1. Corporate Information
The National Development Bank of Sri Lanka was incorporated under the National Development Bank of Sri Lanka Act No. 2 of 1979. In 2005, pursuant to the provisions of the National Development Bank of Sri Lanka (Consequential Provisions) Act No. 1 of 2005, a company by the name of ‘National Development Bank Ltd.’ was incorporated for the purposes of taking over the business of National Development Bank of Sri Lanka. Accordingly, on 15 June 2005, the National Development Bank Ltd. was incorporated and with effect from that date, the National Development Bank of Sri Lanka Act No. 2 of 1979 was repealed except for certain provisions contained therein.
In terms of the new Companies Act No. 07 of 2007, the name of the Bank was changed as ‘National Development Bank PLC’. The Bank was re-registered in terms of the new companies Act regime on 4 July 2007 and was assigned with PQ 27 as the new Registration Number.
The Bank is listed on the Colombo Stock Exchange. The Registered Office of the Bank and its principal place of business are situated at No. 40, Navam Mawatha, Colombo 2.
The principal activities of the Bank, its subsidiaries and associate companies, consist of the business of commercial banking, development financing, merchant banking, investment banking, leasing, housing finance, investment advisory and securities, wealth management, property investment and Bancassuarance.
The number of branches of the Bank as at 31 December 2013 was 78. (2012 - 69) and the number of staff employed as at 31 December 2013 was 1,583 (2012 - 1,389)
2. Significant Accounting Policies
2.1 Basis of Preparation
The Consolidated Financial Statements of the Group have been prepared on a historical cost basis, except for the following material items in the Statement of Financial Position:
- Investment properties which are measured at fair value
- Available-for-sale Financial Assets which are measured at fair value
- Derivative financial instruments which are measured at fair value
- Other financial assets and liabilities held-for-trading which are measured at fair value
- Financial assets and liabilities designated at fair value through profit or loss which are measured at fair value
- Liabilities for defined benefit obligations which are recognized at the present value of the defined benefit obligations less the net totals of plan assets and unrecognized past service cost.
2.1.1 Statement of Compliance
The Consolidated Financial Statements of the Group and the separate Financial Statements of the Bank as at 31 December 2013 which comprise the Statement of Financial Position, Income Statement, Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows, Accounting Policies and Notes, have been prepared in accordance with Sri Lanka Accounting Standards (SLFRS and LKASs) issued by The Institute of Chartered Accountants of Sri Lanka and in compliance with the requirements of the Companies Act No. 07 of 2007. The presentation of Financial Statements are also in compliance with the requirements of Banking Act No. 30 of 1988 and amendments thereto. These Financial Statements also provide appropriate disclosures as required by the Listing Rules of the Colombo Stock Exchange.
2.1.2 Functional and Presentation Currency
The Financial Statements of the Group and the Bank are presented in Sri Lankan Rupees which is the currency of the primary economic environment in which the Bank operates. Financial information presented in Sri Lankan Rupees has been rounded to the nearest thousand unless indicated otherwise.
2.1.3 Presentation of Financial Statements
The Group and the Bank present its Statement of Financial Position broadly in order of liquidity. An analysis regarding recovery and settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non-current) is presented in Note 45 to the Financial Statements.
2.1.4 Materiality and Aggregation
In compliance with Sri Lanka Accounting Standard - LKAS 01 on 'Presentation of Financial Statements', each material class of similar items is presented separately in the Financial Statements. Items of dissimilar nature or functions are presented separately, unless they are immaterial.
Financial assets and financial liabilities are offset and the net amount reported in the Consolidated Statement of Financial Position only when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liability simultaneously.
Income and expenses are not offset in the Consolidated Income Statement unless required or permitted by any accounting standard or interpretation, and as specifically disclosed in the Accounting Policies of the Bank.
2.1.5 Basis of Consolidation
The Consolidated Financial Statements comprise the Financial Statements of the Bank and its subsidiaries for the year ended 31 December 2013. The Financial Statements of the Bank’s subsidiaries are prepared for the same reporting year as Bank, using consistent Accounting Policies.
All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full in preparing the Consolidated Financial Statements.
Subsidiaries are fully-consolidated from the date on which control is transferred to the Bank.
Non-controlling interests represent the portion of profit or loss and net assets of subsidiaries not owned, directly or indirectly, by the Bank.
Non-controlling interests are presented separately in the Consolidated Income Statement and within equity in the Consolidated Statement of Financial Position, but separate from Parent shareholders’ equity.
2.2 Significant Accounting Judgments, Estimates and Assumptions
In the process of applying Group’s Accounting Policies, management is required to make judgments, which may have significant effects on the amounts recognized in the Financial Statements. Further, management is also required to consider key assumptions concerning the future and other key sources of estimation uncertainty at the Statement of Financial Position date that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Actual results may differ from these estimates.
The key significant accounting judgments, estimates and assumptions involving uncertainty are discussed below, whereas the respective carrying amounts of such assets and liabilities are as given in related Notes.
Fair Value of Financial Instruments
The following is a description of how fair values are determined for financial instruments that are recorded at fair value using valuation techniques. These incorporate the Bank’s estimate of assumptions that a market participant would make when valuing the instruments.
Financial Assets Held-for-Trading
Financial Assets held-for-trading consist of quoted equity securities and Government debt securities. Quoted equity securities are valued using the market prices published by the Colombo Stock Exchange. Government debt securities are valued using discounted cash flow techniques which incorporate market interest rates for similar investments.
Financial Derivatives
Financial derivatives are valued using valuation techniques which consider current market interest rates, forward interest rates and spot and forward exchange rates.
Determination of Value and Fair Value Hierarchy
The Bank uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.
Level 3: Techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.
Going Concern
The Board of Directors of the Bank has made an assessment of its ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, Board of Directors is not aware of any material uncertainties that may cast significant doubt upon the Bank’s ability to continue as a going concern. Therefore, the Financial Statements continue to be prepared on the going concern basis.
Impairment Losses on Loans and Receivables
The Bank and the Group review their individually-significant loans and receivables at each Statement of Financial Position date to assess whether an impairment loss should be recorded in the Income Statement. In particular, management’s judgment is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance.
Loans and receivables that have been assessed individually and found not to be impaired are assessed together with all individually insignificant loans and advances in groups of assets with similar risk characteristics. This is to determine whether provision should be made due to incurred loss events for which there is objective evidence, but the effects of which are not yet evident. The collective assessment takes account of data from the loan portfolio such as loan ownership types, levels of arrears, industries etc. and judgments on the effect of concentrations of risks and economic data (including levels of unemployment, inflation rate, interest rates, and exchange rates). The impairment loss on loans and receivables is disclosed in more detail in Note 19.
Impairment of Available-for-Sale Investments
The Group and Bank review their debt securities classified as available-for-sale investments at each reporting date to assess whether they are impaired. This requires similar judgment as applied to the individual assessment of loans and advances.
The Bank also records impairment charges on available-for-sale equity investments when there has been a significant or prolonged decline in the fair value below their cost. The determination of what is ‘significant’ or ‘prolonged’ requires judgment. In making this judgment, the Bank evaluates, among other factors, historical share price movements and duration and extent to which the fair value of an investment is less than its cost.
Deferred Tax Assets
Deferred tax assets are recognized in respect of tax losses to the extent that it is probable that taxable profit will be available against which such items can be deducted in the future. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies.
