“At Commercial Bank, success comes from our passion for creating value - value for customers, shareholders and partners; value for our employees and the communities in which we do business which are driven from the core strategies”.

• to his benefit or
• according to his wishes
• against the wishes of the majority of the other Directors or
• against the interests of the Bank
  
  (ii) Whether he uses his position to prevent the other Directors from expressing their views and opinions at the Board meetings or at any other discussions.
  
  (iii) Whether the views of the others (Directors, professionals etc.) are disregarded or ignored.
  
  (iv) Whether the matters are only referred to such Director for a decision, generally or as a practice, without referring these matters to other Directors.
  
  (v) Whether the other Directors feel that their presence and their contribution is immaterial.
  
  (vi) Whether the Directors are not given an opportunity to assess the performance of the Board, which includes the performance of every single Director.
  
  (vii) One reason for non-existence of team spirit is undue influence of one or more Directors. The test to be used is whether there is adequate team spirit in the Board.
  
  (viii) Whether there is a practice to refer matters, which can be dealt with at a lower level, to such Director.
  
  (ix) Whether third parties deal with such Director on matters which can be easily finalised by any other party at a lower level.
  
  (x) With regard to facilities given to any group (e.g. CIC group), whether the Director concerned participates in the related Board decisions.
  
  Bank’s Adherence with The Code of Best Practice on Corporate Governance Issued Jointly by The Institute of Chartered Accountants of Sri Lanka and Securities and Exchange Commission of Sri Lanka.
  

