Stewardship

Corporate Governance

CHAIRMAN'S STATEMENT

Dear Stakeholder,

One of the most vital aspects of conducting the business of the Bank is ensuring that it enacts the highest standards of governance.

In 2012, the Bank's Corporate Governance regime met and often exceeded all criteria of measurement testifying to the most effective governance practice being in place and desired results being achieved.

The Governance Structure of Commercial Bank is aimed at satisfying the legitimate claims of all stakeholders and to fulfill the Bank's economic, environmental and social responsibilities in an accountable and transparent manner. Guided by this structure, your Board ensures that the right strategy and controls are in place in order to deliver value to shareholders, employees and the community.

Our Corporate Governance ethos is firmly embedded in our culture and the manner in which we conduct our enterprise and informs all efforts to align our business practices with the best interests of all stakeholders, in a climate of transparency, timely disclosure and comprehensive financial reporting.

The governance framework of the Bank provides for effective decision-making on the affairs of the Bank. As the Chairman of the Bank, I reiterate to all stakeholders, that your Board of Directors is fully committed to raising the bar to realise the Bank's strategy while nurturing ethical behaviour and promoting good governance practices across all units of the Bank.

This Section of the Annual Report details the Corporate Governance framework in place at the Bank and the manner in which it ensures adherence to the requirements of the Code of Best Practice on Corporate Governance issued jointly by The Institute of Chartered Accountants of Sri Lanka (ICASL) and the Securities and Exchange Commission of Sri Lanka (SEC) and the Banking Act Direction No. 11 of 2007 on 'Corporate Governance for Licensed Commercial Banks in Sri Lanka' issued by the Central Bank of Sri Lanka and subsequent amendments thereto.

The material contained in this Section of our Report will speak to the continuous efforts the Bank makes to improve both its Corporate Governance Philosophy and its enactment.

As always, we welcome your valuable feedback which will assist us in our ongoing evolution of governance precepts as well as its enactment together with our commitment to maintain the highest of standards across every facet of the Bank.

In conclusion, I wish to confirm that to the best of my knowledge, I am not aware of any material violations of any of the provisions of the said Codes issued jointly by the ICASL and the SEC and the Direction of the Central Bank of Sri Lanka.

Yours Sincerely,

 

D. S. Weerakkody

D.S. Weerakkody
Chairman

February 27, 2013


    Highlights in 2012

  1. Mr. D.S. Weerakkody, a member of the Board since 2005 and Chairman of the Bank effective from December 30, 2011, was re appointed as a Director and the Chairman of the Board upon his re-election at the Annual General Meeting held on March 30, 2012.

    Mr. D.S. Weerakkody is an Independent Non-Executive Director.
  2. Mr. K.G.D.D. Dheerasinghe, appointed as the Deputy Chairman of the Bank effective from December 31, 2011, was reappointed to the Board and as the Deputy Chairman upon his re-election as a Director at the Annual General Meeting held on March 30, 2012.

    Mr. Dheerasinghe is an Independent Non-Executive Director.
  3. The Bank further strengthened the Board by appointing Mr. Jegatheesan Durairatnam as an Executive Director to the Board with effect from April 28, 2012 and Mr. Sembakuttige Swarnajothi as a Director effective from August 20, 2012.

    Mr. Swarnajothi is an Independent Non-Executive Director.

    Mr. Durairatnam also functions as the Chief Operating Officer of the Bank while Mr. Swarnajothi functions as the Chairman of the Board Audit Committee.
  4. The Bank appointed Messrs KPMG as the external auditor of the Bank in 2012 in compliance with the auditor rotation policy applied by the Bank.
  5. The Bank engaged the services of Messrs KPMG to seek their assessment of the Bank's compliance with the requirements of the Banking Act Direction No. 11 of 2007 on 'Corporate Governance for Licensed Commercial Banks in Sri Lanka' issued by the Central Bank of Sri Lanka and subsequent amendments thereto.
  6. The Bank also engaged the services of Messrs KPMG to seek an assurance on the Bank's level of adherence to the Internal Controls. Refer their Assurance Report on Internal Controls and the Directors' Statement on Internal Controls.

 

Statement of Compliance

The Bank is fully compliant with the requirements of the Code of Best Practice on Corporate Governance issued jointly by The Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka. See the Tables for the requirements of 'Corporate Governance Principles' and the responses of the Bank on its adherence to the said requirements.

Refer Tables for the Bank's adherence to the requirements of the Banking Act Direction No. 11 of 2007 on 'Corporate Governance for the Licensed Commercial Banks in Sri Lanka' issued by the Central Bank of Sri Lanka and subsequent amendments thereto.

Since the Bank is in compliance with the requirements of the aforesaid Direction of the Central Bank of Sri Lanka, the Colombo Stock Exchange exempted the Bank from complying with the requirements stipulated in Section 7.10 on 'Corporate Governance' of the Continuing Listing Requirements of the Colombo Stock Exchange issued in 2010.

