Sampath Bank PLC Annual Report 2012 CORPORATE INFORMATION
Name of Company VAT Registration Number Sampath Bank PLC 134001194 - 7000
Legal Form Credit Rating A public Limited Liability Company incorporated in Sri Lanka on 10th RAM Rating AA (Stable) March 1986 under the Companies Act No. 17 of 1982 and listed in Fitch Rating AA-(lka) (Stable) the Colombo Stock Exchange. A licensed Commercial Bank under the Banking Act No. 30 of 1988. Re-registered on 28th April 2008 under Board of Directors (As at 25/10/2012) the Companies Act No. 07 of 2007. Mr. Dhammika Perera - Chairman Mr. Channa Palansuriya - Deputy Chairman Registration Number Mr. Sanjiva Senanayake - Senior Director PQ 144 Mr. Deepal Sooriyaarachchi - Non-Executive Director Prof. Malik Kumar Ranasinghe - Non-Executive Director Head Office & Registered Office Mrs. Dhara Wijayatilake - Non-Executive Director 110, Sir James Peiris Mawatha, Miss. Annika Wickremasinghe Senanayake - Colombo 02, Sri Lanka Non-Executive Director Mr. Deshal De Mel - Non-Executive Director Telephone Mr. Ranil Pathirana - Non-Executive Director +94(011)2300260 Mrs. Saumya Amarasekera - Non-Executive Director +94(011)2358358 Mr. Aravinda Perera - Managing Director +94(011)4730630 Mr. Ranjith Samaranayake - Group Chief Financial Officer/ +94(011)5331441 Executive Director +94(011)5600600 Subsidiary Companies Fax Name of the Company Holding % Nature of Business +94(011)2303085
Renting of Commercial Sampath Centre Ltd 97.14 SWIFT Code Property BSAMLKLX S C Securities (Pvt) Ltd 100.00 Stock Broking E-mail Sampath Leasing & 100.00 Leasing & Factoring [email protected] Factoring Ltd Developing Software Sampath Information Web Page 100.00 Solutions and Technology Solutions Ltd www.sampath.lk Maintenance of Hardware
Auditors For investor relations and clarifications on the report, Please contact; Ernst & Young Group Company Secretary Chartered Accountants Sampath Bank PLC No. 110, Sir James Peiris Mawatha, Colombo 2, Sri Lanka Lawyers E-mail : [email protected] Nithya Partners Tel. : +94(011) 4730418/420/548 Attorneys - at - Law
Group Company Secretary S Sudarshan ACIS (UK), MBA(Lincoln-UK)
Stock Exchange Listings 162,736,665 Ordinary Shares
15,000,000 Unsecured Subordinated Debentures of Rs. 100/- each - 2012/2017
Sampath Bank PLC 1 AHEAD OF OUR TIME.
2 Annual Report 2012 As we celebrate our Silver Jubilee marking 25 great years of service to the nation, we know we have made a significant contribution to the banking and financial service industry of Sri Lanka.
We’ve never been satisfied with ‘good enough’. From pioneering cutting-edge banking technology to creating the island’s biggest ATM network and winning a host of industry awards, we have been setting benchmarks of excellence in many different ways.
It has always been our aim to bring the most innovative and contemporary financial services to every Sri Lankan and that idea still holds true. 25 years young and going strong, we shall strive to be outstanding in our industry and always ahead of our time.
Sampath Bank PLC 3 OUR VISION THE GROWING FORCE IN SRI LANKAN FINANCIAL SERVICES
Create a learning culture that promotes individual and organisational development as well as promoting innovation and value for customers.
Treat all internal and external customers the way we would like to be treated.
OUR VALUES Encourage and promote teamwork in all aspects of behaviour.
Open to feedback and demonstrate an eagerness for personal development.
Monitor and demonstrate an impressive commitment to results.
Uncompromising ethical and professional standards of behaviour.
4 Annual Report 2012 Sampath Bank at a Glance 6 Managing Director’s and Group Chief Financial Financial Highlights 8 Officer’s Responsibility Statement 289 Milestones 10 Directors’ Responsibility For Financial Reporting 290 Chairman’s Statement 14 Independent Auditors’ Report to the Managing Director’s Review 18 Shareholders of Sampath Bank PLC 291 Board of Directors 30 Income Statement 292 Board of Directors Profiles 32 Statement of Other Comprehensive Income 293 Corporate Management 38 Statement of Financial Position 294 Senior Management 41 Cash Flow & Reconciliation Statement 295 CONTENTS Management Discussion & Analysis 46 Statement of Changes In Equity 297 Corporate Governance 96 Significant Accounting Policies 298 Audit Committee 144 Notes to the Financial Statements 318 Nominations Committee Report 148 Ten Years at a Glance 394 Credit Committee Report 150 Value Addition 395 Report of The Risk Management Committee 152 Sources & Distribution of Income 396 Human Resources & Remuneration Committee Compliance with the Disclosure Requirements Report 155 Specified by the Central Bank of Sri Lanka 397 Strategic Planning Committee Report 158 Share Information 400 Shareholder Relations Committee Report 160 Debenture Information 406 Treasury Committee Report 162 Branch Network 408 Marketing Committee Report 163 Nostro Accounts Maintained in Specific Currencies 413 Risk Management 164 Correspondent Banks and Exchange Companies 415 Sustainability Report 200 Capital Adequacy 419 Annual Report of the Board of Directors on the Glossary of Financial and Banking Terms 424 Affairs of the Company 274 Notice of Annual General Meeting 430 Directors Statement on Internal Control Over Form of Proxy 431 Financial Reporting 287 Corporate Information Inner Back Cover Independent Assurance Report to the Board of Directors of Sampath Bank PLC 288
Sampath Bank PLC 5 SAMPATH BANK AT A GLANCE
The robust infrastructure of the Bank and its heritage as a pioneer in leveraging technologies to provide a superior service was the foundation for its reasonably strong credit, asset and deposit growth in 2012. 5.3Bn Group profit After tax 41% 25% GROWTH IN INCOME GROWTH IN ASSETS Group Income 40 Bn Group Assets 314 Bn
6 Annual Report 2012 209 BRANCHES 264 ATMS 24% 23% GROWTH IN DEPOSITS GROWTH IN ADVANCES Bank Deposits 243 Bn Bank Advances 208 Bn
Sampath Bank PLC 7 FINANCIAL HIGHLIGHTS
BANK GROUP 2012 2011 Change 2012 2011 Change (Rs Mn) (Rs Mn) % (Rs Mn) (Rs Mn) %
Profitability Income 38,794 27,577 40.7 39,725 28,267 40.5 Total operating income 17,869 14,572 22.6 18,377 15,128 21.5 Operating expenses, impairment losses and VAT on Financial Services 10,604 9,578 10.7 10,860 9,753 11.3 Profit before tax 7,265 4,994 45.5 7,517 5,376 39.8 Provision for taxation 2,129 1,606 32.5 2,172 1,670 30.0 Profit for the year 5,136 3,387 51.6 5,346 3,705 44.3
Assets & Liabilities Due to banks & other customers (Deposits only) 243,575 195,900 24.3 243,332 195,799 24.3 Loans and receivables from banks & other customers after provision for impairment losses (before staff loan fair value adjustment) 209,587 170,767 22.7 213,883 173,063 23.5 Total equity 25,101 20,900 20.1 27,275 22,867 19.3 Total assets 308,681 247,085 24.9 314,326 250,995 25.2
Investor Information Loans & receivables from banks & other customers to due to banks & other customers (%) 85.81 86.84 (1.2) 87.66 88.06 (0.5) Net asset value per share (Rs.) 154.24 130.19 18.5 167.60 142.44 17.7 Market value at year end (Rs.) 200.50 195.00 2.8 200.50 195.00 2.8 Earnings per share - Basic (Rs.) - - - 32.98 23.00 43.39 Earnings per share - Diluted (Rs.) 32.94 22.88 43.97 Dividend yield ( %) 6.0 4.6 29.7 - - - Dividend per share (Rs.) 12.00 9.00 33.3 - - - Dividend cover (Times) 2.6 2.4 8.3 2.7 2.6 3.8 Gross dividends 1,953 1,427 36.9 1,953 1,427 36.9 Market capitalization 32,628 30,587 6.7
Key Indicators Loan impairment losses to total operating income (%) 0.77 2.94 (73.8) 0.83 2.64 (68.6) Loan impairment allowance to loans & receivables to other customers (%) 3.2 4.2 (23.8) 3.2 4.2 (23.8) Return on average assets (%) - before tax 2.6 2.3 13.0 2.7 2.4 12.15 - after tax 1.8 1.5 20.0 1.9 1.7 11.8 Return on equity (after tax) (%) 22.3 16.2 37.6 21.3 16.2 31.5 Cost to income ratio (%) 59.0 61.5 (4.1) 58.7 60.6 (3.2) Liquid assets Ratio (%) 22.4 25.0 (10.2) - - -
Capital adequacy ratios (%) -Tier 1 (%) - Core 11.8 10.2 15.6 11.9 10.5 13.3 -Tier 1 & 11 (%) - Total 13.6 11.5 18.2 13.8 11.8 16.9
RAM Rating AA (Stable) AA (Stable) Fitch Rating AA-(lka) AA-(lka) (Stable) (Positive)
8 Annual Report 2012 Net Prot After Tax - Bank (Rs. Mn) Dividend per Share (Rs.) Net Asset Value per Share (Rs.)
6,000 12 200
5,000 10 150 4,000 8
3,000 6 100
2,000 4 50 1,000 2
0 0 0 08 09 10 11 12 08 09 10 11 12 08 09 10 11 12
Total Deposits (Rs. Mn) Total Advances (Rs. Mn) Capital Adequacy Ratio (%)
15 250,000 250,000
200,000 200,000 10 150,000 150,000
100,000 100,000 5
50,000 50,000
0 0 0 08 09 10 11 12 08 09 10 11 12 08 09 10 11 12 Tier 1 Tier 11
It has been a year for enhancing performance and stability to position the Bank to reap the dividends of the branch expansion programme. The results are encouraging and augur well for the sustained growth and profitability of the Bank.
Sampath Bank PLC 9 1986 -2012 AN EVENTFUL QUARTER CENTURY It has been an amazing twenty five years of operations for the bank. This timeline looks at the defining events in a quarter century of growing our business, touching lives and staying ahead of our time…
1998 The bank was honoured with the award BEST COMMERCIAL BANK OF THE YEAR 1998 by “Asiamoney” for the third year in succession.
1986 Sampath Bank
was incorporated as 1988 Investment & Credit The ATM (SET) facility Bank Ltd, it received was introduced and the certificates to Sampath bank became commence business the first bank in Sri Lanka on 10th March 1986 to operate a multi-point 2002 network of Automated 2000 Sampath Bank Teller Machines. was appointed as Sampath Bank the settlement launched an Internet bank for US Dollar 1996 banking facility cheque clearing “Sampathnet” in July. system in Sri - “asiamoney” the Lanka. prestigious financial magazine in Asia voted Sampath Bank as the ‘Best Commercial Bank of the year’ in Sri Lanka.
1987 1989 1999 The Bank ceremonially opened Uni-Banking for business on 15th May 1987. system was The Bank successfully migrated to a more Mr. N U Jayawardena became the introduced to the 2001 Chairman of the Bank, Mr. Janaka country for the versatile banking package, Quality Approved de Silva was appointed as the first time. Bancs2000 which provided Status for the Bank General Manager. a competitive edge considering the variety of - Sampath Bank services and products it became the first Sri 1987 offers. It also invested in Lankan organisation to achieve the “Quality The Bank introduced a cheque a new state of the art ATM Approved Status” of guarantee card, a saving account switch, which also assisted best practice, which with checking facilities and the continued efforts of is presented by the extended banking hours till 3.00 improving products and Chartered Institute pm for the first time in the country. services offered by the bank. of Management Accountants. 1997 The Bank introduced the DEBIT CARD, another first in South Asia, in association with CIRRUS and MAESTRO.
10 Annual Report 2012 2009 Sampath Bank Reached a greater height by clinching 2007 the global accolade” Telecommunication Bank of the Year technology was infused 2009” by the highly into banking technology acclaimed international
2004 with the introduction magazine ”The Banker” The first ever Cheque of ‘Sampath Mobile of Financial Times Imaging & Truncating Cash’, a money transfer London. (CIT) site in Sri Lanka was process using mobile launched by us on 25th of phones. October. 2011 Introduced the Super branch concept of 365-day banking at Dharmapala Mawatha and Kiribathgoda.
2008 Honoured at the National Science and 2012 2003 Technology Awards We celebrated our 2008 for the category of The Bank became silver jubilee marking 25 Locally Developed New great years of service to the first in Sri Lanka Technologies which have the nation. to introduce “one day resulted in successfully 2010 clearing” for all cheques marketed product/ Creating history in the drawn on any Sampath services for our innovative banking industry of Sri Bank branch, collected by product “Sampath Lanka, the Bank opened any Commercial Bank in eRemittance System” 40 branches and 39 ATMs the island & presented during the year, bringing through Sri Lanka total number of branches Automated Clearing House to 171 and total number (SLACH). of ATMs to 222 by end of 2005 2010. The Bank was adjudged the Best Corporate Citizen for the year 2005 in the top ten category.
Sampath Bank PLC 11 12 Annual Report 2012 Sampath Bank PLC 13 CHAIRMAN’S STATEMENT
Over the next few years, I believe we have the capacity to become the number one bank in Sri Lanka. We need to believe in our capability to achieve this. Our shareholders, I ask for your support and commitment to grow the business and enhance our services on our way to the leadership position.
14 Annual Report 2012 Dhammika Perera Chairman
Sampath Bank PLC 15 CHAIRMAN’S STATEMENT
As a Bank that is 100% homegrown, we have proudly upheld our Sri Lankan identity whilst being an innovator and a trendsetter at the same time.
25 years to the future, we are ahead of our times It is with great pleasure that I welcome all of you, our valued shareholders, to the 27th Annual Over the next few years, I believe we have the General Meeting of Sampath Bank PLC and capacity to become the number one bank in present to you the Audited Financial Statements Sri Lanka. We need to believe in our capability and Annual Report for the financial year 2012. to achieve this. Our shareholders, I ask for your support and commitment to grow with the Back in 1987, a group of far sighted persons business and enhance our services on our way saw the need for a local bank with a local culture to the leadership position. As we grow, we will and local values; a bank by the people for the need to enlarge our resources and to invest people. The visionary late Mr. N. U. Jayawardena towards them. We need to constantly visualize the was invited to be the first Chairman of the future of banking and offer services that ensure Bank. And thus was born what was to become we stay ahead of our times. I believe if we do a revolutionary change agent for Sri Lanka’s this consistently, we will carve for ourselves a banking industry. Sampath Bank over the course differentiator that will be hard to match. of the next two and a half decades transformed Sri Lanka’s banking experience, leading the way As a Bank that is 100% homegrown, we have with technological innovation and excellence in proudly upheld our Sri Lankan identity whilst customer service. And thus was born what was being an innovator and a trendsetter at the same to become a revolutionary change agent for Sri Lanka’s banking sector. Sampath Bank over the course of the next two and a half decades transformed Sri Lanka’s banking experience, leading the way with technological innovation and excellence in customer service. 25 years on, Sampath Bank is a stalwart in Sri Lanka’s financial landscape. But, our 25 years on, Sampath Bank is a stalwart in Sri Lanka’s financial landscape. But, our legacy is not legacy is not just our past. It is also our just our past. It is also our future. Today, you, our future. Today, you, our shareholders, will shareholders, will agree that we will be defined by what we are to become in the next 25 years. And agree that we will be defined by what we are we have already begun the next leg of this journey, to become in the next 25 years. And we have we are embracing change as the only constant in delivering value, creating wealth and making already begun the next leg of this journey, progressive steps towards continuing to change the face of Sri Lanka’s banking sector.
16 Annual Report 2012 time. It is these two values that will define who we are in the future. I reiterate what I noted in my statement in the previous financial year; it is our unique identity, tradition, foresight and innovative spirit that will pave the way for greater future successes.
Our shareholders and stakeholders will agree that by staying ahead of our times, Sampath Bank will lead Sri Lanka into it’s next phase of economic b growth. Our vision for the future is beyond the realms of our own operations. We measure our success against the successes of our nation. 5.1 Ours is a sustainable business model that values inclusive banking, and respects the rights of the BANK PROFIT individual. We believe that these percepts are fundamental to our future achievements.
Growth of the bottom We have achieved 25 years of banking excellence, line was achieved and now as we look to 25 years into the future, through growth of let me assure you that we will stay ahead of our business volumes and times to deliver wealth to all our stakeholders. careful management of resources to My sincere appreciations to the Board of Directors, maximize earnings Managing Director, Management Team and the Sampath Bank team for their unstinted dedication towards realizing our goals for this financial year. Let us march on with resolute dedication. Let us stay ahead of our times.
Dhammika Perera Chairman
22nd February 2013
Sampath Bank PLC 17 MANAGING DIRECTOR’S REVIEW
2012 was a period of consolidation for Branch expansion and rapid business growth for Sampath Bank set within the country’s monetary policy framework designed to moderate credit expansion and improve stability in the Banking sector. Our performance reflects the success of this strategy with Rs.5.1 Bn Profit after tax, an increase of 51.6% over 2011.
18 Annual Report 2012 Aravinda Perera Managing Director
Sampath Bank PLC 19 MANAGING DIRECTOR’S REVIEW
Sampath Bank has turned in a well-rounded performance in almost all areas and I am deeply appreciative of the visionary guidance of the Board and the commitment and dedication of all our staff which has enabled a happy outcome.
2012 was a period of consolidation for Branch expansion and rapid business growth for Sampath Bank aligned within the country’s monetary policy framework designed to moderate credit expansion and improve the stability of the Banking sector. Our provide an efficient service whilst safeguarding performance reflects the success of this strategy the asset quality and also our proactive strategy with Rs.5.1 Bn Profit after tax, an increase of for handling recoveries. 51.6% over 2011, and improved performance indicators across the Board are testimony to the Deposits grew by 24% during the year as our Bank’s enhanced efficiency and stability as we branch network matured and enhanced its celebrate our 25th year in operation in Sri Lanka, performance. The industry observed a shift of particularly considering the challenging conditions deposits from current and savings accounts to that prevailed during the year. time deposits which increased the pressure on net interest margins and Sampath Bank was Our loans and advances portfolio grew by 23% similarly affected. Due to these issues we looked of which the local component was limited by the to other sources of funds to finance our forecast 23% ceiling imposed by Central Bank of Sri Lanka expansion. (CBSL) whilst the foreign currency loan portfolio Financing portfolio growth through increased grew by 29%. Significant areas of growth for credit foreign borrowing was a strategy we pursued as were retail banking, credit cards and SME lending which requires specialised skills and efforts were required with organic growth in corporate banking. We also see exposure increasing in the regions Significant areas of growth for credit were outside the Western Province which has been the result of focussed efforts to support economic retail banking, credit cards and SME lending activity in the regions. Regional expansion of together where specialist skills and efforts our loan book requires more intense activity and support by way of seminars and workshops were required with organic growth in corporate to ensure that customers are financially literate banking. We also see exposure increasing and understand the terms and conditions of their facilities. The requirement for a loan impairment in the regions outside the Western Province provision decreased by Rs 532.6 Mn, mainly due which has been the result of focussed efforts to the charge for loan impairment decreasing by Rs 287.1 Mn in 2012 compared with previous to support economic activity in the regions. year and higher bad debt recoveries amounted to Rs 782.7 Mn in 2012, which is included as other operating income. This is attributable to our centralised approval model supported by a robust IT platform which enabled the bank to
20 Annual Report 2012 we perceived the benefits of lower pricing and easing liquidity constraints. Accordingly in March 2012, immediately prior to the imposition of the credit ceiling, we raised US$62.5 Mn through a taking advantage of our favourable maturity syndicated loan which opened for US$ 30 Mn profile which enabled us to re-price assets and and was oversubscribed more than two fold. liabilities according to market trends. Fee & The syndicate was arranged by Bank Muscat Commission Income grew by 18.7% despite the S.A.O.G., Citigroup Global Markets Asia Limited decline in import and export volumes due to the and Emirates NBD Bank PJSC. This was our high standard of customer service and superior bn second venture to raise funds off shore, having relationship management. Profitability was further raised US$ 45 Mn in 2007 through a similar enhanced as we were able to improve the ratio of 11.6 syndication, which was settled as scheduled. The costs to income from 61.5% in 2011 to 59.0% confidence of the foreign investors in the Bank’s in 2012. The charge for loans and investments performance to date and our ability to sustain and impairment decreased from Rs.618.0 Mn in 2011 Net Interest Income grow was amply evidenced by the interest shown to Rs.64.9 Mn in 2012 ,which was mainly due to in the current syndication by the foreign markets. the fact that there was a mark to market gain on A strong balance sheet and related financials Treasury Bills as against a loss recorded in 2011 Net interest income coupled with its tremendous growth resulted and the charge on loan impairment for the year is recorded a growth in the overwhelming response to the syndicate well below the last year. We have also been able of 29.8% over due to participation amidst the prevailing global economic to reduce the effective tax rate from 32.2% to prudent credit growth, issues. During the year we signed agreements to 29.3% due to effective tax planning. Profit after diverting resources raise US$ 20 Mn funds from Proparco Group in tax growth of 51.6% to Rs.5.1 Bn was achieved to more remunerative France for renewable energy projects and raised through understanding the trends and forces products and effective US$ 45 Mn from China Development Bank for that are shaping the industry and responding reprising of both trade with China. This has enabled us to reduce effectively to the same using the strengths that asset and liability our cost of funds and to ease the pressure on Net have characterised our progress, high standards products Interest Margin. We recognise that this strategy of customer service coupled with technological changes our risk profile but are confident that we innovation. have the mechanisms in place to monitor and manage the risk and also the resilience to absorb Capital adequacy also improved during the year a normal degree of stress. We are appreciative with Core Capital moving up from 10.24% in 2011 of the guidance provided by Central Bank in this to 11.80 % in 2012 and Total Capital (Tier I + regard. Tier II) moving in a similar manner from 11.45% to 13.61%. Sampath Bank has turned in a well- Growing net interest income (NII) presented rounded performance in almost all areas and I am challenges during the year due to tighter deeply appreciative of the visionary guidance of liquidity and intense competition between the Board and the commitment and dedication of banks for deposits. Sampath Bank was able to all our staff which has enabled a happy outcome. grow NII by 29.8% to Rs.11.6 Bn by increasing The high rankings for management profile honesty foreign borrowings as described above and also (#3) and financial performance (#3) together with
Sampath Bank PLC 21 MANAGING DIRECTOR’S REVIEW
It was a challenging year for the Banking sector as it dealt with the credit ceiling imposed in the 1st quarter, higher interest rates, volatile exchange rates and tightening liquidity.
the overall ranking of #5 in the most respected Global economic growth continued entities in Sri Lanka, recognised by LMD is testimony to the calibre of Team Sampath and its to slow down during the year and is capabilities. estimated at 3.3% for 2012 by the A Challenging Landscape International Monetary Fund. Uncertainty Global economic growth continued to slow down over the viability of the Euro zone and during the year and is estimated at 3.3% for 2012 by the International Monetary Fund. Uncertainty fiscal policy in the US continue to over the viability of the Euro zone and fiscal heighten the global risks. policy in the US continue to heighten the global risks. Deceleration in growth is evident in India and China as well further dampening the growth with the 3% introduced in the budget proposal projections for emerging economies. Sluggish in November 2011. Consequently the Rupee output in major advanced economies, fragile devalued by 11.6% during the year opening the financial conditions and elevated unemployment year at Rs 113.90 and closing at Rs 127.65 per in most parts of the world remain key concerns. US$. It is significant that the rupee appreciated by 5% during the 2nd half of the year reflecting The Sri Lankan economy grew at 6.5% in 2012 the success of the policy measures implemented. compared to 8.3% in 2011 as the economy Fiscal policy measures were taken to address the was impacted by weak demand for exports due growing trade deficit by imposition of higher tariffs to the above conditions as well as geo-political and excise duties on selected imports which uncertainty, sanctions on Iran and persistently resulted in a decline in import volumes during the high petroleum prices. Excessive credit demand, year. Greater pass through of energy and transport a drought that affected the performance of the prices was allowed during the year to address the agriculture sector and the hydro power generation budget deficit. These measures resulted in the followed by floods in the last quarter which affected contraction of the trade deficit by 2.1 % during food supplies were critical local factors that first 11 months and a surplus in the balance of impacted our economy. Several policy measures payments of US$ 100 Mn whilst annual average were taken to address these issues in the economy inflation increased from 6.7% in 2011 to 7.6% in which have proved effective and stabilised the December 2012. economy although many had adverse impact on the performance of the Banking sector. Monetary It was a challenging year for the Banking sector policy changes effected to stabilise the economy as it dealt with the credit ceiling imposed in included increasing policy interest rates and the 1st quarter, higher interest rates, volatile imposing a ceiling on credit growth of 18% with exchange rates and tightening liquidity. The a provision to increase up to 23% if foreign funds sector demonstrated resilience and maintained were raised to finance such expansion. Exchange stability while expanding at a more moderate rate policy was relaxed allowing greater flexibility pace in comparison to 2011. Regulations were continuing the devaluation that commenced
22 Annual Report 2012 Negombo and Beruwala which will enable tourists to exchange their currency for rupees supporting this vital sector. Thirty fully fledged branches in the strengthened and risk management was enhanced Asset & North and East, the promotion and disbursement to ensure the stability of the sector. Safety net of loans to SMEs under the “Pibidena Uthura” Liability Growth mechanisms and consumer protection were also scheme, and the launch of products designed strengthened during the year. Total assets of the to stimulate economic activity in these regions Banking sector grew from Rs.4.3 trillion in 2011 Growth rates for deposits, taking into account their special needs and advances and total assets to Rs. 5 trillion as at November in 2012 with circumstances are evidence of our commitment surpassed the industry’s aver- loans and advances growing from Rs.2.6 trillion to the economic prosperity of this region. We have age Growth rates for the second to Rs.3.1 trillion over the same period. Deposits consecutive year. increased our lending to the SME sector through grew from Rs.3.1 trillion in 2011 to Rs.3.5 trillion promotion of credit lines and utilised the entire as at November in 2012. Leading banks with allocation of the Investment Fund Account for sound track records and strong balance sheets, this purpose. The Sampath Payment Gateway including Sampath Bank, secured a total of US$ supports the e-government initiatives for the 973 Mn of which 70% were long term funds as Registrar of Companies, the Ministry of Transport, advised and encouraged by Central Bank in order the “Api Wenuwen Api” initiative of the Ministry to finance the expansion of the credit portfolios. of Defence, and the National Health Development There was significant pressure on the Net Interest Fund. We were proud to note that our efforts were Margins due to the high interest rate regime recognised in the rankings of the Most Respected and the shift of deposit mix from the low cost Entities in Sri Lanka where Sampath Bank was current and savings deposits to more costly term ranked 2nd for Nation Mindedness. deposits. Overall, the performance of the sector is testimony to the stability and resilience of the Banking sector and relaxing of policy measures in Consolidation and Business January 2013 sets the stage for stable growth in Expansion the year that has commenced. 2012 was a year of consolidation and business expansion for Sampath Bank - a strategy suited Supporting National Priorities to the economic and regulatory landscape that As a systemically important bank in Sri Lanka, prevailed during the year. These two seemingly we recognised the need to lend support to contradictory goals were actually complementary the national priorities and aligned the Bank’s as we focussed on increasing the business flow strategy to national strategies wherever possible. from the branches and also expansion of the Accordingly we have prioritised business business lines, particularly through the electronic expansion in the North & East, increased exposure banking channels. We have sufficient geographical to priority sectors such as SMEs, supported the coverage with 209 fully fledged branches e-government initiative and invested in foreign throughout the island enabling us to achieve currency ATM’s to support tourism which was higher penetration levels both in the urban and launched in early 2013. Two foreign currency rural communities. Our focus this year was on exchange supported ATMs have already been enhancing productivity and performance efficiency, installed in Colombo Metro area and few more training recently recruited staff, strengthening our of such ATM’s are ready for installation in Kandy, risk management and compliance functions.
Sampath Bank PLC 23 MANAGING DIRECTOR’S REVIEW
We are also exploring new avenues of growth and expansion beyond traditional banking. Our extensive involvement in electronic payment processes holds the key to the future as paper based payment method usage decline. As audit trails of electronic payments have improved enabling real time transfer of funds securely, volumes of payments handled through electronic channels have grown dramatically. Financial intermediaries who propagate new ideas and innovative payment methods making direct transfer of funds possible will be the players of the future. Sampath Bank as a trendsetter in technological innovation in banking will continue to set the pace for the industry in this fast evolving area of operations. Sampath Mobile Cash which was improved and re-launched this year is an example of this initiative where any person can transfer funds using their mobile phone or CDMA phone to any other person who has a mobile phone Managing Director addressing the gathering at the launch of the or CDMA Phone. We have made arrangements First Foreign Currency conversion ATM in SL. to launch a banking Application Programming for the iPhone and iPad. Our electronic banking products including Sampath Vishwa, Sampath brand in an appropriate manner enhancing the PayEasy and the Sampath Payment Gateway are experience of the people who interact within our all products that can support this line of business premises. For the employee who spends a greater and provide scalable and cost effective solutions part of their adult life in the Bank, it must be a for facilitating payments. We have a competitive place that is conducive to performance and where edge in this at present but are fully aware of the their efforts are appreciated. For the customer, need for continuous innovation and improvement it must be a place where they are able to do required to maintain our leadership in this line of business within a framework that supports their business. wealth creation process, their custom is valued and advice is provided on areas of concern. For Brand building other stakeholders it must be a place where their Sampath Bank is ranked within the country’s rights are safeguarded and where they upheld top ten brands in the LMD Brands Annual 2012 and they can conduct their business with dignity, and it is a household name that is synonymous respect and convenience. The project vision is with responsible business practices. We have beyond the mere tangible aspects of pleasant embarked on a programme to ensure that the interiors and accessibility of branches but also ambiance of our premises nationwide reflect our addresses the softer aspects of creating a great
24 Annual Report 2012 to specialise but also have a general knowledge of functions beyond their own and understand what we stand for. We have prioritised their training and mentoring to ensure that our values such as honesty and integrity and the spirit of innovation are passed on and their technical skills are regularly updated and enhanced to enable performance at desired levels. Face to face learning, e-learning place to work or to conduct business. This principle and on the job training is provided to fast track ROA will extend to our electronic banking channels as their integration in to the Sampath team. We have well, enhancing the customer experience with also identified the need to train future leaders the Bank. Standard forms are being reviewed to who will have specialised training to develop their ensure that they are fit for purpose in the current leadership skills with the Sampath Leadership operating environment and are also fit for the Academy. Additionally, the Corporate Management future. All customer touch points will be reviewed Team has been nominated to the Boards of our and analysed to ensure that our processes are subsidiaries to provide leadership opportunities 1.8% 1.5% customer friendly, lean, secure and fit for purpose and also gain greater synergies within the Group. with unnecessary tasks being eliminated. We The results presented, in this Annual Report, bears 2012 2011 strongly believe that focussing on needs of the testimony of the hard work of a team of 3,455 people in this manner will have a significant people united with the common goal of driving positive impact on the Sampath Bank brand and ROA increased in line with the performance of our Bank to greater heights. also prove cost effective for the Bank as we learn the growth in profits and I have been privileged to lead this dynamic and to do more with less resources. remained at high level dedicated team to achieve our strategic goals and above industry average sincerely thank each and every team member for of 1.7% Investing in People their efforts and cooperation in a challenging year. We believe that our team provides us with our Our retention rate of 96% speaks for the loyalty greatest sustainable competitive edge. Ours is an of the team and the results are testimony of their established learning and mentoring culture that capability. We have laid strong foundations for our ensured that the spirit of the Sampath Values future growth over the years which were further is nurtured and passed on to the new recruits. consolidated in 2012 and I look to their continued As we experienced accelerated growth in staff support and commitment as we look to reach numbers over the past two years, we now have higher goals and widen our horizons. approximately 1000 staff, who are relatively new, enthusiastic and eager to prove themselves. Compliance & Regulatory This poses challenges to maintaining our culture Framework of learning and mentoring as we now have a This year the financial statements of the Bank ratio of two internally trained staff to each new are prepared according to the Sri Lanka Financial recruit, who are knowledgeable of what Sampath Reporting Standards which are based on the Bank stands for, our ways and our standard of International Financial Reporting Standards. customer service. Our new team members need
Sampath Bank PLC 25 MANAGING DIRECTOR’S REVIEW
CBSL has strengthened and streamlined the has been the driver for charting our course and regulations for commercial banks during the year we are committed to further improving our level of which contributed to the improved stability of the engagement. Responsible business practices was financial system in the country. a key issue we recognised across all stakeholder segments and this has been the central theme Compliance with guidelines and other regulatory of our sustainability report highlighting the culture frameworks is a matter of priority for the Bank we have built up at Sampath Bank. Many issues and is monitored by the Audit Committee and identified have been addressed during the year the Risk Management Committee who report to and examples of these are the concessions the Board of Directors in this regard. Monthly provided to shareholders, implementation of the compliance certificates are provided to the customer charter and the extensive and varied committees by the Risk Management Unit and the Compliance Unit to provide assurance on compliance with regulations. We have also been As a systemically important bank in the strengthening our Risk Management functions country, we look to continue our tradition as we move towards compliance with the Basel II Advanced Approaches. The Bank is ahead of of setting industry standards through the implementation time frame for these and is technological innovation and customer also looking ahead to Basel III requirements. As per CBSL guidelines the Compliance function service. We have a team that is motivated was segregated from the risk management and inspired to achieve whilst pushing function during the year with structural changes. Additionally the Chief Risk Officer’s role was boundaries to take the Bank... expanded to include subsidiaries as well and designated as Group Risk Officer. We continue engagement with local communities by our branch to engage with the regulators to implement and network. We recognise that our sustainability advocate for best practice in this vital area. agenda requires continuous improvement and look forward to taking up new challenges and Sustainability & Corporate widening our horizons in the coming year. Responsibility This year we have continued our process Silver Jubilee of integrating strategy of sustainability with Sampath Bank completed 25 years in operation our business strategy. We present our first on 22th March 2012. One of the reasons the integrated report this year to our stakeholders Bank came into being was because the founders as sustainability reporting has progressed to saw the need for an innovative, truly Sri Lankan integrated reporting. Our 4E’s sustainability model bank and we have done our best to accomplish was improved to include a fifth E, Ethics and that with our focus on technological innovations Values as we feel this is a necessary dimension focusing on customer service. Our technological of the model and incorporating it would ensure advances which shaped the banking industry in continued emphasis. Stakeholder engagement this country include the first interconnected ATM
26 Annual Report 2012 network, South Asia’s first debit card and many a Bank that has Rs.309 Bn in assets, income of others. Similarly, our customer service standards Rs.39 Bn, profits of Rs.5.1 Bn, 3455 employees also raised the bar for the industry as we were and a network of 209 branches – an achievement the first bank to offer extended banking hours, that is inspirational considering the short space enable customers to access their account from of time in which it was accomplished. Blessings any branch, provide speedy clearance of cheques of our religious leaders from all major religions and also introduced the Super Branch concept were invoked on this auspicious occasion and we with further extended hours. Many of these firsts also felicitated the employees and shareholders are now industry standards and we are proud who have remained loyal to the Bank through-out of our pioneering vision that has dramatically our inspiring journey. We have nurtured the spirit changed the way established industry leaders of innovation and customer service in the Bank conducted their business and made banking a and these themes are as relevant today as they more customer centric industry in line with the were twenty five years ago. These concepts will vision of our founders. We have powered the guide our journey through the future as we chart interbank ATM network which brings together our course to deliver increasing value to our ten banks and one non-bank financial institution stakeholders. to provide customers access through more than 1700 ATM’s throughout the country. We are today Future Outlook As a systemically important bank in the country, we look to continue our tradition of setting industry standards through technological innovation and customer service. We have a team that is motivated and inspired to achieve whilst pushing boundaries to take the Bank to a wider playing field and greater efficiencies. We will look to grow our earnings and assets by at least 20% in 2013 whilst safeguarding the asset quality to maintain minimum impairment charge to the income statement. We will continue to develop electronic banking channels and promote them aggressively with branch expansion being pursued at a more moderate pace as there is sufficient coverage. We will continue to focus on enhancing the profitability of our branch network through effective centralised action supported by our robust IT platforms, enabling our frontline staff to provide a higher standard of service to their communities. Our focus on inclusive banking MD handing over the 25th Anniversary Coffee Table Book to Dr. Ajith C Perera will also continue in 2013 as we seek to achieve
Sampath Bank PLC 27 MANAGING DIRECTOR’S REVIEW
higher penetration of banking services outside the Western Province through understanding the issues and providing solutions. We are reviewing Dividend the potential for venturing to other countries and are likely to widen our playing field. Financing for per Share growth will come through foreign borrowings as in 2012 and also through deposit mobilisation. Rs. It is noteworthy that we hope to realise the 12 investments made in IT and branches in the coming year to further improve cost efficiency ratios.
The Road Map for 2013 has been presented The overall return to shareholders is amongst by CBSL and outlines proposals for economic the highest in the sector and the market. stability and growth with single digit inflation, high rate of employment and stable exchange rates. Parameters for tightening or relaxing monetary policy have been outlined and goals set for a US$ the industry will be through intense competition 100 Bn economy and US$ 4k per capita income and taking market share from other players. We before 2016. The Road Map also provides a “To remain committed to financing growth sectors Do” list for Banks, many of which are already such as tourism and renewable energy to achieve included in our strategy. our growth targets.
Challenges The country’s savings growth is not in line with We foresee challenges arising from the operating investment required for forecast growth. Banks environment and the Bank’s strategy which are encouraged to finance their requirements can impact our growth and earnings targets. through foreign borrowings which in effect mean Challenges arising from the operating environment financing the country’s growth through savings of include the development goals and the savings other countries. As this cannot remain a long term gap whilst the main challenge arising from our solution, measures must be taken to address the strategy is improving our asset quality further. savings gap in order to achieve stability in the long term. Despite the relaxing of monetary policy, it is possible that progress towards realising the Combining the roles of the most aggressive lender country’s development goals and consequently, and having the lowest NPA ratio in the industry the demand for credit, will be lower than forecast. is a challenge that we are gearing up to meet. The project pipeline, particularly from the private We have reduced the NPA ratio from 10% down to sector, needs to improve sufficiently for economic 2% over the past 5 years and have set ourselves growth to be in line with forecasts. If the project the goal of maintaining the NPA ratio below 2%. pipeline is lean, growth for individual players in Our systems are in place for pre-disbursement
28 Annual Report 2012 screening and post disbursement follow up to prevent facilities falling in to arrears. Attention to detail and prompt action are necessary to achieve this goal which will then be the lowest in the industry.
The centre of economic growth has shifted to Asia and to emerging economies as growth rates of developed economies have fallen or failed to recover in 2012. Slower growth in India and China represent cause for concern as these economies are impacted by weak demand from the developed economies. Our country’s progress is dependent on export growth and investment in identified growth sectors which may be adversely impacted by events shaping the global economy. We have also aligned our strategy with the national strategy in a number of areas where the business case has been sound or the social criteria compelling for long term growth and stability. In this context we recognise that the course charted both for the country and the Bank is challenging but achievable. It is an exciting period in which to lead an innovative and agile Bank to new areas of growth. I look to the Board to provide guidance, counsel and strategic direction as they did in 2012 towards achieving our strategic goals and look to my team for their continued support.
Aravinda Perera Managing Director
22nd February 2013
Sampath Bank PLC 29 BOARD OF DIRECTORS
30 Annual Report 2012 Left to right Mr. Dhammika Perera / Chairman (Non-Executive), Mr. Aravinda Perera / Managing Director (Executive), Mr. Channa Palansuriya / Deputy Chairman (Non-Executive), Miss. Annika Senanayake / Director (Non-Executive), Prof. Malik Ranasinghe / Director (Non-Executive), Mr. Ranil Pathirana / Director (Non-Executive), Mr. Sanjiva Senanayake / Senior Director (Non-Executive), Mr. Deepal Sooriyaarachchi / Director (Non-Executive), Mr. Deshal de Mel / Director (Non-Executive), Mrs. Saumya Amarasekera / Director (Non-Executive), Mrs. Dhara Wijayatilake / Director (Non- Board of Directors Executive), Mr. Ranjith Samaranayake / Group Chief Financial Officer (Executive)
Sampath Bank PLC 31 BOARD OF DIRECTORS PROFILES
Mr. Dhammika Perera Mr. Channa Probodha Palansuriya Skills & Experience: Extensive governance Skills & Experience: Extensive experience in the experience gained through membership of the apparel sector through leadership of Orit Group Boards of Sampath Bank, Pan Asia Banking of companies. Has won awards for Sri Lankan Corporation, NDB Bank and other financial Entrepreneur of the Year in 2002 and the Silver institutions; visionary extraordinaire Business Award of the National Chamber of Exporters of Strategist with over 25 years of experience in Sri Lanka for the Garment Extra Large category managing companies to deliver high performance in 2004. with demonstrated competencies in business re-engineering. Appointed to the Board: 1st January 2012 as Independent Non-Executive Director. Appointed Appointed to the Board: 1st August 2007. Deputy Chairman on 26th January 2012. Appointed as Chairman on 1st January 2012. Non-executive. Membership of Board Sub-Committees: Chairman Nominations Committee (until November 2012) Membership of Board Sub-Committees: Chairman, and Shareholder Relations Committee; Member of Strategic Planning Committee and Member of Risk Management Committee, Human Resources Nominations Committee. and Remuneration Committee, Nominations Committee and Strategic Planning Committee. Current appointments: Secretary, Ministry of Transport, Sri Lanka. Member of the Board of Current Appointments: Chairman/Managing Strategic Enterprise Management Agency of Sri Director, Orit Group comprising Orit Apparels Lanka. Chairman of Vallibel One PLC, Vallibel Lanka (Pvt) Ltd., and Orit Trading Lanka (Pvt) Ltd. Finance PLC, Delmege Pvt Ltd., Vallibel Power Chairman GC Lanka Clothing (Pvt) Ltd. Basnayake Erathna PLC, The Fortress Resorts PLC, and Nilame of the Hendala Temple. Greener Water Ltd. Deputy Chairman of Hayleys PLC., Royal Ceramics Lanka PLC, LB Finance Former Appointments: Director, Board of PLC. Director of Amaya Leisure PLC, Haycarb PLC, Investment, Sri Lanka from 2005 to 2010; Hayleys MGT Knitting Mills PLC., Hotel Services Executive Member of Joint Apparel Association (Ceylon) PLC, Dipped Products PLC, Orit Apparels Forum (JAAF), Board Member of Sri Lanka Institute Lanka (Pvt) Ltd., Nirmalapura Wind Power (Pvt) of Textile & Apparel; Executive Member of the Sri Ltd., Alutec Anodising & Machine Tools (Pvt) Ltd., Lanka Apparel Exporters Sourcing Association, and Sri Lanka Insurance Corporation. Member of Apparel Exporters Association 200 Garment Factory Program during 2006 to 2008. Former appointments: Chairman, Board of Investments, Sri Lanka.
32 Annual Report 2012 Mr. Sanjiva Senanayake Mr. Deepal Sooriyaarachchi Skills & Experience: Extensive local and overseas Skills & Experience: Counts over 30 years experience in the financial services sector having experience in Sales, Advertising, Marketing, served in the senior management capacities Human Resources, Development & Strategy with at premier financial institutions and as an extensive experience in the field of insurance. independent consultant. Fellow member of the Chartered Institute of Marketing UK and a Chartered Marketer. Past Appointed to the Board: 1st January 2012 President of Sri Lanka Institute of Marketing. as Independent Non-Executive Director and Holds an MBA from the University of Sri appointed as Senior Director with effect from 26th Jayawardenapura. Pioneered the disseminating January 2012. of management knowledge in Sinhala Language. A leading Management Development Consultant Membership of Board Sub-Committees: Member and Author. of the Audit Committee, Credit Committee, Risk Management Committee and Strategic Planning Appointed to the Board: Appointed to the Board on Committee. 5th August 2010 as Independent Non-Executive Director. Current Appointments: Non Executive Director of Asian Hotel & Properties PLC, Hemas Power PLC, Membership of Board Sub-Committees: Chairman Hemas Pharmaceuticals (Pvt) Ltd. of HR & Remuneration and Marketing Committees, Member of Audit Committee. Former Appointments: Senior Investment Officer, Global Financial Markets Department, Current Appointments: Independent Non- International Finance Corporation (Private sector Executive Director at Aviva NDB Insurance PLC; investment arm of World Bank); International Pan Asian Power PLC, Hemas Manufacturing Finance Corporation Resident Representative for (Pvt) Ltd, Commissioner of Sri Lanka Inventors Sri Lanka & Maldives; Assistant General Manager Commission, Member of National Administrative (Treasury & Investment Banking) at National Reforms Committee (NARC) and Member, Council Development Bank of Sri Lanka; Consultant of the University of Kelaniya. (Treasury & Business Development) Commercial Bank of Ceylon, Citibank Sydney, Citibank Brunei, Former Appointments: Managing Director Aviva Citibank Colombo, Co-ordinating Engineer, Greater NDB Insurance PLC. Colombo Economic Commission; Development Planning Assistant, United Nations Development Program.
Sampath Bank PLC 33 BOARD OF DIRECTORS PROFILES
Prof. Malik Ranasinghe Former Appointments: Vice-Chancellor of Skills & Experience: Extensive governance the University of Moratuwa, Chairman of the experience as a Non-Executive Director on Committee of Vice Chancellors and Directors of corporate boards. A Fellow Member and Sri Lanka, Council Member of the Association International Professional Engineer of the of Commonwealth Universities, Fellow of the Institute of Chartered Engineers, Sri Lanka; National University of Singapore, Non Executive Fellow of the National Academy of Sciences, Sri Director of the Colombo Stock Exchange and Lanka; PhD from University of British Columbia, Lanka IOC PLC. Vancouver, Canada in Civil Engineering as a Canadian Commonwealth Scholar; published papers on Environmental Economics with Project Mrs. Dhara Wijayatilake Management, recipient of accolades and awards Skills & Experience: Extensive experience as a including the General Research Committee Senior Public Official in the Ministry of Justice and Award for outstanding Contribution to Sri Lankan the first woman to hold the post of a Secretary Science from the Sri Lanka Association for to a Cabinet Ministry. An Attorney-at-Law counting Advancement of Science and Hiran Tilekeratne over 30 years experience and holds a Bachelor Research Fund and University Grants Commission of Laws (LLB) Degree. in the legal field. Bachelor award for Outstanding Postgraduate Research in of Law. the Academic Discipline of Engineering amongst others. Appointed to the Board: Appointed to the Board on 30th August 2011 as Independent Non-Executive Appointed to the Board: Appointed to the Board on Director. 30th August 2011 as Independent Non-Executive Director. Membership of Board Sub-Committees: Chairperson, Risk Management Committee, Membership of Board Sub-Committees: Chairman Member Audit Committee. of Credit Committee, Member, Audit Committee and Strategic Planning Committee. Current Appointments: Secretary to Ministry of Technology & Research Current Appointments:Senior Professor in Civil Engineering, University of Moratuwa; Independent Former Appointments: Secretary to the Ministry Non-Executive Director of Hemas Power of Justice, Secretary to the Ministry of Plan PLC, Textured Jersey Lanka PLC and Access Implementation. Engineering PLC.
34 Annual Report 2012 Miss. Annika Senanayake Current Appointments: Senior Economist, Hayleys Skills & Experience: Graduate of Arts in PLC. Management Studies from the University of Nottingham. Heads Corporate Planning for Former Appointments: Economist, Institute of IWS Holdings (Pvt) Ltd., in diversified business Policy Studies, Sri Lanka. interests in telecommunications, broadcasting, aviation, automobiles, shipping, warehousing and logistic support services, packaging and food Mr. Ranil Pathirana processing. Skills & Experience: Extensive experience in finance and accounting in the financial services Appointed to the Board: Appointed to the Board sector, apparel sector and energy sector. Fellow as a Non-Executive Director on 1st January 2012. Member of the Chartered Institute of Management Accountants, UK and holds a Bachelor of Membership of Board Sub-Committees: Member Commerce degree from the University of Sri of Nominations Committee and Human Resources Jayawardenapura. & Remuneration Committee. Appointed to the Board: Appointed to the Bank as Current Appointments: Chief Executive Officer of an Independent Non-Executive Director from 1st ART Television Broadcasting Company(Pvt) Ltd., January 2012. and IWS Geographical Information Systems Ltd. Director of IWS Holdings (Pvt) Ltd. Membership of Board Sub-Committees: Chairman of Audit Committee, Member of Strategic Planning Committee. Mr. Deshal de Mel Skills & Experience: Master of Science degree in Current Appointments: Group Finance Director International Political Economics from the London Hirdramani Group of Companies, Non-Executive School of Economics, Bachelor of Arts degree Director of Hayleys PLC. with Honours in Philosophy, Political Science and Economics from University of Oxford. Former Appointments: Chief Executive Officer, Vanik Bangladesh Securities; AVP of Vanik Appointed to the Board: Appointed to the Board Incorporation. on 1st January 2012 as an Independent Non- Executive Director.
Membership of Board Sub-Committees: Member of Credit Committee, HR & Remuneration Committee, Strategic Planning Committee & Shareholder Relations Committee.
Sampath Bank PLC 35 BOARD OF DIRECTORS PROFILES
Mrs. Saumya Amarasekera Mr. Aravinda Perera Skills & Experience: Counts over 24 years in Skills & Experience: Counts over 25 years in active legal practice in Civil Law, practicing in the the Banking sector. Fellow Member of Institute Original, Apellate & Supreme Court as an Attorney- of Bankers, Sri Lanka; Fellow Member of the at-Law. Holds a Masters in Law from the University Chartered Institute of Management Accountants, of Pennsylvania with particular emphasis on UK; Chartered Engineer and member of the Insurance Law, Privacy and Defamation Law. Has Institute of Engineers, Sri Lanka; MBA from the experience in areas relating to Money Recovery, University of Sri Jayawardenapura; Bachelor of Property, Testamentary, Condominium Disputes, Science degree in Engineering from the University Family Law and litigates on behalf of financial of Moratuwa. services sector clients and has specialised in local and international Arbitrations. Appointed to the Board: Appointed as an Executive Director on 25th November 2008. Appointed to the Board: Appointed as an Independent Non-Executive Director on 1st June Membership of Board Sub-Committees: Member 2012. of Credit Committee, Board Risk Management Committee, HR & Remuneration Committee and Membership of Board Sub-Committees: Strategic Planning Committee. Chairperson of Nominations Committee (from November 2012) Member of the Marketing Current Appointments: Managing Director, Committee. Sampath Bank PLC; Director, SC Securities (Pvt) Ltd. and Sampath Leasing and Factoring Ltd. Current Appointments: Legal practitioner Member of the Bar Association of Sri Lanka and a Lecturer Former Appointments: Chief Operating Officer, at the Continuous Legal Education Programme Deputy General Manager, Corporate Banking conducted by the Bar Association of Sri Lanka. and other roles spanning a career of 25 years at Sampath Bank. Senior Project Officer, DFCC and Departmental Manager and Service Engineer at Ceylon Tobacco Company, Engineer at National Milk Board.
36 Annual Report 2012 Mr. Ranjith Samaranayake Skills & Experience: Extensive experience as Head of Finance & Planning at National Savings Bank, Commercial Bank PLC and Sampath Bank. Counts over 37 years experience of managing finance in the financial services sector. Holds a Bachelor of Commerce (Accountancy Special) Degree from the University of Peradeniya.
Appointed to the Board: Appointed to the Board as an Executive Director from 01st January 2009.
Membership of Board Sub-Committees: Member of Credit Committee, Risk Management Committee and Strategic Planning Committee.
Current Appointments: Group Chief Financial Officer, Sampath Bank PLC. Director Sampath Leasing & Factoring Ltd.
Former Appointments: Senior Deputy General Manager, Finance & Planning at Commercial Bank PLC.
Sampath Bank PLC 37 CORPORATE MANAGEMENT
38 Annual Report 2012 Mr. Aravinda Perera / Managing Director Mr. Ranjith Samaranayake / Group Chief Financial Officer / Executive Director Mr. Nanda Fernando / Deputy General Manager - Personal Banking Mr. Saman Herath / Deputy General Manager - International & Commercial Credit Mr. Lalith Jayakody / Deputy General Manager - Finance & Planning Mr. W. P. Dambawinne / Deputy General Manager - Treasury Mr. Tharaka Ranwala / Deputy General Manager - Marketing & Business Development
Corporate Management Mr. Aruna Jayasekera / Deputy General Manager - Human Resources Mrs. Anoja Karunaratne / Group Chief Risk Officer Mrs. Hiranthi De Silva / Assistant General Manager - Corporate Credit Mr. Dinusha Ihalalanda / Assistant General Manager - Operations Mr. S. Sudarshan / Group Company Secretary Mr. Najill Farouk / Assistant General Manager - Branch Credit Mr. Deepal Samarasekera / Assistant General Manager - Branch Credit I Mr. Amanda Abeyweera / Assistant General Manager - Administration
Sampath Bank PLC 39 CORPORATE MANAGEMENT
Mr. Upali Dharmasiri / Assistant General Manager - Recoveries Mrs. Nimali Abeyratne / Assistant General Manager - Branch Credit II Mrs. Shashi Jassim / Assistant General Manager - Corporate Finance and FCBU Corporate Management
40 Annual Report 2012 SENIOR MANAGEMENT
Mrs. Anuja Goonetilleke / Group Chief Compliance Officer Mrs. Nirosha De Silva / Chief Manager - Card Centre Mr. Rajendra Ranasinghe / Chief Manager - Systems & Procedures Mr. Pununuwan Wickramasekera / Chief Legal Officer Mr. Sanath Abeyratne / Head of Trade Services
Chief Managers Mr. Manoj Akmeemana / Chief Manager - Branch Credit Mr. Ajith Salgado / Head of Information Technology Mr. Prasad Polwatte / Head of Internal Audit
Sampath Bank PLC 41 SENIOR MANAGEMENT
42 Annual Report 2012 Mr. Mangala Wickramasinghe / Head of Enterprise IT Solutions Mr. Harsha De Alwis / Head of Remittances Mr. Ajith Jayasekera / Senior Manager - Planning Mr. Sujith Abeyratne / Senior Manager - Branch Supervision Mr. Dushyantha Dassanayake / Senior Manager - Systems Development Mr. Asoka Menikgoda / Senior Manager - Recoveries Senior Managers Mr. Ananda Wijitha / Senior Manager - IT Communication & Networks Mr. Javana Atukorale / Senior Manager - Compliance Mr. Upul Nawaratne Bandara / Senior Manager - Marketing Mr. Thilak Abeysinghe / Head of Deposits Mr. Mahil Kuragama / Senior Manager - Operations Mr. H B Keerthiratne / Senior Manager - Finance Mr. Amal Kirihena / Senior Regional Manager Mr. Sisira Dabare / Senior Regional Manager Mr. Saman de Silva / Senior Regional Manager
Sampath Bank PLC 43 44 Annual Report 2012 Mr. Vijith Deshapriya / Senior Manager- Computer Operations Mr. Priyam Kasturiratne / Senior Manager - Operational & Market Risk Mrs. Achala Wickramaratne / Senior Regional Manager Mr. Sanjaya Gunawardana / Senior Regional Manager Mr. Prasada Goonaratne / Senior Manager - Database Administration
Senior Managers Mr. Nayana Peiris / Senior Regional Manager Mrs. Chamila Bandara / Senior Regional Manager Mr. Thusitha Nakandala / Senior Manager - Development Banking Mr. Hemantha Marasinghe / Senior Manager - Engineering Services Mr. Chatura Rudesh / Senior Manager - Trade Services Mr. Prasantha de Silva / Chief Dealer Mr. Nalaka Gunawardane / Senior Manager - Systems Audit Mrs. Ayodya Iddawela / Senior Manager - Corporate Credit
Sampath Bank PLC 45 MANAGEMENT DISCUSSION & ANALYSIS
Sampath Bank Group comprises Sampath Bank PLC and its four subsidiaries, namely; Sampath Leasing and Factoring Ltd, S C Securities (Pvt) Ltd, Sampath Information Technology Solutions Ltd and Sampath Centre Ltd, with a staff strength of more than 3,600 and an asset base of Rs.314Bn.
FINANCIAL REVIEW Core Areas of Operation Sampath Bank is the third largest private sector Sampath Bank Group is one of Sri Lanka’s largest commercial bank in the cuntry, in terms of total banking groups with an asset base of Rs.314Bn assets, focussing on delivering futuristic financial and 3,688 employees. The Bank offers a wide services to individuals, corporates and other range of financial services and products to institutions. We are organised in to the following individuals, corporate entities and institutional core areas of operations; clients in Sri Lanka and is reputed for being an innovative bank, successfully combining Personal Banking - Caters to a wide range technology and financial services to provide of customers facilitating management greater access to financial services to all the of personal finances through a range of clients. products that address their investment, with transactional and financing needs. Group Structure Corporate Banking - Delivers financial The Group comprises of Sampath Bank and 3 solutions tailored to meet corporate subsidiaries engaged in providing specialised investment and operational needs through financial services to clients and another subsidiary our sub-divisions; Corporate Finance, engaged in providing various other services to the Development Banking, Trade Services, Bank. The Bank contributes 95% of the Group’s Corporate Credit and the Foreign Currency pre-tax profit and is the most significant entity Banking Unit. within the group. Corporate Credit - Provides credit facilities across a spectrum of products tailored to the corporate sector.
Sampath Bank Group
Sampath Leasing SC Securities Sampath Information Sampath Centre Ltd and Factoring Ltd (Pvt) Ltd Technology Solutions Ltd 97% 100% 100% 100%
Provides Leasing Provides IT related Renting of Stock and Factoring services to the parent and commercial Broking activities Stock Broking to financial sector clients property
46 Annual Report 2012 Development Banking - Focuses on emerging economies was also moderated due to financing the business commencing weak demand for goods and services from the operations utilising credit lines developed economies. available to the banking industry, concessionary funds from our own Despite a difficult global and domestic funding base and an allocation from environment, the Sri Lankan economy recorded the Investment Fund Account. a growth of 6.5%, as opposed to 6.8% growth Trade Services - Provides documentary expected earlier, following two consecutive years credit and related facilities to of robust growth of over 8.0%. The moderation of importers and exporters harnessing the growth in 2012 is due to the weakening global technology effectively to provide a fast economy, in particular the US and the European and reliable service. zone which has adversely affected the demand Corporate Credit - Merchant Banking for exports. Consequently, exports declined by & Professional Corporate Services, 7.4% in 2012, largely due to lower prices and low Advisory and other corporate services. demand in international markets for key items. Foreign Currency Banking Unit - Providing solutions and expertise for Coordinated policy action by the Government corporate clients’ foreign currency and the Central Bank during the first quarter of financing needs. 2012 to curtail the growth of credit and reduce Treasury Operations - Carriesout interbank import demand in order to stabilise the external operations to manage the Bank’s exposure sector, had a moderating impact on the country’s to exchange rate risk, interest rate risk and growth momentum. The imposition of a credit liquidity risk arising from normal banking ceiling and the withdrawal of duty concessions activities. aimed at reducing the balance of payments and Credit & Debit cards - Offers a range of the balance of trade have been effective. The cards to suit the diverse lifestyle needs of depreciation of the exchange rate supported Sri Lankans with unmatched promotions export competitiveness, whilst curtailing import and the highest security for all transactions. expenditure which has contributed significantly to E-Banking - Develops and maintains a the reduction in the trade deficit. This is reflected range of products facilitating electronic in (trade deficit is expected to contract to 15.1% transactions for the convenience of our of GDP in 2012, from 16.4% in 2011) the balance customers. These range from Mobile Cash of trade at the end of 2012 despite the decline in to the Sri Lanka e-gateway for tourist visas export earnings due to the decrease in imports of to Sri Lanka. 5.8% in first eleven months of 2012 as imports of both consumer goods and intermediate goods Operating Environment declined significantly. Global economic growth was 3.3% in 2012 dampened by weak recovery on both sides of the Mobilisation of foreign capital by the Bank’s and Atlantic with emerging economies continuing to increased worker remittances have contributed to be the main engine of growth. The growth of the the positive change in the balance of payments and the gross official reserves. The oversubscribed
Sampath Bank PLC 47 MANAGEMENT DISCUSSION & ANALYSIS
The depreciation of the exchange rate supported export competitiveness, whilst curtailing import expenditure which has contributed significantly to the reduction in the trade deficit.
International Sovereign Bond issue of USD 1Bn Inflation was 7.6% driven by both increasing food issued to finance the infrastructure development prices resulting from the drastic weather patterns also provided a boost to the official reserves and and the increasing costs of essential services reflected confidence in the Sri Lankan economy. such as electricity and transport. Overall, it has The gross official reserves have increased to USD been a year of stabilised growth and the policy 6.8Bn by end 2012 from USD 6Bn end 2011, as measures taken have been effective in addressing at end December 2012 which is equivalent to 4.4 the areas of concern. months of imports.
Sri Lanka - Economic Indicators
2009 2010 2011 2012
GDP Growth 3.5 8.0 8.3 6.5 Inflation (Headline inflation) 4.8 6.9 6.7 7.6 Exchange Rate (Year End) 114.38 110.95 113.90 127.65 Exports (USD Mns) 7,085 8,626 10,559 8,991** Imports (USD Mns) 10,207 13,451 20,269 17, 574** Per-capita Income (USD) 2,057 2,400 2,836 2,922* Worker’s Remittance (USD Bns) 3.33 4.12 5.14 6.01* Gross Official Reserve (USD Bns) 6.3 6.4 6.0 6.8 Trade Balance (USD Mns) (3,122) (4,825) (9,710) (8,947) Balance of Payment (USD Mns) 2,725 921 (1,061) 100*
CEPELLOR ADITAM, SAME Source: Central Bank Annual Report 2011 / Road Map 2013 /CBSL Presentations for CEOs MAGNIS APIENIETUR * Projected by CBSL APELIGENDIT HARIAND ** January to November 2012
48 Annual Report 2012 The Banking Sector and 2,331 ATM’s as at end of 2012, of which 63 The Banking sector is a key player in the country’s branches, 49 other banking outlets and 94 ATM’s financial system accounting for 69.7% of the total were opened during 2012. financial sector’s assets. There are 33 banks in operation as at end December 2012 comprising In March 2012, the CBSL imposed a credit ceiling 12 domestic licensed commercial banks, 12 of 18% of total outstanding credit or Rs.800Mn, foreign commercial banks and 9 licensed whichever is higher with a provision that the specialised banks. These banks have a network ceiling of 18% could be increased to 23% or of 2,193 branches,4,103 other banking outlets Rs.1Bn whichever is higher if the corresponding funds were raised from overseas sources. The larger banks were successful in raising funds from overseas sources including Sampath Bank which
GDP Growth (%) Worker Remittances (USD Bn) resulted in total inflows of USD137.5Mn which enabled the Bank to grow the lending portfolios up to 23%. The interest shown by foreign investors in 10 8 these banks was encouraging and demonstrated 7 the confidence in the Sri Lankan Banking Sector. 8 6 Due to the above, the credit growth was limited 5 to 24.8% in comparison to the 33.6% achieved in 6 4 2011. It is noteworthy that asset quality improved 3 as evidenced by the decrease in individually 4 2 impaired loan ratio to 1.9% compared to 2.0% in 1 2011. 2 0 09 10 11 12 09 10 11 12 The profitability of the sector was impacted by the volatility of the interest and exchange rates, the withdrawal of duty concessions, weak export demand and the lacklustre performance of the In ation (%) Gross Ofcial Reserves (USD Bn) stock market. The country’s low savings rate of 16% of GDP also contributed to the tight liquidity 8 8 position observed in the sector mainly during 7 the 1st half of 2012. Consequently the Net 7 6 interest Margin declined marginally from 4.2% in 5 2011 to 4.1% in 2012 due to the rising interest 6 4 rates, increasing cost of funds. Return on Assets 3 remained at 1.7% in 2012, as compared to 2011. 5 2 Return on Equity has increased from 19.7% in 1 2011 to 20.2% in 2012. Overall liquidity which 4 0 09 10 11 12 09 10 11 12 declined during the 1st half of the year gradually returned to healthy levels as credit growth limits were reached by the end of the 3rd quarter.
Sampath Bank PLC 49 MANAGEMENT DISCUSSION & ANALYSIS
The industry is well capitalised as indicated by the 16.0% respectively in 2011. The strong regulatory We recorded Tier 1 Capital Adequacy Ratio of 13.3% and the measures taken to stabilise the banking sector Total Capital Ratio of 15.0% in September 2012 have addressed the areas of concern in the an impressive which had decreased marginally from 14.3% and sector and renewed confidence in the growth and increase than stability of the same. the banking Banking Sector Soundness Indicators industry growth Indicator 2008 2009 2010 2011 Sep-12 Dec-12 in all key areas Capital Adequacy Ratio - Tier 1 Capital Ratio (%) 12.5 14.1 14.3 14.3 13.3 - Capital Adequacy Ratio - Total Capital Ratio (%) 14.5 16.1 16.2 16.0 15.0 - Return on Assets ( % ) 1.1 1.0 1.8 1.7 - 1.7 Return on Equity (%) 13.4 11.8 22.0 19.7 - 20.2 Liquidity Ratio (%) - SLAR Domestic Banking Unit 28.0 31.3 35.2 32.4 - 26.5
Financial Performance of Sampath of branches to 209. The ATM network was also Bank enhanced by 8 installations in 2012 taking the Infrastructure Growth total to 264 ATMs. The Bank also added mobile Following an aggressive branch expansion banking, increasing its banking channels offering programme over the past 3 years, the Bank full services through multitude alternate banking focussed on consolidating its position in these channels. strategic locations where the branches were set up and enhancing profitability in a challenging Asset & Liability Growth operating environment, in line with the strong The robust infrastructure of the Bank and its regulatory measures taken to stabilise areas heritage as a pioneer in leveraging technology to of concern in the economy. The Bank now provide a superior service was the foundation for has adequate coverage of the locations with its reasonably strong credit, asset and deposit a potential in the country and is focussing growth in 2012. on growing business volumes and enhancing profitability of its new branches. Three new Growth rates for deposits, advances and total branches were opened during the year to complete assets surpassed the industry’s average growth the branch expansion programme taking the total rates for the second consecutive year.
50 Annual Report 2012 2012 2011 Growth Industry Growth Total Assets, Deposits & Advances (Rs. Bn) (Rs.Mn) (Rs.Mn) (%) (%)
350 Total Advances 217,415 178,750 21.6 20.9 300 Total Assets 308,681 247,085 24.9 20.0 250 Deposits 243,575 195,900 24.3 17.1 200 Borrowings 31,963 24,326 31.4 26.7 150
100
Careful and co-ordinated planning during the 50 0 expansion phase has enabled the Bank to Total Total Total expand without compromising the credit quality. Deposits Advances Assets A key strength of the Bank’s impaired loan 2011 2012 management mechanisms is pre-sanctioning of credit quality by a centralised credit approval system where authority for credit approval is loan was oversubscribed twofold and closed at delegated to Regional Managers and not the USD 62.5Mn. The confidence of the foreign investors Branch or Relationship Managers who initiate in the Bank’s performance to date, a strong balance business which ensures that credit is granted sheet and ability to sustain the growth momentum by a highly specialised staff. This system has was amply evidenced by the interest shown in the been successful due to avoidance of delays by syndication by foreign markets. The deal was put successfully leveraging technology through robust together by the Mandated Lead Arrangers, Bank IT systems which is part of the Bank’s heritage. Muscat S.A.O.G, Citigroup Global Markets Asia Limited and Emirates NBD Bank PJSC. This was Total assets grew by 24.9% almost within the Sampath Banks’ second venture to raise funds credit ceiling imposed by CBSL and this growth offshore, having raised USD45Mn earliar in 2007 was funded partially through increased due to through a similar syndication, which was paid off customers (deposits) which grew at 24.3%. Whilst as scheduled. due to customers (deposits) grew at a marginally lower rate than assets and over a lower base and The Bank also issued 15,000,000 unsecured scheduled repayment of borrowings caused a gap subordinated redeemable debentures at a par that had to be funded through borrowings. value of Rs.100 in October in 2012 with the objective of strengthening the Tier II capital Sampath Bank successfully raised a syndicated adequacy. The issue which is listed on the loan of USD62.5Mn to finance its asset growth, Colombo Stock Exchange was oversubscribed on taking advantage of the conducive business the date of issue. environment and flexibility to obtain foreign funding in line with Central Bank’s encouragement for Sri Total borrowings increased by 31.4% from Lankan banks and corporates to raise offshore Rs.24,326Mn as at end 2011 to Rs.31,963Mn funds. The syndicate which opened for a USD 30Mn at the end of 2012. However, the mix of foreign
Sampath Bank PLC 51 MANAGEMENT DISCUSSION & ANALYSIS
We were able to overcome key challenges faced during 2012 and reported a considerable growth.
currency borrowings and rupee borrowings deposits to take advantage of the higher interest changed significantly in 2012 due to the rates. However, the Bank addressed this through syndicated loan raised during the year. timely and effective re-pricing of both asset and liability products to safeguard the Net Interest Profitability Margin. The Bank was in a favourable position to Sampath Group recorded a satisfactory growth re-price, as most products were short term and in profits despite a challenging environment could be re-priced. in 2012. Contribution to the Group profit from Subsidiaries has decreased from Rs.318Mn in Safeguarding asset quality in the current 2011 to Rs.209Mn in 2012, mainly due to lesser operating environment was another challenge contribution by Sampath Leasing & Factoring Ltd that the Bank addressed effectively. Although the as a result of decline in operations due to the amount of Individually Significant Impaired Loans drop in vehicle imports in the market. Sampath increased during the year from Rs.3,589Mn to Bank, the main entity of the group contributed Rs.4,153Mn, Individually Significant Impaired 96% of the group profits. Loan ratio declined from 2.0% in 2011 to 1.9% in 2012 which was achieved through effective management of loan portfolios using more Key Challenges predictive and proactive tools and techniques. The operating environment for the Bank presented a number of key challenges. The limit on growth in Although growth in business volume was limited, advances to 23% as discussed above required a the Bank had a higher cost base with a larger change in strategy to achieve the desired growth branch network to support and inflation edging in profits. The weakened demand for exports up to the high single digits. Managing the and the withdrawal of duty concessions and the product portfolio to maximise profitability and consequent reduction in import volumes also curtailing expenditure to deliver profit growth, limited the opportunities to grow both in interest whilst balancing long term objectives presented income and fee income which is largely dependent many challenges and the results achieved in both on trade volumes. To address this, lending was growth and profitability in 2012 are a testimony channelled to the more remunerative retail to the Bank’s strong balance sheet and ability to products including pawning which is reflected in compete effectively in a challenging environment. the product mix at the end of 2012. Additionally, advances in foreign currency which were not subject to the credit ceiling has grown by 6.4% Net Interest Income (NII) despite the lower trade volumes in the country. Interest income in 2012 was Rs.31,882Mn and accounted for 82.1% of total income. Growth of Managing the cost of funds was also a key interest income was 51% which was due to both challenge as liquidity tightened and interest growth in business volumes and the upward trend rates increased. The proportion of Current and of interest rates in the industry. Interest expense Savings Accounts (CASA) in the due to customer increased by 66.6% to Rs.20,269Mn compared mix (deposit mix) continued to decrease in line to Rs.12,168Mn in 2011 due to the increasing with the industry trends with customers shifting trend in interest rates as a consequence of the funds from current and savings accounts to time widening budget deficit and rising inflation. The
52 Annual Report 2012 industry observed a decline in low cost current Composition of Income - 2012 and savings account balances and the shift to higher priced time deposits which was aggravated by the tighter liquidity and intense competition for deposits from all players in the financial services sector. Net Interest Income recorded a growth of 29.8% over previous year to Rs.11,613Mn due to prudent credit growth, diverting resources to more remunerative products and effective re-pricing of both asset and liability products. Net Interest
Interest Income Trading Income Margin increased marginally from 4.08% in 2011 Fee Commission Others to 4.18% in 2012 due to the measures taken to manage NII. NII contributed 65% of the Bank’s Operating Income. Interest Income, Interest Expenses & Net Interest Income (Rs. Mn) Commission & Fee Based 35,000 Income 30,000 Net commission & fee based income grew by 25,000 18.7% from Rs.1,811Mn in 2011 to Rs.2,149Mn
20,000 in 2012 due to the increased business volumes. Increasing business volumes presented a 15,000 challenge as most of the sources of fee based 10,000 and commission income are linked to lending 5,000 activity which was limited due to the credit ceiling 0 imposed. Commission and fee based income Interest Interest Net Interest Income Expenses Income accounted for 12.0% of Operating Income in 2012 2011 2012 compared with 12.4% in 2011 and the reduced proportion is due to higher growth in other segments of operating income. Composition of Commission Income (Rs. Mn) Exchange Income
Other banking services Earnings from foreign exchange derived from Treasury Operations grew by 123% from Credit & Debit card services Rs. 964Mn in 2011 to Rs. 2,149Mn in 2012 mainly
Foreign remittance due to the depreciation of the rupee despite the related services declining volumes of both imports and exports. Trade related services Accordingly, the proportion of foreign exchange Professional services earnings to operating income increased to 12.0%
0100 200300 400500 600 700 800 from 6.6% in 2011. Profit from revaluation of
2011 2012 FCBU Retained Profits also increased from
Sampath Bank PLC 53 MANAGEMENT DISCUSSION & ANALYSIS
Rs.148Mn in 2011 to Rs.972Mn in 2012, a six operating expenses is expected to decline with fold growth due to the depreciation of the rupee. the moderation of the rate of branch expansion. As the rupee has stabilised, we expect foreign exchange earnings to be moderated in the next Individually Significant Customer year and the proportion of income from volatile Loan Impairment Provision & sources to stabilise at a lower level. Provision Cover The loan impairment provision decreased by Operating Income Rs.533Mn in 2012, mainly due to the charge Operating income included dividend income for loan impairment decreasing by Rs.287Mn and bad debt recoveries which amounted to in 2012, compared with the previous year. In Rs.156Mn and Rs.783Mn. Whilst dividend addition, bad debt recoveries amounted to income increased by 254.9%, recoveries declined Rs.783Mn in 2012, which is included as other by 30.3% from the amounts recorded in 2011 operating income. which amounted to Rs.44Mn and Rs.1,124Mn respectively. Bad debt recoveries are likely to continue its declining trend due to improved asset quality. 2012 2011
Operating Expenses Gross individual significant customer loan impairment ratio 1.9% 2.0% The increase of operating expenses from Net individually significant customer loan impairment ratio 0.6% 0.5% Rs.8,059Mn in 2011 to Rs.9,397Mn in 2012 (Net of impairment loan loss provision) is mainly due to increases in staff costs and Impairment Provision Cover 68.1% 77.0% payments for banking services arising from a larger network of branches for which a full years cost was incurred for the first time in 2012. Growth of operating expenses has been managed The Bank has one of the lowest impairment ratios carefully and has been curtailed to 16.6% in in the industry at 1.9%. The total impairment comparison to the growth of operating income provisions cover as at end 2012 was 68.1% in 2012 which was 22.6%. This was possible which is a decrease compared to 77.0% as at as the Bank adopted a low cost branch model end 2011. with many branches occupying rented premises with a business model of deposit mobilisation Pre & Post Tax Profit and marketing of credit products, with approval The Bank’s pre-tax profit was Rs.7,265Mn, an for credit being handled by Regional Managers. increase of 45.5% over the pre-tax profit of Effective use of technology has enabled the 2011 which was Rs. 4,994Mn. Post tax profit Bank to operate this cost efficient structure grew by 51.6% from Rs. 3,387Mn in 2011 to which has one of the lowest staff per branch Rs.5,136Mn in 2012. Growth of the bottom line ratios in the industry at 16 employees per was achieved through growth of business volumes branch and successfully leveraging on the Bank’s and careful management of resources to maximise competitive strengths. The rate of increase of
54 Annual Report 2012 earnings through improved risk management in The cost to income ratio improved significantly a constrained business environment. Income due to deceleration of the branch expansion taxes increased in line with the rise in income programme upon achieving the desired coverage. before taxes and grew from Rs.1,606.4Mn to This ratio is expected to improve with the focussed Rs.2,128.6Mn. programme for branch business development to expedite their breakeven points which will Shareholders’ Funds continue in 2013 as well. Shareholders’ funds increased sharply compared with the previous year. The main contributor was Both ROA and ROE increased in line with the Profit After Tax of Rs.5,136Mn. Stated Capital growth in profits and remained at high levels increased from Rs.2,743.7Mn to Rs.3,564.2Mn above the industry average of 1.7% and 20.2% for compared with 2011 and this was primarily driven ROA and ROE respectively. by the scrip dividend of Rs.644.5Mn and the exercise of options of Rs.176.0Mn by the staff under ESOP 2010. Pro tability & Taxes (Rs. Mn)
Dividends Pro t for the year The Directors have recommended a final dividend of Rs.12.00 per share, which will be paid 50% in Income Tax cash and 50% in the form of scrip dividends. VAT Cash Flow Pro t before VAT We increased cash provided by operating activities 0 2,000 4,000 6,000 8,000 10,000 from the negative level of Rs.1,813.7Mn in 2011 2011 2012 to a positive of Rs.6,682.1Mn in 2012. This was largely a result of the high after-tax earnings.
Performance Ratios
2012 2011
Cost Income Ratio 59.0% 61.5% Return on Assets (after 1.8% 1.5% tax) Return on Equity (after tax) 22.3% 16.2%
Sampath Bank PLC 55 MANAGEMENT DISCUSSION & ANALYSIS
Regulatory Requirement Ratios (%) Regulatory Requirement Ratios 2012 2011 Regulatory Requirement
Total Capital Statutory Liquid Assets Ratio 22.40% 24.95% 20.00%
Capital Adequacy Capital Adequacy – Tier I 11.80% 10.24% 5.00% - Tier II Capital Adequacy – Tier II 1.81% 1.21% Capital Adequacy Total Capital 13.61% 11.45% 10.00% - Tier I
Statutory Liquid Assets Ratio 0 5 10 15 20 25 Return to Shareholders Regulatory Requirement 2011 2012 2012 2011 % change
Tier I, Tier II and total capital adequacy ratios Market price per share (year 200.50 195.00 2.82 improved during the year due to increased end) (Rs.) profits and the debenture issue to address Market capitalisation (Rs.Mn) 32,628 30,587 6.67 Tier II capital. The Statutory Liquid Assets ratio No. of shares in issue 162,736,665 156,854,190 3.75 declined marginally due to credit expansion and Earnings per share Bisic (Rs.) 32.98 23.00 43.39 is maintained at a reasonably high level over the regulatory requirement. It is lower than the Dividend per share (Rs.) 12.00 9.00 33.33 industry average of 32% as the Bank maintains a prudent trade-off between liquidity and earning Total Return 8.50 (75.99) 111.18 assets. Benchmarks: ASPI 5,643 6,074 (7.09) The Bank has now completed its preparations for MPI 5,119 5,229 (2.10) migration to Basel II advanced approaches and looks forward to better management of capital using techniques available in Basel II. that we now have adequate coverage of the country in the strategic locations with growth in business The dividend per share paid in 2011 was the volumes whilst safeguarding asset quality. This highest in the Banking sector and comprised 50% strategy was appropriate for this year given the cash dividend and 50% scrip dividend which also constraints on credit growth and the volatility helped to strengthen the Bank’s capital structure. of interest and exchange rates. In formulating The overall return to shareholders is amongst the this strategy, we have taken in to account the highest in the sector and the market. needs of our stakeholders and ensured that it provides for sustainable growth in returns and In 2012, we focussed on consolidation after stability through enhanced governance and risk 3 years of aggressive branch expansion to management for our shareholders, customers, enhance the performance of the Bank and retain employees, regulators, Government, suppliers the leadership position that it commands in the and the community. industry today. This was possible due to the fact
56 Annual Report 2012 Ambitious organic growth through inclusive It has been a year for enhancing performance and stability to position the Bank to reap the dividends banking of the branch expansion programme. The results are encouraging and augur well for the sustained growth and profitability of the Bank. Consolidate branch operations The diagram below depicts the core strategy of the Bank defining areas of growth within the risk Improve profitability through responsive appetite of the Bank linked to support services pricing and cost management and delivery channels necessary to support the defined growth. Safeguard asset quality
Technology driven banking
Focus on key customer groups
Business growth through innovative products and pioneering services
Sampath Bank PLC 57 MANAGEMENT DISCUSSION & ANALYSIS
Core areas of Stakeholders Products Delivery Channels Strategy operation Personal Banking Senior Citizens ‘Sampath Sanhinda’ Savings & FD’s Growth through Children ‘Pubudu’ & ‘Sapiri’ Minor Savings innovative product Teenagers ‘X Set’ Savings design and outreach Professionals ‘Supreme’ Current Accounts, Local & Foreign Currency Savings, FD’s, Housing & Other Loans Families ‘Sevana Dayada’ Housing Loans
Corporate Corporates Working Capital Financing, Import & Organic growth Banking Export Financing, Leasing, Guarantees, through superior Corporate Payment System service Development Corporates Project Financing Selective growth Banking SME’s SME Loans Small Entrepreneurs Micro Financing ATM Network ATM Mobile Banking Branch Network Trade Services Corporates LC’s, Bills Collections Internet Banking Professional service SME’s Import Financing, Shipping Guarantees using cutting edge Individuals Vehicle Import Facilities technology Treasury Corporates Treasury Bills, Bonds, Repos & Reverse Understanding Operations SME’s Repos customer needs Individuals and delivering best solution Credit & Debit Professionals Master & Visa credit cards Achieve Industry Card Operations Employed Persons Affinity cards Leadership Self -Employed Safeguard Asset Quality Maintain Stability Improve Risk Management, Compliance & Corporate Governance Sustainable growth in returns
Suppliers & Service Government Employees Shareholders Customers Providers & Regulators
58 Annual Report 2012 The divisional performance of the Bank by core area of The Bank’s key area of growth has been Personal operation is given below: Banking facilitated by the branch network followed by Corporate Banking which are the Income Assets Deposits most significant contributors to both income and Rs. Mn Rs. Mn Rs. Mn operating profit.
Personal Banking 29,070 141,810 214,901 Personal Banking Corporate Banking 5,152 84,774 22,559 Our Products Development Banking 599 5,115 - The Personal Banking Division caters to the needs Treasury Operations 1,521 19,974 - of a wide array of customers through the Bank`s Card Centre Operations 1,497 4,821 - branch network, its network of ATM`s, e-delivery channels (online banking) and mobile phone based services.
Deposit Products Advances Products Channel Products
Current Accounts Housing Loans Branch Banking Normal Current Accounts Sampath Sevana - General Housing Network of 209 Branches Sampath Supreme - An elite current Loan Scheme Super Branches - 365 day Banking account brand dedicated to most Sampath Sevana Dayada - A unique Centres with extended banking hours respected customers Housing loan scheme which empowers Platinum Plus - Priority Banking Payment Guaranteed Cheques - This customers to apply for housing loan Centres exclusive offer is for an elite clientele, even at the age of 55 selected for their unwavering integrity Sampath Sevana for Professionals in their partnership with Sampath - Housing loan designed to match Bank the potential career growth of a professional Savings Accounts Leasing Telephone Banking Pubudu & Sapiri - Minor Savings Vehicles - Personal & Commercial Mobile Cash Accounts Machinery SMS Alertz X Set - Teen Savings Accounts Mobile Banking Double S - Personal Savings Accounts Telebanking Hit Saver - Investment Savings Accounts Sanhinda Saver - Senior Citizen’s Accounts
Sampath Bank PLC 59 MANAGEMENT DISCUSSION & ANALYSIS
Deposit Products Advances Products Channel Products
Term Deposits Loans against gold ATM Banking Kalin Cash - Fixed Deposit which pays Pawning Branch ATMs interest upfront Biz Cash - Instant business loan or Off-site ATMs Easy FD - Fixed Deposits with ability to overdraft against gold Extended ATM Network - More than withdraw whenever required, without a 1,600 ATMs of BOC, DFCC Vardhana, penal interest HDFC, HNB, NTB, NDB Bank, PABC and Sanhinda FD - Fixed Deposit Account Union Bank connected through one for Senior Citizens common switch Normal Fixed Deposits Sampath Easy Cheque Deposits Machines Foreign Currency Exchange ATM’s Foreign Currency Accounts Personal Loans & Student Loans Internet Banking NRFC Accounts - Non-Resident Foreign CIMA, SLIM, IPM, PIM, IIT and RIC Sampath Vishwa - Total online banking Currency Accounts Student Loans experience RFC Accounts - Resident Foreign Sampath PayEasy - General payment Currency Accounts system including payment of utility SFID Accounts - Special Foreign bills Investment Deposit Account E- Wallet - A virtual pouch (e-purse) RNNFC Accounts - Resident Non- used to store all Credit and Debit Card National Foreign Currency Accounts information Securities Investment Accounts Sampath Payment Gateway - Online Export Foreign Currency Accounts Payment Gateway powered by Sampath Bank Special Accounts Credit Cards ATM & Debit Cards Rupee Accounts for Non-Resident Sri VISA Infinite VISA Debit Card Lankan Investments VISA Signature X-SET VISA Platinum Card Sanhinda Saver VISA Debit card Gold & Silver - VISA & Master cards Sampath-Cargills Co-Branded card Affinity Cards & Co-branded cards
60 Annual Report 2012 Deposit Products Advances Products Channel Products
Business Financing E- Remittance - Export Finance Instant Money Transfer Facility Packing Credit Export Bills Purchasing Facility Link to Trade Services
Import Financing Documentary Credit Acceptances Import Short Term Loans Import Loans Trust Receipt Loans Pledge Facilities
Working Capital Financing Overdraft Facilities Term Loans Other Facilities Other Guarantee Facilities Door Step Banking SME Loans
Infrastructure Growth on our technology capabilities which has enabled us to maintain a low staff to branch ratio of 16 The Bank has countrywide coverage through its staff per branch. Three branches were converted branch network and consequently only 3 new to Super Branches during the year to provide branches were opened during the year and a new extended banking hours till 10.00 p.m. and 365 regional office was opened in Vanni to provide more day banking to cater to the needs of customers focus on the needs of the clientele in this area with time constraints. We have also embarked on taking the total number of Regional Offices to 21. a programme to upgrade the older branches to All our products are offered at all branches based reflect the brand in a readily recognisable manner on the Bank`s principle of inclusive banking and and to improve accessibility and convenience to our belief that a customer`s banking needs should our customers. be comprehensively addressed under one roof.
We operate a low cost branch model leveraging
Sampath Bank PLC 61 MANAGEMENT DISCUSSION & ANALYSIS
Branch & ATM Spread (Nos.) Distribution of Branches in 9 provinces - 2012
300
250
200
150
100
50 Western - 89 Uva - 9 North Central - 9 Southern - 22 Northern - 13 0 08 09 10 11 12 Sabaragamuwa - 12 Eastern - 17 North Western - 19 Central - 19 Branches ATMs
MD, Mr. Aravinda Perera opening the re-located Pelawatta Branch Highlights of Personal Banking Sector
Our ATM Network stood at 264 by the end of 2012 2012 2011 Change % and our customers were able to access a total of Income (Rs.Mn) 29,070 20,140 44.34 1,677 ATM’s which include ATMs networked with other Banks. Deposits (Rs.Mn) 214,901 174,645 23.05 Advances (Rs.Mn) 135,506 103,758 30.60 We continue to enhance the arrangements with Total Assets (Rs.Mn) 141,810 108,616 30.56 Correspondent Banks and Exchange Houses Total Branches 209 206 to facilitate inward remittances channelled by migrant workers. 51 Correspondent arrangements cover the worldwide network. Personal Banking accounts more than 80% of the Performance deposit base, 54% of the loans and advances The focus of the Personal Banking in 2012 was of the Bank and contributes 49% to operating to grow its deposit base, the credit portfolio and profit. Growth in deposits and advances was remittances whilst safeguarding asset quality above the industry averages. The foundations to enable the bank to reap the benefits of the for growth in this increasingly important division accelerated branch expansion carried out in the were laid in the accelerated branch expansion past three years. The table below provides the carried out in the past three years and product evidence of the successful implementation of this awareness campaigns. Regulation of credit strategy.
62 Annual Report 2012 growth provided an added impetus as the need to channel funding to the most profitable areas was Deposit Mix (%) imperative for sustained profit growth resulting in rapid expansion of this division. The principles 100 of inclusive banking to customers at all levels 80 of the pyramid and creating time through ease of transacting with the bank were key strengths 60 which facilitated the successful execution of the 40 personal banking growth strategy.
20 Deposits 0 Average deposit rates increased significantly 10 11 12 during the year as competition amongst Demand Call Deposits Certi cate of Deposits financial institutions for the deposits intensified Savings Fixed Deposits Margin Deposits consequent to the rising interest rates. This created a shift in the deposit mix resulting in a decline in the proportion of low cost current and savings accounts to interest bearing deposits Advances Personal Banking Advances grew by 31% compared from 40.9% in 2011 to 34.5% in 2012 and was to the maximum growth of 23% permitted for the in line with the trends observed in the banking Bank in 2012. Randiriya, our popular pawning sector. The country’s low savings ratio of 16% product grew by 33.4% from Rs.41Bn in 2011 to which is one of the lowest in South Asia continues Rs.55Bn in 2012 and now accounts for 25.3% to be a key challenge for growth in this vital of the Bank’s total advances. This remarkable area for the industry. Additionally, the attractive growth was spurred by unmatched service term deposit rates that prevailed in the entire quality, increasing gold values, effective rewards financial sector provided an attractive incentive to and marketing campaigns including the popular customers to shift from savings to term deposits interest wipe off. Our competitive edge is our which also contributed to the shift in the deposit ability to offer the highest advance at lower rates mix. Despite the challenging environment we were in the market and the superior service offered at able to maintain a growth in savings and demand our branches. The product has universal appeal deposits despite the negative growth shown by in all areas of the country and was particularly some of the competitors and were above industry popular in the North and East. Whilst this growth average and in line with targeted growth. Leading elevates the Bank’s level of market risk arising Products were Minor Savings, Double S and from gold prices, the historically lower number Sampath Sanhinda which proved popular due to of articles being auctioned due to non-payment various promotional activities, attractive interest mitigate the risks associated with the product. rates and gift schemes offered. Our ability to re-price products due to the favourable maturity profile proved to be a strength that enabled us to maintain profitability in 2012.
Sampath Bank PLC 63 MANAGEMENT DISCUSSION & ANALYSIS
In addition, Risk Management unit monitors the variables such as market gold prices, exchange Advances Mix (%) rate etc. on a daily basis and carryout stress testing / scenario analysis periodically. This will 100 ensure that the risk taken would be within the 80 Risk Appetite of the Bank. 60 Despite the regulatory controls of a restriction 40 in credit growth, overdrafts continued to grow meeting the short term requirements of financing. 20 In view of anticipated increase in costs, and being 0 a product in which rates are locked, leasing 10 11 12 improved at a lower rate. Term Loans & OD's Housing Bills of Pawning Import & exchange Export Loans Sevana Housing loans grew by 14.8% from Leasing Others Rs.9.0Bn in 2011 to Rs.10.3Bn, reflecting an encouraging increase over the growth rate of 12.3% over the previous year despite the increase in interest rates.
Microfinance was introduced during the year to meet the special needs of the small entrepreneurs in the North and East. Many customers in areas affected by the three decades of conflict, face difficulties in providing collateral for the loans as their records at the land registries may have been destroyed. Introduction of microfinance was expedited in consideration of their needs and the Bank also conducted number of seminars to provide insight into doing business for the entrepreneurs in these areas.
Many seminars were conducted to educate small entrepreneurs in the North and East
64 Annual Report 2012 Remittances conducted 2 main raffle draws ‘Cash Wasi’ during the year to give away cash prizes to beneficiaries. Inward remittances from migrant workers back to their families in their home country is an As a responsible bank, Sampath Bank will important source of income to the country and continue to add value to migrant workers as well in this endeavour Sampath Bank has expanded as their beneficiaries through various schemes its reach to overseas locations in support of Sri and innovations in the future. Lankan migrant workers to remit their hard earned money to their loved ones in a speedy and secured method at an affordable cost. YoY Growth in Remittance Volumes (%) The total value of remittances to Sri Lanka has been increasing steadily over the past decade 20 and it has been estimated that in 2012 the total value will exceed USD6.0Bn as per Central Bank 16 of Sri Lanka. This is an increase of 26% increase 12 over the previous year involving some 1.7Mn Sri Lankans working abroad. 8
4 Presently, Sampath Bank has remittance arrangements with 51 overseas business 0 09 10 11 12 partners and deputized 12 Business Promotion Officers in Saudi Arabia, Kuwait, Bahrain, Oman, Qatar, Cyprus, Dubai & Italy and is planning to further strengthen the gulf region. In addition, the Bank will expand its remittance operations to Bahrain and Jordan for the benefit of migrant YoY Growth in Remittance Income (%) workers, in the near future. 25 During the year 2012, for the first time in 20 Sri Lanka, Sampath Bank has implemented web service Application Programming Interface System 15 integration with their overseas partners to provide 10 speedy service where migrant workers could remit funds to the beneficiary within a few seconds. 5
0 For the benefit of Sri Lankan migrant workers, 09 10 11 12 Sampath Bank participated as the main sponsor for many Sri Lankan events organized by the key Sri Lankan Associations in different corridors and
Sampath Bank PLC 65 MANAGEMENT DISCUSSION & ANALYSIS
Credit quality & Recoveries Future Outlook Credit quality has been maintained despite The focus in the next year and the medium rapid expansion in the advances due to the term will be on growing our deposits, advances segregation between credit marketing and credit and remittances to increase our market share evaluation. Credit is marketed and initiated by in each of these portfolios. We will achieve Branch Managers. Credit proposals are evaluated this through our continued focus on customer by the Regional Managers and their staff who convenience through extended hours, a variety have specialised skills to evaluate same. This of delivery channels and taking our services to is underpinned by a robust technology platform the customer in order to further enhance value to that has facilitated the smooth operation of the customer. Leveraging our strong IT platform which credit approvals. Effectiveness of the process is revolutionised banking with innovative products, reflected in the improved NPL ratio which is 2.1% will lead the way forward for us to achieve our as at end of 2012 in comparison with 2.7% for vision of creating time for the customer through 2011. We have also been actively monitoring product and service innovations. Current projects overdue facilities with a view to identifying in the pipeline include facilitating a travel card customers who face genuine difficulties. which will have e-tickets and reloading facility. The call centre which operates on weekdays during Investing in People office hours will be developed to add further value The Personal Banking Division has 2,534 staff to customers by increasing the operating hours employed in head office and branches. We have and the addition of more services. invested in training our staff through face to face seminars and also e-learning products to We will remain responsive to the needs of the ensure that there is a culture of risk awareness customers served by our branch network and and sufficient knowledge of the Bank’s systems introduce products tailored to their special needs and processes. We have retained the services as we have done this year with microfinance for the of international experts complemented with customers resident in the North & East. Inclusive involvement of our senior staff to provide a banking will be the way forward for our country and comprehensive training programme to enable including those in rural areas can be done only by them to function more effectively and facilitate being responsive to their needs and understanding an enhanced and consistent service to our the limitations presented by their environment. customers. The key challenges for the coming year will be the pressure on margins as competition intensifies and customer expectations reach new heights due to the array of products and options on offer. We believe that superior product delivery and customer convenience will be our key strengths to gain market share in this environment using technological innovation to add value to the customers.
66 Annual Report 2012 Future Outlook Credit & Debit Cards Growth in card volumes (Nos. ‘000) Sampath Bank is the only bank in Sri Lanka
We will continue to provide having the world`s three leading card franchises, 150 revolutionized banking with namely Visa, MasterCard and American Express innovative products and and offers a wide range of credit and debit cards introduce products tailored to to suit the diverse lifestyle needs of Sri Lankans 120 special needs around the country. We are the leading local bank in the issue of cards and our strategy is to achieve overall leadership for the issuing of 90 credit and debit cards through provision of greater
convenience, value, security and transparency in 60 fees to our customers. 08 1009 11 12 Total Credit Cards
Growth in acquiring volumes (Rs. Mn) Industry Performance 25,000 Credit cards account for approximately 4% of the total loans and advances of the Banking 20,000 Sector. The number of active cards in the country increased from 862,352 in December 2011 to 15,000 935,108 by September 2012, an increase of 8.4%. Globally accepted cards account for 93.5% 10,000 of the total active cards and cards accepted only locally account for the remaining 6.5%. 5,000 08 1009 11 12 Outstanding balances on credit cards grew at 9.5% Local acquiring International acquiring during the year from Rs.37.63Bn to Rs.41.19Bn by September 2012, a higher rate of increase than the number of cards reflecting increasing
Growth in Market Share (%) usage of cards. CBSL has a cap on the interest chargeable on credit cards, due to disparities of rates charged historically, which was increased 15 from 24% to 28% in April 2012 in line with the interest rate movements in the country. 12
9 Bank’s Performance The Bank`s performance has been encouraging
6 as seen by the growth of both credit cards and debit cards as evidenced by the charts above. We
3 added the American Express card to our portfolio, 08 09 10 11 1Q 12 2Q 12 3Q 12 thus becoming the only bank to offer the top three Active Cards Outstanding Balances cards in Sri Lanka. Credit card balances grew by
Sampath Bank PLC 67 MANAGEMENT DISCUSSION & ANALYSIS
41.1% during the year due to positioning of our achieve a growth rate of over 30% on the number cards in the market as the `Responsible Choice` of cards issued and the income earned which will and our exclusive promotions such as `Town on be derived mainly from growth in volumes through Sale‘ and the waiver of one instalment on the zero branding and positioning of our cards as providing interest easy payment scheme. Canvassing by our the best value in the market. branch network was supported by the centralised card unit operations and island-wide marketing Corporate Banking campaigns to increase brand awareness and Corporate Banking meets the operational, position the product in the market. We have investment and term financing needs of its been able to increase our penetration across clients by providing tailored solutions through many market segments of the social pyramid due the specialised sub-divisions which comprise to the wide appeal of our promotions and the Corporate Finance, Trade Services, Corporate simplicity of our fee structure in keeping with our Credit, Corporate Branch, Development Banking values and principles of inclusive banking. During and Foreign Currency Banking Unit. Our income 2012, the merchant network has also grown by is derived from interest income from loans 8.8% and include the largest retail chains in Sri and advances, commission on remittances, Lanka whom we are able to support through our documentary credits and commission on branch network as the regional activity on credit conversion of foreign currency. We are the main and debit cards grows. As per global rankings Bank repatriating foreign currency notes collected issued by Visa International, we are on course to from all banks and foreign currency dealers which achieving our goal of reaching market leadership. provides an additional source of income to the It is noteworthy that the growth in balances has division. been higher than the growth in the number of cards reflecting increased usage of cards which augurs well for the future. The centralised model of approval for cards and proactive monitoring of dues has enabled us to curtail the growth of NPAs from 8.1% in 2011 to 5.6% in 2012.
Future Outlook We look forward to building on the foundations laid this year as the leading local credit card issuer and achieving our goal to become the leading issuer of cards in the country. We expect to
68 Annual Report 2012 Corporate Corporate Banking Products & Complementary Services Banking Advance Products Complementary Services We will offer an extensive range Business Financing Structuring & Investments in commercial paper of products to cater customer’s Debt & Equity Financing specific needs Working Capital Financing Overdraft Facilities Management of IPO’s, Rights Issues & Handling of Money Market Loans dividend payments Import Financing Issuance of Corporate Credit Cards Trust Receipt Loans Corporate payment facilities Pledge Loans Dealer financing Short Term Revolving Maintenance of collection accounts Export Financing ESCROW management services Pre shipment Packing Credit Telephone Banking Pledge Loans SMS Aletz Short Term Revolving Telebanking facilities Post shipment Mobile Banking Facilities Bill Purchasing
Term Loans Short, Medium & Long Term Financing
Guarantee Facilities Bid Bonds Performance Bonds Advance Payment Bonds Letters of Guarantee
Loan Syndications Arrangement Participation Management
Securitisation Structuring Investments
Margin Trading Facilities
Sampath Bank PLC 69 MANAGEMENT DISCUSSION & ANALYSIS
We believe that our tailored financial solutions will satisfy your corporate investment and operational needs.
Advance Products Complementary Services Leasing Vehicles Machinery Trade Services Internet Banking Imports Sampath Vishwa - Total online banking experience Documentary Credit Payeasy - General payment system including Inbills payment of utility bills Acceptances Sampath Payment Gateway - Online Payment Documentary Collections Gateway powered by Sampath Bank Shipping Guarantees Sampath Vishwa Corporate Trade Exports Advising & Confirmation of Documentary Credit Purchasing/Negotiation of Documentary Credits & Documentary Collections Bills sent on collection Foreign Currency Banking Unit (FCBU) Facilities in foreign currency
Performance 2012 2011 Change % The focus of the Corporate Banking Division Rs. Mn Rs. Mn was to grow business volumes rather than increasing margins in order to provide a cost Income 5,152 3,740 37.77 effective service to our customers. This was Export turnover 21,264 19,800 7.39 achieved through competitive pricing, extended Import turnover 115,223 105,728 8.98 banking hours and ease of transacting with the Deposits 22,558 16,843 33.93 Bank through our branch network. Trade finance services operate a centralised service model Advances 65,771 60,927 7.95 supporting the branches to provide an efficient Total Assets 84,774 76,694 10.54 service to our customers. The Bank will grow its volumes by effective support to branches and its focus on process improvements.
70 Annual Report 2012 Growth of loans and advances was a moderate facilitate access to a low cost deposit base for 12% in 2012 compared to 36% in 2011 due to a Corporate Credit activities of the Bank enabling number of factors which were both external and competitive pricing. internal. Sri Lanka’s exports grew by 15% due to the devaluation of the rupee which made exports The Corporate Branch recorded a growth of 24% cheaper whilst imports grew marginally by 3% as during the year with the Rupee advances capped a result of the withdrawal of duty concessions and at 23% in line with the credit ceiling imposed by the devaluation of the rupee. We also observed CBSL. Growth of the portfolio was achieved mainly that clients expanded their local sourcing and due to exceptional relationship management and reduced imports as a hedging strategy to mitigate customer service to promote maximum utilisation the uncertainties arising from the volatility of the of facilities and enhancement of limits to existing exchange rate. Additionally, importers increasingly customers. This strategy enabled us to achieve utilised flexibility afforded by the liberalisation of our growth targets despite rising interest rates controls over foreign exchange to shift to Open and declining trade volumes in the country. Import Account method from other payment methods. turnover increased by 26% during the year despite The outreach of our banking services outside the significant reduction in the volumes of vehicle Western province provided us with an expanded imports by increasing imports in the agriculture, base for trade services. However, the need to manufacturing and consumer sectors. Export shift funds to the more profitable retail banking turnover grew by 19% despite the lacklustre business in order to maintain profit growth due to performance of this sector which was impacted by the credit ceiling had a moderating impact during weak global demand and declining exports to the the year. Despite these challenges, the Bank Middle East. recorded a growth of 13.9% in imports and 14.8% in exports. Future Outlook We will continue our strategy of growth whilst Corporate Branch maintaining credit quality and encouraging high A new Corporate Branch was set-up during the utilisation of credit limits extended to customers. year by amalgamating the Corporate Credit Additional growth is expected through sectors Department and the Headquarters Branch to such as tourism and infrastructure development as we look to grow our exposures in these Performance industry segments. Increasing the deposit base 2012 (Rs.Mn) 2011 (Rs.Mn) Change (%) of the Corporate Branch will be a priority which will be achieved through aggressive canvassing within Advances 39,874 32,240 23.7 our corporate clientele and their employees. We Deposits 16,207 12,048 34.5 have already taken measures to enhance value to NII 1,598 1,155 38.4 current and savings account holders enabling us Fee Income 333 301 10.6 to implement this strategy effectively. NPA % 1.81 2.27 (25.4)
Sampath Bank PLC 71 MANAGEMENT DISCUSSION & ANALYSIS
Trade Services Trade Services extended the banking hours to facilitate later cut-off times and processing of documentary credits on the same day. This centralised department now works on a shift basis supporting our branch network with their specialised knowledge in trade finance. It also enabled us to provide competitive rates to our customers for both foreign currencies and tariffs due to productivity efficiencies. Minimising processing times and errors has been possible due to the robust IT platforms which form the backbone of our infrastructure. Sampath Vishwa Corporate Trade creates time for the customers by allowing them to request Documentary Credits and inquire on import and export transactions entirely online. Additionally, the Trade Services Department was refurbished to create a more spacious customer friendly environment for trade customers. These initiatives enabled us Governor of the Central Bank, Mr.Ajith Nivard Cabraal making the first transaction in to increase import volumes by 11% and export the Foreign Currency Exchange Machine volumes by 18% during the year due to successful implementation of the strategy described above. from which we derive fee based income. These operations were extended by the addition of two Bank Notes Operations more outlets at Chatham Street and Negombo Performance for collection of bank notes from other banks and authorised foreign currency dealers. We will also install Foreign Currency Exchange Machines 2012 2011 Growth which are ATM’s with the capability of converting (Rs.Mn) (Rs.Mn) (%) foreign currency to local currency, in selected Exchange 124.3 79.7 44.6 locations. This is the first time such a facility is gain being provided in the country and we are proud to add yet another innovative milestone in the Net Profit 82.0 54.5 50.7 year of our Silver Jubilee. The initial machines
will be installed in the tourist hubs of Colombo,
Negombo, Galle and Kandy. We were able to The Bank Notes Operation has been another capture the bulk of volume of increase resulting area of growth for the Bank. Sampath Bank is from the free float of rupee against the USD with the sole importer of foreign currency notes and our superior services, continuous training and the main Bank repatriating foreign currency notes door to door collection facility to achieve a twofold volume increase in 2012.
72 Annual Report 2012 Future Outlook Future Outlook As the Sri Lankan economy is import driven, we We expect to grow our portfolio of advances by expect changes in the restrictions which have 25% by managing the cost of funds to provide a curtailed the growth of imports and consequentially, competitive offering to our clients. Sourcing funds a growth in trade volumes. We expect inward and from off-shore markets to finance the growth is a outward telegraphic transfers to increase with key strategy for 2013 and we have taken several trade related transactions migrating towards open measures to ensure that we meet our targets in account method. The centralised model enables this area. us to handle the expected increase in volumes with greater efficiency and a superior customer Corporate Finance service. We are confident that the initiatives taken The credit ceiling and the consequent need to to strengthen the Bank Notes Operations will divert resources to areas where returns could be enable us to retain our leadership position as the optimised impacted the growth of the Corporate largest exporter of foreign currency in the country. Finance loan book which grew by 6% in 2012. We We expect the strategy of growth through branches focussed growth into products which would enable with centralised support services to continue in us to earn a higher yield such as investments in the future as it is a tested, cost effective model corporate debt instead of direct lending, such that is scalable to support future growth. as structuring commercial paper. Despite the restricted growth in assets, were able to increase Foreign Currency Banking Unit profits by over 45% through increased fee income (FCBU) and syndications where our knowledge and FCBU profits grew by over 15% despite a lack of expertise gave us the competitive advantage significant growth in assets, whilst contributing that clients relied on. There was little scope for significantly to increase the banks export/import activity in equity markets as the Colombo bourse volumes which in turn contributed to increased remained in the doldrums for much of the period fee income. This was a challenging year due to under review. reduced FDI inflows, lack of expansion in the export sectors and stagnant import volumes. The Corporate Finance was at the forefront of off-shore lending was also impacted by increased arranging the US$62.5Mn syndicated loan facility risk in traditional markets such as Maldives and for the Bank in March which was oversubscribed Bangladesh. The dominance of foreign banks by more than two fold. We went on to arrange a in this sector with cheaper funds remains a loan for development of trade with China from challenge to local banks who compete intensely the China Development Bank for US$45Mn with in the market. We were able to achieve the a tenor of 5 years. These activities enabled the growth mainly due to high standards of customer Bank to significantly reduce its cost of funds and service and the extended hours operated by enhance profitability. Trade Services which enabled our customers to enhance their performance in turn.
Sampath Bank PLC 73 MANAGEMENT DISCUSSION & ANALYSIS
base and an allocation from the Investment Fund Account. Our strategic focus was to contribute positively towards the economic development of the nation with a vision to be the premier development banking unit in the country.
Development Banking is necessary if our country is to achieve the stated ambition of doubling the size of our economy in the next 6 years driving the structural changes to re-align the contributions from the agriculture, industrial and services sectors to 12%, 28-30% and 60% respectively. It is a high priority sector for the government as evidenced by the tax exemptions for SMEs in the 2013 budget. We support this vision at the Bank by promoting credit lines as a Participating Credit Institution, concessionary lending through the Investment Fund Account and promoting the Small Press conference held on the arrangement of and Medium Enterprise Development Facility USD62.5Mn Syndicated Loan Project, Microfinance and lending from our own funds at concessionary rates. Our competitive Future Outlook advantage was the ease of banking provided to We will maximise the opportunity offered to our customers with the countrywide coverage of corporates to raise funds offshore as provided our branch network backed by regional approval in the 2013 Budget and look to build on our of credit facilities by highly specialised staff. expertise gained in this area. Additionally, we The seamless co-ordination of the process was plan to increase our support to the leisure sector enabled by our strong IT capabilities. Our focus through rupee and foreign currency loans which on promoting clean energy financed projects that they can access now as the revenue streams of added 19MW of hydro power and 11MW of wind this sector are in foreign currency. Securitisation power to the national grid. We have also taken is another area we have identified for growth for steps to support the local entrepreneurs who the Corporate Finance Unit. Leveraging our skills are engaging in hydro turbine and wind blade and expertise gained in these specialised areas manufacturing industries. Several programmes will be our key competitive edge to deliver the were conducted by the Development Banking Unit stretched targets we have set for ourselves. to enhance awareness of the Kapruka Ayojana scheme with a view to supporting new cultivation Development Banking of coconut plants which has been promoted by The Development Banking provides financing the Government. for business start-ups mainly utilising credit lines available to the banking industry as well as concessionary funds from our own funding
74 Annual Report 2012 Wind Power Project financed by Sampath Bank Construction underway in a Hydropower Project
Performance
2012 2011 % Change The Development Banking Unit recorded a growth Rs. Mn Rs. Mn of 15% in gross advances during the year due to the country wide coverage of our branch network Income 599 401 49.4 and our in depth knowledge of the credit needs Net Profit 334 211 58.3 in specific areas. Despite the growth, we have managed to reduce the NPA from 6.1% in 2011 Gross Advances 5,281 4,700 12.3 to 4.1% in 2012 due to the tailored financial Total Assets 5,115 4,478 14.2 solutions offered expeditiously to customers facing repayment difficulties and restructuring credit facilities to match the cash flow of borrower. These initiatives have enabled the Bank to prevent new entrants in to the non-performing portfolio during the year.
