`

ISSUE OF 40,000,000 UNSECURED SUBORDINATED REDEEMABLE FIVE YEAR DEBENTURES AT AN ISSUE PRICE OF LKR 100 EACH

(WITH AN OPTION TO ISSUE UPTO A FURTHER 10,000,000 OF THE SAID DEBENTURES IN THE EVENT OF AN OVER SUBSCRIPTION OF THE 40,000,000 DEBENTURES)

TO BE LISTED ON THE MAIN BOARD OF THE DEBT SECURITIES TRADING SYSTEM OF THE COLOMBO STOCK EXCHANGE

ISSUE OPENS ON 29th NOVEMBER 2011

Managers and Bankers to the issue

Bank Of Ceylon No 04 Bank Of Ceylon Mawatha Colombo 01 Tel: 2542167 2448348 2446790-811 THE COLOMBO STOCK EXCHANGE (CSE) HAS TAKEN REASONABLE CARE TO ENSURE FULL AND FAIR DISCLOSURE OF INFORMATION IN THIS PROSPECTUS. HOWEVER, THE CSE ASSUMES NO RESPONSIBILITY FOR THE ACCURACY OF THE STATEMENT MADE, OPINIONS EXPRESSED OR REPORTS INCLUDED IN THE PROSPECTUS. MOREOVER, THE CSE DOES NOT REGULATE THE PRICING OF THE DEBENTURE, WHICH IS DECIDED SOLELY BY THE ISSUER. PROSPECTUS

This Prospectus is dated 15th November 2011.

This Prospectus has been prepared by the Bank of Ceylon (hereinafter sometimes referred to as “BOC “or “the Bank”). BOC and its Directors confirm that to the best of our knowledge and belief, the information contained herein is true and correct in all material respect and that there are no other material facts, the ommission of which would make any statement herein misleading. While BOC has taken reasonable care to ensure full and fair disclosure, it does not assume responsibility for any investment decision made by the investors based on the information contained herein. In making investment decisions prospective investors must rely on their own examination and assessments on BOC and the terms of the Issue, including the risks associated.

No dealer, sales person or any other person has been authorized to give any information or to make any representation in connection with the Debentures other than the information and representations contained in this Prospectus and if given or made such information or representations must not be relied upon as having been authorized by BOC.

The Managers, Sponsors and registrars to the Issue, Trustee, Lawyers to the Issue and the Rating Agency have given their written consent for the inclusion of their names and their reports/statements in the Prospectus.

This Prospectus has not been registered with any authority within or outside Sri Lanka.

The delivery of this Prospectus shall not under any circumstance constitute a representation or create any implication or suggestion that there has been no material change in the affairs of Bank of Ceylon since the date of this Prospectus.

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Legal Form : A Banking Corporation domiciled in Sri Lanka, Duly incorporated on 1 August 1939 under the Bank of Ceylon Ordinance No 53 of 1938.

Registered Office & Head Office : Bank of Ceylon No. 04, Bank of Ceylon Mawatha Colombo 01 Tel : +94 11 2446790-811 Fax : +94 11 2338741-55 E-mail : [email protected] Website : http://www.boc.lk

Branch Offices : Refer Annexure 1V

Board of Directors : Dr Gamini Wickramasinghe (Chairman) Mr.S.R Attygalle Mr. Raju Sivaraman Ms. Nalini Abeywardene Mr. Chandrasiri de Silva Mr. K.L.Hewage Mr. V Kanagasabapathy (Alternate Director to Mr.S.R Attygalle)

Secretary to the Board : Mrs. Janaki Senanayake Siriwardane

Lawyers : Mr. K. Jinadasa Gamage Chief Legal Officer of Bank of Ceylon and his Assistants

Auditors/Reporting Accountants : The Auditor General of Sri Lanka

Trustee to the Issue : Deutsche Bank AG, Colombo Branch No. 86 Galle Road Colombo 03

Bankers to the Issue : Bank of Ceylon Corporate Branch No. 04, Bank of Ceylon Mawatha Colombo 01 Tel: 2471613, 2345428

Rating Agency : Fitch Ratings Lanka Ltd. No 15-04 East Tower World Trade Center Colombo 01 Tel: 2541900

Managers, Sponsors & Registrars : Bank of Ceylon to the Issue Investment Banking Division 23rd Floor No. 4, Bank of Ceylon Mawatha Colombo 01 Tel: 2 542 167 2 448 348 2 446 790-811

SALIENT FEATURES AT A GLANCE

Instrument : Unsecured Subordinated Redeemable Five (05) Year Debentures, categorized as Debentures of Type A ,B and Type C as described below. These debentures will be listed on the main board of the Debt System of the Colombo Stock Exchange.

Type A Unsecured Subordinated Redeemable Five (05) Year Debentures, of LKR 100 each bearing nominal interest at a fixed rate of Eleven percent (11%) per annum on the Principal sum payable annually (AER 11%) at the expiry of every One (01) year period from the date of allotment of the Debentures.

Type B Unsecured Subordinated Redeemable Five (05) Year Debentures, of LKR 100 each bearing nominal interest on the Principal sum at a floating rate calculated on the basis set out below, payable bi-annually at the expiry of every Six (06) month period from the date of allotment of the Debentures.

Type C Unsecured Subordinated redeemable Five (05) Year Debentures, of LKR 100 each bearing nominal interest at a fixed rate of Ten and half percent (10.5%) per annum (AER 10.77%) on the Principal sum payable bi-annually at the expiry of every Six (06) month period from the date of allotment of the Debentures.(For foreigners)

Non residents can apply only for Type C debentures

Face value of each Debenture : Types A,B and C – LKR 100

Issue Price : All types of Debentures will be issued at LKR 100 each.

Amount to be raised : LKR 4.0 Billion with an option to raise up to a Further sum of LKR 1.0 Billion in the event of an full subscription of Rs.4.0 Billion.

Rate of Interest : Type A A fixed nominal rate of Eleven per cent (11%) per annum (AER 11%) on the Principal sum payable annually at the expiry of every One (01) year period from the date of allotment of the Debentures.

Type B

A floating nominal rate of interest equivalent to Seventy Five basis points (0.75%) above the Weighted Average Six (06) Months Treasury Bill interest rate (Before Tax) at the Primary Auctions as announced by the Central Bank of Sri Lanka at the preceding week of the interest resetting date for each bi- annual period. This rate will be initially decided on the date of allotment of the Debentures and be applicable for a period of Six (06) Months commencing from the date of allotment of the Debentures and thereafter to be determined/revised bi- annually at the expiry of every Six (06) Month period from the date of allotment of the Debentures on the same basis. The interest rates so established shall be notified by BOC to the CSE and the Trustee prior to the commencement of each bi- annual period.

Provided that if such Weighted Average Six (06) Months Government of Sri Lanka Treasury Bill interest rate has not been announced at the preceding week of the interest resetting date for a particular bi-annual period, then BOC shall in consultation with the Trustee calculate the interest rate applicable for that bi-annual period based on the Weighted Average Six (06) Months Treasury Bill interest rate (before Tax) at the last Primary Auction as announced/published by the Central Bank of Sri Lanka before the interest resetting date. The interest rates so established shall be notified by BOC to the CSE prior to the commencement of the particular bi-annual period.

Interest payments shall fall due bi-annually at the expiry of every six (06) month period from the date of allotment of the Debentures.

Type C A fixed nominal rate of Ten and half per cent (10.5%) per annum (AER 10.77%) on the Principal sum payable bi- annually at the expiry of every Six (06) month period from the date of allotment of the Debentures.(For foreigners)

Opening Date : 29th November 2011

Closing Date : 15th December 2011 or such earlier date on which the initial 40,000,000 Debentures are over subscribed or the date on which the entire 50,000,000 Debentures are fully subscribed or such other earlier date in terms of this prospectus.

Basis of Allotment : In the event of an over subscription the basis of allotment will be decided by the General Manager of BOC within 7 market days from the date of closure of the issue.

Minimum Subscription : The minimum subscription per application is LKR 10,000 or 100 debentures.

Applications in excess of the minimum Subscription shall be in multiples of Rupees Ten Thousand (LKR 10,000) or Hundred (100) Debentures

Date of Maturity : On completion of Five (05) years from the date of allotment of the Debenture TABLE OF CONTENTS

Page Nos 1. Definitions /Abbreviations and interpretation 01

2. Information Concerning the Issue 03

2.1 Invitation to subscribe 03 2.2 Subscription List 04 2.3 Objectives of the Issue 04 2.4 Interest 04 2.5 Payment of the Principal Sum and Interest 05 2.6 Redemption 05 2.7 Trustee to the Issue 06 2.8 Rights of the Debenture holders 06 2.9 Risk factors specifically associated with the debentures 06 2.10 Benefits of Investing in the Debentures 07 2.11 Transfer of the Debentures 07 2.12 Listing 08 2.13 Rating of the Instrument 08 2.14 Transactions with Directors/Promoters 08

3. Procedure for Application 09 3.1 Prospectus and application forms 09 3.2 Who may apply 09 3.3 How to apply 09 3.4 Mode of payment 11 3.5 Rejection of Applications 11 3.6 Allotment of Debentures 12 3.7 Unsuccessful Applications 12 3.8 Refunds 12

4. Overview of the Bank 14 4.1 Historical Overview 14 4.2 Principal Activities 22 4.3 Stated Capital 23 4.4 Patents, Brands and Trade Marks 26 4.5 Degree of Dependence on Key Customers 30 4.6 Research and Development 30 4.7 Subsidiary and Associate Companies 31 4.8 Employees 32 4.9 Take over Offers 32 4.10 Tax Concessions and Tax Exemptions 32 4.11 Dividend policy of the bank 32 4.12 Financial Ratio 33

5 The Board of Directors 34 5.1 Details of the Board of Directors 34 5.2 Directors’ Shareholding 37 5.3 Directors’ Interest 37 5.4 Directors’ Remuneration 37

6 Extracts from the Corporate Governance Practices 38

7 Corporate Management 54

8. Properties 56

9. Statutory & Other General Information 57 9.1 Inspection of Documents 57 9.2 Brokerage 57 9.3 Trustee Fees 57 9.4 Expenses of this Issue 57 9.5 Underwriting 57 9.6 Material Contracts 57 9.7 Litigation, Disputes and Contingent Liabilities 57

Declaration by the Directors 58

Declaration by the Bank 59

Declaration by the Managers to the Issue 59

Extracts from the Bank Of Ceylon Ordinance - Annexure I

Trust Deed - Annexure II

Rating Report - Annexure III

BOC Branch Network - Annexure IV

Members and Trading Members of the Colombo Stock Exchange and Custodian Banks- Annexure V Details of Properties - Annexure VI

Report of the Auditor General - Annexure VII

Financial Statements for the year ended 31 December 2010 - Annexure VIII

Five year Summary of the Balance sheet, Profit and Loss Account – Annexure IX

Interim Financial Statements Half year ended 30th June 2011 – Annexure X

Director’s Interest in contracts - Annexure XI 1. DEFINITIONS / ABBREVIATIONS AND INTERPRETATIONS

In this prospectus the following DEFINITIONS / ABBREVIATIONS and INTERPRETATIONS apply unless the subject or context otherwise requires.

BOC /THE BANK : Bank of Ceylon

DATE OF ALLOTMENT : The date on which the Debentures will be allotted to the debenture holders in terms of this prospectus.

DATE OF CLOSURE OF THE ISSUE : The date on which the issue will be closed which shall be either 15th December 2011.or such earlier date on which the initial 40,000,000 Debentures are fully subscribed or the date on which the entire 50,000,000 Debentures are fully subscribed or such other earlier date in terms of this prospectus.

DATE OF MATURITY : On completion of Five (05) years from the date of allotment of the Debentures.

DEBENTURE : All types of Unsecured Subordinated redeemable Five (05) Year Debentures to be issued pursuant to this Prospectus at an Issue price of LKR 100 each.

DEBENTURE HOLDERS : The holders of the Debentures for the time being whose names are entered as holders of the Debentures in the Register or whose accounts are deposited with the debentures at the CDS as at the relavent date.

DUE DATE OF INTEREST : The dates on which the interest payments shall fall due in respect of the Debentures.

Interest payments shall fall due in respect of Debenture of, • Type A, annually at the expiry of every One (01) year period from the date of allotment of the Debentures.

• Type B, bi-annually at the expiry of every Six (06) month period from the date of allotment of the Debentures.

• Type C, bi-annually at the expiry of every Six (06) month period from the date of allotment of the Debentures.

The first of such interest payment shall fall due in respect of Debentures of Type A on the date of expiry of One (01) year and in respect of Debentures of Type B and C on the date of expiry of Six (06) months from the date of allotment of the Debentures, interest payments shall be made by BOC within Five (05) market days from the due dates. The final interest payments in respect of Debentures of Types A, B and C shall be made with the repayment of the Principal sum on the date of maturity/redemption of the debentures. Interest calculation shall be based upon the actual number of days in each interest payment period (Actual/Actual). B O C DEBENTURE PROSPECTUS 1 In order to accommodate the Debenture interest cycles in the Debt Securities Trading system of the CSE the payment of interest shall not include Debenture holders holding debentures in the CDS as at the last day of the payment cycle but one day prior to the due date of interest (entitlement date). If the entitlement date is a holiday interest shall be calculated including the entitlement date.

LKR : Sri Lankan Rupees

MN : Million

BN : Billion

AER : Annual Effective Rate

POA : Power of Attorney

REDEMPTION : Repayment of the principal monies on these Debentures

REGISTER : The Register of the Debenture Holders to be kept by BOC

SEC : Securities & Exchange Commission of Sri Lanka

CSE : Colombo Stock Exchange

CDS : Central Depository Systems (Pvt) Limited

DEX : Debt Securities Trading System of the Colombo Stock Exchange

TRUSTEE : Deutsche Bank AG, Colombo branch

TRUST DEED Trust Deed executed between Bank of Ceylon and the Deutsche Bank AG, Colombo branch on on 9th November 2011 bearing No 02/2011 (Annexure II)

UNSECURED : Repayment of the principal and interest on these Debentures not being secured by any specific asset of Bank of Ceylon.

WORKING DAY : Any day (other than a Saturday or a Sunday or any statutory holiday) on which the Banks and Foreign Exchange markets are open for business in Sri Lanka.

MARKET DAY : Any day on which trading takes place at the CSE.

SUBORDINATE : The Claims of the Debenture holders shall in the event of winding up of BOC, rank after all the claims of the Secured and Unsecured Creditors of BOC and any preferential claims under any Statutes governing BOC but in priority to and over the claims and rights of the Shareholder of BOC. TIER II CAPITAL : Supplementary capital representing revaluation reserves, general provisions and other capital instruments which combine certain characteristics of equity and debt sucas hybrid capital instruments and subordinated term debts.

B O C DEBENTURE PROSPECTUS 2 2. INFORMATION CONCERNING THE ISSUE

2.1 Invitation to Subscribe

The Board of Directors of the Bank of Ceylon (hereinafter referred to either as “BOC” or “Bank”) by a resolution passed on 15th September 2011 resolved to borrow a sum up to LKR 5.0 Billion from the public by the issue of Unsecured Subordinated Redeemable Five Year (5- year) Debentures.

BOC hereby invites the public to make applications for the subscription of 40,000,000 (Forty Million) Unsecured Subordinated Redeemable Five Year (5-year) debentures at an issue price of LKR 100 each payable in full as outlined in this Prospectus, with an option to issue up to a further 10,000,000 (Ten Million) Debentures in the event of an over subscription of the 40,000,000 Debentures.

BOC invites applications for three (03) types of Debentures described below, which shall rank equal and pari passu with each other, without any preference or priority one over the other except for the interest coupon offered and the frequency at which the interest is paid.

Debenture Types/categories

TYPE A Unsecured Subordinated Redeemable Five Year (5-year) debentures of LKR 100 each bearing interest at a fixed rate of eleven per cent (11%) per annum on the Principal sum payable annually at the expiry of every One (01) year period from the date of allotment of the Debentures.

TYPE B Unsecured Subordinated Redeemable Five Year (5-year) debentures of LKR 100 each bearing interest on the Principal sum at a floating rate calculated on the basis set out in Clause 2.4 of this Prospectus, payable bi-annually at the expiry of every Six (06) month period from the date of allotment of the Debentures.

TYPE C Unsecured Subordinated Redeemable Five Year (5-year) debentures of LKR 100 each bearing interest at a fixed rate of ten and half per cent (10.5%) per annum on the Principal sum payable bi-annually at the expiry of every Six (06) month period from the date of allotment of the Debentures

Non residents can apply only for Type C debentures.

The tenure of these Debentures will be five (05) years from the date of allotment of the Debentures

The repayment of the Principal and Interest on these Debentures are not being secured by any specific assets of BOC.

These Debentures will be listed on the Main Board of the Debt Trading System of the CSE.

The rights of the Debenture holders for receipt of the Principal Sum and any accrued interest on these Debentures in the event of winding up of BOC would be subordinated to the rights of the Secured and other Unsecured Creditors of BOC and any preferential claims under any statutes governing BOC. Therefore the claims of these Debenture holders shall in the event of winding up of BOC rank after all the claims of the Secured and other Unsecured Creditors of BOC and any preferential claims under any statutes governing BOC but in priority to and over the claims and rights of the shareholder of BOC.

B O C DEBENTURE PROSPECTUS 3 2.2 Subscription List

Subject to the provisions contained below, the subscription list for the Debentures will open at 9.30 a.m. on 28th November 2011 and shall remain open for 14 market days until closure at 4.30 p.m. on 15th December 2011

In the event of an over-subscription of the 40,000,000 Debentures, the subscription list will close at 4.30 p.m. on the same day on which it is fully subscribed, with the notification of CSE, unless otherwise decided by the Bank to keep the subscription list open until subscription of a further 10,000,000 Debentures or part there of as may be decided by the Bank. In such event the subscription list will close at 4.30 p.m. on the day on which a further 10,000,000 Debentures or part thereof as may be decided by the Bank have been subscribed, with the notification of CSE or on 15th December 2011 whichever is earlier.

Applications may be made forthwith. Duly completed applications in the manner set out under the Procedure for Application in Section 3 on page 9 of this Prospectus will be accepted.

2.3 Objectives of the Issue

a) To increase the Tier II capital of the Bank in order to enhance its Capital Adequacy Ratio and Single Borrower Limit.

b) To strengthen the Bank’s liquidity position by raising liquid funds.

c) To minimize the risk and gap exposure in the Bank’s assets/liability portfolios.

d) To provide an opportunity for the investors to yield attractive regular returns over a period of five years.

Proceeds will be utilized mainly for expansion of loan book and reduction of short term borrowings which will depend on the market conditions such as interest rate movments, liquidity, demand for credit etc.

2.4 Interest

Interest payable in respect of Debentures of Types A, B and C shall be as follows:

Type A Interest on these debentures shall be paid at a fixed rate of Eleven percent (11%) per annum on the principal sum annually at the expiry of every One (01) year period from the date of allotment of the Debentures.

Type B Interest on these Debentures shall be paid on the Principal sum at a floating rate equivalent to Seventy Five basis points (0.75%) above the Weighted Average Six (06) Months Treasury Bill Interest rate (Before Tax) at the Primary Auctions as announced by the Central Bank of Sri Lanka at the preceding week of the interest resetting date for each bi-annual period. This rate will be initially decided on the date of allotment of the Debentures and be applicable for a period of Six (06) Months commencing from the date of allotment of the Debentures and thereafter to be determined/revised bi- annually at the expiry of every Six (06) months period from the date of allotment of the Debentures on the same basis. The interest rates so established shall be notified by BOC to the Colombo Stock Exchange and the Trustee prior to commencement of each bi-annual period.

Provided that if such Weighted Average Six (06) months Government of Sri Lanka Treasury Bill Interest Rate has not been announced at the preceding week of the interest resetting date for a particular bi-annual period, then BOC shall in consultation with the Trustee calculate the interest rate applicable for

B O C DEBENTURE PROSPECTUS 4 that bi-annual period based on the Weighted Average Six (06) months Treasury Bill Interest rate (Before tax) at the last Primary Auction as announced/published by the Central Bank of Sri Lanka before the interest resetting date. The interest rates so established shall be notified by BOC to the Colombo Stock Exchange prior to the commencement of the particular bi- annual period.

Interest payments shall fall due bi-annually at the expiry of every Six (06) month period from the date of allotment of the Debentures.

Type C Interest on these debentures shall be paid at a fixed rate of Ten and half percent (10.5%) per annum on the principal sum bi-annually at the expiry of every Six (06) month period from the date of allotment of the Debentures.

The first of such interest payments shall fall due in respect of Debentures of Type A on the date of expiry of One (01) year and in respect of Debentures of Type B and C on the date of expiry of Six (06) months from the date of allotment of the Debentures. Interest payments shall be made within Five (05) market days from the due dates. The final interest payments in respect of Debentures of Types A, B and C shall be made with the repayment of the Principal sum on the date of maturity/redemption of the Debentures.

In order to accommodate the debenture interest cycles in the Debt Security Trading System of the CSE the payment of interest shall not include debenture holders holding Debentures in the CDS as at the last day of the payment cycle but one day prior to the due date of interest (entitlement date). If the entitlement date is a holiday interest shall be calculated including the entitlement date.

Interest calculation shall be based upon the actual number of days in each interest payment period (actual/actual).

2.5 Payment of the Principal Sum and Interest

(a) Payment of the principal sum and interest on the Debentures will be made after deducting any withholding tax and any other taxes and charges thereon (if any) in Sri Lankan Rupees to the Debenture holders registered as at the due date of interest/Principal sum and will be sent by ordinary post to the addresses of debenture holders recorded with CDS through the post at the risk of such Debenture holders, by crossed cheques marked “Account Payee Only” or pay to a bank account or otherwise through electronic fund transfer mechanism recognized by banking system as per information available with CDS or provided direct to BOC by the Debenture holders and such payment shall be deemed to be a payment duly made by BOC to the respective Debenture holders in redemption of the Debentures of such holders.

(b) Withholding Tax

As per the prevailing tax legislation in Sri Lanka, interest payments on the Debentures are subject to 10% withholding tax.

In the case of corporate entities and other persons to whom such interest income constitute as “business income”, a credit for the tax withheld would be available on furnishing the withholding tax certificate.

2.6 Redemption

BOC shall redeem the Debentures of Types A,B and C at LKR 100 per Debenture and at the expiry of five (05) years from the date of allotment of the Debentures (i.e. on the date of maturity) or on such other earlier date on which the Debentures become payable in accordance with the provision contained in the Trust Deed (Annexure II).

B O C DEBENTURE PROSPECTUS 5 Repayment before the maturity of the Principal Sum of the Debentures or any part thereof in any circumstance shall be subject to the prior approval of the Debenture holders of 3/4th of the face value of the Debentures outstanding at that time and the prior written consent of the Central Bank of Sri Lanka.

2.7 Trustee to the Issue

Deutsche Bank AG, Colombo branch has agreed in writing to act as the Trustee to this Debenture Issue and has issued a consent letter to this effect. The Bank and the Trustee have executed a Trust Deed as per Annexure II. The Debenture holders in their application for subscription will be required to, irrevocably authorize the Trustee, subject to any overriding clauses in the Trust Deed to act as their agent in entering into such deeds, writings and instruments with the Bank and to act as the Trustee for the benefit of and Interest of the Debenture holders on the terms and conditions contained in the said Trust Deed.

The rights and obligations of the Trustee are set out in the Trust Deed, which is enclosed as Annexure II to this prospectus.

2.8 Rights and Obligations of the debenture holders

a) Debenture holders are entitled to the following:

Receiving the Principal Sum at maturity and interest on the Debentures as per Section 2.4 of this Prospectus.

Ranking above the shareholder (Government of Sri Lanka) in the event of liquidation

Calling and attending meetings of the Debenture holders as set out in the Trust Deed.

b) Debenture Holders are not entitled to the following:

Attending and voting at the meetings of the holders of the other Debentures issued by the Bank.

Sharing in the profits of the Bank.

Participating in any surplus in the event of liquidation.

c) Holders of other Debt Securities have the same right as above

2.9 Risk factors specifically associated with the Debentures

Subscribers to the Debentures will be exposed to the following risks:

(It is vital to note however that these risks are not unique to BOC Debentures and apply generally to any unsecured fixed income security, fixed deposit or any other term or money deposit)

(i) Interest Rate Risk

The price of a typical Debenture will change in the opposite direction to a change in the market interest rates assuming all other factors are equal. “Market Interest Rate” refers to interest rate expected by the investors for investments with similar maturity and risk profile. As market interest rates rise, price of the Debenture may fall and as market interest rates fall, the price of the Debenture may rise. If an investor sells a Debenture prior to maturity when market interest rate is higher than BOC Debenture interest rates, the investor may incur a capital loss. Similarly, if an investor sells a Debenture prior to maturity when market interest

B O C DEBENTURE PROSPECTUS 6 rate is lower than the BOC Debenture interest rate, then the investor may receive a capital gain. This uncertainty is known as interest rate risk.

Further, if the six months Treasury Bill rate plus 75 basis points rise above the fixed rate of the debentures, the floating rate investor will gain more than the fixed rate investor whilst if the six month Treasury Bill rate plus 75 basis points fall below the fixed rate of the Debenture, the floating rate investor would earn an interest below the fixed rate investor.

(ii) Reinvestment Risk

BOC shall pay interest on the Debentures of Type A annually and Type B and C bi-annually. The investor may decide to reinvest this interest payment and earn interest on interest. Depending on the prevailing market interest rates, the Debenture holder may be able to reinvest the paid interest at a higher or lower interest rate than that is offered by the BOC Debenture. This uncertainty is known as “reinvestment risk “.

(iii) Default Risk

Default risk also known as Credit risk, refers to the risk that the issuer of a Debenture may default. I.e. the issuer will be unable to pay interest and principal when due. It is advisable for prospective BOC Debenture investors to take into account past earnings and asset growth performance of BOC, present financial strengths as reflected in the Balance Sheet of the Bank, its Risk Management Policies, Fitch Rating of AA+(lka) for BOC, and the highly experienced and skilled Directors and Senior Management Team and finally state ownership when forming an opinion on Default Risk.

(iv) Liquidity Risk

Liquidity Risk refers to the ability to encash the Debenture by selling it since the initial placement. As the Debenture instrument is listed on the CSE, investors will be able to sell them in the secondary market at any given point of time and convert them to cash. Hence the BOC Debentures carry low liquidity risk.

2.10 Benefits of investing in the Debentures

An attractive interest income for a period of five years.

Opportunity to realize capital gain according to interest rate fluctuations in the financial markets.

Capacity to exit from the investment at any time.

Can be used as collateral to obtain credit facilities from banks and financial institutions.

2.11 Transfer of the Debentures

a. These Debentures shall be freely transferable and the registration of such transfer shall not be subject to any restriction, save and except to the extent required for compliance with statutory requirements.

B O C DEBENTURE PROSPECTUS 7 b. The Debentures shall be transferable and transmittable through the CDS as long as the Debentures are listed in the CSE. Subject to the provisions contained herein BOC may register without assuming any liability any transfer of Debentures, which are in accordance with the statutory requirements and rules and regulations in force for the time being as laid down by the CSE, SEC, and the CDS.

c. In the case of the death of a Debenture holder,

the survivor where the deceased was a joint holder; and

the executors or administrators of the deceased or where the administration of the estate of the deceased is in law not compulsory, the heirs of the deceased where such Debenture holder was the sole or only surviving holder; shall be the only persons recognized by BOC as having any title to his/her Debentures.

d. Any person becoming entitled to any Debenture in consequence of bankruptcy or winding up of any Debenture holder, upon producing proper evidence that he/she sustains the character in respect of which he/she proposes to act or his/her title as the Board of Directors of BOC thinks sufficient, may at the discretion of the Board be substituted and accordingly registered as a Debenture holder in respect of such Debentures subject to the applicable laws, rules and regulations of BOC, CDS, CSE and SEC.

e. No change of ownership in contravention to these conditions will be recognized by BOC.

2.12 Listing

An application has been made to the CSE for permission to deal in and obtain a listing for these Debentures. Such permission will be granted when the Debentures are listed on the Main Board of the Debt System of the CSE. However the CSE assumes no responsibility for the accuracy of the statements made or opinions expressed or reports included in this prospectus. Admission to the Main Board is not to be taken as an indication of the merits of BOC or of these debentures.

2.13 Rating of the Instrument

Fitch Ratings Lanka Ltd (FRLL) has assigned an AA(lk) rating to the Debenture instrument. The Rating report issued by FRLL is set out in Annexure III.

2.14 Transactions with Directors/Promoters

Bank has not undertaken any special transactions with Directors /promoters except for arm length transaction done at the ordinary course of business within two proceeding year of Prospectus. Accordingly this negative confirmation includes all transactions fall under section 3.2.17 of listing rules.

B O C DEBENTURE PROSPECTUS 8 3. PROCEDURE FOR APPLICATION

3.1 Prospectus and Application Forms.

Copies of the Prospectus and the Application Forms may be obtained free of charge from the following places/Institutions: -

a) Registered Office/Head Office of the Bank.

b) All Branches of the BOC listed in Annexure IV

c) Member firms and Trading Members of the Colombo Stock Exchange and custodian banks listed in Annexure V.

3.2 Who may apply?

Applications are invited for the subscription of the Debentures from the following categories of applicants:

a) Individuals who are resident in Sri Lanka and above 18 years of age.

b) Corporate bodies and societies registered / incorporated / established in Sri Lanka and authorized to invest in Debentures.

c) Approved provident funds, trust funds and contributory pension schemes registered/incorporated / established in Sri Lanka and authorized to invest in Debentures.

In the case of approved Provident Funds, Trust Funds and approved contributory Pension Schemes, the applications should be in the name of the Trustee/Board of Management in order to facilitate the opening of the CDS accounts. d) Foreign institutional investors, corporate bodies, incorporated out side Sri Lanka and individuals resident out side Sri Lanka. They can apply only for Type C debentures.

Applications will not be accepted from individuals who are under the age of 18 years or in the name of sole proprietorships, partnerships or unincorporated trusts. “Individuals resident outside Sri Lanka”shall have the same meaning as in the notice published under the exchange control act in gazette no. 15007 dated 21/04/1972.

3.3 How to Apply

a) Applications should be made on the Application Forms, issued with the Prospectus. (Exact size photocopies of the Application Forms too would be accepted.) Care must be taken to follow the instructions given in the Application Form. Applicants using photocopies are requested to inspect the Prospectus, which is available for inspection and also issued free of charge at the collection points listed in Annexure IV & V.

Applications that do not strictly conform to such instructions and the other instructions set out below or which are illegible will be rejected.

b) Applications should be made for a minimum of one hundred (100) Debentures (LKR 10,000). Applications exceeding 100 Debentures should be in multiples of 100 Debentures (LKR 10,000). Applications for less than 100 Debentures or for a number, which is not in multiples of 100 Debentures, will be rejected.

B O C DEBENTURE PROSPECTUS 9 c) Only one type of Debentures should be applied per Application form. Investors may apply for different types of Debentures on separate application forms using exact size photocopies. If several applications are received under one type of Debenture from single customer that would be considered as multiple application. The Bank/ Managers to the issue reserve the right to decide on and reject multiple applications at their discretion d) If the ownership of the Debentures is desired in the name of one individual, full detail should be given under the heading SOLE/FIRST APPLICANT in the application form, in the case of joint applicants, the signatures and particulars in respect of all applicants must be given under the relevant headings. e) Applications by Companies, Corporate bodies, Societies, approved Provident Funds, Trust Funds and approved Contributory Pension Schemes registered/incorporated/established in Sri Lanka should be made under their common seal or in any other manner as provided by their Articles of Association or such other constitutional documents of such applicant or as per the statutes governing them. In the case of approved Provident Funds, Trust Funds and approved Contributory Pension Schemes, the applications should be in the name of the Trustee/Board of Management in order to facilitate the opening of the CDS accounts. f) Companies/Corporate entities should state the Company Registration Number in the application form. Individuals should state their National Identity Card (NIC) Number in the Debenture Application Form. Passport Number will be accepted only when the NIC Number is not available. g) Any application form, which does not state the NIC, Passport or Company Registration Number and CDS account number as the case may be, will be rejected. h) In the case of the applications made under Powers of Attorney (POA) a copy of such POA, certified by a Notary Public should be attached with the Application Form. Original POA should not be attached. i) Applicants who wish to apply through their Margin Trading Account should submit the application in the name of the “Margin Provider / Applicant’s Name” signed by the margin provider. A copy of the Margin Trading Agreement should be attached with the Application Form.

Margin Providers can apply under their own name and such applications will not be considered as multiple applications.

j) Funds for the investments in debentures and the payment for debentures by the non resident investors should be made only out of funds received as inward remittances or available to the credit of “Securities Investment Account” (SIA) of the foreign investor opened and maintained in a licensed commercial Bank in Sri Lanka in accordance with directions given by the Controller of Exchange in that be half to commercial banks k) Application forms stating 3rd party CDS Account Numbers, instead of their own CDS Account Numbers, except in the case of Margin Trading, will be rejected. l) Application Forms properly filled in accordance with the instructions thereof together with the remittance for the full amount payable on application should be enclosed in an envelope marked “BOC DEBENTURE ISSUE” on the top left hand corner in capital letters and dispatched by post or delivered by hand to the following address. Managers & Registrars to the Issue Investing Banking Division 23rd Floor Bank Of Ceylon No 4, Bank Of Ceylon Mawatha Colombo 01 B O C DEBENTURE PROSPECTUS 10 In the alternative Application forms may also be delivered by hand to the head office or to any branch of the Bank of Ceylon listed in Annexure IV or to any member firm or trading member of the CSE listed in Annexure V

Applications sent by post or delivered to any places mentioned in Annexure IV and V should reach the office of the Managers and Registrars to the Issue at least by 4.30 p.m. on the third working day immediately upon the closure of the subscription list. Applications received after the said period will be rejected even though they have been delivered to any of the said places prior to the closing date or carry a postmark dated prior to the closing date.

Applications delivered by hand to the managers & registrars to the issue after the closure of the issue will also be rejected.

3.4 Mode of Payment

1. Payment should be made separately in respect of each application only by way of cheques, bank draft or bank guarantee, as the case may be. Each Application Form should be accompanied by no more than one cheque, bank draft or bank guarantee. Application with two or more cheques, bank drafts, or bank guarantees will be rejected. Application Forms accompanied by cash will not be accepted.

2. Cheques or Bank Drafts should be drawn upon any commercial bank in Sri Lanka and crossed “Account Payee Only” and made payable to “BOC Debenture Issue Account ”. The bank guarantee valied upto minimum of 14 days from the closing date of issue should be in a manner acceptable to BOC and should be issued by a commercial bank in Sri Lanka and payable on demand to “BOC Debenture Issue Account”

3. Payments for applications for values above and inclusive of Sri Lankan Rupees One Hundred Million (LKR 100,000,000) should be supported by a Bank Guarantee. Cheques and Bank Drafts will not be accepted for values above and inclusive of Sri Lankan Rupees One Hundred Million (LKR 100,000,000) Applicants are advised to ensure that sufficient funds are available in order to honour the bank guarantees, inclusive of charges when called upon to do so by the Managers/registrars to the Issue. It is advisable that the applicants discuss with their respective bankers the matters with regard to the issuance of bank guarantees and all charges involved. All expenses inclusive of charges relating to Real Time Gross Settlements (RTGS) should be borne by the applicants.

4. The amount payable should be calculated by multiplying the number of debentures applied for by the issue price of LKR 100 per debenture. If there is any discrepancy in the amount payable and the amount specified in the cheque/bank draft or bank guarantee, the application will be rejected.

5. In the event that cheques are not realised prior to the date of deciding the basis of allotment, the monies will be refunded and no allotment of Debentures will be made. Cheques must be honoured on first presentation for the application to be valid.

6. All cheques/bank drafts received in respect of the applications will be banked immediately after the closure of the subscription list.

3.5 Rejection of Applications

1. Application Forms and the accompanying cheques/bank drafts or bank guarantees, which are illegible or incomplete in any way and/or not in accordance with the terms, conditions and instructions, set out in this Prospectus will be rejected at the sole discretion of BOC.

2. Applications from under the age of 18 years or in the names of sole proprietorships, partnerships of unincorporated trusts will also be rejected.

B O C DEBENTURE PROSPECTUS 11 3. Any application form, which does not state the NIC, Passport or Company Registration Number and CDS account number as the case may be, will be rejected.

4. Applications delivered by hand to the managers and registrars to the issue after the subscription list is closed will be rejected. Applications received by post after 4.30 p.m. on the third working day immediately following the date of closure of the subscription list, will also be rejected even if they carry a post mark dated prior to the closing date of the subscription list.

Applications delivered to any places mentioned in Annexure IV & V should also reach the office of the Managers/Registrars to the Issue at least by 4.30 p.m. on the third working day immediately upon the closure of the Subscription List. Applications received after the said duration will be rejected even though they have been delivered to any of the said places prior to the closing date.

3.6 Allotment of Debentures

The basis of Allotment will be decided by the Genaral Manager of BOC before the expiry of seven (07) market days from the closure of the Issue in the event of an over subscription.

Applicants will be notified the respective allotments of the Debentures within 10 market days from the closure of the subcribtion list.

No preferential allotments will be made by BOC with regard to any specific individual or entity. The allotments will be made in a fair manner.

The directors of BOC reserve the right to refuse any application or to accept any application in part only, without assigning any reason therefore.

3.7 Unsuccessful Application

BOC shall refund payment due on applications fully or partly unallotted within Ten (10) market days excluding the date of closure of the issue. Applicants shall be entitled to receive interest at the rate of last quoted average weighted Prime lending rate (AWPLR) plus 5% for the delayed period on any refunds not made within this period.

3.8 Refunds

1. When an application is not accepted, subsequent to the cheque being realised the applicant’s money in full or where an application is accepted only in part, the balance of the applicant’s money will be refunded. If the applicant has provided accurate and complete details of his bank account in the application, the bank shall make such refund payments to the bank account specified by the applicant, through Sri Lanka Inter bank payment system (SLIPS) and payment advice will be sent. In the event of refunds over Rupees Five Million (Rs.5,000,000/-) or If the applicant has not provided accurate and correct details of his bank account in the application, the bank shall make such refund payment to the applicant by way of a cheque and sent by post at the risk of the applicants. In the case of joint applications, the cheques will be drawn in favour of the applicant’s name appearing first on the application form. Refund cheques on Debentures, which have not been allotted, will be posted before the expiry of Ten (10) market days excluding the date of closure of the subscription list. Applicants would be entitled to receive interest at the rate of last quoted average weighted prime lending rate (AWPLR) plus 5% for the delayed period on any refunds not made within this period.

B O C DEBENTURE PROSPECTUS 12 2 Debentures allotted will be directly uploaded to the respective CDS accounts given in the application before the expiry of eighteen (18) market days, from the date of closure of the subscription list. A written confirmation of the credit will be sent to the applicant within two market days of crediting the CDS account, by ordinary post to the address provided by each applicant in his or her respective applications.

3. The BOC will submit to the CSE a ‘Declaration’ on direct upload to CDS on the market day immediately following the day on which the investor’s CDS accounts are credited with the securities.

B O C DEBENTURE PROSPECTUS 13 4. OVERVIEW OF THE BANK

Vision of the Bank “Bankers to the Nation”

Mission Customers: “Foster mutually rewarding relationships with all our customers, exceeding their expectations”.

Staff: “Give all our staff, the recognition and rewards to be the best team of achievers in service excellence”.

Owners: “ Be a profitable catalyst for equitable development covering urban and rural areas “.

Society:

“Provide world-class banking services across the nation as a beacon for progress and growth”.

4.1 Historical Overview

Bank of Ceylon (BOC) is the first state owned commercial bank in Sri Lanka established on 1 August 1939 by a special statute, namely the Bank of Ceylon Ordinance No 53 of 1938. Today having more than seven decades of glorious existence, the Bank is firmly entrenched as Sri Lanka’s premier financial services organization offering a broad range of services consists of commercial banking, trade finance, development financing, mortgage financing, leasing financing, investment banking, corporate financing, dealing in government securities, pawn brokering, credit card facilities, off-shore banking, foreign currency operations and other financial services to consumers, corporate customers and the Government of Sri Lanka.

Today the bank reached out circa 9 million customer accounts across all 24 districts through its 313 full service branches and 231 Extention Offices connected online. BOC’s network of 382 ATMs serves the people 365 days 24 hours.It operates in 2 overseas locations,namely Maldives and Chennai.BOC has expanded its services through its representatives attached to the exchange houses in Qatar,The United Emirates,Kuwait,Bahrain,Oman,The Kindom of Saudi Arabia,Israel,Jordan,Italy,South Korea,France and Japan.BOC represents the highest worldwide net work with 995 correspondence banks and exchange houses.

M/s Fitch Rating Lanka Ltd has revised BOC’s out look to positive from stable and simultaneously affirmed its national long term rating at AA+(lka),reflecting bank’s strong financial profile in terms of capital base,profitability and assets quality.

BOC is the market leader or holds significant market shares in Loans & Advances, Deposits, NRFC Accounts, Inward foreign exchange remittances, Off- shore banking, Treasury products and Micro-banking.

The bank is managed along the following segments and product lines –

Consumer Group – Consumer Lending & Finance (Real Estate/Mortgages, Student Loans, Auto Loans); Retail Distribution & Banking (Branches); Commercial Business (SMEs & Middle Market Commercial Banking); Micro finance; Development Banking, Leasing, Islamic Banking.

Corporate Banking Group - Debt based products (Term Loans, Overdrafts, Project Finance, Leasing, etc) and Transaction Services (Cash Management, Trade Services, Agency Services) for SMEs and Corporates.

B O C DEBENTURE PROSPECTUS 14 Treasury Operations – Foreign Exchange, Money Market, Local & Foreign Currency Funding, Fixed Income & Equity Trading; Correspondent Banking, Investment Banking.

BOC also has twelve Subsidiaries including Bank of Ceylon UK limited and six Associate Companies in the areas of property development, merchant banking, leasing & finance, hotels, travel, unit trust and stock brokering.

Indicating its dominance of the Sri Lankan economy, BOC has the largest asset base approximating LKR 715 Billion by year ended 2010, which represented approximately 24% of the total assets held by the commercial banks in the country. The capital base of the Bank as at 31 December 2010 was LKR 28 billion enabling the highest single borrower exposure up to LKR 10 billion. These are key aspects to note about the Bank. Among other significant features are that by 31 December 2010, BOC held 22% market share of domestic deposits, 18% of advances.

Bank continues to maintain its leadership position in the area of foreign currency remittances having a market share of over 43% in the year 2010.To facilitate customers, a web based electronic fund transfer system named “ BOC E-cash” was introduced. The Bank also introduced “X Press Money”, a network of speedier, low cost money transfer facility in Middle East.

Bank’s procedures and protocols are driven through good corporate governance and transparency by complying with all regulatory requirements and best practices in the industry. It is committed to follow good corporate citizenship by actively involving in Corporate Social Responsibility activities by providing specific budgetary allocation for vital and justifiable social welfare projects and utilizing such expenses for the intended purpose.

Since the early days of the 1940’s, the Bank has played a dominant and robust role in national development and continues to do so encompassing the entire country. Such development work is not only reflected in a branch network that criss-crosses the whole country, but also connect major sectors of the economy to provide life changing banking services. Such services take various forms – from direct lending to be it farmers, industrialists, large corporations or other government owned businesses or indirectly by placing the balance sheet of the bank at risk to facilitate trade across national and international borders. For the most part such services are priced on commercial terms taking into consideration costs and expenses normally incurred in the course of engaging in such activities. On a continuous basis, however, the Bank also undertakes activities that are not so commercially priced but provided at lower rates in order to develop selected areas of the country, its people and their businesses. The returns from such activities, at times distant and remote are not at all intangible. The history of the bank is full of examples where such development activity has generated beneficial results.

B O C DEBENTURE PROSPECTUS 15 Operational Structure of the Bank

Corporate Banking DGM Corporate & Offshore Banking Offshore Banking

Treasury Operations Additional General Manager International Banking International & Treasury Overseas Branch Operations

DGM Retail Banking Retail Banking Personal Banking Leasing Operations DGM Sales & Channel Management

Additional General Manager Development Banking Product & Development Islamic Banking/Card Centre Product Development

DGM Investment Banking Investment Banking

Additional General Manager NPA Monitoring & Recovery Recovery

Strategic Planning & Financial Chief Finance Officer Strategy, Supervision of Subsidiaries Board of General Directors Manager Financial Controls and Reporting, DGM Finance & Planning Performance Management

Chief Risk Officer Risk Management & Compliance

Chief Internal Auditor Internal Audit Through the Audit Committee

Head of Information Information Technology

DGM Human Resources HR Operations Training

Legal Chief Legal Officer

Procurement, Premises, DGM Support Services Core Banking System Operations, Security & Transport

Marketing Head of Marketing

Head of Research Research & Development

B O C DEBENTURE PROSPECTUS 16 Significant milestones in the life of the Bank

1939 - Bank of Ceylon established as the nation’s first modern, locally-owned bank. Ceremonially opened on 1 August by Governor, Sir Andrew Caldecott, at the present-day premises of the City Office.

1941 - Operations commence in Kandy with opening of a branch office. Other branches opened subsequently in other large outstation towns: Galle, Jaffna and Trincomalee.

1946 - Foreign Department established. Operates from offices at the Grand Oriental Hotel (GOH) Building, Colombo Fort.

1949 - First overseas branch opens in London shortly after Independence; it is the thirteenth bank branch to be opened.

1953 - C Loganathan becomes first Sri Lankan General Manager.

1954 - Central Office moves from City Office to premises at GOH Building.

1959 - Authorised capital enhanced to Rs. 50 million by Act of Parliament.

1961 - Nationalisation. The Government of Ceylon becomes sole owner of Bank of Ceylon. Kachcheri branch network set up in alignment with the Government’s District Administration System.

1973 - Agriculture Service Centre concept implemented. Operations commence at over 350 Agricultural Service Centre Branches. Comprehensive Rural Credit Scheme implemented.

1978 - Non-Residents Foreign Currency (NRFC) deposit scheme introduced.

1979 - Off-shore banking operations commenced with the establishment of the Foreign Currency Banking Unit.

1980 - Computer Division established; automation of business operations commences.

1981 - Branch opened in Malé, Republic of Maldives.

1985 - Head Office moves to 32-storey BOC Tower in Colombo.

1988 - Installation of the first BOC ATMs ushers in the electronic banking era.

1989 - Ceybank Visa credit card introduced in collaboration with Visa International.

1995 - Overseas branch network augmented with offices in Madras and Karachi.

1996 - Joint venture with Nepal Bank establishes Nepal Bank of Ceylon Limited.

1998 - MoU with Government results in greater management autonomy and target- based performance.

2000 - Authorised capital further enhanced to Rs. 50 billion by Act of Parliament.

2004 - Real estate subsidiary Mireka Capital Land (Private) Limited formed to invest in Havelock City, the largest single Condominium development in Sri Lanka.

2005 - Balance Sheet footings top Rs. 300 billion, the largest asset base of any Sri Lankan bank. Wide range of relief, rehabilitation and reconstruction activities undertaken and financed in the aftermath of the December 2004 tsunami.

B O C DEBENTURE PROSPECTUS 17 2006 - Wins IBM/FISERV prize for the fastest deployment of an online core banking system in Asia Pacific region.

2007 - Raises US$ 210 million, the largest internationally syndicated debt by any Sri Lankan issuer; appointed Co-Manager of historic US$ 500 million debut bond issued by the Government of Sri Lanka; commences Village Development Programme focused on engaging rural communities.

2008 - Raises Rs. 4.2 billion via a listed subordinated rupee debenture of 5 years; raises US$ 21.6 million via a private placement of a 5-year subordinated dollar debenture.

2009 - BoC completed fully integrated online branch network by bringing in Kilinochchi, Mankulam and Mullaitivu branches into the network, the operations of which were disrupted at the time of ending the war. - BoC celebrated its 70th Anniversary. Bank launched an Islamic Banking Unit, which operates through Island-wide network

2010 - BoC diversified its operations in the United Kingdom by upgrading its London branch to a Subsidiary of BoC that will be used as a platform for global banking and to attract more foreign investment to the country. - Bank has set up a specialised investment banking unit aiming to diversify its portfolio in non- core banking. - Bank successfully raised Rs. 5 billion in the second public issue of unsecured, subordinated redeemable five-year debentures. - BoC acted as the Bankers to the issue, Managers, sponsors and registrars for the Urban Development Authority‘s Rs.10 Billion debenture issue.

Awards Received By Bank of Ceylon

Award for Excellence in Trade Finance Vision Awards 2009

Best Sri Lankan Trade Bank Organized by League of for 2010 in a Competition American Communications Professionals (LACP). Organized by Trade Finance Professional (LACP) Report (Commercial Banks, the Globle Magazine for exporta Overall Silver Award for And commodity finance Annual Report.

And the following awards - Best Presented Accounts Awards Competition 2009 Organised by South Asian Federation of Accountants (SAFA), Award: Gold Public Sector Entities - Co-Winner - Annual Report Awards Competition 2010, Organised by The Institute of Chartered Accountants of Sri Lanka Award: Certificate of Compliance - ARC Awards for the Annual Report 2009 International ARC Awards 2010,organised by Mercomm, Inc. USA - Interior Design in the Banks: National Commercial category – Gold - Illustration : National Commercial category - Silver - Financial Data – Honours- Photography –Honours

B O C DEBENTURE PROSPECTUS 18

Business Highlights

• Highest ranked Sri Lankan bank in the Bankers Almanac

• Bank of Ceylon’s outlook has been revised by Fitch Ratings Lanka Limited to positive from stable, and affirmed its National Long- Term Rating at ÁA(lka)’

• Wider customer base over 9 million accounts

• Leader in treasury operations with over 50% of local foreign exchange market

• Worldwide network reaching over 995 foreign correspondents

• Leader in inward foreign remittances with over 43% market share

• Nation’s first locally-owned bank, expanded its operations with an island-wide network of 926 service points; 926 connected on-line

• Representing largest off-shore banking operations with the highest market share of assets

• Bank achieved a remarkable breakthrough in trade finance by centralizing its activities for customer convenience and recognized as the best Sri Lankan Trade Bank for 2010 for the second consecutive year with over 50% market share

• The first State Bank to commence 24 hour service point

• The London branch of the bank was converted as an independent fully-owned Subsidiary, operating in United Kingdom

• Single borrower exposure capacity in excess of Rs. 10 billion

• BOC’s new corporate plan branded ‘one 10 TWELVE’(ie. Rs. 1 trillion assets, Rs. 10 billion profit before tax by year 2012) reached to Rs. 715 billion assets, Rs. 10 bilion profit before tax in the year 2010

• Bank’s deposit mobilization campaigns throughout the country achieved a remarkable deposit base of Rs. 524 billion

• Lending to private sector increased by Rs. 62 billion, 34% up

• Increased penetration in branchless banking by introduction of internet banking and mobile banking

• Bank successfully raised Rs. 5 billion for the second time by issuing subordinated 5 year debentures listed on the Colombo Stock Exchange

• Bank of Ceylon introduced new business lines by adding an investment arm and Islamic banking into its banking stream

B O C DEBENTURE PROSPECTUS 19 PERFORMANCE SNAPSHOT

Total assets vs Total Deposits

B O C DEBENTURE PROSPECTUS 20 Contribution to Government Non Performing Assets 6.00% 12000 5.00% 10000 4.00% 2006 8000 3.00% 2007 6000 Tax & Prof it ) ( % 2.00% 2008 Rs. Mn Rs. 4000 1.00% 2009 2000 0.00% 2010 0 2006 2007 2008 2009 2010 Jun- Jun-11 2006 2007 2008 2009 2010 11 Year Year

B O C DEBENTURE PROSPECTUS 21 4.2 Principal activities

The Bank provides a comprehensive range of services covering all sectors of the business community as well as the Government. Listed below are the products and services provided.

Corporate & Offshore Banking Retail Banking Personal Banking

* Advances * Savings accounts * Current accounts * Trade Finance facilities * Current accounts * Local currency savings * Deposits * Loans & Advances * Foreign currency deposits * Fund Transfers * Trade Finance * Term deposits * Bonds & Guarantees * Islamic Banking * Credit/Debit cards * Other services * Safe Custody Vault

International & Treasury Operations Development Banking

* International Banking * Micro Farming * Correspondent Relationship * Micro Enterprises * Trade Promotions * Fisheries * Pay Office & Travel * Agri Business * Inward Remittance * Housing * Treasury * Transportation * Transactions in Government securities * Small & Medium Enterprises * Forex * Consumption * Fund management Advice * Education

Investment Banking

* Corporate Advisory * Debt Issues * Private Placements & Advisory * Trustee/Custodial Services * Structured Products * IPOs * Wealth/ Assests Management

Goals for 2011 and beyond Outlook

During 2011-2015, Sri Lanka would bank on local peace dividends and the global economic recovery. In the immediate to medium term, the tourism, agriculture and fisheries sectors are expected to expedite growth with the opening up of approximately 2/3 of the country’s coastal belt and almost ¼ increase in the landmass for economic activity previously unutilised due to the war. In the medium term, reconstruction of damaged infrastructure in the north and the east and expedited infrastructure in the rest of the country will provide impetus for growth.

Country’s literate, trainable labour force and the liberalized Information Technology (IT) environment would also encourage new ventures in communication and information technology.

Improved business confidence should continue to promote both local and foreign investments in its path to become the Wonder of Asia in line with the government’s vision.

Committed to the Development of the North & the East

As has already been reported, the war left two thirds of Sri Lanka’s coastal belt in the north and the East under-developed and largely untapped in potential and resources.The BOC is of the view that future growth in this context will significantly be domestic –based and the Northern and the Eastern Provinces will be at the centre of development, especially in the areas of tourism, agriculture, dairy, animal, husbandry and infrastructure development

B O C DEBENTURE PROSPECTUS 22 In such a scenario and in our desire to support the Government’s mandate of bringing development to all areas of the country. We believe that BOC has a significant role to play in these endeavours, through a commitment to unearth and resuscitate dormant economic power in these regions.

Objective -Transform BOC to Complete financial Solution House

Future Strategies

- Revenue Diversification - New Markets/ New Products - New skill set/skill migration - Business realignment

Assumptions

- Sustainability of Domestic Peace - Our expectation that GDP will grow positively focusing on agriculture, fisheries, tourism, infrastructure and service industry - Political stability of the government and policy stability - Investor friendly Interest rate regime - Relatively stable rupee - Single digit inflation - Majority of the Banking sector growth is sourced from Domestic economy

Risk

- Sustainability of low interest rate regime - Changes to the government policy Directions - Unexpected external shocks - Changes in Domestic inflation - Risk of political instability - Bank inability to Source/ retain/develop future skills - Systemic threat on asset quality - Natural Disasters Bank inability to cope up with new market/ new product

4.3 Stated capital

a) The detailed breakdown of the share capital of BOC is given below.

Authorized Capital LKR’000

50,000,000 ordinary shares of LKR 1000 each 50,000,000

Issued and fully paid 5,000,000

The entire (100%) issued capital of BOC is held by the Secretary to the Treasury on behalf of the Government of Sri Lanka.

b) Particulars of Loans, other Borrowings, Liabilities and indebtedness LKR ‘000 (i) Long term borrowings as at 31 August 2011 Debenture Issued (Note 1 below) 38,705,862 Term Borrowings from banks abroad 43,743,353 Term Borrowings from banks & other institutions in SL Refinance borrowings 5,908,228

(ii) Short term Borrowings as at 31 August 2011 Securities sold under re-purchase agreements 59,247,718

B O C DEBENTURE PROSPECTUS 23 Note 01- Details of Debenturs

I. Unlisted Rupee debentures issued by BOC as at 31st August 2011.

Redeemable Interest Investor Amount Invested Payable Date Rate (%)

BoC Pension Trust Fund 1,500,000,000 10.01.2012 10.39 Annually

BoC Pension Trust Fund 1,000,000,000 12.03.2012 10.52 Annually

BoC Provident Fund 500,000,000 01.04.2013 11.02 Annually

BoC Pension Trust Fund 1,500,000,000 01.04.2013 11.02 Annually

National Savings Bank 1,000,000,000 27.10.2011 12.11 Semi Annually

Sri Lanka Insurance Co. 250,000,000 31.12.2011 10.15 Semi Annually

BoC Provident Fund 1,000,000,000 01.07.2015 13.20 Annually

BoC Pension Trust Fund 2,000,000,000 14.07.2015 13.20 Annually

BoC Provident Fund 5,200,000,000 03.08.2015 11.50 Annually

BoC W/W & OP Fund 1,750,000,000 03.08.2015 11.50 Annually

BoC Pension Trust Fund 5,300,000,000 03.08.2015 11.50 Annually

Employees' Trust Fund 300,000,000 15.08.2013 14.31 Annually

BoC Provident Fund 1,428,812,500 17.09.2015 11.00 Annually

BoC Pension Trust Fund 1,000,000,000 03.10.2012 12.82 Annually

BoC Provident Fund 1,500,000,000 01.11.2012 11.48 Annually

BoC W/W & OP Fund 500,000,000 01.11.2012 11.48 Annually

BoC W/W & OP Fund 1,200,000,000 17.11.2011 11.36 Annually

Total 26,928,812,500

II. Unlisted USD Debenture as at 31st August 2011

Instrument Amount Rate of Interest

Thirty Thousand (30,000) USD 21.375 Type “ A “ Unsecured Redeemable Million Floating interest rate equivalent to the Subordinated Five year Rs. six (06) month London Inter Bank Offered Debentures of USD one Rate (LIBOR) plus three per centum (3%) thousand (USD 1000) each p.a. re-set bi-annually.

USD 0.240 Type “ B “ Million Fixed Interest rate of five decimal five per Centum (5.5%) p.a.

Rupees Value as at 31 August 2011 Rs. 2,372,354, 325

B O C DEBENTURE PROSPECTUS 24 III. Listed Rupee Debentures as at 31st August 2011

Rupee Debentures issued by BOC 2008 / 2013

Instrument No of Amount Rate of Interest Investors

Unsecured Subordinated 516 345,190,000 Fixed rate of Nineteen per cent Redeemable Five (05) year (19%) per annum on the Principal Debentures of LKR 100 each sum payable annually at the Expiry of every One (01) year Period from the date of allotment Of the debenture

Unsecured Subordinated 87 3,699,390,000 Floating rate equivalent to Redeemable Five (05) year Seventy-Five basis points Debentures of LKR 100 each (0.75%) above the Weighted Average Six 06) Months Treasury Bill interest rate (Before tax)

Unsecured Subordinated 407 360,114,977 Redeemable at LKR 225 for each Redeemable Five (05) Year bearing 17.61% p.a. yield to Zero Coupon Debentures maturity on the face value.

------4,404,694,977 ======

Rupee Debentures issued by BOC 2010 / 2015 as at 31st August 2011

Instrument No of Amount Rate of Interest Investors Unsecured Subordinated 116 1,074,670,000 fixed rate of eleven Redeemable Five (05) year per cent (11%) per Debentures of LKR 100 each annum on the Principal sum Payable annually At the expiry of every One (01) year period From the date of Allotment of the Debenture

Unsecured Subordinated Redeemable five (05) year Debentures of LKR 100 each 57 3,925,330,000 floating rate equivalent To Seventy Five Basis points (0.75%) Above the weighted Average six (06) Months Treasury Bill Interest rate 5,000,000,000 Grand Total ( i + ii + iii) 38,705,862,000

B O C DEBENTURE PROSPECTUS 25

(iii) Contingencies and Commitments

Guarantees and Other Material Contingent Liabilities as at 31 August 2011 In the normal course of business, the Bank makes various commitments and incurs contingent liabilities with legal recourse to its customers.

These commitments are quantified below.

LKR ‘000 Acceptance and documentary credit 209,111,281 Bills For collection 2,924,825 Guarantees 58,778,645 Forward Exchange Contract 54,036,689 Other Commitments 89,313 Rs.324,940,753

Mortgages and Charges on the Assets of BOC

The following assets have been pledged by BOC as security as at 31 August 2011

Assets Value LKR ‘000 Treasury Bills 22,102,583 Treasury Bonds 35,578,387

c) Convertible Debt Securities

The Bank does not have any convertible debt securities in issue.

4.4 Patents, Brands & Trade Marks

Products and Services

Deposits Local Currency Deposit Accounts

Normal Savings - General purpose savings account for anyone above 18 years of age. Ran Kekulu - Higher interest, scholarships for grade 5 scholarship winners, free insurance policies for both, the child and account holder and many more benefits.

14+ Teen Savings - Unique savings scheme ideal for teenagers which could be operated by themselves, free VISA Electron Card.

18+ Youth Savings - Life insurance cover to a maximum of Rs. 500,000 and special insurance cover for partial disability and illness, a gold coin for the wedding and Ran Kekulu for first born, scholarships for higher education, special facilities and many more benefits.

Sisu Saviya Savings - To encourage savings among school children.

Kantha Ran Ginum - Higher interest, Free insurance policy cover up to Rs. 500,000 (Life & Accident cover), loan facilities at special interest rate, Apsara Visa Credit Card. Senior Citizens Savings - Assured monthly payments during the retirement as per agreed plan. Senior Citizens Fixed Deposits – Monthly interest payment at a higher rate. B O C DEBENTURE PROSPECTUS 26 Special Purpose Accounts Ran Govi Thenpathu - To promote savings habit among farmer community.

Ranaviru Ran Ginum - Specially designed savings account for staff in the armed forces.

Samurdhi Savings - To encourage savings among lower income groups. Specially designed with higher interest rate. Dheevara Thenpathu - Specially designed for the fishing community.

Prestige+Current Account – Personalised cheque book, free Visa Electron debit card with a withdrawal limit of Rs. 100,000,free BoC credit card, Internet banking, SMS banking facilities. BoC Infinity - Ability to choose the retirement benefits in multiplies of Rs. 10,000.

BoC Vishrama - Flexible investment opportunity for cash in hand.

Maturity Deposits 7-day Call Deposits Savings Certificates - Ideal short-term investment, instant loans and overdrafts, Interest paid upfront, no stamp duty/ withholding tax, encashment at any branch.

Fixed Deposits - General purpose fixed deposits for anyone over 18 years of age.

Moving Rate Fixed Deposits - Ability to receive different interest rates depending on the period.

Senior Citizens Fixed Deposits - Deposit with special interest rates for senior citizens.

BoC Smart Saver - Protection against interest rate fluctuations

Securities Investment Account (SIA) - To invest in treasury bills/treasury bonds issued by Government of Sri Lanka/equity capital of companies incorporated in Sri Lanka/units of unit trusts in Sri Lanka.

Flexi Fixed Deposits- BOC FlexiCard brings flexibility to Fixed Deposits, keeping you in control of your money.

Foreign Currency Deposit Accounts

NRFC Accounts NRFC Savings and Fixed Deposits Transactions in 9 currencies, free life insurance cover, 'BoC Sarani' housing loan and other loan facilities, no commission charges for foreign currency inward remittances, e-banking facilities, international and local Visa debit/credit cards, tax exemptions for interest earnings. Foreign Currency Savings Account for Professional Service Providers

Foreign Currency Fixed Deposit for Professional Service Providers

Foreign Currency Current Account for Professional Service Providers RFC Accounts

RFC Savings and Fixed Deposits Transactions in 9 currencies, attractive interest rates, loan facilities, credit card and VISA Electron debit card. Tax exemptions for interest earnings.

Ran Kekulu Foreign Currency - Transactions in 9 currencies, bonus interest.

B O C DEBENTURE PROSPECTUS 27 Other Accounts

Resident Non-National Foreign Currency Savings (RNNFC) Export Foreign Currency Accounts (EFC) Special Foreign Investment Deposit Accounts (SFIDA)* - Deposit account for Non-Sri Lankans/Non-resident investors with high interest rates, tax exemptions.

Senior Foreign Investment Deposit Account (SENIOR FIDA)* - Facilitate investment with a view to obtaining Sri Lankan Permanent Resident Visa for Senior Foreign Nationals under 'Sri Lanka My Dream Home' Programme.

BoC personal loan BoC housing loan scheme Flexible services, ability to obtain leasing facilities even without BoC Leasing Scheme - a guarantor, Special Leasing Scheme with DIMO

BoC Paymate - Paying utility bills and other services via SMS

BOC has not registered any patents as at date. The trademark “BOC “ is registered with the Registry of Patents, Brands & Trade Marks. As at date BOC owns the following Brands

B O C DEBENTURE PROSPECTUS 28 B O C DEBENTURE PROSPECTUS 29 4.5 Key Customers and suppliers

BOC adheres to prudential requirements set out by the Central Bank of Sri Lanka, by virtue of which exposure to any one group of companies, any one company, and any individual borrower is regularly monitored. As such BOC is not overly dependent on any customer or any one sector for income at any given time. BOC is also not significantly dependent on any single supplier for its requirements . 4.6 Research and Development

BOC has spent a sum of LKR 15.84 million on research and development activities over the last two years.

