A perehera is a unique amalgam of skill, aptitude and culture, passed down through generations and still evolving to mirror changing times… its relevance to People’s Bank appears inside…

PEOPLE’S BANK No. 75, Sir Chittampalam A. Gardiner Mawatha, 2, . | Tel: +94 112 481 481, +94 112 327 841 - 6, +94 112 446 316 Website: www.peoplesbank.lk | E-mail: [email protected] People’s Bank | Annual Report 2010 2010 2009 % y49 years in banking services. Bottom Line Performance yNumber of banking outlets increased to 329 and service centres Profit before Taxation (Rs. Mn) 8,771 6,076 44.4 increased to 350, expanding our total branch network to 679; the Capital in Hand (Rs. Mn) 20,838 17,800 17.1 largest in Sri Lanka. Productivity yNumber of ATMs increased to 330, adding 30 new machines this Net Revenue (Rs. Mn) 31,897 30,635 4.1 year. Cost/Income Ratio (%) 60.2 60.6 – yCustomer accounts close to 13 Mn. Head Count (Excluding Outsourced) 8,399 8,863 (5.2) Profit per Employee (Rs. ‘000) 620 375 65.5 yValue of deposits increased by 16.7% totaling 462 Bn in year 2010. Credit Management yBank ratings were upgraded - Fitch Rating AA-(Positive) and RAM Loans & Advances (Gross) (Rs. Mn) 371,804 299,077 24.3 Ratings AAA. Non-Performing Loan (NPL) Value (Rs. Mn) 18,738 20,040 (6.5) yRs 9.9 Bn paid in taxes, dividends and levies to the Government of NPL Ratio (%) 5.0 6.7 – Sri Lanka. Provisions for NPLs (Rs. Mn) 13,782 14,158 (2.7) NPL Coverage Ratio (%) 73.6 70.6 – yIntroduction of Internet banking, International VISA debit card and inward remittance SMS alert service. Customer Confidence yExpansive corresponding banking network numbering 375 in over Value of Deposits (Rs. Mn) 462,140 396,158 16.7 110 countries. No. of Deposit Customers (Mn) 12.9 12.4 4.4 y266 branches and 283 service centres totaling 549 are online and Key Performance Indicators interconnected. Return on Assets (%) - (Before Tax) 1.7 1.4 – Return on (%) 26.9 19.7 – Capital Adequacy Ratio (%) 12.8 13.4 – Non-Funded Income/Net Income (%) 18.8 21.9 – Since 1961

Just as a perahera draws input from the vibrant cultures of different localities of the country… just as each segment and participant has a role to play…just as it requires great skill and aptitude from its participants…just as it inspires and creates awe in the minds and hearts of many… just as it evolves to encompass changing times…so too has the People’s Bank incorporated these values and traits into its psyche and enterprise.

The Bank fully understands and embraces an ethos that incorporates values such as years of practice, training, dedication, experience...and service. [Contents]

[Chairman’s Message 006] [Chief Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113]

[Financial Reports 121] [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151]

[Supplementary Information 185] [Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217] We recognise that the primary reason for our existence is to create value for people of the nation.

In all our activities we exercise our duty with utmost care in the interest of our depositors.

We promote long-term ethical relationships with our customers through true and fair dealing.

We put our customers at the centre of everything, by minimising , demanding hands on management, quick decision making and implementation.

We empower staff and require them to be accountable.

We demand the highest standards of personal integrity at all levels, putting For our Customers the Bank’s interest ahead To take pride in providing an excellent of individuals. service in the most caring, responsive and professional manner. We create an environment of mutual respect and trust where employees For our Owners can demonstrate their performance To generate benefits for the national and achieve their full potential. economy whilst being independent and commercially viable. We develop our business by encouraging high performing teams For our Employees that recognise and support the To create opportunities for our skills, commitment and links to the employees to benefit from their community of every employee. high performance by becoming value creating, skilled, self-confident and We are committed to comply with professional individuals who are also the spirit and letter of all and team players. , adhering to the highest standards of Corporate Governance, For our Society transparency, disclosure and ethical To support empowerment and conduct. To be the Bank of the aspiring People sustainable development by of Sri Lanka: Empowering People to contributing to the upliftment of We conduct ourselves as good become value creating, education, culture and environment citizens promoting the environment competitive and self-reliant. island-wide. and sustainable development. [Chairman’s Message]

s we enter the golden jubilee year of the Bank that has truly been the pulse of the A people, I am proud that we have evolved into a modern banking entity, aligned to modern aspirations while keeping firmly to the fundamentals of our bank being one with the citizenry of this country. While our focus is very much in line with the national development agenda, we have journeyed a few steps further in ensuring that People’s Bank is able to stand strong and tall with other commercial banks in this country, growing on our strengths and developing on opportunities that arise. The year under review has been one where we have turned the corner, built on technology, strengthened our team and developed our core competencies that give us a competitive edge in the Sri Lankan banking milieu. I am happy to present to you this Annual Report and statement of account of People’s Bank for the year ended 31st December 2010.

Macro Economic Overview Having endured three decades of debilitating conflict, 2010 was the first full year of peace and it is notable that

006 People’s Bank | Annual Report 2010 Quick Read The volatility in the banking industry stabilised and helped the Bank post a strong performance last year. Our pre-tax profit grew by 44.4%, our post-tax profit by 56.8% and the Bank’s NPL dropped below the industry average. We are conscious of our responsibility as a key partner of the state and the Bank continues to make a strong contribution to national development. We will continue with our investments in state-of-the-art technology and enhance the public’s access to a variety of forms of finance.

within this year, Sri Lanka displayed 2.5 Mn is envisaged by 2016 with the appreciating considerably to close the strong and consistent economic growth, industry fast tracking infrastructure year at Rs. 110 for the US$, cushioning closing the year with a GDP growth development and an upgrade of both the price increases of imported of 8%. All other key performance facilities and amenities, to woo the commodities. indicators remained aligned to this higher end higher spending tourist into trajectory with the International Sri Lanka. Monetary Fund also signalling The Banking Industry confidence in the country’s economic Earnings from exports reached and monetary regime by continuing to upwards by 17% on a cumulative basis in Perspective extend several tranches of its US$ 2.6 Bn while expenditure on imports increased The Banking industry continued its Standby Facility without delay. by 32%. Remittances continued to be resilient patterns with assets reaching the backbone of the economy, Rs. 3.5 Tn, deposits Rs. 2.6 Tn and From a sectoral perspective, key contributing to the nation’s coffers with loan advances at Rs. 2 Tn, all upward sectors like agricultural, industrial and a significant 21.9%. The trade deficit movements from the year before. With services sectors showed exemplary expanded to US$ 4,744 Mn, compared to Tier 1 capital reaching Rs. 227 Bn and performance. Both the rubber and US$ 2,753 Mn, while total government accounting for 90% of the capital base paddy output recorded a 6.8% growth revenue and grants increased by 14.4% (wherein last year it stood at Rs. 215 Bn) compared to previous year, while to Rs. 749.3 Bn in the first eleven and a growth of 5.8% and profitability Industrial growth also showed an months of 2010. In this same period, reaching its highest in a decade incline to 8.7%. The services sector, total expenditure and net lending augmented with Return on Equity primarily buoyed by tourism and increased by 6.6% to Rs. 1,159.1 Bn. seeing a growth to 21.6%, the increased financial services stood at 7.9%. With profitability showcased by the industry the country emphasising considerably Inflation was curtailed to single digit has very definitely helped in improving on the development of tourism with throughout the year, with annual its capital position. The trend is well peace returning, ambitious targets have average inflation in 2010 being 5.9%. exampled in the posting for profits been set by the State although these Inflation, which remained the bane to after tax also reaching its highest in ten are targets the industry believes it can economic growth in the few years prior, years, up from Rs. 27.2 Bn last year to meet given the current buoyant milieu. was stringently controlled during the almost double, to stand at Rs. 57.6 Bn. Already, tourist arrivals reached its last two years and continued to hover highest numbers since 1983, seeing an around the mid-single digit levels Posing a commendable trend, the Gross increase of 46% in arrivals of 654,476 throughout 2010, although weather NPL Volume also saw a dip, with a tourists, compared to 2009. Income related factors and supply disruptions similar trend showcased in the Net from the tourism sector reached a led to increases in prices of some NPL Ratio, which reduced to 3%. noteworthy US$ 576 Mn, a 65% increase selected food items. The Sri Lanka The Gross NPL ratio also reduced from over last year. An arrival target of Rupee has held fast to its stability, 8.5% to 5.3% this year. Gross NPL

007 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Volume stands at Rs. 104 Bn, reduced People's Bank's curve, cognisant to the fact that despite from Rs. 136 Bn last year. This trend is the intense competition we faced doubly important as in the years 2008 Financial Performance within the industry, the partnerships and 2009, NPL ratios saw considerable As you look through this Annual we have nurtured among the people rises and given that this trend has been Report, you will be privy to the Bank’s of Sri Lanka, our accessibility and arrested this year, the industry naturally performance both in quantitative and our unwavering commitment to the saw an improvement of credit quality qualitative perspective, as detailed in objective of being the bank for the permeate. both the Chief Executive Officer/General people, has held us in good stead to Manager’s Review and the rest of the create an enabling environment for our Given the volatility that the banking report which will give you a detailed Bank to grow, in line with the larger industry experienced during various analysis of 2010. However, on a macro vista of national development. periods in the last decade, the monetary note, there are some areas that are authorities periodically instituted a worthy of mention in my message. It is pertinent to note here that the number of initiatives into the industry’s The platform we have worked on in Bank’s Strategic Plan has been aligned framework to ensure sustainability and the last few years has been driven to the Government’s Ten Year Vision, consistency. These regulatory initiatives on delivery quality, customer service the Mahinda Chinthana, which echoes have this year, shown results and have excellence, innovation, productivity and the featured embedded within the UN in fact, set the pace for the future technology readiness. These driving Millennium Development Goals. The consistent performance of the industry. factors had numerous targets detailed Ten Year Vision we strongly believe will in our comprehensive Strategic Plan fast-track the country’s development With the move from Basel I to Basel II, and I’m happy to mention that these journey and we are indeed proud to be there was increased emphasis to objectives have been met according a strong link in attaining the objectives strengthen corporate governance and to the timeline detailed therein. We and targets therein. the risk management framework. were also in a banking milieu that The regulators also implemented brought forth intense competition, This year too, the Bank posted a Bank Resolution Framework and competition built on very high significant performance indicators. established the Sri Lanka Deposit technological platforms and highly Profit after tax is posted at Rs. 5.2 Bn, Insurance Scheme. Aligned to the developed human resources. It is most an increase of 56.8% from last year’s National Development Plan, there was commendable therefore that People’s figure of Rs. 3.3 Bn. Profit before Tax is a concerted effort also made to improve Bank, has successfully removed the reflected at a commendable increase of access to finance. constricting bonds it bore in the past, Rs. 2.7 Bn. compared to Rs. 6.1 Bn and showcased a consistent growth of last year, which was a 44.4%

008 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

(Rs. Bn) Highest Profit before Taxation in Our History increase.8.8 Net Interest Income stood collection policies, which have been noteworthy 11.4 Bn. All numbers are the at a healthy 8.2% growth amounting a consistent factor in our business highest ever recorded in our history. to Rs. 25.9 Bn in 2010, with our asset strategies and is now showing fruition of Our retained profit of Rs. 3.0 Bn is portfolio increasing to a noteworthy these pragmatic initiatives instituted in resultant to the increased capital 15% to Rs. 547.6 Bn, up from last year’s the last few years. reserve of Rs. 20.8 Bn. We also Rs. 476.2 Bn. Compared to the banking continued to be one of the largest industry’s Gross Non-Performing Overall, the Bank recorded a profit contributors to the National Treasury, Loan (NPL) ratio which stands at 5.3%, before tax of Rs. 8.8 Bn compared to providing Rs. 2.1 Bn in special levy, People’s Bank’s NPL remains below this Rs. 6.1 Bn in 2009. Moreover, Group which we envisage being utilised for the average at 5% reflecting our stringent pre-tax profits show an 44.1% increase national development initiatives being risk management, governance and over the previous year, recording a implemented by the State.

009 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Future Direction Strategic Plan, networking us to all embedded in our Strategic Plan which corners of the country and making us was instituted in 2009 and spans a People’s Bank is one that has created for accessible to all strata of the citizenry. period of five years remain firmly in itself a solid relationship with the people Our relationship with our stakeholders sight and are achieved. They’ve been of this country. We are mindful that as spans generations and we are indeed supportive and cooperative in the a State bank we have an unshakeable proud to have partnered individuals, Bank’s modernisation efforts, ensured responsibility to partner the State in corporates and the nation in attaining that technological improvements ensuring development in all parts of the goals. This popularity and being at are effected without delay and taken country, building a sustainable economy the top of the mind recall among the personal ownership for achievement that will eventually uplift the lives and nation was amply reflected in the Bank of goals and targets. They have also lifestyles of each of Sri Lanka’s citizens. winning the People’s Award for the developed a keen sense of national Our responsibility also extends to the fourth consecutive year, significant of responsibility, which is seen in the young people of this country and when the fact that we are firmly ingrained as slew of successful corporate social you observe our product and service a partner in our stakeholders’ future responsibility initiatives the Bank has portfolio, the axiom of ‘cradle to twilight journey. This accolade was further instituted over the years. I am not aware years’ is truly espoused as we partner augmented when our Annual Report was of any material violations of any of the a person right throughout his life span, commended by the US ARC Awards with provisions of the Code of Business ensuring that we construct a solid two Gold medals and by the South Asian Conduct and Ethics of the Bank. foundation for his betterment. Federation of Accountants with a Gold medal, showcasing the Bank’s pragmatic We have also contributed significantly vision to be the best among the best. In Appreciation to the development of the new liberated It also displayed our commitment North and East of the country, instituting to governance, transparency and It has certainly been a year of development initiatives for micro and accountability, all fundamental tenets in achievement but similarly, a year SMEs, entrepreneurs and start up today’s banking milieu. that People’s Bank understood businesses, in order to build a strong and undertook the challenges with foundation of sustainable development None of our successes and confidence, to overcome them and to uplift the economy in those areas. achievements would have been possible deliver the commendable results you In addition, our technology platform if not for the dynamism and unbridled see within the pages of this Annual now remains on par with the prevalent motivation that has been displayed Report. My appreciation to the Secretary banking industry, having implemented by our team. They have unequivocally to the Treasury, Governor of the Central all necessary initiatives in line with our joined hands to ensure that the goals Bank and the officials of the Ministry

010 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

of Finance and Central Bank for their guidance at all times and to the Board of Directors for the support extended to me to be at the helm of this Bank which is surely a leader in the industry. I also extend my thanks to the CEO/ GM, senior management and the team, as well as the employee Trade Unions for their motivation and dynamism in maintaining this Bank as a truly people’s bank despite having to make some very decisive resolutions which though challenging in the short-term, will definitely see positive results for us in the medium to long-term.

W. Karunajeewa Chairman

21st March 2011

Whip Cracker: During the times of the Sinhalese Kings, the Whip Cracker was a herald who pre-informed the people of the arrival of Royalty or persons of high office amongst them, such as Adigars (or Adikarams). This heraldic role is still the preserve of the whip crackers in Sri Lankan Peraheras as the sharp crack of their whips are heard before one actually gets first glimpse of the pageant. 011 People’s Bank | Annual Report 2010 In a perahera, the sound of the cracking whip is heard before one can actually see the pageant. Whip crackers are in reality heralds of what is to come. In much the same way the Bank has adopted an ethic of always pre-informing customers of products and services that are to be introduced.

[Chief Executive Officer/General Manager’s Review]

e’ve seen history being made; we’ve seen paths being etched; we’ve seen W people do the impossible; People’s Bank, has close to five decades been a part of the historical annals of this country, helping to steer the nation and her economy on a trajectory that has today elevated it to the status of a Middle Income Nation. We have partnered the in ensuring that development is far reaching and visionary, where every citizen has choices and options to improve, to grow and to gain upward mobility. This Bank has been a spearhead in creating an empowering environment for our stakeholders, bringing together communities but at the same time steering ourselves to become one of the largest corporate stewards in modern day Sri Lanka.

As we stand on the threshold of completing the golden jubilee of the Bank, I am indeed extremely proud to have witnessed the various chapters that have been written by People’s Bank in the context of our national role and the excellent results we have achieved in all strata. Being at the operational helm of People’s Bank in the last year, I’m honoured to have brought together the competencies of our team, the

014 People’s Bank | Annual Report 2010 Quick Read A resurging economy helped the Bank deliver substantial value to all its stakeholders last year. The Bank’s asset base grew by 15% to reach Rs. 548 Bn; its deposit portfolio grew by 17% to reach Rs. 462 Bn; and net interest income grew by 8%. All these indicators are above the industry average and were achieved in a highly competitive banking environment. Last year, the Bank made contribution of Rs. 9.9 Bn to the Treasury by way of taxes and levies. This is the highest contribution by any banking entity to national development.

management of our resources and Penetrative development plans ensured our impressive financial results this infused governance, ethics and values that unemployment quickly declined, year too are consistent. The Bank’s into our culture. while entrepreneurship via micro and profit before taxation and appropriations small enterprises flourished. The bottom reached its highest level of Rs. 8.8 Bn in up approach for poverty alleviation began the financial year, whilst profit before tax Overview gaining momentum, with the North and for the Group surpassed Rs. 11.4 Bn, East of the country coming into the fray, compared to Rs. 7.9 Bn in 2009. The Sri Lanka posted some commendable contributing to the national economy. Bank’s profit before taxation grew Key Performance Indicators led by an by 44.4% whilst profit after taxation impressive 8% growth in GDP, signifying People’s Bank was a definite driver of recorded an impressive 56.8% growth that the country had definitely put the the economy in this renaissance period. over the previous year. right trusses in place to construct a Sustainable development plans were strong and stable economy. This is mooted, aligned to the Government’s This is despite external as well as the first full year of peace since the development plans and we were at internal challenges which were end to the war in May 2009 and the the helm of partnering the State to managed ably in the year under review. Government’s very astute management ensure a sustainable economy. The of all resources has seen noteworthy Bank’s Strategic Plan for 2009-2014 is Currently possessing the widest results. The Government visionary now in its second year and is on track network of branches and service development plan is on track and in to meeting the targeted objectives, centres, which ensures immense fact was accelerated the moment the embedding the dynamics of our very accessibility and reach around the war ended. This fast tracking of key progressive country, where development country, the Bank’s asset base exceeded development areas ensured that vital will be broad based, empowering and Rs. 547.6 Bn, while the deposit portfolio factors such as infrastructure, strategic truly sustainable. reached Rs. 462.1 Bn. Comparably, growth industries, human resources in 2009, the asset base stood at and control mechanisms were well Rs. 476.2 Bn, while the deposit integrated into the growth trajectory. Financial Performance portfolio notched Rs. 396.2 Bn, which this year shows 15.0% and Sri Lanka elevated herself into a Middle People’s Bank has shown continuous 16.7% growth respectively. Income Category Status country, while and exemplary performance, in profits also seeing key industry drivers including and Balance Sheet growth over the last The Bank’s key deposit, the Rupee agriculture and tourism spiral upwards year. Poised to complete its fiftieth year savings balances recorded a healthy to post best ever results in many years. in the banking industry in Sri Lanka Rs. 32.9 Bn or 20.8% growth over 2009, Development was far reaching, where proudly holding aloft the title of a State which ended at Rs. 191.1 Bn. This was rural economies began gaining a fillip. bank that knows the pulse of the people, a noteworthy achievement considering

015 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

the intense competition and the steep this year was managed at Rs. 6.7 Bn Deposits, Advances yield curve that we experienced. The compared to Rs. 3.9 Bn last year. The Bank has a wide range of deposits and key components contributing to the Treasury loan schemes to suit individuals as well operational costs this year are primarily With rising inflation under control as large and small enterprises. Hence, salaries and related expenses. However, this year, the banking industry gained this extensive portfolio has ensured that despite the challenges, our cost/income new impetus for the deposit base with our Bank is truly being a partner to an ratio now managed at 2009 levels. People’s Bank especially gaining much individual’s growth. Loans and advances ground. Having always espoused close grew by 24.3% over FY 2009. The Bank’s profit before provisions and relationships with the people and taxation reached Rs. 10.6 Bn, a decrease ensuring that we develop products and As at end 2010, net interest income of of Rs. 0.3 Bn compared to last year. We services aligned to their aspirations, our the Bank grew by Rs. 2.0 Bn, to also recorded its highest ever profit deposit portfolio which saw an increase Rs. 25.9 Bn a remarkable 8.2% rise before taxation of Rs. 8.77 Bn in 2010. of 16.7% to Rs. 462.1 Bn. The banking compared to 2009. This was mainly industry’s average stands at an increase due to prudent pricing and expansion The Bank’s capital funds now amount to of 15.9%, which is far below what we in lending. It must be noted that the Rs. 20.8 Bn up from Rs. 17.8 Bn over the have posted. monetary authorities introduced previous year. This was brought about strategic initiatives throughout the year by substantial ploughed back earnings, Current and savings accounts over to ensure inflationary levels remained despite high taxation and returns to GoSL. total deposits closed at 52.7% at end at single digits and the interest regime It should be noted that People’s Bank’s 2010, compared with previous year. was controlled prudently to keep contribution to GoSL by way of taxes and Current account balances closed at a volatility and fluctuations to a minimum. levies increased by 28.6% to reach significant Rs. 40.6 Bn, with the primary Rs. 9.9 Bn compared to Rs. 7.7 Bn in 2009. contributors coming through our Our cost management initiatives were This amount is the highest contribution extensive branch networks. given even more prominence this year to the national treasury made by any to institute prudence into operational entity in the banking industry and Another noteworthy achievement was costs. The Bank has historically had also an amount that we know will the 20.8% growth in our Rupee savings to grapple with high operational costs be ploughed back towards national balances, which ended at Rs. 191.12 Bn but with the infusion of the periodic development, essential for the fast despite intense competition from other Strategic Plans, have been able to tracked development pace we are now commercial banks and term deposit consistently manage the costs in a embarking on. demand driven by high yields. more streamlined manner. Overheads

016 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

(Rs. Bn) Highest Asset Base in Our History

548Rupee Fixed Deposits too infused a fair instituting an attitudinal change and a results with our NPLs remaining well share into our bottom line, recording a transformation in all paradigms that below the average of the banking growth of 19.1%, posted at Rs. 197.8 Bn. had been conventional at the Bank. industry at 5%, while the banking Being a change agent, we infused new industry’s average is 5.3% this year. Our The growth we have experienced systems and processes for a more NPL ratio includes bad loans inherited in all areas has been a result of customer friendly milieu wherein prior to the year 2000, which the Bank our revolutionary transformation granting credit, customer service has now fully provided for. Loans and strategies embedded in the Strategic standards and credit recovery took on a advances grew by 24.32% this year, Plan and Business Plan. This involved new face. This has thus seen exemplary gaining fillip through key growth in loans to most sectors in the country.

017 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

(Rs. Bn) Highest Deposit Base in Our History

46212 million customer accounts, we now Having infused our Core Banking Developments and have 679 branches and service centers Solution into our processes and Achievements and ATMs numbering 330 to make systems, which includes integrating a Having made a firm commitment to banking easier, accessible and user very detailed Management Information lead the country in its accelerated friendly. These progressive customer System, our innovations while being development programme, primed to friendly initiatives, coupled with an pragmatic have insistently improved being consistent and sustainable, we extensive slew of products and services customer service tenets. This year saw focused primarily on increasing our that truly partners a person from the us introduce Internet Banking, Palm Top reach while continuing to strengthen the cradle to their twilight years, has also Banking, the VISA Debit Card and SMS partnerships we have with the people of given us the accolade of having the Banking into our portfolio, strategically the country. With our portfolio of over largest deposit base in the country. placing us among the top banking entities in the country.

018 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Like I stressed earlier on in this review, during the year including a new gift pursued for representation and an we remain very focused on overall scheme to complement Isuru Udana, our overseas co-ordinator being appointed empowerment of the people and very successful infant savings product in to oversee and grow our hence while we have partnered both and the ‘Double Your Value’ product business operations there. the Government and private sector in as an added attraction to our women’s numerous large mega projects, Micro empowerment product Vanitha Vasana. Microfinance, which we consider to and SMEs gained additional focus The Anniversary Savings Certificate and be a primary truss in the sustainable as well this year. A sustainable rural Ascharyaya Savings Certificate were development of the nation’s economy, economy is essential to a country’s two products that were launched to gained further impetus with all our macro development and this economic further augment our low cost deposit microfinance products being extensively focus extended to the newly-liberated mobilisations, the latter coinciding with expanded into all parts of the country. areas of the North and East, where the President’s Induction, signalling a Agriculture and livestock, specifically we opened branches in Kilinochchi, new era of development for the country. took on added momentum given that’s Mankulam, Mulaithivu and Paranthan, it is a thrust area in the Government’s replete with state of the art IT facilities. We have enhanced our Credit Card vision. There was also focus on women’s This integration was further augmented business integrating global innovations development schemes as well as when our Core Banking Systems went and technology into our VISA market, two loan schemes, Awakening the live across 16 branches in the Northern now accessible with 774 POS machines North and dawn of the East, launched Peninsula, positioning as the hub and 679 delivery points across the specifically this year to give more fillip for trade, agriculture and fisheries. island. Given that we have the lowest to development in the North and East. fee structure among card issuing banks Our product portfolio as mentioned in Sri Lanka, the growth of the card These developments have etched the was further streamlined and expanded, business has been phenomenal as we Bank as a progressing empowering based on a more comprehensive have attracted a significant segment entity, one that gives the people of this understanding of customer needs and of the middle income group into our land, irrespective of social or economic aspirations. While adding accessibility customer portfolio. status, the ability to grow, firmly giving and reach via branch, service centre us a market leadership position within and ATM expansion, we infused IT into Similarly our overseas customer the banking fraternity. Hence it is no our operations as well to make banking business grew significantly this year surprise that People’s Bank won the with us easier and more customer with the introduction of Peoples‘- People’s Service Brand of the Year friendly. These initiatives were further Net, our Internet Banking facility 2010 Award presented at the SLIM augmented with product enhancements complemented further with an SMS Nielson People’s Awards for the fifth and new products that were launched alert service, more countries being consecutive year.

019 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Additionally, our immense focus numerous other religious and cultural As we enter a new era, making our way on governance, risk management, festivals, People’s Bank’s ingrained towards bigger and better horizons, I transparency and accountability was sense of stewardship is remarkable. see People’s Bank waiting in anticipation further entrenched with our Annual for an era of technologically driven Report for 2009 winning both local and Being a State Bank, we recognise the banking; an era where customers are international awards. People’s Bank responsibility of being at the helm of discerning and demanding; where quality won two gold medals at the ARC national development and hence, all and service become the overarching Awards held in the United States and our business strategies and objectives rudiments for improvement and where a gold medal from the South Asian are geared to ensure a milieu of a knowledge culture comes into focus. Federation of Accountants. sustainable development across all I do believe that having integrated the stakeholders, which will eventually imperative facets for growing with our permeate macro development. nation into our very foundation, we Corporate are now ready for the developmental revolution which will take the country Stewardship Our Future beyond its vision. We are constructed on a strong foundation of sustainability where are in Focus stakeholders are swathed in a mantle In fifty years, we have been instrumental Appreciations of empowerment and development, in shaping and forming the banking My sincere appreciation to Secretary to fuelled by initiatives introduced and industry in Sri Lanka. And in that the Treasury, Governor of the Central carried through by the Bank. Whether panorama, we have been a national Bank of Sri Lanka, the Monetary and it's in developing entrepreneurs through leader, mandated with creating an Regulatory Boards and officials, the our micro and SME funding schemes, enabling environment for the people Auditor General, the Government Audit or in uplifting education through our of this land to grow and develop. Department for their valuable advice, Sisu Udana Kusalatha Scholarship We have taken the progressive tenets independence, recommendations and programme or whether it's in instilling of the Mahinda Chinthana into our guidance. My thanks are also extended values and traditions and a sense of inner workings, implementing that to the Chairman and Board of Directors understanding of Sri Lanka’s wondrous development agenda as a catalyst for their advice and support to help me culture and heritage through our for change. lead the Bank. partnership of the Dalada Perahera and

020 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

I would also like to extend my sincere thanks to the Correspondent Banks for their continued support and the corporate and executive management and team of People’s Bank in addition to the employee trade unions, who have been instrumental in ensuring that we remain on the planned path and not lose sight of our goals; to all our stakeholders, thank you for being a part of this exciting journey and we look forward to your continued involvement in the years ahead.

N. Vasantha Kumar Acting Chief Executive Officer/ General Manager

21st March 2011

Fire Dancer: Always a dramatic visual aspect of any Perahera, the fire dancer twirls wheels of fire with great dexterity and skill. Usually he performs his routine in a group setting and the interweaving of these masters of the art are truly breathtaking. 021 People’s Bank | Annual Report 2010 Fire in the wrong hands can be dangerous. Each time a fire dancer performs; he is conscious of risk…yet relies in confidence on his training and abilities to circumvent danger and put forth a breathtaking performance with great skill. The People's Bank has decades of experience in discerning and managing risk…to the point where we can fearlessly avail ourselves of opportunity without being over cautious.

[Board of Directors]

Mr. W. Karunajeewa Mr. Anil Parakrama Weerasinghe Mr. D.J.D. Jayakody Mr. W. Karunajeewa assumed duties as Mr. Anil Parakrama Weerasinghe, who Mr. D.J.D. Jayakody was appointed to the Chairman to the People’s Bank Group in holds a Degree in Textile Technology, Directorate of People’s Bank in 2007. He May 2007 and was reappointed in 2010. was appointed to the Board of People’s is also on the Board of People's Leasing He is also the Chairman of People’s Bank in November 2006. Co. Ltd. and People's Finance Co. PLC. Leasing Company Ltd., People’s Leasing He is also a Director of J.P. Weerasinghe Graduated in B.Sc., Public Administration Finance PLC., People’s Fleet Management & Company Ltd. and Silicon Valley and MBA from PIM of Sri Jayewardenepura Ltd., People’s Property Development Ltd. Software Solutions Ltd. University. A Fellow Member of IPFDA and and People’s Insurance Ltd. Member of the Institute of Management He has served in the Board of People’s Prior to this, he served as Chairman and of Sri Lanka. Bank during the period 1996 to 1999. working Director at Employees' Trust He is a former Director of Export Functioned as an Accountant, Chief Fund (ETF) Board and Ceylon Fisheries Development Board and Lanka Cement Internal Auditor, Deputy General Corporation from 2005 and 2001 Company Ltd. Manager and Additional General respectively. Manager. Was a Senior Lecturer in the The Institute of Bankers of Sri Lanka Faculty of Business Studies and Finance recently awarded an Honorary Fellowship at Wayamba University and a Visiting to Mr. Karunajeewa in recognition of Lecturer in University of Colombo for the contribution, commitment and Faculties of Management & Finance outstanding services rendered to the and Graduate Studies. Member of Sri Lanka Banking Industry. NLDB Board of Directors and a Member of National Labour Advisory Council He is also a senior and reputed Ministry of Labour. Served as a Reserve Attorney-at- and holds a B.Com. Assistant Superintendent of . Degree from the University of Ceylon.

024 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Mr. Jehan P. Amaratunga Mr. Ajith Panditharatne Mrs. Lakshmi K. Sangakkara Mr. Jehan Amaratunga is an Associate Mr. Panditharatne was appointed to Mrs. L.K. Sangakkara was appointed Member of The Institute of Chartered the Directorate and to its Associate: to the Board of Directors of People's Accountants of Sri Lanka and was People's Merchant Bank PLC as the Bank in May 2010. She is also the awarded First in Order of Merit Prize at Chairman in June, 2010. He is the current Chairperson of People's Travels the final level examination. Executive Director of Sri Lanka Export (Pvt) Ltd., a fully-owned subsidiary of Development Board and Consultant/ People's Bank, and serves as a Board He has over 24 years of extensive Director (Special Projects) of Globe/ Member of People's Leasing Fleet experience in Finance and Management Monta Group of Companies. He had Management Ltd. and has been a Consultant and Director served on the directorates of National to a large number of corporations and She is an Attorney-at-Law. Paper Corporation as Working Director private entities. He is currently the and subsequently as the Chairman Mrs. Sangakkara served in the Directors Country Head of MTD Walkers PLC during the year 2001, Working Director - Board of Sellers Sportswear Garments, Sri Lanka, overseeing the operations of Lanka Cement Ltd. from January 2002 Ronbro International Garments, and MTD Walkers and its subsidiaries. to April 2004 and Chairman - Paranthan Sun Island Village Holiday Resort. Amongst his many achievements, Chemicals Corporation from October Mrs. Sangakkara has a vast amount he has presented a paper titled 2003 to April 2004. His experience in of experience around 30 years in the "Value for Money Accounting" at the serving directorates counts over 10 years. fields of Law, Management, Marketing, National Conference of The Chartered Hospitality and Apparels. He is also the Chairman of the People's Accountants of Sri Lanka in 1987. He Merchant Finance Co. Ltd., which is a was also a Member of the Governing subsidiary of the People's Merchant Bank Council of The Institute of Chartered and a Director of the People's Leasing Accountants of Sri Lanka. Property Development Ltd., which is a subsidiary of People's Leasing Co. Ltd.

025 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Mrs. Dharma N. Gammampila Miss Visakha Amarasekera Mr. Priyantha Mayadunne Mrs. Dharma N. Gammampila was Miss Amarasekera was appointed to Mr. Priyantha Mayadunne holds a appointed to the Board of Directors of the Directorate of People's Bank in Bachelor's Degree in B.Sc. (Business People's Bank in May 2010. June 2010 as the representative of the Administration), offered by the Treasury, Ministry of Finance & Planning. University of Sri Jayewardenepura Mrs. Gammampila is an Attorney- and a Master of Public Administration at-Law and a registered Company She holds a MA in Development Degree, attained from the Postgraduate Secretary of Sri Lanka and a Economics (2007) from Vanderbilt Institute of Management of University of England and Wales. She counts University, U.S.A., B.Sc. (Hons.) in of Sri Jayewardenepura. He obtained a over 30 years of experience in England Economics and Management (ISE) Bachelor of Law Degree (LLB), offered and Sri Lanka. She was the Company (2002). She is a passed finalist of the by the Open University of Sri Lanka Secretary of Forbes and Walker Ltd. and Chartered Institute of Management and holds a Diploma in Professional Director Legal and HR of the subsidiary Accountants (1999) UK and a Member Diplomacy and World Affairs, obtained companies of the Forbes and Walker of the Institute of Public Finance from the Bandaranaike International Group for well over 10 years. Mrs. Development Accountancy (Sri Lanka). Diplomatic Training Institute. Gammampila also serves as Director in a She is at present attached to the number of private companies. As a SLAS Officer he has gathered Department of Public Enterprises as experience in Regional Administration as an Assistant Director and she also well as in Departmental and Ministerial represents the Treasury at several Level Administration. He has also served State-owned enterprises. in Statutory Institutions on secondment basis. Mr. Mayadunne has been involved in improving productivity and quality assurance in the Public Sector.

026 People’s Bank | Annual Report 2010 Kandyan Dancer: The Kandyan Dancer traces this form of dance to the times of the Kandyan Kings of Sri Lanka. As in many of the art forms in Sri Lanka, powerfully portrays stories of culture and history…the Ramayana…stories from the lives of Kings and heroes…the movements of life and nature. 027 People’s Bank | Annual Report 2010 [Corporate Management]

Mr. H.S. Dharmasiri Mr. N. Vasantha Kumar Mr. Ahamed Sabry Ibrahim CEO/General Manager (Retired w.e.f. 21.02.2011) Acting CEO/General Manager Senior Deputy General Manager - (w.e.f. 22.02.2011) Risk and Compliance Mr. Dharmasiri is a Graduate in Economics with First Class Honours Mr. Vasantha Kumar holds a Master’s Mr. Ibrahim has over 27 years of and Fellow of the Institute of Bankers of Degree in Business Administration and banking experience both locally and Sri Lanka (FIB). He holds a Diploma in counts 32 years experience in Treasury internationally, primarily in the areas Bank Management from the Institute of Management. He joined the People’s of Corporate Banking, Treasury Bankers of Sri Lanka. Bank in March 2001, prior to which he Management and Risk Management. served as Treasurer at ANZ Grindlays He holds an Honours Degree (B.Sc.) He joined the Bank as a Management Bank, Colombo for many years. from University of Colombo and is a Trainee and his experience spans Fellow of the Chartered Institute of over 35 years, in various capacities Mr. Kumar re-engineered the Bank’s Bankers - UK (FCIB). ranging from Branch Manager to Chief Treasury from a relatively support- Executive Officer. oriented service unit to a frontline He is also a Director of People's revenue-earning business segment and Merchant Bank PLC. He has followed study courses relating has significantly enhanced the technical to Banking and Management by AIM expertise and service quality that is (Philippines), AOTS (Japan), NIBM delivered by the Treasury Team. (Pune) and University of Colombia (New York). He served as a Member of He is the past President of the the Governing Board in the Institute of Association of Primary Dealers and of Bankers of Sri Lanka and as a Director the Sri Lanka Forex Association. of Lanka Financial Services Bureau, Director at People’s Leasing Co. Ltd. Credit Information Bureau, Lanka Clear and People’s Travels (Pvt) Ltd. Co. Ltd., National Payment Council and People’s Travels (Pvt) Ltd.

028 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Mr. Deepal Abeysekara Mr. K.U. Pushpakumara Mr. Yohan A. Soza Head of Marketing, Public Affairs and Deputy General Manager/Director Research Head of Finance Corporate Social Responsibility Mr. Pushpakumara is in charge of the Mr. Soza was appointed as Head of Mr. Abeysekara joined the People’s Research Division of the Bank. His Finance of the Bank on 1st May 2007. Bank in March 2001. To date he counts Banking career exceeds three decades He is a Member of The Institute of over 25 years of solid experience in in areas of International and Corporate Chartered Accountants of Sri Lanka Strategic Business Development and Banking, Development Banking, and holds an MBA from the University Marketing of Financial Services. He has Human Resource Management, Branch of Southern Queensland, Australia. been responsible for setting up Sales, Business/ Banking and Information He counts more than 16 years of Marketing and Strategic Business Technology. Development Operations and has experience in the disciplines of Finance, successfully led Corporate Brands to He serves as an Alternate Director of Management Information, Strategic the Institute of Bankers of Sri Lanka Planning and Equity Research. He the top positions in Brand Value. (IBSL) and a Council Member of the received his professional training at Mr. Abeysekara is a Chartered Marketer University of . Ernst & Young before joining Lanka and a Fellow of the Chartered Institute ORIX Factors Ltd. (LOLC Group) and He is a member of the Chartered of Marketing - UK, a Member of the most recently served AMBA Research Management Institute - UK, the Institute Chartered Management Institute (CMI) - Lanka (Pvt) Ltd. as Vice-President. of Management - Sri Lanka, the UK and a Certified Member (CMA) of Association of Professional Bankers of Mr. Soza is a Director of People’s the Institute of Certified Management Sri Lanka. Leasing Company and People’s Leasing Accountants. He holds an MBA from Havelock Property Company. the University of Southern Queensland, He obtained BA (Hons.) in mathematics Australia. from the and MBA from the University of Colombo and He is a Council Member of the Association of Professional Bankers. Diploma in International Trade as well.

029 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Dr. Nihal Ranjith Jayathilake Mr. Lionel Chandrasiri Ms. M.S. Arsacularatne Deputy General Manager - Retail Banking Deputy General Manager - Deputy General Manager - Credit Control Human Resources Dr. Jayathilake oversees all Liability Ms. Arsacularatne joined the Bank’s Products, Pawning and Card business Mr. Chandrasiri counts 31 years of service at Grade II level as a Finance (Credit/Debit) that are foremost- experience at the People’s Bank. He Officer and counts over 25 years service targeted business sectors of paramount joined the Bank in the capacity of a in the Bank. importance to the Bank. Finance Officer and got integrated to the She has been an Associate Member of main stream banking functions. After graduating in Economics and the Chartered Institute of Management Anthropology, he obtained MA and PhD During his period of service with the Accountants - UK for the past 29 years Degrees in Mass Communication from People’s Bank, he has held responsible and a Fellow Member of the Institute of Sri Jayewardenepura University. positions in the capacity of Budgetary Certified Management Accountants - Control Officer, Chief Executive Officer Sri Lanka and a Licentiate of The Institute He is a member of Professional Bankers (National Development Trust Fund), of Chartered Accountants of Sri Lanka. Association and several Academic Bodies. Personal Assistant to the CEO/General She holds a Bachelor of Laws Degree He was the Pioneer Editor of ‘Bankuwai Manager and Assistant General from the Open University of Sri Lanka. Obai’, ‘Bankupuwath’ and ‘Videshika’. He Manager (Offshore Banking). She has gained wide experience in wrote 'Yuga Mehewara’ on the history He is a finalist of the Institute of the fields of Management/Financial of the Bank and has authored several Administrative Accounting - UK and Accounting, Management Information, novels, short-story books and text books. possesses part qualification from the Administration and Logistics. Prior to He has gained overseas training in Chartered Institute of Management joining the Bank she had her career Marketing, Retail Banking, Branch Accountants (CIMA) in UK. training at Ceylon Ceramics Corporation Operations and Card business. and served three State Institutions as Accountant.

030 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Mr. G.G.C. Ariyaratne Mr. T.A. Ariyapala Ms. Chandani Werapitiya Deputy General Manager - Operations Deputy General Manager - Deputy General Manager - Corporate and Co-operative and Development International Banking Mr. Ariyaratne, is in charge of the branch network. He is a well Mr. Ariyapala is a B.Sc. Business Ms. Chandani Werapitiya is in charge experienced banker counting 34 years Administration Graduate and Degree of the Corporate and International of service at People’s Bank. He holds in Bachelor of Laws with an Attorney- Banking Division including Offshore a Degree (B.Sc.) in Public Finance and at-Law. He is a Fellow Member of Banking Unit. the Institute of Bankers of Sri Lanka Taxation from the University of Colombo She holds a B.Sc. in Business (FIBSL) and an Associate Member of the and also an Associate Member of the Administration (Hons.) with a Institute of Accounting Technicians of Institute of Bankers of Sri Lanka. Second Class Upper and M.Sc. Sri Lanka (MAAT). During his period of service he has (Management) from the University served in various capacities ranging from His career experience over 32 years at of Sri Jayewardenepura and has Branch Manager to his current position. the levels of Branch Manager, Assistant professional banking qualification He has wide experience from working in Regional Manager, Regional Manager, AIB - Sri Lanka. different levels in different areas of the Zonal Assistant General Manager and She is a Member of the Board of Island. He is specialised in the areas of Deputy General Manager. Directors of RDB Bank and Sri Lanka Branch Banking & Project Financing and He has received extensive local and Handicrafts Board. also has obtained overseas training for overseas training and exposure in co- She joined the Bank in June 1987 as a Project Financing. operative, Project Lending, Microfinance, Management Trainee and counts nearly Human Resource Management and 23 years of experience in the fields Branch Business/Banking. of Customer Services, SME/Project Presently, Mr. Ariyapala is in charge of the Lending, Branch Operations, Corporate Co-operative and Development Banking. Banking and Credit Management.

031 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Mr. S.A.R.S. Samaraweera Mr. K.B. Rajapakse Mr. Rohan Pathirage Deputy General Manager - Recoveries Deputy General Manager - Domestic Credit Deputy General Manager - Secretary to the Board of Directors Mr. Samaraweera is incharge of the Mr. Rajapakse is in charge of Domestic Recoveries Division. Mr. Samaraweera Credit Department. He joined the Bank Mr. Pathirage was appointed as joined the Bank in 1987 as a Management in 1987 as a Management Trainee and Secretary to the Board of Directors in Trainee and counts over 23 years of counts 23 years of experience in the August 2010. He is also the Company service in the areas of Branch Banking, People’s Bank. Secretary of People's Leasing Corporate Banking, Development Company Ltd., People's Fleet He holds a Second Class Honours Banking and Credit Recoveries. Management Ltd., People's Property Degree (B.Sc.) in Public Administration, Development Ltd., People's Insurance He holds a Second Class Honours Associate of Institute of Bankers of Ltd. and People's Travels (Pvt) Ltd. Degree (B.Sc.) in Management from the Sri Lanka, Attorney-at-Law of Sri Lanka University of Sri Jayewardenepura and and Diploma of the Institute of Credit Mr. Pathirage is an Attorney-at-Law has a professional banking qualification Management of Sri Lanka. and holds a Degree in Law from the AIB - Sri Lanka. University of Colombo, Postgraduate During his career experience of 23 Diploma in Banking and Master of During his banking career, he has years, covers the areas of Branch Management in Banking from Massey also followed various exposure Business Banking, Corporate and University - New Zealand. He has over programmes including Management Institutional Banking at the levels of 15 year's experience in the Bank. Development Programme conducted Branch Manager, Regional Manager, by Administrative Staff College in India Zonal Assistant General Manager and and Creative Leadership Development now in credit functions of the Bank. Programme in Belgium. He serves as an Alternate Director of the Credit Information Bureau.

032 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Ms. Nandanie Thilakarathne Mr. Sobitha Weerasekera Ms. G.P.R. Jayasinghe Acting Chief Internal Auditor Acting Head of Information Technology Acting Deputy General Manager - Services Ms. Nandanie Thilakarathne was Mr. Sobitha Weerasekera joined Ms. Renuka Jayasinghe counts over appointed as the Head of the Internal People’s Bank in 2007 and was 23 years of service at the People’s Audit and the Domestic Branch Audit appointed as Acting Head of Information Bank. She joined the Bank in 1987 as Divisions since August 2010. Technology in September 2010. a Management Trainee and has served the Bank in Pelmadulla, Hanwella and She is an Associate Member of The Mr. Weerasekera has over 23 years of Awissawella branches as Manager in Institute of Chartered Accountants experience in the Banking Sector. Apart Eheliyagoda and Hanwella branches, of Sri Lanka and holds a Second from his vast exposure on banking Zonal Senior Manager (WZ-I), Regional Class Honours Degree (B.Sc. Mgt.) ICT area he holds an MBA from the Manager (Kalutara), Assistant General in Business Administration from the Postgraduate Institute of Management Manager (Services) prior to accepting University of Sri Jayewardenepura. (PIM), University of Sri Jayewardenepura, the post of Acting Deputy General She is an Associate Member of the MSc in Information Management from Manager (Services). Institute of Bankers of Sri Lanka. Sri Lanka Institute of Information She holds the Diploma in Information Technology, MACS and Professional She is in charge of the Supplies, Systems Security Control and Audit Banking (ACBF). Engineering Services, Maintenance, conducted by The Institute of Chartered Printing, Transport and Security Mr. Weerasekera represents People’s Accountants of Sri Lanka with the Departments. Bank in various Technical Evaluation technical collaboration of the Institute Committees (TEC) which includes She holds a First Class Honours Degree of Chartered Accountants of India. National Payment Council of CBSL, in B.Com from the University of Sri She joined the Bank in March 1990 as Common Anti-Money Laundering TEC, Jayewardenepura and has a professional an Assistant Finance Officer and counts Common ATM Switch TEC, Banking banking qualification AIB - Sri Lanka. nearly 21 years of experience in the field Technical Advisory Committee and as She is a Life Member of Association of of Project Lending and Auditing. Vice-Chairman of SWIFT user Group. Professional Bankers of Sri Lanka and Institute of Bankers of Sri Lanka.

