Annual Report of the Board of Directors on the Affairs of the Bank
General
The Directors have pleasure in presenting to the shareholders the Annual Report of the SANASA Development Bank PLC together with the Audited Financial Statements for the year ended 31 December 2019 and the Auditors’ Report on those Financial Statements conforming to all relevant statutory requirements. This Report provides the information as required by the Companies Act No. 07 of 2007, Banking Act No. 30 of 1988 and amendments thereto and the Directions issued thereunder including the Banking Act Direction No. 12 of 2007 on “Corporate Governance for Licensed Specialised Banks in Sri Lanka” and subsequent amendments thereto, the Listing Rules of the Colombo Stock Exchange (the CSE) and the recommended best practices.
The Financial Statements of the Bank for the year ended 31 December 2019, including the comparatives for 2018 were approved and authorised for issue by the Board of Directors on 26 February 2019 in accordance with the Resolution of the Directors. The appropriate number of copies of the Annual Report will be submitted to the CSE and to the Sri Lanka Accounting and Auditing Standards Monitoring Board within the statutory deadlines.
SANASA Development Bank PLC (“The Bank”) is a licensed specialised bank registered under the Banking Act No. 30 of 1988 and was incorporated as a public limited liability company in Sri Lanka on
6 August 1997 under the Companies Act No. 17 of 1982. The Bank was reregistered as per the requirements of the Companies Act No. 07 of 2007 (“Companies Act”) on 30 October 2007. The reregistration number of the Bank is PB 62 PQ. The Registered Office as well as the Head Office of the Bank is at No. 12, Edmonton Road, Kirulapone, Colombo 6, Sri Lanka.
The ordinary voting shares of the Bank are listed on the Main Board of the Colombo Stock Exchange since May 2012. The Senior, Rated Guaranteed Debentures issued by the Bank are also listed on the CSE. The Bank has been assigned a National Long-term Rating of BB+(lka) with a stable outlook by Fitch Ratings Lanka Ltd., and the (SL)BBB- with stable outlook by ICRA Lanka Limited.
Vision, mission, goals, values and corporate conduct
The Bank’s Vision and Mission statements are exhibited on page 8 of the Annual Report.
The business activities of the Bank are conducted in keeping with the highest level of ethical standards in achieving its Vision and Mission.
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 Bank’s Code of Conduct.
Principal business activities
The principal activities of the Bank include accepting deposits at competitive rates of interest and the investment of these deposits in community-based lending programmes, with special focus on Co-operative Societies, their members and other micro enterprises, issuing of local and international debit cards. The Bank’s range of products includes Special Deposits, Credit, Pawning, Leasing and Re-finance Loan Schemes.
At the end of 2019 the Bank has established 94 delivery points (2018 – 94 at the end of 2018) across all districts of the country.
Review of operations
The “Chairperson’s Message” on pages 12 and 13, the “Chief Executive Officer’s Review” on pages 14 to 16, and the “Banking on value creation” on pages 41 to 70, together with the Audited Financial Statements provide an overall review of business performance and the state of affairs of the Bank together with important events that took place during the year as required by the Section 168 of the Companies Act No. 07 of 2007 and the recommended best accounting practices.
Future developments
The Bank intends expanding its network of delivery channels by employing client-focused strategy with effective management of capital, liquidity and risks. Please refer sections on “Chairperson’s Message” on pages 12 and 13, “Chief Executive Officer’s Review” on pages 14 to 16 and “Banking on value creation” on pages 41 to 70 for initiatives taken in this regard.
Financial Statements
The Financial Statements of the Bank have been prepared in accordance with Sri Lanka Accounting Standards (SLFRSs/LKASs) laid down by The Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and they comply with the requirements of Companies Act No. 07 of 2007 and Banking Act No. 30 of 1988. The Financial Statements of the Bank for the year ended 31 December 2019 duly signed by the Chief Financial Officer and Chief Executive Officer, two Directors of the Bank and the Company Secretary are given on pages 133 to 190, which form an integral part of the Annual Report of the Board of Directors.
