Management Discussion and Analysis

The Bank and the Triple Bottomline

Being committed to the conduct of our business affairs in a sustainable manner, Commercial Bank has promulgated several key policies and approaches that guide triple bottom line reporting and the relevant performance indicators.

These performance indicators have been categorised into Product and Service Impact, Economic Performance, Environmental Performance and Social Performance in terms of Labour Practices and Decent Work, Human Rights, Society and Product Responsibility for the purpose of disclosure as per the GRI Reporting Guidelines. A snapshot of these categories is presented below:

Our Approach to Economic Performance

As the benchmark private sector bank in Sri Lanka, our economic policy pervades and guides every aspect of the Bank's enterprise towards the achievement of sustainable performance and growth whilst respecting the interests and concerns of stakeholders.

Our Policy Commercial Bank is committed to delivering sustainable economic performance and growth to all stakeholders.

The Bank as an honoured corporate citizen, strives hard to enhance financial and non-financial value to its shareholders, customers, employees, local communities and other stakeholders by managing its assets and liabilities in a sustainable and socially responsible manner. Key economic targets and directions for the Bank and all its strategic business units - Corporate Banking, Personal Banking, Treasury and International Operations - are set out in its Corporate Plan and Budget, which is prepared annually on a rolling five-year planning period. This process ensures that the various functions of the Bank are closely linked to its overall strategy stemming from its Vision and Mission. In order to monitor the progress made towards the goals set in the Corporate Plan and Budget, detailed management accounts together with key performance data are prepared and submitted to monthly meetings of the Board of Directors with adequate explanations on material variances. Where necessary, the heads of the main strategic business units are called upon at these Board meetings to review and discuss the action plans recommended to improve performance.

The Bank has set up six Board Sub-Committees (of which four are mandatory) to support the functions of the Board of Directors and to ensure good governance. These committees are in turn supported by nine Management Committees headed by the Managing Director as depicted in the 'Governance Structure' under Corporate Governance

The Bank's performance towards achieving its preset economic targets including key successes and shortcomings and associated risks are found in the following sections of the Report.

Description
Operating and Financial Highlights
Key Financial Goals and Achievements
Performance of the Strategic Business Units
Managing Risk at Commercial Bank

Our Approach to Environmental Responsibility

It could be argued that a bank has only a relatively minimal impact on the environment due to comparatively lower consumption of natural resources for its direct activities. On the other hand, one can challenge the above statement on the basis that the activities of banks could be said to have a potentially enormous impact on the environment owing to consequences of the commercial and other activities of its customers.

In the backdrop of the above phenomenon, our Bank has put in place a number of procedures aimed at minimising its already modest direct impact on the environment whilst mitigating indirect impacts created by the business and industrial activities it finances via its Social and Environmental Management System (SEMS). Through SEMS, the Bank takes every effort to ensure that the financing extended to its customers is used to set up and fund operations which are both sustainable, eco friendly and do not harm biodiversity via their outputs in the form of emissions, effluents and waste etc. Since this concern is at the heart of the Bank's sustainability strategy, the SEMS is applied not only for finances extended to its customers but also by the Bank itself in implementation and monitoring of all major activities undertaken.

It is the Bank's intention to extend application of SEMS to all credit proposals in future across all its branches in Sri Lanka. In this connection, it is pertinent to mention that a decision has been reached to place the SEMS coordinators under the Chief Risk Officer effective from February 2013 enabling the Integrated Risk Management function to validate compliance with SEMS as well as all the credit proposals referred for risk evaluation. Instructions by circular too will be issued to all braches formally informing of the new procedure.

Our Policy We are especially focused on ensuring that all major activities undertaken by the Bank are consistent with the applicable requirements of our Social and Environmental Management System (SEMS), which provides a policy framework, implementation system and a monitoring mechanism to ensure that the Bank conforms to performance standards.

The Bank has taken steps to ensure staff connected to procurement and disposal of assets are vigilant in carrying out such tasks in an environmentally friendly manner. The Bank's divided operational responsibility towards environmental aspects lies with a few key individuals heading procurement, logistics and Information Technology functionalities. In addition, the Bank has taken several initiatives to minimize impact on the environment due to usage of materials, energy, water, biodiversity, emissions, effluents & waste, design of products & services and compliance activities which are discussed in the sections to follow. The heads of the respective departments continuously monitor the compliance to ensure that these activities are being carried out diligently. The Bank's Staff Development Centre ensures that staff are informed of the above aspects when designing and conducting training programs covering aspects such as credit, operations, house-keepingand compliance.