033 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Ms. G. Ekanayake Acting Chief Law Officer Ms. Gnana Ekanayake is an Attorney-at- Law and also holds a LLB Degree from the University of Colombo.

She holds a LLM Degree from University of Wales, two Diplomas in International Trade Law, Banking and Insurance and Final .

She commenced her career as a Professional Assistant at M/s Wijesinghe & Jayasekera and De Silva & Gurusinghe, Law firms. She joined Sri Lanka Sugar Corporation as a Legal Officer.

Subsequently, she joined the People’s Bank in 1985 and worked in , Matara, Colombo Outer Regions, Corporate Banking Division and presently attached to the Head Office.

Her experience covers the areas of Banking Law, Credit, Recoveries, and .

034 People’s Bank | Annual Report 2010 Hewisi: A Hewisi performance consists usually of a group who perform on the ‘Daula’, a percussion instrument having its origins in the Sabaragamuwa region, the ‘Thammattama’ or twin drum, with the heads of different sizes and played with specially shaped sticks curved at the striking end and finally the ‘Horanewa’, a wooden wind instrument that accompanies the rhythm of most traditional drum varieties. 035 People’s Bank | Annual Report 2010 [Executive Management]

Mr. W.D. Dayananda Mr. Clive Fonseka Mr. S. Wanniarachchi Assistant General Manager - Deputy Head of Treasury Assistant General Manager - Overseas Customer Services Offshore Banking

Mr. G.B.R.P. Gunawardena Ms. S. Prathapasinghe Mr. Jayantha Newunhella Assistant General Manager - Assistant General Manager - Assistant General Manager - Treasury Unit - Back Office Corporate Banking Division Trade Finance - Corporate Banking Division

036 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Mr. R.M.S.B. Ratnayake Mr. G. Lionel Ms. S.W.A.D.S. Kalyani Assistant General Manager - Assistant General Manager - Assistant General Manager - Personal Banking Recoveries - Corporate Banking Division Finance and Management Accounting

Mr. H.C. Fernando Mr. W.K.S.B. Nandana Mr. A.W. Wipulaguna Assistant General Manager - Deputy Chief Law Officer - Deputy Chief Law Officer - Human Resources Recoveries - Special Assets Unit Operations

037 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Ms. G.M.R.P. Wijeratne Mr. E.A.D.J. Priyashantha Mr. N.G. Dissanayake Deputy Head of Primary Dealer Unit - Deputy Chief Internal Auditor Assistant General Manager - Treasury Audit/Domestic Branches

Ms. N.C. Mudalige Ms. A.S. Liyanaarachchi Ms. P.R. Madurawela Assistant General Manager - Assistant General Manager - Assistant General Manager - Branch Operations Corporate Banking Division - Credit Control Credit Unit III

038 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Ms. V.K. Narangoda Assistant General Manager - Corporate Banking Division - Credit Unit I

Salu Paliya: The Salu Paliya or Shawl Dance is a comic routine used within a ritual of exorcism and derives from the South of Sri Lanka. The dancer wears a highly colourful and garish ‘yakka vesmuhuna’ or devil's mask and performs his routine to rhythmic drum beats. In build and movement, the dancer cuts a comic figure, cracking jokes with onlookers.

039 People’s Bank | Annual Report 2010 [Zonal Management]

Mr. B. Sirisena Mr. P.M. Dharmapriya Mr. S.A. De Seram Zonal Assistant General Manager - Zonal Assistant General Manager - Zonal Assistant General Manager - Wayamba Zone (Retired w.e.f. 03.01.2011) North Central Zone Western Zone II

Mr. P.C. Wijesundara Mr. R. Ranathunga Mr. M.A.B. Silva Zonal Assistant General Manager - Zonal Assistant General Manager - Zonal Assistant General Manager - Sabaragamuwa Zone Southern Zone Western Zone I

040 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Mr. B.M. Premanath Zonal Assistant General Manager - Central Zone

Thelme: Thelme Dancers are usually dressed in vibrant orange, yellow and white and their routine is a demanding mix of precise hand movement and meticulously kept rhythm. The dance builds up to a dramatic climax of tempo and twirling bodies at speeds that make them just a blur of colour. 041 People’s Bank | Annual Report 2010 The flickering flames of the torch have shed light on many aspects of our country’s key events over centuries. Even the advent of new technology hasn’t quite displaced the fiery splendour of the torch. Illumining the way is something the Bank not only understands well, but has been diligently applying within its enterprise…People's Bank has provided a Lighted Path for the people of Sri Lanka for generations…and continues to do so. There is also a transparency to everything the Bank does…no opacity with which to cloud enterprise!

[Business Review]

he Bank that is truly the extensive infrastructure development, paving the path to social equality, Pulse of the People now empowerment of the people and a tolerance and a new era of prosperity stands on the threshold of large contribution from the rural into an area that has for long seen its itsT golden anniversary. Established economy into the national economy. economic and social fabric torn apart. on 1st July 1961, at a time when the This then permeates to overall national banking industry was primarily servicing development. The 49th anniversary was marked with the upper echelons of the country, the participation of the Bank's 10,000 People's Bank from inception, worked One of the pioneers in extending plus team and many customers across on the premise of being a true bank capital and loan funding for not only the island in numerous activities, also for the people. Opening its doors to all mega projects but also micro, small symbolic of the strong relationships the segments of society and reward the and medium entrepreneurs, today Bank has nurtured over decades. 'English Only' culture prevalent at that we have created a firm foundation for time, People's Bank ushered in a new village and rural development, funding People's Bank will continue to era to banking by serving all citizens agricultural, dairy, entrepreneurial and epitomise its ethos of being the pulse of Sri Lanka in whatever language they small business ventures as a means of the people, being a partner in every were comfortable in, be it English, of empowering rural communities. citizen's journey towards prosperity, Sinhala or Tamil. While creating a sustainable rural while creating an enabling environment economy remains a primary focus, for this prosperity to permeate across Having seen the potential available overall business growth is further the entire country, encouraging macro in the country, People's Bank began driven through People's Bank's service economic development built on a truly making inroads via its branch network to both the Corporate and Government sustainable foundation. to become a strong partner in the Sectors, which is amply supported by lives of the Sri Lankan people. Of the professionalism and specialities acquired population of close to 21 million in the through decades of experience. Personal Banking country, our Bank has a total of 12 Mn customer accounts transacting business This is further emphasised with the Ours is a diverse mix of products that are daily through 679 branches and service Bank’s commitment to ensuring overall designed to meet needs and aspirations centres and proudly holds the title of development when it opened thirty of the nation. The reward of People’s possessing the largest branch network branches in the North and East of the Bank is truly reflected in our portfolio of among its counterparts. country, which included fully-fledged products. These encompass every stage branches in Kilinochchi, Mankulam of life of our customers, nurtured from From its early days, the Bank was also and Paranthan complete with cradle to their twilight years. a firm proponent of uplifting the rural state-of-the-art IT facilities. Based on Our products and services extend from economy, an imperative that cascades to this sound platform of encouraging savings to credit cards, fixed and term better livelihoods, developing lifestyles, economic sustainability, we are also deposits to current accounts ensuring

044 People’s Bank | Annual Report 2010 Quick Read With 13 Mn customer accounts, 679 branches and service centres, and 330 ATMs, the Bank is one of the most accessible financial institutions in the country. During the past year, the Bank continued to provide a diverse range of financial products to its diverse customers. It has specially-tailored products for children; youth; professionals, women; farmers; small industrialists and the senior citizens. It has been one of the leading sources of finance for some of the large state- owned utilities while providing trade finance and other facilities to other corporates. The Bank has focused on creating a sustainable rural economy and has special products for the small industrialist and the farmer. Special attention has been paid to the former conflict areas in the North and East with a view to facilitating recovery in those areas. The Treasury had a particularly good year with the debt trading and Treasury Bills portfolio bringing in good returns. The Bank’s IT systems are constantly being enhanced and last year a new Core Banking system was installed in 551 of the branches and services centres.

that our customers are serviced as The relationship with People’s Bank and home making, which was further envisaged in our mission of providing begins at the cradle for our customers, complemented with the ‘Double Your excellent customer service responsively, with the product cycle starting with the Value’ scheme, which contributed efficiently and professionally. Building infant savings product Isuru Udana. significantly towards increasing deposits. long term strong partnerships, we have Our most successful student oriented over the years grown to focus on being product that has over two million The Mahinda Chinthana, which was responsive to our customer needs and children as customers, Sisu Udana conceptualised on the UN Millennium being proactive to meet their aspirations. follows. These two products are Development Goals, gives immense conceptualised to reach beyond emphasis to agriculture in order to We have consistently remained atop the conventional banking ethos by ensure food sustainability in Sri Lanka. in ensuring increased reach and integrating social and cultural facets Being a bank that is truly the pulse penetration. We have expanded our into a knowledge gaining culture among of the people, our product that’s network to a total of 679 new branches the future citizenry of the country. We specifically designed to develop the and service centres, while increasing also launched a new gift scheme this agricultural industry, the Harvest the number of ATMs to 330. This year to enhance product value in these (Aswenna) savings account, was ensures that while our product and two products, giving parents, guardians launched in 2007 and continues to delivery points remain accessible to a and children the opportunity of selecting enfold farmers to save and ensure larger number of people in the country, a gift of their choice as their account prudency and sustainability in their our brand visibility and penetration also balance increases. money management. improves in tandem. Next is our unique product YES We launched the Anniversary Savings With the launch of our detailed for the young executive and young Certificate which enabled us to mobilise Management Information System entrepreneur, empowering these young deposits exceeding targets convincingly (MIS) this year, we have now firmly people with financial mobility to map through our island-wide branch network. etched the path of innovation more out their future path, while enhancing strongly, enhancing our personal their quality of life. The Ascharyaya Savings Certificate banking features. This now adds to our was introduced with the objective constantly improving customer service Vanitha Vasana, launched in 1995 to of mobilising low cost deposits and tenets, which include Internet Banking, commemorate International Women’s increasing national savings aligned Palm Top Banking, Debit Card and SMS Day recognises the catalytic role women with the Government’s development Banking, all pivotal products that have play in buoying the national economy. programmes. The launch included enhanced our accessibility, penetration At the annual ceremony, women are 24 walks organised at regional level and the futuristic style of Banking we felicitated for the unique roles they with the participation of the Bank’s aim to improve upon to ensure our play in society including unassuming team as well as corporate and executive market leadership. leadership, astute money management management, Directors and the

045 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

The ‘Jaya Nivasa’ housing loan helps you build your dream home with convenience, providing flexible loan facilities with competitive interest rates to suit your individual needs. Loans can be obtained to purchase land, build a house or to add an extension or renovate a house. The loan schemes grant a six month grace period, with loans offered up to 75% of the value of the property etc.

Specially-designed for children whose parents/guardians are employed in foreign countries, the Doo Daru Ethera Isura Minor Accounts come with an extra 1% added to the prevailing interest rates for NRFC/RFC Accounts. The savings account can be opened with a minimum deposit of US$ 25 or equivalent in any designated foreign currency, while a fixed deposit can be opened with a minimum balance of US$ 1,000 or equivalent in any designated foreign currency.

The gold pawning scheme of People’s Bank, Swarna Pradeepa provides the best value for gold at competitive interest rates for your urgent cash requirements. The scheme, backed by a confidential and personalised service through our island-wide branch network, provides both safety and security through the 679 branches and service centres of the People’s Bank.

The ‘Ethera Isura’ NRFC account secures higher interest for your foreign earnings, and is also the fastest way to receive money from abroad through the islandwide network of 679 branches and service centres of People’s Bank.

‘Harvest’ has been exclusively designed for farmers who receive a seasonal income. An account can be opened with an initial deposit of Rs. 1,000/- and account holders are entitled to 1% bonus interest when the balance exceeds Rs. 10,000/-. Concessionary interest rates are granted to cash-backed facilities and ‘Harvest’ account holders receive priority for agriculture loans.

Available in denominations of Rs. 500/- and Rs. 1,000/-, the People’s Gift Voucher can be purchased and deposited for any account at any branch. Valid for 6 months from the date of issue, Gift Vouchers make the ideal gift for important ceremonies such as birthdays, weaning ceremonies, coming of age ceremonies and weddings of your loved ones, friends or relatives.

046 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

A savings scheme designed for children from birth up to five years of age, where an account can be opened with Rs. 100/-. The unique 'Isuru Udana' gift certificate, in denominations of Rs. 200/- and Rs. 500/-, is also an ideal gift for any child. These gift certificates can be used to open a new 'Isuru Udana' account or be credited to an existing 'Isuru Udana' account. The account offers an attractive interest rate above the normal savings rate and exciting gifts.

An account, tailor-made for the future generations of our country, between 6-18 years of age. With just Rs. 100/- you can open a ‘Sisu Udana’ account, which offers exciting gifts and special cash awards. Through the ‘Sisu Udana Vishistayo’ and ‘Udana Kusalatha Pranama’ schemes, the Bank rewards and encourages children’s academic and extracurricular excellence. Additionally the ‘Sisu Udana’ account will be automatically converted to a YES account once the account holder reaches 18 years.

Designed for young adults of 18 years and above who are ready to take on the challenge of life. The account can be opened with a deposit of Rs. 2,000/- and offers free standing orders, credit card facilities, leasing facilities, 1% bonus interest when balance exceeds Rs. 25,000/- and loan facilities for the purpose of housing, purchasing a vehicle, higher education, etc.

A savings scheme exclusively designed for the woman of today who plays multiple roles in life. A ‘Vanitha Vasana’ account can be opened with an initial deposit of Rs. 500/- and offers self-employment loans as well as financial assistance to fulfil the dreams of women, such as buying property, building a house, weddings and children’s higher education. An attractive interest rate above the normal savings rate is also on offer for the ‘Vanitha Vasana’ account.

The 'Parnitha’ account is People’s Bank tailor-made product for the senior citizens of today. A range of attractive benefits specially designed for this segment can be enjoyed by opening a 'Parnitha' savings account for just Rs. 500/-. With 'Parnitha' your life begins at 55.

The perfect savings scheme for the salaried, self-employed and professionals with a steady monthly income, who have set their sights on a successful future. A 'JanaJaya’ account can be opened with a minimum deposit of Rs. 2,000/- and offers special loan and leasing facilities, concessionary rates for overseas travel and attractive interest rates above the normal savings rate.

047 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Chairman. The campaign raked in a total of 679 delivery points through marketability of POS terminals, while Rs. 4.6 Bn which was the highest our branch network, supported by over pursuing EMV compatibility to spur achieved amongst our State banking 10 million customers to strengthen growth in this area of business. peers. This was supported with a host of the growth of this product. The value other activities that coincided with the additions introduced include bundling Overseas Customer President’s Induction signalling a new of complimentary products and services Services and strong direction for both the country and an unmatched personalised service. This Division is the axis upon which and the people. Due to the Bank having the lowest our remittances and foreign currency deposits revolve. Overseas Customer Swarna Pradeepa, our pawning product fee structure among the card issuing Services continued to enhance levels has continued to instil the confidence of banks in the country, we have attracted of service excellence which had a our customers due to its solid platform the middle income groups and hence remarkable impact on the profitability of understanding and confidentiality. seen growth in our credit card base and growth of the business portfolio. The continued success of our pawning which has been a significant trait in our Modern technology initiatives, innovative portfolio which saw considerable growth market penetration. marketing strategies and constant this year as well, is due to this constant product enhancements together with interaction we have with our customers. Our Core Banking Solutions have added to the positives in this endeavour, with continuous relationship building efforts added competitive advantage to growing The twilight years are further enhanced payments being credited speedily and our business. We also continued with Parinatha, which encompasses senior timely responsiveness resulting in a our relationship building efforts citizens. Re-launched last year with a host rapid reduction in cardholders’ attrition with overseas banks and exchange of added benefits, we also introduced the and complaints. Linking our ATM companies, while ensuring that skilled added bonus of a pilgrimage to India for network to VISA interchange has given representatives are on location to liaise 25 selected customers. us extended accessibility, while a 24 - hour service desk monitoring with these partners as well as the online transactions has assisted us in Sri Lankan expatriate customers. Credit Card Business ensuring a risk-free product, which has Launched over 15 years ago, the been an additional advantage. We are extremely proud to have People’s Bank Credit Card which introduced ‘People’s-net’ this year, our is aligned to VISA has continued to We have added modern innovations Internet Banking Facility which now takes grow, but modestly. With its host such as the SMS alert message service, the Bank into yet another innovative of globally-designed innovations, the expansion of our merchant network, delivery channel. The service facilitates modern technology, access and an ever facilitated POS terminals with other customers and Vostro agents to view expanding network of merchant outlets renowned brands like Master and AMEX their statements online, and allows our with over 774 POS machines, we use to enhance network compatibility and representatives to verify transaction

048 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

(Rs. Bn) Highest Loans and Advances base in Our History

372information to respond to customers’ accessibility are permeated to both are the three countries that are in focus queries, efficiently and speedily. rural and urban areas. In fact, branches as they have an equally high potential which displayed significant growth in for inward remittances as well as for Yet another innovation launched this the Western Union payment portfolio by short- and long-term deposits. In year is the SMS Alert Service as a value achieving the forecasted targets were addition, we appointed a Co-ordinator addition for our remittance service, recognised and rewarded. for one of our correspondent banks in alerting beneficiaries when their inward Italy in order to grow our remittance remittances are being processed at OCS. Several additional initiatives continued market share there, as we observe a to be infused this year too in order trend of high-value remittances. Payment locations for Western Union to establish more correspondent This objective is ably supported by our were further strengthened during arrangements in locations that have new remittance scheme, Lak Isura. the year, using our expansive branch a high concentration of Sri Lankan network to ensure that penetration and expatriates. Australia, UAE and Qatar

049 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Corporate Banking at Kalpitiya and financing the Coal and skills with constant training and shipments for the Norochcholai Coal development which increase efficiency, Growth momentum continued Power Project. speedy response and productivity, this successfully this year with corporate remains the competitive edge that banking contributing a significant profit Local and international mega we possess in growing our business margin to the Bank’s bottom line. This infrastructure projects were directly portfolio. Trade Finance solutions division remains responsible to cater to supported with the expertise of are supported by a large network of the exclusive requirements of corporate, syndication, advisory and other related correspondent banks spanning over international and government entities entails. The Bank also assisted a 110 countries around the world. and has successfully excelled in its number of private sector organisations efforts by continuously improving to venture into international Based on the vision of being the best core competencies with unmatched infrastructure development projects, corporate banking service provider of the professionalism and experience, while minimising the risks inherent country, the Trade Services Department commitment, a thirst for new in such businesses. The Corporate will strongly continue to focus on both knowledge and enthusiasm for positive Banking Division is now planning to export and import related business change which has been the key to delve into direct financing of mega while addressing specific requirements overcoming aggressive competition. infrastructure projects promoted by pertinent to the relevant industries. local entrepreneurs, on behalf of the Having noted the urgent need to reinforce People’s Bank continues to be the Sri Lankan Government. the export sector, especially in the largest funding source for the State Western Province, a nation-wide export sector especially the large-State-owned Always mindful that the selection of development drive has been undertaken utilities including the Ceylon Electricity strategic sectors which are crucial through our extensive branch network, Board (CEB), Ceylon Petroleum growth facets to the economy, the Bank to facilitate trade finance requirements. Corporation (CPC) and fertiliser is attuned to creating an investor- Despite the main operations being companies. We are also the exclusive friendly milieu, in order to ensure macro centralised in Colombo, the Bank has funding avenue for the Sri Lanka Air growth in all aspects of the economy. already begun decentralising operations Force and , while through Regional Offices taking the strategically maintaining a balance in Trade Services Bank’s trade finance solutions to more the overall exposure of the Bank. The SME customers. Spanning over 110 countries around Broadland Hydro power project at Ihala- the world, the Bank’s Trade Finance Kotmale was exclusively financed by We are also proud that our SWIFT Department has truly added value the Bank, in addition to equity financing operations, one of the largest among to import and export industries. for the first-ever Wind Power Project commercial banks, continue its Continually improving staff knowledge

050 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

unmatched efficiencies to service Development and mobilised mature groups. This the needs of both government and was instrumental in attracting a private sectors. Micro Finance Banking considerable number of people who On the eve of celebrating its golden were not hitherto associated with Off-Shore Banking Unit anniversary having been established in the banking system and instilling the (OBU) 1961, People’s Bank has taken its role of savings culture among low-income strengthening the rural economy to be earners through the promotion of Specialised in providing innovative a sustainable contributor to the national micro savings. financial services to export-oriented economy very seriously. With our roots businesses, BOI companies and off- Implementation of commercialised based in the co-operative movement, we ∙ shore ventures, this year the OBU micro finance loan schemes have continued to focus on development relocated to the Head Office building Loans of about Rs. 4 Bn were granted and micro finance banking. Catering to augment its efficiency levels. While against relaxed securities and to the micro, small and medium contributing significantly to the Bank’s concessionary rates of interest via entrepreneurs through varied bottom line, the OBU was also directly the New People’s Fast Loan Scheme, funding avenues, the Bank has been responsible for the Bank’s large creating a new band of micro- instrumental in significant development portfolio of foreign exchange earnings. entrepreneurs across the country. initiatives in agriculture, small industry, services and trade sectors. This year Unlike the domestic sector, the global Loan facilities for liquid milk the Bank was very emphatic in mooting ∙ financial crisis had severe impact on our production and agriculture the anticipated renaissance in the North OBU clientele, as did the elimination of and the East of the country. While a large number of loans were the GSP+ concessions. Many industries, granted to develop the production of especially the apparel industry, saw Implementation of loan schemes ∙ liquid milk products and development closure and downsizing due to drastic targeting the less economically abled of agro-industries, a number of reduction in demand and decrease of The Poverty Alleviation Micro credit facilities were also granted to a markets. Prudent banking practices Finance Project Loan programme substantial number of farmers under and customised off-shore financial Prabodhini targeting families in the New Comprehensive Rural Credit solutions prevented the closure of many the lower income brackets, under Scheme, Pledge Loans for purchase businesses with a high probability of the aegis of the Central Bank of of Paddy and Agro Livestock failure. Accolades for these positives Sri Lanka, is aimed at creating Development Loans. Our contribution should be extended to excellent sustainable fixed income avenues towards agricultural development knowledge and skill levels displayed by for this segment of society. Using was further augmented with the the OBU team. the Group methodology, targeted Bank’s presence at Vap Festivals in groups were reached and loan various parts of the island. facilities were disbursed to socially

051 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

By motivating the farmer to Scheme were two such schemes. Scheme. The Bank was also actively increase his produce and sell paddy We observe a marked increase in involved in the Sabaragamuwa at reasonable prices due to the these women’s productivity levels Provincial Integrated Rural provisioning of credit facilities by the and as a result an improvement in Development and Dasuna Loan Bank, the Yala and Maha seasons their goods and services, due to the Schemes aimed at resuscitating and in 2010 proved to be successful. We relaxed securities for credit facilities developing existing industries. are also a part of the Central Bank required under these loan schemes. of Sri Lanka’s loan scheme Viskam, ∙ Implementation of environmentally aimed at developing agriculture and ∙ Implementation of loan schemes for friendly solutions loan schemes agro-based industries, which will be development of the North and the East With one of its CSR tenets being further improved next year with a Awakening the North and Dawn environmental preservation, the wider base in loan facilities. of the East, the loan schemes at Bank introduced the Environmentally specifically aimed at developing Friendly Solutions Loan Scheme ∙ Loan schemes with credit the North and the East were under the auspices of National guarantee coverage implemented in 2010, have made Development Bank, to assist A credit guarantee scheme under phenomenal contributions to enterprises with low-cost funds, the auspices of the Central Bank the objectives of improving the in creating businesses that are of Sri Lanka was introduced during development levels in these two environmentally friendly and will the latter part of this year aimed at areas. We have also taken steps remain sustainably so. farmers who are unable to establish to rehabilitate enterprises in the title to the lands they cultivate in. Kilinochchi and Mulaitivu Districts ∙ Developing the Co-operative The Districts coming under this with the introduction of customised Movement scheme are Kilinochchi, Mulaitivu loan schemes specifically for these Having been the spearhead for the and Mannar. two Districts, aimed at medium- establishment of Co-op City and Mini scale entrepreneurs. Co-op City under the Government’s ∙ Loan schemes for women umbrella of revitalising the Various credit programmes aimed at ∙ Implementation of loan schemes for Co-operative commercial arm, provincial development empowering women and giving them these supermarkets now provide chances to contribute quantitatively Provincial development also came unsurpassed qualitative services and qualitatively to the economy into focus this year, with the Bank and top-of-the range merchandise were introduced. The Vanitha extending credit facilities to micro at competitive prices, routing Navodaya Loan Scheme and the and SME enterprises under the challenges posed by private Central Bank sponsored Bhagya Loan Provincial Loan Development enterprises in the open market.

052 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

People’s Bank has made a singular across the island, in support of the branch network and the Corporate contribution in fortifying the co- Government’s development programme, Banking division, come under the operative movement by provisioning ‘Kiri Ithirena Hetak’ (A Prosperous scrutiny of a high-level committee, funds for training and development Tomorrow). The Resource Centres, which also monitors and reviews of co-operative employees, in which will utilise modern technology progress of each sector. Extensive addition to measures taken to to further its objectives, will supply training programmes and workshops revitalise the movement and to high-quality cattle to promote breeding are also planned to equip the Bank with ameliorate relations with the Bank. farms, while also adding a humane competent Credit Appraisal Officers who facet to its operations by saving cattle will function as the conduit to customer People’s Bank Micro due for slaughter and introducing them relationship building. Finance Villages into available farming programmes. One of the special functions initiated The unique business model which we by the Bank in 2010, the People’s Rejuvenating SME Banking have mooted is geared to leverage the opportunities available in the SME Bank Micro Finance Villages to grant As detailed in the Mahinda Chinthana, sector, while the dedicated unit will be credit facilities for entrepreneurial the country’s Ten Year Development the facilitating arm in ensuring that the ventures within identified villages vision, SMEs are being positioned as proposals get off the ground. Lower aimed at specific production sectors the backbone to uplifting the economy financing costs, ancillary services, or industries. This social mobilisation and hence are well recognised as an refinance facilities channelled through programme has a four-pronged strategy important strategic sector that will apex bodies and even financing using that will ultimately contribute holistic propel the country towards its envisaged the Bank’s own funds especially for benefits for the entire village. These are growth trajectory. It is also a primary infrastructure, industry and service- 1. Development of small entrepreneurs means of reducing unemployment, related sectors are envisaged. There infusing equality and eliminating poverty. 2. Empowerment of women is also special emphasis for projects 3. Minimising unemployment stemming from the North and the East Aligned to this macro vision in order to bring in those two areas of 4. Steering the rural populace towards therefore, we have already developed the country into mainstream economic a formal banking system concepts that have been embedded development. The Bank also aims to in our strategic plan, including the migrate SMEs into the commercial and Establishment of Agro- establishment of a dedicated SME corporate sectors, buoyed by our wide Livestock Resource Centres Development Unit with the aim of range of financial products and services. Under the aegis of the Central Bank of coordinating and funding business Sri Lanka, the Bank intends to develop proposals in this sphere. The proposals Agro-Livestock Resource Centres which originate from our extensive

053 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Treasury The Treasury optimised funding costs Support Services through planned exposure to the The Treasury has performed wholesale and inter-bank markets Information Technology exceptionally well this year, with both within the limits set by the Asset and We began the year with anticipation, foreign exchange and debt trading Liability Management Committee. It also having an IT vision aimed at creating revenues surpassing expectations, successfully concluded negotiations and a business responsive IT culture to despite a fiercely competitive mobilised a significant amount of foreign support various business strategies environment. Very pragmatic in their currency funding in 2010. which evolved from the Strategic Plan approach, the Treasury aptly interpreted of 2009-2014. Working on a platform market direction in foreign exchange Significant revenue was gained through of being a bank spread across the and money markets. Debt Trading business via capital gains country that cares for our customers and interest earnings. As the interest by establishing robust, cost-effective, The Rupee appreciated by 2.85 per cent rate structure in the market changed integrated banking solutions with multi- in 2010 and the Treasury faced severe during the year due to the stable inflation channelled delivery systems, our focus challenges in prudently managing the rate, the trading Treasury Bills and is to go from merely being a State bank Bank’s currency position and its trading Bonds portfolio generated significant to one that continues to recognise the book, in order to minimise the market capital gains. Selective strategies were pulse of the people’s needs and achieve risk. This was successfully tackled using employed to gain optimal results on LKR customer service excellence through the valuable expertise of the highly yield curve shifts. building on our products and services. knowledgeable Treasury Team, which resulted in revenue targets exceeding, We recruited two Trainee Dealers to the IT Network and Core despite a stressful environment. Treasury Unit in October and as a result, Banking Project were able to concentrate on our core The Bank’s IT Network which is Moreover, we further strengthened activities of trading and corporate sales on SIBS (Silverlake Intergraded our position as a market maker in the more effectively. We are in the process Banking Solution) and PABS (People’s US$/LKR currency pair, in both spot of implementing a state-of-the-art Automation Banking Solution) runs over and forward markets. This has enabled Integrated Treasury System which should to 679 service outlets island-wide, from pricing advantages to be translated to further enhance our ability to provide which nearly 650 are interconnected. acquire customer positions by providing customised solutions to our clients and The SIBS Core Banking System is competitive rates to importers and improve service delivery levels. exporters, thereby attracting significant deployed on a high-powered machine business volumes. which is from the iSeries AS 400 family.

054 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

(Rs. Bn) Highest Capital and Reserves in Our History

20.8Implementation of the Core Banking processing power. The transition, driven The IT Team’s greatest achievement Solution has improved the functionality by our own IT team was extremely was undertaking the branch conversion and services available to customers and successful with almost zero down programme. With judicious guidance management, establishing effective and time. By end of 2010, the Core Banking and leadership permeated to a very efficient controls together with strategic Solution was rolled out to 266 Branches committed team, the success achieved policies and disciplines. and 283 Service Centres, totalling 551, in the conversion and AS400 transition including the corporate banking division was extraordinary. Complete roll out In mid June 2010, the production and overseas customer service unit. We to the rest of the branches and service machine was upgraded to a Power 6 have also linked all our branches into centres is expected to be completed by which has the capability to store large the two systems enabling inter branch April 2011. volumes of information and has greater transactions from any branch.

055 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Developments overseas remittances that notify the Automation of the Pay Office beneficiary, the team also initiated SMS with web-enabled access was another The IT email internet and alerts for Credit Card transactions and major task that was completed this communication unit completed the Debit Card transactions, which will be year. With this initiative, management main core switches and firewall project, deployed in 2011. While SMS Banking can access information from anywhere enhancing value, security and the is already conducted with Sri Lanka and also monitor counter operations scope of IT infrastructure. Exploring Telecom Mobitel, we also prepared an live via the web. the advantages of the Internet, our own MOU with Dialog Axiata to initiate SMS programmers were able to develop a banking facilities to its customers using module to access the obligation system Security Policies the latest USSD process, to be rolled out online enhancing the processes much Our internal Information Security in the first quarter of 2011. more, which highlights the expertise unit updated and released a number and capabilities of our team. This team of security policies and procedures Continuing the value additions, we have also developed an Internet Banking including a password control, also automated our utility bill portal, module for inquiry-related transactions programme change control, version enabling SLT and Dialog customers aimed at corporate and individual control, logical access control, e-mail to obtain account updates as soon as clients. The transaction-related module security. We have also obtained the payment is made to our counters will be unveiled in mid-2011. membership from TechCERT, a project or by way of SMS banking. We are in of the Department of Computer Science the process of updating the online The launch of ‘People's International of the University of Moratuwa. utility company list as well for added VISA Debit Card’ in July 2010 was another convenience. The Bank has also achievement for our IT division, enabling Training invested extensively in the ATM network customers to use debit cards locally and During the year 2010, training and which now has a total of 330 including internationally, while also withdrawing development gathered new momentum one Drive-through ATM in Matara. cash from any VISA ATM and purchasing with the team undergoing in-depth There are also four kiosks at strategic products and services through merchants training in a number of competencies locations for added accessibility. with VISA POS machines. We also and disciplines. These related to IBM extended our technical support to our AS/400 iSeries systems, MIMIX, CISCO, The centralised MIS unit provides all sister company, People’s Leasing Finance Finacle Treasury System, Firewall and required management and executive PLC to launch the People’s Debit Card in other Security systems, MIS and Data- reports within 24 hours. It must be September 2010. warehouse, Software Licensing and noted that the contribution from internal compliance, Cloud computing, training programmers in adding value to the Initiating numerous developments on programming languages and tools. entire report generation process has in mobile applications, one of which A considerable number also participated been exemplary. was the introduction of SMS alerts for in foreign training programmes,

056 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

workshops and conventions throughout Marketing and Promotions Rs. 15,000, 12,500 and 10,000 each, the year. Emphasis was given to even if a student did not maintain a Sisu People’s Bank Awards Top specialised areas to ensure that the Udana account. As a further incentive, Students of the Year Five optimum use of the system could be the Bank awarded 800 students who have Scholarship Examinations obtained through the knowledge and a minimum balance of Rs. 2,500 in their exposure gained from these training As a mentor for the younger generation Sisu Udana accounts as of 22nd August programmes. and having always believed that the 2010, a cash prize of Rs. 5,000 each. young are the future of the country, Another noteworthy achievement People’s Bank honoured the top Being a pioneer in uplifting people to was the preparation of core banking performing students of the Grade Five sustainable levels, the Bank has been operational manuals. The core trainers Scholarship Examination with awards working on opportunities to educate were able to complete all the core last year. Chaired by the Minister of those students in the North and the training modules for all branches Education, Hon. Bandula Gunawardene East, bringing them on par with the rest converted during the year, including the amidst a gathering of erudite of the country. Scholarship workshops branches scheduled to migrate to the distinguished persons including the were conducted throughout these areas new system in year 2011. Commissioner General of Examinations, to meet this objective. Mr. Anura Edirisinghe, principals, In conclusion, we are proud of the teachers and officials of the Bank It is extremely commendable, that results we have achieved by positively including the Chairman, eleven students despite the severe competition among contributing as a team towards the who have ranked first second and third banks in the country, over 50% of Bank’s overall operational excellence. in the country were felicitated. Those in Sri Lanka’s student population bank Resultant to introducing and working first place received an award of with People’s Bank. They save through upon integrated technology platforms Rs. 100,000 each, while second and third a branch or the Student Savings Units that are reliable and flexible, the IT places were presented with Rs. 50,000 within the schools. We consider this as a Team has creditably bridged the digital and Rs. 25,000 each, respectively. great accomplishment considering that divide and enhanced the Bank’s revenue we have been responsible in inculcating generation capacity, improving business We also launched a district-wide a savings culture among the younger performance which has permeated programme for all students who have population, a culture that is bound the Bank to becoming a sustainable passed the Grade Five Scholarship to be steeped in them as they grow financial spearhead in the country. Examination to be presented with cash into adulthood and begin contributing gifts under the Sisu Udana Scholarship sustainably towards the upliftment of Programme, with cash awards of the nation.

057 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

People’s Bank Hosts ‘Sisu while all customers who participated introduced the Ascharya Ithurum Udana Kusalatha Pranama’ in Avurudu Ganu Denu were hosted to Savings Certificate in denominations Scholarship Awards traditional sweetmeats at the Bank. of Rs. 100,000, Rs. 50,000, Rs. 10,000, Rs. 5,000 and Rs. 1,000. The Bank continued its very We also organised numerous events commendable ‘Sisu Udana Kusalatha which display significance in customs Pranama’ Scholarship Awards for a Anniversary Savings and tradition during the New Year, record 18th year, where 56 students Scheme launched partnering ‘Suriya Mangallaya’ - the were granted scholarships. Students We marked our 49th anniversary with annual Avurudu celebrations hosted who excel in their GCE (Ordinary Level) the launch of a unique savings scheme, by ITN held in Weerawila. We had a Examinations in the country as well as ‘People's Bank Sanwathsara Vasana', mobile banking centre established at in the Districts, are awarded special presenting 700 lucky winners with a the location to give those attending, scholarships. The scholarships are host of prizes which included a modern an option of attending to their banking granted to enable them to continue their luxury house and gold sovereigns. needs as well. higher education for the next two years, ensuring they do not drop out of school People’s Bank goes live in the The annual Vanitha Vasana draw also due to economic reasons. Given that this Northern Peninsula took place on the 14th of April. is the crème de la crème of Sri Lanka’s The Bank’s integrated Core Banking student body, it is vital that we retain Systems went live in 16 branches across them in the educational sphere so that The Dalada Perahera the Northern peninsula, a significant their knowledge can be used eventually Having always focused on sustaining avenue in linking the North to the rest to build and develop the country. Sri Lankan culture and history in of the country. Given that the Jaffna changing times, the People's Bank peninsula is now becoming a hub for Avurudu Ganu Denu continued its status as the primary trade, agriculture and fisheries, inter- sponsor of Asia’s largest cultural Continuing a long-performed tradition, connecting it to the rest of the country pageant held in the central hills of we began the Avurudu Ganu Denu so that there are mutual benefits for all, Kandy - the Esala Perahera. tradition with the people of Sri Lanka, a it is vital to open those links and ensure custom begun in 1973, keeping all our connectivity, which will eventually build branches and service centres around Ascharya Ithurum Savings livelihoods across the country. the country open during the allotted Certificate Launched auspicious time of the Sinhala and Tamil Aligned to the Government’s declaration We also believe that this will gradually New Year. Each customer who deposited of a Special Savings Week in November develop the entrepreneurial culture Rs. 25,000 or Rs. 15,000 received a 2010 to mobilise Rs. 20 billion in savings that has for long lain dormant. The savings certificate and a complimentary deposits in its quest to place Sri Lanka Core Banking System will support gift item in appreciation of their custom, as the Emerging Wonder of Asia, we business through its scalability, front

058 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

end capabilities and technology-driven external forces pertaining to competition, knowledge-gaining with its discussion systems integration and products macroeconomic conditions and social features and literature on a wide-range including SMS, Palm Top and Internet aspects that impact our operations. of issues pertaining to the socio- Banking as well as debit card facilities. economic landscape and the country There will also be significant upward Providing both primary and secondary at large. Six issues of the Review were incline in business efficiencies with research which includes customer published on the current interests the introduction of ‘anytime anywhere’ surveys, market studies and other including the IMF and its recent facility banking. What is also unique is that the qualitative and quantitative data, to Sri Lanka, the development of Bank introduced a complete team of the Department disseminates the North and the East, indigenous dedicated Tamil speaking individuals to management briefs, position papers agricultural knowledge in Sri Lanka, ensure that language barriers do not and reports on industry-specific Sri Lanka as a shipping hub, education hinder any progress. issues, relevant economic sectors and for knowledge economy growth and business areas. It is also tasked with development and . Research Department enhancing productivity throughout the 679 branches, by contributing We also re-launched the Review in A vital conduit in ensuring the smooth towards re-engineering and simplifying Tamil after a lapse of six years, aimed functioning of both back and front office processes and procedures within especially for the North and the East of operations is the Bank’s Research the Bank, cascading statistical and the country. Department, which has been the lifeline other relevant data and information to delivering long-term sustainable pertaining to the branches, namely The Bank’s official news magazine, Pulse/ value to our stakeholders, works on the performance, rankings, sector and Hasuna is also managed and published by vision of being a proactive partner to the product performance. The research the Research Department. This year, the Bank’s progress by providing research department organises an annual publication saw a new lease of life when it inputs. It is significant therefore that the conference, a regular strategic event, was re-launched in a brand new format to Research Department outputs accurate, giving an opportunity for the staff to incorporate all three languages, making timely and industry-specific information present research papers. the publication an all inclusive one. and research data, to aid the informed decision-making process within the One of the most significant The Department also has the Bank. Given the diversity of the Bank’s achievements within the department responsibility of monitoring the Bank’s product range and the varied markets is its continued publication of The Strategic Plan from 2009 to 2014, it serves, the accuracy and systematic Economic Review, the country’s oldest leveraging on the synergies it possesses flow of market relevant information is and most-respected economic journal. in collating information and the value an imperative for the Bank’s growth Having been published since 1975, the addition it can augment in the review and expansion. It is also a strategy that Economic Review creates a platform for and planning process. is employed to effectively manage the

059 People’s Bank | Annual Report 2010 [Financial Review]

The Sri Lankan In addition, the Central Bank of given the positive macro vista it works Sri Lanka continued to be extremely within. Performance in 2010 has been Economy aware of both the internal and external exceptional, surpassing expectations The end to the devastation and havoc factors that could and may have an with the highest profitability posted caused by the thirty-year conflict impact on the country’s development in the entirety of the Bank’s 49-year showcased significant optimism and plan, and instituted numerous history. The Bank recorded Rs. 8.8 Bn positives into the development fabric regulatory and monetary controls, profit before tax, a growth of 44% of Sri Lanka. 2010 was the first year policies and strategies to ensure that compared to last year. Underpinning of peace experienced by the country plans remain on track. these positives was the fact that the Bank’s ratings were upgraded during and the accelerated development plan conceptualised and being implemented the year. by the Government is definitely bearing People’s Bank’s fruit. The private sector in turn, This exceptional attainment was evident has echoed this sense of optimism Accomplishments by the Bank’s rating upgrades during and overall, the country has gained The Bank’s Golden Jubilee is just the last quarter of 2010, bettering immense rewards even in this short 6 months away and the Bank is now on its position to AA-(Positive) from A span of time, as evidenced by the Key the threshold of a renaissance as well, (stable) by Fitch Rating Lanka, further Performance and Growth indicators posted at end 2010.

Average annual inflation rates stabilised to 6%, with Gross Domestic Product (GDP) envisaged reached a growth target of 8%. Exports showed buoyancy as well to notch US$ 8,307 Mn whilst imports increased to US$ 13,524 Mn, addressing a trade deficit of US$ 5,217 Mn for the same period. Workers’ remittances amounted to US$ 4.1 Bn, an increase of 23.6% against 2009. Tourism as anticipated, proved to be one of the fastest growing industries in this new era, showing an 2005 2006 2007 2008 2009 2010 increase of 46% in arrivals and 65% in Profit before Taxation 4,035 4,079 5,002 5,664 6,076 8,771 earnings during the year. Profit after Taxation 2,772 3,157 2,374 2,705 3,320 5,206

060 People’s Bank | Annual Report 2010 Quick Read The end of the war has created the conditions for a takeoff. The economy has responded and last year the GDP posted a growth of 8%. Inflation dropped to 6%. The Bank’s performance exceeded projections and the Bank closed 2010 with its highest ever ‘after tax’ profit. Fitch Lanka reaffirmed its faith in the institution with an AA-rating.

The Bank’s asset base grew by 15% to reach Rs. 547 Bn. This is the second highest in the industry. Loans and advances grew by 24% over the previous year. The total loan portfolio was Rs. 371 Bn with as much as 43% of that being disbursed during the last quarter. The deposit base grew by 16.7% to reach Rs. 462 Bn. The NPL ratio improved from 6.7% in 2009 to 5% last year. Net interest income grew by 8% to reach Rs. 25.9 Bn, despite the drop in interest rates. The cost income ratio dropped to 60.2% from 60.6% and the return on assets increased from 1.4% to 1.7%.

augmented by AAA rating by RAM Ratings (Lanka), reflecting the Bank’s strong fundamentals and sustainable business model and growth prospects.

Income and Expenses It is pertinent to note that the gross interest income reduced by 9.3%, while interest expenses also reduced by 20.2%. This was mainly due to the considerable decrease in interest rates over the year. In addition, interest margins were 2005 2006 2007 2008 2009 2010 11,597 15,807 16,532 18,962 23,927 25,898 managed at 5.1% levels in the year under review. This was one of the key reasons to achieve the highest-ever profit in the history of People’s Bank. lending had encouraged granting of our bottom line and achievement of the loans by the Bank, although regular Bank’s business objectives according to The Bank’s Net Interest Income for savings depositors were somewhat stipulated time-lines. the financial year 2010 recorded a discouraged. Due to the reduction in growth of 8% over last year totalling deposit rates, there was an attraction Staff and related expenditure recorded to Rs. 25.9 Bn. Despite the reduction towards fixed deposits for periods of a Rs. 500 Mn or 4% drop over FY in lending interest rates specifically less than one year instead of the long- 2009, driven by around 500 retires during the last quarter of the year, this term deposits. At present, commercial in the permanent employee cadre. accomplishment is noteworthy. loans are disbursed at around 11% p.a. Administration and overheads cost Pawning, which represents 36% of record a rapid increase of 71% in 2010, With lending rates reducing the loan portfolio and accounts for a compared to 2009, holding a variance considerably towards the latter part of considerable portion of loan interest of Rs. 3 Bn. This sharp change was 2010, deposit interest rates too came revenue, continues to yield 14% p.a. mainly due to the provisions made for under increasing pressure, posting Astute changes were made during the operational losses incurred due to the lowest figure for the year in the latter part of the year with the intention humanitarian operations by some of last quarter of 2010. The reduction in of expanding the core business of the our branches in the Wanni region in interest rates on both deposits and Bank, leading to a healthy growth in 2009, which amounted to Rs. 1.4 Bn, and

061 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

2005 2006 2007 2008 2009 2010 3,187 3,702 4,910 5,495 6,708 5,998

2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 SC 7,572 10,344 10,054 10,583 12,155 11,623 S & R 3,378 4,264 4,378 4,763 5,296 5,186 increase in financial VAT. In addition, P & EC 1,760 2,252 2,462 2,964 3,598 2,907 OSC 2,503 3,565 3,892 4,306 5,021 5,081 other expenses were subjected to A & OC 1,738 2,443 3,219 3,612 3,966 6,776 RB 1,690 2,514 1,784 1,515 1,839 1,355 inflationary pressure.