Director’s responsibility for financial reporting
The Directors are responsible for the preparation of the Financial Statements of the Bank, which reflect a true and fair view of the financial position and performance of the Bank. The Directors are of the view that the Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows, Significant Accounting Policies and Notes thereto appearing on pages 133 to 190 have been prepared in conformity with the requirements of the SLFRSs and LKASs as mandated by the Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995 and the Companies Act No. 07 of 2007. Further, these Financial Statements also comply with the requirements of the Banking Act No. 30 of 1988 and amendments thereto and the Listing Rules of the Colombo Stock Exchange. The “Statement of Directors’ Responsibility” appearing on page 132 forms an integral part of this Report.
Auditors’ report
The External Auditors’ of the Bank are Messrs Ernst and Young, Chartered Accountants. Messrs Ernst & Young, Chartered Accountants carried out the Audit on the Financial Statements of the Bank for the year ended 31 December 2019 and their report on these Financial Statements, as required by the Section 168 (1) (c) of the Companies Act is given on pages 133-135 of this Annual Report. The Auditors’ remuneration details are stated in Note 10 to the Financial Statements on page 155.
As per the knowledge of the Directors the Auditors are independent and do not have any relationships or any interest in contracts with the Bank.
Significant accounting policies
The Significant Accounting Policies adopted in the preparation of the Financial Statements are given on pages 140 to 152 and comply with Section 168 (1) (d) of the Companies Act No. 07 of 2007.
Going concern
The Directors have made an assessment of the Bank’s ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Bank’s ability to continue as a going concern, such as restrictions or plans to curtail operations.
Financial results and appropriations
Gross income
The gross income of the Bank for 2019 was LKR 15.24 Bn. (2018: LKR 13.64 Bn.). An analysis of the gross income is given in Note 3, 4, 5 and 6 to the Financial Statements on pages 153 and 154.
Profits and appropriations
The net profit before tax of the Bank amounted to LKR 585 Mn. in 2019 (2018: LKR 644 Mn.) and this has reduced by 9% when compared to 2018. Further, the net profit after tax of the Bank amounted to LKR 253 Mn. in 2019 (2018: LKR 357 Mn.) and this was a decrease of 29% when compared to 2018. A detailed breakup of profits and appropriations of the Bank is given below:
| Description | 2019
|
2018 LKR |
| Profit for the year | ||
| Profit for the year ended 31 December after payment of all operating expenses and provision for depreciation and contingencies | 585,827,440 | 644,142,473 |
| Less: Taxation | (332,422,344) | (287,192,354) |
| Net profit after tax | 253,405,096 | 356,950,119 |
| Other Comprehensive Income (OCI) | ||
| Actuarial gain/(losses) on defined benefit plans | (41,587,781) | (45,995,306) |
| Gains/(losses) on remeasuring available-for-sale financial assets | (3,209,534) | (3,388,111) |
| Deferred tax relating to other comprehensive income | 11,644,579 | 12,878,686 |
| Total comprehensive income for the year | 220,252,360 | 320,445,388 |
| Unappropriated profit brought forward from previous year | 1,264,920,177 | 1,328,049,884 |
| Balance available before adjustment | 1,485,172,537 | 1,648,495,272 |
| Impact of adoption of SLFRS 9 as at 1 January 2018 | – | (37,054,387) |
| Appropriations | ||
| Transfer to statutory reserve fund | (12,670,255) | (17,847,506) |
| Dividend | ||
| Final cash dividend – 2017 (LKR 2.50 per share) | – | (136,947,168) |
| Final scrip dividend – 2017 (LKR 3.50 per share) | – | (191,726,035) |
| Unappropriated balance carried forward as at 31 December | 1,472,502,282 | 1,264,920,177 |
Taxation
The income tax rate applicable on the Bank’s domestic operations is 28% (2018: 28%). Details of tax payments are given in Note 11 to the Financial Statements on pages 155 and 156.
The Bank has also provided deferred taxation on all known temporary differences under the liability method, as permitted by the Sri Lanka Accounting Standard – LKAS 12 “Income Taxes”. Details of deferred tax provisions made are given in Note 11.2 to the Financial Statements on page 156.
