Continuous growth... that’s what we believe in. A process that continues to grow in ever increasing value. Always keeping a step ahead, continuing to add to the already added. Foreseeing the possibilities and promise of tomorrow, today. Keeping with the evolutionary cycle of banking, we have geared ourselves from the outset to meet our customers’ future needs. And today, we continue our growth in that vein. Our Vision
To become the most customer preferred commercial bank in Sri Lanka.
Our Mission
To create the largest satisfied customer base by providing professional, personalised, secure, quality banking and financial services, using modern technology and innovative products.
We will delight our customers, create a better future for employees and enhance stakeholder value.
2 Annual Report 2007 Contents
Vision & Mission 2 Income Statement 64 Highlights of Special Events 4 Balance Sheet 65 Financial Highlights 5 Statement of Changes in Equity 66 Chairman’s Report 6 Cash Flow Statement 67 CEO’s Report 10 Notes to the Financial Statements 68 Board of Directors 16 Capital Adequacy 91 Corporate Management 20 Quarterly Statistics 93 Senior Management 21 Analysis of Deposits 94 Operational Review 23 Analysis of Advances 95 Products & Services 28 Sources & Utilisation of Funds 96 Corporate Social Responsibility 30 Value Added Statement 97 Human Capital 35 Information of Shareholders 98 Corporate Governance 40 Top Twenty Shareholders 99 Annual Report of the Board of Directors on the Ten Year Statistical Summary 100 Affairs of the Company 44 Graphical Review of Ten Year Summary 102 Risk Management 52 Branch Network 103 Audit Committee Report 55 Correspondent Banks 104 Directors’ Responsibility for Financial Reporting 58 Definition of Financial Terms 106 Financial Review 59 Notice of Meeting 107 Financial Reports & Accounts 61 Notes 108 Financial Calendar 62 Form of proxy (enclosed) Auditors’ Report 63
Annual Report 2007 3 Highlights of Special Events
First Quarter Second Quarter • Street campaign • Vesak Bakthi Gee • Branch opening - Maharagama • Branch opening - Kirulapone • Staff training programme • Induction programme for new recruits
Third Quarter Fourth Quarter • Branch opening - Galle • Sponsoring and participating at Childrens’ Day • Continuous Skill Development • Branch opening - Kadawatha • Annual trip • Winner of PABC quiz competition - Kotahena Branch
4 Annual Report 2007 Financial Highlights
2007 2006 Change Rs. (Mn) Rs. (Mn) % Results for the Year Income 2,317.14 1,580.84 46.58 Profit before Provisioning & Taxes 460.87 307.33 49.96 Profit before Income Tax 316.79 250.17 26.63 Income Tax on Profits 100.71 86.43 16.52 Profit for the year 216.07 163.74 31.96 At the Year End Shareholders' Funds 1,451.19 1,235.12 17.49 Deposits from Customers 12,130.21 8,962.89 35.34 Debentures 303.79 303.79 - Advances to Customers (Net) 10,304.61 8,063.40 27.79 Total Assets 15,525.70 12,625.88 22.97 Net Asset Value per share (Rs.) 13.12 11.16 Earnings Per Share (Rs.) 1.95 2.63 Statutory Ratios (%) Capital Adequacy - Tier I (Minimum Requirement - 5%) 14.92 16.35 - Tier I & II (Minimum Requirement - 10%) 16.13 18.37 Liquidity (Minimum Requirement - 20%) 23.11 21.98 Return on Average Assets 1.52 1.44 Return on Average Shareholders’ Funds 16.19 23.41
Annual Report 2007 5 Chairman’s Report
As the year unfolded, the Business Community had to confront The Economy still seemed resilient, recording GDP growth of 6.2% many issues which were not very supportive to their aspirations. in the first half of 2007. The rate predicted for 2008 is 6.7%. In the They were apprehensive of the scenarios unfolding in the political Service Sector, which contributed more than 50% of overall growth sphere, the escalation of the North-East conflict, the rising inflation, in GDP,Telecommunication and Information Technology facets grew the spiraling global oil prices to name a few. A key economic encouragingly, backed by new technology, expanded coverage and indicator, interest rates which were highly volatile to begin with, value added services. rose to even higher levels. In fact, the interest rates were behaving Despite the political uncertainty the ongoing North-East conflict in a manner that was creating an unusual gap between the policy and some unfavourable economic indicators it is encouraging to rates and the Money Market rates. note that the Banking sector and the large corporates, especially, Escalating energy prices had a chain effect on essential commodity have achieved increase in profits, compared to those that were prices which then spread to all segments of the economy, heating achieved in the previous year. up the prices of all goods and services. The inflationary trends rode The Global economy has taken a plunge in recent times - courtesy, high during the year, propelled by heavy government expenditure the heightened threat of terrorism and the counter measures that and external factors such as commodity and oil prices. Heavy have resulted in mini wars raging in several hot-spots around the public sector borrowing requirement jump started the rate hikes globe as well as the spiraling oil prices which are affected by the and inflation hovered between 16% - 20% making Bank deposits unrest in Middle-East. The world still depends heavily on oil to more attractive than investment in the Capital markets where risks move the wheels of Industry. Therefore, oil prices will continue to are higher.
6 Annual Report 2007
Chairman’s Report
dictate the World economy even as we go in to the future. Many during 2007 to record the highest profits in its 12 year history. The countries are now researching for alternative cheap power sources Profit before Financial VAT & Tax recorded was Rs 400.49 Mn, an in order to overcome the potential future energy crisis. increase of 25.24%, over the previous year. The post tax profits earned was Rs. 216.07 Mn with a growth of Rs. 52.34 Mn over last The world economic order is also fast changing, with the old year. These results were achieved despite several factors such as industrial giants, i.e. USA, Japan and Germany, being challenged by increased financial costs, a high tax regime, and ever increasing the emerging economies seen in the form of China, India and so on. operational costs pushing against us adversely. The GDP of China and India are now growing at the remarkable pace of over 10% per year. Their external reserves have recorded We established 8 new Branches during the year taking the total to unprecedented levels. This will essentially shift the economic and 29 outlets. We have plans to open 10 more branches in the year political levers of power to the Asian region to which we belong. 2008. The Bank's deposits grew by 35.34% during the year, Our giant neighbour is reaping the benefits of a conducive business which is very satisfactory when compared with the overall climate, through improved Foreign Investment inflows and a higher industry performance. savings function. We would do well to take a leaf out of their book in order to emulate their success. Your Bank has invested well in to its infrastructure, Information Technology systems and people in order to constantly improve The biggest economic and political challenges facing the country customer interface, services quality and productivity. The Bank will are the continuing ethnic conflict, the political instability and the ensure that Return On Assets and Human Capital will be optimised rampant inflation. The business diaspora will be able to operate in to give our valued stakeholders sufficient returns. a friendly atmosphere free of apprehension if the above conditions could be mitigated. We desperately need to find a way The Board of Directors will ensure that the Bank will be steered by to peace, speedily. high caliber professionals and that the staff will be kept highly motivated to bring out the best in them. They are put through With regard to the financial aspects, we have to meet the minimum continuous training schedules for skill development and to capital requirement by infusing new capital, within the given time- refashion their vistas of horizon. frame and I am pleased to mention that arrangements are underway to comply. It will certainly be a challenge for businesses Also, a performance based reward system is in place to spur them to earn reasonable profits as demanded by their stakeholders in towards improved productivity and performance. The PABC family view of the heavy tax burdens placed on corporate profits. Against has now grown above the 500 mark and will continue to grow, many odds as mentioned above, your Bank performed quite well when the proposed new branches are established.
8 Annual Report 2007 Chairman’s Report
It is our plan to enhance appreciably the Bank's growth momentum We cannot forget the contribution made by our growing and loyal with a view to realise our vision “To become the most customer customers to our success story. We could not have achieved these preferred commercial bank in Sri Lanka”. results without their co-operation and at times constructive criticism. We appreciate their contribution. The Central Bank of Sri Lanka introduced The Mandatory Corporate Governance Rules for banks effective January 01, 2008. This was Finally, on behalf of the Board of Directors, I wish to assure you that introduced after lengthy discussions with the banks during the year your Bank will continue to add value to your investment through 2007. We too were able to contribute to the formulation of the rules well planned and prudent business strategies and moves. in an effective manner. We consider the compliance essential and assure complete adherence.
I would like to thank the Governor of the Central Bank of Sri Lanka and the Bank Supervision Department headed by the Director of A. G. Weerasinghe Bank Supervision for the valuable advice and guidance given to us Acting Chairman throughout the year. Their support has helped us in many ways to Colombo minimise risks and achieve better results. I also wish to thank the 03 March 2008 Board of Directors for their valuable inputs and concerted support and guidance in directing the Bank's course.
The Managing Director, Top Management and the staff too worked dedicatedly to post encouraging results. I appreciate and wish to thank them for their valuable contribution.
Annual Report 2007 9 CEO’s Report
The annual report and audited accounts are testimony to another LOCAL ECONOMY successful year at PABC Bank. The year has been one of meeting Despite the escalation of conflict in the North - East of Sri Lanka challenges, posed by an unstable business environment due supplemented by inflationary trend resulting from the world market to political and economic development, which were a cause prices of our imports, the local economy remained resilient for concern. and vibrant.
It is unfortunate that the country continues to face crisis and is far Sri Lanka's economy grew by 6.2% in the first half of the year 2007 from seeing the light at the end of the tunnel with regard to the and the annual economic growth rate is expected to settle in the ethnic issue. A disturbing economic trend was the continuous region of 6.5%. The expansion of economic activities spurred the escalation of fuel and commodity prices in part due to escalating financial sector prompting a relatively high growth rate of world prices, which cascaded into wide spread inflation and a approximately 8% during the first half of the year. growing sense of uneasiness amongst the business community and the general public. Nonetheless, I am pleased that we at PABC Soaring fuel and food prices stoked inflation as well as prompting Bank have weathered these adverse conditions and recorded yet exchange rate volatility during the latter half of 2007. This scenario another successful year of operations. looks set to continue to the future, and will be a future challenge The Bank made in good and judicious use of the capital infusion that requires to be surmounted by inter alia, Financial Institutions. made in 2006 and successfully expanded and made our presence The country's savings too demonstrated an encouraging trend felt in eight new strategic locations, five of them in the Western Province and one each in the Central, Southern and posting a growth rate of 20% to GDP,mainly bolstered by the foreign Sabaragamuwa Provinces. remittances. As inflationary pressures constricted masses, the
10 Annual Report 2007
CEO’s Report
general tendency is often to shift income towards consumption and • No of branches/customer service centres increased to 29 from 21. in that perspective, the current growth in savings is encouraging. The above performance indicators all point to an overall satisfactory and stable growth trend during the year. FINANCIAL SECTOR PERFORMANCE
The financial sector nevertheless weathered continuing shocks and Fitch Ratings Lanka Ltd has upgraded the Bank’s rating to an challenging macroeconomic and financial developments to remain investment grade rating of BBB- (lka). pliant and stable. DEPOSITS
The money market also witnessed periods of high volatility, due to The year witnessed a regime of high interest rates, due to market scaling up of rates. The Banking sector nevertheless continued to volatility and increased borrowings by the Government. Interest rates remain profitable, and resilient, by re-pricing both their deposit & were under high pressure, but appear to have now moderated. Our loan products and maintaining the profitability levels. deposit portfolio aided by the addition of eight new branches grew in the year by 35.34% to reach a base of Rs.12,130.21 Mn. THE BANK'S PERFORMANCE
The Bank's performance in the year has to be viewed in the back ADVANCES drop of an external environment that has been far from conducive, As in the past, our focus continued to be on retail and medium exacerbated due to the escalation of hostilities, rising fuel and food sized corporate clients. The Bank also had recourse to funds commodity prices and the resultant rampant inflation, together generated from the rights issue in 2006, which helped our loan with increasing interest rates. growth. We have continued to place emphasis on credit worthiness of borrowers, ever being mindful of the inherent credit risks. The Salient features of this year's performance can be presented need for the upward movements of lending rates, in line with the as follows: escalating deposit rates was a cause for concern, as high inflation
• Operating Profit Before Taxes Rs. 400.49 Mn (2006-319.77 Mn) and interest rates increase vulnerability of borrowers and affect their debt servicing capacity, particularly the retail and credit • Profit After Tax Rs. 216.07 Mn (2006-163.74 Mn) card segment. • Growth in Deposits by 35.34% Our net advances grew by 27.79%, to Rs. 10,304.61 Mn. during the • Growth in Advances by 27.79% year under review. • Return On Assets (ROA) 1.52%
• Return On Equity (ROE) 16.19% PROFIT AND DIVIDENDS
• Ratio of Non-Performing Advances reduced to 7.39% in 2007 Prudent management of deposits, advances and other investments from 8.47% in 2006. has resulted in the Bank’s achieving an after tax profit of Rs. 216 Mn
12 Annual Report 2007 CEO’s Report
for the year 2007 which is 30% higher than the previous REGULATORY MINIMUM CAPITAL REQUIREMENT year’s profit. The Monetary Board has prescribed that a minimum capital of a bank has to be Rs. 2,500 Mn before 31 December 2009. Currently Bank was successful in recovering part of the Non Performing the bank’s total capital funds is in the region of Rs. 1,450 Mn. We are Advances and interest that has been suspended previously. confident that the minimum capital requirement could be
Bank’s interest income has increased by Rs. 680 Mn over the comfortably achieved before the target date by the retention of previous year where other income has increased by Rs. 57 Mn. As earnings together with possible capital infusion before 2009. a result Net Asset Value per share has increased to Rs. 13.12 in 2007 REGULATORY COMPLIANCE from Rs. 11.16 in 2006. New capital ratio measurements under Basel II will come into effect The Bank has proposed to pay Rs. 0.75 (Cents 75) per share as first from January 2008. Under Basel II the Credit risk, Market risk and and final dividends to its shareholders subject to approval at the Operational risk categories will be assessed under a broad Annual General Meeting. spectrum of weights and measurements.
CREDIT RISK MANAGEMENT Adoption of these new regulations would bring about several
While the Bank’s net advances portfolio grew to Rs. 10,304.61 Mn, it improvements and benefits for a sound and stable banking was imperative to ensure that there were no unhealthy environment. concentrations infecting the portfolio. History has proven that Our Bank has been maintaining comfortably the Total Capital delinquencies occur most as economies go through “troughs” and Adequacy Ratio, which stood at 16.13% as at 31st December 2007 we may well be witnessing one at the present moment in time. against the stipulated minimum of 10%. Therefore, vigilance was maintained over the developing portfolio to sustain portfolio health. A thorough vetting process at pre approval LIQUIDITY levels was maintained followed by strict compliance in Liquidity was often tight during the year mostly due to heavy documentation supplemented by post grant monitoring. A Government spending which brought about constant pressure on comprehensive risk rating system was in place during the year to interest rates. This meant maintaining Liquidity would be at a cost. identify risk tendencies and balance with mitigating measures.A
Credit Risk Analyst also has been designated to overlook post However our Bank has been very complacent in these area and disbursement risk aspects and arrest the onset of probable Non maintained Statutory Liquid Asset Ratio throughout the year and Performing Loans. during December 2007 at a rate of 23%.
Annual Report 2007 13 CEO’s Report
MANAGING HUMAN RESOURCES to shop. In addition the interest rate on purchases is much less in
Our people continued to be the nucleus of our strength and comparison with that of a credit available through credit cards. sustainability.We are proud to possess a contented yet competitive BUSINESS ALLIANCES and skillful workforce whose invaluable contributions have thrust the Bank to its present levels of achievement. We have developed The Bank entered into a strategic alliance with Amana Investments, through continuous training and motivation, a target - driven one of the country’s market leader in Islamic Financial Services to team who have exhibited their capability through high class bring a new range of value added services to Amana customers. performances. The services included sale of Travellers Cheques and Foreign Currency at Amana counters and issue of ATM cards to be used at As a further impetus for performance, we have announced a PABC ATM. selection process for the “Best employee of the Year” to identify and reward those “superstars”. Further, branch performances are During the year under review the Bank also entered into a constantly evaluated through a Balanced Scorecard process and partnership with Mobitel (Pvt) Ltd and jointly launched a product best performers are rewarded quarterly. I am proud to state that under the brand name “mcredit”. This is a unique product and our branches are run lean and efficiently by relatively young teams where customer could use their mobile phones for bill settlements displaying mettle and maturity. and payments for goods and is handy & safe, substitute for credit cards. This product could be considered to be first of its kind in PRODUCTS South Asia.
With the environment increasingly becoming competitive, we have THE FUTURE been focusing on providing products that would provide enhanced value and convenience to the customers. We shall be focusing on expanding our branch network and increasing diversified customer base. We will aggressively market The recently rolled out “mcredit” a product akin to the now very our new product “mcredit” with the view to providing“ popular and convenient credit card, will enhance customer convenience to purchases of goods and services” at low cost, satisfaction. The mobile phone becomes the credit or debit card, compared to other modes. Our Information Technology capability and transactions take the same amount of time to be completed. also would be enhanced. Treasury activities will be strengthened The money is transferred instantaneously to merchant’s account with new products. While pursuing, continuous personnel development, Incentive schemes to increase the morale of with the customer's confirmation, making “mcredit” the safest way employees will be introduced.
14 Annual Report 2007 CEO’s Report
we are also planning to utilise the deposits mobilised by branches I also thank our External Auditors, Ernst & Young for their splendid as advances to clients in that area as far as possible. We also intend work in completing their assignment on time and for their advice to increase foreign inward remittances by tying up with exchange and guidance during the audit. It is also my duty to express houses in Middle East and possibly sending one of our staff appreciation to the advertising agency and printers. member to work there.
APPRECIATION
It has been a very pleasant year for me and the staff to work with R. Nadarajah Chairman and dynamic Board of Directors, who had always Managing Director/General Manager/CEO given their fullest support, advice and encouragement in our forward march. Colombo 03 March 2008 I also wish to thank staff of PABC without whose dedication and commitment, Bank would not have progressed so well to achieve remarkable results in 2007. Further I like to thank the Governor and other staff of Central Bank for their guidance, support and direction.
Finally, my gratitude goes to our valuable customers who are our prime focus, shareholders and other stakeholders, who always believe PABC as “ Their Bank”.
Annual Report 2007 15
Board of Directors
A. G. Weerasinghe R. Nadarajah W. D. N. H. Perera Harda AmarasekeraL. Wickremarachchi
16 Annual Report 2007
J. A. S. Sumith Adhihetty S. K. Malcolm Nandasena J. D. C. Coonghe Ravindra Hewavitharana R. Hathiramani
Annual Report 2007 17 Board of Directors
A. G. WEERASINGHE - Acting Chairman Fortress Resorts Ltd and Vallibel Electric (Pvt) Ltd. He also serves
An experienced Senior Banker who joined the Board of PABC Bank as the Group Finance Director of Connaissance Holdings Limited, as a Director in June 2005 and appointed as the Acting Chairman in Director Finance of Hotel Reef Comber Limited and holds the December 2007. Serves as a Director at George Steuarts Financial position of Director at L.B. Finance Ltd., Vallibel Finance Ltd., Services PLC and South Asia Financial Exel Investments (Pvt) Ltd. Vallibel Power Erathna Ltd and Asian Alliance Insurance Company Holds a B. A. (Econ) Degree, from University of Ceylon, Peradeniya, Limited. He counts over 22 years of experience in the fields of 1967. An Associate and Fellow member of the Institute of Finance, Capital Market Operations, Manufacturing, Marketing and Bankers, Sri Lanka. Management Services. He is a member of the Sri Lanka Institute of Marketing.
R. NADARAJAH - Managing Director/General Manager/CEO HARDA AMARASEKERA - Director Mr. Nadarajah was appointed as the General Manager/CEO in October 2001 and re-designated as Managing Director/General An Attorney-at-Law who possess experience in the legal and Manager/CEO in October, 2003. He holds a B. Sc (Honors) Degree financial sectors. Holds a Masters Degree in International and from the University of Peradeniya, MBA from the University of Comparative Law (LL.M - Brussels), Masters Degree in Accountancy Colombo and also a Fellow member of Chartered Institute of and Finance (M.A.F.Brussels - cum Laude) and serves as a Director Bankers (London). He was conferred with a life time award by of Bensons Ltd and Managing Director of Comcorp (Pvt) Ltd. Chartered Institute of Bankers, London, Sri Lanka Branch. A Banker L. WICKREMARACHCHI - Director for the past 39 years has served in Bank of Ceylon for 32 years in several senior positions. He is a past President of the Association of Mr. Wickremarachchi is the Managing Director/CEO of Vallibel Professional Bankers Sri Lanka and the Primary Dealers Association Power Erathna PLC and he is also a Director of Vallibel Power of Sri Lanka. Limited and its subsidiaries.
He Holds a Master of Science in Engineering (MSc) obtained from W. D. N. H. PERERA - Director People's Friendship University, Moscow, Russia and MBA from the Mr. Perera was appointed as a Director of the Bank in September, Post Graduate Institute of Management, University of 2007. He is the Managing Director of Royal Ceramics Lanka Ltd., The Sri Jayawardenapura.
18 Annual Report 2007 Board of Directors
J. A. S. SUMITH ADHIHETTY - Director A. W. HATHIRAMANI - Director
A veteran marketer. He is the Managing Director of L B Finance Ltd. R. HATHIRAMANI (Alternate Director) and a Director of Vallibel Finance Co Ltd. Mr. A. W. Hathiramani is a Business Partner of Pesons Group of Companies and serves as a Director of A G M Garments (Pvt) Ltd. S.K. MALCOLM NANDASENA - Director He is represented by an alternate Director, Mr. Ravi Hathiramani at
He has a B.A. Special (Honors) Degree from the University of PABC Bank. He counts 26 years experience in Business Peradeniya,1962. Further, he has a Certificate in Direct and Indirect Administration and Import Industry. He is also a Partner of Pesons Taxes from Japan in 1978 and a Certificate in International Taxation Group of Companies and Chairman of Aramex Airborne from Singapore in 1997. As a Senior Assessor, Deputy Lanka (Pvt) Ltd. Commissioner and Commissioner of Inland Revenue in charge of Resigned from the Board, in March 2008 Investigations, he has considerable experience in Accounts,
Auditing and Finance. W.M. ABEYRATNE BANDARA - Former Chairman
Resigned from the Board, in December 2007. J. D. C. COONGHE - Director
Mr. Coonghe is a Businessman. He is the Chairman of Ceylindo K.D. DHAMMIKA PERERA - Former Deputy Chairman Private Ltd., and the Managing Partner of A.J.S. and St.Anthony's. Resigned from the Board, in July 2007
RAVINDRA HEWAVITHARANA - Director
Mr. Hewavitharana is the Director General of Samurdhi Authority of Sri Lanka. He holds a B.Com Special Degree, from the University of Kelaniya.
