Everyone says Hatton National Bank PLC | Integrated Report 2018 we’re Number Integrated Report 2018 We say, you’re our Number For over 130 years, HNB has honed a legacy of superior service and a reputation of strength and stability, along the way inspiring the trust and love of the thousands of Sri Lankans that we partner in progress. This year, we are proud to report that the renowned Banker Magazine UK has ranked your Bank first among Sri Lankan banks in its list of the Top 1000 World Banks for 2018. This is a powerful endorsement of the corporate transformation we are crafting: a purposeful effort to unleash the ultimate potential of every aspect of your Bank to fulfil the dreams and aspirations of every one of our stakeholders. This recognition and the many others detailed herein, give us an opportunity to thank the customers, employees, investors, partners and regulators; the people and communities whose loyalty and trust we acknowledge with gratitude. In an era of rapid evolution towards a whole new world of banking, we reaffirm our commitment to be your partner in progress. In these uncertain and unpredictable times, our sincere pledge is to remain steady and strong, and to be worthy of your trust and loyalty. Today we are Number 1. And that’s because at HNB, you’re our Number 1. You have made us who we are. And so we simply say, Thank You. Contents GOVERNANCE THE STRATEGIC REPORTS REPORT Corporate Governance: About Our Report 4 Annual Report of the Board Why invest with us? 5 of Directors on the Affairs of About Us 6 the Company 93 At HNB we clearly Performance Highlights HR and Remuneration understand how retail and 8 Committee Report commercial banking now has Chairman’s Message 10 MANAGEMENT 102 to meet increasingly complex Managing Director /CEO’s DISCUSSION & Nomination Committee criteria of governance, Message 14 ANALYSIS Report 104 sustainability and value Board Integrated Risk addition, in order to stay The Board of Directors 20 Managing Our Capitals & Impacts Management Committee relevant and deliver what is Corporate Management 26 45 required, quickly, consistently Financial Capital Report 107 Senior Management 28 46 and well. In shaping our Board Audit Committee ‘2020 and beyond’ strategy Overview of Our Business Manufactured Capital 50 Report 111 we aimed high, striving 33 Digital Capital 52 to discern and fulfil our Related Party Transactions Human Capital stakeholders’ every hope Our Business Model 34 56 Review Committee Report and aspiration now and over Our Strategy 36 Social and Network Capital 114 the years to come, because Engaging Stakeholders 63 Directors’ Statement On we believe that our long 38 Intellectual Capital 68 experience of transforming Our Material Topics 39 Internal Control Over lives in a diversity of regions, Natural Capital 70 Financial Reporting 116 Market Review 42 serving many communities Retail Banking 72 Independent Assurance for generations, makes HNB Report 118 the bank best positioned SME 76 Directors’ Interest in to lead the nation into the Chairman’s Micro Finance 78 future. Contracts with the Bank 119 Message 10 Corporate Banking 80 Risk Review 123 This report details our Trade Services 82 operations for the year Treasury under review, describing 84 Nomination how we continue to serve Insurance 86 the nation through our Committee Report Investment Banking 88 commitment to job creation 104 HNB Finance 90 and national development, Engaging supporting economic and Real Estate 92 social development through Stakeholders 38 Risk Review 123 our many SME, micro-finance and loan programmes designed to advance rural economies. We also continue our drive to become Sri Lanka’s most technologically advanced bank, bringing our digital services and products to people whenever they need them, wherever they Business Reviews 72 are. 2 Hatton National Bank PLC / Annual Report 2018 THE STRATEGIC REPORT . MANAGEMENT DISCUSSION & ANALYSIS . GOVERNANCE REPORTS . FINANCIAL REPORTS . SUPPLEMENTARY INFORMATION SUPPLEMENTARY INFORMATION VISION FINANCIAL REPORTS Statement of Profit or Loss To be the acknowledged leader and Financial Calendar 130 in US Dollars 305 chosen partner in providing financial Chief Executive Officer's Statement of solutions through inspired people and Chief Financial Officer's Comprehensive Income in Responsibility Statement US Dollars 306 131 Statement of Financial Directors’ Responsibility for Position in US Dollars 307 Financial Reporting 132 MISSION Analysis of Deposits 308 Independent Auditor's Analysis of Loans and Combining entrepreneurial spirit Report 133 Receivables 309 Statement of Profit or Loss with empowered people and leading Sources and Utilisation of 136 edge technology to constantly exceed Income 310 Statement of stakeholder expectations Value