“Reviewed the Policy Manual on principles and methodologies including Expected Credit Losses (ECL) computation under SLFRS 9 – “Financial Instruments” adopted by the Management during the year 2020.”

Composition of the Committee

During the year, the Board Audit Committee (the BAC) consisted of the following members. Profiles of the members as at December 31, 2020, are indicated on pages 64 to 69.

Charter of the Committee

The Board approved Charter of the BAC, (the Committee) clearly defines the Terms of Reference of the Committee. It is annually reviewed to ensure that new developments relating to the Committee’s functions are addressed. The Charter of the Committee was last reviewed and approved by the Board in December 2020.

The Committee assists the Board in discharging its responsibilities and exercises oversight over financial reporting, internal controls, internal/external audits.

The Committee has full access to information, cooperation from Management and discretion to invite any Director or Executive Officer to attend its meetings.

The Banking Act Direction No. 11 of 2007 on “Corporate Governance for Licensed Commercial Banks in Sri Lanka” and its subsequent amendments (hereinafter referred to as the Direction), “Rules on Corporate Governance under Listing Rules of the Colombo Stock Exchange”, and “Code of Best Practices on Corporate Governance”, issued by The Institute of Chartered Accountants of Sri Lanka further regulate the composition, role and functions of the Committee.

The Committee is empowered by the Board to:

• Ensure that financial reporting systems in place are effective and well managed in order to provide accurate, appropriate and timely information to the Board, Regulatory Authorities, the Management and other stakeholders.
• Review the appropriateness of accounting policies and ensure adherence to statutory and regulatory compliance requirements and applicable accounting standards.
• Ensure that the Bank adopts and adheres to high standards of corporate governance practices, conforming to the highest ethical standards and good industry practices in the best interest of all stakeholders.
• Evaluate the adequacy, efficiency, and effectiveness of risk management measures, internal controls and governance processes in place to avoid, mitigate, or transfer current and evolving risks.
• Monitor all aspects of internal and external audit and inspection programmes of the Bank and review Internal and External Audit Reports for follow up with the Management on their findings and recommendations.
• Review the Interim Financial Statements and Annual Financial Statements of the Bank in order to monitor the integrity of such Statements prepared for disclosure, prior to submission to the Board.

Activities in 2020

The Committee held seven (7) meetings during the financial year ended December 31, 2020. Proceedings of these meetings with adequate details of matters discussed are regularly reported to the Board.

Representatives of the Bank’s External Auditors, Messrs Ernst & Young also participated in seven (07) meetings during the year by invitation. The Committee also invited members of the Senior Management of the Bank to participate in the meetings from time to time on need basis.

Reporting of financial position and performance:

The Committee assisted the Board in its oversight on the preparation of Financial Statements to evidence a true and fair view on financial position and performance. This process is based on the Bank’s accounting records and in accordance with the stipulated requirements of the Sri Lanka Accounting Standards. In fulfilling its oversight responsibilities, the Committee reviewed and discussed the interim and consolidated Financial Statements, including the acceptability of the accounting principles, the reasonableness of significant estimates and judgements.

The Committee reviewed the Tax Assessments outstanding and action initiated for follow up for resolution through regular reports submitted by the Chief Financial Officer.

The prevailing internal controls, systems and procedures were assessed by the Committee and it expressed the view that adequate controls and procedures were in place to provide reasonable assurance to the effect that the Bank’s assets are safeguarded and the financial position of the Bank is well monitored and accurately reported.

Progress of implementation of SLFRS 9:

The Committee continuously monitored the progress of implementation of SLFRS 9 as per the requirements of Sri Lanka Accounting Standard – SLFRS 9 on “Financial Instruments” that has been issued effective from January 01, 2018.

The Committee reviewed the Policy Manual on principles and methodologies including Expected Credit Losses (ECL) computation under SLFRS 9 – “Financial Instruments” adopted by the Management during the year 2020.

Internal Capital Adequacy Assessment Process (ICAAP):

The Committee reviewed the effectiveness of internal control mechanism in place to meet the regulatory requirements on ICAAP and the mechanism in place to ensure integrity, accuracy, and reasonableness in capital assessment process of the Bank for the year 2019, as per the Section 10 (in Pillar II – Supervisory Review Process) of the Banking Act Direction No. 01 of 2016 on “Regulatory Framework on Supervisory Review Process”.

Oversight on regulatory compliance:

The Committee also ensured that the Bank complies with all regulatory and legal requirements and closely scrutinised compliance with mandatory banking and other statutory requirements and the systems and procedures that are in place. The quarterly reports submitted by the Compliance Officer were used by the Committee to monitor compliance with all such legal and statutory requirements. The Bank’s Inspection Department has been mandated to conduct independent test checks covering all regulatory compliance requirements, as a further monitoring measure.

The Committee monitored the progress on implementation of the recommendations made in the Statutory Examination Reports of Central Bank of Sri Lanka (CBSL) through regular follow-up reports tabled during the year 2020.

Identification of risks and control measures:

The Bank has adopted a risk-based audit approach towards assessing the effectiveness of the internal control procedures in place to identify and manage all significant risks and that these are being reviewed by the Committee.

The Committee sought and obtained the required assurances from Business Units on the remedial action in respect of the identified risks to maintain the effectiveness of internal control procedures.

Internal audit and inspection:

The Committee ensured that the internal audit function is independent of the activities it audited and that it was performed with impartiality, proficiency, and due professional care.