Annual Report 2007 19
Corporate Management
01 02 03 04 05 06 07
01. Mr. R. Nadarajah 04. Mr. Sunil de Silva 06. Ms. Amitha Samarasinghe Managing Director/GM/CEO Asst. General Manager - Retail Banking - I Asst. General Manager Human Resources (promoted as Deputy General Manager - International and Development 02. Mr. Claude Peiris Treasury w.e.f. 01/01/2008) Senior Deputy General Manager 07. Ms. Dinusha Yogagopalakrishnan 05. Mr. S. Umakanthan Head of Finance & Planning 03. Mr. Lakshman Uduwara Asst. General Manager – Trade (promoted as Asst. General Manager - Finance & Planning Asst. General Manager - Retail Banking - II (promoted as Senior Asst. General Manager - Branches w.e.f. 01/02/2008) (promoted as Deputy General Manager - Operations & w.e.f. 01/01/2008) Credit w.e.f. 01/01/2008)
20 Annual Report 2007
Senior Management
01 02 03 04 05 06 07
01. Mr. Hemal Jayasinghe 04. Mr. Dinesh Perera 06. Mr. Jayantha Chandrapala Senior Manager - IT Senior Manager - Kandy Branch Senior Manager - International (promoted as Head of IT w.e.f. 01/02/2008) (promoted as Regional Manager - Central w.e.f. 01/01/2008) 07. Ms. Varuni Egodage 02. Ms. Nayantha Fernando Senior Manager - Legal Company Secretary 05. Mr. Naleen Edirisinghe Senior Manager - Nugegoda Branch 03. Mr. Felician Jayakody (promoted as Regional Manager - Southern Senior Manager - Kollupitiya Branch w.e.f. 01/01/2008) (promoted as Regional Manager - Metropolitan w.e.f. 01/01/2008)
Annual Report 2007 21
Senior Management
08 09 10 11 12 13 14
8. Mr. Upali Ratnayake 12. Mr. Hsin Haw Li Absent Senior Manager Senior Manager - Metro Branch Mr. Sarath Fernando Senior Manager - Marketing & Business 9. Mr. Tissa Rodrigo 13. Mr. Anil De Silva Development Senior Manager - Old Moor Street Branch Senior Manager - Panadura Branch Mr. Adrian Assauw Senior Manager - Consumer Banking 10. Ms. Chrishanthi Jayasuriya 14. Mr. Kenneth Mendis Senior Manager -Kurunegala Branch Senior Manager - Bambalapitiya Branch Mr. Nimal Ratnayake Senior Manager - Galle Branch 11. Mr. S. Anandarajah Senior Manager - Pettah Branch Mr. Ranjit Perera Senior Manager - Recoveries
22 Annual Report 2007 Operational Review
CORPORATE BANKING Whilst the net loan portfolio expanded by approximately 28% in the Though the corporate lending activities expanded only moderately year, we were geared to do better screening and securitisation to during the year, the existing client base was well serviced with counter possible loan losses. Relationship Managers appointed to overlook the banking The Bank's total client Deposit base grew more than 35% in the requirements of this segment. year spread over 29 branches and customer service centres of The prevalent high cost of funds and the need to outlay which 8 were opened during the year. We plan to expand the comparatively large advances at wholesale prices was a challenge number of branches by further 10 units in the year 2008. to rapidly expanding the corporate financing. Nevertheless, several large corporates were included during the year to it's clientele, FOREIGN EXCHANGE SERVICES (FES) mainly financing them in trade financing activities. A dedicated team was in place to handle Traveller's Cheques and foreign currencies for corporates and individuals travelling abroad. RETAIL BANKING The team performed value added services of delivery of Travellers The Bank continued to concentrate on retail banking activities at Cheques, currency etc right at the door step of the clients. large. This segment is more receptive to banking products giving The volatile rate fluctuations gave the FES team opportunity to work cross selling opportunities and also tend to exhibit brand loyalty on good margins. Therefore, a fair income contribution was made once attracted and retained. As retail lending essentially involves by this department. A regular, large clientele has now been built up small loan parcels, inherent credit risk too could be defrayed. and even brief credit periods and soft commission rates are offered Reputed global banks too have changed strategies and shifted to as incentives. retail and niche banking as they foresee these segments as more rewarding and profitable.
Annual Report 2007 23
Operational Review
01
02
03
01 Religious ceremony to mark the 12th Anniversary 04
02 Winning team of “TMC Wisdom 2007” - quiz competition organised by The Management Club
03 Amana & PABC in strategic alliance for forex services
04 Introduction of “mcredit” solution for shopping and settlement of bills in collaboration with Mobitel (Pvt) Ltd., as the communication partner
24 Annual Report 2007 Operational Review
CREDIT CARDS expansion of Trade Finance as a sizeable banking business The number of credit cards issued in the year amounted to 2,032 devolves around this segment. and total credit card holders at the end of the year was 5,797. Many aggressive competitors were operating in the market offering OPERATIONS attractive switchovers. The overall operational volumes increased due to more branches being added to the network. The Bank was able to take the The Bank was conscious of the fact that, in a rising inflationary maximum advantage of the system upgrades and improved scenario, the propensity for more spending on consumption was customer interfaces. This contributed positively to the customer the rule. Whilst this was an opportunity, the risk of default also could be more pronounced. In fact, large scale defaults were observed, convenience offered. Major branch operations are centralised to requiring some banks to make a substantial loss provision. save time and to be efficient. Therefore, we have tread cautiously and made screening more stringent and limit approvals more moderate. INFORMATION TECHNOLOGY (IT) The Year 2007 was a challenging and progressive year for the FOREIGN CURRENCY BANKING UNIT (FCBU) Bank's IT Department. During the year the Bank successfully The Bank was on a drive to improve its FCBU client base. The future strengthened many of its IT infrastructure range and has been outlook and functions profile will vastly improve as the activities successful in streamlining our IT services and solutions. have now been brought under the purview of a Deputy General Manager. A major target was to improve the deposit base During the year 2007, the IT Department has achieved several mile substantially. New relationships have been built during year 2007. stones of our 3 year IT Infrastructure upgrade plan, to provide superior solutions to our stakeholders. The Bank was able to draw IMPORT TRADE FINANCE up the Disaster Recovery strategy plan for implementation and The Bank's import trade portfolio grew notably in the year with establish a fully equipped IT Disaster Recovery Centre with the larger volumes contributed by Metropolitan Branches. Fee-based latest technological solutions. Considerable investment was set income contribution from import trade financing in the year was aside by the Bank to establish this fully integrated disaster recovery Rs. 91.28 Mn which is 26.18% of the Bank's total other income for site for business continuity and service excellence with very the year. Value of established import Letters of Credit rose sharply minimum down time. The Disaster recovery site and the business in the year. The commitments outstanding under Letters of Credit continuity plan were examined by independent regulatory established was Rs. 883.02 Mn as of 31 December 2007 when authorities who have validated its excellence. compared with Rs. 540.27 Mn in the previous year. The enhanced business is a compliment to our competency in offering quick As a key improvement to our banking service solution, The Bank facilitation of transmission of credits, having a wide network of upgraded the core banking system “GLOBUS” to its latest correspondence Banks internationally and competitive exchange technological advancement “T24 service” during 2007. This upgrade rates offered on transactions. The Bank will continue to pursue enabled several major improvements and technical advances to
Annual Report 2007 25 Operational Review
the core banking application as well as to the integrated database LEASING with a significant step forward towards providing a fully fledged One of the salient features of PABC leasing was the introduction of non-stop banking service to its customers in the near future. providing speedy service within 24 hours. Furthermore, value added 'in house' insurance services are provided through many of We also focused and used our energy in IT advancements to the leading insurance companies offering both choice and introduce many innovative products and delivery channels to our convenience to the lessee. The Bank continues to concentrate valued customers. The Bank recently introduced the “mcredit” mainly in the financing of commercial and passenger vehicles. The solution in collaboration with Mobitel (Pvt) Ltd as the Bank had a growth of 18% of the portfolio in the year. A high priority communication partner.“mcredit” is a unique delivery channel was given to containing the non performing leases at a low level in based on the PABC SMS Banking platform and focuses on replacing view of the unconducive business climate that prevailed. We have credit and debit card services with a virtual payment system. Using planned to engage the services of Marketing Executives specialised “mcredit”, customers can buy products and services or pay their in canvassing leases and position them in strategic business areas bills at a touch of a mobile phone, setting ultra-convenience and in order to canvass potential leasing businesses. added security for banks and credit facilities of banking services in Sri Lanka. Customers have the choice of using credit facility or the TREASURY money in their account as a choice of payment for transactions, The Treasury had a tough task to perform in a volatile playing field making it the first ever to offer mobile credit in South East Asia. The due to volatility in exchange and interest rates. The high product was fully developed in-house and is the first of its kind to government spending on fuel, defence, etc., and the resultant rise be developed in Sri Lanka. in inflation and market liquidity drove interest rates To strengthen our delivery channels, The Bank is planning to constantly upwards. connect to the Visa network enabling our customers to use over The rate volatility is expected to continue for some time and 300,000 ATMs all over the world. Also it is scheduled to launch our predicting the market behaviour and mitigating interest rate risks fully-fledged Internet Banking solution adding more convenience to will be a sizeable task the Treasury Team will have to manage. our customers. Further enhancements and features on SMS banking and “ credit” services in the year 2008 will position PABC m 03 months Treasury Bills rate moved over 850 basis points in the Bank as one of the most wide spread solutions provider to selected year signifying the volatile rate movements. markets in Sri Lanka. Our focus on improvements in IT process management and streamlining the IT infrastructure will enable all In the third quarter of the year, treasury tied up with the most our valued customers, employees, shareholders and all other reputed service provider in the industry, Reuter's dealing system. stakeholders to be proud of a very user friendly convenient and competitive system interface.
26 Annual Report 2007 Operational Review
CREDIT MONITORING AND RECOVERY The Bank adopted stringent credit administrative and control measures to reduce the Non Performing Advances ratio to 7.39 % in year 2007. This compares with previous year's 8.47%, despite the adverse business environment that prevailed over the year.
The strengthening of the legal recovery mechanism and improving the efficiency of monitoring procedures, together with focused credit supervision were the success factors in containing the Non Performing Advances.
Negotiating and re-scheduling of Non Performing Advances wherever possible helped the Bank not only to recover dues but give opportunities to customers to rehabilitate their businesses in their down turn and return to normality.
Annual Report 2007 27 Products & Services
The Bank looks at its products and services in light of a Children's Savings Account was introduced with the clear objective convenience- providing approach which assists the client in finding of giving the little ones the opportunity of a higher interest rate on the best avenues for their financial requirements and their savings to enjoy. With a view to ensure a greater value for investment needs. investment, a high interest rate of 15% p.a. is currently offered to Lahiru Special Accounts. STARS - INVESTMENT PLANNER ACCOUNT A person in his or her life time comes across many milestones that LAHIRU PLUS (+) MINOR SAVINGS ACCOUNT require big investments/expenses. School admissions, tertiary This account is targeted to children below 14 years of age giving education, marriage are just few examples of events that parents them an attractive interest rate and wide range of gifts under the have to collect funds over a period of time. Further purchases of scheme. The account holder has the option to go for a cash deposit movable & immovable assets and regular income avenue during of 10% instead of the gifts offered, thus helping a faster growth in retirement are other needs that adults often come across. the amounts invested. A children's health hospitalisation policy is another feature embedded to this product for the loved ones, with Stars investment planner at PABC seeks to help with this need by certain conditions. helping the investor build and then enjoy a lump sum at the end of a 5 year or 10 year period as chosen by him. The Bank can GEDARATA MUDAL customise the investment planner to any period that may suit the This is more of a service than a product offered by PABC, as a client according to his or her need and offer higher rates of return. means of convenience. When the breadwinner of the family is far away in another country there are difficulties for the people in Sri LAHIRU SPECIAL CHILDREN'S SAVINGS ACCOUNT Lanka to receive the monthly remittance sent, as they have to go to Children below 14 years of age do not have many options to enjoy the Bank. PABC Bank's Gedarata Mudal addresses this issue and it the high interest rates enjoyed by adults. The Lahiru Special gives the sender and the receiver peace of mind as the money is
28 Annual Report 2007 Products & Services
delivered to their door step safely and speedily at an affordable LEASING price, saving both time and money. Resident in Colombo & its The friendly, efficient and speedy PABC leasing facilities are suburbs receive the remittance upon identification within 24 hours targeted to those who want to purchase vehicles without spending and others within 48 hours. their valuable time and a large amount of funds all at once.
SMS BANKING Brand new vehicles, unregistered (re-conditioned) vehicles and, Time is precious and every one is busy today. PABC Bank using the subject to certain conditions, registered vehicles are also advantage of modern technology to make banking available considered for PABC leasing facilities. Flexible repayment terms are anytime anywhere and at your fingertips through SMS banking. available to suit the customer's requirements. Through the use of the mobile phone PABC can make available account balance inquiries, mini statements, cheque book requests, SAFETY LOCKERS & PAWNING inter account fund transfers, third party transfers, credit card The gold assets belonging to people are not often part of regular settlements, balance alerts and much more at a nominal cost. attire but remains an idle asset for long periods of time, sometimes unproductively and unsafe. As far as the safety is concerned the CREDIT CARDS Bank has in many of its branches “SAFETY LOCKER” facilities and to PABC offers Master international credit cards that give not only arrest the unproductively aspect. convenience but many other benefits as well. It offers one of the most competitive interest rates on credit utilisation in the industry. PABC Bank's “RANSHAKTHI” pawning facility could be availed of to A safety net insurance scheme that guarantees full settlement of a gain the maximum for idle assets and put towards a productive use. card member's outstanding in the event of death or permanent Gold articles, gold biscuits, gold bars, gold coins are all welcomed disability, debt buying facility which enables a customer with good and the Bank instantly provides the high value advances at lower record to transfer the debt from other credit card accounts to the interest rates. PABC credit card where they enjoy a better interest rate, and an emergency personal cheque encashment facility are all mcredit additional benefits. The Bank for the first time in the history of South Asia launches one of the most innovative products to the digital banking world. The SAMMANA (SENIOR CITIZENS ACCOUNT) 'mcredit' facility provides customers with the ability to complete a Our senior citizens have sacrificed their youth for their families, for financial transaction then and there at shops or even withdraw their enterprises and for their country. They do certainly deserve a money at places where they buy their goods at approved hassle free, convenient and most importantly better return and deal merchants. The product is totally developed by PABC's own Staff, for their savings during the rest of their lives. and it comes through a synergy with Mobitel (Pvt) Ltd. No commission or fee goes out of the country. Further the cost of using PABC “SAMMANA” Senior Citizens Accounts recognise this fact and this facility is very low. Both merchants and “mcredit” clients gain respectfully offer special rates of interest for their deposits and financial benefits. what's more a value added benefit of delivering the monthly interest to their doorstep is available, making this product truly unique.
Annual Report 2007 29 Corporate Social Responsibility
Corporate Social Responsibility (CSR) is an integral part of and concerned for by our staff. The voluntary participation of staff commercial organisations today, as many people-oriented turned these projects in to unique experiences rather than just institutions realise the fact that they have a bigger role to play with financial contributions. The new direction of getting the support and regard to the society and the contribution to the well being of the involvement of staff not only built team spirit in the Bank but that society. more importantly left memorable experiences and happiness to both parties. PABC Bank from its inception has been sponsoring various events with a focus on ensuring the well being of the society by sharing in CHILDREN and caring about the financial and especially, the human resources The Bank considers children as the future of the nation. PABC of the Bank. sponsored a number of projects in schools and religious education In the year 2007, the Bank drew its main attention to three needy programmes, in the hopes of developing in them the moral and sectors for its projects. “Children” - the future of the country, ethical values which are the build up of disciplined and responsible “Women” - trying to build/ensure the happiness of their families citizens of the future. and the “Sick and Less fortunate people” - who may need a These projects were aimed at increasing knowledge, skills and encouragement and support, were the main three sectors that PABC Bank identified for this purpose. physical & mental health whilst directing the youth to respect and develop ethics and moral values. The experience gathered by the Bank through its involvement in past social projects helped the Bank to be proactive and different The Bank sponsored the childrens’ day programme at Sri in its new CSR projects. The active participation of the Bank staff in Vajiragnana Lama Niwasaya at Kotte, with a considerable number of the CSR projects resulted in the focus groups feeling loved, cared bank staff participating in this event.
30 Annual Report 2007 Corporate Social Responsibility
Assistance for school prize giving and sponsorships for reach their destiny. Certificates were awarded for the participants programmes aimed at improving religious knowledge in Dhamma and the branch also distributed computers among the schools took place at Sri Gnanawasa Dhamma school, Rajagiriya needy schools. and the Sunday School at St. Mary's Church, Bambalapitiya. The Bank was pleased to contribute to the development of spiritual Our CSR activities were not confined to Colombo or the cities values of the young who participated in these programmes. A where our branches were situated, but spread throughout the contribution towards the infrastructure development of St. island to provide equal opportunities to every one in need. Sebastians's Church Moratuwa was another CSR project that fell in line with the same objective. WOMEN The Bank sponsored/assisted selected programmes which were The Bank co-sponsored an all island, inter-school debating conducted by women's organisations. Tournament conducted by Vidyartha College, Kandy, and also assisted the following exhibitions/projects, which were conducted Among the main programmes assisted under this sector were the to help the relevant school authorities harness and develop the exhibitions aimed at talent and skill development for employment, hidden talents of their youth. titled “Women and Home”, the development work of the “Healing Hands Womens’ Organisation” in Matara, and the women welfare • Education exhibition - Ratnavali Balika Vidyalaya, Gampaha. programmes at Hambantota and Kandy, conducted by the Women Development Federation and Vanitha Ekamuthuwa of the • Photographic Exhibition - Devi Balika Vidyalaya, Colombo respective towns.
• Commerce Day - Batugedara Maha Vidyalaya, Ratnapura. A large number of women benefited out of these programmes and these benefits trickled down to their families, uplifting their social • Student life development project - Sri Sumangala College, life standards and happiness at home. Panadura
'Our Bank' provided a number of scholarships and donated school SICK AND LESS FORTUNATE PEOPLE books to needy students in Malabe, Homagama and Gampaha in The sponsorships and donations towards physical and mental order to enlighten their knowledge. health programmes were made to Lady Ridgeway Hospital, Colombo and the Cancer Hospital in Maharagama. Stocks of A series of innovative workshops conducted by our Negombo mattresses were donated to the Lady Ridgeway Hospital, Colombo, branch, titled “Future Leaders”, gave insights into problem solving and a large number of accounts were opened for children receiving approaches through the latest management principles along with treatment at the same Hospital. the strategies for their implementation in day to day life. Students were informed of various career paths available to them after The Bank assisted a blood donation campaign at Hendala, and leaving school and how to select their preferred path in order to donated funds to leukemia patients. The assistance provided to
Annual Report 2007 31
Corporate Social Responsibility
01 02
04
03
01 Donation of Computers to Dalukotuwa Maha Vidyalaya, Negombo
02 Sponsorship in Colombo University - ” Annual Muththamizh Vizha - 2007”
03 Sponsorship - St. Sebestian College walk, Moratuwa
04 Leadership programme held at Harischandra College, Negombo
32 Annual Report 2007 Corporate Social Responsibility
promote cricket among the deaf through Sri Lanka Deaf Cricket SENIOR CITIZENS Association and the sponsorships for programmes for mental A donation was made for the purpose of uplifting the Home for health development at the Ratnapura Hospital too were Elders in Kandy. appreciated by all beneficiaries. ENTREPRENEUR DEVELOPMENT AND NETWORKING HEALTH AND RECREATION The Bank assisted several functions organised by the traders Sports does not only make a person healthy but also teaches them associations of Maharagama, Matara, Wennappuwa etc, in order to the concepts of success and defeat. Besides this it builds up team develop the networking of entrepreneurs and entrepreneurial spirit and creates opportunities for networking. development related events.
During the year under review, the Bank assisted a large number of In the year of 2007, the Bank provided assistance to more people in schools, universities and sports clubs to promote the spirit of more spheres than ever before, working towards making a healthier sportsmanship and good health in Colombo and outstation areas. society, both physically and mentally. Sponsorships were granted to enhance and expand a sports complex at St Benedict's College, lead sponsorship for the 3rd annual inter-house cricket tournament at the Panadura Sports Club and contribute to the cricket encounters of the IDM Pre-University Students Association.
The Bank was involved in promoting the game of rugby in Negombo during 2007.
Annual Report 2007 33
Corporate Social Responsibility
01
02
03 04
01 Sponsorship - Childrens’ accounts opened at Kadawatha branch opening
02 Mattress donation to Lady Ridgeway Hospital
03 Participation of Childrens’ Day at Sri Vajiragana Childrens’ Home
04 Sponsorship - Old girls’ annual get-together at Girls High School, Kandy
34 Annual Report 2007 Human Capital
PABC Bank's goal is to develop high performing and motivated staff who deliver excellent service to their customers and growing returns to its shareholders. The Bank's success lies among the other resources, mainly on it's people. The young and dynamic work force highlights the flexibility to change and the aggressiveness in strategic execution of assigned responsibilities.
Staff Analysis
Age Analysis Total Percentage (as at 31 December 2007)
Above 60 3 1% 41 - 59 69 13% 30 - 40 138 25% Below 29 336 61% alignment with corporate objectives, the Bank has created a skilled Total 546 100% and motivated work force. The dynamic approach adopted by the Bank in Human Capital has delivered the tangible results in terms During the year the Bank staff strength grew by 113 to a total of of financial performance. 546. The Human Resources at the PABC Bank is strategically connected to the short-term and long-term corporate objectives. Having identified the strength of the Human Capital and its
Annual Report 2007 35
Human Capital
01
02
03
04
01 PABC Dinner Dance
02 Staff training programme
03 Avrudu festival
04 Runners up of Inter-firm Badminton Championship - 2007
36 Annual Report 2007 Human Capital
Productivity Indicators ‘000 2005 2006 2007 No. of Staff Recruitments 2005 2006 2007 Net profit per employee Banking Trainees 35 70 86 (after taxes) 275 378 396 Management Trainees 24 - 20 Revenue per employee Banking Assistants 6 2 8 (Gross Income) 3,108 3,651 4,244 Supervisory Staff 20 7 18 Deposit base per employee 20,560 20,700 22,217 Executives (Level 1,2 & 3) 8 14 20
In the year 2007 we were able to promote 86 employees to higher Management Staff 5 3 9 grades, in recognition of their performance and ability to handle Corporate Management 1 - - higher responsibilities. Others 22 39 53
MAN POWER PLANNING & RECRUITMENT TRAINING & DEVELOPMENT The Bank follows an “Internal First” approach in filling the vacancies The Bank believes that skills and competence levels of employees in order to provide career opportunities to it's staff. Growing are vital in making significant contributions towards the business volume and expansion of branch network have created performance and success of an organisation. Hence the training & number of employment opportunities in the employment market. development of staff has been considered to be a priority area in the Bank's activities. The Bank is committed to invest in Human Man-Power planning and skill profile development is carried out in Capital development which is an on going process. The training & line with the business plan. The Bank strives to recruit the best development of the Bank will not only give job satisfaction to the personnel regardless of gender, race, religion, etc. The sole criteria employees but most importantly it will pave the way for the Bank to for selection are academic/professional qualifications, achieve corporate goals in this highly competitive banking demonstrated skills and the related experience. Few testing tools environment. In addition it will ensure that we have the adaptability such as proficiency/technical and psychometrics in the selection and flexibility to thrive and succeed in this ever increasing process have been introduced in the selection of Trainee Banking competitive industry. Assistants and Management Trainees. Hence the Bank's Training & Development Plan includes : “Succession Plan” is one of the key factors in the new era and it is an important part of any Human Capital Management strategy. • To equip the staff to achieve the short/long term corporate With a view to ensure that the key organisation gaps are identified Mission & Vision. and filled in the Bank due to business growth and the exit of staff, • To prepare the staff for the environmental changes and to do the Bank has embarked into a strategy to recruit 'Management the right thing, the first time. Trainees', giving 2 years intensive training that covers core technical areas and Management learning to take them up to • To ensure that the staff possess the pre-requisite knowledge & higher positions. skills in performing the specific tasks assigned to them.
