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- INTEGRATED REPORT
- Organisational overview
- Performance review
- Operating environment
- Business model for sustainable value creation
- Management discussion and analysis
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Governance and risk management
As permitted by the International <IR> Framework, this Annual Report constitutes a distinct and prominent section on Integrated Report, followed by Financial Statements and other supplementary information. The Integrated Report adheres to the guiding principles and content elements outlined in the Framework. As affirmed in the Annual Report of the Board of Directors, due diligence has been exercised in preparing and presenting this Integrated Report to uphold its integrity.
- FINANCIAL STATEMENTS
The Financial Statements, including the Accounting Policies and accompanying notes, adhere to all relevant Accounting Standards and are devoid of significant misstatements. As affirmed in the Auditors’ Report, these Financial Statements provide a true and fair view of the Bank’s performance, financial position, changes in equity and cash flows. The Auditors have expressed an unmodified opinion on these Financial Statements, as stated in their “Independent Auditors’ Report” to the shareholders.
- SUPPLEMENTARY INFORMATION
- Annex 1: Compliance with Governance Directions, Rules and Codes
- Annex 2: Basel III – Disclosures under Pillar III as per the Banking Act Direction No. 01 of 2016
- Annex 3: GRI content index
- Annex 4: Our sustainability footprint
- Annex 5: Disclosures relating to Sustainability Accounting Standard for Commercial Banks
- Annex 6: Independent Assurance Reports
- Annex 7: The Bank’s organisation structure
- Annex 8: Financial Statements (US Dollars)
- Annex 9: Correspondent banks and agent network
- Annex 10: Glossary of financial and banking terms
- Annex 11: Acronyms and abbreviations
- Annex 12: Alphabetical index
- Annex 13: Index of figures, tables and graphs
- Notice of Meeting – Annual General Meeting
- Circular to the Shareholders on the First and Final Dividend for 2023
- Notice of Meeting – Extraordinary General Meeting
- Circular to Shareholders Pertaining to the Proposed Issue of Debentures
- Corporate Information
SUPPLEMENTARY INFORMATION
Annex 1:
Compliance with Governance Directions, Rules and Codes
Annex 1.1: Compliance with Banking Act Direction
The Banking Act Direction No. 11 of 2007 and subsequent amendments thereto on Corporate Governance for Licensed Commercial Banks in Sri Lanka issued by the Central Bank of Sri Lanka (the Direction)
Section | Principle, compliance, and implementation | Complied | ||||||||||||||||||||||||||||||||
3 (1) | Responsibilities of the Board | |||||||||||||||||||||||||||||||||
3 (1) (i) | The Board has strengthened the security and the soundness of the Bank in the following manner: | |||||||||||||||||||||||||||||||||
a. | Setting strategic objectives and corporate values The Bank’s strategic objectives and corporate values are determined by the Board as set out on pages 54 to 96 and Pages 177 to 194. These are communicated to all levels of employees through structured meetings and reinforced monthly at team meetings which review performance vis-à-vis strategic goals. The corporate values are included in the Code of Conduct and Business Ethics which is communicated to all employees via hard copy and Bank’s intranet, through orientation programmes and reinforced at meetings. | |||||||||||||||||||||||||||||||||
b. | Approving overall business strategy including risk policy and management The Board provided direction and guidance for preparation of the five year Corporate Strategic Plan from 2024-2028 which was approved by the Board after discussing related issues in detail with the Corporate Management. It is aligned to the overall Risk Strategy of the Bank through involvement of the Independent Risk Management Committee. The risk appetite of the Bank is embedded throughout the corporate plan in allocation of capital, adoption of risk matrix to measure the risk levels and in defining key performance indicators which include both quantitative and qualitative criteria. Additionally, governance and compliance are embedded into the Bank’s Risk Management Policy Framework and included in the strategic goals. The Bank’s Strategic Plan for 2024-2028 was approved on December 20, 2023 by the Board at a special Board meeting with the presence of all the members of Corporate Management. | |||||||||||||||||||||||||||||||||
c. | Risk management The BIRMC is tasked with approving the Bank’s Risk Policy, defining the risk appetite, identifying principal risks, setting governance structures and implementing systems to measure, monitor and manage the principal risks. “Risk Governance and Management” and the “Report of the BIRMC” provide further insights on risk management policies and processes of the Bank. | |||||||||||||||||||||||||||||||||
d. | Communication with all stakeholders The Board has approved and implemented the following communication policies with stakeholders: | |||||||||||||||||||||||||||||||||
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The Bank also provides information to equity analysts to facilitate high quality information in research reports which are made available to investors by stockbrokers.
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e. | Internal control system and management information systems The Board is assisted in this regard by the BAC who reviews the adequacy and the integrity of the Bank’s internal control system and management information system. The BAC has reviewed reports from the Internal Audit Department and the External Auditors in carrying out this function and also reviewed management responses on same, during the year. | |||||||||||||||||||||||||||||||||
f. | Key Management Personnel (KMP)
KMP are defined in the Sri Lanka Accounting Standard – LKAS 24 on “Related Party Disclosures”, as the persons who significantly influence policy, direct activities and exercise control over business activities, operations and risk management. All appointments of designated KMP are recommended by the BNGC and approved by the Board.
For financial reporting purposes, the Board of Directors of the Bank (including Executive and Non-Executive Directors) is considered as KMP of the Bank.
Further, for corporate governance reporting and monitoring purposes, the Bank has also included all members of the Corporate Management into the category of KMP. |
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g. | Define areas of authority and key responsibilities for Directors and KMP The Board Charter sets out the matters specifically reserved for Board, defining the areas of authority and key responsibilities of the Board of Directors. Areas of authority and key responsibilities for members of the Corporate Management are stated in the job descriptions of each member. | |||||||||||||||||||||||||||||||||
h. | Oversight of affairs of the Bank by KMP The Board reviews the performance of the Bank vis-à-vis the strategic plan and receives reports from its Committees on financial reporting, internal control, risk management, changes in KMP and other relevant matters delegated to the Committees. Additionally, KMP make regular presentations to the Board on matters under their purview and are also called in by the Board to explain matters relating to their areas. | |||||||||||||||||||||||||||||||||
i. | Assess effectiveness of own governance practices Completed Board evaluation forms were received from all Board members for 2023 for review and the responses were discussed at a BNGC meeting and at a subsequent Board meeting. Matters of concern noted are followed-up and improved upon during the year to continuously improve the governance practices of the Bank. | |||||||||||||||||||||||||||||||||
j. | Succession plan for KMP There is a formal succession plan in place with named successors for KMP together with development plans to ensure their readiness. | |||||||||||||||||||||||||||||||||
k. | Regular meetings with KMP Progress towards corporate objectives is a regular agenda item for the Board and members of the Corporate Management are regularly involved in the Board level discussions on the same. Additionally, they make key agenda items or are called in for discussions at the meetings of the Board and presentations on its Committees on policy and other matters relating to their areas on a regular basis. | |||||||||||||||||||||||||||||||||
l. | Regulatory environment and maintaining an effective relationship with regulator Directors are briefed about regulatory developments at Board meetings by the KMP to facilitate effective discharge of their responsibilities. Members of the BAC and the BIRMC are also briefed on regulatory developments at their meetings by the Heads of Internal Audit, Risk, and Compliance. Board members attend the Director Forums arranged by the CBSL as well. | |||||||||||||||||||||||||||||||||
m. | Hiring External Auditors The Bank as a practice follow a policy of rotation of auditors, once in every five years, in keeping with the principles of good corporate governance. At the end of the five-year period, quotations are called from suitable audit firms, prior to the recommendation of new auditors. In addition, External Auditors submit a statement annually confirming their independence as required by Section 163 (3) of the Companies Act No. 07 of 2007 (as amended) in connection with external audit. Messrs Ernst & Young completed six consecutive years of external audit with the audit of the Financial Statements for year ended December 31, 2023. Although the Bank used to rotate the external auditor every five years, Messrs Ernst & Young was retained as the external auditor of the Bank for an additional year, considering the fact that the CBSL deployed Messrs KPMG to conduct an Asset Quality Review on the Banking Sector in the country in year 2023. However, with the recommendation of the BAC Messrs KPMG will be proposed as the External Auditor of the Bank at the forthcoming AGM. | |||||||||||||||||||||||||||||||||
3 (1) (ii) | Appointment of Chairman and CEO and defining and approving their functions and responsibilities Positions of the Chairman and the Managing Director/Chief Executive Officer (CEO) are separated in the Board Charter to maintain a balance of power. Further, functions and responsibilities of the Chairman and the CEO are defined and approved in line with Section 3 (5) of the Direction as further explained on this section. | |||||||||||||||||||||||||||||||||
3 (1) (iii) | Regular Board meetings Board meetings are held each month on a regular basis and special meetings are scheduled as and when the need arises at which Directors present at the meeting and actively participate in deliberating matters set before the Board. Attendance at Board meetings is given on pages 182 and 183 together with the number of meetings of the Board. The Bank has minimised obtaining approval via circular resolutions and it is carried out only on an exceptional basis and such resolutions are ratified by the Board at the next meeting. | |||||||||||||||||||||||||||||||||
3 (1) (iv) | Arrangements for Directors to include proposals in the agenda Notice of Meeting is circulated two weeks prior to the meeting and Directors may submit proposals for inclusion in the agenda on discussion with the Chairman on matters relating to the business of the Bank. | |||||||||||||||||||||||||||||||||
3 (1) (v) | Notice of Meetings Notice of Meetings, together with the agenda and Board papers for the Board meetings are circulated to the Directors seven days prior to the meeting providing Directors adequate time to attend and submit any urgent proposals. | |||||||||||||||||||||||||||||||||
3 (1) (vi) | Directors’ attendance The Directors are apprised of their attendance in accordance with the Direction. Details of the Directors’ attendance are set out on page 183. No Director has been absent from three consecutive meetings. | |||||||||||||||||||||||||||||||||
3 (1) (vii) | Appointment and setting responsibilities of the Company Secretary The Board appoints and sets responsibilities of the Company Secretary in accordance with the Companies Act, Banking Act Directions, and the Articles of Association of the Bank under advisement of the BNGC. Refer “Role of Company Secretary” for further details. |
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3 (1) (viii) | Directors’ access to advice and services of the Company Secretary All Board members have full access, to the advice and services of the Company Secretary to ensure that proper Board procedures are followed and all applicable rules and regulations are complied with. |
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3 (1) (ix) | Maintenance of Board minutes Company Secretary maintains the minutes of the Board meetings and circulates same to all Board members after review by the CEO and the Chairman. The minutes are reviewed and approved at the next Board meeting after incorporating any amendments/inclusions proposed by other Directors. Additionally, the Directors have access to past Board papers and minutes through a secure electronic link. |
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3 (1) (x) | Maintaining minutes with sufficient details to serve as a reference for regulators and supervisory authorities
The minutes of the meetings include:
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3 (1) (xi) | Directors’ ability to seek independent professional advice Directors can obtain independent professional advice, as and when necessary, in discharging their responsibilities according to a procedure approved by the Board. This function is coordinated by the Company Secretary. |
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3 (1) (xii) | Dealing with conflicts of interest The Directors make declarations of their interests at appointment, annually and whenever there is a change in same. A quarterly report is sent to the Board on possible areas of conflict (if any). Directors withdraw from the meeting, abstain from participating in the discussions, voicing their opinion or approving in situations where there is a conflict of interest. Additionally, such Director’s presence is disregarded in counting the quorum in such instances. Key appointments of the Directors in other entities are indicated in their profiles appearing on pages 162 to 167 and “Directors’ Interest in Contracts with the Bank” as disclosed on pages 230 and 231. |
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3 (1) (xiii) | Formal schedule of matters reserved for Board decision The Board has put in place systems and controls to facilitate the effective discharge of Board functions. Pre set agenda of meetings ensures the direction and control of the Bank are firmly under Board’s control and authority in line with regulatory codes, guidelines and international best practice. |
