Amãna Bank

Amãna Bank 480, Galle Road, Colombo 3, Sri Lanka. ANNUAL REPORT 2013 www.amanabank.lk

ANNUAL REPORT 2013 Our Vision To provide a differentiated banking experience in Sri Lanka, through an equitable financial system

Our Mission To share risks and rewards with all our customers by delivering Sharia compliant financial solutions based on innovation and technology

We believe We believe that you have a right to be treated fairly We believe that one should not gain at the expense of another We believe that being responsible and ethical is as important as making profits and gains We believe that entrepreneurship should be encouraged and given a fair opportunity to succeed We believe that the best of actions are the ones which create true happiness in people We believe that you feel the same way we do We have a unique approach to banking which is in sync with our beliefs Our financial solutions are responsible, ethical and fair We are Amãna Bank. It’s Your Bank The Buzz

Success and prosperity is hard to come by. It takes hard work and determination to overcome the odds. There is a hive of activity going on at Amãna Bank. Our people are busy as bees, often facing challenges, yet always heading towards success. It is only a matter of time before the ‘honey of prosperity’ will flow for the Bank and its stakeholders alike to taste the flavour of our success. Contents Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148 Financial Reports Independent Auditors’ Report 152 Capital Adequacy Computation 208 Income Statement 153 Shareholder Information 211 Statement of Comprehensive Income 154 Correspondent Banks 213 Statement of Financial Position 155 Branch Network 214 Statement of Changes in Equity 156 Glossary of Terms 215 Statement of Cash Flows 157 Notice of Meeting 217 Notes to the Financial Statements 158 Form of Proxy Enclosed Compliance with Other Disclosure Requirements Corporate Information Inner Back Cover Specified by the Central Bank of Sri Lanka 205 4 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Financial Highlights Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

2013 2012 Change LKR LKR LKR Results for the Year Financing Income 1,768,061,705 1,300,618,090 467,443,615 Financing Expenses 1,050,007,868 732,071,273 317,936,595 Net Financing Income 718,053,837 568,546,817 149,507,020 Profit/(Loss) for the Year (317,033,901) 145,994,652 (463,028,553)

Position at the Year End Deposits 17,983,111,581 13,302,501,452 4,680,610,129 Advances 15,015,318,081 7,165,461,019 7,849,857,062 Total Assets 23,397,855,691 16,717,424,084 6,680,431,607 Shareholders' Funds 5,062,033,380 3,071,215,500 1,990,817,880

Information per Share Earnings (0.33) 0.16 (0.49) Net Assets Value 4.99 3.40 1.59

Industry 2013 2012 2013 Ratios Growth in Income 19.3% 35.9% 269.5% Growth in Deposits 15.0% 35.2% 17.1% Growth in Advances 8.8% 109.6% 44.0% Growth in Total Assets 16.6% 40.0% 15.3% Growth in Shareholders' Funds 12.4% 64.8% 2.3% Advances to Deposits 82.2% 83.5% 53.9% 5 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148 6 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Chairman’s Message Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65 7 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

10 NEW BRANCHES | TRIPLE DIGIT GROWTH IN FINANCING ASSETS | OVER 100,000 CUSTOMERS | A SUCCESSFUL IPO | LISTED ON THE BOURSE |

In the Name of Allah the Most Gracious the Most Merciful !

It is after achieving those key milestones that I welcome you to the Fifth Annual General Meeting of the Bank. As the first and only fully Sharia compliant bank in the country we have strongly made our presence felt after making a meaningful contribution to the overall growth of the banking industry in the year 2013. This is an encouraging sign for a new bank and places us in good stead to further penetrate the industry as we take giant strides in our journey to become a premier banking institution in Sri Lanka.

GLOBAL AND LOCAL ECONOMIC OVERVIEW The global economy showed positive signs of bouncing back as it grew by 3% during the year under review. Global activity and world trade gathered momentum particularly in the second half of the year. Emerging and developing economies benefited from strong external demand in the advanced economies and are expected to progressively grow in 2014 and 2015. The projected growth rates of advanced economies have also been favourable but risks such as inflation and financial instability remain a concern for policy makers.

On the other hand, the local economy with a sustainable growth model and sound macroeconomic policies performed to expectations amidst mounting challenges, recording a growth rate of 7.3% in 2013. In a bid to stimulate economic growth in the country, the Central Bank of Sri Lanka reduced policy rates on two occasions during 2013 which led to a decline in market rates. It was a mixed year in terms of the exchange rate with the Rupee gaining ground 8 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

YOUR BANK, IN LINE WITH ITS during the first half of 2013 but on average the Rupee depreciated against the US Dollar by STRATEGIC BUSINESS PLAN, 2.7% during the year. Inflation continued its downward trend with another year of single digit OPENED 10 NEW BRANCHES IN inflation to end 2013 at 4.7%. KEY LOCATIONS ATTRACTING NEW CUSTOMERS YOUR BANK SETS THE PACE IN 2013 Your Bank, in line with its Strategic Business Plan, opened 10 new branches in key locations attracting new customers by taking the concept of Islamic finance to the untapped regions in our country. The expansion in reach was much welcomed and the response so far has been promising with Consumer and SME being the revenue generating segments.

The 18% credit growth ceiling that was imposed on the banking sector in the previous year was removed in 2013. As a result, the Bank embarked on an aggressive strategy to ensure that a substantial level of growth is achieved in the medium term. The targets set for the year under review were ambitious but the results in terms of balance sheet growth epitomises that a focused approach can yield tremendous results. In this backdrop, the Bank recorded remarkable growth in customer financing and a substantial increase in customer deposits with the former achieving triple digit growth. The balance sheet further strengthened as the total assets of your Bank increased to LKR 23 billion taking a leap towards achieving the status of a mid-sized bank in the years to come.

With the growth in assets and the resultant impact on revenue, core banking income has increased significantly. However, the inauguration of 10 new branches coupled with investments in key areas such as people, processes, systems and infrastructure meant that increased costs had to be incurred for expansion purposes. The performance of the stock market did not help the Bank as the equity portfolio recorded losses after the share prices declined during the year. This was in contrast to last year, when the Bank recorded a substantial gain of LKR 247 million. Further, in 2012, the Bank reaped the benefits arising out of high global gold prices and was able to record a one-off gain of LKR 149 million by disposing its gold portfolio. As a result, the Bank recorded a loss for the year under review amounting to LKR 317 million compared to the profit of LKR 146 million in 2012. 9 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

A SUCCESSFUL IPO AMIDST DIFFICULT MARKET CONDITIONS To fulfil regulatory requirements and support the proposed expansion plans, the Bank raised more equity capital in 2013 via a Rights Issue at the beginning of the year and an Initial Public Offering (IPO) in December after which the Bank’s shares were listed on the Colombo Stock Exchange in 2014 against tough market conditions. Once again the Bank showed the same resilience as it did when it raised the required capital funds to set up this institution during the height of terrorism in the country. I take this opportunity to thank all those who invested in the Bank that offers a unique value proposition which bears testament to the belief and trust in our sustainable banking model.

With the decline in market rates the pressure on margins was felt with banks expected to improve efficiency and manage their assets and liabilities more prudently in pursuit of being profitable. For a small and new bank which is fast expanding and pursuing operational profitability this was a challenge on its own to remain competitive. However, the impact of lower margins was managed effectively by recording higher volumes in terms of customer financing and acquiring low cost deposits.

LOOKING AHEAD FOR SUSTAINABLE RESULTS The Central Bank of Sri Lanka estimates the economic growth rate to exceed 8% in the medium term with six broad sectors identified in the policy document of the Government being the focal points. As we head towards a USD 100 billion economy it is important that we attract foreign direct investment to spur growth and create employment opportunities. Whilst investment remains a focal point it is vital to look at alternative sources of export earnings diversifying into areas such as technology which will reduce the reliance on traditional exports.

We believe that private sector credit, which took off in the second half of 2013, will continue to grow with market rates easing and as infrastructure projects get underway connected with urban and rural development. Your Bank will remain committed in assisting its customers to flourish in this era of growth and contribute towards the country’s formula in achieving sustainable economic growth. The Bank is also exploring the possibility of further introducing new products which would generate non-funds based income. With the squeeze on margins expected to continue and international trade on the rise it is perfectly apt to have such offerings boosting the bottom line. 10 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

The achievements in 2013 speak volumes of our efforts to mould the Bank for the future and make this entity a profitable one in the years ahead. In that background, we are certain 2014 will be a challenging year once again and I am confident with the Grace of God Almighty and the collective strength of Team Amãna we can meet the expectations of all our stakeholders alike.

ACKNOWLEDGEMENTS My Colleagues on the Board have contributed in every possible way to build the Bank. I would like to thank all the members for their assistance, commitment and dedication in guiding the Bank with constructive decision-making amidst challenging times.

I take this opportunity to welcome Dr. Muhammad Imran Ashraf Usmani who was appointed as Chairman to the Sharia Supervisory Council with effect from 4 July 2013. Dr. Usmani is a highly respected Islamic Scholar and I trust that the Bank will benefit from his knowledge and expertise in the field of Islamic finance. My sincere gratitude goes out to the Members of the Sharia Supervisory Council for having ensured that Amãna remains a fully Sharia compliant bank under the ‘Zero Tolerance’ approach to Sharia risk management.

The Senior Management and staff have lived up to the challenge as a team and their collective efforts reaped fruitful results which augurs well for the Bank as the journey towards profitability gets closer.

I am grateful to the officials of the Central Bank of Sri Lanka for their continued guidance and supervision.

Our customers will always remain in our hearts and minds as we endeavour to create more value for the trust and confidence placed in us. I thank all our customers for being loyal and supportive as the Bank braved another stormy year. We take great pleasure in serving our customers whilst striving to improve the quality of service and raise their satisfaction levels. 11 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

Finally, you being the shareholders of the Bank have been inspirational and encouraging. At the recently concluded IPO, you saw potential in this institution and invested with us anticipating growth in the medium to long term. All these motivate us to work harder and hunt for success in order to create value to our valued shareholders in the near future. I must convey my sincere appreciation to all of you for having utmost faith in us.

Osman Kassim Chairman

Colombo 24 March 2014 12 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Managing Director/ Independent Sharia Supervisory Council 28 Corporate Management Team 30 CEO’s Review Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65 13 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

HAVING RE-GATHERED MOMENTUM AND FOLLOWING THE STRATEGIC INITIATIVES WE MADE DURING 2013, OUR PRIMARY OBJECTIVE FOR 2014 IS TO CONSOLIDATE OUR RESOURCES AND REACH OPERATIONAL BREAK- EVEN IN THE COURSE OF THE YEAR.

OPERATING ENVIRONMENT In 2013, we continued to build our Bank amidst a challenging operating environment.

The Bank operated in an economic environment where global economic growth averaged 3%, with higher growth rates in the emerging Asian economies compensating for the low growth rates in the advanced Western economies. Sri Lanka's economy grew at 7.3% which was higher than the 6.4% growth recorded in the previous year. Despite the country's potential for higher growth, its dependency on the Western economies for export revenue and the lagged effects of the tight monetary policy measures taken had considerable impact on the growth rate in the year.

The banking sector saw moderation in profitability, rising Non-Performing Loans (NPLs) and a continuing trend in asset quality deterioration reflecting the challenges in the operating environment and the consequential effect of rapid credit growth. Credit expansion decelerated dramatically during the year in response to the tightening measures implemented by the Regulator in 2012. There was pressure on borrower credit profiles and cashflows; and there was pressure on banking spreads in the wake of a declining interest rate regime where asset portfolios in the industry were getting re-priced faster than the liability portfolios.

Despite such clouds hovering in the environment, we revved our engines and worked hard on the objectives we had set for the Bank in 2012. As we had envisaged in our 2012 Annual Report, 2013 was the real launch pad year for the Bank. With the Central Bank of Sri Lanka lifting the ceiling on credit, we re-gathered our momentum, shifted into top gear and rapidly engaged our full resources in expanding our reach and customer conveniences; increasing our product 14 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

offerings; growing our asset book; raising new capital through a Rights Issue and an Initial Public Offering (IPO) of shares; and listing the Bank's shares on the Colombo Stock Exchange.

STRATEGIC STEPS Expanding our footprint was of paramount strategic importance to the Bank in order to gain first mover advantage in the market. We opened 10 new branches in the first 10 months of the year across selected geographical locations. It is noteworthy to mention that we opened a new branch every 3 to 4 weeks on the average. This was a commendable feat for a small and new bank such as ours. The Bank enhanced its customer conveniences and experiences at the transaction level by adding extended banking services beyond normal hours, cheque deposit kiosks and utility bills payment facilities to its distribution network.

We introduced 20 new products to the market. As a bank with a clear focus on the Consumer and SME business segments, our new products and services were specifically directed at these segments and were supported by appropriate re-engineering of our business processes to enable faster turn-around times. These initiatives resulted in the Bank penetrating the identified strategic business segments, acquiring new customers as well as scaling up targeted existing customers from 'transaction banking' relationships to 'primary banking' relationships.

In mobilising deposits to fund the asset growth we forayed into our new branch territories with aggressive promotions on Children's saving accounts, Senior Citizens' savings accounts, Ladies savings accounts and Salary Saver accounts all of which had a strong CASA deposits focus and contributed to the low cost deposit mobilisation effort of the Bank. Our CASA balances grew by LKR 1.8 billion (or 23%) in the year. This was of particular relevance in protecting the Bank's profit spread in a falling interest rate scenario.

PERFORMANCE HIGHLIGHTS In response to this strategy the Bank's customer assets grew remarkably by over 100% and reached LKR 15 billion and customer deposits increased by 35% to reach approximately LKR 18 billion by the year end. The comparative average industry ratios were 8.8% and 15% respectively. Despite the impressive asset growth on the Bank's balance sheet, the gross Non- Performing Advances (NPA) ratio was contained at 1.8% against an industry level of 5.6% which speaks well of our risk management policies and procedures. The year ended with the Advances/Deposits (AD) ratio reaching a desirable 83% which was a marked improvement on the constrained 54% level achieved in 2012 under the credit ceiling. 15 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

We closed the year with customer assets and deposits on the Bank's balance sheet registering growth rates well above the industry averages, and the net financing income exceeding the previous year's level by LKR 149 million (or 26%). Nevertheless, the Bank posted a bottom line loss of LKR 317 million in the year primarily due to the strategic costs associated with the 10 new branches and losses arising from non-core banking activities. It would be pertinent to note here that the profit reported in 2012 included one-off gains from non-core banking activities and hence is not a good comparison with this year's results. Core banking results were severely constrained in 2012 by the ceiling on credit growth. A robust and significant take-off on asset growth began only in 2013. Accordingly the revenue generation benefits arising from such growth and the strategic network expansion could be expected to flow only in the coming years.

The Statutory Liquid Asset Ratio continues to be comfortably above the required level of 20%. With the infusion of new capital funds from the Rights Issue and the IPO, the Core Capital Ratio and the Total Capital Adequacy Ratio are at a healthy 21% each in relation to the required statutory levels of 5% and 10% respectively.

The capital raising effort through the IPO was indeed a tremendous challenge for the Bank. We had to respond to the increased minimum capital requirement set by the Regulator by the year end of 2013 and also raise new capital to fund the Bank's expansion strategy. In doing so, we were faced with the challenge of raising LKR 1.5 billion in equity investment funds amidst dwindling stock market confidence and a tide of attractive interest-based debenture issuances amounting to about LKR 70 billion floated by a number of conventional banks and finance companies as well as corporates all of which swiftly mopped up the liquidity in the market. The strategies we adopted to raise the targeted capital under these challenging circumstances worked out well for the Bank and resulted in an oversubscription of the IPO and a successful closure of the issue.

SOCIAL RESPONSIBILITY The Bank continued to play its role in CSR activities specifically in areas such as healthcare, education and the environment, the details of which are stated elsewhere in this Annual Report. These were over and above the core level of social responsibility that is inherently embedded in the Bank's DNA based on the ethical principles of profit and loss sharing and which is clearly manifested in the way we practice banking and transact business in the market. 16 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

2014 AND BEYOND In our journey since the inception, the Bank has faced tough challenges every year. 2014 is expected to have no less in the number and intensity of challenges. Having re-gathered momentum and following the strategic initiatives we made during 2013, our primary objective for 2014 is to consolidate our resources and reach operational break-even in the course of the year. The Bank will vigorously pursue this goal as it would be a significant milestone in the journey to create wealth for our shareholders.

In this regard, the Bank will focus on generating more revenue out of the 24 branches whilst continuing with its tenacious approach to cost management in 2014 and beyond. With technology in a state of constant change, there would always be better ways of doing things. The Bank will continuously seek out efficient processing alternatives and reduce operational expenses. In 2013, a dedicated strategic planning unit was set up. This unit continuously monitors the progress on the implementation of the Bank's strategic plan, reviews various business processes and makes appropriate recommendations for the improvement of process efficiencies across the Bank's business operations. It is currently evaluating alternative distribution channels to the traditional 'brick and mortar' model.

With a view to further adding value and enhancing customer convenience, the Bank is now poised to offer VISA enabled debit cards to our customers during 2014. Products that meet both the needs of our customers and the approval of the Bank's Sharia Supervisory Council (SSC) continue to be a challenge in our journey. After long deliberations the SSC has approved essential products such as pawning, bill discounting and overdrafts. When regulatory and systems support are in place these products would be rolled out in 2014 and are expected to significantly catalyse the Bank's asset growth.

The lack of Sharia-compliant, gilt-edged Treasury instruments equivalent to the conventional Treasury Bills and Treasury Bonds continues to pose a considerable challenge to the management of surplus liquidity and limits the profitability of the Bank's Treasury operations. We highlighted this matter in our 2012 Annual Report and reiterate the dire need for alternative Treasury instruments in this report as well. 17 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

The Bank has fulfilled the regulatory requirement to list its shares on the Colombo Stock Exchange and has since engaged a reputed international rating agency to provide an external rating. Preparations are underway to complete this exercise in 2014.

FINANCIAL SECTOR CONSOLIDATION Consolidation in the Financial Sector is a new challenge the Bank has to face. It is now Regulator-driven. The Central Bank of Sri Lanka in its Road Map for consolidation is pursuing a two pronged approach directed at ensuring financial stability and enhancing overall efficiency in the industry. The consolidation process is eventually expected to result in a few but stronger players in the financial sector. In this context, banks such as ours are expected to substantially increase their capital bases and total assets to a minimum of LKR 10 billion and LKR 100 billion respectively within the timelines specified by the Regulator. The Bank will have to evaluate the ways and means by which it can meet these twin requirements over the next few years and appropriately fit into the consolidation plan for the industry. The Board is currently deliberating on the strategies to meet the additional capital required by the dawn of 2016 and the asset growth over the next 4 to 5 years. Both these requirements constitute a tremendous sustainability challenge to small banks such as ours. Our response to the consolidation challenge must be well thought out and deliberated in terms of scalability and return on investment. In this regard we must strive to rise above emotion-driven considerations and develop a response based on objective analysis.

PEOPLE People are fundamental to the existence of our business. They drive our business engine. Our unique model of banking requires a skills set that is not readily available in the market. Our human talent is essentially home-grown and our people are our most valuable assets. Our people in the frontlines of the Bank not only market our products and services but are also the brand ambassadors for the Bank’s unique value proposition to the market.

We remain committed to continuously growing this talent pool. With the addition of new branches to the Bank's distribution network, the training and development of our human resources are critical success factors. In addition to the various internal training programmes, the Bank also provides inputs towards the design, content and delivery of certificate level and diploma level academic programmes of the Institute of Bankers of Sri Lanka as part of our contribution to the growth and development of the Islamic banking industry in our country. 18 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

APPRECIATION When we started the Bank in 2011, we had a choice of either building an institution or simply running a business. A business may be run in many ways but there is only one way to build an institution - and that is building it on a strong foundation of good corporate values and governance, sound policies and procedures, efficient business processes, and competent and reliable people all of which working in harmony to build an admirable and lasting institution and a sustainable banking business. We chose to build a banking institution based on the principles of good corporate governance and on the principles of fairness, equity and justice which are the cornerstones of the Sharia banking model. Every year since our inception we have seen several challenges to our institution building process and the Bank has faced every challenge with admirable courage and resolve.

I wish to thank the Chairman and my colleagues on the Board for their confidence in me and their support during the challenging times we have been through; the Governor and all officials of the Central Bank of Sri Lanka for their appropriate advices, guidance and support; the distinguished scholars on the Sharia Supervisory Council for their advice and guidance on matters of Sharia; my Corporate Management Team and all our employees for their commitment, perseverance and unstinted support through the many challenges we have faced and overcome together as a team; our shareholders for their trust and confidence and all our customers for their continued reliance on the Bank for the right banking solutions.

Faizal Salieh Managing Director/CEO

Colombo 24 March 2014 19

Amãna Bank Annual Report 2013

Range There has been quite a buzz around the Bank’s product portfolio during 2013. We have added 20 new products, reaching more customers and thereby increasing penetration and market share. The ‘cells’ of our portfolio are filling up nicely, with many more additions and improvements lined up. 20 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Board of Directors Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

Osman Kassim Tyeab Akbarally Faizal Salieh Chairman Deputy Chairman and Non-Executive, Managing Director/CEO Non-Independent Director

Ruzly Hussain Angelo M. Patrick Haseeb Ullah Siddiqui Non-Executive, Independent Director Non-Executive, Independent Director Non-Executive, Non-Independent Director

Badrul Haque Khan Mrs. Preeni M. Dunuwille Koralege Non-Executive, Non-Independent Director Secretary to the Board 21 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

Dato’ A. Tajudin B.H. Abdul Rahman Dr. A.A.M. Haroon Mohamed Jazri Magdon Ismail Senior Director and Non-Executive, Non-Executive, Non-Independent Director Non-Executive, Independent Director Independent Director

Jeroen Thijs Wahid Ali Mohd Khalil Harsha Amarasekera Non-Executive, Non-Independent Director Non-Executive, Non-Independent Director President’s Counsel Non-Executive, Non-Independent Director 22 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

Osman Kassim Faizal Salieh Chairman Managing Director/CEO Osman Kassim counts well over 35 years of business management Faizal Salieh has well over three decades of extensive experience in experience in diverse areas of business and is the founder commercial and development banking both in Sri Lanka and overseas; Chairman. He is also the founder Chairman of Expolanka Group of has held top management positions in global and local banks such as Companies which is a large and well diversified Corporate Group Grindlays Bank, ANZ Bank and National Development Bank; Board of 40 companies engaged in the export of tea and non traditional Director of several companies in the business of banking, finance, fund commodities, import trading, food processing, freight forwarding, management, stockbroking, manufacturing, trading and education; has manufacturing, waste management systems, entrepôt trading, travel served on State University Boards, and several Government and Non- and tours, airline agencies, cargo services and aviation. The Group’s Governmental Committees in the fields of finance, economic affairs, annual turnover exceeds US$ 400 million and it is well respected for housing, construction and tertiary education. its strong business ethics. He led the formation of NDB Housing Bank, the country’s first private He is also the Chairman of the Asia Pacific Institute of Information sector housing bank and was its CEO and Board Director. In 2004, Technology (APIIT) in Sri Lanka, a joint venture with APIIT, Malaysia. he took a tremendously challenging job as Managing Director of An Honorary Doctorate from the Staffordshire University was Amãna Investments Limited, an unregulated non-bank financial bestowed upon Mr. Osman Kassim in recognition of his achievements institution, transformed its entire business and led the formation and as both a global entrepreneur and visionary educationalist. establishment of Amãna Bank in 2011. He also played a key role in facilitating appropriate changes to the country’s regulatory, fiscal and He is a member of several Chambers of Commerce and has been a legislative framework to support Islamic banking. member of Sri Lanka’s Investment and Trade Promotion Delegations to the Middle East from time to time. He is an active member of the Main Committee of the Ceylon Chamber of Commerce, the premier Trade Chamber in Sri Lanka Tyeab Akbarally and serves on the Chamber’s Finance, Banking and Capital Markets Deputy Chairman and Non-Executive, Non-Independent Director Steering Committee, National Integration Steering Committee and Ethics Steering Committee. In addition, he currently serves on Tyeab Akbarally is a Senior Director of Akbar Brothers Limited, the Boards of LankaClear (Private) Limited which is the Country’s Falcon Trading (Pvt) Limited, Quick Tea (Pvt) Limited and Falcon automated cheque clearing house, The Sri Lanka Institute of Commodities (Pvt) Limited. Akbar Brothers are the leading tea Directors, Institute of Bankers of Sri Lanka and Distance Learning exporters of the country and have won many awards for their export Centre Limited. He is also the Chairman of the Technical Committee performances. He has also served as a member of the Executive on Islamic Banking of the Sri Lanka Banks Association. Committee of the National Chamber of Commerce and as a Committee member of the Ceylon Chamber of Commerce of which Faizal holds a Bachelor’s Degree in Economics with First Class he has been a member for a number of years. Honours, a Master’s Degree in Business Administration and is a Fellow of the Institute of Certified Professional Managers in He has also been the Chairman of the Spice and Allied Products Sri Lanka. Traders’ Association and the Chairman of the Colombo Tea Traders’ Association. He has considerable experience in the import and export trade and a large part of his business is with the Middle East. 23 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

Dato’ A. Tajudin B.H. Abdul Rahman Mohamed Jazri Magdon Ismail Senior Director and Non-Executive, Independent Director Non-Executive, Independent Director Dato’ A. Tajudin B.H. Abdul Rahman is the former Managing Director Mohamed Jazri Magdon Ismail is the Financial Consultant of Ramada of Bank Islam, Malaysia. He holds a Master’s Degree in Business Hotel, Colombo. He has served on the Directorate of Alhambra Hotels Administration and a Bachelor’s Honours Degree in Economics. He Limited, the owners and operators of Holiday Inn Colombo. He is a counts over 30 years of banking experience of which 21 years have Fellow of The Institute of Chartered Accountants of Sri Lanka and been in Islamic banking. is a member of the Institute of Certified Management Accountants, Australia. He is a Nominee of the ICASL on the Governing Council of His present positions include Chairman of the Board of Trustees of the Association of Accounting Technicians of Sri Lanka, of which he Malaysian Islamic Economic Development Foundation; Founder is also a Fellow Member. President of the Association of Islamic Banking Institutions in Malaysia; Director of the Kedah Islamic Institute; Director of the Ruzly Hussain Islamic University College, Malaysia; and Adjunct Professor of Non-Executive, Independent Director Banking and Finance, University Utara, Malaysia. He has also held Ruzly Hussain has over 46 years of experience in the field of Industry Board positions with the Accounting and Auditing Organisation for and Trading. He is the Company Director/Chairman of M.C. Abdul Islamic Financial Institutions and the General Council for Islamic Rahims & Brothers Limited and holds Directorates at Worldstar Banks and Financial Institutions, Bahrain. He has won several Lanka (Pvt) Limited, Cleansol (Pvt) Limited and Free Lanka Media awards and honours in Malaysia in recognition of his contribution (Pvt) Limited. to banking and society and was conferred the title of Dato in 1994 by His Majesty the Sultan of Kedah. Angelo M. Patrick Non-Executive, Independent Director Dr. A.A.M. Haroon Non-Executive, Non-Independent Director Angelo M. Patrick holds an MBA from the University of Colombo and is a Fellow Member of the Chartered Institute of Management Dr. A.A.M. Haroon is a graduate of King Edward Medical College, Accountants (UK) and a Member of the Institute of Marketing (UK). Lahore, Pakistan. Dr. Haroon is also the Chairman of Lucky Group He has held Directorates and Senior Management positions over of Companies which is engaged in the manufacturing and export the past 40 years in Sri Lanka, Indonesia and Canada. Some of the of ready-made garments and textiles, real estate development and positions he held are Group Director, Capital Maharaja Organisation health care. He is the President of the Sri Lanka-Pakistan Friendship Limited, Managing Director, NDBS Stock Brokers Limited, Director Association and the Memon Association of Sri Lanka. Dr. Haroon (per pro) Carson Cumberbatch Limited, Senior Management practices as a family physician in Colombo. He is also a Panel Doctor Consultant, Bank of Ceylon, Finance Manager, P.T. Condong Garut, for foreign airlines, foreign missions and Hotel Taj Samudra, and is a Jakarta, Indonesia. Council Member of the Medical Practitioners’ Association. 24 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

He was the President of the Chartered Institute of Management Jeroen Thijs Accountants, Sri Lanka Division in 1993-94 and represented Non-Executive, Non-Independent Director Sri Lanka on the Global Council of CIMA in the United Kingdom for Jeroen, holder of a Master’s Degree in Business Economics from 3 years. He is a Lecturer and Examiner for the Postgraduate Diploma the Erasmus University, Rotterdam and bringing with him close in Manufacturing Management in the University of Colombo. He was to 22 years of international banking experience, currently holds a Member of the Sri Lanka Accounting Standards Committee and the Senior General Manager and Chief Risk Officer positions the Corporate Governance Committee of The Institute of Chartered at Bank Islam, Malaysia, overseeing and managing all credit, Accountants of Sri Lanka. market, liquidity and operational risks. Since joining in January 2009, he has built up a robust Enterprise Wide Risk Management Haseeb Ullah Siddiqui Framework resulting in a much improved risk culture and enabling Non-Executive, Non-Independent Director the Bank to move from reactive risk control to proactive portfolio Haseeb Ullah Siddiqui is the Division Manager, Advisory and Support, management. Having gained extensive hands-on experience in the Islamic Financial Services Department, Islamic Development Malaysian Islamic banking model, he frequently gives lectures to Bank, Saudi Arabia (IDB). He holds a Master’s Degree in Business various Central Banks in the Asian and Eastern European regions Administration specialising in Finance from the University of on Islamic banking Operations and Risk Management in Islamic Missouri (USA) and a Bachelor’s Degree in Business Administration banking. Before joining Bank Islam in January 2009, Jeroen had from Kansas City University (USA). spent most of his career with Tier I International banks in London, Amsterdam, Singapore and Tokyo. He brings 17 years of multi-disciplinary experience in corporate banking and credit, project finance and business advisory with He has worked in various senior executive roles with the main leading global companies like American Express Bank, Riyadh focus on Risk Management, but also on the front office/business Bank and Ernst & Young. Prior to joining IDB in 2010, Haseeb was side which has added to his deep understanding of traditional heading the Financial Economic Solutions Group at Ernst & Young, and complex banking products. Jeroen is a member of the Risk Bahrain, focusing on strategic projects in economic development, Management working group, part of the Risk Management Advisory infrastructure and public-private partnership. Until 2009, he led Council of the Asian Institute of Finance and sits on the Professional the Transactions Team in Ernst & Young’s award-winning Islamic Risk Managers’ International Association (PRMIA) Malaysian Financial Services Group in Islamic retail/wholesale banks, funds, Chapter Steering Committee. and private equity functions. He was the Acting CEO of the Waqf Fund at Central Bank of Bahrain from 2007-2010, on secondments from Ernst & Young, charged with developing the Islamic financial sector in Bahrain. 25 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

Wahid Ali Mohd Khalil Badrul Haque Khan Non-Executive, Non-Independent Director Non-Executive, Non-Independent Director Wahid Ali Mohd Khalil is currently the Chief Operating Officer, Badrul Haque Khan is currently working as the Deputy Managing Business Support, of Bank Islam, Malaysia. He holds a Master Director and Head of Credit in AB Bank Limited, Bangladesh. of Science in Economic Crime Management and Bachelor of Previously he held the posts of Chief Financial Officer and Company Economics in Business Management. He is a Member of the Institute Secretary of the Bank. He is a Nominated Director in the Board of of Bankers Malaysia (MIBM) and an Associate Member of the Central Depository of Bangladesh Limited (CDBL) as a Nominee of Institute of Internal Auditors Malaysia (AIIA). He is also a member AB Bank Limited. He is also nominated to Head the Arab Bangladesh of the Financial Planning Association of Malaysia (FPAM) and the Bank Foundation (ABBF), the Philanthropic wing of AB Bank. Badrul Federation of Malaysian Unit Trust Managers (FMUTM). He joined Haque Khan is a Chartered Accountant and a Fellow Member of the Bank Islam as the Chief Internal Auditor in 2007. Prior to joining Institute of Chartered Accounts of Bangladesh (ICAB). He holds a Bank Islam, he spent 5 years at Affin Bank Berhad handling various Master’s and a Bachelor’s Degree in Accounting from the University portfolios, including Chief Internal Auditor, Director, Banking of Dhaka. Operations and Services, as well as Group Head of Operation Risk Management. Before joining Affin Bank, he spent more than 20 Mrs. Preeni M. Dunuwille Koralege years in HSBC Bank holding various positions which included stints Secretary to the Board at Branches, Head Office departments such as Credit Cards, Credit Mrs. Preeni Manjula Dunuwille Koralege is an Attorney-at-Law and Control, Credit Administration and Trade Finance, as well as Deputy also holds a LLB Degree from the University of Colombo with 22 Head of Internal Audit. years of experience in active Legal Practice and Corporate Law and Banking. She is also a qualified Company Secretary. Harsha Amarasekera President’s Counsel She commenced her career as a Professional Assistant at Messrs F.J. & Non-Executive, Non-Independent Director de Saram, one of the oldest Law Firms in Sri Lanka and worked there Harsha Amarasekera, President’s Counsel, has a wide practice in the for 6 years. Thereafter, she joined the ABN Amro Bank and served Original Courts as well as in the Appellate Courts, particularly in the for 8 years handling Legal, Recoveries, Credit Risk Management and areas of Commercial Law, Business Law, Securities Law, Banking Law Control. Subsequently she joined Confifi Group of Companies as the and Intellectual Property Law. He serves as an Independent Director General Manager, Legal and Corporate and served for 3 years prior in several listed companies in the Colombo Stock Exchange including to joining People’s Bank on 1 September 2005 as the Legal Advisor to Vallibel One PLC, Expolanka Holdings PLC, CIC Holdings PLC, the Board and Chief Compliance Officer. She was a member of the Chevron Lubricants Lanka PLC, Keells Food Products PLC, Amaya People’s Bank Corporate Management Team. In May 2009, she joined Leisure PLC and Vallibel Power Erathna PLC. Amãna Investments Limited as the Head of Legal and the first lady member of its Corporate Management Team and is currently holding the position of Chief Compliance Officer and Company Secretary of the Bank. 26 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

2011

We are the first and only Licensed Obtained Commercial Banking License Commercial Bank in Sri Lanka to conduct Building the Bank’s foundation by setting up all operations under the principles of systems, processes and human resources Islamic banking and be fully disengaged from interest based transactions. Opening the doors - The Launch of Amãna Bank - A unique addition to the banking industry in Sri Lanka

Achieved a Deposit portfolio of LKR 11.4 billion 27 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

2012 2013

Consolidating resources, process efficiency Expanded our footprint to reach more Sri Lankans and corporate governance with our unique banking model - Addition of 10 new branches Launch of ATM, Saturday Banking and Prestige Banking Platform Introduction of New Products and Services for customer convenience Growth of LKR 1.9 billion in Customer Deposits and LKR 2.2 billion in Customer Successful Initial Public Offering raising LKR 1.6 Advances billion worth of shares from over 3,500 shareholders

Globally and locally honoured as the Best Growth of over LKR 4.6 billion in Customer Deposits Islamic Bank and Financial Services Provider and LKR 7.8 billion in Customer Advances in Sri Lanka More global and local accolades added to our Trophy cabinet to testify Amãna Bank’s leadership in Islamic Banking and Financial Services in Sri Lanka 28 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Independent Sharia Supervisory Council 28 Corporate Management Team 30 Supervisory Council Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

Dr. Muhammad Imran Ashraf Usmani Chairman (Appointed w.e.f. 4 July 2013) Dr. Muhammad Imran Usmani, son of Justice (Retd) Mufti Muhammad Taqi Usmani, holds an LLB, M. Phil., and Ph.D. in Islamic Finance and graduated as a scholar with specialisation (Takhassus) in Islamic Fiqh and Fatwa from Jamia Darul-Uloom, Karachi.

Presently, he is the Sharia Advisor and Group Head of Product Development Sharia Compliance (PDSC) at Meezan Bank and is in charge of the R&D and Product Development of Islamic banking products, Training, Advisory and Audit & Compliance of the relevant activities. He has served as an advisor/member of Sharia Boards of several renowned institutions since 1997 which includes: the State Bank of Pakistan, HSBC - Amãnah Finance, UBS - Switzerland, Guidance Financial Group USA, Lloyds TSB Bank - UK, Japan Bank for International Cooperation (JBIC), Credit Suisse Switzerland, RBS Global, Old Mutual Albarakah Equity and Balanced Funds South Africa, AIG Takaful, ACR Retakaful Malaysia, Capitas Group USA, Bank of London and Middle East Kuwait, BMI Bank Bahrain, Al Khaliji Bank Qatar, Sarasin Bank Switzerland, DCD Group Dubai and other Mutual and Property Funds, Takaful Companies and International Sukuk etc. He is also an Executive Committee Member of AAOIFI (Dubai) and Sharia Supervisory Board member of International Islamic Financial Market (IIFM), Bahrain, International Centre for Education in Islamic Finance (INCEIF), Malaysia, Institute of Business Administration (IBA), Karachi and Centre for Islamic Economics (CIE), Karachi.

He is the author of numerous publications related to Islamic finance and other Sharia-related subjects. He has presented papers in numerous national and international seminars and has delivered lectures at academic institutions including Harvard, LSE, LUMS and IBA.

Ash-Sheikh Mohd Nazri Bin Chik Vice Chairman Mohd Nazri Bin Chik is an Assistant General Manager and the Head of Sharia Division of Bank Islam Malaysia Berhad. He holds a Bachelor of Sharia (Islamic Jurisprudence) and Master’s of Sharia from the University of Malaya. He initially joined Bank Islam Malaysia in June 2004 and served the Bank for five years in various designations including Senior Manager - Head of Sharia Division. He left Bank Islam Malaysia in 2009 to join Noor Investment Group, Dubai, UAE as its Sharia Audit Manager for a brief period. At Noor Investment Group he was responsible for strengthening the Sharia governance framework of the Noor Investment Group, Noor Islamic Bank (NIB) and Noor Takaful (NT). During this time, he has been appointed as a member of the Sharia Supervisory Council until he re-joined Bank Islam in January 2011. 29 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

A subject expert in the field of Sharia, Mohd Nazri has also lectured at the Ibnu Sina Institute for Islamic and Science and Technology Studies and Academy of Islamic Studies, University of Malaya. He is also an Accredited Trainer for Islamic Banking and Finance Institute of Malaysia. He is currently pursuing his Doctorate in Business Administration.

Ash-Sheik M.M.A. Mubarak Member He is the former President and present General Secretary of the All Ceylon Jamiyyathul Ulama. He is a highly learned and respected scholar who holds a Bachelor of Islamic Law (Sharia) Degree from the Islamic University of Madina Al Munawwara, Saudi Arabia. He retired as the Principal of Sri Lanka’s leading Arabic College - Al-Ghafooria Arabic College of Sri Lanka and is the present Chairman of Ash-Shaikh Binbaaz Muslim Ladies Arabic College of Malwana, Sri Lanka.

Ash-Sheik Mufti M.I.M. Rizwe Member Ash-Sheik Mufti M.I.M. Rizwe is the President of the All Ceylon Jamiyyathul Ulama and is a highly respected scholar and speaker from Sri Lanka. He is a graduate of Jamiyyathul Uloomil Islamiya, Karachi where he specialised in Islamic Jurisprudence. He is a Senior Lecturer of the reputed Kulliyathul Rashard Arabic College, Colombo and visiting lecturer at several leading Arabic colleges. He has been lecturing on Hadees and other subjects for more than a decade. He is a Member of the Board and Advisor to ‘Jamiyyah Islamiyya’, Colombo, the first Arabic College established for students in the English Language. He is also a member of the Supreme Council of Congress of Religions and the present President of the SAARC Halaal Council. He is also a member of Sharia Councils of several Islamic Banks and Financial Institutes in Sri Lanka and Maldives.

Ash-Sheik Mufti Muhammad Hassan Kaleem Member Muhammad Hassan Kaleem is a permanent faculty member of Jamiah Darul-Uloom, Karachi (a leading Institute of Islamic Sciences in Pakistan) and the Centre of Islamic Economics, Karachi. He is also a trainer of Sharia standards at the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), Bahrain and a visiting faculty member of the National Institute of Banking and Finance (State Bank of Pakistan). Muhammad Hassan Kaleem is a Sharia Board member of Pak Kuwait Takaful Company Limited, Pak Qatar Family Takaful, Deloitte (Global Islamic Finance Team), Siraj UBL Funds, Hanover Re Takaful Bahrain and Takaful Emirate and has served many years as a Sharia Advisor to Al Baraka Islamic Bank (Pakistan Operations) and various Sukuk issues. He is also a member of the committee for revising the Takaful rules 2005, formed by Security and Exchange Commission of Pakistan. He holds an Alimiyyah (Master’s in Islamic Sciences) and Takhassus (Specialisation in Fatwa) Degree from Darul-Uloom, Karachi. 30 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Corporate Management Team Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

Faizal Salieh Mohamed Azmeer M.M.S. Quvylidh Managing Director/CEO Chief Operating Officer Vice President - Operations and Business Support

M. Pharis Jazeel Amrit C. CanagaRetna Mrs. Preeni M. Dunuwille Koralege Vice President - Treasury and Financial Institutions Vice President - Business Banking Chief Compliance Officer and Company Secretary

M. Ali Wahid Chandralal Wickramapathirana Irshad Halaldeen Chief Financial Officer Chief Information Officer Vice President - Strategic Planning and Business Process Re-engineering 31 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

M. Fairoze Burah S.H.M. Giado Siddeeque Akbar Vice President - Administration Chief Internal Auditor Vice President - Consumer Banking and Strategic Marketing

Ajmal Naleer Roomy Rahim Irshad Iqbal Vice President - Credit Vice President - Human Resources Risk Officer

Nista Badurdeen Moulavi Siraj Najubudeen Fazly Marikar Chaminda De Silva Head of Central Operations and Head of Sharia Supervision Head of New Product Initiatives/ Head of Leasing and Home Finance Trade Services Gold Unit

Absent: Mahesha Thrimanne, Head of Legal 32 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Profiles of Strategic Independent Sharia Supervisory Council 28 Corporate Management Team 30 Shareholders Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

BANK ISLAM MALAYSIA BERHAD Since its inception in July 1983, Bank Islam has not only become the symbol of Islamic banking in Malaysia, it has also played an integral role in setting the stage for a robust growth of the country’s Islamic financial services industry. True to its pioneering and innovative heritage, Bank Islam is committed to its role as a leading vehicle in transforming Malaysia into a global Islamic financial hub. To this end, Bank Islam continuously develops and introduces trend- setting financial solutions, some of which are the first-of-its-kind in the world or at least in the region in widening the breadth of its innovative end-to-end Shariah-based financial products and services, comparable to that offered by its conventional counterparts. Today, Bank Islam parades a wide-ranging list of more than 50 innovative and sophisticated Islamic financial products and services as well as a fast growing network of 133 branches and more than 1,200 self-service terminals nationwide. In recognition of its prominence in the industry, Bank Islam was awarded the Reader’s Digest Platinum Award for being the Most Trusted Brand for Islamic Financial Services for five consecutive years from 2009 to 2013.

AB BANK LIMITED AB Bank is known as one of Bangladesh’s leading private banks since its commencement 32 years ago. It continues to remain updated with the latest products and services, considering consumer and client perspectives. AB Bank has thus been able to keep their consumers’ and clients’ trust while upholding their reliability, across time. AB Bank has established its presence in 82 different Business Centres of the country, one foreign Branch in Mumbai, India and also established a wholly-owned subsidiary finance company in Hong Kong in the name of AB International Finance Limited. To facilitate cross-border trade and payment-related services, the Bank has correspondent relationship with over 220 international banks of repute across 58 countries of the world.

AKBAR BROTHERS (PVT) LIMITED Export of Internationally renowned Sri Lankan Teas, being their core business, Akbar Brothers has successfully diversified into a range of sectors through strategic reinvention and expansion, and today, the Group has a firm presence in the sectors of Tea Export, Power Generation, Healthcare, Packaging, Property Development and Environmental Services. Akbar Brothers rank proudly as the largest exporter of Ceylon Tea in the country, a position held for the past 20 consecutive years, and has been the recipient of many top national and international awards over the years including the prestigious Presidential Award for Sri Lanka Exporter of the Year, for outstanding exports to over 90 countries worldwide. 33 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

ISLAMIC DEVELOPMENT BANK The Islamic Development Bank is an international financial institution established in pursuance of the Declaration of Intent issued by the Conference of Finance Ministers of Muslim Countries held in Jeddah in December 1973. The functions of the bank are to participate in equity capital and grant loans for productive projects and enterprises besides providing financial assistance to member countries in other forms for economic and social development. The bank is authorised to accept deposits and to mobilise financial resources through Sharia compatible modes. The present membership of the bank consists of 56 countries. The vision of the bank is 'To be the leader in fostering socio-economic development in member countries and Muslim communities in non-member countries in conformity with Sharia’. The IDB Group is committed to alleviating poverty; promoting human development; science and technology; Islamic economics; banking and finance and enhancing cooperation amongst member countries, in collaboration with its development partners.

EXPOLANKA HOLDINGS PLC Expolanka’s origins date back to the 1970’s, as an exporter of fresh produce. Now more than 30 years later, Expolanka Holdings is one of Sri Lanka’s finest award-winning enterprises that has achieved phenomenal successes. The company is listed in the Main Board of the Colombo Stock Exchange as a diversified conglomerate. With diversified interests in Freight & Logistics, Travel & Leisure, International Trading & Manufacturing and Strategic Investments sectors, the Group, which has a global presence in over 12 countries and 38 cities, has 60 subsidiaries and joint venture companies. The Group firmly believes that entrepreneurship and business values need to go hand in hand to grow successful, sustainable businesses as Expolanka’s businesses have been built on a solid foundation of values, which has remained the bedrock of its operations. Expolanka’s ‘dare to do’ spirit has enabled the company to transcend ordinary entrepreneurship and be in the forefront of idea and innovation in today’s business sector not only in Sri Lanka, but also in the international arena. Reach The Bank’s expansion initiatives during 2013 were a hive of activity. We added 10 new branches thus bringing within reach, a unique portfolio of product and service offerings to a wider clientele. 35 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Business and Independent Sharia Supervisory Council 28 Corporate Management Team 30 Operations Review Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

1 3

2 4

1 Current Account Children's Savings Account Corporate Banking

2 Term Investment Account Ladies Savings Account Easy Payment Plan

3 Foreign Currency Accounts SME Banking Leasing

4 Personal Salary Account Senior Citizen Savings Account Home Finance 36 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

FINANCIAL PERFORMANCE Every financial year poses new challenges and this year was no different with the banking industry compelled to respond to changes in the operating environment. Banks and Financial Institutions implemented various strategies and took initiatives to counter challenges such as shrinking margins, plummeting gold prices, higher non-performing advances and low demand for credit which minimised the impact on their performances.