Annual Report 2007 37 Human Capital
• To create benchmark leaders for PABC Bank's future job K Sivagananathan Memorial Trust K. Sivagananathan positions. Award for the best performance for Memorial Trust the subject on “Monetary Theory, • To look for potential, and find ways for staff to demonstrate Practice & the Financial Systems” their strengths/hidden talents. in ACBF Examination.
In order to achieve above objectives, well designed training 02. Ms. Sumedha Gunarathna Best performance for the subject Institute of programmes are conducted by expert teams of trainers (internal & (Nugegoda Branch) on “Bank Marketing” in ACBF Bankers of Sri Lanka external) who inspire learning and growth culture in the Bank. In Examination. addition to the above we were able to introduce an e-learning • Sports achievements facility linking all staff on-line and comprehensive self-study CD packs and useful managerial concepts have been up-loaded to the Tournament Achievement Team Members intra-net to enhance knowledge and develop the staff. Inter - Firm Badminton Team Runners-up Ms.Bimani Amarapala Championship 2007 (International Dept.)
HR DEVELOPMENTS (division "D") Mrs.Dilrukshi Guruge (Panchikawatte Branch) 2005 2006 2007 Ms.Asha Senanayake No of training programmes (IT Department) (External & Internal) 89 129 92 Ms.Sunaja Subasingha Total hours of training 2,680 7,408 7,680 (Legal Department) Total no of participants 335 926 960 • Other achievements Total Training investment (Rs.) 2,031,561 2,121,870 2,139,769 Event Achievement Team Members "TMC Wisdom 2007 - The ultimate Winners for Sector Mr. Prasad Fernando
EMPLOYEE WELL-BEING AND SATISFACTION quiz challenge" by award for (Kirulapona Branch) The Management Club (TMC) Banks/Financial Mr. R. Naguleswaran • Personnel achievements Institutions. (International Dept.) Mr. Nirmalath Fernando Employee Name Awards / Medal Institution (Moratuwa Branch) 01. Ms. Nelusha Bandara Best performance for Institute of Mr. Navodaya Vidurangana (International the subject on “Monetary Bankers of Sri Lanka (Metro Branch) Department) Theory, Practice & the Mr H J Umaharan Financial Systems” in ACBF (Old Moor Street Branch) Examination.
38 Annual Report 2007 Human Capital
The Bank organises different social activities and recreational BEST SUGGESTION FROM THE STAFF programmes throughout the year to motivate the staff and promote All staff members were invited to forward their suggestions to interaction of families of staff members in the Bank. The Sport Club improve the services and standards of the Bank with a view to of the PABC Bank organised events such as weekend outing to increase the productivity of staff and profitability of the Bank by Dambulla, an annual Christmas party, the Dinner Dance and the cost management and re-engineering of the Bank's Systems and Bank's first Avurudu festival. Team spirit of the staff is further procedures together with the achievement of a profitable mix of widened by their participation in Mercantile and Inter-Bank sporting Assets and Liabilities. These suggestions will be reviewed by a activities. For the very first time the Bank was able to nominate a committee and the best suggestion will be rewarded with an team to participate in the Inter-firm Badminton Team Championship attractive reward. - 2007 (D division) and the team has emerged as Runners-up.
The Bank's annual Inter-Department/Branch QUIZ competition which has become a very popular event in the Bank, with an increase in the number of teams participating, was conducted for the 2nd time in succession on 25th November, 2007 at Hotel Galadari. Thirty-seven (37) teams competed very closely for the trophy and finally the Kotahena Branch was adjudged the winner for the year 2007.
FUTURE PLANS
PERFORMANCE BASED BONUS SCHEME With a view to ensure high performers are rewarded in the Bank and motivating them to perform at their best, the management has felt that there was a need to introduce a performance based reward system that will come in to effect in the year 2008.
SELECTION OF THE BEST EMPLOYEE The Bank decided to introduce a scheme in selecting the Best Employee, in keeping with the vision of the Bank. The selection criteria and the methodology are being carried out.
Annual Report 2007 39 Corporate Governance
In order to enhance the overall stability in the Bank, the Board of and experience as appropriate and desirable for the professional Directors emphasis on good governance within the Bank, since the conduct of the Banks Board meetings. governance in banks are considered more prominent than in any other organisation, due to the fact that the Directors are Annually, prior to the Annual General Meeting, the Bank sends accountable to the depositors and other stakeholders. affidavits and the declarations of the present and prospective directors for the Central Bank for them to evaluate and approve the Taking in to consideration the long term stability of the banking fitness and propriety of the Directors as per the Banking Act. system globally the BASEL committee has inter alia recommended Corporate Governance Guidelines for International Banks. BOARD ROLE, RESPONSIBILITY AND THE MANAGEMENT Following on, the Central Bank of Sri Lanka also has issued As spelt out in the Corporate Governance Directions of the Central mandated guidelines for the banks in Sri Lanka effective from 2008. Bank the Board has taken steps to ensure the safety and the PABC Bank is in the process of complying with all the directions soundness of the Bank and precautions in all areas of operations in given in the guidelines issued by the Central Bank of Sri Lanka the Bank. within the year 2008. The Board of Directors meets once a month and at other times as As a listed company on the Colombo Stock Exchange the Bank and when necessary, to review the Banks Performance and to take strictly follows the Corporate Governance rules set by the policy decisions towards any improvement, risk mitigation and Exchange as well. The relevant declarations under these guidelines resource capacity building. With regard to credit management, the are stated in the “Annual Report of the Board of Directors on the Bank employs systems and methods to analyse potential risks at affairs of the Company”. disbursement levels and ensure that qualified and experienced officers are available to administer the credit functions. Intense The Board of PABC Bank is composed of a healthy mix of Executive focus has been given to the adequacy of securities for the Bank to Directors and Non-Executive Directors, some of whom are fall back in eventualities. Similarly the other major risks are taken Independent Directors.This composition ensures a balance of skills cognisance of and effective measures are in place for constant assessment.
40 Annual Report 2007 Corporate Governance
The continuous growth of the Bank in every aspect is a testimony CHAIRMAN AND CEO to the commitment of the Board of Directors towards good The post of Chairman is held by an independent Non-Executive corporate governance. Monthly progress reports relevant to all Director and the CEO position is held by the Managing Director, who business units are submitted to the Board for evaluation. The are two different individuals. These functions are separated with a position of recovery of Non Performing Advances and its variations clear division of responsibility in keeping with accepted principals are being monitored by the Board at the monthly Board meetings. of Corporate Governance. Since the Chairman is an independent Non-Executive Director, the post of Senior Director is not held by The Board after careful consideration has delegated some any other Director. functions to the Board Sub-Committees since delegation will not significantly hinder or reduce the ability of the Board as a whole to The Chairman and the MD/CEO do not have any relationship discharge its functions. The Board sub-committees relevant to including financial, business, family or other material/relevant Credit, Audit, Human Resources and Remuneration meets regularly relationships among them, and the members of the Board. to monitor review and report the progress and submit recommendations in the relevant areas. THE CHAIRMAN (a) Provides leadership to the Board. Further the Bank has finalised its own disaster recovery plan to ensure reconstruction and recovery and bring back to normalcy the (b) Ensures that the Board works effectively and discharges its banks operations in an unforeseen major eventuality. responsibilities.
Also the Board of Directors ensures through the Bank management (c) Ensures that all key and appropriate issues are discussed by that all designated parameters by the Central Bank with regard to the Board in a timely manner. Single Borrower Limits, Accommodation to Directors, Capital Adequacy ratios, etc. are strictly followed. (d) The drawing up of the agenda for the Board Meetings which is also a responsibility of the Chairman has been delegated over The Bank will also ensure that all prevalent directions with regard to to the Company Secretary with close supervision by the loan loss provisions, treatment of interest and categorisation of Chairman where any matters proposed by the Directors before delinquent advances are adhered to strictly as per the directions. or at the time of the Board Meeting is considered under any other business. The Board also continuously review through the Management Information reports the efficacy of the internal control systems, (e) The Chairman ensures that all Directors are properly briefed on adequacy of the management information systems and issues arising at Board Meetings and ensures that all Board assessments & procedures to ensure error-free as well as risk-free papers are sent seven days prior to the meeting. By this, the operations that will finally deliver convenience of banking to its Directors have adequate time to study the papers and if they valued customers. wish to they may request for additional information.
The Bank has in its key management positions well experienced (f) The Chairman encourages all Directors to make full and active and qualified personnel who are responsible to follow up on the contribution and also to make their comments on the Board policies laid down by the Board of Directors from time to time. papers, to ensure that the Board acts in the best interests of the Bank.
Annual Report 2007 41 Corporate Governance
(g) The Chairman does not engage in activities involving direct requirements of the Companies Act and other relevant supervision of key management personnel or any other financial reporting related regulations and requirements. executive duties what so ever. (d) Determination on the independence of the Auditors. (h) Shareholders views, if any are communicated to the Board. BOARD CREDIT SUB COMMITTEE MD/GM/CEO The Board Credit Sub Committee is one of the sub committees He functions as the apex executive - in-charge of the day-to-day appointed by the Board of Directors to ensure compliance to the management of the Bank's operations and business. bank’s laid down credit criteria and the credit policy approved by the bank. The committee comprises three Non Executive Directors He participates at the Board Meetings, and chairs the Corporate of the Board of Directors and meetings are held fortnightly with the Management Meetings, Assets and Liabilities Committee Meeting participation of the Managing Director/General Manager and other (ALCO), Branch Managers Meetings, Information Technology senior officers involved in granting of credit. Steering Committee Meetings, Internal Audit Review Meetings, Credit Recovery Meetings etc. All credit proposals exceeding General Manager’s delegated authority are referred to the credit sub committee for approval and Assets and Liabilities Committee currently meets twice a week, various factors including risks involved, collateral quality, industry chaired by the CEO, to monitor the risk profiles and to review the position, financial position, legal implications and adherence to the Banks position in maintaining Liquid Assets Ratio and Capital Central Bank of Sri Lanka requirements are discussed at length Adequacy Ratios. before a proposal is approved. The position of Non Performing Advances are also discussed at the meetings and the policy BOARD APPOINTED COMMITTEES decisions relating to credit matters are discussed and referred to AUDIT COMMITTEE the Board of Directors when ever necessary. The Board has appointed an Audit Committee comprising of three Directors who are Non-Executive and Non-Executive Independent HUMAN RESOURCES AND REMUNERATION COMMITTEE Directors. The committee meets monthly to review the audit reports REMUNERATION POLICY OF THE BOARD forwarded by the Internal Audit Department. The committee Directors' Remuneration is decided by the Board as recommended ensures that internal audit functions are carried out by the Remuneration Committee and revised from time to time. independently and performed impartially, proficiently and in a professional manner. Managing Director, who is a full-time employee, is paid a salary in keeping with the market rates for such positions according to his The committee also ensures that the, qualifications and experience. He is also entitled to the following (a) Implementation of the Central Bank guidelines issued to perks: auditors from time to time. • Bonus, (b) Oversight of the preparation and adequacy of disclosures in • Bank maintained vehicle and fuel, the Financial Statements in accordance with the Sri Lanka Accounting Standards. • Holiday pay. The total remuneration paid to him for the year 2007 is (c) Oversight of the Bank's compliance with financial reporting Rs. 6,446,542.
42 Annual Report 2007 Corporate Governance
The aggregate allowances paid to Non Executive Directors are employees experience and contribution to the Bank. The as follow: remuneration patterns within a job title may vary by the credentials (1) Mr. Abeyratne Bandara, Chairman up to and performance of staff occupying individual position 4th December 2007. - Rs. 5,329,000 and experience.
In addition to the allowance paid, the Chairman was provided A well designed “Balanced Scorecard Methodology” is in place for a with a Bank maintained vehicle, fuel, payment of mobile phone realistic performance measurement every quarter and at the year end. and credit card which was reimbursed by the Bank. RECRUITMENT POLICY (2) Mr. Dhammika Perera, Deputy Chairman We have initiated a demanding recruitment and selection process Upto 27th July 2007 - Rs.73,333 to recruit the suitable staff in the market to achieve strategic objectives and raise competency levels for its employees. This is (Which he has contributed to the PABC sports club) followed by extensive training for the new recruits to fit into the Bank's culture and policies. (3) Mr. A. G. Weerasinghe, Acting Chairman w.e.f. December 2007 - Rs.90,000 The criteria for selection of the employees to each category in the Bank has been laid down giving the relevant qualification and reimbursement of the fuel and mobile phone bill. experience along with the attributes required for the relevant position to maintain consistency and transparency in the selection The aggregate amount paid to all other Board Members during the process in the Bank. year are as follows:
Directors Reimbursable Audit Credit Disciplinary Remuneration SUCCESSION PLAN Board Expenses Committee Committee sub- Committee Annually a batch of Management Trainees and Trainee Banking Meeting Meeting Meeting Committee Meeting Fees Assistants are recruited to the Bank after a vigorous and intensive Fees Fees Fees Meeting selection process. They are trained extensively for a period of 2 Fees years by rotation between branches and head office departments. Rs. Rs. Rs. Rs. Rs. Rs. This training enables them to acquire required knowledge and to 1,038,081 191,376 180,943 131,711 16,264 66,402 take up strategic positions in the Bank in the future.
REMUNERATION POLICY OF THE STAFF The corporate governance policies practiced by the Bank are constantly reviewed by comparing with the changes in the A remuneration policy has been developed to promote legislature, guidelines issued by the regulator and with the compensation packages combined with benefits and perks that international trends. optimises the recruitment, performance and retention of quality staff. This also creates opportunity in the Bank for the current staff PABC Bank is always committed to maintain high standards in who can move from one position to another within the Bank and to corporate governance practices to achieve its Vision and Mission. take in new employees at the recruitment stage, to the slots.
The Bank takes every effort to keep the remuneration of the employees in line with the prevalent norms in the industry by salary surveys and adjusting the salaries, taking into account the
Annual Report 2007 43 Annual Report of the Board of Directors on the Affairs of the Company
Your Directors have pleasure in presenting their Report on the state This report was approved by the Board of Directors. of affairs of Pan Asia Banking Corporation PLC a licensed commercial bank, listed on the Colombo Stock Exchange. PABC PRINCIPAL ACTIVITIES Bank which was incorporated in Sri Lanka, as Pan Asia Bank Limited The Bank’s principal business activities are commercial banking on 06th March, 1995 under Companies Act No. 17 of 1982 and and related financial services. approved as a licensed commercial bank under Banking Act No. 30 of 1988 changed its name to Pan Asia Banking Corporation Limited PROFIT AND APPROPRIATION on 23rd April, 2004 and has now been re-registered as per the The Bank's profits and appropriations were as follows: requirement under the new Companies Act No. 07 of 2007 and 2007 2006 changed its name to Pan Asia Banking Corporation PLC. This report Rs. 000 Rs. 000 is presented in compliance with the new Companies Act. Profit before taxation 316,787 250,167
This report contains information required by Section 168 of the Taxation (100,712) (86,430) Companies Act No. 7 of 2007, and other information including the Profit after taxation 216,075 163,737 information required by the Colombo Stock Exchange continuing Retained profit/ (loss) brought forward 76,163 (83,100) listing rules, Central Bank's Compulsory Corporate Governance Transfer to Reserve Fund (10,804) (8,190) Code for Banks, recommendations of best accounting practices and necessary disclosures in the best interest of stakeholders of Transfer from Revaluation Reserve 6,495 3,716 the Bank. Un-appropriated profit to be carried forward 287,929 76,163
44 Annual Report 2007 Annual Report of the Board of Directors on the Affairs of the Company
FINANCIAL STATEMENTS DIRECTORS' INTEREST REGISTER
The Financial Statements of the Bank are given on page 64 to 90. Under the provisions of Section 192 of the Companies Act No. 07 of 2007, the Interest Register is maintained by the Company in terms INCOME of the Companies Act. Directors have made the necessary
The Bank's main income comes from interest on Loans and declarations which are recorded in the Interest register and this is available for inspection in terms of the Act. The entries in the Advances and from fee based income. The summarised income register made during the accounting period is given as a foot note could be shown between the years as: to this report on pages 50 & 51.
Total Income for 31.12.2007 Total Income for 31.12.2006 DIRECTORS’ REMUNERATION Rs. 2,317,142,661/- Rs. 1,580,840,844/- Directors’ remuneration and other benefits of directors in respect Details are given in Note 7 to the Financial Statements. of the company is given in Note 37.1.1 to the Financial Statements on page 90 and in the Corporate Governance Report as well. PROFIT AND RESERVES
The Bank's Reserves as at 31 st December 2007 stood at DONATIONS Rs. 344,786,722/-. This comprises a Statutory Reserve Fund of During the year under review the Board of Directors have made the Rs. 31,264,743/-, Revaluation Reserve of Rs. 25,592,497/- and Revenue following donations/contributions: Reserve of Rs. 287,929,482/-. The movement in Reserve Fund and PABC Sports Club - Rs. 650,000/- Revaluation Reserve are shown in Note 32 & 33 to the Audited Accounts respectively. DIRECTORATE AUDITORS’ REPORT The names of the Directors of the Bank during the period The Auditors of the Company are M/s Ernst & Young, Chartered 01.01.2007 to 31.12.2007 are given below and changes occurred in Accountants. Their report on the Financial Statements is given on the composition of the Board during the period under review. The page 63. They come up for re-election at the Annual General classification of Directors into Executive, Non-Executive and Meeting, with the approval of the Audit Committee and Board Non-Executive Independent Directors are given against the names of Directors. as per Colombo Stock Exchange listing requirements and Corporate Governance rules. ACCOUNTING POLICIES Mr. A G Weerasinghe Non Executive, The accounting policies adopted in preparation of the Financial Independent Director Statements are given on page 68 to 75. since 15/06/2005, Acting Chairman since 04/12/2007
Annual Report 2007 45 Annual Report of the Board of Directors on the Affairs of the Company
Mr. S K M Nandasena Non Executive, RE-APPOINTMENTS Independent Director In terms of Article No. 93 and 94 of the Articles of Association of the since 26/09/2000 Company, Mrs. H V Amarasekera and Mr. L. Wickremarachchi retire Mr. R Hewavitharana Non Executive, by rotation and being eligible offer themselves for re-election, on a Independent Director unanimous recommendation of the Board of Directors. since 15/06/2005
Mrs. H V Amarasekera Non Executive, Mr W. D. N. H Perera who was appointed to the Board during the Independent year is eligible for re-election by the shareholders in terms of Article Director since 15/06/2005 100 of the Articles of Association of the Company. Mr. J A S S Adhihetty Non Executive, Director
since 15/06/2005 DIRECTORS' INTEREST
Mr. L Wickremarachchi Non Executive, Director Related party transactions of the company are disclosed in Note 37 since 26/07/2006 to the Financial Statements on page 90. The Directors have no
Mr. J D C Coonghe Non Executive, Director direct or indirect interest or proposed contract other than those since 27/12/2006 disclosed.
Mr. W D N H Perera Non Executive, Director The Directors have at the meetings declared all material interests in since 01/09/2007 contracts if any involving the company and have refrained in Mr. R Nadarajah Managing Director/General participating when decisions are taken. Manager/Chief Executive Officer All Non-Executive Directors of the Bank have given a signed Mr. A W Hathiramani Non Executive, Director declaration in terms of Colombo Stock Exchange's Continuing since 27/12/2006 listing rules clarifying their position either as an independent Resigned w.e.f. Director or Non-Independent Director. 03/03/2008
Mr. W M Abeyratne Bandara Resigned w.e.f. Shareholding No. of Shares No. of Shares 04/12/ 2007 As at 31.12.2007 As at 31.12.2006
Mr. Dhammika Perera Resigned w.e.f. Mr. A. G. Weerasinghe - - 27/07/2007 Mr. A W Hathiramani 01 01 Mr. Ravi Hathiramani 51,000 20,000 Mr. S.K.M.Nandasena - - Mr.R Hewavitharana - -
46 Annual Report 2007 Annual Report of the Board of Directors on the Affairs of the Company
Mrs. H V Amarasekera - - comprehensive system of Internal Controls covering financial Mr. J A S S Adhihetty 35,000 - operations, compliance and risk management which are required Mr. L. Wickremarachchi 20,000 20,000 to carry on the business of banking prudently and ensure as far as Mr. J D C Coonghe 11,052,976 11,052,976 possible, accuracy and reliability of records. Mr. W D N H Perera 1,776,875 - Mr. R. Nadarajah 25,000 25,000 SOLVENCY TEST The Directors have made an assessment of the solvency of the AUDITORS Bank, immediately after the proposed dividend and confirm that In accordance with Companies Act No. 7 of 2007, a resolution for the Bank satisfies the solvency test required by the Companies Act. the re-appointment of M/s Ernst & Young, Chartered Accountants to the Bank is being proposed at the Annual General Meeting. DIRECTORS' RESPONSIBILITY FOR FINANCIAL REPORTING The Directors are responsible for the preparation of Financial AUDIT FEE Statements of the Bank to reflect a true and fair view of the state of They will be paid a fee of Rs. 1,250,000/- plus 15% VAT as auditors’ its affairs. The Directors are of the view that these Financial fee for the year 2007. Statements have been prepared in conformity with the requirements of the Sri Lanka Accounting Standards and TAX CONSULTATION FEES Companies Act No. 7 of 2007, Sri Lanka Accounting and Auditing Professional Services for Taxation work Rs. 313,031/- Standards Act No. 15 of 1995, the Banking Act No. 30 of 1988 and amendments thereto and the Listing Rules of the Colombo Stock CHANGE OF NAME OF THE COMPANY Exchange.
In compliance with the Companies Act No. 7 of 2007 the Board of Directors decided to change the name of the Bank to Pan Asia CORPORATE GOVERNANCE FOR LICENSED COMMERCIAL BANKS Banking Corporation PLC and the re-registration has been done IN SRI LANKA accordingly, within the stipulated time frame. Banking Act, Direction 11 of 2007, mandates that all licensed commercial banks, to commence compliance with effect from 01st STATED CAPITAL January 2008 and be fully compliant with provision of the Direction
The Stated Capital of the Bank is Rs. 1,106,404,070/-. by 01st January 2009, except where extended compliance dates have been specially provided for in the Direction. The details are given in Note 31 to the Financial Statements. The Board of Directors wishes to state that, the Bank has INTERNAL CONTROLS commenced compliance with the Direction from 01st January 2008
The Board of Directors has put in place an effective and as required by the Direction and with regard to requirements for
Annual Report 2007 47 Annual Report of the Board of Directors on the Affairs of the Company which extended compliance dates have been provided, the Bank contain the name, surname, former name (if any), residential has taken steps to be complied by such dates. address and business occupation of each member.
DIVIDEND BOARD SUB COMMITTEES
The Directors recommend that a final dividend of Cents Seventy In keeping with Corporate Governance, Transparency and Five per share on 110,640,407 shares be paid as the first & final Accountability, the Board has appointed following Board Sub- dividend for the year ended 2007. Committees:-
The details are given in Note 13.3 to the Financial Statements. Audit Committee Mr. W D N H Perera (Chairman), Mrs. H V Amarasekara and CAPITAL EXPENDITURE Mr. S K M Nandasena. Expenditure on Property, Plant & Equipment at cost amounted to Nominations Committee/ Mr. A G Weerasinghe (Chairman), Rs. 87,522,496/- during 2007, details of which are given in Note 24 Interview Panel Mr. L Wickremarachchi and to the Audited Accounts. Mr. W D N H Perera
Expenditure on Intangible Asset at cost amounted to Rs. 5,315,765/- Credit Committee Mr. L Wickremarachchi (Chairman), during 2007, details of which are given in Note 25 to the Audited Mr. J A S S Adhihetty and Accounts. Mr. W D N H Perera
Human Resources and Mr. A G Weerasinghe (Chairman), STATUTORY PAYMENTS Remuneration Committee Mrs. H V Amarasekara and The Directors are satisfied to the best of their knowledge and belief, Mr. S K M Nandasena. that statutory payments to all authorities have been paid up to date, on a timely basis. NEW BRANCHES
Eight new Branches were opened during the year under review, SHAREHOLDING bringing the total number of Branches and the Customer Service The number of registered shareholders of the Bank as at 31st Centres to 29 at the end of 2007. December 2007 was 1,677 compared to 1,494 as at 31st December 2006. The Schedule indicating the shareholders' analysis is on page 98. PROVISION FOR TAXATION
Total taxable profit was charged at 33.33%, except profit from REGISTER OF DIRECTORS & SECRETARIES Off-Shore operation of Foreign Currency Banking Unit which was The Bank maintains a Register of Directors and Secretaries which charged at 20%. With revision of Sri Lanka Accounting Standards,
48 Annual Report 2007 Annual Report of the Board of Directors on the Affairs of the Company
Deferred tax was calculated based on the Balance Sheet liability method.