The Bank provided an additional The retained earnings for the year were Rs. 200 Mn for the proposed new Rs. 3 Bn in contrast to Rs. 1.9 Bn in 2009 pension scheme for employees recruited addressing an increase of 60%. post-financial year 1996. Based on the actuary valuation, the main pension fund received Rs. 1.1 Bn from the Bank for Balance Sheet the financial year 2010. Assets Profit after tax for the year has risen by The Bank’s total assets saw a growth 56.8% to Rs. 5.21 Bn against Rs. 3.32 Bn of 15% to a value of Rs. 547 Bn in in 2009. This was after the increase of comparison to Rs. 476 Bn in 2009, taxation by 29% (Rs. 3.6 Bn against buoyed by possessing Sri Lanka’s largest Rs. 2.8 Bn), which mainly includes branch network and having the second heavy financial VAT charges. 2005 2006 2007 2008 2009 2010 highest asset base in the industry. The RBS&P 1,690 2,514 1,784 1,515 1,839 1,355 management of the assets portfolio RBS&P - Retirement Benefits to Staff & Pensioneers

062 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

2005 2006 2007 2008 2009 2010 Overdrafts 25,386 34,459 38,572 51,332 71,155 79,964 Pawning 41,648 58,385 76,897 89,288 97,534 133,299 Staff Loans 9,602 10,553 11,064 10,939 10,860 15,502 Trust Receipts & Other Loans 73,881 115,085 111,050 104,285 109,673 139,235 Bills of Exchange 7,221 4,909 15,788 7,619 9,855 3,803 Total Loans & Advances 157,738 223,391 253,370 263,462 299,077 371,804

was balanced and prudent, successfully parallel diversified roots ranging from the Rs. 97.5 Bn and an increase of 36.5%. maintained to have a perfect mix of loans grass root to the highest corporate levels The portfolio of loans also contains a and advances, primarily overdrafts, within the country. blend of both local and foreign currency commercial loans, trust receipts and advances, amounting to Rs. 361 Bn of pawning advances. Lending to key sectors Loans and Investments local currency loans of 97% and of the country including agriculture, Rs. 11 Bn foreign currency loans of 3%. Total Loans and Advances escalated to commerce, retail, industry and corporates Rs. 371 Bn from Rs. 299 Bn, an increase have become the Bank’s primary It is worth mentioning that due to the of 24% over 2009. This growth was decreasing interest rates during the aspiration, and is well-aligned to the mainly due to an increase of 27% in last quarter of 2010, demand for loans corporate objectives. One of the Bank’s Trust Receipts and other commercial and advances increased sharply to core competencies is to assist the micro loans amounting to Rs. 139 Bn over Rs. 42 Bn for the last quarter which was and SME sectors, whose requirements Rs. 109.7 Bn in 2009 and the increase 43% of the total granted loans during are well-garnered and served through in pawning to Rs. 133 Bn, which is over the financial year 2010.

063 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 41,648 58,385 76,897 89,288 97,534 133,299 17,418 15,951 14,865 17,857 20,040 18,738

2005 2006 2007 2008 2009 2010 Current 32,445 47,408 32,428 27,354 37,103 40,423 Non-Performing Loans (NPL) fell by Rupee savings recorded a robust Savings 104,458 118,336 130,751 139,393 158,173 191,121 Rs. 1.3 Bn for the year 2010 amounting Rs. 32.9 Bn growth and ended at Time 61,682 73,922 100,226 124,404 166,112 197,826 CD's & Others 3,063 3,411 3,221 1,879 2,628 3,125 to Rs. 20 Bn in 2009 to Rs. 18.7 Bn Rs. 191.1 Bn. This outstanding in 2010. The Bank’s NPL ratio has performance was fuelled by almost all improved to 5% which was 6.7% in the branded savings products including Even with severe competition prevalent last financial year, achieving a reduction the Ashcharya Ithurum campaign in the market, deposits gained of 1.7 percentage points. performing admirably during the considerable attention due to the month of November. Fixed Deposits initiatives instituted by the Bank, seeing represent a significant portion of the Liabilities a contribution of Rs. 10.8 Bn which was deposit portfolio. Further, there was an The Bank’s total deposit base recorded 16% from total deposits of 2010. impressive increase in fixed deposits in a healthy increase of 16.7%, standing 2010 of 19% in contrast to last year. at Rs. 462 Bn this year, in contrast to Rs. 396 Bn last year. The total increase Foreign currency deposits marginally in deposits was directly influenced by fell below 2009 numbers, and is an the incline of 20.8% seen in the rupee area which should receive focus savings deposit base, while the rupee going forward. time deposit base increased by 19.1% in 2010.

064 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Current 117 949 305 112 249 195 Current 32,561 48,357 32,733 27,466 37,352 40,617 Savings 13,603 13,134 15,663 11,478 16,562 11,883 Savings 118,061 131,470 146,414 150,871 174,735 203,004 Time 10,194 12,753 18,263 18,829 15,147 17,281 Time 71,875 86,675 118,489 144,233 181,259 215,107 Others 40 34 98 40 183 287 C/D's & Others 3,102 3,445 3,320 1,919 2,811 3,412 Total Deposits 225,600 269,947 300,956 324,489 396,157 462,140

Key Performance Indicators Taking the Key Performance Indicators into perspective, 2010 proved to be exceptional, with the showcasing of a 5% NPL ratio, compared to 6.7% in 2009. The cost income ratio decelerated to 60.2% from 60.6% in 2009. Return on Assets of 1.4% in 2009 increased to 1.7% in 2010. Advance to deposits of 81% ensures a well-balanced and prudently managed utilisation of the 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Bank’s funds. The Bank’s non-funded 11.0% 7.1% 5.9% 6.8% 6.7% 5.0% 73% 74% 69% 65% 61% 60.2%

065 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

income to net income ratio has scored Fleet Management Limited, People’s The Group has now established itself 19% signifying that the Bank’s non- Leasing Property Development Limited, as a formidable force in the financial funded income holds a significant share. People’s Insurance Limited, People’s sector. People’s Leasing Finance PLC Capital adequacy ratio in 2010 declined Leasing Havelock Properties Limited which was formerly known as Seylan to 12.8% from 13.4% last year, whilst and People’s Micro Finance Limited. The Merchant Leasing PLC was acquired the Tier I ratio merely increased by Company also owns a 92.27% stake in on 5th June 2009 and has achieved 0.24 percentage points to stand at 7.94% People’s Leasing Finance PLC. People’s a remarkable turnaround under the in 2010. This was mainly due to the 24% Leasing Havelock Properties Limited guidance of PLC. The restructuring increase in the total loan portfolio which and People’s Micro Finance Limited of operations has enabled People’s led to increases in credit, market and were incorporated in August 2010 and Leasing Finance to achieve a pre-tax operational risks by 23%, 45% and 14%, September 2010, respectively. The Group profit of Rs. 79.2 Mn for the first six respectively. has become a total financial services months ended 30th September 2010, provider, offering a gamut of products as against a loss of Rs. 181.9 Mn for the

and services including leasing, financing, corresponding period in 2009. The non- Performance of general insurance, deposits, fleet performing ratio of People’s Leasing management and property development. Finance reduced dramatically to 3.5% Subsidiaries and due to the implementation of a rigorous Associates The favourable economic conditions recovery process. and low interest rates prevailing in the People’s Leasing Group country have enabled People’s Leasing People’s Insurance has enabled the Overview to significantly increase new grantings Group to expand its operations into a People’s Leasing, which is a fully- during the year. Operations have already new area, offering vast potential for owned Subsidiary of People’s Bank, been expanded to the Northern and growth. People’s Insurance will initially was incorporated on the 22nd August the Eastern Provinces of the country in focus on serving People’s Leasing’s own 1995. The principal activities of People’s order to provide the required financial customer-base and thereafter expand Leasing is in providing finance leases, services to the population. A number its operations to the wider market. hire purchases, operating leases, term of additional window offices have been loans and issuing debt instruments. opened at various strategic People’s People’s Microfinance Ltd. was People’s Leasing has grown steadily to Bank branches throughout the island launched on 3rd September 2010 with become the market leader in the leasing to effectively utilise the vast branch the intention of supporting individuals in industry with over 20% of the market network coming under the aegis of rural areas and small business entities, share and has a total of six subsidiaries the People’s Bank, a highly successful while enabling the Group to obtain funds under its umbrella; People’s Leasing strategy that’s expected to continue into at a lower cost. the future.

066 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

People’s Leasing Property development Income from hire purchases saw an The total assets of the Group increased is currently in the process of incline of 42.6% from Rs. 3,049 Mn by 88.7% to Rs. 56,905.7 Mn in 2010 constructing the Head Office building in 2009 to Rs. 4,348.6 Mn in 2010. from Rs. 30,155.3 Mn in 2009. of People’s Leasing. Income from finance leases increased from Rs. 2,445.5 Mn in 2009 to Awards The main line of business activity of Rs. 2,657.6 in 2010. People’s Leasing retained the “Gold People’s Leasing Fleet Management The non-performing ratio of People’s Award” for excellence in the leasing Ltd. is providing operating leases, Leasing reduced significantly sector at the Annual Report Competition operation of a service station and the throughout the year to end at 1.9% as at 2010 organised by The Institute of hiring of vehicles. 31st December 2010. Chartered Accountants of Sri Lanka. This is the third consecutive year that People’s Leasing Havelock Properties People’s Leasing executed grantings People’s Leasing won this prestigious Ltd. was incorporated on 12th August amounting to over Rs. 34 Bn for award. People’s Leasing Finance PLC, 2010, with its first major project already the 2010 calendar year, which is a won the bronze award in the finance under way - the construction of an significant increase from Rs. 12 Bn in company sector on its maiden effort office complex. the previous year. For the month of after acquisition. December, People’s Leasing was able to Financial Performance execute facilities in excess of Rs. 5 Bn. People’s Leasing was the second Although the financial year for People’s New grantings and the acceptance of runner-up for the second consecutive Leasing commences in April and ends new investments for Islamic Financing year in the under Rs. 10 Bn turnover in March, financial data is calculated for facilities were made through People’s category at the ‘Best Corporate Citizen the calendar year for the purposes of Leasing Finance PLC with effect from 2010’ awards presented by the Ceylon consolidating with its parent, People’s January 2010 in order to provide a more Chamber of Commerce. In addition, the Bank. The People’s Leasing Group streamlined service to the customers. Company received the ‘Silver Rating’ recorded its highest-ever net profit of However, the existing portfolio remained for Corporate Accountability awarded Rs. 1,682.2 Mn for the 2010 calendar with People’s Leasing. by Sting Consultants, while also year. The pre-tax profit of the Group showcasing its strong commitment to In October, People’s Leasing raised increased by 42.8% to Rs. 2,897.3 Mn Rs. 1.4 Bn through a hire purchase quality and excellence with an honour from Rs. 2,028.7 Mn in 2009. The and lease receivables securitisation bestowed at the International Diamond increase in Group profit also resulted in structured by NDB Investment Bank. Quality Summit. an increase in income tax of 27.1%. This is the largest securitisation in the industry to date in Sri Lanka.

067 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

People’s Travels (Pvt) Ltd. The highlight for the year was organising Two tours to China with 45 two Special Dambadiva Groups with passengers, four tours to Egypt with Contrary to global trends wherein the Buddhist TV channel, a move that will 72 passengers, five tours to Bangkok travel and tourism industry reflected post accumulated benefits for the with 147 passengers and three tours to numerous setbacks due to natural coming financial year as well. A special Singapore and Malaysia with disasters and the cascading effects marketing exercise was launched with 107 passengers were organised very of the economic meltdown, People’s this TV channel to record and telecast successfully during the year. This Travels achieved a significant milestone Dambadiva Pilgrimage tours organised resulted in income increasing by 243 of growing its business to cross the by People's Travels, resulting in a per cent and a further augmentation of Rs. 23 Mn mark in revenue. Pragmatic strategic PR exercise and promotion exceeding customer satisfaction amply initiatives in business promotions, at no cost. Resultant to this, the brand exampled in the tour to Egypt which saw sound marketing strategies and astute further entrenched itself as the leading 40% of the customers repeat another management saw the display of luxury Dambadiva Tour organiser, a leisure tour after that. Rs. 5.5 Mn profit before tax, competitive advantage that can be a commendable feat indeed. leveraged further upon in the future. The Company has always posted significant growth in the income earned Dambadiva Tours represents the With a number of new airlines flying through sale of air tickets to Government, Company’s strongest Income into Sri Lanka and low-cost budget corporate and individual customers. component, having become established airlines also entering the fray, the But due to unprecedented difficulties as the market leader in the luxury Company strove to provide customised faced by international airlines as well as segment for these tours. Due to the solutions for customers, including hotel the aforementioned challenges ensuing increase of air fares and hotel rates in and logistical support. Having collated from the economic meltdown, epidemics, India, the cost of the tours increased numerous attractive package holidays, natural disasters and unstable political- and resultant to this, the Company this paved the way for an increased economic conditions impacting negatively underwent three consecutive financial demand for package holidays which overall, air tickets registered a 15% years of negative growth in the spurred the Company to organise tours negative growth. Dambadiva Tour component. to historical and cultural destinations at affordable prices. A further competitive With the opening up of the North and The revenue for Dambadiva Tours is advantage ensued in that the Company the East and a renaissance in the primarily marketed via strong canvassing is able to organise luxury leisure offing for the country, accelerated with timely promotional activities leading tours with greater flexibility but with development is being implemented. to the increase in numbers of pilgrims affordability in mind. To capitalise on these opportunities, in the tour groups. During the financial the Company initiated a strategic move year, 16 tours with the participation of to teach written and spoke in Tamil to 510 pilgrims were organised.

068 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

the team, with the intention of opening purchase, trade finance, corporate Net profit before tax increased by a travel desk at the People’s Bank finance and real . People’s Bank Rs. 2.7 Mn to Rs. 8.8 Mn, an incline of Branch and also with a view along with its fully-owned Subsidiary, 44% compared with the previous year. to expanding our horizons and grasp the People’s Leasing Company holds 39.2% Total Assets grew by a healthy 37% opportunities that will arise. stake in PMB. to Rs. 4 Bn. Operating Profit Margins for the year ended 31st December Having opened a Travel Desk at During the year 2010, net interest income 2010 increased to 12% from 6% in the People’s Bank branch in Kandy during increased from Rs. 113 Mn to Rs. 183 Mn, previous year. Earning Per Share (EPS) the previous financial year of 2008/09, an increase of 62% compared with 2009. improved from Rs. -0/30 in 2009 to facilities were further strengthened The main contributors are finance lease Rs. -0/05 in 2010. by offering quick facilities through the income of Rs. 190 Mn, hire purchase Colombo Head Office. income of Rs. 286 Mn and trade finance During the year, 1,780 lease and income of Rs. 48 Mn. hire purchase totalling With peace and security prevailing in Rs. 1,622 Mn were executed, displaying the country, massive tourist inflows Operating profits doubled during the a growth of 86% in the number of are expected, which has spurred the year from Rs. 30 Mn. to Rs. 62 Mn contracts, compared to 957 in 2009, Company to launch a new inbound tour by Rs. 32 Mn, an increase of 107% in while there was 122% increase in department. The Company will continue 2010. This is satisfactory, considering executed contracts in 2010 amounting to grow and strengthen on the existent the adverse operational impact due to Rs. 731 Mn, respectively. pragmatic strategies that include to the acquisition of ABC Credit Card prudent investment of funds, astute cost Company. However with this acquisition, PMB’s Real Estate division began two management and a constant visionary PMB obtained a prime property at real estate projects in Ranala and focus. Remaining mindful of the current Nawam Mawatha, Colombo 2 and a . Two new branches in environment and political, socio and licenced finance company operating in and Anuradhapura were economic conditions, it will also ensure Kandy. Operating expenses increased by also launched, increasing the total that all necessary steps will be taken Rs. 42 Mn, from Rs.120 Mn to network to ten. to hold fast to the strategies already Rs. 162 Mn, a 35% increase compared implemented. with previous year. Expenses incurred People’s Merchant Bank gained a in establishing two new branches, commendation certificate of compliance People’s Merchant refurbishment to PMB’s new office at in the Financial Institutions category Bank PLC No. 21, Nawam Mawatha Colombo 2 and for the twelfth consecutive year at the new staff recruitments contributed to Annual Report Awards conducted by People’s Merchant Bank PLC (PMB), an the increase. The Institute of Chartered Accountants Associate of People’s Bank, is engaged of Sri Lanka. in the business of leasing and hire

069 People’s Bank | Annual Report 2010 The dancer at the top of his trade isn’t made overnight…his is an art perfected throughout a lifetime and even then draws on the best practice of the ages. The People's Bank can identify with these qualities…our long years of enterprise have embraced just such qualities…and it shows in our performance…our empathy with our customers…and products and services that help us move to the rhythm of our customers’ needs.

[Corporate Responsibility]

he Bank’s approach to Economic Aspects services. Redemption of pawned items Corporate Responsibility (CR) is now done in just 5 minutes, thanks to is built on the bedrock of With the dawn of peace following the introduction of a dedicated mobile T sustainable development - three decades of civil strife, the telephone line whereby a customer a process for meeting the needs of Bank takes its role in nation-building provides advance notice through the present without compromising the seriously, particularly in respect of SMS. Market segmentation led to the ability of future generations to likewise the reintegration and revival of the introduction of Prime Cards for prime achieve theirs. Such an approach leads economies of the North and East of the customers to enjoy express lane service. our activities into three main areas of country. To support the resurgence in Team Mahiyangana went further, focus, namely, economic, environmental sectors such as agriculture, fisheries, taking employee empowerment to new and social - also referred to as the livestock, cottage industries and other heights. The provision of individualised Triple Bottom Line representing Profit, SMEs the Bank introduced several loan Loan Recovery Card helped clients Planet and People respectively - which schemes on concessionary terms. not only to better understand their are integrated seamlessly into our day- repayment obligations, but also to-day banking business. The Bank initiated a programme to improved the Branch’s NPL ratio. A real inculcate the savings habit among win-win solution. The Branch innovated As an organisation with a special young schoolchildren through a special other simple but effective measures to mandate to partner with people from all ‘Sisu Udana’ savings scheme that educate their largely rural customers to walks of life, we are strong proponents provided incentives to parents who learn about banking procedures, while of uplifting rural communities through opened accounts for their children on at the same time simplifying and fast our superior outreach in providing the first day at school. At the launch tracking processes within. banking services in even the most of the scheme the children were also remote parts of the country. Likewise, taught the importance of savings, with The Bank’s Corporate Banking Division our strategic approach to CR is built the objective of nurturing a savings stepped into educate exporters in the around the communities we serve, culture in young minds for building a Central Province on practices relating with emphasis on empowering people secure future. to exports and international trade. to become value creating, competitive The event was organised by the and self-reliant while nurturing local ‘Necessity is the mother of invention’ Central Province Exporters Chamber culture, arts and religion. goes the adage. Out there in far-flung and attracted more than 35 current Mahiyangana our Branch Manager and and potential exporters. Our main CR activities during the year his team went further in anticipating under review are discussed in the and satisfying the growing needs and Going beyond developing SMEs and paragraphs that follow. expectations of customers through to reach the informal sector, the several innovative products and Bank introduced a novel loan scheme

072 People’s Bank | Annual Report 2010 Quick Read Our business strategy is based on the concept of sustainable development: meeting the needs of today’s generation without compromising on the needs of future generations. While the Bank generates profits today, it works to preserve the planet and empower people for tomorrow.

Empowering rural communities has been a key business goal. The Bank has taken banking services to the remotest of communities and promoted a concept of self-reliance and independence among marginalised social groups. The Bank’s environmental programme has focused on financing businesses that are environmentally friendly, energy conscious and based on principle of sustainability. The Bank has streamlined its own internal processes and systems to reduce waste and reuse wherever possible. The Bank has continued to support community initiatives that showcase our culture and promote the religious and cultural diversity of the country. The Bank’s success has been driven by its almost 9,000 employees and the welfare and comfort of the employees and their families is one of the Bank’s highest priorities.

‘Athamaru Naya’ targeting micro scale biodegradable polythene bags. Also the late Mr. Vincent Subasinghe. The entrepreneurs at the Manning Market in the plan is a series of activities to building was handed over to the Maha in Colombo. This scheme complements create awareness among customers Sanga at a well-attended ceremony the Bank’s ‘Palm Top’ banking services and the broader community at large on that included members of the clergy, introduced in 2008 that provides ‘any aspects such as energy conservation at staff, customers and well-wishers who time - anywhere’ services to integrate work and in the home, the importance continue to endorse the Bank’s efforts micro scale entrepreneurs with of eco-friendly buildings and industrial in promoting and preserving the social, mainstream banking. The inclusion of practices, and the financial incentives cultural and religious landscape of our this important and yet often invisible that are available. country. With a diverse family of around sector augurs well for mainstreaming 8,400 employees the Bank encourages their contribution into the socio- The Bank is working closely with the religious observances through various economic development of the country Ministry of Environment and Natural in-house societies representing all Resources and will enter into a four major religions practiced in the Memorandum of Understanding shortly country. These events are usually timed The Environment to take our initiative on Green Banking to coincide with the Bank’s anniversary forward, which will also coincide celebrations as well as special days on As a proponent of responsible with our Golden Jubilee that we will the religious calendar. investment, the Bank embraces celebrate in mid-2011. the concept of ‘green banking’ in its To celebrate the country’s 62nd operations. It is wide in scope, ranging Independence Day the Bank introduced from the screening of projects that are Our Community a programme under the theme ‘Birth financed to its own business processes, of Freedom’ where all newborns procedures and internal housekeeping. The Bank continues to support the during the period 01-07 February were We have initiated steps in these directions arts, culture and religion of the awarded with an ‘Isuru Udana’ savings through educating the community, communities in which it operates. The account with a free initial deposit. Going creating awareness, offering incentives to Bank’s Art Circle showcased the talent further in its efforts to reach out to the environment-friendly projects and setting of in-house staff in the form of song, younger generation, the Bank marked an example ourselves. dance and drama amidst a large and the Universal Children’s Day by offering distinguished gathering in February special incentives, including a lucky draw, An initiative that the Bank is working 2010 as part of its ‘Kala Ulela’ annual for its ‘Isuru Udana’ and ‘Sisu Udana’ on is the creation of awareness among event. To mark our 49th anniversary Children’s Savings Account holders. schoolchildren and the introduction the Bank constructed a ‘Dharma of community-based projects to Shaala’ at the Lankarama Temple in Promoting education among needy minimise or eliminate the use of non- memory of its founder-Chairman, children continues to be on the Bank’s

073 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

CR agenda. The Bank commemorated country. Our recruitment and reward initiated in 2009 for 107 participants the 97th birth anniversary of its founder, schemes are based on meritocracy and spanning a period of 14 months was Hon. T.B. Illangaratne, at a ceremony equality, conforming to all employment concluded successfully. where 47 GCE (Advanced Level) guidelines laid down by the Government schoolchildren from low-income families of Sri Lanka, the applicable regulatory Several technical training programmes received scholarships to pursue higher authorities and the International were conducted, which included Credit studies. It is worth mentioning that the Labour Organisation. We are an equal Limit Preparation, Corporate Lending, late founder, a former Cabinet Minister, opportunity employer. In addition, we Valuation for Mortgage Purposes, championed the concept of taking have inculcated an open door policy Debt Recovery, Mobilisation of Foreign banking to the grassroots of the country, which allows for free and fair dialogue Currency Deposits, Pawning, Basel II and his brainchild People’s Bank, today across hierarchical boundaries while Capital Adequacy and Know Your has the widest outreach with over 11 instituting regular open forums that Customer (KYC). These were conducted million customers, or roughly 50% of prompt transparent and open discussion at the Staff Training College and at Sri Lanka’s population. and information dissemination. Regional Training Centres.

In order to improve language skills, The Welfare Department and Sports Investing in People Club jointly organised a Blood Donation three programmes and Our training and development Campaign to coincide with the Bank’s two certificate courses in English and programmes are aligned with needs, anniversary celebrations. This is an Business English were conducted with with the ultimate objective of fulfilling annual feature that attracts a large the help of external resource persons. the Vision and Mission of the Bank. number of employees, customers Accordingly, the scope of our training In keeping with the Government policy, and members of the public whose programmes was wide and included training in the Northern and Eastern voluntary and enthusiastic participation both technical as well as general Provinces were commenced in all demonstrates the value they place on management topics such as human three languages (particularly in the such a worthy cause. resource development, leadership, Tamil medium) under the guidance and negotiation skills, presentation and support of our Staff Training College. communication, management of Likewise, a new training programme Our Driving Force time, stress and conflicts, attitude was initiated for the recently-recruited development and services marketing. In order to maintain and further develop staff in the Jaffna and Wanni regions. our leadership position within the Succession planning was also a key banking industry in Sri Lanka, People’s Newly recruited Management Trainees consideration. The Management Bank places a very high priority in underwent a rapid training programme Development Programme which was having one of the best teams in the followed by on-the-job training,

074 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

and their performance is evaluated lifetime for staff or family member People's Bank Sports Club periodically. Orientation programmes and pensioners who have completed The Club provides a event for staff to were held for newly promoted staff. 20 years of service. During the year, develop and test their prowess in the the Bank paid Rs. 62.6 Mn to 145 field of sports. It promotes teamwork Awareness creation programmes were members under this scheme. and competitiveness, and above all good conducted at the Staff Training College  Follow up medical treatment for health and well-being. The Club has for Management Trainees and recently grave illnesses upto a limit of excelled in several competitive events recruited Customer Service Assistants. Rs. 50,000/- per year. during the year under review. Topics included customer care, service quality, branch banking together with law Staff Loans: Athletics: relating to banking and the Disciplinary  Staff Housing Loan Limit was The Bank won several top places at the Code and Procedure of the Bank. increased to Rs. 3.0 Mn. During the Nationalised Services Athletic Meet, 2010. year, the Bank granted 3,462 Staff Foreign training opportunities for  1st place in 400m, 800m, 1,500m, Housing Loans amounting to 53 employees and external local Over 40 Years events training for 548 employees through 113 Rs. 5.4 Bn.  1st place in 1,500m Road Walk programmes were provided during the  House Repair Loans with a limit of for Men over 50 year. Excluding foreign training, a total Rs. 100,000/-. A total of 40 loans of 614 training programmes were held amounting to Rs. 3.9 Mn were  1st place in 4 x100 relay for Women during the year under review where granted in 2010.  1st place in Novices Women's 22,835 members of staff were trained. Long Jump  Consumption Loans limit was increased to Rs. 0.5 Mn. A total of  1st place in Women's 800m Staff Welfare and Benefits 1,475 loans amounting to Rs. 663.0 Mn  1st places in High Jump and The Bank provides a range of benefits to were granted in 2010. Triple Jump staff, including the following:  Vehicle Loans are based on a limit Badminton: Medical Scheme: of 24 months' gross salary. Total granted during the year amounted to Winners in Men's Veteran, at  Reimbursement of medical expenses Nationalised Services Badminton for staff members and pensioners Rs. 193.4 Mn through 159 loans. Association (NSBA) Championships. up to a maximum individual limit of  Education Loans for Postgraduate Rs. 271,000/- per year. degrees has a limit Rs. 0.5 Mn. Runners-up in Women's 'C' Division in 18 loans totalling Rs. 5.7 Mn were the NSBA Championships.  In addition, reimbursement upto a limit of Rs. 750,000/- for grave granted in 2010. illnesses or major surgery once in a

075 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Volleyball: Sevaka Sangamaya, Jathika Sevaka Runners-up in Men's B Division Sangamaya, Samastha Lanka Bank Nationalised Services Volleyball Employees Union, other unions, union Federation Championships. officials and voluntary organisations have all played a pivotal role in creating Soccer: a conducive environment for employer- Winners in 'B' Division Nationalised employee relations within the Bank. Services Soccer Association Championships. Recognition Netball: People’s Bank continues to be Runners-up in 'A' Division Nationalised recognised for its superlative services Service Netball Association in banking. They reflect our sense of Championships. purpose, the business strategies that produce results and above all, the Table Tennis: solid performance of our staff. The key Runners up (both Men and Women) at awards received by the Bank during the the Nationalised Services Table Tennis year are noted below: Association Championships.  Sri Lanka’s ‘People’s Service Brand of the Year’ - Gold Award, Sri Lanka Holiday Homes Institute of Marketing. The Bank maintains 11 Holiday Homes in various parts of the country for the  ‘People’s Banking and Financial benefit of the staff and the pensioners Brand of the Year’ - Gold Award, of the Bank. Three more Holiday Homes Sri Lanka Institute of Marketing.

are being prepared in Trincomalee,  International ARC Award for and Kandy. Excellence in Financial Reporting/ Annual Report 2009. Employee Relations The Bank continues to receive excellent support from all trade unions. People’s Bank Officers Association, Ceylon Bank Employees Union, Sri Lanka Nidahas Pantheru: The Pantheru Dance takes its name from the ‘pantheruwa’ - a tambourine- like instrument without skin but with the little cymbals attached around its circumference. It is an instrument dedicated to the goddess Pattini. In folklore it is believed the gods used the pantheruwa to celebrate their victories in war, and this concept was carried on forward by the Sinhalese 076 Kings, who employed pantheru dancers to celebrate their victories in battles. People’s Bank | Annual Report 2010 [Outline of Our Reporting Initiatives]

Page Reference

1. Strategy and Analysis 1.1 Statement from the CEO and the Chairman Chairman’s Message 6-11 CEO/GM’s Review 14-21 1.2 Description of key impacts, risks and opportunities CEO/GM’s Review 14-21 Compliance Report 82-83 Corporate Governance 84-97 Risk Management 100-112

2. Organisational Profile 2.1 Primary brands, products and services Business Review 44-59 2.2 Operational structure of the organisation Business Review 44-59 2.3 Location of organisation’s headquarters Corporate Information 217-218 2.4 Number and name of countries with operations Sri Lanka 2.5 Nature of ownership and legal form Corporate Information 217-218 2.6 Markets served Business Review 44-59 2.7 Scale of the reporting organisation Income Statement 133 Balance Sheet 134 Performance Review 2000-2010 210-211 2.8 Significant changes during the reporting period Financial Review 60-69 2.9 Awards received Business Review 44-59 Corporate Responsibility 72-76

3. Report Profile 3.1 Reporting period 1st January 2010 to 31st December 2010 3.2 Date of most recent previous Report December 2009 3.3 Reporting cycle Annual 3.4 Contact point for questions regarding the Report or No. 75, Sir Chittampalam A. Gardiner Mawatha, its contents Colombo 02, Sri Lanka

077 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Page Reference

3.5 Boundary of Report Sri Lanka 3.6 Specific limitations on scope/boundary The Report covers only the Sri Lankan operations of People’s Bank 3.7 Restatements None 3.8 Significant changes from previous reporting period No significant changes 3.9 Location of standard disclosures in the Report Will be uploaded on the People’s Bank website

4. Governance, Commitments and Engagement 4.1 Governance structure Corporate Governance 84-97 4.2 Chair of the highest governance body Chairman’s Message 6-11 Board of Directors 24-26 4.3 No. of members in the highest governance body Directors' Report 122-124 4.4 Mechanisms for employees/shareholders to provide recommendations/directions to the Board Regular team briefing feedbacks 4.5 Compensation and performance Corporate Responsibility 72-76 4.6 Expertise of governance body Board of Directors 24-26 Directors' Report 122-124 4.7 Mission and value statements Our Mission and Our Business Values 5 4.8 Management of performance Financial Review 60-69 4.9 Evaluating the performance Financial Review 60-69 4.10 Precautionary approach Corporate Responsibility 72-76 4.11 Economic, environmental and social , Corporate Responsibility 72-76 principles or other initiatives 4.12 List of stakeholder groups Government of Sri Lanka and Co-operative Societies

5. Economic 5.1 Disclosure of management approach Financial Review 60-69

078 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Page Reference

Economic Performance 5.2 Economic value generated and distributed Value Added Statement 186 5.3 Organisation’s defined benefit pension plan Description of the Pension Plan 5.4 Financial assistance from Government Bank receives assistance from the Government regularly

Market Presence 5.5 Entry-level wage - local minimum age Defined in the Collective Agreement and Labour Law 5.6 Procedures for local hiring and proportion of senior Recruitment locally management hired from the local community at significant locations of operation 5.7 Development and impact of infrastructure investments Business Review 44-59 and services provided primarily for public benefit through Corporate Responsibility 72-76 commercial, in-kind or pro bono engagement 5.8 Indirect economic impacts Business Review 44-59

6. Social 6.1 Disclosure of management approach Corporate Responsibility 72-76

Corruption 6.2 Analysis for risks of corruption Risk Management 100-112 6.3 Training in anti-corruption Internal training sessions 6.4 Instances of corruption None reported

Public Policy 6.5 Public policy development and lobbying Major involvements during the year 6.6 Contribution to Government Major contributions during the year

Anti-Competitive Behaviour 6.7 Legal actions for anti-competitive, anti-trust and None reported during the year monopoly practices

Compliance 6.8 Monetary value of significant fines None reported during the year

079 People’s Bank | Annual Report 2010 There is no better example of dignity and majesty than that embodied by the majestic perahera tusker. Over years of enterprise People's Bank has striven to stand worthy of recognition as a well respected and distinguished financial services provider, ally and friend to the Nation and its people. We believe that we’ve come a long way on this journey…but it is an ever ongoing journey on which we must strive every day to be worthy of such qualities.

[Compliance Report]

n today’s fastpaced global spirit of such regulations or economy where laws and to endanger the good name regulations are changed and of the Bank. Board of Directors revised frequently, it is possible I 4. Protects the Bank’s tangible and to overlook and lose sight of laws and intangible assets, the financial regulations that apply to our respective security of the business and most duties at People’s Bank. While violation importantly, the good reputation of Chief Executive Officer of laws and regulations bring about the Bank. sanctions, it also impairs the good name and reputation of the Bank. Thus an 5. Provides regular updates to the effective compliance function ensures staff when there are changes Senior Deputy General Manager that the Bank is insulated from such to or regulations in (Risk & Compliance) consequences: Banking or Financial Services to ensure compliance awareness at

Conforming to local and worldwide all times. Compliance Officer banking requirements, the Bank In addition to the above - has appointed a Compliance Officer 1. The Compliance Officer apprises to identify and assist the Bank in and discusses the applicable laws complying with the laws pertaining to 3. The Bank has put into place and regulations pertaining to the the industry. The compliance structure comprehensive measures to respective departments of the of the People’s Bank is as follows: comply with both directives Bank and a periodic process of and guidelines issued by the confirmation of compliance from As such, the Compliance Officer - Central Bank of Sri Lanka as each Department has now begun. 1. Ensures that the Bank’s business well as Statutory Requirements. Any breaches are brought to the activities are conducted in A Compliance Report submitted notice of the Board of Directors and accordance with the laws and bi-monthly to the Board, covers rectifying measures immediately regulations pertaining to the the entire compliance framework taken. Compliance audits are also industry. and the Bank’s current status, implemented on a selective basis obtaining confirmation through 2. Ensures that all employees will for departments and branches. Heads of Departments that follow accepted ethical standards 2. Compliance Reports certified by the Bank has complied with all in discharging their duties. the Compliance Officer and the requirements as stated in the 3. Interprets the laws and regulations CEO/GM on compliance with CBSL main Statutory Acts including the constructively, in order to facilitate directives are submitted monthly to Inland Revenue, Exchange Control, business but not in breach of the the Bank's Supervision Department CRIB, EPF and ETF, Banking Act, of the Central Bank of Sri Lanka.

082 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Coverage of the Compliance Functions

Compliance Function

External Corporate Social Internal Corporate Governance Regulations Responsibilities Regulations - Best practices

Labour Laws, Debt Recovery, Civil Transactions to ensure relevant People’s Bank has fully complied with Procedure, Mortgage, Registration staff are kept up to date with the the compliance requirements of the of Documents Ordinance and latest developments. country and has developed systems and requirements stipulated under the procedures to give the fullest support c. The Bank has put in place Financial Ombudsman Scheme. needed to combating money laundering a Code of Best Practices and terrorist financing. All applicable a. In order to improve awareness in Corporate Governance, laws and regulations are strictly of AML/KYC and Customer Due Anti-Money Laundering and followed in this regard. As a State Bank, Diligence amongst employees of Know Your Customer Policy every step has been taken to extend the Bank, training programmes and a Code of Conduct. support to regulatory authorities to across the Branch network have Additionally the amended ensure the stability of the financial been conducted. Versions of AML & KYC Policy system of Sri Lanka. and Code of Best Practices in b. The Bank has also developed Corporate Governance are to be e-learning modules on Anti- implemented by March 2011. Money Laundering/Know Your Customer and Western Union

083 People’s Bank | Annual Report 2010 [Corporate Governance]

orporate Governance which is considered as a vital element Corporate Governance C of financial stability in modern Framework economy plays a major role in banking business. This concept promotes market discipline without calling for Shareholders (Government of regulatory burden. Bank over the SL and Co-operative Societies) External Auditors past 49 years playing the role of good Corporate Citizen has taken steps voluntarily to adopt the Corporate Governance practices recommended by Board of Directors various regulatory bodies such as The Board Executive Credit Institute of Chartered Accountants of Committee Sri Lanka, The Securities and Exchange Commission of Sri Lanka and the CEO/GM Central Bank of Sri Lanka. Board Integrated Risk Management Committee The primary responsibility for good Corporate Governance rests with Board Corporate Management of Directors and Senior Management Board Nomination of the Bank with the contribution of all Committee the other stakeholders starting from employees to bank customers to uphold Management Committees Corporate Governance. Hence, the Board of Directors and CEO/GM while Board Audit Committee continuing to innovate and adopt latest Corporate Governance practices have appointed independent committees Board Human Resource to oversee, evaluate and recommend and Remuneration Committee various operational aspects in the Bank.

084 People’s Bank | Annual Report 2010 Quick Read The Bank’s governance processes are aimed at ensuring the highest levels of transparency, accountability and compliance. The Bank has made every endeavour to integrate the corporate governance recommendations of The Institute of Chartered Accountants of Sri Lanka, the Securities and Exchange Commission, and the Central Bank, as part of its polices and business practice.

The primary responsibility for governance rests with the Board of Directors. The Integrated Risk Management Committee, the Executive Credit Committee, the Nomination Committee, the Audit Committee and the Human Resource and Remuneration Committee constantly engage with senior and middle management to ensure that governance structures are operational and effective.

The Bank’s governance practices are driven by a strong set of corporate values. Its corporate values in turn promote in all aspects of the Bank’s operations; strive to further employee aspirations and help them develop their full potential; ensure the highest levels of occupational safety and hygiene; promote sustainable environmental practices within the institution and in its dealings with customers; and ensure zero tolerance of corruption and related malpractices.

Our Commitment b. Recognise and differentiate 7. Put in place a code of ethics responsibility linkages to outlining the values, ethics and to being a Good stakeholders. beliefs that guide the policy and Corporate Citizen c. Ensures that the Bank behaviour of the Bank and define has open communication the ethical standards applicable to The Bank emphasises its commitment and engagement with key it and to all who deal with it. to being a good corporate citizen. It stakeholders. ensures effective balancing of the need for long-term viability and prosperity The disclosures below reflect the Bank’s of the Bank with that of the society on level of conformance to the Corporate which it relies for its ability to generate Our Values and Ethics Governance Directions (Banking Act economic value with the requirement Direction No. 11 of 2007 and subsequent Our Board and the Management ensure for competitive and financial gain. Amendments thereto) issued by the the following: Central Bank of Sri Lanka (CBSL) and 1. Have zero tolerance for corruption Consequently, the Board code of best practice on Corporate and related malpractices. The Governance issued by Securities and 1. Ensures that the Bank has clear Board has put in place codes Exchange Commission of Sri Lanka and corporate values which are stated and enforce them rigorously and The Institute of Chartered Accountants and enacted. persistently. of Sri Lanka (SEC & ICASL). 2. Ensures that the Bank is 2. Recognise and inculcate respect governed in a way that is efficient, for human rights in the Bank’s responsible, accountable and operations. transparent and with probity. 3. Respect and be sensitive to 3. Promulgate policies defining the employees, treat them fairly and governance of relationships with enable them to develop their full defined key stakeholders. potential. 4. Ensures that the Bank is 4. Practice and encourage committed to investing for the environment responsibility. long-term and as such, 5. Promote Bank’s safety and a. Develop long-term soundness. relationships. 6. Consultants endeavour to improve practices.

085 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Bank’s Adherence with the Code of Best Practice on Corporate Governance issued by The Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka.

Subject Corporate Governance Principle Reference to the Level of Compliance Code of Best Practice issued by ICASL & SEC

A. General Chairman and CEO If Chairman and CEO is one and the same person, A.2.1 & A.5.6 The posts of Chairman and disclose the Name of the Chairman/CEO and Senior CEO/GM are separate positions Independent Director appointed and justification of the and held by two individuals. decision to combine the positions.

Board Balance 1. Should identify the Independent Non-Executive A.5.5 Under the People’s Bank Act Directors. No. 29 of 1961, the Minister 2. If a Non-Executive Director is identified as of Finance is empowered to ‘Independent’, notwithstanding the existence of appoint Board of Directors. any of the following factors, the reason for such All Directors appointed under determination should be disclosed. the Act are in a Non-Executive capacity and are able to form 3. A Director is not considered independent if he/she: an independent view since they a. Has been employed by the Company during are not part of the Management the period of two years immediately preceding of the Bank. appointment as Director; b. Currently has/had during the period of two years immediately preceding appointment as Director, a Material Business Relationship with the Company, whether directly or indirectly; c. Has a close family member who is a Director, Chief Executive Officer (and/or an equivalent position) in the Company; d. Has a Significant Shareholding in the Company; e. Has served on the Board of the Company continuously for a period exceeding nine years from the date of the first appointment;

086 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Subject Corporate Governance Principle Reference to the Level of Compliance Code of Best Practice issued by ICASL & SEC

f. Is employed in another Company or Business; i. In which a majority of the other Directors of the Company are employed or are Directors; or ii. In which a majority of the other Directors of the Company have a Significant Shareholding or Material Business Relationship; or iii. That has a Significant Shareholding in the Company or with which the Company has a Business Connection;

g. Is a Director of another company; i. In which a majority of the other Directors of the Company are employed or are Directors; or ii. That has a Business Connection in the Company or Significant Shareholding;

h. Has Material Business Relationship or a Significant Shareholding in another company or business; i. In which a majority of the other Directors of the Company are employed or are Directors; and/or ii. Which has a Business Connection with the Company or Significant Shareholding in the same.

087 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Subject Corporate Governance Principle Reference to the Level of Compliance Code of Best Practice issued by ICASL & SEC

Appointment of When new Directors are appointed, the following A.7.3 Complied with. New Directors details should be disclosed. 1. A brief resumé of each such Director; 2. The nature of his expertise in relevant functional areas; 3. The names of companies in which the Director holds directorships or memberships in Board committees; and 4. Whether such Director can be considered independent.

Nomination The Chairman and members of the Nomination A.7.1 Complied with. The Nomination Committee Committee should be identified. Committee appoints the Bank’s CEO/GM and Senior management. Appraisal of Board Should disclose how performance evaluation A.9.3 The Board conducts appraisals Performance has been conducted. to assess its performance and effectiveness as a whole and that of the individual Directors by evaluating information provided by Board members in the form of a questionnaire on the contribution made by them.

088 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Subject Corporate Governance Principle Reference to the Level of Compliance Code of Best Practice issued by ICASL & SEC

Board Related The following details pertaining to each Director A.10.1 Complied with. The 2010 Disclosures should be disclosed: Annual Report contains 1. Name, qualification and brief profile; comprehensive information in this regard. 2. The nature of his/her expertise in relevant functional areas; 3. Immediate family and/or material business relationships with other Directors of the Bank; 4. Names of other listed companies in Sri Lanka in which the Director concerned serves as a Director; 5. 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; 6. Number/percentage of Board meetings of the Bank attended during the year; 7. Names of the Committees in which the Director serves as the Chairman or a member; and 8. Number/percentage of committee meetings attended during the year.

Disclosure of 1. A Statement of Remuneration Policy and details of B.3 The Ministry of Finance and Remuneration remuneration of the Board as a whole. Planning determines the 2. Details of remuneration of the Board as a whole. allowance payable to Directors. The Board of Directors determines the allowance of Board members serving in Board Sub-committees of the Bank.

Major Transactions All Major Transactions entered into by the Bank C.2 Complied with. should be disclosed.

089 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Subject Corporate Governance Principle Reference to the Level of Compliance Code of Best Practice issued by ICASL & SEC

Audit Committee 1. Names of the Members of the Audit Committee D.3.4 Names of members of the Audit should be disclosed. Committee are given in the 2. Basis for determining the independence of Directors' Report on page 123. Auditors. The Auditor of the Bank is the Auditor General as enshrined in the of Sri Lanka. The independence of the Auditor General is ensured by the Constitution. The Auditor General carries out the Bank’s external audit.

Code of Business 1. Should disclose whether the Bank has a Code of D.4.1 & D.4.2 Complied with. Bank has Conduct and Ethics Business Conduct and Ethics for Directors and Code of Ethics for Directors members of the Senior Management Team. and a Code of Conduct for its 2. Should also disclose an affirmative declaration that Employees. Refer Chairman’s they have abided by such Code. review on page 10. 3. 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 Bank is a going concern, D.1.5 The Bank is a going concern. with supporting assumptions and qualifications as necessary

B. Remuneration Committee Report Members of The names of members of Remuneration Committee B.1.3 Complied with. Names of Remuneration should be disclosed in the Remuneration Committee members of the Remuneration Committee Report. Committee are disclosed in the Directors’ Report on page 124 of this Annual Report.

090 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Subject Corporate Governance Principle Reference to the Level of Compliance Code of Best Practice issued by ICASL & SEC

C. Directors’ Report Directors’ Report Should contain the following declarations made by D.1.2 Complied with. Directors: 1. The Bank has not engaged in any activities, which contravene laws and regulations; 2. The Directors have declared all material interest in contracts involving the Bank and refrained from voting on matters in which they were materially interested; 3. The Bank has made all endeavours to ensure the equitable treatment of shareholders; 4. The business is a going concern with supporting assumptions or qualifications as necessary; and 5. 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.

D. Financial Statements Financial 1. The Board of Directors should include a Statement D.1.3 Complied with. Statements of Responsibility for the preparation and presentation of Financial Statements. 2. Auditors should also have a statement about their reporting responsibility.

091 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Subject Corporate Governance Principle Reference to the Level of Compliance Code of Best Practice issued by ICASL & SEC

E. Management Report Management Report Should include a ‘Management Discussion and D.1.4 Complied with. Analysis Report’ discussing at least the following issues: 1. Industry structure and developments; 2. Opportunities and threats; 3. Risks and concerns; 4. Internal control systems and their adequacy; 5. Social and environmental protection activities carried out by the Bank; 6. Financial performance; 7. Material developments in human resources/ industrial relations; and 8. Prospects for the future.

F. Corporate Governance Report Corporate Should disclose the manner and extent to which the D.5.1 Complied with. Governance Report Bank has complied with as per the principles and provisions of the Code.

G. Audit Committee Report Audit Committee Should set out the work carried out by the Committee. D.3.3 Complied with. Report

092 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Bank’s Adherence with the Corporate Governance Rules as Required by Section 3 (8) of the Banking Act Direction No. 11 of 2007 issued by the Central Bank of Sri Lanka Corporate Governance Disclosure requirements

Corporate Governance Principle Reference to Level of Compliance the CBSL rule

I. The Board shall ensure that: Annual audited Financial Statements and Quarterly Financial 3(8)(i)(a) Complied with. Please refer ‘Directors’ Statements are prepared and published in accordance with Responsibility for Financial Reporting on the formats prescribed by the supervisory and regulatory page 125 of this Annual Report. authorities and applicable accounting standards; and

Such statements are published in the newspapers in an 3(8)(i)(b) Complied with. abridged form, in Sinhala, Tamil and English.