Your Bank started the year with an aggressive plan to grow its financing assets and customer deposits substantially targeting the Advances to Deposits (AD) ratio to reach industry benchmarked levels. The business units worked with a lot of dedication to generate the anticipated volumes and achieved significant results. Customer financing recorded a triple digit growth of 109.6% (industry growth being 8.8% in 2013) or LKR 7.8 billion during the year under review with all the business segments contributing immensely to the growth. This feat was made possible in a year which saw private sector credit growth being sluggish at least for the first half albeit showing signs of recovery towards the latter part of 2013. With the introduction of new product and service offerings the Bank’s deposits portfolio recorded a commendable growth of 35.2% or LKR 4.6 billion surpassing industry growth of 15% which sets the pace for 2014 and beyond in terms of customer acquisitions and deposit mobilisation. As the year drew to a close, the Bank recorded an impressive AD ratio of 83.5% up from last year’s ratio of 54%. Total assets, aided by the growth in customer financing, grew by 40% or LKR 6.7 billion to reach LKR 23.4 billion. Whilst acknowledging this significant growth in the balance sheet, the Bank is fully aware of the challenges ahead for which a progressive strategic plan is being put in place. 37 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

During the year under review, the Bank raised equity capital via a Rights Issue and a successful IPO which infused a total of LKR 2.4 billion to last year’s stated capital base to close 2013 at LKR 5.8 billion. However, the loss posted for the year including the fair valuation of available for sale equity portfolio had a negative impact in the growth of shareholders’ funds which grew by LKR 2.0 billion.

Financing income grew by 35.9% recording LKR 1.7 billion during the year from LKR 1.3 billion in 2012 whereas financing expenses amounted to LKR 1.0 billion as opposed to LKR 732 million posted in 2012. This led to a net financing income of LKR 718 million an increase of LKR 149.5 million or 26.3% compared to previous year’s figure of LKR 568.5 million. Fee and commission income, gains from forex and equity trading aggregated to LKR 341.5 million for the year ended 2013 as opposed to LKR 685.3 million in 2012 which included a capital gain from a single share transaction, non-recurring in nature and gains from gold bullion totalling to LKR 405 million. With the ever expanding customer base, the Bank expects a steady increase in fee and commission income in the years ahead. The Bank ended the year with a total operating income of LKR 1.06 billion compared to LKR 1.3 billion posted in 2012. Impairment on customer financing and financial assets amounted to LKR 99.3 million for 2013 up from last year’s amount of LKR 16 million. Almost 70% of this year’s provision was made for collective impairment losses, which is directly attributed to the phenomenal growth in customer financing. Consequently, the net operating income totalled to LKR 960.2 million reducing from LKR 1.2 billion in 2012.

The Bank continued its expansion efforts by strengthening its presence and opened 10 new branches whilst simultaneously investing in people, processes, infrastructure and systems. As a result the Bank incurred LKR 1.4 billion as total operating expenses, 40.5% more than what was recorded in the previous year and closed the year under review with an operating loss of LKR 424.8 million as opposed to recording an operating profit LKR 251.7 million in 2012. The management identified areas for cost management and a prudent approach was adopted during the year to contain certain costs whilst maintaining optimal efficiency. After providing LKR 13.2 million as Value Added Tax on financial services (VAT on FS) the Bank posted a loss before tax of LKR 438 million for 2013. During 2012, the Bank provided a higher provision for VAT on FS amounting to LKR 45.9 million which resulted in a profit before tax of LKR 205.8 million. Aided by a tax reversal of LKR 121 million the loss for the year was reduced to LKR 317 million whereas in 2012 a tax expense of LKR 59.8 million was incurred which resulted in last year’s profit being LKR 146 million. 38 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

CONSUMER BANKING Deposit mobilisation was greatly enhanced during the year as the Bank expanded its reach with the addition of 10 new branches. Meanwhile, the Bank’s focus to provide tailor-made solutions to key segments of the market resulted in the launch of Ladies Savings, Senior Citizens’ Savings and Salary Savings products, which fuelled the growth of Current Accounts and Savings Accounts (CASA) deposits.

The Bank sustained its continued focus on key segments such as Institutions, High Net Worth Customers, Foreign Currency Deposits and Children’s Savings. The Institutional portfolio grew by 49%, while the Children’s Savings portfolio grew by 40%. The Foreign Currency portfolio of the Bank also showed a strong growth of over LKR 300 million. The Bank’s high net worth banking proposition, Amãna Bank Prestige, also recorded a growth of 41%.

Aided by the expansion of its reach and the increase in its product range, the Bank’s customer base grew by 38% during the year whilst the overall deposit portfolio grew by 35.2%. The Bank ended the year with a healthy CASA ratio of 54.5%. 39 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

Despite challenging market conditions, the Bank’s Vehicle Financing portfolio grew by 138% during the year. This growth was fuelled by many strategic tie-ups with vehicle dealers, attractive rental rates and most importantly the quick turnaround time for approvals. The Bank’s Housing Finance portfolio achieved a growth of 27%.

With the objective of reaching out to the needs of the common man, the Bank introduced a personal financing product titled ‘Easy Payment Plan’, through which salaried customers were offered financing solutions for the purpose of purchasing furniture, electronics, household and personal appliances, air tickets, etc. This product received an overwhelming response from the market in terms of results as well as appreciations. The Bank also extended its consumer financing offering to accommodate motorbike financing, which was very well received by the market.

Consumer financing maintained a healthy NPA ratio of below 2% as at December 2013.

OFFERING CONVENIENCE Offering customer convenience continued to be a key priority of the Bank in 2013.

Extended Banking Hours was introduced at selected 'high traffic' branches for the convenience of customers. This timely introduction allowed customers of the Bank to carry out their day to day transactions at these branches beyond normal banking hours. Amãna Bank's Main Branch in Colombo 3, as well as the Bank's branches in Dehiwala, Kandy and Kattankudy are open for business up to 4 p.m. on weekdays, while the Pettah branch is open till 6 p.m.

Deposit Kiosk facility was made available at the Bank’s Main branch in Colombo 3 offering the convenience of depositing cash and cheques 24 hours of the day. 40 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

Safety Deposit Lockers were introduced at selected branches of the Bank facilitating customers to keep their valuables under the Bank’s trusted custody. Safety deposit lockers were made available in small, medium and large sizes.

24-Hour Approval was introduced to all vehicle financing customers of the Bank. This quick turnaround time was a result of the Bank aligning its internal processes to serve the customers promptly to purchase their vehicles without any delays. This convenient offering resulted in a positive impact regarding the Bank’s perception.

BUSINESS BANKING The Business Banking Unit (BBU) recorded highly satisfactory results in 2013 and achieved over 100% of the targets set at the beginning of the year. This performance was achieved amidst shrinking financing margins in the industry. Amidst the subdued demand for credit, 2013 was an extremely challenging one not only for Amãna Bank but the entire banking sector. The rate sensitive nature of the client, high liquidity levels in the market and declining market interest rates led to challenging times for the industry-wide Corporate, SME and FCBU businesses.

During the year, BBU made a concerted effort to realign its market focus in order to build the advances portfolio and stem deteriorating margins.

BBU provides financial solutions and related services to Corporates, SMEs and FCBUs via the Corporate Office in Colombo and a network of branches located in the provinces.

Business Banking contributed significantly to the overall performance of the Bank, largely due to financing strategies that were adopted which helped maintain the growth momentum of advances during the year. These strategies also contributed to the growth of fee and commission income during 2013.

Business Banking customers are served by a dedicated team of Relationship Managers to provide a customised, efficient and personalised service. The Bank also maintains a very close relationship with our existing clients, monitoring their utilisation levels, cross selling products on a regular basis in order to ensure that the Bank remains as their primary banker.

The portfolio of Business Banking advances increased during the year by LKR 6.4 billion from LKR 6.1 billion to LKR 12.5 billion recording a growth of 104.9%. This 3 digit assets growth was experienced across diverse areas of economic activity, in Corporate, SME and FCBU sectors. 41 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

The SME portfolio of Advances increased during the year from LKR 3.1 billion to LKR 5.3 billion reflecting a healthy growth of 71%. Similarly Corporate/FCBU portfolio of advances increased from LKR 2.9 billion to LKR 7.2 billion with a growth of 148% during the year. This included short term advances, long term advances and working capital financing.

The quality of the Advances portfolio of BBU continued to be at a healthy level with a non- performing advances ratio of 1.84% as at the year end. The Bank uses two credit rating models for Corporate and SME clients, focusing on aspects of operational risks, financial risks and account facility conduct.

In 2013, BBU concentrated on streamlining business processes. Profitability improved despite pressure on financing margins, mainly due to improved macroeconomic conditions that fed a growing appetite for credit.

The Bank takes pride in partnering with SriLankan Airlines, the national carrier of Sri Lanka. The Bank extended long term financial support to SriLankan Airlines for infrastructure development projects such as upgrading its existing Aircraft Hangar for A320 aircrafts at Bandaranaike International Airport and setting-up a simulator training centre, to create a regional hub within South East Asia for pilot training. The Bank also financed several Mini Hydro Power Projects in Sri Lanka, the latest of which includes the Lower Kotmale Oya Mini Hydro Power project that is being developed with an installed capacity of 4MW in Mahaweli Waterways. Amãna Bank won the Gold Award for Islamic Finance Deal of the Year at the Sri Lanka Islamic Banking and Finance Industry Awards Ceremony for financing this Project.

Looking ahead, demand for both short and long term funding including non-funds based facilities is gathering momentum and BBU is ready to capitalise on the opportunities available in the future. 42 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

TREASURY The Treasury Department is primarily responsible for managing the Asset and Liability positions of the Bank and day to day management of Liquidity risk, Profit Rate risk and the Foreign Exchange risk of the Bank.

In addition, the Treasury assists the Bank’s Asset and Liability Management process by providing the Assets and Liabilities Committee (ALCO) with updates on the market interest and exchange rates movements as well as data on other macroeconomic developments. Based on these inputs, strategies are formulated by the Bank’s ALCO for the management of maturity mismatch risks in the balance sheet. In doing so, it ensures compliance with internal risk limits established by the Board and regulatory requirements as directed by the Central Bank of Sri Lanka.

Furthermore, it supports the Corporate, SME and Consumer banking segments with their funding requirements and manages the foreign currency flows arising out of their business.

The Financial Institutions unit forms a part of the Treasury, which has been mandated to enhance the Bank’s correspondent banking network and also serves as a central point of contact for financial institutions around the world.

As at 31 December 2013, Treasury assets comprised 26% of the Bank’s total assets. Despite the fall in market rates and premiums, Amãna Bank’s Treasury division continued to enjoy strong performance with revenue of LKR 513.4 million or 29% of the total revenue, led by strong non-funds based Treasury income.

STRATEGIC PLANNING AND BUSINESS PROCESS MANAGEMENT Close upon three years since the launch, the Bank realised the need for a dedicated department that can track its Strategic Business Plan and review the performance on a regular basis among other tasks. With this in mind a separate department named Strategic Planning and Business Process Management was set up in 2013 with the aim of facilitating the strategic planning process and review, along with business process improvement.

With respect to Business Process Management this department studies key business processes for improved customer service delivery, shorter turnaround times and cost efficiencies. As the Hub Spoke Operating model is an integral part of the Bank’s structure, it is also tasked with 43 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

ensuring the effective implementation of the model and derive the targeted service levels and efficiencies working closely with IT and Operations. Further, as the Bank has embarked on a bank-wide cost management initiative, this department plays a key role in identifying areas for prudent and optimal cost management to ensure value enhancement.

BRANCH OPERATIONS AND BUSINESS SUPPORT Achieving operational excellence is increasingly becoming a key area of focus in the banking industry.

The Bank is continuously engaging in activities that could improve productivity and service to a level of true excellence, thus ensuring our customers are offered a competitive advantage and secure lasting results.

Accepting the first deposit of a newly opened branch by In seeking to achieve operational excellence the following were identified as Key Development Amãna Bank Managing Director/CEO Mr. Faizal Salieh Areas (KDA):  Improving end-to-end performance in business development and service

 Increase efficiency and effectiveness in the processes

 Streamlining the branch organisation structure

 Formulating strategies to acquire new customers

A number of insights were drawn from the ways in which the branches performed their activities and achieved productivity and how these improved their overall performances and their experience with the customers, through many channels. A new branch being ceremoniously opened by a distinguished invitee Branch Banking expanded to new markets and diversified significantly in 2013 adding the undermentioned 10 new branches to bring the total number to 24 offering Anywhere Banking for greater flexibility and convenience. This will further strengthen the Bank’s position as the market leader in Islamic Financial Services in Sri Lanka.

Accepting the first deposit of a newly opened branch by Amãna Bank Chief Operating Officer Mr. Mohamed Azmeer 44 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

Branch Province Dehiwala Western Nintavur Eastern Kuliyapitiya North Western Eravur Eastern Negombo Western Badulla Uva Kaduruwela North Central Puttalam North Western Kinniya Eastern Ratnapura Sabaragamuwa

The preliminary assessment of expanding the existing branch network is being reviewed. The implementation of the phased expansion will be decided based on the outcome of a detailed feasibility study.

The Bank has now successfully consolidated its operating structures and standardised process flows and procedures to be in line with the 'Hub and Spoke' model. Almost all back office operations have been centralised to increase efficiency and reduce operating cost, consistency in maintaining customer centric service standards and to focus on better control of operational risk by establishing the Central Processing Unit (CPU).

The CPU has successfully segregated the duties of the front line and the back office operations where the frontline consists of Bank branches which focus on business promotion and services. The CPU is now fully engaged in the processing of transactions and has consolidated its operations.

The CPU which consists of seven vertical lines of operations are independent units located in the Head Office premises and have demonstrated greater efficiency in processing transactions. The units under the CPU are: 1. Clearing 2. Account Processing 3. Cash and Remittances 45 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

4. Facility Disbursements 5. Treasury Back Office 6. SWIFT 7. Trade Services

CARD CENTRE The launch of the ATM service is the first of many convenient solutions Amãna Bank offered its customers during late 2012 by formulating a Card Centre. To aggressively penetrate defined market segments a strategic alliance was drawn up with Commercial Bank of Ceylon enabling the Bank’s customers to access their accounts not only through the Bank’s own ATMs but also through more than 600 ATMs of Commercial Bank located across the country.

Since the personalisation of the card is done locally, the Bank is able to issue these cards faster to its customers, supporting their fast-paced lifestyle. The launch of the ATM card set the platform to understand the spread of its customer base and need for an enhanced product with time. During the year 2013, a total of 25,051 ATM cards were issued by the Bank with an average of more than 2,000 cards per month and has dispensed cash amounting to LKR 1.6 billion only through its own ATM network.

Products are critical to our business and continue to receive priority attention. The move to introduce VISA Debit cards, which contain embedded chips with integrated circuits in year 2014 comes at a time of expansion of the Bank and is a timely enhancement of security and convenience to reach new and existing customers including those who reside overseas increasing our service offerings to aggressively penetrate our target market. The cards with secured and enhanced features will provide the Bank’s customers the flexibility to use the card at any point of sales in Sri Lanka and anywhere in the world for purchase of goods and services and for cash withdrawals at ATMs thus offering global access to their accounts.

INFORMATION TECHNOLOGY In the year under review, the main focus of the Information Technology (IT) Department was to introduce new information and communication technology based solutions for Amãna Bank to achieve the strategic business objectives of the Bank whilst maintaining and enhancing the existing systems to support the business operations. 46 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

IT Department, while continuing to provide technological solutions to fulfil the evolving business needs of the Bank throughout the year, extended its support to launch 10 new branches in different parts of the country offering a wide range of banking products and services to its customers. During the year, 13 new Automated Teller Machines (ATMs) were added to the branch locations to encompass a total of 19 Bank owned ATMs in the network, while maintaining the existing link with Commercial Bank’s ATM network to provide access to over 600 ATMs across the country for a wider reach to the growing island-wide customer base.

To facilitate continuous data communication between the branches and the Centralised IT Data Centre, the implementation of branch data communication redundancy links was executed. This would further maintain a reliable dataflow throughout the branch network to support customers and would provide extended business continuity for the remote locations.

According to the guidelines of the Central Bank of Sri Lanka, banks are responsible for the identification and disclosure of related parties and transactions with such parties. This responsibility requires management to implement adequate internal controls to ensure that transactions with related parties are appropriately identified in the information system and disclosed in the Financial Statements. The development and implementation of the Related Party Transactions (RPT) system was completed by the IT Department, which ensured that Amãna Bank exercise appropriate control over the RPT to mitigate the risk involved within the same.

Anti-Money Laundering controls are mainly used to prevent, detect, and report money laundering activities and Amãna Bank as an emergent to the industry was required to focus on the same. As part of the Anti-Money Laundering system, Name Screening system with sanctions lists was implemented in 2013.

IT Department together with the support of the IT Business Partners facilitated the introduction of new banking products to enable the growing Corporate, SME and Consumer customer needs during the year in the areas of Advances and Deposits with the purpose of enhancing the product range offered to its customers. In addition, the SWIFT system was upgraded to provide enhanced business services in supporting the growth in financial transaction volumes. 47 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

HUMAN RESOURCES Internal customers are the most significant contributors towards accomplishing the Bank’s strategic goals and objectives. Great emphasis is placed on sufficient training and management of staff while simultaneously enhancing the Bank’s Human Capital.

Human Resources Department gives priority to the recruitment of an energetic and skilful workforce, which assists the organisation in achieving its aspirations and objectives. The Bank strives to provide an appropriate platform for its employees to develop their career.

The Bank believes that success lies in the motivation of the workforce who adapt to change and shape the challenges of the future.

The total staff strength of the Bank increased by 134 during the year to support the network expansion and the new products introduced to the market.

STAFF STRENGTH 2013 Category No. of Percentage Employees Corporate Management 15 3 Senior Managers 93 17 Executive Officers 148 26 Junior Executive Officers 176 31 Trainee Banking Associates 88 16 Business Development Officers 26 5 Office Assistants 11 2 Total 557 100 48 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

STAFF STRENGTH BY AGE 2013 Category No. of Percentage Employees 61 and Above 11 2 51 - 60 29 5 41 - 50 55 10 31 - 40 131 24 21 - 30 303 54 Below 21 28 5 Total 557 100

NEW EMPLOYEES RECRUITED 2013 Category No. of Percentage Employees Corporate Management 2 1 Senior Managers 18 10 Executive Officers 42 23 Junior Executive Officers 43 24 Trainee Banking Associates 55 30 Business Development Officers 21 12 Office Assistants 0 0 Total 181 100

ENGAGEMENT, LEARNING AND DEVELOPMENT In 2013, Training had completed a two-year cycle. The key focus was developing staff on mainstream banking related training. While keeping this in mind, more programmes on core banking were conducted in 2013 in comparison to 2012. Positive results were obtained, while a number of staff demonstrated a faster and error free service by the end of 2013. One of the Bank’s methods of training was to keep exposing both existing talent and new talent to strategic areas which was pivotal to the running of the business. Some of our key focuses were bridging knowledge gaps in SME, Credit and Product Training along with banking operations. During the year, training was taken to the regions and made more relevant and effective by leveraging on the panel of experts within the Bank. 49 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

BBU Training Programme for Branch Staff External Training Programme for BBU Staff

These approaches at Learning and Development enabled identifying internal talent, resources and alternatives including a motivated team who were eager to be part of the journey of success and learning. We believe this integration has reflected positively in many corners of the Bank paving the way for organisational change.

Whilst the anticipated training man-days of the Bank were 5, the actual training man-days for the year was approximately 6. Total training man-days for staff was 3,303. A total of 328 programmes were conducted, an increase of 73% from the previous year. 50 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

ASSESSMENT AND QUALITY Learning and Development at Amãna is built on a bedrock of quality. These standards were met by following five simple yet effective steps: the correct content, audience, ensure participants are focused during the training, assessment and continuous follow-up. This method has enabled the Bank to maintain an average quality score of 80% whereas our threshold is 75%.

In addition, the continuous improvement of staff and exposing them to need based training programmes and post-training projects has secured the quality levels further. 51 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

Of the 328 programmes that were conducted in 2013, 31% of programmes were conducted internally, whilst 69% of programmes were conducted externally.

A motivated and engaged workforce is essential for success and performance. In order to increase interaction and creativity, several engagement projects were initiated in 2013. The Annual Quiz Competition was targeted to increase comradery and infuse the thirst for knowledge. The Family Carnival held regionally greatly assisted in bringing together the families of Amãna Bank’s staff. Knowledge platforms were initiated to bridge knowledge gaps and enable the staff to network and learn through external resources. Earth Hour was the Bank’s presence in the society to demonstrate our commitment towards environment and sustainability. These projects have broadened the horizons of the Bank and made it closer to achieving set goals. 52 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

Winners of the Annual Quiz Competition receiving An Outbound Training Programme in progress their award from MD/CEO, Mr. Faizal Salieh

MARKETING AND COMMUNICATION Amãna Bank continued its aggressive marketing and communication activities in line with the Bank’s strategic focus. Unique campaigns with high visibility were carried out at each new branch location creating the necessary awareness. The Bank’s communications and activities continued to highlight the values and benefits of its unique banking model. Many awareness programmes were organised for the public with the assistance of the Sharia Department.

The Bank grew its presence in social media through Facebook, while being noted as one of the most popular fan pages in the banking industry. The marketing team also had the challenge of effectively managing the Bank’s IPO campaign, where a 360° campaign was executed in attracting potential investors to subscribe to the Bank’s shares. Marketing also worked hand in hand with the product teams to create a competitive edge for products, through promotions and communications.

The Bank once again hosted the Sri Lankan edition of the renowned IFN Road Show which was held for the second consecutive year, bringing in the local and international Islamic Banking industry to one forum to share knowledge and expertise in driving the industry forward.

Showcasing the Bank’s focus on the SME and Agribusiness Sector, the Bank partnered with the National Agribusiness and Farmer Awards 2013. Many other strategic events were also sponsored by the Bank during the year. 53 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

AWARDS AND ACCOLADES FOR 2013  Islamic Finance News Award for the Best Islamic Bank in Sri Lanka awarded by Malaysian-based RedMoney Group (publishers of Islamic Finance News Magazine)

 Best Islamic Bank in Sri Lanka Award adjudged by Global Banking and Finance Review Magazine

 Gold Award for Islamic Finance Entity of the Year at the Sri Lanka Islamic Banking and Finance Industry Awards Night

 Gold Award for Islamic Finance Deal of the Year at the Sri Lanka Islamic Banking and Finance Industry Awards Night for financing the Lower Kotmale Oya Mini Hydro Power Project

Amãna Bank's MD/CEO Mr. Faizal Salieh receiving the award from RedMoney Group MD Andrew Morgan at the Award Ceremony held in Dubai, U.A.E. 54 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

Amãna Bank MD/CEO Mr. Faizal Salieh accepting the Gold Award for Islamic Finance Entity of the Year from H.E. Azmi Zainuddin, High Commissioner of Malaysia

Amãna Bank VP-Business Banking, Mr. Amrit CanageRetna and VP - Credit, Mr. Ajmal Naleer accepting the Gold Award for Islamic Finance Deal of the Year from Mr. Reyaz Mihular, Managing Partner, KPMG 55 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Report on Sharia Supervision Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

By the Grace of God Almighty, the year under review marks the second full year of commercial operations for Amãna Bank.

During the year, the Sharia Supervisory Council (SSC) of Amãna Bank held three Sharia Council meetings to review various products, concepts, transactions and processes including the approval of ten new products.

The SSC of Amãna Bank conducted a comprehensive review on the activities of the Sharia Supervision Department on 16 May 2013/5 Rajab 1434 A.H. The areas reviewed included the following:

 Sharia Risk Management Framework  Severity Ranking of Sharia non-compliance issues  Sharia Audit Plan and its Procedures  Internal Sharia Guidelines prepared and introduced by Sharia Supervision Department  Methodology in conducting Sharia Training programmes  Implementation of approved new products

 SHARIA AUDIT AND COMPLIANCE REVIEWS To ensure that all the revenue generated by the Bank strictly adheres to injunctions of Sharia, the Bank’s Sharia Supervision Department actively observed various operational activities of the Bank throughout the year. The credit approvals, restructuring of financing facilities, customer specific transaction process flows, Letters of Guarantee and security documents were reviewed to ensure Sharia compliance while offering financing products to the customers.

Income generated from Consumer and Business Banking transactions that were audited are as follows:

Income Generated from Income Generated from Number of Number of Consumer Financing LKR ‘000 Business Financing LKR ‘000 Transactions Transactions Audited 284,398,600 1,283,573,102 4,852 4,852 56 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

Moreover, physical inspections were conducted on random basis and tangible measures were taken to verify the relevant purchase evidences/invoices, further enhancing the controls.

All financing products were fully audited by the Sharia Supervision Department and their alignment with the guidelines given by the SSC was also verified. The process and the scope of the audit included the following:

 Invoices and other related purchase evidences were verified by confirmations and the existence of suppliers was also confirmed by visiting their premises on sample basis

 Genuine purchase evidences were provided to execute Murabaha transactions so that Murabaha disbursements are not availed to set off previous balances with the supplier and Murabaha Status Sheets

 Sharia documentation and other related security documents and procedures followed by different functional areas for Murabaha, Ijara (Leasing), Diminishing Musharaka, Istisna, Thijara and Wakala

 Declarations, description of assets, relevant purchase invoices, sequence and order of the documents and time difference between purchases and declaration in Murabaha

 Purchase deeds, treatment of ownership related cost and recovery of rentals in Ijara transactions, ownership ratio in Diminishing Musharaka for housing facilities and issuance of timely unit sale receipts

 Investments made in Equity with reference to the Equity stock screening criteria.

 Import finance transactions and related documentation

 Extensive reviews of client payment, purchase cycle and periodic assessment of clients’ processes

 Profit Sharing Ratio, pool working, asset and deposit allocation for deposit products

 MURABAHA STATUS SHEET A system for continuous monitoring of Murabaha transactions is in place whereby the branches extending Murabaha financing are required to submit a monthly report, after thorough review by the branch/department head, to the Sharia Supervision Department for review and continuous monitoring of Murabaha transactions to avoid any Sharia non- compliance. 57 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

 TRAINING AND DEVELOPMENT During the year, 14 internal Sharia training sessions were held in which approximately 265 employees participated.

KEY SHARIA TRAINING INITIATIVES IN 2013  A special workshop was conducted for corporate customers with the participation of Sharia Council members on 5 Rajab 1434 A.H./16 May 2013

 Approximately 350 Sharia scholars and students participated at 7 workshops that were conducted islandwide under the subject ‘Understanding the Practice of Islamic Banking’. The objective of this programme was to educate the Sharia scholars on the application of Islamic banking in practice and on the level of Sharia compliance at Amãna Bank and also how the Bank operates as an entity in compliance with Sharia principles

 Commencement of ‘Amãna Certified Islamic Banker’ which is a comprehensive training programme designed and intended to enhance the knowledge and skills of staff in Sharia principles

 CHARITY During the year, an amount of LKR 704,846.73 was transferred to the Charity Payable Account. As at 31 December 2013 the total balance in this account amounted to LKR 1,367,544.29.

STATEMENT OF SOURCES AND USES OF CHARITY FUND For the year ended 31 December 2013 2013 2012 LKR LKR

Opening balance as at 1 January 1,259,987.56 1,131,762.92 Additions during the year Purification of Dividends/Disposal Gains of Equity 111,153.88 83,152.02 Interest Accumulated in Nostro Accounts 85,622.39 44,511.52 Interest from CSE on Equity Early Settlement 9,432.67 – Claim from Conventional Insurance 498,231.43 – Profit Write-Offs 406.36 561.10 704,846.73 128,224.64 Less: Distribution of Charity (597,290.00) – Closing balance as at 31 December 1,367,544.29 1,259,987.56 58 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

The total amount of LKR 597,290.00 that was disbursed from the Charity account was with the approval of Head of Sharia Supervision and it was duly reported to the SSC for its concurrence.

 THE WAY FORWARD FOR THE YEAR 2014  Facilitating business units to avoid Sharia violations.

 Ensuring a zero tolerance culture for Sharia non-compliance.

 Enhancing the Sharia Risk Management Framework with the establishment of Sharia Risk Management Committee to overlook and mitigate Sharia violations.

 Considering the increase in branch network and recruitment of new employees, it is important to focus on employee training related to Islamic banking products and services offered by the Bank with special emphasis on training frontline staff enabling to increase their scope of Islamic banking knowledge.

 Conduct special training workshops for financing clients and continue customer awareness sessions.

May Almighty Allah make us successful in accomplishing His precious tasks and reward us in this world and in the Hereafter.

Moulavi N.M. Siraj Head of Sharia Supervision and Secretary to the Sharia Supervisory Council 22 Jumaadal oola 1435 A.H. 24 March 2014 59 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Corporate Social Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Responsibility Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

As a Bank that values ethics and responsibility to be as important as making profits and gains, the Bank continued its CSR endeavours during the year. Given below is a summary of the CSR activities carried out by the Bank for the year 2013.

HEALTH CARE Having undertaken the responsibility to maintain the Children’s Ward (Ward 15B) of the Kalubowila General Hospital, the Bank funded a new face lift to the ward which included painting the ward, beds, fans and cupboards, as well as construction of a protective mesh, installation of new direction boards and replacing light bulbs with energy savings lamps.

The Bank also undertook to refurbish the Radiology Unit of the National Cancer Institute in Maharagama, with the aim of providing an efficient and speedy service to patients. The refurbishment included supply of furniture, desktop PCs and an X-ray Illuminator to the unit.

The Bank also extended its generous support to the South Asian Institute of Technology and Medicine (SAITM) to conduct a health camp in Malabe. The medical camp witnessed over 5,000 patients benefiting from the free services offered which was provided by more than 55 practicing doctors and final year students of the institute. During the Health Camp the organisers conducted comprehensive medical tests such as full body checkups, blood sugar and blood pressure monitoring, consultation and provided free pharmaceuticals and spectacles.

Donation to Children’s Ward of Kalubowila General Hospital Health Camp with SAITM 60 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

Gifting of PCs to Maharagama Cancer Hospital

Amãna Bank COO Mohamed Azmeer unveiling the plaque at the Kalubowila General Hospital

The Bank did not confine its health care programmes only for the Western Province. During the year, the Bank contributed towards the maintenance of the Children’s Ward of the Sainthamaruthu District hospital as well as provided 60,000 medical envelops to the Nintavur District Hospital. The Bank also installed direction boards at the Sainthamaruthu District Hospital. 61 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

EDUCATION The Bank made a generous contribution to the Serendib Educational Foundation (SEF) in carrying out their primary programme of providing financial assistance to the students who are capable of pursuing their studies but unable to do so due to financial constraints. The SEF provided scholarships for more than 300 needy and talented students who were selected from all over the island following a thorough evaluation process.

The Bank partnered with the Zonal Education Department of Kalmunai to organise a model exam for the Grade 5 students who were preparing for the 2013 Scholarship Exams in the Kalmunai zone. More than 2,400 students benefited from this initiative which covered more than 60 schools in the zone.

Donation to Serendib Educational Foundation

Year 5 Scholarship Model Exam in Kalmunai Educational Zone 62 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

ENVIRONMENT The Bank pledged its support for the ‘Earth Hour’ initiative for the second consecutive year. An event was held at the Bank’s Head Office premises to mark Earth Hour 2013, where the Bank, its staff and their families joined hands with millions globally to combat climate change and raise awareness of its adversities. In commemoration of this global initiative and along with the Bank’s environment sustainability programme, a tree planting ceremony was also held at the Head Office premises and at all the branches.

Earth Hour 2013

Tree planting to commemorate Earth Hour. Amãna Bank MD/CEO Faizal Salieh planting a tree 63 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

SOCIAL AWARENESS AND INFRASTRUCTURE In order to create awareness on security precautions, the Bank together with the Kuliyapitiya Police Station carried out a public awareness programme in the Kuliyapitiya Area.

As a part of its infrastructure support activities, the Bank donated a water tank to Al-Manar Girl’s School, Maruthamunai and an air conditioner to the Kattankudy Jamiyyathul Ulama.

Donation of Water Tank

CARING FOR THE LESS PRIVILEGED CHILDREN As a part of its CSR activities the Bank has shown a lot of support and care towards the less privileged children. During 2013, the Bank carried out initiatives to support orphans, special needs, disabled and needy children.

The Bank celebrated the Holy Month of Ramadan by hosting a special Ifthar (break-fast) for 60 orphaned children with special needs together with the participation of the Bank staff. The noble endeavour, which took place at Ash-Shifaa Home for Orphans with Special Needs, was a chance for the Bank, which focuses on ethical banking, to showcase their support to less privileged children; especially during a time of the year closely associated with charity, compassion and giving. 64 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

Ifthar for Orphans with Special Needs.

The Bank marked World Children’s Day on 1 October 2013 by opening more than 1,200 Children Savings Accounts for the underprivileged together with Kantha Saviya Foundation. The Bank also provided school stationery for the children.

The Bank continued to support ESCO Rehab Sri Lanka an organisation committed to the welfare of the differently abled.

A donation was also made to sponsor a few students of the Ceylon School for the Deaf and Blind to continue their studies.

The Bank also contributed towards the 51st anniversary fund raising event of the Makola Orphanage and opened pre-loaded accounts for orphans at the Balapokuna Orphange. The Bank also made a donation towards the Child Foundation for Inter Religious and Ethnic Harmony. 65 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Risk Management Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

The Bank has developed a Risk Management Framework which provides guidance to the overall risk management goals and strategy. It acts as a foundation for the management of risks to be conducted in the most effective manner and in line with the industry’s best practices. The framework is a high-level architecture for the ongoing development and enhancement of the Bank’s integrated risk management infrastructure and capabilities. It forms the basic foundation for development of the risk management guidelines, operation of risk management structure and implementation of risk management initiatives.

The framework provides a structured approach to the management, measurement and control of risk - i.e. a way that people and processes ensure that business activities provide an appropriate balance of return for the risk assumed.

The Bank’s mission with respect to risk management is to advance its risk management capabilities, culture and practices so as to be in line with internationally accepted standards and practices. As such, the Bank has continued to invest in its risk management capabilities in terms of human resources, processes, policies and introduced newer tools during the period under review.

In terms of the Risk Management Framework, several initiatives were taken, some of them include:

 Inculcate a risk-awareness culture throughout the Bank. Strong risk cultures ensure that there is an active consideration and debate about the potential rewards and losses in making and avoiding risks.

 Establish a standard approach and methodology in managing credit, market, liquidity and operational risks across the Bank.

 Define risk appetite and tolerance levels.

 Clarify functional structures including objectives, roles and responsibilities.

 Develop and use tools, such as Value at Risk (VaR) and stress testing to support the measurement of risks and enhance risk-based decisions.

 Ensure that risk policies and overall risk appetite are in line with business targets.

 Ensure that the Bank’s capital supports the current and planned business needs in terms of risk exposures. 66 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

With the intention of achieving the above objectives as well as to be consistent with the risk-ownership concept under Basel II Accord, the Bank’s strategy to manage various risks is structured into ‘3 lines of defence’ as summarised below:

1ST LINE OF DEFENCE: RISK TAKING UNITS In view of their functions, these units are directly exposed to specific risks daily and must assume primary responsibility in their management. By identifying and analysing risks and shortcomings, instituting regular controls, monitoring and reporting procedures and taking appropriate actions, they are in the best position to mitigate or avoid risks. The overall ownership of the risk environment and responsibility to manage the risks therefore, reside with them.

2ND LINE OF DEFENCE: RISK CONTROL UNITS This refers to the respective risk management team and the Risk Control Committee, including other control and monitoring departments such as legal, compliance and Sharia supervision. The risk management team shall be responsible for the development and maintenance of the Risk Management Framework and its implementation. Other controlling and monitoring departments are responsible to develop guidelines in managing risks under their purview. Both, the risk management team and controlling/monitoring departments should ensure timely receipt of reports; perform analyses before consolidating and submitting them to top management and the Board of Directors for their oversight. Where appropriate, they should provide support to the risk taking units and initiate changes to policies and standards.

3RD LINE OF DEFENCE: INDEPENDENT ASSURANCE This refers to the Internal Audit function whose roles and responsibilities under the Risk Management Policy are to provide independent assurance to the Board of Directors on the effectiveness of the Risk Management Framework, that the policy is implemented with integrity.

Going forward, the Bank aims to leverage the risk management system capabilities to drive the following business benefits: (i) Increase efficiency and reduce operating cost for risk management through optimised utilisation of resources and skills (reduction in manual operations). (ii) Reduce potential losses with enhanced risk management, and increase profitability through better control over risk appetite. 67 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

(iii) Adhere to regulatory compliance (i.e. CBSL, SEC, etc). (iv) Enhance strategic decisions with foresight into risks. (v) Enhance product and services strategy by providing confidence in introducing innovative and profitable offerings. (vi) Timely detection of risks to reduce losses due to risk events.

CREDIT RISK MANAGEMENT OVERVIEW Credit Risk is the loss arising from failure of the counterparty to perform according to its contractual arrangements with the Bank. It includes failure in the repayment of capital plus the Bank’s profit/mark-up in full within the agreed tenure and in the agreed currency.

The Bank’s vision is to accommodate creditworthy customers on its financing portfolio, with the intention of minimising the non-performing advances and maximising returns within the Sharia parameters. In this regard, the Bank has adopted a sound risk management practice with a robust risk governance mechanism in place and a good risk culture in order to mitigate the Credit Risk in its financing activities.

At a macro level, the Bank manages its Credit Portfolio Risk with a view to avoid over concentration and to restrict large credit exposures to a single borrower, group or an industry sector. At a micro level, Credit Risk is managed at a functional level by evaluation of credit proposals and thereafter managing the risk levels.

MANAGING CREDIT RISK Credit Origination The Customer Relationship Manager (CRM)/Branch Manager, guided by the Heads of Business Banking and Consumer Banking will identify business enterprises/customers to offer the Bank’s products and services. Further, the CRM/Branch Manager shall ensure that adequate information about the borrower is obtained during initial visits in order to carry out a proper evaluation. An initial preliminary screening of a new prospect shall include the following:

 The preliminary analysis would include compliance with Sharia principles, Anti-Money Laundering (AML) Guidelines, Policy Exceptions and Related Party Transactions.

 Ascertain if the customer is within the target market and the relevant Risk Acceptance Criteria, if applicable. 68 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

 Check whether the customer falls into an industry/sector which is acceptable.

 CRIB clearance - check whether a prospective customer is reflected in the CRIB for default at another bank/financial institution.

Credit Work Flow New credit applications are scrutinised through customer inspections, CRIB reports and other channels to verify the credentials of the customer. Thereafter, the Business Banking Unit commences credit assessment/appraisal which includes customer visit report, obtaining and analysing of financials and other pertinent information.

Upon completion, the credit proposal is filtered through the Credit Department to ascertain credit worthiness of the customer and to impose terms, conditions and covenants to mitigate perceived credit risk.

Additionally, periodic reviews with regard to existing customers are conducted in a timely manner with recommendations on renewal enhancement/reduction of facilities based on merits and credit requirements. Subsequently, such reviews are referred to the appropriate approving authorities.

Credit Approving Process The credit approval process is well regulated and streamlined within the Bank based on the criteria stipulated in the Credit Risk Policy approved by the Board of Directors.

The Board of Directors has delegated the authority to the Board Credit Committee (BCC), Executive Credit Committees (ECC) and other Senior Executives. All individual delegated authorities are vested with specific executives based on experience, seniority and limit in order to mitigate any judgmental errors.

The ECC and Senior Executives exercise delegated authority in a transparent manner. Any credit application exceeding a certain threshold is referred to the BCC.

Post Approval Credit Risk Monitoring and Recovery Following disbursement, the facilities are monitored continuously with a view to maintaining the quality of credit. 69 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

The maintenance of credit quality depends largely on post credit risk assessment. Post Credit Risk can be defined as the probability of default or non-payment of an advance either due to wilful action by the borrower or due to circumstances beyond the control of the borrower.

The continuous maintenance of the quality of the advances portfolio of the Bank resulted in managing its asset portfolio satisfactorily by maintaining a healthy NPA ratio of 1.84% as at 31 December 2013.

Primary objectives of Post Credit Risk Monitoring and Management can be described as follows:

 To ensure that quality of every credit facility extended remains comparable with the position at the time the facility was originally granted.

 Ensuring timely recovery of capital and the Bank’s share of profit throughout the duration of the facility.

 Monitoring the operational and financial performance of the customer, especially business banking customers, on a continuous basis.

 To take suitable corrective action without delay when quality deterioration of advances becomes apparent.

 To prevent the Bank from further financing of customers who may be facing financial difficulties.

Status of Basel II Requirements Currently, the Bank’s Integrated Risk Management System adopts ‘The Standardised Approach’ (TSA) in Credit Risk in accordance with Basel II recommendations as required by the Central Bank of Sri Lanka (CBSL). The Bank is in the process of formulating a comprehensive Risk Management System in order to fast-track the process of adopting the ‘Advanced Approach’ enumerated in the Basel II guidelines. Simultaneously processes have been set for fine-tuning of systems and procedures, information technology capabilities and risk governance to meet the requirements. In this regard, the Board of Directors and the Senior Management have developed a Road Map to move towards the implementation of the Basel II Advanced Approach.

Managing Credit Risk Through Portfolio Management One of the key functions of the Risk Management Department (RMD) is to conduct portfolio analysis on a quarterly basis or even more frequently if the need arises. This exercise covers analysis of the portfolio based on industry sectors, products and trends in NPA, etc. 70 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

In addition, stress tests/scenario analyses are carried out to assess the impact of any material changes in the external environment with suitable recommendations to restructure the portfolio.

Concentration Risk Concentration risk is the probability of loss arising from significantly imbalanced credit exposure to a particular individual, group, industry sector or geographical area. The Bank’s prudential Single Borrower Exposure Limits are more stringent than the ceiling set by the regulator.

The sector exposure limits, which are also approved by the Board of Directors, are reviewed periodically taking into account changes in internal/external factors in order to mitigate risk and explore business opportunities.

In order to mitigate the concentration risk, the Bank’s appetite for credit exposures is predefined for:

 Single Borrower

 Group of Related Borrowers

 Major Economic Sectors

Concentration risk is monitored closely, and the relevant limits are reviewed and changed periodically to suit the changes in economic and environmental outlook, Bank policies and regulatory requirements. RMD monitors and reports Concentration Risk to the Board Integrated Risk Management Committee (BIRMC), and concerns, if any, are escalated to the Board of Directors on a periodic basis. 71 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

The Bank is aware of the importance of SMEs in the country’s development plans and expects to tap the potential in the consumer segment. Whilst considering the above to be the thrust segments, the Bank will supplement its advances portfolio by providing finance to selected corporates.

As illustrated above, at present the Bank is greatly exposed to the corporate segment, though in the short term. Until the advances portfolio grows to a reasonable level, the Bank will continue to finance good corporate businesses. Further, the exposure to the corporate segment indicates the confidence and capability of catering to the needs of this particular segment and the Bank’s appetite towards maintaining a high quality advances portfolio. However, with the expansion of the branch network and diversification in terms of products, the exposure is expected to shift more towards SME.

The overall risk of the credit portfolio can be increased or reduced for a level of return, depending on how the product portfolio is concentrated or diversified. Accordingly, for the Bank, product-wise concentration risk is considered to be an important element due to the limitation in product range compared to conventional banks.

Diminishing Musharaka is a widely used product for various types of customer requirements. Hence as illustrated above, the highest concentration of the Bank’s advances portfolio is in Diminishing Musharaka.

Apart from Diminishing Musharaka the rest of the portfolio is well diversified among Wakala, Local Murabaha, Ijara (Lease) and Import Musawama products respectively. Also Pre- Contracts, which represents 3% of the portfolio, is a Transitional Account where the facility amount is first disbursed to until Offer and Acceptance is completed. 72 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

Industry or Sector Concentration Risk arises when the Credit Portfolio is not sufficiently diversified. The Bank, according to its risk appetite policies and strategies, has segregated the main sectors into ‘favoured, selective, cautious and avoid’ categories. This strategy is developed to improve penetration of low risk industries and conversely reduce exposure to high risk industries.

As illustrated above, the overall exposure in 2013 has been distributed among Trading, Agriculture, Manufacturing, Other Customers (Consumer Banking) and Infrastructure sectors which is in line with the development plans of the country.

Adopting and assessing Single Customer Borrowing Limits (Individual or Group) is vital to a bank. This enables a bank to manage its advances portfolio in a well diversified manner. Hence, the Bank has set its own limits for single/group borrowing, which are more stringent than the regulatory requirement. 73 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

By setting these limits, the Bank focuses on having an equally distributed and well diversified credit portfolio. However, Amãna as a new bank just completed two years of operations and the credit ceiling imposed in 2012 along with the limited product range has restricted the diversification of portfolio, which resulted in top 20 customers accounting for 43% of advances portfolio.

Based on tenure, overall advances portfolio is classified as short term (up to 12 months), medium term (between one and three years) and long term (over three years). Having an ideal combination of asset maturity is of utmost importance in meeting depositor commitments. The Bank has maintained a healthy balance in tenure by keeping 56% of its portfolio within short and medium term range. This benefits the Bank in re-pricing the assets within a quick span of time.

MARKET RISK MANAGEMENT MARKET RISK Market risk is the risk of loss from changes in market prices and rates (including rates, credit spreads, equity prices, foreign exchange rates and commodity prices), the correlations among them, and their levels of volatility. A description of each market risk category is provided below:

RATE RISK The risk of loss due to changes in the level, slope and curvature of the yield curve, the volatility of rates and housing prepayment rates. 74 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

CREDIT SPREAD RISK The risk of loss due to changes in the market price of credit, or the creditworthiness of issuers.

FOREIGN CURRENCY RISK The risk of loss due to changes in spot and forward prices, and the volatility of currency exchange rates.

EQUITY RISK The risk of loss due to changes in the prices, and the volatility, of individual equity instruments and equity indices.

COMMODITY RISK The risk of loss due to changes in spot and forward prices and the volatility of precious and base metals.

Market risk mainly arises from activities undertaken by the Bank’s Treasury and foreign exchange, equity, commodity and money market portfolios. A Board approved limit structure has been adopted by the Bank to mitigate and monitor its market risk. Further, the Board of Directors and the Management have ensured the effective monitoring and management of market risk with the following: (i) BIRMC to review market risk policies and limits, and obtain approval from the Board of Directors for any changes necessary. (ii) BIRMC, Assets and Liabilities Committee (ALCO) and ERMC to monitor and manage market risk of the Bank according to the Board approved risk framework. (iii) Risk Middle Office to independently monitor all significant market risks and submit reports to MD/CEO, ERMC and ALCO.

As required by the Central Bank of Sri Lanka, the Bank uses the basic approach to calculate the market risk under Basel II. The Bank classifies quoted equity exposures into either trading or Available For Sale (AFS) portfolios and manages those portfolios separately. Market risk for the portfolios is monitored based on a VaR methodology and also using other sensitivity analyses. 75 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

OBJECTIVES AND LIMITATIONS OF THE METHODOLOGIES USED TO ASSESS MARKET RISK Value at Risk VaR is a method of measuring market risk based upon a common confidence interval and time horizon. It is a statistical estimate of expected potential loss that is derived by translating the risk of any financial instrument into a common standard. The Bank calculates VaR daily using a 99% confidence level, and a one-day holding period for its trading portfolios. This means that 99 days out of 100, the loss from trading positions is expected to be lower than the VaR estimate.