Sampath Bank PLC 75 MANAGEMENT DISCUSSION & ANALYSIS
Promoting Refinance Credit Lines Credit Line Objective The Bank promoted Credit Lines made available to local commercial banks as a Participating Credit Saubagya Aimed at developing the Micro, Small & Institution through awareness programmes for the Medium Enterprises operating in lagging branches and training programmes for communities, provinces especially in the Northern and Eastern provinces. Resumption of Economic Aimed at stimulating economic activities in Additionally, a special SME officer was assigned to Activities in Eastern Province agriculture, livestock and among Micro and the Northern Regional Office to expand the SME (Negenahira Udanaya) Small Enterprises in the East portfolio in this region. The credit lines operated during 2012 is given in the chart. Small Plantation Aimed at stimulating economic activities in Entrepreneurship agriculture, livestock and among Micro and Investment Fund Account Development Project Small Enterprises in the Nuwaraeliya, Kandy, Kegalle and Moneragala The Investment Fund account was set up from the reduction of the income tax on profit from 35% Resumption of Economic Aimed at stimulating economic activities in to 28% through provisions of the Inland Revenue Activities in Northern Province agriculture, livestock and among Micro and Act of 2011, to provide concessionary funding (Pibidena Uthura) Small enterprises in the North for priority sectors such as Agriculture, Livestock, Poverty Alleviation To assist in initiating viable livelihood Fisheries, Industry, SMEs, IT & Business Process Microfinance Project development projects for the poor Outsourcing, Infrastructure and Education. (Prabodhini) Accordingly, Rs.1.5Bn was available under this Kapruka Ayojana Aimed at assisting coconut cultivators to scheme and Rs.1.35Bn was utilised by the Bank develop their estates to finance SMEs engaged in the priority sectors Agro Livestock Development Aimed at assisting the development of the identified by the Government. Priority was given Project (Abhivurdhi) diary industry and related sectors to SME’s located in lagging provinces to address regional imbalances.
Small and Medium Enterprise
Lending Mix from Investment Development Facility Project Fund Account This line of credit funded by World Bank commenced mid 2011 and was aimed at improving access to finance for SMEs affected by the global financial crisis. The project comprised of two components, the Financing and Risk Sharing Facility (RSF) and the Policy and capability enhancement for SME Banking.
Sampath Bank is the only Participating Financial
Agriculture - 5% Institution that applied for inclusion under RSF Factory/Mills Modernization - 33% component of the SME Development Facility with SMEs - 34% Infrastructure Development - 9% which we aim to stimulate SME’s in the North, Education - 3% Construction of hotels - 16% East, Uva and Sabaragamuwa provinces. The Risk Sharing Facility is introduced in this credit line as
76 Annual Report 2012 a novel way of financing SMEs who are incapable Sectorwise Analysis of of providing 1st class or acceptable security for Advances Portfolio - 2012 their borrowings. Application of equitable criteria in distributing refinance funds enable us to assist all eligible SME borrowers who applied for credit under this credit line and utilised total allocation by the beginning of the 4th quarter.
We have accomplished a number of tasks under the Policy and Capability Enhancement for SME Banking component of the SME Development Agriculture & Fishing - 11% Manufacturing - 14% Facility. Risk rating modules were developed for Tourism - 3% Transport - 1% Project Finance & SME sector and these have Construction - 10% Traders - 20% been validated by ICRA Management Consultancy Banks, Financial & Business Services - 6% Services India. The models have been further Infrastructure - 3% Other Services - 3% improved by incorporating their recommendations Consumers - 29% and are now being used to rate the risk of SME customers and update records accordingly. Additionally, we have acquired the IT systems services of external resource personnel. A 3 day to support the BASEL II requirements and for certificate programme on Environmental Appraisal capturing the SME credit module data directly from was conducted by the Institute of Environmental the main operating system. We have trained 25 Professionals of Sri Lanka for Regional Managers Senior Credit Officers selected from 20 regions on and Credit Officers to enable them to conduct Cash Flow and Working Capital Analysis using the the environment appraisals competently and disseminate the knowledge gained through the branch network. We have already conducted 2 Sectorwise Analysis of SME Customer Training programmes based on the Renancing Advances Portfolio - 2012 needs identified by the credit officers attached to Regional Offices.
Micro Finance Today, as our nation strives to include all Sri Lankans in all regions in our economic progress Microfinance is very much the need of the hour to achieve not just the Bank`s but the
Agriculture & Fishing - 23% country`s goals. Development of our microfinance Manufacturing - 14% product, SampathSaviya, takes in to account the Tourism - 7% Construction - 4% challenges of men and women from low income Traders - 8% Infrastructure - 36% communities in the heartlands of Sri Lanka, Other Services - 7% who, due to the prolonged conflict and natural Consumers - 1% disasters, unequal resource distribution across
Sampath Bank PLC 77 MANAGEMENT DISCUSSION & ANALYSIS
the nation or simply due to their inability to access Future Outlook finance as a result of inadequate knowledge and In a country that has emerged from three decades assets; have become excluded from mainstream of conflict, development banking is very much a development. It is aimed at uplifting the economic need of the hour to address an aspiring middle and social status of grass-root level communities income country’s ambitious growth targets and and supporting sustainable livelihoods through to address regional imbalances that are key to borrowing, repaying and saving as a responsible the political and economic stability. A key area group and as individuals. Our efforts to improve of growth will be renewable energy in the coming their financial literacy will not only make their years as due to the expertise gained in this area individual enterprises sustainable, but in turn, and the reputation the Bank has built in financing help to increase the national savings rate across renewable energy projects. We plan to extend the country to levels required to spur national our exposure to renewable energy from hydro development. and wind to include biomass, solar power and agricultural and municipal waste considering the To date, we have disbursed 898 loans to the value potential need in the country. All these projects of approximately Rs. 97.4 Mn to start up or expand will be financed through a special senior credit micro enterprises related to agriculture, livestock line approved by the European Fund Agency. farming, trading and the provision of services IT, value added exports, import substitution, through micro finance. During the year , we have agricultural export and commercialisation of made a difference in the lives of over 1,388 new products will be considered on a priority families across Sri Lanka through a network of 24 basis for lending to support the development Branches dedicated to promoting SampathSaviya objectives of the country. We also believe that in; Vavuniya, Jaffna, Kilinochchi, Manipay, there is potential to finance niche projects in the Nelliady, Chunnakam, Chankanai, Mannar, Kyts, leisure sector such as health tourism, community Thirunaveli, Chavakachcheri, Mallawi, Chenkaladi, based tourism, sports, eco and agro based Kalawanchikudy, Oddamawadi, Kaththankudi, tourism. The Bank will continue to support small Kinniya, Trincomalee, Kantale, Muttur, Batticaloa and medium entrepreneurs engaged in priority and Nithvr. sectors and persuade them to follow the norms of social and environmental concerns. Capacity This year, as part of our efforts to make building activities and entrepreneur development our SampathSaviya model relevant to the programmes will be conducted to support the microfinance needs of the people who have country’s vision of creating a sustainable and gone through difficulties due to the conflict, we viable SME sector and assist with bringing their have started specialized livelihood development products to markets using the existing network project with the assistance of GIZ and CEFS to capability of the bank. help 100 war widows to start income generating projects in the Batticaloa District. These able Treasury Operations women entrepreneurs were financed through Treasury is the centralised fund administrator of refinance credit lines after they had completed the bank and directs the funds of the Bank through comprehensive training on business development prudent investment and financial decisions, to provided by the aforesaid organization. improve shareholder wealth whilst managing
78 Annual Report 2012 Treasury its risk exposure within a range of defined The bleak outlook caused forward premiums to parameters. The objective of the Bank’s Treasury rise sharply, six month and one year premiums Operations is to maintain an optimum level of return to doubled from 500 bps (basis points) to 700 bps Treasury in terms of currency management, cash and 700 bps to 1300 bps respectively. The rupee Our Treasury ensures that management, liquidity management and interest stabilised towards the 3rd quarter at a higher level bank maintains an optimum rate management. Sensitivity and responsiveness and volatility decreased with forward premiums level of return in terms to changes in the external environment including closing at 500 bps and 1100 bps for six months of currency management, cash management, liquidity macro and micro economic trends and policies is and one year respectively. management and interest rate key to our performance. management Liquidity management of the Bank has been very Performance moderate as we maintained an optimum level of The dawn of 2012 was challenging as banks liquidity to achieve a low cost and higher return stepped in to the domestic currency market with from all aspects of liquidity management whilst a high degree of uncertainty arising from the 3% ensuring that all excess funds are invested to devaluation announced in the national budget in achieve an acceptable rate of return. This enabled November 2011. Further volatility was observed Treasury to manage its liquidity plan in line with in February 2012 when CBSL allowed the rupee bank’s liquidity strategy. to float freely by ceasing interventions which maintained it in a narrow price range. The spot Interest rates were volatile during the year, but the rate which was Rs.113.90 at the beginning of the overall trend was upward and this is expected to year depreciated drastically from February and continue in 2013 as well. The one year Treasury continued until June 2012, reaching an all-time Bill yield was at 9.31% at the beginning of 2012 high of Rs.134.40. and the one year yield as at end of 2012 was 11.69%.
One year Treasury Bill rate movement USD/LKR Movement in 2012 (Rs.) in 2012 (%)
16 140 15 14 130 13 12 120 11 10 110 9 8 100 Jul-12 Jul-12 Apr-12 Oct-12 Jan-13 Jun-12 Apr-12 Jan-12 Jun-12 Oct-12 Feb-12 Aug-12 Feb-12 Nov-12 Aug-12 Mar-12 Nov-12 Dec-12 Mar-12 Dec-12 Sep-12 May-12 Sep-12 May-12
Sampath Bank PLC 79 MANAGEMENT DISCUSSION & ANALYSIS
We successfully raised a debenture of Rs.1.5Bn for 2012/2017 to strengthen bank’s Tier II capital in an unpredictable volatile environment.
Average weighted prime lending rate (AWPLR) was gains. However, global markets have been highly at 10.77% at the beginning of 2012 and end of challenging with economic downturn due to the 2012 the rate was at 14.40%. This is a significant debt crisis in the US and Euro zone. These effects increase during the year and an indication of the had direct impacts on the Sri Lankan economy. upward trend of the interest rates. Bank Notes Operation (BNO) continued to grow and strengthen its dominance in the currency repatriation business with competitive pricing AWPLR Movement in 2012 (%) and superior customer service. BNO achieved a significant milestone reaching the all time 16 15 high repatriation volume in the history of the 14 bank and also generated the highest ever profit. 13 BNO operation continued the importation of 12 foreign currency to the market through a special 11 approval from the central bank based on our market dominance in currency repatriation for 10 9 the consecutive third year. As a result of such 8 expansion and the achievements, leading banks within and outside the region have shown their Jul-12 Jan-13 Apr-12 Oct-12 Jun-12 Feb-12 Sep-12 Mar-12 Dec-12 Aug-12 Nov-12 May-12 interest to partner with us for the repatriation business in the future.
These achievements highlight the strength of the We have been able to increase our fixed income Bank’s Treasury and the resilience of the Bank operations by engaging in Repo, Reverse Repo to macroeconomic factors. The main focus of and in the secondary market of Government the Treasury is to improve internal and external Securities. The primary dealer unit (PDU) has been customer satisfaction by building long term continuously bidding for the weekly auctions and relationships using cutting edge technology. has been successful in obtaining the best possible Streamlining Treasury operations to implement rates in the market. The Regulator was very active lean processes for efficiency and effectiveness throughout the year, bringing in more regulation of the Treasury continues to be an area of focus. to Treasury operations to maintain transparency of Treasury transactions. A key success area of The treasury managed to maintain high service the Treasury is the foreign exchange operations quality standards on par with industry standards in terms of corporate treasury sales, interbank through continuous on-site and off-site training trading and bank notes operations. provided by the bank such as dealing simulation training programmes during 2012. Interbank trading contributed more than 50% of the total foreign exchange gains. Corporate We successfully raised a Debenture of rupees Treasury sales operation has contributed the 1.5Bn for 2012/2017 to strengthen the Bank’s Tier second highest portion for overall foreign exchange II capital in an unpredictable volatile environment.
80 Annual Report 2012 diversification of the Sri Lankan financial market will experience new financial instruments such as Foreign derivatives which will be introduced with a broader Currency perspective. Exchange In achieving a USD100Bn economy and a USD 4,000 per capita income targets by 2016, the ATM’s future outlook is well positioned for the country’s financial market, where continuous efforts by the Regulator and the government are mainly focused to develop a vibrant and liquid bond market and an equity market. Such paradigm shifts will help We proudly introduced the first ever Foreign the bank to earn incremental revenue to support Currency Exchange ATM’s to Sri Lanka its bottom-line.
In 2013 and beyond, the treasury will continue its success story which has been maintained for the last 25 years. Therefore, we look forward to provide customer focus operations in years to Furthermore, Treasury was able to approach come with positive approach in terms of customer overseas centres for funding requirements which needs. Treasury will be obliged to perform its duty is also a national concern. to support in achieving the interests of all the stakeholders of the bank. Future Outlook The outlook is very optimistic as the centre of Information Technology economic gravity is shifting towards Asia. This 25 years ago Sampath Bank revolutionised the positive sign will help Treasury to deal with bigger traditional banking services and set a new set of financial centres and leading investment banks standards that completed a customer transaction to strengthen our overseas presence. Sri Lanka within minutes as against hours, calculated is experiencing a high level of economic growth interest daily as against the quarterly minimum compared to other countries in the region, in this balance, untied the customer from a single branch context Treasury will be able to turn its cog wheels and allowed autonomous banking access through much faster in the future. ATMs.
In 2013, the foreign exchange market is expected For the past 25 years the bank has been able to to maintain a stable outlook as more flexible maintain this trend, and always be ahead of the exchange rate regime will be introduced by the curve. Today, the banking public take for granted regulator to support the business and economic the array of services available from banks. With cycles. These cycles will have negative effects great modesty we can state that we made it if higher fluctuations persist. Furthermore, happen. We brought the banking industry in
Sampath Bank PLC 81 MANAGEMENT DISCUSSION & ANALYSIS
Sri Lanka to the 21st century. A banking and strategic partners, adding value to our landscape that Sampath Bank is proud to have stakeholders. We are committed to utilising all helped shape. delivery channels to reach the unbanked public including the base of the socio economic pyramid Sampath Bank’s founding premise has been in a cost effective manner. to avail the cutting edge technology the world has to offer to the Sri Lankans. Looking back, As we celebrate our Silver Jubilee this year, it is heartening to note that Sampath Bank has we reflect on the many ‘Achievements in IT’ of played this role of technology leader successfully Sampath Bank and how we shaped banking throughout our existence. history in the country by focusing on principles of customer convenience and inclusive banking for Our technical competence provides us with a all Sri Lankans which has given us a competitive strategic competitive advantage which, together edge and defined our identity. with the expanded branch network, enables us to create synergies across our operations
Pioneering Innovations
Year Milestone Result
1987 Unprecedented in banking history, the bank made a sizable Extended banking hours from 9 a.m. to 3 p.m., average investment in a state of the art computer system and transaction time in minutes, daily interest banking software Branch premises with modern ambience Transformed the dreary bank branch environment to a pleasant experience 1988 Introduced a multi-point network of Automated Teller Set the customers free from Branch Banking and gave them Machines (ATM’s) autonomy to access the bank beyond office hours 1989 Introduced international credit cards to Sri Lanka under Global banking products brought to Sri Lanka license from MasterCard International Inc., USA Uni-Banking System was introduced to Sri Lanka Freed the customer from being tied to a single branch 1994 Pioneer SWIFT network member Enabled our customers to enjoy speedy and secure international banking facilities 1995 Telephone Banking service using Interactive Voice Response Freed the customers more from the branches enabling Technology banking sitting at their favourite armchair at home 1997 First bank in South Asia to introduce debit cards in Made the familiar SET a global card with access throughout association with MasterCard Inc. the world and introduced the concept of debit cards 1998 Implemented Bancs 2000 core-banking system The bank made a leap frog in technology by switching from main frame computers to open systems enabling far greater levels of scalability
82 Annual Report 2012 Year Milestone Result
2000 Introduced ‘Sampath Net’ Internet Banking Internet banking enabled the customers to access the bank 24x7 from anywhere in the world 2001 Introduced SMS Banking Banking mobility through ‘the bank in your pocket’ First bank in Sri Lanka to introduce the Internet Payment Facilitated the mushrooming .com industry in Sri Lanka, Gateway enabling businesses to perform e-Commerce transactions
2002 Launched first Visa Platinum Card in Sri Lanka Acquaint Sri Lankans with novel banking products 2003 Migrated from Bancs2000 to Finacle 7.0.6 Another step in the direction of technological superiority with greater banking system enhancements First bank to introduce one day clearing for cheques drawn Sampath Bank has the highest level of efficiency among all on any Sampath Bank Branch, collected by any commercial banks in Sri Lanka in this area bank in the island and presented through Sri Lanka Automated Clearing House First Bill Payment Portal with Payment accepted from any Facilitated e-bill payment in the ever increasing list of Debit/Credit and Internet Accounts customer centric banking services 2004 Launched first ever Cheque Imaging and Truncating site in Efficient outward cheque clearing system enabling Sri Lanka customers faster access their funds Introduced SMS Alerts All events transactions alerted via SMS giving customers more control of their money and accounts 2006 Launched first Online Real Time ATM Cash Deposit with More and more autonomous services for customers cash recognition facility in South Asia 2007 First (and only bank up to date) to offer mobile based peer Innovative use of mobile technology to facilitate person to to peer funds transfer facility encompassing the fusion person funds remittances for customers as well as non- of telecommunication and banking technology innovative customers banking services Launch of first Visa Mini Debit Card in South Asia Innovative global banking products for Sri Lankans 2009 Implemented Finacle Treasury solution Enabled the bank to considerably improve the efficiency of Treasury operations and money management 2010 Implemented Multi Bank ATM system in Sri Lanka providing Enabled other banks’ customers to our ATMs and vice versa access to more than 1600 ATMs across the country to our customers 2011 First bank in South Asia to introduce Online Real-Time More self-service avenues and enabling more convenience Cheque Deposit at ATMs for customers AML (Anti Money Laundering) System was implemented More stringent control on banking activities to prevent terrorist financing and malpractices Risk Management System was implemented Introducing the bank to global banking practices and regulatory compliance
Sampath Bank PLC 83 MANAGEMENT DISCUSSION & ANALYSIS
Year Milestone Result
2012 Became a service provider for ATM Switch services to other National level initiative of unification of all banks through banks and institutions a single ATM network enabling a customer of any bank to access their funds through ATM of any other bank
Performance We have also focused on improving areas With major changes in the monetary policies that support the core banking system such as brought forth by the Central Bank, the competitive governance, compliance and risk management landscape in banking and financial service systems in order to enhance the Bank’s capabilities space has changed drastically. Mobile payment in these vital areas. These projects collectively guidelines issued by the Central Bank has have contributed significantly towards improved weakened the entry barriers that were in place for customer service and increased productivity. new entrants to break in to the financial services Sampath Bank has one of the lowest staff per industry. branch ratio at 16 staff per branch reaping the dividend of investing in enabling technology. This Therefore, enhancing electronic delivery channel number increased marginally from 16 staff per capability, particularly in the mobile category, is a branch in 2011 to support the growth in Bank key area of growth for the Bank. Mobile Cash was operations during the year. Additionally, systems revamped and re-launched in 2012 to cater to this development processes have been streamlined market. General mobile banking systems were adopting global best practices and quality re-engineered to cater to the ever growing volumes, assurance process. The table below provides particularly in SMS alerts. We are confident that information on the key projects the technology with the current technology portfolio and the team focussed on in 2012. strategic IT roadmap, we will have no difficulty in facing any threat in the foreseeable future from any new entrant.
Greater usage of electronic delivery channels will be a key driver that enables us to maintain a low cost income ratio whilst providing scalable solutions to our customers’ needs.
84 Annual Report 2012 Key System Development Projects implemented in 2012
Area of focus Project Description Status
Operations e-Reconciliation Automation of back-office functions of branches involving reconciliation Completed and in system and monitoring data. The system integrates routine audit functions, operation central monitoring and risk management activities to improve efficiency levels across the Bank Automated An online system for approval of facilities which has reduced Completed and covering approval consumption of paper and increased productivity with the replacement strengthened in 2012 system of the manual system to deliver further efficiencies Governance Register of An automated system for tracking Directors’ interests Completed and in Directors’ operation Interests e-Board Papers System to deliver and maintain history of Board papers to Directors Completed and in over secure connections to iPads with ability to approve online operation HR Systems e-Learning Infrastructure provided to HR to facilitate roll out of e-learning to Completed and platform facilitate staff training running e-Circulars Platform for disseminating circulars electronically and enabling Completed and in retrieval on demand operation Delivery Sampath Mobile Enables any person whether irrespective of them being customers 150% increase in Channels Cash to send money instantly to any person having any brand of mobile or usage over previous 4 CDMA phone with any service provider. This provides a cost effective years average and faster alternative to the traditional postal and money orders, revitalising the inland money transfer system across the country Internet Banking Enhanced to provide additional features 38% increase of View inward cheques transactions and 21% Payment templates growth of the user Enabled investments in fixed income securities base over year 2011 View entire banking portfolio Open savings and term deposit accounts Mobile Banking An e-banking application was designed for the iPhone and iPad Completed and in Application operation Enhanced SMS Features enhanced to facilitate notifications of all transactions via Completed and in Alerts SMS making Sampath the only bank to provide a comprehensive operation service Enhancements to Enhanced to enable submission of Employees Provident Fund and Completed and in Corporate Clients Employee Trust Fund remittances online via e-Bank solution providing a operation Module single portal for multiple functions
Sampath Bank PLC 85 MANAGEMENT DISCUSSION & ANALYSIS
We focused on improving areas that support the core banking system such as governance, compliance and risk management in order to enhance our capabilities.
Area of focus Project Description Status
Margin Trading Margin Trading module linked to internet banking enabling customers Completed and in Delivery to view their portfolio and to alert the Bank on limits, providing a faster operation Channels and more comprehensive service to clients Risk Credit & Implemented a new system to manage Credit & Operational Risks Completed and in Management Operational Risks operation Credit Scoring A new system was implemented to automate credit scoring Completed and in operation Reporting of loss A new system was designed and implemented to report defined loss Completed and in events events operation
A new area of focus for the Bank was implementing statistics below demonstrate our evidence of our an analytical framework to harness the value of commitment to this seemingly mundane but vital Data Mining and Business Intelligence (BI) using area of IT operations. globally recognized tools and technologies and adopting industry standard best practices. This 2012 2011 is another pioneering initiative by Sampath Bank that will shape the local banking industry. With Total Sampath ATMs 264 255 the growing demand for business information by Total ATMs in Inter - 1,677 1,495 internal business users, The Bank has focused Bank Link more on leveraging the information asset of ATM uptime 99.9% 99.9% the Bank to improve its business and overall
profitability by providing information timely and accurately to all business users. This has enabled the users to have an insight of respective business area and facilitated proactive decision making based on facts and figures. Key business indices are frequently computed and observed through Dashboards for better performance monitoring. Implementation of the Data Warehouse has also enabled the Bank to efficiently comply with regulatory authorities which demand for information for monitoring purposes.
Keeping our electronic delivery channels live and managing downtime is key to a reliable service and we monitor our performance in this vital area to ensure that we uphold the highest standards of customer service on a consistent basis. The During 2012, NTB was added to the network of ATM’s
86 Annual Report 2012 Future Outlook We will embrace the future with the constant We will look to retain our identity of being a assimilation of new technologies into banking technological innovator shaping the way Sri services. Lankans conduct their financial transactions as we move forward to an era defined by technological We look to provide support for the internal innovation. operations of the Bank through implementation of IT solutions for governance, risk management and The mobile telephony industry has grown stakeholder management. The implementation of exponentially within the last few years. In 2012 the Data Warehousing and Business Intelligence the number of mobile connections exceeded the projects will provide a platform for better decision population count, making the mobile device the making and productivity, paving the way for us to best medium to reach the unbanked in Sri Lanka. gain leadership in key operating areas. We therefore believe that the mobile phone based banking and payment systems are key to Today, after a mere quarter of a century, the bank banking inclusiveness and will look to retain our is 209 branches strong, reachable throughout the leadership in this delivery channel, building on our island and globally via internet. Equipped with considerable strengths in this area. an impressive array of banking technologies, we are poised to start our journey into the next 25 The bank is poised to introduce two new years with the confidence that we will always be technologies in 2013 which will revolutionize the the technology trendsetter in the banking and payment industry in the island. These enabling financial serves industry. technologies will take the bank to the far corners of the economic landscape in the island, gradually closing the vast gap between the banked and the YoY Growth of Sampath Vishwa users (%) unbanked.
45 Internet banking still remains an option for the more urban customer with a mere 1.1Mn Internet 36 and e-mail accounts in the country. We will look 27 to provide relatively more sophisticated solutions for this segment of customers through Sampath 18 Vishwa on a portfolio wide basis to suit not only their transacting needs but also their investment 9 needs. As these are scalable solutions rolling 0 it out to a greater population of customers as 08 1009 11 12 internet usage increases is a relatively easy step and we expect the demand for internet banking to grow in line with the number of internet accounts. However, we envisage a convergence of these two technologies making the mobile Internet the de facto medium of banking delivery in the future.
Sampath Bank PLC 87 MANAGEMENT DISCUSSION & ANALYSIS
Recoveries Bank 2012 Bank 2011 Industry The Recoveries Unit is focused on minimising the 2011 (Q 3) Non Performing Advances through expeditious recovery of overdue advances through simplified, NPA Ratio (%) 2.1 2.7 3.6 collaborative interventions with the regional Provision Cover Ratio (%) 73.6 77.3 42.3 offices, the branch network and the Credit and NPA as a % of total loan portfolio 2.3 3.0 3.6 Legal Divisions. Arrears are monitored and notified to Regional Performance and Branch Managers who are supported in their The overall objectives for 2012 were to control follow up procedures by the Credit Control Unit. and minimise new entrants to Non Performing Action Plans are developed through this process Advances (NPA), maximise recoveries in order by identifying client issues and implementation to reduce NPA ratio and to maintain a healthy of these are monitored by the Credit Control Unit. specific provisioning cover and improve customer Remedial measures such as re-scheduling of service standards. Performance indicators for the credit facilities are also carried out if necessary Recoveries Division given below are testimony during this period. Arrears of over two months are to the performance of this division which has discussed by the Credit Control Unit, the Regional contributed immensely to the Bank having the Managers and the Branch Managers to review if lowest NPA ratio and the highest provision cover the action plans developed are working with a view ratio in the industry. to identifying early warning signs. Focus on this process of early identification of potential problems This year the Bank complied with the CBSL has been a key success factor in controlling the direction to classify all credit facilities extended number of new entrants to NPA category. to a borrower as NPA when one or more credit facilities have been classified as NPA and the The Recoveries unit engages in negotiations with aggregate amount of outstandings of such NPAs clients whose facilities are in arrears for over exceeds 30% of total credit facilities extended to 6 months and seek to resolve issues without the borrower. The impact of this was exacerbated litigation through discussion. Cases below by the rule that NPAs could be re-classified as Rs.5Mn where recoveries have to be made performing loans only if total arrears of interest through mortgage bond action are also identified and principal were both paid up. The imposition for regular visits to clients to educate them about of a minimum limit for parate execution action of the benefits of settling outside court and this was Rs. 5Mn presented a challenge as all NPA’s below incentivised through flexible repayment plans. Rs. 5Mn had to be transferred for Mortgage Bond This strategy proved successful and many loans action which involves a lengthy and costly legal were recovered in this manner. process. In view of the above, the Recoveries Unit implemented several proactive measures to Recovery of arrears that remain unresolved even improve performance. after the negotiation process can be done through parate execution, mortgage bond action or normal
88 Annual Report 2012 legal action. These cases are monitored closely valuations based on fair value in line with IFRS/ through monthly reports to track performance of SLFRS requirements and are working to assess the unit and to renew focus on targets. A separate the impact. With significant improvements in place unit was established to handle and manage to safeguard asset quality and effective recovery acquired properties and to expedite the disposal processes we hope to reduce the NPA levels process. Although this unit was established further, outperforming industry benchmarks. in 2011, its impact was felt this year through the disposal of 46 properties which raised Human Resources Rs.198 Mn. The overall objective of the HR Department is to facilitate the implementation of the Bank’s The remaining NPA balances comprise mainly of business strategies by creating a performance hardcore facilities which are now under legal action oriented culture which inspires and motivate our in court. Decreasing this further is a challenge staff to perform at consistently high standards. As and we will revisit all cold cases to negotiate employees are recognised as key stakeholders, for out of court settlements to reduce legal and the information on the performance of HR has carrying costs. We have commenced this process been included in the Sustainability Supplement of and are encouraged by the results, which also has the Annual Report form pages 200 to 271. Our the benefit of easing the volume of work for the employee retention rate of 96% is testimony to Bank’s legal team, enabling them to focus on key the benchmark HR practices adopted by us. accounts. Under this method of settlement, we have provided concessionary plans especially for Future Outlook housing loan customers and refinance loans. We will focus on the aligning new staff to the culture and values of the organisation through innovative The above strategies were possible due to the programmes to ensure that our values are lived on specialised training given to our staff to acquire a day to day basis throughout the organisation. Our the skills and knowledge required to achieve a intense focus on training based on the analysis of successful outcome. We have developed case training needs will continue in the coming years studies from our experiences and shared the as well to upgrade the skills and competencies of learnings to identify areas for further action. our staff to meet the needs of a more competitive We have taken steps to maintain a friendly and operating environment. Leadership development understanding attitude to make the flexible will continue through Sampath Leadership process a success to ensure a favourable Academy. The revised organisation structure is outcome. expected to support business better and provide career paths for potential employees inspiring Future Outlook alignment of personal goals with those of the We will continue to focus on managing new organisation. entrants to the NPAs category and also continue implementing the successful strategies for recovery of NPAs. We expect an impact on asset
Sampath Bank PLC 89 MANAGEMENT DISCUSSION & ANALYSIS
PERFORMANCE OF SUBSIDIARIES
Subsidiary Nature of Business % Holding Financial Performance 2012 2011 Rs. Mn Rs. Mn
Sampath Leasing & Factoring Leasing and Factoring 100% Turnover 1,112.0 608.8 Ltd. (SLFL) Profit Before Tax 252.0 244.3 Profit After Tax 200.2 198.0 Total Assets 5,810.5 4,123.8 SC Securities (Pvt) Ltd. Stock broking 100% Turnover 34.6 128.2 Profit Before Tax -37.7 39.6 Profit After Tax -20.1 28.8 Total Assets 289.5 325.6 Sampath Information Providing IT related 100% Turnover 54.2 46.4 Technology Solutions Ltd. services Profit Before Tax 3.5 4.9 (SITS) Profit After Tax 0.5 3.2 Total Assets 86.0 17.6 Sampath Centre Ltd. Renting and 97.14% Turnover 189.9 190.0 management of Profit Before Tax 122.6 109.9 commercial premises Profit After Tax 116.8 104.9 Total Assets 2,230.4 2,185.9
Sampath Leasing and lines, restructuring management and accelerating Factoring Ltd. (SLFL) recoveries to facilitate stable sustained growth. These sustained actions have ensured that SLFL SLFL is a fully owned subsidiary of Sampath remained profitable and set it on a growth trajectory. Bank incorporated in May 2005. After a period SLFL has 7 standalone branches and 8 service of volatile performance, the Bank and the Board windows located within Sampath Bank Branches. of SLFL have set a course for growth of the company by infusing capital, re-negotiating credit
90 Annual Report 2012 Directors Non-Bank Financial Institutions from 5.5% in 2011 Mr. I. W. Senanayake (Chairman) to 5% in 2012 although the total NPAs were higher (Independent, Non-Executive Director ) due to the moderated growth. Mr. S. G. Wijesinha (Independent, Non-Executive Director ) Regulation was strengthened during the year with Mr. W. M. P. L. De Alwis (appointed on 25.02.2011) CBSL issuing 5 new guidelines during the year (Independent, Non-Executive Director ) covering increase of core capital, use of core Mrs. M. A. Karunaratne capital as yardstick for gearing ratio, corporate (Non-Executive Director ) governance and borrowing definitions. Mr. P. M. A. Sirimane (Independent, Non-Executive Director ) Performance Dr. H. S. D. Soysa (appointed on 01.01.2011) SLFL recorded a satisfactory performance given (Independent, Non-Executive Director ) the challenging industry conditions that prevailed Mr. M. A. Abeynaike (appointed on 28.03.2012) during the year, recording a Profit before tax of (Independent, Non-Executive Director ) Rs.252Mn. This was possible mainly due to Mr. M. Y. A. Perera (appointed on 28.03.2012) prudent management of growth and borrowings (Non-Executive Director ) to deliver an optimised performance with strong Mr. R. Samaranayake (appointed on 28.12.2012) foundations for future growth. Safeguarding asset (Non-Executive Director ) quality was a priority as the business sector was adversely impacted by rising costs and interest rates. Top line growth was 83% due to growth Industry Overview in business volumes and higher interest rates. The year under review was challenging for the However, rising interest costs impacted both new industry and plans for growth were revised and borrowings and re-pricing of existing borrowings scaled down to reflect market realities. Increased reduced operating income margins. Increased duty on motor vehicles had a dampening effect personnel costs also impacted the Profit before on the market as affordability was negatively Tax which increased by 3% to Rs.252Mn in 2012 impacted on buyers. High interest rates increased from Rs.244.3Mn in 2011. Asset growth was 41% the cost of new funds impacting the growth of in 2012 due to increased business volumes in the industry. Re-pricing of existing lines of credit finance leases and hire purchasing which augurs reduced margins as leasing products are based well for the future of the company. on fixed interest rates. These factors contributed to the dampened growth rate in Loans & Advances The company was rated during the year and for the Non-Bank Financial Institutions from awarded a rating of A(lka) Stable, by Fitch Ratings 48.3% for the year ended 30th September 2011 Lanka Ltd., with a positive outlook. SLFL also to 26.6% for the year ended 30th September won the silver award in the specialised leasing 2012. Total Asset growth was similarly impacted company category at the 48th ICASL Annual with the growth rate declining from 29.6% as at Report Awards competition organised by the September 2011 to 26% by September 2012. Institute of Chartered Accountants of Sri Lanka for Asset quality improved during the year for the the second consecutive year. This is particularly
Sampath Bank PLC 91 MANAGEMENT DISCUSSION & ANALYSIS
Sampath Leasing and Factoring Ltd was rated during the year and awarded a rating of A(lka) Stable, by Fitch Ratings Lanka Ltd with a positive outlook.
commendable as the company has participated clients. Moreover the investment advisors are in this competition for two years only and is a backed by a research team and a competent testimony to outstanding reporting standards back office. The company has opened three practiced by the company in endorsing significant branches in Wellawatte, Kandy and Matara for the elements such as transparency, good governance, convenience of its retail clients and to promote sustainability and social responsibility within the investing in the share market in the regions. organisation. Directors Outlook Mr. D. J. Gunaratne (Chairman) The outlook for the industry is positive as policy (Independent, Non-Executive Director) measures taken to address the Balance of Mr. E. A. Gunasekera Payment deficit have been successful. Interest (Independent, Non-Executive Director) rates have also stabilised although vehicle Mr. Harsha Fernando (Executive Director) import duties remain high. Widening the range of Mr. M. Y. A. Perera (Non-Executive Director) vehicles imported under permits provided a small Dr. S. Kelegama (Independent, Non-Executive measure of relief to the industry which is now set Director) for sustainable organic growth underpinned by Mr. M. N. R. Fernando (appointed on strong economic growth. SLFL plans to register 18.12.2012) (Non-Executive Director) as a Licensed Finance Company in 2013 to enable accelerated growth through a wider range Industry Overview of products and also to mobilise deposits to Although negative sentiment weighed markets better manage the cost of funds and market risk. down through most of 2012, total returns on the We will commence re-branding of the company broad Index have shown a marginal improvement on obtaining the license and effecting the name at –7.7% in 2012 up from -8.5% in 2011. Corporate change to ensure that there is communication earnings for the period up to September 2012 and visibility of the broader range of opportunities have improved, rising approximately 3.0% since that SLFL can provide. September 2011. Market PERs (Price Earnings Ratio) have consequently decreased, with the SC Securities (Pvt) Ltd. PER at end-December at 11.85x (times) relative SC Securities (Pvt) Ltd., incorporated on the to 13.47x in the same period last year. Foreign 16th October 1992, is the stock broking arm of inflows to the bourse meanwhile have remained the Sampath Group and a fully owned subsidiary consistently buoyant through 2012, hitting an all- of Sampath Bank. Being a debt and equity time 2 Year to Day high of Rs.38.58Bn, a stark member firm of the Colombo Stock Exchange, the contrast to the net foreign outflows experienced Company is governed by the regulatory framework over the last 3 years. of the Securities and Exchange Commission (Sri Lanka) and the Colombo Stock Exchange (CSE). With interest rates having declined 250 bps SC Securities possess a well experienced team (basis points) since its peak in September, of investment advisors who adhere to ethical prospects for equities in 2013 are likely to be guidelines in providing investment advice to strong; particularly in the context that slower GDP growth will likely imply lower interest rates.
92 Annual Report 2012 Regulation was strengthened with the CSE Sampath Information Technology introducing new regulations in the 1st quarter of Solutions Ltd. (SITS) 2012 covering trading practices, clients’ money, Sampath Information Technology Solutions minimum standards for stockbroking firms, capital Ltd., commenced operations in 2007 with a requirements and operational requirements. The vision to provide ‘best in class IT solutions for change made by the SEC in November 2012 in the local market; with a Sri Lankan touch’ that the formula of computing credit was positive and would enable it to create sustainable long term we believe it will help the industry regain investor value for all stakeholders. Its clientele naturally confidence. comprises banks and finance companies in the Performance country. The goal of SITS, as encapsulated in its Quality Policy Statement, is to provide defect SC Securities, like other stock broking companies, free software products conforming to customer was severely impacted by the lacklustre requirements on time according to our quality performance of the CSE in 2012 and the high management system and continuously improving interest rate regime. The situation was exacerbated its effectiveness through the quality objectives. by the intense competition within the broking Its product portfolio includes applications in houses and the declining number of institutional Leasing & Hire Purchase, Loans, Savings, Fixed investors. This period was used to strengthen our Deposits, Accounts, Inventory and the product for retail operations and improve group synergies by which SITS has market Leadership is Pawning. A using the Sampath Bank network to expand our separate unit handles outsourcing of IT functions client base. Corrective action taken by the CSE for clients covering hosted and managed services, and the SEC in the latter part of the year saw scanning services and hardware maintenance and normalcy returning to the market and we believe networking services. SITS is also a partner for that 2013 will see an improved performance. HP and an authorised distributor for Kaspersky Outlook Internet Security and Kingsoft Office Software. Our Markets are likely to remain fundamentals-driven competitive advantage is derived mainly from our in 2013 as corporates continue to consolidate highly skilled and talented team who have diverse their post-war boom position. We expect the but complementary skills providing an atmosphere economic situation to improve in 2013 due to the of creativity, excitement and novel thinking. Out policy measures implemented by the Government solutions are based on J2EE, Microsoft, Net, Open which in turn will have a positive impact on the Source, My SQL, MS SQL Server, and Oracle. performance of the CSE. Investing in the CSE at present will enhance the return on investment of shares that are backed with strong fundamentals as they have the potential to beat the average market returns and are trading at attractive prices.
Sampath Bank PLC 93 MANAGEMENT DISCUSSION & ANALYSIS
Directors Outlook Sampath Mr. L. J. K. Hettiaratchi (Chairman) The company plans to grow its operations by (Independent, Non-Executive Director) increasing its BPO operations, particularly in Centre Ltd Mr. E. A. Gunasekera segments such as scanning of documents, digital (Independent, Non-Executive Director) storage and data entry. The BPO/ICT industry Sampath Centre Ltd increased its profit after tax by 10% Mr. M. Y. A. Perera (Vacated office on 31.12.2012) segment is the 5th largest foreign exchange despite flat income through Mr. D. J. Gunaratne earner in the country and is a fast growing sector cost efficiencies and increased (Independent, Non-Executive Director ) with the highest value addition within the country. interest income from positive Mr. N. J. Alwis (vacated office on 11.09.2012) The tax concessions for this growth sector are cashflows Mr. N. R. Tillekeratne (vacated office on also attractive and we will look to leverage our 15.03.2012) competitive advantages to grow the operations of Mr. M. V. Indrasoma this promising subsidiary in 2013. (Independent, Non-Executive Director ) Ms. A. H. W. Senanayake Sampath Centre Ltd. (vacated office 01.01.2012) Sampath Centre was the first subsidiary of Sampath Bank established in 1996 to own Performance and manage commercial buildings occupied Revenue of the company grew by 16.8% in 2012 by Sampath Bank. Hence, the primary source whilst Profit before Tax reduction was 28.6% during of revenue for the company is derived from the year as the company shifted focus to more lease rental of buildings occupied by the parent profitable products and restructured the company company. to enhance productivity. The tax concessions to software developers given in the 2012 Budget Directors provided welcome relief and a doubling of profit Mr. I. W. Senanayake (Chairman) after tax from 2011 to 2012 as given in page (Independent, Non-Executive Director) 90. Asset growth of the company was significant Mr. S. G. Wijesinha (Independent, and comprised mainly of computers purchased Non-Executive Director) for hiring to its key client, Samapth Bank which Mr. E. A. Gunasekera (Independent, was financed by borrowings from the Bank. The Non-Executive Director) Net Book Value of these computers account for Mr. S. P. Kannangara (Independent, 95% of its Property Plant & Equipment and 75% of Non-Executive Director) its total assets. The funding profile has changed Mr. L. R. Jayakody dramatically consequently enabling the company (Non-Executive Director) to perform more profitably. (appointed on 15.12 .2012) M. Y. A. Perera (vacated office on 31.12.2012)
94 Annual Report 2012 Performance The company increased its profit after tax by 10% despite flat income through cost efficiencies and increased interest income from positive cash flows. Its assets comprise the land, building and equipment of the premises occupied by Sampath Bank Head Office located at Navam Mawatha, Colombo 2 and is a landmark commercial property, set beside the scenic Beira Lake.
Outlook As the operation of the parent company expands, Sampath Centre is exploring the possibilities of expanding the business of Sampath Centre as well to own and manage a larger real estate investment that maybe required. Additionally, the value of assets held by Sampath Centre is also likely to be higher than stated in the Balance Sheet due to conservative accounting policies. The company represents very good value for the investment made by the parent and is likely to continue to do so in the foreseeable future.
Sampath Bank PLC 95 CORPORATE GOVERNANCE
Responsible business practices, taking in to account the diverse stakeholder needs coupled with a long term vision, is necessary for sustained growth and stability of the financial services institutions.
Chairman’s Statement
Dear Stakeholder,
The need for good governance continues to be highlighted globally with regulators increasing their vigilance and holding even the leading global financial brands accountable for their actions. The issues varied from manipulation of financial are invited when possible to provide us with markets to money laundering and discrimination, insights and perspectives on matters related highlighting the need for effective and efficient to the Banking industry and good governance. oversight and risk management combined with Additionally, the Corporate Management team greater attention to the needs of all stakeholders, make regular presentations on changes in the not merely shareholders. Responsible business operating environment and are available for practices, taking in to account the diverse clarification on issues that are discussed at the stakeholder needs coupled with a long term Board Meetings. vision, is necessary for sustained growth and stability of the financial services institutions. We have also focused on initiatives to improve As we reflect on the milestones achieved in this the effectiveness of the Board and improve Silver Jubilee year, we are extremely conscious transparency. Some of these initiatives include that good corporate governance is key to setting definition of the responsibilities of the Chairman, the future milestones and creating sustainable automation of the register of Directors’ interests, value for all our stakeholders. and appointment of two sub-committees on Treasury and Marketing to enhance the Bank’s We have complied with the relevant codes and capabilities in these areas. These are two key directions on corporate governance as detailed areas of operation and the directors’ expertise in in the Corporate Governance Report that follows. these areas can be harnessed through the work Members of the Board are conscious of the of these committees as they provide direction need to set the right “tone at the top” and are and guidance to the Bank’s operations. We have supported in this by the Corporate Management. also focussed on efficiency through technology We have set in place the mechanisms to monitor and have implemented systems where by our and uphold high standards of business conduct. members receive Board papers through secure electronic means. The nine sub-committees The Board recognises the need to be informed appointed by the Board have operated effectively about changes in our operating environment and their activities are outlined in the respective which includes changes in economic policy, the reports. Members of the sub-committees have regulatory environment and also global events kept the Board apprised of matters addressed that shape the future of the industry. We have by them to ensure that the Board is fully aware initiated a learning culture for the Board to of their activities and for ratification where address this need and guest speakers who are necessary. acknowledged leaders in their field of expertise
96 Annual Report 2012 High Standard Six new non-executive Board members took office in 2012 and went through an induction programme of Conduct with the Corporate Management Team and the senior Board members providing insights on The Bank’s values, ethics and current developments. We have created a culture code of conduct are embodied where open debate and constructive challenges in the Blue Book which sets are encouraged and as Chairman, I am aware out the expectations from all employees to ensure that of the need to maintain and foster this system. high standards of conduct are The Board members collectively represent a maintained throughout the Bank diverse body of skills, knowledge and expertise in in conduct of business and our finance, law, banking, marketing, economics and interactions with stakeholders. management more fully described in their profiles on pages 32 To 37.
The Board welcomes engagement with stakeholders to identify areas where we can enhance governance, policies and sound business practices. We actively engage with investors, customers, regulators, suppliers and communities to obtain their feedback in a number of ways. We encourage our stakeholders to participate in shaping the future of Sampath Bank in setting new milestones where we can all be proud of.
Dhammika Perera Chairman
22nd February 2013 Colombo
Sampath Bank PLC 97 CORPORATE GOVERNANCE
The Board of Directors and oversight of the Corporate Management Team who are responsible for managing the performance The Board of Directors’ main responsibility is to of the Bank on a day to day basis. The Bank’s deliver sustainable value to our shareholders. Strategic plans, policies and procedures are We are also conscious of the need to deliver approved by the Board or its sub-committees sustainable value to other significant stakeholder to provide a framework for decision making and groups in order to realise the overall objectives of implementation of the strategies approved by the the Bank including creating long term value. We Board is delegated to the Corporate Management discharge this responsibility by determining the led by the Managing Director. strategic direction of the Bank and its risk appetite
Highlights
Appointing 6 new directors to the Board -Mr.Channa Palansuriya, Mr.Sanjiva Senanayake, Ms.Annika Senanayake, Mr.Deshal de Mel, Mr.Ranil Pathirane and Ms.Saumya Amarasekera were appointed to the Board as Non-Executive Directors during the year. They are leaders in their respective fields and bring a wealth of experience and knowledge to the Board .
Establishing a new Sub-Committee for Treasury for oversight of its performance, profitability and liquidity by establishing Treasury policies, governance structures and advising the executive Asset & Liability Committee with the objective of optimising performance.
Establishing a new Sub-Committee for Marketing to have a closer focus on the Marketing Strategies of the Bank and their effectiveness.
Inviting leading professionals to Board Meetings for presentations on developments in their areas of expertise with a view to creating a learning culture.
Appointing Members of the Corporate Management Team to the Boards of Subsidiaries to provide opportunity for their career development and to facilitate deriving greater synergies.
Setting up an innovative loan scheme to help undergraduates in the field of Engineering to obtain their University and Professional education, to mark the Bank’s Silver Jubilee.
98 Annual Report 2012 GOVERNANCE STRUCTURE
Audit Committee
Nominations Committee Shareholders External Auditors Subsidiaries Credit Committee Sampath Centre Ltd - Board of Directors - Board of Directors - Board Committees Renting of Commercial Property Subsidiaries Risk Management Committee Bank HR & Remuneration Committee SC Securities (Pvt) Ltd - Stock Broking Managing Director Strategic Planning Committee
Sampath Leasing & Factoring Ltd - Shareholder Relations Committee Leasing & Factoring Treasury committee
Marketing Committee Sampath Information Technology Solutions Ltd - Software Solutions & Hardware
Executive Director / Group Chief Financial Officer
DGM - Finance DGM - DGM - DGM - DGM - DGM HR & Planning Personal Banking International & Treasury Marketing Group Commercial Credit & Business Chief Risk Development Officer
Treasury AGM - AGM - Group Company AGM - AGM - AGM AGM AGM - Group Front Office Recoveries Corporate Secretary Operations Administration Br.Cr I Br.Cr II Corporate Compliance Finance Credit Officer Chief Legal Primary Corporate Operations Logistics & Regional Regional Officer Treasury Dealer Unit Finance Back Office Premises Offices Offices Trade Head of Services Recoveries Treasury Internal Middle Auditor Central Cash Finance & International Foreign Office Branches Branches Operations Planning Legal Unit Currency Head of IT Banking Network Commercial Unit Service Credit IT/EDP Risk Unit Centre Marketing & Deposit IT/Systems Development Mobilisation Banking Development Data Ware- Card Centre house Unit
Remittances Management Committees (1) Asset & Liability Committee Electronic (2) Deposit Mobilization Committee Banking (3) Investments Committee Unit (4) IT Steering Committee (5) Credit Policy Committee (6) Procurement Committee (7) IFRS Steering Committee (8) Internal Control Steering Committee
Sampath Bank PLC 99 CORPORATE GOVERNANCE
Non-Executive Directors bring outside perspectives, constructively challenge and participate in providing strategic directions, set goals and targets....
Composition & Structure of the employees of the Bank and lead the Corporate Board Management. Non-Executive Directors bring outside perspectives, constructively challenge The Board comprises of the Chairman, Deputy and participate in providing strategic directions, Chairman and ten other Directors. Ten Directors set goals and targets, evaluates performance including the Chairman and Deputy Chairman of corporate management, and monitor the risk are Non-Executive Directors. Among the Non profile and the reporting of performance. We Executive Directors, eight are Independent. The estimate that Non-Executive Directors spend more Bank also has an Independent Non Executive than 125 hours per annum and those members Director appointed as Senior Director. The two of the Audit Committee and Risk Management Executive Directors are the Managing Director Committee spend more than 60 hours per annum and the Group Chief Financial Officer who are both on matters of the Bank.
Board of Directors Audit Credit Human Treasury Treasury Planning Strategic Relations Marketing Board Risk Committee Committee Committee Committee Committee Committee Committee Committee Committee Shareholder Nominations Management Remuneration Resources and Corporate Management Group. administration Treasury activities Treasury grievances o if any. grievances Marketing activities strategy of the Bank the Bank Responsible for Identifying Responsible for oversight of Responsible for oversight of matters and risk governance. assessment of internal control Responsible for developing the Responsible for developing and evaluating performanceand evaluating and shareholder needs and addressing to the Board on, matters relating to to the Board on, and policies for credit approval and and policies for credit approval Responsible for setting the principles to the Board on high level risk-related to the Board on high level Responsible for setting goals, targets Responsible for setting goals, determining remuneration policy for the Responsible for oversight of, and advice Responsible for oversight of, and advice Responsible for oversight of, and day to day operations of to day and day financial reporting, risk management and Responsible for management Responsible for Board appointments and for identifying and nominating for approval for identifying and nominating approval the Board. and Key Management Personnel the Board. and Key by the Board, candidates for appointment to the Board, by
Articles of Association Code of Ethics Internal Policies & Procedures Other Internal Documents
Banking Act No.30 of 1988 and amendments Rules on Corporate Governance issued by the CSE External Companies Act No.7 of 2007 Directions issued by CBSL Code of Best Practice issued jointly by ICASL and SEC
100 Annual Report 2012 Compliance with Codes on Corporate Governance for Licensed Commercial Corporate Governance Banks issued by the Central Bank of Sri Lanka. We strive to go beyond mere compliance in our The Board is guided in its governance by the governance and look to international best practice Code of Best Practice on Corporate Governance as well in discharging our responsibilities. issued jointly by the Securities & Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka which has Role of Chairman & Managing been voluntarily adopted and complies with the Director Banking Act Direction No.11 of 2007 on Corporate The positions of the Chairman and the Managing Governance and subsequent amendments Director have been separated in line with best thereto on Corporate Governance for Licensed practice in order to maintain a balance of power Commercial Banks issued by the Central and authority. The Chairman is a Non-Executive Bank of Sri Lanka and the Continuing Listing Director whilst the Managing Director is an Requirements on Corporate Governance Rules Executive Director. The Bank has developed formal for Listed Companies issued by the Colombo terms of reference during 2012 for the Chairman Stock Exchange. Our External Auditors, Messrs. which includes all aspects specified in the Code, Ernst & Young have provided Central Bank with the continuing listing requirements of the CSE and a certificate of compliance on the requirements the Banking Act Direction no.11 of 2007. of the Banking Act Direction No.11 of 2007 on
Key Responsibilities of the Chairman (Summary)
1. Provide leadership to the Bank and ensure the Board of Directors works effectively and discharges its responsibilities
2. Ensure the Bank lives its vision and has strategies which are attuned to the needs of all stakeholders and operates in compliance with statutory and regulatory requirements
3. Ensure all directors are properly briefed on issues arising at Board Meetings and that they receive information in a timely manner
4. Encourage all directors to make a full and active contribution to the Board’s affairs and ensure that the Board acts in the best interests of the Bank.
5. Facilitate effective contribution of Non-Executive Directors and a constructive relationship between Executive and Non- Executive Directors.
6. Supervision of Key Management Personnel or any other executive duties on need basis.
7. Ensure that appropriate steps are taken to maintain effective communication with shareholders and communicate their views to the Board.
Sampath Bank PLC 101 CORPORATE GOVERNANCE
How we operate corporate fraud or risk management. This policy Ensure all The Board approves policies, procedures, enables any staff member of the Bank and its strategic plans and risk appetite, reviews reports subsidiaries who has a legitimate concern on stakeholder on progress on strategic plans, risk management, any potential “wrong doing” occurring within the interests are key performance indicators and stakeholder Bank to voluntarily bring such concerns to the relations. Chairpersons of Board Committees and notice of the Chairman of the Audit Committee. considered the Managing Director report to each meeting of The procedure is clearly set out in the intranet in corporate the Board on the activities of the Committees. The and Operational Circular to ensure that all staff Board receives regular reports and presentations members are aware of the procedure. decisions on strategy and developments in the operating environment for key business areas. Regular Setting Strategic Direction The memorandum and articles reports are also provided to the Board and The Board sets strategic direction for the Bank of the Bank require the directors Board Committees on the Group’s risk appetite to take decisions taking into through the Strategic Planning Process which is account the interest of the profile, risk management, credit exposures and directed by the Board Committee on Strategic customers, shareholders, the Group’s loan portfolio, asset and liability Planning. We have adopted a three year Revolving employees and the community. management, liquidity, litigation, compliance and Strategic Planning model which has been in force reputational issues. The agenda and supporting since 2009 and serves the needs of the Bank papers are distributed in advance of all Board well. The process covers an up to date review and Committee meetings to allow time for of the operating environment with emphasis on appropriate review and to facilitate full discussion emerging trends, identification of the company’s at the meetings. All Directors have full and timely strengths and areas for improvement within access to all relevant information and may take the overall objective of delivering sustainable independent professional advice if necessary at stakeholder value through earnings, growth, the Company’s expense. stability and productivity. The Strategic Plan for 2013-2015 is in the process of being reviewed Directors are given opportunities to update and and finalized. The Budget 2013 was approved and develop their skills and knowledge, through decisions disseminated to the Regional Managers briefings by the Corporate Management and and Branch Managers. externally conducted seminars throughout their directorship and while serving on committees. The Board monitored progress against Strategic Plan 2012 – 2014 and the Budget for 2012 during The Bank’s values, ethics and code of conduct the year using the Key Performance Indicators in are embodied in the Blue Book which sets out the table on next page. the expectations from all employees to ensure that high standards of conduct are maintained throughout the Bank in conduct of business and our interactions with stakeholders. We have implemented a Whistle Blowing Policy to ensure that high standards of conduct are upheld and to serve as a channel of early identification of
102 Annual Report 2012 Business Volumes Earnings Growth Credit Quality Deposits growth > 26% Return on Assets after Tax> 1.7% Individually significant Return on Equity> 23% impairment ratio < 2% Credit Growth > 23% Net Interest Margin> 4% (maximum as per credit ceiling imposed by CBSL) Effective Tax & VAT rate< 32% Cost to income ratio< 57% Open Credit Exposure (OCE) Dividend Payout Ratio > 25% ratio < 8%. Assets growth > 23% Minimum Dividends per share > Rs (OCE ratio obtained by 6.00 dividing NPLs less Loan loss
Financial Key Performance Performance Financial Key Indicators reserves by Tier I Capital)
Risk Management Human Resource Development Infrastructure Growth Completion of Risk & Control Self Assessment for Core areas of expertise covered in Online banking services key Strategic Business Units training enhanced Credit facilities risk ratings/ proposals reviewed by Training objectives met Mobile banking services RMU prior to granting enhanced Market Risk Stress Testing was implemented and is Maintained less than 6% staff turn ATM access points through now being done Quarterly basis. over. partnerships with other banks increased. Non Financial Key Non Financial Key Indicators Performance
Strategic Risk Management Internal Control Risk Management is key to sustained growth in The Bank maintains an effective system of delivering stakeholder value. The Board sets the Internal Controls to support business operations, risk appetite for the Bank and receives regular to ensure compliance with regulations, internal reports from the committee on Risk Management policies and procedures, and to ensure reliable which has oversight responsibility for the risk reporting. The Audit Committee reviewed the management of the Bank. The risk management Bank’s statement on Internal Control prior to its framework and activities are fully described in the endorsement by the Board. It also reviewed the Risk Report on pages 164 to 197 and the Report policies and processes for identifying, assessing of the Risk Management Committee on pages and managing business risks. 152 to 154. Additionally, the Board has noted and complied with the directions and guidelines issued by CBSL during the 2012.
Sampath Bank PLC 103 CORPORATE GOVERNANCE
The directors’ undertake an annual assessment operational management of the Bank’s operation of the effectiveness of internal control over and include specified authority limits delegated financial reporting in accordance with the Banking by the Board to the Bank’s Managing Director Act Direction No.11 of 2007. As required by the for further delegation by him to enable effective Direction, the Bank has obtained reports from the day-to-day operations. The Management has Bank’s External Auditors, Messrs. Ernst & Young established the following committees with written for the Internal Control over Financial Reporting terms of reference which are kept under regular for the year ended 31st December 2012. review. These committees are key elements of the Bank’s operational governance framework. Other Aspects of Corporate Governance The Board has an approved internal approvals process and those matters which may be delegated. These principally relate to the
Additional Governance Committees
Additional Governance Purpose and Tasks Committee
Asset and Liability Formulates monitors and reviews all asset and liability management strategies and their implementation. Committee These include decisions on advances and liabilities pricing, maintaining the appropriate mix of assets and liabilities, liquidity management, introduction of new asset and liability products, fixed versus floating interest rate structures, debt structures, the magnitude of the interest rate and liquidity risks, buying and selling of securities, foreign exchange exposures and regulatory compliance. Deposit Mobilization Mobilises adequate deposits to support credit expansions at a reasonable cost. Committee Investment Committee Evaluates and decides on the approval or rejection of new investment proposals received by the committee, if within their limits, or else, submits recommendations to the Board, where the Board is the approving authority. Investment in Equity Stocks listed in the Colombo Stock Exchange (CSE) Investment in Debentures Investment in Sri Lanka Development Bonds (SLDB) IT Steering Committee Takes responsibility for the feasibility, business case and the achievement of outcomes of operations, infrastructure, automation, development, procurement and security activities related to Information Technology at Sampath Bank, in line with the strategic vision and long term goals as stipulated by the Board of Directors. The Steering Committee will monitor and review the strategic alignment of the Bank’s overall vision, mission, and goals with that of the IT Department, as well as provide oversight of the deliverables and rollout of such strategies.
104 Annual Report 2012 Additional Governance Purpose and Tasks Committee
Credit Policy Determines the Credit Policy of the Bank. The Credit Policy Committee has the authority to make a final Committee decision on approval or rejection of proposed transactions as well as to establish personal limits and client limits in accordance with its powers. Procurement Evaluates and make recommendations to the Board with the concurrence of the Managing Director, on the Committee capital expenditure proposals, where the Board is the approving authority. The Committee also acts as the approving authority on capital expenditure projects and purchases within certain limits.
IT Governance Resource management - through regular IT Governance of the Bank creates value that assessments, ensures that IT has sufficient, fits into the overall Corporate Governance competent, and efficient resources to meet Strategy of the Bank, and is not a discipline on the Bank’s demands. its own. IT governance of the Bank ensures that Risk management embedded in the the investments in IT generate value, avoids responsibilities of the Bank, ensures that failure and mitigates IT-associated risks by the Bank and IT regularly assess and report ensuring well defined roles and responsibilities IT-related risks and organisational impacts. for IT stakeholders including Information Strategic alignment – a shared understanding System Auditors, within an organisational between the Bank’s management and the IT structure that adequately defines the role of department, enables the Board and senior information, business processes, applications management to understand strategic IT and infrastructure. Such a framework ensures issues. that IT investments are aligned and delivered Value delivery demonstrates the benefits in accordance with corporate objectives and achieved from each IT investment. strategies. The following best practices in IT Performance management reporting- Governance have been successfully implemented Accurate, timely, and relevant portfolio, by the Bank. programme, and IT project reports to senior management, provides a thorough review High-level framework – defining leadership, of the progress being made towards the processes, roles and responsibilities, identified objectives of the IT project. information requirements, and organisational structures.
Independent assurance - Internal / external audits (or reviews), provide timely feedback about compliance of IT with the Bank’s policies, standards, procedures, and overall objectives.
Sampath Bank PLC 105 CORPORATE GOVERNANCE
Membership of Committees of the Board
Directors Audit Nominations Credit Board Risk Human Strategic Shareholder Treasury Marketing Committee Committee Committee Management Resources and Planning Relations Committee Committee Committee Remuneration Committee Committee Committee
Mr. Dhammika Perera ü Chairman Mr. Channa Palansuriya ü ü ü ü ü Chairman Mr. Sanjiva ü ü ü ü Chairman Senanayake Mr. Deepal ü Chairman Chairman Sooriyaarachchi Prof. Malik Ranasinghe ü Chairman ü ü Mrs. Dhara Wijayatilake ü Chairperson Miss. Annika Senanayake ü ü ü ü Mr. Deshal De Mel ü ü ü ü ü ü Mr. Ranil Pathirana Chairman ü Mrs. Saumya Chairperson ü Amarasekera Mr. Aravinda Perera ü ü ü ü ü Mr. Ranjith Samaranayake ü ü ü ü Terms of Reference Available Available Available Available Available Available Available Available Available Planned Frequency of Quarterly Bi-annually Monthly Quarterly Quarterly Quarterly Annually Quarterly Bi-annually Meetings Actual No. of Meetings 14 02 09 06 03 03 01 03 03 Circulation of agenda and 7 days 7 days prior 7 days prior 7 days prior 7 days prior 7 days prior 7 days prior 7 days 7 days prior papers prior prior
The Group Company Secretary Mr. S. Sudarshan Sri Lanka and the Continuing Listing Requirements Focus Area % is the Secretary for all the Board Committees Section 7.10 on Corporate Governance Rules for and the minutes of meetings are available in his Listed Companies issued by the Colombo Stock Main Banking 35 custody. Written Terms of Reference that comply Exchange. Operations with the Code of Best Practice on Corporate Performance Review 12 Governance jointly issued by the Securities Board Meetings Strategy and 12 & Exchange Commission and the Institute of There were 21 Board Meetings during the year Budget Chartered Accountants of Sri Lanka, the Banking and 44 Committee meetings during the year. Their Risk Related Items 12 Act Direction No.11 of 2007 and amendments main focus areas and attendance at meetings are Governance 15 thereto on Corporate Governance for Licensed given below. Commercial Banks issued by the Central Bank of Succession 5 Planning Shareholder 5 Matters Others 4
106 Annual Report 2012 Directors Board Audit Com- Nominations Credit Com- Board Risk Human Strategic Shareholder Treasury Marketing Meetings mittee Committee mittee Management Resources Planning Relations Committee Committee Committee and Remu- Committee Committee neration Committee Held Held Held Held Held Held Held Held Held Held Attended Attended Attended Attended Attended Attended Attended Attended Attended Attended
Mr. Dhammika 21 18 - - 02 02 ------03 03 - - Perera Mr. Channa 21 19 - - 02 02 09 06 06 06 03 01 03 03 01 01 Palansuriya Mr. Sanjiva 21 21 14 14 09 08 06 06 - - 03 03 - - 03 03 Senanayake Mr. Deepal 21 21 14 13 - - - - 03 03 - - - - 03 03 Sooriyaarachchi Prof.Malik 21 21 14 14 09 08 - - - - 03 03 - - 03 02 Ranasinghe Mrs.Dhara 21 21 14 12 - - 06 06 ------Wijayatilake Miss Annika 21 19 - - 02 02 08 07 - - 03 03 - - - - 03 03 Senanayake Mr. Deshal De 21 21 - - 09 08 - - 03 03 03 03 01 01 03 03 03 03 Mel Mr. Ranil 21 18 14 14 01 01 - - - - 03 02 - - Pathirana Mrs. Saumya 11 10 ------02 02 Amarasekera Mr. Aravinda 20 20 - - 09 09 06 06 03 03 03 03 - - 03 03 Perera Mr. Ranjith 20 19 - - 09 09 06 06 - - 03 03 - - 03 02 Samaranayake Total No. of 21 - 14 - 02 - 09 - 06 - 03 - 03 - 01 - 03 - 03 - Meetings
‘*’ Mrs Saumya Amarasekera was appointed to the Board in June 2012 and appointed as Chairperson of the Nominations Committee on 01.12.2012
‘**’ Mr Ranil Pathirana resigned from the Credit Committee after his first meeting as a Credit Committee member as he was appointed Chairman of the Board Audit Committee.
** One Board meeting was held by the Non-Executive Directors only.
Sampath Bank PLC 107 CORPORATE GOVERNANCE
Stakeholders’ Rights Framework Governance framework which encourages active The Board recognises the rights of all co-operation between the Bank and stakeholders. stakeholders, established by law or through The Commitments of the Bank are as follows: mutual agreements and has in place a Corporate
Shareholders The Bank is committed to enhance long term shareholder value and facilitate the exercise of shareholders’ rights Customers The Bank is committed to maintain and enhance its public reputation as a sound, professional, progressive, convenient place to conduct banking. Employees The Bank is committed to build a work environment where employees can make a difference both as individuals and as part of a team. Community The Bank is committed to meet its corporate responsibility and decisions on social and economic issues concerning activities of the Bank. Regulators Ensure fulfilment of all regulatory requirements.
Special resolutions passed at the last Statutory Compliance & Penalties Annual General Meeting (AGM) The Group Company has complied with the There were no matters that required passing of requirements of the Stock Exchange on all special resolutions at the AGM held on March 30, matters related to capital markets during the year. 2012. No penalties have been imposed on the Company by the authorities. Means of Communication We communicate with our stakeholders through Declaration the following mechanisms: I Aravinda Perera, Managing Director of Sampath The quarterly results are published in the Bank PLC, hereby declare that all the members of newspapers and released to the Colombo the Board of Directors and the Senior Management Stock Exchange [CSE]. personnel have affirmed compliance with the The financial results are displayed on the Code of Conduct, applicable to them as laid down website www.sampath.lk in an area of by the Board of Directors in terms of Section 3(8) devoted to Investor Relations. (ii)(g) of the Banking Act Direction No. 11 of 2007, Financial results and business strategies for the year ended December 31, 2012. of the Bank are explained to investors, business leaders and media personnel through Investor forums and press releases. Management Discussion and Analysis Aravinda Perera forms part of the Annual Report. (Pages 46 Managing Director to 95) 22nd February 2013
108 Annual Report 2012 The Code of Best Practice on Corporate Governance issued jointly by the Securities and Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka
Code of Best CSE Listing Principle Compliance & Implementation Practice Requirements
Board of Directors Effective Board The Bank Board of Directors comprises 12 Directors of whom ten are A1 Non-Executive including the Chairman. The two Executive Directors are the Managing Director and the Group Chief Financial Officer who are also part of the Corporate Management to whom the day to day running of the organisation has been delegated. The Board has appointed committees to assist in discharge of their collective duties and also approves policies, governance structures and the delegation of authority to provide a conducive business environment for effective performance of the Bank. Additionally, the Board is closely involved in developing strategy and setting the short, medium and long term goals of the Bank and regularly monitors performance against pre-determined Key Performance Indicators which include both quantitative and qualitative measures. Regular Meetings Board meetings are held monthly whilst special Board meetings are A1.1 convened if the need arises. During 2012 the Board held 21 meetings. Additionally the following Committees also met regularly: Audit Committee Nominations Committee Credit Committee Board Integrated Risk Management Committee Human Resources & Remuneration Committee Strategic Planning Committee Shareholder Relations Committee Treasury Committee Marketing Committee
This year the Board members were provided with iPads to access their Board papers via secure connections and directors are able to join meetings even from outside the Board Room. Details of Board meetings, Committee Meetings and attendance are given on page 107 of this report. Board’s Responsibilities: The following procedures are carried out to strengthen the safety and soundness of the Bank
Sampath Bank PLC 109 CORPORATE GOVERNANCE
The Code of Best Practice on Corporate Governance issued jointly by the Securities and Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka
Code of Best CSE Listing Principle Compliance & Implementation Practice Requirements
Board of Directors Ensure the The Board is responsible for setting strategy, policies and for monitoring A1.2 formulation and performance against agreed goals and Key Performance Indicators. implementation of During the year, the Board had 3 Strategic Planning Meetings where they sound business reviewed the proposals of the Corporate Management and re-aligned strategy strategy upon issuance of the CBSL directive on the Credit Ceiling in March and approved the medium term strategy for the period 2013 to 2015. Ensure that The Board Nominations Committee ensures that the Key Management A1.2 the Managing Personnel (KMPs)have the required skills, experience and knowledge to Director (MD) and implement strategy. management team KMPs include the Board of Directors of the Bank, Key Employees who are possess the holding Directorship in Subsidiary Companies of the Bank and Executives skills, experience who directly report to the Board Committees. and knowledge to implement the strategy Ensure effective Formal succession plan for Key Management Personnel are being A1.2 MD and senior developed by the HR Department and is to be submitted to Nominations management Committee together with the revised Organization Structure to be succession strategy presented with its recommendation to the Board for approval. Ensure effective Refer to Directors’ statement on Internal Control, A1.2 systems to Audit Committee and Risk Management Committee secure integrity of information, internal controls and risk management Ensure compliance There is a separate Compliance function reporting directly to the Board A1.2 with laws, Risk Management Committee which has responsibility for compliance. regulations and ethical standards Ensure all The memorandum and articles of the Bank require the Directors to A1.2 stakeholder take decisions taking into account the interests of the customers, interests are shareholders, employees and the community. considered in corporate decisions
110 Annual Report 2012 Code of Best CSE Listing Principle Compliance & Implementation Practice Requirements
Ensure that the Audit Committee & the Board review accounting policies annually to A1.2 company’s values ensure that they are in line with the business model of the Bank and and standards are evolving international and local accounting standards and industry set with emphasis best practices. This year there have been significant change in the on adopting accounting policies due to changeover to SLFRS for which we have sought appropriate clarifications , advice and implementation support from our external accounting policies auditors, Messrs Ernst & Young. and fostering compliance with financial regulations Fulfill such other The Board is committed to fulfill their functions in a regulatory framework A1.2 Board functions while fulfilling the legal and good governance practices adopted by the which are vital, Bank. given the scale, nature and complexity of the business concerned Act in accordance The Board obtains independent professional advice as and when A1.3 with laws necessary in accordance with Central Bank guidelines and the Board relevant to the approved policy on independent professional advice and these functions organisation and are co-ordinated through the Group Company Secretary. Independent procedure professional services were sought on matters during the year in for Directors to accordance with the above provision. obtain Independent Professional advice at company expense
Sampath Bank PLC 111 CORPORATE GOVERNANCE
The Code of Best Practice on Corporate Governance issued jointly by the Securities and Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka
Code of Best CSE Listing Principle Compliance & Implementation Practice Requirements
Board of Directors Access to and All Directors have the opportunity to obtain the advice and services A1.4 appointment or of the Group Company Secretary, Mr.S.Sudarshan who is a Chartered removal of Company Corporate Secretary which is an approved qualification under the Secretary Companies Act No.7 of 2007. He is responsible for ensuring follow up of Board procedures, compliance with rules and regulations, directions and statutes, keeping and maintaining minutes and relevant records of the Bank.
The Articles of the company specify that the appointment and removal of the Company Secretary should be by resolution involving the whole Board.(As per Article 120 (I) & (ii)) Independent The Directors of the Bank have no conflicts and take decisions on A1.5 Judgement matters before them using independent judgement. Dedicate adequate Dates of regular Board meetings and Board Committee meetings are A1.6 time and effort to scheduled well in advance and the relevant papers are circulated a week matters of the prior to the meeting. There is provision to circulate papers closer to the Board and the meeting on an exceptional basis. Company It is estimated that Non-Executive directors dedicate more than 125 hours per annum for the affairs of the Bank and those directors who are also on Committees dedicate more than 60 hours for the affairs of the Bank. The attendance at meetings for the Board and its sub-committees are given in page 107. Training for Directors The Group Company Secretary draws up the training curricula in A1.7 consultation with the Chairman. The first item of the agenda is occasionally devoted to hearing an outside expert views on matters relevant to the Bank. During 2012 the following areas were covered Directors’ responsibilities State of the economy and future outlook Additionally, the Board encourages knowledge sharing amongst the directors. They also participate in the sessions organised by professional bodies and Sri Lanka Institute of Directors. The annual self-assessment by directors also covers aspects on training to identify training needs.
112 Annual Report 2012 Code of Best CSE Listing Principle Compliance & Implementation Practice Requirements
Division of responsibilities between Chairman and Managing Director Chairman’s role The positions of the Chairman and the Managing Director have been A2 in preserving separated in line with best practice in order to maintain a balance of Good Corporate power and authority. The Chairman obtains the views of all Directors and Governance takes decisions in the best interest of the Bank. Role of Chairman Conduct Board The Bank has developed a formal Terms of Reference during 2012 for the A3 proceedings in a Chairman which includes all aspects specified in the Code, the continuing proper manner listing requirements of the CSE and the Banking Act Guideline No. 11 of 2007. Financial Acumen Availability of Financial acumen has been a key attribute of successful careers of the A4 financial acumen following directors who have held senior management positions related to and knowledge to finance in other leading financial institutions: offer guidance on 1 Mr.Sanjiva Senanayake matters of finance 2 Mr.Deepal Sooriyaarachchi 3 Mr. Ranil Pathirana 4 Mr. Ranjith Samaranayake Additionally the Chairman, Mr. Dhammika Perera has served on the Boards of a number of financial institutions. Two directors, including the Managing Director have MBA’s and one director is a Fellow Member of the Chartered Institute of Management Accountants, UK and another Director is a Senior Professor in Civil Engineering. Board Balance A5 Non-Executive The Board comprises 10 Non-Executive Directors including the Chairman A5.1 Section 1 Directors of and 2 Executive Directors who are the Managing Director and the Group & sufficient calibre and Chief Financial Officer. The Non-Executive Directors are professionals/ A5.2 number academics/business leaders, holding senior positions in their respective fields and therefore deemed to be of sufficient calibre. As the majority of the Board comprises Non-Executive Directors, their opinions and views carry significant weight in the Board decisions. Independence 8 Non-Executive Directors are independent of management and free of A5.3 Section 2 of non-executive any business or other relationship that could materially interfere with or directors could reasonably be perceived to materially interfere with the exercise of their unfettered and independent Judgement.
Sampath Bank PLC 113 CORPORATE GOVERNANCE
The Code of Best Practice on Corporate Governance issued jointly by the Securities and Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka
Code of Best CSE Listing Principle Compliance & Implementation Practice Requirements
Board Balance A5 Annual declarations Annual declarations of Independence or Non-Independence have been A5.4 Section 2 of independence obtained from the directors for 2012. from Directors Annual evaluation of The Board makes an annual evaluation of independence of the Directors A5.5 Section 2 independence based on the submission of the annual declarations. Based on these, the following Directors are deemed to be independent: Mr. Sanjiva Senanayake Mr. Deepal Sooriyarachchi Prof. Malik Ranasinghe Ms. Dhara Wijayatilake Ms. Annika Senanayake Mr. Deshal De Mel Mr. Ranil Pathirana Mrs. Saumya Amarasekera There were no directors deemed independent where all criteria were not met. Senior independent Mr. Sanjiva Senanayake has been appointed as a Senior Independent A5.6 director Director in view of the requirements of the Banking Act Direction No. 11 & of 2007. A5.7 Chairman to hold During 2012, the Non-Executive Directors and the Chairman met once A5.8 meetings with non- without the Executive Directors. executive directors, without Executive directors being present Recording of Board minutes are prepared in order to record any concerns of the Board A5.9 Directors’ concerns as a whole or those of individual directors regarding matters placed for in Board Minutes their approval/guidance/action. These minutes are circulated and formally approved at the subsequent Board meeting, Additionally, directors have access to the past Board papers and minutes.
If a director resigns over an unresolved issue, the Chairman will bring the issue to the attention of the Board. The director concerned is also required to provide a written statement to the Chairman for circulation to the Board.
114 Annual Report 2012 Code of Best CSE Listing Principle Compliance & Implementation Practice Requirements
Supply of Relevant Information Provision of The management provides comprehensive information including both A6.1 appropriate and quantitative and qualitative information for the monthly Board Meetings timely information generally seven days prior to the Board/ Committee meetings. The directors also have free and open access to Management at all levels to obtain further information or clarify any concerns they may have. As described above, they also have the right to seek independent professional advice at the Company’s expense and copies of advice obtained in this manner are circulated to other directors who request it. Chairman to ensure All directors are adequately briefed on matters arising at Board meetings A6.1 all directors are through comprehensive Board papers. Additionally, the relevant members properly of the Management team are on standby for further clarifications as may briefed on issues be required by Directors or will make presentations at Board meetings. arising at Board meetings Any Director who does not attend a meeting is updated on proceedings prior to the next meeting through: Formally documented minutes of discussions. Separate discussions at start of meeting regarding matters arising from the previous meeting. Archived minutes and Board papers accessible at the convenience of the Directors.
Non-Executive Directors have an open invitation to attend the meetings of the Management Committees and have the opportunity to interact with senior management after Board Meetings. Board papers As described above, Board papers are generally circulated seven days A6.2 and agenda to be before the meeting. There is provision for circulation of urgent papers circulated seven within a shorter time frame and also for approval of matters by circulation days prior to but such instances are the exception and not the rule. meetings.
Sampath Bank PLC 115 CORPORATE GOVERNANCE
The Code of Best Practice on Corporate Governance issued jointly by the Securities and Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka
Code of Best CSE Listing Principle Compliance & Implementation Practice Requirements
Appointments to the Board Formal and The Board has established a Nominations Committee whose Terms of A7.1 transparent Reference comply with the Specimen given in the Code. Membership procedure for new of this important Board Committee is given on page 148 to 149 of appointments the Annual Report. Accordingly, new Directors including the Managing through an Director, Group Chief Financial Officer and Key Management Personnel established are appointed by the Board upon consideration of recommendations by Nominations the Nominations Committee. Committee Nominations The Board is in the process of assessing its composition to ascertain A7.2 Committee annually whether the combined knowledge and experience of the Board match the assess Board strategic demands facing the Company . This is a continuous process. composition Disclosure of All new appointments are communicated to the shareholders via the A7.3 information to Colombo Stock Exchange. The profiles of the current Directors are given shareholders upon on page 32 to 37 in this report which have also been translated in to appointment of new Sinhala. Directors Re-Election All directors should As per the Articles, 1/3rd of the directors should retire at each Annual A8 submit themselves General Meeting and be subject to re-election. Such Directors who retire for re-election at are those who held office for the longest time period since the election/ regular intervals re-appointment. In accordance with this provision, the following directors retire and offer themselves for re-election: Mr. Dhammika Perera Prof. Malik Ranasinghe Mrs. Dhara Wijayatilake Mr. Sanjiva Senanayake
Directors appointed to the Board since the last AGM will stand for election for the first time in accordance with the provisions in the Articles of Association. In accordance with this provision, Mrs Saumya Amarasekera offers herself for re-election. A brief resume of Directors is provided in English and Sinhala in the Annual Report to enable shareholders to make a decision.
The Board is actively engaged in succession planning for both Executive and Non-Executive roles to ensure that Board composition is periodically renewed and that the Board retains its effectiveness at all times.
116 Annual Report 2012 Code of Best CSE Listing Principle Compliance & Implementation Practice Requirements
Non-Executive non executive Directors are subject to re-election in terms of the Articles A8.1 Directors are subject of Association. to re-election All Directors Described in response to A8 above. A8.2 including Chairman to be subject to re-election at first opportunity after appointment and re-election at least every three years thereafter Appraisal of Board Performance Appraisal of Board The Board annually appraises its own performance to ensure that they A9.1 Performance are discharging their responsibilities satisfactorily. This process requires each Director to fill a Board Performance Evaluation Form in line with the provisions of this section of the Code. The responses are reviewed by the Group Company Secretary who compiles a report which is discussed at a Board Meeting.
Appraisal of Board The Board committees are in the process of evaluating the performance A9.2 Sub-Committees of its members to ensure that they are discharging their responsibilities satisfactorily. Disclosure of Information in respect of directors Annual Report to Information specified in the Code with regards to directors are disclosed A 10.1 disclose specified within this Annual Report as follows: information Name, qualifications, expertise, material business interests and brief regarding Directors profiles on pages 32 to 37. Related Party Transactions on page 107. Membership of sub-committees and attendance at Board Meetings and committee meetings on page 107. Appraisal of Managing Director Set reasonable The Board discussed and set financial and non-financial targets to be A11.1 financial and non- achieved during the year by the Managing Director with reference to the financial targets to short, medium and long term objectives of the Bank at the beginning of be met by the MD 2012. The targets for 2013 have also been set at the time of reporting.
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The Code of Best Practice on Corporate Governance issued jointly by the Securities and Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka
Code of Best CSE Listing Principle Compliance & Implementation Practice Requirements
Appraisal of Managing Director Evaluate HR & Remuneration committee is in the process of evaluating A11.2 performance of the performance against the set targets and goals of the Managing Director. MD with reference to targets Directors’ Remuneration Appointment of a The Board has established a HR & Remuneration Committee chaired B1.1 HR & Remuneration by an Independent non executive director which consist of a majority of Committee independent non executive Directors to develop policy and determine remuneration for the directors, management and executive staff. No Director is involved in deciding his own remuneration. The Terms of Reference complies with Schedule C of the Code, other investor guidelines and requires the Committee to ensure that the Company adopts a remuneration policy which rewards Directors, Management and Executive Staff for their contribution to sustainably and responsibly enhanced shareholder value.
Further information regarding the HR & Remuneration Committee is given on pages 155 to 157. Remuneration The Remuneration Committee comprises the following directors majority B1.2 Section 4 Committee to of them are Independent Non Executive Directors & comprise exclusively Mr. Deepal Sooriyaarachchi (Chairman) B1.3 non-executive Mr. Channa Palansuriya Directors Ms. Annika Senanayake Mr. Deshal De Mel Mr. Aravinda Perera Remuneration for Remuneration of non-executive directors is recommended by the HR & B1.4 non- Remuneration Committee for approval of the Board in line with market executive directors practice. Remuneration of Remuneration of executive directors is determined by the HR & B1.5 executive directors Remuneration Committee who have access to professional advice from within or outside the company in formulating their proposals which then are discussed with the Board.
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Level of remuneration Remuneration for Remuneration for executive directors is designed to attract, retain and B2.1 executive directors motivate the executive Directors as determined by the Remuneration & should attract, retain Committee. Their remuneration comprises a fixed salary component, B2.2 and motivate which includes perquisites and allowances. The Remuneration Committee takes in to account market practices and seeks professional advice when required in order to discharge its responsibilities. Positioning company The HR & Remuneration Committee reviews the Bank’s remuneration B2.3 remuneration levels levels in relation to other Banks in the country. relative to other companies Performance related There are no performance related elements of remuneration for Executive B2.4 elements of directors. remuneration for executive directors Share option The employees have a uniform employee share ownership scheme based B2.5 schemes on grade and salary of the employee. This scheme expires on 30th June 2014. Designing schemes No schemes of performance related remuneration have been B2.6 of performance implemented in the Bank. related remuneration Compensation There are no provisions for compensation for early termination in the B2.7 commitments in the letters of contract/appointment. However, the directors would determine event this on a case by case basis. of early termination Dealing with early Directors determine this on a case by case basis. B2.8 termination Levels of The HR & Remuneration Committee determines the levels of B2.9 remuneration for remuneration for non-executive directors taking in to account the time non-executive commitment and responsibilities of their role and directors market practices. Remuneration for non-executive directors do not include share options.
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The Code of Best Practice on Corporate Governance issued jointly by the Securities and Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka
Code of Best CSE Listing Principle Compliance & Implementation Practice Requirements
Disclosure of Remuneration Composition of HR The composition of the HR & Remuneration Committee and its policy is B3.1 Section 4 & Remuneration given on page 155 to 157. Committee, The aggregate remuneration to executive and non-executive directors are Remuneration Policy given on page 320. and disclosure of aggregate remuneration paid to Directors Relations with Shareholders Constructive use of The Annual General Meeting is the main forum of contact between C1 the AGM & Other retail shareholders and the Board. A separate Committee of the General Meetings Board, Shareholder Relations Committee has been set up for the purpose of building up relations with the shareholders and addressing their concerns. This committee conducts an open session with the shareholders immediately after the AGM each year.
The Annual Report is circulated to all shareholders 21 days prior to the AGM and a Sinhala version is published each year to meet the needs of the diverse group of shareholders. Additionally, the message by Chairman’s and the Managing Director are translated in to Tamil each year.
In line with market practice, the Managing Director has regular contact with the major shareholders and the Chairman also participates in many such meetings. Count of all proxy All proxy votes lodged, together with the votes of shareholders present at C1.1 votes lodged the AGM are considered for each resolution. Separate A separate resolution is proposed at the AGM for each substantially C1.2 resolutions for each separate issue. The adoption of the report and accounts is proposed as substantially a separate resolution. separate issue Availability of Board All Board Committee Chairmen are present at the AGM to answer any C1.3 Committee chairmen questions raised at the AGM and will respond when requested to do so by at AGM the Chairman.
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Circulation of notice Notice of the AGM and related papers are sent to shareholders at least C1.4 of AGM and related 21 calendar days prior to the meeting in accordance with the regulations. documents to shareholders Summary of A summary of the procedures governing C1.5 procedures voting at the AGM is provided in the proxy governing voting form, which is circulated to shareholders at the AGM 21 calendar days prior to the AGM.
Disclosure of major transactions Disclosure of major The Company’s future strategies and their C2 transactions potential impact have been disclosed in the following sections of this annual report. Chairman’s Statement pages 14 to 17. Managing Director’s Review page 18 to 29. Management Discussion and Analysis pages 46 to 95. Disclosure of all The Bank will comply with the regulation in case of need but the situation C2.2 facts of transactions has not arisen. which have a material impact on net assets Accountability & Audit Present a balanced The company’s position and prospects D1 and understandable have been discussed in detail in the assessment of the following sections of this annual report. Company’s Chairman’s Statement pages 14 to 17. financial position, Managing Director’s Review pages 18 To 29. performance and Management Discussion and Analysis pages 46 to 95. prospects
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The Code of Best Practice on Corporate Governance issued jointly by the Securities and Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka
Code of Best CSE Listing Principle Compliance & Implementation Practice Requirements
Accountability & Audit Interim reports, Interim reports were published in newspapers within 45 days of each D1.1 price-sensitive public quarter and included information to assist shareholders gain an reports, regulatory understanding of the state of affairs of the Bank. reports and statutory information Price sensitive information was disclosed in a comprehensive but concise requirements manner to the Colombo Stock Exchange on a timely basis.
Reports required by the regulators including Central Bank, Inland Revenue, Registrar of Companies, Colombo Stock Exchange were all filed in a timely manner in compliance with their requirements and these provided a sufficient information for the user to obtain a balanced assessment of the Bank’s operations. Declaration in The Annual Report of the Board of Directors Report on pages 274 to D1.2 Annual Report of the 281, contains the declarations as required by the Code. Board of Directors Report Responsibilities of The Statement of Directors’ Responsibility for Financial Reporting and D1.3 the Board for the Report of the Auditors which includes a statement about their reporting preparation and responsibilities are provided on page 290. presentation of financial Statements and statement by the Auditors about their reporting responsibilities Include a The Management Discussion & Analysis is set out on pages 46 to 95 D1.4 Management and covers the information specified in the Code as given below Discussion & industry structure and developments; Analysis opportunities and threats; risks and concerns; internal control systems and their adequacy ; social and environmental protection activities carried out by the Company; financial performance; material developments in human resource/industrial relations and prospects for the future.
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Declaration of the This information is provided in the Report D1.5 Directors that the of the Directors on pages 274 to 281. business is a going concern Notify shareholders This situation has not arisen. D1.6 in case net assets of the company fall below 50% of stated capital Internal Control Maintain a sound The Board is responsible for formulating and implementing appropriate D2.1 system of internal and adequate internal control systems. The Board Audit Committee has control to safeguard responsibility to the Board to ensure that the system of internal controls shareholders’ is sufficient and effective. Reviews of the adequacy and effectiveness investments and the of these internal control systems are carried out by the Internal Audit Company’s assets. Department who report on a regular basis to the Board Audit Committee. Review need for As the Bank has an Internal Audit function, this is not applicable. D2.2 Internal Audit Function Audit Committee Establish The Bank has an Audit Committee in keeping with good governance since D3 Section 5 arrangements 1997. The principal responsibility of the Audit Committee was oversight for selection and over financial reporting, internal controls and monitoring external auditor application of independence. Its duties include gaining assurance on the control over accounting policies, financial reporting processes and the integrity of the Bank’s financial financial reports, monitoring the performance, objectivity and independence of reporting and the external auditor and reviewing work of the internal auditor. The Audit internal control Committee Report is given on page 144 to 147, of the Annual Report. principles Composition and The Audit Committee consists of non-executive directors. Members D3.1 Terms of Reference are selected to provide a broad set of financial, commercial and other for Audit Committee relevant experience to meet the Committee’s objectives. The Managing Director, Executive Director/Group Chief Financial Officer, Deputy General Manager - Finance/Planning, Group Chief Risk Officer, Head of Internal Audit, Senior Manager Systems Audit and representatives of the External Auditors are invited to attend the meetings.
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The Code of Best Practice on Corporate Governance issued jointly by the Securities and Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka
Code of Best CSE Listing Principle Compliance & Implementation Practice Requirements
Audit Committee Review of External The Committee has a key oversight role in relation to the external auditor D3.2 Audit functions and Ernst & Young, whose primary relationship is with the Committee. The relationship with Bank’s Auditor Independence Policy ensures that the independence External Auditors and objectivity of the auditor is not impaired. The Committee has responsibility for recommending to the Board the appointment/re- appointment of the external auditors and reviewing the nature, scope and results of the annual external audit. The audit fee is determined by the Audit Committee who also assesses the effectiveness and the independence of the external auditors. Terms of Reference The Terms of Reference for the Audit Committee complies with the Code D3.3 of Best Practice on Corporate Governance issued by the SEC and ICASL and the Code of Best Practice on Audit Committees issued by ICASL. This document is available with the Group Company Secretary. Disclosures The Directors Report on pages 274 to 281, provide the following D3.4 regarding Audit disclosures: Committee The composition of the Audit Committee A statement regarding the independence of the auditors Code of Business Conduct & Ethics Code of business Codes of conduct are to be developed for directors and senior D4.1 conduct management. and ethics for directors and senior management Affirmative This will be implemented along with the Code of Conduct. D4.2 declaration by Chairman of compliance with Code of Business Conduct & Ethics Corporate Governance Disclosures Corporate The Corporate Governance Report on pages 96 and 163 provides D5.1 Governance Report information regarding Corporate Governance practices in the Bank which are in compliance with the Code of Best Practice on Corporate Governance.
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Shareholders – Institutional Investors Encourage voting at The Bank has a history of active shareholder involvement at general E1 AGM meetings and all shareholders are regularly encouraged to state their intentions to vote and translate it into practice. Regular structured The Managing Director has regular structured meetings with institutional E1.1 dialogues with investors and the Chairman often participates in such meetings. Board institutional Members are briefed about the matters discussed at such meetings. investors Encourage Institutional investors are kept apprised of the Bank’s governance E1.2 institutional practices through the Annual Report and any new initiatives are investors to highlighted at regular meetings to ensure that due weightage is given to give due weight to good corporate governance. relevant governance arrangements Shareholder Relations – Individual Shareholders Individual The annual report contains sufficient information for a potential investor F1 shareholders are to carry out their own analysis. The annual report is published in both encouraged to do Sinhala and English to facilitate better understanding by retail investors. their own analysis This, together with the interim financial statements published each or seek independent quarter, provide sufficient information to enable retail investors make advice informed judgements regarding the performance of the Bank.
Additionally, there is a separate part of the company website dedicated to Investor Relations which provides this information online to all investors. Encourage It is a tradition at Bank to encourage all shareholders to participate and F2 shareholders to vote at the AGM. Additionally, they are encouraged to do so through the participate and vote Shareholder Relations Committee and AGM
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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.
Section Principle Compliance & Implementation
3 (1) Responsibilities of the Board The Board has strengthened the safety and the soundness of the Bank in the following manner: a. Strategic objectives and corporate The Bank’s strategic objectives and corporate values are determined by the Board values and are given on page 4. These are communicated to all levels of staff through regular briefing sessions and reinforced by the Corporate Management Team. Additionally the values are included in the Employee Blue Book. b. Overall Business Strategy including The Bank strategy is set by the Board in consultation with the Corporate Risk Policy and Management Management and the Strategic Plan for 2013-2015 is in the process of being reviewed and finalized. The risk appetite, policy, management framework and mechanisms have also been approved by the Board in line with the strategic plan. Measurable goals for the Bank as a whole have been set and performance is measured in line with these goals regularly at monthly Board Meetings. c. Risk Management The Board has appointed a Board Risk Management Committee tasked with recommending to the Board 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. The following reports provide further insights in this regard: Risk Management Report on pages 164 to 197 Risk Committee Report on pages 152 to 154. d. Communication with all The Board has approved and implemented the following communication policies stakeholders with regard to the following stakeholders: Shareholders – The Board has appointed a Committee on Shareholder Relations tasked with identifying and addressing the shareholders concerns. It is the first listed company in Sri Lanka to have such a committee. This committee conducts an annual Shareholder Relations Forum to identify shareholder concerns. Additionally, the AGM is also a key forum for contact with shareholders and the Bank has a proud history of well attended AGMs where shareholders take an active role in exercising their rights. The Annual Report is translated in to Sinhala and the Message by the Chairman and the Managing Director are translated in to Tamil as well to facilitate greater communication with shareholders.
126 Annual Report 2012 Section Principle Compliance & Implementation d. Communication with all Customers - Customers include depositors, lenders, creditors and debtors. stakeholders (Contd.) The Bank has a Customer Complaint Handling Policy which has been printed in all three languages and disseminated to all customer contact points of the Bank. This document outlines the complaints handling policy of the Bank, provides contact numbers of the Bank for this purpose and also of the Financial Ombudsman. There is a 24 hour customer hotline set up for this purpose .Additionally, a customer satisfaction survey is carried out by external consultants to evaluate service levels provided by the Bank.
Staff – Staff members who are members of the Sampath Bank Employees Association (SBEA) and their representatives are given unrestricted access to the management to voice their concerns. The Group Company Secretary co- ordinates communication between the Board and the SBEA. It is noteworthy that 98% of staff are members of the SBEA. e. Internal Control System and The Board Audit Committee is tasked with reviewing the adequacy and the integrity Management Information Systems of the bank’s internal control systems and management information systems. Accordingly this Sub-Committee reviewed reports from the Internal Audit Department which reports directly to the Audit Committee and also the external auditors in carrying out this function. f. Key Management Personnel The Board has identified Key Management Personnel, as defined in the International [Directors, Deputy General Accounting Standards and the Sri Lanka Accounting Standards, who significantly Managers, Group Compliance influence policy, direct activities and exercise control over business activities, Officer, Head of Internal Audit and operations and risk management. All appointments of designated Key Management Group Company Secretary] Personnel are recommended by the Nomination Committee and approved by the Board. g. Define areas of authority and Key Areas of authority and key responsibilities have been defined for the Executive Responsibilities for Executive Directors and Key Management Personnel during 2012. Directors and Key Management Personnel h. Oversight of affairs of the Bank by Key Management Personnel make regular presentations to the Board on matters Key Management Personnel under their purview and are also called in by the Board to explain matters relating to their areas. i. Assess effectiveness of own The Board appraises its performance by using the Board Evaluation Form which Governance practices is filled by each Director in relation to business strategy and contributions of Board members based of their field of expertise. The responses are collated by the Group Group Company Secretary and matters of concern are brought to the attention of the Board by the same Committee.
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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.
Section Principle Compliance & Implementation
j. Succession plan for Key Formal succession plan for Key Management Personnel have been developed by the Management Personnel HR department and presented to the Nominations Committee for their approval. Nominations Committee and the Board are yet to approve the succession plan for KMPs. k. Regular meetings with Key Key Management Personnel are regularly present for discussions at the meetings of Management Personnel the Board and its Committees. Progress towards corporate objectives is discussed regularly at Board meetings. l. Regulatory environment and Directors are briefed about developments in the regulatory environment at Board maintaining an effective Meetings to ensure that their knowledge is updated regularly to facilitate effective relationship with regulator discharge of their responsibilities.
Compliance Reports submitted to CBSL which includes all returns to regulators are presented to the Board quarterly and monitored closely by the Board. m Hiring and oversight of external The Audit Committee carries out the necessary due diligence regarding the hiring of Auditors the External Auditor and makes recommendations to the Board. Oversight of the external Auditor is carried out by the Audit Committee and the Board is briefed of any concerns in this regard if the necessity arises. 3 1 (ii) Appointment of Chairman and The Board has appointed the Chairman and the Managing Director and also Managing Director and defining approved their functions and responsibilities maintaining the balance of power and approving their functions and between the two roles. responsibilities 3.1. (iii) Regular Board Meetings Regular monthly Board meetings are held and special meetings are scheduled as and when the need arises. The Board met 21 times during 2012. We have minimised obtaining approval via circular resolutions and it is done only on an exceptional basis and such resolutions are ratified by the Board at the next meeting. 3.1.(iv) Arrangements for Directors to Monthly meetings are scheduled and informed to the Board at the beginning of each include proposals in the agenda calendar year to enable submission of proposals in the agenda for regular meetings where such matters and proposals relate to the promotion of business and the management of risk of the Bank. 3.1.(v) Notice of Meetings Notice of Meetings, agenda and Board papers for the Board meetings are circulated to the directors seven days prior to the meeting giving Directors time to attend and submit any urgent proposals.
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3.1 (vi) Directors Attendance The directors are apprised of their attendance in accordance with the Articles of the Company and the Corporate Governance Code. Detail of the directors attendance is set out on page 107. No Director has been absent from 3 consecutive meetings during the 12 months as per the Corporate Governance Codes of CBSL and all Directors have attended at least 18 out of 21 meetings held. 3.1 (vii) Group Company Secretary The Board has appointed a Group Company Secretary who satisfies the provisions of Section 43 of the Banking Act No.30 of 1988 and whose primary responsibilities shall be to handle the secretariat services to the Board and shareholder meetings and carry out other functions specified in the statutes and other regulations. 3. 1 Directors access to advice and All members of the Board have opportunity to obtain advice and services of the (viii) services of Group Company Group Company Secretary who is a Chartered Corporate Secretary and who is Secretary responsible to the Board for follow up of Board procedures, cCompliance with rules and regulations, directions and statutes and keeping and maintaining Minutes and relevant records of the Bank. 3.1 (ix) Maintenance of Board Minutes Group Company Secretary maintains the minutes of the Board Meetings and circulates same to all Board Members. The minutes are approved at the subsequent Board Meeting. Additionally, the Directors have access to the past Board papers and Minutes. 3.1 (x) Minutes to be of sufficient The Minutes of the meetings include: detail and serve as a reference (a) a summary of data and information used by the Board in its deliberations; for regulators and supervisory (b) the matters considered by the Board; authorities (c) the fact-finding discussions and the issues of contention or dissent (d) the testimonies and confirmations of relevant Executives with regard to the Board’s strategies and policies and adherence to relevant laws and regulations; (e) matters regarding the risks to which the Bank is exposed and an overview of the risk management measures including reports of the Board Risk Management Committee; and (f) the decisions and Board resolutions including reports of all Board committees 3.1 (xi) Director’s ability to seek The Board committees and various professionals in corporate and senior Independent Professional advice management advice the Board on various matters relevant to them. In addition, directors are able to obtain independent professional advice, as and when necessary, in discharging their responsibilities and also Board approved policy is in place for the same. These functions are co-ordinated by the Group Company Secretary.
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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.
Section Principle Compliance & Implementation
3.1 (xii) Dealing with Conflicts of Interest The Directors are conscious of their obligation to deal with situations where there is a conflict of interest in accordance with the Articles of Association of the Bank and the Banking Act Direction No.11 of 2007. The Bank maintains an electronic register of Director’s & Key Management Personnel’s Interests which is regularly updated and includes interests of the spouse, children under 18 years of age and their business concerns. Directors abstain from participating in the discussions, voicing their opinion or approving in situations where there is a conflict of interest. Additionally he/she is not counted in the quorum in such instances. 3.1 (xiii) Schedule of matters reserved for During the year the Board reviewed the schedule of matters defined in the Articles Board decision and developed new schedule of matters reserved for its decision to ensure that the direction and control of the Bank is within its authority in line with regulatory codes, guidelines and international best practice. 3.1 (xiv) Inform Central Bank if there are The Board is aware of the need to inform the Director of Banking Supervision prior solvency issues 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. Such a situation has not arisen. 3.1 (xv) Capital adequacy The Board monitors capital adequacy and other prudential measures vis a vis regulatory requirement, the Bank’s defined risk appetite and industry benchmarks on a monthly basis. The Bank is in compliance with the minimum capital requirements. 3. 1 Publish Corporate Governance The Board publishes the Corporate Governance Report in the Bank’s Annual Report. (xvi) Report in Annual Report 3.1 Self-assessment of directors The Board has adopted a scheme of self-assessment to be undertaken by each (xvii) Director annually and records of these assessments are maintained with the Group Company Secretary. The Chairman discusses these with the Directors individually. 3.2 The Boards composition 3.2 (i) Number of directors As per CBSL Governance Direction, the number of directors should not be less than seven or more than 13. The Bank’s Board comprises 12 directors as at 31st December 2012. 3.2 (ii) Period of service of a Director The period of services of Directors is limited to 9 years excluding the Managing Director as per the Corporate Governance Code for Licensed Commercial Banks. There are no Directors whose tenure of service has exceeded 09 years on the Board. 3.2 (iii) Board Balance There are 2 executive directors and 10 non-executive directors which is well within the requirement to limit the number of executive directors to 1/3 of the total. 3.2 (iv) Independent Non-Executive The Board has eight Independent non executive directors which is higher than the Directors requirement.
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3.2 (v) Alternate independent directors Mr. Deepal Sooriyaarachchi and Prof.Malik Ranasinghe are alternate directors for each other and Mr Sanjiva Senanayake is alternate director to Mr Deshal de Mel. They maintain similar independent profiles as required. 3.2 (vi) Criteria for non-executive directors Non-executive directors are persons with credible track records and have necessary skills and experience to bring an independent judgment to bear on issues of strategy, performance and resources. These are detailed on pages 32 to 37.
Directors nominate names of eminent professionals or academics from various disciplines to the Nominations Committee who peruse the profiles and recommend suitable candidates to the Board. 3.2 (vii) More than half the quorum to This requirement is strictly observed and it is noteworthy that the majority are Non- comprise Non-Executive Directors Executive Directors. 3.2 (viii) Identify Independent Non-Executive The Independent Non-Executive Directors are expressly identified as such in all directors in communications corporate communications that disclose the names of Directors of the Bank. The disclose categories of Directors in composition of the Board, by category of directors, including the names of the Annual Report Chairman, Executive Directors, Non-Executive Directors and Independent Non- Executive Directors are given on page 276 of the Directors Report. 3.2(ix) Succession planning and The Board has established a Nominations Committee whose Terms of Reference appointments to the Board comply with the Specimen given in the Code of Best Practice on Corporate Governance. Accordingly, new Directors including the Managing Director and Group Chief Financial Officer are appointed by the Board upon consideration of recommendations by the Nominations Committee. The Board has also developed a succession plan together with the Nominations Committee to ensure the effectiveness of the Board. 3.2(x) Re-election of directors filling Directors appointed to the Board since the AGM will stand for election at the first casual vacancies AGM in accordance with the provisions in the Articles of Association. 3.2 (xi) Communication of reasons for Resignations of Directors and the reasons are informed to the regulatory authorities removal or resignation of director and shareholders as per CSE requirements together with a statement confirming whether or not there are any matters that need to be brought to the attention of shareholders.
3.2(xii) Prohibition of directors or The Board and the Nominations Committee take in to account this requirement employees of a Bank becoming a in their deliberations when considering appointments of Directors. The Employee director at another Bank Code of Ethics (Blue Book) prohibits employees to be elected/nominated as a Director of another Bank. 3.3 Criteria to assess fitness and propriety of Directors 3.3(i) Age of director should not exceed There are no Directors who are over 70 years of age. 70
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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.
Section Principle Compliance & Implementation
3.3(ii) Directors should not be Directors There was one director holding office as Director of more than 20 companies and of more than 20 companies and another Director holding Directorships of more than 10 specified Business Entities. not more than 10 companies classified as Specified Business Enterprises 3.4 Management Functions delegated by the Board 3.4 (i) Understand and study delegation arrangements 3.4 (ii) Extent of delegation should not The Board periodically reviews and approves the delegation arrangements in place hinder Board ability to discharge and ensures that the extent of delegation address the needs of the Bank whilst its functions enabling the Board to discharge their functions effectively. 3.4 (iii) Review delegation arrangements periodically to ensure relevance to operations of the Bank 3.5 The Chairman and Managing Director 3.5 (i) Separation of roles The roles of the Chairman and Managing Director are separate. 3.5 (ii) Non-Executive Chairman and The Chairman is a non-executive director but not an independent director as he appointment of a Senior holds more than 1% holding through a company controlled by him. The Board has Independent Director appointed Mr Sanjiva Senanayake as the Senior Independent Director with relevant Terms of Reference. Terms of reference is being evaluated and to be strengthened. 3.5 (iii) Disclosure of identity of Chairman The identity of the Chairman and Managing Director are disclosed in the Annual and Managing Director and any Report on pages 32 to 37 and there are many references to these roles throughout relationships with the Board the Annual Report. members There are no material financial, business or family relationships between the Chairman, Managing Director and other members of the Board as per the annual declarations and the register of directors Interests is updated regularly. 3.5 (iv) Chairman to ; The Board approved the key responsibilities of the Chairman during the year and (a) provide leadership to the this document includes the matters identified in relevant guidelines and codes. Board; (b) ensure that the Board works effectively and discharges its responsibilities; (c) ensure that all key and appropriate issues are discussed by the Board in a timely manner.
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3.5 (v) Responsibility for agenda lies with The Group Company Secretary draws up the agenda for the meetings in consultation Chairman but may be delegated to with the Chairman. Company Secretary 3.5 (vi) Ensure that Directors are properly The Chairman ensures that the Board is adequately briefed and informed regarding briefed and provided adequate the matters arising at Board. The following procedures are in place to ensure this: information Board papers are circulated seven days prior to the Board meetings Relevant members of the management team are on hand to provide the necessary explanations and clarifications Management information is provided in agreed formats on a regular basis to enable Directors to assess the performance and stability of the Bank Directors are able to seek independent professional advice on a need basis at the Bank’s expense 3.5 (vii) Encourage active participation by This requirement is addressed in the Chairman’s Responsibilities document all Directors and lead in acting in approved by the Board. the interests of the Bank 3.5 (viii) Encourage participation of Ten out of the 12 members of the Board are Non-Executive Directors which creates Non-Executive Directors and a conducive environment for active participation by the Non-Executive Directors. relationships between Non- Chairman and seven non-executive directors chair Sub-Committees of the Board Executive and Executive Directors providing further opportunity for active participation. The Bank has also appointed a senior independent director which supports the participation of the Non-Executive Directors. 3.5 (ix) Refrain from direct supervision of The Chairman does not get involved in the supervision of Key Management Key Management Personnel and Personnel or any other executive duties. executive duties 3.5 (x) Ensure effective communication The Bank historically has active shareholder participation at the Annual General with shareholders Meeting and at the Shareholder Relations Meeting which is held immediately after the AGM where shareholder issues are discussed. A Board Committee has been appointed to ensure that there is effective communication with shareholders. 3.5 (xi) CEO functions as the apex The day to day operations of the Bank has been delegated to the Managing Director. Executive in charge of the day to day operations
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Section Principle Compliance & Implementation
3.6 Board appointed committees 3.6(i) Establishing Board Committees, Nine committees have been established by the Board with written terms of reference their functions and reporting for each. The Group Company Secretary serves as the Secretary for all committees and maintains minutes and records with oversight by the respective Chairpersons. The reports of the committees are included in the Annual Report Audit Committee on pages 144 to 147. Nominations Committee on pages 148 to 149. Credit Committee on pages 150 to 151. Board Risk Management Committee on pages 152 to 154. Human Resources & Remuneration Committee on pages 155 to 157. Strategic Planning Committee on pages 158 to 159. Shareholder Relations Committee on pages 160 t0 161. Treasury Committee on page 162. Marketing Committee on page 163. The chairpersons of the committees are available at the AGM to clarify any matters that may be referred to them by the Chairman. 3.6 (ii) Audit Committee Chairman to be an Independent The Chairman of the Audit Committee is an independent non-executive director who Non-Executive Director with is a fellow member of the Chartered Institute of Management Accountants, UK. qualifications and experience in accountancy and/or audit Committee to comprise solely of All members of the Audit Committee are Non-Executive Directors. Non-Executive Directors Audit Committee functions In accordance with the Terms of Reference, the Audit Committee has made the following recommendations: (i) the appointment of the external auditor for audit services to be provided in compliance with the relevant statutes; (ii) the implementation of the Central Bank guidelines issued to auditors from time to time; (iii) the application of the relevant accounting standards; and (iv) the service period, audit fee and any resignation or dismissal of the auditor The Audit Committee ensures that the service period of the engagement of the external Audit partner shall not exceed five years, and that the particular Audit partner is not re-engaged for the audit before the expiry of three years from the date of the completion of the previous term d. Review and monitor external The Audit Committee obtains representations from the external auditor on their auditor’s independence and independence and that the audit is carried out in accordance with the Sri Lanka objectivity and the effectiveness of Accounting Standards. the audit processes
134 Annual Report 2012 Section Principle Compliance & Implementation e. Provision of non-audit services by The Bank is in the process of preparing a procedure. external auditor f. Determines scope of audit The Committee discussed and finalised with the external auditors the nature and scope of the audit to ensure that it includes: (i) an assessment of the bank’s compliance with the relevant Directions in relation to corporate governance and the management’s internal controls over financial reporting; (ii) the preparation of financial statements for external purposes in accordance with relevant accounting principles and reporting obligations; As all audits within the group are carried out by the same external auditor, there was no requirement to discuss arrangements for co-ordinating activities with other auditors. g. Review financial information of the The Audit Committee reviews the financial information of the Bank, in order to Bank monitor the integrity of the financial statements of the Bank, its annual report, accounts and quarterly reports prepared for disclosure, and the significant financial reporting judgments contained therein. The review focuses on the following: (i) major judgmental areas; (ii) any changes in accounting policies and practices (iii) significant adjustments arising from the audit (iv) the going concern assumption (v) the compliance with relevant accounting standards and other legal requirements. The Audit Committee makes their recommendations to the Board on the above on a quarterly basis. h. Discussions with External Auditor The Audit Committee discusses issues, problems and reservations arising from the on Interim and Final Audits interim and final audits with the external auditor. The Committee met on 01 (on 13/07/2012) occasion with the External Auditors in the absence of executive staff of the Bank. i. Review of Management Letter and The Audit Committee has reviewed the external auditor’s management letter and the Bank’s response management’s response thereto. j. Review of Internal Audit function The Audit Committee has oversight of the Internal Audit function and carries out the following duties with regard to the same: (i) Reviews the adequacy of the scope, functions and resources of the internal audit department, and ensures that the department has the necessary authority to carry out its work; (ii) Reviews the internal audit programme and results of the audits and ensures that appropriate actions are taken on the recommendations of the internal audit department;
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Section Principle Compliance & Implementation
j. Review of Internal Audit function (iii) Reviews appraisals of the performance of the head of the internal audit department. (iv) Recommends any appointment or termination of the head of the Internal Audit. (v) Ensures that the committee is appraised of resignations of senior staff members of the internal audit department including the Chief Internal Auditor, and provides an opportunity to the resigning senior staff members to submit reasons for resigning; (vi) Ensures that the internal audit function is independent of the activities it audits and that it is performed with impartiality, proficiency and due professional care
Bank will make arrangements for the Internal Systems Auditor to report either to the Head of Internal Audit or directly to Audit Committee. k. Internal investigations The Audit Committee has reviewed the major findings of internal investigations and management’s responses thereto. It has also ensured that the recommendations of such investigations are implemented. l. Attendees at Audit Committee The Managing Director, Group Chief Financial Officer, Deputy General Manager – Meetings Finance & Planning, Group Chief Risk Officer, the Head of Internal Audit and Senior Manager System Audit and a representative of the external auditors normally attend meetings. Other Board members may also attend meetings upon the invitation of the committee. The committee met with the external auditors without the Executive Directors being present. m. Explicit authority, resources and The Audit Committee has: access to information (i) explicit authority to investigate into any matter within its terms of reference; (ii) the resources which it needs to do so; (iii) full access to information; and (iv) authority to obtain external professional advice and to invite outsiders with relevant experience to attend, if necessary. n. Regular Meetings The Audit Committee has scheduled regular quarterly meetings and additional meetings are scheduled when required. Accordingly, the Committee met 14 times during the year. Members of the Audit Committee 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 to the Board Audit Committee. o. Disclosure in Annual Report The Report of the Audit Committee on pages 144 to 147, includes the following: (i) details of the activities of the Audit Committee; (ii) the number of Audit Committee meetings held in the year; and (iii) details of attendance of each individual Director at such meetings.