B O C DEBENTURE PROSPECTUS 30 4.7 Subsidiaries and Associate Companies are shown in following group structure

Bank of Ceylon

Associates Subsidiaries

Ceybank Asset Management Bank of Ceylon (UK) Limited Koladeniya Hydropower (Private) Limited (Private) Limited

Southern Development Property Development PLC Financial Company Limited

Transnational Lanka Records Hotels Colombo (1963) Limited Solutions (Private) Limited

Mireka Capital Land Ceylease Financial Services Ceybank Holiday Homes (Private) Limited Limited (Private) Limited

Lanka Securities BoC Management & Support (Private) Limited Services (Private) Limited

MBSL Savings Bank Limited BoC Property Development & Management (Private) Limited

BoC Travels (Private) Limited

Merchant Credit of Sri Lanka Limited

Merchant Bank of Sri Lanka PLC

MBSL Insurance Company Limited

- Total, Direct and indirect holding of BOC

- Direct holding of BOC/Subsidieries

B O C DEBENTURE PROSPECTUS 31 4.8 Employees

The permanent staff strength of BOC as at 30thSeptember 2011 was 8,103 employees.

Category of Staff No of Employees Executive Management 59 Senior Management 616 Middle Management 3394 Clerical & Allied 3350 Minor 684 Total 8103

The following tabulates the employees of the Trade Unions of the Bank as at 30thSeptember 2011

Name of the Trade Union No of Employees Ceylon Bank Employees’ Union (CBEU) 6885 BOC Staff Officers’ Association 507 All Ceylon Bank Employees’ Union 166 Jathika Sevaka Sangamaya (JSS) 176 Sri Lanka Nidahas \banku S.S. 36 Total 7770

BOC has no bilateral or multilateral agreements with the trade unions

4.9 Take Over Offers

There were no offers for acquisitions or mergers by third parties in respect of the BOC shares during the past two years. BOC has also not made any similar Offers for the shares of third parties during the past two years.

4.10 Tax Concessions

No special tax concessions are available to BOC as at date.

4.11 Dividend policy of the bank

- Government of Sri Lanka is the sole shareholder of the bank. Dividend ratio will be decided based on the profitability of the bank on mutual consent.

Year Dividend paid (Rs,000)

2010 3,096,410

2009 1,346,410

2008 846,410

B O C DEBENTURE PROSPECTUS 32 4.12 Financial Ratio of the Bank

2010 2009 Profitability Interest margin % 3.14 2.90 Return on assets ( before tax) % 1.60 0.82 Return on equity (after tax) % 24.01 12.85

Investor Information Debt equity 158.61 92.12 Interest cover (times) 2.10 1.35 Earnings per share (Rs.) 1,273.06 616.80 Net assets per share(Rs.) 5,626.37 4,979.72 Net Debt/ EBITDA 4.53 5.04

Capital Adequacy Ratios Tier 1 (%) 10.30 11.22 Total (Tier1 + Tier2) % 13.73 14.16

Assets Quality Net non performing asset ratio % 1.42 2.79 (Net of interest in suspense & provision) Gross non-performing asset ratio % 3.30 5.65 (net of interest in suspense)

B O C DEBENTURE PROSPECTUS 33 5. THE BOARD OF DIRECTORS

5.1 The details of the Board of Directors

Name & Qualifications Business Experience Other Directorships Address Age

Dr Gamini Appointed to the Board Founder of informatics No 410/89, 61 Wickramasinghe of the Bank of Ceylon as Group of Companies. Bauddaloka (Chairman) the Chairman in may Mawatha, 2007 and reappointed in Chairman of Colombo 07. Doctorate in Business May 2010 Bank of Ceylon (UK) Limited Administration (DBA) from Property Development PLC Manchester Metropolitan He was the Chairman of Ceybank Holiday Homes University, UK the Securities and (Private) Limited Exchange Commission Koladeniya Hydropower Master’s Degree in Systems of Sri Lanka from 2006 (Private) Limited. Analysis from the University to 2009 and the of Aston, Birmingham, UK Insurance Board of Sri Director of Lanka from 2006 to 2008 Mireka Capital Land Fellow of the Chartered (Private) Limited Management Institute Lanka Hospitals Corporation (FCMI) UK. PLC.

Fellow of the British Computer Society (FBCS)

Mr. S. R. Attygalle Appointed to the Board Director General of No. 23, 49 ( Ex officio Director ) of Bank of Ceylon in Department of Public Madapatha, June 2010 Enterprises of the Ministry of Piliyandala Bachelor of Science (B.Sc) Finance & Planning. Degree in Mathematics from He was a Senior the University of Colombo, Economist of the Central Director of Sri Lanka Bank of Sri Lanka for a Sri Lanka Ports Authority number of years and has and the Board of Investment Master’s Degree in also served as a Director of Sri Lanka Economics from Warwick and Acting Chairman of University, UK National Savings Bank and a Director of Shell Gas Lanka Limited

B O C DEBENTURE PROSPECTUS 34 Mr Raju Sivaraman First appointed to the Associate Consultant of No.9 A, 62 (Director) Board of Bank of Ceylon Plan 3 Architects in India. Amarasekara in January 2006 and was Mawatha, Chartered Architect re-appointed in June Managing Director of Colombo 05. 2007 and May 2010 Arch- -Traid Consultants Master Degree in (Pvt) Ltd, an architectural Architecture He served as a Director consultancy firm since 1980. (MSc-Arch) of Merchant Bank of Sri Lanka PLC, Mireka Chairman of Fellow Member of the Sri Capital Land (Private) Ceylease Financial Services Lanka Institute of Architects Limited and Property Limited (F. I. A) Development PLC. Director of He served as a Member Merchant Credit of Sri Lanka of the National Police Limited and Milco (Private) Commission from 2006 Limited to 2009 and as a Council Member and Treasurer of the Sri Lanka Institute of Architects over period of six years.

Ms. Nalini Abeywardene Appointed to the Board Member of the No. 03, 61 ( Director ) of Bank of Ceylon in May Board of Management of the Church Cross 2010 Galle Heritage Foundation Street, fort, Attorney – at - Law of the Ministry of National Galle She was a Heritage and Cultural Affairs Commissioner of the Human Rights Director of Commission of Sri Lanka Hotels Colombo (1963) from 2006 to 2009 Limited Mussendapotta Estates (Private) Limited BOC Travels (Private) Limited

Mr. Chandrasiri de Silva Appointed to the Board Chairman of No. 130 B, 59 ( Director ) of Bank of Ceylon in May BOC Travels (Private) Baddegane 2010 Limited Rd, Kotte Attorney – at- Law He was a former Director Director of Master’s Degree in of People’s Bank, Hotels Colombo (1963) International Trade Law from People’s Merchant Bank Limited the University of Wales, UK PLC and People’s Insurance Company Limited and also a Former Chairman of People’s Travels Limited

B O C DEBENTURE PROSPECTUS 35 Mr. K. L. Hewage Appointed as a Director Chairman of No.11, 66 ( Director ) to the Board of Bank of Ceybank Asset Dhammanan Ceylon in June 2010 Management (Private) da Mawatha, Bachelor of Science (B.Sc) Limited Walana, Degree in Bio Science from Served as the Chairman Panadura the University of Kelaniya, of People’s Merchant Member of Sri Lanka Bank PLC, Janatha the Governing Council of the Fertilizer Enterprises University of Visual and Master’s Degree in Science Limited, State Performing Arts (M.Sc) in Agricultural Plantations Corporation, Extension from the State Printing University of Reading, UK Corporation and Provincial Road Development Authority (Western Province) And also served as a Member of the Board of Directors of People’s Bank, Janatha Estates Development Board and as the General Manager of Sri Lanka Institute of Co- operative Management

Mr V Kanagasabapathy Appointed as Alternate Director of No. 79/3, 65 Alternate Director Director to Mr. S. R. the Board of Merchant Bank W A de Silva Attygalle, of Sri Lanka PLC Mawatha, Chartered Accountant the Ex officio Director Lanka Hydraulic Institute Colombo 06. from July 2010. Serves Limited Master’s Degree in Public as Non-Executive Hotel Developers Lanka Administration from Harvard Alternate Director to the PLC University, USA Ex officio Director on the De La Rue Lanka Currency Board. Security Print (Private) Fellow Member of the Limited Institute Chartered He also served as a Accountants of Sri Lanka Director of People’s Chairman of Bank, State Mortgage & Distance Learning Centre Investment Bank and Merchant credit of Sri Council member of Lanka Limited. Insititute of Chartered Accountants of Sri Lanka He is the senior finance consultant of acadamy of Council member of the financial studies, Ministr Insititute of public finance of finance and planning and development accoutancy

Member of National Salaries and Cadres commission

B O C DEBENTURE PROSPECTUS 36 No Director of BOC or a person nominated to become a director is or was: a) Involved in a petition under any bankruptcy laws filed against such person or any partnership in which he was a partner or any corporation of which he was an executive officer; b) Involved in a conviction for fraud, misappropriation or breach of trust or any other similar offence which the CSE consider as a disqualification; or c) The subject of any order, judgement or ruling of any court of competent jurisdiction temporarily enjoining him from acting as an investment advisor, dealer in securities, director or employee of a financial institution and engaging in any type of business practice or activity.

5.2 Directors’ shareholding

BOC is a 100% state owned commercial bank. Hence no directors are holding any shares of the Bank.

5.3 Directors’ Interest

The Directors of the BOC have no interest in any assets acquired, disposed or leased by the BOC during the past two years and do not propose to acquire, dispose or lease any assets during the two years succeeding the Debenture Issue.

Directors’ interests in contracts with the Bank both direct and indirect are disclosed under Note 47.5 of the Financial Statements.

Arch-Triad Consultants (Private) Limited has been appointed in December 2006 as the Consultant Architect for construction of Branch Office and Managers’ quarters at Madurankuliya and Mr Sivaraman had declared his interest on the said company at the Board meeting of BOC when this decision was taken.

5.4 Directors’ Remuneration

The allowances/fees payable to the Board of Directors are made in terms of the provisions in the Public Enterprises Circular No PED 04 dated 01 January 2003 and PF/PE/21 dated 24 May 2002 issued by the Department of Public Enterprises of the General Treasury.

The aggregate emoluments paid to the Directors during the financial year ended 31 December 2010 was LKR 1.5 million. Estimate for the year 2011 is Rs. 2.6 million.

B O C DEBENTURE PROSPECTUS 37 6. EXTRACTS FROM THE CORPORATE GOVERNANCE PRACTICES

Bank of Ceylon pursues a strategy of being in line with best practices in respect of Corporate Governance and it is a vital element in enhancing the Bank’s financial growth, competitiveness and implementing its sustainability framework. The Bank believes that complying with laws, regulations, policies, processes and procedures affecting the way that Bank of Ceylon is controlled and managed is the critical success factor of sound control environment, which will improve operational efficiency and enhance the brand image

A sound system of governance is also fundamental in attracting and maintaining public confidence in the Bank.

Pivotal and dominant role the Bank plays in the Sri Lanka economy carrying substantial influence and leadership over many matters of policy and practice are the many reasons for the importance of good governance and for it to be a guiding framework for the future.

Conscious of the many roles of the Government in the life of the Bank as owner, customer, regulator and auditor, the Nomination and Corporate Governance Committee, which is a subcommittee of the Board primarily focuses on the implementation of the applicable governance rules and best practices and continuously monitors the progress

The Bank is bound by the Banking Act Direction No. 11 of 2007 on Corporate Governance for Licensed Commercial Banks issued by the Central Bank of Sri Lanka. The Bank has taken steps to the best of its ability to comply with the said Direction to the extent that they are not inconsistent with the Bank of Ceylon Ordinance No. 53 of 1938 and its amendments, the statute governing the Bank, as provided for in the said Direction.

The Bank also follows 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, which is not mandatory. Since the Bank is complying with the Directions laid down in the aforesaid

Banking Act Direction No. 11 of 2007, the Colombo Stock Exchange exempted the Bank from complying with its requirements stipulated in Section 7.10 under the Continuing Listing Requirements on Corporate Governance

The governance in the Bank covers many stakeholders, the relationships between them and the strategic vision of the Bank. The stakeholders comprise the single shareholder, depositors, customers, the Board of Directors, management, employees, international banks, suppliers, regulators, investors (in debentures issued by the Bank) and society at large. All parties mentioned have either a direct or an indirect interest in Corporate Governance as it helps in the effective performance of the Bank. The Bank has adopted a Communication Policy covering all its stakeholders

The Board is responsible to stakeholders for creating and delivering sustainable value through the management of the Bank’s businesses. The Board is the policy-making body for all matters of such importance as to be of significance to the Bank as a whole because of their strategic, financial or reputation implications or consequences. The governance by the Board also includes continuous review of internal structures to ensure that there are clear lines of accountability for management throughout the Bank. The Board also oversees the risk management and remuneration system of the Bank. B O C DEBENTURE PROSPECTUS 38 In conformance with the principles of Corporate Governance and the above said Banking Act Direction, the positions of the Chairman and the Chief Executive Officer/General Manager have been segregated with a clear division of duties and responsibilities of the latter, incorporated in the Board Charter adopted.

The overall governance of the Board is the responsibility of the Chairman, while the General Manager is primarily responsible for achievement of Board approved objectives, directions, corporate values and leading the executive team in the day-to-day management of the Bank and its business

The Board approves the organization’s strategic aims, and ensures that the necessary financial, technical and human resources are in place for the Bank to achieve its objectives. It reviews management performance against set goals and targets on a continuous basis.

The Board is committed to following very high ethical standards. This enables the Board to set values and standards for the Bank and its staff on par with best practices, while creating trust and transparency and ensuring that its obligations to all its stakeholders are understood and met

In its search for continuous improvement in good governance, the Bank embraces best practices in Corporate Governance on its own. It follows an incremental approach in embedding governance into its value addition process and is making conscious efforts to continually improve the governance framework and the processes beyond the applicable rules and regulations

As one such measure, in the year 2010, Bank of Ceylon formulated a Subsidiaries Management Charter, which was introduced to all the Subsidiaries and Associates of the Bank as a guideline for the Bank’s representatives on those Boards. This Charter, through the guidelines incorporated in it, strengthens the Bank of Ceylon’s oversight over its Subsidiaries through the Directors appointed to them while facilitating the Subsidiaries to fall in line with the Bank of Ceylon’s governance structure

The disclosures below demonstrate the Bank’s adherence to disclosure requirements of the aforesaid Banking Act Direction No. 11 of 2007, and subsequent amendments thereto and the level of conformance to 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 in 2008.

Aforesaid Direction No. 11 of 2007 consists of Direction 2 and 3. Direction 2 consists of principles explaining the rationale for mandatory rules set out in Direction 3. The table starting from page 57 gives the degree of compliance with Direction 3. Table starting from page 77 gives the status of compliance with the aforesaid joint code

Level of Compliance with Direction No. 11 of 2007 on Corporate Governance for Licensed Commercial Banks issued by the Central Bank of Sri Lanka.

Principles

3 (1) the Responsibilities of the Board

3 (1) (i) The Board shall strengthen the safety and soundness of the Bank by ensuring the implementation of the following:

a) Approve and oversee the Bank’s strategic objectives and corporate values and ensure that these are communicated throughout the Bank;

(b) Approve the overall business strategy of the bank, including the overall risk policy and risk management procedures and mechanisms with measurable goals, for at least the next three years;

B O C DEBENTURE PROSPECTUS 39 c) Identify the principal risks and ensure implementation of appropriate systems to manage the risks prudently;

(d) Approve implementation of a policy of communication with all stakeholders, including depositors, creditors, shareholders and borrowers; (e) Review the adequacy and the integrity of the Bank’s internal control systems and management information systems; (f) Identify and designate Key Management Personnel, as defined in the International Accounting Standards, who are in a position to: (i) significantly influence policy; (ii) direct activities; and (iii) exercise control over business activities, operations and risk management;

(g) Define the areas of authority and key responsibilities for the Board Directors themselves and for the Key Management Personnel;

(h) Ensure that there is appropriate oversight of the affairs of the Bank by Key Management Personnel, that is consistent with Board policy; (i) Periodically assess the effectiveness of the Board Directors’ own governance practices, including: (i) The selection, nomination and election of Directors and Key Management Personnel. (ii) The management of conflicts of interests; and (iii) The determination of weaknesses and implementation of changes where necessary

(j) Ensure that the Bank has an appropriate succession plan for Key Management Personnel; (k) Meet regularly, on a needs basis, with the Key Management Personnel to review policies, establish communication lines and monitor progress towards corporate objectives;

(l) Understand the regulatory environment and ensure that the Bank maintains an effective relationship with regulators; (m) Exercise due diligence in the hiring and oversight of External Auditors

3 (1) (ii) The Board shall appoint the Chairman and the Chief Executive Officer and define and approve the functions and responsibilities of the Chairman and the Chief Executive Officer in line with Direction 3 (5) of these Directions.

3 (1) (iii) The Board shall meet regularly and Board meetings shall be held at least twelve times a year at approximately monthly intervals. Such regular Board meetings shall normally involve active participation in person of a majority of Directors entitled to be present. Obtaining the Board’s consent through the circulation of written resolutions/papers shall be avoided as far as possible.

3 (1) (iv) The Board shall ensure that arrangements are in place to enable all Directors to include matters and proposals in the agenda for regular Board meetings where such matters and proposals relate to the promotion of business and the management of risks of the Bank.

3 (1) (v) The Board procedures shall ensure that notice of at least 7 days is given of a regular Board meeting to provide all Directors an opportunity to attend. For all other Board meetings, reasonable notice may be given.

3 (1) (vi) The Board procedures shall ensure that a Director, who has not attended at least two-thirds of the meetings in the period of 12 months immediately preceding or has not attended the immediately preceding three consecutive meetings held, shall cease to be a Director. Participation at the Directors’ meetings through an alternate Director shall, however, be acceptable as attendance. 3 (1) (vii) The Board shall appoint a Company Secretary who satisfies the provisions of Section 43 of the Banking Act No. 30 of 1988, whose primary responsibilities shall be to handle the Secretariat Services to the Board and shareholder meetings and to carry out other functions specified in the statutes and other regulations

3 (1) (viii) All Directors shall have access to advice and services of the Company Secretary with a view to B O C DEBENTURE PROSPECTUS 40 ensuring that Board procedures and all applicable rules and regulations are followed.

3 (1) (ix) The Company Secretary shall maintain the minutes of Board meetings and such minutes shall be open for inspection at any reasonable time, on reasonable notice by any Director.

3 (1) (x) Minutes of Board meetings shall be recorded in sufficient detail so that it is possible to gather from the minutes, as to whether the Board acted with due care and prudence in performing its duties. The minutes shall also serve as a reference for regulatory and supervisory authorities to assess the depth of deliberations at the Board meetings. Therefore, the minutes of a Board meeting shall clearly contain or refer to the following

(a) a summary of data and information used by the Board in its deliberations (b) The matters considered by the Board (c) The fact-finding discussions and the issues of contention or dissent which may illustrate whether the Board was carrying out its duties with due care and prudence; (d) The testimonies and confirmations of relevant executives which indicate compliance with the Board’s strategies and policies and adherence to relevant laws and regulations; (e) the Board’s knowledge and understanding of the risks to which the Bank is exposed and an overview of the risk management measures adopted; and (f) the decisions and Board resolutions.

3 (1) (xi) There shall be a procedure agreed by the Board to enable Directors, upon reasonable request, to seek independent professional advice in appropriate circumstances, at the Bank’s expense. The Board shall resolve to provide separate independent professional advice to Directors to assist the relevant Director or Directors to discharge his/her/their duties to the Bank. 3 (1) (xii) Directors shall avoid conflicts of interests, or the appearance of conflicts of interests, in their activities with, and commitments to, other organizations or related parties. If a director has a conflict of interest in a matter to be considered by the Board, which the Board has determined to be material, the matter should be dealt with at a Board meeting, where Independent Non-Executive Directors [refer to Direction 3 (2) (iv) of these Directions] who have no material interest in the transaction, are present. Further, a Director shall abstain from voting on any Board resolution in relation to which he/she or any of his/her close relation or a concern, in which a Director has substantial interest, is interested and he/she shall not be counted in the quorum for the relevant agenda item at the Board meeting

3 (1) (xiii) The Board shall have a formal schedule of matters specifically reserved to it for decision to ensure that the direction and control of the Bank is firmly under its authority.

3 (1) (xiv) The Board shall, if it considers that the Bank is, or is likely to be, unable to meet its obligations or is about to become insolvent or is about to suspend payments due to depositors and other creditors, forthwith inform the Director of Bank Supervision of the situation of the Bank prior to taking any decision or action. 3(1) (xv) The Board shall ensure that the Bank is capitalized at levels as required by the Monetary Board in terms of the capital adequacy ratio and other prudential grounds. 3 (1) (xvi) The Board shall publish in the Bank’s Annual Report, an annual corporate governance report setting out the compliance with Direction 3 of these Directions.

3 (1) (xvii) The Board shall adopt a scheme of self-assessment to be undertaken by each Director annually, and maintain records of such assessments

3 (2) The Board’s Composition

3 (2) (i) The number of Directors on the Board shall not be less than 7 and not more than 13.

3 (2) (ii) (a) The total period of service of a Director other than a Director who holds the position of Chief Executive Officer shall not exceed nine years, and such period in office shall be inclusive of the total period of service served by such Director up to 01 January 2008. B O C DEBENTURE PROSPECTUS 41 (b) In this context, the following general exemption shall apply: A Director who has completed nine years as at 01 January 2008, or who completes such term at any time prior to 31 December 2008, may continue for a further maximum period of 3 years commencing 01 January 2009. 3 (2) (iii) An employee of a bank may be appointed, elected or nominated as a Director of the Bank (hereinafter referred to as an ‘Executive Director’) provided that the number of Executive Directors shall not exceed one-third of the number of Directors of the Board. In such an event, one of the Executive Directors shall be the Chief Executive Officer of the Bank 3 (2) (iv) The Board shall have at least three Independent Non-Executive Directors or one- third of the total number of Directors, whichever is higher. This sub-direction shall be applicable from 01 January 2010 onwards. A Non-Executive Director shall not be considered independent if he/she -

(a) has direct and indirect shareholdings of more than 1% of the Bank

(b) currently has or had during the period of two years immediately preceding his/her appointment as Director, any business transactions with the Bank as described in Direction 3 (7) hereof, exceeding 10% of the regulatory capital of the Bank (c) has been employed by the Bank during the two year period immediately preceding the appointment as Director (d) has a close relation who is a Director or Chief Executive Officer or a member of Key Management Personnel or a material shareholder of the Bank or another bank. For this purpose, a ‘close relation’ shall mean the spouse or a financially dependant child (e) represents a specific stakeholder of the Bank; (f) is an employee or a Director or a material shareholder in a Company or business organization - I. which currently has a transaction with the Bank as defined in Direction 3 (7) of these Directions, exceeding 10% of the regulatory capital of the Bank; or II. In which any of the other Directors of the Bank are employed or are Directors or are material shareholders; or III. In which any of the other Directors of the Bank have a transaction as defined in Direction 3 (7) of these Directions, exceeding 10% of regulatory capital in the Bank.

3 (2) (v) In the event an alternate Director is appointed to represent an Independent Director, the person so appointed shall also meet the criteria that applies to the Independent Director

3 (2) (vi) Non-Executive Directors shall be persons with credible track records and/or have necessary skills and experience to bring an independent judgment to bear on issues of strategy, performance and resources

3 (2) (vii) A meeting of the Board shall not be duly constituted, although the number of Directors required to constitute the quorum at such meeting is present, unless more than one-half of the number of Directors present at such meeting are Non-Executive Directors. This Sub-Direction shall be applicable from 01 January 2010 onwards.

3 (2) (viii) The Independent Non-Executive Directors shall be expressly identified as such in all corporate communications that disclose the names of Directors of the Bank. The Bank shall disclose the composition of the Board, by category of Directors, including the names of the Chairman, Executive Directors, Non- Executive Directors and Independent Non-Executive Directors in the annual Corporate Governance Report.

3(2) (ix) There shall be a formal, considered and transparent procedure for the appointment of new Directors to the Board. There shall also be procedures in place for the orderly succession of appointments to the Board

3 (2) (x) All Directors appointed to fill a casual vacancy shall be subject to election by shareholders at the first general meeting after their appointment.

B O C DEBENTURE PROSPECTUS 42 3 (2) (xi) If a Director resigns or is removed from office, the Board shall: (a) Announce the Director’s resignation or removal and the reasons for such removal or resignation including but not limited to information relating to the relevant Director’s disagreement with the Bank, if any; and (b) Issue a statement confirming whether or not there are any matters that need to be brought to the attention of shareholders.

3(2) (xii) A Director or an employee of a bank shall not be appointed, elected or nominated as a Director of another bank except where such bank is a Subsidiary Company or an Associate Company of the first mentioned bank 3 (3) Criteria to assess the fitness and propriety of Directors 3 (3) (i) The age of a person who serves as Director shall not exceed 70 years In this context, the following general exemption shall apply: A Director who has reached the age of 70 years as at 01 January 2008 or who would reach the age of 70 years prior to 31 December 2008 may continue in office for a further maximum period of 3 years commencing 01 January 2009.

3 (3) (ii) A person shall not hold office as a Director of more than 20 companies/ entities/institutions inclusive of subsidiaries or Associate Companies of the Bank. Of such 20 companies/entities/institutions, not more than 10 companies shall be those classified as Specified Business Entities in terms of the Sri Lanka Accounting and Auditing Standards Act, No. 15 of 1995.

3 (3) (ii) (a) In this context, the following general exemption shall applyIf any person holds posts in excess of the limitation as above, such person shall within a maximum period of three years from 01 January 2009 comply with the above mentioned limitation and notify the Monetary Board accordingly. 3 (4) Management functions delegated by the Board

3 (4) (i) The Directors shall carefully study and clearly understand the delegation arrangements in place.

3 (4) (ii) The Board shall not delegate any matters to a Board Committee, Chief Executive Officer, Executive Directors or Key Management Personnel, to an extent that such delegation would significantly hinder or reduce the ability of the Board as a whole to discharge its functions.

3 (4) (iii) The Board shall review the delegation processes in place on a periodic basis to ensure that they remain relevant to the needs of the Bank.

3 (5) The Chairman and Chief Executive Officer

3 (5) (i) The Directors shall carefully study and clearly understand the delegation arrangements in place

3 (4) (ii) The Board shall not delegate any matters to a Board Committee, Chief Executive Officer, Executive Directors or Key Management Personnel, to an extent that such delegation would significantly hinder or reduce the ability of the Board as a whole to discharge its functions.

3 (4) (iii) The Board shall review the delegation processes in place on a periodic basis to ensure that they remain relevant to the needs of the Bank.

3 (5) The Chairman and Chief Executive Officer

3 (5) (i) The Roles of Chairman and Chief Executive Officer shall be separate and shall not be performed by the same individual

3 (5) (ii) The Chairman shall be a Non-Executive Director and preferably an independent Director as well. In the case where the Chairman is not an Independent Director, the Board shall designate an Independent Director as the Senior Director with suitably documented terms of reference to ensure a greater independent element. The designation of the Senior Director shall be disclosed in the Bank’s Annual Report.

B O C DEBENTURE PROSPECTUS 43 3 (5) (iii) The Board shall disclose in its Corporate Governance Report, which shall be an integral part of its Annual Report, the identity of the Chairman and the Chief Executive Officer and the nature of any relationship [including] financial, business, family or other material/relevant relationship(s)], if any between the Chairman and the Chief Executive Officer and the relationships among members of the Board.

3 (5) (iv) The Chairman shall - (a) provide leadership to the Board; (b) ensure that the Board works effectively and discharges its responsibilities; and (c) ensure that all key and appropriate issues are discussed by the Board in a timely manner. 3 (5) (v) The Chairman shall be primarily responsible for drawing up and approving the agenda for each Board meeting, taking into account where appropriate, any matters proposed by the other Directors for inclusion in the agenda. The Chairman may delegate the drawing up of the agenda to the Company Secretary.

3 (5) (vi) The Chairman shall ensure that all Directors are properly briefed on issues arising at Board meetings and also ensure that Directors receive adequate information in a timely manner.

3 (5) (vii) The Chairman shall encourage all Directors to make a full and active contribution to the Board’s affairs and take the lead to ensure that the Board acts in the best interests of the Bank

3 (5) (viii) The Chairman shall facilitate the effective contribution of Non-Executive Directors in particular and ensure constructive relations between Executive and Non-Executive Directors

3(5) (ix) The Chairman shall not engage in activities involving direct supervision of Key Management Personnel or any other executive duties whatsoever

3 (5) (x) The Chairman shall ensure that appropriate steps are taken to maintain effective communication with shareholders and that the views of shareholders are communicated to the Board.

3 (5) (xi) Chief Executive Officer shall function as the apex executive-in-charge of the day-to-day management of the Bank’s operations and business

3 (6) Board appointed Committees

(6) (i) Each bank shall have at least four Board Committees as set out in Directions 3 (6) (ii), 3 (6) (iii), 3 (6) (iv) and 3 (6) (v) of these Directions. Each committee shall report directly to the Board. All committees shall appoint a Secretary to arrange the meetings and maintain minutes, records, etc.under the supervision of the Chairman of the Committee. The Board shall present a report of the performance on each committee, on their duties and roles at the Annual General Meeting. 3 (6) (ii) The following rules shall apply in relation to the Audit Committee: (a) The Chairman of the Committee shall be an Independent Non-Executive Director who possesses qualifications and experience in accountancy and/or audit. (b) All members of the committee shall be Non-Executive Directors. (c) The Committee shall make recommendations on matters in connection with: 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; provided that the engagement of the 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) The Committee shall review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit processes in accordance with applicable standards and best practices. B O C DEBENTURE PROSPECTUS 44 (e) The Committee shall develop and implement a policy on the engagement of an External Auditor to provide non-audit services that are permitted under the relevant statutes, regulations, requirements and guidelines. In doing so, the committee shall ensure that the provision by an External Auditor of non-audit services does not impair the External Auditor’s independence or objectivity. When assessing the External Auditor’s independence or objectivity in relation to the provision of non-audit services,the Committee shall consider – I. whether the skills and experience of the audit firm make it a suitable provider of the non-audit services II. whether there are safeguards in place to ensure that there is no threat to the objectivity and/or independence in the conduct of the audit resulting from the provision of such services by the External Auditor; and III. Whether the nature of the non-audit services, the related fee levels and the fee levels individually and in aggregate relative to the audit firm, pose individually and in aggregate relative to the audit firm, pose

(f) The Committee shall, before the audit commences, discuss and finalise with the External Auditors the nature and scope of the audit, including 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; and iii. The co-ordination between firms where more than one audit firm is involved

(g) The Committee shall review the financial information of the Bank, in order to 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. In reviewing the Bank’s Annual Report and accounts and quarterly reports before submission to the Board, the Committee shall focus particularly on:

.i Major judgmental areas; ii. Any changes in accounting policies and practices iii. Significant adjustments arising from the audit; iv. The going concern assumption; and v. The Compliance with relevant Accounting Standards and other legal requirements

(h) The Committee shall discuss issues, problems and reservations arising from the interim and final audits, and any matters the Auditor may wish to discuss including those matters that may need to be discussed in the absence of key management personnel, if necessary.

(i) The Committee shall review the External Auditor’s management letter and the management’s response thereto.

(j) The Committee shall take the following steps with regard to the internal audit function of the Bank:

I. Review the adequacy of the scope, functions and resources of the internal audit department, and satisfy it that the department has the necessary authority to carry out its work II. Review the internal audit programme and results of the internal audit process and, where necessary, ensure that appropriate actions are taken on the recommendations of the internal audit department III. Review any appraisal or assessment of the performance of the head and senior staff members of the internal audit department IV. Recommend any appointment or termination of the head, senior staff members and outsourced service providers to the internal audit function V. Ensure that the Committee is appraised of resignations of seniorstaff members of the internal audit department including the chiefinternal auditor and any outsourced service providers, and to provide anopportunity to the resigning senior staff members and outsourced service providers to submit reasons for resigning VI. Ensure that the internal audit function is independent of the activities it audits and that it is performed with impartiality, proficiency and due professional care; (k) The Committee shall consider the major findings of internal investigations and management’s responses thereto

B O C DEBENTURE PROSPECTUS 45 (l) The Chief Finance Officer, the Chief Internal Auditor and a representative of the External Auditors may normally attend meetings. Other Board Members and the Chief Executive Officer may also attend meetings upon the invitation of the Committee. However, at least twice a year, the Committee shall meet with the External Auditors without the Executive Directors being present.

(m) The Committee shall have - 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) The Committee shall meet regularly, with due notice of issues to be discussed and shall record its conclusions in discharging its duties and responsibilities..

(o) The Board shall disclose in an informative way, 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.

(p) The Secretary of the Committee (who may be the Company Secretary or the head of the internal audit function) shall record and keep detailed minutes of the Committee Meetings. (q) The Committee shall review arrangements by which employees of the Bank may, in confidence, raise concerns about possible improprieties in financial reporting, internal control or other matters. Accordingly, the Committee shall ensure that proper arrangements are in place for the fair and independent investigation of such matters and for appropriate follow- up action and to act as the key representative body for overseeing the Bank’s relations with the external auditor.

3 (6) (iii) The following rules shall apply in relation to the Human Resources an Remuneration Committee:

(a) The Committee shall determine the remuneration policy (salaries, allowances and other financial payments) relating to Directors, Chief Executive Officer (CEO) and Key Management Personnel of the Bank.

(b) The Committee shall set goals and targets for the Directors, CEO and the Key Management Personnel.

(c) The Committee shall evaluate the performance of the CEO and Key Management Personnel against the set targets and goals periodically and determine the basis for revising remuneration, benefits and other payments of performance-based incentives.

(d) The CEO shall be present at all meetings of the Committee, except when matters relating to the CEO are being discussed.

3 (6) (iv) The following rules shall apply in relation to the Nomination Committee: (a) The Committee shall implement a procedure to select/appoint new Directors, CEO and Key Management Personnel.

(b) The Committee shall consider and recommend (or not recommend) 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.

(c) The Committee shall set the criteria such as qualifications, experience and key attributes required for eligibility to be considered for appointment or promotion to the post of CEO and the Key Management Positions.

(d) The Committee shall ensure that Directors, CEO and Key Management Personnel 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.

B O C DEBENTURE PROSPECTUS 46 (e) The Committee shall consider and recommend from time to time, the requirements of additional/new expertise and the succession arrangements for retiring Directors and Key Management Personnel.

(f) The Committee shall be chaired by an Independent Director and preferably be constituted with a majority of Independent Directors. The CEO may be present at meetings by invitation.

3 (6) (v) The following rules shall apply in relation to the Integrated Risk Management Committee:

(a) The Committee shall consist of at least three Non-Executive Directors, Chief Executive Officer and Key Management Personnel supervising broad risk categories, i.e., credit, market, liquidity, operational and strategic risks. The Committee shall work with Key Management Personnel very closely and make decisions on behalf of the Board within the framework of the authority and responsibility assigned to the Committee.

(b) The Committee shall assess all risks, i.e., credit, market, liquidity, operational and strategic risks to the Bank on a monthly basis through appropriate risk indicators and management information. In the case of Subsidiary Companies and Associate Companies, risk management shall be done, both on a bank basis and group basis.

(c) The Committee shall review the adequacy and effectiveness of all management level committees such as the credit committee and the asset-liability committee to address specific risks and to manage those risks within quantitative and qualitative risk limits as specified by the committee.

(d) The Committee shall take prompt corrective action to mitigate the effects of specific 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. (e) The Committee shall meet at least quarterly to assess all aspects of risk management including updated business continuity plans. (f) The Committee shall take appropriate actions against the officers responsible for failure to identify specific risks and take prompt corrective actions as recommended by the Committee, and/or as directed by the Director of Bank Supervision. (g) The Committee shall submit a risk assessment report within a week of each meeting to the Board seeking the Board’s views, concurrence and/or specific directions. (h) The Committee shall establish a compliance function to assess the Bank’s compliance with laws, regulations, regulatory guidelines, internal controls and approved policies on all areas of business operations. A dedicated compliance officer selected from Key Management Personnel shall carry out the compliance function and report to the Committee periodically.

3 (7) Related Party Transactions 3 (7) (i) The Board shall take the necessary steps to avoid any conflicts of interest that may arise from any transaction of the Bank with any person, and particularly with the following categories of persons who shall be considered as ‘related parties’ for the purposes of this Direction: (a) Any of the Bank’s Subsidiary Companies; (b) Any of the Bank’s Associate Companies; (c) Any of the Directors of the Bank; (d) Any of the Bank’s Key Management Personnel; (e) A close relation of any of the Bank’s Directors or Key Management Personnel; (f) A shareholder owning a material interest in the Bank; (g) A concern in which any of the Bank’s Directors or a close relation of any of the Bank’s Directors or any of its material shareholders has a substantial interest.

3 (7) (ii) The type of transactions with related parties that shall be covered by this Direction shall include the following: (a) The grant of any type of accommodation, as defined in the Monetary Board’s Directions on maximum amount of accommodation;

B O C DEBENTURE PROSPECTUS 47 (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 Bank 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) The Board shall ensure that the Bank does not engage in transactions with related parties as defined in Direction 3 (7) (i) above, in a manner that would grant such parties ‘more favourable treatment’ than that accorded to other constituents of the Bank carrying on the same business. In this context, ‘more favourable treatment’ shall mean and include treatment, including the:

(a) Granting of ‘total net accommodation’ to related parties, exceeding a prudent percentage of the Bank’s regulatory capital, as determined by the Board. For purposes of this Sub-Direction: I. ‘Accommodation’ shall mean accommodation as defined in the Banking Act Directions, No. 07 of 2007 on Maximum Amount of Accommodation. II. The ‘total net accommodation’ shall be computed by deducting from the total accommodation, the cash collateral and investments made by such related parties in the Bank’s share capital and debt instruments with a maturity of 5 years or more.

(b) Charging of a lower rate of interest than the Bank’s best lending rate or paying more than the Bank’s deposit rate for a comparable transaction with an unrelated comparable counterparty;

(c) Providing of preferential treatment, such as favourable terms, covering trade losses and/or waiving fees/commissions, that extend beyond the terms granted in the normal course of business undertaken with unrelated parties;

(d) Providing services to or receiving services from a related-party without an evaluation procedure;

(e) Maintaining reporting lines and information flows that may lead to sharing potentially proprietary, confidential or otherwise sensitive information with related parties, except as required for the performance of legitimate duties and functions.

3 (7) (iv) A bank shall not grant any accommodation to any of its Directors or to a close relation of such Director unless such accommodation is sanctioned at a meeting of its Board of Directors, with not less than two-thirds of the number of Directors other than the Director concerned, voting in favour of such accommodation. This accommodation shall be secured by such security as may from time to time be determined by the Monetary Board as well.

3 (7) (v) (a) Where any accommodation has been granted by a bank to a person or a close relation of a person or to any concern in which the person has a substantial interest, and such person is subsequently appointed as a Director of the Bank, steps shall be taken by the Bank to obtain the necessary security as may be approved for that purpose by the Monetary Board, within one year from the date of appointment of the person as a Director.

(b) Where such security is not provided by the period as provided in Direction 3 (7) (v) (a) above, the Bank shall take steps to recover any amount due on account of any accommodation, together with interest, if any, within the period specified at the time of the grant of accommodation or at the expiry of a period of eighteen months from the date of appointment of such Director, whichever is earlier.

(c) Any Director who fails to comply with the above Sub-Directions shall be deemed to have vacated the office of Director and the Bank shall disclose such fact to the public. (d) This Sub-Direction, however, shall not apply to a Director who at the time of the grant of the accommodation was an employee of the Bank and the accommodation was granted under a scheme applicable to all employees of such bank.

B O C DEBENTURE PROSPECTUS 48 3 (7) (vi) A bank shall not grant any accommodation or ‘more favourable treatment’ relating to the waiver of fees and/or commissions to any employee or a close relation of such employee or to any concern in which the employee or close relation has a substantial interest other than on the basis of a scheme applicable to the employees of such bank or when secured by security as may be approved by the Monetary Board in respect of accommodation granted as per Direction 3 (7) (v) above.

3 (7) (vii) No accommodation granted by a bank under Direction 3 (7) (v) and 3 (7) (vi) above, nor any part of such accommodation, nor any interest due thereon shall be remitted without the prior approval of the Monetary Board and any remission without such approval shall be void and of no effect.

3 (8) Disclosures 3 (8) (i) The Board shall ensure that -

(a) Annual Audited Financial Statements and quarterly Financial Statements are prepared and published in accordance with the formats prescribed by the supervisory and regulatory authorities and applicable Accounting Standards; and that,

(b) Such statements are published in the newspapers in an abridged form, in Sinhala, Tamil and English.

3 (8) (ii) The Board shall ensure that the following minimum disclosures are made in the Annual Report: (a) A statement to the effect that the annual Audited Financial Statements have been prepared in line with applicable Accounting Standards and regulatory requirements, inclusive of specific disclosures.

(b) A report by the Board on the Bank’s internal control mechanism that confirms that the financial reporting system has been designed to provide reasonable assurance regarding the reliability of financial reporting, and that the preparation of Financial Statements for external purposes has been done in accordance with relevant accounting principles and regulatory requirements.

(c) The External Auditor’s certification on the effectiveness of the internal control mechanism referred to in Direction 3 (8) (ii) (b) above, in respect of any statements prepared or published after 31 December 2008.

(d) Details of Directors, including names, fitness and propriety, transactions with the Bank and the total of fees/remuneration paid by the Bank. (e) Total net accommodation as defined in 3 (7) (iii) is granted to each category of related parties. The net accommodation granted to each category of related parties shall also be disclosed as a percentage of the Bank’s regulatory capital.

(f) The aggregate values of remuneration paid by the Bank to its Key Management Personnel and the aggregate values of the transactions of the Bank with its Key Management Personnel, set out by the Broad categories such as remuneration paid, accommodation granted and deposits or investments made in the Bank. (g) The External Auditor’s certification of the compliance with these Directions in the annual Corporate Governance reports published after 01 January 2010.

(h) A report setting out details of the compliance with prudential requirements, regulations, laws and internal controls and measures taken to rectify any material non-compliances. (i) A statement of the regulatory and supervisory concerns on lapses in the Bank’s risk management, or non-compliance with these Directions that have been pointed out by the Director of Bank Supervision, if so directed by the Monetary Board to be disclosed to the public, together with the measures taken by the Bank to address such concerns.

3 (9) Transitional and Other General Provisions

3 (9) (i) Compliance with this Direction shall commence from 01 January 2008 onwards and all licensed commercial banks shall fully comply with the provisions of this Direction by or before 01 January 2009 except where extended compliance dates have been specifically provided for in this Direction.

B O C DEBENTURE PROSPECTUS 49 3 (9) (ii) In respect of the banks that have been incorporated by specific statutes in Sri Lanka, the boards as specified in such statutes shall continue to function in terms of the provisions of the respective statutes, provided they take steps to comply with all provisions of this Direction that are not inconsistent with the provisions of the respective statutes.

3 (9) (iii) This Direction shall apply to the branches of the foreign banks operating in Sri Lanka to the extent that it is not inconsistent with the regulations and laws applicable in such bank’s country of incorporation. The branch of a foreign bank shall also publish its Parent Bank’s annual Corporate Governance report together with its Annual Report and Accounts of the branch operations in Sri Lanka.

3 (9) (iv) In the event of a conflict between any of the provisions of this Direction and the Articles of Association (or Internal Rules) pertaining to any bank, the provisions of this Direction shall prevail. However, if the Articles of Association of an individual bank set a more stringent standard than that specified in this Direction, such provisions in the Articles of Association may be followed. 3 (9) (v) If for any reason such as ill health or any incapacity as provided in the Banking Act, the Monetary Board considers that exemptions referred to in Directions 3 (2) (ii) B, 3 (3) (i) A and 3 (3) (ii) A should not be availed of, such ground may be notified to the person by the Monetary Board, and after a hearing, the Monetary Board may limit the period of exemption

Level of Compliance with 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.

Subject Disclosure

Chairman and CEO If Chairman and CEO is one and the same person, disclose the Name of the Chairman/CEO and Senior Independent Director appointed and justification of the decision to combine the positions.

Board Balance Should identify the Independent Non-Executive Directors

If a Non- Executive Director is identified as Independent, notwithstanding the existence of any of the following factors, the reason for such determination should be disclosed. Appointment of New When new Directors are appointed, the following details Directors should be disclosed: A brief resume of each such Director; The nature of his expertise in relevant functional areas; The names of companies in which the Director holds directorships or memberships in board comities;,and whether such Director can be considered independent.

Nomination Committee the Chairman and members of the Nomination Committee should be identified.

Appraisal of Board Should disclose how performance evaluations have been Performance conducted.

Board Related Disclosures The following details pertaining to each Director should be disclosed: Name, qualification and brief profile; The nature of his/her expertise in relevant functional areas; Immediate family and/or material business relationships with other Directors of the Company B O C DEBENTURE PROSPECTUS 50 Names of other listed companies in Sri Lanka in which the Director concerned serves as a Director; Names of companies in which the Director concerned serves as a Director and/or the fact that he/she holds other Directorships in the Group Companies; Number/percentage of Board meetings of the Company attended during the year; Names of the committees in which the Director serves as the Chairman or a member; and Number/percentage of committee meetings attended during the year. Disclosure of Remuneration A statement of Remuneration Policy and details of remuneration of the Board as a whole.

Major Transactions All major transactions entered into by the Company should be disclosed.

Audit Committee Names of the members of the Audit Committee should be disclosed.Basis for determining the independence of auditors Code of Business Conduct Should disclose whether the Company has a Code of and Ethics Business Conduct & Ethics for Directors and members of the senior management team. Should also disclose an affirmative declaration that they have abided by such Code. The Chairman must certify that he/she is not aware of any violation of any of the provisions of this Code

Going Concern Should report that the Company is a going concern, with supporting assumptions and qualifications as necessary

Members of Remuneration The names of members of the Remuneration CommitteeCommittee should be disclosed in the Remuneration Committee Report Directors’ Report Should contain the following declarations made by The Directors: The Company has not engaged in any activities, which contravenes laws and regulations The Directors have declared all material interests in contracts involving the Company and refrained from voting on matters in which they were materially interested; The Company has made all endeavours to ensure the equitable treatment of shareholders; The business is a going concern with supporting assumptions or qualifications as necessary; and They have conducted a review of internal controls covering financial, operational and compliance controls and risk management and have obtained reasonable assurance of their effectiveness and successful adherence herewith

Financial Statements The Board of Directors should include a Statement of Responsibility for the preparation and presentation of Financial Statements Auditors should also have a statement about their reporting responsibility

Management Report Should include a ‘Management Discussion and Analysis Report’ discussing at least the following issues: Industry structure and developments; B O C DEBENTURE PROSPECTUS 51 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 resources/industrial relations; and prospects for the future Corporate Governance Should disclose the manner and extent to which the Report Company has complied with the principles and provisions Of the Code.

Audit Committee Report Should set out the work carried out by the Committee. Audit Committee

The main role and responsibilities, which are clearly identified in the Charter of the Audit Committee, include inter alia; the following

Reviewing the financial information of the Bank in order to monitor the integrity of The Bank’s Financial Statements, its Annual Report, accounts etc.

Monitoring, reviewing and evaluating the adequacy and effectiveness of the Bank’s internal audit function.

Reviewing the internal audit reports, external audit management letters and subsequent follow up audits together with management’s responses to them.

Evaluating the adequacy and effectiveness of internal controls.

Ensuring that the Board is made aware of matters which may significantly impact the financial condition or affairs of the business, in a timely manner.

Regularly update the Board about Committee activities and make appropriate recommendations.

A representative of the Auditor General (External Auditor of the Bank), the Chief Internal Auditor and the Chief Financial Officer of the Bank are present at the meetings in addition to the opportunity given to the External Auditor to meet the Committee without the Management’s presence where necessary.

There are no members of the management on the Committee. The General Manager attends the meetings by invitation. The other members of the management and other staff members of the Bank are invited to attend the meetings when the Committee requires their presence. The Secretary, Bank of Ceylon/ Secretary to the Board functions as the Secretary to the Committee.

Human Resources and Remuneration Committee The main responsibilities of the Committee, which are mainly based on the Banking Act Direction No. 11 of 2007 on Corporate Governance for Licensed Commercial Banks issued by the Central Bank of Sri Lanka are as follows: Determining the remuneration policy (salaries, allowances and other financial payments) relating to the General Manager and Key Management Personnel (KMPs) of the Bank. Setting goals and targets for the General Manager and KMPs. Evaluating the performance of the General Manager and KMPs against the set targets and goals periodically and determining the basis for revising remuneration, benefits and other payments of performance-based incentives. Reviewing staff matters referred to it by the board Determining the Human Resource Policy and Organisational Structure of the Bank.

According to the aforesaid Banking Act Direction No. 11 of 2007, this Committee has to determine the Remuneration Policy relating to Directors. However, in the case of Bank of Ceylon, the remuneration of Directors is determined in accordance with the circulars and instructions issued by the Ministry of Finance & Planning on behalf of the Government of Sri Lanka, the sole shareholder. The provisions in the Bank of B O C DEBENTURE PROSPECTUS 52 Ceylon Ordinance No. 53 of 1938 and its amendments, the Act of Parliament which established Bank of Ceylon are also taken into consideration with regard to the Directors’ remuneration and benefits given to them. A Remuneration Policy for Directors has been adopted by the Board in keeping with the above rules and instructions. The details of the remuneration given to Directors are fully disclosed in the Annual Report on a yearly basis. The remuneration of employees including the General Manager and KMPs is revised once in 3 years with the approval of the Minister in charge of the subject of finance in accordance with the provisions of Bank of Ceylon Ordinance. Prior to finalising the salary revision, the Committee deliberates on the proposals and makes its recommendation. There was no salary revision in year 2010. The next salary revision is due in 2012. Nomination and Corporate Governance Committee The Committee is mainly responsible for the following: Implementing procedures to select/ appoint the General Manager (GM) and Key Management Personnel (KMPs). Setting the criteria such as qualifications, experience and key attributes for eligibility to be considered for appointment or promotion to the post of GM and the key management positions. Ensuring that GM and KMPs are fit and proper persons to hold office as specified in the criteria given in Direction No. 3 (3) of the Banking Act Direction No. 11 of 2007 on Corporate Governance for Licensed Commercial Banks issued by the Central Bank of Sri Lanka and as set out in the statutes. Considering and recommending from time to time, the requirements of additional/new expertise and succession arrangements for KMPs. Determining the methods and execution of the annual evaluations of the Board’s and each Board subcommittees' effectiveness and supporting the annual performance evaluation process.

Reviewing periodically the Bank’s Code of Ethics

Integrated Risk Management Committee The main role and responsibilities of the Committee are to assist the Board in fulfilling its oversight responsibilities for all aspects of risk management. In this connection the Committee focuses on and reviews risks such as credit, market, liquidity, operational and strategic risks through appropriate risk indicators and management information.

In addition to the above, the Committee is responsible for reviewing and/or recommending the following which are identified in the Charter of the Integrated Risk Management Committee:

Policies, programmes and management committee charters relating to risk management and compliance.

Risk limits and policies that establish appetite for credit, market, liquidity and operational risks, as recommended by the Chief Risk Officer.

Adequacy and effectiveness of all management level committees such as the Credit Committee and Assets & Liability Management Committee to address specific risks and to manage those risks within quantitative and qualitative risk limits as specified by the Committee. Risk management reports on the risk profile of the Bank, as well as emerging market and regulatory risks and actions undertaken to identify, measure, monitor and control such risks. Corrective action to mitigate the effects of specific risks in case such risks are beyond the prudent levels decided by the Committee on the basis of the Bank’s policies and regulatory and supervisory requirements.

Appropriate actions against the officers responsible for failure to identify specific risks and prompt corrective action as directed by the Director of Bank Supervision or otherwise.

Adequacy and effectiveness of risk identification, measurement, monitoring and mitigation relating to credit, market, liquidity, operational and compliance risks.

The Committee is conscious, when carrying out its responsibilities, that banks are in the business of taking risk. The aim of the Bank and the Committee is therefore not to minimise risks but to optimise it by ensuring that risks being taken are; properly identified and understood; appropriate; relative to the scale and type of business; affordable; properly controlled and managed; and earning an appropriate return. B O C DEBENTURE PROSPECTUS 53 7. CORPORATE MANAGEMENT

NAME DESIGNATION QUALIFICATION & EXPERIENCE

Ms. W .A. Nalani General Manager BA (Econ.) BPhil. (Econ.) AIB, FIB (Sri Lanka), Over 36 years of banking experience

Additional Bcom- first class Hons, BPhil. (Econ), Mr. K .Dharmasiri General Manager AIB (Sri Lanka) (Recovery) Over 36 years of banking experience Additional BA Econ (Hons) Mr. H. M. A. B. General Manager BPhil (Industrial management), Over 36 years of Weerasekara (International & banking experience Treasury) Additional BA (Hons) BPhil (Econ), Phd (Social Science) Dr. C. Samarasinghe General Manager Over 36 years of banking experience (Product & Development Banking)

Deputy General Bsc Special Degree in Public Mr. D.M. Gunasekara Manager(Retail Finance & Taxation. AIB (Sri Lanka.) Over 28 Banking) years of banking experience.

Deputy AIB (Sri Lanka.) Obtained a postgraduate Mr. H.M. Mudiyanse General Manager Diploma in Executive Bank Management. Over (Sales and Channel 38 years banking experience. Management) Mrs. Deepa N Deputy B.Com (Special), Post Graduate Diploma in Wanniarachchi General Manager Business & Finance Administration in ICASL in (Finance & Planning) association with Cranfield University School of Management, UK. Over 36 years of banking experience Deputy BA Special Degree in University of Colombo, Mr. P.A. Lionel General Manager Over 28 years experience in banking and (Investments & Human financial services specially in the areas of Resource) Treasury, International Operations and Investment Deputy BA (Hons) Mr. M .K .Nandasiri General Manager (1st Class)(Econ),Bphil(Econ), (Support Services) AIB(Sri Lanka) Over 36 years of banking experience

Deputy General Bcom (Hons) BPhil (Econ) over 36 years Mrs. Dayani Manager(Corporate & banking experience Fernando Off Shore Banking)

Attorney-at-Law and Notary Public(SL), Mr. Jinadasa K. Chief Legal Officer LL.B(SL) Over 31 years of experience in Legal Gamage Affairs.

Secretary Bank of She holds Bachelor’s Degree in Law & MBA Mrs. Janaki Ceylon/Secretary to the from the University of Colombo (Sri Lanka). Over Siriwardena Board 15 years experience as Secretary to the Board in Bank of Ceylon. Chief Financial Officer B.Sc-Business Administration Mr. A. Rupasinghe FCA(Sri Lanka) MBA in Finance University of southern Queensland, Australia B O C DEBENTURE PROSPECTUS 54 Over 24 years experience in financial sector

B.Sc (Hons)(London) M.Sc (London) F.C.I.B. Mr.T. Fernandopulle Chief Risk Officer (London) President of Charted Institute of Bankers (Sri Lanka) Over 31 years banking experience.

Head of Research and M.A in Economic, Phd in Social Siance. Over 21 Dr. Lionel Development years expiresnce Bnaking Sector Siriwardena macroeconomics research an Analyes

Head of Information MSc-IT(UK), CITP(UK), MBCS(UK), MPMI(UK), Mr. R. Peiris Technology MCSSL, Over 28 experience in fields of data processing and information Technology.

CDBA (Oxford) DBA(EU), MBA,FCA,FSCMA, Dr. W. G. Chief Internal auditor CMA (AUS) Karunadasa Over 31 years of experience in the field of accounting, Auditing and financial management

31 years marketing experience with British Mr. M .F. Gafoor Head of Marketing American Tobacco Company and its subsidiaries. Former General Manager of Whittals Insurance and DHL Colombo.

The General Manager is not and was not: a) Involved in a petition under any bankruptcy laws filed against such person or any partnership in which he was a partner or any corporation of which he was an executive officer; b) Involved in a conviction for fraud, misappropriation or breach of trust or any other similar offence which the CSE consider as a disqualification; or c) The subject of any order, judgement or ruling of any court of competent jurisdiction temporarily enjoining him from acting as an investment advisor, dealer in securities, director or employee of a financial institution and engaging in any type of business practice or activity.

Aggregate emoluments of the chief executive officer and the corporate management team including bonus/profit sharing for 2010 is Rs. 46.2 Mn and estimated at Rs.45.1 Mn for 2011.

B O C DEBENTURE PROSPECTUS 55 8. PROPERTIES

Details of the Properties of the Bank (Freehold Properties and Leasehold Properties) are given in the Annexure VI

B O C DEBENTURE PROSPECTUS 56 9 STATUTORY AND OTHER GENERAL INFORMATION

9.1 Inspection of Documents

Extracts from the Bank of Ceylon Ordinance are set out in Annexure 1 and forms part of this Prospectus. This prospectus will be available at the official website of BOC at www.boc.lk and the website of CSE (www.cse.lk) until the subscription list closes.

The Bank of Ceylon Ordinance, the Auditors Report and all other documents referred to in this Prospectus can also be inspected at any time during the normal business hours at the Head Office of BOC from the date hereof, until the subscription list closes.

9.2 Brokerage

Brokerage at the rate of 25 cents per Debenture will be paid in respect of the number of Debentures allotted on applications bearing the stamp of any member and Trading member of the CSE, or any agent appointed by BOC.

9.3 Trustee Fees

The fee payable to the Trustees will be LKR 300,000 p.a. plus statutory levies. No conflict of interest with the Trustee

9.4 Expenses of this Issue

The total expenses of the issue including the cost of printing, advertising and promotional costs connected with the issue will be approximately LKR 25Mn and will be met from the funds of BOC.

9.5 Underwriting

The Debenture issue is not underwritten. In the event the issue is under subscribed, the subscribers shall be allotted in full and the quantum of the funds raised will be utilised for the purpose detailed in section 2.3 of this Prospectus.

9.6 Material Contracts

BOC has not entered into any material Contracts as at date other than the Contracts entered into in the Ordinary Course of Business.

9.7 Litigation, Disputes and Contingent Liabilities

There are 136 actions filed against the Bank in its routine banking operations and these actions mainly relate to the following categories. a) Injunction b) Stay Orders c) Leave to Appeal.

The Bank is of the view that, most of these actions have been successfully defended by the Bank and even if the Bank is unsuccessful in the few exceptions where the judgement could be against the Bank such result will not be of detriment to the financial stability of the Bank.

Information relating to litigation, Disputes & Contingent Liabilities against the Bank is given in Note 43 of the Financial Statements for the year ended 2010.

There are no penalties imposed by any regulatory and/or state authority against the Bank as at date.

B O C DEBENTURE PROSPECTUS 57 Declaration by the Directors

We the undersigned being the Directors of Bank of Ceylon, hereby declare and confirm that the Prospectus has been seen and approved by us and we collectively and individually accept full responsibility for the accuracy of the information given and confirm that, the provisions of the Colombo Stock Exchange listing rules have been complied with and after making all reasonable enquiries and to the best of our knowledge and belief, there are no other facts the omission of which would make any statement herein misleading or inaccurate. Where representations regarding the future performance of the entity have been given in the Prospectus, such representations have been made after due and careful inquiry of the information available to the entity and making assumptions that are considered to be reasonable at the present point in time and according to our best judgment.

Dr. G. Wickramasinghe (Sgd) on ……… 2011

Mr. S. R. Attygalle (Sgd) on ……… 2011

Mr. R. Sivaraman ((Sgd) on ……… 2011

Ms N. Abeywardene (Sgd) on ……… 2011

Mr. C. De Silva (Sgd) on ……… 2011

Mr. K. L. Hewage (Sgd) on ……… 2011

B O C DEBENTURE PROSPECTUS 58 Declaration by the Bank

An application has been made to the Colombo Stock Exchange for permission to deal in and obtain a listing for the Debentures to be issued by the Bank pursuant to this Prospectus. Such permission will be granted when the Debentures are listed on the Main Board of the Debt System of the Colombo Stock Exchange. The Colombo Stock Exchange assumes no responsibility for the accuracy of the statements made or opinions expressed or reports included in this prospectus. Listing on the Colombo Stock Exchange is not to be taken as an indication of the merits of the Bank or of these Debentures.

Mr. P. A. Lionel Mr.H.S. Jayawardana Deputy General Manager Assistant General Manager Investment & Human Resource Investment Operations

Declaration by the Managers to the Issue

We, Investment Banking Division of Bank of Ceylon, 23rd Floor, No:04, Bank of Ceylon Mawatha, Colombo 01 being the Managers, Sponsors and Registrars to this Debenture issue, hereby declare and confirm that to the best of our knowledge and belief the prospectus constitutes full and true disclosure of all material facts about the issue and the BOC.

.

Mr. P. A. Lionel Mr.H.S. Jayawardana Deputy General Manager Assistant General Manager Investment & Human Resource Investment Operations

B O C DEBENTURE PROSPECTUS 59 Annexure I

EXTRACTS FROM THE BANK OF CEYLON ORDINANCE

Board of Directors 6. (1) The Management and administration of the affairs of the of the Bank Bank shall be vested in a Board, consisting of six directors appointed by the Minster, one of whom shall be a representative of the Ministry charged with the subject of Finance (hereinafter referred to as the “ex officio director ”)

(2) The Board may exercise, discharge or perform the powers, functions or duties of the bank for the purpose of carrying on the business, and administering the affairs of the bank.

(3) No act or proceeding of the Board shall be invalid by reason only of the existence of any vacancy among the Directors or any defect in the appointment of a Director or authorization by the ex officio director under subsection (8)

(4) A Member of Parliament shall not be qualified to be a Director.

(5) The Minister shall appoint one of the appointed Directors as the Chairman of the Board.

(6) Every appointed Director shall hold office for a period of three years, unless he is earlier removed from office or vacates his office.

(7) If any appointed Director is temporarily unable to discharge the duties of his office on account of ill health, or absence from Sri Lanka, or any other cause, the Minister may appoint some other person to act as a Director in his place.

(8) If the ex officio Director is unable to attend any meeting of the Board, he may authorize any other officer to be present on his behalf at such meeting; and the officer so authorised shall be deemed for the purpose of such meeting to be a member of the Board.

(9) An appointed Director may resign his office by letter addressed to the Minister.

(10) The Minster may, if he thinks it expedient to do so, remove an appointed Director from office.

(11) A Director who vacates office by resignation or efflux ion of time shall be eligible for re-appointment.

(12) The ex officio Director shall have all the same rights and privileges as the appointed Director.

(13) The provisions of subsections (1), (2) and (3) shall be deemed to have come into operation on October 12, 1961.

B O C DEBENTURE PROSPECTUS 60 Disclosure of 11 A Director who or whose spouse or dependent child or a firm or Interest by a company in which such Director, his spouse or dependent child Director has a substantial interest is directly or indirectly interested in any business transacted or proposed to be transacted by the Bank shall disclose the nature of such interest at the meeting of the Board. where such business is discussed. The disclosure shall be recorded in the minutes of the Board and such Director shall not take part in any deliberation or decision of the Board with regard to that business and shall withdraw from such meeting whilst such deliberation is in progress or decision is being made.

Business which 71 Subject to the provisions of this Ordinance the business which the the Bank may bank is authorized to carry on and transact shall be the several kinds transact of business specified in Part 1 of the First Schedule subject to the limitations mentioned in Part II thereof.

FIRST SCHEDULE

PART I

Business which 1 The Bank is authorized to carry on and transact the several kinds of the bank is business hereinafter specified, namely:- authorised to carry on and transact

To carry on (a) To establish, carry on, develop and extend in Sri Lanka and business of elsewhere the business of banking in all its branches and banking departments and in particular and without prejudice to the generality of the foregoing to exercise, perform and do all or Any of the following powers, acts and things subject nevertheless to the restrictions and conditions set out in Part II of this Schedule.

To open accounts (b) (i) To open, maintain and manage current deposit, saving and other accounts;

To discount bills (ii) To discount, buy, sell and deal in bills of exchange, promissory notes, hoondies, poorjas, coupons, drafts, bills of lading, warrants, debentures, certificates, scrip and other instruments and securities, whether transferable or negotiable or not:

To issue letter of (iii) To grant and issue letters of credit and circular notes: credit

To deal in bullion and (iv) To buy, sell and deal in bullion and specie and engage in specie operations in exchange.

To negotiate loans (v) To negotiate loans and advances, to receive money Securities and valuables on deposit, or for safe custody, or otherwise:

To collect money (vi) To collect and transmit money and securities.

To transact agency (c) To manage property and transact all kinds of agency business business commonly transacted by bankers.