Defined Benefit Plans
The cost of the defined benefit plans (gratuity and pension plan) is determined using an actuarial valuation. The actuarial valuation involves making various assumptions which may differ from actual developments in the future. These include the determination of discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. All assumptions are reviewed at each reporting date. The assumptions used to arrive in defined benefit obligation reported in Financial Statements are disclosed in Note 33.
In determining the appropriate discount rate, management considers the interest rates of Sri Lanka Government Bonds with extrapolated maturities corresponding to the expected duration of the defined benefit obligation.
The mortality rate is based on publicly available mortality tables. Future salary increases and pension increases are based on expected future inflation rates and expected future salary increase rate of the Bank.
Distinction Between Investment Properties and Owner-Occupied Properties
The Group determines whether a property qualifies as investment property by considering whether the property generates cash flows largely independently of the other assets held by the entity. Owner-occupied properties generate cash flows that are attributable not only to property but also to other assets used in the production or supply process.
Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions can be sold separately (or leased out separately under a finance lease), Group accounts for the portions separately. If the portions cannot be sold separately, the property is accounted for as investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes. Group considers each property separately in making its judgment.
Useful Life Time of Property, Plant & Equipment
The Group and the Bank review the residual values, useful lives and methods of depreciation of property, plant & equipment at each reporting date. Judgment of the management is exercised in the estimation of these values, rates, methods and hence they are subject to uncertainty.
Commitments and Contingencies
All discernible risks are accounted for in determining the amount of all known liabilities.
Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is not probable or cannot be reliably measured. Contingent liabilities are not recognized in the Statement of Financial Position but are disclosed unless they are remote.
2.3 Summary of Significant Accounting Policies
2.3.1 Business Combinations and Goodwill
Business combinations are accounted for using the purchase method of accounting. This involves recognizing identifiable assets (including previously unrecognized intangible assets) and liabilities (including contingent liabilities and excluding future restructuring) of the acquired business at fair value. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognized as goodwill. If the cost of acquisition is less than the fair values of the identifiable net assets acquired, the discount on acquisition (negative goodwill) is recognized directly in the Income Statement in the year of acquisition.
Goodwill acquired in a business combination is initially measured at cost, being the excess of the cost of the business combination over the Bank's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Bank's cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units or groups of units.
Where goodwill forms part of a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.
Carrying amount of the goodwill arising on acquisition of subsidiaries is presented as an intangible and the goodwill on an acquisition of an equity accounted investment in investment in associates is included in the carrying value of the investment.
When subsidiaries are sold, the difference between the selling price and the net assets plus cumulative translation differences and unamortized goodwill is recognized in the Income Statement.
2.3.2 Investment in an Associate
The Group’s investment in its associate is accounted for using the equity method. An associate is an entity in which the Group has significant influence. Under the equity method, the investment in the associate is carried on the Statement of Financial Position at cost plus post acquisition changes in the Group’s share of net assets of the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortized nor individually tested for impairment.
The Income Statement reflects the Group’s share of the results of operations of the associate. When there has been a change recognized directly in the equity of the associate, the Group recognises its share of any changes and discloses this, when applicable, in the Statement of Changes in Equity. Unrealised gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate.
The Group’s share of profit of an associate is shown on the face of the Income Statement. This is the profit attributable to equity holders of the associate and, therefore, is profit after tax and non-controlling interests in the subsidiaries of the associate.
The Financial Statements of the associate are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the Accounting Policies in line with those of the Group.
After application of the equity method, the Group determines whether it is necessary to recognize an additional impairment loss on its investment in its associate. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the amount in the ‘share of profit of an associate’ in the Income Statement.
Upon loss of significant influence over the associate, the Group measures and recognizes any retaining investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognized in profit or loss.
2.3.3 Foreign Currency Translation
All foreign currency transactions are translated into the functional currency, which is Sri Lankan Rupees, using the exchange rates prevailing at the dates of the transactions were affected.
Monetary assets and liabilities denominated in foreign currencies are re-translated at the middle exchange rate of the functional currency ruling at the date of the Statement of Financial Position. The resulting gains and losses are accounted for in the Income Statement.
- Non-monetary assets and liabilities that are measured on a historical cost basis in foreign currency are translated using the exchange rates prevailing at that date. Non-monetary assets and liabilities measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
- Transactions of the Foreign Currency Banking Unit
These have been recorded in accordance with Note (a) above. Net gains and losses are dealt within the Income Statement. - Forward exchange contracts are valued at the forward market rates prevailing at the date of the Statement of Financial Position. Profits and losses on such transactions are dealt within the Income Statement.
- Liabilities in respect of foreign currency borrowings guaranteed by the Government of Sri Lanka are not translated at rates of exchange prevailing at the date of the Statement of Financial Position, since the Government of Sri Lanka is required to bear any exchange risk that may arise at the time debt service payments are being made. The Bank pays a premium to the Government of Sri Lanka for bearing such risk.
- As at the reporting date, the assets and liabilities of overseas subsidiaries/associates are translated into the Bank's presentation currency at the rate of exchange ruling at the Statement of Financial Position date, and their Income Statements are translated at the weighted average exchange rates for the year. Exchange differences arising on translation are taken directly to a separate component of equity.
- On disposal of a foreign subsidiary/associate, the deferred cumulative amount recognized in equity relating to that particular foreign subsidiary/associate is recognized in the Income Statement in 'Other operating expenses' or 'Other operating income', respectively.
2.3.4 Financial Instruments - Initial Recognition and Subsequent Measurement
(a) Date of Recognition
All financial assets and liabilities are initially recognized on the trade date, i.e., the date that the Group becomes a party to the contractual provisions of the instrument. This includes purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.
(b) Initial Measurement of Financial Instruments
The classification of financial instruments at initial recognition depends on their purpose and characteristics and the management’s intention in acquiring them. All financial instruments are measured initially at their fair value plus transaction costs, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss.
(c) ‘Day 1’ Difference for Staff Loans
All staff loans granted at below market interest rates were recognized at fair value. The difference between the fair value and the amount disbursed were treated as Day 1 difference and amortized as staff cost over the loan period by using effective interest rate. The staff loans were subsequently measured at amortized costs.
(d) Derivatives Recorded at Fair Value through Profit or Loss
The Group uses derivatives such as currency Swaps, forward foreign exchange contracts and options on interest rates. Derivatives are recorded at fair value and carried as assets when their fair value is positive and as liabilities when their fair value is negative. Changes in the fair value of derivatives are included in ‘Net trading income’.
Details of ‘Derivative financial instruments’ are given in Note 16 to the Financial Statements.
(e) Financial Assets Held-for-Trading
Financial assets held-for-trading are recorded in the Statement of Financial Position at fair value. Changes in fair value are recognized in ‘Net trading income’. Interest and dividend income or expense is recorded in ‘Net trading income’ according to the terms of the contract, or when the right to the payment has been established.
Included in this classification are Investments in Unit Trusts, Debt Securities, Equities that have been acquired principally for the purpose of selling or repurchasing in the near term.
Details of ‘Financial assets held-for-trading’ are given in Note 17 to the Financial Statements.
(f) Available-for-Sale Financial Investments
Available-for-sale investments include equity and debt securities. Equity investments classified as available-for-sale are those which are neither classified as held-for-trading nor designated at fair value through profit or loss.
Debt Securities in this category are intended to be held for an indefinite period of time and may be sold in response to needs for liquidity or in response to changes in the market conditions.