The Bank calculates general market risk and equity specific risk VaR using historical simulation based on 365 days of market data. For specific exposure VaR, the Bank intends to implement a Monte Carlo simulation. Changes in VaR between reporting periods are generally due to changes in levels of exposure, volatilities and/or correlations among asset classes. VaR is also used to evaluate risks arising in certain funding and investment portfolios. Back Testing is also an important and necessary part of the VaR process, by validating the quality and accuracy of the Bank’s VaR model. VaR results are included in the BIRMC Chairman’s Report to the Board of Directors on a quarterly basis.

Stress Testing VaR measures potential losses in normally active markets. An inherent limitation of VaR is that it gives no information about how much losses could exceed their expected levels. Accordingly, stress testing examines the impact that abnormally large swings in market factors and periods of prolonged inactivity might have on trading portfolios. The stress testing programme is designed to identify key risks and quantify potential losses from abnormal events. The Bank subjects its trading portfolios to stress tests on a monthly basis and also evaluates risk in its investment portfolios on a monthly basis, using stress tests based on risk factor sensitivities and specific market events. The stress testing programme is an essential component of the Bank’s comprehensive risk management framework which complements the current VaR methodology and other risk measures and controls employed by the Bank. The BIRMC reviews stress testing results on a monthly basis.

Sensitivity Analysis Sensitivity analysis assesses the effect of changes in rates on current earnings and on the economic value of shareholders’ equity related to AFS portfolios. It is applied globally to each of the major currencies within the Bank’s operations. 76 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

Gap Analysis Gap analysis is used to assess the rate sensitivity of the Bank’s operations. Under gap analysis, rate sensitive assets and liabilities and off-balance sheet instruments are assigned to defined time periods on the basis of expected re-pricing dates.

In practice, the actual trading results will differ from the VaR calculation and, in particular, the calculation does not provide a meaningful indication of profits and losses in stressed market conditions.

VaR Assumptions The VaR that the Bank measures is an estimate, using a confidence level of 99%, of the potential loss that is not expected to be exceeded if the current market risk positions were to be held unchanged for one day. The use of a 99% confidence level means that, within a one day horizon, losses will be below the VaR limit on average under normal market conditions, for 99 out of 100 days.

Since VaR is an integral part of the Bank’s market risk management, VaR figures are reviewed monthly against the loss limits by ALCO and in every BIRMC meeting.

VaR of Foreign VaR of Equity Approved Loss Limits Approved Loss Limits Exchange Exposures Portfolio for FX Operations for Equity Operations (LKR million) (LKR million) (LKR million) (LKR million) End December 2013 0.54 16.91 7.85 65.0 Monthly Average 1.84 21.15 N/A N/A High 3.87 35.71 N/A N/A Low 0.30 16.40 N/A N/A

FOREIGN EXCHANGE RISK Foreign exchange risk in the Bank’s unhedged financing and investment activities arises primarily from the Bank’s net investments in foreign operations as well as foreign currency earnings in its domestic operations.

Such risks are primarily due to changes in foreign exchange rates, which are managed by setting and monitoring dealer, currency, counterparty and settlement limits for on and off balance sheet instruments. 77 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

Foreign exchange exposures in individual currencies are managed according to the limits approved by the Board of Directors. In addition to this, it is managed and monitored against the regulatory/statutory limits approved for the Bank by the Central Bank of Sri Lanka.

The Bank engages in interbank forward transactions to cover positions created due to customer transactions. Cash flows of currencies are managed by undertaking promissory buy/ sell transactions on a matching basis. In addition, the Bank's activities in the trade finance business result in off balance sheet exposures.

The concentration of on and off balance sheet foreign currency risk is given in the table below:

Currency Spot Forward Net Open Net Overall Overall Position Position in Exposure in Exposure in Other Respective LKR Exchange Foreign Contracts Currency Assets Liabilities Net Assets Liabilities Net US Dollar 27,208,583 5,436,886 21,771,697 – 21,987,835 (21,987,835) (216,138) – (216,138) (28,270,896) Pound Sterling 160,905 129,137 31,767 – – – 31,767 – 31,767 6,845,675 Euro 110,066 110,010 56 – – – 56 – 56 (6,259) Japanese Yen 3,356,411 10,834 3,345,577 – – – 3,345,577 – 3,345,577 4,167,923 Indian Rupee – – – – – – – – – – Australian Dollar 209,149 212,954 (3,805) – – – (3,805) – (3,805) (406,530) Canadian Dollar – – – – – – – – – – Other Currencies – – – – – – – – – 64,705,845 Total Exposure 104,403,126 Total Capital Funds as per Latest Audited Financial Statements (LKR) 5,062,033,380 Total Exposure as a % of Total Capital Funds as per Latest Audited Financial Statements (should not exceed 30%) 2.06% 78 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

During the year 2013 the Rupee depreciated against the US Dollar by 2.7%.

Revaluation of all foreign currency assets and liabilities is carried out daily by the i-Mal core banking system.

A graph giving monthly VaR figures of the foreign currency exposure is given below:

EQUITY POSITION RISK The Bank holds investment portfolios to meet liquidity and for investment purposes. These portfolios expose the Bank to rate risks, credit spread and equity risks. Equity position risk arises due to changes in individual equity prices. The Bank’s equity portfolio is classified as Held for Trading (HFT) and Available for Sale (AFS) portfolios. HFT portfolio comprise of equities purchased with a view to take advantage of short-term capital gains. The equities in AFS portfolio are purchased in order to benefit from capital gains in the medium term and for dividend income. 79 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

The performance of the equity portfolio is monitored by the BIRMC, ALCO and the Equity Investment Committee (EIC). The Board of Directors has laid down sector, portfolio and loss limits to control and mitigate the risks of the equity portfolio. The Bank also adheres to the Guidelines issued by CBSL regarding the exposure to a single entity and the total exposure limit for the equity portfolio. The Bank conducts transactions only in Sharia compliant equities which are listed in the published White List.

The sectorial exposure of equity portfolio is given below:

Equity/Sector Total Cost (including MTM Value as at Maximum Exposure Utilisation Brokerage etc.) LKR 31.12.2013 LKR Limit for Sector LKR of Sector Limit Manufacturing 228,621,889 184,198,357 379,560,000 48.53% Health Care 4,791,426 4,771,287 189,780,000 2.51% Beverage and Food 116,501,227 104,692,200 332,115,000 31.52% Trading 104,888,067 84,845,584 142,335,000 59.61% Diversified 20,603,818 21,764,070 284,670,000 7.65% Power 90,542,372 85,815,424 189,780,000 45.22% Land 17,356,092 16,214,292 142,335,000 11.39% Plantation 229,380 242,313 237,225,000 0.10% Telecom 33,891,584 28,700,233 142,335,000 20.16% Sub Total 617,425,855 531,243,760 Amãna Takaful PLC 241,367,383 241,435,843 250,000,000 96.57% Total 858,793,238 772,679,602

The Bank’s Treasury system SunGard, carries out daily marking to market of the equity portfolio against the closing weighted average prices published by the Colombo Stock Exchange.

A graph indicating the monthly Equity VaR figures is given below: 80 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

RATE RISK Rate risk arising from the Bank’s financing and investment activities is managed in accordance with Board approved policies and limits, which are designed to control the risk to net finance income and economic value of shareholders’ equity.

Mismatches in maturities of assets and liabilities that mature or are re-priced during a specified time period, does have an impact on the Bank’s exposure to rate risk. In order to manage and mitigate such risks, ALCO reviews the re-pricing of assets and liabilities atleast on a monthly basis. The Bank’s rate risk is limited due to the business model adopted where majority of customer deposits have been taken on profit and loss sharing basis.

However, rate risk is monitored by measuring the impact on rate sensitive maturity gaps with yield curve shifts of parallel and non-parallel nature. Impact of yield curve shifts on rate sensitive assets and liabilities which on contractual and behavioral basis are given below:

1 to 30 1-3 3-6 6 - 9 9 - 12 1-3 3-5 5-10 10-15 Over 15 Unclassified Days Months Months Months Months Years Years Years Years Years

Scenario I 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% Scenario II - 2.00% - 2.00% - 2.00% - 2.00% - 2.00% - 2.00% - 2.00% - 2.00% - 2.00% - 2.00% - 2.00% Scenario III - 1.50% - 1.50% - 1.25% - 1.25% - 1.00% 1.00% 1.00% 1.25% 1.25% 1.50% 1.50% Scenario IV 1.50% 1.50% 1.25% 1.25% 1.00% - 1.00% - 1.00% - 1.25% - 1.25% - 1.50% - 1.50%

BEHAVIORAL BASIS Scenario Rate Risk Impact on (LKR million) CAR (%) Scenario I 125.24 0.60 Scenario II (198.89) – 0.95 Scenario III 37.31 0.18 Scenario IV 13.43 0.06

CONTRACTUAL BASIS

Scenario Rate Risk Impact on (LKR million) CAR (%) Scenario I (194.07) – 0.93 Scenario II 236.85 1.13 Scenario III (100.41) – 0.48 Scenario IV 67.37 0.32 81 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

RATE SENSITIVE ASSETS AND LIABILITIES MATURITY GAPS (BEHAVIORAL BASIS) AS AT 31.12.2013

Up to 3 Months 3 - 12 Months 1-3 Years 3-5 Years Over 5 Years Total LKR LKR LKR LKR LKR LKR Assets Cash and Cash Equivalents 2,444,552,371 – – – – 2,444,552,371 Balance with Central Bank of Sri Lanka 177,997,067 256,302,407 76,802,024 73,482,584 100,736,338 685,320,420 Derivative Financial Assets 20,461,046 1,009,623 – – – 21,470,669 Placements with Banks 1,737,895,772 – – – – 1,737,895,772 Placements with Licensed Finance Companies 254,599,949 407,358,289 – – – 661,958,238 Financial Assets - Held for Trading 175,334,631 – – – – 175,334,631 Financing and Receivables to Other Customers 6,019,620,557 2,978,736,081 3,822,317,221 1,589,501,020 605,143,203 15,015,318,081 Financial Investments - Available for Sale – – 357,263,371 – 243,074,600 600,337,971 Other Financial Assets 227,900,817 281,218,525 10,427,050 – – 519,546,392 Other Non Financial Assets 28,994,455 35,425,210 176,357,948 – – 240,777,613 Intangible Asset – – – – 283,027,619 283,027,619 Property, Plant and Equipment – – – – 852,960,574 852,960,574 Deferred Tax Asset – – – – 159,355,340 159,355,340 Total Assets 11,087,356,665 3,960,050,134 4,443,167,614 1,662,983,604 2,244,297,674 23,397,855,691

Liabilities Derivative Financial Liabilities 3,113,249 17,510 – – – 3,130,759 Due to Customers 4,189,135,320 7,029,814,230 2,070,892,224 1,979,828,709 2,713,441,098 17,983,111,581 Other Financial Liabilities 283,374,793 1,367,544 6,077,485 – – 290,819,822 Other Non Financial Liabilities 13,688,807 – – – – 13,688,807 Deferred Benefit Liabilities – – – – 45,071,342 45,071,342 Total Liabilities 4,489,312,169 7,031,199,284 2,076,969,709 1,979,828,709 2,758,512,440 18,335,822,311

Maturity Gap 6,598,044,496 (3,071,149,150) 2,366,197,905 (316,845,105) (514,214,766) 82 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

RATE SENSITIVE ASSETS AND LIABILITIES MATURITY GAPS (CONTRACTUAL BASIS) AS AT 31.12.2013 Up to 3 Months 3 - 12 Months 1-3 Years 3-5 Years Over 5 Years Total LKR LKR LKR LKR LKR LKR Assets Cash and Cash Equivalents 2,444,552,371 – – – – 2,444,552,371 Balance with Central Bank of Sri Lanka 685,320,420 – – – – 685,320,420 Derivative Financial Assets 20,461,046 1,009,623 – – – 21,470,669 Placements with Banks 1,737,895,772 – – – – 1,737,895,772 Placements with Licensed Finance Companies 254,599,949 407,358,289 – – – 661,958,238 Financial Assets - Held for Trading 175,334,631 – – – – 175,334,631 Financing and Receivables to Other Customers 6,019,620,557 2,978,736,081 3,822,317,221 1,589,501,020 605,143,203 15,015,318,081 Financial Investments - Available for Sale – – 357,263,371 – 243,074,600 600,337,971 Other Financial Assets 227,900,817 281,218,525 10,427,050 – – 519,546,392 Other Non Financial Assets 28,994,455 35,425,210 176,357,948 – – 240,777,613 Intangible Asset – – – – 283,027,619 283,027,619 Property, Plant and Equipment – – – – 852,960,574 852,960,574 Deferred Tax Asset – – – – 159,355,340 159,355,340 Total Assets 11,594,680,018 3,703,747,728 4,366,365,590 1,589,501,020 2,143,561,336 23,397,855,691

Liabilities Derivative Financial Liabilities 3,113,249 17,510 – – – 3,130,759 Due to Customers 11,969,969,310 5,232,968,700 206,780,558 117,367,875 456,025,138 17,983,111,581 Other Financial Liabilities 283,374,793 1,367,544 6,077,485 – – 290,819,822 Other Non Financial Liabilities 13,688,807 – – – – 13,688,807 Deferred Benefit Liabilities – – – – 45,071,342 45,071,342 Total Liabilities 12,270,146,159 5,234,353,754 212,858,043 117,367,875 501,096,480 18,335,822,311

Maturity Gap (675,466,141) (1,530,606,027) 4,153,507,547 1,472,133,146 1,642,464,856

83 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

LIQUIDITY RISK Liquidity risk is the risk that the Bank is unable to meet its financial obligations in a timely manner without incurring high cost.

Effective liquidity risk management is essential in order to maintain the confidence of depositors and counterparties, manage the cost of funds, and to enable the business units to continue to generate revenue, even under adverse circumstances.

Liquidity risk is managed within the framework of policies and limits that are approved by the Board of Directors. The Board of Directors receives reports on risk exposures and performance against approved limits. ALCO provides senior management oversight of liquidity risk and meets monthly to review the Bank’s liquidity profile.

Adequate liquid assets are maintained due to the business model adopted by the Bank to ensure the Statutory Liquid Asset Ratio is maintained according to regulatory requirements. Liquid assets defined for purposes of the liquidity ratio are mainly cash holdings, bank balances and short term interbank deposits. The maintenance of SLAR is given below:

LIQUID ASSETS TO LIABILITIES RATIOS Year-end 22.60% Minimum 21.27% Maximum 39.45% 84 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

ASSET AND LIABILITY MATURITY GAPS The contractual and behavioral assets and liability maturity gaps as at end of year are indicated below:

STRESS TESTING Stress testing is carried out based on Board approved stress testing guidelines and the results are reviewed by BIRMC and ALCO regularly. Stress testing is carried out for areas in relation to exchange exposure, equity portfolio and liquidity to ascertain the impact if the markets faced stressed situations.

FOREIGN EXCHANGE Amãna Bank’s foreign exchange exposure has been stress tested using three scenarios which are based on 10%, 20% and 30% in order to assess adverse rate movements of exchange rates, for which the result would impact upon the Capital Adequacy Ratio (CAR). The stress testing results of exchange exposures as of 31.12.2013 are given below:

Particulars Scenario 1 Scenario 2 Scenario 3 Adverse Change in Exchange Rate 10% 15% 20% Net Exposure (LKR) 49,515,517 49,515,517 49,515,517 Exchange Loss (LKR) 4,951,552 7,427,328 9,903,103 Tier I Capital Funds - December 2013 (LKR) 4,682,601,000 4,682,601,000 4,682,601,000 Capital adjusted for Loss (LKR) 4,677,649,448 4,675,173,672 4,672,697,897 Risk Weighted Assets - December 2013 (LKR) 22,086,751,000 22,086,751,000 22,086,751,000 Adjusted Risk Weighted Assets (LKR) 22,081,799,448 22,079,323,672 22,076,847,897 Revised Capital Adequacy Ratio 21.18% 21.17% 21.17% Capital Adequacy Ratio (December 2013) 21.5% 21.5% 21.5% Decline in CAR 0.357% 0.366% 0.374% 85 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

EQUITY PORTFOLIO Amãna Bank’s equity portfolio has been stress tested using three scenarios which are based on 10%, 20% and 30% in order to assess adverse price movements of equities, for which the result would impact upon the Capital Adequacy ratio (CAR). The stress testing results of equity portfolio as of 31.12.2013 are given below:

Particulars Scenario 1 Scenario 2 Scenario 3 Adverse Change in Equity Price 10% 20% 30% Net Exposure (LKR) 772,679,603 772,679,603 772,679,603 Loss Due to Decline in Prices (LKR) 77,267,960 154,535,921 231,803,881 Tier I Capital Funds - December 2013 (LKR) 4,682,601,000 4,682,601,000 4,682,601,000 Capital Adjusted for Loss (LKR) 4,605,333,040 4,528,065,079 4,450,797,119 Risk Weighted Assets - December 2013 (LKR) 22,086,751,000 22,086,751,000 22,086,751,000 Adjusted Risk Weighted Assets (LKR) 22,009,483,040 21,932,215,079 21,854,947,119 Revised Capital Adequacy Ratio 20.9% 20.6% 20.4% Capital Adequacy Ratio - December 2013 21.5% 21.5% 21.5% Decline in CAR 0.62% 0.89% 1.17%

LIQUIDITY The Bank’s ability to maintain regulatory liquidity requirements is undertaken based on stress testing due to the concentration of liquidity which could lead to the impact of large outflows due to customer withdrawals.

This analysis takes into consideration the large deposit concentrations and the impact on the Bank’s liquidity.

OPERATIONAL RISK MANAGEMENT Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, systems or from external events.

Operational risk, at many times, is inter-related to other types of risks and can occur in every function of the Bank. The resultant loss is not only limited to operational losses, but can be financial losses, regulatory implications and even reputational damage. 86 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

The Bank understands the importance of effective operational risk management to create a powerful competitive advantage in pursuit of the following objectives: 1. Operational sophistication, speed and flawless execution. 2. Improved customer experiences. 3. Compliance with Basel II and regulatory requirements.

GOVERNANCE AND ORGANISATION The individual business lines are accountable for management and control of the significant operational risks to which they are exposed, which means that staff at all levels is accountable for directing and controlling the operational risks in his/her area of responsibility. In this sense, everyone in the Bank is an operational risk manager and is responsible and accountable for his/her own operational risks.

The governing principles of the operational risk management framework of the Bank can be summarised as follows:

 The Board of Directors being responsible for sound corporate governance approves the Bank’s operational risk management policy. They are further responsible for ensuring that senior management takes steps to identify, measure, monitor and control all risks encountered by the Bank.

 BIRMC assesses all risks faced by the Bank, including operational risks, through appropriate risk indicators and management information. According to its charter, the Committee shall submit regular operational risk assessments to the Board, seeking its views, concurrence or specific directions.

 Operational Risk Management Committee (ORMC), a senior management level committee comprising functional heads and chaired by the Chief Operating Officer, provides consistent, bank-wide oversight of operational risk management.

 The three lines of defence model helps the Bank to ensure proper accountability and clearly defines the roles and responsibilities for operational risk management. The first line of defence is the business units, who own the risks in their businesses and operations. The second line of defence is the RMD and other control functions. The third line of defence is the Internal Audit Department. 87 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

 Operational Risk Management Unit (ORMU) in RMD has the ownership of operational risk management within the Bank. Head of ORMU reports to the Risk Officer and is responsible for the functions of operational risk policy and planning, operational risk assessment, operational risk measurement and analysis and operational risk monitoring, mitigations and control.

 The Internal Audit Department is responsible for independently assessing and testing the risks and controls respectively, as well as assessing the effectiveness of operational risk management framework of the Bank.

OPERATIONAL RISK MANAGEMENT (ORM) FUNCTION ORM is a management function within the Bank and its responsibilities include identifying, monitoring, measuring and managing operational risks assumed by the Bank.

Operational Risk Management

Operational Operational Operational Operational Risk Monitoring, Risk Policy Risk Assessment Risk Analytics Mitigation and Function Function Function Control Function

Function:  Owner of Risk Management Policies  Recommended for BIRMC approval  Risk Strategy  Risk Policies  Risk Organisation  Risk Limits  Monitor and Manage  Risk Policies  Risk Measurement  Risk Limits 88 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

The key functions of ORM are the operational risk policy and planning function, operational risk assessment function, operational risk measurement and analytics function and operational risk monitoring, mitigation and control function as depicted in the diagram above.

A summary of these functions are as follows: (a) Operational Risk Policy Function: i. Creating and maintaining the Bank’s Operational Risk Policy. ii. Communicating the Bank’s operational risk strategy and policy across the Bank. iii. Ensuring training of the Bank’s employees on operational risk related areas. iv. Co-ordinate training to staff members on the Bank’s operational risk policy and the operational risks faced in their respective functional areas. v. Reviewing standards of control for different processes in all areas of the Bank. vi. Identifying operational risks in the environment that may have an impact on the risk profile of the Bank. vii. Developing operational risk management procedures and control standards. viii. Reviewing operational limits across the organisational hierarchy such as signing powers, authorisation hierarchy, etc. ix. Assigning responsibilities for risk identification, assessment, monitoring and reporting. x. Ensuring implementation of procedures for operational risk management. xi. Detailing disaster recovery and business continuity plans; and xii. Assessing new products and services, provide recommendations and sign-off endorsement from an operational risk perspective.

(b) Operational Risk Assessment Function: i. Assisting in identification of operational risks in new products, services and activities. ii. Reviewing operational risks in existing products, services and activities on a periodic basis. iii. Co-ordinating review of major IT systems and software being used/introduced from the viewpoint of identifying potential operational risks with the IT department and relevant functional heads. Reviews will include issues relating to integration/interface with existing applications. Reviews will also ensure adequate mitigating/controlling mechanism in relation to the risks identified. iv. Reviewing the operational risk profile of the Bank and the business units, departments and branches on an ongoing basis. 89 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

v. Evaluating control weaknesses in various operational areas and approving appropriate remedial/corrective actions; and vi. Periodically reviewing business processes to identify potential risks and control weaknesses.

(c) Operational Risk Analytics Function: i. Maintaining loss databases and providing guidance to other employees on the data collection process. ii. Specifying the Key Risk Indicators for operational risks for each business unit. iii. Evaluating methodologies to model and estimate operational risk losses and calculating economic capital to be allocated in connection with operational risk. iv. Selecting/implementing technologies for measurement of operational risks. v. Setting quantitative goals for improvement. vi. Conducting tests to ensure accuracy and performance of the IT system for operational risk measurement; and vii. Co-ordinating with other banks/financial institutions for pooling data/information on operational risks.

(d) Operational Risk Monitoring, Mitigation and Control Function: i. Interacting with the Internal Audit Department and other departments/business units and collating bank-wide operational risk data and creation of operational risk reports. ii. Periodic reporting of major exceptions to the ORMC and BIRMC. iii. Monitoring action on significant operational risk issues identified. iv. Making recommendations to update minimum control standards. v. Co-ordinating examination of legal implications of activities resulting in possible operational losses. vi. Monitoring migration of risk rating of branches and business units; and vii. Ensuring adequacy of disaster recovery and business continuity plans.

OPERATIONAL RISK MANAGEMENT FRAMEWORK RMD manages operational risk as a significant component of its Integrated Risk Management Framework and has engaged in creating effective awareness whilst establishing an appropriate ORM culture across the Bank. 90 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

Risk Definition/Governance/Accountability Foundation Operational Risk Policies/Risk Awareness

Internal Controls Risk Mitigation Programmes Business Continuity Management

RCSA

Risk Event Management and Reporting

Key Risk Indicators Risk Tools Risk Analysis and Reporting

Process Risk Mapping

New Product and Service Approval Process

Risk Loss Provision Capital Allocation Measurement Takaful Programme

Based on the operational risk management policy, the Bank has implemented the following components in setting out an integrated approach to identify, assess, mitigate and report operational risks across the board.

STANDARD FOR CONTROL OF OPERATIONAL RISK (SCOR) SCOR provides an overview of the key risks associated with process scopes and the expected key controls to mitigate these risks. As such they are fundamental to develop operational risk management in the Bank. 91 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

The goals of SCOR are:

 To provide a clear and brief overview of the key operational risks and controls in different processes.

 To contribute to increased risk awareness.

 To provide input for the further development of procedures and guidelines.

 To establish best practices in management of operational risks.

 To provide a benchmark for audit.

KEY RISK INDICATORS (KRIs) The function of KRIs is to allow the early detection of operational risk before actual failure occurs. It is an early warning indicator of the breach of an operational risk appetite or tolerance. The Bank has developed a comprehensive set of KRIs with two threshold levels, which are constantly monitored by ORMC and BIRMC respectively.

INTERNAL OPERATIONAL RISK EVENTS AND LOSSES - REPORTING, COLLECTION AND ANALYSIS The Bank maintains a centralised operational loss event database, capturing all operational losses reported by the branches and business/support units. All actual operational losses are categorised into the business lines and event types in accordance with The Standard Approach (TSA) under Basel II framework in calculating operational risk. The ORMU, which maintains the central database, further encourages the branches and business/support units to report risk incidents and near misses (that have not resulted in an actual loss), as a precursor for identifying possible operational lapses. Significant operational losses are tabled and discussed at the ORMC, as well as the BIRMC meetings, if deemed appropriate.

Nevertheless it is pertinent to note that the Bank has been in operation for just over two years, hence the lack of adequate historical data is a challenge in reaching meaningful conclusions.

RISK AND CONTROL SELF ASSESSMENTS (RCSAs) Risk & Control Self-Assessment (RCSA) is a structured means for a business line, supporting unit, product line or process to identify and assess its own risks and introduce measures aimed at improving operational risk control. The first step in this is Process Risk Mapping (PRM), where the potential operational risks in the process are identified, followed by the 92 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

identification of existing controls and assessing the effectiveness of existing controls. Line management attests to the accuracy of each assessment and develops action plans to mitigate risks if controls are not identified as effective. Results of these reviews are summarised and reported to the ORMC and the BIRMC.

RCSA is ideally conducted by staff of the unit being assessed (i.e. those who know the sub-unit or process best) with the guidance of the ORMU where necessary. However as the Bank is still implementing the risk management culture, ORMU is currently taking initiative in the RCSA process, which will eventually be transferred to the respective business/support unit.

RCSAs will assist business and support units in identifying and assessing the operational risks for certain key processes for which they are responsible. RCSA will also help address those risks by evaluating the effectiveness of controls and, if necessary, establishing action plans to address any identified gaps.

REVIEW OF NEW PRODUCTS ORMU reviews all new products and operational processes to ensure all inherent operational risks are identified and controls/mitigants are introduced before launch of such products.

BUSINESS CONTINUITY MANAGEMENT (BCM) Business Continuity Management (BCM) is a holistic management process that identifies potential threats to an organisation and the impacts to business operations those threats, if realised, might cause, and provides a framework for building organisational resilience with the capability of an effective response that safeguards the interests of its key stakeholders, reputation, brand and value-creating activities.

The Bank, since its inception, has proactively established and implemented an effective business continuity and disaster recovery strategy across its network and has achieved a consistent level of business resilience for sustaining public trust, shareholder confidence, brand image, financial stability, and market reputation. The Bank has taken appropriate measures to manage such unforeseen business disruptions and system failures and has adopted a feasible and systematic approach to recover its essential business operations in the event of sudden interruptions, natural or man-made disasters. 93 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

BUSINESS CONTINUITY PLANNING (BCP) AND DISASTER RECOVERY PLANNING (DRP) The Bank has developed a comprehensive Business Continuity Plan (BCP) and a Disaster Recovery Plan (DRP) in respect of its critical business functions. BCP/DRP documents are reviewed on an annual basis subject to a Business Impact Analysis (BIA) study undertaken across all business units of the Bank.

Significant changes to vital information contained in the BCP/DRP such as changes in staff structure, new products introduced, operational processes, organisational structure, resource requirements, relocation of business units, Service Level Agreements (SLAs) etc. are periodically updated in the BCP/DRP based on BIA results to maintain a living document for reference.

Individual unit BCPs are available with all critical business units of the Bank and necessary knowledge on how to activate its business resumption procedures have been imparted to all staff members of such units.

BCP/DRP teams and Call Tree structures have been formulated to function under crisis situations in a timely manner to restore the Bank’s operations to business-as-usual.

BCP/DRP TEAM STRUCTURE  Business Continuity Management Steering Committee (BCMSC)

 Business Unit Damage Assessment & Restoration Team (BUDART)

 Information Technology Damage Assessment & Restoration Team (ITDART)

 Emergency Coordination Team (ECT)

 Location Damage Assessment Team (LDAT)

 Emergency Management Team (EMT)

 Damage Assessment/Facility Restoration Team (DAFRT)

 Communication Infrastructure Support Team (CIST)

 System & Application Support Team (SAST) 94 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

DISASTER RECOVERY SITE (DRS) The Bank has established a fully-fledged Disaster Recovery Centre; located off-site in accordance with the guidelines provided by the regulators with adequate infrastructure facilities available to take over IT operations in the event of serious failures that may occur at the Head Office Data Centre that supports the core business activities of the Bank.

The Bank has strategically upgraded the status of the DRS to ensure optimum efficiency by allocating additional resources and IT infrastructure to facilitate both business users and IT personnel to operate from the site at the time of an emergency/crisis.

The following business operations of the Bank are assigned dedicated floor areas to function with adequate infrastructure in place at the DRS. 1. Treasury 2. Central Operations 3. Trade Services 4. Credit 5. Business Banking 6. Finance 7. Call Centre Operations 8. Human Resources

With the enhancement effected at the DRS, the Bank possesses identical Treasury Dealing Room facilities including middle office and back office operations in addition to facilitating essential payments & settlement functions such as Society for Worldwide Interbank Financial Telecommunications (SWIFT), Cheque Imaging & Truncation (CIT), Telegraphic Transfers (TTs), Real Time Gross Settlements (RTGS) and Sri Lanka Interbank Payment Systems (SLIPS).

Amãna Bank has also developed an exclusive Disaster Recovery Plan (DRP) focusing on recovery and restoration aspects of data and critical Information Technology (IT) applications, programs, operating systems, networks, data files etc. This assures high availability and system reliability and achievement of predefined Recovery Time Objectives (RTOs) and Recovery Point Objectives (RPOs) computed based on the bank-wide Business Impact Analysis (BIA) studies. 95 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

An online real time data replication/mirroring system to transmit data from the Bank’s head office data centre to its DRS has also been successfully implemented by the Bank.

BCP TESTING/ACTIVATION DRILLS The Bank has successfully conducted DR Testing in June and December 2013 from the Bank’s DRS in respect of its critical business operations – Treasury, Trade Services, Central Operations, Credit, Business Banking, Finance, HR, Call Centre Operations and Administration functions of Head Office.

BCP/DR Drill Reports highlighting test results, technical & operational functions, issues encountered, lessons learnt and risk mitigation measures adopted during the testing process were reported to the regulator with the review and recommendation of the BIRMC for approval of the Board of Directors well within stipulated deadlines of the regulator.

The results of BCP drills revealed that the Bank’s most essential functions relating to its payments & settlement processes such as SWIFT, CIT, TTs, RTGS and SLIPS possess the DR capability to effect financial transactions despite potential adverse impacts caused by unforeseen business disruptions and system failures. 96 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Corporate Governance Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

As a bank, the Directors recognise the importance of conducting the business of Amãna in a manner that it meets the highest standards of Corporate Governance. Furthermore, the Board stresses the importance of adhering to ethical standards to enhance stakeholder confidence. Since the commencement of banking business, the Bank has taken steps to enhance its Corporate Governance practices.

During the year under review, many gaps in the governance procedures and policies as identified by previous audits have been filled. The Bank remains vigilant to identify governance failures whenever they occur and will work towards addressing them in the future.

The report below sets out in detail the Bank’s compliance with the requirements of good governance as set out by Direction No. 11 of 2007 and the subsequent amendments thereof.

STATEMENT OF EXTERNAL AUDITORS The External Auditors have performed agreed upon procedures on the following Corporate Governance Principles from 3 (1) to 3 (8) specified in Banking Act Direction No. 11 of 2007 and amendments thereto on Corporate Governance for Licensed Commercial Banks in Sri Lanka issued by the Central Bank of Sri Lanka. 97 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

Rule Number Rule Status of Compliance 3 (1) The Responsibilities of the Board

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

3 (1) (i) (a) Approve and oversee the Bank’s strategic objectives and corporate values and ensure that these are communicated Complied. through the Bank.

3 (1) (i) (b) Approve the overall business strategy of the Bank, including the Risk Policy and Risk Management procedures and Complied. mechanisms with measurable goals, for at least the next three years.

3 (1) (i) (c) Identify the principal risks and ensure implementation of appropriate systems to manage the risks prudently. Complied.

3 (1) (i) (d) Approve implementation of a policy of communication with all stakeholders, including depositors, creditors, Complied. shareholders and borrowers.

3 (1) (i) (e) Review the adequacy and the integrity of the Bank’s internal control systems and management information The Board Audit Committee (BAC) will systems. be addressing this matter in the year 2014 with the assistance of the IT and Finance Departments and a report will be submitted to the Board for review.

3 (1) (i) (f) Identify and designate Key Management Personnel, as defined in the International Accounting Standards, who are Complied. in a position to: (i) significantly influence policy; (ii) direct activities; and (iii) exercise control over business activities, operations and risk management.

3 (1) (i) (g) Define the areas of authority and key responsibilities for the Board of Directors themselves and for Key Complied. Management Personnel.

3 (1) (i) (h) Ensure that there is appropriate oversight of the affairs of the Bank by Key Management Personnel that is Complied. consistent with Board’s policy.

3 (1) (i) (i) Periodically assess the effectiveness of the Board of Directors’ own governance practices, including: Complied. (i) the selection, nomination and election of Directors and Key Management Personnel; Complied.

(ii) the management of conflicts of interest and Complied.

(iii) the determination of weaknesses and implementation of changes where necessary A summary of the findings of self- evaluation will be discussed by the Board once all responses are received.

3 (1) (i) (j) Ensure that the Board has an appropriate succession plan for Key Management Personnel A Board approved succession mechanism is in place. Further, succession for KMPs has been identified internally. However, due to the sensitive nature of the information documenting the same is still under consideration. 98 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

Rule Number Rule Status of Compliance 3 (1) (i) (k) Ensure the Board has regular meetings with the Key Management Personnel to review policies, establish Complied. communication lines and monitor progress towards corporate objectives.

3 (1) (i) (l) Understand the regulatory environment and ensure that the Bank maintains an effective relationship with Complied. regulators

3 (1) (i) (m) Exercise due diligence in the hiring and oversight of external auditors. Complied.

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

BOARD PROCEDURE

3 (1) (iii) The Board shall meet regularly and Board meetings shall be held at least twelve times a year at approximately Complied. monthly intervals.

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

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

3 (1) (vi) The Board procedure shall ensure that a Director, who has not attended at least two-thirds of the meetings in the Discussions are in progress to appoint a period of 12 months immediately preceding or has not attended the immediately preceding three consecutive Director in Sri Lanka to represent Islamic Development Bank. meetings held, shall cease to be a Director. Participation at the Directors’ meetings through an Alternative Director

shall, however, be acceptable as attendance.

3 (1) (vii) The Board shall appoint a Company Secretary who satisfies the provisions of Section 43 of the Banking Act No. 30 Complied. of 1988, whose primary responsibilities shall be to handle the secretarial services to the Board and shareholder meetings and to carry out other functions specified in the statutes and other regulations.

3 (1) (viii) All Directors shall have access to advice and services of the Company Secretary with a view to ensure that Board Complied. procedures and all applicable rules and regulations are followed.

3 (1) (ix) The Company Secretary shall maintain the minutes of the Board meetings and such minutes shall be open for Complied. inspection at any reasonable time, on reasonable notice by any Director. 99 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

Rule Number Rule Status of Compliance 3 (1) (x) Minutes of Board meetings shall be recorded in sufficient detail so that the minutes clearly contain or refer to the Complied. following: (a) A summary of data and information used by the Board in its deliberations. (b) The matters considered by the Board. (c) The fact-finding discussions and the issues of contention or dissent which may illustrate whether the Board was carrying out its duties with due care and prudence. (d) The matters which indicate compliance with the Board’s strategies and policies and adherence to relevant laws and regulations. (e) The understanding of the risks to which the Bank is exposed and an overview of the risk management measures adopted. (f) The decisions and Board resolutions.

The minutes shall serve as a reference for regulatory and supervisory authorities to assess the depth of Complied. deliberations at the Board meetings.

3 (1) (xi) There shall be a procedure agreed by the Board to enable Directors, upon reasonable request, to seek independent Complied. professional advice in appropriate circumstances, at the Bank’s expense.

3 (1) (xii) Ensure that there is a procedure to determine, report, resolve and to take appropriate action relating to Directors The Board Secretary maintains the to avoid conflicts of interests, or the appearance of conflicts of interest. interest register.

A Director shall abstain from voting on any Board resolution in relation to which he/she or any of his/her close Complied. relation or a concern in which a Director has substantial interest, is interested.

He/She shall not be counted in the quorum for the relevant agenda item at the Board meeting. Complied.

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

3 (1) (xiv) The Board shall, if it considers that the Bank is, or is likely to be, unable to meet its obligations or is about to Such a situation has not arisen during become insolvent or is about to suspend payments due to depositors and other creditors, forthwith inform the the year 2013. Director of Bank Supervision of the situation of the Bank prior to taking any decision or action.

3 (1) (xv) The Board shall ensure that the Bank is capitalised at levels as required by the Monetary Board in terms of the Complied. capital adequacy ratio and other prudential grounds.

3 (1) (xvi) The Board shall publish in the Bank’s Annual Report, an annual corporate governance report setting out the Complied. Refer pages from 96 to 109. compliance with Direction 3 of these Directions.

3 (1) (xvii) The Board shall adopt a scheme of self-assessment to be undertaken by each Director annually, and maintain Complied. records of such assessments. 100 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

Rule Number Rule Status of Compliance 3 (2) THE BOARD’S COMPOSITION

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

3 (2) (ii) (A) The total period of service of a Director other than a Director who holds a position of a Chief Executive Officer shall Complied. not exceed nine years.

3 (2) (ii) (B) Ensure that any Director serving more than nine years, the transitional provisions have been applied with. Complied.

3 (2) (iii) Ensure that the number of Executive Directors, including the CEO does not exceed one-third of the number of Complied. Directors of the Board.

3 (2) (iv) The Board shall have at least three Independent Non-Executive Directors or one third of the total number of the Complied. Directors, whichever is higher.

The Board shall not consider the Non-Executive Directors independent if he/she; (a) Holds directly and indirectly shareholdings of more than 1% of the bank. Complied. (b) Has currently or had during the period of two years immediately preceding his/her appointment as Director, any business transactions with the Bank as described in Direction 3 (7) hereof, exceeding 10% of the regulatory capital of the Bank. (c) Has been employed by the Bank during the two-year period immediately preceding the appointment as Director. (d) Has had a close relation; who is a Director, CEO, a member of Key Management Personnel, a material shareholder of the Bank or another bank (a “close relation” means the spouse or a financially dependent child). (e) Represents a specific stakeholder of the Bank. (f) Is an employee or Director or a material shareholder in a company or business organisation: I. Which currently has a transaction with the Bank as defined in, or II. In which any of the other Directors of the Bank are employed or are Directors or are material shareholder; or III. In which any of the other Directors of the Bank have a transaction as defined in Direction 3 (7) of these Directions, exceeding 10% of the regulatory capital of the Bank.

3 (2) (v) In the event an Alternate Director is appointed to represent an Independent Director, the person so appointed shall Complied. also meet the criteria that apply to the Independent Director.

3 (2) (vi) The Bank shall have a process to evaluate the appointment of Independent Directors, who possess credible track Complied. records and/or have necessary skills and experience to bring an independent judgment to bear in issues of strategy, performance and resources.

3 (2) (vii) The Board shall ensure that the Board meetings are duly constituted only where the quorum includes more than Complied. 50% of the Directors out of which 50% should include Non-Executive Directors.

3 (2) (viii) The Board shall disclose the composition of the Board, by category of Directors, including the names of the Complied. Refer page 109. Chairman, Executive Directors, Non-Executive Directors and Independent Directors in the annual corporate governance report. 101 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

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

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

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

3 (2) (xii) Ensure that there is a process where the Board shall identify whether a Director or an employee of the Bank is Complied. appointed, elected or nominated as a Director of another bank.

3 (3) CRITERIA TO ASSESS THE FITNESS AND PROPRIETY OF DIRECTORS

In addition to provisions of Section 42 of the Banking Act No. 30 of 1988, the criteria set out below shall apply to determine the fitness and propriety of a person who serves or wishes to serve as a Director of a bank. Non- compliance with any one of the criteria as set out herein shall disqualify a person to be appointed, elected or nominated as s Director or to continue as a Director.

3 (3) (i) A Director shall not exceed the age of 70 years to serve in the Board. Complied.

3 (3) (ii) A person shall not hold office as a Director of more than 20 companies/entities/institutions inclusive of Complied. subsidiaries or associate companies of the Bank.

Of such 20 companies such Director shall not hold office of a Director or any equivalent position in more than 10 companies that are classified as Specified Business Entities in terms of Sri Lanka Accounting and Auditing Standards Act, No 15 of 1995.

3 (4) MANAGEMENT FUNCTIONS DELEGATED BY THE BOARD

3 (4) (i) The Board shall approve the delegation arrangements and ensure that it is in place. Complied.

3 (4) (ii) The Board shall be responsible for the matters in 3 (1) (i) even in the instances such actions are delegated. The Complied. Board shall not delegate any matters to the Board committee, CEO, Executive Directors or Key Management Personnel, to an extent that such delegation would significantly hinder or reduce the ability of the Board as a whole to discharge its functions.

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

3 (5) THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER

3 (5) (i) The roles of the Chairman and the Chief Executive Officer shall be separated and shall not be performed by the Complied. same individual. 102 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

Rule Number Rule Status of Compliance 3 (5) (ii) The Chairman shall be a Non-Executive Director. Complied. Refer page 21. In the case where the Chairman is not an Independent Director, the Board shall designate an Independent Director as the Senior Director with suitably documented terms of reference. The designation of Senior Director shall be disclosed in the Bank’s Annual Report

3 (5) (iii) The Board shall disclose in its Corporate Governance Report, which shall be an integral part of its Annual Report, Complied. Refer pages 20 and 207. the identity of the Chairman and the CEO and the nature of the relationship (including financial, business, family or other material/relevant relationship(s), if any, between the Chairman and the CEO and the relationships among members of the Board.

3 (5) (iv) The Chairman shall: Complied. (a) Provide leadership to the Board; (b) Ensure that the Board works effectively and discharges its responsibilities; and (c) Ensure all key and appropriate issues are discussed by the Board in a timely manner.

3 (5) (v) The Chairman shall be primarily responsible for drawing up and approving the agenda of the Board meeting. The Complied. Chairman may delegate the drawing up of the agenda to the Company Secretary.

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

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

3 (5) (viii) The Board shall have a self-evaluation process that assesses the contribution of Non-Executive Directors. Complied.

3 (5) (ix) The Chairman shall not engage in activities involving direct supervision of Key Management Personnel or any other On occasions the Chairman has been executive duties whatsoever. involved in certain operational level decision making.

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

3 (5) (xi) The CEO shall function as the apex executive-in-charge of the day-to-day management of Bank’s operations and Complied, subject to 3 (5) (ix) and business. 3 (6) (iii) (d)

3 (6) BOARD APPOINTED COMMITTEES

3 (6) (i) The Bank shall have at least the following committees: Complied. 3 (6) (ii) - Audit Committee 3 (6) (iii) - Human Resources and Remuneration Committee 3 (6) (iv) - Nomination Committee 3 (6) (v) - Integrated Risk Management Committee

Each Committee shall report directly to the Board Complied. 103 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

Rule Number Rule Status of Compliance Each Committee shall appoint a Secretary to arrange the meetings and maintain, minutes, records etc. under the Complied. supervision of the Chairman of the Committee.

The Board shall present a report of the performance on each Committee, on their duties and roles at the Annual Complied. Refer pages from 130 to 143. General Meeting.

3 (6) (ii) Audit Committee

3 (6) (ii) (a) The Chairman of the Committee shall be an Independent Non-Executive Director who possesses qualifications Complied. and experience in accounting and/or audit.

3 (6) (ii) (b) All members of the Committee shall be Non-Executive Directors. Complied.

3 (6) (ii) (c) The Committee shall make recommendations on matters in connection with; Complied.

(a) The appointment of External Auditor for audit services to be provided in compliance with the relevant statues; Complied. (b) The implementation of the Central Bank Guidelines issued to Auditors from time to time; Complied. (c) The application of the relevant accounting standards; and Complied. (d) The service period, audit fees and any resignation or dismissal of the auditor, provided that the engagement Complied. of the Audit partner shall not exceed five years, and that the particular Audit partner is not re-engaged for the audit before the expiry of three years from the date of the completion of the previous term.

3 (6) (ii) (d) The Committee shall review and monitor the External Auditor’s independence and objective and the effectiveness Complied. of the audit process in accordance with SLAuS.

3 (6) (ii) (e) The Committee shall have in place an implemented policy on the engagement of an external auditor to provide Complied. non-audit services in accordance with the relevant regulations.

3 (6) (ii) (f) The Committee shall discuss and finalise the nature and scope of the audit, with the external auditors in Complied. accordance with SLAuS before the audit commences

3 (6) (ii) (g) The Committee shall review the financial information of the Bank, in order to monitor the integrity of the Financial Complied. Statements of the Bank, its Annual Report, accounts and quarterly reports prepared for disclosure and receive the following from the Chief Financial Officer: (i) Major judgmental areas; (ii) Any changes in accounting policies and practices; (iii) The going concern assumption; and (iv) The compliance with relevant accounting standards and other legal requirements; and (v) In respect of the Annual Financial Statements the significant adjustments arising from the audit.

3 (6) (ii) (h) The Committee shall discuss issues, problems and reservations arising from the financial audit in the absence of Complied. the executive management.

3 (6) (ii) (i) The Committee shall review the External Auditor’s management letter and the management’s response thereto. Complied. 104 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

Rule Number Rule Status of Compliance 3 (6) (ii) (j) The Committee shall take the following steps with regard to the internal audit function of the bank; Complied.

(i) Review the adequacy of the scope, functions and resources of the Internal Audit Department, and satisfy Complied. itself that the Department has the necessary authority to carry out its work; (ii) Review the internal audit programme and results of the internal audit process and, where necessary, ensure Complied. that appropriate actions are taken on the recommendations of the Internal Audit Department; (iii) Review any appraisal or assessment of the performance of the head and senior staff members of the The appraisal will be reviewed at the BAC. Internal Audit Department; (iv) Recommend any appointment or termination of the head, senior staff members and outsourced service Complied. providers to the internal audit function; (v) Ensure that the Committee is appraised of resignations of senior staff members of the Internal Audit Department Noted for future compliance. including the Chief Internal Auditor and any outsourced service providers, and to provide an opportunity to the resigning senior staff members and outsourced services providers to submit reasons for resigning; (vi) Ensure that the internal audit function is independent of the activities it audits and that it is performed with Complied. impartiality, proficiency and due professional care.