Further, the Board of Directors to the best of their knowledge and belief is satisfied that all statutory payments due to the Government, other regulatory institutions and those payments related to employees, have been made on time.

Summary of Compliance

The table below depicts the requirements of the Governance Code issued jointly by the ICASL & the SEC and the Direction No. 11 of 2007, amendments thereto of the Central Bank of Sri Lanka.

This is not an exhaustive list and is provided purely for the convenience of the readers of this Report in assessing the Bank's level of adherence to the aforesaid Code and the Direction.

Summary of Requirements as per the joint Code of the ICASL and the SEC   Disclosed
Chairman and Chief Executive Officer   ✓
Board Balance   ✓
Appointment of New Directors   ✓
Nomination Committee   ✓
Appraisal of Board Performance   ✓
Board-Related Disclosures   ✓
Disclosure of Remuneration   ✓
Major Transactions   ✓
Audit Committee   ✓
Code of Business Conduct and Ethics   ✓
Going Concern   ✓
Remuneration Committee Report   ✓
Directors' Report   ✓
Financial Statements   ✓
Management Report   ✓
Corporate Governance Report   ✓
Audit Committee Report   ✓

Summary of Requirements as per the Directions of the Central Bank of Sri Lanka   Disclosed
Responsibilities of the Board   ✓
The Board's Composition   ✓
Criteria to assess the Fitness and Propriety of Directors   ✓
Management Functions Delegated by the Board   ✓
Chairman and Chief Executive Officer   ✓
Board Appointed Committees   ✓
Related Party Transactions   ✓
Disclosures   ✓
Transitional and Other General Provisions   ✓

Major External Steering Instruments on Governance

Major Internal Steering Instruments on Governance

Reference Web Links for further Information

Governance, Commitments and Engagement

The business activities of the Bank are conducted by adhering to the highest standards which are based on the best contemporary principles and practices whilst conforming to all applicable laws and regulations. Policies are drafted, plans and day-to-day operations are undertaken terms of corporate governance principles that define the structure and responsibility of the Board of Directors, ensure legal and regulatory compliance, help protect stakeholder interests, and govern the quality of information disseminated and the practice of assessing and managing corporate and business risks.

Governance Structure of Commercial Bank

As exhibited in the diagram on Governance Structure , the Board of Directors being the highest governance body of the Bank ensures alignment of the Bank's business strategy to sustainable business performance by providing directions for effective engagement and communication with all stakeholders.

There has never been a time when systems of Corporate Governance and controls have been under greater scrutiny than they currently are. The need for effective and efficient procedures to be in place is high on the agenda of all corporates today.

It is virtually impossible to devise a system of Governance and Control which will satisfy completely the multifarious requirements demanded by the statutory framework of a country. However, we at Commercial Bank strive to build a Governance framework to deliver sustainable value whilst enhancing a culture of business integrity and investor confidence.

The Corporate Governance Framework of the Bank casts responsibility on the Board of Directors on the following:

The following events that took place during the year 2012 further displays the Board's commitment to uphold a strong Governance Framework:

Governance Structure

The Bank's Governance Structure portrayed below demonstrates the linkage mechanism that ensures alignment of its business strategy and direction through effective engagement and communication with its stakeholders, Board of Directors, Board Sub-Committees and Management. This mechanism assures that the Bank sustains its potential to deliver its promised value to the stakeholders.

1st level of defense - Corporate Management
2nd level of defense - Risk Committee, Audit Committee and Internal Audit
3rd level of defense - External Audit, External Legal and Other Professional Advice, Independent Assurance Providers

Governance Structure

As at December 31, 2012, the number of Directors on the Board stood at eight and the chair of the Board is an Independent Non-Executive Director while the Managing Director/Chief Executive Officer of the Bank was a Non-Independent Executive Director. The members of the Board consist of persons with multiple industrial and financial backgrounds in which they have achieved eminence, who contribute effectively for Board discussions and decisions through their ability, experience and specialist knowledge to guide the Bank towards achieving excellence in terms of triple bottom line performance. The profiles of the Board of Directors which evident their expertise in varying disciplines appear under Board of Directors section. The Bank's Board Nomination Committee assesses the qualifications, experience and abilities of Board members and key management executives. The Bank's strategic, economic, environmental and social objectives are adequately taken into account during the assessment process.