ANNUAL GENERAL MEETING
In complying with the good governance practices, the Annual Report of the Bank is dispatched to Colombo Stock Exchange and shareholders as soon as possible after the end of the financial year and completion of the audit.
The Annual General Meeting will be held at Taj Samudra Hotel, Colombo 03 on 24th April, 2008. The Notice of Meeting can be found on page 107.
GOING CONCERN
The Directors after making necessary inquiries and reviews including reviews of the Bank’s ensuing year budget for capital expenditure requirements, future prospects and risks and cash flows have a reasonable expectation that the Bank has adequate resources to continue operations into the foreseeable future.
For and on behalf of the Board of Directors.
N. Fernando Company Secretary
Colombo 03 March 2008
Annual Report 2007 49 Annual Report of the Board of Directors on the Affairs of the Company
Note: Directors’ Interest Register J A S S Adhihetty A G Weerasinghe (Acting Chairman) Directorship/Officer/Trustee in other Entities Directorship/Officer/Trustee in other Entities Bank/Company Name Position held Bank/Company Name Position held L B Finance Ltd Managing Director George Steuarts Financial Director Vallibal Finance Co. Ltd. Director Services PLC Material Financial Interest in 3rd Parties South Asia Financial Exel Name of the Amount Relationship Investments (Pvt) Ltd Director Company Borrowed Material Financial Interest in 3rd Parties - NIL L B Finance Ltd Overdraft Managing A W Hathiramani Rs. 20.08 Mn Director Letter of Directorship/Officer/Trustee in other Entities Credit Bank/Company Name Position held Rs. 3.30 Mn
Pesons Group of Companies Partner R. Hewavitharana A G M Garments (Pvt) Ltd Director Directorship/Officer/Trustee in other Entities W P H Trading (Pvt) Ltd Director Bank/Company Name Position held Jay Gee Enterprises Colombo (Pvt) Ltd Director Samurdhi Authority of Sri Lanka Director General Material Financial Interest in 3rd Parties Material Financial Interest in 3rd Parties NIL Name of the Amount Relationship Company Borrowed L Wickremarachchi
Pesons Group of Companies Overdraft Director Directorship/Officer/Trustee in other Entities Rs. 0.03 Mn Bank/Company Name Position held
S K M Nandasena Vallibel Power Erathna PLC Managing Director/CEO Directorship/Officer/Trustee in other Entities NIL Alternative Power Systems (Pvt) Ltd Director Material Financial Interest in 3rd Parties NIL Country Energy (Pvt) Ltd Director Didul (Pvt) Ltd Director H V Amarasekara Material Financial Interest in 3rd Parties Directorship/Officer/Trustee in other Entities Name of the Amount Relationship Bank/Company Name Position held Company Borrowed
Bensons Ltd Director Alternative Power Systems (Pvt) Ltd Letter of Credit Director Comcorp (Pvt) Ltd Managing Director US$ 1.02 Mn Material Financial Interest in 3rd Parties NIL
50 Annual Report 2007 Annual Report of the Board of Directors on the Affairs of the Company
J D C Coonghe Material Financial Interest in 3rd Parties Directorship/Officer/Trustee in other Entities Name of the Amount Relationship Bank/Company Name Position held Company Borrowed
Ceylindo (Pvt) Ltd Chairman L B Finance Ltd Overdraft Director St. Anthony's Managing Partner Rs. 20.08 Mn A J S Managing Partner Letter of Credit Material Financial Interest in 3rd Parties Rs. 3.30 Mn Name of the Amount Relationship Connaissance Holdings Ltd Overdraft Group Company Borrowed Rs. 48.18 Mn Finance A J S Overdraft Managing Director Rs. 19.02 Mn Partner Hotel Reef Comber Ltd Overdraft Director Letter of Credit Rs. 8.32 Mn Finance Rs. 52.57 Mn Letter of R. Nadarajah (Managing Director/CEO) Guarantee Directorship/Officer/Trustee in other Entities NIL Rs. 1.56 Mn Shipping Material Financial Interest in 3rd Parties NIL Guarantee Rs. 45.79 Mn
W D N H Perera
Directorship/Officer/Trustee in other Entities Bank/Company Name Position held
Royal Ceramics Lanka Ltd Managing Director Fortress Resorts Ltd Managing Director Connaissance Holdings Ltd Group Finance Director Hotel Reefcomber Ltd Director Finance L B Finance Ltd Director Vallibal Power Erathna PLC Director Vallibel Finance Company Ltd Director Vallibel Electric (Pvt) Ltd Managing Director Asian Alliance Insurance Co. Ltd Director
Annual Report 2007 51 Risk Management
RISK MANAGEMENT • Credit Committee
PABC Bank has recognised 'Risk Management' as a critical factor • Audit Committee for its continuous growth, sustained profitability and enhancement of shareholder value in a rapidly changing environment. The Banks • Remuneration Committee. have always been mindful of managing the various risks while A risk conscious corporate management team led by a well ensuring higher returns for their stakeholders. The current business experienced Chief Executive Officer play a vital role in environment with the regulatory framework requires banks to implementing risk control methods within the Bank. The employees explain their risk profiles publicly with greater clarity and detail than are being trained through In-house training programmes and the ever before. information relating to risks and risk mitigation are being The significant areas of risk identified by PABC Bank are Credit risk, communicated through internal circulars and branch wise staff Interest rate risk, Operational risk, Market risk, Liquidity risk and meetings. Reputational risk. All these risks are comprehensively dealt with and managed by well established systems and controls. The CREDIT RISK prevailing systems and controls are constantly reviewed and Credit risk can be defined as the potential loss arising from defaults adjusted to be in line with the best practices in the industry and by the borrowers or counter parties through its lending, hedging, regulatory guidelines. trading and investing activities.
The Board of Directors is responsible for the overall risk The credit approval process of PABC Bank has been designed to management of the Bank and this task is being achieved through address the inherent risks involved in credit. A Credit manual various sub committees. The following board sub committees are incorporating the bank's lending policy and guidelines has been responsible for formulating, streamlining, implementing and approved by the Board of Directors and is available for reference by maintaining risk control methods on a continuous basis. the persons involved in lending.
52 Annual Report 2007 Risk Management
The Board of Directors has approved lending limits for all officers The Bank's liquidity position and the trading policies as well as authorised to grant credit and the limits are delegated to well trading limits are reviewed at the ALCO meetings. Mismatch of trained officers by the CEO according to their skills and experience Assets & Liabilities of the Bank are identified and corrective actions in the lending area. Violation of the Bank's laid down credit taken at the meetings as an ongoing process to avoid interest rate policy or misuse of authority will result in the withdrawal of this risk and liquidity risk. delegated authority. PABC Bank's trading activities are conducted by the Treasury The employees involved in lending are being trained to analyse division subject to the guidelines approved by the Board of Financial Statements and understand credit risk. A credit risk rating Directors. The dealers are given the limits for trading which include system is in place to reflect the potential risks in a credit proposal daily and cumulative cut loss position, overall open position and and the required mitigating actions are recommended once the maximum holding periods to ensure that they deal within set risk risks are identified. parameters. Independent market to market valuation is being carried out by the Treasury division on all investments with special All credit proposals exceeding the CEO's limit are being referred to attention to the trade portfolio and reported to the ALCO to avoid the Board Credit Sub-Committee for approval. The Board Credit Market risks. Sub-Committee consists of 3 Directors with Chief Executive Officer and other officers involved are present at discussions by invitation. OPERATIONAL RISK The committee meetings are held fortnightly. Operational risk is defined as the potential loss arising from the failures in the Bank's systems and procedures, internal control The Board Credit Sub-Committee evaluates credit proposals that systems and technology which lead to frauds, human and system are recommended by the Management for its quality, feasibility and errors. compliance to the Bank's credit policy.
Operation manuals and guidelines covering all areas of banking are All the security documents relating to credit facilities above a available for employees and all activities are supervised by layers in certain amount are being re-examined by the Credit Risk Analyst at the management. Periodical audits are carried out by the Internal the Head Office before the facilities is disbursed. Thereafter the Audit Department on all operational areas and reports are limits are marked centrally by the Credit Administration Unit once submitted to the CEO. The Board Audit Sub-Committee which the security documents are found to be in order. consists of three Non Executive Directors meets monthly to review the audit findings. The Bank’s Management Committee also meets INTEREST RATE RISK AND MARKET RISK once a month to discuss the audit findings. The lapses reported are Risk of loss for the Bank arise from adverse movement in the level of corrected by the relevant units within a reasonable period and a interest rates, exchange rates etc. The Assets & Liability Committee follow up audit will be carried out to ensure compliance and (ALCO) of the Bank has been assigned the responsibility to monitor correction. the movements of interest rates and foreign exchange rates and take appropriate action for re-pricing deposits and advances. The majority The IT systems were reviewed and upgraded during the year 2007 of the Banks advances are subject to variability. ALCO meetings is to meet the requirements of the branch expansion, efficiency chaired by the CEO and held twice a week. levels and to strengthen the controls and safeguard data.
Annual Report 2007 53 Risk Management
A business continuity plan and a disaster recovery plan are WAY FORWARD TO BASEL II ACCORD available for ensuring the continuity of operations. The PABC Bank Basel II Accord proposes to improve the safety and ensure a sound is confident that the prevailing safeguards are sufficient to arrest and efficient banking system globally. Central Bank of Sri Lanka has any losses arising out of a break down in the IT system. issued guidelines to Sri Lankan Banks for the gradual implementation of the Basel II Accord within a given time frame. The REPUTATIONAL RISK PABC Bank has already taken adequate measures to be inline with The Corporate Governance of Banks has become an important these set parameters . factor today and the reputation of a Bank as a good 'corporate citizen' would add value to the organisation in the form of 'goodwill' Our IT system has been upgraded during the year to meet the in the minds of shareholders, customers, employees and other challenges and the systems and procedures are being adjusted to stakeholders. eliminate operational risks. The structure of the Banks management was changed and a credit rating system has been implemented . PABC Bank has continuously maintained its reputation as an organisation practicing ethical standards and has won the trust and The Capital Adequacy Ratio is being maintained as per the confidence of the customers and regulatory authorities. All the new guidelines and the Bank is confident in meeting the requirements branches opened during 2007 were well accepted by the of Basel II with dedication and commitment to match the time customers as evidenced by the growth of assets and liabilities frame. during the short period.
The Bank strictly follows the 'Anti-Money Laundering' regulations and the 'Know Your Customer' concept and instructions on this subject are being sent on regular basis to branches. All measures have been taken by the Bank to maintain discipline among employees and to minimise the exposure to reputational risk arising from unethical or fraudulent conduct of business transactions. The Bank fully complies with the requirements of the Financial Intelligence Unit at Central Bank of Sri Lanka. A code of ethics has been formulated with guidelines for all employees with the view to achieve the Bank's vision of becoming “The most customer preferred commercial bank in Sri Lanka”. The success of PABC Bank so far in the industry has been the result of the reputation won in the customer service area during the last 12 years.
54 Annual Report 2007 Audit Committee Report
ROLE OF THE COMMITTEE • Reviewing the Internal Audit Reports, External Audit
The Audit Committee is responsible for overseeing the financial Management Letters and subsequent follow up audits etc. reporting, along with the internal controls and compliance of the • Reviewing and monitoring the Bank's ethical standards, the Bank and the maintainance of an appropriate relationship with the procedures for ensuring compliance with regulatory and Auditors. The main role of the committee is to encourage and financial reporting requirements and any relationships with the safeguard the highest standards of integrity, financial reporting, risk relevant regulatory authorities. management and internal controls, and thus becomes responsible for the following: THE COMPOSITION OF THE COMMITTEE
• Reviewing the form and content and monitoring the integrity The Audit Sub-Committee comprises of three Non-Executive of the Bank's Financial Statements and financial reporting Directors of the Bank. The Chairman of the Audit Sub-Committee of system. the Pan Asia Banking Corporation PLC chaired the meetings to assist the committee in fulfilling its role. The Chief Executive • Monitoring and reviewing the arrangements for ensuring the Officer/General Manager, Senior Deputy General Manager and the objectivity and effectiveness of the external and internal audit Head of Internal Audit are invited to attend the committee functions. meetings. Other members of the Corporate Management and any • Reviewing the adequacy and effectiveness of the Bank's other staff members of the Bank are invited when the committee internal controls and risk management systems. requires their presence.
Annual Report 2007 55 Audit Committee Report
MEETINGS The committee has reviewed the processes for identification,
The committee held monthly meetings during the financial year evaluation and management of all significant risks throughout ended 31st December 2007 and the following principal activities the Bank. were carried out: INTERNAL AUDIT • Established a formal complaints handling mechanism. During the year the committee reviewed the progress of Audits • Reviewed and approved the Internal Audit plan for the year carried out by the Internal Audit Department covering compliance 2007/2008. audits and Information Systems Audits as against the Audit Plan
• Reviewed the performance of the internal audit function, the approved for the year, on a quarterly basis. Taking all these into findings of the audits completed and subsequent follow up consideration the committee makes its recommendations to audits, thereon. strengthen procedures and internal control systems with a view to managing Operational Risk & improving the overall quality of • Worked closely with the Internal Audit Office to guide its work, the Bank. staffing requirements and training needs.
• Reviewed the quarterly financial results of the Bank, which In keeping with Basel II requirements the Internal Audit Department have been prepared on the basis of mandatory banking and moved away from traditional Auditing to a Risk based approach statutory requirements to evaluate the Bank's performance. during the year 2007.The 'High' risk observations are reported to the Managing Director/General Manager/CEO prior to the • Reviewed progress on actions taken in response to the respective Audit Sub-Committee meeting so that he too may add Committee's decision. his comments at such meetings, if required to do so. • Maintained minutes and reported to the Board. SUPPORT TO THE COMMITTEE RISK AND CONTROLS The committee received information and support from During the year, the committee reviewed the effectiveness of the Management during the year to enable it to carry out its duties and framework of the Bank's systems of internal control and has responsibilities effectively. received quarterly reports on all unexpected losses resulting from frauds or operational failures. The Audit Committee has recommended to the Board of Directors that M/s Ernst & Young, Chartered Accountants be appointed as
56 Annual Report 2007 Audit Committee Report
Auditors for the financial year ending 31st December 2008 subject to the approval of the Shareholders at the next Annual General Meeting.
CONCLUSION
The Audit Committee is of the view that adequate controls are in place to safeguard the Bank's assets and to ensure that the financial position and the results disclosed in the Audited Accounts are free from any material mis-statements.
W D N H Perera Chairman
Audit Committee Colombo 03 March 2008
Annual Report 2007 57 Directors’ Responsibility for Financial Reporting
As per the Companies Act No. 07 of 2007, Directors of the Bank The Bank Supervision Department of the Central Bank carries out have responsibility for maintaining the proper books of accounts of periodic examinations of the records and the affairs of the Bank as all transactions and preparing Financial Statements that give a true deemed necessary to ensure conformity with the Banking Act and and fair view of the state of affairs. other regularity requirements. It also checks the effective implementation of internal control systems too. They monitor Accordingly, the Board of Directors has instituted effective and through off site surveillance reports sent by the Bank. comprehensive Internal Control Systems which comprise internal check, internal audit, financial and other controls required to carry M/S Ernst & Young, the Auditors appointed by the shareholders out the business of banking effectively, accurately and in a reliable have examined the Financial Statements made available by the manner. Regular Audit Committee Meetings are held and report of Board of Directors together with all financial records, related data, the committee is given on page 55 to 57 of this report. and minutes of shareholders and directors meetings. Audit opinion from the examination is given on page 63 of this report. The Board of Directors at their regular meetings reviews the monthly Financial Statements. Therefore, Directors consider that By Order of the Board Financial Statements exhibited on page 64 to 90 are prepared in accordance with the Sri Lanka Accounting Standards and provide the information required by the Companies Act No. 07 of 2007 and the Banking Act No. 30 of 1988 and amendments thereto. Directors N. Fernando are also of the opinion that the Bank will continue to be in operation Company Secretary for the foreseeable future. Colombo 03 March 2008
58 Annual Report 2007 Financial Review
PABC recorded its highest ever post tax Net Interest Income of the Bank for the Other income for the year 2007 was profit this year of Rs. 216 Mn. year 2007 was Rs. 745 Mn compared to Rs. 349 Mn compared to Rs. 292 Mn in Achievement marks a growth of 31.96% Rs. 535 Mn in year 2006, which year 2006, which resulted a growth of compared to the previous year. represents a 39.23% growth. Rs 57 Mn.
Annual Report 2007 59 Financial Review
Net Assets Value per share increased Shareholders’ Funds increased from Net Advances of the Bank stood at from Rs. 11.16 in 2006 to Rs. 13.12 Rs. 1,235 Mn in 2006 to Rs. 1,451 Mn in Rs.10,304 Mn as at end of 2007, in 2007. 2007, resulting a growth of 17.49%. which marks a growth of 27.79% from year 2006.
Due to adoption of stringent credit Continuous quality service to our Total Assets of the Bank as at year end administrative and control measures the customers, resulted a remarkable stood at Rs. 15,526 Mn, a growth of Non Performing Advances ratio reduced growth in Deposits for the year 2007 to 22.97% compared to year 2006. to 7.39% in year 2007 from 8.47% in reach Rs. 12,130 Mn compared to An increase was also recorded in Return year 2006. Rs. 8,962 Mn in 2006, which marks a On Assets from 1.44% in 2006 to 1.52% growth of 35.34%. in 2007.
60 Annual Report 2007
Financial Reports & Accounts
Financial Calendar 62 Information of Shareholders 98 Auditors’ Report 63 Top Twenty Shareholders 99 Income Statement 64 Ten Year Statistical Summary 100 Balance Sheet 65 Graphical Review of Ten Year Summary 102 Statement of Changes in Equity 66 Branch Network 103 Cash Flow Statement 67 Notes to the Financial Statements 68 Correspondent Banks 104 Capital Adequacy 91 Definition of Financial Terms 106 Quarterly Statistics 93 Notice of Meeting 107 Analysis of Deposits 94 Notes 108 Analysis of Advances 95 Form of Proxy (enclosed) Sources & Utilisation of Funds 96 Value Added Statement 97
Annual Report 2007 61 Financial Calendar
Financial Calendar - 2007 Financial Calendar - 2008 1st Quarter Results 2007 April 2007 1st Quarter Results 2008 April 2008 2nd Quarter Results 2007 July 2007 2nd Quarter Results 2008 July 2008 3rd Quarter Results 2007 October 2007 3rd Quarter Results 2008 October 2008 Annual Report for 2007 March 2008 Annual Report for 2008 March 2009 13th Annual General Meeting April 2008 14th Annual General Meeting March 2009
62 Annual Report 2007 Auditors’ Report
INDEPENDENT AUDITORS' REPORT An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Financial Statements. An audit TO THE SHAREHOLDERS OF PAN ASIA BANKING CORPORATION PLC also includes assessing the accounting principles used and Report on the Financial Statements significant estimates made by management, as well as evaluating We have audited the accompanying Financial Statements of Pan the overall Financial Statement presentation. Asia Banking Corporation PLC, which comprise the Balance Sheet as at December 31, 2007 and the Income Statement, Statement of We have obtained all the information and explanations which to the Changes in Equity and Cash Flow Statement for the year then best of our knowledge and belief were necessary for the purposes ended, and a summary of significant accounting policies and other of our audit. We therefore believe that our audit provides a explanatory notes. reasonable basis for our opinion.
Management's Responsibility for the Financial Statements Opinion Management is responsible for the preparation and fair In our opinion, so far as appears from our examination, the Bank presentation of these Financial Statements in accordance with Sri maintained proper accounting records for the year ended Lanka Accounting Standards. This responsibility includes: designing, December 31, 2007 and the Financial Statements give a true and implementing and maintaining internal control relevant to the fair view of the Bank's state of affairs as at December 31, 2007 and preparation and fair presentation of Financial Statements that are its profit and cash flows for the year then ended in accordance with free from material misstatement, whether due to fraud or error; Sri Lanka Accounting Standards. selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Report on Other Legal and Regulatory Requirements In our opinion, these Financial Statements also comply with the Scope of Audit and Basis of Opinion requirements of Section 151(2) of the Companies Act No.07 of 2007. Our responsibility is to express an opinion on these Financial Statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable Colombo assurance whether the Financial Statements are free from material 03 March 2008 misstatement.
Annual Report 2007 63
Income Statement Year ended 31 December 2007
2007 2006 Note Rs. Rs. GROSS INCOME 7 2,317,142,661 1,580,840,844 Interest Income 8 1,968,545,297 1,289,077,847 Interest Expense 9 (1,223,533,890) (753,995,657) NET INTEREST INCOME 745,011,407 535,082,190 Other Income 10 348,597,364 291,762,997 NET INCOME 1,093,608,771 826,845,187 LESS : NON INTEREST EXPENSES Operating Expenses 199,339,052 155,211,723 Personnel Costs 217,161,714 170,167,687 Premises, Equipment & Establishment Expenses 204,876,921 186,183,544 Provision for Staff Retirement Benefits 8,200,250 5,212,371 Other Overhead Expenses 3,161,093 2,736,657 TOTAL NON INTEREST EXPENSES 632,739,030 519,511,982
PROFIT BEFORE PROVISIONING FOR LOSSES 460,869,741 307,333,205 Add/(Less) : Loan Loss (Provision) /Reversals/Recoveries (63,687,385) 14,562,151 (Provision)/Write back for Other Losses 3,306,658 (2,127,985)
PROFIT BEFORE VALUE ADDED TAX 11 400,489,014 319,767,371 Less : Value Added Tax 83,701,770 69,599,880 PROFIT BEFORE INCOME TAX 316,787,244 250,167,491 Less : Tax Expense 12 100,712,382 86,430,000 PROFIT FOR THE YEAR 216,074,862 163,737,491 Earnings Per Share - Basic 13 1.95 2.63
The accounting policies and notes on pages 68 through 90 form an integral part of the Financial Statements.
