Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.
GROUP | BANK | |||||
For the year ended December 31, | Note | 2017 Rs. ’000 |
2016 Rs. ’000 |
2017 Rs. ’000 |
2016 Rs. ’000 |
|
Interest income | 13.1 | 104,049,102 | 81,314,607 | 103,034,386 | 80,738,176 | |
Fees and commission income | 14.1 | 10,510,800 | 8,230,131 | 10,169,211 | 8,143,041 | |
Net gains/(losses) from trading | 15 | 233,956 | (1,466,711) | 233,956 | (1,466,711) | |
Net gains/(losses) from financial investments | 16 | 129,210 | 110,759 | 129,030 | 110,701 | |
Other income (net) | 17 | 1,918,687 | 5,536,749 | 2,027,365 | 5,617,403 | |
Total | 116,841,755 | 93,725,535 | 115,593,948 | 93,142,610 |
Interest income and expense are recognised in profit or loss using the effective interest rate (EIR) method.
Interest income and expense presented in the Income Statement include:
The “effective interest rate" is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or financial liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or financial liability.
The calculation of the EIR includes transaction costs and fees and points paid or received that are an integral part of the EIR. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability.
When calculating the effective interest rate for financial instruments other than credit impaired assets, the Group estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses. For credit impaired financial assets, a credit adjusted effective interest rate is calculated using estimated future cash flows.
GROUP | BANK | |||||
For the year ended December 31, | Note | 2017 Rs. ’000 |
2016 Rs. ’000 |
2017 Rs. ’000 |
2016 Rs. ’000 |
|
Interest income | 13.1 | 104,04 9,102 | 81,314,607 | 103,034,386 | 80,738,176 | |
Less: Interest expense | 13.2 | 64,481,804 | 48,186,331 | 64,010,991 | 47,914,573 | |
Net interest income | 39,567,298 | 33,128,276 | 39,023,395 | 32,823,603 |
GROUP | BANK | |||
For the year ended December 31, | 2017 Rs. ’000 |
2016 Rs. ’000 |
2017 Rs. ’000 |
2016 Rs. ’000 |
Cash and cash equivalents | 362,695 | 219,048 | 356,930 | 218,337 |
Balances with central banks | 4,400 | 40,575 | 3,263 | 40,504 |
Placements with banks | 215,909 | 145,504 | 215,920 | 145,504 |
Securities purchased under resale agreements | 139,153 | 352,695 | 139,153 | 352,695 |
Financial instruments – Held for trading | 469,012 | 457,308 | 469,012 | 457,308 |
Derivative financial instruments | 24,111 | – | 24,111 | – |
Other financial instruments | 444,901 | 457,308 | 444,901 | 457,308 |
Loans and receivables to other customers | 78,132,371 | 58,135,238 | 77,294,117 | 57,587,445 |
Financial investments – Available for sale | 15,349,974 | 14,311,753 | 15,335,424 | 14,307,559 |
Financial investments – Held to maturity | 5,475,592 | 3,757,168 | 5,318,994 | 3,731,930 |
Financial investments – Loans and receivables | 3,036,526 | 3,360,048 | 3,036,526 | 3,360,048 |
Interest income from impaired loans and receivables to other customers | 861,057 | 533,528 | 861,057 | 533,528 |
Other interest income | 2,413 | 1,742 | 3,990 | 3,318 |
Total interest income | 104,049,102 | 81,314,607 | 103,034,386 | 80,738,176 |
GROUP | BANK | |||
For the year ended December 31, | 2017 Rs. ’000 |
2016 Rs. ’000 |
2017 Rs. ’000 |
2016 Rs. ’000 |
Due to banks | 2,069,416 | 1,278,205 | 1,617,094 | 990,560 |
Derivative financial instruments | 38,702 | – | 38,702 | – |
Securities sold under repurchase agreements | 5,943,417 | 7,756,308 | 5,965,608 | 7,775,316 |
Due to other customers/deposits from customers | 53,385,259 | 37,176,139 | 53,344,577 | 37,174,433 |
Refinance borrowings | 352,074 | 270,977 | 352,074 | 270,977 |
Foreign currency borrowings | 315,242 | 169,353 | 315,242 | 169,353 |
Subordinated liabilities | 2,377,694 | 1,535,349 | 2,377,694 | 1,533,934 |
Total interest expense | 64,481,804 | 48,186,331 | 64,010,991 | 47,914,573 |
Interest income and interest expenses on Government Securities given in the Notes 13.3 (a), 13.3 (b) and 13.3 (c) below have been extracted from interest incomes and interest expenses given in Notes 13.1 and 13.2 respectively and disclosed separately, as required by the Guidelines issued by the Central Bank of Sri Lanka.