3 (6) (ii) (k) The Committee shall consider the major findings of internal investigation and management’s responses thereto. Complied.

3 (6) (ii) (l) The Committee shall meet the External Auditors at least twice a year without the Executive Directors being present. Complied.

3 (6) (ii) (m) The Committee shall have: (i) Explicit authority to investigate into any matter within its terms of reference; Complied. (ii) The resources which it needs to do so; (iii) Full access to information; and (iv) Authority to obtain external professional advice and invite outsiders with relevant experience and attend, if necessary.

3 (6) (ii) (n) The Committee shall meet at least four times a year and has maintained minutes of such meeting. Complied.

3 (6) (ii) (o) The Board shall disclose in an informative way: Complied. Refer pages from 130 to 134. (i) Details of the activities of the Audit Committee; (ii) The number of Audit Committee meetings held in the year; (iii) Details of attendance of each individual Director at such meetings.

3 (6) (ii) (p) The Secretary of the Committee may be the Company Secretary or the head of Internal Audit who shall keep and Complied. record detailed minutes of the meetings.

3 (6) (ii) (q) The Committee shall review and ensure that the “whistle blower” policy is in place which covers the process of Complied dealing with: (i) The improprieties in financial reporting, internal control or other matters. (ii) In relation to (i) the Committee shall ensure that proper arrangements are in place for the fair and independent investigation of such matters, and (iii) Appropriate follow-up action. 105 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

Rule Number Rule Status of Compliance 3 (6) (iii) Human Resource And Remuneration Committee

3 (6) (iii) (a) The Committee shall determine the remuneration policy relating to Directors, CEO and Key Management Complied. Personnel of the Bank by review of the “Terms of reference” and minutes.

3 (6) (iii) (b) The Committee shall set goals and targets for the Directors, CEO and Key Management Personnel and document Complied. the same.

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

3 (6) (iii) (d) The CEO shall be present at all meetings of the Committee, except when matters relating to the CEO are being On occasion this rule had not been discussed. adhered to and the CEO was not present when matters relating to COO were discussed.

3 (6) (iv) Nomination Committee

3 (6) (iv) (a) The Committee shall implement a procedure to select/appoint new Directors, CEO and Key Management Personnel. Complied.

3 (6) (iv) (b) The Committee shall consider and recommend (or not recommend) the re-election of current Directors, taking Complied. into account the performance and contribution made by a Director concerned towards the overall discharge of the Board’s responsibilities.

3 (6) (iv) (c) The Committee shall set criteria such as qualifications, experience and key attributes required for eligibility to be Complied. considered for appointment or promotion to the post of CEO and the key management positions.

3 (6) (iv) (d) The Committee shall ensure that Directors, CEO and Key Management Personnel are fit and proper persons to hold Complied. office as specified in the criteria given in Direction 3 (3) and as set out in the Statutes and obtain signed declaration in this regard.

3 (6) (iv) (e) The Committee shall consider and recommend from time to time, the requirement of additional/new expertise and A Board approved succession mechanism the succession arrangements for retiring Directors and Key Management Personnel. is in place. Further, succession for KMPs has been identified internally. However, due to the sensitive nature of the information documenting the same is still under consideration. A Policy and Procedure for appointment of new Directors to fill vacancies on Board is in place.

3 (6) (iv) (f) The Committee shall be chaired by an Independent Director and preferably be constituted with a majority of Complied. Independent Directors.

The CEO may be present at the meeting by invitation. Complied. 106 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

Rule Number Rule Status of Compliance 3 (6) (v) Integrated Risk Management Committee

3 (6) (v) (a) The Committee shall consist of at least three Non-Executive Directors, CEO and Key Management Personnel Complied. supervising Board risk categories, i.e., credit, market, liquidity, operational and strategic risks.

3 (6) (v) (b) The Committee shall assess all risks, i.e., credit, market, liquidity, operational and strategic risks to the Bank on Complied. a monthly basis through appropriate risk indicators and management information. In the case of subsidiary companies and associate companies, risk management shall be done, both on a Bank basis and Group basis.

3 (6) (v) (c) The Committee shall review the adequacy and effectiveness of all management level committees, such as the Credit Complied. Committee and Asset-Liability Committee to address specific risks and to manage those risks within quantitative and qualitative risk limits as specified by the Committee.

3 (6) (v) (d) The Committee shall review and consider all risk indicators which have gone beyond the specific quantitative and Complied. qualitative risk limits in accordance to the Bank’s policies and the regulatory and supervisory requirements.

3 (6) (v) (e) The Committee shall meet at least quarterly to assess all aspects of risk management including updated business Complied. continuity plans.

3 (6) (v) (f) The Committee shall take appropriate action against the officers responsible for failure to identify specific risks and take Complied. prompt corrective actions as recommended by the Committee, and/or as directed by the Director of Bank Supervision.

3 (6) (v) (g) The Committee shall submit a risk assessment report within a week of each meeting to the Board seeking the Complied. Board’s views, concurrence and/or specific directions.

3 (6) (v) (h) The Committee shall establish a compliance function to assess the Bank’s compliance with laws, regulations, The Compliance function assesses the regulatory guidelines, internal controls and approved policies on all areas of business operations. A dedicated Bank’s compliance with laws, regulations and regulatory guidelines. Internal Compliance Officer selected from Key Management Personnel shall carry out the compliance function and report controls are discussed at BAC which to the Committee periodically. takes up all Internal Audit findings and issues directions, etc. A formal process to assess the effectiveness of the internal controls by Compliance will be implemented in 2014.

3 (7) RELATED PARTY TRANSACTIONS

3 (7) (i) The Bank shall establish and document a process to avoid any conflicts of interest that may arise from any transaction of the Bank with any person, and particularly with the following categories of persons who shall be Complied. considered as ‘related parties’ for the purpose of this Direction; (a) Any of the Bank’s subsidiary companies; (b) Any of the Bank’s associate companies; (c) Any of the Directors of the Bank; (d) Any of the Bank’s Key Management Personnel; (e) A close relation of any of the Bank’s Directors of Key Management Personnel; (f) A shareholder owning a material interest in the Bank; (g) A concern in which any of the Bank’s Directors or a close relation of any of the Bank’s Directors or any of its material shareholders has a substantial interest. 107 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

Rule Number Rule Status of Compliance 3 (7) (ii) The Bank shall identify and report the following types of transactions been identified as transactions with related parties that is covered by this Directions. Complied. (a) The grant of any type of accommodation, as defined in the Monetary Board’s Directions a maximum amount of accommodation. (b) The creation of any liabilities of the Bank in the form of deposits, borrowings and investments. (c) The provision of any services of a financial or non-financial nature provided to the Bank or received from the Bank. (d) The creation or maintenance of reporting lines and information flows between the Bank and any related parties which may lead to the sharing of potentially proprietary, confidential or otherwise sensitive information that may give benefits to such related parties.

3 (7) (iii) The Board shall ensure that the Bank does not engage in transactions with related parties as defined in Direction Complied. 3 (7) (i) above, in a manner that would grant such parties ‘more favourable treatment’ than that accorded to other constituents of the Bank carrying on the same business. In this context, ‘more favourable treatment’ shall mean and include treatment, including the: (a) Granting of ‘total net accommodation’ to related parties, exceeding a prudent percentage of the Bank’s regulatory capital, as determined by the Board. For purposes of this sub-direction: (I) ‘Accommodation’ shall mean accommodation as defined in the Banking Act Directions, No. 7 of 2007 on Maximum Amount of Accommodation. (II) The ‘total net accommodation’ shall be computed by deducting from the total accommodation, the cash collateral and investments made by such related parties in the Bank’s share capital and debt instruments with a maturity of 5 years or more. (b) Charging a lower rate than the Bank’s best lending rate or paying more than the Bank’s deposit rate for a comparable transaction with an unrelated comparable counterparty. (c) Providing of preferential treatment, such as favourable terms, covering trade losses and/or waiving fees/ commissions, that extend beyond the terms granted in the normal course of business undertaken with unrelated parties. (d) Providing services to or receiving services from a related-party without an evaluation procedure. (e) Maintaining reporting lines and information flows that may lead to sharing potentially proprietary, confidential or otherwise sensitive information with related parties, except as required for the performance of legitimate duties and functions.

3 (7) (iv) The Bank shall not grant any accommodation to any of the Directors or to any Key Management Personnel unless Complied. such accommodation is sanctioned at a meeting of its Board of Directors, with not less than two-thirds of the number of Directors other than the Director concerned, voting in favour of such accommodation and that this accommodation be secured by such security as may from time to time be determined by the Monetary Board as well.

3 (7) (v) (a) Where any accommodation has been granted by a bank to a person or a close relation of a person or to any Such a situation has not arisen during concern in which the person has a substantial interest, and such person is subsequently appointed as a Director the year 2013. of the Bank, that steps have been taken by the Bank to obtain the necessary security as may be approved for that purpose by the Monetary Board, within one year from the date of appointment of the person as a Director. 108 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

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

(c) Any Director who fails to comply with the above sub-directions shall be deemed to have vacated the office of Not applicable as per 3 (7) (v) a a Director and the Bank shall disclose such fact to the public.

(d) The sub-direction, however, shall not apply to a Director who at the time of grant of the accommodation was Not applicable as per 3 (7) (v) a an employee of the Bank and the accommodation was granted under a scheme applicable to all employees of the Bank.

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

3 (7) (vii) No accommodation granted by the Bank under Direction 3 (7) (v) and 3 (7) (vi) above, nor any part of such Not applicable due to the reasons accommodation, nor any interest due thereon shall be remitted without the prior approval of the Monetary Board mentioned in 3 (7) (v) and (vi). and any remission without such approval shall be void and of no effect.

3 (8) DISCLOSURE

3 (8) (i) The Board shall ensure that: (a) Annual Audited Statements and quarterly financial statements are prepared and published in accordance with the Complied. formats prescribed by the supervisory and regulatory authorities and applicable accounting standards and that (b) Such statements are published in the newspapers in an abridged form, in Sinhala, Tamil and English.

3 (8) (ii) The Board shall ensure that the following minimum disclosures are made in the Annual Report: Complied.

(a) A statement to the effect that the Annual Audited Financial Statements have been prepared in line with Complied. Refer Report on Statement of applicable accounting standards and regulatory requirements, inclusive of specific disclosures. Directors’ Responsibility on page 145. (b) A report by the Board on the Bank’s internal control mechanism that confirms that the financial reporting Complied. Refer Report on Directors’ system has been designed to provide reasonable assurance regarding the reliability of financial reporting, Statement on Internal Control over Financial Reporting on page 114. and that the preparation of Financial Statements for external purposes has been done in accordance with relevant accounting principles and regulatory requirements. (c) To obtain the External Auditor’s Certification on the effectiveness of the internal control mechanism referred Complied. Refer Report on Independent to in Direction 3 (8) (ii) (b) above. Assurance Report on Internal Control on page 118. (d) Details of Directors, including names, qualifications, age, experience fulfilling the requirements of the Complied. Refer Details of Directors from guidelines fitness and propriety, transactions with the Bank and the total of fees/remuneration paid by the pages 20 to 25, Note 11 to the Financial Statements for Directors' Emoluments Bank. and Note 38 to the Financial Statements for Related Party Disclosures. 109 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

Rule Number Rule Status of Compliance (e) Total net accommodation as defined in 3 (7) (iii) granted to each category of related parties. Complied. Relevant disclosures have The net accommodation granted to each category of related parties shall also be disclosed as a percentage of been made on page 207. the Bank’s regulatory capital. (f) The aggregate values of remuneration paid by the Bank to its Key Management Personnel and the aggregate Complied. Refer Note 38 to the Financial values of the transactions of the Bank with its Key Management Personnel, set out by Board categories such Statements for Related Party Disclosures. remuneration paid, accommodation granted and deposits or investments made in the Bank. (g) To obtain the External Auditor’s Certification of the Compliance with these Corporate Governance The External Auditor’s Certification Directions. on Compliance with these Corporate Governance Directions has been obtained. (h) A report setting out details of the compliance with prudential requirements, regulations, laws and internal Complied. Refer Report on Bank’s controls and measures taken to rectify any material non-compliance. Compliance with Prudential Requirements on page 110. (i) A statement of the regulatory and supervisory concerns on lapses in the Bank’s risk management, or non- The Monetary Board has not directed the compliance with these Directions that have been pointed out by the Director of Bank Supervision, if so Bank to disclose any lapses. directed by the Monetary Board to be disclosed to the public, together with the measures taken by the Bank to address such concerns.

Main Board Board Audit Board Credit Board Nomination Board Integrated Risk Board Human Resources Board Executive Committee Committee Committee Management Committee and Remuneration Committee Committee Name of Director Participated Eligibility Participated Eligibility Participated Eligibility Participated Eligibility Participated Eligibility Participated Eligibility Participated Eligibility Mr. Osman Kassim 12 12 8 9 3 4 1 1 Mr. Tyeab Akbarally 8 12 6 9 1 5 2 4 1 1 Mr. Faizal Salieh 12 12 8 9 4 4 1 1 Dato’ A.T.B.H.A. Rahman 11 12 Dr. A.A.M. Haroon 8 12 6 9 6 7 4 4 Mr. Angelo M. Patrick 11 12 6 9 8 9 7 7 9 9 4 4 1 1 Mr. M. Jazri Magdon Ismail 12 12 9 9 3 3 9 9 Mr. Ruzly Hussain 11 12 9 9 9 9 7 7 1 1 Mr. Haseeb Ullah Siddiqui 3 12 Mr. Jeroen Thijs 12 12 9 9 Mr. Wahid Ali 12 12 9 9 Ms. Yeo Sock Hwa 2 2 0 2 Mr. Badrul H. Khan 10 10 Mr. Harsha Amarasekera 9 10 2 5

Please refer profiles of Board of Directors from pages 20 to 25 for additional details. 110 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Bank’s Compliance with Independent Sharia Supervisory Council 28 Corporate Management Team 30 Prudential Requirements Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

The Compliance Department within Amãna Bank is headed by the Chief Compliance Officer and Company Secretary who reports to the Board Integrated Risk Management Committee (BIRMC) on concerns pertaining to compliance. The compliance framework of the Bank is set by the Compliance Policy which has been formulated by the Bank in accordance with international best practices based on the consultative document on compliance by the BASEL Committee on Banking Supervision and approved by the Board of Directors. This policy gives a clear guideline as to the basic principles governing the compliance function and measures to ensure that the function is independent and has adequate resources to be able to ensure that Compliance Risks are addressed adequately and in a timely manner.

The Compliance Department functions as an independent department and is in charge of compliance across the Bank. Whilst it takes an overview approach the Compliance Department supports other departments and business units to addresses their compliance concerns. In this regard, the Compliance Department is also engaged in proactively identifying, documenting and assessing compliance risks that may arise due to non-compliance with regulatory requirements in the conduct of the Bank’s day to day business activities.

The Compliance Department has taken steps from the inception of the Bank to address the Bank’s compliance with regulations such as Know Your Customer (KYC) and Anti-Money Laundering (AML) functions. Appropriate mechanisms have been devised by the Department, to identify and assess the regulatory compliance requirements which are then disseminated to the Business/Operations Departments on a regular basis.

MONITORING OF COMPLIANCE The Bank has principally adopted an overview based approach to monitor compliance, while at times a detail-oriented approach is also undertaken, depending on the severity of the potential impact of the risk event. As part of the Bank’s overview-based approach, the Compliance Officer relies on the compliance reports generated, based on the sign-off given by the heads of business departments, and focuses on exception reports to follow-up on non-compliance issues. 111 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

A compliance certificate is submitted to the BIRMC and the Board of Directors at regular intervals by the Compliance Department which mainly contains:

 Compliance with Statutory/mandatory reporting requirements  Status of compliance with the key compliance requirements under the Directions issued by the Central Bank of Sri Lanka (CBSL)  Significant non-compliance events if any  Regulatory/potential breaches if any

ANTI-MONEY LAUNDERING (AML) COMPLIANCE The Bank has established a sound framework for Anti-Money Laundering Compliance based on relevant laws enacted by the Government of Sri Lanka to combat money laundering/ terrorist financing and in line with the rules governing the conduct of all account relationships issued by the Financial Intelligence Unit (FIU) of CBSL.

A separate policy for AML has been approved by the Board of Directors and is reviewed periodically. The Compliance Department pays special attention to any suspected money laundering transactions reported by the business units and carries out investigation to ensure adherence.

The Bank’s AML Policy establishes standards of AML compliance which applies to all branches/departments and ensures strict compliance with all existing laws and regulatory requirements.

The Bank takes all reasonable steps to verify the identity of its customers and keeps such information updated in accordance with the Directions issued by the FIU of CBSL. 112 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

NEW PRODUCT DEVELOPMENT The Compliance Department plays a key role in product development to ensure legal and regulatory compliance. Given that the Bank structures all its products in a totally Sharia compliant manner, the Compliance Department along with the Legal Department ensures that the new product structures are cleared for regulatory and legal compliance within the normal regulatory and legal framework of the country.

CAPACITY BUILDING ON COMPLIANCE Capacity building through various internal and external training forms a critical building block of the Bank’s Compliance plan. Internal training and orientation for new recruits include training modules on Compliance. Existing and new staff are provided training throughout the year to ensure that sufficient numbers of trained staff members are present in all branches and departments.

Some of the key training programmes that were conducted during the year included:

 Training programmes conducted by Senior Assistant Controller of Exchange for the Senior Management and Branch Managers on Exchange Control requirements and its implications on the Bank.  11 Training programmes have been conducted by the Compliance team for the Bank’s staff on AML and KYC throughout the year.  A Training programme on Compliance with emphasis on related party transactions guidelines and managing conflicts was conducted to the Corporate Management Team.

INFORMATION TECHNOLOGY SYSTEMS FOR COMPLIANCE The Bank acquired a system for name screening during the year and is currently in the process of obtaining an Anti-Money Laundering software. 113

Amãna Bank Annual Report 2013

Reliability For the honey of prosperity to flow in abundance, it must be produced in a well-founded, well-constructed enterprise. Amãna Bank benefits from scrupulous adherence to both Sharia precepts as well as the laws and principles promulgated by the Central Bank of Sri Lanka. The reassurance that we are on the right track was underscored by a successful IPO recently. The Bank’s reliability is further propelled by the trust and confidence placed in the Bank by three international banking giants, namely; Bank Islam Malaysia Berhad, the Islamic Development Bank based in Saudi Arabia and AB Bank of Bangladesh, all three of whom are strategic Shareholders of the Bank. 114 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Directors’ Statement on Independent Sharia Supervisory Council 28 Corporate Management Team 30 Internal Control over Profiles of Strategic Shareholders 32 Business and Operations Review 35 Financial Reporting Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

RESPONSIBILITY In line with the Banking Act Direction No. 11 of 2007, section 3 (8) (ii) (b), the Board of Directors present this report on internal control over financial reporting.

The Board of Directors (‘Board’) is responsible for the adequacy and effectiveness of the internal control mechanism in place at Amãna Bank Limited, (‘the Bank’). In considering such adequacy and effectiveness, the Board recognises that the business of banking requires reward to be balanced with risk on a managed basis and as such the internal control systems are primarily designed with a view to highlighting any deviations from the limits and indicators which comprise the risk appetite of the Bank. In this light, the system of internal controls can only provide reasonable, but not absolute assurance, against material misstatement of financial information and records or against financial losses or fraud.

The Board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Bank and this process includes enhancing the system of internal control over financial reporting as and when there are changes to the business environment or regulatory guidelines. The process is regularly reviewed by the Board and accords with the Guidance for Directors of Banks on the Directors’ Statement on Internal Control issued by The Institute of Chartered Accountants of Sri Lanka. The Board has assessed the internal control over financial reporting taking into account principles for the assessment of internal control system as given in that guidance.

The Board is of the view that the system of internal controls over financial reporting in place is sound and adequate to provide reasonable assurance regarding the reliability of financial reporting, and that the preparation of Financial Statements for external purposes is in accordance with relevant accounting principles and regulatory requirements.

The Management assists the Board in the implementation of the Board’s policies and procedures on risk and control by identifying and assessing the risks faced, and in the design, operation and monitoring of suitable internal controls to mitigate and control these risks. 115 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

KEY FEATURES OF THE PROCESS ADOPTED IN APPLYING AND REVIEWING THE DESIGN AND EFFECTIVENESS OF THE INTERNAL CONTROL SYSTEM OVER FINANCIAL REPORTING The key processes that have been established in reviewing the adequacy and integrity of the system of internal controls with respect to financial reporting include the following:

 Various committees are established by the Board to assist the Board in ensuring the effectiveness of the Bank’s daily operations and that the Bank’s operations are in accordance with the corporate objectives, strategies and the annual budget as well as the policies and business directions that have been approved.

 The Internal Audit Department of the Bank checks for compliance with policies and procedures and the effectiveness of the internal control systems on an ongoing basis using samples and rotational procedures and highlight significant findings in respect of any non-compliance. Audits are carried out on all units and branches, the frequency of which is determined by the level of risk assessed, to provide an independent and objective report. The annual Audit Plan is reviewed and approved by the Board Audit Committee. Findings of the Internal Audit Department are submitted to the Board Audit Committee for review at their periodic meetings.

 The Board Audit Committee of the Bank reviews internal control issues identified by the Internal Audit Department, the External Auditors, Regulatory Authorities and the Management: and evaluates the adequacy and effectiveness of the risk management and internal control systems. They also review the internal audit functions with particular emphasis on the scope of audits and quality of the same. The minutes of the Board Audit Committee meetings are forwarded to the Board on a periodic basis. Further details of the activities undertaken by the Board Audit Committee of the Bank are set out in the Board Audit Committee Report on pages 130 to 134.

 In assessing the internal control system over financial reporting, identified officers of the Bank collated all procedures and controls that are connected with significant accounts and disclosures of the Financial Statements of the Bank. These in turn were observed and checked by the Internal Audit Department for suitability of design and effectiveness on an ongoing basis. 116 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

 The Bank adopted the new Sri Lanka Accounting Standards comprising SLFRSs and LKASs in 2012. The processes and procedures initially applied to adopt the aforementioned Accounting Standards were further strengthened during the year 2013 based on the feedback received from the External Auditors, Internal Audit Department, regulators and the Board Audit Committee. The Bank is in the process of updating relevant procedure manuals pertaining to these new requirements. The Bank has also recognised the need to introduce an automated financial reporting process in order to comply with the requirements of recognition, measurement, classification and disclosure of the financial instruments more effectively and efficiently.

 The comments made by the External Auditors in connection with internal control system over financial reporting in previous years were reviewed during the year and appropriate steps have been taken to rectify them. The recommendations made by the External Auditors in 2013, in connection with the internal control system over financial reporting will be dealt with in the future.

CONFIRMATION Based on the above processes, the Board confirms that the financial reporting system of the Bank has been designed to provide a reasonable assurance regarding the reliability of financial reporting and the preparation of Financial Statements for external purposes and has been done in accordance with Sri Lanka Accounting Standards and regulatory requirements of the Central Bank of Sri Lanka. 117 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

REVIEW OF THE STATEMENT BY EXTERNAL AUDITORS The External Auditors, Messrs Ernst & Young, have reviewed the above Directors’ Statement on Internal Control over Financial Reporting included in the Annual Report of the Bank for the year ended 31 December 2013 and reported to the Board that nothing has come to their attention that causes them to believe that the statement is inconsistent with their understanding of the process adopted by the Board in the review of the design and effectiveness of the internal control over financial reporting of the Bank. Their Report on the Directors’ Statement of Internal Control over Financial Reporting is given on page 118 of this Annual Report.

By order of the Board,

Jazri Magdon Ismail Chairman - Board Audit Committee

Faizal Salieh Managing Director/CEO

Colombo 24 March 2014 118 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Assurance Independent Sharia Supervisory Council 28 Corporate Management Team 30 Report on Internal Control Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

INDEPENDENT ASSURANCE REPORT TO THE BOARD OF DIRECTORS OF AMÃNA BANK LIMITED INTRODUCTION We were engaged by the Board of Directors of Amãna Bank Limited (‘Bank’) to provide assurance on the Directors’ Statement on Internal Control over Financial Reporting (‘Statement’) included in the annual report for the year ended 31 December 2013.

MANAGEMENT’S RESPONSIBILITY Management is responsible for the preparation and presentation of the Statement in accordance with the ‘Guidance for Directors of Banks on the Directors’ Statement on Internal Control’ issued in compliance with section 3 (8) (ii) (b) of the Banking Act Direction No. 11 of 2007, by the Institute of Chartered Accountants of Sri Lanka.

OUR RESPONSIBILITIES AND COMPLIANCE WITH SLSAE 3050 Our responsibility is to issue a report to the board on the Statement based on the work performed. We conducted our engagement in accordance with Sri Lanka Standard on Assurance Engagements (SLSAE) 3050 - Assurance Report for Banks on Directors’ Statement on Internal Control issued by the Institute of Chartered Accountants of Sri Lanka.

SUMMARY OF WORK PERFORMED We conducted our engagement to assess whether the Statement is supported by the documentation prepared by or for directors; and appropriately reflected the process the directors have adopted in reviewing the system of internal control over financial reporting of the Bank.

The procedures performed were limited primarily to inquiries of bank personnel and the existence of documentation on a sample basis that supported the process adopted by the Board of Directors.

SLSAE 3050 does not require us to consider whether the Statement covers all risks and controls or to form an opinion on the effectiveness of the Bank’s risk and control procedures. SLSAE 3050 also does not require us to consider whether the processes described to deal with material internal control aspects of any significant problems disclosed in the annual report will, in fact, remedy the problems.

OUR CONCLUSION Based on the procedures performed, nothing has come to our attention that causes us to believe that the Statement included in the annual report is inconsistent with our understanding of the process the Board of Directors has adopted in the review of the design and effectiveness of internal control over financial reporting of the Bank.

24 March 2014 Colombo 119 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 of Directors on the Affairs of Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 the Bank Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

Contents of this Report are in accordance with the statutory requirements, the requirements of relevant regulatory authorities and best accounting practices. This Report was approved by the Directors.

GENERAL Your Directors have pleasure in presenting their Annual Report on the State of Affairs, together with the Audited Financial Statements for the year ended 31 December 2013. Amãna Bank Limited, a licensed Commercial Bank was incorporated under the Companies Act No. 07 of 2007 as a public limited liability company in Sri Lanka under the registration number PB 3618 and duly licensed as a Licensed Commercial Bank under the Banking Act No. 30 of 1988 as amended. The Bank listed its shares on the Colombo Stock Exchange with effect from 29 January 2014.

Completion and the contents of this report are in accordance with the statutory requirements, the requirements of relevant regulatory authorities for listed companies in the financial services industry and best accounting practices.

PRINCIPAL ACTIVITIES The principal activities of the Bank are the provision of Sharia based commercial banking services.

COMPLIANCE AND CORPORATE GOVERNANCE FOR LICENSED COMMERCIAL BANKS IN SRI LANKA The Directors of the Bank has adopted a comprehensive policy on compliance and in accordance with the regulations of the Central Bank of Sri Lanka (CBSL) have established an independent compliance function in respect of statutory requirements and CBSL Directions relating to licensed commercial banks. Further, in accordance with the provisions of the Financial Transaction Reporting Act No. 06 of 2006, Board has appointed a Compliance Officer at Senior Management level in charge of compliance of the Bank. The Bank has also a Compliance Policy and Guideline on KYC (Know Your Customer) and AML (Anti-Money Laundering). The Compliance Department monitors the compliance of the statutory requirements of the Bank and a report is submitted to the Board Integrated Risk Management Committee and the Board of Directors on a quarterly basis ensuring the Bank complies with all such requirements. 120 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

During the year, CBSL carried out a follow-up examination of the statutory examination of the Bank’s affairs conducted in the year 2012 and the findings of the examination made available to the Board of Directors.

The Bank also complies with the Banking Act Direction No. 11 of 2007 on Corporate Governance issued by CBSL and compliant with the provisions of the said Direction. The Corporate Governance Report is disclosed in pages 96 to 109.

In addition, the Bank is currently a listed entity and is in compliance with the Directions of the Securities and Exchange Commission of Sri Lanka, Continuing Listing Rules of the Colombo Stock Exchange and all other relevant authorities.

FINANCIAL RESULTS The following is a summary of the operating results of the Bank during the year ended 31 December 2013: 2013 2012 LKR LKR Net Operating Income 960,239,735 1,237,796,168 Less: Total Operating Expenses 1,385,060,580 986,051,191 Operating Profit/(Loss) Before Value Added Tax (424,820,845) 251,744,977 Profits and Appropriations Profit/(Loss) Before Tax (438,004,988) 205,803,944 Tax Expenses/(Reversal) (120,971,087) 59,809,292 Profit/(Loss) for the Year (317,033,901) 145,994,652

PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION Details of the property, plant and equipment of the Bank, additions made during the year and the depreciation charges for the year are shown in Note 25 to the Financial Statements.

DONATIONS During the year under review, the Bank made donations amounting to LKR 53,100/- (2012 - LKR 49,200/-). 121 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

EVENTS AFTER THE REPORTING DATE No circumstances have arisen since the reporting date which would require adjustments to, or disclosure in the Financial Statements except for the events disclosed in Note 40 to the Financial Statements.

ACCOUNTING AND VALUATION METHODS The Bank follows the Sri Lanka Accounting Standards in the preparation of its Financial Statements. At the date of the Report, the Directors are not aware of any circumstances that have arisen which would render adherence to such Standards inappropriate.

STATED CAPITAL AND SHAREHOLDERS At the recent Offering to the Public, 235,712,400 shares at a price of LKR 7/- each have been subscribed for cash and duly allotted to the subscribers. The Stated Capital of the Bank is LKR 5,866,808,141/-.

FINANCIAL STATEMENTS The Financial Statements of the Bank are given in pages 153 to 204.

ACCOUNTING POLICIES The Accounting Policies adopted in the preparation of Financial Statements are given in pages 158 to 168.

DIRECTORS The following were the Directors of Amãna Bank Limited during the year ending 31 December 2013: 1. Mr. Osman Kassim (Chairman, Non-Executive, Non-Independent Director) 2. Mr. Tyeab Akbarally (Deputy Chairman, Non-Executive, Non-Independent Director) 3. Mr. Faizal Salieh (Managing Director/CEO) 4. Dato’ Ahamed Tajudin Bin Haji Abdul Rahman (Non-Executive, Independent Senior Director) 5. Dr. Aboobacker Admani Mohamed Haroon (Non-Executive, Non-Independent Director) 6. Ms. Yeo Sock Hwa (Non-Executive, Non-Independent Director) resigned with effect from 23 March 2013 122 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

7. Mr. Mohamed Jazri Magdon Ismail (Non-Executive, Independent Director) 8. Mr. Ruzly Hussain (Non-Executive, Independent Director) 9. Mr. Angelo Maharajah Patrick (Non-Executive, Independent Director) 10. Mr. Haseeb Ullah Siddiqui (Non-Executive, Non-Independent Director) 11. Mr. Jeroen Petrus Margaretha Maria Thijs (Non-Executive, Non-Independent Director) 12. Mr. Wahid Ali Bin Mohd Khalil (Non-Executive, Non-Independent Director) 13. Mr. Harsha Amarasekera, PC (Non-Executive, Non-Independent Director) appointed with effect from 23 March 2013 14. Mr. Badrul Haque Khan (Non-Executive, Non-Independent Director) appointed with effect from 23 March 2013

ALTERNATE DIRECTORS 1. Mr. Huzefa Inayetally Akbarally (Alternate Director to Mr. Tyeab Akbarally) 2. Mr. Khairul Muzamel Perera Abdullah (Alternate Director to Mr. Jeroen Petrus Margaretha Maria Thijs) 3. Dato’ Wan Ismail Wan Yusoh (Alternate Director to Mr. Wahid Ali Bin Mohd Khalil) 4. Mr. Mohamed Faizel Mohamed Haddad (Alternate Director to Mr. Osman Kassim) 5. Mr. Kevin Mark Pocock (Alternate Director to Mr. Harsha Amarasekera) appointed with effect from 25 June 2013

ROTATION OF DIRECTORS In terms of Article 29 (6) of the Articles of Association of the Company one-third of the Directors shall retire from office at each Annual General Meeting. The following Directors retire by rotation and stand for reappointment at the Annual General Meeting of Amãna Bank. (a) Mr. Osman Kassim (b) Mr. Tyeab Akbarally (c) Dato’ Ahamed Tajudin Bin Haji Abdul Rahman (d) Dr. Aboobacker Admani Mohamed Haroon

INTEREST REGISTER The Directors’ interest in shares has been disclosed in the Interest Register. 123 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

DIRECTORS’ REMUNERATION AND OTHER BENEFITS Directors’ remuneration in respect of the Bank for the financial year ended 31 December 2013 is given in Note 11 to the Financial Statements.

DIRECTORS’ INTEREST IN CONTRACTS As at 31 December 2013, none of the Directors had interests in contracts with the Bank, other than those disclosed in Note 38 to the Financial Statements.

DIRECTORS’ INVESTMENTS IN SHARES The shareholdings of Directors who held office as at 31 December 2013 were as follows: Name of Director Number of Percentage of Shares Held Shareholding (%) Mr. Osman Kassim 233,354 0.02% Mr. Tyeab Akbarally 26 0.00% Mr. Faizal Salieh 01 0.00% Dato’ A. Tajudin B.H. Abdul Rahman Nil Nil Dr. A.A.M. Haroon 08 0.00% Mr. Angelo M. Patrick Nil Nil Mr. Mohamed Jazri Magdon Ismail 13,500 0.00% Mr. Ruzly Hussain Nil Nil Mr. Haseeb Ullah Siddiqui Nil Nil Mr. Jeroen P.M.M. Thijs Nil Nil Mr. Wahid Ali Mohd Khalil Nil Nil Mr. Harsha Amarasekera, PC Nil Nil Mr. Badrul Haque Khan Nil Nil Dato’ Wan Ismail Wan Yusoh (Alternate Director to Mr. Wahid Ali Mohd Khalil) Nil Nil Mr. Huzefa Inayetally Akbarally (Alternate Director to Mr. Tyeab Akbarally) 01 0.00% Mr. Khairul Muzamel Perera Bin Abdullah (Alternate Director to Mr. Jeroen Petrus Margaretha Maria Thijs) Nil Nil Mr. Mohamed Faizel Mohamed Haddad (Alternate Director to Mr. Osman Kassim) Nil Nil Mr. Kevin Mark Pocock (Alternate Director to Mr. Harsha Amarasekera, PC) 27,084,302 2.67% 124 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

BOARD COMMITTEES The Board of Directors, while assuming the overall responsibility and accountability for the management oversight of the Bank has also appointed Board Committees to ensure oversight and control over certain functions of the Bank conforming to Directions on Corporate Governance issued by the Monetary Board of the Central Bank of Sri Lanka. Accordingly, the following committees have been constituted by the Board:

 Board Audit Committee Mr. Jazri Magdon Ismail : Chairman Mr. Angelo M. Patrick : Member Mr. Ruzly Hussain : Member Mr. Wahid Ali Khalil : Member

The Report of the Board Audit Committee is given on pages 130 to 134 which forms part of the Annual Report of the Board of Directors.

 Board Integrated Risk Management Committee Mr. Angelo M. Patrick : Chairman Mr. Jazri Magdon Ismail : Member Mr. Jeroen Thijs : Member Mr. Faizal Salieh : Member (MD/CEO)

The Report of the Board Integrated Risk Management Committee is given on pages 135 to 138 which forms part of the Annual Report of the Board of Directors.

 Board Nomination Committee Mr. Ruzly Hussain : Chairman Dr. A.A.M. Haroon : Member Mr. Angelo M. Patrick : Member Ms. Yeo Sock Hwa : Member (resigned with effect from 23 March 2013) Mr. Harsha Amarasekera : Member (appointed with effect from 23 March 2013) Mr. Jazri Magdon Ismail : Member (appointed with effect from 18 May 2013)

The Report of the Board Nomination Committee is given on pages 141 to 143 which forms part of the Annual Report of the Board of Directors. 125 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

 Board Human Resources and Remuneration Committee Mr. Osman Kassim : Chairman Mr. Angelo M. Patrick : Member/Secretary Mr. Tyeab Akbarally : Member Mr. Faizal Salieh : Member (MD/CEO) (resigned with effect from 1 October 2013) Dr. A.A.M. Haroon : Member (resigned with effect from 1 October 2013) Mr. Ruzly Hussain : Member (appointed with effect from 1 October 2013) Mr. Jazri Magdon Ismail : Member (appointed with effect from 1 October 2013)

The Report of the Board Human Resources and Remuneration Committee is given on pages 139 to 140 which forms part of the Annual Report of the Board of Directors.

In addition to the above mandatory Board appointed Committees, the Board of Directors has also appointed a Board Credit Committee which oversees the Credit approval functions of the Bank.

 Board Credit Committee Mr. Osman Kassim : Chairman Mr. Tyeab Akbarally : Member Dr. A.A.M. Haroon : Member Mr. Angelo M. Patrick : Member Mr. Ruzly Hussain : Member

AUDITORS The Financial Statements for the year ended 31 December 2013 have been audited by Messrs Ernst & Young, Chartered Accountants, who offer themselves for reappointment. A resolution relating to their reappointment and authorising the Directors to determine their remuneration will be proposed at the Annual General Meeting.

The Auditors, Messrs Ernst & Young, Chartered Accountants, were paid LKR 2,834,316/-as audit fees by the Bank.

As far as the Directors are aware the Auditors do not have any relationship (other than that of an Auditor and Tax Consultant) with the Bank. The Auditors also do not have any interest in the Bank. 126 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

ANNUAL REPORT The Directors approved the Financial Statements together with the reviews which forms part of the Annual Report. The appropriate number of copies have been be submitted to the Central Bank of Sri Lanka, Sri Lanka Accounting and Auditing Standard Monitoring Board, the Registrar of Companies and the Colombo Stock Exchange.

ANNUAL GENERAL MEETING The Annual General Meeting will be held on Friday, 23 May 2014 at 4.00 p.m. at ‘Anthurium’, Galadari Hotel, 64, Lotus Road, Colombo 1.

The Notice of the Annual General Meeting is given on page 217.

By order of the Board,

Mrs. P.M. Dunuwille Koralege Company Secretary

Colombo 127 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Directors’ Interest in Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Contracts Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

Name of Director/Alternate Director Company Name Position Nature of Transaction Current Limit Amount Amount LKR LKR LKR 2013 2013 2012

Mr. Osman Kassim Amãna Investments Limited Chairman Due to Other Customers 1,478,344 8,529,229 Dr. A.A.M. Haroon Director Other Financial Assets 282,216,261 321,260,011 Mr. Tyeab Akbarally Director Disposal of Financial Investments Held for Trading/Available for Sale – 525,733,306 Mr. Faizal Salieh Director Dato’ A. Tajudin B.H. Abdul Rahman Director

Mr. Osman Kassim Vidullanka PLC Chairman Due to Other Customers 18,498,829 25,944,655 Dr. A.A.M. Haroon Director Financing and Receivables to Other Customers 215,000,000 132,709,099 175,370,508

Mr. Tyeab Akbarally Amãna Capital Limited Director Due to Other Customers 1,715 53,545 Dr. A.A.M. Haroon

Mr. Tyeab Akbarally Amãna Asset Management Limited Director Due to Other Customers 83,297 361,004 Dr. A.A.M. Haroon

Mr. Tyeab Akbarally Amãna Takaful PLC Chairman Due to Other Customers 9,539,387 4,207,084 Mr. Osman Kassim Director Financing and Receivables to Other Customers 637,510 211,284 1,511,959 Dr. A.A.M. Haroon Director Financial Investments Held for Trading/Available for Sale 241,435,843 275,454,000 Other Financial Assets 10,075,884 –

Mr. Osman Kassim Expolanka Holdings PLC Chairman Due to Other Customers – – Mr. Harsha Amarasekera Financial Investments Held for Trading/Available for Sale 21,764,070 24,150,000

Mr. Osman Kassim A.P.I.I.T. Lanka (Pvt) Limited Chairman Due to Other Customers 157,031,201 200,848,362 Letters of Guarantee, Shipping Guarantees and Other 58,746,383 13,082,736 128 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

Name of Director/Alternate Director Company Name Position Nature of Transaction Current Limit Amount Amount LKR LKR LKR 2013 2013 2012

Mr. Osman Kassim Ilma Educational Foundation Director Due to Other Customers 30,801,758 2,619,962

Mr. Osman Kassim, the Chairman of the Bank is also the Chairman of Cresentrating (Pte) Limited - Singapore, a Director of Alhasan Foundation, Pak Kuwait Takaful Company Limited - Pakistan and Amãna Takaful Maldives Limited - Maldives.

Dr. A.A.M. Haroon Vanguard Industries (Pvt) Limited Chairman Due to Other Customers 500,007 500,006 Financing and Receivables to Other Customers 95,000,000 3,676,719 18,744,763 Letters of Guarantee, Shipping Guarantees and Other 56,865,641 63,892,135

Dr. A.A.M. Haroon, a Director of the Bank is the Chairman of Colombo Medi Lab (Pvt) Limited, Liberty Textiles Exports (Pvt) Limited, Liberty Textiles Mills (Pvt) Limited, Lucky Industries (Pvt) Limited, Lucky Developers (Pvt) Limited, Master Apparels (Pvt) Limited and Vanguard Trading Company (Pvt) Limited.

Mr. Faizal Salieh Lanka Clear (Pvt) Limited Director Financial Investments Held for Trading/Available for Sale 2,000,000 2,000,000

Mr. Faizal Salieh, the Managing Director/CEO of the Bank is a Director of Distance Learning Centre Limited and Sri Lanka Institute of Directors.

Mr. Harsha Amarasekera Delmege Forsyth and Company Limited Director Due to Other Customers 7,156,377 – Financing and Receivables to Other Customers 200,000,000 134,973,151 3,429,229 Letters of Guarantee, Shipping Guarantees and Other 81,853,152 26,965,171

Mr. Harsha Amarasekera, a Director of the Bank is the Chairman of Bensons Limited and a Director of Amaya Leisure PLC, Keells Food Products PLC, Vallibel One PLC, Vallibel Power Erathna PLC, Westend Holdings Limited, Ceylon Leisure Holdings (Pvt) Limited, CIC Agri Business Limited, Galle Face Management Company Limited, Leisure Lines Lanka Limited, Suisse Hotel Kandy (Pvt) Limited, Ceylon Hotels Holdings (Pvt) Limited, Manson Investments (Pvt) Limited, Millennium Airlines (Pvt) Limited, Millennium Investments Lanka (Pvt) Limited, S H K Travels & Leisure (Pvt) Limited, CIC Holdings PLC and Chevron Lubricants Lanka PLC. 129 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

Name of Director/Alternate Director Company Name Position Nature of Transaction Current Limit Amount Amount LKR LKR LKR 2013 2013 2012 Mr. Tyeab Akbarally Akbar Brothers (Pvt) Limited Director Due to Other Customers 563,728 539,309 Mr. Huzefa Akbarally Director Mr. Tyeab Akbarally Akbar Pharmaceuticals (Pvt) Limited Director Due to Other Customers 82,988 79,394 Mr. Huzefa Akbarally Director

Mr. Tyeab Akbarally, a Director of the Bank is also a Director of A B Properties (Pvt) Limited, A B Development (Pvt) Limited, Akbar Brothers Exports (Pvt) Limited, Zahra Exports (Pvt) Limited, Energy Reclamation (Pvt) Limited, Falcon Apparels (Pvt) Limited, Falcon Developments (Pvt) Limited, Falcon Trading (Pvt) Limited, Land & Buildings Limited, Lina Manufacturing (Pvt) Limited, Quick Tea Limited, Amãna Global Limited and Mosaic Art (Pvt) Limited.

Mr. Huzefa Akbarally, an Alternate Director of the Bank is also a Director of A B Properties (Pvt) Limited, A B Development (Pvt) Limited, Akbar Brothers Exports (Pvt) Limited, Energy Reclamation (Pvt) Limited, Falcon Developments (Pvt) Limited, Falcon Trading (Pvt) Limited, Land & Buildings Limited, Lina Manufacturing (Pvt) Limited, Quick Tea Limited, Terraqua International (Pvt) Limited, Daily Life Renewable Energy Limited, Diyaviduli (Pvt) Limited, Seguwantiv Windpower (Pvt) Limited, Vidatamuni Windpower (Pvt) Limited and Windforce (Pvt) Limited.

Mr. Ruzly Hussain, a Director of the Bank is the Chairman of M C Abdul Rahim’s (Pvt) Limited, Cleansol (Pvt) Limited and World Star Lanka (Pvt) Limited.

Mr. M.F.M. Hadad, an Alternate Director of the Bank is a Director of Paragon Management Services (Pvt) Limited and Serendib Grand (Pvt) Limited.

Mr. Kevin Mark Pocock, an Alternate Director of the Bank is the Chairman of Millennium Airlines (Pvt) Limited and a Director of Millennium Investments (Pvt) Limited.

Dato’ Wan Ismail Wan Yusoh, an Alternate Director of the Bank is the Chairman of Farihan Corporation Sdn. Bhd., Al-Wakalah Nominees (Tempatan) Sdn. Bhd. and a Director of Malaysian Electronic Payment Sdn. Bhd. and MARA Education Foundation and Universiti Sultan Zainal Abidin

Dato’ Sri Zukri Bin Samat* Bank Islam Malaysia Berhad Managing Director Placements with Banks – 1,279,205,104 Mr. Jaafar Bin Abu* Chief Operating Officer Letters of Guarantee, Shipping - Business Support Guarantees and Other – 639,500 * Ceased to be a Director with effect from 24 August 2012 130 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Board Audit Committee Independent Sharia Supervisory Council 28 Corporate Management Team 30 Report Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

1. COMPOSITION OF THE BOARD AUDIT COMMITTEE The Board Audit Committee conducts its proceedings in accordance with the terms of reference approved by the Board of Directors. The Committee comprises of four Non-Executive Directors, three of them being Independent. The Chairman of the Committee, Mr. Mohamed Jazri Magdon Ismail is an Independent Director and is a Fellow Member of The Institute of Chartered Accountants of Sri Lanka.

Table below shows the list of members of the Board Audit Committee during the year under review and their attendance at the Committee meetings held during the year:

Audit Committee Member Meeting Attendance/ Meetings Eligible to Attend

Mr. Mohamed Jazri Magdon Ismail (Non-Executive, Independent Director) 9/9 Mr. Angelo Maharajah Patrick (Non-Executive, Independent Director) 6/9 Mr. Ruzly Hussain (Non-Executive, Independent Director) 9/9 Mr. Wahid Ali (Non-Executive, Non-Independent Director) 9/9

The Board Secretary functions as the Secretary to the Board Audit Committee.