Colombo 03 March 2008
64 Annual Report 2007 Balance Sheet As at 31 December 2007
Note 2007 2006 Rs. Rs. ASSETS Cash & Short Term Funds 14 1,030,631,310 863,852,441 Statutory Deposit with Central Bank of Sri Lanka 15 856,275,821 704,060,252 Government Treasury Bills / Bonds 16 1,979,993,489 1,947,684,248 Commercial Paper 170,000,000 - Bills of Exchange 17 363,926,992 467,295,097 Loans & Advances 18 9,117,970,059 6,896,692,280 Interest Receivable 19 125,743,383 111,326,925 Lease Rentals Receivable 20 822,708,152 699,415,008 Investment Securities 22 3,140,000 1,140,000 Other Assets 23 486,362,935 404,486,767 Property, Plant & Equipment 24 552,384,348 511,097,414 Intangible Assets 25 16,563,092 18,829,652 TOTAL ASSETS 15,525,699,581 12,625,880,084 LIABILITIES Deposits 26 12,130,213,383 8,962,892,836 Borrowings 27 431,086,877 1,163,030,415 Due to Foreign Banks 74,161,701 118,889,346 Other Liabilities 28 1,034,616,902 763,324,191 Debentures 29 303,789,000 303,789,000 Taxation Payable 58,809,289 44,758,366 Deferred Tax Liability 30 41,831,637 34,080,000 Total Liabilities 14,074,508,789 11,390,764,154 SHAREHOLDERS' FUNDS Stated Capital 31 1,106,404,070 1,106,404,070 Statutory Reserve Fund 32 31,264,743 20,461,000 Revaluation Reserve 33 25,592,497 32,087,700 Accumulated Profits 287,929,482 76,163,160 1,451,190,792 1,235,115,930 TOTAL LIABILITIES & SHAREHOLDERS' FUNDS 15,525,699,581 12,625,880,084 Commitments & Contingencies 34 2,296,655,919 1,733,704,427 Certification I certify that the above Financial Statements give a true and fair view of the state of affairs as at 31st December 2007 and of its profit for the year then ended.
D Yogagopalakrishnan AGM Finance & Planning
The accounting policies and notes on pages 68 through 90 form an integral part of the Financial Statements. The Board of Directors is responsible for the preparation and presentation of these Financial Statements Signed for and on behalf of the Board by
A G Weerasinghe W D N H Perera R Nadarajah N Fernando Acting Chairman Director Director/CEO Company Secretary
Colombo 03 March 2008
Annual Report 2007 65 Statement of Changes in Equity Year ended 31 December 2007
Stated Statutory RevaluationAccumulated Total Note Capital Reserve Fund Reserve Profit /(Losses) Rs. Rs. Rs. Rs. Rs. Balance as at 31 December 2005 555,718,830 12,270,909 55,083,561 (83,100,101) 539,973,199 Rights Issue of 55,068,524 shares at Rs. 10/- each for cash consideration during the year 31 550,685,240 - - - 550,685,240 Profit for the Year 2006 - - - 163,737,491 163,737,491 Transfer to Reserve Fund 32 - 8,190,091 - (8,190,091) - Realisation of Revaluation Reserve 33 - - (3,715,861) 3,715,861 - Effect on transitional liability on adoption of Revised SLAS 14 relating to Revaluation Reserve 33 - - (19,280,000) - (19,280,000) Balance as at 31 December 2006 1,106,404,070 20,461,000 32,087,700 76,163,160 1,235,115,930 Profit for the Year 2007 216,074,862 216,074,862 Transfer to Reserve Fund 32 10,803,743 (10,803,743) - Realisation of Revaluation Reserve 33 (6,495,203) 6,495,203 -
Balance as at 31 December 2007 1,106,404,070 31,264,743 25,592,497 287,929,482 1,451,190,792
The accounting policies and notes on pages 68 through 90 form an integral part of the Financial Statements.
Colombo 03 March 2008
66 Annual Report 2007
Cash Flow Statement Year ended 31 December 2007
Note 2007 2006 Rs. Rs. CASH FLOWS FROM OPERATING ACTIVITIES Interest Received 1,954,128,839 1,264,905,993 Fees & Commission Received 10 249,695,313 193,371,466 Interest Payments (1,082,157,061) (689,110,287) Exchange Income 10 90,245,637 90,878,303 Receipts from Other Operating Activities 10 8,656,414 7,513,228 Cash Payments to Employees & Suppliers (377,307,930) (323,256,892) Payments on Other Operating Activities (286,201,915) (227,548,259) Operating Profit before changes in Operating Assets 557,059,297 316,753,552 (Increase)/Decrease in Operating Assets Bills of Exchange 110,102,661 6,936,960 Loans and Advances (2,278,298,057) (864,818,256) Other Assets (81,298,172) 28,328,978 Lease Rentals Receivable (136,694,806) (318,339,915) Money at Call and Short Notice 21,231,885 (180,456,312) Treasury Bills/Bonds/Reverse Repos (29,580,579) (84,607,488) (1,837,477,771) (1,096,202,481) Increase/(Decrease) in Operating Liabilities Deposits 3,167,320,547 862,176,345 Other Liabilities 129,915,881 (90,693,549) Borrowings (731,943,538) 84,534,994 Net Cash from Operating Activities before Income Tax 727,815,119 (240,184,691) Taxation Paid (78,909,822) (52,090,574) Net Cash from Operating Activities 648,905,297 (292,275,265)
CASH FLOWS FROM INVESTING ACTIVITIES Investment in Commercial Papers (170,000,000) - Investments in Shares (2,000,000) - Purchase of Property, Plant & Equipment 24 (87,522,496) (363,175,997) Acquisition of Intangible Assets 25 (5,315,765) (2,394,904) Proceeds from Sale of Property Plant & Equipment 886,932 18,278 Net Cash Flows Used in Investing Activities (263,951,329) (365,552,623) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Debentures 29 - 50,000,000 Rights Issue of Shares 31 - 550,685,240 Net Cash Used in Financing Activities - 600,685,240 Net Increase/(Decrease) in Cash and Cash Equivalents 384,953,968 (57,142,648) Cash and Cash Equivalents at the beginning of the year 1,009,489,937 1,066,632,585 Cash and Cash Equivalents at the end of the year 1,394,443,905 1,009,489,937 Reconciliation of Cash & Cash Equivalents 2007 2006 Rs. Rs Cash & Short Term Funds 612,329,785 424,319,031 Balances with Central Bank of Sri Lanka 856,275,821 704,060,252 Due to Foreign Banks (74,161,701) (118,889,346) 1,394,443,905 1,009,489,937 The accounting policies and notes on pages 68 through 90 form an integral part of the Financial Statements. Colombo 03 March 2008
Annual Report 2007 67 Notes to the Financial Statements Year ended 31 December 2007
1. CORPORATE INFORMATION 2. GENERAL POLICIES
1.1 General 2.1 Basis of Preparation
Pan Asia Banking Corporation PLC (“The Bank”) is a The Preparation and presentation of these Financial licensed commercial bank established under the Banking Statements is in compliance with the requirement of the Act No. 30 of 1988. It is a public limited liability Company, Companies Act No 07 of 2007 and the Banking Act No 30 listed in the Colombo Stock Exchange, incorporated and of 1988 and amendments thereto.
domiciled in Sri Lanka. The registered office of the Bank The Financial Statements of the Bank are prepared on a is located at No. 450, Galle Road, Colombo 03. historical cost basis. No adjustment has been made for inflationary factors affecting the Financial Statements Pan Asia Banking Corporation PLC does not have an except that Office Equipment, Computer Hardware and identifiable parent of its own. Furniture & Fittings are stated at valuation as explained in Note 24 to the Financial Statements. Assets and liabilities 1.2 Principal Activities and Nature of Operations are grouped by nature and listed in an order that reflects The principal activities of the Bank are banking and their relative liquidity. These Financial Statements are related activities such as accepting deposits, personal prepared in Sri Lankan Rupees unless otherwise stated. banking, trade financing, resident and non-resident Where appropriate the Significant Accounting Policies foreign currency operations, travel related services, are disclosed in the succeeding notes. corporate and retail credit, project financing, lease financing, pawning, issuing of local and international 2.2 Statement of Compliance credit cards, tele-banking facilities, internet banking, SMS The Financial Statements of the Bank are prepared in banking, dealing in Government securities, etc. accordance with the Sri Lanka Accounting Standards and therefore present fairly the financial position, financial 1.3 Approval of Financial Statements performance and cash flows of the Bank.
The Financial Statements were authorised for issue by 2.3 Format of Financial Statements, prior year figures the Board of Directors on 03 March 2008. and phrases
1.4 Directors’ Responsibility Statement The Financial Statements of the Bank are presented in accordance with the format of accounts prescribed by The Board of Directors takes the responsibility for the the Central Bank of Sri Lanka. preparation and presentation of these Financial Statements. Please refer page 58 for the Statement of Certain prior year figures and phrases are rearranged Directors’ Responsibility for Financial Reporting. whenever necessary to conform to the current year's presentation.
68 Annual Report 2007
Notes to the Financial Statements Year ended 31 December 2007
2.4 Foreign Currency Translation The tax rates and tax laws used to compute the amount
The Financial Statements are presented in Sri Lankan are those that are enacted or substantially enacted by Rupees, which is the Bank's functional and presentation the Balance Sheet date. Accordingly, provision for currency. taxation is made on the basis of the profit for the year as adjusted for taxation purposes in accordance with the 2.4.1 Transactions and Balances provisions of the Inland Revenue Act No.38 of 2000 and the amendments thereto, at the rates specified in Transactions in foreign currencies are initially recorded Note 12 to the Financial Statements using the middle exchange rate of the functional currency ruling at the date of the transaction. b) Deferred Taxation
Monetary assets and liabilities denominated in foreign Deferred Tax is provided on temporary differences at the currencies are translated at the closing middle exchange Balance Sheet date between the tax bases of Assets and rate of the functional currency ruling at the Balance Liabilities and their carrying amounts for financial Sheet date. All differences are taken to Income reporting purposes. Statement. Deferred tax assets are recognised for all deductible Non monetary items that are measured in terms of differences, carry forward of unused tax credits and historical cost in a foreign currency are translated using unused tax losses, to the extent that it is probable that the exchange rates as at the dates of the initial taxable profits will be available against which the transactions. deductible temporary differences and the carry forward of unused tax credits and unused tax losses can 2.5 Going Concern be utilised.
The Directors have made an assessment of the Bank’s The carrying amount of deferred tax assets is reviewed at ability to continue as a going concern and they do not each Balance Sheet date and reduced to the extent that intend either to liquidate or to cease operations. it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax assets 2.6 Taxation to be utilised. Unrecognised deferred tax assets are a) Current Taxation re-assessed at each Balance Sheet date and are Current tax assets and liabilities consist of amounts recognised to the extent that it has become probable expected to be recovered from or paid to the taxation that future taxable profits will allow the deferred tax authorities in respect of the current as well as prior years. assets be recovered.
Annual Report 2007 69 Notes to the Financial Statements Year ended 31 December 2007
Deferred tax assets and liabilities are measured at the tax e) Social Responsibility Levy (SRL)
rates that are expected to apply in the year when the As per the provisions of the Finance Act No 05 of 2005, assets are realised, or the liabilities are settled, based on as amended by the Finance Act No 11 of 2006, the SRL tax rates and tax laws that have been enacted or was introduced with effect from 01st January 2005. SRL is substantially enacted at the Balance Sheet date. payable at the rate of 1% on all taxes and levies chargeable as specified in the First Schedule of the Act. Deferred tax relating to items recognised directly in equity are also recognised in equity and not in the 2.7 Events after the Balance Sheet Date Income Statement. The transitional liability arising due to All material events after the Balance Sheet date have the change in the standard from these items has been been considered and appropriate adjustments/ recognised in full in the equity statement. disclosures have been made in the Financial Statements,
Deferred tax assets and liabilities are set off if a legally where necessary. enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes 3. ASSETS AND BASES OF THEIR VALUATION relate to the same taxable entity and the same taxation 3.1 Advances to Customers
authority. (a) Advances to customers are stated in the Balance Sheet net of provisions for Non-Performing Loans c) Value Added Tax on Financial Services and Advances and net of interest, which is not During the year, the Bank's total value addition was accrued to revenue. subjected to a 20% Value Added Tax on Financial Services as per Section 25 A of the Value Added Tax Act No. 14 of (b) Provisions for possible Non-Performing Loans and 2002 and amendments thereto. Advances are made on the basis of a continuous review of all advances to the customers, in d) Economic Service Charge (ESC) accordance with the directives issued by the Central As per the provisions of the Economic Service Charge Bank of Sri Lanka applicable to the Banking Sector. Act No 13 of 2006, ESC is payable on the liable income at Accordingly specific provisions are made as follows: specified rates. ESC paid is deductible from the income Period Outstanding Classification Provision made net tax liability.Any unclaimed liability can be carried forward of realisable value and set off against the income tax payable for a further of Security two years. 6 - 12 months Sub-standard 20% 12 - 18 months Doubtful 50% 18 months and over Loss 100%
70 Annual Report 2007
Notes to the Financial Statements Year ended 31 December 2007
Where necessary provisions are made over and above 3.4 Investments
the minimum percentage on a case by case basis. (a) Investment in Treasury Bills/Bonds
Investment in Government of Sri Lanka Treasury Bills/ (c) A general provision is maintained, in addition to the Bonds, Government Securities and Central Bank Securities specific provisions, to cover potential bad debts are purchased primarily with the intention of holding to which are inherent in the loan portfolio but not yet maturity and are stated at cost with discounts / premiums identified. The provision is estimated after deducting on purchase which are dealt through the income on a facilities secured against cash, gold, government straight line basis over the periods to maturity. securities and Non Performing Advances which are specifically provided. The Central Bank of Sri Lanka in Treasury Bills/Bonds held with the intention of sale are their direction dated 21, November 2006, has made stated at cost less provision for fall in value of such it mandatory that all Banks make this provision, with investments. time being given to build up the required provision over 10 quarters, at the rate of 0.10% per quarter. Investments (other than Government Securities) are acquired and held for yield of capital appreciation in the 3.2 Finance Leases medium/long term. Such securities are recorded at cost. (a) Lease Rental Receivable Changes in market value of these securities are not taken Assets leased to customers in terms of which the Bank into account unless there is considered to be a does not assume substantially all the risks and rewards permanent diminution in value. of ownership, are classified as Financial Leases and (b) Investment Securities disclosed as Lease Rentals Receivable. The leases are stated in the Balance Sheet after deduction of future All investments in unquoted shares are stated at cost. income, prepaid lease rentals and provisions for losses. 3.5 Property, Plant and Equipment
(b) Provision for Lease Rental Receivable (a) Cost and Valuation
Provisions are same as 3.1 (b) & (c) All items of Property, Plant & Equipment are initially recorded at cost. Where items of Property, Plant and 3.3 Credit Card receivable Equipment are subsequently revalued, the entire class of (a) Amounts receivable on Credit Cards are included in such assets is revalued. Revaluations are made with advances to customers at the amounts expected to sufficient regularity to ensure that their carrying amounts be recovered do not differ materially from their fair values at the Balance Sheet date. Subsequent to the initial recognition (b) Provisions are same as 3.1 (b) & (c) as an asset at cost, revalued Property, Plant and
Annual Report 2007 71 Notes to the Financial Statements Year ended 31 December 2007
Equipment are carried at revalued amounts less any (c) Depreciation
subsequent depreciation thereon. All other Property, Plant The provision for depreciation is calculated by using a and Equipment are stated at historical cost less straight line method on the cost or valuation of all depreciation. Property, Plant and Equipment other than freehold land, in order to write off such amounts over the estimated useful When an asset is revalued, any increase in the carrying lives. The principal annual rates used are: amount is credited directly to a revaluation surplus unless
it reverses a previous revaluation decrease relating to the Buildings 2.5% per annum same asset, which was previously recognised as an Office Equipment 16.67% per annum expense. In these circumstances the increase is Computer Hardware 16.67% per annum recognised as income to the extent of the previous write down. When an asset's carrying amount is decreased as a Furniture & Fittings 10% per annum result of a revaluation, the decrease is recognised as an Motor Vehicles 20% per annum expense unless it reverses a previous increase relating to Property, Plant and Equipment acquired prior to 01 that asset, in which case it is charged against any related January 2006 were depreciated in the year of disposal but revaluation surplus, to the extent that the decrease does none in the year of purchase. Property, Plant and not exceed the amount held in the revaluation surplus in Equipment acquired after 01 January 2006 are depreciated respect of that same asset. Any balance remaining in the from the month the assets are available for use over their revaluation surplus in respect of an asset, is transferred estimated useful lives. directly to Accumulated Profits on retirement, disposal of the asset and the difference between the depreciation 3.6 Intangible Assets based on revalued carrying amount of the asset and the depreciation based on the asset’s original cost. 3.6.1 Basis of Recognition An Intangible Asset is recognised if it is probable that (b) Restoration Cost future economic benefits that are attributable to the asset Expenditure incurred on repairs or maintenance of will flow to the entity and the cost of the asset can be Property, Plant and Equipment in order to restore or measured reliably in accordance with the Sri Lanka maintain the future economic benefits expected from the Accounting Standard No. 37 on Intangible Assets. originally assessed standard of performance, is Accordingly, these assets are stated in the Balance Sheet recognised as an expense when incurred. at cost less accumulated amortisation and accumulated impairment losses.
72 Annual Report 2007 Notes to the Financial Statements Year ended 31 December 2007
3.6.2 Computer Software 3.7 Other Assets
Computer Software is stated at cost less accumulated All other assets are valued net of specific provision, amortisation. Amortisation is done at 12.5% per annum where necessary, so as to reduce the carrying value of on cost. such assets to their estimated realisable value.
3.6.3 Subsequent Expenditure 4. LIABILITIES AND PROVISIONS
Subsequent expenditure on Intangible Assets is 4.1 Provisions
capitalised only when it increases the future economic Provisions are recognised when the Bank has a present benefits embodied in these assets. All other expenditure obligation (legal or constructive) as a result of a past is expensed as incurred. event, it is probable that an outflow of resources embodying economic benefits will be required to settle 3.6.4 Amortisation the obligation and a reliable estimate can be made of the The useful lives of intangible assets are assessed to be amount of the obligation. either finite or infinite. Intangible assets with finite lives are amortised over the useful economic life. The 4.2 Proposed Dividend
amortisation period and the amortisation method for an Dividend proposed/declared by the Board of Directors, intangible asset with a finite useful life are reviewed at after the Balance Sheet date is not recognised as a least at each financial year end. Changes in the expected liability and is only disclosed as a note to the Financial useful life or the expected pattern of consumption of Statements. future economic benefits embodied in the asset are accounted for by changing the amortisation period or 4.3 Commitments and Contingencies
method, as appropriate and are treated as changes in All discernible risks are accounted for in determining the accounting estimates. The amortisation expense on amount of other liabilities. intangible assets with finite lives is recognised in the Income Statement. 4.4 Retirement Benefit Obligations
a) Defined Benefit Plan - Gratuity 3.6.5 Impairment Gratuity is a Defined Benefit Plan. The Bank is liable to The unamortised balances of Intangible Assets are pay gratuity in terms of the relevant statute. In order to reviewed at each Balance Sheet date for impairment and meet this liability a provision is carried forward in the recognised as expenses in the Income Statement to the Balance Sheet, based on half a month's salary of the last extent that they are no longer probable of being month of the financial year of all employees for each recovered from the expected future benefits.
Annual Report 2007 73 Notes to the Financial Statements Year ended 31 December 2007
completed year of service, commencing from the first 5. INCOME STATEMENT year of service. The resulting difference between brought 5.1 Revenue Recognition forward provision at the beginning of a year and the (a) Interest Income from Customer Advances carried forward provision at the end of a year is dealt within the Income Statement, after making due Interest Income from Customer Advances is recognised adjustments for any payments made. on an accrual basis. Interest recognised is reversed when accounts if any become Non Performing (3 months The gratuity liability is neither funded nor actuarially arrears). Thereafter, interest on advances is accounted valued. This item is grouped under Other Liabilities in the for on cash basis. Interest on Non-Performing Loans and Balance Sheet. Advances is credited to the “Interest in suspense” account, which is netted in the Balance Sheet against the (b) Defined Contribution Plan - Employees' Provident relevant balance. Fund & Employees' Trust Fund
Employees are eligible for Employees' Provident Fund (b) Interest Income from Other Sources Contributions and Employees' Trust Fund Contributions Interest Income on Government of Sri Lanka Treasury in line with the respective Statutes and Regulations. The Bills/Bonds and Central Bank Securities is recognised on Bank contributes 15% and 3 % of gross emolument of an accrual basis. Discounts/Premium on purchases are employees to Employees' Provident Fund and amortised to income on a straight line basis over periods Employees' Trust Fund respectively. to maturity.
4.5 Provisions for Liabilities (c) Fees and Commission Income
A provision is recognised in the Balance Sheet when the Fees and Commission Income comprise mainly of fees Bank has a legal or constructive obligation as a result of received from customers for guarantees and other a past event and it is probable that an outflow of services provided by the Bank together with foreign and economic benefits will be required to settle the domestic tariffs. Such income is recognised as revenue obligations, in accordance with the Sri Lanka Accounting as the services are provided. Standard No. 36 on Provisions, Contingent Liabilities and Income on the endorsement of Bills of Exchange is Contingent Assets. recognised only when the bills are received and either issued or endorsed and the payment under the particular instrument has been effected.
74 Annual Report 2007
Notes to the Financial Statements Year ended 31 December 2007
(d) Recovery of Non Performing Loans and Advances 6 CASH FLOW STATEMENT
Interest recovered from Non-Performing Loans and The Cash Flow Statement has been prepared by using the Advances is recognised as income on a cash basis. “Direct Method” of preparing Cash Flows in accordance with the Sri Lanka Accounting Standard No. 9 on Cash Flow (e) Lease Income Statements. Cash and cash equivalents comprise mainly of The excess of aggregate rental receivable over the cost cash balances, balances with the Central Bank of Sri Lanka and of the leased assets constitutes the total unearned balances with Foreign Banks income. The unearned income is recognised in the Income Statement over the term of the lease, commencing from the month in which the lease is executed, on a cash basis.
(f) Interest and Fees receivable on Credit Cards
Interest and fees receivable on Credit Cards are recognised on accrual basis. Interest recognised is reversed when accounts if any become Non Performing (3 months arrears). Thereafter, interest and fees are accounted for on cash basis.
5.2 Off-Balance Sheet Transactions
The Bank enters into off Balance Sheet transactions such as forward exchange contracts and currency swaps. At the year-end, the recognised losses are dealt with through the income statement; where as recognised gains are deferred in other liabilities.
5.3 Expenses
Interest payable and other expenses are recognised on an accrual basis.
Annual Report 2007 75 Notes to the Financial Statements Year ended 31 December 2007
2007 2006 Rs. Rs.
7 GROSS INCOME Gross Income 2,317,142,661 1,580,840,844 Interest Income (Note 8) 1,968,545,297 1,289,077,847 Other Income (Note 10) 348,597,364 291,762,997 2,317,142,661 1,580,840,844 8 INTEREST INCOME Loans & Advances 1,592,396,351 1,019,522,409 Treasury Bills/ Bonds & Placements with Other Banks 238,137,206 179,043,244 Interest from Leases 126,846,489 78,182,711 Other Interest Income 11,165,251 12,329,483 1,968,545,297 1,289,077,847 9 INTEREST EXPENSE Customer Deposits 987,022,705 587,086,307 Borrowings - Banks 56,212,810 29,256,961 - Others 127,062,453 101,390,227 Debentures 53,235,922 36,262,162 1,223,533,890 753,995,657 10 OTHER INCOME Fee & Commission Income 249,695,313 193,371,466 Net Foreign Exchange Gain 90,245,637 90,878,303 Others 8,656,414 7,513,228 348,597,364 291,762,997 11 PROFIT BEFORE VALUE ADDED TAX Stated after charging/(crediting) Directors' Emolument 12,788,652 10,116,836 Auditors' Fees & Expenses - Current Year 1,425,000 1,250,000 - Under/(Over) Provision in respect of Previous Year 23,625 179,759 Depreciation 46,130,808 31,008,829 Amortisation of Intangible Assets 7,582,325 7,213,575 Expenses on Litigation 1,518,743 2,050,330 Defined Contribution Costs - EPF & ETF 26,044,370 20,638,025 Defined Benefit Plans - Gratuity 8,200,250 5,212,371 Advertising and Business Promotion 12,442,254 6,494,579
76 Annual Report 2007 Notes to the Financial Statements Year ended 31 December 2007
2007 2006 Rs. Rs.