To borrow or raise (d) To borrow or raise money in such manner as the bank shall think fit money and to secure the repayment of any money borrowed, raised or owing by mortgage, charge or lien upon the whole or any part of the bank’s property or assets whether present or future including its uncalled capital and also by a similar mortgage, charge or lien to secure and guarantee the performance by the bank of any obligation or liability it may undertake.

B O C DEBENTURE PROSPECTUS 61 To lend and (e) To lend and advance money securities and property or give credit to advance money such persons, firms or companies and on such terms as may seem expedient and either with or without security and if with security upon such security and with such conditions as may from time to time be deemed to be advisable.

To buy and sell (f) To buy, sell, invest, underwrite, deal in and dispose of stocks, shares, stocks and shares debentures, mortgages, bonds, or securities issued or guaranteed by the Government of Sri Lanka or by the Government of any other country or by any company or corporation

Provided, however, that the bank shall not enter into any transaction affecting the stocks, shares, debentures, mortgages, bonds or securities issued or guaranteed by any other country or by any such company or corporation except with the approval of not less than four Directors of the bank given after considering the written observations of the General Manager of the Bank, and with the written consent of the Minister. To acquire any other business (g) To acquire and undertake the whole or any part of the banking and discount business of any person or company carrying on business which the bank is authorized to carry on;

Provided, however, that the power contained in this paragraph shall only be exercised with the approval of not less than four Directors of the Bank given after considering the written observations of the General Manager of the Bank, and with the written consent of the Minister.

To acquire property (h) To purchase, take on lease or in exchange, hire or otherwise acquire, any immovable or movable property and any rights or privileges.

To enter into (i) To enter into any arrangement for sharing profits, union of interest, arrangement for co-operation, joint ventures, reciprocal concession or otherwise with profit sharing any person or company carrying on or engaged in or about to carry on or engaged in any business or transaction.

To act as trustees, (j) To undertake and execute any trusts the undertaking whereof may executors, etc. seem desirable, and also to undertake the office of executor, administrator, receiver, treasurer, or registrar, and to keep for any company, Government, authority, or body, any register relating to any stocks, funds, shares or securities, or to undertake any duties in relation to the registration of transfers, the issue of certificates, or otherwise.

To provide for (k) To establish and support or aid in the establishment and support of employees associations, institutions, trusts, schemes for the providing of pensions and of guarantee and other funds, and conveniences calculated to benefit employees or ex-employees, of the bank or the dependants or connexions of such persons and to grant pensions and allowances, and to make payments towards insurance, and to subscribe or guarantee money for charitable or benevolent objects or for any exhibition or for any public, general, or useful object.

To sell undertaking (l) To sell or dispose of the entire undertaking of the bank, or any part thereof, for such consideration as the bank may think fit, and in particular for shares, debentures or securities of any other bank or to amalgamate the bank’s business with that of any other bank.

Provided, however, that the powers contained in this paragraph shall only be exercised with the approval of at least four directors of the bank given

B O C DEBENTURE PROSPECTUS 62 after considering the written observations of the General Manager of the Bank, and with the written consent of the Minister.

To deal with the (m) To construct buildings on or improve or develop any land belonging property of the to or taken on lease or possessed or occupied by the bank and to bank manage, exchange, lease, mortgage, dispose of, sell, turn to account or otherwise deal with all or any part of the property and rights of the bank.

To exercise it’s (n) To do all or any of the above things in any part of the world and as powers in any part principals, agents, contractors, trustees or otherwise and by or of the world through trustees, agents or otherwise and either alone or in conjunction with others.

To support the (o) To take or concur in taking all such steps and proceedings as may credit of the bank seem best calculated to uphold and support the credit of the bank and to obtain and justify public confidence and to avert and minimize financial disturbances, which might affect the bank.

To procure (p) To procure the bank to be registered or recognized in any foreign recognition of the country or place. bank

To obtain (q) To give any guarantee or indemnity and to enter into any concessions arrangement with any Government or any local authority in order to obtain any rights, concessions and privileges.

To do hire- (r ) To do hire-purchase business and receive discounts, commissions purchase business and other remuneration.

To form (s) To form any company for carrying on any business, to acquire and companies undertake the business of, purchase any interest in, or acquire or hold shares or stock in, any company carrying on any business.

To carry on any (t) To carry on such other trade or business or engage in such other trade or business activity, which can in the opinion of the bank be advantageously carried on or engaged in by the bank.

General (u) To do all things incidental or conducive to the attainment of the above objects or the exercise of the above powers.

Interpretation of 2. The objects set forth in any paragraph of clause 1 of this schedule objects shall not, except where the context expressly so requires, be in any wise limited or restricted by reference to or inference from the terms of any other paragraph or the objects therein specified, and the powers thereby conferred shall not be deemed merely subsidiary or auxiliary to the objects mentioned in the first paragraph of clause 1 of this Schedule but the bank shall, except when the context expressly requires otherwise, have full power to exercise all or any of the powers conferred by any part of clause 1 of this schedule in any part of the world.

PART II

Restrictions and 3. The business of the bank shall be carried on subject to qualifications the following restrictions and qualifications:

Loans, Overdrafts, (a) No loan, overdraft, advance or other accommodation advances, and shall be granted by the bank to any person unless other accommodation the Board is satisfied that he is worthy of credit up to to be granted only the amount of such advance, loan or other

B O C DEBENTURE PROSPECTUS 63 in certain accommodation or that such amount is secured by circumstances adequate security, or that the project or scheme to which such amount is to be applied is financially sound;

Provided that the bank may grant any loan, overdraft, advance or other accommodation to any Government department, corporation, statutory body, local authority, co-operative society, approved society or unincorporated body of persons which is unable to satisfy the board as to the requirement contained in the preceding provisions of this paragraph if the grant of such loan, overdraft, advance or other accommodation is approved by the Minister in consultation with the Minister in charge of the subject of Finance and if the Minister in charge of the subject of Finance guarantees under section 10 the repayment of such advance, loan or other accommodation. Loans to directors and companies (b) (i) Where prior to the date of his appointment as a director no sum has been granted by way of loan, overdraft, advance or other accommodation to such director or any company or firm in which he has a substantial interest, then, no loan, overdraft, advance, or other accommodation shall be granted to any such company or firm, but a sum not exceeding fifty thousand rupees in the aggregate may be granted to such director by way of loans, overdrafts, advances and other accommodation.

(II) Where prior to the date of his appointment as a director any sum has been granted by way of loan, overdraft, advance or other accommodation to such director or any company or firm in which he has a substantial interest, then such director, company or firm may be granted by way of loans, overdrafts, advances or other accommodation a sum which does not exceed the aggregate of the sums granted to such director, company or firm prior to the date of such appointment, less any sum remaining unpaid.

Provided that where any sum so granted to a director prior to his appointment as a director is a sum not exceeding fifty thousand rupees such director may be granted by way of loans, advances, overdrafts and other accommodation a sum not exceeding fifty thousand rupees in the aggregate, in addition to any sum remaining unpaid.

(iii) No loan, overdraft, advance or other accommodation shall be granted to a director for the time being of the bank or a firm, or company in which he has a substantial interest unless security approved by the bank is given and the loan, overdraft, advance or other accommodation is sanctioned at a meeting of the board by not less than four other directors.

Restriction on *(e) No advance, loan or accommodation shall be granted granting of loans to any General Manager, Assistant General Manager, or Branch Manager, or any officer, clerk, or servant of the bank exceeding the sum of five hundred rupees except against appropriate banking security; any loans exceeding five hundred rupees to such persons shall only be granted with the previous approval of the board.

Guarantee by (f) No loan, overdraft, advance or other accommodation employees shall be granted by the bank on the guarantee of an employee of the bank other than to another employee of the bank.

B O C DEBENTURE PROSPECTUS 64 How may powers 4 All the powers contained in clauses 1 and 2 of this be construed schedule shall be read and construed subject to the restrictions and qualifications in clause 3 of this Schedule and in case of conflict or inconsistency the provisions of clause 3 of this Schedule shall prevail.

SECOND SCHEDULE PART 1

Proceedings of Directors

Meetings of Directors 1. The Directors may meet together for the dispatch of business, adjourn and otherwise regulate their meetings as they think fit and may determine the quorum necessary for the transaction of business. Until otherwise fixed the quorum shall be three. Who may preside at meetings 2. The Board shall be presided over by the Chairman if present, or in his absence, by the deputy Chairman, if any, but if neither a Chairman nor a Deputy Chairman shall have been appointed, or if neither the Chairman nor the Deputy Chairman be present at the time fixed for holding the meeting of the Board, the directors present shall choose one of their number to preside.

How questions at 3. Any questions which shall arise at any meeting of the Board meetings Board shall be decided by a majority of votes of those decided present, and in the case of an equality of votes the Director presiding at the meeting shall have a second or casting vote.

Acts to be valid 4 All acts done by the Board or by a committee of notwithstanding Directors or by a person acting as Director, whether defects in solely or as a member of the Board or of a committee, appointments shall, notwithstanding that it be afterwards discovered that there was a defect in the appointment of the Board, Committee, or person acting as Director, or that such person was not qualified to be a Director, be as valid as if there had been no such defect and the person acting as Director had been duly qualified.

Meetings of 5 The meetings and proceedings of any committee shall committees be governed by the provisions of this Schedule for regulating the meetings and proceedings of Directors, so far as the same are applicable thereto, and are not superseded by the express terms of the appointment of the committee. In any matter in which no provisions are made by the Board or by this Schedule a Committee may conduct its business in such manner as it thinks fit.

Minutes of 6 (1) The Board shall cause minutes to be made in books proceedings of provided for the purpose of the following matters, Directors to be namely, kept. (a) All appointments of officers and committees made by the Board; (b) The names of the Directors present at every meeting of the Board, and at every meeting of a committee;

B O C DEBENTURE PROSPECTUS 65 (c) The proceedings and resolutions of all meetings of the board and Committees.

(2) Such minutes if signed by some person purporting to be the Chairman of the meeting or of the Board or Committee to which it refers, or by any two directors present thereat, or by the Chairman of the next succeeding meeting, shall be receivable in evidence without further proof of the matters therein contained or any other proof.

Custody and use of common seal 7 (1) The Board shall provide a common seal for the purpose of the bank and may from time to time change the same; and such seal may be kept by such person and in such manner as the board from time to time may determine, but shall not be used except by the authority of the board and in the presence of at least two Directors, or of one Director and the General Manager or other officer appointed for that purpose by the Board, who shall sign the document to which the seal is affixed.

(2) The Board shall have full power to use the common seal in the execution of all or any of the powers hereby vested in them, or otherwise in relation to the affairs and business of the Bank as they in their discretion see fit.

Directors may 8 No Director shall be disqualified by his office from contract with bank contracting with the bank nor shall any such contract entered into by or on behalf of the Bank in which any Director shall be in any way interested, be voided, nor shall any Director so contracting or being interested be liable to account to the bank for any profit realized by or arising out of any such contract but the fact of his being interested and the nature of his interest shall be disclosed by him at the meeting of the directors at which the contract is considered if his interest then exists, or in any other case at the first meeting of the Directors after the acquisition of his interest.

A general notice that a Director is a member of a specified firm or company, and is to be regarded as interested in any subsequent transactions with such firm or company, shall be sufficient disclosure under this by-law, and after such general notice it shall not be necessary to give any special notice relating to any particulars transaction with such firm or company.

When Director 9 No Director shall as a Director vote in respect of any may not vote contract in which he is so interested as aforesaid and he shall withdraw from the meeting of the Directors while any such contract is under consideration and the vote thereon is being taken. If any Director does so vote, his vote shall not be counted.

Exception from 10 Nothing in by-law 9 shall apply to any contract made by Provisions of or on behalf of the Bank to give to the Directors or any by Law 9 of them any security for advances or by way of indemnity.

Delegation of 11 (1) The Board may delegate any of its powers, other than functions of the power to appoint the General Manager, to

B O C DEBENTURE PROSPECTUS 66 Board committees consisting of two or more Directors, or to a Director, or to the General Manager or to any other officer of the bank selected by the Board; and may from time to time revoke any such delegation either wholly or in part and either as to persons or purposes. Every such committee, Director, General Manager or other officer shall, in the exercise of the powers delegated to it or him, conform to all such regulations as are prescribed by the Board.

(2) The General Manager may, with the consent of the Board, in writing delegate to any of the officers of the Bank selected by him any of the powers delegated to him under paragraph (1). Every such officer shall in the exercise of the powers delegated to him under this paragraph conform to all such regulations as are prescribed by the Board and the General Manager.

(3) All acts done by any such committee, Director, General Manager or other officer in conformity with such regulations and in fulfilment of the purposes of its or his appointment, but not otherwise, shall have the like force and effect as if done by the Board.

PART II Powers and Duties of Directors

Credits and loans 12 No loan, overdraft, advance or other accommodation Shall be sanctioned by the Board without the recommendation of the General Manager unless such loan, overdraft, advance or other accommodation is approved by all the Directors for the time being of the Bank, after considering the written observations of the General Manager of the Bank.

Resolution without 13 (1) A resolution signed by all the Directors of the Bank for Board meeting the time being shall be as valid and effectual as if it had valid been passed at a meeting of the Board.

(2) Any such resolution shall be recorded in the minutes Book containing the proceedings of the Board as if it had been passed at a meeting of the Board.

PART III Remuneration of Directors

Remuneration of Directors 14 A Director may be remunerated out of the funds of the Bank in such manner and at such rates as the Minister May determine.

Deduction for 15 A sum of fifty rupees shall be deducted from the absence from remuneration of the Chairman or any Director in respect meeting of each meeting of the Board, which he fails to attend.

Remuneration 16 A Director in whose place a person has been appointed of acting Director to act shall not receive the remuneration attached to his office during the continuance of such acting appointment, but such remuneration shall be paid to the

B O C DEBENTURE PROSPECTUS 67 Person acting in his place.

Remuneration of 17 Where any Director is entrusted with any special Directors for mission of function or by request performs special Special Services services on behalf of the bank, the Board may grant him such additional remuneration as it thinks fit. The Directors may by repaid by the Bank all such reasonable travelling, hotel and incidental expenses as they may incur in attending meetings of the Board or of Committees of the Board or which they may otherwise incur in or about the business of the Bank.

Remuneration of 18 All remuneration to which Directors who are public public officers who officers become entitled shall be paid to the are directors to be Consolidated Fund. paid to Consolidated Fund

PART IV Dividends and Reserve

Half-yearly 19 The Board may- Dividends (i) on the report of the General Manager that the profits earned by the Bank during any half-year justifies the payment of a half-yearly dividend; and

(i) with the approval of the Minister declare a half-yearly dividend.

Investment of 20 Any amounts standing to the credit of any reserve funds Reserve fund and also any other funds of the Bank not for the time being employed in or required for the purposes of the business of the bank shall be invested with the approval of the Minister in stock, shares, debentures, bonds or securities:-

(a) recommended in writing by the General Manager and approved at a meeting of the Board by a majority of not less than two Directors; or

(b) unanimously approved by all the Directors for the time being of the bank after considering the written observations of the general Manager of the Bank.

B O C DEBENTURE PROSPECTUS 68 Annexure II

Trust Deed

Trust Deed for the Issue of up to Fifty Million (50,000,000) Unsecured Subordinated Redeemable Five Year Debentures at an issue price of LKR 100/- each by Bank of Ceylon

No: 02- 2011

This Trust Deed is made and entered into at Colombo in the Democratic Socialist Republic of Sri Lanka on this Nine (9) Day of November in the Year Two Thousand and Eleven (2011).

By and between

Bank of Ceylon a Banking Corporation duly established under the Bank of Ceylon Ordinance No. 53 of 1938 in the Democratic Socialist Republic of Sri Lanka and having its Head Office at No. 4 Bank of Ceylon Mawatha, Colombo 1 (hereinafter referred to as “BOC “which term or expression as herein used shall where the context so requires or admits mean and include the said Bank of Ceylon its successors and assigns) of the ONE PART

And

Deutsche Bank AG, Colombo Branch a banking corporation duly incorporated in the Federal Republic of Germany and having its Head Office at No. 12, Taunusanlage, Frankfurt am Main, Federal Republic of Germany and a Branch Office at No. 86, Galle Road, Colombo 3 in the Democratic Socialist Republic of Sri Lanka (hereinafter sometimes called and referred to as the “Trustee” which term or expression as herein used shall where the context so requires or admits mean and include the said Deutsche Bank AG, Colombo Branch its successors and any additional or new trustee or trustees appointed under this Deed whether in substitution or in addition and holding office of Trustee for the time being of this Deed and their successors) of the OTHER PART.

WHEREAS: a. BOC being duly empowered in that behalf has by a Resolution passed on 15 th September 2011 by its Board of Directors, resolved to raise a sum upto Sri Lankan Rupees Five Billion (LKR 5,000,000,000) by the issue of Unsecured Subordinated Redeemable Five Year Debentures of BOC. b. The said Debentures shall be constituted in the manner and upon the terms and conditions hereinafter contained. c. The Trustee has agreed to accept the office of Trustee and act under the provisions of this Deed as Trustee for the benefit of and in the interests of the Debenture holders on the terms and conditions hereinafter contained.

B O C DEBENTURE PROSPECTUS 69 NOW THIS DEED WITNESSETH AND IT IS HEREBY AGREED AND DECLARED AS FOLLOWS:

1. DEFINITIONS

(a) In these presents unless the subject or context otherwise requires the following expressions shall have the respective meanings given below:

1. “BANKING ACT” means the Banking Act No. 30 of 1988 of Sri Lanka as amended from time to time.

2. “CENTRAL DEPOSITORY or CDS” means the Central Depository Systems (Pvt) Limited.

3. “COLOMBO STOCK EXCHANGE or CSE ” means the Colombo Stock Exchange within the meaning of the Securities and Exchange Commission of Sri Lanka Act No. 36 of 1987 as amended from time to time.

4. “BOC’s CERTIFICATE” means a bi-annual certificate issued by BOC and signed by a Deputy General Manager and an Assistant General Manager of BOC.

5. “DEBENTURE HOLDERS” means the holders of the Debentures for the time being whose names are entered as holders of the Debentures in the Register or whose accounts are deposited with the Debentures at the CDS as at the relevant date.

6. “DEBENTURES” shall mean the Unsecured Subordinated Redeemable Five Year Debentures to be issued and allotted by BOC in terms of the Prospectus to be issued in this connection at an issue price of Sri Lankan Rupees One Hundred (LKR 100/-) per Debenture to raise a sum up to the aggregate value of Sri Lankan Rupees Five Billion (LKR 5,000,000,000) and categorized as Types A, B and C and morefully described below. These Debentures shall rank equal and pari passu with each other without any preference or priority one over another except for the interest rates and the frequency at which the interest is paid. These Debentures will be listed on the Main Board of the Debt system of the Colombo Stock Exchange.

Types/Categories of the Debentures:

Type A - Unsecured Subordinated Redeemable Five (05) Year Debentures of LKR 100 each bearing nominal interest at a fixed rate of eleven per cent (11%) per annum on the Principal sum, payable annually (AER 11%) at the expiry of every One (01) year period from the date of allotment of the Debentures.

Type B - Unsecured Subordinated Redeemable Five (05) Year Debentures of LKR 100 each bearing nominal interest on the Principal sum at a floating rate calculated on the basis set out in Clause 1 (a) 11 below, payable bi- annually at the expiry of every six (06) month period from the date of allotment of the Debentures.

Type C- Unsecured Subordinated Redeemable Five (05) Year Debentures of LKR 100 each bearing nominal interest at a fixed rate of ten point five per cent (10.5%) per annum (AER 10.77%) on the Principal sum, payable bi- annually at the expiry of every Six (06) month period from the date of allotment of the Debentures.

B O C DEBENTURE PROSPECTUS 70 7. “DUE DATE OF INTEREST” means the dates on which the interest payments shall fall due in respect of the Debentures. Interest payments shall fall due in respect of Debentures of,

• Type A, annually at the expiry of every One (01) year period from the date of allotment of the Debentures.

• Type B, bi-annually at the expiry of every Six (06) month period from the date of allotment of the Debentures.

• Type C, bi-annually at the expiry of every Six (06) month period from the date of allotment of the Debentures.

The first of such interest payment shall fall due in respect of Debentures of Type A on the date of expiry of One (01) year and in respect of Debentures of Type B and Type C on the date of expiry of Six (06) months from the date of allotment of the Debentures. Interest payments shall be made by BOC within Five (05) market days from the due dates.

The final interest payments in respect of Debentures of Types A, B and C shall be made with the repayment of the Principal sum on the date of maturity /redemption of the Debentures.

Interest calculation shall be based upon the actual number of days in each interest payment period.

In order to accommodate the Debenture interest cycles in the Debt Securities Trading System (DEX) the payment of interest shall not include Debenture holders holding Debentures in the DEX as at the last day of the payment cycle but one day prior to the due date of interest (entitlement date). If the entitlement date is a holiday interest shall be calculated including the entitlement date.

8. “ EVENT OF DEFAULT” means any event set out in Clause 12.

9. “MARKET DAY” means a day on which trading takes place at the Colombo Stock Exchange,

10. “LISTED” means tradable on the Colombo Stock Exchange.

11. “RATE OF INTEREST” means in respect of Debentures of,

Type A - A fixed rate of eleven per cent (11%) Per annum on the Principal sum, payable annually at the expiry of every One (01) year period from the date of allotment of the Debentures.

Type B- A floating rate of interest equivalent to Seventy Five basis points (0.75%) above the Weighted Average Six (06) Month Treasury Bill interest rate (before tax) at the Primary Auctions as announced by the Central bank of Sri Lanka at the preceding week of the interest resetting date for each bi-annual period. This rate will be initially decided on the date of allotment of the debentures and be applicable for a period of Six (06) months commencing from the date of allotment of the Debentures and thereafter to be determined/revised bi-annually at the expiry of every Six (06) month period from the date of allotment of the Debentures on the same basis. The interest rates so established

B O C DEBENTURE PROSPECTUS 71 shall be notified by BOC to the Colombo Stock Exchange and the Trustee prior to the commencement of each bi-annual period.

Provided that if such Weighted Average Six (06) month Government of Sri Lanka Treasury Bill Interest Rate has not been announced at the preceding week of the interest resetting date for a particular bi-annual period, then BOC shall in consultation with the Trustee calculate the interest rate applicable for that bi-annual period based on the Weighted Average Six (06) Month Treasury Bill interest rate (before tax) at the last Primary Auction as announced/published by the Central Bank of Sri Lanka before the interest resetting date. The rate so established shall be notified by BOC to the Colombo Stock Exchange prior to the commencement of the particular bi-annual period.

Interest is payable bi-annually at the expiry of every Six (06) month period from the date of allotment of the Debentures.

Type C- A fixed rate of ten point five per cent (10.5%) Per annum on the Principal sum, payable bi-annually at the expiry of every Six (06) month period from the date of allotment of the Debentures

12. “RESOLUTION” means a Resolution passed by the Debenture holders in terms of Clause 21 unless otherwise provided for.

13. “SRI LANKAN RUPEES” and the sign “LKR” mean the lawful currency of the Republic of Sri Lanka.

14. “SUBORDINATE” in relation to the Debentures means that the Claims of the Debenture holders shall in the event of winding up of BOC, rank after all the claims of Secured and other Unsecured Creditors of BOC and any preferential claims under any Statutes governing BOC but in priority to and over the claims and rights of the Shareholder/s of BOC.

15. “REGISTERED ADDRESS” when used in relation to a Debenture holder means the respective address of the Debenture holder registered in the Register. In the case of the Debentures lodged with CDS the registered address shall be deemed to be the address provided by the Debenture holder to the CDS.

16. “THE DATE OF ALLOTMENT” means the date on which the Debentures will be allotted to the Debenture holders under the Prospectus.

17. “THE DATE OF MATURITY” means the date on which the period of Five (05) years from the date of allotment expires.

18. “THE DATE OF REDEMPTION” means the date of Maturity of the Debentures or such earlier date on which the Debentures become payable in terms of these presents.

19. “THE REGISTER” means the register of the Debenture holders hereinafter covenanted to be kept by BOC.

20. “THE REGISTRARS” means Investment Banking Division of Bank of Ceylon or such other person or persons to be appointed as the Registrars for the purpose of these presents by BOC.

21. “THESE PRESENTS’’ means this Trust Deed as from time to time modified in accordance with the provisions herein contained and/or according to law and shall

B O C DEBENTURE PROSPECTUS 72 include any Supplementary Trust Deed executed in accordance with the provisions hereof.

22. “WORKING DAY “ means any day (other than a Saturday or Sunday or any statutory holiday) on which Banks and Foreign Exchange Markets are open for business in Sri Lanka.

23. “TRUST DEED” means these presents including the Schedules hereto as from time to time modified in accordance with the provisions herein contained and/or according to law and shall include any Supplementary Trust Deed executed in accordance with the provisions hereof.

24. “TRUSTEE” means the trustee above named and any additional or new Trustee or Trustees appointed under this Deed whether in substitution or in addition and holding office of Trustee for the time being of this Deed.

(b) Words denoting or importing the singular number shall include the plural number and vice versa and words denoting or importing the masculine gender only shall include the feminine gender and shall include corporate and unincorporated bodies of persons.

(c) In these presents references to:

(i) any provision of any statute shall be deemed also to refer to any statutory modification or re-enactment thereof or any statutory instrument, order or regulation made there under or under such modifications or re-enactment.

(ii) Principal and/or interest in respect of the Debentures or to any monies payable by BOC under these presents or under the Debentures shall be deemed also to include references to any additional amounts which may be payable under these presents.

(iii) Costs, charges or expenses shall include (but not be limited to) the Value Added Tax, Turnover Tax or similar tax charged or chargeable in respect thereof.

(d) References in this Trust Deed to clauses, sub-clauses, paragraphs and sub-paragraphs shall be construed as references to the clauses, sub clauses, paragraphs and sub- paragraphs of this Trust Deed respectively.

(e) The headings are inserted herein only for conveniences and shall not affect the construction of these presents.

2. APPOINTMENT OF THE TRUSTEE

The Trustee is hereby appointed as Trustee for the purposes of the Debentures and for the benefit of and in the interests of the Debenture holders as provided herein and the Trustee accordingly accepts the appointment upon the terms and conditions contained herein and agrees to act under the provisions of this Deed as the Trustee.

3. AMOUNT OF THE DEBENTURE ISSUE

Debentures will be issued by BOC to raise a sum up to Sri Lankan Rupees Five Billion (LKR 5,000,000,000/-)

4. COVENANTS TO REPAY THE PRINCIPAL SUM AND INTEREST

(a) BOC hereby covenants with the Trustee for the benefit of the Debenture holders that it will,

B O C DEBENTURE PROSPECTUS 73 (i) As an when Debentures ought to be redeemed in accordance with the provisions of these presents pay to the Debenture holders registered as at the date of redemption / maturity by cross cheque marked “ account payee only” sent by ordinary mail to the address of Debenture holder recorded with CDS or pay to a Bank account or otherwise through electronic fund transfer mechanism recognized by banking systems as per information available with CDS or provided direct to BOC by the Debenture holders. The principal sum of the Debentures which ought to be redeemed and interest (if any) remaining unpaid up to the date of maturity / redemption of the Debentures.

(ii) pay to the Debenture holders registered as at the due date of interest by crossed cheque marked “Account payee only” sent by Ordinary mail to the Address recorded with CDS or pay to a bank account or otherwise through electronic fund transfer mechanism recognized by banking systems as per information available with CDS or provided direct to BOC by the Debenture holders, interest on the principal sum of the Debentures for the time being outstanding at the said rate of interest in accordance with the provisions of these presents.

Interest payments shall fall due in respect of Debentures of

• Type A, annually at the expiry of every One (01) year period from the date of allotment of the Debentures.

• Type B, bi-annually at the expiry of every Six (06) month period from the date of allotment of the Debentures.

• Type C, bi-annually at the expiry of every Six(06) month period from the date of allotment of the Debentures

The first of such interest payment shall fall due in respect of Debentures of type A on the date of expiry of One (01) year and in respect of Debentures of Type B and Type C on the date of expiry of Six (06) months from the date of allotment of the Debentures, interest payments shall be made by BOC within Five (05) market days from the due dates.

The final interest payments in respect of Debentures of Types A, B and C shall be made with the repayment of the Principal sum on the date of maturity/redemption of the Debentures.

Interest calculation shall be based upon the actual number of days in each interest payment period. (Actual/Actual)

Payment of the Principal sum and interest shall be made in Sri Lankan Rupees after deducting any Withholding Tax and/or such other taxes and charges thereon, if applicable.

(iii) The debentures shall be redeemed in accordance with the provisions contained in these presents on the date of maturity or on such earlier date in the event of default together with interest (if any) remaining unpaid therefore.

(iv) If any cheques for redemption or interest payment sent by post to the Debenture holders are returned to BOC undelivered or payments made through electronic fund transfer systems are rejected by the receiving end, the amounts represented by each of such returns or rejections shall be transferred by BOC to a suspense account and retained therein for a period of Six (06) years from the date of maturity of the Debentures. Such monies will be repaid to the Debenture holders if the same is claimed in writing by such Debenture holder within the said Six (06) years period. No person shall be entitled to claim any such redemption and interest payment

B O C DEBENTURE PROSPECTUS 74 after the completion of six years from the date of maturity and all unclaimed monies shall cease to be owed and payable by BOC to any Debenture holder after the said period of Six (06) years.

(v) BOC shall always act on the information furnished by the CDS and it shall be the responsibility of each such Debenture holder to keep all the information in respect of such Debenture holder updated. Each debenture holder shall absolve BOC from any responsibility or liability in respect of any error or absence of necessary changes in the information recorded with the CDS.

(vi) BOC shall be entitled to make payment on redemption of all such Debentures on the date of maturity to such Debenture holders without any request for claim from such Debenture holders and BOC shall accordingly send the crossed cheques marked “ Account payee only” for such payments to the addresses (as furnished by the CDS) of such Debenture holders recorded with CDS or pay to a bank account or otherwise through electronic fund transfer mechanism recognized by banking system as per information available with CDS or provided direct to BOC by the Debenture holders and such payment shall be deemed to be a payment duly made by BOC to the respective Debenture holders in redemption of the Debentures of such Holders.

In order to accommodate the Debenture interest cycles in the Debt Securities Trading System (DEX) the payment of interest shall not include Debenture holders holding Debentures in the DEX as at the last day of the payment cycle but one day prior to the due date of interest (entitlement date). If the entitlement date is a holiday interest shall be calculated including the entitlement date

(b) If the date of redemption/maturity falls on a non working day on which the Banks are closed for business in Sri Lanka, then the Debentures will be redeemed without any additional interest on the next working day when the Banks are open for business in Sri Lanka.

5. DEPOSIT OF DEBENTURES INTO CDS ACCOUNTS

BOC shall within 18 market days from the date of closing of the issue deposit the Debentures into CDS accounts of the Debenture holders in accordance with the Rules of the CDS/ CSE as provided in the debenture application, with intimation to the debenture holders to this effect.

6. STAMP DUTY & OTHER CHARGES (IF ANY)

BOC shall pay all charges, stamp duties and other similar duties or taxes (if any) payable on or in connection with (I) the issue of the Debentures and (II) the execution of these presents.

7. ELIGIBILITY FOR DEBENTURES The debentures may be issued to:

(a) Residents in Sri Lanka

(i) Individuals who are resident in Sri Lanka and above 18 years of age.

(ii) Corporate bodies and societies registered/ incorporated/established in Sri Lanka and authorized to invest in the Debentures.

(iii) Approved Provident Funds, Trust Funds and Contributory Pension Schemes registered/established in Sri Lanka and authorized to invest in the Debentures.

B O C DEBENTURE PROSPECTUS 75 In the case of Approved Provident Funds, Trust Funds and Contributory Pension schemes the Application should be in the name of the Board of Management/Trustee of such Approved Provident Funds, Trust Funds and Contributory Pension Schemes in order to facilitate the opening of the CDS Accounts.

(b) Foreign investors

(i) Foreign institutional investors, corporate bodies incorporated outside Sri Lanka

(ii) Individuals above 18 years of age resident outside Sri Lanka

“Individuals resident outside Sri Lanka” shall have the same meaning as in the notice published under the Exchange Control Act in gazette no. 15007 dated 21/04/1972.

8. The Conditions attached to debentures

(a) The debentures as part of a series of Unsecured Subordinated Redeemable five year Debentures issued by Bank of Ceylon at an issue price of LKR 100 per debenture and rank pari passu with each other and without any preference or priority one over another except for interest rates and the frequency at which the interest is paid. These debentures will be listed on the main Board of the Debt Securities Trading System of the Colombo Stock Exchange (CSE).

(b) BOC shall keep a Register of Debentures and enter therein particulars of the issue and all changes of ownership of the Debentures as provided for in the said Trust Deed.

(c) BOC shall recognize and treat the registered debenture holder(s) as the owner hereof and as alone being entitled to receive and give effectual discharges for the monies hereby covered

(d) The Principal sum and interest (if any) under this Debenture shall be paid by crossed cheque sent by post to the registered address of the debenture holder or pay to a bank account or otherwise through electronic fund transfer mechanism recognized by banking systems as per information available with CDS or provided direct to BOC by the Debenture holders. In the case of joint debenture holders to the registered address of one of the said joint Debenture holders who is named first on the Register of debenture holders.

(e) Subject to the provisions contained in clause 11 below these debentures shall become immediately payable in any of the events described under clause 12 occurs.

(f) Repayment before maturity of the principal sum on the Debentures or any part thereof in any circumstance shall be subject to the prior approval of the Debenture holders of 3/4th of the face value of the Debenture outstanding at that time and the prior written consent of the Central Bank of Sri Lanka.

9. TRANSFER OF DEBENTURES

(a) These debentures shall be freely transferable and the registration of such transfer shall not be subject to any restriction, save and except to the extent required for compliance with statutory requirements.

B O C DEBENTURE PROSPECTUS 76 (b) The Debentures shall be transferable and transmittable through the CDS as long as the Debentures are listed in the CSE. Subject to the provisions contained herein BOC may register without assuming any liability any transfer of debentures, which are in accordance with the statutory requirements and rules and regulations in force for the time being as laid down by the CSE, SEC and the CDS.

(c) In the case of death of a Debenture holder

• The survivor where the deceased was a joint holder; and

• The executors or administrators of the deceased or where the administration of the estate of the deceased is in law not compulsory the heirs of the deceased where such Debenture holder was the sole or only surviving holder; shall be the only persons recognized by BOC as having any title to his/her debentures

(d) Any person becoming entitled to any Debenture in consequence of bankruptcy or winding up of any Debenture holder, upon producing proper evidence that he/she sustains the character in respect of which he/she proposes to act or his/her title as the Board of Directors of BOC thinks sufficient may in the discretion of the Board be substituted and accordingly registered as a Debenture holder in respect of such Debentures subject to the applicable laws rules and regulations of BOC, CDS, CSE and SEC.

(e) No change of ownership in contravention to these conditions will be recognized by BOC.

10. COVENANT TO OBSERVE PROVISIONS OF THE TRUST DEED AND SCHEDULES.

BOC hereby covenants with the Trustee to comply with the provisions contained herein and to perform and observe the same. It is expressly agreed between BOC and the Trustee that the Trustee shall not be liable for any loss or damage however caused by non-observance or non- compliance with the covenants contained in Clause 11 by BOC.

11. COVENANTS BY BOC

BOC hereby covenants with the Trustee for the benefit of the Debenture holders that, so long as any of the Debentures remain outstanding

(a) BOC shall at all times carry on and conduct its affairs in a proper and appropriate manner.

(b) BOC shall at all times keep such books of accounts as it is obliged to keep under the applicable laws and (to the extent not prohibited by law or otherwise by virtue of any duty of confidentiality) at any time after an event of Default shall have occurred or the Trustee shall have reasonable cause to substantiate that an Event of Default will occur, allow a reputed Audit Firm appointed by the Trustee in consultation with BOC free access to the same at all times during working hours and to discuss the same with the Directors and Officers of BOC, PROVIDED however that the Trustee and the Audit Firm shall, to the extent legally permitted, maintain confidentiality in respect of all the matters relating to BOC and its business and shall not use any information they acquire pursuant to these provisions for any other purpose.

(c) BOC shall give a Certificate in writing to the Trustee within 30 days from the date of expiry of every bi-annual period commencing from the date of allotment of the Debentures, signed by a Deputy General Manager and an Assistant General Manager of BOC, certifying that the interest on the Debentures has been paid to the Debenture holders in terms of the

B O C DEBENTURE PROSPECTUS 77 Clause above. In the event BOC defaults in submitting such Certificate the Trustee shall treat it as an Event of Default as set out in Clause 12(a) hereof.

(d) BOC shall at all times keep a correct Register of Debenture holders showing:

(i) The names and addresses (which shall be the Registered Addresses of the Debenture holders) of all Debenture holders.

(ii) The number, type, value and the date of issue of the Debentures held by each Debenture holder.

(iii) The date on which each Debenture holder became registered as the holder of any Debentures and the date on which such holder ceased to be so registered.

Provided however, BOC may treat the records maintained by the CDS as an accurate record of the details required herein above.

(e) BOC shall permit the,

(i) Trustee at all reasonable times without payment of any fee to inspect the Register of Debenture holders and to take copies thereof.

(ii) Debenture holders at all reasonable times without payment of any fee to inspect the Register of Debenture holders pertaining to such Debenture holder and to take copies thereof

(f) BOC shall forthwith upon BOC becoming aware of the happening of any and every such event as in mentioned in Clause 12(a) hereof give notice thereof in writing to the Trustee PROVIDED that BOC shall in any event issue a certificate to the Trustee within 30 days from the end of every bi-annual period commencing from the date of allotment of the Debentures signed by a Deputy General Manager and an Assistant General Manager, of BOC certifying that no event mentioned in paragraphs (iii) and (iv) of Clause 12(a) hereof has occurred during the previous Six (06) month period which would have resulted in the Debentures becoming payable in terms of the said Clause 12(a) . In the event BOC defaults in issuing such Certificates the Trustee shall treat it as an Event of Default as set out in Clause 12(a) hereof.

(g) BOC shall issue to the Trustee such certificates as the Trustee may require to carry out its obligations in terms of these presents PROVIDED such certificates can be issued by BOC without committing any breach of its duty of confidentiality to any person or entity.

(h) BOC shall reproduce the Trust Deed in full in the prospectus relating to the issue of these Debentures, and shall make available to any Debenture holder on request a certified copy of the Trust Deed upon payment of a fee of LKR 500/-.

(i) BOC shall send to the Colombo Stock Exchange an Interim Financial Statement prepared on a quarterly basis, no later than forty five days from the end of the first, second and third quarters and two months from the end of the fourth quarter.

(j) BOC shall send the Trustee all published financial information, which is normally provided to ordinary shareholders at the same time that it is sent to the shareholders.

(k) BOC shall not without the prior written approval of the Trustee which approval shall not be unreasonably with held declare or pay any dividend to its shareholders during any financial

B O C DEBENTURE PROSPECTUS 78 year unless it has paid all the dues to the Debenture holders upon the date on which the dividend is proposed to be declared or paid or has made satisfactory provisions therefor.

(l) BOC shall reimburse all reasonable expenses incurred by the Debenture holders/Trustee after an Event of Default has occurred in connection with:

(i) Preservation of BOC’s assets (whether then or thereafter existing)

(ii) Collection of amounts due under this Deed.

All such sums shall be reimbursed by BOC within 30 days from the date of notice of demand from the Debenture holders or the Trustee. Provided in any event that BOC shall give the Trustee immediate notice upon it being aware of the occurrence of an Event of Default and/or if BOC becomes aware that any condition of the Trust Deed cannot be fulfilled and in any such event, to forward to the Trustee, as and when required by the Trustee, a confirmation that no Event of Default has occurred or is continuing.

(m) BOC shall submit to the Trustee a certificate in writing that the principal amount has been paid to the Debenture Holders in accordance with the terms or conditions of the Debentures and provisions of the Trust Deed, immediately upon such payments become due.

(n) BOC shall immediately notify the Trustee in the event that BOC becomes aware of the occurrence of any of the following events that has caused or could cause:

(i) Any amount secured or payable under the Debenture to become immediately payable

(ii) Any event in the opinion of BOC that may lead to the acceleration of either the payment of interest or redemption.

(iii) Any other right or remedy under the terms and conditions of the Debentures or the provisions or covenants of the Trust Deed to become immediately enforceable.

(o) BOC shall submit to the Trustee within one month after the end of every quarter, a certificate that BOC has complied with each and all of the covenants In the event BOC defaults in submitting such Certificate the Trustee shall treat it as an Event of Default as set out in Clause 12(a) hereof.

The certificate should include:

(i) Whether or not the BOC has observed and performed all the covenants and obligations binding upon BOC respectively pursuant to the Trust Deed

(ii) Whether or not any limitation of liabilities or borrowing as prescribed by the BOC ordinance has been exceeded

(iii) whether any material trading or capital loss has been sustained by BOC

(iv) Whether or not any circumstances materially affecting BOC has occurred which adversely affect the Debentures

(v) Whether any contingent liabilities which will materially affect the Bank to meet the obligations under the Debentures have occurred and if so, the extent of such liabilities and whether or not any contingent liability has matured or is likely to mature within the next twelve months, which will materially affect the ability of the BOC to repay the Debentures,

B O C DEBENTURE PROSPECTUS 79

(vi) Whether or not there has been any change in any accounting method or method of valuation of assets or liabilities of BOC.

(vii) Whether or not any circumstances have arisen which render adherence to the existing method of valuation of assets or liabilities of BOC is Inappropriate.

(viii) Any substantial change in the nature of BOC’s business since the issue of the Debentures

(ix) Whether the BOC has assumed a liability of a related body Corporate during the quarter and details of the extent of the liability assumed during the quarter and the liability at the end of the quarter.

(x) The Certificate shall be made by a Deputy General Manager and an Assistant General Manager of BOC and specify the date on which the certificate was made and in the event the BOC fails to deliver the certificate to the Trustee the Trustee shall inform the Debenture holders of that fact.

(p) In the event that BOC creates a charge, BOC shall submit to the Trustee the written details of the charge within 21 days after it is created. If the amount to be advanced on the security of the charge is indeterminate, BOC shall submit to the Trustee the written details of the amount of each claim, within 5 market days from the date the claim is made.

(q) BOC shall at all times maintain records of all its published information and make them available for inspection by the Trustee and Debenture Holders

(r) the trustee shall be entitled to reimbursement of all reasonable costs, charges and expenses which the Trustee may incur in relation to the exercise of its duties hereunder from and out of the funds lying to the credit of the Trust hereby created.

12 EVENTS OF DEFAULT

(a) Subject to the provisions of Clause 12(b) below, the Debentures shall become immediately payable in any of the following events:

(i) If BOC defaults the payment of principal sum or any interest due on the whole or any part of the Debentures in accordance with the provisions contained in these presents.

(ii) If the Debentures cease to be listed in the Colombo Stock Exchange at any time between the time of issue and the date of Maturity, due to any default on the part of BOC.

(iii) If BOC stops or threatens to stop payment of its debts or ceases to carry on its business, which may lead to the winding up of BOC.

(iv) If any liquidation, bankruptcy, insolvency, receivership or similar action or proceeding is commenced against the BOC or an order shall be made or an effective Resolution shall be passed for the winding up of BOC.

(v) If BOC does not submit a Certificate to the Trustee as set out in Clause 11 (c ) above certifying that the interest has been paid to the Debenture holders in terms of the Trust Deed.

B O C DEBENTURE PROSPECTUS 80 (vi) If BOC does not submit a Certificate to the Trustee as set out in Clause 11 (f) above certifying that no event mentioned in paragraphs (iii) and (iv) of this clause hereof has occurred during the previous Six (06) month period, which would have resulted in the Debentures becoming payable in terms of this Clause.

(vii) If BOC does not submit a Certificate to the Trustee as set out in Clause 11 (o) above certifying that all of the covenants set out in clause 11 of the Trust Deed have been fully complied with.

(viii) If BOC commits a breach of any of the other covenants or provisions herein contained and on its part to be observed and performed provided however that the Trustee shall give BOC up to 30 days notice before declaring such breach to be an event of default.

(ix) Where any other indebtedness of BOC becomes due and payable prior to its stated maturity or where security created for any other indebtedness becomes enforceable.

(x) Where there is revocation, withholding or modification of a license, authorization or approval that impairs or prejudices BOC’s ability to comply with the terms and conditions of the Debentures or the provisions of the Trust Deed or any other document relating to the issue, offer or invitation in respect of the Debentures.

(xi) Where any mortgage, charge, pledge, lien or any other encumbrance, present or future is created or assumed by BOC contrary to the terms or conditions of the Debentures and the provisions of the Trust Deed.

(xii) In any of the events above, the Trustee at its discretion may, and if so requested in writing by the Debenture holders of at least one fifth in nominal value of the Debenture outstanding or if so directed by a Special Resolution of the holders, shall give notice to the BOC that the Debentures become immediately due and payable at their principal amount, together with accrued interest as provided in the Trust Deed.

(b) Repayment before the maturity of the principal sum on the Debentures or any part thereof in any circumstance shall be subject to the prior approval of the Debenture holders of 3/4th of the face value of the Debentures outstanding at that time and the prior written consent of the Central Bank of Sri Lanka.

13. ENFORCEMENT OF OBLIGATIONS

At any time after the Debentures shall have become repayable on maturity or otherwise under any provision of these Presents, the trustee may at its discretion, or upon the request in writing of the Debenture holders of at least one fifth (1/5) of the face value of the Debentures outstanding, and in the event that there is no Trustee, the Debenture holder s pursuant to an Extra Ordinary Resolution and without any further notice, may institute such proceedings as they think fit to enforce repayment obligations of BOC under these Presents.

Provided that nothing in these Presents shall preclude a Debenture holder from initiating legal action on his own right.

B O C DEBENTURE PROSPECTUS 81 14. APPLICATION OF MONIES RECEIVED BY THE TRUSTEE

In the event of the Trustee recovering or receiving any monies from BOC consequent to any action taken by the Trustee against BOC the Trustee shall apply such monies,

(a) In the first place in paying or providing for the payment or satisfaction of the costs charges expenses and liabilities incurred in or about the execution of the trust constituted by these presents (including remuneration of the Trustee)

(b) Secondly, in or towards payment to the Debenture holders of all arrears of interest remaining unpaid on the Debentures held by them respectively.

(c) Thirdly in or towards payment to the debenture holders of all principal monies due in respect of the Debentures held by them respectively and

(d) Finally, the Trustee shall pay the surplus (if any) of such monies to BOC or its assigns, PROVIDED that at the discretion of the Trustee payments may be made on account of principal monies before any part of the interest or the whole of the interest on the Debentures have been paid but such alteration in the order of payment of the principal monies and interest shall not prejudice the right of the Debenture holder to receive the full amount to which they would have been entitled if the ordinary order of payment had been observed. Any payment to the Debenture holders under this clause shall be made pari passu in proportion to the Debentures held by them respectively.

15. MANNER OF PAYMENT & ENFORCEMENT OF DEBENTURES

Any payment to be made in respect of the Debentures by BOC or the Trustee may be made in the manner provided in this trust Deed and any payments so made shall be good discharge pro tanto to BOC or the Trustee, as the case may be. Any payment of interest in respect of a Debenture shall extinguish any claim which may arise directly or indirectly in respect of such interest from a Debenture holder.

Upon any payment under the provisions of Clause 14 the Debentures in respect of which such payment is made in full shall be produced to the Trustee through whom such payment is made and BOC shall call such Debentures to be cancelled and shall certify or procure the certification of such cancellation.

16. REMUNERATION OF THE TRUSTEE

BOC shall pay the Trustee during the continuation of these presents a sum of Sri Lankan Rupees Three Hundred Thousand (LKR 300,000/-) per annum plus the applicable Government Taxes on account of remuneration for the Trustee for its services under these presents. The said fee shall be paid at the expiry of every one (01) year period commencing from the date of allotment of the Debentures.

Further, the trustee shall be entitled to reimbursement of all reasonable costs, charges and expenses which the Trustee may incur in relation to the exercise of its duties hereunder from and out of the funds lying to the credit of the Trust hereby created.

17. POWERS AND DUTIES OF THE TRUSTEE

Without prejudice to the powers and reliefs conferred on Trustees by general law by these presents or by the laws relating to the Trusts the trustee shall have the following powers:-

(a) The Trustee is duly qualified to act as the Trustee

B O C DEBENTURE PROSPECTUS 82 (b) The Trustee may in relation to these presents act on the opinion or advice of or a certificate or any information obtained from any lawyer, banker, valuer, surveyor, broker, auctioneer, auditor, accountant or other expert (whether obtained by the Trustee or BOC) and shall not be responsible for any loss occasioned by acting on any such opinion, advice, certificate or information and that the Trustee shall not be liable for acting on any opinion, advice, certificate or information purporting to be so conveyed although the same shall contain some error as long as the Trustee has acted in good faith, if it has reasonable grounds for believing that such auditor of officer was competent to give or make such certificate, report or statement.

(c) The Trustee shall as regards all the trusts, powers authorities and discretion vested in it by these presents or by operation of law, have absolute and uncontrolled discretion as to the exercise or non-exercise thereof and the Trustee shall not be responsible for any loss, costs, damages, expenses or inconvenience that may result from the exercise or non exercise thereof but whether the Trustee is under the provisions of these presents bound to act at the request or direction of the Debenture holders the Trustee shall nevertheless not be bound unless first indemnified to its satisfaction against all actions, proceedings, claims and demands to which it may render itself liable and all costs, charges, damages, expenses and liabilities which it may incur by so doing. However nothing in this Clause shall preclude a Debenture holder from filing action on his own if he so wishes;

(d) To summon any meeting of the debenture holders in accordance with the provisions of Clause 21 hereof.

(e) Where an event of default has occurred and is continuing to occur, the Trustee shall exercise such right and powers vested in it by the Trust Deed and use a reasonable degree of skill and diligence in exercising such powers

(f) In case of default by BOC, the Trustee may but shall not be bound unless directed either by an instrument in writing signed by the Debenture holders of at least Seventy Five per centum (75%) of the face value of the Debentures for the time being outstanding or in accordance with a Special Resolution passed by the debenture holders in accordance with Clause 21 of these presents, to waive such terms and conditions as they shall deem expedient any of the covenants and provisions contained in these the part of BOC to be performed and observed.

(g) The Trustee as between itself and the Debenture holders shall have full power to determine all questions and doubts arising in relation to any of the provisions of these presents and every such determination, whether made upon a question actually raised or implied in the acts or proceedings of the Trustee. If a debenture holder is not satisfied with the said determination provided by the Trustee then the Debenture holder may challenge such determination in a court of law.

PROVIDED

• Such debenture holder has the written consent of the debenture holders of at least Ten per centum (10%) of the face value of Debentures for the time being outstanding.

• Such application to Court of law is instituted within Thirty (30) days of notification of such determination to the Debenture holders.

(h) Trustee is not liable for anything done or omitted to be done in accordance with a direction given to the Trustee by the Debenture holders at any meeting called

(i) The Trustee may, in the conduct of the trusts of these presents, instead of acting through its staff, employ and pay a professional person, to transact or conduct, or concur in transacting or conducting, any business and to do or concur in doing all acts required to be done by the Trustee.

B O C DEBENTURE PROSPECTUS 83 (j) The Trustee shall not be liable to BOC or any debenture holder by reason of having recognized or treated as a Debenture holder any person subsequently found not to be so entitled to be recognized or treated:

(k) Whenever in these presents the Trustee is required in connection with any exercise of its powers, trusts, authorities or discretions to have regard to the interests of the Debenture holders, it shall have regard to the interests of the Debenture holders as a class and in particular, but without prejudice to the generality of the foregoing, shall not be obliged to have regard to the consequences of such exercise for any individual Debenture holders resulting from his or its being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory, and

(l) The Trustee may, accept a certificate signed by A Deputy General Manager and an Assistant General Manager of BOC certifying that all Debentures have been redeemed or relating to any other matter primarily in the knowledge of BOC as sufficient evidence thereof and such Certificate shall be a complete protection to the Trustee who acts thereon.

(m) The Trustee shall give notice in writing to the Debenture holders as and when the Trustee is notified by BOC of any occurrence mentioned in Clause 12(a) or any condition of the Trust Deed which cannot be fulfilled.

PROVIDED nevertheless that none of the provisions of these presents shall in any case in which the Trustee has failed to show the degree of care and diligence required by it, having regard to the provisions of these presents, conferring on the Trustee the powers, authorities or discretions, relieve or indemnify the Trustee against any liabilities which by virtue of any rule of law would otherwise attach to it in respect of any negligence , default , breach of duty or breach of trust of which it may be guilty in relation to its duties under these presents.

PROVIDED FURTHER that it shall exercise reasonable diligence to ascertain whether the BOC has committed any breach of the terms and conditions of the Debentures or provisions of the Trust Deed or whether an event of default has occurred or is continuing to occur, on perusal of the documents submitted in terms of the covenants set out in the Trust Deed.

The Trustee’s role shall be passive prior to the Trustee being notified of any occurrence of an Event of Default and the Trustee shall not have any other duty apart from those expressly stated herein.

For the avoidance of doubt, the Trustee shall not be considered, nor have any responsibility or liability, as a lender or borrower. The obligation to repay any debts owing to Debenture holders shall remain with the BOC and the Trustee shall not be liable nor responsible for any act, omission or default of the BOC nor any other party. The Trustee shall also not be liable for any loss due to any cause beyond its control, nor to take any action in relation to any event of default, which it is not aware of, nor for consequential or indirect loss, nor for market loss, risk or movement affecting any investments. The BOC shall fully indemnify the Trustee for any liability, claim, expense, damage or loss that the Trustee may incur in connection with this Trust Deed, save where such liability or loss is due solely to the negligence or willful misconduct of the Trustee. The Trustee shall be entitled to rely and act on any document or instrument which it has received from BOC and to treat it as authentic and authorized unless the Trustee has actual notice otherwise. In performing its duties, the Trustee shall maintain the confidentiality of confidential information received by it, but the Trustee may disclose any such information to a branch, head office, subsidiary or agent of the Trustee on a need to know basis in connection with this Trust Deed, to any government body or court and/or to any party in accordance with the requirement of a law, regulatory directive or regulation.

B O C DEBENTURE PROSPECTUS 84 (n) The Trustee shall ensure that all documents required to be submitted by BOC in terms of the covenants set out in the Trust Deed are forwarded in a timely manner.

EXEMPTIONS AND INDEMNIFICATIONS OF TRUSTEE FROM LIABILITY

Terms and conditions of the Debentures and provisons in the Trust Deed or a term of a contract with the Debenture Holdsers secured by the Trust Deed, shall be void in so far as the term or provision would have the effect of indemnifying the Trustee against that liablility, unless the term or provision:

• releases the Trustee from liability for something done or omitted to be done before the release is given; or • enables a meeting of debenture holders to approve the release of the Trustee from liability for something done or omitted to be done before the release is given.

Such release will be effective when approved by Debenture holders if the Debenture holders who vote for the resolution represent 75% of the nominal value of the Debentures

18 APPOINTMENT AND REMOVAL OF THE TRUSTEE

(a) Subject to the provisions of this Trust Deed, the power of appointing new trustees shall be vested in BOC, provided further that BOC shall obtain the approval of Debenture Holders holding not less than ten per centum (10%) of the nominal value of the Debentures for the time being outstanding prior to the appointment of the new trustee. Notice of such appointment shall be given to the Debenture Holders within thirty (30) days of such appointment by an advertisement published in national newspapers in all three languages (Sinhala, Tamil and English) of BOC’s choice circulating in Sri Lanka.

(b) In the event BOC does not or cannot exercise its power to appoint a new trustee and there being no new trustee appointed as of thirty (30) days before the removal/retirement of the Trustee taking effect in accordance with the terms hereof, the Debenture Holders of not less than 20% of the nominal value of the Debentures in issue may convene a meeting to appoint a new trustee by an ordinary resolution.

(c) Any removal of a Trustee and the subsequent appointment of a replacement Trustee by the BOC shall be with the consent of 75% majority of Debenture Holders.

(d) In the event of the Debenture Holders not being satisfied with the Trustee, they have the right to remove the Trustee by way of a special resolution passed at a General Meeting convened under Clause 21 hereof.

(e) BOC shall be notified of any removal of the Trustee and subsequent appointment of a replacement Trustee by the Debenture holders.

(f) BOC shall take reasonable steps to replace the Trustee as soon as practicable after becoming aware that:

(i) The Trustee has ceased to exist

(ii) The Trustee is in the situation of conflict of interests

(iii) The Trustee has ceased to perform its function as a Trustee

B O C DEBENTURE PROSPECTUS 85 (iv) The Trustee is in the situation of unsuitability and does not eliminate such situation within 90 days, after them ascertaining or of them been informed that the Trustee has such situation.

(g) In the event the Trustee discovers that it is not eligible to be appointed or act as Trustee, the Trustee shall give notice in writing to BOC regarding the same.

19 COMPLIANCE OF MAJORITY OF TRUSTEES

If there be more than one Trustee under these presents the Trustees shall with majority consent exercise all or any of the trust’s powers and discretions vested in the Trustees generally under any Clause of these presents.

20 RETIREMENT OF TRUSTEE

In the event of the Trustee, in its sole and absolute discretion, desiring to retire, the Trustee shall give not less than 90 days notice to BOC in writing to that effect, and BOC shall thereupon appoint a new Trustee in accordance with Clause 18 of these presents. The Trustee shall continue in its capacity as Trustee until such time a new Trustee is appointed.

In the event of such a retirement, the Trustee at its cost shall publish a notice to this effect in Newspapers in all three languages (Sinhala, Tamil and English) of its choice circulating in Sri Lanka and such notice shall be deemed to be sufficient notice to the Debenture holders notwithstanding anything to the contrary herein contained.

21 MEETINGS OF DEBENTURE HOLDERS

(a) The Trustee shall call a meeting/cause a meeting to be called of Debenture holders with notice to BOC and all Debenture holders on a requisition being received in writing signed by the Debenture holder (s) of at least 1/5th of the face value of the Debentures for the time being outstanding or if requested by BOC. Furthermore, BOC is entitled to convene a meeting with the consent of at least one-tenth in nominal value of the Debentures outstanding.

(b) Not less than 21 days notice shall be given of a meeting for the purpose of passing a Resolution.

(c) The quorum for the meeting (other than adjourned meeting) for the purpose of passing a Special Resolution shall be the Debenture holders representing 10% of the face value of the Debentures for the time being outstanding, provided however, that the quorum for passing an Extraordinary Resolution should be the holders of a clear majority in face value of the outstanding Debentures present in person or by proxy or by attorney.

(d) If such a quorum cannot be obtained, such meeting shall be adjourned for not less than fourteen (14) days in which event notice of adjourned meeting shall be sent to every Debenture holder and shall state in such notice that if a quorum as above defined shall not be present at the adjourned meeting the Debenture holders then present shall form a quorum.

(e) The necessary majority for passing a Special Resolution shall not be less than 3/4ths of the persons voting thereat on a show of hands and if a poll is demanded then not less than 3/4ths of the votes given on such poll.

(f) On a poll, each debenture holder will be entitled to one vote for each unit of Debenture held by such person.

B O C DEBENTURE PROSPECTUS 86 (g) A proxy need not be a holder of the Debentures.

(h) The Trustee shall be the chairman of any meeting of the Debenture holders and shall appoint a person or body to act as a Secretary of such meeting and a copy of a resolution certified by the Trustee and such Secretary shall deem to be conclusive evidence that such Resolution has been duly adopted.

(i) In the event BOC fails to remedy any breach of terms and conditions of the Debentures or the provisions/covenants of the Trust Deed, the Trustee shall: • Call a meeting of the Debenture Holders with notice to BOC • Inform the Debenture Holders of the failure at the meeting; and • Submit proposals for the protection of the Debenture holder’s interests or call for proposals from the Debenture Holders at the meeting, as the Trustee considers necessary or appropriate and obtain the directions

22 MODIFICATION OF THE TRUST DEED

The Trustee and BOC may modify by mutual agreement to these presents provided such modifications are of a routine nature and not detrimental to the interests of the Debenture holders. Provided however that any modification to these presents shall only be made with the consent of the Debenture holders of at least 3/4ths of the face value of the Debentures for the time being outstanding.

23 NOTICES

Any notice or demand to BOC, Debenture holder(s) or the Trustee required to be given, made or served for any purpose hereof shall be given, made or served by sending the same by prepaid registered post in the case of BOC or Trustee and by prepaid ordinary mail in the case of Debenture holder(s), telegrams, cablegrams, telex or by facsimile transmission or by delivering it by hand to BOC. Debenture holders or the Trustee as the case may be, in the case of BOC or the Trustee at the address shown in this Deed and in the case of Debenture holder(s) to the address which is recorded in CDS for the purpose of this Clause, and any notice sent by post as provided in this Clause shall be deemed to have been given, made or served 72 hours after dispatch and any notice sent by telegrams, cablegrams, telex or by facsimile transmission as provided in the clause shall be deemed to have been given, made or served at the time of dispatch and in proving the giving, making or service of the same it shall be sufficient to prove, in the case of a letter, that such letter was properly stamped, addressed and placed in the post and, in the case of a telegrams, cablegrams, telex or by facsimile transmission that such telegrams, cablegrams, telex or by facsimile transmission was duly dispatched and received in the readable and understandable condition.

The Trustee shall at any time be entitled to give notice of any meeting or make any communication to the Debenture holders by notice published in Newspapers in all three languages (Sinhala, Tamil and English) of its choice circulating in Sri Lanka and such notice will notwithstanding anything to the contrary herein contained be deemed to be sufficient notice to the Debenture holders including the provisions of the above clause.

24 MISCELLANEOUS

(a) Nothing in the provisions of these presents shall require disclosure to the Trustee by BOC of any information as to the affairs of any of its customers except,

(i) when required to do so by a Court of Law, or

B O C DEBENTURE PROSPECTUS 87 (ii) in order to comply with any of the provisions of any Law.

PROVIDED however that BOC shall be obliged to furnish to the Audit Firm referred to in the clause 11(b) information in respect of BOC’s books of accounts.

(b) In the event of any inconsistency between these provisions and any rules, regulations or directions of the Securities & Exchange Commission of Sri Lanka, or the Colombo Stock Exchange such rules, regulations or directions shall prevail.

IN WITNESS WHEREOF the authorized signatures of the Bank of Ceylon and Deutsche Bank AG, Colombo Branch have set their hands hereunto and to three others of the same tenor and date as these presents at Colombo on the day herein before mentioned.