The Bank has in place a number of mandatory and voluntary Board Sub-Committees to fulfil regulatory requirements and for better governance of its activities. These committees meet regularly to consider and discuss matters falling within respective Charters and their recommendations are duly communicated to the Main Board. These Committees consist of Executive and Non-Executive Directors in varying proportions, as set out in the table below:

Composition of Main Board and Board Sub-Committees as at end 2012

Name of Committee Executive Members Non-Executive Members Independent Members Non-Independent Members Gender Age Group
          Male Female 30 - 50 Years Over 50 Years
Main Board 02 06 04 04 08 Nil 01 07
Board Human Resources and Remuneration Committee 01* 03 02 02 04 Nil 01 03
Board Integrated Risk Management Committee 02 05 03 04 07 Nil Nil 07
Board Nomination Committee 01* 03 02 01 03 Nil 01 02
Board Audit Committee Nil 05 03 02 05 Nil 01 04
Board Credit Committee 01 02 01 02 03 Nil Nil 03
Board Technology Committee 02 01 Nil 03 03 Nil Nil 03
* By invitation                

Information on composition, Charter/mandate and activities of all Board Sub-Committees are given on pages 206 to 215

The Board's Engagements with Shareholders and Employees

Engagement with Shareholders

The shareholders of the Bank have multiple ways of engaging with the Board including the following:

These mechanisms provided opportunities for shareholders to discuss matters relating to the Bank's performance, their return on investment, future direction of the Bank, CSR activities conducted via the Bank's CSR Trust Fund and other special requests of shareholders, etc.

Engagement with Employees

The following channels provide opportunities to deliberate on matters connected to performance of the Bank, compensation and benefits, CSR initiatives, etc.:

Above mechanisms provided opportunities for employees and employee associations to discuss matters relating to the Bank's performance, matters relating to employee perks and welfare, future direction of the Bank, CSR activities conducted via the Bank's CSR Trust Fund and other special requests of employees.

Connecting Compensation to Performance

The Bank has a well established target driven culture linked to achievement of goals set out in its Corporate Plan. Executive Directors who are members of the highest governing body, key management personnel and all executive officers are remunerated based on their level of achievement of the pre-set targets with mutual agreement. Criteria for determining the performance based compensation, including succession arrangements, are detailed in the 'Board Human Resources and Remuneration Committee Report'.

The executive officers responsible for implementation and monitoring of the Social and Environmental Management System (SEMS) of the Bank are remunerated based on the level of achievement of targets linked to SEMS. Similarly, those executive officers attached to Departments who deal with employee remuneration, welfare, staff training and development and other employee related services too are remunerated based on achievement of targets set for them in terms of labour practices and decent work and human rights.

Avoiding Conflicts of Interest

The Governance Structure of the Bank ensures that the Directors take all necessary steps to avoid conflicts of interest, or the appearance of conflicts of interest, in their activities with and commitments to, other organisations or related parties. If a Director of the Bank has a conflict of interest in a matter to be considered by the Board, which the Board has determined to be material, such matters are disclosed and discussed at the Board meetings, where Independent Non-Executive Directors who have no material interest in the transaction, are present. Further, Directors abstain from voting on any Board resolution in relation to which such Directors or any of their close relation/s or a concern in which such Directors have substantial interests, and/or are interested in. Further their votes are not counted in the quorum for the relevant agenda item at the Board meeting.

In pursuance of the requirements under the Sections 192 and 193 of the Companies Act No. 07 of 2007, the Directors have duly disclosed the financial accommodation obtained/deposits made by the entities where such Directors function as Chairman or Director with the Bank, as appearing in the Section on 'Directors' Interest in Contracts' with the Company. Further disclosures have been made under the Note 53 to the Financial Statements on 'Related Party Disclosures' as required by the Sri Lanka Accounting Standards.

In addition, the Bank actively seeks to avoid conflicts of interest among multiple stakeholders via several mechanisms including -

Sustainability Focused Internally Developed Statements

The well defined and clearly articulated values, principles and rules on which the Bank operates drive the conduct of its Board of Directors, key management personnel, executives and other staff in all foreseeable situations. This has enabled the Bank to assess economic, social and environmental impacts of its actions and thus effectively mitigate any risks. These values, principles and rules are articulated through a variety of means, including the following:

Monitoring and Evaluation by the Board

It is customary to carry out an in-depth analysis of Strengths, Weaknesses, Opportunities and Threats (SWOT) including sustainability related issues as part of deliberations leading to the preparation of the Corporate Plan which sets the Bank's strategic direction. Further, heads of the four main business divisions of the Bank make presentations on how they intend achieving performance targets set including challenges pertaining to economic, environmental and social aspects, the outcome of which is communicated to the Board of Directors for their consideration and strategy development.

The following mechanisms are in place for the Board to oversee the accomplishment of the targets set in the Corporate Plan:

Board Evaluation

As required by the Direction No. 11 of 2007 on 'Corporate Governance for Licensed Commercial Banks in Sri Lanka' and amendments thereto, the Bank has put in place a well defined system to evaluate the performance of the Board based on the effectiveness of the Board's Governance Practices. One of the key expectations of the Board is to ensure that the activities of the Bank are carried out in a transparent manner while ensuring that the triple-bottom line principles are adequately addressed. The Board intends to expand the assessment areas to cover the contemporary topics as needed.

Addressing the Principle of Precaution

Business of a Bank demands independent decision making, ethical behaviour, transparency, effective risk management and long-term business planning in order to have an ethical, legal and compliant organisation at every layer, as well as to ensure that no illegal or unethical business activities are undertaken. Hence, Bank has taken steps to ensure that all critical processes and procedures are well-documented to ensure smooth functioning and to avoid multiple interpretations.