The Bank is liable for VAT on financial services at 15% in 2019 (2018: 15%) and NBT on financial services up to 30 November 2019 at 2% (2018 – 2%).
With effect from 1 October 2018 the Bank is liable for the Debt Repayment Levy (DRL) at 7% (2018: 7%) and from 1 April 2013, the Bank is liable for Crop Insurance Levy at 1% which is payable to the National Insurance Trust Fund Board.
Statutory payments
The Directors, to the best of their knowledge and belief are satisfied that all statutory payments (including all taxes, duties and levies payable by the Bank) due to the Government, other regulatory institutions and related to the employees have been made on time or where relevant provided for.
Reserves
A summary of the Bank’s reserves position is as given below:
| As at 31 December | 2019
|
2018 LKR |
| Statutory reserve fund | 228,281,724 | 215,611,469 |
| Other reserves | 27,605,349 | 30,814,883 |
| Retained profits | 1,491,553,906 | 1,280,762,267 |
Information on the movement of reserves is given in the Statement of Changes in Equity on page 138 and in Notes 31, 32 and 33 to the Financial Statements on pages 171 and 172.
Capital expenditure
The total capital expenditure on acquisition of property, plant and equipment of the Bank amounted to LKR 171,644,938 (2018: LKR 216,934,546). Details are given in Note 19 to the Financial Statements.
Capital commitments
The contracted and approved capital expenditure as at the date of the reporting is given in Note 19 to the Financial Statements.
Property, plant and equipment, intangible assets and leasehold property
Information on property, plant and equipment and leasehold property of the Bank are given in Note 19 to the Financial Statements on pages 162 and 163. Particulars of intangible assets are given in Note 22 to the Financial Statements on page 165.
Investment properties of the Bank are disclosed in accordance with Sri Lanka Accounting Standard – 40 “Investment Property”. Specific information on extent, location of the land and buildings held by the Bank are given under Note 21 to the Financial Statements on page 164.
Stated capital
The stated capital of the Bank as at 31 December 2019 amounted to LKR 5,921,538,126 consisting of 56,308,252 ordinary voting shares (2018: LKR 5,921,538,126 consisting of 56,308,252 ordinary voting shares).
Debt capital
The Bank has issued Rated Guaranteed Redeemable Debentures of LKR 100 each in 2015 which are guaranteed by Sampath Bank PLC and Seylan Bank PLC to the total outstanding value of LKR 1,014,034,248 as at 31 December 2019 (2018: LKR 4,198,547,716), which are listed on the Colombo Stock Exchange. The details of the debentures outstanding as at 31 December 2019 are given in Note 26 to the Financial Statements.
Share information
Information in relation to earnings, net assets, dividends and market value per share etc., is given on page 65. Information on the trading of shares and movement in the number of shares represented by the stated capital is given in the section on “The Confidence of Investors” on pages 58 to 66 to this Report.