Signed for and on behalf of the Bank of Ceylon

By its duly authorized representatives

Pitumpe Appuhamilage Lionel (Deputy General Manager – Investments & Human Resources)

Hettiarachige Sunil Jayawardana (Asst General Manager-Investment Operations) of the Bank of Ceylon

Witnesses:

1. Sgd

2. Sgd

Signed for and on behalf of the Deutsche Bank AG Colombo Branch By its duly authorized representatives and attorneys Sellapperumage Ruwanthi Prisca Shirlene Fernando and Tyronne Hannan of the said Deutsche Bank AG, Colombo branch

Witnesses:

1. Sgd

2. Sgd

B O C DEBENTURE PROSPECTUS 88 Annexure III

B O C DEBENTURE PROSPECTUS 89 B O C DEBENTURE PROSPECTUS 90 Annexure IV

BOC BRANCH NETWORK

CENTRAL PROVINCE Valachchenai 065-2257708 Alawathugoda 066-2242327 Dambulla 066-2285270 NORTH CENTRAL PROVINCE Digana 081-2376928 Anuradhapura 025-2222715 Galagedara 081-2461214 Anuradhapura Bazaar 025-2222160 Galaha 081-2467213 Anuradhapura N'Town 025-2223685 Galewala 066-2289262 Aralaganwila 066-2279257 Gampola 081-2350108 Bakamoona 066-2256680 Gelioya 081-2310214 Dehiattahandiya 027-2250287 Hatton 051-2222015 Eppawala 025-2249180 Kandapola 052-2229636 Galenbindunuwewa 025-2258280 Kandy 081-2223697 Galkiriyagama 025-2263062 Kandy 2nd 081-2234292 Galnewa 025-2269580 Katugastota 081-4471640 Hingurakgoda 027-2247642 Madawala 081-2476214 Horawpothana 025-2278416 Maskeliya 052-2277280 Ipalogama 025-2264279 Matale 066-2222262 Jayanthipura 027-2222266 Naula 066-2246280 Kaduruwela 027-2222416 Nawalapitiya 054-2222233 Kahatagasdigiliya 025-2247480 Nuwara Eliya 052-2224047 Kebithigollawa 025-2298680 Padiyapelella 052-2287035 Kekirawa 025-2264280 Pallepola 066-2247272 Madatugama 025-2264283 Peradeniya 081-4475283 Medawachchiya 025-2245683 Pilimatalawa 081-5740197 Medirigiriya 027-2248337 Pundaluoya 051-2233205 Meegalewa 060-2855054 Pussellawa 081-2478664 Mihintale 025-2266503 Rattota 066-2255280 Nochchiyagama 025-2257880 Rikillagaskada 081-2365314 Padavi Parakramapura 025-2254018 Talatuoya 081-2404334 Pemaduwa 025-2223307 Talawakelle 052-2258280 Polonnaruwa New Town 027-2223009 Teldeniya 081-2376280 Rambewa 025-2066555 Udadumbara 081-2402317 Sewagama 027-2222585 Walapana 052-2279180 Thambuttegama 025-2276280 Wattegama 081-2475838 Tirappana 025-2223352 Yatawatta 066-2221084 NORTHERN PROVINCE Atchuvely 021-2263402 EASTERN PROVINCE Chavakachcheri 021-2227396 Akkaraipattu 067-2279242 Chunnakam 021-2214228 Ampara 063-2222981 Jaffna 021-2224018 Batticaloa 065-2227410 Jaffna 2nd 021-2226033 Chenkalady 065-2240492 Kankesanthurai 060-2212176 Hingurana 063-2240037 Karainagar 021-2228278 Kalmunai 067-2229340 Kayts 021-2225274 Kaluwanchikudy 065-2250012 Kilinochchi 024-3248004 Kantale 026-2234361 Kopai 021-2230084 Kattankudy 065-2246613 Manipay 021-2255188 Kinniya 026-2236270 Mankulam 071-2348783 Muttur 026-2238327 Mannar 023-2232337 Nintavur 067-2250039 Mullaitivu 021-2228941 Pottuvil 063-2248021 Nelliady 021-2263260 Sammanthurai 067-2260054 Point Pedro 021-2263570 Trincomalee 026-2223084 Thirunelveli 021-2223948 Trincomalee Bazaar 026-2223880 Vavuniya 024-2222141

B O C DEBENTURE PROSPECTUS 91 Ratnapura 045-2222100 NORTH WESTERN PROVINCE Ratnapura Bazaar 045-2222710 Alawwa 037-2278180 Ruwanwella 036-2268005 Anamaduwa 032-2263280 Warakapola 035-2267258 Bingiriya 032-2246107 Yatiyantota 036-2271280 Chilaw 032-2223401 Dankotuwa 031-2258180 SOUTHERN PROVINCE Dummalsuriya 032-2240690 Ahungalla 091-2264107 Galgamuwa 037-2253080 Akuressa 041-2283280 Giriulla 037-2288080 Ambalangoda 091-2256307 Hettipola 037-2291080 Ambalantota 047-2223280 Hiripitiya 037-2264080 Angunakolapellasa 047-2229120 Ibbagamuwa 037-2259970 Baddegama 091-2292280 Kalpitiya 032-2260702 Batapola 091-2260405 Kobeigana 037-2293101 Beliatta 047-2243274 Kuliyapitiya 037-2281280 Bentota 034-2275283 Kurunegala 037-2233880 Deiyandara 041-2268598 Kurunegala 2nd 037-2222115 Deniyaya 041-2273870 Madampe 032-2247680 Devinuwara 041-2222247 Madurankuliya 032-2268003 Dickwella 041-2255280 Maho 037-2275280 Elpitiya 091-2291280 Mawathagama 037-2299259 Galle 091-2232269 Melsiripura 037-2250165 Galle Bazaar 091-2234478 Narammala 037-2248771 Hakmana 041-2286280 Nattandiya 032-2254280 Hambantota 047-2220180 Nikaweratiya 037-2260280 Hikkakaduwa 091-2277813 Norochcholei 032-2268555 Imaduwa 091-2286030 Pannala 037-2246080 Kamburupitiya 041-2292213 Polgahawela 037-2243280 Kataragama 047-2235280 Pothuhera 037-2237619 Koggala 091-2283380 Polpitigama 037-2273103 Matara 041-2229280 Puttalam 032-2265209 Matara Bazaar 041-2223920 Ridigama 037-2252080 Middeniya 047-2247280 Waikkal 031-2277280 Neluwa 091-2237530 Wariyapola 037-2267348 Pitigala 091-2291205 Welpalla 031-5677766 Ruhunu Campus 041-2222681 Wennappuwa 031-2255280 Talgaswela 091-2296480 Tangalle 047-2240280 Tawalama 091-2224459 SABARAGAMUWA PROVINCE Tissamaharama 047-2237280 Aranayake 035-2258016 Urubokka 041-2272280 Avissawella 036-2222099 Walasmulla 047-2245280 Ayagama 045-2250080 Weeraketiya 047-2246280 Balangoda 045-2288390 Weligama 041-2250280 Dehiowita 036-2222580 Yakkalamulla 091-2286080 Deraniyagala 036-2249280 Eheliyagoda 036-2259571 UVA PROVINCE Embilipitiya 047-2230980 Badalkumubura 055-2250279 Hemmathagama 035-2257280 Badulla 055-2222980 Kahawatta 045-2270180 Balleketuwa 055-2285160 Kalawana 045-2255280 Bandarawela 057-2230014 Kegalle 035-2230600 Bibile 055-2265480 Kegalle Bazaar 035-2222550 Buttala 055-2273980 Kuruwita 045-2262581 Diyatalawa 057-2229092 Mawanella 035-2247915 Ettampitiya 055-2294080 Nivitigala 045-2279280 Girandurukotte 027-2254380 Pelmadulla 045-2274380 Haldumulla 057-2268271 Rakwana 045-2246280 Haputale 057-2268080 Rambukkana 035-2265280 Hali-Ella 055-2295080

B O C DEBENTURE PROSPECTUS 92 Koslanda 057-2257780 Lunugala 055-2263980 WESTERN PROVINCE SOUTH Lunuwatta 057-2232742 Agalawatta 034-2247480 Mahiyangana 055-2258195 Aluthgama 034-2271413 Medagama 055-2265580 Athurugiriya 011-2561378 Meegahakiwula 055-2245707 Bambalapitiya 011-5368439 Moneragala 055-2276180 Bandaragama 038-2290280 Padiyatalawa 063-2246003 Battaramulla 011-2862575 Passara 055-2288280 Beruwala 034-2279899 Siyambalanduwa 072-2243900 Bulathsinhala 034-2283116 Thanamalwila 047-2234080 Dehiwala 011-2738335 Uva – Paranagama 057-2246010 Dharga Town 034-2275411 Welimada 057-2245984 Dodangoda 034-2281628 Wellawaya 055-2274880 Hanwella 036-2253520 Homagama 011-2855059 Horana 034-2260152 WESTERN PROVINCE NORTH Hyde Park 011-2687483 Andiambalama 011-2258184 Independent Square 011-2678073 Biyagama 011-5558970 Ingiriya 034-2269280 Borella 011-4612617 Kaduwela 011-2537999 Borella 2nd 011-2685140 Kalutura 034-2229804 Central Bus Stand 011-5365118 Katubedde 011-2625438 Central Super Market 011-2446475 Kollupitiya 011-4795036 City Office 011-2329413 Kollupitiya 2nd 011-2574581 Dematagoda 011-5335594 Kottawa 011-2783313 Divulupitiya 031-2246280 Maharagama 011-2746146 Fifth City 011-2449646 Malabe 011-2760753 Gampaha 033-2226051 Matugama 034-2243590 Grandpass 011-2448202 Milagiriya 011-2504627 Hulftsdorp 011-2424843 Moratuwa 011-2646165 Ja-Ela 011-5342311 Mount Lavinia 011-2721060 Kadawatha 011-2920687 Nugegoda 011-2821287 2nd City Kadawatha 011-2922195 Padukka 011-2859112 Kandana 011-2232398 Panadura 038-2243323 Katunayake IPZ 011-2259583 Panadura Bazaar 038-2243324 Kiribathgoda 011-2911304 Parliament 011-2777309 Kirindiwela 033-2267280 Pelawatta 011-2785550 Kolonnawa 011-5557286 Piliyandala 011-2614165 Kotahena 011-2448632 Rajagiriya 011-5368641 Lake House 011-5363723 Ratmalana 011-2719735 Lake View 011-5359693 Thimbirigasyaya 011-2594538 Main Street 011-2447198 Union Place 011-2314757 Maradana 011-2689403 Visakha 011-2556226 Minuwangoda 011-2295214 Wadduwa 038-2232538 Mirigama 033-2275975 Wellawatta 011-2588941 Narahenpita 011-2368514 Negombo 031-2224711 CORPORATE BRANCHES Negombo Bazaar 031-2231297 Corporate 011-2345428 Nittambuwa 033-2287280 Corporate 2nd 011-2394584 Peliyagoda 011-2945078 Metropolitan 011-2329419 Personal 011-2446821 Pettah 011-2393544 Pugoda 011-2404821 Taprobane 011-2422267 Ragama 011-2960291 Off Shore Banking Unit 011-2389122 Regent Street 011-2697035 Seeduwa 011-2259590 OVERSEAS BRANCHES Veyangoda 033-2287279 Chennai 009144-26423501 Wattala 011-5368394 009144-26420972 Welisara 011-2958485 Male 00960-3323045 Yakkala 033-2233591 00960-3323046

B O C DEBENTURE PROSPECTUS 93 Annexure V MEMBERS AND TRADING MEMBERS OF THE COLOMBO STOCK EXCHANGE

MEMBERS – DEBT & EQUITY

• Bartleet Religare Securities (Pvt) Ltd., Level “G”, “Bartleet House” 65, Braybrooke Place, Colombo 2. Tel.5220200, Fax: 2434985 E-mail: [email protected] Kandy Branch Tel: 081-5622779, 081-5622781, Matara Branch Tel: 041-5410005-6, 041-2232985, Negombo Branch Tel: 031-5677838, 031-2221550, Jaffna Branch Tel: 021-2221800,

• Acuity Stockbrokers (Pvt) Ltd., Level 6, Acuity House, 53, Dharmapala Mawatha, Colombo 3. Tel.2206206 Fax: 2206298/9 E-mail: [email protected], Kandy Branch Tel: 081-2205609, 081-2203623, Fax: 081-4470257

• John Keells Stockbrokers (Pvt) Ltd., 130, Glennie Street, Colombo 2. Tel. 2306250, 2342066-7, 2446694- 5, 2338066-7, 2439047-8, 4710721-4 Fax: 2342068, 2326863 E-mail: [email protected], website: www.jksb.com, www.jksbonline.com, www.jksb.keells.lk

• Asha Phillip Securities Ltd., Level 4, “Millennium House”, 46/58, Navam Mawatha, Colombo 2. Tel. 2429100, Fax: 2429199 E-mail: [email protected], Matara Branch Tel: 041-2223240, 041-2223940, Kandy Branch Tel: 081-4474118, 081-2204750, Kurunegala Branch Tel: 037-4691844, Fax: 037-2234777, Negombo Branch Tel: 031-2227474, Fax: 031-2227474, Jaffna Branch Tel: 021-2221614

• Assetline Securities (Pvt) Ltd., 282, Kaduwela Road, Battaramulla. Tel. 4700111, 2307366 Fax: 4700112 website: www.dpgsonline.com E-mail: [email protected] Matara Branch Tel: 041-4390766-7 Kandy Branch Tel: 081-4481638/9, 081-4474233, Fax: 081-2202104, Kurunegala Branch Tel: 037-4690384, 037-2222808, Fax: 037-4690095

• Somerville Stockbrokers (Pvt) Ltd., 137, Vauxhall Street, Colombo 2. Tel. 2329201-5, 2332827, 2338292-3 Fax: 2338291, E-Mail: [email protected]

• J B Securities (Pvt) Ltd., 150, St. Joseph Street, Colombo 14. Tel. 2490900, 077-2490900, 077-2490901 Fax: 2430070, 2446085, 2447875 E-mail: [email protected]

• Lanka Securities (Pvt) Ltd., 228/2, Galle Road, Colombo 4. Tel. 4706757, 2554942 Fax: 4706767 website: www.lsl.lk E-mail: [email protected] Kandy Branch Tel: 081-4939206, Fax: 081-4481772, Kurunegala Branch Tel: 037-4934067, Fax: 037-4692105,Negombo Branch Tel: 031-4929671, Fax: 031-4874736, Jaffna Branch Tel: 021-4590460, 021-4925148, Fax: 021-4590460

• Asia Securities (Pvt) Ltd., Level 21, West Tower, World Trade Centre, Echelon Square, Colombo 1. Tel. 2423905, 5320000 Fax: 2336018 E-mail: [email protected], Kurunegala Branch Tel. 0375642717, 0375628844,0375643580

• Nation Lanka Equities (Pvt) Ltd., Ceylinco House, Level 9, 69, Janadhipathi Mawatha, Colombo 1. Tel. 4- 714300, 4-714388, 4-714389, 0777-891871, 0777-896064 Fax: 2387228 E-mail: [email protected], web site: www.ecsbl.com, Kurunegala Branch Tel: 037-2220297, 037-2234633 Fax: 037-2234634 Kandy Branch, 127A-2/1 CDC Complex D.S. Senanayake Veediya, Kandy.

• Capital TRUST Securities (Pvt) Ltd., 42, Sir Mohamed Macan Markar Mawatha, Colombo 3. Tel: 5-335225, Fax: 5-365725 E-mail: [email protected], website: www.capitaltrust.lk. Kandy Branch Tel: 081- 5626839, Fax: 081-5675423, Kurunegala Branch Tel: 037-5671403, 037-5677939, Fax: 037-5264264, Matara Branch Tel: 041-5623200, 041-5623202, Negombo Branch Tel: 031-5675291-4, Fax: 031-2227894, Jaffna Branch Tel: 021-5677001-2, Fax: 021-2220347

• S C Securities (Pvt) Ltd., 2nd Floor, 55 D.R. Wijewardena Mawatha, Colombo 10. Tel. 4711000, Fax: 2394405 E-mail: [email protected] Matara Branch Tel: 041-2220090, 041-4390545, Kandy Branch Tel: 081- 4474299

• CT Smith Stockbrokers (Pvt) Ltd., 4-14, Majestic City, 10, Station Road, Colombo 4. Tel. 2552290 -4 Fax: 2552289 E-mail: [email protected]

B O C DEBENTURE PROSPECTUS 94 • D N H Financial (Pvt) Ltd., Level 16, West Tower, World Trade Centre, Colombo 1. Tel. 5700777 Fax: 5736264, E-mail: [email protected], Negombo Branch Tel: 031-5676451

• N D B Stockbrokers (Pvt) Ltd., 5th Floor, NDB Building, 40, Navam Mawatha, Colombo 2. Tel. 2314170-8 Fax: 2314180, E-mail: [email protected]

TRADING MEMBERS – DEBT & EQUITY

• Capital Alliance Securities (Pvt) Ltd., Level 5, “Millennium House”, 46/58 Navam Mawatha, Colombo 2. Tel: 2317777 Fax: 2317788, Matara Branch Tel: 041-4390610, 041-2220085, Negombo Branch Tel: 031- 2227843-4, Fax: 031-2227844, Kurunegala Branch Tel: 037-2222034-5, Fax: 037-2222034

• SMB Securities (Pvt) Ltd., 47, Dharmapala Mawatha, Colombo 3. Tel: 5232091 Fax: 2339292 E-mail: [email protected] Jaffna Branch Tel: 071-8736499

• First Guardian Equities (Pvt) Ltd., 32nd Floor, East Tower, World Trade Centre, Colombo 1. Tel: 5884400 Fax: 5884401,E-mail: [email protected]

• Taprobane Securities (Pvt) Ltd., 2nd Floor, 10, Gothami Road, Colombo 08. Tel: 5328200 Fax: 5328277 E-mail: [email protected], [email protected], web site: www.taprobanestocks.com

• Heraymila Securities Ltd., Level 8, South Wing, Millennium House, 46/58, Navam Mawatha, Colombo 2. Tel: 2359100, Fax: 2305522 E-mail:[email protected]

• SKM Lanka Holdings (Pvt) Ltd., 377/3, Galle Road, Colombo 3. Tel: 2372413-4, Fax: 2372416, Jaffna Branch Tel: 021-2221596 E-mail:[email protected]

• IIFL Securities Ceylon (Pvt) Ltd., 27th Floor, East Tower, World Trade Centre, Colombo 1. Tel: 2333000 Fax: 2333383 Email: [email protected]

• TKS Securities (Pvt) Ltd, 19-01, East Tower, World Trade Centre, Colombo 1. Tel: 7857799, Fax: 7857857, Email: [email protected]

• Richard Pieris Securities (Pvt) Ltd, 69, Hyde Park Corner, Colombo 2. Tel: 7448900, Fax: 2675064 Email: [email protected]

• Claridge Stockbrokers (Pvt) Ltd, 10, Gnanartha Pradeepa Mawatha, Colombo 8. Tel: 2697974, Fax: 2677576, Email: [email protected] Negombo Branch Tel. 0312236666, 0773377490

• New World Securities (Pvt) Ltd, 2nd Floor, 45/2, Braybrooke Street, Colombo 2. Tel: 2358700/20 Fax: 2358701 Email: [email protected], Website: www.nws.lk

• Arrenga Capital (Pvt) Ltd, Level 23, East Tower, World Trade Centre, Colombo 01. Tel: 7277000 to 98 Fax: 7277099 Email: [email protected] Website: www.arrengacapital.com

• LOLC Securities Ltd, Level 18 West Tower, World Trade Center, Echelon Square, Colombo 01. Tel: 5880880 Fax : 5880607 ,Kurunegala Branch Tel. 0377201221

B O C DEBENTURE PROSPECTUS 95 TRADING MEMBERS - DEBT

• First Capital Markets Ltd, No. 75, Arnold Ratnayake Mawatha, Colombo 10. Tel: 2639898, 2681888 Fax: 2639899, 2681460 Email: [email protected] Website: www.firstcapital.lk

BRANCHES Kandy, 213-215, Peradeniya road, Kandy. Tel: 081-2236010 Fax: 081-2236011 Email: [email protected] Matara, 24, Mezzanine Floor, E.H. Cooray Building, Anagarika Dharmapala Mawatha, Matara. Tel: 041-2222988 Fax: 041-2222978 Email: [email protected]

CUSTODIAN BANKS

• Banque Indosuez; C/O Hatton National Bank Limited, Cinnamon Garden Branch, 251, Dharmapala Mawatha, Colombo 07, T: +94 11 2686537, 2689176

• Citi Bank; 65 C, Dharmapala Mawatha, P.O. Box 888, Colombo 07 T: +94 11 2447316/8, 2447318, 2449061, 2328526, 4794700

• Commercial Bank of Ceylon Limited; Commercial House, 21, Bristol Street, P.O. Box 853, Colombo 01, T: +94 11 2445010-15, 238193-5, 430420, 336700

• Deutsche Bank; P.O. Box 314, No. 86, Galle Road, Colombo 03, T: +94 11 2447062, 2438057

• Hatton National Bank Limited; HNB Towers, 479, T.B. Jayah Mawatha, T: +94 11 2664664

• The Hong Kong and Shanghai Banking Corporation Limited; 24, Sir Baron Jayathilake Mawatha, Colombo 01, T: +94 11 2325435, 2446591, 2446303, 2346422

• People’s Bank; Head Office, 5th Floor,Sir Chittampalam A Gardiner Mawatha, Colombo 02 T: +94 11 2781481, 237841-9, 2446316-15, 2430561

• Standard Chartered Bank; 37, York Street, P. O. Box 112, Colombo 01, T: +94 11 4794400, 2480000

• State Bank of India; 16, Sir Baron Jayathilake Mawatha, Colombo 01 T: +94 11 2326133-5, 2439405-6, 2447166, 2472097

• Seylan Bank Limited; Level 8, Ceylinco Seylan Towers,90, Galle Road, Colombo 03 T: +94 11 2456789, 4-701812, 4-701819, 4-701829

• Union Bank of Colombo Limited; 15A, Alfred Place, Colombo 03, T: +94 11 2370870

B O C DEBENTURE PROSPECTUS 96 Annexure VI

DETAILS OF THE PROPERTIES

FREEHOLD PROPERTY Alawwa Branch 64, Giriulla Road, Alawwa Aluthgama Branch 267, Galle Road, Aluthgama Ambalangoda Branch 274, Main Street, Ambalangoda Ambalantota Branch 11, Wanduruppa Road, Ambalantota Badulla Fernham Bunglow & Prop. Badulla Badulla Uva Pro. Off. 17, Hill Drive, Keppetipola Rd, Badulla Balangoda Branch 137, Main Street, Balangoda Bambalapitiya Branch 20, Galle Road, Colombo 04 Bandarawela Branch 198B, Badulla Road, Bandarawela Bandarawela Holiday Home Bandarawela Batticaloa Branch Covington Road, Batticaloa Beruwala Branch Beruwela Borella Branch 71, Danister de Silva Mawatha, Colombo 08 Chilaw Branch Radaguru Edmund Peiries Mawatha, Chilaw Colombo 01- City Office 41, Bristol Street, Colombo 01 Colombo 01- G.O.H. (Y.S.B) York Street, Colombo 1. Colombo 07- G.M’S Bangalow Green Path, Colombo 7 Colombo Darly Rd. Stores Browns Bldg Colombo 10 Dehiowita Branch 62, Main Street, Dehiowita Dehiwala Branch 207, Galle Road, Dehiwala Dickoya Upper/ Lower Glencarn Bung. Dickoya Dummalasooriya Branch 227, Kuliyapitiya, Madampe Road, Dummalasooriya Galaha Branch 59/37, Deltota Road, Galaha Galle Branch 2, Gamini Road, Galle Galle Province Office 2, Light House Street, Fort, Galle Gampaha Branch Gampaha Gampola Branch 44, Kadugannawa Road, Gampola Grand Pass Branch 703, Sirimawo Bandaranayeke Mawatha, Colombo 14 Hakmana Branch Beliatta Road, Hakmana Haputale Branch (Browns) 20, Station Road, Haputale Haputale Woodland Bunglow Bandarawela Road, Haputale. Hatton Branch 46, Circular Road, Hatton Hatton Staff Quart Hatton Horana Branch 87, Anguruwathota Road, Horana Idama Branch Moratuwa Imaduwa Branch Ahangama Road, Imaduwa Ja Ela Branch 19, Negombo Road, Ja Ela Jaffna Area Office 56, Stanley Road, Jaffna Jaffna Branch 476, 476A, Hospital Road, Jaffna Kadawatha Branch 469, Ragama Road, Kadawatha Kalutara Area Office Kalutara Kalutara Branch 218, Galle Road, Kaluthara South, Kaluthara

B O C DEBENTURE PROSPECTUS 97 Kandy 2nd City Branch 22, Dalada veediya, Kandy Kegalle Branch 110, Colombo Road, Kegalle Kollupitiya- Walkers Sons Ltd. 28, St. Michael’s Road, Colombo 03 Kurunegala AGM’s Quart’s Kurunegala Kurunegala Bazaar Branch Commercial Complex, Kurunegala Kurunegala Branch (Cond.) Kurunegala Kurunegala Chief Mgr’s Quart 34, Colombo Road, Kurunegala Kurunegala Province Office 18, Mahinda Mawatha, Kurunegala Lindula Ridge Holiday Home Lindula Madampe Branch 10, Station Road, Madampe Madurankuliya Branch 16A, Main Street, Madurankuliya Maharagama C.T.I Maharagama Maharagama Branch 88, High Level Road, Maharagama Mannar Branch Staff Quarters 52, Pallimunai Road, Grand Bazaar, Mannar Maskeliya Branch 66, Upcot Road, Maskeliya Matara Bazaar Branch Gunawardena Mawatha, Matara Matara Branch 11, Kumarathunga Mawatha, Matara Mathugama Branch 72, Agalawatta Road, Matugama Moneragala Branch and Mgr’s Quart. 401, Wellawaya Road, Moneragala Moneragala Staff Quarters Moneragala Mutur Branch 38, Batticaloa Road, Muttur Narammala Branch 139, Negombo Road, Narammala Nawalapitiya Branch 6, Gampola Road, Nawalapitiya Negombo Branch 118, Rajapakse Broadway, Negonbo Nelliadi Branch Thikkam Road, Koraveddy, Nelliady Nugegoda Branch 174, High Level Road, Nugegoda Nuwara Eliya Branch 43, Lawson Street, Nuwara Eliya Nuwara Eliya Holiday Home Hill Street, Nuwara Eliya Nuwara Eliya Property Hill Street, Nuwara Eliya Nuwara Eliya Staff Quarters Hill Street, Nuwara Eliya Panadura Branch 21, Susantha Mawatha, Panadura Pettah Branch 212/63, Gas Works Street, Colombo 11 Potuvil Branch Potuvil Arugambay Road, Division No. 3, Potuvil Ratnapura Branch 6, Dharmapala Mawatha, Ratnapura Ratnapura Branch (BMC. 1/L) 163, Main Street, Ratnapura Talawakele Branch 23,25,29, Hatton Road, Talawakele Talawakele Staff Quart. Talawakelle Tangalle Branch Tangalle Trincomalee Branch 24, Inner Harbour Road, Trincomalee Valachchenai Branch Main Street, Valachchenai Wadduwa Branch 557/A, Galle Road, Wadduwa Weligama Branch 239, Main Street, Weligama Wellawatte Branch 149/2, Galle Road, Colombo 06 World Trade Centre Colombo 01 Level 1 & 2, West Tower

B O C DEBENTURE PROSPECTUS 98 Location Address Ampara Staff Quart. Ampara Ampara Branch 115, A D S Senanayaka Street, Ampara Ampara Manager’s Quart. Ampara Anuradhapura Branch Quarters Anuradhapura Anuradhapura Branch Maithripala Senanayake Mawatha, Anuradhapura Anuradhapura Pilgrims Rest Anuradhapura Anuradhapura Province office Anuradhapura Anuradhapura Staff Quarters Anuradhapura Aralaganwila Branch Aralaganwila, Aralaganwila Avissawella Branch 47,Dharmapala Mawatha, Avissawella Badulla Branch Bank Road, Badulla Bakamuna Branch Bakamuna Bandaragama Branch Janadhipathi Mawatha, Bandaragama Bentota Branch Tourist Village, Bentota Bulathsinhala Branch 40,Horana Road, Bulathsinhala Buttala Branch 23, Moneragala Road, Buttala Dambulla Dambulla Dehiattakandiya Branch New Town, Dehiattakandiya Devinuwara Branch Tangalle Road, Devinuwara Diigana Digana Elpitiya Branch Janadhipathi Mawatha, Elpitiya Embilipitiya Branch 545, New Town, Embilipitiya Embilipitiya Staff Quarters Embilipitiya Galenbindunuwewa Branch Denzil Kobbekaduwa Mawatha, Galenbindunuwewa Galgamuwa Branch 67,69, Anuradhapura Road, Galgamuwa Galkiriyagama Branch New Town, Galkiriyagama Galnewa Branch Thambuttegama Road, Galnewa Girandurukotte Branch New Town, Girandurukotte Hambantota Br. & Area Manager’s Quarters 33,Tower Hill Road, Hambantota Hambantota Kachcheri Branch Hambantota Hambantota Staff Quarters Hambantota Hikkaduwa Branch 223,Galle Road, Hikkaduwa Horowpathana Branch Anuradhapura Road, Horowpathana Hulftsdrop Branch 30, St.Sebastian Hill,Colombo 12 Ipalogama Branch Ipalogama Kahatagasdigiliya Branch & Managers Quarters Trincomalee Road, Kahatagasdigiliya Kalmunai Br. & Manager’s Quarters 78,Kitddanki Road, Kalmunai Kamburupitiya Br. & Manager’s Quarters School Lane, Kamburupitiya Kantale Bazaar Branch 91, Akrabodhi Mawatha, Kantale Kataragama Branch 315, Tissamaharama Road, Kataragama Kataragama Pilgrims Rest Kataragama Kataragama Staff Quarters Kataragama Kekirawa Branch 3,Habarana Road, Kekirawa Koggala Branch Koggala, Habaraduwa Kuliyapitiya Branch & Managers Quarters 70, Madampe Road, Kuliyapitiya Kuruwita Branch 60, Ratnapura Road, Kuruwita Madatugama Branch Kekirawa, Dambulla Road, Madatugama Mahiyangana Branch 7,New Town, Badulla Road, Mahiyangana Mannar Br. & Manager’s Quarters Mannar Matale Br. & Manager’s Quarters 5/2, Trincomalee Street, Matale Medawachchiya Branch 36, Jaffna Road, Medawachchiya Medirigiriya Branch School Junction, Medirigiriya Meegallewa Branch Meegallewa, Meegallewa Meegoda Branch (Economic Centre) Meegoda Middeniya Branch Middeniya Mihintale Branch Trincomalee Road, Mihintale New Head Office Building 4, Bank of Ceylon Mawatha, Colombo 1. B O C DEBENTURE PROSPECTUS 99 . Nikaweratiya Branch & Managers Quarters Puttalam Road, Nikaweratiya Nittambuwa Branch Market Complex, Nittambuwa Nivitigala Branch 72, Kalawana Road, Nivitigala Nochchiyagama Branch Main Street, Nochchciyagama Nochchiyagama Staff Quarters Nochchiyagama Nuwara Eliya Municipal Rest Nuwara Eliya Padavi- Parakramapura Branch Padavi, Parakramapura Padavi- Parakramapura Staff Quarters Padavi- Parakramapura Pannala Branch Public Ground Road, Pannala Peradeniya Branch 115/7, Sirimavo Bandaranayaka Mawatha, Peradeniya Pitigala Branch 39, North Pitigala Road, Pitigala Polonnaruwa New Town Branch Polonnaruwa Polonnruwa Staff Quarters Polonnaruwa Puttalam Branch & Manager’s Quaters 53, Kurunegala Road, Puttalam Puttlam Kachcheri Branch Puttalam Puttalam Staff Quarters Puttalam Puttalam Area Office Puttalam Rambukkana Rambukkana Talgaswela Branch Talgaswela Thambuttegama Branch Rajanganaya Road, Thambuttegama Thambuttegama Staff Quarters Thambuttegama Tissamaharama Branch 70, Main Street, Tissamaharama Torrington Branch 30A, Independent Avenue, Colombo 7 Ududumbara Branch 44,46, Mahiyangana Road Vanni Area Office & Quarters Vavuniya Vavuniya Branch & Manager’s Quarters 75, Station Road, Vavuniya Vavuniya Staff Quarters Vavuniya Weeraketiya Branch Weeraketiya Welimada Branch 12,12A, Hemapala Munidasa Mawatha, Welimada Wellawaya Branch Tissamaharama Road, Wellawaya

B O C DEBENTURE PROSPECTUS 100 Annexure VII

The audit of the accompanying financial statements of Bank of Ceylon (“Bank”) and theconsolidated financial statements of the Bankand its Subsidiaries as at 31 December 2010 which comprise the Balance Sheet as at that date, and the Income Statement, Statement ofChanges in Equity and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory notes (Nos. 1 to 48) to the financial statements was carried out under my direction in pursuance of provisions in Article 154 (1) of theConstitution of the Democratic Socialist Republic of Sri Lanka. The financial statements of the Subsidiaries were audited by firms of Chartered Accountants in public practice appointed by the members of the respective Subsidiaries. MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of these financial statements in accordance with the Sri Lanka Accounting Standards. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether 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 MY responsibility is to express an opinion on these financial statements based on my audit.The audit was carried out in accordance with Sri Lanka Auditing Standards which require that the audit shall be planned and performed to obtain reasonable assurance as to whether the financial statements are free from material misstatements. The audit includes examining on a test basis, evidence supporting the amounts and disclosures in the said financial statements. The audit also includes assessing the accounting policies used and significant estimates made by the management as well as evaluating the overall presentation of financial statements. I have obtained all the information and explanations which to the best of my knowledge and belief were necessary for the purpose of my audit. I therefore believe that my audit provides a reasonable basis for my opinion. OPINION So far as appears from my examination, I am of opinion that the Bank of Ceylon had maintained proper accounting records for the year ended31 December 2010 and the financial statements give a true and fair view of the state of affairs of the Bank of Ceylon as at 31 December 2010 and its profit and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards. I am of opinion that the consolidated financial statements give a true and fair view of the state of affairs as at 31 December 2010 and the profit and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards, of the Bank, and its Subsidiaries dealt with thereby, so far as concerns the shareholders of the Bank. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS These financial statements present the information required by the Banking Act, No. 30 of 1988 and subsequent amendments thereto. EXEMPTION The Bank has been exempted from the provisions of Part II of the Finance Act, No. 38 of 1971 by an Order of the then Minister of Finance published in the Government Gazette No. 715 of 14 May 1992 by virtue of powers vested in him by Section 5 (1) of the said Finance Act. REPORT TO PARLIAMENT My report to Parliament in pursuance of provisions in Article 154 (6) of the Constitution will be tabled in due course.

H A S Samaraweera Acting Auditor General

B O C DEBENTURE PROSPECTUS 101 INCOME STATEMENT

Bank Group For the year ended 31 December Note 2010 2009 Change 2010 2009 Change Rs. ’000 Rs. ’000 % Rs. ’000 Rs. ’000%

Income 1 63,362,866 63,461,366 (0.2) 66,866,792 66,128,194 1.1

Interest income 2 50,853,347 53,076,779 (4.2) 53,062,286 55,279,046 (4.0) Interest expense 3 (31,205,160) (38,266,874) (18.5) (32,019,161) (39,489,821) (18.9) Net interest income 19,648,187 14,809,905 32.7 21,043,125 15,789,225 33.3

Fee and commission income 4 6,014,178 4,255,204 41.3 6,487,663 4,353,702 49.0 Fee and commission expenses 5 (467,298) (544,395) (14.2) (556,008) (550,477) 1.0 Net fee and commission income 5,546,880 3,710,809 49.5 5,931,655 3,803,225 56.0

Foreign exchange profit 408,686 1,566,916 (73.9) 418,461 1,566,916 (73.3) Dividend income 6 468,998 347,878 34.8 257,910 150,456 71.4 Net gains from investment in securities 7 3,105,791 1,961,210 58.4 3,508,297 2,012,436 74.3 Other operating income 8 1,143,913 753,247 51.9 1,524,738 1,128,780 35.1 5,127,388 4,629,251 10.8 5,709,406 4,858,588 17.5 Operating income 30,322,455 23,149,965 31.0 32,684,186 24,451,038 33.7

Operating expenses Personnel costs 9 (8,044,072) (8,107,775) (0.8) (8,731,783) (8,572,330) 1.9 Staff retirement benefits 10 (2,266,119) (2,409,631) (6.0) (2,299,079) (2,427,467) (5.3) Premises, equipment and establishment expenses 11 (2,858,245) (2,677,921) 6.7 (2,751,960) (2,491,248) 10.5 Other operating expenses 11 (2,908,256) (2,450,593) 18.7 (3,573,401) (2,954,607) 20.9 (16,076,692) (15,645,920) 2.8 (17,356,223) (16,445,652) 5.5 Operating profit before provisions 14,245,763 7,504,045 89.8 15,327,963 8,005,386 91.5

Provision for loan losses 12 (1,559,894) (1,801,705) (13.4) (1,725,997) (1,894,977) (8.9) Recovery of non-performing advances 13 1,367,953 1,500,132 (8.8) 1,394,539 1,506,205 (7.4) Provision for fall in value of investments and dealing securities – – – (6,957) 49,005 (114.2) Operating profit before VAT 14,053,822 7,202,472 95.1 14,989,548 7,665,619 95.5

Value added tax on financial services (4,001,253) (2,994,825) 33.6 (4,126,961) (3,076,362) 34.2 Operating profit 10,052,569 4,207,647 138.9 10,862,587 4,589,257 136.7

Share of profit of Associate Companies before tax 14 – – – 212,898 130,653 62.9 Profit before taxation 10,052,569 4,207,647 138.9 11,075,485 4,719,910 134.7

Provision for taxation 15 (3,687,257) (1,123,641) 228.2 (4,162,289) (1,402,987) 196.7 Profit after taxation 6,365,312 3,084,006 106.4 6,913,196 3,316,923 108.4

Attributable to: Equity holder of the parent 6,365,312 3,084,006 106.4 6,760,310 3,299,873 104.9 Minority interest – – – 152,886 17,050 796.7 Profit for the year 6,365,312 3,084,006 106.4 6,913,196 3,316,923 108.4

Per Share: Basic earnings per share (Rs.) 16 1,273.06 616.80 1,352.06 659.97 Dividend per share (Rs.) 16 619.28 269.28 619.28 269.28

The Significant Accounting Policies on pages 108 to129 and notes on pages 130 to 199 form an integral part of these Financial Statements. BALANCE SHEET

Bank Group As at 31 December Note 2010 2009 Change 2010 2009 Change Rs. ’000 Rs. ’000 % Rs. ’000 Rs. ’000 %

ASSETS Cash and short-term funds 17 14,103,803 13,508,852 4.4 13,754,857 13,517,254 1.8 Balances with Central Banks 18 25,894,466 16,263,468 59.2 25,894,466 16,263,468 59.2 Treasury bills, bonds and other eligible bills 19 45,379,013 28,735,396 57.9 46,348,696 29,688,285 56.1 Securities purchased under re-sale agreements 40,840,091 6,615,045 517.4 40,840,091 6,667,925 512.5 Dealing securities 3,232,348 1,827,869 76.8 3,805,443 2,137,383 78.0 Placements with and loans to other banks 42,679,798 45,867,067 (6.9) 47,773,386 45,887,067 4.1 20 Treasury bonds maturing after one year 51,296,744 46,910,486 9.4 51,749,203 46,910,486 10.3 Loans and advances to customers 21 - Bills of exchange 22.1 1 5,395,903 15,254,316 0.9 16,015,528 15,700,891 2.0 - Loans & advances 22.2 353,097,916 245,602,284 43.8 355,265,395 247,201,769 43.7 - Lease rentals receivable - within one year 22.3 1,837,935 1,920,713 (4.3) 4,560,906 4,790,308 (4.8) - Lease rentals receivable - one to five years 22.4 2,387,835 2,287,871 4.4 6,743,744 5,106,358 32.1 - Lease rentals receivable - after five years 22.5 1,995 207 863.8 2,224 300 641.3

372,721,584 265,065,391 40.6 382,587,797 272,799,626 40.2

Government of Sri Lanka Restructuring Bonds 23 8,547,000 8,547,000 – 8,547,000 8,547,000 – Investment securities 24 80,643,496 75,844,742 6.3 81,118,367 76,453,242 6.1 Investment properties 25 – – – 386,867 391,730 (1.2) Investments in Associate Companies 26 844,658 844,658 – 1,284,563 1,084,065 18.5 Investments in Subsidiary Companies 27 5,279,094 3,191,859 65.4 – – – Other assets 28 17,706,268 19,184,449 (7.7) 18,313,650 19,774,648 (7.4) Property, plant & equipment 29 5,544,589 5,660,753 (2.1) 7,370,308 7,072,057 4.2 Leasehold land 30 77,515 63,290 22.5 119,978 107,110 12.0 Intangible assets 31 163,826 110,812 47.8 170,404 119,205 43.0

Total assets 714 954 293 538,241,137 32.8 730,065,076 547,420,551 33.4

FINANCED BY: LIABILITIES 28.6 Deposits from customers 32 524,232,697 408,607,442 411,459,582 28.3 529,318,700 60.6 Borrowed funds 33 52,445,153 33,098,377 35,767,123 58.5 57,432,015 60.7 Securities sold under re-purchase agreements 34 53,522,487 34,203,701 32,968,041 56.5 52,968,787 61.9 Insurance provision - life 35.1 – – 41,336 – 66,937 39.2 Insurance provision - non life 35.2 – – 181,569 – 252,774 742.2 Tax payable 2,199,758 189,824 287,650 1,058.8 2,422,527 11.2 Deferred tax liability 457,587 409,453 440,132 36 11.8 489,525 (16.4) Other liabilities 15,258,392 18,789,140 19,627,591 37 (18.8) 16,417,749 106.3 Debentures 38,706,348 18,044,613 114.5 39,434,565 19,113,386 38 34.4 Total liabilities 686,822,422 513,342,550 33.8 698,803,579 519,886,410

SHAREHOLDERS’ EQUITY Stated capital 39 5,000,000 5,000,000 – 5,000,000 5,000,000 – Permanent reserve fund 40 2,777,500 2,650,000 4.8 2,777,500 2,650,000 4.8 Retained profits 18,712,777 15,819,588 18.3 20,393,029 17,115,523 19.1 Reserves 41 1,641,594 1,428,999 14.9 2,025,557 1,817,762 11.4 Total equity attributable to the parent 28,131,871 24,898,587 13.0 30,196,086 26,583,285 13.6 Minority interest – – – 1,065,411 950,856 12.0

Total equity 28,131,871 24,898,587 13.0 31,261,497 27,534,141 13.5

Total shareholders’ equity and liabilities 714,954,293 538,241,137 32.8 730,065,076 547,420,551 33.4 Commitments and contingencies 42 223,164,930 246,244,648 (9.4) 224,942,115 246,316,116 (8.7)

The Significant Accounting Policies on pages 108 to 129 and notes on pages 130 to 199 form an integral part of these Financial Statements.

These Financial Statements give a true and fair view of the state of affairs of Bank of Ceylon and the Group as at 31 December 2010 and its profit for the year then ended.

W A Asoka Rupasinghe Chief Financial Officer

The Board of Directors is responsible for the preparation and presentation of these Financial Statements.

Approved and signed for and on behalf of the Board by,

Dr. Gamini Wickramasinghe R Sivaraman B A C Fernando Chairman Director General Manager

Colombo 16 March 2011 STATEMENT OF CHANGES IN EQUITY

Stated Permanent Reserves Retained Total Note . capital reserve fund Other Revaluation profits equity reserves reserves

Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Bank Balance as at 01 January 2009 5,000,000 2,585,000 1,055,732 126,961 14,334,563 23,102,256 Net profit for the year 2009 – – – – 3,084,006 3,084,006 Dividends for 2009 16.1 – – – – (1,346,410) (1,346,410) Transfers to permanent reserve 40 – 65,000 – – (65,000) – Revaluation adjustment 41.1 – – – (1,662) – (1,662) Net exchange translation adjustment 41.3 – – 60,397 – – 60,397 Transfers to primary dealer special risk reserve 41.4 – – 187,571 – (187,571) – Balance as at 31 December 2009 5,000,000 2,650,000 1,303,700 125,299 15,819,588 24,898,587

Balance as at 01 January 2010 5,000,000 2,650,000 1,303,700 125,299 15,819,588 24,898,587 Net profit for the year 2010 – – – – 6,365,312 6,365,312 Dividends for 2010 16.1 – – – – (3,096,410) (3,096,410) Transfers to permanent reserve 40 – 127,500 – – (127,500) – Transfers to exchange gain on conversion of London branch into a Subsidiary 41.3 – – (39,566) – – (39,566) Net exchange translation adjustment 41.3 – – 3,948 – – 3,948 Transfers to primary dealer special risk reserve 41.4 – – 248,213 – (248,213) – Balance as at 31 December 2010 5,000,000 2,777,500 1,516,295 125,299 18,712,777 28,131,871

Attributable to the parent Stated Permanent Reserves Retained Minority Total capital reserve fund Other Revaluation profits interest equity Note reserves reserves

Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Group Balance as at 01 January 2009 5,000,000 2,585,000 1,299,807 180,354 15,826,941 655,342 25,547,444 Net profit for the year 2009 – – – – 3,299,873 17,050 3,316,923 Dividends for 2009 16.1 – – – – (1,346,410) (30,629) (1,377,039) Transfers to permanent reserve 40 – 65,000 – – (65,000) – – Transfers to other reserves – – 91,295 – (91,295) – – Share issue of Subsidiaries – – – – – 237,094 237,094 Revaluation adjustment 41.1 – – – (1,662) – – (1,662) Adjustments – – – – (321,015) – (321,015) Net increase due to change in shareholding – – – – – 71,999 71,999 Net exchange translation adjustment 41.3 – – 60,397 – – – 60,397 Transfers to primary dealer special risk reserve 41.4 – – 187,571 – (187,571) – – Balance as at 31 December 2009 5,000,000 2,650,000 1,639,070 178,692 17,115,523 950,856 27,534,141

Balance as at 01 January 2010 5,000,000 2,650,000 1,639,070 178,692 17,115,523 950,856 27,534,141 Net profit for the year 2010 – – – – 6,760,310 152,886 6,913,196

Dividends for 2010 16.1 – – – – (3,096,410) (38,143) (3,134,553) Transfers to permanent reserve 40 – 127,500 – – (127,500) – – Adjustments – – – – – (188) (188) Net increase due to change in shareholding – – – – (10,681) – (10,681) Transfers to exchange gain on conversion of London branch into a Subsidiary 41.3 – – (39,566) – – – (39,566) Net exchange translation adjustment 41.3 – – (852) – – – (852) Transfers to primary dealer special risk reserve 41.4 – – 248,213 – (248,213) – – Balance as at 31 December 2010 5,000,000 2,777,500 1,846,865 178,692 20,393,029 1,065,411 31,261,497

The Significant Accounting Policies on pages 108 to 129 and notes on pages 130 to 199 form an integral part of these Financial Statements. CASH FLOW STATEMENT

Bank Group For the year ended 31 December Note 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Cash flows from operating activities Interest receipts 48,958,295 52,699,040 51,048,298 54,790,121 Interest payments (32,236,920) (36,221,614) (33,076,221) (37,191,635) Commissions, fees and receipts from other operating activities 9,121,713 4,917,426 10,154,963 5,335,677 Premium received from policyholders – – 558,840 264,405 Claims and benefits paid – – (210,662) (126,668) – Reinsurance premium paid – (80,676) (47,696) – – Reinsurance receipts in respect of claims 4,897 8,557 (9,868,539) Cash paid to and on behalf of employees (9,544,644) (10,265,315) (10,350,930) Cash payments to suppliers (4,165,318) (5,813,787) (6,433,716) (4,262,472) Recovery of loans written-off in previous years 102,013 70,866 97,452 108,086 Value added tax on financial services paid (3,667,377) (2,933,948) (3,793,085) (3,015,485)

Cash flows from operating activities before changes in operating assets and liabilities I 6,888,146 4,529,060 8,004,775 5,511,960 (Increase)/decrease in operating assets Deposits held for regulatory purposes (9,630,998) (634,388) (9,630,998) (634,388) Funds advanced to customers (107,937,795) 5,520,355 (110,018,536) 4,388,370 Net increase in credit card receivable (259,654) 60,376 (259,654) 60,376 Short-term marketable securities (1,324,765) (704,119) (1,581,389) (793,699) Other operating assets 900,628 (961,357) 2,376,806 (713,922)

(118,252,584) 3,280,867 (119,113,771) 2,306,737

Increase/(decrease) in operating liabilities Deposits from other banks 179,675 420,101 418,628 420,101 Deposits from customers 117,571,827 92,117,775 117,440,490 92,861,829 Other operating liabilities (1,611,323) 1,378,267 (1,481,636) 1,171,716 Net cash from/(used in) operating activities before income tax 4,775,741 101,726,070 5,268,486 102,272,343 Income tax paid (1,692,034) (1,611,027) (1,927,120) (1,858,874) Net cash from/(used in) operating activities 3,083,707 100,115,043 3,341,366 100,413,469

Cash flows from investing activities Net increase in Treasury bills and other eligible bills (16,668,014) (2,748,295) (16,684,808) (3,221,280) Proceeds from sale of investment securities 23,571,307 777,133 23,735,457 777,133 Dividends received 468,998 347,878 257,910 150,456 Purchase of investment securities (31,567,092) (13,917,685) (32,050,072) (14,262,931) Net cash effect on investment in Subsidiaries and Associates Net cash effect on investment in Bank of Ceylon (UK) Limited II (a) (1,893,873) – – Net cash effect on acquisition of Subsidiaries II (b) – – – (23,625) (134,800) Net cash effect on investment in other Subsidiaries and Associates II (c) (187,186) (126,048) – (433,954) Purchase of property, plant & equipment (1,430,799) (1,043,502) (1,390,830) (1,106,282) Purchase of intangible assets (56,707) (107,887) (55,548) (109,473) Purchase of leasehold lands – (16,521) (16,521) Purchase of investment properties – (110,398) – – Purchase of securities purchased under re-sale agreements (2,659) (4,908,425) (34,225,046) (4,855,545) (34,172,166) Proceeds from sale of property, plant & equipment 120,878 89,179 110,617 98,738

Net cash from/(used in) investing activities (61,392,451) (22,166,229) (60,260,687) (23,202,921)

Cash flows from financing activities 237,094 Proceeds from issue of shares – – –

Proceeds from issue of securities sold under re-purchase agreements 19,318,786 (15,597,955) 20,000,746 (15,751,965) Proceeds from issue/(redemption) of debentures 20,678,813 – 20,338,953 (88,750) Net increase/(decrease) in other borrowings 18,642,032 (28,199,518) 21,664,892 (27,453,459) Dividends paid to Government of Sri Lanka (2,923,205) (1,346,410) (2,923,205) (1,346,410) Dividends to minority shareholders – – (38,143) (30,629) Net cash from financing activities 55,716,426 (45,143,883) 59,043,243 (44,434,119)

Net increase/(decrease) in cash and cash equivalents (2,592,318) 32,804,931 2,123,922 32,776,429 Cash and cash equivalents at the beginning of the year 59,375,919 26,570,988 59,404,321 26,627,892 Cash and cash equivalents at the end of year III 56,783,601 59,375,919 61,528,243 59,404,321 CASH FLOW STATEMENT

Bank Group For the year ended 31 December Note 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. '000

Note I Reconciliation of operating profit before taxation with cash flow from operating activities

Profit before taxation 10,052,569 4,207,647 11,075,485 4,719,910

Add/(Less): Net gain from dealing securities (64,339) (835,429) (73,573) (836,290) Net gain from investment securities (1,214,701) (906,066) (1,174,383) (902,061) Reversal of provision for non-performing advances (1,297,087) (1,398,119) (1,297,087) (1,398,119) Net (gain)/loss on marked to market valuation on Government securities (132,069) (361,490) (132,069) (361,490) Net (gain)/loss on marked to market valuation (79,714) (164,076) (79,714) (164,076) Profit on sale of property, plant & equipment 8 (26,775) (98,371) (32,494) (111,975) Provision for diminution in value of investment and dealing securities – – (6,957) 49,006 Provision made for staff payments 765,546 648,867 765,547 648,867 Provision made for value added tax 333,876 60,877 333,876 60,877 Exchange revaluation (279,536) (1,402,125) (277,475) (1,402,125) Share of profit of Associate Companies 14 – – (212,898) (130,653) Notional tax credit on interest on Government securities 15.5 (659,630) (351,925) (685,027) (380,873) Depreciation of investment properties 25 – – 3,074 3,060 Depreciation of property, plant & equipment 29 784,993 686,428 889,616 790,745 Amortisation of leasehold land 30 2,296 8,648 3,653 20,857 Amortisation of intangible assets 31 54,873 185,473 59,076 189,860 Loan loss provision 12 1,559,894 1,801,705 1,725,997 1,894,977 Accrued interest on loans and advances (1,235,422) (25,813) (1,328,958) (108,049) Accrued interest on deposits and borrowings (1,031,760) 2,045,260 (1,057,060) 2,298,184 Accruals for expenses (422,149) 627,043 (422,149) 627,043 Equity adjustment of Associate Companies – – (5,336) 3,222 Goodwill on acquisition – – 24,676 1,063 Dividends received from Subsidiaries and Associates (222,719) (199,474) – – Profit from sale of Associate Companies – – (91,045) – Cash flows from operating activities before changes in operating assets and liabilities 6,888,146 4,529,060 8,004,775 5,511,960

Note II Net cash effect on investment in Subsidiaries and Associates

2010 Rs. ’000

(a) Net cash effect on investment in Bank of Ceylon (UK) Limited [On 30 April 2010 Bank of Ceylon branch in London was converted into a Subsidiary named Bank of Ceylon (UK) Limited]

Net identifiable assets and liabilities in: Securities held on own account (912,426) Loans and Advances to customers (217,340) Property, plant and equipment (450,090) Other assets (283,068) Deposits from banks (704,745) Customer deposit accounts 2,126,247 Other payables 250,121 Net identifiable assets and liabilities transferred to Bank of Ceylon (UK) Limited (191,301) Cash outflow on the additional investment made in Bank of Ceylon (UK) Limited (1,893,873) Exchange translation adjustment (2,061) Total investment in Bank of Ceylon (UK) Limited since classified as investment in Subsidiaries (2,087,235) CASH FLOW STATEMENT

NOTES TO THE CASH FLOW STATEMENT

2010 Rs. ’000

(b) Net cash effect on acquisition of Subsidiaries: Koladeniya Hydropower (Private) Limited (On 3 December 2010 Koladeniya Hydropower (Private) Limited was acquired by Property Development PLC as a Subsidiary)

Net identifiable assets and liabilities in: Property, plant & equipment (3,604) Trade and other payables 4,655 Net identifiable assets and liabilities 1,051 Goodwill on acquisition (24,676) Cash outflow on acquisition (23,625)

2009 Rs. ’000

MBSL Insurance Company Limited (On 7 April 2009 MBSL Insurance Company Limited was acquired by Merchant Bank of Sri Lanka PLC as a Subsidiary)

Net identifiable assets and liabilities in: Cash and cash equivalents (3,806) Investments (258,210) Amounts recceivable (165,274) Property, plant & equipment (22,075) Trade payables 305,105 Borrowings 6,717 Goodwill on acquisition (1,063) Total purchase price (138,606) Add: Cash of Subsidiaries 3,806 Cash outflow on acquisition of net of cash acquired (134,800)

Bank Group 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. '000

(c) Net cash effect on investment in other Subsidiaries and Associates

Merchant Bank of Sri Lanka PLC – (347,906) – – Ceylease Financial Services Limited – (60,000) – – Ceybank Asset Management (Private) Limited – (26,048) – (26,048) MBSL Savings Bank Limited – – (137,186) (100,000) MBSL Insurance Company Limited – – (50,000) – – (433,954) (187,186) (126,048)

Bank Group For the year ended 31 December Note 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. '000

Note III Analysis of cash and cash equivalents Cash and short-term funds 17 14,103,803 13,508,852 13,754,857 13,517,254 Placements with and loans to other banks 21 42,679,798 45,867,067 47,773,386 45,887,067 56,783,601 59,375,919 61,528,243 59,404,321

The Significant Accounting Policies on pages 108 to 129 and notes on pages 130 to 199 form an integral part of these Financial Statements. SIGNIFICANT ACCOUNTING POLICIES 1. CORPORATE INFORMATION Bank of Ceylon is a Government Corporation domiciled in Sri Lanka, duly incorporated on 01 August 1939 under the Bank of Ceylon Ordinance No. 53 of 1938. It is a licensed commercial bank established under the Banking Act No. 30 of 1988 and amendments thereto. The registered office of the Bank is situated at No. 4, Bank of Ceylon Mawatha, Colombo 01, Sri Lanka. The debentures issued by the Bank are listed on the Colombo Stock Exchange.

The staff strength of the Bank as at 31 December 2010 was 8,204 (2009 - 7,538).

The Consolidated Financial Statements of the Bank prepared for the year ended 31 December 2010 comprise the Bank (‘Parent’), its Subsidiaries (together referred to as the ‘Group’) and the Group’s interests in its Associate Companies.

The Bank does not have an identifiable parent of its own.

The Financial Statements for the year ended 31 December 2010 were authorised for issue on 16 March 2011 in accordance with a resolution of the Board of Directors passed on 16 March 2011.

1.1 PRINCIPAL ACTIVITIES

Bank The principal activities of the Bank during the year were commercial banking, personal banking, development financing, mortgage financing, lease financing, investment banking, Islamic banking, corporate financing, dealing in Government Securities, pawn broking, credit card facilities, off-shore banking, foreign currency operations and other financial services

There have been no significant changes in the nature of these activities during the year.

Subsidiaries

The principal activities of Bank’s Subsidiaries are as follows:

Name of Company Principal Activity

Property Development PLC Maintain, manage, develop and sustain the utility and value of Bank of Ceylon Head Office Building

Merchant Bank of Sri Lanka PLC Leasing and hire purchase, trade finance, corporate advisory services, fund Management capital market activities, corporate secretarial and legal services BoC Management and Support Provides management services Services (Private) Limited BoC Property Development and Renting of office space of BoC Merchant Tower in Colombo 03 Management (Private) Limited Ceybank House in Kandy

B O C DEBENTURE PROSPECTUS 108 BoC Travels (Private) Limited Engages in travel related services

Hotels Colombo (1963) Limited Provides hotel services

Merchant Credit of Sri Lanka Limited Acceptance of deposits, granting lease facilities, hire purchase, loans and other credit facilities, pawning and real estate developments and related services

Ceylease Financial Services Limited Granting finance lease, hire purchase, commercial loan facilities and real estate developments and sales

Ceybank Holiday Homes (Private) Managing, operating, maintaining and conducting Pilgrims, Rests, Limited Hotels and Guest Houses in Sri Lanka

MBSL Insurance Company Limited Offers Life and General Insurance Products

Koladeniya Hydropower (Private) Hydropower generation Limited

Bank of Ceylon (UK) Limited Provides financial services including accepting deposits and dealing in investments

There have been no significant changes in the nature of principal activities of Subsidiaries during the year under review other than for engaging in hydropower generation through acquisition of Koladeniya Hydropower (Private) Limited to the Group.

Associates The principal activities of Bank’s Associates are as follows:

Name of Company Principal Activity

Ceybank Asset Management (Private) Limited Management of Unit Trust Funds and other private portfolios

Southern Development Financial Company Limited Granting loan facilities

Lanka Securities (Private) Limited Equity trading, debt trading and placements

Purchasing, hiring and acquiring real estate properties Mireka Capital Land (Private) Limited real estate developments and providing Infrastructurefacilities to real estate development projects

B O C DEBENTURE PROSPECTUS 109

Transnational Lanka Records Solutions (Private) Real estate - renting out properties Limited

MBSL Savings Bank Limited Provides financial services including accepting deposits leasing, hire purchase and pawning

There have been no significant changes in the nature of principal activities of Associates during the year

2. DIRECTORS’ RESPONSIBILITY FOR FINANCIAL STATEMENTS The Board of Directors is responsible for the preparation and presentation of the Financial Statements of the Bank in terms of the provisions of the Bank of Ceylon Ordinance and its amendments read with the Banking Act No. 30 of 1988 and its amendments thereto and Sri Lanka Accounting Standards

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 BASIS OF PREPARATION The Financial Statements of the Bank and the Group encompassing the Balance Sheet, Income Statement, Cash Flow Statement, Statement of Changes in Equity, Accounting Policies and the Notes thereto are prepared in conformity with Accounting Standards issued by The Institute of Chartered Accountants of Sri Lanka and on the basis of historical cost convention except otherwise stated as required by the above Standards, which have been applied consistently with that of the previous year. Except as indicated, the Financial Statements presented in Sri Lankan Rupees have been rounded to the nearest thousand. No adjustment has been made for inflationary factors affecting the Financial Statements except on certain land and buildings, investment properties and dealing securities.

3.2 ESTIMATES AND MANAGEMENT JUDGMENTS

The preparation of Financial Statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amount of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances.

The estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and/or in future periods if the revision affects future periods too.

Key items which involve these judgments, estimates and assumptions are discussed below:

• Defined Benefit Plans The cost of defined benefit plans, gratuity and pension obligation is determined by using actuarial valuations. It involves making assumptions about discount rates, expected rates of return on planned assets, attrition rate, future salary increases, future cost of living allowances and future pension increases. All assumptions are reviewed at each reporting date due to uncertainty.

• Impairment on Loans and Advances In addition to the provisions made for possible losses on loans and advances based on the parameters given in the Sri Lanka Accounting Standard No. 23 on ‘Revenue Recognition and Disclosures in the

B O C DEBENTURE PROSPECTUS 110 Financial Statements of Banks’ and Directives issued by the Central Bank of Sri Lanka, the Group reviews its loans and advances portfolio at each reporting date or more frequently, if events or changes are in existence, which require to asses whether a further provision for impairment is required against exposures. The judgments by the management are required in the estimation of these amounts and such estimations are based on the number of factors such as any deterioration of countries, industry and technological obsolescence, borrowers’ financial situation.

• Impairment of Other Assets The Group assesses on each Balance Sheet date or more frequently to determine whether there is objective evidence that an asset is impaired. This requires the management to make an estimate of expected future cash flows, suitable discount rates in order to arrive at the present value of future cash flows, which can be derived from a particular asset.

3.3 MATERIALITY AND AGGREGATIONS

Each material class of similar items is presented separately in the Financial Statements. Items of a dissimilar nature or function are presented separately unless they are immaterial as permitted by the Sri Lanka Accounting Standard No. 03 (Revised 2005) on ‘Presentation of Financial Statements’.

3.4 STATEMENT OF COMPLIANCE

The Financial Statements of the Bank and its Subsidiaries are prepared in accordance with the Sri Lanka Accounting Standards (SLASs) laid down by The Institute of Chartered Accountants of Sri Lanka and comply with the requirements of Bank of Ceylon Ordinance and Banking Act No. 30 of 1988 and amendments thereto. In the case of Financial Statements of Subsidiaries in addition to the above, they comply with Companies Act No. 07 of 2007, Finance Leasing Act No. 56 of 2000, Finance Companies Act No. 78 of 1988, Insurance Industry Act No. 43 of 2000 and provisions of International Financial Reporting Standards (IFRSs). The Financial Statements of the Bank and its Subsidiaries present fairly the financial position, financial performance and cash flows.

3.5 FOREIGN CURRENCY TRANSLATION

Functional and Presentation Currency

Items in the Financial Statements of the Bank and each of its Subsidiaries are translated using their functional currency, being the currency of the primary economic environment in which the entity operates. The Consolidated Financial Statements are presented in Sri Lankan Rupees, which is the functional and presentation currency of the Bank and except for Bank of Ceylon (UK) Limited whose functional currency is Sterling Pounds. 3.5.1 Foreign Currency Transactions Transactions in foreign currencies are measured at the exchange rate ruling at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are translated into Sri Lankan Rupees at the exchange rate ruling at the Balance Sheet date. The resulting gains and losses from foreign exchange differences are accounted for in the Income Statement.

Non-monetary assets and liabilities measured at cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities measured at fair value in foreign currencies are translated into Sri Lankan Rupees at the exchange rate ruling at the date the fair value was determined.

3.5.2 Foreign Operations The results and financial position of the branches in India, Maldives and Bank of Ceylon (UK) Limited whose functional currency is not Sri Lankan Rupees are translated into Sri Lankan rupees as follows:

B O C DEBENTURE PROSPECTUS 111 • Assets and liabilities are translated at the exchange rate ruling at the Balance Sheet date.

• Income and expenses in the Income Statement are translated at an average exchange rate approximating the exchange rates at the dates of the transactions, and in the case of income and expenses of overseas branches, the monthly average exchange rates are applied for translation.

• Resulting exchange differences are recognised in the foreign currency translation reserve, which is a separate component of equity. • When a foreign operation is disposed, the deferred cumulative translation gain or loss recognised in Equity relating to that particular foreign operation is recognised in the Income Statement as part of the gain or loss on disposal.

• Forward exchange contracts are valued at the forward market rates ruling on the date of the Balance Sheet. Resulting net unrealised gains and losses are dealt with through the Income Statement.

3.5.3 Consolidation Adjustments

On consolidation, foreign exchange differences arising from the translation of net investments in foreign entities, as well as any borrowings and instruments designated as foreign currency hedges of such investments are taken to capital reserves.

3.6 BASIS OF CONSOLIDATION

The Bank’s Financial Statements comprise the consolidation of the Financial Statements of the Domestic Banking Unit, the Off-shore Banking Unit and the foreign operations that are integral to the Bank. The Group Financial Statements comprise consolidation of the Financial Statements of the Bank, its Subsidiaries in terms of the Sri Lanka Accounting Standard No. 26 (Revised 2005) on ‘Consolidated and Separate Financial Statements’ and in terms of the Sri Lanka Accounting Standard No. 27 (Revised 2005) on ‘Investments in Associates’.

3.6.1 Subsidiaries Subsidiaries are those companies in which the Bank, directly or indirectly, has an interest of more than one- half of the voting rights or has control over the financial and operating policies.

Subsidiaries are consolidated from the date on which effective control is transferred to the Bank and are no longer consolidated from the date of disposal.

The Consolidated Financial Statements are prepared to common financial year end of 31 December. The accounting policies of the Subsidiaries have been changed wherever necessary to comply with the Bank’s accounting policies. There are no significant restrictions on the ability of Subsidiaries to transfer funds to Parent in the form of cash dividends or to repay loans and advances. All Subsidiaries of the Bank have been incorporated in Sri Lanka except for Bank of Ceylon (UK) Limited, which is incorporated in the United Kingdom.

A listing of the Bank’s Subsidiaries is given in Note 27 to the Financial Statements. Separate disclosure is made in respect of minority interest.