Towards achieving the above objective, the Bank prepared a Business Continuity Plan (BCP) in 2006 which was sanctioned by the Management and validated by the Board of Directors. The Bank also has a Business Continuity Management Steering Committee (BCMSC) comprising members of the Corporate Management and the Senior Management who drive the Business Continuity Management efforts at the Bank. The BCMSC also provides overall guidance to the BCP Committee which consists of a group of Business Champions whose mandate is to develop and update the BCP covering all aspects of services offered by the Bank. The Bank also has a Disaster Recovery Plan to supplement the BCP and to ensure the continuity and functionality of the Information System. BCP includes a Staff Succession Policy, Crisis Communications Policy, Staff Travel Policy, Supply Chain Management Policy, Awareness and Training Policy.

Further, the Bank's Integrated Risk Management Department analyses and reports on all types of risks associated with the operation of the Bank. The report on 'Managing Risk at Commercial Bank' which detail the structure, role of the risk management and challenges.

In addition, the management of the Bank has established several committees making them accountable to carry out market surveys, new product development, reviewing of existing products and analysing customer expectations and behaviours, to ensure the sustainability of its business. Further, there are specialised departments that continuously update staff at all layers with development in the financial markets, conduct peer review for the information of the Board and the Management.

Commitment to External Charters

The Bank has already committed to a number of external charters, codes and standards within which its operating values, principles and commitments to stakeholders and to society at large is embraced.

Please see the table below for details.

External Charter   Year of Adoption   Countries/Operationswhere applied   Range of stakeholders involved in the development and governance of these initiatives   Compliance Requirement
                Mandatory Voluntary
Codes of Best Practice for Corporate Governance issued:                  
By the Colombo Stock Exchange   Various and on going   Sri Lanka   Multi-stakeholders     ✓
By the Central Bank of Sri Lanka                  
UNGC principles   2003   Sri Lanka   Multi-stakeholders     ✓
IFC guidelines and performance standards that spell the Bank's Social and Environmental Management System   2010   Sri Lanka   Multi-stakeholders     ✓
ISO 27001 certification on information technology and operations of the card centre and e-banking centre   2009 and re-certified in 2012   Covers Sri Lankan operations only. Although the operations in Bangladesh are not certified their central systems are covered under the IT certification, and the desktops have MS Active Directory installed, complying with ISO 27001 information security policies of Sri Lanka.   Multi-stakeholders     ✓
Jointly by The Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka   Various and ongoing   Sri Lanka   Multi-stakeholders     ✓
The requirements of the Central Banks on single borrower limits, capital adequacy ratios, classification into non-performing loans and advances, provision for loan losses, statutory/cash reserve ratio, liquid asset ratio, etc.   Various and ongoing   Sri Lanka and Bangladesh   Multi-stakeholders   ✓  

Memberships in Associations

The Bank has memberships in a number of sectoral, industrial and professional organisations and associations which are listed below.

The Managing Director of the Bank is an active member of the Ceylon Chamber of Commerce, Sri Lanka.

Stakeholder Engagement

The Bank considers any person or an organisation, both internal as well as external, as a stakeholder if such person/organisation is affected or expected to be significantly affected, directly or indirectly, due to the activities of the Bank or due to their engagement with the Bank. The governance structure in place also demands the Bank to consider engagement with stakeholders with paramount importance as failure to do so would undoubtedly affect its achievement of the goals and objectives stemming from its mission. The Board having well understood the importance of properly executing stakeholder engagement, uses results of such engagements in raising accountability towards stakeholders. The Bank believes that this process strengthens mutual trust between the Bank and its stakeholders and enhances stakeholder receptivity.

Connecting with our many stakeholders is a vital aspect of our operations. Maintaining and opening a constructive dialogue with our stakeholders helps to understand expectations and contributes to risk management, learning and innovation. It also helps us to identify emerging issues and opportunities for creating new products and services and improving our performance. It's a value creating activity as depicted in the governance structure that appear under Corporate Governance, the Board of Directors welcomes suggestions, recommendations, advice or any other form of constructive engagements from any stakeholder or stakeholder group. Commercial Bank always maintains regular dialogue with key stakeholder groups and their reasonable expectations and interests are given due respect in making decisions by integrating them to the reporting process. The Bank has also established a number of avenues to ease the effective communication with its stakeholders.

Stakeholder Engagement Process

The following diagram illustrates the stakeholder engagement process in place at the Bank which clearly demonstrates process of identifying key stakeholders and mechanisms in place addressing their reasonable expectations and interests as part of stakeholder inclusiveness.

The stakeholders identified on the basis enumerated in the stakeholder engagement process above together with mode of engagement, frequency, key topics and concerns raised and the methodologies employed in responding are tabulated below.