II. The Board shall ensure that the following minimum disclosures are made in the Annual Report: Statements to the effect that the annual audited Financial 3(8)(ii)(a) Complied with. Please refer Directors' Statements have been prepared in line with applicable Responsibility for Financial Reporting on accounting standards and regulatory requirements, inclusive page 125 of this Annual Report. of specific disclosures.

A report by the Board of Directors on the Bank’s internal 3(8)(ii)(b) Complied with. Please refer ‘The Directors' control mechanism that confirms that the financial reporting Statement of Internal Control’ on page 126 to 127 of system has been designed to provide reasonable assurance this Annual Report. 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.

The External Auditors’ certification on the effectiveness 3(8)(ii)(c) Complied with. Please refer ‘Independent Assurance of the internal control mechanism referred to in Direction Report’ on page 128 to 129 of this Annual Report. 3(8)(ii)(b) above, in respect of any statements prepared or published after 31st December 2008.

093 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Corporate Governance Principle Reference to Level of Compliance the CBSL rule

Details of Directors, including names, fitness and propriety, 3(8)(ii)(d) Complied with. Details of Directors including their transactions with the Bank and the total fees/remuneration names, transactions with the Bank, total fees paid paid by the Bank are given in ‘Directors’ Report’ page 122 to 124 ‘Related Party Disclosures’ Note 37 and ‘Directors’ Emoluments - Operating Expenses Note on page 151 of this Annual Report.

Total net accommodation as defined in 3(7)(iii) granted to 3(8)(ii)(e) Complied with. Please refer Note 37 to the Financial each category of related parties. The net accommodation Statements on ‘Related Party Disclosures’ in this granted to each category of related parties shall also be Annual Report. The net accommodations granted to disclosed as a percentage of the Bank’s regulatory capital. each category of related parties are given below as a percentage of the Bank’s regulatory capital.

Category of Related Party % of Regulatory Transaction Capital

Compensation of Key Management Personnel (KMP) – Credit Cards Facilities to KMP – Subsidiary Companies 19.2 Sub Subsidiary Companies – Associate Companies 1.3 GoSL and SOE 621.4

The aggregate values of remuneration paid by the Bank to 3(8)(ii)(f) Complied with. Please refer Note 37 to the Financial its Key Management Personnel and the aggregate values Statements on ‘Related Party Disclosures’ in this of the transactions of the Bank with its Key Management Annual Report. Personnel, set out by broad categories such as remuneration paid, accommodation granted and deposits or investments made in the Bank.

094 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Corporate Governance Principle Reference to Level of Compliance the CBSL rule

The External Auditor’s Certification of the compliance with 3(8)(ii)(g) Complied with. The External Auditor's Certification these Directions in the Annual Corporate Governance reports of the compliance with the requirements of these published after 1st January 2010. Directors was obtained and it does not contain any significant deviations.

A report setting out details of the compliance with prudential 3(8)(ii)(h) Complied with. requirements, regulations, law and internal control and measures taken to rectify any material non-compliance.

A statement of the regulatory and supervisory concerns on 3(8)(ii)(i) Complied with. There were no lapses in risk lapses in the Bank’s risk management, or non-compliance management and non-compliance with Directions with these Directions that have been pointed out by the issued by the Central Bank of Sri Lanka identified Director of Bank Supervision, if so directed by the Monetary for disclosure to the public. Board to be disclosed to the public, together with the measures taken by the Bank to address such concerns.

Gurulu Natuma: Gurulu Natuma is a low country dance which is thought to have originated in the region of Ambalangoda, which town is famous for its mask carving. Indeed the mask is an integral component in the dancer’s dress. The dance itself depicts the killing of a bird (Gurula) by a cobra… this dance is performed to drive away evil spirits. 095 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Number of Meetings held during the year 2010

Name of committee No. of Meetings

Board Audit Committee (BAC) 08 Board Executive Credit Committee (BECC) 22 Board Human Resource & Remuneration Committee (BHRRC) 16 Board Integrated Risk Management Committee (BIRMC) 04 Board Nomination Committee (BNC) 06

Attendance of Directors at Board Sub-Committee Meetings during the year 2010

Name of the Director BECC BHRRC BIRMC BAC BNC

Mr. W. Karunajeewa 21 15 N/M N/M 05 Mr. D.J.D. Jayakody 18 14 03 N/M 05 Mr. Anil Parakrama Weerasinghe N/M 09 03 08 06 Mr. Jehan P. Amaratunga (Appointed on 17.05.2010) N/M N/M 03 05 05 Mr. Ajith Panditharatne (Appointed on 17.05.2010) N/M N/M N/M N/M 06 Ms. Lakshmi K. Sangakkara (Appointed on 17.05.2010) 14 N/M N/A N/A 05 Ms. Dharma N. Gammampila (Appointed on 17.05.2010) N/M N/M 03 N/M 04 Ms. Visakha Amarasekera (Appointed on 02.06.2010) N/M N/M 01 05 05 Mr. Priyantha Mayadunne (Appointed on 15.07.2010) N/M N/M N/M N/M 05 Mr. Chandrasiri de Silva (Resigned on 07.05.2010) 06 04 01 N/M N/M Mr. R.A. Jayatissa (Resigned on 07.05.2010) N/M N/M 01 03 N/M Mr. Wajira Swarna Sri Bandara (Resigned on 07.05.2010) N/M N/M N/M 03 N/M Mr. K.L. Hewage (Resigned on 07.05.2010) N/M N/M N/M N/M N/M Mr. Lalith R. de Silva (Resigned on 07.05.2010) N/M N/M N/M N/M N/M

N/M - Not a Member of the Board Sub-Committee.

096 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Sub-Committees of the Board

Sub Committees of the Board

Board Executive Credit Committee

Board Human Resource and Remuneration Committee

Board Audit Committee

Board Integrated Risk Management Committee

Board Nomination Committee

Geta Bera Drummer: The cylindrical, barrel shaped, two headed drum called the Geta Bera or the Kandyan drum is a staple percussion instrument in traditional Sri Lankan music and dance. It is the principal drum used to accompany traditional Kandyan dancing. 097 People’s Bank | Annual Report 2010 Years of enterprise have taught us that one must move with the times…understand and respond to changing ‘rhythms and steps’ of our customers…and in this evolutionary process, we must take care to include every nuance from every area of our motherland. In reality, the evolving nature of the perahera is a great comparative model…high and low country dancers…the different costumes…the different dance routines…the different rhythms of the drums and the different drums used…the relevance of elements that have been added on over the years…all resonate with the Bank’s ethos of an eagerness to embrace evolving trends and inclusiveness.

[Risk Management]

eople’s Bank recognises that the Business of banking is The Risk Management essentially one of Risk Framework at People’s Bank P Management and in order to achieve its overarching objectives, superior risk management processes are vital.

OVERSIGHT Board The Board of Directors has overall • Overall responsibility for risk management responsibility for the establishment • Set risk appetite & communicate risk strategy and oversight of the Bank’s risk • Approve & review risk policies management framework. To assist in this task it has constituted the Board Integrated Risk Management REVIEW & Risk Management COORDINATION Committee (BIRMC), the Board (includes Board Integrated Risk Management Committee, Executive Credit Committee (BECC) Board Executive Credit Committee, ALCO) and the Asset and Liability Committee • Reviewing, aggregating & reporting overall risk portfolio (ALCO). These committees are charged • Escalating issues to the Board with developing and monitoring the • Reviews risk management procedures & practices relevant risk management policies • Recommends risk appetite to the Board and they meet periodically to review and assess the Bank’s risk profile and address risk related issues. OWNERSHIP Business units

(Retail, Corporate, Treasury) The Bank recognises the Business • Identification, assessment, measurement monitoring, Units as owners of the risk and the first controlling & reporting business risks line of defence. They are required to identify, manage, mitigate and report on the different risks that arise from their ASSURANCE Internal Audit business activities on a day-to-day basis. • Independent reviews of compliance with risk policies & Risk management, which comprises procedures • Assures Board on the effectiveness of risk management of the BIRMC, BECC and ALCO is the policies & procedures second line of defence.

100 People’s Bank | Annual Report 2010 Quick Read Managing risks is an important facet of our day-to-day operations and the Bank has put in place comprehensive framework to identify, monitor and mitigate a variety of risks that we are exposed to. The Bank is exposed to a variety of risks in its operations: credit; market; operational and compliance. Credit risk is the biggest of the risks faced by the Bank and arises when customers default on their capital and interest repayments.

The Bank has a four-tiered structure to manage risk. The Board has the overall responsibility for establishing oversight mechanisms and monitoring compliance with the institution’s risk management polices. The different business units of the Bank are the ‘first line of ’ and closely monitor events, trends, markets, currency movements and customer behaviour on a day-to-day basis. The Board Integrated Risk Management Committee, the Board Executive Credit Committee and the ALCO - form a third tier in the risk management structure. The committees engage with the business units on a day-to-day basis and are constantly monitoring and evaluating the risk management practices and policies. The Bank’s internal audit mechanism provides a fourth tier of security by independently reviewing the business units to ensure strict compliance with the different facets of the Banks’ risk management strategy.

These committees design and Credit Risk and its The Board has delegated to the BECC deploy the overall Risk Management the responsibility of the oversight and framework, develop Risk Management Management management of credit risk, which methodologies, policies and procedures, Credit risk arises because the Bank’s includes: approve and review various risk customers and counterparties may fail  Formulating and updating credit exposures within parameters laid down to meet their contractual obligations to policies in consultation with the by the Board and undertake aggregated the Bank and derives principally from BIRMC and Business Units. risk reporting. The policies and the loans and advances made to and procedures are reviewed on a regular due from them. Credit risk also arises  Establishing credit approval basis and updated in line with the from financial guarantees, letters of structures so as to ensure that the changes in market conditions, products credit and acceptances issued and larger and higher risk exposures and services offered. made on behalf of the Bank's clients. are reviewed and approved at the Credit risk is the single largest risk for appropriate levels of seniority. The third and last line of defence the Bank, and is estimated at over 80%  Periodic review of individual credit is Internal Audit which provides of the total risk exposure. Its careful exposures and overall portfolio to independent testing and verification management is therefore crucial to ensure that there are no undue risk of the effectiveness of the risk the achievement of the Bank’s overall concentrations. management framework, including business objectives. policies and procedures and compliance with these policies and also assesses management assurance processes. Organisation Structure for Credit Risk Management As a provider of the full spectrum of retail, commercial and wholesale financial products and services,

People’s Bank is exposed to a number Board of financial and other risks, the chief of which are:

 Credit Audit

 Market & Liquidity

 Operational BECC BIRMC  Compliance

 Legal

Business Units Risk Management Department

101 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

 Adequacy of provisions and Recognition of impaired loans (NPLs) Migration towards the more advanced management of higher risk is done strictly in line with regulations versions of Basel II is a key objective exposures. issued by the Central Bank of Sri Lanka. of the People’s Bank. In this regard, All loans and advances for which all lending staff are being trained on  Developing and maintaining risk rating systems as a means either interest or principal payments the use and implementation of different of quantification of credit risk, have not been met are classified risk rating models, while risk rating differentiating between the various as Non-Performing. Continued migrations are being tracked to derive levels of risk and determining the non-performance is then subject to Probability of Default (PD) factors. In degree of control and supervision progressively increasing levels of tandem, Loss Given Default factors required. Three different rating provisioning depending on tenor and are also being derived by tracking systems to cater to the Larger value of any security held. realisations from the sale of collaterals Corporate Borrowers, Middle pledged to the bank. Level Borrowers and for Financial Institutions have been developed at People’s Bank.

In addition, Internal Audit Department conducts regular audits of the Branches and Business Units to provide assurance of the adequacy of controls and an independent assessment of the credit risks to Senior Management and the Board Audit Committee.

2010 was a year in which the economy began to take-off after the set backs it had faced in the last three decades due to terrorist action. This necessitated providing access to more credit with the result that loan outstandings grew by 24.3% over 2009. Despite this robust growth, the non-performing ratio reduced to 5% which was well below the industry average, and this was due to careful pre-disbursement appraisal and ongoing monitoring of credit risks.

102 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Pawning loans are backed by gold and Exposures in foreign currencies are Unsecured exposures are marginal and are effectively of very low risk. The relatively small with consequent low are usually made to large corporate rest of the portfolio is well-diversified risk to the Bank. borrowers. between sectors and among a large number of borrowers.

103 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Long-term loans are largely on account of personal home loans, which is a Despite the significant loan growth, relatively low risk exposure. non-performing loans reduced in 2010, while coverage increased.

104 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Stress Testing of Credit Quality

Even a 20% increase in NPLs will not Even a 100% negative shifts in NPL bring Capital Adequacy Ratios categories have no adverse impact on below norms. Capital Adequacy Ratios.

Kulu Natuma: The Kulu Natuma or Harvest Dance is usually performed by a bevy of girls to celebrate a rich harvest. The dance enacts the process of harvesting in the rice fields of Sri Lanka…from reaping to the winnowing of grain. The movements and happy demeanour of the girls make this a buoyant dance performed to the mellow accompaniment of light drumming and the haunting strains of the flute. 105 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Market Risk and its Management Market risk is the risk that changes in foreign exchange rates, interest rates and equity prices will adversely affect the Bank’s income and or the value of any financial instruments that it may hold.

Organisation Structure for Market Risk Management

Board

Asset Liability Committee Audit (ALCO)

Head of Treasury Risk Management Dept. Head of Finance

Treasury Front Office Treasury Back Office Treasury Middle Office Including PDU (Settlements)

106 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

For the management of market risks, transactions on behalf of clients on Currently, the Middle Office manually the Board has on the recommendations account of imports, exports, remittances monitors these exposures against the of the ALCO, set limits for the various and other activities. limits set. However, plans are underway Treasury-related activities. These are to set up a fully-integrated Treasury closely monitored and reported on Foreign Exchange Risk is Management System that will facilitate by the Middle Office, and discussed managed on a day-to-day basis by the the monitoring of these exposures on fortnightly by the ALCO. The ALCO is Bank's Treasury Department. Volume a real time basis and improve overall responsible for the development of limits are set on open positions by market risk management. market risk management policies while currency and also for the overall the Middle Office is responsible for the open position, both on a day light and Chart of DVaR over day-to-day monitoring of exposures overnight basis. Value at Risk (VaR) last 3 months against these limits and policies. measures are also being introduced and The chart shows the DVaR exposure in The Treasury, however, is primarily are now at the testing stage. Daily Value US$ at the end of each business day for responsible for the overall management at Risk (DVaR) will become the primary the 3 months to 31st December 2010. of market risks on an ongoing basis. mechanism for controlling foreign The exposure has been contained well exchange risk. DVaR is an estimate, with within manageable limits. Foreign exchange exposures arise a 99% confidence level, of the potential both from proprietary trading and from loss which might arise if the current undertaking foreign currency denoted positions were to be held unchanged for one business day.

107 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Stress Test for Exchange interest rate changes on the banks Liquidity Risk is the risk that the Capital Adequacy position. The effect on Rate Movements Bank will not be able to meet its both the Banking and Trading Books is contractual obligations as and when considered for this exercise. they arise. It also encompasses the difficulty to fund assets at appropriate A significant part of the Bank's assets maturities and prices and the inability are in the form of long duration Housing to liquidate assets at a reasonable price Loans, while deposits are largely within an appropriate time frame. short-term resulting in the Bank being vulnerable to interest rate hikes. The Bank’s Treasury Department is However, this is proactively managed to charged with the responsibility of reduce the duration gap and thereby to managing the Bank's liquidity within minimise the overall negative effects of both internal and regulatory guidelines, possible interest hikes on the Bank. under the supervision of the ALCO and monitored by the Middle Office. Stressing Interest Rate Risk using Duration Gap Analysis The Bank’s liquidity position was at comfortable levels as at 31st December 2010. This strength is derived from the Bank’s island-wide network of branches and strong brand name, buttressed by good client service, competitive rates of Even a 15% adverse movement in interest and a wide portfolio of products exchange rate has no major impact on and services catering to all segments our Capital Adequacy Ratio. of society, resulting in a stable deposit base that has helped to insulate the Interest Rate Risk is the possibility Bank from any liquidity shocks. that changes in the level of market interest rates will adversely affect the Bank’s net interest income and the value of any financial instruments held. This risk is managed by setting and monitoring limits for interest rate gaps and matching the repricing profile of the various interest sensitive assets Capital Adequacy Ratios continue above and liabilities. Duration Gap analysis is the minimum requirements even if used to determine the effect of possible interest rates increase by 1%.

108 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

In addition to the above, liquidity risk is managed by:

 Gap management of cash flow maturities, both on a residual and behavioural basis.

 Maintaining a portfolio high quality liquid assets that can be easily converted to cash to meet any contingencies.

 Having ready access to the inter bank money market.

 Stress testing of liquidity positions to assess the vulnerability of the Bank to any unlikely but potential threats and extent of reliance on any particular source of funds.

Short-term liquidity is sound, reflecting the Bank’s large and stable deposit base.

109 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Stress Test for Liquidity Operational Risk and losses within acceptable levels as determined by the Board. its Management Operational risk is inherent in all The prime responsibility for the businesses and is the risk of direct control of operational risk lies with the or indirect impacts resulting from branches and business units where the inadequate or failed internal processes risks originate. The Board has clearly or systems or from external events. defined the roles and responsibilities of Fraud (both internal and external) all staff, branches and functional units error, IT system breakdowns, natural in the management of operational risk. disasters, terrorist action are some of This includes risk identification and the common sources of operational risk. assessment, capturing and reporting Obviously, operational risk cannot be of risk events, appropriate segregation totally eliminated and the challenge is of duties, business continuity planning to manage and contain any operational and ongoing review of controls and procedures.

Organisation Structure Liquid assets will have to fall by 4.23% and 2.83% in the Domestic Banking for Managing Operational Risk Unit (DBU) and Off-Shore Banking Unit (OSBU) respectively, to affect our LAR. Board

Equity Risk which arises from changes in the prices of any equities Audit held was negligible during 2010 as the Bank held only a very small quantum of BIRMC shares. However, with plans under way to venture into Investment Banking this exposure will become significant. Risk Management Department

The Bank is gearing itself to monitor and manage these potential exposures. Other Operating Departments/ Corporate Bank & Branches Business Units

110 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Business Units and Branches are Operational Losses for 2010 The compliance and regulatory risks required to periodically report on any are carried out under the compliance Total operational losses for the year operational loss events to the Risk programme that sets out its planned 2010 as a percentage of operational Management Division who maintains a activities such as - expenses for the year is 0.23% which database of loss events. This is analysed  Implementation and review of is well below the internal set tolerance on an ongoing basis to identify trends specific policies and procedures if any, and thereby review procedures level of 1%. and controls to minimise future  Compliance risk assessment operational losses. Compliance and Regulatory  Compliance testing Risk is defined as the risk of legal or Certain risks that have high probability regulatory sanctions, material financial  Educating staff on compliance and low impact and those of low loss or loss to reputation a bank may matters probability and high impact are insured suffer as a result of its failure to comply to minimise losses. with laws, regulations, rules related There were no fines, regulatory or self-regulatory organisation standards otherwise, imposed on the Bank and The Internal Audit function also applicable to its banking activities. no major violations have been reported periodically reviews the entire operational during the year 2010. risk management process across the Awareness and conformity with the network to provide assurance to the laws and regulations pertaining to the Legal Risk Board and Senior Management. industry as well as the maintenance People’s Bank engages in a large of high ethical standards, inspire number of legally binding transactions confidence amongst our clients and and contracts with counterparties enhances the stature and good name of (local and foreign) including customers, the People’s Bank as a leading corporate suppliers, service providers. Legal risk citizen in Sri Lanka’s banking industry. arises due to entering into transactions and contracts contravening the law. As such, it is the responsibility of This may result in litigation and loss the Bank to manage compliance and of reputation. It is the responsibility regulatory risk effectively and this of all Senior Managers to ensure that exercise is assisted by the Compliance business is conducted in accordance Department of the Bank. with the prevailing legal framework and with an awareness of legal risk.

111 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

The Bank has employed internal and Capital Management Average Risk-Weighted external legal advisors to help in the Assets Over Last Three management of this process. The other People’s Bank’s primary objectives measures employed includes: when managing capital are: Years and CAR

 to safeguard the Bank’s ability to Capital Adequacy is now at comfortable  Using standard documentation for levels providing the platform to routine transactions; continue as a going concern and to have sufficient capital to finance its aggressively pursue the new business  Implementing policies and expansion plans opportunities fast becoming available procedures to ensure effective use of with the dawn of peace. We are however, its internal and external ;  to optimise returns to our owners mindful of the need for continued strong  Keeping abreast of changes in laws  to comply with the regulatory capital risk management and appropriate relating to business of the Bank requirements set by the Central pricing to preserve capital to meet our and other relevant areas and taking Bank of Sri Lanka (CBSL) aforesaid primary objectives. measures to adhere to them;

 Keeping abreast of developments in The Bank calculates its Capital regulatory laws; and Adequacy Ratio in line with the guidelines set by the CBSL:  Ensuring that proper action is taken to comply with orders of ,  Standardised Approach is used for and authorities whenever Credit Risk necessary.  Basic Indicator Approach for Operational Risk

 Standardised Approach for Market Risk

112 People’s Bank | Annual Report 2010 [Key Performance Indicators]

Key Performance Indicators (KPI) What does it Show? What we have accomplished and plan to achieve?

Gross Income Total turnover or interest and fee-based income of the Bank.

Net Income Net interest income (Interest income, less interest cost) and non-funded income.

Profit before Taxation Net income, less overheads and provisions.

Gross income exceeded the budgeted target Net income exceeded budget numbers driven This number exceeded budget targets for 2010 for the year. However, the Bank recorded a by management of interest margins and and previous year. The Bank recorded 44.4% decline of 9.4% over previous year compared growth in loans. The Bank recorded a growth growth over previous year despite provisions to 7.2% decline in the banking industry which of 4.1% over previous year. Going forward, the made for losses in 4 branches in the Wanni was driven mainly by interest rate reductions. Bank plans to focus on growing fee-based region during humanitarian operations. revenue, bad debt recoveries, capital and Stringent focus on interest margins and exchange gains, etc. management of overheads were key elements which contributed to this result. Going forward, we plan to continue our focus on margins, fee-based revenue and cost control initiatives.

113 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Key Performance Indicators (KPI) What does it Show? What we have accomplished and plan to achieve?

Net Income Net Interest Income and non-funded income.

Operating Costs Direct and indirect costs incurred to achieve operating profit.

Cost Income Ratio Operating cost/Net income

Continuous growth recorded with timely Key growth in overheads were driven by The Bank's cost/income ratio is now at 60% pricing adjustments, growth in loans and Rs. 1.4 Bn provisions made for operational levels compared to over 70% during early fee-based income. losses for 4 branches in the Wanni region. 2000. Growth in net income and stringent cost The Bank has managed to reduce the growth control measures were key to this noteworthy to 3.4% when compared to previous year's achievement. We plan to reduce this key growth of 16.2%. indicator further going forward.

114 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Key Performance Indicators (KPI) What does it Show? What we have accomplished and plan to achieve?

Non-Performing Loans (NPL) Loans with settlement issues categorised as per Central Bank of Sri Lanka (CBSL) guidelines.

Gross Loans and Advances Total loans and advances before deduction of provisions for doubtful debts.

Non-Performing Loans Ratio Non-performing loans/Total Gross loans and advances.

This number marginally exceeded budgeted Gross loans and advances increased above This ratio has decreased to 5% from 6.7% in levels in FY 2010 and actuals in FY 2009. budgeted expectations. Main sectors which FY 2009. However, it is equal to the industry The industry NPL's have reduced from fuelled this growth were: for Transport, average of around 5% for FY 2010 which Rs. 135.6 Bn to Rs. 104.1 Bn which is a 23.2% Pawning, Traders, Construction, Other declined from 9% in FY 2009. The Bank's decline when compared to previous year. Services, etc. The Bank's loans and advances credit evaluation process and focus on low grew by 24% in line with industry growth risk weighted lending were main contributory for the period. We plan to expand on quality factors in managing this ratio. Going forward lending going forward. the Bank plans to expedite recovery measures on NPLs, whilst minimising slippage.

115 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Key Performance Indicators (KPI) What does it Show? What we have accomplished and plan to achieve?

Provision for bad and doubtful debts Total provisions made on NPLs.

Non-Performing Loans Loans with recovery or settlement issues categorised as per CBSL guidelines.

NPL Coverage Ratio Percentage of provisions made on NPLs.

Made as per CBSL guidelines. The post-2001 NPL transfers are under The Bank's NPL coverage ratio is over 74% Rs. 12 Bn. The Bank still carries around compared to under 60% in the industry. Rs. 6 Bn worth of old hardcore NPLs granted Old hardcore NPLs are almost fully provided. prior to FY 2001. The NPL growth in the NPL coverage ratio should improve further industry recorded a 23% decline in FY 2010. going forward.

116 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Key Performance Indicators (KPI) What does it Show? What we have accomplished and plan to achieve?

Profit before Taxation Earnings from operations, less overheads and provisions.

Average assets Total loans and advances, investments and Treasury instruments, etc.

Return on Average Assets (before tax) Percentage of profit before tax over average assets.

Steady growth despite challenges both A certain portion of Bank assets was acquired PB has the second largest asset base in the internally as well as externally. prior to the year 2000 and yields low returns. industry. The Bank has focused on asset This has weighed down the Bank's ROA. growth over the years which has yielded However, new assets yield market rates and healthy returns. FY 2010 recorded an asset are priced above marginal cost of funds. We increase of 15% over FY 2009 which ended at plan to improve on this ratio going forward. Rs. 548 Bn. This is compared to the growth of 18% in the banking industry.

117 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Key Performance Indicators (KPI) What does it Show? What we have accomplished and plan to achieve?

Capital Base A combination of Tier I & Tier II Capital as approved by CBSL.

Risk-Weighted Assets Risk percentage weighted as per Basel II guidelines for assets in our books.

Capital Adequacy Ratio (CAR) A ratio computed using the above variables. The requirement is above 10% for the local banking industry.

The Bank has continuously increased its Bank's risk-weighted assets have increased The Bank recorded a CAR of 12.8% for capital base with maximum ploughed-back from 153.9 Bn to 187.8 Bn over FY 2009, the FY 2010. This is a remarkable achievement earnings, capital from the Ministry of Finance increase in risk assets was managed at prior given that this ratio was negative or below and two debenture issues to the value of year levels. The Bank also takes on a high 10% a few years ago. Sustaining this ratio is Rs. 5 Bn. The total capital base has reached operational risk charge due to the high net a key focus going forward. Rs. 24 Bn compared to negative Rs. 7 Bn in interest income generated. FY 2001.

118 People’s Bank | Annual Report 2010 [Chairman’s Message 006] [Chief Executive Officer/General Manager’s Review 014] [Board of Directors 024] [Corporate Management 028] [Executive Management 036] [Zonal Management 040] [Business Review 044] [Financial Review 060] [Corporate Responsibility 072] [Outline of Our Reporting Initiatives 077] [Compliance Report 082] [Corporate Governance 084] [Risk Management 100] [Key Performance Indicators 113] [Financial Reports 121]

Key Performance Indicators (KPI) What does it Show? What we have accomplished and plan to achieve?

Profit after Tax Profit before tax, less tax liability.

Number of Employees Number of permanent employees as at year end.

Profit per Employee Profit after taxation computed per permanent employee.

Similar to the industry, the Bank bears a huge Over 500 permanent employees were retired PPE recorded a growth of 65% over the tax liability on its earnings. The financial during year 2010, which resulted in reduction previous year. This amount is below the VAT compounded by higher than industry of the head count. As per the current age number recorded by most private banks. We salaries and wages is a material charge analysis, over 2,000 permanent employees are also note that People's Bank offers services compared to industry. Financial VAT is not due to retire over the next two to three years. which cannot be accounted in terms of a deductible expense for mainstream tax As a State Bank, we also provide value-added impact on bottom line growth. Payment of liability and has added strain to this bottom free services to our customers, hence has a Government servants salaries, Armed Forces‘ line number. Key focus going forward will be higher workforce compared to private salaries, Teachers‘ salaries, settlement of on growing profit after tax in order to increase sector peers. electricity bills, water bills, pension payments the Bank's Tier I Capital Base to meet to Government servants and loans to risk-weighted asset expansion. Government servants for housing are to name a few. High personnel cost of the Bank and the requirement of a large number of staff to man the largest branch outreach in the country adds strain to this KPI.

119 People’s Bank | Annual Report 2010

Financial Reports

[Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185] [Directors’ Report]

Directors Name Ms. M.T.I. Visakha Amarasekera The Board of Directors of People’s Bank (Appointed on 02.06.2010) consists of ten Directors nominated by the Minister of Finance out of which two Mr. M.M. Priyantha K. Mayadunne names were proposed by the Minister- (Appointed on 15.07.2010) in-Charge of Co-operatives under the provisions of People’s Bank Act No. 29 The following Directors resigned from of 1961 as amended. The Board was the directorate in May, 2010 and also reconstituted in May 2010 and the from the directorates of the Subsidiaries Chairman - Mr. W. Karunajeewa was and Subcommittees of the Bank. reappointed with two other Directors - Mr. A.P. Weerasinghe and Mr. D.J.D. Mr. H.K. Chandrasiri de Silva Jayakody. The present directorate Mr. Gunasoma Wickremasinghe consists of nine Directors with the six Mr. R.A. Jayatissa new appointees out of which one name Mr. Wajira Swarna Sri Bandara was proposed by the Minister-in-Charge Mr. K.L. Hewage of Co-operatives. The Board meets at Mr. Lalith R. de Silva least once a month and met 16 times in 2010. The quorum for a Board meeting is Directors’ Attendance at the five members. The Directors of the Bank Board Meetings during the year 2010 were as follows: Number of meetings held during the year

Name 2010 - 16.

Mr. W. Karunajeewa Name No. of No. of (Reappointed on 07.05.2010) Meetings Held Meetings Attended

Mr. A.P. Weerasinghe Mr. W. Karunajeewa 16 16 (Reappointed on 17.05.2010) Mr. A.P. Weerasinghe 16 15

Mr. D.J.D. Jayakody Mr. D.J.D. Jayakody 16 14 (Reappointed on 17.05.2010) Mr. Jehan P. Amaratunga 11 10 Mr. Jehan P. Amaratunga Mr. Ajith Panditharatne 11 11 (Appointed on 17.05.2010) Ms. Lakshmi K. Sangakkara 11 11 Mr. Ajith Panditharatne Ms. Dharma N. Gammampila 11 10 (Appointed on 17.05.2010) Ms. Visakha Amarasekera 10 08 Ms. Lakshmi K. Sangakkara Mr. Priyantha Mayadunne 08 07 (Appointed on 17.05.2010) Mr. H.K. Chandrasiri de Silva 05 05 Ms. Dharma N. Gammampila (Appointed on 17.05.2010) Mr. Gunasoma Wickremasinghe 05 05

122 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

Name No. of No. of Corporate Governance Meetings Held Meetings Attended Mr. R.A. Jayatissa 05 04 The Bank has voluntarily adopted Best Practice provisions and have in place Mr. Wajira Swarna Sri Bandara 05 05 systems and procedures to ensure Mr. K.L. Hewage 05 04 sound Corporate Governance. Mr. Lalith R. de Silva 05 02 A detailed Report is given on pages 84 to 95. Directors’ representation is as follows: Subsidiaries and Ms. Lakshmi - Chairperson Associates K. Sangakkara Compliance Reporting Mr. H.S. Dharmasiri - Director The following are the subsidiaries/ (Resigned in A separate Compliance Function Unit associate companies of the Bank: February, 2011) has been set up within the Bank. Mr. N. Vasantha Kumar - Director Monthly Compliance Reports certified (a) People’s Leasing Co. Ltd. Mr. P.V. Pathirana - Director by the CEO and the Compliance Officer (Resigned in are submitted to the Central Bank - Shareholdings - 100% October, 2010) Bimonthly Compliance Reports are also submitted to the Board. A Code of The principal activities of the Company (c) People’s Merchant Bank Ltd. Conduct for staff has been formulated are Financial and Operating Leasing, Shareholdings - 39.2% and issued to all members of staff. Hire Purchase, Asset Financing and Islamic Finance. The principal activities of the Bank A detailed report is given on pages 82 are Lease Financing, Trade Financing, to 83. Directors’ representation is as follows: Corporate Finance and Related Advisory Mr. W. Karunajeewa - Chairman Services, Investment Banking and Real Subcommittees of the Board as at Mr. D.J.D. Jayakody - Director Estate Development. 31st December 2010 are as follows: Mr. N. Vasantha kumar - Director Directors’ representation is as follows: Mr. Yohan A. Soza - Director Mr. P.A. Ajith Panditharatne - Chairman Board Audit Committee (b) People’s Travels (Pvt) Ltd. (Appointed in June, 2010) (BAC) Shareholdings - 99% Mr. Jehan P. Amaratunga - Director Mr. Jehan P. Amaratunga - Director (Appointed in October, 2010) (Committee Chairman) Miss Visakha Amarasekera - Director The principal activities of the Company Mr. Sabry Ibrahim - Director are Air Ticketing and Organising of Tours. Mr. A.P. Weerasinghe - Director Mr. K.L. Hewage - Chairman (Resigned in May, 2010) Main function of the Committee is Mr. P.V. Pathirana - Director identifying the operational risks faced by (Resigned in October, 2010) the Bank as preventing/minimising the effects of such risks and communicating

123 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

and encouraging best practices and approve recruitment, employee benefits, Board Nomination positive quality assurance throughout specified extensions and Corporate Committee (BNC) the branch network. Executive Management employment contracts. Mr. W. Karunajeewa - Chairman Mr. A.P. Weerasinghe - Director Board Executive Credit Mr. D.J.D. Jayakody - Director Committee Board Integrated Risk Management Committee Mr. Jehan P. Amaratunga - Director Mr. W. Karunajeewa - Chairman (BIRMC) Ms. Dharma N. Gammampila - Director Mr. D.J.D. Jayakody - Director Mr. P.A. Ajith Panditharatne - Director Ms. Lakshmi K. Mr. Jehan P. Amaratunga - Chairman Ms. Lakshmi K. Sangakkara - Director Sangakkara - Director of BIRMC Ms. Visakha Amarasekera - Director Mr N. Vasantha kumar - Acting CEO/GM Mr. D.J.D. Jayakody - Director Mr. Priyantha Mayadunne - Director Mr. Sabry Ibrahim - SDGM (Risk & Mr. A.P. Weerasinghe - Director Compliance) Ms. Dharma N. Gammampila - Director Main functions of the Committee Ms. Srima - DGM (Credit Ms. Visakha Amarasekera - Director are to implement a procedure to Arsacularatne Control) Mr. N. Vasantha Kumar - Acting select/appoint CEO/GM and Senior CEO/GM Management Personnel, to set Main functions are formulating and the criteria such as qualifications, periodically reviewing the credit policy The Board Subcommittee was set up experience and key attributes required of the Bank. Authorising credit facilities to have an overview and input into the for eligibility to be considered for over and above the delegated limits of Bank-wide efforts relating to Integrated appointment or promotion to the post specified categories. Risk Management. of CEO/GM and senior management positions, to consider and recommend from time to time the requirements of Board Human Resource The Board Subcommittee on Integrated Risk Management specifically views the additional/new expertise required for and Remuneration summary of proceedings and issues the progress of the Bank. Committee (BHRRC) arising out of Assets and Liabilities Committee (ALCO) reports and Mr. W. Karunajeewa - Chairman meetings, credit risk-related issues and Mr. D.J.D. Jayakody - Director reports and the efforts of establishing Mr. A.P. Weerasinghe - Director an Operational Risk Management framework. Rohan Pathirage Main functions of the Committee are Deputy General Manager to formulate policies and procedures More details relating to the Bank’s Secretary to the Board of Directors in relation to Human Resource Integrated Risk Management is set out in Management, Review and set in a specific section dealing with the subject 16th March 2011 place the manning levels of the Bank in this Report on pages 100 to 112. according to business requirements,

124 People’s Bank | Annual Report 2010 [Directors’ Responsibility for Financial Reporting]

The Board of Directors of the Bank has The Bank’s Financial Statements for responsibility for ensuring that the Bank the year ended 31st December 2010 keeps proper books of account of all prepared and presented in this Report the transactions and prepares Financial are in conformity with the requirements Statements that give a true and fair view of Sri Lanka Accounting Standards and of the state of affairs and of the profit/ the Banking Act No. 30 of 1988 and the loss for the year. amendments thereto. The Financial Statements reflect a true and fair view Accordingly, the Board of Directors of the state of affairs of the Bank and oversees the Managements’ the Group as at that date. responsibilities for financial reporting through their regular meeting reviews and the Audit Committee. The Audit Committee Report is given on page 130. Rohan Pathirage The Board of Directors has instituted Deputy General Manager effective and comprehensive systems of Secretary to the Board of Directors Internal Control. This comprises Internal Checks, Internal Audit and the whole 16th March 2011 system of financial and other controls required to carry on business of banking in an orderly manner, safeguard its assets and secure as far as practicable the accuracy and reliability of the records. Directors consider that they adopted appropriate accounting policies on a consistent basis and supported by reasonable and prudent and estimates in preparing the Financial Statements for the year 2010 exhibited on pages 133 to 184.

125 People’s Bank | Annual Report 2010 [The Directors’ Statement on Internal Control]

This report has been issued in line with policies and procedures on risk and on internal audit reports; external the Banking Act Direction No. 11 of control by identifying and assessing audit reports; prudential reviews; 2007, Section 3 (8) (II) (b), and prepared the risks faced, and in the design, and regulatory reports. The Board based on the guidelines issued by The operation and monitoring of suitable Audit Committee keeps under review Institute of Chartered Accountants internal control to mitigate and the status of key risk areas, which of Sri Lanka (ICASL). The Board of control these risks. impact the Bank and considers Directors (The Board) is responsible for whether the mitigating actions put in  Systems and procedures are in place internal control in People’s Bank and for place are appropriate. to identify, control and report on the reviewing its effectiveness. major risks including credit, market  The Bank’s financial reporting and operational risk. Exposure to process for preparing the annual Procedures have been designed these risks is monitored by Board accounts is controlled using for safeguarding assets against Integrated Risk Management documented accounting policies unauthorised use or disposition; for Committee (BIRMC). The Committee developed based on Sri Lanka maintaining proper accounting records; assesses all risks to the Bank on a Accounting Standards and reporting and for the reliability and usefulness periodic basis through appropriate formats and guidance on reporting of financial information used within risk indicators and management requirements issued by Central the business or for publication. Such information, review the adequacy Bank of Sri Lanka. procedures are designed to manage and effectiveness of all management rather than eliminate the risk of failure  The assessment did not include level committees to address specific to achieve business objectives and subsidiaries and associates of risks and to manage those risks can only provide reasonable and not the Bank. within quantitative and qualitative absolute assurance against material risk limits. This includes stress test The Board has identified the importance misstatement, errors, losses or fraud. and risk dashboard reviews. The of review of design and the effectiveness BIRMC also takes corrective action of the Bank’s system of internal control The key procedures that the Board to mitigate the effects of specific over financial reporting in accordance has established are designed to risks, where risks are at levels with the guidelines issued by the ICASL provide effective internal control beyond the prudent limits decided by and has already performed the following within People’s Bank. the Committee. as a part of annual review:

 Documentation of internal control for People’s Bank’s key internal control  The Board Audit Committee significant processes by considering procedures include the following: monitors the overall effectiveness of the system of internal control and only the ICASL illustrative guidance  Board of Directors has appointed in relation to compliance with sub committees to ensure the has reported regularly to the Board CBSL direction and obtained effective internal control mechanism of Directors. The key processes confirmation from respective within the Bank. Appointment of used by the Committee include- process owners as to the accuracy corporate management headed by regular business and operational of such documentations. However, CEO/GM has enabled to delegate the risk assessments; regular reports due to time constraints, detailed authority from Board to other layers. from the heads of key risk functions system notes and internal controls The management assist the Board including Internal Audit and with respect to pawning, credit in the implementation of the Board’s Compliance; review and follow up

126 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

card operations and publishing of  Performing much more structured attention that causes them to believe financial information in newspapers control testing to ensure that that the statement is inconsistent with were not fully completed. The the implementation of particular their understanding of the process process of finalisation of such controls were in effect throughout adopted by the Board in the review of process is in progress. the year and significant deficiencies the design and effectiveness of the have been discussed and internal control system of the Bank.  Considered the matters discussed addressed at the Board .If there at the Audit Committee meetings are weaknesses/additional risks related to the internal control identified by the Internal Auditors/ weaknesses pertaining to above Audit Committee these have to be processes. It also considered properly addressed by providing the following up actions taken by additional control with adequate N. Vasantha Kumar Internal Auditors. follow-up procedures. Acting CEO/General Manager

With reference to the guidelines Subject to the above areas identified issued by the ICASL on the Directors’ for further strengthening of the Statement on Internal Control, the processes, to the best of our knowledge Board has realised that there are the Board confirms that the system additional procedures to be followed of internal control is sound and has Jehan P. Amaratunga as a part of the Bank’s review of design been designed to provide reasonable Chairman of the Board Audit Committee and the effectiveness of the Bank’s assurance regarding the reliability of system of internal control over financial financial reporting and the preparation reporting. The Audit Committee has of Financial Statements for external already discussed regarding applying purpose has been done in accordance a formal process in this regard and with applicable Accounting Standards developed a formal action plan that is and regulatory requirements. W. Karunajeewa to be implemented in year 2011. The Chairman following steps have been considered The External Auditors have reviewed for further strengthening the process: the above Directors’ Statement on 16th March 2011  Completion of documentation Internal Control included in the Annual and further strengthening the Report of the Bank for the year ended documentation standards to comply 31st December 2010 and reported to the with the best practices. Board that nothing has come to their

127 People’s Bank | Annual Report 2010 [Independent Assurance Report]

EF/G/PB/FA/2010/02 24 March 2011

Report on the Directors’ Statement on Internal Controls of People’s Bank

Introduction Report for Banks on Directors’ Statement Conclusion on Internal Control issued by the Institute This report is to provide assurance on the Based on the procedures performed, of Chartered Accountants of Sri Lanka. Directors’ Statement on Internal Control of nothing has come to my attention that People’s Bank included in the annual report causes me to believe that the Statement Summary of Work Performed included in the annual report is inconsistent for the year ended 31st December 2010. This engagement has been conducted with my understanding of the process the to assess whether the Statement is both Board of Directors have adopted in the Management’s Responsibility supported by the documentation prepared review of the design and effectiveness of Management is responsible for the by or for directors and appropriately reflects internal control of the Bank. preparation and presentation of the the process the directors have adopted in Statement in accordance with the reviewing the system of internal control for Without qualifying my opinion, I would like “Guidance for Directors of Banks on the the Bank (Please refer annexure 1). to bring your attention to the paragraph Directors’ Statement on Internal Control” in which directors have disclosed the fact issued in compliance with the section SLSAE 3050 does not require me to that having identified limitations, they 3 (8) (ii) (b) of the Banking Act Direction consider whether the Statement covers all have initiated procedures in reviewing No. 11 of 2007, by the Institute of risks and controls, or to form an opinion the design and effectiveness of internal Chartered Accountants of Sri Lanka. on the effectiveness of the Bank’s risk and controls over financial reporting and steps control procedures. SLSAE 3050 also does have been taken to adopt best practices. My Responsibilities and not require me to consider whether the Compliance with SLSAE 3050 processes described to deal with material internal control aspects of any significant My responsibility is to issue a report on the problems disclosed in the annual report Statement based on the work performed. will, in fact, remedy the problems. I conducted my engagement in accordance H.A.S. Samaraweera with Sri Lanka Standard on Assurance Acting Auditor General Engagements SLSAE 3050 - Assurance

128 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

Annexure 1 to the 5. Attended meetings of the audit Independent committee at which the annual report, including the Statement Assurance Report on Internal Control is considered 1. Reviewed the documentation and approved for submission to the prepared by or for the directors to Board of Directors. support their Statement intended to be made. 6. On 16th March 2011, we met the Audit Committee Chairman and 2. Reviewed the minutes of the the Secretary to the Board and meetings of the Board of Directors discussed the Directors’ Statement and of relevant Board Committees. on Internal Controls in detail since the formal Audit Committee 3. Considered whether the Directors’ meeting is scheduled to be held on Statement on Internal Control 23rd March 2011. We also obtained covers the year under review and the signature from the chairman that adequate processes are in of the Audit Committee to the place to identify any significant Statement on 16th March 2011. matters arising.

4. Obtained written representations from directors on matters material to the Statement on Internal Control when other sufficient appropriate audit cannot reasonably be expected to exist.

129 People’s Bank | Annual Report 2010 [Audit Committee Report]

During the year under review, the Board primary objective of establishing an rectification of other deficiencies in the Audit Committee (BAC) functioned under adequate control environment and systems through regular follow-ups. the and Terms of Reference ensuring presentation of Financial adopted by the Board of Directors. Statements that provide a true and The BAC observed that 91% of branches fair view of the financial results of audited had received satisfactory/ The BAC held 08 meetings during the the Bank. average audit ratings in 2010, as year to review internal audit functions, compared to the 96% and 97% in the efficiencies and effectiveness of The Internal Audit Functions were previous two years, respectively. controls to manage risks. Accordingly, directed to identifying business risks the primary focus of BAC activities i.e., credit risks, operational risks, It is encouraging that the continuous during 2010 was to - market risks, liquidity risks, interest training and professional development (a) Assist branches to improve their rate risks, recovery risks, etc. faced by programmes provided to Internal Audit audit gradings/performance the Bank and preventing/mitigating the Officers and the availability of a number standards. effects of such risks and communicating of professionally qualified/experienced and encouraging best practices and Audit Officers in the department (b) Examine the system of internal positive quality assurance throughout have contributed to improve the controls and management of the Branch network. quality of Internal Audit functions and business risks, etc., performance ratings of branches during (c) Review external and internal audit Internal Audit was also involved in the year. processes. reviewing of operations under the Core Banking System (Silverlake Integrated We wish to place on record our (d) Ensuring regular follow-up of Banking System). Further, it was also appreciation of the valuable comments audit findings by the Internal Audit involved in reviewing adequacy of and observations made in the Reports of Department until deficiencies were controls in high risk areas such as the Auditor General. rectified. Treasury Operations, Corporate and (e) Review the financial reporting International Banking, Card Business, process in compliance with the Bank’s subsidiaries etc. financial reporting requirements under the . The Committee noted the strong Jehan P. Amaratunga commitment of the Internal Audit Chairman (f) Review the procedures in place Department to make continued Board Audit Committee for monitoring compliance with progress in improving efficiency laws, regulations and in particular and effectiveness of its functions. It 16th March 2011 Central Bank guidelines and Basel II completed 650 audit assignments, requirements. exceeding the target of 613 set for the (g) Liaising with the Acting Chief year 2010. Significant improvements Internal Auditor and SDGMM/ were noted in strengthening controls DGMM/Heads of other functions to to contain losses by early detection and identify key accounting and control getting most of the deficiencies rectified issues and resolve those with the during the course of the audit and

130 People’s Bank | Annual Report 2010 [Report of the Auditor General]

EF/G/PB/2010 March 2011

The audit of the accompanying Management’s Sri Lanka Auditing Standards which financial statements of People’s Responsibility for the require that the audit shall be planned Bank (“Bank”), and the consolidated and performed to obtain reasonable financial statements of the Bank and Financial Statements assurance as to whether the financial its subsidiaries as at 31 December Management is responsible for the statements are free from material 2010 which comprise the Balance preparation and fair presentation of misstatements. The audit includes the Sheets as at that date, and the Income these financial statements in accordance examining, on a test basis evidence Statements, Statements of Changes in with Sri Lanka Accounting Standards. supporting the amounts and disclosures Equity and Cash Flow Statements for This responsibility includes: designing, in the said financial statements. The the year then ended, and a summary implementing and maintaining internal audit also includes assessing the of significant accounting policies and control relevant to the preparation accounting policies used and significant other explanatory notes (Nos. 1 to 38) and fair presentation of financial estimates made by the management to the financial statements was carried statements that are free from material as well as evaluating the overall out under my direction in pursuance misstatements, whether due to fraud presentation of financial statements. of provisions in Article 154 (1) of or error; selecting and applying I have obtained all the information and the Constitution of the Democratic appropriate accounting policies; and explanations which to the best of my Socialist Republic of Sri Lanka. The making accounting estimates that are knowledge and belief were necessary financial statements of the subsidiaries reasonable in the circumstances. for the purpose of my audit. I therefore were audited by firms of Chartered believe that my audit provides a Accountants in public practice reasonable basis for my opinion. appointed by the members of the Scope of Audit and respective subsidiaries. Basis of Opinion Opinion My responsibility is to express an So far as appears from my examination, opinion on these financial statements I am of opinion that the People’s Bank based on my audit. The audit was had maintained proper accounting carried out in accordance with

131 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

records for the year ended 31 December Exemption 2010 and the financial statements give a true and fair view of the state of affairs The Bank has been exempted from the of the People’s Bank as at 31 December provisions of Part II of the Finance Act, 2010 and its profit and cash flows for No. 38 of 1971 by an Order of the then the year then ended in accordance with Minister of Finance published in the Sri Lanka Accounting Standards. Government Gazette No. 715 of 14 May 1992 by virtue of powers vested in him I am of opinion that the consolidated by Section 5 (I) of the said Finance Act. financial statements give a true and fair view of the state of affairs as at Report to Parliament 31 December 2010 and the profit and cash flows for the year then ended in My report to Parliament in pursuance accordance with Sri Lanka Accounting of provisions in Article 154 (6) of the Standards, of the Bank, and its Constitution will be tabled in due course. subsidiaries dealt with thereby, so far as concerns the shareholders of the Bank.

