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Operating environment

Material matters

Amidst the post-COVID-19 landscape, banking operations have witnessed the emergence of new trends and influences. The surge in demand for digital banking has spurred our Bank to enhance its digital services, aligning them with customer value streams across the entire journey. To bolster this initiative, we established a Customer Experience Unit, reflecting our commitment to elevate service standards. This customer-centric approach is integral to our Vision, Mission and Values, emphasising the delivery of exceptional service and fostering loyalty through innovative technology and seamless interactions.

The proliferation of digital products since 2020 has been pivotal in transforming the banking culture from traditional footfall to a diverse array of digital offerings readily available to stakeholders. Alongside this transformation, our Bank has actively assisted stakeholders in transitioning not only to digital platforms but also towards environmentally-conscious business practices aimed at reducing carbon emissions. Emerging from the pandemic, we have entered a new era of sustainability, where our procurement and lending practices adhere to both internal and external standards of sustainable banking. Our commitment to creativity has been instrumental, driving forward-thinking digitalisation efforts across various channels and streamlining internal processes through automation.

The Bank demonstrated unparalleled resilience, swiftly adapting to the dynamic shifts in technology, demographics and stakeholder preferences. As a leader in technology, we bolstered our customers’ technological and financial literacy,
guiding them through their banking journeys. Our trilingual presence across various interfaces contributed significantly to customer retention and expansion. We remained vigilant of global trends, embracing new initiatives and technologies that shaped the landscape of 2023. Despite market and credit risks inherent in our operations, we maintained robust financial reserves, ensuring ample liquidity and capital buffers. Our proactive provisioning strategies were especially crucial in navigating the challenging economic environment marked by subdued growth, fluctuating interest rates and ongoing sovereign debt restructuring efforts.

In this environment, it was imperative to implement astute and forward-thinking measures. Resilience meant anticipating and adapting to disruptions, ensuring our relevance as a modern institution that embraces technology, digital innovation and automation while remaining true to the core values upon which our Bank was founded over a century ago.

Materiality determination and integration engagement

Figure – 06

Identification of
Material Matters to Address


We identify matters that most impact the execution of our strategy. Relevant matters are those that have, or may have, an effect on the Bank’s ability to create value to our stakeholders.

Prioritisation of
material matters


We prioritise matters that most significantly impact our ability to effectively execute our strategy in delivering long-term value and influencing the decision of key stakeholders.

Integration and execution

Those matters that are material to the value creation process were then integrated into strategy formulation process in settling KPIs, driving behaviours, measurement of performance and determine the remuneration packages of our staff.

To assist in pinpointing material topics, adjust the Bank’s strategy to address the “new normal” and actively contribute to shaping the recovery, the Bank conducted an analysis of its external environment. This analysis aimed to identify issues stemming from shifts catalysed by recent developments in the political, economic, social, technological, environmental and legal/regulatory domains that were pertinent to key stakeholder groups, as outlined below:

Matters relevant to the key stakeholder groups

Figure – 07

InvestorsInvestors image 1 Lack of desired level of policy consistency 2 Economic slowdown 3 Growing
influence of
social media
4 Unorthodox competition and financial disintermediation 5 New regulations, compliance requirements, and directives
6 Lack of desired level of transparency and accountability 7 Depreciating Rupee & BDT against USD 8 Demand for non-financial information and long termism 9 Compliance with Basel requirements
10 Downgrading of the Sovereign rating and its cascading effect on the Banking industry 11 Demand for more transparency and accountability 12 Higher regulatory capital as a D-SIB
13 High CAPEX requirements 14 New Banking Act
Customerscustomers image 15 Asset growth
and asset
16 Changing customer expectations 17 Migration towards digital platforms 18 Compliance requirements and regulations such as FATCA1, GDPR2, and BEPS3
19 Import restrictions 20 Cybersecurity Threats
Employeesemployees image 21 Need to enhance productivity 22 Talent management 23 Need to reskill staff with technological advancements
24 Health and Safety 25 New working cultures
Society and environment society and environment image 26 Geopolitical conflicts 27 Declining worker remittances 28 Need to commit to Sustainable Development Goals (SDGs) 29 Increasing frequency and magnitude of natural disasters and poor disaster preparedness
30 Corruption 31 Declining global competitiveness of Sri Lanka 32 Increasing conflicts 33 Increasing demand for green banking and green lending
34 Ongoing wars in Europe and Middle East 35 Increasing drug pedaling and drug and alcohol addiction 36 Climate change
37 Being socially responsible
Business partners
business partners image
38 Partnerships for goals through a more collaborative approach 39 New technological advances such as AI, Robotics, blockchain