The SEMS co-ordinator of the Bank is required to submit periodic confirmations on compliance with IFC's terms and conditions and is subject to audit by the Bank's Inspection Department. It is the Bank's endeavour to comply with more and more environment related aspects in future.

Our approach to Labour Practices and Decent Work Responsibility

People are the Bank's most valuable asset. A vital contributor to the Bank's success through the years has been the quality, proficiency and motivation of its people. Molding and guiding people to reach desired heights in their profession, is a core activity. The Bank believes in continuous improvement of the work-life-balance of its staff. Primarily covered, from a regulatory point of view, under the provisions of the Shop and Office Employees Act, the Bank goes further to enhance the facilities offered to its employees. Employee welfare, development, progress and contentment are core priorities at the Bank.

Our Policy The Bank aspires at all times to be the employer of first choice in its industry. This constant policy drives all human resources planning and activity.

Our Employment Policy: Working with the Best to Achieve Sustainable Success

The Bank's employment policy requires us to recruit candidates who are the most appropriate for open positions, using fair, objective and internationally accepted measurement and evaluation methods. Recruitment to Commercial Bank occurs at two entry points, namely as Banking Trainees or as Management Trainees. Mid-career recruitment takes place only in relation to specialised job positions. However, the Bank always endeavours to give priority to the filling of such vacancies from within its own internal pool of talent. Through this process, the Bank aims to train the leaders of the future, imbuing them with our own dynamic and innovative perspective whilst offering them credible and lucrative career opportunities within the financial services sector.

It is a given that the Bank must at all times serve its customers to their complete satisfaction. Thus we invest time and resources to mold and develop our human capital to be able to deliver desired results in this respect. All our service points, whether they are manned or unmanned are of equal importance. Therefore, neither the services we offer to our customers nor our practices and approaches vary irrespective of the channel used to serve them. In pursuing such parity in service across the system, the Bank considers the effects of factors such as home location of employees and distance travelled to work, before employee placements/transfers to various locations of operation are made. This however, can be overridden by exigencies of business.

Our Remuneration Policy

Our remuneration policy for beginners with the Bank is uniform and independent of the location of their work. However, once they are absorbed to the permanent cadre of the Bank, their subsequent salaries and other perks may vary even within the same grade due to the 'pay for performance' culture of the Bank.

Labour Management Relations

All permanent employees of the Bank are eligible to obtain memberships in one of the two employee associations of the Bank, namely, Ceylon Banks' Employees Union (CBEU) and Association of Commercial Bank Executives (ACBE). All CBEU members other than those in executive grades are covered by a Collective Agreement and hence, their perks are based on the provisions contained in the Collective Agreement. However, those employees in executive grades are subjected to an annual performance appraisal system and their perks depend on the performance gradings they obtain at such appraisals.

To reinforce this process, the Bank has an employee relations unit to handle labour issues.

All significant operational changes which may include events such as new branch openings, relocations, setting up of new business units or divisions, upgrading of existing branches and outsourcing of activitiesare informed to all staff members by way of internal circulars giving adequate notice.

Occupational Health and Safety

People are recognized as the main focus in the Bank's Human Capital Policy. We deal with our employees' work-life-balance issues in a responsible and dedicated manner since sensitivity towards individual needs and an accurate assessment of employee capabilities, potential and attitude is conducive to successful human resource management. The physical and mental well-being of our staff is important to us, especially considering the stressful effects of the performance driven culture. Effective counselling for needy employees plays a pivotal role in this respect. For us, at Commercial Bank, promoting the well-being of our employees is considered to be a long-term investment.

Towards achieving the objective of a healthy workforce, the Bank has in place a comprehensive medical insurance scheme for all permanent employees for indoor treatment in addition to reimbursement of outdoor medical bills.

The Bank has taken several steps to educate and train its staff attached to customer delivery points on the procedure to be followed in instances of potential harm from incidents such as attacks, aggression and robberies. They are also taught to deal with the possible consequences of disclosure of information on criminal activities to regulatory authorities. In addition, to preventing situations of this nature, the Bank has taken several measures including deployment of trained security personnel at all customer locations, installing burglar alarm systems, counselling and ensuring prompt support from specialized departments for branches needing assistance. Further, the Bank's Integrated Risk Management Department reports such events to the Executive Integrated Risk Management Committee of the Bank together with the steps/actions taken to prevent such situations.

Training and Education

The Bank believes that a well trained human asset is a distinct competitive edge for sustainable business performance. Hence, the Bank is committed to 'people development'. In this process, the culture of the Bank is a great enabler, providing a conducive environment for learning and development, where employees can equip themselves with the required knowledge, competencies and attitudes to create value, both for self and Bank. Ensuring absolute job satisfaction, assisting career development and providing lifelong learning are the fundamental pillars on which the Bank's training and education strategy is formulated.