The Committee approved the Programme of Inspection/IS Audit for the year 2020 formulated by the Inspection Department and the Information Systems Audit Unit (ISAU). The progress and scope of Inspections/IS Audits were continuously reviewed to ensure that appropriate corrective actions have been taken to manage risks identified during the lockdown period and curtailed business operations during the first and second waves of the COVID-19 pandemic. The scope of work was enhanced/realigned to include credit audits and remote, work from home business operations through online and Off-site audit procedures.

The Bank’s Inspection Department carried out, online and on-site inspection of business units including four (4) subsidiaries in Sri Lanka and operations in Bangladesh. Overseas subsidiaries namely Commercial Bank of Maldives Private Limited and CBC Myanmar Microfinance Co. Ltd. and Commex Sri Lanka S. R. L., a subsidiary incorporated in Italy were monitored through an off-site surveillance. With the concurrence of the Board, the Bank continued to engage the services of five (5) firms of Chartered Accountants approved by the CBSL in order to supplement the Bank’s Inspection Department in carrying out inspection assignments.

ISAU conducted on-site/off-site audits (Bank and Group) covering local and overseas operations. Audits conducted through system-based audit tools, reviews of systems change management activities under the agile approach and verification of compliance with industry standards such as ISO 27001:2013/ PCI-DSS/ Baseline Security Standards (BSS) to ensure safeguarding IT assets of the Bank.

The Committee received the attention of significant findings and recommendations related to IT Governance, Cyber Security, Network Security, Physical and Logical Access Management, End point Security and IT Systems Administration made in the reports submitted by ISAU. The Committee also reviewed the reports on findings relating to business continuity planning and disaster recovery arrangements during the year 2020.

Five hundred and forty-seven (547) inspection reports on Business Units including subsidiaries and overseas operations received the attention of the Committee which highlighted the operational deficiencies, risks, and the recommendations. The Committee evaluated the Bank’s system of internal controls and duly reported its findings to the Board.

Major findings of internal investigations with recommendations of the Management were considered and appropriate instructions issued. The Committee also invited representatives from the audit firms assisting in inspections to make presentations on their observations and findings.

The Committee reviewed the Inspection/ Information Systems Audit operational manual and evaluated the internal audit function covering key areas such as scope, quality of internal audits, independence, and resources.

During the year, members of the Committee personally visited the branches in the South Western and Southern regions to gather information in regard to the operations, controls implemented and follow-up action taken for significant audit findings.

External audit:

With regard to the external audit function of the Bank, the role played by the Committee is as follows:

• Assisting the Board in engaging External Auditors for audit services, in compliance with the provisions of the Direction and agreeing on their remuneration with the approval of the shareholders.
• Monitoring and evaluating the independence, objectivity, and effectiveness of the External Auditor.
• Reviewing non-audit services provided by the Auditors, with a view to ensuring that such functions do not fall within the restricted services and provision of such services will not impair the External Auditor’s independence and objectivity.
• Discussing the audit plan, scope and the methodology proposed to be adopted in conducting the audit with the Auditors, prior to commencement of the annual audit.
• Discussing all relevant matters arising from the interim and final audits, and any matters the Auditor may wish to discuss, including matters that may need to be discussed in the absence of Key Management Personnel.
• Reviewing the External Auditor’s Management Letter and the Management responses thereto.

The Auditors were provided with the opportunity of meeting Non-Executive Directors separately, without any Executive Directors being present, to ensure that the Auditors had the opportunity to discuss and express their opinions openly on any matter. It provided the assurance to the Committee that the Management has provided all information and explanations requested by the Auditors.

At the conclusion of the audit, the Committee also met the Auditors to review the Auditor’s Management Letter before it was submitted to the Board and the CBSL.

The members of the Committee evaluated the Bank’s External Auditor, Messrs Ernst & Young covering key areas such as scope and delivery of audit, resources and quality assurance initiatives, during the year 2020.

Mechanism of internal controls:

Sections 3 (8) (ii) (b) and (c) of the Banking Act Direction No. 11 of 2007 stipulate the requirements to be complied with by the Bank to ensure reliability of the financial reporting system in place at the Bank.

The Committee is assisted by the External Auditor and the Inspection Department to closely monitor the procedures designed to maintain an effective internal control mechanism to provide reasonable assurance that this requirement is being complied with.

In addition, the Committee regularly monitored all exceptional items charged to the Income Statement, long outstanding items in the Bank’s chart of accounts, credit quality, risk management procedures and adherence to classification of non-performing loans and provisioning requirements specified by the CBSL. The Committee also reviewed the credit monitoring and follow-up procedures and the internal control procedures in place to ensure that necessary controls and mitigating measures are available in respect of newly identified risks.

Ethics and good governance:

The Committee continuously emphasised on upholding ethical values of the staff members. In this regard, the Bank has a Code of Ethics and Whistle-blower’s Charter in place which is followed for educating and encouraging all members of staff to resort to whistle-blowing if they suspect any wrongdoings or other improprieties. Highest standards of corporate governance and adherence to the Bank’s Code of Ethics were ensured. All appropriate procedures were in place to conduct independent investigations into incidents reported through whistle-blowing or identified through other means. The Whistle-blower’s Charter guarantees the maintenance of strict confidentiality of the identity of the whistle-blowers.

Sri Lanka Accounting Standards:

The Committee reviewed the revised policy decisions relating to adoption of new and revised Sri Lanka Accounting Standards (SLFRS/LKAS) applicable to the Bank and made necessary recommendations to the Board. The Committee would continue to monitor the compliance with relevant Accounting Standards and keep the Board informed at regular intervals.