Mode of Engagement   Frequency of Engagement   Key topics discussed and
concerns raised		   Methodologies employed to respond

Shareholders, Investors and Analysts

        
• Annual Reports
• Annual General Meeting
• Extraordinary General Meeting
• Interim Financial Statements
• Press Conferences and
Media Releases
• Investor presentations
• Announcements made to the Colombo Stock Exchange
• One-to-one Discussions
• Road Shows
• Corporate website:
www.combank.net
www.combank.lk		   » Annually
» Annually
» As and when required
» Quarterly
» Ongoing  

» Ongoing
» Ongoing

» Ongoing
» Ongoing
» Ongoing
   • Plans to improve Dividend per share, capital adequacy ratio,
cost income ratio
• Business expansion plans both locally and internationally
• Plans on maintaining liquidity
• Means of further improving the services rendered by the Bank
• Sustainable performance
of the Bank
• Board governance  		   Concerns of shareholders are addressed provided such concerns are not related to commercial secrets to complement the effective dialogues process with shareholders and prospective investors. Principles of transparency, accountability and look for regular briefings are among our top priorities.

Customers

            
• Branches
• Relationship Managers' engagement with corporate customers
• Mobile banking
• Complaint Resolution Officer
• Customer satisfaction survey
• Customer relations workshops
• Call Centre
• Corporate website:
www.combank.net
www.combank.lk  		   » Ongoing
» Ongoing


» Ongoing
» Ongoing
» Annually
» As and when required
» Ongoing
» Ongoing  		   • Customer service excellence
• Customer satisfaction and relationship management
• Innovation in products and services
• Interest rate trends, securities, terms and conditions etc.
• Fees and charges
• Factors leading customer convenience including branch layout, availability of a wide range of products and services, adequacy of staff, etc.
• Services available through
on-line banking
• Amicable resolution of customer disputes  		   Prompt communication of interest rates, terms and conditions of banking products to staff at all levels through Internal Circulars making them equipped to handle various requests of customers. Conducting periodic surveys to obtain feedback on the level of customer satisfaction to seek their views on improvements required for the existing services. Opinions and multiple expectations of customers gathered through variety of engagements with them are embedded in to the new products and services added to our portfolio. Other mechanisms in place to delight customers include improving information security to responsible marketing communication, innovative and environment-friendly products, and being a part of customers' business development process. With the objective of satisfactorily resolving of complaints of customers, a member of the Corporate Management has been appointed as the Compliant Resolution Officer of the Bank as a part of the voluntary scheme entitled 'Financial Ombudsman, Sri Lanka' set up by the Central Bank of Sri Lanka.

Employees and Employee Associations

        
• Managers' Conference
• Regional review meetings
• Relationship building exercises with employee associations
• Negotiations with employees and their associations
• Internal circular instructions
• Operational updates to staff
via email
• Internal newsletter, "Com Pulse"
• Intranet site of the HR Division
• Feedback of cross functional training programmes
• Special events such as quiz contests, staff children's party, art and sports competitions, etc.		   » Annually
» Quarterly
» Annually

» Ongoing

» Ongoing
» Daily

» Quarterly
» Ongoing
» As and when required

» Annually		   • Values aligned culture
• Remuneration including performance based compensation
• Staff welfare measures
• Compliance with national regulations
• Updates on the Central Bank's Rules and Regulations
• Implementing and managing the 'Social and Environmental Management System' (SEMS) at the Bank
• Future plans of the Bank
• Diversity and inclusion
• Whistle-Blowing Mechanism  		   Performance driven culture of the Bank which rewards employees based on the extent of achievement of the
pre-set targets for both the Bank and the individuals, assure the effective and efficient attainment of goals of both. In addition, the Bank organises training and awareness sessions and sends circular instructions with a view to increase the awareness of its employees on various matters including sustainability related issues embedded in the SEMS.  

Legislators and Regulatory Bodies*

        
• Meetings
• Directives and circulars
• Filing of returns
• Consultations
• In areas of socio-economic sensitivity, engagement is dictated by the issues raised
• On-site surveillances by the regulator
• Press releases
• Corporate website: www.combank.net
www.combank.lk  		   » As and when required
» Ongoing
» Ongoing
» Ongoing
» Ongoing


» As and when required

» Ongoing		   • Central Bank of Sri Lanka's Regulations pertaining to the Licensed Commercial Banks
• Compliance with Codes of Best Practice issued by the Central Bank of Sri Lanka, The Institute of Chartered Accountants of
Sri Lanka and the Securities and Exchange Commission of
Sri Lanka, the Colombo Stock Exchange and Sri Lanka Banks' Association (Guarantee) Ltd.
• International financial developments
• SMEs' access to finance
• Other Government regulations including taxes
• Various issues that affect the
well-being of Bank employees		   The Bank maintains regular dialogue with regulators and has put in place systems and procedures with a view to assuring regulatory compliance and strengthening the relationship with other public and professional institutions.