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3 (1) (xiv) | Inform Central Bank on probable solvency issues The Bank is solvent and no situations have arisen to challenge its solvency. A Board approved procedure is in place to inform the Director of Bank Supervision prior to taking any decision or action if the Bank is about to become insolvent or about to suspend payments to its depositors and other creditors. |
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3 (1) (xv) | Capital adequacy The Board monitors capital adequacy and other prudential measures to ensure compliance with regulatory requirements, and the Bank’s defined risk appetite. The Bank is in compliance with the minimum capital adequacy requirements. Refer Annex: 2 Basel III – Disclosures under Pillar III as per Banking Act Direction No. 01 of 2016 |
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3 (1) (xvi) | Publish Corporate Governance Report in this Annual Report Corporate Governance Report of the Bank is set out on pages 177 to 194 of this Annual Report |
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3 (1)(xvii) | Self-assessment of Directors The Bank has adopted a system of self-assessment, to be undertaken by each Director, annually. Each member of the Board carried out a self-assessment of his/her own effectiveness as an individual as well as the effectiveness of the Board as a whole. Further, each Director carries out an assessment of “fitness and propriety” to serve as a Director. |
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3 (2) | Board Composition | |||||||||||||||||||||||||||||||||
3 (2) (i) | Number of Directors As per the Direction and Articles of Association of the Bank the number of Directors should not be less than seven and not more than thirteen. The Bank’s Board comprised of Twelve Directors as at December 31, 2023. |
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3 (2) (ii) | Period of service of a Director The period of service of a Director is limited to nine years excluding the Executive Directors as per the Direction issued to Licensed Commercial Banks. Details of their tenures of service are given on Annual Corporate Governance Report. |
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3 (2) (iii) | Board balance There are two Executive Directors and ten NEDs which is compliant with the requirement to limit the number of Executive Directors to one-third of the total. |
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3 (2) (iv) | Independent NEDs The Board has ten Independent Directors which is well above the regulatory requirement to have at least one third of the total number of Directors, to be INEDs to satisfy the criteria for determining independence. |
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3 (2) (v) | Alternate Directors appointed to represent an Independent Director There are no Alternate Directors on the Board of the Bank. |
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3 (2) (vi) | Criteria for Non-Executive Directors NEDs are persons with proven track records and necessary skills and experience to bring independent judgement to bear on issues of strategy, performance and resources. Directors nominate names of eminent professionals or academics from various disciplines to the BNGC who peruse the profiles and recommend suitable candidates to the Board. |
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3 (2) (vii) | More than half the quorum to comprise Non-Executive Directors This requirement is strictly observed and it is noteworthy that the majority of the Board are NEDs. |
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3 (2) (viii) | Identify Independent Non-Executive Directors in communications and disclose categories of Directors in this Annual Report The Independent NEDs are expressly identified as required in all corporate communications that disclose the names of Directors of the Bank. The composition of the Board, by category of Directors, including the names of Executive and Non-Executive Directors and Independent and Non-Independent Directors are given on page 183. |
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3 (2) (ix) | Formal and transparent procedure for appointments to the Board The Board has established a BNGC, Terms of Reference of which comply with the specimen given in the Code of Best Practice on Corporate Governance. The Board has also developed a succession plan together with the BNGC to ensure the orderly succession of appointments to the Board. |
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3 (2) (x) | Election of Directors filling casual vacancies All Directors appointed to the Board are subject to election by shareholders at the first AGM after their appointment. |
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3 (2) (xi) | Communication of reasons for removal or resignation of Director Resignations of Directors and the reasons are promptly informed to the regulatory authorities and shareholders together with a statement confirming any matters that need to be brought to the attention of shareholders. |
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3 (2) (xii) | Prohibition of Directors or employees of a Bank becoming a Director of another bank The Board and the BNGC take into account this requirement in their deliberations when considering appointments of Directors. None of the Directors are directors or employees of any other bank registered in Sri Lanka. Ms Lee, Director of the Bank, is also on the Board of Directors of DBS Group Holdings Ltd., Singapore and DBS Bank Ltd., Singapore. The CBSL has communicated that it has no objection to the said appointment. |
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3 (3) | Criteria to assess fitness and propriety of Directors | |||||||||||||||||||||||||||||||||
3 (3) (i) | Age of Director should not exceed 70 There are no Directors who are over 70 years of age. |
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3 (3) (ii) | Directors should not be Directors of more than 20 companies/entities/institutions inclusive of subsidiaries or associate companies of the Bank. No Director holds directorships in excess of 20 companies/entities/institutions inclusive of subsidiaries or the associates of the Bank. |
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3 (4) | Management functions delegated by the Board | |||||||||||||||||||||||||||||||||
3 (4)(i) | Directors shall carefully study and clearly understand the delegation arrangements. | |||||||||||||||||||||||||||||||||
3 (4) (ii) | Extent of delegation should not hinder the Board’s ability to discharge its functions | |||||||||||||||||||||||||||||||||
3 (4) (iii) | Review delegation arrangements periodically to ensure relevance to operations of the Bank The Board reviews and approves the delegation arrangements of the Bank annually and ensures that the extent of delegation addresses the business needs of the Bank whilst enabling the Board to discharge their functions effectively. Consequently, the Board takes time to study and understand the delegation arrangements as referred to in the Section 3 (4) (i) and (ii) above. |
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3 (5) | The Chairman and Chief Executive Officer | |||||||||||||||||||||||||||||||||
3 (5) (i) | Separation of roles There is a clear separation of duties between the roles of the Chairman and the CEO, thereby preventing unfettered powers for decision-making being vested with one person. |
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3 (5) (ii) | A Non-Executive Independent Director as the Chairman or if not independent, designation of an Independent Director as the Senior Director The Chairman is an Independent Non-Executive Director. |
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3 (5) (iii) | Disclosure of identity of Chairman and CEO and any relationships with the Board members The identity of the Chairman and the CEO are disclosed in the Annual Report on pages 162 and 163 on Board of Directors and Profiles. The Bank has set in place a mechanism to monitor this aspect and any development in relation to same is to be notified to the Board. The Board is aware that there are no relationships whatsoever, including financial, business, family, any other material/relevant relationship between the Chairman and the CEO during the year under review. Similarly, no relationships prevail among the other members of the Board. |
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3 (5) (iv) | Chairman to provide leadership to the Board Board approved list of functions and responsibilities of the Chairman includes, “Providing leadership to the Board” as a responsibility of the Chairman. The Board’s Annual Assessment Form includes an area to measure the “Effectiveness of the Chairman in facilitating the effective discharge of Board functions”. All key and appropriate issues are discussed by the Board on a timely basis. |
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3 (5) (v) | Responsibility for agenda lies with the Chairman but may be delegated to the Company Secretary The Company Secretary draws up the agenda for the meetings in consultation with the Chairman. |
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3 (5) (vi) | Ensure that Directors are properly briefed and provided adequate information The Chairman ensures that the Board is sufficiently briefed and informed regarding the matters arising at Board meetings. The following procedures ensure that:
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3 (5) (vii) | Encourage active participation by all Directors and lead in acting in the interests of the Bank This requirement is addressed in the list of functions and responsibilities of the Chairman approved by the Board. |
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3 (5) (viii) | Encourage participation of Non-Executive Directors and relationships between Non-Executive and Executive Directors Ten members of the Board are NEDs which creates a conducive environment for active participation by the NEDs. Additionally, NEDs chair the Committees of the Board providing further opportunity for active participation. |
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3 (5) (ix) | Refrain from direct supervision of KMP and executive duties The Chairman does not get involved in the supervision of KMP or any other executive duties. |
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3 (5) (x) | Ensure effective communication with shareholders The Bank historically has active shareholder participation at the AGM. At the AGM the shareholders are given the opportunity to take up matters for which clarification is needed. These matters are adequately clarified by the Chairman and/or CEO and/or any other officer. The AGM 2023 was held in the form of a physical meeting. The shareholder participation at AGMs is given on page 191 of the “Annual Corporate Governance Report”. |
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3 (5) (xi) | CEO functions as the apex executive in charge of the day-to-day operations The day-to-day operations of the Bank have been delegated to the CEO by the Board of Directors. |
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3 (6) | Board appointed committees | |||||||||||||||||||||||||||||||||
3 (6) (i) | Establishing Board Committees, their functions and reporting The Board has established ten committees of which six are mandatory with the remainder appointed to meet the business needs of the Bank. Pursuant to the provisions of the Banking Act Directions No. 01 of 2023 dated February 02, 2023 issued by the Central Bank of Sri Lanka (CBSL) all licensed banks are, inter alia, mandatorily obliged to establish a Board level Subcommittee to operate during the years 2023 and 2024, entrusting the responsibility of evaluating and approving, non-essential and/or non-urgent expenditure and/or capital expenditure to be incurred by the Bank, if any. Accordingly, the Bank being legally obliged, established a Board Capital Expenditure Review Committee (BCERC) to ensure compliance with the provisions of the said Direction. All the Board Committees of the Bank have its own written Terms of Reference. Each Committee has a Secretary to arrange the meetings and maintain minutes, records, etc., under the supervision of the Chairman of the Committee. The Reports of the Board Committees are given on pages 195 to 215. The Chairpersons of the Committees are available at the AGM to clarify any matters that may be referred to them by the Chairman. |
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3 (6) (ii) a. | Board Audit Committee (BAC) Chairman of the Committee shall be an Independent Non-Executive Director who possesses qualifications and experience in accountancy and/or audit Chairman of the Committee, Mr Senanayake is an Independent Non-Executive Director with qualifications and experience in accountancy. Mr Senanayake’s profile is given on Board of Directors and profiles. | |||||||||||||||||||||||||||||||||
b. | Committee to comprise solely of Non-Executive Directors All members of the BAC are Independent Non-Executive Directors. |
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c. | Board Audit Committee functions In accordance with the Terms of Reference, the BAC has made the following recommendations:
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d. | Review and monitor External Auditor’s independence and objectivity and the effectiveness of the audit processes The Board has adopted a policy of rotation of Auditors, once in every five years, in keeping with applicable standards and best practices. Please refer Section 3 (1) (i)m on “Hiring External Auditors” regarding retaining Messrs Ernst & Young for one more year, as the External Auditor. |
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e. | Provision of non-audit services by External Auditor The Bank had developed a comprehensive Board Approved Policy on engagement of External Auditor for Non Audit services. Following action is taken prior to the assignment of non-audit services to External Auditors by the Bank:
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f. | Determines scope of audit The Committee discussed the Audit Plan, nature and scope of the audit with External Auditors to ensure that it includes:
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g. | Review financial information of the Bank The BAC reviews the financial information of the Bank, in order to monitor the integrity of the Quarterly/Annual Financial Statements, quarterly reports prepared for disclosure, Annual Report and the significant financial reporting judgements contained therein. The review focuses on the following:
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h. | Discussions with External Auditor on interim and final audits The BAC discusses issues, problems and reservations arising from the interim and final audits with the External Auditor. The Committee met on two occasions with the External Auditor, without the presence of executive staff of the Bank. |
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i. | Review of management letter and Bank’s response The BAC has reviewed the External Auditor’s Management Letter and the Management’s response thereto. |
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j. | Review of internal audit function The Annual Audit Plan prepared by the Internal Audit Department is submitted to the BAC for approval. This Plan covers the scope, functions and resource requirements relating to the Audit Plan and has the necessary authority to carry out its work. The services of four audit firms have been obtained to assist the Internal Audit Department to carry out the audit function. Prior approval of the BAC has been obtained in this regard. The Committee reviewed the reports submitted by Internal Audit Department and ensures that appropriate action is taken on the recommendations. The Deputy General Manager – Management Audit (DGM-MA), who leads the Internal Audit Department, reports directly to the BAC and his performance appraisal is reviewed by the BAC. The BAC is to recommend any appointment, terminations/resignations of the head, senior internal audit staff members and outsourced service providers to the internal audit function. The above processes ensure that audit function is independent of the activities it audits and that it is performed with impartiality, proficiency and due professional care. Ensure that the Committee is appraised of resignations of senior staff members of the internal audit department including the DGM – MA and any outsourced service providers, and to provide an opportunity to the resigning senior staff members and outsourced service providers to submit reasons for resigning. |
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k. | Internal investigations The Committee shall consider the major findings of internal investigations and Management’s responses thereto. |
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l. | Attendees at Board Audit Committee meeting The Chief Financial Officer, DGM-MA and a representative of the External Auditors normally attend meetings. Other Board members and Managing Director/CEO may also attend meetings upon the invitation of the Committee. The Committee met with the External Auditors without the Executive Directors being present on 2 occasions during the year. Refer the “Report of the BAC” given on pages 195 to 198. |
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m. | Explicit authority, resources and access to information The Terms of Reference for the BAC includes:
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n. | Regular meetings The BAC had scheduled regular quarterly meetings and additional meetings were scheduled when required. Accordingly, the Committee met 9 times during the year. Members of the BAC are served with due notice of issues to be discussed and the conclusions in discharging its duties and responsibilities are recorded in the minutes of the meetings maintained by the Secretary of the BAC. |
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o. | Disclosure in Annual Report The “Report of the BAC” on pages 195 to 198 includes the following:
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p. | Maintain minutes of meetings DGM-MA serves as the Secretary for the BAC and maintains minutes of the Committee meetings |
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q. | Whistle-blowing policy and relationship with External Auditor The Bank has a whistle-blowing policy which has been reviewed and approved by the BAC and the Board of Directors. Board’s responsibility towards encouraging communication on any non-compliance and unethical practices are addressed in the Board Charter. |
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A process is in place and arrangements are in effect to conduct a fair and independent investigation and appropriate follow-up action regarding any concerns raised by the employees of the Bank, in relation to possible improprieties in financial reporting, internal controls or other matters. The BAC is the key representative body for overseeing the Bank’s relations with the External Auditor and meets the External Auditor on a regular basis to discharge this function. |
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3 (6) (iii) | Board Human Resources and Remuneration Committee (BHRRC) Charter of the Committee The BHRRC is responsible for:
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3 (6) (iv) a. | Board Nominations and Governance Committee (BNGC) Appointment of Directors, CEO and KMP The Committee has developed and implemented a procedure to appoint new Directors, CEO and the members of the Corporate Management of the Bank. The Committee has also developed a proactive process for planning and assessment of candidates for the succession of Executive and Non-Executive Directors, CEO and KMP appointments within the Bank, its Subsidiaries, and the Associate (the Group). The Committee also oversee appointment and composition of the Sharia Supervisory Board (SSB or Sharia Board) of the Bank’s Islamic Banking Unit (IBU). The Committee is chaired by the Chairman of the Bank as at December 31, 2023 and comprises three other NEDs, who are independent. The CEO may be present at meetings by invitation. Refer the “Report of the BNGC” on pages 201 and 202. |
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b. | Re-election of Directors The Committee makes recommendations regarding the re-election of current Directors, considering the performance and contribution made by the Director concerned towards the overall discharge of the Board’s responsibilities also considering the requirements of the Articles of Association. Refer the “Statement of Compliance”. |
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c. | Eligibility criteria for appointments to key managerial positions including CEO The Committee sets the eligibility criteria to be considered, including qualifications, experience and key attributes, for appointment or promotion to key managerial positions including the position of the CEO. The Committee considers the applicable statutes and guidelines in setting the criteria. |
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d. | Fit and proper persons The Committee obtains annual declarations from Directors, CEO and COO to ensure that they are fit and proper persons to hold office as specified in the criteria given in the Section 3 (3) of this Direction and as set out in the statutes. Similarly the appointment of consultants is also subject to the assessment of their fitness and propriety conduct by the Bank according to the aforementioned criteria. Further, the BNGC obtains declarations from KMP to ensure that they too are fit and proper persons to hold office as specified in the said Direction. |
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e. | Succession plan and new expertise The Committee has developed a succession plan for the Directors and KMP. The need for new expertise may be identified by the Board or its Committees and brought to the attention of the BNGC who will take appropriate action. |
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f. | Committee to be chaired by an independent Director The Committee was chaired by an Independent Non-Executive Director and the CEO attended the meetings by invitation. |
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3 (6) (v) a. | Board Integrated Risk Management Committee (BIRMC) Composition of BIRMC The Committee comprises NEDs, the Managing Director/CEO and the Chief Risk Officer (CRO) who serves as a non-board member. Other KMP supervising credit, market, liquidity, operational, and strategic risks are invited to attend the meetings on a regular basis. |
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b. | Risk assessment The Committee has approved the policies on Credit Risk Management, Market Risk Management and Operational Risk Management, which provide a framework for management and assessment of risks. Further, Internal Capital Adequacy Assessment Process is being reviewed by the Committee annually. Accordingly, monthly information on pre-established risk indicators is reviewed by the Committee in discharging its responsibilities as per the Terms of Reference. Refer the “Report of the BIRMC”. |
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c. | Review of management level Committees on risk The Committee shall review the adequacy and effectiveness of all management level Committees such as Credit Policy Committee (CPC), Asset and Liability Management Committee (ALCO), Executive Integrated Risk Management Committee (EIRMC), Executive Committee on Monitoring NPAs (ECMN), Management Committee (MC), Product Development Committee (PDC), Executive Human Resources Steering Committee (EHRSC), Retail Channel Management Committee (RCMC), Information Security Council (ISC), Information Technology Steering Committee (ITSC), Business Continuity Management Steering Committee (BCMSC), Executive Strategy Development Committee (ESDC), and Executive Investment Committee (EIC) to assess their adequacy and effectiveness in addressing specific risks and managing them within the quantitative and qualitative risk limits specified by the Board of Directors. These limits are set out in the Risk Appetite Statement of the Bank and are reviewed by the Board on a regular basis. |
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d. | Corrective action to mitigate risks exceeding prudential levels Actual exposure levels under each risk category are monitored against the tolerance levels when preparation of “Risk Profile Dashboard” of the Bank, which is circulated among members of the BIRMC monthly and discussed in detail at quarterly meetings. The Committee takes prompt corrective action to mitigate the effects of specific risks in case, such risks are at levels beyond the prudent levels decided by the Committee on the basis of the Bank’s policies and regulatory and supervisory requirements. |
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e. | Frequency of meetings The Committee meets quarterly and schedules additional meetings when required. The agenda covers matters assessing all aspects of risk management including updated business continuity plans. The Committee met 5 times during 2023. |
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f. | Actions against officers responsible for failure to identify specific risks or implement corrective action The Committee refers such matters, if any, to the Human Resources Department for necessary action with observations and suggestions. |
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g. | Risk Assessment Report to the Board A comprehensive report of the meeting is submitted to the Board after each Committee meeting, by the Secretary of the Committee for their information, views, concurrence or specific directions. |
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h. | Compliance function A compliance function has been established to assess the Bank’s compliance with laws, regulations, regulatory guidelines, internal controls and approved policies on all areas of business operations. This function is headed by a dedicated Compliance Officer who reports to the BAC and the BIRMC. The Compliance Officer submits a Positive Assurance Certificate on Compliance with mandatory banking and other statutory requirements on a quarterly basis to BAC and BIRMC. |
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3 (7) | Related Party Transactions | |||||||||||||||||||||||||||||||||
3 (7) (i) | Avoid conflict of interest The BRPTRC oversees the processes relating to this subject and its Report is given on pages 205 and 206 All members of the Board are required to make declarations of the positions held with related parties at the time of appointment and annually thereafter. In the event of any change (during the year), the Directors are required to make a further declaration to the Company Secretary. Directors refrain from participating at relevant sessions, in which lending to related entities Note 62 to the Financial Statements on “Related Party Disclosures” on pages 384 to 388 are discussed to avoid any kind of influence and conflict of interest. Transactions carried out with related parties as defined by the Sri Lanka Accounting Standard - LKAS 24 on “Related Party Disclosures”, in the normal course of business, are disclosed in Note 62 to the Financial Statements on “Related Party Disclosures” on pages 384 to 388. Directors’ interest in contracts, which do not fall into the definition of related party transactions as per LKAS 24, are reported separately in the Annual Report, excluded from Notes to Financial Statements. Refer page 230 for more details. |
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3 (7) (ii) | Related party transactions covered by the Direction The Related Party Transactions Policy approved by the Board, covers the following transactions:
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3 (7) (iii) | Prohibited transactions The Bank’s Related Party Transactions Policy prohibits transactions, which would grant related parties more favourable treatment than that accorded to other customers. These include the following:
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3 (7) (iv) | Granting accommodation to a Director or close relation of a Director A procedure is in place for granting accommodation to Directors or to a close relation/Close Family Member (CFM) of Directors. Such accommodation requires approval at a meeting of the Board of Directors, by not less than two-third of the number of Directors, other than the Director concerned, voting in favour of such accommodation or through circulation of papers, which require approval by all. The terms and conditions of the facility include a proviso that it will be secured by such security, as may from time to time be determined by the Monetary Board as well. Refer section on “Conflicts of Interest” on page 182 for more details. |
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3 (7) (v) | Accommodations granted to persons, concerns of persons, or close relations of persons, who subsequently are appointed as Directors of the Bank The Company Secretary obtains declarations/affidavits from all Directors prior to their appointment and they are requested to declare any further transactions. Employees of the Bank are aware of the requirement to obtain necessary security, as defined by the Monetary Board, if the need arises. Processes for compliance with this regulation is also monitored by the Compliance Unit. |