Evaluation of the Committee:

An independent evaluation of the effectiveness of the Committee was carried out by the other members of the Board during the year. Considering the overall conduct of the Committee and its contribution to the overall performance of the Bank, the Committee has been rated as effective.

R Senanayake
Chairman – Board Audit Committee

February 24, 2021

“Deliberated on sectors affected by the pandemic and the factors that are within the control of the Bank to mitigate the risks. These were given due cognisance with a view to arresting deterioration of credit quality.”

Composition of the Committee

During the year, the Board Integrated Risk Management Committee (the BIRMC) consisted of the following members. Profiles of the members as at December 31, 2020, are indicated on pages 64 to 69.

Charter of the Committee

The BIRMC has been established by the Board of Directors, in compliance with Section 3 (6) of the Direction No. 11 of 2007, on “Corporate Governance for Licensed Commercial Banks in Sri Lanka”, issued by the Monetary Board of the CBSL under powers vested in the Monetary Board, in terms of the Banking Act No. 30 of 1988. The composition and the scope of work of the Committee are in line with the same, as set out in the BIRMC Charter which was reviewed during December 2020, and clearly sets out the membership, authority, duties and responsibilities of the BIRMC as described in the “Risk Governance and Management” Section of this Annual Report on pages 114 to 133.

The BIRMC assists the Board of Directors in fulfilling its responsibilities for overseeing the Bank’s risk management framework and activities, including the review of major risk exposures and the steps taken to monitor and control those exposures pertaining to the myriad of risks faced by the Bank in its business operations. Duties of the BIRMC include determining the adequacy and effectiveness of such measures, and to ensure that the actual overall risk profile of the Bank conforms to the desirable risk profile of the Bank, as defined by the Board.

All key risks such as credit, operational, market, liquidity, information technology, strategic, etc. are assessed by the BIRMC regularly through a set of defined risk indicators. The Committee works very closely with the Key Management Personnel and the Board in fulfilling its statutory, fiduciary, and regulatory responsibilities for risk management. The risk profile of the Bank is communicated to the Board of Directors periodically through the Risk Assessment Report submitted to the Board following each BIRMC meeting.

Activities in 2020

In discharging the above duties and responsibilities vested on the BIRMC, the Committee reviewed significant risks comprising strategic, operational, credit, market, cyber and other emerging risk categories during the year. The activities carried out by the Committee are include below;

• Main focus area for the year 2020 was on the deteriorated credit quality level of the industry amidst socio-economic challenges that the country is facing due to the COVID-19 global pandemic situation. Deliberations on sectors affected and the factors that are within the control of the Bank to mitigate the risks were given due cognisance with a view to arresting deterioration of credit quality.
• Excess liquidity arising out of mediocre credit growth, challenges stemming from decreasing interest rates, as well as shift in risk appetite of counterparts linked to sovereign rating down grading by international credit rating agencies which had exacerbated the operating environment related risk factors, attracted the attention of the Committee in most of the deliberations leading to formulation of strategies by the Management.
• Another focus area of the Committee under the prevailing conditions was the information and cybersecurity ramifications arising out of the rapid shift to the “Work-From-Home” environment and the enhancements required to ensure strong security for the remote access arrangements in terms of management, technical and physical controls.

  Amid the heightened cyberthreats in the Pandemic environment, the BIRMC focused on the progress of the key information security projects planned for the year 2020 as part of the Bank’s information security roadmap which included Privilege Access Management (PAM), Data Loss Prevention (DLP) and Security Operations Centre (SOC) initiatives.

• Approval of parameters and limits set by the Management against various categories of risk upon ascertaining that they are in accordance with the relevant laws and regulations as well as the desired policy levels stipulated by the Board of Directors.
• Reviewed periodic reports from the Management on the metrics used to measure, monitor and manage risks, including acceptable and appropriate levels of risk exposures. The reviews covered movements from inherent to residual risk levels which indicate the progress in implementing controls and assessing the effectiveness of measures for addressing the sources of risk.
• Improvements were recommended to the Bank’s risk management framework and related policies and procedures as deemed suitable, in consideration of anticipated changes in the economic and business environment, including consideration for emerging risks, legislative or regulatory changes and other factors considered relevant to the Group’s risk profile.
• The Key Risk Indicators (KRIs) designed to monitor the level of specific risks were reviewed regularly, with a view to determining the adequacy of such indicators to serve the intended risk management objectives and took proactive measures to control risk exposures. The actual results computed monthly were reviewed against each risk indicator and prompt corrective actions were recommended to mitigate the effects of specific risks, in case such risks exceeded the prudent thresholds defined by the Board of Directors.
• An exercise to validate internal ratings through external consultants concluded with a focus on adoption of rating migration as a way of ascertaining probability of default (PD) at a future date, instead of current proxies adopted by all the financial institutions in Sri Lanka.
• Reviewed and revised the Terms of Reference of all Management Committees dealing with specific risks or some aspects of risk, such as the Executive Integrated Risk Management Committee, Executive Committee on Monitoring NPLs, Credit Policy Committee, Information Security Council, Asset and Liability Committee, etc. Actions initiated by the Senior Management were monitored periodically to verify the effectiveness of the measures taken by these respective Committees.
• The annual work plans, related strategies, policies and frameworks of the above Committees were reviewed to ensure that these Committees have a good understanding of their mandates and adequate mechanisms to identify, measure, avoid, mitigate, transfer, or manage the risks within the qualitative and quantitative parameters set by the BIRMC.
• Reviewed and approved the Internal Capital Adequacy Assessment Process (ICAAP) results related to Commercial Bank Group entities to ensure that the Group maintains an appropriate level and quality of capital in line with the risks inherent in its activities and projected business performance.
• Monitored the effectiveness and the independence of the risk management function within the Bank and ensured the adequacy of resources deployed for this purpose.
• Reviewed the effectiveness of the compliance function to assess the Bank’s compliance with laws, regulations, regulatory guidelines, internal controls, and approved policies in all areas of business operations.
• Initiated appropriate action through the Management against failures of the risk owners in order to improve the overall effectiveness of the Risk Management of the Bank.
• The risk profiles of the subsidiaries of the Bank were monitored through periodic review of KRIs and comprehensive annual risk reviews.
• Reviewed the adequacy of the business continuity and disaster recovery plans of the Bank, in line with the statutory requirements.
• Findings from the biannual Risk Control Self-Assessment (RCSA) exercise were reviewed.