Report on Other Legal and Regulatory Requirements H.A.S. Samaraweera Acting Auditor General These financial statements present the information required by the Banking Act, No. 30 of 1988 and subsequent amendments thereto.

132 People’s Bank | Annual Report 2010 [Income Statement]

Bank Group For the year ended 31st December 2010 2009 Change 2010 2009 Change Note Rs. ’000 Rs. ’000 % Rs. ’000 Rs. ’000 %

Income 62,532,427 69,049,608 (9.4) 70,927,509 75,560,338 (6.1)

Interest Income 1 56,534,172 62,341,236 (9.3) 64,559,320 68,639,885 (5.9) Interest Expenses 2 (30,635,722) (38,414,583) (20.2) (33,929,178) (41,491,263) (18.2) Net Interest Income 25,898,450 23,926,653 8.2 30,630,142 27,148,622 12.8 Foreign Exchange Gain 1,120,022 1,120,819 (0.1) 1,120,022 1,120,819 (0.1) Fees and Commission Income 3,170,590 3,108,401 2.0 3,190,372 3,125,970 2.1 Capital Gain on Treasury Bills and Bonds 174,373 674,447 (74.1) 174,373 674,447 (74.1) Other Income 3 1,533,270 1,804,705 (15.0) 1,883,422 1,999,217 (5.8) Operating Income 31,896,705 30,635,025 4.1 36,998,331 34,069,075 8.6

Operating Expenses 4 Personnel Costs 10,267,421 10,316,475 (0.5) 10,807,184 10,728,720 0.7 Provision for Staff Retirement Benefits 5 1,355,129 1,838,624 (26.3) 1,355,129 1,838,624 (26.3) Premises, Equipment and Establishment Expenses 2,906,666 3,598,401 (19.2) 3,034,236 3,687,125 (17.7) Fee and Commission Expenses 54,466 99,261 (45.1) 15,794 15,348 2.9 Other Overhead Expenses 6 6,721,241 3,866,712 73.8 8,173,631 5,110,117 59.9 (21,304,923) (19,719,473) 8.0 (23,385,974) (21,379,934) 9.4

Profit before Loan Loss Provision and Provision for Fall in Value of Dealing Securities/Others 10,591,782 10,915,552 (3.0) 13,612,357 12,689,141 7.3 Provision for Loan Losses 7 (1,013,406) (2,092,413) (51.6) (1,419,530) (2,049,046) (30.7) Provision for (Fall)/Increase in Value of Dealing Securities/Others 8 (807,299) 432,635 286.6 (807,299) 432,635 286.6 Other Provisions 9 – (3,180,083) – (3,180,083)

Operating Profit 8,771,077 6,075,691 44.4 11,385,528 7,892,647 44.3 Share of Associate Companies’ Profit before Taxation – – – (15,228) (1,523) 899.8 Profit before Taxation 8,771,077 6,075,691 44.4 11,370,300 7,891,124 44.1 Provision for Taxation 10 (3,564,654) (2,755,497) 29.4 (4,787,737) (3,717,316) 28.8 Profit after Taxation 5,206,423 3,320,194 56.8 6,582,564 4,173,808 57.7 Less: Minority Interest – – – (3,118) 409 (862.9) Profit for the Year 5,206,423 3,320,194 56.8 6,579,445 4,174,217 57.6

Earnings Per Share (Rs.) Basic 11.1 5,206 3,320 56.8 6,579 4,174 57.6 Diluted 11.2 36 23 56.8 46 29 57.6

The Accounting Policies on pages 138 to 150 and Notes on pages 151 to 184 form an integral part of these Financial Statements.

133 People’s Bank | Annual Report 2010 [Balance Sheet]

Bank Group As at 31st December 2010 2009 Change 2010 2009 Change Note Rs. ’000 Rs. ’000 % Rs. ’000 Rs. ’000 % Assets Cash and Short-Term Funds 12 46,356,928 50,332,575 (7.9) 48,848,408 51,388,258 (4.9) Balance with the Central Bank 13 26,739,341 22,717,034 17.7 26,739,341 22,717,034 17.7 Government Treasury Bills and Treasury Bonds 14 68,851,802 68,787,087 0.1 68,851,802 68,787,087 0.1 Bills of Exchange 15.1 2,027,238 8,014,366 (74.7) 2,027,238 8,014,366 (74.7) Loans and Advances 15.2 354,616,073 274,009,496 29.4 352,964,764 273,474,198 29.1 Leases 15.3 693,110 1,736,392 (60.1) 43,608,384 25,703,975 69.7 Other Assets 16 12,081,441 15,700,155 (23.0) 16,059,671 16,337,861 (1.7) Deferred Tax 26.1.1 62,455 66,171 (5.6) 73,381 134,352 (45.4) Dealing Securities 17 478,052 423,502 12.9 536,118 423,502 26.6 Investment Securities 18 18,326,231 17,421,623 5.2 18,426,241 17,472,398 5.5 Investments in Subsidiaries and Associate Companies 19 1,675,450 1,775,450 (5.6) 248,830 122,516 103.1 Government of Sri Lanka Restructuring Bonds 20 7,323,000 7,323,000 – 7,323,000 7,323,000 – Property, Plant & Equipment 21 7,861,555 7,430,060 5.8 9,223,575 8,190,308 12.6 Prepaid Leases 22 326,517 359,356 (9.1) 326,517 359,356 (9.1) Intangible Assets 23 196,636 149,211 31.8 559,204 512,935 9.0 Total Assets 547,615,829 476,245,478 15.0 595,816,475 500,961,147 18.9 Liabilities Amounts due to Banks 2,454,883 490,142 400.9 2,454,883 490,142 400.9 Deposits from Customers 24 462,140,255 396,157,559 16.7 463,727,842 396,227,796 17.0 Borrowings from Banks and Others 25 36,677,163 36,394,032 0.8 67,459,886 52,402,973 28.7 Taxation Payable 1,527,448 1,665,457 (8.3) 2,133,133 2,094,559 1.8 Deferred Liabilities 26 223,712 164,014 36.4 285,687 433,739 (34.1) Other Liabilities 27 17,621,225 17,878,896 (1.4) 25,851,583 21,259,272 21.6 Retirement Benefit 28 1,132,835 695,186 63.0 1,132,835 695,186 63.0 Debentures 29 5,000,000 5,000,000 100.0 6,170,530 5,245,530 17.6 Total Liabilities 526,777,521 458,445,286 14.9 569,216,379 478,849,197 18.9 Funds Employed Share Capital 30 49,998 49,998 – 49,998 49,998 – Capital Pending Allotment 31 7,152,000 7,152,000 – 7,152,000 7,152,000 – Reserves 32 13,636,310 10,598,194 28.7 19,314,873 14,903,735 29.6 20,838,308 17,800,192 17.1 26,516,871 22,105,733 20.0 Minority Interest 33 – – – 83,225 6,217 1,238.6 Total Funds Employed 20,838,308 17,800,192 17.1 26,600,096 22,111,950 20.3 Total Liabilities & Funds Employed 547,615,829 476,245,478 15.0 595,816,475 500,961,147 18.9 Commitments and Contingencies 34 131,750,729 100,867,201 30.6 131,750,729 100,867,201 30.6 The Accounting Policies on pages 138 to 150 and Notes on pages 151 to 184 form an integral part of these Financial Statements. The Board of Directors is responsible for the preparation and presentation of these Financial Statements. These Financial Statements were approved by the Board of Directors and signed on their behalf.

Yohan A. Soza N. Vasantha Kumar W. Karunajeewa Head of Finance Acting Chief Executive Officer/General Manager Chairman 21st March 2011 Colombo 134 People’s Bank | Annual Report 2010 [Cash Flow Statement]

BANK GROUP For the year ended 31st December 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Cash Flows from Operating Activities Interest and Commission and other Receipts 60,458,238 63,056,600 69,243,904 70,801,463 Interest Payments (29,591,807) (33,716,539) (32,613,031) (36,656,528) Recoveries of Loans Previously Written-Off 116,699 87,613 116,699 157,213 Cash Payments to Employees and Suppliers (15,550,236) (16,507,334) (16,858,213) (17,991,852) Operating Profit before Changes in Operating Assets and Liabilities 15,432,894 12,920,340 19,889,359 16,310,296

(Increase)/Decrease in Operating Assets Deposits held for Regulatory or Monetary Control Purposes (4,022,307) (3,811,235) (4,022,307) (3,811,235) Funds Advanced to Customers (74,589,573) (36,772,941) (92,827,377) (41,105,210) Treasury Bills and Bonds 89,641 (6,564,372) 89,641 (6,564,372) (78,522,239) (47,148,548) (96,760,043) (51,480,817)

Increase/(Decrease) in Operating Liabilities Deposit from Customers 65,805,762 71,701,039 67,500,046 73,200,749 Negotiable Certificate of Deposits 176,933 (32,796) – (7,301) 65,982,695 71,668,243 67,500,046 73,193,448 Net Cash from Operating Activities before Income Tax 2,893,350 37,440,035 (9,370,638) 38,022,927 Income Taxes Paid (3,702,663) (2,993,835) (4,688,192) (3,601,096) Retirement Benefit Paid during the Year (917,480) (1,475,641) (917,480) (1,476,685) Net Cash from Operating Activities (1,726,793) 32,970,559 (14,976,310) 32,945,146

Cash Flows from Investing Activities Investment in Subsidiary and Associates 100,000 (400,000) (141,542) 5,089 Dividend Received 318,131 250,291 318,131 36,055 Proceed from Sales of Property, Plant & Equipment 108,736 2,333 318,914 38,720 Purchase of Property, Plant & Equipment (1,108,847) (847,900) (2,044,109) (1,557,474) Investments Matured/(Additions) (1,746,439) (5,173,464) (1,867,170) (5,174,229) Net Cash from/(used in) Investing Activities (2,328,419) (6,168,740) (3,415,776) (6,651,839)

Cash Flows from Financing Activities Capital Received from Government – – – – Debentures – 2,500,000 925,000 2,430,530 GOSL Bond Interest Paid (18,307) (219,690) (18,307) (219,690) Special Levy Paid to Treasury (2,150,000) (300,000) (2,150,000) (300,000) Minority Interest Paid – – 73,890 (6,436) Net Increase/(Decrease) in Borrowings 283,131 3,028,492 15,056,912 4,605,436 Net Cash from/(used in) Financing Activities (1,885,176) 5,008,802 13,887,495 6,509,840 Net Increase/(Decrease) in Cash and Cash Equivalents (5,940,388) 31,810,621 (4,504,591) 32,803,147 Cash and Cash Equivalents at the beginning of the Year 49,842,433 18,031,812 50,898,116 18,094,969 Cash and Cash Equivalents at the end of the Year 43,902,045 49,842,433 46,393,525 50,898,116

135 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

BANK GROUP For the year ended 31st December 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Cash and Short-Term Funds (Note 12) 46,356,928 50,332,575 48,848,408 51,388,258 Amounts due to Banks (2,454,883) (490,142) (2,454,883) (490,142) Cash and Cash Equivalents Reflected on Balance Sheet at the end of the Year 43,902,045 49,842,433 46,393,525 50,898,116

Reconciliation of Net Profit to Net Cash Flows from Operating Activities Net Profit before Taxation 8,771,077 6,075,691 11,370,300 7,891,124

Adjustment for Non-Cash Transactions Notional Tax Credit (609,112) (345,539) (609,112) (345,539) Associate Profit Adjustment – – 15,228 1,523 Capital Gains on Treasury Bills and Bonds (174,372) (674,447) (174,373) (674,447) Net Accrued Interest 2,633,048 5,317,291 515,616 5,444,306 Retirement Benefit Provision 1,316,009 1,799,503 1,316,009 1,799,504 Translation Difference in FCBU (1,120,022) (1,120,818) (1,120,022) (1,120,818) Provision for Interest in W&OP Fund 39,120 39,120 39,120 39,120 Depreciation 577,430 1,293,515 724,689 1,478,223 Profit on Disposal of Fixed Assets (23,400) (4,270) (32,761) (26,971) Provision for Bad Debts 1,013,406 2,092,412 1,419,530 2,049,046 Provision for Gratuity 62,000 80,000 68,848 80,000 Loan Loss Provision Reversals (1,058,934) (453,680) (1,102,931) (453,680) Investment Income (318,131) (250,291) (318,131) (36,055) Provision for Diminution in Value of Shares/Others 20,017 (235,348) 20,017 (235,348) Provision for Falling Value of Investments Securities and Others 787,282 (197,287) 787,282 (197,287) Oil Derivative Transactions – 3,180,083 – 3,180,083 (Increase)/Decrease in Accounts Receivables 3,762,430 5,934,429 2,807,855 5,731,581 Increase/(Decrease) in Accounts Payables (244,954) (9,610,024) 4,162,195 (8,294,069) Operating Profit before Changes in Operating Assets/Liabilities 15,432,894 12,920,340 19,889,359 16,310,296

(Increase)/Decrease in Operating Assets (78,522,239) (47,148,548) (96,760,043) (51,480,817) Increase/(Decrease) in Operating Liabilities 65,982,695 71,668,243 67,500,046 73,193,448 Cash Generated from Operations 2,893,350 37,440,035 (9,370,638) 38,022,927 Income Tax Paid (3,702,663) (2,993,835) (4,688,192) (3,601,096) Pension Fund Paid during the Year (917,480) (1,475,641) (917,480) (1,476,685) Net Cash from/(used in) Operating Activities (1,726,793) 32,970,559 (14,976,310) 32,945,146

The Accounting Policies on pages 138 to 150 and Notes on pages 151 to 184 form an integral part of these Financial Statements.

136 People’s Bank | Annual Report 2010 [Statement of Changes in Equity]

For the year ended 31st December 2010

Share Capital Statutory Revaluation Capital Special Risk General Building Profit/ Capital Pending Reserve Reserve Reserve Reserve Reserve Reserve (Loss) Total Allotment Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

BANK Balance as at 1st January 2009 49,998 7,152,000 49,998 5,630,460 5,663 388,761 1,000 1,000 2,620,808 15,899,688 Transfer to Special Risk Reserve – – – – – 433,688 – – (433,688) – Transfer to General Reserve – – – – – – 312,500 – (312,500) – Net Profit for the Year 2009 – – – – – – – – 3,320,194 3,320,194 Dividend Paid to GOSL (Note 32.8) – – – – – – – – (219,690) (219,690) Special Levy to Treasury (Note 32.9) – – – – – – – – (1,200,000) (1,200,000) Balance as at 31st December 2009 49,998 7,152,000 49,998 5,630,460 5,663 822,449 313,500 1,000 3,775,124 17,800,192 Transfer to Special Risk Reserve – – – – – 431,358 – – (431,358) – Transfer to General Reserve – – – – – – 625,000 – (625,000) – Net Profit for the Year 2010 – – – – – – – – 5,206,423 5,206,423 Dividend Paid to GOSL (Note 32.8) – – – – – – – – (18,307) (18,307) Special Levy to Treasury (Note 32.9) – – – – – – – – (2,150,000) (2,150,000) Balance as at 31st December 2010 49,998 7,152,000 49,998 5,630,460 5,663 1,253,807 938,500 1,000 5,756,883 20,838,308

GROUP Balance as at 1st January 2009 49,998 7,152,000 49,998 5,630,460 5,663 388,761 1,000 1,000 6,072,326 19,351,206 Transfer to Special Risk Reserve – – – – – 433,688 – – (433,688) – Transfer to General Reserve – – – – – – 312,500 – (312,500) – Net Profit for the Year 2009 – – – – – – – – 4,174,217 4,174,217 Dividend Paid to GOSL (Note 32.8) – – – – – – – – (219,690) (219,690) Special Levy to Treasury (Note 32.9) – – – – – – – – (1,200,000) (1,200,000) Balance as at 31st December 2009 49,998 7,152,000 49,998 5,630,460 5,663 822,449 313,500 1,000 8,080,665 22,105,733 Transfer to Special Risk Reserve – – – – – 431,358 – – (431,358) – Transfer to General Reserve – – – – – – 625,000 – (625,000) – Net Profit for the Year 2010 – – – – – – – – 6,579,445 6,579,445 Dividend Paid to GOSL (Note 32.8) – – – – – – – – (18,307) (18,307) Special Levy to Treasury (Note 32.9) – – – – – – – – (2,150,000) (2,150,000) Balance as at 31st December 2010 49,998 7,152,000 49,998 5,630,460 5,663 1,253,807 938,500 1,000 11,435,446 26,516,871

137 People’s Bank | Annual Report 2010 [Significant Accounting Policies]

1. Corporate Information Subsidiaries Associates The principal activities of People’s The principal activities of People’s The People’s Bank is a Government- Leasing Co. Ltd. are Providing Leases, Merchant Bank Ltd., relate to Trade owned Bank, established under Hire Purchase Assets, Financing and Finance, Leasing, Hire Purchase, Real People’s Bank Act No. 29 of 1961 on Islamic Financial Services. People’s Estate, Short-Term Investments and 1st July 1961 and is domiciled in Travels Ltd., relates to arrangement of Corporate Finance Services. Sri Lanka. The Consolidated Financial Tours and Air Ticketing. Statements of the Bank for the year ended 31st December 2010 comprise the Bank, its Subsidiaries i.e., People’s Sub-Subsidiaries 3. Directors’ Leasing Co. Ltd. and People’s Travels The principal activities of the Bank’s Responsibility for (Pvt) Ltd. and the Sub-Subsidiaries of Sub-Subsidiaries are as follows: Financial Statements People’s Leasing Fleet Management Ltd., Name of Company Principal Activity The Board of Directors is responsible People’s Leasing Property Development People’s Providing operating for the preparation and presentation of Ltd., People’s Leasing Insurance Ltd., Leasing Fleet leases the Financial Statements of the Bank People’s Leasing Finance PLC, Management Ltd. and its Subsidiaries in accordance with People’s Leasing Havelock Property Ltd., People’s Providing property Sri Lanka Accounting Standards. People’s Microfinace Ltd. and its interest Leasing Property development and in Associate Company i.e., People’s Management Ltd. constructions Merchant Bank PLC. People’s Leasing Providing non-life 4. Statement of Insurance Ltd. insurance services The Consolidated Financial Statements Compliance for the year ended 31st December 2010 People’s Leasing Granting finance The Consolidated Financial Statements were authorised for issue on 16th March Finance PLC leases, operating leases, hire purchase and the Separate Financial Statements 2011 by the Board of Directors. assets, financing and of the Bank have been prepared in accepting deposits accordance with generally accepted People’s Constructing Office accounting principles and Sri Lanka 2. Principal Activities Leasing Havelock Complexes Accounting Standards laid down by The Property Ltd. Bank Institute of Chartered Accountants of People’s Providing Financial Sri Lanka. These principles and The Bank’s business comprises, Microfinance Ltd. Services to low-income standards used in the preparation of Accepting Deposits, Granting persons and micro these Financial Statements have been Credit Facilities, Personal Banking, enterprises, assisting applied consistently with the preceding Development Banking, Pawnbroking, and promoting micro enterprise year and appropriately improved International Trade, Dealing in development in compliance with the Revised Government Securities, Leasing, Credit conducting training Accounting Standards. The preparation Card Operations and FCBU for Foreign and skills development and presentation of these Financial Currency Banking. programmes for micro entrepreneurs. Statements are in compliance with the requirement of the Banking Act No. 30 of 1988 and Amendments thereto.

138 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

5. Comparative Effect of Accounting Standards Issued but attributable to the acquisition or not yet Effective: Information issue of financial asset, financial The Institute of Chartered Accountants liability and subsequently measure Comparative information including of Sri Lanka has issued the following either at fair value or amortised cost quantitative, narrative and descriptive Accounting Standards that are effective depending on the categorisation of information is disclosed in respect of for the accounting periods on the dates financial assets and financial liabilities. the previous period for all amounts specified below: Further, principles used with regard reported in the Financial Statements Sri Lanka Accounting Standard No. 44 - to impairment provision estimation for in order to enhance the understanding ‘Financial Instruments (Presentation)’ and loans and advances in the aforesaid of the current period’s Financial Sri Lanka Accounting Standard No. 45 - Accounting Standards for financial Statements and to enhance the inter- ‘Financial Instruments (Recognition and assets are considerably different from Measurement)’ period comparability. the current rules set out by the Central Sri Lanka Accounting Standards No. 44 Bank of Sri Lanka. The Accounting Policies adopted by and No. 45 were issued and available for public in the latter part of 2008, and the Bank and the Group are consistent In accordance with the implementation become effective for the financial years with those of the previous financial year plan set out by the Accounting Standard beginning on or after 1st January 2012. as permitted by Sri Lanka Accounting Committee, Central Bank of Sri Lanka For the first time, Sri Lanka Accounting Standard No. 3 (Revised 2005) - and the banking industry, the Standards No. 44 and No. 45 will be ‘Presentation of Financial Statements.’ Bank is currently in the process of adopted in preparing and presenting However, when the presentation or evaluating the impact of the aforesaid the Financial Statements for the year classification of items in the Financial Accounting Standards will have on its ending 31st December 2012. Statements is amended, comparative Financial Statements, and also has amounts are also reclassified to developed a road map to facilitate their These two standards together conform with the current year‘s implementation by the effective date, provide comprehensive guidance presentation. in order to comply with the on identification, classification, requirements of these Accounting measurement and presentation of Standards. Due to the complex nature financial assets, financial liabilities, 6. Changes to the of the effect of these Accounting equity instruments and derivative Standards, the impact of adoption Accounting Policies instruments. According to these cannot be estimated as at the date Standards, it is required to measure There were no changes to the Accounting of publication of these Financial such financial asset or liability at its Policies adopted by the Bank and the Statements. Group during the year under review. fair value on initial recognition and transaction costs that are directly

139 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

7. Basis of Preparation 7.2.1 Defined Benefit Plans 7.2.3 Impairment of Non-Financial The cost of the defined benefit plans Assets 7.1 Basis of Measurement such as pension and gratuity are The Group assesses at each reporting The Financial Statements of the Bank determined using actuarial valuation. date or more frequently if events or and Group are prepared in Sri Lankan The actuarial valuation is based on changes in circumstances indicate that Rupees on a historical cost basis except assumptions on discount rates, expected the carrying value may be impaired, for the Government Treasury Bills & return on assets, future salary increases, whether there is an indication that a Bonds and Dealing Securities which mortality rates, etc. Due to the non-financial asset may be impaired. are stated at valuation as explained long-term nature of these plans, such If any such indication exists, or when in paragraph 8.5.6 and revaluation estimates are subject to significant annual impairment testing for an asset of certain freehold and leasehold uncertainty. All assumptions are is required, the Bank makes an estimate premises. No adjustments have been reviewed at each reporting date. of the asset’s recoverable amount. made for inflationary factors. When the carrying amount of an asset 7.2.2 Impairment Losses on Loans exceeds its recoverable amount, the 7.2 Significant Accounting and Advances asset is considered impaired and is Judgements, Estimates In addition to the provisions made written down to its recoverable amount. and Assumptions for possible loan losses based on the parameters and directives for specific 7.3 Offsetting In the process of applying the Bank’s and general provision on Loans and Accounting Policies, management is Financial assets and liabilities are Advances by the Central Bank of required to make judgements, apart offset and the net amount reported Sri Lanka, the Bank reviews its from those involving estimations, which in the Balance Sheet when there is a Loans and Advances portfolio at each may have a significant effect on the legally enforceable right to set-off the recruiting date or more frequently, amounts recognised in the Financial recognised amounts and there is an if events or changes in circumstances Statements. Further, the management intention to settle on a net basis, or necessitate to assess whether is required to consider, key assumptions realise the assets and settle the liability further provision for impairment concerning the future and other key simultaneously. against exposures which, although sources of estimation uncertainty at not specifically identified as requiring the Balance Sheet date, that have specific provisions, have a greater risk significant risk of causing a material of default than when originally granted. adjustment to the carrying amount of assets and liabilities. The respective The judgement by the management carrying amounts of assets and is required in the estimation of these liabilities are given in the related Notes amounts and such estimations to the Financial Statements. The key are based on assumptions about items which involve these judgements, a number of factors such as any estimates and assumptions are deterioration of country risk, industry discussed below. and technological obsolescence, as well as identify structural weaknesses and deterioration in cash flows.

140 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

8. Summary of Significant losses relating to the Subsidiaries for 12 8.1.4 Transactions Eliminated on Consolidation Accounting Policies months from 1st January 2010 to 31st December 2010. All inter-company transactions, The Principal Accounting Policies balances and unrealised surpluses applied in the preparation of these 8.1.2 Associate Companies and deficits on transactions between Consolidated Financial Statements are Associates are those enterprises the Bank and subsidiary companies set out below: in which the Group has significant have been eliminated in preparing the influence, but not control over the Consolidated Financial Statements. 8.1 Basis of Consolidation financial and operating policies. 8.1.1 Subsidiary Companies 8.2 Foreign Currency The Subsidiary Companies are Investments in associate companies are Translation accounted in conformity with Sri Lanka accounted for under the equity method, in The Consolidated Financial Statements Accounting Standard No. 26 (Revised conformity with Sri Lanka Accounting are presented in Sri Lankan Rupees, 2005) - ‘Consolidated and Separate Standard No. 27 (Revised 2005) - which is the Bank’s functional and Financial Statements’, which are those 'Investment in Associates', whereby the presentation currency. Each entity in companies in which the Bank, directly Group’s shares of profits/losses of the the Group determines its own functional or indirectly has an interest of more associate companies are included in the currency and items included in the than one-half of the voting rights or Consolidated Income Statement. The Financial Statements of each entity are otherwise has power to exercise control Group’s share of post-acquisition retained measured using the functional currency. over financial and operating policies, profits/losses and reserves is aggregated have been consolidated. Subsidiaries with the cost of this investment in the 8.2.1 Monetary assets and liabilities are consolidated from the date on which Consolidated Balance Sheet. denominated in foreign currencies are effective controls are transferred to the translated using the rates of exchange 8.1.3 Goodwill on Consolidation Bank and are no longer consolidated ruling at the Balance Sheet date and from the date of disposal. Accounting Goodwill acquired in a business transactions in foreign currencies Policies for Subsidiaries have been combination is initially measured at during the year are converted at the changed to ensure consistency with cost, being the excess of the cost of rate ruling at the transaction date and the policies adopted by the Bank. The the business combination over the foreign exchange differences resulting interests of the outside shareholders Bank’s interests in the net fair value from the translation and settlement are disclosed separately under the of the identifiable assets, liabilities of transactions, are recognised in the heading ‘Minority Interest’. and contingent liabilities acquired. Income Statement in compliance with Sri Lanka Accounting Standard Sri Lanka Accounting Standard No. 21 The Consolidated Financial Statements No. 25 (Revised 2004) on ‘Business on ‘The Effects of Changes in Foreign include the results, assets and liabilities Combinations’ requires that following Exchange Rates’. of People’s Bank and its Subsidiaries up the initial recognition, goodwill is to be to the end of 31st December 2010. All measured at cost, less any accumulated Non-monetary items measured in terms Subsidiaries have 31st March financial impairment losses and goodwill to be of historical cost in a foreign currency year ends. Accounts drawn up as at reviewed for impairment, annually or are translated using the exchange rates 31st December 2010 have been used more frequently if events or changes in as at the date of the initial transaction. in the consolidation. The Consolidated circumstances indicate that the carrying Income Statement reflects profits or value may be impaired.

141 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

8.2.2 Foreign exchange commitments 8.3.2 Deferred Taxation unused tax credits and unused tax losses under forward purchases and sales Deferred tax is provided using can be utilised, except:

contracts are valued at the forward the liability method on temporary  where deferred tax assets relating to market rate ruling on the date of differences at the Balance Sheet date the deductible temporary differences the Balance Sheet and other Off- between the tax bases of assets and arise from the initial recognition of Balance Sheet items at exchange liabilities and their carrying amounts for an asset or liability in a transaction rates prevailing on transaction dates. financial reporting purpose. Deferred that is not a business combination Unrealised gains and losses are dealt tax liabilities are recognised for all and at the time of the transaction, with through the Income Statement. temporary differences, except: affects neither the accounting profit

 where the deferred tax liability nor the taxable profit or losses; and 8.2.3 Transactions of the Off-Shore arises from the initial recognition of Banking Centre have been recorded in  in respect of deductible temporary goodwill or of an asset or liability in accordance with the paragraph 8.2.1 differences associated with a transaction that is not a business overleaf except for the application of investments in Subsidiaries and combination and at the time of monthly average exchange rate in the Associates, deferred tax assets transaction, affects neither the Income Statement. are recognised only to the extent accounting profit nor taxable profit it is probable that the temporary or loss; and 8.3 Taxation differences will reverse in the  In respect of taxable temporary foreseeable future and taxable 8.3.1 Current Taxation differences associated with profit will be available against which Current tax assets and liabilities consist investments in Subsidiaries and temporary differences can be utilised. of amounts expected to be recovered Associates, where the timing of the from or paid to the Commissioner reversal of the temporary differences The carrying amount of a deferred General of Inland Revenue in respect of can be controlled and it is probable tax asset is reviewed at each Balance the current as well as prior years. The that the temporary differences will Sheet date and reduced to the extent tax rates and tax laws used to compute not reverse in the foreseeable future. it is no longer probable that sufficient the amount are those that are enacted taxable profit will be available to allow or subsequently enacted by the Balance Deferred tax assets are recognised for all or part of the deferred tax asset to Sheet date. Accordingly, provision all deductible differences. Carry-forward be utilised. Unrecognised deferred tax for taxation is made on the basis of of unused tax credits and unused tax assets are reassessed at each Balance the profit for the year as adjusted for losses, to the extent that it is probable Sheet date and are recognised to the taxation purpose in accordance with the that taxable profits will be available extent that it is probable that future provision of the Inland Revenue Act No. against which the deductible temporary taxable profit will allow the deferred tax 10 of 2006 and the Amendment thereto, differences and the carry-forward of assets to be recovered. at the rates specified in Note 10 to the Financial Statements.

142 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

Deferred tax assets and liabilities are 8.4 Events after the Balance 8.5.3.1 Non-Performing Loans and measured at the tax rates that are Sheet Date Advances expected to apply in the year when the Loans and Advances which are in All material events arising after the assets are realised or the liabilities are arrears of due capital and/or interest Balance Sheet date, if any and where settled, based on tax rates and tax laws are classified as non-performing as necessary, have been considered that have been enacted or subsequently per the Direction No. 3 of 2008 on and appropriate adjustments and enacted at the Balance Sheet date. ‘Classification of Loans and Advances, disclosures have been made in the Income Recognition and Provisioning’, Financial Statements. Deferred tax assets and liabilities are as amended by the Direction No. 9 of set-off if a legally enforceable right exists 2008 on ‘Amendments to Directions on 8.5 Assets and Bases of their to set-off current tax assets against Classification of Loans and Advances, Valuation current tax liabilities and the deferred Income Recognition and Provisioning for 8.5.1 Cash and Short-Term Funds taxes relate to the same taxable entity Licenced Commercial Banks in Sri Lanka’ and the same taxation authority. Cash and Short-Term Funds include of the Central Bank of Sri Lanka. cash in hand, balances with banks, 8.3.3 Value Added Tax on Financial placements with banks and money at call Details of the non-performing Loans Services (VAT) and short notice. Details of the cash and and Advances are given in Note 15.6 to The Bank’s total value addition was short-term funds are given in Note 12 to the Financial Statements. subjected to a 20% Value Added Tax as per the Financial Statements. section 25 A of the Value Added Tax Act 8.5.3.2 Provision for Loan Losses No. 14 of 2002 and Amendments thereto. 8.5.2 Balances with the Central Bank Provision for bad and doubtful loans The Monetary Law Act requires that is made on the basis of a continuous 8.3.4 Economic Service Charge (ESC) all commercial banks operating in review of all loans and advances to As per the provisions of the Economic Sri Lanka to maintain a statutory customers. In determining the level of Service Charge Act No. 13 of 2006, ESC reserve equal to 7% on all local the provision required, management is payable on the liable turnover at currency deposits. Details of the cash considers numerous factors including, specified rates. ESC paid is deductible and short-term funds are given in Note but not limited to, composition of the from the income tax liability. Any 13 to the Financial Statements. loan portfolio, period outstanding, unclaimed liability can be carried prior experience and stipulations forward and set-off against the income 8.5.3 Loans and Advances to Customers of the Central Bank of Sri Lanka in tax payable in the four subsequent years. Loans and Advances to Customers relation to provisioning for doubtful are stated in the Balance Sheet net of debts. Specific provision is made for 8.3.5 Social Responsibility Levy (SRL) provision for possible loan losses and those loans that have been individually As per the provisions of Finance Act net of interest in suspense, which is not reviewed and identified as bad or No. 5 of 2005, and Amendments thereto, accrued to revenue. doubtful in accordance with Sri Lanka SRL is payable at the rate of 1.5% on all Accounting Standard No. 23 on ‘Revenue taxes and levies chargeable as specified Recognition and Disclosure in the in the First Schedule of the Act. Financial Statements of Banks’.

143 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

A general provision for loans and as amended by Amendment Banking 8.5.3.5 When a loan is uncollectible it is advances is made on the basis of Act No. 33 of 1995 is considered in written-off against the related provision 0.9% of performing and overdue loans provisioning for advances. for loan losses and uncovered balances, and advances according to the Central if any, are charged against the Income Bank Guidelines. 8.5.3.4 Amended guidelines for Statement. Subsequent recoveries discounting of immovable property are of loans are credited to the Income The Bank has complied with the as follows: Statement against which such sums Standards and Guidelines that have been had been previously written-off. % of Forced Sale Value of Immovable issued by the Central Bank of Sri Lanka Property that can be considered as the Value of Security in connection with the accounting and 8.5.4 Leases Freehold Property Leasehold classification of non-performing advances Property Assets leased to customers which and provision for possible losses that may At the first transfer substantially all the risks and arise from such advances. time of rewards associated with ownership provisioning 75% 60% other than legal title are classified as 8.5.3.3 The classification of these Period of Loss Section finance leases. Lease rentals receivable doubtful Loans and Advances together Less than are stated in the Balance Sheet net of 12 Months 75% 60% with the level of provisioning made provision for doubtful debts and net is as follows: 12 to 24 of interest in suspense, which is not Months 60% 50% accrued to revenue. The accounting for Period Classification Provisions 24 to 36 Outstanding made on Months 50% 40% leases is in conformity with Sri Lanka Exposures net Accounting Standard No. 19 (Revised of Realisable 36 to 48 Value of 2005) on ‘Leases’. Security(%) Months 40% 30% Sub-standard More than Property should Nil 48 Months be reviewed on a 8.5.4.1 Provision for Lease Receivable 4 to 6 months Credit Cards 25 regular basis, and Specific provision has been made 6 to 12 months Others 20 discounted further at management in relation to identified bad and Doubtful discretion doubtful leases. 6 to 8 months Credit Cards 50 12 to 18 months Others 50 Where an Advance is in Loss Category In addition, a general provision for of Immovable Freehold Property over Loss possible losses on lease receivable 4 years, the Central Bank of Sri Lanka is made at 0.9% of the total lease 8 months and over Credit Cards 100 has given the discretion to determine receivable according to the Central 18 months and over Others 100 the discount factor to the Board of Bank Guidelines. Directors. Accordingly, the Board has The discounted realisable value or the decided to discount the Forced Sale 8.5.5 Credit Card Receivable net realisable value of security as per Value of Immovable Freehold Property Amounts receivable on credit cards the amended directions issued on offered as security for Advances in the are included in Loans and Advances to 9th May 2008 by the Central Bank of Loss Category for more than four years, customers at the amount expected Sri Lanka under Sections 46 (1) and by 30%. to be recovered. 46 (A) of the Banking Act No. 30 of 1988

144 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

Provision for credit card receivable is Long-term Treasury Bonds received in Sri Lanka Accounting Standard made when minimum payment is in settlement of outstanding loans to CWE No. 27 (Revised 2005) on ‘Accounting for arrears for periods exceeding 4 months are treated as an Investment Security and Investments in Associates’. and beyond. are stated at cost. 8.5.7 Foreclosed Property In addition, a general provision for Securities purchased under Resale The immovable property acquired by possible losses on credit card receivable Agreements are advances collateralised foreclosure of collateral from defaulting is made at 0.9% of the total credit card by purchase of Treasury Bills and customers, or which has devolved on receivable according to the Central Treasury Bonds from the public, subject the Bank as part settlement of debt, Bank Guidelines. to an agreement to resell them at a has not been accounted for as an predetermined price. The asset is investment property or as part of the 8.5.6 Investments recorded in respect of the consideration assets of the Bank in accordance with 8.5.6.1 Dealing Securities paid and interest accrued thereon. directions issued by the Central Bank of Dealing Securities are marketable Sri Lanka. securities acquired and held with the 8.5.6.3 Other Investments Securities intention of resale over a short period of Investments (other than Government 8.5.8 Property, Plant & Equipment time. Such securities are carried at the Securities) that are held for long-term 8.5.8.1 Basis of Recognition market value at the Balance Sheet date. or until maturity are stated at cost. Property, Plant & Equipment are Any gains/losses in market value are Provision is made for any diminution in recognised as an asset if it is probable accounted for in the Income Statement. value, other than for those which are that future economic benefits temporary, determined on an individual associated with the item will flow to 8.5.6.2 Investment in Government basis for each investment. the Bank and cost of the asset can be Securities held for Maturity and measured reliably. held for Sale 8.5.6.4 Investments in Subsidiaries Investments in Government of Sri Lanka Investments in Subsidiaries are 8.5.8.2 Measurement Treasury Bills and Bonds, other stated at cost in the Bank’s Financial An item of Property, Plant & Equipment Government Securities and Central Statements in accordance with that qualifies for recognition as an asset is Bank Securities are purchased Sri Lanka Accounting Standard initially measured at its cost of purchase primarily with the intention of holding No. 26 (Revised 2005) on ‘Consolidated directly attributable to the acquisition of them to maturity and are stated at Financial Statements and Accounting the asset or construction or valuation cost. Discount/Premium on purchase for Investment in Subsidiaries’. together with any incidental expenses is amortised/accredited to income/ thereon. The cost of self-constructed expenditure on a pattern reflecting a 8.5.6.5 Investments in Associates assets includes the cost of materials and constant periodic rate of return. Investments in Associates are accounted direct labour, any other costs directly for under the cost method in the Bank’s attributable to bringing the asset to a Securities purchased for trading purpose Financial Statements and under the working condition for its intended use and are marked to market, based on current equity method in the Consolidated the costs of dismantling and removing the market rates. Financial Statements in accordance with items and restoring the site on which they are located.