  Subject	Corporate Governance Principle
  A. General
  Chairman and CEO	If Chairman and CEO is one and the same person, disclose the Name of the Chairman/CEO and Senior Independent Director appointed and justification of the decision to combine the positions. Bank’s Response: The posts of the Chairman and the Chief Executive Officer are held by two individuals.
  Board Balance	Should identify the Independent Non-Executive Directors. Bank’s Response: Identified.
  	If a Non-Executive Director is identified as ‘Independent’, notwithstanding the existence of any of the following factors, the reason for such determination should be disclosed.
  	A Director is not considered independent if he/she: has been employed by the Company during the period of two years immediately preceding appointment as Director; currently has/had during the period of two years immediately preceding appointment as Director, a Material Business Relationship with the Company, whether directly or indirectly; has a close family member who is a Director, Chief Executive Officer (and/or an equivalent position) in the Company; has a Significant Shareholding in the Company; has served on the Board of the Company continuously for a period exceeding nine years from the date of the first appointment; is employed in another company or business: - in which a majority of the other Directors of the Company are employed or are Directors; or - in which a majority of the other Directors of the Company have a Significant Shareholding or Material Business Relationship; or - that has a Significant Shareholding in the Company or with which the Company has a Business Connection; is a Director of another company: - in which a majority of the other Directors of the Company are employed or are Directors; or - that has a Business Connection in the Company or Significant Shareholding; has Material Business Relationship or a Significant Shareholding in another company or business: - in which a majority of the other Directors of the Company are employed or are Directors; and/or - which has a Business Connection with the Company or Significant Shareholding in the same. Bank’s Response: Please refer Note 2 on page 51 of this Annual Report for the tests carried out to determine the independence of Directors.
  Appointment of New Directors	When new Directors are appointed, the following details should be disclosed. a brief resume of each such Director; the nature of his expertise in relevant functional areas; the names of companies in which the Director holds directorships or memberships in board committees; and whether such Director can be considered independent. Bank’s Response: Complied with. The Colombo Stock Exchange is kept informed about new appointments and also the required information is published in a few selected newspapers.
  Nomination Committee	The Chairman and members of the Nomination Committee should be identified. Bank’s Response: Complied with. Please refer page 63 of this Annual Report for the details of the Nomination Committee.
  Appraisal of Board Performance	Should disclose how performance evaluations have been conducted. Bank’s Response: Board’s performance is evaluated annually, by each and every Director anonymously against the following criteria: Key Functions (i) (a) Discharge of statutory regulatory duties (b) Discharge of other responsibilities of the Board (ii) (a) Corporate Governance (b) Risk Management monitoring (iii) Seeking and contributing views and opinions on strategic decision making. (iv) Leveraging the skills, expertise, of individual Board Members in furtherance of business. (v) Understanding the compensation philosophy - ‘to retain and motivate staff in a manner appropriate for the business’. (vi) Understanding the succession plans to ensure comprehensive staff succession - ‘to ensure talent availability and address expectations of high potential and high quality staff’. (vii) Overall view of Management of the business by the Board of Directors.
  Board Related Disclosures	The following details pertaining to each Director should be disclosed. name, qualification and brief profile; the nature of his/her expertise in relevant functional areas; immediate family and/or material business relationships with other Directors of the Company; names of other listed companies in Sri Lanka in which the Director concerned serves as a Director; names of companies in which the Director concerned serves as a Director and/or the fact that he/she holds other directorships in the Group Companies; number/percentage of board meetings of the Company attended during the year; names of the Committees in which the Director serves as the Chairman or a member; and number/percentage of committee meetings attended during the year. Bank’s Response: Complied with. Please refer pages 70 to 74, 65 to 67 and page 59 of this Annual Report for Sections on ‘Information on Board of Directors’, ’ Directors’ interests in contracts with the Company’ and ‘Board Committees’ respectively.
  Disclosure of Remuneration	A Statement of Remuneration Policy and details of remuneration of the Board as a whole. Details of remuneration of the Board as a whole Bank’s Response: Complied with. Please refer page 62 of this Annual Report for the ‘Human Resources and Remuneration Committee Report’ and Note 5 to the Financial Statements on page 124 of this Annual Report.
  Major Transactions	All Major Transactions entered into by the Company should be disclosed. Bank’s Response: Complied with. Disclosures made in this Annual Report where appropriate.
  Audit Committee	Names of the Members of the Audit Committee should be disclosed. Basis for determining the independence of auditors. Bank’s Response: Complied with. Please refer pages 60 and 61 of this Annual Report for the ‘Audit Committee Report’.
  Code of Business Conduct and Ethics	Should disclose whether the Company has a Code of Business Conduct & Ethics for Directors and members of the Senior Management team. Should also disclose an affirmative declaration that they have abided by such Code. The Chairman must certify that he/she is not aware of any violation of any of the provisions of this Code. Bank’s Response: Complied with.
  Going Concern	Should report that the Company is a going concern, with supporting assumptions and qualifications as necessary. Bank’s Response: Complied with. Please refer page 95 of this Annual Report for the ‘Statement of Directors’ Responsibility’.
  Subject	Disclosure
  B. Remuneration Committee Report
  Members of Remuneration Committee	The names of members of Remuneration Committee should be disclosed in the Remuneration Committee Report. Bank’s Response: Complied with. Please refer page 62 of this Annual Report for the ‘Human Resources and Remuneration Committee Report’.
  C. Directors’ Report
  Directors’ Report	Should contain the following declarations made by the Directors: The Company has not engaged in any activities, which contravenes laws and regulations; The Directors have declared all material interest in contracts involving the Company and refrained from voting on matters in which they were materially interested; The Company has made all endeavours to ensure the equitable treatment of shareholders; The business is a going concern with supporting assumptions or qualifications as necessary; and They have conducted a review of internal controls covering financial, operational and compliance controls and risk management and have obtained reasonable assurance of their effectiveness and successful adherence herewith. Bank’s Response: Complied with. Please refer pages 57, 65 to 67 and 95 of this Annual Report for this information.
  D. Financial Statements
  Financial Statements	The Board of Directors should include a Statement of Responsibility for the preparation and presentation of Financial Statements. Bank’s Response: Complied with. Please refer page 95 of this Annual Report for the Report on ‘Statement of Directors’ Responsibility’.
  	Auditors should also have a statement about their reporting responsibility. Bank’s Response: Complied with. Please refer page 97 of this Annual Report for the ‘Auditors’ Report’.
  E. Management Report
  Management Report	Should include a ‘Management Discussion and Analysis Report’ discussing at least the following issues: industry structure and developments; opportunities and threats; risks and concerns; internal control systems and their adequacy; social and environmental protection activities carried out by the Company; financial performance; material developments in human resources/industrial relations; and prospects for the future. Bank’s Response: Complied with. Please refer pages 12 to 27 of this Annual Report for the Section on ‘Management Report’ and Section on ‘Sustainability Supplement’ on pages 28 to 35.
  F. Corporate Governance Report
  Corporate Governance Report	Should disclose the manner and extent to which the Company has complied with the principles and provisions of the Code. Bank’s Response: Complied with.
  G. Audit Committee Report
  Audit Committee Report	Should set out the work carried out by the Committee. Bank’s Response: Complied with. Please refer pages 60 to 61 of this Annual Report for the ‘Audit Committee Report’.