Addressing the Principle of Equality

The Bank is of single purpose when it comes to offering opportunity - we seek qualified and well-educated people from amongst our staff and do not ever discriminate along the lines of race, language, religious belief, gender, age or like considerations. In this regard, the Bank considers only the relevant skills and competencies required to create sustainable value and not the demographic characteristics of individuals. In this manner, the Bank expects to improve employee satisfaction which is a key component of stakeholder value to create a win-win situation for all.

Goals and Performance

Stemming from its Policy, the Bank's goal is to aspire at all times to be the "The Employer of First Choice". The level of its achievement may be measured by several non financial indicators such as employee turnover, average rates of promotion and absenteeism, employee satisfaction, etc.

Through the compassionate management of its human capital, the Bank creates a dedicated team that is passionate about what they do. Thus our 'optimal team' initiates, directs and synergises its common creativity towards achieving continuous excellence and greater levels of customer satisfaction.

In this process, the Bank strictly adheres to the United Nation's Global Compact (UNGC) Principles on Labour Practices as a base from whichwe constantly explore further enhancement of our Human Capital. (Refer UNGC Principles with a mapping to relevant GRI indicators).

Organisational Responsibility

The Bank's HR function is headed by a Deputy General Manager - Human Resource Management, who is a member of the Corporate Management team. He is assisted by a Chief Manager and two Senior Managers on aspects related to Human Resource Management and Human Resource Development.

Training and Awareness for HR Personnel

Ensuring that the Bank's human resource personnel are well equipped to face the challenges ahead, effective and efficient management of human capital is among the top priorities of the Bank. In realizing this goal, the senior members of the Human Resource Management team are regularly trained on procedures relating to labour laws and regulations covering aspects of diversity, equal opportunity and gender sensitisation. They in turn guide other staff members needing their assistance.

Monitoring and Follow up

The Bank's annual performance review captures the extent of achievement of the pre-set performance targets of staff responsible for the human resource management function of the Bank. The performance lapses identified are addressed through prompt corrective and preventive action to ensure that an effective and efficient human resource management system prevails within the Bank. Periodic independent employee satisfaction surveys play a vital role in monitoring the effectiveness of HR performance. In addition, the role played by the Board Committee on Human Resources and Remuneration in evaluating, assessing, deciding and making necessary recommendations to the Board of Directors on matters that may affect the Human Resources Management is vital to the process.

Engaging Staff towards a Decent Work Environment

The following are some of the ways in which the Bank aspires to engage its people in creating a healthy work environment.

• Significant strengthening of Bank's Libraries - Our Central Library located at our Head Office boasts a collection of 14,300 books on a wide range of topics and subscribes to 8 Foreign Journals and 18 Periodicals. Invaluable Book exhibitions were also hosted. In addition, there were 169 branch libraries by end 2012. Further, our in- house publication 'Compulse 'continued to disseminate Bank highlights and events while providing a vehicle to showcase creativity of the staff.
• Bank Quiz 2012 drew over 1,000 Staff Members, representing 164 teams recording the highest number of teams in history, reinforcing 'One Bank One Family' concept, creating strong employee affiliation and engagement. This was held with a view to making us the 'choice bank' to work for, by creating a stimulating and nurturing environment.
• In furtherance to creation of employee bonding, the Bank successfully concluded another 'children's party', an annual event where all staff members enjoy a day outing with their family members. 'Poson Bakthi Gee' as well as 'Christmas Carols' are a few similar events organized by the Bank's Sports & Recreation Club in helping to improve camaraderie among the employees.
• In 2012 another opportunity for the employees' interaction was introduced by way of 'Regional Outings'
• The Bank continued to invest on team sports as well. Our teams participate in mercantile tournaments as well as interbank tournaments in Hockey, Table Tennis, Cricket, Rugby, Football, Badminton, Netball and Basketball. The Bank also takes pride in employing players who represent the national team in sports such as Hockey and Table Tennis.
• Personal Banking Awards is another initiative taken to supplement the Bank's performance driven culture and the competitive work environment within the industry and to make it essential that our business lines continue to perform with heightened motivation and greater productivity. As such, an Achievers Night Awards Programme was introduced to be held annually for the Personal Banking Unit. The Bank intends to expand this initiative to other business areas and units providing support services in future.
• In 2012 too Seniority Awards were bestowed on 68 Staff Members who had completed 25 years of dedicated service in the Bank.