12 TAX EXPENSE Tax based on Profits for the year (Note 12.1) 92,960,745 71,630,000 Charge in respect of Deferred Taxation (Note 30.1) 7,751,637 14,800,000 100,712,382 86,430,000 12.1 Reconciliation between Current Tax Expense and the product of Accounting Profit. Accounting Profit (Profit before Tax ) 316,787,244 250,167,491 Aggregate Disallowed items 573,515,913 397,605,247 Aggregate Allowable Expenses (434,438,175) (300,536,494) Income not subject to Tax (31,063,406) (8,834,712) Taxable Profit 424,801,576 338,401,532 Tax Losses Brought Forward and Utilised (148,680,552) (118,440,536) 276,121,024 219,960,996 Statutory Tax Rate % 20% - 33.33% 20% - 33.33% Current Income Tax Expense 92,960,745 71,630,000 Carried forward tax losses (Provisional) (32,997,645) (181,678,197) 13 EARNINGS PER SHARE 13.1 Basic Earnings Per Share is calculated by dividing the net profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. 13.2 The following reflects the income and share data used in the basic Earnings Per Share computation. 2007 2006 Rs. Rs. Amount Used as the Numerator: Net Profit attributable to Ordinary Shareholders for basic Earnings Per Share 216,074,862 163,737,491
2007 2006 Number Number Number of Ordinary Shares Used as Denominator: Weighted Average number of Ordinary Shares in issue Applicable to basic Earnings Per Share 110,640,407 62,361,153
13.3 Dividend Proposed A first and final dividend of Rs. 0.75 (Cents 75) per share has been proposed by the Board of Directors for the year 2007 to be approved at the Annual General Meeting. However, no provision is made in these Financial Statements in accordance with SLAS - 12.
Annual Report 2007 77 Notes to the Financial Statements Year ended 31 December 2007
2007 2006 Rs. Rs.
14 CASH & SHORT TERM FUNDS Local Currency in Hand 471,541,549 320,341,330 Foreign Currency in Hand 34,742,728 35,158,605 Balances with Foreign Banks 106,045,508 68,819,096 Money at Call & Short Notice 418,301,525 439,533,410 1,030,631,310 863,852,441 15 STATUTORY DEPOSIT WITH CENTRAL BANK OF SRI LANKA As required by the provision of section 93 of Monetary Law Act, a cash balance is required to be maintained with the Central Bank of Sri Lanka according to the statutory requirements. At present, the minimum cash reserve requirement is 10% of the local currency deposit liabilities of the Domestic Banking Unit.
2007 2006 Rs. Rs.
16 GOVERNMENT TREASURY BILLS/BONDS Treasury Bills/Bonds 1,678,472,534 830,856,272 Treasury Bills/Bonds held under repurchase agreements 301,520,955 1,119,556,638 1,979,993,489 1,950,412,910 Less : Provision for fall in value of Bonds held for trading - (2,728,662) 1,979,993,489 1,947,684,248
2007 2006 Rs. Rs.
17 BILLS OF EXCHANGE Export Bills 82,193,969 220,204,673 Import Bills 236,030,048 171,484,624 Local Bills 79,284,147 148,344,484 397,508,164 540,033,781 Less : Provision for unpaid bills (Note 21.2) (5,701,000) (13,287,000) General Provision (Note 21.2) (1,129,946) (278,502) Interest in Suspense (Note 21.2) (26,750,226) (59,173,182) 363,926,992 467,295,097
78 Annual Report 2007 Notes to the Financial Statements Year ended 31 December 2007
2007 2006 Rs. Rs.
18 LOANS AND ADVANCES Sri Lanka Rupees Overdraft 4,864,673,385 3,436,839,249 Import Loans 492,238,508 459,331,515 Foreign Currency Overdraft 21,467,437 33,405,300 Export Loans 219,009,901 289,656,729 Term Loans, Pledge Loans 3,558,266,919 2,700,068,668 Pawning Loans 312,644,395 309,215,279 Other Foreign Currency Loans 11,504,726 11,971,337 Staff Loans 153,836,237 125,134,062 Credit Card Advances 264,845,844 175,910,060 9,898,487,352 7,541,532,199 Less : Provision for Non-Performing Loans & Advances (Note 21.2) (240,454,861) (206,626,256) General Provision (Note 21.2) (27,420,529) (4,248,305) Interest In Suspense (Note 21.2) (512,641,903) (433,965,358) 9,117,970,059 6,896,692,280
2007 2006 Rs. Rs. 19 INTEREST RECEIVABLE Import Loans 963,857 1,105,801 Export Loans 782,465 2,336,086 Term Loans 18,692,732 13,098,991 Pawning Loans 23,430,459 18,429,389 Staff Loans 177,627 136,506 Payment Due Loans 8,647,993 10,239,315 Money Builder Loan 5,736 25,467 Money Market Placements 3,873,376 613,509 Treasury Bills & Bonds 65,484,672 65,341,861 Commercial Papers 3,684,466 - 125,743,383 111,326,925
2007 2006 Rs. Rs. 20 LEASE RENTALS RECEIVABLE Gross Investment in Finance Leases 1,112,807,330 913,344,279 Less : Unearned Income (264,411,814) (203,727,572) 848,395,516 709,616,707 Less : Provision for Non- Performing Leases (Note 21.2) (16,079,332) (5,902,418) General Provision (Note 21.2) (3,888,677) (663,929) Interest in Suspense (Note 21.2) (5,719,355) (3,635,352) 822,708,152 699,415,008
Annual Report 2007 79 Notes to the Financial Statements Year ended 31 December 2007
2007 2006 Rs. Rs. 20.1 Lease Rentals Receivable within One Year Total Lease Rentals Receivable 1,112,807,330 913,344,279 Lease Rentals Receivable after One Year from Balance Sheet Date (Note 20.2) (537,706,402) (593,453,235) Lease Rentals Receivable within One Year from Balance Sheet Date 575,100,928 319,891,044 Unearned Lease Income (133,461,740) (69,858,580) 441,639,188 250,032,464 20.2 Lease Rentals Receivable after One Year Lease Rentals Receivable after One Year from Balance Sheet Date 537,706,402 593,453,235 Unearned Lease Income (130,950,074) (133,868,992) 406,756,328 459,584,243
21 MOVEMENT IN THE PROVISION FOR LOAN LOSSES AND INTEREST IN SUSPENSE Provision and Interest Suspended against Loans and Advances, Bills of Exchange and Lease Rentals Receivable General Specific Total Suspended Interest Rs.Rs.Rs.Rs. As at 01.01.2007 5,190,736 225,815,674 231,006,410 496,773,892 Provision net of recoveries during the year (Note 21.1) 27,248,416 40,188,766 67,437,182 - Amounts written off - (3,769,247) (3,769,247) - Interest in Suspense net of recoveries during the year - - - 76,512,667 Interest in Suspense reversals during the year - - - (28,175,075) As at 31.12.2007 (Note 21.2) 32,439,152 262,235,193 294,674,345 545,111,484
21.1 Provision for Loan Losses during the year 2007 2006 Rs. Rs. Total provision during the year 109,376,229 88,841,516 Recoveries/Reversals/Transfers during the year (41,939,047) (79,814,028) 67,437,182 9,027,488 Recovery of Loan losses written off previously (3,965,626) (23,589,639) Amounts Directly written off 215,829 - Net provision/ (reversal) for the year 63,687,385 (14,562,151)
21.2 Analysis of provision for Loan Losses and Interest in Suspense. Loan Loss Provision Interest in Suspense General Specific Rs. Rs. Rs. Bills of Exchange (Note 17) 1,129,946 5,701,000 26,750,226 Loans and Advances (Note 18) 27,420,529 240,454,861 512,641,903 Lease Rentals Receivable (Note 20) 3,888,677 16,079,332 5,719,355 32,439,152 262,235,193 545,111,484
80 Annual Report 2007 Notes to the Financial Statements Year ended 31 December 2007
21.3 Non Performing Advances included in the Bills of Exchange, Loans and Advances and Lease Rentals Receivable on which interest is not accrued to the revenue are as follows; 2007 2006 Rs. '000 Rs. '000 Bills of Exchange 46,529 88,075 Loans and Advances 1,215,930 1,083,895 Lease Rentals Receivable 65,629 26,959 1,328,088 1,198,929 Less: Provision for Loan Losses (Note 21.2) (294,674) (231,006) Interest in Suspense (Note 21.2) (545,111) (496,774) 488,303 471,149 21.4 Concentration of Credit Risk Sectorwise analysis of Bank's credit portfolio given below reflects the Bank's exposure to Credit Risk in the various sectors of the economy, relating to Loans and Advances, Bills of Exchange and Lease Rentals Receivable.
2007 2006 Rs. Rs. Exports 1,502,635,421 746,823,611 Tourism & Allied 157,871,947 138,970,820 Industrial 537,021,725 710,967,437 Agriculture and Fishing 139,274,797 160,913,498 Commercial Trading 1,940,399,287 1,740,442,800 Imports 2,132,152,149 1,522,879,017 Consumption 2,619,535,577 1,970,098,650 Services 319,019,055 211,924,308 Housing 90,623,466 96,698,672 Others 1,705,857,608 1,491,463,874 11,144,391,032 8,791,182,687
Loan and Advances (Note 18) 9,898,487,352 7,541,532,199 Bills of Exchange (Note 17) 397,508,164 540,033,781 Lease Rentals Receivable (Note 20) 848,395,516 709,616,707 11,144,391,032 8,791,182,687
Annual Report 2007 81 Notes to the Financial Statements Year ended 31 December 2007
2007 2006 Rs. Rs.
22 INVESTMENT SECURITIES Shares- Unquoted Credit Information Bureau of Sri Lanka 30,000 30,000 (300 Ordinary shares of Rs.100/- each) Society for Worldwide International Financial Telecommunications - SWIFT 110,000 110,000 Lankaclear (Private) Ltd. (100,000 Ordinary Shares of Rs.10/- each) 1,000,000 1,000,000 Lanka Financial Services Bureau Ltd 2,000,000 - 3,140,000 1,140,000
22.1 The Directors’ valuation of unquoted investments of the Bank amounts to Rs. 3,140,000/- (2006 - Rs. 1,140,000/-) 2007 2006 Rs. Rs.
23 OTHER ASSETS Deposits & Prepayments 71,146,900 55,454,994 Other Debtors 416,990,905 357,625,962 488,137,805 413,080,956 Less : Provision in respect of Other Debtors (1,774,870) (8,594,189) 486,362,935 404,486,767 24 PROPERTY, PLANT & EQUIPMENT 24.1 Gross Carrying Amounts Balance Additions Disposals/ Balance At Cost As at Transfers As at 01.01.2007 31.12.2007 Rs. Rs. Rs. Rs. Land 183,969,895 - - 183,969,895 Building 154,029,105 - - 154,029,105 Office Equipment 24,147,155 20,539,444 (140,592) 44,546,007 Computer Hardware 29,488,037 33,982,384 140,592 63,611,013 Furniture & Fittings 27,670,857 17,050,668 - 44,721,525 Motor Vehicles 3,194,122 15,950,000 (3,100,000) 16,044,122 422,499,171 87,522,496 (3,100,000) 506,921,667 At Valuation Office Equipment 28,140,726 - (110,000) 28,030,726 Computer Hardware 86,957,100 - - 86,957,100 Furniture & Fittings 35,854,842 - (130,000) 35,724,842 150,952,668 - (240,000) 150,712,668 Total Value of Depreciable Assets 573,451,839 87,522,496 (3,340,000) 657,634,335
82 Annual Report 2007 Notes to the Financial Statements Year ended 31 December 2007
24.2 Depreciation At Cost Balance Charge for Disposals/ Balance As at the year Transfers As at 01.01.2007 31.12.2007 Rs. Rs. Rs. Rs. Building 320,894 3,848,710 - 4,169,604 Office Equipment 4,553,272 5,687,757 - 10,241,029 Computer Hardware 5,139,736 7,216,770 - 12,356,506 Furniture & Fittings 3,724,778 3,651,558 - 7,376,336 Motor Vehicles 3,102,141 2,942,991 (3,100,000) 2,945,132 16,840,821 23,347,786 (3,100,000) 37,088,607 At Valuation Office Equipment 9,385,003 4,699,288 (49,663) 14,034,628 Computer Hardware 28,980,133 14,492,850 - 43,472,983 Furniture & Fittings 7,148,468 3,590,884 (85,583) 10,653,769 45,513,604 22,783,022 (135,246) 68,161,380 62,354,425 46,130,808 (3,235,246) 105,249,987 24.3 Net Book Values 2007 2006 Rs. Rs. At Cost 469,833,060 405,658,350 At Valuation 82,551,288 105,439,064 552,384,348 511,097,414
24.4 Office Equipment, Computer Hardware and Furniture & Fittings were revalued during the year 2004 by Messrs. Ariyatilake & Co. (Pvt) Ltd independent valuers. The results of such revaluation were incorporated in these Financial Statements from its effective date. Such assets were valued on an open market value for existing use basis. The surplus arising from the revaluation was transferred to a Revaluation Reserve. The carrying amount of revalued assets that would have been included in the Financial Statements had the assets been carried at cost less depreciation are as follows: Cost Cumulative Net Carrying Depreciation Amount Class of Asset If assets were 2007 carried at cost Rs. Rs. Rs. Office Equipment 43,354,385 40,286,820 3,067,565 Computer Hardware 131,850,696 113,277,000 18,573,696 Furniture & Fittings 91,520,227 76,773,970 14,746,257 266,725,308 230,337,790 36,387,518
Annual Report 2007 83 Notes to the Financial Statements Year ended 31 December 2007
24.5 Property, Plant and Equipment does not include any fully depreciated assets. (2006 - Rs. 3,100,000/-).
2007 2006 Rs. Rs.
25 INTANGIBLE ASSETS Computer Software 16,563,092 18,829,652 25.1 Summary Cost As at the beginning of the year 106,450,111 104,055,207 Incurred during the year 5,315,765 2,394,904 As at the end of the year 111,765,876 106,450,111
Amortisation As at the beginning of the year 87,620,459 80,406,884 Amortised during the year 7,582,325 7,213,575 Impairment loss recognised - - As at the end of the year 95,202,784 87,620,459
Net Book Value As at the beginning of the year 18,829,652 23,648,323 As at the end of the year 16,563,092 18,829,652
25.2 Amortisation Method Computer software is being amortised over 8 years on a straight line basis. The amortisation of Intangible Assets are included under the Operating Expenses in the Income Statement 2007 2006 Rs. Rs.
26 DEPOSITS FROM CUSTOMERS Local Currency Deposits Current Accounts Deposits 2,248,071,673 1,407,646,138 Savings Deposits 1,011,678,998 805,864,669 Time Deposits 6,266,932,600 4,381,463,205 Certificates of Deposits 1,166,660,199 1,003,051,323 Margin Deposits 323,060,269 297,095,581 11,016,403,739 7,895,120,916 Foreign Currency Deposits Current Accounts Deposits 119,000,918 74,078,388 Savings Deposits 332,649,951 439,995,991 Time Deposits 661,664,286 548,905,346 Margin Deposits 494,489 4,792,195 1,113,809,644 1,067,771,920 12,130,213,383 8,962,892,836
84 Annual Report 2007 Notes to the Financial Statements Year ended 31 December 2007
2007 2006 Rs. Rs.
27 BORROWINGS Call Money Borrowings 43,460,000 - Borrowings under Repos 296,602,248 1,119,556,640 Other Borrowings From Banks 32,103,075 43,473,775 Commercial Paper Repos 58,921,554 - 431,086,877 1,163,030,415
2007 2006 Rs. Rs.
28 OTHER LIABILITIES Cheques Pending Realisation 331,590,398 290,136,882 Accrued Expenditure & Interest 393,262,001 226,202,123 Claims Payable 202,599,928 147,640,364 Provision for Gratuity 25,388,150 18,751,628 Other Creditors 81,776,425 80,593,194 1,034,616,902 763,324,191
2007 2006 Rs.Rs.
29 DEBENTURES Unsecured Redeemable Subordinated Unlisted Debentures (Note 29.1) 253,789,000 253,789,000 Unsecured Redeemable Subordinated Unlisted Debentures (Note 29.2) 50,000,000 50,000,000 303,789,000 303,789,000
29.1 Terms of Debentures Par Value : 1,000 Tenure : 5 Years (2003 to 2008) Interest Rate : 3% per annum above the weighted average of six months Treasury Bill rate Interest Payment : Biannually Trustee : Commercial Bank of Ceylon PLC
29.2 Terms of Debentures Tenure : 5 Years (2006 to 2011) Interest Rate : 3% per annum above the weighted average of one year Treasury Bill rate Interest Payment : Quarterly
Annual Report 2007 85 Notes to the Financial Statements Year ended 31 December 2007
2007 2006 Rs. Rs.
30 DEFERRED TAX LIABILITY 30.1 Movement in Deferred Taxation Balance as at the beginning of the year 34,080,000 - Charge for the year (Note 12) 7,751,637 14,800,000 Effect of transitional liability on adoption of Revised SLAS 14 charged to Equity - 19,280,000 (Revaluation Impact) Balance as at the end of the year 41,831,637 34,080,000
30.2 Deferred Tax Liability Accelerated depreciation allowances for tax purposes - Lease Rentals Receivable 19,665,137 39,546,189 Accelerated depreciation allowances for tax purposes - Property, Plant & Equipment 41,506,006 24,816,477 Accelerated depreciation allowances for tax purposes - Intangible Assets 5,520,479 6,590,378 Accelerated depreciation allowances for tax purposes - Revaluation Reserve - 19,280,000 General Provision for Loans and Advances, Bills of Exchange and Lease Receivables (5,400,000) (1,816,757) Defined Benefit Plan Liability (8,461,870) (8,064,211) 52,829,752 80,352,076 Effect from Carried Forward Tax Losses (10,998,115) (54,907,076) 41,831,637 25,445,000 Unamortised effect on transitional liability on adoption of Revised SLAS 14 - 8,635,000 Net Deferred Tax Liability 41,831,637 34,080,000
30.3 Tax Losses are available indefinitely to offset against future taxable profit of the Bank subject to the limit of 35% of Statutory profit in one year of assessment.
31 STATED CAPITAL 2007 2007 2006 2006 Number Rs Number Rs 31.1 Fully paid Ordinary Shares 110,640,407 1,106,404,070 110,640,407 1,106,404,070
31.2 Issued & fully paid Ordinary Shares 2007 2006 Rs Rs Balance as at the beginning of the year 1,106,404,070 555,718,830 Rights Issue of 55,068,524 shares for cash consideration - 550,685,240 Balance as at the end of the year 1,106,404,070 1,106,404,070
86 Annual Report 2007 Notes to the Financial Statements Year ended 31 December 2007
31.3 With the enactment of the Companies Act of 2007 ( applicable with effect from 3rd May 2007) the concept of Authorised Share Capital and Par Value is no longer applicable. Therefore comparative figures have been restated accordingly. The total amount received by the Bank or due and payable to the Bank in respect of the issue of the shares are referred to as Stated Capital.
2007 2006 Rs. Rs.
32 STATUTORY RESERVE FUND Balance as at the beginning of the year 20,461,000 12,270,909 Transferred during the year 5% of Net Profit after Taxation 10,803,743 8,190,091 Balance as at the end of the year 31,264,743 20,461,000
2007 2006 Rs. Rs.
33 REVALUATION RESERVES On: Property, Plant & Equipment Balance as at the beginning of the year 32,087,700 55,083,561 Deferred Tax effect on transitional liability - (19,280,000) Disposal/excess depreciation transferred to Accumulated Profit (6,495,203) (3,715,861) Balance as at the end of the year 25,592,497 32,087,700
34 COMMITMENTS & CONTINGENCIES In the normal course of business, the Bank makes various commitments and incurs certain contingent liabilities with legal re-course to its customers. No material losses are anticipated as a result of these transactions.
2007 2006 Rs. Rs. Guarantees 1,411,802,775 1,193,416,416 Documentary Credit 883,028,528 540,270,994 Forward Exchange Contracts (Net) 1,824,616 17,017 2,296,655,919 1,733,704,427
Annual Report 2007 87
Notes to the Financial Statements Year ended 31 December 2007
34.1 Material Litigations against the Bank The Bank had issued a guarantee to Telecommunication Consultants India Ltd., (TCIL) on behalf of Nipuna Telecommunication (Pvt) Limited (Nipuna) on which a claim of Rs.8,964,428/- was made to the Bank. Nipuna filed a case and obtained an enjoining order, enjoining the Bank from paying. The trial took many years and finally Nipuna and TCIL by joint motion withdrew the case.
The Bank had a suspicion of collusion between the parties to defraud the Bank, hence the payment was not made. Against that TCIL filed a case. On 02/06/2006 the High Court pronounced judgment as prayed for by TCIL
The Bank has already filed papers in the Supreme Court appealing against the said Order. A calling date has not yet been given by the Court and the Bank is of the opinion that the High Court judgment can be reversed due to collusion on the part of TCIL and Nipuna to defraud the Bank.
35 POST BALANCE SHEET EVENTS No material events have taken place since 31st December 2007 that require disclosure or/and adjustments in these Financial Statements, except for the following: (a) Subject to approval of the Shareholders at the forthcoming Annual General Meeting, the Board of Directors recommended the payment of a final dividend of Rs. 0.75 (Cents 75) per share for the year ended 31st December 2007.
