The Nations Experience Nations Trust Bank PLC Annual Report 2018 Scan to view this report online https://www.nationstrust.com/about/ investor-relations/annual-reports Nations Trust is a truly extraordinary bank. In just 19 years we have grown to become one of Sri Lanka’s most energetic, resilient and value-driven retail bank, serving diverse corporates, institutions and individuals with unmatched excellence in financial solutions. We are constantly looking to the future, using progressive ideas and far-sighted strategies to create increasing value and better experiences for our customers and other stakeholders; - the people and partners who make us who we are today. Our clients’ interests lie at the heart of all we do. We care about what they think and feel. That’s why we’re working SMART to deliver the speed and convenience of online banking to every customer; dramatically transforming the way they work, play and live. And that’s the Nations Experience. Contents About our Integrated Report 3 Financial Statements Supplementary Information The Year in Numbers 4 Directors’ Responsibility for Investor Information 222 Chairman’s Message 6 Financial Reporting 94 Corporate Governance Annexure 226 Chief Executive Officer’s Review 8 Independent Auditors’ Report 95 Risk Management Annexure 250 Board of Directors 12 Statement of Financial Position 98 Mapping Our Material Topics Corporate Management 18 Statement of Profit or Loss 99 to GRI and GRI Index 267 Vice Presidents 20 Statement of Comprehensive Income 100 Material Matters Annexure 270 Value Creation Model 22 Statement of Changes in Equity 101 Details of Freehold Land & Building 272 Managing Our Trade-offs 24 Statement of Cash Flows 102 Service Network 273 Engaging Stakeholders 25 Notes to the Financial Statements 103 Glossary 276 Operating Environment and Notice of Meeting 279 Industry Review 26 Form of Proxy (Voting Shareholders) 281 Material Matters 28 Form of Proxy (Non-Voting Shareholders) 283 Strategic Focus Areas 29 Corporate Information IBC Sustainability at Nations Trust Bank 30 Business Line Reviews Consumer Banking 33 SME Banking 34 Corporate Banking 35 Leasing 36 Treasury 37 OUR VISION Navigation icons - Seven Capitals Capital Management Reports We help people and Financial Capital 38 businesses achieve today’s Ten Year Key Performance Trends 40 Financial Capital Human Capital 42 goals and tomorrow’s Digital Capital 46 aspirations Manufactured Capital 49 Intellectual Capital 50 Human Capital Social and Relationship Capital 51 OUR MISSION Natural Capital 55 Independent Assurance Report 58 We will work SMART Corporate Governance 60 to become the most respected Digital Capital Annual Report of the Board of Director on the Affairs of the Bank 63 financial services provider. Directors’ Interest in Contracts with the Bank 67 SMART Manufactured Capital Risk Management 68 Smart. More with less. Board Integrated Risk Management Committee Report 83 Adaptable. Responsible. Board Credit Committee Report 84 Tech Savvy. Intellectual Capital Board Supervisory Committee Report 85 Board Nomination Committee Report 86 Human Resources and VALUES Remuneration Committee Report 87 Social Relationship Capital Related Party Transactions • Agile Review Committee Report 88 • Proactive Directors’ Statement on Internal • Excellence Control Over Financial Reporting 89 Natural Capital Auditors’ Report on Internal Control • Winning Together Over Financial Reporting 90 • Trust Board Audit Review Committee Report 91 Nations Trust Bank PLC - Annual Report 2018 About our Integrated Report As an organisation which has embraced the for the period from 1st January to 31st December REPORTING CHANGES principles of integrated thinking and reporting, 2017. The financial information presented from There were no significant changes to the Bank’s Nations Trust Bank PLC has pleasure in page 98 to 220 and discussed in the narrative size, structure, shareholding or supply chain presenting its fifth Integrated Annual Report, report throughout the Integrated Report during the year under review. There also were no prepared in accordance with the principles of the represents consolidated numbers while the non- significant restatements of previously reported, <IR> Framework, published by the International financial information represents only the Bank. economic, social or environmental information. Integrated Reporting Council (IIRC). The Report Changes to material topics and topic boundaries aims to provide an accurate and balanced AUDIENCE compared to last year are given on page 270 to assessment of the Bank’s strategy, performance, This Report is aimed primarily to our 271 of this Report. opportunities and risks in relation to material shareholders and providers of financial capital; financial, social and environmental issues. however, it also contains information relevant to FORWARD-LOOKING STATEMENTS other stakeholders. SCOPE AND BOUNDARY This Report contains certain forward-looking statements regarding the Group’s performance, This Report covers the operations of Nations financial position