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3 (7) (vi) | Favourable treatment or accommodation to bank employees or their close relations No favourable treatment/accommodation is provided to Bank employees, other than staff benefits. Employees of the Bank are informed through operational circulars, to refrain from granting favourable treatment to other employees or their close relations or to any concern in which an employee or close relation has a substantial interest. |
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3 (7) (vii) | Remittance of accommodation subject to Monetary Board approval No such situation has arisen during the year. |
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3 (8) | Disclosures | |||||||||||||||||||||||||||||||||
3 (8) (i) | Publish Annual and Quarterly Financial Statements Annual Audited Financial Statements and Interim Financial Statements of the Bank were prepared and published during 2023 in the newspapers (in Sinhala, Tamil and English), in accordance with the formats prescribed by the Supervisory and Regulatory Authorities and applicable accounting standards. |
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3 (8) (ii) a. | Disclosures in Annual Report A statement to the effect that the Annual Audited Financial Statements have been prepared in line with applicable accounting standards and regulatory requirements, inclusive of specific disclosures Disclosures on the compliance with the applicable accounting standards and regulatory requirements in preparation of the Annual Audited Financial Statements, have been made in the “Statement of Directors’ Responsibility’’ and ‘‘Managing Director’s/ Chief Executive Officers and Chief Financial Officer’s Statement of Responsibility”. Refer pages 224, 225 and 229. |
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b. | Report by the Board on the Bank’s internal control mechanism The Annual Report includes the reports where the Board confirms that the financial reporting system has been designed to provide reasonable assurance regarding the reliability of financial reporting and that the preparation of Financial Statements for external purposes has been done in accordance with relevant accounting principles and regulatory requirements. Please refer the following statements for more details. Annual Report of the Board of Directors. Statement of Compliance Statement of Directors’ Responsibility for Financial Reporting Directors’ Statement on Internal Control over Financial Reporting and Risk Management |
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c. | External Auditors Certification on the Effectiveness of the Internal Control Mechanism The Bank has obtained a certificate on the Effectiveness of Internal Controls over financial reporting, which is published on page 228. |
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d. | Details of Directors, including names, fitness and propriety, transactions with the Bank and the total of fees/remuneration paid by the Bank Profiles of Board members Directors’ Interests in Contracts with the Bank Details of transactions with the Bank are given in Note 62 to the Financial Statements Details of remuneration paid by the Bank are given in Note 21 to the Financial Statements |
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e. | Total accommodation granted to each category of related party and as a percentage of the Bank’s regulatory capital The net accommodation granted to each category of related party as a percentage of the Bank’s Regulatory Capital are given below: Direct and indirect accommodation to related parties as at December 31, 2023.
* Include both NEDs and EDs |
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f. | Aggregate values of remuneration to and transactions with Directors and members of the Corporate Management
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g. | External Auditors Certification of Compliance The factual findings report has been issued by the External Auditors on the level of compliance with the requirements of these regulations. The findings presented in their report addressed to the Board did not identify any inconsistencies. |
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h. | Report confirming compliance with prudential requirements, regulations, laws, and internal controls The Statement of “Directors’ Responsibility for Financial Reporting”and item 35 of the “Statement of Compliance”, clearly sets out details regarding compliance with prudential requirements, regulations, laws, and internal controls. |
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i. | Non-compliance Report There were no supervisory concerns on lapses in the Bank’s Risk Management Systems or non-compliance with the Direction that have been pointed out by the Director of the Bank Supervision Department of the CBSL and therefore, there is no disclosure in this regard. |
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3 (9) | Transitional and other general provisions The Bank has complied with the transitional provisions, where applicable. |
Annex 1.2: Compliance with Code of Best Practice on Corporate Governance
Compliance with the Code of Best Practice on Corporate Governance 2023 (the Code) issued by The Institute of Chartered Accountants of Sri Lanka
Code ref. |
Compliance and implementation | Complied |
A. | Directors | |
A.1 | The Board The Board of Commercial Bank comprises twelve eminent professionals drawn from multiple fields and ten out of them are NEDs. They bring diverse perspectives and independent judgement to deliberate on matters set before the Board. Directors are elected by shareholders at the AGMs with the exception of the Chief Executive Officer (CEO) and the Chief Operating Officer (COO) who are appointed by the Board and remain as Executive Directors until retirement, resignation or termination of such appointment. Casual vacancies are filled by the Board based on the recommendations of the Board Nominations and Governance Committee (BNGC) as provided for in the Articles of Association. The Board is assisted by the Company Secretary. |
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A.1.1 | Regular meetings The Board meets on a monthly basis and each Board Committee also has its own schedule of meetings as set out in the respective Committee reports. The regularity of Board meetings and the structure and process of submitting information have been agreed to and documented by the Board. Attendance at meetings is summarised in Figure 41. Information required to be reported to the Board under this Section is reported on a regular basis. |
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A.1.2 | Role and responsibilities of the Board The roles and responsibilities of the Board are set out in the Board Charter as summarised on page 186. |
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A.1.3 | Act in accordance with laws The Board has an approved working procedure in place to facilitate compliance with the relevant laws, CBSL Directions and guidelines and international best practice with regard to the operations of the Bank. This includes provision to obtain independent professional advice as and when necessary by any Director coordinated through the Company Secretary. |
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A.1.4 | Access to advice and services of Company Secretary All Directors are able to obtain the advice and services of the Company Secretary. The appointment and removal of the Company Secretary is a matter involving the whole Board under advisement of the BNGC as it is a Key Management Position. The Bank has obtained appropriate insurance cover as recommended by the BNGC for the Board of Directors and the Members of the Corporate Management. Refer Section on “Role of the Company Secretary” on page 188 for further details on role of the Company Secretary. |
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A.1.5 | Independent judgement The Board comprises of senior professionals who are luminaries in their respective fields and use their independent judgement in discharging their duties and responsibilities on matters of strategy, performance, resource allocation, risk management, compliance, and standards of business conduct. The composition of the Board ensures that there is a sufficient balance of power and contribution by all Directors which minimises the tendency for one or a few members of the Board to dominate the Board processes or decision-making. |
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A.1.6 | Dedicate adequate time and effort to matters of the Board and the Company Board meetings and Board Committee meetings are scheduled well in advance and the relevant papers are circulated a week prior to the meeting using electronic means to ensure that Directors have sufficient time to review the same and call for additional information or clarifications, if required. While there is provision to circulate papers closer to the meeting in exceptional circumstances, this is generally discouraged. Members of the Corporate Management Team and external experts make presentations to the Board on the business environment, regulatory changes, operations, and other developments on a regular basis to enhance the knowledge of the Board on matters relevant to the Bank’s operations. The NEDs dedicate approximately eighty-four days per annum for the affairs of the Bank and those Directors who are also on the BAC and the BIRMC dedicate at least further ten days each for the affairs of the Bank. |
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A.1.7 | If necessary in the best interest of the Bank, one-third of the Directors can call for a resolution to be presented to the Board. | |
A.1.8 | Board induction and training Refer Section on “Induction and Training of Directors”. |
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A.2 | Separating the business of the Board from the executive responsibilities for management of the Company The positions of the Chairman and the CEO have been separated in line with best practice in order to maintain a balance of power and authority. The Chairman is an Independent Non-Executive Director whilst the CEO is an Executive Director appointed by the Board. The roles of the Chairman and the CEO are clearly defined in the approved Board paper and the Board Charter. |
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A.3 | Chairman’s role in preserving good corporate governance The Chairman provides leadership to the Board, preserving order and facilitating the effective discharge of duties of the Board and is responsible for ensuring the effective participation of all Directors and maintaining open lines of communication with KMP, acting as a sound board on strategic and operational matters. The agenda for Board meetings is developed by the Chairman in consultation with the Directors, the CEO, and the Company Secretary, taking into consideration matters relating to strategy, performance, resource allocation, risk management, and compliance. Sufficiently detailed information on matters included in the agenda is provided to the Directors on time. Both Executive Directors and NEDs ensure the balance of power on the Board, for the benefit of the Bank, by effectively participating in decision making. All Directors have been made aware of their duties and responsibilities and the Board and Committee structures. All Directors are encouraged to seek information necessary to discuss matters on the agenda. Views expressed by Directors on issues under consideration are recorded in the minutes. |
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A.4 | Availability of financial acumen and knowledge to offer guidance on matters of finance The Chairman of the BAC who is a NED is a Fellow member of the CA Sri Lanka ensuring a sufficiency of financial acumen within the Board on matters of finance. Additionally, EDs and a NED are professionals with vast experience on matters of finance. |
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A.5 | Board balance The Chairman is an Independent Non-Executive Director. The Board comprises of ten NEDs and two EDs facilitating an appropriate balance within the Board. NEDs are independent of management and free of business dealings that may be perceived to interfere with the exercise of their unfettered and independent judgement. They submit annual declarations to this effect which are evaluated to ensure compliance with the criteria for determining independence in line with the requirements of the applicable regulations and this Code. There are no Alternate Directors appointed to represent the Directors of the Bank. |
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A.6 | Provision of appropriate and timely information Board members receive information regarding matters set before the Board a week prior to the meetings. The Chairman ensures that all Directors are properly briefed on same by requiring the presence of members of the Corporate Management when deemed necessary. Management also makes presentations on regular agenda items to the Board and its Committees. Additionally, the Directors have access to members of the Corporate Management to seek clarifications or additional information on matters presented to the Board. Directors who are unable to attend a meeting is updated on proceedings through formally documented minutes, which are also discussed at the next meeting to ensure follow-up and proper recording. Minutes of a meeting is ordinarily provided to Directors at least within two weeks after the meeting date. |
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A.7 | Appointments to the Board and re-election Refer Section on “Appointments/retirements and resignations of Directors” and Report of the BNGC. |
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A.8 | All Directors should submit themselves for re-election at regular intervals Refer Section on “Re-election/election of Directors”. In the event of resignation of a Director prior to completion of his/her appointed term, such resignation including reasons for decision shall be communicated in writing. |
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A.9 | Appraisal of Board and Board Committee performance Refer Section on “Board and Board Committee Evaluations” on page 190. | |
A.10 | Annual Report to disclose specified information regarding Directors | |
Information specified in the Code with regard to Directors is disclosed within this Annual Report as follows: Profiles including qualifications, expertise, material business interests and key appointments.