GROUP | BANK | |||
For the year ended December 31, | 2017 Rs. ’000 |
2016 Rs. ’000 |
2017 Rs. ’000 |
2016 Rs. ’000 |
Interest income | 22,331,944 | 19,870,503 | 22,317,394 | 19,866,309 |
Securities purchased under resale agreements | 81,635 | 290,627 | 81,635 | 290,627 |
Financial instruments – Held for trading | 296,520 | 351,293 | 296,520 | 351,293 |
Financial investments – Available for sale | 15,349,974 | 13,412,354 | 15,335,424 | 13,408,160 |
Financial investments – Held to maturity | 4,520,977 | 3,678,099 | 4,520,977 | 3,678,099 |
Financial investments – Loans and receivables | 2,082,838 | 2,138,130 | 2,082,838 | 2,138,130 |
Less: Interest expenses | 5,942,176 | 7,755,075 | 5,964,367 | 7,774,082 |
Securities sold under repurchase agreements | 5,942,176 | 7,755,075 | 5,964,367 | 7,774,082 |
Net interest income | 16,389,768 | 12,115,428 | 16,353,027 | 12,092,227 |
As per the Section 137 of the Inland Revenue Act No. 10 of 2006 and amendments thereto, net interest income of the Group derived from secondary market transactions in Government Securities, Treasury Bills and Bonds (Interest income accrued or received on outright or reverse repurchase transactions on Government Securities, Treasury Bills and Bonds less interest expenses accrued or paid on repurchase transactions with such Government Securities, Treasury Bills and Bonds from which such interest income was earned) for the period January 1, 2017 to December 31, 2017 has been grossed up by Rs. 1,338.116 Mn. (2016 – Rs. 918.062 Mn.) and Rs. 1,336.673 Mn. (2016 – Rs. 916.767 Mn.) by the Group and the Bank respectively as the notional tax credit, consequent to the interest income on above instruments being subjected to withholding tax.
GROUP | BANK | |||
For the year ended December 31, | 2017 Rs. ’000 |
2016 Rs. ’000 |
2017 Rs. ’000 |
2016 Rs. ’000 |
Interest income | 1,003,916 | 1,121,313 | 1,003,916 | 1,121,313 |
Securities purchased under resale agreements | 57,518 | 62,068 | 57,518 | 62,068 |
Financial instruments – Held for trading | 148,381 | 106,015 | 148,381 | 106,015 |
Financial investments – Available for sale | – | 899,399 | – | 899,399 |
Financial investments – Held to maturity | 798,017 | 53,831 | 798,017 | 53,831 |
Less: Interest expenses | 1,240 | 1,252 | 1,240 | 1,252 |
Securities sold under repurchase agreements | 1,240 | 1,252 | 1,240 | 1,252 |
Net interest income | 1,002,676 | 1,120,061 | 1,002,676 | 1,120,061 |
GROUP | BANK | |||
For the year ended December 31, | 2017 Rs. ’000 |
2016 Rs. ’000 |
2017 Rs. ’000 |
2016 Rs. ’000 |
Interest income | 156,598 | 25,238 | – | – |
Financial investments – Held to maturity | 156,598 | 25,238 | – | – |
Net interest income | 156,598 | 25,238 | – | – |
Fee and commission income and expenses that are integral to the EIR of a financial asset or financial liability are capitalised and included in the measurement of the EIR and recognised in the Income Statement over the expected life of the instrument.
Other fee and commission income, including account servicing fees, investment management fees, sales commission, placement fees and syndication fees are recognised as the related services are performed. If a loan commitment is not expected to result in the drawdown of a loan, then the related loan commitment fees are recognised on a straight-line basis over the commitment period.
Other fee and commission expenses relate mainly to transaction and service fees, which are expensed as the services are received.