88 Annual Report 2007 Notes to the Financial Statements Year ended 31 December 2007
36 MATURITY ANALYSIS An analysis of the total assets and liabilities based on the remaining period as at the Balance Sheet date to the respective contractual maturity dates are as follows: Upto 3 months 3 to 12 months 1 to 3 Years 3 to 5 Years Over 5 Years Total Rs. Rs. Rs. Rs. Rs. Rs. Interest Bearing Assets Bills of Exchange 338,613,217 10,722,315 3,214,472 539,450 10,837,538 363,926,992 Loans & Advances 1,733,758,428 2,567,848,438 3,020,189,167 1,421,643,483 374,530,543 9,117,970,059 Lease Receivable 80,767,763 359,727,554 321,240,484 60,972,351 - 822,708,152 Balances with Foreign Banks 106,045,508 - - - - 106,045,508 Short Term Funds (Placements) 418,301,525 - - - - 418,301,525 Treasury Bills/Bonds/Commercial Paper 1,200,256,820 405,207,623 361,610,901 - 182,918,145 2,149,993,489 3,877,743,261 3,343,505,930 3,706,255,024 1,483,155,284 568,286,226 12,978,945,725
Non-Interest Bearing Assets Cash in Hand 215,159,156 86,288,645 86,288,645 48,520,854 70,026,977 506,284,277 Statutory Deposit with CBSL 274,025,578 172,577,290 172,577,290 97,041,707 140,053,956 856,275,821 Investment Securities - - - - 3,140,000 3,140,000 Property, Plant & Equipment - - - - 552,384,348 552,384,348 Intangible Assets - - - - 16,563,092 16,563,092 Other Assets & Interest Receivables 578,663,113 19,851,885 - - 13,591,320 612,106,318 1,067,847,847 278,717,820 258,865,935 145,562,561 795,759,693 2,546,753,856 TOTAL ASSETS 4,945,591,108 3,622,223,750 3,965,120,959 1,628,717,845 1,364,045,919 15,525,699,581
Interest Bearing Liabilities Deposits 3,776,779,148 1,888,389,574 1,888,389,574 944,194,787 944,194,768 9,441,947,851 Borrowings including due to Foreign Banks 468,301,866 16,439,338 20,162,375 344,999 - 505,248,578 Debentures - 253,789,000 - 50,000,000 - 303,789,000 4,245,081,014 2,158,617,912 1,908,551,949 994,539,786 944,194,768 10,250,985,429
Non-Interest Bearing Liabilities Deposits 1,075,306,213 268,826,553 268,826,553 268,826,553 806,479,660 2,688,265,532 Other Liabilities & Tax Payable 820,587,290 243,760,394 17,330,547 12,525,578 41,054,019 1,135,257,828 Shareholders' Funds - - - - 1,451,190,792 1,451,190,792 1,895,893,503 512,586,947 286,157,100 281,352,131 2,298,724,471 5,274,714,152 TOTAL LIABILITIES 6,140,974,517 2,671,204,859 2,194,709,049 1,275,891,917 3,242,919,239 15,525,699,581
Annual Report 2007 89 Notes to the Financial Statements Year ended 31 December 2007
37 RELATED PARTY TRANSACTIONS 2007 2006 Rs. Rs.
37.1 Transactions with Key Management Personnel 37.1.1Compensation to Key Management Personnel (*) Emolument / Fees / Salaries 12,788,652 10,116,836 Ex-Gratia Payments 775,000 500,000 Post Employment Benefits 723,600 625,860 Total compensation paid to key management personnel 14,287,252 11,242,696
(*) Key management personnel include the Board of Directors of the Bank & Chief Executive Officer of the Bank.
37.1.2Transactions, arrangements and agreements involving Key Management Personnel Key Management Personnel and Entities in which Key Close Family Members Management Personnel have control/joint control or Significant Influence
2007 2006 2007 2006 Rs.Rs.Rs.Rs. Assets Loans and Advances 2,087,164 2,521,249 95,654,598 110,076,695 Credit Cards 595,530 519,476 - - Liabilities Deposits 76,315,160 119,093,511 153,857,645 36,626,680 Off Balance Sheet Items Guarantees & Letters of Credit - - 215,461,772 53,853,964
90 Annual Report 2007 Capital Adequacy
COMPUTATION OF RISK-WEIGHTED ASSETS On Balance Sheet Items: Balance as at End Risk Risk Weighted Balance as at End 2007 2006 Weight 2007 2006 Rs.'000 Rs.'000 (%) Rs.'000 Rs.'000 ASSETS Cash, Statutory Deposit with Central Bank of Sri Lanka, Treasury Bills/Bonds Government and other Securities 3,735,908 3,341,334 0% - - Loans secured by cash and guaranteed by Central Bank of Sri Lanka 2,946,023 2,113,563 0% - - Loans guaranteed by SLECIC 20,000 69,683 50% 10,000 34,842 Loans guaranteed by Local/Foreign Commercial Banks - Maturity up to 1 year - 61,175 20% - 12,235 Loans secured by Primary Mortgage over Residential Property 117,109 101,165 55% 64,410 55,641 Other Loans and Advances 7,142,189 5,569,472 110% 7,856,408 6,126,419 Due from Banks abroad 176,096 68,819 20% 35,219 13,764 Due from local Banks including Development Financial Institutions 348,252 439,533 20% 69,650 87,907 Cash Items in the Process of collection 79,284 148,344 20% 15,857 29,669 Investments 3,140 1,140 100% 3,140 1,140 Property, Plant & Equipment 524,075 478,560 100% 524,075 478,560 Other Assets 388,752 181,725 100% 388,752 181,725 TOTAL 15,480,828 12,574,513 8,967,511 7,021,902
Note :Property, Plant & Equipment stated net of Revaluation Reserve
Off Balance Sheet Items:
Balance Credit Credit Risk Weighted Balance as at End 2007 Conversion Equivalent 2007 2006 Rs.'000 Factor % Amount Rs.'000 Rs.'000 INSTRUMENTS General Guarantees of Indebtedness & Others 495,844 100% 495,844 291,584 226,434 Performance Bonds, Bid Bonds & Warranties 166,284 50% 83,142 - - Shipping Guarantees 249,891 20% 49,978 26,551 14,551 Documentary Letters of Credit 883,029 20% 176,606 61,742 33,970 Forward Exchange Contracts 38 20% 8 8- TOTAL 1,795,086 379,885 274,955
Annual Report 2007 91 Capital Adequacy
2007 2006 Rs.'000 Rs.'000 COMPUTATION OF CAPITAL TIER I : CORE CAPITAL Paid up Ordinary Shares 1,106,404 1,106,404 Share Premium - - Statutory Reserve Fund 31,265 20,461 Published Retained Profits 287,929 76,163 General and other Reserves - - Total Tier I Capital 1,425,598 1,203,028
TIER II : SUPPLEMENTARY CAPITAL Revaluation Reserve - - General provisions 32,439 5,190 Hybrid (debt / equity) Capital Instrument 83,195 143,960
Total Capital Base 1,541,232 1,352,178 Note : Revaluation Reserve is excluded Capital Charge for Market Risk 20,781 6,274
2007 2006 Rs.'000 Rs.'000 COMPUTATION OF RATIOS: Core Capital 1,425,598 1,203,028 Total Capital Base 1,541,232 1,352,178
Risk Weighted Assets Risk Weighted Assets - Credit Risk 9,347,396 7,296,857 Risk Weighted Assets - Market Risk (Capital Charge*10) 207,810 62,740 Total Risk Weighted Assets 9,555,206 7,359,597 Core Capital Ratio - Tier 1 (Minimum Required Ratio is 5%) Core Capital x 100 14.92% 16.35% Total Risk Weighted Assets
Total Risk Weighted Capital Ratio - Tier II (Minimum Required Ratio is 10%) Total Capital Base x 100 16.13% 18.37% Total Risk Weighted Assets
92 Annual Report 2007 Quarterly Statistics
2007 2006 For the Quarter ended March 31, June 30, September 30, December 31, December 31,
BALANCE SHEET DATA Total Assets 13,499,478,153 14,221,176,856 14,567,480,653 15,525,699,581 12,625,880,084 Loans, Advances & Leases 8,535,749,637 8,799,278,775 9,645,225,106 10,304,605,203 8,063,402,385 Deposits 9,290,444,787 10,339,512,946 10,393,250,945 12,130,213,383 8,962,892,836 Debentures 303,789,000 303,789,000 303,789,000 303,789,000 303,789,000 Shareholders' Funds 1,280,461,187 1,325,059,808 1,365,457,241 1,451,190,792 1,235,115,930 Average assets 13,173,682,194 13,945,922,974 14,691,195,349 15,128,570,057 12,207,622,918
INCOME STATEMENT DATA Net Interest Income 153,675,836 177,877,796 176,048,493 237,409,282 150,256,483 Foreign Exchange Income 26,396,385 26,413,759 26,886,376 10,549,117 34,362,225 Other Income 58,663,598 59,386,080 68,582,995 71,719,054 59,249,935 Total Revenue 238,735,819 263,677,635 271,517,864 319,677,453 243,868,643
Provision for Credit and Other Losses (4,321,259) (8,610,619) (15,011,973) (32,436,876) 13,943,631 Non-interest Expenses (160,584,582) (177,748,044) (183,517,968) (194,590,206) (156,870,655) Provision for Income tax (28,449,915) (32,685,543) (32,577,112) (6,999,812) (37,485,074) Net Profit after Tax 45,380,063 44,633,429 40,410,811 85,650,559 63,456,545
Annual Report 2007 93 Analysis of Deposits
2007 2006 2005 2004 2003 Rs. Rs. Rs. Rs. Rs.
LOCAL CURRENCY DEPOSITS Demand Deposits 2,248,071,673 1,407,646,138 1,140,216,133 706,757,941 503,155,294 Savings Deposits 1,011,678,998 805,864,669 697,340,643 607,961,639 346,358,612 Time Deposits 6,266,932,600 4,381,463,205 4,139,001,485 3,280,222,413 2,170,345,523 Certificate of Deposits 1,166,660,199 1,003,051,323 785,427,533 819,584,200 727,564,317 Savings Certificates - - 11,682 71,863 326,784 Margin Deposits 323,060,269 297,095,581 244,572,375 99,417,576 125,279,954 11,016,403,739 7,895,120,916 7,006,569,851 5,514,015,632 3,873,030,484 FOREIGN CURRENCY DEPOSITS Demand Deposits 119,000,918 74,078,388 177,647,272 181,739,717 46,862,572 Savings Deposits 332,649,951 439,995,991 489,722,339 430,984,673 233,495,449 Time Deposits 661,664,286 548,905,346 422,412,723 426,807,942 284,552,634 Margin Deposits 494,489 4,792,195 4,364,306 3,638,130 22,249,092 1,113,809,644 1,067,771,920 1,094,146,640 1,043,170,462 587,159,747 Total Deposits 12,130,213,383 8,962,892,836 8,100,716,491 6,557,186,094 4,460,190,231
94 Annual Report 2007 Analysis of Advances
2007 2006 2005 2004 2003 Rs. Rs. Rs. Rs. Rs.
LOANS AND ADVANCES Overdraft 4,886,140,822 3,470,244,549 3,116,597,987 3,188,892,786 2,655,870,900 Import Loans 492,238,508 459,331,515 345,919,582 480,719,752 385,412,253 Export Loans 219,009,901 289,656,729 314,181,531 291,111,576 240,730,377 Short Term Loans 286,626,287 228,977,435 329,541,402 280,180,534 136,580,272 Term Loans 3,283,145,358 2,483,062,570 2,073,956,234 1,723,230,039 1,241,371,913 Pawning 312,644,395 309,215,279 225,824,206 118,826,507 83,340,312 Staff Loans 153,836,237 125,134,062 92,338,193 90,331,578 70,301,429 Credit Card Advances 264,845,844 175,910,060 114,332,391 72,190,886 - 9,898,487,352 7,541,532,199 6,612,691,526 6,245,483,658 4,813,607,456 Bills of Exchange 397,508,164 540,033,781 545,927,204 468,309,788 407,401,941 Lease Rental Receivable 848,395,516 709,616,707 387,641,440 281,409,748 152,974,156 Total Loans and Advances 11,144,391,032 8,791,182,687 7,546,260,170 6,995,203,194 5,373,983,553
Annual Report 2007 95 Sources & Utilisation of Funds
2007 2006 Rs. Rs. SOURCES OF INCOME Interest Income 1,968,545,297 1,289,077,847 Commission 249,695,313 193,371,466 Foreign Exchange 90,245,637 90,878,303 Other Income 8,656,414 7,513,228 2,317,142,661 1,580,840,844
UTILISATION OF INCOME Employees Salaries and other payments to Staff 225,361,964 175,380,058 Suppliers Interest Paid 1,223,533,890 753,995,657 Other Expenses 467,757,793 331,697,758 Government Financial Value Added Tax 83,701,770 69,599,880 Income Tax 100,712,382 86,430,000 Shareholders Retained Profit 216,074,862 163,737,491 2,317,142,661 1,580,840,844
96 Annual Report 2007 Value Added Statement
2007 2006 Rs. Rs. Rs. Rs. VALUE ADDED Income from Banking Services 2,317,142,661 1,580,840,844 Cost of Services (1,523,961,901) (1,023,643,015) Value added by Banking Services 793,180,760 557,197,829 Reversals/Recoveries/(Provision) for Loan Losses (63,687,385) 14,562,151 (Provision)/writeback for other Losses 3,306,658 (2,127,985) 732,800,033 569,631,995 DISTRIBUTION OF VALUE ADDED To Employees Salaries Wages & Other Benefits 225,361,964 175,380,058 To Providers of Capital Interest to Debentureholders 53,235,922 36,262,162 To Government Tax Expense 100,712,382 86,430,000 Financial Value Added Tax 83,701,770 184,414,152 69,599,880 156,029,880
To Expansion & Growth Retained Income 216,074,862 163,737,491 Depreciation & Amortisation 53,713,133 269,787,995 38,222,404 201,959,895 732,800,033 569,631,995
Annual Report 2007 97 Information of Shareholders As at 31st December 2007
ANALYSIS 1 RESIDENT NON RESIDENT TOTAL RANGE OF NO. OF SHARE- NO. OF %OF SHARE NO. OF SHARE- NO. OF SHARES % OF SHARE NO. OF SHARE- NO. OF % SHARE SHAREHOLDING HOLDERS SHARES HOLDING HOLDERS HOLDING HOLDERS SHARES HOLDING 1 - 100 236 19,035 0.02 1 1 0.00 237 19,036 0.02% 101 - 1,000 639 406,764 0.37 2 1,600 0.00 641 408,364 0.37% 1,001 - 5,000 464 1,240,180 1.12 4 13,500 0.01 468 1,253,680 1.14% 5,001 - 10,000 136 1,074,500 0.97 1 10,000 0.01 137 1,084,500 0.98% 10,001 - 50,000 111 2,452,205 2.22 5 100,625 0.09 116 2,552,830 2.31% 50,001 - 100,000 21 1,542,000 1.39 1 68,700 0.06 22 1,610,700 1.45% 100,001 - 500,000 26 7,052,600 6.37 1 385,600 0.35 27 7,438,200 6.72% 500,001 -1,000,000 9 6,332,401 5.72 1 800,000 0.72 10 7,132,401 6.44% 1,000,001 & ABOVE 14 76,746,397 69.37 5 12,394,299 11.20 19 89,140,696 80.57% TOTAL 1,656 96,866,082 87.55 21 13,774,325 12.45 1,677 110,640,407 100.00 ANALYSIS 2 INDIVIDUALS INSTITUTIONS TOTAL TOTAL RANGE OF NO. OF SHARE- NO. OF %OF SHARE NO. OF SHARE- NO. OF SHARES % OF SHARE NO. OF SHARE- NO. OF % SHARE SHAREHOLDING HOLDERS SHARES HOLDING HOLDERS HOLDING HOLDERS SHARES HOLDING 1 - 100 236 18,936 0.02 1 100 0.00 237 19,036 0.02% 101 - 1,000 629 402,051 0.36 12 6,313 0.01 641 408,364 0.37% 1,001 - 5,000 455 1,214,480 1.10 13 39,200 0.04 468 1,253,680 1.14% 5,001 - 10,000 131 1,033,500 0.93 6 51,000 0.05 137 1,084,500 0.98% 10,001 - 50,000 100 2,173,030 1.96 16 379,800 0.34 116 2,552,830 2.31% 50,001 - 100,000 19 1,390,200 1.26 3 220,500 0.20 22 1,610,700 1.45% 100,001 - 500,000 16 4,384,100 3.96 11 3,054,100 2.76 27 7,438,200 6.72% 500,001 -1,000,000 3 1,960,001 1.77 7 5,172,400 4.67 10 7,132,401 6.44% 1,000,001 & ABOVE 9 68,907,333 62.28 10 20,233,363 18.29 19 89,140,696 80.57% TOTAL 1,598 81,483,631 73.65 79 29,156,776 26.35 1,677 110,640,407 100.00
As per the Rule No.8.7(h) of the Colombo Stock Exchange, percentage of public holding as at 31.12.2007 was 88.29% RESIDENT / NON RESIDENT 31.12.2007 31.12.2006 No. of Shareholders No. of Shares % No. of Shareholders No. of Shares % Resident Shareholders 1,656 97,502,382 87.55 1,479 97,502,382 88.12 Non Resident Shareholders 21 13,138,025 12.45 15 13,138,025 11.88 Total 1,677 110,640,407 100.00 1,494 110,640,407 100.00
INDIVIDUALS / INSTITUTIONS 31.12.2007 31.12.2006 No. of Shareholders No. of Shares % No. of Shareholders No. of Shares % Individuals 1,598 81,483,631 73.65 1,407 81,934,906 74.06 Institutions 79 29,156,776 26.35 87 28,705,501 25.94 Total 1,677 110,640,407 100.00 1,494 110,640,407 100.00 SHARE TRADING Market Prices Rs.
Highest price 11.00 Lowest price 10.00 Last traded price as 31.12.2007 10.25
98 Annual Report 2007 Top Twenty Shareholders
MAJOR SHAREHOLDERS OF THE BANK MAJOR SHAREHOLDERS OF THE BANK Year ended 31 December 2007 2007 Year ended 31 December 2006 2006 NAME OF SHAREHOLDER No. of Holding NAME OF SHAREHOLDER No. of Holding Shares as a % Shares as a %
1 Mr. K D D Perera 33,181,058 29.99 1 Mr. K D D Perera 33,181,058 29.99 2 Mr. J D C Coonghe 11,052,976 9.99 2 Mr. J D C Coonghe 11,052,976 9.99 3 Mr. K D H Perera 5,826,500 5.27 3 Mr. K D H Perera 5,826,500 5.27 4 Mr. P J Tay 5,479,499 4.95 4 Mr. P J Tay 5,479,499 4.95 5 Mr. K D A Perera 4,800,000 4.34 5 Mr. K D A Perera 4,800,000 4.34 6 Mr. T Senthilverl 3,358,200 3.04 6 Michelangelo Footwear (Private) Limited 3,640,000 3.29 7 Pramuka Savings & Development Bank Ltd. 2,782,000 2.51 7 Pramuka Savings & Development Bank Ltd., 2,782,000 2.51 8 Samurdhi Authority of Sri Lanka 2,557,188 2.31 8 Samurdhi Authority of Sri Lanka 2,557,188 2.31 9 Michelangelo Footwear Limited 2,480,000 2.24 9 Mr. M. Sritharan 2,091,300 1.89 10 Jayes Trading Co (Pvt) Ltd 2,267,500 2.05 10 Jayes Trading Co (Pvt) Ltd 2,015,900 1.82 11 Sandwave Limited 2,181,400 1.97 11 First Capital Markets Ltd/ Mr. W D N H Perera 2,000,800 1.81 12 Mr. M. Sritharan 2,179,100 1.97 12 Elgin Investments Ltd 1,803,400 1.63 13 ELGIN Investments Ltd 1,803,400 1.63 13 Mr. T Senthilverl 1,740,200 1.57 14 First Capital Markets Ltd/ Mr. W D N H Perera 1,776,875 1.61 14 Waldock Mackenzie Ltd/ Mr. L T Samarawickrama 1,725,000 1.56 15 Waldock Mackenzie Ltd/ Mr. L T Samarawickrama 1,725,000 1.56 15 Mr. L T Samarawickrama 1,722,000 1.56 16 Mr. M P Jayasinghe 1,600,000 1.45 16 Mr. P S Ariyaratne 1,601,875 1.45 17 Lizzola Holdings Limited 1,500,000 1.36 17 Mr. M P Jayasinghe 1,600,000 1.45 18 Mr. A M A R A Zalzalah 1,430,000 1.29 18 Sandwave Limited 1,549,800 1.40 19 Michelangelo Footwear (Private) Limited 1,160,000 1.05 19 Lizzola Holdings Limited 1,500,000 1.36 20 Favourite Garments Ltd 1,000,000 0.90 20 Mr. A M A R A Zalzalah 1,430,000 1.29
90,140,696 81.48 90,099,496 81.44 Balance held by 1657 shareholders 20,499,711 18.52 Balance held by 1474 shareholders 20,540,911 18.56
Total No. of shares 110,640,407 100.00 Total No. of shares 110,640,407 100.00
Annual Report 2007 99 Ten Year Statistical Summary
2007 2006 2005 2004 Rs. Rs. Rs. Rs. OPERATING RESULTS Gross Income 2,317,142,661 1,580,840,844 1,224,658,123 1,033,031,269 Interest Income 1,968,545,297 1,289,077,847 993,028,535 832,410,256 Interest Expense 1,223,533,890 753,995,657 565,950,710 476,848,638 Net Interest Income 745,011,407 535,082,190 427,077,825 355,561,618 Exchange Income 90,245,637 90,878,303 58,704,350 61,488,900 Fee based Income 258,351,727 200,884,694 172,925,238 139,132,113 Profit before Provision & Tax 460,869,741 307,333,205 207,078,322 158,494,078 Profit before Income Tax 316,787,244 250,167,491 152,229,228 54,866,191 Income tax on Profits 100,712,382 86,430,000 43,900,000 13,693,000 Profit after Income Tax 216,074,862 163,737,491 108,329,228 41,173,191 * Reversal of Timing Differences ASSETS Bills of Exchange (Net) 363,926,992 467,295,097 485,170,554 379,057,448 Loans / Advances & Leases (Net) 9,940,678,211 7,596,107,288 6,387,448,467 5,634,042,714 Investments in Commercial Papers 170,000,000 - - - Cash,Bonds,S.Term & Other Statutory Deposits 3,866,900,620 3,515,596,941 3,255,529,231 2,536,844,010 Property Plant & Equipment 552,384,348 511,097,414 202,681,160 159,811,447 Intangible Assets 16,563,092 18,829,652 - - Other Assets 615,246,318 516,953,692 520,510,139 339,173,794 Total 15,525,699,581 12,625,880,084 10,851,339,551 9,048,929,413 LIABILITIES Customer Deposits 12,130,213,383 8,962,892,836 8,100,716,491 6,557,186,094 Borrowings & Due to Foreign Banks 505,248,578 1,281,919,761 1,142,509,547 1,370,290,461 Debentures 303,789,000 303,789,000 253,789,000 253,789,000 Other Liabilities 1,034,616,902 763,324,191 789,132,373 492,234,183 Taxation Payable 58,809,289 44,758,366 25,218,941 - Deferred Taxation 41,831,637 34,080,000 Total 14,074,508,789 11,390,764,154 10,311,366,352 8,673,499,738 SHAREHOLDERS' FUNDS Stated Capital 1,106,404,070 1,106,404,070 555,718,830 555,718,830 Reserves 344,786,722 128,711,860 (15,745,631) (180,289,155) Total 1,451,190,792 1,235,115,930 539,973,199 375,429,675 COMMITMENTS & CONTINGENCIES Guarantees 1,411,802,775 1,193,416,416 1,295,168,783 1,271,252,484 Documentary Credits 883,028,528 540,270,994 474,292,251 507,024,278 Others 1,824,616 17,017 4,326 390,878 Total 2,296,655,919 1,733,704,427 1,769,465,360 1,778,667,640 SHARE INFORMATION Earnings per Share 1.95 2.63 1.95 0.74 Net Assets Value per Share 13.12 11.16 9.72 6.76 OTHER INFORMATION No of Employees 546 433 394 371 No of Branches 27 19 18 18 No of Customer Service Centres 2 2 2 1
100 Annual Report 2007
Ten Year Statistical Summary
2003 2002 2001 2000 1999 1998 Rs. Rs. Rs. Rs. Rs. Rs.