145 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

Cost Model Subsequent Cost at each financial year-end. The rates of Plant & Equipment are stated at The cost of replacing part of an item depreciation are given below: cost, excluding the cost of day-to- of Property, Plant & Equipment is Category of Asset Period of Depreciation day servicing, less accumulated recognised in the carrying amount of depreciation and accumulated the item if it is probable that the future Leasehold Building over the period of lease impairment in value. Such cost includes economic benefits embodied within that Freehold Buildings 2% p.a. the cost of replacing part of the Plant & part will flow into the Group and its cost Furniture, Equipment 20% p.a. Equipment when the cost is incurred, if can be reliably measured. & Machinery the recognition criteria are met. Freehold & Leasehold 25% p.a. Restoration Cost Motor Vehicles Revaluation Model Expenditure incurred on repairs or Prepaid Leases over the period of The Bank applies the revaluation model maintenance of Property, Plant & lease for the entire class of freehold land and Equipment in order to restore or maintain buildings. Such properties are carried future economic benefits is charged to 8.5.9 Leasehold Property at a revalued amount, being their fair Income Statement as incurred. Leasehold property is stated at recorded value at the date of revaluation, less any carrying value as per the Sri Lanka subsequent accumulated depreciation Derecognition Accounting Standard No. 19 (Revised and impairment charged subsequent to An item of Property, Plant & Equipment 2005) on ‘Leases’. Such carrying the date of the revaluation. is derecognised upon disposal when amounts are amortised over the no future economic benefits are remaining lease period of the leasehold Revaluations are performed every expected from its use or disposal. Any property. Details of the Leasehold 7 years to ensure that the fair value gain or loss arising on derecognition Property are given in Note 21 to the of a revalued asset does not differ of the asset is included in the Income Financial Statements. materially from its carrying amount. Statement in the year the asset is Any revaluation surplus is credited to derecognised. 8.5.10 Intangible Assets the revaluation reserve included in the 8.5.10.1 Basis of Recognition equity section of the Balance Sheet, Capital Work-in-Progress An intangible asset is recognised if it is except to the extent that it reverses a These are expenses of a capital nature probable that future economic benefits revaluation decrease of the same asset directly incurred in the construction of that are attributable to the asset will flow previously recognised in profit or loss, building, major plant and machinery to the entity and the cost of the asset can in which case the increase is recognised and system development, awaiting be measured reliably in accordance with in profit or loss. A revaluation deficit capitalisation. These are stated in the Sri Lanka Accounting Standard No. 37 on is recognised in profit or loss, except Balance Sheet at cost. ‘Intangible Assets’. that deficit directly offsetting a previous surplus on the same asset is directly 8.5.8.3 Depreciation Intangible assets acquired separately offset against the surplus in the asset Depreciation is calculated on a straight are measured on initial recognition at revaluation reserve. line basis over the useful life of the cost. Following the initial recognition asset. The asset’s residual value, useful of the intangible asset, the cost model life and method of depreciation are is applied requiring the asset to be reviewed, and adjusted, if appropriate, carried at cost, less any accumulated amortisation and accumulated impairment losses. 146 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

8.5.10.2 Subsequent Expenditure 8.5.10.4 Derecognition 8.6.3 Securities Sold under Repurchase Subsequent expenditure on intangible Intangible assets are derecognised Agreements assets is capitalised only when it when it reveals that they will not These are borrowings collateralised by increases the future economic benefits generate economic benefits or sale of Treasury Bills and Bonds held embodied in these assets. All other circumstances indicate that the by the Bank to the counterparty from expenditure is expensed when incurred. carrying value is impaired. Gains or whom the Bank borrowed, subject losses arising from derecognition of an to an agreement to repurchase at a 8.5.10.3 Amortisation intangible asset are measured as the predetermined price. Such securities The useful lives of intangible assets are difference between the net disposal remain on the Banks’ Balance Sheet assessed to be either finite or infinite. proceeds and the carrying amount and the liability is recorded in respect of Intangible assets with finite lives are of the asset are recognised in the the consideration received and interest amortised over the useful economic life Income Statement when the asset is accrued thereon. and assessed for impairment whenever derecognised. there is an indication that the intangible 8.6.4 Debentures asset may be impaired. The amortisation 8.5.11 Other Assets These represent the funds borrowed period and the amortisation method for All other assets are valued net of by the Bank for long-term funding an intangible asset with the finite useful specific provision, where necessary, requirements. These are recorded in life is reviewed at least at each financial so as to reduce the carrying value of the Balance Sheet at the cash value year-end. Changes in the expected such assets to reflect their estimated to be realised when settled. Details of useful life or the expected pattern of realisable values. Debentures are given in Note 29. consumption of future economic benefits embodied in the asset are accounted 8.6 Liabilities and Provisions 8.6.5 Pension Plans 8.6.5.1 Defined Benefit Pension Plans for by changing the amortisation period 8.6.1 Deposits from Customers or method, as appropriate, and treated 8.6.5.1.1 Pre-1996 Pension Scheme Deposits include non-interest bearing as changes in accounting estimates. The People’s Bank Pre-1996 Pension deposits, savings deposits, term The amortisation expense on intangible Scheme is a funded, non-contributory, deposits, deposits payable at call and asset with finite life is recognised in the defined retirement benefit scheme, certificates of deposits. They are stated Income Statement. operated for the payment of pensions to in the Balance Sheet at amount payable, the members of its permanent staff who interest paid/payable on these deposits The useful lives and the amortisation qualify for such payment. Permanent are charged to the Income Statement. methods of Intangible Assets with finite staff who have joined the Bank prior to life are as follows: 8.6.2 Borrowings 1st January 1996 qualify to be members of this Pension Scheme. The Class of Useful Life Amortisation Borrowings include refinance Intangible Assets Method borrowings, call money borrowings, The Bank has complied with Sri Lanka IT-related 5 Years Straight- REPO borrowings and borrowings Accounting Standard No. 16 (Revised capital items line method from financial institutions. Borrowings 2006) on ‘Employee Benefit’ and are stated in the Balance Sheet at Sri Lanka Accounting Standard amount payable, interest paid/payable No. 42 on ‘Accounting and Reporting on these borrowings are charged to the by Retirement Benefit Plans’, when Income Statement. accounting and reporting of Retirement Benefit Plans. 147 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

The Bank provides an annual The Bank provides a pension to retiring Pension is payable monthly as long as contribution to the Pension Fund, based staff on the following basis: the participant is alive. on actuarial valuation estimates on the Staff are eligible to draw a pension required funding level that is needed A provision is recognised in the Balance after 10 years of service and after to maintain the Pension Fund at or Sheet when the Bank has a legal or reaching normal age of retirement of near a fully-funded state. The actuarial constructive obligation as a result of a past 55 years. The quantum of pension paid valuation uses assumptions relating to event and it is probable that an outflow is dependent on the length of service actuarial estimates of life expectancy, of economic benefits will be required to which is as follows: future earnings income from settle such obligations, in accordance investments of the Fund, retirement Length of Service Quantum of Pension with Sri Lanka Accounting Standard expectations of staff, inflation rate (i) 10 to 20 80% of last drawn No. 36 on ‘Provisions, Contingent projections and estimations of annual years salary. Liabilities and Contingent Assets’. wage rate increases. (ii) 21 to 29 80% plus 1% for each years additional year in 8.6.5.1.2 Gratuity The latest actuarial valuation was excess of 20 years of The employees who joined the Bank on carried out as of 1st January 2010, last drawn salary. or after 1st January 1996 will be eligible by Piyal S. Gunatilleke FSA (USA), (iii) 30 years 90% of last drawn for gratuity under the Payment of Member of the American Academy of and above salary. Gratuity Act No. 12 of 1983, as they are Actuaries and Consulting Actuaries. not eligible to join the Pension Scheme The valuation has been carried out, A separate fund is maintained to meet described in 8.6.5.1.1. based on Projected Benefit Method future obligations of the Fund, based recommended by Sri Lanka Accounting on the recommendation of a qualified Other employees whose services are Standard No. 16 (Revised 2006) on Actuary and managed by a Board of terminated other than by retirement are ‘Employee Benefits’. Trustees. Pension payments are made out eligible to receive the terminal gratuity of the funds of the Pension Fund, while under the Payment of Gratuity Act The result of the valuation indicates that annual contributions are made by the No. 12 of 1983 at the rate of one-half of assets of the Pension Fund exceed the Bank to top-up the funding level of the the gross salary applicable to the last liability by Rs. 3,785 Mn (according to Fund as explained above. month of the financial year in which the the discontinuance basis). employment is terminated, for each The accounts of the Pension Fund are year of continuous service, for those The principal financial assumptions maintained separately and are subject who have served in excess of 5 years. used in the valuation as at 1st January to annual audit by Independent External 2010 are as follows: Auditors. The Statement of Accounts as The Bank makes a monthly provision well as the Auditor’s Report are tabled towards such Gratuity Payment Interest/Discount Rate 12% p.a. and reviewed by the Board of Trustees. Liabilities and this value is reflected in Increase in Cost of 5% p.a. These Statements of Accounts and the Balance Sheet of the Bank. Up to Living Allowances Auditor’s Report are also submitted for 31st December 2007, the Bank made a Basic Salary Increase for 10% p.a. review of the disclosure of the Bank, as provision, based on the gratuity formula. all Grades the Bank has an obligation of ensuring However, from 2008 onwards in line with that funding is made at optimum levels. Sri Lanka Accounting Standard No. 16

148 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

(Revised 2006) on ‘Employee Benefits’, planning to initiate a new pension 8.7 Income Statement the provision is made, based on actuary’s scheme for permanent employees who 8.7.1 Revenue Recognition valuation. joined the Bank post - 1st January 1996. 8.7.1.1 Interest Income from Customer Advances The Subsidiary and Associate Companies The Bank has transferred Rs. 198 Mn In terms of provisions of Sri Lanka of the Bank provide for gratuity under the of the gratuity fund as an initial start-up Accounting Standard No. 23, ‘Revenue Payment of Gratuity Act No. 12 of 1983. or seed money for this new pension Recognition and Disclosures in the Provision for gratuity has been made scheme. In addition, Rs. 150 Mn and Financial Statements of Banks’, Interest for employees who have completed one Rs. 200 Mn were funded in the year Income from advances is recognised on year of service with the companies, in 2009 and 2010 respectively for this an accrual basis. Interest ceases to be accordance with Sri Lanka Accounting proposed pension plan. taken into revenue when principal and/ Standard No. 16 (Revised 2006) on or interest on an advance is more than ‘Employee Benefits’. These liabilities are Formal commencement of this scheme 90 days overdue and is classified as a not externally funded. is pending due to clearance from non-performing loan. various authorities. 8.6.5.2 Defined Contribution Plans Interest on advances that is classified as Contributions to Defined Pension Plans 8.6.5.4 Widows’/Widowers’ and Orphans’ non-performing has been accounted for Pension Scheme are recognised as an expense in the on a cash basis. Income Statement on monthly basis. A separate Fund is maintained by the Bank to meet the future obligations Interests falling due on non-performing under the Scheme, based on the advice The Bank contributes to the following advances have been credited to the of a qualified actuary, and a separate Schemes: Interest in Suspense Account. Interest set of books of accounts maintained to accrued up to three months on such 8.6.5.2.1 Employees’ Provident Fund record movements of the Fund. Pension non-performing advances has been The Bank and employees contribute payments are charged against the Fund eliminated from Interest Income and 12% and 8%, respectively, of the in respect of surviving Widows/Widowers transferred to Interest in Suspense. employee’s monthly gross salary and Orphans. (excluding overtime) to the Provident 8.7.1.2 Interest Income from Other Fund. The Bank’s Provident Fund is an 8.6.6 Provision for Liabilities Sources approved fund under the Employees’ A provision is recognised in the Interest Income from Money Market Provident Fund Act. Balance Sheet when the Bank has a Operations, Government Securities and legal or constructive obligation as a other Investments are recognised on an 8.6.5.2.2 Employees’ Trust Fund result of a past event and it is probable accrual basis. Discounts on purchase The Bank contributes 3% of the that an outflow of economic benefits are amortised to income on a constant employee’s monthly gross salary will be required to settle such yield basis over periods to maturity. (excluding overtime) to the Employees’ obligations, in accordance with Trust Fund maintained by the Sri Lanka Accounting Standard No. 36 Income from all other interest-bearing Employees’ Trust Fund Board. on ‘Provisions, Contingent Liabilities investments and interest coupons of and Contingent Assets’. Treasury Bonds is recognised on an 8.6.5.3 Post-1996 Pension Scheme accrual basis. Based on discussions with the Ministry of Finance, State-owned banks are 149 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

8.7.1.3 Fees and Commission Income lease income at the commencement of share of any contingencies and capital Fees and Commission Income are a lease. The unearned lease income is commitments of a Subsidiary or an recognised on cash basis and comprise taken into income over the term of the Associate for which the Bank is also mainly of fees received from customers lease commencing with the month in liable severally or otherwise has for guarantees and other services which the lease is executed in proportion been included where necessary with provided by the Bank, together with fees to the declining receivable balance. appropriate disclosures. for foreign and domestic payment tariffs. Gross earnings under finance leases 8.9 Segment Reporting in respect of lease rentals due, cease Income on the endorsement of Bills In accordance with Sri Lanka Accounting to be taken to revenue when they of Exchange is recognised only when Standard No. 28 on ‘Segment Reporting’, are in arrears for over three months. the Bill is received and either issued the Bank has presented the required Thereafter, such income is recognised or endorsed and payment under the disclosures in respect of the Group on cash basis. particular instrument has been effected. business. These segments comprise

Merchant Banking, Leasing and Travels 8.7.1.4 Dividend Income 8.7.1.8 Other Income under business segments. In addition, Dividend Income is recognised on a Other Income is recognised on an the Bank has also geographically divided cash basis. accrual basis. operations between domestic and foreign currency banking under geographical 8.7.1.5 Gains or Losses Arising from 8.7.2 Interest on Deposits and segments. Information relating to the Sale of Securities Borrowings and Other Expenses above is reflected in the Note 35 to the All realised gains and losses from the Interest on Deposits and Borrowings Accounts of the Bank. sale of equity shares, units and financial and Other Expenses payable are instruments, including Treasury Bills recognised on an accrual basis in the 8.10 Cash Flow Statement sold prior to maturity are accounted for Income Statement, in accordance with in the Income Statement on the date on Sri Lanka Accounting Standard No. 23, The Cash Flow Statement has been which the transaction takes place. ‘Revenue Recognition and Disclosures prepared by using the ‘Direct Method’ of in Financial Statements of Banks’. preparing cash flows in accordance with 8.7.1.6 Recovery of Non-Performing Loans Sri Lanka Accounting Standard No. 9 on and Advances 8.7.3 Off-Balance Sheet Transactions ‘Cash Flow Statements’. Cash and cash Interest recovered from Non- The Bank enters into Off-Balance Sheet equivalents comprise of cash balances Performing Loans and Advances is Transactions such as forward exchange and short-term funds with less than recognised as income on a cash basis. contracts and currency SWAPS. 90 days maturity and amounts due 8.7.1.7 Accounting for Lease Income to Banks from the date of acquisition including cash and balances with the The Bank follows the finance lease Unrealised gains and losses are dealt Central Bank, Treasury Bills and other method of Accounting for Lease with through the Income Statement. eligible Bills and amounts due from Income as recommended by Sri Lanka other Banks and Trading Securities Accounting Standard No. 19. 8.8 Commitment and Contingencies have been included in the computation of this Statement. The excess of aggregate lease rentals All discernible risks have been receivable over the cost of the leased accounted for in determining the assets constitutes the total unearned amount of other liabilities. The Bank’s

150 People’s Bank | Annual Report 2010 [Notes to the Financial Statements]

BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 1. Interest Income Loans and Advances 43,458,663 49,542,553 51,386,491 55,766,717 Treasury Bills and Treasury Bonds 9,990,259 9,845,228 9,990,259 9,845,228 Placement with Other Banks and Other Money Market Instruments 3,085,250 2,953,455 3,182,570 3,027,940 Total Interest Income 56,534,172 62,341,236 64,559,320 68,639,885

2. Interest Expenses Customer Deposits 26,832,472 32,980,191 26,804,234 32,931,742 Refinance and Bank Borrowings 3,065,647 5,051,347 6,387,341 8,176,476 Others 737,603 383,045 737,603 383,045 Total Interest Expenses 30,635,722 38,414,583 33,929,178 41,491,263

3. Other Income Dividends from Investments - Quoted 18,999 12,379 18,999 12,379 - Unquoted 10,748 19,152 10,748 19,152 - Subsidiaries and Associate Companies 288,385 218,761 – 4,524 Recovery of Bad Debts Written-Off and Provision Reversals 1,058,934 1,376,034 1,102,931 1,403,679 Other Operating Income 156,204 178,379 750,744 559,483 Total Other Income 1,533,270 1,804,705 1,883,422 1,999,217

4. Operating Expenses Operating Expenses Include inter alia the following; Directors’ Emoluments 1,645 2,197 4,013 3,942 Auditors’ Remuneration 8,120 12,922 10,658 14,791 Depreciation of Property, Plant & Equipment (Note 21) 592,245 1,021,018 729,810 1,168,414 Amortisation of Prepaid Leases 25,329 100,811 25,329 100,811 Amortisation of Intangible Assets (Note 23) (40,354) 175,853 (30,660) 183,702 VAT on Financial Services 3,634,891 2,840,146 4,053,556 3,124,980 Litigation Expenses 21,028 25,103 22,735 27,690

151 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 5. Provision for Staff Retirement Benefits 5.1 Bank’s Contribution to Defined Benefit Plans People’s Bank Pension Trust Fund 1,116,009 1,649,504 1,116,009 1,649,504 Proposed pension plan for post-1996 recruited employees 200,000 150,000 200,000 150,000 People’s Bank Widows’/Widowers’ & Orphans’ Pension Fund 39,120 39,120 39,120 39,120 Total Contribution for the Year 1,355,129 1,838,624 1,355,129 1,838,624

5.2 The payment to the Pension Trust Fund are contributions from the Bank on behalf of the present members of the Fund The payment to W &OP Fund is a repayment obtained by the Pension Trust Fund from W&OP Fund. This amounts to Rs. 326 Mn by 100 instalments, which commenced in August 2004.

6. Other overhead includes Rs. 1,411 Mn provisions made for operational losses incurred in four branches in Wanni Region during humanitarian operations in the Financial Year 2009. We pursued insurance recovery of these losses, which came under dispute, hence the matter is currently with the Attorney General for legal redress.

BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 7. Provision for Loan Losses General Provision - Performing Loans 92,843 417,010 92,843 417,010 - Pawning 189,586 41,401 189,586 41,401 - Bills Charge/(Reversal) (64,872) 31,707 (64,872) 31,707 - Leases Charge/(Reversal) (10,944) (9,762) (10,944) (9,762) Specific Provisions - Non-Performing Loans 812,504 1,553,460 1,218,628 1,553,460 - Bills – 3,102 – 3,102 - Leases Charge/(Reversal) – – – (43,367) - Credit Card (5,711) 55,495 (5,711) 55,495 Total Provision for Loan Losses 1,013,406 2,092,413 1,419,530 2,049,046

152 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 8. Provision for (Fall)/Increase in Value of Dealing Securities and Others (Fall)/Increase in Value of Dealing Shares 54,560 235,348 54,560 235,348 (Fall)/Increase in Value of Investment (SriLankan Air lines) (841,842) – (841,842) – (Fall)/Increase in Value of Treasury Bonds (74,337) 89,615 (74,337) 89,615 (Fall)/Increase in Value of Treasury Bills 54,320 107,672 54,320 107,672 Net Provision for Gains/(Losses) on Dealing Securities and Others (807,299) 432,635 (807,299) 432,635

9. Other Provisions

This provision is pertaining to oil derivative transactions entered into in late 2008. The Bank is currently pursuing legal redress with regard to one agreement amounting to around Rs. 2.1 Bn for which a local commercial bank is the counterparty. This provision was made in line with Central Bank stipulated guidelines on assets without movements over a specific time and hence will not compromise the Bank’s legal position on these transactions; without prejudice to legal proceedings.

BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 10. Provision for Taxation 10.1 Provision for Taxation is as follows: Bank Income Tax on Profits for the Year 3,729,695 2,843,190 3,729,695 2,843,190 Under/(Over) Provision for Taxation in Previous Year (168,757) 21,774 (168,757) 21,774 Transfer/(Reversal) to Deferred Taxation 3,716 (109,467) 3,716 (109,467) 3,564,654 2,755,497 3,564,654 2,755,497 Subsidiary Companies People’s Leasing Co. Ltd. – – 1,215,076 956,261 People’s Travels (Pvt) Ltd. – – 3,986 475

Associate Company People’s Merchant Bank – – 4,021 5,083 3,564,654 2,755,497 4,787,737 3,717,316

Income tax liability has been computed based on Inland Revenue Act No. 10 of 2006. As the Bank’s ESC liability is more than Rs. 30 Mn per quarter, the balance is limited to pay maximum amount of Rs. 120 Mn as economic service charges per annum and this payment has been set off against the income tax liability. 153 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

BANK 2010 2009 Rs. ‘000 Rs. ‘000 10.2 Income Tax Reconciliation Profit before Tax 8,771,077 6,075,691 Add: Disallowable Expenses 6,943,440 7,943,298 Less: Tax Deductible Expenses (5,035,015) (5,880,980) Assessable Income 10,679,502 8,138,009 Less: Qualifying Payments – – Taxable Income 10,679,502 8,138,009 Income Tax at 35% 3,590,244 2,738,332 Income Tax at 20% 84,332 62,840 Deemed Dividend Tax – – Social Responsibility Levy 55,119 42,018 Income Tax on Current Year Profit 3,729,695 2,843,190 (Over)/Under Provision in respect of Previous Year (168,757) 21,774 Increase/(Decrease) in Current Year Profit 3,560,938 2,864,964 Deferred Tax Charged/(Credit) 3,716 (109,467) Income Tax Expenses 3,564,654 2,755,497

Effective Tax Rate 41% 45%

10.3 Income Tax has been provided on the Taxable Income at the following rates:

2010 2009 % %

Domestic Operations of the Bank 35 35 On-Shore Banking Operations of the Off-Shore Banking Unit 35 35 Off-Shore Banking Operations of the Off-Shore Banking Unit 20 20 People’s Leasing Co. Ltd. 35 35 People’s Travels (Pvt) Ltd. 15 15 People’s Merchant Bank PLC 35 35

10.4 Notional Tax Credit for Withholding Tax on Government Securities on Secondary Market Transactions The Inland Revenue (Amendment) Act No. 10 of 2006, provides that a company, which derives interest income from the secondary market transactions in Government Securities would be entitled to a notional tax credit (being one-ninth of the net interest income), provided such interest income forms part of the statutory income of the Company for that year of assessment.

154 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

11. Earnings Per Share 11.1 Basic Earnings Per Share Basic Earnings per Share has been calculated by dividing the Net Profit after Tax attributable to Ordinary Shareholders by the total number of shares in issue.

BANK GROUP 2010 2009 2010 2009

Number of Ordinary Shares of Rs. 50/- in Issue (‘000) 1,000 1,000 1,000 1,000 Net Profit after Tax (Rs. Mn) 5,206 3,320 6,579 4,174 Earnings per Share (Rs.) 5,206 3,320 6,579 4,174

11.2 Diluted Earnings Per Share Diluted Earnings per Share has been calculated on the basis of the total number of Ordinary Shares and Capital Pending Allotment.

BANK GROUP 2010 2009 2010 2009

Number of Ordinary Shares of Rs. 50/- in Issue (‘000) 1,000 1,000 1,000 1,000 Number of Ordinary Shares Pending Allotment (Note 31) (‘000) 143,040 143,040 143,040 143,040 Total Shares in Issue and Pending Allotment (‘000) 144,040 144,040 144,040 144,040 Diluted Earnings per Share (Rs.) 36 23 46 29

BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 12. Cash and Short-Term Funds Cash in Hand and Balances with Banks 11,339,780 10,938,589 11,998,344 10,992,432 Money at Call and Short Notice 35,017,148 39,393,986 36,850,064 40,395,826 Total Cash and Short-Term Funds 46,356,928 50,332,575 48,848,408 51,388,258

13. Balance with the Central Bank

Current Account with Central Bank 26,739,341 22,717,034 26,739,341 22,717,034

The balance with the Central Bank of Sri Lanka is the statutory cash reserve is 7% of Rupee deposit liabilities. This is a non-interest bearing balance. A similar reserve is not required in respect of foreign currency deposits liabilities in the Domestic Banking Unit and Deposit Liabilities in the Off-Shore Banking Unit.

155 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 14. Government Treasury Bills and Treasury Bonds Treasury Bills 13,484,273 10,352,129 13,484,273 10,352,129 Treasury Bonds 55,325,439 58,209,498 55,325,439 58,209,498 Gain/(Loss) on Mark to Market Valuation 42,090 225,460 42,090 225,460 Total Government Treasury Bills and Bonds 68,851,802 68,787,087 68,851,802 68,787,087

14.1 Government Treasury Bills and Treasury Bonds Gross Government Treasury Bills and Treasury Bonds held for Trading 20,455,714 15,901,661 20,455,714 15,901,661 Gain/(Loss) on Mark to Market Valuation 42,090 225,460 42,090 225,460 Net Government Treasury Bills and Treasury Bonds held for Trading 20,497,804 16,127,121 20,497,804 16,127,121 Government Treasury Bills and Treasury Bonds held to Maturity 48,353,998 52,659,966 48,353,998 52,659,966 68,851,802 68,787,087 68,851,802 68,787,087

14.2 Assets Pledged The following Assets have been pledged as Security for Liabilities: Nature of Liabilities Nature of Assets

Secured against the Government Treasury Bills – – – – REPO Instruments Government Treasury Bonds 29,403,207 35,909,603 29,403,207 35,909,603

Total 29,403,207 35,909,603 29,403,207 35,909,603

The above disclosed amount signifies the carrying amount of assets pledged of Government Treasury Bills and Bonds as at 31.12.2010.

156 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 15. Loans and Advances 15.1 Bills of Exchange 15.1.1 Bills of Exchange Export Bills 860,601 855,255 860,601 855,255 Import Bills 1,826,065 2,769,453 1,826,065 2,769,453 Local Bills 1,115,994 6,229,951 1,115,994 6,229,951 Gross Bills of Exchange 3,802,660 9,854,659 3,802,660 9,854,659 Less: Provision for Losses (Note 15.1.2) (1,775,422) (1,840,293) (1,775,422) (1,840,293) Net Bills of Exchange 2,027,238 8,014,366 2,027,238 8,014,366

15.1.2 Provision for Doubtful Bills Opening Balance 1,840,293 1,805,484 1,840,293 1,805,484 General/Specific Provision during the Year (64,871) 34,809 (64,871) 34,809 Closing Balance 1,775,422 1,840,293 1,775,422 1,840,293

15.2 Loans and Advances 15.2.1 Loans and Advances Overdrafts 79,964,424 71,155,142 78,874,666 70,235,471 Trust Receipts 3,189,431 3,628,214 3,189,431 3,628,214 Staff Loans 15,501,758 10,859,836 15,630,841 10,960,679 Other Loans 268,397,570 201,350,883 268,041,331 201,881,605 367,053,183 286,994,075 365,736,269 286,705,969

Add: Interest Receivables on Non-Performing Advances 33,587,191 32,875,680 33,624,225 32,912,714 Gross Loans and Advances 400,640,374 319,869,755 399,360,494 319,618,683

Less: Interest in Suspense (34,023,624) (33,559,534) (34,107,693) (33,633,602) 366,616,750 286,310,221 365,252,801 285,985,081

Less: Provision for Losses (Note 15.2.2) (12,000,677) (12,300,725) (12,288,037) (12,510,883) Net Loans and Advances 354,616,073 274,009,496 352,964,764 273,474,198

157 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

15.2.2 Movement in the Provision for Loan Losses Specific Opening Balance 10,197,769 10,013,993 10,351,654 10,103,438 Translation Difference on Foreign Currency Banking Unit (216,935) 20,455 (216,935) 20,455 Provision during the Year 830,387 1,608,954 894,827 1,673,394 Amount Written-off against the Provision (316,329) (157,213) (316,329) (157,213) Provision Reversal (879,600) (1,288,420) (879,600) (1,288,420) Closing Balance 9,615,292 10,197,769 9,833,617 10,351,654

General Opening Balance 2,102,956 1,644,545 1,667,958 1,667,958 Provision during the Year - Pawning Charge 189,586 41,401 189,586 41,401 - Performing Loans 92,843 417,010 125,703 449,870 Closing Balance 2,385,385 2,102,956 1,983,247 2,159,229 Total Loan Loss Provision 12,000,677 12,484,500 11,816,864 12,759,098

15.2.3.a Local Currency Loans and Advances Bills 3,189,186 9,413,616 3,189,186 9,413,616 Overdrafts 79,251,422 70,710,437 78,161,664 69,790,766 Trust Receipts 1,616,051 1,456,310 1,616,051 1,456,310 Leases 948,581 2,228,121 61,299,739 38,365,314 Other Loans 260,232,032 191,373,958 259,875,793 191,904,680 Staff Loans 15,501,758 10,859,836 15,630,841 10,960,679 Total Local Currency Loans and Advances 360,739,030 286,042,278 419,773,274 321,891,365

15.2.3.b Foreign Currency Loans and Advances Bills 613,474 441,043 613,474 441,043 Overdrafts 713,002 444,705 713,002 444,705 Trust Receipts 1,573,380 2,171,904 1,573,380 2,171,904 Other Loans 8,165,538 9,976,925 8,165,538 9,976,925 Total Foreign Currency Loans and Advances 11,065,394 13,034,577 11,065,394 13,034,577 Total Loans and Advances 371,804,424 299,076,855 430,838,668 334,925,942

158 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 15.3 Leases 15.3.1 Lease Rentals Receivable within One Year Gross Lease Rentals Receivable within One Year from Balance Sheet Date 898,278 1,552,975 42,112,467 18,553,199 Unearned Lease Income (84,493) (233,760) (10,464,750) (5,660,709) Initial Rentals Received (128,819) (64,853) (163,334) (161,455) Provisions for Bad and Doubtful Debts (6,264) (17,208) (2,553,177) (2,189,068) Net Lease Rentals Receivable within One Year 678,702 1,237,154 28,931,206 10,541,967

15.3.2 Lease Rentals Receivable from One to Five Years Gross Lease Rentals Receivable from One to Five Years from Balance Sheet Date 50,303 675,146 19,186,086 19,810,929 Unearned Lease Income (2,006) (42,963) (3,631,403) (3,672,360) Initial Rentals Received (33,889) (132,945) (878,658) (977,714) Provisions for Bad and Doubtful Debts – – – – Net Lease Rentals Receivable from One to Five Years 14,408 499,238 14,676,025 15,160,855

15.3.3 Lease Rentals Receivable after Five Years Gross Lease Rentals Receivable after Five Years from Balance Sheet Date – – 1,186 1,186 Unearned Lease Income – – (33) (33) Initial Rentals Received – – – – Provisions for Bad and Doubtful Debts – – – – Net Lease Rentals Receivable after Five Years – – 1,153 1,153 Total Net Lease Rentals Receivable 693,110 1,736,392 43,608,384 25,703,975

15.4 Summary of Gross Loans and Advances Bills of Exchange 3,802,660 9,854,659 3,802,660 9,854,659 Loans and Advances 367,053,183 286,994,075 365,736,269 286,705,969 Leases 948,581 2,228,121 61,299,739 38,365,314 Total Gross Loans and Advances 371,804,424 299,076,855 430,838,668 334,925,942

159 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 15.5 Summary of Provision for Loan Losses Bills of Exchange - Specific 1,757,190 1,757,190 1,757,190 1,757,190 - General 18,231 83,103 18,231 83,103 Loans - Specific 9,615,292 10,197,769 9,704,737 10,287,214 - General 2,385,385 2,102,956 2,408,798 2,126,369 Leases - Specific – – 743,322 743,322 - General 6,264 17,208 1,471,387 1,482,331 Total Loan Loss Provision 13,782,362 14,158,226 16,103,665 16,479,529

15.6 Non-Performing Advances and Interest in Suspense on Non-Performing Advances Non-Performing Advances (Note 15.6.1) 18,738,403 20,040,177 19,885,305 21,187,079 Interest in Suspense on Non-Performing Advances 33,587,191 32,875,680 33,624,225 32,912,714

15.6.1 Non-Performing Loans and Advances Bills of Exchange 1,863,146 1,803,351 1,863,146 1,803,351 Loans and Advances 16,870,105 18,230,450 16,870,105 18,230,450 Leases 5,152 6,376 1,152,054 1,153,278 18,738,403 20,040,177 19,885,305 21,187,079

160 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

15.7 Sector-Wise Credit Exposure BANK GROUP Sector 2010 Composition 2009 Composition 2010 Composition 2009 Composition Rs. ‘000 % Rs. ‘000 % Rs. ‘000 % Rs. ‘000 %

Agriculture and Fishing 29,204,354 7.9 34,441,915 11.5 30,977,130 7.2 42,597,216 12.7 Manufacturing 23,013,525 6.2 21,911,664 7.3 23,946,571 5.6 22,525,573 6.7 Tourism 3,199,780 0.9 4,287,081 1.4 3,514,631 0.8 4,351,882 1.3 Transport 356,884 0.1 257,168 0.1 15,755,691 3.7 9,136,199 2.7 Construction 71,724,589 19.3 55,687,027 18.6 73,715,980 17.1 56,756,036 16.9 Traders 65,442,954 17.6 50,551,216 16.9 81,066,392 18.8 60,682,497 18.1 Financial and Business Services 4,374,934 1.2 5,343,967 1.8 4,374,934 1.0 5,343,967 1.6 Infrastructure 254,185 0.1 605,129 0.2 254,185 0.1 605,129 0.2 Other Services 38,307,277 10.3 25,571,734 8.6 61,307,212 14.2 32,542,843 9.7 Credit Card 834,297 0.2 874,837 0.3 834,297 0.2 874,837 0.3 Pawning* 133,299,451 35.9 97,533,723 32.6 133,299,451 30.9 97,533,723 29.1 Other 1,792,194 0.4 2,011,394 0.7 1,792,194 0.4 1,976,040 0.6 Total 371,804,424 100.0 299,076,855 100.0 430,838,668 100.0 334,925,942 100.0

* Mainly disbursed for agriculture, fisheries and housing construction purposes.

2010 2009 Rs. Mn Rs. Mn 15.8 Government Guarantees Total Loans and Advances for which Government Guarantees have been received 39,200 42,030

The provision for bad and doubtful loans is arrived at after taking into account Treasury and Central Bank Guarantees against certain loans and advances. The Bank expects these Guarantees to be renewed, based on requirement.

BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 16. Other Assets Other Assets and Prepayments 5,541,573 6,449,356 9,559,600 7,173,279 Interest Receivable and Accrued Other Income 10,616,786 12,639,433 10,616,786 12,583,249 Less: Provision for Losses Against Other Assets (4,076,918) (3,388,634) (4,116,715) (3,418,667) Total at Year end Net of Provisions 12,081,441 15,700,155 16,059,671 16,337,861

161 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 17. Dealing Securities Dealing Securities 478,052 423,502 536,118 423,502 Dealing at Market Value 478,052 423,502 536,118 423,502

No. of Cost Market Value No. of Cost Market Value Share(s) as at as at Share(s) as at as at Units 31.12.2010 31.12.2010 Units 31.12.2009 31.12.2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 17.1.a Dealing Securities - Bank Magpeck Ltd. 125,000 5,000 – 125,000 5,000 – Overseas Realty (Ceylon) PLC 20,722,353 165,771 317,052 20,722,353 165,771 321,196 National Equity Fund (Units) 5,112,735 76,134 161,000 5,112,735 76,134 102,306 Total Value of the Dealing Securities 246,905 478,052 246,905 423,502

17.1.b Dealing Securities - Group Magpeck Ltd. 125,000 5,000 – 125,000 5,000 – Overseas Realty (Ceylon) PLC 20,722,353 165,771 317,052 20,722,353 165,771 321,196 National Equity Fund 5,112,735 76,134 161,000 5,112,735 76,134 102,306 309,900 23,873 25,846 – – – Keels Hotels 100,000 2,001 2,000 – – – Commercial Bank 15,000 2,455 3,898 – – – 25,000 1,505 2,445 – – – Seylan Bank NV 25,000 962 1,225 – – – Browns Ltd. 10,000 1,146 2,469 – – – ODEL Ltd. 5,400 81 197 – – – Aitken Spence 75,000 14,898 12,742 – – – Hemas Holdings 25,000 1,109 1,112 – – – John Keells Holdings Ltd. 20,000 6,289 5,968 – – – Laugfs Gas Ltd. 3,900 90 101 – – – Laugfs Gas Ltd. NV 3,400 51 63 – – – Total Value of the Dealing Securities 301,365 536,118 246,905 423,502

17.2 The market value of the investments in quoted equity shares are based on the market value ruling as at the Balance Sheet date.

17.3 The market value of investments in unit trusts is based on the Manager’s Buying Price Ruling as at the Balance Sheet date.

162 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 18. Other Investment Securities 18.1 Long-Term Investments - Equities Unquoted Shares (Note 18.1.1) (Note 18.1.2) 1,309,758 172,758 1,409,768 223,533 Less: Provision for Permanent Diminution in Value of Investment (865,252) (23,411) (865,252) (23,411) Net Value of Long-Term Investment (Equities) 444,506 149,347 544,516 200,122

Long-Term Investments - Debt Securities Sri Lanka Development Bonds US$ 17,256,725 16,647,276 17,256,725 16,647,276 Long-Term Treasury Bonds (Note 18.2) 625,000 625,000 625,000 625,000 Net Value of Long-Term Investment (Debt Securities) 17,881,725 17,272,276 17,881,725 17,272,276 Total Investment Securities 18,326,231 17,421,623 18,426,241 17,472,398

No. of Directors’ Cost Directors’ Cost Share(s) Valuation as at as at Valuation as at as at 31.12.2010 31.12.2010 31.12.2009 31.12.2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

18.1.1 Unquoted Shares - Bank SriLankan Airlines Ltd. 4,236,135 296,199 1,137,000 – – Credit Information Bureau of Sri Lanka 47,400 50,715 50,715 50,715 50,715 District Corporate Union 135 – – – – Southern Development Financial Company Ltd. 2,500,000 549 25,000 1,589 25,000 Society for Worldwide Inter Bank Fund Transfer 14 1,168 1,168 1,168 1,168 Rajarata Development Bank 1,298,448 12,000 12,000 12,000 12,000 Kandurata Development Bank 1,200,000 12,000 12,000 12,000 12,000 Ruhunu Development Bank 1,200,000 12,000 12,000 12,000 12,000 Sabaragamuwa Development Bank 1,200,000 12,000 12,000 12,000 12,000 Uva Development Bank 1,200,000 12,000 12,000 12,000 12,000 Wayamba Development Bank 1,320,000 12,000 12,000 12,000 12,000 Lanka Financial Services Bureau Ltd. 225,000 2,250 2,250 2,250 2,250 Fitch Rating Lanka Ltd 62,500 625 625 625 625 Lanka Clear (Pvt) Ltd. 2,100,000 21,000 21,000 21,000 21,000 Total Value of Unquoted Investment 444,506 1,309,758 149,347 172,758

163 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

No. of Directors’ Cost Directors’ Cost Share(s) Valuation as at as at Valuation as at as at 31.12.2010 31.12.2010 31.12.2009 31.12.2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

18.1.2 Unquoted Shares - Group SriLankan Airlines Ltd. 4,236,135 296,199 1,137,000 – – Credit Information Bureau of Sri Lanka 57,400 50,725 50,725 50,715 50,715 District Corporate Union 135 – – – – Southern Development Financial Company Ltd. 2,500,000 549 25,000 1,589 25,000 Society for Worldwide Inter Bank Fund Transfer 14 1,168 1,168 1,168 1,168 Rajarata Development Bank 1,298,448 12,000 12,000 12,000 12,000 Kandurata Development Bank 1,200,000 12,000 12,000 12,000 12,000 Ruhunu Development Bank 1,200,000 12,000 12,000 12,000 12,000 Sabaragamuwa Development Bank 1,200,000 12,000 12,000 12,000 12,000 Uva Development Bank 1,200,000 12,000 12,000 12,000 12,000 Wayamba Development Bank 1,320,000 12,000 12,000 12,000 12,000 Lanka Financial Services Bureau Ltd. 225,000 2,250 2,250 2,250 2,250 Fitch Rating Lanka Ltd 62,500 625 625 625 625 Lanka Clear (Pvt) Ltd. 2,100,000 21,000 21,000 21,000 21,000 Ltd. 100,000,000 100,000 100,000 50,775 50,775 Total Value of Unquoted Investment 544,516 1,409,768 200,122 223,533

The carrying value of all unquoted investments is based on Board of Directors’ valuations - i.e. lower of cost or net assets value.

18.2 Long-Term Treasury Bonds Long-Term Treasury Bonds represent Bonds received during 2003 on account of Loans and Overdrafts granted by the Bank to Co-operative Wholesale Establishment (CWE) amounting to Rs. 625 Mn. These Bonds have been received as part of the restructuring process of the CWE and its financial obligations to the Bank. These Bonds are not negotiable and carry a zero coupon rate of interest with a maturity of 13 years. However, these Bonds carry an interest payment scheme for which CWE is required to make a semi- annual payment of interest at 3.68% p.a. net of withholding tax.

164 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

19. Investments in Subsidiaries and Associate Companies BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Investment in Subsidiaries 1,519,950 1,619,950 – – Investment in Associates 155,500 155,500 248,830 122,516 Total Investment in Subsidiaries and Associates Companies 1,675,450 1,775,450 248,830 122,516

Principal No. of Holding % Cost Activity Shares as at 2010 2009 31.12.2010 Rs. ‘000 Rs. ‘000

19.1 Investments in Subsidiaries People's Leasing Co. Ltd. Leasing - Ordinary Shares 50,000,000 100 465,000 465,000 - Preference Shares 105,000,000 100 1,050,000 1,150,000 People's Travels (Pvt) Ltd. Travel Agent 495,000 99 4,950 4,950 Total Value of Investment at the Year end 1,519,950 1,619,950

BANK GROUP Holding % Cost Holding % Cost as at 2010 2009 as at 2010 2009 31.12.2010 Rs. ‘000 Rs. ‘000 31.12.2010 Rs. ‘000 Rs. ‘000 19.2 Investments in Associates People's Merchant Bank PLC - Ordinary Shares 26.13 145,500 145,500 39.2 238,830 112,516 - Preference Shares 10,000 10,000 10,000 10,000 Smart Net Lanka (Pvt) Ltd. (Non-Operational) 37.3 25,000 25,000 37.3 25,000 25,000 180,500 180,500 273,830 147,516 Less : Provision for Smart Net Lanka (Pvt) Ltd. (25,000) (25,000) (25,000) (25,000) Total Value of Investment at the Year end 155,500 155,500 248,830 122,516

165 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

20. Government of Sri Lanka Restructuring Bonds

20.1 On April 1993, the Bank received Restructuring Bonds amounting to Rs. 10,541 Mn from the Government of Sri Lanka (GOSL) for the following purposes:

Rs. Mn

(i) 1,152.0 To achieve the capital adequacy requirement in accordance with CBSL guidelines. (ii) 1,700.5 To write-off loans granted to Sri Lanka State Plantations Corporation and Paddy Marketing Board for Rs. 1,467 Mn and Rs. 233.5 Mn respectively. (iii) 4,355.0 To finance pension liabilities. (iv) 3,231.0 To provide for loan loss provision. (v) 102.5 For loans to be transferred to special recovery unit (RACA). 10,541.0

20.2 The above value of Bonds granted by GOSL effectively relates to accounting entries that were booked to clear carrying values of advances granted under State recommendation, which were deemed as irrecoverable.

20.3 The agreement underlying the granting of these Bonds, stipulates the following: (a) A tenor of 30 years, where the Bonds could be redeemed through the recovery of any of the specific loan losses for which the Bonds were issued.

As at Balance Sheet date, no recoveries have been made of those specific loan losses.

(b) As per the initial agreement an interest rate of 12% p.a. would apply, with half yearly payment of interest.

(c) A value of 25% of income derived from (b) above would be refunded to the GOSL annually.

20.4 As indicated in 19.1, a sum of Rs. 4,355 Mn of this tranche of Bonds was assigned to the Pension Fund (Rs. 3,218 Mn) and to the W&OP Fund (Rs. 1,137 Mn).

Accordingly, the carrying balance of Bonds reflected on the Balance Sheet does not include the value assigned to the Pension Fund, which is managed as an Independent Trust Fund.

20.5 The financial implications of these Bonds in year 2010 are as follows:

(a) A value of Rs. 7,323 Mn is reflected on the Balance Sheet as a Long-Term Asset.

(b) A value of Rs. 73 Mn was received during the year as income and is reflected under Interest Income.

(c) A value of Rs. 18 Mn was repaid to GOSL as a dividend and is reflected under Appropriations in the Equity Statement.

166 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

21. Property, Plant & Equipment

Freehold Leasehold Motor Leasehold Furniture Total Total Land and Buildings Vehicles Motor Equipment 31.12.2010 31.12.2009 Buildings Vehicles & Machinery Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Bank Cost or Valuation As at beginning of the Year 5,714,927 1,046,971 176,659 378,404 7,338,747 14,655,708 14,016,876 Additions 177,476 142,022 3,880 1,476 705,864 1,030,718 641,542 Disposals (89,815) (9,171) (16,340) (8,250) – (123,576) (2,710) As at end of the Year 5,802,588 1,179,822 164,199 371,630 8,044,611 15,562,850 14,655,708

Depreciation As at beginning of the Year 479,606 455,571 161,109 259,559 6,260,390 7,616,235 6,597,927 Charge for the Year (Note 4) (80,132) 30,406 7,358 62,574 572,039 592,245 1,021,018 Disposals (1,559) (1,878) (16,340) (8,250) – (28,027) (2,710) As at end of the Year 397,915 484,099 152,127 313,883 6,832,429 8,180,453 7,616,235 Net Book Value as at 31.12.2010 5,404,673 695,723 12,072 57,747 1,212,182 7,382,397 7,039,473 Capital Work-in-Progress, at Cost 341,728 363,051 Furniture, Equipment and Machinery at Store 137,430 27,536 7,861,555 7,430,060 Net Book Value as at 31.12.2009 5,235,321 591,400 15,550 118,845 1,078,357 7,039,473

Group Cost or Valuation As at beginning of the Year 5,977,131 1,084,772 295,423 723,692 7,681,865 15,762,883 14,966,962 Additions 572,399 142,557 18,897 185,773 819,708 1,739,334 848,407 Disposals (264,689) (9,335) (70,034) (201,945) (111) (546,114) (52,486) As at end of the Year 6,284,841 1,217,994 244,286 707,520 8,501,462 16,956,103 15,762,883

Depreciation As at beginning of the Year 480,296 487,118 212,013 489,332 6,454,541 8,123,300 6,970,336 Charge for the Year (Note 4) (79,738) 33,324 19,423 128,104 630,842 731,955 1,193,702 Disposals (1,559) (1,878) (28,924) (169,276) – (201,637) (40,737) As at end of the Year 398,999 518,564 202,512 448,160 7,085,383 8,653,618 8,123,301 Net Book Value as at 31.12.2010 5,885,842 699,430 41,774 259,360 1,416,079 8,302,485 7,639,582 Capital Work-in-Progress, at Cost 783,660 523,190 Furniture, Equipment and Machinery at Store 137,430 27,536 9,223,575 8,190,308 Net Book Value as at 31.12.2009 5,496,835 597,654 83,410 234,359 1,227,324 7,639,582

167 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 22. Prepaid Leases Cost 683,632 693,732 683,632 693,732 Less: Accumulated Amortisation 357,115 334,376 357,115 334,376 Net Book Value 326,517 359,356 326,517 359,356

23. Intangible Assets

IT-Related Capital Items Cost or Valuation As at beginning of the Year 879,263 846,337 933,125 889,373 Branch Conversions and Related IT Capital Expenses 7,071 32,926 15,609 43,752 Disposals/Reversals during the Year – – – – As at end of the Year 886,334 879,263 948,734 933,125

Accumulated Amortisation As at beginning of the Year 730,052 554,199 758,098 574,389 Amortisation for the Year (40,354) 175,853 (30,660) 183,709 As at end of the Year 689,698 730,052 727,438 758,098 Net Book Value 196,636 149,211 221,296 175,027

Goodwill Cost or Valuation As at beginning of the Year – – 337,908 337,908 Additions during the Year – – – – Disposals/Reversals during the Year – – – – As at end of the Year – – 337,908 337,908

Accumulated Amortisation As at beginning of the Year – – – – Amortisation for the Year – – – – As at end of the Year – – – – Net Book Value – – 337,908 337,908 Total Net Book Value 196,636 149,211 559,204 512,935

During the year 2009, People’s Leasing Co. Ltd. acquired Seylan Merchant Leasing PLC. Goodwill is booked as a result of this acquisition. Subsequently, this company was named as ‘People’s Leasing Finance PLC’.

168 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 24. Deposits from Customers Demand Deposits 40,617,338 37,352,127 39,057,966 36,740,452 Saving Deposits 203,003,880 174,735,373 203,402,247 174,864,164 Time Deposits 215,107,187 181,258,787 217,837,534 181,786,413 Certificates of Deposits 244,194 67,261 262,439 92,756 Other Deposits 3,167,656 2,744,011 3,167,656 2,744,011 Total Deposits as at end of the Year 462,140,255 396,157,559 463,727,842 396,227,796

24.(a) Local Currency Deposits Demand Deposits 40,422,652 37,103,025 38,863,280 36,491,350 Saving Deposits 191,120,531 158,173,102 191,518,898 158,301,893 Time Deposits 197,826,110 166,112,224 200,556,457 166,639,850 Certificates of Deposits 244,194 67,261 262,439 92,756 Other Deposits 2,880,810 2,560,874 2,880,810 2,560,874 Total Local Currency Deposits 432,494,297 364,016,486 434,081,884 364,086,723

24.(b) Foreign Currency Deposits Demand Deposits 194,686 249,102 194,686 249,102 Saving Deposits 11,883,349 16,562,271 11,883,349 16,562,271 Time Deposits 17,281,077 15,146,563 17,281,077 15,146,563 Other Deposits 286,846 183,137 286,846 183,137 Total Foreign Currency Deposits 29,645,958 32,141,073 29,645,958 32,141,073 Total Deposits as at end of the Year 462,140,255 396,157,559 463,727,842 396,227,796

25. Borrowings Refinance Borrowings: Central Bank of Sri Lanka 2,733,822 1,165,615 2,733,822 1,165,615 Government of Sri Lanka – – 25,119 25,119 Financial Institutions 673,760 755,216 673,760 755,216 Long-Term Borrowings: Financial Institutions of Sri Lanka 270,307 286,866 12,466,713 5,493,925 Other Borrowings: Call Money Borrowings 3,684,868 3,842,429 22,359,370 14,619,192 Treasury Bills/Bonds/Pro Notes Repurchases 29,314,406 30,343,906 29,201,102 30,343,906 Total Borrowings as at end of the Year 36,677,163 36,394,032 67,459,886 52,402,973

169 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 26. Deferred Liabilities Deferred Tax (Note 26.1.2) – – 36,564 249,997 Provision for Gratuity (Note 26.2) 223,712 164,014 249,123 183,742 Balance as at end of the Year 223,712 164,014 285,687 433,739

BANK GROUP 2010 2010 Temporary Tax Temporary Tax Difference Effect Difference Effect Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

26.1.1 Deferred Tax Asset As at Beginning of the Year (189,058) (66,171) (383,864) (134,352) Amount Originating/(Reversing) during the Year 10,616 3,716 174,202 60,971 As at end of the Year (178,442) (62,455) (209,662) (73,381)

26.1.2 Deferred Tax Liabilities As at Beginning of the Year – – 714,277 249,997 Amount Originating/(Reversing) during the Year – – (609,808) (213,433) As at end of the Year – – 104,469 36,564

BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 26.2 Provision for Gratuity Opening Balance 164,014 85,000 183,742 114,536 Provision during the Year 62,000 80,000 68,848 71,235 Payments during the Year (2,302) (986) (3,467) (2029) Closing Balance 223,712 164,014 249,123 183,742

170 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 27. Other Liabilities Cheques Sent for Collection 65,138 303 65,138 303 Pay Orders and Drafts 1,117,707 848,671 1,117,707 848,671 Accrued Interest and Other Expenses 13,917,409 13,917,094 13,917,409 13,917,094 Other Liabilities 2,520,971 3,112,828 10,751,329 6,493,204 Total Other Liabilities as at end of the Year 17,621,225 17,878,896 25,851,583 21,259,272

28. Retirement Benefit Pensioner’s Medical Fund 495,000 315,000 495,000 315,000 Widows’/Widowers’ and Orphans’ Pension Fund 89,835 32,186 89,835 32,186 Proposed Post-1996 Recruited Employees’ Pension Fund 548,000 348,000 548,000 348,000 Total Liabilities 1,132,835 695,186 1,132,835 695,186

28.1 Movement in Widows’/Widowers’ and Orphans’ Fund Opening Balance in Bank 32,186 (1,783) 32,186 (1,783) Contribution to the Fund 92,208 97,295 92,208 97,295 Interest Income Earned 708,748 758,245 708,748 758,245 Payments during the Year (231,669) (232,830) (231,669) (232,830) Realisation of/(Transferred to) Fixed Deposit (511,639) (588,741) (511,639) (588,741) Closing Balance in Bank’s Books 89,835 32,186 89,835 32,186

28.2 This Fund was established in January 1965 for the payment of pensions to widows of former employees and retired employees of the Bank who are contributors to the Fund. The Fund is not open to employees recruited post 1st January 1996. The members of the Fund contribute 5% of their basic salary and certain allowances. The assets of the W&OP Fund are managed by a Board of Management.