GROUP | BANK | |||||
For the year ended December 31, | Note | 2017 Rs. ’000 |
2016 Rs. ’000 |
2017 Rs. ’000 |
2016 Rs. ’000 |
|
Fee and commission income | 14.1 | 10,510,800 | 8,230,131 | 10,169,211 | 8,143,041 | |
Less: Fee and commission expenses | 14.2 | 1,586,334 | 1,140,954 | 1,566,851 | 1,127,536 | |
Net fee and commission income | 8,924,466 | 7,089,177 | 8,602,360 | 7,015,505 |
GROUP | BANK | |||
For the year ended December 31, | 2017 Rs. ’000 |
2016 Rs. ’000 |
2017 Rs. ’000 |
2016 Rs. ’000 |
Loans and advances related services | 834,468 | 778,517 | 742,996 | 715,086 |
Credit and debit cards related services | 3,389,773 | 2,671,294 | 3,388,707 | 2,671,116 |
Trade and remittances related services | 3,184,574 | 2,619,429 | 3,176,106 | 2,619,194 |
Deposits related services | 1,687,448 | 1,110,216 | 1,680,926 | 1,109,285 |
Guarantees related services | 798,583 | 669,497 | 798,281 | 669,409 |
Other financial services | 615,954 | 381,178 | 382,195 | 358,951 |
Total fee and commission income | 10,510,800 | 8,230,131 | 10,169,211 | 8,143,041 |
GROUP | BANK | |||
For the year ended December 31, | 2017 Rs. ’000 |
2016 Rs. ’000 |
2017 Rs. ’000 |
2016 Rs. ’000 |
Loans and advances related services | 58,313 | 53,289 | 42,114 | 39,871 |
Credit and debit cards related services | 1,385,010 | 980,927 | 1,385,010 | 980,927 |
Trade and remittances related services | 44,205 | 32,851 | 40,921 | 32,851 |
Other financial services | 98,806 | 73,887 | 98,806 | 73,887 |
Total fee and commission expenses | 1,586,334 | 1,140,954 | 1,566,851 | 1,127,536 |
“Net gains/(losses) from trading” comprise gains less losses related to trading assets and trading liabilities, and include all realised and unrealised fair value changes, dividends, and foreign exchange differences.
GROUP | BANK | |||
For the year ended December 31, | 2017 Rs. ’000 |
2016 Rs. ’000 |
2017 Rs. ’000 |
2016 Rs. ’000 |
Derivative financial instruments | 107,201 | (1,429,188) | 107,201 | (1,429,188) |
Foreign exchange gains/(losses) from banks and other customers | 107,201 | (1,429,188) | 107,201 | (1,429,188) |
Other financial instruments – Held for trading | ||||
Government securities | 122,390 | (9,042) | 122,390 | (9,042) |
Net mark-to-market losses | 94,672 | (79,981) | 94,672 | (79,981) |
Net capital gains | 27,718 | 70,939 | 27,718 | 70,939 |
Equities | 4,365 | (28,481) | 4,365 | (28,481) |
Net mark-to-market losses | (9,046) | (49,581) | (9,046) | (49,581) |
Net capital gains | 3,251 | 13,299 | 3,251 | 13,299 |
Dividend income | 10,160 | 7,801 | 10,160 | 7,801 |
Total | 233,956 | (1,466,711) | 233,956 | (1,466,711) |
“Net gains/(losses) from financial investments” comprise gains less losses related to Available-for-sale investments, Held-to-maturity investments, and Loans and receivables and include all realised and unrealised fair value changes and dividends.
GROUP | BANK | |||||
For the year ended December 31, | Note | 2017 Rs. ’000 |
2016 Rs. ’000 |
2017 Rs. ’000 |
2016 Rs. ’000 |
|
Financial investments – Available for sale | 16.1 | 129,140 | 75,555 | 128,960 | 75,497 | |
Financial investments – Loans and receivables | 16.2 | 70 | 35,204 | 70 | 35,204 | |
Total | 129,210 | 110,759 | 129,030 | 110,701 |
GROUP | BANK | |||
For the year ended December 31, | 2017 Rs. ’000 |
2016 Rs. ’000 |
2017 Rs. ’000 |
2016 Rs. ’000 |
Government securities | 91,202 | 38,091 | 91,202 | 38,091 |
Net capital gains | 91,202 | 38,091 | 91,202 | 38,091 |
Equities | 37,938 | 37,464 | 37,758 | 37,406 |
Net capital gains | – | – | – | – |
Dividend income | 37,938 | 37,464 | 37,758 | 37,406 |
Total | 129,140 | 75,555 | 128,960 | 75,497 |
GROUP | BANK | |||
For the year ended December 31, | 2017 Rs. ’000 |
2016 Rs. ’000 |
2017 Rs. ’000 |
2016 Rs. ’000 |
Government securities | 70 | 35,204 | 70 | 35,204 |
Net capital gains | 70 | 35,204 | 70 | 35,204 |
Total | 70 | 35,204 | 70 | 35,204 |
GROUP | BANK | |||||
For the year ended December 31, | Note | 2017 Rs. ’000 |
2016 Rs. ’000 |
2017 Rs. ’000 |
2016 Rs. ’000 |
|
Gains/(losses) on sale of property, plant and equipment | 17.1 | (18,774) | 10,395 | (35,018) | 1,705 | |
Gains on revaluation of foreign exchange | 489,824 | 3,755,346 | 481,012 | 3,755,047 | ||
Recoveries of loans written off and provision reversals | 1,269,419 | 1,589,763 | 1,269,419 | 1,589,763 | ||
Dividend income from subsidiaries | – | – | 96,332 | 81,468 | ||
Dividend income from associates | 4,111 | 5,808 | 4,111 | 4,111 | ||
Profit due to change in ownership | 5,262 | 3,047 | 5,262 | 3,047 | ||
Rental and other income | 17.2 | 178,218 | 181,245 | 206,247 | 182,262 | |
Less: Dividends received from associates transferred to investment account |
(4,111) | (5,808) | – | – | ||
Less: Profit due to change in ownership | (5,262) | (3,047) | – | – | ||
Total | 1,918,687 | 5,536,749 | 2,027,365 | 5,617,403 |
The gains or losses on disposal of property, plant and equipment is determined as the difference between the carrying amount of the assets at the time of disposal and the proceeds of disposal, net of incremental disposal costs. This is recognised as an item of “Other Income” in the year in which significant risks and rewards of ownership are transferred to the buyer.