Details on shareholding distribution, share ownership composition and substantial shareholding are as follows:
Distribution schedule of shareholdings
| Shareholder | As at 31 December 2018 | |||
| Number
shareholders |
Number
shares |
Number of shareholders |
Number of shares |
|
| Individual | 33,901 | 9,735,164 | 34,060 | 16,516,455 |
| Institution | ||||
| Foreign | 4 | 12,308,428 | 4 | 12,289,797 |
| Local and other institutions | 46 | 18,681,731 | 50 | 11,847,519 |
| SANASA Federation Acc 1 | 720,024 | 1 | 720,024 | |
| Acc 2 | 28,439 | 28,439 | ||
| SANASA societies | 3,394 | 8,176,835 | 3,372 | 7,047,079 |
| SANASA unions | 34 | 1,241,252 | 35 | 1,242,645 |
| MPCCS | 21 | 156,595 | 21 | 156,595 |
| Trust companies | 105 | 5,259,784 | 105 | 6,459,699 |
| Total | 37,506 | 56,308,252 | 37,648 | 56,308,252 |
Composition of share ownership
| 31 December 2018 | ||||||||||
| Number of
shareholders |
% |
Number of
|
% |
Number of shareholders |
% |
Number of shares |
% |
|||
| 1 | – | 1,000 | 35,813 | 95.49 | 4,358,723 | 7.74 | 36,003 | 95.63 | 4,404,185 | 7.82 |
| 1,001 | – | 10,000 | 1,312 | 3.49 | 3,684,299 | 6.54 | 1,286 | 3.42 | 3,556,285 | 6.32 |
| 10,001 | – | 100,000 | 341 | 0.91 | 10,200,329 | 18.12 | 313 | 0.83 | 9,447,858 | 16.78 |
| 100,001 | – | 1,000,000 | 32 | 0.09 | 7,634,895 | 13.56 | 38 | 0.10 | 8,607,818 | 15.29 |
| 1,000,001 | – | and above | 8 | 0.02 | 30,430,006 | 54.04 | 8 | 0.02 | 30,292,106 | 53.79 |
| 37,506 | 100 | 56,308,252 | 100 | 37,648 | 100 | 56,308,252 | 100 | |||
Substantial shareholdings
Names of the twenty largest shareholders, with their respective shareholdings and percentage holdings as at 31 December 2019 with their Comparative Shareholding as at 31 December 2018 are as follows:
| No. | Shareholder name | 31 December 2018 | |||
| Number of shares | % | Number of shares | % | ||
| 01. | Ayenka Holdings (Pvt) Ltd. | 7,028,043 | 12.48 | 6,779,840 | 12.04 |
| 02. | Seylan Bank PLC/Senthilverl Holdings (Pvt) Ltd.* | 6,952,168 | 12.34 | 6,936,510 | 12.32 |
| 03. | SBI Emerging Asia Financial Sector Fund PTE LTD | 5,045,636 | 8.96 | 5,045,636 | 8.96 |
| 04. | CB NY S/A International Finance Corporation | 4,991,644 | 8.86 | 4,991,644 | 8.86 |
| 05. | Nederlandse Financierings Maatschappij Voor Ontwikkelingslanden N.V | 2,242,504 | 3.98 | 2,242,504 | 3.98 |
| 06. | People’s Leasing & Finance PLC | 2,094,012 | 3.72 | 2,094,012 | 3.72 |
| 07. | Kegalle SANASA Shareholders Trust Company Limited | 1,039,330 | 1.85 | 1,039,330 | 1.85 |
| 08. | SANASA General Insurance Company Limited | 1,036,669 | 1.84 | 1,162,630 | 2.06 |
| 09. | SANASA Life Insurance Company Ltd. (Life) | 910,708 | 1.62 | 910,708 | 1.62 |
| 10. | Sampath Bank PLC/Dr T Senthilverl | 871,885 | 1.55 | 871,885 | 1.55 |
| 11. | Sanasa Federation Ltd. | 720,024 | 1.28 | 720,024 | 1.28 |
| 12. | Polgahawela Sanasa Societies Union Ltd. | 387,314 | 0.69 | 387,314 | 0.69 |
| 13. | Hambanthota DTCCS Union Ltd. | 384,257 | 0.68 | 384,257 | 0.68 |
| 14. | Dr T Senthilverl | 373,598 | 0.66 | 373,598 | 0.66 |
| 15. | Mr D P Pieris | 257,067 | 0.46 | 257,067 | 0.46 |
| 16. | Kotikawatta Thrift and Credit Co-operative Society Limited | 253,896 | 0.45 | – | – |
| 17. | Polgahawela SANASA Shareholders Trust Company Ltd. | 240,836 | 0.43 | 238,667 | 0.42 |
| 18. | Sampath Bank PLC /Mr Arunasalam Sithampalam | 224,333 | 0.40 | 224,333 | 0.40 |
| 19. | Dr S Yaddehige | 205,653 | 0.37 | 205,653 | 0.37 |
| 20. | Kamburupitiya City SANASA Society Ltd. | 181,209 | 0.32 | 181,209 | 0.32 |
* Shares held by Seylan Bank PLC/Dr Thirugnanasambandar Senthilverl has been transferred to the Seylan Bank PLC/Senthilverl Holdings (Pvt) Ltd. on 17 June 2019.