136 Annual Report 2012 Section Principle Compliance & Implementation p. Maintain Minutes of meetings The Group Company Secretary serves as the Secretary for the Audit Committee and maintains minutes of the committee meetings. q. Whistle blowing policy and The Bank has a Board approved Whistle Blowing Policy whereby an employee of the relationship with external auditor bank and its the subsidiaries may, in confidence, raise concerns about possible improprieties in financial reporting, internal control or other matters. The Secretary to the Board Audit Committee forwards all communications received in this regard, including anonymous communications, to the Chairman of the Audit Committee who addresses the issue in an appropriate manner.
The Audit Committee is the key representative body for overseeing the bank’s relations with the external auditor and meets the Auditor on a regular basis to discharge this function. Human Resources & Remuneration Committee 3 (6) HR & Remuneration Committee The HR & Remuneration Committee is responsible for determining the following (iii) with regards to the Executive Directors including the Managing Director and Key Management Personnel as set out clearly in its Terms of Reference: (a) HR & Remuneration Committee will develop a policy to determine the remuneration (salaries, allowances and other financial payments) for Managing Director and the KMPs. (b) Sets the goals and targets (c) Performance of the Managing Director and the KMPs will be evaluated by the committee against the set targets and goals to determine the basis for revising remuneration, benefits and other payments for them. (d) The Managing Director attends the meetings of the committee except when matters relating to the Managing Director are being discussed. Nominations Committee 3(6) (iv) Appointment of Directors, The committee has developed and implemented a procedure to appoint and select Managing Director and Key new Directors. The Committee is developing a revised procedure to appoint new Management Personnel Directors, Managing Director and Key Management Personnel. b. Re-election of Directors The committee makes recommendations regarding the re-election of current Directors, taking into account the performance and contribution made by the Director concerned towards the overall discharge of the Board’s responsibilities.
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Section Principle Compliance & Implementation
c. Eligibility criteria for appointments The Committee sets the eligibility criteria to be considered, including qualifications, to Key Managerial Positions experience and key attributes, for appointment or promotion to Key Managerial including Managing Director positions including the position of the Managing Director. The committee considers the applicable statutes and guidelines in setting the criteria.
Job descriptions completed for the Managing Director and Key Management Personnel and these were tabled at the Nominations Committee during 2012.
HR department has documented the criteria such as qualifications, experience and key attributes required for eligibility to be appointed or promotion to the grades of Managing Director and KMPs based on their job description. These will be submitted to the Nominations Committee along with the Organization Structure for recommendation to the Board for approval.
d. Fit & Proper Persons The Group Company Secretary obtains annual declarations from Directors, Managing Director and Key Management Personnel to ensure that they are fit and proper persons to hold office as specified in the criteria given in Direction 3(3) and as set out in the Statutes. e. Succession Plan and new Formal succession plan for KMPs is being developed by the HR department and expertise this will be approved by the Nominations Committee. The need for new expertise may be identified by the Board or its committees and brought to the attention of the Nominations Committee who will take appropriate action. f Committee to be chaired by an Committee is chaired by an Independent Director. Committee is constituted with Independent Director and be equal number of Independent and Non Independent Directors. Steps will be taken constituted with a majority of to increase the number of Independent Directors during 2013. independent directors 3.6 (v) Integrated Risk Management Committee/Board Risk Management Committee a. Composition of Risk Management The committee comprises three Non-Executive Directors, Managing Director, Group Committee Chief Financial Officer, Group Chief Risk Officer, Group Compliance Officer and other Key Management Personnel supervising credit, market, liquidity, operational and strategic risk. The committee works closely with Key Management Personnel within the framework of authority and responsibility assigned to the committee b. Risk Assessment The committee has approved the policies on Credit Risk Management, Market Risk Management and Operational Risk Management which provides a framework for management and assessment of risks. Accordingly, monthly information on pre-established risk indicators is reviewed by the committee in discharging its responsibilities as per the Terms of Reference.
138 Annual Report 2012 Section Principle Compliance & Implementation c. Review of management level The committee reviews the reports of the management level Credit Policy Risk committees on risk and Portfolio Review Committee to assess their adequacy and effectiveness in addressing specific risks and managing the same within the quantitative and qualitative risk limits set by the Committee. d. Corrective action to mitigate risks The committee takes prompt corrective action to mitigate the effects of specific exceeding prudential levels risks in the 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. The key risk indicators and the desired levels are given on page 173. e. Frequency of meetings The committee has regular quarterly meetings and schedules additional meetings when required. The agenda covers matters assessing all aspects of risk management including updated business continuity plans. f. Actions against officers Action will be taken to adopt a formal document on disciplinary action procedure responsible for failure to identify with regard to officers responsible for failure to identify specific risks. specific risks or implement corrective action g. Risk assessment report to Board Minutes of the Board Risk Management Committee meeting are submitted to the Board after each committee meeting by the Secretary of the committee for their information, views, concurrence or specific directions. 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 the Group Compliance Officer who reports direct to the Board Risk Management Committee and is responsible for providing the following: (i) A detailed quarterly report on statutory and mandatory reporting requirements indicating the status of compliance to the Board (ii) A monthly compliance certificate with sign-off from all business unit heads to the Committee 3.7 Related Party Transactions 3.7 (i) Avoid conflict of interest There is a documented process approved by the Board in January 2012 identifying related parties, types of related party transactions and favourable treatment granted to said parties in order for Board members to avoid any conflict of interest in this regard. Directors who have related party transactions are individually requested to declare their transactions to the Bank on a quarterly and annual basis.
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Section Principle Compliance & Implementation
Related party transactions covered Definitions of related party transactions covered by the above Board process and by direction declarations by Directors and Key Management personnel include : a) The grant of any type of accommodation, as defined in the Monetary Board’s Directions on maximum amount of accommodation, b) The creation of any liabilities of the Bank in the form of deposits, borrowings and investments, c) The provision of any services of a financial or non-financial nature provided to the Nank or received from the Bank, d) The creation or maintenance of reporting lines and information flows between the Bank and any related parties which may lead to the sharing of potentially proprietary, confidential or otherwise sensitive information that may give benefits to such related parties. 3.7 (iii) Monitoring of related party The Bank will take steps to monitor the report and identify the transactions and to transactions defined as more ensure that there is no favourable treatment offered to related parties. Additionally, favourable treatment the staff concerned are informed through operational circulars to refrain from granting accommodations with more favourable treatment as defined in the Banking Act Direction no.11 of 2007 3.7 (iv) Granting accommodation Director A procedure is in place for granting accommodation to Directors or to close or close relation of a Director relations of Directors. Such accommodation requires approval at a meeting of the Board of Directors, by not less than 2/3rds of the number of Directors other than the Director concerned, voting in favour of such accommodation. 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. 3.7 (v) Accommodations granted to The Group Company Secretary obtains declarations/affidavits from all Directors prior persons, or concerns of persons, to their appointment and they are requested to declare any further transactions. or close relations of persons, who subsequently are appointed as Employees of the Bank are aware of the requirement to obtain necessary security Directors of the Bank as defined by the Monetary Board if the need arises.
Processes for compliance with this regulation are also monitored by the Compliance Unit.
This situation has not arisen in the Bank to date. Favourable treatment or No favourable treatment /accommodation is provided to Bank employees other than accommodation to Bank staff benefits. Employees of the Bank are informed through operational circulars employees or their close relations 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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Remittance of accommodations This situation has not arisen in the Bank upto date. subject to Monetary Board approval Disclosures 3.8 (i) Publish annual and quarterly Annual audited financial statements and quarterly financial statements are prepared financial statements and published in accordance with the formats prescribed by the supervisory and regulatory authorities and applicable accounting standards in Sinhala, Tamil and English. 3.9 (ii) Disclosures in Annual Report a. A statement to the effect that A statement to this effect is included in the following: the annual audited financial Directors Responsibility for Financial Reporting on page 290. statements have been prepared Annual Report of the Board of Directors on pages 274 to 281. in line with applicable accounting Managing Director’s and Group Chief Financial Officer’s Responsibility standards and regulatory Statement on page 289 requirements, inclusive of specific disclosures. b. Report by the Board on the Bank’s The Annual report includes the following reports where the Board confirms that the internal control mechanism 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: Statement of Directors Responsibility for Financial Reporting on pages 290. Annual Report of the Board of Directors on the Affairs of the Company pages 274 to 281. c External Auditor’s Assurance Board has obtained the Assurance Report issued by the auditors under “Sri Lanka Report on the effectiveness of the Standard on Assurance Engagements SLSAE 3050 - Assurance Reports for Banks internal control mechanism of Directors’ Statements on Internal Control” and included in the Annual Report of 2012 on page 288. d Details of Directors, Details of directors are given on pages 32 to 37. Directors’ interests in contracts with the Company are given pages 285 to 286. Remunerations paid by the Bank are given in Notes to the Financial statements on page 320.
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Section Principle Compliance & Implementation
e Total accommodations granted to Related Party Transactions are given in Notes to the Financial Statement on pages each category of related parties 367 to 369. and as a percentage of the Bank’s regulatory capital Direct and Indirect accommodation granted to each category of related parties is given below Category of Related Party Amount (Rs.Mn) % Transactions Key Managerial personnel (KMP) 48.66 0.2 1,107.29 4.5 Entities control by KMPs and their 2,709.56 11.1 close family members f. Aggregate values of remuneration The aggregate values of remuneration paid to KMP are given in Notes to the to, and transactions with Key Financial Statement on page 367 and the aggregate value of transactions of the Management Personnel Bank with KMPs are given in Notes to the Financial Statements on pages 367 to 369. g. Confirmation by the Board in its Board has confirmed in the Annual Corporate Governance report that all the findings Annual Corporate Governance of the ‘Factual Findings Reports’ of auditors issued under “Sri Lanka Related Report in relation to “Factual Finding Services Practice Statement 4750 have been incorporated in the Annual Corporate Report” issued by the Auditors Governance Report. h. Report confirming compliance with The Statement of Directors’ Responsibility for Financial Reporting on page 290 prudential requirements, regulations, clearly sets out details regarding compliance with prudential requirements, laws and internal controls regulations, laws and internal controls. There were no instances of material non- compliance to report on corrective action taken during the year. i. Non-compliance Report There were no supervisory concern lapses in the Bank’s Risk Management Systems or non-compliance with these directions that have been pointed out by the Director of the Banks Supervision Department of the CBSL and therefore there is no disclosure to be made in this regard. 3.9 Transitional and other general The Bank has complied with the transitional provisions provisions
Continuing Listing Requirements Section Non executive directors 7.10 on Corporate Governance Rules Independent directors for Listed Companies issued by the Disclosure relating to directors Colombo Stock Exchange HR & Remuneration Committee Audit Committee The disclosures below reflect the Bank’s level of conformance to the above rules which comprises The structure is in place and conformance to five fundamental principles, namely; the requirement and expectations are tabulated below under the said five fundamental principles.
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1 Non executive directors The Bank has ten Non executive directors and two executive directors. 2 Independent Directors All Non executive directors have submitted their confirmations whether they are Independent/or not as per the criteria set by the Bank which is in line with the regulatory requirements 3 Disclosure relating to The Board assessed the independence declared by the directors and determined the Directors directors who are independent.
Eight out of ten Non executive directors are Independent Directors namely: Mr Sanjiva Senanayake, Mr Deepal Sooriyaarachchi, Mrs Dhara Wijayatilake, Professor Malik Ranasinghe, Mr Ranil Pathirana, Mr Deshal de Mel, Ms Annika Senanayake and Mrs Saumya Amarasekera.
The Bank discloses the changes of directors to the Colombo Stock Exchange whenever it discloses to the Central Bank of Sri Lanka and the public. 4 HR & Remuneration The composition of the HR & Remuneration Committee is given in page 155. Committee The Committee is chaired by an independent non executive director and majority of the members of the Committee are Non Executive Directors. Report of the HR & Remuneration committee is given on pages 155 to 157. 5 Audit Committee The Audit Committee of the Bank in 2012 comprised of all Independent Non Executive Directors. The composition of the Committee is given in page 144. The Chairman of the Committee is a member of a professional accountancy body. Managing Director, Group Chief Fianance Officer, Head of Internal Audit, Deputy General Manager – Finance & Planing attends Committee meetings by invitation.
The basis of determination of the independence of the Auditor is also given in the Audit Committee Report on pages 144 to 147.
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The Board Audit Committee (BAC) assists the By invitation of the BAC, the Managing Director, Board in carrying out its responsibilities in Executive Director/Group Chief Financial Officer, relation to financial reporting requirements, Deputy General Manager - Finance & Planning, risk management, internal auditing and the Head of Internal Audit, Senior Manager-Systems assessment of internal controls. The BAC also Audit and the External Auditors also attend the BAC reviews the effectiveness of the Bank’s internal meetings. Also invited to attend certain meetings controls through review and follow-up of the are relevant people from the business to present Bank’s internal audit reports and manages the sessions on issues designed to enhance the Company’s relationship with the External Auditors. BAC awareness of key issues and developments in the business which are relevant to the Board The Board of Directors will periodically review Audit Committee in the performance of its role. and authorize the Board Audit Committee The Group Company Secretary functions as the Charter and Terms of Reference of BAC for the Secretary of the BAC. purposes of delegating the authority, scope, and responsibilities of BAC. With its delegated Regulatory Compliance powers BAC will determine the scope and duties The Roles and functions of the BAC are regulated of Internal Audit Function by way of Sampath Bank by the Banking Act Direction No. 11 of 2007, Group Internal Audit Charter and recommend it to the mandatory Code of Corporate Governance the Board of Directors for approval. for Licensed Commercial Banks issued by the Central Bank of Sri Lanka, the Rules on The BAC comprises of the following directors, who Corporate Governance as per section 7.10 conduct Committee proceedings in accordance for Listed Companies issued by the Colombo with the terms of reference approved by the Board Stock Exchange and the Code of Best Practice of Directors. on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Mr. Ranil Pathirana (Chairman) Lanka (ICASL) and the Securities and Exchange Independent, Non Executive Director Commission (SEC). Mr. Sanjiva Senanayake Independent, Non Executive Director Qualifications Mr. Deepal Sooriyaarachchi Mr. Ranil Pathirana, the Chairman of the BAC, an Independent, Non Executive Director independent non-executive director, is a Fellow Prof. Malik Ranasinghe Member of the Chartered Institute of Management Independent, Non Executive Director Accountants, U.K., and counts many years of Mrs. Dhara Wijayatilake experience in the financial services industry. Independent, Non Executive Director Duties and Role of the Board Audit Mr. Ranil Pathirana, was appointed the Chairman and Mr. Sanjiva Senanayake, Prof. Malik Committee Ranasinghe and Mrs. Dhara Wijayatilake as committee members, of the Audit Committee The BAC is responsible for: from January 2012. Mr. Deepal Sooriyaarachchi was appointed as a member on 29th September Review of the financial information of the 2011. Bank, in order to monitor the integrity of the
144 Annual Report 2012 financial statements of the Bank, its annual Performance report, accounts and quarterly reports Meetings of the Board Audit Committee prepared for disclosure. The committee had 14 meetings during the year Reporting to the Board on the quality and under review. The Managing Director, Executive acceptability of our accounting policies and Director/Group Chief Financial Officer, Deputy practices. General Manager – Finance & Planning, Head of Reviewing accounting and financialInternal Audit, Senior Manager-Systems Audit and reporting, risk management processes and the External Auditors also attended these meetings regulatory compliance; by invitation. Four meetings were to consider and Review of the financial statementsrecommend to the Board of Directors the Bank’s (including quarterly interim statements) quarterly and annual financial statements. The prior to publication to ensure compliance committee met on two separate occasions with with statutory provisions, accounting the External auditors and Internal Auditors with no standards and accounting policies which executive or staff member present. are consistently applied. Review internal audit reports and liaise with corporate management in taking Financial Reporting The Audit Committee reviewed and discussed precautionary measures to minimize control with Management and the External Auditors the weaknesses, procedure violations, frauds, quarterly and annual financial statements focusing and errors. on, without limitation, the quality and acceptability Assessing the independence and monitoring of accounting policies and practices, the clarity the performance and functions of Internal of the disclosures and compliance with financial Audit, including overseeing the appointment reporting standards and relevant financial and of the Head of Internal Audit. governance reporting requirements. To aid their Overseeing the appointment, compensation, review, the BAC considered reports from the resignation, dismissal of the External Auditor, Executive Director/Group Chief Financial Officer including review of the external audit, its and also reports from the External Auditors, M/S cost and effectiveness and monitoring of Ernst and Young, on the scope and outcome of the External Auditor’s independence; their half-year review and annual audit. Reviewing effectiveness of the Bank’s systems of internal control over financial Internal Control Over Financial Reporting (ICOFR) reporting to provide reasonable assurance The Bank is required to comply with the Section regarding the reliability of financial reporting 3(8)(ii)(b) of the Banking Act Direction No. 11 of and the preparation of financial statements 2007 on Corporate Governance issued by Central for external purposes has been done in Bank of Sri Lanka and assess the effectiveness accordance with applicable accounting of internal control over financial reporting as of 31 standards and regulatory requirements. December 2012. Engaging independent advisors on specialized functions where it is deemed The Bank assessed the effectiveness of its necessary. internal control over financial reporting as of 31st December 2012 based on the criteria set out During the year ended 31 December 2012 the in the Guidance for Directors of Banks on ‘The principal activities of the BAC were as follows: Directors’ Statement of Internal Control’, issued
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by the Institute of Chartered Accountants of Sri Annual Corporate Governance Report for 2012 is Lanka (ICASL) in 2010. provided on pages 96 to 163.
The Bank’s assessment was based on processes Internal Audit documented by the respective process owners. The BAC monitored and reviewed, the scope, For the successful implementation of this task extent and effectiveness of the activity of the a steering committee headed by the Executive Bank’s Internal Audit Department that included Director/Group Chief Financial Officer comprising updates on audit activities and achievements of Corporate Management and other relevant against the Bank’s audit plan, advising corporate department heads was formulated in 2010 with management to take precautionary measures the guidance of the Bank’s External Auditor (Ernst on significant audit findings and assessment & Young) which continued to function in 2012 of resource requirements of the Internal Audit too. Internal Audit department carried out work Department. The BAC had necessary interactions through tests on the documented processes to with The Chief Internal Auditor throughout the establish their adequacy and commented where year. necessary. During the year, BAC reviewed the internal audit Based on Internal Audit’s and External Auditor’s plan and monitored the progress on a regular assessments, Board has concluded that, as basis. The sections covered and the regularity of of 31st December 2012, the Bank’s Internal audits depends on the risk level of each section, Control Over Financial Reporting is effective. with higher risk sections being audited more Director’s report on the Bank’s Internal Control frequently. Over Financial Reporting is provided on page 287. The Bank’s External Auditors have audited The Internal Audit department, comprises of the effectiveness of the Bank’s internal control 3 broad areas namely, Branch/Department/ over financial reporting and have reported to the Relationship Manager Audits, Trade Finance, Board that nothing has come to their attention Forex and Treasury Audits, and Forensic and that causes them to believe that the financial Fraud Investigations. The Branch/Department/ reporting is inconsistent with their understanding Relationship Manager Audits are distributed of the processes adopted by the Board in the amongst 8 teams. review of the design and effectiveness of the internal control system of the Bank. External In 2012 BAC reviewed internal audit reports of Auditor’s Report on the Bank’s Internal Control 153 branches, 27 departments, 2 Subsidiaries Over Financial Reporting is provided on page 288. and 24 relationship managers. Audit findings presented in the reports are prioritised based Annual Corporate Governance on the level of risk. The committee followed up Report on internal audit recommendations with the As required by the directions issued by the corporate management. Internal audit reports are Central Bank of Sri Lanka (CBSL), on Corporate made available to external auditors as well. Governance for Licensed Commercial Banks, Section 3(8)(ii)(g) of the Banking Act Direction The initiative commenced in 2011 to outsource No. 11 of 2007, the External Auditor of the Bank selected areas of audit to recognized Audit Firms should report on the Bank’s compliance with the did not materialize and therefore the staff cadre Corporate Governance Directions in the Corporate approved for 2012 was 46 and this requirement Governance Reports published by the Bank. was fully complemented towards mid 2012.
146 Annual Report 2012 Keeping with the resource allocations Internal The committee reviewed the external audit plan Audit department has maintained an average as well as management letters and followed up audit cycle of 18 months per audit. on issues raised. Private meetings were held with M/S Ernst and Young to ensure that there were Trade Finance, Forex and Treasury Audits are no restrictions on the scope of their audit and assigned with equal prominence and emphasis to discuss matters without management being considering its complexities and importance in present. the context of current economic environment. Whistle Blowing The Forensic and Fraud Investigation process has Sampath Bank’s Whistle Blowing Policy is leaped into new approaches and is fast evolving intended to serve as a channel of corporate with the documentation of a procedure for Audit fraud risk management. The policy will allow Inquiries hitherto not available. any Team Member who has a legitimate concern on an existing or potential “wrong doing”, done Along with the significant findings Internal Audit by any person within the Bank, to come forward department has been engaged in sharing and voluntarily, and bring such concern to the notice providing knowledge through regular training to of an independent designated authority. Concerns Bank’s staff on better control awareness. raised are investigated and the identity of the person raising the concern is kept confidential, as In keeping with BAC recommendations Internal even anonymous complaints are looked at. In fact Audit has also provided inputs to the Corporate this procedure will be operated by the BAC of the Management for effective control and prevention Board of fraud, which are regularly addressed to stay on course. Board Audit Committee effectiveness External Auditors The BAC conducts a formal review of its The BAC reviewed and monitored the independence effectiveness annually, and concluded its of the External Auditors and the objectivity and performance was effective. effectiveness of the audit process and provided the Board of Directors with its recommendation On behalf of the Audit Committee to the shareholders on the reappointment of M/S Ernst and Young as External Auditors for the financial year ended 31st December 2013 at the next Annual General Meeting. The BAC recommended the scope and fees for audit and Ranil Pathirana permitted non-audit services provided by M/S Chairman - Audit Committee Ernst and Young. 22nd February 2013 The committee has received a declaration Colombo from M/S Ernst and Young as required by the Companies Act No. 7 of 2007, confirming that they do not have any relationship or interest in the company, which may have a bearing on their independence within the meaning of the Code of Conduct and Ethics of the Institute of Chartered Accountants of Sri Lanka.
Sampath Bank PLC 147 NOMINATIONS COMMITTEE REPORT
The Nominations Committee consists of four non- Scope of Work executive directors as at 31st December 2012. The Nominations Committee has the power and authority to seek out any needed information from The following Directors serve on the Nominations any bank officer or employee, in connection and in Committee: line with its scope. Mrs. Saumya Amarasekera (Chairperson) - Independent Non-Executive Director The Nominations Committee has the authority Mr. Dhammika Perera delegated by the Board to seek needed Non-Executive Director independent advice when it’s deemed necessary. Mr. Channa Palansuriya Non-Executive Director The Committee Miss. Annika Senanayake Continuously reviews the structure and Independent Non-Executive Director composition of the Board. The committee also reviews the skill set, knowledge, Mr. Channa Palansuriya ,Mr. Dhammika Perera expertise and experience the Board of and Miss. Annika Senanayake were appointed Directors require in comparison to the current as members of the committee from January position of the banking environment. The 2012. Mr. Channa Palansuriya served as the committee can also make recommendation Chairman of the Nominations Committee from to the Board with regard to any changes they January 2012 until November 2012. Mrs. Saumya think fit for the progression of the success Amarasekera was appointed to the committee of the bank. and its Chairperson from 01st December 2012. The quorum for a meeting is three non-executive Recommends appointments to the Board directors. The Committee is chaired by an after careful consideration and proposing independent non-executive director. The Managing of the position by a description by the Director and any other advisors may be present by committee on the role and competency invitation at meetings. required for the particular appointment. The Group Company Secretary acts as the Considers and recommends the Secretary to the Nomination Committee. requirements of additional/new expertise of existing Directors and to create succession Committee Meetings plans for directors resigning or relinquishing During the year two meetings were held to review, their positions. consider and recommend new directors in place of those directors who have resigned or relinquished Carefully reviews management progression their services. The committee also assesses and Succession Planning for the top the fitness and propriety of each of the directors management. The committee ensures that currently holding office keeping in line with the management personnel of high calibre are Directions published by the Monitory Board of the appointed to guide the bank to achieve Central Bank of Sri Lanka relating to Corporate greater heights. Governance and other relevant provisions of Law.
148 Annual Report 2012 The committee sets criteria such as Reporting to the Board qualification, experience & key attributes Minutes of the Nominations Committee meeting required for eligibility to be considered are circulated by the Secretary to the committee for appointment or promotion to the members and will be made readily available to all post of Managing Director and other Key other members of the Board. Management Personnel. Performance The committee is also responsible for The members of the Nominations Committee work nominating members to the Board for Board closely with the Board of Directors, in reviewing approval when and if a board vacancy occurs. the structure and skills needed for a steadfast, It is mandatory for the Board to evaluate the strong and successful Board of Directors. The balance of skill, knowledge and experience committee further reviews its own performance, on the board before any such appointment. constitution and terms of reference to ensure The Committee is accountable to make a that it is operating effectively, and if need calls description of the role that is vacated, they recommend any necessary changes to the Board. should clearly analyses the capabilities and skill set required for a particular On Behalf of the Nominations Committee appointment.
The committee is accountable to make recommendations after review to reappoint non-executive directors at the expiry of their Mrs. Saumya Amarasekera term in office or when they are due for re- Chairperson – Nominations Committee appointment.
22nd February 2013 The Committee must report to the Board of Directors on the activities of the Committee meetings, and must make available to the members of the board the minutes of the committee meetings.
The Committee must determine the independence of the directors of the Board, the independence must be based on standards and norms set out in the Central Bank Regulations, Colombo Stock Exchange regulations and other relevant Statues.
To make recommendation on any other matter delegated by the Board of Directors.
Sampath Bank PLC 149 CREDIT COMMITTEE REPORT
Composition of the Credit Role & Responsibilities Committee While financial institutions have faced various difficulties over the years for various reasons, The Credit Committee comprises of five non- the major causes of serious banking problems executive directors and two executive directors. have been directly linked to lax credit standards The following directors serve on the Credit for borrowers and counterparties, poor portfolio Committee. management or lack of attention to changes in Professor Malik Ranasinghe (Chairman) – the economic environment. Independent, Non-Executive Director Mr Sanjiva Senanayake – The committee derives its scope and authority Independent, Non-Executive Director from the Board of Directors decision to set it Mr Channa Palansuriya – up and increase its authority in keeping with the Non-Executive Director expansion of the Bank. Miss Annika Senanayake – Independent, Non-Executive Director It is the responsibility of this committee to: Mr Deshal De Mel – 1. Operate a sound credit granting process Independent, Non-Executive Director Review proposals in respect of credit Mr Aravinda Perera – policies and standards and approve them Executive Director and also submit credit requests beyond Mr Ranjith Samaranayake – their scope to the Board. Executive Director Review credit policy changes initiated by the management of the Bank and recommend Mr. E. A. Gunasekera served as an advisor to the them with or without modifications to the Committee, due to his expertise in the Banking Board of Directors for approval. sector. A minimum of 2 non-executive directors Ensure compliance with the Bank’s credit and 2 executive directors is the quorum for a policies and statutory requirements Credit Committee meeting. prescribed by the regulatory/supervisory authorities. Meetings Request rapid portfolio reviews or sector/ During the year the committee met on 09 industry reviews, where deemed appropriate. occasions. The Group Company Secretary is the secretary to the Credit Committee and the 2. Maintain an appropriate credit minutes of the meetings are reported to the Board administration, measuring and monitoring of Directors. The attendance of the committee process members is stated in the Corporate Governance Define credit approval framework and assign Report on page 107 Members of the senior credit delegated limits in line with the Bank’s management of the Bank are invited to participate policy. at the meetings as and when required. Review and recommend to the Board, facilities that they believe should have Board approval.
150 Annual Report 2012 3. Ensuring adequate controls over credit risk Review of the Committee Ensure credit risk exposure keeps within The Board undertakes a regular review of acceptable limits to maximize Bank’s risk the committee’s performance, objectives and adjusted rate of return. responsibilities. Monitor capital allocation and define limits in line with the risk appetite. On behalf of the Credit Committee Ensure stress tests are conducted, where deemed appropriate.
4. Identification and administration of problem credits Malik Ranasinghe Monitor on an ongoing basis the Bank’s Chairman – Credit Committee credit quality, review periodic credit portfolio reports and assess portfolio performance 22nd February 2013 Ensure post-credit monitoring and post- mortem reviews are performed, where deemed appropriate
5. Proper evaluation of new business opportunities Ensure all new credit risk related products are reviewed from a credit risk management perspective
6. Cyclical aspects of the economy (both internal and external) Monitor the resulting shifts in the composition and quality of the loan portfolio
Sampath Bank PLC 151 RISK MANAGEMENT COMMITTEE REPORT
The Board Risk Management Committee (BRMC) Governance is responsible for advising the Board on high- All of the Bank’s activities involve, to varying level risk-related matters, risk governance and degrees, the measurement, evaluation, acceptance for non-executive oversight of risk management, and management of risk or a combination of risks. compliance with regulatory requirements The Board, advised by the Risk Management and internal controls which are relevant to Committee, requires and encourages a strong risk management (other than over financial risk governance culture which shapes the Group’s reporting). The Risk Management Committee attitude to risk. The Board and the committee was established as a committee of the Board in oversee the maintenance and development of compliance with the Banking Act Direction No.11 a strong risk management framework by the of 2007 on Corporate Governance for Licensed continual monitoring of the risk environment and Commercial Banks in Sri Lanka, issued by the current and emerging risks facing the Group, and Monetary Board of the Central Bank of Sri Lanka the mitigating actions that are planned and taken. under section 46(1) of the Banking Act No.30 of The committee monitors the effectiveness of the 1988 as amended.
The governance structure for the management of risk at the Bank is set out below.
Authority Membership Responsibilities
Board of All members of the Board Determine risk appetite Directors Ensure that significant risks are (BOD) competently managed Board Risk Ms. Dhara Wijayatilake Formulates risk policies and Management (Chairperson) recommends to Board for adoption Committee Independent, Non-Executive Director (BRMC) Mr. Sanjiva Senanayake Advises the Board and makes Independent, Snr. Non-Executive recommendations on: Director risk appetite and alignment with Mr. Channa Palansuriya strategy Non-Executive Director appointment of senior risk officers Mr. Aravinda Perera (MD) Reviews the effectiveness of the Executive Director Group’s systems of risk management Mr. Ranjith Samaranayake (GCFO) and internal controls (other than over Executive Director financial reporting) Monitors compliance Monitors the progress on implementing Basel II Reviews Disaster Recovery and Business Continuity plans Oversees the maintenance and development of a supportive culture in relation to the management of risk
152 Annual Report 2012 Authority Membership Responsibilities Integrated Risk Group Chief Risk Officer Formulating the policy framework Management Group Compliance Officer addressing multiple and interdependent Unit & risks and recommending to Board Risk Compliance Management Committee, Unit measuring and monitoring risk, compliance with regulatory and supervisory requirements and benchmarking with international best practice
Group’s risk management and internal controls the year under review. Regular reports have been other than controls over financial reporting, which provided to the Board on the performance of are monitored by the Audit Committee. identified risk indicators and the prudential limits defined and approved by the Board. Risk Assessment Reporting & Monitoring Committee Activities The Committee received quarterly reports on key Maintaining a culture of risk awareness risk indicators and reviewed management actions amongst its members in line with local and taken with regard to maintaining risks at an global developments in risk management and established level within the Bank’s risk appetite. determining its applicability to the operations of Planned activities and projects for the current the Bank and its operating environment is a priority year and the next were reviewed, particularly with for the BRMC. Key risk indicators and changes reference to moving toward full compliance with to the risk profile of the Bank are discussed at Basel II Advanced Approaches. The Committee each meeting to ensure that all members are also receives updates from ALCO and the Credit aware of developments in this fast changing area Policy, Risk and Portfolio Review Committee, which that is vital for the Bank’s stability and sustained are the two executive committees involved in risk profitability. management. The BRMC is supported by the Integrated Risk Management unit and Compliance The BRMC undertook the following activities in Unit of the Bank, headed by Group Chief Risk discharging its responsibilities during the year: Officer & Group Compliance Officer respectively, in Oversight of executive risk management discharging its responsibilities. - Regular reports and presentations were received from the Group Chief Risk Officer Risk Appetite including risk profiles for categories of Assessing the Bank’s Risk appetite is a key risk identified in the Banks Risk Appetite component of the management of risk at Sampath Statement and proposed mitigating actions Bank. The Board, advised by the BRMC, approves for identified risks. the Bank’s risk appetite, which describes the Stress testing – Reviewed stress testing types and levels of risk that the Bank can reports for identified risks which include accept in executing our strategy. The Risk credit and market risk indicators and Appetite Statement and the related monitoring recommended appropriate action to improve and reporting framework across the Bank has the Bank’s tolerance levels continued to be an area of significant focus during
Sampath Bank PLC 153 REPORT OF THE RISK MANAGEMENT COMMITTEE
Risk Appetite and Risk Management Policies Review of Middle Office activities – BRMC –Reviewed the risk appetite statement and also received reports of compliance with recommended changes to better align risk Board approved treasury operating limits appetite with the Bank’s strategy taking monitored by the Middle Office. in to account the Bank’s performance Customer complaints – The committee against risk indicators, stress test results reviewed customer complaints to assess and industry best practice. The Risk their implications on the risk management Management Policies were also reviewed of the Bank and recommended actions to ensure that they reflected the changes where appropriate. required for managing risks in line with the Outsourced activities - Monitoring of changes in Risk Appetite. outsourcing activities of the Bank through Basel II Advanced Approaches – Progress the outsourcing committee to ensure that towards compliance with the Basel II such activities are within the CBSL directives Advanced Approaches was monitored to and guidelines and due diligence tests are ensure that it is completed well ahead of the in place to monitor the activities of third time frame set by Central Bank. Accordingly, party service providers. work relating to the Internal Risk Based Promoting a culture of Risk Awareness – The Approach in Credit Risk and Market Risk committee actively promoted a culture of risk and Standardised Approach in Operational awareness within the Bank by monitoring Risk has been completed pending review by training for employees in Risk Management the Bank Supervision Department of Central and business units to ensure that adequate Bank. The committee engaged the services risk focused training is carried out at all of external consultants to review the models levels. and has considered their feedback in assessing the progress. Meetings of the BRMC IT systems support – The BRMC monitored There were 6 Meetings during 2012. The minutes the implementation of IT systems to support of the BRMC were recorded by the Group Company credit and operational risk management Secretary and circulated amongst the members in the Bank and approved allocation of of the Committee. Minutes were submitted to the resources for this purpose. Board on confirmation. Compliance – The Committee received compliance reports and reviewed these to Key management personnel supervising the assess extent of compliance with regulatory Credit, Market, Liquidity, Operational and Strategic requirements. The compliance function was risks also attended the meetings of the BRMC by segregated from the Risk Management invitation. function with the appointment of a Group Compliance Officer. The Group Compliance On behalf of the Risk Management Committee Officer will report directly to the BRMC in addition to the Group Chief Risk Officer. Internal Controls – The Committee reviewed internal loss event reports and the adequacy of internal controls and procedures (except Dhara Wijayatilake over financial reporting) regularly and have Chairperson – Risk Management Committee made recommendations for improvements to the executive management. 22nd February 2013
154 Annual Report 2012 HUMAN RESOURCES & REMUNERATION COMMITTEE REPORT
The Composition Commercial Bank in Sri Lanka, the committee at its meeting held on 09th August 2011 decided on The Human Resources and Remuneration the following scope and responsibility: Committee comprises four non-executive directors and one executive director. The directors who serve on the committee are: Scope and Responsibility The committee shall determine the Mr. Deepal Sooriyaarachchi (Chairman) remuneration policies (salaries, allowances - Independent, Non-Executive Director and other financial payments) relating Mr. Channa Palansuriya to Directors, Managing Director and Key - Non-Executive Director Management Personnel of the Bank. Miss. Annika Senanayake - The committee shall set goals and targets Independent, Non-Executive Director for directors, Managing Director and Key Mr. Deshal de Mel Management Personnel. - Independent, Non-Executive Director The committee shall evaluate the Mr. Aravinda Perera performance of the Managing Director and - Executive Director Key Management Personnel against set targets and goals periodically and determine Meetings the basis for revising remuneration, benefits and other payments of performance based During the financial year ended 31st December incentives. 2012, 3 meetings were held. The attendance The committee shall take on any other of the members of these meetings is given on areas and enlarge its scope which in its page 107, of the Annual Report. The Executive view or in the Board’s view is desirable if it Director/Group Chief Financial Officer and Deputy were handled by the committee. General Manager Human Resources as well as The committee shall advise the HR Head of other executive staff attend meetings by invitation the Bank with regard to revision of salaries and assist in their deliberations by providing of Bank staff and of any major organisational relevant information and participating in the changes needed for the Bank’s purpose. analysis of information, except when their own compensation packages or other matters relating to them are reviewed. Performance during the Year/ Key HR Initiatives Duties and Roles During the year under review, Three (3) Branches The overall scope of the committee is to provide were established increasing the permanent strategic direction to build an effective and staff strength from 3,230 to 3,455 at the end efficient HR organization for the Bank. December 2012. A comprehensive HR Scorecard was developed to monitor key HR performance Based on the Direction issued by the Monetary indicators during the year and monthly updates Board of the Central Bank of Sri Lanka under are submitted to the Board of Directors for review. Section 46(1), Banking Act No. 30 of 1988 as amended and Banking Act Direction No. 11 As per the Human Resources Strategic Plan, of 2007 Corporate Governance for Licensed the following initiatives were taken by the HR
Sampath Bank PLC 155 HUMAN RESOURCES & REMUNERATION COMMITTEE REPORT
Department during the year 2012 in order to align Training & Development HR strategy with the business strategy and to Training & Development function of the Bank has enhance the effectiveness of the HR function of strengthened in terms of diversity and delivery the Bank. channels to develop knowledge and skills of our team members focusing on enhancing overall Employee Resourcing performance of the Bank. In order to provide the required staff, the Based on Training Need Analysis 2012, the recruitment, selection, transfer and promotion Training Master Plan for 2012 was prepared and processes were further streamlined and improved the following are the key initiatives taken during to meet the human capital needs of the Bank. the year:
Accordingly, the Bank has recruited 368 front Leadership/Managerial Competency liners during the year and 698 team members Development Programme for Senior were confirmed in the Bank. A total of 354 were Management: Twenty Five (25) Senior promoted to the next higher grades as at 31st Managers have undergone intensive December 2012. training conducted by National University of Singapore (NUS). The learnings of this Career & Succession Planning programme has been cascaded to the next level of Managers in order to further To prepare the Bank to face future challenges and optimise the outcome of the programme. to facilitate career and succession planning, a Each participant of the NUS Programme has new organization structure was developed by the undertaken a project that will contribute to Human Resources & Remuneration Committee the bottom line of the Bank. Most of these and submitted for ratification by the Nominations projects have been already successfully Committee of the Board. This process will also implemented and the progress of these contribute to develop business leaders at all projects will be reviewed by the Board management levels and ensure career and quarterly. succession planning for all key managerial Technical Competency Development positions. Programme : Resource Persons from Asian Institute of Technology (AIT), Thailand In order to ensure career path and to obtain conducted a special programme for optimum contribution, a Multi Skilling Programme Regional Managers of the Bank to develop was introduced for non-bankers. Twenty Seven (27) technical capabilities, strategic thinking and team members were selected through a rigorous leadership skills of Regional Managers. selection process. At the successful completion E-Learning: Re-launched E-learning modules of the programme, they will be absorbed to the with additional features /animations and mainstream banking in 2013. user friendly interface. Online Learning – Online English Proficiency Programme: Introduced an online version of English Proficiency Programme, especially designed for Sinhala and Tamil speaking team members.
156 Annual Report 2012 Regional Training: With a view to address Co-ordinators visit Branches and conduct one-to regional specific training needs, this concept -one discussions with team members, to address has been initiated during the year covering their HR related issues. all 13 remote regions. Training facilities in the regions were also upgraded. Rewards and Recognition Scheme for Children of Sampath Team: A special scheme for children of Certification Programme on Environmental Sampath team was launched in order to recognise Appraisals: Conducted a Certification achievements in the areas of Education, Sports Programme on Environmental Appraisals, and extra curricular activities. collaborated with Institute of Environmental Professionals Sri Lanka (IEPSL). Now Performance Management: An objective based bank has 24 team members certified as Performance Management System (PMS) was Environmental Professionals. designed for Executives and higher grades to align the team with the business. According to the feedback received from participants on training effectiveness, the Bank In order to strengthen the employee relations has been able to achieve an overall rating of 95% performance coaching, counselling and grievance Excellent and Good ratings which reflects the handling processes are available. effectiveness of the training initiatives. Compensation and Benefits Employee Relations The Management has negotiated with Industrial Relations: This plays a critical role representatives of the employee and agreed for in maintaining industrial harmony. Open door an upward revision of salaries for two consecutive policy, consistency and transparency of the HR years (2012 and 2013) which is supportive for Policies and constant dialogue with employee smooth operations of the business. representatives paved the way for conducive industrial relations climate in the Bank. On behalf of the Human Resource and Remuneration Committee Employee Communication: Introduced a Bank- wide two way communication plan, in order to minimise communication gap between the Management and members of the Sampath team. Deepal Sooriyaarachchi Appointment of Regional HR Co-ordinators: As a Chairman - Human Resource and Remuneration pioneering effort, the Bank has appointed Regional Committee HR Co-ordinators in order to foster positive relationship with all team members spreading in 22nd February 2013 the Branch network. Under this programme, HR
Sampath Bank PLC 157 STRATEGIC PLANNING COMMITTEE REPORT
The Strategic Planning Committee was established Frequency of Meeting to assist the Board in setting strategic direction The Committee has met on 3 occasions within and defining the Bank’s objectives to reach the financial year- 2012. The members of the greater heights in the banking industry. The committee worked with dedication to fulfil its committee spearheads the bank’s long term goals obligations. and identifying strategies for accomplishing these goals and targets. Scope of Work 1. Strategic Vision & Mission of the Bank: Examine the Bank’s current mission, Composition of the Strategic strategic positioning and the Strategic Planning Committee Vision and provide guidelines to the Bank’s The 8 member committee is a combination of 6 Strategic planning process. non-executive directors and 2 executive directors. 2. Review of the impact of external trends and The committee is chaired by a non-executive issues: Examine the external challenges director. and opportunities relevant to the strategic vision and key goals of the Bank. Mr. Dhammika Perera (Chairman) 3. Review the internal strengths and - Non-Executive Director weaknesses of the Bank and give guidelines Mr. Sanjiva Senanayake to the management. - Independent, Non-Executive Director 4. Oversee and monitor the planning process Prof. Malik Ranasinghe that leads to the formulation of the Strategic - Independent, Non-Executive Director Plan. Mr. Ranil Pathirana 5. Examine the effectiveness of key strategies - Independent, Non-Executive Director for achieving the goals and objectives. Mr.Channa Palansuriya 6. Review the Bank’s resources and capabilities - Non-Executive Director in the context of achieving its strategic Mr. Deshal De Mel objectives. - Independent, Non-Executive Director 7. Review the adequacy and composition of Mr. Aravinda Perera the Bank’s capital structure in the context of - Executive Director the growth targets. Mr. Ranjith Samaranayake 8. Make recommendations to the Board on key - Executive Director strategic decisions and investments.
The Group Company Secretary acts as Secretary Reporting to the board to this committee. Minutes to the Committee meeting are circulated to all members of the Committee and made available to all other members of the Board.
158 Annual Report 2012 Performance The committee reviewed performance of the Bank during the year against the Rolling three year Plan and Annual budget for 2012 to identify areas of concern which needed changes in strategic direction. The committee engaged in discussions with the Corporate Management and Strategic Planning Team to determine the strategic direction for the Bank for the period 2013 to 2015 which formed the basis for the development of the Strategic Plan for this period. The Rolling Three Year Plan was submitted to the Board of Directors for their information and approval was obtained for the Annual Budget for 2013 which was developed in line with the strategy document.
The Committee regularly reviews its own performance, constitution and scope of work to entrust that it is operating smoothly and efficiently. Its scope also extends to making recommendations to the board when the need arises.
On behalf of the Strategic Planning Committee
Dhammika Perera Chairman – Strategic Planning Committee
22nd February 2013
Sampath Bank PLC 159 SHAREHOLDER RELATIONS COMMITTEE REPORT
Sampath Bank, is the first listed Company in Sri and suggestions to improve relations between Lanka which has setup a Shareholder Relations stakeholders and the Bank. Committee to identify and address shareholders’ Role played by the Shareholder Relations concerns as deemed appropriate through dialogue Committee with shareholders/investors. 1) Providing suggestions to the Board to Composition of the Shareholder Relations improve shareholder/investor relations of Committee the Bank. 2) Organizing forums that encourage dialogue Comprises of two non executive directors and two between the Board of Directors and advisors to the Board. Shareholders/Investors. Mr. Channa Palansuriya (Chairman) 3) Providing guidance to the Board in matters - Non-Executive Director of investor relations. Mr. Deshal de Mel - Independent, Non Executive Director Activities of the Committee Mr. Ernest Gunasekera The Shareholder Relations Committee is a vital - Advisor Board committee established to facilitate smooth Mr. Prasantha Lal de Alwis and continuous dialogue between the Board and - Advisor shareholders to address their concerns, if any. The committee concentrates on developing and The Group Company Secretary acts as the preserving a good rapport with the shareholders. Secretary to the Committee. The committee ensures that the Bank’s latest information and financial results are swiftly Mr. Channa Palansuriya has been acting as the communicated to the shareholders through Chairman to the Committee since 1st January Interim and Annual Reports, notifications to 2012, Mr. Deshal de Mel too serves as a member the Colombo Stock Exchange and timely press of the committee. releases. In addition to these avenues of information our shareholders have easy access Mr. Ernest Gunasekera and Mr. Prasantha Lal de through our corporate website, www.sampath.lk Alwis serve as Advisors to the committee. to all relevant information, which also gives our shareholders access to the Bank for any query. Frequency of Meetings Shareholders can freely raise any questions to the Meetings are held when the needs arises. The Board of Directors at the Annual General Meeting Committee met once during the year attended to by and Shareholder Relations General Meetings. all the members. By invitation of the Shareholder These forums also encourage our shareholders to Relations Committee, the Managing Director openly voice of concerns and make suggestions and Executive Director/Group Chief Financial and requests. Officer, also attended the Shareholder Relations Committee Meeting. The Shareholder Relations This year has seen regular two-way dialogue Forum was convened after the Annual General between the shareholders and the Board of Meeting giving a much awaited opportunity for Directors. The Group Company Secretary has the eager shareholders to voice out their opinions played a vital role in the accomplishment of many
160 Annual Report 2012 goals of the Shareholder Relations committee. Concessions were given to shareholders on The Board of Directors are kept informed of banking transactions as follows: shareholder outlook through regular reports. All commissions to be on actual cost basis, meaning that all internal Shareholders can also write to the Chairman commission charges to be waived off. and any Director of Sampath Bank, they can However, in the case of foreign bank express any concern or view regarding the Bank charges and other local bank charges, which gives another avenue to the shareholder to the actual cost will be collected. express their opinion in person. This excludes the cheque return commissions & postal charges. Performance On opening of current accounts, the The committee meets when it’s deemed initial deposit to be 50% of the normal necessary. This year the committee has headed initial deposit. many events. The main objective of these events The annual fee charged for VISA credit was to facilitate better shareholder relations. cards is reduced to 50% of the actual fee charged for the period. The committee meets as and when necessary and SET cards to be issued free of charge. report on the activities to the Board. The following However, this does not include per activities were initiated by the Committee during transaction fee. the year: Shareholders’ Forum was held soon after On behalf of the Shareholder Relations Committee the Annual General Meeting on 30th March 2012, where the members of the committee listened to the shareholders’ concerns and formulated plans to address material concerns raised by them. Channa Palansuriya During the Silver Jubilee year the Bank Chairman – Shareholder Relations Committee invited our top 20 shareholders to a celebratory dinner and recognised the 22nd February 2013 loyalty of 150 shareholders, who have been with the Bank from inception through the issue of a souvenir silver coin, a coffee table book and a dinner in March 2012 to mark the occasion.
Sampath Bank PLC 161 TREASURY COMMITTEE REPORT
The Treasury Committee was established in April Monitor liquidity of the Bank 2012 following a decision taken at the Board Provide guidance to the Asset & Liability Meeting of March 2012 in order to place more Management Committee consisting emphasis on the Treasury function. of corporate management to optimise performance Composition of the Committee Monitor the management of foreign The Treasury Committee comprises three exchange and interest rate risks by the Bank independent non-executive directors and two Monitor compliance with Central Bank executive directors: regulations managed by the Treasury Mr. Sanjiva Senanayake (Chairman) including capital adequacy, statutory reserve - Independent Non-Executive Director ratios, and statutory liquid assets. Prof. Malik Ranasinghe - Independent Non-Executive Director Performance Mr. Deshal de Mel The Treasury Committee focussed on the following - Independent Non-Executive Director areas during the year: Mr. Aravinda Perera Making the Asset & Liability Committee - Executive Director (ALCO) process more efficient and business Mr. Ranjith Samaranayake oriented - Executive Director Better management of available funds Optimising the returns from statutory Mr. Manjula Ekanayake of the Bank’s Treasury liquid assets held to satisfy regulatory Department served as the Secretary. Other requirements officials of the Bank were invited to attend as Internal pricing of funds to provide desired deemed necessary. Proceedings of the Treasury incentives internally and better evaluate Committee were regularly reported to the Board performance of business units of Directors and approval sought for policies Development of new products recommended and other matters. During 2013 efforts will be concentrated on Meetings further improving operational coordination The Treasury Committee held three meetings among departments and implementation of joint during the period under review at which all initiatives to help the Treasury to achieve higher members of the committee were present. profitability.
Role & Responsibilities On behalf of the Treasury Committee The Treasury Committee is instituted to provide guidance to the Treasury in carrying out its functions and to monitor its performance with a view to optimising earnings, stability and growth of the Bank. Sanjiva Senanayake Chairman – Treasury Committee The main responsibilities of the committee are: Establish Treasury policy and recommend to 22nd February 2013 Directors Ensure Treasury Dealing Room operations are carried out in accordance with this policy
162 Annual Report 2012 MARKETING COMMITTEE REPORT
This Committee was set up to have a closer focus Review of the Committee on the marketing strategies of the Bank and their The Board undertakes a regular review of the effectiveness. performance of the Committee, objectives and responsibilities. The following directors serve on the Marketing Committee: On behalf of the Marketing Committee Mr. Deepal Sooriyaarachchi (Chairman) – Independent, Non-Executive Director Ms. Annika Senanayake – Independent, Non-Executive Director Mr. Deshal De Mel Deepal Sooriyaarachchi – Independent, Non-Executive Director Chairman – Marketing Committee Mrs. Saumya Amarasekera – Independent, Non-Executive Director 22nd February 2013
The Key Terms of Reference of the committee are to:-
Review the customer strategy and performance against set objectives Review Brand strategy and it s performance Monitor customer service and customer service strategies in line with the customer charter Monitor the CSR policy of the Bank and progresses of same.
Since establishment of the Committee in June 2012 it met 3 times.
The findings of the comprehensive customer satisfaction survey was reviewed by the Sub committee along with the research agency and the marketing team of the bank before making recommendation to the board to further improve areas of customer satisfaction.
The committee will establish marketing effectiveness measurement matrixes review performance and provide guidance where necessary.
Sampath Bank PLC 163 RISK MANAGEMENT REPORT
At Sampath Bank we believe on a proactive and forward looking Risk Management philosophy that is clearly understood throughout the organisation
Risk Report Returns must be sufficient for the risks assumed Globally, rapidly evolving regulation of the Risks must be measured, monitored and financial services, sovereign debt concerns and Identified managed continuously alleged violations of existing regulations made Awareness of risk and a strong risk Major Risks headline news throughout the year highlighting management culture is key to managing risk the importance of risk management in financial to the Bank and maintaining stability services. The need for a more resilient global The Bank’s risk management objectives are are financial services structure has become more To identify, measure, evaluate, monitor apparent as global recovery weakened with and manage significant risks to Bank on a Credit risk, Market Risk, further cracks appearing in struggling economies. Liquidity Risk, Operational Risk, forward looking basis Whilst Sri Lanka’s financial system remained Legal/Regulatory Risk and To define Bank’s risk appetite and align stable and resilient underpinned by domestic Reputational Risk Bank’s risk portfolios and business strategy economic growth, it is probable that there will be in line with the defined risk appetite some moderating effects on the local economy To maintain the Bank’s capital strength and as well in the near future. As the business of strong liquidity position banking is about assuming appropriately priced To optimise risk – return decisions risk and prudent management of risk portfolios, To ensure that business growth plans there is a renewed focus on risk management are properly supported by effective risk that is inevitable given the current global and infrastructure local operating environment. At Sampath Bank we To achieve competitive advantage through believe that a proactive and forward looking risk efficient and affective risk management and management philosophy that is clearly understood control throughout the organisation, effective governance To strengthen governance, controls and structures, policies and risk management tools accountability across the organisation and techniques are pre-requisites to achieve sustainable growth and deliver value to our With these objectives in view, we have identified stakeholders whilst strengthening our position as the major risks which are considered to be a bank that stays ahead of the curve. significant to the Bank as credit risk, market risk, liquidity risk, operational risk, legal and regulatory Risk is managed in accordance with the following risk and reputation risk. principles within the Bank
Risks assumed must be approved within the risk management framework and risk appetite
164 Annual Report 2012 Risk Management
Credit Market Operational Risk Risk Risk Strategic Risk Reputational Risk Legal Risk Equity Risk People Risk People Default Risk Country Risk Process Risk Liquidity Risk External Events Commodity Risk IT/Systems Risk Counterparty Risk Interest Rate Risk Sustainability Risk Concentration Risk Regulatory & Compliance Risk Foreign Exchange Risk Foreign
Bank’s Risk Appetite Framework
Internal Capital Adequacy Assessment Process
Basel II Guidelines
Central Bank Guidelines
International/Industry Best Practice
The road map of the risk management initiatives Continuous Improvement that have been implemented during the year and Risk management continues to be a key area initiatives planned for the next year in line with of focus and indeed, provides the framework the Bank’s strategy, regulatory requirements and for the stable foundation of the Bank. As the international best practices is given below. operating environment changes our structures, tools and techniques also have to change to be able to identify, measure and manage the risks.
Sampath Bank PLC 165 RISK MANAGEMENT REPORT
2012 2013 and beyond
Implemented 7 credit risk rating /scoring models validated by Risk Based Pricing independent consultants Continuation of data collection in order to migrate to IRB Applying to Central Bank of Sri Lanka (CBSL) for migrating to approaches Credit Risk - Internal Ratings Based (IRB) foundation approach Defined Qualitative and Quantitative Risk Appetite Limits and Monitoring of Risks to ensure that they are within the accepted Policy Ranges for Risk areas such as Credit and Operational range even during adverse conditions Risks Commenced Implementation of IT system for Credit and Completion of IT Systems Implementation and Project Sign-off Operational Risk Management, and completion of Phase I of the implementation The Standardised Approach (TSA) Calculation for Operational The Standardised Approach Calculation for Operational Risk Risk Capital, and submission for CBSL review Capital to be submitted to CBSL approval High Risk Areas identified through Risk and Control Self Strengthening of Internal Controls based on the Risk Levels Assessments (RCSA) and Key Risk Indicator (KRI) monitoring identified during Risk and Control Self Assessments (RCSA) and carried-out for key business units and processes Key Risk Indicators Anti Fraud Assessment Improvements to Anti Fraud Framework Sri Lanka Financial Reporting Standards (SLFRS) adoption and SLFRS adoption and Risk Disclosures ongoing improvements Risk Disclosures Upgrading of existing Risk Dashboards and regular reporting to Expanding the scope and coverage of Risk Dashboards to other BRMC areas such as Market, Liquidity and Compliance areas Value at risk calculations for Market Risk Internal Models Approach Anti Money Laundering (AML) Software System implemented. Continuous improvement of AML monitoring Centralised Transaction monitoring Internal Capital Adequacy Assessment Process (ICAAP) ICAAP Programme Document to be submitted to CBSL. Programme commenced ICAAP Implementation – Basel II Pillar II compliance. Identifying the material Risks not covered in Pillar I of Basel II will be assessed and monitored with the implementation of ICAAP Preliminary work on Basel II Pillar III and Basel III implementation
166 Annual Report 2012 ICAAP material Risks such as Reputational, Liquidity and Strategic Risks etc. that are not covered in Pillar I of Basel II. In accordance with the Central Bank of Sri Lanka Guidelines, the Banks are required to submit the ICAAP document and the Bank’s approach to Capital Management to the regulator Internal Capital Adequacy Assessment Process by end January 2013. In order to comply with this (ICAAP) is a part of Pillar II of Basel II framework, requirement, we have secured the assistance of an internationally reputed consultant to complete which focuses on bridging the gap between the the ICAAP implementation planning. Regulatory Capital and Economic Capital Basel III requirements of the Banks. BASEL III is the next upgraded global regulatory standard on managing capital adequacy and Basel II Compliance liquidity of banks, which is planned to be implemented between 2013 and 2019. Basel The Bank is currently compliant with the Basel III aims to strengthen capital requirements of II (Pillar I) Standardised approach in Credit and the Banks by introducing new requirements on Market Risk and Basic Indicator approach in liquidity and leverage. Operational risk. We have completed the work relating to the Basel II Advanced approaches Basel III will call for a series of regulatory directives including Internal rating Based foundation (IRB) and regulations at national level, as well as Approach in Credit Risk, and Standardised improvements to the existing Risk Management Approach in Operational Risk. The Bank remains structures and practices in Banking sector. fully committed to migrating to the advanced
approaches of Basel II within the time frame set by the Central Bank of Sri Lanka and the Road Risk Management Framework & Map above demonstrates this commitment. Risk Governance The Board of Directors has overall responsibility Internal Capital Adequacy Assessment for defining the risk appetite of the Bank and for Process (ICAAP) ensuring that the most significant risks to the Internal Capital Adequacy Assessment Process Bank are competently managed. Accordingly, is a part of Pillar II of Basel II framework, they determine the risk appetite, set the risk which focuses on bridging the gap between objectives and approve the Integrated Risk the Regulatory Capital and Economic Capital Management Framework, policies and ensure that requirements of the Banks. ICAAP will capture all relevant procedures are in place for effective risk management.
Sampath Bank PLC 167 RISK MANAGEMENT REPORT
The Board of Directors has overall responsibility for defining the risk appetite of the Bank and for ensuring that the most significant risks to the Bank are comprehensively managed through a robust Risk Management framework
The Risk Management Governance structure is depicted in the chart below.
Board of Directors (BOD)
Board Risk Management Managing Director Board Audit Committee Committee (BRMC)
Group Credit Policy Risk Assets & Liability Group Chief & Portfolio Review Management Compliance Internal Audit Risk Officer Committee Committee Officer
Risk Management Unit (RMU) AML & Compliance Unit
Credit Risk Management Unit Operational Risk Management Market Risk Management Unit (CRMU) Unit
The Integrated Risk Management of the Basel II implementation, Business Continuity Bank has been assigned to an Independent and Disaster Recovery plans, key risk indicators Risk Management Committee of the Board and the implementation of the Integrated Risk in compliance with the Central Bank of Sri Management framework. Lanka Directive 11 of 2007. This committee is empowered to review the Bank’s risk management Credit Policy, Risk and Portfolio Review Committee policies as well as regulatory and compliance is responsible for reviewing the overall credit policy issues. It monitors the Bank`s risk profile and portfolio, credit procedures and credit risk against the agreed risk appetite through regular management and also resolve significant credit reviews and related controls. It also reviews policy issues. The Committee is chaired by the
168 Annual Report 2012 Integrated Managing Director and the other members of the and Foreign exchange risk within the framework, committee are the Heads of Credit Departments, including stress test results, for various risks. Risk Recoveries and Group Chief Risk Officer. It also carries out an assessment of the capital Management adequacy based on the requirements under Basel Asset & Liability Management Committee (ALCO) II norms. Unit comprising the Bank`s senior management, headed by the Managing Director, is the top Compliance Unit executive committee for managing the balance The Unit headed by Group The functions of Risk and Compliance were Chief Risk Officer manages the sheet of the Bank from a risk return perspective, segregated during the year to comply with Bank`s Risk independent of including Market Risk within the risk appetite the regulatory recommendations. Accordingly, profit and volume targets and, defined by the Board. This Committee meets the position of Group Compliance Officer was is responsible for formulating regularly and the committee reports are reviewed the policy framework addressing created to monitor compliance with regulatory multiple and interdependent by the Board Risk Management Committee. and supervisory requirements including anti- risks, measuring and monitoring As these committee members sit on other money laundering on a group wide basis. The AML risk, and benchmarking our committees, there is a formal and informal and Compliance Unit now reports to the Group practices with International Best dissemination of knowledge to other business Practices. Compliance Officer who, in turn, reports to the areas. Board Risk Management Committee.
Integrated Risk Management Three Lines of Defence Unit The Three Lines of Defence has earned high The Integrated Risk Management unit manages level of acceptance as a standard model in a the Bank`s risk function and is independent of modern approach to managing uncertainty and profit and volume targets. The Unit is headed by preventing risk. This model could be used as the Group Chief Risk Officer and is responsible the primary means to demonstrate and structure for formulating the policy framework addressing roles, responsibilities and accountabilities in multiple and interdependent risks, measuring decision making, risk and controlling functions to and monitoring risk, and benchmarking with achieve effective risk management, governance international best practice. Accordingly the unit and assurance objectives. The Bank`s overall risk reviews and assesses key risk indicators covering governance model is based on the concept of Credit risk, Operational Risk, Market Risk, Three Lines of Defence model whereby business Interest rate risk, Liquidity risk, Equity Price Risk management, risk management and assurance functions are carried out independently of one another.
Sampath Bank PLC 169 RISK MANAGEMENT REPORT
1st Line of Defense 2nd Line of Defense 3rd Line of Defense Decentralised Primary Centralised Oversight Assurance: Independent of Responsibilties Risk Management All others Complianceé / Business Support units Audit
Primary responsibility for Setting the IRM Framework Compliance identifying, managing and Providing support to the Regulatory Compliance reporting risk business units, review and Regulatory Reporting Self assessment of risk and report key risks to BRMC Anti Money Laundering controls Challenges the self Internal Audit Compliance with all policies and assessments and inherent risks Independent assurance of the procedures identified by business units and robustness of the different risk Promoting strong risk culture review controls management processes and and awareness of risk elements Independently identify and methodologies in business activities assess risk Independent oversight function Training as a way of mitigating Oversees setting of Policies with oversight ability to risks in business operations communicate with external auditors and the Board Audit Committee Ensure that the Bank is compliant with the risk management framework
aligned to risk portfolio strategies is core to the Credit Risk Management effective management of credit risk. The Credit Credit risk is the potential for loss due to the Risk Management Policy of the Bank is based failure of a customer or counterparty to meet on the Integrated Risk Management Guidelines its obligations to pay in accordance with agreed issued by CBSL, Basel II guidelines, international terms and conditions. In addition to lending, best practices and the risk appetite of the Bank. credit risk may arise from areas of international It reflects the tolerance for risk in pursuit of trade, treasury and off balance sheet exposures the bank`s business objectives and provides such as guarantees. Since granting of credit guidance on is the main line business of the bank, it is the Establishing and maintaining an appropriate highest contributor to overall risk exposure. credit risk environment A comprehensive framework of policies and Operating a sound credit granting process procedures for identification of credit risk, Ensuring an adequate control over credit measurement, review and control which is risk
170 Annual Report 2012 Key areas in Maintaining an appropriate credit Independent Review by Credit Risk administration, measurement and Management Unit – An independent pre- our Credit Risk monitoring process credit review is carried out by CRMU for all Management. Proper evaluation of new business exposures above a certain threshold and for opportunities credit with weak ratings. Internal Risk Rating and risk measurement Structured and standardised We use a number of methods and analytical tools – Internal risk ratings in accordance with the credit appraisal process, Delegated authority levels , to manage Credit Risk at the Bank. Basel II Advanced approaches assist the Segregation of duties, Internal Structured and standardised credit appraisal Bank to more accurately assess the quality Risk Scoring/Rating, Monitoring process –This is our first line of defence and of the portfolio. These internally developed of Post Credit Risk, Loan is carried out by specialised staff who are models were validated by an external Review Mechanism and Stress Testing are key areas in our competent in assessing credit risk. Prudent consultant and the Bank’s portfolio is now Credit Risk Management. client selection with reference to industry rated in accordance with this. and regional strategies and client due Monitoring of Post Credit Risk – The Bank has diligence is key to managing credit risk and established procedures for Post Credit Risk care is taken to ensure that policies and identification, monitoring and management. procedures in this regard are understood Branch/Relationship Managers have primary and enforced in all business units of the responsibility for identifying internal and Bank. Transaction originators’ assessments external Early Warning Signals (EWS) that are reviewed by a committee level approval may impact credit quality and notifying their system to provide additional safeguards. respective Credit Committees. Facilities and Delegated authority levels – Authority is clients indicating Early Warning Signals and delegated by the Board of Directors to the deteriorating credit quality would be Watch Board Credit Committee, Executive Advance Listed with the approval of the respective Committee, Advance Committee and to Credit Committees for more stringent Managing Director. The Managing Director monitoring. has sub delegated Credit Approval limits to Loan Review Mechanism - Credit the senior management where appropriate. Risk Management Unit carries out a The delegation is reviewed periodically to comprehensive interim review of selected ensure that limits set reflect changes to large exposures routed through the unit, internal and external environment. within 3-4 months from the date of approval. Segregation of duties - Credit approval and The unit will evaluate adherence to approval management, Risk Management, Credit conditions, interim financial position and Administration, Credit Control and Credit utilisation/conduct of facilities for selected Audit have been clearly segregated. Credit exposures and alert on any Early Warning appraisal and evaluation is handled by Signals detected during the review. A specialised team members at the Head detailed report on this on-going activity Office Credit Departments and the Regional is submitted to the Credit Policy, Risk and offices whilst initiation is with the Branches Portfolio Review Committee periodically. and Relationship Managers.
Sampath Bank PLC 171 RISK MANAGEMENT REPORT
We focus on managing the Concentration risk on a portfolio basis to ensure that the Bank’s lending is well diversified across a wide range of products, industries and customers.
Concentration Risk Management– Sustainability Risk - During the year, the CRMU also focuses on managing the Development Banking criteria were revised Concentration risk on a portfolio basis and enhanced to meet environmental to ensure that the Bank’s lending is well criteria as part of the initiatives to integrate diversified across a wide range of products, sustainability principles and criteria in to industries and customers. Portfolio the normal business activities of the Bank. concentration is analysed and monitored by Stress Testing - Specific forward looking various parameters such as counterparty, scenarios are generated to analyse how the sector, industry and geography. Desired Bank’s profitability and capital adequacy will diversification is achieved through be impacted if the operating environment setting maximum exposure guidelines for becomes more challenging. This enables the individuals, companies, groups and sectors. Bank to take necessary action to mitigate or CBSL guidelines on maximum exposures minimise the risks that are likely to arise are taken into account when setting these from anticipated movements or trends in the prudential limits in addition to the Bank’s operating environment. The Bank’s Stress own risk criteria and business objectives. Testing Policy and framework have been Credit Risk concentration positions are approved by the Board and a number of reported to the Board Risk Management variables relevant to management of Credit Committee on a periodic basis. Analytical Risk are included in the Stress Testing. tools such as the Herfindahl-Hirschman Risk Appetite - Limits and tolerances under Index, Gini Coefficient are used to quantify normal and also under stressed conditions Concentration Risk. have been formulated to ensure that risks stay within an acceptable range even during adverse conditions. These, limits would be reviewed by the Board of Directors annually or earlier if required
Risk Appetite Policy Range Criteria
Credit Quality Gross NPA% (i.e. Gross NPA - Interest in Suspense(IIS)/Gross Adv.-IIS) 2.5% - 3.5% Net NPA % (i.e. (Gross NPA-IIS-total provision) / (Gross Adv.-IIS)) Below 0.5% Provision Cover(Specific Prov.)/ (Gross NPA-IIS) % Minimum 60% Provision Cover(General +Specific Prov.)/ (Gross NPA-IIS)% Minimum 70% Open Credit Exposure(Gross NPA-IIS-Specific Prov.) /Capital Base % Below 10% Exposure above rating of C+ to total advances 80%
172 Annual Report 2012 Risk Appetite Policy Range Criteria Credit Concentration Single Borrower Limit (Individual) -LKR/Mn as per CBSL Single Borrower Limit (Group) -LKR/Mn as per CBSL Aggregate exposure(funded +non funded) to large borrowers(i.e. over 15% of as per CBSL 55% the Capital)/Total exposure(funded +non funded) (%) Lending to Agriculture (%) – mandatory requirement 10% 10% - 15% Exposure Against Shares/Credit Portfolio (%) <= 7.5% Top 20 Adv. (direct)/Total Adv.(%) Below 25% Lending to Maldives(FCBU)/Total Advances % Cap at existing level Aggregate term loans over 3yrs (residual maturity)/Total Advances % 40% (OD+ Money Market Loans)/Total Advances (%) Below 20% Sector wise Concentration (HHI Score) below 0.16 Product wise Concentration (HHI Score) below 0.16 The risk indicators remained within the policy range during the year
Credit Risk Management: A Advance Portfolio by Sector Pictorial Review The weakening global economy and the political unrest in the Middle East can impact the growth of our economy. Locally, rising interest rates, the depreciation of the Sri Lankan rupee, tightening liquidity can adversely impact credit risk as well. However, we have taken various measures as described above to detect early warning signs and limit our exposures to accounts at risk. The Transport - 1% Pawning - 24% Bank’s strong credit risk management practices Manufacturing - 13% Traders - 16% are reflected in the pictorial representation of Agriculture & Fishing - 11% factors that impact credit risk. Other Customers - 10% Other Customers - Staff - 1% Fianance & Business Services - 6% Other Services - 3% Tourism - 3% Construction - 4% New Economy - 3% Infrastructure - 3% Credit Card - 2%
Sector concentration is within the limits established by the Board of Directors
Sampath Bank PLC 173 RISK MANAGEMENT REPORT
Sector Concentration Geographical Concentration Concentration on (HHI score) Top 20 Customers - 2012
0.20
0.15
0.10
Central - 4% Sabaragamuwa - 1.65% Exposure of Top 20 Customers - 21% 0.05 Eastern - 1.36% Southern - 3.78% North Central - 2.32% Uva - 1.19% Exposure of Other Customers - 79% North Western - 2.55% Western - 82.96% Jun-11 Jun-12 Dec-10 Mar-11 Dec-11 Dec-12 Sep-11 Sep-12 Northern - 0.59% Sector Concentration(HHI Score) Low Concentration High Concentration The highest concentration is in the Western Province reflecting the country’s concentration of economic activity and due to the centralization of Corporate Banking, FCBU activities. Colletral Wise Breakdown Concentration on Loans and Advances by Sector Quality Top 20 Customers - 2011
Manufacturing Traders Agri & Fishing Other customers Other Customers - Staff Fin. & Busi Services Other Services Tourism Construction New Economy Infrastructure Documentary Bills - 1% Transport Fds,cds & Other Deposits - 8% Exposure of Top 20 Customers - 27% Govt. Securities - 0.01% 0-30 Days 91-180 Days 366-545 Days Exposure of Other Customers - 73% Hire Purchase Agreements - 2% 31-90 Days 181-365 Days above 546 Days Immov.property, Plant & machinery - 27% Other Securities - 14% Person.guarant & Pronotes - 2% Rfc,nrfc & Rnnfc Accounts - 0.04% Shares,bonds,life Policy - 4% Stock In Trade - 10% Base Data as at Base Data as at Tractors & Motor Vehicles 2% Unsecured Loans - 3% 31.12.2012 (Rs Mn) 31.12.2011 (Rs Mn) Gold - 25% Clean - 2% a) Capital Adequacy Ratio(CAR) 13.61% 11.45% b) Capital 24,401 18,548 Credit Risk Stress Testing c) Risk Weighted Assets 179,297 162,027 As per the CBSL guidelines on Integrated Risk d) Total NPA – Gross 4,995 5,236 Management (Directive 07 of 2011) and the stress testing policy, the following has been e) NPA Ratio – Gross 2.33% 3.00% computed to assess the impact of non performing Tire I 5% Tire I 5% f) CAR as per CBSL requirement advances on the banks capital adequacy ratio. Tire I + II 10% Tire I + II 10%
174 Annual Report 2012 Credit Risk Stress 1. Shift in performing loans to NPA downgraded and transferred to loss category and Testing provides us The following scenarios explain the impact of eventually will be written off from the P & L. It is assumed that the increase in specific provision is an opportunity to the NPA ratio being increased to 5%, 10% & 13.92% of the total Loan portfolio. This is directly set–off against the expected profits. think ahead about more challenging Scenario 3 at Present Scenario 1 Scenario 2 situations in Breakeven point managing Credit g) Magnitude of the shock Risk, and to 2.32% 5.00% 10.00% 13.92% (NPA%) appropriately plan for h) Total Advances 215,183 215,183 215,183 215,183 successfully facing i) Gross NPA (Mn) - incl. IIS 4,995 10,759 21,518 29,953 them. (h x g) j) Int. in suspense 549 1,184 2,367 3,295 IIS (Mn) k) Specific Provision 3,247 6,993 13,987 19,470 l) NPA (NET) 1,199 2,582 5,164 7,189 (i–j–k) m) Revised Capital 23,202 21,819 19,237 17,213 (b–l) n) Revised RWA 178,098 176,715 174,133 172,108 (c–l) o) Revised CAR% - Tier I & II 13.03% 12.35% 11.05% 10.00% (m/n x 100)
(Scenario 3, NPA (net ) ratio results - minimum capital requirement prescribed by the CBSL)
2. Negative shift in NPL categories
Rs (Mn) As at % Rs (Mn) As at % 31.12.2012 31.12.2011
Special Mention 412.02 8.25 451.84 8.63 Substandard, 417.87 8.37 309.45 5.91 Doubtful 234.22 4.69 323.69 6.18 Loss 3,930.71 78.70 4,150.90 79.28
Sampath Bank PLC 175 RISK MANAGEMENT REPORT
The following scenarios explain the impact 50% of the advances in substandard of 50%, 80% & 100% downward shift in NPA category would shift to doubtful category categories(Special Mention, Substandard, 50% of the advances in doubtful category Doubtful and Loss) and the resultant impact on would shift to loss category provisioning.
Eg: Scenario1 50% of the advances in special mention category would shift to substandard category
Scenario I Scenario 2 Scenario 3 Magnitude of the shock 50% Magnitude of the shock 80% Magnitude of the shock 100% as at as at as at as at as at as at 31.12.2012 31.12.2011 31.12.2012 31.12.2011 31.12.2012 31.12.2011 (RsMn) (RsMn) (RsMn) (RsMn) (RsMn) (RsMn)
Total NPA 4,995 5,236 4,995 5,236 4,995 5,236 Weighted NPA’s 4,131 4,375 4,131 4,375 4,131 4,375 Weighted NPA’s after shift in 4,294 4,547 4,391 4,651 4,456 4,720 categories Increase in provisions 162 173 260 276 325 345 Revised Capital 24,239 18,376 24,142 18,272 24,077 18,203 Revised RWA 179,135 161,855 179,037 161,751 178,972 161,682 Revised CAR% 13.53% 11.35% 13.48% 11.30% 13.45% 11.26%
The position as at 31.12.2012 has improved compared to 31.12.2011 due to overall improvement in the capital base, along with the reduction in NPA.
Fluctuation of world market gold prices Pawning advances as at Rs. 50,659Mn on the pawning portfolio 31.12.2012 Pawning consist of approximately 24% of the Bank’s portfolio. Wide fluctuation was observed Current gold price in world 1Oz =1,665 in the world market gold prices during the last market (as at 31.12.2012) USD few months. Hence, the following calculations 24k consider the stress on the capital adequacy due to the adverse fluctuation of exchange rate & gold prices.
176 Annual Report 2012 Assumptions: market value of gold to the levels indicated 1) All customers would re-pawn their articles to in the scenarios. obtain the benefit of the current high rate of pawning advances / low interest rate. 3) Fall in value of the security is immediately adjusted in the P&L. 2) Appreciation of the rupee (approx. to LKR/ USD 125.00) and the immediate drop in
Scenario I Scenario 2 If Gold value falls to USD1500 If Gold value falls to USD1400 & exchange rate LKR/USD drop & exchange rate LKR/USD to 125/- drop to 125/- LKR value of Pawning advance after re-pawning (assumption 1) Rs. 61,958.33 Mn Rs. 61,958.33Mn If value of Gold Oz decline to (assumption 2) USD 1,500 USD 1,400 Value of the security i.e. gold in rupees. (LKR/ USD @ 125/-) Rs. 59,566.20 Mn Rs. 55,595.12 Mn Mark to market loss (assumption 3) Rs.2,392.13 Mn Rs.6,363.21 Mn Revised Capital Rs. 22,009.33 Mn Rs. 18,038.25 Mn Revised RWA Rs. 179,297.25 Mn Rs. 179,297.25 Mn Revised CAR (%) 12.28% 10.06%
and controls in line with Basel II requirements, Market Risk Management CBSL regulations and international best practice. Market Risk impacts many areas of banking These policies reflect the bank’s risk appetite in businesses and is defined as the potential for pursuance of its business objectives and provides change in the market value of our trading and guidance on: investment positions. Market Risk can arise from changes in interest rates, credit spreads, foreign Establishing and maintaining an appropriate exchange rates, equity prices, commodity prices structure for managing market risk and other relevant parameters. The main objective Ensuring Treasury Operations are efficiently of Market Risk management is to optimise the and effectively managed risk reward relationship without exposing the Bank Establishing appropriate limits for all areas to unacceptable losses outside our risk appetite. of Treasury activities, including trading and investment positions The Bank has a well-established framework Monitoring and managing impacts arising for managing Market Risk with the Market from the operating environment on relevant Risk Management Policy, Asset and Liability parameters, including results of Stress Management Policy and the Treasury Policy forming Testing the basis for structure, procedure, processes Evaluation of new business opportunities
Sampath Bank PLC 177 RISK MANAGEMENT REPORT
Key tools and techniques used to manage various regularly reviewed and updated as per the The Middle aspects of market risk are described below. prevailing business requirements, business Asset & Liability Committee – ALCO is opportunities, regulator guidelines, Basel Office the key management committee that II recommendations and industry best has responsibility for managing the practices. Operates independent of Bank’s Assets and Liabilities and its key Treasury, is an integral part of Risk Management Unit and components interest rate risk, exchange Stress Testing – Specific forward looking monitors the comprehensive rate risk, and liquidity risk as described in scenarios are generated to analyse how framework of Treasury operating the functions of this committee. Equity risk the Bank’s profitability and capital adequacy limits approved by the Board, is monitored by the committee, but has a would be impacted if business conditions including open position limits, dealer limits, counterparty limits, lower profile as the bank’s exposure to became significantly more challenging in gap limits, FCBU and Domestic Equity risks are relatively less. Commodity line with the Bank`s Stress Testing Policy operations limits Risk (Gold Prices) is also monitored by this and Framework which has been established committee as the Bank has a significant by the Board. The Stress Testing results exposure to Pawning. ALCO manages these for Exchange Rate Risk, Liquidity Risk and risks through constant monitoring and Equity Price Risk are given overleaf. implementing corrective action through various banking products and mechanisms Managing Foreign Exchange (Forex) Risk - such as the management of advances, Forex Risk arises from the possible volatility deposits and investment portfolios. The of foreign exchange rates on open foreign Committee’s key functions include decisions exchange positions. We manage this on product pricing, determining the optimum through a framework of board approved mix of assets and liabilities and stipulating limits that are also being monitored by the liquidity gap position and interest rate the Market Risk/Middle Office. Such limits risk limits, formulating views on interest include currency wise overnight / intraday rates, setting benchmark lending rates limits for open positions, Dealer Limits, Stop and determining the asset and liability Loss Limits, Counter Party Limits, Country management strategy in light of the current Limits, and Gap Limits in line with CBSL and expected operating environment. regulations and business requirements of the Bank. Limit exceptions are escalated to Risk management and Monitoring by respective approving authorities, and also to Middle Office –The Middle Office function, the Board Risk Management Committee at which is independent of Treasury, is an regular meetings. integral part of RMU and monitors the comprehensive framework of Treasury operating limits approved by the Board, including open position limits, dealer limits, counterparty limits, gap limits, FCBU and Domestic operations limits etc., which are
178 Annual Report 2012 Exchange Rate movement and Equity Portfolio valuation Liquid Assets and Liabilities (Rs. Mn) Exchange Gains / Loss (Rs. Mn) against Market Indices
8,000 300,000 1,500 7,000 250,000 1,200 6,000 200,000 900 5,000 4,000 150,000 600 3,000 100,000 300 2,000 50,000 0 1,000 0 0 -300 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 ASPI Liabilities USD Rate Equity portfolio Book value Liquid assets Exchange Gain/Loss Equity portfolio Market value
Liquid Assets Ratio (%)
25
24
23
22
21
20 Q1 Q2 Q3 Q4
Liabilities Liquid assets
Sampath Bank PLC 179 RISK MANAGEMENT REPORT
Market Risk Stress tests for challenging scenarios involving Exchange Rate movements, Liquidity issues and Equity price movements help us to simulate stressful situations and to proactively plan for them.
Market Risk Stress Testing
Exchange Rate Risk As at 31-12-2012 Overall Net Open Position of the (a) Open Position 430.482 LKR Mn Bank including the on and off (b) Capital Base 24,401 LKR Mn balance sheet exposures have (c) Risk Weighted Amount 179,297 LKR Mn been given adverse shocks of 5%, 10% and 15%. Scenario 1 Scenario 2 Scenario 3 Magnitude of Shock 5% 10% 15% Net Exposure of the Foreign Exchange (Rs Mn) 430.482 430.482 430.482 Loss on Exchange Rate (Rs Mn) 21.5241 43.0482 64.5723 Revised Capital (Rs Mn) 24,380 24,358 24,337 Revised RWA (Rs Mn) 179,276 179,254 179,233 Revised CAR % 13.60% 13.59% 13.58%
Total Capital Adequacy Ratio remains over 10% minimum value under all 3 stress testing scenarios. Liquidity Risk Stress Testing Result For Liquidity Risk This evaluates the resilience of As at 31-12-2012 the Bank if the Bank is unable to maintain its current ability to raise (a) Liquid Assets 59,934 LKR Mn funds in the market. It has been computed with 10%, 20% and 30% (b) Liquid Liabilities 267,540 LKR Mn reductions in the level of liabilities existing as at the balance sheet Scenario 1 Scenario 2 Scenario 3 date. The equivalent amounts Magnitude of Shock 10% 20% 30% have been deducted from the Liquid Assets (Rs Mn) 59,934 59,934 59,934 liquid assets assuming the fall in liabilities is met by a corresponding Liquid Liabilities (Rs Mn) 267,540 267,540 267,540 fall in the liquid assets of the Bank. Fall in Liquid Liabilities(Rs Mn) 26,754 53,508 80,262 Revised Liquid Liabilities (Rs Mn) 240,786 214,032 187,278 Revised Liquid Assets (Rs Mn) 33,180 6,426 -20,328 Ratio after Shock % 13.78% 3.00% -10.85%
At 10% shock, Liquid Assets to Liquid Liabilities ratio stands at 13.78%, at 20%, it is reduced to 3%, and at 30% shock, the ratio shifts to a negative value.
180 Annual Report 2012 Equity Price Risk As at 31-12-2012 The test assesses the impact of (a) Total Exposure in Stock Market 998.375 LKR Mn the fall in the stock market prices (b) Capital Base 24,401 LKR Mn to the Market Value of the Equity (c) Risk Weighted Assets 179,297 LKR Mn Portfolio. The current market value of all the on and off balance sheet Scenario 1 Scenario 2 Scenario 3 securities listed on the stock Magnitude of Shock 10% 20% 40% exchange including shares, mutual Total Exposure in Stock Market (Rs Mn) 998.375 998.375 998.375 funds, etc., has been given shocks of 10%, 20% and 40% fall in their Fall in the Value of Stocks(Rs Mn ) 99.8 199.7 399.4 value and the impact on capital due Revised Capital(Rs Mn) 24,302 24,202 24,002 to resultant change is re-calculated Revised RWA (Rs Mn) 179,197 179,098 178,898 under each scenario. Revised CAR % 13.56% 13.51% 13.42%
The total CAR remains over 10% minimum value under all Stress Testing Scenarios, which indicates that a 40% overall decline in market value of shares can be absorbed by the Bank, and still maintain CAR at the levels required by the CBSL regulations.
and exposure reporting, monitoring through Operational Risk Management Key Risk Indicators and risk mitigation through Operational Risk is the risk of losses as a process enhancement and insurance as a Risk consequence of failed or incomplete internal Transferring mechanism. It also aims to ensure processes, people issues, systems issues, or from clear accountability, responsibility and mitigation external events. Basel guidelines also incorporate of Operational Risk Management in the Bank. Legal Risks under Operational Risk but exclude Strategic and Reputational Risks. We manage Operational Risk at the Bank is managed as Operational Risk through a comprehensive set of described below: internal controls and management processes that The prime responsibility for achieving the drive risk identification, assessment, control and organisational objectives and management monitoring as an ongoing activity. of Operational Risk lies with the business/ functional units where risk arises. A Sampath Bank’s operational Risk Management comprehensive Policy, Procedure and governance framework is defined in the Operations Directive Framework stemming from the Risk Management Policy approved by the Board of Bank’s Vision, Values and Corporate Directors. This policy provides a broad framework Strategy and approved by the Board of for identification and assessment of risk and Directors provides the links between controls, new product and process approval achieving organisational objectives whilst framework, measurement through incidents managing risks in the process.
Sampath Bank PLC 181 RISK MANAGEMENT REPORT
All new, amended or reviewed Policies, The Bank has developed a Key Risk Indicator Procedures and directives are reviewed Framework that reflects the risks faced by by the RMU to ensure appropriate risk key business areas/business units. These mitigation strategies are embedded in KRI’s have a high utility as they are presented them. Policies are reviewed annually or more in a non-technical and meaningful manner frequently if the need arises and submitted that clearly communicates the nature of for approval to the Board of Directors.. risks and the related trends to the business The Operational Risk function reviews units and the senior management. The the need to introduce new policies as a KRIs are updated quarterly and appropriate continuing activity in line with the regulatory risk mitigation activities are initiated at environment, industry best practice and corporate management level. any gaps identified in consultation with the Business units are required to report their BRMC. operational risk losses on regular and event Risk Management, Compliance and driven basis to RMU and these are classified Systems Audit units are represented in all according to the Basel II business lines. New Product Committees and appropriate The Operational Risk Function rates the sign off is obtained prior to implementing loss events based on severity and impact. new or improved products. Additionally, Events rated over and above an agreed Legal, Finance and Internal Audit functions threshold are regularly reported to corporate are appropriately involved and sign off management and the BRMC. Additionally, obtained as required. low risk events which accumulate to Systems developments, new system substantial losses over a period of time acquisitions and upgrades are reviewed are detected during the trend analysis and by Operational Risk Management Unit and similarly reported to corporate management they are also represented in project teams and BRMC. Analyses of events and trends handling systems implementations or have led to significant improvements notably changes. in the areas of cash counter operations, ATM All key business units of the Bank carry out operations, pawning, foreign remittances annual Risk and Control Self Assessments and outsourced services. for their business processes in order to All contractual documents such as product identify and review the inherent risks and applications and Service Level Agreements controls available to mitigate or manage with external parties are approved by the such risks. RMU has conducted workshops Chief Legal Officer and reviewed by Risk, with the business units to assess the Compliance and Systems Audit functions. residual risks and to introduce additional Where specific expertise is required, mitigants/controls where necessary professional services of external legal depending upon the severity and probability experts are sought. of the residual risk. This is in line with the Basel II Standardised and Advanced Measurement Approaches.
182 Annual Report 2012 Operational Risk Reviews No of Key Risk Indicators conducted During 2012 (%) De ned & Monitored Risk Organisational Controls Impacts all areas of the Legal & Compliance organisation. We manage Staf ng & HR
Operational Risk through a Contingency Planning comprehensive set of internal controls and management Technology processes that drive risk Products & Procedures identification, assessment, Audit Issues control and monitoring that are Policies 01 23456 integrated with the operational Procedures Directives processes. Service Level Agreements/MOU New Product Concepts/ Sign offs Percentage of Operational Losses by Guidelines Basel Loss Event Type Other Proposals
Business Disruption and System Faliure Clients, Products & Business Practices Internal Loss Event Data Reporting Damage to Physical Assets - Report Count in 2012 (%) Employment Practices and Workplace safty Execution, Delivery & Process Management
External Fraud
Internal Fraud 0 20% 40% 60% 80% 100%
Percentage of Operational Loss Reports by Basel Loss Event Type - 2012
Business Disruption and Payment & Settlement System Faliure Retail Banking Clients, Products & Trading & Sales Business Practices Damage to Physical Assets Employment Practices and Workplace safty Execution, Delivery & Process Management
External Fraud
Internal Fraud 0 10% 20% 30% 40% 50% 60% 70%80%
Sampath Bank PLC 183 RISK MANAGEMENT REPORT
Operational Risk Appetite Limits indicate our willingness to accept a certain level of risk faced during banking operations. The actual losses are monitored against the limits as and when they occur, and appropriate steps would be taken to improve internal controls.
Computation of Operational Risk Bank’s Gross Income is appropriately allocated to Capital Calculation under Basel II those Business Lines only.
The Standardised Approach The Standardised Approach calculation shown (TSA) below is a computation shown only for information Basel II defines eight Business Lines in Banking purposes. Operations. Out of these eight, the Bank is currently engaged in five areas, and therefore the
Operational Risk Capital Charge Calculation as at 31-12-2012 - The Standardised Approach (Rs 000) Corporate Trading & Sales Retail Banking Commercial Payment & Total Finance Banking Settlement
3 year Average Gross 56,202 -217,335 9,096,120 5,648,307 76,577 14,659,871 Income Beta Factor 18 18 12 15 18 Capital Charge 10,116 -39,120 1,091,534 847,246 13,784 1,923,560
Risk Weighted Amount [RWA] for Operational Risk = Capital Charge X 10 Therefore RWA for Operational Risk under TSA = 1,923,560 X 10 = 19,235,603 = Rs. 19,235.6 Mn
However operational risk RWA under basic indicator approach for the year 2012 is Rs. 21,989.8 Mn
Operational Risk Appetite Accordingly, higher sub limits have been assigned Limits for losses under Internal/External Frauds, Execution/Deliver & Process Management, where We have defined BRMC and Board approved major portion of historical losses have occurred. Operational Risk Appetite Limits for year 2013, based on last 3 years’ loss data trends. The The actual losses will be monitored as and when overall Risk Appetite Limit is set at Rs. 50 Mn., they occur, and BRMC will be regularly updated and Sub-Limits have been assigned to each Basel along with suitable recommendations. II loss type considering historical loss trends.
184 Annual Report 2012 Risk Type Definition Sub Limits for Maximum Category Level 1 Exposure as a percentage of Overall Limit
1 Internal Fraud Losses due to acts of a type intended to defraud, misappropriate property 20% or circumvent regulations, the law or company policy, excluding diversity/ discrimination events, which involves at least one internal party 2 External fraud Losses due to acts of a type intended to defraud, misappropriate property 50% or circumvent the law, by a third party 3 Employment Losses arising from acts inconsistent with employment, health or safety 10% Practices and laws or agreements, from payment of personal injury claims, or from Workplace diversity / discrimination events Safety 4 Clients, Losses arising from an unintentional or negligent failure to meet a 10% Products & professional obligation to specific clients (including fiduciary and Business suitability requirements), or from the nature or design of a Practices product. 5 Damage to Losses arising from loss or damage to physical assets from natural 10% Physical Assets disaster or other events. 6 Business Losses arising from disruption of business or system failures 10% Disruption and System Failures 7 Execution, Losses from failed transaction processing or process management, from 60% Delivery & relations with trade counterparties and vendors Process Management
execution of Service Level Agreements. A Board Outsourcing committee approves new outsourcing activities The Bank’s policy on Outsourcing of Banking and existing arrangements are assessed as per and ancillary functions is reviewed annually CBSL guidelines to ensure compliance. BRMC and updated to reflect any changes with CBSL is regularly updated on the status of outsourced guidelines and industry best practice. The policy activities of the Bank and recommendations are addresses the criteria for selection of areas duly implemented. for outsourcing, selection of service providers, periodic reviews on outsourced activities and
Sampath Bank PLC 185 RISK MANAGEMENT REPORT
Managing our Reputation is one of our top priorities. Customer Grievance Handling and Whistle Blowing Policies provide us the framework for addressing negative effects of public/ customer opinion, market reputation and the possible impact to brands by failing to manage public relations
Reputational Risk Management Strategic Risk Management Strategic Reputation Risk arises from the negative effects Strategic risk is the possibility of current and of public opinion, customer opinion and market prospective impact on earnings or capital Decision Making reputation, and the damage caused to brands by arising from adverse business decisions, Process failing to manage public relations. The Bank has improper implementation of decisions or lack of implemented the following to manage reputation responsiveness to industry changes. The Bank Three Year Strategic Plan helps risk: manages Strategic Risk in the following manner: us to face the future with Reputation risk management and mitigation confidence, while maintaining aspects are embedded in the Bank’s policies A three year Strategic Plan has been a performance oriented culture and procedures, training programmes, formulated by the Corporate Management that aligns business goals and objectives with Individual the Business Continuity Plan and through and the Board. This is updated annually performance goals the Audit and Board Risk Management and is used as the foundation for defining Committees. new business goals, budgets and resource A Customer Grievance Handling Policy planning. has been established under which the The Strategic Plan is linked to individual customers have a range of options through employee performance through a goal setting which they can forward their grievances to process and periodic performance reviews the Bank including a public help line that are carried out to motivate employees and is manned on a 24 hour basis. There is create a performance culture to ensure that a senior officer tasked with coordinating business goals and objectives are achieved, such grievances and handling customer thus mitigating strategic risk. relations. Significant public or customer grievances are submitted for appropriate Anti Fraud Programme action by corporate management and review The recent expansion of the Bank in terms of by BRMC branches, products, services, technology and The Bank has a Whistle Blowing Policy workforce exposes the Bank’s operational areas approved by the Board providing a channel into a much wider range of Fraud related Risks. In for employees, customers and general order to arrest the situation and proactively define public to raise issues, if any, on breaches of our defences, we have conducted an assessment any law, statutory, regulatory or other ethical of our Anti-Fraud Framework with the assistance concerns shared by them of an International Consulting firm. The assessment includes a Gap Analysis to identify current weaknesses in Governance, Policies, Procedures and internal structures. The findings of the Gap Analysis, and the status of existing Anti-Fraud Programme have been compared with the industry best practices during the study. The recommendations provided by
186 Annual Report 2012 Anti Fraud Programme
Anti-Fraud Assessment was done in 2012 with the assistance of an International Consulting firm, thereby Sampath Bank becoming one of the first Banks in the country to conduct an independent assessment on its Anti Fraud Programme
the consultants are to be suitably implemented commencing from 2013, making Sampath Bank Compliance Risk Management one of the first Banks in the country to conduct Compliance unit of the Bank headed by the Group an independent assessment on its Anti-Fraud Compliance Officer comprises of the Regulatory Programme, and to implement recommendations. compliance unit and the Anti-Money Laundering Unit. This unit is responsible for ensuring that operating and business units comply with Employee Capacity Building regulatory and internal guidelines in accordance Employee capacity building is a critical factor in with the Bank’s Compliance Policy on a group successful Risk Management and Compliance wide basis. This policy communicates the bank’s thereby creating a culture of Risk/Compliance compliance philosophy, the basic principles awareness. Staff employed within the RMU, governing the compliance function, the broad Compliance Unit and business units have structure and processes to ensure effective been trained on risk/compliance at local and and timely management of Compliance Risk. international courses and also provided in-house The Bank has also established an AML policy training to ensure that there is the required communicating the standards of AML compliance level of knowledge. This is an on-going activity which applies to all business units within the Bank to ensure that there is continuous professional and its subsidiaries. In formulating these policies development and knowledge sharing. the Bank takes in to account the regulatory/ legal requirements, the strategic challenges The Bank carries out a range of capacity building and opportunities that regulatory developments initiatives to ensure that all employees have may present for the Bank’s business model and a high awareness of risk and changes in the how the Bank should discharge its corporate operating and regulatory environment. The Bank responsibility. actively supports and encourages all employees in the RMU to acquire internationally recognised professional certifications in risk management.
Sampath Bank PLC 187 RISK MANAGEMENT REPORT
Compliance Risk Management takes in to account the strategic challenges and opportunities that regulatory developments may present for the Bank’s business model and how the Bank should discharge its corporate responsibility
Regulatory
Industry Best Customer Practice Due- Diligence
Compliance Framework
Statutory Anti-Money Laundering
Know Your Customer
Compliance Unit carries out the following actions requirements with its operations and to manage Compliance Risk in the Bank: ensuring that they operate within the The Compliance Unit adopts a risk based boundaries set by the Bank and the approach to proactively identify, document regulator. and mitigate compliance risk which Facilitates the incorporation of regulatory is inherent in the day to day business requirements into operational procedures, activities of the Bank on a regular basis. The corrective action to remedy instances of regulatory requirements are disseminated non-compliance and to mitigate compliance to the business units for necessary action risk exposure on a regular basis as the business units Submits a monthly Compliance Certificate are responsible for embedding compliance to BRMC covering the following.
188 Annual Report 2012 Compliance on statutory/mandatory reporting requirements
Compliance monitoring on Significant new Regulatory/Anti- regulations/ Money Laundering Compliance Directions Certificate to BRMC
Significant non Training/awareness compliance events. undertaken and/ Regulatory/Potential or identification of breaches training needs
Monitoring and reporting of suspicious in 2011 identify unusual transaction transactions which include large and patterns, suspicious transactions and structured transactions above a specified enable reports to the Financial Intelligence threshold as per applicable regulatory and Unit. internal guidelines. Accordingly accounts Establishing a compliance culture that are categorised as High, Medium and Low contributes to the overall function of prudent risk and a higher level of due diligence and risk management monitoring is carried out in high risk areas. The new AML software solution implemented
Sampath Bank PLC 189 RISK MANAGEMENT REPORT
Key regulatory instructions issued in 2012 and status of compliance within the Bank
Regulatory Requirement Status
Monetary Law Act Order No 1 of 2012 -Ceiling Direction, for licensed banks to limit the growth of their credit in Compliant of credit growth of licensed banks dated 2012 to 18% from the total outstanding of credit as at end of year 12.03.2012 2011 or Rs. 800 million, whichever is higher, whilst, allowing those banks raising funds from abroad to expand their credit by a further 5%, up to 23% of the total outstanding of credit as at end of year 2011 or Rs. 1000 Mn. Threshold age of the senior citizens for CBSL has requested the licensed banks to use a common Compliant transactions, with licensed banks dated threshold of 55 years of age in identifying senior citizens. 19.03.2012 Disclosures in Annual Report-Banking Act Monetary Board’s approval in accepting substitute disclosure Compliant Directions on Corporate Governance dated requirements, in compliance with the directions 3(8)(ii)c and 3(8) 29.03.2012 (ii)g of the Banking Act direction No 11 of 2007 Gazette Extraordinary No 1756/27 dated Amendment to the following rules of Gazette Extraordinary No Compliant 04.05.2012 by Financial Intelligence Unit(FIU) 1699/10 dated 28.03.2011 Payments for Foreign Exchange Trading dated Authorized Dealers were informed that, they should not permit, Compliant 01.06.2012 payments for foreign exchange trading through electronic fund transfer cards or by any other mode of payments, and they should exercise due diligence and be vigilant to prevent such payments
Loans in Rupees to Sri Lankans Employed Authorized Dealers are permitted to extend loans in Sri Lankan Compliant Abroad Rupees, to Sri Lankans employed abroad to be utilized for any purpose in Sri Lanka, subject terms and conditions specified Foreign Exchange Earners’ Account (FEEA) All residents, who earn foreign exchange, are channelled through a Compliant dated 11.07.2012 new account named FEEA was introduced.
Special payments /benefits to Directors at The Monitory Board requirement for licensed banks to obtain Compliant their retirement 17.07.2012 prior approval of shareholders for any special payments/benefits made to banks directors at their retirement in addition to normal remuneration. Banking Act Direction No 1 of 2012 dated Directions on Foreign Exchange Trading Activities of LCB’s Compliant 18.09.2012 Definition of Liquid Assets under Section The monetary Board has determined that the Reverse Repurchase Compliant 86 of the Banking Act No. 30 of 1988, as Agreements in Treasury Bills and Treasure Bonds shall be treated amended dated 15.10.2012 as liquid assets in terms of item (g) of the definition of “liquid assets” under Section 86 of the Banking Act No. 30 of 1988.
190 Annual Report 2012 Risk Register The Bank’s Corporate Risk Register lists the rating considers the impact of the respective risk risks faced by the Bank, action taken to mitigate in the event it occurs and how well the mitigating and minimise the possibility of losses that could measures have contributed to bring down the level arise, and also provides a tracking mechanism for of risk to an acceptable level. Salient Risks are changing impact of various risks. The final risk outlined below.
Serial Risk Factor Impact Risk Management/Assessment Risk Mitigating Factors Risk No Rating
1 CREDIT RISK 1-A DEFAULT RISK Potential loss due to High 1. Key Committees : BRMC, 1. Board approved credit policies/ Medium borrower/ Credit Committees, Credit & procedures, framework, annual review counterparty unable Policy Review Committees 2. Delegated authority levels, reviewed or unwilling to meet 2. Credit Risk Monitoring Unit regulations segregation of duties its obligations. 3. Structured & standardized between loan originator, administration credit sanction process. & risk. 4. Internal Risk Rating 3. Key input from the Risk Department for 5. Pre-Credit Risk Evaluation/ pre/post approved risk Loan Review Mechanism 4. Independent Pre-credit Risk evaluation 6. Post-Credit monitoring by CRM for over Rs. 100 M. 5. Watch listing, EWS – Portfolio management 1-B CONCENTRATION RISK Credit exposure High 1. Review the Bank’s 1. Board approved limits on maximum Low being concentrated concentration in a number exposure guidelines on one or few of areas, such as Top 20 2. Setting of prudential limits, on lending sectors, exposure as a % of total maximum exposure, reviewed annually. groups, insufficient portfolio, Top 20 NPAs 3. Establishment of Risk Appetite diversification product-wise /sector wise Framework region-wise etc. 4. CBSL guidelines - single borrower/ 2. Identify principal risk related party factors which affect the 5. Monitoring of exposure against the portfolio and required to be limits and NPAs on MOM & YOY basis. stressed. 6. Trends analysis reported to BRMC. 3. Concentration risk assessed 7. Stress testing/Sensitivity analysis based on HHI results reported to management / BRMC on quarterly basis for necessary action.
Sampath Bank PLC 191 RISK MANAGEMENT REPORT
Serial Risk Factor Impact Risk Management/Assessment Risk Mitigating Factors Risk No Rating 1 CREDIT RISK 1-C COUNTRY RISK The exposure to a Low 1. Sovereign Risk rating 1. Limitations on lending/caps on lending. Low loss in cross-border 2. Monitoring of specific 2. Monitoring of country-wise exposure lending, caused by sanctions on countries events in a particular 3. Assessment of the political country. & economical situation 2 MARKET RISK The Risk that the High 1. Asset & Liability Committee 1. Treasury and Market Risk Management Medium value of ‘on’ or (ALCO) Policies to reflect regulatory ‘off’ balance sheet 2. Setting-up of Middle Office requirements positions will be separated from 2. Articulate Bank’s view on various adversely affected by Treasury market variables. movement in equity 3. Board approvals for Treasury 3. Track magnitude of market risk prices, interest Activities 4. Stress Testing rates ,foreign 5. Staff skills development on Scientific exchange rates and Risk Measurement techniques commodity prices 2-A FOREIGN EXCHANGE RISK Risk of losses High 1. Board approved limits on 1. IT System in place enables tracking and Medium arising from open positions, gaps etc monitoring exposure unhedged foreign as per CBSL requirements 2. Monitoring exposures by Middle Office exchange positions depending on the capital & 3. Monitoring of forex exposures with and poor treasury risk management capability. preparation of maturity of assets & controls 2. Segregation of liabilities responsibilities between 4. Revaluation and Mark to Market Front Office, Middle Office & analysis Back Office. 5. Stress Testing 2-B INTEREST RATE RISK Adverse effects due Medium 1. Policies / prudential limits 1. Maturity gap analysis (various time Low to interest rates re. maximum maturity, bands) – residual term maturity (Fixed movement on NIM duration, stop loss etc. Rate) / or next re-pricing (floating rate) (Net Interest Margin) 2. Policies & prudential limits 2. Reporting & analysis at ALCO 3. Stress Testing and Scenario Analysis
192 Annual Report 2012 Serial Risk Factor Impact Risk Management/Assessment Risk Mitigating Factors Risk No Rating 2 MARKET RISK 2-C EQUITY PRICE RISK Adverse movements High 1. Equity Performance / 1. Return of equity portfolio / movements Low in stock market Portfolio in stock market closely monitored 2. Investment Committee 2. Mark to market of the investment portfolio 3. Stress Testing 2-D LIQUIDITY RISK Inability to meet High 1. Measurement through key 1. Reporting to ALCO, analysed and Medium obligations as and ratios such as Net loans to decisions taken at ALCO. when they fall due Assets, loans to customer 2. Evaluation of liquidity profile under deposits, liquid assets to various stress situations. Short Term liabilities etc. 3. Preparation of contingency plans 2. Preparation of maturities 4. Availability of back-up liquidity support of Assets and liabilities in the form of committed lines of credit statement into various time bands 3. Fixing of prudential mismatch limits 4. Measurement of liquidity in all major currencies. 2-E CAPITAL RISK Risk of insufficient High 1. Capital adequacy ratios 1. Fluctuation in capital Adequacy ratios Medium capital resources, computed regularly. are monitored (Finance) to ensure the Bank 2. Stress testing under various 2. Depending on the outcome, capital is well capitalized adverse scenarios augmentation measures are put in relative to the place (Finance/ALCO) minimum regulatory 3. Economic Capital Calculation under requirements Internal Capital Adequacy Assessment Process (ICAAP)
Sampath Bank PLC 193 RISK MANAGEMENT REPORT
Serial Risk Factor Impact Risk Management/Assessment Risk Mitigating Factors Risk No Rating 3 OPERATIONAL RISK The risk of loss High 1. Adequacy & effectiveness 1. Operational Risk Policy, reviewed Low resulting from of operational Risk Policies annually. Updated when required. inadequate or regularly assessed by Risk 2. Comprehensive operational loss failed internal Management Unit database is in place to track losses by processes, people 2. Managed by business units incident type and business line as per and systems or from in accordance with internal Basel II external events. This control requirements. 3. Operational Risk Appetite Limits defined definition includes and approved by the Board. legal risk, but 4. Material losses regularly analysed excludes strategic by cause & action taken to improve and reputational system and controls to prevent future risks recurrence 5. Risk review on new products, processes, external suppliers/ outsourced service providers. 6. Risk Management monitoring through newly installed Operational Risk IT System 3-A PEOPLE RISK Lack of appropriate High 1. Manpower planning in line 1. HR Policies Medium human resources, with expansion & changes in 2. Review of annual rewards & employee failure to manage business requirements. benefits performance 2. Recognition of specialized 3. Training and reward link, skills 4. Grievances handling mechanism unauthorised or 3. Recruitment, Pre 5. Disciplinary procedures inappropriate employment screening, 6. Succession & development plans employee activity employer feedback 7. Anti-Fraud assessment by independent and failure to 4. Quarterly reviews/ International Consultancy Firm. comply with assessment of performance employment related 5. Exit interviews requirements.