* Legislators and Regulatory Bodies include the Central Bank of Sri Lanka, the Department of Inland Revenue, Ministry of Finance, Registrar of Companies, Colombo Stock Exchange, Securities and Exchange Commission of Sri Lanka, Ceylon Chamber of Commerce, External Auditors, Sri Lanka Accounting and Auditing Standards Monitoring Board, Professional Organisations including The Institute of Chartered Accountants of Sri Lanka and other Government organisations.

Suppliers

            
• Supplier relationship management
• On-site visits and meetings		   » Ongoing

» As and when required		   • Responsible Procurement opportunities offered by the Bank
• Engagement and registration on preferred supplier database
• Contractual performance  		   The Bank maintains a list of registered suppliers with whom it engages in the ordinary course of business. Regular dialogues are conducted with them to ensure that value for money is created for both the Bank and the suppliers. Reliability and mutual trust plays a vital role in building relationship with suppliers.

Media and General Public

        
• Press conferences and
Media briefings
• Press releases
• Informal briefings and communication
• Media Advertisements    		   » Ongoing

» Ongoing
» Ongoing

» Ongoing		   • Media briefings
• Interim and annual results
• Recognition for excellence by various external parties
• New products, services and outlets
• Micro financing and SME development
• CSR initiatives
• Staff recruitments
• Communication to the
General Public		   The media plays a vital role in building regular communication with our stakeholders. Having realised the value of continuous dialogue with the media, the Bank takes every endeavour to inform the media timely and accurately with our press releases and share opinions with opinion leaders at press conferences.  

Communities and Youth

            
• Widespread network of delivery channels
• Conferences
• Press release
• Scholarships
• Sponsorships
• Public events
• Call Centre
• Corporate website:
www.combank.net
www.combank.lk 		  » Ongoing

» As and when required
» Ongoing
» Ongoing
» As and when required
» As and when required
» Ongoing
» Ongoing		   • Corporate social responsibility initiatives
• Responsible finance
• Providing access to fair and affordable banking
• Community investment
• Financial inclusion
• Cost effectiveness of CSR initiatives
• Scholarships for university students
• Youth targeted sponsorships
• International profiling of the brand through sports and arts		   The Bank contributes to local economic development through our widespread Branch and ATM network scattered all over the country. Being transparent in all of its activities, the Bank keeps the public informed of its sustainable performance and new developments on an ongoing basis. By supporting needy niches of the society sponsorships and activities of its CSR Trust Fund including scholarships offered to underprivileged students, the Bank aspires to reach local communities.

Furthermore, any shareholder is free to communicate through the Investor Feedback Form annexed to the Annual Report and via the Bank's e-mail address, email@combank.lk

Ownership Structure

As per the share register at year end 2012, the Bank had a total of 9,509 voting shareholders (9,299 voting shareholders as at end 2011) DFCC Bank PLC continued to be the largest shareholder, with a stake of 14.87% of the Ordinary Voting Shares of the Bank (14.90% in 2011). The top 20 voting shareholder of the Bank accounted for 67.43% of the total shareholding of the Bank (69.42% in 2011). These statistics amply demonstrates the strong confidence these shareholders have placed in the Bank. Details of the ownership structure are found on Item 10 of the section on 'Investor Relations' including the names of the Twenty Largest Shareholders of the Bank as at end 2012.

All voting shareholders have the right to exercise their votes to impact decisions at the Annual General Meeting of the Bank and the Extraordinary General Meeting called upon as needed.

The information on ownership structure is published in the Interim Financial Statements of the Bank and it is also available on the Bank's website, http://www.combank.net/newweb/interimfinancials

Annual General Meeting 2012

The Bank's 43rd Annual General Meeting (AGM) was held on March 30, 2012. At the AGM 357 (333 in 2011) voting shareholders and 149 (129 in 2011) non-voting shareholders were presented by person or by proxy.

The following resolutions were passed at the last Annual General Meeting:

Extraordinary General Meeting 2012

There was one Extraordinary General Meeting (EGM) held during 2012 to deal with the matter given below:

Date of EGM Matters Tabled Attendance
March 30, 2012 Adoption of the Amended Articles of Association of the Bank 326 voting shareholders and 137 non-voting shareholders

Performance Governance

'Performance governance is about creating the structure to whom responsibilities are allocated whilst working independently under the control of the Board' Governance and Compliance Organisation, England

Performance governance at the Bank stemmed from the strategic direction drilled down to corporate objectives. By efficiently and methodically implanting the performance governance ethos, the Bank strives to develop a framework that delivers breakthrough corporate results while taking account the expectations of all stakeholders of the Bank.