Rental income is recognised in profit or loss on an accrual basis.
For financial assets carried at amortised cost (such as amounts due from banks, loans and advances to customers as well as held to maturity investments), the Group first assesses whether objective evidence of impairment exists for individually significant financial assets or collectively for financial assets that are not individually significant. Assets that are individually assessed for impairment and for which an impairment loss is not recognised are included in a collective assessment of impairment together with the financial assets that are not individually significant.
For financial assets above a pre determined threshold (i.e., for individually significant financial assets), if there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of a provision account and the amount of impairment loss is recognised in profit or loss. Interest income continues to be accrued and recorded in “Interest Income” on the reduced carrying amount/impaired balance and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
The present value of the estimated future cash flows is discounted at the financial asset’s original EIR. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR. If the Bank has reclassified trading assets to loans and advances, the discount rate for measuring any impairment loss is the new EIR determined at the reclassification date. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.
Those financial assets for which, the Group determines that no provision is required under individual impairment, such financial assets are then collectively assessed for any impairments that have been incurred but not yet identified. For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of similar risk characteristics such as internal credit ratings, asset type, industry, geographical location, collateral type, past-due status, etc.
Future cash flows on a group of financial assets that are collectively evaluated for impairment, are estimated based on the historical loss experiences of assets with similar credit risk characteristics to those in the group.
The key inputs into the measurement of provision for collective impairment are the term structure of the following variables:
These parameters are generally derived from internally developed statistical models and other historical data.
PD values are estimates at a certain date, which are calculated based on statistical rating models, and assessed using rating tools tailored to the various categories of counterparties and exposures. These statistical models are based on internally compiled data comprising both quantitative and qualitative factors. If a counterparty or exposure migrates between rating classes, then this will lead to a change in the estimate of the associated PD. PDs are estimated considering the contractual maturities of exposures.
LGD is the magnitude of the likely loss in case of default. The Group estimates LGD parameters based on the history of recovery rates of claims against defaulted counterparties. The LGD models consider the structure, collateral, seniority of the claim, counterparty industry and recovery costs of any collateral that is integral to the financial asset. They are calculated on a discounted cash flow basis using the effective interest rate as the discounting factor.
EAD represents the expected exposure in the event of a default or the financial asset’s gross carrying amount.
Historical loss experiences are adjusted based on the current observable data to reflect the effects of current conditions on the historical losses experienced, further removing the effects of conditions that do not exist at the reporting date. Estimates of changes in future cash flows reflect, and are directionally consistent with the changes in related observable data year-on-year such as changes in:
The methodology and assumptions used for estimating provision for impairment including assumptions for projecting future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experiences.
Where possible, the Bank seeks to reschedule loans and advances rather than to take possession of collateral. If the terms of a financial asset are renegotiated, modified or an existing financial asset is replaced with a new one due to financial difficulties of the borrower, then an assessment is made to whether the financial asset should be derecognised. If the cash flows of the renegotiated asset is substantially different, then the contractual rights to cash flows from the original financial asset are deemed to have expired. In this case, the original financial asset is derecognised and new financial asset is recognised at fair value. The impairment loss before an expected restructuring is measured as follows:
The Bank seeks to use collateral, where possible, to mitigate its risks on financial assets. The collateral comes in various forms such as cash, gold, Government Securities, Letters of Credit/Guarantees, real estate, receivables, inventories, other non-financial assets and credit enhancements such as netting agreements, etc. The fair value of collateral is generally assessed, at a minimum, at inception and based on the Bank’s annual reporting schedule.
The Bank’s policy is to carry collaterals repossessed at fair value at the repossession date and such assets will be disposed at the earliest possible opportunity. These assets are recorded under assets held for sale as per the Sri Lanka Accounting Standard – SLFRS 5 on “Non-Current Assets Held for Sale and Discontinued Operations”.
Financial assets (and the related impairment allowances) are normally written off either partially or in full, when there is no realistic prospect of recovery. Where financial assets are secured, this is generally after receipt of any proceeds from the realisation of securities.