Equitable treatment to shareholders
The Bank has at all times ensured that all shareholders are treated equitably.
Information on the Directors of the Bank
The Board of Directors of the Bank consists of Nine (2018: Nine) Directors with wide financial and commercial knowledge and experience. The names of the Directors of the Bank as at 31 December 2019 are given below as per Section 168 (1) (h) of the Companies Act. Their brief profiles appear on pages 18 to 21 of the Annual Report.
The classification of Directors into Executive Director (ED), Non-Executive Director (NED) and Independent Director (ID), Non-Independent Director (NID) is given against the names as per Listing Rules and Corporate Governance Rules of Colombo Stock Exchange and Banking Act Direction No. 12 of 2007 issued by the Central Bank of Sri Lanka.
| Name of the Director | Executive/ Non-Executive Status |
Independent/ Non-Independent Status |
|
| 1. | Ms Samadanie Kiriwandeniya | Non-Executive | Non-Independent |
| 2. | Mr Lakshman Abeysekera | Non-Executive | Independent |
| 3. | Prof Sampath Amaratunge | Non-Executive | Independent |
| 4. | Mr Prabhash Subasinghe | Non-Executive | Non-Independent |
| 5. | Mr K G Wijerathne | Non-Executive | Non-Independent |
| 6. | Mr Lionel Thilakarathne | Non-Executive | Non-Independent |
| 7. | Mr Chaaminda Kumarasiri | Non-Executive | Independent |
| 8. | Mr Prasanna Premaratna | Non-Executive | Independent |
| 9. | Mr B R A Bandara | Non-Executive | Non-Independent |
| New appointments made during 2019 | |||
| 1. | Mr B R A Bandara (Appointed w.e.f. 27 March 2019) | Non-Executive | Non-Independent |
| Resignations/Retirements during 2019 | |||
| 1. | Mr A P J de Vette (Resigned w.e.f. 18 December 2019) | Non-Executive | Non-Independent |
With the resignation of the Director Mr A P J de Vette who represented SBI-FMO, Ms Dinithi Ratnayake was appointed as a Director of SDB bank w.e.f. 17 February 2020 who possesses more than 24 years’ experience in banking with in-depth knowledge in finance institutions, advisory and transactional banking including strong credit background, and exposure to debt capital markets and international Risk and Compliance practices.
Retirement by rotation and Re-election/Re-appointment of Directors
- In terms of Article 6 (4) of the Articles of Association, one-third of the aggregate of Non-Executive Directors shall retire by rotation at each Annual General Meeting. Article 6 (4) 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 election or appointment.
- The Board recommended the re-election of the following Directors, after considering the contents of the Affidavits and Declarations submitted by them and all other related issues: (a) Mr K G Wijerathne (b) Mr B R A Bandara
- Directors who served on the Board for over nine years. In terms of the Banking Act Direction No. 12 of 2007 (Corporate Governance for Licensed Specialised Banks in Sri Lanka), the total period of service of a Director (other than a Director who holds the position of Chief Executive Officer) shall not exceed nine years. Ms M S Kiriwandeniya who was elected to Board on 24 May 2011 will complete nine years on 23 May 2020 and shall retire on above date.
Board subcommittees
The Board of Directors of the Bank formed four mandatory Board subcommittees namely, The Board Selection and Nomination Committee, The Board Human Resources and Remuneration Committee, The Board Integrated Risk Management Committee and The Board Audit Committee as required by the Banking Act Direction No. 12 of 2007 on “Corporate Governance for Licensed Specialised Banks in Sri Lanka” issued by the CBSL.
The Board formed a Related Party Transactions Review Committee in 2014 to assist the Board in reviewing all related party transactions carried out by the Bank by early adopting the Code of Best Practice on Related Party Transactions as issued by the Securities and Exchange Commission of Sri Lanka (the SEC) which became mandatory from 1 January 2016.
