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Governance and Risk Management

Statement of Compliance

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Further to the Annual Report of the Board of Directors on the Affairs of the Company appearing on page 3, given below is a summary of
the extent of compliance with the requirements of Section 168 of the Companies Act No. 07 of 2007 and amendments thereto and other relevant statutes.

Table - 45: Statement of Compliance

Disclosure requirement Reference to the relevant statute/rule Page reference for compliance and other necessary disclosures
Mandatory disclosures as required by the Companies Act No. 07 of 2007 and amendments thereto (CA)
1. The nature of the business of the Group and the Bank together with any changes thereof during the accounting period Section 168 (1) (a) Notes to the Financial Statements: Item 1.3: Principal business activities, nature of operations of the Group and ownership by the Bank in its subsidiaries and associate
2. Signed Financial Statements of the Group and the Bank for the accounting period completed in accordance with Section 152 Section 168 (1) (b) Financial Statements of the Group and the Bank for the year ended
December 31, 2021
3. Auditors’ Report on the Financial Statements of the Group and the Bank Section 168 (1) (c) Independent Auditors’ Report
4. Accounting Policies of the Group and the Bank and any changes therein Section 168 (1) (d) Notes 6 to 11 to the Financial Statements: Significant Accounting Policies adopted in the preparation of the Financial Statements of the Group and the Bank
5. Particulars of the entries made in the Interests Registers of the Bank and its subsidiaries during the accounting period Section 168 (1) (e) The Bank and all its subsidiaries maintain Interests Registers All Directors have made declarations as required by the Section 192 (1) and (2) and all related entries were made in the Interests Registers during the year under review The Interests Registers are available for inspection by shareholders or their authorised representatives as required by the Section 119 (1) (d) Refer "Directors' Interest in Contracts with the Bank" disclosed in the Annual Report
6. Remuneration and other benefits paid to Directors of the Bank and its subsidiaries during the accounting period Section 168 (1) (f) Note 21 to the Financial Statements: Other operating expenses
Report of the Board Human Resources and Remuneration Committee
7. Total amount of donations made by the Bank and its subsidiaries during the accounting period Section 168 (1) (g) Note 21 to the Financial Statements: Other operating expenses
8. Information on directorate of the Bank and its subsidiaries during and at the end of the accounting period Section 168 (1) (h) Governance and Risk Management
Refer “Board of Directors and Profiles” for details of members of the Board of Directors of the Bank
Refer “Group Structure” for details of members of the Board of Directors of the Group
Recommendations for re-election (i) In terms of Article 85 of the Articles of Association, two Directors are required to retire by rotation at each Annual General Meeting (AGM). Article 86 provides that the Directors to retire by rotation at an AGM shall be those who (being subject to retirement by rotation) have been longest in office, since their last re-election or appointment.
(ii) The Board recommended the re-election/election of the following Directors, after considering the contents of the Affidavits & Declarations submitted by them and all other related issues: (a) Re-election of Directors who retire by rotation
  • Prof A K W Jayawardane
  • Mr L D Niyangoda
(b) Election of Directors who were appointed to fill casual vacancies
  • Mrs D L T S Wijewardena
(iii) Directors who served on the Board for nine years – None as at end
of 2021. [In terms of the Banking Act Direction No. 11 of 2007 on “Corporate Governance for Licensed Commercial Banks in Sri Lanka”, the total period of service of a Director (other than a Director who holds the Position of Chief Executive Officer) is limited to nine years. Further, under the criteria to assess the fitness and propriety of Directors, the age of a person who serves as director of a bank has been restricted to a maximum of 70 years].
9. Separate disclosure on amounts payable to the Auditors as audit fees and fees for other services rendered during the accounting period by the Bank and its subsidiaries Section 168 (1) (i) Note 21 to the Financial Statements: Other operating expenses
10. Auditors’ relationship or any interest with the Bank and its subsidiaries
(Lead Auditor’s independence)
Section 168 (1) (j) Independence Confirmation has been provided by Messrs. Ernst & Young as required by Section 163 (3) in connection with the audit for the year ended December 31, 2021, confirming that Ernst & Young is not aware of any relationship with or interest in the Bank or any of its subsidiaries that in their judgement, may reasonably be thought to have a bearing on their independence within the meaning of the Code of Professional Conduct and Ethics issued by CA Sri Lanka, applicable as at the reporting date. No prohibited non audit services have been provided by Messrs. Ernst & Young as per the Direction issued by the CBSL on 'Guidelines for External Auditors relating to their Statutory Duties'. The Directors are satisfied as the BAC has assessed each service, having regard to auditors' independence requirements of applicable laws, rules and regulations, and concluded in respect of each non-audit service or type of non-audit service that the provision of that service or type of service would not impair the independence of Messrs. Ernst & Young.