3.6.2 Associates Associates are entities in which the Group has significant influence, but not control, and generally holds a shareholding of between and including 20% and 50% of the voting rights. The Group’s investments in Associates are accounted for using Equity Method and initially carried at cost. The carrying amount is increased or decreased to recognise the Group’s share of net assets of the Associate,

B O C DEBENTURE PROSPECTUS 112 less any impairment in value after the date of acquisition. Where the Group’s share of losses in an Associate equals or exceeds its interest in the Associate, including any unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the Associate. The Group discontinues the use of Equity Method from the day that it ceases to have significant influence over an Associate and accounts for the investment in accordance with the Sri Lanka Accounting Standard No. 22 on ‘Accounting for Investments’.

The reporting dates of the Group and the Associates are identical and there are no significant restrictions on the ability of Associates to transfer funds to Parent in the form of cash dividends or to repay loans and advances. The results of the Associates are taken from the latest audited accounts or unaudited management accounts of the Associates prepared at dates not more than three months prior to the end of the financial year of the Group.

A listing of the Bank’s Principal Associates is shown in Note 26 to the Financial Statements.

3.6.3 Business Combinations and Goodwill

Business combinations are accounted for using the Purchase Method of Accounting as per the requirements of the Sri Lanka Accounting Standard No. 25 (Revised 2004) on ‘Business Combinations’. This involves recognizing identifiable assets and liabilities of the acquired business at fair value. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired, is recognised as goodwill. If the cost of acquisition is less than the fair values of the identifiable net assets acquired, the difference is identified as discount on acquisition and is recognised directly in the Income Statement in the year of acquisition. Goodwill acquired in a Business Combination is initially measured at cost, being the excess of the cost of the Business Combination over the Bank’s interests in the net fair value of the identifiable assets, liabilities including contingent liabilities acquired. Sri Lanka Accounting Standard No. 25 (Revised 2004) on ‘Business Combinations’ requires that following the initial recognition, goodwill is to be measured at cost, less any accumulated impairment losses and goodwill to be reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The acquired goodwill is written-off in full in the year of acquisition.

When Subsidiaries/Associates/other business units are sold, the difference between the selling price and the net assets plus cumulative translation differences and unimpaired goodwill, if any, is recognised in the Income Statement in the year of disposal.

3.6.4 Transactions Eliminated on Consolidation

All intra-group transactions, balances, income and expenses are eliminated on consolidation. Unrealised gains and losses resulting from transactions between the Group and its Associates are also eliminated on consolidation to the extent of the Group’s interests in the Associates. Where necessary, adjustments are made to the Financial Statements of Subsidiaries to bring the Accounting Policies used in line with those used by the Group. 3.7 TAXATION

Provision for taxation comprises current and deferred tax and Social Responsibility Levy. Provision for taxation is recognised in the Income Statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Provision for taxation on the overseas operations is made on the basis of the profit for the year as suggest for taxation purposes in accordance with the provisions of the relevant regulations in the respective country.

3.7.1 Current Taxation Provision for taxation on Sri Lankan operations is made on the basis of the net profit for the year as adjusted for taxation purposes in accordance with the provisions of the Inland Revenue Act No. 10 of 2006 and the amendments thereto. Provision for taxation on the overseas branches is made on the basis of the net profit for the year as adjusted for taxation purposes in accordance with the provisions of the relevant statutes in

B O C DEBENTURE PROSPECTUS 113 those countries.

3.7.2 Deferred Taxation Deferred tax is provided in full, using the Liability Method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Financial Statements. Deferred tax liabilities are recognised for all taxable temporary differences, except:

• Liabilities arising from goodwill for which amortisation is not deductible for tax purposes. • Liabilities arising from the initial recognition of an asset/liability other than in business combinations which, at the time of transaction, does not affect either the accounting or taxable profit.

Deferred tax assets are recognised for all deductible temporary differences, unused tax losses to the extent that it is probable that taxable profit will be available against, which the deductible temporary differences can be utilised, except: • Negative goodwill, which was treated as deferred income under business combinations. • The initial recognition of an asset/liability other than in a business combination which, at the time of transaction, does not affect the accounting or taxable profit.

The carrying amount of deferred tax asset is reviewed at each Balance Sheet date and reducedto the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax assets to be utilised. Any such reduction should be subsequently reversed to the extent that it becomes probable that sufficient taxable profit would be available.

Deferred tax assets and liabilities are measured at the tax rate that are expected to apply in the year when the assets are realised or the liabilities are settled, based on tax rates and tax laws that have been enacted or substantially enacted at the Balance Sheet date.

Current tax and deferred tax relating to items recognised directly in equity are also recognised in equity. Deferred tax assets and liabilities are set off if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

3.7.3 Value Added Tax (VAT) on Financial Services During the year, the Bank’s total value addition was subjected to a 20% Value Added Tax as per Section 25 (a) of the Value Added Tax Act No. 14 of 2002 and amendments thereto.

3.7.4 Economic Service Charge (ESC) In terms of the provisions of the Economic Service Charge Act No. 13 of 2006, ESC is payable on the liable turnover at specified rates. ESC paid is deductible from the income tax liability. Any unclaimed liability can be carried forward and set off against the income tax payable for a further four years.

3.7.5 Social Responsibility Levy (SRL) In terms of the provisions of the Finance Act No. 05 of 2005, as amended by theFinance Act No. 11 of 2006, SRL is payable at the rate of 1.5% on all taxes and levies chargeable as specified in the First Schedule of the Act.

3.7.6 Withholding Tax on Dividends Dividend distributed out of taxable profit of the Subsidiaries and Associate Companies attracts a 10% deduction at source and is not available for set off against the tax liability of the Bank. Thus, the withholding tax deducted at source is added to the tax expense in preparing the Consolidated Financial Statements as a consolidation adjustment.

B O C DEBENTURE PROSPECTUS 114 4. ASSETS AND BASIS OF THEIR VALUATION

4.1 LOANS AND ADVANCES, FINANCE LEASES AND CREDIT CARD RECEIVABLE

4.1.1 Loans and Advances All loans and advances are recognised when cash is advanced to borrowers. Loans and advances are stated in the Balance Sheet net of provisions for loan losses and net of interest, which is not accrued to revenue.

4.1.2 Finance Leases Assets leased to customers, which transfer substantially all the risks and rewards associated with ownership other than legal title for a specific period are accounted for as finance leases.

Lease receivables are stated in the Balance Sheet net of initial rentals received, unearned lease income and provision for rentals doubtful of recovery.

4.1.3 Credit Card Receivable Amounts receivable on credit cards are included in advances to customers at the amounts expected to be recovered.

4.2 NON-PERFORMING LOANS AND PROVISION FOR LOAN LOSSES

4.2.1 (a) Non-Performing Loans

Loans and advances, which are in arrears of due capital and/or interest are classified as non-performing as per the Direction No. 03 of 2008 on ‘Classification of Loans and Advances, Income Recognition and Provisioning’, as amended by the Direction No. 09 of 2008 on ‘Amendments to Directions on Classification of Loans and Advances, Income Recognition and Provisioning for Licensed Commercial Banks in Sri Lanka’ issued by the Central Bank of Sri Lanka.

4.2.1 (b) Foreclosed Properties

Foreclosed properties represent properties that are acquired in full or partial settlement of debts. These properties are classified as non-performing advances and accounted for at the lower of cost or market value on an individual property basis. The shortfall between the market value of the foreclosed properties and the related loan outstandingis recognised as a provision for loan losses in the Income Statement. Foreclosed properties are not subject to depreciation.

Subsequent gains and losses on the disposal of the foreclosed properties are taken into account in determining operating profits.

4.2.2 Provision for Loans, Advances and Finance Leases

4.2.2 (a) Provision for Non-Performing Loans and Advances

Provisions for non-performing loans and advances are made on the basis of continuous review of all loans and advances in accordance with Sri Lanka Accounting Standard No23 on‘Revenue Recognition and Disclosures in the Financial Statements of Banks’ and the regulations imposed by the Central Bank of Sri Lanka.

Accordingly, specific provisions have been made as follows:

B O C DEBENTURE PROSPECTUS 115 Period outstanding Classification rovision made net of realisable value of the security

3 to 6 months Special mention - 6 to 12 months Substandard 20% 12 to 18 months Doubtful 50% 18 months and over Loss 100%

Additional provisions have also been made over and above the minimum percentages specified above, on a case-by-case basis depending on the risk associated with such loans.

When a loan is deemed uncollectible, it is written-off against the related provision for impairments. Subsequent recoveries are credited to the Income Statement.

In addition, the value of the security is determined on the ‘Hair Cut Rule’ imposed by the Central Bank of Sri Lanka, i.e., the extent up to which the Forced Sale Value (FSV) of immovable property can be counted as the value of security (which is given below) in calculating the provisioning for non-performing advances

Item % of FSV of immovable property that can be considered as the net value of security Freehold Leasehold property property

For the advances in the substandard and doubtful category 75 60 For the Advances in the Loss Category Less than 12 months 75 60 More than 12 months but less than 24 months 60 50 More than 24 months but less than 36 months 50 40 More than 36 months but less than 48 months 40 30 More than 48 months 40 Nil

4.2.2 (b) Provision for Lease Rentals Receivable in Arrears

When the rental is in arrears over a consecutive period of 90 days, the specific provision is made as follows:

Period of outstanding Classification Provision

90 - 180 days Special mention -

Over 180 days Loss 100%

B O C DEBENTURE PROSPECTUS 116 Category Provision

A 100% of capital outstanding of lease assets minus 50% of the invoice value/condition and valuation report whichever is lower, net of upfront rentals and cash security obtained,if any. B 100% of capital outstanding net of upfront rentals and cash security obtained, if any.

Category A - Identified at the time of termination of lease contract.

Category B - Identified at the time of loss of the assets

4.2.2 (c) Provision for Credit Card Receivable When the required minimum payment is in arrears on credit card receivable, specific provision is made as follows: Period of outstanding Classification Provision 3 - 4 months Special mention - 4 - 6 months Substandard 25% 6 - 8 months Doubtful 50% Over 8 months Loss 100%

4.2.2 (d) Provision for Pawning A 100% specific provision is made for the total amount advanced for unsold articles at every auction.

4.2.2 (e) Provision for Regular Advances

Apart from specific provisions, the Bank also carried general provision of 1% on total performing and overdue loans and advances for credit losses to absorb all losses inherent in its loan portfolio including credit card receivable, lease rentals receivable, and pawning upto 30 September 2010.

According to the Banking Act Direction No. 03 of 2010, ‘Amendments to Direction on Classification of Loans and Advances, Income Recognition and Provisioning for Licensed Commercial Banks in Sri Lanka’, banks shall maintain general provision of 0.5% of total outstanding of on Balance Sheet performing loans and advances and total outstanding of special mention on-Balance Sheet credit facilities net of interest in suspense commencing from 01 January 2012. In order to fulfil the above requirement, the banks shall reduce 0.1% per quarter during the five quarters commencing 01 October 2010 to arrive at the statutory requirement. Accordingly, the Bank has reduced the general provision to 0.9% on total performing and overdue loans and advances as at 31 December 2010 (1% as at 31 December 2009).

4.2.3 Write-off Policy of the Bank The Bank writes off a loan net of related loan loss provisions when it determines that the loan is uncollectible. This decision is made when the borrower can no longer pay or the proceeds from collateral is not sufficient to pay back the entire obligation

4.3 INVESTMENTS

B O C DEBENTURE PROSPECTUS 117 4.3.1 Investments in Subsidiaries Investments in Subsidiaries are accounted for under the Cost Method of accounting in the Bank’s Financial Statements in accordance with the Sri Lanka Accounting Standard No. 26 (Revised 2005) on ‘Consolidated and Separate Financial Statements’. Accordingly, investments in Subsidiaries are stated in the Bank’s Balance Sheet at cost, less impairment losses, if any.

4.3.2 Investments in Associates Investments in Associates are accounted for under the Cost Method in the Bank’s Financial Statements and under the Equity Method in the Group’s Financial Statements in accordance with the Sri Lanka Accounting Standard No. 27 (Revised 2005) ‘Investment in Associates’.

In the Bank’s Balance Sheet, investments in Associates are stated at cost, less impairment losses, if any. Under the Equity Method, the investments in Associates are initially accounted for at cost and the carrying amount is adjusted for post-acquisition changes in the Bank’s share of net assets of the Associates, less any impairment.

4.3.3 Dealing Securities These are marketable securities acquired and held with the intention of resale over a short period of time. Such securities are initially measured at cost and subsequently marked to market and carried at market value in the Balance Sheet. Any gains/ losses on marked to market valuation are dealt with through the Income Statement

4.3.4 Investment Securities These are acquired and held for yield or capital growth in the medium or long term with the positive intent and ability to hold until maturity. Such securities are recorded at cost in accordance with Sri Lanka Accounting Standard No. 22 on ‘Accounting for Investments’. Changes in market values of these securities are not taken into account, unless there is considered to be diminution in value, which is other than temporary.

4.3.5 Non-Current Assets Held for Sale

These are investments classified as held for sale as at the Balance Sheet date. The Bank inteto recover the value of these assets, principally through a sales transaction rather than continuing to hold. These are assets which are available for immediate sale in their present condition, subject to only the terms that are usual and customary for sale of such assets and where sale is highly probable. These assets are measured at the lower of the carrying amount and fair value less costs to sell, as per the Sri Lanka Accounting Standard No. 38 (Revised 2006) on ‘Non-current Assets Held for Sale and Discontinued Operations’.

4..4 PROPERTY, PLANT & EQUIPMENT

The Group applies the requirements of the Sri Lanka Accounting Standard No. 18 (Revised 2005) on ‘Property, Plant & Equipment’ in accounting for its own assets which are held for and used in the provision of services, for rental to others or for administrative purposes and are expected to be used more than one year.

4.4.1 Basis of Recognition Property,plant & equipment are recognised ifit is probable that future economic benefits associated with the assets will flow to the Group and the cost of the asset can be reliably measured.

4.4.2 Measurement An item of property, plant & equipment that qualifies for recognition as an asset is initially measured at its cost of purchase directly attributable to the acquisition of the asset or construction or valuation together with any incidental expenses thereon.

The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral

B O C DEBENTURE PROSPECTUS 118 to the functionality of the related equipment is capitalised as part of the computer equipment.

4.4.3 Cost Model The Group applies Cost Model to plant & equipment and records at cost of purchase or construction together with any incidentalexpenses thereon, less accumulated depreciation and any accumulated impairment losses.

4.4.4 Revaluation Model

The Group applies the Revaluation Model for the entire class of freehold land and buildings. Such properties are carried at a revalued amount,being their fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairmentlosses. Freehold land and buildings of the Bank are revalued every seven years on a roll over basis to ensure that the carrying amounts donot differ materially from the fair values at the Balance Sheet date. On revaluation of an asset, any increase in the carrying amount is credited directly to equity, under capital reserve or used to reverse a previous revaluation decrease relating to the same asset, which was debited to the Income Statement. In this circumstance, the increase is recognised as income to the extent of the previous written- down. Any decrease in the carrying amount is recognized as an expense in the Income Statement or debited directly to equity under revaluation reserve to the extent of any credit balance existing in the capital reserve in respect of that asset. When a revalued asset is disposed off, any revaluation surplus willbe transferred directly to retained earnings.

4.4.5 Subsequent Costs

The cost of replacing part of an item of property, plant & equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within that part will flow to the Group and its cost can be reliably measured.

4.4.6 Restoration Costs

The cost incurred on repairs or maintenance of property, plant & equipment in order to restore or maintain future economic benefits is charged to Income Statement as incurred. 4.4.7 Derecognition The carrying amount of an item of property, plant & equipment is derecognised on disposal or when no future economic benefits are expected from its use or disposal. The gain or loss arising from the derecognition of an item of property, plant & equipment is included in the Income Statement when the item is derecognised.

When replacement costs are recognised in the carrying amount of an item of property, plant & equipment, the remaining carrying amount of the replaced part is derecognised.

4.4.8 Depreciation The Group provides depreciation on straight-line basis over the periods appropriate to the estimated useful lives of the different types of assets.

Provisioning for depreciation of property, plant & equipment is made on pro-rata basis.

The depreciation on domestic assets is determined using the following estimated useful lives:

B O C DEBENTURE PROSPECTUS 119 Freehold Building Over 40 years Office Equipment Over 08 years Furniture & Fittings Over 08 years Computer Equipment Over 05 years Motor Vehicles Over 04 years

The future economic benefits embodied in the assets that are used by overseas business operations are different from those used domestically in terms of the asset’s expected utility.

Accordingly, the depreciation on assets belonging to overseas operations are determined using the following estimated useful lives:

Freehold Building Over 50 years

Freehold/Leasehold Refurbishment Over 10 years

Office Equipment & Computers Over 05 years

Furniture & Fittings Over 10 years

The asset’s residual value, useful life and method of depreciation are reviewed at each Balance Sheet date to change estimates.

4.4.9 Capital Work-In-Progress Capital work-in-progress is stated at cost. These are expenses of a capital nature directly incurred in the construction of buildings, major plant and machinery and system development, awaiting capitalisation.

4.4.10 Borrowing Costs Borrowing costs that are directly attributable to the acquisition, construction or production of aqualifying asset have been capitalised as part of the cost of the asset in accordance with the Sri Lanka Accounting Standard No. 20 on ‘Borrowing Costs’. Capitalisation of borrowing costs ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use are completed.

4.5 LEASEHOLD PROPERTY Leasehold properties are recorded at carrying value in terms of the Sri Lanka Accounting Standard No. 19 (Revised 2005) on ‘Leases’.

The carrying value of leasehold properties is amortised over the remaining lease term or useful life of leasehold property, whichever is lower. Subsequent revaluations are not carried out for leasehold properties.

B O C DEBENTURE PROSPECTUS 120 4.6 INTANGIBLE ASSETS The Group applies the requirements of the Sri Lanka Accounting Standard No. 37 on ‘Intangible Assets’ in accounting for intangible assets.

4.6.1 Basis of Recognition An intangible asset is recognised if it is probable that the future economic benefits that are attributable to the asset will flow to the entity and the cost of the assets can be measured reliably.

4.6.2 Measurement 4.6.2 (a) Software Software represents the value of computer application software licensed for use of the Group, other than software applied to the operation software system of computers. Intangible assets are carried at its cost, less accumulated amortisation and any impairment losses.

The initial costs comprise licence fees paid at the time of purchase, duties/levies and also other directly attributable expenditure that are incurred in customising the software for its intended use.

4.6.2 (b) Goodwill Goodwill arising on the acquisition represents the excess of the cost of acquisition over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities at the date of acquisition. According to the Sri Lanka Accounting Standard No. 25 (Revised 2004) on ‘Business Combinations’, goodwill is no longer amortised. Instead, goodwill is tested for impairment annually and assessed for any indication of impairment at each reporting date to ensure that its carrying amount does not exceed its recoverable amount. If an impairment loss is identified, it will be recognised immediately in the Income Statement.

The negative goodwill is recognised immediately in the Income Statement.

4.6.3 Subsequent Expenditure Expenditure incurred on software is capitalised only when it enhances and extends the economic benefits of computer software beyond their original specifications and lives and such cost is recognised as capital improvement and added to the original cost of software.

4.6.4 Amortisation Intangible assets except for goodwill are amortised using the straight-line method over the estimated useful life of five years commencing from the date the application software is available for use over the best estimate of its useful economic life.

The unamortised balances of software with finite lives are reviewed for impairment whenever there is an indication for impairment and recognised as expenses in the Income Statement to the extent that they are no longer probable of being recovered from the expected future benefits.

4.6.5 Derecognition Intangible assets are derecognised when it reveals that they will not generate economic benefits or circumstances indicate that the carrying value is impaired.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the assets and are recognised in the Income Statement.

4.7 INVESTMENT PROPERTIES The Group applies the requirements of the Sri Lanka Accounting Standard No. 40 (Revised 2005) on

B O C DEBENTURE PROSPECTUS 121 ‘Investment Property’, in accounting for investment properties.

4.7.1 Basis of Recognition Investment property is property that is held to earn rentals or for capital appreciation or both and the future economic benefits that are associated with the investment property but not for sale in the ordinary course of business.

4.7.2 Measurement Investment property is accounted for under Cost Model in the Financial Statements. Accordingly, after recognition as an asset, the property is carried at its cost, less accumulated depreciation and impairment losses.

4.7.3 Depreciation Depreciation is provided on a straight-line basis over the estimated life of the class of asset from the date of purchase up to the date of disposal.

4.7.4 Derecognition Investment properties are derecognised when disposed of, or permanently withdrawn from use because no future economic benefits are expected. Transfers are made to and from investment property only when there is a change in use.

The gain/loss on disposal is calculated as the difference between the net disposal proceeds and the carrying amount of the asset and is recognised as income or expense in the Income Statement.

4.8 IMPAIRMENT OF ASSETS The carrying amounts of the Group’s assets are reviewed at each reporting date to determine whether there is objective evidence of impairment. If any such evidence exists, the carrying amount of a particular asset or portfolio of assets is reduced to the estimated recoverable amount by means of a charge to the Income Statement, in those expense categories consistent with the function of the impaired asset or portfolio of assets, except for property previously revalued where the revaluation was taken to equity. In this case, the impairment is also recognised in equity up to the amount of any previous revaluation

The recoverable amount of an asset is the higher of its net selling price and value in use. The net selling price is the fair value of an asset or cash-generating unit, less costs to sell. In determining the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time-value of money and the risks specific to the assets. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then, to reduce the carrying amount of the other assets in the unit.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of the recoverable amount. Previously recognised impairment losses other than in respect of goodwill are reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment losses were recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. Such reversal is recognised in the Income Statement unless the asset is carried at the revalued amount, in which case, the reversal is treated as a revaluation increase.

4.9 SECURITIES PURCHASED UNDER RE-SALE AGREEMENTS (REVERSE REPOS) Securities purchased under re-sale agreements are treated as collateralised lending and recorded at the consideration paid and interest accrued thereon. The amount lent is shown as an asset either as loans and advances to customers or loans to other banks.

The difference between purchase price and re-sale price is treated as interest received and accrued evenly over the life of Repo agreement.

B O C DEBENTURE PROSPECTUS 122 4.10 GOVERNMENT OF SRI LANKA TREASURY BILLS, BONDS AND OTHER SECURITIES

4.10.1 Investments that are held for trading Investments in Treasury Bills and Treasury Bonds that are acquired for the purpose of short-term selling (held for trading) are marked to market and carried at that value in the Balance Sheet. Gains and losses on marked to market valuation are dealt with through the Income Statement

4.10.2 Investments that are held to Maturity Investments in Treasury Bills and Treasury Bonds that the Bank intends and is able to hold to maturity are reflected at the value of the Bonds/ Bills purchased and the discount/premium accrued thereon. Discounts received/premia paid are taken to the Income Statement based on a pattern reflecting a constant periodic rate of return.

5. LIABILITIES AND PROVISIONS

5.1 DEPOSITS FROM CUSTOMERS Deposits from customers include non-interest bearing deposits, savings deposits, term deposits, 7 days’ call deposits and certificate of deposits. They are stated in the Balance Sheet at amounts payable. Interest paid/payable on these deposits is charged to the Income Statement.

5.2 BORROWED FUNDS Borrowed funds include call money borrowings, refinance borrowings and other term borrowings from banks. They too are stated in the Balance Sheet at amounts payable. Interest paid/payable on these borrowings is charged to the Income Statement.

5.3 SECURITIES SOLD UNDER RE-PURCHASE AGREEMENTS (REPOS) Securities sold under re-purchase agreements (‘Repos’) are treated as collateralised borrowings and stated at the consideration received and interest accrued thereon. These are retained in the Financial Statements and the counter-party liability is accounted for as a liability and classified under debt securities in issue.

The difference between sale and re-purchase price is treated as interest paid and accrued evenly over the life of the Repo period.

5.4 DEBENTURES These represent the funds borrowed by the Group for long-term funding requirements, from the public issues and through private placements. These are recorded in the Balance Sheet at amounts expected to be payable at the Balance Sheet date.

5.5 OTHER LIABILITIES Other liabilities comprise of interest, fees, expenses payable and other provisions. These liabilities are recorded at the cash value to be paid. 5.6 DEFINED BENEFIT PLANS 5.6.1 Bank of Ceylon Pension Trust Fund

The ‘Bank of Ceylon Pension Trust Fund’ is a funded, non-contributory, defined retirement benefit plan, operated for the payment of pensions until death to the permanent employees who have completed a

B O C DEBENTURE PROSPECTUS 123 minimum of ten years of continuous service with the Bank, at their retirement on reaching the retirement age on or after 55 years or on medical grounds, before reaching retirement age. The pension is computed as a percentage of the last drawn salary excluding certain allowances.

Contributions to the Pension Trust Fund are made monthly, based on the advice of a qualified actuary, currently at 56.76% of gross salary for employees who joined the Bank prior to 01 January 1996. Employees who joined the Bank on and after 01 January 1996 may contribute 20% of their gross salary to a Pension Fund in which event the Bank contributes 5%. This arrangement is tentatively pending until the formulation of a contributory pension scheme is finalised.

The fund is actuarially valued by a qualified actuary once in three years.

The Subsidiaries do not operate Pension Funds.

5.6.2 Bank of Ceylon Widows’/Widowers’ and Orphans’ Pension Fund

The Bank is liable for and guarantees the payments to the beneficiaries of the ‘Bank of Ceylon Widows’/Widowers’ and Orphans’ Pension Fund’ to which the Bank’s employees monthly contribute 8% of their gross salary. The Bank’s liability towards the beneficiaries of the employees arises when an employee who has contributed to the fund for five continuous years dies while in service or on the death of a pensioner where the Bank will be liable to pay a monthly Widows’/Widowers’ and Orphans’ Pension to his/her beneficiaries. The pension to beneficiaries of an employee who dies while in service is based on the last drawn salary excluding certain allowances.

The fund is actuarially valued by a qualified actuary once in three years. Funding would be done in consultation with the Actuary, Trustees and Beneficiaries. Currently, the Bank contributes a sum of Rs. 456 million per annum to meet the deficit as recommended by the Actuary.

Both the Pension Fund and the Widows’/ Widowers’ and Orphans’ Pension Fund are approved by the Government and are independently administered.

5.6.3 Provision for Gratuity Provision has not been made in the Financial Statements for retirement gratuity payable under the Payment of Gratuity Act No. 12 of 1983, to employees who joined the Bank prior to 01 January 1996 as the Bank has its own non-contributory retirement benefit scheme in force. However, employees whose services are terminated other than by retirement are eligible to receive a terminal gratuity under the Payment of Gratuity Act No. 12 of 1983, at the rate of one-half of the basic or consolidated wage or salary, cost of living and all other allowances applicable to the last month of the financial year, for each year of continuous service. A provision is being made in these Financial Statements for retirement gratuities from the first year of service for all employees who joined the Bank on or after 01 January 1996, as they are not covered by the pension scheme of the Bank.

In terms of the Sri Lanka Accounting Standard No. 16 (Revised 2006) on ‘Employee Benefits’, the Bank and its Subsidiaries have calculated the post-employment benefit obligations, based on the actuarial valuation method recommended in SLAS 16 and recognised that provision in the Income Statement.

The Gratuity Liabilities are not externally funded.

5.7 DEFINED CONTRIBUTION PLANS Contributions to defined contribution plans are recognised as an expense in the Income Statement as incurred.

5.7.1 Bank of Ceylon Provident Fund All employees of the Bank are members of the ‘Bank of Ceylon Provident Fund’ to which the Bank contributes 12% of employees’ monthly gross salary excluding overtime, while employees contribute 8%. The Bank’s Provident Fund is an approved Fund, which is independently administered.

B O C DEBENTURE PROSPECTUS 124 5.7.2 Employees’ Provident Fund The Subsidiaries and their employees (other than Bank of Ceylon and its employees) contribute 12% (15% by Property Development PLC) and 8% respectively on salary of each employee to Employees’ Provident Fund, in terms of the Employees’ Provident Fund Act No. 15 of 1958 as amended.

5.7.3 Employees’ Trust Fund All employees of the Bank and its Subsidiaries are members of the Employees’ Trust Fund to which Bank/Group contributes 3% of employees’ monthly gross salary excluding overtime, in terms of the Employees’ Trust Fund Act No. 46 of 1980.

5.8 PROVISIONS FOR LIABILITIES A provision is recognised in the Balance Sheet when the Bank has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligations, in accordance with the Sri Lanka Accounting Standard No. 36 on ‘Provisions, Contingent Liabilities and Contingent Assets’.

6. INCOME STATEMENT

6.1 REVENUE RECOGNITION - BANK AND NON-INSURANCE BUSINESS

6.1.1 Interest Income from Loans and Advances Interest on loans and advances is accounted for in terms of the provisions of the Sri Lanka Accounting Standard No. 23 on ‘Revenue Recognition and Disclosures in the Financial Statements of Banks’. Accordingly, interest income from loans and advances is recognised on an accrual basis. Interest ceases to be accrued when the recovery of principal or interest is in arrears for more than 90 days. Interest income from non-performing loans and advances is accounted for on cash basis. Interest falling due on non-performing loans and advances is credited to interest in suspense account on memorandum basis. In addition, interest accrued upto three months on such non-performing loans and advances is also eliminated from the interest income and transferred to interest in suspense.

6.1.2 Lease Income Lease income is accounted for in terms of the provisions of the Sri Lanka Accounting Standard No. 19 (Revised 2005) on ‘Leases’. Accordingly, lease income is the interest component of the lease rentals of all finance leases receivable during the year. The excess to the aggregate rental receivable over the cost of the leased assets constitutes unearned income, which is taken into revenue over the term of the lease from the month in which the lease is executed,in proportion to the remaining receivable balance of the lease. Interests on finance leases cease to be accrued when they are in arrears for more than 90 days. Thereafter, such income is recognised on cash basis.

6.1.3 Interest Income from Other Sources Interest income from securities issued by Government or Central Bank of Sri Lanka is recognised on a time proportionate basis as premia/discounts on purchase and amortised to income on a straight-line basis over the period to maturity. Income from all other interest-bearing securities is recognized on an accrual basis.

6.1.4 Commission and Fee Income Commission and fee income mainly comprise fees receivable from customers for guarantees and other services provided by the Group, and fees for foreign and domestic payment tariff. Such income is recognised as revenue at the time the services are provided.

6.1.5 Income on Discounting of Bills of Exchange Income on the endorsement of Bills of Exchange is recognised only when the bill is received and either issued or endorsed, and the payment under the particular instrument has been effected.

B O C DEBENTURE PROSPECTUS 125 6.1.6 Dividend Income Dividend income is recognised when the right to receive payment is established.

6.1.7 Profit/Loss from Sale of Property, Plant & Equipment Profit/Loss arising from sale of property, plant & equipment is recognised in the period in which the sale occurs and is classified as other income.

6.1.8 Gains or Losses arising from Investment Securities Gains or losses arising from the sale of equity shares, units, and financial instruments, including Treasury Bills sold prior to maturity, are accounted for on the date on which the transaction takes place.

6.1.9 Rental Income Rental income is recognised on an accrual basis.

6.1.10 Interest Expenses Interest expenses are recognised on an accrual basis. 6.1.11 Operating Expenses All the expenses payable are recognised on an accrual basis in the Income Statement to the period to which they relate.

6.2 GENERAL INSURANCE BUSINESS

6.2.1 Gross Written Premiums Premium is generally recognised as written upon inception of the policy. Upon inception of the contract, premium is recorded as written and is earned primarily on a pro-rata basis over the term of the related policy coverage. However, for those contracts for which the period of risk differs significantly from the contract period, premium is earned over the period of risk in proportion to the amount of insurance protection provided.

6.2.2 Reinsurance Premium Reinsurance premium expense is accounted for in the same accounting period as the Gross Written Premium to which it relates or in accordance with the pattern of reinsurance services received.

6.2.3 Unearned Premium Unearned premium is the portion of the gross premium and reinsurance premium written in the current year in respect of risks related to subsequent periods. Unearned premium is calculated on the 24th basis in accordance with the Rules made by the Insurance Board of Sri Lanka under the Regulation of Insurance Industry Act No. 43 of 2000.

6.2.4 Unexpired Risk Provision is made where appropriate for the estimated amount required over and above unearned premiums to meet future claims and related expenses on the business in force as at the reporting date.

6.2.5 Deferred Acquisition Expenses Acquisition expenses, represent commissions and other underwriting expenses, which vary with and are directly related to the production of business, are deferred and amortised over the period in which the related written premium is earned. Reinsurance Commission is also treated in the same manner with deferred acquisition costs and it is calculated on the 24th basis in accordance with the Rules made by the Insurance Board of Sri Lanka under the Regulation of Insurance Industry Act No. 43 of 2000. 6.2.6 Premiums Receivable

B O C DEBENTURE PROSPECTUS 126 According to the Premium Payment Warranty (PPW) ruling by the Insurance Board of Sri Lanka (IBSL), all policies issued and not recovered over 60 days are cancelled.

6.2.7 Reinsurance Receivable Reinsurance assets include the balances due from both insurance and reinsurance companies for paid and unpaid losses and loss adjustment expenses. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. Reinsurance is recorded gross in the Balance Sheet, unless a right to offset exists.

If a reinsurance asset is impaired, the Company reduces the carrying amount accordingly and recognises a loss in the Statement of Income. A reinsurance asset is impaired if there is objective evidence, as a result of an event that occurred after the initial recognition of the reinsurance asset, that the Company may not receive amounts due to it under the terms of their contract, and the event has a reliably measurable impact on the amount that the Company will receive from the reinsurer.

6.2.8 Claims Claims expense and a liability for outstanding claims are recognised in respect of direct and inwards reinsurance business. The liability covers claims Incurred But Not Reported claims (IBNR) and the anticipated direct and indirect costs of settling those claims. Claims outstanding are assessed by review of individual claim files and estimating changes in the ultimate cost of settling claims, IBNRs and settlement costs using statistics, based on past experience and trends.

Actuarial valuations are performed on an annual basis. While the Directors consider that the provision for claims is fairly stated on the basis of information currently available, the ultimate liability will vary as a result of subsequent information and events. This may result in adjustments to the amounts provided. Such amounts are reflected in the Financial Statements for that period. The methods used and the estimates made are reviewed regularly.

In addition to the normal insurance policies, the Company has issued the advance, bid and performance bonds during the financial period and claims expenses on those bonds have been specifically mentioned in the bond agreements with the policyholders.

6.3 LIFE INSURANCE BUSINESS 6.3.1 Gross Written Premium Premium from traditional life insurance contracts, including participating contracts and annuity policies with life contingencies, is recognised as revenue when cash is received from the policyholder. Benefits and expenses are provided against such revenue to recognised profits over the estimated life of the policies. Moreover, for single premium contracts, premium is recorded as income when received with any excess profit deferred and recognise in income in a constant relationship to the insurance in-force or, for annuities, the amount of expected benefit payments.

6.3.2 Reinsurance Premium Outward reinsurance premium is recognised when payable. Reinsurance recoveries are credited to match the relevant gross claims.

6.3.3 Benefits, Losses and Expenses Death claims are recorded on the basis of notifications received. Surrenders, maturities and annuity payments are recorded when due. Claims payable include direct costs of settlement. Interim payments and surrenders are accounted for only at the time of settlement.

6.3.4 Actuarial Valuation for Long-Term Insurance Provision The Directors agree to the long-term insurance provision for the Company at the year end on the recommendations of the Consultant Actuary following his annual investigation of the life insurance business. The actuarial valuation takes into account all liabilities and is based on assumptions recommended by the Consultant Actuary.

B O C DEBENTURE PROSPECTUS 127 7. ISLAMIC BANKING POLICIES

Islamic Banking operations in the Bank are conducted in line with Shari’ah principles while complying with the Bank of Ceylon Ordinance and the Banking Act No. 30 of 1988 and amendments thereto. A separate unit has been formed in line with the Standards set out by the Banking Advisory Committee of All Ceylon Jamiyathul Ulama (ACJU) - the apex body of Muslim theologians. Accordingly an independent Shari’ah Supervisory Board consisting of renowned Shari’ah Scholars of the country has been formed to advise and ensure the compliance of Islamic principles.This expert advice is a part of Governance requirement to ensure the harmonised operations under the existing regulatory, audit and accounting environment.

Profit sharing deposits are mobilised under the principle of Mudaraba, which is in line with the Shari’ah Standards of Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). Similarly, demand deposits are accepted under the concept of ‘Qard’ (loan), which enables the depositor to withdraw his funds on demand.

Asset side of the Islamic Banking Balance Sheet is at present, represented by the following instruments that are also modified in line with Standards:

• Murabaha to the purchase order (cost plus sale)

• Ijarah (leasing) • Wakala Isthismar (agency arrangement in fund management)

8. COMMITMENTS AND CONTINGENCIES Contingent liabilities are the possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is not probable or cannot be reliably measured. Contingent liabilities are not recognised in the Balance Sheet but are disclosed, unless they are remote.

9. SEGMENTAL REPORTING Segmental information is presented in accordance with Sri Lanka Accounting Standard No. 28 (Revised 2000) on ‘Segment Reporting’, in respect of the Group’s business.

Business segments provide products and services whose risks and returns are different from those of other business segments. These segments comprise banking, leasing, treasury and investment, property and insurance. Geographical segments provide products or services within a particular economic environment where risks and returns are different from those of other economic environments. These segments comprise domestic, off-shore banking units (branches) and off-shore banking division and foreign subsidiary.

Measurement of segment results, assets and liabilities include items which are directly attributable or can be reasonably allocated to a segment. Other items are reported as unallocated.

10. CASH FLOW STATEMENT The Cash Flow Statement has been prepared by using the ‘Direct Method’ in accordance with the Sri Lanka Accounting Standard No. 09 on ‘Cash Flow Statements’. Cash and cash equivalents comprise cash, amounts due from other banks and other short-term highly-liquid investments with less then 90 days, maturity from date of acquisition.

11. COMPARATIVE FIGURES Where necessary, amounts shown for the previous year have been reclassified to facilitate comparison.

B O C DEBENTURE PROSPECTUS 128 12. EVENTS AFTER THE BALANCE SHEET DATE Where necessary, all the material events after the Balance Sheet date have been considered and appropriate adjustments/disclosures have been made in the Financial Statements as per the Sri Lanka Accounting Standard No. 12 (Revised 2005) on ‘Events After the Balance Sheet Date’.

13. NEW ACCOUNTING STANDARDS ISSUED BUT NOT EFFECTIVE AS AT THE BALANCE SHEET DATE Following the convergence of Sri Lanka Accounting Standards with International Financial Reporting Standards, the Council of The Institute of Chartered Accountants of Sri Lanka has adopted a new set of Financial Reporting Standards that would apply for financial periods beginning on or after 01 January 2012. The application of these Financial Reporting Standards is substantially different to the previous Standards. Accordingly, Sri Lanka Accounting Standardsare based on International Financial Reporting Standards (IFRs) and International Accounting Standards (IASs) formulated by International Accounting Standards Board and they will be prefixed as SLFRS or LKAS, respectively.

These Standards have not been applied in preparing the Financial Statements as they were not effective for the year ended 31 December 2010. However, the Bank is in the process of evaluating the impact of adopting to new SLFRSs and LKASs from 01 January 2012 with greater consideration on the following Standards:

• LKAS 32 on ‘Financial Instruments: Presentation’. (SLAS 44) • LKAS 39 on ‘Financial Instruments: Recognition and Measurement’. (SLAS 45) • SLFRS 7 on ‘Financial Instruments: Disclosure’. (SLAS 46)

Due to the complex nature of the effects of these Standards, the impact of adoption cannot be estimated as at the date of publication of these Financial Statements

B O C DEBENTURE PROSPECTUS 129 NOTES TO THE FINANCIAL STATEMENTS

Bank Group For the year ended 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

1. INCOME Interest income (Note 2) 50,853,347 53,076,779 53,062,286 55,279,046 Dividend income (Note 6) 468,998 347,878 257,910 150,456 Net gains from investment in securities (Note 7) 3,105,791 1,961,210 3,508,297 2,012,436 Fee and commission income (Note 4) 6,014,178 4,255,204 6,487,663 4,353,702 Foreign exchange profit 408,686 1,566,916 418,461 1,566,916 Other operating income (Note 8) 1,143,913 753,247 1,524,738 1,128,780 Recovery of non-performing advances (Note 13) 1,367,953 1,500,132 1,394,539 1,506,205 Share of profit of Associate Companies before tax (Note 14) – – 212,898 130,653 63,362,866 63,461,366 66,866,792 66,128,194

2. INTEREST INCOME Customer advances Bills of exchange 1,825,130 1,763,957 1,893,923 1,835,221 Loans and advances 24,029,532 25,608,860 24,599,475 25,983,944 Leasing 728,841 936,415 2,086,052 2,335,035 Trade finance 1,510,508 1,876,456 1,536,935 1,898,749 Pawning 7,144,581 6,953,328 7,151,380 6,954,826 Treasury bills, bonds and other eligible bills 13,143,034 13,566,316 13,288,145 13,843,703 Securities purchased under re-sale agreements 990,515 682,904 1,001,487 691,481 Short-term funds 282,908 531,376 306,591 578,920 Government of Sri Lanka Restructuring Bonds 1,025,640 1,025,640 1,025,640 1,025,640 Government securities 172,658 131,527 172,658 131,527 50,853,347 53,076,779 53,062,286 55,279,046

Net interest income earned from the secondary market transactions in Treasury bills and Treasury bonds has been grossed up by adding the notional tax credit to the interest income. More details are given in Note 15.5.

Bank Group For the year ended 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

3. INTEREST EXPENSE Customer deposits 22,073,580 26,406,994 22,452,332 27,061,880 Securities sold under re-purchase agreements 4,285,640 7,060,149 4,193,817 7,059,146 Debentures 2,953,869 3,112,970 3,071,549 3,358,567 Refinance borrowings 280,914 235,300 280,914 235,300 Other borrowed funds 1,611,157 1,451,461 2,020,549 1,774,928 31,205,160 38,266,874 32,019,161 39,489,821

4. FEE AND COMMISSION INCOME Trade and other related activities 3,733,185 2,310,069 3,983,843 2,312,962 Travel and remittances 412,169 313,032 418,291 313,032 Personal banking 1,674,153 1,507,838 1,678,646 1,507,838 Custodial services 16,987 17,756 16,987 17,756 Brokering services 117,067 65,527 118,684 65,718 Others 60,617 40,982 271,212 136,396 6,014,178 4,255,204 6,487,663 4,353,702 NOTES TO THE FINANCIAL STATEMENTS

Bank Group For the year ended 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

5. FEE AND COMMISSION EXPENSES Brokering services 125,697 153,012 202,042 153,012 Credit cards 238,066 180,592 238,066 180,592 Fees 69,454 178,039 70,166 182,749 Others 34,081 32,752 45,734 34,124 467,298 544,395 556,008 550,477

6. DIVIDEND INCOME Subsidiaries - Quoted 189,377 172,657 _ _ - Unquoted 12,666 22,140 _ _ Associates - Unquoted 20,676 4,675 _ _ Investment securities - Quoted 73,985 55,252 73,985 55,252 - Unquoted 8,652 24,457 11,048 25,649 Dealing securities held for trading - Quoted 64,339 19,473 73,574 20,333 Income from Unit Trust 98,448 49,224 98,448 49,222 Preference shares 855 – 855 – 468,998 347,878 257,910 150,456

7. NET GAINS FROM INVESTMENT IN SECURITIES Gains/(losses) on mark to market valuation on securities held for trading - Shares 79,714 164,076 216,078 181,019 - Treasury bills and bonds 132,068 363,630 143,923 397,913 Capital gains/(losses) on sale of securities held for trading - Shares 1,856,780 651,881 2,088,752 651,881 - Treasury bills and bonds 1,037,229 781,623 1,059,544 781,623 3,105,791 1,961,210 3,508,297 2,012,436

8. OTHER OPERATING INCOME Profit/(loss) on sale of property, plant & equipment including foreclosed properties 26,775 98,371 32,494 111,975 Other income 1,117,138 654,876 1,492,244 1,016,805 1,143,913 753,247 1,524,738 1,128,780

9. PERSONNEL COSTS Staff emoluments 6,861,601 6,992,726 7,341,451 7,313,945 Employers’ contribution to defined contribution plans - Employees’ Provident Fund 526,179 513,648 582,875 547,729 - Employees’ Trust Fund 130,486 128,002 143,469 136,002 Other personnel cost 525,806 473,399 663,988 574,654

8,044,072 8,107,775 8,731,783 8,572,330

The number of persons employed by the Bank as at 31 December 2010 was 8,204 (7,538 as at 31 December 2009). NOTES TO THE FINANCIAL STATEMENTS

Bank Group For the year ended 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

10. STAFF RETIREMENT BENEFITS Employers’ contribution to defined benefit plans Bank of Ceylon Pension Trust Fund 1,730,096 1,883,403 1,730,096 1,883,403 Bank of Ceylon Widows’/Widowers’ and Orphans’ Pension Fund 456,000 456,000 456,000 456,000 Provision for terminal gratuity 80,023 70,228 112,983 88,064 2,266,119 2,409,631 2,299,079 2,427,467

The Bank has a Pension Scheme established under an Industrial Award which is solely funded by the Bank. There is also a Widows’/Widowers’ and Orphans’ Pension Scheme established by the members. Both these funds have been closed to new entrants as from 01 January 1996.

The assets of these two plans are held independently of the Bank’s assets and administered by Boards of Trustees/Managers, representing the management and the employees, as provided in the Trust Deed/Rules of the respective Funds.

Both Funds are subject to annual audits independent of the audit of the Bank, by a firm/s of Chartered Accountants appointed by the members and actuarial valuations are carried out at least once in three years, as per the rules governing these Funds.

10.1 BANK OF CEYLON PENSION TRUST FUND An actuarial valuation of the Pension Fund as at 31 December 2010 was carried out by Messrs K A Pandit - Consultants & Actuaries of Mumbai, India, a firm of professional actuaries.

The valuation has been done using the ‘Projected Unit Credit Method’, which is recommended in the Sri Lanka Accounting Standard No. 16 (Revised 2006) on ‘Employee Benefits’.

(a) The results of the actuarial valuation of the Pension Fund is summarised as follows:

31 December 31 December 2010 2009 Rs. ’000 Rs. ’000

Present value of funded obligations 41,981,000 38,377,130 Fair value of plan assets (43,907,940) (39,843,170) Present value of net obligations (1,926,940) (1,466,040)

2010 2009 Rs. ’000 Rs. ’000

(b) Movement in the present value of defined benefit obligations Liability for defined benefit obligation at the beginning of the year 38,377,130 33,111,760 Interest cost 3,837,710 3,973,410 Current service cost 570,330 622,180 Benefit paid by the plan (3,439,000) (2,333,330) Actuarial (gain)/loss on obligation 2,634,830 3,003,110 Liability at the end of the year 41,981,000 38,377,130

(c) Plan assets Bonds and securities issued by the Government of Sri Lanka 13,588,916 13,099,040 Debentures issued by Corporates 14,395,460 5,500,000 Investment in equity shares 4,708,274 3,182,390 Fixed deposits 8,450,000 14,620,000 Other investments 478,598 732,585 Other receivable 2,286,692 2,709,155 43,907,940 39,843,170 NOTES TO THE FINANCIAL STATEMENTS

2010 2009 Rs. ’000 Rs. ’000

(d) Movement in plan assets Fair value of plan assets at the beginning of the year 39,843,170 33,111,760 Expected return on plan assets 3,984,320 3,969,257 Contribution paid into plan 1,729,642 1,883,403 Benefits paid by the plan (3,439,000) (2,333,330) Actuarial gain/(loss) on plan assets 1,789,808 3,212,080 Fair value of plan assets at the end of the year 43,907,940 39,843,170

(e) Actuarial assumptions Future salary increase 6.5% p.a. 6.5% p.a. Increase in future Cost of Living Allowance (COLA) 6.0% p.a. 6.0% p.a. Increase in pension in payment (Basic) Nil Nil Rate of discounting 10.0% p.a. 10.0% p.a. Rate of return on plan assets 10.0% p.a. 10.0% p.a. Attrition rate 0.4% p.a. 0.4% p.a.

10.2 BANK OF CEYLON WIDOWS’/WIDOWERS’ AND ORPHANS’ PENSION FUND (a) An actuarial valuation of the Pension Fund as at 31 December 2010 was carried out by Messrs K A Pandit - Consultants & Actuaries of Mumbai, India, a firm of professional actuaries.

The valuation has been done using the ‘Projected Unit Credit Method’, which is recommended in the Sri Lanka Accounting Standard No. 16 (Revised 2006) on ‘Employee Benefits’.

The results of the actuarial valuation of the W/W & O Pension Fund is summarised as follows:

31 December 31 December 2010 2009 Rs. ’000 Rs. ’000

Present value of funded obligations 10,138,000 9,515,950 Fair value of plan assets (10,346,890) (9,035,020) Present value of net obligations (208,890) 480,930

2010 2009 Rs. ’000 Rs. ’000

(b) Movement in the present value of defined benefit obligations Liability for defined benefit obligation at the beginning of the year 9,515,950 7,394,320 Interest cost 951,600 887,320 Benefit paid by the plan (363,140) (313,950) Actuarial (gain)/loss on obligation 33,590 1,548,260 Liability at the end of the year 10,138,000 9,515,950 NOTES TO THE FINANCIAL STATEMENTS

2010 2009 Rs. ’000 Rs. ’000

(c) Plan assets Bonds and securities issued by the Government of Sri Lanka 1,739,921 1,304,550 Debentures 4,037,160 2,050,000 Other receivable 4,569,809 5,680,470 10,346,890 9,035,020

(d) Movement in plan assets Fair value of plan assets at the beginning of the year 9,035,020 7,394,320 Expected return on plan assets 903,500 887,320 Contribution paid by members 225,830 244,450 Special contribution paid by the Bank 456,000 456,000 Benefits paid by the plan (363,140) (313,950) Actuarial gain/(loss) on plan assets 89,680 366,880 Fair value of plan assets at the end of the year 10,346,890 9,035,020

(e) Actuarial assumptions Future salary increase 6.5% p.a. 6.5% p.a. Increase in future Cost of Living Allowance (COLA) 6.0% p.a. 6.0% p.a. Increase in Widows‘/Widowers‘ and Orphans‘ Pension in payment (Basic) Nil Nil Rate of discounting 10.0% p.a. 10.0% p.a. Rate of return on plan assets 10.0% p.a. 10.0% p.a. Attrition rate 1.0% & 0.4% p.a. 1.0% & 0.4% p.a.

10.3 GRATUITY FUND Provision is made to meet the Bank’s obligation to pay gratuity in terms of the Payment of Gratuity Act No. 12 of 1983, to all those employees who have joined after 01 January 1996. Provision also includes those who have joined the Bank prior to 01 January 1996 and leave the Bank without being entitled to a pension. The probability of early withdrawal has been considered as 1% in the case of those joined after 01 January 1996 and 0.4% in the case of others by the actuaries based on the historical data.

An actuarial valuation of the Gratuity Fund as at 31 December 2010 was carried out by Messrs K A Pandit - Consultants & Actuaries of Mumbai, India, a firm of professional actuaries.

The valuation has been done using the ‘Projected Unit Credit Method’, which is recommended in the Sri Lanka Accounting Standard No. 16 (Revised 2006) on ‘Employee Benefits’.

The results of the actuarial valuation of the Gratuity Fund indicate that the present value of the obligation is Rs. 197.93 million as at 31 December 2010 (2009 - Rs. 167.95 million). The provision made by the Bank is adequate to meet its gratuity obligations in full.

The principal actuarial assumptions used in the valuation were as follows:

2010 2009 Rs. ’000 Rs. ’000

Actuarial assumptions Future salary increase 6.5% p.a. 6.5% p.a. Increase in future Cost of Living Allowance (COLA) 6.0% p.a. 6.0% p.a. Increase in gratuity in payment (Basic) Nil Nil Rate of discounting 10.0% p.a. 10.0% p.a. Rate of return on plan assets 10.0% p.a. 10.0% p.a. Attrition rate 1.0% & 0.4% p.a. 1.0% & 0.4% p.a. NOTES TO THE FINANCIAL STATEMENTS

Bank Group For the year ended 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

11. PREMISES, EQUIPMENT & ESTABLISHMENT AND OTHER OPERATING EXPENSES Premises, equipment & establishment and other operating expenses include the following:

Directors’ emoluments 1,570 1,707 12,604 12,031 Auditors’ remuneration 20,467 21,194 35,835 24,023 Depreciation on property, plant & equipment (Note 29) 784,993 686,428 889,616 790,745 Depreciation on investment properties (Note 25) – – 3,074 3,060 Amortisation of leasehold land (Note 30) 2,296 1,095 3,653 2,452 Amortisation of intangible assets (Note 31) 54,873 185,473 59,076 189,860 Professional expenses 78,554 52,386 104,439 74,924 Legal expenses 34,380 24,636 49,355 32,528 Donations 47 21 1,355 370

As per the Banking Act Direction No. 5 of 2010, the Bank is required to provide a premium of 0.1% or 0.125% of the eligible deposit liabilities depending on the Capital Adequacy Ratio (CAR) of the immediate proceeding audited Financial Statements, payable quarterly on ‘Deposit Insurance Scheme’ with effect from 01 October 2010. Accordingly, the Bank has provided a sum of Rs. 95,952,038/- on account of Deposit Insurance Scheme during the last quarter of year 2010.

Bank Group For the year ended 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

12. PROVISION FOR LOAN LOSSES Specific provision for loans and advances 1,066,497 1,340,832 1,082,639 1,245,527 Specific provision for pawning advances 18,806 47,725 18,806 47,725 Specific provision for credit card receivable (38,193) 24,080 (38,193) 24,080 1,047,110 1,412,637 1,063,252 1,317,332 Specific provision for bills of exchange (13,628) 197,954 (15,538) 198,864 Specific provision for leasing facilities 32,684 192,126 148,712 376,613 Specific provision for foreclosed properties 5,712 – 5,712 – Total specific provision for loans and advances 1,071,878 1,802,717 1,202,138 1,892,809

General provision made for regular advances 490,924 (556) 497,944 8,878 General provision for bills of exchange (1,470) (122) 3,121 1,972 General provision for leasing facilities (1,438) (334) 22,794 (8,682) Total general provision for loans and advances 488,016 (1,012) 523,859 2,168 Total provision for loan losses 1,559,894 1,801,705 1,725,997 1,894,977 NOTES TO THE FINANCIAL STATEMENTS

Bank Group For the year ended 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

13. RECOVERY OF NON-PERFORMING ADVANCES Recovery of loans written-off in previous years 70,866 102,013 97,452 108,086 Reversal of provisions for non-performing advances 1,297,087 1,398,119 1,297,087 1,398,119 1,367,953 1,500,132 1,394,539 1,506,205

14. SHARE OF PROFIT OF ASSOCIATE COMPANIES BEFORE TAX Ceybank Asset Management (Private) Limited – – 26,331 6,215 Southern Development Financial Company Limited – – (495) (722) Lanka Securities (Private) Limited – – 116,606 41,773 Mireka Capital Land (Private) Limited – – 75,773 42,626 Transnational Lanka Records Solutions (Private) Limited – – 5,123 4,885 MBSL Savings Bank Limited – – (10,440) 35,876 – – 212,898 130,653

15. INCOME TAX EXPENSE The break-up of income tax expense is as follows:

15.1 BANK Domestic branch operations Income tax on profit of domestic operations of the Bank 2,465,896 146,718 2,465,896 146,718 Off-shore Banking Division (OBD) Income tax on profits of on-shore operations of OBD 946,236 984,383 946,236 984,383 Income tax on profits of off-shore operations of OBD 74,252 54,719 74,252 54,719 Overseas branch operations Income tax on profits of the branch in Maldives 103,373 97,572 103,373 97,572 Income tax on profits of the branch in Chennai 86,779 102,526 86,779 102,526 (Over)/Under provision for taxation in respect of prior years (37,413) (165,199) 40,043 (155,464) 3,639,123 1,220,719 3,716,579 1,230,454

15.2 SUBSIDIARY COMPANIES Income tax on profit of: Property Development PLC – – 167,361 178,696 Merchant Bank of Sri Lanka PLC – – 105,640 63,770 BoC Management & Support Services (Private) Limited – – 64 193 BoC Property Development & Management (Private) Limited – – 13,006 11,870 BoC Travels (Private) Limited – – 4,711 4,543 Hotels Colombo (1963) Limited – – 8,382 206 Merchant Credit of Sri Lanka Limited – – 27,648 15,722 Ceylease Financial Services Limited – – 5,431 1,152 Ceybank Holiday Homes (Private) Limited – – 877 837 MBSL Insurance Company Limited – – 5,516 – – – 338,636 276,989 NOTES TO THE FINANCIAL STATEMENTS

Bank Group For the year ended 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

15.3 ASSOCIATE COMPANIES Share of income tax on profit of: Ceybank Asset Management (Private) Limited – – 12,297 4,144 Southern Development Financial Company Limited – – – 175 Lanka Securities (Private) Limited – – 42,353 15,914 Mireka Capital Land (Private) Limited – – 2,236 11 Transnational Lanka Records Solutions (Private) Limited – – 795 865 – – 57,681 21,109

Deferred tax (released)/charged (Note 36) 48,134 (97,078) 49,393 (125,565) 3,687,257 1,123,641 4,162,289 1,402,987

15.4 RECONCILIATION OF ACCOUNTING PROFIT AND INCOME TAX EXPENSE IS AS FOLLOWS:

Bank Group For the year ended 31 December 2010 2009 2010 2009 Tax Rate Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Accounting profit before tax 10,052,569 4,207,647 11,075,485 4,719,910 Tax effect at the statutory income tax rates

Domestic operations of the Bank 35.0% 2,497,910 433,574 2,497,910 433,574 On-shore banking operations of the off-shore banking division of the Bank 35.0% 946,236 984,383 946,236 984,383 Off-shore banking operations of the off-shore banking division of the Bank 20.0% 74,252 54,719 74,252 54,719

Foreign branch operations Male 25.0% 103,373 97,572 103,373 97,572 Chennai 40.0% 86,779 102,526 86,779 102,526 Subsidiaries [Note 15.4 (a)] – – 300,341 158,175 3,708,550 1,672,774 4,008,891 1,830,949

Tax effect of deductible expenses (3,544,769) (3,166,183) (4,398,874) (3,889,160) Tax effect of non-deductible expenses 3,461,232 2,861,803 4,349,499 3,700,175 Share of income tax expenses of Associates – – 57,681 21,109 Social responsibility levy at 1.5% of income tax 51,523 17,524 55,656 20,943 (Over)/Under provision of taxes in respect of prior years (37,413) (165,199) 40,043 (155,464) Deferred tax (reversal)/charge 48,134 (97,078) 49,393 (125,565) Income tax expense reported in the income statement 3,687,257 1,123,641 4,162,289 1,402,987 NOTES TO THE FINANCIAL STATEMENTS

15.4 (a) Income tax rates which were applicable for Subsidiaries in 2009 and 2010 are as follows:

Subsidiaries 2010 2009

1. Property Development PLC 35% 35% 2. Merchant Bank of Sri Lanka PLC 35% 35% 3. BoC Management & Support Services (Private) Limited 15% 15% 4. BoC Property Development & Management (Private) Limited 35% 35% 5. BoC Travels (Private) Limited 15% 15% 6. Hotels Colombo (1963) Limited 15% 15% 7. Merchant Credit of Sri Lanka Limited 35% 35% 8. Ceylease Financial Services Limited 35% 35% 9. Ceybank Holiday Homes (Private) Limited - Hotel business 15% 15% - Other activities 35% 35% 10. MBSL Insurance Company Limited 35% 35% 11. Koladeniya Hydropower (Private) Limited* – – 12. Bank of Ceylon (UK) Limited 28% –

*As per the agreement with Board of Investment (BOI), Koladeniya Hydropower (Private) Limited is exempted from taxation for the year 2010.

15.5 NOTIONAL CREDIT FOR WITHHOLDING TAX ON GOVERNMENT SECURITIES ON SECONDARY MARKET TRANSACTIONS In terms of the Section 137 of the Inland Revenue Act No. 10 of 2006 and the amendments thereto, a company which derives interest income from the secondary market transactions in Government securities would be entitled to a notional tax credit [being one-ninths (1/9) of the net interest income], provided such interest income form a part of statutory income of the Company for that year of assessment.

Accordingly, the net income earned by the Bank and the Group on the secondary market transactions in Government securities for the year has been grossed up in the Financial Statements and the resulting notional tax credit amounted to a sum of Rs. 659,630,077/- (2009 - Rs. 351,925,417/-) for the Bank and Rs. 685,026,871/- (2009 - Rs. 380,872,682/-) for the Group.

16. EARNINGS PER SHARE AND DIVIDENDS PER SHARE EARNINGS PER SHARE As per the Sri Lanka Accounting Standard No. 34 (Revised 2005) on ‘Earning Per Share’, basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of the parent entity (the numerator) by the weighted average number of ordinary shares in issue (the denominator) during the year.

DIVIDENDS PER SHARE Dividends per share is calculated by dividing the total profit distributed to shareholders (the numerator) by the weighted average number of ordinary shares in issue (the denominator) during the year.

Bank Group For the year ended 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Profit/(loss) attributable to ordinary shareholders of the parent 6,365,312 3,084,006 6,760,310 3,299,873 Total dividends declared to shareholders during the year 3,096,410 1,346,410 3,096,410 1,346,410 Weighted average number of ordinary shares in issue 5,000,000 5,000,000 5,000,000 5,000,000 Basic earnings per share (Rs.) 1,273.06 616.80 1,352.06 659.97 Dividend per share (Rs.) 619.28 269.28 619.28 269.28 NOTES TO THE FINANCIAL STATEMENTS

16.1 DIVIDENDS Under the agreement between the Bank of Ceylon and the Government of Sri Lanka, on re-capitalising and granting of autonomy to the Bank, the Government reserves the option of the level of profit after tax that will be retained by the Bank.

All profits after deduction of provision for taxation, provision for loan losses and any such portion for reserves, if any, as the Government shall determine, will be issued as dividends to the Government at the end of each year.

Accordingly, a sum of Rs. 3,096 million has been declared by the Bank as dividends for the year 2010 (2009 - Rs. 1,346 million).

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

17. CASH AND SHORT TERM FUNDS Coins, notes held in local currency 8,044,372 7,241,555 8,079,260 7,261,393 Coins, notes held in foreign currency 715,208 763,214 715,208 763,214 Balances with other banks 5,344,223 5,504,083 4,960,389 5,492,647 14,103,803 13,508,852 13,754,857 13,517,254

18. BALANCES WITH CENTRAL BANKS Central Bank of Sri Lanka (Note 18.1) 22,933,090 13,910,808 22,933,090 13,910,808 Reserve Bank of India (Note 18.2) 393,699 615,333 393,699 615,333 Maldives Monetary Authority (Note 18.3) 2,567,677 1,737,327 2,567,677 1,737,327 25,894,466 16,263,468 25,894,466 16,263,468

18.1 In terms of the provisions of Section 93 of the Monetary Law Act No. 58 of 1949, the Bank is required to maintain a cash reserve with the Central Bank of Sri Lanka. The minimum cash reserve required to be maintained at the Central Bank of Sri Lanka as at 31 December 2010 was 7.0% (2009: 7.0%) of Sri Lanka Rupee deposit liabilities. There is no reserve requirement for foreign currency deposit liabilities maintained by domestic branches and the deposit liability of the Off-shore Banking Division in Sri Lanka (2009: Nil).

18.2 Section 42 (1) of the Reserve Bank of India (RBI) Act of 1934, requires that the branch in Chennai maintains a cash reserve of 6.0% (31 December 2009: 5.5%) with the Reserve Bank of India, being the minimum cash reserve requirement, as at 31 December 2010 on its demand and term deposit liabilities.

18.3 Regulations issued by Maldives Monetary Authority (MMA), requires that 50% of minimum required capital of the branch in Maldives be maintained in a deposit with MMA (2009: 50%). In addition, a reserve of 25% on the deposit liability (2009 - 25%) should also be maintained with the MMA.

19. TREASURY BILLS, BONDS AND OTHER ELIGIBLE BILLS Treasury bills, bonds and other eligible bills are debt securities issued by the Government of Sri Lanka and the respective Government authorities where the overseas branches are located.