194 Annual Report 2012 Serial Risk Factor Impact Risk Management/Assessment Risk Mitigating Factors Risk No Rating 3-B TECHNOLOGY RISK Risk arising from High 1. Technology planning is 1. Based on the outcome of the Medium non -availability of IT conducted during the annual systems audit, necessary controls systems, systems strategic planning. are implemented before live breakdowns and 2. Perform systems audit implementation. disruptions, or not for each & every system 2. External vulnerability assessment keeping in line before deploying into the carried out by a Specialised Consulting with the trends in production environment company. technology and 3. External/Internal 3. IT policies/ procedures investment in delivery channels. vulnerability assessment latest technology, IT systems, ensure with risk management. competitive advantage. Process of identifying and 4. Back-up & disaster recovery, planning & assessing risk. testing. (BCP) 4. Bank’s IT Department/ Steering Committee together with the business lines, continuously review and analyse new cost efficient delivery channels. 3-C LEGAL RISK Risk arising from High 1. Independent Legal 1. Policies & procedures in place to Low litigation against department ensure that proper framework in place the Bank, faulty 2. Specialist legal advice 2. All legal documents/ documentation obtained from external Service Level Agreements are Business not being consultants on a need specifically approved by Chief Legal conducted as per the basis. Officer & also signed off by Risk & applicable laws 3. Adequacy & effectiveness Compliance. of the controls reviewed by 3. Company Secretary function/ Legal department compliance to ensure compliance with specific regulatory requirements.
Sampath Bank PLC 195 RISK MANAGEMENT REPORT
Serial Risk Factor Impact Risk Management/Assessment Risk Mitigating Factors Risk No Rating 4 REGULATORY COMPLIANCE RISK * Failure to comply High 1. Managed by Compliance 1. Compliance Policy Medium with the laws of the Unit. 2. Anti Money Laundering Policy country (regulatory/ 2. Well structured compliance 3. Compliance programme/Assessment of statutory) where framework to carry out this compliance risks business operations function, which includes 4. Quarterly sign-offs to the Board of are carried out Anti-Money Laundering Unit Directors on regulatory /statutory including risk of non to ensure adherence to the requirements/returns adherence to Anti- FIU (Financial Intelligence 5. Monthly compliance certificate to BRMC Money Laundering Unit) requirements. including all significant non-compliance regulations. 3. The Bank has implemented issues. the Software System for 6. Compliance sign-off on all new Products AML monitoring during /procedures / processes. 2011. 7. Sample testing 8. Dissemination of regulatory directives through internal circulars 9. Transaction monitoring and submission of reports to FIU 10. Regular training 5 STRATEGIC RISK Failure to manage Medium 1. Bank’s 2-3 year strategic 1. Regularly monitoring by business line Low medium / long-term plan covering all business heads/Planning Division strategic goals of the units approved by the Board. 2. Monthly / quarterly reporting of business assessment of the stages achieved, submitted to the Board of Directors for review. 3. Review actions/ plans depending on the outcome and any external, economic environment changes.
196 Annual Report 2012 Serial Risk Factor Impact Risk Management/Assessment Risk Mitigating Factors Risk No Rating 6 REPUTATIONAL RISK Negative effects High 1. Timely & efficient 1. Timely and accurate financial reporting Low of public opinion, communications among all 2. Code of conduct for Board/ customer opinion stakeholders. management/dtaff and market 2. Corporate Governance 3. Comprehensive internal control system. reputation and the practices 4. Compliance Structure damage caused due 3. Board approved complaint 5. Responding promptly & accurately to to brands by failure handling policy in terms of the regulator / customer. to manage public the customer charter as per 6. Customer response and grievance relations. CBSL guidelines. handling programme. 4. Procedure for receiving 7. Business Continuity Planning customer complaints and 8. Training on improving customer service resolution mechanism is in and effective communication. place. 9. Whistle Blowing 5. Complaints and process of resolution relating to operational risk / compliance if significant is escalated to corporate management / Risk Committee.
Sampath Bank PLC 197 198 Annual Report 2012 Sampath Bank PLC 199 SUSTAINABILITY REPORT
“our strategy as our growth is driven by our aspiration to be a National Bank in Sri Lanka in the true sense which caters to all sectors, segments and communities on a uniform and consistent basis throughout the country.”
MD’s Message Sustainability at Sampath Bank is about doing the business of banking in a responsible and In addition, doing business in a responsible inclusive manner based on sound principles and manner, we also believe that we have a best practices to provide sustainable growth responsibility to society and the environment in in earnings and wealth to our stakeholders. which we operate which looks beyond the business Internally, it is about integrating sustainability goals to the stewardship of the resources and principles in to everything we do in the Bank, capabilities that we have built up. We have carried whether it is the design of a branch or how we out a number of community projects through our increase our capital. Our heritage of being a bank branches in discharge of this responsibility to that is close to the grass roots has created a make a positive impact to communities that we culture of taking a balanced approach to decision operate in. We have also carried out a national making and problem solving which is now being awareness project together with the Ministry of explicitly stated in the policies that are being put Environment and the Ministry of Education to in to place. carry out a waste management and tree planting campaign in schools using our branch network “The principle that Engagement with our stakeholders to identify and providing finances for the project. We value we need to improve their varying needs is the basis for our strategy and appreciate the employees’ enthusiasm in our customers’ as our growth is driven by our aspiration to be a formulating these projects and carrying them out national bank in Sri Lanka in the true sense which as it is their commitment that makes Projects quality of life has caters to all sectors, segments and communities successful. been a key driver in on a uniform and consistent basis throughout the development of the country. Through our branch expansion The adoption of GRI Guidelines provides us a our products and programme we have covered most of the country framework for reporting our initiatives to improve delivery channels in to enable us to reach communities which are the way we impact our key stakeholders and the under banked. We have designed products communities we operate in. We are committed recognition of their tailored to needs of specific regions to help them to continuous improvement in our systems and needs to suit a busy overcome obstacles which previously excluded processes to achieve the sustainability goals lifestyle.” them from mainstream banking. The principle we have set for ourselves and look forward to that we need to improve our customers’ quality of setting new goals at the end of the year which life has been a key driver in the development of are broader and even more challenging. We invite our products and delivery channels in recognition our stakeholders to engage with us by sharing of their needs to suit a busy lifestyle. We have their views, concerns and suggestions to improve supported national priorities and also engaged the way we impact them and in shaping our in public-private partnerships that helped to drive sustainability agenda. the country’s economic growth. Introduction of environmental criteria to our project financing facilities and training to our credit officers in environmental assessment aspects ensures that Aravinda Perera Managing Director we lend in a responsible manner in accordance with sustainability principles. 22nd February 2013
200 Annual Report 2012 Award received Mr. Ihalalanda from Governor of CBSL Mr. Ajith Niwad Cabral at Award ceremony of Lanka Mr. Dammika Perera and Mr. Aravinda Perera with The World Finance Award for Best Clear Ltd. Banking Group in Sri Lanka 2012
Awards Won for About Sustainability Reporting Annual Reports This is our first Integrated Report combining We are indeed proud to announce that, the financial, social and environmental performance following prestigious International and Local for the year ended 31st December 2012. We seek awards were Secured by our Annual Report 2011- to present our business strategies, governance, Riding the Wave- risk management and other relevant factors that shape Sampath Bank’s performance to enable a) GOLD Winner- International ARC Awards our stakeholders to be better informed about of USA, 2012 for Financial Data ; Banks- their interactions with the Bank. This initiative National category follows three years of producing separate Annual Reports and Sustainability Reports, of which the b) GOLD Award - Chartered Accountants most recent was for the financial year ended 31st (CA) 2012 Annual Report Awards for December 2011. Management Commentary–Overall category
c) Lanka Clear Limited Awards 2012 Sampath Bank won two prestigious awards from the award ceremony of Lanka Clear Ltd Highest outward volume contributor in SLIPS Bank with the highest growth rate in SLIPS
Sampath Bank PLC 201 Sustainability Report
Sampath Bank adheres to the internationally recognised Global Reporting Initiative Sustainability Reporting Guidelines which is a voluntary standard comprising a set of indicators for economic, environmental and social aspects of business performance that the severity of impact and the probability of enables company’s stakeholders to compare occurrence in assessing the materiality of issues companies’ performance. We have used the G3.1 discussed in the report to ensure that our report Sustainability Financial Services Sector Supplement guidelines remains relevant, complete and concise. and a Compliance Index is provided for easy The materiality of the social and reference on pages 257 to 271 of this report. Our Information on Governance and Risk Management environmental issues presented disclosures have been drawn up to an Application of the Bank are detailed in separate segments in the Sustainability chapter of the Annual Reports determined Level B+ according to the criteria set out in the included in this Integrated Report and are not duplicated in this segment. The Management based on the initiatives and guidelines. processes in place within the Discussion & Analysis preceding the Sustainability Bank to improve our stakeholder The Bank’s Financial Statements for the year ended Report also contains information relevant to inclusiveness and have been individually identified for custom- 31st December 2012 have been audited by Ernst stakeholders including commentary on our economic performance. References to relevant ers, shareholders, employees, & Young who have also provided assurance on the suppliers and society. social and environmental information presented sections of these reports are provided in the GRI in the Sustainability Report for the year ended Index for the convenience of our readers. 31st December 2012. The Financial Statements, Accounting Policies and significant assumptions This report is translated in to Sinhala and will used in the preparation of the financial statements be circulated to shareholders based on their for the Bank and the Group are set out on pages preferred language. Tamil translations of the 292 to 318 of this report. The environment, social Chairman’s Message and the Management and governance information relates to the Bank, Discussion and Analysis are also available to our excluding its subsidiaries and is derived mainly shareholders who request for it. from factual records maintained by the Business Units using standard measurements and does Outlook not require assumptions or complex calculations Going forward, we will continue to provide to be performed in this regard. economic, social and environmental information in a single integrated report on an annual basis The materiality of the social and environmental in English and Sinhala with selected excerpts issues presented in the Sustainability chapter in Tamil to facilitate better engagement with of the Annual Reports determined based on the our stakeholders and for the inclusion of all initiatives and processes in place within the Bank communities, irrespective of their preferred to improve our stakeholder inclusiveness and language. We will also review the proposed have been individually identified for customers, Consultation Draft of the International Integrated shareholders, employees, suppliers and society. Reporting Framework scheduled for release in Society includes the communities we operate in, April 2013 to incorporate recommendations in our the Government and media. We have considered next Integrated Report. As sustainability Reporting
202 Annual Report 2012 evolves, we are committed to making the changes principles are embedded within the organisation necessary to remain on par with international through the strategy formulation process and best practice in Sustainability Reporting. communicated throughout the organisation by way of meetings, communiqués and training. We Sustainability at Sampath Bank believe that creating a culture of awareness and Our approach to sustainability is based on our responsiveness to the needs of our stakeholders 5E model that balances our organisational is a key to our relevance and sustained growth, goals with national priorities, needs of our enabling us to stay ahead of the curve. stakeholders and international best practice. This has evolved from a 3E model in 2010 to a 4E model in 2011 to what it is today. Sustainability Our sustainability vision is aligned to our strategic goal to become the growing force in financial services. Corporate Responsibility has changed from a philanthropic focus to a strategic approach where sustainability principles are integrated with D business strategy to take a long term view of able evel issues that impact our key stakeholders creating ain opm st a competitive advantage for us in the long term. u en S older Mana t eh ge ak m Sustainability Governance t e S Ethics & n Sustainability within the Bank is driven by a Values t Sustainability Committee which comprises Entrepreneur Development members of the Corporate Management Team s C e i u
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We believe that our commitment to doing business in a responsible manner through aligning our strategy to the needs of stakeholders and national priorities has served us well in our 25 year history and that this characterises who we are today.
Outsourcing Policy Measure the carbon footprint of the Bank The Bank does not outsource core banking with a view to setting goals and targets to services but several other services are outsourced minimise the negative impacts of emissions and managed within the Outsourcing Policy of the Establish a separate web portal for Bank which complies with the guidelines issued sustainability accessible to all stakeholders, by CBSL. The policy addresses the criteria for globally and locally selection of areas for outsourcing, selection of Engage our employees in creating a service providers, regular reviews of outsourced culture that embraces the principles of activities and execution and monitoring of sustainability through the newly established Service Agreements. The outsourcing activities Sampath Nature Protection Club are approved by the Outsourcing Management Committee of the Bank. The following activities Responsible Business Practices are outsourced by the Bank: The headlines in the global financial arena in Security arrangements for premises and 2012 have been dominated by the failure of cash transportation financial institutions to conduct business in a Building maintenance and janitorial services responsible manner. These failures highlight how Maintenance of computer hardware and the lives of customers, governments, employees, other IT support services shareholders and communities are negatively Courier services within the Branch network impacted by such failures and we believe that Printing and dispatch of cheque books and focus is needed on this very simple and basic bank statements concept. Responsible business practices ensure Canvassing for new credit card applications that we take in to account the long term and Document storage and scanning short term consequences of our actions on our Delivery of Credit Cards stakeholders and overall, the reputation, stability and growth of the Bank. We believe that our Future Outlook commitment to doing business in a responsible Whilst we have made satisfactory progress on a manner through aligning our strategy to the number of fronts as detailed in the Sustainability needs of stakeholders and national priorities has Supplement, there is more to be done. Our served us well in our 25 year history and that this sustainability goals for 2013 and beyond are as characterises who we are today. follows: Increase the scope and boundaries of the Sustainability Report to include all branches in the environment reporting indicators Explore avenues to finance green investments
204 Annual Report 2012 Responsible Business Practices Reaching diverse markets SME growth Mobile Banking ATMs Online banking Customer Charter Environment Business Achieving Outcomes Employee Development Risk Improved Management
Inclusive Innovation to support Responsible Stability & Growth Banking needs Banking
Inclusive Banking Innovation to Support Needs Inclusive banking is a national priority to address We have a diverse clientele with varied needs regional economic imbalances in the country and and lifestyles who have their own preferences in for continued peace. It must include not only the conducting banking transactions. These vary from rural communities but also the low income groups the traditional friendly personalised services at in the urban townships and the entrepreneur who the local branch to mobile banking. As electronic is just starting out. As our country’s infrastructure devices have become a part of everybody’s life, develops around the country, we are laying the technology enables us to provide the same ease foundations to reach out to all communities of transacting across a wide range of appliances through a multitude of channels that add taking convenience to each and every business convenience to their lifestyle. and household. Although these channels are under utilised at present, we strongly believe that Reaching Diverse Markets this is the future of banking for all levels of the Continue with Annual report page No 408 to 412. pyramid as it addresses many needs. We have a responsibility to provide our customers and communities with solutions that take in to account SME Growth these needs and our investment in information Refer Annual report page No. 20 to 21. technology provides us with the means to do so in a cost effective manner.
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Mobile Cash SMS Alerts The new and improved Sampath Mobile Cash SMS Alertz is a messaging facility, which will enables anyone to send up to Rs. 200,000/- dispatch customer account transactions via SMS daily over any Mobile or CDMA network to anyone, to their mobile phones, based on predefined anywhere in Sri Lanka! Beneficiaries/recipients parameters are notified instantly on the transaction via Sampath SMS Alertz, There is no requirement of a pre-registration to send or receive money. Money can be collected instantly from any of Sampath Bank’s island-wide branch network or from any Sampath Bank ATM island-wide, 24-hours a day, 365 days a year. We believe that this product has the potential to change the way people do the business of banking whilst increasing the relevance of banking in their lives in a cost effective manner.
206 Annual Report 2012 industry Tele Banking ATMs Our Telebanking service is extensive, Having introduced the concept of ATMs to Sri leadership comprehensive and is designed to offer customer Lanka in 1987, revolutionizing the country’s the opportunity to do their routine banking from banking industry, we subsequently, pioneered the We continue our industry any phone. You may reach the closest telephone ATM Network Sharing concept, connecting over leadership in bulk note deposits and dial 0094-011-2303030 to obtain above 1600 ATM’s locally. Substantiating a huge saving 09 ATM machines and on-line facility for customers in the form of fees paid to foreign real-time Cheque Deposit System through Easy Cheque financial institutions for ATM usage. This year we Deposit system ATMs. added 03 ATMs to our network and Nations Trust Bank also signed up as a partner. HNB, BOC, Union Bank, DFCC Vardhana, NSB, NDB Bank, HDFC and PABC continue as partners in the Sampath Interbank Link which now has a total of 10 banks accounting for our ATM market share. Sampath Bank will continue to expand its network through partnerships with other financial institutions and give customers more opportunities in order to live up to its promise: ‘we create time for you’.
We are proud to have initiated this ATM sharing network and believe this is another example of how we aligned the Bank strategy to national priorities as it enables the participating banks to provide cost effective services to their customers and save foreign exchange as the industry pools resources to create a more geographically dispersed infrastructure for inclusive banking.
We continue our industry leadership in bulk note deposit through 09 ATM machines and on-line real-time Cheque Deposit System through Easy Cheque Deposit system ATMs.
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...specific access of wheelchair constructed where it necessary. We plan to increase this ratio with a goal of achieving 95% coverage over the next 2 years.
Sampath Vishwa Sampathnet
E-Remittances Online Banking Sampath PayEasy
DC Direct Sampath Payment Gateway
Online Banking expatriates to send money home to their families Our online banking services enhance our mass through the web service introduced to integrate scale inclusive banking capabilities. There global exchange houses and international are positive impacts on the environment as remitting service companies with the Bank. DC customer’s travel less if they use online banking Direct facilitates submission of documentary services. Socially, online banking enables credits and amendments online. inclusive banking and enhances the lifestyle of customers as they spend less time on mundane We pioneered the Internet Payment Gateway for transactional activities. Sampath Vishwa offers a e-government services in partnership with the complete online banking experience for regular Information Technology Agency (ICTA), aligning banking services. Sampath PayEasy is a payment our business strategy with national priorities. Our portal for utility bills offering ease of payment to service delivery platform, Lanka Gate continued customers whilst e-wallet enables them to store to successfully manage e-revenue licensing funds their credit or debit card information securely for the Ministry of Transport and a seamless for online payments. Sampath Payment Gateway transaction processing and reconciliation link with (SPG) enables businesses to sell their products the Department of Immigration and Emigration to or services online through a secure payment manage payments related to online visas. gateway. E Remittances enables Sri Lankan
208 Annual Report 2012 our customers with special attention to the needs of specific groups of customers. Accordingly, over 17% of our branch network is accessible by wheelchair with specific access constructed where necessary. We plan to increase this ratio with a goal of achieving 95% coverage over the next 2 years. We are particularly conscious of the need to explain clearly the financial products and services we offer to those customers with low literacy and our staff are encouraged to facilitate their understanding as we believe this is the way to retain customers.
Environment Concerns We have formulated an environment policy and six eco guidelines that shape the way we work. During the year we trained Regional Managers and Credit Officers to conduct environment appraisals competently and disseminate the knowledge gained through the branch network through a Responsible Banking certificate programme on Environmental Appraisal We are conscious that banking must be fair to our conducted by the Institute of Environmental customers and that we have a duty to ensure that Professionals of Sri Lanka. We also included project financing conforms to strict environmental environment criteria in our credit assessment criteria. We also believe in empowering the criteria integrating our environment policy and eco communities in accordance with our 5Es model guidelines in to our business framework it describe and have incorporated these principles in to how under supporting the environment through lending we do business at Sampath Bank. page No 252. Our commitment to technological innovation has enabled us to reduce consumption Customer Charter of natural resources not just for the Bank but in Our customer charter is published in all three the daily lives of our customers, employees and languages and explicitly sets out our commitment our Board of Directors. We are encouraged by to do business in a fair and transparent manner the progress achieved to date and look forward and also states our obligations to the Customers. to continuing and enhancing our initiatives to The adoption of the charter protects the rights of protect the environment. Further information on the customer and ensures a consistent standard our actions is given on pages 247 to 252. of service throughout our branch network for all
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Stability & Growth Stability of Sampath Bank depends on its growth in size and earnings combined with sound business practices that are implemented throughout the organisation by a motivated and knowledgeable staff.
Achievement of business outcomes
We ensure the achievement of our long term strategic goals and annual targets through a rigorous strategic planning and performance management process that cascades from the Board of Directors to each individual employee through established reporting lines. The annual targets are adjusted through this process to reflect changes in the operating environment At branch level Training and strategic direction where appropriate. Our performance this year outlined on pages 06 to 11 is evidence of our commitment to achievement of Improved Risk Management Risk defined strategic business outcomes despite the Risk Management is a key to our long term substantial changes in measurement of income growth and is a rapidly evolving area in the wake Management and profits due to implementation of IFRS. of global shocks to the financial system. We are near completion of Basel II requirements and are Risk Management is a key to ahead of the CBSL timeframes for implementation our long term growth and is a Employee Development rapidly evolving area in the wake of the same. We strive to adopt international best The Bank has a strong learning and mentoring of global shocks to the financial practices in to our Risk Management systems and system. culture that enables our staff to grow, develop governance structures and these are described in their careers and ability to realise their career detail in the Risk Report on pages 152 to 153. aspirations by aligning their personal goals with the goals of the Bank. Having a skilled, empowered and motivated staff has been one of our greatest assets and we are committed to their development. Our initiatives in this regard are discussed comprehensively on pages 210 to 229.
210 Annual Report 2012 Stakeholder Rights Management Increasing Framework Approach shareholder-wealth
Every shareholder and Our policies and strategies Maximizing shareholder investor of Sampath Bank are formulated to deliver value and market has the right to expect the premium value and sustain capitalization Bank to enhance long growth. term shareholder value and Proactive initiatives facilitate an environment From a pay-for-performance implemented based on in which they can exercise culture to prudent banking investor relations their rights. strategies to increase shareholder wealth, reinventing our products and services, and an aggressive expansion plan: are all geared to ensure sustainable growth while creating greater wealth to all our stakeholders
Stakeholder Management Understanding and being responsive to needs of our stakeholders are keys to our overall strategy and identifying emerging trends that shape our future. We recognise that early identification and addressing these needs gives us a competitive edge in business and is the only foundation for sustainable growth of Sampath Bank. Our heritage is steeped in the identification of stakeholder needs and whilst our vision has expanded and grown to adapt to the modern needs of a country that is poised for economic resurgence, identifying
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Today our customers can choose to interact with us through internet banking, mobile applications or over 1600 ATMS island-wide as a result of our efforts.
Helping hand from Kirulapone Branch Engaging-in with National Priorities
stakeholder needs remains top priority for us. We have a range of channels and mechanisms for gathering and monitoring feedback from our diverse stakeholder groups which are described below. Our Shareholder Relations Committee, a first in the entire corporate sector in Sri Lanka, is an example of our commitment to the principle of stakeholder engagement.
Ethics and values programme- Dankotuwa Branch
212 Annual Report 2012 Stakeholder Primary Engagement Needs Identified Stakeholder Management Framework Mechanisms
Employees Team Briefings, Employee Development Staff has the right to expect a work suggestion schemes, Retention ethos that is committed to build an Grievance Reporting Procedure Responsible Business Practices environment where people can make Performance enabling environment a difference, both as individuals and Social Responsiveness as part of a team Customers Tracking, analysis and giving Responsible business practices Every customer has the right to expect feedback to complaints Customer service a sound, high quality, progressive and received via our call centres Convenience of transacting friendly place to conduct banking Improving financial inclusion, education and advice Communication in language of choice Shareholders Shareholder Relations Forum Growth and stability of company and The Bank is committed to enhance conducted by the Shareholder earnings long term shareholder values and Relations Committee of the Wealth management facilitate the exercise of shareholders’ Board, Responsible business practices rights Preferential treatment Communication in language of choice Transparency in governance and business Government Meetings, policy trend analysis Stability and growth of financial sector The Bank is committed to meet & Regulators and industry forums Responsible Business Practices its corporate responsibility and Alignment of national priorities in decisions on social and economic lending strategy issues concerning activities of the Financial inclusion Bank are developed and adopted Compliance with regulatory direction by its governance bodies with the and contribution to on-going dialogue participation of Bank personnel. on financial sector reform Value addition Community Local branch engagement, Responsible business practices media, Community Development Community Empowerment Employment Suppliers Regular meetings, written Business growth and Service communications Responsible Business Practices Providers Ease of transacting Strategic partnerships
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The retention rate is high at 96% which is testimony to the satisfaction levels amongst our team members.
Employees Sampath Bank employs a dynamic team who The Growing Force in Sri Lankan serve in head office and in the branch network island-wide, providing us with a competitive edge Financial Services in achieving the strategic goals of the Bank. We recruited 368 new team members in 2012 out of which 233 were to fill new positions during the year. Our talent pool has grown by 6.97% this year to facilitate the consolidation process consequent to our accelerated growth of the past three years. The Bank has invested Rs. 35 Mn Teamwork Professional Standards Learning Culture on training and leadership development which Customer Focus Performance Culture covered 86% of our team members. The retention rate is high at 96% which is testimony to the Winning Culture satisfaction levels amongst our team members. The HR & Remuneration Committee of the Board has oversight responsibility for the functions of Transparent & Consistent HR Policies the HR Department, annual plans and policies. Recruitment of key management personnel are Sampath Values approved by them.
Stakeholder Rights Management Approach Framework
Every employee of the We believe that the key to our success and competitive advantage is our Bank has the right to unique team commitment to continuous improvements and results. expect a work ethos that We design our HR policies based on strategic business needs and develop is committed to build an our human resources to go that extra mile to achieve organisational goals. environment where people Robust training and career development has enabled us to retain the best can make a difference, both of talent. as individual and as a part Our expansion plans for the year ahead will create many horizontal of a team. and vertical opportunities, for which we have adopted HR management strategies that will; I. Recognize the most competent people and build a HR pipeline that can cater to our business expansion plan, II. Develop partnerships with employee representatives to make them accountable for the business, III. Make managers accountable and responsible for their work, Team development IV. Create a performance driven work culture, and V. Improve the efficiency of the entire HR processes.
214 Annual Report 2012 Overall Human Resource Policy
Training & Recruitment Employee Recognition Industrial Development Transfer Policy Policy Relations Policy Policy Relations Policy Policy
The internally developed HR model encapsulates Engaging Employees the Vision and the Values of the Bank and provides In addition to the primary engagement mechanisms a framework for HR planning and activities. described in Stakeholder Management on page 214. We also engage with them in other ways Our HR policies are designed to develop our talent described below to address their information pool to meet strategic business needs and provide requirements and engage their interest in making a performance oriented work environment. Sampath Bank a great place to work. Managing Director addresses all team Majority of team members are located outside the members on the first working day of the year head office. Therefore we introduced the Regional and share the future plans for the Bank over HR Coordinator Programme which is an innovative the next 12 months. process to reach each individual team member Opportunities are available for members in order to develop seamless partnerships with of the staff to meet the Managing Director them to proactively recognise their specific or any senior member of the management issues, potential etc and provide HR solutions as to provide suggestions and discuss their appropriate. issues. Quarterly results of the Bank are circulated During the year, we have implemented changes to all staff to keep them apprised of financial to the organization structure in order to facilitate and non financial position of the Bank and continuous leadership pipeline for growth of the how the Bank has performed against key bank. The Performance Management System indicators. was revised for grades above the Executive level Large numbers of team members are further enhancing the performance based culture. shareholders of the Bank and they get the The Human Resource Information System (HRIS) opportunity to air their voices at the Annual implemented in 2011 has enabled us to improve General Meeting. the efficiency and effectiveness of HR processes All team members are provided with intranet including identification of training needs, facilities and E-learning systems to increase recruitment, transfers, payment of benefits, leave the ease of communication, knowledge management etc. sharing and knowledge management. HR policies are documented and available online and awareness of these is created at recruitment and promotions.
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Sampath Sandeshaya, a quarterly newsletter updates team members on We aim to be an employer of choice, an employer that events and achievements of the Bank and cares about the progress of the careers and lives of its employees. its Team members. Our performance based remuneration and reward Diversity scheme is on par with the industry. We are an equal We are an equal opportunity employer with regard opportunity employer when employing staff, creating to recruitment and career development irrespective career opportunities and in setting the path for career of gender, race and religion. Remuneration levels progression. reflect the responsibilities, roles and performance and are neutral as to gender, race and religion. Management Approach There is a gender representation across all levels of employment with a higher proportion of women in our workforce than seen in the total Sri Lankan workforce as per the survey of the Sri Recruitment Lankan Labour Force for the 2nd quarter 2012. We recruited 368 employees during the year Our workforce includes ten differently-abled mainly to fill new positions created as a result team members whose needs are given special of our growth. Our Recruitment policy aims to attention and extra care to support their social fill vacancies first from within the Bank and then and recreational activities. provide opportunities for local hiring wherever possible. During 2012 over 90% of vacancies in Industrial Relations senior positions were filled by internal candidates. We adopt different recruitment methodologies The Bank conforms to local labour laws and selection techniques to attract and select the and Guidelines of the International Labour best talent in the market. Organisation (ILO) which promotes best practices in labour management, decent work and human rights. Further, as a continuous process, we Career Development benchmark best HR practices in relation to Our HR policies aim to align the career progression Industrial Relations. We do not employ persons of our staff members in line with strategic under 18 years of age and do not condone the requirements of the Bank. use of forced or compulsory labour within the Bank or in our engagements with stakeholders. Sampath Bank Employees Association (SBEA) Training & Development represents over 90% of employees. Corporate Based on the Training & Development Need Management conducts monthly meetings with Analysis, Annual Training Plan is prepared in them to address matters of mutual interest going order to implement and monitor training and beyond the collective bargaining mechanism. We development programs effectively. encourage an open door communication policy within the organisation to identify issues that may Varieties of training channels are deployed arise which require attention. in order to deliver training. These channels encompass internal training, external training,
216 Annual Report 2012 Knowledge and development, recognition and rewards are an integral part of being employed with us. We allow our employees to realise their professional and personal goals through a systematic and comprehensive plan. Competency Mapping is a pioneering initiative adopted by us to map out the competency profiles for each job. It provides the basis on which competency gaps are identified and training initiatives designed to suit individual and team needs. We also believe in creating opportunities for career progression by encouraging our staff to work in cross- functional teams and to take-up challenging assignments. Our commitment to retaining the best is probably one reason for our staff turnover ratio of a mere 4 %,
Management Approach which is lower than the industry average.
In 2012, we uploaded new animated e-learning modules under Teller Operations and Accounts Opening Operations. These modules are consisted with operational procedures, system demonstrations and best practices to enhance customer service. E-learning enables to reach a greater number of team members at once and provide them the opportunity to learn at their own pace.
Additionally, continuous programmes such as (Sampath Bank Toast Masters Club) “Make Your Mark” organized by SBTMC provides a learning environment for communication and leadership skills development.
Benefits We provide a host of benefits to staff in addition to statutory benefits as appended below. Training in progress Pension Plan Employee Share Ownership Plan overseas training and e-learning. Latest addition Productivity and profit related bonuses is the Regional Training where we discuss regional Staff loan schemes on special interest rates specific training requirements and deliver training to cater to the needs of team members which in a favourable location in the Region especially in encompass vehicle, housing, education, outstation and difficult areas. marriage etc. Staff loan schemes for expenses related to childrens’ education, urgent family medical expenses, and for family bereavements
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Comprehensive medical scheme Payment of fees for professional education, training courses and examinations Fully furnished staff quarters, travelling and accommodation allowances for staff attached to outstation branches Fully furnished Holiday Bungalows.
These benefits are not provided for trainees and contractual members of staff.
Work Life Balance We have given an utmost priority to enhance work life balance of our team members which is essential to realize mutual objectives of the Bank and the team members. In relation to this aspect we have introduced an allowance Marketing Campaign in Kegalle Branch for team members to encourage them to utilize their annual holiday leave. With the current trend of extended banking hours, we have introduced work rosters for identified business units to ensure that there is adequate time to attend to personal and family needs. “Sampath Dehena” is a monthly programme where employees discuss topics of common interest outside banking with external specialists.
Further we encourage our team members to improve and showcase their talents in other areas. We support outstanding achievers in the field of sports to reach higher and also encourage our sports teams to represent the Bank in mercantile and international tournaments. The Fourth “Sampath Tharu” was staged at Nelum Pokuna in 2012 to provide an incentive to develop their performing talents. We conduct annual events for team members and their families such as Sampath Nite, Sampath Pola, Sampath Family Day and Vesak Bhakthi Gee”. Sampath Bank Annual Cricket Carnival
218 Annual Report 2012 Annual Trip- NSC Team- Habarana HR Department Premier League
Sampath Tharu held at Nelum Pokuna Sampath Tharu held at Nelum Pokuna
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Sampath “Vesak Bhakthi Gee” Sampath Bank 25th Anniversary Pirith Ceremony
Occupational Health & Safety Employee Information – Statistical Analysis We maintain a zero accident work environment due to measures taken to provide a safe work Employees Analysed By Category And Gender as at 31st December 2012 environment for our team members. These Male Female Total include: Maintaining a hazard free environment Corporate Management 11 2 13 Business Continuity Plan that addresses Senior Management 58 12 70 potential emergencies Co-ordinators at branches and each floor Executive Management 74 25 99 at Corporate Office responsible for creating Middle Management 363 158 521 awareness of safety Junior Management 491 203 694 The services of a dedicated Security Operational Staff 1069 778 1847 Consultant to ensure that arrangements Other Grades 40 171 211 are discreet and emergency situations are 2106 1349 3455 handled with proper care Good housekeeping practices % of Sampath Employees 61% 39% 100% Counselling and awareness of Occupational Health & Safety procedures
220 Annual Report 2012 Employees analysed by gender and Geographical Region Age Analysis of Employees 2011 Province Male Female Total
Central Province 136 84 220 Uva Province 72 19 91 Southern Province 155 76 231 Sabaragamuwa 91 37 128 North Central 71 25 96 North Western 132 73 205 <55 - 7.79% 31-40 - 25.24% Northern 81 35 116 51-55 - 8.05% 21-30 - 50.27% 41-50 - 8.65% Eastern 122 29 151 Western 621 665 1286 Departments 625 306 931 Age Analysis of Employees Total 2106 1349 3455 2012
Employees analysed by type of employment contract and gender Male Female
Permanent Employment 1752 1228 Trainees 310 92 Probationers 40 28 <55 - 0.57% 31-40 - 21.42% 51-55 - 1.79% 21-30 - 64.46% Fixed Term Contract 4 1 41-50 - 11.29% >=20 - 0.90% Total 2106 1349
Employees Analysed by Age Age Corp. Senior Mgr Snr Exe & Jnr. Allied Trainees Total (Yrs) Mgt Mgt Executives Executives
>55 3 2 5 51-55 4 13 4 18 1 22 62 41-50 6 28 22 235 25 74 390 31-40 3 350 307 80 740 21-30 17 1806 33 371 2,227 <=20 31 31 Total 13 41 29 620 2139 211 402 3,455
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Economic Value to Employees Our Talent 2012 2011 % change Pool 1 Salaries & Allowances 2,306,905,915.43 1,905,496,079.72 21.06% 2 Annual Leave Allowances 10,678,000.00 - - Our Talent pool has grown by 6.97% in this year and 90% 3 Staff Medical Expenses 20,183,820.00 31,429,499.98 55.70% of vacancies in the senior 4 EPF Contributions 257,058,130.11 213,401,957.09 20.45% positions were filled by internal candidates. 5 ETF Contributions 64,264,532.37 53,350,489.26 20.45% 6 Contribution to Gratuity Fund 13,921,047.95 16,615,902.00 19.35% 7 Contribution to Pension Fund 44,357,045.35 46,795,355.30 5.50% 8 Staff Loans 1,185,604,394.09 941,243,292.61 26.00%
Employees Analysed by Service Years Period of Service Corp. Senior Mgr Snr.Ex Jnr. Allied Trainees Total Mgt Mgr & Ex Exes
Above 20 years 7 34 24 144 7 53 269 16 – 20 years 3 1 200 37 37 278 11-15 years 1 1 155 115 27 299 6 – 10 years 1 2 76 745 48 872 Below 6 years 4 3 2 45 1235 46 402 1737 Total 13 41 29 620 2139 211 402 3455
Career Progression – Internal Promotions to Employee category
Junior Executive – Grade II 145 Executive – Grade I 53 Executive – Grade II 57 Senior Executive – Grade I 57 Senior Executive – Grade II 16 Secretary Grades 26 Total Internal Promotions 354
222 Annual Report 2012 Recruitment
New Recruits Analysed by gender Number %
Male 278 76 Female 90 24 Total 368
New Recruits Analysed by age Number %
Under 30 361 98 30 – 40 2 1 40 – 50 4 1 Above 50 1 0 Total 368
New Recruits Analysed by Geographical Region Number %
Central 64 17 Eastern 7 2 Northern 6 2 North Central 12 3 North Western 28 8 Sabaragamuwa 26 7 Southern 41 11 Uva 11 3 Western 173 47 Total 368
Sampath Bank PLC 223 Sustainability Report
Training
Investment in Training & Professional Education 2012 2011 2010
Investment In Professional 13.745 Mn 11.608 Mn 8.136 Mn Education Investment in Training 34.852 Mn 49.07 Mn 14.247 Mn Total investment in Training & 48.597 Mn 60.678 Mn 22.383 Mn Professional Education Total Training Hours 91623 104489 57177.5 Average Training Time per Employee 26 32 21
Staff Training Information
Direct Training Area of Development Internal External - Local External - Foreign No. of Training No. of Training No. of Training Participants Hours Participants Hours Participants Hours
Banking Operations 5906 2846 516 1850 19 400 Trade Finance 241 508 24 200 5 112 & International Operations
E-Learning Skills Developed/Area of Focus No. of Employees Training Hours
Teller Operations/ Customer Care/ Banking Law/ 7601 Logins 1621.00 Management/ Miscellaneous/ International Operations/ Branch Operations/ Risk Management/ Card Centre/ Security Features of Currency Notes/ Accounts Opening Operations/ Professional Customer Service/ Past Exam Papers
224 Annual Report 2012 Employee Achievements Team Achievements
Sampath Bank Football Team
Sampath Bank Badminton Team Sampath Bank Swimming Team
Sampath Bank PLC 225 Sustainability Report
Sport Event Result / Achievement
Athletics Mercantile Athletic Championship 2012 12th Place by winning 16 medals Badminton Mercantile Inter Firm Team Championship 2012 Men’s & Women’s – Runner up
Mercantile Inter Firm Team Doubles Badminton Grand Slam Champions Championship 2012
Mercantile Inter Firm Team Doubles Badminton “Bowl” Category Runner Up (B Championship 2012 Team) Basketball Knock Out Tournament 2012 - MSBA Runners up “Continuation of National Captaincy of Sri Lanka Team- Chamath Danawansa” Cricket Mercantile Knockout Semi Finalist Hockey Mercantile 7s A Division Runner up Soccer Mercantile – Knockout Champions Mercantile – League Runners up Swimming President’s Challenge Trophy Winners of 05 medals Mercantile Swimming Championship 2012 Go Kart Speed Drome Bankers Go Kart Challenge 2012 Second Runner Up
Sampath Bank Team Member Jeewan Mendis selected Sampath Bank Team Member Thilini Jayasinghe to the National Team tour of Australia Participation in London Olympics – 2012
226 Annual Report 2012 Sampath Bank Team Member Rangana Herath - Ranked No. 2 bowler in the Reliance ICC Test Rankings Diluka Weerasooriya and Harshana Hettiarachchi represented Sri Lanka Hockey team
Individual Achievements
Sport Achievement Player
Badminton Mix Doubles – Runner Up Hasitha Chanaka & Thilini Jayasinghe
Women’s Veterans – Runner Up Tharanga Nishanthi
Men’s Doubles – 2nd Runner Up Hasitha Chanaka & Devendra Bandara
Men’s Singles – 2nd Runner Up Hasitha Chanaka
Women’s Singles – 2nd Runner Up Thilini Jayasinghe
Participation in London Olympics – 2012 Thilini Jayasinghe
Sampath Bank PLC 227 Sustainability Report
Sport Achievement Player
Cricket World No. 2 bowler in the Reliance ICC world Rankings in Rangana Herath November 2012
Selected to the National Team toured to Australia Rangana Herath and Jeewan Mendis
3rd Sri Lankan Cricketer to reach the 150 test wickets Rangana Herath
Appointed As Sri Lankan “A” Team Captain Kaushal Silva
Continues as a member of the Sri Lanka Cricket Selection Don Anurasiri Committee
Member of World T20 Runner up team Rangana Herath and Jeewan Mendis Rugby Selected for the National Team for Mumbai 7s and Shanghai 7s Dilip Selvam (Plate Champs) Hockey Vice Captain of the National Team Toured to Qatar for World Diluka Weerasooriya League Round – 1 (Runners up) Soccer Selected for Mercantile Football All Island Team (Senior Inter Avinda Adikari and Dilum Ariyawansa League Tournament) Swimming President’s Challenge Trophy Mercantile Swimming Championship 2012
Champions Category -1st Place Kavinda Hulangamuwa Novices Category
1st Place – Back Stroke Nanda Ramanan Vijayan 1st Place – Freestyle Stroke 3rd Place - Breast Stroke
3rd Place – Freestyle Stroke Sameera Sandaruwan Basketball National Captain of Sri Lanka Team Chamath Danawansa Deaf Cricket Secretary, Sri Lanka Deaf Cricket Association, the Governing Body Asela Jayathilake of National Deaf Cricket team who emerged as “Runners Up” in second Deaf Cricket Asia Cup 2012. Deaf Cricket Member of National Deaf Cricket Team who emerged as “Runners Lakshan Fernando Up” in the second Deaf Cricket Asia Cup 2012 held in Pakistan
228 Annual Report 2012 Sport Achievement Player
Athletic Mercantile Athletic championship 110 Hurdle – 1st Place Nuwan Vidanagamage Javelin Throw – 3rd Place Amila Wijekoon
Men’s Novices Category Long Jump – 1st Place Malinga Surappulige 100 x 4- 3rd Place G A P Randika Avinda Adikari Lakmal Jayasinghe Dilum Ariyawansa Men’s Veteran over 40 Category Shot Putt – 2nd Place Nalaka De Silva Long Jump – 3rd Place Asela Jayathilake
Men’s Veteran over 45 category 100 m – 2nd Place Aruna Jayasekara
Men’s Veteran over 50 category 1500m Race Walking – 3rd Place Ajith Jayasekera Javelin Throw – 3rd Place Ajith Jayasekera
Women Veterans Category Disc Throw – 1st Place Sanjeewani Peiris Shot Putt - 1st Place Sanjeewani Peiris 100 m – 2nd Place Ruwanmalee Wickramasinghe Shot Putt – 3rd Place Ruwanmalee Wickramasinghe 800m Race Walking – 1st Place Ramani Perera 800m Race Walking - 2nd Place Sumi Weerasinghe Javelin Throw – 3rd Place Sumi Weerasinghe
Member of National Rugby Selection Committee Sajith Mallikarachchi
Sampath Bank PLC 229 Sustainability Report
...we maintain a system to handle our customer complaints. We are able to keep our response ratio at 100%.
Customers Technological innovation for customer We serve over 1.6 million customers through a convenience network of 209 branch offices and networked We seek to enhance customer lifestyles through agents providing a variety of products tailored new technological innovation that will enable to meet diverse needs. We offer our customers them to use their mobile or other electronic convenience in banking using innovative devices to carry out their financial transactions. technology and high standards of customer Our track record is impressive with many firsts in service. Our goal is to create wealth. Therefore we technological innovations. Today our customers maintain a to handle our customer complaints. can choose to interact with us through internet According to that we are able to keep our response banking, mobile applications or over 1600 ATMS ratio at 100%. A number of the initiatives are island wide as a result of our efforts. We are discussed under Responsible Business Practices committed to continue pushing boundaries to whilst others are described below. harness the power of technology to reach more customers and provide greater ease of transacting with us in a vital aspect of their lives. Customer Charter We have adopted the Customer Charter issued by Addressing diverse needs of the Central Bank of Sri Lanka to ensure that our customers’ rights are protected and that they are customers through tailored fully aware of their entitlements and obligations products when doing business with us. The customer We strive to develop financial products and charter is published on our website in all three delivery channels by understanding the needs of languages and our staffs are trained to uphold our customers as the appropriate use of financial the customer charter in their interactions. products that enables wealth creation and stimulates economic development. The following are examples of how we tailored our products to meet the needs of customers.
Customer Need Identified Product modification/feature
Facilities to receive funds from overseas Money to Sri Lanka is an online remittance tracking family members facility which has been offered in collaboration with ICICI Bank. It is currently available in UK, Australia, USA, South East Asia and the Euro Zone. Entrepreneurs in North and East needed SME loans were launched as Micro Finance to address financial assistance but were unable to the needs of entrepreneurs in these areas. provide acceptable security as land registry records were not available
230 Annual Report 2012 Training for higher levels of customer service We believe that a knowledgeable and motivated staff are key to customer satisfaction and undertake many initiatives more fully described in the Employees segment of the report on pages 214 to 229 Many of our training sessions are focused on enhancing our levels of customer service and knowledge of our products to enable our staff to provide a higher level of customer service. Memoranda and circulars relating to existing products and procedures are available on the intranet in addition to being incorporated in to the various training modules. Our staff is made Training on Customer Service aware of new developments in their respective fields through team briefings and circulars to ensure that their knowledge is current and comprehensive when advising customers.
Train the trainers
Training Programme on Position Descriptions
Sampath Bank PLC 231 Sustainability Report
Moving towards zero customer Accessibility& Physical Safety complaints Customer service areas are designed to provide A customer survey carried out by a third party was a safe and pleasant environment for conducting commissioned in November 2011 by the Board of business. Over 17.70% of our branches have Directors in order to understand the parameters disability access and our electronic delivery that need to be maintained or strengthened and to channels provide ease of transacting for them. evaluate customer satisfaction to understanding of the service levels. The Research Consultancy Delighting Customers Bureau was commissioned to carry out the survey. We reward customer loyalty and carry out special Additionally We operate a Call Centre operating promotions of our products as a part of our 24 hours over 24 years for the convenience of normal business activities. A few stand out as our customers. they delight the customers. Sanhinda Saver (senior citizens saving Customer complaint handling account) customers in and around Colombo were invited to Victor Ratnayake “SA” policy farewell concert. The Customer Complaint Handling Policy is Sanhinda Savers were also provided a printed and displayed at all our branches and free medical camp where comprehensive also available on our website. The policy complies medical tests and eye screening were with the requirements of the Banking Act Directive carried out No.8 of 2011 – Customer Charter of Licensed Customers depositing Rs.15,000/- during Banks issued by the Central Bank of Sri Lanka the Sinhala & Tamil New Year festive season were offered Tri-Lingual dictionaries which is also available on our website. It provides published by M.D.Gunansena & Co. information regarding the complaint procedure, Rewarding loyal eRemittance customers the Bank’s response mechanism and the contact with cash rewards during the Sinhala & details of the Financial Ombudsman in case Tamil New Year festive season the customer wishes to escalate the issue with Our Credit cardholder enjoyed a 10% of this independent body. Telephone complaints their bills at Food City during the Special are handled through the call centre. During day season time there the capability is available to handle customers complaints in all tri-lingual hotline. Shareholders Dedicated officer is available even outside We have 17,518 shareholders and are committed banking hours. Customers may also register their to delivering sustainable growth and value to complaints at the local branch, write or email for our shareholders and facilitating the exercise which contact details are provided. Complaints of their rights. Our committed efforts to create are addressed within 2 to 24 hours of receipts and value through brand building have provided the the Call Centre Supervisor is informed of action shareholders the highest rate of return in the taken within a day of the complaint. The process Banking sector in the Colombo Stock Exchange is managed by the Compliance Department of the for 2012. We are encouraged by their loyalty and Bank and a monthly report is submitted to the participation at the forums provided for interaction Board Risk Management Committee. with the Board.
232 Annual Report 2012 Customer Get-together - Galle Branch
Customer Get-together - Galle Branch
Stakeholder Rights Management Increasing Framework Approach shareholder-wealth
Every shareholder and Our policies and strategies Maximizing shareholder investor of Sampath Bank are formulated to deliver value and market has the right to expect premium value and sustain capitalisation. the bank to enhance long growth. term shareholder value and Proactive initiatives facilitate an environment From a pay for performance implemented based on which they can exercise culture to prudent banking investor relations. their rights. strategies to increase shareholder wealth, reinventing our products and services, and an aggressive expansion plan; are all geared to ensure sustainable growth while creating greater wealth to all our stakeholders.
Sampath Bank PLC 233 Sustainability Report
Shareholder Engagement Written complaints submitted to the Historically we have a culture of active shareholder Company Secretary who acts on behalf participation and exercising of rights which we have of the Chairman, are reviewed by the enhanced through many initiatives. We collected Shareholder Relations Committee who 82.7 % of our shareholders proxy’s for the Annual initiate action to provide a solution and General Meeting held on 30th March 2012 which coordinate a response. was attended by 154 shareholders and 108 were represented by proxy. The Shareholder Relations Shareholder Relations Meeting held on the same day immediately after Committee the AGM was attended by 97 of our shareholders. Sampath Bank was the first listed company in We have taken many initiatives to achieve this Sri Lanka to introduce a Shareholder Relations going beyond the legal requirements to ensure Committee as a sub-committee of the Board that opportunities are given to shareholders to of Directors. This committee holds a Forum voice their concerns and participate in voting as for Shareholders immediately after the Annual described below: General Meeting to identify shareholder concerns The Shareholder Relations Committee with a view to addressing legitimate concerns. holds an annual forum to identify concerns Details of the key initiatives highlighted below of shareholders to enable shareholders to are discussed in the Report of the Shareholder voice their concerns a committee comprising Relations Committee on pages 160 to 161. non-executive directors The Annual Report is published in English & Sinhala and the Chairman’s and CEOs Shareholder Concessions messages are published in Tamil thus The Board has determined to offer the following ensuring information democracy concessions to shareholders as recommended Quarterly financial statements are published by the Shareholder Relations Committee in this in the newspapers and on our website in all Silver Jubilee year: three languages Waiver of all internal commissions charged We encourage an open dialogue at the on our products and services Annual General Meeting 50% reduction of the normal initial deposit Press releases are issued on Bank’s on opening current accounts. performance, new products and financial 50% waiver of the actual fee charged for the achievements period. Shareholders have direct access to Branch Issue of SET card free of charge. Managers and can meet the management Greater accessibility to Branch Managers. staff by appointment Preferential treatment at branches to Delivering Shareholder Value shareholders Our strategies for growth in earnings and stability Investor Feedback Form available on the have delivered value to shareholders as detailed Corporate web site (www.sampath.lk) for below: shareholders to provide comments/queries
234 Annual Report 2012 2012 2011 2010 2009 2008
Earnings per share(Basic) 32.98 23.00 22.29 30.08 21.70 Dividends per share 12.00 9.00 8.09 6.25 4.00 Gross Dividends paid 1,952,840 1,426,984 1,008,533 473,602 275,550 Capital Adequacy – Tier I 11.80 10.2 10.7 10.4 8.1 Capital Adequacy – Tier 1 + Tier II 13.61 11.5 12.9 13.5 11.9 Share Price (at close of business for year) 200.50 195 271.90 204.25 68 Sampath Market Capitalisation(Rs.Mn) 32,628 30,587 41,564 14,070 4,684
% Increase in Market Capitalisation of bank(Y on Y) 7 (26) 195 200 (43) CSE Market Capitalisation(Rs.Mn.) 2,167,581 2,213,873 2,210,452 1,092,137 488,812 Sampath Market Capitalisation as a % of CSE 1.5 1.38 1.88 1.29 0.96 Market Capitalisation Rank 13 16 15 19 25
The strategies to enhance earnings, growth and stability are discussed in detail in the Management Discussion & Analysis on pages 46 to 95 of this report.
Government & Regulators Sampath Bank has a number of relationships with the government and regulators of which the principal ones are depicted below. Empowerment of Community and Ethics and Values, two aspects of our Sustainability model govern our approach in addressing the needs of this important stakeholder.
Recognising Initial Shareholders
Sampath Bank PLC 235 Sustainability Report
We have complied with the requirements of the Securities & Exchange Commission, the Central Central Bank of Sri Lanka Bank of Sri Lanka and the Colombo Stock Exchange as set out in the Corporate Governance Report on pages 96 to 143, and the Directors Report from pages 274 to 287. The following amounts have been contributed to the government as set out in the Economic Value Added Statement on page 292. Colombo Sampath Department Stock of Inland 2012 2011 Exchange Bank Revenue
Income Tax 2,108,885 1,484,408 Value Added Tax 1,142,709 901,484 Total 3,251,594 2,385,892
Alignment of Bank Strategy with Securities & Exchange national priorities Commission of Our Strategic Planning process involves review Sri Lanka of national priorities as articulated in the Annual Budget as articulated in the annual National Budget and other government plans. We have aligned our strategy with national priorities in many areas as listed below: Inclusive Banking – We share the vision of Inclusive Banking for all and have undertaken a country wide expansion of our branch network in the past three years to achieve this objective. Our branch model is one that offers the full range of services at our fully fledged branches offering convenient banking solutions to the communities where we have branch. SME Growth - We have supported growth of this vital sector as outlined in the Management Discussion and Analysis on page 46. And in the Responsible Business Practices segment on page 205. Support for SME’s is comprehensive as we focus Official Banker - International Book Fair 2012 at BMICH
236 Annual Report 2012 not only in marketing our products to them This year we issued a Tri-lingual dictionary but also on entrepreneur development to during the Sinhala & Tamil New Year season facilitate better business practices with the to promote this. We have promoted the vision of building a more robust SME sector concept internally as well and encouraged that is aware of the business risks they our staff to undertake internally offered face. training courses in language proficiency in Trendsetter in technological innovations English and Tamil. for inclusive banking – We have introduced Payment gateway for government e-services many technological innovations to the through a pioneering public private industry enabling cost effective scalable partnership supporting the national banking solutions enabling the industry to e-government services initiative – The reach customers at the base of the pyramid. Sampath Payment Gateway enables online These are listed in the Management payments to the Ministry of Transport for Discussion & Analysis segment on page 46 renewal of licenses, online visas for the and include: Department of Immigration and Emigration, First local bank to introduce ATM’s and the Registrar of Companies, the Defence deploy a network of ATM’s facilitating Fund and the National Health Fund. customer convenience Multi-Bank ATMs - Sampath Bank was Sampath Mobile Cash now enables responsible for pioneering the ATM Network even non-customers with mobile Sharing concept, substantiating a huge access to send or receive cash using saving for customers in the form of fees their mobiles island wide instantly paid to foreign financial institutions for ATM thus enabling those working in busy usage. It also decreases the infrastructure urban townships to send money to costs for the entire banking sector enabling their families living elsewhere. With all partner institutions to significantly Colombo having a large migrant reduce their capital costs whilst offering population, Mobile cash enables greater convenience to their customers. those even at the base of the pyramid Currently our network comprises several to transfer funds at need. Partner financial institutions including Bank Supporting Tri-lingual communication - of Ceylon, Hatton National Bank, Union Our quarterly financial statements are Bank, DFCC Vardhana Bank, Pan Asia Bank, published in all three languages in the National Savings Bank, HDFC, NDB Bank, newspapers and our Annual Report is L.B.Finance and Nations Trust Bank. The one of a handful that is published both network comprises over 1500 ATMs island in English and Sinhala. Additionally the wide and accounts for over 60% & of the Chairman’s and the Managing Director’s total ATM market share. messages are published in Tamil as well.
Sampath Bank PLC 237 Sustainability Report
We engage with the community on both a national Communities and localised basis to develop communities by empowering individuals and groups to challenge Stakeholder Rights Framework their operating boundaries to create wealth and improve livelihoods. Entrepreneur development, Every member of society has the right Education for development and Empowerment to expect the Bank to consider both, of Community, three of the 5Es from our model the social, and economic dimensions of form the basis for project formulation and its operations and activities. development for communities based on our assessments of needs from our interactions with them. Projects are formulated by Branches and Departments based on their understanding Corporate Responsibility (CR) of needs from their engagements at community level and are submitted to the Sustainability Management Approach Steering Committee for approval. The projects are implemented by the staff who volunteer their We believe that community time and effort to add value to the project and development is a process of ensure that it achieves the objectives. empowering individuals and groups within communities, in a manner that Entrepreneur Development will enable them to challenge real and We believe that we have a duty to educate the perceived limitations to improve their entrepreneurs to facilitate their development livelihoods. and ensure that they have adequate knowledge to make informed choices. Such programmes Through our network of branches, are carried out with the objective of improving we focus on developing intelligent the success rates for business start-ups and to individuals, who would encourage real pave the way for wealth creation than to increase development within their community, dependency on borrowings. The programmes rather than mere dependence on cover the key areas that entrepreneurs must charity. address in taking products to market, provide insights to avoiding common pitfalls and financial We believe this approach has helped literacy. our branches connect at a personal level with the communities they operate in and be recognized as socially Education for Development sensitive business partners. And our Education is necessary to bridge the social and efforts and approach have positioned economic inequality and provide livelihoods to Sampath Bank as a responsive and those at the base of the pyramid. We have taken responsible corporate citizen. a number of initiatives to promote education and the dissemination of knowledge within the country as described below. The projects ranged from donations to schools affected by the civil war
238 Annual Report 2012 to quiz competitions to encourage acquisition of knowledge outside the state curriculum.
Programme on Effective Presentation skills for Young Inventors (Sinhala Medium) by Sampath Bank Toastmasters Club (SBTMC)
Sri Lanka Inventors Commission has requested our Bank to conduct a special programme for Young Inventors on effective presentation skills. Sampath Bank Toastmasters Club (SBTMC) conducted the programme.
Scholarship Seminar in Pannala Branch
Coverage Project Details
Nation wide Issue of tri-lingual dictionary to customers depositing over Rs.15,000/- during Sinhala Tamil New Year season to promote tri-lingual communication towards lasting peace. Nikawaratiya Fostering creativity in Nika/Wepathanga Maha Vidyalaya by sponsorship of project formulated by the school Hingurakgoda Sponsorship of annual prize giving ceremony and contribution of stationery and cricket equipment to Viharagama Kanishta Vidyalaya Marawila Art competition among orphan children in Holy Cross Children’s Home, Marawila Deniyaya Region “Sampath Panasara” 2012, the annual quiz competition was organized in Central College Deniyaya with more than 25 schools in the region participating fostering interest in education beyond the national curriculum. Ranmuthugala and Makola Project to facilitate education and rehabilitation of under privileged students of two remand homes at Ranmuthugala and Makola by donating Ordinary Level Study packs. Divulapitiya Books were donated to Dhaham Pasal students at Pinnakele Priyadharshanaramaya temple which has won the award for the 13th consecutive time as the Best Daham Pasala in the area and has been conducting classes in both Sinhala & English medium with the guidance of the Indorouwe Gnanarathana Thero as most of the students are from very poor families and not in a position to afford any additional expenses for their education. Dankotuwa Conducted seminar for 2000 school children from various schools on Ethics & Values in celebrating Children’s Day with the ambition of helping students of Dankotuwa area to apply, social and moral values to their lives as well as to emphasise the importance of social values.
Sampath Bank PLC 239 Sustainability Report
Coverage Project Details
Padaviya Granting token of appreciations for prefect board of the school & best performing teachers in Padaviya Sri’Pura Maha Vidyalaya, Trincomalee which was affected and severely impacted by the war, to motivate and encourage their work. Ratnapura Books have been donated to 100 students of Pahala Hakamuwa, Ratnapura who were from very poor families on Children’s Day. Mallavi An awareness program on share trading and investing in the stock market followed by a quiz competition was conducted for seven hundred students covering 65 schools in Thunukkai Educational Zone. Ampara Essential equipment for home science section, English Unit and lab of Udayagiri Vidyalaya Ampara which was severely affected by the ethnic war that lasted for three decades.
Empowering Future leaders-Padaviya
Objectives – To Develop effective presentation skills and groom selected students for a Reality programme which will “Ride to Save Programme”-Batticaloa Branch be telecasted on ITN Target Group – Grade 8 and above school Senior Toastmasters of SBTMC has successfully students conducted the 01st Programme on 12th Duration – 01 Day December 2012 (Wednesday) at our 03rd Medium – Sinhala floor Mini Auditorium, before the 1st recording No. of students to be covered – 192 (32 scheduled on 16th December 2012 (Sunday) at students per batch) Studio No. 1 at ITN. No. of Programmes - 06
240 Annual Report 2012 Seminar on Share Market-Mallavi Branch The Donations to Sansungama Primary Vidyalaya- Hingurakgoda Branch
Contents of the Programme Structuring a Speech Body Language and Eye Contact Voice Variation Case Study analysis as a Group and Group Presentations Evaluation of Presentations and Feedback
Empowerment of Community Communities have diverse needs depending on the state of the infrastructure, the average household income and available opportunities for economic activity. As we believe in going to the grass roots and driving change, we have selected a model of empowering communities we engage with mainly through providing basic infrastructure Dansala at Hettipola Branch or necessities to enable them to improve their existence and enhance their performance. We also recognise the role of supporting local cultures and some of our community projects reflect this important aspect that enriches our lives and inculcates values
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Hingurakgoda Branch has donated newly built house to an underprivileged family in Sansungama, their daughter excelled in the Scholarship Exam obtained 156 marks the highest in the area
Blood Donation-Palmadulla Branch Donations to District hospital-Kekirawa Branch
242 Annual Report 2012 Community Related Projects
Branch Project Description
Kohuwala Donation of Ceiling Fans to Grace Perera’s Elder’s Home Muttur Painting of the female ward of Muttur Base Hospital and to assist in maintaining the hospital in a town severely affected by the ethnic war that lasted nearly for three decades. Kirulapone Donation of Tricycle Chair to a disabled customer to assist him to do his day today work as a vendor. Sabaragamuwa Blood & Eye Donation Camp were conducted to assist the Provincial General Hospital; Ratnapura which needed blood to treat their patients and to commence an Eye Donation Campaign which had not been carried out in this area during the last ten years. This campaign attracted over 100 donors. Thambuththegama The patients of Thambuththegama Base Hospital are from lower income families and their children’s ward was colour washed to create a pleasant and clean environment for their speedy recovery. Jaffna Refreshments were served to devotees participating in the Chariot festival at Nallur Kandaswamy Temple- Jaffna which goes on for 26 continuous days with an average of 75,000 devotees taking part in daily poojas from all over the country. Sponsorship for landscaping work at the new building of Jaffna Teaching Hospital to create pleasant environment for the dedicated staff of the teaching hospital and the patients who seek treatment. Sabaragamuwa Refreshments were served to thousands of devotees who came in a queue over 7 km long to pay homage to the sacred Kapilawasthu Relics at the Pelmadulla Rajamaha Viharaya Bandaragama Donation of medical cabinets to District Hospital, Bandaragama in order to enhance the productivity of the base hospital Bandaragama Boralesgamuwa An eye care campaign was conducted free of charge by experienced professional opticians and facilitating patients to purchase spectacles at very special prices with an easy payment scheme. Ratnapura Blood Donation Camp was organised to provide a supply to the Provincial Regional Hospital in Ratnapura which needed blood urgently to treat the large number of cases handled by them. Kahatagasdigiliya Kahatagasdigiliya, situated 35Km away from Anuradhapura with population of 43,366 has Death Donation Societies which are strong community based establishments with a huge impact on local community. Chairs, ledger and CR books were provided to Death Donation Societies of Kahatagasdigiliya to help them to carry on their day to day activities successfully. Hingurakgoda Construction of a house for the family of the student who got the highest marks for the scholarship exam in the area with the help of the 223rd Brigade of the Sri Lankan Army,our customers and other volunteers from the community Books, stationery and a computer with all the accessories were donated to the school to commence a library and refreshments were distributed among the school children. Divulapitiya Blood donation camp was conducted by the Gampaha Base Hospital to meet its needs in the branch premises with the participation of about 100 donors. Refreshments were provided for all the blood donors.
Sampath Bank PLC 243 Sustainability Report
Branch Project Description
Kekirawa Donation of 5 water filters to the Kekirawa District Hospital as clean water is a key concern in this area. Additionally a mini playground has been established in the hospital premises to help sick children gain a speedy recovery. Pelmadulla Conducting Personal Development Programs on a monthly basis and donation of furniture for Mithuru Lama Sewana – Rilhena, Pelmadulla which has 21 boys ranging in age from 6 to 16 as they were studying seated on the floor. Anuradhapura New Town A health campaign was conducted among Daham Pasal students of the Galkadawala Viharaya with Consultants and nurses. Drugs were distributed among the participants on prescriptions issued. Further a water filter was donated to the temple. Kegalle Conducted a blood donation campaign for the blood bank of the Kegalle Teaching Hospital to meet their requirement of blood for patients undergoing surgeries at operation theatres. Mahiyanganaya Blood donation campaign and Community health development project was conducted for the Vanniyalatto (the indigenous people) where blood sugar, ECG, blood pressure and urine tests for the kidney diseases were done. Puttalam Office furniture was donated to the Coroner’s Office of the Puttalam Base Hospital on request to meet a vital need in the community. Chankanai Colour washing and donating furniture to the Ladies’ Ward of the Chankanai Government Hospital to provide a pleasant environment and enhance efficiency. Kandy Sponsored and organised a day out for the children at the Wattegama Girls’ Orphanage to visit the Temple of the Sacred Tooth Relic and the Peradeniya botanical gardens. Shoes, socks, stationary items, gifts for fun games and chocolates were distributed among them. Chilaw Distribution of Water Bottles amongst families suffering from lack of drinking water, due to heavy floods by the staff of the Chilaw and Hettipola branches.
Ethics and Values decisions regarding professional advancement We believe the best way to build and to maintain and compensation. trust is to conduct every element of our business according to the highest standards of integrity. The Bank maintains a Code of Ethics, Our ability to do so rests on the behaviour of supplemented to our employees Principles and our people, from upper level to lower level. We compendium of internal policies, to inform and select our people based not just on their skills, guide our employee in their roles. accomplishments and potential, but also on their principles and values. A commitment to integrity While ethical behaviour requires us to comply fully and ethical behaviour is a critical factor in our with all laws and regulations, “compliance” with
244 Annual Report 2012 the law is the minimum standard to which we hold ourselves. Those who work with us honour not just the letter of existing laws
We do not look to prevailing “market practices” as an indication of appropriate behaviour. We base our decisions on legal and regulatory rules, our Code, our Business Principles and our values.
We are committed to addressing such conflicts with all appropriate disclosure and transparency. If a transaction generates a conflict that cannot be addressed, we would prefer to lose the business than to abandon our principles.
Our success has been and will continue to be dependent on the trust that our shareholders place in us. Everything we do, every piece of advice we give, every transaction we execute, every rupee we Seminar for Children on “Reinforcing Value” manage, every interaction in which we take part- must serve to strengthen our ethical values which we cherish.
Suppliers
Stakeholder Rights Framework Management Approach
Our registered suppliers have the right to expect We maintain a transparent process of transparency and accountability from the Bank in supplier management which is based on best assessing their capacities to deliver the goods practices of anti-corruption, open dialogue and services required by the Bank. and accountability for decisions.
Sampath Bank PLC 245 Sustainability Report
We count on our suppliers to provide a reliable Whistle Blowing Policy and cost effective service whilst upholding high Our Whistle Blowing Policy has been formulated standards of conduct and responsible business to promote transparency and deter fraudulent practices. Their right to a transparent process of practices. The policy provides our staff who supplier management based on best practices of have legitimate concerns regarding existing or anti-corruption, open dialogue and accountability potential wrong doing by any person within the is acknowledged and policies and procedures
Stakeholders Protection Framework
Training & Open door Procurement Awareness of Register of Code of Ethics Whistle Blowing communication Procedure Anti-Corruption Suppliers Policy policy Practices
have been implemented to conduct business Bank to voluntarily bring such concerns to the in a responsible manner in accordance with our notice of the Chairman of the Audit Committee. stated values. We look to our suppliers to become Our firm resolve is that no staff member should partners in progress with us over the long term. be denied access to the Audit Committee and that a conductive environment should exist for Code of Ethics exercising of their right. The code of conduct and the Blue Book sets out the company values and the standard of conduct Procurement Procedure and ethics expected from our staff in their dealings This policy is designed to ensure ethical and with external or internal parties. All staff is aware professional relations with all our suppliers. It of this and it is available to them for clarification has clearly defined approval limits, procedures on the intranet. We believe these sets the and limits for quotas, a process for maintaining benchmark for responsible business practices the confidentiality of tenders and negotiations when engaging with suppliers and provide for a processes for negotiation of rates and modalities safe business environment where rights of each for resolution of disputes. The policy also party are understood and respected. addresses the need to attempt to ensure that we source our suppliers from the locality of the branches where ever possible, creating jobs and increasing the income of the local communities of the area.
246 Annual Report 2012 Register of Suppliers The Bank maintains a register of Suppliers who are screened to ensure that they are capable of meeting our needs as specified, have the capacity to continue as going concerns and have business continuity plans in place to ensure that we receive an uninterrupted service in order to meet our service standards. This process has enabled us to engage effectively with our suppliers in partnering their progress and helping their businesses shift to more robust operating models by addressing areas for improvement.
Open-door communication policy Our open-door communication policy enables suppliers to voice their concerns and resolve issues without delay. Suppliers have access to the Administrative, Maintenance and Finance staff to resolve issues which may arise. This also enables us to identify common areas of concern and improve our processes and procedures to facilitate smooth operations which drive the cycle of continuous improvement.
Environment We believe that we have diverse roles to play in ensuring sustainability of the environment as a responsible corporate citizen who acts positively to minimise its foot print, a responsible financier of projects ensuring that environment issues are addressed, an employer who can take the message to a large captive employee base and as a disseminator of knowledge and an influencer of social norms to the communities we operate in. Our Environment Policy and Six Eco Guidelines are formulated to fulfil our diverse roles by embedding them in our operational framework.
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Sampath Bank Environment Policy
We are dedicated to preserving the natural composition of air, water and soil in order to make the earth a better place to live. The Bank encourages earth friendly projects that use modern technology, operating on the principles of team-resource consumption. The Bank`s eco-projects are mainly focussed on environmental conservation and protection. The Bank funds only those projects or businesses that comply with environmental protection regulations.
ECO Guidelines Eco Adopt lean-resource consumption practices across our operations, to reduce the use of paper, Guidelines energy and non-biodegradable material.
Our Environment Policy and Six Ensure proper disposal of waste, to minimise harmful environmental impacts. Eco Guidelines are formulated to fulfil our diverse roles by embed- Create awareness on protecting and conserving the environment – among employees, ding them in our operational customers and other stakeholders framework.
Address critical environment related issues through a tripartite involvement, between the Bank, employees and the community
Ensure compliance with environmental regulations in all our business transactions
Facilitate green-enterprises, through special incentives, grants, loans and guidance
248 Annual Report 2012 I. Lean Resource we progress and focus on continuous improvement Consumption in areas we have integrated whilst adding other areas in to the monitoring cycle. Lean resource consumption principles are fully integrated in to our operations and our product development processes and we are reaping the New Initiatives The table below lists the initiatives introduced benefits in the form of enhanced productivity, cost this year to further extend the application of lean efficiencies and other qualitative aspects. However, resource consumption practices in the Bank. we are aware of the need to push boundaries as
New Initiatives
E-Board Papers Our Board papers are circulated electronically to the directors through secure connections to further reduce paper consumption. E-Learning We re-launched the e-learning platform with modifications to enable staff training. This has enabled us to reduce our consumption of fuel for travelling significantly as we can deliver significant components of training remotely. It has the additional benefit of enabling the staff to complete the modules at their pace and convenience which improves the quality of training as well. Mobile Cash This cutting edge product was re-launched with a host of new features enabling customers to send money using mobile or CDMA phone irrespective of the TELCO network through Sampath Bank. This product eliminates not only the use of paper for transferring funds but also enhances productivity and enables further penetration to achieve our inclusive banking goals.
Consumption of Electricity - 2012 (Rs) Energy Consumption The Bank continued to promote low energy 80,00,000 usage by creating awareness of the issues and introducing energy efficient infrastructure and 6,000,000 equipment.
4,000,000
2,000,000
0 b Jul Apr Oct Jun Jan Fe Aug Nov Dec Mar Sep May Sampath Bank
Sampath Bank PLC 249 Sustainability Report
Consumption of Water - 2012 (m3)
4,000 3,600 3,200 2,800 2,400 2,000 1,600 1,200 800 400 0 b Jul Apr Oct Jan Jun Fe Aug Nov Mar Dec Sep May Sampath Bank
Water Consumption Powering Hydro power Projects The Bank continues to promote minimising water usage through employee awareness programmes across the Bank. includes the Colombo, Gampaha and Kalutara education districts. The main objectives of the II. Proper disposal of waste programme were as follows: Introduce the fundamentals of waste We promote proper disposal of waste through management into students mind and create separation of waste and encouraging recycling. behavioural changes Build-up the future generation, with an Recycling environment friendly attitudes This year we recycled 28,624.70kg of paper Reduce the load of waste to be collected by during the year through our partnership with our the Local Authority external recyclers Neptune Papers (Pvt) Ltd., and Educate the children regarding the need for Sensaka (Pvt) Ltd. Each year we have reduced the the recycling of waste paper recycled mainly due to our efforts to reduce Introduction of alternative ways of power consumption of paper. generation Encourage the production of compost III. Creating awareness Beautification of the school and surrounding A project to create awareness on waste environment management and tree planting was implemented during the year with the collaboration of the Twenty five interested schools were selected by Ministry of Education and the Ministry of the Zonal Education Director and programmes Environment covering 25 schools and 5,000 were conducted by officials of the Ministry of school children in the Western Province which Environment and Sampath Bank ataff from the
250 Annual Report 2012 Branches. Schools were provided with waste bins IV. Tripartite Involvement to facilitate sorting and children were provided Engaging employees is the most effective way to souvenirs to secure their commitment to the embed the sustainability principles throughout the cause under this project and the Principals of the organisation with the Bank as the sponsor and schools were required to make quarterly progress the community as beneficiaries and participators. reports. It is planned to follow up this project with All our staff make a Green Pledge which helps a competition to determine the best Eco School to create awareness and reinforces their in 2013 to ensure that this initiative is sustained commitment to upholding the principles in their and supported by the schools. day to day work.
We supported the Deyata Sevana campaign to plant 1.1mn trees throughout the island initiated We have also established a Sampath Bank Nature by the President and the Ministry of Environment Protection Club, a volunteer entity comprising of by arranging a programme to plant 200 trees members of the Sampath Family. This is the green along the main road together with the Divisional arm of Sampath Bank, entrusted to promote the Secretary of Ninthavur area and providing the green concepts through Team Sampath. The club means to safeguard the young saplings until they has adopted the theme “Love life - Love nature” grow. reflecting the symbiotic relationship between Man and Nature. We hope to implement Sustainable
Sampath Bank Environment Pledge
I will make every endeavour to turn the earth a greener, healthier and better place for all living beings. I will do my part by helping to preserve natural composition of air, water, soil and fauna and flora. I am committed to reduce energy consumption, Recycle material, Reuse products and manage disposal of garbage to ensure low emission of harmful substances to air, water and soil since I believe that small positive changes can make a vast difference. I promise to uphold eco friendly values and a cyclic lifestyle to achieve my mission. I also make it a point to educate and influence those who are around me in order to preserve the natural beauty of earth and its resources for the future generations.
Sampath Bank Nature Protection Club Installation Ceremony
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Environmental initiatives and sustainable banking initiatives through this club. Objectives of Sampath Nature Protection Club
Additionally, employees are actively engaged in promoting environmental conservation, protection I. Functioning as a common interest group, involved in developing and regeneration as can be seen throughout this strategies, policies and procedures relating to environmental report. protection and conservation including, energy conservation, pollution, recycling, green building and earth friendly practices V. Compliance with environment within our focus group. regulations II. Influencing and advising the Management of the Bank to take This year we have introduced environmental eco friendly business decisions in every aspect of operations criteria in evaluation projects for project financing and facilitate Bank to be positioned as a Green Bank. to ensure that the Bank finances only projects III. Taking Initiatives to encourage members to adopt to an eco that comply with environment regulations and friendly and cyclic lifestyle. embed sustainability principles in to the business I V. Networking with Professional bodies, Research Institutes, areas of the Bank. Additionally Credit Officers Universities in relation to environmental protection and were trained on Environment Appraisal through a conservation and initiate joint activities to promote eco friendly 3 day certificate course conducted by the Institute concepts. of Environmental Professionals in Sri Lanka in order to ensure that the environment criteria are evaluated in an appropriate manner by officers who are knowledgeable on the subject.
VI. Facilitate Green Enterprise The Bank has facilitated investment in projects that make a positive impact on the environment such as renewable energy projects, eco-friendly projects and plantation projects as detailed in the table below. We also secured a line of credit from Proparco, a French Development Finance Institution to finance renewable energy projects demonstrating our commitment to push the boundaries to support sustainability.
Supporting the Environment through Lending 2012 2011
Eco-Friendly Projects 188Mn 292Mn MD addressing at Sampath Bank Nature Protection Club Inauguration Ceremony
252 Annual Report 2012 GRI Report Parameters
Report Profile Data on the Economic performance of the Sustainability Report presented according Bank is based on information available to the GRI Guidelines covers the operations in the Bank’s Financial Statements for of Sampath Bank during the period 1st the year ended 31st December 2012, January 2011 to 31st December 2012. which have been audited by our External The last Sustainability Report of the Bank Auditors, Messrs Ernst and Young, was released 2012 separate part from our Chartered Accountants. Accounting policies Annual Report for 2011. and significant assumptions used in the While the Bank presents its sustainability preparation of these Financial Statements report according to an annual reporting are set out on pages 292 and 318 in the cycle, certain information relating to Annual Report 2012. activities outside this reporting span have Environmental, Social and Governance been included to lend perspective to the (ESG) issues have been reported and based sustainability risks the Bank may face. on data gathered from the relevant business units within the Bank Clarifications pertaining to this report may be This report has been presented according addressed to DGM Marketing and Business to the Global Reporting Initiative (GRI) G3 Development - Sampath Bank PLC, No 110, Guidelines and self declared at a Level B. Sir James Peiris Mawatha, Colombo 2, Sri Lanka. E-mail: [email protected], Tel: Assurance +94114730678, Fax +94114712014. Messrs. Ernst and Young, Chartered Accountants have provided their independent assurance Report Scope and Boundary on this Sustainability Report, in accordance Information in this report excludes the with International Standard on Assurance performance of the Group’s Subsidiaries. Engagements (ISAE 3000). The materiality of the issues presented was determined based on the initiatives Key Impacts, Risks and and systems in place within the Bank to Opportunities improve our stakeholder-inclusiveness This is explored in detail within pages 164 to and have been individually identified for: 200 as part of the Risk Management Review of Customers; Shareholders; Employees; the Annual Report 2012, while the sustainability Society, including community, government context of not addressing specific issues material and media; Suppliers; and the Environment, to each stakeholder are set out within the within the section titled ‘Stakeholder ‘Stakeholder Management’ section on pages 211 Management’. to 247 in this Sustainability Report.
Sampath Bank PLC 253 Sustainability Report
Governance, Commitments and Engagement on pages 211 to 247 in this Sustainability Report explores the process in place and initiatives The section on ‘Sustainability Vision’ on pages 202 adopted by the Bank to engage with stakeholders to 204 in this Sustainability Report sets out the and increase stakeholder inclusiveness. manner in which sustainability is driven within the Bank. The section on ‘Stakeholder Management’
Report Applicaiton Level CC+ BAB+ A+
Report on: Report on all criteria listed for Same as requirement for Level B 1.1 Level C plus: G3 Profile 2.1 - 2.10 1.2 3.1 - 3.8, 3.10 - 3.12 3.9, 3.13 Disclosures OUTPUT 4.1 - 4.4 , 4.14 - 4.15 4.5 - 4.13, 4.16 - 4.17
Not Required Management Approach Disclosures Management Approach disclosed for for each Indicator Category each Indicator Category G3 Management Approach Disclosures OUTPUT t Externally Assured t Externally Assured t Externally Assured Standard Disclosures Report on a minimum of 10 Report on a minimum of 20 Respond on each core G3 and Sector Repor Repor Repor G3 Performance Performance Indicators, including Performance Indicators, at least Supplement* indicator with due Indicators & at least one from each of: social, one from each of: economic, regard to the materiality Principle economic, and environment. environment, human rights, labor, by either: a) reporting on the Sector Supplement OUTPU T society, product responsibility. indicator or b) explaining the reason Performance Indicators for its omission.
*Sector supplement in nal version ** Performance Indicators may be selected from any nalized Sector Supplement, but 7 of the 10 must be from the original GRI Guidelines *** Performance Indicators may be selected from any nalized Sector Supplement, but 14 of the 20 must be from the original GRI Guidelines
254 Annual Report 2012 Independent Assurance Report to the management of Sampath Bank PLC on the Sustainability Report-2012 Introduction and scope of the engagement Institute of Chartered Accountants of Sri Lanka The management of Sampath Bank PLC (the (“ICASL”). “Bank”) engaged us to provide an independent Reasonable assurance is a high level of assurance on the following elements of the assurance. However, reasonable assurance is not Sustainability Report- 2012(“the Report”) an absolute level of assurance because there are Reasonable assurance on the information inherent limitations of an assurance engagement. on financial performance as specified on page 200 and 252 of the Report A limited assurance engagement is substantially Limited assurance on other information less in scope than a reasonable assurance presented in the Report engagement and consequently does not enable to obtain assurance that we would become aware Managements’ responsibility for of all significant matters that might be identified the Report in a reasonable assurance engagement. The management of the Bank is responsible for This report is made solely to the Bank in the preparation and presentation of the Report in accordance with our engagement letter dated 29 accordance with the Bank’s sustainability practices January 2013. We disclaim any assumption of and policies some of which are derived from Global responsibility for any reliance on this report to any Reporting Initiatives (GRI-G3.1) Sustainability person other than the Bank or for any purpose Reporting Guidelines. The GRI-G3.1 guidelines other than that for which it was prepared. In are publicly available at GRI’s global website at conducting our engagement, we have complied “www.globalreporting.org”. These responsibilities with the independence requirements of the Code include among other things, identification of for Ethics for Professional Accountants issued by stakeholders and material issues, determining the ICASL. the sustainable performance criteria for reporting and establishing appropriate processes and internal control systems to measure and report Key Assurance Procedures the sustainability performance criteria. Financial information We reconciled the information on financial Ernst & Young’s responsibility performance as reported on page 200 and 252 of Our responsibility is to perform a reasonable the Report with the audited financial statements and limited assurance engagement and express of the Bank for the years ended 31 December conclusions based on the work performed in 2008, 2009, 2010, 2011 and 2012. accordance with Sri Lanka Standard on Assurance Engagements (SLSAE- 3000): “Assurance Other information Engagements Other than Audits or Reviews of We planned and performed following assurance Historical Financial Information”, issued by the procedures on other information presented in the Report:
Sampath Bank PLC 255 Sustainability Report
Interviewing relevant Bank’s personnel Nothing has come to our attention that to understand the process for collection, causes us to believe that other information analysis, aggregation and presentation of presented in the Report are not fairly information in the Report presented, in all material respects, in Review the systems used to generate, accordance with the Bank’s sustainability aggregate and report the information in the practices and policies some of which Report are derived from GRI -G3.1-Sustainability Interview with the senior management Reporting Guidelines. and relevant staff at corporate level and selected business unit level and obtain the evidence concerning the sustainability strategy and policies for material issues and implementation of those across the Chartered Accountants operation of the Bank 25 February 2013 Reviewing and validating the information Colombo contained in the Report Checking the calculations performed by the Bank on a sample basis through recalculation Reading the information presented in the Report to determine whether that information is in line with our overall knowledge of, and experience with the sustainability performance of the Bank.
Conclusions Based on the procedures performed, as described above, we conclude that;
The information on financial performance as specified on page 200 and 252 of the Report are properly derived from the audited financial statements of the Bank for the years ended 31 December 2008, 2009, 2010 and 2011 and 2012;
256 Annual Report 2012 G3 Content Index Financial Services Sector Supplement Application Level B
Profile Description Direct Answer or reported section in Annual Cross-reference Disclosure Report 2012/Sustainability Report 2012 page numbers to Annual Report 2012/ Sustainability Report 2012
STANDARD DISCLOSURES PART I: Profile Disclosures Strategy and Analysis 1. Strategy Analysis 1.1 Statement from the most senior decision- MD’S Statement on Sustainability SR 200 maker of the organization. 1.2 Description of key impacts, risks, and GRI Para Meters SR 257 opportunities. 2. Organizational Profile 2.1 Name of the organization. Sampath Bank PLC 2.2 Primary brands, products, and/or services. Sustainable Finance SR 206 - 207 Management Discussion and AR 46 - 95 Analysis 2.3 Operational structure of the organization, Organisational Profile AR 99 including main divisions, operating Governance Structure companies, subsidiaries, and joint ventures. 2.4 Location of organization’s headquarters. Last page of Sustainability Report SR 254 2.5 Number of countries where the organization The Bank Primarily Operates in AR 415 operates, and names of countries with either Sri Lanka major operations or that are specifically Correspondent Banks and relevant to the sustainability issues covered Exchange Companies in the report. 2.6 Nature of ownership and legal form. Public Limited Company Resisted Under Companies Act No. 07 of 2007. 2.7 Markets served (including geographic Sustainable Finance AR 294 breakdown, sectors served, and types of customers/beneficiaries). 2.8 Scale of the reporting organization. Employees AR 394 Finance Reports Ten Years Summary
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Profile Description Direct Answer or reported section in Annual Cross-reference Disclosure Report 2012/Sustainability Report 2012 page numbers to Annual Report 2012/ Sustainability Report 2012
2.9 Significant changes during the reporting MD’s Review AR 18 period regarding size, structure, or Significant Accounting Policies AR 298 ownership. 2.10 Awards received in the reporting period. Awards and Accolades for 2012 SR 201 3. Report Parameters 3.1 Reporting period (e.g., fiscal/calendar year) 31 December 2012 for information provided. 3.2 Date of most recent previous report (if any). 31 December 2011 3.3 Reporting cycle (annual, biennial, etc.) Annual 3.4 Contact point for questions regarding the Report Profile report or its contents. 3.5 Process for defining report content. Report scope and boundary SR 253-254 3.6 Boundary of the report (e.g., countries, Report scope and boundary SR 253-254 divisions, subsidiaries, leased facilities, Organizational Profile AR 5 joint ventures, suppliers). See GRI Boundary Protocol for further guidance. 3.7 State any specific limitations on the scope Report scope and boundary SR 253 - 254 or boundary of the report (see completeness principle for explanation of scope). 3.8 Basis for reporting on joint ventures, Report scope and boundary SR 253 - 254 subsidiaries, leased facilities, outsourced operations, and other entities that can significantly affect comparability from period to period and/or between organizations. 3.9 Data measurement techniques and the Report scope and boundary SR 253 - 254 bases of calculations 3.10 Explanation of the effect of any re- No such re-statements of information incurred statements of information provided in during the year. earlier reports, and the reasons for such re-statement 3.11 Significant changes from previous reporting No such significant changes occurred from periods in the scope, boundary, or previous reporting measurement methods applied in the report. periods
258 Annual Report 2012 Profile Description Direct Answer or reported section in Annual Cross-reference Disclosure Report 2012/Sustainability Report 2012 page numbers to Annual Report 2012/ Sustainability Report 2012
3.12 Table identifying the location of the Standard This GRI table SR 257-271 Disclosures in the report. 3.13 Policy and current practice with regard to Independent Assurance Statement SR 255-256 seeking external assurance for the report. 4. Governance, Commitments, and Engagement 4.1 Governance structure of the organization, Sampath Bank & group AR 99 including committees under the highest governance structure governance body responsible for specific tasks, such as setting strategy or organizational oversight. 4.2 Indicate whether the Chair of the highest Corporate Governance Report AR 96-143 governance body is also an executive officer. 4.3 For organizations that have a unitary board Corporate Governance Report AR 96-143 structure, state the number of members of the highest governance body that are independent and/or non-executive members. 4.4 Mechanisms for shareholders and Corporate Governance Report AR 96-143 employees to provide recommendations or direction to the highest governance body. 4.5 Linkage between compensation for Report of the board of directors on AR 274 members of the highest governance the affairs of the company body, senior managers, and executives (including departure arrangements), and the organization’s performance (including social and environmental performance). 4.6 Processes in place for the highest Corporate Governance Report AR 96-143 governance body to ensure conflicts of interest are avoided. 4.7 Process for determining the qualifications Corporate Governance Report AR 96-143 and expertise of the members of the highest governance body for guiding the organization’s strategy on economic, environmental, and social topics.
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Profile Description Direct Answer or reported section in Annual Cross-reference Disclosure Report 2012/Sustainability Report 2012 page numbers to Annual Report 2012/ Sustainability Report 2012
4. Governance, Commitments, and Engagement 4.8 Internally developed statements of mission Our Vision & Values AR 4-5 or values, codes of conduct, and principles Corporate Governance Report AR 96-143 relevant to economic, environmental, and social performance and the status of their implementation. 4.9 Procedures of the highest governance Corporate Governance Report AR 96-143 body for overseeing the organization’s identification and management of economic, environmental, and social performance, including relevant risks and opportunities, and adherence or compliance with internationally agreed standards, codes of conduct, and principles. 4.10 Processes for evaluating the highest Corporate Governance Report AR 96-243 governance body’s own performance, particularly with respect to economic, environmental, and social performance. 4.11 Explanation of whether and how the Risk Management Report AR 164-197 precautionary approach or principle is addressed by the organization. 4.12 Externally developed economic, GRI Report Parameters SR 257 environmental, and social charters, principles, or other initiatives to which the organization subscribes or endorses. 4.13 Memberships in associations (such as National and Industry level partner SR 237 industry associations) and/or national/ ships international advocacy organizations in which the organization: * Has positions in governance bodies; * Participates in projects or committees; * Provides substantive funding beyond routine membership dues; or * Views membership as strategic. 4.14 List of stakeholder groups engaged by the Stakeholder Management SR 211-245 organization. 4.15 Basis for identification and selection of Report scope and boundary SR 253-254 stakeholders with whom to engage.
260 Annual Report 2012 Profile Description Direct Answer or reported section in Annual Cross-reference Disclosure Report 2012/Sustainability Report 2012 page numbers to Annual Report 2012/ Sustainability Report 2012
4.16 Approaches to stakeholder engagement, Stakeholder Management SR 211-245 including frequency of engagement by type and by stakeholder group. 4.17 Key topics and concerns that have been Stakeholder Management SR 211-245 raised through stakeholder engagement, and Corporate Governance Report - AR 96-143 how the organization has responded to those Key actions of the board and Sub key topics and concerns, including through committees during the year its reporting. STANDARD DISCLOSURES PART II: FSSS DMAs Disclosures on Management Approach DMA PS Aspects Product Portfolio Product Responsibility FS1 Policies with specific environmental and Stakeholder Management - SR 211-248 social components applied to business lines. Environment Society FS2 Procedures for assessing and screening Stakeholder Management - SR 211-248 environmental and social risks in business Environment lines. Society Risk Management Report FS3 Processes for monitoring clients’ Stakeholder Management - SR 211-248 implementation of and compliance with Environment environmental and social requirements included in agreements or transactions. FS4 Process (es) for improving staff competency Stakeholder Management - SR 211-248 to implement the environmental and social Environment policies and procedures as applied to business lines. FS5 Interactions with clients/investees/business Stakeholder Management - SR 211-248 partners regarding environmental and social Environment risks and opportunities. DMA SO Disclosure on Management Approach SO Product and Service Impact FS6 Percentage of the portfolio for business lines Sectors Concentrated though refinance loans AR 20-21 by specific region, size (e.g. Micro/SME/ Credit extended to diverse markets large) and by sector. Sector wise analysis of advances portfolio
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Profile Description Direct Answer or reported section in Annual Cross-reference Disclosure Report 2012/Sustainability Report 2012 page numbers to Annual Report 2012/ Sustainability Report 2012
Product portfolio FS7 Monetary value of products and services Leading the economic resurgence SR 252 designed to deliver a specific social benefit of the north and east for each business line broken down by purpose. FS8 Monetary value of products and services Lending through the E-friends SR 252 designed to deliver a specific environmental revolving credit line benefit for each business line broken down by purpose. Audit FS9 Coverage and frequency of audits to assess Environmental & social risks are assessed SR 247-252 implementation of environmental and social in credit evaluation process and reviews are AR 164 policies and risk assessment procedures. conducted All risks are assessed by department of risks and compliance. If any deviation is noticed reviews are conducted Active ownership FS10 Percentage and number of companies held Other impacts of our operation on the AR 247-253 in the institution’s portfolio with which the environment reporting organization has interacted on environmental or social issues. FS11 Percentage of assets subject to positive and Stakeholder Management - SR 211-253 negative environmental or social screening. Environment FS12 Voting polic(ies) applied to environmental Not Applicable or social issues for shares over which the reporting organization holds the right to vote shares or advises on voting. Economic performance Disclosures on Management Approach EC1 COMM Direct economic value generated and Stakeholder Management SR 211-253 distributed, including revenues, operating - Environment Economic costs, employee compensation, donations Contribution and other community investments, retained earnings, and payments to capital providers and governments.
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EC2 Financial implications and other risks and Risk Managements Report AR 164-197 opportunities for the organization’s activities due to climate change. EC3 Coverage of the organization’s defined Significant Accounting Polices AR 298 benefit plan obligations. EC4 Significant financial assistance received from Not Applicable government. Market presence EC5 Range of ratios of standard entry level Not Reported wage compared to local minimum wage at significant locations of operation. EC6 Policy, practices, and proportion of spending Stakeholder Management - SR 245-247 on locally-based suppliers at significant Suppliers locations of operation. EC7 Procedures for local hiring and proportion Stakeholder Management - SR 214-229 of senior management hired from the Employees local community at significant locations of operation. Indirect economic impacts EC8 Development and impact of infrastructure Stakeholder Management - SR 238-244 investments and services provided primarily Society for public benefit through commercial, in- kind, or pro bono engagement. EC9 Understanding and describing significant Stakeholder Management - SR 236 indirect economic impacts, including the Economic Contribution SR 252 extent of impacts. Environmental G3.1 FSSS Disclosure on Management Approach EN Environment SR 247-252 DMA EN Materials EN1 Materials used by weight or volume. Stakeholder Management - SR 247-252 Environment EN2 Percentage of materials used that are Stakeholder Management - SR 247-252 recycled input materials. Environment
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Profile Description Direct Answer or reported section in Annual Cross-reference Disclosure Report 2012/Sustainability Report 2012 page numbers to Annual Report 2012/ Sustainability Report 2012
Energy EN3 Direct energy consumption by primary energy Not Applicable source. EN4 Indirect energy consumption by primary Stakeholder Management - SR 247-252 source. Environment EN5 Energy saved due to conservation and Stakeholder Management - SR 247-252 efficiency improvements. Environment EN6 Initiatives to provide energy-efficient Stakeholder Management - SR 247-252 or renewable energy based products Environment and services, and reductions in energy requirements as a result of these initiatives. EN7 Initiatives to reduce indirect energy Stakeholder Management - SR 247-252 consumption and reductions achieved. Environment Water EN8 Total water withdrawal by source. Stakeholder Management - SR 247-252 Environment EN9 Water sources significantly affected by Not Applicable withdrawal of water. EN10 Percentage and total volume of water Not Applicable recycled and reused. Biodiversity EN11 Location and size of land owned, leased, Not Applicable managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas. EN12 Description of significant impacts of Not Applicable activities, products, and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas. EN13 Habitats protected or restored. Stakeholder Management - SR 247-252 Environment EN14 Strategies, current actions, and future plans Stakeholder Management - SR 247-252 for managing impacts on biodiversity. Environment
264 Annual Report 2012 Profile Description Direct Answer or reported section in Annual Cross-reference Disclosure Report 2012/Sustainability Report 2012 page numbers to Annual Report 2012/ Sustainability Report 2012
EN15 Number of IUCN Red List species and Not Applicable national conservation list species with habitats in areas affected by operations, by level of extinction risk. Emissions, effluents and waste Products and services EN26 Initiatives to mitigate environmental impacts Stakeholder Management - SR 247-252 of products and services, and extent of Environment impact mitigation. EN27 Percentage of products sold and their Not Applicable packaging materials that are reclaimed by category. Compliance EN28 Monetary value of significant fines and total Not Applicable number of non-monetary sanctions for non- compliance with environmental laws and regulations. Transport EN29 Significant environmental impacts of Not Reported transporting products and other goods and materials used for the organization’s operations, and transporting members of the workforce. Overall EN30 Total environmental protection expenditures Stakeholder Management - SR 247-252 and investments by type. Environment Social: Labor Practices and Decent Work G3.1 FSSS Disclosure on Management Approach LA DMA LA Employees Employment LA1 Total workforce by employment type, Stakeholder Management - SR 214-229 employment contract, and region. Employees LA2 Total number and rate of employee turnover Stakeholder Management - SR 214-229 by age group, gender, and region. Employees
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Profile Description Direct Answer or reported section in Annual Cross-reference Disclosure Report 2012/Sustainability Report 2012 page numbers to Annual Report 2012/ Sustainability Report 2012
Employment LA3 Benefits provided to full-time employees that Stakeholder Management - SR 214-229 are not provided to temporary or part-time Employees employees, by major operations. Labor/management relations LA4 Percentage of employees covered by Stakeholder Management - SR 214-229 collective bargaining agreements. Employees LA5 Minimum notice period(s) regarding Notice period defers based on the nature of significant operational changes, including the operational change and not specified in whether it is specified in collective collective agreements except for noticed on agreements. Resignations. Occupational health and safety LA6 Percentage of total workforce represented in None reported during the year 2012 formal joint management-worker health and safety committees that help monitor and advise on occupational health and safety programs. LA7 Rates of injury, occupational diseases, lost Stakeholder Management - SR 214-229 days, and absenteeism, and number of work- Employees related fatalities by region. LA8 Education, training, counseling, prevention, Stakeholder Management - SR 214-229 and risk-control programs in place to Employees assist workforce members, their families, or community members regarding serious diseases. LA9 Health and safety topics covered in formal Stakeholder Management - SR 214-229 agreements with trade unions. Employees Training and education LA10 Average hours of training per year per Stakeholder Management - SR 214-229 employee by employee category. Employees LA11 Programs for skills management and Stakeholder Management - SR 214-229 lifelong learning that support the continued Employees employability of employees and assist them in managing career endings.
266 Annual Report 2012 Profile Description Direct Answer or reported section in Annual Cross-reference Disclosure Report 2012/Sustainability Report 2012 page numbers to Annual Report 2012/ Sustainability Report 2012
LA12 Percentage of employees receiving regular Stakeholder Management - SR 214-229 performance and career development Employees reviews. Diversity and equal opportunity LA13 Composition of governance bodies and Stakeholder Management - SR 214-229 breakdown of employees per category Employees according to gender, age group, minority group membership, and other indicators of diversity. LA14 Ratio of basic salary of men to women by No such discrimination for gender differences employee category. Social: Human Rights G3.1 FSSS Disclosure on Management Approach HR DMA HR Investment and procurement practices HR1 COMM Percentage and total number of significant Not reported investment agreements that include human rights clauses or that have undergone human rights screening. HR2 Percentage of significant suppliers and Not reported contractors that have undergone screening on human rights and actions taken. HR3 Total hours of employee training on policies Employees are trained to make them concerns and procedures concerning aspects of on human rights human rights that are relevant to operations, including the percentage of employees trained. Non-discrimination HR4 Total number of incidents of discrimination None reported during the year 2012 and actions taken. Freedom of association and collective bargaining HR5 Operations identified in which the right to Not Applicable exercise freedom of association and collective bargaining may be at significant risk, and actions taken to support these rights.
Sampath Bank PLC 267 Sustainability Report
Profile Description Direct Answer or reported section in Annual Cross-reference Disclosure Report 2012/Sustainability Report 2012 page numbers to Annual Report 2012/ Sustainability Report 2012
Child labor HR6 Operations identified as having significant Decent work and human rights risk for incidents of child labor, and measures taken to contribute to the elimination of child labor. Forced and compulsory labor HR7 Operations identified as having significant Decent work and human rights risk for incidents of forced or compulsory labor, and measures to contribute to the elimination of forced or compulsory labor. Security practices HR8 Percentage of security personnel trained in All security personnel are trained in the organization’s policies or procedures organisation’s policies, procedures concerning concerning aspects of human rights that are aspects of human rights relevant to operations. relevant to operations. Indigenous rights HR9 Total number of incidents of violations None reported during the year 2012 involving rights of indigenous people and actions taken. Social: Society G3.1 FSSS Disclosure on Management Approach SO DMA SO Community SO1 Nature, scope, and effectiveness of any Stakeholder Management - SR 238-244 programs and practices that assess and Society manage the impacts of operations on communities, including entering, operating, and exiting. FS13 Access points in low-populated or Looking beyond traditional service economically disadvantaged areas by type. delivery channels FS14 Initiatives to improve access to financial Financial Education services for disadvantaged people.
268 Annual Report 2012 Profile Description Direct Answer or reported section in Annual Cross-reference Disclosure Report 2012/Sustainability Report 2012 page numbers to Annual Report 2012/ Sustainability Report 2012
Corruption SO2 Percentage and total number of business All business units analyzed for risks related to units analyzed for risks related to corruption. corruption. SO3 Percentage of employees trained in Training on anti-corruption organization’s anti-corruption policies and procedures. SO4 Actions taken in response to incidents of No significant incidents reported during the year corruption. 2012 Public policy SO5 Public policy positions and participation in Stakeholder Management - SR 238-244 public policy development and lobbying. Society - Public Policy SO6 Total value of financial and in-kind Stakeholder Management - SR 238-244 contributions to political parties, politicians, Society - Public Policy and related institutions by country. Anti-competitive behavior SO7 Total number of legal actions for anti- None reported during the year 2012 competitive behavior, anti-trust, and monopoly practices and their outcomes. Compliance SO8 Monetary value of significant fines and total None reported during the year 2012 number of non-monetary sanctions for non- compliance with laws and regulations. Social: Product Responsibility G3.1 FSSS Disclosure on Management Approach PR DMA PR Customer health and safety PR1 Life cycle stages in which health and safety Product development process SR 220 impacts of products and services are Product Responsibility SR 232 assessed for improvement, and percentage of significant products and services categories subject to such procedures.
Sampath Bank PLC 269 Sustainability Report
Profile Description Direct Answer or reported section in Annual Cross-reference Disclosure Report 2012/Sustainability Report 2012 page numbers to Annual Report 2012/ Sustainability Report 2012
PR2 Total number of incidents of non-compliance None reported during the year 2012 with regulations and voluntary codes concerning health and safety impacts of products and services during their life cycle, by type of outcomes. Product and service labelling PR3 Type of product and service information ll products are accompanied with required required by procedures and percentage of information on term, significant products and services subject to conditions and explanations. such information requirements. PR4 Total number of incidents of non-compliance None reported during the year 2012 with regulations and voluntary codes concerning product and service information and labeling, by type of outcomes. PR5 Practices related to customer satisfaction, Customer satisfaction survey SR 232 including results of surveys measuring customer satisfaction. FS16 Initiatives to enhance financial literacy by Financial education SR 231 type of beneficiary. Marketing communications PR6 Programs for adherence to laws, standards, All communications are in-line with established and voluntary codes related to marketing own banking systems and procedures which communications, including advertising, has derived from directions given by regulatory promotion, and sponsorship. bodies PR7 Total number of incidents of non-compliance None reported during the year 2012 with regulations and voluntary codes concerning marketing communications, including advertising, promotion, and sponsorship by type of outcomes. Customer privacy Total number of substantiated complaints None reported during the year 2012 regarding breaches of customer privacy and losses of customer data.
270 Annual Report 2012 Profile Description Direct Answer or reported section in Annual Cross-reference Disclosure Report 2012/Sustainability Report 2012 page numbers to Annual Report 2012/ Sustainability Report 2012
Compliance PR9 Monetary value of significant fines for None reported during the year 2012 non-compliance with laws and regulations concerning the provision and use of products and services.
Sampath Bank PLC 271 272 Annual Report 2012 Financial information
Sampath Bank PLC 273 ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANY
Your Directors have pleasure in presenting their Annual Report on the State Review of the year’s performance of Affairs, together with the Audited Financial Statements for the year ended A review of the Financial and Operational performance and future business 31.12.2012 of Sampath Bank PLC a licensed Commercial Bank, listed on developments of the Bank is contained in the message from Chairman the Colombo Stock Exchange and Consolidated Financial Statement of the (pages 14 to 17), the message from Managing Director (pages 18 to 29), Group, the Auditors’ Report on those Financial Statements. Sampath Bank Financial Review (pages 46 to 56) and the Management Discussion & PLC which was incorporated in Sri Lanka on 10th March 1986 under the Analysis (pages 57 to 95) of the Annual Report. Companies Act No. 17 of 1982 and approved as a licensed Commercial Bank under the Banking Act No. 30 of 1988 has now become a holding The Bank opened 03 new branches during the year under review, bringing the Company having many subsidiaries and significant investments in certain total number of branches to 209 as at the end of 2012. (As per the Section financial institutions. In compliance of the requirements of the New 168 (1) (a) of the Companies Act No. 07 of 2007) Companies Act No. 07 of 2007 the Bank was re-registered under the name Sampath Bank PLC with The Registrar General of Companies on 28th April Future Developments 2008. The Re-registration number of the Company is PQ 144. The Bank embarked on a rapid branch expansion program in the recent past, under which the branch numbers were increased from 112 at the end of Completion and the Contents of this report are in accordance with the 2008 to 209 by the end of 2012, thereby substantially increasing the Bank’s statutory requirements, the requirements of relevant regulatory authorities market reach in the country. The Bank will therefore focus on a business for listed companies in the financial services industry and best accounting expansion drive through this already expanded network, concentrating mainly practices which have been brought to the attention of the Shareholders and on its core banking operations to increase its market share and profitability. other Stakeholders. This will be further supplemented by a more vigorous drive on innovative product development, process improvements and staff development, aimed These Audited Financial Statements were approved by the Directors at the at fulfilling the rapidly changing customer needs in the challenging market Board Meeting held on 22nd February 2013. conditions and maximizing the value that we create for all the stakeholders.
Vision, Values and Corporate Conduct Financial Statements The Bank’s Vision and Values are given in page 4 of the report. The Bank The Financial Statements of the Bank and the Group for the year ended 31st conducts its business at a high level of ethical standard in achieving its December 2012 duly signed by the Group Chief Financial Officer, three of the Vision. Directors of the Bank and the Company Secretary are given on pages 292 to 391. ( As per the Section 168 (1)(b) of the Companies Act No. 07 of 2007) Activities, Business Review & Future Developments Principal Business Activities Financial Results The Principal business activities of the Company are banking and related Income financial services. The principal activities and nature of operations of the Interest income constitutes the Bank’s main income. The total income for Group are described in the Corporate Information on inner back cover and 2011 and 2012 were as follows: under each Company in this report. 2011 2012 Bank (Rs. Bn.) (Rs. Bn.) The principal activities of the Bank includes accepting deposits, personal Group Bank Group Bank banking, trade financing, off-shore banking, resident and non-resident foreign currency operations, travel related services, corporate and retail credit, Gross Income 28.27 27.57 39.72 38.79 import and export financing, project financing, lease financing, pawning, issuing of local and international debit and credit cards, telebanking Operating Income 15.13 14.57 18.38 17.87 facilities, internet banking, dealing in Government Securities & Treasury related products and e-banking services. Details are given in the Income Statement of the Financial Statements.
Subsidiaries Sampath Bank PLC had four subsidiaries as at 31.12.2012, namely;
Sampath Centre Ltd Renting of Commercial Property S C Securities (Pvt) Ltd Share Brokering Sampath Leasing and Factoring Ltd Leasing & Factoring Sampath Information Technology Developing Software Solutions & Solutions Ltd Maintenance of Hardware
274 Annual Report 2012 Profit & Appropriations Dividend Profit The Directors recommend that a final dividend of Rs. 12 per existing share, The profit before tax for the Bank and the Group were up by 45.48% and after providing for the 10% dividend Tax. This will be paid by 50% in the form 39.84% respectively and the profit after tax up by 51.63% and 45.05% of cash dividend and balance 50% in the form of scrip dividend. respectively. Details regarding the profit of the Bank are given below. Your Directors have made an assessment of the Solvency of the Bank, immediately after the proposed dividend and confirm that the Bank satisfies 2011 2012 the Solvency Test required by the Section 57 of Companies Act No. 07 of Rs. Mn. Rs. Mn. 2007. Profit for the year after payment of all expenses, 4,993.64 7,265.04 providing for depreciation, possible loan losses, With this dividend payment, the Bank is fulfilling the deemed dividend financial VAT and contingencies requirement according to the provisions of Inland Revenue Act.
Provision for taxation 1,606.43 2,128.61 The details are given in Note 09 to the Financial Statements. Net profit after taxation 3,387.21 5,136.43 Balance brought forward from previous year 1,756.43 1,730.57 Shareholders’ Fund & Reserves Total Shareholders’ Funds including Reserves of the Bank stood at Rs. Realisation of Revaluation Surplus 59.69 2.64 25,101Mn as at 31.12.2012 and details of which are given in Statement of Transfer from the Risk Reserve Fund of PDU - 3.66 Changes in Equity on page 297 of in this Annual Report. (Correcting entry) Profit available for appropriation 5,203.33 6,873.30 Directors’ Responsibility for Financial Reporting Appropriations The Directors are responsible for the preparation of Financial Statements of the Bank and the Group to reflect a true and fair view of the state of Transfer to the Statutory Reserve Fund 190.97 256.82 its affairs. The Directors are of the view that these Financial Statements Transfer to the Risk Reserve Fund of the Primary 4.14 73.30 appearing on pages 292 to 391 have been prepared in conformity with the Dealer requirements of the Sri Lanka Accounting Standards, Companies Act No. Transfer to Investment Fund Account 590.81 939.96 07 of 2007 thereafter, Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, the Banking Act No. 30 of 1988 and amendments thereto the Transfer to General Reserve 1,678.30 2160.00 Listing Rules of the Colombo Stock Exchange and the Mandatory Corporate Dividend Paid Governance Code for Licensed Commercial Banks issued by Central Bank of Final Scrip Dividend paid of 1,008.53 Sri Lanka. The Statement of Directors’ Responsibility for Financial Reporting Rs. 6.60 per share - 2010 is given on pages 290 of this Annual Report which forms an integral part of this Report and also confirm that the Bank has complied with prudential Final Cash Dividend paid of 713.51 requirements, regulations, laws and internal controls. Rs. 4.50 per share - 2011 Final Scrip Dividend paid of 713.48 Auditors Report Rs. 4.50 per share - 2011 The Auditors of the Bank are M/s Ernst & Young, Chartered Accountants. Balance carried forward 1,730.57 2,016.23 Their report on the consolidated Financial Statements for the year ended Dividend Proposed December 31, 2012 is given on page 291. They come up for re-election at the Annual General Meeting, with the recommendation of the Audit Final Cash & Scrip Dividend proposed 1,426.99 Committee and Board of Directors. (As per the Section 168 (1) (c) of the at Rs. 9.00 per share - 2011 Companies Act No. 07 of 2007). Final Cash & Scrip Dividend proposed 1,952.84 at Rs.12.00 per share - 2012 Significant Accounting Policies The Bank has adopted its revised Sri Lanka Accounting Standards(LKAS/ Taxation SLFRS) during the year 2012 and has restated the prior years in compliance Income tax rate applicable on the Bank’s domestic operations and on-shore with the transitional changes stated in the Sri Lanka Financial Reporting and off-shore profits of the off-shore Banking Centre is 28%. Standards 01 on “ First time adoption of Sri Lanka Accounting Standards” (SLFRS 01). The Financial VAT and Income Taxes of the Bank are given in Income Statement and 07 to the financial statements. The significant changes to accounting policies are given in page 298 to 317. These financial statements comply with requirements of Lanka Accounting The Bank’s policy is to provide for deferred taxation on temporary differences Standard 01 on “Presentation of Financial Statements” (LKAS 01) and as permitted by the Lanka Accounting Standard No. 12 (LKAS12) on Income comply with Section 168 (1) (d) of the Companies Act No. 07 of 2007. Taxes. Provision for taxation has been compiled at the rates given in Note 7 to the Financial Statements. Directors’ Interest Register Under the provisions of Section 168 (1) (e) of the Companies Act No. 07 of 2007, the Interest Register is maintained by the Bank and the Group. Directors have made the necessary declarations, in terms of the Section 192 (2) of the Companies Act No. 07 of 2007, which are recorded in the
Sampath Bank PLC 275 ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANY
Interest Register and this is available for inspection in terms of the Act. The Mr. Dhammika Perera was appointed as Chairman, and Mr. Aravinda Perera entries in the Register made during the accounting period are given as a as Managing Director of Sampath Bank with effect from 01st January 2012. footnote to this Report on pages 282 to 285. Mr. Sanjiva Senanayake, Mr. Channa Palansuriya, Mr. Deshal De Mel, Mr. Directors’ Remuneration Ranil Pathirana and Ms. Annika Senanayake were appointed as Non- Directors’ remuneration and other benefits of Directors in respect of the Executive Directors with effect from 01st January 2012 and Mrs. Saumya Bank and the Group are given in Note 06 to the Financial Statements on Amarasekera was appointed as Non-Executive Director with effect from 01st page 320. (As per the Section 168 (1) (f) of the Companies Act No. 07 of June 2012. 2007). Mr. Channa Palansuriya was appointed as Deputy Chairman and Mr. Sanjiva Donations Senanayake was appointed as Senior Director, subsequently. Given below is the total donations made by the Bank during the year. The Bank does not make donations for political purposes. All Non-Executive Directors of the Bank have given a signed declaration in terms of Colombo Stock Exchange’s continuing listing rules clarifying their position either as an independent Director or Non-Independent Director. Donations 2011 Donations 2012 These were tabled at the Board Meeting held on 24th January 2013. Recommendation for re-election Rs. 4.980 Mn Rs.3.922 Mn.