11. Acknowledgement of the contents of this report/signatures on behalf of the Board of Directors Section 168 (1) (k) The Board of Directors have acknowledged the contents of this Annual Report as disclosed
Other Disclosures as required by Recommended Best Practices (RBP), Listing Rules (LR) of the Colombo Stock Exchange, Companies Act No. 07 of 2007 and amendments thereto (CA) and Banking Act Direction No. 11 of 2007 (CBSL)
12. Vision, Mission and Corporate Conduct RBP The business activities of the Group and the Bank are conducted maintaining the highest level of ethical standards in achieving our
“Vision and Mission”, which reflect our commitment to high standards of business conduct and ethics The Bank issues a copy of its Code of Ethics to each and every staff member and all employees are required to abide by the provisions contained therein
13. Review of business operations of the Group and the Bank and future developments RBP “Joint Message from the Chairman and his Successor “Managing Director/Group Chief Executive Officer's Review”
Management Discussion and Analysis
Note 62 to the Financial Statements: Operating segments
14. Gross income RBP Notes 12 and 62 to the Financial Statements: Gross income and
operating segments
15. Dividends on ordinary shares RBP Notes 25 and 69 69 to the Financial Statements: Dividends and
Events after the reporting period
Refer – “Investor Relations” – Item 3
16. Reserves and appropriations RBP Statement of Changes in Equity
Notes 54, 55 and 56 to the Financial Statements: Statutory reserves, Retained earnings and other reserves
17. Corporate Social Responsibility (CSR) RBP Community sustainability
18. Extents, locations, valuations and the number of buildings of the Bank’s land holdings and investment properties LR 7.6 (VIII) Note 39 to the Financial Statements: Property, plant and equipment and right-of-use assets
Note 40 to the Financial Statements: Investment property
Note 58.2 to the Financial Statements: Capital commitments
19. Significant changes in the Bank's or its subsidiaries fixed assets and the market value of land, if the value differs substantially from the book value LR 7.6 (XII) Notes 39.5 (b) to the Financial Statements: Information on freehold land and buildings of the Bank – valuations
Note 40.1 (b) to the Financial Statements: Information on Investment properties of the Group – valuations
20. Issue of shares and debentures
20.1 Issue of shares by the Bank LR 7.6 (XIII) Notes 52 and 52.1 to the Financial Statements: Stated capital and movements in number of shares
20.2 Issue of debentures by the Bank LR 7.6 (XIII) Note 51 to the Financial Statements: Subordinated liabilities Refer – "Investor Relations" – Item 10
20.3 Issue of shares and debentures
by the subsidiaries and the associate
CA S.168 (1) (e) During the year, subsidiaries and the associate of the Bank did not make any share or debenture issues.
21. Share information and substantial shareholdings
21.1 Distribution Schedule of Shareholdings, names and the number of shares held by the 20 largest holders of voting & non-voting shares and the percentage of such shares held, float adjusted market capitalisation, public holding percentage, number of public shareholders, and the option under which the Bank complies with the minimum public holding requirement. LR 7.6 (III)
LR 7.6 (IV)
LR 7.6 (X)
LR 7.13.1
Refer – "Investor Relations" – Items 4.2, 4.3 and 4.5
21.2 Financial ratios and market price information LR 7.6 (XI) Financial Highlights
Information on earnings, dividend, net assets, and market value per share Decade at a Glance
Information on listed debt securities Refer – "Investor Relations" – Item 10 Annex 2 – Basel III – Disclosures under Pillar III as per Banking Act No. 01 of 2016 - Disclosure 6 – Main features of regulatory capital instruments
21.3 Information on shares traded and the number of shares represented by the stated capital LR 7.6 (IX) Refer – "Investor Relations" – Item 2 and 7
21.4 Own share purchases CA S.64 The Bank does not purchase its own shares
21.5 Equitable treatment to shareholders RBP Statement of Directors’ Responsibility for Financial Reporting – Item (k)
22. Information on Directors’ meetings and Board Committees
22.1 Directors’ meetings RBP Details of the meetings of the Board of Directors
22.2 Board committees RBP Board Committee Reports
23. Disclosure of Directors’ dealings in shares and debentures
23.1 Directors’ interests in ordinary voting and non-voting shares of the Bank LR 7.6 (V) Refer – "Investor Relations" - Item 4.4 Directors’ shareholdings in Ordinary Voting Shares and Ordinary Non-Voting Shares have not changed subsequent to the date of the Statement of Financial Position up to February 07, 2022, the date being one month prior to the date of Notice of the AGM.