Treasury bills, bonds and other eligible bills maturing within the period of less than twelve months have been classified as follows:

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Gross Treasury bills & bonds held for trading 27,685,647 14,576,408 28,655,330 15,529,297 Gain/(loss) on marked to market valuation 62,012 44,075 62,012 44,075 Net Treasury bills & bonds held for trading 27,747,659 14,620,483 28,717,342 15,573,372 Treasury bills, bonds and other eligible bills held to maturity 17,631,354 14,114,913 17,631,354 14,114,913 45,379,013 28,735,396 46,348,696 29,688,285

The details of the Treasury bills & bonds that have been pledged as security for liabilities at the year end are disclosed in Note 44. NOTES TO THE FINANCIAL STATEMENTS

Bank As at 31 December 2010 2009 No. of Market price Carrying No. of Market price Carrying ordinary per share value ordinary per share value shares Rs. Rs. ’000 shares Rs. Rs. ’000

20. DEALING SECURITIES LISTED EQUITY SECURITIES Bank, Finance and Insurance Central Finance Company PLC – – – 66,500 317.50 21,114 Ceylon Investment PLC – – – 17,600 247.50 4,356 Commercial Bank of Ceylon PLC - Voting 16,100 259.90 4,184 2,208,945 189.50 418,595 Commercial Bank of Ceylon PLC - Non-Voting 199,300 162.00 32,287 – – – DFCC Bank 800,000 200.20 160,160 315,900 167.00 52,755 Hatton National Bank PLC - Voting 1,031,600 399.90 412,537 2,665,200 170.25 453,750 Hatton National Bank PLC - Non-Voting 439,900 214.60 94,402 – – – HDFC Bank of Sri Lanka – – – 90,900 147.75 13,431 Lanka ORIX Leasing Company PLC 346,800 127.80 44,321 76,400 137.00 10,467 LB Finance PLC 38,400 261.90 10,057 – – – Nations Trust Bank PLC - Voting 953,500 83.40 79,522 – – – Sampath Bank PLC 629,800 271.90 171,243 – – – 1,008,713 974,468

Diversified Holdings Aitken Spence PLC 212,300 169.90 36,070 36,100 1,325.00 47,833 Carsons Cumberbatch PLC 43,200 513.20 22,170 – – – C T Holdings PLC 310,000 182.70 56,637 100,000 54.00 5,400 Hayleys PLC 157,100 345.00 54,199 63,700 171.75 10,941 Hemas Holdings PLC 30,000 44.50 1,335 1,031,000 122.75 126,555 John Keells Holdings PLC 1,080,235 298.40 322,342 90,084 171.50 15,449 Richard Pieris & Company PLC 8,734,900 10.50 91,716 – – – 584,469 206,178

Manufacturing ACL Cables PLC 379,900 85.10 32,329 94,400 76.25 7,245 Chevron Lubricants Lanka PLC 768,200 159.50 122,528 – – – Dipped Products PLC 882,400 119.70 105,623 24,900 86.00 2,141 Kelani Tyres PLC 50,000 49.30 2,465 – – – Lanka Cement PLC 9,583,809 28.00 268,347 9,583,809 23.25 222,824 Lanka Floortiles PLC 210,000 134.30 28,203 74,800 66.50 4,974 Lanka Walltiles PLC 38,900 138.90 5,403 273,400 57.25 15,652 Piramal Glass Ceylon PLC 1,000,000 7.80 7,800 4,021,200 2.20 8,847 Royal Ceramics Lanka PLC 403,000 304.90 122,875 348,200 66.50 23,155 Sierra Cables PLC 436,400 4.30 1,876 – – – Tokyo Cement Company (Lanka) PLC - Voting 75 55.00 4 506,300 322.25 163,155 697,453 447,993 NOTES TO THE FINANCIAL STATEMENTS

Bank As at 31 December 2010 2009 No. of Market price Carrying No. of Market price Carrying ordinary per share value ordinary per share value shares Rs. Rs. ’000 shares Rs. Rs. ’000

Hotels & Travels Aitken Spence Hotel Holdings PLC 541,000 105.70 57,184 – – – Asian Hotels & Properties PLC 502,700 194.00 97,524 363,400 94.50 34,341 Eden Hotel Lanka PLC 392,300 57.60 22,596 – – – Hotel Services (Ceylon) PLC 575,800 26.00 14,971 600,000 19.00 11,400 John Keells Hotels PLC 800,600 20.00 16,012 369,200 22.50 8,307 Kandy Hotels Company (1938) PLC – – – 10,000 113.25 1,133 Taj Lanka Hotels PLC 550,000 71.70 39,435 – – – The Lighthouse Hotel PLC 100,000 63.00 6,300 – – – Trans Asia Hotels PLC – – – 100,000 174.25 17,425 254,022 72,606

Power & Energy Hemas Power PLC 1,226,800 29.50 36,191 1,285,100 19.50 25,059 Lanka IOC PLC 233,300 18.90 4,409 283,300 17.25 4,887 Laugfs Gas Limited - Voting 1,232,700 25.90 31,927 – – – Laugfs Gas Limited - Non-Voting 350,400 18.50 6,482 – – – Panasian Power Limited 79,200 3.00* 238 – – – 79,247 29,946

Telecommunications Dialog Axiata PLC 6,400 11.90 76 – – – Sri Lanka Telecom PLC 214,000 49.00 10,486 214,000 46.00 9,844 10,562 9,844

Motors Diesel & Motor Engineering PLC 10,000 973.50 9,735 – – – United Motors Lanka PLC – – – 18,000 64.25 1,157 9,735 1,157

Plantations Agalawatte Plantations PLC 13,600 63.00 857 – – – Balangoda Plantations PLC 103,100 57.40 5,918 – – – Horana Plantations PLC 390,000 36.40 14,196 – – – Kahawatte Plantations PLC 200,000 28.00 5,600 – – – Kegalle Plantations PLC 117,300 161.80 18,979 64,500 33.50 2,161 Kotagala Plantations PLC 9,400 116.90 1,099 – – – Malwatte Plantations PLC – – – 8,000 33.00 264 Namunukula Plantations PLC 66,400 119.10 7,908 – – – 54,557 2,425

Health Care Asiri Hospital Holdings PLC 100,000 8.80 880 100,000 10.25 1,025 Asiri Surgical Hospital PLC 179,200 8.70 1,559 179,200 11.00 1,971 Ceylon Hospitals PLC 6 102.00 1 10,472 80.25 840 Nawaloka Hospitals PLC 3,119,800 3.70 11,543 – – – The Lanka Hospitals Corporation PLC – ––67,000 19.00 1,273 13,983 5,109

* Represents the allotment price of the shares. NOTES TO THE FINANCIAL STATEMENTS

Bank As at 31 December 2010 2009 No. of Market price Carrying No. of Market price Carrying ordinary per share value ordinary per share value shares Rs. Rs. ’000 shares Rs. Rs. ’000

Beverage, Food & Tobacco Cargills (Ceylon) PLC 400,000 195.40 78,160 30,000 65.25 1,958 Coco Lanka PLC 69,900 64.40 4,502 – – – Distilleries Company of Sri Lanka PLC 405,700 177.90 72,174 – – – The Lion Brewery Ceylon PLC 531,700 185.10 98,418 – – – 253,254 1,958

Chemical & Pharmaceuticals Chemical Industries (Colombo) PLC - Voting 208,100 140.70 29,280 1,185,300 63.00 74,674 Chemical Industries (Colombo) PLC - Non-Voting 30,300 99.90 3,027 – – – Haycarb PLC 164,400 168.50 27,701 – – – 60,008 74,674

Construction & Engineering Colombo Dockyard PLC 100,000 275.00 27,500 75 244.75 18 27,500 18

Trading Brown & Company PLC 716,000 246.90 176,780 ––– 176,780 –

Investment Trust Renuka Holdings PLC –––11,000 135.75 1,493 – 1,493

Information Technology PC House PLC 182,700 11.30 2,065 ––– 2,065 – Total dealing securities 3,232,348 1,827,869 NOTES TO THE FINANCIAL STATEMENTS

Group As at 31 December 2010 2009 No. of Market price Carrying No. of Market price Carrying ordinary per share value ordinary per share value shares Rs. Rs. ’000 shares Rs. Rs. ’000

LISTED EQUITY SECURITIES Bank, Finance and Insurance Amana Takaful PLC 195,800 3.00 587 – – – Asia Capital PLC 12,200 47.00 573 – – – Central Finance Company PLC – – – 68,500 317.50 21,733 Ceylinco Insurance PLC 14,300 381.00 5,448 Ceylon Investment PLC – – – 17,635 247.50 4,362 Commercial Bank of Ceylon PLC - Voting 30,400 259.90 7,901 2,219,945 189.50 420,449 Commercial Bank of Ceylon PLC - Non-Voting 199,300 162.00 32,287 – – – DFCC Bank 861,800 200.20 172,532 415,900 167.00 68,120 First Capital Holdings PLC 760,000 19.00 14,440 – – – Hatton National Bank PLC - Voting 1,037,100 399.90 414,736 2,699,100 170.25 458,791 Hatton National Bank PLC - Non-Voting 524,300 214.60 112,515 – – – HDFC Bank of Sri Lanka – – – 90,900 147.75 13,431 Janashakthi Insurance Company PLC 805,100 16.00 12,882 205,000 9.50 2,460 Lanka ORIX Leasing Company PLC 356,800 127.80 45,599 101,800 137.00 13,406 Lanka Ventures PLC – – – 40,000 18.00 566 LB Finance PLC 38,400 261.90 10,057 – – – Merchant Bank of Sri Lanka PLC 17,000 45.80 779 – – – National Development Bank PLC 14,600 349.50 5,103 31,000 206.00 4,811 Nations Trust Bank PLC - Voting 1,026,000 83.40 85,568 160,000 36.50 4,275 Nations Trust Bank PLC - Non-Voting 20,000 57.60 1,152 – – – Pan Asia Banking Corporation PLC 2,833 52.00 147 68,000 20.00 1,144 People's Merchant Bank PLC 6,200 29.40 182 – – – Sampath Bank PLC 629,800 271.90 171,243 10,000 204.00 1,736 Seylan Bank PLC - Voting 118,500 97.80 11,589 – – – Seylan Bank PLC - Non-Voting 41,700 49.00 2,043 – – – Singer Finance (Lanka) Limited 2,600 15.00 39 – – – SMB Leasing PLC - Voting 86,800 1.90 165 – – – SMB Leasing PLC - Non-Voting 1,600,000 1.00 1,600 – – – SMB Leasing PLC - Share Warrants (015) 2,000,000 0.80 1,600 – – – SMB Leasing PLC - Share Warrants (016) 1,600,000 0.60 960 1,111,727 1,015,284 NOTES TO THE FINANCIAL STATEMENTS

Group As at 31 December 2010 2009 No. of Market price Carrying No. of Market price Carrying ordinary per share value ordinary per share value shares Rs. Rs. ’000 shares Rs. Rs. ’000

Diversified Holdings Aitken Spence PLC 212,300 169.90 36,070 36,100 1,325.00 47,833 Carsons Cumberbatch PLC 43,200 513.20 22,170 – – – C T Holdings PLC 342,200 182.70 62,520 100,000 54.00 5,400 Hayleys PLC 157,100 345.00 54,199 78,700 171.75 13,435 Hemas Holdings PLC 33,900 44.50 1,509 1,031,000 122.75 126,555 John Keells Holdings PLC 1,308,161 298.40 390,355 165,110 171.50 26,121 The Colombo Fort Land & Building Company PLC – – – 15,000 31.50 441 Richard Peiris & Company PLC 10,589,100 10.50 111,185 150,000 39.00 5,655 678,008 225,440

Manufacturing ACL Cables PLC 384,800 85.10 32,746 120,900 76.25 9,116 ACL Plastics PLC – – – 5,000 74.00 329 Central Industries PLC 431,700 90.00 38,853 – – – Ceylon Grain Elevators PLC – – – 40,000 14.25 563 Chevron Lubricants Lanka PLC 768,200 159.50 122,528 12,200 142.00 1,443 Dipped Products PLC 882,400 119.70 105,623 38,400 86.00 3,413 Hayleys Exports PLC 62,600 41.00 2,567 – – – Kelani Tyres PLC 50,000 49.30 2,465 – – – Lanka Cement PLC 9,644,209 28.00 270,038 9,638,809 23.25 224,802 Lanka Floortiles PLC 212,400 134.30 28,525 89,800 66.50 5,708 Lanka Walltiles PLC 40,900 138.90 5,681 294,600 57.25 16,625 Pelwatte Sugar Industries PLC 30,800 27.40 844 – – – Piramal Glass Ceylon PLC 1,200,000 7.80 9,360 4,021,200 2.20 8,847 Richard Pieris Exports PLC – – – 5,000 28.00 129 Royal Ceramics Lanka PLC 403,000 304.90 122,875 388,200 66.50 25,006 Sierra Cables PLC 436,400 4.30 1,876 – – – Tokyo Cement Company (Lanka) PLC - Voting 6,325 55.00 348 556,300 322.25 164,024 Tokyo Cement Company (Lanka) PLC - Non-Voting 7,500 40.30 302 – – – 744,631 460,005 NOTES TO THE FINANCIAL STATEMENTS

Group As at 31 December 2010 2009 No. of Market price Carrying No. of Market price Carrying ordinary per share value ordinary per share value shares Rs. Rs. ’000 shares Rs. Rs. ’000

Hotels & Travels Aitken Spence Hotel Holdings PLC 541,000 105.70 57,184 – – – Amaya Leisure PLC 4,214 91.00 383 – – – Asian Hotels & Properties PLC 571,600 194.00 110,890 393,400 94.50 36,422 Ceylon Hotels Corporation PLC 55,100 36.50 2,011 25,100 23.75 665 Citrus Leisure PLC – – – 23,100 2.10 52 Dolphin Hotels PLC 22,800 61.20 1,395 – – – Eden Hotel Lanka PLC 688,100 57.60 39,634 665,100 26.00 17,377 Galadari Hotels (Lanka) PLC 209,100 35.80 7,486 31,600 15.00 499 Hotel Developers (Lanka) PLC – – – 3,000 118.00 411 Hotel Services (Ceylon) PLC 3,602,950 26.00 93,677 7,080,750 19.00 118,504 John Keells Hotels PLC 2,087,233 20.00 41,745 429,000 22.50 9,101 Kandy Hotels Company (1938) PLC – – – 10,000 113.25 1,133 Marawila Resorts PLC 11,300 14.80 167 915,900 5.75 6,012 Mahaweli Reach Hotels PLC 8,100 35.00 284 – – – Riverina Hotels PLC – – – 42,200 68.00 2,865 Serendib Hotels PLC – – – 94,700 39.25 4,015 Stafford Hotels PLC – – – 41,600 28.00 1,120 Taj Lanka Hotels PLC 550,000 71.70 39,435 4,600 23.50 107 Tangerine Beach Hotels PLC – – – 10,000 66.00 707 The Fortress Resorts PLC 123,700 20.60 2,548 70,000 12.25 891 The Lighthouse Hotel PLC 104,600 63.00 6,590 – – – Trans Asia Hotels PLC – – – 100,000 174.25 17,425 403,429 217,306

Power & Energy Hemas Power PLC 1,241,800 29.50 36,633 1,344,700 19.50 26,375 Lanka IOC PLC 341,600 18.90 6,456 295,800 17.25 5,115 Laugfs Gas Limited - Voting 1,405,700 25.90 36,408 – – – Laugfs Gas Limited - Non-Voting 587,300 18.50 10,865 – – – Panasian Power Limited 1,985,000 3.00* 5,955 – – – 96,317 31,490

Telecommunications Dialog Axiata PLC 110,000 11.90 1,309 310,000 7.25 4,643 Sri Lanka Telecom PLC 238,900 49.00 11,706 238,900 46.00 10,980 13,015 15,623

Motors Diesel & Motor Engineering PLC 10,000 973.50 9,735 – – – United Motors Lanka PLC – – – 18,000 64.25 1,157 9,735 1,157

* Represents the allotment price of the shares. NOTES TO THE FINANCIAL STATEMENTS

Group As at 31 December 2010 2009 No. of Market price Carrying No. of Market price Carrying ordinary per share value ordinary per share value shares Rs. Rs. ’000 shares Rs. Rs. ’000

Plantations Agalawatte Plantations PLC 13,600 63.00 857 10,000 21.75 238 Balangoda Plantations PLC 124,600 57.40 7,152 – – – Horana Plantations PLC 390,000 36.40 14,196 – – – Kahawatte Plantations PLC 200,002 28.00 5,600 198,100 31.00 6,218 Kegalle Plantations PLC 117,900 161.80 19,076 69,500 33.50 2,332 Kotagala Plantations PLC 21,700 116.90 2,537 – – – Malwatte Plantations PLC – – – 8,000 33.00 264 Maskeliya Plantations PLC 4,000 27.80 111 10,200 18.50 211 Namunukula Plantations PLC 66,400 119.10 7,908 – – – 57,437 9,263

Health Care Asiri Hospital Holdings PLC 395,200 8.80 3,478 120,000 10.25 1,197 Asiri Surgical Hospital PLC 219,100 8.70 1,906 179,200 11.00 1,971 Ceylon Hospitals PLC 6 102.00 1 10,472 80.25 840 Nawaloka Hospitals PLC 5,589,800 3.70 20,682 200,000 3.10 623 The Lanka Hospitals Corporation PLC – ––67,000 19.00 1,273 26,067 5,904

Beverage, Food & Tobacco Cargills (Ceylon) PLC 400,000 195.40 78,160 35,000 65.25 2,269 Ceylon Tobacco Company PLC – – – 10,000 185.00 1,784 Coco Lanka PLC 75,005 64.40 4,830 10,000 48.50 397 Distilleries Company of Sri Lanka PLC 535,500 177.90 95,265 129,800 105.25 13,437 Kotmale Holdings PLC 228,200 43.20 9,858 50,000 16.00 837 Lanka Milk Foods (CWE) PLC 81,903 113.00 9,255 22,000 64.00 1,428 Nestle Lanka PLC – – – 1,000 415.00 329 Raigam Wayamba Salterns PLC 47,500 4.00 190 – – – Renuka Agri Foods PLC – – – 1,350,200 3.30 3,038 The Lion Brewery Ceylon PLC 674,700 185.10 124,887 5,000 81.00 422 322,445 23,941

Chemical & Pharmaceuticals Chemical Industries (Colombo) PLC - Voting 253,100 140.70 35,611 1,395,600 63.00 85,734 Chemical Industries (Colombo) PLC - Non-Voting 39,900 99.90 3,986 – – – Chemanex PLC 1,000 122.30 122 – – – Haycarb PLC 194,600 168.50 32,790 – – – Lankem Ceylon PLC – – – 96,400 44.75 3,912 72,509 89,646 NOTES TO THE FINANCIAL STATEMENTS

Group As at 31 December 2010 2009 No. of Market price Carrying No. of Market price Carrying ordinary per share value ordinary per share value shares Rs. Rs. ’000 shares Rs. Rs. ’000

Construction & Engineering Colombo Dockyard PLC 113,400 275.00 31,185 11,475 244.75 2,061 31,185 2,061

Trading Brown & Company PLC 815,300 246.90 201,297 22,900 74.50 1,347 Ceylon Foreign Trades PLC 100,000 7.70 770 – – – C W Mackie & Company PLC 300 85.10 26 25,000 36.00 834 Tess Agro PLC 139,900 2.70 378 175,000 1.60 327 202,471 2,508

Investment Trust Environmental Resources Investment PLC 35,000 85.90 3,007 – – – Renuka Holdings PLC – – – 11,000 135.75 1,493 3,007 1,493

Information Technology PC House PLC 665,800 11.30 7,524 – – – E-Channelling PLC 13,300 22.00 293 20,000 9.75 237 7,817 237

Land & Property City Housing & Real Estate Company PLC – – – 10,000 21.25 346 Colombo Land & Development Company PLC 53,500 19.40 1,038 65,000 6.50 390 C T Land Development PLC – – – 51,100 21.50 1,174 Equity One PLC 40,600 56.00 2,274 – – – Equity Two PLC 18,200 24.30 442 – – – East West Properties PLC 1,200 12.90 15 – – – Overseas Realty (Ceylon) PLC 403,500 15.30 6,174 40,000 15.50 543 Seylan Developments PLC 100,000 16.80 1,680 – – – Touchwood Investment PLC 25,000 28.30 708 – – – York Arcade Holdings PLC 45,800 24.10 1,104 – – – 13,435 2,453

Footwear & Textile Hayleys MGT Knitting Mills PLC 65,600 32.00 2,099 834,100 35.00 29,994 Ceylon Leather Products PLC 184,300 92.60 17,066 – – – 19,165 29,994

Services John Keells PLC – – – 23,700 153.00 3,578

3,578 3,812,400 2,137,383 Provision for fall in value (6,957) –

Total dealing securities 3,805,443 2,137,383 NOTES TO THE FINANCIAL STATEMENTS

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

21. PLACEMENTS WITH AND LOANS TO OTHER BANKS Placements with banks in Sri Lanka - Sri Lanka rupee placements – 770,000 – 790,000 - Foreign currency placements 8,502,256 762,152 8,502,256 762,152 Placements with banks abroad - Foreign currency placements 34,177,542 44,334,915 39,271,130 44,334,915

42,679,798 45,867,067 47,773,386 45,887,067

22. LOANS AND ADVANCES TO CUSTOMERS 22.1 BILLS OF EXCHANGE Export bills 5,923,519 4,269,855 5,923,519 4,269,855 Import bills 9,852,601 11,828,675 9,852,601 11,828,675 Local bills – – 645,682 469,951 15,776,120 16,098,530 16,421,802 16,568,481 Specific provision for bills of exchange [Note 22.1 (b)] (156,452) (150,371) (168,534) (164,363) General provision for bills of exchange [Note 22.1 (c)] (144,248) (145,718) (158,223) (155,102) Interest in suspense [Note 22.1 (d)] (79,517) (548,125) (79,517) (548,125) Net bills of exchange 15,395,903 15,254,316 16,015,528 15,700,891

22.1 (a) Analysis of net bills of exchange Not later than 3 months 15,307,197 14,567,001 15,920,399 15,013,347 Later than 3 months and not later than 12 months 88,706 687,315 95,129 687,544 15,395,903 15,254,316 16,015,528 15,700,891

22.1 (b) Movement in specific provision for bills of exchange Balance as at 01 January 150,371 281,682 164,363 294,764 Amount provided during the year (13,628) 197,954 (15,538) 198,864 Amount reversed during the year – (301,124) – (301,124) Adjustments/transfers 19,709 (28,141) 19,709 (28,141) Balance as at 31 December 156,452 150,371 168,534 164,363

22.1 (c) Movement in general provision for bills of exchange Balance as at 01 January 145,718 145,840 155,102 153,130 Amount provided/(reversed) during the year (1,470) (122) 3,121 1,972 Balance as at 31 December 144,248 145,718 158,223 155,102

22.1 (d) Movement in interest in suspense of bills of exchange Balance as at 01 January 548,125 553,961 548,125 553,961 Interest suspended during the year 12,448 101,627 12,448 101,627 Amount reversed during the year (481,056) (107,463) (481,056) (107,463) Balance as at 31 December 79,517 548,125 79,517 548,125 NOTES TO THE FINANCIAL STATEMENTS

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

22.2 LOANS AND ADVANCES Sri Lanka rupee loans and advances Overdrafts 65,418,200 56,946,022 65,418,200 56,946,022 Term loans 164,341,648 96,685,864 166,113,749 98,281,626 Trust receipts 8,785,954 6,797,199 8,785,954 6,797,199 Staff loans 16,465,422 14,001,771 16,544,211 14,058,401 Loans under schemes 11,917,213 10,200,400 12,204,217 10,213,880 Foreclosed properties [Note 22.2 (e)] 814,154 445,876 814,154 445,876 267,742,591 185,077,132 269,880,485 186,743,004 Foreign currency loans and advances Overdrafts 5,899,030 2,666,731 5,976,977 2,666,731 Term loans 87,250,968 66,576,024 87,283,723 66,576,024 Trust receipts 9,369,752 8,381,259 9,369,752 8,381,259 Staff loans 4,334 15,381 9,549 15,381 102,524,084 77,639,395 102,640,001 77,639,395 Total Sri Lanka rupee and foreign currency loans & advances 370,266,675 262,716,527 372,520,486 264,382,399 Specific provision for loans & advances [Note 22.2 (b)] (6,539,181) (7,595,463) (6,589,140) (7,629,954) General provision for loans & advances [Note 22.2 (c)] (2,204,669) (1,719,846) (2,232,972) (1,741,129) Interest in suspense [Note 22.2 (d)] (8,156,736) (7,766,138) (8,164,806) (7,776,751) Provision for foreclosed properties [Note 22.2 (f)] (268,173) (32,796) (268,173) (32,796) Net loans and advances 353,097,916 245,602,284 355,265,395 247,201,769

22.2 (a) Analysis of net loans and advances Not later than 1 year 219,528,496 157,606,283 220,391,054 158,507,011 Later than 1 year and not later than 5 years 77,046,369 44,705,518 78,339,431 45,385,032 Later than 5 years 56,523,051 43,290,483 56,534,910 43,309,726 353,097,916 245,602,284 355,265,395 247,201,769

22.2 (b) Movement in specific provision for loans & advances Balance as at 01 January 7,595,463 7,410,629 7,629,954 7,437,841 Adjustments for difference of currency conversion (64,329) 12,333 (64,329) 12,333 7,531,134 7,422,962 7,565,625 7,450,174 Amounts provided during the year (Note 12) 1,047,110 1,412,637 1,063,252 1,317,332 Amounts recovered/written back on account of provisions previously made (1,279,222) (1,059,849) (1,279,896) (1,064,883) Amount reversed due to loans written off (502,599) (291,240) (502,599) (291,781) Adjustments/transfers (257,242) 110,953 (257,242) 219,112 Balance as at 31 December 6,539,181 7,595,463 6,589,140 7,629,954

22.2 (c) Movement in general provision for loans & advances Balance as at 01 January 1,719,846 1,741,888 1,741,129 1,753,737 Adjustments for difference of currency conversion (6,131) 1,164 (6,131) 1,164 1,713,715 1,743,052 1,734,998 1,754,901 Amounts provided/(reversed) during the year 490,924 (556) 497,944 8,878 Adjustments/transfers 30 (22,650) 30 (22,650) Balance as at 31 December 2,204,669 1,719,846 2,232,972 1,741,129 NOTES TO THE FINANCIAL STATEMENTS

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

22.2 (d) Movement in interest in suspense of loans & advances Balance as at 01 January 7,766,138 7,912,498 7,776,751 7,915,247 Interest suspended during the year 1,172,174 687,475 1,175,216 687,475 Amount reversed during the year (82,972) (487,237) (86,729) (489,629) Amount reversed due to loans written off (809,899) (322,439) (811,727) (322,439) Adjustments/transfers 111,295 (24,159) 111,295 (13,903) Balance as at 31 December 8,156,736 7,766,138 8,164,806 7,776,751

22.2 (e) Movement in foreclosed properties Balance as at 01 January 445,876 340,832 445,876 340,832 Additions during the year 431,204 111,472 431,204 111,472 Disposals during the year (61,109) (6,428) (61,109) (6,428) Adjustments/transfers (1,817) – (1,817) – Balance as at 31 December 814,154 445,876 814,154 445,876

22.2 (f) Movement in provision for foreclosed properties Balance as at 01 January 32,796 28,501 32,796 28,501 Amount provided during the year 5,712 – 5,712 – Amount reversed during the year (2,345) (988) (2,345) (988) Adjustments/transfers 232,010 5,283 232,010 5,283 Balance as at 31 December 268,173 32,796 268,173 32,796

22.3 LEASE RENTALS RECEIVABLE - NOT LATER THAN ONE YEAR Gross lease rentals receivable 2,414,982 2,788,342 6,676,887 6,961,590 Prepaid rentals (16,480) (17,462) (68,454) (83,493) 2,398,502 2,770,880 6,608,433 6,878,097 Unearned income (366,977) (580,685) (1,463,102) (1,399,152) Specific provision for lease rentals receivable (Note 22.6) (143,562) (159,165) (362,524) (449,992) General provision for lease rentals receivable (Note 22.7) (21,019) (22,105) (63,320) (60,690) Interest in suspense (Note 22.8) (29,009) (88,212) (158,581) (177,955) Net lease rentals receivable 1,837,935 1,920,713 4,560,906 4,790,308

22.4 LEASE RENTALS RECEIVABLE - LATER THAN ONE YEAR AND NOT LATER THAN FIVE YEARS Gross lease rentals receivable 3,152,224 3,101,035 8,849,640 7,077,698 Prepaid rentals (26,229) (29,239) (44,007) (35,659) 3,125,995 3,071,796 8,805,633 7,042,039 Unearned income (566,315) (546,058) (1,689,220) (1,510,798) Specific provision for lease rentals receivable (Note 22.6) (84,589) (104,806) (203,729) (211,499) General provision for lease rentals receivable (Note 22.7) (25,826) (26,639) (72,836) (53,133) Interest in suspense (Note 22.8) (61,430) (106,422) (96,104) (160,251) Net lease rentals receivable 2,387,835 2,287,871 6,743,744 5,106,358 NOTES TO THE FINANCIAL STATEMENTS

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

22.5 LEASE RENTALS RECEIVABLE - LATER THAN FIVE YEARS Gross lease rentals receivable 170,395 240 170,628 334 Prepaid rentals (63) – (63) – 170,332 240 170,565 334 Unearned income (167,868) (19) (167,872) (20) Specific provision for lease rentals receivable (Note 22.6) – – – – General provision for lease rentals receivable (Note 22.7) (469) (8) (469) (8) Interest in suspense (Note 22.8) – (6) – (6) Net lease rentals receivable 1,995 207 2,224 300

22.6 MOVEMENT IN SPECIFIC PROVISION FOR LEASE RENTALS RECEIVABLE Balance as at 01 January 263,971 116,406 661,491 476,285 Amount recovered/written back on account provisions previously made (15,520) (36,039) (41,432) (36,239) Adjustments/transfers (52,985) (8,522) (62,481) 6,938 Amount reversed due to facility written off – – (140,037) (162,106) Amount provided during the year (Note 12) 32,684 192,126 148,712 376,613 Balance as at 31 December 228,150 263,971 566,253 661,491

22.7 MOVEMENT IN GENERAL PROVISION FOR LEASE RENTALS RECEIVABLE Balance as at 01 January 48,752 49,086 113,831 140,324 Amount provided/(reversed) during the year (1,438) (334) 22,794 (8,682) Adjustments/transfers – – – (17,811) Balance as at 31 December 47,314 48,752 136,625 113,831

22.8 MOVEMENT IN INTEREST IN SUSPENSE FOR LEASE RENTALS RECEIVABLE Balance as at 01 January 194,640 140,158 338,212 168,967 Adjustments/transfers – – (126,422) 94,339 Interest suspended during the year – 347,647 170,753 368,071 Amount reversed during the year (104,201) (293,165) (127,858) (293,165) Balance as at 31 December 90,439 194,640 254,685 338,212

22.9 MOVEMENT IN SPECIFIC PROVISION FOR BILLS OF EXCHANGE, LOANS & ADVANCES, FORECLOSED PROPERTIES AND LEASE RENTALS RECEIVABLE - SUMMARY

Balance as at 01 January 8,042,601 7,837,218 8,488,604 8,237,390 Adjustments for difference due to currency conversion (64,329) 12,333 (64,329) 12,333 7,978,272 7,849,551 8,424,275 8,249,723 Amount recovered/written back on account of provisions previously made (1,297,087) (1,398,000) (1,323,673) (1,403,234) Amount reversed due to loans written off (502,599) (291,240) (642,636) (453,887) Adjustments/transfers (58,508) 79,573 (68,004) 203,193 Amount provided during the year (Note 12) 1,071,878 1,802,717 1,202,138 1,892,809 Balance as at 31 December 7,191,956 8,042,601 7,592,100 8,488,604 NOTES TO THE FINANCIAL STATEMENTS

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

22.10 MOVEMENT IN GENERAL PROVISION FOR BILLS OF EXCHANGE, LOANS & ADVANCES AND LEASE RENTALS RECEIVABLE - SUMMARY

Balance as at 01 January 1,914,316 1,936,814 2,010,062 2,047,191 Adjustments for difference due to currency conversion (6,131) 1,164 (6,131) 1,164 1,908,185 1,937,978 2,003,931 2,048,355 Amounts provided during the year (Note 12) 488,016 (1,012) 523,859 2,168 Adjustments/transfers 30 (22,650) 30 (40,461) Balance as at 31 December 2,396,231 1,914,316 2,527,820 2,010,062

22.11 MOVEMENT IN INTEREST IN SUSPENSE FOR BILLS OF EXCHANGE, LOANS & ADVANCES AND LEASE RENTALS RECEIVABLE - SUMMARY

Balance as at 01 January 8,508,903 8,606,617 8,663,088 8,638,175 Interest suspended during the year 1,184,622 1,136,749 1,358,417 1,157,173 Amount reversed during the year (668,229) (887,865) (695,643) (890,257) Amount written off (809,899) (322,439) (811,727) (322,439) Adjustments/transfers 111,295 (24,159) (15,127) 80,436 Balance as at 31 December 8,326,692 8,508,903 8,499,008 8,663,088

22.12 NON-PERFORMING LOANS & ADVANCES The Bank’s net exposure on non-performing loans & advances as at Balance Sheet date, before adjusting for the value of securities are as follows:

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 % Rs. ’000 % Rs. ’000 % Rs. ’000 %

Non-performing loans and advances Bills of exchange 284,071 792,563 423,826 910,110 Loans & advances 10,969,634 13,548,459 11,473,931 13,605,840 Foreclosed properties 814,155 445,877 814,155 445,877 Lease rentals receivable 570,673 755,421 989,169 1,319,123

* * * Non-performing advances 12,638,533 3.31 15,542,320 5.65 13,701,081 3.49 16,280,950 5.75* Add: Interest receivable on non-performing advances 8,127,464 8,325,915 8,141,233 8,336,890 Gross non-performing advances 20,765,997 23,868,235 21,842,314 24,617,840 Less: Interest in suspense for Bills of exchange 79,517 548,125 79,517 548,125 Loans & advances 8,156,736 7,766,138 8,164,806 7,776,751 Lease rentals receivable 90,439 194,640 254,685 338,212 Total interest in suspense 8,326,692 8,508,903 8,499,008 8,663,088 Net non-performing advances 12,439,305 15,359,332 13,343,306 15,954,752

Less: Specific provision for loan losses for Bills of exchange 156,452 150,371 168,534 164,363 Loans & advances 6,539,181 7,595,463 6,589,140 7,629,954 Foreclosed properties 268,173 32,796 268,173 32,796 Lease rentals receivable 228,150 263,971 566,253 661,491

Total specific provision for loans & advances 7,191,956 1.88* 8,042,601 2.92* 7,592,100 1.93* 8,488,604 3.00*

Net exposure 5,247,349 1.37* 7,316,731 2.66* 5,751,206 1.46* 7,466,148 2.64*

* As a percentage of total gross loans & advances (Net of interest in suspense). NOTES TO THE FINANCIAL STATEMENTS

The Bank’s net exposure on non-performing advances of Rs. 5,247 million as at 31 December 2010 (2009: Rs. 7,317 million) is covered by securities valued at Rs. 6,860 million (2009: Rs. 8,459 million).

The reduction in the value of security corresponds with the reduction in the non-performing category.

22.12 (a)

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Provision cover - Gross Specific provision 7,191,956 8,042,601 7,592,100 8,488,604 Non-performing loans & advances 12,638,533 15,542,320 13,701,081 16,280,950 Specific provision to non-performing loans & advances 56.90% 51.75% 55.41% 52.14% Provision cover - Net Specific provision 7,191,956 8,042,601 7,592,100 8,488,604 Net non-performing loans & advances 12,439,305 15,359,332 13,343,306 15,954,752 Specific provision to non-performing loans & advances 57.82% 52.36% 56.90% 53.20%

22.12 (b) Analysis of geographic sector non-performing advances

Bank NPA NPA % As at 31 December 2010 2009 % Rs. ’000 Rs. ’000

Sri Lanka 10,154,252 3.6 12,683,363 5.8 Off-shore banking division 2,244,907 2.4 1,929,640 3.8 Overseas branches 239,374 3.1 929,317 17.6 12,638,533 15,542,320

*NPA % of the particular geographic sector.

22.13 CREDIT CONCENTRATION - GEOGRAPHIC SECTOR RISK CONCENTRATION Geographic sector risk concentration within the customer loan portfolio were as follows:

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 % Rs. ’000 % Rs. ’000 % Rs. ’000 %

Sri Lanka 280,739,408 73.4 218,413,729 79.4 291,021,434 74.1 226,689,714 80.0 Off-shore banking division 93,744,288 24.5 51,323,395 18.7 93,744,290 23.87 51,323,394 18.1 United Kingdom – 0.0 215,755 0.1 115,917 0.03 215,755 0.1 Republic of Maldives 5,979,414 1.6 3,842,615 1.4 5,979,414 1.5 3,842,615 1.4 India 1,846,662 0.5 1,226,814 0.4 1,846,662 0.5 1,226,814 0.4 382,309,772 100.0 275,022,308 100 392,707,717 100 283,298,292 100 NOTES TO THE FINANCIAL STATEMENTS

22.14 CREDIT CONCENTRATION - ECONOMIC SECTOR RISK CONCENTRATION Economic sector risk concentration within the customer loan portfolio were as follows:

Bank Group

As at 31 December 2010 2009 2010 2009

Rs. ’000 %Rs. ’000% Rs. ’000 % Rs. ’000 %

Exports and imports 34,944,448 9.1 32,186,130 11.7 35,394,778 9.0 32,486,450 11.5 Wholesale and retail trade 23,367,576 6.1 21,058,927 7.7 27,680,809 7.0 22,107,979 7.8 Banking, finance and insurance 4,657,807 1.2 3,094,565 1.1 5,579,079 1.4 3,584,324 1.3 Agriculture and fisheries 11,305,962 3.0 7,751,422 2.8 11,628,857 3.0 8,359,859 3.0 Manufacturing 11,532,404 3.0 8,324,054 3.0 12,136,544 3.1 8,810,347 3.1 Hotels, travels and services 19,088,626 5.0 16,814,594 6.1 21,787,255 5.5 21,387,099 7.4 Housing, construction & property development 43,345,196 11.3 35,791,167 13.0 43,967,683 11.3 36,262,928 12.8 Consumption and others 95,420,599 25.0 56,647,624 20.6 95,885,557 24.4 56,945,481 20.1 Government & SOEs 137,833,000 36.1 92,907,949 33.8 137,833,000 35.1 92,907,949 32.8 Foreclosed properties 814,154 0.2 445,876 0.2 814,155 0.2 445,876 0.2 Gross loans & advances 382,309,772 100 275,022,308 100 392,707,717 100 283,298,292 100

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

22.15 GROSS BILLS OF EXCHANGE, LOANS AND ADVANCES AND LEASE RENTALS RECEIVABLE - SUMMARY

Bills of exchange [Note 22.1] 15,776,120 16,098,530 16,421,802 16,568,481 Loans and advances [Note 22.2] 370,266,675 262,716,527 372,520,486 264,382,399 Lease rentals receivable [Note 22.3, 22.4, 22.5] 4,593,669 4,716,154 12,264,437 11,010,500 390,636,464 283,531,211 401,206,725 291,961,380 Total provision for interest in suspense [Note 22.16] (8,326,692) (8,508,903) (8,499,008) (8,663,088) Total gross bills of exchange, loans and advances and lease rentals receivable 382,309,772 275,022,308 392,707,717 283,298,292 Total provision for loan losses [Note 22.17] (9,588,187) (9,956,917) (10,119,920) (10,498,666) Total net bills of exchange, loans and advances and lease rentals receivable 372,721,585 265,065,391 382,587,797 272,799,626

22.16 TOTAL PROVISION FOR INTEREST IN SUSPENSE - SUMMARY Bills of exchange [Note 22.1 (d)] 79,517 548,125 79,517 548,125 Loans and advances [Note 22.2 (d)] 8,156,736 7,766,138 8,164,806 7,776,751 Lease rentals receivable [Note 22.8] 90,439 194,640 254,685 338,212 8,326,692 8,508,903 8,499,008 8,663,088

22.17 TOTAL PROVISION FOR LOAN LOSSES - SUMMARY Bills of exchange [Note 22.1 (b), 22.1 (c)] 300,700 296,089 326,757 319,465 Loans and advances [Note 22.2 (b), 22.2 (c) and 22.2 (f)] 9,012,023 9,348,105 9,090,285 9,403,879 Lease rentals receivable [Note 22.6, 22.7] 275,464 312,723 702,878 775,322 9,588,187 9,956,917 10,119,920 10,498,666 NOTES TO THE FINANCIAL STATEMENTS

As at 31 December 2010 2009 Rate Date of Rs. ‘000 Rs. ‘000 % maturity

23. GOVERNMENT OF SRI LANKA RESTRUCTURING BONDS Date issued Description 24.03.1993 For re-capitalisation purposes 4,780,000 4,780,000 12 24.03.2023 24.03.1993 For settlement of loans 3,767,000 3,767,000 12 24.03.2023 Total 8,547,000 8,547,000

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

24. INVESTMENT SECURITIES Equity shares Listed equity shares [Note 24 (a)] 1,146,862 1,146,862 1,386,793 1,360,152 Unlisted equity shares [Note 24 (b)] 3,388,581 98,575 3,398,625 113,735 Unlisted preference shares [Note 24 (c )] – 25,000 – 25,000

Debt securities Listed debentures [Note 24 (d)] 35,240 120,000 35,973 120,000 Asset securitisation bonds (unlisted) [Note 24 (e)] – 13,321 – 13,321 Trust certificates [Note 24 (f)] 197,784 – 197,784 –

Bonds Sri Lanka Development Bonds [24 (g)] 72,820,570 71,948,559 72,820,570 71,948,559 Units in unit trusts [Note 24 (h)] 1,309,174 1,110,725 1,312,314 1,110,725 Government securities [Note 24 (i)] 1,745,285 1,381,700 1,745,285 1,381,700 Other investments [Note 24 (j)] – – 221,023 380,050 80,643,496 75,844,742 81,118,367 76,453,242

24. (a) Listed equity shares Bank As at 31 December 2010 2009 Cost of Cost of No. of Market No. of Market investment investment ordinary value ordinary value Rs. ‘000 Rs. ‘000 shares Rs. ‘000 shares Rs. ‘000

National Development Bank PLC 8,185,538 691,862 2,860,846 8,185,538 691,862 1,686,221 Seylan Bank PLC 13,000,000 455,000 1,271,400 13,000,000 455,000 481,000 1,146,862 4,132,246 1,146,862 2,167,221 NOTES TO THE FINANCIAL STATEMENTS

Bank As at 31 December 2010 2009 No. of Cost of Directors' No. of Cost of Directors' ordinary investment valuation ordinary investment valuation shares Rs. ‘000 Rs. '000 shares Rs. ‘000 Rs. '000

24. (b) Unlisted equity shares Credit Information Bureau of Sri Lanka 47,400 42,256 42,256 27,000 2,700 2,700 Fitch Ratings Lanka Limited 62,500 625 625 62,500 625 625 Kandurata Development Bank* – – – 1,200,000 12,000 12,000 Kandy Textile Industries Limited 191,790 1,918 – 191,790 1,918 – Lanka Clear (Private) Limited 2,100,000 21,000 21,000 2,100,000 21,000 21,000 Lanka Financial Services Bureau Limited 225,000 2,250 2,250 225,000 2,250 2,250 Megpek Exports Limited 300,000 4,355 – 300,000 4,355 – Pradeshiya Sanwardhana Bank 7,418,448 72,000 72,000 – – – Rajarata Development Bank* – – – 1,298,448 12,000 12,000 Ruhunu Development Bank* – – – 1,200,000 12,000 12,000 Sabaragamuwa Development Bank* – – – 1,200,000 12,000 12,000 Serendib Coconut Products Limited 37,500 375 – 37,500 375 – Sri Lankan Airlines Limited 12,115,571 3,250,450 3,250,450 – – – Uva Development Bank* – – – 1,200,000 12,000 12,000 Wayamba Development Bank* – – – 1,320,000 12,000 12,000 3,395,229 3,388,581 105,223 98,575 Provision for diminution in value (6,648) (6,648) – 3,388,581 3,388,581 98,575 98,575

* Development Banks were converted to Pradeshiya Sanwardhana Bank by a Gazette notification on 01 May 2010.

. Bank As at 31 December 2010 2009 Cost of Directors' Cost of Directors' No. of investment valuation No. of investment valuation shares Rs. ‘000 Rs. '000 shares Rs. ‘000 Rs. '000

24. (c) Unlisted preference shares Carson Cumberbatch Company PLC – – – 2,500,000 25,000 25,000 [Non-voting 14.0% redeemable, cumulative preference shares]

–– 25,000 25,000

Bank As at 31 December 2010 2009 No. of Cost of Market No. of Cost of Market securities/ investment value securities/ investment value debentures Rs. ‘000 Rs. '000 debentures Rs. ‘000 Rs. '000

24. (d) Listed debentures HDFC Bank of Sri Lanka – – – 750,000 75,000 75,000 [6 months gross TB rate plus 185 basis points subject to cap of 15.0% Rs. 100/- each matured in June 2010]

Singer (Sri Lanka) PLC – – – 450,000 45,000 45,000 [6 months gross TB rate plus 150 basis points subject to cap of 15.5% Rs. 100/- each matured in September 2010]

Urban Development Authority 352,400 35,240 35,240 – – – [Fixed rate of 11.0% Rs. 100/- each maturing in October 2015]

35,240 35,240 120,000 120,000 NOTES TO THE FINANCIAL STATEMENTS

Bank As at 31 December 2010 2009 Cost of Market Cost of Market investment value investment value Rs. ‘000 Rs. '000 Rs. ‘000 Rs. '000

24. (e) Asset securitisation bonds HDFC Bank of Sri Lanka – – 13,321 13,321 [3 months gross TB rate plus 150 basis points matured in May 2010]

– – 13,321 13,321 24. (f) Trust certificates Commercial Leasing Company Limited 197,784 197,784 – – 197,784 197,784 – –

Bank As at 31 December 2010 2009 Date of Cost of Net realisable Cost ofNet realisable maturity investment value investmentvalue Rs. ’000 Rs. ’000 Rs. ’000Rs. ’000

24. (g) Sri Lanka Development Bonds (US$ Bonds) Sri Lanka Development Bonds (6 months LIBOR plus 275 basis points, matured in July 2010) 15.07.2010 – – 22,338,225 22,338,225

Sri Lanka Development Bonds (6 months LIBOR plus 550 basis points) 16.03.2011 557,525 559,331 572,775 572,775 Sri Lanka Development Bonds (6 months LIBOR plus 540 basis points) 16.03.2011 1,672,575 1,677,992 1,718,325 1,718,325 Sri Lanka Development Bonds (6 months LIBOR plus 500 basis points) 29.06.2011 557,525 560,898 572,775 572,775 Sri Lanka Development Bonds (6 months LIBOR plus 450 basis points) 18.08.2011 557,525 560,055 572,775 572,775 Sri Lanka Development Bonds (6 months LIBOR plus 425 basis points) 22.09.2012 557,525 562,079 572,775 572,775 Sri Lanka Development Bonds (6 months LIBOR plus 350 basis points) 23.09.2012 557,525 555,199 – – Sri Lanka Development Bonds (6 months LIBOR plus 395 basis points) 26.03.2013 1,115,050 1,119,695 – – Sri Lanka Development Bonds (6 months LIBOR plus 395 basis points) 30.06.2013 1,115,050 1,120,297 – – Sri Lanka Development Bonds (6 months LIBOR plus 395 basis points) 15.07.2013 21,743,475 21,846,865 – – Sri Lanka Development Bonds (6 months LIBOR plus 370 basis points) 15.07.2013 44,386,795 44,333,132 45,600,909 45,600,909 72,820,570 72,895,543 71,948,559 71,948,559

Bank As at 31 December 2010 2009 No. of Cost of Manager’s No. of Cost of Manager’s units investment valuation units investment valuation Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

24. (h) Units in Unit Trusts Ceybank Unit Trust Investments 94,437,649 1,113,433 3,970,159 86,699,503 980,312 1,793,813 Ceybank Century Growth Fund 7,447,569 95,741 534,413 7,327,748 88,413 259,475 Ceybank Surekum Gilt Edged Fund 10,000,000 100,000 100,500 – – – Ceybank Unit Trust - Seed Fund – – – 4,421,052 42,000 91,472 1,309,174 4,605,072 1,110,725 2,144,760 NOTES TO THE FINANCIAL STATEMENTS

As at 31 December 2010 2009 Cost ofManager’s Cost ofManager’s investmentvaluation investmentvaluation Rs. ’000Rs. ’000 Rs. ’000Rs. ’000

24. (i) Government securities Investment in Government securities 1,745,285 1,745,285 1,381,700 1,381,700 1,745,285 1,745,285 1,381,700 1,381,700

Group As at 31 December 2010 2009 No. of Cost of Market No. of Cost of Market ordinary investment value ordinary investment value shares Rs. ‘000 Rs. '000 shares Rs. ‘000 Rs. '000

24. (a) Listed equity shares National Development Bank PLC 8,220,538 704,909 2,873,078 8,185,538 691,862 1,686,221 Seylan Bank PLC 13,000,000 455,000 1,271,400 13,000,000 455,000 481,000 The Lanka Hospital Corporation PLC 21,329,000 213,290 676,129 21,329,000 213,290 506,564 DFCC Bank 60,000 13,594 12,012 1,386,793 4,832,619 1,360,152 2,673,785

Group As at 31 December 2010 2009 No. of Cost of Directors’ No. of Cost of Director’s ordinary investment valuation ordinary investment valuation shares Rs. ‘000 Rs. '000 shares Rs. ‘000 Rs. '000

24. (b) Unlisted equity shares Capital Reach Holdings Limited – – – 511,500 5,115 5,115 Ceylinco Investment Company Limited 5,000,000 5,000 5,000 5,000,000 5,000 5,000 Credit Information Bureau of Sri Lanka 47,600 42,300 42,300 37,100 2,745 2,745 Fitch Ratings Lanka Limited 62,500 625 625 62,500 625 625 Kandurata Development Bank* – – – 1,200,000 12,000 12,000 Kandy Textile Industries Limited 191,790 1,918 – 191,790 1,918 – Lanka Clear (Private) Limited 2,100,000 21,000 21,000 2,100,000 21,000 21,000 Lanka Financial Services Bureau Limited 225,000 2,250 2,250 225,000 2,250 2,250 MEGA Containers Limited 1,000,000 10,000 5,000 1,000,000 10,000 5,000 Megpek Export Limited 300,000 4,355 – 300,000 4,355 – Pradeshiya Sanwardhana Bank 7,418,448 72,000 72,000 – – – Rajarata Development Bank* – – – 1,298,448 12,000 12,000 Ruhunu Development Bank* – – – 1,200,000 12,000 12,000 Sabaragamuwa Development Bank* – – – 1,200,000 12,000 12,000 Serendib Coconut Products Limited 37,500 375 – 37,500 375 – Sri Lankan Airlines Limited 12,115,571 3,250,450 3,250,450 – – – Uva Development Bank* – – – 1,200,000 12,000 12,000 Wayamba Development Bank* – – – 1,320,000 12,000 12,000 3,410,273 3,398,625 125,383 113,735 Provision for diminution in value (11,648) – (11,648) – 3,398,625 3,398,625 113,735 113,735

* Development Banks were converted to Pradeshiya Sanwardhana Bank by a Gazette notification on 01 May 2010. NOTES TO THE FINANCIAL STATEMENTS

Group As at 31 December 2010 2009 No. of Cost of Directors’ No. of Cost of Director’s preference investment valuation preference investment valuation shares Rs. ‘000 Rs. '000 shares Rs. ‘000 Rs. '000

24. (c) Unlisted preference shares Carson Cumberbatch Company PLC ––– 2,500,000 25,000 25,000 [Non-voting 14.00% redeemable, cumulative preference shares]

– – 25,000 25,000

Group As at 31 December 2010 2009 No. of Cost of Market No. of Cost of Market securities/ investment value securities/ investment value debentures Rs. ‘000 Rs. '000 debentures Rs. ‘000 Rs. '000

24. (d) Listed debentures HDFC Bank PLC – – – 750,000 75,000 75,000 [6 months gross TB rate plus 185 basis points subject to cap of 15.00% Rs. 100/- each, matured in June 2010]

Singer (Sri Lanka) PLC – – – 450,000 45,000 45,000 [6 months gross TB rate plus 150 basis points subject to cap of 15.50% Rs. 100/- each, matured in September 2010]

Urban Development Authority 352,400 35,240 35,240 – – – [Fixed rate of 11.00% Rs. 100/- each maturing in October 2015]

Seylan Bank PLC [Fixed rate of 16.20% Rs. 100/- each, maturing in December 2012] 2,000 215 200 – – – [Fixed rate of 16.75% Rs. 100/- each, maturing in May 2012] 3,400 364 340 – – – [Fixed rate of 13.50% Rs. 100/- each, maturing in July 2011] 1,500 154 150 – – – 35,973 35,930 120,000 120,000

24. (e) Asset securitisation bond HDFC Bank PLC – – – – 13,321 13,321 [3 months gross TB rate plus 150 basis points matured in May 2010]

– 13,321 13,321

24. (f) Trust certificates Commercial Leasing Company Limited – 197,784 197,784 ––– – 197,784 197,784 NOTES TO THE FINANCIAL STATEMENTS

Group As at 31 December 2010 2009 Date of Cost of Net realisable Cost ofNet realisable maturity investment value investmentvalue Rs. ’000 Rs. ’000 Rs. ’000Rs. ’000

24. (g) Sri Lanka Development Bonds (US$ Bonds) Sri Lanka Development Bonds (6 months LIBOR plus 275 basis points, matured in July 2010) 15.07.2010 – – 22,338,225 22,338,225

Sri Lanka Development Bonds (6 months LIBOR plus 550 basis points) 16.03.2011 557,525 559,331 572,775 572,775 Sri Lanka Development Bonds (6 months LIBOR plus 540 basis points) 16.03.2011 1,672,575 1,677,992 1,718,325 1,718,325 Sri Lanka Development Bonds (6 months LIBOR plus 500 basis points) 29.06.2011 557,525 560,898 572,775 572,775 Sri Lanka Development Bonds (6 months LIBOR plus 450 basis points) 18.08.2011 557,525 560,055 572,775 572,775 Sri Lanka Development Bonds (6 months LIBOR plus 425 basis points) 22.09.2012 557,525 562,079 572,775 572,775 Sri Lanka Development Bonds (6 months LIBOR plus 350 basis points) 23.09.2012 557,525 555,199 – – Sri Lanka Development Bonds (6 months LIBOR plus 395 basis points) 26.03.2013 1,115,050 1,119,695 – – Sri Lanka Development Bonds (6 months LIBOR plus 395 basis points) 30.06.2013 1,115,050 1,120,297 – – Sri Lanka Development Bonds (6 months LIBOR plus 395 basis points) 15.07.2013 21,743,475 21,846,865 – – Sri Lanka Development Bonds (6 months LIBOR plus 370 basis points) 15.07.2013 44,386,795 44,333,132 45,600,909 45,600,909 72,820,570 72,895,543 71,948,559 71,948,559

Group As at 31 December 2010 2009 No. of Cost of Manager’s No. of Cost of Manager’s units investment valuation units investment valuation Rs. ‘000 Rs. '000 Rs. ‘000 Rs. '000

24. (h) Units in Unit Trusts Ceybank Unit Trust Investments 94,437,649 1,113,433 3,970,159 86,699,503 980,312 1,793,813 Ceybank Unit Trust - Seed Fund – – – 4,421,052 42,000 91,472 Ceybank Century Growth Fund 7,477,569 95,741 545,339 7,327,748 88,413 259,475 Ceybank Surekum Gilt Edged Fund 10,000,000 100,000 100,500 – – – Namal Acuity Value Fund 32,800 3,140 2,952 – – – 1,312,314 4,618,950 1,110,725 2,144,760

Group As at 31 December 2010 2009 Cost of Manager’s Cost ofManager’s investment valuation investmentvaluation Rs. ‘000 Rs. '000 Rs. ‘000Rs. '000

24. (i) Government securities Investment in Government securities 1,745,285 1,745,285 1,381,700 1,381,700 1,745,285 1,745,285 1,381,700 1,381,700

Group As at 31 December 2010 2009 Cost of Director’s Cost of Director’s investment valuation investment valuation Rs. ‘000 Rs. '000 Rs. ‘000 Rs. '000

24. (j) Other Investments Investment in commercial papers 220,965 220,965 380,000 380,000 Investment in other banks 58 58 50 50 221,023 221,023 380,050 380,050 NOTES TO THE FINANCIAL STATEMENTS

Bank Group 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

25. INVESTMENT PROPERTIES Cost Balance as at 01 January – – 396,914 431,181 Additions during the year – – 2,659 110,398 Transfers/adjustments – – – (144,215) Disposals during the year – – (4,798) (450) Balance as at 31 December – – 394,775 396,914

Less: Accumulated depreciation Balance as at 01 January – – 5,184 2,431 Charge for the year – – 3,074 3,060 Transfers/adjustments – – – (307) Released on disposal – – (350) – Balance as at 31 December – – 7,908 5,184 Net investment properties – – 386,867 391,730

No investment properties held by the Bank both for the current year as well as for the previous year.

As at 31 December 2010 2009 Cost Fair value Cost Fair value Building Total Total Total Building Extent Land Total Rs '000 (sq.ft) Rs '000 Rs '000 Rs '000 Rs '000 Rs '000

25.1 INVESTMENT PROPERTIES HELD BY THE GROUP No. 64 & 66, Nonagama Road, Pallegama, Embilipitiya. * 16.61p 1,750 – 1,750 13,000 1,750 3,000 Lot No. 2 & 3 of Muttuweowita. (Acquired by RDA) * 20.40p 714 – 714 1,000 714 1,000 No. 300/8, Thalawathugoda Road, Madiwela, Kotte. * 2,478 16.15p 2,465 2,635 5,100 5,012 5,100 5,012 No. 385/1, Kotte Road, Pittakotte. 2,896 19.01p 2,958 1,730 4,688 5,298 4,688 5,298 No. 19, Galle Road, Angoda, Bentota. 961 2R-00.00p – – – – 2,989 5,816 No. 116, 116/1, 118, 120, 1st Cross Street, Colombo 11. (Sold 90%) * 12.35p 1,249 – 1,249 1,249 1,249 22,500 No. 43, 45, 49, 51 & 53, New Olcott Mawatha, Colombo 11. * – 9.76p 9,950 – 9,950 35,000 9,950 35,000 No. 102 & 104, Dam Street, Colombo 12. * 7,925 1R-10.70p 17,970 4,989 22,959 56,029 22,109 56,029 Kumbuththukuliya Watta, Bangadeniya Road, Puttalam. * – 2.00A 600 – 600 3,400 600 2,000 Mirissawelawatta Hena, Thekka Watta, Dambadeniya. * – 1A-0R-28.00p 162 – 162 600 162 2,560 Rukgahakottunuwa, Gehenuwala, Meepe. – 38.33p 2,418 – 2,418 890 2,418 890 No. 299, Union Place, Colombo 02. * 10,456 50.00p 225,085 10,100 235,185 225,344 235,185 225,344 No. 50/21, Old Kesbewa Road, Raththanapitiya, Boralesgamuwa. ** 44,877 2A-1R-4.35p 65,604 44,396 110,000 229,075 110,000 229,075 Total 330,925 63,850 394,775 575,897 396,914 593,524

Note * The fair value of the investment properties as at 31 December 2010 was based on market valuations carried out by Mr. D N Dhammika Baranage [RICS (UK), DIV AIS (SL)] and Mr. H A W Perera [BSc Estate Management and Valuation (Special)], who are independent valuers not connected with the Group. The Directors have reviewed values of other investment properties as at 31 December 2010 and concluded that there were no impairment.

** Professional valuation has been carried out by Mr. A G Gunarathna [BSc Estate Management and Valuation, FIV (Sri Lanka)], incorporated valuer on basis of Market Approach (Direct Comparison Method) on 24 July 2009. NOTES TO THE FINANCIAL STATEMENTS

Bank Group As at 31 December 2010 2009 2010 2009 Market Market Market Market Group’s Cost value/ Group’s Cost value/ Equity value/ Equity value/ interest in Directors’ interest in Directors’ value Directors’ value Directors’ stated valuation stated valuation valuation valuation capital capital % % Rs. ’000Rs. ‘000 Rs. ’000Rs. ’000 Rs. ’000Rs. ‘000 Rs. ’000 Rs. ‘000

26. INVESTMENTS IN ASSOCIATE COMPANIES

26.1 UNQUOTED Lanka Securities (Private) Limited 40.92 41,940 41,940 40.92 41,940 41,940 171,607 171,607 134,081 134,081 (3,495,000 Ordinary shares) (Incorporated in Sri Lanka) Mireka Capital Land (Private) Limited 40.00 750,000 750,000 40.00 750,000 750,000 905,937 905,937 832,400 832,400 (75,000,000 Ordinary shares) (Incorporated in Sri Lanka) Southern Development Financial Company 41.67 25,000 1,670 41.67 25,000 1,670 53 53 692 692 Limited (2,500,001 Ordinary shares) (Incorporated in Sri Lanka) Transnational Lanka Records Solutions 24.69 20,000 20,000 24.69 20,000 20,000 33,605 33,605 29,177 29,177 (Private) Limited (2,000,000 Ordinary shares) (Incorporated in Sri Lanka) Ceybank Asset Management (Private) Limited 43.36 31,048 31,048 49.60 31,048 31,048 61,558 61,558 54,560 54,560 (1,240,002 Ordinary shares) (Incorporated in Sri Lanka) MBSL Savings Bank Limited 49.08 – – 49.88 – – 111,803 111,803 33,155 33,155 (67,809,465 Ordinary shares) (Incorporated in Sri Lanka)

Total investment in Associate Companies 867,988 844,658 867,988 844,658 1,284,563 1,284,563 1,084,065 1,084,065 Provision for diminution in value (23,330) (23,330)

Net investment in Associate Companies 844,658 844,658 844,658 844,658 1,284,563 1,284,563 1,084,065 1,084,065

Bank Group Cost Equity value

2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

26.2 MOVEMENT IN INVESTMENTS IN ASSOCIATE COMPANIES Value as at 01 January 867,988 841,940 1,084,065 956,370 Increase/(decrease) in investment – 26,048 80,364 26,048 Share of profit/(loss) before tax – – 212,898 130,653 Share of tax – – (55,384) (21,109) Dividends – – (42,713) (4,675) Other adjustments – – 5,334 (3,222) Value as at 31 December 867,988 867,988 1,284,564 1,084,065

Bank Group 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

26.3 MOVEMENT IN PROVISION FOR DIMINUTION IN VALUE Balance as at 01 January 23,330 23,330 – – Amount provided during the year – – – – Balance as at 31 December 23,330 23,330 – – NOTES TO THE FINANCIAL STATEMENTS

As at 31 December 2010 2009 Rs. ’000 Rs. ’000

26.4 THE GROUP'S INTEREST IN THE SUMMARISED FINANCIAL INFORMATION OF THE ASSOCIATES ARE AS FOLLOWS:

Total assets 3,914,506 2,673,026 Total liabilities 2,619,263 2,602,178 For the year ended 31 December Total operating income 740,817 682,975 Total operating expenses (527,919) (552,322) Profit before taxation 212,898 130,653 Provision for taxation (55,384) (21,109) Profit after taxation 157,514 109,544

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

27. INVESTMENT IN SUBSIDIARY COMPANIES Investment in quoted companies (Note 27.2) 2,862,705 2,862,705 – – Investment in unquoted companies (Note 27.3) 3,233,519 1,146,284 – – Total investment in subsidiary companies 6,096,224 4,008,989 – –

Provision for diminution in value (Note 27.5) (817,130) (817,130) – – Net investment in Subsidiary Companies 5,279,094 3,191,859 – –

27.1 MOVEMENT IN INVESTMENT IN SUBSIDIARIES Balance as at 01 January 4,008,989 3,601,084 – – Increase/(decrease) in investment 2,087,235 407,905 – – Balance as at 31 December 6,096,224 4,008,989 – –

Bank As at 31 December 2010 2009 Group’s interest Cost Market value/ Group’s interest CostMarket value/ in stated capital Directors’ value in stated capital Directors’ value % Rs. ’000 % Rs. ’000Rs. ’000 Rs. ’000

27.2 QUOTED Property Development PLC 93.16 740,070 2,766,827 93.16 740,070 1,767,695 (61,485,050 Ordinary shares ) (Incorporated in Sri Lanka)

Merchant Bank of Sri Lanka PLC 72.14 2,122,635 4,460,560 72.14 2,122,635 1,899,147 (97,392,136 Ordinary shares ) (Incorporated in Sri Lanka)

Investment in quoted Subsidiary Companies 2,862,705 7,227,387 2,862,705 3,666,842 NOTES TO THE FINANCIAL STATEMENTS

Bank As at 31 December 2010 2009 Group’s interest Cost Market value/ Group’s interest CostMarket value/ in stated capital Directors’ value in stated capital Directors’ value % Rs. ’000 % Rs. ’000Rs. ’000 Rs. ’000

27.3 UNQUOTED BoC Management & Support Services (Private) Limited 100.00 1,000 1,000 100.00 1,000 1,000 (100,000 Ordinary shares) (Incorporated in Sri Lanka)

BoC Property Development & Management (Private) Limited 100.00 1,010,000 1,010,000 100.00 1,010,000 1,010,000 (100,999,998 Ordinary shares) (Incorporated in Sri Lanka)

BoC Travels (Private) Limited 100.00 2,500 2,500 100.00 2,500 2,500 (250,006 Ordinary shares) (Incorporated in Sri Lanka)

Hotels Colombo (1963) Limited 99.99 737 737 98.23 737 737 (73,669 Ordinary shares) (Incorporated in Sri Lanka)

Merchant Credit of Sri Lanka Limited 85.79 22,047 22,047 85.79 22,047 22,047 (4,900,018 Ordinary shares) (Incorporated in Sri Lanka)

Ceylease Financial Services Limited 55.00 110,000 110,000 55.00 110,000 110,000 (110,000,000 Ordinary shares) (Incorporated in Sri Lanka)

Bank of Ceylon (UK) Limited 100.00 2,087,235 2,087,235 – – – (12,119,611 Ordinary shares) (Incorporated in United Kingdom)

Investment in unquoted Subsidiary Companies 3,233,519 3,233,519 1,146,284 1,146,284

In addition to the above Subsidiaries, Ceybank Holiday Homes (Private) Limited, MBSL Insurance Company Limited and Koladeniya Hydropower (Private) Limited are indirect Subsidiaries of the Bank.