In terms of Article No. 86 and 87 of the Articles of Association of the Company, Mr. Dhammika Perera, Mr Sanjiva Senanayake, Prof Malik Donations in excess of Rs. 50,000/- are disclosed in Note 6 on page 320 to Ranasinghe and Mrs Dhara Wijayatilake retires by rotation and being eligible the Financial Statements. (As per the Section 168 (1)(g) of the Companies offer for re-election, on a unanimous recommendation of the Nomination Act No. 07 of 2007). Committee and Board of Directors.
Directorate Mrs Saumya Amarasekera was appointed as Non-Executive Director with The names of the directors of the Bank during the period 01.01.2012 to effect from 01st June 2012. She offers herself for re-election by the 31.12.2012 are given below. The classification of Directors into Executive, Non- shareholders in terms of section No. 93 of the Articles of Association of the Executive and Non-Executive Independent Directors is given against the names Company on an unanimous recommendation of the Nomination Committee as per Colombo Stock Exchange listing requirements and Corporate Governance and the Board of Directors. rules and Central Bank’s mandatory rules on Corporate Governance. (As per the Section 168 (1)(h) of the Companies Act No. 07 of 2007). Re-election under Section 210 and 211 of the Companies Act. No existing Director has reached the age of 70 and therefore these sections The names of the Directors of the Bank during the period 01.01.2012 to of the Companies Act are not applicable. 31.12.2012
Name Date of Appointment Remarks
Mr. Dhammika Perera Non-Executive Director since 01.08.2007 Appointed as Chairman w.e.f. 01.01.2012 Mr. Channa Palansuriya Non-Executive Director with effect from 01.01.2012 Appointed as Deputy Chairman w.e.f. 26.01.2012 Mr. Sanjiva Senanayake Non-Executive Director with effect from 01.01.2012 Appointed as Senior Director w.e.f. 26.01.2012 Independent Mr. Deepal Sooriyaarachchi Non-Executive Director since 05.08.2010 Independent Mrs. Dhara Wijayatilake Non-Executive Director since 30.08.2011 Independent Prof. Malik Ranasinghe Non-Executive Director since 30.08.2011 Independent Mr. Ranil Pathirana Non-Executive Director with effect from 01.01.2012 Independent Mr. Deshal De Mel Non-Executive Director with effect from 01.01.2012 Independent Ms. Annika Senanayake Non-Executive Director with effect from 01.01.2012 Independent Mrs. Saumya Amarasekera Non-Executive Director with effect from 01.06.2012 Independent Mr. Aravinda Perera Executive Director since 25.11.2008 Appointed as Managing Director w.e.f. 01.01.2012 Mr. Ranjith Samaranayake Executive Director since 01.01.2009 Alternate Directors Prof Malik Ranasinghe Alternate Director to Mr. Deepal Sooriyaarachchi Appointed with effect from 15.01.2012 Mr. Deepal Sooriyaarachchi Alternate Director to Prof. Malik Ranasinghe Appointed with effect from 31.01.2012 Mr Sanjiva Senanayake Alternate Director to Mr Deshal De Mel Appointed with effect from 26.04.2012
276 Annual Report 2012 Directorate - Subsidiaries Names of the Directors of Subsidiaries are given below;
Sampath Centre Ltd Sampath Leasing & Factoring Ltd S C Securities (Pvt) Ltd Sampath Information Technology Solutions Ltd
Mr. I W Senanayake Mr. I W Senanayake (Chairman) Mr. D J Gunaratne (Chairman) Mr. L J K Hettiaratchi (Chairman) (Chairman) Mr. S G Wijesinha Mr. E A Gunasekera Mr. E A Gunasekera Mr. S G Wijesinha Mr. W M P L De Alwis Mr. Harsha Fernando Mr. M Y A Perera Mr. E A Gunasekera (appointed on 25.02.2011) (Vacated office on 31.12.2012) Mr. M Y A Perera Mr. S P Kannangara Mrs. M A Karunaratne Mr. D J Gunaratne Dr. S Kelegama Mr. L R Jayakody Mr. P M A Sirimane Mr. N J Alwis Mr. M N R Fernando (appointed on 15.12.2012) (vacated office on 11.09.2012) Dr. H S D Soysa (appointed on 18.12.2012) Mr. M Y A Perera (appointed on 01.01.2011) Mr. N R Tillekeratne (vacated office on 31.12.2012) (vacated office on 15.03.2012) Mr. M A Abeynaike (appointed on 28.03.2012) Mr. M V Indrasoma Mr. M Y A Perera Ms. A H W Senanayake (appointed on 28.03.2012) (vacated office 01.01.2012) Mr. R Samaranayake (appointed on 28.12.2012)
Register of Directors & Secretaries Shareholding No. of Shares As No. of Shares As The Bank maintains a Register of Directors and Secretaries which contain at 31.12.2012 at 31.12.2011 the name, surname, former name (if any), residential address, business, Mr. Deepal Sooriyaarachchi Nil Nil occupation and dates of appointment and resignation of each member. Prof. Malik Ranasinghe Nil Nil Directors’ Interest in Contracts Mrs. Dhara Wijayatilake Nil Nil The Directors of the Bank have made declarations as provided for in section Mr. Channa Palansuriya Nil Nil 192(2) of the Companies Act No. 07 of 2007. Mr. Sanjiva Senanayake Nil Nil Directors Interest in contracts of the Company are disclosed on pages 285 Mr. Ranil Pathirana 6,363 Nil to 286. The Directors have no direct or indirect interest or proposed contract Mr. Deshal De Mel Nil Nil other than those disclosed. Ms. Annika Senanayake Nil Nil The Directors have at the meetings declared all material interests in Mrs Saumya Amarasekara Nil Nil contracts if any involving the Company and have refrained in participating NOTE:- *A Company Controlled by Mr. Dhammika Perera when decisions are taken. Board Sub Committees Directors’ Interest in Shares and Debentures In keeping with the principles of Corporate Governance, Transparency and Accountability, the Board has initiated the formation of the following Board Shareholding No. of Shares As No. of Shares As Sub-Committees. These Sub-Committees have been re-constituted in keeping at 31.12.2012 at 31.12.2011 to the new mandatory code of Corporate Governance of the Central Bank of Mr. Dhammika Perera Nil Nil Sri Lanka, the Institute of Chartered Accountants, the regulation of Colombo Stock Exchange and the Bank’s requirements as envisaged by its Directors. *Vallibel Leisure (Pvt) Ltd Nil Nil *Vallibel Investments (Pvt) Ltd Nil Nil The duties, responsibilities and performance of the above sub-committees *Vallibel One PLC 24,371,697 23,445,302 are discussed in the respective sub-committee reports in this Annual Report. Mr. Aravinda Perera 18,597 1,755 (Managing Director) Mr. Ranjith Samaranayake 20,690 1,168
Sampath Bank PLC 277 ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANY
Audit Committee Mr. Ranil Pathirana (Chairman), Mr. Sanjiva Senanayake Prof. Malik Ranasinghe and Mrs. Dhara Wijayatilake were appointed to this committee w.e.f. 01st January 2012.
Mr. Deepal Sooriyaarachchi. continues as a member of the Committee.
The Report of the Audit Committee is given on pages 144 to 147.
Nomination Committee Mrs Saumya Amarasekera (Chairperson) was appointed on 01st December 2012 Mr. Channa Palansuriya and Ms. Annika Senanayake were appointed to this Committee w.e.f. 01st January 2012. Mr. Dhammika Perera continues as a member of the Committee. Mr. Aravinda Perera (by Invitation)
The Report of the Nominations Committee is given on pages 148 to 149.
Credit Committee Prof. Malik Ranasinghe (Chairman),Mr. Sanjiva Senanayake, Mr. Channa Palansuriya, Ms. Annika Senanayake and Mr. Deshal De Mel were appointed to this committee w.e.f. 01st January 2012.
Mr. Aravinda Perera, Mr. Ranjith Samaranayake continue as members of the Committee.
Mr. Ranil Pathirana, Vacated office on 30th January 2012.
The Report of the Credit Committee is given on pages 150 to 151.
Board Risk Management Mrs. Dhara Wijayatilake (Chairperson) Committee Mr. Sanjiva Senanayake, and Mr. Channa Palansuriya were appointed to this Committee w.e.f. 01st January 2012.
Mr. Aravinda Perera, Mr. Ranjith Samaranayake continue as members of the Committee.
The Report of the Board Risk Management Committee is given on pages 152 to 154.
Human Resources & Mr. Deepal Sooriyaarachchi, (Chairman) Remuneration Committee Mr. Channa Palansuriya, Mr. Deshal De Mel and Ms. Annika Senanayake were appointed to this committee w.e.f. 01st January 2012.
Mr. Aravinda Perera continues as a member of the Committee.
The Report of the Human Resources & Remuneration Committee is given on pages 155 to 157.
Strategic Planning Committee Mr. Dhammika Perera (Chairman)
Mr. Channa Palansuriya, Mr. Sanjiva Senanayake, Prof. Malik Ranasinghe, Mr. Deshal De Mel and Mr. Ranil Pathirana were appointed to this committee w.e.f. 01st January 2012.
Mr. Aravinda Perera and Mr. Ranjith Samaranayake continue as members of the Committee.
The Report of the Strategic Planning Committee is given on pages 158 to 159.
Shareholder Relations Mr. Channa Palansuriya (Chairman) and Mr. Deshal De Mel were appointed to this Committee w.e.f. 01st January 2012. Committee Mr. Ernest Gunasekera and Mr. Prashantha Lal De Alwis serve as Advisors to the Committee.
The Report of the Shareholder Relations Committee is given on pages 160 to 161.
Marketing Committee The Board has initiated the formation of the Marketing Board Sub-Committee on 28th June 2012.
Mr. Deepal Sooriyaarachchi (Chairman), Ms Annika Senanayake, Mr Deshal De Mel and Mrs Saumya Amarasekera were appointed to this Committee w.e.f. 28th June 2012.
The Report of the Board Marketing Committee is given on page 163.
Treasury Committee The Board has initiated the formation of the Treasury Board Sub-Committee on 31st May 2012.
Mr. Sanjiva Senanayake (Chairman) , Prof. Malik Ranasinghe, Mr. Deshal De Mel, Mr. Aravinda Perera and Mr. Ranjith Samaranayake were appointed to this committee w.e.f. 31st May 2012.
The Report of the Board Treasury Committee is given on page 162.
278 Annual Report 2012 Directors’ Interest in Shares & No. of shares issued in 2011 No. of shares issued in 2012 Debentures of Subsidiaries: None of the Directors directly hold any debentures in any Subsidiary. 156,854,190 162,736,665
Mr. Aravinda Perera and Mr. Ranjith Samaranayake hold 01 share each in The details of the proportionate increments of the issued shares are given in Sampath Information Technology Solutions Ltd, as subscribers. These shares Note 8 to the Financial Statements. are held in trust for Sampath Bank. Mr. Aravinda Perera holds 01 share in S C Securities (Pvt) Ltd for and on Debt Capital behalf of Sampath Bank PLC. Sampath Bank PLC has issued 2,500,000 Unsecured, Subordinated, Redeemable 5 year Debentures, which are unlisted. The par value of these Directors’ Meetings debentures is Rs. 100/- and these debentures were redeemed in June Details of Directors meetings and Board sub-committee meetings are given 2012. in Corporate Governance Report on page 107 of this Annual report.
Sampath Bank PLC has also issued 15,000,000 Unsecured, Subordinated, Auditors’ Interest and dealings Redeemable 5 year Debentures, which are listed on the Colombo Stock The Auditors, M/s Ernst & Young were paid Rs. 10.333 Mn (Rs. 7.574 Mn in Exchange. The par value of these debentures is Rs. 100/- and these 2011) and Rs. 12.547 Mn (Rs. 9.185 Mn in 2011) respectively for the year debentures were redeemed in August 2012. ended December 31, 2012 as audit fees by the Bank and the Group.
In addition, they were paid Rs. 3.592 Mn (Rs. 4.032 Mn in 2011) and Sampath Bank PLC has issued 15,000,000 Unsecured, Subordinated, Rs. 4.981 Mn (Rs. 4.607 Mn in 2011) respectively for permitted non-audit Redeemable 5 year Debentures, which are listed on the Colombo Stock related services including tax consultancy services by the Bank and the Exchange. The par value of these debentures is Rs. 100/- and these group. debentures will redeemed in October 2017.
The details are given in Note 29.1 to the Financial Statements. M/s Ernst & Young who are the Bank’s auditors are also the auditors for the Bank’s subsidiary companies namely, Sampath Centre Ltd, SC Securities Bond (Pvt) Ltd, Sampath Leasing and Factoring Ltd and Sampath Information Sampath Bank PLC has issued a deep discounted zero coupon bond with a Technology Solutions Ltd. maturity value of Rs. 3,458.1 Mn for 20 years. The present paid up value of this bond is Rs.1,368.7 Mn and this forms part of the Tier II Capital. Registered Office and Head Office The registered office and head office of the Bank is situated at No.110, The details are given in Note 29.2 to the Financial Statements. Sir James Peiris Mawatha, Colombo 2. Corporate Governance Shareholding The Board of Directors is committed towards maintaining an effective The number of registered shareholders of the Company as at 31st December Corporate Governance Framework and implementing processes required 2012 was 17,518 compared to 17,515 as at 31st December 2011. The to ensure that the Bank is compliant with the Code of Best Practice on Schedule indicating the shareholders’ analysis is on pages 400 to 405. Corporate Governance, issued by the Institute of Chartered Accountants of Sri Lanka, the Central Bank of Sri Lanka, the Securities and Exchange Investors’ Information Commission of Sri Lanka and the Colombo Stock Exchange. Details are given Information relevant to investors such as Earnings & Earning Yield, Dividend on Corporate Governance Report on pages 96 to 163 in this Annual Report. & Dividend Yield, Net Assets and Volume of Share trading and Market Capitalisations etc. are given on pages 8, 394 and 400 to 405. As required by Section 3(8)(ii)(g) on Corporate Governance of the Direction No. 11 of 2007 of the Banking Act for Licensed Commercial Banks, issued by the Central Bank of Sri Lanka (CBSL), The Board of Directors have Significant Shareholding confirmed that all the findings of the “Factual Findings Reports” of auditors Sampath Bank PLC has a 7.54% shareholding (significant) in Union Bank issued under “Sri Lanka Related Services Practice Statement 4750” have of Colombo PLC and 9.47% shareholding in LankaBangla Finance Limited been incorporated in the annual Corporate Governance Report. in Bangladesh. Details are given in Note Nos 15 & 20 to the Financial Statements. Internal Controls The Board of Directors has put in place an effective and comprehensive Stated Capital system of Internal Controls by: The Stated Capital of the Bank is Rs. 3,564.17Mn comprising of 162,736,665 Ordinary Voting Shares. (1) Ensuring that an adequate and effective system of internal control is established and maintained, by approving and periodically reviewing The number of shares in issue of the Bank increased from 156,854,190 overall business strategies and significant policies of the Bank. ordinary shares to 162,736,665 ordinary shares as a result of the payment (2) Ensuring that delegated responsibilities are effectively carried out of final Scrip Dividend for 2011 and the exercise of options by employees and setting appropriate internal control policies by the Corporate under the ESOP 2010. Management of the Bank.
Sampath Bank PLC 279 ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANY
(3) Ensuring that all personnel understand their role in the internal As at 31st December 2012, the number of employees on the payroll of the Control process and are fully engaged in the process. Bank was 3,455 as compared to 3,230 as at 31st December in 2011. ESOP 2010 (4) Recognising and assessing of material risks that could adversely affect the achievement of the Bank’s goals, covering all risks and Through this ESOP Plan the team members have got an opportunity to revising Internal controls which should appropriately address any new contribute towards the Capital of the Bank and to increase their portion of or previously uncontrolled risks. ownership of which the limit boundary is 2% of the total issued number of (5) An appropriate control structure is set up, with control activities shares. defined at every business unit level. (6) Identifying, minimising and monitoring of areas of potential conflicts of The option exercisable period would be 3 years, from the entitlement date interest. of 30.06.2011 fixed in the scheme. In the event of options being fully exercised by the eligible staff, the stated capital of the Bank would rise by (7) Relevant financial, operational and compliance data, as well as Rs. 244.5 Mn, as a result of the consideration to be paid by the staff under external market information is maintained to provide reliable, timely, the ESOP. and accessible information. (8) Monitoring the information systems to ensure that “hold and use No financial assistance will be provided by the Bank to the staff to purchase data” in an electronic form is secured and supported by adequate the share options. The remaining contractual life of share options is 1 year contingency arrangements. and 6 months. (9) Ensuring that effective channels of communication are available to all ESOP 2010 Plan position as at staff to understand and adhere to policies and procedures affecting their duties and responsibilities. 31st December 31st December (10) Ensuring that business lines and internal audit are monitoring key 2012 2011 risks which are part of the daily activities of the Bank. Number of options available (11) Ensuring that Internal Audit function is carried out by operationally under this plan - 3,056,159 Shares - 3,056,159 Shares independent, appropriately trained competent staff who report directly Number of options exercised - 2,725,360 Shares - 524,924 Shares to Audit Committee of the Board. Number of options remaining - 330,799 Shares - 2,531,235 Shares Option price - Rs. 80.00 - Rs. 80.00 (12) Ensuring that internal control deficiencies, identified by business Weighted average market lines, internal audit or other control personnel are reported to senior price as at - Rs. 200.89 - Rs. 221.00 management and the Board of Directors in a timely manner. Capital Expenditure Internal Control Over Financial Reporting (ICOFR) - Compliance with section The Bank incurred capital expenditure on the acquisition of premises and 3(8)(ii)(b) of the Banking Act Direction No. 11 of 2007 on Corporate equipment during the financial year. The summarised details of capital Governance. expenditure in 2011 and 2012 are as follows:
The Group is required to comply with the Section 3(8)(ii)(b) of the Banking Act Direction No. 11 of 2007 on Corporate Governance issued by Central Capital Expenditure for 2011 Capital Expenditure for 2012 Bank of Sri Lanka and assess the effectiveness of internal controls over Rs. 979.6 Mn Rs 918.9 Mn financial reporting for the year ended 31st December 2012.
Accordingly, the Bank assessed the effectiveness of its internal controls The details are given in Note 23 and 24 on page 344 and 348 to the over financial reporting as at 31 December 2012, based on the criteria set Financial Statements. out in the Guidance for Directors of Banks on “The Directors’ Statement” of Internal Control, issued by the Institute of Chartered Accountants of Sri Capital Commitments Lanka (ICASL) in 2010. Capital Commitments approved and contracted are shown in Note 36.4 on page 367. The Directors’ Statement on Internal Control is detailed on page 287 in the Annual Report. Auditor’s Report on the Bank’s Internal Control Over Financial Market Value of Freehold Properties Reporting is provided on page 288 of this Annual Report. All freehold land and buildings of the Bank were last re-valued by professional values in 2010 and a revaluation surplus of Rs. 355.638 Mn. Statutory Payments was brought in to Financial Statements. The Directors are satisfied to the best of their knowledge and belief, that statutory payments due to the Government, other regulatory bodies and in Directors are of the opinion the value stated are not in excess of the current relation to the employees have been paid up to date, on a timely basis. market value of such properties.
Our Team Members The details are given in Statement of Changes in Equity on page 297 to the The Bank believes that its real potential rests on the strength and Financial Statements. capabilities of its team members in a rapidly changing scenario. All efforts are directed at having a motivated and competent team in order to grow and achieve results as projected in the Strategic Plan and the Budget.
280 Annual Report 2012 Value Added Environmental Protection Value Added details are shown on page 395. The Bank/Group has not knowingly engaged in any activity which is harmful to the environment. Risk Management The Board and Corporate Management of the Bank have re-aligned its risk Auditors management structure with the objective of identifying, measuring and The Auditors of the Company are M/s Ernst & Young, Chartered Accountants. mitigating the risks. They come up for re-election at the Annual General Meeting, with the recommendation of the Audit Committee and the Board of Directors. The ongoing process at the Bank is detailed in the Risk Management Report on pages 164 to 197. In accordance with Companies Act No. 7 of 2007, a resolution proposing the re-appointment of M/s Ernst & Young, Chartered Accountants as Auditors is Outstanding Litigation being proposed at the Annual General Meeting. In the opinion of the Directors and in consultation with the Bank lawyers, litigations currently pending against the Bank will not have material impact Annual General Meeting on the reported financial results of future operations of the Bank. Details of In complying with the good governance practices, the Annual Report of the litigations pending against the Bank are given in Note 36.3 on page 365 to Company is dispatched as soon as possible after the end of the financial 366 of the Annual Report. year and completion of the audit.
Events after the Balance Sheet Date A data base has been developed and on requirement of shareholders and There have not been any material events that occurred subsequent to accordingly in compliance with the Colombo Stock Exchange Rules, the the date of the Balance Sheet that require adjustments to the Financial Annual Reports have been distributed in the form of a Diskette (a Soft copy) Statements, other than those disclosed, if any, in Note 40 to the Financial as well as Printed form. Statements. Notice of Meeting Going Concern The 27th Annual General Meeting will be held at the Kingsbury Hotel, The Directors after making necessary inquiries and reviews including reviews Colombo on 4th April 2013. The notice of meeting is given on page 430 of of the Groups budget for the ensuing year, capital expenditure requirements, the Annual Report. future prospects and risks and cash flows, and such other matters required to be addressed in the Code of Best Practice on Corporate Governance, As required by Section 168(1)(k) of the Companies Act No. 07 of 2007 the issued by the Institute of Chartered Accountants of Sri Lanka, the Central Board of Directors hereby acknowledge the contents of this report. Bank of Sri Lanka and the Securities and Exchange Commission of Sri Lanka For and on behalf of the Board of Directors. are satisfied that the company and the Group have adequate resources to continue operations into the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Financial Statements.
Dhammika Perera Channa Palansuriya Aravinda Perera S Sudarshan Chairman Deputy Chairman Managing Director Group Company Secretary
22nd February 2013 Colombo, Sri Lanka
Sampath Bank PLC 281 ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANY
Note: Directors’ Interest Register (Changes during the year ending 31.12.2012)
Mr. Dhammika Perera Directorship/Officer/Trustee in other Entities:
Company Name Position held Date appointed Date resigned
Strategic Enterprises Management Member of Board 24.04.2006 - Agency (SEMA) Ministry of Transport, Sri Lanka Secretary 21.01.2011 -
Substantial Interest in other Entities other than Banks Company Name Position held
Vallibel Power Erathana PLC Chairman Vallibel Finance PLC Chairman Royal Ceramics Lanka PLC Deputy Chairman LB Finance PLC Exe. Dep. Chairman The Fortress Resorts PLC Chairman Vallibel One PLC Chairman Greener Water Ltd Chairman Delmage (Pvt) Ltd Chairman Hayleys PLC Deputy Chairman Amaya Leisure PLC Director Orit Apparels Lanka (Pvt) Ltd Director Hotel Services (Ceylon) PLC Director Hayleys – MGT Knitting Mills PLC Director Haycarb PLC Director Dipped Products PLC Director Nirmalapura Wind Power (Pvt) Ltd Director Alutec Anodising & Machine Tools (Pvt) Ltd Director Sri Lankan Insurance Corporation Ltd Director
Mr. Aravinda Perera Directorship in Subsidiary Companies:
Company Name Position held Date appointed Date resigned
Sampath Centre Ltd Director 31.08.2007 31.12.2012 S C Securities Pvt Ltd Director 01.12.2008 - Sampath Information Technology Solutions Ltd Director 05.03.2009 31.12.2012 Sampath Leasing and Factoring Ltd Director 28.03.2012
Directorship/Officer/Trustee in other Entities:
Company Name Position held
Lanka Financial Services Bureau Ltd Director
282 Annual Report 2012 Mr. Ranjith Samaranayake Directorship in Subsidiary Companies:
Company Name Position held Date appointed Date resigned
Sampath Leasing and Factoring Ltd Director 28.12.2012 -
Mr. Deepal Sooriyaarachchi Directorship/Officer/Trustee in other Entities:
Company Name Position held Date appointed Date resigned
AVIVA NDB Insurance PLC Non-Executive Independent Director 01.04.2010 - Hemas Manufacturing (Pvt) Ltd Non-Executive Independent Director 03.05.2010 - Pan Asian Power PLC Non-Executive Independent Director 27.07.2010 - National Administrative Reforms Commission Member - - Prof. V. K Samaranayake Endowment Fund Member - - Council of the University of Kelaniya Member - - Sri Lanka Inventor’s Commission Commissioner - -
Prof. Malik Ranasinghe Directorship/Officer/Trustee in other Entities:
Company Name Position held Date appointed Date resigned
Hemas Power PLC Non-Executive Independent Director 01.07.2009 - Textured Jersey Lanka PLC Non-Executive Independent Director 15.04.2011 - Access Engineering PLC Non-Executive Independent Director 01.07.2011 -
Mrs. Dhara Wijayatilake Directorship/Officer/Trustee in other Entities: Company Name Position held Date appointed Date resigned
Ministry of Technology and Research Secretary - -
Mr. Channa Palansuriya Directorship/Officer/Trustee in other Entities:
Company Name Position held Date appointed Date resigned
Orit Apparels Lanka (Pvt) Ltd Chairman 01/01/1997 - Orit Trading Lanka (Pvt) Ltd Chairman - Style Kraft Sportswear (Pvt) Ltd Chairman 02/02/2012 - G C Lanka Clothing (Pvt) Ltd Chairman 2005 - Joint Apparel Association Forum (JAAF) Deputy Chairman 2011 - Sri Lanka Apparel Sourcing Association (SLASA) Executive Member 2006 - Apparel Exports Association 200Gfp (AEA 200gfp) Executive Member 2006 - Sri Lanka Institute of Textile and Apparel Board Member 2008 -
Sampath Bank PLC 283 ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANY
Mr. Sanjiva Senanayake Directorship/Officer/Trustee in other Entities:
Company Name Position held Date appointed Date resigned
Hemas Power PLC Non-Executive Independent Director - Hemas Pharmaceuticals (Pvt) Ltd Non-Executive Independent Director - Asian Hotel & Properties PLC Non-Executive Independent Director -
Mr. Ranil Pathirana Directorship/Officer/Trustee in other Entities:
Company Name Position held Date appointed Date resigned
Hayleys PLC Non-Executive Director June 2011 WindForce (Pvt) Ltd Director 25 August 2010 Hirdramani Apparels Holdings (Pvt) Ltd Director 22 July 2011 Star Packaging (Pvt) Ltd Director 18 October 2001 Start Park Investment (Pvt) Ltd Director 29 September 2009 Ceylon Knit Trend (Pvt) Ltd Director 01 November 2000 Hirdramani Industries (Pvt) Ltd Director 21 November 2000 Hirdramani Mercury Apparel (Pvt) Ltd Director 06 July 2005 Hirdramani Garments Katunayake (Pvt) Ltd Director 27 November 2000 CKT Apparel (Pvt) Ltd Director 20 December 2006 HI Fashion Holdings (Pvt) Ltd Director 18 August 2009 Hirdramani Leisure Holdings (Pvt) Ltd Director 22 July 2011 Union Residencies (Pvt) Ltd Director 31 July 2003 Hirdramani (Pvt) Ltd Director 20 October 2005 Hirdramani Investment Holdings (Pvt) Ltd Director 22 July 2011 Nirmalapura Wind Power (Pvt) Ltd Non-Executive Director 23 August 2010 Gurugoda Hydro (Pvt) Ltd Director 24 March 2009 Esna Power (Pvt) Ltd Director 01 September 2011 Rosewood (Pvt) Ltd Director 18 August 2010 Hirdramani International Exports (Pvt) Ltd Director 11 December 2008
284 Annual Report 2012 Miss. Annika Senanayake Directorship/Officer/Trustee in other Entities:
Company Name Position held Date appointed Date resigned
IWS Holdings (Pvt) Ltd Director N/A IWS Leisure (Pvt) Ltd Director N/A
Directors’ interest in Contracts with the Company Related party disclosures as required by the Sri Lanka Accounting Standard No.30 on Related Party Disclosures (Revised 2005) is detailed in Note 37 on pages 367 to 369 to the Financial Statements. In addition, the Bank carries out transactions in the ordinary course of business in an arm’s length basis with entities where the Chairman or a Director of the Bank is the Chairman or a Director of such entities as detailed below.
Also this complies with the requirements of Section 168 of the Companies Act No. 7 of 2007 and Directions issued under Section 47 (3),(4),(5) & (6) of the Banking Act No 30 of 1988.
Company Relationship Nature of Facility Current Limit Balance Outstanding Balance (Rs. Mn) As at 31.12.2012 Outstanding (Rs. Mn) As at 31.12.2011 (Rs. Mn)
Mr. Dhammika Perera Director Over Draft 75.000 74.744 74.362 Hayleys Mgt Knitting Mills PLC Loan & Advances 90.781 65.879 USD 0.711 USD 0.516 Export bill 10.000 purchased Off Balance Sheet USD 1.975 USD 0.500 Item Royal Ceramics Lanka PLC Deputy Export bill 30.000 Chairman purchased Haycarb PLC Director Over Draft 100.000 0.002 Cr 65.152 Alutec Anodising & Machine Director Over Draft 20.000 0.758 Cr 5.440 Tools ( Pvt ) Ltd Loan & Advances 2.098 2.098
L B Finance Ltd Director Over Draft 200.000 202.800 201.390 Mr. M Y A Perera S C Securities (Pvt) Ltd Over Draft 50.000 58.463 28.870 Director Off Balance Sheet 1.750 1.750 1.750 Accommodations Sampath Leasing & Factoring Director Loans & Advances 2,375.000 970.963 1,600.130 Ltd Off Balance Sheet 1,560.128 1,560.128 1,473.210 Accommodations Over Draft 50.000 22.580 Cr
Sampath Bank PLC 285 ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANY
Company Relationship Nature of Facility Current Limit Balance Outstanding Balance (Rs. Mn) As at 31.12.2012 Outstanding (Rs. Mn) As at 31.12.2011 (Rs. Mn)
Mr. D Sooriyaarachchi Pan Asia Power Ltd Director Lease 5.100 2.200 3.280 Prof. K A M K Ranasinghe Access Engineering PLC Director Off Balance Sheet 3,500.000 1,617.420 - Accommodations Mr. R Pathirana Star Pack Investments (PVT) Ltd Director Over Draft 75.000 0.013 Cr 22.424 Star Packaging (PVT) Ltd Director Over Draft 100.000 0.106 Cr Off Balance Sheet 200.000 Accommodations Off Balance Sheet USD 1.000 Accommodations Loans & Advances 350.000 Loans & Advances USD 2.000
286 Annual Report 2012 DIRECTORS STATEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Responsibility authorities and management, and evaluate the adequacy and In line with the Banking Act Direction No. 11 of 2007, section 3 (8) (ii) (b), effectiveness of the risk management and internal control systems. the Board of Directors present this report on Internal Control over Financial They also review the internal audit functions with particular emphasis Reporting. on the scope of audits and quality of internal audits. The minutes of the Board Audit Committee meetings are forwarded to the Board The Board of Directors (“Board”) is responsible for the adequacy and of the Bank on a periodic basis. Further details of the activities effectiveness of the internal control mechanism in place at Sampath undertaken by the Audit Committee of the Bank are set out in the Bank PLC, (“the Bank”). In considering such adequacy and effectiveness, Audit Committee Report on pages 142 to 147. the Board recognises that the business of banking requires reward to be In assessing the internal control system over financial reporting, balanced with risk on a managed basis and as such the internal control identified officers of the Bank collated all procedures and controls systems are primarily designed with a view to highlighting any deviations that are connected with significant accounts and disclosures of the from the limits and indicators which comprise the risk appetite of the bank. financial statements of the Bank. These in turn were observed and In this light, the system of internal controls can only provide reasonable, checked by the internal audit department for suitability of design and but not absolute assurance, against material misstatement of financial effectiveness on an ongoing basis. As the current year was the first information and records or against financial losses or fraud. year of adopting new Sri Lanka Accounting Standards comprising LKAS and SLFRS, processes to comply with new requirements of The Board has established an ongoing process for identifying, evaluating and recognition, measurement, classification and disclosure are being managing the significant risks faced by the Bank and this process includes introduced, and as at balance sheet date were not fully completed. enhancing the system of internal control over financial reporting as and when The assessment did not include subsidiaries of the Bank. there are changes to business environment or regulatory guidelines. The Comments made by the external auditors in connection with internal process is regularly reviewed by the Board and accords with the Guidance for control system over financial reporting will be dealt with in the future. Directors of Banks on the Directors’ Statement on Internal Control issued by the Institute of Chartered Accountants of Sri Lanka. The Board has assessed Confirmation the internal control over financial reporting taking into account principles for Based on the above processes, the Board confirms that the financial the assessment of internal control system as given in that guidance. reporting system of the Bank has been designed to provide reasonable assurance regarding the reliability of financial reporting and the The Board is of the view that the system of internal controls over financial preparation of financial statements for external purposes and has been reporting in place is sound and adequate to provide reasonable assurance done in accordance with Sri Lanka Accounting Standards and regulatory regarding the reliability of financial reporting, and that the preparation of requirements of the Central Bank of Sri Lanka. financial statements for external purposes is in accordance with relevant accounting principles and regulatory requirements. Review of the Statement by External Auditors The external auditors have reviewed the above Directors Statement on The management assists the Board in the implementation of the Board’s Internal Control over financial reporting included in the annual report of the policies and procedures on risk and control by identifying and assessing the Bank for the year ended 31 December 2012 and reported to the Board that risks faced, and in the design, operation and monitoring of suitable internal nothing has come to their attention that causes them to believe that the controls to mitigate and control these risks. statement is inconsistent with their understanding of the process adopted by the Board in the review of the design and effectiveness of the internal Key Features of the Process Adopted in Applying in control over financial reporting of the Bank. Reviewing the Design and Effectiveness of the Internal Control System Over Financial Reporting By order of the board The key processes that have been established in reviewing the adequacy and integrity of the system of internal controls with respect to financial reporting include the following: Various Committees are established by the Board to assist the Board in ensuring the effectiveness of Bank’s daily operations and that the Ranil Pathirana Bank’s operations are in accordance with the corporate objectives, Chairman - Audit Committee strategies and the annual budget as well as the policies and business directions that have been approved. The Internal Audit Division of the Bank check for compliance with policies and procedures and the effectiveness of the internal control systems on an ongoing basis using samples and rotational Dhammika Perera Channa Palansuriya procedures and highlight significant findings in respect of any non- Chairman Deputy Chairman compliance. Audits are carried out on all units and branches, the frequency of which is determined by the level of risk assessed, to provide an independent and objective report. The annual audit plan is reviewed and approved by the Board Audit Committee. Findings of the Internal audit Department are submitted to the Board Audit M Y A Perera S Sudarshan Committee for review at their periodic meetings. Managing Director Company Secretary The Board Audit Committee of the Bank reviews internal control issues identified by the Internal Audit Department, regulatory 22nd February 2013 Colombo.
Sampath Bank PLC 287 INDEPENDENT ASSURANCE REPORT TO THE BOARD OF DIRECTORS OF SAMPATH BANK PLC
Report on the Directors’ Statement on Internal Control over Financial SLSAE 3050 does not require us to consider whether the Statement covers Reporting all risks and controls or to form an opinion on the effectiveness of the Bank’s risk and control procedures. SLSAE 3050 also does not require us We were engaged by the Board of Directors of Sampath Bank PLC (“Bank”) to consider whether the processes described to deal with material internal to provide assurance on the Directors’ Statement on Internal Control over control aspects of any significant problems disclosed in the annual report Financial Reporting (“Statement”) included in the annual report for the year will, in fact, remedy the problems. ended 31 December 2012. Our conclusion Management’s responsibility Based on the procedures performed, nothing has come to our attention that Management is responsible for the preparation and presentation of the causes us to believe that the Statement included in the annual report is Statement in accordance with the “Guidance for Directors of Banks on the inconsistent with our understanding of the process the Board of Directors Directors’ Statement on Internal Control” issued in compliance with section has adopted in the review of the design and effectiveness of internal control 3(8)(ii)(b) of the Banking Act Direction No. 11 of 2007, by the Institute of over financial reporting of the Bank. Chartered Accountants of Sri Lanka.
Our responsibilities and compliance with SLSAE 3050 Our responsibility is to issue a report to the board on the Statement based on the work performed. We conducted our engagement in accordance with Sri Lanka Standard on Assurance Engagements (SLSAE) 3050 – Assurance Ernst & Young Report for Banks on Directors’ Statement on Internal Control issued by the Chartered Accountants Institute of Chartered Accountants of Sri Lanka.
26 February 2013 Summary of work performed Colombo We conducted our engagement to assess whether the Statement is supported by the documentation prepared by or for directors; and appropriately reflected the process the directors have adopted in reviewing the system of internal control over financial reporting of the Bank.
The procedures performed were limited primarily to inquiries of Bank personnel and the existence of documentation on a sample basis that supported the process adopted by the Board of Directors.
288 Annual Report 2012 MANAGING DIRECTOR’S AND GROUP CHIEF FINANCIAL OFFICER’S RESPONSIBILITY STATEMENT
The Financial Statement of the Sampath Bank Group are prepared in The Financial Statements of the Group were audited by M/s. Ernst & Young, compliance with the requirements of the Sri Lanka Accounting Standards Chartered Accountants, and their report is given on page 291 of this Annual issued by The Institute of Chartered Accountants of Sri Lanka, the Report. The Audit Committee of the Bank meets periodically with the Internal requirements of the Companies Act No. 7 of 2007, Sri Lanka Accounting Auditors and the External Auditors to review the manner in which the auditors and Auditing Standards Act No 15 of 1995, Banking Act No. 30 of 1988 are performing their responsibilities and to discuss issues relating to and amendments thereto, the Listing Rules of the Colombo Stock Exchange auditing, internal controls and financial reporting issues. To ensure complete and the Code of Best Practice on Corporate Governance issued jointly by independence, the External Auditors and the Internal Auditors have full and The Institute of Chartered Accountants of Sri Lanka and the Securities and free access to the members of the Audit Committee to discuss any matter of Exchange Commission of Sri Lanka and section 3(8)(ii)(g) of the Banking Act substance. The Audit Committee report is given on pages 144 to 147. Direction No. 11 of 2007 on Corporate Governance issued by the Central Bank of Sri Lanka and also comply with the formats prescribed by the The Audit Committee pre-approves the audit and non-audit services provided Central Bank of Sri Lanka, which is also in compliance with the disclosure by M/s. Ernst & Young, in order to ensure that the provision of such services requirements of the Sri Lanka Accounting Standard No 23 - Revenue does not impair M/s. Ernst & Young’s independence. Recognition and Disclosures.
The Accounting Policies are consistently applied by the Group. The Significant It is further confirmed that all the other guidelines have been complied with. accounting policies and estimates that involve a high degree of judgment We confirm that the Bank and all its subsidiaries have complied with all and complexity were discussed with the Bank’s External Auditors and applicable laws and regulations and guidelines and that there are no Audit Committee. Comparative information has been reclassified wherever material non-compliances and litigations against the Group other than those necessary to comply with the current presentation and material departures, disclosed in Note 36.3 on page 365 to 366 of the Financial Statements in if any, have been disclosed and explained in the notes to the Financial this Annual Report. Statements. The Financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Bank, its cash flows and liquidity position. We have reasonable grounds to believe that the Bank has adequate resources to continue in operational existence for the foreseeable future. Accordingly, we continue to adopt the going concern basis in preparing Aravinda Perera R Samaranayake the Financial Statements. Managing Director Director (Executive)/Group Chief Financial Officer
The Board of Directors and the management of the Bank accept 22nd February 2013 responsibility for the integrity and objectivity of these Financial Statements. Colombo. The estimates and judgments relating to the Financial Statements were made on a prudent and reasonable basis, in order that the Financial Statements reflect in true and fair manner, the form and substance of transactions and reasonably present the Company’s state of affairs. To ensure this, the Bank has taken proper and sufficient care in installing a system of internal controls and accounting records, for safeguarding assets and for preventing and detecting frauds as well as other irregularities, which are reviewed, evaluated and updated on an ongoing basis. Our Internal Auditors have conducted periodic audits to provide reasonable assurance that the established policies and procedures of the Bank were consistently followed. However, there are inherent limitations that should be recognised in weighing the assurances provided by any system of internal controls and accounting.
We confirm, Compliance with section 3(8)(ii)(b) of the Banking Act Direction No. 11 of 2007 on Corporate Governance (Internal Control Over Financial Reporting (ICOFR)) issued by the Central Bank of Sri Lanka as of 31 December 2012 on the Bank’s Internal Controls over Financial Reporting is adequate and effective. The Annual Report of the Directors on pages 279 to 280 has briefly covered the Group’s Internal Control over Financial Reporting. In addition, Directors’ Statement on Internal Control Over Financial Reporting (ICOFR) is provided on page 287. The Bank’s auditors, M/s Ernst & Young, have audited the effectiveness of the Bank’s internal controls over financial reporting and have given an unqualified opinion on page 288 of this Annual Report.
Sampath Bank PLC 289 DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING
The responsibility of the Directors in relation to the Financial Statements of Based on its assessment of Internal Control Over Financial Reporting the Bank and its subsidiaries, prepared in accordance with the provision of (ICOFR) - Compliance with section 3(8)(ii)(b) of the Banking Act Direction No. the Companies Act No.07 of 2007 is set out in the following statements. 11 of 2007 on Corporate Governance, your Directors have concluded that, as of 31 December 2012, the Group’s Internal Controls over Financial Reporting Your Directors are aware that in addition to being a guardian for the is effective. Directors’ Statement on Internal Control Over Financial Reporting shareholders, they also have a duty towards the depositors and other (ICOFR) and Annual Report of the Board of Directors are provided on page customers of the Bank, especially as the depositors’ funds are far in excess 287 and pages 274 to 281 respectively of the Annual Report. Auditor’s of the shareholders’ funds. The Directors are personally liable if they have Report on the Bank’s Internal Control Over Financial Reporting is provided on not performed their expected role. As per the provisions of the Companies page 288 of this Annual Report. Act No. 07 of 2007, the Directors are required to prepare Financial Statements for each financial year and place them before a general meeting. The setting up of the Board Sub-Committee on Integrated Risk Management (Board Risk Management Committee) which is looking at all areas to The Financial Statements comprise of; mitigate the Risks of the Bank, keeping in line with the regulatory directives The Statement of Financial Position of the Central Bank of Sri Lanka, Corporate Governance Codes issued by the The Income Statement Central Bank of Sri Lanka and the Colombo Stock Exchange.
The Financial Statements are prepared under the supervision of the Group As required by section 56(2) of the Companies Act No. 7 of 2007, Chief Financial Officer who is an Executive Director of the Bank. These your Directors have made an assessment of the Solvency of the Bank, documents present true and fair view of the Company and its subsidiaries, immediately after the proposed Dividend and confirm that the Bank satisfies which have been certified by the Group Chief Financial Officer and signed by the Solvency Test required by the Section 57 of Companies Act No. 07 of the Chairman, the Deputy Chairman, Managing Director, and the Company 2007. Secretary in conformity with the requirements of the Companies Act. The Accounts are circulated and reviewed by the Audit Committee and Board of M/s Ernst & Young, Chartered Accountants, the Auditors of the Company Directors. have examined the Financial Statements made available to them together with all financial records, related data, minutes of shareholders’ meetings, The Directors are required to ensure that, in preparing these Financial Directors’ Meetings, Audit Committee Meetings and other Board Sub- Statements; Committee meetings and expressed their opinion as reported by them in the (i) The appropriate accounting policies have been selected and applied Report on page 291. in a consistent manner and material departures, if any have been disclosed and explained Compliance Report (ii) Judgments and estimates have been made which are reasonable and The Directors confirm that to the best of their knowledge, all taxes, duties prudent and levies payable by the Company and its subsidiaries, all contributions, (iii) All applicable Accounting standards, as relevant, have been followed levies and taxes on behalf of and in respect of its Staff Members and the (iv) The Internal Control over Financial Reporting is effective and Staff Members of its subsidiaries, and all other known statutory dues as (v) The financial statements are prepared on the going concern basis, were due and payable by the Company and its subsidiaries at Balance Sheet unless it is inappropriate to presume that the Bank and the Group will date have been paid or where relevant, provided for. The Directors also continue in business confirm that based on its assessment the accounting controls are adequate and nothing has come to the attention of the directors to indicate that any Financial Statements prepared and presented in the report are consistent breakdown in the functioning of these controls, resulting in material loss to with the underlying books of Account and are in conformity with the the Bank, and also the Bank will have adequate resources to continue in requirements of Sri Lanka Accounting Standards, Companies Act No.07 of operational existence and as a going concern for the foreseeable future. 2007, Sri Lanka Accounting and Auditing Standards Act No.15 of 1995, Banking Act No.30 of 1988 and amendments thereto and the continuing The Directors are of the view that they have discharged their responsibilities Listing Rules of the Colombo Stock Exchange. as set out in the above statement.
The Audit Committee of the Bank reviews the quarterly accounts and By order of the Board, recommends them to the Board prior to release of these Financial Statements.
The Annual Report of the Board of Directors on the State of Affairs of the Company gives a synopsis of the Company and the Group.
Your Directors have taken reasonable steps open to them to safeguard the assets of the Bank while taking steps to prevent and detect frauds if any and any other irregularities. For this purpose your Directors have instituted an S Sudarshan effective and comprehensive system of internal control comprising internal Company Secretary audit, internal checks, financial and other controls in order to carry on the operations in an orderly manner, safeguard the assets and secure as far as 22nd February 2013 practicable, the accuracy and reliability of the records. Colombo.
290 Annual Report 2012 INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF SAMPATH BANK PLC
Report on the Financial Statements Opinion We have audited the accompanying financial statements of Sampath In our opinion, so far as appears from our examination, the Bank maintained Bank PLC (“Bank”), the consolidated financial statements of the Bank proper accounting records for the year ended 31 December 2012 and the and its subsidiaries, which comprise the statements of financial position financial statements give a true and fair view of the Bank’s financial position as at 31 December 2012, and the income statements and statements of as at 31 December 2012 and its financial performance and cash flows for comprehensive income, statements of changes in equity and cash flow the year then ended in accordance with Sri Lanka Accounting Standards. statements for the year then ended, and a summary of significant accounting policies and other explanatory notes. In our opinion, the consolidated financial statements give a true and fair view of the financial position as at 31 December 2012 and its financial Management’s Responsibility for the Financial performance and cash flows for the year then ended, in accordance with Statements Sri Lanka Accounting Standards, of the Bank and its subsidiaries dealt with Management is responsible for the preparation and fair presentation thereby, so far as concerns the shareholders of the Bank. of these financial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes: designing, implementing and Report on Other Legal and Regulatory Requirements maintaining internal control relevant to the preparation and fair presentation These financial statements also comply with the requirements of Sections of financial statements that are free from material misstatement, whether 151(2) and 153(2) to 153(7) of the Companies Act No. 07 of 2007. due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Scope of Audit and Basis of Opinion Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are Ernst & Young free from material misstatement. Chartered Accountants
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 26 February 2013 assessing the accounting policies used and significant estimates made Colombo by management, as well as evaluating the overall financial statement presentation.
We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion.
Sampath Bank PLC 291 INCOME STATEMENT
(Rs’000) Bank Group
For the year ended 31st December Note 2012 2011 2012 2011
Income 1 38,793,541 27,577,338 39,725,097 28,267,754
Interest income 1.1 31,881,948 21,111,216 32,712,018 21,565,323 Less: Interest expenses 2 20,269,375 12,167,947 20,672,970 12,277,600 Net interest income 11,612,573 8,943,269 12,039,049 9,287,724
Fee and commission income 1.2 2,803,755 2,648,034 2,876,724 2,795,958 Less: Fee and commission expense 654,757 837,442 675,136 861,909 Net fee & commission income 2,148,998 1,810,592 2,201,588 1,934,049
Net trading income 1.3 6,227 313,973 6,227 313,973 Other operating income 1.4 4,101,611 3,504,114 4,130,128 3,592,499 Total operating income 17,869,410 14,571,948 18,376,992 15,128,245
Impairment gain / ( loss) on loans and receivables 3 (136,906) (428,857) (152,167) (399,097) Impairment gain / ( loss) on financial investments 4 72,023 (189,165) 72,023 (189,165) Net operating income 17,804,527 13,953,926 18,296,847 14,539,984
Less: Operating expenses Personnel expenses 5 4,157,690 3,559,674 4,329,299 3,698,622 Depreciation of property & equipment 535,656 503,383 588,247 550,516 Amortisation of intangible assets 43,567 36,110 47,163 40,133 Other operating expenses 6 4,659,872 3,959,639 4,653,851 3,957,485 Total operating expenses 9,396,784 8,058,806 9,618,560 8,246,756
Operating profit / (loss) before Value Added Tax 8,407,742 5,895,120 8,678,287 6,293,228
Less: Value Added Tax on financial services 1,142,709 901,484 1,160,808 917,691 Operating profit / (loss) after Value Added Tax 7,265,034 4,993,636 7,517,478 5,375,537
Less: Income tax expense 7 2,128,610 1,606,427 2,171,514 1,670,106 Profit for the year 5,136,424 3,387,209 5,345,965 3,705,431
Attributable to: Equity holders of the parent 5,136,424 3,387,209 5,342,623 3,683,281 Non controlling interest 3,342 22,150 5,136,424 3,387,209 5,345,965 3,705,431
Earnings per share - Basic (Rs.) 8.1 - - 32.98 23.00 Earnings per share - Diluted (Rs.) 8.2 - - 32.94 22.88 Dividend per share - Gross (Rs.) 9 12.00 9.00 - - Dividend per share - Net (Rs.) 9 10.87 8.34 - -
The ‘Significant accounting policies’ on pages 298 to 317 and accompanying notes on pages 318 to 391 form an integral part of these financial statements.
292 Annual Report 2012 STATEMENT OF COMPREHENSIVE INCOME
(Rs’000) Bank Group
For the year ended 31st December Note 2012 2011 2012 2011
Profit for the year 5,136,424 3,387,209 5,345,965 3,705,431
Other comprehensive income / (expenses) Available for sale financial assets Gain/(loss) arising during the year (348,817) (3,426,050) (348,817) (3,426,050) Exchange difference in translation 16,061 - 16,061 - Total other comprehensive income (332,757) (3,426,050) (332,757) (3,426,050) Income tax (charge) / credit relating to components of other comprehensive income - - - - Other comprehensive income net of tax (332,757) (3,426,050) (332,757) (3,426,050)
Total comprehensive income for the year net of tax 4,803,667 (38,842) 5,013,208 279,381
Attributable to: Equity holders of the parent 4,803,667 (38,842) 5,009,867 257,231 Non controlling interest - - 3,342 22,150 4,803,667 (38,842) 5,013,208 279,381
Sampath Bank PLC 293 STATEMENT OF FINANCIAL POSITION
(Rs’000) Bank Group As at As at As at As at As at As at Note December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011
Assets 10 Cash and cash equivalents 11 10,432,135 10,736,413 4,259,457 10,442,259 10,746,713 4,327,079 Balances with Central Bank of Sri Lanka 12 17,200,792 13,232,130 8,221,068 17,200,792 13,232,130 8,221,068 Placements with Banks 13 8,788,127 5,337,084 1,788,050 8,788,127 5,337,084 1,720,924 Reverse repurchase agreements 3,300,817 4,601,965 - 3,300,373 4,606,010 - Derivative financial instruments 14 279,022 203,732 91,878 279,022 203,732 91,878 Financial investments held -for- trading 15 35,181,084 23,052,987 26,701,547 35,181,084 23,052,987 26,701,547 Financial assets held-for-trading pledged as collaterals 16 2,856,321 4,002,777 4,485,329 2,856,321 4,002,777 4,485,329 Loans and receivables from banks 17 816,119 441,938 - 816,119 441,938 - Loans and receivables from other customers 18 208,184,369 169,681,372 124,067,319 212,480,041 171,976,938 124,894,976 Other loans & receivables 19 10,515,756 5,736,278 7,596,740 10,224,474 5,736,278 7,596,740 Financial investments- available- for- sale 20 1,923,624 2,025,241 5,625,847 1,923,680 2,025,297 5,625,903 Financial investments- held - to- maturity 21 - 10,289 1,122,084 9,765 19,411 1,130,722 Investment in subsidiaries 22 1,059,921 1,054,921 991,626 - - - Property and equipment 23 4,559,806 4,527,784 4,277,501 6,764,372 6,691,153 6,436,029 Intangible assets 24 311,758 67,294 78,723 316,412 73,372 88,798 Deferred tax asset 25 - - - 12,328 2,359 3,714 Other assets 26 3,271,651 2,373,104 2,006,821 3,730,836 2,846,544 2,572,742 Total assets 308,681,301 247,085,307 191,313,991 314,326,004 250,994,723 193,897,448
Liabilities 10 Due to banks 27 624,784 1,175,672 200,013 668,198 1,175,672 200,013 Securities sold under re-purchase agreements 2,757,119 4,100,862 4,411,354 2,751,334 4,100,862 4,411,354 Derivative financial instruments 14 381,838 310,966 74,506 381,838 310,966 74,506 Due to other customers 28 243,330,990 195,195,074 153,245,764 243,088,236 195,094,359 153,126,406 Debt issued and other borrowed funds 29 28,825,029 19,754,221 8,567,066 32,218,014 21,490,478 9,042,234 Unclaimed dividend 49,185 37,173 37,922 49,185 37,173 37,922 Current tax liabilities 30 3,003,885 1,851,834 891,011 3,035,868 1,881,142 958,817 Deferred tax liabilities 25 400,084 380,360 258,340 430,812 396,113 258,340 Provisions 31 167,470 124,477 89,223 180,192 137,515 97,279 Other liabilities 32 4,040,070 3,254,553 2,548,157 4,246,901 3,503,286 2,987,341 Total Liabilities 283,580,454 226,185,192 170,323,356 287,050,577 228,127,566 171,194,211
Equity Stated capital 33 3,564,172 2,743,780 1,786,250 3,564,172 2,743,780 1,786,250 Reserves 34 Statutory / risk reserve funds 34.1 1,172,106 841,511 646,564 1,198,830 858,237 653,671 Revaluation reserve 34.2 1,456,708 1,459,349 1,519,041 2,876,185 2,878,825 2,938,518 Available-for-sale reserve 34.3 1,465,022 1,797,778 5,223,829 1,465,022 1,797,778 5,223,829 Revenue reserves 34.4 17,442,841 14,057,697 11,814,951 18,109,976 14,528,631 11,948,944 25,100,849 20,900,115 20,990,635 27,214,184 22,807,251 22,551,212
Non controlling interest 35 - - - 61,243 59,904 152,025 Total equity 25,100,849 20,900,115 20,990,635 27,275,427 22,867,155 22,703,237 Total liabilities and equity 308,681,301 247,085,307 191,313,991 314,326,004 250,994,723 193,897,448
Net asset value per share ( Rs) 154.24 130.19 131.18 167.60 142.44 141.89 Commitments and contingencies 36 115,925,743 120,946,802 68,628,122 116,129,398 120,946,802 68,628,122
The ‘Significant accounting policies’ on pages 298 to 317 and accompanying notes on pages 318 to 391 form an integral part of these financial statements.
These Financial Statements are in compliance with the requirements of the Companies Act No.07 of 2007.
R Samaranayake Executive Director / Group Chief Financial Officer
The Board of Directors is responsible for the preparation and presentation of these Financial Statements.
Dhammika Perera Channa Palansuriya Aravinda Perera S Sudarshan Chairman Deputy Chairman Managing Director Group Company Secretary
22nd February 2013 Colombo
294 Annual Report 2012 CASH FLOW & RECONCILIATION STATEMENT
(Rs’000) Bank Group For the year ended 31st December 2012 2011 2012 2011
Cash flows from operating activities Interest & commission receipts 34,007,276 22,924,819 34,889,937 23,502,383 Interest payments (20,196,719) (12,109,447) (20,600,314) (12,219,100) Receipts from other operating activities 3,974,818 3,039,466 4,082,176 3,140,287 Cash payments to employees and suppliers (6,358,275) (5,578,342) (6,388,782) (5,590,780) Value Added Tax on Financial services (1,137,042) (970,514) (1,155,142) (986,721) Payments for other operating activities (2,339,412) (1,910,861) (2,474,880) (2,035,575) Operating profit before changes in operating assets & liabilities [note (a)] 7,950,646 5,395,121 8,352,995 5,810,495
(Increase)/Decrease in operating assets Balance with Central Bank of Sri Lanka (3,968,662) (5,011,062) (3,968,662) (5,011,062) Loans and receivables from customers (38,782,036) (46,143,009) (40,789,709) (47,569,211) Loans and receivables from Banks (378,000) (450,617) (378,000) (450,617) Other loans & receivables (4,779,479) 1,860,463 (4,488,196) 1,860,463 Other assets (849,266) (286,337) (850,010) (212,611) (48,757,442) (50,030,563) (50,474,578) (51,383,039) Increase/(Decrease) in operating liabilities Due to customers 48,072,694 41,899,639 47,930,655 41,918,282 Due to banks (460,783) 640,175 (460,783) 640,175 Other liabilities 833,801 805,487 788,920 627,635 48,445,712 43,345,301 48,258,792 43,186,093 Net cash flow from operating activities before income tax 7,638,915 (1,290,141) 6,137,209 (2,386,451) Income tax paid (956,834) (523,585) (982,089) (608,653) Net cash flow from operating activities 6,682,081 (1,813,727) 5,155,120 (2,995,105)
Cash flow from investing activities Dividend received from subsidiaries 79,155 15,102 - - Income from investments 10,949 457,846 10,949 457,846 Investment in subsidiary companies (5,000) (63,295) - - Financial assets held-for-trading pledged as collaterals 1,146,121 483,767 1,146,121 482,956 Financial investments held -for- trading (12,056,074) 3,458,991 (12,056,074) 3,458,991 Cash collateral on securities borrowed & reverse repurchase agreements 1,301,148 (4,601,965) 1,305,637 (4,606,010) Securities sold under re-purchase agreements (1,343,743) (310,492) (1,349,528) (310,492) Sale/(Purchase) of other loans & receivables - - - - Sale/(Purchase) of financial investments- held to maturity 10,289 1,111,796 9,646 1,111,311 Sale/(Purchase) of financial investments- available- for- sale (211,766) 602,250 (211,766) 602,250 Proceeds from disposal of property & equipment 23,692 103,676 25,579 108,429 Purchase of property & equipment (864,198) (889,596) (961,345) (943,326) Net cash flow from investing activities (11,909,428) 368,080 (12,080,781) 361,955
Cash flow from financing activities Increase in bonds 114,774 105,149 114,774 105,149 Non controlling interest - - (2,002) (490) Acquisition of Non controlling Interest - - - (63,295) Proceeds from debentures / Redemption of debentures (261,618) (300,002) 75,519 (199,932) Increase/(Decrease) due to banks (90,105) 335,484 (46,690) 335,485 Increase in Commercial papers 722,369 15,981 Increase in borrowed funds 9,217,652 11,382,008 9,814,874 12,527,046 Shares issued 176,035 41,994 176,035 41,994 Dividend paid (782,627) (92,996) (782,627) (92,996) Net cash flow from financing activities 8,374,111 11,471,637 10,072,253 12,668,942 Net increase/(decrease) in cash & cash equivalents and Placement with Banks 3,146,765 10,025,990 3,146,589 10,035,792 Cash & cash equivalents and Placements with Banks at the beginning of the year 16,073,497 6,047,507 16,083,796 6,048,004 Cash & cash equivalents and Placements with Banks at the end of the year [note (b)] 19,220,262 16,073,497 19,230,388 16,083,796
Sampath Bank PLC 295 CASH FLOW & RECONCILIATION STATEMENT
RECONCILIATION STATEMENT
(Rs’000) Bank Group
For the year ended 31st December 2012 2011 2012 2011
Note (a) Reconciliation of operating profit Profit before provision for income tax 7,265,034 4,993,636 7,517,478 5,375,537
Loss/(Profit) on disposal of property & equipment (15,203) 7,574 (15,517) 4,907 Income from investments (42,021) (28,937) (42,021) (28,937) Diminution/(Appreciation) in value of investments (72,023) 189,165 (72,023) 189,165 Dividend received from subsidiaries (79,155) (15,102) - - Capital gains from sale of shares 31,072 (856,602) 31,072 (856,602) Staff cost adjustment 103,489 6,927 103,489 6,927 Income from available - for-sale financial investments (35,100) - (35,100) - Depreciation 535,656 503,383 588,247 550,516 Amortization cost 43,567 36,110 46,778 39,775 Loss/(Profit) on forward contract revaluation (4,419) 126,478 (4,419) 126,478 Exchange revaluation 16,061 - 16,061 - Other non-cash expenses 17,144 (58,515) 17,144 (58,515) Impairment provision 136,906 428,857 152,167 399,097 Interest income accrued on impaired financial assets (11,395) 15,538 (11,395) 15,538 Expenses due to other customers 73,308 59,137 73,308 59,137 Guarantee Income (fees ) (12,275) (12,527) (12,275) (12,527) Operating profit before changes in operating assets/liabilities 7,950,646 5,395,121 8,352,995 5,810,495
Note (b) Reconciliation of cash & cash equivalents and placements with banks Local currency in hand 4,483,580 3,862,785 4,483,791 3,862,968 Foreign currency in hand 1,089,882 759,346 1,089,882 759,346 Balances with local banks 71,025 32,757 80,937 42,873 Balances with foreign banks 1,774,914 979,003 1,774,914 979,003 Money at call and short notice 3,012,734 5,102,523 3,012,734 5,102,523 Cash & cash equivalents at the end of the year (Note No. 11) 10,432,135 10,736,413 10,442,259 10,746,713 Placements with banks (Note No. 13) 8,788,127 5,337,084 8,788,129 5,337,083 Cash & cash equivalents and Placements with banks at the end of the year 19,220,262 16,073,497 19,230,388 16,083,796
296 Annual Report 2012 STATEMENT OF CHANGES IN EQUITY
(Rs’000) Bank Stated Revaluation Statutory Risk Available for General Investment Retained Total Capital Reserve Reserve Reserve Sale Reserve Fund Profit Shareholders’ Fund Fund Reserve Funds
Balance as at January 1, 2011 1,786,250 1,519,041 614,834 31,730 5,223,829 10,058,522 - 1,756,429 20,990,635
Adjustments - - - (169) - (508) - - (677) Final scrip dividend Paid 2010 915,536 ------(1,008,533) (92,995) ESOP-2010 41,994 ------41,994 Net profit for the year ------3,387,209 3,387,209 Other comprehensive income net of tax - - - - (3,426,050) - - - (3,426,050) Transfers to investment fund account ------590,812 (590,812) - Surplus/(reversals) on revaluation of property - (59,693) - - - - - 59,693 - Transfers during the year - - 190,971 4,144 - 1,678,299 - (1,873,414) - Balance as at 31st December 2011 2,743,780 1,459,349 805,805 35,706 1,797,778 11,736,312 590,812 1,730,572 20,900,115
Adjustments - - - 473 - (473) - 3,659 3,659 ESOP-2010 176,035 ------176,035 Final scrip dividend paid - 2011 644,357 ------(713,479) (69,122) Final cash dividend paid - 2011 ------(713,505) (713,505) Net profit for the year ------5,136,424 5,136,424 Transfers to investment fund account ------939,955 (939,955) - Other comprehensive income net of tax - - - - (332,757) - - - (332,757) Surplus/(reversals) on revaluation of property - (2,640) - - - - - 2,640 - Transfers during the year - - 256,821 73,302 - 2,160,000 - (2,490,123) - Balance as at 31st December 2012 3,564,172 1,456,708 1,062,626 109,480 1,465,022 13,895,839 1,530,767 2,016,233 25,100,849
(Rs’000) Group Stated Revaluation Statutory Risk Available for General Investment Retained Total Non Total Capital Reserve Reserve Reserve Sale Reserve Funds Profit Shareholders’ controlling equity Fund Fund Reserve Fund Interest
Balance as at January 1, 2011 1,786,250 2,938,517 621,941 31,730 5,223,829 10,058,522 - 1,890,423 22,551,212 152,025 22,703,237 Adjustments - - - (169) - (507) - - (676) - (676) Final scrip dividend Paid 2010 915,536 ------(1,008,533) (92,996) - (92,996) Final cash dividend Paid 2010 (490) (490) ESOP-2010 41,994 ------41,994 - 41,994 Net profit for the year ------3,683,281 3,683,281 22,150 3,705,431 Other comprehensive income net of tax - - - - (3,426,050) - - - (3,426,050) (3,426,050) Recognition of Bargaining Purchase on NCI Acquisition ------50,487 50,487 - 50,487 Transfers to investment fund account ------603,653 (603,653) - - - Surplus/(reversals) on revaluation of property - (59,693) - - - - 59,693 - - - Transfers during the year - - 200,590 4,144 - 1,678,299 - (1,883,033) - - - Acquisition of Non controlling interest ------(113,782) (113,782) Balance as at 31st December 2011 2,743,780 2,878,825 822,531 35,706 1,797,779 11,736,313 603,653 2,188,664 22,807,251 59,904 22,867,155
Adjustments - - - 473 - (473) - 3,659 3,659 - 3,659 ESOP-2010 176,035 ------176,035 - 176,035 Final scrip dividend paid - 2011 644,357 ------(713,479) (69,122) - (69,122) Final cash dividend paid - 2011 ------(713,505) (713,505) (2,002) (715,505) Net profit for the year ------5,342,623 5,342,623 3,342 5,345,961 Other comprehensive income net of tax - - - - (332,757) - - - (332,757) - (332,757) Transfers to investment fund account ------957,118 (957,118) - - - Surplus/(reversals) on revaluation of property - (2,640) - - - - - 2,640 - - - Transfers during the year - - 266,818 73,302 - 2,160,000 - (2,500,120) - - - Balance as at 31st December 2012 3,564,172 2,876,185 1,089,349 109,480 1,465,022 13,895,840 1,560,772 2,653,364 27,214,184 61,243 27,275,427
Sampath Bank PLC 297 SIGNIFICANT ACCOUNTING POLICIES
1. Corporate Information 2. Basis of Preparation 1.1 General 2.1 Statement of Compliance Sampath Bank PLC (‘The Bank’), was incorporated on 10 March 1986 under The Income Statement, Statement of Comprehensive Income, Statement of the Companies Act No. 17 of 1982 and re-registered under Companies Act Financial Position, Cash Flow Statement, Statement of Changes in Equity, No. 7 of 2007 is a licensed commercial bank under the Banking Act No.30 together with the Significant Accounting Policies and Notes, (‘Financial of 1988. It is a Public Company domiciled in Sri Lanka and the shares Statements’), i.e.: Consolidated Financial Statements and Separate Financial of the Bank have a primary listing in the Colombo Stock Exchange. The Statements of the Bank, as at 31st December 2012 and for the year registered office of the Bank is located at No 110, Sir James Peiris Mawatha, then ended, have been prepared in accordance with Sri Lanka Accounting Colombo 02. Standards comprising of Sri Lanka Financial Reporting Standards & Lanka Accounting Standards (hereafter referred as SLFRS), laid down by the The staff strength of the bank as at December 31, 2012 was 3,455 (3,230 Institute of Chartered Accountants of Sri Lanka and in compliance with the as at December 31, 2011). requirements of the Companies Act No. 07 of 2007. The presentation of the financial statements is also in compliance with the requirements of the The Bank PLC does not have an identifiable parent on its own. Banking Act No. 30 of 1988.
1.2 Consolidated Financial Statements For all periods up to and including the year ended 31 December 2011, the The Consolidated Financial Statements of the Bank for the year ended Bank and the Group prepared the financial statements in accordance with 31st December 2012 comprise Income Statement, Statement of the Sri Lanka Accounting Standards which were effective prior to January 1, Comprehensive Income, Statement of Financial Position, Cash Flow and 2012. These financial statements for the year ended 31 December 2012 Reconciliation Statement, Statement of Changes in Equity, Notes to the are the first set of statements the Bank and the Group has prepared in Financial Statements and Significant Accounting Policies of the Bank and accordance with SLFRS. its Subsidiaries i.e. Sampath Centre Ltd., S C Securities (Pvt) Ltd., Sampath Leasing and Factoring Ltd., and Sampath Information Technology Solutions These SLFRSs are in effective from January 1, 2012 and comparatives (year Ltd. (together referred to as ‘Group’). 2011 and 2010) too were reclassified and re-measured. Hence the date of transition to SLFRS is January 1, 2011 and beginning of the day, January 1, 1.3 Principal Activities and Nature of Operations 2011, balances were considered. 1.3.1 Bank The Bank provides a comprehensive range of financial services 2.2 Basis of measurement encompassing accepting deposits, corporate & retail banking, project The financial statements have been prepared on the historical cost basis, financing, trade finance, treasury and investment services, issuing of credit except for the following material items in the Statement of financial position, and debit cards, off shore banking, resident & non-resident foreign currency all of which are measured at fair value. operations, electronic banking services such as telephone banking, internet available for sale investments banking, mobile banking, payment gateway money remittance facilities, derivative financial instruments pawning & leasing, dealing in government securities etc. other financial assets and liabilities held for trading Financial assets and liabilities designated at fair value through profit 1.3.2 Subsidiaries or loss Subsidiaries and their ownership as of December 31, 2012, December 31, 2011 and January 1, 2011 are as follows. 2.3 Functional and presentation currency The financial statements are presented in Sri Lanka Rupees Thousands (Rs Ownership % 000), except when otherwise indicated. Subsidiary Principal activities December December January 31, 2012 31,2011 1, 2011 2.4 Presentation of Financial Statements The items in Statement of Financial Position of the Bank and the Group Sampath Centre Renting of 97.14 97.14 97.14 are presented. Statement of Financial Position broadly in order of liquidity. Ltd Commercial An analysis regarding recovery or settlement within 12 months after the Property reporting date (current) and more than 12 months after the reporting date S C Securities Share Brokering 100 100 51 (non–current) is presented in Note no 43. (Pvt) Ltd. Sampath Leasing Leasing & 100 100 100 2.5 Materiality & Aggregation & Factoring Ltd Factoring In compliance with LKAS 01 on Presentation of Financial Statements, each material class of similar items is presented separately in the Financial Sampath Developing 100 100 100 Statements. Items of dissimilar nature or functions too are presented Information Software separately, if they are material. Technology Solutions & Solutions Ltd Maintenance of Financial assets and financial liabilities are offset and the net amount Hardware reported in the statement of financial position, only when there is a legally enforceable right to offset the recognized amounts and there is an 1.4 Date of Authorization for Issue intention to settle on a net basis, or to realize the assets and settle the The Financial Statements of the Group for the year ended 31st December liability simultaneously. Income and expenses are not offset in the income 2012 were authorized for issue in accordance with a resolution of the Board statement unless required or permitted by any accounting standard or of Directors on 22nd February 2013. interpretation, and as specifically disclosed in the accounting policies.
298 Annual Report 2012 2.6 Comparative Information business for the foreseeable future. Furthermore, the Board is not aware The accounting policies have been consistently applied by the Bank and the of any material uncertainties that may cast significant doubt upon the Group with those of the previous financial year in accordance with LKAS 01 Bank’s ability to continue as a going concern and they do not intend either Presentation of Financial Statements, except those which had to be changed to liquidate or to cease operations of the Bank. Therefore, the financial as a result of application of the new SLFRS. Further, comparative information statements continue to be prepared on the going concern basis. is reclassified wherever necessary to comply with the current presentation. ii. Impairment losses on loans and advances 2.7 Use of significant accounting judgments , estimates and The Bank and the Group review their individually significant loans and assumptions advances at each statement-of-financial-position date to assess whether an The preparation of financial statements requires the application of certain impairment loss should be recorded in the income statement. In particular, critical accounting and assumptions relating to the future. Further, it Judgment of the management is required in the estimation of the amount requires the management of the bank to make judgments, estimates and and timing of future cash flows when determining the impairment loss. These assumptions that affect the reported amounts of revenues, expenses, estimates are based on assumptions about a number of factors and actual assets and liabilities, and the disclosure of contingent liabilities, at the end results may differ, resulting in future changes to the impairment allowance. of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the Loans and advances that have been assessed individually and found to be carrying amount of the asset or liability in future periods. not impaired and all individually insignificant loans and advances are then assessed collectively, in groups of assets with similar risk characteristics, Judgements to determine whether provision should be made due to incurred loss events In the process of applying the Bank’s and Group’s accounting policies, for which there is objective evidence, but the effects of which are not yet management has made the following judgments, which have the most evident. The collective assessment takes in to account data from the loan significant effect on the amounts recognized in the consolidated financial portfolio (such as levels of arrears, credit utilisation, loan-to-collateral ratios, statements: etc.), and judgements on the effect of concentrations of risks and economic data (including levels of unemployment, inflation, interest rates, exchange i Taxation rates). The Group is subject to income taxes and other taxes including VAT on financial services. Significant judgement was required to determine the iii. Impairment of available - for - sale investments total provision for current, deferred and other taxes pending the issue of The Bank and the Group reviews its debt securities classified as available tax guideline on the treatment of the adoption of SLFRS in the financial - for - sale investments at each reporting date to assess whether they statements and the taxable profit for the purpose of imposition of taxes. are impaired. This requires similar judgment as applied on the individual Uncertainties exist, with respect to the interpretation of the applicability of assessment of loans and advances. tax laws, at the time of the preparation of these financial statements. The bank also records impairment charges on available for sale equity investments when there has been a significant or prolonged decline in the The Group recognized assets and liabilities for current deferred and other fair value below their cost. The determination of what is ‘significant’ or taxes based on estimates of whether additional taxes will be due. Where ‘prolonged’ requires judgment. In making this judgment, the Bank evaluates, the final tax outcome of these matters is different from the amounts that among other factors, historical share price movements, duration and extent were initially recorded, such differences will impact the income, deferred tax up to which the fair value of an investment is less than its cost. amounts in the period in which the determination is made. iv. Deferred tax assets ii Useful life-time of the Property and equipment Deferred tax assets are recognised in respect of tax losses to the extent it The Bank and the Group review the residual values, useful lives and methods is probable that future taxable profits will be available against which such of depreciation of assets as at each reporting date. Judgement of the tax losses can be set off. Judgement is required to determine the amount of management is exercised in the estimation of these values, rates, methods deferred tax assets that can be recognised, based on the likely timing and and hence they are subject to uncertainty. level of future taxable profits, together with the future tax-planning strategies.
Estimates and assumptions v. Defined benefit plans The key assumptions concerning the future and other key sources of The cost of defined benefit pension plans and the present value of the estimation at the reporting date, that have a significant risk of causing pension obligation are determined using actuarial valuations. An actuarial a material adjustment to the carrying amounts of assets and liabilities valuation involves making various assumptions which may differ from actual within the next financial year, are described below. The Bank and the Group developments in the future. These include the determination of the discount based these assumptions and estimates on parameters available at the rate, future salary increases, mortality rates and future pension increases. time financial statements were prepared. Existing circumstances and Due to the complexity of the valuation, the underlying assumptions and their assumptions about future developments, these may change due to market long term nature, a defined benefit obligation is highly sensitive to changes changes or circumstances arising beyond the control of the Bank and the in these assumptions. All assumptions are reviewed at each reporting date. Group. Such changes are taken into consideration in the assumptions when they occur. In determining the appropriate discount rate, the management considers the interest rates of Sri Lanka Government Bonds with extrapolated maturities i. Going Concern corresponding to the expected duration of the defined benefit obligation. The The Board have made an assessment of the Bank’s ability to continue as mortality rate is based on publicly available mortality tables. Future salary a going concern and are satisfied that it has the resources to continue in increases and pension increases are based on expected future inflation rates and expected future salary increase rate of the Bank.
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vi. Fair value of Property and Equipment 3.2 Business Combinations The Land and Buildings of the Bank and the Group are reflected at fair 3.2.1 Business combinations value. The Group engaged independent valuation specialist to determine fair Business combinations are accounted for using the Acquisition method as value of land and building. When current market prices of similar assets are per the requirements of SLFRS 03 Business Combinations. available, such evidences are considered in estimating fair values of these assets. As of the acquisition date, the amount of non-controlling interest is measured either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. 3 Significant Accounting Policies Acquisition related cost are costs the acquirer incurs to effect a business The significant accounting policies applied by the Bank and the Group in combination. Those costs include finder’s fees; advisory, legal, accounting, preparation of its financial statements are included below. The accounting valuation and other professional law consulting fees; general administrative policies set out below have been applied consistently to all periods costs, including the cost of maintaining an internal acquisition department; presented in theses financial statements and in preparing the opening and cost of registering and issuing debt and equity securities. Acquisition SLFRS statement of financial position at January 1, 2011 for the purpose of related costs, other than those associated with the issue of debt or equity transition to SLFRS, unless otherwise is indicated. securities are expensed in the periods in which the costs are incurred and the services are received. 3.1 Basis of Consolidation The Bank Financial Statements comprise the Financial Statements of the 3.3 Foreign currency transactions and balances Bank and its subsidiaries for the year ended 31st December 2012,in terms All foreign currency transactions are converted to Sri Lanka rupees which of LKAS 27 Consolidated & Separate Financial Statements. is the Bank’s and Group’s functional & reporting currency, at the rates of exchange prevailing at the time the transactions were effected. 3.1.1 Subsidiaries The Bank has an interest of over 50% of these companies voting rights and Monetary assets and liabilities denominated in foreign currencies at the has the power directly or indirectly, to govern the financial and operating Balance Sheet date are translated to Sri Lanka Rupees using the spot policies of the companies to obtain benefits from its activities. foreign exchange rate as at the year end and all differences arising on non–trading activities are taken to ‘Other operating income’ in the Income The Financial Statements of the Bank’s subsidiaries are prepared for the Statement. same reporting year as per the Bank, using consistent accounting policies. The Financial Statements of subsidiaries are included in the Consolidated Non-monetary items in a foreign currency that are measured in terms of Financial Statements from the date that control effectively commences until historical cost are translated using the exchange rates as at the dates of the the date that control effectively ceases. initial transactions. Non-monetary items in foreign currency measured at fair value are translated using the exchange rates at the date when the fair value The total profit for the year of the subsidiaries is included in the was determined. Consolidated Statement of Comprehensive Income . The total Assets and Liabilities as at the Balance sheet date of the subsidiaries are included in Foreign exchange differences arising on the settlement or reporting of the Consolidated Statement of financial Position. monetary items at rates different from those which were initially recorded are dealt with in the Income Statement . 3.1.2 Non-controlling interest Non-controlling Interests represent the portion of Subsidiary’s profit or loss Forward exchange contracts are valued at the forward market rates ruling on and net assets not owned, directly or indirectly, by the Bank. Non-controlling the date of the Balance Sheet. Resulting net unrealised gains or losses are interests are presented separately in the Consolidated Statement of dealt with the Income statement. Comprehensive Income and within equity in the Consolidated Statement of Financial Position, but separate from Bank shareholders’ funds. Each 3.4 Cash and cash equivalents component of net profit or loss and other comprehensive income is Cash and cash equivalents comprise cash in hand, balances with banks, and attributed to the owners of the parent and non-controlling interest holders, money at call & short notice. even in instances where the allocation is negative. For the purpose of the Statement of Cash Flow, cash and cash equivalents The cost of an acquisition is measured at fair value of the consideration, consist of cash and short-term deposits as defined above, net of including contingent consideration, given on the date of transfer of title. unfavourable nostro balances. The acquired identifiable assets, liabilities and contingent liabilities are measured at their fair values at the date of acquisition. 3.5 Financial Assets – initial recognition and subsequent measurement 3.1.3 Intra-Group transactions 3.5.1 Statement of Financial Asset categorization under first time Intra-group balances, transactions and any unrealised gains arising from adoption Intra-group transactions are eliminated in preparing the Consolidated Financial assets - Initial recognition and measurement Financial Statements. Unrealised losses are eliminated in the same way as Financial assets within the scope of LKAS 39 are classified as Derivative unrealised gains, except that they are eliminated only up to the extent that financial instruments, Loans and Advances, Financial investments held- there is no evidence of impairment in value. to-maturity, Financial investments available-for-sale, Financial investments held for trading or Financial assets held for trading pledged as collateral as appropriate. The Group determines the classification of its financial assets at initial recognition.
300 Annual Report 2012 3.5.2 Date of recognition the intention and ability to hold to maturity. Subsequent to initial recognition, All financial assets are initially recognized on the trade date, i.e., the held to maturity financial investments are measured at amortised cost date that the Bank becomes a party to the contractual provisions of the using the Effective Interest Rate (EIR), less impairment. Amortised cost is instrument. This includes ’regular way trades’: purchases or sales of financial calculated by taking into account any discount or premium on acquisition assets that require delivery of assets within the time-frame generally and fees that are an integral part of the EIR. The amortisation is included established by regulation or convention in the market place. in ‘Interest income’ in the income statement. The losses arising from impairment of such investments are recognised in the income statement line ‘Impairment gain/(loss) on financial investment. 3.5.3 Initial measurement of financial instruments The classification of financial instruments at initial recognition depends If the Bank and the Group were to sell or reclassify more than an insignificant on their purpose and characteristics and the management’s intention in amount of held to maturity investments before maturity (other than in certain acquiring them. All financial instruments are measured initially at their fair specific circumstances), the entire category would be tainted and would value plus transaction costs, except in the case of financial assets and have to be reclassified as available-for-sale. Furthermore, the bank would be financial liabilities recorded at fair value through profit or loss. prohibited from classifying any financial asset as held to maturity during the following two years. 3.5.4 Non-derivative financial assets The Group recognizes non-derivative financial assets by the following four iii. Due from banks and loans and receivables from customers categories: financial assets at fair value through profit or loss, held-to- Due from banks and Loans & receivables from customers include non– maturity investments, loans and receivables and available-for-sale financial derivative financial assets with fixed or determinable payments that are not assets. quoted in an active market, other than: Those that the Bank intends to sell immediately or in the near term i. Financial assets at fair value through profit or loss and those that the Bank, upon initial recognition, designates as at fair A financial asset is classified as fair value through profit or loss if it is held value through profit or loss for trading or is designated at fair value through profit of loss. Those that the Bank, upon initial recognition, designates as available for sale Financial assets held for trading Those for which the bank may not recover substantially all of its initial Financial assets held for trading are recorded in the statement of financial investment, other than because of credit deterioration position at fair value. Changes in fair value are recognized in ‘Net trading income’. Dividend income or expense is recorded in ‘Net trading income’ After initial measurement, amounts ‘Due from banks’ and ‘Loans and according to the terms of the contract, or when the right to the payment has receivables from customers’ are subsequently measured at amortised cost been established. using the EIR, less allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees Financial assets designated at fair value through profit or loss (FVTPL) and costs that are an integral part of the EIR. The amortisation is included Financial assets may be designated by management upon initial recognition, in ‘Interest income’ in the income statement. The losses arising from if: impairment are recognised in the income statement in ‘impairment gain/ such designation eliminates or significantly reduces the (loss) on loans and receivables’. The Bank and the Group may enter into inconsistent treatment that would otherwise arise from certain lending commitments where the loan, on drawdown, is expected to measuring the assets or recognizing gains or losses on them be classified as held-for-trading because the intent is to sell the loans in on a different basis. the short term. These commitments to lend are recorded as derivatives and the assets are part of a group of financial assets, financial measured at fair value through profit or loss. Where the loan, on drawdown, liabilities or both, which are managed and their performance is expected to be retained by the Bank, and not sold in the short term, the evaluated on a fair value basis, in accordance with a commitment is recorded only when it is an onerous contract that is likely to documented risk management or investment strategy. give rise to a loss. it contains one or more embedded derivatives, which significantly modify the cash flows that would otherwise be iv. Available-for-sale financial investments required by the contract. Available-for-sale investments include equity and debt securities. Equity investments classified as available for sale are those which are neither Financial assets at fair value through profit or loss are recorded in the classified as held for trading nor designated at fair value through profit or statement of Financial Position at Fair Value. Changes in fair value are loss. Debt securities in this category are intended to be held for an indefinite recorded in ‘Net gain or loss on financial instrument designated at fair value period of time and may be sold in response to needs for liquidity or in through profit or loss. Interest earned or incurred is accrued in ‘Interest response to changes in the market conditions. The Bank has not designated income’ or ‘Interest expense, respectively, using the effective interest rate any loans or receivables as available-for-sale. After initial measurement, (EIR), while dividend income is recorded in ‘Other operating income’ when available-for-sale financial investments are subsequently measured at the right to the payment has been established. Included in this classification fair value. Unrealised gains and losses are recognised directly in equity are loans and advances to customers which are economically hedged by (Other comprehensive income) in the ‘Available-for-sale reserve. When the credit derivatives and do not qualify for hedge accounting, as well as notes investment is disposed of, the cumulative gain or loss previously recognised issued which are managed on a fair value basis. in equity is recognised in the income statement in ‘Other operating income. Where the Bank and the Group hold more than one investment in the same ii. Held-to-maturity financial investments security, they are deemed to be disposed of on a first–in first–out basis. Held-to-maturity financial investments are non–derivative financial assets Interest earned whilst holding available-for-sale financial investments is with fixed or determinable payments and fixed maturities, which the Bank has reported as interest income using the EIR. Dividend earned whilst holding
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available for sale financial investments are recognised in the income The Bank has transferred substantially all the risks and rewards of statement as ‘Other operating income when the right of the payment has the asset. been established. The losses arising from impairment of such investments Or are recognised in the income statement in ‘Impairment losses on financial The Bank has neither transferred nor retained substantially all the investments’ and removed from the ‘Available-for-sale reserve. risks and rewards of the asset, but has transferred control of the asset. 3.5.5 Derivatives recorded at fair value through profit or loss The Bank uses derivatives such as currency swaps & forward contracts. When the Bank has transferred its rights to receive cash flows from an asset Derivatives are recorded at fair value and carried as assets when their fair or has entered into a pass–through arrangement, and has neither transferred value is positive and as liabilities when their fair value is negative. Changes nor retained substantially all of the risks and rewards of the asset nor in the fair value of derivatives are included in ‘Net trading income’. transferred control of the asset, the asset is recognised to the extent of the Bank’s continuing involvement in the asset. In that case, the bank also 3.5.6 ‘Day 1’ profit or loss recognises an associated liability. The transferred asset and the associated When the transaction price differs from the fair value of other observable liability are measured on a basis that reflects the rights and obligations current market transactions in the same instrument, or based on a valuation that the Bank has retained. Continuing involvement that takes the form of a technique whose variables include only data from observable markets, the guarantee over the transferred asset is measured at the lower of the original bank immediately recognises the difference between the transaction price carrying amount of the asset and the maximum amount of consideration that and fair value (a ‘Day 1’ profit or loss) in ‘Net trading income’. the bank could be required to repay.
3.5.7 Reclassification of financial assets 3.5.9 Impairment of Financial Assets The Bank and Group may reclassify non-derivative financial assets The Bank assesses at each reporting date, whether there is any objective (other than those designated at FVTPL upon initial recognition, in certain evidence that a financial asset or a group of financial assets is impaired. A circumstances: financial asset or a group of financial assets is deemed to be impaired if, out of the ‘held-for-trading’ category and into the ‘available for sale’, and only if, there is objective evidence of impairment as a result of one or ‘loans and receivables’, or ’held-to-maturity’ categories. more events that have occurred after the initial recognition of the asset (an ‘incurred loss event’) and that loss event (or events) has an impact on the out of the ‘available-for-sale’ category and into the ’loans and estimated future cash flows of the financial asset or the group of financial receivables’ , ‘held for trading category’ or ‘held-to-maturity’. assets that can be reliably estimated. Reclassifications are recorded at fair value at the date of reclassification, which becomes the new amortised cost. For a i. Loans and receivables financial asset reclassified out of the ’available-for-sale’ category, any Losses for impaired loans are recognised promptly when there is objective previous gain or loss on that asset that has been recognised in equity evidence that impairment of a loan or portfolio of loans has occurred. is amortised to profit or loss over the remaining life of the investment Impairment allowances are calculated on individual loans and for groups of using the EIR. Any difference between the new amortised cost and loans, this is done collectively. Impairment losses are recorded as charges to the expected cash flows is also amortised over the remaining life of the income statement. The carrying amount of impaired loans on the balance the asset using the EIR. If the asset is subsequently determined to sheet is reduced through the use of impairment allowance accounts. Losses be impaired, then the amount recorded in equity is recycled to the expected from future events are not recognised. income statement. Individually assessed loans and receivables out of the ‘held-for-trading’ category and into the ‘loans and For all loans that are considered individually significant, the Bank assesses receivables’ category if it meets the definition of loans and on a case-by-case basis at each balance sheet date whether there is any receivables and the Bank has the intention and ability to hold the objective evidence that a loan is impaired. The criteria used to determine financial asset for the foreseeable future or until maturity. If a that there is such objective evidence include: financial asset is reclassified, and if the Bank subsequently increases known cash flow difficulties experienced by the borrower; its estimates of future cash receipts as a result of increased past due contractual payments of either principal or interest; recoverability of those cash receipts, the effect of that increase is breach of loan covenants or conditions; recognised as an adjustment to the EIR from the date of the change the probability that the borrower will enter bankruptcy or other in estimate. financial realisation; and a significant downgrading in credit rating by an external credit rating Reclassification is at the election of the management, and is agency. determined on an instrument by instrument basis. For those loans where objective evidence of impairment exists, impairment 3.5.8 De-recognition of financial assets losses are determined considering the following factors: A financial asset (or, where applicable a part of a financial asset or part of a Bank’s aggregate exposure to the customer; group of similar financial assets) is derecognised when: the viability of the customer’s business model and their capacity to The rights to receive cash flows from the asset have expired. trade successfully out of financial difficulties and generate sufficient The Bank has transferred its rights to receive cash flows from the cash flow to service debt obligations; asset or has assumed an obligation to pay the received cash flows the amount and timing of expected receipts and recoveries; in full without material delay to a third party under a ‘pass–through’ the extent of other creditors’ commitments ranking ahead of, or pari- arrangement and either: passu with, the Bank and the likelihood of other creditors continuing to support the company;
302 Annual Report 2012 the complexity of determining the aggregate amount and ranking will eventually be written off as a result of the events occurring before the of all creditor claims and the extent to which legal and insurance balance sheet date which the Group is not able to identify on an individual uncertainties are evident; loan basis, and that can be reliably estimated. the realisable value of security (or other credit mitigants) and likelihood of successful repossession; When the group of loans by nature short term, the Bank use Net flow the likely deduction of any costs involved in recovery of amounts Rate method outstanding; the ability of the borrower to obtain, and make payments in, the Under this methodology the movement in the outstanding balance of currency of the loan if not denominated in local currency; and customers in to bad categories over the periods are used to estimate the the likely dividend available on liquidation or bankruptcy; amount of loans that will eventually be written off as a result of the events occurring before the balance sheet date which the Group is not able to Impairment losses are calculated by discounting the expected future identify on an individual loan basis, and that can be reliably estimated. cash flows of a loan at its original effective interest rate and comparing the resultant present value with the loan’s current carrying amount. The Under both methodologies, loans are grouped into ranges according to the impairment allowances on individually significant accounts are reviewed number of days in arrears and statistical analysis is used to estimate the more regularly when circumstances require. This normally encompasses likelihood that loans in each range will progress through the various stages re-assessment of the enforceability of any collateral held and the timing and of delinquency, and ultimately prove irrecoverable. amount of actual and anticipated receipts. Individually assessed impairment allowances are only released when there is reasonable and objective Current economic conditions and portfolio risk factors are also evaluated evidence of a reduction in the established loss estimate. when calculating the appropriate level of allowance required to cover the inherent loss. Collectively assessed loans and advances Impairment is assessed on a collective basis in two circumstances: These additional macro and portfolio risk factors may include: to cover losses which have been incurred but have not yet been recent loan portfolio growth and product mix, identified on loans subject to individual assessment; and unemployment rates, Gross Domestic Production (GDP) growth, for homogeneous groups of loans that are not considered individually inflation significant. Exchange rates, interest rates Changes in laws and regulations Incurred but not yet identified impairment Individually assessed loans for which no evidence of loss has been Write-off of loans and advances specifically identified on an individual basis are grouped together according Loans (and the related impairment allowance accounts) are normally written to their credit risk characteristics for the purpose of calculating an estimated off, either partially or in full, when there is no realistic prospect of recovery. collective loss. This reflects impairment losses that the Bank has incurred as Where loans are secured, this is generally after receipt of any proceeds from a result of events occurring before the balance sheet date, which the Bank the realisation of security. and the Group are not able to identify on an individual loan basis, and that can be reliably estimated. These losses will only be individually identified in Reversals of impairment the future. As soon as information becomes available which identifies losses If the amount of an impairment loss decreases in a subsequent period, on individual loans within the group, those loans are removed from the group and the decrease can be related objectively to an event occurring after the and assessed on an individual basis for impairment. impairment was recognised, the excess is written back by reducing the loan impairment allowance account accordingly. The write-back is recognised in The collective impairment allowance is determined after taking into account: the income statement. historical loss experience in portfolios of similar credit risk; and management’s experienced judgment as to whether current economic ii. Available-for-sale financial investments and credit conditions are such that the actual level of inherent losses For available for sale financial investments, the Bank assesses at each at the balance sheet date is likely to be greater or less than that reporting date whether there is objective evidence that an investment is suggested by historical experience. impaired. In the case of debt instruments classified as available for sale, the bank assesses individually whether there is objective evidence of Homogeneous groups of loans and advances impairment. Statistical methods are used to determine impairment losses on a collective basis for homogeneous groups of loans. Losses in these groups of loans However, the amount recorded for impairment is the cumulative loss are recorded on an individual basis when individual loans are written off, at measured as the difference between the amortised cost and the current fair which point they are removed from the group. value, less any impairment loss on that investment previously recognised in the income statement. Future interest income is based on the reduced Two alternative methods are used to calculate historical loss experience on carrying amount and is accrued using the rate of interest used to discount a collective basis: the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of ‘Interest and similar income’. If, When the group of loan by nature long term, the Bank use Probability in a subsequent period, the fair value of a debt instrument increases and of default method the increase can be objectively related to a credit event occurring after the impairment loss was recognised in the income statement, the impairment Under this methodology the movement in number of customers in to bad loss is reversed through the income statement. categories over the periods are used to estimate the amount of loans that
Sampath Bank PLC 303 SIGNIFICANT ACCOUNTING POLICIES
In the case of equity investments classified as available for sale, objective including accrued interest as a liability within ‘Cash collateral on securities evidence would also include a ‘significant’ or ‘prolonged’ decline in the lent and repurchase agreements’, reflecting the transaction’s economic fair value of the investment below its cost. Where there is evidence of substance as a loan to the Bank. The difference between the sale and impairment, the cumulative loss measured as the difference between the repurchase prices is treated as interest expense and is accrued over the acquisition cost and the current fair value, less any impairment loss on that life of agreement using the EIR. When the counterparty has the right to investment previously recognised in the income statement is removed from sell or re-pledge the securities, the Bank reclassifies those securities in its equity and recognised in the income statement. Impairment losses on equity Statement of Financial Position to ‘Financial assets held-for-trading pledged investments are not reversed through the income statement; increases as collateral’ or to ‘Financial investments available-for-sale pledged as in the fair value after impairment are recognised in other comprehensive collateral’, as appropriate. income. Conversely, securities purchased under agreements to resell at a specified iii. Held-to-maturity financial assets future date are not recognised in the Statement of Financial Position. The An impairment loss in respect of held-to-maturity financial assets measured consideration paid, including accrued interest, is recorded in the Statement at amortised cost is calculated as the difference between its carrying of Financial Position, within ‘Cash collateral on securities borrowed and amount and the present value of estimated future cash flows discounted reverse repurchase agreements’, reflecting the transaction’s economic at the asset’s original EIR and is recognized in profit or loss. Interest substance as a loan by the Bank. The difference between the purchase and on impaired assets continue to be recognized through the unwinding of resale prices is recorded in ‘Net interest income’ and is accrued over the life discount. When a subsequent event caused the amount of impairment loss of the agreement using the EIR. to decrease, the decrease in impairment loss is reversed through profit or loss. If securities purchased under agreement to resell are subsequently sold to third parties, the obligation to return the securities is recorded as a short Renegotiated loans sale within ‘Financial liabilities held-for-trading’ and measured at fair value Where possible, the Bank seeks to restructure loans rather than to with any gains or losses included in ‘Net trading income’. take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms 3.5.13 Securities lending and borrowing have been renegotiated, any impairment is measured using the original EIR Securities lending and borrowing transactions are usually collateralised by as calculated before the modification of terms and the loan is no longer securities or cash. The transfer of the Securities to counterparties is only considered past due. Management continually reviews renegotiated loans reflected on the statement of financial position if the risks and rewards of to ensure that all criteria are met and that future payments are likely to ownership are also transferred. Cash advanced or received as collateral occur. The loans continue to be subject to an criteria are met and that is recorded as an asset or liability. Securities borrowed are not recognised future payments are likely to occur. The loans continue to be subject to an on the Statement of Financial Position, unless they are then sold to third individual or collective impairment assessment, calculated using the loan’s parties, in which case the obligation to return the securities is recorded as a original EIR. trading liability and measured at fair value with any gains or losses included in ‘Net trading income’. 3.5.10 Collateral valuation The bank seeks to use collateral, where possible, to mitigate its risks 3.6 Non–Financial Assets on financial assets. The collateral comes in various forms such as cash, 3.6.1 Property and equipment securities, letters of credit/guarantees, real estate, receivables, inventories, Recognition and measurement other non-financial assets and credit enhancements such as netting Property & Equipment are recognised if it is probable that future economic agreements. The fair value of collateral is generally assessed, at a minimum, benefits associated with the asset will flow to the entity and the cost of the at inception and based on the guidelines issued by the Central Bank of Sri asset can be measured reliably in accordance with LKAS 16 on Property, Lanka. Plant & Equipment. Initially property and equipment are measured at cost.
Non-financial collateral, such as real estate, is valued based on data Cost Model provided by third parties such as independent valuers and audited financial Property and equipment is stated at cost excluding the costs of day–to–day statements. servicing, less accumulated depreciation and accumulated impairment in value. Such cost includes the cost of replacing part of the equipment when 3.5.11 Collateral repossessed that cost is incurred, if the recognition criteria are met. The Bank’s policy is to determine whether a repossessed asset is best used for its internal operations or should be sold. Assets determined to be useful Revaluation Model for the internal operations are transferred to their relevant asset category Land and buildings are measured at fair value, less depreciation on at the lower of their repossessed value or the carrying value of the original buildings and impairment charged subsequent to the date of the revaluation. secured asset. Valuations are performed every 3 years to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. 3.5.12 Repurchase and reverse repurchase agreements Securities sold under agreements to repurchase at a specified future Any revaluation surplus is credited to the revaluation reserve included in date are not derecognised from the statement of financial position as the the equity of the Statement of Financial Position, except to the extent that bank retains substantially all of the risks and rewards of ownership. The it reverses a revaluation decrease of the same asset previously recognised corresponding cash received is recognised in the consolidated statement of financial position as an asset with a corresponding obligation to return it,
304 Annual Report 2012 in Income Statement, in which case the increases is recognised in Income 3.6.2 Impairment of non–financial assets Statement. A revaluation deficit is recognised in Income Statement, except that a deficit directly offsetting a previous surplus on the same asset is 3.6.3 directly offset against the surplus in the asset revaluation reserve. The Bank assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual Subsequent Cost impairment testing for an asset is required, the Bank estimates the asset’s These are costs that are recognised in the carrying amount of an item, if it recoverable amount. An asset’s recoverable amount is the higher of an is probable that the future economic benefits embodied within that part will asset’s or the fair value of the Cash Generating unit’s (CGU) fair value less flow to the Group and it can be reliably measured. costs to sell and its value in use. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and Depreciation is written down to its recoverable amount. The provision for depreciation is calculated by using the straight line method In assessing value in use, the estimated future cash flows are discounted to on cost or valuation of the Property & Equipment other than freehold land. their present value using a pre–tax discount rate that reflects current market The rates of depreciations are given below; assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model Asset Category Rate of Depreciation (per annum) is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value Freehold Buildings 2.0% - 2.5 % indicators. Motor Vehicles 12.5% 3.7 Finance and operating leases Computer Equipment 5% - 20% The determination of whether an arrangement is a lease, or it contains Furniture, Office & Household 5.0% - 20.0 % a lease, is based on the substance of the arrangement and requires an Equipment assessment of whether the fulfilment of the arrangement is dependent on Building Integrals 10% - 25 % the use of a specific asset or assets and the arrangement conveys a right to use the asset. The asset’s residual values, useful lives and methods of depreciation are Finance leases reviewed, and adjusted if appropriate, at each financial year end. Agreements which transfer to counterparties substantially all the risks and rewards incidental to the ownership of assets, but not necessarily legal title, De-recognition are classified as finance leases. When the Bank is a lessor under finance Property and equipment is de-recognised on disposal or when no future leases the amounts due under the leases, after deduction of unearned economic benefits are expected from its use. Any gain or loss arising on charges, are included in ‘Loans and advances to banks’ or ‘Loans and de-recognition of the asset (calculated as the difference between the net advances to customers’, as appropriate. The finance income receivable is disposal proceeds and the carrying amount of the asset) is recognised in recognised in ‘Net interest income’ over the periods of the leases so as to ‘Other operating income’ in the income statement in the year the asset is give a constant rate of return on the net investment in the leases. de-recognised. When the Bank is a lessee under finance leases, the leased assets Upon disposal, any revaluation reserve relating to the particular asset being are capitalised and included in ‘Property, plant and equipment’ and sold is transferred to retained earnings the corresponding liability to the lessor is included in ‘Debt issued and other borrowed funds’. A finance lease and its corresponding liability are 3.6.2 Intangible assets recognised initially at the fair value of the asset or, if lower, the present value The intangible assets include the value of computer software cost of of the minimum lease payments. Finance charges payable are recognised purchased licenses. in ‘Net interest income’ over the period of the lease based on the interest rate implicit in the lease so as to give a constant rate of interest on the An intangible asset is recognised only when its cost can be measured remaining balance of the liability. reliably and it is probable that the expected future economic benefits that are attributable to it will flow to the Bank. Operating leases All other leases are classified as operating leases. When acting as lessor, Amortization the Bank includes the assets subject to operating leases in ‘Property, plant Amortisation is calculated using the straight–line method to write-down the and equipment’ and accounts for them accordingly. Impairment losses are cost of intangible assets to their residual values over their estimated useful recognised to the extent that residual values are not fully recoverable and lives as follows; the carrying value of the assets is thereby impaired. When the Bank is the lessee, leased assets are not recognised on the balance sheet. Rentals Asset Category Useful life payable and receivable under operating leases are accounted for on a straight-line basis over the periods of the leases and are included in ‘General Computer software 4 – 6 years and administrative expenses’ and ‘Other operating income’, respectively. Licenses 20 years 3.8 Fiduciary assets The residual value of the intangible asset is zero. The Bank provides fiduciary services that result in the holding of the assets on behalf of its customers. Assets held in fiduciary capacity are not reported in the financial statements, as they are not assets of the Bank.
Sampath Bank PLC 305 SIGNIFICANT ACCOUNTING POLICIES
3.9 Financial liabilities Recognition of Actuarial Losses / Gains Initial recognition and measurement Acturial losses / gains to be recognized in this year’s retirement expense is Financial liabilities within the scope of LKAS 39 are classified as Due to calculated according to the 10% corridor method. Actuarial experience gains banks, Securities sold under re-purchase agreements, Derivative financial or losses occur when the actual plan experience differ from the assumed. instruments, Due to customers (Deposits), Debt issued and other borrowed This Actuarial Gain will be considered for recognition in the next year’s funds as appropriate. The Group determines the classification of its financial Retirement Benefit Expense. liabilities at initial recognition. Expected Return on Assets The Bank & the Group classifies financial liabilities in to financial liabilities Expected return on assets is zero as the plan is not pre funded. at FVTPL or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities. Funding Arrangements The Gratuity liability is not externally funded. The Group recognizes financial liabilities in the Statement of Financial Position when the Group becomes a party to the contractual provisions of i. Pension Fund the financial liability. The Bank has a Pension Fund for all members who joined the Bank for permanent employment before 1st June 2003. A member is eligible for a I Financial liability at FVTPL monthly pension after attainment of 55 years of age provided they have Financial liabilities at FVTPL includes financial liabilities held-for-trading or completed of 10 years uninterrupted service. designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at FVTPL are measured at fair value, and changes there in The Bank measures the present value of the Pension obligation, which is a recognized in profit or loss. defined benefit plan with the advice of an independent professional actuary Upon initial recognition, transaction cost are directly attributable to the using the Projected Unit Credit method (PUC) as required by Sri Lanka acquisition are recognized in profit or loss as incurred. Accounting Standards No. 19, Employee Benefits (LKAS 19). The criteria for designation of financial liabilities at FVTPL upon initial recognition are the same as those of financial assets at FVTPL. An actuarial valuation is carried out at every year to ascertain the full liability under the Fund. The last such valuation was carried out as at 31st Ii Other Financial liabilities December 2012 by M/s. Piyal S. Goonetilleke & Associates, a qualified Other financial liabilities including deposits, debt issued by the Bank and actuary. the other borrowed funds are initially measured at fair value less transaction cost that are directly attributable to the acquisition and subsequently Recognition of Actuarial Losses / (Gains) measured at amortised cost using the EIR method. Actuarial experience gains or losses occur when the actual plan experience Amortised cost is calculated by taking into account any discount or premium differ from the assumed. This Actuarial Gain will be considered for on the issue and costs that are an integral part of the EIR. recognition in the next year’s Retirement Benefit Expense.
De-recognisition of financial liabilities Expected Return on Assets A financial liability is de-recognised when the obligation under the liability Expected return on assets is the expected return on pension fund at the is discharged or cancelled or expires. Where an existing financial liability is assumed rate of return. replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange Funding Arrangements or modification is treated as a de-recognition of the original liability and the The assets of the fund are held separately from those of the Bank assets, recognition of a new liability. The difference between the carrying value of the which is administered independently. original financial liability and the consideration paid is recognised in profit or loss. 3.10.2 Defined Contribution Plans The contribution payable to a defined contribution plan is in proportion to 3.10 Retirement Benefit Obligations the services rendered to the Bank by the employees and is recorded as an 3.10.1 Defined Benefit Plan expense under ‘Personnel expenses’. Unpaid contributions are recorded as i. Gratuity a liability. In compliance with the Gratuity Act No.12 of 1983 provision is made in the i. Employees’ Provident Fund accounts from the first year of service for gratuity payable to employees who The Bank and Employees contribute to the approved private Provident Fund joined the Bank on or after 1st June 2003, as they are not in pensionable at 12% and 8% respectively. service of the Bank. ii. Employees’ Trust Fund Provision is not made in the accounts for gratuity payable to employees who The Bank contributes to the Employees’ Trust Fund at 3%. joined prior to 1st June 2003 and complete 5 or more years of continuous service, as the Bank has its own non-contributory pension scheme in force. 3.11 Provisions However, if employees who are eligible for pension resign before retirement Provisions are recognised when the Bank or Group has a present obligation age, the Bank is liable to pay gratuity to such employees. (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle An actuarial valuation is carried out at every year to ascertain the full liability the obligation and a reliable estimate can be made of the amount of the under the Fund. The valuation was carried out as at 31st December 2012 by obligation. The expense relating to any provision is presented in the income M/s. Piyal S. Goonetilleke & Associates, a qualified actuary. statement net of any reimbursement.
306 Annual Report 2012 to be utilised. Un-recognised deferred tax assets are reassessed at each 3.12 Financial guarantees reporting date and are recognised to the extent that it has become probable In the ordinary course of business, the Bank gives financial guarantees, that future taxable profit will allow the deferred tax asset to be recovered. consisting of letters of credit, guarantees and acceptances. Financial guarantees are initially recognised in the financial statements (within ‘Other Deferred tax assets and liabilities are measured at the tax rates that are liabilities’) at fair value, being the premium received. Subsequent to initial expected to apply in the year when the asset is realised or the liability recognition, the Bank’s liability under each guarantee is measured at the is settled, based on tax rates (and tax laws) that have been enacted or higher of the amount initially recognised less cumulative amortization substantively enacted at the reporting date. recognised in the income statement, and the best estimate of expenditure Current tax and deferred tax relating to items recognised directly in equity required to settle any financial obligation arising as a result of the guarantee. are also recognised in equity and not in the income statement.
Any increase in the liability relating to financial guarantees is recorded in the Deferred tax assets and deferred tax liabilities are offset if a legally income statement in ‘Interest expense’. The premium received is recognised enforceable right exists to set off current tax assets against current tax in the income statement in ‘Net fees and commission income’ on a straight liabilities and the deferred taxes relate to the same taxable entity and the line basis over the life of the guarantee. same taxation authority
3.13 Taxation 3.13.3 VAT on Financial Services Income Tax expense comprises of current and deferred tax. Income tax VAT on Financial Services is calculated in accordance with VAT Act No. 14 of expense is recognised in the statement of comprehensive Income. 2002 and subsequent amendment thereto.