  
  
  Bank’s Adherence with the Corporate Governance Rules as Required by Section 3 (8) of the Banking Act Direction
  No. 11 of 2007 Issued by the Central Bank of Sri Lanka

  Corporate Governance Disclosure Requirements
  (i) The Board shall ensure that:
  	Annual audited Financial Statements and quarterly Financial Statements are prepared and published in accordance with the formats prescribed by the supervisory and regulatory authorities and applicable accounting standards; and
  	Bank’s Response: Complied with. Please refer ‘Statement of Directors’ Responsibility’ on page 95 of this Annual Report.
  	Such statements are published in the newspaper in an abridged form, in Sinhala, Tamil and English.
  	Bank’s Response: Complied with.
  (ii) The Board shall ensure that the following minimum disclosures are made in the Annual Report:
  	A statement to the effect that the annual audited Financial Statements have been prepared in line with applicable accounting standards and regulatory requirements, inclusive of specific disclosures.
  	Bank’s Response: Complied with. Please refer ‘Statement of Directors’ Responsibility’ on page 95 of this Annual Report.
  	A report by the Board on the Bank’s internal control mechanism that confirms 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 purposes has been done in accordance with relevant accounting principles and regulatory requirements.
  	Bank’s Response: Complied with. Please refer ‘Statement of Directors’ Responsibility’ on page 95 of this Annual Report.
  	The External Auditors’ certification on the effectiveness of the internal control mechanism as referred to in Direction 3 (8) (ii) (b), in respect of any statements prepared or published after December 31, 2008.
  	Bank’s Response: Complied with. Please refer ‘Auditors’ Report’ on page 97 of this Annual Report.
  	Details of Directors, including names, fitness and propriety, transactions with the Bank and the total fees/remuneration paid by the Bank.
  	Bank’s Response: Complied with. Please refer the Section on ‘Information on Board of Directors’ on pages 72 to 74, Report on ‘Annual Corporate Governance’ published in the Annual Report as per Direction 3 (1) (xvi) of the Banking Act Directions No.11 of 2007 as shown below, Section on ‘Directors’ Interests in Contracts with the Company’ on pages 65 to 67, Note 38 to the Financial Statements on ‘Related Party Disclosures’ and Note 5 to the Financial Statements for remuneration paid, of this Annual Report.
  	Total net accommodation as defined in 3 (7) (iii) of the Direction, granted to each category of related parties. The net accommodation granted to each category of related parties shall also be disclosed as a percentage of the Bank’s regulatory capital.
  	Bank’s Response: Complied with. Please refer Note 38 to the Financial Statements on ‘Related Party Disclosures’ in this Annual Report.
  	The aggregate values of remuneration paid by the Bank to its key management personnel and the aggregate values of the transactions of the Bank with its key management personnel, set out by broad categories such as remuneration paid, accommodation granted and deposits or investments made in the Bank.
  	Bank’s Response: Complied with. Please refer Note 38 to the Financial Statements on ‘Related Party Disclosures’ in this Annual Report.
  Corporate Governance Disclosure Requirements
  	A report setting out details of the compliance with prudential requirements, regulations, laws and internal control and measures taken to rectify any material non-compliances.
  	Bank’s Response: There were no material non-compliances. Please refer ‘Statement of Directors’ Responsibility’ on page 95 of this Annual Report for details on compliance measures.
  	A statement of the regulatory and supervisory concerns on lapses in the Bank’s risk management, or non-compliance with these Directions that have been pointed out by the Director of Bank Supervision, if so directed by the Monetary Board to disclosed to the public, together with the measures taken by the Bank to address such concerns.
  	Bank’s Response: There were no lapses in the risk management and non-compliance with Directions issued by the Central Bank identified for disclosure to the public.

