ABOUT THE REPORT n our Annual Report this year we focus on our key stakeholders – our Depositors, Borrowers, Owner, Employees, Community and Regulator, the key institutions and persons behind the Bank's success and how we have evolved to serve their diverse needs over 50 years of banking operations. In an age where annual reports tend to constitute a complex fabric of involved data and financial jargon, which deny the average stakeholder the right to a simple and proper appreciation of its value and purpose, People's Bank has endeavoured to make its report simple and highly readable, whilst being informative. We are confident this Report will offer the reader a sound understanding as regards to the evolution of the Bank over its 50 year history and an appreciation of the diligence with which we pursued and achieved a record performance in 2011, thus positioning the Bank as an undisputed leader in the Sri Lankan financial landscape. It is our sincere wish that readers will derive as much satisfaction from reading this Report as we did in producing it. As in previous years Sinhala and Tamil versions of this Annual Report are in production and will be available before June 2012. REPORT CONTENT OPERATIONAL HIGHliGHTS ..................................006 FinAnciAL HIGHliGHTS ..................................007 CHAirMAN’S MEssAGE ..................................008 CHIEF EXECUTIVE OfficER/GENERAL MANAGER'S REVIEW ..................................012 BOArd OF DirECTOrs ..................................020 COrpORATE MANAGEMENT ..................................024 EXECUTIVE MANAGEMENT ..................................032 ZONAL MANAGEMENT ..................................037 BUsinEss REVIEW ..................................040 FinAnciAL REVIEW ..................................056 COrpORATE REspOnsiBiliTY ..................................069 OUTlinE OF OUR REPORTinG IniTIATIVES ..................................076 A PicTOriAL ViEW OF 2011 ..................................080 COMpliAncE REPORT ..................................086 COrpORATE GOVErnAncE ..................................088 RisK MANAGEMENT ..................................124 KEY PErfORMAncE IndicATOrs ..................................146 FinAnciAL REPORTS ..................................153 ANnEXES ..................................219 n this, the 50th Anniversary of the People’s Bank, we extend our heartfelt gratitude to all stakeholders for journeying with People's Bank through half a century of unstinting service to the Nation and its people. It is through your dedication and support that People's Bank has been able to record its best ever performance in 2011, not just in the history of the Bank but in the history of the banking industry in Sri Lanka as well. wasti siddham is a salutary phrase of Sanskrit origin, which broadly translated means, “May it be well with thee”. This has been the underlying sentiment throughout People's Bank’s 50 years of operation. It is what we wish for all our stakeholders and the Nation. In it is embodied our gratitude for jointly journeying with the Bank through history. It has been our privilege to serve them and in turn they have enriched the Bank through unique relationships we value beyond measure. OUR VisiON To be the Bank of the aspiring People of Sri Lanka: Empowering People to become value creating, competitive and self-reliant. OUR MissiON FOR OUR CUSTOMErs To take pride in providing an excellent service in the most caring, responsive and professional manner. FOR OUR OwnErs To generate benefits for the national economy whilst being independent and commercially viable. FOR OUR EMplOYEES To create opportunities for our employees to benefit from their high performance by becoming value creating, skilled, self-confident and professional individuals who are also team players. FOR OUR SOciETY To support empowerment and sustainable development by contributing to the upliftment of education, culture and environment island-wide. OUR VALUES We recognise that the primary reason for our existence is to create value for people of the nation. In all our activities we exercise our duty with utmost care in the interest of our depositors. We promote long-term ethical relationships with our customers through true and fair dealing. We put our customers at the centre of everything, by minimising bureaucracy, demanding hands on management, quick decision making and implementation. We empower staff and require them to be accountable. We demand the highest standards of personal integrity at all levels, putting the Bank’s interest ahead of individuals. We create an environment of mutual respect and trust where employees can demonstrate their performance and achieve their full potential. We develop our business by encouraging high performing teams that recognise and support the skills, commitment and links to the community of every employee. We are committed to comply with the spirit and letter of all laws and regulations, adhering to the highest standards of Corporate Governance, transparency, disclosure