During the year under review, the BIRMC held four (04) meetings on quarterly basis and one (01) additional meeting specifically to discuss the impact of COVID-19 pandemic on risk profile of the Bank. The proceedings of the Committee meetings were regularly reported to the Board of Directors.

During the year 2020, the BIRMC supported execution of the overall business strategy of the Bank within a set of prudent risk parameters that are reinforced by an effective risk management framework.

Proceedings of the Committee meetings which also included activities under its Charter were regularly reported to the Board of Directors.

Prof A K W Jayawardane
Chairman – Board Integrated Risk Management Committee

February 24, 2021

“The Committee having identified suitable persons to fill the vacancies arising in the Board, recommended the appointment of three new Non Executive/Independent Directors to the Board.”

Composition of the Committee

During the year, the Board Nomination Committee (the BNC) consisted of the following members. Profiles of the members as at December 31, 2020, are given on pages 64 to 69.

Terms of reference of the Committee

The Board Nomination Committee was established by the Board of Directors in compliance with the Clause 3 (6) (iv) of Banking Act Direction No. 11 of 2007 on “Corporate Governance for Licensed Commercial Banks in Sri Lanka” issued by the Monetary Board of the Central Bank of Sri Lanka (CBSL) under powers vested in the Monetary Board in terms of Section 46 (1) of the Banking Act No. 30 of 1988, as amended. The Committee was established to ensure Board’s oversight and control over selection of Directors, Chief Executive Officer and Key Management Personnel.

The Composition and the scope of work of the Committee are in line with the same as set out in the Terms of Reference.

Charter of the Committee

The Committee shall;

• review the structure, size and composition of the Board and make recommendations to the Board with regard to any change.
• review the leadership needs of the organisation, both executive and non-executive with a view to ensure long term sustainability of the organisation to compete effectively in the market place.
• implement a procedure for the appointment and re-appointment of Directors to the Board taking into account factors such as fitness, propriety including qualifications, competencies, independence and relevant statutory provisions and regulations.
• implement a procedure for the selection/ appointment of Managing Director/Chief Executive Officer, Chief Operating Officer and other Key Management Personnel.
• set the criteria such as qualifications, competencies, experience, independence, conflict of interest and other key attributes required for the eligibility to be considered for the appointment or promotion to the position of Managing Director/Chief Executive Officer, Chief Operating Officer and Key Management Personnel.
• prior to any appointment being made by the Board, evaluate the balance of skills, knowledge, experience and diversity on the Board and in light of this evaluation, prepare a description of the role and capabilities required for a particular appointment.
• in respect of the Executive Directors and Key Management Personnel consider proposals for their appointment or promotion and any proposal for their dismissal or any substantial change in their duties or responsibilities or the terms of their appointment.
• prior to the appointment of a Director ensure that the proposed appointee would disclose any other business interests that may result in a conflict of interest and report any future business interests that could result in a conflict of interest.
• consider and recommend from time to time, the requirements of additional/ new expertise for Directors and other Key Management Personnel.
• propose the maximum number of listed Company Board representations which any Director may hold in accordance with relevant statutory provisions and regulations.
• peruse duly completed Affidavits and Declarations of all Directors and Key Management Personnel and recommend same for approval of the Board.
• formulate plans for succession for Key Management Personnel, Executive and Non-Executive Directors in the Board and in particular for the key roles of Chairman and Chief Executive Officer and Chief Operating Officer taking into account challenges and opportunities facing the Company and skills needed in the future.
• make recommendations to the Board concerning, suitable candidates for the role of Senior Independent Director in instances where Chairman is not an Independent Director, membership of other Board Committees as appropriate in consultation with the Chairpersons of those Committees and the re-election of Directors at the Annual General Meeting by the Shareholders or the retirement by rotation according to the provisions of the Articles of Association of the Bank.
• monitor the progress of any relevant Corporate Governance or Regulatory Developments, that may impact the Committee and recommend any actions or changes it considers necessary for Board approval and ensure compliance with existing Laws and regulations.
• be authorised to discuss issues under its purview and report back to the Board with recommendations, enabling the Board to take a final decision on the matter.
• be authorised to express their independent views when making decisions.
• be authorised by the Board to obtain, at the Bank’s expense, outside legal or other professional advice on any matters within its Terms of Reference.
• make recommendations to the Board concerning an indemnity and insurance cover to be taken in respect of all Directors and Key Management Personnel in accordance with the Articles of Association, relevant statutory provisions and regulations.
• invite any member of the Corporate Management, any member of the Bank staff or any external advisers to attend meetings as and when appropriate and necessary.