The Group has not designated any loans or receivables as available-for-sale. After initial measurement, available-for-sale financial investments are subsequently measured at fair value.
Unrealized gains and losses are recognized directly in equity (other comprehensive income) in the ‘available-for-sale reserve’. When the investment is disposed of, the cumulative gain or loss previously recognized in equity is recognized in the Income Statement in ‘other operating income’. Where the Group holds more than one investment in the same security, they are deemed to be disposed of on a first-in first-out basis. Interest earned whilst holding available-for-sale financial investments is reported as interest income using the Effective Interest Rate (EIR).
Dividends earned whilst holding available-for-sale financial investments are recognized in the Income Statement as ‘Other operating income’ when the right of the payment has been established. The losses arising from impairment of such investments are recognized in the Income Statement in ‘Impairment losses on financial investments’ and removed from the ‘Available-for-sale reserve’.
Details of ‘Financial assets - available-for-sale’ are given in Note 21 to the Financial Statements.
(g) Held-to-Maturity Financial Investments
Held-to-maturity financial investments are non-derivative financial assets with fixed or determinable payments and fixed maturities, which the Group has the intention and ability to hold to maturity. After initial measurement, held-to-maturity financial investments are subsequently measured at amortized cost using the EIR, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the EIR. The amortization is included in ‘interest and similar income’ in the Income Statement.
If the Group were to sell or reclassify more than an insignificant amount of held-to-maturity investments before maturity (other than in certain specific circumstances), the entire category would be tainted and would have to be reclassified as available-for-sale. Furthermore, the Bank would be prohibited from classifying any financial asset as held-to-maturity during the following two years.
Details of ‘financial assets - held-to-maturity’ are given in Note 22 to the Financial Statements.
(h) Loans and Receivables to Banks and Other Customers
Loans and receivables to Banks and other customers include non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than:
- Those that the Group intends to sell immediately or in the near term and those that the Group, upon initial recognition, designates as at fair value through profit or loss
- Those that the Group, upon initial recognition, designates as available-for-sale
- Those for which the Group may not recover substantially all of its initial investment, other than because of credit deterioration
After initial measurement, amounts ‘Loans and receivables to banks’ and ‘loans and receivables to other customers' are subsequently measured at amortized cost using the EIR, less allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR. The amortization is included in ‘interest and similar income’ in the Income Statement. The losses arising from impairment are recognized in the Income Statement in ‘Impairment for loans and receivables and other losses’.
Details of ‘Loans and receivables to banks’ and Loans and receivables to other customers' are given in Note 18 and 19 to the Financial Statements.
(i) Cash and Cash Equivalents
Cash and cash equivalents comprise of cash balances, placement with banks and balances with Central Bank of Sri Lanka. The cash flow statement has been prepared by using ‘The Direct Method’, whereby gross cash receipts and gross cash payments of operating activities, investing and financing activities have been recognized.
Details of ‘Cash and cash equivalents’ are given in Note 13 to the Financial Statements.
(j) Other Financial Liabilities
Financial instruments issued by the Bank that are not designated at fair value through profit or loss, are classified as other financial liabilities, where the substance of the contractual arrangement results in the Bank having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.
Other financial liabilities include, deposits from customers, amount due to banks, borrowings from banks and others and debentures.
After initial measurement, other financial liabilities are subsequently measured at amortized cost using the EIR. Amortized cost is calculated by taking into account any discount or premium on the issue and costs that are an integral part of the EIR.
2.3.5 Derecognition of Financial Assets and Financial Liabilities
(a) Financial Assets
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when -
- The rights to receive cash flows from the asset have expired,
- The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either,
- The Group has transferred substantially all the risks and rewards of the asset, or
- The Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Bank could be required to repay.
(b) Financial Liabilities
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognized in profit or loss.
2.3.6 Securities Purchased Under Reverse Repurchase Agreements
Securities sold under agreements to repurchase at a specified future date are not derecognized from the Statement of Financial Position as the Bank retains substantially all of the risks and rewards of ownership. The corresponding cash received is recognized in the Consolidated Statement of Financial Position as an asset with a corresponding obligation to return it, including accrued interest as a liability within ‘securities purchased under Repurchase Agreements’, reflecting the transaction’s economic substance as a loan to the Bank. The difference between the sale and repurchase prices is treated as interest expense and is accrued over the life of agreement using the EIR.
2.3.7 Securities Sold Under Repurchase Agreements
Securities purchased under agreements to resell at a specified future date are not recognized in the Statement of Financial Position. The consideration paid, including accrued interest, is recorded in the Statement of Financial Position, within ‘securities sold under Repurchase Agreements’, reflecting the transaction’s economic substance as a loan by the Bank. The difference between the repurchase and resale prices is recorded in ‘Net Interest Income’ and is accrued over the life of the agreement using the EIR.
2.3.8 Determination of Fair Value of Financial Instruments
The fair value for financial instruments traded in active markets at the reporting date is based on their quoted market price without any deduction for transaction costs.
An analysis of fair values of financial instruments are provided in Note 43.
2.3.9 Impairment of Financial Assets
(a) Impairment of Financial Assets Carried at Amortized Cost
The Group assesses at each reporting date, whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an ‘incurred loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.
Individually Assessed Financial Assets
The criteria used to determine that there is such objective evidence includes:
- known cash flow difficulties experienced by the borrower;
- past due contractual payments of either principal or interest;
- breach of loan covenants or conditions;
- the probability that the borrower will enter bankruptcy or other financial realization; and
- a significant downgrading in credit rating by an external credit rating agency.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the Income Statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of ‘Interest and similar income’.
The present value of the estimated future cash flows is discounted at the financial asset’s original EIR. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Bank’s internal credit grading system, that considers credit risk characteristics such as asset type, industry, geographical location, collateral type, past-due status and other relevant factors.
Collectively Assessed Loans and Receivables
Impairment is assessed on a collective basis in two circumstances:
- To cover losses which have been incurred but have not yet been identified on loans subject to individual assessment; and
- For homogeneous groups of loans that are not considered individually significant.
Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the Group.
Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently.
Estimates of changes in future cash flows reflect, and are directionally consistent with, changes in related observable data from year to year (such as changes in unemployment rates, property prices, commodity prices, payment status, or other factors that are indicative of incurred losses in the Group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.
See Note 7 for details of impairment for loans and receivables and other losses carried at amortized cost and Note 19 for an analysis of the impairment allowance on loans and receivables by class.
Write-off of Loans and Receivables
Loans (and the related impairment allowance accounts) are normally written off, either partially or in full, when there is no realistic prospect of recovery. Where loans are secured, this is generally after receipt of any proceeds from the realization of security.
(b) Available-for-Sale Financial Investments
For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that an investment is impaired.
In the case of equity investments classified as available-for-sale, objective evidence would also include a ‘significant’ or ‘prolonged’ decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the Income Statement is removed from equity and recognized in the Income Statement. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognized in Other Comprehensive Income.
The Group writes-off certain financial investments - Available-for-sale when they are determined to be uncollectible.
(c) Rescheduled Loan Facilities
Where possible, the Group seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated, any impairment is measured using the original EIR as calculated before the modification of terms and the loan is no longer considered past due. Management continually reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loan’s original EIR.
(d) Collateral Valuation
The Group seeks to use collateral, where possible, to mitigate its risks on financial assets. The collateral comes in various forms such as cash, securities, letters of credit/guarantees, real estate, receivables, inventories, other non-financial assets and other credit enhancements.