and ethical conduct. We conduct ourselves as good citizens promoting the environment and sustainable development. ABOUT THE BANK eople’s Bank was set up in 1961 to mobilise rural savings and channel it towards the process of development. It was established to provide banking services to population groups that had previously been excluded from the financial services industry. In these fifty years we have used financial products to catalyse development in rural and urban areas and to provide support to an economy in transition. The Bank commenced business in a very different economic environment. The country had received independence a mere 13 years previously and many parts of the financial services industry were at an early stage of development. There was an emphasis on state-led economic growth and state-owned enterprises were seen as the driver of the economy. Today we function in a very different environment. The country’s per capita GDP has crossed the US$2,500 threshold and the state and private sector work together to drive development. We are looking at doubling the per capita GDP over the next five years and joining the ranks of emerging economies of the world. A state-of-the-art financial services industry is crucial if the country is to sustain its present growth rates. The current moment calls for innovation, proactive engagement with new market segments and calculated risks. People’s Bank is today ready to play this new role. It has a pool of highly-motivated employees, a sound risk management strategy, a customer base in excess of 13 Mn, 714 branches and service centres, 382 ATMs and an asset base of Rs. 663 Bn. We are constantly strengthening our product portfolio and enhancing customer service. Our record pre-tax profit of Rs. 15.3 Bn and post-tax profit of Rs. 10.2 Bn in 2011 coupled with a low non- performing loan ratio of 3.4% make us well placed to support Sri Lanka’s growth drive in the years to come. PAGE 006 PAGE 006 PAGE 007 PAGES 008-011 PAGES 012-017 PAGES 020-022 PAGES 024-030 PAGES 032-036 PAGE 037 PAGE 040-053 OPERATIONAL finAnciAL CHAirMAN’S CHIEF BOArd COrpORATE EXECUTIVE ZONAL BUsinEss HIGHliGHTS HIGHliGHTS MEssAGE EXECUTIVE OF DirECTOrs MANAGEMENT MANAGEMENT MANAGEMENT REVIEW OfficER/ GENERAL MANAGER'S REVIEW OpERATIONAL HiGHliGHTS Completed 50 years in banking services. Number of banking outlets increased to 341 and service centres 373, expanding our total branch network to 714, the largest in Sri Lanka. Entire branch network is now online and interconnected. Number of ATMs increased to 382, adding 52 new machines this year. Customer base over 13 Mn. Value of deposits increased by 17% totalling Rs. 540 Bn as at end 2011. Bank ratings were upgraded – Fitch Rating AA (Stable) and RAM Ratings AAA. Rs 12.5 Bn paid in taxes, dividends and levies to the Government of Sri Lanka. Introducing People’s Mobile Banking using (Unstructured Supplementary Service Data) USSD code in collaboration with Dialog Axiata for the first time in Sri Lanka. Expansive corresponding banking network of over 400 correspondent banks spanning across 110 countries around the world. People’s Bank | Annual Report 2011 007 PAGE PAGES 056-068 PAGES 069-075 PAGES 076-079 PAGES 080-083 PAGES 086-087 PAGES 088-121 PAGES 124-143 PAGES 146-152 PAGES 153-218 PAGES 219-248 FinAnciAL COrpORATE OUTlinE A PicTOriAL COMpliAncE COrpORATE RisK KEY FinAnciAL ANNEXES REVIEW REspOnsiBiliTY OF OUR ViEW OF 2011 REPORT GOVErnAncE MANAGEMENT PErfORMAncE REPORTS REPORTinG IndicATOrs iniTIATIVES FinAnciAL HiGHliGHTS 2011 2010 Change % BOTTOM LinE PErfORMAncE Profit before Taxation (Rs. Mn) 15,311 8,771 74.6 Capital in Hand (Rs. Mn) 26,495 20,838 27.1 PRODUCTIVITY Net Revenue (Rs. Mn) 37,123 31,897 16.4 Cost/Income Ratio (%) 50.7 60.2 – Head Count (Permanent) 8,249 8,399 (1.8) Profit per Employee (Rs. '000) 1,231 620 98.6 CREdiT MANAGEMENT Loans & Advances (Gross) (Rs. Mn) 478,345 371,804 28.7 Non-Performing Loan (NPL) Value (Rs. Mn) 16,062 18,738 (14.3) NPL Ratio (%) 3.4 5.0 – Provisions for NPL's (Rs. Mn) 13,095 13,782 (5.0) NPL Coverage Ratio (%) 81.5 73.6 – CUSTOMER COnfidEncE Value of Deposits (Rs. Mn) 539,862 462,140 16.8 No. of Customer Accounts (Mn) 13.2 12.9 2.4 KEY PErfORMAncE IndicATOrs Return on Assets (%) - Before Tax 2.5 1.7 – Return on Equity (%) 42.9 26.9 – Capital Adequacy Ratio (%) 14.8 12.8 – Non-Funded Income/Net Income (%) 18.9 18.8 – People’s Bank | Annual Report 2011 PAGE 008 PAGE 006 PAGE 007 PAGES 008-011 PAGES 012-017 PAGES 020-022 PAGES 024-030 PAGES 032-036 PAGE 037 PAGE 040-053 OPERATIONAL finAnciAL CHAirMAN’S CHIEF BOArd COrpORATE EXECUTIVE ZONAL BUsinEss HIGHliGHTS HIGHliGHTS MEssAGE EXECUTIVE OF DirECTOrs MANAGEMENT MANAGEMENT MANAGEMENT REVIEW OfficER/ GENERAL MANAGER'S REVIEW CHAirMAN’S MEssAGE MORE THAN A BANK he Bank completed 50 years last year and had its best year ever in terms of earnings and key performance indicators. Net income increased by 16.4% and our pre-tax profit of Rs. 15.3 Bn was the highest in our history. Deposits grew by 17%, advances by 29% and the asset base by 21%.