3.13.1 Current tax 3.14 Recognition of income and expenses Current tax assets and liabilities consist of amounts expected to be Revenue is recognised to the extent that it is probable that the economic recovered from or paid to the Commissioner General of Inland Revenue in benefits will flow to the Bank or Group and the revenue can be reliably respect of the current year and any adjustment to tax payable in respect measured. The following specific recognition criteria must also be met before of prior years. The tax rates and tax laws used to compute the amount are revenue is recognised. those that are enacted or substantially enacted by the balance sheet date. 3.14.1 Interest Income and Interest expense 3.13.2 Deferred tax For all financial instruments measured at amortised cost, interest bearing Deferred tax is provided on temporary differences at the reporting date financial assets classified as available-for-sale and financial instruments between the tax bases of assets and liabilities and their carrying amounts designated at fair value through profit or loss, interest income or expense for financial reporting purposes. Deferred tax liabilities are recognised for all is recorded using the EIR. EIR is the rate that exactly discounts estimated taxable temporary differences, except: future cash payments or receipts through the expected life of the financial Where the deferred tax liability arises from the initial recognition instrument or a shorter period, where appropriate, to the net carrying amount of goodwill or of an asset or liability in a transaction that is not a of the financial asset or financial liability. business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss The calculation takes into account all contractual terms of the financial In respect of taxable temporary differences associated with instrument (for example, prepayment options) and includes any fees or investments in subsidiaries, where the timing of the reversal of the incremental costs that are directly attributable to the instrument and are an temporary differences can be controlled and it is probable that the integral part of the EIR, but not future credit losses. The carrying amount temporary differences will not reverse in the foreseeable future of the financial asset or financial liability is adjusted if the bank revises its estimates of payments or receipts. The adjusted carrying amount is Deferred tax assets are recognised for all deductible temporary differences, calculated based on the original EIR and the change in carrying amount is carry forward of unused tax credits and unused tax losses, to the extent that recorded as ’Interest income’ for financial assets and ’Interest and similar it is probable that taxable profit will be available against which the deductible expense’ for financial liabilities. However, for a reclassified financial asset for temporary differences, and the carry forward of unused tax credits and which the bank subsequently increases its estimates of future cash receipts unused tax losses can be utilised except: as a result of increased recoverability of those cash receipts, the effect of Where the deferred tax asset relating to the deductible temporary that increase is recognised as an adjustment to the EIR from the date of the difference arises from the initial recognition of an asset or liability in a change in estimate. transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or Once the recorded value of a financial asset or a group of similar financial loss assets has been reduced due to an impairment loss, interest income In respect of deductible temporary differences associated with continues to be recognised using the rate of interest used to discount the investments in subsidiaries, deferred tax assets are recognised only future cash flows for the purpose of measuring the impairment loss. to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available 3.14.2 Fee and commission income against which the temporary differences can be utilised. The Bank earns fee and commission income from a diverse range of services it provides to its customers. Fee income can be divided into the The carrying amount of deferred tax assets is reviewed at each reporting following two categories: date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset
Sampath Bank PLC 307 SIGNIFICANT ACCOUNTING POLICIES
i. Fee income earned from services that are provided over a certain Interest income is reported net as management primarily relies on net period of time interest revenue as a performance Fees earned for the provision of services over a period of time are accrued measure, not the gross income and expense. Transfer prices between over that period. These fees include Professional fees, Trade Services fees, operating segments are on an arm’s length basis in a manner similar to commission income and asset management fees. Loan commitment fees transactions with third parties. for loans that are likely to be drawn down and other credit related fees No revenue from transactions with a single external customer or counterparty are deferred (together with any incremental costs) and recognised as an amounted to 10% or more of the bank’s total revenue in 2012 or 2011. adjustment to the EIR on the loan. When it is unlikely that a loan will be drawn down, the loan commitment fees are recognised over the commitment 3.18 Cash Flow Statement period on a straight line basis. The cash flow statement has been prepared using ‘The Direct Method’, whereby gross cash receipts and gross cash payments of operating ii. Fee income from providing transaction services activities, finance activities and investing activities have been recognised. Fees arising from negotiating or participating in the negotiation of a transaction for a third party, such as the arrangement of the acquisition 3.19 Standards issued but not yet effective of shares or other securities or the purchase or sale of businesses, are Standards issued but not yet effective up to the date of issuance of the recognised on completion of the underlying transaction. Fees or components financial statements are set out below. The Bank and the Group will adopt of fees that are linked to a certain performance are recognised after fulfilling these standards when they become effective. Pending a detailed review the the corresponding criteria. financial impact is not reasonably estimable as at the date of publication of these financial statements. 3.14.3 Dividend income Dividend income is recognised when the right to receive the payment is (i) SLFRS 9 -Financial Instruments: Classification and Measurement established. SLFRS 9, as issued reflects the first phase of work on replacement of LKAS 39 and applies to classification and measurement of financial assets and 3.14.4 Net trading income liabilities. Net trading income includes all gains and losses from changes in fair value and related Dividend for financial assets and financial liabilities ‘held-for- (ii) SLFRS 13 -Fair Value Measurement trading’ other than interest income. SLFRS 13 establishes a single source of guidance under SLFRS for all fair value measurements. SLFRS 13 provides guidance on all fair value 3.15 Customer loyalty programmes measurements under SLFRS. Award credits under customer loyalty programmes are accounted for as a separately identifiable component of the transaction in which they are SLFRS 9 will be effective for financial periods beginning on or after 01 granted. The fair value of the consideration received in respect of the initial January 2015 whilst SLFRS 13 will be effective for financial periods sale is allocated between the award credits and the other components of beginning on or after 01 January 2014. the sale. Expense incurred from customer loyalty programmes is charged to ‘Other operating expenses’. In addition to the above, following standards have also been issued and will be effective from 01 January 2014. 3.16 Dividend on ordinary shares Dividend on ordinary shares are recognised as a liability and deducted SLFRS 10 - Consolidated Financial Statements from equity when they are approved by the Bank’s shareholders. Interim SLFRS 11 - Joint Arrangements Dividend are deducted from equity when they are declared and no longer at SLFRS 12 - Disclosure of Interests in Other Entities the discretion of the Bank. Dividend for the year that are approved after the reporting date are disclosed as an event after the reporting date. 4 First time adoption of SLFRS As stated in Note 2.1, these are the Bank’s and Group’s first financial 3.17 Segment Reporting statements prepared in accordance with SLFRS. For management purposes, the Bank is organised into four operating segments based on products and services, as follows: The accounting policies set out in Note 3 have been applied in preparing the Financial Statements for the year ended December 31, 2012 , the Banking comparative information presented for the year ended December 31, 2011 Leasing and in the preparation of an opening SLFRS based Statement of Financial Dealing/Investment Position at January 1, 2011 (the date of transition). Others 4.1 Exemptions Management monitors the operating results of its business units SLFRS 1 First- time adoption of Sri Lanka Accounting Standards allows first separately for the purpose of making decisions about resource allocation time adopters certain exemptions from the retrospective application of and performance assessment. Segment performance is evaluated based certain SLFRS. on operating profits or losses which, in certain respects, are measured differently from operating profits or losses in the consolidated financial The Bank and the Group has taken the following exemptions. statements. Income taxes are managed on a group basis and are not allocated to operating segments.
308 Annual Report 2012 ii The Group has elected to disclose the following amounts i SLFRS 3 Business Combinations prospectively from the date of transition (i) the present value of the defined benefit obligation, the fair value of the plan assets and the Not applied for subsidiaries, which are considered business for surplus or deficit in the plan; and (ii) the experience adjustments SLFRS, or in interest in associates and joint ventures that occurred arising on the plan liabilities and the plan assets. before January 1, 2011. iii SLFRS 2 Share-based Payment has not been applied to equity Use of this exemption means that the SLAS carrying amounts of instruments in share-based payment transactions that were granted assets and liabilities, which are required to be recognised under on or before January 1, 2011, and the issues after that date but SLFRS, is their deemed cost at the date of the acquisition. After the vesting conditions were satisfied before January 1, 2012. date of the acquisition, measurement is in accordance with SLFRS. Assets and liabilities that do not qualify for recognition under SLFRS iv The Group has designated unquoted equity instruments held at 1 are excluded from the opening SLFRS statement of financial position. January 2011 as available-for-sale investments. The Group did not recognise or exclude any previously recognised amounts as a result of SLFRS recognition requirements. SLFRS 1 also requires that the local SLAS carrying amount of goodwill must be used in the opening SLFRS statement of financial position (apart from adjustments for goodwill impairment and recognition or derecognition of intangible assets). In accordance with SLFRS 1, the Group has tested goodwill for impairment at the date of transition to SLFRS. No Goodwill impairment was deemed necessary at January 1, 2011.
4.2 Significant Differences Between SLAS and SLFRS
Description SLFRS SLAS
Impairment Allowances for Impairment allowances for loan losses that has As per the Direction No. 3 of 2008 as amended by the Direction no 9 loan losses been incurred but not yet identified are estimated of 2008 on ‘Classification of loans and advances, income recognition at a specific asset and collective level using the and provisioning’, Specific provisions were made based on the historical experience. arrears time period. In compliance with the Banking Act Direction No. 3 of 2010 together with the above directions, General provisions were made on performing loans and advances at the rate of 0.5% Interest expense Interest expense on the deposits are charged over Interest expense on the deposits are charged over the contractual the contractual period using the EIR method. period using the straight-line method.
Sampath Bank PLC 309 SIGNIFICANT ACCOUNTING POLICIES
Reconciliation of Equity as at January 1, 2011 (Beginning of the day balances)
(Rs’000) Bank SLAS Reclassification Remeasurement SLFRS
Assets Cash and Cash Equivalents 6,046,830 (1,787,373) - 4,259,457 Cash and Cash Equivalents Balance with Central Bank of Sri Lanka 8,221,068 - - 8,221,068 Balances with Central Bank of Sri Lanka - 1,788,050 - 1,788,050 Placements with Banks - 91,878 - 91,878 Derivative financial instruments Government of Sri Lanka Treasury Bills & Bonds 31,394,278 (4,692,730) - 26,701,547 Financial investments held -for- trading - 4,485,329 - 4,485,329 Financial assets held-for-trading pledged as collaterals Dealing Securities 899,106 (899,106) - - Investment Securities 7,647,737 (7,647,737) - - Loans and Advances A, B 122,626,504 1,867,102 (426,288) 124,067,319 Loans and receivables from customers - 7,596,741 - 7,596,741 Other loans & receivables C - 126,066 5,499,781 5,625,847 Financial investments- available- for- sale - 1,122,084 - 1,122,084 Financial investments- held - to- maturity Investment in Subsidiary Companies 991,626 - - 991,626 Investment in subsidiary companies Interest and Fees Receivable 1,959,236 (1,959,236) - - Property and Equipment 4,277,501 - - 4,277,501 Property and equipment Goodwill and Other Intangible Assets 78,723 - - 78,723 Intangible assets Other Assets 937,952 (16,562) 1,085,432 2,006,821 Other assets Total Assets 185,080,560 74,506 6,158,925 191,313,991 Total Assets
Liabilities - 200,013 - 200,013 Due to banks Securities Sold under Re-purchase Agreements 4,361,363 49,990 - 4,411,354 Securities sold under re-purchase agreements - 74,506 - 74,506 Derivative financial instruments Deposits D 150,508,801 2,928,195 (191,232) 153,245,764 Due to other customers Unclaimed Dividend 37,922 - - 37,922 Unclaimed Dividend Taxation F 911,509 - (20,498) 891,011 Current taxation Deferred Taxation E 196,440 - 61,900 258,340 Deferred taxation Refinance Borrowings 4,442,929 (4,442,929) - - Other Borrowings 1,013,070 7,553,996 - 8,567,066 Debt issued and other borrowed funds - 89,223 - 89,223 Provisions Other Liabilities G 5,390,706 (3,179,688) 337,139 2,548,157 Other Liabilities Other Liabilities Evidenced by Paper 3,198,800 (3,198,800) - - Total Liabilities 170,061,540 74,506 187,309 170,323,356 Total Liabilities
Shareholders’ Funds Equity Stated Capital 1,786,250 - - 1,786,250 Stated capital Reserves Reserves Statutory / Risk Reserve Funds 646,564 - - 646,564 Statutory / risk reserve funds Other Capital Reserves 1,519,041 - - 1,519,041 Revaluation reserve C - - 5,223,829 5,223,829 Available-for-sale reserve Revenue Reserves 11,067,164 - 747,787 11,814,951 Revenue reserves Total Equity 15,019,019 - 5,971,616 20,990,635 Total Equity Total Liabilities and Shareholders’ Funds 185,080,560 74,506 6,158,925 191,313,991 Total liabilities and equity
310 Annual Report 2012 Reconciliation of Equity as at December 31, 2011
(Rs’000) Bank SLAS Reclassification Remeasurement SLFRS
Assets Cash and Cash Equivalents 16,057,361 (5,320,948) - 10,736,413 Cash and Cash Equivalents Balance with Central Bank of Sri Lanka 13,232,130 - - 13,232,130 Balances with Central Bank of Sri Lanka - 5,337,084 - 5,337,084 Placements with Banks Securities Purchased under Re-sale Agreements 4,600,000 1,965 - 4,601,965 Reverse repurchase agreements - 203,732 - 203,732 Derivative financial instruments Government of Sri Lanka Treasury Bills & Bonds 25,894,165 (2,841,178) - 23,052,987 Financial investments held -for- trading - 4,002,777 - 4,002,777 Financial assets held-for-trading pledged as collaterals Dealing Securities 1,283,380 (1,283,380) - - Investment Securities 5,803,967 (5,803,967) - - Loans and Advances A, B 168,703,395 1,965,546 (987,569) 169,681,371 Loans and receivables from customers - 450,617 (8,679) 441,938 Loans and receivables from banks - 5,736,278 - 5,736,278 Other loans & advances C - 227,059 1,798,183 2,025,242 Financial investments- available- for- sale - 10,289 - 10,289 Financial investments- held - to- maturity Investment in Subsidiary Companies 1,054,921 - - 1,054,921 Investment in subsidiary companies Interest and Fees Receivable 2,482,140 (2,482,140) - - Property and Equipment 4,527,784 - - 4,527,784 Property and equipment Goodwill and Other Intangible Assets 67,294 - - 67,294 Intangible assets Other Assets 1,043,868 - 1,329,236 2,373,104 Other assets Total Assets 244,750,405 203,732 2,131,170 247,085,307 Total Assets
Liabilities - 1,175,672 - 1,175,672 Due to banks Securities Sold under Re-purchase Agreements 4,074,718 26,144 - 4,100,862 Securities Sold under Re-purchase - Agreements - 310,966 - 310,966 Derivative financial instruments Deposits D 191,587,958 3,748,676 (141,561) 195,195,074 Due to other customers Unclaimed Dividend 37,173 - 37,173 Unclaimed Dividend Refinance Borrowings 4,850,371 (4,850,371) - - Other Borrowings 12,235,904 7,518,317 - 19,754,221 Debt issued and other borrowed funds Other Liabilities G 7,828,843 (4,846,200) 271,910 3,254,553 Other Liabilities Taxation F 1,946,052 - (94,218) 1,851,834 Current taxation Deferred Taxation E 398,671 - (18,311) 380,360 Deferred taxation - 124,477 - 124,477 Provisions Other Liabilities Evidenced by Paper 3,003,949 (3,003,949) - - Total Liabilities 225,963,640 203,732 17,820 226,185,192 Total Liabilities
Shareholders’ Funds Equity Stated Capital 2,743,780 - - 2,743,780 Stated capital Reserves Reserves Statutory / Risk Reserve Funds 841,511 - - 841,511 Statutory / risk reserve funds Other Capital Reserves 1,459,349 - - 1,459,349 Revaluation reserve C - - 1,797,778 1,797,778 Available-for-sale reserve Revenue Reserves 13,742,125 - 315,571 14,057,697 Revenue reserves 18,786,765 - 2,113,350 20,900,115 Total equity Total Liabilities and Shareholders’ Funds 244,750,405 203,732 2,131,170 247,085,307 Total liabilities and equity
Sampath Bank PLC 311 SIGNIFICANT ACCOUNTING POLICIES
Reconciliation to the profit 2011
(Rs’000) Bank SLAS Reclassification Remeasurement SLFRS
Income 26,742,906 26,739,895 Income
Interest Income H 21,126,754 - (15,538) 21,111,216 Interest income Less : Interest Expenses I 12,108,810 - 59,137 12,167,947 Less : Interest expense Net Interest Income 9,017,944 - - 8,943,269 Net interest income
Net trading income - 313,973 - 313,973 Net trading income Foreign Exchange Profit 837,369 (837,369) - - Fees & Commission Income J 1,798,065 - 12,527 1,810,592 Net fee & commission income Other Income 2,980,718 523,396 - 3,504,114 Other operating income Operating Income 14,634,096 14,571,948 Total operating income
Provision/(Reversal) for Credit Losses - Specific B 319,761 - (319,761) - - General B (190,942) - 190,942 - B - - (428,856) (428,856) Impairment gain / ( loss) on loans and receivables Provision for Diminution/(Appreciation) in Value of Investments K (86,384) - 275,549 (189,165) Impairment gain / ( loss) on financial investments - - - 13,953,926 Net operating income Operating Expenses Personnel Cost L 3,223,651 329,097 6,927 3,559,674 Personnel expenses Premises, Equipment & Establishment Expenses 2,565,725 (2,565,725) - - - 503,383 - 503,383 Depreciation of property & equipment - 36,110 - 36,110 Amortisation of intangible assets Provision for Retirement Benefits 344,132 (344,132) - Other Overhead Expenses G 2,878,371 1,070,753 10,515 3,959,639 Other operating expenses Operating Expenses 9,054,314 8,058,806 Total operating expenses
- - - 5,895,120 Operating profit / (loss) before value Added Tax G - 970,514 (69,030) 901,484 Less: Value Added Tax Operating Profit before Tax 5,579,782 4,993,636 Operating Profit / (loss) after value Added Tax Less : Provision for Taxation E, F 1,760,359 - (153,932) 1,606,427 Less : Income tax expense Profit after Tax 3,819,423 3,387,209 Profit for the year
312 Annual Report 2012 Reconciliation of Equity as at January 1, 2011 (Beginning of the day balances)
(Rs’000) Group SLAS Reclassification Remeasurement SLFRS
Assets Cash and Cash Equivalents 6,052,551 (1,725,471) - 4,327,079 Cash and Cash Equivalents Balance with Central Bank of Sri Lanka 8,221,068 - - 8,221,068 Balances with Central Bank of Sri Lanka - 1,720,924 - 1,720,924 Placements with Banks - 91,878 - 91,878 Derivative financial instruments Government of Sri Lanka Treasury Bills & Bonds 31,402,915 (4,701,368) - 26,701,547 Financial investments held -for- trading 4,485,329 - 4,485,329 Financial assets held-for-trading pledged as collaterals Dealing Securities 899,106 (899,106) - - Investment Securities 7,803,788 (7,647,737) (156,051) - Loans and Advances A, B 123,194,106 2,190,252 (489,383) 124,894,975 Loans and receivables from customers - 7,596,740 - 7,596,740 Other loans & receivables - 1,130,722 - 1,130,722 Financial investments- held - to- maturity C - 126,123 5,499,780 5,625,903 Financial investments- available- for- sale Interest and Fees Receivable 1,959,236 (1,959,236) - - Property and Equipment 6,436,694 - (665) 6,436,029 Property and equipment Goodwill and Other Intangible Assets 95,065 - (6,267) 88,798 Intangible assets 3,714 - 3,714 Deferred tax assets Other Assets 1,821,852 (334,544) 1,085,432 2,572,740 Other assets Total Assets 187,886,380 78,220 5,932,846 193,897,448 Total Assets
Liabilities - 200,012 - 200,012 Due to banks Securities Sold under Re-purchase Agreements 4,361,363 49,990 - 4,411,353 Securities sold under re-purchase agreements - 74,506 - 74,506 Derivative financial instruments Deposits D 150,375,194 2,942,444 (191,232) 153,126,406 Due to other customers Unclaimed Dividend 37,922 - - 37,922 Unclaimed Dividend Taxation F 950,630 - 8,187 958,817 Current tax liabilities Deferred Taxation E 183,859 78,195 (3,714) 258,340 Deferred tax liabilities Refinance Borrowings 4,442,929 (4,442,929) - - Other Borrowings 1,443,927 7,598,307 - 9,042,234 Debt issued and other borrowed funds - 97,279 - 97,279 Provisions Other Liabilities G 5,974,014 (3,320,784) 334,110 2,987,342 Other Liabilities Other Liabilities Evidenced by Paper 3,198,800 (3,198,800) - - Total Liabilities 170,968,638 78,220 147,350 171,194,211 Total Liabilities
Shareholders’ Funds Equity Stated Capital 1,786,250 - - 1,786,250 Stated capital Reserves Reserves Statutory / Risk Reserve Funds 653,736 - (65) 653,671 Statutory / risk reserve funds Other Capital Reserves 2,938,517 - - 2,938,517 Revaluation Reserve C 5,223,829 5,223,829 Available-for-sale Reserve Revenue Reserves 11,387,342 - 561,602 11,948,945 Revenue reserves Total Equity 16,765,845 - 5,785,366 22,551,212 Total Equity
Minority Interest 151,896 129 152,025 Non controlling interest Total Liabilities and Shareholders’ Funds 187,886,380 78,220 5,932,846 193,897,448 Total liabilities and equity
Sampath Bank PLC 313 SIGNIFICANT ACCOUNTING POLICIES
Reconciliation of Equity as at December 31, 2011
(Rs’000) Group SLAS Reclassification Remeasurement SLFRS
Assets Cash and Cash Equivalents 16,065,762 (5,319,049) - 10,746,713 Cash and Cash Equivalents Balance with Central Bank of Sri Lanka 13,232,130 - - 13,232,130 Balances with Central Bank of Sri Lanka - 5,337,084 - 5,337,084 Placements with Banks Securities Purchased under Re-sale Agreements 4,604,045 1,965 - 4,606,010 Reverse repurchase agreements - 203,732 - 203,732 Derivative financial instruments Government of Sri Lanka Treasury Bills & Bonds 25,903,287 (2,850,301) - 23,052,987 Financial investments held -for- trading - 4,002,777 - 4,002,777 Financial assets held-for-trading pledged as collaterals Commercial Papers - - - - Dealing Securities 1,283,380 (1,283,380) - - Investment Securities 5,934,877 (5,803,967) (130,910) - Loans and Advances A,B 170,436,802 2,848,060 (1,307,925) 171,976,938 Loans and receivables from customers - 450,617 (8,679) 441,938 Loans and receivables from bank - 5,736,278 - 5,736,278 Other loans & receivables - 19,411 - 19,411 Financial investments- held - to- maturity C - 227,114 1,798,183 2,025,297 Financial investments- available- for- sale Interest and Fees Receivable 2,482,140 (2,482,140) - - Property and Equipment 6,690,915 - 238 6,691,153 Property and equipment Goodwill and Other Intangible Assets 78,626 - (5,255) 73,372 Intangible assets - 2,359 - 2,359 Deferred tax assets Other Assets 2,401,777 (884,469) 1,329,235 2,846,543 Other assets Total Assets 249,113,742 206,092 1,674,887 250,994,722 Total Assets
Liabilities - 1,175,672 - 1,175,672 Due to banks Securities Sold under Re-purchase Agreements 4,074,718 26,144 - 4,100,862 Securities Sold under Re-purchase Agreements - 310,966 - 310,966 Derivative financial instruments Deposits D 191,487,242 3,748,677 (141,561) 195,094,359 Due to other customers Unclaimed Dividend 37,173 - - 37,173 Unclaimed Dividend Refinance Borrowings 4,850,371 (4,850,371) - - Other Borrowings 13,905,427 7,585,051 - 21,490,478 Debt issued and other borrowed funds Other Liabilities G 8,492,979 (4,925,973) (63,720) 3,503,286 Other Liabilities Taxation F 1,956,571 - (75,430) 1,881,142 Current tax liabilities Deferred Taxation E 410,873 2,359 (17,119) 396,113 Deferred tax liabilities - 137,515 - 137,515 Provisions Other Liabilities Evidenced by Paper 3,003,949 (3,003,949) - - Total Liabilities 228,219,305 206,092 (297,830) 228,127,566 Total Liabilities
Shareholders’ Funds Equity Stated Capital 2,743,780 - - 2,743,780 Stated capital Reserves Reserves Statutory / Risk Reserve Funds 858,877 - (640) 858,237 Statutory / risk reserve funds Other Capital Reserves 2,878,825 2,878,825 Revaluation Reserve C - - 1,797,778 1,797,778 Available-for-sale Reserve Investment Fund A/C 603,435 - (603,435) - Revenue Reserves 13,749,614 - 779,017 14,528,631 Revenue reserves Total Equity 20,834,531 - 1,972,720 22,807,252 Total Equity
Minority Interest 59,907 - (3) 59,904 Non controlling interest Total Liabilities and Shareholders’ Funds 249,113,742 206,092 1,674,887 250,994,722 Total liabilities and equity
314 Annual Report 2012 Reconciliation to the profit 2011
(Rs’000) Group SLAS Reclassification Remeasurement SLFRS
Income 27,469,272 - - 27,405,845 Income
Interest Income H 21,494,368 86,493 (15,538) 21,565,323 Interest income Less : Interest Expenses I 12,225,814 (7,351) 59,137 12,277,600 Less : Interest expense Net Interest Income 9,268,554 9,287,723 Net interest income
Net trading income - 313,973 - 313,973 Net trading income Foreign Exchange Profit 837,369 (837,369) - - Fees & Commission Income J 1,798,065 123,457 12,527 1,934,049 Net fee & commission income Other Income 3,339,470 253,029 - 3,592,499 Other operating income Operating Income 15,243,458 15,128,244 Total operating income
Provision/(Reversal) for Credit Losses - Specific B 298,870 - (298,870) - - General B (190,942) - 190,942 - B - - (399,096) (399,096) Impairment gain / ( loss) on loans and receivables Provision for Diminution / (Appreciation) in Value of Investments K (86,384) - 275,549 (189,165) Impairment gain / ( loss) on financial investments 14,539,983 Net operating income Operating Expenses Personnel Costs L 3,353,278 338,418 6,927 3,698,622 Personnel expenses Premises, Equipment & Establishment Expenses 2,574,106 (2,574,106) - - - 550,516 - 550,516 Depreciation of property & equipment - 39,775 - 39,775 Amortisation of intangible assets Provision for Retirement Benefits 348,137 (348,137) - - Other Overhead Expenses G 2,962,876 984,451 10,515 3,957,842 Other operating expenses Operating Expenses 9,259,940 8,246,755 Total operating expenses
6,293,228 Operating profit / (loss) before Value Added Tax G - 987,517 (69,826) 917,691 Value Added Tax Operating Profit before Tax 5,983,518 5,375,537 Operating profit / (loss) after Value Added Tax Less : Provision for Taxation E, F 1,810,618 - (140,513) 1,670,105 Less : Income tax expense Profit after Tax 4,172,900 3,705,431 Profit for the year
Sampath Bank PLC 315 SIGNIFICANT ACCOUNTING POLICIES
A Staff Loans measured at fair value At the date of transition to SLFRS, the fair value of these assets was Rs. Under previous SLAS, staff loans were recorded at cost less repayments 5,625.8 Mn and their previous SLAS carrying amount was Rs. 371.3 Mn. net of loan loss provision, if any. Under SLFRS , the Bank has to measure The difference of Rs.5,223.8 Mn between the fair value of the instrument the staff loans granted below the market interest rate at their fair value, and previous SLAS carrying amount has been recognized as a separate calculate based on the market interest rate of similar products. The fair component of equity, in the available-for-sale reserve. value of such loans as at January 1, 2011 was Rs. 1,853.5 Mn and their previous SLAS carrying amount was Rs.2,778.8 Mn. The difference between As at December 31, 2011 the fair value of the investment was Rs.2,025.2 the fair value and SLAS carrying amount has been netted off from staff loans Mn and SLAS carrying amount was Rs.227.5 Mn. The difference between the & recognized as pre-paid staff cost in other assets. instruments fair value and SLAS carrying amount was Rs.1,797.8 Mn has been recognized in the available-for-sale reserve and movement was charged As at 31st December 2011 the fair value of staff loan was Rs.2,289.3 Mn to Other Comprehensive Income . and their previous SLAS carrying amount was Rs.3,375.9 Mn .The difference between the fair value and SLAS carrying amount was Rs. 1,086.5 Mn has There is no difference between the Group and the Bank figures since only been netted off against staff loans & recognized as pre-paid staff cost in Bank is holding Available - For - Sale assets. other assets. The same adjustment was applied to the Group as well.
D Fair Value of amounts due to Banks and other customers B Adjustment on loan impairment Under previous SLAS, deposits are shown at their original deposit value and Under previous SLAS, the provision for loan losses consists of both Specific interest was charged on straight-line basis. Under SLFRS, interest should provision for incurred losses and General provision for expected future be recognised on EIR method and amortised cost should be shown in the losses. In compliance with the Direction No. 3 of 2008 and subsequent accounts. At the date of transition, the difference between the interest amendment there to, specific loan loss provision were made based on the already provided under SLAS and requirement under SLFRS was Rs. 191.2 arrears time period after considering the collateral values and General Mn. It was added to the retained earnings and netted off against the amount provision were made at a specified rate given by CBSL time to time. due to Banks and other customers.
The previously recognised loan loss provision amounting to Rs. 5,299.64 Mn As at December 31, 2011, the difference between the interest provision and Interest in suspense of Rs. 3,427.4 Mn were reversed and impairment under EIR method and under straight-line method was Rs. 141.6 Mn and the provision of Rs. 8,214.9 Mn was recognised as at January 1, 2011, the date net movement of Rs. 49.67 Mn was charged to Income Statement. of transition after making necessary adjustments to retained earnings..
Since only the Bank carries balances due to Banks and due to other As at 31st December 2011 the impairment provision of Rs.7,540.3 Mn was customers, there is no difference between Bank and Group figures. recognized against sum total of loan loss provision and IIS amounting to 7,643.7 Mn which was previously recognised in SLAS based accounts. The movement between the impairment balances of two years was recognised in E Deferred Taxation the Income Statement as an impairment charge. The deferred tax asset previously identified under SLAS accounts were reversed and relevant assets were recognised where necessary. The net impact was Rs. 61.9 Mn and it was charged to the retained earnings of the The Group impairment provision as at January 1, 2011 and December 31, Bank as at the date of transition. 2011 were Rs. 8,443 Mn and Rs. 7,643 Mn respectively.
F Current tax liabilities C Financial investments- Available- For- Sale Based on the SLFRS transition impact, an over provision of Rs. 20.5 Mn was Under previous SLAS, the Bank recognised its investment portfolios which recognised. are not held for trading activities at their cost. Under SLFRS, the Bank has designated such investments as available-for-sale investments and measured at fair value. Such investments includes equity investments and In 2011, further over provision of Rs. 73.7 Mn was recognised against the investment in treasury bills against Investment Fund Account. provisions made based on previous SLAS financial Statements.
316 Annual Report 2012 G Other liabilities As per SLFRS, financial guarantees were initially recognised at fair value under other liabilities and under previous SLAS there was no such requirement. At the date of transition Rs. 84.9 Mn was recognised and subsequently in next year, Rs. 78.2 Mn was recognised as a liability after charging relevant income and expenses to the Income Statement.
At the date of the transition, based on the SLFRS adjustment, Finance VAT payable of Rs. 197.3 Mn was recognised and subsequently Rs. 69 Mn was reversed after making SLFRS adjustments in 2011.
An additional provision of Rs. 54.8 Mn was made against expenses to be incurred and in 2011 further Rs. 10.5 Mn was recognised.
H Interest income Net reversal of income amounting to Rs. 15.5 Mn was made after netting off the staff loan fair value adjustment and impact on interest unwinding.
I Interest expense An additional expense of Rs. 59.1 Mn was recognised as a result of EIR adjustment on balances due to other customers (depositors), expenses on the guarantee due to increase in liability and fair value adjustment on non - interest earning refundable deposit.
J Net fee & commission income The premium received on the guarantee amounting to Rs. 12.5 Mn was identified as an fee income in both Bank and Group Income Statement for the year 2011.
K Impairment gain / ( loss) on financial investments The effect of the reversal made in SLAS financial statements was removed from both Bank and Group Financial Statements since such provision was not made in SLFRS based Financial statements.
L Personnel cost A charge on staff loan fair value adjustment, amortization of pre-paid staff cost of Rs. 92.7 Mn was netted off against the over provision of Rs. 85.8 Mn recognised on retirement benefit expense.
Sampath Bank PLC 317 NOTES TO THE FINANCIAL STATEMENTS
1 Income
Bank Group 2012 2011 2012 2011 Rs’000 Rs’000 Rs’000 Rs’000 Interest income (Note No 1.1) 31,881,948 21,111,216 32,712,018 21,565,323 Fee & commission Income (Note No 1.2) 2,803,755 2,648,034 2,876,724 2,795,958 Net trading income(Note No 1.3) 6,227 313,973 6,227 313,973 Other income (Note No 1.4) 4,101,611 3,504,114 4,130,128 3,592,499 38,793,541 27,577,338 39,725,097 28,267,754
1.1 Interest income Placements with other banks 367,212 100,630 387,484 100,630 Financial investments held -for- trading 3,051,101 2,311,432 3,051,101 2,311,432 Loans & receivables from other customers 27,639,099 18,211,925 28,447,444 18,664,382 Other loans & Receivables 494,010 317,872 494,298 318,247 Interest income accrued on impaired financial assets 78,717 58,728 78,717 58,728 Securities borrowed and reverse repurchase agreements 127,655 103,515 127,945 104,042 Financial investments - held-to-maturity 124,154 7,115 125,029 7,862 31,881,948 21,111,216 32,712,018 21,565,323
Net Interest income from Sri Lanka Government securities Interest income 3,593,567 2,671,586 3,594,729 2,672,861 Less: Interest expense 281,031 410,142 281,031 410,142 Net interest income 3,312,536 2,261,444 3,313,698 2,262,719
A Notional tax credit on secondary market transactions According to section 137 of the Inland Revenue Act No. 10 of 2006, Net interest income of the Bank derived from the secondary market transactions in treasury bills & treasury bonds (Interest income accrued or received on outright or reverse repurchase transaction on such security, bond or bill less interest expenses on repurchase transaction with securities, treasury bonds or treasury bills from which such interest income was earned) for the period 01st January 2012 to 31 st December 2012 has been grossed up by Rs. 21.433 Mn (2011 - Rs. 20.876 Mn and 2010 - Rs 122.940 Mn) for the notional tax credit, consequent to the interest income on above instruments being subjected to withholding tax.
2 Interest expenses
Bank Group 2012 2011 2012 2011 Rs’000 Rs’000 Rs’000 Rs’000 Due to other customers 18,217,669 10,762,076 18,210,896 10,758,461 Term borrowings 1,112,733 380,511 1,464,022 490,701 Refinance borrowings 333,269 271,806 333,269 271,806 Securities sold under repurchase agreements 281,031 410,142 281,031 410,142 Due to banks 114,774 105,149 129,385 108,156 Debentures 209,899 238,264 254,368 238,334 20,269,375 12,167,947 20,672,970 12,277,600
1.2 Fee & commission income Professional services 783,005 677,362 855,974 825,286 Trade related services 592,618 835,574 592,618 835,574 Foreign remittance related services 123,259 105,212 123,259 105,212 Credit & debit card services 1,043,133 752,436 1,043,133 752,436 Other banking services 261,741 277,450 261,741 277,450 2,803,755 2,648,034 2,876,724 2,795,958
318 Annual Report 2012 1.3 Net trading income Net income/(expense) from financial instruments held for trading and derivative financial instruments
Bank Group 2012 2011 2012 2011 Rs’000 Rs’000 Rs’000 Rs’000 Net income / (expense) arising on: Forward exchange contract revaluation gain/(loss) (Note A) 4,419 (126,478) 4,419 (126,478) Capital gain on sale of MASTER / VISA shares (Note B) - 376,808 - 376,808 Capital gain/(loss) from dealing securities & unit trusts (Note C) (31,072) 52,100 (31,072) 52,100 Income from dealing securities 32,880 11,543 32,880 11,543 6,227 313,973 6,227 313,973
Note A - Forward exchange contract revaluation gain/(loss) includes profit or loss arising from forward rate fluctuations. Note B - During the year 2011 the Bank disposed 6,793 and 13,055 shares received at no cost from Master Card International and VISA Incorporation respectively and total amount was recognized as a capital gain. Note C - ‘Capital gain/(loss) from dealing securities & unit trusts’ includes the income arising from buying and selling, and changes in the fair value of equity securities. ‘Income from Dealing Securities’ includes the dividend received from the dealing securities.
1.4 Other operating income
Bank Group 2012 2011 2012 2011 Rs’000 Rs’000 Rs’000 Rs’000 Capital gain on sale of available - for-sale financial investments (Note A) - 427,693 - 427,693 Income from available - for-sale financial investments 35,100 - 35,100 - Income from investment securities 9,141 17,395 9,141 17,395 Income from investment in subsidiaries 79,155 15,102 - - Exchange income - currency notes 345,204 267,642 345,204 267,642 Exchange income - revaluation 1,804,189 696,205 1,804,189 696,205 Bad debt recoveries 782,731 1,123,632 789,855 1,125,680 Profit/(loss) on disposal of property & equipment 19,458 4,458 19,772 7,124 Rental and other income 6,166 5,170 74,708 76,133 Charges recovered 654,897 649,405 654,897 649,405 Others 365,570 297,412 397,262 325,222 4,101,611 3,504,114 4,130,128 3,592,499
Note A - Capital gain on sale of available - for-sale financial investments includes capital gain on sale of LankaBangla Finance Ltd equity shares.
3 Impairment gain / (loss) on loans and receivables
Bank Group 2012 2011 2012 2011 Rs’000 Rs’000 Rs’000 Rs’000 Due from banks (Note 17.1) (3,819) (8,679) (3,819) (8,679) Due from other customers (Note 18.1) (133,087) (420,178) (133,348) (370,856) Due from other Debtors (Note 26.1) - - (15,000) (19,562) (136,906) (428,857) (152,167) (399,097)
Sampath Bank PLC 319 NOTES TO THE FINANCIAL STATEMENTS
4 Impairment gain / (loss) on financial investments
Bank Group 2012 2011 2012 2011 Rs’000 Rs’000 Rs’000 Rs’000 Securities held for trading purposes - Shares (quoted) (Note No. 15.2) (159,574) (34,710) (159,574) (34,710) - Treasury Bills (Note No. 15.1 & 16) 231,597 (154,454) 231,597 (154,454) 72,023 (189,165) 72,023 (189,165)
5 Personnel expenses Salaries and bonus 3,153,418 2,703,660 3,302,432 2,820,045 Employer’s contribution to EPF 266,150 228,674 278,533 237,719 Employer’s contribution to ETF 66,545 57,168 67,166 57,674 Other allowances & staff related expenses 394,976 311,807 405,226 319,730 Defined benefit plans 276,601 258,365 275,942 263,454 4,157,690 3,559,674 4,329,299 3,698,622
6 Other operating expenses Directors’ Emoluments 37,985 14,585 51,179 16,538 Auditors’ Remuneration Audit Fees and Expenses 10,333 7,574 12,547 9,185 Non - Audit Services 3,592 4,032 4,981 4,607 Professional & Legal Expenses 66,135 48,022 75,145 53,351 Advertising & Business Promotion Expenses 644,740 600,574 663,179 606,815 Deposit Insurance Premium 260,021 210,048 260,021 210,048 Donations 3,922 4,980 3,924 5,009 Office administration and establishment 2,127,578 1,895,847 2,127,578 1,895,847 Banking services 969,801 683,239 969,801 683,239 Computer maintenance 339,306 280,148 339,306 280,148 Others 196,458 210,590 146,190 192,698 4,659,872 3,959,639 4,653,851 3,957,485
Donations in excess of Rs. 50,000/= include the following Wildlife & Nature Protection Society of Sri Lanka 1,109 Nana Guna Thilina Presidential Project 1,000 Buddha Rashmi Fund 1,100 All Ceylon Buddhist Congress 500 Sri Jinaratana Bhikkhu Abhyasa Vidyalaya 150
7 Income tax expenses Corporate tax - Taxation based on profits for the year ( Note No 7.1) 2,152,486 1,484,408 2,197,276 1,525,888 - (Over)/under provision in respect of previous years ( Note No 7.1) (43,601) - (50,493) 5,091 2,108,885 1,484,408 2,146,783 1,530,979 Deferred taxation - Transfers to/(from) deferred taxation ( Note No 7.2) 19,725 122,020 24,731 139,127 2,128,610 1,606,427 2,171,514 1,670,106
320 Annual Report 2012 7.1 Reconciliation of the accounting profit to income tax expense A reconciliation between the tax expense and the accounting profit multiplied by Income tax rate for the years ended 31 December 2012 and 2011 is as follows:
Bank Group 2012 2011 2012 2011 Rs’000 Rs’000 Rs’000 Rs’000 Profit before tax 7,265,034 4,993,636 7,517,478 5,375,537 Add: Disallowable expenses 3,820,844 4,082,759 3,865,950 4,135,854 Less: Tax deductible expenses (2,675,741) (2,380,863) (2,792,097) (2,533,019) Exempt income (722,687) (1,392,575) (637,342) (1,388,879) Adjusted profit/(loss) for tax purposes 7,687,450 5,302,957 7,953,989 5,589,493 Income from other sources - - 1,326 1,694 Assessable income 7,687,450 5,302,957 7,955,315 5,591,187 Less: Qualifying payments - (1,500) (50,417) (47,723) Tax losses - - - (1,434) Taxable income 7,687,450 5,301,457 7,904,898 5,542,030
Turnover liable for income tax - - 189,823 189,784
Income tax @ 28% 2,152,486 1,484,407 2,193,480 1,522,092 Income tax @ 2% on liable turnover - - 3,796 3,796 Income tax on current year’s profit 2,152,486 1,484,407 2,197,276 1,525,888 (Over)/under provision in respect of previous years (43,601) - (50,493) 5,091 Increase/(decrease) in current year provision 2,108,885 1,484,408 2,146,783 1,530,979 Deferred tax charge/(credit ) 19,725 122,020 24,731 139,127 Income tax expense 2,128,610 1,606,427 2,171,514 1,670,106 Effective tax rate 29.3% 32.2% 28.9% 31.1% Effective tax rate (excluding deferred tax ) 29.0% 29.7% 28.6% 28.5%
7.1.1 Applicable rates of tax Income tax on Sampath Bank (a) Domestic operation of the bank 28% 28% (b) Foreign currency banking unit of the bank On-shore operation 28% 28% Off-shore operation 28% 28%
Income tax on S C Securities (Pvt) Ltd. 28% 10% Income tax on Sampath Leasing & Factoring Ltd. 28% 28% Income tax on Sampath Information Technology Solutions Ltd. 28% 28%
7.1.2 Income tax on Sampath Centre Ltd. Sampath Centre Ltd. is a company approved under BOI Law and the company was exempted from taxation for a period of seven years commencing from the first year of assessment. The first year of assessment is the year in which the company commenced making profits in relation to its transactions in that year, or any year of assessment not later than five years from the date of its first commercial operations, whichever is earlier. Accordingly, they are liable for taxation at the rate of 2.0% of the revenue from the year of assessment commencing 2006 / 2007.
7.1.3 A Notional tax credit on secondary market transactions Any company which derived income from the secondary market transactions involving any security or treasury bonds or treasury bills on which the income tax has been deducted at the rate of 10% at the time of issue of such security, such company is entitled to a notional tax credit at 10% of the grossed up amount of net interest income from such secondary market transaction to an amount of one ninth of the same. Accordingly, the net interest income earned by the Bank from above transactions has been grossed up in the financial statements for the period 01st January 2012 to 31st December 2012 and the notional tax credit amounts to Rs. 21.433 Mn.
Sampath Bank PLC 321 NOTES TO THE FINANCIAL STATEMENTS
7 Provision for taxation Contd. 7.2 Deferred tax expense/(income ) The following table shows deferred tax expense recorded in the income statements due to changes in the deferred tax assets and liabilities.
Bank Group 2012 2011 2012 2011 Rs’000 Rs’000 Rs’000 Rs’000 Deferred tax liability Property and equipment 1,657 25,828 6,377 27,044 Lease rentals 33,320 (25,042) 36,783 4,388 34,977 786 43,160 31,432 Deferred tax asset Unclaimed Bad debt provision - Specific - (134,066) - (134,066) Unclaimed Bad debt provision - Investment - - (7,329) 12,884 Brought forward tax losses - - 10,794 (2,985) Defined benefit obligation 12,038 9,888 11,750 13,527 Others 3,214 2,944 3,214 2,944 15,252 (121,234) 18,429 (107,695) Deferred tax expense for the year 19,725 122,020 24,731 139,127
8 Earnings per ordinary Share 8.1 Earnings per share - Basic (Rs.) Basic earnings per share is calculated by dividing the net profit for the year attributable to equity holders of the parent by the weighted average number of ordinary shares outstanding during the year, as per the LKAS 33 - Earnings per Share.
Group 2012 2011 Amount used as the numerator Profit attributable to ordinary shareholders (Rs’000) 5,342,623 3,683,281 Amount used as the denominator Weighted average number of ordinary shares (Note No 8.1.1) 161,996,778 160,142,536 Basic Earnings per ordinary share (Rs.) 32.98 23.00
Weighted average number of ordinary shares Weighted average Number of shares held as at December 31, 2011 was 156,854,190. However, it was restated as 160,142,536 in the comparative column as a result of the change in number of Ordinary shares outstanding without a corresponding change in resources , due to final scrip dividend 2011.
2012 2011 Outstanding Weighted Outstanding Weighted Average Average
8.1.1 Weighted average number of ordinary shares for Basic EPS Number of shares held as at 1st January 156,854,190 152,807,972 Add - Number of shares in issue due to final scrip dividend 2010 - 3,521,294 - Number of shares in issue due to final scrip dividend 2011 3,682,039 3,682,039 160,536,229 160,536,229 160,011,305 160,011,305
Add : Number of shares in issue due to ESOP 2010 (Note No 33.1) 2,200,436 1,460,549 524,924 131,231 Number of shares held as at 31st December 162,736,665 161,996,778 160,536,229 160,142,536
322 Annual Report 2012 8.2 Earnings per share - Diluted (Rs.) The calculation of Diluted Earnings Per Share as at reporting date was based on the profit attributable to equity holders of the Bank by the weighted average number of ordinary shares outstanding during the year, after adjustment for the effects of all potentially dilutive weighted average number of ordinary shares under ESOP 2010 as follows:
Group 2012 2011 Amount used as the numerator Profit attributable to equity holders of the parent company. (Rs’000) 5,342,623 3,683,281
Amount used as the denominator Weighted average number of ordinary shares used for Basic EPS 161,996,778 160,142,536 Weighted average number of potential ordinary shares outstanding under ESOP 2010 effective from 30 June 2011 330,799 1,265,618 Weighted average number of potential ordinary shares that would have been issued at average market price (146,940) (458,142) Weighted average number of potential ordinary shares that would have been issued for no consideration under ESOP 2010 183,859 807,475 Weighted average number of ordinary shares used for Diluted EPS 162,180,637 160,950,011 Diluted Earnings per Ordinary Share (Rs.) 32.94 22.88
9 Dividend paid & proposed
2012 2011 Gross Dividend Dividend Tax Net Dividend Gross Dividend Dividend Tax Net Dividend Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Final dividend paid for the years 2011 & 2010 respectively. Out of dividend received - free of tax 44,039 - 44,039 78,572 - 78,572 Out of normal profits 1,382,945 138,294 1,244,651 929,961 92,996 836,965 Scrip/cash dividend paid 1,426,984 138,294 1,288,690 1,008,533 92,996 915,537
Final dividend proposed - 2012 & 2011 respectively. Out of dividend received - free of tax 120,554 - 120,554 44,039 - 44,039 Out of current year’s profits 1,832,286 183,229 1,649,057 1,367,648 136,765 1,230,884 Scrip/cash dividend payable/paid 1,952,840 183,229 1,769,611 1,411,688 136,765 1,274,923 Dividend per Ordinary Share (Rs.) 12.00 10.87 9.00 8.34
The Board of Directors of the Bank has recommended the payment of a final dividend of Rs.12.00 Per share to be paid 50% in the form of cash dividend and balance 50 % in the form of scrip dividend for the year ended 31st December 2012 ,a distribution of approximately Rs. 1,952.8 Mn. The total proposed dividend amount is subject to changes in number of shares in issue due to changes in ESOP 2010. In accordance with LKAS 10 on Events After the Reporting Period, above proposed final dividend has not been recognized as a liability as at the year end.
Sampath Bank PLC 323 NOTES TO THE FINANCIAL STATEMENTS
10 Analysis of Financial instruments by Measurement Basis 10.1 Analysis of financial instruments by measurement basis - Bank as at 31.12.2012
Financial instruments are measured on an ongoing basis either at fair value or at amortised cost. The summary of significant accounting policies describes how the classes of financial instruments are measured, and how income and expenses, including fair value gains and losses, are recognized. The following table analyses the carrying amounts of the financial instruments by category as defined in LKAS 39 and by headings of the Statement of Financial Position.
Bank December 31, 2012 (Rs’ 000) Held For Amortised Held to Available Trading Cost maturity -for sale Total
Financial Assets Cash & cash equivalent - 10,432,135 - - 10,432,135 Balances with Central Bank of Sri Lanka - 17,200,792 - - 17,200,792 Placements with Banks - 8,788,127 - - 8,788,127 Reverse repurchase agreements - 3,300,817 - - 3,300,817 Derivative financial instruments 279,022 - - - 279,022 Financial investments held -for- trading 35,181,084 - - - 35,181,084 Financial assets held-for-trading pledged as collaterals 2,856,321 - - - 2,856,321 Loans and receivables from banks - 816,119 - - 816,119 Loans and receivables from other customers - 208,184,369 - - 208,184,369 Other loans & receivables - 10,515,756 - - 10,515,756 Financial investments- available- for- sale - - - 1,923,624 1,923,624 Other assets - 1,399,091 - - 1,399,091 Total Financial Assets 38,316,427 260,637,205 - 1,923,624 300,877,256
Held For Amortised Trading Cost Total Financial Liabilities Due to banks - 624,784 624,784 Securities sold under re-purchase agreements - 2,757,119 2,757,119 Derivative financial instruments 381,838 - 381,838 Due to other customers - 243,330,990 243,330,990 Debt issued and other borrowed funds - 28,825,029 28,825,029 Unclaimed Dividend - 49,185 49,185 Other liabilities - 71,448 71,448 Total Financial Liabilities 381,838 275,658,555 276,040,392
324 Annual Report 2012 10.2 Analysis of financial instruments by measurement basis - Bank as at 31.12.2011
Bank December 31, 2011 (Rs’ 000) Held For Amortised Held to Available Trading Cost maturity -for sale Total
Financial Assets Cash & cash equivalent - 10,736,413 - - 10,736,413 Balances with Central Bank of Sri Lanka - 13,232,130 - - 13,232,130 Placements with Banks - 5,337,084 - - 5,337,084 Reverse repurchase agreements - 4,601,965 - - 4,601,965 Derivative financial instruments 203,732 - - - 203,732 Financial investments held -for- trading 23,052,987 - - - 23,052,987 Financial assets held-for-trading pledged as collaterals 4,002,777 - - - 4,002,777 Loans and receivables from banks 441,938 441,938 Loans and receivables from other customers - 169,681,372 - - 169,681,372 Other loans & receivables - 5,736,278 - - 5,736,278 Financial investments- available- for- sale - - - 2,025,241 2,025,241 Financial investments- held - to- maturity - - 10,289 - 10,289 Other assets - 1,038,607 - - 1,038,607 Total Financial Assets 27,259,496 210,805,787 10,289 2,025,241 240,100,812
Held For Amortised Trading Cost Total Financial Liabilities Due to banks - 1,175,672 1,175,672 Securities sold under re-purchase agreements - 4,100,862 4,100,862 Derivative financial instruments 310,966 - 310,966 Due to other customers - 195,195,074 195,195,074 Debt issued and other borrowed funds - 19,754,221 19,754,221 Unclaimed Dividend - 37,173 37,173 Other liabilities - 78,214 78,214 Total Financial Liabilities 310,966 220,341,216 220,652,173
Sampath Bank PLC 325 NOTES TO THE FINANCIAL STATEMENTS
10 Analysis of Financial instruments by Measurement Basis Contd. 10.3 Analysis of financial instruments by measurement basis - Bank as at 01.01.2011 (Begining of the day balances).
Bank January 1, 2011 (Rs’ 000) Held For Amortised Held to Available Trading Cost maturity -for sale Total
Financial Assets Cash & cash equivalent - 4,259,457 - - 4,259,457 Balances with Central Bank of Sri Lanka - 8,221,068 - - 8,221,068 Placements with Banks - 1,788,050 - - 1,788,050 Reverse repurchase agreements - - - - - Derivative financial instruments 91,878 - - - 91,878 Financial investments held -for- trading 26,701,547 - - - 26,701,547 Financial assets held-for-trading pledged as collaterals 4,485,329 - - - 4,485,329 Loans and receivables from banks - - Loans and receivables from other customers - 124,067,319 - - 124,067,319 Other loans & receivables - 7,596,740 - - 7,596,740 Financial investments- available- for- sale - - - 5,625,847 5,625,847 Financial investments- held - to- maturity - - 1,122,084 - 1,122,084 Other assets - 847,460 - - 847,460 Total Financial Assets 31,278,754 146,780,094 1,122,084 5,625,847 184,806,780
Held For Amortised Trading Cost Total
Financial Liabilities Due to banks - 200,013 200,013 Securities sold under re-purchase agreements - 4,411,354 4,411,354 Derivative financial instruments 74,506 - 74,506 Due to other customers - 153,245,764 153,245,764 Debt issued and other borrowed funds - 8,567,066 8,567,066 Unclamed Dividend - 37,922 37,922 Other liabilities - 84,961 84,961 Total Financial Liabilities 74,506 166,547,080 166,621,586
326 Annual Report 2012 10.4 Analysis of financial instruments by measurement basis - Group as at 31.12.2012
Group December 31, 2012 (Rs’ 000) Held For Amortised Held to Available Trading Cost maturity -for sale Total
Financial Assets Cash & cash equivalent - 10,442,259 - - 10,442,259 Balances with Central Bank of Sri Lanka - 17,200,792 - - 17,200,792 Placements with Banks - 8,788,127 - - 8,788,127 Reverse repurchase agreements - 3,300,373 - - 3,300,373 Derivative financial instruments 279,022 - - - 279,022 Financial investments held -for- trading 35,181,084 - - - 35,181,084 Financial assets held-for-trading pledged as collaterals 2,856,321 - - - 2,856,321 Loans and receivables from banks - 816,119 - - 816,119 Loans and receivables from other customers - 212,480,041 - - 212,480,041 Other loans & receivables - 10,224,474 - - 10,224,474 Financial investments- available- for- sale - - - 1,923,680 1,923,680 Financial investments- held - to- maturity - - 9,765 - 9,765 Other assets - 1,858,276 - - 1,858,276 Total Financial Assets 38,316,427 265,110,460 9,765 1,923,680 305,360,332
Held For Amortised Trading Cost Total
Financial Liabilities Due to banks - 668,198 668,198 Securities sold under re-purchase agreements - 2,751,334 2,751,334 Derivative financial instruments 381,838 - 381,838 Due to other customers - 243,088,236 243,088,236 Debt issued and other borrowed funds - 32,218,014 32,218,014 Unclaimed Dividend - 49,185 49,185 Other liabilities - 71,448 71,448 Total Financial Liabilities 381,838 278,846,415 279,228,252
Sampath Bank PLC 327 NOTES TO THE FINANCIAL STATEMENTS
10 Analysis of Financial instruments by Measurement Basis Contd. 10.5 Analysis of financial instruments by measurement basis - Group as at 31.12.2011
Group December 31, 2011 (Rs’ 000) Held For Amortised Held to Available Trading Cost maturity -for sale Total
Financial Assets Cash & cash equivalent - 10,746,713 - - 10,746,713 Balances with Central Bank of Sri Lanka - 13,232,130 - - 13,232,130 Placements with Banks - 5,337,084 - - 5,337,084 Reverse repurchase agreements - 4,606,010 - - 4,606,010 Derivative financial instruments 203,732 - - - 203,732 Financial investments held -for- trading 23,052,987 - - - 23,052,987 Financial assets held-for-trading pledged as collaterals 4,002,777 - - - 4,002,777 Loans and receivables to other customers - 171,976,938 - - 171,976,938 Loans and receivables to banks - 441,938 - - 441,938 Other loans and receivables - 5,736,278 - - 5,736,278 Financial investments- available- for- sale - - - 2,025,297 2,025,297 Financial investments- held - to- maturity - - 19,411 - 19,411 Other assets - 1,512,048 - - 1,512,048 Total Financial Assets 27,259,496 213,589,138 19,411 2,025,297 242,893,343
Held For Amortised Trading Cost Total Financial Liabilities Due to banks - 1,175,672 1,175,672 Securities sold under re-purchase agreements - 4,100,862 4,100,862 Derivative financial instruments 310,966 - 310,966 Due to other customers - 195,094,359 195,094,359 Debt issued and other borrowed funds - 21,490,478 21,490,478 Unclaimed Dividend - 37,173 37,173 Other liabilities - 78,214 78,214 Total Financial Liabilities 310,966 221,976,758 222,287,724
328 Annual Report 2012 10.6 Analysis of financial instruments by measurement basis - Group as at 01.01.2011 (Begining of the day balances).
Group January 1, 2011 (Rs’ 000) Held For Amortised Held to Available Trading Cost maturity -for sale Total
Financial Assets Cash & cash equivalent - 4,327,079 - - 4,327,079 Balances with Central Bank of Sri Lanka - 8,221,068 - - 8,221,068 Placements with Banks - 1,720,924 - - 1,720,924 Reverse repurchase agreements - - - - - Derivative financial instruments 91,878 - - - 91,878 Financial investments held -for- trading 26,701,547 - - - 26,701,547 Financial assets held-for-trading pledged as collaterals 4,485,329 - - - 4,485,329 Loans and receivables to other customers 124,894,976 124,894,976 Loans and receivables to banks - - - - - Other loans & receivables - 7,596,740 - - 7,596,740 Financial investments- available- for- sale - - - 5,625,903 5,625,903 Financial investments- held - to- maturity - - 1,130,722 - 1,130,722 Other assets - 1,413,379 - - 1,413,379 Total Financial Assets 31,278,754 148,174,166 1,130,722 5,625,903 186,209,545
Held For Amortised Trading Cost Total Financial Liabilities Due to banks - 200,012 200,012 Securities sold under re-purchase agreements - 4,411,354 4,411,354 Derivative financial instruments 74,506 - 74,506 Due to other customers - 153,126,406 153,126,406 Debt issued and other borrowed funds - 9,042,234 9,042,234 Unclaimed Dividend - 37,922 37,922 Other liabilities - 84,961 84,961 Total Financial Liabilities 74,506 166,902,888 166,977,394
11 Cash and Cash Equivalents
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Local currency in hand 4,483,580 3,862,785 3,185,353 4,483,791 3,862,968 3,185,785 Foreign currency in hand 1,089,882 759,346 543,588 1,089,882 759,346 543,588 Balances with local banks 71,025 32,757 77,374 80,937 42,873 77,439 Balances with foreign banks 1,774,914 979,003 403,142 1,774,914 979,003 403,142 Money at call and short notice 3,012,734 5,102,523 50,000 3,012,734 5,102,523 117,126 10,432,135 10,736,413 4,259,457 10,442,259 10,746,713 4,327,079
Sampath Bank PLC 329 NOTES TO THE FINANCIAL STATEMENTS
12 Balances with Central Bank of Sri Lanka
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Balance with CBSL 17,200,792 13,232,130 8,221,068 17,200,792 13,232,130 8,221,068
This represents the Statutory Reserve Requirement to be maintained with the Central Bank of Sri Lanka under section 93 of the Monetary Law Act Chapter 422 and clearing balances in the name of the Bank. At present, the minimum cash reserve requirement is 8.0% of the Rupee Deposit Liabilities. There is no reserve requirement on deposit liabilities of the foreign currency banking unit (FCBU) and foreign currency deposit liabilities of the domestic banking unit (DBU).
13 Placements with Banks
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Placements with banks 8,788,127 5,337,084 1,788,050 8,788,127 5,337,084 1,720,924
14 Derivative Financial Instruments The table below shows the fair values of derivative financial instruments, recorded as assets or liabilities, together with their notional amounts. The notional amounts indicate the volume of transactions outstanding at the year end and are indicative of neither the market risk nor the credit risk.
December 31, 2012 December 31, 2011 January 1, 2011 Assets Liabilities Notional Assets Liabilities Notional Assets Liabilities Notional Amount Amount Amount Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Bank & Group Derivative held for trading
Forward foreign exchange contracts 51,210 65,537 28,684,448 203,732 310,966 60,238,075 91,878 74,506 20,851,936 Currency Swaps 227,812 316,301 19,806,940 ------279,022 381,838 48,491,387 203,732 310,966 60,238,075 91,878 74,506 20,851,936
330 Annual Report 2012 15 Financial Investments Held -For- Trading
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Government debt securities Treasury Bills (Note 15.1) 34,182,709 21,769,607 25,802,442 34,182,709 21,769,607 25,802,442
Quoted equities (Note 15.2) 998,375 1,283,380 899,106 998,375 1,283,380 899,106 35,181,084 23,052,987 26,701,547 35,181,084 23,052,987 26,701,547
15.1 Treasury Bills This represents the financial assets (Treasury Bills) at fair value through profit or loss which are held for dealing purposes. The cumulative change in fair value of the assets attributed to changes in market risk amounts to a gain of Rs.46.6Mn (2011- loss of Rs.141.4 Mn and 2010- loss of Rs.87.4 Mn) and change for the current year is a gain of Rs 94.8 Mn (2011- loss of Rs.54.0 Mn and 2010- loss of Rs.87.4 Mn)
The change in fair value of the Treasury Bills- Trading attributable to changes in market risk have been calculated by determining the changes in interest rate spread implicit in the fair value of the Treasury Bills.
December 31, December 31, January 1, 2012 2011 2011 Cost Market Value Cost Market Value Cost Market Value Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Bank & Group Amortised cost 34,229,364 34,182,709 21,911,063 21,769,607 25,889,855 25,802,442 Add/(less): Provision for appreciation/(diminution) in marke value b/f (141,457) - (87,413) - - - Provision for diminution in market value write back/(made) during the year 94,801 - (54,044) - (87,413) - 34,182,709 34,182,709 21,769,607 21,769,607 25,802,442 25,802,442
Sampath Bank PLC 331 NOTES TO THE FINANCIAL STATEMENTS
15 Financial Investments Held -For- Trading Contd. 15.2 Quoted equities
December 31, 2012 December 31, 2011 January 1, 2011
No of Cost of Market No of Cost of Market No of Cost of Market Ordinary Investment Value Ordinary Investment Value Ordinary Investment Value Shares Shares Shares Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Bank & Group Name of company Bank & Group Banks, finance & insurance Nations Trust Bank PLC 110,000 4,175 6,160 170,000 6,453 9,690 170,000 6,453 14,178 Commercial Bank of Ceylon PLC 795,857 78,426 81,973 781,976 78,426 78,197 293,350 55,463 76,242 Pan Asia Banking Corporation PLC 1,380,532 10,932 26,230 1,380,532 10,932 35,066 690,266 10,932 35,894 Merchant Bank of Sri Lanka PLC 207,600 3,354 4,131 207,600 3,354 8,221 207,600 3,354 9,508 Hatton National Bank PLC 175,646 35,822 25,996 172,500 35,822 26,099 115,000 35,822 45,989 NDB Bank PLC 600,000 107,943 82,740 600,000 107,943 82,860 300,000 107,943 104,850 DFCC Bank PLC 39,000 7,559 4,403 39,000 7,559 4,403 4,000 354 801 Union Bank of Colombo PLC * 26,347,027 276,176 363,589 26,347,027 276,176 500,594 - - - Peoples Leasing & Finance PLC 5,901,600 106,228 77,901 5,901,600 106 229 94,426 - - - 630,615 673,123 632,893 839,556 220,320 287,461
Diversified holdings Hayley’s PLC ------354,740 58,731 122,385 Hemas Holdings PLC 647,000 16,252 17,469 647,000 16,252 21,351 647,000 16,252 28,792 Aitken Spence PLC 270,000 54,512 32,400 270,000 54,512 32,508 270,000 54,512 45,873 JKH PLC 587,335 101,344 129,155 587,335 101,344 99,964 440,501 101,344 131,445 Softlogic Holdings PLC 3,594,000 104,226 39,175 3,594,000 104,226 64,692 - - - Vallibel One PLC 245,600 6,140 4,445 245,600 6,140 5,845 - - - 282,474 222,644 282,474 224,361 230,839 328,495
Hotel & travel Asian Hotels & Properties PLC 618,000 14,291 46,906 1,237,800 33,110 94,568 618,900 33,110 120,067 Fortress Resort PLC - - - 233,400 4,587 4,808 14,291 46,906 33,110 94,568 37,697 124,875
Manufacturing Royal Ceramics PLC 483,200 10,237 47,837 483,200 10,237 68,373 266,600 11,200 81,286 10,237 47,837 10,237 68,373 11,200 81,286
Land & property C T Land Development PLC 325,000 4,853 7,865 325,000 4,853 9,393 325,000 4,853 9,100 4,853 7,865 4,853 9,393 4,853 9,100
Power & energy Lanka IOC PLC - - - 2,547,600 104,333 47,131 3,307,100 133,652 62,504 - - 104,333 47,131 133,652 62,504
Telecommunication Dialog Axiata PLC ------456,290 10,354 5,384 ------10,354 5,384 Total 942,469 998,375 1,067,900 1,283,380 648,915 899,106
Less: Provision for appreciation/ (diminution) in market value b/f 215,480 - - 250,190 - - (45,468) Provision for diminution in market value written back/(made) during the year (Note No 4) (159,574) - - (34,710) - - 295,658 998,375 1,283,380 899,106
* The investment in Union Bank of Colombo was transferred from ‘financial investment available-for-sale’ to ‘securities held for trading’ category during the year 2011. Investment as at January 1, 2011 was given in Note No 20.
332 Annual Report 2012 16 Financial Assets Held-for-trading Pledged as Collaterals
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Government debt securities 2,856,321 4,002,777 4,485,329 2,856,321 4,002,777 4,485,329
December 31, December 31, January 1, 2012 2011 2011 Cost Market Value Cost Market Value Cost Market Value Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Bank & Group Amortised cost 2,695,970 2,856,321 3,979,222 4,002,777 4,361,363 4,485,329 Add/(less): Provision for appreciation/(diminution) in market value b/f 23,555 - 123,965 - - -
Provision for diminution in market value write back/(made) during the year 136,796 - (100,410) - 123,965 - 2,856,321 2,856,321 4,002,777 4,002,777 4,485,329 4,485,329
17 Loans and Receivables from Banks
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Loans and Receivables 828,617 450,617 - 828,617 450,617 - 828,617 450,617 - 828,617 450,617 - Less: Allowance for impairment losses (Note 17.1) (12,498) (8,679) - (12,498) (8,679) - 816,119 441,938 - 816,119 441,938 -
Sampath Bank PLC 333 NOTES TO THE FINANCIAL STATEMENTS
17.1 Impairment allowance on due from banks A reconciliation of the allowance for impairment losses due from banks, by class is as follows:
Bank Group Loans and Placements Total Loans and Placements receivables and other receivables and other balances balances Total Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
At January 1, 2011 Charge for the year (Note No 3) (8,679) - (8,679) (8,679) - (8,679) Recoveries ------Amounts written off ------Interest accrued ------At December 31, 2011 (8,679) - (8,679) (8,679) - (8,679)
At January 1, 2012 (8,679) - (8,679) (8,679) - (8,679) Charge for the year (Note No 3) (3,819) - (3,819) (3,819) - (3,819) Recoveries ------Amounts written off ------Interest accrued ------At December 31, 2012 (12,498) - (12,498) (12,498) - (12,498)
18 Loans and Receivables from Other Customers
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 At Amortised cost:
Bills of exchange 2,687,435 2,611,109 2,271,949 2,687,435 2,611,109 2,271,949 Leasing 5,548,059 4,475,619 3,380,007 11,059,921 8,400,392 5,027,920 Housing 10,351,619 9,014,063 8,160,370 10,351,619 9,014,063 8,160,370 Export loans 8,239,867 8,163,780 7,191,579 8,239,867 8,163,780 7,191,579 Import loans 23,347,064 16,553,428 15,125,755 23,347,064 16,553,428 15,125,755 Refinance 5,106,974 5,085,600 4,293,156 5,106,974 5,085,600 4,293,156 Term loans 61,698,407 55,385,540 36,227,929 60,670,827 53,907,980 35,762,630 IFA loans 1,360,762 477,828 - 1,360,762 477,828 - Overdraft 34,871,166 28,853,232 22,113,719 34,794,291 28,812,637 21,987,009 Staff loans 4,076,050 3,375,869 2,778,846 4,076,050 3,375,869 2,778,846 Pawning 54,946,225 41,175,686 29,345,498 54,946,225 41,175,686 29,345,498 Credit card 4,246,627 3,009,515 2,140,245 4,246,627 3,009,515 2,140,245 Others 106,600 118,238 178,509 106,600 118,238 178,509 216,586,855 178,299,506 133,207,563 220,994,262 180,706,125 134,263,467 Less: Staff loan fair value adjustment (Note No 26.2) (1,403,533) (1,086,527) (925,351) (1,403,533) (1,086,527) (925,351) 215,183,322 177,212,979 132,282,212 219,590,729 179,619,598 133,338,116 Less: Provision for impairment losses (Note No 18.1) (6,998,953) (7,531,607) (8,214,893) (7,110,688) (7,642,660) (8,443,140) 208,184,369 169,681,372 124,067,319 212,480,041 171,976,938 124,894,976
334 Annual Report 2012 18.1 Movement in provision for impairment losses 18.1.1 Bank as at December 31, 2011
Balance As at Provision for Amounts Provision Other Interest accrued Balance 01.01.2011 the Year Written-off reversals adjustment on Impaired As at loans and 31.12.2011 receivables Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Leasing 164,080 19,086 -- - - - 183,166 Loans and receivables 8,050,813 400,179 (91,642) (1,123,632) 171,451 (58,728) 7,348,441 Pawning - 913 (913) - - - - 8,214,893 420,178 (92,555) (1,123,632) 171,451 (58,728) 7,531,607
Individually significant customer loan impairment 2,832,409 2,764,531 Collective impairment 5,382,484 4,767,076 Provision for Impairment Losses (Note No 18) 8,214,893 7,531,607
Gross amount of loans individually determined to be impaired, before deducting the individually assessed impairment allowance 3,600,367 3,589,468
18.1.2 Bank as at December 31, 2012
Balance As at Provision for Amounts Provision Other Interest accrued Balance 01.01.2012 the Year Written-off reversals adjustment on Impaired As at loans and 31.12.2012 receivables Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Leasing 183,166 (56,603) - - - - 126,563 Loans and receivables 7,348,441 189,689 (104,814) (782,731) 300,521 (78,717) 6,872,390 Pawning ------7,531,607 133,087 (104,814) (782,731) 300,521 (78,717) 6,998,953
Individually significant customer loan impairment 2,764,531 2,827,992 Collective impairment 4,767,076 4,170,961 Provision for Impairment Losses ( Note No 18) 7,531,607 6,998,953
Gross amount of loans individually determined to be impaired, before deducting the individually assessed impairment allowance 3,589,468 4,153,004
Sampath Bank PLC 335 NOTES TO THE FINANCIAL STATEMENTS
18 Loans and Receivables from Other Customers 18.1.3 Group as at December 31, 2011
Balance As at Provision for Amounts Provision Other Interest accrued Balance 01.01.2011 the Year Written-off reversals adjustment on Impaired As at loans and 31.12.2011 receivables Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Leasing 392,327 (30,237) (68,438) - 567 - 294,219 Loans and receivables 8,050,813 400,179 (91,642) (1,123,632) 171,451 (58,727) 7,348,441 Pawning - 913 (913) - - - - 8,443,140 370,856 (160,993) (1,123,632) 172,018 (58,727) 7,642,660
Individually significant customer loan impairment 2,884,147 2,831,229 Collective impairment 5,558,993 4,811,431 8,443,140 7,642,660
Gross amount of loans individually determined to be impaired, before deducting the individually assessed impairment allowance 3,924,816 3,995,701
18.1.4 Group as at December 31, 2012
Balance As at Provision for Amounts Provision Other Interest accrued Balance 01.01.2012 the Year Written-off reversals adjustment on Impaired As at loans and 31.12.2012 receivables Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Leasing 294,219 (56,342) - 564 (143) - 238,298 Loans and receivables 7,348,441 189,690 (104,814) (782,731) 300,520 (78,717) 6,872,390 Pawning ------7,642,660 133,348 (104,814) (782,164) 300,377 (78,717) 7,110,688
Individually significant customer loan impairment 2,831,229 2,910,042 Collective impairment 4,811,431 4,200,646 7,642,660 7,110,688
Gross amount of loans individually determined to be impaired, before deducting the individually assessed impairment allowance 3,995,701 4,506,738
336 Annual Report 2012 18.2 Loans and receivables from other customers Currency-wise
Bank Group
Balance As at Balance As at Balance As at Balance As at Balance As at Balance As at 31.12.2012 31.12.2011 01.01.2011 31.12.2012 31.12.2011 01.01.2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Sri Lanka Rupee 193,515,273 156,385,591 113,050,513 197,922,680 158,792,209 114,106,417 United States Dollar 22,082,724 21,112,743 19,338,044 22,082,724 21,112,743 19,338,044 United Arab Emirates Dirham - - 83,996 - - 83,996 Euro 377,301 324,695 278,612 377,301 324,695 278,612 Great Britain Pounds 609,367 470,473 449,860 609,367 470,473 449,860 Japanese Yen 297 294 699 297 294 699 Australian Dollar 1,829 5,699 5,727 1,829 5,699 5,727 Canadian Dollar 64 11 111 64 11 111 216,586,855 178,299,506 133,207,563 220,994,262 180,706,124 134,263,466
18.3 Credit Quality 18.3.1 Individually significant customer loan Impairment
Bank Group 2012 2011 2012 2011 Rs’000 Rs’000 Rs’000 Rs’000 Individually Significant Customer Impairment Opening Balance as at 01st January 2,764,531 2,832,409 2,831,229 2,884,147 Charge/(write back) to income statement 320,775 10,903 336,760 31,860 Write-off during the year (221,296) (67,320) (221,296) (67,320) Interest accrued on Impaired loans and receivables (78,717) (58,728) (78,717) (58,728) Other movements 42,698 47,267 42,065 41,270 Closing balance as at 31st December 2,827,992 2,764,531 2,910,042 2,831,229
18.3.2 Credit quality ratios
Bank As a % of Bank As a % of Group As a % of Group As a % of 2012 total 2011 total 2012 total 2011 total Rs.’000 Loans Rs.’000 Loans Rs.’000 Loans Rs.’000 Loans
Gross amount of loans individually determined to be impaired, before deducting the individually assessed impairment allowance 4,153,004 1.9% 3,589,468 2.0% 4,506,738 2.0% 3,995,701 2.2% Less: Individually significant customer loan Impairment (Note No. 18.1.2) (2,827,992) (2,764,531) (2,910,042) (2,831,229) Net Exposure 1,325,012 0.6% 824,937 0.5% 1,596,696 0.7% 1,164,472 0.6%
Impairment Cover * 100 2,827,992 2,764,531 2,910,042 2,831,229 (Individually impairment provision to Gross individually impaired loans 4,153,004 3,589,468 4,506,738 3,995,701 Impairment Cover ratio 68.1% 77.0% 64.6% 70.9%
Sampath Bank PLC 337 NOTES TO THE FINANCIAL STATEMENTS
19 Other Loans & Receivables
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Quoted ( Note No 19.1) 443,358 443,130 443,130 443,358 443,130 443,130 Unquoted ( Note No 19.2) - 10,477 10,243 - 10,477 10,243
Preference shares (Note No 19.3) - 120,139 240,076 - 120,139 240,076 Sri Lanka Development Bonds (SLDBs) (Note No 19.4) 6,714,291 5,162,532 6,797,025 6,714,291 5,162,532 6,797,025 Leased backed Trust Certificates (Note No 19.5) 324,947 - 106,267 324,947 - 106,267 Commercial papers (Note No 19.6) 3,033,159 - - 2,741,876 - - 10,515,756 5,736,278 7,596,740 10,224,474 5,736,278 7,596,740
19.1 Quoted - Debentures
December 31, 2012 December 31, 2011 January 1, 2011
Amortised Cost Market Amortised Cost Market Amortised Cost Market of Investment Value of Investment Value of Investment Value Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000
Bank & Group Vanik Incorporation Ltd 750 - 750 - 750 - (17% redeemable un-secured debentures Rs 100/- each) (Redeemable on or before 31st August 2003) Urban Development Authority 217,870 217,870 223,648 223,648 219,482 219,482 (10% fully secured redeemable debentures Rs 100/- each) (Redeemable on 5th October 2015) Urban Development Authority 225,488 225,488 219,482 219,482 223,648 223,648 (11% fully secured redeemable debentures Rs 100/- each) (Redeemable on 5th October 2015) 444,108 443,358 443,880 443,130 443,880 443,130
Less: Provision for diminution in market value write back/(made) b/f (750) (750) (750) 443,358 443,358 443,130 443,130 443,130 443,130
338 Annual Report 2012 19 Other Loans & Receivables Contd. 19.2 Un-Quoted - Debentures
December 31, 2012 December 31, 2011 January 1, 2011
Amortised Cost Market Amortised Cost Market Amortised Cost Market of Investment Value of Investment Value of Investment Value Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000
Bank & Group Seylan Bank PLC - - 10,477 10,477 10,243 10,243 (Unsecured subordinated redeemable debentures 2007/2012.Redeemable on 9 th December 2012)) (Floating Interest rate equal to the 3 months weighted average TBill rate + 2.5%) - - 10,477 10,477 10,243 10,243
19.3 Un-quoted - Preference Shares Bank & Group Texpro Industries Ltd (Non cumulative redeemable preference shares Rs 10/- each @ 15% interest. Redeemable over the period of 6 years Commencing from 30/06/2003.) 12,604 - 12,604 - 12,604 -
Dialog Axiata PLC (Rated cumulative redeemable preference shares Rs 1/- each @ AWPLR minus 0.9% interest. Redemption Dates 31st May 2008, 31st May 2009,31st May 2010, 31st May 2011 & 31st May 2012 and Redemption per preference share 10%, 15%, 25%, 25% & 25% respectively) - - 120,139 120,139 240,076 240,076 12,604 - 132,742 120,139 252,680 240,076
Less: Provision for diminution in market value write back/(made) b/f (12,604) - (12,604) - (12,604) - - - 120,139 120,139 240,076 240,076
Sampath Bank PLC 339 NOTES TO THE FINANCIAL STATEMENTS
19 Other Loans & Receivables Contd. 19.4 Sri Lanka Development Bonds (SLDBs)
December 31, 2012 December 31, 2011 January 1, 2011
Amortised Cost Market Amortised Cost Market Amortised Cost Market of Investment Value of Investment Value of Investment Value (Rs.’000) (Rs.’000) (Rs.’000) (Rs.’000) (Rs.’000) (Rs.’000) Bank & Group Sri Lanka Development Bonds 6,714,291 6,714,291 5,162,532 5,162,532 6,797,025 6,799,821 6,714,291 6,714,291 5,162,532 5,162,532 6,797,025 6,799,821
19.5 Leased backed Trust Certificates Bank & Group Issued by Deutsche Bank o/a People’s Leasing PLC - - - - 104,167 104,167 Issued by Deutsche Bank o/a Orient Financial Services Corporation Ltd. - - - - 2,100 2,100 Issued by Citizens Development Bank PLC 324,947 324,947 - - - - 324,947 324,947 - - 106,267 106,267
19.6 Commercial papers - Bank People’s Leasing and Finance PLC 1,557,701 1,557,701 - - - - Hayleys Agriculture Holdings Ltd 458,159 458,159 - - - - Sampath Leasing and Factoring Ltd 291,283 291,283 - - - - House of Fashion Garment (Pvt) Ltd 726,016 726,016 - - - - 3,033,159 3,033,159 - - - -
Commercial papers - Group People’s Leasing and Finance PLC 1,557,701 1,557,701 - - - - Hayleys Agriculture Holdings Ltd 458,159 458,159 - - - - House of Fashion Garment (Pvt) Ltd 726,016 726,016 - - - - 2,741,876 2,741,876 - - - - Total Bank 10,515,756 10,515,756 5,736,278 5,736,278 7,596,740 7,599,537 Total Group 10,224,472 10,224,472 5,736,278 5,736,278 7,596,740 7,599,537
20 Financial Investments- Available- for- Sale
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 (Rs.’000) (Rs.’000) (Rs.’000) (Rs.’000) (Rs.’000) (Rs.’000)
Quoted investments Government debt securities (Note No 20.1) 179,175 111,830 - 179,175 111,830 - Equities (Note No 20.2) 1,686,021 1,858,787 4,900,320 1,686,021 1,858,787 4,900,320
Unquoted investments Equities (Note No 20.3) 58,428 54,623 725,527 58,484 54,679 725,583 1,923,624 2,025,241 5,625,847 1,923,680 2,025,297 5,625,903
340 Annual Report 2012 20 Financial Investments- Available- for- Sale Contd. 20.1 Government debt securities As per the ‘Guidelines to Licensed Commercial Banks and Licensed specialised banks on the operation of the Investment Fund Account’ dated April 29,2011 issued by the Central Bank of Sri Lanka, the funds available in Investment Fund Account (IFA) can be invested in Government Treasury Bills for a maximum period of three months from the date of transfer to the fund until loans are granted.
December 31, 2012 December 31, 2011 Cost Market Value Cost Market Value Rs’000 Rs’000 Rs’000 Rs’000
Bank & Group Balance as at December 31 179,106 179,175 111,425 111,830 Add/(less): Provision for appreciation/(diminution) in market value b/f 405 - - -
Provision for diminution in market value write back/(made) during the year (335) - 405 - Balance as at December 31 179,175 179,175 111,830 111,830
Operation of the Investment Fund Account was commenced during the Year 2011.
20.2 Quoted equity securities
December 31, 2012 December 31, 2011 January 1, 2011
Bank & Group No of Cost of Market No of Cost of Market No of Cost of Market Ordinary Investment Value Ordinary Investment Value Ordinary Investment Value Shares Shares Shares Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Name of the company LankaBangla Finance Ltd 17,940,000 236,320 1,686,021 7,800,000 60,604 1,858,787 6,000,000 72,259 4,900,320 236,320 1,686,021 60,604 1,858,787 72,259 4,900,320
20.3 Un-quoted equity securities
December 31, 2012 December 31, 2011 January 1, 2011
Bank No of Cost of Market No of Cost of Market No of Cost of Market Ordinary Investment Value Ordinary Investment Value Ordinary Investment Value Shares Shares Shares Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Name of the company Union Bank of Colombo ------26,338,127 275,953 671,720 LankaBangla Securities Limited 210,000 35,318 35,318 60,000 31,513 31,513 60,000 30,697 30,697 Credit Information Bureau 1,700 170 170 1,700 170 170 1,700 170 170 S.W.I.F.T - 65 65 - 65 65 - 65 65 Fitch Rating Lanka Ltd 62,500 625 625 62,500 625 625 62,500 625 625 Lanka Clear (Pvt) Ltd 2,000,000 20,000 20,000 2,000,000 20,000 20,000 2,000,000 20,000 20,000 Lanka Financial Services Bureau Ltd - 2,250 2,250 - 2,250 2,250 - 2,250 2,250 58,428 58,428 54,623 54,623 329,760 725,527
Sampath Bank PLC 341 NOTES TO THE FINANCIAL STATEMENTS
20 Financial Investments- Available- for- Sale Contd.
December 31, 2012 December 31, 2011 January 1, 2011
Group No of Cost of Market No of Cost of Market No of Cost of Market Ordinary Investment Value Ordinary Investment Value Ordinary Investment Value Shares Shares Shares Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Name of the company Union Bank of Colombo Plc - - - - - 26,338,127 275,953 671,720 LankaBangla Securities Limited 210,000 35,318 35,318 60,000 31,513 31,513 60,000 30,697 30,697 Credit Information Bureau 1,700 226 226 1,700 226 226 1,700 226 226 S.W.I.F.T 65 65 - 65 65 - 65 65 Fitch Rating Lanka Ltd 62,500 625 625 62,500 625 625 62,500 625 625 Lanka Clear (Pvt) Ltd 2,000,000 20,000 20,000 2,000,000 20,000 20,000 2,000,000 20,000 20,000 Lanka Financial Services Bureau Ltd 2,250 2,250 - 2,250 2,250 - 2,250 2,250 58,484 58,484 54,679 54,679 329,816 725,583
All unquoted Available- for- sale equity investments are recorded at cost except for investment in Union Bank of Colombo , since the fair value of these investments can not be reliably measured. There is no market for these investments and Bank intends to hold for them in the long term.
As at January 1, 2011, the equity investment in Union Bank Colombo was fair valued based on the market value of shares of quoted companies with similar risk characteristics.
During the year 2011, that investment was transferred from ‘Investment Available-for-sale’ to ‘Financial investment held for trading category’
21 Financial Investments- Held - to- Maturity
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Government securities Treasury bills - - 547,805 9,765 9,122 556,443 Treasury bonds (Note No 21.1) - 10,289 574,279 - 10,289 574,279 - 10,289 1,122,084 9,765 19,411 1,130,722
342 Annual Report 2012 21 Financial Investments- Held - to- Maturity 21.1 Treasury bonds
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Amortised cost
Year of maturity 2011 - - 563,956 - - 563,956 2012 - 10,289 10,323 - 10,289 10,323 - 10,289 574,279 - 10,289 574,279
22 Investment in subsidiaries
Bank
December 31, 2012 December 31, 2011 January 1, 2011 Unquoted Principal Activity Cost Directors’ Cost Directors’ Cost Directors’ Valuation Valuation Valuation Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Sampath Centre Ltd Renting of Commercial Property 447,000 2,142,526 447,000 2,036,813 447,000 1,951,447 S C Securities (Pvt) Ltd Share Brokering 78,921 184,595 78,921 78,921 15,626 15,626 Sampath Leasing & Factoring Ltd Leasing & Factoring 525,000 882,682 525,000 525,000 525,000 525,000 Sampath Information Technology Solutions Ltd. Developing Software Solutions & Maintenance of Hardware 9,000 19,150 4,000 4,000 4,000 4,000 1,059,921 3,228,953 1,054,921 2,644,734 991,626 2,496,073
Sampath Bank PLC 343 NOTES TO THE FINANCIAL STATEMENTS
23 Property and Equipment 23.1 Bank
As at Additions / Disposals Transfers / As at As at Additions / Disposals Transfers / As at 01.01.2011 Revaluation during the Adjustments 31.12.2011 01.01.2012 Revaluation during the Adjustments 31.12.2012 during the year during the year year year Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
At Cost/valuation Land & Building 2,614,298 121,977 (89,340) - 2,646,936 2,646,936 77,174 (4,343) (567) 2,719,200 Leasehold properties & improvements 729,428 190,127 (5,817) (10,873) 902,865 902,865 108,721 (10,443) (6,553) 994,591 Computer equipment 2,024,253 242,046 (5,894) - 2,260,404 2,260,404 178,051 (22,607) (796) 2,415,052 Motor Vehicles 183,988 47,892 (51,126) 10,874 191,628 191,628 48,600 (30,250) 2,742 212,722 Office equipment 1,182,931 297,980 (6,882) - 1,474,028 1,474,028 171,430 (22,622) 2,405 1,625,242 Work in progress 96,555 54,941 - (80,474) 71,023 71,023 46,927 - (49,336) 68,614 6,831,453 954,963 (159,059) (80,473) 7,546,884 7,546,884 630,904 (90,264) (52,104) 8,035,421
Finance leases Motor vehicles 13,617 (10,874) 2,743 2,743 - - (2,743) - 13,617 - - (10,874) 2,743 2,743 - - (2,743) - Total 6,845,069 954,963 (159,059) (91,346) 7,549,627 7,549,627 630,904 (90,264) (54,847) 8,035,421
Accumulated depreciation On Cost/valuation Building 65,704 15,807 - - 81,511 81,511 17,875 (52) 454 99,788 Leasehold properties & improvements 409,207 107,334 (5,095) (1,299) 510,153 510,153 128,820 (8,327) (4,411) 626,235 Computer equipment 1,391,214 204,821 (5,153) - 1,590,876 1,590,876 211,966 (21,870) (143) 1,780,829 Motor vehicles 102,174 40,101 (31,546) 10,873 121,602 121,602 22,926 (30,051) 2,415 116,892 Office equipment 588,976 132,733 (6,016) - 715,693 715,693 153,658 (21,474) 3,995 851,872 2,557,274 500,796 (47,810) 9,574 3,019,835 3,019,835 535,244 (81,775) 2,310 3,475,615
Finance leases Motor vehicles 10,295 2,587 - (10,873) 2,009 2,009 411 (2,420) - 10,295 2,587 - (10,873) 2,009 2,009 411 - (2,420) - Total 2,567,569 503,383 (47,810) (1,298) 3,021,843 3,021,843 535,656 (81,775) (110) 3,475,615 Written down value 4,277,501 4,527,784 4,527,784 4,559,806
Freehold land & buildings of the Bank were revalued by professionally qualified independent valuers during the year ended 31 st December 2010. The revaluation surplus, amounting to Rs. 415.331 million was credited to the ‘Revaluation Reserve’ account in that year.
The carrying amount of Bank’s revalued land and buildings, if they were carried at cost less depreciation, would be as follows:
December 31, 2012 December 31, 2011 January 01, 2011 Cost Accumulated Carrying Cost Accumulated Carrying Cost Accumulated Carrying Depreciation Value Depreciation Value Depreciation Value (Rs.’000) (Rs.’000) (Rs.’000) (Rs.’000) (Rs.’000) (Rs.’000) (Rs.’000) (Rs.’000) (Rs.’000)
Land 700,195 - 700,195 704,441 - 704,441 732,938 - 732,938 Freehold Buildings 589,897 90,040 499,856 512,723 75,293 437,430 390,746 62,475 328,271 Total 1,290,092 90,040 1,200,051 1,217,164 75,293 1,141,871 1,123,684 62,475 1,061,209
344 Annual Report 2012 23 Property and Equipment Contd. 23.2 Group
As at Additions / Disposals Transfers / As at As at Additions / Disposals Transfers / As at 01.01.2011 Revaluation during the Adjustments 31.12.2011 01.01.2012 Revaluation during the Adjustments 31.12.2012 during the year during the year year year Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
At Cost/valuation Land & Building 4,822,937 152,791 (89,340) - 4,886,389 4,886,389 87,007 (4,343) (567) 4,968,486 Leasehold properties & improvements 729,428 190,127 (5,817) (10,873) 902,865 902,865 108,721 (10,443) (6,553) 994,591 Computer equipment 2,048,876 245,512 (5,894) - 2,288,494 2,288,494 255,519 (22,607) (821) 2,520,584 Motor vehicles 276,139 59,733 (67,525) 10,874 279,221 279,221 52,795 (45,671) 2,742 289,088 Office equipment 1,209,917 305,797 (7,094) - 1,508,619 1,508,619 174,933 (22,622) 2,405 1,663,336 Work in progress 96,555 54,941 - (80,474) 71,023 71,023 46,927 - (49,336) 68,614 9,183,852 1,008,901 (175,670) (80,473) 9,936,611 9,936,611 725,904 (105,685) (52,130) 10,504,700
Finance leases Motor vehicles 20,442 - (6,825) (10,874) 2,743 2,743 - - (2,743) - 20,442 - (6,825) (10,874) 2,743 2,743 - - (2,743) - Total 9,204,293 1,008,901 (182,495) (91,346) 9,939,354 9,939,354 725,904 (105,685) (54,873) 10,504,700
Accumulated depreciation On Cost/valuation Building 203,343 42,658 - - 246,001 246,001 45,998 (52) 454 292,401 Leasehold properties & improvements 409,207 107,689 (5,095) (1,654) 510,147 510,147 128,820 (8,327) (4,411) 626,234 Computer equipment 1,410,039 207,775 (5,153) - 1,612,661 1,612,661 222,129 (21,870) (143) 1,812,771 Motor vehicles 128,403 52,908 (45,988) 10,873 146,196 146,196 33,231 (43,898) 2,027 137,556 Office equipment 601,661 135,891 (6,366) - 731,187 731,187 157,658 (21,474) 3,995 871,365 2,752,653 546,921 (62,602) 9,219 3,246,191 3,246,191 587,836 (95,622) 1,922 3,740,327
Finance leases Motor vehicles 15,612 3,595 (6,325) (10,873) 2,010 2,010 411 - (2,420) - 15,612 3,595 (6,325) (10,873) 2,010 2,010 411 - (2,420) - Total 2,768,265 550,516 (68,927) (1,654) 3,248,201 3,248,201 588,247 (95,622) (498) 3,740,327 Written down value 6,436,029 6,691,153 6,691,153 6,764,372
Freehold land & buildings of the Group were revalued by professionally qualified independent valuers during the year ended 31 st December 2010. The revaluation surplus, amounted to Rs. 1,182.818 million was credited to the ‘Revaluation Reserve’ account in that year.
The carrying amount of Group’s revalued land and buildings, if they were carried at cost less depreciation, would be as follows:
December 31, 2012 December 31, 2011 January 01, 2011 Cost Accumulated Carrying Cost Accumulated Carrying Cost Accumulated Carrying Depreciation Value Depreciation Value Depreciation Value (Rs.’000) (Rs.’000) (Rs.’000) (Rs.’000) (Rs.’000) (Rs.’000) (Rs.’000) (Rs.’000) (Rs.’000)
Land 835,195 - 835,195 839,441 - 839,441 867,938 - 867,938 Freehold Buildings 1,276,621 216,168 1,060,453 1,189,614 201,175 988,439 1,036,824 187,586 849,238 Total 2,111,816 216,168 1,895,648 2,029,055 201,175 1,827,880 1,904,762 187,586 1,717,176
Sampath Bank PLC 345 NOTES TO THE FINANCIAL STATEMENTS
23 Property and Equipment Contd. 23.3 Details of Group land and buildings stated at valuation are given below.
2010 2007 Date of Method of Cost Revaluation Revaluation Location Valuation Valuation (Rs. Mn ) (Rs. Mn ) (Rs. Mn ) Bank Valuer - Mr. P B Kalugalagedara No.180 (part), People’s Park, Bodhiraja Mawatha, Pettah 12.11.2010 Open Market Value 21.4 55.0 48.0 No.261, Galle Road, Ratmalana 01.11.2010 Open Market / Fair Value Basis 25.5 41.0 36.0 No.61 & 61A, Moratuwa Road, Piliyandala 01.11.2010 Open Market / Fair Value Basis 38.1 76.0 65.0 No.591, Galle Road, Wellawatte 10.11.2010 Open Market / Fair Value Basis 112.3 107.5 - No.475, Elvitigala Mawatha, Narahenpita 12.11.2010 Open Market / Fair Value Basis 81.9 77.7 - No.103, Dharmapala Mawatha, Hunupitiya, Colombo 07 08.11.2010 Open Market / Fair Value Basis 26.2 597.0 597.0
Valuer - Mr. E M Wimalasena No.268, Main Street, Anuradhapura 12.12.2010 Open Market / Fair Value Basis 10.9 92.8 45.0
Valuer - Mr. C Wellappili No.81 & 81A, High Level Road, Maharagama 09.11.2010 Income Basis / Contractor’s Principle 34.4 59.4 55.7 No.371 &371 1/1, Old Moor Street, Colombo 12 10.11.2010 Contractor’s Principle 38.3 126.0 112.2 No.1022, Maradana Road, Borella 29.11.2010 Income Basis / Contractor’s Principle 70.2 192.6 190.7 No.5, Wakwella Road, Galle 28.12.2010 Income Basis / Contractor’s Principle 26.8 71.4 52.0 No.280 & 280/1, Negombo Road, Wattala 30.12.2010 Comparison Method 44.2 53.9 - No.150, Colombo Road, Gampaha 04.12.2010 Comparison Method 20.0 29.9 - No.312 (part), Galle Road, Kalutara 15.11.2010 Comparison Method 62.4 60.0 - No.373, Galle Road, Panadura 30.12.2010 Income Basis / Contractor’s Principle 42.0 55.3 - No.167, Anguruwatota Road, Horana 28.12.2010 Comparison Method 18.5 20.8 - No.7/5, Giriulla Road, Alawwa 16.11.2010 Income Basis / Contractor’s Principle 6.5 25.4 -
Valuer - Mr. S G Fernando No.29, Cross Street, Kandy 25.10.2010 Income Method / Comparative Method 102.2 300.0 180.0 No.187, Madawela Road, Katugastota 05.11.2010 Income Method / Comparative Method 14.4 43.4 - No.31 & 33, Negombo Road, Kurunegala 04.11.2010 Income Method / Comparative Method 77.0 145.0 128.9
Valuer - Mr. H J A Nisad No.25-27, Main Street, Tissamaharama 29.10.2010 Contractor’s Method/Income Method 34.3 37.0 - No.3, Hakmana Road, Matara 29.10.2010 Contractor’s Method 39.2 161.0 80.0 No.117, Ihalagama Road, Deniyaya 29.10.2010 Contractor’s Method 3.9 4.2 4.0 No.69, Main Street, Deniyaya 27.10.2010 Contractor’s Method 15.0 11.8 -
Sampath Centre Ltd. Valuer - Mr. P B Kalugalagedara No.110, Sir James Peiris Mawatha, Colombo 02 31.12.2010 Income Method 597.6 2,071.0 1,300.0
346 Annual Report 2012 23 Property and Equipment Contd. 23.4 Freehold Land & Buildings- Bank
Cost or Cost or Revaluation Revaluation Total Accumulated Net Book Buildings of Buildings Extent of Land Value Depreciation Value Sq.ft (Rs.’000) Perches (Rs.’000) (Rs.’000) (Rs.’000) (Rs.’000) %
Location Pettah 5,246 63,077 - - 63,070 11,134 51,943 1.9% No.180 (part), People’s Park, Bodhiraja Mawatha, Pettah Borella 9,100 79,868 25.5 127,500 207,368 14,060 193,308 7.2% No.1022, Maradana Road, Borella Kurunegala 12,027 78,667 37.4 74,760 153,427 11,935 141,492 5.3% No.31 & 33, Negombo Road, Kurunegala Wattala Under 18,215 43.1 53,900 72,115 - 72,115 2.7% No.280 & 280/1, Negombo Road, Wattala Construction Matara 8,413 40,158 45.3 131,170 171,328 10,281 161,047 6.0% No.3, Hakmana Road, Matara Maharagama 5,400 31,288 13.55 29,744 61,032 6,505 54,527 2.0% No.81 & 81A, High Level Road, Maharagama Deniyaya Under 11,689 40.0 4,200 15,889 - 15,889 0.6% No.117, Ihalagama Road, Deniyaya Construction Deniyaya Bare Land - 16.9 11,800 11,800 - 11,800 0.4% No.69, Main Street, Deniyaya Gampaha Under 9,814 25.0 29,880 39,694 - 39,694 1.5% No.150, Colombo Road, Gampaha Construction Ratmalana 5,480 29,007 10.9 19,075 48,082 5,728 42,354 1.6% No.261, Galle Road, Ratmalana Piliyandala 8,200 36,958 37.5 46,875 83,833 8,306 75,527 2.8% No.61 & 61A, Moratuwa Road, Piliyandala Anuradhapura Under 6,214 41.3 92,800 99,014 - 99,014 3.7% No.268, Main Street, Anuradhapura Construction Panadura 5,550 14,970 27.3 43,800 81,310 2,078 79,232 2.9% No.373, Galle Road, Panadura Under Construction 22,683 ------Old Moor Street 8,248 5,565 24.0 122,000 127,565 1,242 126,323 4.7% No.371 & 371 1/1, Old Moor Street, Colombo 12 Tissamaharama 4,000 36,912 22.2 9,990 46,902 3,262 43,640 1.6% No.25-27, Main Street, Tissamaharama Katugastota 8,700 67,985 24.1 43,380 111,222 3,170 108,052 4.0% No.187, Madawela Road, Katugastota Galle 6,197 23,263 17.5 52,440 75,703 4,764 70,939 2.6% No.5, Wakwella Road, Galle Wellawatte 6,514 55,076 21.5 107,500 162,576 1,423 161,153 6.0% No.591, Galle Road, Wellawatte Narahenpita Bare Land - 18.5 77,700 77,700 - 77,700 2.9% No.475, Elvitigala Mawatha, Narahenpita Kalutara Bare Land - 30.0 60,000 60,000 - 60,000 2.2% No.312 (part), Galle Road, Kalutara Alawwa 8,245 18,675 20.7 8,260 26,935 2,418 24,517 0.9% No.7/5, Giriulla Road, Alawwa Horana Bare Land - 20.8 20,750 20,750 - 20,750 0.8% No.167, Anguruwathota, Horana Kandy Corporate 15,026 90,023 25.4 216,155 306,178 10,060 296,118 11.0% No.29, Cross Street, Kandy Dharmapala Mawatha 5,000 51,233 119.4 597,000 648,233 2,332 645,901 24.0% No.103, Dharmapala Mawatha, Hunupitiya, Colombo 07 Victoria Range 2,035 15,938 - - 15,938 1,088 14,850 0.6% 1/87,Victoria Range,Digana,Kandy Total 807,135 - 1,980,679 2,787,814 99,788 2,687,885 100.0%
Sampath Bank PLC 347 NOTES TO THE FINANCIAL STATEMENTS
23 Property and Equipment Contd. The cost of fully depreciated assets of the Bank amounts to Rs. 2,587.0 Mn. ( 2011 - Rs. 2,218.0 Mn )
Details of cost of fully depreciated assets class-wise are given below.
December 31, December 31, January 1, 2012 2011 2011 Rs’000 Rs’000 Rs’000 Asset class
Leasehold properties & improvements 341,235 301,288 259,113 Computer equipment 1,777,921 1,526,034 1,290,311 Motor vehicles 73,715 49,021 52,711 Office equipment 394,166 341,665 300,125 Total 2,587,037 2,218,008 1,902,260
24 Intangible assets
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Computer Software (Note No 24.1) 115,366 67,294 78,723 120,020 73,372 88,798 Licenses (Note No 24.2) 196,392 - - 196,392 - - 311,758 67,294 78,723 316,412 73,372 88,798
24.1 Computer software
Bank Group
Cost Amortisation Net Book value Cost Amortisation Net Book value Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Balance as at January 1, 2011 676,204 597,481 78,723 694,281 605,483 88,798 Additions 24,681 36,110 (11,429) 24,706 40,133 (15,426) Disposal ------Balance as at December 31, 2011 700,885 633,591 67,294 718,987 645,615 73,372
Balance as at January 1, 2012 700,885 633,591 67,294 718,987 645,615 73,372 Additions 89,353 41,280 48,073 91,526 44,877 46,649 Disposal ------Balance as at December 31, 2012 790,238 674,872 115,366 810,513 690,492 120,020
24.2 Licenses Licenses Balance as at January 1, 2012 ------Additions 198,678 2,286 196,392 198,678 2,286 196,392 Disposal ------Balance as at December 31, 2012 198,678 2,286 196,392 198,678 2,286 196,392
348 Annual Report 2012 25 Deferred Tax Assets & Liabilities 25.1 Net Deferred Tax Assets
Group December 31, December 31, 2012 2011 Rs’000 Rs’000 Balance as at 1st January 2,359 3,714 Decrease/(Increase) in provision 9,968 (1,355) Balance as at 31st December 12,328 2,359
25.2 Net Deferred Tax Liabilities
Bank Group December 31, December 31, December 31, December 31, 2012 2011 2012 2011 Rs’000 Rs’000 Rs’000 Rs’000
Balance as at 1st January 380,360 258,340 396,113 258,340 Increase/(decrease) in provision 19,725 122,020 34,699 137,773 Balance as at 31st December 400,084 380,360 430,812 396,113
Analysis of deferred tax assets and liabilities The following table shows, deferred tax liabilities recorded in the Statement of Financial Position due to taxable temporary differences in assets & liabilities and charges to the income tax expense.
December 31, 2012 December 31, 2011 January 1, 2011 Temporary Tax effect Temporary Tax effect Temporary Tax effect difference difference difference Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Bank Deferred tax liability Property and equipment 624,784 174,940 618,867 173,283 526,623 147,454 Lease rentals 873,775 244,657 754,775 211,337 844,212 236,379 Revaluation on buildings 174,657 48,904 174,657 48,904 174,657 48,904 1,673,216 468,500 1,548,299 433,524 1,545,493 432,738
Deferred tax asset Unclaimed bad debt provision - Specific - - - - 478,806 134,066 Defined benefit obligation 167,470 46,892 124,477 34,853 89,163 24,966 Others 76,873 21,524 65,396 18,310 54,881 15,367 244,343 68,416 189,873 53,164 622,850 174,398 Net deferred tax (asset) / liability 1,428,873 400,084 1,358,427 380,360 922,643 258,340
Group Deferred tax liability Property and equipment 661,523 185,226 638,204 178,697 526,623 147,455 Lease rentals 1,137,686 318,552 1,006,317 281,769 844,212 236,379 Revaluation on buildings 174,657 48,904 174,657 48,904 174,657 48,904 1,973,866 552,682 1,819,178 509,370 1,545,493 432,738
Deferred tax asset Unclaimed bad debt provision - Specific - - - - 478,806 134,066 Unclaimed bad debt provision - Investment 185,549 51,954 211,723 59,282 - - Defined benefit obligation 172,831 48,393 127,372 35,664 89,163 24,965 Others 76,873 21,524 65,396 18,311 54,881 15,367 435,253 121,871 404,491 113,257 622,849 174,398 Net deferred tax (asset) / liability 1,538,613 430,812 1,414,688 396,113 922,643 258,340
Sampath Bank PLC 349 NOTES TO THE FINANCIAL STATEMENTS
25 Deferred Tax Assets & Liabilities Contd.
December 31, 2012 December 31, 2011 January 1, 2011 Temporary Tax effect Temporary Tax effect Temporary Tax effect difference difference difference Group Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Net deferred tax asset Deferred tax liability Property and equipment 1,127 316 1,673 469 16,667 4,667 Lease rentals - - - - 146,436 41,002 1,127 316 1,673 461 163,103 45,669
Deferred tax asset Unclaimed bad debt provision - Investment - - - - 165,707 46,398 Brought forward tax losses 38,549 10,794 - 10,661 2,985 Defined benefit obligation 6,607 1,850 10,100 2,828 - - 45,156 12,644 10,100 2,828 176,368 49,383 Net deferred tax (asset) / liability (44,029) (12,328) (8,427) (2,359) (13,265) (3,714)
26 Other assets
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Pre-paid expenses 467,434 246,036 232,525 467,434 246,036 232,525 Other debtors ( Note No 26.1 ) 1,184,199 819,047 613,974 1,706,138 1,355,241 1,242,347 Pre-paid staff cost ( Note No 26.2 ) 1,403,533 1,086,527 925,351 1,403,533 1,086,527 925,351 Refundable deposit at fair value 72,328 73,071 83,947 9,574 10,317 21,493 Pre-paid cost on refundable deposit 1,593 1,933 1,486 1,593 1,933 1,486 Financial guarantee ( Note No 26.3 ) 142,565 146,489 149,538 142,565 146,489 149,538 3,271,651 2,373,104 2,006,821 3,730,836 2,846,544 2,572,740
26.1 Other debtors
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Cost 1,184,199 819,047 613,974 1,751,515 1,385,618 1,253,162 Less: Balance as at the beginning of the year - - - (30,377) (10,815) - Charge / (reversal) for the year - - - (15,000) (19,562) (10,815) Balance end of the year - - - (45,377) (30,377) (10,815) Net other debtors 1,184,199 819,047 613,974 1,706,138 1,355,241 1,242,347
350 Annual Report 2012 26 Other assets Contd. 26.2 The movement in the pre-paid staff cost
Bank Group Rs’000 Rs’000
At January 1, 2011 925,351 925,351 (The ‘day 1’ effect on the transition date) Add / (Less): Adjustment for new grants and settlements 253,869 253,869 Less: charge to Personnel cost (92,693) (92,693) At December 31,2011 (Note No 18) 1,086,527 1,086,527
At January 1, 2012 1,086,527 1,086,527 Add / (Less): Adjustment for new grants and settlements 473,594 473,594 Less: charge to Personnel cost (156,588) (156,588) At December 31,2012 (Note No 18) 1,403,533 1,403,533
26.3 Financial Guarantee The movement during the year is a follows:
Bank Group Rs’000 Rs’000
At January 1, 2011 149,538 149,538 Interest income 12,527 12,527 Income received (15,576) (15,576) At December 31,2011 146,489 146,489
At January 1, 2012 146,489 146,489 Interest income 12,275 12,275 Income received (16,199) (16,199) At December 31,2012 142,565 142,565
27 Due to banks
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Deposit from other Banks 244,038 704,821 64,646 244,038 704,821 64,646 Borrowings 380,746 470,851 135,367 424,161 470,851 135,367 624,784 1,175,672 200,013 668,198 1,175,672 200,013
The maturity analysis of due to banks is given in Note No 43
Sampath Bank PLC 351 NOTES TO THE FINANCIAL STATEMENTS
28 Due to other customers
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Local currency deposits Demand 13,667,506 11,353,997 11,200,598 13,644,907 11,330,769 11,148,366 Savings 60,785,509 60,656,644 54,728,380 60,652,599 60,579,156 54,728,380 Call deposits 845,834 860,547 1,013,153 845,834 860,547 946,027 Fixed deposits 137,446,329 97,707,704 63,298,388 137,359,083 97,707,704 63,298,388 Certificates of deposits 9,520,143 8,032,068 5,828,276 9,520,143 8,032,068 5,828,276 Margin deposits 511,598 868,644 555,871 511,598 868,644 555,871 222,776,921 179,479,604 136,624,667 222,534,165 179,378,888 136,505,308
Foreign currency deposits Demand 1,405,312 835,789 2,421,525 1,405,312 835,789 2,421,525 Savings 6,462,657 5,093,553 4,696,960 6,462,657 5,093,553 4,696,960 Call deposits 5,953 241,847 6,438 5,953 241,847 6,438 Fixed deposits 12,655,641 9,517,002 9,447,109 12,655,641 9,517,002 9,447,109 Margin deposits 24,506 27,280 49,066 24,506 27,280 49,066 20,554,069 15,715,470 16,621,098 20,554,069 15,715,470 16,621,098 Total 243,330,990 195,195,074 153,245,764 243,088,236 195,094,358 153,126,406
‘Margin Deposits’ are deposits held as collateral for irrevocable commitments.