To the extent possible, the Group uses active market data for valuing financial assets, held as collateral. Other financial assets which do not have readily determinable market value are valued using models. Non-financial collateral, such as real estate, is valued based on data provided by third parties such as independent valuers, Audited Financial Statements and other independent sources.
2.3.10 Impairment of Non-Financial Assets Other than Goodwill
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available-fair-value indicators.
For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset's or cash-generating unit's recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the Income Statement.
2.3.11 Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount reported in the Statement of Financial Position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, therefore, the related assets and liabilities are presented gross in the Statement of Financial Position.
2.3.12 Property, Plant & Equipment
(a) Basis of Recognition
Property, plant & equipment are recognized if it is probable that future economic benefits associated with the asset will flow to the Group and the cost of the asset can be reliably measured.
(b) Basis of Measurement
An item of property, plant & equipment that qualifies for recognition as an asset is initially measured at its cost. Cost includes expenditure that is directly attributable to the acquisition of the assets and subsequent cost as explained below. The cost of self-constructed assets includes the cost of the materials and direct labour, any other cost directly attributable to bringing the assets to a working condition for its intended use and cost of dismantling and removing the old items and restoring site on which they are located. Purchased software which is integral to the functionality of the related equipment is capitalized as part of computer equipment.
(c) Subsequent Cost
There are costs that are recognized in the carrying amount of an item if it is probable that the future economic benefits embodied within that part will flow to the Group and it can be reliably measured.
(d) Depreciation
Depreciation is calculated on a straight-line basis over the useful life of the assets, commencing from when the assets are available for use. The estimated useful lives of the assets are as follows:
| Buildings/improvements | 20 years - 40 years |
| Motor vehicles | 4 years |
| Furniture and office equipment | 5 years |
Depreciation is provided proportionately for the completed number of months the asset is in use, if it is purchased or sold during the financial year.
Leasehold assets are amortized over the lower of the useful life and the lease period of the respective assets.
(e) Derecognition
An item of property, plant & equipment is derecognized upon disposal or when no future economic benefits are expected. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the Income Statement in the year the asset is derecognized.
2.3.13 Intangible Assets
The Group’s intangible assets include the value of computer software and work-in-progress. An intangible asset is recognized only when its cost can be measured reliably and it is probable that the expected future economic benefits that are attributable to it will flow to the Group.
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses.
Intangible assets are amortized using the straight-line method to write down the cost over its estimated useful economic lives as given below:
Computer software 5 years
Intangible assets are derecognized on disposal or when no future economic benefits are expected. Any gain or loss arising on derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset is included in the Income Statement in the year the asset is derecognized.
2.3.14 Leases
Assets leased to customers under agreements that transfer substantially all the risks and rewards associated with ownership other than legal title, are classified as finance leases. Lease rentals receivable in the Statement of Financial Position include total lease payments due net of unearned interest income not accrued to revenue and allowance for impairment.
2.3.15 Investment Property
Properties held to earn rental income and properties held for capital appreciations have been classified as investment property . Investment properties are initially recognized at cost. Subsequent to the initial recognition, the investment properties are stated at fair values, which reflect market conditions at the date of the Statement of Financial Position. Gains or losses arising from changes in the fair values are included in the Income Statement in the year in which they arise.
Cost includes expenditure that is directly attributable to the acquisition of the investment property . The cost of self-constructed investment property includes the cost of materials and direct labour, any other costs directly attributable to bringing the investment property to a working condition for their intended use.
Investment properties are derecognized when disposed of or permanently withdrawn from use because no future economic benefits are expected. Any gains or losses on retirement or disposal are recognized in the Income Statement in the year of retirement or disposal.
An external, independent valuer, having appropriate recognized professional qualifications and recent experience in the location and category of property being valued, values the Group's investment property .
2.3.16 Taxes
(a) Current Tax
Current tax assets and liabilities for the current and prior year are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.
(b) Deferred Tax
Deferred tax is provided on temporary differences at the date of the Statement of Financial Position between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences except -
- Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
- In respect of taxable temporary differences associated with investments in subsidiaries and associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized except -
- Where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
- In respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at each Statement of Financial Position date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each Statement of Financial Position date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the date of the Statement of Financial Position.
(c) Value Added Tax on Financial Services
The basis for the computation of Value Added Tax on financial services is the accounting profit before emoluments paid to employees and income tax attributable to financial services, which is adjusted for the depreciation computed on prescribed rates. The amount of Value Added Tax charged at 12% in determining the profit for the period is given in the Income Statement.
2.3.17 Financial Guarantees
In the ordinary course of business, the Bank gives financial guarantees, consisting of letters of credit, guarantees and acceptances. Financial guarantees are initially recognized in the Financial Statements (within ‘other liabilities’) at fair value, being the premium received.
Subsequent to initial recognition, the Bank’s liability under each guarantee is measured at the higher of the amount initially recognized less cumulative amortization recognized in the Income Statement, and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee.
The premium received is recognized in the Income Statement in ‘Fees and Commission Income’ on a straight line basis over the life of the guarantee.
2.3.18 Employee Benefits
Pension Fund
The Bank operates an approved employee non-contributory pension plan for the payment of pensions to members of its permanent staff who qualify for such payments when retiring. Employees who joined since 1999 are not covered under the said pension scheme. These employees are entitled to retirement gratuity as explained in Note 33. Up to 31 December 2002, annual contributions to the pension plan was payable by the Bank based on a percentage of gross salaries, as stipulated in the pension deed. However, following the formulation of a revised pension deed, which has been approved by the Department of Inland Revenue, the contributions in subsequent years are determined on the basis of an actuarial valuation each year.
Gratuity
The costs of retirement gratuities are determined by a qualified actuary using projected unit credit method. This item is stated under other liabilities in the Statement of Financial Position. Actuarial gains and losses are recognized as income or expense in other comprehensive income during the financial year in which it arise.
Employees’ Provident Fund and Employees’ Trust Fund
Employees are eligible for Employees’ Provident Fund contributions and Employees’ Trust Fund contributions in accordance with the respective statutes and regulations. The Bank contributes 15% and 3% of gross salaries of employees to the Bank's Employees’ Provident Fund and the Employees’ Trust Fund respectively. Group Companies contributes 12% and 3% to Central Bank of Sri Lanka for eligible employees for Employees’ Provident Fund contributions and Employees’ Trust Fund contributions respectively.
2.3.19 Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
2.3.20 Equity Linked Compensation Plan
On 1 July 2010, shareholders of the Bank approved an Equity Linked Compensation Plan (ELCP), to enable the management staff in the rank of Assistant Vice-President and above of the Bank to take part in the voting ordinary share capital of the Bank, subject to certain limits, terms and conditions. A total quantum of 2,455,661 shares of the Bank which is equivalent to a maximum of 3% of the present voting share capital of the Bank is to be issued to the ELCP. Half of such shares are to be awarded as share options and the other half as Share Grants in equal proportions. The issue of shares for the ELCP will take place over five years commencing July 2010. Each of the five tranches would amount to a maximum of 0.6% of the voting shares.
Details of the Share Options and the Share Grants are given in Note 41 to the Financial Statements.
The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully-entitled to the award (‘the vesting date’). The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Bank’s best estimate of the number of equity instruments that will ultimately vest.