The Board of Directors also has formed three other voluntary Board subcommittees to assist the Board. These committees play a critical role in order to ensure that the activities of the Bank at all times are conducted with the highest ethical standards and in the best interest of all its stakeholders. The Terms of Reference of these subcommittees confirm to the recommendations made by various regulatory bodies, such as the Central Bank of Sri Lanka, The Institute of Chartered Accountants of Sri Lanka, the Securities and Exchange Commission, and the Colombo Stock Exchange.
The composition of both mandatory and voluntary Board subcommittees, as at 31 December 2019 and the details of the attendance by Directors at meetings are tabulated on page 125 while the reports of these subcommittees are found on pages 107 to 115 in this Report.
Board subcommittees and its composition
| Committee | Mandate | Composition |
| Board Integrated Risk Management Committee | Quarterly | Prof S Amaratunge (Chairman – BIRMC) Mr C Kumarasiri Mr P Subasinghe Mr B R A Bandara |
| Board Audit Committee | Monthly | Mr L Abeysekera (Chairman – BAC/Senior Director) Prof S Amaratunge Mr K G Wijerathne Mr C Kumarasiri |
| Board Human Resources and Remuneration Committee | At least 6 times annually | Mr C Kumarasiri (Chairman – BHRRC) Ms S Kiriwandeniya (Chairperson) Mr L Abeysekera (Senior Director) |
| Board Selection and Nomination Committee | If and when it is required | Mr L Abeysekera (Chairman – BS and NC/Senior Director) Ms S Kiriwandeniya (Chairperson) Prof S Amaratunge |
| Board Related Party Transactions Review Committee | Quarterly | Mr C Kumarasiri (Chairman – BRPTRC) Prof S Amaratunge Mr P Premaratna |
| Board ICT and Business Strategic Committee | Quarterly | Ms S Kiriwandeniya
(Chairman – BICT and BSC/Chairperson) Mr L Abeysekera (Senior Director) Prof S Amaratunge Mr P Subasinghe |
| Board Credit Committee | at least 10 times annually | Mr P Premaratna (Chairman – BCC) Ms S Kiriwandeniya (Chairperson) Mr S L Thilakarathne |
| Board Co-operative Development Committee | Quarterly | Mr K G Wijerathne (Chairman – BCDC) Mr L Abeysekera (Senior Director) Mr S L Thilakarathne Mr B R A Bandara |
Director, Mr A P J de Vette who served as a member of Board Credit Committee and Board ICT and Business Strategic Committee resigned on 18 December 2019.
Director’s meetings
Details of the meetings of the Board of Directors which comprises with Board Meetings, Board Audit Committee Meetings, Board Selection and Nomination Committee Meetings, Board Human Resources and Remuneration Committee Meetings, Board Credit Committee Meetings, Board Integrated Risk Management Committee Meetings, Board ICT and Business Strategic Committee Meetings, Board Related Party Transactions Review Committee Meetings and Board Co-operative Development Committee Meetings and the attendance of Directors at these meetings are given below:
| Name | Board Meeting |
Board Credit Committee (BCC) |
Board Audit Committee (BAC) |
Board Human Resources and Remuneration Committee (BHRRC) |
Board Integrated Risk Management Committee (BIRMC) |
Board Selection and Nomination Committee (BS and NC) |
Board ICT and Business Strategic Committee (BICT and BSC) |
Board Related Party transactions Review Committee (BRPTRC) |
Board Co-operative Development Committee (BCDC) |
Total |
| Ms S Kiriwandeniya | 13/13 | 9/11 | 18/18 | 7/7 | 3/4 | 50/53 | ||||
| Mr L Abeysekera | 13/13 | 20/20 | 18/18 | 7/7 | 4/4 | 5/5 | 67/67 | |||
| Prof S Amaratunge | 10/13 | 17/20 | 5/5 | 7/7 | 3/4 | 3/4 | 45/53 | |||
| Mr P Subasinghe | 11/13 | 4/5 | 3/4 | 18/22 | ||||||
| Mr L Thilakarathne | 13/13 | 9/11 | *1/4 | 5/5 | 28/33 | |||||
| Mr A P J De Vette | 9/13 | 7/11 | * 1/4 | 17/28 | ||||||
| Mr K G Wijerathne | 12/13 | 15/20 | – | 5/5 | 32/38 | |||||
| Mr C Kumarasiri | 13/13 | 20/20 | 18/18 | 5/5 | *3/7 | *2/4 | 4/4 | 65/71 | ||
| Mr P Premaratna | 13/13 | 11/11 | *2/4 | 4/4 | 30/32 | |||||
| Mr B R A Bandara | 10/13 | 2/5 | *1/4 | 2/5 | 15/27 |
* Directors’ attendance for the subcommittee meetings by Invitation.
