid out by the Bank as dividends for the year 2017 (2016 – LKR 17,346.4 million).
5.3 Reserves
The total reserves of the Group stood at LKR 101,399.1 million as at 31 December 2017 (2016 – LKR 87,475.3 million). The Group reserves consist of the following:
| As at 31 December | 2017 LKR million |
2016 LKR million |
| Permanent reserve fund | 10,427 | 7,996 |
| Revaluation reserve | 18,681 | 16,494 |
| Free reserve | 367 | 367 |
| Exchange translation reserve | 1,703 | 1,060 |
| Available for sale reserve | 4,761 | 5,562 |
| Statutory reserve | 359 | 337 |
| Retained earnings | 65,101 | 55,659 |
| Total | 101,399 | 87,475 |
6. Property, Plant and Equipment
The total capital expenditure incurred by the Group on the acquisition of Property, Plant and Equipment, leasehold properties and intangible assets during the year amounted to LKR 3,963.8 million (2016 – LKR 2,597.8 million) the details of which are given in Notes 33 to 35 of Financial Statements of this Annual Report.
7. Value of Freehold Properties
The value of freehold properties owned by the Group as at 31 December 2017 is included in Note 33 of the Financial Statements at LKR 21,470.2 million (2016 – LKR 15,519.8 million).
8. Stated Capital and Shareholding
8.1 Stated Capital
The total issued and fully paid up capital of the Bank as at 31 December 2017 was LKR 15,000 million (2016 – LKR 10,000 million).
During the year 2017, the Bank received LKR 5,000 million from the Government of Sri Lanka, the first phase of the total amount of LKR 10,000 million allocated to the Bank under National Budget 2018. This allocation is reported under capital pending allotment as at 31 December 2017. The Bank is making arrangements to issue five million ordinary shares at LKR 1,000 each to the Government of Sri Lanka and thereby will transfer the capital pending allotment to the share capital during the year 2018.
8.2 Shareholding
The Government of Sri Lanka is the sole shareholder of the Bank.
9. Issue of Subordinated Debentures
The Group issued unlisted unsecured subordinated redeemable debentures with non-viability write-down features, amounting to LKR 10,000 million during the year ended 31 December 2017 (2016 – LKR 8,000 million, subordinated listed debentures). The proceeds of these debentures were utilised to expand the Bank’s loan book in the ordinary course of business. This would enable the Bank to achieve the following, on allotment:
- Increase the Tier 2 capital of the Bank in order to enhance the Capital Adequacy Ratio and Single Borrower Limit to facilitate expansion of the loan book.
- Minimise and manage the gap exposure in the Bank’s assets and liability portfolios.
- Strengthen the Bank’s liquidity position and to increase the asset base.
The details of debentures outstanding as at the date of Statement of Financial Position are given in Note 47 of the Financial Statements.
10. Share Information
The basic earnings per share and net assets value per share of the Group 2017 were LKR 1,870.3 (2016 – LKR 2,349.7)and LKR 8,093.3 (2016 – LKR 10,247.5)respectively, for the period under review.
11. Corporate Sustainability and Responsibility
The programmes carried out under Corporate Sustainability and Responsibility (CSR) are detailed under the section titled Social and Relationship Capital.
12. Directors
The Board of Directors of Bank of Ceylon as at 31 December 2017 consisted of six members. The Directors of the Bank do not hold any executive positions in the Bank. They bring a wide range of skills and experience to the Board. The qualifications and experience of the Directors are given in the section on Board of Directors of this Annual Report.
12.1 List of Directors
During the year 2017 the Board consisted of the following members –
Mr Ronald C Perera, PC
Independent Non-Executive
Director/Chairman
Mr Sajith R Attygalle
Non-Executive Ex-officio Director
Mr Ranel T Wijesinha
Independent Non-Executive Director
Mr H P Ajith Gunawardana
Independent Non-Executive Director
Mr Charitha N Wijewardane
Independent Non-Executive Director (Resigned w.e.f. 21 July 2017)
Mr Sanjaya Padmaperuma
Independent Non-Executive Director (Resigned w.e.f. 30 June 2017)
Mr Mano Sekaram
Independent Non-Executive Director (Appointed w.e.f. 6 July 2017 and Resigned w.e.f. 8 September 2017)
Mr Samantha Rajapaksa
Independent Non - Executive Director (Appointed w.e.f. 25 July 2017)
Mr Mohan Wijesinghe
Independent Non-Executive Director (Appointed w.e.f. 24 November 2017)
Mr Kanagasabai Vimalenthirarajah
(Appointed as the Alternate Director
to Mr Sajith R Attygalle w.e.f.
9 November 2017)
The current Directors of the Bank as at date of the Financial Statements (31 December 2017) are as follows:
| Name of the Director | Status of Executive/Non-Executive | Status of Independence |
| Mr Ronald C Perera | Non-Executive | Independent |
| Mr Sajith R Attygalle | Non-Executive Ex-officio | Non-Independent |
| Mr Ranel T Wijesinha | Non-Executive | Independent |
| Mr H P Ajith Gunawardana | Non-Executive | Independent |
| Mr Samantha Rajapaksa | Non-Executive | Independent |
| Mr Mohan Wijesinghe | Non-Executive | Independent |
The Directors are classified as Independent Directors on the basis given in Banking Act Direction No. 11 of 2007 on Corporate Governance for licensed commercial banks issued by the Central Bank of Sri Lanka.