The Income Statement expense or credit for a period is recorded in ‘Personnel expenses’ and represents the movement in cumulative expense recognized as at the beginning and end of that period.
2.3.21 Dividends on Ordinary Shares
Dividends on ordinary shares are recognized as a liability and deducted from equity when they are approved by the Board of Directors.
2.3.22 Recognition of Income and Expenses
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized:
(a) Interest and Similar Income and Expense
For all financial instruments measured at amortized cost, interest-bearing financial assets classified as available-for-sale and financial instruments designated at fair value through profit or loss, interest income or expense is recorded using the EIR. EIR is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options) and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR, but not future credit losses.
The carrying amount of the financial asset or financial liability is adjusted if the Group revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original EIR and the change in carrying amount is recorded as ‘interest and similar income’ for financial assets and interest and similar expense for financial liabilities.
Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
(b) Dividend Income
Dividend income from shares is recognized when the Group’s right to receive the payment is established.
(c) Income from Fee-based Activities
Fees for underwriting, advisory work, loan syndication, management of funds and all other fees and commissions are recognized on accrual basis. Fees charged on guarantee/bid bonds are recognized on an accrual basis over the period the service is performed.
(d) Net Trading Income
Results arising from trading activities include all gains and losses from changes in fair value and related interest income or expense and dividends for financial assets and financial liabilities held for trading.
(e) Expenditure Recognition
Operating expenses are recognized in the Income Statement on the basis of a direct association between the cost incurred and the earning of specific items of income. All expenditure incurred in the running of the business and in maintaining the property, plant & equipment in a state of efficiency has been charged to income in arriving at the profit for the year.
2.3.23 Cash and Cash Equivalents
Cash and cash equivalents comprise of cash balances, short-term funds and balances with Central Bank of Sri Lanka. The cash flow statement has been prepared by using ‘The Direct Method’, whereby gross cash receipts and gross cash payments of operating activities, investing and financing activities have been recognized.
2.3.24 Segment Reporting
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components, whose operating results are reviewed regularly by the chief operating decision-maker to make decisions about resources allocated to each segment and assess its performance, and for which discrete financial information is available.
For management purposes, the Bank has identified four operating segments based on products and services, as follows:
- Banking
- Capital Markets
- Property Investment
- Others
Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profits or losses which, in certain respects, are measured differently from operating profits or losses in the Consolidated Financial Statements. Income taxes are managed on a group basis and are not allocated to operating segments.
Interest income is reported net as management primarily relies on net interest revenue as a performance measure, not the gross income and expense. Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.
No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Bank’s total revenue in 2013 or 2012.
2.3.25 Changes in Accounting Policies and Disclosures
LKAS 19 -'Employee Benefits' (Revised 2013)
The Group applied LKAS 19 (Revised 2013) in the current period in accordance with the transitional provisions set out in the revised standard. Some of the key changes that impacted the Group include the following:
The Group previously recognized only the net cumulative unrecognized actuarial gains and losses of the previous period, which exceeded 10% of the greater of the defined benefit obligation and the fair value of the plan assets in accordance with LKAS 19.93 (previous).
As a consequence, the Group's Statement of Financial Position did not reflect a significant part of the unrecognized net actuarial gains and losses.
This method is no more allowed under revised LKAS 19 and hence Group changed its accounting policy to recognized actuarial gains and losses in the period in which they occur in total in Other Comprehensive Income Statements.
2.4 Standards Issued But Not Yet Effective
The following SLFRS have been issued by The Institute of Chartered Accountants of Sri Lanka that have an effective date in the future and have not been applied in preparing these Financial Statements. Those SLFRS will have an effect on the accounting policies currently adopted by the Group and may have an impact on the future Financial Statements.
(i) SLFRS 9 - Financial Instruments: Classification and Measurement SLFRS 9, as issued reflects the first phase of work on replacement of LKAS 39 and applies to classification and measurement of financial assets and liabilities.
This Standard was originally effective for annual periods commencing on or after 1 January 2015. However, effective date has been deferred subsequently.
(ii) SLFRS 13 - Fair Value Measurement SLFRS 13 establishes a single source of guidance under SLFRS for all fair value measurements and provides guidance on all fair value measurements under SLFRS.
This Standard will be effective for the financial period beginning on or after 1 January 2014.
However, use of fair value measurement principles contained in this Standards are currently recommended.
In addition to the above, following Standards will also be effective for the annual periods commencing on or after 1 January 2014.
SLFRS 10 - Consolidated Financial Statements
SLFRS 11 - Joint Arrangements
SLFRS 12 - Disclosure of Interests in Other Entities
The above parcel of three Standards will impact the recognition, measurement and disclosures aspects currently contained in LKAS 27 - Consolidated and Separate Financial Statements, LKAS 28 - 'Investments in Associates', LKAS 31 - 'Interest in Joint Ventures' and SIC - 12 and SIC 13 which are on consolidation of Special Purpose Entities (SPEs) and jointly controlled entities respectively.
Establishing a single control model that applies to all entities including SPEs and removal of option to proportionate consolidation of jointly controlled entities are the significant changes introduced under SLFRS 10 and SLFRS 11 respectively.
SLFRS 12 - establishes a single standard on disclosures related to interests in other entities. This incorporates new disclosures as well as the ones previously captured in earlier versions of LKAS 27, LKAS 28 and LKAS 31.
The Group will adopt these Standards when they become effective. Pending the completion of detailed review, the financial impact is not reasonably estimable as at the date of publication of these Financial Statements.
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
3. Net Interest Income |
||||
3.1 Interest Income |
||||
| Loans and receivables - to banks | 68,735 | 105,400 | 68,735 | 105,400 |
| Loans and receivables - to other customers | 16,437,695 | 14,046,695 | 16,437,695 | 14,046,695 |
| Placements with banks | 683,723 | 309,346 | 686,785 | 309,346 |
| Other financial investments - held-for-trading | 821,202 | 304,261 | 821,202 | 304,610 |
| Financial investments - held-to-maturity | 1,636,638 | 1,712,458 | 1,652,929 | 1,712,458 |
| Financial investments - available-for-sale | 53,649 | – | 53,649 | – |
| Financial investments - loans and receivables | 790,575 | 314,175 | 926,606 | 450,722 |
| Other interest income | 111,393 | 191,302 | 118,241 | 220,636 |
| Total Interest Income | 20,603,610 | 16,983,637 | 20,765,842 | 17,149,867 |
3.2 Interest Income from Sri Lanka Government Securities |
||||
| Interest income | 3,346,578 | 2,485,116 | 3,346,578 | 2,485,116 |
3.3 Interest Income on Impaired Financial Assets |
||||
| Interest income from impaired loans and receivables to other customers | 147,702 | 107,694 | 147,702 | 107,694 |
3.4 Interest Expenses |
||||
| Due to banks | 312,341 | 444,581 | 312,341 | 444,581 |
| Due to other customers | 10,462,783 | 7,853,381 | 10,462,783 | 7,853,381 |
| Debt securities issued and other borrowed funds | 2,697,330 | 2,814,344 | 2,660,091 | 2,758,611 |
| Subordinated term debts | 319,049 | 274,366 | 319,049 | 274,366 |
| Total Interest Expenses | 13,791,503 | 11,386,672 | 13,754,264 | 11,330,939 |
| Net Interest Income | 6,812,107 | 5,596,965 | 7,011,578 | 5,818,928 |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
4. Fee and Commission Income |
||||
| Comprising of | ||||
| Cards | 75,860 | 35,379 | 75,860 | 35,379 |
| Due to other customers | 142,707 | 73,364 | 142,707 | 73,364 |
| Guarantees | 270,596 | 182,712 | 270,596 | 182,712 |
| Loans and receivables - to other customers | 347,139 | 268,319 | 347,139 | 268,319 |
| Remittances | 173,329 | 112,017 | 173,329 | 112,017 |
| Trade finance | 543,888 | 493,121 | 543,888 | 493,121 |
| Bancassuarance | 44,638 | 14,398 | 44,638 | 14,398 |
| Fees related to investment banking and wealth management | – | – | 518,447 | 286,500 |
| Brokerage | – | – | 68,940 | 56,428 |
| Rental income | 9,160 | 8,103 | 209,673 | 164,645 |
| Others | 6,789 | 23,087 | 16,056 | 33,596 |
| Total Fee and Commission Income | 1,614,106 | 1,210,500 | 2,411,273 | 1,720,479 |
| > | ||||
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
5. Net Trading Gains/(Losses) |
||||
| Income from foreign exchange | 953,325 | 976,401 | 953,325 | 976,401 |
| Equities | – | 238 | 877 | 9,099 |
| Debt securities | 213,227 | 33,637 | 213,434 | 37,286 |
| Unit Trusts | 105,076 | – | 700,657 | 249,710 |
| 1,271,628 | 1,010,276 | 1,868,293 | 1,272,496 | |
- ‘Foreign Exchange’ income includes gains and losses from spot and forward contracts and other currency derivatives.