Activities in 2020

Eleven (11) Committee meetings were held during the year under review. The proceedings of the Committee meetings are regularly reported to Board of Directors.

In consideration of the Terms of Reference revised in the year 2019, the Committee was entrusted to set the criteria such as qualifications, experience and key attributes required for eligibility to be considered for the appointment/ promotion of the Key Management Personnel, which task was previously administered by the Board Human Resources and Remuneration Committee of the Bank. Accordingly, during the year 2020 the Committee carried out the relevant reviews and interviews pertaining to the appointment/promotion of the Key Management Personnel of the Bank.

The Committee recommended the election/re-election of Directors, taking into account the performance and contribution made by them towards the overall discharge of the Board’s responsibilities. The Committee identified suitable persons to fill the vacancies arising in the Board and after carefully evaluating several candidates, recommended the appointment of three (03) new Non Executive/ Independent Directors to the Board during the year.

The Committee was also responsible for recommending the appointment of Justice K Sripavan as the Chairman of the Bank and Prof A K W Jayawardane as the Deputy Chairman of the Bank after careful consideration, w.e.f. December 21, 2020 and December 29, 2020, respectively, pursuant to Mr K G D D Dheerasinghe (Former Chairman of the Bank) and Mr M P Jayawardane (Former Deputy Chairman of the Bank) relinquishing their offices w.e.f. December 21, 2020 and December 29, 2020, respectively, upon the completion of nine years as Non-Executive/Independent Directors of the Bank, in terms of Clause 3(2)(ii)A of the Banking Act Direction No 11 of 2007, Corporate Governance for Licensed Commercial Banks in Sri Lanka.

The Committee obtained declarations from all the Directors through a prescribed format confirming their status of independence.

The Committee continued to work closely with the Board of Directors on matters assigned to the Committee and reported back to the Board of Directors with its recommendations.

Justice K Sripavan
Chairman – Board Nomination Committee

February 24, 2021

“Reviewed the proposals made to the management to renew the Collective Agreement with the Ceylon Bank Employees' Union (CBEU) for the years 2021, 2022 and 2023 and recommended the same for the approval of the Board of Directors.”

Composition of the Committee

During the year, the Board Human Resources and Remuneration Committee (the BHRRC) consisted of the following members. Profiles of the members as at December 31, 2020, are indicated on pages 64 to 69.

Charter of the Committee

Evaluate, assess, decide and recommend to the Board, matters that may affect the Human Resource Management of the Bank specifically including:

• Determine compensation of the Chairman, Deputy Chairman, Managing Director and other members of the Board of Directors of the Bank, while ensuring that no Director is involved in setting his or her own remuneration.
• Determine compensation and benefits of the KMP and establish performance parameters in setting their individual goals and targets.
• Formulate guidelines, policies and parameters for the compensation structures for all executive staff of the Bank and oversee its implementation.
• Review information related to executive pay from time to time to ensure same is on par with the market/industry rates or as per the strategy of the Bank.
• Evaluate the performance of Managing Director and KMP against the pre-agreed targets and goals.
• Make recommendations to Board of additional/new expertise required by the Bank.
• Assess and recommend to the Board, promotions of KMP, address succession planning and issues relating to organisational structure.
• Evaluate, assess and make recommendations and provide directions pertaining to the Board of Trustees and the management of the Private Provident Fund of the Bank.
• Ensure that all regulatory and contractual commitments relating to employees are fulfilled in a timely manner.
• Recommend/decide/give directions on disciplinary matters resulting in a significant financial loss to the Bank, caused by KMP of the Bank.
• Formulate formal and transparent procedures for developing policy on remuneration for Executives and Directors.
• Approve annual increments, bonuses, changes in perquisites and incentives.

The Chairman of the Committee can convene a special meeting in the event a requirement arises provided all members are given sufficient notice of such special meeting. The quorum for a meeting is two (2) members. Members of the Corporate Management may be invited to participate at the sittings of the Committee meetings as and when required by the Chairman, considering the topics for deliberation at such meeting. The proceedings of the Committee meetings are regularly reported to the Board of Directors.

Guiding Principles

The overall focus of the Committee:

• Setting guidelines and policies to formulate compensation packages, which are attractive, motivating and capable of retaining qualified and experienced employees in the Bank. In this regard, the Committee sets the criteria such as qualifications, experience and the skills and competencies required, to be considered for appointment or promotion to the post of Managing Director and to Key Management Positions.
• Setting guidelines and policies to ensure that the Bank upholds and adheres to the provisions of the Laws of the Lands particularly those provisions of the Banking Act No. 30 of 1988, including the Directions issued by the Monetary Board/Director of Bank Supervision in accordance with the provisions of such Act.
• Providing guidance and policy direction for relevant matters connected to general areas of Human Resources Management of the Bank.
• Ensuring that the performance related element of remuneration is designed and tailored to align employee interests with those of the Bank and its main stakeholders and support sustainable growth.
• Structuring remuneration packages to ensure that a significant portion of the remuneration is linked to performance, to promote a pay for performance culture.
• Promoting a culture of regular performance reviews to enable staff to obtain feedback from their superiors in furtherance of achieving their objectives and development goals.
• Developing a robust pipeline of raising talent capable and available to fill key positions in the Bank.

Methodology adopted by the committee

The Committee recognises rewards as one of the key drivers influencing employee behaviour, thereby impacting business results. Therefore, the reward programmes are designed to attract, retain and to motivate employees to perform by linking performance to demonstrable performance-based criteria. In this regard, the Committee evaluates the performance of the Managing Director and KMP against the pre-agreed targets and goals that balance short-term and long-term financial and strategic objectives of the Bank.