Impairment losses are recognised in profit or loss and reflected in a provision account against the relevant category of financial assets. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the provision account. If a write-off is later recovered, the recovery is credited to “Other Income”.
Impairment charges for loans and other losses are given below:
GROUP | BANK | |||||
For the year ended December 31, | Note | 2017 Rs. ’000 |
2016 Rs. ’000 |
2017 Rs. ’000 |
2016 Rs. ’000 |
|
Loans and receivables to banks | 32 | – | – | – | – | |
Loans and receivables to other customers | 2,225,914 | 1,583,326 | 1,956,725 | 1,511,158 | ||
Charge to the Income Statement – Individual impairment | 33.2 | 401,716 | 3,439,879 | 401,716 | 3,439,879 | |
Charge/(write-back) to the Income Statement – Collective impairment |
33.2 | 1,823,522 | (1,859,806) | 1,554,333 | (1,931,932) | |
Direct write–offs | 676 | 3,253 | 676 | 3,211 | ||
Investments in subsidiaries | 37.1 | – | – | (42,484) | 15,350 | |
Due from subsidiaries | – | – | – | 3,306 | ||
Total | 2,225,914 | 1,583,326 | 1,914,241 | 1,529,814 |
GROUP | BANK | |||||
For the year ended December 31, | Note | 2017 Rs. ’000 |
2016 Rs. ’000 |
2017 Rs. ’000 |
2016 Rs. ’000 |
|
Salary and bonus | 19.1 | 8,538,989 | 8,261,068 | 8,509,813 | 8,161,579 | |
Pension costs | 19.1 | 1,596,841 | 1,595,795 | 1,569,187 | 1,582,798 | |
Contributions to defined contribution/benefit plans – Funded schemes |
1,308,050 | 1,361,533 | 1,289,938 | 1,354,982 | ||
Contributions to defined benefit plans – Unfunded schemes |
50.1 (c) & 50.2 (c) | 288,791 | 234,262 | 279,249 | 227,816 | |
Equity-settled share-based payment expense | 19.2 & 57.5 | 138,341 | 206,174 | 138,341 | 206,174 | |
Others | 19.3 | 1,064,346 | 850,051 | 1,050,675 | 843,756 | |
Total | 11,338,517 | 10,913,088 | 11,268,016 | 10,794,307 |
Salary, bonus and contributions to defined contribution/benefit plans, reported above also include amounts paid to and contribution made on behalf of Executive Directors.
The Bank has an equity-settled share-based compensation plan, the details of which are given in Note 54.
This includes expenses such as overtime payments, medical and hospitalisation charges, expenses incurred on staff training/recruitment and staff welfare activities, etc.
Depreciation is calculated to write-off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives and is recognised in profit or loss. Leased assets under finance leases are depreciated over the shorter of the lease term and their useful lives. Freehold land is not depreciated.
The estimated useful lives of the property, plant and equipment of the Bank as at December 31, 2017 are as follows:
Class of asset | Depreciation %
per annum |
Period
(years) |
|
Freehold and leasehold buildings | 2.5 | 40 | |
Motor vehicles | 20 | 5 | |
Computer equipment | 20 | 5 | |
Office equipment | 20 | 5 | |
Office interior work | 20 | 5 | |
Furniture and fittings | 10 | 10 | |
Machinery and equipment | 10 | 10 |
The above rates are compatible with the rates used by all Group entities.
The depreciation rates are determined separately for each significant part of an item of property, plant and equipment and depreciation commences when it is available for use, i.e., when it is in the location and condition necessary for it to be capable of operating in the manner intended by the Management. Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale or the date that the asset is derecognised.
All classes of property, plant and equipment together with the reconciliation of carrying amounts and accumulated depreciation at the beginning and at the end of the year are given in Note 39.
Depreciation methods, useful lives, and residual values are reassessed at each reporting date and adjusted, if required.
Intangible assets are amortised using the straight-line method to write down the cost over its estimated useful economic lives from the date on which it is available for use, at the rate specified below:
Class of asset | Amortisation % per annum |
Period (years) |
Computer software | 20 | 5 |
Trademarks | 20 | 5 |
The above rate is compatible with the rates used by all Group entities.
The unamortised balances of intangible assets with finite lives are reviewed for impairment whenever there is an indication for impairment and recognised in profit or loss to the extent that they are no longer probable of being recovered from the expected future benefits.
Amortisation method, useful lives, and residual values are reassessed at each reporting date and adjusted, if required.