Directors’ Interest in contracts with the Bank. Remuneration paid to Directors in Note 21 to the Financial Statements. Related Party Disclosures in Note 62 to the Financial Statements. Membership of Committees and attendance at Board meetings and Committee meetings. |
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A.11 | Appraisal of the CEO Refer section on “Appraisal of the CEO”. |
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B. | Directors’ remuneration | |
B.1 | Remuneration procedure Refer section on “Directors’ and Executive remuneration” and Report of the BHRRC. |
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B.2 | Level and make-up of remuneration Refer section on “Level and make-up of remuneration”. |
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B.3 | Disclosures related to remuneration in Annual Report Section on Directors’ and Executive remuneration. Details of remuneration of the Board – Refer Note 21 to the Financial Statements. Report of the BHRRC Compensation to KMP – Refer Note 62.2.1 to the Financial Statements. |
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C. | Relations with shareholders | |
C.1 | Constructive use of the AGM and conduct of other General Meetings The AGM provides a forum for all shareholders to participate in decision-making matters reserved for the shareholders which typically include proposals to adopt the Annual Report and Accounts, election and re-election of Directors and Auditors and other matters requiring special resolutions as defined in the Articles of Association or the Companies Act No. 07 of 2007 (as amended). Separate resolutions are proposed for each material issue. The Chairman ensures the presence of the Chairmen of the BAC, BHRRC, BNGC and BRPTRC to respond to any questions that may be directed to them. Notice of the AGM is circulated together with the Annual Report and Accounts which includes information relating to any other resolutions that may be set before the shareholders at the AGM fifteen working days in advance. The Bank ensures that all valid proxy appointments received for the AGM are counted and properly recorded. A summary of the procedures governing voting at General Meetings is included under “Shareholder engagement and voting” section on page 190 of this Annual Report. Where a vote is required on a show of hands, the Bank will ensure that information required under the Code will be made available at the meeting and be published in the website within a month from the date of the AGM. |
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C.2 | Communication with shareholders The Shareholder Communication Policy sets out multiple channels of communication for engaging with shareholders. Channels include investor section of the website at http://www.combank.lk/investors, press releases and notices in English, Sinhala and Tamil newspapers and required disclosures to the CSE which are published on the CSE website. The Bank’s website provides information on risk management, economy and financial markets in addition to the financial information. The Interim Financial Statements are published in English, Sinhala and Tamil newspapers within stipulated deadlines. Every effort is made to ensure that the Annual Report provides a balanced review of the Bank’s performance. The principal forum for shareholders is the AGM, while matters can also be raised through the Company Secretary. The Company Secretary keeps the Board apprised of issues raised by the shareholders to ensure that they are addressed in an appropriate manner in keeping with the corporate values of the Bank. Matters raised in writing are responded to in writing by the Company Secretary. |
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C.3 | Disclosure of major and material transactions The Shareholders Communication Policy addresses the need to disclose major and material transactions to shareholders as required by the rules and regulations of the SEC and the CSE and the Bank has in place a defined process to comply with the requirements. There were no transactions which would materially alter the Bank’s or Group’s net assets nor any major related party transactions apart from those disclosed as follows:
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D. | Accountability and audit | |
D.1 | Present a balanced and understandable assessment of the Company’s financial position, performance, business model, governance, structure, risk management, internal controls, and challenges, opportunities and prospects All efforts are taken to ensure that the Annual Report presents a balanced review of the Bank’s financial position, performance, Business Model, Governance, Structure, Risk Management, Internal Controls, and Challenges, Opportunities and Prospects combining narrative and visual elements to facilitate readability and comprehension. Due care has been exercised to ensure that all statutory requirements are compiled within the Annual Report and the issue of interim communications on financial performance which are reviewed by the BAC and recommended prior to publication. The following disclosures as required by the Code are included in this Report: |
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D.2 | Process of risk management and a sound system of internal control to safeguard shareholders’ investments and the Company’s assets The Board is responsible for determining the risk appetite for achieving the strategic objectives and formulates and implements appropriate processes for risk management and internal control systems to safeguard shareholder investments and assets of the Bank. The BIRMC assists the Board in discharge of its duties with regard to risk management and the BAC assists the Board in the discharge of its duties in relation to internal control which in turn is supported by the Inspection Department. Their responsibilities are summarised in the respective Committee Reports and have been formulated with reference to the requirements of the Code and the Direction on Corporate Governance and the Bank’s business needs. The BIRMC is supported by the Integrated Risk Management function of the Bank and a comprehensive report of how the Bank manages risk is given in the Section on “Risk Governance & Management” on pages 232 to 258 and the Report of the BIRMC on pages 199 and 200. |
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D.3 | Board Audit Committee (BAC) The BAC comprises of five independent NEDs and a summary of its responsibilities and activities are given in the Report of the BAC as appearing on pages 195 to 198 It is supported by the Internal Audit function of the Bank reporting directly to the BAC. The Chairman of the Committee is Mr R Senanayake, a Fellow member of CA Sri Lanka. The Committee has also appointed Mr Yohan Perera FCA, FCMA as a Consultant to the Committee, who is invited to the meetings. Refer Report of the BAC. The Board also obtains assurance from its External Auditors on the effectiveness of internal controls on financial reporting which is given on page 228. |
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D.4 | Board Integrated Risk Management Committee (BIRMC) The BIRMC was established in compliance with the Section 3(6) of the Direction No. 11 of 2007, to assist the Board in overseeing the risk management framework of the Bank. It particularly assist the Board oversight of determining risk appetite, identification and classification of risks, reviewing risk management outcomes and mitigation actions, process to manage ESG risks etc. The Committee comprises of 7 NEDs and 1 ED (Managing Director/Chief Executive Officer) and the Committee is chaired by Ms J Lee. The CFO who is also the Secretary to the Committee attend all meetings. CIO and other heads of Strategic Business Units participate for meetings by invitation. A summary of role, responsibilities and activities of the Committee are given in the report of the BIRMC on pages 199 and 200. |
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D.5 | Board Related Party Transactions Review Committee (BRPTRC) The BRPTRC Committee comprises of 4 Independent NEDs. The two EDs also attend the meetings by invitation. A summary of responsibilities and activities are given in the report of the BRPTRC. The Bank has a Board-approved Related Party Transactions Policy in place which addresses requirements under this section. |
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D.6 | Code of Ethics The Bank has an internally-developed Code of Business Conduct and Ethics which is applicable for KMP, and all other employees. The Bank also has Board approved policy applicable to dealing in shares of the Bank which are fully compliant with the Listing Rules of the CSE. |
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The Code of Conduct of the Bank is in compliance with the requirements of the Schedule N of the Code on “Code of Business Conduct and Ethics” which encompasses conflict of interest, bribery and corruption, entertainment and gifts, accurate accounting and record-keeping, fair and transparent procurement practices, corporate opportunities, confidentiality, fair dealing, protection and proper use of Company assets including information assets, sexual harassment, discrimination and abuse, compliance with laws, rules and regulations (including insider trading laws) and encouraging the reporting of any illegal, fraudulent, or unethical behaviour. Further, the Bank has a well-established whistle-blower process in order to deal with complaints received from various stakeholders in relation to non-compliance with the Bank’s code of business conduct and ethics. Refer sections on “Code of Business Conduct & Ethics” and “Whistleblowing”. |
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D.7 | Corporate governance disclosures The Annual Corporate Governance Report comply with the disclosure requirements of the Code. |
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E. & F. | Encourage voting at AGM The Bank has 15,857 ordinary voting shareholders as at end 2023, of which 660 are institutional shareholders. The Bank has regular dialogue with the large institutional shareholders and any concerns of these institutional shareholders expressed at the meetings is communicated to the Board as a whole. All shareholders are encouraged to exercise their voting powers at the AGM. The Bank facilitates the analysis of its securities by encouraging both foreign and local analysts covering the Bank with structured meetings where they are able to obtain information and explanations required for evaluating the current and future performance of the Bank, sector and country. Additionally, the investor relations section on the Bank’s website has key information required by shareholders and analysts. The Interactive Annual Report also has a tab where investors can provide feedback and request for specified information. All prospectuses include a clause which require all prospective investors in shares and debentures of the Bank to seek independent professional advice before investing. |
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G. | Internet of things and cyber security Refer section on “Internet of things and cyber security” |
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H. | Sustainability: ESG Risks and Opportunities | |
The Board considers Sustainability/ESG-related risks and opportunities in the Bank’s business model, short-and medium-term planning and in its long-term strategy that could reasonably be expected to affect the Bank’s prospects. The Board and the KMPs engage with and consider the views of its stakeholders to better understand and manage the Bank’s Sustainability/ESG-related risks and opportunities and have integrated sustainability/ESG related policies and practices into Bank’s strategy, business model, governance and risk management. The Annual Report contains information which enables investors and other stakeholders to assess how ESG risks and opportunities are recognised, managed, measured and reported as described under following sections of the Annual Report. Connecting with Stakeholders and Material Matters Business model for sustainable value creation Management Discussion and Analysis Governance and Risk Management This Annual Report has been prepared in accordance with International <IR> Framework – January 2021, GRI Guidelines, “A Preparer’s Guide to Integrated Corporate Reporting”, “Handbook on Integrated Corporate Reporting” and “Guideline on Non-financial Reporting” published by CA Sri Lanka. |
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I. | Establishment and Maintenance of Policies | |
I.1 | Policies relating to governance are maintained by the Bank and details relating to implementation of such policies are hosted in the website. A List of such policies is given below;
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To be complied on or before October 01, 2024.(Effective date of the related Listing Rule of the CSE) |
I.2 | The Bank has established and maintain a formal policy governing matters relating to the Board of Directors. The policy should inter-alia address Board balance, diversity, frequency of meetings, maximum number of directors, number of meetings a Director should attend etc. |
Annex 1.3: Compliance with Section 9 of the Listing Rules issued by the Colombo Stock Exchange
Section | Principle, compliance and implementation | Effective date | Complied |
9.1.3 | Statement confirming the extent of compliance with the Corporate Governance Rules This disclosure given in this Annexure fulfils this requirement. | October 01, 2023 | |
9.2.1 | The Bank shall establish and maintain the following policies and disclose the fact of existence of such policies together with the details relating to the implementation of such policies by the Bank on its website.