The maturity analysis of borrowings is given in Note No 43
28.1 Product-wise analysis of balance due to other customers.
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Local currency deposits Demand 5.62% 5.82% 7.31% 5.61% 5.81% 7.28% Savings 24.98% 31.07% 35.71% 24.95% 31.05% 35.74% Call deposits 0.35% 0.44% 0.66% 0.35% 0.44% 0.62% Fixed deposits 56.49% 50.06% 41.31% 56.51% 50.08% 41.34% Certificates of deposits 3.91% 4.11% 3.80% 3.92% 4.12% 3.81% Margin deposits 0.21% 0.45% 0.36% 0.21% 0.45% 0.36% 91.55% 91.95% 89.15% 91.54% 91.9% 89.15%
Foreign currency deposits Demand 0.58% 0.43% 1.58% 0.58% 0.43% 1.58% Savings 2.66% 2.61% 3.06% 2.66% 2.61% 3.07% Call deposits 0.00% 0.12% 0.00% 0.00% 0.12% 0.00% Fixed deposits 5.20% 4.88% 6.16% 5.21% 4.88% 6.17% Margin deposits 0.01% 0.01% 0.03% 0.01% 0.01% 0.03% 8.45% 8.05% 10.85% 8.46% 8.06% 10.85% Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
352 Annual Report 2012 29 Debt issued and other borrowed funds
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Commercial papers - - - 828,991 106,622 90,641 Redeemable debentures ( Note No 29.1 ) 1,500,000 1,761,618 2,061,620 1,937,207 1,861,688 2,061,620 Long term bond ( Note No 29.2 ) 1,368,723 1,253,949 1,148,800 1,368,723 1,253,949 1,148,800 Call borrowings - - 875,259 - - 875,259 Term borrowings 3,033,650 5,584,729 - 5,160,437 7,114,294 384,527 Foreign currency borrowings 18,084,125 6,264,500 - 18,084,125 6,264,500 - Finance leases ( Note No 29.3 ) - 553 3,671 - 553 3,671 Refinance borrowings 4,838,531 4,888,872 4,477,716 4,838,531 4,888,872 4,477,716 28,825,029 19,754,221 8,567,066 32,218,014 21,490,478 9,042,234
29.1 Redeemable debentures
Bank Group
December 31, December 31, December 31, December 31, 2012 2011 2012 2011 Rs’000 Rs’000 Rs’000 Rs’000
Balance as at 1 st January 1,761,618 2,061,620 1,861,688 2,061,620 Debentures issued 1,500,000 - 1,800,000 100,000 Interest payable - 11,618 37,207 11,688 Debentures redeemed (1,750,000) (311,620) (1,750,000) (311,620) Interest paid (11,618) - (11,618) - Balance as at 31 st December 1,500,000 1,761,618 1,937,207 1,861,688
(Note No. 29.1.1, 29.1.2, 29.1.3 & 29.1.4)
29.1.1 The debentures consist of 15,000,000 unsecured subordinated redeemable 5-year debentures of Rs.100/- each issued in 2012. The debentures are quoted on the Colombo Stock Exchange.
No of Face Value Amortised cost (Rs.’000) Debentures (Rs.’000) December 31, December 31, January 1, Allotment Maturity Rate of 2012 2011 2011 Date Date Interest
10,776,800 1,077,680 1,077,680 - - Oct 12, 2012 Oct 31, 2017 Fixed - 16.5 % per annum payable annually 2,477,900 247,790 247,790 - - Oct 12, 2012 Oct 31, 2017 Fixed - 15.0 % per annum payable monthly 1,745,300 174,530 174,530 - - Oct 12, 2012 Oct 31, 2017 Floating rate is equivalent to the six months Treasury Bill rate (gross) plus 2.0 % 15,000,000 1,500,000 1,500,000 - -
Sampath Bank PLC 353 NOTES TO THE FINANCIAL STATEMENTS
29 Debt issued and other borrowed funds 29.1.2 The debentures consist of 15,000,000 unsecured subordinated redeemable 5-year debentures of Rs.100/- each issued in 2007. The debentures are quoted on the Colombo Stock Exchange.
No of Amortised cost (Rs.’000) Debentures December 31, December 31, January 1, Allotment Maturity Rate of 2012 2011 2011 Date Date Interest
5,206,725 - 520,673 520,673 Aug 30, 2007 Aug 29, 2012 Fixed - 17.5 % per annum payable annually 222,650 - 22,265 22,265 Aug 30, 2007 Aug 29, 2012 Fixed - 15.5 % per annum payable monthly 9,570,625 - 968,681 968,683 Aug 30, 2007 Aug 29, 2012 Floating rate is equivalent to the three months Treasury Bill rate (gross) plus 1.5% 15,000,000 - 1,511,618 1,511,620
These debentures were redeemed on August 29, 2012.
29.1.3 The debentures consist of 2,500,000 unsecured subordinated redeemable 5-year debentures of Rs.100/- each issued in 2007.
No of Amortised cost (Rs.’000) Debentures December 31, December 31, January 1, Allotment Maturity Rate of 2012 2011 2011 Date Date Interest
2,500,000 - 250,000 250,000 June 30, 2007 June 28, 2012 Floating rate is equivalent to the six months weighted avg. Treasury Bill rate (gross) plus 1.75% p.a., payable semi annually. 2,500,000 - 250,000 250,000
These debentures were redeemed on June 28, 2012.
29.1.4 The debentures consist of 3,000,000 unsecured subordinated redeemable 5 year debentures of Rs. 100/-
Amortised cost Rs.’000 No of December 31, December 31, January 1, Debentures 2012 2011 2011
3,000,000 - - 300,000
These debentures were redeemed on December 28, 2011.
29.2 Long Term Bond
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Balance as at 1st January 1,253,949 1,148,800 1,052,468 1,253,949 1,148,800 1,052,468 Interest accrued 114,774 105,149 96,332 114,774 105,149 96,332 1,368,723 1,253,949 1,148,800 1,368,723 1,253,949 1,148,800
354 Annual Report 2012 29 Debt issued and other borrowed funds 29.3 Finance Leases
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Gross liability - 564 3,754 - 564 3,754 Less: Finance charges allocated to future periods - (11) (83) - (11) (83) Net liability - 553 3,671 - 553 3,671
Repayable with in one year Gross liability - 564 3,190 564 3,190 Less: Finance charges allocated to future periods - (11) (72) (11) (72) Net liability 553 3,118 553 3,118
Repayable after one year before five years Gross liability - - 564 - 564 Less: Finance charges allocated to future periods - - (11) - (11) Net liability - - 553 - 553
Finance lease liability was fully settled during the year 2012.
30 Current tax liabilities
Bank Group
December 31, December 31, December 31, December 31, 2012 2011 2012 2011 Rs’000 Rs’000 Rs’000 Rs’000
Balance as at 1st January 1,851,834 891,011 1,881,142 958,817 Current year provision 2,108,885 1,484,407 2,146,783 1,530,979 Less: Payment of tax (956,835) (523,585) (992,057) (608,654) Balance as at 31st December 3,003,885 1,851,834 3,035,868 1,881,142
31 Provisions
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Provision for retiring gratuity (Note No 31.1) 167,470 124,477 89,223 180,192 137,515 97,279 167,470 124,477 89,223 180,192 137,515 97,279
Sampath Bank PLC 355 NOTES TO THE FINANCIAL STATEMENTS
31 Provisions Contd. 31.1 Provision for retiring gratuity
Bank Group
December 31, December 31, December 31, December 31, 2012 2011 2012 2011 Rs’000 Rs’000 Rs’000 Rs’000 Balance as at 1st January 124,477 89,223 137,515 97,279 Provision made during the year 55,710 49,175 55,049 54,264 180,186 138,398 192,564 151,543 Benefits paid by the plan (12,716) (13,921) (12,372) (14,028) Balance as at 31st December 167,470 124,477 180,192 137,515
An actuarial valuation of the gratuity fund was carried out as at 31st December 2012 by M/s. Piyal S Goonetilleke and Associates, a professional actuary. The valuation method used by the actuary to value the Fund is the “Projected Unit Credit Method”, recommended by LKAS 19 Employee Benefits.
December 31, December 31, January 1, 2012 2011 2011
Actuarial assumptions Discount rate 11% 10% 9% Salary increment 10% 9% 9%
Mortality GA 1983 GA 1983 GA 1983 Mortality Table Mortality Table Mortality Table Retirement age 55 years 55 years 55 years
Sensitivity of assumptions employed in actuarial valuation The following table demonstrates the sensitivity to a reasonably possible change in the key assumptions employed with all other variables held constant in the employment benefit liability measurement.
The sensitivity of the Income Statement and Balance Sheet is the effect of the assumed changes in discount rate and salary increment rate on the profit or loss and employment benefit obligation for the year.
356 Annual Report 2012 31 Provisions Contd. Bank Increase / Increase / 2012 2011 January 1, 2011 (decrease) in (Decrease) Sensitivity Effect Sensitivity Effect Sensitivity Effect Sensitivity Effect Sensitivity Effect Sensitivity Effect discount rate in Salary on Income on Employment on Income on Employment on Income on Employment Increment Statement Benefit obligation Statement Benefit obligation Statement Benefit obligation Increase/ Increase/ Increase/ Increase/ Increase/ Increase/ (Reduction) in (Decrease) in the (Reduction) in (Decrease) in the (Reduction) in (Decrease) in the results for the year Liability (Rs. Mn.) results for the year Liability (Rs. Mn.) results for the year Liability (Rs. Mn.) (Rs. Mn.) (Rs. Mn.) (Rs. Mn.)
1% 17.5 (17.5) 13.1 (13.1) 5.7 (5.7) (1%) (21.0) 21.0 (15.7) 15.7 (13.9) 13.9 1% (20.7) 20.7 (15.5) 15.5 (13.6) 13.6 (1%) 17.6 (17.6) 13.2 (13.2) 11.6 (11.6)
31.2 Pension Fund The amounts recognized in the Statement of Financial Position are as follows:
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Present value of funded obligations as at 31 st December 3,227,914 2,882,369 2,885,617 3,227,914 2,882,369 2,885,617 Fair value of plan assets as at 31st December (4,136,468) (3,551,235) (3,406,801) (4,136,468) (3,551,235) (3,406,801) (908,554) (668,866) (521,184) (908,554) (668,866) (521,184) Present value of unfunded obligations - (137,655) (275,310) - (137,655) (275,310) Unrecognized actuarial gains/losses 759,146 710,212 785,951 759,146 710,212 785,951 (149,408) (96,309) (10,543) (149,408) (96,309) (10,543)
Balance as at 1st January (96,309) (10,543) 160,619 (96,309) (10,543) 160,619 Provision made during the year 220,892 209,191 303,298 220,892 209,191 303,298 Less: Payments/investments made during the year (273,991) (294,957) (474,460) (273,991) (294,957) (474,460) Balance as at 31st December - (Over)/under Provision (149,408) (96,309) (10,543) (149,408) (96,309) (10,543)
This over payment is recognised under pre-paid expenses in other assets.
An actuarial valuation of the gratuity fund was carried out as at 31st December 2012 by M/s. Piyal S Goonetilleke and Associates, a professional actuary. The valuation method used by the actuary to value the Fund is the “Projected Unit Credit Method”, recommended by LKAS 19 - Employee Benefits.
December 31, December 31, January 1, 2012 2011 2011 Actuarial assumptions Discount rate 11% 10% 9% Salary increment 10% 9% 9% Annual return on assets 10% 9% 9% Mortality GA 1983 GA 1983 GA 1983 Mortality Table Mortality Table Mortality Table Retirement age Normal Normal Normal retirement age retirement age retirement age or age on or age on or age on valuation date, valuation date, valuation date, if greater if greater if greater
Sampath Bank PLC 357 NOTES TO THE FINANCIAL STATEMENTS
31 Provisions Contd. 31.2 Pension Fund Contd. Sensitivity of assumptions employed in actuarial valuation
The following table demonstrates the sensitivity to a reasonably possible change in the key assumptions employed with all other variables held constant in the employment benefit liability measurement.
The sensitivity of the Income Statement and Statement of Financial Position is the effect of the assumed changes in discount rate and salary increment rate on the profit or loss and employment benefit obligation for the year. Bank Increase / Increase / 2012 2011 January 1, 2011 (decrease) in (Decrease) Sensitivity Effect Sensitivity Effect Sensitivity Effect Sensitivity Effect Sensitivity Effect Sensitivity Effect discount rate in Salary on Income on Employment on Income on Employment on Income on Employment Increment Statement Benefit obligation Statement Benefit obligation Statement Benefit obligation Increase/ Increase/ Increase/ Increase/ Increase/ Increase/ (Reduction) in (Decrease) in the (Reduction) in (Decrease) in the (Reduction) in (Decrease) in the results for the year Liability (Rs. Mn.) results for the year Liability (Rs. Mn.) results for the year Liability (Rs. Mn.) (Rs. Mn.) (Rs. Mn.) (Rs. Mn.)
1% 400.3 (400.3) 380.5 (380.5) 415.0 (415.0) (1%) (487.3) 487.3 (468.9) 468.9 (518.9) 518.9 1% (258.20) 258.20 (247.5) 247.5 (209.4) 209.4 (1%) 232.0 (232.0) 220.9 (220.9) 242.0 (242.0)
31.3 Retirement benefit
Bank Group 2012 2011 2012 2011 Rs’000 Rs’000 Rs’000 Rs’000
Contribution made to Pension Fund 220,892 209,191 220,893 209,191 Contribution made to Gratuity Fund 55,710 49,175 55,049 54,264 276,601 258,366 275,942 263,455
Contribution made to Pension Fund Current service & interest cost 438,356 418,627 438,356 418,627 Expected return on assets & recognition of actuarial loss/(gain ) (319,611) (306,612) (319,611) (306,612) Recognition of actuarial gain / (loss) (35,509) (40,479) (35,509) (40,479) Recognition of transitional liability/(asset ) 137,655 137,655 137,655 137,655 220,892 209,190 220,892 209,190
Contribution made to Gratuity Fund Current service & interest cost 40,806 34,096 40,145 39,185 Expected return on assets & recognition of actuarial loss/(gain ) - 1,107 - 1,107 Recognition of actuarial gain / (loss) 932 - 932 - Recognition of transitional liability/(asset ) 13,972 13,972 13,972 13,972 55,710 49,175 55,049 54,264
358 Annual Report 2012 32 Other liabilities
Bank Group December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Cheques sent on clearing - 12,422 2,533 - 12,422 2,533 Provision for deposit insurance scheme 69,941 57,310 44,000 69,941 57,310 44,000 Financial guarantee liability 71,448 78,214 84,961 71,448 78,214 84,961 Other payable 3,898,681 3,106,607 2,416,662 4,105,512 3,355,341 2,855,845 4,040,070 3,254,552 2,548,157 4,246,901 3,503,286 2,987,341
33 Stated capital
Bank Group December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Ordinary shares 3,564,172 2,743,780 1,786,250 3,564,172 2,743,780 1,786,250 3,564,172 2,743,780 1,786,250 3,564,172 2,743,780 1,786,250
Number of shares as at 31st December 2012 increased to 162,736,665 from 156,854,190 as at 31st December 2011 (152,807,972 as at 31st December 2010), due to effect of the scrip dividend and ESOP 2010.
Share information are given on Pages 400 and 405.
Rights preferences & restrictions of classes of capital The holders of ordinary shares confer their right to receive Dividend as declared from time to time and are entitled to one vote per share at the Annual General meeting of the Bank.
33.1 Employee share option plan ESOP - 2010
December 31, December 31, 2012 2011
ESOP position as at Number of options available (shares) 3,056,159 3,056,159 Number of options exercised (shares) 2,725,360 524,924 Number of remaining options (shares) 330,799 2,531,235 Option price (Rs.) 80.00 80.00 Weighted average Market price (Rs.) 180.10 221.00
The option exercisable period would be 3 years, from the entitlement date of 30.06.2011. In the event of options being fully exercised by the eligible staff, the stated capital of the Bank would rise by Rs. 244.5 Mn, as a result of the consideration to be paid by the staff under the ESOP.
No financial assistance will be provided by the Bank to the staff to purchase the share options. The remaining period to exercise the share options is 1 year and 6 months from 31.12.2012.
Sampath Bank PLC 359 NOTES TO THE FINANCIAL STATEMENTS
34 Reserves 34.1 Statutory / Risk reserve funds
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Statutory Reserve Fund (Note No 34.1.1) 1,062,626 805,805 614,834 1,089,350 822,531 621,941 Risk reserve fund (Note No 34.1.2) 109,480 35,706 31,730 109,480 35,706 31,730 1,172,106 841,511 646,564 1,198,830 858,237 653,671
34.1.1 Statutory Reserve Fund Balance as at 1st January 805,805 614,834 822,531 621,941 Adjustments Transfer to reserve fund (Note No 34.1.1 & 34.1.2) 256,821 190,971 266,819 200,590 Balance as at 31st December 1,062,626 805,805 1,089,350 822,531
The statutory reserve fund is maintained as required by the section 20 (1) of the Banking Act No. 30 of 1988. A sum equivalent to 5% of the profit after tax, but before any dividend is declared or any profits are transferred to elsewhere, should be transferred to above reserve until the reserve is equal to 50% of the paid-up capital of the Bank and thereafter a further sum equivalent to 2% of such profits until the amount of the said reserve fund is equal to the paid-up capital of the Bank. The balance in the statutory reserve fund will be used only for the purposes specified in the Section 20(2) of the Banking Act No. 30 of 1988.
However, the paid-up capital concept was abolished by the Companies Act No. 7 of 2007. Therefore, Bank considered the ‘Stated capital’ as equivalent of ‘paid-up’ capital and transferred 5% of profit after tax to the Statutory Reserve Fund. The Bank’s stated capital increased to Rs.3,564.172 Mn (2011 - 2,743.78 Mn. & 2010 - 1,786.25 Mn.) during the year due to scrip Dividend being declared to the shareholders & ESOP 2010.
Bank Group
December 31, December 31, December 31, December 31, 2012 2011 2012 2011 Rs’000 Rs’000 Rs’000 Rs’000
34.1.2 Risk Reserve fund Balance as at 1st January 35,706 31,730 35,706 31,730
Adjustment 473 (169) 473 (169) Transfer to reserve fund 73,302 4,144 73,302 4,144 Balance as at 31st December 109,480 35,706 109,480 35,706
In terms of section 12 of the Regulations issued by the Minister of Finance under the Registered Stocks and Securities Ordinance and the Local Treasury Bills Ordinance, a sum equivalent to 25% of the profit after tax of the Primary Dealer Unit was transferred to a special risk reserve as per direction issued by the Central Bank.
360 Annual Report 2012 34 Reserves 34.2 Revaluation Reserve
Bank Group
December 31, December 31, December 31, December 31, 2012 2011 2012 2011 Rs’000 Rs’000 Rs’000 Rs’000
Balance as at 1st January 1,459,349 1,519,041 2,878,825 2,938,518 Additions - - - - Disposals (2,640) (59,693) (2,640) (59,693) Deferred tax liability attributable to revaluation surplus - - - - Balance as at 31st December 1,456,708 1,459,349 2,876,185 2,878,825
Revaluation reserve relates to the revaluation of property & equipment as described in Note No. 23.2
34.3 Available-For-Sale reserve
Bank Group
December 31, December 31, December 31, December 31, 2012 2011 2012 2011 Rs’000 Rs’000 Rs’000 Rs’000
Balance as at 1st January 1,797,778 5,223,829 1,797,778 5,223,829 Net loss on available-for-sale financial assets (348,817) (3,426,050) (348,817) (3,426,050) Exchange differences on translation of available- for-sale financial assets recorded in foreign currency 16,061 - 16,061 - Income tax (charge)/credit relating to components of other comprehensive income - - - - Balance as at 31st December 1,465,022 1,797,778 1,465,022 1,797,778
Sampath Bank PLC 361 NOTES TO THE FINANCIAL STATEMENTS
34 Reserves Contd. 34.4 Revenue reserves 34.4.1 Bank & Group - January 1, 2011 to December 31, 2011
Bank Subsidiary Subsidiary Group Investment Total Investment Retained Total General Fund Retained Revenue Fund Profits Revenue Reserve Account Profits Reserves Account Reserves Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Revenue reserves Balance as at 1st January 10,058,522 - 1,756,429 11,814,951 - 133,994 11,948,945
Adjustments (507) - - (507) - - (507) Net profit for the year - - 3,387,209 3,387,209 - 318,223 3,705,431 Appropriations Final scrip dividend paid - 2010 (Note No. 9) - - (1,008,533) (1,008,533) - - (1,008,533) Non controlling Income (Note No. 35) - - - - - (22,150) (22,150) Surplus/(Reversal) on revaluation of property - - 59,693 59,693 - - 59,693 Recognition of bargaining purchase on acquisition of non controlling interest - - - - - 50,487 50,487 Transfer to statutory reserve fund (Note No.34.1.1) - - (190,971) (190,971) - (9,620) (200,591) Transfer to risk reserve fund (Note No. 34.1.2) - - (4,144) (4,144) - - (4,144) Transfer to general reserve 1,678,299 - (1,678,299) - - - - Transfer to investment fund account - 590,812 (590,812) - 12,841 (12,841) - Balance as at 31st December 11,736,313 590,812 1,730,572 14,057,697 12,841 458,092 14,528,631
362 Annual Report 2012 34 Reserves Contd. 34.4.2 Bank & Group - January 1, 2012 to December 31, 2012
Bank Subsidiary Subsidiary Group Investment Total Investment Retained Total General Fund Retained Revenue Fund Profits Revenue Reserve Account Profits Reserves Account Reserves Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Revenue reserves Balance as at 1st January 11,736,313 590,812 1,730,572 14,057,697 12,841 458,092 14,528,631
Adjustments (473) - 3,659 3,186 - - 3,186 Net profit for the year - - 5,136,424 5,136,424 - 209,540 5,345,966 Appropriations Final cash dividend paid - 2011 (Note No. 9) - - (713,479) (713,479) - - (713,479) Final scrip dividend Paid - 2011 (Note No.9) - - (713,505) (713,505) - - (713,505) Non controlling intrest (Note No. 35) - - - - - (3,342) (3,342) Surplus/(reversal) on revaluation of property - - 2,640 2,640 - - 2,640 Transfer to statutory reserve fund (Note No.34.1.1) - - (256,821) (256,821) - (9,997) (266,818) Transfer to risk reserve fund (Note No. 34.1.2) - - (73,302) (73,302) - - (73,302) Transfer to general reserve 2,160,000 - (2,160,000) - - - - Transfer to investment fund account - 939,955 (939,955) - 17,163 (17,163) - Balance as at 31st December 13,895,840 1,530,768 2,016,232 17,442,841 30,004 637,131 18,109,976
34.4.3 Investment Fund Account As proposed in the Budget 2011, as and when taxes are paid after 1 January 2011, licensed banks shall make transfers to the Investment Fund Account to build up a permanent fund with in the bank as follows. i) 8% of the profits calculated for the payment of Value Added tax (VAT) on financial services on dates as specified in the VAT Act for payment of VAT. ii) 5% of the profit before tax calculated for payment of income tax purposes on dates specified in section 113 of the Inland Revenue Act for the self assessment payment of tax.
December 31 2012 December 31 2011 Bank Subsidiary Group Bank Subsidiary Group Total Investment Total Total Investment Total Amount Fund Amount Amount Fund Amount Account Account Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Utilization of Investment Fund Account (IFA) Balance available for utilization 1,530,768 30,004 1,560,772 590,812 12,841 603,653 Loans granted (Capital outstanding) (1,355,696) (23,334) (1,379,030) (476,513) (7,790) (484,303) Total investments in Government Securities (Note No. 34.4.3) (175,072) (5,121) (180,193) (113,390) (4,011) (117,401) Balance available for utilization as at 31st December - 1,549 1,549 909 1,040 1,949
Sampath Bank PLC 363 NOTES TO THE FINANCIAL STATEMENTS
34 Reserves Contd. 34.4 Revenue reserves Contd. 34.4.3 Investment Fund Account
Interest Tenure Number of December Interest Number of Tenure Subsidiary Number of December rates Years Loans 31, 2012 rates Loans Years Amount Loans 31, 2012 % Granted Bank % Granted Outstanding Granted Group Total Total Amount Amount Outstanding Outstanding Rs’000 Rs’000 Rs’000
Total loans granted Sector (a) Cultivation of agriculture / plantation crops 14 - 14.45 5 - 6 6 68,853 11.55 - 17.22 9 5 23,334 15 92,187 (b) Factory/mills modernisation 14 - 14.45 5 - 7 62 441,175 - - - - 62 441,175 (c) Small and medium enterprises 14 - 14.45 5 - 7 73 455,128 - - - - 73 455,128 (d) Information technology and BPO 14 - 14.45 5 1 725 - - - - 1 725 (e) Infrastructure development 14 - 14.45 5 - 8 10 126,344 - - - - 10 126,344 (f) Education 14 - 14.45 5 - 7 2 42,000 - - - - 2 42,000 (g) Housing ------(h) Construction of hotels and related purposes 14 - 14.45 5 - 7 23 221,471 - - - - 23 221,471 (i) Restructuring of loans extended for above purposes ------177 1,355,696 23,334 186 1,379,030
Face Year of Cost of December 31, Year of Cost of Subsidiaries December 31, Value Maturity Investment 2012 Maturity Investment Carrying 2012 Bank value / Group Carrying value / Amortised Carrying value / Amortised cost Amortised cost cost Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Investments in government securities (a) Treasury bonds over 5 years - - - - - (b) Treasury bills 180,000 2013 175,072 179,106 2013 5,121 5,341 180,193
The carrying value of the Treasury bills invested using IFA balance was classified as Available - for-sale asset
35 Non controlling interest
Group
December 31, December 31, 2012 2011
Balance as at 1st January 59,904 152,025 Profit/(loss) applicable for the year 3,342 22,150 Add :- Revaluation surplus - - Less :- Dividend paid (2,002) (490) Change in holding of share - (113,782) Balance as at 31st December 61,243 59,904
364 Annual Report 2012 36 Commitments and contingencies To meet the financial needs of customers in the ordinary course of the business, the Bank enters into various irrevocable commitments and contingent liabilities. These consist of financial guarantees, letters of credit and other undrawn commitments to lend.
Even though these obligations may not be recognized on the Statement of Financial Position, they do contain credit risk and are therefore part of the overall risk of the Bank (Note 36.1)
Letters of credit and guarantees (including standby letters of credit) commit the bank to make payments on behalf of customers in the event of a specific act, generally related to the import or export of goods. Guarantees and standby letters of credit carry a similar credit risk to loans.
No material losses are anticipated as a result of these transactions.
36.1 Commitments
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Commitment for unutilised facilities (direct advances) 27,340,066 25,295,333 22,968,058 27,543,721 25,295,333 22,968,058 27,340,066 25,295,333 22,968,058 27,543,721 25,295,333 22,968,058
36.2 Contingent liabilities Acceptances 6,308,188 5,126,187 3,133,328 6,308,188, 5,126,187 3,133,328 Documentary credit 11,310,366 11,633,728 8,115,432 11,310,366 11,633,728 8,115,432 Guarantees 21,993,951 18,171,501 13,069,829 21,993,951 18,171,501 13,069,829 Bills sent for collection 129,388 70,410 154,878 129,388 70,410 154,878 Stock on travelers’ cheques 352,396 411,568 334,661 352,396 411,568 334,661 40,094,289 35,413,394 24,808,129 40,094,289 35,413,394 24,808,129 Forward exchange contracts 28,684,448 60,238,075 20,851,936 28,684,448 60,238,075 20,851,936 Currency Swaps 19,806,940 - - 19,806,940 - - 88,585,677 95,651,469 45,660,065 88,585,677 95,651,469 45,660,065
Commitment and contingencies 115,925,743 120,946,802 68,628,122 116,129,398 120,946,802 68,628,122
36.3 Contingent liabilities Litigation against the Bank Litigation is a common occurrence in the banking industry due to the nature of the business undertaken. The Bank has formal controls and policies for managing legal claims. Once professional advice has been obtained and the amount of loss reasonably estimated, the Bank makes adjustments to account for any adverse effects which the claims may have on its financial standing. At the year end, the Bank had several unresolved legal claims.
I. Before the Labour Tribunal : (a) Three LT applications are pending in Case No. LT1/ADD/20/2012, LT application now in High Court case No. HC ALT 14/2012, and LT application No. 1/31/2008 now pending in High Court Case No. LT (HC) 131/2008.
Il. Commercial High Court Case No. 11/2004 (1)/HC(civil) The above case has been filed against the bank in the Commercial High Court by Claremont Capital Limited (a company incorporated in the British Virgin Islands) for the recovery of a sum of Rs 272,232,259.16 on the allegation that the Bank had wrongfully debited the said amount from the bank account of Claremont Capital Limited. The said party has also claimed a sum of Rs. 53,411,299.34 on account of the alleged loss suffered by them up to date of institution of the action and a sum of Rs.4,906,796.63 per month as alleged continuing losses.
The Judgement was delivered in favour of Sampath Bank on 20 January 2011 dismissing the Plaint of the Plaintiff with costs. Claremont Capital subsequently filed a notice of Appeal, and despite the motion filed by the Bank objecting for same on various grounds, the Appeal was allowed . The same is yet to be listed.
Sampath Bank PLC 365 NOTES TO THE FINANCIAL STATEMENTS
36 Commitments and contingencies Contd. lll. Following cases are filed against the Bank in order to recover damages (a) Case No - DMR 5787/10 The plaintiff has instituted action against the Bank claiming a sum of Rs. 210,000/- for auctioning pawned articles by the Bank. Also the Plaintiff is seeking Legal interest from June 2010 until the payment of damages, legal interest from the date of Judgement until the payment of total amount.
(b) Case No -250/12/DSP The Plaintiff has filed this action against the Bank claiming Rs. 1.0 Mn on the basis that he has tendered Omanian Rial 400/- for encashment. The relevant amount has been credited to his account. Subsequently the Bank realized the said currencies are not actual Omanian Rial but they are Omanina Baisa, where the value is very much lower than Omanian Rial. Accordingly Bank has reversed the said amount and credited only the value of the Baisa’s tendered by the customer. Bank has filed necessary papers to defend the case and it is hopeful that the Bank will succeed in this case since Bank has the currencies tendered by the customer for the encashment.
(c ) Case No -DMR 1904/2012 The Plaintiff has allegedly instituted this action against the bank claiming a sum of Rs. 2,500,000/- as damages on the basis that the Bank has illegally handed over the Certificate of Registration pertaining to the Vehicle leased under the Lease Agreement No.L/0/16/SBL/Kuli, to the spouse and the consent letter given by the spouse is challenging in Courts.
(d) Case No -7058/DMR The Plaintiff has allegedly instituted this action against the bank claiming a sum of Rs. 20,000,000/- on the basis that the Bank has increased the rate of interest in respect of the Housing Loan obtained by him and he suffered damages as a result of that. However the Letter of Offer confirms that the Bank has the right to increase the rate of interest.
(e) Case No -CHC 320/2011 Plaintiff has instituted legal action against the bank (1st Defendant of the case) in order to obtain an order from the Commercial High Court of Western Province for the cancellation of resale of the property described in the plaint.
(f) Case No -58032/MR The Plaintiff has filed this action against the Bank as well as the CRIB, claiming Rs. 100,000,000/- as damages, on the basis that his Company namely Jagath Robotics (Pvt) Ltd has been reported to the CRIB, under an irrelevant reference. Further plaintiff is claiming that it is due to our negligence. Bank is defending the above action and chances for the Plaintiff to succeed in this case are very remote.
(g) Case No -11938/M - Embilipitiya. Paintiff has instituted this action against the Bank claiming damages of Rs. 1,000,000/- for the payment of Rs. 100,000/- from a Savings Account, to a person who has forged the Plaintiff’s signature.
Iv. To prevent the Bank from enforcing the mortgages to recover its dues: (a) Nine actions have been filed in Supreme Court in Case Nos. SC/CHC 43/10, SC 19/10, SC 57/12, SC 94/12, SC 11/09, SC 196/11, SC 5/10, SC 14/11 & 24/2008SC.
(b) Four actions have been filed in Court of Appeal in Case Nos. CA/REV/690/2005, CALA/320/2001, CALA/48/2006 & CA/12/97(CA)
(c ) Eight actions have been filed in Civil Appeal in Case Nos. 53/11 CALA, 106/11 CALA, 172/12 LA, 43/2012 Rev, 12/06 (F), 218/05 (F), 20/04 (F) & 153/08(F)
(d) Five cases have been filed against the Bank in the Commercial High Court Case Nos. HC/CIVIL/124/2009, 463/11 MR, 225/12 MR, 41/12 MR & 11/12 MR
(e) Fourteen actions have been filed in District Court , Colombo by constituents in Case Nos. 21508/L, 101/11 DLM, 112/11 DSP, 231/09 DSP, 03/10DLM, 270/10 DSP, 89/11 DSP, 102/11 DSP, 39/12 DSP, 173/2012 DSP, 253/12 DSP, 05/10 DLM, 298/12/SPL & 212/12/DLM
(f) Three in DC Marawila in Case Nos. 1613/L, 1070/S,1747/L, one in DC Kurunegala in Case Nos. 7587/L, Two in DC Kandy in Case Nos. 228/10 DPA, 36599/MR, Two in DC Monaragala in Case Nos. 1655/SPL, 1691/SPL, one in DC Minuwangoda in Case No. 12/SPL, one in DC Chilaw in Case No. 4127/11/L, one in DC Kalutara in Case Nos. 4369/SPL, Two in DC Rathnapura in Case Nos. 26242/P,24208/P, Two in DC Avissawella in Case Nos. 26350/L, 25293/L, Two in DC Matale in Case Nos. 6257/L, 6048/L, one in DC Galle in Case No. 16381/L, Four in DC Gampaha in Case Nos. 1885/L, 127 MB, 4392/12/M, 2313/L, one in DC Batticaloa in Case No. 5487/L/11, one in DC Elpitiya in Case No. 298/12/SPL, one in DC Bandarawela in Case No. 302/SPL, one in DC Mt. Lavinia in Case No. 7171/12/M, one in DC Polonnaruwa in Case No. 14916/12/SPL & one in DC Moratuwa in Case No. 259/12/DSP.
366 Annual Report 2012 36 Commitments and contingencies Contd. 36.4 Capital expenditure approved by the Board of Directors, for which provisions have not been made in these accounts, amounted to approximately;
Bank Group
December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000
Approved and contracted for 156,210 254,682 166,338 156,210 254,682 166,338 Approved but not contracted for 66,080 202,035 271,509 66,080 202,035 271,509 222,290 456,717 437,847 222,290 456,717 437,847
37 Related party disclosures The bank Carries out transactions in the ordinary course of business on an arm’s length basis at commercial rates with the parties who are defined as Lanka accounting standard No.24 Related party Disclosure , Except for the transactions that key management personal (KMPs) have availed under schemes uniformly applicable to all the staff at concessionary rate.
37.1 Parent and Ultimate Controlling Party The bank does not have an identifiable parent of its own.
37.2 Transactions with key Management Personal (KMPs) Related party includes KMPs defined as those persons having authority and responsibility for planning directing and controlling the activities for the Bank and its subsidiaries. Such KPMs include the board of directors of the bank (include executive and non executive directors ), Key employee who are holding directorship in subsidiary companies of the bank,executives who directly report to Board sub committees and other key executives who meet the criteria described above
37.2.1 Transactions with KMPs
2012 2011 Rs.’000 Rs.’000 Short term Employee benefits 95,431 22,076 Termination benefits 22,006 - Post- employee benefits 11,822 24,884 Directors Fees & Expenses 37,985 14,585 Total 167,244 61,545
In addition to the above, the bank has also paid non cash benefits such as vehicles and fuel to key management personnel in line with the approved benefit plan of the bank.
In the year 2012, in addition to the board of directors of the bank, All the members of the staff in the grade of Deputy General Manager and above of the bank and all the members of the Senior and the Corporate Management who report direct to the Board of Directors or to board Sub Committees were included to the key Management Personnel. However 2011 Bank only included the Board of Directors as Key Management Personnel and hence the comparatives does not carried their figures.
37.2.2 Vehicles Transferred During the year following vehicles which were used by Key Management personnel were transferred to them.
Cost of vehicles Net Book Value Market value as at Transferred value purchased transferred date
Rs’000 Rs’000 Rs’000 Rs’000 10,485 - 9,100 2,357
Sampath Bank PLC 367 NOTES TO THE FINANCIAL STATEMENTS
37.3 Transactions, Arrangements and Agreements involving KMPs, their Close Family Members (CFMs) CFMs of a KMPs are those family members who may be expected to influence,or be influenced by, that KMP in their dealing with the entity. They may include KMPs domestic partner and children, children of the KMPs domestic partner and dependents of the KMP or the KMPs domestic partner.
37 Related party disclosures 37.3.1 Loans & receivables to key managerial personnel and their close family members are detailed below.
December 31, December 31, 2012 2011 Limit Balances Limit Balances as at as at Rs’000 Rs’000 Rs’000 Rs’000
Loans & receivables 60,044 46,107 4,023 338
37.3.2 Credit card facilities to key managerial personnel and their close family members are detailed below.
December 31, December 31, 2012 2011 Limit Balances Limit Balances as at as at Rs’000 Rs’000 Rs’000 Rs’000
Credit Card 13,775 2,553 8,375 808
37.3.3 Deposits and investments from key managerial personnel and their close family members are detailed below.
December 31 2012 December 31, 2011 Rs’000 Rs’000
Deposits and Investments 252,710 194,708
37.3.4 Share Based payments to KMPs
December 31 2012 December 31, 2011 Rs’000 Rs’000
Share Based payments 9,624 -
37.4 Transactions, Arrangements, and Agreements involving Entities which are controlled, and /or jointly controlled by the KMPs or their CFMs
December 31 2012 December 31, 2011 Rs’000 Rs’000
Loans & receivables 1,331,610 1,119,592 Documentary Credits 453,720 236,883 Bills of acceptance 447,730 121,760 Guarantees 25,500 34,390 Commercial Papers 451,000 - Total 2,709,560 1,512,625
368 Annual Report 2012 37.4.1 Goods and Service purchased During the Year, the Bank purchased the goods and service from the entities where key managerial personnel have either control and/or jointly control.
December 31 2012 December 31 2011 Rs’000 Rs’000
Goods and Service purchased 32,301 26,200
37 Related party disclosures Contd. 37.5 Transactions with subsidiaries The Bank had the following financial dealings during the year with related parties.
December 31, December 31, 2012 2011 Nature of Balance Balance Facility / Outstanding Outstanding Subsidiary company Transaction Rs’000 Rs’000
Sampath Centre Ltd. Deposits 132,910 81,372 Loans & receivables 1,043 - Income & fees received 61,200 2,768 Expenses & fees paid 228,031 217,632 Other assets 62,754 64,824 Other liabilities 5,964 4,893
S C Securities (Pvt) Ltd. Loans & receivables 47,675 35,062 Off - balance sheet accommodations 1,750 1,750 Deposits 17 16 Repo Borrowings 9,765 9,122 Income & fees received 15,918 13,202 Expenses & fees paid 325 2,368
Sampath Leasing & Factoring Ltd. Loans & receivables 993,633 1,509,991 Income & fees received 216,539 109,356 Expenses & fees paid 20,562 - Other Liabilities 92,588 - Commercial Papers 291,283 -
Sampath Information Technology Solutions Ltd. Loans & receivables 65,978 7,639 Expenses & fees received 6,358 1,440 Expenses & fees paid 55,827 27,491 Other Liabilities 6,758 2,226
37.6 Transactions with post employment benefits of the Bank
December 31, December 31, Nature of Transaction 2012 2011 Rs’000 Rs’000
Sampath Bank Employees Provident Fund Treasury Bills - 197,391 Reverse Repo - 37,555 Deposits 5,111,488 2,703,559 Debentures 147,750 72,035 Investment in Sampath Bank Shares - Market Value - 1,524,179
Sampath Bank Employees Pension Fund Deposits 1,739,604 1,265,244 Treasury Bills 518,768 967,811 Reverse Repo 1,136,000 657,000 Debentures 21,282 - Investment in Sampath Bank Shares - Market Value 532,326 505,974
Sampath Bank PLC 369 NOTES TO THE FINANCIAL STATEMENTS
38 Segment information For management purposes, the group is organised into four operating segments based on services offered to customers as follows . The following table presents income and profit and certain asset and liability information regarding the bank’s operating segments.
Banking Leasing Dealing / Investment 2012 2011 2012 2011 2012 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Interest 31,111,476 20,510,128 - - 1,164 1,493 Leasing - - 1,804,029 1,156,417 - - Dividend 156,276 44,039 - - - - Commissions 2,803,755 2,648,034 39,695 23,570 33,274 124,354 Exchange 2,153,812 837,369 - - - - Others 1,797,750 2,936,679 38,826 29,929 162 2,347 Total revenue from external customers 38,023,069 26,976,249 1,882,550 1,209,916 34,600 128,195 Inter segment revenue (125,204) (96,139) 125,204 96,139 Total revenue 37,897,865 26,880,110 1,882,550 1,209,916 159,803 224,334
Segment result 8,345,195 5,869,937 323,634 285,673 (37,669) 39,638 Finance VAT ------Profit from operations Income tax expense Profit for the year ------Minority Interest Profit attributable to equity holders ------
Segment assets 303,133,242 242,609,688 11,358,580 8,599,434 289,527 325,573 Unallocated assets Total assets 303,133,242 242,609,688 11,358,580 8,599,434 289,527 325,573
Segment liabilities 278,032,394 221,709,572 10,482,057 7,903,192 87,713 103,658 Unallocated liabilities Total liabilities 278,032,394 221,709,572 10,482,057 7,903,192 87,713 103,658
Cash flows from operating activities 6,682,081 (1,813,727) (1,430,975) (2,181,022) (11,870) (58,573) Cash flows from investing activities (11,909,428) 368,080 (97,411) (8,399) (630) (8,132) Cash flows from financing activities 8,374,111 11,471,637 1,470,633 2,249,995 - - Capital expenditure 864,198 889,596 12,052 11,519 630 10,322
370 Annual Report 2012 Other Eliminations Total 2012 2011 2012 2011 2012 2011 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Interest 6,773 3,615 (211,423) (106,330) 30,907,990 20,408,906 Leasing - - - - 1,804,029 1,156,417 Dividend - - (79,155) (15,102) 77,121 28,937 Commissions - - - - 2,876,724 2,795,959 Exchange - - - - 2,153,812 837,369 Others 244,158 236,401 (175,474) (165,189) 1,905,422 3,040,166 Total revenue from external customers 250,931 240,016 (466,052) (286,621) 39,725,096 28,267,755 Inter segment revenue ------Total revenue 250,931 240,016 (466,052) (286,621) 39,725,096 28,267,755
Segment result 126,077 114,762 (87,950) (16,780) 8,678,287 6,293,230 Finance VAT - - - - (1,160,808) (917,691) Profit from operations ------Income tax expense - - - - (2,171,514) (1,670,106) Profit for the year - - - - 5,345,964 3,705,433 Minority Interest - - - - (3,342) (22,150) Profit attributable to equity holders - - - - 5,342,623 3,683,282
Segment assets 2,317,462 2,203,532 (2,772,810) (2,743,508) 314,326,004 250,994,723 Unallocated assets Total assets 2,317,462 2,203,532 (2,772,810) (2,743,508) 314,326,004 250,994,723
Segment liabilities 161,297 99,731 (1,712,889) (1,688,588) 287,050,577 228,127,566 Unallocated liabilities Total liabilities 161,297 99,731 (1,712,889) (1,688,588) 287,050,577 228,127,566 Cash flows from operating activities 140,911 137,264 (225,027) 920,954 5,155,120 (2,995,105) Cash flows from investing activities (83,746) (32,466) 10,434 42,852 (12,080,781) 361,955 Cash flows from financing activities (10,042) (91,289) 237,549 (961,401) 10,072,251 12,668,942 Capital expenditure 83,746 32,446 718 835,309 961,345 943,326
Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss which in certain respects is measured differently from operating profit or loss in the consolidated financial statements. Income taxes are managed on a group basis and are not allocated to operating segments.
Interest income is reported net as management primarily relies on net interest revenue as a performance measure, not the gross income and expense.
Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.
No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the bank’s total revenue in 2012 , 2011 or 2010.
Sampath Bank PLC 371 NOTES TO THE FINANCIAL STATEMENTS
39 Trust activities Employees’ share trust loan The Sampath Bank employees’ Share Trusts namely, Sampath Trust, Sampath Team Trust & Sampath Middle Management Trust were set up by the directors of the Bank. This was in line with the Articles of the Bank which empowers the directors to create an ESOP and 6,536,800 shares were purchased for this purpose, to be allocated to employees. Payment for the shares being made by the trustees from the proceeds of loans ( Interest rate at 5 % ) granted by the Bank.
Sampath Trust Sampath Team Trust Sampath Middle Management Trust Trustees SSP Corporate Services (Pvt) Ltd Varners International (Pvt) Ltd Corporate Services Ltd
December 31, December 31, January 1, December 31, December 31, January 1, December 31, December 31, January 1, 2012 2011 2011 2012 2011 2011 2012 2011 2011 (Rs ‘000) Loan amount - - 173,620 - - 169,689 - - 175,119 Balance at beginning of the year - - 93,059 - - 100,304 - - 106,796 Additions - - 2,220 - - 840 - - 671 Repayments during the year - - (95,279) - - (101,144) - - (107,467) Balance at end of the year ------Number of shares (‘000) 5,336 5,215 5,721 5,725 5,595 5,469 5,989 5,853 5,097 Market price as at 31st December (Rs.) 200.50 195.00 271.90 200.50 195.00 271.90 200.50 195.00 271.90 Market value of the shares held (Rs.’000) 1,069,805 1,016,844 1,555,540 1,147,866 1,091,041 1,487,021 1,200,825 1,141,378 1,385,874
Under the restructuring of ESOP 2000, part of the shares held by the ESOP was sold and the loans were settled with the proceeds. The remaining shares were reallocated to the eligible staff. Further, rules were amended to transfer the absolute ownership of shares to the staff at the point of leaving
40 Events After the Reporting Period No circumstances have arisen since the reporting date which would require adjustments to, or disclosure in the financial statements, other than the following.
Final dividend of Rs.12.00 per share , less 10.0% withholding tax will be paid, if the proposal is approved by the shareholders at the annual general meeting to be held on April 04, 2013. This will be paid by 50% in the form of cash dividend and balance 50% in the form of scrip dividend which will be declared at the annual general meeting.
However, in accordance with LKAS 10 on Events after the reporting period, proposed final Dividend have not been recognised as a liability as at 31st December 2012. As required by section 56(2) of the Companies Act No. 7 of 2007, the Board of Directors has confirmed that the Bank has satisfied the ‘Solvency Test’ in accordance with section 57 of the Companies Act No. 7 of 2007, having obtained a certificate from the auditors, prior to recommending the final dividend for the year.
41 Fair value of Financial Instruments Financial instruments recorded at fair value The following is a description of how fair values are determined for financial instruments that are recorded at fair value using valuation techniques. These incorporate the bank’s estimate of assumptions that a market participant would make when valuing the instruments.
Derivatives - assets and liabilities Derivative products are foreign exchange contract swaps and forward foreign exchange contracts, valued using a valuation technique with market-observable inputs . The most frequently applied valuation techniques include forward foreign exchange spot and forward premiums.
Financial investments – Available- For- Sale Available - for - sale financial assets, primarily consist of quoted equities and Government debt securities are valued using valuation techniques or pricing models. These assets are valued using models that use observable data. Government debt securities are valued using yield curves published by the Central Bank of Sri Lanka and quoted equities are valued using quoted market prices in the active markets as at the reporting date.
Trading assets and other assets measured at fair value Trading assets and other assets measured at fair value are the government debt securities ,asset–backed securities and quoted equities. Government debt securities and asset-back securities are valued using yield curves published by the Central Bank of Sri Lanka . For quoted equities bank uses quoted market price in active markets as at the reporting date.
372 Annual Report 2012 41 Fair value of Financial Instruments Contd. Determination of fair value and fair value hierarchy For all financial instruments where fair values are determined by referring to externally quoted prices or observable pricing inputs to models, independent price determination or validation is obtained. In an inactive market, direct observation of a traded price may not be possible. In these circumstances, the Bank uses alternative market information to validate the financial instrument’s fair value, with greater weight given to information that is considered to be more relevant and reliable.
Fair values are determined according to the following hierarchy:
Level 1 – quoted market price (unadjusted): financial instruments with quoted prices in active markets.
Level 2 – valuation technique using observable inputs: financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments are valued using models where all significant inputs are observable.
Level 3 – valuation technique with significant unobservable inputs: financial instruments are valued using valuation techniques where one or more significant inputs are unobservable.
The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy:
December 31, 2012 Bank Group
Rs’000 Rs’000
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Financial assets Derivative financial instruments Foreign exchange contracts swaps - 227,812 - 227,812 - 227,812 - 227,812 Forward foreign exchange contracts - 51,210 - 51,210 - 51,210 - 51,210 - 279,022 - 279,022 - 279,022 - 279,022
Financial assets held for trading Government debt securities 34,182,709 - - 34,182,709 34,182,709 - - 34,182,709 Quoted equities 998,375 - - 998,375 998,375 - - 998,375 Financial assets held-for-trading pledged as collaterals 2,856,321 - - 2,856,321 2,856,321 - - 2,856,321 38,037,405 - - 38,037,405 38,037,405 - - 38,037,405
Financial investments available for sale Quoted investments 1,721,339 - - 1,721,339 1,721,339 - - 1,721,339 Government debt securities 179,175 - - 179,175 179,175 - - 179,175 1,900,515 - - 1,900,515 1,900,515 - - 1,900,515 39,937,920 279,022 - 40,216,941 39,937,920 279,022 - 40,216,941
Financial liabilities Derivative financial instruments Foreign exchange contracts swaps - 316,301 - 316,301 - 316,301 - 316,301 Forward foreign exchange contracts - 65,537 - 65,537 - 65,537 - 65,537 - 381,838 - 381,838 - 381,838 - 381,838
Sampath Bank PLC 373 NOTES TO THE FINANCIAL STATEMENTS
41 Fair value of Financial Instruments Contd.
December 31, 2012 Bank Group
Rs’000 Rs’000
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Financial assets Derivative financial instruments Forward foreign exchange contracts 203,732 203,732 203,732 203,732 - 203,732 - 203,732 - 203,732 - 203,732
Financial assets held for trading Government debt securities 21,769,607 - - 21,769,607 21,769,607 - - 21,769,607 Quoted equities 1,283,380 - - 1,283,380 1,283,380 - - 1,283,380 Financial assets held-for-trading pledged as collaterals 4,002,777 - - 4,002,777 4,002,777 - - 4,002,777 27,055,764 - - 27,055,764 27,055,764 - - 27,055,764
Financial investments available for sale Quoted investments 1,890,301 - - 1,890,301 1,890,301 - - 1,890,301 Government debt securities 111,830 - - 111,830 111,830 - - 111,830 2,002,131 - - 2,002,131 2,002,131 - - 2,002,131 29,057,895 203,732 - 29,261,626 29,057,895 203,732 - 29,261,626
Financial liabilities Derivative financial instruments Forward foreign exchange contracts - 310,966 - 310,966 - 310,966 - 310,966 - 310,966 - 310,966 - 310,966 - 310,966
There were no transfers between Level 1 and Level 2 during 2011 & 2012.
Set out below is a comparison of the carrying amounts and fair values of the bank’s financial instruments by classes, that are not carried at fair value in the financial statements. This table does not include the fair values of non–financial assets and non–financial liabilities.
December 31, 2012 Bank Group Carrying Fair Carrying Fair Amount value Amount value Rs’000 Rs’000 Rs’000 Rs’000 Financial assets Cash and cash equivalents 10,432,135 10,432,135 10,442,259 10,442,259 Balances with Central Bank of Sri Lanka 17,200,792 17,200,792 17,200,792 17,200,792 Placements with Banks 8,788,127 8,788,127 8,788,127 8,788,127 Reverse repurchase agreements 3,300,817 3,300,817 3,300,373 3,300,373 Loans and receivables from banks 816,119 816,119 816,119 816,119 Loans and receivables from other customers 208,184,369 207,886,978 212,480,040 211,958,144 Other loans & receivables 10,515,756 10,515,756 10,224,474 10,224,474 Financial investments- held - to- maturity - - 9,765 9,765 Other assets 1,399,091 1,399,091 1,858,276 1,858,276 260,637,206 260,339,815 265,120,224 264,598,329
Financial Liabilities Due to banks 624,784 624,784 668,198 668,198 Securities sold under re-purchase agreements 2,757,119 2,757,119 2,751,334 2,751,334 Due to other customers 243,330,990 242,738,246 243,088,234 242,495,493 Debt issued and other borrowed funds 28,825,029 28,825,029 32,218,014 32,218,014 Unclaimed Dividend 49,185 49,185 49,185 49,185 Other liabilities 71,448 71,448 71,448 71,448 275,658,555 275,065,811 278,846,413 278,253,672
374 Annual Report 2012 41 Fair value of Financial Instruments Contd.
December 31, 2011 Bank Group Carrying Fair Carrying Fair Amount value Amount value Rs’000 Rs’000 Rs’000 Rs’000 Financial assets Cash and cash equivalents 10,736,413 10,736,413 10,746,713 10,746,713 Balances with Central Bank of Sri Lanka 13,232,130 13,232,130 13,232,130 13,232,130 Due from Banks 5,337,084 5,337,084 5,337,084 5,337,084 Reverse repurchase agreements 4,601,965 4,601,965 4,606,010 4,606,010 Loans and receivables from banks 441,938 441,938 441,938 441,938 Loans and receivables to other customers 169,681,372 169,534,164 171,976,936 171,783,274 Other loans & receivables 5,736,278 5,736,278 5,736,278 5,736,278 Financial investments- held - to- maturity 10,289 10,289 19,411 19,411 Other assets 1,038,607 1,038,607 1,512,048 1,512,048 210,816,076 210,668,868 213,608,548 213,414,886
Financial Liabilities Due to banks 1,175,672 1,175,672 1,175,672 1,175,672 Securities sold under re-purchase agreements 4,100,862 4,100,862 4,100,862 4,100,862 Due to other customers 195,195,074 193,690,687 195,094,358 193,589,971 Debt issued and other borrowed funds 19,754,221 19,754,221 21,490,478 21,490,478 Unclaimed Dividend 37,173 37,173 37,173 37,173 Other liabilities 78,214 78,214 78,214 78,214 220,341,216 218,836,829 221,976,757 220,472,370
Fair value of financial assets and liabilities not carried at fair value The following describes the methodologies and assumptions used to determine fair values for those financial instruments which are not already recorded at fair value in the financial statements:
Assets for which fair value approximates carrying value For financial assets and financial liabilities that have a short term maturity it is assumed that the carrying amounts approximate their fair value. This assumption is also applied to demand deposits, and savings accounts which do not have a specific maturity.
Fixed rate financial instruments The fair value of fixed rate financial assets and liabilities carried at amortised cost are estimated by comparing market interest rates when they were first recognised with current market rates for similar financial instruments. The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing money–market interest rates for debts with similar credit risk and maturity. For quoted debt issued the fair values are determined based on quoted market prices. For notes issued where quoted market prices are not available, a discounted cash flow model is used based on a current interest rate yield curve appropriate for the remaining term to maturity and credit spreads. For other variable rate instruments, an adjustment is also made to reflect the change in required credit spread since the instrument was first recognised.
Reclassification of financial assets There have been no reclassifications during 2011 & 2012.
42 Risk Management 42.1 Introduction Risk is inherent in the Bank’s activities but is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Bank’s continuing profitability and each individual within the Bank is accountable for the risk exposures relating to his or her responsibilities. The Bank is mainly exposed to;
Credit Risk Liquidity risk Market risk Operational risk
Sampath Bank PLC 375 NOTES TO THE FINANCIAL STATEMENTS
42 Risk Management Contd. Risk Management framework The Board of Directors has overall responsibility for the establishment and oversight of the Bank’s risk management framework. The Board has delegated its authority to Board Risk Management Committee(BRMC) which is responsible for developing and monitoring Bank’s risk management policies. The Committee comprises of executive and non-executive directors . Meetings of BRMC are held regularly, and the Board of Directors are duly updated of its activities.
In 2012, the Board instituted an additional committee (Treasury Committee) to increase the focus on Treasury-related operations and risks. The Committee comprises of executive and non-executive directors and concentrates mainly on liquidity management, Balance Sheet optimization and new products/services. The Treasury Committee’s deliberations are informed to the BRMC and the Board of Directors.
The Bank’s risk management policies are established to identify and analyse the risks faced by the Bank, to set appropriate risk limits and controls, and to monitor adherence to established limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Bank , through its training and management standards and procedures, continuously updates and maintains a disciplined and constructive control environment, in which all employees are assigned and made to understand their respective roles and responsibilities.
Integrated Risk Management Unit The Business units(i.e. Credit Departments, Branches & Regional Offices, Treasury etc.) have primary responsibility for Risk Management. The Integrated Risk Management Unit, which has no responsibility for profit or volume targets, acts as the 2nd line of defence and reports to the Group Chief Risk Officer (GCRO) who, in turn, directly reports to the Board Risk Management Committee (BRMC).
ALCO Committee ALCO is chaired by the Managing Director and has representatives from Treasury Department, Credit Departments, Finance Department, the Group Chief Financial Officer & the Group Chief Risk Officer. The Committee meets regularly to monitor and manage the assets & liabilities of the Bank and also overall liquidity position to keep the Bank’s liquidity at healthy levels, whilst satisfying regulatory requirements.
Risk Measurement & Reporting The Bank’s Risks are measured using appropriate techniques based on the type of risk, and industry best practices. The bank also carries out Stress Testing to identify the effect of extreme events/worst case scenarios in most of the major type of risks and the results are reported to Board Risk Management Committee on a periodic basis.
Monitoring and controlling risks is primarily performed based on policies, limits & thresholds established by the Bank. These limits reflect the business strategy and market environment of the Bank as well as the level of risk that the Bank is willing to accept (Risk Appetite).
Risk Mitigation As part of its overall risk management, the bank obtains various types of collaterals to mitigate the risk. Details such as nature of the collateral that could be accepted, required security margin etc are clearly defined in the Credit Policy of the Bank and any deviations require specific approval. However, respective approving authorities would take into account the availability of security only as the secondary source of repayment.
42.2 Credit risk Credit risk is the risk of financial loss to the Bank if a borrower or counterparty to a financial instrument, fails to meet its contractual obligations, and arises principally from the Bank’s loans and advances to customers/other banks and investments in debt securities. In addition to the credit risk from direct funding exposure, the bank would also be exposed to indirect liabilities such as Letters of Credit, guarantees etc, which would carry credit risk.
The Bank considers and consolidates all elements of credit risk exposure (such as individual obligor default risk, country and sector concentration risks) to ensure stringent Credit Risk Management.
42.2.1 Impairment assessment The methodology of the impairment assessment has explained in the Note no 3.5.9 under Accounting Policies.
Derivative financial instruments Credit risk arising from derivative financial instruments is, at any time, limited to those with positive fair values, as recorded on the Statement of Financial Position. With gross–settled derivatives, the Bank is also exposed to a settlement risk, being the risk that the Bank honors its obligation, but the counterparty fails to deliver the counter value
42.2.2 Credit–related commitments risks The Bank makes available to its customers guarantees that may require that the Bank makes payments on their behalf and enters into commitments to extend credit lines to secure their liquidity needs. Letters of credit and guarantees (including standby letters of credit) commit the Bank to make payments on behalf of customers in the event of a specific act, generally related to the import or export of goods. Such commitments expose the Bank to risks similar to loans and are mitigated by the same control processes and policies.
376 Annual Report 2012 42.2.3 Collateral and other credit enhancements The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are in place covering the acceptability and valuation of each type of collateral.
The main types of collateral obtained are, as follows: > For commercial lending, charges over real estate properties, inventory and trade receivables > For retail lending, mortgages over residential properties
The Bank also obtains guarantees from parent companies for loans to their subsidiaries. Management monitors the market value of collateral and will request additional collateral in accordance with the underlying agreement. It is the Bank’s policy to dispose of repossessed properties in an orderly fashion. The proceeds are used to reduce or repay the outstanding claim. In general, the Bank does not occupy repossessed properties for Business use.
42.2.4 Credit quality by class of financial assets The Bank manages the credit quality of financial assets using internal credit ratings. The table below shows the credit quality by class of asset for all financial assets exposed to credit risk, based on the Bank’s internal credit rating system. The amounts presented are gross of impairment allowances.
Definition of Past Due Bank consider that any amounts uncollected one day or more beyond their contractual due date are ‘past due’.
42.2.5 Credit Risk - Credit Quality by class of Financial Assets.
December 31, 2012 Bank Rs.’000 Neither past due nor impaired
High Standard Sub-standard Un Rated Past due but Individually grade grade grade not impaired impaired Total
Cash and cash equivalents 10,398,140 33,995 - - - - 10,432,135 Balances with Central Bank of Sri Lanka 17,200,792 - - - - - 17,200,792 Placements with Banks 7,624,375 1,163,751 - - - - 8,788,127 Reverse repurchase agreements 3,300,817 - - - - - 3,300,817 Derivative Financial Instruments 279,022 - - - - - 279,022 Financial assets held -for- trading 34,786,299 287,108 107,677 - - 35,181,084 Financial assets held-for-trading pledged as collaterals 2,856,321 - - - - - 2,856,321 Loans and receivables from banks - 826,674 - - 1,943 - 828,617 Loans and receivables from other customers 85,167,320 36,007,948 7,666,737 9,802,683 72,385,632 4,153,004 215,183,322 Other loans & advances 9,006,633 - - 1,509,123 - - 10,515,756
Financial investments available for sale - Quoted - Government debt securities 179,175 - - - - - 179,175 Quoted - Other equity securities - - 1,686,021 - - 1,686,021 Unquoted - equity securities - - 58,428 - - 58,428
Other assets - - - 1,399,091 - - 1,399,091 Total 170,798,894 38,319,476 7,666,737 14,563,022 72,387,575 4,153,004 307,888,707
Sampath Bank PLC 377 NOTES TO THE FINANCIAL STATEMENTS
42 Risk Management Contd. 42.2.6 Aging Analysis of past due(i.e. facilities in arrears of 1 day and above) but not impaired loans by class of Financial Assets
Bank Past due but not impaired
Less than 31 to 60 61 to 90 More than 30 days days days 91 days Total
Loans and receivables from banks 1,943 - - - 1,943 Loans and receivables from other customers 48,059,685 8,205,755 12,667,203 3,452,989 72,385,632 TOTAL 48,061,628 8,205,755 12,667,203 3,452,989 72,387,575
42.2.7 Credit Risk - Credit Quality by class of Financial Assets
December 31, 2012 Group Rs.’000 Neither past due nor impaired
High Standard Sub-standard Un Rated Past due but Individually grade grade grade not impaired impaired Total
Cash and cash equivalents 10,398,351 43,908 - - - - 10,442,259 Balances with Central Bank of Sri Lanka 17,200,792 - - - - - 17,200,792 Placements with Banks 7,624,375 1,163,751 - - - - 8,788,127 Reverse repurchase agreements 3,300,373 - - - - - 3,300,373 Derivative Financial Instruments 279,022 - - - - - 279,022 Financial assets held -for- trading 34,786,299 287,108 - 107,677 - - 35,181,084 Financial assets held-for-trading pledged as collaterals 2,856,321 - - - - - 2,856,321 Loans and receivables from banks - 826,674 - - 1,943 - 828,617 Loans and receivables from other customers 84,194,141 36,007,948 7,666,734 14,233,476 73,281,865 4,206,565 219,590,729 Other loans & advances 8,715,351 1,509,123 10,224,474
Financial investments available for sale Quoted - Government debt securities 179,175 - - - - 179,175 Quoted - Other equity securities - - 1,686,021 - - 1,686,021 Unquoted - equity securities - - 58,484 - - 58,484
Financial investments held to maturity - Quoted - Government debt securities 9,765 - - - - 9,765 Other assets 1,558,102 300,174 1,858,276 Total 169,543,966 38,329,388 7,666,734 19,152,882 73,283,808 4,506,739 312,483,517
42.2.8 Aging Analysis of Past due but not impaired loans by class of Financial Assets
past due but not impaired
Group Less than 31 to 60 61 to 90 More than 30 days days days 91 days Total
Loans and receivables from banks 1,943 - - - 1,943 Loans and receivables from other customers 48,543,126 8,450,802 12,705,415 3,582,523 73,281,865 TOTAL 48,545,068 8,450,802 12,705,415 3,582,523 73,283,808
42.2.9 Credit Risk exposure for each internal credit risk rating It is the Bank’s policy to maintain accurate and consistent risk ratings across the credit portfolio. This facilitates focused management of the applicable risks and the comparison of credit exposures across all lines of business, geographic regions and products. The rating system is supported by a variety of qualitative as well as quantitative variables for the measurement of counterparty risk. All internal risk ratings are tailored to the various categories and are derived in accordance with the bank’s Rating Policy. The risk ratings of the business borrowers are updated at least annually or earlier if required. The table below shows the Bank internal credit rating of the Loans and advances to banks and Loans and advances to other customers.
378 Annual Report 2012 Credit Risk exposure for each internal credit risk rating December 31, 2012 Rs.’000 Bank's internal Credit rating Bank Rating Fitch Rating equivalent grade Historical Total Default Rate 2012
High Grade Risk Rating Class 1 A+ AAA - AA+ 0.31 5,729,576 Risk Rating Class 2 A AA - AA- 0.46 8,158,629 Risk Rating Class 3 A- A+ - A 0.59 20,107,485 Risk Rating Class 4 B+ A- - BBB+ 1.95 13,549,461 Pawning (Secured Against Gold) 54,946,225
Standard Grade Risk Rating Class 5 B BBB - BBB- 0.84 33,538,712 Risk Rating Class 6 B- BB+ - BB 1.95 15,609,176 Risk Rating Class 7 C+ BB- - B+ 1.60 25,162,285
Sub- Standard grade Risk Rating Class 8 C B - B- 1.71 12,096,134 Risk Rating Class 9 C- CCC - CC 1.73 3,646,729
Unrated 1.08 19,554,764
Impaired Risk Rating Class 10 D C - D 1.37 3,912,763 Total 216,011,939
42.2.10 Analysis of Risk Concentration Risk concentrations: maximum exposure to credit risk without taking account of any collateral and other credit enhancements .
The Concentration risk is monitored/managed through borrower/group, Sector , product etc. Maximum exposure to a Company and group as at the reporting date was Rs. 3,937Mn (funded & non-funded) & Rs. 5,915Mn(funded & non-funded) respectively. The following table shows the maximum exposure to credit risk for the components of the Statement of Financial Position, including geography of counterparty, and sector.
Sampath Bank PLC 379 NOTES TO THE FINANCIAL STATEMENTS
42.2.10.1 Country Risk - Geographical Analysis
December 31, 2012 Bank Rs.’000 Middle Sri Lanka Europe Americas Asia Pacific East & Africa Total Financial Assets Cash and cash equivalents 8,157,221 1,187,296 178,341 903,195 6,083 10,432,135 Balances with Central Bank of Sri Lanka 17,200,792 17,200,792 Placements with Banks 25 924,034 2,142,763 5,721,305 8,788,127 Reverse repurchase agreements 3,300,817 3,300,817 Derivative financial instruments 200,731 253 77,511 526 279,021 Other financial investments held for trading 35,181,084 - - - - 35,181,084 Held for trading pledging as collateral 2,856,321 - - - - 2,856,321 Loans and receivables from banks 816,119 816,119 Loans and receivables from other customers** 205,650,774 77,722 12,744 697,368 1,745,761 208,184,369 Other loans & advances 10,515,756 10,515,756 Other financial investments available for sale 202,285 - - 1,721,339 - 1,923,624 Other financial investments held to maturity ------Other assets 1,399,091 1,399,091 285,481,016 2,189,305 2,411,359 9,043,733 1,751,844 300,877,256
**Provincial breakdown for Loans and receivables from other customers within Sri Lanka
Province Total Central 9,719,171 Eastern 5,775,007 North Central 5,777,983 North Western 9,677,606 Northern 6,473,367 Sabaragamuwa 5,380,717 Southern 11,262,684 Uva 3,273,863 Western 148,310,375 Total 205,650,774
380 Annual Report 2012 42. Risk Management Contd ..... 42.2.10.2 Country Risk - Geographical Analysis Contd ....
December 31, 2012 Group Rs.’000 Middle Sri Lanka Europe Americas Asia Pacific East & Africa Total Financial Assets Cash and cash equivalents 8,167,344 1,187,296 178,341 903,195 6,083 10,442,259 Balances with Central Bank of Sri Lanka 17,200,792 17,200,792 Placements with Banks 25 924,034 2,142,763 5,721,305 8,788,127 Reverse repurchase agreements 3,300,373 3,300,373 Derivative financial instruments 200,731 253 77,511 526 279,022 Other financial investments held for trading 35,181,084 - - - - 35,181,084 Held for trading pledging as collateral 2,856,321 - - - - 2,856,321 Loans and receivables from banks 816,119 816,119 Loans and receivables from other customers** 209,946,446 77,722 12,744 697,367 1,745,761 212,480,040 Other loans & advances 10,224,474 10,224,474 Other financial investments available for sale 202,341 - - 1,721,339 - 1,923,680 Other financial investments held to maturity 9,765 - - - - 9,765 Other assets 1,858,276 1,858,276 289,964,090 2,189,305 2,411,359 9,043,732 1,751,844 305,360,330
**Provincial breakdown for Loans and receivables from other customers within Sri Lanka
Province Total Central 11,159,908 Eastern 7,116,714 North Central 5,987,911 North Western 10,723,463 Northern 6,526,017 Sabaragamuwa 5,583,497 Southern 11,827,562 Uva 3,273,863 Western 147,747,512 Total 209,946,446
Sampath Bank PLC 381 NOTES TO THE FINANCIAL STATEMENTS
42.2.10.3 Industry Analysis The following table shows the risk concentration by industry for the components of the Statement of Financial Position.
December 31, 2012 Bank Rs.’000
Agriculture & Manufacturing Tourism Transport Construction Traders Banks, Government Infrastructure Other Consumers Total Fishing Financial and Services Business Services
Financial Assets Cash and cash equivalents ------10,432,135 - - - 10,432,135 Balances with Central Bank of Sri Lanka - 17,200,792 17,200,792 Placements with Banks ------8,788,127 - - - 8,788,127 Reverse repurchase agreements ------3,300,817 - - - 3,300,817 Derivative Financial instruments 279,022 279,022 Financial assets held for trading Government debt securities ------34,182,709 - - - 34,182,709 Quoted equities - 10,237 14,291 - 4,853 282,474 686,522 - - - 998,375 Financial assets held-for-trading pledged as collaterals 2,856,321 2,856,321 Loans and receivables from banks 1,943 814,176 816,119 Loans and receivables from other customers 23,211,855 28,146,897 7,132,717 2,617,179 20,710,856 40,352,210 11,271,224 47,061 6,613,877 6,474,852 61,605,642 208,184,369 Other loans & advances 458,159 726,016 2,173,931 7,157,650 10,515,756 Financial investments available for sale Government debt securities ------179,175 - - - 179,175 Other equity securities ------1,744,448 - - - - 1,744,448 Other assets 1,399,091 - 1,399,091 Total 23,670,014 28,157,133 7,147,008 2,617,179 20,715,709 41,360,700 42,933,580 59,581,563 6,613,877 6,474,852 61,605,642 300,877,256
42.2.10.4 Industry Analysis The following table shows the risk concentration by industry for the components of the Statement of Financial Position.
December 31, 2012 Group Rs.’000
Agriculture & Manufacturing Tourism Transport Construction Traders Banks, Government Infrastructure Other Consumers Total Fishing Financial and Services Business Services
Financial Assets Cash and cash equivalents ------10,442,259 - - - - 10,442,259 Balances with Central Bank of Sri Lanka - 17,200,792 17,200,792 Placements with Banks ------8,788,127 - - - - 8,788,127 Reverse repurchase agreements - - - - - 3,300,373 - - - - 3,300,373 Derivative Financial instruments ------279,022 - - - - 279,022 Financial assets held for trading Government debt securities ------34,182,709 - - - 34,182,709 Quoted equities - 10,237 14,291 - 4,853 282,474 686,522 - - - 998,375 Financial assets held-for-trading pledged as collaterals 2,856,321 2,856,321 Loans and receivables from banks 1,943 814,176 816,119 Loans and receivables from other customers 23,756,524 28,146,897 7,132,718 2,752,208 20,888,013 42,325,045 11,271,224 47,061 6,613,877 9,045,289 60,501,186 212,480,041 Other loans & advances 458,159 - - - - 726,016 1,882,648 7,157,650 - - - 10,224,474
Financial investments available for sale Government debt securities ------179,175 - - - 179,175 Other equity securities ------1,744,504 - - - - 1,744,504
Financial investments held to maturity ------9,765 - - - - 9,765 Other assets 1,858,276 1,858,276 Total 24,214,683 28,157,133 7,147,008 2,752,208 20,892,866 43,333,535 43,120,984 59,581,563 6,613,877 9,045,289 60,501,186 305,360,332
382 Annual Report 2012 42.2.11 Commitments and Contingencies To meet the financial needs of customers, the Bank enters into various commitments and contingent liabilities. Even though these obligations may not be recognised on the Statement of Financial Position, they do contain credit risk and are, therefore, part of the overall risk of the Bank.
The table below shows the Bank’s maximum credit risk exposure for commitments and contingencies. The maximum exposure to credit risk relating to a financial guarantee is the maximum amount the Bank could have to pay if the guarantee is called upon. The maximum exposure to credit risk relating to a loan commitment is the full amount of the commitment. In both cases, the maximum risk exposure is significantly greater than the amount recognised as a liability in the Statement of Financial Position.
December 31, 2012 Rs.’000 Commitments Bank Group Commitment for unutilised facilities (direct advances) 27,340,066 27,543,721 27,340,066 27,543,721
Contingent liabilities Acceptances 6,308,188 6,308,188 Documentary credit 11,310,366 11,310,366 Guarantees 21,993,951 21,993,951 Bills sent for collection 129,388 129,388 Stock on travelers’ cheques 352,396 352,396 40,094,289 40,094,289
Forward exchange contracts 28,684,448 28,684,448 Currency Swaps 19,806,940 19,806,940 48,491,387 48,491,387
Total Commitments and contingencies 115,925,742 116,129,397
42.3 LIQUIDITY RISK AND FUNDING MANAGEMENT Liquidity risk is the risk that the Bank will encounter difficulties in meeting its financial commitments that are settled by delivering cash or another financial asset. Hence the bank may be unable to meet its payment obligations when they fall due under both normal and stress circumstances. To limit this risk, management has arranged diversified funding sources in addition to its core deposit base, and adopted a policy of continuously managing assets with liquidity in mind and of monitoring future cash flows and liquidity on a daily basis. The bank has developed internal control processes and contingency plans for managing liquidity risk. This incorporates an assessment of expected cash flows and the availability of high grade collateral which could be used to secure additional funding if required.
The Bank maintains a portfolio of highly marketable and diverse assets assumed to be easily liquidated in the event of an unforeseen interruption of expected cash flow. The Bank also has committed lines of credit that could be utilized to meet liquidity needs. Further, the Bank maintains a statutory deposit with the Central Bank of Sri Lanka equal to 8% of customer deposits. In accordance with the bank’s policy, the liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors relating to both the market in general and specific to the Bank. The most important of these is to maintain the required ratio of liquid assets to liabilities, to meet the regulatory requirement . Liquid assets consist of cash, short–term bank deposits and liquid debt securities available for immediate sale. Further the Statutory Liquid Assets Ratio of the Bank for the month of December 2012 is as follows.
42.3.1 Statutory Liquid Assets Ratio For the month of December 2012 22.40%
42.3.2 Due to banks & Due to other customers (Deposits) to Loans and receivables from banks & other customers (Advances) Ratio The Bank is aware of the importance of due to banks & other customers as a source of funds for its lending operations. This is monitored using the following ratio, which compares loans and receivables to customers as a percentage of due to banks & Due to other customers (Deposits). Due to banks & due to other customers to Loans and receivables from banks & other customers Ratio as at 31 December 2012 88.68%
Sampath Bank PLC 383 NOTES TO THE FINANCIAL STATEMENTS
42.3.3 Analysis of financial assets and liabilities by remaining contractual maturities The table below summarises the maturity profile of the undiscounted cash flows of the Bank’s financial assets and liabilities as at 31 December 2012. Repayments which are subject to notice are treated as if notice were to be given immediately. However, the Bank expects that many customers will not request repayment on the earliest date it could be required to pay and the table does not reflect the expected cash flows indicated by its deposit retention history.
Contractual maturities of undiscounted cash flows of financial assets and liabilities.
December 31, 2012 Bank Rs.’000
Up to 03 months 03 - 12 months 1 - 3 years 3 - 5 years over 05 years Total Financial Assets Cash and cash equivalents 10,504,835 - - - - 10,504,835 Balances with Central Bank of Sri Lanka 12,805,702 4,205,300 121,924 67,030 837 17,200,792 Placements with Banks 7,624,456 1,177,646 - - - 8,802,102 Reverse repurchase agreements 3,300,817 - - - - 3,300,817 Derivative financial instruments 154,690 124,332 - - - 279,022 Financial investments held -for- trading 35,181,084 - - - - 35,181,084 Financial assets held-for-trading pledged as collaterals 2,858,321 - - - - 2,858,321 Loans and receivables from banks 73,872 235,811 540,622 253,211 - 1,103,516 Loans and receivables from customers 126,100,984 54,887,118 40,384,278 17,043,168 16,041,516 254,457,065 Other loans & advances 2,329,352 3,598,266 5,598,952 - - 11,526,570 Financial investments- available- for- sale 1,900,514 - - - 23,110 1,923,624 Other assets - - - - 1,399,091 1,399,091
Total Financial Assets 202,834,627 64,228,473 46,645,775 17,363,409 17,464,553 348,536,838
Financial Liabilities Cash and cash equivalents 625,051 - - - - 625,051 Derivative financial instruments 360,834 21,003 - - - 381,838 Securities sold under re-purchase agreements 2,164,530 642,856 - - - 2,807,386 Due to other customers 184,844,334 66,808,610 2,586,230 1,490,651 310,693 256,040,518 Debt issued and other borrowed funds 9,336,177 7,406,830 1,621,902 9,754,206 5,695,072 33,814,186 Unclaimed Dividend 49,185 - - - - 49,185
Total Financial Liabilities 197,380,110 74,879,299 4,208,131 11,244,858 6,005,765 293,718,164
Total net Financial Assets/(Liabilities) 5,454,517 (10,650,827) 42,437,644 6,118,551 11,458,788 54,818,674
384 Annual Report 2012 42.3.4 Analysis of financial assets and liabilities by remaining contractual maturities
December 31, 2012 Group Rs.’000
Up to 03 months 03 - 12 months 1 - 3 years 3 - 5 years over 05 years Total Financial Assets Cash and Cash equivalents 10,514,958 - - - - 10,514,958 Balances with Central Bank of Sri Lanka 12,805,702 4,205,300 121,924 67,030 837 17,200,792 Placements with Banks 7,624,456 1,177,646 - - - 8,802,102 Reverse repurchase agreements 3,300,373 - - - - 3,300,373 Derivative financial instruments 154,690 124,332 - - - 279,022 Financial investments held -for- trading 35,181,084 - - - - 35,181,084 Financial assets held-for-trading pledged as collaterals 2,858,321 - - - - 2,858,321 Loans and receivables from banks 73,872 235,811 540,622 253,211 - 1,103,516 Loans and receivables from customers 127,288,537 55,024,254 42,834,308 17,878,723 16,050,410 259,076,233 Other loans & advances 2,038,069 3,598,266 5,598,952 - - 11,235,287 Financial investments- available- for- sale 1,900,514 - - - 23,166 1,923,680 Financial investments- held - to- maturity 2,400 7,365 - - - 9,765 Other assets - - - - 1,858,276 1,858,276
Total Financial Assets 203,742,976 64,372,974 49,095,805 18,198,964 17,932,689 353,343,409
Financial Liabilities Due to banks 668,466 - - - - 668,466 Derivative financial instruments 360,834 21,003 - - - 381,838 Securities sold under re-purchase agreements 2,158,745 642,856 - - - 2,801,601 Due to other customers 184,601,578 66,808,610 2,586,230 1,490,651 310,693 255,797,762 Debt issued and other borrowed funds 10,409,607 8,299,300 2,897,110 9,906,081 5,695,072 37,207,171 Unclaimed Dividend 49,185 - - - - 49,185 - Total Financial Liabilities 198,248,415 75,771,770 5,483,340 11,396,733 6,005,765 296,906,023
Total net financial assets/(liabilities) 5,494,561 (11,398,796) 43,612,465 6,802,231 11,926,924 56,437,386
Sampath Bank PLC 385 NOTES TO THE FINANCIAL STATEMENTS
42.3.5 Contractual maturities of Commitments & Contingencies The table below shows the contractual expiry by maturity of the Bank’s contingent liabilities and commitments. Each undrawn loan commitment is included in the time band containing the earliest date it can be drawn down. For issued financial guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee could be called. December 31, 2012 Rs.’000 Bank On Demand Less than 3 3 to 12 1 to 5 years over 5 years Total Months months
Contingencies Financial Guarantees 1,070,979 6,651,724 7,627,450 4,360,012 2,283,785 21,993,951 Acceptance 4,802,347 1,160,280 345,561 - - 6,308,188 Bills Sent 129,388 - - - - 129,388 Forward Contracts - 44,553,202 3,938,185 - - 48,491,387 Travellers Cheques 352,396 - - - - 352,396 Documentary Credit 1,147,619 6,940,144 3,222,603 - - 11,310,366 7,502,729 59,305,350 15,133,799 4,360,012 2,283,785 88,585,676
Commitments Undrawn OD 18,034,987 - - - - 18,034,987 Undrawn Loans 1,489,301 - - - - 1,489,301 Undisbursed Cash Loans 3,981 - - - - 3,981 Undrawn Credit Card Limits 7,811,797 - - - - 7,811,797 27,340,066 - - - - 27,340,066 Total Commitments and Contingencies 34,842,795 59,305,350 15,133,799 4,360,012 2,283,785 115,925,741
December 31, 2012 Rs.’000 Group On Demand Less than 3 3 to 12 1 to 5 years over 5 years Total Months months
Contingencies Financial Guarantees 1,070,979 6,651,724 7,627,450 4,360,012 2,283,785 21,993,951 Acceptance 4,802,347 1,160,280 345,561 - - 6,308,188 Bills Sent 129,388 - - - - 129,388 Forward Contracts - 44,553,202 3,938,185 - - 48,491,387 Travellers Cheques 352,396 - - - - 352,396 Documentary Credit 1,147,619 6,940,144 3,222,603 - - 11,310,366 7,502,729 59,305,350 15,133,799 4,360,012 2,283,785 88,585,676
Commitments Undrawn OD 18,034,987 - - - - 18,034,987 Undrawn Loans 1,489,301 - - - - 1,489,301 Undisbursed Cash Loans 3,981 - - - - 3,981 Undrawn Credit Card Limits 7,811,797 7,811,797 Undrawn Commitments Factoring 203,655 - - - - 203,655 27,543,721 - - - - 27,543,721 Total Commitments and Contingencies 35,046,450 59,305,350 15,133,799 4,360,012 2,283,785 116,129,396
386 Annual Report 2012 42.4 Market Risk Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rates, foreign exchange rates, commodity prices and equity prices. The bank classifies exposures to market risk into either trading or non–trading portfolios and manages each of those portfolios separately.
42.4.1 Interest Rate Risk Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments. The bank’s policy is to continuously monitor positions on a daily basis and hedging strategies are used to ensure positions are maintained within prudential levels.
The following table demonstrates the sensitivity to a reasonable possible change in interest rates, with all other variables held constant, of the bank’s income statement. December 31, 2012 Rs.’000 If Market rates up by 1 % If Market rates drop by 1 % the effect of the same to the the effect of the same to the Interest Income/(Expense) Interest Income/(Expense) Effect on Rate sensitive Assets 2,721,151 (2,721,151) Effect on Rate sensitive Liabilities (2,598,732) 2,598,732 Sensitivity of profit or loss 122,419 (122,419)
42.4.2 Interest Rate Sensitivity Analysis The table below analyses the Bank’s interest rate risk exposure on financial assets and liabilities. The Bank’s assets and liabilities are included at carrying amount and categorised by the earlier of contractual re–pricing or maturity dates.
December 31, 2012 Bank Rs.’000
Up to 03 over Non months 03 - 12 months 1 - 3 years 3 - 5 years 05 years Interest bearing Total
Financial Assets Cash and cash equivalents 3,012,734 - - - - 7,419,401 10,432,135 Balances with Central Bank of Sri Lanka - - - - - 17,200,792 17,200,792 Placements with Banks 7,624,375 1,163,751 - - - - 8,788,127 Reverse repurchase agreements 3,300,817 - - - - - 3,300,817 Derivative financial instruments 154,690 124,332 - - - - 279,022 Financial investments held -for- trading 34,182,709 - - - - 998,375 35,181,084 Financial assets held-for-trading pledged as collaterals 2,856,321 - - - - - 2,856,321 Loans and receivables from banks 41,299 150,120 400,320 224,380 - - 816,119 Loans and receivables from customers 133,645,410 38,282,470 19,193,251 8,294,387 8,768,851 - 208,184,369 Other loans & advances 2,225,879 7,657,631 632,247 - - - 10,515,757 Financial investments- available- for- sale 179,175 - - - - 1,744,449 1,923,624 Other assets - - - - - 1,399,091 1,399,091 Total Financial Assets 187,223,408 47,378,304 20,225,818 8,518,767 8,768,851 28,762,108 300,877,256
Financial Liabilities Due to banks 244,038 - - - - 380,746 624,784 Derivative financial instruments 360,834 21,003 - - - 381,838 Securities sold under re-purchase agreements 2,146,527 610,592 - - - - 2,757,119 Due to other customers 165,203,292 59,582,186 1,905,895 880,847 149,847 15,608,923 243,330,989 Debt issued and other borrowed funds 9,223,957 6,925,955 1,138,035 7,931,551 3,605,530 - 28,825,029 Unclaimed Dividend - - - - - 49,185 49,185
Total Financial Liabilities 177,178,648 67,139,736 3,043,930 8,812,398 3,755,377 16,038,854 275,968,944
Interest Rate Sensitivity Gap 10,044,760 (19,761,432) 17,181,889 (293,631) 5,013,473 12,723,255 24,908,313
Sampath Bank PLC 387 NOTES TO THE FINANCIAL STATEMENTS
42.4.3 Interest Rate Sensitivity Analysis
December 31, 2012 Group Rs.’000
Up to 03 over Non months 03 - 12 months 1 - 3 years 3 - 5 years 05 years Interest bearing Total
Financial Assets Cash and cash equivalents 3,045,164 - - - - 7,397,094 10,442,258 Balances with Central Bank of Sri Lanka - - - - - 17,200,792 17,200,792 Placements with Banks 7,624,375 1,163,751 - - - - 8,788,127 Reverse repurchase agreements 3,300,373 - - - - - 3,300,373 Derivative financial instruments 154,690 124,332 - - - - 279,022 Financial investments held -for- trading 34,182,709 - - - - 998,375 35,181,084 Financial assets held-for-trading pledged as collaterals 2,856,321 - - - - - 2,856,321 Loans and receivables from banks 41,299 150,120 400,320 224,380 - - 816,119 Loans and receivables from customers 134,278,466 39,284,010 21,500,687 8,753,830 8,663,050 - 212,480,042 Other loans & advances 1,934,596 7,657,631 632,247 - - - 10,224,474 Financial investments- available- for- sale 179,175 - - - - 1,744,505 1,923,680 Financial investments- held - to- maturity - 2,400 7,365 - - - 9,765 Other assets - - - - - 1,858,276 1,858,276 Total Financial Assets 187,597,167 48,382,244 22,540,620 8,978,210 8,663,050 29,199,042 305,360,332
Financial Liabilities Due to banks 287,452 - - - - 380,747 668,199 Derivative financial instruments 360,834 21,003 - - - - 381,838 Securities sold under re-purchase agreements 2,140,742 610,592 - - - - 2,751,334 Due to other customers 165,116,046 59,582,186 1,905,895 880,847 149,847 15,453,413 243,088,233 Debt issued and other borrowed funds 11,395,367 7,469,415 2,040,388 7,707,314 3,605,530 - 32,218,014 Unclaimed Dividend - - - - - 49,185 49,185 Total Financial Liabilities 179,300,441 67,683,197 3,946,282 8,588,161 3,755,377 15,883,345 279,156,802
Interest Rate Sensitivity Gap 8,296,726 (19,300,953) 18,594,338 390,049 4,907,672 13,315,697 26,203,530
388 Annual Report 2012 42.5 Currency Risk Currency risk arises as a result of fluctuations in the value of a financial instruments due to changes in foreign exchange rates. The Bank’s Board has set limits on positions by currency. In accordance with the bank’s policy, positions are monitored on a daily basis and hedging strategies are used to ensure positions are maintained within established limits.
The table below indicates the currencies to which the bank had significant exposures as at 31 December 2012 and the effect to the Gain/Loss in case of a market exchange rates up/drop by 5 %. The analysis calculates the effect of a reasonably possible movement of the currency rate against the LKR, with all other variables held constant, on the income statement (due to the fair value of currency sensitive non–trading monetary assets and liabilities) and equity (due to the change in fair value of currency swaps and forward foreign exchange contracts used as cash flow hedges). A negative amount in the table reflects a potential net reduction in income statement or equity, while a positive amount reflects a net potential increase. An equivalent decrease in each of the below currencies against LKR would have resulted in an equivalent but opposite impact.
Rs.’000 If Market rates up by 5%, If Market rates dropped by Currency Code the effect of the same to the 5%, the effect of the same to exchange gain/(loss) the exchange gain/(loss) USD (9,216) 9,216 GBP 1,404 (1,404) JPY 376 (376) CAD 391 (391) CHF 1,388 (1,388) AUD 2,365 (2,365) SGD 292 (292) HKD 264 (264) EUR 8,649 (8,649) Other Currencies 6,364 (6,364)
42.6 Equity Price Risk Equity price risk is the risk that the fair value of equities decreases as a result of changes in the level of equity indices and individual stocks. Investment Committee reviews and approves all equity investment decisions. Further the market value of the banks equity portfolio as of 31 December 2012 is Rs. 998,375 (Rs.‘000).
42.7 Operational Risk Operational risk is the risk of losses arising from failed internal processes, systems failure, human error, fraud or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. Strategic and Reputational Risks are not covered in Operational Risk.
Operational Risks of the Bank are mitigated and managed through a Board approved Operational Risk Management Policy control framework which consists of monitoring and responding to potential risks such as segregation of duties, access, authorisation and reconciliation procedures, staff education and assessment processes, Business Continuity Planning etc. Operational Risk Management Unit reports to Group Chief Risk Officer, and the Board Risk Management Committee maintains a high level overall supervision of managing Operational Risks of the Bank.
Sampath Bank PLC 389 NOTES TO THE FINANCIAL STATEMENTS
43 Maturity Analysis 43.1 Maturity Gap Analysis as at 31.12.2012
Rs.000 Bank Group
Within 12 After 12 Total Within 12 After 12 Total months months months months Assets Cash and cash equivalents 10,432,135 - 10,432,135 10,442,259 - 10,442,259 Balances with Central Bank of Sri Lanka 17,011,002 189,790 17,200,792 17,011,002 189,790 17,200,792 Placements with Banks 8,788,127 - 8,788,127 8,788,127 - 8,788,127 Reverse repurchase agreements 3,300,817 - 3,300,817 3,300,373 - 3,300,373 Derivative financial instruments 279,022 - 279,022 279,022 - 279,022 Financial investments held -for- trading 35,181,084 - 35,181,084 35,181,084 - 35,181,084 Financial assets held-for-trading pledged as collaterals 2,856,321 - 2,856,321 2,856,321 - 2,856,321 Loans and receivables from banks 191,419 624,700 816,119 191,419 624,700 816,119 Loans and receivables from customers 154,179,332 54,005,037 208,184,369 155,643,797 56,836,244 212,480,041 Other loans & advances 5,415,759 5,099,997 10,515,757 5,124,476 5,099,997 10,224,474 Financial investments- available-for-sale 1,900,513 23,111 1,923,624 1,900,513 23,167 1,923,680 Financial investments- held -to-maturity - - - 9,765 - 9,765 Investment in subsidiary companies - 1,059,921 1,059,921 - - - Property and equipment - 4,559,806 4,559,806 3,551 6,760,821 6,764,372 Goodwill and other intangible assets - 311,758 311,758 - 316,412 316,412 Deferred Tax Assets - - - 3,778 8,550 12,328 Other assets 2,066,629 1,205,023 3,271,652 2,532,210 1,198,626 3,730,836 Total Assets 241,602,159 67,079,143 308,681,302 243,267,696 71,058,307 314,326,003
Liabilities Due to banks 624,784 - 624,784 668,198 - 668,198 Securities sold under re-purchase agreements 2,757,119 - 2,757,119 2,751,334 - 2,751,334 Derivative financial instruments 381,838 - 381,838 381,838 - 381,838 Due to other customers 240,394,401 2,936,588 243,330,990 240,151,645 2,936,590 243,088,236 Debt issued and other borrowed funds 16,149,912 12,675,117 28,825,029 18,115,813 14,102,200 32,218,014 Unclaimed dividends 49,185 - 49,185 49,185 - 49,185 Current tax liabilities 936,000 2,067,885 3,003,885 967,984 2,067,884 3,035,868 Deferred tax liabilities - 400,084 400,084 - 430,812 430,812 Provisions - 167,470 167,470 - 180,192 180,192 Other liabilities 273,756 3,766,313 4,040,070 487,247 3,759,654 4,246,901
Total Liabilities 261,566,995 22,013,457 283,580,453 263,573,243 23,477,333 287,050,577
Maturity Gap (19,964,836) 45,065,686 25,100,849 (20,305,547) 47,580,974 27,275,428 Cumulative Gap (19,964,836) 25,100,849 - (20,305,547) 27,275,428 -
390 Annual Report 2012 43 Maturity Analysis Contd. 43.2 Maturity Gap Analysis as at 31.12.2011
Rs.000 Bank Group
Within 12 After 12 Total Within 12 After 12 Total months months months months Assets Cash and cash equivalents 10,736,413 - 10,736,413 10,746,713 - 10,746,713 Balance with central bank of Sri Lanka 13,056,886 175,244 13,232,130 13,056,886 175,244 13,232,130 Due from Banks 5,337,084 - 5,337,084 5,337,084 - 5,337,084 Cash collateral on securities borrowed & reverse repurchase agreements 4,601,965 - 4,601,965 4,606,010 - 4,606,010 Derivative financial instruments 203,732 - 203,732 203,732 - 203,732 Financial investments held -for- trading 23,052,987 - 23,052,987 23,052,987 - 23,052,987 Financial assets held-for-trading pledged as collaterals 4,002,777 - 4,002,777 4,002,777 - 4,002,777 Loans and receivables from banks - 441,938 441,938 441,938 - 441,938 Loans and receivables from customers 109,611,466 60,069,907 169,681,373 111,066,947 60,909,991 171,976,938 Other loans & advances 3,344,244 2,392,033 5,736,277 3,344,244 2,392,034 5,736,278 Financial investments- available- for- sale 2,002,131 23,110 2,025,241 2,002,131 23,166 2,025,297 Financial investments- held - to- maturity 10,289 - 10,289 - 19,411 19,411 Investment in subsidiary companies - 1,054,921 1,054,921 - - - Property and equipment - 4,527,784 4,527,784 - 6,691,153 6,691,153 Goodwill and other intangible assets - 67,294 67,294 - 73,372 73,372 Deferred Tax Assets - - - - 2,359 2,359 Other assets 98,401 2,274,702 2,373,103 420,071 2,426,473 2,846,544 Total Assets 176,058,374 71,026,933 247,085,307 178,281,520 72,713,202 250,994,723
Liabilities Due to banks 1,175,672 - 1,175,672 1,175,672 - 1,175,672 Securities sold under re-purchase agreements 4,100,862 - 4,100,862 4,100,862 - 4,100,862 Derivative financial instruments 310,966 - 310,966 310,966 - 310,966 Due to other customers 192,091,031 3,104,043 195,195,074 192,795,852 2,298,507 195,094,359 Debt issued and other borrowed funds 12,442,553 7,311,667 19,754,221 12,442,553 9,047,925 21,490,478 Unclaimed dividends 37,173 - 37,173 - 37,173 37,173 Current tax liabilities 1,262,697 589,137 1,851,834 1,267,687 613,455 1,881,142 Deferred tax liabilities - 380,360 380,360 2,612 393,501 396,113 Provisions - 124,477 124,477 - 137,515 137,515 Other liabilities 436,036 2,818,518 3,254,554 512,787 2,990,500 3,503,287
Total Liabilities 211,856,991 14,328,202 226,185,193 212,608,991 15,518,576 228,127,567
Maturity Gap (35,798,617) 56,698,731 20,900,114 (34,327,471) 57,194,626 22,867,156 Cumulative Gap (35,798,617) 20,900,114 - (34,327,471) 22,867,156 -
Sampath Bank PLC 391 INCOME STATEMENT IN US$
Bank Group
For the year ended 31st December 2012 2011 2012 2011 (US$’ 000) (US$’ 000) (US$’ 000) (US$’ 000)
Income 303,906 242,119 311,203 248,180
Interest income 249,761 185,349 256,263 189,336 Less : Interest expense 158,789 106,830 161,950 107,793 Net interest income 90,972 78,519 94,313 81,543
Fee and commission income 21,964 23,249 22,536 24,547 Less : Fee and commission expense 5,129 7,352 5,289 7,567 Net fee & commission income 16,835 15,896 17,247 16,980
Net trading income 49 2,757 49 2,757
Other operating income 32,132 30,765 32,355 31,541 Total operating income 139,988 127,936 143,964 132,820
Impairment gain / ( loss) on loans and advances (1,073) (3,765) (1,192) (3,504) Impairment gain / ( loss) on financial investments 564 (1,661) 564 (1,661) Net operating income 139,479 122,510 143,336 127,656
Less: Operating expenses Personnel expenses 32,571 31,253 33,915 32,473 Depreciation of property plant & equipment 4,196 4,420 4,608 4,833 Amortisation of intangible assets 341 317 366 349 Other operating expenses 36,505 34,764 36,461 34,748 Total operating expenses 73,614 70,753 75,351 72,403
Operating profit / (loss) before Value Added Tax 65,866 51,757 67,985 55,252
Less : Value Added Tax on Financial services 8,952 7,915 9,094 8,057 Operating profit / (loss) after Value Added Tax 56,914 43,842 58,891 47,195
Less : Income tax expense 16,675 14,104 17,011 14,663 Profit for the year 40,238 29,738 41,880 32,532
Attributable to: Equity holders of the parent 40,238 29,738 47,143 39,905 Non controlling interest 26 194 40,238 29,738 47,169 40,100
Earnings per share - Basic (US$) 0.26 0.20 Earnings per share - Diluted (US$) 0.26 0.20 Dividend per share - Gross (US$) 0.09 0.08 Dividend per share - Net (US$) 0.09 0.07
Exchange rate of US$ was Rs. 127.65 as at 31st December 2012. (Rs. 113.90 as at 31st December 2011)
392 Annual Report 2012 STATEMENT OF FINANCIAL POSITION IN US$
Bank Group
December December January December December January 31, 2012 31, 2011 1, 2011 31, 2012 31, 2011 1, 2011 (US$’ 000) (US$’ 000) (US$’ 000) (US$’ 000) (US$’ 000) (US$’ 000) Assets Cash and cash equivalents 81,725 94,262 38,391 81,804 94,352 39,000 Balances with Central Bank of Sri Lanka 134,750 116,173 74,097 134,750 116,173 74,097 Placements with Banks 68,845 46,858 16,116 68,845 46,858 15,511 Reverse repurchase agreements 25,858 40,404 - 25,855 40,439 - Derivative financial instruments 2,186 1,789 828 2,186 1,789 828 Financial assets held -for- trading 275,606 202,397 240,663 275,606 202,397 240,663 Financial assets held-for-trading pledged as collaterals 22,376 35,143 40,427 22,376 35,143 40,427 Loans and receivables from banks 6,393 3,880 - 6,393 3,880 - Loans and receivables from other customers 1,630,900 1,489,740 1,118,227 1,664,552 1,509,894 1,125,687 Other loans & advances 82,380 50,362 68,470 80,098 50,362 68,470 Financial investments- available- for- sale 15,070 17,781 50,706 15,070 17,781 50,707 Financial investments- held - to- maturity - 90 10,113 76 170 10,191 Investment in subsidiaries 8,303 9,262 8,938 - - - Property and equipment 35,721 39,752 38,553 52,992 58,746 58,008 Intangible assets 2,442 591 710 2,479 644 800 Deferred tax asset - - - 97 21 33 Other assets 25,630 20,835 18,088 29,227 24,992 23,188 Total assets 2,418,185 2,169,318 1,724,326 2,462,405 2,203,641 1,747,611
Liabilities Due to banks 4,895 10,322 1,803 5,235 10,322 1,803 Derivative financial instruments 2,991 2,730 672 2,991 2,730 672 Securities sold under re-purchase agreements 21,599 36,004 39,760 21,554 36,004 39,760 Due to other customers 1,906,236 1,713,741 1,381,215 1,904,334 1,712,857 1,380,139 Debt issued and other borrowed funds 225,813 173,435 77,216 252,393 188,678 81,498 Unclaimed dividends 385 326 342 385 326 342 Current tax liabilities 23,532 16,258 8,031 23,783 16,516 8,642 Deferred tax liabilities 3,134 3,339 2,328 3,375 3,478 2,328 Provisions 1,312 1,093 804 1,412 1,207 877 Other liabilities 31,650 28,574 22,967 33,270 30,758 26,925 Total Liabilities 2,221,547 1,985,823 1,535,136 2,248,732 2,002,876 1,542,985
Equity Stated capital 27,921 24,089 16,100 27,921 24,089 16,100 Reserves Statutory / risk reserve funds 9,182 7,388 5,828 9,392 7,535 5,892 Revaluation Reserve 11,412 12,813 13,691 22,532 25,275 26,485 Available-for-sale reserve 11,479 15,784 47,083 11,477 15,784 47,083 Investment fund A/c ------Revenue reserves 136,646 123,421 106,489 141,872 127,556 107,697 Total equity of the owners of the parent 196,638 183,495 189,190 213,194 200,239 203,256
Non controlling interest - - - 480 526 1,370 Total equity 196,638 183,495 189,190 213,674 200,765 204,626
Total liability and equity 2,418,185 2,169,318 1,724,326 2,462,405 2,203,641 1,747,611
Net asset value per share (US$) 1.21 1.14 1.18 1.31 1.25 1.28 Commitments and contingencies 908,153 1,061,868 618,550 909,749 1,061,868 618,550
Exchange rate of US$ was Rs. 127.65 as at 31st December 2012. (Rs. 113.90 as at 31st December 2011 and Rs. 110.95 as at 31st December 2010)
Sampath Bank PLC 393 TEN YEARS AT A GLANCE
Rs. Mn
SLAS SLFRS Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Profit Performance Income 6,044 6,953 8,704 12,340 17,400 22,243 25,213 24,333 27,577 38,794 Interest income 4,948 5,412 7,227 9,997 14,950 19,451 20,970 18,477 21,111 31,882 Interest expenses 2,602 2,859 3,913 5,890 9,947 12,801 13,165 9,953 12,168 20,269 Net interest income 2,346 2,553 3,314 4,107 5,003 6,650 7,805 8,525 8,943 11,613 Exchange income 288 617 192 646 505 647 774 498 964 2,149 Other income 808 924 1,284 1,697 1,944 2,144 3,469 5,357 4,351 4,101 Total Operating Income 3,442 4,094 4,790 6,450 7,452 9,441 12,048 14,380 14,572 17,869 Operating expenses, impairment losses & VAT on Financial Services 2,094 2,308 3,493 4,183 5,234 6,877 8,072 9,878 9,578 10,604 Profit before tax 740 965 1,297 2,268 2,218 2,564 3,976 4,502 4,994 7,265 Income tax expense 179 344 476 1,240 1,167 1,150 1,878 1,199 1,606 2,129 Profit after tax 561 621 821 1,028 1,052 1,414 2,098 3,303 3,387 5,136
SLAS SLFRS Assets Cash & cash equivalents including placements 3,449 4,813 5,848 8,814 9,108 6,923 5,868 6,048 16,073 19,220 Bills of exchange 2,262 2,424 2,748 2,572 2,947 2,827 2,985 - - - Loans and advances 34,723 43,548 54,043 67,061 83,695 87,380 92,189 - - - Lease rentals receivable 677 1,972 3,304 6,337 6,788 5,448 3,511 - - - Loans and receivables from banks ------442 816 Loans and receivables from other customers ------124,067 169,681 208,184 Investment in associates & subsidiaries 452 452 862 1,096 970 970 992 992 1,055 1,060 Fixed assets 1,131 1,183 1,435 1,823 3,080 3,289 3,420 4,278 4,528 4,560 Total assets 54,054 67,483 84,811 109,550 133,196 138,539 156,162 191,314 247,085 308,681
Liabilities Due to banks & other customers (Deposits Only) 42,386 53,305 65,900 81,432 99,419 107,380 126,091 153,310 195,900 243,575 Refinance borrowings 1,123 1,564 1,900 2,774 4,157 4,592 4,819 - - - Other liabilities evidenced by paper 1,128 2,196 2,491 2,734 4,433 4,514 3,102 - - - Borrowings from banks & debt issued and other borrowed funds ------8,702 20,225 29,206 Other liabilities including income & deferred tax liabilities 6,035 6,501 8,889 15,984 16,618 12,276 10,304 8,311 10,060 10,800 Total liabilities 50,672 63,566 79,180 102,924 124,627 128,762 144,316 170,323 226,185 283,580
Shareholders’ Fund Stated capital 443 517 689 1,582 1,582 1,582 1,582 1,786 2,744 3,564 Reserves 2,940 3,401 4,943 5,044 6,987 8,195 10,265 19,204 18,156 21,537
Investor Information Dividend paid/proposed 66.4 88.6 137.8 172.2 206.7 275.6 473.6 1,235.8 1,427.0 1,952.8 Dividend cover (times) 8.4 7.0 6.0 6.0 5.1 5.1 4.4 2.7 2.4 2.6 Net assets per share (Rs) 65.48 75.82 81.75 96.17 124.39 141.92 77.52 131.18* 130.19* 154.24* Market price per share (Rs)-Max 133.00 105.00 114.00 117.25 135.00 120.00 205.00 550.00 307.00 216.00 Market price per share (Rs)-Min 65.00 60.25 61.00 75.25 100.00 65.00 65.00 201.00 191.00 148.50 Market price as at 31 December (Rs) 83.50 62.75 90.00 109.75 120.00 68.00 204.25 271.90 195.00 200.50
Other Information Exchange rate 96.72 104.60 102.10 107.52 108.65 113.00 114.47 110.95 113.90 127.65 Number of staff as at 31 December 1,579 1,702 1,875 2,039 2,213 2,364 2,388 2,688 3,230 3,455 Number of branches as at 31 December 63 71 83 96 105 112 131 171 206 209
Ratios Growth of income (%) 11.3 15.0 25.2 41.8 41.0 27.8 13.4 (3.5) 9.9 40.6* Cost to income ratio (%) 60.8 60.1 60.0 58.0 56.8 59.6 57.0 55.8 61.5* 59.0* Growth of deposits (%) 24.4 25.9 23.6 23.5 22.4 8.1 17.5 19.4 27.8* 24.3* Growth of advances (%) 18.7 27.3 25.3 26.4 23.0 2.4 3.2 30.3 37.1* 22.9* Dividend per share 2.00 2.00 2.00 2.50 3.00 4.00 6.25 8.09 9.00 12.00 Return on assets (after tax) (%) 1.19 1.02 1.08 1.06 0.87 1.04 1.42 1.94 1.55* 1.85* Return on equity (after tax) (%) 17.89 17.02 17.20 16.78 13.84 15.41 19.41 24.59 16.17* 22.33* Fixed assets to shareholders’ fund (%) 33.4 30.2 25.5 28.9 35.9 33.6 28.9 20.4 21.7 18.2 Total assets to shareholders’ fund (Times) 16.0 17.2 15.1 17.4 15.5 14.2 13.2 9.1 11.8 12.3
(As specified in Banking Act No. 30 of 1988) Liquid Assets Ratio (%) 27.4 23.6 25.3 31.3 29.0 29.5 30.5 26.3 25.0 22.4
Capital Adequacy Ratios (%) - TIER I 9.59 9.14 10.14 8.38 7.58 8.10 10.40 10.71 10.24 11.80* - TIER I+II 11.02 13.30 13.53 10.82 11.58 11.95 13.45 12.91 11.45 13.61*
* Under SLFRS
394 Annual Report 2012 VALUE ADDITION
Economic Value Addition
Year 2012 2011 (Rs Mn) (Rs Mn)
Shareholders’ funds 23,000.5 20,945.4 Provision for Impairment Losses 7,011.5 7,540.3 30,012.0 28,485.7 Profit attributable to shareholders 5,136.4 3,387.2 Impairment loss/(gain) 64.9 618.0 Actual Credit Losses written off (104.8) (92.6) 5,096,5 3,912.6 Economic cost %( 12 months average Treasury Bill rate plus 2% risk premium) 14.0 9.5 Economic cost 4,201.7 2,706.1 Economic value addition 894.8 1,206.5
The economic value created by the Bank to its shareholders’ credit during the period is reflected in the above analysis.