- ‘Equities’ income includes the results of buying and selling, and changes in the fair value of equity securities.
- ‘Debt Securities’ income includes the realized and unrealized gains of debt securities.
- ‘Unit Trusts’ income includes change in the fair value of unit trust investments.
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
6. Other Operating Income |
||||
| Dividend income from securities | ||||
| - Quoted investments | – | – | 17,969 | – |
| - Non-quoted investments | 18,258 | 30,950 | 41,864 | 40,496 |
| Dividend income from group investments | ||||
| - Quoted investments | 659,136 | 54,632 | – | – |
| - Non-quoted investments | 41,067 | 41,067 | – | – |
| Capital gains from sales of securities | 9,685 | 91,122 | 43,194 | 91,122 |
| Capital gains from sale of group investments | 5,372,060 | 535,716 | – | 5,750,942 |
| Foreign exchange gain | 60,449 | 218,830 | 60,449 | 219,471 |
| Gains on sale of property, plant & equipment | 2,408 | 12,384 | 2,408 | 12,384 |
| Gains on investment properties | – | – | 88,000 | – |
| Others | 4,013 | 12,774 | 4,013 | 12,773 |
| 6,167,076 | 997,475 | 257,897 | 6,127,188 | |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
7. Impairment for Loans & Receivables and Other Losses |
||||
| Loans and receivables | ||||
| - To banks | – | – | – | – |
| - To other customers | 1,184,420 | (9,157) | 1,184,420 | (9,157) |
| - Write offs | 76,345 | 66,769 | 76,345 | 66,769 |
| 1,260,765 | 57,612 | 1,260,765 | 57,612 | |
| Investments in subsidiaries | 20,881 | 48,500 | – | (6,233) |
| Investments in associates | (43,444) | – | – | – |
| 1,238,202 | 106,112 | 1,260,765 | 51,379 | |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
8. Personnel Expenses |
||||
| Salary and bonus | 1,895,144 | 1,676,485 | 2,138,517 | 1,811,056 |
| Contribution to Employees’ Provident Fund | 164,154 | 139,404 | 181,132 | 153,606 |
| Contribution to Employees’ Trust Fund | 32,835 | 27,880 | 36,488 | 31,033 |
| Contribution to defined benefit plan | ||||
| - Pension Fund (Note 33.3) | 5,449 | 22,706 | 5,449 | 22,706 |
| - Gratuity (Note 33.3) | 40,990 | 40,960 | 42,370 | 48,619 |
| Share-based payments | 32,323 | 20,054 | 32,323 | 20,054 |
| Others | 218,249 | 245,251 | 224,002 | 246,251 |
| Total | 2,389,144 | 2,172,740 | 2,660,281 | 2,333,325 |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
9. Other Expenses |
||||
| Directors’ emoluments | 28,586 | 25,397 | 32,191 | 26,367 |
| Auditors’ remuneration | 8,019 | 7,188 | 10,008 | 8,987 |
| Non-audit fees to auditors | 18,176 | 5,746 | 18,176 | 5,746 |
| Professional and legal expenses | 21,061 | 12,051 | 42,716 | 13,908 |
| Office administration and establishment expenses | 953,413 | 876,351 | 999,135 | 1,015,955 |
| Depreciation of property, plant & equipment | 223,297 | 181,837 | 293,571 | 218,433 |
| Amortization of intangible assets | 78,807 | 82,783 | 91,068 | 95,786 |
| Deposit insurance expenses | 117,530 | 95,212 | 117,530 | 95,212 |
| Crop Insurance Levy | 77,373 | – | 77,373 | – |
| Others | 1,028,797 | 642,888 | 1,221,826 | 683,120 |
| Total | 2,555,059 | 1,929,453 | 2,903,594 | 2,163,514 |
Directors emoluments include fees paid to Non-Executive Directors. Remunerations paid to Executive Directors are included under salary and bonus in Note 8.
| GROUP | |||
| Percentage Holding 2013/2012 | 2013 LKR ’000 |
2012 LKR ’000 |
|
10. Share of Associate Companies’ Profits/(Losses) |
|||
| Maldives Finance Leasing Co (Pvt) Ltd. | 35.00% | 49,220 | (14,683) |
| AVIVA NDB Insurance PLC (Note 10.1) | 41.14% | – | 440,000 |
| AVIVA NDB Finance Lanka (Pvt) Ltd. | 41.42% | – | 13,403 |
| Total | 49,220 | 438,720 | |
10.1 On 27 September 2012, the Bank and NDB Capital Holdings PLC entered into a Share Sale and Purchase Agreement with American International Assurance Company Ltd. (AIA) of Hong Kong to divest the 41.56% shareholding in AVIVA NDB Holdings and 5% of AVIVA NDB Insurance PLC. Accordingly, on 5 December 2012, the divestment of these shares resulted in a capital gain of LKR 5.9 bn to the NDB Group.