The Bank’s variable (bonus) pay plan is determined according to the overall achievements of the Bank and pre-agreed individual targets, which are based on various performance parameters. The level of variable pay is set to ensure that individual rewards reflect the performance of the Bank overall, the particular business unit and individual performance. The Committee makes appropriate adjustments to the bonus pool in the event of over or under achievement against predetermined targets. In this regard, the Committee can seek external independent professional advice on matters falling within its purview.

Further, the Committee may seek external agencies to carry out salary surveys to determine the salaries paid to staff vis-à-vis the market position, enabling the Committee to make informed decisions regarding the salaries in the Bank.

Activities in 2020

The Committee held five (5) meetings during the year under review and the proceedings of the Committee meetings which also included activities under its Terms of Reference were regularly reported to the Board of Directors with its comments and observations.

The Committee determined the bonus payable for 2019 performance according to the Variable Pay Plan (VPP) for Executive staff and the grant of annual increments to the Executive staff who are not covered by the Collective Agreement. Performance of the members of the Corporate Management during the financial year 2019 including that of the Managing Director/Chief Executive Officer, and the Chief Operating Officer were reviewed. At the conclusion of the review process for 2019, the Key Performance Areas and the respective KPIs of the Corporate Management members set for 2020 were carefully perused by the Committee and agreed on, subject to changes.

Requests by the Pensioners for a revision of pension was considered and granted during the year. The Terms of Reference for the BHRRC was reviewed and recommended for final approval by the Board of Directors.

The Policy on Outsourcing Services was reviewed and recommended for final approval by the Board of Directors.

The Succession Plan of the Bank was reviewed by the BHRRC and guidance was provided to the Managing Director.

The Committee reviewed the proposals made to the management to renew the Collective Agreement with the Ceylon Bank Employees' Union (CBEU) for the years 2021, 2022 and 2023 and recommended the same for the approval of the Board of Directors.

Justice K Sripavan
Chairman – Board Human Resources and Remuneration Committee

February 24, 2021

“The Committee was strengthened by the appointment of one Independent Non-Executive Director in view of the retirement of one Independent Non-Executive Director.”

Composition of the Committee

During the year, the Board Related Party Transactions Review Committee (the BRPTRC) consisted of the following Independent Non-Executive Directors (in conformity with the requirements of the Code of Best Practice on Corporate Governance issued by CA Sri Lanka). Profiles of the members as at December 31, 2020, are indicated on pages 64 to 69.

Charter of the Committee

This Committee was formed by the Board in 2014 to assist the Board in reviewing all related party transactions carried out by the Bank and its listed subsidiaries in the Group by early adoption of the Code of Best Practice on Related Party Transactions (RPT) as issued by the SEC of Sri Lanka which became mandatory for all listed entities from January 01, 2016.

The mandate of the Committee includes inter-alia, the following:

• Developing, updating and recommending for adoption by the Board of Directors of the Bank and its listed subsidiaries, a RPT Policy consistent with that proposed by the SEC.
• Updating the Board of Directors on the RPT of each of the listed companies of the Group on a quarterly basis.
• Advising the Board in making immediate market disclosures on applicable RPT as required by Section 9.3.1 of the Listing Rules of the CSE.
• Advising the Board in making appropriate disclosures on RPT in the Annual Report as required by Section 9.3.2 of the Listing Rules of the CSE.

Methodology Adopted by the Committee

• Reviewing the mechanisms in place to obtain declarations from all Directors (at the time of joining the Board and annually thereafter) informing the Company Secretary, the primary contact point for Directors, of any existing or potential RPT carried out by them or their Close Family Members (CFM) and on obtaining further declarations on a quarterly basis in the event of any change during the year to the positions previously disclosed.
• Reviewing the mechanisms in place to obtain confirmations on any new appointments accepted by Directors of the Bank in other entities as KMP, informing the Company Secretary to identify and capture such transactions carried out by the Bank with such entities which need to be disclosed under ‘Directors Interest in Contracts with the Bank’ as disclosed on page 113 of this Annual Report.
• Reviewing the mechanisms in place to capture and feed relevant information on RPT which also includes information on KMP, CFM and the Bank’s subsidiaries and associate into the data collection system and the accuracy of such information.
• Obtaining independent validation from the Bank’s Internal Audit division for information submitted to the Committee for its review.

Activities in 2020

During 2020, the Committee was strengthened by the appointment of one Independent Non-Executive Director in view of the retirement of one Independent Non-Executive Director. Further, as a part of Bank’s annual review of policies, the RPT Policy was further reviewed and updated. The amended RPT Policy was approved by the Board of Directors in November 2020 and implemented. Arrangements were also made to disseminate the amended RPT Policy among all relevant stakeholders and obtain their acknowledgements that they have read and understood the applicable regulatory requirements relating to identifying, capturing and reporting of RPT. In addition, the Terms of Reference of the Committee was reviewed and revised to capture new developments and was approved by the Board of Directors in November 2020.

The Committee held four (4) meetings during the year under review as required by Section 9.2.4 of the Listing Rules of the CSE. The Committee reviewed all RPT carried out during the year at its quarterly meetings and the proceedings of the Committee meetings which also included activities under its Terms of Reference, were regularly reported to the Board of Directors with its comments and observations.