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October 01, 2024 | To be complied on or before the effective date |
9.2.2 | Any waivers from compliance with the Internal Code of business conduct and ethics or exemptions granted | October 01, 2024 | None |
9.2.3 | (i) List of policies in place as per Section 9.2.1, with reference to website (ii) Any changes to policies adopted |
October 01, 2024 | To be complied on or before the effective date |
9.2.4 | The Bank has a process in place to make available policies referred in Section 9.2.1 above, to shareholders upon a written request being made for any such Policy. | October 01, 2024 | To be complied on or before the effective date |
9.3.1 | The Bank shall ensure that the following Board Committees are established and maintained at a minimum and are functioning effectively. The said Board Committees at minimum shall include;
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October 01, 2023 | |
9.3.2 | The Bank shall comply with the composition, responsibilities and disclosures required in respect of the above Board Committees as set out in these Rules. Refer Sections 9.11, 9.12, 9.13 & 9.14 below. |
October 01, 2023 | |
9.3.3 | The Chairperson of the Board of Directors of the Bank shall not be the Chairperson of the Board Committees referred to in Section 9.3.1 above. | October 01, 2024 | To be complied on or before the effective date |
9.4.1 | The Bank shall maintain records of all resolutions and the following information upon a resolution being considered at any General Meeting of the Bank. The Bank shall provide copies of the same at the request of the Exchange and/or the SEC.
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October 01, 2023 | |
9.4.2 |
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October 01, 2023 | |
9.5.1 | The Bank shall establish and maintain a formal policy governing matters relating to the Board of Directors. The policy shall include the contents specified under Section 9.5.1 of the Listing Rules. | October 01, 2023 | |
9.5.2 | Policy on matters relating to the Board of Directors Confirmation on compliance with the requirements of the Policy on matters relating to the Board of Directors. If non-complied reasons for the same with proposed remedial action. | October 01, 2023 | |
9.6.1 | The Chairperson of the Bank shall be a Non-Executive Director and the positions of the Chairperson and CEO shall not be held by the same individual, unless otherwise a SID is appointed in terms of Rule 9.6.3 below. “Composition of the Board and Attendance” on page 183. | October 01, 2023 | |
9.6.2 | Where the Chairperson of a Listed Entity is an Executive Director and/or the positions of the Chairperson and CEO are held by the same individual, such entity shall make a market announcement within a period of one (1) month from the date of implementation of these Rules. or an Immediate Market Announcement if such date of appointment and/or combination of the said roles falls subsequent to the implementation of these Rules.
Not applicable since there is a clear separation of duties between the roles of the Chairman and CEO |
October 01, 2023 | |
9.6.3 | Report of Senior Independent Director (SID) demonstrating the effectiveness of duties Not applicable since there is no SID | October 01, 2023 | N/A |
9.6.4 | Rationale for appointing SID Not applicable since there is no SID | October 01, 2023 | N/A |
9.7.1 | The Bank shall take necessary steps to ensure that their Directors and the CEO are, at all times, fit and proper persons as required in terms of these Rules: In evaluating fitness and propriety of the persons referred in these Rules, the Bank shall utilise the ‘Fit and Proper Assessment Criteria’ set out in Section 9.7.3 below |
October 01, 2023 | |
9.7.2 | The Bank shall ensure that persons recommended by the Nominations and Governance Committee for Directorship meet fit and Proper criteria as required in terms of these Rules before such nominations are placed at the shareholders’ meeting or appointments are made. | October 01, 2023 | |
9.7.3 | A Director or the CEO of the Bank shall not be considered ‘fit and proper’ if she or he does not possess the fit and proper assessment criteria specified under “Honesty, Integrity and Reputation”, “Competence and Capability” and “Financial Soundness” in Section 9.7.3 (a), (b) and (c) respectively. | April 01, 2024 | |
9.7.4 | The Bank shall obtain declarations from their Directors and CEO on an annual basis confirming that each of them have continuously satisfied the Fit and Proper Assessment Criteria set out in Section 9.7.3 during the financial year concerned and satisfies the said criteria as at the date of such confirmation. | October 01, 2023 | |
9.7.5 | (a) Statement on Directors and CEO satisfying Fit and Proper Assessment Criteria (b) Any non-compliance/s and remedial action taken Board of Directors and profiles Item 08 of the Statement of Compliance |
October 01, 2023 | |
9.8.1 | The Board of Directors of the Bank, at a minimum, consist of five (05) Directors. The Board of Directors of the Bank consist of 12 Directors. | October 01, 2024 | |
9.8.2 | Minimum Number of Independent Directors
(a) The Board of Directors of the Bank shall include at least two (2) Independent Directors or such number equivalent to one third (1/3) of the total number of Directors of the Listed Entity at any given time, whichever is higher. The Board has 10 Independent Directors, which is well above the above requirement. Refer Figure 41 – “Composition of the Board and Attendance” on page 183. (b) Any change occurring to this ratio shall be rectified within ninety (90) days from the change. There was no change to this ratio during the year. |
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9.8.3 | A Director shall not be considered independent if he/she does not fulfil the criteria defining independence under Section 9.8.3 of the Listing Rules. All the Independent Directors of the Bank fulfil the criteria defining independence under Section 9.8.3 of the Listing Rules. |
Criteria 9.8.3 (i) to (viii) October 01, 2023 Criteria 9.8.3 (ix) October 01, 2024 | |
9.8.5 | Process in place for the determination of ‘Independence’ of the Directors
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October 01, 2023 | |
9.9 | Requirements to be complied in relation to ‘Alternate Directors’. The Articles of Association of the Bank does not provide for appointment of Alternate Directors. |
January 01, 2024 | N/A |
9.10.1 | The Bank shall disclose its policy on the maximum number of directorships it’s Board members shall be permitted to hold in the manner specified in Rule 9.5.1. In the event such number is exceeded by a Director(s), the Entity shall provide an explanation for such non-compliance in the manner specified in Rule 9.5.2 above. As per the Terms of Reference of the Board Nominations and Governance Committee, which is in compliance with the requirements of the Banking Act Direction No. 11 of 2007, the maximum number of directorships it’s Board members shall be permitted to hold is twenty. |
October 01, 2023 | |
9.10.2 | The Bank shall, upon the appointment of a new Director to its Board, make an immediate Market Announcement setting out the brief resume of such Director, his/her capacity of directorship; and, Statement by the Entity indicating whether such appointment has been reviewed by the Nominations and Governance Committee of the Bank. | October 01, 2023 | |
9.10.3 | The Bank shall make an immediate Market Announcement regarding any changes to the composition of the Board Committees referred to in Section 9.3.1 above containing, at minimum, the details of changes including the capacity of directorship with the effective date thereof. |
October 01, 2023 | |
9.10.4 | Directors details
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October 01, 2023 | N/A |
9.11 | Board Nominations and Governance Committee (BNGC) | ||
9.11.1 | Bank shall have a Nominations and Governance Committee that conforms to the requirements set out in Rule 9.11. The Bank has a Nominations and Governance Committee that conforms to the requirements set out in Rule 9.11. | October 01, 2024 | |
9.11.2 | The Bank shall establish and maintain a formal procedure for the appointment of new Directors and re-election of Directors to the Board through the Nominations and Governance Committee. Refer section on “Reelection/election of Directors” Refer Report of the Board Nominations and Governance Committee |
October 01, 2024 | |
9.11.3 | The Nominations and Governance Committee shall have a written Terms of Reference clearly defining the scope, authority, duties and matters pertaining to the quorum of meetings Refer Report of the Board Nominations and Governance Committee |
October 01, 2024 | |
9.11.4 | Composition of the Nominations and Governance Committee
(1) The members of the Nominations and Governance Committee shall; (a) comprise of a minimum of three (03) Directors of the Listed Entity, out of which a minimum of two (02) members shall be Independent Directors of the Listed Entity. (b) not comprise of Executive Directors of the Listed Entity. (2) An Independent Director shall be appointed as the Chairperson of the Nominations and Governance Committee by the Board of Directors. (3) The Chairperson and the members of the Nominations and Governance Committee shall be identified in the Annual Report of the Listed Entity Refer the Composition of the Nominations and Governance Committee. |
October 01, 2024 | |
9.11.5 | The functions of the Nominations and Governance Committee Refer the Report of the Board Nominations and Governance Committee. | October 01, 2024 | |
9.11.6 | Nominations and Governance Committee Report
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October 01, 2024 | To be complied on or before the effective date |
9.12 | Board Human Resources and Remuneration Committee (BHRRC) | ||
9.12.3 | Remuneration Committee The Remuneration Committee shall establish and maintain a formal and transparent procedure for developing policy on Executive Directors’ remuneration and for fixing the remuneration packages of individual Directors. No Director shall be involved in fixing his/her own remuneration. Refer “Directors’ and Executive remuneration”. | October 01, 2023 | |
9.12.4 | Remuneration for Non-Executive Directors should be based on a policy which adopts the principle of non-discriminatory pay practices among them to ensure that their independence is not impaired. Refer “Directors’ and Executive remuneration”. | October 01, 2023 | |
9.12.5 | Remuneration Committee shall have a written terms of reference clearly defining its scope, authority, duties and matters pertaining to the quorum of meetings. Refer the Report of the BHRRC. | October 01, 2023 | |
9.12.6 | Composition of the Remuneration Committee
(1) The members of the Remuneration Committee shall; (a) comprise of a minimum of three (03) Directors of the Listed Entity, out of which a minimum of two (02) members shall be Independent Directors of the Listed Entity. (b) not comprise of Executive Directors of the Listed Entity. |
October 01, 2024 | |
(2) In a situation where both the parent company and the subsidiary are listed entities, the Remuneration Committee of the parent company may be permitted to function as the Remuneration Committee of the subsidiary. |
October 01, 2023 | ||
(3) An Independent Director shall be appointed as the Chairperson of the Remuneration Committee by the Board of Directors. Refer the Report of the BHRRC. |
October 01, 2023 | ||
9.12.7 | The functions of the Remuneration Committee Refer the Report of the BHRRC. | October 01, 2023 | |
9.12.8 | Remuneration Committee Report
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October 01, 2023 | |
9.13 | Board Audit Committee (BAC) | ||
9.13.1 | Perform Audit and Risk functions specified in Section 9.13.4 of the Listing Rules. The Audit functions of the Section 9.13.4 are performed by the BAC while a separate Committee, BIRMC has been formed to perform the Risk functions. | October 01, 2023 | |
9.13.2 | The Audit Committee shall have a written terms of reference clearly defining its scope, authority and duties. The BAC has a written terms of reference clearly defining its scope, authority and duties. Refer Report of the BAC. |
October 01, 2023 | |
