ANNUAL REPORT 2014 ANNUAL REPORT Union Bank of Colombo PLC - Annual Report 2014 Union Bank of Colombo PLC T: +94 11 2374100 | www.unionb.com T: Head office: 64, Galle Road, Colombo 03, Sri Lanka. After the completion of a year that sparked many changes, we at Union Bank now stand at the forefront of a Bold New World that holds diverse opportunities for us. Supported by the strength of TPG, a leading global private investment firm, we have positioned ourselves ahead in the financial sphere, with the capital, expertise and resources that has taken the banking world in Sri Lanka by storm. In turn, this significant change will translate into a new world of opportunities and growth for our customers, stakeholders and the people of our nation. 2 Contents 4-8 COMPANY OVERVIEW Financial Highlights 4 Organisational Profile 6 Milestones 8 14-38 MANAGEMENT REPORTS Chairman’s Message 14 CEO’s Message 18 Management Discussion & Analysis 21 Review on Human Resources 35 Subsidiary Update 38 40-104 STEWARDSHIP Corporate Governance 40 Board Audit Committee Report 59 Human Resources and Remuneration Committee Report 61 Integrated Risk Management Committee Report 62 Directors Statement on Internal Control Over Financial Reporting 64 Assurance Report on Internal Control 66 Nomination Committee Report 67 Board of Directors 70 Leadership Team 75 Assistant Vice Presidents 76 Chief Managers 77 Senior Managers 78 Corporate Event Highlights 82 Sustainability Report 90 Risk Management at Union Bank 93 Investor Relations 104 Union Bank of Colombo PLC | Annual Report 2014 3 112-208 FINANCIAL REPORTS Annual Report of the Board of Directors on the State of Affairs of the Bank 112 Number of Meetings Held and Attendance 122 Independent Auditor’s Report on Financial Statements 124 Statement of Profit or Loss 125 Statement of Other Comprehensive Income 126 Statement of Financial Position 127 Statement of Changes in Equity 128 Statement of Cash Flows 129 Notes to the Financial Statements 130 Quarterly Performance of the Bank 2014 205 Ten Years at a Glance 206 Capital Adequacy 208 212-223 SUPPLEMENTARY INFORMATION Glossary 212 Branch Network 218 Corporate Information 220 Notice of Meeting 221 Form of Proxy 223 Union Bank of Colombo PLC | Annual Report 2014 4 Financial Highlights Bank Change Group Change 2014 2013 (%) 2014 2013 (%) Results for the Year (Rs. '000) Total Income 4,546,418 4,792,752 (5.1%) 5,314,409 5,191,190 2.4% Profit Before VAT on Financial Services & Taxation 112,697 148,694 (22.9%) 233,142 148,112 57.4% Profit for the year 57,088 112,714 (49.4%) 78,197 99,068 (21.1%) Financial Position (Rs. '000) Deposits 27,808,891 28,339,687 (1.9%) 30,323,850 29,462,271 2.9% Gross Loans & Advances 26,558,875 23,994,426 10.7% 30,648,646 27,076,184 13.2% Total Assets 48,995,121 35,010,962 39.9% 52,558,370 36,824,753 42.7% Shareholders' Funds 16,750,284 5,457,285 206.9% 16,184,665 4,920,193 228.9% Investor Information Earnings per Share - Basic (Rs) 0.1 0.3 (65.6%) 0.1 0.30 (79.9%) Net Assets Value (Rs) 15.4 15.6 (1.8%) 15 14 5.3% Market Value at the Year end (Rs) 25.3 16.6 52.4% 25 17 52.4% Number of Employees 724 691 4.8% 924 866 (16.4%) Number of Branches 61 51 19.6% 78 58 19% Key Indicators Return on Average Shareholders' Funds (%) 0.7% 2.1% (66.9%) 1% 1.9% (46.9%) Return on Average Assets (After Tax) (%) 0.1% 0.3% (55.0%) 0.2% 0.3% (43.6%) Price Earning Ratio (Times) 230 51.9 343.4% 421.7 55.6 657.9% Liquid Asset Ratio (%) - Domestic Business Unit 51.1% 22.0% 132.3% - - - - Foreign Currency Business Unit 22.5% 23.1% (2.5%) - - - Capital Adequacy Ratios (%) Tier I - Minimum Requirement (5%) 41.7% 17.9% 132.8% 36% 14.2% 154.1% Tier II - Minimum Requirement (10%) 40.9% 16.9% 142.3% 36% 14.1% 154.7% Total Operating Income Capital Rs. (Mn) Rs. (Mn) 2,500 17,000 416 2,293 2,000 1,779 1,679 13,500 16,335 1,500 8,500 1,000 485 477 4,000 500 4,980 4,980 0 0 Dec 2012 Dec 2013 Dec 2014 Dec 2012 Dec 2013 Dec 2014 (Current year) (Current year) (Current Total Operating Income Stated Capital Reserves Union Bank of Colombo PLC | Annual Report 2014 5 VISION MISSION To be the innovator of banking solutions especially to the small, To our customers we provide the means of medium and personal segments and economic upliftment through customised to be their Bank of choice, through banking and financial services. professional and empowered people To our shareholders we provide a return on their investment above industry norm. To our staff we are a learning and innovative organisation providing opportunities for faster career progression within a pleasant work environment. We adhere to the practice of good Corporate Governance in the eyes of the regulatory authorities. We are conscious of the need to be a responsible