The Chairman and the Managing Director together with their respective teams review the strategic plan and budgets against the actual performance on a monthly basis and at more frequent intervals, as needed. Progress made by the four Key Strategic Business Units of the Bank in terms of the pre-set Key Performance Indicators (KPIs) are continuously reviewed to ensure the correct alignment with the overall strategy of the Bank, as depicted in the diagram below:

Strategic Business Unit KPIs set for 2012 Extent of Achievement
Personal Banking
  • Enhance the contribution to Bank's advances portfolio.
  • Maintain No. 1 position in Deposits among private Commercial Banks.
  • Expand delivery points and channels to become the most sought after network among the Banking Industry.
  • To maintain the NPA below the industry norms.
  • To groom a knowledgeable team who can take the Personal Banking Division in the right direction in the long run.
 See the section on 'Performance by Division - Personal Banking' on the 'Management Discussion and Analysis' for detailed explanations.
Corporate Banking
  • Maximise profit while maintaining a substantial growth in the lending portfolio and also maintaining a quality loan book.
  • To achieve and maintain the best financial ratios in the industry.
  • To continue to maintain the most preferred bank status for trade finance.
  • To expand our rated customer base.
  • To achieve a high standard in processes and internal control in credit operations.
  • To expand off-shore lending in the South Asian Region.
  • To revisit and redefine the customer convenience and satisfaction in all operations.
  • To take advantage of the lending opportunities that have arisen with the post war development work now taking place in the country.
  • Actively pursue investment opportunities in listed entities.
 See the section on 'Performance by Division - Corporate Banking' on the 'Management Discussion and Analysis' for detailed explanations.
Treasury
  • Achieve budgeted FX profit through increasing business volumes.
  • Improve fixed income operations in order to enhance profitability.
  • Improve the efficiency of the Treasury through operational excellence.
  • Managing proprietary trading portfolio with clearly defined targets
  • Streamline Bangladesh Treasury Operations and take the control directly under the Group
  • Achieve the status of "Most Preferred Treasury Solution Centre" in the market.
  • Management of the Bank's financial 'assets and liabilities in consultation with the ALCO.
  • Managing Treasury related risks within the approved limits.
  • Managing the Bank's funds while conforming to statutory and internal regulatory requirements.
  • Enhance Treasury business volumes along with the Bank
 See the section on 'Performance by Division - Treasury Banking' on the 'Management Discussion and Analysis' for detailed explanations.
International Operations
  • To achieve the pre-eminent position of being the 3rd most profitable foreign bank amongst the foreign banks operating in Bangladesh.
  • To establish the Bank as a preferred retail banker providing superior customer service at affordable rates.
  • To provide the best service in fixed income and FX products in the market.
 See the section on 'Performance by Division - International Operations' on the 'Management Discussion and Analysis' for detailed explanations.

The strategy adopted by the Bank provides an integrated and dynamic approach to its strategic issues and ensures that the strategy is discussed at Board level on a regular basis. Alignment of the performance targets of the individuals to the Key Performance Indicators of the Bank has been highly successful over the years.

The Bank strongly believes that good corporate governance on its own cannot make the Bank successful and as such it always strives to strike a balance in conformance with performance. The Board appointed Sub-Committees play a key role in assisting the Board in this regard and the reports of the four mandatory Board Sub-Committees and two other voluntary Board Sub-Committees appears on thisStewardship report which gives a brief descriptions on their compositions, mandates and methodologies adopted.

IT Governance

In doing business, especially in banking, information technology has become the backbone for conducting business with almost exclusive reliance on the use of information and communication technologies. Increasing complexities and criticalities in IT decision-making demands the Bank to adopt an effective IT Governance System.

As such, the right alignment of IT objectives with those of the Bank defined in the business terms is ensured by the Information Technology Governance Mechanism in place at the Bank. IT Governance which forms an integral part of the Bank's corporate governance, deals primarily with optimising the linkage between Strategic Direction and Information Systems Management of the Bank. In this regard, having an organisational structure with well-defined roles for those responsible for information, business processes, applications, infrastructure, etc., ensure generation of value for our stakeholders while mitigating the risks associated with incorrect deployment and use of Information Technology.

The Board Technology Committee took several measures to further strengthen the IT Governance Mechanism at Banks and this Committee is primarily responsible for ensuring implementation of the IT Governance Mechanism illustrated below:

The core objectives of the Bank's Strategic Information Technology Governance which impact the diverse functional areas of the Bank are set out below:

Objective IT Governance Mechanism in place at Commercial Bank
Compliance Investing in licensed software deployed in compliance with Intellectual Property Laws with a view to educate and mandate compliance to such laws throughout the Bank.
Operational Efficiency Streamlining of payments process so that integrity is maintained across value chain through near real-time processing. Use of a world renowned enterprise resource planning system for financial reporting.
Reliable Financial Reporting Close integration of the different IT systems used by the various functional areas of the Bank.
Use of a world renowned external resource planning system for financial reporting.
Information Security Management Achieving the ISO/IEC 27001:2005 Information Security Management Systems certification in 2010 with re-certification in 2012 to reaffirm our commitment to customer confidentiality. Ensuring that information security extends throughout the Bank and beyond as a means of proactive management of information security risks and controls.
Prudent Capital Expenditure All major IT-related procurement is reviewed by an independent 3rd party evaluation committee. Final approval of IT capital expenditure is sought from the Board of Directors of the Bank based on value and recommendations of Assistant General Manager - Procurement, Chief Information Officer, the Chief Operating Officer and the Managing Director.
Customer Convenience A constant drive for improvement and a commitment to high quality uninterrupted service levels to ensure systems availability translating to customer convenience at each of our delivery channels. Ensuring process efficiencies and disciplines through certification to increase the contribution to customer convenience.
IT Risk Management Integrated Risk Management Department of the Bank identifies IT-related risks as a part of its continuous risk assessment procedures. Existing risk management processes are further strengthened and where appropriate new processes are designed to understand risks and implement controls to effectively manage them to mitigate the risk exposure
'Green' IT Protecting the environment by reducing the carbon footprint through migration to e-Statements, Document Workflow and Soft Copy. Returning used IT equipment to re-cyclers certified by the Environment Protection Authority to dispose them as per international standards.