Justice K Sripavan
Chairman – Board Related Party Transactions Review Committee

February 24, 2021

“Given the challenging environment due to the pandemic affecting the global and local business environment, the Committee set the Lending Directions of the Bank for prudent management of credit growth, while aiming at maintaining and improving asset quality.”

Composition of the Committee

During the year, the Board Credit Committee (the BCC) consisted of the following members. Profiles of the members as at December 31, 2020, are indicated on pages 64 to 69.

Charter of the Committee

The Committee assists the Board of Directors in effectively fulfilling its responsibilities relating to the Credit Direction, Credit Policy and Lending Guidelines of the Bank in order to inculcate prudent lending standards and practices while ensuring that relevant regulations are complied with.

The Committee is empowered to:

• Review and consider changes proposed from time to time to the Credit Policy and the Lending Guidelines of the Bank.
• Review the credit risk controls in lending and pricing of lending proposals, ensure alignment with the market context and the internal policy of the Bank and the prevailing regulatory framework in order to ensure continuous maintenance and enhancement of the overall quality of the Bank’s loan book.
• Evaluate, assess, and approve credit proposals which fall within the delegated authority.
• Evaluate and recommend sector exposures and cross border exposures.
• Monitor and evaluate special reports called for by the Board of Directors.
• Set lending directions based on the current economic climate and risk appetite of the Bank.

Activities in 2020

The Committee held twelve (12) meetings during the year under review. The proceedings of the committee meetings were regularly reported to the Board of Directors.

In a challenging environment due to the COVID-19 pandemic affecting the global and local business environment, the Committee set the Lending Directions of the Bank for prudent management of credit growth, while aiming at maintaining and improving asset quality.

The Committee approved credit proposals above a predetermined limit, recommended credit proposals and other credit reports intended for approval/perusal by the Board of Directors after careful scrutiny. These tasks were carried out by the Committee in line with the Bank’s lending policies and credit risk appetite to ensure that the lending portfolios were managed in line with the stipulated credit risk parameters set by the Board of Directors while achieving the Bank’s lending targets.

Justice K Sripavan
Chairman – Board Credit Committee

February 24, 2021

"Reviewed the Bank's foreign currency investment limit given the growth in FCY balance sheet and investment opportunities."

Composition of the Committee

During the year, the Board Investment Committee (the BIC) consisted of the following members. Profiles of the members as at December 31, 2020 are indicated on pages 64 to 69.

Charter of the Committee

The Board Investment Committee is responsible for the investment activities of the Bank. Investment proposals for debt, equity, and business ventures are evaluated by the Committee for feasibility, relevance to core banking objectives, and contribution to shareholder value. The Committee also evaluates the Bank’s overall liquidity management operations, treasury investments and borrowing activities, and capital adequacy.

Within this framework the Committee performs the following duties:

• Reviews, amends, and approves investment policies and operational parameters relating to investments of the Bank
• Monitors adherence to investment policies, investment processes, and decisions of the Investment Committee
• Approves investment proposals, borrowings, and execution of agreements
• Reviews the performance of the investment portfolio
• Reviews and recommends significant investment decisions to be undertaken by the Bank to the Board of Directors

Methodology adopted by the Committee

The Committee meets monthly and reviews progress of strategic and significant investments, liquidity situation of the Bank, market developments and the economic outlook of the markets it operates in, and new investment strategies. The Committee also reviews the monthly performance of Treasury and Investment Banking Division, where the interest rate risk, repricing risk, currency risk, and other market risks are discussed.

The Committee also from time to time would issue instructions to executive officers of the Bank on investment related activities.

Activities in 2020

• Reviewed the Bank’s foreign currency investment limit given the growth in FCY balance sheet and investment opportunities
• Evaluated and approved strategic equity investments by the Bank
• Approved investments in the Bank’s subsidiaries

The Committee held ten (10) meetings during the year under review. The proceedings of the Committee meetings which also included activities under its Terms of Reference were regularly reported to the Board of Directors.

Ms J Lee
Chairperson – Board Investment Committee

February 24, 2021

“Focused on improving Mobile First, Agility, Service-oriented Culture and Operational Excellence, e-waste disposal and IT Governance, bringing key drivers to a digital era.”

Composition of the Committee

During the year, the Board Technology Committee (the BTC) consisted of the following members. Profiles of the members as at December 31, 2020 are indicated on pages 64 to 69.

Charter of the Committee

The purpose of the BTC is to assist the Board of Directors in fulfilling its oversight responsibilities with respect to the overall alignment of technology in executing the business strategy of the Bank including, but not limited to, major technology investment, technology strategy, operational performance and technology trends that may affect current and future banking.

The Committee has been empowered to:

• Set the overall technology strategy and track progress of the activities to meet the corporate objectives.
• Analyse emerging technologies and their potential use to drive corporate IT strategy.
• Review significant technology procurements, prior to them being sent to the Board of Directors for approval.

Activities in 2020

The Committee held five (5) meetings during 2020 and the proceedings of the Committee meetings (which also included activities under its Terms of Reference) were regularly reported to the Board of Directors with its comments and observations. The Committee focused on improving the following areas, which are the key drivers taking the Bank to a digital era.

Mobile First to create a next level banking experience by extending most of the functionalities to customers’ finger tips with evolving technology trends and latest banking and financial features, such as self-registration, biometric authentication and real time notification. The Bank successfully launched the following mobile applications which were particularly useful for customers facing obstacles during the period of the COVID-19 pandemic.