9.13.3 | (1) The members of the Audit Committee shall; (a) comprise of a minimum of three (03) Directors of the Listed Entity, out of which a minimum of two (02) or a majority of the members, whichever higher, shall be Independent Directors. (b) not comprise of Executive Directors of the Listed Entity. (2) The quorum for a meeting of the Audit Committee shall require that the majority of those in attendance to be independent directors. (3) The Audit Committee may meet as often as required provided that the Audit Committee compulsorily meets on a quarterly basis prior to recommending the financials to be released to the market. (4) If both, the Parent Company and the subsidiary are ‘Listed Entities’, the Audit Committee of the Parent Company may function as the Audit Committee of the subsidiary. (5) An Independent Director shall be appointed as the Chairperson of the Audit Committee by the Board of Directors. (6) Unless otherwise determined by the Audit Committee, the CEO and the Chief Financial Officer (CFO) of the Listed Entity shall attend the Audit Committee meetings by invitation. Provided however where the Listed Entity maintains a separate Risk Committee, the CEO shall attend the Risk Committee meetings by invitation. (7) The Chairperson of the Audit Committee shall be a Member of a recognised professional accounting body. Provided however, this Rule shall not be applicable in respect of Risk Committees where a Listed Entity maintains a separate Risk Committee and Audit Committee. |
October 01, 2024 | |
9.13.4 | The functions of the Audit Committee Refer the Report of the BAC. | October 01, 2024 | |
9.13.5 | Disclosures in the Annual Report
(1) The Bank shall prepare an Audit Committee Report which shall be included in the Annual Report (2) The Audit Committee Report shall contain disclosures set out in Section 9.13.5 (2) Refer the Report of the BAC on pages 195 to 198. |
October 01, 2024 | |
9.14 | Board Related Party Transactions Review Committee (BRPTRC) | ||
9.14.1 | The Bank shall have a Related Party Transactions Review Committee that conforms to the requirements set out in Section 9.14. The BRPTRC of the Bank conforms to the requirements of the Section 9.14 as given below. | October 01, 2023 | |
9.14.2 | Composition of the Related Party Transactions Review Committee
(1) The Related Party Transactions Review Committee shall comprise of a minimum of three (03) Directors of the Listed Entity, out of which two (02) members shall be Independent Directors of the Listed Entity. It may also include Executive Directors, at the option of the Listed Entity. An Independent Director shall be appointed as the Chairperson of the Committee. The BRPTRC of the Bank comprises of four (4) Independent NEDs. The two EDs also attend the meetings by invitation. The Chairman of the BRPTRC is an Independent NED.(2) If a parent company and the subsidiary are Listed Entities, the Related Party Transactions Review Committee of the parent company may be permitted to function as the Related Party Transactions Review Committee of the subsidiary. The BRPTRC of the Bank functions as the Related Party Transactions Review Committee of its listed subsidiary company. |
April 01, 2024 October 01, 2023 | |
9.14.3 | Functions of the Related Party Transactions Review Committee as set out in Section 9.14.3. Refer the Report of the BRPTRC on pages 205 and 206. | October 01, 2023 | |
9.14.4 | General Requirements
(1) The Related Party Transactions Review Committee shall meet at least once a calendar quarter. It shall ensure that the minutes of all meetings are properly documented and communicated to the Board of Directors. (2) The members of the Related Party Transactions Review Committee should ensure that they have, or have access to, enough knowledge or expertise to assess all aspects of proposed Related Party Transactions, and where necessary, should obtain appropriate professional and expert advice from an appropriately qualified person. (3) Where necessary, the Committee shall request the Board of Directors to approve the Related Party Transactions which are under review by the Committee. In such instances, (4) If a Director of the Listed Entity has a material personal interest in a matter being considered at a Board Meeting to approve a Related Party Transaction as required in (a) be present while the matter is being considered at the meeting; and, (b) vote on the matter Refer the Report of the BRPTRC on pages 205 and 206. |
October 01, 2023 | |
9.14.5 | Review of Related Party Transactions by the Related Party Transactions Review Committee Refer the Report of the BRPTRC on pages 205 and 206. | October 01, 2023 | |
9.14.6 | Shareholder approval
The Bank shall obtain shareholder approval by way of a Special Resolution for the Related Party Transactions as set out in Section 9.14.6. The RPTs policy of the Bank provides for obtaining shareholder approval by way of a Special Resolution for non-recurrent and recurrent RPTs identified in this Section. There were no RPTs during the year which required Shareholder approval as set out in Section 9.14.6. |
October 01, 2023 | |
9.14.7 | The Bank shall make an immediate Market Announcement to the Exchange for RPTs as set out in Section 9.14.7 (a) and (b). The RPTs policy of the Bank provides for making an immediate Market Announcement to the Exchange for RPTs identified in this Section. There were no RPTs during the year which required immediate Market Announcement as set out in Section 9.14.7. |
October 01, 2023 | |
9.14.8 (1) | Related Party Disclosures Non-recurrent RPT exceeding 10% of the Equity or 5% of the Total Assets, whichever is lower (in the specified format) Refer Note 62 to the Financial Statements on “Related Party Disclosure”. |
October 01, 2023 | |
9.14.8 (2) | Recurrent RPT exceeding 10% of the gross revenue/income (in the specified format) Refer Note 62 to the Financial Statements on “Related Party Disclosure” | October 01, 2023 | |
9.14.8 (3) | Related Party Transactions Review Committee Report
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October 01, 2023 | |
9.14.8 (4) | Affirmative declaration by the Board of Directors on compliance with RPT Rules or negative statement to that effect. Refer the Annual Report of the Board of Directors on pages 03 and 04. | October 01, 2023 | |
9.14.9 | Acquisition and disposal of assets from/ to Related Parties Except for transactions set out in Section 9.14.10, the Bank shall ensure that neither the Bank nor any of its subsidiaries, acquires a substantial asset from, or disposes of a substantial asset to, any Related Party of the Entity without obtaining the approval of the shareholders of the Entity by way of a Special Resolution. During the year, there were no acquisition/disposal of substantial assets from/to Related Parties. |
October 01, 2023 | |
9.16 | Additional disclosures by Board of Directors Declaration on following;
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October 01, 2023 |
Annex 1.4: Disclosure Requirements in Annual Financial Statements as required by the CBSL
Disclosure requirements under the prescribed format issued by the Central Bank of Sri Lanka for preparation, presentation and publication of Annual Audited Financial Statements of Licensed Commercial Banks via the Circular No.02 of 2019 dated January 18, 2019
Disclosure requirements | Description | |
1. | Information about the significance of financial instruments for financial position and performance | |
1.1 | Statement of Financial Position | |
1.1.1 | Disclosures on categories of financial assets and financial liabilities. | Notes to the Financial Statements: Note 26 – Classification of financial assets and financial liabilities |
1.1.2 | Other disclosures | |
(i) Special disclosures about financial assets and financial liabilities designated to be measured at fair value through profit or loss, including disclosures about credit risk and market risk, changes in fair values attributable to these risks and the methods of measurement. |
Material Accounting Policies: Note 7.1.3.5.2 Financial assets designated at FVTPL Note 7.1.4.1.2 Financial liabilities designated at FVTPL | |
(ii) Reclassifications of financial instruments from one category to another. |
Material Accounting Policies: Note 7.1.6 – Reclassification of financial assets and liabilities | |
(iii) Information about financial assets pledged as collateral and about financial or non-financial assets held as collateral. |
Notes to the Financial Statements: Note 66.1.4 – Collateral held | |
(iv) Reconciliation of the impairment allowance account for credit losses by class of financial assets. |
Notes to the Financial Statements: Movement in provision for impairment during the year for each classes of assets are given in the following Notes Note 28.1 – Cash and cash equivalents, 30.1 – Placements with banks, Notes 33.2 and 33.3 (c) – Financial assets at amortised cost – Loans and advances to other customers and Lease/hire purchase receivable, Note 34.1 – Financial assets at amortised cost – Debt and other financial instruments, Note 35.2 – Financial assets measured at fair value through other comprehensive income |
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(v) Information about compound financial instruments with multiple embedded derivatives. |
Material Accounting Policies: Note 7.1.5.5 Embedded derivatives The Bank does not have compound financial instruments with multiple embedded derivatives. | |
(vi) Breaches of terms of loan agreements. |
None | |
1.2 | Statement of Comprehensive Income | |
1.2.1 | Disclosures on items of income, expense, gains, and losses. | Notes to the Financial Statements: Notes 12 to 23 to the Financial Statements |
1.2.2 | Other disclosures | |
(i) Total interest income and total interest expense for those financial instruments that are not measured at fair value through profit and loss. |
Notes to the Financial Statements: Note 13 – Net interest income | |
(ii) Fee income and expense. |
Notes to the Financial Statements: Note 14 – Net fee and commission income | |
(iii) Amount of impairment losses by class of financial assets. |
Notes to the Financial Statements: Note 18 – Impairment charges and other losses | |
(iv) Interest income on impaired financial assets. |
Notes to the Financial Statements: Note 13.1 – Interest income | |
1.3 | Other disclosures | |
1.3.1 | Accounting policies for financial instruments. | Material Accounting Policies: Note 7.1 – Financial instruments – Initial recognition, classification and subsequent measurement |
1.3.2 | Information on financial liabilities designated at FVTPL. | Material Accounting Policies: Note 7.1.4.1.2 Financial liabilities designated at FVTPL |
1.3.3 | Investments in equity instruments designated at FVOCI
(i) Details of equity instruments that have been designated at FVOCI and the reasons for the designation. |
Notes to the Financial Statements: Note 35 – Financial assets measured at fair value through other comprehensive income |
(ii) Fair value of each investment at the reporting date. |
Notes to the Financial Statements: Note 35.3 (a) and 35.3 (b) – Equity securities | |
(iii) Dividends recognised during the period, separately for investments derecognised during the reporting period and those held at the reporting date. |
Notes to the Financial Statements: Note 17 – Net other operating income | |
(iv) Transfer of cumulative gain or loss within equity during the period and the reasons for those transfers. |
Statement of Profit or Loss and Other Comprehensive Income and Statement of Changes in Equity. | |
(v) If investments in equity instruments measured at FVOCI are derecognised during the reporting period,
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Statement of Profit or Loss and Other Comprehensive Income and Statement of Changes in Equity. | |
1.3.4 | Reclassification of financial assets | |
(i) For all reclassifications of financial assets in the current or previous reporting period
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Material Accounting Policies: Note 7.1.6 Reclassification of financial assets and liabilities. During the year 2023, the Bank did not reclassify financial assets. However, during the year 2022, the Bank reclassified financial assets. Refer Note 35.1 for details. |
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(ii) For reclassifications from FVTPL to amortised cost or FVOCI
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During the current or previous year, the Bank did not reclassify financial instruments from FVTPL to amortised cost or FVOCI. | |
(iii) For reclassifications from FVOCI to amortised cost, or from FVTPL to amortised cost or FVOCI
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During the year 2023, the Bank did not reclassify financial assets from FVOCI to amortised cost or FVTPL to amortised cost or FVOCI. However, during the year 2022, the Bank reclassified financial assets as disclosed under Note 7.1.6 Reclassification of financial assets and liabilities and Note 35.1 – Government Securities | |
1.3.5 | Information on hedge accounting | Material Accounting Policies: Note 7.1.5 – Derivatives held for risk management purposes and hedge accounting |
1.3.6 | Information about the fair values of each class of financial asset and financial liability, along with: | |
(i) Comparable carrying amounts. |
Notes to the Financial Statements: Note 27.1 – Assets and liabilities measured at fair value and fair value hierarchy Note 27.3 – Financial instruments not measured at fair value and fair value hierarchy |
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(ii) Description of how fair value was determined. |
Material Accounting Policies: Note 4 and 27 - Fair value measurement | |