12.2 Board Subcommittees
The Board has formed four subcommittees complying with the aforesaid Banking Act Direction No. 11 of 2007 to ensure oversight control over affairs of the Bank. The subcommittee composition is given in the sections on Corporate Governance and Board Subcommittee Reports of this Annual Report.
12.3 Directors’ Meetings
Attendance of Directors at Board and Subcommittee Meetings are given in the section on Corporate Governance of this Annual Report.
12.4 Directors’ Interests in Contracts
Directors’ interests in contracts with the Bank, both direct and indirect are given in the section on Directors’ Interest in Contracts. These interests have been declared at meetings of the Board of Directors. Except for the contracts given therein the Directors do not have any direct or indirect interest in other contracts or proposed contracts with the Bank.
12.5 Directors’ Interests in Debentures Issued by the Bank/Group
There were no debentures registered in the name of any Director.
12.6 Directors’ Allowances/Fees
The allowances/fees payable to the Board of Directors are made in terms of the provisions/contents in the Public Enterprises Circular No. PED 58 (2) dated 15 September 2011, letters dated 12 November 2013 and 18 June 2014 issued by the Department of Public Enterprises of the Ministry of Finance and Bank of Ceylon Ordinance No. 53 of 1938 and its amendments. The Directors’ remuneration in respect of the Group and the Bank for the financial year ended 31 December 2017 are given in Note 15.
13. Risk Management and System of Internal Controls
13.1 Risk Management
The Board of Directors assumes overall responsibility for managing risks. The specific measures taken by the Bank in mitigating the risks are detailed in the section on Risk Management of this Annual Report.
13.2 Internal Control
The Board of Directors has ensured the implementation of an effective and comprehensive system of internal controls in the Bank through the Audit Committee. The Audit Committee helps the Board of Directors to discharge their fiduciary responsibilities. The Report of the Chairman of the Audit Committee is contained in the section on Audit Committee Report of this Annual Report. The Directors are satisfied with the effectiveness of the system of internal controls during the year under review and up to the date of the Annual Report and the Financial Statements. The Board has issued a statement on the internal control mechanism of the Bank as per Direction No. 3 (8) (ii) (b) of Banking Act Direction No. 11 of 2007 on Corporate Governance for licensed commercial banks. The above report is given in the section on Directors’ Statement on Internal Control Over Financial Reporting of this Annual Report. The Board has confirmed that the financial reporting system has been designed to provide reasonable assurance regarding the reliability of financial reporting and that the preparation of Financial Statements for external reporting purposes has been done in accordance with relevant accounting principles and regulatory requirements. The Board has obtained an Assurance Report from the Auditor General on Directors’ Statement on Internal Control and it is given in the section on Independent Assurance Report of this Annual Report
14. Corporate Governance
The Board of Directors is committed towards maintaining an effective corporate governance structure and process. The financial, operational and compliance functions of the Bank are directed and controlled effectively within corporate governance practices. These procedures and practices that are in conformity with Corporate Governance Directions issued by the Central Bank of Sri Lanka under Banking Act Direction No. 11 of 2007 and the Code of Best Practice on Corporate Governance issued jointly by the Securities and Exchange Commission of Sri Lanka and The Institute of Chartered Accountants of Sri Lanka, are described in the section titled “Corporate Governance” of this Annual Report. The Board has obtained a report from the Auditor General on the compliance with the provisions of the above mentioned Direction No. 11 of 2007.
15. Human Resources
One of the most valuable assets of the Bank is its employees and it is important for the Bank to develop them. Several measures were taken to strengthen the much valued human capital in order to optimise their contribution towards the achievement of corporate objectives. The Bank’s human resource management policies and practices are detailed in the section titled “Leveraging Our Greatest Asset” of this Report.
16. Compliance with Laws and Regulations
The Directors, to the best of their knowledge and belief confirm that the Group has not engaged in any activities contravening the laws and regulations.
Details of the Bank’s compliance with laws and regulations are given under the section titled “Compliance Annexes” which forms an integral part of this Report. Further, the Bank has complied with the Transfer Pricing Regulations issued by the Department of Inland Revenue and the Directors certify that the Bank has complied with the Transfer Pricing Regulations issued under Section 104 of the Inland Revenue Act No. 10 of 2006. Certificate of the Directors on Transfer Pricing is given in the chapter on Compliance Annexes.
17. Outstanding Litigation
In the opinion of the Directors and as confirmed by the Bank’s lawyers the litigation currently pending against the Bank will not have a material impact on the reported financial results or future operations of the Bank.
18. Statutory Payments
The Board confirms that all statutory payments due to the Government and in relation to employees have been made on time.
19. Environmental Protection
The Bank has not engaged in any activity, which has caused detriment to the environment. Further, precautions taken to protect the environment are given in the section titled “Helping to Preserve the Planet”.
20. Post Balance Sheet Events
The Directors are of the view that no material events have arisen in the interval between the end of the financial year and the date of this Report that would require adjustments or disclosures.
21. Going Concern
The Directors are confident that the resources of the Bank are adequate to continue its operations.
Therefore, it has applied the going concern basis in preparing the Financial Statements.
By order of the Board,
Janaki Senanayake Siriwardane
Secretary
Bank of Ceylon/Secretary to the Board
27 March 2018
Colombo