Management approach

The Bank prioritises the interests of all stakeholders and thus adheres to principles of mutuality and shared value, ensuring that value is both delivered to and derived from them, ultimately resulting in value creation for all parties involved.

In managing its material topics, the Bank integrates them into its strategic planning process. This involves assigning accountability to the heads of relevant divisions within the Bank and allocating resources accordingly based on the importance of each material topic in achieving strategic objectives. Goals and targets related to these material topics are integrated into the Key Performance Indicators (KPIs) of Key Management Personnel (KMP) and are regularly reviewed to ensure alignment with the Bank's objectives.

Numerous policies have been established to ensure that staff conduct activities responsibly, transparently and ethically in managing material topics. The Board of Directors has formally adopted these policies, which undergo regular review at predetermined intervals to ensure they remain current and reflective of changing conditions. The Integrated Risk Management Department (IRMD) monitors timely revisions to these policies and reports its findings to the Board Integrated Risk Management Committee (BIRMC).

When applicable, grievance mechanisms have been established, with divisional heads assigned responsibility for managing, addressing and resolving grievances. The Bank also screens its lending to customers and dealings with business partners for social and environmental considerations.

Periodic internal and external audits and verifications are conducted to ensure adherence to internal controls, policies and procedures established to achieve the objectives of material topics. Findings from these audits are reported to the Board of Directors and/or relevant Management Committees for review and corrective action, as needed.

The overall risk profile of the Bank, as depicted by its rating and the awards and accolades it has secured over the years, serves as a clear demonstration of the effectiveness of the management approach.

Material topics, risks, opportunities, how we manage and GRI disclosures

The Bank has identified material topics mapped into the blocks representing high importance to stakeholders and high and moderate importance to the Bank under both opportunities to be capitalised on and risks to be managed in the Materiality Matrix shown above.

