Union Bank of Colombo Union Bank of Colombo PL C - Annual Report- Annual 2018 Union Bank of Colombo PLC Annual Report Head office: 64, Galle Road, Colombo 03, Sri Lanka. +94 11 2374100 | www.unionb.com Corporate Information You can view this Annual Report online on: www.unionb.com NAME OF THE COMPANY AUDITORS Union Bank of Colombo PLC M/s. Ernst & Young, Chartered Accountants, LEGAL FORM No.201, De Saram Place, A Public Limited Liability Company Colombo 10. incorporated in Sri Lanka under the Companies Act No. 17 of 1982 and re-registered under BOARD OF DIRECTORS the Companies Act No. 7 of 2007. Listed as a Atul Malik - Chairman public quoted Company on the Colombo Stock Priyantha Fernando- Deputy Chairman/Senior Director Exchange. A Licensed Commercial Bank under Indrajit Wickramasinghe - Executive Director/ the Banking Act No. 30 of 1988. Chief Executive Officer Sabry Ghouse DATE OF INCORPORATION Ranvir Dewan 2nd February 1995 Gaurav Trehan Puneet Bhatia COMPANY REGISTRATION NUMBER Michael J O’ Hanlon PB 676 PQ Sow Lin Chiew Dilshani Wijayawardana REGISTERED OFFICE Trevine Fernandopulle No. 64, Galle Road, Colombo 03, ALTERNATE DIRECTORS Sri Lanka. Yoke Sun Woon Tel : +94 11 2374100 Keshav Thakkar Fax : +94 11 2370971 E-mail : [email protected] BOARD SECRETARY Website : www.unionb.com Inoka Jayawardhana SWIFT CODE UBCL LK LC VAT REGISTRATION NUMBER 134005610-7000 In a year where many challenges shaped the way we do business, we have remained resilient based on a strong foundation built on our partnerships. At Union Bank, we believe that achieving sustainable growth in times like these calls for innovation, resourcefulness, and agility. During the year, we navigated towards achieving our goals by building stronger bonds and balancing boldness with prudence to deliver value to all our stakeholders. In this endeavour, we remained committed to our national agenda and empowered and enriched lives, whilst adhering to regulatory laws. Our approach throughout the year has strengthened our position as one of Sri Lanka’s fastest growing banks and we are poised for greater things ahead. By being adaptable and prudent, we continue to be buoyant towards building a bank that is sustainable and strong. 1 In this year’s report 1-21 COMPANY AND REPORT OVERVIEW 24-105 MANAGEMENT REPORTS 106-167 STEWARDSHIP 169-315 FINANCIAL REPORTS 316-327 SUPPLementary Information COMPANY AND REPORT OVERVIEW FINANCIAL Reports Cover Story 1 Financial Calendar 169 Financial Highlights 4 Independent Auditors’ Report on Financial Statements 170 Corporate Profile 5 Statement of Profit or Loss 174 Report Profile 8 Statement of Comprehensive Income 175 Stakeholder Engagement 14 Statement of Financial Position 176 Key Performance Indicators 18 Statement of Changes in Equity 177 Sustainability Impacts, Risks and Opportunities 20 Statement of Cash Flows 178 Notes to the Financial Statements 180 Ten Years at a Glance 296 MANAGEMENT REPORTS Pillar III Market Disclosures 298 Chairman’s Message 24 Quarterly Performance of the Bank 309 Chief Executive Officer’s Message 26 2018 - Direct Economic Value Generated & Distributed 310 Management Discussion and Analysis 32 Compliance with Annual Report Disclosure Requirements Corporate Highlights 57 of Central Bank of Sri Lanka 311 Media Highlights 64 Social and Environment Report 68 Subsidiary Update 80 SUPPLementary Information Investor Relations 84 Glossary of Financial Terms 316 Risk Management 90 Branch Network 322 Notice of Meeting 324 Form of Proxy 325 STEWARDSHIP Stakeholder Feedback Form 327 Corporate Governance 106 Corporate Information Inner Back Cover Board Audit Committee Report 132 Integrated Risk Management Committee Report 135 Nomination Committee Report 137 Human Resources and Remuneration Committee Report 138 Related Party Transactions Review Committee Report 139 Annual Report of the Board of Directors on the Affairs of the Bank 140 Directors’ Statement on Internal Control over Financial Reporting 149 Assurance Report on Internal Control 151 GRI Content Index 152 Independent Assurance Report on Sustainability Reporting 154 Board of Directors 156 Profiles of the Board of Directors 158 Leadership Team 162 Assistant Vice Presidents 163 Chief Managers 164 Senior Managers 165 Union Bank | Annual Report 2018 Financial Highlights FINANCIAL HIGHLights BANK GROUP 2018 2017 Change % 2018 2017 Change % Results for the year (Rs.’000) Gross Income 13,910,425 11,937,763 17% 16,075,953 13,899,368 16% Total operating income 5,285,261 4,375,638 21% 6,257,985 5,261,280 19% Results from operating activities 1,213,504 781,837 55% 1,415,180 1,025,536 38% Profit for the year 472,548 460,618 3% 534,650 551,129 -3% Net profit attributable to equity holders of the bank 472,548 460,618 3% 517,750 514,776 1% Gross Dividend 109,141 109,141 0% 158,141 121,391 30% Assets and Liabilities (Rs.’000) Gross loans and advances 75,787,035 71,493,285 6% 85,452,541 80,645,569 6% Customer deposits 79,251,073 70,325,594 13% 86,266,123 76,747,977 12% Total assets 125,920,154 119,007,408 6% 135,031,708 127,600,832 6% Total liabilities 109,292,806 101,149,711 