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Business Model for Sustainable Value Creation

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The Bank has a robust business model that leverages on its strengths for sustainable value creation. It draws “inputs” from Financial, Manufactured, Intellectual, Human, Social and Network, and Natural Capitals as inputs, converts such inputs to “outputs” through its two primary activities of financial intermediation and maturity transformation, leading to outcomes for the benefit of the stakeholders who own and provided capital inputs. Integrated reporting based on the International Integrated Reporting Framework requires the disclosure of the business model as one of the content elements in an integrated report. Accordingly, the narrative given below provides a guide to the visual depiction of the Business Model on pages 34 and 35 and the Statement of Financial Position on pages 36 and 37.


Inputs refer to the "capitals" or stocks of value the Bank uses as resources for undertaking its activities, or, in other words, the capitals from which the Bank derives value. These input capitals include not only financial capital reflected in the Statement of Financial Position, but also what might be termed “off-balance sheet” or "hidden" capitals, like the institutionalised knowledge of the Bank, the brand and reputation the Bank has built over years, or the strength of its stakeholder relationships. These inputs are then put to work in the Bank’s business activities – literally capitalised – to generate outputs (the Bank’s key products and services) and outcomes (the value created by the Bank for itself and for its stakeholders as a consequence of the outputs). As the Bank’s business model demonstrates, this is a dynamic process where capitals are constantly circulating and value is continuously being created and transformed. An integrated report is nothing but the story of this dynamic process across a single year and a snapshot of the Bank’s capital position at the year end .

Financial intermediation and maturity transformation

As a commercial bank, financial intermediation and maturity transformation are the two primary value driver activities around which the business model of the Bank revolves. Financial intermediation refers to the role the Bank plays as a conduit between depositors and borrowers, allowing deposits to be channelled into investments and assets. Maturity transformation refers to the process of converting short-term funds into long-term lending and investments. These two activities which ensure the efficient allocation of financial resources, are essential for the economic development of the society at large.

Statement of capital position

The activities the Bank undertakes in furtherance of financial intermediation and maturity transformation, and the consequent interactions, interconnectivities and trade-offs among the capitals in this dynamic process, serve to augment the capitals and reflect the value created over the year, as reflected in the Statement of the Capital Position of the Bank as at January 1, 2021 and December 31, 2021 given on pages 36 and 37.

Besides the value derived as reflected in the enhanced positions of the other capitals, the two broader categories of income – net interest income from fund-based operations and fee and commission income from fee-based operations – enable the Bank to enhance its financial capital. Fund-based operations involve the process of mobilising funds from depositors and borrowings from other sources in order to lend and invest; this process generates interest income and incurs interest expenses. The interest margin, which is the difference between the lending rate and the borrowing rate, compensates the Bank for the credit risk, funding risk and interest rate risk. All other services provided by the Bank not involving funds are fee-based operations. Reflecting efficient financial intermediation, the Bank generated 70.69% of its total operating income by way of net interest income (2020: 66.15%).


Financial intermediation and maturity transformation cause the business model of the Bank to substantially differ from other corporates. Being a commercial bank funded primarily through customer deposits, the Bank resorts to the process of gearing in order to compensate for the relatively lower Return on Assets (ROA) and generate returns to the investors attractive in terms of Return on Equity (ROE). Gearing involves expanding the business volumes by mobilising more and more funding from depositors and other providers of funds to the Bank and lending or investing such funds to grow the loan book and investment portfolios on the strength of a given amount of capital.

Gearing primarily remains the foundation of the Bank’s business model, which enables the Bank to operate at around 10 times higher business volumes compared to the shareholders’ equity. It is the license to mobilise deposits from the public that has made it possible. However, the Bank is well aware that gearing exposes it to a multitude of internal and external risks. In addition, certain emerging global developments are also threatening to disrupt this business model. As explained later in the report, the Bank has established a sound risk management framework with necessary oversight of the Board of Directors and thereby has been able to successfully manage such risks.

Stakeholder returns

As shown in Table 06 on pages 36 and 37, Commercial Bank has been able to improve its profitability over the years while prudently maintaining gearing at acceptable levels. This improvement in profitability reflects the net impact of the value we have been able to create by delivering value to and by deriving value from our stakeholders. From investors’ perspective, this value creation is reflected in the returns the Bank has been able to generate for them in terms of earnings, dividends and appreciation in market price of shares. The market capitalisation of the Bank’s shares remained the highest among the Banking, Finance and Insurance institutions as at end 2021 while its shares ranked 9th among all listed companies in the Colombo Stock Exchange as at end 2021. Further details on the performance of the Bank’s shares are found in the section on “Investor Relations” on pages 86 to 99.

While growing organically in the domestic market, the Bank has taken steps to leverage inorganic and regional growth opportunities, primarily to geographically diversify its risk exposures and sources of revenue and thereby enhance its sustainability of operations and long-term value creation. These efforts have now made the Bank a well-established regional bank.

Figure – 05

Business Model