27.4 INVESTMENTS IN SUBSIDIARIES DURING THE YEAR 1. Bank of Ceylon (UK) Limited The Financial Services Authority (FSA), the regulator of the Financial Services Industry in the United Kingdom, required that the London branch of the Bank be converted to a Subsidiary of Bank of Ceylon that will be operated with its own capital base, management and Board of Directors. As a result, Bank of Ceylon branch in London was converted to a fully-owned Subsidiary during the year 2010 and named ‘Bank of Ceylon (UK) Limited’. Total investment is GBP 12,119,612/-.

2. Koladeniya Hydropower (Private) Limited Koladeniya Hydropower (Private) Limited was acquired by Property Development PLC, Subsidiary of Bank of Ceylon during the year 2010 and became a Subsidiary of Bank of Ceylon through indirect holding of its stated capital.

Group’s interest in the voting shares : 88.12% Amount invested (Rs.) : 23,625,000/- Post-acquisition (loss)/profit to Group account for the financial year 2010 (Rs.) : (1,090,783/-)

Bank Group 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

27.5 MOVEMENT IN PROVISION FOR DIMINUTION IN VALUE Balance as at 01 January 817,130 817,130 – – Amount provided during the year – – – – Balance as at 31 December 817,130 817,130 – – NOTES TO THE FINANCIAL STATEMENTS

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

28. OTHER ASSETS Accrued interest and other receivables 10,238,043 9,002,621 10,620,946 9,266,588 Consumable stock in hand 338,357 284,242 410,819 349,381 Foreign cheques purchased 102,994 84,721 102,994 84,721 Local cheques purchased 1,236,611 1,414,411 1,236,611 1,414,411 Other assets 5,790,263 8,398,454 5,942,280 8,659,547

17,706,268 19,184,449 18,313,650 19,774,648

Freehold Freehold Leasehold Equipment Motor Leasehold Capital Total Total land building building vehicles motor work-in- vehicles progress

As at 31 December 2010 2009 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000

29. PROPERTY, PLANT & EQUIPMENT BANK

29.1 COST OR VALUATION As at 01 January 1,566,606 1,767,530 615,472 6,419,846 468,661 33,595 214,431 11,086,141 9,836,873 Additions during the year 26,319 8,581 112,336 645,393 132,263 16,793 229,095 1,170,780 1,390,829 Disposals during the year – – (75) (120,461) (25,878) – – (146,414) (116,599) Exchange rate adjustments – – – (984) 76 – – (908) 51,227 Transfer to Bank of Ceylon (UK) Limited – (432,817) – (76,097) – – – (508,914) – Work-in-progress capitalised – 10,613 75,954 – – – (213,845) (127,278) – Transfers/adjustments – – – (1,683) – – – (1,683) (76,189) As at 31 December 1,592,925 1,353,907 803,687 6,866,014 575,122 50,388 229,681 11,471,724 11,086,141

Accumulated Depreciation As at 01 January – 388,917 332,166 4,426,318 267,430 10,557 – 5,425,388 4,826,427 Charge for the year – 40,452 31,505 631,771 71,858 9,407 – 784,993 686,428 Disposals during the year – – (25) (118,980) (25,338) – – (144,343) (94,512) Exchange rate adjustments – – – (968) 61 – – (907) 14,598 Transfer to Bank of Ceylon (UK) Limited – (63,421) – (74,575) – – – (137,996) – Transfers/adjustments – – – – – – – – (7,553) As at 31 December – 365,948 363,646 4,863,566 314,011 19,964 – 5,927,135 5,425,388

Net book value as at 31 December 2010 1,592,925 987,959 440,041 2,002,448 261,111 30,424 229,681 5,544,589 – Net book value as at 31 December 2009 1,566,606 1,378,613 283,306 1,993,528 201,231 23,038 214,431 – 5,660,753 5,544,589 5,660,753 NOTES TO THE FINANCIAL STATEMENTS

29.1.1 Details of freehold lands & buildings held by the Bank as at 31 December 2010

Name of Premises Extent Building Cost/ Cost/ Total Accumulated Net Book (Perches) (Square Feet) Revaluation Revaluation Value Depreciation Value of Land of Building Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Central Province Galaha Branch 15.00 6,340 1,500 5,543 7,043 1,028 6,015 No. 59/37, Deltota Road, Galaha

Gampola Branch 175.00 9,270 875 10,287 11,162 4,815 6,347 No. 44, Kadugannawa Road, Gampola

Hatton Branch 85.65 8,784 5,000 8,406 13,406 1,522 11,884 No. 46, Circular Road, Hatton

Hatton Staff Quarters 40.00 5,560 4,000 7,300 11,300 1,417 9,883 Hatton

Kandy 2nd City Branch 42.81 9,017 34,500 34,335 68,835 16,883 51,952 No. 22, Dalada Veediya, Kandy

Maskeliya Branch 42.05 6,402 2,000 3,333 5,333 614 4,719 No. 66, Upcot Road, Maskeliya

Nawalapitiya Branch 15.00 6,317 3,066 13,127 16,193 1,936 14,257 No. 6, Gampola Road, Nawalapitiya

Nuwara Eliya Branch 133.50 13,645 85,000 14,889 99,889 3,009 96,880 No. 43, Lawson Street, Nuwara Eliya

Nuwara Eliya Staff Quarters 53.69 5,086 8,000 2,500 10,500 485 10,015 No. 14, 19, Hill Street, Nuwara Eliya

Nuwara Eliya Property 27.54 3,070 7,015 12,291 19,306 4,020 15,286 No. 12, Hill Street, Nuwara Eliya

Talawakelle Branch 25.30 5,045 2,500 8,854 11,354 1,353 10,001 No. 23, 25, 29, Hatton Road, Talawakelle

Talawakelle Staff Quarters 160.00 4,898 2,000 7,000 9,000 1,359 7,641 Talawakelle Estate Plantation

155,456 127,865 283,321 38,441 244,880

Eastern Province Batticaloa Branch 65.00 8,137 16 5,464 5,480 3,976 1,504 Covington Road, Batticaloa

Mutur Branch 40.27 2,226 1,260 819 2,079 614 1,465 No. 38, Batticaloa Road, Mutur

Pottuvil Branch 10.70 4,976 1,000 1,307 2,307 230 2,077 Main Street, Pottuvil

Trincomalee Branch 90.00 9,432 15 5,114 5,129 2,177 2,952 No. 24, Inner Harbour Road, Trincomalee

Valachchenai Branch 47.34 6,391 285 7,103 7,388 2,555 4,833 Main Street, Valachchenai

2,576 19,807 22,383 9,552 12,831 NOTES TO THE FINANCIAL STATEMENTS

Name of Premises Extent Building Cost/ Cost/ Total Accumulated Net Book (Perches) (Square Feet) Revaluation Revaluation Value Depreciation Value of Land of Building Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Northern Province Jaffna Area Office – 7,300 – 3,027 3,027 2,203 824 No. 476, 476A, Hospital Road, Jaffna

Jaffna Branch 164.27 9,775 115 4,388 4,503 2,450 2,053 No. 56, Stanley Road, Jaffna

Mannar Branch – 5,720 – 2,318 2,318 1,865 453 No. 52, Pallimunai Road, Grand Bazaar, Mannar

Nelliady Branch 42.74 – 15,686 – 15,686 – 15,686 Thikkam Road, Karaveddy, Nelliady

15,801 9,733 25,534 6,518 19,016

North-Western Province Alawwa Branch 31.80 7,305 4,000 5,070 9,070 977 8,093 No. 64, Giriulla Road, Alawwa

Chilaw Branch 43.50 3,640 14,000 8,981 22,981 1,698 21,283 Radaguru Edmund Peiris Mawatha, Chilaw

Dummalasuriya Branch 41.80 5,353 3,500 5,000 8,500 971 7,529 No. 227, Kuliyapitiya-Madampe Road, Dummalasuriya

Kurunegala Province Office, AGM’s Quarters & Chief 225.00 17,210 45,000 18,871 63,871 3,442 60,429 Manager’s Quaters No. 18, Mihindu Mawatha, Kurunegala

Kurunegala Branch – 15,100 – 15,604 15,604 6,825 8,779 Commercial Complex, Kurunegala

Kurunegala Bazaar Branch 53.00 8,915 55,000 19,569 74,569 3,764 70,805 No. 34, Colombo Road, Kurunegala

Madampe Branch 61.10 6,565 4,053 6,292 10,345 1,172 9,173 No. 10, Station Road, Madampe

Madurankuliya Branch 279.00 – 445 – 445 – 445 No. 66 , Colombo Road, Madurankuliya

Narammala Branch 117.50 5,970 5,500 3,319 8,819 507 8,312 No. 139, Negombo Road, Narammala

Puttalam Area Office 72.26 2,000 18 281 299 281 18 No. 53, Kurunegala Road, Puttalam

131,516 82,987 214,503 19,637 194,866 NOTES TO THE FINANCIAL STATEMENTS

Name of Premises Extent Building Cost/ Cost/ Total Accumulated Net Book (Perches) (Square Feet) Revaluation Revaluation Value Depreciation Value of Land of Building Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Sabaragamuwa Province Balangoda Branch 14.50 3,556 8,500 941 9,441 174 9,267 No. 137, Main Street, Balangoda

Dehiowita Branch 38.60 2,088 1,500 3,073 4,573 540 4,033 No. 62, Main Street, Dehiowita

Kegalle Branch 131.38 18,023 17,000 21,307 38,307 4,030 34,277 No. 110, Colombo Road, Kegalle

Rambukkana Branch 27.25 4,500 2,600 10,674 13,274 1,989 11,285 No. 8A, Diyasunnatha Mawatha, Rambukkana

Ratnapura Branch 100.00 9,013 20,000 8,491 28,491 1,572 26,919 No. 6, Dharmapala Mawatha, Ratnapura

Ratnapura Branch - (BMC.1/L) 31.69 – 10,439 – 10,439 – 10,439 No. 58, Main Street, Ratnapura

60,039 44,486 104,525 8,305 96,220

Southern Province Ambalangoda Branch 58.00 – 12,166 – 12,166 – 12,166 No. 274, Main Street, Ambalangoda

Ambalantota Branch 38.00 6,041 2,250 929 3,179 113 3,066 No. 11, Wanduruppa Road, Ambalantota

Galle Province Office 32.63 13,060 4,000 9,611 13,611 1,829 11,782 No. 2, Light House Street, Fort, Galle

Galle Branch 31.50 12,570 6,300 10,388 16,688 3,179 13,509 No. 2, Gamini Road, Galle

Hakmana Branch 36.70 3,250 263 3,823 4,086 1,602 2,484 Beliatta Road, Hakmana

Imaduwa Branch 83.50 2,300 3,000 3,194 6,194 589 5,605 Ahangama Road, Imaduwa

Matara Branch 104.50 13,514 21,000 13,102 34,102 2,738 31,364 No. 11, Kumaratunga Mawatha, Matara

Matara Bazaar Branch 49.25 – 14,038 – 14,038 – 14,038 Gunawardena Mawatha, Matara

Tangalle Branch 21.05 – 13,134 – 13,134 – 13,134 No. 145/147, Sea Street, Tangalle

Weligama Branch 97.50 8,500 831 6,165 6,996 2,478 4,518 No. 239, Main Street, Weligama

76,982 47,212 124,194 12,528 111,666

Uva Province Badulla Uva Province Office 118.75 9,048 7,000 6,104 13,104 1,139 11,965 Bank Road, Badulla

Bandarawela Branch 9.52 7,731 7,500 8,500 16,000 1,661 14,339 No. 198 B, Badulla Road, Bandarawela

Haputale Branch – 4,775 – 7,364 7,364 2,778 4,586 No. 20, Station Road, Haputale

Monaragala Branch & Manager’s Quarters 90.10 9,033 45 16,474 16,519 7,259 9,260 No. 401, Wellawaya Road, Moneragala

Moneragala Staff Quarters 230.00 3,042 18 440 458 349 109 No. 401, Wellawaya Road, Moneragala

14,563 38,882 53,445 13,186 40,259 NOTES TO THE FINANCIAL STATEMENTS

Name of Premises Extent Building Cost/ Cost/ Total Accumulated Net Book (Perches) (Square Feet) Revaluation Revaluation Value Depreciation Value of Land of Building Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Western Province North Borella Branch 42.62 19,195 30,000 44,940 74,940 8,423 66,517 No. 71, Danister de Silva Mawatha, Borella

Colombo 1 - City Office 39.50 24,952 100,000 50,863 150,863 11,349 139,514 No. 41, Bristol Street, Colombo 1

Colombo 1 - Grand Oriental Hotel 181.85 232,801 467,225 349,095 816,320 81,642 734,678 York Sreet, Colombo 1

Grandpass Branch 20.12 6,295 12,000 10,576 22,576 1,655 20,921 No. 703, Sirimavo Bandaranaike Mawatha, Grandpass

Ja-Ela Branch 40.64 8,090 14,158 10,989 25,147 1,859 23,288 No. 19, Negombo Road, Ja-Ela

Kadawatha Branch 28.86 6,181 10,000 11,561 21,561 2,221 19,340 No. 469, Ragama Road, Kadawatha

Negombo Branch 97.25 16,754 55,000 15,259 70,259 3,384 66,875 No. 118, Rajapakse Broadway, Negombo

Pettah Branch 28.29 24,530 28,440 44,238 72,678 20,538 52,140 No. 212/63, Gas Work Street, Colombo 11

716,823 537,521 1,254,344 131,071 1,123,273

Western Province South Aluthgama Branch 36.60 – 3,435 – 3,435 – 3,435 No. 267, Galle Road, Aluthgama

Bambalapitiya Branch – 7,776 – 36,348 36,348 17,063 19,285 No. 10, Unity Plaza Building, Galle Road, Colombo 4

Beruwala Branch 21.50 5,418 26,319 10,613 36,932 44 36,888 No. 165 A, Galle Road, Beruwala

Dehiwala Branch 22.00 12,715 2,225 25,360 27,585 8,938 18,647 No. 207, Galle Road, Dehiwala

Horana Branch 70.00 8,078 6,000 12,819 18,819 3,824 14,995 No. 87, Anguruwathota Road, Horana

Idama Branch 61.12 7,550 8,000 23,305 31,305 4,590 26,715 No. 707, Galle Road, Moratuwa

Kalutara Area Office 22.50 3,060 4,500 2,500 7,000 596 6,404 No. 108, Old Road, Kalutara

Kalutara Branch 40.86 9,885 17,000 7,773 24,773 1,904 22,869 No. 218, Galle Road, Kalutara South, Kalutara

Maharagama Branch 80.00 45,245 11,438 16,267 27,705 7,001 20,704 No. 88, High Level Road, Maharagama

Matugama Branch 9.50 2,883 4,500 3,959 8,459 730 7,729 No. 72, Agalawatte Road, Matugama

Nugegoda Branch 30.50 38,108 95,000 41,564 136,564 11,631 124,933 No. 174, High Level Road, Nugegoda,

Panadura Branch 80.00 6,490 4,000 7,910 11,910 3,410 8,500 No. 4, Super Grade Branch, Susantha Mawatha, Panadura

Wadduwa Branch 29.00 – 3,179 – 3,179 – 3,179 No. 557 A, Galle Road, Wadduwa

Wellawatte Branch 51.25 15,798 20,510 32,669 53,179 11,436 41,743 No. 149, Galle Road, Colombo 6

206,106 221,087 427,193 71,167 356,026 NOTES TO THE FINANCIAL STATEMENTS

Name of Premises Extent Building Cost/ Cost/ Total Accumulated Net Book (Perches) (Square Feet) Revaluation Revaluation Value Depreciation Value of Land of Building Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Holiday Homes and Rests Badulla Fernham Bungalow & Property 222.25 4,580 1,071 7,093 8,164 1,958 6,206 No. 153, Spring Valley Road, Badulla

Bandarawela Holiday Home 115.00 3,028 45 2,226 2,271 1,214 1,057 Bandarawela

Dickoya Upper/Lower Glencarn Bungalow – 7,807 – 10,138 10,138 3,502 6,636 Dickoya

Haputale Woodland Bungalow – 3,005 – 5,559 5,559 1,862 3,697 Haputale

Lindula Ridge Holiday Home – 3,412 – 5,130 5,130 1,451 3,679 Lindula

Nuwara Eliya Holiday Home 185.06 3,388 200 2,669 2,869 1,106 1,763 No. 16, Hill Street, Nuwara Eliya

1,316 32,815 34,131 11,093 23,038

Others General Manager's Bungalow 79.80 7,450 80,000 8,421 88,421 1,588 86,833 No. 75, Ananda Kumaraswamy Mawatha, Colombo 7

Colombo Darley Road, Stores, Browns Building, 151.00 22,337 96,999 7,473 104,472 3,055 101,417 No. 497, T B Jayah Mawatha, Colombo 10

World Trade Centre – 6,935 – 129,389 129,389 19,946 109,443 No. 8, Bank of Ceylon Mawatha,Colombo 1

Kollupitiya - Walkers Sons Ltd. 57.00 – 23,311 – 23,311 – 23,311 No. 28, St. Michael’s Road, Cololmbo 3

Maharagama - Central Training Institute 105.10 36,775 11,437 46,229 57,666 19,861 37,805 No. 88, High Level Road, Maharagama

211,747 191,512 403,259 44,450 358,809 Total freehold land and building 1,592,925 1,353,907 2,946,832 365,948 2,580,884 NOTES TO THE FINANCIAL STATEMENTS

Freehold Freehold Leasehold Equipment Motor Leasehold Capital Total Total land building building vehicles motor work-in- vehicles progress

As at 31 December 2010 2009 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000

GROUP

29.2 COST OR VALUATION As at 01 January 1,566,606 3,801,613 615,475 7,204,244 531,162 33,595 265,911 14,018,606 12,701,259 Additions during the year 26,319 20,090 112,336 683,067 145,859 16,793 229,095 1,233,559 1,452,873 Disposals during the year – – (75) (120,502) (38,180) – – (158,757) (124,454) Exchange rate adjustments – – – (984) 76 – – (908) 51,228 Transfer from equipment to freehold building – 386,190 – (386,190) – – – – – Work-in-progress capitalised – 41,808 75,954 20,285 – – (265,324) (127,277) – Transfers/adjustments – 9,019 – (66,725) – – 4,090 (53,616) (62,300) As at 31 December 1,592,925 4,258,720 803,690 7,333,195 638,917 50,388 233,772 14,911,607 14,018,606

Accumulated depreciation As at 01 January – 1,190,915 332,167 5,118,808 294,102 10,557 – 6,946,549 6,273,023 Charge for the year – 100,792 31,503 665,175 82,739 9,407 – 889,616 790,745 Disposals during the year – – (25) (119,019) (34,578) – – (153,622) (105,931) Exchange rate adjustments – – – (967) 61 – – (906) 14,598 Transfer from equipment to freehold building – 380,955 – (380,955) – – – – – Transfers/adjustments – (63,420) – (75,344) (1,574) – – (140,338) (25,886) As at 31 December – 1,609,242 363,645 5,207,698 340,750 19,964 – 7,541,299 6,946,549

Net book value as at 31 December 2010 1,592,925 2,649,478 440,045 2,125,497 298,167 30,424 233,772 7,370,308 – Net book value as at 31 December 2009 1,566,606 2,610,698 283,308 2,085,436 237,060 23,038 265,911 – 7,072,057 7,370,308 7,072,057

29.2 (a) 1. Revaluation A revaluation of freehold properties was carried out in 2010 by professionally qualified independent valuers based on open market value of existing use and no losses in value have been identified. However, the revaluation gains were not transferred to the revaluation reserve as at December 2010. It will subsequently be included in the Financial Statements with the permission of the Monetary Board of Central Bank of Sri Lanka.

The surplus realised by the revaluation carried out in 2003, a sum of Rs. 2,057 million has been transferred to the revaluation reserve of the Bank. Further, as there is no reduction in the value of assets a provision for impairment was not required to be made in the Financial Statements of 2010.

2. The detailed classification of the ‘equipment’ is given in Note No. 29.10 (a) & (b).

3. Capital work-in-progress which is accounted for on the basis of value of work certified includes mobilisation of advances and other construction expenses.

4. The amount of commitments for the acquisition of property, plant & equipment is given in the Note No. 43.1 (a).

29.3 TITLE RESTRICTION ON PROPERTY, PLANT & EQUIPMENT There were no restrictions that existed in the title of the property, plant & equipment of the Bank and the Group as at the Balance Sheet date.

29.4 PROPERTY, PLANT & EQUIPMENT PLEDGED AS SECURITY FOR LIABILITIES No freehold property, plant & equipment have been pledged as security for any liability.

29.5 COMPENSATION FROM THIRD PARTIES FOR ITEMS OF PROPERTY, PLANT & EQUIPMENT There were no compensation received/receivable from third parties for items of property, plant & equipment which were impaired, lost or given up. NOTES TO THE FINANCIAL STATEMENTS

29.6 FULLY DEPRECIATED PROPERTY, PLANT & EQUIPMENT The initial cost of fully-depreciated property, plant & equipment at the end of year 2010, which are still in use are as follows: Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Motor vehicles 96,250 44,786 103,055 51,403 Computer equipment 1,458,630 1,008,575 1,465,876 1,014,899 Computer software (Intangible) 1,177,284 1,023,906 1,177,650 1,023,906 Equipment, furniture & fittings 357,531 333,205 461,800 488,900 Leasehold building 56,764 46,471 56,764 46,471 Machines, plant & machinery 427,588 398,513 429,420 703,098 3,574,047 2,855,456 3,694,565 3,328,677

29.7 TEMPORARILY IDLE PROPERTY, PLANT & EQUIPMENT There were no temporarily idle property, plant & equipment as at the Balance Sheet date.

29.8 PROPERTY, PLANT & EQUIPMENT RETIRED FROM ACTIVE USE The Bank held no property, plant & equipment retired from active use and which were not classified as held for sale in accordance with Sri Lanka Accounting Standard No. 38 - ‘Non-Current Assets Held for Sale and Discontinued Operations’ (Revised 2006).

29.9 FREEHOLD PROPERTIES The carrying value of the properties, if they were carried at cost less accumulated depreciation is as follows:

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Land 43,221 43,221 43,221 43,371 Building 702,359 702,359 702,359 713,255 Accumulated depreciation on building (361,167) (343,608) (361,167) (349,453) 384,413 401,972 384,413 407,173

As at 31 December 2010 2009 Computer Furniture Office Total Total equipment & fittings equipment Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

29.10 EQUIPMENTS 29.10 (a) Bank

Cost Balance as at 01 January 3,552,665 1,521,864 1,345,317 6,419,846 5,572,465 Additions during the year 270,895 251,998 122,500 645,393 962,332 Disposals during the year (77,306) (21,288) (21,867) (120,461) (112,048) Exchange rate adjustments (976) (30) 22 (984) 9,387 Transfer to Bank of Ceylon (UK) Limited (49,208) (10,132) (16,757) (76,097) – Adjustments/transfers (1,035) (279) (369) (1,683) (12,290) Balance as at 31 December 3,695,035 1,742,133 1,428,846 6,866,014 6,419,846

Accumulated Depreciation Balance as at 01 January 2,713,075 884,640 828,603 4,426,318 3,929,548 Charge for the year 380,264 144,225 107,282 631,771 580,088 Disposals during the year (77,151) (25,746) (16,083) (118,980) (92,682) Exchange rate adjustments (903) 36 (101) (968) 9,364 Transfer to Bank of Ceylon (UK) Limited (48,472) (9,392) (16,711) (74,575) – Balance as at 31 December 2,966,813 993,763 902,990 4,863,566 4,426,318 Net book value as at 31 December 2010 728,222 748,370 525,856 2,002,448 – Net book value as at 31 December 2009 839,590 637,224 516,714 – 1,993,528 NOTES TO THE FINANCIAL STATEMENTS

As at 31 December 2010 2009 Computer Furniture Office Total Total equipment & fittings equipment Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

29.10 (b) Group Cost Balance as at 01 January 3,687,646 2,136,620 1,379,978 7,204,244 6,415,017 Additions during the year 286,871 268,745 127,451 683,067 989,808 Disposals during the year (77,306) (21,323) (21,873) (120,502) (115,460) Exchange rate adjustments (977) (30) 23 (984) 9,387 Transfer from equipments to freehold building – (386,190) – (386,190) – Work-in-progress capitalised – 20,285 – 20,285 – Adjustments/transfers (45,616) (3,983) (17,126) (66,725) (94,508) Balance as at 31 December 3,850,618 2,014,124 1,468,453 7,333,195 7,204,244

Accumulated Depreciation Balance as at 01 January 2,820,849 1,446,394 851,565 5,118,808 4,715,832 Charge for the year 394,644 159,408 111,123 665,175 621,940 Disposals during the year (77,151) (25,781) (16,087) (119,019) (96,225) Exchange rate adjustments (902) 36 (101) (967) 9,364 Transfer from equipment to freehold building – (380,955) – (380,955) – Adjustments/transfers (49,311) (9,388) (16,645) (75,344) (132,103) Balance as at 31 December 3,088,129 1,189,714 929,855 5,207,698 5,118,808 Net book value as at 31 December 2010 762,489 824,410 538,598 2,125,497 – Net book value as at 31 December 2009 866,797 690,226 528,413 – 2,085,436

Bank Group 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

30. LEASEHOLD LAND Cost Balance as at 01 January 73,658 10,159 139,891 65,541 Additions during the year 16,521 – 16,521 – Disposals during the year – – – – Adjustments/transfers – 63,499 – 74,350 Balance as at 31 December 90,179 73,658 156,412 139,891

Accumulated amortisation Balance as at 01 January 10,368 1,720 32,781 11,924 Amortisation during the year 2,296 1,095 3,653 2,452 Disposals during the year – – – – Adjustments/transfers – 7,553 – 18,405 Balance as at 31 December 12,664 10,368 36,434 32,781 Net book value 77,515 63,290 119,978 107,110

Leasehold land represents the leasehold interest in the lands held for own use. The value of buildings situated in the leasehold land is shown separately under property, plant & equipment. The interest on leasehold land is stated at cost less accumulated amortisation. NOTES TO THE FINANCIAL STATEMENTS

Bank Group 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

31. INTANGIBLE ASSETS Cost Balance as at 01 January 1,411,831 1,348,110 1,450,670 1,376,535 Additions during the year 107,887 55,548 109,473 56,707 Disposals during the year (1,104) – (1,104) – Adjustments/transfers – 8,173 1,668 17,428 Balance as at 31 December 1,518,614 1,411,831 1,560,707 1,450,670

Accumulated amortisation Balance as at 01 January 1,301,019 1,115,546 1,331,465 1,134,694 Amortisation during the year 54,873 185,473 59,076 189,860 Disposals during the year (1,104) – (1,104) – Adjustments/transfers – – 866 6,911 Balance at as 31 December 1,354,788 1,301,019 1,390,303 1,331,465 Net book value 163,826 110,812 170,404 119,205

Intangible assets represent the value of computer application software systems and subsequent modifications including costs directly attributable in customising for its intended use, and are carried at cost less accumulated amortisation and any impairment losses.

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

32. DEPOSITS Local currency deposits Current account deposits 65,438,920 48,612,023 65,270,554 48,495,108 Savings deposits 135,234,980 110,371,042 135,234,894 110,371,042 Time deposits 155,226,772 120,893,683 157,867,930 123,862,640 Certificates of deposits 28,539 29,499 28,539 29,499 Other deposits 1,886,224 968,732 1,886,367 968,831 357,815,435 280,874,979 360,288,284 283,727,120

Foreign currency deposits Current account deposits 24,086,714 6,416,004 25,200,786 6,416,004 Savings deposits 54,866,267 51,816,724 55,141,632 51,816,724 Time deposits 86,281,233 68,798,888 87,504,950 68,798,888 Other deposits 1,183,048 700,847 1,183,048 700,846 166,417,262 127,732,463 169,030,416 127,732,462 524,232,697 408,607,442 529,318,700 411,459,582

32. (a) CUSTOMER-WISE ANALYSIS OF DEPOSITS Deposits from banks 1,065,756 886,081 1,304,709 886,081 Deposits from finance companies 2,538,817 2,220,754 2,538,817 2,220,754 Deposits from other customers 520,628,124 405,500,607 525,475,174 408,352,747 524,232,697 408,607,442 529,318,700 411,459,582

Note: The maturity analysis of deposits is given in Note 46. NOTES TO THE FINANCIAL STATEMENTS

Bank Group 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

33. BORROWED FUNDS Call money borrowings – 11,984,026 947,581 12,070,026 Term borrowings from banks abroad 43,743,353 2,952,643 43,743,914 2,952,643 Term borrowings from banks & other institutions in Sri Lanka 2,787,625 13,269,914 6,826,345 15,852,660 Refinance borrowings 5,914,175 4,891,794 5,914,175 4,891,794 52,445,153 33,098,377 57,432,015 35,767,123

33. (a) MATURITY OF BORROWINGS Not later than 1 year 41,852,436 28,738,695 45,880,019 31,227,321 Later than 1 year and not later than 5 years 10,189,076 1,924,890 11,148,355 2,105,009 Later than 5 years 403,641 2,434,792 403,641 2,434,793 52,445,153 33,098,377 57,432,015 35,767,123

34. SECURITIES SOLD UNDER RE-PURCHASE AGREEMENTS Securities sold under re-purchase agreements 53,522,487 34,203,701 52,968,787 32,968,041 53,522,487 34,203,701 52,968,787 32,968,041

The securities sold under repurchase agreements are debt securities issued by the Bank for short term funding purposes and mature within a period of less than twelve months. The interest rate for such securities varied from 6.0% to 11.0% during the year. (2009 - 6.0% to 20.0%).

35. INSURANCE PROVISION 35.1 INSURANCE PROVISION - LIFE The insurance provision - life balance represents the life fund of MBSL Insurance Company Limited which carries out life and non life insurance business.

This balance indicates the liability on account of policyholders which has been actuarially valued and claims/benefits due to life policyholders, which remain unclaimed to the Balance Sheet date.

Group As at 31 December 2010 2009 Rs. ’000 Rs. ’000

Insurance provision - life 66,365 41,336 Unclaimed benefits 572 – Total 66,937 41,336

Long term insurance contract liabilities included in the Life Insurance Fund, result primarily from traditional non participating life insurance products. Short duration contract liabilities are primarily accident and health insurance products.

The insurance provision has been established based upon the following:

(a) Interest rates that vary by product and as required by regulations issued by the Insurance Board of Sri Lanka;

(b) Mortality rates based on published mortality tables adjusted for actual experience as required by regulations issued by the Insurance Board of Sri Lanka; and

(c) Surrender rates based upon actual experience by geographic area and modified to allow for variations in policy form.

The valuation of the insurance provision - life insurance business as at 31 December 2010 was made by Mr. R Kahakachchi of Actuarial & Management Consultants (Private) Limited for and on behalf of MBSL Insurance Company Limited. In accordance with the consultant actuary’s report, the reserve for the year amounts to of Rs. 66,364,916/- (2009 - Rs. 41,336,000/-) in the opinion of consultant actuary the reserve is adequate to cover the liabilities pertaining to the life insurance businesses. NOTES TO THE FINANCIAL STATEMENTS

Further the actuary has estimated that the solvency margin required under the regulation of Insurance Industry Act No. 43 of 2000 as Rs. 3,200,000/- (2009 - Rs. 2,032,000/-). This solvency margin is maintained in the long term insurance fund.

2010 2009 Rs. ’000 Rs. ’000

35.1 (a) Movement in Insurance Provision Fund Balance as at 01 January 41,336 28,842 Increase in life fund 25,601 12,494 Balance as at 31 December 66,937 41,336

35.2 INSURANCE PROVISION - GENERAL INSURANCE The general insurance provision represents non life insurance carried out by MBSL Insurance Company Limited.

The reserve for net unearned premium indicates the amount of premium (net of reinsurance) which is attributable to policies written as at 31 December 2010, but covering period after 31 December 2010.

The reserve for net deferred acquisition cost refers to the commission adjustment (net of reinsurance) linked to the above reserve.

The reserve for gross outstanding claims refers to amount of claims which remain unclaimed as at 31 December 2010. This reserve includes a reserve for claims incurred but not reported (IBNR).

2010 2009 Rs. ’000 Rs. ’000

Reserve for net unearned premiums [Note 35.2 (a)] 188,504 157,059 Reserve for net deferred acquisition cost [Note 35.2 (b)] (11,717) (11,080) Reserve for gross outstanding claims [Note 35.2 (c )] 75,987 35,590 Balance as at 31 December 252,774 181,569

35.2 (a) Movement in the reserve for net unearned premiums Balance as at 01 January 157,059 82,906 Increase/(decrease) during the year 31,445 74,153 Balance as at 31 December 188,504 157,059

35.2 (b) Movement in the reserve for net deferred acquisition cost

Balance as at 01 January (11,080) (1,258) Increase/(decrease) during the year (637) (9,822) Balance as at 31 December (11,717) (11,080) NOTES TO THE FINANCIAL STATEMENTS

2010 2009 Rs. ’000 Rs. ’000

35.2 (c) Movement in the reserve for gross outstanding claims Balance as at 01 January 30,479 17,232 Increase/(decrease) during the year 34,464 13,247 Balance as at 31 December 64,943 30,479

IBNR and IBNER claims reserve Balance as at 01 January 5,111 9,720 Increase/(decrease) during the year 5,933 (4,609) Balance as at 31 December 11,044 5,111 Total gross outstanding claims 75,987 35,590

Directors are of the opinion that the total of future claims and related expenses will not exceed the unearned premium and premium related to unexpired risks. IBNR/IBNER claims reserve is determined based on information currently available. However, it is inherent to the nature of the business that the ultimate liability may vary as a result of subsequent developments.

The incurred but not reported claim reserve and Incurred But Not Enough Reported (IBNER) claim reserve have been actuarially computed by Mr. N K Parikh of Messrs K A Pandith, Consultants & Actuaries. The valuation is based on internationally accepted actuarial methods, and is performed on an annual basis.

36. DEFERRED TAX

Bank Group As at 31st December 2010 2009 2010 2009 Temporary Tax Temporary Tax Temporary Tax Temporary Tax difference effect difference effect difference effect difference effect Rs’ 000 Rs’ 000 Rs’ 000 Rs’ 000 Rs’ 000 Rs’ 000 Rs’ 000 Rs’ 000

36 (a) SUMMARY OF NET DEFERRED TAX LIABILITY Balance as at 01 January 1,169,866 409,453 1,447,232 506,531 1,257,519 440,132 1,616,278 565,697 Deferred tax originated/(reversed) during the year 137,525 48,134 (277,366) (97,078) 141,117 49,393 (358,759) (125,565) Balance as at 31 December 1,307,391 457,587 1,169,866 409,453 1,398,636 489,525 1,257,519 440,132

Bank Group As at 31st December Balance Sheet Income Statement Balance Sheet Income Statement

2010 2009 2010 2009 2010 2009 2010 2009 Rs’ 000 Rs’ 000 Rs’ 000 Rs’ 000 Rs’ 000 Rs’ 000 Rs’ 000 Rs’ 000 36 (b) RECONCILIATION OF NET DEFERRED TAX LIABILITY Deferred tax liabilities on: Accelerated depreciation for tax purposes: Own assets 329,075 328,278 (797) 6,174 421,582 412,070 (9,512) 915 Leased assets 247,384 175,280 (72,103) 64,531 397,830 355,904 (41,926) 38,878 576,459 503,558 (72,900) 70,705 819,412 767,974 (51,438) 39,793 Deferred tax assets on: Defined benefit plans 118,872 94,105 24,766 26,373 150,171 123,567 26,604 27,633 Unused tax losses – – – – 179,716 204,275 (24,557) 58,339 118,872 94,105 24,766 26,373 329,887 327,842 2,047 85,972 Deferred income tax on income/expense (48,134) 97,078 (49,391) 125,765 Net deferred tax liability 457,587 409,453 489,525 440,132 NOTES TO THE FINANCIAL STATEMENTS

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

37. OTHER LIABILITIES Accrued interest payable 10,630,898 11,662,658 11,037,435 12,094,495 Payable to employees and suppliers 1,558,308 2,052,534 1,558,308 2,052,534 Cheques sent on clearing 769,471 1,000,299 769,471 1,000,299 Lease creditors - Within 12 months 16,805 12,432 16,805 12,432 - Later than 12 months 25,857 21,387 25,857 21,387 Provision for gratuity (Note 37.1) 346,886 272,620 484,730 379,910 Other Payable 1,910,167 3,767,210 2,525,143 4,066,534 15,258,392 18,789,140 16,417,749 19,627,591

37.1 PROVISION FOR GRATUITY Balance as at 01 January 272,620 202,392 379,910 295,152 Provision made during the year 80,023 70,228 112,983 88,868 Payment made during the year (5,757) – (8,163) (4,110) Adjustment/transfers – – – – Balance as at 31 December 346,886 272,620 484,730 379,910

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

38. DEBENTURES Listed debentures Unsecured, subordinated, redeemable debentures of Rs. 100/- each (public issue) 9,367,355 4,318,507 9,356,272 4,313,120

Unlisted debentures Unsecured, redeemable debentures of Rs. 100/- each (private placement) 25,378,813 8,700,000 25,918,113 9,330,000 Unsecured, redeemable debentures of Rs. 100/- each (public issue) – – – 14,160 Unsecured, subordinated redeemable debentures of Rs. 100/- each (private placement) 1,550,000 2,550,000 1,550,000 2,550,000 Secured, redeemable debentures of Rs. 100/- each (private placement) – – 200,000 430,000 Unsecured, subordinated, redeemable debentures of US$ 1,000 each (private placement) 2,410,180 2,476,106 2,410,180 2,476,106 38,706,348 18,044,613 39,434,565 19,113,386

38.1 THE MOVEMENT IN DEBENTURES ISSUED WAS AS FOLLOWS: Movement in debentures Balance as at 01 January 18,044,613 17,988,604 19,113,386 19,146,514 Issued during the year 21,678,813 – 22,083,113 330,000 Redemptions (1,000,000) – (1,744,160) (418,750) Interest capitalised* 48,848 41,419 48,848 41,419 Inter-company adjustment – – (696) (387) Exchange rate adjustment (65,926) 14,590 (65,926) 14,590 Balance as at 31 December 38,706,348 18,044,613 39,434,565 19,113,386

* Interest payable on zero coupon debentures has been capitalised to the value of debentures. NOTES TO THE FINANCIAL STATEMENTS

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

38.2 CUSTOMER-WISE ANALYSIS OF DEBENTURES Debentures issued to third parties Fixed interest rate Unsecured, subordinated, redeemable debentures 1,758,313 641,240 1,758,313 641,223 Unsecured, redeemable debentures – – 180,000 – Floating interest rate Unsecured, subordinated, redeemable debentures 11,558,139 8,698,003 11,558,139 8,698,003 Unsecured, redeemable debentures – – 336,800 344,160 Secured, redeemable debentures – – 200,000 430,000 13,316,452 9,339,243 14,033,252 10,113,386

Debentures issued to related entities of the Bank/Group Fixed interest rate Unsecured, subordinated, redeemable debentures 11,083 5,370 – – Unsecured, redeemable debentures 4,428,813 – 4,451,313 – Floating interest rate Unsecured, redeemable debentures 20,950,000 8,700,000 20,950,000 9,000,000 25,389,896 8,705,370 25,401,313 9,000,000 Total debentures issued 38,706,348 18,044,613 39,434,565 19,113,386

38.3 DEBENTURES - SUMMARY Subordinated debentures 13,327,535 9,344,613 13,316,452 9,339,226 Other debentures 25,378,813 8,700,000 26,118,113 9,774,160 Total debentures 38,706,348 18,044,613 39,434,565 19,113,386 NOTES TO THE FINANCIAL STATEMENTS

Note Interest payable Issue date Maturity Coupon rate Effective Amount as at 31 December frequency date annual rate

Bank Group 2010 2009 2010 2009 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 % % % %

38.4 TYPE OF DEBENTURES A - Sri Lanka rupee debentures Fixed interest rate Unsecured, subordinated, redeemable debentures (a) Annually 24.11.2008 24.11.2013 19.00 19.00 19.00 19.00 345,190 345,190 339,107 339,803 Unsecured, subordinated, redeemable debentures (a) At maturity 24.11.2008 24.11.2013 – – 17.61 17.61 322,775 273,927 322,775 273,927 Unsecured, subordinated, redeemable debentures (b) Annually 28.06.2010 28.06.2015 11.50 – 11.50 – 1,074,670 – 1,069,670 – Unsecured, redeemable debentures Annually 01.07.2010 01.07.2015 13.20 – 13.20 – 1,000,000 – 1,000,000 – Unsecured, redeemable debentures Annually 14.07.2010 14.07.2015 13.20 – 13.20 – 2,000,000 – 2,000,000 – Unsecured, redeemable debentures Annually 17.09.2010 17.09.2015 11.00 – 11.00 – 1,428,813 – 1,428,813 – Unsecured, redeemable debentures Semi-annually 31.07.2010 31.07.2013 13.00 – 13.85 – – – 80,000 – Unsecured, redeemable debentures Semi-annually 31.08.2010 31.08.2013 13.00 – 13.85 – – – 100,000 – Unsecured, redeemable debentures At maturity 05.05.2010 05.06.2013 15.25 – 15.25 – – – 22,500 – 6,171,448 619,117 6,362,865 613,730

Floating interest rate Unsecured, subordinated, redeemable debentures (a)/(c) Semi-annually 24.11.2008 24.11.2013 8.95 10.00 10.46 17.04 3,699,390 3,699,390 3,699,390 3,699,390

[6 months TB rate (Gross) plus 75 basis points]

Unsecured, subordinated, redeemable debentures (c) Semi-annually 31.12.2003 31.12.2011 10.43 10.15 10.56 16.69 250,000 250,000 250,000 250,000 [6 months TB rate (Gross) plus 150 basis points]

Unsecured, subordinated, redeemable debentures (b)/(c) Semi-annually 28.06.2010 28.06.2015 8.95 – 11.54 – 3,925,330 – 3,925,330 – [6 months TB rate (Gross) plus 75 basis points]

Unsecured, subordinated, redeemable debentures (d) Semi-annually 03.11.2005 03.11.2010 – 11.68 – 20.24 – 1,000,000 – 1,000,000 [12 months TB rate (Gross) plus 70 basis points]

Unsecured, subordinated, redeemable debentures (d) Semi-annually 27.10.2006 27.10.2011 8.94 12.11 11.88 20.16 1,000,000 1,000,000 1,000,000 1,000,000 [12 months TB rate (Gross) plus 75 basis points]

Unsecured, subordinated, redeemable debentures (d) Annually 15.08.2008 15.08.2013 10.49 14.31 12.87 18.14 300,000 300,000 300,000 300,000 [12 months TB rate (Gross) plus 100 basis points]

Unsecured, redeemable debentures (d) Annually 17.11.2006 17.11.2011 8.19 11.36 10.98 19.41 1,200,000 1,200,000 1,200,000 1,200,000 [12 months TB rate (Gross)] Unsecured, redeemable debentures (d) Annually 10.01.2007 10.01.2012 10.39 20.27 10.39 20.40 1,500,000 1,500,000 1,500,000 1,500,000 [12 months TB rate (Gross)] Unsecured, redeemable debentures (d) Annually 12.03.2007 12.03.2012 10.52 19.66 12.30 20.58 1,000,000 1,000,000 1,000,000 1,000,000 [12 months TB rate (Gross)] Unsecured, redeemable debentures (d) Annually 03.10.2007 03.10.2012 8.39 12.82 11.73 19.51 1,000,000 1,000,000 1,000,000 1,000,000 [12 months TB rate (Gross) plus 50 basis points] NOTES TO THE FINANCIAL STATEMENTS

Note Interest payable Issue date Maturity Coupon rate Effective Amount as at 31 December frequency date annual rate

Bank Group 2010 2009 2010 2009 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 % % % %

Unsecured, redeemable debentures (d) Annually 01.11.2007 01.11.2012 8.69 11.48 11.02 19.99 1,500,000 1,500,000 1,500,000 1,500,000 [12 months TB rate (Gross) plus 50 basis points]

Unsecured, redeemable debentures (d) Annually 01.11.2007 01.11.2012 8.69 11.48 11.01 19.99 500,000 500,000 500,000 500,000 [12 months TB rate (Gross) plus 50 basis points]

Unsecured, redeemable debentures (d) Annually 01.04.2008 01.04.2013 11.02 18.80 12.94 19.54 500,000 500,000 500,000 500,000 [12 months TB rate (Gross) plus 50 basis points]

Unsecured, redeemable debentures (d) Annually 01.04.2008 01.04.2013 11.02 18.80 12.94 19.54 1,500,000 1,500,000 1,500,000 1,500,000 [12 months TB rate (Gross) plus 50 basis points]

Unsecured, redeemable debentures (d) Annually 03.08.2010 03.08.2015 11.50 – 11.50 – 5,200,000 – 5,200,000 – [12 months TB rate (Gross) plus 150 basis points]

Unsecured, redeemable debentures (d) Annually 03.08.2010 03.08.2015 11.50 – 11.50 – 1,750,000 – 1,750,000 – [12 months TB rate (Gross) plus 150 basis points]

Unsecured, redeemable debentures (d) Annually 03.08.2010 03.08.2015 11.50 – 11.50 – 5,300,000 – 5,300,000 – [12 months TB rate (Gross) plus 150 basis points]

Unsecured, redeemable debentures (c) Semi-annually 05.12.2009 05.12.2011 10.39 12.29 12.53 21.55 – – 330,000 330,000 [6 months TB rate (Gross) plus 200 basis points]

Unsecured, redeemable debentures (d) Semi-annually 31.03.2007 31.03.2010 – 17.00 – 16.31 – – – 14,160 [12 months TB rate (Gross) plus 300 basis points]

Unsecured, redeemable debentures Semi-annually 05.10.2007 05.10.2010 – 17.85 – 17.36 – – – 300,000 [36 months T Bond rate plus 110 basis points]

Unsecured, redeemable debentures (d) Semi-annually 31.03.2010 31.03.2013 11.64 – 12.32 – – – 6,800 – [12 months TB rate (Gross) plus 150 basis points]

Secured, redeemable debentures (d) Annually 10.01.2008 10.01.2010 – 22.22 – 22.23 – – – 430,000 [12 months TB rate (Gross) plus 100 basis points] NOTES TO THE FINANCIAL STATEMENTS

Note Interest payable Issue date Maturity Coupon rate Effective Amount as at 31 December frequency date annual rate

Bank Group 2010 2009 2010 2009 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 % % % %

Secured, redeemable debentures (d) Annually 10.01.2010 10.01.2011 11.20 – 11.20 – – – 50,000 – [12 months TB rate (Gross) plus 150 basis points]

Secured, redeemable debentures (d) Semi-annually 10.01.2010 10.07.2011 11.20 – 11.83 – – – 25,000 – [12 months TB rate (Gross) plus 150 basis points]

Secured, redeemable debentures (d) Semi-annually 10.01.2010 10.01.2012 11.20 – 11.83 – – – 25,000 – [12 months TB rate (Gross) plus 150 basis points]

Secured, redeemable debentures (d) Semi-annually 10.01.2010 10.07.2012 11.20 – 11.83 – – – 25,000 – [12 months TB rate (Gross) plus 150 basis points]

Secured, redeemable debentures (d) Semi-annually 10.01.2010 10.01.2013 11.20 – 11.83 – – – 25,000 – [12 months TB rate (Gross) plus 150 basis points]

Secured, redeemable debentures (d) Semi-annually 10.01.2010 10.07.2013 11.20 – 11.83 – – – 25,000 – [12 months TB rate (Gross) plus 150 basis points]

Secured, redeemable debentures (d) Semi-annually 10.01.2010 10.01.2014 11.20 – 11.83 – – – 25,000 – [12 months TB rate (Gross) plus 150 basis points] 30,124,720 14,949,390 30,661,520 16,023,550

B - United States dollar debentures Fixed interest rate Unsecured, subordinated, redeemable debentures Semi-annually 10.10.2008 10.10.2013 5.50 5.50 5.50 5.50 26,761 27,493 26,761 27,493 Floating interest rate Unsecured, subordinated, redeemable debentures (e) Semi-annually 10.10.2008 10.10.2013 3.46 4.69 3.49 4.74 2,383,419 2,448,613 2,383,419 2,448,613 (6 months LIBOR Plus 300 basis points) 2,410,180 2,476,106 2,410,180 2,476,106

Total value of debentures 38,706,348 18,044,613 39,434,565 19,113,386

Notes

(a) Debentures that are listed in the Colombo Stock Exchange which were issued on 24 November 2008. Some of them have been traded in the Colombo Stock Exchange during the year ended 31 December 2010.

(b) Debentures that are listed in the Colombo Stock Exchange which were issued on 28 June 2010.

(c) Weighted average 6 months Treasury Bill interest rate before deducting 10% withholding tax at the primary quotations as announced by the Central Bank of Sri Lanka, at the preceding week of the interest resetting date.

(d) Weighted average 12 months Treasury Bill interest rate before deducting 10% withholding tax at the primary quotations as announced by the Central Bank of Sri Lanka, at the preceding week of the interest resetting date.

(e) 6 months London Inter Bank Offered Rate (LIBOR) for US Dollars plus 3% per annum. NOTES TO THE FINANCIAL STATEMENTS

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

39. STATED CAPITAL Authorised 50,000,000 ordinary shares 50,000,000 50,000,000 50,000,000 50,000,000

Issued and fully paid Balance as at 01 January 5,000,000 ordinary shares 5,000,000 5,000,000 5,000,000 5,000,000 Balance as at 31 December 5,000,000 ordinary shares 5,000,000 5,000,000 5,000,000 5,000,000

40. PERMANENT RESERVE FUND Balance as at 01 January 2,650,000 2,585,000 2,650,000 2,585,000 Transfer during the year 127,500 65,000 127,500 65,000 Balance as at 31 December 2,777,500 2,650,000 2,777,500 2,650,000

The permanent reserve fund is maintained as required by the Bank of Ceylon Ordinance No. 53 of 1938 (Chapter 397), whereby the Bank must, out of net profit after taxation but before any dividend is declared, transfer to a reserve, a sum equivalent to not less than 20% of such profit until the reserve is equivalent to 50% of the issued and paid up capital and thereafter, an appropriate amount determined at 2% per annum under the Banking Act No. 30 of 1988 and amendments thereto until the reserve is equal to the paid up capital.

In order to meet the requirement, an amount of Rs. 127 million was transferred to the reserve during the year (2009 - Rs. 65 million).

The balance in the permanent reserve fund will be used only for the purposes specified in Section 20 (2) of the Banking Act No. 30 of 1988 and amendments thereto.

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

41. RESERVES Capital reserves Revaluation reserve (Note 41.1) 125,299 125,299 178,692 178,692 125,299 125,299 178,692 178,692

Revenue reserves Free reserve (Note 41.2) 169,067 169,067 366,644 366,644 Net exchange translation adjustment (Note 41.3) 570,545 606,163 565,745 606,163 Primary dealer special risk reserve (Note 41.4) 776,683 528,470 776,683 528,470 Other reserves – – 137,793 137,793 1,516,295 1,303,700 1,846,865 1,639,070 1,641,594 1,428,999 2,025,557 1,817,762

41.1 REVALUATION RESERVE Balance as at 01 January 125,299 126,961 178,692 180,354 Realised surpluses on disposal of property – (1,662) – (1,662) Balance as at 31 December 125,299 125,299 178,692 178,692

The revaluation reserve represents the surpluses arising on the revaluation of freehold properties which are still in use for banking operations. According to the regulatory directives, Bank can account for the revaluation surplus every seven years. Revaluation reserve is generally used for the issue of bonus shares or for capital reduction programme. NOTES TO THE FINANCIAL STATEMENTS

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

41.2 FREE RESERVE Balance as at 01 January 169,067 169,067 366,644 366,644 Balance as at 31 December 169,067 169,067 366,644 366,644

Free reserve has been created for unforeseeable risk and future losses.

41.3 NET EXCHANGE TRANSLATION ADJUSTMENT Balance as at 01 January 606,163 545,766 606,163 545,766 Currency translation difference during the year 3,948 60,397 (852) 60,397 Transfer to Income Statement due to conversion of London branch into a Subsidiary during the year (39,566) – (39,566) – Balance as at 31 December 570,545 606,163 565,745 606,163

This represents the exchange difference arising from translating investments made in the capital of foreign branches, and also exchange differences arising from translation of the results of overseas branches for this year from the average rate to the exchange rate ruling at the year end. If and when the investments in foreign branches are disposed, the exchange gain or loss will be recognised in the Income Statement.

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

41.4 PRIMARY DEALER SPECIAL RISK RESERVE Balance as at 01 January 528,470 340,899 528,470 340,899 Amount transferred during the year 248,213 187,571 248,213 187,571 Balance as at 31 December 776,683 528,470 776,683 528,470

According to a direction issued by the Central Bank of Sri Lanka, primary dealers are required to transfer 25% of their profit after tax annually to a special risk reserve in order to strengthen capital base for further development of the Government securities market.

42. COMMITMENTS AND CONTINGENCIES 42.1 CONTINGENCIES In the normal course of business, the Bank undertakes commitments and incurs contingent liabilities with legal recourse to its customers to accommodate the financial and investment needs of clients, to conduct trading activities, and to manage its own exposure to risk. These financing instruments generate interest or fees and carries elements of credit risk in excess of those amounts recognised as assets and liabilities in the Balance Sheet. However, no material losses are anticipated as a result of these transactions.

These commitments are quantified below:

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Acceptances and documentary credits 124,677,407 174,571,889 126,048,237 174,571,889 Bills for collection 3,988,739 3,114,649 4,048,990 3,114,649 Forward exchange contracts 46,722,050 27,928,577 46,722,050 27,928,577 Guarantees 47,666,313 40,427,298 47,876,977 40,498,766 Other commitments 110,421 202,235 245,861 202,235 223,164,930 246,244,648 224,942,115 246,316,116

42.2 The unutilised value of irrevocable commitments which cannot be withdrawn at the discretion of the Bank, without risk of incurring significant penalties or expenses approximates to Rs. 23,305 million as at the Balance Sheet date (2009 - Rs. 15,674 million). NOTES TO THE FINANCIAL STATEMENTS

43. CONTINGENT LIABILITIES AND COMMITMENTS 43.1 (a) CAPITAL COMMITMENTS Capital expenditure approved by the Directors for which no provision has been made in the Financial Statements, amounts to:

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Approved and contracted for 1,052,586 920,972 1,173,586 920,972 Approved and not contracted for 286,433 332,740 286,433 332,740 1,339,019 1,253,712 1,460,019 1,253,712

43.1 (b) OPERATING LEASE COMMITMENTS Future minimum lease payments under non-cancellable operating leases where the Bank is the lessee are as follows:

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Not later than 1 year 637,889 351,600 637,889 351,600 Later than 1 year and not later than 5 years 842,246 130,597 842,246 130,597 Later than 5 years 10,834 32,500 10,834 32,500 1,490,969 514,697 1,490,969 514,697

43.1 (c) FINANCING LEASE COMMITMENTS Future minimum lease payments under non-cancellable financing leases where the Bank is the lessee are as follows:

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Not later than 1 year 16,805 13,930 16,805 13,930 Later than 1 year and not later than 5 years 25,857 22,635 25,857 22,635 42,662 36,565 42,662 36,565

43.1 (d) LITIGATION Usually, money transactions, specially lending and employing persons as a workforce encounter disputes. It is natural that some of the said disputes end in judicial process for determination. Bank of Ceylon, being a major player in banking transactions, thus in lending and being an employer of a large number of staff, attracts the judicial process - litigation as a mode to sort out the issues and disputes.

Bank of Ceylon, due to its efficient and effective dispute resolution, does not carry a bountiful of litigation in its bag. For its enormity of money transaction, which reaches more than 100 trillion a year and for a workforce of over 8,000, the cases by and against the Bank are less in number comparatively in the industry.

Out of these cases, most are in regard to recovery of debts from the defaulting customers, averagely 1,000 cases a year involving a sum of Rs. 500 - 750 million in debt.

The debt recovery cases filed by delinquent customers against the Bank to prevent it from recovering the debts by ’short process‘ known as ’parate proceedings‘. These cases are known as ’injunction cases‘ against the Bank and are eventually held in favour of the Bank as they are filed as dilatic tactics - just to delay the process. Of course, a few are held against the Bank which are financially, just a whisper in the huge economy of the Bank.

All the outstanding cases, disputes and lawsuits have been perused by us and we are of the opinion that they will not cause any material impact on the financial stability of the Bank and therefore no related provisions are made. NOTES TO THE FINANCIAL STATEMENTS

44. ASSETS PLEDGED AS SECURITY The securities sold under repurchase agreements and debentures are debt securities issued by the Bank and the Group and details of assets pledged by the Bank and the Group, to secure those liabilities are given below:

Bank Group As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Securities sold under repurchase agreements 53,522,487 34,203,701 52,968,787 32,968,041 Debentures – – 30,772 16,782 Trust certificates – – 237,135 339,079 Refinance purposes – – 383,329 – 53,522,487 34,203,701 53,620,023 33,323,902

Secured by: Treasury bills held by the Bank 7,055,313 3,510,263 7,055,313 3,510,263 Treasury bonds held by the Bank 51,302,618 30,693,438 51,302,618 30,693,438 Index linked bonds – 4,298,045 – 4,298,045 Lease/hire purchase rentals receivable – – 651,236 355,861 58,357,931 38,501,746 59,009,167 38,857,607

45. EVENTS OCCURRING AFTER THE BALANCE SHEET DATE No material events have occurred since the Balance Sheet date which would require adjustments to, or disclosure in the Financial Statements.

46. MATURITIES OF ASSETS AND LIABILITIES 46.1 BANK The analysis of total assets and liabilities of the Bank into relevant maturity groupings based on the remaining period as at 31 December into the contractual maturity date is given in the table below:

Up to 3 3-12 1-3 3-5 Over 5 Total months months years years years Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Interest earning assets Treasury bills and other short term bills 22,742,419 22,636,594 – – – 45,379,013 Securities purchased under re-sale agreement 40,840,091 – – – – 40,840,091 Placements with and loans to other banks 39,346,316 3,333,482 – – – 42,679,798 Treasury bonds maturing after one year – – 28,349,481 18,953,025 3,994,238 51,296,744 Investment securities 3,611,800 1,115,050 69,839,005 233,024 – 74,798,879 Bills of exchange 15,307,197 88,706 – – – 15,395,903 Loans and advances 86,397,669 133,130,827 41,153,096 35,893,273 56,523,051 353,097,916 Lease rentals receivable 767,581 1,070,798 1,373,207 1,013,741 2,438 4,227,765 GOSL - restructuring bonds – – – – 8,547,000 8,547,000 209,013,073 161,375,457 140,714,789 56,093,063 69,066,727 636,263,109 NOTES TO THE FINANCIAL STATEMENTS

Up to 3 3-12 1-3 3-5 Over 5 Total months months years years years Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Non interest earning assets Cash and balances with other banks 14,103,803 – – – – 14,103,803 Balances with Central Banks 17,587,263 7,629,341 474,967 171,972 30,923 25,894,466 Dealing securities 3,232,348 – – – – 3,232,348 Accrued interest and others 10,238,043 – – – – 10,238,043 Investment securities – – – – 5,844,617 5,844,617 Investments in related companies – – – – 6,123,752 6,123,752 Property, plant & equipment – – – – 5,544,589 5,544,589 Leasehold land – – – – 77,515 77,515 Intangible assets – – – – 163,826 163,826 Other assets 6,986,759 397,172 – – 84,294 7,468,225 52,148,216 8,026,513 474,967 171,972 17,869,516 78,691,184 Total assets 261,161,289 169,401,970 141,189,756 56,265,035 86,936,243 714,954,293

Interest bearing liabilities Deposits 270,034,109 150,814,505 9,710,389 3,515,853 632,207 434,707,063 Borrowings 15,046,545 26,805,891 3,521,207 6,667,869 403,641 52,445,153 Securities sold under re-purchase agreements 41,846,407 11,676,080 – – – 53,522,487 Debentures – 2,450,000 14,577,535 21,678,813 – 38,706,348 326,927,061 191,746,476 27,809,131 31,862,535 1,035,848 579,381,051

Non interest bearing liabilities Deposits 89,525,634 – – – – 89,525,634 Accrued interest payable 12,189,206 – – – – 12,189,206 Deferred tax liabilities – 160,156 208,202 89,229 – 457,587 Tax payable – 2,199,758 – – – 2,199,758 Other liabilities 2,683,111 10,420 28,769 – 346,886 3,069,186 Shareholders’ funds – – – – 28,131,871 28,131,871 104,397,951 2,370,334 236,971 89,229 28,478,757 135,573,242 Total liabilities 431,325,012 194,116,810 28,046,102 31,951,764 29,514,605 714,954,293

Net liquidity gap - 2010 (170,163,723) (24,714,840) 113,143,654 24,313,271 57,421,638 – Net liquidity gap - 2009 (136,019,523) (21,492,806) 87,298,502 26,216,211 43,997,616 – NOTES TO THE FINANCIAL STATEMENTS

46. MATURITIES OF ASSETS AND LIABILITIES (CONTD.) 46.2 GROUP The analysis of total assets and liabilities of the Group into relevant maturity groupings based on the remaining period as at 31 December into the contractual maturity date is given in the table below:

Up to 3 3-12 1-3 3-5 Over 5 Total months months years years years Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Interest earning assets Treasury bills and other short-term bills 22,450,692 23,898,004 – – – 46,348,696 Securities purchased under re-sale agreements 40,840,091 – – – – 40,840,091 Placements with and loans to other banks 44,439,904 3,333,482 – – – 47,773,386 Treasury bonds maturing after one year – – 28,801,941 18,953,025 3,994,237 51,749,203 Investment securities 3,671,800 1,115,030 69,839,083 243,024 151,638 75,020,575 Bills of exchange 15,920,399 95,129 – – – 16,015,528 Loans and advances 87,012,686 133,378,368 41,377,498 36,961,933 56,534,910 355,265,395 Lease rentals receivable 1,426,198 3,020,338 3,551,429 3,190,726 118,183 11,306,874 GOSL - restructuring bonds – – – – 8,547,000 8,547,000 215,761,770 164,840,351 143,569,951 59,348,708 69,345,968 652,866,748

Non interest earning assets Cash and balances with other banks 13,754,857 – – – – 13,754,857 Balances with Central Banks 17,587,263 7,629,341 474,967 171,972 30,923 25,894,466 Dealing securities 3,794,537 10,906 – – – 3,805,443 Accrued interest and others 10,578,148 42,798 – – – 10,620,946 Investment securities – 160,965 – 12,739 5,924,088 6,097,792 Investment properties – 105,745 – 281,122 – 386,867 Investment in related companies 1,284,563 – – – – 1,284,563 Property, plant & equipment – – – 44,047 7,326,261 7,370,308 Leasehold land – – – – 119,978 119,978 Intangible assets – – – 1,360 169,044 170,404 Other assets 6,891,244 668,444 33,957 23,722 75,337 7,692,704 53,890,612 8,618,199 508,924 534,962 13,645,631 77,198,328 Total assets 269,652,382 173,458,550 144,078,875 59,883,670 82,991,599 730,065,076

Interest bearing liabilities Deposits 270,254,128 153,101,977 11,138,650 3,720,398 632,207 438,847,360 Borrowings 17,121,881 28,758,138 3,871,777 7,276,578 403,641 57,432,015 Securities sold under re-purchase agreements 41,292,707 11,676,080 – – – 52,968,787 Debentures 50,000 2,805,000 14,744,852 21,834,713 – 39,434,565 328,718,716 196,341,195 29,755,279 32,831,689 1,035,848 588,682,727

Non interest bearing liabilities Deposits 90,471,340 – – – – 90,471,340 Insurance provision - life – – – – 66,937 66,937 Insurance provision - non life – – 252,774 – – 252,774 Accrued interest and expenditure 12,590,505 – – – 5,238 12,595,743 Deferred tax liability – 160,155 208,202 89,229 31,939 489,525 Tax payable – 2,422,527 – – – 2,422,527 Other liabilities 2,684,352 564,738 95,462 – 477,454 3,822,006 Shareholders’ funds – – – – 31,261,497 31,261,497 105,746,197 3,147,420 556,438 89,229 31,843,065 141,382,349 Total liabilities 434,464,913 199,488,615 30,311,717 32,920,918 32,878,913 730,065,076

Net liquidity gap - 2010 (164,812,531) (26,030,065) 113,767,158 26,962,752 50,112,686 – Net liquidity gap - 2009 (134,078,210) (22,383,849) 88,841,066 28,147,955 39,473,038 – NOTES TO THE FINANCIAL STATEMENTS

46. MATURITIES OF ASSETS AND LIABILITIES (CONTD.) Notes (1) Demand and savings deposits have been categorised as up to 3 months maturity group. However, a major part of these deposits represent a core retail deposit base with longer term maturity.