2. ROLE OF THE BOARD AUDIT COMMITTEE The Committee assists the Board of Directors in carrying out its responsibilities in relation to financial reporting requirements and assessment of internal controls. The role and responsibilities of the Committee is defined in the Committee’s ‘Terms of Reference’ document. The Committee amongst other functions performs the following key tasks: i. Reviewing the operations and effectiveness of the Bank’s internal control system to ensure that a good financial reporting system is in place to comply with Sri Lanka Accounting Standards. ii. Ensuring that the presentation of Financial Statements satisfies all applicable accounting standards as well as the relevant legal and regulatory requirements. iii. Recommending appointment or re-appointment of the External Auditor for audit services to be provided in compliance with the relevant statutes. iv. Reviewing and monitoring the External Auditor’s independence and objectivity and the effectiveness of the audit processes in accordance with applicable standards and best practices. 131 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

v. Discussing and finalising with the External Auditors the nature and scope of the audit before the commencement of the audit. vi. Ensuring an Audit Charter and a comprehensive Internal Audit Manual and Guidelines are in place. vii. Monitoring the effectiveness of the Bank’s Internal Audit Function. viii. Reviewing the adequacy of the scope, functions and resources of the Internal Audit Department and ensuring that appropriate actions are taken on the findings and recommendations of the Department.

3. REGULATORY COMPLIANCE The role and functions of the Board Audit Committee are regulated by the Banking Act Direction No. 11 of 2007, the Mandatory Code of Corporate Governance for Licensed Commercial Banks issued by the Central Bank of Sri Lanka and the Best Practices of Corporate Governance issued by The Institute of Chartered Accountants of Sri Lanka.

Bank’s compliance with mandatory banking and other statutory requirements as well as the systems and procedures in place to assess the compliance with such requirements were regularly reviewed by the Committee.

4. MEETINGS The Audit Committee met nine times during the year under review. The Managing Director/ Chief Executive Officer and the Chief Internal Auditor attended these meetings by invitation. On the invitation of the Committee, the Engagement Partner of the Bank’s External Auditors, Messrs Ernst and Young also attended five meetings held during the year. Further, Key Management Personnel from pertinent business and support departments of the Bank were also invited to attend relevant segments of the meetings to enhance the awareness of the Committee with regard to issues and/or developments relating to such departments. Such invitations were extended to ensure that the committee is provided with all the relevant information to facilitate the discharge of its role and responsibilities. 132 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

5. FINANCIAL REPORTING The Board Audit Committee as part of its responsibility to oversee the Bank’s financial reporting process on behalf of the Board of Directors, has reviewed and discussed with the Management, the Annual Financial Statements for the year 2013, prior to release. These Financial Statements have been prepared in line with the Sri Lanka Accounting Standards (SLFRS & LKAS).

Above review by the Committee included the extent of compliance with the Sri Lanka Accounting Standards, the Companies Act No. 7 of 2007, the Banking Act No. 30 of 1988 and amendments thereto. Matters of special interest in the current environment taken into consideration as part of the process that supports certifications of the Financial Statements by the Bank’s Chief Executive Officer and Chief Financial Officer were also brought up for discussion. These Financial Statements are an integral part of the Bank’s Annual Report.

6. RISKS AND INTERNAL CONTROLS The internal controls within the Bank are designed to provide reasonable but not absolute assurance to the Directors and assist them to monitor the financial position of the Bank. During the year, the Committee reviewed the effectiveness of the Bank’s internal control system and assessed the effectiveness of the internal controls over financial reporting as of 31 December 2013, as required by the Banking Act Direction No. 11 of 2007, Corporate Governance for Licensed Commercial Banks in Sri Lanka, Subsection 3 (8) (ii) (b), based on the “Guidance for Directors of Banks on the Directors’ Statement of Internal Control” issued by The Institute of Chartered Accountants of Sri Lanka. The result of the assessment is given on pages 114 to 117 of the Annual Report, titled “Directors’ Statement on Internal Control Over Financial Reporting”. The External Auditors have issued an Assurance Report on the Directors’ Statement on Internal Control Over Financial Reporting. This report is given on page 118 of the Annual Report. Based on its assessment of the Internal Control System, the Committee concluded and confirmed to the Board as of 31 December 2013 that the Bank’s Internal Control over financial reporting is effective.

7. EXTERNAL AUDIT The Board Audit Committee reviewed and monitored the independence of the External Auditors and the objectivity of the effectiveness of the audit process and assisted the Board with its recommendations to the shareholders on re-appointment of Messrs Ernst & Young, Chartered Accountants as External Auditors for the financial year ended 31 December 2013. 133 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

As part of the Committee meetings held during the year, the External Audit approach and procedures, including matters relating to the scope of such audit and the External Auditors’ independence were discussed with the External Auditors. Further, the Committee met the External Auditors two times during the year without the presence of the executive management to ensure that there was no limitation of scope in relation to the Audit and any other related incidents which could have had a negative impact on the effectiveness of the external audit, and concluded that there was no cause for concern. Moreover Committee also reviewed the External Auditor’s Management Letter and the management’s responses thereto.

8. INTERNAL AUDIT During the year, the Board Audit Committee reviewed the independence, objectivity and performance of the Internal Audit Function. This review also included the findings from the internal audits completed and the Internal Audit Department’s evaluation of the Bank’s internal controls including internal control systems. The Committee also reviewed the adequacy of Internal Audit coverage through the Internal Audit Plan and approved the same. It also assessed the Internal Audit Department’s resource requirements including succession planning.

During the year, the Committee approved a new set of Key Performance Indicators (KPI) for the Internal Audit Function of the Bank. These KPIs are designed to enhance the process of defining the Internal Audit Department’s objectives and measuring the progress made towards fulfilling such objectives.

9. PROFESSIONAL ADVICE The Committee has the authority to seek external professional advice on matters within its purview.

10. WHISTLE-BLOWING This Whistle-Blowing policy of the Bank outlines the process for engaging both internal and external stakeholders as whistle-blowers, identifies additional channels of communication, streamlines the governing process relating to whistle-blowing and specifies the means by which protection of the whistle-blower is ensured. 134 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

Amãna Bank ethics hotline is a whistle-blowing tool operated with the assistance of an external service provider (KPMG) to provide employees with the opportunity to assist the management in adopting a unique approach to banking in sync with the Bank’s beliefs. The scheme allows any Staff Member who has a legitimate concern on an existing or potential irregularity within the Bank, to voluntarily bring such concern to the notice of KPMG anonymously using a dedicated telephone hotline operated by KPMG. Concerns raised are investigated by KPMG and forwarded to the Whistle-Blowing Unit of the Bank. Through various awareness sessions and other publicity means all staff members have been educated and encouraged to use the ethics hotline when they suspect wrong doings or other improprieties.

11. COMMITTEE EVALUATION The annual evaluation of the Board Audit Committee was carried out by the members of the Board and the Committee has taken note of the feedback received.

Jazri Magdon Ismail Chairman - Board Audit Committee

Colombo 24 March 2014 135 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Board Integrated Risk Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Management Committee Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Report Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

1. COMPOSITION OF THE COMMITTEE The Board Integrated Risk Management Committee (BIRMC) comprising of members listed below conducts its proceedings in accordance with the terms of reference approved by the Board of Directors. The Committee was appointed by the Board on 30 May 2011 and is chaired by Mr. Angelo Patrick.

The Committee met 9 times during the year and the attendance is as follows:

BIRMC Member Meetings Attended/ Meetings Eligible to Attend Angelo Maharajah Patrick (Non-Executive, Independent Director) 9/9 Mohamed Jazri Magdon Ismail (Non-Executive, Independent Director) 9/9 Jeroen Thijs (Non-Executive, Non-Independent Director) 9/9 Faizal Salieh (Managing Director/CEO) 8/9

The Board Secretary functioned as the Secretary to the BIRMC until July 2013. Thereafter, the Committee appointed the Risk Officer to the post of Secretary.

2. REGULATORY COMPLIANCE The BIRMC was established by the Board of Directors, in compliance with the Section 3 (6) of Direction No. 11 of 2007, on ‘Corporate Governance for Licensed Commercial Banks in Sri Lanka’, issued by the Monetary Board of the Central Bank of Sri Lanka under powers vested in the Monetary Board, in terms of the Banking Act No. 30 of 1988.

3. MEETINGS The Chief Financial Officer, Chief Internal Auditor, Vice-President - Credit and the Risk Officer attended these meetings by invitation. Key Management Personnel from relevant business and support departments of the Bank were also invited to attend segments of the meetings to enhance the awareness of the BIRMC with regard to issues and/or developments relating to such departments. Such invitations were extended to ensure that the BIRMC is provided with all the relevant information to facilitate the discharge of its role and responsibilities. Minutes of the Committee meetings are recorded and suitable recommendations are referred to the Board of Directors for approval. After every BIRMC meeting, a Report from the BIRMC Chairman along with the respective BIRMC meeting minutes is forwarded to the Board of Directors for perusal. 136 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

4. ROLE AND RESPONSIBILITIES OF THE BIRMC The BIRMC, a Committee appointed by the Board is primarily responsible for the effective functioning of the risk management function within the Bank. The BIRMC has authority to access any information of the Directors, management and staff with regard to carrying out its role and responsibilities on the risk management process of the Bank. Its main responsibilities include the following: i. Ensure that the Bank has a comprehensive risk management policy and framework and appropriate compliance policies and systems in place. In addition, BIRMC continuously monitors the effectiveness of such policy and framework so as to inculcate a proactive risk management culture within the Bank. ii. Reviewing the setting of the risk appetite/tolerance of the Bank at enterprise and at strategic business unit levels. iii. Assess and oversee credit, market, liquidity, operational and strategic risks (including Sharia non-compliance risks) of the Bank on a monthly basis through appropriate risk indicators and management information. iv. Ensuring implementation of sufficient internal controls to detect any deficiencies in the internal control environment in a timely manner, reviewing the independence and robustness of risk management processes and internal controls throughout the Bank and approving the Bank’s key risk control and mitigation processes. v. Review the adequacy and effectiveness of all management level committees such as Executive Risk Management Committee, Operational Risk Management Committee and the Asset Liability Committee to address specific risks and to manage those risks within quantitative and qualitative risk limits and authorised deviations from limits as specified by the BIRMC. vi. Take prompt corrective action to mitigate the effects of specific risks in case such risks are beyond levels deemed prudent by the BIRMC on the basis of the Bank’s policies and regulatory and supervisory requirements and risk appetite. vii. Quarterly, assess all aspects of risk management including updated business continuity plans. viii. Establish a compliance function to assess the Bank’s compliance with laws, regulations, regulatory guidelines, internal controls and approved policies on all areas of business operations. 137 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

ix. Reviewing and recommending to the Board the allocation of (risk-adjusted) capital across broad-based business units covering market risk, credit risk, and operational risk and accordingly approving allocation of such capital across individual business units and product lines.

The BIRMC has the authority to seek external professional advice on matters within its purview.

5. RISK MANAGEMENT AND INTERNAL CONTROLS Risk management controls are implemented across the Bank to provide reasonable assurance to the Board and senior management that effective mitigation action plans are implemented to address all risk exposures. During the year, BIRMC has reviewed and assessed the effectiveness of the Bank’s risk management controls for the financial year ended as of 31 December 2013. In pursuit of managing its risk profile, the Bank has further strengthened the Risk Management Department (RMD) with the objective of effectively managing the core functions of risk: Credit, Market, Liquidity and Operational risk.

6. COMMITTEE EVALUATION The Risk Management Department has carried out Risk and Control Self-Assessment (RCSA) in the critical business units for identifying, assessing, mitigating, monitoring and reporting of operational risks. This exercise is ideally conducted by staff of the unit being assessed (i.e. those who know the sub-unit or process best) with the guidance of the Risk Management Department. However, as the Bank is still implementing the risk management culture, staff of Risk Management Department have personally visited 8 Departments and 10 Branches during the year and conducted the exercise on behalf of the respective Department/Branch. The results of such exercises were also escalated to the relevant management levels and taken up for discussions at BIRMC meetings for creating awareness and appropriate action.

For the year under review, the Bank has progressed successfully in managing its overall risk profile especially after it posted strong growth in assets compared to the last year. The Board and the BIRMC are satisfied with the effective risk management strategies implemented by the Bank under its Integrated Risk Management Framework (IRMF) and Road Map over the 12 - month period ended in December 2013. 138 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

The Bank shall continue to review, monitor and proactively address potential risks identified in all its operations and implement appropriate mitigation strategies to remain in a steady growth and expansion phase. The Bank shall also continue to function within its approved risk appetite as well as comply with Basel II and CBSL requirements of effective risk management practices.

Angelo M. Patrick Chairman - Board Integrated Risk Management Committee

Colombo 24 March 2014 139 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Board Human Resources and Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Remuneration Committee Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Report Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

The Board Human Resources and Remuneration Committee (BHRRC) comprises of the following members: 1. Mr. Osman Kassim (Non-Executive, Non-Independent Director, Chairman) 2. Mr. Angelo M. Patrick (Non-Executive, Independent Director, Secretary) 3. Mr. Tyeab Akbarally (Non-Executive, Non-Independent Director) 4. Dr. A.A.M. Haroon (Non-Executive, Non-Independent Director) - resigned w.e.f. 1 October 2013 5. Mr. Faizal Salieh (Managing Director/CEO) - resigned w.e.f. 1 October 2013 6. Mr. Ruzly Hussain (Non-Executive, Independent Director) - appointed w.e.f. 1 October 2013 7. Mr. Jazry M. Ismail (Non-Executive, Independent Director) - appointed w.e.f. 1 October 2013

All five (5) Directors in the Committee are Non-Executive Directors with three (3) being Independent Directors.

AUTHORITY AND RESPONSIBILITIES The BHRRC has the explicit authority to decide on and review the Bank’s Human Resources and Remuneration Policy and Structure within its Terms of Reference on behalf of the Board of Directors. It may however, refer any matter which in the opinion of BHRRC should be decided by the Board of Directors together with its recommendations.

In discharging its duties and functions the BHRRC has all the resources it needs to do so and full and unrestricted access to information and the right to obtain external professional advise and invite outsiders with relevant experience to attend meetings if necessary.

The Roles and Responsibilities of the Committee include: 1. Approving the Human Resource Policies (salaries, allowances and other financial payments) relating to Directors, MD/CEO and Key Management Personnel of the Bank. 2. Evaluating the performance of the CEO and Key Management Personnel against the set targets and goals periodically and determine the basis for revising remuneration, benefits and other payments of performance-based incentives. 3. Approving periodic Human Resource Policy and Procedure revisions. 140 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

MEETINGS The Committee held four (4) meetings during the year under review. Meetings are held as and when necessary after providing sufficient notice to all members.

Osman Kassim Chairman - Board Human Resources and Remuneration Committee

Colombo 24 March 2014 141 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Board Nomination Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Committee Report Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

CONSTITUTION OF THE BOARD NOMINATION COMMITTEE (BNC) Amãna Bank’s Board Nomination Committee (BNC) constitutes of five (5) members from the Board of Directors as follows :

1. Mr. Ruzly Hussain - Chairman (Non-Executive, Independent Director) 2. Mr. Tyeab Akbarally - Member (Non-Executive, Non-Independent Director) resigned w.e.f. 28 June 2013 3. Dr. A.A.M. Haroon - Member (Non-Executive, Non-Independent Director) 4. Mr. Angelo M. Patrick - Member (Non-Executive, Independent Director) 5. Mr. Harsha Amarasekera - Member (Non-Executive, Non-Independent Director) appointed w.e.f. 23 March 2013 6. Mr. Jazri Magdon Ismail - Member (Non-Executive, Independent Director) appointed w.e.f. 18 May 2013 7. Ms. Yeo Sock Hwa - Member (Non-Executive, Non-Independent Director) resigned w.e.f. 23 March 2013

RESPONSIBILITIES OF THE BOARD NOMINATION COMMITTEE According to the Terms of Reference (TOR) given by the Board to the BNC the following are its key responsibilities: (a) Establishing a procedure to select/appoint new Directors, CEO and Key Management Personnel (KMP) (b) Considering and recommending (or not recommending) the re-election of current Directors, taking into account the performance and contribution made by the Director concerned towards the overall discharge of the Board’s responsibilities (c) Setting the criteria such as qualifications, experience and key attributes required for eligibility to be considered for appointment or promotion to the post of CEO and the Key Management Positions (d) Ensuring the Directors, CEO and KMP are fit and proper persons to hold office as specified and set out in the Banking Act and other relevant Statutes and in terms of the Directions issued by the Central Bank of Sri Lanka (CBSL) from time to time (e) Considering and recommending from time to time, the requirements of additional/new expertise and the succession arrangements for retiring Directors and KMP

The quorum necessary for transactions of business is four (4) members.

The Company Secretary is Secretary to the BNC. 142 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

FREQUENCY OF MEETINGS The Committee is required to meet as and when necessary and at least twice during a financial year.

AUTHORITY The BNC has the authority to seek any information that it requires from any officer or employee of the Bank. In connection with its duties, the BNC is authorised by the Board to take such independent advice (including legal or other professional advice, at the Bank’s expense) as it considers necessary, including requests for information from, or commissioning investigations by external advisers.

PERFORMANCE DURING THE YEAR During the year 2013 the BNC held seven (7) meetings. The Committee approved the suitability of the following appointments to the Board of Directors of the Bank.

 Mr. Badrul Haque Khan, Deputy Managing Director of AB Bank, Bangladesh as Director of the Bank in place of retiring Director, Mr. Mohammed Wahidul Haque  Mr. Harsha Amarasekera representing Millennium Capital (Pvt) Limited, Singapore in place of retiring Director Ms. Yeo Sock Hwa  Mr. Kevin Mark Pocock as Alternate to Mr. Harsha Amarasekera

The Committee also interviewed and recommended the appointment of the following Key Management positions:

 Mr. Ajmal Naleer as Vice President - Credit  Mr. H. Mahesha Thrimanne as Head of Legal  Mr. Roomy Rahim as Vice President - HR  Mr. Irshad Halaldeen as Vice President - Strategic Planning and BPR

As mandated under the Corporate Governance Direction issued by CBSL the Committee also considered the re-appointment of Directors who retire by rotation in terms of Articles 28 of the Articles of Association of the Bank. 143 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

The Board of Directors also reconstituted the BNC at the 30th Board Meeting held on 18 May 2013 by the appointment of Mr. Jazri Magdon Ismail, an Independent Director also to the BNC.

During the year the BNC formerly put in place established criteria for succession planning of the Key Management positions and also formal procedures for the same.

BNC is actively involved in the selection and appointments of KMP and Directors to ensure that Directors and KMPs are fit and proper persons to hold their offices as set out in the Statutes of the CBSL Directions. As a listed company the BNC will now be conforming with the Colombo Stock Exchange and Securities and Exchange Commission of Sri Lanka guidelines of Corporate Governance for listed companies as well.

Ruzly Hussain Chairman - Board Nomination Committee

Colombo 24 March 2014 144 Financial Highlights 04 Chairman’s Message 07 Managing Director/CEO’s Review 13 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65 Growth A thriving hive is one that grows. The Bank grew its customer deposits by over LKR 4.6 billion, whilst customer advances grew by LKR 7.8 billion in 2013. This is just a foretaste of the sweet success that is ready to flow in the years ahead… all due to the ‘busy bees’ who are engaged in building a vibrant and prosperous enterprise that will grow well into the future. 145 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Statement of Directors’ Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Responsibility Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

The responsibility of the Directors, in relation to the Financial Statements of Amãna Bank Limited (Bank) is set out in this Statement. The responsibilities of the External Auditors in relation to the Financial Statements are set out in the Auditors’ Report given on page 152.

In terms of Sections 150, 151 and 153 of the Companies Act No. 07 of 2007, the Directors of the Bank are responsible for ensuring that the Bank keeps proper books of accounts of all the transactions and prepare Financial Statements that give a true and fair view of the financial position of the Bank as at end of each financial year and of the financial performance of the Bank for each year and place them before a general meeting. The Financial Statements comprise of the Statement of Financial Position as at 31 December 2013, Income Statement, Statement of Other Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flows for the year then ended and notes thereto.

Accordingly, the Directors confirm that the Financial Statements of the Bank give a true and fair view of: (a) the financial position of the Bank as at reporting date; and (b) the financial performance of the Bank for the financial year ended on the reporting date.

The Financial Statements of the Bank have been certified by the Bank’s Chief Financial Officer, the officer responsible for their preparation, as required by the Sections 150 and 152 of the Companies Act. In addition, the Financial Statements of the Bank have been signed by three Directors and the Company Secretary of the Bank on 22 March 2014 as required by the Sections 150 and 152 of the Companies Act and other regulatory requirements. Under the Section 148 of the Companies Act, the Directors are also responsible for ensuring that proper accounting records which correctly record and explain the Bank’s transactions are maintained and that the Bank’s financial position, with reasonable accuracy, at any point of time is determined by the Bank, enabling preparation of the Financial Statements, in accordance with the Act to facilitate proper audit of the Financial Statements.

The Financial Statements for the year 2013, prepared and presented in this Annual Report are in agreement with the underlying books of accounts and are in conformity with the requirements of the Sri Lanka Accounting Standards, Companies Act No. 07 of 2007, Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, Banking Act No. 30 of 1988 and amendments thereto and the Directions on Corporate Governance No. 11 of 2007 issued by the Central Bank of Sri Lanka. 146 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Supervisory Council 28 Corporate Management Team 30 Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

In addition, these Financial Statements comply with the prescribed format issued by the Central Bank of Sri Lanka for the preparation of Annual Financial Statements of licensed commercial banks.

The Directors have taken appropriate steps to ensure that the Bank maintains proper books of accounts and review the financial reporting system directly by them at their regular meetings and also through the Board Audit Committee. The report of the said Committee is given on pages 130 to 134.

The Board of Directors accepts responsibility for the integrity and objectivity of the Financial Statements presented in this Annual Report. The Directors confirm that in preparing the Financial Statements exhibited on pages 153 to 204 including appropriate Accounting Policies based on the new financial reporting framework, had been selected and applied in a consistent manner, while reasonable and prudent judgments have been made so that the form and substance of the transactions are properly reflected.

The Directors also have taken reasonable measures to safeguard the assets of the Bank and to prevent and detect frauds and other irregularities. In this regards, the Directors have instituted an effective and comprehensive system of internal controls comprising of internal checks, internal audit and financial and other controls required to carry on the business of banking in an orderly manner and safeguard its assets and secure as far as practicable, the accuracy and reliability of the records. The Directors’ Statement on Internal Control over Financial Reporting is given on pages 114 and 117 of this Annual Report.

The Board of Directors also wishes to confirm that, as required by the Sections 166 (1) and 167 (1) of the Companies Act, they have prepared this Annual Report in time and ensured that a copy thereof is sent to every shareholder of the Bank, who have expressed desire to receive a hard copy or to other shareholders a soft copy each in a CD containing the Annual Report within the stipulated period of time. The Directors also wish to confirm that all shareholders have been treated equally in accordance with the original terms of issue.

The Bank’s External Auditors, Messrs Ernst & Young who were appointed in terms of the Section 158 of the Companies Act and in accordance with a resolution passed at the last Annual General Meeting, were provided with every opportunity to undertake the inspections they considered appropriate. They carried out reviews and sample checks on the system of 147 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

internal controls as they considered appropriate and necessary for expressing their opinion on the Financial Statements and maintaining accounting records. They have examined the Financial Statements made available to them by the Board of Directors of the Bank together with all the financial records, related data and minutes of shareholders’ and Directors’ meetings and expressed their opinion which appears as reported by them on page 152.

COMPLIANCE REPORT The Directors confirm that to the best of their knowledge, all taxes, duties and levies payable by the Bank, all contribution, levies and taxes payable on behalf of and in respect of the employees of the Bank, and all other known statutory dues as were due and payable by the Bank as at the reporting date have been paid or, where relevant, provided for. The Directors further confirm that after considering the financial position, operating conditions, regulatory and other factors and relevant matters the Directors have a reasonable expectation that the Bank possesses adequate resources to continue in operation for the foreseeable future.

For this reason, the Directors continue to adopt the Going Concern basis in preparing the Financial Statements.

The Directors are of the view that they have discharged their responsibilities as set out in this Statement.

By Order of the Board,

Mrs. P.M. Dunuwille Koralege Company Secretary

Colombo 24 March 2014 148 Financial Highlights 04 Chairman’s Message 06 Managing Director/CEO’s Review 12 Amãna Bank Annual Report 2013 Board of Directors 20 Independent Sharia Independent Sharia Supervisory Council 28 Corporate Management Team 30 Supervisory Council Report Profiles of Strategic Shareholders 32 Business and Operations Review 35 Report on Sharia Supervision 55 Corporate Social Responsibility 59 Risk Management 65

In the Name of Allah the Most Gracious the Most Merciful

To the Shareholders of Amãna Bank Limited

We have reviewed the Sharia audit and review report conducted by the Sharia Supervision Department and the contracts relating to the transactions and applications introduced by Amãna Bank Limited during the year ended 31 December 2013.

We have also conducted our review to form an opinion as to whether Amãna Bank Limited has complied with Sharia Rules and Principles and also with the specific rulings and guidelines issued by us.

The Sharia review also included examining on a test basis each type of transactions, the relevant documentations and procedures adopted by the Bank.

We planned and performed our review so as to obtain all the information and explanations which was considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Bank has not violated Sharia Rules and Principles and any guidelines provided by us.

The Management is responsible for ensuring that the Bank conducts its business in accordance with the Sharia Rules and Principles. It is our responsibility to form an independent opinion, based on our review of the operations of the Bank and to report to you. 149 Corporate Governance 96 Bank’s Compliance with Prudential Requirements 110 Directors’ Statement on Internal Control over Financial Reporting 114 Amãna Bank Annual Report 2013 Independent Assurance Report on Internal Control 118 Annual Report of the Board of Directors on the Affairs of the Bank 119 Directors’ Interest in Contracts 127 Board Audit Committee Report 130 Board Integrated Risk Management Committee Report 135 Board Human Resources and Remuneration Committee Report 139 Board Nomination Committee Report 141 Statement of Directors’ Responsibility 145 Independent Sharia Supervisory Council Report 148

In our Opinion: a. The contracts, transactions and dealings entered into by Amãna Bank Limited during the year ended 31 December 2013, that have been reviewed are in compliance with the Sharia Rules and Principles. b. The allocation of profit and charging of losses relating to Investment Accounts conform to the basis that had been approved by us in accordance with Sharia Rules and Principles.

Allah Knows Best.

Ash-Sheik Dr. Muhammad Imran Ashraf Usmani Chairman

Ash-Sheik Mohd Nazri Chik Ash-Sheik Mufti M.I.M. Rizwe Vice Chairman Member

Ash-Sheik M.M.A. Mubarak Ash-Sheik Mufti Hassan Kaleem Member Member

Financial Reports Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158 152 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Independent Auditors’ Report Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

INDEPENDENT AUDITORS’ REPORT due to fraud or error; selecting and applying OPINION TO THE SHAREHOLDERS OF appropriate accounting policies; and making In our opinion, so far as appears from AMÃNA BANK LIMITED accounting estimates that are reasonable in our examination, the Bank maintained the circumstances. REPORT ON THE FINANCIAL proper accounting records for the year STATEMENTS ended 31 December 2013 and the financial SCOPE OF AUDIT AND BASIS OF statements give a true and fair view of the We have audited the accompanying financial OPINION Bank’s financial position as at 31 December statements of Amãna Bank Limited (“the 2013 and its financial performance and cash Bank”), which comprise the statement of Our responsibility is to express an opinion flows for the year then ended in accordance financial position as at 31 December 2013, on these financial statements based on our with Sri Lanka Accounting Standards. and the income statement, statement audit. We conducted our audit in accordance of comprehensive income, statement with Sri Lanka Auditing Standards. Those of changes in equity and statement of standards require that we plan and perform REPORT ON OTHER LEGAL AND cash flows for the year then ended, and a the audit to obtain reasonable assurance REGULATORY REQUIREMENTS whether the financial statements are free summary of significant accounting policies These financial statements also comply with from material misstatement. An audit and other explanatory notes. the requirements of Sections 151(2) of the includes examining, on a test basis, evidence Companies Act No. 07 of 2007. supporting the amounts and disclosures MANAGEMENT’S RESPONSIBILITY in the financial statements. An audit also FOR THE FINANCIAL STATEMENTS includes assessing the accounting policies Management is responsible for the used and significant estimates made by preparation and fair presentation of management, as well as evaluating the 24 March 2014 these financial statements in accordance overall financial statement presentation. Colombo. with Sri Lanka Accounting Standards. We have obtained all the information This responsibility includes: designing, and explanations which to the best of our implementing and maintaining internal knowledge and belief were necessary for the control relevant to the preparation and fair purposes of our audit. We therefore believe presentation of financial statements that are that our audit provides a reasonable basis free from material misstatement, whether for our opinion. 153 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Income Statement Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

Year ended 31 December 2013 2012 Note Rs. Rs.

Financing Income 4 1,768,061,705 1,300,618,090 Financing Expenses 5 (1,050,007,868) (732,071,273) Net Financing Income 718,053,837 568,546,817

Net Fee and Commission Income 6 100,223,308 68,923,319

Net Trading Gain 7 219,719,256 621,773,009 Net Other Operating Income/(Expenses) 8 21,579,603 (5,353,087) Total Operating Income 1,059,576,004 1,253,890,058 Impairment for Financing and Receivables to Other Customers and Financial Assets 9 (99,336,269) (16,093,890) Net Operating Income 960,239,735 1,237,796,168

Personnel Expenses 10 720,351,418 438,453,212 Depreciation of Property, Plant and Equipment 121,287,043 125,557,539 Amortisation of Intangible Assets 36,995,102 25,472,863 Other Operating Expenses 11 506,427,017 396,567,577 Total Operating Expenses 1,385,060,580 986,051,191

Operating Profit/(Loss) Before Value Added Tax (424,820,845) 251,744,977 Value Added Tax on Financial Services (13,184,143) (45,941,033) Profit/(Loss) Before Tax (438,004,988) 205,803,944

Tax Expenses/(Reversal) 12 (120,971,087) 59,809,292 Profit/(Loss) for the Year (317,033,901) 145,994,652

Earnings Per Share 13 (0.33) 0.16

The Accounting Policies and Notes on pages 158 through 204 form an integral part of the Financial Statements. 154 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Comprehensive Statement of Changes in Equity 156 Statement of Cash Flows 157 Income Notes to the Financial Statements 158

Year ended 31 December 2013 2012 Note Rs. Rs.

Profit/(Loss) for the Year (317,033,901) 145,994,652

Other Comprehensive Loss Financial Investments - Available for Sale: Net Gain/(Loss) on Financial Investments - Available for sale (67,036,666) (76,230,054) Re-measurement Gain/(Loss) on Defined Benefit Plans (6,741,123) – Total Other Comprehensive Loss (73,777,789) (76,230,054)

Deferred Tax Effect on Defined Benefit Plans 27 1,887,514 – Other Comprehensive Loss for the Year Net of Tax (71,890,275) (76,230,054)

Total Comprehensive Income/(Loss) for the Year Net of Tax (388,924,176) 69,764,598

The Accounting Policies and Notes on pages 158 through 204 form an integral part of the Financial Statements. 155 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Statement of Financial Position Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

As at 31 December 2013 2012 Note Rs. Rs. Assets Cash and Cash Equivalents 15 2,444,552,371 3,866,793,015 Balance with Central Bank of Sri Lanka 16 685,320,420 865,294,214 Derivative Financial Assets 17 21,470,669 104,181,576 Placements with Banks 18 1,737,895,772 825,235,383 Placements with Licensed Finance Companies 19 661,958,238 1,661,226,754 Financial Investments - Held for Trading 20 175,334,631 59,768,906 Financing and Receivables to Other Customers 21 15,015,318,081 7,165,461,019 Financial Investments - Available for Sale 22 600,337,971 486,122,612 Other Financial Assets 23 519,546,392 553,493,038 Other Non Financial Assets 24 240,777,613 232,258,744 Property, Plant and Equipment 25 852,960,574 636,709,910 Intangible Assets 26 283,027,619 224,382,174 Deferred Tax Assets 27 159,355,340 36,496,739 Total Assets 23,397,855,691 16,717,424,084 Liabilities Derivative Financial Liabilities 28 3,130,759 4,978,614 Due to Other Customers 29 17,983,111,581 13,302,501,452 Other Financial Liabilities 30 290,819,822 304,236,288 Other Non Financial Liabilities 31 13,688,807 13,843,550 Retirement Benefit Liability 32 45,071,342 20,648,680 Total Liabilities 18,335,822,311 13,646,208,584 Shareholders’ Funds Stated Capital 33 5,866,808,141 3,431,611,720 Statutory Reserve Fund 7,299,733 7,299,733 Other Reserves (282,089,961) (170,555,104) Retained Earnings (529,984,533) (197,140,849) Total Equity 5,062,033,380 3,071,215,500 Total Liabilities and Shareholders’ Funds 23,397,855,691 16,717,424,084 Commitments and Contingencies 37 7,641,018,045 11,121,347,724 I certify that these Financial Statements are in compliance with the requirements of the Companies Act No. 07 of 2007.

M. Ali Wahid Chief Financial Officer

The Board of Directors is responsible for the preparation and presentation of these Financial Statements. Signed for and on behalf of the Board by:

Faizal Salieh Osman Kassim Jazri Magdon Ismail Mrs. P.M.D. Koralege Managing Director/CEO Chairman Director Company Secretary

The Accounting Policies and Notes on pages 158 through 204 form an integral part of the Financial Statements. 22 March 2014 Colombo 156 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

Stated Capital Other Reserves Year ended 31 December Stated Capital Funds Statutory Investment Revenue Available for Retained Total Capital Raised Pending Reserve Fund Reserve Sale Reserve Earnings Allotment of Fund Shares Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

As at 1 January 2012 3,431,611,720 – – – (161,471,963) 38,686,303 (307,375,158) 3,001,450,902 Profit for the Year – – – – – – 145,994,652 145,994,652 Other Comprehensive Loss – – – – – (76,230,054) (76,230,054) Transfers to Statutory Reserve Fund – – 7,299,733 – – – (7,299,733) – Transfers to Investment Fund – – – 28,460,610 – – (28,460,610) – As at 31 December 2012 3,431,611,720 – 7,299,733 28,460,610 (161,471,963) (37,543,751) (197,140,849) 3,071,215,500

Rights Issue 785,209,621 – – – – – – 785,209,621 IPO Share Issue - Pending Allotment – 1,649,986,800 – – – – – 1,649,986,800 Share Issue Expenses – – – – (55,454,365) – – (55,454,365) Loss for the Year – – – – – – (317,033,901) (317,033,901) Other Comprehensive Loss – – – – – (67,036,666) (4,853,609) (71,890,275) Transfers to Investment Fund – – – 10,956,174 – – (10,956,174) – As at 31 December 2013 4,216,821,341 1,649,986,800 7,299,733 39,416,784 (216,926,328) (104,580,417) (529,984,533) 5,062,033,380

The Accounting Policies and Notes on pages 158 through 204 form an integral part of the Financial Statements. 157 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Statement of Cash Flows Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

Year ended 31 December 2013 2012 Rs. Rs. Cash Flow from Operating Activities Financing Income Received 1,711,324,779 1,329,153,756 Fees and Commission Received 126,226,193 558,987,773 Financing Expenses Paid (1,002,545,163) (659,549,993) Foreign Exchange Income Received 243,378,962 126,226,620 Gratuity Payments (891,457) (791,645) Payments to Employees and Suppliers (1,191,350,645) (1,094,801,746) Operating Profit/(Loss) Before Changes in Operating Assets and Liabilities (Note A) (113,857,331) 259,224,765 Increase/(Decrease) in Due to Other Customers 4,633,147,425 1,794,590,228 (Increase)/Decrease in Financing and Receivables to Other Customers (7,907,274,865) (2,195,257,598) (Increase)/Decrease in Other Financial Assets 97,876,078 (305,453,255) (Increase)/Decrease in Other Non Financial Assets (10,406,382) 40,209,441 (Increase)/Decrease in Statutory Deposit 179,973,794 (147,531,185) Increase/(Decrease) in Other Liabilities (15,419,059) 322,989,807 Net Cash Flow from Operating Activities Before Income Tax (3,135,960,340) (231,227,798) Income Tax Paid – – Net Cash Flow from Operating Activities (3,135,960,340) (231,227,798) Cash Flows from/(used in) Investing Activities Acquisition of Property, Plant and Equipment (337,537,707) (282,473,784) Proceeds from Sale of Property, Plant and Equipment – 16,124,274 Acquisition of Intangible Assets (95,640,546) (114,384,694) Investments in Placements with Licensed Finance Companies 999,826,778 1,452,494,352 Investments/(Withdrawal) in Inter Bank Placements (907,770,146) 693,336,325 Sale/(Acquisition) of Gold – 948,856,390 Sale/(Acquisition) of Financial Investments - Available for Sale (175,374,378) (13,394,402) Sale/(Acquisition) of Financial Investments - Held for Trading (149,526,360) 344,401,237 Net Cash Flows Used in Investing Activities (666,022,359) 3,044,959,698 Cash Flows from/(used in) Financing Activities Proceeds from Rights Issue of Shares 785,209,621 – Proceeds from IPO Share Issue 1,649,986,800 – Share Issue Expenses (55,454,366) – Net Cash Flows from Financing Activities 2,379,742,055 – Net Increase/(Decrease) in Cash and Cash Equivalents (1,422,240,644) 2,813,731,900 Cash and Cash Equivalents at the Beginning of the Year 3,866,793,015 1,053,061,115 Cash and Cash Equivalents at the End of the Year 2,444,552,371 3,866,793,015

A. Reconciliation of Operating Profit Profit/(Loss) Before Taxation (438,004,988) 205,803,944 Depreciation of Property, Plant and Equipment 121,287,043 125,557,539 Amortisation of Intangible Assets 36,995,101 25,472,863 (Profit)/Loss on Disposal of Gold – (149,273,881) (Profit)/Loss on Disposal of Property, Plant and Equipment – (14,535,937) Impairment for Financing and Receivables to Other Customers and Financial Assets 99,336,269 16,093,890 Provision for Gratuity 18,572,996 8,388,964 (Increase)/Decrease in Placement Income Receivable (5,448,510) 39,861,074 Increase/(Decrease) in Profit Payable 47,462,705 72,521,280 Other Non Cash Items 6,833,510 (69,873,326) Gratuity Payments (891,457) (791,645) (113,857,331) 259,224,765

The Accounting Policies and Notes on pages 158 through 204 form an integral part of the Financial Statements. 158 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Notes to the Statement of Changes in Equity 156 Statement of Cash Flows 157 Financial Statements Notes to the Financial Statements 158

1. CORPORATE INFORMATION 2.1 BASIS OF PREPARATION Financial Assets and Financial Liabilities are offset and the net amount reported in 1.1 GENERAL 2.1.1 Basis of Measurement the Statement of Financial Position only Amãna Bank Limited (‘the Bank’) is a The Financial Statements are prepared when there is a legally enforceable right to licensed commercial bank established under under the historical cost basis except for, offset the recognised amounts and there the Banking Act No. 30 of 1988. It is a public Financial Assets and Liabilities designated at is an intention to settle on a net basis, or limited liability company incorporated on Fair Value through Profit or Loss, Financial to realise the assets and settle the liability 5 February 2009 and is domiciled in Investments and Liabilities Held for Trading, simultaneously. Income and expense is Sri Lanka. The registered office of the Bank Financial Investments Available For Sale, all not offset in the Income Statement unless is located at No. 480, Galle Road, Colombo 3. of which have been measured at fair value. required or permitted by any accounting The Bank commenced commercial banking The Financial Statements are presented standard or interpretation, and as operations on 1 August 2011. in Sri Lankan Rupees (Rs.), except when specifically disclosed in the accounting otherwise indicated. policies of the Bank. The staff strength of the Bank as at 31 December 2013 was 557 (2012 - 423). 2.1.2 Statement of Compliance 2.1.4 Going Concern The Financial Statements of the Bank which The Bank’s management has made an 1.2 PRINCIPAL ACTIVITIES comprise of the Statement of Financial assessment of its ability to continue as The principal activities of the Bank continues Position, Income Statement, Statement of a going concern and is satisfied that it to be providing Sharia compliant banking Other Comprehensive Income, Statement of has the resources to continue in business and related activities such as accepting Changes in Equity, Statement of Cash Flows for the foreseeable future. Furthermore, customer deposits, personal banking, trade and Significant Accounting Policies and management is not aware of any material financing, import and export financing, Notes have been prepared in accordance with uncertainties that may cast significant equipment and machinery financing, lease Sri Lanka Accounting Standards (SLFRSs doubt upon the Bank’s ability to continue financing, home and property financing, and LKASs) laid down by The Institute of as a going concern. Therefore, the Financial working capital financing, project financing, Chartered Accountants of Sri Lanka and are Statements continue to be prepared on the resident and non-resident foreign currency in compliance with the requirements of the going concern basis. operations. Companies Act No. 07 of 2007. 2.2 SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES 1.3 PARENT ENTITY AND 2.1.3 Presentation of Financial ULTIMATE PARENT ENTITY Statements In the process of applying the Bank’s The Bank does not have an identifiable The Bank presents its Statement of Financial accounting policies, management has parent of its own. Position broadly in order of liquidity. An exercised judgment and estimates in analysis regarding recovery or settlement determining the amounts recognised in the within 12 months after the Statement of Financial Statements. The most significant 1.4 DATE OF AUTHORISATION OF Financial Position date (current) and more uses of judgment and estimates are as follows: ISSUE than 12 months after the Statement of Financial Position date (non-current) is The Financial Statements of Amãna Bank a. Fair Value of Financial Instruments Limited for the year ended 31 December presented in Note No. 36. 2013 was authorised for issue in accordance Where the fair values of Financial Assets with a resolution of the Board of Directors and Financial Liabilities are recorded on 22 March 2014. on the Statement of Financial Position cannot be derived from active markets, 159 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

they are determined using a variety of c. Impairment of Financial e. Deferred Tax Assets Investments - Available for Sale valuation techniques that include the use Deferred tax assets are recognised in respect of mathematical models. The valuation of The Bank also records impairment charges of tax losses to the extent that it is probable Financial Instruments is described more on Available for Sale equity investments that taxable profit will be available against detail in Note No. 34. when there has been a significant or which the losses can be utilised. Judgment prolonged decline in the fair value below is required to determine the amount of b. Impairment Losses on Financing their cost. The determination of what is deferred tax assets that can be recognised, and Receivables to Other Customers ‘significant’ or ‘prolonged’ requires judgment. based upon the likely timing and level of In making this judgment, the Bank evaluates, The Bank reviews its individually significant future taxable profits, together with future among other factors, historical share price Financing and Receivables to Other tax planning strategies. movements, duration and extent to which Customers at each reporting date to assess the fair value of an investment is less than whether an impairment loss should be f. Defined Benefit Plans its cost. recorded in the Income Statement. In The cost of the defined benefit plan is particular, management’s judgment is determined using an actuarial valuation. required in the estimation of the amount d. Taxation The actuarial valuation involves making and timing of future cash flows when The Bank is subject to income taxes and assumptions about discount rates, salary determining the impairment loss. These other taxes including Value Added Tax (VAT) increment rate, age of retirement, and estimates are based on assumptions about on Financial Services. Significant judgment mortality rates. Due to the long term nature a number of factors and actual results may was required to determine the total of these plans, such estimates are subject differ, resulting in future changes to the provision for current, deferred and other to significant uncertainty. The assumptions allowance. taxes pending the issue of tax guideline on used for valuation is disclosed in more detail the treatment of the adoption of SLFRS in in Note No. 32. Financing and Receivables to Other the Financial Statements and the taxable Customers that have been assessed profit for the purpose of imposition of g. Useful life-time of the Property, individually and found not to be impaired taxes. Uncertainties exist, with respect to Plant and Equipment and all individually insignificant Financing the interpretation of the applicability of tax and Receivables to Other Customers are then laws, at the time of the preparation of these The Bank reviews the residual values, useful assessed collectively, in groups of assets with Financial Statements. lives and methods of depreciation of assets similar risk characteristics, to determine as at each reporting date. Judgment of the whether provision should be made due The Bank recognised assets and liabilities for management is exercised in the estimation to incurred loss events for which there is current, deferred and other taxes based on of these values, rates, methods and hence objective evidence, but the effects of which estimates of whether additional taxes will be they are subject to uncertainty. are not yet evident. due. Where the final tax outcome of these matters is different from the amounts that The impairment loss on Financing and 2.3 SUMMARY OF SIGNIFICANT were initially recorded, such differences will ACCOUNTING POLICIES Receivables to Other Customers is disclosed impact to the income. in more detail in Note Nos. 2.3.5 (g), (i), 21.4 2.3.1 Foreign Currency Translation and Note No. 35.3 (a), (b) and (c). These Financial Statements are presented in Sri Lankan Rupees (Rs.) which is the Bank’s functional and presentation currency. 160 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

Transactions and Balances 2.3.4 Derivative Financial party to the contractual provisions of the Instruments Transactions in foreign currencies are instrument). This includes ‘regular way initially recorded at the spot rate of exchange Derivative Financial Instruments (Assets/ trades’: purchases or sales of Financial ruling at the date of the transactions. Liabilities) are classified as either ‘trading’ Assets that require delivery of assets within or ‘hedging’ if they qualify for hedge the time frame generally established by Monetary assets and liabilities denominated accounting. regulation or convention in the market place. in foreign currencies are retranslated at the functional currency rate of exchange at the Derivatives are initially recognised at fair (b) Initial measurement of reporting date. All differences arising on value at the date the derivative transaction Financial Instruments non-trading activities are taken to ‘Net Other is entered into and are subsequently The classification of Financial Instruments at Operating Income/(Expenses)’ in the Income re-measured to their fair value at the end initial recognition depends on their purpose Statement. of each reporting period. The resulting and characteristics and the management’s gain or loss is recognised in profit or intention in acquiring them. All Financial Non monetary items that are measured in loss immediately unless the derivative is Instruments are measured initially at their terms of historical cost in a foreign currency designated and effective as a hedging fair value plus transaction costs, except in are translated using the exchange rates as instrument. the case of Financial Assets and Financial at the dates of the initial transactions. Non Liabilities which are recorded at ‘Fair Value monetary items measured at fair value in 2.3.5 Non Derivative Financial through Profit or Loss’. a foreign currency are translated using the Instruments exchange rates at the date when the fair (c) Financial Assets value was determined. Forward exchange Financial Assets contracts are valued at the forward market Non Derivative Financial Assets are The Bank categorises its Financial Assets as rates ruling on the date of the reporting date, classified as Financial Investments Held for follows: resulting net unrealised gains or losses are Trading, Financing and Receivables to Other (i) Financial Investments at Fair Value dealt within the Income Statement. Customers and Financial Assets Available for through Profit or Loss Sale. The Bank determines the classification Financial Investments acquired or incurred 2.3.2 Cash and Cash Equivalents of its Financial Assets at initial recognition. principally for the purpose of selling or repurchasing it in the near term or it is part Cash and cash equivalents as referred to in of a portfolio that are managed together and the Statement of Cash Flows comprises cash Financial Liabilities for which there is evidence of a recent actual in hand and balances with banks on demand Non Derivative Financial Liabilities are pattern of short term profit-taking. or with an original maturity of three months classified as Financial Liabilities at ‘Fair or less. Value through Profit or Loss’ or ‘Other Financial Assets at Fair Value through Profit Financial Liabilities’ in accordance with the or Loss are recorded in the Statement of substance of the contractual agreement and 2.3.3 Balance with Central Bank of Financial Position at Fair Value. Changes in the definition of Financial Liabilities. Sri Lanka Fair Value are recorded in Net Trading Gain The Monetary Law Act requires that all when the right to the payment has been commercial banks operating in Sri Lanka (a) Date of Recognition established. maintain reserves against all deposit All Financial Assets and Liabilities are liabilities (‘Due to Other Customers’) initially recognised on the trade date, This has been classified in the Statement of denominated in Sri Lankan Rupees. (i.e., the date that the Bank becomes a Financial Position as Financial Investments - Held for Trading. 161 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