GROUP | BANK | |||||
For the year ended December 31, | Note | 2017 Rs. ’000 |
2016 Rs. ’000 |
2017 Rs. ’000 |
2016 Rs. ’000 |
|
Depreciation of property, plant and equipment | 39 | 1,185,698 | 1,093,088 | 1,097,096 | 1,022,648 | |
Amortisation of intangible assets | 40 | 229,764 | 173,790 | 209,766 | 165,903 | |
Amortisation of trademarks | 13 | – | – | – | ||
Amortisation of leasehold property | 41 | 1,452 | 1,452 | 942 | 942 | |
Total | 1,416,927 | 1,268,330 | 1,307,804 | 1,189,493 |
GROUP | BANK | |||||
For the year ended December 31, | Note | 2017 Rs. ’000 |
2016 Rs. ’000 |
2017 Rs. ’000 |
2016 Rs. ’000 |
|
Directors’ fees | 21.1 | 65,205 | 38,872 | 45,901 | 32,133 | |
Auditors’ remuneration | 30,260 | 31,218 | 22,696 | 25,124 | ||
Audit fees and expenses | 16,656 | 14,304 | 10,563 | 9,766 | ||
Audit-related fees and expenses | 7,620 | 8,677 | 6,825 | 8,392 | ||
Non-audit fees and expenses | 6,084 | 8,237 | 5,308 | 6,966 | ||
Professional and legal expenses | 361,880 | 262,522 | 443,387 | 329,237 | ||
Deposit insurance premium paid to the Central Banks | 682,108 | 590,544 | 681,944 | 590,236 | ||
Donations, including contribution made to the CSR Trust Fund | 83,104 | 61,681 | 83,043 | 61,681 | ||
Establishment expenses | 2,677,614 | 2,439,490 | 2,714,360 | 2,488,984 | ||
Maintenance of property, plant and equipment | 1,187,143 | 890,002 | 1,205,215 | 1,035,238 | ||
Office administration expenses | 2,531,679 | 2,495,106 | 2,265,418 | 2,269,712 | ||
Total | 7,618,993 | 6,809,435 | 7,461,964 | 6,832,345 |
Directors emoluments represent salaries paid to Executive Directors and the fees paid to both Executive and Non-Executive Directors of the Group and the Bank.
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the Income Statement, except to the extent it relates to items recognised directly in Equity or in OCI.
“Current tax” comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax receivable or payable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted, as at the reporting date. Current tax also includes any tax arising from dividends.
Accordingly, provision for taxation is made on the basis of the accounting profit for the year, as adjusted for taxation purposes, in accordance with the provisions of the Inland Revenue Act No. 10 of 2006 and amendments thereto, at the rates specified in Note 22.1. This Note also includes the major components of tax expense, the effective tax rates and a reconciliation between the profit before tax and tax expense, as required by the Sri Lanka Accounting Standard – LKAS 12 on “Income Taxes”.
Provision for taxation on the overseas operations is made on the basis of the accounting profit for the year, as adjusted for taxation purposes, in accordance with the provisions of the relevant statutes in those countries, using the tax rates enacted or substantively enacted as at the reporting date.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:
Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available, against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available, against which they can be used.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted as at the reporting date.
The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects as at the reporting date to recover or settle the carrying amount of its assets and liabilities.
Additional taxes that arise from the distribution of dividends by the Group, are recognised at the same time as the liability to pay the related dividend is recognised. These amounts are generally recognised in profit or loss as they generally relate to income arising from transactions that were originally recognised in profit or loss.
GROUP | BANK | |||||
For the year ended December 31, | Note | 2017 Rs. ’000 |
2016 Rs. ’000 |
2017 Rs. ’000 |
2016 Rs. ’000 |
|
Current year tax expense | 6,679,675 | 5,606,143 | 6,564,443 | 5,554,989 | ||