Our approach to Human Rights Responsibility

Commercial Bank's employment practices reflect the human rights standards enshrined in the Universal Declaration of Human Rights proclaimed by the United Nations and the Conventions of the International Labour Organization (ILO). These cover:

• Freedom of association and the right to collective bargaining
• The elimination of all forms of compulsory labour
• The effective abolition of child labour
• The elimination of sexual harassment in the workplace, and
• The elimination of discrimination with respect to employment.

These principles are followed when formulating all policies and practices of the Bank.

As a signatory to the UN Global Compact initiative, the Bank has also pledged to uphold the ten principles.

Our Policy Commercial Bank is committed to safeguarding the human rights of all employees and will not subscribe to or undertake any activity that could lead to the suppression of said human rights.

Goals and Performance

The Bank as an active member of the UN Global Compact initiative is committed to safeguarding of human rights by upholding the principles of Global Compact and preserves human rights values and practices in all its operations. The Bank's culture does not encourage any form of forced/compulsory labour, discrimination and sexual harassment and abides by best practice governing aspects such as minimum working age limits, working hours, health and safety in the workplace and collective bargaining principles.

Organisational Risk Assessment and Impact Assessment

In furtherance of Convention No. 98 of the International Labour Organisation on the 'right to organise and collective bargaining' and Principle 3 of the Global Compact which reads "Business should uphold freedom of association and the effective recognition of the right to Collective Bargaining", the Bank has afforded recognition to the two employee associations established by the staff of the Bank and is engaging in Collective Bargaining with them. In doing so, the Bank also acknowledges that the 'right to organise' and the 'right to form and join a trade union' are fundamental rights granted to all citizens by the Constitutions.

The Bank strongly believes that the existence of effective procedures supporting collective bargaining pertaining to employee compensation and other human rights concerns, help foster stronger bonds with the trade unions and executive association.

On January 12, 2012, the Bank signed two Collective Agreements and a Memorandum of Understanding with the Employee Organizations which will be in force from January 1, 2012 to December 31, 2014.The negotiation process leading to the final agreement between the parties was facilitated by the Employers' Federation of Ceylon.

The periodic branch visits made by the officials of the Human Resource Management Department provide the Bank with a platform for staff in Branches to voice their grievances and address matters pertaining to their welfare. This supports the identification of probable risks and addresses human rights and welfare concerns of the employees.

With regard to outsourced staff, the Bank's HR Department continuously monitors the labour practices of the respective supplying agencies. For instance, the Bank ensures that the half-yearly EPF and ETF return statements of these agencies are submitted for our scrutiny.

In addition, the Security Department of the Bank ensures that all outsourced security officers are paid the statutory minimum wages by their employers.

Organisational Responsibility

At Commercial Bank the responsibility for human rights issues lies with the Deputy General Manager - Human Resource Management who is assisted by a Chief Manager and two Senior Managers on the implementation of Human Rights policies at the Bank. These officers handle all matters connected to human rights as they may apply to or concern the Bank.

The Board of Directors of the Bank overlooks the Human Resource aspects including human rights through the 'Board Human Resources and Remuneration Committee'.

The Bank adopts an open door policy where urgent issues that need to be addressed are handled through immediate discussions with the Employee Associations. These organizations are not prevented from referring matters to the Commissioner General of Labour in the event the Bank and the organization fail to amicably settle same among themselves. However, there have not been any cases of discrimination or any ill treatment or any other dispute reported during the period of review.

The Bank has a well established and transparent performance appraisal system for its executive officers which are strongly linked to a variable bonus scheme and to the salary increments due for the subsequent year. All executive staff members are informed on the quantum of bonuses that he or she would be entitled to, which are based on the Bank achieving pre-determined performance criteria and individuals achieving their respective key performance indicators.

Training and Awareness on Human Rights

The relevant staff members attached to the Human Resource Department undergo periodic training on matters related to human rights, grievance handling, etc. They in turn guide other members of staff as and when necessary. The Bank is also committed to provide needs-based on-the-job and in-house training to bring employees up to desired levels of performance in this area.

Monitoring, Follow-Up and Remediation

The Bank has entered into agreements with reputed recruitment agencies to ensure that they follow the specifications laid down by the Bank when nominating candidates for recruitment by the Bank. The Internal Audit Department of the Bank also undertakes periodic reviews to ensure that the Bank follows the relevant procedures.

In addition, the Bank's intranet site of the Human Resources Department, to which all staff members have free access, has clearly laid down the procedure to be followed in instances where there is any kind of grievance, including breach of human rights.

Our approach to Societal Responsibility

As a leading bank, we acknowledge and embrace the many responsibilities we have towards society at large, in terms of conducting our business and that of our supply chain, in a manner that completely eschews moral hazard, corruption and anti-competitive behaviour.