11. Taxation
The components of the income tax expense for the years ended 31 December 2013 and 2012 are:
| BANK | GROUP | ||||
| Note | 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
| Income tax expense | |||||
| Current year | 982,551 | 1,039,602 | 982,551 | 1,039,602 | |
| Adjustment in respect of current income tax of prior years | (128,223) | (16,935) | (128,223) | (16,935) | |
| 854,328 | 1,022,667 | 854,328 | 1,022,667 | ||
| Income tax of subsidiary companies | – | – | 106,434 | 74,854 | |
| Income tax of associate companies | – | – | – | 139,847 | |
| a | 854,328 | 1,022,667 | 960,762 | 1,237,368 | |
| Deferred tax expense | |||||
| Temporary differences | b | 194,448 | 38,000 | 190,131 | 38,000 |
| Total tax charged to the Income Statement | 1,048,776 | 1,060,667 | 1,150,893 | 1,275,368 | |
| Effective tax rate (%) | 11 | 23 | 24 | 12 | |
| Reconciliation of the total tax expense | |||||
a. Income Tax |
|||||
| Profit before tax | 9,682,512 | 4,606,911 | 4,724,401 | 10,390,873 | |
| Income tax for the year (Accounting profit @ applicable tax rate) | 2,711,103 | 1,289,935 | 1,318,486 | 3,342,895 | |
| Tax effect of exempt income | (1,881,884) | (269,649) | (392,927) | (2,107,123) | |
| Adjustment in respect of current income tax of prior years | (128,223) | (16,935) | (127,691) | (16,935) | |
| Add: Tax effect of expenses that are not deductible for tax purposes | 1,210,519 | 606,963 | 1,235,509 | 612,837 | |
| (Less): Tax effect of expenses that are deductible for tax purposes | (1,049,995) | (625,679) | (1,065,423) | (632,338) | |
| Tax effect of leasing/tax losses | (7,192) | 38,032 | (7,192) | 38,032 | |
| Tax expenses for the year | 854,328 | 1,022,667 | 960,762 | 1,237,368 | |
b. Deferred Tax
The following table shows the deferred tax expense recorded in the Income Statement and Statement of Comprehensive Income due to the changes in the deferred tax assets and liabilities:
| Deferred Tax Assets 2013 LKR ’000 |
Deferred Tax Liabilities 2013 LKR ’000 |
Income Statement 2013 LKR ’000 |
Other Comprehensive Income 2013 LKR ’000 |
Deferred Tax Assets 2012 LKR ’000 |
Deferred Tax Liabilities 2012 LKR ’000 |
Income Statement 2012 LKR ’000 |
Other Comprehensive Income 2012 LKR ’000 |
|
| BANK | ||||||||
| Provisions | (41,443) | – | (34,452) | – | (6,991) | – | 5,106 | – |
| Gains on available-for-sale investments | – | 41,482 | – | 41,482 | – | – | – | – |
| Other temporary differences | (109,846) | 422,239 | 228,900 | (3,372) | (208,716) | 295,581 | 32,894 | – |
| Total | (151,289) | 463,721 | 194,448 | 38,110 | (215,707) | 295,581 | 38,000 | – |
| GROUP | ||||||||
| Provisions | (41,443) | – | (34,452) | – | (6,991) | – | 5,106 | – |
| Gains on available-for-sale investments | – | 58,572 | – | 58,572 | – | – | – | – |
| Other temporary differences | (116,749) | 424,071 | 224,583 | (3,372) | (209,792) | 295,903 | 32,894 | – |
| Total | (158,192) | 482,643 | 190,131 | 55,200 | (216,783) | 295,903 | 38,000 | – |
12. Earnings Per Share
The basic earnings per share for 2013 and 2012 have been calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, as required by the Sri Lanka Accounting Standard No. 33 (LKAS 33) on ‘Earnings Per Share’:
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
| Amount used as the numerator | ||||
| Profit attributed to ordinary shareholders (LKR '000) | 7,723,236 | 2,923,958 | 2,641,925 | 8,853,821 |
| Amount used as the denominator | ||||
| Ordinary shares in issue for basic EPS calculation | 164,693,034 | 164,201,902 | 160,559,308 | 160,068,176 |
| Weighted average number of ordinary shares as at the date of the Statement of Financial Position for basic EPS calculation |
164,450,167 | 164,201,902 | 160,316,441 | 160,068,176 |
| Weighted average basic Earnings Per Share (LKR) | 46.96 | 17.81 | 16.48 | 55.31 |
| Amount used as the numerator | ||||
| Profit attributed to ordinary shareholders (LKR '000) (excluding exceptional capital gain) | 2,705,236 | 2,923,958 | 2,641,925 | 2,161,077 |
| Amount used as the denominator | ||||
| Ordinary shares in issue for basic EPS calculation | 164,693,034 | 164,201,902 | 160,559,308 | 160,068,176 |
| Weighted average number of ordinary shares as at the date of the Statement of Financial Position for basic EPS calculation | 164,450,167 | 164,201,902 | 160,316,441 | 160,068,176 |
| Weighted average basic Earnings Per Share (excluding exceptional capital gain) (LKR) | 16.45 | 17.81 | 16.48 | 13.50 |
| Weighted average number of ordinary shares as at the date of the Statement of Financial Position for basic EPS calculation | 164,450,167 | 164,201,902 | 160,316,441 | 160,068,176 |
| Effect of outstanding share option scheme | 49,684 | 55,479 | 54,847 | 55,479 |
| Number of ordinary shares including share option | 164,499,851 | 164,257,381 | 160,371,288 | 160,123,655 |
| Weighted average number of ordinary shares as at the date of the Statement of Financial Position for diluted EPS calculation | 164,499,851 | 164,257,381 | 160,371,288 | 160,123,655 |
| Weighted average diluted Earning Per Share (LKR) | 46.95 | 17.80 | 16.47 | 55.29 |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
13. Cash and Cash Equivalents |
||||
| Local currency in hand | 1,737,799 | 1,448,690 | 1,794,986 | 1,448,766 |
| Foreign currency in hand | 125,169 | 98,098 | 125,169 | 98,098 |
| Balances with banks | 748,107 | 1,933,607 | 748,107 | 2,088,119 |
| 2,611,075 | 3,480,395 | 2,668,262 | 3,634,983 | |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
14. Balances with Central Bank |
||||
| Statutory balances with Central Bank of Sri Lanka | 5,339,000 | 6,074,792 | 5,339,000 | 6,074,792 |
| 5,339,000 | 6,074,792 | 5,339,000 | 6,074,792 | |
Balances with Central Bank includes the cash balance that is required as per the provisions of Section 93 of the Monetary Law Act .
The minimum cash reserve requirement was 6.0% of the Rupee deposit liabilities as at 31 December 2013 (8.0% as at 31 December 2012). This reserve requirement is not applicable for the foreign currency deposit liabilities of the Domestic Banking Unit and the deposit liabilities of the Foreign Currency Banking Unit.
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
15. Placements with Banks |
||||
| Money Market Placements - in Sri Lanka | 130,751 | 3,559,354 | 130,751 | 3,559,354 |
| 130,751 | 3,559,354 | 130,751 | 3,559,354 | |
| BANK & GROUP | ||||
| Financial Assets 2013 LKR ’000 |
Financial Liabilities 2013 LKR ’000 |
Financial Assets 2012 LKR ’000 |
Financial Liabilities 2012 LKR ’000 |
|
16. Derivative Financial Instruments |
||||
| Currency options | 5,895 | 5,895 | – | – |
| Forward foreign exchange contracts | 1,143,646 | 811,415 | 1,706,372 | 1,736,838 |
| 1,149,541 | 817,310 | 1,706,372 | 1,736,838 | |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
17. Other Financial Assets Held-for-Trading |
||||
| Sri Lanka Government Securities - Treasury Bills | 5,061,675 | 448,489 | 5,061,675 | 448,489 |
| Sri Lanka Government Securities - Treasury Bonds | 4,053,939 | 534,478 | 4,053,939 | 534,478 |
| Equity Securities | – | – | 336,293 | 123,717 |
| Investment in Unit Trusts | 1,605,075 | – | 4,742,234 | 10,287,941 |
| 10,720,689 | 982,967 | 14,194,141 | 11,394,625 | |
Financial assets held-for-trading pledged as collateral amounted to LKR 9,115 mn as at 31 December 2013 (2012 - LKR 983 mn).