(ii) Financing and Receivables to Other are those which are neither classified as markets, the Bank immediately recognises Customers ‘Held for Trading’ nor designated at ‘Fair the difference between the transaction Financing and Receivables to Other Value through Profit or Loss’. The Bank price and fair value (a ‘Day 1’ profit or loss) Customers, include Non Derivative Financial has not designated any Financing and in Financing Income. In cases where fair Assets with fixed or determinable payments Receivables to Other Customers as Available value is determined using data which is that are not quoted in an active market, for Sale. not observable, the difference between the other than: transaction price and model value is only After initial measurement, Available for Sale recognised in the Income Statement when  Those that the Bank intends to sell Financial Investments are subsequently the inputs become observable, or when the immediately or in the near term measured at fair value. instrument is derecognised. and those that the Bank upon initial recognition designates as at ‘Fair Value Unrealised gains and losses are recognised (d) Financial Liabilities Through Profit or Loss’. directly in equity (Statement of Initial recognition and measurement  Those that the Bank, upon initial Comprehensive Income) in the Available Financial Liabilities within the scope of recognition, designates as ‘Available for for Sale reserve. When the investment is LKAS 39 are classified as ‘Due to Other Sale’. disposed of, the cumulative gain or loss previously recognised in equity is recognised Customers’ (Deposits) and Other Financial  Those for which the Bank may not in the Income Statement in ‘Net Other Liabilities. The Bank determines the recover substantially all of its initial Operating Income/(Expenses)’. Where the classification of its Financial Liabilities at investment, other than because of credit Bank holds more than one investment in the initial recognition. deterioration. same security gains or losses arising from the disposal of the investment is calculated The Bank classifies Financial Liabilities into Financing and Receivables to Other based on the weighted average basis. Financial Liabilities at ‘Fair Value through Customers are subsequently measured at Profit or Loss’ or ‘Other Financial Liabilities’ Amortised Cost using the ‘Effective Profit Dividends earned whilst holding Available in accordance with the substance of the Rate’ (EPR), less allowance for impairment. for Sale Financial Investments are recognised contractual arrangement and the definitions Amortised cost is calculated by taking in the Income Statement as ‘Net Other of Financial Liabilities. into account any discount or premium on Operating Income/(Expenses)’ when the acquisition and fees and costs that are an right to receive the dividend is established. The Bank recognises Financial Liabilities in integral part of the EPR. The amortisation The losses arising from impairment of such the Statement of Financial Position when is included in ‘Financing Income’ in the investments are recognised in the Income the Bank becomes a party to the contractual Income Statement. The losses arising from Statement in ‘Impairment Losses on provisions of the Financial Liability. impairment are recognised in the Income Financial Investments’ and removed from Statement in ‘Impairment for Financing the ‘Available for Sale Reserve’. (i) Financial Liabilities at Fair Value and Receivables to Other Customers and through Profit or Loss Financial Assets’. (iv) ‘Day 1’ Profit or Loss Financial Liabilities at Fair Value through Profit or Loss include Financial Liabilities When the transaction price differs from (iii) Financial Investments - Available ‘Held for Trading’ or designated as such the fair value of other observable current for Sale upon initial recognition. Subsequent to market transactions in the same instrument initial recognition, Financial Liabilities Financial Investments Available for Sale or based on a valuation technique whose at ‘Fair Value through Profit or Loss’ are consist of equity investments. Equity variables include only data from observable investments classified as ‘Available for Sale’ measured at fair value, and changes therein are recognised in Income Statement. 162 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

Upon initial recognition, transaction cost material delay to a third party under a The difference between the carrying value directly attributable to the acquisition are ‘pass-through’ arrangement; and either: of the original Financial Liability and the recognised in Profit or Loss as incurred.  the Bank has transferred substantially all consideration paid is recognised in the The criteria for designation of Financial the risks and rewards of the asset; Income Statement. Liabilities at ‘Fair Value through Profit or Or, Loss’ upon initial recognition are the same  the Bank has neither transferred nor (f) Determination of Fair Value as those of Financial Assets at ‘Fair Value retained substantially all the risks and through Profit or Loss’. The fair value for Financial Instruments rewards of the asset, but has transferred traded in active markets at the reporting control of the asset As at the reporting date Bank does not have date is based on their quoted market price any Liabilities under this classification. or dealer price quotations (bid price for long When the Bank has transferred its rights positions and ask price for short positions), to receive cash flows from an asset or has without any deduction for transaction costs. (ii) Other Financial Liabilities entered into a pass through arrangement, Other Financial Liabilities including ‘Due and has neither transferred nor retained For all other Financial Instruments not to Other Customers’ and ‘Other Financial substantially all of the risks and rewards of traded in an active market, the fair value is Liabilities’ are initially measured at the asset nor transferred control of the asset, determined by using appropriate valuation fair value less transaction cost that are the asset is recognised to the extent of the techniques. Valuation techniques include the directly attributable to the acquisition and Bank’s continuing involvement in the asset. discounted cash flow method, comparison subsequently measured at ‘Amortised Cost’ In that case, the Bank also recognises an with similar instruments for which market using the EPR method. associated liability. The transferred asset and observable prices exist, parity differential, the associated liability are measured on a and other relevant valuation models. Amortised Cost is calculated by taking into basis that reflects the rights and obligations account any discount or premium on the that the Bank has retained. An analysis of fair values of Financial issue and costs that are an integral part of Instruments and further details as to how the EPR. Continuing involvement that takes the form they are measured are provided in Note of a guarantee over the transferred asset No. 34. (e) Derecognition of Financial is measured at the lower of the original Assets/Liabilities carrying amount of the asset and the (g) Impairment of Financial Assets maximum amount of consideration that the (i) Financial Assets Bank could be required to repay. The Bank assesses at each reporting date, A Financial Asset (or, where applicable a whether there is any objective evidence that a Financial Asset or a group of Financial Assets part of a Financial Asset or part of a group (ii) Financial Liabilities of similar Financial Assets) is derecognised is impaired. A Financial Asset or a group of A Financial Liability is derecognised when: Financial Assets is deemed to be impaired when the obligation under the liability is if, and only if, there is objective evidence  the rights to receive cash flows from the discharged or cancelled or expires. Where of impairment as a result of one or more asset have expired; an existing Financial Liability is replaced events that have occurred after the initial  the Bank has transferred its rights to by another from the same party on recognition of the asset (an ‘incurred loss receive cash flows from the asset or substantially different terms, or the terms event’) and that loss event (or events) has an has assumed an obligation to pay the of an existing liability are substantially impact on the estimated future cash flows of received cash flows in full without modified, such an exchange or modification the Financial Asset or the group of Financial is treated as a derecognition of the original Assets that can be reliably estimated. liability and the recognition of a new liability. 163 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

Evidence of impairment may include: (b) Breach of covenants or conditions. Relationship Manager, who has a better indications that the borrower or a group of (c) Economic and legal reasons relating to understanding of the customer’s financial borrowers is experiencing significant financial the customers financial difficulty. condition as at each reporting date. difficulty; the probability that they will enter (d) Likelihood of client becoming bankrupt. bankruptcy or other financial reorganisation; If there are any indications of impairment, default or delinquency in profit or principal (e) Concessions given to customer in view of the future cash flows with regard to the payments; and where observable data deteriorating financial condition. financing is estimated. Subsequently, indicates that there is a measurable decrease (f) Statutory indicators such as new Amortised Cost and the impairment loss are in the estimated future cash flows, such as regulations/Government policies would calculated. changes in arrears or economic conditions prevent the operations to repay the dues that correlate with defaults which are more as agreed. Allowance amount is decided considering fully described in Note No. 35.3. many integrated factors, i.e. possibility If there is objective evidence that an of achieving the business plan, ability (i) Financial Assets Carried at impairment loss has been incurred, the to withstand the financial difficulties, Amortised Cost amount of the loss is measured as the projected cash flow should bankruptcy difference between the asset’s carrying ensue, supplementary financial support, net For Financial Assets carried at Amortised amount and the present value of estimated realisable value of collateral and timing of Cost (Placements with Banks, Placements future cash flows (excluding future anticipated cash flow. with Licensed Finance Companies, Financing expected credit losses that have not yet and Receivables to Other Customers and been incurred). The carrying amount of Collectively Assessed Financing and Other Financial Assets), the Bank first the asset is reduced through the use of Receivables to Other Customers assesses individually whether objective an allowance account and the amount For the purpose of a collective evaluation evidence of impairment exists for Financial of the loss is recognised in the Income of impairment, the Bank will determine Assets that are individually significant, or Statement. Financing Income continues to the provisioning for collective assessment collectively for Financial Assets that are be accrued on the reduced carrying amount using data in relation to the performance of not individually significant. If the Bank and is accrued using the profit rate used its financing portfolio. However, since the determines that no objective evidence to discount the future cash flows for the Bank only commenced operations recently, of impairment exists for an individually purpose of measuring the impairment loss. historical data that is required to arrive at assessed Financial Asset, it includes the asset the collective assessment is not sufficient. in a group of Financial Assets with similar Individually Assessed Financing and Further, based on the data that is available credit risk characteristics and collectively Receivables to Other Customers an acceptable behavioural pattern could not assesses them for impairment. Assets that are Impairment on Individual Significant be established. Under such circumstances, individually assessed for impairment and for Financing and Receivables to Other the Bank shall consider the basis adopted by which an impairment loss is, or continues to Customers are identified by the proxy Bank/s in determining the collective be, recognised are not included in a collective management based on the circumstances assessment. In addition to the above, assessment of impairment. The criteria that evidencing overdue payment of profit/ economic factors both at macro-economic the Bank uses to determine that there is return, downward adjustment of risk rating and at Bank levels are considered in arriving objective evidence of an impairment loss and breach of contract terms. In order to at the collective assessment. include: ascertain presence of such evidence, Bank (a) Customer is experiencing significant uses a detailed questionnaire, which is to See Note No. 9 for details of impairment financial difficulties. be completed by the respective Customer losses on Financial Assets carried at Amortised Cost. 164 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

(ii) Financial Investments - Available Statement. Impairment losses on equity (b) Depreciation for Sale investments are not reversed through the The provision for depreciation is calculated For Available for Sale Financial Investments, Income Statement; increases in the fair value by using a straight line method on the the Bank assesses at each reporting date after impairment are recognised in Other cost or valuation of all Property, Plant & whether there is objective evidence that an Comprehensive Income. Equipment other than freehold land, in investment is impaired. order to write-off such amounts over the 2.3.6 Other Non Financial Assets estimated useful lives by equal installments. In the case of debt instruments classified Other Non Financial Assets are valued net of as ‘Available for Sale’, the Bank assesses Depreciation of an asset begins when it specific provision, where necessary, so as to individually whether there is objective is available for use, i.e. when it is in the reduce the carrying value of such assets to evidence of impairment based on the location and condition necessary for it to be their estimated realisable value. same criteria as Financial Assets carried at capable of operating in the manner intended Amortised Cost. by management. 2.3.7 Property, Plant and However, the amount recorded for Equipment The asset’s residual values, useful lives and impairment is the cumulative loss measured methods of depreciation are reviewed, and (a) Cost as the difference between the Amortised adjusted if appropriate, at each financial Cost and the current fair value, less any Property, Plant and Equipment is stated year end. impairment loss on that investment at cost, excluding the costs of day to day previously recognised in the Income servicing, less accumulated depreciation Statement. Future profit or income is and accumulated impairment in value. Such based on the reduced carrying amount and cost includes the cost of replacing part of the is accrued using the rate of return used Property, Plant and Equipment when that to discount the future cash flows for the cost is incurred, if the recognition criteria purpose of measuring the impairment loss. are met.

In the case of equity investments classified as The useful lives of the assets are estimated as follows: Available for Sale, objective evidence would 2013 2012 also include a ‘significant’ or ‘prolonged’ Freehold Buildings 40 years 40 years decline in the fair value of the investment Furniture and Fittings 5 years 5 years below its cost. Where there is evidence of Office Equipment 5 - 6 years 3 years impairment, the cumulative loss measured as Computer Equipment 5 - 6 years 3 years the difference between the acquisition cost Motor Vehicles 4 years 3 years and the current fair value, less any impairment Computer Servers 5 years 5 years loss on that investment previously recognised Improvements to Over the Period of Lease or Over the Period of Lease or in the Income Statement, is removed Leasehold Premises Useful Life whichever is Lower Useful Life whichever is Lower from equity and recognised in the Income 165 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

(c) Derecognition The amortisation expense on Intangible is considered impaired and is written down An Item of Property, Plant and Equipment Assets with finite lives is recognised in to its recoverable amount. is derecognised upon disposal or when no the Income Statement in the expense future economic benefits are expected from category consistent with the function of the For assets excluding goodwill, an assessment its use or disposal. Any gain or loss arising Intangible Asset. is made at each reporting date as to whether on derecognition of the asset (calculated there is any indication that previously recognised impairment losses may no as the difference between the net disposal 2.3.9 Leasing proceeds and the carrying amount of the longer exist or may have decreased. If such The determination of whether an asset) is included in the Income Statement condition exists, the recoverable amount arrangement is a lease, or it contains a in the year the asset is derecognised. is estimated. A previously recognised lease, is based on the substance of the impairment loss is reversed only if there arrangement and requires an assessment of has been a change in the estimates used 2.3.8 Intangible Assets whether the fulfilment of the arrangement to determine the asset’s recoverable The Bank’s Intangible Assets include the is dependent on the use of a specific asset or amount since the last impairment loss was value of computer software. An Intangible assets and the arrangement conveys a right recognised. If that is the case, the carrying Asset is recognised only when its cost can be to use the asset. amount of the asset is increased to its measured reliably and it is probable that the recoverable amount. expected future economic benefits that are Leases where the Bank does not transfer attributable to it will flow to the Bank. substantially all the risk and benefits of ownership of the asset are classified as 2.3.11 Retirement Benefit Obligations Amortisation is calculated using the straight operating leases. Initial direct costs incurred line method to write down the cost of in negotiating operating leases are added to (a) Defined Benefit Plan - Gratuity the carrying amount of the leased asset and Intangible Assets to their residual values Based on the Sri Lanka Accounting Standard recognised over the lease term on the same over their estimated useful lives as follows: LKAS 19 - ‘Employee Benefits’, the Bank has basis as rental income. Contingent rents are adopted the actuarial valuation method recognised as revenue in the period in which Computer Software 10 years for employee benefit liability. An Actuarial they are earned. Valuation is carried out by a qualified The useful lives of Intangible Assets are actuary using Projected Unit Credit Method. assessed to be either finite or indefinite. 2.3.10 Impairment of Non Financial Intangible Assets with finite lives are Assets The principal assumptions, which have the amortised over the useful economic life. The The Bank assesses at each reporting date most significant effects on the valuation, are amortisation period and the amortisation or more frequently if events or changes in the rate of discount, rate of increase in salary, method for an Intangible Asset with a finite circumstances indicate that the carrying rate of turnover at the selected ages, rate of useful life are reviewed at least at each value of a Non Financial Asset may be disability, death benefits and expenses. financial year end. impaired. If any such indication exists, or when an annual impairment testing for The liability is measured on an actuarial Changes in the expected useful life or the an asset is required, the Bank makes an basis using the Projected Unit Credit expected pattern of consumption of future estimate of the asset’s recoverable amount. Method, adjusted for unrecognised actuarial economic benefits embodied in the asset are When the carrying amount of an asset (or gains and losses. The defined benefit plan accounted for by changing the amortisation cash-generating unit) exceeds its recoverable liability is discounted using rates equivalent period or method, as appropriate, and amount, the asset (or cash-generating unit) to the market yields at the date of Statement treated as changes in accounting estimates. of Financial Position that are denominated 166 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

in the currency in which benefits will The provision for Income Tax is based on The carrying amount of deferred income be paid, and that have a maturity the elements of income and expenditure as tax assets is reviewed at each Statement approximating to the terms of the related reported in the Financial Statements and of Financial Position date and reduced to pension liability. computed in accordance with the provisions the extent that it is no longer probable that of the relevant tax legislations. sufficient taxable profit will be available to (b) Defined Contribution Plan - allow all or part of the deferred income tax Employees’ Provident Fund and (b) Deferred Tax asset to be utilised. Employees’ Trust Fund Deferred income tax is provided, using the Deferred income tax assets and liabilities are Employees are eligible for Employees’ liability method, on temporary differences measured at the tax rates that are expected Provident Fund Contributions and at the Statement of Financial Position date to apply to the year when the asset is realised Employees’ Trust Fund Contributions in line between the tax bases of assets and liabilities or the liability is settled, based on tax rates with the respective Statutes and Regulations. and their carrying amounts for financial (and tax laws) that have been enacted or The Bank contributes a minimum 12% and reporting purposes. substantively enacted at the Statement of 3% of gross salary. Financial Position date. Deferred income tax liabilities are recognised 2.3.12 Provisions for all taxable temporary differences except Deferred income tax relating to items where the deferred income tax liability Provisions are recognised when the Bank has recognised directly in equity is recognised in arises from the initial recognition of an asset a present obligation (legal or constructive) equity and not in the Income Statement. or liability in a transaction that is not a as a result of a past event, and it is probable business combination and, at the time of the that an outflow of resources embodying transaction, affects neither the accounting (c) Value Added Tax on Financial economic benefits will be required to settle Services profit or loss nor taxable profit or loss. the obligation and a reliable estimate can The Bank’s total value addition is subjected be made of the amount of the obligation. Deferred income tax assets are recognised to a 12% Value Added Tax on Financial The expense relating to any provision is for all deductible temporary differences, Services as per Section 25A of the Value presented in the Income Statement net of carry forward of unused tax assets and Added Tax Act No. 14 of 2002 and any reimbursement. unused tax losses, to the extent that it amendments thereto. is probable that taxable profit will be 2.3.13 Taxes available against which the deductible (d) Economic Service Charge (ESC) temporary differences, and the carry As per the provisions of the Economic Service (a) Current Tax forward of unused tax assets and unused Charge Act No. 13 of 2006, ESC is payable on Current tax assets and liabilities for the tax losses can be utilised except where the the liable income at specified rates. ESC paid current and prior years are measured at deferred income tax asset relating to the is deductible from the income tax liability. the amount expected to be recovered from deductible temporary difference arises Any unclaimed liability can be carried forward or paid to the taxation authorities. The from the initial recognition of an asset and set off against the income tax payable for tax rates and tax laws used to compute or liability in a transaction that is not a a further four years. the amount are those that are enacted or business combination and, at the time of the substantively enacted by the Statement of transaction, affects neither the accounting Financial Position date. profit or loss nor taxable profit or loss. 2.3.14 Equity Reserves The reserves recorded in equity (Other Comprehensive Income) on the Bank’s Statement of Financial Position include 167 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

‘Available for Sale’ reserve which comprises The Bank earns Fee and Commission Income for Financing and Receivables to Other changes in fair value of Financial from a diverse range of services it provides to Customers'. The premium received is Investments Available for Sale. its customers comprising of fees receivable recognised in the Income Statement in ‘Net from customers for issuing letters of credit, Fee and Commission Income’ on a straight guarantees, account servicing fees, legal fees line basis over the life of the guarantee. 2.3.15 Recognition of Financial Income and Expenses and other services provided by the Bank and are recognised as the related services are 2.3.17 Segment Reporting Revenue is recognised to the extent that it performed. is probable that the economic benefits will A Segment is a distinguishable component flow to the Bank and the revenue can be of the Bank that is engaged in providing (c) Dividend Income reliably measured. The following specific services (Business Segments) or in providing recognition criteria must also be met before Dividend Income is recognised when the services within a particular economic revenue is recognised. Bank’s right to receive the payment is environment (Geographical Segment) which established. is subject to risks and rewards that are (a) Income different from those of other segments. Financing income and expenses are (d) Net Trading Gain In accordance with the Sri Lankan Accounting recognised in Income Statement using the Results arising from trading activities Standard SLFRS 8 - ‘Segmental Reporting’, Effective Profit Rate (EPR). include all gains and losses from changes segment information is presented in respect in fair value and related Income or Expense of the Bank based on Bank’s management and The EPR is the rate that exactly discounts the and Dividends for Financial Assets and internal reporting structure. estimated future cash payments and receipts Financial Liabilities that are classified as through the expected life of the Financial ‘Held for Trading’. The Bank’s segment reporting is based on the Asset or Liability (or where appropriate a following operating segments: shorter year) to the carrying amount of the 2.3.16 Financial Guarantees Financial Asset or Liability. - Consumer Banking: Individual In the ordinary course of business, the Bank customers’ deposits and consumer When calculating the EPR, the Bank gives Financial Guarantees, consisting of financing including overdrafts, estimates future cash flows considering letters of credit, guarantees and acceptances. equipment financing, lease financing, all contractual terms of the Financial Financial Guarantees are initially recognised home and property financing; Instrument, but not future credit losses. The in the Financial Statements (within ‘Other - Business Banking: Trade financing, calculation of the EPR includes all fees and Liabilities’) at fair value, being the premium overdraft, equipment and machinery points paid or received that are an integral received. Subsequent to initial recognition, financing, working capital financing, part of the Effective Profit Rate. Transaction the Bank’s liability under each guarantee is lease financing and other credit facilities costs include incremental costs that are measured at the higher of the amount initially and deposits of corporate and SME directly attributable to the acquisition or recognised less cumulative amortisation customers; recognised in the Income Statement, and the issue of a Financial Asset or Liability. - Treasury: Placements of funds with best estimate of expenditure required to settle other banks and financial institutions, any financial obligation arising as a result of (b) Fee and Commission Income equity investments and exposures in the guarantee. foreign exchange and gold bullion. Fee and Commission Income and Expense that are integral to the EPR on a Financial Any increase in the liability relating to Asset or Liability are included in the Financial Guarantees is recorded in Management monitors the operating results measurement of the EPR. the Income Statement in ‘Impairment of its business units separately for the purpose of making decisions about resource 168 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

allocation and performance assessment. 2.5 STANDARDS ISSUED BUT NOT SLFRS 12 - Disclosure of Interests in Segment performance is evaluated based YET EFFECTIVE Other Entities on operating profit or loss of respective Standards issued but not yet effective up segment. to the date of issuance of the Financial The above parcel of three Standards will Statements are set out below. The Bank will impact the recognition, measurement and disclosures aspects currently contained 2.3.18 Earnings Per Share (EPS) adopt these standards when they become effective. Pending a detailed review, the in. LKAS 27 - ‘Consolidated and Separate Basic EPS is calculated by dividing profit or financial impact is not reasonably estimable Financial Statements,’ LKAS 28 - ‘Investments loss attributable to Ordinary Shareholders of as at the date of publication of these in Associates’, LKAS 31 - ‘Interest in Joint the Bank by the weighted average number of Financial Statements. Ventures’ and SIC - 12 and SIC - 13 which ordinary shares outstanding for the period. are on consolidation of Special Purpose Entities (SPEs) and jointly controlled (i) SLFRS 9 - Financial Instruments: entities respectively. 2.4 CHANGES IN ACCOUNTING Classification and Measurement POLICIES AND DISCLOSURES SLFRS 9, as issued reflects the first phase Establishing a single control model that LKAS 19 - Employee Benefits of work on replacement of LKAS 39 and applies to all entities including SPEs (Revised 2013) applies to classification and measurement and removal of option to proportionate The Bank applied LKAS 19 (Revised 2013) in of Financial Assets and Liabilities. This consolidation of jointly controlled entities the current period in accordance with the Standard was originally effective for annual are the significant changes introduced under transitional provisions set out in the revised periods commencing on or after 1 January SLFRS 10 and SLFRS 11 respectively. Standard. Some of the key changes that had 2015. However, effective date has been an impact on the Bank include the following: deferred subsequently. SLFRS 12 establishes a single standard on disclosures related to interests in other The Bank previously recognised only the net (ii) SLFRS 13 - Fair Value entities. This incorporates new disclosures cumulative unrecognised actuarial gains Measurement as well as the one’s previously captured in and losses of the previous period, which earlier versions of LKAS 27, LKAS 28 and SLFRS 13 establishes a single source of exceeded 10% of the greater of the defined LKAS 31. guidance under SLFRS for all fair value benefit obligation and the fair value of the measurements and provides guidance on all plan assets in accordance with LKAS 19.93 The Bank will adopt these Standards fair value measurements under SLFRS. (previous). when they become effective. Pending the completion of detailed review, the financial This Standard will be effective for the As a consequence, the Bank’s Statement impact is not reasonably estimable as at financial period beginning on or after 1 of Financial Position did not reflect a the date of publication of these Financial January 2014. However, use of fair value significant part of the unrecognised net Statements. measurement principles contained in this actuarial gains and losses. Standard are currently recommended.

This method is no longer allowed under In addition to the above, following Standards revised LKAS 19 and hence the Bank will also be effective for the annual periods changed its accounting policy to recognised commencing on or after 1 January 2014: actuarial gains and losses in the period in which they occur in total in Other SLFRS 10 - Consolidated Financial Comprehensive Income Statements Statements SLFRS 11 - Joint Arrangements 169 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

3. SEGMENT INFORMATION The following table presents income and profit and certain asset and liability information regarding the Bank’s operating segments:

Consumer Business Total Treasury Unallocated/ Total Banking Banking Banking Elimination 2013 2013 2013 2013 2013 2013 Rs. Rs. Rs. Rs. Rs. Rs.

Income Financing Income 248,958,296 1,218,795,983 1,467,754,279 272,156,006 28,151,420 1,768,061,705 Net Fee and Commission Income 35,440,304 64,777,119 100,217,423 – – 100,217,423 Net Trading Gain – – – 219,719,256 – 219,719,256 Net Other Operating Income/(Expense) – – – 21,579,603 – 21,579,603 Total Income 284,398,600 1,283,573,102 1,567,971,702 513,454,865 28,151,420 2,109,577,987

Profit/(Loss) After Tax 60,546,440 476,629,664 (854,210,005) (317,033,901)

Total Assets 2,470,390,940 12,544,927,141 15,015,318,081 6,072,296,655 2,310,240,954 23,397,855,691

Total Liabilities 16,076,317,742 1,906,792,839 17,983,110,581 4,731,339,300 (4,378,627,569) 18,335,822,311

Consumer Business Total Treasury Unallocated/ Total Banking Banking Banking Elimination 2012 2012 2012 2012 2012 2012 Rs. Rs. Rs. Rs. Rs. Rs.

Income Financing Income 186,619,589 702,045,119 888,664,708 411,953,382 – 1,300,618,090 Net Fee and Commission Income 14,473,891 54,449,428 68,923,319 – – 68,923,319 Net Trading Gain/(Expense) – – – 621,773,009 – 621,773,009 Net Other Operating Income/(Expense) – – – (19,889,024) 14,535,937 (5,353,087) Total Income 201,093,480 756,494,547 957,588,027 1,013,837,367 14,535,937 1,985,961,331

Profit/(Loss) After Tax 739,210 205,064,734 (59,809,292) 145,994,652

Total Assets 1,154,223,868 6,069,563,736 7,223,787,604 7,476,624,375 2,017,012,104 16,717,424,084

Total Liabilities 12,185,039,971 1,117,461,481 13,302,501,452 6,575,435,499 (6,231,728,367) 13,646,208,584

4. FINANCING INCOME

2013 2012 Rs. Rs.

Financing Income 1,495,905,699 888,664,708 Placement Income 272,156,006 411,953,382

1,768,061,705 1,300,618,090 170 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

5. FINANCING EXPENSES

2013 2012 Rs. Rs.

Financing Expenses 1,047,908,899 732,024,157 Expenses on Other Liabilities 2,098,969 47,116

1,050,007,868 732,071,273

6. NET FEE AND COMMISSION INCOME

2013 2012 Rs. Rs. Net Fee and Commission Income 100,223,308 68,923,319

7. NET TRADING GAIN

2013 2012 Rs. Rs.

Gain/(Loss) on Financial Investments - Held for Trading (39,743,244) 247,069,546 Gain/(Loss) on Gold Bullion – 149,273,881 Commission Income on Gold Trading 16,083,537 – Gain/(Loss) from Derivative Financial Instruments Transactions (80,863,054) 99,202,962 Foreign Exchange Income 324,242,016 126,226,620

219,719,256 621,773,009

Gain/(Loss) on Financial Investments - Held for Trading includes the results of buying and selling, and changes in the fair value of equity securities. Foreign Exchange Income includes gains and losses from spot and promissory forward transactions and other currencies.

8. NET OTHER OPERATING INCOME/(EXPENSES)

2013 2012 Rs. Rs.

Income from Dividends 15,701,956 6,142,452 Gain/(Loss) from Financial Investments - Available for Sale 5,877,647 (26,031,476) Gain/(Loss) on Disposal of Property, Plant and Equipment – 14,535,937

21,579,603 (5,353,087) 171 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

9. IMPAIRMENT FOR FINANCING AND RECEIVABLES TO OTHER CUSTOMERS AND FINANCIAL ASSETS

2013 2012 Rs. Rs.

Financing and Receivables to Other Customers (Note 21.4) - Individual Impairment Losses/(Reversal) 12,336,669 (2,986,702) - Collective Impairment Losses 68,218,125 19,080,591 80,554,794 16,093,890 Impairment on Other Financial Assets (Note 23) 18,781,475 –

99,336,269 16,093,890

10. PERSONNEL EXPENSES

2013 2012 Rs. Rs.

Salaries and Bonus 525,724,630 338,335,971 Defined Contribution Plan - EPF/ETF 68,152,751 43,334,860 Defined Contribution Plan - Gratuity 18,572,996 8,388,964 Other Staff-Related Expenses 107,901,041 48,393,417

720,351,418 438,453,212

11. OTHER OPERATING EXPENSES

2013 2012 Rs. Rs.

Directors’ Emoluments 16,405,159 13,186,206 Auditors’ Remuneration - Audit Fee and Expenses 2,834,316 2,100,000 - Non-Audit Service 1,823,588 1,230,000 Professional and Legal Fees 32,367,332 37,777,015 Establishment Expenses 210,891,184 138,522,019 Advertising Expenses 43,736,640 14,659,871 Deposit Insurance Premium 16,123,716 14,123,398 System Support Fee 82,829,698 56,795,515 Others 99,415,384 118,173,553

506,427,017 396,567,577 172 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

12. INCOME TAX EXPENSES

2013 2012 Rs. Rs.

Current Tax: Current Income Tax – 8,722,702

Deferred Tax: Deferred Taxation Charged/(Reversal) (Note 27) (120,971,087) 51,086,590

(120,971,087) 59,809,292

12.1 A RECONCILIATION BETWEEN CURRENT TAX EXPENSE AND THE PRODUCT OF ACCOUNTING PROFIT

2013 2012 Rs. Rs.

Accounting Profit/(Loss) before Income Tax (438,004,988) 205,803,944

Statutory Tax Rate 28% 28% At the Statutory Income Tax Rate (122,641,397) 57,625,104 Income Exempt from Tax 5,085,819 (51,556,368) Non-Deductible Expenses 172,420,780 61,065,611 Deductible Expenses (180,668,109) (58,411,645) Adjustment for Tax Losses Arisen/(Utilised) 125,802,906 –

Income Tax Expense/(Reversals) – 8,722,702

The effective income tax rate for 2013 is 28% (2012 - 29.1%).

13. EARNINGS PER SHARE

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.

The following reflects the income and share data used in the Basic Earnings/(Losses) per Share computations.

2013 2012 Rs. Rs.

Amount used as the Numerator: Net Profit/(Loss) Attributable to Ordinary Shareholders (317,033,901) 145,994,652

Number of Ordinary Shares used as Denominator: Weighted Average Number of Ordinary Shares in Issue 969,566,067 902,810,064

Earnings/(Loss) Per Share (0.33) 0.16 173 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

14. ANALYSIS OF FINANCIAL INSTRUMENTS BY MEASUREMENT BASIS

14.1 ANALYSIS OF FINANCIAL INSTRUMENTS BY MEASUREMENT AS AT 31 DECEMBER 2013 Financial instruments are measured on an ongoing basis either at fair value or at amortised cost. The summary of significant accounting policies describes how the classes of financial instruments are measured, and how income and expenses, including fair value gains and losses, are recognised. The following table analyses the carrying amounts of the financial instruments by category as defined in LKAS 39 and by headings of the Statement of Financial Position.

Held for Amortised Held to Available for Sale Total Trading Cost Maturity As at 31.12.2013 Rs. Rs. Rs. Rs. Rs.

Financial Assets Cash and Cash Equivalents – 2,444,552,371 – – 2,444,552,371 Balance with Central Bank of Sri Lanka – 685,320,420 – – 685,320,420 Derivative Financial Assets 21,470,669 – – – 21,470,669 Placements with Banks – 1,737,895,772 – – 1,737,895,772 Placements with Licensed Finance Companies – 661,958,238 – – 661,958,238 Financial Investments - Held for Trading 175,334,631 – – – 175,334,631 Financing and Receivables to Other Customers – 15,015,318,081 – – 15,015,318,081 Financial Investments - Available for Sale – – – 600,337,971 600,337,971 Other Financial Assets – 519,546,392 – – 519,546,392

Total Financial Assets 196,805,300 21,064,591,274 – 600,337,971 21,861,734,545

Financial Liabilities Derivative Financial Liabilities 3,130,759 – – – 3,130,759 Due to Other Customers – 17,983,111,581 – – 17,983,111,581 Other Financial Liabilities – 290,819,822 – – 290,819,822

Total Financial Liabilities 3,130,759 18,273,931,403 – – 18,277,062,162 174 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

14.2 ANALYSIS OF FINANCIAL INSTRUMENTS BY MEASUREMENT AS AT 31 DECEMBER 2012

Held for Amortised Held to Available for Total Trading Cost Maturity Sale As at 31.12.2012 Rs. Rs. Rs. Rs. Rs.

Financial Assets Cash and Cash Equivalents – 3,866,793,015 – – 3,866,793,015 Balance with Central Bank of Sri Lanka – 865,294,214 – – 865,294,214 Derivative Financial Assets 104,181,576 – – – 104,181,576 Placements with Banks – 825,235,383 – – 825,235,383 Placements with Licensed Finance Companies – 1,661,226,754 – – 1,661,226,754 Financial Investments - Held for Trading 59,768,906 – – – 59,768,906 Financing and Receivables to Other Customers – 7,165,461,019 – – 7,165,461,019 Financial Investments - Available for Sale – – – 486,122,612 486,122,612 Other Financial Assets – 553,493,038 – – 553,493,038

Total Financial Assets 163,950,482 14,937,503,423 – 486,122,612 15,587,576,517

Financial Liabilities Derivative Financial Liabilities 4,978,614 – – – 4,978,614 Due to Other Customers – 13,302,501,452 – – 13,302,501,452 Other Financial Liabilities – 304,236,288 – – 304,236,288

Total Financial Liabilities 4,978,614 13,606,737,740 – – 13,611,716,354

15. CASH AND CASH EQUIVALENTS

2013 2012 Rs. Rs.

Cash in Hand 938,355,580 559,686,706 Balances with Banks 1,506,196,791 3,307,106,309

2,444,552,371 3,866,793,015

16. BALANCE WITH CENTRAL BANK OF SRI LANKA

2013 2012 Rs. Rs.

Statutory Deposit with the Central Bank of Sri Lanka 685,320,420 865,294,214 685,320,420 865,294,214

As required by the Provisions of Section 93 of the Monetary Law Act, a cash balance is required to be maintained with Central Bank of Sri Lanka. As at 31 December 2013, the minimum cash reserve requirement was 6% (2012 - 8%) of Rupee liabilities of the Domestic Banking Unit. There is no reserve requirement for foreign currency deposit liabilities of the Domestic Banking Unit.

The Statutory Deposit with Central Bank of Sri Lanka is not available for financing the Bank’s day to day operations and therefore it is not considered as part of Cash and Cash Equivalents. 175 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

17. DERIVATIVE FINANCIAL ASSETS

2013 2012 Rs. Rs.

Derivative Financial Instruments 21,470,669 104,181,576 21,470,669 104,181,576

18. PLACEMENTS WITH BANKS

2013 2012 Rs. Rs.

Saving Deposits 424,954,439 564,418,043 Short Term Deposits 1,312,941,333 260,817,339

1,737,895,772 825,235,383

19. PLACEMENTS WITH LICENSED FINANCE COMPANIES

2013 2012 Rs. Rs.

Saving Deposits 50,567 1,343 Short Term Deposits – 755,102,460 Term Deposits 661,907,671 906,122,952

661,958,238 1,661,226,754

20. FINANCIAL INVESTMENTS - HELD FOR TRADING

2013 2012 Rs. Rs.

Investments in Equity Securities - Quoted (Note 20.1) 175,334,631 59,768,906 175,334,631 59,768,906 176 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

20.1 INVESTMENTS IN EQUITY SECURITIES - QUOTED

No. of Ordinary Shares Carrying Value 2013 2012 2013 2012 Rs. Rs.

ACL Cables PLC 44,418 – 2,882,728 – Amãna Takaful PLC 846,402 – 1,354,243 – Bairaha Farms PLC 139,060 109,751 17,910,928 17,263,832 C.W. Mackie PLC 106,012 52,097 6,445,530 4,053,147 Ceylon Grain Elevators PLC 208,079 79,471 7,386,805 4,728,525 Ceylon Leather Products PLC 393,067 – 26,138,956 – Colombo Dockyard PLC – 84,408 – 18,907,392 Expolanka Holdings PLC – 363,746 – 2,546,222 Kotagala Plantations PLC 6,549 – 242,313 – Lanka Floor Tiles PLC – 9,360 – 608,400 Laughs Gas PLC – 12,877 – 329,651 Nawaloka Hospitals PLC 590,429 – 1,771,287 – Panasian Power PLC 11,370,179 569,441 28,425,448 1,423,603 Piramal Glass Ceylon PLC 6,711,898 – 30,203,541 – Renuka Agri Foods PLC 4,925,508 – 18,224,379 – Renuka Shaw Wallace PLC 999,101 – 16,485,166 – Royal Ceramic Lanka PLC 38,338 30,699 3,243,394 3,039,201 Seylan Developments PLC 934,772 – 8,412,948 – Singer Sri Lanka PLC 10,362 1,100 922,218 112,393 Sri Lanka Telecom PLC 142,831 62,295 5,284,747 2,772,128 Textured Jersey Lanka PLC – 987 – 8,784 Tokyo Cement Company (Lanka) PLC – 139,008 – 3,975,629

Total Carrying Value 175,334,631 59,768,906

21. FINANCING AND RECEIVABLES TO OTHER CUSTOMERS

2013 2012 Rs. Rs.

Summary Gross Financing and Receivables to Other Customers 15,139,029,466 7,208,617,610 Less: Individual Impairment (Note 21.4) (12,664,005) (327,336) Less: Collective Impairment (Note 21.4) (111,047,380) (42,829,255)

15,015,318,081 7,165,461,019 177 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

21.1 BY PRODUCT

2013 2012 Rs. Rs.

Overdrawn Current Accounts 16,544,124 397,490 Trade Finance 1,308,647,023 863,881,155 Lease Receivables 1,282,417,771 883,165,029 Staff Facilities 138,078,110 85,029,898 Term Financing: - Short Term 1,887,749,426 1,013,301,686 - Long Term 6,858,383,109 2,671,089,468 Others 3,647,209,903 1,691,752,883

15,139,029,466 7,208,617,610 Less: Individual Impairment (12,664,005) (327,336) Less: Collective Impairment (111,047,380) (42,829,255)

15,015,318,081 7,165,461,019

21.2 BY CURRENCY

2013 2012 Rs. Rs.

Sri Lankan Rupees 14,301,366,477 7,079,817,610 United States Dollars 837,662,989 128,800,000

15,139,029,466 7,208,617,610 Less: Individual Impairment (12,664,005) (327,336) Less: Collective Impairment (111,047,380) (42,829,255)

15,015,318,081 7,165,461,019 178 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

21.3 BY INDUSTRY

2013 2012 Rs. Rs.

Agriculture and Fishing 3,076,420,982 981,761,221 Manufacturing 2,385,794,528 997,965,290 Tourism 147,687,248 1,963,750 Transport 365,707,417 19,331,024 Construction 1,681,263,075 786,662,054 Traders 3,491,900,357 2,502,729,491 New Economy 33,217,210 35,160,616 Financial and Business Services 439,070,721 85,038,656 Infrastructure 732,020,941 171,562,083 Services 545,938,614 569,071,640 Consumers 1,676,399,380 711,790,300 Others 563,608,993 345,581,485

15,139,029,466 7,208,617,610 Less: Individual Impairment (12,664,005) (327,336) Less: Collective Impairment (111,047,380) (42,829,255)

15,015,318,081 7,165,461,019

21.4 IMPAIRMENT ALLOWANCE FOR FINANCING AND RECEIVABLES TO OTHER CUSTOMERS A reconciliation of the allowance for impairment losses for financing and receivables to customers, is as follows:

Individual Collective Total Impairment Impairment Impairment Rs. Rs. Rs.

As at 1 January 2012 3,314,038 23,748,664 27,062,702 Charge/(Write Back) for the year (2,986,702) 19,080,591 16,093,890 Recoveries – – – Amounts Written Off – – – Profit Accrued on Impaired Financing and Receivables – – –

As at 31 December 2012 327,336 42,829,255 43,156,591 Charge/(Write Back) for the year 10,852,398 68,218,125 79,070,523 Recoveries – – – Amounts Written Off 1,484,271 – 1,484,271 Profit Accrued on Impaired Financing and Receivables – – –

As at 31 December 2013 12,664,005 111,047,380 123,711,385 179 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

22. FINANCIAL INVESTMENTS - AVAILABLE FOR SALE

2013 2012 Rs. Rs.

Investments in Securities Equity - Quoted (Note 22.1) 597,344,971 483,129,612 Equity - Unquoted (Note 22.2) 2,993,000 2,993,000

600,337,971 486,122,612

22.1 INVESTMENTS IN EQUITY - QUOTED

No. of Ordinary Shares Carrying Value 2013 2012 2013 2012 Rs. Rs.

ACL Cables PLC 316,372 – 20,532,543 – Amãna Takaful PLC 150,051,000 153,030,000 240,081,600 275,454,000 Bairaha Farms PLC 379,703 57,249 48,905,746 9,005,268 C.W. Mackie PLC 634,658 473,903 38,587,206 36,869,653 Ceylon Grain Elevators PLC 657,218 368,029 23,331,239 21,897,726 Ceylon Leather Products PLC 36,849 – 2,450,459 – Colombo Dockyard PLC – 33,592 – 7,524,608 Expolanka Holdings PLC 2,901,876 3,086,254 21,764,069 21,603,778 Lanka Floor Tiles PLC – 132,640 – 8,621,600 Laugfs Gas PLC (Non-Voting) 44,016 – 946,344 – Laugfs Gas PLC – 482,123 – 12,342,349 Nawaloka Hospitals PLC 1,000,000 – 3,000,000 – Panasian Power PLC 22,577,453 1,598,559 56,443,633 3,996,398 Piramal Glass Ceylon PLC 614,888 – 2,766,996 – Regnis Lanka PLC 223,094 – 14,501,110 – Renuka Agri Foods PLC 79,434 – 293,906 – Renuka Shaw Wallace PLC 174,065 – 2,872,072 – Royal Ceramic Lanka PLC 500,000 216,301 42,300,000 21,413,799 Seylan Developments PLC 866,816 – 7,801,344 – Singer Sri Lanka PLC 115,744 55,900 10,301,216 5,718,570 Sri Lanka Telecom PLC 632,851 313,705 23,415,488 13,959,873 Textured Jersey Lanka PLC – 254,013 – 2,260,716 Tokyo Cement Company (Lanka) PLC 1,300,000 1,484,660 37,050,000 42,461,276

597,344,971 483,129,612 180 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

22.2 INVESTMENTS IN EQUITY - UNQUOTED

No. of Ordinary Shares Carrying Value 2013 2012 2013 2012 Rs. Rs.

LankaClear (Private) Limited 50,000 50,000 2,000,000 2,000,000 Credit Information Bureau of Sri Lanka 300 300 993,000 993,000

Total Carrying Value 2,993,000 2,993,000

23. OTHER FINANCIAL ASSETS

2013 2012 Rs. Rs.

Receivable from Amãna Investments Limited 300,000,000 321,260,011 Less: Impairment (18,781,475) – Net Receivable from Amãna Investments Limited 281,218,525 321,260,011 Other Assets (23.1) 238,327,867 232,233,028

519,546,392 553,493,038

23.1 OTHER ASSETS

2013 2012 Rs. Rs.

Refundable Deposit 10,427,050 9,371,000 Pre-paid Staff Costs 34,821,902 15,591,771 Other Receivables 193,078,915 207,270,257

238,327,867 232,233,028

24. OTHER NON FINANCIAL ASSETS

2013 2012 Rs. Rs.

Stationery Stock 3,954,864 2,524,909 Prepayments and Advances 88,284,982 116,815,297 Other Receivables 148,537,767 112,918,537

240,777,613 232,258,744 181 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

25. PROPERTY, PLANT AND EQUIPMENT

25.1 SUMMARY

Freehold Land Improvements Furniture and Office Computer Motor Vehicles Computer Total and Building to Leasehold Fittings Equipment Equipment Servers Premises Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Cost: As at 1 January 2012 322,800,532 30,848,284 18,440,908 49,039,807 45,717,655 20,664,073 14,600,832 502,112,092 Additions 3,255,165 17,889,093 12,849,486 145,633,552 30,262,401 13,944,643 58,639,444 282,473,784 Disposals – – – – – (4,303,328) – (4,303,328) As at 31 December 2012 326,055,697 48,737,377 31,290,394 194,673,360 75,980,056 30,305,388 73,240,276 780,282,548 Additions 23,542,976 81,867,918 61,654,971 85,941,375 74,187,888 418,535 9,924,044 337,537,707 Disposals – – – – – – – – As at 31 December 2013 349,598,673 130,605,295 92,945,365 280,614,735 150,167,944 30,723,923 83,164,320 1,117,820,255

Depreciation As at 1 January 2012 313,886 2,472,840 1,468,100 3,884,734 3,575,581 5,785,852 3,229,097 20,730,090 Disposals – – – – – (2,714,991) – (2,714,991) Depreciation Charge for the Year 564,216 21,920,488 5,869,662 50,661,324 18,469,995 10,457,043 17,614,811 125,557,539 As at 31 December 2012 878,102 24,393,329 7,337,762 54,546,058 22,045,576 13,527,904 20,843,908 143,572,638 Disposals – – – – – – – – Depreciation Charge for the Year 851,354 27,978,148 13,200,656 42,074,527 20,996,164 1,221,297 14,964,897 121,287,043 As at 31 December 2013 1,729,456 52,371,477 20,538,418 96,620,585 43,041,740 14,749,201 35,808,805 264,859,681

Net Book Value: As at 31 December 2013 347,869,217 78,233,818 72,406,947 183,994,150 107,126,204 15,974,722 47,355,515 852,960,574

As at 31 December 2012 325,177,595 24,344,048 23,952,633 140,127,301 53,934,480 16,777,484 52,396,368 636,709,910

25.2 During the year, the Bank acquired Property, Plant and Equipment to the aggregate value of Rs. 337,537,707/- (2012 - Rs. 282,473,784/-). Cash payments amounting to Rs. 337,537,707/- (2012 - Rs. 282,473,784/-) were made during the year for purchase of Property, Plant and Equipment.