8% 118,558,674 109,759,116 8% Profitability (%) Gross non-performing loans ratio 3.68% 2.69% NA NA Return on average shareholders’ funds (%) 2.74% 2.64% 3.07% 3.02% Return on average assets after tax (%) 0.39% 0.43% 0.39% 0.45% Information per ordinary share (Rs.) Earnings - Basic 0.43 0.42 Net asset value 15.23 16.36 Market value as at 31 December 11.00 13.20 Dividend 0.10 0.10 Dividend Yield (%) 0.91 0.76 Regulatory Ratios (%) Common Equity Tier 1 Capital Ratio (Minimum Requirement - 6.375%) 17.41% 18.85% Tier 1 Capital Ratio (Minimum Requirement - 7.875%) 17.41% 18.85% Total Capital Ratio (Minimum Requirement - 11.875%) 17.41% 18.85% Liquid Asset Ratio (%) Domestic Banking Unit 21.77% 21.27% Foreign Currency Banking Unit 21.14% 21.13% Loans Rs. Mn Profit before all taxes 80,000 Rs. Mn 60,000 1,400 40,000 1,200 20,000 1,000 0 2014 2015 2016 2017 2018 800 CASA 600 Rs. Mn 20,000 400 15,000 200 10,000 0 5,000 2014 2015 2016 2017 2018 0 2014 2015 2016 2017 2018 4 Company and Report Overview Financial Highlights Union Bank | Annual Report 2018 Corporate Profile Organisational Profile diversifications within the financial services sphere. Union Bank’s subsidiaries include National Established in 1995 as the eighth indigenous Asset Management Limited, Sri Lanka’s premier asset management company, and UB Finance bank, Union Bank is one of Sri Lankas fastest Company Limited. Delivering a unique value proposition and backed by the strength of TPG - the growing private commercial banks, offering US-based global private investment firm with over USD 79 Bn in capital under management and a wide range of products and services to an extensive global network; today, Union Bank continues to expand its horizons as a preferred Retail, SME and Corporate segments. Listed financial solutions provider. in the Colombo Stock Exchange, Union Bank is synonymous with progressiveness and About TPG potential for growth and is an entity that has TPG is a leading global private investment firm founded in 1992 with over USD 79 Bn of assets attracted global and local investors. The global under management and offices in San Francisco, Fort Worth, Austin, Beijing, Hong Kong, investment company TPG’s investment of USD Houston, London, Luxembourg, Melbourne, Moscow, Mumbai, new York, São Paulo, Seoul and 117 Mn in Union Bank in 2014, acquiring 70% Singapore. TPG has been present in Asia since 1994 and is currently investing out of its seventh of the Bank’s equity through its affiliate Culture Asia-focused fund. Financial Holdings Ltd, marked a milestone in the financial services industry as one the TPG has extensive experience with global public and private investments executed through largest foreign direct investments to Sri Lanka. leveraged buyouts, recapitalisations, spinouts, growth investments, joint ventures and restructurings. The firm’s investments span a variety of industries including financial services, With a solid foundation etched with financial travel and entertainment, technology, energy, industrials, retail, consumer, real estate, media and stability and international know-how, communications, and healthcare. Union Bank is a full service bank offering a comprehensive range of products and services to financially empower individuals, entrepreneurs and corporates in Sri Lanka. Following the capital infusion the Bank Vision implemented a cohesive plan for accelerated To be the innovator of banking solutions to the wider Corporate, SME and growth with substantial innovations and Retail segments and to be their bank of choice, through professional and developments to its product offering, empowered people technological and delivery platforms with the view of providing a differentiated banking experience to its clientele. Mission To our customers we provide the means of economic upliftment through Union Bank’s growth is further augmented customised banking and financial services by the extensive investments made in To our shareholders we provide a return on their investment above industry norm network development initiatives. The Bank’s To our staff we are a learning and innovative organisation providing network stands at 67 branches at present, opportunities for faster career progression within a pleasant work provisioning unsurpassed service experiences environment to a diverse clientele across the island. The We adhere to the practice of good Corporate Governance in the eyes of the brick and mortar presence of the Bank is ably regulatory authorities supplemented by alternate channels that We are conscious of the need to be a responsible corporate citizen for the include, dedicated sales forces for Asset and betterment of our society Liability products, a 24 - hour call centre, a digital banking platform and a rapidly-growing island-wide ATM network of 117 bank-owned Values ATMs and access to over 4,500 ATMs across We value and believe in a high degree of integrity, honesty and ethical Sri Lanka through LankaPay, providing our behaviour in all our dealings customers with convenient access to financial We respect the dignity of people services.