752,529,483 750,355,704 846,110,788 669,046,276 477,416,378 236,971,266 631,831,665 650,706,934 720,218,191 552,754,845 395,258,384 183,397,450 360,588,333 410,237,651 567,819,577 333,469,862 205,834,410 81,484,164 271,243,332 240,469,283 152,398,614 219,284,983 189,423,974 101,913,286 32,565,025 27,361,097 42,495,018 42,560,456 25,897,613 18,842,090 88,132,793 72,287,673 83,397,579 73,730,975 56,260,381 34,731,726 60,220,447 20,504,205 (59,776,678) 47,695,332 81,433,258 25,211,433 (95,345,785) (81,144,071) (166,859,947) 13,667,493 40,162,241 15,464,871 - - *29,150,500 *1,800,000 16,000,000 7,236,829 (95,345,785) (81,144,071) (137,709,447) 15,467,493 24,162,241 8,228,042
344,688,386 290,633,404 317,580,611 250,081,920 150,578,420 119,372,614 3,764,014,411 3,734,998,593 3,253,867,547 3,264,826,248 2,261,738,662 1,428,048,138 14,879,941 - - - - - 2,025,683,296 705,690,791 739,228,801 895,869,648 648,066,965 637,322,950 113,223,482 149,401,190 177,158,091 216,313,211 200,028,360 89,871,703 ------287,742,936 242,143,875 244,315,997 295,872,668 163,158,763 73,911,121 6,550,232,452 5,122,867,853 4,732,151,047 4,922,963,695 3,423,571,170 2,348,526,526
4,460,190,231 3,963,299,010 3,487,666,891 2,995,606,933 2,488,008,602 1,444,191,983 1,041,064,658 359,548,562 486,857,308 314,561,328 103,721,353 255,421,653 388,789,000 202,000,000 100,000,000 690,000,000 - - 325,932,079 279,161,762 257,624,258 355,932,897 280,646,171 137,880,087 ------29,150,500 30,950,500 14,950,500 6,215,975,968 4,804,009,334 4,332,148,457 4,385,251,658 2,903,326,626 1,852,444,223
555,718,830 444,975,080 444,975,080 444,975,080 442,975,080 442,975,080 (221,462,346) (126,116,561) (44,972,490) 92,736,957 77,269,464 53,107,223 334,256,484 318,858,519 400,002,590 537,712,037 520,244,544 496,082,303
835,094,637 554,906,009 497,254,174 403,317,292 245,176,498 226,227,728 302,473,384 279,458,577 220,108,232 353,200,540 246,512,857 404,252,537 1,095,772 207,097 1,985,147 849,922 290,044 89,214,177 1,138,663,793 834,571,683 719,347,553 757,367,754 491,979,399 719,694,442
(1.72) (1.46) (2.48) 0.28 0.44 0.15 6.01 5.74 7.20 9.67 9.40 8.96
289 283 306 295 200 173 16 13 12 12 7 6 ------
Annual Report 2007 101 Graphical Review of Ten Year Summary
102 Annual Report 2007 Branch Network As at 03 March 2008
BAMBALAPITIYA KOLLUPITIYA NUGEGODA 329, Galle Road, Colombo 04 450, Galle Road, Colombo 03 132C, High Level Road, Nugegoda General Tel : 011-2506822-4 General Tel : 011-2565565 General Tel : 011-2828225-6 Fax : 011-2506825 Fax : 011-2301150 Fax : 011-2828228 E-mail : [email protected] E-mail : [email protected] E-mail : [email protected] Manager’s Dir Tel : 011-2506824 Manager’s Dir Tel : 011-2370203 Manager’s Dir Tel : 011-2828227 Mr. Kenneth Mendis Mr. Felician Jayakody Mr. Naleen Edirisinghe DAM STREET KOTAHENA OLD MOOR STREET 22, Dam Street, Colombo 12 215, George R de Silva Mv, Colombo 13 314, Old Moor Street, Colombo 12 General Tel : 011-4621915 General Tel : 011-4616851-2 General Tel : 011-2392896-7 Fax : 011-2346052 Fax : 011-2346066 Fax : 011-4736786 E-mail : [email protected] E-mail : [email protected] E-mail : [email protected] Manager’s Dir Tel : 011-2439839 Manager’s Dir Tel : 011-2346065 Manager’s Dir Tel : 011-2392899 Mr. S. Shivakumar Mr. Neil de Rose Mr. Anil De Silva DEHIWELA KURUNEGALA PANCHIKAWATTA 104, Galle Road, Dehiwela 22, Suratissa Mawatha, Kurunegala 221, Sri Sangaraja Mawatha, Colombo 10 General Tel : 011-2727660, 011-2730626 General Tel : 037-2221729-30 General Tel : 011-2447456-7 Fax : 011-2730624 Fax : 037-2221731 Fax : 011-2447452 E-mail : [email protected] E-mail : [email protected] E-mail : [email protected] Manager’s Dir Tel : 011-2730624 Manager’s Dir Tel : 037-2221728 Manager’s Dir Tel : 011-2321447 Mr. Takura Abhayasinghe Mrs. Chrishanthi Jayasuriya Mr. Keerthie Maligaspe GALLE MAHARAGAMA PANADURA 170 Main Street, Galle 171/1, Highlevel Road, Maharagama 506, Galle Road, Panadura General Tel : 091-2226834 General Tel : 011-2838396/8 General Tel : 038-2243051-2 Fax : 091-2226835 Fax : 011-2838397 Fax : 038-2243053 E-mail : [email protected] E-mail : [email protected] E-mail : [email protected] Manager’s Dir Tel : 091 2226833 Manager’s Dir Tel : 011-2838395 Manager’s Dir Tel : 038-2243050 Mr. Nimal Ratnayake Mr. Jehan Perera Mr. Tissa Rodrigo GAMPAHA MATARA PETTAH 95, Colombo Road, Gampaha 32B, Anagarika Dharmapala Mawatha, Matara 64, Keyzer Street, Colombo 11 General Tel : 033-2220046-7 General Tel : 041-2231361 General Tel : 011-5363651-2 Fax : 033-2220048 Fax : 041-2231362 Fax : 011-4718995 E-mail : [email protected] E-mail : [email protected] E-mail : [email protected] Manager’s Dir Tel : 033-2220045 Manager’s Dir Tel : 041-2231360 Manager’s Dir Tel : 011-2543550 Mr. Rajitha Silva Mrs. Padma Wickremaratne Mr. S. Anandarajah KADAWATHA METRO RAJAGIRIYA 138 Kandy Road, Kadawatha Level 2, East Tower, World Trade Centre, Colombo 01 468, Kotte Road, Rajagiriya General Tel : 011-2925192 General Tel : 011-2346049-50 General Tel : 011-2887148 Fax : 011-2925187 Fax : 011-2346053 Fax : 011-2866823 E-mail : [email protected] E-mail : [email protected] E-mail : [email protected] Manager’s Dir Tel : 011-2925190 Manager’s Dir Tel : 011-2346051 Manager’s Dir Tel : 011-2887149 Mr. Jayantha Perera Mr. H. H. Li Mr. Thushara Wijewardene KANDY MORATUWA RATNAPURA 111, Kotugodella Veediya, Kandy 18, Galle Road, Moratuwa. 198, Main Street, Ratnapura General Tel : 081-2232991-3 General Tel : 011-2641352 General Tel : 045-2231845-7 Fax : 081-2232994 Fax : 011-2641354 Fax : 045-2231848 E-mail : [email protected] E-mail : [email protected] E-mail : [email protected] Manager’s Dir Tel : 081-2232990 Manager’s Dir Tel : 011-2641350 Manager’s Dir Tel : 045-2231844 Mr. Dinesh Perera Mr. Nirmalath Fernando Mr.Bharath Dharmaratne KATUGASTOTA NARAHENPITA WATTALA 161, Madawala Road, Katugastota 526, Elvitigala Mawatha, Colombo 05 180, Negombo Road, Wattala General Tel : 081-2500361 General Tel : 011-2368666-8 General Tel : 011-2945096 Fax : 081-2500362 Fax : 011-2368667 Fax : 011-2945095 E-mail : [email protected] E-mail : [email protected] E-mail : [email protected] Manager’s Dir Tel : 081-2500360 Manager’s Dir Tel : 011-2368666 Manager’s Dir Tel : 011-2945097 Mr. Nalaka Kotinkaduwa Mr. Rabindranath Mudalige Mr. Mahinda Samarasekera KEGALLE NEGOMBO WELLAWATTA CUSTOMER SERVICE CENTRE 72/74 Main Street, Kegalle 90, St.Josephs Street, Negombo 150, Galle Road, Colombo 06 General Tel : 035-2221017 General Tel : 031-2231257-8 General Tel : 011-2362409 Fax : 035-2221018 Fax : 031-2231259 Fax : 011-2362399 E-mail : [email protected] E-mail : [email protected] E-mail : [email protected] Manager’s Dir Tel : 035-2221016 Manager’s Dir Tel : 031-2231256 Mr. L. N. Balaretnaraja Mr. Saman Kularatne Mr. D. S. W. Gunawardena WENNAPPUWA CUSTOMER SERVICE CENTRE KIRULAPONE 06, Chillaw Road,Wennappuwa 100 High Level Road, Colombo 06 General Tel : 031-2249555 General Tel : 011-2515226 Fax : 031-2249556 Fax : 011-2515227 E-mail : [email protected] E-mail : [email protected] Mr. Monindra Fernando Manager’s Dir Tel : 011 2515225 Mr. Prasad Fernando
Annual Report 2007 103 Correspondent Banks
Australia Cook Islands Greece Israel ANZ Banking Group Ltd., ANZ Banking Group Ltd ANZ Grindlays Bank PLC Israel Discount Bank National Australia Bank Ltd., Mercantile Discount Bank Ltd. City Bank NA Chile Hongkong Commonwealth Bank ABN Amro Bank Hongkong & Shanghai Banking Japan of Australia Corp. Ltd Deutsche Bank AG China UBAF - Tokyo Deutsche Bank Austria Overseas Chinese Banking Citi Bank NA Creditanstalt Bankverein Corp, China HBZ Finance Limited Overseas Chinese Banking Bank of Austria AG Standard Chartered Bank Mashreq Bank Corp. Ltd. Standard Chartered Bank Bank of Nova Scotia Bangladesh Deutsche Bank AG UBAF Standard Chartered Bank Standard Chartered Bank Credit Lyonnais Hungaria Jordan Bahrain Cyprus Standard Chartered Bank Standard Chartered Bank National Bank of Greece ABN - Amro KOC Bank Kenya (Cyprus) Ltd India Standard Chartered Bank Belgium Hellenic Bank Ltd Bank of Ceylon – Chennai Dubai Bank Kenya Ltd. Bank Brussels Lambert Habib Bank AG Zurich Denmark Standard Chartered Bank General De Banque S.A. Citi Bank N.A. Den Danske Bank A/S Korea Kbc Bank NV Mashreq Bank Unibank A/S Deutsche Bank Brazil Tamilnad Mercantile Bank UBAF ABN Amro Bank Egypt ICICI Bank Citi Bank N.A. Banco Bradesco SA Mashreq Bank Korea Exchange Bank Indonesia Standard Chartered Bank Bulgaria Fiji Deutsche Bank Hebros Bank ANZ Banking Group Ltd ABN Amro Bank Kuwait Kuwait Bahrain Inl. Exchange Co. Citi Bank N.A Brunai Finland National Bank of Kuwait (SAK) Standard Chartered Bank Nordea Bank Finland plc, Standard Charted Bank Burgan Bank S.A.K Canada Helsinki Ireland Lebanon Toronto Dominion Bank France ABN Amro Bank N.V. - Dublin Inaash Bank SAL Credit Lyonnais Union De Banq Arab Et Iran Luxembourg Channel Islands Francais (UBAF) Bank - Sedarat Deutsche Bank ANZ Bank (Guernsey) Ltd ABN Amro Malaysia ANZ Grindlays Bank (Jersey) Ltd Bankers Trust Co. Italy Standard Chartered Bank Commerz Bank HSBC Bank Germany Banca Nazionale Del Lavoro Commerz Bank AG Maldives S.P.A. Bank of Ceylon - Male Dresdner Bank AG Banca Commercial Italiana Deutsche Bank AG S.P.A. Mauritius Mauritius Commerce Bank, Sparkasse Essen Cassa Di Risparmio Di Carrara Port Louis MV Bayerische Hypovereins H S B C Bank
104 Annual Report 2007
Correspondent Banks
Mexico Poland Sweden Mashreq Bank PSC ABN Amro Bank Bank Handlowy W Warsza wie S.A. Svenska Handelsbanken Deutsche Bank AG Nepal Prague Skandinaviska Enskilda ABN Amro Bank Nepal Grindlays Bank Ltd Commerz Bank Banken (SEB) AB (Publ) Habib Bank AG Zurich ABN Amro Bank Qatar USA Netherlands Nordbanken AB ABN-Amro Bank Mashreq Bank American Express Bank SWED Bank Commerz Bank H S B C Bank Deutsche Bank Holland Bank Standard Chartered Bank Switzerland First Union National Bank ING-Bank UBS AG Philladelphia Russia Norway Credit Lyonais (Suisse) First Union National Bank Holland Bank Rossiyskiy Kredit Bank North Carolina Kingdom of Tonga ING-Bank International Moscow Bank Habib Bank New York ANZ Banking Group Ltd Skandinaviska Enskilda Banken Mashreq Bank New York Saudi Arabia Taiwan ROC Republic Bank of New York New Zealand Al-Rajhi Banking & Investment Deutsche Bank, Taipei Bank of New York Australia & New Zealand Corp. Citi Bank NA Credit Lyonnais N.A. Banking Group (New Zealand Ltd) Saudi Hollandi Bank Ltd Bank of New Zealand Standard Chartered Bank - Taipe JP Morgan Chase Citi Bank N.A Singapore HSBC New York Thailand Citi Bank N.A. Cho Hung Bank Oman Standard Chartered Bank American Express Bank Ltd Harris Bank International N.Y. Habib Bank A G Zurich Thai Farmers Bank Standard Chartered Bank DBS Bank Israel Discount Bank N.Y. Bank of Asia Overseas – Chinese Banking National City Bank N.Y. Pakistan Citi Bank NA Cop. Ltd Muslim Commercial Bank Ltd Shinhan Bank N.Y. Standard Chartered Bank Standard Chartered Bank Turkey U.S Bank (Formally First Mashreq Bank H S B C Bank Iktisat Bankasi T.A.S. National Association ) Dawood Bank Deutsche Bank Bank Kapital T.A.S. Standard Chartered Bank United Overseas Bank Tekstil Banksai A.S. Papua New Guinea Vanuatu UBAF KOC Bank Istanbul - Turkey ANZ Banking Group (PNG) Ltd ANZ Bank (Vanuatu) Ltd Soloman Islands UAE Philippines Vietnam ABN Amro Bank ANZ Banking Group Ltd ABN Amro Bank ANZ Banking Group Ltd Philippine Commercial Inl. Bank Habib Bank AG Zurich South Africa Citi Bank NA ANZ Banking Group Ltd Standard Chartered Bank ABSA Bank Limited Citi Bank NA. Mashreq Bank PSC Zambia NED Bank UAE Exchange HBZ Durban - Zambia State Bank of India Bank Sedarati Standard Chartered Bank Spain UK Zimbabwe Commerz Bank AG Bank of Ceylon Standard Chartered Bank Banco Santander Cenral Lloyds TSB Bank Hisapano S.A. Standard Chartered Bank Banca Nazionale Del Lavoro Midland Bank PLC S.P.A.
Annual Report 2007 105
Definition of Financial Terms
Accrual Basis transactions/last Balance Sheet date and the Segmental Analysis Recognising the effect of transactions and settlement/Balance Sheet date. Also arises Analysis of financial information by segments other events when they occur without from trading in foreign currencies. of an enterprise specifically, the different waiting for receipt or payment of cash or its geographical areas in which it operates. equivalent. Forward Exchange Contract Agreement between two parties to exchange Shareholders’ Funds Capital Adequacy Ratio one currency for another at a future date at a Total of issued and fully paid share capital The relationship between capital and risk rate agreed upon. and capital and revenue reserves. weighted assets as defined in the framework developed by the Bank for International Interest In Suspense Tier I Capital Settlements and as modified by the Central Interest suspended on Non-Performing Loans Core capital representing permanent Bank of Sri Lanka to suit local requirements. and Advances. shareholders' equity and reserves created or increased by appropriations of retained Cash Equivalents Investment Securities earnings or other surpluses. Short Term highly liquid investments that are Securities acquired and held for yield or readily convertible to known amounts of cash capital growth purposes and are usually held Tier II Capital and which are subject to an insignificant risk to maturity. Supplementary capital representing of changes in value. revaluation reserves, general provisions and Liquid Assets other capital instruments, which combine Commitments Cash and cash equivalents. certain characteristics of equity and debt Credit facilities approved but not yet utilised such as hybrid capital instruments and by the clients as at the Balance Sheet date. Provision for Non-Performing Advances subordinated term debt. Amounts set aside against possible losses on Contingencies loans, advances and other credit facilities as A condition or situation existing at Balance a result of its becoming partly or wholly Capital Reserve Sheet date where the outcome will be uncollectible. Capital Reserve consists of Revaluation confirmed only by occurrence or non- Reserves arising from revaluation of occurrence of one or more future events. Net Assets Value Per Share properties owned by the Bank and reserve Shareholders’ funds divided by the number of fund set aside for a specific purpose defined Dealing Securities ordinary shares in issue. under the Banking Act No. 30 of 1988 and Marketable securities that are acquired and shall not be reduced or impaired without the held with the intention of re-selling them in Related Parties approval of the Monetary Board. the Short Term. Parties where one party has the ability to control the other party or exercise significant Guarantees Documentary Credits influence over the other party in making Primarily represent irrevocable assurances Commercial letter of credit provided for financial and operating decisions. that a Bank will make payments in the event payment by a Bank to the named beneficiary that its customer cannot meet its financial usually the seller of merchandise, against Reserve Fund obligations to third parties. Certain other delivery of documents specified in the credit. A capital reserve created as per the provision guarantees represent non-financial Such undertakings are established for the of the Banking Act No. 30 of 1988. undertakings such as bid and performance purpose of facilitating international credit. bonds. Return on Average Assets Earnings per Share Profit after tax divided by the average assets. Value Added Profit after taxation divided by the weighted Value added is the wealth created by Risk Weighted Assets average number of ordinary shares providing banking services less the cost of On-Balance Sheet assets and the credit outstanding during the year. providing such services. The value added is equivalent of Off-Balance Sheet assets allocated among the employees, the Foreign Exchange Profit multiplied by the relevant risk weighting providers of capital, to government by way of Profit earned on foreign currency factors. taxes and retained for expansion and growth. transactions arising from the difference in foreign exchange rates between the
106 Annual Report 2007 Notice of Meeting
NOTICE IS HEREBY GIVEN that the THIRTEENTH ANNUAL GENERAL MEETING of PAN ASIA BANKING CORPORATION PLC will be held at Notes : the Crystal Room (Upper Ballroom) Hotel Taj Samudra, Galle Road, 1. A member entitled to attend and vote at the meeting is entitled Colombo 03 on 24th April, 2008 at 9.30 a.m. for the following to appoint a proxy to attend and vote in his/her stead. purposes :- 1. To receive and consider the Report of the Directors and the 2. A proxy need not be a member of the Company. The form of statement of Accounts for the year ended December 31st 2007 proxy is enclosed herewith. with the Auditors Report thereon. 3. The completed form of proxy must be deposited with the 2. To re-elect Mrs. H V Amarasekera who retires by rotation at the Company Secretary at the Registered Office of the Company, Annual General Meeting in terms of Articles 93 & 94 of the Articles of Association as a Director. 450, Galle Road, Colombo 3 not later than 48 hours prior to the time appointed for the holding of the meeting. 3. To re-elect Mr. L. Wickremarachchi who retires by rotation at the Annual General Meeting in terms of Articles 93 & 94 of the 4. Shareholders/proxies attending the meeting are requested to Articles of Association as a Director. bring their National Identity Cards. 4. To re-elect Mr. W D N H Perera who retires at the Annual General Meeting in terms of Article 100 of the Articles of Association as a Director.
5. To determine the remuneration of the Directors.
6. To approve donations made by the Directors during the year under review.
7. To declare a dividend of Rs. 0.75 (Cents 75) per share, as recommended by the Board of Directors.
8. To appoint the Auditors of the Bank, and to authorise the Directors to determine their remuneration.
BY ORDER OF THE BOARD
N. Fernando Company Secretary
PAN ASIA BANKING CORPORATION PLC 450, Galle Road, Colombo 3. 03 March, 2008
Annual Report 2007 107 Notes
108 Annual Report 2007 Form of Proxy
I/We……………………………………...... …………………………………………………………………………………………...... (NIC No/s …………………………...... ……………………………………………...... ……………………………………………………………...... …….... ) of ……………………………………..……………………………………………………………………………...... …………………………...... ………being a A shareholder/being shareholders of Pan Asia Banking Corporation PLC, hereby appoint
1. Aratchige Gunaratne Weerasinghe of Colombo or failing him Siyaguna Kosgodage Malcolm Nandasena of Colombo or failing him Harda Vimal Amarasekera of Colombo or failing her John Anthony Sunil Sumith Adhihetty of Colombo or failing him Ravindra Hewavitharana of Colombo or failing him Leelananda Wickremarachchi of Colombo or failing him Joseph Dharmar Chandra Coonghe of Colombo or failing him Wannakawattawaduge Don Nimal Hemasiri Perera of Colombo of failing him
2. ………………………………………………………………………………………………………………………………………………………...... ……... NIC No. …………………………………………………………………………………..……………………………………………………...... ………………. of …………………………………………………………………………………………………….....………………………………………...……… as my/our* proxy to vote on my/our* behalf at the Thirteenth Annual General Meeting of Pan Asia Banking Corporation PLC, to be held on 24th April, 2008 at 9.30 a.m. and at any adjournment thereof I/We, the undersigned, hereby authorise my/our* proxy to vote for me/us* and on my/our* behalf in accordance with the preference as indicated below. For Against 1. Resolution No. 1 To receive and consider the Report of the Directors and the Statement of Accounts for the year ended December 31st , 2007 with the Report of the Auditors thereon 2. Resolution No. 2 To re-elect Mrs. H V Amarasekera who retires by rotation at the Annual General Meeting in terms of Articles 93 & 94 of the Articles of Association as a Director. 3. Resolution No. 3 To re-elect Mr.L.Wickremarachchi who retires by rotation at the Annual General Meeting in terms of Articles 93 & 94 of the Articles of Association as a Director. 4. Resolution No. 4 To re elect Mr. W D N H Perera who retires by rotation at the Annual General Meeting in terms of Article 100 of the Articles of Association as a Director 5. Resolution No. 5 To determine the remuneration of the Directors in terms of Article 84 of the Articles of Association. 6. Resolution No. 6 To approve donations made by the Directors during the year under review 7. Resolution No. 7 To declare a dividend of Rs. 0.75 (Cents 75) per share, as recommended by the Board of Directors. 8. Resolution No. 8 To appoint the Auditors of the Bank until the conclusion of the next Annual General Meeting and to authorise the Directors to determine their remuneration.
As witness I/we* have set my/our* hand/s* hereunto this ………………….. day of ………………………. Two Thousand and Eight.
……………………………………… Signature of shareholder
Form of Proxy
Note : Instructions as to completion of the Form of Proxy 1. To be valid, this form of proxy must be deposited with the Company Secretary at the Registered Office situated at No.450, Galle Road, Colombo 3, before 9.30 a.m. on the 22nd April, 2008 being 48 hours before the time appointed for holding the meeting.
2. In perfecting the form of proxy please ensure that all details are legible.
3. The proxy appointed need not be a shareholder of Pan Asia Banking Corporation PLC.
4. If the shareholder is a Company/Corporation, the proxy must be under its Common Seal, which should be affixed and attested in the manner prescribed by its Articles of Association.
5. A shareholder appointing a proxy (other than a Director of the Bank) to attend the meeting should indicate the proxy holder's National Identity Card (NIC) number on the Form of Proxy and request the proxy holder to bring his/her * National Identity Card with him/her*.
6. Please indicate with 'x' in the space provided how your proxy is to vote on each resolution.
* Delete whichever is inapplicable.