28.3 The transfer of the W&OP balance to fixed deposits during the year, reflects management’s decision to maintain funds belonging to the W&OP as an independent deposit from Bank assets.

171 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

29. Debentures

The Bank has issued - 1. Two million five hundred thousand (2,500,000) unsecured subordinated redeemable debentures 2008/2016 of the aggregate value of Rupees two thousand five hundred million at a par value of one thousand Rupees each at the rate of 16% p.a. (payable biannually) on 30th December 2008.

2. Two million five hundred thousand (2,500,000) unsecured subordinated redeemable debentures 2009/2017 of the aggregate value of Rupees two thousand five hundred million at a par value of one thousand Rupees each at the rate of 13.5% p.a. (payable biannually) on 30th December 2009.

30. Share Capital 30.1 Movement of Share Capital BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Authorised 20,000,000 Ordinary Shares of Rs. 50/- each 1,000,000 1,000,000 1,000,000 1,000,000

Issued & Fully-Paid 999,960 Ordinary Shares of Rs. 50/- each 49,998 49,998 49,998 49,998

All issued shares of 1 Mn are fully-paid except for 40 shares for which calls have been made, but remain unpaid.

30.2 Principal Shareholders of the Bank are as follows:

2010 2009 % %

Government of Sri Lanka 92.27 92.27 Co-operative Societies 7.73 7.73 100.00 100.00

31. Capital Pending Allotment Account

31.1 The Government of Sri Lanka has injected Rs. 7,152 Mn as capital to the Bank which is currently in the Capital Pending Allotment Account. The Bank is planning to issue 143,040,000 shares of Rs. 50/- each, subsequent to the increase in authorised share capital.

31.2 The increase in paid-up capital requires an amendment to the People’s Bank Act and it is yet to be finalised.

172 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

31.3 The Ministry of Finance of the Government of Sri Lanka infused capital to the Bank as follows: Four Tranches of Rs. 1 Bn, Rs. 2 Bn, Rs. 1.5 Bn and Rs. 1.5 Bn for the years 2005, 2006, 2007 and 2008 to meet the stipulated minimum capital requirement by the Central Bank of Sri Lanka.

32. Reserves 32.1 Movement in Reserves

Statutory Revaluation Capital Special Risk General Building Profit/ Total Total Reserve Reserve Reserve Reserve Reserve Reserve (Loss) 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Bank Balance at beginning of the Year 49,998 5,630,460 5,663 822,450 313,500 1,000 3,775,124 10,598,194 8,697,690 Profit for the Year – – – – – – 5,206,423 5,206,423 3,320,194 Transfer to Special Risk Reserve – – – 431,358 – – (431,358) – – Transfer to General Reserve – – – – 625,000 (625,000) – – Dividend Paid to GOSL (Note 32.8) – – – – – – (18,307) (18,307) (219,690) Special Levy to Treasury (Note 32.9) – – – – – – (2,150,000) (2,150,000) (1,200,000) Balance as at end of the Year 49,998 5,630,460 5,663 1,253,808 938,500 1,000 5,756,883 13,636,310 10,598,194 Notes (32.2) (32.3) (32.4) (32.5) (32.6) (32.7)

Group Balance at beginning of the Year 49,998 5,630,460 5,663 822,450 313,500 1,000 8,080,664 14,903,735 12,149,208 Profit for the Year – – – – – – 6,579,445 6,579,445 4,174,217 Transfer to Special Risk Reserve – – – 431,358 – – (431,358) – – Transfer to General Reserve – – – – 625,000 – (625,000) – – Dividend Paid to GOSL (Note 32.8) – – – – – – (18,307) (18,307) (219,690) Special Levy to Treasury (Note 32.9) – – – – – – (2,150,000) (2,150,000) (1,200,000) Balance as at end of the Year 49,998 5,630,460 5,663 1,253,808 938,500 1,000 11,435,445 19,314,873 14,903,735 Notes (32.2) (32.3) (32.4) (32.5) (32.6) (32.7)

32.2 Permanent Reserve (Statutory Reserve Fund) The Permanent Reserve is maintained as required by the Banking Act No. 30 of 1988. Accordingly, the Bank should, out of net profit after taxation but before any dividend is declared, transfer to the Permanent Reserve a sum equivalent to not less than 5% of the Bank’s paid- up capital until the Permanent Reserve is equal to 50% of the paid-up capital and not less than 2% until the Permanent Reserve equals the paid-up capital.

No new transfers have been made to the Permanent Reserve, as the balance now equals the existing Issued Share Capital Balance.

173 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

32.3 Revaluation Reserve This reserve was created on revaluation of assets of the Bank as per Board approval in compliance with Section 19 (7) of the Banking Act No. 30 of 1988.

32.4 Capital Reserve This reserve was created in 1987 and increased in 1998, has no transfers to date.

32.5 Special Risk Reserve In terms of Central Bank directives, 25% of the profit has been transferred to Special Risk Reserve in order to promote safety, soundness and the stability of the Primary Dealer System and to build-up a Primary Dealer Capital Base.

32.6 General Reserve This reserve was created under Section 22 (2) of the People’s Bank Act No. 29 of 1961. The General Reserve represents accumulated unallocated retained Profits and Losses which are available for distribution and for settlement of debentures issued.

32.7 Building Reserve This reserve was created under Section 19 of the People’s Bank Act No. 29 of 1961.

32.8 Dividend Paid to GOSL According to the Agreement between the Government of Sri Lanka and the People’s Bank, the Bank is required to pay back 25% of the Restructuring Bond interest to the General Treasury as a dividend. Additional details relating to this expense are reflected in Note 20.

32.9 Special Levy to Treasury This pertains to a special dividend paid to the consolidated fund of the Government of Sri Lanka as determined by the Ministry of Finance. Total levies of Rs. 2,150 Mn was paid for the year 2010.

BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 33. Minority Interest Balance at beginning of the Year – – 6,217 191 Acquired during the Year – – 73,902 6,461 Share of Net Profit/(Loss) for the Year – – 3,118 (422) Dividend Payments during the Year – – (13) (13) Balance at end of the Year – – 83,225 6,217

174 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

34. Commitments and Contingencies

34.1 In the normal course of business, the Bank makes various commitments and incurs contingent liabilities with legal recourse to its customers. No material losses are anticipated as a result of these transactions.

BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Commitments Non-Disbursed Loans 353,190 68,096 353,190 68,096 Non-Disbursed Overdrafts 26,084,818 10,718,394 26,084,818 10,718,394 26,438,008 10,786,490 26,438,008 10,786,490

Contingent Liabilities Acceptances 41,489,046 22,336,626 41,489,046 22,336,626 Documentary Credit 33,945,717 29,553,988 33,945,717 29,553,988 Guarantees 22,241,936 18,641,302 22,241,936 18,641,302 97,676,699 70,531,916 97,676,699 70,531,916

Forward Exchange Contracts 7,636,022 19,548,795 7,636,022 19,548,795 Total Commitments and Contingencies 131,750,729 100,867,201 131,750,729 100,867,201

34.2 Litigation In the normal course of business, the Bank is involved in various types of litigation, including litigation with borrowers who are in default under terms of their loan agreements. In certain circumstances, borrowers have asserted or threatened counter claims defences. The Bank is also contesting certain Labour cases. In the opinion of management, based on its assessment and consultation with outside counsel, litigation which is currently pending against the Bank and the Group will not have a material impact on the financial condition or future operations of the Bank and the Group as a whole. The total value of litigation against the Bank amounts to approximately Rs. 7.61 Bn.

34.3 Other Capital Commitments The following indicates the contractual amounts of the Group’s Off-Balance Sheet financial instruments that commits it to extend credit to customers. BANK GROUP 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Approved and Contracted for 180,827 129,333 180,827 129,333 Approved but Not Contracted for 8,874 102,500 8,874 102,500 189,701 231,833 189,701 231,833

175 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

35. Financial Reporting by Segments

Banking Leasing Travels Consolidated 2010 2009 2010 2009 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Interest 56,110,411 61,626,261 – – – – 56,110,411 61,626,261 Exchange 1,120,022 1,120,819 – – – – 1,120,022 1,120,819 Leasing 175,066 408,803 8,272,971 6,604,553 – – 8,448,037 7,013,356 Share Trading/Dividend 29,747 31,531 – – – – 29,747 31,531 Commissions and Fees 3,170,590 3,108,401 – – 19,782 17,569 3,190,372 3,125,970 Other 1,652,229 2,225,644 661,768 416,489 872 268 2,314,869 2,642,401 Total Revenue from External Customers 62,258,065 68,521,459 8,934,739 7,021,042 20,654 17,837 71,213,458 75,560,338 Inter-Segment Revenue 560,311 528,149 159,068 243,769 2,411 3,405 721,790 775,323 Total Revenue 62,818,376 69,049,608 9,093,807 7,264,811 23,065 21,242 71,935,248 76,335,661 Segment Result 8,771,077 6,075,691 2,897,302 2,028,744 5,534 2,449 11,385,528 7,892,647 Income from Associates – – – – – – (15,228) (1,523) Income Tax Expenses (3,564,654) (2,755,497) (1,215,076) (956,261) (3,986) (475) (4,787,737) (3,717,316) Minority Interest – – – – – – (3,118) 409 Net Profit for the Year 5,206,423 3,320,194 1,682,226 1,072,483 1,548 1,974 6,579,445 4,174,217 Segment Assets 547,460,329 476,089,978 56,905,699 30,155,279 29,734 30,487 595,567,644 500,838,631 Investment in Associates 155,500 155,500 – – – – 248,830 122,516 Total Assets 547,615,829 476,245,478 56,905,699 30,155,279 29,734 30,487 595,816,475 500,961,147 Segment Liabilities 526,777,521 458,445,286 49,591,134 24,210,486 9,530 10,581 569,216,379 478,849,197 Total Liabilities 547,615,829 476,245,478 56,905,704 30,155,279 29,734 30,487 595,816,475 500,961,147

176 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

BANK 2010 2009 Rs. ‘000 Rs. ‘000 35.1 Geographical Segmentation Assets Domestic Banking Unit 536,705,614 462,572,456 Foreign Currency Banking Unit 10,910,215 13,510,129

Gross Income Domestic Banking Unit 61,723,536 68,131,818 Foreign Currency Banking Unit 808,891 917,790

Profit before Tax Domestic Banking Unit 8,349,415 5,761,489 Foreign Currency Banking Unit 421,662 314,202

Profit after Tax Domestic Banking Unit 4,870,159 3,068,832 Foreign Currency Banking Unit 336,264 251,362

177 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

36. Bank - Maturity Profile of Assets & Liabilities (Rs. ‘000)

Up to 3 M 3-12 M 1-3 Years 3-5 Years Over 5 Years Total 2009 Interest Earning Assets Short-Term Funds 35,017,148 – – – – 35,017,148 39,393,986 Treasury Bills 3,457,639 10,030,385 – – – 13,488,024 10,500,025 Treasury Bonds 4,964,675 16,320,766 27,520,752 6,557,294 290 55,363,777 58,287,062 Unquoted Bond/Shares – 3,451,345 13,805,380 – – 17,256,725 16,647,276 Bills of Exchange 1,521,709 505,529 – – – 2,027,238 7,864,367 Loans and Advances 52,216,979 214,701,652 13,485,457 5,222,563 68,989,422 354,616,073 274,159,495 GOSL Bonds – – – – 7,323,000 7,323,000 7,323,000 Leases 65,801 195,250 432,059 – – 693,110 1,736,392 As at 31.12.2010 97,243,951 245,204,927 55,243,648 11,779,857 76,312,712 485,785,095 415,911,603 As at 31.12.2009 91,210,294 184,339,347 82,622,408 29,657,011 28,082,543 415,911,603 –

Non-Interest Earnings Assets Cash 11,339,780 – – – – 11,339,780 10,938,589 Balance with Central Bank 16,829,956 8,011,309 359,737 385,775 1,152,565 26,739,342 22,717,033 Dealing Securities 478,052 – – – – 478,052 423,502 Subsidiaries – – – – 1,519,950 1,519,950 1,619,950 Associates – – – – 155,500 155,500 155,500 Unquoted Bond/Shares – – – – 1,069,506 1,069,506 774,347 Other Assets 11,901,979 241,917 – – – 12,143,896 15,766,327 Property, Plant & Equipment – – – – 7,861,555 7,861,555 7,430,060 Prepaid Leases – – – – 326,517 326,517 359,356 Intangible Assets – – – – 196,636 196,636 149,211 As at 31.12.2010 40,549,767 8,253,226 359,737 385,775 12,282,229 61,830,734 60,333,875 As at 31.12.2009 40,425,160 6,243,567 137,604 860,000 11,772,469 – – Total Assets as at 31.12.2010 137,793,718 253,458,153 55,603,385 12,165,632 88,594,941 547,615,829 – Total Assets as at 31.12.2009 132,333,913 190,886,164 82,851,685 30,302,919 39,870,797 476,245,478 476,245,478

Liabilities Deposits 290,874,784 138,460,711 6,217,399 6,667,404 19,919,957 462,140,255 396,157,558 Amount Due to Banks 2,454,883 – – – – 2,454,883 490,142 Borrowings - Money Markets 3,675,419 – – – – 3,675,419 2,207,697 Borrowings - REPO Agreements 12,735,194 16,579,212 – – – 29,314,406 30,343,906 Borrowings - Refinance/Others 252,397 1,185,895 749,633 749,633 749,780 3,687,338 3,842,428 Retirement Benefit 114,904 344,711 552,017 73,202 48,001 1,132,835 695,186 Debentures 5,000,000 5,000,000 5,000,000 Total Interest Bearing Liabilities as at 31.12.2010 310,107,581 156,570,529 7,519,049 7,490,239 25,717,738 507,405,136 438,736,917 Total Interest Bearing Liabilities as at 31.12.2009 292,291,291 292,291,291 292,291,291 292,291,291 292,291,291 – 438,736,917 Total Non-Interest Bearing Liabilities 18,787,678 584,707 – – – 19,372,385 19,708,367 Shareholders’ Fund – – – – 20,838,308 20,838,308 17,800,194 Total Liabilities as at 31.12.2010 328,895,259 157,155,236 7,519,049 7,490,239 46,556,046 547,615,829 – Total Liabilities as at 31.12.2009 311,398,106 108,764,075 4,191,002 10,111,460 41,780,836 476,245,478 476,245,478 Net Liquidity Gap as at 31.12.2010 (191,101,541) 96,302,917 48,084,336 4,675,393 42,038,895 – – Net Liquidity Gap as at 31.12.2009 (179,064,193) 82,122,089 78,660,683 20,191,459 (1,910,039) – –

The Bank has a captured rural savings and current account base of around Rs. 175 Bn in 2010. This balance has been continuously and steadily growing over the years, mainly due to the comfort of state-owned security and the unmatched branch outreach in the Country. This base which is included under ‘deposits’ above has distorted the ‘up to 3M’ liquidity gap. 178 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

37. Related Party Disclosures 37.1 Transactions with Key Management Personnel of the Bank Key Management Personnel are defined as those persons having authority and responsibility for planning, directing and controlling activities of the Bank. Such Key Management Personnel include Chairman, Executive and Non-Executive Directors, Chief Executive Officer/General Manager of the Bank and their close family members.

37.1.1 Compensation of Key Management Personnel of the Bank 2010 2009 Rs. ‘000 Rs. ‘000

Short-Term Employee Benefits 4,602 3,012 Post-Employment Pension 1,015 – Termination Benefits 1,452 –

37.1.2 Transactions with Key Management Personnel The following table provides the outstanding balance and the corresponding interest, which have been entered into with Key Management Personnel of the Bank during the year.

Balance as at the Year end Income during the Year 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Residential Mortgages 2,424 – 77 – Credit Cards 53 127 53 74 Guarantees – – – –

179 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

37.2 Transactions with Subsidiary Companies The following table provides the outstanding balance of Loans & Advances, other credit facilities, Deposits and the corresponding interest during the year of subsidiary companies.

Balance as at the Year end Income /Expenses during the Year 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

People’s Leasing Co. Ltd. Investments - Ordinary Shares (Refer Note 19.1) 465,000 465,000 75,000 75,000 - Preference Shares (Refer Note 19.1) 1,050,000 1,150,000 212,147 138,000 Loans & Advances 4,610,592 2,051,516 248,695 306,174 Off-Balance Sheet Accommodations – – – – Deposits 668,855 1,325,168 50,497 48,449 Other Receivables (Loan Interest, Building Rentals, etc.) 50,135 57,016 – – Other Payables (Agency Commission, Hiring Rentals, Lease Rentals, etc.) 253,304 303,757 – – Building Rental Received 19,689 7,740 Service Charges Received 3,542 44,885 Agency Commission Paid 38,672 83,913 Hiring Rental Paid 33,728 25,439 Lease Rental Paid 36,172 41,084

People’s Travels (Pvt) Ltd. Investments - Ordinary Shares (Refer Note 19.1) 4,950 4,950 1,238 1,238 Loans and Advances – – – – Off-Balance Sheet Accommodations 12,000 12,000 211 204 Deposits 7,108 9,039 797 540

180 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

37.3 Transactions with Sub-Subsidiary Companies The following table provides the outstanding balance of loans and advances, other credit facilities, deposits and the corresponding interest during the year of Sub-Subsidiary Companies.

Balance as at the Year end Income /Expenses during the Year 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

People’s Leasing Fleet Management Ltd. Deposits 9,289 51,336 – – Hiring Rental Payable 11,588 – – – Hiring Rental Paid – – 24,983 –

People’s Leasing Property Development Ltd. Loans and Advances – 175 – – Deposits 16 – – –

People’s Insurance Ltd. Deposits 6,578 60 – – Repo Investments 63,522 499 3,542 1,263 Other Receivables 7,831 – – –

People’s Leasing Finance PLC Loans and Advances – 191 – – Deposits 149,414 100 126 –

People’s Microfinance Ltd. Repo Investment 14,482 – 182 –

People’s Leasing Havelock Property Ltd. Repo Investments 35,300 – 401 –

37.4 Transactions with Associate Companies The following table provides the outstanding balance of loans and advances, other credit facilities, deposits and the corresponding interest during the year of the Associate Company.

Balance as at the Year end Income /Expenses during the Year 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

People’s Merchant Bank PLC Investments - Ordinary Shares (Refer Note 19.2) 145,500 145,500 – 3,924 - Preference Shares (Refer Note 19.2) 10,000 10,000 – 600 Loans and Advances 323,070 477,886 41,589 59,986 Off-Balance Sheet Accommodations – – – – Deposits 280 100 – – 181 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

37.5 Transactions with Government of Sri Lanka (GOSL) and State Owned Enterprises (SOEs) 37.5.1 GOSL and SOE Loans and Advances 2010 2009 Balance Income Balance Income Overdrafts Loans & Bills Total Overdrafts Loans & Bills Total Advances Advances Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Sri Lanka Government 22,927,235 3,490,048 17,332 26,434,615 181,664 18,228,520 4,633,076 890,119 23,751,714 414,069 Local Government Bodies 559,331 – 3,323 562,654 77,605 430,298 – 25,988 456,286 98,134 Provincial Councils 691 36,853 – 37,545 6,226 – 41,012 – 41,012 7,447 Government Corporations 35,328,495 20,675,131 – 56,003,626 4,700,695 31,854,013 9,024,225 5,009,034 45,887,271 4,191,652 Total 58,815,752 24,202,032 20,655 83,038,440 4,966,190 50,512,831 13,698,312 5,925,140 70,136,283 4,711,301

37.5.2 GOSL and SOE Deposits 2010 2009 Balance Expenses Balance Expenses Demand Savings Time Total Demand Savings Time Total Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Sri Lanka Government 8,468,368 646,426 2,933,059 12,047,853 521,688 8,139,855 666,858 3,114,484 11,921,198 407,445 Local Government Bodies 1,207,109 38,244 448,767 1,694,121 184,691 962,573 43,943 797,599 1,804,115 271,876 Provincial Councils 1,524,081 – 544 1,524,625 254,845 901,076 – 513 901,589 120,587 Government Corporations 3,522,018 869,480 16,473,603 20,865,101 801,847 6,755,609 465,894 13,641,640 20,863,143 753,775 Total 14,721,576 1,554,151 19,855,974 36,131,700 1,763,072 16,759,112 1,176,696 17,554,236 35,490,044 1,553,684

37.5.3 GOSL and SOE Off-Balance Sheet Items 2010 2009 Acceptances Documentary Guarantees Total Acceptances Documentary Guarantees Total Credit Credit Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Sri Lanka Government 5,395 9,335,265 – 9,340,660 9,992,339 11,877,275 191,814 22,061,427 Government Corporations 38,472,232 19,337,810 607,836 58,417,877 9,341,515 14,160,443 2,035,393 25,537,350 Total 38,477,626 28,673,075 607,836 67,758,537 19,333,854 26,037,717 2,227,207 47,598,777

182 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

37.5.4 Government Directed Loans and Advances Balance as at the Year end Income during the Year 2010 2009 2010 2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Microfinance Loans 307,725 285,583 24,258 32,130 Agriculture and Other Development Loans 2,356,863 1,647,661 168,185 64,199 Housing Loans Granted to Government Servants 14,646,427 9,364,049 1,460,231 1,065,478

37.6 Transactions with Staff Retirement Benefits

2010 2009 Rs. ‘000 Rs. ‘000 Contribution during the Year - People's Bank Pension Trust Fund 1,116,009 1,649,504 - Proposed Pension Plan for Post-1996 Recruited Employees 200,000 150,000 1,316,009 1,799,504

38. Comparative Information 38.1 2009 Bank Group Rs. ‘000 Rs. ‘000

As Reported Previously Property, Plant & Equipment 7,410,094 8,170,342 Investment in Subsidiaries & Associates 10,578,228 15,012,408 Reserves 1,775,450 251,155

Current Presentation Property, Plant & Equipment 7,430,060 8,190,308 Investment in Subsidiaries & Associates 10,598,194 14,903,735 Reserves 1,775,450 122,516

For better presentation, Property, Plant & Equipment, Investment in Subsidiaries and Reserves were reclassified as above.

183 People’s Bank | Annual Report 2010 [Directors’ Report 122] [Directors’ Responsibility for Financial Reporting 125] [The Directors’ Statement on Internal Control 126] [Independent Assurance Report 128] [Audit Committee Report 130] [Report of the Auditor General 131] [Income Statement 133] [Balance Sheet 134] [Cash Flow Statement 135] [Statement of Changes in Equity 137] [Significant Accounting Policies 138] [Notes to the Financial Statements 151] [Supplementary Information 185]

38.2 2009 Bank Group Rs. ‘000 Rs. ‘000

As Reported Previously Treasury Bills 10,500,025 10,500,025 Treasury Bonds 58,325,760 58,325,760 Less: Provision for Fall in Value (38,698) (38,698) Total Government Treasury Bills and Bonds 68,787,087 68,787,087

Gross Government Treasury Bills and Bonds Held for Trading 16,165,819 16,165,819 Gain/(Loss) on Mark to Market Valuation (38,698) (38,698) Net Government Treasury Bills and Bonds Held for Trading 16,127,121 16,127,121 Government Treasury Bills and Bonds Held to Maturity 52,659,966 52,659,966 68,787,087 68,787,087

Current Presentation Treasury Bills 10,352,129 10,352,129 Treasury Bonds 58,209,498 58,209,498 Gain/(Loss) on Mark to Market Valuation 225,460 225,460 Total Government Treasury Bills and Bonds 68,787,087 68,787,087

Gross Government Treasury Bills and Bonds Held for Trading 15,901,661 15,901,661 Gain/(Loss) on Mark to Market Valuation 225,460 225,460 Net Government Treasury Bills and Bonds Held for Trading 16,127,121 16,127,121 Government Treasury Bills and Bonds Held to Maturity 52,659,966 52,659,966 68,787,087 68,787,087

For better presentation Treasury Bills and Treasury Bonds were reclassified as above.

184 People’s Bank | Annual Report 2010 Supplementary Information

[Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217] [Value Added Statement]

For the year ended 31st December 2010 2009 Rs. ‘000 % Rs. ‘000 %

Value Added Income earned by providing Banking Services 57,654,194 63,462,055 Cost of Services (38,154,180) (42,860,686) Value Added by Banking Services 19,500,014 20,601,369

Non-Banking Income 4,878,233 5,587,553 Provision for Bad Debts (1,013,406) (2,092,413) Provision for Oil Derivative Transactions – (3,180,083) 23,364,841 20,916,426

Value Allocated to Employees Salaries, Wages and Other Benefits 9,778,541 41.9 10,063,967 48.1

To Government Dividend paid to GOSL Bonds 18,307 0.1 219,690 1.0 Special Levy to Treasury 2,150,000 9.2 1,200,000 5.7 PAYE Tax 300,248 1.3 394,769 1.9 Income Tax 3,564,654 15.3 2,755,497 13.2 VAT 3,835,612 16.4 3,010,736 14.4 Other Indirect Taxes 102,143 0.4 73,581 0.4

To Expansion and Growth Retained Income 3,038,116 13.0 1,900,504 9.1 Depreciation/Amortisation 577,220 2.5 1,297,682 6.2 23,364,841 100.0 20,916,426 100.0

186 People’s Bank | Annual Report 2010 [Sources and Utilisation of Income]

For the Year ended 31st December 2006 2007 2008 2009 2010 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Sources of Income Interest 31,429,436 43,074,181 53,453,556 62,341,236 56,534,172 Exchange 486,915 648,988 818,399 1,120,819 1,120,022 Commission and Fees 2,197,631 2,866,414 3,591,387 3,108,401 3,170,590 Capital Gain 154,464 86,774 110,988 674,447 174,373 Other 862,526 1,307,691 973,780 1,804,705 1,533,270 Total 35,130,972 47,984,048 58,948,110 69,049,608 62,532,427

Utilisation of Income To Depositors as Interest 15,622,100 26,541,983 34,491,766 38,414,583 30,635,722 To Employees as Emoluments 8,918,858 8,405,683 8,895,182 10,063,967 9,778,541 To Providers of Supplies & Services 3,918,364 4,633,972 5,107,471 5,743,785 5,553,225 Provision for Possible Loan Losses & Others 352,786 722,174 1,620,025 5,272,496 1,013,406 To Government - Taxes, Special Levy & Dividend 4,260,119 6,226,043 7,348,508 7,654,273 7,654,273 Retained for Growth 2,058,745 1,454,193 1,485,158 1,900,504 3,038,116

187 People’s Bank | Annual Report 2010 [Capital Adequacy]

Computation of Risk-Weighted Assets

Balance Risk Risk-Weighted Balance As at 31st December 2010 2009 Weight 2010 2009 Rs. ‘000 Rs. ‘000 % Rs. ‘000 Rs. ‘000

Assets Claims on Government of Sri Lanka and Central Bank of Sri Lanka 129,386,482 104,925,771 – – – Claims on Foreign Sovereigns and their Central Banks – – 0-150 – – Claims on Public Sector Entities (PSEs) 16,984,694 3,802,587 20-150 16,984,694 3,802,587 Claims on Official Entities and Multilateral Development Banks (MDBs) – – 0-150 – – Claims on Banks 7,601,220 23,091,934 20-150 2,510,203 6,405,147 Claims on Financial Institutions 4,091,689 3,360,125 20-150 2,245,509 1,827,982 Claims on Corporates 32,753,594 30,490,558 20-150 26,714,352 29,254,382 Retail Claims 44,165,905 26,899,865 75-100 44,165,905 26,899,865 Claims Secured by Residential Property 44,227,690 33,778,539 50-100 22,113,845 16,889,270 Claims Secured by Commercial Real Estate – – 100 – – Non-Performing Assets (NPAs) 7,366,376 6,157,401 50-150 8,483,433 7,623,545 Cash Items 10,163,206 10,214,958 0-20 233,202 247,850 Property, Plant & Equipment 8,384,708 7,919,237 100 8,384,708 7,919,237 Other Assets 7,513,744 11,495,395 100 7,526,244 11,495,395 Total 312,639,308 262,136,370 139,362,095 112,365,260

Off-Balance Sheet Exposure

Credit Balance Conversion Credit Equivalent 2010 2009 Factor 2010 2009 Rs. ‘000 Rs. ‘000 % Rs. ‘000 Rs. ‘000

Instruments Direct Credit Substitutes 4,742,388 3,738,328 100 4,742,388 3,738,328 Transaction-Related Contingencies 16,323,916 11,985,240 50 8,161,958 5,992,620 Short-Term Self-Liquidating Trade-Related Contingencies 37,181,174 16,927,236 20 7,436,235 3,385,447 Sale and Repurchase Agreements and Assets Sale with Recourse where the Credit Risk remains with the Bank – – 100 – – Obligations under an On going Underwriting Agreement – – 50 – – Other Commitments with an Original Maturity of up to One Year or which can be Unconditionally Cancelled at any time 16,010,337 20,761,116 0-20 3,131,429 4,138,604 Commitments with an Original Maturity up to One Year – – 20 – – Other Commitments with an Original Maturity of over One Year – – 50 – – Foreign Exchange Contracts 7,632,022 19,548,795 0-5 152,720 97,744 Interest Rate Contracts – – 0-3 – – Total 81,889,837 72,960,715 23,624,730 17,352,743

188 People’s Bank | Annual Report 2010 [Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217]

As at 31st December 2010 2009 Rs. ‘000 Rs. ‘000

Computation of Capital Tier I: Core Capital Paid-Up Ordinary Shares/Common Stock/Assigned Capital 7,201,998 7,201,998 Statutory Reserve Fund 49,998 49,998 Published Retained Profits 5,756,883 3,775,124 General and Other Reserves 2,198,970 1,142,612 Deductions - Tier I 50% of Investments in Unconsolidated Banking and Financial Subsidiary Companies 232,500 232,500 50% Investments in the Capital of Other Banks and Financial Institutions 113,750 113,750 Total Eligible Core Capital (Tier I) 14,861,598 11,823,482 Tier II: Supplementary Capital Revaluation Reserves (as approved by Central Bank of Sri Lanka) 2,208,884 2,208,884 General Provisions 2,346,976 1,929,894 Approved Subordinated Term Debt 5,000,000 5,000,000 Deductions - Tier II 50% of Investments in Unconsolidated Banking and Financial Subsidiary Companies 232,500 232,500 50% Investments in the Capital of Other Banks and Financial Institutions 113,750 113,750 Total Eligible Supplementary Capital (Tier II) 9,209,610 8,792,528 Total Capital Base 24,071,208 20,616,010

Computation of Ratios Total Risk-Weighted Assets for Credit Risk 139,362,095 112,365,260 Total Risk-Weighted Assets for Market Risk 5,381,906 3,714,012 Total Risk-Weighted Assets for Operational Risk 43,014,133 37,830,613 Total Risk-Weighted Assets (RWA) 187,758,133 153,909,885

Core Capital Ratio - Tier I (Minimum Requirement 5%) 7.9% 7.7% Core Capital x 100 Total Risk-Weighted Assets

Total Capital Ratio (Minimum Requirement 10%) 12.8% 13.4% Total Capital Base x 100 Total Risk-Weighted Assets

Note: The above Report has been prepared in accordance with Basel II guidelines set out by the Central Bank of Sri Lanka.

189 People’s Bank | Annual Report 2010 [Income Statement US$]

Bank Group For the year ended 31st December 2010 2009 Change 2010 2009 Change US$ ‘000 US$ ‘000 % US$ ‘000 US$ ‘000 %

Income 563,406 603,422 (6.6) 639,044 660,319 (3.2) Interest Income 509,363 544,798 (6.5) 581,668 599,842 (3.0) Interest Expenses (276,022) (335,704) (17.8) (305,696) (362,591) (15.7) Net Interest Income 233,340 209,094 11.6 275,972 237,251 16.3 Foreign Exchange Gain 10,091 9,795 3.0 10,091 9,795 3.0 Fees and Commission 28,566 27,164 5.2 28,745 27,318 5.2 Capital Gain on Treasury Bills and Bonds 1,571 5,894 (73.3) 1,571 5,894 (73.3) Other Income 13,814 15,771 (12.4) 16,969 17,471 (2.9) Total Income 287,384 267,718 7.3 333,348 297,729 12.0

Operating Expenses Personnel Costs 92,508 90,155 2.6 97,371 93,758 3.9 Provision for Staff Retirement Benefits 12,209 16,068 (24.0) 12,209 16,068 (24.0) Premises, Equipment and Establishment Expenses 26,189 31,446 (16.7) 27,338 32,222 (15.2) Fee and Commission Expenses 491 867 (43.4) 142 134 6.1 Other Overhead Expenses 60,557 33,791 79.2 73,643 44,657 64.9 (191,954) (172,328) 11.4 (210,703) (186,839) 12.8

Profit before Loan Losses, Provisions and Provision for Fall in Value of Dealing Securities/Others 95,430 95,391 – 122,645 110,890 10.6 Less: Provision for Loan Losses/Write-Off (9,131) (18,286) (50.1) (12,790) (17,907) (28.6) Provision for Fall in Value of Dealing Securities/Others (7,274) 3,781 292.4 (7,274) 3,781 292.4 Other Provisions – (27,791) – – (27,791) –

Operating Profit 79,026 53,095 48.8 102,582 68,974 48.7 Share of Associate Companies’ Profit/Loss before Taxation – – – (137) (13) 930.8 Profit Before Taxation 79,026 53,095 48.8 102,444 68,960 48.6 Provision for Taxation (32,117) (24,080) 33.4 (43,137) (32,485) 32.8 Profit After Taxation 46,909 29,015 61.7 59,308 36,475 62.6 Less: Minority Interest – – – (28) 4 (886.6) Profit For The Year 46,909 29,015 61.7 59,280 36,478 62.5

Exchange Rate: 1 US$ was Rs. 110.99 as at 31st December 2010 (Rs. 114.43 as at 31st December 2009).

The Income Statement and the Balance Sheet given on pages 190 and 191 are solely for the convenience of shareholders, investors, bankers and other users of Financial Statements.

190 People’s Bank | Annual Report 2010 [Balance Sheet US$]

Bank Group As at 31st December 2010 2009 Growth 2010 2009 Growth US$ ‘000 US$ ‘000 % US$ ‘000 US$ ‘000 %

Assets Cash and Short-Term Funds 417,668 439,855 (5.0) 440,115 449,080 (2.0) Balance with the Central Bank 240,917 198,523 21.4 240,917 198,523 21.4 Government Treasury Bills and Treasury Bonds 620,342 601,128 3.2 620,342 601,128 3.2 Bills of Exchange 18,265 70,037 (73.9) 18,265 70,037 (73.9) Loans and Advances 3,195,027 2,394,560 33.4 3,180,149 2,389,882 33.1 Leases 6,245 15,174 (58.8) 392,904 224,626 74.9 Other Assets 108,852 137,203 (20.7) 144,695 142,776 1.3 Deferred Tax 563 578 (2.7) 661 1,174 (43.7) Dealing Securities 4,307 3,701 16.4 4,830 3,701 30.5 Investment Securities 165,116 152,247 8.5 166,017 152,691 8.7 Investments in Subsidiaries and Associate Companies 15,096 15,516 (2.7) 2,242 1,071 109.4 Government of Sri Lanka Restructuring Bonds 65,979 63,995 3.1 65,979 63,995 3.1 Property, Plant & Equipment 70,831 64,931 9.1 83,103 71,575 16.1 Prepaid Leases 2,942 3,140 (6.3) 2,942 3,140 (6.3) Intangible Assets 1,772 1,304 35.9 5,038 4,483 12.4 Total Assets 4,933,920 4,161,894 18.5 5,368,200 4,377,883 22.6

Liabilities Amounts due to Banks 22,118 4,283 416.4 22,118 4,283 416.4 Deposits from Customers 4,163,801 3,462,008 20.3 4,178,105 3,462,622 20.7 Borrowings from Banks and Others 330,455 318,046 3.9 607,801 457,948 32.7 Taxation Payable 13,762 14,554 5.4 19,219 18,304 5.0 Deferred Taxation 2,016 1,433 40.6 2,574 3,790 (32.1) Other Liabilities 158,764 156,243 1.6 232,918 185,784 25.4 Retirement Benefit 10,207 6,075 68.0 10,207 6,075 68.0 Debentures 45,049 43,695 100.0 55,595 45,841 21.3 Total Liabilities 4,746,171 4,006,338 18.5 5,128,538 4,184,647 22.6

Funds Employed Share Capital 450 437 3.1 450 437 3.1 Capital Pending Allotment 64,438 62,501 3.1 64,438 62,501 3.1 Reserves 122,861 92,617 (32.7) 174,024 130,243 33.6 187,749 155,555 20.7 238,912 193,181 23.7 Minority Interest – – – 750 54 1,288.9 Total Funds Employed 187,749 155,555 20.7 239,662 193,236 24.0 Total Liabilities and Funds Employed 4,933,920 4,161,894 18.5 5,368,200 4,377,883 22.6 Commitments and Contingencies 1,187,050 1,227,274 (3.3) 1,187,050 881,475 34.7

Exchange Rate: 1 US$ was Rs. 110.99 as at 31st December 2010 (Rs. 114.43 as at 31st December 2009).

The Income Statement and the Balance Sheet given on pages 190 and 191 are solely for the convenience of shareholders, investors, bankers and other users of Financial Statements.

191 People’s Bank | Annual Report 2010 [Quarterly Financial Highlights]

For the Quarter ended 2010 2009 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Rs. Mn Rs. Mn Rs. Mn Rs. Mn Rs. Mn Rs. Mn Rs. Mn Rs. Mn

Income Statement - YTD Net Interest Income 6,163 12,766 18,504 25,898 5,195 10,810 16,698 23,927 Non-Funded Income 1,168 2,598 3,916 5,998 1,239 2,583 3,950 6,708 Operating Expenses (4,627) (9,877) (14,915) (21,305) (4,604) (9,552) (14,131) (19,719) Net Profit before Tax 1,773 4,080 5,820 8,771 1,348 2,604 3,928 6,076 Provision for Income Tax (881) (1,902) (2,777) (3,565) (700) (1,294) (1,954) (2,755) Net Profit after Tax 892 2,178 3,043 5,206 648 1,310 1,974 3,320 Income Statement - for the Quarter Net Interest Income 6,163 6,603 5,738 7,395 5,195 5,615 5,888 7,229 Non-Funded Income 1,168 1,430 1,319 2,082 1,239 1,344 1,367 2,758 Operating Expenses (4,627) (5,250) (5,038) (6,390) (4,604) (4,948) (4,579) (5,588) Net Profit before Tax 1,773 2,307 1,740 2,951 1,348 1,256 1,324 2,148 Provision for Income Tax (881) (1,021) (875) (788) (700) (594) (660) (801) Net Profit after Tax 892 1,286 865 2,164 648 662 664 1,346 Balance Sheet Total Assets 474,980 500,901 533,022 547,616 420,688 442,640 471,730 476,245 Total Loans and Advances 319,399 342,365 346,031 371,804 282,191 300,441 298,945 299,077 Total Deposits 399,829 422,288 451,335 462,140 344,870 362,894 396,663 396,158 Total Shareholders’ Funds 18,617 19,481 18,583 20,838 16,473 17,080 17,389 17,780 Key Performance Indicators Return on Assets (before Tax) 1.5% 1.7% 1.5% 1.7% 1.3% 1.2% 1.2% 1.4% Return on Equity (after Tax) 19.6% 23.4% 22.3% 26.9% 16.0% 15.9% 15.8% 19.7% Cost/Income Ratio 56.7% 57.3% 59.9% 60.2% 66.5% 66.9% 63.7% 60.6% Fee Based Income/Net Income 15.9% 16.9% 17.5% 18.8% 19.3% 19.3% 19.1% 21.9% Advances/Deposits Ratio 79.9% 81.1% 76.7% 80.5% 81.8% 82.8% 75.4% 75.5% NPL Ratio 7.4% 6.9% 6.3% 5.0% 6.8% 6.8% 7.7% 6.7% Total Capital Adequacy Ratio 13.6% 13.0% 12.4% 12.8% 10.3% 10.4% 10.6% 13.4%

192 People’s Bank | Annual Report 2010 [Branch Network]

1. Central Province 9. Western Province I 1a. Kandy 9a. Colombo North 1b. Matale 9b. Colombo South 1c. Nuwara-Eliya 9c.

2. Eastern Province 10. Western Province II 2a. Ampara 10a. Colombo Outer 2b. Batticaloa 10b. Kalutara 2c. Trincomalee

3. Northern Province 3a. Jaffna 3b. Wanni

4. North Central Province 4a. Anuradhapura 4b. Polornnaruwa

5. Wayamba Province 5a. Puttalam 5b. Kurunegala

6. Sabaragamuwa Province 6a. Kegalle 6b. Ratnapura

7. Southern Province 7a. Galle 7b. Hambantota 7c. Matara

8. 8a. 8b. Moneragla

193 People’s Bank | Annual Report 2010 [Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217]

Zone/Region Branch Branch Code Zone/Region Branch Branch Code

Ampara Addalachenai 228 Diyatalawa 151 Akkaraipattu 063 Girandurukotte 268 Ampara 015 Haldummulla 195 Kalmunai 023 Haliela 225 Karaitivu 223 216 Mahaoya 181 Kandaketiya 250 Nintavur 296 Keppetipola 240 Pothuvil 164 Koslanda 260 Sainthamaruthu 338 Lunugala 251 Sammanthurai 064 Mahiyangana 058 Thirukkovil 224 Passara 116 Uhana 189 Uvaparanagama 156 Welimada 016 Anuradhapura Anuradhapura 008 Nuwarawewa 220 Batticaloa Batticaloa 075 Eppawala 170 Batticaloa Town 113 Galenbindunuwewa 177 Chenkalady 227 Galkiriyagama 301 Eravur 123 Galnewa 179 Kaluwanchikudy 190 Horowpathana 218 Kattankudy 065 Kahatagasdigiliya 051 Kallar 339 Kebithigollewa 150 Oddamavadi 340 Kekirawa 042 Valachchenai 102 Medawachchiya 096 Meegalewa 246 Puttalam Anamaduwa 267 Nochchiyagama 171 Chilaw 024 Padaviya 043 Dankotuwa 291 Talawa 315 Kalpitiya 125 Thambuttegama 219 Madampe 215 Mahawewa 303 Badulla Badulla 010 Marawila 322 Muthiyangana 269 Nattandiya 083 Bandarawela 037 Puttalam 009 209 Wennappuwa 076

194 People’s Bank | Annual Report 2010 [Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217]

Zone/Region Branch Branch Code Zone/Region Branch Branch Code

Western Zone I 310 Western Zone II Avissawella 029 078 208 Borella Town 320 019 Central Road 298 Dehiwala - Galle Road 337 Dam Street 297 Gangodawila 097 071 Hanwella 229 Duke Street 001 049 First City Branch 046 Kaduwela 196 126 Katubedda 313 Headquarters 204 Kesbewa 327 Hyde Park Corner 025 194 Kehelwatta 259 Kotikawatta 098 Kirillapona 319 328 Co-op. House 210 306 308 Moratumulla 290 Liberty Plaza 309 Moratuwa 091 Lucky Plaza 331 Mount Lavinia 336 Malwatte Road 312 174 236 Nugegoda City 335 Majestic City 200 103 Mid City 176 Pitakotte 279 Mutwal 214 080 119 Olcott Mawatha 275 Galle Ahangama 188 Pettah 139 Ambalangoda 035 Queens Branch 033 Baddegama 087 Sangaraja Mawatha 056 Balapitiya 154 Sea Street 277 Batapola 234 Suduwella 143 Elpitiya 073 Thimbirigasyaya 086 Galle 013 Town Hall 167 Galle Main Street 169 014 Hikkaduwa 136 Wellawatte 145 Imaduwa 247

195 People’s Bank | Annual Report 2010 [Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217]

Zone/Region Branch Branch Code Zone/Region Branch Branch Code

Koggala 329 Kudawella 288 Thalgaswala 272 Middeniya 265 Udugama 131 Suriyawewa 264 Uragasmanhandiya 197 Tangalle 067 Wanduramba 325 Tissamaharama 061 Walasmulla 120 Gampaha Delgoda 118 Gampaha 026 Jaffna Atchuvely 107 332 Chankanai 108 Ja-Ela 239 Chavakachcheri 110 273 Chunnakam 109 175 Kannathiddy 284 Katunayake 276 J/Main Street 104 055 J/Stanley Road 030 237 J/University 162 Kirindiwela 202 Kankesanthurai 031 Mahara 217 Kayts 105 Malwana 191 Nelliady 106 Marandagahamula 100 Point Pedro 285 Meerigama 198 Velvettithurai 141 Minuwangoda 021 Nittambuwa 278 Kalutara Aluthgama 084 Pamunugama 318 Baduraliya 283 Pugoda 093 Bandaragama 121 316 Beruwala 311 Seeduwa 324 Bulathsinhala 161 Veyangoda 079 Horana 041 222 Ingiriya 300 Yakkala 333 Kalutara 039 Kochchikade 142 Maggona 282 Negombo 034 Matugama 070 Neboda 249 Hambantota Ambalantota 072 Panadura 148 Angunakolapelessa 205 Panadura Town 321 Beliatta 244 Pelawatta 261 Hambantota 007 Wadduwa 262

196 People’s Bank | Annual Report 2010 [Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217]

Zone/Region Branch Branch Code Zone/Region Branch Branch Code

Kandy Akurana 153 Kurunegala Alawwa 149 Alawathugoda 294 Bingiriya 172 Ankumbura 183 Galgamuwa 184 Davulagala 206 Giriulla 092 Deltota 257 Hettipola 144 Galagedara 114 Ibbagamuwa 207 Gampola 018 Kobeigane 281 Hasalaka 140 Ku/Ethugalpura 334 Kadugannawa 159 Ku/Maliyadeva 226 Kandy 003 Kuliyapitiya 028 Katugastota 089 Kurunegala 012 Menikhinna 157 Maho 052 Nawalapitiya 053 Makandura 137 Panwila 211 Mawathagama 199 Peradeniya 057 Narammala 082 Pilimatalawa 256 Nikaweratiya 124 Pussellawa 274 Polgahawela 059 Senkadagala 158 Pothuhera 280 Teldeniya 112 Ridigama 193 Wattegama 074 Wariyapola 163