and operations. These Trust Bank PLC and its subsidiaries, Waldock statements involve risks and uncertainty as they MacKenzie Limited, Allied Properties Limited and Nations Insurance Brokers Limited for the relate to events that occur in the future. These period from 1st January to 31st December 2018. factors could cause actual results to differ from The Bank follows an annual reporting cycle, and those expressed/implied by such forward- this Report builds on the Bank’s previous report looking statements. STANDARDS AND ASSURANCE Outcome and Elements assured Standards and Principles Assurance provider Scope Frequency • Sri Lanka Financial Reporting Standards issued by the Institute of Chartered External audit Financial statements Accountants of Sri Lanka Messrs. Ernst and Young Annual audit opinion - Annual • Banking Act No.30 of 1988 • Companies Act No.7 of 2007 Internal Controls Assurance on the External audit (Director’s Statement Messrs. Ernst and Young effectiveness of the opinion - Annual on Internal Controls) Bank’s internal controls Compliance to the Assurance • Banking Act Direction No.11 of 2007 Corporate Governance Messrs. Ernst and Young Banking Act Direction statement - • Companies Act No.7 of 2007 No. 11 of 2007 Annual Assurance Sustainability GRI Standards: In Global Reporting Initiative (GRI) Standards Messrs. Ernst and Young statement - Reporting accordance- Core option Annual READING THIS REPORT FEEDBACK The content included in this Report is structured Please direct your queries, comments and to address key questions around the Group’s suggestions regarding this Report to, performance and strategy execution in creating value to our stakeholders. Kushlani Allis, Vice President, Management Reporting and Planning E-mail : [email protected] 3 A Transformative Experience The Year in Numbers Financial Capital 2018 2017 YoY Performance of the year (Group) (LKR million) Net interest income 15,163 11,909 27% Gross income 43,237 35,333 22% Operating profit before tax on financial services 7,726 7,052 10% Profit for the year 3,702 3,371 10% Financial Position (Group) (LKR million) Customer deposits 231,463 194,269 19% Loans and receivables 221,506 186,746 19% Total assets 325,016 267,629 21% Total liabilities 297,957 246,159 21% Total equity to equity holders of the Bank 27,059 21,470 26% Profitability (Group) Net interest margin 4.60% 4.50% Non-performing-loans ratio 4.58% 2.29% Return on assets 1.25% 1.41% Return on equity 15.26% 17.38% Cost to income ratio 47.81% 51.87% Investor Information (Bank) Market value per share (Voting) (LKR) 89.20 78.00 Market value per share (Non-Voting) (LKR) 82.10 - Earnings per share-basic (LKR) 13.33 17.50 Net asset value per share (LKR) 95.27 90.23 Market Capitalisation (LKR million) 24.498 17.987 Regulatory Ratios (Group) Capital adequacy ratios: Tier 1 (minimum ratio of 7.875%)* 12.15% 10.83% Total Capital (minimum ratio of 11.875%)* 15.59% 13.89% Statutory liquid assets ratio (DBU) 22.32% 21.13% *Minimum capital ratios applicable as at 31st December 2018 4 Nations Trust Bank PLC - Annual Report 2018 Human Capital Digital & Manufactured Revenue per Employee Training & Development No of Capital LKR Mn Training Hours LKR Mn Employees 8 3,500 140 150,000 7 120 3,000 120,000 6 100 5 90,000 2,500 80 4 LKR Mn 60 880 2,000 60,000 3 40 New investment in IT 2 1,500 30,000 20 1 0 1,000 0 0 20142015 2016 2017 2018 20142015 2016 2017 2018 94 Revenue per employee Total training hours Number of employees Investment in training Branches New Hires by Gender New Hires by Age 127 10% 44% 90% ATMs 45 56% CRMs Male Below 30 years Female 30-50 years Social Relationship Capital Natural Capital Customers Number of Customers (Nos) 773,679 8.2 Interest Payments to Customers (LKR Mn) 18,006 Mn kw/h Customer Satisfaction rate (%) 84 Energy Consumption Lending 14.5% Paper To SME & Micro Sectors (LKR Mn) 17,220 Recycled Outside the Western Province (%) 31 2.14 tCo2e/FTE Emmission Intensity 5 A Transformative Experience Chairman’s Message Dear Shareholders, Nations Trust Bank clearly positioned itself as a futuristic and digitally agile bank with the launch of Open API Banking in 2018 following its successful launch of Sri Lanka’s first digital bank, FriMi, in 2017. Visibly differentiating itself from our peers, Nations Trust continues to lead the country’s technology transformation in the financial services sector, consistently delivering holistic customer experiences to an increasingly tech savvy demographic. INNOVATING TO DRIVE GROWTH Innovation is key to delivering our strategic goals and the Bank invested LKR 880 million in information technology assets in 2018 which amounted for a majority of the capital expenditure. Open API Banking and FriMi have been first to market technologies in the country and we will look to maintain the momentum gathered, leveraging our expertise gained in cutting edge technology. Transformation of the bank as a technology driven customer centric bank and improvement in the cost to income ratio are just two aspects of the yield from these investments.