Material topics, risks, opportunities, how we manage and GRI disclosures

Table – 04
Material matters Risks Opportunities How we manage GRI disclosure
Policy inconsistency
Difficulties encountered in the process of planning and budgeting and risk of being unable to comply with regulatory requirements, leading to strategic risks. Increasing the stress levels of the parameters used for and frequency of stress testing. Frequently reviewing strategies and goals against changes in the external environment. GRI 201: Economic Performance GRI 207: Tax
Economic slowdown
Stifled business growth affecting value creation and resulting disappointment among the stakeholders. Being prepared to meet the pent up demand that could arise when the situation comes back to normalcy. Being alert to the developments and maintaining fundamentals to exploit opportunities when they come. GRI 201: Economic Performance
New regulations, compliance requirements and directives
Increased costs in implementation, modification and monitoring of process and the risk of not being compliant. Good governance is the bedrock of a sustainable business and helps boost stakeholder confidence. Bank is committed to being compliant to the letter and spirit of rules and regulations and believes in commitment to good governance provides a strong footing for sustainable growth. Please refer section on “Annual Corporate Governance Report” on pages 177 to 194. GRI 205: Anti-corruption GRI 206:
Anti-competitive Behaviour
Transparency and accountability
Non-disclosure of adequate information may give rise to reputation risks and regulatory pressures. Increased demand for forward looking strategic direction by investors over conventional reporting of past performance. Transparency breeds extra assurance on the Bank, creates trust, leverages faith that will be seen in an upsurge of stakeholder engagement. It will also help reduce risks of unwarranted suspicion and help achieve faster resolution of issues and reputation related risks. Bank’s approach on transparency and accountability is discussed in detail on the section on “Annual Corporate Governance Report” on pages 177 to 194. GRI 205:
Anti-corruption GRI 207: Tax
Downgrading of sovereign rating
Reduction of international trade transaction volumes and hampers the ability to raise foreign currency in the international market Healthy mix of foreign currency portfolios and Bank's regional presence supporting foreign currency liquidity supports Bank's ability to sustain its foreign currency transactions. Bank’s strength in the foreign currency mix in the balance sheet, built over the years and our regional presence has supported sustain our foreign currency operations. the section “Managing and Funding Liquidity” on page 72 provides as insight how the Bank managed the impacts of this material aspect. GRI 201: Economic Performance
Asset growth and asset quality
As a financial intermediary, Bank’s value creation depends heavily on its ability to gear its capital in terms of assets and the quality of those assets. Inability to grow assets and deterioration in asset quality will lead to regulatory issues, stifled business growth and disappointment of stakeholders. Growing the asset base and improving asset quality by strengthening credit evaluation and post disbursement monitoring mechanisms, using predictive capabilities. The Bank implemented an Early Warning Signals system with predictive capabilities that can possible deterioration in asset quality 9-12 months in advance. GRI 201: Economic Performance
Changing customer expectations
Customers, millennial in particular tend to value simplicity, convenience and experience above everything else in their interactions with the Bank, creating a risk for the Bank in maintaining customer loyalty by providing its services in a conventional manner. Augmenting customer experience to capture the new age customers by investing in state-of-the-art technologies to replace legacy systems and reskilling staff for the digital age. Investing in new technologies, implementing the Digital Road Map and continuous development of staff knowledge on emerging technologies. GRI 203: Indirect Economic Impacts
Migration towards digital platforms
Failure to migrate to digital platforms and deploy new technologies such as AI, Robotics, blockchain etc. will affect customer service and their experience as well as operational efficiency. Migration to digital platforms and deploying new technologies such as AI, Robotics, blockchain etc. will augment customer service and their experience as well as operational efficiency. The Bank has introduced many digital platforms and apps to suit the divergent customer base of the Bank and is gradually introducing new technologies for its internal operations. GRI 203: Indirect Economic Impacts
Cyber security
Cyber threats continue to increase globally and the need to protect the integrity and privacy of data becoming important than ever before. The pandemic has fuelled
the risk of cyber attacks and thefts.
Having a robust cyber security programme boosts customer confidence in embracing and using digital platform and provides a distinctive advantage over competition in digital banking space. A high importance is placed on this critical aspect and is always on the toes. Internationally recognised certifications we hold vets the robustness in our security systems. For more details please refer the section “IT Risk” in Risk Governance and Management report on pages 252 and 253. GRI 418: Customer Privacy
With the conventional business model, the profitability of the financial services industry has been declining globally over the past several decades. Productivity is an important aspect that will help to improve profitability. Failure to adopt mechanisms such as automation and digitalisation will make the Bank less attractive to most of the stakeholders. Enhancing profitability through investing in automation and digitalisation to enhance operational efficiency and improve profitability and attractiveness of the Bank to them. Investing in new technologies, implementing the Digital Road Map and continuous development of staff focussing on digital channels to facilitate the entire customer journey. GRI 203: Indirect Economic Impacts