• Combank Digital for the online banking customer base enabling them to perform all the monetary transactions and day to day banking.
• ePassbook re-launched with latest mobile features enabling the customers to view their accounts and transactions with greater convenience
• Q+ acts as an e-wallet where customers can securely manage card related transactions via QR. Q+ was the first app to be launched with Lanka QR in the country
• App Aggregator as one single place for all Combank related apps
• Flash with enhanced new features and the Combank Digital
• RemitPlus for workers to track their remittances

Agility to cater to the ever growing demand and to add value to the existing customer needs to delight customer experience and convenience.

• IT R&D adopted Agile SCRUM way of working with the rest of the stakeholders
• Agile way of working supported business units to deliver the right products and features at the right time, faster delivery of services with enhanced quality with high productivity
• Post implementation time has been cut down by 50% to ensure fast deployment to be the first to market

Service Oriented Culture and Operational Excellence to build a sustainable and competitive uninterrupted service through operations management to cater to ever-increasing customer demands using emerging technology.

• System and service availability has been greatly improved adhering to ISO 20000 framework and managed to certify the Bank in 2020 by collating all the support service related stakeholders to adhere to ISO 20000 Framework
• High availability architecture and upgraded monitoring mechanism to increase service uptime for critical systems
• Proper capacity planning to cater to ever growing application needs

e-waste disposal to suppliers who follow environmental-friendly guidelines in disposing them as per international standards followed by their principles.

• eSlip for cash and cheque deposit 
  • Improved customer convenience by introducing eSlip mobile application for cash and cheque deposits. This will directly support the Banks paperless concept and will help to reduce the carbon footprint of each transaction.
  • With this initiative the Bank expects to eliminate and minimise usage of paper, Pens, storage and waiting time of customers.
  • This new initiative extends the convenience to the customers by enabling their mobile phones as depositing instruments which helps to generate slips "on the go".
• eStatements for Current Savings Accounts and Credit Cards
  • The Bank has been aggressively promoting eStatements for Current Accounts, Savings Accounts and Credit Card accounts which is an initiative taken towards Banks paperless concept.
  • Customers can enrol Digital Banking services with the self-registration feature without the need to visit the Bank.
  • This self-registration feature was heavily used during the periods of lockdown.

IT Governance to engage the processes that ensures the effective and efficient use of IT in enabling the Bank to achieve its goals and objectives. The IT processes (Development/ Operational) were reviewed regularly to cater to the Bank's dynamic needs with higher transparency.

• Implemented and certified with  ISO 20000:2018 certification in the year 2020 as the first local bank in the country. ISO 20000, the international standard that enables IT organisations to ensure that their IT service management (ITSM) processes are aligned both with the needs of the business and with international best practices. This strategic implementation will help Commercial Bank to improve its service levels, create a framework for independent assessment and demonstrate an ability to meet customer requirements. It gives the Bank a competitive advantage, as it demonstrates the reliability and high quality of IT service levels. 
• Adhering to Payment Card Industry Data Security Standards and Certification (PCIDSS)
• Adhering to ISO 27000:2013 Information Security Standards and Certification
• Adhering to Baseline Security Standards (BSS)

The Committee also reviewed submissions on procurements of significant technology related items for the Bank and recommended such submissions for the consideration by the Board of Directors.

Prof A K W Jayawardane
Chairman – Board Technology Committee

February 24, 2021

“Reviewed matters related to capital planning, acquisition, investment opportunities and strategies to provide relief measures to borrowers affected by the pandemic in addition to actively engaging in the government relief scheme.”

Composition of the Committee

During the year, the Board Strategy Development Committee (the BSDC) consisted of the following members. Profiles of the members as at December 31, 2020, are indicated on pages 64 to 69.

Charter of the Committee

The Committee was established to have an overall Bank-wide strategic management oversight.

The Committee is empowered:

• To assist the Board in performing its oversight responsibilities relating to the Bank’s strategy.
• To advise and monitor the Management on:
  • Defining of business strategies geared for the sustainable development of the Bank; and
  • Establishment of processes for planning, implementing, assessing, and adjusting of the business strategy.
• To oversee the Management’s engagement on the strategic perspective, direction, and development of the strategy for the Bank and its business units.
• To oversee the Management’s implementation of the approved strategic plan and the progress against strategic milestones and goals.
• To oversee the Management’s implementation of major business transformation projects and their execution.
• To engage in detailed discussion and provide guidance to the Management on:
  • Governance, risk appetite, financial and capital planning, liquidity and fund management, control environment and resources required to support the Bank’s strategic objectives.
  • Divestitures, mergers and acquisition strategies including post transaction performance tracking.
  • The impact of changes in the competitive environment.

Activities in 2020

The BSDC assisted the Board by evaluating the business strategies and strengthening core competencies of the Bank.

The BSDC met more frequently than the minimum of four meetings as per the Terms of Reference [eleven (11) meetings held in 2020] and was able to offer greater responsiveness in the strategic decision-making process of the Bank.

The BSDC reviewed matters related to capital planning, acquisition, investment opportunities and strategies to provide relief measures to borrowers affected by the COVID-19 pandemic in addition to actively engage in the government relief scheme. Further, the Committee provided guidance to ensure that adequate impairment cover is made while sustaining reasonable financial performance.

Corporate Plan and strategies planned by the Management were reviewed against the achievement and necessary directions were provided to the Management to achieve the desired results.

Important decisions taken at the Committee meetings which also included activities under its Terms of Reference were regularly reported to the Board of Directors for information/approval.

Justice K Sripavan
Chairman – Board Strategy Development Committee

February 24, 2021