corporate citizen for the betterment of our society. VALUES We value and believe in a high degree of integrity, honesty and ethical behaviour in all our dealings. We respect the dignity of people. We are passionate about delivering the highest level of service quality to our external and internal customers. We encourage and respect diversity among our team while creating a feeling of belongingness across the organisation. We believe in leading by example. Union Bank of Colombo PLC | Annual Report 2014 6 Organisational Profile ESTABLISHED IN 1995, AS THE 8TH INDIGENOUS BANK, UNION BANK OF COLOMBO PLC (UBC) IS AMONGST THE TOP 5 PRIVATE COMMERCIAL BANKS IN SRI LANKA IN MARKET CAPITALISATION, OFFERING A FULL RANGE OF PRODUCTS AND SERVICES TO RETAIL, SME AND CORPORATE SECTORS. Delivering a unique value proposition, backed by exceptional service, UBC continues to expand its reach across Sri Lanka through a robust channel strategy consisting of an island-wide branch network and alternate channels. Listed in the Colombo Stock Exchange, UBC is synonymous as a rapidly progressing and potential business entity that has attracted global and local investors. 2014 marked a significant year for UBC. In 2014, TPG, one of the leading global investment firms, with US$65 billion in assets under management, through its affiliate, Culture Financial Holdings Ltd., acquired 70% equity in the Bank. This investment marked a milestone in the financial services industry as one the largest foreign direct investments to Sri Lanka. UBC’s growth is further augmented with its strategic diversifications and its subsidiaries include National Asset Management Limited, Sri Lanka's premier Asset Management company and UB Finance Company Limited. Supported by the strength of TPG, UBC has etched for its self a solid foundation of financial stability backed with international know-how and best practices and is rapidly progressing as one of Sri Lanka’s fastest growing financial services groups. TPG is a leading global private investment firm founded in 1992 with US$ 65 billion of assets under management and offices in San Francisco, Fort Worth, Austin, Houston, Beijing, Chongqing, Hong Kong, London, Luxembourg, Melbourne, Moscow, Mumbai, New York, Paris, São Paulo, Shanghai, Singapore and Tokyo. TPG has extensive experience with global public and private investments executed through leveraged buyouts, recapitalisations, spinouts, growth investments, joint ventures and restructurings. The firm’s investments span a variety of industries including healthcare, energy, industrials consumer/retail, technology, media & communications, software, financial services, travel, entertainment and real estate. Union Bank of Colombo PLC | Annual Report 2014 7 Union Bank of Colombo PLC | Annual Report 2014 8 Milestones 1995 1998 2004 Bank Roaming ISO 9002 ‘RanOne’ pawning facility with System generated deposit slips Internet Banking ATM withdrawals Unitel phone banking 1996 1999 2007 One day cheque clearance ‘UBC ONLINE’ wins National Acceptance of cheques up to Best Quality Software Award 4.00 p.m. Weekly interest payment fixed deposits Union Bank of Colombo PLC | Annual Report 2014 9 2009 2011 2013 E-Cheque System IPO receives highest Launch of ‘Double Vaasi’ Daily e-statements oversubscription in Sri Lanka Launch of ‘Call ‘n Pay’ E-Cheque System wins National Acquisition of National Asset Launch of Mobile Banking App Best Quality Software Award Management Limited Launch of the ‘Viyaparika Saviya’ Acquisition of The Finance & SME Club Guarantee Company Limited 50th Branch - Maharagama 55Plus senior citizens fixed Selected to the top 100 listed deposit companies in Sri Lanka by LMD ‘Viyaparika Saviya’ free advisory service 2010 2012 ‘EasyPlus’ a Current Account Re-location to a state-of-the art Head office with no charges Selected to the ‘Leading Brands in Sri Lanka’ by Brand Finance Launch of ‘Union Factors’ Launch of ‘TV Banking’ ‘Poliya Ready’ 3 months deposits ‘Punchi Pathum’ minors savings account 1st SME Centre - Gampaha 2014 Implementation of a new core banking system.- UBC entered in to an investment agreement for US $117 Mn (LKR 15Bn) with TPG, a leading global private investment firm making it one of the largest FDI’s to Sri Lanka in recent times. UBC was the 8th Licensed Commercial Bank to be appointed as a Primary Dealer in Government Securities by CBSL. Capital Finance International UK awarded UBC ‘Best SME Bank Sri Lanka 2014’. Union Bank of Colombo PLC | Annual Report 2014 A BOLD NEW WORLD OF STRENGTH AND STAbility… Union Bank of Colombo PLC | Annual Report 2014 that HAS PLACED US AMONGST THE stalwarts IN BANKING TO BE WITHIN THE TOP 5 SRI LANKAN private COMMERCIAL BANKS IN MARKET capitalisation.