Added Statement 311 Comprehensive Income 137 Value Created to Statement of Financial Stakeholders 312 Position 138 Ten Year Statistical Summary OUR VALUES Statement of Changes in 313 Equity 139 • Treasure professional and personal integrity Quarterly Statistics Statement of Cash Flows 314 at all times 143 Investor Relations 315 • Demonstrate mutual respect in all our Notes to the Financial Independent Assurance interactions Statement Statements 145 324 • Passionate about everything we do Glossary of Financial / • Committed to being customer centric Banking Terms 328 • Courage to change, challenge and be Branch Network 334 different Corporate Information 336 • Demonstrate unity in diversity Notice of Meeting 337 Form of Proxy [Voting] 343 Form of Proxy [Non-Voting] Scan the QR Code with your Read our HNB Corporate 345 smart device to view this Governance and Risk Investor Feedback Form 347 report online. Management Report 2018 Statement of Profit Investor Relations or Loss 136 315 Corporate or download it @ or download it @ https://www.hnb. https://www.hnb. Information 336 net/2018#integrated- net/2018#corporate- report-2018 governance-risk- management-report-2018 3 About Our Report We continue our quest for excellence in corporate reporting with an even leaner INNOVATIONS IN 2018 collection of reports which comply with legal requirements and international best practice. Our objective is to communicate the relevant material information in a • Performance concise but comprehensive manner to provide shareholders with a balanced review of highlights have our performance during the year. separate statements for Economic, Social INTEGRATED ANNUAL REPORT 2018 and Environmental Performance This report is primarily for providers of financial capital and will be of interest to other stakeholders as it summarises information on all material issues impacting our performance. • Business line reviews highlight value to Frameworks Applied Assurance has been Group and value to provided by Ernst & • Companies Act No.7 of 2007 external stakeholders Young on the Financial • Sri Lanka Financial Reporting Standards issued by the Institute of Statements including the facilitating a balanced Chartered Accountants of Sri Lanka Notes to the Accounts. assessment of • IR Framework issued by the International Integrated Reporting Council performance (refer annexure page 327 for application of <IR> guiding principles) DNV GL has provided assurance on the • Segregated digital • GRI Standards Sustainability Report. capital from • Communicating Sustainability issued by the Colombo Stock Exchange manufactured capital in recognition of its CORPORATE GOVERNANCE, RISK & CAPITAL MANAGEMENT REPORT strategic significance and described how This report is intended for providers of financial capital and regulators who require deeper insights into we nurtured this the Bank’s approach to managing risk and financial capital. capital more fully Frameworks Applied Assurance has been • Adopted and • Code of Best Practice on Corporate Governance issued by the Institute of provided by Ernst reported compliance Chartered Accountants of Sri Lanka & Young to Central Bank of Sri Lanka with the new Code • Banking Act Direction No.11 of 2007 and subsequent amendments thereto on Compliance with of Best Practice • Directions issued by Central Bank of Sri Lanka on Risk Management the Banking Act on Corporate including the Basel Capital Accord (II) Direction No.11 of Governance issued in • Baseline Security Standards 2007 and subsequent December 2017 • Sri Lanka Financial Reporting Standards issued by the Institute of amendments. • Further refined the Chartered Accountants of Sri Lanka combined Corporate • Companies Act No.7 of 2007 Governance and • ISO 31000 – Enterprise Risk Management statutory report • ISO 27001 – Information Security of the Board, • PCIDSS – Payment Card Industry Data Security Standards eliminating repetition while conforming Scope & Boundary - Whilst financial information presented is consolidated, the non-financial information to regulatory presented is only for the Bank as we are in the process of further strengthening the process of data requirements management systems within the group to ensure increased system reliability and completeness. • Streamlined the The Management of Hatton National Bank PLC has reviewed and approved the relevant content of all reports reporting suite to just and recommended the report to the Board Audit Committee and Board for their approval as per delegation of two reports authority. The Board acknowledges its responsibility to ensure that the Annual Integrated Report provides a balanced view of its performance in 2018 and is of the opinion that it addresses all material issues that it believes may have a bearing