As a leading financier serving a large segment of society and business, Commercial Bank is able to exert considerable influence for good, in living up to the ideals mentioned.

The Bank in recognising its responsibility towards society, has taken a gamut of social initiatives. The most important of these is the formation of Commercial Bank Social Responsibility Trust Fund (CSR Trust) in 2004 with a seed capital of Rs. 25 Mn. The Bank's commitment to the Fund has been maintained with financial additions to it, each year. The Bank contributes up to 1% of its post tax profits to this Trust and in 2012 the Bank contributed Rs. 50.0 Mn. towards this worthy cause. Currently, the total contribution to the Trust exceeds Rs. 290.0 Mn. The deed of the Trust outlines the following objectives:

• To support education in Sri Lanka
• To assist in improving health services in Sri Lanka
• To preserve and improve the environment
• To support and provide community services
• To assist in preserving and further promoting the cultural heritage of Sri Lanka and to promote culture and arts
• To assist the Government and Local Government Authorities and farmer organisations to dredge and rehabilitate tanks and other sources of water supply providing water for agricultural and consumption purposes and
• To undertake other charitable activities decided by the Trust

Our Policy The overall goal of the Bank's social policy is to generate measurable and sustainable social dividends for different stakeholders, in particular those which require empowerment most urgently.

Goals and Performance

The Bank's CSR strategy is developed within the Vision, Mission and objectives of the Bank. This year too, the Bank embarked on 'Education' as the prime theme for its local community engagement activities to support school children and young adults of Sri Lanka regardless of their gender, race, religion or social background. The main thrust within 'Education' is supporting IT education and English language proficiency in Sri Lanka. These areas were selected after careful consideration of the Bank's broad Vision and the development road map of the Governmentof Sri Lanka.

The Bank has a well established mechanism which ensures its commitment not to engage in any activity that involves corruption oranti-competitive behaviour. Risk assessments covering all areas of banking operations are carried out periodically to update the initial assessments performed by the Risk Owners together with controls to mitigate such risks, including those related to corruption. Any deviations in adopting mitigatory measures are reported to the Board Audit Committee and to Board Integrated Risk Management Committee.

It is the Bank's intention to take part in gatherings involving public policy development and lobbying.

The Bank has an effective compliance function in place headed by a designated Compliance Officer, a member of Corporate Management team of the Bank whose mandate is to ensure that the Bank fully complies with all applicable laws and regulations, in letter and spirit.

Organisational Responsibility

The Bank's responsibility for local community engagement lies with its CSR Trust represented by four members of the Board of Directors. The Chairman of the CSR Trust has overall responsibility for the Bank's commitment to Community. A dedicated senior officer of the Bank serves as the CSR Coordinator, who reports directly to the Trustees in assisting them in achieving the objectives of the Trust. This structure shows the commitment of the Board of Directors of the Bank towardsthe subject.

The Trustees of the CSR Trust are:

Mr. Lakshman Hulugalle - Director/Chairman of the Trust
Prof. Uditha Liyanage - Director
Mr. Ravi Dias - Managing Director/Chief Executive Officer
Mr. Nandika Buddhipala - Chief Financial Officer
Mr. Hasrath Munasinghe - Deputy General Manager - Marketing
Mrs. Priyanthi Perera - Coordinator

The Bank has a well established mechanism to deal with anti corruption activities and anti-competitive behaviour. This initiative falls under the purview of four departments, namely, Integrated Risk Management Department, Anti Money Laundering Department, Operations Department and Inspection Department.

Training and Awareness

Although, there is no formal training conducted on the subject of CSR, the Chairman of the CSR Trust sends written advice to all Branch Managers, regarding the activities the Trust has decided to undertake during the year under review, together with relevant guidelines for implementation.

The Bank's Staff Development Centre conducts dedicated training programs on corruption and anti-competitive behaviour, for the staff attached to the four departments mentioned above.

Monitoring and Follow Up

The CSR Coordinator is responsible for keeping the Board of Trustees informed of the status of all CSR activities. The Trustees meet once a month to assess and ensure that the proper follow up action is being taken in regard to all CSR projects under implementation.

The subject of corruption and activities involving anti-competitive behaviour is monitored by the Board Audit Committee of the Bank through the 'Positive Assurance Statement' submitted quarterly by the Compliance Officer.

Our Approach to Product Responsibility

The Bank offers an extensive portfolio of products and services meeting the wide spectrum of banking needs of a diverse customer base. We have pioneered several products and services consequent to identifying unique needs of customers with the objective of enhancing customer convenience while ensuring customer privacy and compliance with laws and regulations. The Bank has an array of delivery channels capable of reaching far and wide, often catering to customers at their doorstep. Transparency is a key element in the discharge of product responsibility.