(iii) The level of inputs used in determining fair value. |
Notes to the Financial Statements: Note 27.3 – Financial instruments not measured at fair value and fair value hierarchy Note 27.4 – Valuation techniques and inputs in measuring fair values Note 38.5 (b) and 38.5 (c) – Information on valuations of freehold land and buildings of the Bank |
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(iv) a. Reconciliations of movements between levels of fair value measurement hierarchy. b. Additional disclosures for financial instruments that fair value is determined using level 3 inputs. |
There were no movements between levels of fair value hierarchy during the year under review. Notes to the Financial Statements: Note 27.2 – Level 3 Fair value measurement | |
(v) Information if fair value cannot be reliably measured. |
None | |
2. | Information about the nature and extent of risks arising from financial instruments | |
2.1 | Qualitative disclosures | |
2.1.1 | Risk exposures for each type of financial instrument | Material Accounting Policies: Note 3 – Financial Risk Management Notes to the Financial Statements: Note 66 – Financial Risk Review |
2.1.2 | Management’s objectives, policies and processes for managing those risks. | Material Accounting Policies: Note 3 – Financial Risk Management Refer the Section on “Risk Governance and Management” for comprehensive disclosure of Management’s objectives, policies and processes. |
2.1.3 | Changes from the prior period. | There were no major policy changes during the year under review. |
2.2 | Quantitative disclosures | |
2.2.1 | Summary of quantitative data about exposure to each risk at the reporting date. | Notes to the Financial Statements: Note 66 – Financial Risk Review |
2.2.2 | Disclosures about credit risk, liquidity risk, market risk, operational risk, interest rate risk and how these risks are managed. | |
(i) Credit risk (a) Maximum amount of exposure (before deducting the value of collateral), description of collateral, information about credit quality of financial assets that are neither past due nor impaired and information about credit quality of financial assets. |
Notes to the Financial Statements: Note 66.1.1 – Credit Quality Analysis Note 66.1.4 – Collateral Held | |
(b) For financial assets that are past due or impaired, disclosures on age, factors considered in determining as impaired and the description of collateral on each class of financial asset. |
Notes to the Financial Statements: Note 66.1.1 – Credit Quality Analysis Note 18 – Impairment charges and other losses – collateral valuation for the description on collaterals Note 66.1.4 – Collateral Held Material Accounting Policies: Note 7.1.12 – Identification and measurement of impairment of financial assets for factors considered in determining the financial assets as impaired | |
(c) Information about collateral or other credit enhancements obtained or called. |
Notes to the Financial Statements: Note 66.1.4 – Collateral Held | |
(d) Credit risk management (CRM) practices |
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– Information about CRM practices and how they relate to the recognition and measurement Expected Credit Losses (ECL), including the methods, assumptions and information used to measure ECL |
Material Accounting Policies: Note 2.12.5 – Impairment losses on financial assets Note 7.1.12 – Identification and measurement of impairment of financial assets Notes to the Financial Statements: Note 18 – Impairment charges and other losses | |
– Quantitative and qualitative information to evaluate the amounts in the Financial Statements arising from ECL, including changes and the reasons for those changes |
Notes to the Financial Statements: Note 18 – Impairment charges and other losses Note 66.1.1 – Credit Quality Analysis | |
– How the Bank determines whether the credit risk of financial instruments has increased significantly since initial recognition, including whether and how financial instruments are |
Material Accounting Policies: Note 7.1.12.2 – Significant increase in credit risk | |
– The Bank’s definitions of default for different financial instruments, including the reasons for selecting those definitions |
Material Accounting Policies: Note 7.1.12.3 – Definition of default and credit impaired assets | |
– How instruments are grouped if ECL are measured on a collective basis |
Material Accounting Policies: Note 7.1.12.5 Grouping financial assets measured on collective basis Notes to the Financial Statements: Note 18 – Impairment charges and other losses | |
– How the Bank determines that financial assets are credit-impaired |
Material Accounting Policies: Note 7.1.12.3 – Definition of default and credit impaired assets | |
– The Bank’s write-off policy, including the indicators that there is no reasonable expectation of recovery |
Notes to the Financial Statements: Note 18 – Impairment charges and other losses – “Write off of financial assets” |
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– How the modification requirements have been applied, including how the bank determines whether the credit risk of a financial asset that has been modified subject to a lifetime ECL allowance has been improved to the extent that the loss allowance reverts to being measured at an amount equal to 12-month ECL and monitors the extent to which the loss allowance on those assets subsequently reverts to being measured at an amount equal to lifetime ECL |
Material Accounting Policies: Note 7.1.8 – Modification of financial assets and financial liabilities Notes to the Financial Statements: Note 66.1.1 (b) Credit exposure movement – ECL stage-wise Note 66.1.1 (c) Provision for impairment (ECL) movement | |
(e) ECL calculations |
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Material Accounting Policies: Note 2.12.5 – Impairment losses on financial assets Notes to the Financial Statements: Note 7.1.12 – Identification and measurement of impairment of financial assets | |
– How forward-looking information has been incorporated into the determination of ECL, including the use of macro-economic information; and |
Note 18 – Impairment charges and other losses – “Forward looking information” | |
– Changes in estimation techniques or significant assumptions made during the reporting period and the reasons for those changes. |
Material Accounting Policies: Note 2.12.5 – Impairment losses on financial assets | |
(f) Amounts arising from ECL |
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– Reconciliation for each class of financial instrument of the opening balance to the closing balance of the impairment loss allowance – Explain the reasons for changes in the loss allowances in the reconciliation |
Notes to the Financial Statements:
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(g) Collateral |
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Notes to the Financial Statements: Note 66.1 – Credit risk | |
(h) Written-off assets – contractual amount outstanding of financial assets written off during the reporting period that are still subject to enforcement activity. |
Notes to the Financial Statements: Note 33.2 – Movement in provision for impairment during the year Note 17 – Net other operating income |
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(i) Pillar III disclosures of the Banking Act Directions No. 01 of 2016 on Capital requirements under Basel III for Licensed Banks. |
Notes to the Financial Statements: Note 66.5 – Capital management and Pillar III disclosures as per Basel III |
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(ii) Liquidity risk (a) A maturity analysis of financial assets and liabilities. |
Notes to the Financial Statements: Note 60 – Maturity Analysis – Group Note 66.2.2 – Maturity analysis of financial assets and financial liabilities – Bank | |
(b) Description of approach to risk management. |
Material Accounting Policies: Note 3 – Financial Risk Management Refer the Section on “Risk Governance and Management” | |
(c) Pillar III disclosures of the Banking Act Directions No. 01 of 2016 on Capital requirements under Basel III for Licensed Banks. |
Annex 2 – Basel III – Disclosures under pillar III as per Banking Act Direction No. 01 of 2016 | |
(iii) Market risk (a) A sensitivity analysis of each type of market risk to which the Bank is exposed. |
Notes to the Financial Statements: Note 66.3.2 – Exposure to interest rate risk – sensitivity analysis | |
(b) Additional information, if the sensitivity analysis is not representative of the Bank’s risk exposure. |
Notes to the Financial Statements: Note 66.3.3 – Exposure to currency risk – Non-trading portfolio | |
(c) Pillar III disclosures of the Banking Act Directions No. 01 of 2016 on Capital requirements under Basel III for Licensed Banks. |
Annex 2 – Basel III – Disclosures under pillar III as per Banking Act Direction No. 01 of 2016 | |
(iv) Operational risk Pillar III disclosures of the Banking Act Directions No. 01 of 2016 on Capital requirements under Basel III for Licensed Banks. |
Annex 2 – Basel III – Disclosures under pillar III as per Banking Act Direction No. 01 of 2016 | |
(v) Equity risk in the banking book (a) Qualitative Disclosures – Differentiation between holdings on which capital gains are expected and those taken under other objectives including for relationship and strategic reasons |
Notes to the Financial Statements: Note 32 – Financial assets recognised through profit or loss – measured at fair value Note 35 – Financial assets measured at fair value through other comprehensive income | |
– Discussion of important policies covering the valuation and accounting of equity holdings in the banking book |
Note 66.3.4 – Exposure to equity price risk | |
(b) Quantitative Disclosures – Value disclosed in the Statement of Financial Position of investments, as well as the fair value of those investments; for quoted securities, a comparison to publicly quoted share values where the share price is materially different from fair value |
Notes to the Financial Statements: Note 32 – Financial assets recognised through profit or loss – measured at fair value Note 35 – Financial assets measured at fair value through other comprehensive income | |
– The types and nature of investments |
Material Accounting Policies: Note 7.1.3.4 – Financial assets measured at FVOCI Note 7.1.3.5 – Financial assets measured at FVTPL Notes to the Financial Statements: Note 32 – Financial assets recognised through profit or loss – measured at fair value Note 35 – Financial assets measured at fair value through other comprehensive income | |
– The cumulative realised gains/(losses) arising from sales and liquidations in the reporting period |
Statement of Profit or Loss and Other Comprehensive Income Notes to the Financial Statements: Note 15 – Net gains/(losses) from trading | |
(vi) Interest rate risk in the banking book (a) Qualitative Disclosures Nature of interest rate risk in the banking book (IRRBB) and key assumptions. |
Notes to the Financial Statements: Note 66.3.2 – Exposure to Interest Rate Risk – Sensitivity analysis Refer the Section on “Risk Governance and Management” |
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(b) Quantitative disclosures – The increase/(decline) in earnings or economic value |
Notes to the Financial Statements: Note 66.3.2 – Exposure to Interest Rate Risk – Sensitivity analysis Refer the Section on “Risk Governance and Management” | |
2.2.3 | Information on concentrations of risk. | Notes to the Financial Statements: Note 66.1.5 – Concentration of credit risk |
3. | Other disclosures | |
3.1 3.1.1 | Capital Capital structure | |
(i) Qualitative disclosures Summary information on the terms and conditions of the main features of all capital instruments, especially in the case of innovative, complex, or hybrid capital instruments. |
Notes to the Financial Statements: Note 66.5 – Capital Management and Pillar III disclosures as per Basel III |
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(ii) Quantitative disclosure (a) The amount of Tier 1 capital, with separate disclosure of:
(b) The total amount of Tier 2 and Tier 3 capital (c) Other deductions from capital (d) Total eligible capital |
Notes to the Financial Statements: Note 66.5 – Capital Management and Pillar III disclosures as per Basel III Refer the Section on “Risk Governance and Management” |
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3.1.2 | Capital adequacy
(i) Qualitative disclosures A summary discussion of the Bank’s approach to assessing the adequacy of its capital to support current and future activities. |
Notes to the Financial Statements: Note 66.5 – Capital Management and Pillar III disclosures as per Basel III Refer the Section on “Risk Governance and Management” |
(ii) Quantitative disclosures (a) Capital requirements for credit risk, market risk, and operational risk (b) Total and Tier 1 capital ratio |
Note 66.5 – Capital Management and Pillar III disclosures as per Basel III Refer the Section on “Risk Governance and Management” |