Talent management
Among the risks brought about by the pandemic and the aftermaths of the political and economic unrest are the high staff attrition, health and safety of the workforce, sustaining critical operations, sudden adjustments in to new working conditions top the list. Staff retention and recruitment becoming more challenging. Adoption of digital means for remote working results in enhancing technology related skills and prompt rethinking of working conditions that may improve work-life balance and reduction in costs. The Bank has given utmost priority when it comes to investing in employee training and development and placing safety of employees first by providing a safe working environment. Deviating from the conventional practices, the Bank is successfully experimenting newer methods and levels to recruit staff such as recruiting more Management trainees recruiting A/L students awaiting results as banking interns, creating new categories of employment for certain specialised categories of staff such as IT staff. GRI 404: Training and Education GRI 405: Diversity and Equal Opportunity GRI 403: Occupational Health and Safety
Need to reskill employees
The Bank being unable to meet the stakeholder expectations, millennial customers in particular, due to the staff not being reskilled to keep abreast with the latest technologies. Proper reskilling of staff and helping and encouraging them to keep abreast with the latest technologies will help to delight customers and create “moments of truth”. Continuous training and development of staff and incentivising them to keep abreast with technologies used in the Bank. GRI 401: Employment
Health and safety
Inability to ensure health and safety of staff will affect their work life balance and productivity and operational efficiency of the Bank.
It may also lead to reputational risk.
Ensuring health and safety of staff will help the Bank to improve its efficiency of operations, productivity and profitability. The Bank conducted regular firedrills and maintains safe buildings with clear signboards for emergencies. Further, a number of health awareness programmes were conducted to enhance employee health. GRI 401: Employment GRI 403: Occupational Health and Safety
Need to commit to SDGs
As a national bank, failure to commit and work towards UN Sustainable Development Goals will seriously affect the sustainability of the banking operations and also cause reputational risk. Commitment to UN Sustainable Development Goals will improve the sustainability of the banking operations and minimise reputational risk. This also makes the Bank's business model future-ready Bank is explicitly committed and working towards 8 out of the 17 UN Sustainable Development Goals. Strategic initiatives in this regard are stemming from the Bank’s Sustainability Framework and are built into the strategy. GRI 203: Indirect Economic Impacts
Drug pedalling and drug and alcohol addiction
Failure to detect instances of money laundering and related compliance and reputational risks. Also, drug and alcohol addicts can cause an increase in security related risks. Compliance with all the applicable rules and regulations. Continuous strengthening of systems and procedures relating to detection and prevention of the use of the Bank for money laundering operations. GRI 205:
Climate Change
Increasing frequency and magnitude of natural disasters may affect infrastructure, banking operations, business growth, operating costs, asset quality and pause reputational risks. Responsible lending through Social and Environment screening may help reduce reputational risks and maintain asset quality. Though the Bank’s own footprint is minimal, it endeavours to minimise same through adopting green processes, moving to green buildings and generating solar energy for it operations. However, the Bank could make a bigger impact through its lending to renewal energy generation, greening of processes and screening for environmental impacts on businesses we lend to. Further, moving towards climate change mitigation procedures, such as reforestation with saplings, remote and hybrid work options lessening the commuting-dependent emissions are also helpful in this regard. How we do this is detailed in the section on “Climate Position Statement” on page 99. GRI 302: Energy GRI 305: Emission
Being socially responsible
The world, increasingly ideological, will mandate that the Bank focuses on diversity factor to ensure that social justice, inclusivity and stakeholder welfare as apex issues. Collaboration with Fin-Tech could open up new avenues to reach untapped markets and evolve alongside changing customer expectations. Advancement in new technologies such as Artificial Intelligence, Robotics and Block Chain could be used to boost operational excellence. We believe in sharing the value created with the society we operate. Hence, the Bank has set up a CSR Trust for undertaking projects for improving the quality of education, health, culture & heritage and preservation of environment.
Please refer section “Community Engagement – Outreach on pages 112 to 119.
GRI 203: Indirect Economic Impacts
Partnerships for goals
Interruption to critical services could disrupt smooth execution of the Bank’s operations. Unorthodox competition, financial disintermediation and failure to collaborate may threaten the conventional business model. Increasing awareness and tendency towards renewable energy and greening of buildings and processes bring about green financing opportunities. Initiatives in countering impacts of carbon emission. Adopting a collaborative approach to co-create and offer products and services. The Bank’s continued it efforts
on building win-win partnerships and constantly seek for avenues
to leverage evolving new technologies for the development
of our own products, services,
and delivery, described more in section on “Leading through Innovation” on pages 91 to 95.
GRI 206:
Anti-competitive Behaviour