(2) Bills of exchange, loans and advances and lease rentals receivables are shown net of interest in suspense and provision for bad and doubtful debts.

(3) The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Bank. It is unusual for banks ever to be completely matched since business transacted is often of uncertain terms and of different types. An unmatched position potentially enhances profitability, but also increases the risk of losses.

(4) The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest bearing liabilities as they mature, are important factors in assessing the liquidity of the Bank and its exposure to changes in interest rates and exchange rates.

(5) Liquidity requirements to support calls under guarantees and standby letters of credit are considerably less than the amount of the commitment because the Bank does not generally expect the third party to draw funds under the agreement. The total outstanding contractual amount of commitments to extend credit does not necessarily represent future cash requirements, since many of these commitments will expire or terminate without being funded.

47. RELATED PARTY DISCLOSURES In 2010, the Group entered into transactions with its significant investor, Subsidiaries and Associate companies and post-employment benefit plans for the Bank’s employees, Key Management Personnel (KMP), Close Family Members (CFMs) of KMP in which such parties have control, joint control, significant influence or for which significant voting power is held by such parties. The transactions that have been carried out during the year 2010 include lending activities, acceptance and placements, Off-Balance Sheet transactions and provision of other banking and financial services. The interests, commissions and other fees on their transactions are determined on an arm’s length basis as per Sri Lanka Accounting Standard No. 30 (Revised 2005) on ‘Related Party Disclosures’.

47.1 PARENT AND THE ULTIMATE CONTROLLING PARTY The Bank does not have an identifiable parent of its own.

47.2 TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL (KMP) According to Sri Lanka Accounting Standard No. 30 (Revised 2005) on ‘Related Party Disclosures’, the Key Management Personnel includes those who are having authority and responsibility for planning, directing and controlling the activities of the Bank and its Subsidiaries and Associates. The Board of Directors, members of the Corporate Management of the Bank, Executive Management and other key employees who are holding directorships in Subsidiaries and Associate companies and their Close Family Members (CFMs) have been classified as Key Management Personnel of the Bank.

Close Family Members are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity. NOTES TO THE FINANCIAL STATEMENTS

Bank Group For the year ended 31 December 2010 2009 2010 2009 (Restated) (Restated) Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

47.2.1 Compensation to Key Management Personnel Short-term employment benefits 203,824 154,636 206,657 156,472 Post-employment benefits 62,539 51,618 62,539 51,618 Post-employment benefits paid to past Directors – – – – Total 266,363 206,254 269,196 208,090

47.2.2 Transactions, arrangements and agreements involving Key Management Personnel (KMP), their Close Family Members (CFMs) and entities that are controlled, significantly influenced by the KMP or their CFMs.

Bank Group For the year ended 31 December 2010 2009 2010 2009 (Restated) (Restated) Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

47.2.2 (a) Income Statement Interest earned 12,969 17,339 12,969 17,339 Interest paid 4,219 5,266 4,219 5,266 Payments made as shown in Note 47.2.1 266,363 206,254 269,196 208,090

Bank Group As at 31 December 2010 2009 2010 2009 (Restated) (Restated) Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

47.2.2 (b) Balance Sheet Assets Loans and advances 258,974 202,973 258,974 202,973 Credit cards 5,341 3,851 5,341 3,851 264,315 206,824 264,315 206,824

Liabilities Deposits 123,068 72,855 123,068 72,855 Debentures 40,650 41,030 40,650 41,030 163,718 113,885 163,718 113,885

47.2.2 (c) Off-Balance Sheet items Commitments and contingencies Undrawn facilities 164,237 139,527 164,237 139,527 164,237 139,527 164,237 139,527

Net accommodation 387,902 305,321

Net accommodation as a % of the Bank’s regulatory capital 1.1% 1.0% NOTES TO THE FINANCIAL STATEMENTS

47.3 TRANSACTIONS WITH SUBSIDIARIES AND ASSOCIATE COMPANIES 47.3.1 Transactions with Subsidiaries and Associate Companies of the Bank The Property Development PLC is a Subsidiary of the Bank which owns, maintains and manages the Bank of Ceylon, Head Office building at No. 4, Bank of Ceylon Mawatha, Colombo 01.

The BoC Property Development & Management (Private) Limited, a fully-owned Subsidiary of the Bank, maintains and manages two buildings in Colombo 03 and Kandy, where a branch of the Bank and also a principal place of business of another Subsidiary are located.

Merchant Bank of Sri Lanka PLC, a Subsidiary of the Bank provides certain management services.

The Ceybank Holiday Homes (Private) Limited, an indirect fully-owned Subsidiary of the Bank, manages the holiday bungalows for the welfare of the Bank staff.

A Subsidiary of the Bank, Property Development PLC has acquired Koladeniya Hydropower (Private) Limited in 2010 which is engaged in hydropower generation.

Bank of Ceylon London branch was converted into a fully-owned Subsidiary of the Bank in 2010 namely, Bank of Ceylon (UK) Limited which is engaged in Financial Services including accepting deposits and dealing in investments.

The aggregate amount of income and expenses arising from their transactions during the year and amount due to and due from the relevant related parties, and total contract sum of Off-Balance Sheet transactions at the year end are as follows:

Subsidiary Companies Associate Companies For the year ended 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

47.3.1 (a) Income Statement Interest earned 119,218 194,343 122,977 88,926 Interest paid 109,791 4,366 9,489 2 Other income 22,394 9,210 1,871 1,936 Expenses incurred 525,335 470,578 – 10,801

Subsidiary Companies Associate Companies As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

47.3.1 (b) Balance Sheet Assets Loans and advances 395,167 212,745 2,535,663 2,750,885 Placements 14,327,518 – – – Other receivable 256,447 448,731 – 12,844 14,979,132 661,476 2,535,663 2,763,729

Liabilities Deposits 4,027,486 328,140 44,470 42,968 Securities sold under re-purchase agreements 553,700 1,235,660 375,200 89,200 Debentures 11,083 5,370 – – Other liabilities 248,225 133,620 – 9 4,840,494 1,702,790 419,670 132,177

47.3.1 (c) Off-Balance Sheet items Commitments and contingencies

Letters of credit 86,815 60,000 – – Guarantees 53,000 56,500 – – Undrawn facilities 133,684 147,985 25,500 28,435 Others – – – 50,000 273,499 264,485 25,500 78,435

Net accommodation 894,030 900,591 1,042,465 1,192,572

Net accommodation as a % of the Bank’s regulatory capital 2.6% 3.1% 3.1% 4.1% NOTES TO THE FINANCIAL STATEMENTS

47.3.2 Transactions with Subsidiaries and Associate Companies of the Group

Subsidiary Companies Associate Companies For the year ended 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

47.3.2 (a) Income Statement Interest earned 119,218 194,343 122,977 91,462 Interest paid 109,791 6,903 9,489 2 Other income Expenses incurred 106,362 171,302 13,306 6,451 593,092 619,396 27,646 28,589

Subsidiary Companies Associate Companies As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

47.3.2 (b) Balance Sheet Assets Loans and advances 395,167 212,745 2,535,663 2,750,885 Placements 14,327,518 – – – Other receivables 317,197 465,119 – 108,714 15,039,882 677,864 2,535,663 2,859,599

Liabilities Deposits 4,027,486 328,140 44,470 42,968 Securities sold under re-purchase agreements 553,700 1,235,660 375,200 89,200 Debentures 11,083 5,370 – – Other liabilities 256,088 231,612 52,887 14,275 4,848,357 1,800,782 472,557 146,443

47.3.2 (c) Off-Balance Sheet items Commitments and contingencies Letters of credit 86,815 60,000 – – Guarantees 53,000 56,500 – – Undrawn facilities 133,684 147,985 25,500 28,435 Others – – – 50,000 273,499 264,485 25,500 78,435

Net accommodation 954,780 916,979 1,042,465 1,288,442

Net accommodation as a % of the Bank’s regulatory capital 2.8% 3.1% 3.1% 4.4% NOTES TO THE FINANCIAL STATEMENTS

47.4 TRANSACTIONS WITH THE SIGNIFICANT INVESTORS HAVING SIGNIFICANT INFLUENCE OVER BANK AND THE POST-EMPLOYMENT BENEFIT PLANS FOR BANK’S EMPLOYEES

Significant Investor Post-Employment Benefit Plans For the year ended 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

47.4.1 (a) Income Statement Interest earned 7,212,750 11,514,172 – – Interest paid 177,441 102,729 5,087,479 6,642,868 Contributions made – – 2,712,272 2,853,088

Significant Investor Post-Employment Benefit Plans As at 31 December 2010 2009 2010 2009 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

47.4.1 (b) Balance Sheet Assets Loans and advances 52,324,373 64,557,521 – – Investment in bonds 85,297,670 81,050,009 – – 137,622,043 145,607,530 – –

Liabilities Deposits 24,429,780 8,900,089 20,954,183 27,557,867 Debentures – – 28,461,433 9,900,000 24,429,780 8,900,089 49,415,616 37,457,867

47.4.1 (c) Off-Balance Sheet items Letters of credit 12,982,848 53,886,192 – – Bills and acceptance 5,378,459 36,862,417 – – Guarantees 8,560,881 8,802,506 – – 26,922,188 99,551,115 – –

Net accommodation 159,544,231 240,158,645 – –

Net accommodation as a % of the Bank’s regulatory capital 472.4% 820.2% – –

47.4.1 (d) Other Transactions No. of Ordinary shares held at the year end 5,000,000 5,000,000 Dividends for the year (Rs. ’000) 3,096,410 1,346,410 NOTES TO THE FINANCIAL STATEMENTS

47.5 RELATED PARTY TRANSACTIONS The Bank entered into transactions with its related parties in the ordinary course of business activities including deposits, lending and other banking services. The interest rates, commission and other fees on these transactions are determined on an arm’s length basis. Details thereon are summarised below:

Name of related company Name and relationship Nature of transaction Limit Balance/Amount Security Rs. ’000 outstanding as at 31.12.2010 Rs. ’000

47.5.1 Subsidiaries

Property Development PLC Dr. Gamini Wickramasinghe - Chairman Current account 4,502 Mr. P A Lionel - Director Time deposit 755,400 Mr. B M Amarasekara - Director REPO balance Mr. L N de Silva Wijeyeratne - Director Letter of credit 454,200 Letter of guarantee 5,000 86,815 Related shipping document Rent paid in advance Deposit for fuel 3,000 Other payable 235,179 907 38,150

Merchant Bank of Sri Lanka PLC Mr. M R Shah - Chairman Current account 35,725 Mr. V Kanagasabapathy - Director Overdraft 50,000 25,916 Ms. W A Nalani - Director REPO balance Debentures 10,000 Series of loan 1,083 Money market loan Grant on immediate 600,000 81,647 Lease receivable backed by Power Credit on cheque limit 100,000 – of Attorney Intra day overdraft – 1,000 – 5,000 –

BoC Management & Mr. B A C Fernando - Chairman Current account 2,467 Support Services Mr. K Dharmasiri - Director Time deposit 1,200 (Private) Limited Ms. L S L de S Wijeyeratne - Director Other payable Other receivable 322 95

BoC Property Development & Mr. B A C Fernando - Chairman Current account 7,182 Management (Private) Limited Ms. W A Nalani - Alternate Director Time deposit 253,074 Ms. S W S Fernando - Director REPO balance Mr. P J Jayasinghe - Director Other payable 62,500 Ms. S H Ranawaka - Director 9,462

BoC Travels (Private) Limited Mr. Chandrasiri de Silva - Chairman Current account 27,558 Mr. B A C Fernando - Director Time deposit 40,000 Ms W A Nalani - Alternate Director Debenture Ms. Kumudiniy Kulatunga - Director Overdraft 10,000 9,600 – Book Debts Ms. Deepa Wanniaratchi - Director Other payable 794 Mr. M K Muthukumar - Director Letter of guarantee 50,000 50,000 Indemnity of Directors, Debentures and Rs. 20 million secured by time deposits

Hotels Colombo (1963) Limited Mr. Rohan Jayasinghe - Chairman Current account 2,589 Ms. Nalini Abeywardene - Director Time deposit 79,610 Mr. Chandrasiri de Silva - Director Other receivable Mr. B A C Fernando - Director 19,566 Mr. M K Nandasiri - Director Ms. W K I Kularatne - Director Mr. M P R Kumara - Director Mr. C D K Walisundara - Director NOTES TO THE FINANCIAL STATEMENTS

Name of related company Name and relationship Nature of transaction Limit Balance/Amount Security Rs. ’000 outstanding as at 31.12.2010 Rs. ’000

Merchant Credit of Mr. A B L A de Silva - Chairman Current account 50,875 Sri Lanka Limited Mr. Raju Sivaraman - Director Savings account 86 Mr. H M A B Weerasekara - Director Time deposit Ms. Sriyani Anandagoda - Director Overdraft 15 Series of loan 50,000 – Lease receivables backed by Power Money market loan of Attorney Bridging finance 250,000 – Letter of credit 50,000 50,000 Letter of guarantee 100,000 – 10,000 – 4,000 –

Ceylease Financial Mr. Raju Sivaraman - Chairman Current account 27,111 Services Limited Mr. W A Asoka Rupasinghe - Director REPO balance 27,000 Ms. K A D Fernando - Director Overdraft Series of loan 50,000 – Clean Bridging finance 450,000 26,689 Lease receivable/hire purchase receivable backed by Power of 100,000 – Attorney Clean Bills of exchange & shipping Money Market Loan 350,000 210,000 documents Letter of credit 50,000 –

Other payable 1,577

Ceybank Holiday Homes Dr. Gamini Wickramasinghe - Chairman Current account 3,711 (Private) Limited Mr. B A C Fernando - Director Time deposit 78 Mr. K Dharmasiri - Alternate Director Other payable Mr. C Samarasinghe - Director Other receivable 22 Mr. H M Mudiyanse - Director 700 Mr. D M Gunasekera - Director Ms. K A D A Pemadasa - Director Mr. W G Ariyaratne - Director Mr. A Kuruppu - General Manager

MBSL Insurance Company LimitedMr. M R Shah - Chairman Current account 7,353 Overdraft 915

Koladeniya Hydropower Dr. Gamini Wickramasinghe - Chairman (Private) Limited

Bank of Ceylon (UK) Limited Dr. Gamini Wickramasinghe - Chairman Current account US$ 138 Mr. B A C Fernando - Director (Nostro accounts) (Rs. 15,576) Mr. I G C Madadeniya - Chief Executive Officer EURO 17,801 Ms. Sandya Jayasinghe - (Rs. 2,639,955) Chief Operating Officer GBP 427 (Rs. 73,619) Placements EURO 40,000 (Rs. 5,932,068) GBP 48,749 (Rs. 8,395,450) Other payable 181,675 NOTES TO THE FINANCIAL STATEMENTS

Name of related company Name and relationship Nature of transaction Limit Balance/Amount Security Rs. ’000 outstanding as at 31.12.2010 Rs. ’000

47.5.2 Associates Ceybank Asset Management Mr. K L Hewage - Chairman Current account 13,486 (Private) Limited Mr. B A C Fernando - Director REPO balance 8,200 Mr. P A Lionel - Alternate Director

Mr. D M Gunasekara - Director

Southern Development Mr. D K N Piyasoma - Director Current account 44 Financial Company Limited Savings account 38

Lanka Securities (Private) Limited Mr. K Dharmasiri - Director Current account 19,755 REPO balance 367,000 Overdraft 25,000 – Treasury bills

Mireka Capital Land Dr. Gamini Wickramasinghe - Director Current account US$ 2 (Private) Limited Ms. B C D Wijayakulasuriya - (Rs. 174) Alternate Director Mr. K B S Bandara - Director Current account Rs. 1,533 Mr. W P R P H Fonseka - Director Term loan US$ 24,000 US$ 22,700 Clean basis and US$ 14.4 million (Rs. 2,676,120) (Rs. 2,531,163) secured by Time Deposit placed by Shing Kwan Investment (Singapore) Mr. T Mutugala - Alternate Director Private Limited

Transnational Lanka Records Mr. C Samarasinghe - Chairman Overdraft 5,000 4,500 Mortgage over commercial property

Solutions (Private) Limited Ms. C K Jayaratne - Director Current account 3

MBSL Savings Bank Limited Mr. M R Shah - Chairman Current account 977 Savings account 8,461

47.5.3 Other Entities

Credit Information Bureau of Mr. B A C Fernando - Director Bank has contributed 42,256 Company shares Sri Lanka towards the capital

Pradeshiya Sanwardhana Bank Ms. W A Nalani - Director Bank has contributed 72,000 Company shares towards the capital

Lanka Clear (Private) Limited Mr. B A C Fernando - Director Bank has contributed 21,000 Company shares towards the capital

Lanka Financial Services Mr. B A C Fernando - Director Bank has contributed 2,250 Company shares Bureau Limited towards the capital

Ceybank Century Growth Fund Bank has invested in 95,741 units/mutual funds

Ceybank Unit Trust Investments Bank has invested in 1,113,433 units/mutual funds

Ceybank Surekum Gilt Edged Fund Bank has invested in 100,000 units/mutual funds

Transactions with other entities where the Board of Directors of the Bank hold directorships, are disclosed under Directors’ Interest in Contracts on pages 141 to 144 in this Annual Report. NOTES TO THE FINANCIAL STATEMENTS

48. FINANCIAL REPORTING BY SEGMENT Segmental information is presented in respect of Group business distinguishing the component of the Group that is engaged in different business segments or operations within a particular economic environment which is subject to risk and returns that are different from those of other segments.

48.1 PRIMARY SEGMENT INFORMATION - BUSINESS SEGMENTS (GROUP) Business segments provide products and services whose risk and returns are different from other segments which represents banking, leasing, treasury & investments, property, insurance and other non-banking activities.

Banking Leasing Treasury & investments 2010 2009 2010 2009 2010 2009 (Restated) (Restated) (Restated) Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Revenue from external customers: Interest 33,159,051 34,527,041 62,345 52,494 17,713,343 18,324,885 Exchange (251,547) 133,794 – – 670,008 1,433,122 Lease income – – 2,086,052 2,335,035 – – Commissions 6,278,055 4,169,828 109,559 76,941 – – Other 1,915,729 1,799,925 130,829 106,092 3,835,916 2,193,672 Total revenue 41,101,288 40,630,588 2,388,785 2,570,562 22,219,267 21,951,679 Segment result 8,631,548 3,938,335 1,268,596 1,273,440 7,738,205 5,214,647

Unallocated expenses – – – – – – Profit from operations – – – – – – Income from Associates – – – – – – Income tax expense – – – – – – Minority interest – – – – – – Profit attributable to equity holders/parent – – – – – – Segment assets 377,756,035 266,873,616 11,460,688 10,235,883 312,496,190 240,543,400 Investment in Associates – – – – – – Unallocated assets – – – – – – Total assets 377,756,035 266,873,616 11,460,688 10,235,883 312,496,190 240,543,400

Segment liabilities 375,591,228 265,227,694 7,875,741 7,360,029 317,433,546 246,167,879 Unallocated liabilities – – – – – – Total liabilities 375,591,228 265,227,694 7,875,741 7,360,029 317,433,546 246,167,879

Cash flows from operating activities (38,963,122) 63,685,347 (212,237) (364,099) 47,068,667 39,789,797 Cash flows from investing activities* – – – – (58,820,977) (21,477,780) Cash flows from financing activities 11,691,490 (14,338,027) – – 47,339,896 (30,165,163) Capital expenditure (1,187,231) (1,440,020) (22,759) (21,013) – –

* Excluding capital expenditure. NOTES TO THE FINANCIAL STATEMENTS

Property Insurance Other non-banking/unallocated Total 2010 2009 2010 2009 2010 2009 2010 2009 (Restated) (Restated) (Restated) (Restated) Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

4,313 6,308 29,427 19,870 7,755 13,413 50,976,234 52,944,011 – – – – – – 418,461 1,566,916 – – – – – – 2,086,052 2,335,035 10,711 10,735 89,055 89,187 283 7,011 6,487,663 4,353,702 606,009 605,146 8,665 3,076 401,234 220,619 6,898,382 4,928,530 621,033 622,189 127,147 112,133 409,272 241,043 66,866,792 66,128,194 953,450 880,149 60,656 36,350 107,462 19,468 18,759,917 11,362,389

– – – – – – (7,897,330) (6,773,132) – – – – – – 10,862,587 4,589,257 – – – – – – 212,898 130,653 – – – – – – (4,162,289) (1,402,987) – – – – – – (152,886) (17,050) – – – – – – 6,760,310 3,299,873 1,711,562 1,689,642 226,116 187,349 1,181,262 1,032,704 704,831,853 520,562,592 – – – – – – 1,284,563 1,084,065 – – – – – – 23,948,660 25,773,894 1,711,562 1,689,642 226,116 187,349 1,181,262 1,032,704 730,065,076 547,420,551

394,781 340,752 433,235 264,884 913,606 897,004 702,642,137 520,258,242 – – – – – – (3,838,558) (371,832) 394,781 340,752 433,235 264,884 913,606 897,004 698,803,579 519,886,410

59,373 (47,676) 93,978 16,166 (4,705,293) (2,666,066) 3,341,366 100,413,469 (59,258) (118,740) (148,176) (118,895) – – (59,028,411) (21,715,415) – – 50,000 99,700 (38,143) (30,629) 59,043,243 (44,434,119) (3,806) (4,706) (5,459) (130) (13,021) (21,637) (1,232,276) (1,487,506) NOTES TO THE FINANCIAL STATEMENTS

48. FINANCIAL REPORTING BY SEGMENT (CONTD.) 48.2 SECONDARY SEGMENT INFORMATION - GEOGRAPHICAL SEGMENTS Geographical segments provide products or services within a particular economic environment where risk and returns are different from those of other economic environment.

These segments comprise domestic operations, Off-Shore Banking Divisions and Off-Shore Banking Units (Branches).

Bank Group 2010 2009 2010 2009 Rs. ’000 % Rs. ’000 % Rs. ’000 % Rs. ’000 %

Assets Domestic operations 487,346,097 68.1 385,328,332 71.6 479,649,757 65.7 394,507,746 72.1 Off-shore banking division 211,371,532 29.6 128,209,185 23.8 211,371,532 29.0 128,209,185 23.4 Off-shore banking units 16,236,664 2.3 24,703,620 4.6 39,043,787 5.3 24,703,620 4.5 714,954,293 100.0 538,241,137 100.0 730,065,076 100.0 547,420,551 100.0

Gross Income Domestic operations 55,441,933 87.5 54,376,215 85.7 58,550,579 87.6 57,043,043 86.3 Off-shore banking division 6,549,119 10.3 7,683,187 12.1 6,549,119 9.8 7,683,187 11.6 Off-shore banking units 1,371,814 2.2 1,401,964 2.2 1,767,094 2.6 1,401,964 2.1 63,362,866 100.0 63,461,366 100.0 66,866,792 100.0 66,128,194 100.0

Profit Before Tax Domestic operations 6,819,905 67.9 1,144,944 27.2 7,857,643 70.9 1,657,207 35.1 Off-shore banking division 2,447,179 24.3 2,459,186 58.5 2,447,179 22.1 2,459,186 52.1 Off-shore banking units 785,485 7.8 603,517 14.3 770,663 7.0 603,517 12.8 10,052,569 100.0 4,207,647 100.0 11,075,485 100.0 4,719,910 100.0

Profits After Tax Domestic operations 4,343,288 68.2 1,095,304 35.5 4,905,994 71.0 1,328,221 40.0 Off-shore banking division 1,426,691 22.4 1,585,283 51.4 1,426,691 20.6 1,585,283 47.8 Off-shore banking units 595,333 9.4 403,419 13.1 580,511 8.4 403,419 12.2 6,365,312 100.0 3,084,006 100.0 6,913,196 100.0 3,316,923 100.0 204

205

INCOME STATEMENT

Bank Grou

For the six months ended For the quarter ended For the six months ended

30-Jun-2011 30-Jun-2010 Growth % 30-Jun-2011 30-Jun-2010 Growth % 30-Jun-2011 30-Jun-2010 Growth %

Total revenue 32,767,904 29,537,920 10.9 16,574,577 15,805,944 4.9 34,398,747 30,929,994 11.2

Interest income 28,520,832 23,549,893 21.1 14,699,808 12,173,763 20.7 29,754,814 24,643,392 20.7 Interest income on loans and advances 19,948,098 16,926,336 17.9 10,406,137 8,844,134 17.7 21,058,466 17,879,809 17.8 Interest income on other interest earning assets 8,572,734 6,623,557 29.4 4,293,671 3,329,629 29.0 8,696,348 6,763,583 28.6

Less: Interest expenses 17,253,122 15,011,877 14.9 8,849,454 7,549,486 17.2 17,689,331 15,480,718 14.3 Interest expense on deposits 11,884,429 10,897,117 9.1 6,062,083 5,474,081 10.7 12,031,607 11,090,621 8.5 Interest expense on other interest bearing liabilities 5,368,693 4,114,760 30.5 2,787,371 2,075,405 34.3 5,657,724 4,390,097 28.9

Net interest income 11,267,710 8,538,016 32.0 5,850,354 4,624,277 26.5 12,065,483 9,162,674 31.7

Non - interest income 3,929,491 5,632,590 (30.2) 1,729,911 3,414,654 (49.3) 4,314,791 5,928,728 (27.2) Foreign exchange income 16,642 389,249 (95.7) (129,925) 179,617 (172.3) 21,001 391,949 (94.6) Other income 3,912,849 5,243,341 (25.4) 1,859,836 3,235,037 (42.5) 4,293,790 5,536,779 (22.4) Net income 15,197,201 14,170,606 7.2 7,580,265 8,038,931 (5.7) 16,380,274 15,091,402 8.5 Less: Non - interest expenses 8,323,747 8,116,155 2.6 4,344,583 4,211,268 3.2 8,992,097 8,586,719 4.7 Personnel costs 3,940,190 4,064,038 (3.0) 2,098,469 2,159,598 (2.8) 4,344,638 4,352,898 (0.2) Contribution for staff retirement benefits 1,046,768 1,111,799 (5.8) 518,298 549,957 (5.8) 1,066,117 1,121,274 (4.9) Premises, equipment and establishment expenses 1,441,909 1,345,600 7.2 725,324 673,327 7.7 1,329,088 1,288,365 3.2 Loss on trading/ investment securities ------Amortization of intangible assets 30,000 78,000 (61.5) 15,000 31,632 (52.6) 35,642 86,657 (58.9) Other operating expenses 1,864,880 1,516,718 23.0 987,492 796,754 23.9 2,216,612 1,737,525 27.6

Less: Provision for bad and doubtful debts and loans written off (239,839) 803,693 (129.8) (191,652) 388,467 (149.3) (175,198) 866,885 (120.2) Provisions - general (208,654) 749,062 (127.9) (222,333) 420,082 (152.9) (202,520) 771,022 (126.3) Provisions - specific 286,396 410,068 (30.2) 175,539 185,912 (5.6) 356,464 453,737 (21.4) Recoveries (-) (317,581) (355,437) (10.7) (144,858) (217,527) (33.4) (329,142) (357,874) (8.0) Loans written off ------

Less: Provision for decline in value of investments (Net) - - - - 34,309 - (100.0)

Operating profit on ordinary activities before taxes 7,113,293 5,250,758 35.5 3,427,334 3,439,196 (0.3) 7,529,066 5,637,798 33.5

Less: Value added tax on financial services 1,032,071 1,660,865 (37.9) 538,782 1,061,504 (49.2) 1,060,350 1,707,512 (37.9)

Operating profit on ordinary activities before corporate tax 6,081,222 3,589,893 69.4 2,888,552 2,377,692 21.5 6,468,716 3,930,286 64.6

Share of profit of Associate Companies - - - - 114,708 143,178 (19.9)

Operating profit before corporate tax 6,081,222 3,589,893 69.4 2,888,552 2,377,692 21.5 6,583,424 4,073,464 61.6

Less: Tax on profits on ordinary activities 2,038,954 1,394,822 46.2 923,283 937,543 (1.5) 2,204,372 1,608,854 37.0

Operating profit for the period 4,042,268 2,195,071 84.2 1,965,269 1,440,149 36.5 4,379,052 2,464,610 77.7

Attributable to: Equity holders of the parent 4,042,268 2,195,071 84.2 1,965,269 - - 4,310,794 2,410,453 78.8 Minority interest - - - 68,258 54,157 26.0

4,042,268 2,195,071 84.2 1,965,269 1,440,149 36.5 4,379,052 2,464,610 77.7

Basic earnings per share (Rs.) 1,616.91 878.03 84.2 786.11 576.06 36.5 1,724.32 964.18 78.8 BALANCE SHEET Rs ' 000 Bank Group

As at 31-Dec-2010 31-Dec-2010 30-June-2011 Growth % 30-June-2011 Growth % (Audited) (Audited)

On-balance sheet assets

Cash in hand 13,496,847 8,759,580 54.1 13,517,572 8,794,468 53.7 Balances with Central Banks 25,943,602 25,894,466 0.2 25,943,602 25,894,466 0.2 Due from banks and other financial institutions 25,303,527 48,024,021 (47.3) 30,281,868 52,733,775 (42.6) Investments - trading account 94,955,339 74,148,627 28.1 96,884,352 76,143,865 27.2 Government securities 91,001,958 70,916,279 28.3 92,375,320 72,338,422 27.7 Other securities 3,953,381 3,232,348 22.3 4,509,032 3,805,443 18.5 Investments - held-to-maturity 147,532,953 155,790,065 (5.3) 147,961,729 156,264,935 (5.3) Government securities 132,201,455 141,165,424 (6.3) 132,201,455 141,165,424 (6.3) Government of Sri Lanka Restucturing Bonds 8,547,000 8,547,000 - 8,547,000 8,547,000 - Other securities 6,791,146 6,084,289 11.6 7,224,922 6,564,159 10.1 Less:Provision for decline in value of investment (6,648) (6,648) - (11,648) (11,648) -

Investments in Associates and Subsidiaries 6,277,344 6,123,752 2.5 1,343,777 1,284,563 4.6

Total loans and advances Total performing loans and advances 409,528,305 369,870,466 10.7 419,927,332 379,291,312 10.7 Bills of exchange 16,787,961 15,492,048 8.4 17,221,735 15,997,975 7.6 Overdrafts 87,343,078 68,866,588 26.8 87,463,353 68,944,535 26.9 Lease rentals receivable 5,886,065 4,022,996 46.3 13,941,385 11,275,265 23.6 Other loans 299,511,201 281,488,834 6.4 301,300,859 283,073,537 6.4 Total non-performing loans and advances 12,595,073 12,638,533 (0.3) 13,830,760 13,701,081 0.9 Bills of exchange 289,262 284,071 1.8 532,417 423,826 25.6 Overdrafts 2,328,365 2,450,642 (5.0) 2,328,365 2,450,642 (5.0) Lease rentals receivable 396,949 570,673 (30.4) 1,126,125 989,169 13.8 Other loans 8,671,379 8,518,992 1.8 8,934,735 9,023,289 (1.0) Foreclosed properities 909,118 814,155 11.7 909,118 814,155 11.7

Interest receivable on non performing loans 8,229,443 8,127,464 1.3 8,312,803 8,214,332 1.2 Total gross loans and advances 430,352,821 390,636,463 10.2 442,070,895 401,206,725 10.2 Less: Interest in suspense (8,355,255) (8,326,692) 0.3 (8,515,329) (8,499,008) 0.2 Specific loan loss provisions (7,121,196) (7,191,956) (1.0) (7,535,064) (7,592,100) (0.8) General loan loss provisions (2, 160, 714) (2, 396, 231) (9. 8) (2, 337, 691) (2, 527, 820) (7. 5) Net loans and advances 412,715,656 372,721,584 10.7 423,682,811 382,587,797 10.7

Other assets 21,539,382 17,706,268 21.6 22,347,218 18,313,650 22.0 Intangible assets 355,568 163,826 117.0 366,785 170,404 115.2 Investment properties - - - 444,428 386,867 14.9 Property, plant & equipment 6,137,227 5,622,104 9.2 8,193,892 7,490,286 9.4

Total on-balance sheet assets 754,257,445 714,954,293 5.5 770,968,034 730,065,076 5.6

On-balance sheet liabilities

Total deposits 538,470,761 524,232,697 2.7 544,138,020 529,318,700 2.8 Demand deposits 84,038,843 89,525,634 (6.1) 85,160,205 90,471,340 (5.9) Savings accounts 196,842,129 190,101,247 3.5 197,165,952 190,376,526 3.6 Time deposits 254,438,545 241,508,005 5.4 258,660,460 245,372,880 5.4 Margin deposits 2,007,794 1,886,224 6.4 2,007,794 1,886,224 6.4 Other deposits 1,143,450 1,211,587 (5.6) 1,143,609 1,211,730 (5.6)

Total borrowings 164,139,250 144,673,988 13.5 169,964,992 149,835,367 13.4 Borrowings from Central Bank of Sri Lanka 5,748,529 5,914,175 (2.8) 5,748,529 5,914,175 (2.8) Borrowings from banks and financial institutions in Sri Lanka 1,764,476 2,787,625 (36.7) 6,715,856 6,826,345 (1.6) Borrowings from banks and financial institutions abroad 57,564,172 43,743,353 31.6 58,167,917 44,691,495 30.2 Securities sold under repurchase agreements 60,370,257 53,522,487 12.8 59,976,157 52,968,787 13.2 Debentures 38,691,816 38,706,348 (0.0) 39,356,533 39,434,565 (0.2)

Insurance provision - life - - - 17,304 66,937 (74.1) Insurance provision - non life - - - 246,765 252,774 (2.4) Deferred taxation 471,015 457,587 2.9 498,507 489,525 1.8 Current taxation 4,045,104 2,199,758 83.9 4,311,205 2,422,527 78.0 Other liabilities 18,129,290 15,258,392 18.8 19,335,469 16,417,749 17.8

Total on-balance sheet liabilities 725,255,420 686,822,422 5.6 738,512,262 698,803,579 5.7

Equity capital and reserves 29,002,025 28,131,871 3.1 31,331,835 30,196,086 3.8 Stated capital 5,000,000 5,000,000 - 5,000,000 5,000,000 - Permanent reserve fund 2,777,500 2,777,500 - 2,777,500 2,777,500 - Other reserves 21,224,525 20,354,371 4.3 23,554,335 22,418,586 5.1

Minority interest 1,123,937 1,065,411 5.5

Total on-balance sheet liabilities and equity capital and reserves 754,257,445 714,954,293 5.5 770,968,034 730,065,076 5.6

Off-balanceOff-balance sheet items and contra accounts Contingencies 291,279,831 223,054,509 30.6 291,313,675 224,621,030 29.7

Commitments and contra accounts 1,210,353 110,421 996.1 1,413,763 321,085 340.3 STATEMENT OF CHANGES IN EQUITY - BANK Rs '000 Reserves For the six months ended Stated Capital Total Equity Permanent Reserve Investment Fund Revaluation Other Reserves Retained Profits Fund Reserve Reserve Balance as at 01-01-2010 5,000,000 2,650,000 - 125,299 1,303,700 15,819,588 24,898,587 Net profit for the six months 2010 2,195,071 2,195,071 Dividend for 2010 (2,173,205) (2,173,205) Balance as at 30-06-2010 5,000,000 2,650,000 - 125,299 1,303,700 15,841,454 24,920,453

Balance as at 01-01-2011 5,000,000 2,777,500 - 125,299 1,516,295 18,712,777 28,131,871

Net profit for the six months 2011 - - - - 4,042,268 4,042,268 Transfer to reserves during the period - - 591,873 - (172,114) (591,873) (172,114) Exchange translation adjustment ------Dividend for 2011 - - - - (3,000,000) (3,000,000) Balance as at 30-06-2011 5,000,000 2,777,500 591,873 125,299 1,344,181 19,163,172 29,002,025

STATEMENT OF CHANGES IN EQUITY - GROUP Rs '000 Reserves Minority For the six months ended Stated Capital Total Equity Permanent Reserve Investment Fund Revaluation Other Reserves Retained Profits Interest Fund Reserve Reserve Balance as at 01-01-2010 5,000,000 2,650,000 - 178,692 1,639,070 17,115,523 950,856 27,534,141 Net profit for the six months 2010 2,410,453 54,157 2,464,610 Exchange translation adjustment 577 - - 577 Dividend for 2010 (2,173,205) (38,142) (2,211,347) Adjustments 5,226 5,226 Balance as at 30-06-2010 5,000,000 2,650,000 - 178,692 1,639,647 17,357,997 966,871 27,793,207

Balance as at 01-01-2011 5,000,000 2,777,500 - 178,692 1,846,865 20,393,029 1,065,411 31,261,497 Net profit for the six months 2011 - - - - 4,310,794 68,258 4,379,052 Transfer to investment fund reserve during the period - - 611,746 - - (611,746) - - Exchange translation adjustment - - - (175,045) - - (175,045) Dividend for 2011 - - - - (3,000,000) (9,030) (3,009,030) Adjustments - - (702) (702) Balance as at 30-06-2011 5,000,000 2,777,500 611,746 178,692 1,671,820 21,092,077 1,123,937 32,455,772 CASH FLOW STATEMENT Rs.'000 Bank Group For the period ended 30th June 2011 2010 2011 2010 Cash flows from operating activities Interest receipts 26,133,121 22,546,125 27,322,770 23,129,891 Interest payments -14,877,821 -16,471,969 -15,464,671 -17,104,118 Commissions, fees & receipts from other operating activities 4,064,580 3,542,293 4,452,725 3,910,063 Premium received from policy holders 0 0 321,910 272,230 Claims and benefits paid 0 -167,836 -84,328 Reinsurance premium paid 0 -59,373 -73,042 Reinsurance receipts in respects of claims 0 51,064 4,605 Cash paid to and on behalf of employees -4,986,958 -5,175,838 -5,410,755 -5,474,172 Cash payments to suppliers -3,000,992 -3,560,804 -3,262,862 -3,615,227 Recovery of loans written off in the previous year 49,948 29,026 61,509 357,874 Value added tax on financial services paid -1,907,888 -1,609,484 -1,936,104 -1,656,131 Cash Flows from operating activities before changes in operating assets and liabilities 5,473,990 -700,651 5,908,377 -332,355

(Increase) / Decrease in operating assets Deposits held for regulatory purposes -49,136 -687,087 -49,136 -687,087 Funds advanced to customers -39,425,082 -66,637,377 -40,602,227 -67,503,297 Net increase in credit card receivables -379,099 39,472 -379,099 39,472 Short term marketable securities -1,125,679 -1,477,906 -1,073,926 -820,680 Other operating assets -2,169,507 -6,473,388 -2,154,306 -5,875,115

Increase / (Decrease) in operating liabilities 0 Deposits from other banks 2,192,636 -294,814 2,335,960 -294,814 Deposits from customers 12,045,429 44,652,052 12,483,359 23,723,921 Other operating liabilities 2,235,495 408,867 2,360,595 49,858

Net cash from/(used in) operating activities before -21,200,953 -31,170,832 -21,170,403 -51,700,097 income tax Income tax paid -462,718 -222,989 -567,700 -327,185 Net cash from/ (used in) operating activities -21,663,671 -31,393,821 -21,738,103 -52,027,282

Cash flows from investing activities Net increase in treasury bills & other eligible bills -21,681,576 -3,474,103 -21,547,806 -3,483,001 Proceeds from sale of investment securities 11,380,787 5,083,863 11,426,881 5,458,145 Dividends received 456,980 406,754 335,458 215,997 Purchase of investment securities -3,352,256 -612,088 -3,353,614 -612,088 Net cash effect on investments in subsidiaries & associates -22,602,852 0 Purchase of property plant & equipment -1,173,791 -869,080 -1,472,396 -634,237 Purchase of securities purchase under resale agreements 1,569,191 3,687,642 1,484,202 3,560,642 Proceeds from sale of property plant & equipment 1,316 2,792 1,449 8,393

Net cash from/(used in) investing activities -12,799,349 -18,377,072 -13,125,826 4,513,851

Cash flows from financing activities Proceeds from securities sold under repurchase agreements 6,847,770 20,616,819 7,007,370 20,602,179 Proceeds from issue/(redemption) of debentures 0 5,000,000 -63,500 4,995,000 Net increase/ (decrease) in other borrowings 12,632,023 3,182,357 13,200,286 11,405,165 Dividends paid to Government of Sri Lanka -3,000,000 -2,173,205 -3,000,000 -2,173,205 Dividends to Minority shareholders -9,030 -38,142 Net cash from financing activities 16,479,793 26,625,971 17,135,126 34,790,997

Net increase/(decrease) in cash and cash equivalents -17,983,227 -23,144,922 -17,728,803 -12,722,434 Cash and cash equivalents at the beginning of the period 56,783,601 59,375,919 61,528,243 59,404,322 Cash and cash equivalents at the end of the period 38,800,374 36,230,997 43,799,440 46,681,888

Analysis cash and cash equivalents Cash in hand 13,496,847 10,503,179 13,517,572 10,521,955 Due from banks and other financial institutions 25,303,527 25,727,818 30,281,868 36,159,933 Cash and cash equivalents at the end of the period 38,800,374 36,230,997 43,799,440 46,681,888 SELECTED PERFORMANCE INDICATORS

Bank Group

As at 31-Dec-2010 31-Dec-2010 30-Jun-2011 30-Jun-2011 (Audited) (Audited)

Net Assets Value per Share(Rs) 5,800 5,626 6,266 6,039

Regulatory Capital Adequacy Core capital (Tier 1 capital), Rs. Mn 25,275 25,333 30,140 30,172 Total capital base, Rs. Mn 32,627 33,776 39,282 40,377 Core capital adequacy ratio, % of risk weighted assets 9.08% 10.30% 10.05% 11.35% (Minimum requirement, 5%) Total capital adequacy ratio, % of risk weighted assets 11.72% 13.73% 13.10% 15.20% (Minimum requirement, 10%)

Assets Quality Gross non - performing advances ratio, 2.98% 3.30% 3.19% 3.49% (Net of interest in suspense) Net non - performing advances ratio, 1.30% 1.42% 1.45% 1.55% (Net of interest in suspense and provisions)

Profitability Interest margin 3.07% 3.14% 3.22% 3.29% Return on assets (before tax) 1.66% 1.60% 1.75% 1.73% Return on equity (after tax) 28.30% 24.01% 27.49% 23.81%

Investor Information Debt equity (%) 153.23 158.61 Interest cover (times) 2.13 2.10

Regulatory Liquidity Statutory liquid assets, - Domestic banking unit (Rs. Mn ) 133,729 143,232 - Off-shore banking unit (US$ Mn) 888.70 1,032.40

Statutory liquid assets ratio, (minimum requirement, 20%) - Domestic banking unit 24.88% 28.65% - Off-shore banking unit 52.44% 74.17%

Memorandum Information Number of employees 7,928 8,204 Number of branches 310 309

SHARE INFORMATION

30-Jun-2011 31-Dec-2010 Shareholder No of Ordinary No of Ordinary Holding % Holding % Shares Shares

Government of Sri Lanka 5,000,000 100 5,000,000 100 EXPLANATORY NOTES

There are no changes in the accounting policies and methods of computation since the publication of annual accounts for the year 2010.

2 These Financial Statements are presented in accordance with SLAS 35 - Interim Financial Reporting and provide the information as required in terms of Listing Rule 7.4 of the Colombo Stock Exchange. No circumstances have arisen and no material events have occurred since the balance sheet date, 3 which require disclosure or adjustment to the accounts. During the period there were no material changes in the composition of assets, liabilities and contingent 4 liabilities and use of funds raised through debentures. 5 All known expenses have been provided for in these Financial Statements.

The group financial statements comprise a consolidation of the Bank and its subsidiaries, Property Development PLC, Merchant Bank of Sri Lanka PLC, Merchant Credit of Sri Lanka Limited, Ceylease Financial Services Limited, Hotels Colombo (1963) Limited, BOC Property Development & 6 Management (Private) Limited, BOC Travels (Private) Limited, Ceybank Holiday Homes (Private) Limited, BOC Management & Support Services (Private) Limited, MBSL Insurance Company Limited, Koladeniya Hydropower (Private) Limited,Bank of Ceylon (UK) Limited and the group’s interest in its associate companies, Lanka Securities (Private) Limited, Mireka Capital Land (Private) Limited, Southern Development Financial Company Limited, Transnational Lanka Record Solutions (Private) Limited, Ceybank Assets Management (Private) Limited and MBSL Savings Bank Limited.

CERTIFICATION
 
 I certify that the above Financial Statements give true and fair view of the state of affairs of Bank of  Ceylon and the group as at 30th June 2011 and its profit for the six months ended 30th June 2011. CERTIFICATION

 Asoka Rupasinghe Chief Financial Officer

We, the undersigned, being the Chairman, Director and Acting General Manager of the Bank of Ceylon certify jointly that;

a) the above statements have been prepared in compliance with the format and definitions prescribed by the Central Bank of Sri Lanka and Rule 7.4 of Colombo Stock Exchange.

b) the information contained in these statements have been extracted from the un-audited financial statements of the Bank and the group unless indicated as audited.

 Gamini Wickramasinghe Raju Sivaraman W A Nalani Chairman Director Actg.General Manager (Independent Non-executive) (Independent Non-executive)

……… August 2011

Colombo DEBENTURE INFORMATION

Amount Interest Rate of Interest Coupon rate Effective annual rate Maturity comparable Description payable Issue date date Government Bank frequency security 30.06.2011 31.12.2010 30.06.2011 31.12.2010 30.06.2011 31.12.2010

% % % % % Rs' 000 Rs' 000 A - Sri Lanka rupee debentures

Fixed interest rate

Unsecured, subordinated, redeemable debentures* Annually 24.11.2008 24.11.2013 19.00 19.00 19.00 19.00 7.75 345,190 345,190

Unsecured, subordinated, redeemable debentures* At maturity 24.11.2008 24.11.2013 - - 17.61 17.61 7.75 350,391 322,775

Unsecured, subordinated, redeemable debentures** Annually 28.06.2010 28.06.2015 11.50 11.50 11.50 11.50 8.70 1,074,670 1,074,670

Unsecured, redeemable, debentures Annually 01.07.2010 01.07.2015 13.20 13.20 13.20 13.20 8.70 1,000,000 1,000,000

Unsecured, redeemable, debentures Annually 14.07.2010 14.07.2015 13.20 13.20 13.20 13.20 8.70 2,000,000 2,000,000

Unsecured, redeemable, debentures Annually 17.09.2010 17.09.2015 11.00 11.00 11.00 11.00 8.70 1,428,813 1,428,813

6,199,064 6,171,448

Floating interest rate

Unsecured, subordinated, redeemable debentures Semi annually 28.06.2010 28.06.2015 8.77 8.95 9.04 11.54 8.70 3,925,330 3,925,330 (6 months TB rate (Gross) plus 75 basis points)**/*** Unsecured, subordinated, redeemable debentures Semi annually 24.11.2008 24.11.2013 8.72 8.95 9.03 10.46 7.75 3,699,390 3,699,390 (6 months TB rate (Gross) plus 75 basis points)*/***

Unsecured, subordinated, redeemable debentures Semi annually 31.12.2003 31.12.2011 8.85 10.43 9.05 10.56 7.40 250,000 250,000 (6 months TB (Gross) rate plus 150 basis points)***

Unsecured, subordinated, redeemable debentures Semi annually 27.10.2006 27.10.2011 8.77 8.94 8.96 11.88 7.40 1,000,000 1,000,000 (12 months TB ( Gross ) rate plus 75 basis points)**** Unsecured, subordinated, redeemable debentures Annually 15.08.2008 15.08.2013 10.49 10.49 10.49 12.87 7.75 300,000 300,000 (12 months TB ( Gross ) rate plus 100 basis points)**** Unsecured, redeemable, debentures Annually 17.11.2006 17.11.2011 8.02 8.19 8.17 10.98 7.40 1,200,000 1,200,000 (12 months TB (Gross) rate )**** Unsecured, redeemable, debentures Annually 10.01.2007 10.01.2012 8.39 10.39 8.39 10.39 7.40 1,500,000 1,500,000 (12 months TB (Gross) rate )**** Unsecured, redeemable, debentures Annually 12.03.2007 12.03.2012 8.14 10.52 8.14 12.30 7.40 1,000,000 1,000,000 (12 months TB (Gross) rate )**** Unsecured, redeemable, debentures Annually 03.10.2007 03.10.2012 8.39 8.39 8.39 11.73 7.40 1,000,000 1,000,000 (12 months TB (Gross) rate plus 50 basis points)**** Unsecured, redeemable, debentures Annually 01.11.2007 01.11.2012 8.69 8.69 8.69 11.02 7.40 1,500,000 1,500,000 (12 months TB (Gross) rate plus 50 basis points)****

Unsecured, redeemable, debentures Annually 01.11.2007 01.11.2012 8.69 8.69 8.69 11.01 7.40 500,000 500,000 (12 months TB (Gross) rate plus 50 basis points)**** Unsecured, redeemable, debentures Annually 01.04.2008 01.04.2013 8.61 11.02 9.20 12.94 7.75 500,000 500,000 (12 months TB (Gross) rate plus 50 basis points)****

Unsecured, redeemable, debentures Annually 01.04.2008 01.04.2013 8.61 11.02 9.20 12.94 7.75 1,500,000 1,500,000 (12 months TB (Gross) rate plus 50 basis points)**** Unsecured, redeemable, debentures Annually 03.08.2010 03.08.2015 11.50 11.50 11.50 11.50 8.70 5,200,000 5,200,000 (12 months TB (Gross) rate plus 150 basis points)**** Unsecured, redeemable, debentures Annually 03.08.2010 03.08.2015 11.50 11.50 11.50 11.50 8.70 1,750,000 1,750,000 (12 months TB (Gross) rate plus 150 basis points)****

Unsecured, redeemable, debentures Annually 03.08.2010 03.08.2015 11.50 11.50 11.50 11.50 8.70 5,300,000 5,300,000 (12 months TB (Gross) rate plus 150 basis points)****

30,124,720 30,124,720 B - United State dollar debentures

Fixed interest rate

Unsecured, subordinated, redeemable debentures Semi annually 10.10.2008 10.10.2013 5.50 5.50 5.58 5.50 4.28 26,293 26,761

Floating interest rate

Unsecured, subordinated, redeemable debentures Semi annually 10.10.2008 10.10.2013 3.45 4.69 3.48 4.74 4.28 2,341,739 2,383,419 (6 months LIBOR Plus 300 basis points)***** 2,368,032 2,410,180

38,691,816 38,706,348

Notes * Debentures that are listed in the Colombo Stock Exchange were issued on 24 November 2008.Some of these have been traded in the Colombo Stock Exchange during the period ended 30 June 2011 ( Highest Price - Rs.100.10, Lowest Price - Rs.100.00, Last Transaction Price - Rs.100.00 ) ** Debentures that are listed in the Colombo Stock Exchange were issued on 28 June 2010. *** Weighted average 6 months Treasury Bill interest rate before deducting 10% withholding tax at the primary quotations as announced by the Central Bank of Sri Lanka, at the preceding week of the interest resetting date. **** Weighted average 12 months Treasury Bill interest rate before deducting 10% withholding tax at the primary quotations as announced by the Central Bank of Sri Lanka, at the preceding week of the interest resetting date. ***** 6 months London Inter Bank Offered Rate (LIBOR) for US Dollars plus 3% per annum YIELD OF LAST TRADE DONE

30-June-2011 31-Dec-2010 % %

Interest yield as at date of last trade done BOC Debenture 2008/2013 ,

5 years, fixed rate (19.0%) 19.00 17.76 5 years, floating rate (06 months TB rate (Gross) plus 75 basis points ) Not Traded Not Traded 5 years, zero coupon Not Traded 13.13

BOC Debenture 2010/2015 ,

5 years, fixed rate (11.5%) Not Traded Not Traded 5 years, floating rate (06 months TB rate (Gross) plus 75 basis points ) Not Traded Not Traded

Yield to maturity of last trade done BOC Debenture 2008/2013 ,

5 years, fixed rate (19.0%) 19.00 16.36 5 years, floating rate (06 months TB rate (Gross) plus 75 basis points ) Not Traded Not Traded 5 years, zero coupon Not Traded 15.57

BOC Debenture 2010/2015 ,

5 years, fixed rate (11.5%) Not Traded Not Traded 5 years, floating rate (06 months TB rate (Gross) plus 75 basis points ) Not Traded Not Traded SEGMENTAL ANALYSIS - GROUP

Rs. '000

Banking Leasing Treasury and Investment Property Insurance Other Non Banking / Unallocated Total

For the six months ended 30th June 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

Revenue from external customers: Interest 19,684,832 16,741,700 19,082 15,521 8,828,695 6,830,916 1,771 2,153 17,206 19,968 1,686 871 28,553,273 23,611,130 Exchange (496,554) 119,407 - - 517,555 272,542 ------21,001 391,949 Lease income - - 1,201,541 1,032,262 ------1,201,541 1,032,262 Commissions 3,266,541 2,976,356 29,939 50,919 - - - - 78,449 58,603 12,437 1,659 3,387,366 3,087,537 Other 633,382 742,607 28,357 25,011 86,692 1,602,958 321,916 290,860 7,026 546 158,192 145,133 1,235,565 2,807,116 Total revenue 23,088,202 20,580,071 1,278,919 1,123,714 9,432,942 8,706,417 323,687 293,013 102,681 79,117 172,315 147,663 34,398,747 30,929,994

Segment result 6,110,972 3,756,336 661,366 627,578 2,793,912 2,798,566 187,177 132,389 -15,525 (17,970) 16,007 39,525 9,753,909 7,336,424

Unallocated expenses ------(3,285,193) (3,406,138)

Profit from operations ------6,468,716 3,930,286

Share of Profit/(Loss) of Associates ------114,708 143,178

Income tax expense ------(2,204,372) (1,608,854)

Minority interest ------(68,258) (54,157)

Profit attributable to equity holers / 4,310,794 2,410,453 parent ------

Segment assets 441,084,481 351,860,825 14,333,531 9,616,877 278,862,203 206,340,561 2,059,338 2,493,709 645,893 510,333 401,642 237,814 737,387,087 571,060,119

Investment in associates - - - - 1,343,777 1,204,425 ------1,343,777 1,204,425

Unallocated assets ------32,237,170 34,504,650 32,237,170 34,504,650

Total assets 441,084,481 351,860,825 14,333,531 9,616,877 280,205,980 207,544,986 2,059,338 2,493,709 645,893 510,333 32,638,812 34,742,464 770,968,034 606,769,194

Segment liabilities 438,226,203 342,415,183 10,510,871 5,084,222 284,742,181 225,637,638 308,662 575,029 484,391 390,759 191,441 196,181 734,463,749 574,299,012 Unallocated liabilities ------4,048,513 4,676,975 4,048,513 4,676,975 Total liabilities 438,226,203 342,415,183 10,510,871 5,084,222 284,742,181 225,637,638 308,662 575,029 484,391 390,759 4,239,953 4,873,156 738,512,262 578,975,987

Cash flows from operating activities (27,470,013) (52,121,472) (149,470) (184,688) 8,092,737 8,041,195 (39,101) (48,642) 145,765 119,465 (2,318,022) (7,833,141) (21,738,103) (52,027,282)

Cash flows from investing activities - - - - (13,125,826) 4,513,851 ------(13,125,826) 4,513,851

Cash flows from financing activities 8,577,170 6,808,928 - - 11,630,486 25,198,416 - - - - (3,072,530) 2,783,653 17,135,126 34,790,997

Capital expenditure (1,458,429) (616,928) (13,575) (17,150) (100) (105) - - (292) (54) (1,472,396) (634,237) DIRECTORS’ INTERESTS IN CONTRACTS

Company Relationship Nature of Transactions Limit Balance/Amount Balance/Amount Security outstanding outstanding as at 31.12.10 as at 31.12.09 ’000* ’000* ’000*

DR. GAMINI WICKRAMASINGHE Bank of Ceylon (UK)Chairman Current account US$ 138 Limited (Nostro account) (Rs. 15,576) EURO 17,801 (Rs. 2,639,955) GBP 427 (Rs. 73,619)

EURO 40,000 Placements (Rs. 5,932,068) GBP 48,749 (Rs. 8,395,450)

Other payable 181,675

Ceybank Holiday Homes Chairman Current account – 3,711 2,585 (Private) Limited Time deposit 78 75 Other payable 22 138 Other receivable 700 580

Property Development Chairman Current account 4,502 1,965 PLC Time deposit 755,400 112,000 Repo balance 454,200 989,140 235,179 Rent paid in advance 209,328 907 Deposit for fuel 907 Other payable 38,150 110,547 Letter of credit 5,000 86,815 Letter of guarantee 3,000 Related shipping document

Mireka Capital Land Director Current account 1,533 12,673 (Private) Limited Current account US$ 2 US$ 0.3 (Rs. 174) (Rs. 34) US$ 22,700 US$ 24,000 Clean basis and time deposits Term loan US$ 24,000 (Rs. 2,531,163) (Rs. 2,749,320) placed by Shing Kwan (Rs. 2,676,120) 12,809 Investment (Singapore) Pte. Other receivable Limited

The Lanka Hospital Director Current account 68 68 Corporation PLC Current account US$ 2 US$ 2 (Rs. 172) (Rs. 176)

Informatics Group of Managing Savings account 8 14 Companies** Director Savings account US$ 3 US$ 16 (Rs. 327) Rs. 1,854)

Current account 927 9,555 Time deposit US$ 474 US$ 454 (Rs. 52,905) (Rs. 52,008)

Overdraft 45,600 46,663 46,369 Time deposits Term loan 17,300 2,883 6,343 Mortgage over commercial property Residential property Letter of guarantee 9,600 4,531 2,314 Letter of guarantee US$ 1,778 (Rs. 203,679)

Procurement - transaction value

Payable (excluding 55,084 46,556 taxes)

* Currencies in thousands ** The Board of Directors of Bank of Ceylon has approved the following: (1) In terms of minute No. 1.2.07 of 05.05.2009 appointing Visual Computing Systems (Private) Limited (A company belonging to Informatics Group) to provide maintenance support in Tandem server. (2) In terms of minute No. 5.2 of 14.08.2009 to procure 12 numbers of Automated Teller Machines from Informatics (Private) Limited. DIRECTORS’ INTERESTS IN CONTRACTS

Company Relationship Nature of Transaction Limit Balance/Amount Balance/Amount Security Outstanding as at Outstanding as at 31.12.10 31.12.09 ’000* ’000* ’000*

MR. S R ATTYGALLE Sri Lanka Ports Authority Director Savings account 188,166 Savings account US$ 381

(Rs. 42,557) Current account 591,113 Time deposit 24,636 Time deposit US$ 23,107 (Rs. 2,576,560) Term loan US$ 62,512 US$ 31,256 Negative pledge over the (Rs. 3,485,215) assets imported Letter of credit 750,000 255,417 Clean

Board of Investment Director Current account 280,438

MR. RAJU SIVARAMAN

Ceylease Financial Chairman Current account 27,111 6,381 Services Limited Repo balance 27,000 17,000

Overdraft 50,000 Clean Series of loan 450,000 26,689 58,880 Lease receivable/ hire purchase Bridging finance 100,000 receivable backed by Power of Attorney Money market loan 350,000 210,000 86,000 Clean Letter of credit 50,000 Bills of exchange and shipping documents

Other receivable 615 Other payable 1,577

Arch-Triad Consultants Managing Consultancy services 980 10,997 (Private) Limited** Director value

Milco (Private) Limited Director Current account 25,498 Time deposit 315,431 Lease 1,465 17,900 Machinery Merchant Credit of Director Savings account 86 Sri Lanka Limited Current account 50,875 36,964

Time deposit 15 15 Series of loan 250,000 – Overdraft 50,000 Money market loan 50,000 50,000 30,000 Lease receivables backed by Bridging finance 100,000 Power of Attorney Letter of credit 10,000 Letter of guarantee 4,000 Repo balance – 14,000 Reverse Repo – 127,000 balance

* Currencies in thousands ** The Board of Directors of Bank of Ceylon has approved the following: (1) In terms of minute No. 4.1 of 14.08.2009 appointing Arch-Triad Consultants (Private) Limited as the interior design consultants for interior/exterior refurbishment of Super Grade Branch, Nugegoda. (2) In terms of minute No. 9.2.10 of 27.04.2010 appointing Arch-Triad Consultants (Private) Limited as the consultants for project of constructing a new building for Bank of Ceylon at Nelliady. DIRECTORS’ INTERESTS IN CONTRACTS

Company Relationship Nature of Transaction Limit Balance/Amount Balance/Amount Security Outstanding as at Outstanding as at 31.12.10 31.12.09 ’000* ’000* ’000*

MS. NALINI ABEYWARDENE Hotels Colombo (1963) Director Current account 2,589 5,695 Limited Time deposit 79,610 31,085

Other receivable 19,566 110,195

MR. CHANDRASIRI DE SILVA

Hotels Colombo (1963) Director Current account 2,589 5,695 Limited Time deposit 79,610 31,085

Other receivable 19,566 110,195

BoC Travels (Private) Chairman Current account 27,558 17,202 Limited Time deposit 40,000 20,000

Debenture 10,000 5,000 Overdraft 9.600 Book debts Letter of guarantee 50,000 50,000 50,000 Debentures and time deposits Other payable 794

MR. K L HEWAGE Ceybank Asset Chairman Current account 13,486 Management (Private) Repo balance 8,200 Limited Investment in Units 1,309,174

MR. V KANAGASABAPATHY Merchant Bank of Director Current account 35,725 39,361 Sri Lanka PLC Debenture 1,083 370

Overdraft 50,000 25,916 11,615

Series of loan 600,000 81,647 26,250 Lease receivable backed by Money market loan 100,000 Power of Attorney Repo balance 10,000 35,000 Grant on immediate Credit on cheque 1,000 limit

Intra day overdraft 5,000 Guarantee 2,500

Hotel Developers Director Savings account US$ 3 US$ 3 Lanka PLC (Rs. 349) (Rs. 357)

Savings account JPY 5 JPY 1 (Rs. 7) (Rs. 1)

Current account 1,912 4,531 Term loan 350,000 78,750 113,750 Treasury guarantee (Granted under SRCC & T)

* Currencies in thousands DIRECTORS’ INTERESTS IN CONTRACTS

Company Relationship Nature of Transaction Limit Balance/Amount Balance/Amount Security Outstanding as at Outstanding as at 31.12.10 31.12.09 ’000* ’000* ’000*

De La Rue Lanka Director Savings account GBP 22 GBP 217 Currency & Securities (Rs. 3,754) (Rs. 39,463) Print (Private) Limited 842 7,091 Current account GBP 46 GBP 170 Current account (Rs. 7,849) (Rs. 30,915)

Time deposit 15,962 13,803 Overdraft 30,000 281 14,256 Mortgage over commercial property

Letter of credit 38,631 Related shipping documents Letter of credit US$ 34 (Rs. 3,749) Time deposits Letter of guarantee 16,262 7,690

Distance Learning Chairman Current account 2,586 3,382 Centre Limited Time deposit 8,243 7,680

Overdraft 2,000 Time deposits

Lanka Hydraulic Director Savings account 47 31 Institute Current account 18 169

* Currencies in thousands