Current year income tax expense of Domestic Banking Unit | 4,870,548 | 4,086,795 | 4,870,548 | 4,086,795 | ||
Current year income tax expense of Off-shore Banking Centre | 232,412 | 291,831 | 232,412 | 291,831 | ||
Current year income tax expense of Bangladesh Operation | 1,450,193 | 1,167,596 | 1,450,193 | 1,167,596 | ||
Current year Income tax expense of Commercial Development Company PLC |
37,450 | 40,063 | – | – | ||
Current year Income tax expense of ONEzero Company Limited | 17,684 | 13,169 | – | – | ||
Current year Income tax expense of Serendib Finance Limited | 45,744 | (2,258) | – | – | ||
Current year Income tax expense of Commercial Bank of Maldives Private Limited |
13,518 | – | – | – | ||
Current year Income tax expense of Commex Sri Lanka S.R.L. – Italy | 656 | – | – | – | ||
Withholding tax on dividends received | 11,470 | 8,947 | 11,290 | 8,767 | ||
Prior years | ||||||
Under/(Over) provision of taxes in respect of prior years | 47 | (99,996) | – | (100,000) | – | |
Deferred tax expense | 74,138 | 42,017 | 137,257 | (16,317) | ||
Effect of change in tax rates | – | – | – | – | ||
Origination and reversal of temporary differences | 48.1 | 74,138 | 42,017 | 137,257 | (16,317) | |
Total | 6,653,817 | 5,648,160 | 6,601,700 | 5,538,672 | ||
Effective tax rate (including deferred tax) (%) | 28.48 | 27.62 | ||||
Effective tax rate (excluding deferred tax) (%) | 27.88 | 27.70 |
Income tax expense for 2017 and 2016 of the Bank and its subsidiaries have been provided for on the taxable income at rates shown below:
2017 % |
2016 % |
|
Domestic operations of the Bank | 28 | 28 |
Off-shore banking operation of the Bank | 28 | 28 |
Bangladesh operation of the Bank | 42.5 | 42.5 |
Commercial Development Company PLC | 28 | 28 |
ONEzero Company Limited | 28 | 28 |
Serendib Finance Limited | 28 | 28 |
Commercial Bank of Maldives Private Limited | 25 | 25 |
Commex Sri Lanka S.R.L. – Italy | 24 | 24 |
A reconciliation between taxable income and the accounting profit multiplied by the statutory tax rates is given below:
Tax Rate | GROUP | BANK | ||||||
For the year ended December 31, | Note | 2017 % |
2016 % |
2017 Rs. ’000 |
2016 Rs. ’000 |
2017 Rs. ’000 |
2016 Rs. ’000 |
|
Accounting profit before tax from operations |
23,280,324 | 20,114,584 | 23,182,944 | 20,051,183 | ||||
Tax effect at the statutory income tax rate | 7,031,752 | 5,988,705 | 6,959,962 | 5,907,894 | ||||
Domestic banking operation of the Bank | 28 | 28 | 4,808,919 | 4,497,651 | 4,808,919 | 4,497,651 | ||
Offshore banking operation of the Bank | 28 | 28 | 744,242 | 273,192 | 744,242 | 273,192 | ||
Bangladesh operation of the Bank | 42.5 | 42.5 | 1,406,801 | 1,137,051 | 1,406,801 | 1,137,051 | ||
Subsidiaries | 28, 25 & 24 | 28, 25 & 24 | 71,790 | 80,811 | – | – | ||
Tax effect of exempt income | (1,490,271) | (1,313,810) | (1,490,271) | (1,313,424) | ||||
Tax effect of non-deductible expenses | 7,840,250 | 6,766,163 | 7,550,140 | 6,722,770 | ||||
Tax effect of deductible expenses | (6,711,539) | (5,841,357) | (6,464,691) | (5,768,513) | ||||
Qualifying payments | (1,987) | (2,505) | (1,987) | (2,505) | ||||
Under/(over) provision of taxes in respect of prior years | 22.1 & 47 | (99,996) | – | (100,000) | – | |||
Withholding tax on dividends received | 11,470 | 8,947 | 11,290 | 8,767 | ||||
Deferred tax expense | 22.1 & 48.1 | 74,138 | 42,017 | 137,257 | (16,317) | |||
Income tax expense reported in the Income Statement at the effective income tax rate | 6,653,817 | 5,648,160 | 6,601,700 | 5,538,672 |
The Group computes basic and diluted EPS for its ordinary shares. Basic EPS is calculated by dividing the profit or loss that is attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is calculated by dividing the profit or loss that is attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding, adjusted for the effects of all potentially dilutive ordinary shares, which comprise share options granted to employees.