25.3 Property, Plant and Equipment includes fully depreciated assets having a gross carrying amount of Rs. 29,611,850/- (2012 - Rs. 17,248,694/-).

25.4 No assets have been pledged by the Bank. 182 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

26. INTANGIBLE ASSETS

Computer Total Software Rs. Rs.

Cost: As at 1 January 2013 254,559,764 254,559,764 Additions 95,640,546 95,640,546 Disposal – –

As at 31 December 2013 350,200,310 350,200,310

Amortisation As at 1 January 2013 30,177,590 30,177,590 Amortisation Charge for the Year 36,995,102 36,995,102 Disposal – –

As At 31 December 2013 67,172,692 67,172,692

Net Book Value: As at 31 December 2013 283,027,619 283,027,619

As at 31 December 2012 224,382,174 224,382,174

27. DEFERRED TAX

Statement of Financial Position Income Statement Other Comprehensive Income 2013 2012 2013 2012 2013 2012 Rs. Rs. Rs. Rs. Rs. Rs.

Deferred Tax Liability Capital Allowances for Tax Purposes 133,871,082 88,196,541 (45,674,541) (48,636,871) – – 133,871,082 88,196,541

Deferred Tax Assets Defined Benefit Plans (10,732,461) (5,781,630) 4,950,831 2,127,249 – – Defined Benefit Plans - Other Comprehensive Income (1,887,514) – – – 1,887,514 – Others (280,606,447) (118,911,650) 161,694,798 (4,576,968) – – (293,226,422) (124,693,280)

Deferred Tax/(Expense) 120,971,087 (51,086,590) 1,887,514 –

Net Deferred Tax Liability/(Asset) (159,355,340) (36,496,739) 183 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

28. DERIVATIVE FINANCIAL LIABILITIES

2013 2012 Rs. Rs.

Derivative Financial Instruments 3,130,759 4,978,614

3,130,759 4,978,614

29. DUE TO OTHER CUSTOMERS

2013 2012 Rs. Rs. 29.1 TOTAL AMOUNT DUE TO OTHER CUSTOMERS 17,983,111,581 13,302,501,452

29.2 BY PRODUCT

2013 2012 Rs. Rs.

Demand Deposits 1,581,807,095 1,072,404,849 Savings Deposits 8,219,965,061 6,885,234,508 Time Deposits 8,181,339,425 5,344,862,095 17,983,111,581 13,302,501,452

29.3 BY CURRENCY

2013 2012 Rs. Rs.

Sri Lankan Rupees 17,228,254,133 13,006,919,969 United States Dollars 671,232,990 262,328,507 Other 83,624,458 33,252,976

17,983,111,581 13,302,501,452 184 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

30. OTHER FINANCIAL LIABILITIES

2013 2012 Rs. Rs.

Accrued Expenses 87,547,226 92,539,068 Balance Held in Margin 27,276,843 7,723,228 Other Liabilities 171,642,004 199,710,868 Sundry Creditors 4,353,750 4,263,124

290,819,822 304,236,288

31. OTHER NON FINANCIAL LIABILITIES

2013 2012 Rs. Rs.

Statutory Payable 13,688,807 13,843,550 13,688,807 13,843,550

32. RETIREMENT BENEFIT LIABILITY - GRATUITY

2013 2012 Rs. Rs.

As at 1 January 20,648,680 13,051,361 Expenses Recognised in the Income Statement (Note 32.1) 18,572,996 8,388,964 Actuarial (Gains)/Losses Due to Changes in Assumptions (Note 32.1) 6,741,123 – Benefits Paid (891,457) (791,645) At 31 December 45,071,342 20,648,680

32.1 EXPENSES RECOGNISED IN THE INCOME STATEMENT

2013 2012 Rs. Rs.

Current Service Cost 13,587,338 5,978,822 Finance Cost 4,985,658 2,410,142 Components Recognised in the Income Statement 18,572,996 8,388,964

Remeasurement of Net Defined Benefit Obligations Recognition of Actuarial Loss/(Gain) 6,741,123 – Components Recognised in Other Comprehensive Income (OCI) 6,741,123 –

As at 31 December 2013 the gratuity liability of the Bank was actuarial valued under the Projected Unit Credit Method by Mr. Piyal Goonetilleke (Fellow of the Society of Actuaries - USA).

185 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

Appropriate and compatible assumptions were used in determining the cost of Retirement Benefits. The principal assumptions used are as follows:

2013 2012

a. Discount Rate (%) 11.0 11.0 b. Salary Increment Rate (%) 9.0 9.0 c. Age of Retirement (Years) 55 55 d. Mortality GA 1983 GA 1983 Mortality Table Mortality Table

32.2 SENSITIVITY OF ASSUMPTIONS EMPLOYED IN ACTUARIAL VALUATION The following table demonstrates the sensitivity to a reasonably possible change in the key assumptions employed with all other variables held constant in the employment benefit liability measurement.

The sensitivity of the Income Statement and Statement of Financial Position is the effect of the assumed changes in discount rate and salary increment rate on the profit or loss and employment benefit obligation for the year.

Increase/(Decrease) Increase/(Decrease) 2013 in discount rate in Salary Increment Sensitivity Effect on Comprehensive Sensitivity Effect on Employment Income Increase/(Reduction) Benefit Obligation Increase/(Decrease) in Results for the Year in the Liability (Rs. Mn.) (Rs. Mn.) 1% – 3.29 (3.29) (1%) – (2.84) 2.84 – 1% (3.20) 3.20 – (1%) 2.81 (2.81)

Sensitivity disclosures for the Defined Benefit Obligation for comparative period (year ended 31 December 2012) have not been presented as the sensitivity analysis for 2012 has been done based on the previous Accounting Standard.

32.3 DISTRIBUTION OF DEFINED BENEFIT OBLIGATION OVER FUTURE LIFETIME The following table demonstrates distribution of the future working lifetime of the Defined Benefit Obligation as at the reporting period.

2013 Rs.

Less than 1 Year 1,356,766 Between 1 and 2 Years 11,758,527 Between 2 and 5 Years 28,394,349 Beyond 5 Years 28,125,153

Total Expected Payments 69,634,795 186 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

33. STATED CAPITAL

33.1 SUMMARY

2013 2012 Number Rs Number Rs

Fully Paid Ordinary Shares (Note 33.2) 1,014,982,867 4,216,821,341 902,810,064 3,431,611,720 Pending Share Allotment* – 1,649,986,800 – – 1,014,982,867 5,866,808,141 902,810,064 3,431,611,720

33.2 FULLY PAID ORDINARY SHARES

2013 2012 Number Rs Number Rs

Balance as at 1 January 902,810,064 3,431,611,720 902,810,064 3,431,611,720 Issue of Shares for cash (Right Issue) 112,172,803 785,209,621 – – Balance as at 31 December 1,014,982,867 4,216,821,341 902,810,064 3,431,611,720

* Pending Share Allotment refers to subscriptions received at the Initial Public Offering which was open from 11 to 24 December 2013. Applications for 235,712,400 shares valued at Rs. 1,649,986,800/- were received and more fully described in Note No. 40.

34. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES Financial Instruments comprise of Financial Assets, Financial Liabilities, Derivatives Financial Instruments and Off-Balance Sheet Instruments. Fair value is the amount at which the Financial Assets could be exchanged or a Financial Liability settled, between knowledgeable and willing parties in an arm’s length transaction. The information presented herein represents the determination of fair values as at the reporting date.

34.1 FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE The following is a description of how fair values are determined for Financial Instruments that are recorded at fair value as at the reporting date. These incorporate the Bank’s estimate of assumptions that a market participant would make when valuing the instruments.

Derivative Financial Assets and Liabilities: Derivative products are promissory forward foreign exchange transactions, valued using a valuation technique with market observable inputs. The most frequently applied valuation techniques include promissory forward foreign exchange spot and forward premiums.

Financial Investments - Held for Trading, Financial Investments - Available for Sale: The estimated fair values are based on quoted and observable market prices. 187 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

FAIR VALUE HIERARCHY SLFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources and unobservable inputs reflect the Bank’s market assumptions. The fair value hierarchy is as follows:

 Level 1: Quoted price (unadjusted) in active markets for the identical assets or liabilities. This level includes listed equity securities and debt instruments.

 Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

 Level 3: Inputs for asset or liability that are not based on observable market data (unobservable inputs). This level includes equity instruments and debt instruments with significant unobservable components.

The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy:

Level 1 Level 2 Level 3 Total

31 December 2013 Financial Assets Derivative Financial Assets – 21,470,669 – 21,470,669 Financial Investments - Held for Trading 175,334,631 – – 175,334,631 Financial Investments - Available for Sale 597,344,971 2,993,000 – 600,337,971 772,679,602 24,463,669 – 797,143,271 Financial Liabilities Derivative Financial Liabilities – 3,130,759 – 3,130,759 – 3,130,759 – 3,130,759 31 December 2012 Financial Assets Derivative Financial Assets – 104,181,576 – 104,181,576 Financial Investments - Held for Trading 59,768,906 – – 59,768,906 Financial Investments - Available for Sale 483,129,612 2,993,000 – 486,122,612 542,898,518 107,174,576 – 650,073,094

Financial Liabilities Derivative Financial Liabilities – 4,978,614 – 4,978,614 – 4,978,614 – 4,978,614 188 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

34.2 FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE Set out below is a comparison, by class, of the carrying amounts and fair values of the Bank’s Financial Instruments that are not carried at fair value in the Financial Statements. This table does not include the fair values of Non Financial Assets and Non Financial Liabilities.

2013 2012 Carrying Value Fair Value Carrying Value Fair Value Rs. Rs. Rs. Rs.

Financial Assets Cash and Cash Equivalents 2,444,552,371 2,444,552,371 3,866,793,015 3,866,793,015 Balance with Central Bank of Sri Lanka 685,320,420 685,320,420 865,294,214 865,294,214 Placements with Banks 1,737,895,772 1,737,895,772 825,235,383 825,235,383 Placements with Licensed Finance Companies 661,958,238 661,958,238 1,661,226,754 1,661,226,754 Financing and Receivables to Other Customers 15,015,318,081 14,533,720,945 7,165,461,019 6,865,148,192 Other Financial Assets 519,546,392 519,546,392 553,493,038 553,493,038 21,064,591,274 20,582,994,138 14,937,503,423 14,637,190,596

Financial Liabilities Due to Other Customers 17,983,111,581 17,983,111,581 13,302,501,452 13,302,501,452 Other Financial Liabilities 290,819,822 290,819,822 304,236,288 304,236,288 18,273,931,403 18,273,931,403 13,606,737,740 13,606,737,740

The following describes the methodologies and assumptions used to determine fair values for those Financial Instruments which are not recorded at fair value in the Financial Statements:

Balances with Banks, Balances with Licensed Finance Companies, Other Financial Assets and Other Financial Liabilities For the above which includes only instruments with maturities of less than 12 months, the carrying value is a reasonable estimate of fair values.

Financing and Receivables to Other Customers The fair value of the above are estimated by discounting the estimated future cash flows using the prevailing market rates of financing as at the reporting date with similar credit risks and maturities. The fair values are represented by their carrying value, net of impairment loss, being the recoverable amount.

Due to Other Customers The fair values of the above are deemed to approximate their carrying amounts as rate of returns are determined at the end of their holding periods based on the profit generated from the assets invested. 189 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

35. RISK MANAGEMENT

35.1 INTRODUCTION Risk is inherent in the Bank’s activities but is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Bank’s continuing profitability and each individual within the Bank is accountable for the risk exposures relating to his or her responsibilities. The Bank is mainly exposed to: 1. Credit Risk 2. Liquidity Risk 3. Market Risk

35.2 RISK MANAGEMENT STRUCTURE The Board of Directors is responsible for the overall risk management approach and for approving the risk management strategies and principles. Risk Management Department (RMD) oversees the risks faced by the Bank in its internal operations and from external environment.

The Board Integrated Risk Management Committee (BIRMC) The Board Integrated Risk Management Committee (BIRMC) which is a subcommittee of the Board meets quarterly or more regularly as required to review and assess the Bank’s overall risk and to focus on policy recommendations and strategies in an integrated manner. The BIRMC is commissioned and officiated by the Board of Directors. BIRMC functions as an overall supervisory body comprising of four Directors.

Assets and Liabilities Committee (ALCO) The Bank’s Assets and Liabilities Committee (ALCO) regularly reviews and monitors the maintenance of liquidity position of the Bank and the concentration of large deposits in order to avoid undue dependence on individual deposits. Bank monitors liquidity by way of various ratios as required by the Board approved Asset Liability Management Policy.

Risk Measurement and Reporting Systems The Bank’s risks are measured using a method which reflects the expected loss likely to arise in normal circumstances. These are an estimate of the ultimate actual loss based on statistical models.

Monitoring and controlling risks is primarily performed based on limits established by the Bank. These limits reflect the business strategy and market environment of the Bank as well as the level of risk that the Bank is willing to accept, with additional emphasis on selected industries.

Information compiled from all the businesses is examined and processed in order to analyse, control and identify risks on a timely basis. This information is presented and explained to the Board of Directors, the BIRMC, and the head of each business unit.

The report includes aggregate credit exposure, Value at Risk (VaR), liquidity ratios and risk profile changes. 190 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

Risk Concentration Concentrations arise when a number of counterparties are engaged in similar business activities, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Bank’s performance to developments affecting a particular industry.

35.3 CREDIT RISK Credit risk is the risk that the Bank will incur a loss because its customers or counterparties fail to discharge their contractual obligations. The Bank manages and controls credit risk by setting limits on the amount of risk it is willing to accept for individual counterparties and industry concentrations, and by monitoring exposures in relation to such limits.

(a) Impairment Assessment The approach used for the assessment of impairment is elaborated under Accounting Policies (Note No. 2.3.5).

(b) Credit Related Commitment Risk The risk arising from transactions relating to contingent liabilities (Letters of Credit, Letters of Guarantees and undrawn amount under approved authorisations) is included under this caption. Notwithstanding the non-funded nature of said products, the Bank is prone to a resultant financial loss due to the nature of such products, i.e. claim on guarantees, negotiation of LCs and utilisation of facilities.

(c) Collateral and Other Credit Enhancement An assessment of the credit risk of an individual at the time of issuing or enhancing a facility shall determine the amount and type of collateral that is required.

In the event of default, the Bank may, as a remedial measure, exercise its charge of the collateral obtained at the time of approval of credit facilities. Hence, the credit risk is eliminated to the extent of the net realisable value of such collateral, which has a weightage depending on nature of the collateral. Management monitors the market value of such collateral and requests additional collateral if required when reviewing the adequacy of the allowance for impairment losses. 191 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

(d) Credit Quality by Class of Financial Assets (Gross) The credit quality of financial assets is managed by the Bank using internal credit ratings. The table below shows the credit quality by class of asset for all financial assets exposed to credit risk, based on the Bank’s internal credit rating system. The amounts presented are gross of impairment allowances.

Neither Past Due Nor Impaired Past Due But Individually Total Financial Assets as at 31 December 2013 High Standard Sub-Standard Un-Rated Not Impaired* Impaired Grade Grade Grade Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Cash and Cash Equivalents 2,444,552,371 – – – – – 2,444,552,371 Balance with Central Bank of Sri Lanka 685,320,420 – – – – – 685,320,420 Derivative Financial Assets 21,470,669 – – – – – 21,470,669 Placements with Banks 1,737,895,772 – – – – – 1,737,895,772 Placements with Licensed Finance Companies 661,958,238 – – – – – 661,958,238 Financial Investments - Held for Trading 25,889,180 149,445,451 – – – – 175,334,631 Financing and Receivables to Other Customers 5,473,774,109 9,116,731,924 269,935,671 – 134,575,209 144,012,553 15,139,029,466 Financial Investments - Available for Sale 137,173,559 460,171,411 – 2,993,000 – – 600,337,971 Other Financial Assets – – – 238,327,867 – 300,000,000 538,327,867 11,188,034,318 9,726,348,786 269,935,671 241,320,867 134,575,209 444,012,553 22,004,227,405

Neither Past Due Nor Impaired Past Due But Individually Total Financial Assets as at 31 December 2012 High Standard Sub-Standard Un-Rated Not Impaired* Impaired Grade Grade Grade Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Cash and Cash Equivalents 3,866,793,015 – – – – – 3,866,793,015 Balance with Central Bank of Sri Lanka 865,294,214 – – – – – 865,294,214 Derivative Financial Assets 104,181,576 – – – – – 104,181,576 Placements with Banks 825,235,383 – – – – – 825,235,383 Placements with Licensed Finance Companies 1,661,226,754 – – – – – 1,661,226,754 Financial Investments - Held for Trading 2,772,128 56,996,779 – – – – 59,768,906 Financing and Receivables to Other Customers 3,412,130,521 3,596,396,405 131,821,351 – 17,205,117 51,064,217 7,208,617,610 Financial Investments - Available for Sale 13,959,873 469,169,740 – 2,993,000 – – 486,122,612 Other Financial Assets – – – 553,493,038 – – 553,493,038 10,751,593,464 4,122,562,923 131,821,351 556,486,038 17,205,117 51,064,217 15,630,733,109

* Age Analysis of Past due but not impaired financing by class of Financial Assets.

Past Due But Not Impaired Total Past Due But Not Impaired Less than 31 to 60 61 to 90 More than 30 days days days 91 days

Rs. Rs. Rs. Rs. Rs.

Financing and Receivables to Other Customers - 31 December 2013 11,449,828 22,410,125 18,798,777 81,916,479 134,575,209

Financing and Receivables to Other Customers - 31 December 2012 1,000,749 1,898,952 8,058,786 6,246,630 17,205,117 192 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

(e) Analysis of Risk Concentration Maximum exposure to credit risk is reviewed/monitored without taking account of any collateral and other credit enhancements .The Concentration risk is monitored by industry. The following table shows the maximum exposure to credit risk for the components of the Statement of Financial Position, including sector.

Industry Analysis The following table shows the risk concentration by industry for the components of the Statement of Financial Position.

Financial Assets as at 31 December 2012 Government Banks, Financial Agriculture and Manufacturing Tourism Transport Construction Traders New Economy Infrastructure Services Consumers Other Total and Business Fishing Customers Services Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Cash and Cash Equivalents – 2,444,552,371 – – – – – – – – – – – 2,444,552,371 Balance with Central Bank of Sri Lanka 685,320,420 – – – – – – – – – – – – 685,320,420 Derivative Financial Assets – 21,470,669 – – – – – – – – – – – 21,470,669 Placements with Banks – 1,737,895,772 – – – – – – – – – – – 1,737,895,772 Placements with Licensed Finance Companies – 661,958,238 – – – – – – – – – – – 661,958,238 Financial Investments - Held for Trading – 1,354,243 18,466,693 101,930,342 – – – 9,688,924 – 8,412,948 35,481,482 – – 175,334,631 Financing and Receivables to Other Customers – 439,070,721 3,076,420,982 2,385,794,528 147,687,248 365,707,417 1,681,263,075 3,491,900,357 33,217,210 732,020,941 545,938,614 1,676,399,380 563,608,993 15,139,029,466 Financial Investments - Available for Sale – 243,074,600 293,906 195,656,509 – – – 48,888,422 – 7,801,344 104,623,189 – – 600,337,971 Other Financial Assets – 429,040,968 – – – – – – – – 109,286,899 – – 538,327,867 685,320,420 5,978,417,582 3,095,181,580 2,683,381,379 147,687,248 365,707,417 1,681,263,075 3,550,477,704 33,217,210 748,235,233 795,330,184 1,676,399,380 563,608,993 22,004,227,405

Financial Assets as at 31 December 2012 Government Banks, Financial Agriculture and Manufacturing Tourism Transport Construction Traders New Economy Infrastructure Services Consumers Other Total and Business Fishing Customers Services Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Cash and Cash Equivalents – 3,866,793,015 – – – – – – – – – – – 3,866,793,015 Balance with Central Bank of Sri Lanka 865,294,214 – – – – – – – – – – – – 865,294,214 Derivative Financial Assets – 104,181,576 – – – – – – – – – – – 104,181,576 Placements with Banks – 825,235,383 – – – – – – – – – – – 825,235,383 Placements with Licensed Finance Companies – 1,661,226,754 – – – – – – – – – – – 1,661,226,754 Financial Investments - Held for Trading – – 17,263,832 14,906,761 – – 18,907,392 4,165,540 – 1,753,254 2,772,128 – – 59,768,906 Financing and Receivables to Other Customers – 85,038,656 981,761,221 997,965,290 1,963,750 19,331,024 786,662,054 2,502,729,491 35,160,616 171,562,083 569,071,640 711,790,300 345,581,485 7,208,617,610 Financial Investments - Available for Sale – 278,447,000 9,005,268 118,258,894 – – 7,524,608 42,588,223 – 16,338,746 13,959,873 – – 486,122,612 Other Financial Assets – 321,260,011 – – – – – – – – 232,233,027 – – 553,493,038 865,294,214 7,142,182,394 1,008,030,321 1,131,130,945 1,963,750 19,331,024 813,094,054 2,549,483,254 35,160,616 189,654,083 818,036,667 711,790,300 345,581,485 15,630,733,109

193 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

Industry Analysis The following table shows the risk concentration by industry for the components of the Statement of Financial Position.

Financial Assets as at 31 December 2012 Government Banks, Financial Agriculture and Manufacturing Tourism Transport Construction Traders New Economy Infrastructure Services Consumers Other Total and Business Fishing Customers Services Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Cash and Cash Equivalents – 2,444,552,371 – – – – – – – – – – – 2,444,552,371 Balance with Central Bank of Sri Lanka 685,320,420 – – – – – – – – – – – – 685,320,420 Derivative Financial Assets – 21,470,669 – – – – – – – – – – – 21,470,669 Placements with Banks – 1,737,895,772 – – – – – – – – – – – 1,737,895,772 Placements with Licensed Finance Companies – 661,958,238 – – – – – – – – – – – 661,958,238 Financial Investments - Held for Trading – 1,354,243 18,466,693 101,930,342 – – – 9,688,924 – 8,412,948 35,481,482 – – 175,334,631 Financing and Receivables to Other Customers – 439,070,721 3,076,420,982 2,385,794,528 147,687,248 365,707,417 1,681,263,075 3,491,900,357 33,217,210 732,020,941 545,938,614 1,676,399,380 563,608,993 15,139,029,466 Financial Investments - Available for Sale – 243,074,600 293,906 195,656,509 – – – 48,888,422 – 7,801,344 104,623,189 – – 600,337,971 Other Financial Assets – 429,040,968 – – – – – – – – 109,286,899 – – 538,327,867 685,320,420 5,978,417,582 3,095,181,580 2,683,381,379 147,687,248 365,707,417 1,681,263,075 3,550,477,704 33,217,210 748,235,233 795,330,184 1,676,399,380 563,608,993 22,004,227,405

Financial Assets as at 31 December 2012 Government Banks, Financial Agriculture and Manufacturing Tourism Transport Construction Traders New Economy Infrastructure Services Consumers Other Total and Business Fishing Customers Services Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Cash and Cash Equivalents – 3,866,793,015 – – – – – – – – – – – 3,866,793,015 Balance with Central Bank of Sri Lanka 865,294,214 – – – – – – – – – – – – 865,294,214 Derivative Financial Assets – 104,181,576 – – – – – – – – – – – 104,181,576 Placements with Banks – 825,235,383 – – – – – – – – – – – 825,235,383 Placements with Licensed Finance Companies – 1,661,226,754 – – – – – – – – – – – 1,661,226,754 Financial Investments - Held for Trading – – 17,263,832 14,906,761 – – 18,907,392 4,165,540 – 1,753,254 2,772,128 – – 59,768,906 Financing and Receivables to Other Customers – 85,038,656 981,761,221 997,965,290 1,963,750 19,331,024 786,662,054 2,502,729,491 35,160,616 171,562,083 569,071,640 711,790,300 345,581,485 7,208,617,610 Financial Investments - Available for Sale – 278,447,000 9,005,268 118,258,894 – – 7,524,608 42,588,223 – 16,338,746 13,959,873 – – 486,122,612 Other Financial Assets – 321,260,011 – – – – – – – – 232,233,027 – – 553,493,038 865,294,214 7,142,182,394 1,008,030,321 1,131,130,945 1,963,750 19,331,024 813,094,054 2,549,483,254 35,160,616 189,654,083 818,036,667 711,790,300 345,581,485 15,630,733,109

194 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

(f) Analysis of Maximum Exposure to Credit Risk and Collateral and Other Credit Enhancements The following table shows the maximum exposure to credit risk by class of financial asset and the value of financial assets covered by the collateral.

Financial Assets as at 31 December 2013 Maximum Exposure to Net Exposure Credit Risk Rs. Rs. Derivative Financial Assets 21,470,669 21,470,669 Placements with Banks 1,737,895,772 1,737,895,772 Placements with Licensed Finance Companies 661,958,238 661,958,238 Financial Investments - Held for Trading 175,334,631 175,334,631 Financing and Receivables to Other Customers 15,139,029,466 4,690,109,907 Financial Investments - Available for Sale 600,337,971 600,337,971 Other Financial Assets 519,546,392 519,546,392 18,855,573,139 8,406,653,580

35.4 LIQUIDITY RISK AND FUNDING MANAGEMENT Liquidity risk implies the potential for loss to the Bank due to inability to meets its obligation or to fund the increase in assets as they fall due without incurring high cost.

Internal control processes and contingency plans for managing liquidity risk have been developed by the Bank under the Assets and Liabilities Management policy of the Bank. This incorporates an assessment of expected cash flows and the availability of liquid funds which could be used if required.

As required by the Provisions of Section 93 of the Monetary Law Act, a cash balance is required to be maintained with Central Bank of Sri Lanka. As at 31 December 2013, the minimum cash reserve requirement was 6% (2012 - 8%) of the rupee liabilities of the Domestic Banking Unit. There is no reserve requirement for foreign currency deposit liabilities of the Domestic Banking Unit.

The Bank monitors the mix of deposits closely and concentrates on mobilising of zero or low cost deposits such as current accounts and savings accounts as a source of major funding.

Liquid assets are defined for the purposes of the liquidity ratio which are mainly cash and cash equivalents, placements with banks and placements with licensed finance companies. Adequate liquid assets are maintained due the Bank's operational business model adopted and ensure the Statutory Liquid Asset Ratio is maintained as per regulatory requirements. 195 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

(a) Liquidity Ratios Financing and Receivables to Other Customers to Due to Other Customers Ratio (Net)

2013 2012 Year end 83.50% 53.87%

Statutory Liquid Assets Ratio 2013 2012 Year end 22.57% 35.92%

(b) Analysis of Assets and Liabilities by Remaining Contractual Maturities The table below summarises the maturity profile of the undiscounted cash flows (Gross) of the Bank’s financial assets and liabilities as at the end of the reporting period.

On Statement of Financial Position as at Up to 3 3-12 1 - 3 3 - 5 Over Total 31 December 2013 Months Months Years Years 5 Years Rs. Rs. Rs. Rs. Rs. Rs. Financial Assets Cash and Cash Equivalents 2,444,552,371 – – – – 2,444,552,371 Balance with Central Bank of Sri Lanka 177,997,067 256,302,407 76,802,024 73,482,584 100,736,338 685,320,420 Derivative Financial Assets 20,461,046 1,009,623 – – – 21,470,669 Placements with Banks 1,737,895,772 – – – – 1,737,895,772 Placements with Licensed Finance Companies 254,599,949 407,358,289 – – – 661,958,238 Financial Investments - Held for Trading 175,334,631 – – – – 175,334,631 Financing and Receivables to Other Customers 7,186,807,997 3,821,831,871 5,055,945,233 1,917,499,443 744,310,023 18,726,394,567 Financial Investments - Available for Sale – – 357,263,371 – 243,074,600 600,337,971 Other Financial Assets 227,900,817 281,218,525 10,427,050 – – 519,546,392 Total Undiscounted Financial Assets 12,225,549,650 4,767,720,714 5,500,437,679 1,990,982,027 1,088,120,961 25,572,811,031

Financial Liabilities Derivative Financial Liabilities 3,113,249 17,511 – – – 3,130,759 Due to Other Customers 4,189,135,320 7,029,814,230 2,070,892,224 1,979,828,709 2,713,441,097 17,983,111,581 Other Financial Liabilities 283,374,793 1,367,544 6,077,484 – – 290,819,822 Total Undiscounted Financial Liabilities 4,475,623,362 7,031,199,285 2,076,969,709 1,979,828,709 2,713,441,097 18,277,062,162 Total net Financial Assets/(Liabilities) 7,749,926,288 (2,263,478,571) 3,423,467,970 11,153,319 (1,625,320,136) 7,295,748,869 196 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

On Statement of Financial Position as at Up to 3 3-12 1 - 3 3 - 5 Over Total 31 December 2012 Months Months Years Years 5 Years Rs. Rs. Rs. Rs. Rs. Rs. Financial Assets Cash and Cash Equivalents 3,866,793,015 – – – – 3,866,793,015 Balance with Central Bank of Sri Lanka 507,159,746 325,564,462 7,590,658 6,209,758 18,769,590 865,294,214 Derivative Financial Assets 95,022,813 9,158,763 – – – 104,181,576 Placements with Banks 825,235,383 – – – – 825,235,383 Placements with Licensed Finance Companies 1,342 – 1,661,225,412 – – 1,661,226,754 Financial Investments - Held for Trading 59,768,906 – – – – 59,768,906 Financing and Receivables to Other Customers 2,044,084,557 3,683,223,102 2,361,417,314 1,068,407,475 193,818,952 9,350,951,400 Financial Investments - Available for Sale – – 207,675,612 – 278,447,000 486,122,612 Other Financial Assets 308,104,111 236,017,927 9,371,000 – – 553,493,038 Total Undiscounted Financial Assets 7,706,169,874 4,253,964,254 4,247,279,995 1,074,617,233 491,035,542 17,773,066,898

Financial Liabilities Derivative Financial Liabilities 4,978,614 – – – – 4,978,614 Due to Other Customers 7,599,913,638 4,773,741,592 508,811,208 96,969,740 323,065,274 13,302,501,452 Other Financial Liabilities 303,048,605 1,187,683 – – – 304,236,288 Total Undiscounted Financial Liabilities 7,907,940,857 4,774,929,275 508,811,208 96,969,740 323,065,274 13,611,716,354 Total net Financial Assets/(Liabilities) (201,770,983) (520,965,021) 3,738,468,787 977,647,493 167,970,268 4,161,350,544

(c) Contractual Maturities of Commitments and Contingencies

Off Statement of Financial Position as at Up to 3 3-12 1 - 3 3 - 5 Over Total 31 December 2013 Months Months Years Years 5 Years Rs. Rs. Rs. Rs. Rs. Rs. Acceptances 625,554,218 33,019,877 – – – 658,574,095 Letters of Credit 353,804,615 43,719,273 – – – 397,523,888 Guarantees, Bonds 214,875,662 360,505,488 33,419,594 – – 608,800,744 Promissory Forward exchange sales 1,843,410,126 1,032,598,735 – – – 2,876,008,861 Promissory Forward exchange purchases – – – – – – Commitments for unutilised facilities 716,663,985 2,149,991,956 – – – 2,866,655,941 Bills for Collection 233,454,516 – – – – 233,454,516 3,987,763,122 3,619,835,329 33,419,594 – – 7,641,018,045 197 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

Off Statement of Financial Position as at Up to 3 3-12 1 - 3 3 - 5 Over Total 31 December 2012 Months Months Years Years 5 Years Rs. Rs. Rs. Rs. Rs. Rs. Acceptances 462,253,112 48,541,716 – – – 510,794,828 Letters of Credit 814,598,989 133,582,717 – – – 948,181,706 Guarantees, Bonds 675,754,053 164,217,225 – – – 839,971,278 Promissory Forward exchange sales 4,188,166,124 255,800,000 – – – 4,443,966,124 Promissory Forward exchange purchases 977,880,304 – – – – 977,880,304 Commitments for unutilised facilities 626,045,196 2,693,374,229 – – – 3,319,419,425 Bills for Collection 81,134,059 – – – – 81,134,059 7,825,831,837 3,295,515,887 – – – 11,121,347,723

35.5 MARKET RISK Market Risk denotes the risk of losses arising out of Statement of Financial Position positions due to changes in market prices. Market risk mainly arises from activities undertaken by the Bank’s treasury and foreign exchange, equity, commodity and money market portfolios mainly contribute towards market risk of the Bank. A Board approved comprehensive limit structure has been adopted by the Bank to mitigate and monitor the market risk of the Bank.

(a) Rate Risk The rate risk arise due to changes in value of financial instruments due to changes in market rates. The Bank is exposed to this risk due to the mismatches in maturities of assets and liabilities that mature or are re-priced during a specified time period. In order to manage and mitigate rate risk, the Bank’s ALCO reviews the re-pricing of assets and liabilities at the ALCO meetings held regularly. Bank's rate risk is limited due to the model adopted where all due to other customers (customer deposits) have been accepted on the profit and loss sharing basis.

Rate Sensitive Assets and Liabilities Maturity Gaps (Contractual Basis) as at 31 December 2013

Up to 3 Months 3 - 12 Months 1 - 3 Years 3 - 5 Years Over 5 Years Non-Rate Bearing Total Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Cash and Cash Equivalents – – – – – 2,444,552,371 2,444,552,371 Balance with Central Bank of Sri Lanka – – – – – 685,320,420 685,320,420 Derivative Financial Assets – – – – – 21,470,669 21,470,669 Placements with Banks 1,737,895,772 – – – – – 1,737,895,772 Placements with Licensed Finance Companies 254,599,949 407,358,289 – – – – 661,958,238 Financial Investments - Held for Trading – – – – – 175,334,631 175,334,631 Financing and Receivables to Other Customers 6,019,184,967 2,979,080,053 3,822,408,839 1,589,501,020 605,143,203 – 15,015,318,081 Financial Investments - Available for Sale – – – – – 600,337,971 600,337,971 Other Financial Assets – – – – – 519,546,392 519,546,392

Total Assets 8,011,680,688 3,386,438,342 3,822,408,839 1,589,501,020 605,143,203 4,446,562,454 21,861,734,545 Derivative Financial Liabilities – – – – – 3,130,759 3,130,759 Due to Other Customers 2,607,328,225 7,029,814,230 2,070,892,224 1,979,828,709 2,713,441,097 1,581,807,095 17,983,111,581 Other Financial Liabilities – – – – – 290,819,822 290,819,822

Total Liabilities 2,607,328,225 7,029,814,230 2,070,892,224 1,979,828,709 2,713,441,097 1,875,757,677 18,277,062,162

Rate Sensitivity Gap 5,404,352,463 (3,643,375,888) 1,751,516,614 (390,327,688) (2,108,297,895) 2,570,804,777 198 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

Rate Sensitive Assets and Liabilities Maturity Gaps (Contractual Basis) as at 31 December 2012

Up to 3 Months 3 - 12 Months 1 - 3 Years 3 - 5 Years Over 5 Years Non-Rate Bearing Total Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Cash and Cash Equivalents – – – – – 3,866,793,015 3,866,793,015 Balance with Central Bank of Sri Lanka – – – – – 865,294,214 865,294,214 Derivative Financial Assets – – – – – 104,181,576 104,181,576 Placements with Banks 825,235,383 – – – – – 825,235,383 Placements with Licensed Finance Companies 1,342 1,661,225,412 – – – – 1,661,226,754 Financial Investments - Held for Trading – – – – – 59,768,906 59,768,906 Financing and Receivables to Other Customers 1,570,602,870 3,003,984,589 1,728,396,690 754,510,925 107,965,945 – 7,165,461,019 Financial Investments - Available for Sale – – – – – 486,122,612 486,122,612 Other Financial Assets – – – – – 553,493,038 553,493,038

Total Assets 2,395,839,596 4,665,210,001 1,728,396,690 754,510,925 107,965,945 5,935,653,361 15,587,576,517 Derivative Financial Liabilities – – – – – 4,978,614 4,978,614 Due to Other Customers 6,527,508,789 4,773,741,592 508,811,208 96,969,740 323,065,274 1,072,404,849 13,302,501,452 Other Financial Liabilities – – – – – 304,236,288 304,236,288

Total Liabilities 6,527,508,789 4,773,741,592 508,811,208 96,969,740 323,065,274 1,381,619,751 13,611,716,354

Rate Sensitivity Gap (4,131,669,193) (108,531,591) 1,219,585,482 657,541,185 (215,099,330) 4,554,033,610

35.6 FOREIGN EXCHANGE RISK Foreign Exchange risk which arises due to the changes in foreign exchange rates is managed by the Bank by setting and monitoring dealer, currency, counterparty and settlement limits for on and Off Statement of Financial Position instruments.

Bank’s activities in the Trade Finance business results in Off Statement of Financial Position financial instruments. In addition, the Bank engages in interbank promissory forward foreign exchange transactions to cover the positions created due to customer transactions. Such transactions are carried out on a matched basis to manage the cash flows of currencies.

The currency risk is managed and monitored against the regulatory/statutory limits approved for the Bank by the Central Bank of Sri Lanka. The foreign exchange exposures in individual currencies are managed according to the limits approved by the Board of Directors. 199 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

35.7 CURRENCY RISK Currency risk arises as a result of price fluctuations in assets due to change in exchange rates. The Board of Directors has set limits for currency wise exposures. The currency exposures are monitored on a daily basis as required by the risk management policy of the Bank.

The table below indicates the exposures in currencies the Bank carried as at 31 December 2013 and the effect of the gains/losses if the market rates appreciate/depreciate by 5%. The calculation indicates a reasonably practical movement of currency rates against the Sri Lankan Rupee.

If market rates appreciate or depreciate by 5% the effect of the same to the exchange gain/(loss) would be:

2013 2012 Currency Appreciation 5% Depreciation 5% Appreciation 5% Depreciation 5% Rs. Rs. Rs. Rs. AUD (22,190) 22,190 31,677 (31,677) GBP 345,787 (345,787) (16,387) 16,387 JPY 208,379 (208,379) 175,714 (175,714) USD 1,399,981 (1,399,981) (1,106,604) 1,106,604 Other Currencies 3,347,343 (3,347,343) 481,082 (481,082) 5,279,300 (5,279,300) (434,518) 434,518

35.8 EQUITY PRICE RISK Equity price risk arises due to changes in individual equity prices.

The Board of Directors of the Bank has laid down sector, portfolio and loss limits to control and mitigate the risks of the equity portfolio. The Bank also adheres to the guidelines issued by Central Bank of Sri Lanka regarding the exposure to a single entity and the total exposure limit for the equity portfolio. The performance of the equity portfolio is monitored by the BIRMC, ALCO and the Equity Investment Committee (EIC). The Bank engages in transactions only in Sharia compliant equities which are listed in the published “White List” of stocks.

Daily Mark to Market of portfolios are carried out based on the weighted average closing prices of the Colombo Stock Exchange. 200 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

36. MATURITY ANALYSIS

Up to 3 Months 3 - 12 Months 1 - 3 Years 3 - 5 Years Over 5 Years Total As at 31.12.2013 Rs. Rs. Rs. Rs. Rs. Rs.

Cash and Cash Equivalents 2,444,552,371 – – – – 2,444,552,371 Balances with Central Bank of Sri Lanka 177,997,067 256,302,407 76,802,024 73,482,584 100,736,338 685,320,420 Derivative Financial Assets 20,461,046 1,009,623 – – – 21,470,669 Placements with Banks 1,737,895,772 – – – – 1,737,895,772 Balances with Licensed Finance Companies 254,599,949 407,358,289 – – – 661,958,238 Financial Investments - Held for Trading 175,334,631 – – – – 175,334,631 Financing and Receivables to Other Customers 6,019,184,967 2,979,080,053 3,822,408,839 1,589,501,020 605,143,203 15,015,318,081 Financial Investments - Available for Sale – – 357,263,371 – 243,074,600 600,337,971 Other Financial Assets 227,900,817 281,218,525 10,427,050 – – 519,546,392 Other Non Financial Assets 28,994,456 35,425,210 176,357,948 – – 240,777,613 Property, Plant and Equipment – – – – 852,960,574 852,960,574 Intangible Assets – – – – 283,027,619 283,027,619 Deferred Tax Assets – – – – 159,355,340 159,355,340

Total Assets 11,086,921,076 3,960,394,106 4,443,259,232 1,662,983,604 2,244,297,673 23,397,855,691

Liabilities Derivative Financial Liabilities 3,113,249 17,511 – – – 3,130,759 Due to Customers 4,189,135,320 7,029,814,230 2,070,892,224 1,979,828,709 2,713,441,097 17,983,111,581 Other Financial Liabilities 283,374,793 1,367,544 6,077,484 – – 290,819,822 Other Non Financial Liabilities 13,688,807 – – – – 13,688,807 Deferred Benefit Liabilities – – – – 45,071,342 45,071,342

Total Liabilities 4,489,312,169 7,031,199,285 2,076,969,709 1,979,828,709 2,758,512,439 18,335,822,311

Maturity Gap 6,597,608,907 (3,070,805,179) 2,366,289,523 (316,845,104) (514,214,766) 5,062,033,380 201 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

Up to 3 Months 3 - 12 Months 1 - 3 Years 3 - 5 Years Over 5 Years Total As at 31.12.2012 Rs. Rs. Rs. Rs. Rs. Rs.

Cash and Cash Equivalents 3,866,793,015 – – – – 3,866,793,015 Balances with Central Bank of Sri Lanka 507,159,746 325,564,462 7,590,658 6,209,758 18,769,590 865,294,214 Derivative Financial Assets 95,022,813 9,158,763 – – – 104,181,576 Placements with Banks 825,235,383 – – – – 825,235,383 Balances with Licensed Finance Companies 1,342 1,661,225,412 – – – 1,661,226,754 Financial Investments - Held for Trading 59,768,906 – – – – 59,768,906 Financing and Receivables to Other Customers 1,570,602,870 3,003,984,589 1,728,396,690 754,510,925 107,965,945 7,165,461,019 Financial Investments - Available for Sale – – 207,675,612 – 278,447,000 486,122,612 Other Financial Assets 308,104,111 236,017,927 9,371,000 – – 553,493,038 Other Non Financial Assets 52,476,980 62,644,646 117,137,118 – – 232,258,744 Property, Plant and Equipment – – – – 636,709,910 636,709,910 Intangible Assets – – – – 224,382,174 224,382,174 Deferred Tax Assets – – – – 36,496,739 36,496,739

Total Assets 7,285,165,167 5,298,595,799 2,070,171,077 760,720,682 1,302,771,357 16,717,424,084

Liabilities Derivative Financial Liabilities 4,978,614 – – – – 4,978,614 Due to Customers 7,599,913,638 4,773,741,592 508,811,208 96,969,740 323,065,274 13,302,501,452 Other Financial Liabilities 303,048,605 1,187,683 – – – 304,236,288 Other Non Financial Liabilities 13,843,550 – – – – 13,843,550 Deferred Benefit Liabilities – – – – 20,648,680 20,648,680

Total Liabilities 7,921,784,408 4,774,929,274 508,811,208 96,969,740 343,713,954 13,646,208,584

Maturity Gap (636,619,241) 523,666,525 1,561,359,869 663,750,943 959,057,403 3,071,215,500 202 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

37. COMMITMENTS AND CONTINGENCIES

37.1 CAPITAL EXPENDITURE COMMITMENTS The Bank does not have significant capital commitments as at the reporting date.

37.2 CONTINGENCIES In the normal course of business the Bank makes various irrevocable commitments and incurs certain contingent liabilities with legal recourse to its customers. Even though these obligations are not recognised on the Statement of Financial Position, they do contain credit risk and therefore form part of the overall risk profile of the Bank.

2013 2012 Rs. Rs.

Commitments on Direct Advances and Indirect Advances Commitments for unutilised facilities 2,866,655,941 3,319,419,425

2,866,655,941 3,319,419,425

Contingent Liabilities Letters of Credit 397,523,888 948,181,706 Guarantees, Bonds 608,800,744 839,971,278 Acceptances 658,574,095 510,794,828 Bills for Collection 233,454,516 81,134,059

1,898,353,243 2,380,081,870

Forward Foreign Exchange Transactions Forward promissory sales 2,876,008,861 4,443,966,124 Forward promissory purchases – 977,880,304

2,876,008,861 5,421,846,428

Total Commitment and Contingencies 7,641,018,045 11,121,347,724

38. RELATED PARTY DISCLOSURES

38.1 PARENT AND ULTIMATE CONTROLLING PARTY The Bank does not have an identifiable parent of its own. 203 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

38.2 TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL (KMP) Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any Director of that entity. Accordingly, the Board of Directors of the Bank and Members of the Corporate Management Team have been identified as ‘Key Management Personnel’ of the Bank.

2013 2012 Rs. Rs.

Key Management Personnel Compensation Short Term Employee Benefits 144,305,496 109,079,608

38.3 TRANSACTIONS, ARRANGEMENTS AND AGREEMENTS INVOLVING KMPs AND THEIR CLOSE FAMILY MEMBERS (CFMs) Close members of the family of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity. They may include: the individual's domestic partner and children; children of the individual's domestic partner; and dependents of the individual or the individual's domestic partner.

2013 2012 Rs. Rs.

Statement of Financial Position Financing and Receivables to Other Customers 43,747,270 53,269,620 Due to Other Customers 64,630,157 40,875,573

Income Statement Financing Income 2,928,031 3,493,650 Financing Expenses 4,186,613 1,415,493

38.4 TRANSACTION, ARRANGEMENTS AND AGREEMENTS INVOLVING ENTITIES WHICH ARE CONTROLLED AND/ OR SIGNIFICANTLY INFLUENCED BY THE KMP OR THEIR CFM

2013 2012 Rs. Rs.

Statement of Financial Position Financing and Receivables to Other Customers 6,259,559 19,249,873 Due to Other Customers 7,539,573 5,869,785

Income Statement Financing Income 1,104,159 1,412,398 Financing Expenses 22,598,284 117,769

Commitment and Contingencies Undrawn Facilities 34,676,344 – Letters of Credit – 29,135,842 Letters of Guarantee and Shipping Guarantees 50,812,531 19,392,425 LC Acceptance 6,053,110 15,363,868 204 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

38.5 TRANSACTIONS WITH ENTITIES WITH SIGNIFICANT INFLUENCE OVER THE BANK

2013 2012 Rs. Rs. Bank Balances – 1,279,205,104 Letters of Guarantee and Shipping Guarantees – 639,500

39. INVESTMENT FUND ACCOUNT In terms of Budget Proposals 2011, the Bank has made transfers to the Investment Fund Account to build up a permanent fund within the Bank.