Financial Value Addition
2012 % 2011 % (Rs.’000) (Rs.’000)
Value Added Income earned by providing banking services 38,648,879 26,672,239 Cost of services 24,974,355 17,545,032 Value added by banking services 13,804,290 10,363,251 Non-banking income 144,662 905,099 Provision for Impairment Losses (64,883) (618,022) 13,884,069 10,650,328
Value allocated To employees 4,157,690 29.95 3,559,674 33.42 Salaries, wages and other benefits 4,157,690 29.95 3,559,674 33.42
To providers of capital 2,162,739 15.58 1,665,248 15.64 Dividend to shareholders 1,952,840 14.07 1,426,984 13.40 Interest to Debenture holders 209,899 1.51 238,264 2.24
To government 3,251,594 23.42 2,385,892 22.40 Income tax 2,108,885 15.19 1,484,408 13.94 Value Added Tax 1,142,709 8.23 901,484 8.46
To expansion and growth 4,312,046 31.06 3,039,514 28.54 Retained income 3,713,098 26.74 2,378,001 22.33 Depreciation 579,223 4.17 539,493 5.07 Deferred taxation 19,725 0.14 122,020 1.15 13,884,069 100.00 10,650,328 100.00
Sampath Bank PLC 395 SOURCES & DISTRIBUTION OF INCOME
2012 2011 For the year ended 31st December (Rs Mn) (Rs Mn)
Sources of Income Interest Income 31,882 21,111 Net Fee & Commission Income 2,804 2,648 Net Trading Income 6 314 Other Operating Income 4,102 3,504 38,794 27,577
Distribution of Income To Depositors/ Borrowers/Debenture Holders Interest Paid 20,269 12,168 Fee & Commission Paid 655 837
To Employees Personnel Expenses 4,158 3,560
To Suppliers / Depreciation set aside Provision for Credit Losses 5,304 5,117 Depreciation & Amortisation 579 539 Impairment Provision 65 618 Other Expenses 4,660 3,960
To Government 3,271 2,508 Value Added Tax on Financial Services 1,143 901 Income Tax Expense 2,129 1,606
To Shareholders 5,136 3,387 Dividend 1,427 1,009 Retained Profit 3,709 2,379 38,794 27,577
396 Annual Report 2012 COMPLIANCE WITH THE DISCLOSURE REQUIREMENTS SPECIFIED BY THE CENTRAL BANK OF SRI LANKA
As per the Guidelines issued by Central Bank of Sri Lanka on Annual Financial Statements, the Bank has complied with the specified requirements as given below. 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 Note No 10 of the Financial Statements 1.1.2 Other disclosures (i) Special disclosures about the financial assets and financial liabilities designated to be measured Note No 41 - Fair value of financial at fair value through profit or loss, including disclosures about credit risk and market risk, instruments changes in fair values attributable to these risks and the methods of measurement. (ii) Reclassifications of financial instruments from one category to another. Not Applicable (iii) Information about financial assets pledged as collateral and about financial or non-financial Note No 16 to the Financial Statements assets held as collateral. (iv) Reconciliation of the allowance account for credit losses by class of financial assets. Note No 18 to the Financial Statements (v) Information about compound financial instruments with multiple embedded derivatives. Not Applicable (vi) Breaches of terms of loan agreements. Not Applicable 1.2 Statement of Comprehensive Income 1.2.1 Disclosures on items of income, expense, gains and losses Note No to 1 to 7 of the Financial Statements 1.2.2 Other disclosures: (i) Total interest income and total interest expense for those financial instruments that are not Note 1.1 and 2 of the Financial Statements measured at fair value through profit and loss. (ii) Fee income and expense. Note No to 1.2 of the Financial Statements (iii) Amount of impairment losses by class of financial assets. Note No to 3 of the Financial Statements (iv) Interest income on impaired financial assets. Note No to 18.1 of the Financial Statements 1.3 Other disclosures 1.3.1 Accounting policies for financial instruments Accounting Policies No to 3.5 & 3.9 of the Financial Statements 1.3.2 Information on hedge accounting Not Applicable 1.3.3 Information about the fair values of each class of financial asset and financial liability, along with: (i) Comparable carrying amounts. Note No 41 - Fair value of financial instruments (ii) Description of how fair value was determined. Note No 41 - Fair value of financial instruments (iii) The level of inputs used in determining fair value. Note No 41 - Fair value of financial instruments (iv) Reconciliations of movements between levels of fair value measurement hierarchy, additional Not Applicable disclosures for financial instruments that fair value is determined using level 3 inputs. (v) Information if fair value cannot be reliably measured. Not Applicable
Sampath Bank PLC 397 COMPLIANCE WITH THE DISCLOSURE REQUIREMENTS SPECIFIED BY THE CENTRAL BANK OF SRI LANKA
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 Note 42 - Risk Management of the Financial Statements 2.1.2 Management's objectives, policies, and processes for managing those risks Note 42 - Risk Management of the Financial Statements 2.1.3 Changes from the prior period Not Applicable 2.2 Quantitative disclosures 2.2.1 Summary of quantitative data about exposure to each risk at the reporting date. Note 42 - Risk Management of the Financial Statements 2.2.2 Disclosures about credit risk, liquidity risk, market risk, operational risk, interest rate risk and how Note 42 - Risk Management of the these risks are managed. Financial Statements (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. (b) For financial assets that are past due or impaired, disclosures on age, factors considered in Note 42.2 - Risk Management of the determining as impaired and the description of collateral on each class of financial asset. Financial Statements (c) Information about collateral or other credit enhancements obtained or called. (d) For other disclosures, refer Banking Act Direction No. 7 of 2011 on Integrated Risk Management Framework for Licensed Banks (Section H). (ii) Liquidity Risk (a) A maturity analysis of financial liabilities. Note 42.3 - Liquidity Risk and (b) Description of approach to risk management. funding management of the Financial (c) For other disclosures, refer Banking Act Direction No. 7 of 2011 on Integrated Risk Statements Management Framework for Licensed Banks (Section H). (iii) Market Risk (a) A sensitivity analysis of each type of market risk to which the entity is exposed. (b) Additional information, if the sensitivity analysis is not representative of the entity's risk Note 42.4 - Market Risk of the exposure. Financial Statements (c) For other disclosures, refer Banking Act Direction No. 7 of 2011 on Integrated Risk Management Framework for Licensed Banks (Section H). (iv) Operational Risk Refer Banking Act Direction No. 7 of 2011 on Integrated Risk Management Framework for Note 42.7 - Operational Risk of the Licensed Banks (Section H). Financial Statements (v) Equity risk in the banking book (a) Qualitative disclosures - Differentiation between holdings on which capital gains are expected and those taken Note 42.6 - Equity Price Risk of the under other objectives including for relationship and strategic reasons. Financial Statements - Discussion of important policies covering the valuation and accounting of equity holdings in the banking book.
398 Annual Report 2012 (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 Note 42.6 - Equity Price Risk of the values where the share price is materially different from fair value. Financial Statements - The types and nature of investments - The cumulative realised gains/(losses) arising from sales and liquidations in the reporting period. (vi) Interest rate risk in the banking book (a) Qualitative disclosures - Nature of interest rate risk in the banking book (IRRBB) and key assumptions Note 42.4.1 - Interest Rate Risk of the Financial Statements (b) Quantitative disclosures - The increase/(decline) in earnings or economic value (or relevant measure used by Note 42.4.1 - Interest Rate Risk of the management) for upward and downward rate shocks according to management’s method for Financial Statements measuring IRRBB, broken down by currency (as relevant). 2.2.3 Information on concentration of risk Note 42 - Risk Management of the Financial Statements 3 Other disclosures 3.1 Capital 3.1.1 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. (ii) Quantitative disclosures (a) The amount of Tier 1 capital, with separate disclosure of: - Paid-up share capital/common stock - Reserves - Non-controlling interests in the equity of subsidiaries - Innovative instruments Capital Adequacy - Other capital instruments - Deductions from Tier 1 capital (b) The total amount of Tier 2 and Tier 3 capital (c) Other deductions from capital (d) Total eligible capital 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. (ii) Quantitative disclosures (a) Capital requirements for credit risk, market risk and operational risk Capital Adequacy (b) Total and Tier 1 capital ratio
Sampath Bank PLC 399 SHARE INFORMATION
Value Creation for Shareholders
2012 2011 Change %
Net Assets Per Share (Rs.) 154.24 130.190 18.5 Earnings Per Share - Group (Rs.) 32.98 23.00 43.4 Dividend Per Share (Rs.) 12.00 9.00 33.3 Market Price Per Share - Year End (Rs.) 200.50 195.00 2.8 Return On Equity - After Tax (%) 22.33 16.17 38.1
Earnings and Highest Market Price Dividend Per Share Shareholders' Funds per Share (Rs.Mn.) Rs. Rs. Rs. 30,000 35 600 12
30 25,000 500 9 25 20,000 400 20
15,000 EPS 6 HMPPS 15 300 10,000 10 3 200 5,000 5
0 0 100 0 08 09 10 11 12 08 09 10 11 12 08 09 10 11 12
Shareholders' Funds Earnings Per Share (EPS) - Group Highest Market Price Per Share (HMPPS) Dividend Per Share
Bank’s Market Capitalisation in Comparison to CSE - As at December
2012 2011 2010 2009 2008
Sampath Bank Market Capitalisation (Rs.Mn) 32,628 30,587 41,548 14,070 4,684 Increase/Decrease % in Market Capitalisation (Y on Y) 7% (26%) 195% 200% (43%) CSE Market Capitalisation (Rs.Mn) 2,167,581 2,213,873 2,210,452 1,092,137 488,812 As a % of CSE Market Capitalisation 1.5 1.38 1.88 1.29 0.96 Market Capitalisation Rank 13 16 15 19 25
Sampath Market Capitalisation Sampath Market Capitalisation Gross Dividend Rank Y on Y Rs. Mn. No. Rs. Mn. 50,000 25 2000
40,000 1500 20 30,000 1000 20,000 15 500 10,000
0 10 0 08 09 10 11 12 08 09 10 11 12 08 09 10 11 12
Sampath Market Capitalisation Sampath Market Capitalisation Gross Dividend Rank Y on Y
400 Annual Report 2012 Analysis of Shareholders Resident / Non - Resident
31.12.2012 31.12.2011 No of No of % No of No of % Shareholders Shares Shareholders Shares
Resident Shareholders 17,216 153,613,404 94.39 17,181 149,306,088 95.19 Non-Resident Shareholders 302 9,123,261 5.61 334 7,548,102 4.81 Total 17,518 162,736,665 100.00 17,515 156,854,190 100.00
Individuals / Institutions
31.12.2012 31.12.2011 No of No of % No of No of % Shareholders Shares Shareholders Shares
Individuals / Public 9,081 11,728,136 7.21 9,868 14,450,927 9.21 Institutions 8,437 151,008,529 92.79 7,647 142,403,263 90.79 Total 17,518 162,736,665 100.00 17,515 156,854,190 100.00
Composition of Share Ownership (No. of Shareholders)
31.12.2012 31.12.2011 No of % No of % No of % No of % Shareholders Shares Shareholders Shares
Shares 500 & Less 8,813 50.31 1,711,831 1.05 8,709 49.72 1,786,425 1.14 Shares 501 - 5,000 7,359 42.01 11,020,135 6.77 7,416 42.34 11,087,948 7.07 Shares 5,001 - 10,000 656 3.74 4,467,234 2.75 679 3.88 4,586,386 2.92 More than 10,000 Shares 690 3.94 145,537,465 89.43 711 4.06 139,393,431 88.87 17,518 100.00 162,736,665 100.00 17,515 100.00 156,854,190 100.00
Shareholding of Individuals & Institutions Composition of Share Ownership - 2012 Composition of Share Ownership - 2012 as at 31st December (No of Shares) (No of Sharesholders) % 100
80
60
40
20 Shares 500 & Less - 1.05% Shares 500 & Less - 50.31% 0 Shares 501 - 5,000 - 6.77% 08 09 10 11 12 Shares 501 - 5,000 - 42.01% Shares 5,001 - 10,000 - 2.75% Shares 5,001 - 10,000 - 3.74% Individuals/Public More than 10,000 Shares - 89.43% More than 10,000 Shares - 3.94% Institutions
Sampath Bank PLC 401 SHARE INFORMATION
Share Trading Market
2012 2011 2010 2009 2008
No of Transactions 1,857,384 4,579,352 3,355,126 1,266,299 776,244 Number of Shares Traded 9,691,236,634 24,543,700,782 18,489,195,424 4,928,999,666 3,189,135,408 Value of Shares Traded (Rs.Mn) 213,827 546,255 570,326 142,463 110,454
Bank
2012 2011 2010 2009 2008
No of Transactions 13,473 15,335 20,154 8,578 1,280 Number of Shares Traded 28,871,254 26,951,903 67,672,164 19,077,355 5,356,600 As a % of total shares in issue 17.74 17.18 44.20 27.69 7.77 Average Daily Turnover (Rs.Mn) 22.55 30.23 90.78 10.41 2.41 Value of Shares Traded (Rs.Mn) 5,457.94 7,225.70 20,427.00 2,457.52 574.74
Sampath Share Price Fluctuation
2012 2011 2010 2009 2008
Minimum Market Price (Rs.) 148.50 191.00 201.00 65.00 65.00 Maximum Market Price (Rs.) 216.00 307.00 550.00 205.00 120.00 Price as at 31st December Closing (Rs.) 200.50 195.00 271.90 204.25 68.00
Sampath Return on Equity & Share Trading - Sampath Bank PLC Market Interest Rates % Shares Mn. 30 80 70 25 60 20 50 15 40 30 10 20 5 10
0 0 08 09 10 11 12 08 09 10 11 12
Average 12 Mts. Treasury Bill Rate Share Trading - Sampath Bank PLC AWFDR Sampath ROE
402 Annual Report 2012 Share Trading Sampath Share Price Fluctuation
Nos.’000 Rs’000 Rs. 30,000 10,000,000 600
24,000 8,000,000 500
400 18,000 6000,000 300
12,000 4000000 Turnover 200 Volume Traded 6,000 2000000 100
0 0 0 08 09 10 11 12 08 09 10 11 12 Price as at 31st December Volume Traded (No '000) Maximum Market Price Turnover (Rs.'000) Minimum Market Price
Sampath Bank PLC - Ordinary Shares Frequency Distribution of Shareholders as at 31 December 2012
Resident Non-Resident Total Share Range No. of No of No of No of % No of Shares % % % % No of Shares % Shareholders Shareholders Shares Shareholders
1 - 250 4,336 24.75 341,780 0.21 55 0.31 4,390 0.00 4,391 25.07 346,170 0.21 251 - 500 4,378 24.99 1,350,957 0.83 44 0.25 14,704 0.01 4,422 25.24 1,365,661 0.84 501 - 1000 3,070 17.52 2,020,429 1.24 41 0.23 26,619 0.02 3,111 17.76 2,047,048 1.26 1001 - 2000 2,350 13.41 3,251,872 2.00 54 0.31 73,258 0.05 2,404 13.72 3,325,130 2.04 2001 - 5000 1,796 10.25 5,492,255 3.37 48 0.27 155,702 0.10 1,844 10.53 5,647,957 3.47 5001 - 10000 639 3.65 4,359,985 2.68 17 0.10 107,249 0.07 656 3.74 4,467,234 2.75 10001 - 20000 315 1.80 4,303,745 2.64 18 0.10 228,085 0.14 333 1.90 4,531,830 2.78 20001 - 30000 108 0.62 2,625,747 1.61 3 0.02 71,051 0.04 111 0.63 2,696,798 1.66 30001 - 40000 57 0.33 1,921,212 1.18 3 0.02 104,167 0.06 60 0.34 2,025,379 1.24 40001 - 50000 32 0.18 1,406,778 0.86 1 0.01 41,871 0.03 33 0.19 1,448,649 0.89 50001 - 100000 60 0.34 4,118,370 2.53 3 0.02 204,220 0.13 63 0.36 4,322,590 2.66 100001 - 1000000 60 0.34 16,073,790 9.88 12 0.07 3,418,728 2.10 72 0.41 19,492,518 11.98 1000001 - Over 15 0.09 106,346,484 65.35 3 0.02 4,673,217 2.87 18 0.10 111,019,701 68.22 Total 17,216 98.28 153,613,404 94.39 302 1.72 9,123,261 5.61 17,518 100.00 162,736,665 100.00
Sampath Bank PLC 403 SHARE INFORMATION
Sampath Bank PLC - Ordinary Shares Top 20 Shareholders as at 31st December 2012
Name of Shareholder Shareholding %
VALLIBEL ONE PLC 24,371,697 14.98 MR.Y.S.H.I.SILVA 16,197,706 9.95 EMPLOYEES PROVIDENT FUND 15,963,102 9.81 ROSEWOOD (PVT) LIMITED-ACCOUNT NO.3 11,159,450 6.86 MS.L.A.CAPTAIN 6,201,050 3.81 CORPORATE SERVICES LIMITED A/C NO 02 5,989,152 3.68 MR.S.E.CAPTAIN 5,777,183 3.55 VARNERS INTERNATIONAL (PRIVATE) LIMITED 5,725,019 3.52 SSP CORPORATE SERVICES (PRIVATE) LIMITED A/C NO 01 5,335,685 3.28 SAMPATH BANK PLC ACCOUNT NO 04 (SAMPATH BANK PENSION FUND) 2,654,994 1.63 GOLDMAN SACHS & CO S/A ARTHA MASTER FUND LTD. 1,884,400 1.16 EMPLOYEES TRUST FUND BOARD 1,713,327 1.05 MR.S.V.SOMASUNDERAM 1,617,204 0.99 MR.B.A.MAHIPALA 1,614,848 0.99 NORTHERN TRUST CO S/A-NORTHERN TRUST FIDUCIARY SERVICES (IRELAND) LTD AS TRUSTEE TO BARING 1,468,817 0.90 ASEAN FRONTIERS FUND KEYSTONE (PRIVATE) LIMITED 1,347,336 0.83 MELLON BANK N.A.-UPS GROUP TRUST 1,320,000 0.81 CEYLON GUARDIAN INVESTMENT TRUST PLC A/C # 01 1,027,570 0.63 SRI LANKA INSURANCE CORPORATION LTD-LIFE FUND 968,536 0.60 AVIVA NDB INSURANCE PLC A/C NO.07 818,349 0.50 113,155,425 69.53
Total No. of Shares Registered 162,736,665 100.00 Total No. of Shares Unregistered 0 0.00 Total No. of Shares Issued 162,736,665 100.00
Shares held by Directors * 45,650 0.03 Shares held by Institutions 151,008,529 92.79 Balance held by Public 11,682,486 7.18 Total No. of Shares Issued 162,736,665 100.00
% of Shares held by Public 84.99% % of Shares held by Directors and Related Parties 15.01%
* Mr. Dhammika Perera is the Chairman of Vallibel One PLC as well as Sampath Bank PLC, total shares held by Vallibel One PLC is categorised under institutions.
404 Annual Report 2012 Dividend Payment Details
Year Total Dividend Paid Dividend Per Share Net Profit after Tax Dividend Pay Out Ratio Rs.Mn Rs.Mn
2000/2001 58.70 Rs 1.75 402.00 14.60% 2001/2002 52.14 Rs 1.75 322.00 16.19% 2002/2003 88.57 Rs 2.00 441.00 20.08% 2003 (Interim) 59.78 Rs 2.00 561.00 14.58% 2003 (Final) 21.99 2004 (Interim) 65.98 Rs 2.00 621.00 16.15% 2004 (Final) 34.30 2005 (Interim) 87.14 Rs 2.00 821.00 14.54% 2005 (Final) 32.21 2006/2007 155.47 Rs 2.50 1,028.00 15.12% 2007/2008 206.66 Rs 3.00 1,052.00 19.64% 2008/2009 256.65 Rs 4.00 1,414.00 18.15% 2009/2010 436.19 Rs 6.25 2,098.00 20.79% 2010/2011 1,235.86 Rs.8.09 3,303.00 37.42% 2011/2012 1,426.98 Rs.9.00 3,819.00 37.37% 2012/2013 (Proposed) 1,952,84 Rs.12.00 5,136.13 38.02%
Record of Scrip Issues
Year Issue Basis New No. of Shares Stated Capital P- (Rs.Mn) Reason For Issue
2010 Scrip Dividend 1 for 120.7 627,596 1,786.25 Increase Stated Capital 2011 Scrip Dividend 1 for 43.39 3,521,294 2,701.79 Increase Stated Capital 2012 Scrip Dividend 1 for 33.12 4,915,986 3,564.17 Increase Stated Capital
Record of Subdivisions
Year Issue Basis New No. of Shares Stated Capital P- (Rs.Mn) Reason For Issue
2010 Consolidation and Subdivision 11 for 10 6,888,762 1,581.65 Increase in Liquidity 2010 Subdivision 1 for 1 76,403,986 1,786.25 Gift benefit to Shareholders
Employee Share Option Plan - 2010
Year Issue Basis New No. of Shares Stated Capital P- (Rs.Mn) Reason For Issue
2011 ESOP 2% of issued Shares 524,924 2,743.78 Motivate Staff Members 2012 ESOP 2% of issued Shares 2,200,436 3,564.17 Motivate Staff Members
Sampath Bank PLC 405 DEBENTURE INFORMATION
(a) Market Values
Highest Lowest Period End 2012 2011 2012 2011 2012 2011
Debentures - 2007/2012* Fixed - 17.5% Not Traded Not Traded Not Traded Not Traded Not Traded Not Traded Fixed - 15.5% Not Traded Not Traded Not Traded Not Traded Not Traded Not Traded Floating rate Not Traded Not Traded Not Traded Not Traded Not Traded Not Traded
* These Debentures were redeemed on 29th August 2012
Highest Lowest Period End 2012 2011 2012 2011 2012 2011
Debentures - 2012/2017 Fixed - 16.5% 100.00 N/A 100.00 N/A 100.00 N/A Fixed - 15.0% 100.00 N/A 100.00 N/A 100.00 N/A Floating rate Not Traded N/A Not Traded N/A Not Traded N/A
(b) Interest Rates
2012 2011 Coupon Effective Coupon Effective Rate Rate Rate Rate
Debentures - 2007/2012 Fixed - 17.5% 17.50% 17.50% 17.50% 17.50% Fixed - 15.5% 15.50% 16.65% 15.50% 16.65% Floating rate - - - -
2012 2011 Coupon Effective Coupon Effective Rate Rate Rate Rate
Debentures - 2012 / 2017 Fixed - 16.5% 16.50% 16.50% N/A N/A Fixed - 15.0% 15.00% 16.08% N/A N/A Floating rate - - - -
Debentures - 2007/2012 Floating rate is equivalent to the three month Treasury Bill rate (gross) plus 1.5% p.a., payable quarterly. These debentures were redeemed on 29th August 2012.
Debentures - 2012/2017 Floating rate is equivalent to the six month Treasury Bill rate (gross) plus 2.0 % p.a., payable half yearly.
406 Annual Report 2012 (c) Interest Rate of Comparable Government Securities - Gross Rates
2012 2011
3 Month Treasury Bill 11.11% 9.64% 6 Month Treasury Bill 12.58% 9.68%
(d) Current Yield & Yield to maturity
Fixed Fixed Floating
17.50% 15.50% 2012 2011 2012 2011 2012 2011
Debentures - 2007/2012 Current yield Not Traded Not Traded Not Traded Not Traded Not Traded Not Traded Yield to maturity of last trade Not Traded Not Traded Not Traded Not Traded Not Traded Not Traded
Fixed Fixed Floating
17.50% 15.50% 2012 2011 2012 2011 2012 2011
Debentures - 2012 / 2017 Current yield 16.50% N/A 16.08% N/A Not Traded N/A Yield to maturity of last trade 16.50% N/A 16.08% N/A Not Traded N/A
(e) Ratios
2012 2011
Debt to Equity Ratio (%) 12.4% 16.0% Interest Cover ( Times) 34.9 24.4 Quick Asset Ratio (%) 104.7% 80.4%
Sampath Bank PLC 407 Financial information / Branch Network BRANCH NETWORK
Central Province Branch Branch name Address Telephone No. Fax No. E-mail Code Dambulla No.622, Anuradhapura Road, Dambulla (066) 2283085/87 (066) 2283067 [email protected] 90 03 Digana No. 42, Mahiyangana Road, Digana, Rajawella (081) 2376765 (081) 2376765 [email protected] 85 Branches Galewela No. 31C, Kurunegala Road, Galewela (066) 2287725/6 (066) 2287727 [email protected] 190 Matale District Gampola No.06, Panabokke Mawatha, Gampola (081) 2350564/5 (081) 2350571 [email protected] 101 Hatton No. 173, Dimbula Road, Hatton (051) 2225403/5 (051) 2225405 [email protected] 80 Kandy - (081) 2232778 - No. 19, Dalada Veediya, Kandy (081) 2232779 [email protected] 7 Kandy District DaladaVeediya 2233838 Shop No.L 1-6 Level One, Kandy City Centre Kandy City Centre (081) 2205825/6 (081) 2205827 [email protected] 123 13 Building, Dalada Veediya, Kandy Branches Kandy - Metro No. 29, Cross Street, Kandy (081) 2200096/8 (081) 2200098 [email protected] 100 Katugastota No:187, Madawala Road, Katugastota (081) 2498932/4 (081) 2499123 [email protected] 32 Nuwara Eliya District Kundasale No. 232, Digana Road, Kundasale (081) 2421763/4 (081) 2421767 [email protected] 133 03 Matale No.184 - 186, Trincomalee Street, Matale (066) 2223861/2 (066) 2224094 [email protected] 25 Branches Menikhinna No.54A, Madawala Road, Menikhinna (081) 2376547/8 (081) 2376549 [email protected] 184 Nawalapitiya No. 92, Gampola Road, Nawalapitiya (054) 2223277/700 (054) 2223920 [email protected] 195 Nuwara Eliya No. 01, Lawson Street, Nuwara Eliya (052) 2222946/7 (052) 2222948 [email protected] 84 Peradeniya No. 676 A, Peradeniya Road, Kandy (081) 2387876/7 (081) 2384054 [email protected] 51 Pussellawa No:551, Nuwara Eliya Road, Pusselllawa (081) 2478034/5 (081) 2478036 [email protected] 152 Pilimatalawa No.246, Colombo Road, Pilimatalawa (081) 2577341, 336 (081) 2577396 [email protected] 150 Rikillagaskada No:120, Kandy Road, Rikillagaskada (081) 2365021/2 (081) 2365023 [email protected] 163 Wattegama No.134/A/1, Kandy Road, Wattegama (081) 2476876/7 (081) 2470600 [email protected] 105
Eastern Province Branch Branch name Address Telephone No. Fax No. E-mail Code No. 61, Sulaiman Shopping Complex, Main Matale District Akkaraipattu (067) 2279197/8 (067) 2279199 [email protected] 111 Street, Akkaraipattu 04 Ampara No. 9, D S Senanayake Road, Ampara (063) 2223840/1 (063) 2223444 [email protected] 62 Branches Batticaloa No.32, Thamaraikeny Road, Batticaloa (065) 2227581/2 (065) 2227583 [email protected] 107 Batticaloa 02 No:395, Trinco Road, Batticaloa (065) 2228240/1 (065) 2228242 [email protected] 139 ‘Sellam Building’, Boundary Road Junction, Main Chenkalady (065) 2241348/9 (065) 2241350 [email protected] 121 Road, Chenkalady Dehiattakandiya No. F 79, New Town, Dehiattakandiya (027) 2250418/9 (027) 2250420 [email protected] 167 Batticaloa District Kalmunai No. 18, Police Station Road, Kalmunai (067) 2220448/9 (067) 2222020 [email protected] 112 (065) 2251177, Kaluwanchikudy Hospital Road, Kaluwanchikudy (065) 2250208 [email protected] 125 2250807 06 Kantale No:70/1, Agrabodhi Road, Kantale (026) 2234490/1 (026) 2234492 [email protected] 172 Branches Kattankudy No.57,59, Main Street, Kattankudy 03 (065) 2247930/2 (065) 2247932 [email protected] 115 No:106, 108 ,110 Main Road [Right Side], Kinniya (026) 2236348/9 (026) 2236350 [email protected] 177 Kinniya 03 Muttur No:67, Main Street, Muttur (026) 2238181/2 (026) 2238183 [email protected] 208 Ninthavur No. 45/4A, Main Street, Ninthavur (067) 2251388/9 (067) 2251390 [email protected] 185 (065) 2257372, Oddamavady Colombo Road, Mavadichenai, Oddamavady (065) 2258211 [email protected] 124 07 2258210 Branches Pottuvil Cassim Moulavi Building, Main Street, Pottuvil (063) 2248190/4 (063) 2248196 [email protected] 130 Ampara District Sainthamaruthu Main Street, Sainthamaruthu - 16 (067) 2225310/320 (067) 2225330 [email protected] 126 Trincomalee No. 262, Central Road, Trincomalee (026) 2225387/9 (026) 2225389 [email protected] 66
Northern Province Branch Branch name Address Telephone No. Fax No. E-mail Code Chankanai Main Street, Chankanai (021) 2250072/3 (021) 2250072 [email protected] 164 Chavakachcheri Kandy Road, Chavakachcheri (021) 2270091/2 (021) 2270093 [email protected] 169 Chunnakam No.160, K K S Road, Chunnakam (021) 2240721/2 (021) 2240723 [email protected] 128 Jaffna No.56/16, Link Road, Off Stanley Road, Jaffna (021) 2221025/6 (021) 2221027 [email protected] 120 Kayts Suruvil Road, Kayts (021) 3215432/4 (021) 3215428 [email protected] 171 Kilinochchi Unit 1-4, Antonipillai Building, Kilinochchi (021) 2285340/1 (021) 2285342 [email protected] 148 Manipay No.103, Jaffna Road, Manipay (021) 2255041/2 (021) 2255043 [email protected] 147 Mallavi No. 06, Thunnukai Road, Mallavi (021) 3734802/3 (021) 3734804 [email protected] 174 Mannar No. 28, Field Street, Ward No.06, Mannar (023) 2251320/1 (023) 2251322 [email protected] 119
408 Annual Report 2012 Jaffna District Northern Province Contd. 08 Branch Branches Branch name Address Telephone No. Fax No. E-mail Code (021) 2262474, Nelliady No. 169, Jaffna Road, Nelliady (021) 2264951 [email protected] 129 Kilinochchi District 2264950 01 Thirunelveli Palaly Road, Thirunelveli North, Jaffna (021) 2224801/3 (021) 2224802 [email protected] 186 Branches Mullathivu District Vavuniya No. 25, Station Road, Vavuniya (024) 2222959 (024) 4589500 [email protected] 55 01 Vavuniya Super No:7A, Horowpatana Road, Vavuniya (024) 2226227/8 (024) 2226229 [email protected] 170 Branches 01 02 North Central Province Branches Branches Branch Branch name Address Telephone No. Fax No. E-mail Mannar District Vavuniya District Code Anuradhapura No.38, Rex Building, Main Street, Anuradhapura (025) 2235026/7 (025) 2235028 [email protected] 21
Anuradhapura New No. 521/19, Maithripala Senanayake Mawatha, anuradhapura_newt.mgr@ (025) 2226190/1 (025) 2226192 168 Town New Town, Anuradhapura sampath.lk Aralaganwila No.113, New Town, Aralaganwila (027) 2257204/5 (027) 2257206 [email protected] 154 Hingurakgoda No.88, D S Senanayake Veediya, Hingurakgoda (027) 2245300/1 (027) 2245302 [email protected] 110
No.626B, Dharmasiri Building, Main Street, Kaduruwela (027) 2225567/8 (027) 2225569 [email protected] 38 Kaduruwela
kahatagasdigiliya.mgr@ Anuradhapura District Kahatagasdigiliya No:67, Anuradhapura Road, Kahatagasdigiliya (025) 2247087/70 (025) 2247069 203 sampath.lk 06 Kekirawa No.56, Main Street, Kekirawa (025) 2265266/7 (025) 2265268 [email protected] 149 Branches Nochchiyagama No:62, Puttalam Road, Nochchiyagama (025) 2257332/3 (025) 2257334 [email protected] 138 (025) 2276836, thambuththegama.mgr@ Thambuththegama No.255 C, Anuradhapura Road, Thambuttegama (025) 2275072 48 03 2275072 sampath.lk Branches
Polonnaruwa District North Western Province Branch Branch name Address Telephone No. Fax No. E-mail Code (037) 2279209, Alawwa No. 9, 9/1 Giriulla Road, Alawwa (037) 2279209 [email protected] 53 2279463 Anamaduwa No:69, Galgamuwa Road, Anamaduwa (032) 2263042/3 (032) 2263044 [email protected] 143 Chilaw No. 64, Colombo Road, Chilaw (032) 2222677/8 (032) 2222777 [email protected] 108 Dankotuwa No:63, Nattandiya Road, Dankotuwa (031) 2261361/2 (031) 2261360 [email protected] 196 Giriulla No. 103/A, Negombo Road, Giriulla (037) 2289482 (037) 2289482 [email protected] 95 Hettipola Kurunegala Road, Hettipola (037) 2291082/3 (037) 2291084 [email protected] 187 (037) 2281860/1, Kuliyapitiya No. 259, Madampe Road, Kuliyapitiya (037) 2281861 [email protected] 23 08 2281866 Branches Kurunegala No. 31, Negombo Road, Kurunegala (037) 2223500/2 (037) 2223509 [email protected] 6 Madampe No. 16, New Town, Medagama Road, Madampe (032) 2249222/444 (032) 2249555 [email protected] 189 Puttalam District Maho No. 112-114, Moragollagama Road, Maho (037) 2275170/1 (037) 2275172 [email protected] 197 Marawila No. 87, Chilaw Road, Marawila (032) 2250862/3 (032) 2250861 [email protected] 194 11 (037) Branches Mawathagama No. 95, Kurunegala Road, Mawathagama (037) 2296088 [email protected] 109 2296088/2296288 Kurunegala District Narammala No.77 & 89 1/1, Kuliyapitiya Road, Narammala (037) 2248945/6 (037) 2248947 [email protected] 99 Nattandiya No.149, Kuliyapitiya Road, Nattandiya (032) 2250263/4 (032) 2250265 [email protected] 132 Nikaweratiya No. 136, Kurunegala Road, Nikaweratiya (037) 2260918/9 (037) 2260920 [email protected] 102 (037) 2246250, Pannala No. 100, Negombo Road, Pannala (037) 2245272 [email protected] 166 2245270 Puttalam No.114 A, Kurunegala Road,Puttalam (032) 2266312/3 (032) 2266314 [email protected] 156 Nawinna Office & Shopping Complex, Wariyapola (037) 2268707/8 (037) 2268144 [email protected] 44 Kalugamuwa Road, Wariyapola 06 Wennappuwa No. 191/A, Colombo Road, Wennappuwa (031) 2256925/7 (031) 2256926 [email protected] 30 Branches
Kegalla District Sabaragamuwa Province Branch Branch name Address Telephone No. Fax No. E-mail Code Balangoda No.117, Barnes Ratwatta Mawatha, Balangoda (045) 2288793/5 (045) 2288795 [email protected] 97 Deraniyagala No. 63, Noori Road, Deraniyagala. (036) 2249500 (036) 2249500 [email protected] 49 06 Eheliyagoda No. 02, Ratnapura Road, Eheliyagoda (036) 2258031/2 (036) 2258031 [email protected] 20 Branches Ratnapura District Embilipitiya No. 62, Main Street, Embilipitiya (047) 2261203/4 (047) 2261205 [email protected] 43 Kalawana No. 54/B, 54/C, Manana, Kalawana (045) 2255793/4 (045) 2255795 [email protected] 41
Kegalle No.142, 142A, Kandy Road, Kegalle (035) 2230597/ 8 (035) 2230519 [email protected] 64 Mawanella No:209, New Kandy Road, Mawanella (035) 2246961/2 (035) 2246963 [email protected] 160
Sampath Bank PLC 409 Financial information / Branch Network
BRANCH NETWORK
Sabaragamuwa Province Contd. Branch Branch name Address Telephone No. Fax No. E-mail Code Pelmadulla No. 77B, Main Street, Pelmadulla (045) 2275920 - 2 (045) 2275922 [email protected] 103 (035) 2265641, Rambukkana New Pradeshiya Sabha Building, Rambukkana (035) 2266244 [email protected] 188 2266466 Ratnapura No. 180 – 82, Main Street, Ratnapura (045) 2232261/2 (045) 2224361 [email protected] 33 Ruwanwella No:4, Veyangoda Road, Ruwanwella (036) 2266971/2 (036) 2266973 [email protected] 201 Warakapola No. 95, Kandy Road, Warakapola (035) 2267981/2 (035) 2267983 [email protected] 205
Southern Province Branch Hambantota District Branch name Address Telephone No. Fax No. E-mail Code 09 07 06 Ahangama No. 71A, Matara Road, Ahangama (091) 2282902/3 (091) 2282904 [email protected] 182 Branches Branches Branches Akuressa No.14/16, Pitabeddara Road, Akuressa (041) 2284650/1 (041) 2284652 [email protected] 179 Galle District Ambalangoda No. 118 A, New Road, Ambalangoda (091) 2255571/3 (091) 2255573 [email protected] 72 Matara District Ambalantota No. 138 D, Tissa Road, Ambalantota (047) 2225506 - 8 (047) 2225508 [email protected] 104 Baddegama No. 112, Diyawagura, Kumme, Baddegama (091) 2293230/1 (091) 2293232 [email protected] 118 Beliatta No. 53/1, Dickwella Road, Beliatta (047) 2251551/2 (047) 2251553 [email protected] 180 (041) 2273225, Deniyaya No. 28-30, Main Street, Deniyaya (041) 2273255 [email protected] 14 2273255 No.10, Royal Building, Ambalangoda Road, Elpitiya (091) 2291961/2 (091) 2291963 [email protected] 204 Elpitiya Galle No. 5, Wackwella Road, Galle (091) 2245646/7 (091) 2245645 [email protected] 35 ‘Krishna Building ‘, No:69, Old Matara Road, Galle Bazaar (091) 2248582/3 (091) 2248584 [email protected] 159 Pettigalawatte, Galle No. 1270, ‘Lanerolle’ Super Centre, Matara Habaraduwa (091) 2282772/3 (091) 2282774 [email protected] 181 Road, Habaraduwa Kamburupitiya No. 48, Mulatiyana Road, Kamburupitiya (041) 2294701/2 (041) 2294703 [email protected] 206 Karapitiya No:598F, Hirimbura Road, Karapitiya (091) 2248456/7 (091) 2248458 [email protected] 141 Matara No. 3, Hakmana Road, Matara (041) 2223260/1 (041) 2223268 [email protected] 10 Matara Bazaar No:37, New Tangalle Road, Kotuwegoda, Matara (041) 2234055/6 (041) 2234057 [email protected] 153 ‘Abeysinghe Building’, Walasmulla Road, Middeniya (047) 2248231/2 (047) 2248233 [email protected] 158 Middeniya ‘Ranaweera Building’, Akuressa, Deniyaya Road, Morawaka (041) 2282310/11 (041) 2282312 [email protected] 15 Morawaka Neluwa Dellawa Road, Main Street, Neluwa (091) 3783010/11 - [email protected] 54 Sooriyawewa No:6719, Ambalantota Road, Sooriyawewa (047) 2288155/6 (047) 2288157 [email protected] 157 Tangalle No.61, Muhudu Mawatha, Tangalle (047) 2241865/6 (047) 2241870 [email protected] 116 (047) 2237056, Tissamaharama No. 25 – 27, Main Street, Tissamaharamaya (047) 2237058 [email protected] 28 2237058 (041) 2253003, Weligama No:253, Matara Road, Weligama (041) 2254003 [email protected] 209 2254002
Uva Province Branch Branch name Address Telephone No. Fax No. E-mail Code Badulla No. 14, Dharmadutha Road, Badulla (055) 2225450/1 (055) 2225452 [email protected] 93 Bandarawela No.253, 255, Main Street, Bandarawela (057) 2223720/1 (057) 2223722 [email protected] 46 05 Bibile No.31, Mahiyangana Road, Bibile (055) 2265398/9 (055) 2265400 [email protected] 161 Branches ‘Madurapperuma Building’, Kataragama Road, Badulla District Buttala (055) 2273530/4 (055) 2273537 [email protected] 145 Buttala Mahiyangana No. 28, 29, New Town, Mahiyangana (055) 2258180 (055) 2258181 [email protected] 56 (055) 04 Monaragala No. 75, Pothuwil Road, Monaragala (055) 2277222 [email protected] 74 Branches 2277222/290/1 Monaragala District Passara No:187/1, Badulla Road, Passara (055) 2288311/2 (055) 2288313 [email protected] 146 Welimada No. 54, Nuwara Eliya Road, Welimada (057) 2244466/7 (057) 2244468 [email protected] 81 (055) Wellawaya No. 70/D, Kumaradasa Mawatha, Wellawaya (055) 2274470 [email protected] 113 2274445/419/ 470
Western Province Branch Branch name Address Telephone No. Fax No. E-mail Code Aluthgama No. 405, Galle Road, Aluthgama (034) 2290861/2 (034) 2290863 [email protected] 79 (011) 2563612, Athurugiriya No. 106, Borella Road, Athurugiriya (011) 2156080 [email protected] 67 2156081 Attidiya No. 202, Main Road, Attidiya (011) 2725668 - [email protected] 89
410 Annual Report 2012 Western Province 24 Branch Branches Branch name Address Telephone No. Fax No. E-mail Code Gampaha District Avissawella No. 64, Yatiyanthota Road, Avissawella (036) 2222011/2 (036) 2222010 [email protected] 22 No.1-01, Majestic City, Station Road, (011) 2502686, Bambalapitiya (011) 2501829 [email protected] 11 Bambalapitiya, Colombo 04 2501829 55 Colombo District Bandaragama No.61/A, Kalutara Road, Bandaragama (038) 2289898/9 (038) 2293056 [email protected] 59 Branches Battaramulla No. 157, Main Street, Battaramulla (011) 2861805/6 (011) 2861807 [email protected] 61 Boralesgamuwa No:192, Kesbewa Road, Boralesgamuwa (011) 2545245/6 (011) 2545248 [email protected] 142 (011) 2691121- 10 Borella No. 1022, Maradana Road, Borella, Colombo 08 (011) 2686066 [email protected] 4 Branches 3,2687222 Kalutara District (011) 2328569, City No. 55, D.R.Wijewardena Mawatha, Colombo 10 (011) 2434217 [email protected] 1 2434431 Colombo Super No:103, Dharmapala Mawatha, Colombo 07 (011) 2336112/3 (011) 2336115 [email protected] 175 (011) 2738481, Dehiwala No. 155, Galle Road, Dehiwala (011) 2738461 [email protected] 17 2738422 Delgoda No:351/1, New Kandy Road, Delgoda (011) 2403383/4 (011) 2403385 [email protected] 202 Divulapitiya No. 69, Kurunegala Road, Divulapitiya (031) 2243431/13 (031) 2243423 [email protected] 198 No.282, Old Kottawa Road, Embuldeniya, Embuldeniya (011) 2836410/1 (011) 2836412 [email protected] 114 Nugegoda (011) 2447231/2, Fort No. 98, Chatham Street, Colombo 01 (011) 2421453 [email protected] 12 2327379, 2436889 (033) 2226640/1, Gampaha No. 8, Mangala Road, Gampaha (033) 2226642 [email protected] 16 2222396 Ganemulla No. 367/E, Kadawatha Road, Ganemulla (033) 2264630 (011) 5336558 [email protected] 78 No.374, High Level Road, Gangodawila, Gangodawila (011) 2814147/8 (011) 2814149 [email protected] 135 Nugegoda Gothatuwa New No. 55/4, Kotikawatta Road, Gothatuwa New (011) 2411609/10 (011) 2411612 [email protected] 173 Town Town Grandpass No. 64, Jethawana Road, Colombo 14 (011) 2472390/1 (011) 2472392 [email protected] 127 Gregory’s Road No. 106, Wijerama Mawatha, Colombo 07 (011) 2681144 (011) 2681145 [email protected] 70 No. 256, Srimath Ramanathan Mawatha, Harbour View (011) 2393017 (011) 2393017 [email protected] 58 Colombo 15 Hanwella No. 148/A, Pahala Hanwella, Hanwella (036) 2254445/6 (036) 2254447 [email protected] 137 (011) 4730305/7, Head Quarters No. 110, Sir James Peiris Mw, Colombo 02 (011) 5331485 [email protected] 29 2358358 (011) 2933098, Hendala No:210, Hendala Road, Hendala, Wattala (011) 2981644 [email protected] 96 2931021 Homagama No. 46, 1st Lane, Station Road, Homagama (011) 2855975/6 (011) 2855985 [email protected] 69 Horana No. 114, Sri Somananda Mawatha, Horana (034) 2260345/6 (034) 2260377 [email protected] 57 Ingiriya No. 68D, Panadura Road, Ingiriya (034) 2268288/488 (034) 2268588 [email protected] 140 Ja-ela No.165, Realty Plaza, Negombo Road, Ja-ela (011) 2245896/7 (011) 2245895 [email protected] 98 Kadawatha No. 174/3, Ragama Road, Kadawatha (011) 2921001/2/5 (011) 2921001 [email protected] 60 Kalutara No. 314, Main Street, Kalutara South, Kalutara (034) 2235600/1 (034) 2235602 [email protected] 50 Kandana No. 72, Colombo Road, Kandana (011) 2229218/9 (011) 2229249 [email protected] 76 No:510/1 & 510/2, Avissawella Road, Kaduwela (011) 2537539/40 (011) 2537541 [email protected] 162 Kaduwela (038) 2299633, Keselwatta No:41A, Galle Road, Keselwatta, Panadura (038) 2299550 [email protected] 151 2299566 (011) 2910457, Kiribathgoda No. 259, Kandy Road, Dalugama, Kelaniya (011) 2910515 [email protected] 5 2910514 kiribathgodasuper.mgr@ Kiribathgoda Super No:139, Kandy Road, Kiribathgoda (011) 2910368/9 (011) 2910367 200 sampath.lk Kirindiwela No. 91, Gampaha Road, Kirindiwela (033) 2247150 (033) 2247150 [email protected] 83 No. 136,138 & 140, High Level Road, Kirulapone (011) 2513828/9 (011) 2513830 [email protected] 117 Kirulapone Kochchikade No. 163, Chilaw Road, Kochchikade (031) 2279647/8 (031) 2279522 [email protected] 165 Kohuwala No. 81, S De S Jayasinghe Mawatha, Kohuwala (011) 2814480/455 (011) 2814480 [email protected] 94 Ground Floor, Platinum Residencies Building, No. Kollupitiya (011) 2590682/3 (011) 2590684 [email protected] 134 01, Bagatale Road, Colombo 03 Kotahena No. 165, George R De Silva Mw, Colombo 13 (011) 2384010/1 (011) 2384012 [email protected] 37 (011) 2782684/6, Kottawa No. 124/8, High Level Road, Kottawa (011)2782684 [email protected] 52 2782690 Kottawa Laugfs No. 364/10, High Level Road, Kottawa (011) 2783100 (011) 2783100 [email protected] 87 Sun Up (011) Maharagama No. 81, High Level Road, Maharagama (011) 2851352 [email protected] 13 2840950/1/2/3 Maharagama maharagama_sm.mgr@ No. 272, High Level Road, Maharagama (011) 2842442 (011) 2842442 92 Singer Mega sampath.lk Main Street No. 110,114, Main Street, Colombo 11 (011) 2386732/3 (011) 2386734 [email protected] 42
Sampath Bank PLC 411 BRANCH NETWORK
Western Province Contd. Branch Branch name Address Telephone No. Fax No. E-mail Code Makola No:94/3A, Makola South, Makola (011) 2964978/9 (011) 2964980 [email protected] 207 Malabe No. 895, Athurugiriya Road, Malabe (011) 2762222/3 (011) 2762224 [email protected] 39 Maligawatte No. 65, Maligawatte Road, Colombo 10 (011) 2672507/8 (011) 2672509 [email protected] 191 No.657, Kularathne Mawatha, Maradana Road, Maradana (011) 2678541/2 (011) 2678543 [email protected] 144 Colombo 10 Marandagahamula No. 86/A, Mirigama Road, Marandagahamula (031) 2243515/517 (031) 2243518 [email protected] 183 Mattegoda No:102/40, Salgas Junction, Mattegoda (011) 2178444/5 (011) 2178446 [email protected] 176 Matugama No. 214 A, Aluthgama Road, Matugama (034) 2247233/4 (034) 2247235 [email protected] 106 Minuwangoda No. 31/1, Negombo Road, Minuwangoda (011) 2299131/2 (011) 2299133 [email protected] 65 Mirigama No. 54, Giriulla Road, Mirigama (033) 2276901/3 (033) 2276903 [email protected] 86 Moratumulla No.38, Sri Premarathne Mawatha,Moratumulla (011) 2654040/075 (011) 2654048 [email protected] 155 Moratuwa No. 653, Galle Road, Rawatawatta, Moratuwa (011) 2644737/8 (011) 2644739 [email protected] 31 Mount Lavinia No. 294, Galle Road, Mount Lavinia (011) 2719581/7 (011) 2719582 [email protected] 199 Mutwal No. 811, Aluthmawatha Road, Colombo 15 (011) 2540575/6 (011) 2540577 [email protected] 193 Narahenpita No. 193, Kirula Road, Narahenpita, Colombo 05 (011) 2552820/1 (011) 2552822 [email protected] 40 Nawala No:143, Nawala Road, Nugegoda (011) 2812331/2 (011) 2812333 [email protected] 82 Nawam Mawatha No. 46/38, Nawam Mawatha, Colombo 02 (011) 2305025/7 (011) 2305028 [email protected] 9 Negombo No. 293, Main Street, Negombo (031) 2224345 -7 (031) 2224347 [email protected] 24 No. 203D, Telwatte Junction, Colombo Road, Negombo 02 (031) 2221930/1 (031) 2227282 [email protected] 88 Negombo Nittambuwa ‘Sri Ramya Building’, Kandy Road, Nittambuwa (033) 2295905/6 (033) 2295907 [email protected] 71 (011) 2856907 - 9, Nugegoda No. 79 A, Stanley Thillekeratne Mw, Nugegoda (011) 2856908 [email protected] 3 2816288 (011) 2452490/2, Old Moor Street No. 371, Old Moor Street, Colombo 12 (011) 2424074 [email protected] 27 2424075 Padukka No. 15, Horana Road, Padukka (011) 2757731/2 (011) 2757733 [email protected] 192
Panadura No. 373, Galle Road, Panadura (038) 2235100, (038) 2235101 [email protected] 26 No. 111B & 111C, Horana Road, Wekada, (038) 2244545, panadura_wekada.mgr@ Panadura - Wekada (038) 2244457 47 Panadura 2244534 Sampath.lk No. 424, Pannipitiya Road, Thalangama South, (011) 2787209, Pelawatte (011) 2786118 [email protected] 63 Pelawatte , Battaramulla 2786119 (011) 2940279, Peliyagoda No. 304, Negombo Road, Peliyagoda (011) 2940156 [email protected] 136 2938797 No. 999, People’s Park, Bodhiraja Mw, Colombo (011) 2432324, Pettah (011) 2432303 [email protected] 2 11 262, 2394596 Piliyandala No. 61, Moratuwa Road, Piliyandala (011) 2614664/65 (011) 2614664 [email protected] 19 Pitakotte No. 463, Kotte Road, Pitakotte (011) 2874574/577 (011) 2874574 [email protected] 91 Platinum Plus No.18, Cambridge Place, Colombo 07 (011) 2695073/237 (011) 2695196 [email protected] 131 No. 26/05, 26/06, UDA Premises, Kadawatha Ragama (011) 2960659/629 (011) 2960659 [email protected] 73 Road, Ragama Rajagiriya No. 620, Kotte Road, Rajagiriya (011) 2864922/944 (011) 2864988 [email protected] 122 Ratmalana No. 261, Galle Road, Ratmalana (011) 2730820/1 (011) 2730819 [email protected] 18 Thalawathugoda No. 244/4, Pannipitiya Road, Thalawathugoda (011) 2796670/1 (011) 2796672 [email protected] 178 Thimbirigasyaya No. 154, Havelock Road, Colombo 05 (011) 2505001/2 (011) 2505003 [email protected] 34 Veyangoda No. 121, Negombo Road, Veyangoda (033) 2296330 (033) 2296330 [email protected] 77 (038) 2284960, Wadduwa No. 555, Galle Road, Wadduwa (038) 2284505 [email protected] 75 2285132 (011) 2931569/70, Wattala No. 165, Negombo Road, Wattala (011) 2931568 [email protected] 8 2941526/7 Wellampitiya No. 268, Kolonnawa Road, Wellampitiya (011) 2533498 (011) 2533498 [email protected] 45 Wellawatta Super No. 591A, Galle Road, Colombo 06 (011) 2507607/8 (011) 2507609 [email protected] 36 (033) 2232670, Yakkala No. 88, Kandy Road, Yakkala (033) 4674602 [email protected] 68 2234230
412 Annual Report 2012 NOSTRO ACCOUNTS MAINTAINED IN SPECIFIC CURRENCIES
Country / Name of the Bank & Address Swift Code CCY Country / Name of the Bank & Address Swift Code CCY
AUSTRALIA No 20/21 CASA MAJOR ROAD ACU- NO 2( OLD NO 11) ZERALD GARDEN NATIONAL AUSTRALIA BANK - BCEYIN5M EURO SECOND LANE MELBOURNE NATAAU33 AUD EGMORE CHENNAI - 600 008 500, Bourke Street, Melbourne, Victoria 3000, Australia STANDARD CHARTERED BANK - ACU- MUMBAI BANGLADESH SCBLINBB DOLLAR 90, Mahatma Gandhi Road, STANDARD CHARTERED BANK – DHAKA ACU- Mumbai 400 001, India 2, Dilkusha Commercial Area, Dhaka SCBLBDDX DOLLAR ITALY 1000, Bangladesh UNICREDIT SPA - MILANO CANADA Transactional Sales &Trade Services, BANK OF MONTREAL - TORONTO Global Transaction Banking UNCRITMM EUR Correspondent Bank Services BOFMCAT2 CAD Viale U .Tupini n 180 250, Yonge Street ,17th floor, Toronto, 00144 Roma –EUR District Italy Ontario, M5B 2M8 Canada, BANCA.POPOLARE SOC COOP VERONA BAPPIT22 EUR CHINA 2 Piazza Nogara, 37121 Verona, Italy CITY BANK (CHINA) CO LTD BANCA NAZIONALE DEL LAVORO SPA- SHANGHAI BRANCH, ROME 34F Citigroup Tower BNLIITRR EUR CITICNSX CNY CIB –correspondent Banking, BNL SpA No 33 Hua Yuan Shi Qiao Road, Via Lombardia 31-00187 Roma, Italy Lu Jia Zui Finance and Trade Area JAPAN Shanghai 200120, PRC BANK OF TOKYO MITSUBISHI UFJ LTD DENMARK – TOKYO BOTKJPJT JPY DANSKE BANK A/S – COPENHAGEN 7-1, Marunouchi 2-Chome , Chiyoda Holmens Kanal 2-12, DABADKKK DKK -Ku, Tokyo 100-0005, Japan DK-1092 Copenhagen K, Denmark STANDARD CHARTERED BK – TOKYO GERMANY 21st Floor, Sanno Park Tower, SCBLJPJT JPY DEUTSCHE BANK AG 2-11-1 Nagatacho, Chiyoda-ku, Theodor-Heuss Allee 70 DEUTDEFF EUR Tokyo 100-6155, Japan 60486, Frankfurt am Main, Germany SUMITOMO MITSUI BANKING COMMERZ BANK AG CORPORATION Financial Institutions Global Institutional Banking COBADEFF EUR SMBCJPJT JPY Kaiserplatz, 60261 Frankfurt am Main, Deparment, Germany 1-2 , Marunouchi 1-Chome , Chiyoda -Ku, Tokyo 100-0005, Japan UNICREDIT BANK AG - MUNICH (HYPOVEREINSBANK) NEW ZEALAND HYVEDEMM EUR Am Tucherpark 1 BANK OF NEW ZEALAND-WELLINGTON D-80538 Munich , Germany Bank Sector – Institutional banking, HONGKONG Level 5 Pier 1, Harbour Quays, 60 BKNZNZ22 NZD Waterloo Quay STANDARD CHARTERED BANK Wellington, New Zealand (HONG KONG) LTD SCBLHKHH HKD 4-4a, Des Voeux Rd, Central Hong NORWAY Kong, Hong Kong DNB NOR BANK ASA- OSLO 0021, DNBANOKK NOK INDIA Oslo, Norway PAKISTAN No 20/21 CASA MAJOR ROAD ACU- STANDARD CHARTERED BANK - NO 2( OLD NO 11) ZERALD GARDEN BCEYIN5M DOLLAR KARACHCHI ACU- SECOND LANE SCBLPKKX PO Box 5556, 11, Chundrigar Road, DOLLAR EGMORE CHENNAI - 600 008 Karachi 74000, Pakistan
Sampath Bank PLC 413 NOSTRO ACCOUNTS MAINTAINED IN SPECIFIC CURRENCIES
Country / Name of the Bank & Address Swift Code CCY Country / Name of the Bank & Address Swift Code CCY
SOUTH AFRICA JP MORGAN CHASE BANK NA 270, Park Avenue, New York, CHASUS33 USD FIRSTRAND BANK LTD NY 10017-2014, USA P O BOX 786273, FIRNZAJJ ZAR Sandton 2146, South Africa MASHREQ BANK PSC 50, Broadway,15 th floor, SINGAPORE MSHQUS33 USD Suite 1500, Mashreq Bank, New York, UNITED OVERSEAS BANK LTD UOVBSGSG USA 80 Raffles Place, UOB Plaza SGD WELLS FARGO BANK NA Singapore 048624, Singapore 375, Park Avenue, NY 4080 PNBPUS3NNYC USD OVERSEA CHINESE BANKING CORP LTD New York, NY 101152, USA 65 Chulia Street, OCBC Centre, OCBCSGSG SGD Singapore 049513, Singapore SWEDEN SKANDINAVISKA ENSKILDA BANKEN AB (PUBL) - STOCKHOLM ESSESESS SEK Kungsträdgårdsgatan 8, 10640 Stockholm, Sweden SWITZERLAND UBS AG- ZURICH The Bank for Banks, UBSWCHZH80A CHF P.O.BOX, CH-8098, Zürich, Switzerland UNITED ARAB EMIRATES MASHREQ BANK PSC - DUBAI 3rd Floor Mashreqbank Head Office, BOMLAEAD AED Omer Bin Al Khattab Road, PO Box 1250,Deira, Dubai, UAE Emirates NBD Bank PJSC 6 th Floor, Head Office Building EBILAEAD AED Baniyas Road , Deira PO Box 777, Dubai UNITED KINGDOM BANK OF CEYLON (UK)LTD 1 Devonshire Square, London, EC2M BCEYGB2L GBP 4WD, UK BARCLAYS BANK PLC Barclays Corporate, London Service centre BARCGB22 GBP Po Box 69961 , 1 Churchill Place London, E14 1NP, United Kingdom UNITED STATES OF AMERICA DEUTSCHE BANK TRUST COMPANY AMERICAS NY BKTRUS33 USD 60, Wall Street, New York, NY, USA CITI BANK NA 399, Park Avenue, New York, NY CITIUS33 USD 10022, USA HSBC BANK USA NA 452, Fifth Avenue, New York, NY MRMDUS33 USD 10018, USA
414 Annual Report 2012 CORRESPONDENT BANKS AND EXCHANGE COMPANIES
Country SWIFT Code Country SWIFT Code Country SWIFT Code 1. Australia KBC Bank NV KREDBEBB HSBC Bank (China) Co. Ltd HSBCCNSH Australia and New Zealand 6. Brazil JP Morgan Chase Bank ANZBAU2S CHASCNSH Banking Group Ltd Deutsche Bank SA DEUTBRSP (China) Co. Ltd Citibank NA CITIAU2X Standard Chartered Bank 7. Bulgaria SCBLCNSX Hongkong & Shanghai Unicredit Bulbank AD UNCRBGSF (China) Ltd HSBCAU2S Banking Corporation Ltd 8. Canada Wells Fargo Bank NA PNBPCNSH JP Morgan Chase Bank NA CHASAU2X Bank of Montreal BOFMCAT2 11. Cyprus National Australia Bank Ltd NATAAU33 HSBC Bank Canada HKBCCATT Societe Generale Cyprus Ltd SOGECY2N 2. Austria Royal Bank of Canada ROYCCAT2 12. Czech Republic Raiffeisenlandesbank RWGAT2B Bank of Nova Scotia NOSCCATT Commerzbank AG COBACZPX Unicredit Bank Austria AG BKAUATWW Unicredit Bank Czech 9. Chile BACXCZPP 3. Bahrain Banco del Estado de Chile BECHCLRM Republic AS HSBC Bank Middle East Ltd BBMEBHBX Citibank NA CITICLRS 13. Denmark 4. Bangladesh 10. China Danske Bank AS DABADKKK Dhaka Bank Ltd DHBLBDDH Bank of China BKCHCNBJ DnB NOR Bank ASA DNBADKKX Standard Chartered Bank SCBLBDDX Citibank (China) Co. Ltd CITICNSX Nordea Bank Denmark AS NDEADKKK 5. Belgium Commerzbank AG COBACNSX 14. Egypt Commerzbank AG COBABEBX Deutsche Bank (China) Co. Arab International Bank ARIBEGCX DEUTCNSH ING Belgium SA/NV BBRUBEBB Ltd Mashreq Bank MSHQEGCA
Sampath Bank PLC 415 CORRESPONDENT BANKS AND EXCHANGE COMPANIES
Country SWIFT Code Country SWIFT Code Country SWIFT Code 15. Finland 23. Ireland 32. Netherlands Nordea Bank Finland PLC NDEAFIHH Bank of Ireland BOFIIE2D Commerzbank AG COBANL2X Danske Bank DABAFIHX Citibank Europe PLC CITIIE2X Deutsche Bank AG DEUTNL2A DnB NOR Bank ASA DNBAFIHX 24. Israel ING Bank NV INGBNL2A Skandinevinska Enskilda Bank Leumi le – Israel BM LUMIILIT 33. New Zealand ESSIFIHX Banken 25. Italy ANZ National Bank Ltd ANZBNZ22 16. France Banca Intesa SpA BCITIT22 Bank of New Zealand BKNZNZ22 BNP Paribas SA BNPAFRPP Banca Nazionale del Lavoro Citibank NA CITINZ2X BNLIITRR Union de Banques Arabes et SpA The Hongkong & Shanghai UBAFFRPP HSBCNZ2A Francaises (UBAF) Banca UBAE SPA UBAIITRR Banking Corporation Ltd Deutsche Bank AG DEUTFRPP Commerzbank AG COBAITMM 34. Norway Commerze Bank AG COBAFRPX HSBC Bank PLC MIDLITMX DnB Nor Bank ASA DNBANOKK 17. Germany Unicredit SpA UNCRITMM Nordea Bank Norge ASA NDEANOKK Unicredit Bank AG Banca Popolare Soc Coop BAPPIT22 Scandinevinska Enskilda HYVEDEMM ESSENOKX (Hypovereinsbank) 26. Japan Banken Commerzbank AG COBADEFF Australia and New Zealand 35. Oman ANZBJPJX Deutsche Bank AG DEUTDEMM Banking Group Ltd HSBC Bank Middle East Ltd BBMEOMRX DnB Nor Bank ASA DNBADEHX Citibank Japan Ltd CITIJPJT 36. Pakistan 18. Greece Commerzbank AG, Tokyo COBAJPJX The Hongkong & Shanghai HSBCPKKX National Bank of Greece SA ETHNGRAA Deutsche Bank AG DEUTJPJT Banking Corporation Ltd 19. Hong Kong The Hongkong and Shanghai Standard Chartered Bank HSBCJPJT SCBLPKKX BNP Paribas BNPAHKHH Banking Corporation Ltd (Pakistan) Ltd Citibank NA CITIHKHX Mizuho Bank Ltd MHBKJPJT 37. Philippines Commerzbank AG COBAHKHX Standard Chartered Bank SCBLJPJT Citibank NA CITIPHMX Deutsche Bank AG DEUTTHBK Sumitomo Mitsui Banking Deutsche Bank AG DEUTPHMM SMBCJPJT Hongkong & Shanghai Corporation The Hongkong & Shanghai HSBCHKHH HSBCPHMM Banking Corporation Ltd The Bank of Tokyo – Banking Corporation Ltd BOTKJPJT JP Morgan Chase Bank NA CHASHKHH Mitsubishi UFJ Ltd 38. Poland Standard Chartered Bank JP Morgan Chase Bank NA CHASJPJT Bank Handlowy w Warszawie SCBLHKHH CITIPLPX (Hong Kong) Ltd Wells Fargo Bank NA PNBPJPJX SA UBAF (Hong Kong) Ltd UBAFHKHX 27. Jordan Nordea Bank Polska SA NDEAPLP2 Wells Fargo Bank NA PNBPHKHH HSBC Bank Middle East Ltd BBMEJOAX 39. Portugal 20. Hungary Standard Chartered Bank SCBLJOAX BNP Paribas Portugal BNPAPTPL CIB Bank Ltd CIBHHUHB 28. Kuwait 40. Qatar Commerzbank AG COBAHUHX Citibank NA CITIKWKW HSBC Bank Middle East Ltd BBMEQAQX 21. India National Bank of Kuwait NBOKKWKW Mashreq Bank MSHQQAQA Bank of Ceylon BCEYIN5M 29. Malaysia 41. Romania Citibank NA CITIINBX Citibank Berhad CITIMYKL Romanian Commercial Bank RNCBROBU Deutsche Bank AG DEUTINBB Deutsche Bank (Malaysia) 42. Saudi Arabia DEUTMYKL The Hongkong & Shanghai Bhd Saudi Hollandi Bank AAALSARI HSBCINBB Banking Corporation Ltd HSBC Bank Malaysia Berhad HBMBMYKL The National Commercial NCBKSAJE ICICI Bank Ltd ICICINBBCTS Standard Chartered Bank Bank SCBLMYKX Mashreq Bank MSHQINBB Malaysia Bhd The Saudi British Bank SABBSARI Standard Chartered Bank SCBLINBB 30. Maldives Al Rajhi Bank RJHISARI State Bank of India SBININBB Bank of Ceylon BCEYMVMV 43. Singapore Bank of Maldives PLC MALBMVMV The Bank of Tokyo-Mitsubishi 22. Indonesia BOTKSGSX The Hongkong & Shanghai UFJ Ltd Citibank NA CITIIDJX HSBCMVMV Deutsche Bank AG DEUTIDJA Banking Corporation Ltd Citibank NA CITISGSG The Hongkong and Shanghai 31. Nepal Commerzbank AG COBASGSX HSBCIDJA Banking Corporation Ltd DBS Bank Ltd DBSSSGSG PT Bank Mandiri (Persero) BMRIIDJA Standard Chartered Bank Deutsche Bank AG DEUTSGSG SCBLNPKA Nepal Ltd The Hongkong & Shanghai Standard Chartered Bank SCBLIDJX HSBCSGSG Banking Corporation Ltd
416 Annual Report 2012 Country SWIFT Code Country SWIFT Code JP Morgan Chase Bank NA CHASSGSG Standard Chartered Bank SCBLTHBX Mizuho Corporate Bank Ltd MHCBSGSG (Thai) PCL Oversea-Chinese Banking 51. Turkey OCBCSGSG Corporation Ltd HSBC Bank AS HSBCTRIX Standard Chartered Bank SCBLSGSG Turk Ekonomi Bankasi AS TEBUTRIS Union de Banques Arabes et ING BANK INGBTRIS UBAFSGSX Francaises (UBAF) 52. United Arab Emirates United Overseas Bank Ltd UOVBSGSG Citibank NA CITIAEAD 44. South Africa HSBC Bank Middle East Ltd BBMEAEAD ABSA Bank Ltd ABSAZAJJ MashreqBank PSC BOMLAEAD FirstRand Bank Ltd FIRNZAJJ Standard Chartered Bank SCBLAEAD Ned Bank Ltd NEDSZAJJ Habib Bank AG Zurich HBZUAEAD Standard Chartered Bank SCBLZAJJ 53. United Kingdom 45. South Korea Bank of Ceylon(UK) Ltd BCEYGB2L Citibank Korea Inc CITIKRSX Barclays Bank PLC BARCGB22 Deutsche Bank AG DEUTKRSE Citibank International PLC CITIGB2L The Hongkong & Shanghai The Hongkong & Shanghai HSBCKRSE MIDLGB22 Banking Corporation Ltd Banking Corporation Ltd JP Morgan Chase Bank NA CHASKRSX JP Morgan Europe Ltd CHASGB2L Standard Chartered First SCBLKRSE Standard Chartered Bank SCBLGB2L Bank Korea Ltd. Wells Fargo Bank NA PNBPGB2L Union de Banques Arabes et UBAFKRSX 54. United States of America Francaises (UBAF) Citibank NA CITIUS33 Wells Fargo Bank NA PNBPKRSX Deutsche Bank AG DEUTUS33 46. Spain Deutsche Bank Trust Banco Bilbao Vizcaya BKTRUS33 BBVAESMM Company Americas Argentaria SA HSBC Bank USA NA MRMDUS33 Banco Santander SA BSCHESMM JP Morgan Chase Bank NA CHASUS33 Commerzbank AG COBAESMX MashreqBank PSC MSHQUS33 47. Sweden Standard Chartered Bank SCBLUS33 Danske Bank A/S DABASESX Wells Fargo Bank NA PNBPUS3NNYC Skandinaviska Enskilda ESSESESG Banken Svenska Handelsbanken HANDSESG 48. Switzerland Credit Suisse CRESCHZZ UBS AG UBSWCHZH 49. Taiwan Citibank NA CITITWTX Deutsche Bank AG DEUTTWTP The Hongkong & Shanghai HSBCTWTP Banking Corporation Ltd JP Morgan Chase Bank NA CHASTWTX Mizuho Corporate Bank Ltd MHCBTWTP Standard Chartered Bank SCBLTWTP (Taiwan) Ltd Wells Fargo Bank NA PNBPTWTP 50. Thailand Citi Bank NA CITITHBX Deutsche Bank AG DEUTTHBK The Hongkong & Shanghai HSBCTHBK Banking Corporation Ltd Kasikornbank Public KASITHBK company Ltd
Sampath Bank PLC 417 CORRESPONDENT BANKS AND EXCHANGE COMPANIES
Sampath Bank PLC also acts as an agent of following Country Name of Exchange Company Global Companies; Kapruka Pvt Ltd Money Gram International Australia Remittance Plus Pty Ltd Coinstar Colombo Money Transfer Services Pty Ltd Xpress Money Services Ltd Bahrain Financing Company EzRemit Bahrain National Finance & Exchange Co. W.L.L ARY Speedremit Zenj Exchange Co. W.L.L Instant Cash Global Money Transfer National Exchange Company S.R.L. Ria Financial Services Italy Probu Group INC Alawne Exchange Jordan
Almulla International Exchange Co. K.S.C.C. Kuwait
Malaysia IME (M) SDN BHD Kapruka New Zealand Ltd New Zealand
Oman & UAE Exchange Centre & Co. L.L.C Oman Purshottam Kanji Exchange Doha Bank AlFardan Exchange Company Co. L.L.C City Exchange Co., W.L.L Islamic Exchange Co., W.L.L Qatar Al Zaman Exchange W.L.L Lari Exchange Co Al Dar Exchange Works Gulf Exchange Co., Money Exchange Spain NEC Money Transfer SA Spain
Al Rajhi Banking Corporation Saudi Arabia
UAE Exchange Centre L.L.C Habib Exchange Company L.L.C Wall Street Exchange Centre L.L.C Alfalah Exchange Company L.L.C Leela Megh Exchange Co. L.L.C UAE Al Ahalia Money Exchange Bureau Al Ansari Exchange Est. Emirates India International Exchange Al Rostamani Int’l Ex. Co. Lulu Exchange
418 Annual Report 2012 CAPITAL ADEQUACY
Capital of the Bank is a decisive indicator which illustrates financial Pillar 1 – Minimum Capital Requirement soundness of the Bank. It also acts as a limiting factor in risk asset Pillar 1 relates to the computation of the capital ratio for credit, market expansion of a bank and a cushion in absorbing unforeseen losses arising and operational risk. Credit risk can be defined as the risk to earnings and from various risk factors associated with banking operations to safe guard capital arising from an obligor’s failure to meet the terms of any contract with the stakeholders. the bank or its failure to perform as agreed. Market risk can be defined as the risk to earnings and capital arising from adverse movements in prices in The Basel Committee on banking supervision (BCBS) published risk the trading book. Operational risk can be defined as the risk of loss resulting measurement framework and minimum capital levels to be maintained by from inadequate or failed internal processes, people and systems or from banks. Based on the above measurements, the Central Bank of Sri Lanka external events. The Bank has currently adopted the Standardized Approach (CBSL) has specified the minimum capital requirement over the risk weighted for calculating credit and market risk as well as Basic Indicator Approach for assets of banks to promote soundness and the stability of the banking calculating operational risk. system. Pillar 2 – Supervisory Review Process (SRP) Capital Adequacy Ratio is calculated by dividing the Capital (Tier I+TierII) by Under the Pillar 2, banks should have their own internal capital assessment the Risk Weighted Assets as follows. processes to capture risks that remain uncovered under the first pillar and thus maintain capital in line with the banks’ risk profile and risk management environment. The supervisors are expected to validate the internal capital Capital Adequacy Ratio Bank’s Capital = x 100 adequacy assessment process of banks to ensure that banks have captured (CAR) Bank’s Risk Weighted Assets all the risks in their business. Where the supervisor assesses that the bank’s capital assessment process does not capture all its risks, the supervisor is expected to intervene and recommend early corrective action. Basel II is an advanced version of Basel I issued by the ‘The Basel Pillar 2 is also expected to encourage banks to develop and use better Committee on banking supervision (BCBS)’. Basel II comprises three risk management techniques including the setting up of a separate risk mutually reinforcing pillars, management function in banks for prudent management of all material risks.
Basel II Capital Framework
Pillar 1 Pillar 2 Pillar 3 Minimum Capital Supervisory review Market Requirement Process Disciplines
Credit Risk Credit Concentration Risk Regular disclosure to Market Risk Interest rate risk in the the market covering Operational Risk banking book both quantitative and Liquidity Risk qualitative aspects of Strategic and Reputation Capital requirement Risk
Sampath Bank PLC 419 CAPITAL ADEQUACY
Pillar 3 – Market Discipline The Internal Capital Adequacy Assessment Process Pillar 3 seeks to enhance disclosure and transparency by strengthening (ICAAP) banks’ financial reporting system by encouraging market discipline, and The Internal Capital Adequacy Assessment Process (ICAAP) is part of Pillar allowing the key stakeholders to assess key pieces of information on the II and is a process not only to ensure that banks have adequate capital scope of application, risk exposures, risk assessment processes and capital to support all the risks in their business but also to encourage banks adequacy of the institution. Pillar 3 complements and reinforces the first to develop and use both risk management techniques in monitoring and two pillars and infuses market pressure on banks to bring in better risk managing their risks. According to the Central Bank of Sri Lanka guidelines, management techniques, maintain adequate levels of capital to enable banks are required to submit the ICAAP document and their approach to prudent and more informed decision making. Capital Management to the regulators by end of January 2013. In order to comply with the above requirement, Sampath bank has obtained assistance As per the regulation of Central Bank of Sri Lanka (CBSL), Core Capital from an international consultancy firm for the ICAAP assessment, planning / Adequacy Ratio currently in force for banks is 5 per cent and Total Capital and documentation process. Adequacy Ratio is 10 per cent. In 2012, Capital Adequacy calculation was done, having taken into account the profit & retained earning derived Migration to Basel III from financial statements which have been prepared in compliance with The latest implication of Basel III, which was published by the Basel New Sri Lanka Financial Reporting Standards (SLFRS). According to these Committee on Banking Supervision (BCBS) of the Bank for International computations, Sampath Bank’s Core Capital Adequacy Ratio (Tier I) -11.80% Settlement at the end of 2010, mainly includes new standards for capital, and Total Capital Adequacy Ratio - 13.61 % were well above the stipulated leverage and liquidity to strengthen the regulations, supervision and risk levels by Central Bank of Sri Lanka (CBSL). management of the banking sector. Sampath Bank has already focused attention for proper implementation of Basel III at the right time. Migration to Advanced Approach of Basel II The Bank has already put in place necessary measures to ensure the smooth migration to Advanced Approach of Basel II within the time frame set by the Central Bank of Sri Lanka. This would facilitate more room for the Bank to better manage its capital, whilst fulfilling the regulatory requirements.
420 Annual Report 2012 Computation of Capital Adequacy Ratios - Basel II
(Rs. Mn) Bank Group
2012 2011 2012 2011 Risk-weighted Assets for Credit Risk Assets Risk Assets Risk Assets Risk Assets Risk weighted weighted weighted weighted Assets Assets Assets Assets
Claims on Central Government and Central Bank of Sri Lanka 27,215.1 - 20,005.0 - 27,224.8 - 20,009.0 - Claims on Public Sector Entities 544.4 108.6 511.7 76.0 544.4 108.6 511.7 76.0 Claims on Banks Exposures 14,456.7 3,948.6 14,898.2 4,085.5 14,457.0 3,948.7 14,906.4 4,087.2 Claims on Financial Institutions 8,029.6 5,610.4 9,180.5 6,180.9 7,058.6 4,639.4 7,669.4 4,669.8 Claims on Corporates 102,803.2 101,067.3 103,463.1 101,799.6 107,103.3 105,367.4 106,301.4 104,637.9 Retail claims 39,227.8 29,420.8 17,932.5 13,449.4 39,227.8 29,420.8 17,932.5 13,449.4 Claims Secured by Residential Property 9,354.1 6,572.4 8,085.6 5,880.8 9,354.1 6,572.4 8,085.6 5,880.8 Past Due Loans 952.5 1,322.1 825.2 1,165.3 972.9 1,342.5 832.4 1,172.5 Past Due Residential Mortgage Loans 222.1 206.7 231.4 213.1 222.1 206.7 231.4 213.1 Cash / Gold against Loans 80,184.2 33.8 52,527.2 20.4 80,184.4 33.8 52,527.4 20.4 Other Assets 6,072.7 6,072.7 7,866.3 7,866.3 9,336.0 9,336.0 11,387.3 11,387.3 289,062.3 154,363.3 235,526.9 140,737.3 295,685.5 160,976.3 240,394.8 145,594.4
(Rs. Mn) Bank Group
2012 2011 2012 2011
Off-balance sheet Items Credit Principal Credit Principal Credit Principal Credit Principal Credit Conversion amount equivalent amount equivalent amount equivalent amount equivalent Factor (%) of Off- of Off- of Off- of Off- of Off- of Off- of Off- of Off- balance balance balance balance balance balance balance balance sheet items sheet items sheet items sheet items sheet items sheet items sheet items sheet items
Direct Credit Substitutes 11,818.1 11,818.1 8,803.4 8,803.4 11,818.1 11,818.1 8,803.4 8,803.4 General Guarantees of Indebtedness 100.0 11,818.1 11,818.1 8,803.4 8,803.4 11,818.1 11,818.1 8,803.4 8,803.4 Transaction-related Contingencies 7,169.0 4,089.9 5,294.6 3,079.3 7,169.0 4,089.9 5,294.6 3,079.3 Performance Bonds, Bid Bonds & Warranties 50.0 4,922.7 2,461.3 3,134.6 1,567.3 4,922.7 2,461.3 3,134.6 1,567.3 Others 72.5/70 2,246.3 1,628.6 2,159.9 1,511.9 2,246.3 1,628.6 2,159.9 1,511.9 Short-Term Self-Liquidating Trade-Related Contingencies 18,620.8 3,724.2 18,117.8 3,623.6 18,620.8 3,724.2 18,117.8 3,623.6 Shipping Guarantees 20.0 1,002.3 200.5 1,357.8 271.6 1,002.3 200.5 1,357.8 271.6 Documentary Letters of Credit 20.0 11,310.4 2,262.1 11,633.7 2,326.7 11,310.4 2,262.1 11,633.7 2,326.7 Trade related acceptances 20.0 6,308.2 1,261.6 5,126.2 1,025.2 6,308.2 1,261.6 5,126.2 1,025.2 Other Commitments with an Original maturity of up to one year or which can be unconditionally cancelled at any time 25,846.8 - 21,649.4 - 25,846.8 - 21,649.4 - Undrawn Overdraft Facilities/Unused Credit Card Lines - 25,846.8 - 21,649.4 - 25,846.8 - 21,649.4 - Other Commitments with an Original Maturity of over one year 1,493.3 746.6 3,646.0 1,823.0 1,696.9 848.5 3,646.0 1,823.0 Undrawn Term Loans 50.0 1,493.3 746.6 3,646.0 1,823.0 1,696.9 848.5 3,646.0 1,823.0 Foreign Exchange Contracts 47,786.0 955.7 60,238.1 1,204.8 47,786.0 955.7 60,238.1 1,204.8 Original Maturity-less than one year 2.0 47,786.0 955.7 60,238.1 1,204.8 47,786.0 955.7 60,238.1 1,204.8 112,734.0 21,334.6 117,749.1 18,534.0 112,937.7 21,436.4 117,749.1 18,534.0
Sampath Bank PLC 421 CAPITAL ADEQUACY
(Rs. Mn) Bank Group
Risk-weighted amounts for Market Risk 2012 2011 2012 2011
Interest Rate Risk 194.95 184.03 194.95 184.03 General risk 194.95 184.03 194.95 184.03 Specific risk - - - - Equity Risk 56.41 95.96 56.41 95.96 General risk 32.53 53.83 32.53 53.83 Specific risk 23.89 42.13 23.89 42.13 Foreign Exchange & Gold Risk 43.05 22.22 43.05 22.22 Total Capital Charge for Market Risk 294.41 302.21 294.41 302.21 Total Risk-weighted amount for Market Risk (Total Capital Charge X 10 ) 2,944.13 3,022.05 2,944.13 3,022.05
(Rs. Mn) Bank Group
Risk-weighted Assets for Operational Risk 2012 2011 2012 2011
Average Net Income for last three financial years 15,607.1 13,687.5 16.095.0 14,037.0 Deductions : Realised profits from the sale of securities (average of last three financial years) 937.3 1,502.6 926.8 1,424.3 Extraordinary / irregular item of income (average of last three financial years) 10.0 6.3 19.9 24.8 Gross Income 14,659.9 12,178.5 15,148.2 12,587.9 Total Capital Charge for Operational Risk 2,199.0 1,826.8 2,272.2 1,888.2 (Gross Income X 15%) Total Risk-weighted amount for Operational risk 21,989.8 18,267.8 22,722.3 18,881.9 (Total Capital Charge for Operational Risk X 10)
Risk-weighted assets for credit risk 154,363.3 140,737.3 160,976.3 145,594.4 Risk-weighted amounts for market risk 2,944.1 3,022.1 2,944.1 3,022.1 Risk-weighted amounts for operational risk 21,989.8 18,267.8 22,722.3 18,881.9 Total Risk-weighted Assets 179.297.3 162,027.2 186,642.8 167,498.4
422 Annual Report 2012 (Rs. Mn) Bank Group
Calculation of Total Capital Base 2012 2,011 2012 2011
Core Capital (Tier I) Stated Capital 3,564.2 2,743.8 3,564.2 2,743.8 Statutory Reserve Fund 2,702.9 1,432.3 2,759.6 1,462.3 Published Retained Profits/(Accumulated Losses) 2,016.2 1,415.0 2,653.4 2,268.7 General and Other Reserves 13,895.8 11,736.3 13,895.8 11,481.0 Minority Interests (consistent with the above capital constituents) - - 61.2 59.9
Deductions/Adjustments (Tier I) Goodwill - - 5.3 5.3 Other intangible assets 311.0 67.3 315.6 73.4 50% of investments in unconsolidated banking and financial subsidiary companies. 262.5 262.5 - - 50% investments in the capital of other banks and financial institutions 454.7 407.9 454.7 407.9
Total Core Capital 21,150.9 16,589.8 22,158.6 17,529.1 Supplementary Capital (Tier II) Revaluation Reserves (as approved by CBSL) 405.1 405.1 405.1 405.1 General Provisions 694.0 619.6 694.0 619.6 Approved Subordinated Term Debt 2,868.7 1,603.9 2,868.7 1,603.9 Actual amount of Approved Subordinated Term Debt 2,868.7 3,003.9 2,868.7 3,003.9
Deductions (Tier II) 50% of investments in unconsolidated banking and financial subsidiary companies. 262.5 262.5 - - 50% investments in the capital of other banks and financial institutions 454.7 407.9 454.7 407.9
Eligible Tier II Capital 3,250.5 1,958.3 3,513.0 2,220.8 Base Capital ( Tier I + Tier II ) 24,401.5 18,548.0 25,671.6 19,749.9
LIMITS : (i) Approved subordinated Term Debt is limited to 50% of Total Tier I Capital. (ii) The total of Tier II Supplementary Elements should not exceed a maximum of 100% of Tier I Elements. (iii) General Provision should not exceed 1.25% of Risk Weighted Assets.
(Rs. Mn) Bank Group
2012 2,011 2012 2011
Core Capital Ratio ( Minimum Ratio - 5% ) Core Capital (Tier I) x 100 21,150.9 x 100 16,589.8 x 100 22,158.6 x 100 17,529.1 x 100 Total Risk-weighted Assets 179,297.3 162,027.2 186,642.8 167,498.4
Total Capital Ratio ( Minimum Ratio - 10% ) Capital Base x 100 24,401.5 x 100 18,548.0 x 100 25,671.6 x 100 19,749.9 x 100 Total Risk-weighted Assets 179,297.3 162,027.2 186,642.8 167,498.4
Core Capital (Tier I) Ratio ( % ) 11.80 10.24 11.87 10.47 Total Capital Ratio ( % ) 13.61 11.45 13.75 11.79
Sampath Bank PLC 423 GLOSSARY OF FINANCIAL AND BANKING TERMS
A Cash Equivalents Acceptances Short-term highly liquid investments that are readily convertible to known The signature on a Bill of Exchange indicates that the person on whom it is amounts of cash and which subject to an insignificant risk of changes in drawn accepts the conditions of the bill. In other words a bill of exchange value. that has been accepted. Commitments Accrual Basis Credit facilities approved but not yet utilized by the clients as at the Balance Recognition of the effects of transactions and other events when they occur Sheet date. without waiting for receipt or payment of cash or its equivalents. Contingencies Associate Company A condition or situation, the ultimate outcome of which, gain or loss, will be An associate is an entity in which the investor has significant influence and confirmed only on the occurrence or non-occurrence of one or more uncertain which is neither a subsidiary nor an interest in a joint venture. future events.
Amortised Cost Corporate Governance The amount at which the financial asset of financial liability is measured The process by which corporate entities are governed. It is concerned with at initial recognition minus principal repayments, plus or minus the the way in which power is exercised over the management and direction of cumulative amortization using the effective interest rate method of any entity, the supervision of executive actions and accountability to owners and difference between that initial amount and the maturity amount, and minus others. any reduction (directly or through the use of an allowance account) for impairment or uncollectibility. Correspondent Bank A bank in a foreign country that offers banking facilities to the customers of Available –For –Sale financial Assets a bank in another country. Non derivative financial assets that are designated as available for sale or are not classified as (a) loans and receivables, (b) held-to-maturity Cost Income Ratio investments or (c) financial assets at fair value through profit or loss. Operating expenses as a percentage of net income.
Cost Method B A method of accounting whereby the investment is recorded at cost. The Bills of Collection Income Statement reflects income from the investment only to the extent A bill of exchange drawn by an exporter usually at a term, on an importer that the investor receives distributions from accumulated net profits of the overseas and brought by the exporter to his Bank with a request to collect investee the proceeds. arising subsequent to the date of acquisition.
BIS Surplus Cost-Push Inflation The total Capital Adequacy in excess of the minimum stipulated by Basel A continuous increase in average price levels due to an increase in International Standards and as modified to suit local requirements by the production costs. Central Bank of Sri Lanka. Credit Risk Credit risk is the risk of financial loss to the Bank if a customer or counter C party to a financial instrument fails to meet its contractual obligations, and Capital Adequacy arises principally from the loans and advances to customers and other banks The percentage of risk-adjusted assets supported by capital as defined and investment debt securities. under the framework of risk-based capital standards developed by the Bank for International Settlement (BIS) and as modified to suit local requirements currency risk by the Central Bank of Sri Lanka. The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Capital Gain (Capital Profit) The gain on the disposal of an asset calculated by deducting the cost of the Credit Risk Mitigation asset from the proceeds received on its disposal. A technique to reduce the credit risk associated with an exposure by application of credit risk mitigants such as collateral, guarantee and credit Capital Reserves protection. Capital Reserves consist of revaluation reserves arising from revaluation of properties owned by the Bank and Reserve Fund set aside for specific Credit Ratings purposes defined under the Banking Act, No 30 of 1988 and shall not be An evaluation of a corporate ability to repay its obligations or likelihood of not reduced or impaired without the approval of the Monetary Board. defaulting carried out by an independent rating agency.
424 Annual Report 2012 Collectively Assessed Impairment Economic Value Added (EVA) Impairment assessment on a collective basis for homogeneous groups of A measure of productivity which takes into consideration cost of total loans that are not considered individually significant and to cover losses invested equity. which have been incurred but have not yet been identified on loans subject to individual assessment. Effective Tax Rate Provision for taxation excluding deferred tax divided by the profit before Commercial Paper (‘CP’) taxation. An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term Equity Method liabilities. The debt is usually issued at a discount, reflecting prevailing The equity method is a method of accounting whereby the investment is market interest rates. initially recognised at cost and adjusted thereafter for the post-acquisition changes in the investor’s share of net assets of the investee. The profit or Customer Deposits loss of the investor includes the investor’s share of the profit or loss of the Money deposited by account holders. Such funds are recorded as liabilities. investee.
ESOP (Employee Share Ownership Plan) D A method of giving employees shares in the business for which they work. Dealing Securities These are marketable securities acquired and held with the intention to Equity instrument resale over a short period of time. is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Deferred Tax Sum set aside in the Financial Statements that may become payable/ Equity Risk receivable in a financial year other than the current financial year. It arises The risk arising from positions, either long or short, in equities or equity- because of temporary differences between tax rules and accounting based instruments, which create exposure to a change in the market price of conventions. the equities or equity instruments.
Derivatives Expected Loss (‘EL’) A derivative is a financial instrument or other contract, the value of which A regulatory calculation of the amount expected to be lost on an exposure changes in response to some underlying variable (e.g., an interest rate), using a 12 month time horizon and downturn loss estimates. EL is that has an initial net investment smaller than would be required for other calculated by multiplying the Probability of Default (a percentage) by the instruments that have a similar response to the variable, and that will be Exposure at Default (an amount) and Loss Given Default (a percentage). settled at a future date. Exposure Dividend Cover A claim, contingent claim or position which carries a risk of financial loss. Profit after tax divided by gross Dividend. This ratio measures the number of times dividend is covered by the current year’s distributable profits. Effective Interest Rate (EIR)
Dividend Yield The rate that exactly discounts estimated future cash payments or receipts Dividend earned per share as a percentage of its market value. through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial Documentary Letters Of Credit (L/C’s) liability. Written undertakings by a bank on behalf of its customers, authorising a third party to draw on the Bank up to a stipulated amount under specific terms and conditions. Such undertakings are established for the purpose of F facilitating international trade. Fair Value Fair Value is the amount for which an asset could be exchanged between a Derecognition knowledgeable, willing buyer and a knowledgeable, willing seller in an arm’s is the removal of a previously recognized financial asset or financial liability length transaction. from an entity’s statement of financial position. Fair Value Adjustment An adjustment to the fair value of a financial instrument which is determined E using a valuation technique (level 2 and level 3) to include additional factors Earning Per Share (EPS) that would be considered by a market participant that are not incorporated The profit attributable to each ordinary share in the Bank, based on the profit within the valuation model. for the period after tax and after deducting minority interest and preference share Dividend.
Sampath Bank PLC 425 GLOSSARY OF FINANCIAL AND BANKING TERMS
Finance Lease H A lease in which the lessee acquires all the financial benefits and risks Hedging attaching to ownership of whatever in being leased. A strategy under which transactions are effected with the aim of providing cover against the risk of unfavourable price movements (Interest Rate, Foreign Exchange Contract Foreign exchange rate, commodity prices, etc) Agreement between two parties to exchange one currency for another at a future date at a rate agreed upon today. HTM (Held to Maturity) Investments Held-to-maturity investments are non-derivative financial assets with fixed or Foreign Exchange Income determinable payments and a fixed maturity that an entity has the positive The realised gain recorded when assets or liabilities denominated in foreign intention and ability to hold to maturity. currencies are translated into Sri Lankan Rupees on the balance sheet date at prevailing rates which differ from those rates in force at inception or on the previous balance sheet date. Foreign exchange income also arises from I trading in foreign currencies. Impairment This occurs when recoverable amount of an asset is less than its carrying Financial asset amount. is any asset that is cash, an equity instrument of another entity or a contractual right to receive cash or another financial asset Impaired Loans from another entity. Loans where the Group does not expect to collect all the contractual cash flows or expects to collect them later than they are contractually due. Financial liability is a contractual obligation to deliver cash or another financial asset to Impairment Allowances another entity Management’s best estimate of losses incurred in the loan portfolios at the balance sheet date. Financial guarantee contract is a contract that requires the issuer to make specified payments to Individually Assessed Impairment reimburse the holder for a loss it incurs because a specified debtor fails to Exposure to loss is assessed on all individually significant accounts and all make payment when due in accordance with the original or modified terms of other accounts that do not qualify for collective assessment. a debt instrument. Interest rate risk firm commitment The risk that the fair value or future cash flows of a financial instrument will is a binding agreement for the exchange of a specified quantity of resources fluctuate because of changes in market interest rates. at a specified price on a specified future date or dates. Intangible Asset An identifiable non-monetary asset without physical substance held for use G in the production / supply of goods / services or for rental to others or for General Provisions administrative purposes. General provisions are established for loans and advances for anticipated losses on aggregate exposures where credit losses cannot yet be Interest Margin determined on an individual facility basis. Net interest income expressed as a percentage of interest earning assets.
Gross Dividend Interest Spread The portion of profits distributed to the shareholders including the tax This represents the difference between the average interest rate earned and withheld. the average interest rate paid on funds.
Group Interest Cover A group is a parent and all its subsidiaries. A ratio showing the number of times interest charges is covered by earnings before interest and tax. Guarantees A promise made by a third party (Guarantor), who is not a party to a contract Interest Rate SWAP between two others, that the guarantor will be liable if the guarantee fails to Arrangement whereby one party exchanges one set of interest payments for fulfil the contractual obligations. another.
Interest in suspense Interest suspended on non-performing loans and advances.
426 Annual Report 2012 Investment Properties Level 3 –Valuation Technique With Significant Investment property is property (land or a building - or part of a building – or Unobservable Inputs both) held (by the owner or by the lessee under a finance lease) to earn Financial instruments valued using valuation techniques where one or more rentals or for capital appreciation or both, rather than for use or sale. significant inputs are unobservable.
Investment Securities Liquidity Risk Securities acquired and held for yield or capital growth purposes and are The risk that an entity will encounter difficulty in usually held to maturity. meeting obligations associated with financial liabilities
Loans payable J Loans payable are financial liabilities, other than short term trade payables Joint Control on normal credit terms. Joint control is the contractually agreed sharing of the control over an economic activity, and exists only when the strategic financial and operating Loss Given Default (‘LGD’) decisions relating to the activity require the unanimous consent of the The estimated ratio (percentage) of the loss on an exposure to the amount parties sharing control. outstanding at default (EAD) upon default of counterparty.
Joint Venture A joint venture is a contractual arrangement whereby two or more parties M undertake an economic activity that is subject to joint control. Market Capitalisation The value of a company obtained by multiplying the number of issued shares by its market value as at a date. K Key Management Personnel Market Risks Key Management Personnel are those persons having authority and Market risk is the risk that changes in market prices, such as interest responsibility for planning, directing and controlling the activities of the entity, rates, equity prices, foreign exchange rates and credit spreads (not relating directly or indirectly, including any Director (whether Executive or otherwise) to changes in the obligor’s/issuer’s credit standing) will affect the Bank’s of that entity. income or the value of its holdings of financial instruments.
Materiality L The relative significance of a transaction or an event, the omission or Letter of Credit (L/C’s) misstatement of which could influence the decisions of users of Financial Written undertakings by a bank on behalf of its customer (typically an Statements. importer), authorising a third party (e.g. an exporter) to draw drafts on the Bank up to a stipulated amount under specific terms and conditions. Such Minority interest undertakings are established for the purpose of facilitating international The interest of individual shareholders, if more than 50% of which is owned trade. by a holding company.
Liquid Assets Assets that are held in cash or in a form that can be converted to cash N readily, such as deposits with other banks, Bills of Exchange and Treasury Net Asset Value Per Share Bills and Bonds. Shareholders’ Funds divided by the number of ordinary shares in issue.
Loan Losses and Provisions Net-Interest Income (NII) Amounts set aside against possible losses on loans, advances and other The difference between what a bank earns on assets such as loans and credit facilities as a result of such facilities becoming partly or wholly securities and what it pays on liabilities such as deposits refinance funds uncollectible. and inter-bank borrowings.
Level 1 – Quoted Market Price Non-Performing Advances (NPA) Financial instruments with quoted prices for identical instruments in active All loans are classified as nonperforming when a payment is 90 days in markets. arrears.
Level 2 – Valuation Technique Using Observable Inputs Non-Performing Advances Cover (NPA Cover) Financial instruments with quoted prices for similar instruments in active Cumulative loan loss provision as a percentage of total Non-Performing markets or quoted prices for identical or similar instruments in inactive Advances (net of Interest in Suspense). markets and financial instruments valued using models where all significant inputs are observable.
Sampath Bank PLC 427 GLOSSARY OF FINANCIAL AND BANKING TERMS
NPA Ratio R Total non-performing advances (net of Interest in Suspense) divided by total Related Parties advances portfolio (net of Interest in Suspense). Parties where one party has ability to control the other party or exercise significant influence over the other party in making financial and operating decisions, directly or indirectly. Net Interest Income The amount of interest received or receivable on assets net of interest paid Return On Average Assets (ROA) or payable on liabilities. Net income expressed as a percentage of average total assets, used along with ROE, as a measure of profitability and as a basis of intra-industry performance comparison. O Off Balance Sheet Transactions Return On Equity (ROE) Transactions that are not recognised as assets or liabilities in the Balance Net income, less preferred share Dividend if any, expressed as a percentage Sheet, but which give rise to contingencies and commitments. of average ordinary shareholders’ equity.
Open Credit Exposure Ratio Revenue Reserves Total net non-performing loans and advances expressed as a percentage of Reserves set aside for future distribution and investment. regulatory capital base. Rights Issue Operational Risk Issue of shares to the existing shareholders at an agreed price, generally Operational risk refers to the losses arising from fraud, negligence, lower than market price. oversight,human error, process errors, system failures, external events, etc. Risk Weighted Assets Other price risk Used in the calculation of risk-based capital ratios. The face amount of The risk that the fair value or future cash flows of a financial instrument will lower risk assets is discounted using risk weighting factors in order to fluctuate because of changes in market prices (other than those arising from reflect a comparable risk per rupee among all types of assets. The risk interest rate risk or currency risk), whether those changes are caused by inherent in offbalance sheet instruments is also recognised, first by adjusting factors specific to the individual financial instrument or its issuer, or factors notional values to balance sheet (or credit) equivalents and then by applying affecting all similar financial instruments traded in the market. appropriate risk weighting factors.
P S Parent Securities Sold Under Repurchase Agreement (REPO) A parent is an entity that has one or more subsidiaries. This relates to Treasury Bills and Bonds sold subject to a commitment to repurchase them at a predetermined price on a specified future date. Price-earnings ration (P/E ratio) The current market price of the share is divided by the earnings per share of Securities Purchased Under Resale Agreement the Bank. (Reverse REPO) These are loans collateralised by the purchase of Treasury Bills and/or Provision for Bad and Doubtful Debts guaranteed commercial papers from the counterparty to which the loans A charge to income statement which is added to the allowance for loan are granted. The sale by the counterparty is subject to a commitment by losses. Specific provisions are established to reduce the book value of the Bank to sell back the underlying debt securities to the borrower at a specific assets (primarily loans) to estimated realisable values. predetermined price on a specific future date.
Prudence Segmental Analysis Inclusion of a degree of caution in the exercise of judgment needed in Analysis of financial information by segments of an enterprise specifically, making the estimates required under conditions of uncertainty, such that the different industries and the different geographical areas in which it assets or income are not overstated and liabilities or expenses are not operates. understated. Shareholders’ Funds Past due Total of issued and fully paid share capital and capital and revenue reserves. A financial asset is past due when a counterparty has failed to make a payment when contractually due. Single Borrower Limit 30% of Tier II Capital. Probability of Default (‘PD’) The probability that an obligor will default within a one-year time horizon. Statutory Reserve Fund A capital reserve created as per the provisions of the Banking Act No. 30 of 1988.
428 Annual Report 2012 Substance Over Form The consideration that the accounting treatment and the presentation in Financial Statements of transactions and events should be governed by their substance and financial reality and not merely by legal form.
Subsidiary Company A subsidiary is an enterprise that is controlled by another enterprise (known as the parent).
SWAPS (Currency) The simultaneous purchase of an amount of a currency for spot settlement and the sale of the same amount of the same currency for forward settlement. Alternatively a simultaneous spot sale and forward purchase of a currency.
T Tier I Capital (Core Capital) Core Capital includes selected items of capital funds. Major core capital items are share capital, share premium, statutory reserve funds, retained profits, general reserves, surpluses/losses after tax arising from the sale of fixed and long-term investments.
Tier II Capital (Supplementary Capital) Supplementary Capital includes, approved revaluation reserves, general provisions, hybrid (debt/equity) capital items and approved subordinated term debts.
Total Capital Capital base is summation of the core capital (Tier I) and the supplementary capital (Tier II).
Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability
U Unit Trust An undertaking formed to invest in securities under the terms of a trust deed.
V Value Added Wealth created by providing banking and other services less the cost of providing such services. The value added is allocated among the employees, the providers of capital, to government by way of taxes and retained for expansion and growth.
Y Yield to Maturity Discount rate at which the present value of future payments would equal the security’s current price.
Sampath Bank PLC 429 NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the 27th Annual General Meeting of Sampath “It is further resolved that the shares issued for the Scrip Dividend be Bank PLC will be held at the “Balmoral” Hall, The Kingsbury, No. 48, listed on the Colombo Stock Exchange” Janadhipathi Mawatha, Colombo 01, on 4th April 2013 at 9.30 a.m. for the following purposes. “It is further resolved that the shares arising from the aggregation of the residual fractions consequent to the Scrip Dividend be 1. To receive and consider the Annual Report of the Board of Directors disposed of in the market by a trustee to be nominated by the Board on the affairs of the Company and the Statement of Audited Accounts of Directors and the proceeds to be distributed amongst those for the year ended 31st December 2012 with the Report of the shareholders entitled to the fraction of such shares.” Auditors thereon. 3. To re-elect Mr.Dhammika Perera who retires at the Annual General 2. To declare a dividend of Rs. 12/= per share for the financial year Meeting as a Director in terms of Article No. 87 of the Articles of 2012 be declared payable as follows: Association of the Company.
a. a Cash Dividend Rs. 6/= per share; and 4. To re-elect Prof.Malik Ranasinghe who retires at the Annual General b. a Scrip Dividend of Rs.6/= per share Meeting as a Director in terms of Article No. 87 of the Articles of Association of the Company. and therefore to consider and if thought fit, to pass the following Resolution by way of an Ordinary Resolution. 5. To re-elect Mrs.Dharani Wijayatilake who retires at the Annual General Meeting as a Director in terms of Article No. 87 of the Articles of “It is hereby resolved that a dividend of Rs. 12/= per share for the Association of the Company. financial year 2012 payable as follows; 6. To re-elect Mr.Sanjiva Senanayake who retires at the Annual General Rs. 6/= be distributed in the form of Cash amounting to a total Meeting as a Director in terms of Article No. 87 of the Articles of payment of a sum of Rupees Nine Hundred and Seventy Seven Association of the Company. Million Forty Five Thousand and Nine Hundred and Fifty Two (Rs.977,045,952/=). Rupees Nine Hundred and Sixteen Million 7. To re-elect Mrs.Saumya Amarasekera at the Annual General Meeting Seven Hundred Sixty Eight Thousand Seven Hundred and Fifty Nine as a Director in terms of Article No. 93 of the Articles of Association (Rs.916,768,759/=) of the cash Dividend shall be subject to dividend of the Company. tax at the rate of 10% whilst the remainder is exempt from dividend tax; and 8. To approve the Donations and Contributions made by the Directors during the year under Review. Rs. 6/= be distributed in the form of scrip amounting to total sum of Rupees Nine Hundred and Seventy Seven Million Forty Five 9. To re-appoint M/s Ernst & Young, Chartered Accountants as Auditors Thousand and Nine Hundred and Fifty Two (Rs.977,045,952/=). of the Company for the ensuing year and to authorize the Directors to Rupees Nine Hundred and Sixteen Million Seven Hundred and Sixty determine their remuneration. Eight Thousand Seven Hundred and Fifty Nine (Rs.916,768,759/=) of the scrip dividend shall be subject to dividend tax at the rate of By Order of the Board 10% whilst the remainder is exempt from dividend tax. The shares issued in the scrip dividend shall be valued at Rs.180.10 per share which result in one (01) share being issued for each existing thirty three point one two four Seven Eight Seven Six Seven Two Four Two S. Sudarshan Five Two (33.1247876724252) shares held by the shareholders at Group Company Secretary the end of trading on the Colombo stock exchange on the date of the 22nd February 2013 Annual General Meeting. Consequently the total number of shares to be issued under the scrip dividend shall be Four Million Nine Hundred and Fifteen Thousand Nine Hundred and Eighty Six (4,915,986) Note:- Ordinary shares (The number of shares to which the dividend applies A member is entitled to appoint a Proxy to attend and vote on his/her may change if the employees exercise their ESOP options prior to behalf and a Proxy need not be a member of the Company. A Form of Proxy “XD” date and accordingly total number of issued shares also change) is attached for the purpose. The instrument appointing a Proxy must be upon which the total number of shares issued by the company shall deposited at the Registered Office of the Bank, at No. 110, Sir James Peiris be One Hundred and Sixty Seven Million Seven Hundred and Fifty Six Mawatha, Colombo 02, not less than forty eight (48) hours before the time Thousand Nine Hundred and Seventy Eight (167,756,978) ordinary fixed for holding of the Meeting. shares.”
You are kindly requested to bring with you, your National Identity Card or any valid source of identification. (eg. Driving license, Passport)
430 Annual Report 2012 FORM OF PROXY Twenty Seventh Annual General Meeting
Sampath Bank PLC 110, Sir James Peiris Mawatha Colombo – 02
I/We ...... of ...... being a member/members of Sampath Bank PLC hereby appoint Mr/Mrs/Miss/Ven/Rev ...... of……………………………………………………………………...... ……………………………………………………………………………………... Failing him/her Mr. Dhammika Perera of 27th Floor, East Tower, World Trade Centre, Echelon Square, Colombo 01, failing him Mr. Channa Palansuriya of 20/38, Fairfield Gardens, Colombo 08, failing him Mr. Sanjiva Senanayake of 164/16, Nawala Road, Nugegoda failing him Mr. Aravinda Perera of 370 F/2, Lake Road, Averihena, Hokandara (South), failing him Mr. Ranjith Samaranayake of 51A, Weera Puranappu Mawatha, Lakshapathiya, Moratuwa, failing him Mr. Deepal Sooriyaarachchi of 28/10 Birnamwood, Wijesekera Mawatha, Mirihana, Nugegoda, failing him Prof. Malik Ranasinghe of 18, Layards Road, Colombo 05, failing him Mrs. Dharani Wijayatilake of 78/1, Old Road, Nawala, failing her Mr. Deshal De Mel of 103/1, Rosemead Place, Colombo 07, failing him Mr. Ranil Pathirana of 243/5, Lake Gardens, Sri Jayawardenapura Mawatha, Rajagiriya, failing him Miss. Annika Senanayake of 18/1, Alfred Place, Colombo 03, failing her Mrs. Saumya Amarasekera of 03, Sravasti Place,Colombo 07. as my/our proxy to attend and vote for me/us on my/our behalf at the Twenty Seventh Annual General Meeting of the Company to be held on “Balmoral” Hall, The Kingsbury, No. 48, Janadhipathi Mawatha, Colombo 01, on 4th April 2013 at 9.30 a.m. and at any adjournment thereof.
FOR AGAINST
1. To receive the Audited Financial Statements and the Annual Report of the Board for the year ended 31st December 2012
2. To declare the recommended Cash Dividend Rs. of 6/= per share and the Scrip Dividend of Rs.6/= per share for the Financial Year 2012 along with the Ordinary Resolutions set out in the Notice convening the meeting.
3. To re-elect Mr.Dhammika Perera as a Director under Article No.87 of The Articles of Association of the Company.
4. To re-elect Prof. Malik Ranasinghe as a Director under Article No.87 of The Articles of Association of the Company.
5. To re-elect Mrs.Dharani Wijayatilake as a Director under Article No.87 of The Articles of Association of the Company.
6. To re-elect Mr.Sanjiva Senanayake as a Director under Article No.87 of The Articles of Association of the Company.
7. To re-elect Mrs.Saumya Amarasekera as a Director under Article No.93 of The Articles of Association of the Company.
8. To approve donations/contributions made by the Directors during the year under review.
9. To re-appoint M/s Ernst & Young, Chartered Accountants as Auditors of the Company for the ensuing year and authorise the Directors to determine their remuneration.
Mark your preference with “X”
Signed on this ………………………Day of …………………. 2013
Signature ……………………………………………
Note: 1. Proxy need not be a member of the Company 2. Instructions regarding completion of Proxy are given in next page
Sampath Bank PLC 431 FORM OF PROXY
Instructions as to Completion 1. Kindly perfect the form of proxy, after filling in legibly your full name and address, and by signing on the space provided.
2. The completed form of proxy should be deposited at the Registered Office of the Company at No. 110, Sir James Peiris Mawatha,Colombo 02, not less than 48 hours before, the appointed time for the holding of the meeting.
3. If you wish to appoint a person other than Chairman, Deputy Chairman or a Director of the Company as your proxy, please insert the relevant details in the space provided [above names of the Board of Directors] on the Proxy Form.
4. Article No. 73 of the Articles of Association of Company provides that: “Any corporation which is a member of the Company may by resolution of its directors or other governing body, authorise such person as it thinks fit to act as its representative at any meeting of the Company or of any class of members of the Company, and the person so authorised shall be entitled to exercise the same powers on behalf of such corporation as the corporation could exercise if it were an individual member of the Company”.
5. Please indicate with an ‘x’ in the space provided how your Proxy is to vote on each resolution, if no indication is given, the Proxy, at his discretion, will vote as he thinks fit.
6. In the case of a Company/Corporation, the Proxy must be under its Common Seal which should be affixed and attested in the manner prescribed by its Articles of Association.
7. In the case of a Proxy signed by an Attorney, the Power of Attorney must be deposited at the Registered Office of the Company for registration.
Name of Shareholder ……………...... ……………………………………
N.I.C. No. of Shareholder ……………...... ……………………………………
Share Certificate No./Membership No. ……………...... ……………………………………
CDS A/C No. [if applicable] ……………...... ……………………………………
No. of shares ……………...... ……………………………………
Name of Proxyholder ……………...... ……………………………………
N.I.C No. of Proxyholder ……………...... ……………………………………
432 Annual Report 2012 CORPORATE INFORMATION
Name of Company VAT Registration Number Sampath Bank PLC 134001194 - 7000
Legal Form Credit Rating A public Limited Liability Company incorporated in Sri Lanka on 10th RAM Rating AA (Stable) March 1986 under the Companies Act No. 17 of 1982 and listed in Fitch Rating AA-(lka) (Stable) the Colombo Stock Exchange. A licensed Commercial Bank under the Banking Act No. 30 of 1988. Re-registered on 28th April 2008 under Board of Directors (As at 25/10/2012) the Companies Act No. 07 of 2007. Mr. Dhammika Perera - Chairman Mr. Channa Palansuriya - Deputy Chairman Registration Number Mr. Sanjiva Senanayake - Senior Director PQ 144 Mr. Deepal Sooriyaarachchi - Non-Executive Director Prof. Malik Kumar Ranasinghe - Non-Executive Director Head Office & Registered Office Mrs. Dhara Wijayatilake - Non-Executive Director 110, Sir James Peiris Mawatha, Miss. Annika Wickremasinghe Senanayake - Colombo 02, Sri Lanka Non-Executive Director Mr. Deshal De Mel - Non-Executive Director Telephone Mr. Ranil Pathirana - Non-Executive Director +94(011)2300260 Mrs. Saumya Amarasekera - Non-Executive Director +94(011)2358358 Mr. Aravinda Perera - Managing Director +94(011)4730630 Mr. Ranjith Samaranayake - Group Chief Financial Officer/ +94(011)5331441 Executive Director +94(011)5600600 Subsidiary Companies Fax Name of the Company Holding % Nature of Business +94(011)2303085
Renting of Commercial Sampath Centre Ltd 97.14 SWIFT Code Property BSAMLKLX S C Securities (Pvt) Ltd 100.00 Stock Broking E-mail Sampath Leasing & 100.00 Leasing & Factoring [email protected] Factoring Ltd Developing Software Sampath Information Web Page 100.00 Solutions and Technology Solutions Ltd www.sampath.lk Maintenance of Hardware
Auditors For investor relations and clarifications on the report, Please contact; Ernst & Young Group Company Secretary Chartered Accountants Sampath Bank PLC No. 110, Sir James Peiris Mawatha, Colombo 2, Sri Lanka Lawyers E-mail : [email protected] Nithya Partners Tel. : +94(011) 4730418/420/548 Attorneys - at - Law
Group Company Secretary S Sudarshan ACIS (UK), MBA(Lincoln-UK)
Stock Exchange Listings 162,736,665 Ordinary Shares
15,000,000 Unsecured Subordinated Debentures of Rs. 100/- each - 2012/2017
Sampath Bank PLC Annual Report 2012