  
  Annual Corporate Governance Report to be Published in the Annual Report as per Direction 3 (1) (xvi) of the Banking Act Directions No. 11 of 2007, subsequently amended
  
  Responsibilities of the Board
  The Board has taken necessary steps to ensure the safety and soundness of the Bank, as required by such Direction No. 3 (1) (i) of the said Direction.
  
  Mr. M.J.C. Amarasuriya is the Chairman and Mr. A.L. Gooneratne is the Chief Executive Officer and their functions and responsibilities have been clearly defined by the Board.
  
  The Board meets regularly, generally once a month, and during the year 2008 there were 15 meetings including emergency meetings of the Board, with the active participation, in person, by all members of the Board. During the year 2008, all the Directors attended over two-third of the number of meetings that were held except for the Directors who were entitled to participate only at a lesser number of meetings.
  
  All directors are at liberty to make recommendations and give proposals to be included in the Agenda under any of the relevant subjects or under any other business. The Board papers are dispatched one week prior to the general board meetings and depending on the urgency, adequate notice is given for emergency meetings.
  
  Mrs. R.R .Dunuwille, Attorney-at-Law and an Associate of the Institute of Chartered Secretaries and Administrators functions as the Company Secretary of the Bank. The Company Secretary complies with the requirements, as per the Direction aforesaid, with the supervision and the guidance of the Board. The Directors are permitted to seek independent professional advice, as and when required and the Company Secretary takes the initiative in this connection. The Company Secretary attends all the Board meetings by invitation and prepares the minutes for the approval of the Board of Directors.
  
  The minutes are kept under the custody of the Managing Director, to whom the Company Secretary reports, through the Chief Financial Officer. The minutes are recorded in sufficient detail, containing a summary of data and information used by the Board in its deliberations, all related matters considered by the Board, key points of the discussions, recommendations of the Chief Executive Officer and other relevant Officers and the final decisions of the Board. The Directors do not participate in the decision making process on matters, in which they have an interest and avoid conflicts of interests in their activities with the Bank. Such Directors’ presence is disregarded in counting the quorum for such issues.
  
  The Board has put in place systems and controls to facilitate the effective discharge of Board Functions. The Board has complied with the capital adequacy requirements. The Board has also put in place effective systems to secure the integrity of information, internal controls and risk management.
  
  The Directors also assessed the Board’s overall performance at the end of the year to ensure that the Board responsibilities are satisfactorily discharged. From 2009, arrangements are being made to adopt a scheme of self-assessment, to be undertaken by each Director, annually.
  
  Board’s Composition
  At present, there are 9 Directors on the Board, whose names are listed out elsewhere in the Annual Report. All the Directors are persons with a good record of accomplishment and have the necessary skills and experience to direct and lead the Bank.
  
  The sub-direction 3 (2) (iv) specifies the criteria for ‘independence of Directors’ and it is also mentioned that this sub-direction shall be applicable from January 1, 2010 onwards. The Board has noted the contents of the sub-direction for future reference.
  