The array of products and services offered by the Bank ranges from conventional deposits and loans to credit cards, leasing, corporate-banking services, project financing, e- banking, internet banking, etc. Our products and services are clearly offered and explained, branded and defined and directed to all sectors of the public catering to their requirements, fulfilling the Bank's own premise of delighting our customers.

Customer Health and Safety

This subject and its initiatives involve people from every level of the organisation including the Board, Corporate Management, Heads of Departments and other staff members in policy development, training, monitoring, compliance and compensation. Detection of any hazardous risks in the Bank and prompt implementation of risk control are key priorities of the Bank. This process is further reinforced through awareness, training, and supervision of all staff and suppliers, inducing active participation in resolving health and safety issues, impartial and fair compensation schemes for health issues of customers and employees and periodical review of policy.

Product and Service Labelling and Policies for the fair design and sale of financial products and services

In compliance with the requirements of the Central Bank of Sri Lanka on Customer Charter, the Bank at all times provides clear and informative information on all of its products and services ranging from features, rates and tariffs to terms and conditions. This process encompasses measures such as providing a mechanism for customers to interact with the Bank through means such as a hotline or e-mail based complaint handling procedure, publication of interest rates of deposits, advances and Government Securities, exchange rates and other important messages in all three languages (Sinhala, English and Tamil) via digital display units at selected Branches in addition to promoting products and services with clear information through electronic media, print media, online, web, as appropriate.

Marketing Communications

The Bank's Marketing Department is entrusted with ensuring that the following guidelines are being adhered to, in the content of all marketing communications materials produced by the Bank:

• Adhere to corporate and information security policies
• Reflect and support the corporate image of the Bank
• Avoid exposing the Bank to possible litigation
• Avoid racial content or inappropriate imagery and information
• Be free of spelling and grammar errors
• Be transparent and avoid misleading customers
• Be of high quality
• Avoid infringement of intellectual property rights

In addition, the Bank strictly adheres to the following:

• Obtaining necessary approvals required from both external and internal parties prior to the launch and communication of any customer or employee related promotional activity
• Rules and regulations concerning display materials, public-address systems, branding, etc
• Obtaining approval from the relevant Heads of Department for communication material, website changes including new and updated content
• Making a designated department responsible to ensure that the information posted on the website is appropriate, current and accurate

Customer Privacy

Safeguarding customer privacy is of paramount importance to the Bank. Thus, we have in place systems and procedures to ensure customer confidentiality levels are maintained at desired levels. Some of the important measures taken in this regard are:

• Restrictions on the Disclosure of Account Information

  The Bank does not reveal specific information about customer accounts or other personally identifiable data to unaffiliated third parties for their independent use without the consent of the customer

• Protection of online privacy

  In terms of submission of personal and other information of customers, the Bank ensures that information is sent via a 'secure contact point' which is password protected.

• e-mail privacy

  Preserving the contents of customer e-mails and responding through a specified process with approvals and authority

• Maintenance of accurate information on all customers

  The Bank has standard procedures to ensure that all financial information of customers ranging from transaction history to personal information among other areas, is accurate and updated

• Preventing access to banking transactions for under-aged children unless with the consent of the parent.

• A regime of limitations and controls for employees wishing to access personal information of customers, thus safeguarding customer confidentiality and privacy

Compliance

The marketing, distribution and sale of the products and services are carried out in a manner that is legal, decent, honest and in keeping with social norms and sustainable business practices at all times.

Our Policy The Bank takes due cognisance of product responsibility and exercises control in this area to ensure that there is no misrepresentation of facts in terms of its operations, products and services, as doing so would result in adverse consequences for customers.

Goals and Performance

The main goal of the Bank's internal communication is to support the organization in achieving the overall goals described in the Bank's vision, mission and strategy whilst strengthening organisational culture and the feeling of commitment among the staff. Further, all means of external communication are geared to support the Bank in pursuing its' overall goals as in the case of internal communications, whilst supporting customer relations (branding, marketing) and investor relations enhancing the overall awareness and knowledge on the Bank and its' products and services.