Details of Basic and Diluted EPS are given below:
GROUP | BANK | |||||
Note | 2017 | 2016 | 2017 | 2016 | ||
Amount used as the numerator: | ||||||
Profit for the year attributable to equity holders of the Bank (Rs. ’000) | 16,605,963 | 14,510,333 | 16,581,244 | 14,512,511 | ||
Number of ordinary shares used as the denominator: | ||||||
Weighted average number of ordinary shares | 23.3 | 960,767,103 | 918,193,096 | 960,767,103 | 918,193,096 | |
Basic earnings per ordinary share (Rs.) | 17.28 | 15.80 | 17.26 | 15.81 |
GROUP | BANK | |||||
Note | 2017 | 2016 | 2017 | 2016 | ||
Amount used as the numerator: | ||||||
Profit for the year attributable to equity holders of the Bank (Rs. ’000) | 16,605,963 | 14,510,333 | 16,581,244 | 14,512,511 | ||
Number of ordinary shares used as the denominator: | ||||||
Weighted average number of ordinary shares | 23.3 | 961,802,370 | 920,199,124 | 961,802,370 | 920,199,124 | |
Diluted earnings per ordinary share (Rs.) | 17.27 | 15.77 | 17.24 | 15.77 |
Outstanding no. of shares | Weighted average no. of shares | |||||
Note | 2017 | 2016 | 2017 | 2016 | ||
Number of shares in issue as at January 1, | 890,734,540 | 876,866,801 | 890,734,540 | 876,866,801 | ||
Add: Number of shares satisfied in the form of issue and allotment of new shares from final dividend for 2015 |
53.1 | – | 12,731,007 | – | 12,731,007 | |
Add: Number of shares satisfied in the form of issue and allotment of new shares from final dividend for 2016 | 53.1 | 11,425,159 | – | 11,425,159 | 11,425,159 | |
Add: Number of shares exercised in the form of Rights Issue in 2017 | 53.1 | 90,461,066 | – | 56,449,510 | 16,730,174 | |
992,620,765 | 889,597,808 | 958,609,209 | 917,753,141 | |||
Add: Number of shares issued under Employee Share Option Plan (ESOP) 2008 | 2,518,564 | 894,487 | 1,737,730 | 268,784 | ||
Add: Number of shares issued under Employee Share Option Plan (ESOP) 2015 | 759,973 | 242,245 | 420,164 | 171,171 | ||
Weighted average number of ordinary shares for basic earnings per ordinary share calculation | 995,899,302 | 890,734,540 | 960,767,103 | 918,193,096 | ||
Add: Bonus element on number of outstanding options under ESOP 2008 as at the year end | – | – | 625,382 | 1,404,951 | ||
Add: Bonus element on number of outstanding options under ESOP 2015 as at the year end | – | – | 409,885 | 601,077 | ||
Weighted average number of ordinary shares for diluted earnings per ordinary share calculation(*) | 995,899,302 | 890,734,540 | 961,802,370 | 920,199,124 |
(*) The market value of the Bank’s shares for the purpose of calculating the dilutive effect of share options has been based on the excess of quoted market price as of December 31, 2017 and December 31, 2016 over the offer price.
GROUP | BANK | |||
2017 Second interim Rs. 3.00 per share for 2016 (paid on February 17, 2017) |
2016 |
2017 Second interim Rs. 3.00 per share for 2016 (paid on February 17, 2017) |
2016 |
|
Rs. ’000 | Rs. ’000 | Rs. ’000 | Rs. ’000 | |
On ordinary shares | ||||
Net dividend paid to the ordinary shareholders out of normal profits |
2,418,709 | – | 2,418,709 | – |
Withholding tax deducted at source | 256,090 | – | 256,090 | – |
Gross ordinary dividend paid | 2,674,799 | – | 2,674,799 | – |
First interim Rs. 1.50 per share for 2017 (paid on November 20, 2017) |
First interim Rs. 1.50 per share for 2016 (paid on November 18, 2016) |
First interim Rs. 1.50 per share for 2017 (paid on November 20, 2017) |
First interim Rs. 1.50 per share for 2016 (paid on November 18, 2016) |
|
Rs. ’000 | Rs. ’000 | Rs. ’000 | Rs. ’000 | |
On ordinary shares | ||||
Net dividend paid to the ordinary shareholders out of normal profits | 1,350,719 | 1,208,039 | 1,350,719 | 1,208,039 |
Withholding tax deducted at source | 143,000 | 127,889 | 143,000 | 127,889 |
Gross ordinary dividend paid | 1,493,719 | 1,335,928 | 1,493,719 | 1,335,928 |
Total gross ordinary dividend paid | 4,168,518 | 1,335,928 | 4,168,518 | 1,335,928 |
The Board of Directors of the Bank has approved the payment of a second interim dividend of Rs. 3.00 per share for both the voting and non-voting ordinary shareholders of the Bank for the year ended December 31, 2017 and this dividend was paid on February 20, 2018.
The Board of Directors of the Bank has recommended the payment of a final dividend of Rs. 2.00 per share which is to be satisfied in the form of issue and allotment of new shares for both voting and non-voting ordinary shares of the Bank for the year ended December 31, 2017 (Bank declared a final dividend of Rs. 2.00 per share for 2016 in 2017 and this was satisfied in the form of issue and allotment of new shares for both voting and non-voting ordinary shares of the Bank). The total dividend recommended by the Board is to be approved at the forthcoming Annual General Meeting to be held on March 28, 2018. In accordance with provisions of the Sri Lanka Accounting Standard No. 10 on “Events after the Reporting Period”, the second interim dividend referred to above and the proposed final dividend for the year ended December 31, 2017 have not been recognised as liabilities as at the year end. Final dividend payable for the year 2017 has been estimated at Rs.1,993.401 Mn. (Actual final dividend for 2016 amounted to Rs. 1,785.054 Mn.).
Accordingly, the dividend per ordinary share (for both voting and non-voting ) for the year 2017 would be Rs. 6.50 (2016 – Rs. 6.50).