23.2 Directors’ interests in debentures LR 7.6 (V) Mr S Renganathan, Managing Director/Group Chief Executive Officer, held 170,000 debentures of the Bank as at December 31, 2021. Except the above there were no debentures registered in the name of any other Director as at the beginning and at the end of the year.
24. Employee share option plans and profit sharing plans LR 7.6 (XIV) Note 53 to the Financial Statements: Share-based Payment
The Group and the Bank have not, directly or indirectly, provided funds for the ESOPs.
The Group and the Bank do not have any employee profit sharing plans, except the variable bonus scheme
Tabulated below are the details of options available/exercised by the Executive Directors under the ESOPs
Description 2021 2020

Mr S Renganathan

Mr S C U Manatunge Mr S Renganathan Mr S C U Manatunge
As at January 1 201,000 125,829 123,580 76,452
Vested during the year 126,796 80,070 115,353 72,844
Exercised during
the year
(60,687)
Expired during the year (85,647) (52,985) (37,933) (23,467)
As at December 31 181,462 152,914 201,000 125,829
25. Directors’ interests in contracts or proposed contracts and remuneration and other benefits of Directors during the year under review CA S.192 Directors’ interest in contracts with the Bank
Note 21 to the Financial Statements: Other operating expenses
Note 63 to the Financial Statements: Related party disclosures
RBP As a practice, Directors have refrained from voting on matters in which they were materially interested. Directors have no direct or indirect interest in any other contract or proposed contract with the Bank
CA S.168 (1) (e) LR 7.6 (XIV) There are no arrangements that enable the Non-Executive Directors of the Group and the Bank to acquire shares or debentures of the Bank or its subsidiaries, other than via the market
CA S.217 (2) (d) There are no restrictions on the approval of loans to Directors in the Bank’s ordinary course of business, subject to compliance with all applicable regulations
26. Directors’ and officers’ insurance CA S.218 The Bank has, during the financial year, paid an insurance premium in respect of an insurance policy for the benefit of the Bank and the Directors, secretaries, officers and certain employees of the Bank and related body corporates as defined in the insurance policy. In accordance with commercial practice, the insurance policy prohibits disclosure of the terms of the policy, including the nature of the liability insured against and the amount of the premium
27. Environmental protection RBP The Group and the Bank have not, to the best of their knowledge, engaged in any activity, which was detrimental to the environment
Specific measures taken to protect the environment are disclosed in the section on “Operational Excellence”
28. Declaration on statutory payments RBP Statement of Directors' Responsibility for Financial Reporting - item (h)
29. Events after the reporting period RBP Note 69 to the Financial Statements: Events after the reporting period
30. Going concern RBP Statement of Directors' Responsibility for Financial Reporting - item (m)
31. Directors’ responsibility for financial reporting CBSL Direction
3(8)(ii)(a)
Statement of Directors' Responsibility for Financial Reporting – Compliance Report
32. Appointment of Auditors and their remuneration CBSL Direction 3(1)(i)(m) The Board of Directors of the Bank resolved to adopt a Policy of rotation of Auditors, once in every five years, in keeping with the principles of good Corporate Governance, although the mandatory requirement is only partner rotation once in every five years. Accordingly, the present Auditors, Messrs Ernst & Young, were reappointed as Auditors of the Bank, at the last AGM held on March 30, 2021, to carry out the audit for the year ended December 31, 2021, and will hold the office until the conclusion of the next AGM of the Bank which is to be held on March 30, 2022. Accordingly, Messrs Ernst & Young will serve for a maximum period of 5 years consecutively, subject to them being re-elected by shareholders, upon a recommendation of the Board of Directors, annually.