The Bank follows a set of guiding principles to achieve the aforesaid goals as enumerated below:

• Communicate information in the most timely and updated manner - from replying a client's inquiry promptly, to the timely publication of the Annual Report.
• Maintain transparency in all dealings adhering to the rules and guidelines issued by the regulator from time to time.
• Being proactive and professional – consistent interaction with target groups in a climate of respect and dignity, in portraying the sought information
• Clarity and uniformity in all communication material; avoiding any unnecessary jargon
• Apply sensitivity to all cultures and languages in communication materials empathizing with and respecting the multi ethnicity of our existing and potential clientele
• Neutrality and non-alignment with any political party or political ideology through ensuring that all material and forms of communications are free of any comments of a political, defamatory or derogatory nature.
• Seek feedback on the Bank's image and communication activities both from the media as well as from its key target groups in order to make future improvements and adjustments
• All customer complaints, if deemed fit, will be directed to the Complaint Resolution Officer, a member of the Corporate Management whereby, upon his authorization, the complaints would be directed in writing to the respective Department
• Scrutinise selected communication materials and have them undergo standard approval processes of regulatory bodies such as the Colombo Stock Exchange, Department of Inland Revenue, Exchange Control Department and the Central Bank of Sri Lanka
• Entrust the handling of all media relations and communications of the Bank to the Marketing Department and identified members of Senior Management; ensure no member of staff (other than those duly authorised to do so) is permitted to provide information or issue a statement to the media with regard to the Bank and its activities without prior approval.

Organisational Responsibility

The Chief Operating Officer who is also an Executive Director of the Bank is in overall charge of this area, assisted mainly by Heads of the Corporate Banking, Personal Banking, Operations and Marketing functions, who are also the members of the Corporate Management of the Bank. The Country Manager of the Bangladesh Operations assists the Chief Operating Officer on matters pertaining to Bangladesh.

Training and Awareness

Organisation-wide goals regarding product responsibility are communicated via internal marketing and communication activities while periodic awareness programmes and communication materials on product responsibility/guidelines are sent to Branch Managers and departmental heads via operational and administrative circulars. Such circulars are also available in the Bank's intranet. In addition, product descriptor and branding guidelines are given to all third parties dealing with the Bank with strict control and monitoring aspects.

Further, the Staff Development Centre of the Bank conducts periodic training programmes to raise awareness of front-line staff on product features and how to present them to customers. Internal examinations and interviews test junior employees' product knowledge when they are being considered for promotions.

Monitoring and Follow-up

The Bank's monitoring system, geared to impart corrective and preventive action where indicated, encompasses the following:

• A control environment with written guidelines, policies and contingency management plans which reflects the commitment of the Board of Directors and the Management to sound internal controls.
• Risk assessment by respective authorities in terms of identification, measurement and analysis of risks, both internal and external, at individual business units as well as for the Bank as a whole. The effective risk assessments in turn help determine the potential risks, the control measures and their management.
• Control activities envisage the policies, procedures and practices established to ensure that the Bank's staff adheres with the directives of the Board and Management at every business unit and throughout the Bank.

Our Approach to Manage Product and Service Impact

The 'Social and Environmental Management System' (SEMS) spells out the social and environmental policy and procedures followed by the Bank in assessing the environmental and social risks as part of its risk assessment process.

Our Policy We are especially focused on ensuring that all activities undertaken by the Bank are consistent with the applicable requirements of SEMS, which provides a policy framework, implementation process and a monitoring mechanism to ensure that not only the Bank but also our customers conform to certain standards stipulated in SEMS.

The Bank in its pathway to achieve the objectives of the above mentioned policy makes every effort to ensure that all projects funded are reviewed against the stipulated criteria and are designed, built, operated and maintained in compliance with the requirements of the SEMS. It is quite understandable that most customers may believe that compliance with environmental standards and provisos do not generate direct financial benefits to them, though society is benefited. Hence, our goal is to educate them on the long term benefits that will accrue to all by complying with measures that enhance environmental sustainability and thus the well-being of their businesses.

The Bank's credit policy encompasses a Social and Environmental Policy, which sustains our position whilst supporting our aim be the best player locally and regionally. A senior officer designated as a 'Social and Environmental Co-ordinator' supported by his team is responsible for the management and administration of the SEMS in the Bank.

Effective implementation of SEMS at the Bank is carried out in two phases, namely initial project approval phase and subsequent project review phase, as illustrated below.

Phase I: Initial Project Approval

This phase requires the Bank to carry out rigorous social and environmental evaluation, prior to approving a new facility or renewing an existing facility for project financing. Hence, projects are financed only when they are expected to be designated, built, operated and maintained in the manner consistent with the requirements of the SEMS.

Phase II: Subsequent Project Review

This phase endorses that the Bank makes best efforts to ensure that all projects are operated in compliance with the requirements of the SEMS.

The Social and Environmental Co-ordinator keeps the management informed on all matters pertaining to the subject through his Annual Performance Report, which is prepared based on the reports of clients, information gathered from due diligence and supervision. The Bank's Annual Environmental Performance Report to the International Finance Corporation, one of the important shareholders of the Bank, ensures that finances extended by the Bank are channelled to projects that are compliant with the requirements of the said body.