Mr B R A Bandara
Appointed to the Board w.e.f. – 27 March 2019
Appointed to the BIRMC w.e.f. – 26 June 2019
Appointed to the BCDC w.e.f. – 26 June 2019
Mr A P J De Vette
Resigned from the Board, BCC and BICT and BSC w.e.f. – 18 December 2019
Disclosure of Directors’ dealing in shares
Individual ordinary voting shareholdings of persons who were Directors of the Bank at any time during the financial year are as follows:
Number of shares
| Name of the Director | As at 31 December 2019 |
As at 31 December 2018 |
| Ms S Kiriwandeniya | 5,785 | 5,785 |
| Mr L Abeysekera | – | – |
| Prof S Amaratunge | – | – |
| Mr P Subasinghe | 69,341 | 69,341 |
| Mr L Thilakarathne | – | – |
| Mr A P J de Vette | – | – |
| Mr K G Wijerathne | 117 | 117 |
| Mr C Kumarasiri | – | – |
| Mr P Premaratna | – | – |
| Mr B R A Bandara | 3,791 | – |
Directors’ shareholding percentage
| As at 31 December 2019
|
As at 31 December 2018 % |
|
| Directors | 0.14 | 0.13 |
| Public | 99.64 | 99.86 |
| CEO and related parties | 0.22 | 0.01 |
Directors’ statement of internal control – Bank
The Bank maintains Directors’ Interests Register as required under the provisions of Section 168 (1) (e) of the Companies Act No. 07 of 2007. The Directors of the Bank have disclosed their interests in contracts or proposed contracts, in terms of Section 192 (1) and 192 (2) of the Companies Act. These interests have been recorded in the interests’ register which is available for inspection in terms of the provisions of the Companies Act. 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.
Directors’ remuneration
As required under the Section 168 (1) (f) of the Companies Act No. 07 of 2007, Directors’ remuneration and other benefits in respect of the Bank for the financial year ended 31 December 2019 are given in Note 10 to the Financial Statements on page 155.
Related party transactions
Directors have disclosed transactions if any, that could be classified as Related Party Transactions in terms of Sri Lanka Accounting Standards – LKAS 24 “Related Party Disclosures” which is adopted in preparation of the Financial Statements. Those transactions are given in Note 36 to the Financial Statements which form an integral part of the Annual Report of the Board of Directors.
Bank has also complied with the requirement of the Code of Best Practice 2017 issued by The Institute of Chartered Accountants of Sri Lanka, Listing Rules of Colombo Stock Exchange (CSE) and with all disclosure requirements stipulated thereunder.
Directors’ and insurance
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 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.
Environmental protection
To the best of knowledge of the Board, the Bank has complied with the relevant environmental laws and regulations. The Bank has not engaged in any activity that is harmful or hazardous to the environment.
Events after the reporting period
No event of material significance that require adjustments to the Financial Statements, has occurred subsequent to the reporting period, other than those disclosed in Note 35 to the Financial Statements on page 173.
Appointment of Auditors and their remuneration
The Bank’s Auditors during the period under review were Messrs Ernst & Young, Chartered Accountants. Audit fees and reimbursement of expenses paid to Ernst & Young during the year under review by the Bank amounted to LKR 2,650,752 (2018: LKR 2,876,530). Further LKR 820,000 (2018: LKR 708,410) were paid by the Bank for audit-related and non-audit services including reimbursement of expenses. Details of the audit fees paid are given on Note 10 to the Financial Statements on page 155.