39.1 UTILISATION OF INVESTMENT FUND ACCOUNT

2013 2012 Rs. Rs.

Balance Available for Utilisation 39,416,784 28,460,610 Total Disbursement 35,200,000 17,700,000

40. EVENTS AFTER REPORTING DATE Subsequent to an Initial Public Offering that was concluded on 24 December 2013, the Bank listed its 1,250,695,267 ordinary shares on the Colombo Stock Exchange on 29 January 2014. Subscriptions received at the Initial Public Offering amounting to 235,712,400 shares were fully allotted.

Other than the above there were no events after the reporting date which requires adjustments to or disclosures in Financial Statements.

41. MATERIAL LITIGATION AGAINST THE BANK As at the reporting date, there are no litigation matters pending or threatened against the Bank. 205 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Compliance with Other Correspondent Banks 213 Branch Network 214 Disclosure Requirements Glossary of Terms 215 Notice of Annual General Meeting 217 Specified by the Central Bank of Sri Lanka

The following explains the Other Disclosure Requirements under the prescribed format issued by the Central Bank of Sri Lanka for the Preparation of Annual Financial Statements of Licensed Commercial Banks.

1. INFORMATION ABOUT THE SIGNIFICANCE OF FINANCIAL INSTRUMENTS FOR FINANCIAL POSITION AND PERFORMANCE 1.1 STATEMENT OF FINANCIAL POSITION 1.1.1 Disclosures on categories of financial assets and financial liabilities. Note 14 to the Financial Statements - Analysis of Financial Assets and Liabilities by Measurement Basis 1.1.2 Other Disclosures (i) Special disclosures about financial assets and financial liabilities designated to be measured Note 34 to the Financial Statements - Fair Value of at fair value through profit or loss, including disclosures about credit risk and market risk, Financial Assets and Liabilities changes in fair values attributable to these risks and the methods of measurement. (ii) Reclassifications of financial instruments from one category to another. Not Applicable (iii) Information about financial assets pledged as collateral and about financial or non financial Not Applicable assets held as collateral. (iv) Reconciliation of the allowance account for credit losses by class of financial assets. Note 21.4 - Impairment Allowance for Financing and Receivables to Other Customers (v) Information about compound financial instruments with multiple embedded derivatives. Not Applicable (vi) Breaches of terms of loan agreements. None

1.2 STATEMENT OF COMPREHENSIVE INCOME 1.2.1 Disclosures on items of income, expense, gains and losses. Notes 4 - 12 to the Financial Statements 1.2.2 Other Disclosures (i) Total financing income and total financing expense for those financial instruments that are Notes 4 and 5 to the Financial Statements - Financing not measured at fair value through profit and loss. Income and Financing Expenses (ii) Fee income and expense. Note 6 to the Financial Statements - Net Fee and Commission Income (iii) Amount of impairment losses by class of financial assets. Note 9 to the Financial Statements - Impairment for Financing and Receivables to Other Customers and Financial Assets (iv) Financing income on impaired financial assets. Note 4 to the Financial Statements - Financing Income

1.3 OTHER DISCLOSURES 1.3.1 Accounting policies for financial instruments. Notes 2.3.4, 2.3.5 and 2.3.15 to the Financial Statements - Derivative Financial Instruments and Non-Derivative Financial Instruments 1.3.2 Information on hedge accounting Not Applicable Information about the fair values of each class of financial asset and financial liability, along with: (i) Comparable carrying amounts. Note 34 to the Financial Statements - Fair Value of (ii) Description of how fair value was determined. Financial Assets and Liabilities (iii) The level of inputs used in determining fair value. (iv) (a) Reconciliations of movements between levels of fair value measurement hierarchy. Not Applicable (b) Additional disclosures for financial instruments that fair value is determined using level 3 inputs. Not Applicable (v) Information if fair value cannot be reliably measured. Not Applicable 206 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

2. INFORMATION ABOUT THE NATURE AND EXTENT OF RISKS ARISING FROM FINANCIAL INSTRUMENTS 2.1 QUALITATIVE DISCLOSURES 2.1.1 Risk exposures for each type of financial instrument. Note 35 to the Financial Statements - Risk Management 2.1.2 Management’s objectives, policies, and processes for managing those risks. Note 35 to the Financial Statements - Risk Management and please refer section relating to ‘Risk Management’ in the Annual Report for additional information 2.1.3 Changes from the prior period. Not Applicable

2.2 QUANTITATIVE DISCLOSURES 2.2.1 Summary of quantitative data about exposure to each risk at the reporting date. Note 35 to the Financial Statements - Risk Management 2.2.2 Disclosures about credit risk, liquidity risk, market risk, operational risk, rate risk and Note 35 to the Financial Statements - Risk Management how these risks are managed. and please refer section relating to ‘Risk Management’ in the Annual Report for additional information (i) Credit Risk (a) Maximum amount of exposure (before deducting the value of collateral), description of collateral, information about credit quality of financial assets that are neither past due nor impaired and information about credit quality of financial assets. (b) For financial assets that are past due or impaired, disclosures on age, factors considered in Note 35.3 to the Financial Statements - Credit Risk determining as impaired and the description of collateral on each class of financial asset. (c) Information about collateral or other credit enhancements obtained or called. (d) Other disclosures as per the Banking Act Direction No. 7 of 2011 on Integrated Risk Management Framework for Licensed Banks (Section H). (ii) Liquidity Risk (a) A maturity analysis of financial liabilities. Note 35.4 to the Financial Statements - Liquidity Risk and Funding Management (b) Description of approach to risk management. Note 35.4 to the Financial Statements - Liquidity Risk and Funding Management (c) Other disclosures as per the Banking Act Direction No. 7 of 2011 on Integrated Risk Note 35.4 to the Financial Statements - Liquidity Risk Management Framework for Licensed Banks (Section H). and Funding Management and please refer section relating to ‘Risk Management’ in the Annual Report for additional information (iii) Market Risk (a) A sensitivity analysis of each type of market risk to which the entity is exposed. (b) Additional information, if the sensitivity analysis is not representative of the entity’s risk exposure. Notes 35.5, 35.6 and 35.7 to the Financial Statements - Market Risk (c) Other disclosures as per the Banking Act Direction No. 7 of 2011 on Integrated Risk Management Framework for Licensed Banks (Section H). (iv) Operational Risk disclosures as per the Banking Act Direction No. 7 of 2011 on Integrated Risk Please refer section relating to ‘Risk Management’ in the Management Framework for Licensed Banks (Section H). Annual Report (v) Equity Risk in the Banking Book (a) Qualitative Disclosures - Differentiation between holdings on which capital gains are expected and those taken Note 35.8 to the Financial Statements - Equity Price under other objectives including for relationship and strategic reasons. Risk and please refer section relating to ‘Risk Management’ in the Annual Report - Discussion of important policies covering the valuation and accounting of equity holdings Summary of Significant Accounting Policies Note 2.3.5 (c) in the banking book. to the Financial Statements (b) Quantitative Disclosures Value disclosed in the Statement of Financial Position of investments, as well as the fair value of Notes 20 and 22 to the Financial Statements - Financial those investments; for quoted securities, a comparison to publicly quoted share values where the Investments - Held for Trading and Financial share price is materially different from fair value, the types and the nature of investments and the Investments - Available for Sale respectively. Also please cumulative realised gains/(losses) arising from sales and liquidations in the reporting period. refer Notes 7 and 8 to the Financial Statements - Net Trading Gain and Net Other Operating Income/ (Expenses) 207 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

(vi) Rate Risk in the Banking Book (a) Qualitative Disclosures Nature of rate risk in the banking book and key assumptions. Note 35.5 to the Financial Statements - Market Risk and (b) Quantitative Disclosures please refer section relating to ‘Risk Management’ in the The increase/(decline) in earnings or economic value (or relevant measure used by Annual Report management) for upward and downward rate shocks according to management’s method for measuring rate risk in the banking book broken down by currency (as relevant) 2.2.3 Information on concentrations of risk Note 35.2 to the Financial Statements - Risk Management Structure and please refer section relating to ‘Risk Management’ in the Annual Report

3. OTHER DISCLOSURES 3.1 CAPITAL 3.1.1 Capital Structure (i) Qualitative Disclosures Summary information on the terms and conditions of the main features of all capital instruments, Note 33 to the Financial Statements - Stated Capital and especially in the case of innovative, complex or hybrid capital instruments. please refer Capital Adequacy Computation on page 208 of the Annual Report. (ii) Quantitative Disclosure (a) The amount of Tier I capital, with separate disclosure of - Paid-up share capital/common stock - Reserves - Non-controlling interests in the equity of subsidiaries - Innovative instruments - Other capital instruments - Deductions from Tier I capital (b) The total amount of Tier II and Tier III capital (c) Other deductions from capital Please refer Capital Adequacy Computation on page 208 (d) Total eligible capital of the Annual Report 3.1.2 Capital Adequacy (i) Qualitative Disclosures A summary discussion of the Bank's approach to assessing the adequacy of its capital to support current and future activities. (ii) Quantitative Disclosures (a) Capital requirements for credit risk, market risk and operational risk (b) Total and Tier I Capital Ratio

DISCLOSURE IN TERMS OF BANKING ACT DIRECTION NO. 11 OF 2007 ON CORPORATE GOVERNANCE OF LICENSED COMMERCIAL BANKS, THE FOLLOWING DISCLOSURES ARE MADE

1. NET ACCOMMODATION TO KEY MANAGEMENT PERSONNEL AND RELATED PARTIES IN TERMS OF CBSL REQUIREMENTS Net accommodation granted to Key Management Personnel and Companies having a substantial interest amounted to LKR 43,747,270/- and LKR 97,801,544/- (2012 - LKR 53,269,620/- and LKR 277,032,611/-) which represent 0.92% and 2.1% (2012 - 1.9% and 9.7%) of the Regulatory Capital respectively.

2. NATURE OF RELATIONSHIPS (a) The Chairman and the CEO - None (b) Among the members of the Board - The Chairman is related to one of the Directors, Dr. A.A.M. Haroon by family ties. - Mr. Jazri Magdon Ismail is related to one of the Directors, Mr. Ruzly Hussain. 208 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Capital Adequacy Statement of Changes in Equity 156 Statement of Cash Flows 157 Computation Notes to the Financial Statements 158

CAPITAL BASE AS AT 31 DECEMBER 2013

Basel II LKR ’000 Tier I Paid Up Ordinary Shares/Stated Capital 5,866,808 Statutory Reserve Fund 7,300 Published Retained Profits (700,963) General and Other Reserves (46,664) Net Deferred Tax Assets (159,355) Other Intangible Assets (283,028) 50% Investments in the Capital of Other Banks and Financial Institutions (1,497)

Total Tier I Capital 4,682,601

Tier II Revaluation Reserves General Provisions 75,425 Debentures – 50% Investments in the Capital of Other Banks and Financial Institutions (1,497)

Total Tier II Capital 73,928

Total Tier I and Tier II Capital 4,756,529

Capital Base 4,756,529

Computation of Ratios Core Capital (Tier I) 4,682,601 Total Capital Base 4,756,529

Risk-Weighted Assets Risk-Weighted Amount for Credit Risk 19,376,482 Risk-Weighted Amount for Market Risk 1,608,940 Risk-Weighted Amount for Operational Risk 1,101,330

Total Risk-Weighted Amount 22,086,751

Core Capital Ratio (Minimum Requirement 5%) Total Tier I Capital 4,682,601 Total Risk-Weighted Assets 22,086,751 21.2%

Total Capital Ratio (Minimum Requirement 10%) Total Capital 4,756,529 Total Risk-Weighted Assets 22,086,751 21.5% 209 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

COMPUTATION OF RISK-WEIGHTED AMOUNT FOR CREDIT RISK - (BASEL II)

ON-BALANCE SHEET EXPOSURES

As at 31 December 2013 Balance Risk Risk-Adjusted Weights Balance LKR ’000 % LKR ’000

Assets - Exposures - To Central Government and CBSL 685,320 0 0 - To Public Sector 183,518 20-150 183,518 - To Banks 3,233,237 20-150 1,858,547 - To Financial Institutions 650,001 20-150 130,001 - To Corporates 7,280,008 20-150 7,003,927 - To Retail Sector 3,535,840 75-100 3,138,738 - Secured on Residential Property Mortgages 1,595,413 50-100 1,447,887 - Classified as Non-Performing Advances 265,989 50-150 367,648 - Claims Secured by Commercial Real Estate 2,570,535 100 2,570,535 - Cash Items 938,356 0-20 0 - Other Assets 1,339,008 100 1,339,008

Total Assets 22,277,225 18,039,809

OFF-BALANCE SHEET EXPOSURES

As at 31 December 2013 Amount of Credit Credit Risk Risk Off-Balance Conversion Equivalent Weights Adjusted Sheet Items Factor Amount Balance LKR ’000 % LKR ’000 % LKR ’000

Direct Credit Substitutes General Guarantees of Indebtedness 448,736 100 448,736 0-100 447,236 Transaction-Related Contingencies Performance Bonds, Bid Bonds and Warranties 147,696 50 73,848 0-100 73,848 Others – 50 – 0-100 Short-Term Self-Liquidating Trade-Related Contingencies Shipping Guarantees 12,368 20 2,474 0-100 2,474 Documentary Letters of Credit 397,524 20 79,505 0-100 78,863 Trade-Related Acceptances 658,574 20 131,715 0-100 131,715 Undrawn Term Financing 2,866,656 20 573,331 0-150 567,861 Others 103,456 20 20,692 0-100 20,450 Foreign Exchange Contracts 2,876,009 2 57,520 0-100 14,225

Total Off-Balance Sheet Exposures 14,606,094 1,387,821 1,336,672 210 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

COMPUTATION OF RISK-WEIGHTED AMOUNT FOR MARKET RISK As at 31 December 2013 Capital Charge Risk Adjusted Balance LKR ’000 LKR ’000

Rate – – Equity 153,101 1,531,010 Foreign Exchange and Gold 7,793 77,930

Total Risk Adjusted Balance for Market Risk 160,894 1,608,940

COMPUTATION OF RISK-WEIGHTED AMOUNT FOR OPERATIONAL RISK

Average Gross Income 734,220 – 15% of Average Gross Income 110,133 –

Total Risk Adjusted Balance for Operational Risk 110,133 1,101,330 211 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Shareholder Information Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

As at 31 December 2013

ANALYSIS I

Resident Non-Resident Total

Range of Shareholding No. of No. of Shares % No. of No. of Shares % No. of No. of Shares % Shareholders Shareholders Shareholders

1 - 1,000 311 302,312 0.03 – – 0.00 311 302,312 0.03 1,001 - 10,000 1,421 6,769,592 0.67 1 2,000 0.00 1,422 6,771,592 0.67 10,001 - 100,000 986 38,237,682 3.77 5 248,890 0.02 991 38,486,572 3.79 100,001 - 1,000,000 201 66,872,144 6.59 7 2,335,323 0.23 208 69,207,467 6.82 1,000,001 and Above 15 243,199,935 23.96 13 657,014,989 64.73 28 900,214,924 88.69

Total 2,934 355,381,665 35.00 26 659,601,202 65.00 2,960 1,014,982,867 100.00

ANALYSIS II

Individuals Institutions Total

Range of Shareholding No. of No. of Shares % No. of No. of Shares % No. of No. of Shares % Shareholders Shareholders Shareholders

1 - 1,000 311 302,312 0.0 – – – 311 302,312 0.0 1,001 - 10,000 1,418 6,747,592 0.7 4 24,000 0.0 1,422 6,771,592 0.7 10,001 - 100,000 973 37,338,796 3.7 18 1,147,776 0.1 991 38,486,572 3.8 100,001 - 1,000,000 193 61,765,011 6.1 15 7,442,456 0.7 208 69,207,467 6.8 1,000,001 and Above 15 93,939,176 9.3 13 806,275,748 79.4 28 900,214,924 88.7

Total 2,910 200,092,887 19.7 50 814,889,980 80.3 2,960 1,014,982,867 100.0 212 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

TOP 20 SHAREHOLDERS

No. Name No. of Shares %

1. Bank Islam Malaysia Berhad 180,562,011 17.79 2. AB Bank Limited 180,562,010 17.79 3. Akbar Brothers (Pvt) Limited 120,374,674 11.86 4. Islamic Development Bank 120,374,673 11.86 5. Expolanka Holdings PLC 90,281,006 8.89 6. Millennium Capital Investment (PTE.) Limited 43,056,201 4.24 7. Trans Asia Trading Company 33,756,280 3.33 8. Mr. Kevin Mark Pocock 27,084,302 2.67 9. Mr. Afzal Majid Alimohamed 19,498,122 1.92 10. Mr. Khaldoon Al Asmar 14,722,200 1.45 11. ABC International Limited 11,920,000 1.17 12. Peteroa Limited 9,200,013 0.91 13. Mrs. Nabila Qureshi 6,534,733 0.64 14. Al Bogari Islamic Gold DMCC 5,300,000 0.52 15. Mr. Mohammad Muslim Salahudeen 4,666,667 0.46 16. Sandwave Limited 4,444,444 0.44 17. Lucky Industries (Pvt) Limited 4,444,436 0.44 18. Mr. Kali Mudiyanselagedara Seyed Mohamed Rasan Mohamed 3,500,000 0.34 19. Mr. Kali Mudiyanselagedara Seyed Mohamed Rajubudeen 3,500,000 0.34 20. Mr. Kali Mudiyanselagedara Seyed Mohamed Razeek 3,500,000 0.34 Total of Top 20 887,281,772 87.4 Others (2,940 Shareholders) 127,701,095 12.6

TOTAL 1,014,982,867 100.0 213 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Correspondent Banks Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

Netherlands United Kingdom Germany Switzerland China United States of America Italy Korea Turkey Japan Bahrain Kuwait Qatar Egypt Pakistan Hong Kong Saudi Arabia India UAE Bangladesh Malaysia

Singapore Indonesia

Country Name of the Bank SWIFT Code Country Name of the Bank SWIFT Code

Pakistan Meezan Bank Limited - Karachi, Pakistan MEZNPKKA Bangladesh AB Bank Limited - Dhaka, Bangladesh ABBLBDDH Standard Chartered Bank - Karachi, Pakistan SCBLPKKX Bahrain Mashreq Bank PSC - Manama, Bahrain BOMLBHBM Qatar Mashreq Bank - Doha, Qatar MSHQQAQA China Deutsche Bank (China) Company Limited - DEUTCNBJ Beijing, China Standard Chartered Bank - Doha, Qatar SCBLQAQX Standard Chartered Bank - Shanghai, China SCBLCNSX Saudi Arabia Bank Al-Jazira - Jeddah, Saudi Arabia BJAZSAJE Egypt Mashreq Bank - Cairo, Egypt MSHQEGCA Deutsche Bank AG - Riyadh Branch, DEUTSARI Saudi Arabia Germany Commerzbank AG - Frankfurt, Germany COBADEFF Singapore DBS Bank Limited - Singapore DBSSSGSG Commerzbank AG - Hamburg, Germany COBADEHH Deutsche Bank AG - Singapore DEUTSGSG Deutsche Bank AG - Frankfurt, Germany DEUTDEFF UBAF Singapore UBAFSGSX Hong Kong Mashreq Bank PSC - Hong Kong Branch, MSHQHKHH Hong Kong Switzerland Habib Bank AG Zurich - Zurich, Switzerland HBZUCHZZ UBAF (Hong Kong) Limited - Hong Kong UBAFHKHX Turkey Turkiye Finans Katilim Bankasi A.S. - AFKBTRIS Istanbul, Turkey India AB Bank Limited - Mumbai, India ABBLINBB Turkiye Garanti Bankasi A.S. - TGBATRIS Mashreq Bank - Mumbai, India MSHQINBB Istanbul, Turkey Standard Chartered Bank - Mumbai, India SCBLINBB UAE Al Hilal Bank - Abu Dhabi, UAE HLALAEAA Indonesia Standard Chartered Bank - Jakarta, Indonesia SCBLIDJX Dubai Islamic Bank - Dubai, UAE DUIBAEAD Italy Banca UBAE SPA - Roma, Italy UBAIITRR Mashreq Bank PSC - Dubai, UAE BOMLAEAD Japan UBAF Tokyo Branch, Tokyo, Japan UBAFJPJX Standard Chartered Bank - Dubai, UAE SCBLAEAD Korea UBAF Seoul, Korea UBAFKRSX UK Bank of Ceylon - London, United Kingdom BCEYGB2L Kuwait Mashreq Bank PSC - Kuwait MSHQKWKW Deutsche Bank Trust Company Americas - BKTRGB2L Malaysia Bank Islam Malaysia Berhad, Kuala Lumpur, BIMBMYKL London, United Kingdom Malaysia Mashreq Bank PSC - London, United Kingdom MSHQGB2L Citibank Berhad - Kuala Lumpur, Malaysia CITIMYKL Standard Chartered Bank - London, SCBLGB2L Malayan Banking Berhad (Maybank) - Kuala MBBEMYKL United Kingdom Lumpur, Malaysia USA Deutsche Bank AG - New York, USA BKTRUS33 Netherlands Commerzbank AG - Kantoor, Amsterdam, COBANL2X Mashreq Bank PSC - New York, USA MSHQUS33 Netherlands Standard Chartered Bank - New York, USA SCBLUS33 214 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Branch Network Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

MAIN BRANCH 480, Galle Road, Colombo 3 KURUNEGALA 137, Puttalam Road, Kurunegala Telephone: 011-7756000 Telephone: 037-7756014 Fax: 011-4718148 Fax: 037-2221925

PETTAH 129, Main Street, Colombo 11 AKKARAIPATTU 240-1B, Main Street, Akkaraipattu Telephone: 011-7756002 Telephone: 067-7756015 Fax: 011-2380688 Fax: 067-2279319

KANDY 105, Kotugodella Street, Kandy DEHIWALA 28, Galle Road, Dehiwala, Telephone: 081-7756003 Telephone: 011-7756016 Fax: 081-2200238 Fax: 011-2722505

KATTANKUDY 187, Main Street, Kattankudy NINTHAVUR 40/5, Main Street, Ninthavur 24 Telephone: 065-7756004 Telephone: 067-7756017 Fax: 065-2247399 Fax: 067-2251591

LADIES BRANCH 480, Galle Road, Colombo 3 KULIYAPITIYA 215-1/1, Main Street, Kuliyapitiya Telephone: 011-7756381 Telephone: 037-7756018, Fax: 011-7756389 Fax: 037-2282280

KALMUNAI 32, Main Street, Kalmunai ERAVUR 108/5, Punnakuda Road, Eravur Telephone: 067-7756006 Telephone: 065-7756019, Fax: 067-2223599 Fax: 065-2241410

GALLE 158, Main Street, Galle NEGOMBO 97, Colombo Road, Negombo Telephone: 091-7756008 Telephone: 031-7756020 Fax: 091-2226610 Fax: 031-2231765

ODDAMAWADI Main Street, Mawadichenai BADULLA 18/1, Lower Kings Street, Badulla Telephone: 065-7756009 Telephone: 055-7756021 Fax: 065-2258099 Fax: 055-2228280

AKURANA 91E, Matale Road, Akurana KADURUWELA 379, Main Street, Kaduruwela Telephone: 081-7756010 Telephone: 027-7756022 Fax: 081-2304761 Fax: 027–2227009

GAMPOLA 119, Kandy Road, Gampola PUTTALAM 23 , Colombo Road, Puttalam Telephone: 081-7756011 Telephone: 032-7756024 Fax: 081-2350786 Fax: 032-2267188

SAMMANTHURAI 43/2, Main Street, Sammanthurai KINNIYA 264, Main Street, Kinniya Telephone: 067-7756012 Telephone: 026-7756025 Fax: 067-2261299 Fax: 026-2236656

MAWANELLA 22B, New Kandy Road, Mawanella RATNAPURA 131-133, Main Street, Ratnapura Telephone: 035-7756013 Telephone: 045-7756023 Fax: 035-2248181 Fax: 045-2230245 215 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Glossary of Terms Correspondent Banks 213 Branch Network 214 Glossary of Terms 215 Notice of Annual General Meeting 217

A Capital Reserve D Expected Loss (EL) Accounting Policies A reserve identified for specific purposes Dealing Securities A regulatory calculation of the amount The specific principles, bases, conventions, which is not available for distribution Securities acquired and held with the expected to be lost on an exposure using a rules and practices adopted by an entity intention of reselling them in the short term 12 month time horizon and downturn loss in preparing and presenting Financial Cash Equivalents estimates. EL is calculated by multiplying Statements Short term highly liquid investments that Deferred Taxation the probability of default by the exposure at are readily convertible to known amounts Sum set aside for income tax in the Financial default and loss given default Accrual Basis of cash and which are subject to an Statements that may become payable/ Recognising the effects of transactions insignificant risk of changes in value receivable in a financial year other than the F and other events when they occur without current financial year. It arises because of Fair Value waiting for receipt or payment of cash or its Collectively Assessed Impairment timing differences between tax rules and Fair value is the amount for which an equivalent Impairment assessment on a collective basis accounting conventions asset could be exchanged between a for homogeneous groups of advances that knowledgeable, willing buyer and a Actuarial Gains and Losses are not considered individually significant Depreciation knowledgeable, willing seller in an arm’s Actuarial gains and losses comprise the and to cover losses which have been The systematic allocation of the depreciable length transaction effects of differences between the previous incurred but have not yet been identified on amount of an asset over its useful life actuarial assumptions and what has actually advances subject to individual assessment Fair Value Adjustment occurred and the effects of changes in Derivatives An adjustment to the fair value of a financial actuarial assumptions Commitments A derivative is a financial instrument instrument which is determined using a Credit facilities approved but not yet utilised or other contract, the value of which valuation technique to include additional Actuarial Valuation by customers as at the Balance Sheet date changes in response to some underlying factors that would be considered by a market Fund value as determined by computing variable that has an initial net investment Contingencies participant that are not incorporated within its normal cost, actuarial accrued liability, smaller than would be required for other the valuation model actuarial value of assets and other relevant A condition or situation, the ultimate instruments that have a similar response costs and value outcome of which, gain or loss, will be to the variable, and that will be settled at Financial Asset or Financial Liability at confirmed only by occurrence or non- a future date Fair Value through Profit or Loss Acceptances occurrence of one or more future events Financial asset or financial liability that is Promise to pay created when the drawee Derecognition held for trading or upon initial recognition Contractual Maturity of a time draft stamps or writes the words Removal of a previously recognised financial designated by the entity as ‘at Fair Value Contractual maturity refers to the final ‘accepted’ above his signature and a asset or financial liability from an entity’s through Profit or Loss’ designated payment date payment date of a facility or other financial Statement of Financial Position instrument, at which point all the remaining Financial Assets Amortisation outstanding principal will be repaid and E Any asset that is cash, an equity instrument The systematic allocation of the depreciable financing charges is due to be paid Earnings Per Share (EPS) of another entity or a contractual right to amount of an intangible asset over its Profit attributable to ordinary shareholders, receive cash or another financial asset from Corporate Governance useful life divided by the weighted average number of another entity The process by which corporate entities ordinary shares in issue Available for Sale are governed. It is concerned with the Financial Instruments Available for sale investments are non- way in which power is exercised over the Effective Profit Rate (EPR) Any contract that gives rise to a financial derivative financial assets that are not management and the direction of the Bank, The rate that exactly discounts estimated assets of one entity and financial liability or designated as financing and receivables, held the supervision of executive actions and future cash payments or receipts through equity instrument of another entity to maturity or fair value through profit or accountability to stakeholders the expected life of the financial instrument loss. It does not necessarily mean that the or, when appropriate, a shorter period to the Financial Liability Correspondent Bank Bank is holding the investments for disposal net carrying amount of the financial asset or Financial liability is a contractual obligation A bank in a foreign country that offers in the short term financial liability to deliver cash to another entity or to banking facilities to customers of a bank in exchange financial assets or financial B another country Effective Tax Rate liabilities with another entity under Bills of Collection The Effective Tax Rate is computed by conditions that are potentially unfavourable Cost/Income Ratio A bill of exchange drawn by an exporter dividing the total tax expenses by the Bank’s to the entity Operating expenses compared to net income usually at a term, on an importer overseas Profit Before Tax Financing and Receivable and brought by the exporter to his bank with Credit Risk Equity Instrument Non-derivative financial assets with fixed a request to collect the proceeds Credit risk is the risk that the Bank will An equity instrument is any contract that or determinable payments that are not incur a loss because its customers or C evidences a residual interest in the assets of quoted in an active market other than those counterparties fail to discharge their Capital Gain an entity after deducting all of its liabilities intended to sell immediately or in the near contractual obligations The gain on the disposal of an asset calculated term and designated as fair value through Equity Risk by deducting the cost of the asset from the Currency Risk profit or loss or available for sale on initial The risk arising from positions, either proceeds received on its disposal The risk that the fair value or future cash recognition long or short, in equities or equity based flows of a financial instrument will fluctuate Capital Adequacy Ratio (CAR) instruments, which create exposure to a Foreign Exchange Income because of changes in foreign exchange rates The ratio between capital and risk-weighted change in the market price of the equities or The gain recorded when assets or liabilities assets as defined in the standards developed Customer Deposits equity instruments denominated in foreign currencies are by the Bank for International Settlement Money deposited by account holders. Such translated into Sri Lankan Rupees on the Events After the Reporting Date (BIS) and as modified by the Central Bank funds are recorded as liabilities reporting date at prevailing rates which of Sri Lanka Events after the Reporting Date are those differ from those rates in force at inception events, both favourable and unfavourable, or on the previous reporting date. Foreign that occur between the Reporting date and exchange income also arises from trading in the date when the Financial Statements are foreign currencies authorised for issue 216 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

Forward Exchange Contracts Intangible Asset N Rights Issue An agreement between two parties to An identifiable non-monetary asset without Net Realisable Value Issue of shares to the existing shareholders exchange one currency for another at a physical substance The estimated selling price in the ordinary at an agreed price, generally lower than future date at a rate agreed upon today course of the business, less the estimated market price Investing Activities cost of completion and the estimated Financial Guarantee Contracts The acquisition and disposal of long term necessary costs to make the sale Risk Weighted Assets A contract that requires the issuer to make assets and other investments not included in On Balance Sheet assets and the credit specified payments to reimburse the holder cash equivalents Non-Performing Advance Ratio equivalent of off Balance Sheet assets for a loss it incurs because a specified Non-Performing advances expressed as a multiplied by the relevant risk weighting debtor fails to make payment when due in Investment Securities percentage of the total outstanding advances factors accordance with the original or modified Securities acquired and held for yield and/or terms of a debt instrument capital growth O S Off Balance Sheet Transactions Segment Reporting K G Transactions that are not recognised as Segment reporting indicates the General Provisions Key Management Personnel assets or liabilities in the Statement of contribution to the revenue derived from General provisions are established for Key Management Personnel are those Financial Position , but which give rise to business segments advances for anticipated losses on aggregate persons having authority and responsibility commitments and contingencies exposures where credit losses cannot yet be for planning, directing and controlling the Shareholders’ Funds determined on an individual facility basis activities of the entity, directly or indirectly, Operational Risk Shareholders’ funds consist of stated capital including any Director (whether executive or Operational risk refers to the losses arising plus capital and revenue reserves Guarantees otherwise) of the Bank from fraud, negligence, oversight, human A promise made by a third party (Guarantor), error, process errors, system failures, Statutory Reserve Fund who is not a party to a contract between Key Performance Indicators (KPIs) external events, etc A capital reserve created in accordance with two others, that the guarantor will be liable KPIs are quantifiable measurements, agreed the provisions of the Banking Act No. 30 of on behalf of whom the guarantee is issued beforehand that reflect the critical success P 1988 if the individual fails to fulfil the contractual factors of the Bank Provisions T obligations A provision is an amount set aside for L probable, but uncertain, economic Tier I Capital (Core Capital) H Letter of Credit obligations of the Bank Core capital includes stated capital, Held for Trading Written undertakings by a Bank on behalf statutory reserve, retained profits, general Investments that are purchased with the of its customer (typically an importer), Past Due and other reserves intent of selling them within a short period authorizing a third party (e.g. an exporter) to A financial asset is past due when a Tier II Capital (Supplementary Capital) of time draw drafts on the Bank up to a stipulated counterparty has failed to make a payment amount under specific terms and conditions. when contractually due Supplementary Capital includes, approved Historical Cost Convention Such undertakings are established for the revaluation reserves, general provisions and Recording transactions at the actual value purpose of facilitating international trade Probability of Default (PD) hybrid capital instruments received or paid Probability of Default is an internal estimate Liquid Assets for each borrower grade of the likelihood Total Capital Held to Maturity Financial Assets Qualifying assets that are held in cash or in that an obligor will default on an obligation Capital base is the summation of core capital Held to maturity investments are non- a form that can be converted to cash readily, (Tier I) and the supplementary capital (Tier II) derivative financial assets with fixed or such as deposits with other banks, bills of Projected Unit Credit Method Transaction Costs determinable payments and a fixed maturity exchange etc An actuarial valuation method that sees Transaction costs are incremental costs that that an entity has the positive intention and each period of service as giving rise to an are directly attributable to the acquisition, ability to hold to maturity Liquidity Risk additional unit of benefit entitlement and Liquidity risk implies the potential for loss measures each unit separately to build up issue or disposal of a financial asset or I to the Bank due to inability to meets its the final obligation financial liability obligation or to fund the increase in assets as Impairment V This occurs when the recoverable amount of they fall due without incurring high cost R Value Added an asset is less than its carrying amount Related Parties M Parties where one party has the ability to Value added is the wealth created by providing Impairment Allowances Materiality control the other party or exercise significant banking services less the cost of providing such Management’s best estimate of losses The relative significance of a transaction influence over the other party in making services. The value added is allocated among incurred on its assets as at the Reporting or an event, the omission or misstatement financial and operating decisions, directly the employees, the providers of capital, to date of which could influence the economic or indirectly government by way of taxes and retained for decisions of users of Financial Statements expansion and growth. Impairment Charge/(Reversal) Revaluation Reserve The difference between the carrying value of Market Risk Part of the shareholders’ equity that arises Value Added Taxes on Financial an asset and the sum of discounted future Market risk denotes the risk of losses from changes in the current value of Services (VAT on FS) cash flows generating from the same asset arising out of positions in the Statement of property, plant and equipment Value Added Taxes on Financial Services is Financial Position due to changes in market computed based on profit before tax from Individually Assessed Impairment prices Revenue Reserves financial services subject to adjustment for Exposure to loss is assessed individually for Reserves set aside for future distribution and depreciation and emoluments payable to assets that are individually significant above investment employees and Directors a certain threshold 217 Compliance with Other Disclosure Requirements Specified by the Central Bank of Sri Lanka205 Capital Adequacy Computation 208 Amãna Bank Annual Report 2013 Shareholder Information 211 Notice of Annual General Correspondent Banks 213 Branch Network 214 Meeting Glossary of Terms 215 Notice of Annual General Meeting 217

NOTICE IS HEREBY GIVEN THAT the fifth Annual General Meeting of Amãna Bank Limited will be held on Friday, the Twenty Third day of May 2014 at 4.00 p.m. at ‘Anthurium’, Galadari Hotel, 64, Lotus Road, Colombo 1 for the following purposes:

AGENDA 1. To receive and consider the Annual Report of the Board and the Financial Statements of the Company for the financial year ended 31 December 2013 together with the Report of the Auditors thereon. 2. To re-appoint Messrs Ernst & Young, Chartered Accountants, as the Auditors, to hold office until the conclusion of the next Annual General Meeting of the Company at a remuneration to be agreed upon with them by the Board of Directors and to audit the Financial Statements of the Company for the ensuing year. 3. (a) To re-elect Mr. Osman Kassim, a Director who comes up for re-election in terms of Article 29 (6) of the Articles of Association of the Company, and being eligible has offered himself for re-election. (b) To re-elect Mr. Tyeab Akbarally, a Director who comes up for re-election in terms of Article 29 (6) of the Articles of Association of the Company, and being eligible has offered himself for re-election. (c) To re-elect Dato’ Ahamed Tajudin Bin Haji Abdul Rahman, a Director who comes up for re-election in terms of Article 29 (6) of the Articles of Association of the Company, and being eligible has offered himself for re-election. (d) To re-elect Dr. Aboobacker Admani Mohamed Haroon, a Director who comes up for re-election in terms of Article 29 (6) of the Articles of Association of the Company, and being eligible has offered himself for re-election. 4. To re-appoint the Sharia Supervisory Council consisting of: (a) Ash-Sheikh Dr. Muhammad Imran Ashraf Usmani (appointed with effect from 4 July 2013) (b) Ash-Sheik Nazri Bin Chik (c) Ash- Sheik M.M.A. Mubarak (d) Ash-Sheik Mufti M.I.M. Rizwe (e) Ash-Sheik Mufti Muhammad Hassan Kaleem 5. The Shareholders to take note that the Company having become a listed company pursuant to its ordinary voting shares of the Company being listed on the Diri Savi Board of the Colombo Stock Exchange on 29 January 2014 the Company is deemed to have resolved by way of a special resolution to change its name in terms of Section 11 (3) of the Companies Act No. 07 of 2007 from Amãna Bank Limited to Amãna Bank PLC with effect from 29 January 2014. 6. To consider and if thought fit to pass the Resolutions asSpecial Resolution to amend the Articles of Association of the Company as set out in the printed document annexed hereto.

By Order of the Board,

Mrs. P.M. Dunuwille Koralege Company Secretary

Colombo 24 April 2014 218 Independent Auditors’ Report 152 Income Statement 153 Statement of Comprehensive Income 154 Amãna Bank Annual Report 2013 Statement of Financial Position 155 Statement of Changes in Equity 156 Statement of Cash Flows 157 Notes to the Financial Statements 158

ANNEXURE

PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION OF AMÃNA BANK (a) Immediately following subsection (3) of Article 14 of the existing articles, the following subsection be inserted as 14 (4): 14 (4) The accidental omission to give notice to, or the non-receipt of any person entitled thereto, shall not invalidate the proceedings at any general meeting.

(b) Articles 14 (4) and 14 (5) of the existing articles be re-numbered as 14 (5) and 14 (6) and inserted immediately following the aforesaid subsection (4) to Article 14 and be read as follows: 14 (5) If a meeting of shareholders is adjourned for less than thirty (30) days, it is not necessary to give notice of the time and place of the adjourned meeting, other than by announcement at the meeting, which is adjourned. 14 (6) Two (2) or more shareholders holding shares which carry not less than ten per centum (10%) of the votes which may be cast on an issue may call a meeting to consider and vote on that issue only in accordance with the provisions of Section 134 of the Act.

(c) Article 16 (1) of the existing articles be amended by the deletion of the words ‘members’ and be replaced by the words ‘shareholders’ where appropriate so that the amended article reads as follows: 16. Quorum (1) Subject to paragraph (2) of this Article, no business may be transacted at a meeting of shareholders if a quorum is not present: same as herein otherwise provided five (5) shareholders present in person or by proxy, attorney or (in the case of a corporation) by an authorised representative, shall be a quorum for all purposes.

(d) Article 30 (2) of the existing articles be deleted and the following to be inserted ‘The number of Non-Executive Independent Directors should be at least 3 or 1/3 of the number of Directors whichever is higher’ so that the amended article reads as follows: 30 (2) The number of Non-Executive Independent Directors should be at least 3 or 1/3 of the number of Directors whichever is higher’.

(e) Immediately following subsection (4) of Article 42 of the existing articles, the following subsection be inserted as 42 (5) to read as follows: 42 (5) A Director shall abstain from voting on any Board Resolution in relation to which he/she or any of his/her close relation or a concern in which a Director has substantial interest is interested and he/she shall not be counted in the quorum for the relevant agenda item at the Board meeting. Amãna Bank Annual Report 2013 Form of Proxy

I/We* …………………………………………………………………………………………………………………………………………

of ………………………………………………………………………………………………………………………………………………

being a Shareholder/s* of the above named Company, hereby appoint …………………………………………………

………………………………………………………………………………… (NIC No. ………………………………………………)

of ………………………………………………………………………………………………………………………………………… or

1. Mr. Osman Kassim or failing him 2. Mr. Tyeab Akbarally or failing him 3. Mr. Faizal Salieh or failing him 4. Dato’ Ahmad Tajudin Bin Haji Abdul Rahman or failing him 5. Dr. Aboobacker Admani Mohamed Haroon or failing him 6. Mr. Mohamed Jazri Magdon Ismail or failing him 7. Mr. Ruzly Hussain or failing him 8. Mr. Angelo Maharajah Patrick or failing him 9. Mr. Haseeb Ullah Siddiqui or failing him 10. Mr. Jeroen Petrus Margaretha Maria Thijs or failing him 11. Mr. Wahid Ali Bin Mohd Khalil or failing him 12. Mr. Harsha Amarasekera or failing him 13. Mr. Badrul Haque Khan

as my/our* Proxy to represent me/us* and vote for me/us* on my/our* behalf at the Annual General Meeting of the Company to be held on Friday, 23 May 2014 at 4.00 p.m. at ‘Anthurium’, Galadari Hotel, 64, Lotus Road, Colombo 1 and at any adjournment thereof.

Signed this ……………………………………… day of ………………………………………… 2014.

...... Signature

Note : *Please delete the inappropriate words.

Notes 1. A member entitled to attend and vote is entitled to appoint a proxy to attend and vote in his/her place. 2. A proxy need not be a member of the Bank. Amãna Bank Annual Report 2013

INSTRUCTIONS FOR THE COMPLETION OF PROXY FORM 1. The Proxy Form must be duly completed and signed by the member/s in block capitals giving the name and address of shareholder/s and the name, address and NIC of the proxyholder clearly and legibly. Where necessary delete the inapplicable words indicated by asterisk. 2. The completed Form of Proxy should be deposited at the Registered Office of the Company at 480, Galle Road, Colombo 3 (c/o the Company Secretary) not less than 24 hours before the time appointed for the holding of the meeting (by 4.00 p.m. on Thursday, 22 May 2014). 3. If the proxy has been signed by an Attorney, the relative Power of Attorney should accompany the completed Proxy Form for registration, if such Power of Attorney had not been registered with the Company. 4. In the case of a Company/Corporation, the proxy must be under its Common Seal (where applicable) which should be affixed and attested in the manner prescribed by its Articles of Association/Act of Incorporation signed by two Directors or a Director and Secretary of the Company with the Company rubber stamp placed on it. 5. In case of joint shareholders the first named shareholder only can sign the Proxy Form. Corporate Information

Name of the Institution Alternate Directors Board Human Resources and Remuneration Committee Amãna Bank Limited 1. Mr. Huzefa Akbarally - Alternate Director to Mr. Tyeab Akbarally Mr. Osman Kassim - Chairman Legal Form 2. Mr. Khairul Muzamel Perera Abdullah - Alternate Mr. Angelo M. Patrick - Member/Secretary Director to Mr. Jeroen Thijs Mr. Tyeab Akbarally - Member A Public Limited Liability Company incorporated in 3. Dato’ Wan Ismail Wan Yusoh - Alternate Director to Mr. Ruzly Hussain - Member Sri Lanka on 5 February 2009 under the Companies Act Mr. Wahid Ali Khalil Mr. Jazri Magdon Ismail - Member No. 07 of 2007. Commenced business operations as a 4. Mr. Mohamed Faizel Mohamed Haddad - Alternate licensed commercial bank regulated under the Banking Act Director to Mr. Osman Kassim Company Secretary No. 30 of 1988 (as amended) on 1 August 2011. 5. Mr. Kevin Mark Pocock - Alternate Director to Mr. Harsha Amarasekera Mrs. Preeni M. Dunuwille Koralege (LLB) At the recent Offering to the Public, 235,712,400 shares at a Attorney-at-Law price of LKR 7/- each have been subscribed for cash and duly Sharia Supervisory Council allotted to the subscribers. The Bank has now been listed on Auditors the Colombo Stock Exchange with effect from 29 January 2014. (a) Ash-Sheikh Dr. Muhammad Imran Ashraf Usmani (appointed with effect from 4 July 2013) Messrs. Ernst & Young Business (b) Ash-Sheik Nazri Bin Chik Chartered Accountants 201, De Saram Place, Colombo 10 Commercial banking entirely based on Sharia Principles. (c) Ash-Sheik M.M.A. Mubarak Sri Lanka (d) Ash-Sheik Mufti M.I.M. Rizwe Registration Number (e) Ash-Sheik Mufti Muhammad Hassan Kaleem Lawyers PB 3618 Messrs. F J & G De Saram Board Audit Committee Attorneys-at-Law and Notaries Public Registered Office 216, De Saram Place, Colombo 10 Mr. Jazri Magdon Ismail - Chairman Sri Lanka 480, Galle Road, Colombo 3, Sri Lanka Mr. Angelo M. Patrick - Member Tel : (94) - (11) - 7756000 Mr. Ruzly Hussain - Member For investor relations and clarifications on the report, please Fax : (94) - (11) - 4718148 Mr. Wahid Ali Khalil - Member contact: Manager - Investor Relations and SWIFT Board Integrated Risk Management Committee Company Secretarial Division Amãna Bank AMNALKLX Mr. Angelo M. Patrick - Chairman 480, Galle Road, Colombo 3 Mr. Jazri Magdon Ismail - Member Sri Lanka Mr. Jeroen Thijs - Member Web Tel : (94) - (11) - 7757511 Mr. Faizal Salieh - Member (Managing Director/CEO) Mobile : (94) - (77) - 3475087 www.amanabank.lk Email : [email protected] Board Nomination Committee Tax Payer Identification Number (TIN) Mr. Ruzly Hussain - Chairman 134036184 Dr. A.A.M. Haroon - Member Mr. Angelo M. Patrick - Member Mr. Harsha Amarasekera - Member VAT Registration Number Mr. Jazri Magdon Ismail - Member 134036184-7000

Accounting Year End 31 December

Board of Directors 1. Mr. Osman Kassim - Chairman 2 Mr. Tyeab Akbarally - Deputy Chairman 3. Mr. Faizal Salieh - Managing Director/CEO 4. Dato’ Ahamed Tajudin Bin Haji Abdul Rahman - Senior Director 5. Dr. A.A.M. Haroon - Director 6. Mr. Jazri Magdon Ismail - Director 7. Mr. Ruzly Hussain - Director 8. Mr. Angelo M. Patrick - Director 9. Mr. Haseeb Ullah Siddiqui - Director 10. Mr. Jeroen Thijs - Director 11. Mr. Wahid Ali Khalil - Director 12. Mr. Harsha Amarasekera - Director 13. Mr. Badrul Haque Khan - Director

The bee hive illustrations appearing in this report were adapted from the original by REDLIME Amãna Bank

Amãna Bank 480, Galle Road, Colombo 3, Sri Lanka. ANNUAL REPORT 2013 www.amanabank.lk

ANNUAL REPORT 2013