The SEMS Co-ordinator who receives regular training on all aspects of SEMS is also responsible to train staff to ensure successful implementation of SEMS at the Bank.

SEMS as an integral part of the lending philosophy of the Bank

Inculcating SEMS into the Credit Policy

The Credit Policy of the Bank has evolved based on a comprehensive understanding of the needs of customers. Thus the products and services that stem from this Policy are all geared to meet and exceed customer expectations. In this regard, a conscious effort is made to lend funds to needy sectors subject to the associated risks being acceptable to the Bank. The environmental impact of activities and/or businesses financed by the Bank is always a subject of concern when credit proposals are considered by the Bank. Lending activities are aligned with the Social and Environmental Policy and all regulatory requirements and with the IFC's exclusion list. Every attempt is made to assist customers to become compliant with the relevant regulations rather than simply rejecting credit proposals that adversely affect the environment.

The operations of the Islamic Banking Unit and the Bank's operation in Bangladesh are governed by separate credit policy documents which broadly comply with the Credit Policy of the Bank.

The Credit Policy of the Bank though not publicly available is accessible by all officers directly or indirectly involved in lending as this document is hosted in the Intranet site of the Bank.

The Bank devotes much attention and deploys substantial resources to train lending officers to ensure that their approach to customer requests is always professional and helpful. As such every credit proposal is examined on its merits to understand the risks associated with it since every proposal has its own strengths and weaknesses and also has some measure of risk/s associated with it. The objective of this exercise is to explore the ways and means of avoiding, mitigating or transferring the risks while ensuring that the evaluation process does not become an adversarial proceeding with the customer.

SEMS as a tool for assessing and screening environmental and social risks

As explained under the management approach, The 'Social and Environmental Co-ordinator' manages the implementation and monitoring of the SEMS. The Co-ordinator reports to the Head of Corporate Finance who signs off on the Bank's annual Environmental Performance Report. The SEMS is largely based on the Performance Standards of the International Finance Corporation (IFC), the private sector arm of the World Bank Group and an important shareholder of the Bank since 2003. The SEMS is being upgraded in consultation with the IFC to ensure full compliance and as suggested by IFC steps are being taken to place the SEMS Co-ordinator at the Risk Management Department of the Bank so that projects/facilities could be evaluated for environment screenings.

The SEMS ensures that effective sustainability practices and safeguards are implemented not only in respect of our own activities, products and services but also with respect to the indirect impacts arising from the projects of our customers that we finance. As laid down in the SEMS, the Bank has a predetermined threshold for aggregate lending for the projects listed in the IFC Exclusion List. The underlying principles of SEMS ensure that:

• Project lending by the Bank is consistent with IFC Performance Standards and other applicable national laws on environment, health, safety and social issues. In the event, a significant environment or social risk is identified during the initial screening phase, additional procedures including environmental due diligence are performed before proceeding any further on the credit proposal;
• External specialised assistance is also obtained when required; and
• Only projects which we believe will be designated, operated and maintained according to these applicable requirements are financed.

The Bank does its best to ensure that the finance extended to its customers is used to set up and fund operations which are both sustainable and environmentally sound. This concern is at the heart of the Bank's sustainability strategy. Hence, all project related lending is reviewed against the applicable requirements at the time a credit facility is granted and on an ongoing basis thereafter for the period of the Bank's association with such project/s.

The Bank expects to extend this to all lending proposals soon.

Monitoring project compliance

On an on-going basis, lending officers of the Bank undertake desk reviews and visit projects financed, to evaluate their environmental and social impacts and to assess the client's fulfilment of agreed environmental and social objectives. These reviews may require the borrowers to take mitigating actions for any adverse effects over the project period to bring it in line with the preferred standards within agreed time periods. The officers selected for this task are those with the necessary skills and competence.

Talent building for successful implementation of SEMS

The Social and Environmental Coordinator's mandate is to ensure that all relevant procedures are complied with for every project undertaken. This officer is trained and updated on an on-going basis on matters relevant to his purview. The Bank makes use of this expertise, augmented by external resource personnel when necessary, to instruct and mobilise the wider employee base of the Bank on environmental and other sustainability issues. The Bank also takes every possible measure to ensure that its staff and the decision makers at clients' firms appreciate and agree to operate within the policy principles laid in the SEMS.

Interacting with customers on environmental and social risks and opportunities

The lending officers are required to record a summary of the discussions/interactions arising out of face to face encounters on such project visits based on checklists specially prepared for this purpose for reference and for monitoring in follow up visits.