The retiring Auditors, Messrs Ernst & Young have signified their willingness to continue to function as the Auditor to the Bank
CA S.168 (1) (I) A resolution to appoint Messrs Ernst & Young as Auditors and granting authority to the Directors to fix their remuneration will be proposed at the forthcoming AGM to be held on March 30, 2022 for shareholder approval
Expenses incurred in respect of audit fees and fees for other services rendered by Messrs Ernst & Young during the year are given in Note 21 to the Financial Statements: Other operating expenses
33. Material issues pertaining to employees and industrial relations LR 7.6 (VII) Refer – "Investor Relations" – Item 6
34. Risk management and system of internal controls LR 7.6 (VI) Risk Governance and Management
Report of the Board Integrated Risk Management Committee
Note 67 to the Financial Statements: Financial risk review
The Directors’ Statement on Internal Control over Financial Reporting
The Independent Auditors’ Report
Independent Assurance Report on the Directors’ Statement on Internal Control over Financial Reporting
35. Corporate governance RBP The Directors declare that – (a) the Bank has complied with all applicable laws and regulations in conducting its business and have not engaged in any activity contravening the relevant laws and regulations, except for certain operational lapses as pointed out by the Financial Intelligence Unit of the CBSL for which a penalty was imposed on the Bank (Refer page 175 on "Review of Operational Risk") Officers responsible for ensuring compliance with the provisions in various laws and regulations, confirm compliance in each quarter to the Board Integrated Risk Management Committee; (b) they have declared all material interests in contracts involving the Bank and refrained from voting on matters in which they were materially interested; (c) they have complied with the Code of Best Practices on Corporate Governance; (d) they have conducted a review of internal controls covering financial, operational and compliance controls, risk management and have obtained a reasonable assurance of their effectiveness and proper adherence;
(e) the Bank has complied with the Code of Best Practices on related party transactions and has made the required disclosures in the Financial Statements and to the market when applicable; (f) the business is a Going Concern with supporting assumptions or qualifications as necessary, and that the Board of Directors has reviewed the Bank’s Corporate/Business plans and is satisfied that the Bank has adequate resources to continue its operations in the foreseeable future. Accordingly, the Financial Statements of the Bank, its Subsidiaries and Associate are prepared based on the Going Concern assumption;
36. Focus on new regulations RBP Accounting Standards The effective date of Interbank Offered Rate (IBOR) reform Phase 1 and Phase 2 amendments is for annual reporting periods beginning on or after
January 1, 2021 in the Sri Lankan context. However, the regulatory authorities and public and private sector working groups in several jurisdictions have been discussing the alternatives to IBORs but there is still uncertainty over when these alternative rates will
be available and how the reforms will impact specific financial products
and services. Regulations issued by the Central Bank of Sri Lanka The Bank is well poised to comply with directives issued by the Central Bank of Sri Lanka during year 2021 on Classification, Recognition and Measurement of Credit facilities and other assets, Regulatory frame work on Technology Risk Management and resilience etc Tax legislature Further, the Bank will be complying with the proposals of the Government Budget 2022, subject to enactment, in relation to introduction of a Surcharge Tax of 25% on the Taxable Income for the Year of Assessment 20/21 exceeding Rs. 2 Bn., Social Security Contribution Levy of 2.5% on the turnover exceeding Rs. 120 Mn. per annum and an increase in the rate of Value Added Tax on Financial Services from 15% to 18%.
37. Sustainability RBP The Bank is an early champion of adopting sustainability practices and sustainability reporting. The Bank has considered the sustainability aspects when formulating its business strategies
Annex 3: GRI Content Index
38. Human resources RBP The Bank continues to invest in human capital development and implement effective human resource practices and policies to improve workforce efficiency, effectiveness and productivity and also to foster collaborative partnerships that enrich the work and learning environment for our staff
Specific measures taken in this regard are detailed in the
Report of the Board Human Resources and Remuneration Committee Refer Management Discussion and Analysis
39. Technology RBP As encapsulated in the Vision and the Mission, our business processes are underpinned by technology. All of our processes involve information technology, and we use technology to deliver superior products and services to our customers. Correspondingly, the business is more heavily intertwined with technology than ever before
Key achievements in this regard during the year are detailed in the
Report of the Board Technology Committee
40. Operational excellence RBP To increase efficiency and reduce operating cost, the Bank has ongoing initiatives to drive policy and process standardisation and to optimise the use of existing technology platforms
41. Outstanding litigation RBP In the opinion of the Directors and in consultation with the Bank’s lawyers, litigation currently pending against the Bank will not have a material impact on the reported financial results or future operations.
Note 60 to the Financial Statements: Litigation Against the Bank
42. Disclosure on related party transactions LR 9.3.2 (a) and (b) Note 63 to the Financial Statements: Related Party Disclosures
LR 9.3.2 (c) Report of the Board Related Party Transactions Review Committee
LR 9.3.2 (d) Statement of Annual Report of the Board of Directors
43. Annual General Meeting and
the Notice of Meeting
CA S.133 and
CA S.135 (a)
The 53rd AGM of the Bank will be held on Wednesday, March 30, 2022 at 2.30 p.m. at Galadari Hotel, No. 64, Lotus Road, Colombo 01, as a virtual meeting using a digital platform. Notice relating to the 53rd AGM of the Bank is enclosed at the end of the Annual Report.