Integrated Risk Management at Commercial Bank

The Bank's Risk Governance and policy framework constitutes the foundation of the entire risk management function of the Bank. The primary responsibility of the Bank's Integrated Risk Management Team headed by the Chief Risk Officer encompasses assuming calculated risks, accurately pricing them and prudently managing the risk portfolios, being the key components which continuously add value to the stakeholders in the business of banking.

Board of Directors strives to strike a balance in the risk and return to the stakeholders with the support of the Board Integrated Risk Management Committee formed in terms of the mandatory requirements of the Banking Act Direction No. 11 of 2007 on 'Corporate Governance for Licensed Commercial Banks in Sri Lanka' which establishes, coordinates and drives the risk management process throughout the Bank. The Integrated Risk Management System of the Bank steered by the aforesaid Board Sub-Committee with the assistance of the Integrated Risk Management Team ensures the timely identification and management of significant risks including exposure to Credit, Market and Operational Risks. Chief Risk Officer reports on the Risk Management Strategy regularly to the Board through the Board Integrated Risk Management Committee.

A full report on the Bank's Risk Management Mechanism including the developments that took place in 2012 are found in the section on 'Managing Risk at Commercial Bank' on this Stewardship Report.

Internal Controls Mechanism

The Bank's Internal Control Framework which is an integral part of the governance structure ensures that the management has a better control and provides the Board of Directors an overview of the management's pursuit of achieving the operational and financial objectives, whilst operating within the confines of the relevant laws and regulations and reliable financial reporting. The communication of information through the Bank's internal control mechanism, diagrammatically presented below, encompasses assessing the degree of control risks, evaluating the level of existing controls, monitoring the effectiveness of their implementation and integrating new or modified controls to bridge any control lapses.

This process ensures effective communication within the Bank and contributes to ensuring that the right business decisions are made. The status of activities of the Bank's control system is followed up continuously through periodic reporting to the Management and to the Board Audit Committee.

The Bank's internal audit function is headed by the Deputy General Manager - Management Audit and is responsible for independent, objective assurance on internal control mechanism, in order to systematically evaluate and propose improvements for more effective internal control processes and governance. Findings at internal audits are tabled at the Board Audit Committee meetings of the Bank in furtherance to the effectiveness of internal control mechanism.

As mandated by the Banking Act Direction No. 11 of 2007, the Board provides a report on the Bank's internal control mechanism which confirms that the financial reporting system of the Bank has been designed to provide reasonable assurance regarding the reliability of financial reporting, and that the preparation of Financial Statements for external purposes is carried out in accordance with relevant accounting principles and regulatory requirements.

The Bank's External Auditors' Assurance Report and management letters also provide the Board with the evidence that enables it to conclude whether the Bank's internal control mechanism is appropriately designed and operating effectively.

Our Code of Ethics

Your Bank pays close attention to the moral concerns in order to make the right ethical decisions on a day-to-day basis over and above observing the law. We at Commercial Bank believe that the upholding of an ethical culture in banking is of critical interest to the customers, employees, regulators alike and to the Bank itself as a secure, reliable and efficient banking system is one of the pillars of economic stability of any country. Hence, nurturing an ethical culture is of utmost importance for banks, like any other organisation.

Our core ethical values include honesty, integrity, fairness, responsible citizenship and accountability.

Enforcing a Corporate Code of Ethics requires understanding and active participation by everyone in the Bank since the Code spells out the expected standards of behaviour and sets the operating principles to be followed. Every official at the Bank is required to ensure that at all times they maintain highest ethical standards and that adequate internal control measures are in place guarding against unethical practices and irregularities.

To make the Code effective, the Bank endeavours:

In addition, our six steps 'ETHICS PLUS Decision-Making Model' encompasses:

In a nutshell, our business ethics means, "Choosing the good over the bad, the right over the wrong, the fair over the unfair and the truth over the untruth". Also amongst the guiding principles of the Bank's Code of Ethics are strict compliance, confidentiality, avoidance of conflicts of interest, encouraging reporting by the officers of the Bank on illegal and unethical behaviour.

Please refer the web link for additional information on the Bank's Code of Ethics: http://www.combank.net/newweb/info/104?oid=57