  New appointments and re-elections of Directors to the Board are considered and recommended by the Nomination Committee and based on such recommendations, final decisions are made by the Board, in a formal and transparent manner. All Directors appointed to the Board, other than the nominee Directors are subject to re-election by shareholders at the first general meeting after their appointment. During the year 2008, the Board announced all resignations of Directors and the reasons for such resignations and whether or not there were any matters that needed to be brought to the attention of the shareholders, in connection with such resignations. No director or an employee of another Bank has been appointed as a director, unless the Bank is an associate of that Bank.
  
  Fitness and Propriety of Directors
  The provisions of Section 42 of the Banking Act No. 30 of 1988 and the criteria set out in the Directions No. 11 of 2007, subsequently amended, are applied to determine the fitness and propriety of the Directors. Accordingly, the Board is of the view that each and every Director is a fit and proper person to serve as a Director of the Bank.
  
  Management Functions Delegated by the Board
  The Board is empowered by the Articles of Association to delegate to the Chief Executive Officer any of the powers vested with the Board, upon such terms and conditions and with such restrictions as the Board may think fit. The Chief Executive Officer shall have powers, within the limitations applicable, to delegate such office/powers as he may think necessary, for the management/operations of the Bank. The business of the Bank is managed by the Board either by themselves or through the Chief Executive Officer, with the assistance of the Corporate Management, Senior Management and the other Executive and general staff of the Bank. The delegation of powers of the Board are subject to the general laws, regulations and directions applicable to the Bank, to ensure that the delegation of authority would not in any way reduce the Board’s ability to discharge its functions fully and effectively, such delegated powers are reviewed periodically by the Board.
  
  Chairman and Chief Executive Officer
  Mr. M.J.C. Amarasuriya, who is a Non-Executive Independent Director, in terms of the directions under reference, plays the role of the Chairman of the Bank and Mr. A.L. Gooneratne performs the role of the Chief Executive Officer. The Board is aware that there are no relationships whatsoever, including financial, business, family any other material/relevant relationship between the Chairman and the Chief Executive Officer, other than being common Directors of a few companies. Similarly, no relationships prevail among the other members of the Board, other than being common Directors of certain companies.
  
  The Chairman provides leadership to the Board by ensuring that the Board functions effectively and facilitates the effective discharge of Board functions. The Board consistently follows proper procedure to deliberate key issues substantially and in a timely manner and ensures that all Directors make an effective contribution, within their respective capabilities, for the benefit of the Bank.
  
  The Agenda for each Board Meeting is finalised by the Company Secretary depending on the matters to be taken up at the meeting, under supervision of the Chief Executive Officer and finally, the Chairman.
  
  The Bank ensures that the Directors receive adequate information in a timely manner. On urgent matters, every effort is made to provide the information, as early as possible.
  
  The Board papers are prepared by the employees to provide adequate information to the Board to deliberate on all key issues concerning the Bank.
  
  All the Directors bring independent judgment to bear on issues of strategy, conduct of bank operations and performance. The Chairman takes all possible action to ensure that the Board acts in the best interests of the Bank.
  
  At general meetings, the shareholders are given the opportunity to take up matters for which clarification is needed. Further, matters are adequately clarified by the Chairman or Chief Executive Officer or any other Officer. In addition, all the correspondence addressed to the Board of Directors by the shareholders or any other party is referred to the Board and necessary action is taken to address the issues in a timely manner.
  
  The Chief Executive Officer is responsible for the implementation of strategy and responsible for the day-to-day management of the Bank. The Chairman does not directly supervise any key management personnel and other Senior or General Executive Officers.
  
  Sub-Committees
  The following sub-committees have been appointed by the Board requiring each such committee to report to the Board:
  
  1. Board Audit Committee
  2. Board Human Resources and Remuneration Committee
  3. Board Nomination Committee
  4. Board Integrated Risk Management Committee
  5. Board Credit Committee
  6. Board Strategic Planning Committee A report, published elsewhere in the Annual Report deals with the above committees.
  
  Related Party Transactions
  Suitable mechanisms are in place to avoid any conflicts of interest, referred to in the direction.