Based on the declaration provided by Messrs Ernst & Young, and as far as the Directors are aware, the Auditors do not have any relationship or interest with the Bank that in our 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 The Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka), applicable on the date of this Report.
The retiring Auditors, Messrs Ernst & Young, have expressed their willingness to continue in office. Hence they may come up for re-election at the Annual General Meeting, with the recommendation of Board Audit Committee and the Board of Directors. In accordance with the Companies Act, a resolution proposing the re-appointment of Messrs Ernst & Young, Chartered Accountants, as Auditors is being proposed at the Annual General Meeting.
Information on ratios, market prices of shares and credit ratings
Information that requires disclosures as per Rule 7.6 (xi) of the Listing Rule of the CSE are given in the Section on “The Confidence of Investors” on pages 58 to 66.
Risk management and internal control
The Bank has an ongoing process in place to identify, evaluate and manage the risks that are faced by the Bank. The Directors continuously review this process through the Board Integrated Risk Management Committee. Specific steps taken by the Bank in managing both banking and non-banking risks are detailed in the Section on “Managing Risks” on pages 72 to 75 and in Note 42 to the Financial Statements on
pages 180 to 189.
The Directors have taken reasonable steps open to them to safeguard the assets of the Bank and to prevent and detect frauds and any other irregularities. For this purpose the Directors have instituted effective and comprehensive systems of Internal controls for identifying, recording, evaluating and managing the significant risks faced by the Bank throughout the year and it is being under regular review of the Board of Directors. This comprises internal reviews, Internal Audit and the whole system of financial and other controls required to carry on the operations in an orderly manner, safeguard the assets, prevent and detect the frauds and other irregularities and secure as far as practicable the accuracy and reliability of the records.
Board of Directors on the Affairs of the Company
The Board has issued a report on the internal control mechanism of the Bank as per Section 3 (8) (ii) (b) of Banking Act Direction No. 12 of 2007 on Corporate Governance. The Board has confirmed that the financial reporting system has been designed to provide reasonable assurance regarding the reliability of the financial reporting, and that the preparation of Financial Statements for external purposes has been done in accordance with relevant accounting principles and regulatory requirements. The above report, which forms an integral part of the Annual Report of the Board of Directors, is given on pages 128 and 129.
The Board has obtained an assurance report from the External Auditors on Directors’ Statement on Internal Control which is given on page 130 of the Annual Report.
Outstanding litigations
In the opinion of the Directors and the Bank’s Lawyers, pending litigation against the Bank disclosed in Note 34.2 of the Financial Statements given on pages 172 and 173 will not have a material impact on the financial position of the Bank or its future operations.
Corporate Governance
Directors’ declarations:
- the Bank complied with all applicable laws and regulations in conducting its business and have not engaged in any activity contravening the relevant laws and regulations. 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;
- the Directors have declared all material interests in contracts involving the Bank and refrained from voting on matters in which they were materially interested;
- all endeavours have been made to ensure that shareholders in each category have been treated equitably in accordance with the original Terms of Issue;
- 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 are prepared based on the going concern assumption; and
- 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. The measures taken and the extent to which the Bank has complied with the Code of Best Practice on Corporate Governance issued by the CA Sri Lanka and the SEC, the CSE and the CBSL are given on pages 82 to 106.
Annual General Meeting and the Notice of Meeting
The 23rd Annual General Meeting of the Bank will be held at “Lavender Hall” Bandaranaike Memorial International Conference Hall, Bauddhaloka Mawatha, Colombo 7 at 9.00am on 15 July 2020.
Acknowledgement of the contents of the Report
As required by Section 168 (1) (k) of the Companies Act No. 07 of 2007, the Board of Directors hereby acknowledges the contents of this Annual Report.
For and on behalf of the Board of Directors,
Samadanie Kiriwandeniya
Chairperson
Lakshman Abeysekera
Senior Director
Tamarika Rodrigo
Company Secretary
26 February 2020
Colombo, Sri Lanka