Kegalle Aranayake 248 Matale Dambulla 138 Bulathkohupitiya 252 Galewela 115 Dehiowita 293 Matale 002 180 Naula 146 Galigamuwa 185 Pallepola 241 Gonagaldeniya 238 Raththota 128 Hemmathagama 221 Ukuwela 201 Kegalle Main 027 Wilgamuwa 122 Kegalle Bazaar 299 Mawanella 069 Matara Akuressa 117 Rambukkana 101 Deniyaya 132 Ruwanwella 081 Devinuwara 243 Thulhiriya 270 Dickwella 135 Warakapola 054 Gandara 307 Yatiyantota 047 Hakmana 130 Kamburupitiya 133

197 People’s Bank | Annual Report 2010 [Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217]

Zone/Region Branch Branch Code Zone/Region Branch Branch Code

Matara - Dharmapala Kiriella 266 Mawatha 152 Kuruwita 263 Matara - Uyanwatta 032 Nivitigala 192 Morawaka 060 Pelmadulla 160 Urubokka 271 Rakwana 129 Walasgala 304 Ratnapura 088 Weligama 077 Ratnapura Town 317 Udawalawa 295 Moneragala Bibile 011 Buttala 147 Polonnaruwa Aralaganwila 253 Kataragama 168 Bakamuna 242 Medagama 258 Dehiattakandiya 330 Moneragala 068 Habarana 203 Thanamalwila 230 Hingurakgoda 006 Wellawaya 062 Medirigiriya 231 Polonnaruwa 005 Nuwara-Eliya Ginigathhena 302 Polonnaruwa Town 232 Hatton 186 Welikanda 254 Maskeliya 178 Nildandahinna 127 Trincomalee Kantalai 090 Nuwara-Eliya 134 Kinniya 094 Pundaluoya 173 Muttur 095 Ragala 036 Serunuwara 233 Talawakelle 038 Trincomalee 066 Udapussellawa 292 Trincomalee Town 255 Hanguranketha 022

Wanni Kilinochchi re-opened 048 Ratnapura Balangoda 017 Mankulam re-opened 165 Eheliyagoda 085 Mullaitivu re-opened 020 Embilipitiya 045 Paranthan re-opened 111 Godakawela 245 Murunkan 166 Kahawatta 155 Mannar 044 Kalawana 235 Vavuniya 040 Kaltota 289

198 People’s Bank | Annual Report 2010 [Service Centres]

Zone/Region Attached Service Centres Zone/Region Attached Service Centres Service Centres Code Service Centres Code

Ampara Oluvil 863 Meegahakivula 872 South-East University, Oluvil 814 Madolsima 890 Alayadiwembu 902 Lunuwatte 880 Erakkamam 861 Welimada Town 875 Maruthamunai 425 Padiyathalawa 860 Batticaloa Iruthayapuram 909 Panama 972 Puttur 952 Sammanthurai 862 Siththandy 934 Vilinaiyady Town, Sammanthurai 924 Mandur 874 Central Camp 870 Palugamam 974 Gonagolla 916 Ariyampathi 859 Kokkadicholai 954 Anuradhapura Anuradhapura 410 Wakarai 953 Nachchiyaduwa 829 Rambewa 866 Puttalam Andigama 554 Mihintale 434 Arachchikattuwa 467 Vilachchiya - Pemaduwa 832 Udappuwa 908 Thirappane 912 Fisheries S.C. 589 Bulnewa 931 Norochcholai 500 Gomarankadawala 938 Thoduwawa 547 Pulmuday 948 Kottaramulla 498 Maradankadawala 507 Welipennagahamulla 570 Saliyawewa 508 Narawila 571 Padavi Sri Pura 827 Madurankuliya 546 Rajanganaya 833 Bolawatta 482 Damsopura 950 Lunuwila 483 Rajina Handiya - Thambuttegama 912 Ulhitiyawa 828

Badulla Badulla Bazaar 402 Western Zone I Mihindu Mawatha 884 Badulla - Welekade 910 Dematagoda 514 Badulla - Pahala Weediya 897 Colombo Harbour Premises 822 Uva Provincial Council Premises 824 Grandpass 403 Bandarawela Town 431 St. Joseph’s Street 843 Ballaketuwa 542 Wekanda 515 Bandarawela Commercial Centre 906 891 548 513 Nawa Medagama 928 Jampattah Street 553 Attampitiya 564 919 Demodara 895 Lotteries Board H/O Premises 831

199 People’s Bank | Annual Report 2010 [Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217]

Zone/Region Attached Service Centres Zone/Region Attached Service Centres Service Centres Code Service Centres Code

Hultsdorf Courts Premises 808 (Moraketiya) 429 Nagalagam Street 484 Pamunuwa 922 Mutwella 840 Puwakaramba 449 Registrar of Motor Vehicles Rawathawatta 448 Premises - Narahenpita 818 Katukurunda 494 Central Bank Premises 911 Embuldeniya 412 485 University Premises 450 Suduwella 401 Chapel Lane 526 Colombo University Premises 586 Plaza 821 Colombo Medical 464 College Premises 803 Boralesgamuwa 422 Treasury Unit Ministry of Finance 826 Piliyandala City 839 Ethulkotte 586 Western Zone II Kosgama 439 Sri Ja’pura - Thalapathpitiya 932 Thalduwa 460 Economic Centre 949 Talawathugoda 413 896 Galle Ambalangoda - Main Street 549 Hokandara 926 Watugedera 560 Sri Lanka Foreign Employment Kosgoda 889 Bureau Premises 823 Meetiyagoda 937 Attidiya 457 Pitigala 441 Nedimala 521 Karandeniya 444 Delkanda 407 Kurundugaha Hethekma 869 Sri Ja’pura University Premises 812 Gintota 420 Hanwella Town 418 421 Kahahena 551 Wanchawala 520 Padukka 419 Galle Town Service Centre 815 Godagama 497 Kaluwella 404 Homagama City 572 Pinnaduwa 587 Army H.Q. 807 Ratgama 469 Meegoda 883 Gonapeenuwala 561 Palali Army Camp 809 Yakkalamulla 424 Nawagamuwa 535 Nagoda 522 Soyzapura 428 Neluwa 442 Kahatuduwa 409 Wellampitiya 900 Gampaha Weliweriya 512 Gothatuwa 415 Gampaha - Ja-Ela Road 533 Mulleriyawa (Angoda) 838 Udugampola 907 Athurugiriya 416 Welipillewa 575 Mattegoda 531

200 People’s Bank | Annual Report 2010 [Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217]

Zone/Region Attached Service Centres Zone/Region Attached Service Centres Service Centres Code Service Centres Code

Weligampitiya 528 Jaffna Puttur 970 Dehiyagatha Junction 529 Pandatherippu 957 Ekala 925 Kodikamam 904 Kirillawela 446 Kopay 966 Kadawatha 973 Inuvil 905 Evariwatta 576 Urumpirai 865 Sinharamulla 445 Manipai 837 (Pattiyahandiya) 536 Jaffna Navalar Road 956 Mawaramandiya 525 Thirunelvely 855 Urapola 511 Kalviyankadu 964 Enderamulla 555 Mallakam 899 Divulapitiya 437 Puloly 963 Demanhandiya 530 Uduppidy 971 Kotadeniyawa 830 Pallewela 969 Kalutara Dargatown 451 Thihariya 438 Alubomulla 568 Pasyala 510 Beruwala Fisheries Watupitiwala 539 Harbour Premises 819 Dompe 538 Moragahahena 567 Mahabage 524 Millaniya 588 917 Gonapola 871 Raddolugama 834 Kalutara Central Junction 458 Bandaranaike International Kalutara North 476 Airport Premises Kalutara Hospital Junction 929 (Attached to Seeduwa branch) 805 Agalawatta 447 Naiwala 556 Dodangoda 968 Oliyamulla (Wattala) 557 Panadura Keselwatta 462 Welisara Economic Centre 893 Modarawila 811 Mudungoda 532 Moronthuduwa 534 Katana 465 Negombo Main Street 523 Kandy Ambathanna 882 Fishe. Bank - Negombo 590 Welamboda 894 Galaha 877 Hambantota Hungama 961 Hataraliyadda 847 Weerawila (Pannegamuwa) 565 Gelioya 491 Katuwana 856 Gampola 492 Ranna 505 Kurunduwatta 493 Vitharandeniya 960 Kolongoda 490 Lunugamwehera 941 Mahaiyawa 885 Weeraketiya 486

201 People’s Bank | Annual Report 2010 [Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217]

Zone/Region Attached Service Centres Zone/Region Attached Service Centres Service Centres Code Service Centres Code

Kandy Premises 903 Piduruwella 503 944 Dummalasooriya 504 Kundasale 927 Bihalpola 545 Hedeniya 584 Kandanegedera 566 Poojapitiya 804 Udubaddawa 868 Digana 455 Kurunegala Government Huluganga 920 Hospital Premises 816 Muruthalawa 583 Kurunegala Municipal Council Premises 947 Peradeniya University SC 801 Polpitigama 414 Pottapitiya 915 Nagollagama 573 Talatuoya 454 Pannala 475 Marassana 858 Paragahadeniya 432 Medamahanuwara 456 Katupotha 405 Udu Dumbara 854 Nikaweratiya 574 Madawala Bazaar 898 Giriulla 886 Godawela 502 Kegalle Talduwa 460 Panagamuwa 543 Kotiyakumbura 461 Dodangaslanda 849 Nelundeniya 873 Maspotha 878 Amithirigala 943 Morontota 435 Matale Inamaluwa (Sigiriya) 499 Dewalagama 489 Madatugama 852 Mawanella 436 Dewahuwa 509 Aluthnuwara 946 Matale-Trinco Street 406 Karawanella 936 Matale Gongawela 559 Galapitamada 488 Porcelain Factory Premises 802 Horagasmankada 518 Madawala Ulpotha 853 Algama 935 Yatawatta 558 Kitulgala 519 Kaikawala 887 Warakamura 585 Kurunegala Boyawalana 851 Laggala-Pallegama 466 Weerapokuna 577 Ambanpola 433 Matara Telijjawila 463 Damabadeniya 474 Pallegama 918 Bandarakoswatta 848 Kottegoda 487 Melsiripura 423 Kekanadura 921 Kumbukgete 473 Deiyandara 459 Boraluwewa 544 Kirinda - Puhulwella 930 Hiripitiya 850

202 People’s Bank | Annual Report 2010 [Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217]

Zone/Region Attached Service Centres Zone/Region Attached Service Centres Service Centres Code Service Centres Code

Makandura 440 Ratnapura Weligepola 480 Walgama 578 Pambahinna 562 Kotuwegoda 408 Eheliyagoda 430 Yatiyana 443 Padalangala 453 Ruhunu University Unit 825 Kolonna 537 Matara Hospital Premises 945 Sevanagala Sugar Pitabeddara 417 Corporation Premises 813 Opatha 942 Pallebedda 452 Mawarala 579 Ayagama 477 Mirissa 468 Karawita 478 Opanayake 479 Moneragala Badalkumbura 527 Ratnapura New Town 810 Okkampitiya 857 Wewelwatta 940 Moneragala 569 Dambagalla 867 Polonnaruwa Diyabeduma 563 Ethiliwewa 976 Siripura 965 Diyasenpura 939 Nuwara-Eliya Watawala 540 Kaduruwela 835 Kotagala 427 Thambala 923 Dickoya 541 Lankapura 580 Bogawantalawa 411 Sevanapitiya 933 Upcott 552 Walapane 581 Trincomalee Mullipothanai 842 Kandapola 516 Kachchakodithivu 959 Nanuoya 582 Thoppur 958 Thawalantenna 876 Palaoothu 841 Hapugastalawa 913 Uppuveli (Nilaveli) 881 Ragala 495 Central Road, SPC 501 Agarapatana 496 Talawakelle 517 Wanni Nanattan 967 Padiyapelella 470 Pesalai 955 Hewaheta 471 Chettikulam 951 Rikillagaskada 472

203 People’s Bank | Annual Report 2010 [Worldwide Partners]

1. Europe 2. North America 3. South America 4. Africa 5. Asia 6. Oceania 7. Middle East

Europe The Royal Bank of Scotland NV Amsterdam Danske Bank A/S, Copenhagen Banca Nationale del Lavoro SpA, (BNL) Rome AG, Frankfurt am Main Unicredit Bank Austria AG, Vienna HSBC Bank PLC, London , London ING Bank NV, Amsterdam Bank of Cyprus Public Company Ltd., Nicosia ING Belgium SA/NV, Brussels Barclays Bank PLC, London Intesa Sanpaolo SpA, Milano BHF Bank Aktiengesellsschaft, Frankfurt am Main Natixis, Paris BNP Paribas SA, Paris National Westminster Bank PLC, London Commerzbank AG, Frankfurt am Main Nordea Bank Norge ASA, Oslo Credit Suisse, Zurich Nordea Bank AB (Publ), Stockholm

204 People’s Bank | Annual Report 2010 [Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217]

Skandinaviska Enskilda Banken AB (Publ), Stockholm Bank of China, China Sparkasse Kolnbonn, Cologne Bank of Tokyo Mitsubishi UFJ Ltd., Tokyo Svenska Handelsbanken AB (Publ), Stockholm DBS Bank Ltd., Singapore UBAE S.P.A, Italy Habib Bank Ltd., Karachi UBS AG, Zurich HSBC Bank, Hong Kong UniCredito Italiano SpA, Milan ICICI Bank Ltd., Mumbai WestLB AG, Dusseldorf MashreqBank PSC, Mumbai Komercni Bank NA, Prague MCB Bank Ltd., Karachi SEB Pank, Tallinn Mizuho Corporate Bank Ltd., Tokyo Societe Generale, Paris Nepal Bank Ltd., Katmandu Budapest Bank RT, Budapest Oversea-Chinese Banking Corp. Ltd., Hong Kong Czekoslovenka Obchodna Banca AS, Bratislava Oversea-Chinese Banking Corp. Ltd., Kuala Lumpur Gorengska Banka DD, Ljubljana Oversea-Chinese Banking Corp. Ltd., Singapore Ukrexim Bank, Kiev Rupali Bank Ltd., Dhaka Pubali Bank Ltd., Dhaka North America Bank (Pakistan) Ltd., Karachi The Royal Bank of Scotland NV, New York Standard Chartered Bank, Tokyo Bank of Montreal, Montreal , Chennai Bank of Nova Scotia, Canada Sumitomo Mitsui Banking Corporation, Tokyo Canadian Imperial Bank of Commerce, Toronto UBAF, Singapore Citibank NA, New York China Construction Bank, Beijing Deutsche Bank Trust Company Americas, New York Export Import Bank of China, Beijing HSBC Bank USA NA, New York CIMB Bank Ltd., Kuala Lumpur JP Morgan Chase Bank NA, New York Bank of Maldives, Male MashreqBank PSC, New York Woori Bank, Hanoi Standard Chartered Bank, New York Korea Exchange Bank, Seoul Wells Fargo Bank NA, USA Oceania South America Australia & New Zealand Banking Group Ltd., Melbourne Deutsche Bank, Sao Paulo ANZ National Bank Ltd., Wellington Banco Santander Brazil SA, Sao Paulo National Australia Bank Ltd., Melbourne Banco de Chile, Santiago Middle East Africa BankMuscat SAOG, Ruwi Nedbank Ltd., Johannesburg Commercial Bank of Dubai PSC, Dubai ABSA Bank Ltd., Johannesburg MashreqBank PSC, Dubai National Bank of Egypt, Cairo National Bank of Abu Dhabi, Abu Dhabi Barclays Bank of Kenya Ltd., Nairobi National Bank of Oman SAOG, Muscat Asia UBAE S.P.A., Dubai The Royal Bank of Scotland NV, Chennai Bank of Bahrain and Kuwait, Manama Ltd., Mumbai Ahli United Bank, Kuwait Bank of Ceylon, Chennai Bank Dhofar, Ruwi

205 People’s Bank | Annual Report 2010 [Decades at a Glance]

1961 1967 1977

People’s Bank was inaugurated on The Bank commenced a new Agriculture Our two hundredth branch opened 1st July 1961. The first branch was Credit Scheme becoming the pioneer at Kollupitiya. The Head Office was opened at Duke Street, Colombo. During lender to the small farm sector. relocated to a building in Fort. The total the year, eight more branches were number of employees reached 5,000. opened in Polonnaruwa, Hingurakgoda, The first Fisheries Bank was opened at Hambantota, Anuradhapura, Puttalam, 1970 Koralawella. Matale and Kandy in addition to the The ‘Athamaru’ Loan Scheme was Foreign Branch in Colombo. The total introduced to finance economic 1981 number of employees stood at 169. activities of the informal sector. The Investment Savings Scheme, a Credit Our branch network increased to 290 Linked Savings Scheme was launched branches. The Extended Minor Savings 1962 to attract regular savers. Scheme was launched. The Head Office was relocated to Ratnam’s Building in Union Place, 1971 1982 Colombo 2 and 17 more branches were opened. The Bank’s hundredth branch was The three hundredth branch of the Bank opened at Marandagahamula. opened at Ingiriya. The total number of employees reached 10,000. 1963 1973 The Bank commenced its 1984 pawning services. A comprehensive Rural Credit Scheme was launched to provide both production The People’s Merchant Bank, a and consumption credit facilities. The subsidiary of the Bank, was established. 1964 Bank initiated the ‘ganu-denu’ practice, Our branch at Slave Island was merged identifying itself with the traditions of with the International Division and the The Co-operative Rural Banking the Sinhala and Tamil New Year and Fort Foreign Branch. Scheme was inaugurated. encouraging customers to transact with the Bank at the auspicious time. 1965 1986 The process of computerisation began Some departments of the Bank were 1975 at our Central Head Office and selected relocated to the GCSU building in City branches and a Black Light System Sir Chittampalam A. Gardiner Mawatha, An aggressive branch expansion was introduced. Customer turn-around Colombo 2. The total number of branches programme brought our total branch time was thereby significantly reduced. increased to 48, this included new count to 158. branches in Horana, Kekirawa, Padaviya, Mannar, Embilipitiya, Kahatagasdigiliya, Ragala and Talawakelle.

206 People’s Bank | Annual Report 2010 [Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217]

1987 1991 1996

Our Headquarters Branch became the The first ATM was installed at our ‘Suwa Sevana’, a credit package for Bank’s first fully automated branch. Headquarters Branch. Government sector health personnel A Special Loan Scheme for rural was launched. ‘Sisu Udana’, a new electrification was implemented in deposit scheme for school children collaboration with the CEB. 1992 was introduced. The Bank participated The Bank supported the Government’s in two ADB funded credit schemes - the Tea Small Holdings Development 1989 200 Garment Factory Programme. ‘People’s Automated Banking System’ Project and the Perennial Crops The Bank participated in a loan scheme (PABS) a banking application developed Development Project. The Bank’s fully sponsored by the Ministry of Labour to in-house, commenced live operations. owned subsidiaries, People’s Leasing provide for housing against assignment Co. (PA) Ltd. and People’s Travels (Pvt) of EPF balances. A scheme was Ltd. commenced operations. Zonal launched in association with the 1993 offices were opened to strengthen decentralised administration and to Sri Lanka Foreign Employment Bureau The 330 Bank branches were operating facilitate better customer service. to provide loans for job seekers abroad. throughout the country and 35 main The Bank participated in a loan scheme branches were fully automated. ‘Vanitha launched by REPIA to provide credit to Vasana’, a savings scheme for women those affected by civil unrest in 1983. 1997 was introduced. A Janasaviya Associated Loan Scheme The ‘Surathura’ Loan Scheme was was introduced during the year. The launched to assist self-employment Bank also commenced the issue of 1994 projects. The Bank extended its credit Negotiable Savings Certificates facilities to small and medium scale Eight new ATMs were installed and 160 during the year. enterprises and industries under branches were computerised under the the NDB funded Small and Medium automation programme. 1990 Enterprises Assistance Project (SMEAP). An Endowment Savings Deposit Scheme 1995 was introduced. The People’s Visa Card was introduced in association with Visa ‘Gurusetha’, a new deposit mobilisation International and 24 branches were fully and loan scheme catering to Government computerised. teachers was launched with the co- operation of the Ministry of Education.

207 People’s Bank | Annual Report 2010 [Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217]

1998 2001 2004

The total number of ATMs increased to The Bank’s Corporate Management The second phase of the restructuring 36 serving over 125,000 PET cardholders. Team was strengthened by the plan for 2004-2008 launched and 175 branches were fully automated recruitment of certain Heads of Division approved by the Government of and the number of pawning centres from the private banking sector. Sri Lanka was based on the increased to 188. A special credit cum Restructuring of the Bank was initiated recapitalisation support of ADB. deposit scheme known as ‘Videshika’ through the launch of a Strategic Plan. The Bank obtained the first ever public was introduced in collaboration with the A New Annual Business Planning rating of BBB+from Fitch Ratings Lanka Sri Lanka Foreign Employment Bureau Process was implemented, to link with and recorded a positive capital value to assist migrant workers. the Bank’s Strategic Plan. The total for the first time since 1998 amplifying number of ATM machines grew to 90. the turn around of the Bank. The Core 1999 Banking project was implemented successfully. Innovative Ratasalli The Bank launched ‘Isuru Udana’, 2002 Prize Scheme launched to attract a deposit scheme that encourages The number of PABS automated inward remittances of foreign currency parents and guardians to save for the branches increased to 218 and 119 into Sri Lanka. benefit of their young charges. branches were connected to the Central ATM Switch. A treasury automation 2005 2000 package was implemented. The 15th Chairman of the Bank Dr. P.A. The ‘Jana Jaya’, savings cum loan Kiriwandeniya assumed duties at the scheme was launched. The newly 2003 beginning of December 2005. This was ‘Jaya Sri’ introduced draw offered The Young Executive Saver’s (YES) followed immediately thereafter with a attractive prizes for depositors. The Account was launched. ‘Deepavali’ receipt of Rs. 2 Bn as the first tranche of ATM network expanded to 74 machines celebrations were held at all branches Equity Capital Investment in the Bank by throughout the country. The Central to identify with traditional customs of the Government of Sri Lanka in keeping ATM Switch was introduced to connect our large Hindu customer base. The with the agreement signed between the the PABS branches and the ATM. Bank signed up with Silver Lake System Government, ADB and People’s Bank. SDV BUD Malaysia to install a state-of- The Max Super Deposit Scheme was the-art core banking package and Trade launched and the Core Banking project Services Solutions which will initially was further extended across the branch be operational in 60 selected branches network. The Bank also was a major including Head Office. The Housing intermediary in bringing Government Loan product was repackaged and re- granted financial assistance for launched under the ‘Jaya Nivasa’ name. the rebuilding of lives, homes and The new Savings Scheme titled ‘Visrama businesses affected by the Tsunami of Suvaya’ was launched for the pensioners. December 2004.

208 People’s Bank | Annual Report 2010 [Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217]

2006 2008 214 branches and 236 service centres are now connected online. The Bank The Bank obtained an A-rating from Mr. M. Wickremasinghe assumed office has strategically placed over 300 ATM’s Fitch Ratings Lanka Ltd. indicating as the 12th CEO/General Manager of the islandwide. progress from its earlier Rating level. Bank. People’s Bank won the People’s Award for the third consecutive year in Total deposits reached Rs. 400 Bn. People’s Bank was awarded the POP the Banking and Financial sector and the Award for 2006 in the Banking and coveted ‘Service Brand of the Year’ award The highest recorded profit before tax of Financial Services Sector by the for the first time by the Sri Lanka Institute Rs. 6.1 Bn was achieved. Sri Lanka Institute of Marketing. of Marketing. Bringing the anywhere Received a SAFA (South Asian ‘The first lesson in school’ was launched anytime banking, the Bank launched its Federation of Accountants) award for to inculcate savings habit among new latest service offer of Palm Top Banking to its customers. the 2008 Annual Report for the first time students entering year 1 classes where in the Bank’s history. the initial deposit was matched one- The Government of Sri Lanka released to-one up to a maximum of Rs. 500/-. the fourth capital tranche of Rs. 1.5 Bn. ‘Nidahase Upatha‘ rewarded new life The Bank reached the Capital Adequacy 2010 by giving Rs. 500/- to all babies born in Level of 10.5% by the end of the year. Mr. H.S. Dharmasiri assumed office as the first week of February. The second Further, the Bank’s first Debenture issue the 14th CEO/General Manager of the tranche of capital of Rs. 1 Bn was of Rs. 2.5 Bn was made in the year. Bank in October 2010. received from the Government of A notable advancement in the Bank’s Sri Lanka. Branch Network and service centres remittance service with the introduction expanded to 679. ATMS increased to 330. of ‘People’s e-Remittance’, a web- 2007 based remittance product supported People’s International VISA Debit Card by latest technology to remit money was launched in July 2010. The 16th Chairman of the Bank Mr. W. from overseas within minutes. Two new Karunajeewa assumed duties in May The Bank obtained AA- from Fitch Rating foreign currency deposit products were 2007. The rating level of A - from Fitch Lanka Ltd. and AAA from Ram Ratings . launched, viz., ‘Doo Daru Ethera Isura’ Ratings was maintained during the year. a foreign currency deposit product Total deposits surpassed Rs. 462 Bn The Government of Sri Lanka injected for children and ‘Special Foreign during the year 2010. The highest the third capital tranche of Rs. 1.5 Bn Investment Deposit Account’ [SFIDA]. recorded profit before tax of Rs. 8.7 Bn into People’s Bank. People’s Bank won was achieved. the People’s Award for the Banking & Financial Services Brand of the Year for 2009 ARC International two Gold Awards to the second consecutive year. The Bank People’s Bank Annual Report held at The 13th CEO/General Manager of the New York. surpassed the Rs. 300 Bn mark in total Bank Mr. P.V. Pathirana assumed duties deposits during the year 2007. in January, 2009. The Bank received SAFA (South Asian Federation of Accountants ) Award The Bank issued its second Debenture for the 1st place in the Public Sector issue for Rs. 2.5 Bn during the year. Category for the 2009 Annual Report.

209 People’s Bank | Annual Report 2010 [Performance Review 2000-2010]

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

(Sri Lanka Rs. Mn) Capital & Reserves Issued Share Capital 50 50 50 50 50 50 50 50 50 50 50 Capital Pending Allotment & Reserves (6,524) (6,216) (3,351) (1,460) (84) 3,967 10,221 12,845 15,830 17,750 20,788 Total (6,474) (6,166) (3,301) (1,410) (34) 4,017 10,271 12,895 15,880 17,800 20,838

Current Liabilities Customer Deposits 115,007 127,543 141,835 157,310 185,643 225,600 269,947 300,956 324,489 396,158 462,140 Borrowing from Banks and Others 39,744 28,369 24,003 29,027 24,925 29,134 35,840 49,063 33,714 36,884 39,132 Other Liabilities 18,677 17,851 19,391 15,797 13,514 16,512 22,496 17,670 20,965 20,404 20,505 Debentures – – – – – – – – 2,500 5,000 5,000 173,428 173,763 185,229 202,134 224,082 271,246 328,283 367,689 381,668 458,445 526,778 Total Liabilities 166,954 167,597 181,927 200,724 224,048 275,262 338,555 380,584 397,548 476,245 547,616

Non-Current Assets Property, Plant & Equipment, etc. 2,930 2,834 4,488 4,530 4,756 4,862 8,936 8,414 8,362 7,939 8,385 Investments 32,079 25,636 33,773 43,792 31,978 50,583 62,682 61,095 80,109 84,807 82,688

Current Assets Cash and Short-Term Funds 35,147 24,818 36,259 40,290 55,386 65,592 47,191 57,090 39,663 83,973 87,062 Loans and Advances (Net) 87,087 106,142 101,131 101,072 122,477 142,497 207,138 238,293 248,626 283,760 357,336 Other Assets 9,711 8,167 6,277 11,040 9,451 11,727 12,608 15,691 20,787 15,766 12,144 131,945 139,127 143,667 152,402 187,314 219,816 266,937 311,075 309,076 383,500 456,543 Total Assets 166,954 167,597 181,927 200,724 224,048 275,262 338,555 380,584 397,547 476,245 547,616 Commitments & Contingencies 26,365 26,726 23,350 32,072 30,060 45,177 39,450 74,222 138,989 100,867 131,751

Operations Gross Earnings 18,450 25,198 23,976 23,105 22,601 27,202 35,131 47,984 58,948 69,050 62,532 Net Income 8,512 10,513 10,903 13,575 13,705 14,784 19,509 21,442 24,456 30,635 31,897 Total Overheads 8,160 8,867 8,235 9,123 10,362 11,070 15,038 15,736 17,159 19,719 21,305 Profit before Taxation (1,268) 880 1,360 2,127 2,463 4,035 4,079 5,002 5,664 6,076 8,771 Provision for Taxation – – (218) – 377 1,263 922 2,628 2,959 2,755 3,565 Profit after Taxation (1,268) 880 1,578 2,127 2,086 2,772 3,157 2,374 2,705 3,320 5,206

Performance Indicators No. of Employees 11,577 11,401 10,834 10,145 9,592 9,531 9,645 8,416 8,587 8,863 8,399

210 People’s Bank | Annual Report 2010 [Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217]

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

(Sri Lanka Rs. ‘000)

Per Employee Deposits 9,934 11,187 13,092 15,506 19,354 23,670 27,988 35,760 37,788 44,698 55,023 Advances 7,522 9,310 9,335 9,963 12,769 14,951 21,476 28,314 28,954 32,016 42,545 Gross Earnings 1,594 2,210 2,213 2,277 2,356 2,854 3,642 5,702 6,865 7,791 7,445 Profit after Tax (110) 77 146 210 217 291 327 282 315 375 620

(Sri Lanka Rs.)

Per Share Profit after Taxation (1,268) 880 1,578 2,127 2,086 2,772 3,157 2,374 2,705 3,320 5,206 Total Assets 166,954 167,597 181,927 200,724 224,048 275,262 338,555 380,584 397,547 476,245 547,616 Net Worth (6,474) (6,166) (3,301) (1,410) (34) 4,017 10,271 12,895 15,880 17,800 20,838 Return on Assets (%) (Before Tax) (0.9) 0.5 0.8 1.1 1.2 1.6 1.3 1.4 1.5 1.4 1.7 Return on Equity (%) 22.8 (13.9) (33.3) (90.3) (289.0) 139.2 44.2 20.5 18.8 19.7 26.9 Cost/Income Ratio (%) 102.8 89.2 79.7 70.2 73.1 72.7 73.8 68.7 65.4 60.6 60.2 Non-Performing Loan (NPL) Ratio (Gross) (%) 18.9 20.9 19.6 18.2 14.1 11.0 7.1 5.9 6.8 6.7 5.0 Non-Performing Loan (NPL) Ratio (Net) (%) 4.4 8.2 6.7 4.0 2.4 1.8 0.9 0.7 1.6 2.0 1.3 Non-Performing Loan (NPL) Coverage Ratio (%) 76.9 61.0 65.8 78.1 83.0 83.9 87.1 88.0 75.7 70.6 73.6 Capital Adequacy Ratio (CAR) (%) (11.3) (10.5) (9.2) (4.5) (2.3) 1.9 5.6 6.9 10.5 13.4 12.8 Fitch Rating BBB+ BBB+ A- A- A- A AA- RAM Ratings AAA

211 People’s Bank | Annual Report 2010 [Glossary of Financial/Banking Terms]

Accounting Policies Bill of Exchange *Tier II Capital (Supplementary Capital) Principles, rules and procedures A signed, written, unconditional order selected and consistently followed by the addressed by one person (the drawer) Supplementary Capital includes, approved management of an entity in preparing directing another person (the drawee) revaluation reserves, general provisions, and reporting the Financial Statements. to pay a specified sum of money to the hybrid (debt/equity) capital items and order of a third person (the payee). The approved subordinated term debts. terms bill of exchange and draft are Accrual Basis often used interchangeably. Cash Equivalents Recognition of the effects of transactions and other events when Call Deposits or Call Money Short-term highly liquid investments that they occur without waiting for receipt or are readily convertible to known amounts payment of cash or its equivalents. Deposits or funds lent out which are of cash and which are subject to an repayable on demand. insignificant risk of changes in value. Amortisation Capital Adequacy Certificate of Deposit (CD) Systematic allocation of the depreciable amount of an intangible asset over its The ability of a bank to meet the needs A certificate issued by a bank against useful life. Depreciation and Amortisation of their depositors and other creditors funds deposited with it that specifies both have the same meaning. in terms of available funds. As per the rate of interest payable and the date requirement of Bank for International when the deposit will be repaid to the Settlements (SIBS) and Central Bank of bearer. CDs are often negotiable. Associate Company Sri Lanka, Local Banks should maintain A company other than a subsidiary a stipulated minimum capital. Commercial Paper in which a holding company has a participating interest and exercise a *Tier I Capital (Core Capital) Unsecured short-term promissory significant influence over its operating notes issued by banks and credit worthy and financial policies. Core Capital includes selected items of corporate borrowers. capital funds. Major core capital items are share capital, share premium, Bill Discounted statutory reserve funds, retained profits, Commitments A promissory note or bill of exchange general reserves, surpluses/losses Credit facilities approved but not yet that has been purchased for less than after tax arising from the sale of fixed utilised by the clients as at the Balance face value, the difference representing and long-term investments. Sheet date. interest on the unexpired term of the bill. At maturity, the holder collects the face value of the bill for its own account.

212 People’s Bank | Annual Report 2010 [Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217]

Contingencies Country Risk Disintermediation

A condition or situation, the ultimate The credit risk associated with lending The term often used to describe outcome of which, gain or loss, will to borrowers within a particular borrowers raising funds directly from be confirmed only on the occurrence country, sometimes taken to include the capital markets rather than from or non-occurrence of one or more sovereign risk. the banking sector. This is usually uncertain future events. only undertaken by borrowers with the strongest credit ratings. Cross Rate Corporate Governance The calculated foreign exchange rate Documentary Bill The process by which corporate entities from two separate quotations involving are governed. It is concerned with the the same currency. A bill of exchange that is accompanied way in which power is exercised over by various documents, such as a the management and direction of entity, bill of lading, an invoice and an Currency Swap the supervision of executive actions and insurance policy. accountability to owners and others. A current exchange of principal amounts in two currencies combined Documentary Credit with an agreement to re-exchange the Correspondent Bank currencies at a later date and to A letter of credit that stipulates the A bank that acts as an agent for make interest payments, until the documents that must be produced in another bank. The correspondent bank re-exchange, on the currency is received. order for payment to be made. will generally provide a wide variety of banking services on behalf of the Deferred Tax Draft other banks in the region in which the correspondent bank is located. Sum set aside in the Financial A term generally synonymous Statements for taxation that may with bill of exchange but sometimes become payable in a financial year other used specifically in the context of inter- Cost Income Ratio than the current financial year. bank bills. A banker’s draft is a draft, Operating expenses as a percentage of payable on demand, drawn by or on net income. behalf of a bank. Derivatives

A financial instrument whose price has Counterparty Fixed Charge a strong relationship with an underlying The other party (including a bank) with commodity, bond, equity or currency. A charge on specific property, usually whom a deal is made or closed. freehold or leasehold property, or plant and machinery, given under a legal mortgage.

213 People’s Bank | Annual Report 2010 [Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217]

Floating Charge Forward Rate Agreement Key Management Personnel

A charge, taken by a lender to secure (FRA) Those persons who have the authority an advance upon property, such as An agreement to exchange payments and responsibility for planning, directing stock, debtors, or cash, that permits at a specified future date based on the and controlling the activities of the entity. the company to continue using and difference between a particular interest disposing of those assets in connection rate index (e.g. LIBOR) and an agreed Letter of Credit (LC) with its ordinary business. Such a fixed rate. charge becomes fixed in the event of the A document issued by a bank, requesting company’s default. another bank or banks to advance money General Provision to a third person, up to a certain amount, in accordance with the terms and Foreign Exchange Income A Balance Sheet item representing funds set aside by the Bank to pay conditions set out in the document. The realised gain recorded when for losses that are anticipated to assets or liabilities denominated in occur in the future. This is 1% of total Mark to Market foreign currencies are translated into performing advances. Sri Lankan Rupees on the Balance Sheet The policy to periodically revaluing date at prevailing rates which differ positions up or down to their current from those rates in force at inception Group market or fair value. or on the previous Balance Sheet date. A group is a parent and all its Foreign exchange income also arises subsidiaries. from trading in foreign currencies. Minority Interest The proportion of the profit or loss and Hedging Forward net assets of a subsidiary attributable A methodology used to cover against to equity interest that are not owned, A contract that commits two parties to an risk of unfavourable price movements directly or indirectly through exchange at a specific future date under (interest rates, prices, commodities, etc.) subsidiaries, by the Parent. terms set out at the contract date. Impairment Mortgage Forward Rate This arises due to decline in recoverable A lien on real property used to secure The price of currency with a maturity amount below carrying amount. a borrowing. beyond the spot date. Forward rates may be either the same in price as spot rates or different. In the first case, the Indemnity Negotiable Instrument forward rate is flat. In the second case, An agreement whereby a person agrees A security or other financial instrument the price is either higher, at a premium, to bear any loss that is suffered by a which can be freely sold to a third party or lower, at a discount. party to a contract to which he himself (i.e. ‘negotiated’). Bank notes, bearer is not a party. The person giving the bonds, bills of exchange and cheques indemnity assumes primary liability, are normally negotiable instruments. unlike a guarantor who assumes secondary liability. 214 People’s Bank | Annual Report 2010 [Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217]

Net Interest Margin Prime Rate Revolving Credit

Interest income as a percentage of The interest rate which a bank A line of credit that has terms permitting Average Interest Earning Assets. charges its most credit worthy successive drawings and payments at corporate customers. the borrower’s discretion. The funds available to the borrower are replenished Non-Performing Loan by any repayments of principal. Promissory Note A loan where principal or interest payments are not being made on the due An unconditional promise in writing Securitisation dates, or where the borrower is failing made by one person to another, signed to meet some other term or condition by the promisor, engaging to pay on This involves the transfer of a block of of the loan. Non-performing loans are demand or at fixed or determinable income producing assets to a vehicle frequently allocated non-accrual status. future time a fixed sum to, or to the order company that finances the purchase of, a specified person, or to bearer. through the issue of debt (usually notes or commercial paper). Nostro Account Related Parties A foreign currency current account Segmental Analysis maintained with another bank, Parties where one party has the usually but not necessarily a foreign ability to control the other party or Analysis of financial information by correspondent bank. At the other bank, exercise significant influence over the segments of an enterprise specifically, the deposit is called a nostro account. other party in making financial and the different geographical areas in operating decisions. which it operates. Off-Balance Sheet Transactions Repo Segment Reporting

Transactions not recognised as assets Jargon for sale and repurchase Segment reporting indicates the or liabilities in the Balance Sheet but agreement. contribution to the revenue derived which give rise to contingencies and from business segments such as banking operations, leasing operations, commitments. Reserve Assets stock broking and securities dealings, Assets of a financial institution which property and insurance. Position form part of its reserve requirements with the Central Bank. The netted total commitments in a given Settlement Date currency or interest rate. A position can The date on which a securities be either flat or square (no exposure), Reverse Repo long (more currency bought than sold transaction is completed by actual overbought) or shot (more currency sold The opposite of a repo, i.e. a purchase exchange of securities for cash. than bought oversold). and resale agreement.

215 People’s Bank | Annual Report 2010 [Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217]

Short Position Time Deposit Vostro Account

An excess of liabilities (and/or forward An interest bearing deposit account A local currency current account sale contracts) over assets (and/or which is subject to withdrawal only after maintained with a bank by another bank forward purchase contracts). a fixed term. (compare with nostro account). A dealer’s position when the net of purchases and sales leaves a net sold Total Capital Yield Curve or oversold position. Is the sum of Tier I capital (core capital) A graph showing market interest rates as and Tier II capital (supplementary capital). a function of maturity. Normally, the yield Subsidiary Company curve is upward sloping: interest rates A subsidiary is an enterprise that is increase with the term of the instrument. Treasury Bond (T-Bond) controlled by another enterprise (known as the parent). A long-dated security issued by the Central Bank of Sri Lanka. T-Bonds carry a coupon rate of interest. Suspense Account

An account used to record items Value Added temporarily which are held subject to clarification and transfer to the Value added is the wealth created by appropriate account. providing banking services less the cost of providing such services. The value added is allocated among the Syndicated Loan employees, the providers of capital A loan arrangement in which a number of to Government by way of taxes and banks, in a form of joint venture, provides retained for expansion and growth. funds which they would individually Value at Risk (VAR). be unwilling or unable to provide. Syndications are used for customers A risk management methodology that whose scale of financing is too great for estimates the potential loss arising any single bank to accommodate without from adverse movement in market distorting its loan portfolio. interest or exchange rates over a defined holding period.

216 People’s Bank | Annual Report 2010 [Corporate Information]

Name of the Bank Corporate Banking People’s Travels (Pvt) Ltd. (Subsidiary Company of People’s Bank) People’s Bank Division P.O. Box 437 No. 59, D.R. Wijewardena Mawatha, Colombo 10, Sri Lanka. Legal Status ANCL (Lake House Building) No. 35, D.R. Wijewardena Mawatha, Tel.: 2332747, 2478385, 5662935, A Licensed Commercial Bank under the Colombo 10, Sri Lanka. 5664172, 2470190 Banking Act No. 30 of 1988 incorporated Tel.: 2320651-6, 2437239-41 Tel./Fax: 2434530 as a Commercial Bank by People’s Bank e-mail: [email protected] e-mail: [email protected] Act No. 29 of 1961. SWIFT PSBKLKLXA 022 Kandy Travel Desk Head Office Off-Shore Banking Unit No. 17, Dalada Veediya, Kandy, Sri Lanka. (Registered Office) People’s Bank, Head Office Tel.: 081-2234224 Ex. 215 No. 75, Sir Chittampalam No. 75, Sir Chittampalam Fax: 081-2234681 A. Gardiner Mawatha, A. Gardiner Mawatha, Colombo 2, Sri Lanka. Colombo 2, Sri Lanka. Wellawatte Tel.: 2206703, 2458821 Cable JANABANK No. 46, People’s Bank Building, Fax: 2458752 Tel.: 2327841 (6 Lines), Galle Road, Wellawatte, Sri Lanka. Telex: 21500 (PBSWTCE) 2446316 (15 Lines), 2481481 Tel.: 011-3050535 e-mail: [email protected] e-mail: [email protected] web: www.peoplesbank.lk SWIFT PSBKLKLX VAT Registration No. 409000037-7000 People’s Merchant Bank PLC Overseas Customer (Associate Company of People’s Bank) Auditors Services No. 21, Nawam Mawatha, Colombo 2, Sri Lanka. Auditor General No. 59, D.R. Wijewardena Mawatha, Tel.: 2300191-4 Auditor General’s Department Colombo 10, Sri Lanka. Fax: 2300190 Independence Square, Colombo 7, Tel.: 2332746, 2334278, 2446409 Sri Lanka. Telex: 21486 PBKFMS CE e-mail: [email protected] People’s Leasing [email protected], Company Ltd. Secretary [email protected] P.O. Box 1346 Mr. Rohan Pathirage, LLB, MMgt in Banking SWIFT PSBKLKLX No. 67, Sir Chittampalam Attorney-at-Law A. Gardiner Mawatha, Colombo 2, Sri Lanka. Tel.: 2481000, 2490000 Fax: 2481138 e-mail: [email protected] Web: www.plc.lk

217 People’s Bank | Annual Report 2010 [Value Added Statement 186] [Sources and Utilisation of Income 187] [Capital Adequacy 188] [Income Statement US$ 190] [Balance Sheet US$ 191] [Quarterly Financial Highlights 192] [Branch Network 193] [Service Centres 199] [Worldwide Partners 204] [Decades at a Glance 206] [Performance Review 2000-2010 210] [Glossary of Financial/Banking Terms 212] [Corporate Information 217]

Subsidiaries of People’s People’s Microfinance Ltd. Leasing Company Ltd. No. 67, Sir Chittampalam A. Gardiner Mawatha, People’s Insurance Ltd. Colombo 2, Sri Lanka. No. 53, Dharmapala Mawatha, Tel.: 2481000 Colombo 3, Sri Lanka. Fax: 2481138 Tel.: 2206406 Fax: 2206399 People’s Leasing Havelock Properties Ltd. People’s Leasing Finance PLC No. 67, Sir Chittampalam No. 385, The Land Mark, A. Gardiner Mawatha, Galle Road, Colombo 3, Sri Lanka. Colombo 2, Sri Lanka. Tel.: 2376476 Tel.: 2481000, 2424367 Fax: 2376477 Fax: 2481138

People’s Leasing Property Development Ltd. No. 67, Sir Chittampalam A. Gardiner Mawatha, Colombo 2, Sri Lanka. Tel.: 2481000, 2424367 Fax: 2481138

People’s Leasing Fleet Management Ltd. No. 67, Sir Chittampalam A. Gardiner Mawatha, Colombo 2, Sri Lanka. Tel.: 2481000 Fax: 2481138

218 People’s Bank | Annual Report 2010 The People’s Saga Goes On

This year the Bank has chosen the ‘Perahera’ as the theme for its Annual Report. The theme was chosen to mark the Bank’s best year ever. The Bank surpassed its previous performances and produced a stupendous set of results for all its stakeholders: shareholders; employees; customers; and the broader community. This was achieved in midst of intense competition from other banks and in the face of several other institutional challenges.

The Sri Lankan ‘Perahera’ is a unique event. The throb of the drums; the crack of the whip; the rhythm and leaps of the dancers; the flare of the torches; the sway of the elephants; and the fragrance of incense, flowers, oils and dung; create a unique spectacle that is deeply embedded in the culture and heritage of Sri Lanka.

Every actor plays a special role in the perahera. Each special role combines with the others to produce a spectacle of immense beauty and magic.

At the Bank too, each actor plays its special part. Board Member, CEO, Executive, officer, teller, customer and supplier come together to create a mesmerising institution. That is why this year we have chosen the perahera as our theme.

Over these 50 years we have created a Bank that has provided a new beat, a fresh light and a spring in the step to many people’s lives. We have struck a balance between the macro goals of economic development and the micro goals of people’s empowerment. We have looked for new ways of empowering the economy and of empowering people’s lives.

An important part of our success has been the employees of the Bank. The Bank’s employees hail from all parts of the country and bring a diversity of life’s experiences and social backgrounds to the institution. This diverse group of people has combined like the majestic perahera to deliver consistent value year after year. Like the actors in the perahera we have relied on skills honed through the ages. At the same time we adapted and changed a beat here and step there to ensure that we stay ahead of the times and lead from the front. The making of this Annual Report has been as inspiring as the Bank’s success. While stretching every sinew and challenging our creative and logistical processes on the one hand, it has energised and infused us with a new passion on the other.

The process commenced by researching the several peraheras that take place around the country. The goal was to be as authentic as possible to the real thing and to capture the look and feel of this magnificent tapestry in its several aspects. Actors, actresses, and dancers were identified and a perahera ‘recreated’ at the Janakala Kendraya in Battaramulla so that the visuals we obtained for the report resembled the real thing as closely as possible.

We were fortunate that we were able to have access to a majestic tusker that helped us add an authentic flavour to the images we required. The pictures we got have been digitally edited and the perahera theme maintained through the entirety of the report.