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
18. Loans and Receivables to Banks |
||||
| Gross loans and receivables - Refinance loans in local currency | 641,628 | 1,183,343 | 641,628 | 1,183,343 |
| (Less): Allowance for impairment charges | – | – | – | – |
| Net Loans and Receivables - Refinance Loans in Local Currency | 641,628 | 1,183,343 | 641,628 | 1,183,343 |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
19. Loans and Receivables to Other Customers |
||||
| Gross loans and receivables | 141,009,004 | 118,915,481 | 141,069,185 | 118,962,157 |
| (Less): Allowance for impairment charges (Note 19.5) | 4,187,472 | 2,923,122 | 4,187,472 | 2,923,122 |
| Net Loans and Receivables to Other Customers | 136,821,532 | 115,992,359 | 136,881,713 | 116,039,035 |
19.1 Loans and Receivables to Other Customers - By Product |
||||
| Long-term loans | 25,231,706 | 21,235,303 | 25,231,706 | 21,235,303 |
| Medium and short-term loans | 33,566,630 | 20,325,610 | 33,566,630 | 20,325,610 |
| Overdrafts | 18,459,862 | 18,634,753 | 18,443,398 | 18,634,753 |
| Trade finance loans | 32,776,432 | 31,171,501 | 32,776,432 | 31,171,501 |
| Consumer loans | 14,620,469 | 11,341,513 | 14,620,469 | 11,341,513 |
| Leasing (Note 19.6) | 8,428,409 | 6,439,571 | 8,428,409 | 6,439,571 |
| Housing loans | 4,764,297 | 4,972,040 | 4,764,297 | 4,972,040 |
| Pawning | 2,232,748 | 4,011,455 | 2,232,748 | 4,011,455 |
| Staff loans | 928,451 | 783,735 | 1,005,096 | 830,411 |
| Gross Loans and Receivables to Other Customers | 141,009,004 | 118,915,481 | 141,069,185 | 118,962,157 |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
19.2 Loans and Receivables to Other Customers - By Currency |
||||
| Sri Lanka Rupee | 107,171,530 | 91,190,842 | 107,231,711 | 91,237,518 |
| United States Dollar | 32,632,514 | 26,548,524 | 32,632,514 | 26,548,524 |
| Sterling Pound | 264,378 | 56,792 | 264,378 | 56,792 |
| Euro | 918,679 | 1,090,473 | 918,679 | 1,090,473 |
| Australian Dollar | 1,921 | – | 1,921 | – |
| Others | 19,982 | 28,850 | 19,982 | 28,850 |
| Total | 141,009,004 | 118,915,481 | 141,069,185 | 118,962,157 |
| BANK | ||||
| 2013 | 2012 | |||
| LKR ’000 | % | LKR ’000 | % | |
19.3 Loans and Receivables to Other Customers - By Industry |
||||
| Food, beverages and tobacco | 6,147,979 | 4.4 | 3,867,971 | 3.4 |
| Agriculture, agro-business and fisheries | 23,822,627 | 16.9 | 16,611,353 | 14.8 |
| Textiles and garments | 15,762,846 | 11.2 | 15,137,000 | 10.5 |
| Wood and paper products | 1,411,804 | 1.0 | 1,608,146 | 1.4 |
| Leather and plastic products | 2,068,823 | 1.5 | 2,793,814 | 2.5 |
| Metals, chemicals and engineering | 10,464,249 | 7.4 | 9,782,592 | 8.7 |
| Hotels and tourism | 3,442,992 | 2.4 | 2,079,905 | 1.8 |
| Utilities | 4,968,585 | 3.5 | 2,590,607 | 2.3 |
| Constructions and housing finance | 11,500,264 | 8.2 | 12,752,024 | 8.6 |
| Services | 17,081,395 | 12.1 | 17,380,140 | 15.5 |
| Transport | 3,778,090 | 2.7 | 733,709 | 0.7 |
| Trading | 15,725,082 | 11.2 | 10,494,381 | 9.3 |
| Consumer | 24,792,450 | 17.6 | 22,227,027 | 19.8 |
| Other | 41,818 | – | 856,812 | 0.7 |
| Total | 141,009,004 | 100.0 | 118,915,481 | 100.0 |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
19.4 Loans and Receivables to Other Customers - By Province |
||||
| Western Province | 124,579,549 | 103,448,133 | 124,639,731 | 103,494,809 |
| Southern Province | 3,632,923 | 3,185,742 | 3,632,923 | 3,185,742 |
| North-Western Province | 3,404,250 | 2,910,290 | 3,404,250 | 2,910,290 |
| Central Province | 2,932,843 | 2,587,501 | 2,932,843 | 2,587,501 |
| Sabaragamuwa Province | 2,113,614 | 2,025,175 | 2,113,614 | 2,025,175 |
| Eastern Province | 1,515,788 | 1,864,716 | 1,515,788 | 1,864,716 |
| North-Central Province | 1,195,847 | 1,215,422 | 1,195,847 | 1,215,422 |
| Northern Province | 906,496 | 1,035,940 | 906,496 | 1,035,940 |
| Uva Province | 727,694 | 642,562 | 727,693 | 642,562 |
| Total | 141,009,004 | 118,915,481 | 141,069,185 | 118,962,157 |
The province wise disclosure is made based on the location of the branch from which the loan has been disbursed.
19.5 Allowance for Impairment Charges for Loans and Receivables to Other Customers
| BANK & GROUP | ||||||||||
| Long-term Loans LKR ’000 |
Medium and Short-term Loans LKR ’000 |
Overdrafts LKR ’000 |
Trade Finance Loans LKR ’000 |
Consumer Loans LKR ’000 |
Leasing LKR ’000 |
Housing Loans LKR ’000 |
Pawning LKR ’000 |
Staff Loans LKR ’000 |
Total LKR ’000 |
|
| As at 1 January 2013 | 930,383 | 449,089 | 797,844 | 359,060 | 280,155 | 49,735 | 42,763 | 7,947 | 6,146 | 2,923,122 |
| Charges/(reversals) for the year | 204,151 | 464,482 | 433,534 | 261,002 | 79,433 | 34,706 | (6,065) | 120,741 | 3,422 | 1,595,406 |
| Amounts written-off | (331,056) | – | – | – | – | – | – | – | – | (331,056) |
| As at 31 December 2013 | 803,478 | 913,571 | 1,231,378 | 620,062 | 359,588 | 84,441 | 36,698 | 128,688 | 9,568 | 4,187,472 |
| Individual impairment | 194,309 | 717,745 | 552,936 | 340,580 | – | 3,233 | – | 10,134 | 9,128 | 1,828,065 |
| Collective impairment | 609,169 | 195,826 | 678,442 | 279,482 | 359,590 | 81,208 | 36,698 | 118,554 | 440 | 2,359,407 |
| 803,478 | 913,571 | 1,231,378 | 620,062 | 359,590 | 84,441 | 36,698 | 128,688 | 9,568 | 4,187,472 | |
| Gross amount of loan individually determined to be impaired, before deduction of individually assessed impairment allowance | 2,356,833 | 2,635,835 | 1,049,859 | 1,780,766 | – | 178,814 | – | 14,886 | – | 8,016,993 |
| BANK & GROUP | ||||||||||
| Long-term Loans LKR ’000 |
Medium and Short-term Loans LKR ’000 |
Overdrafts LKR ’000 | Trade Finance Loans LKR ’000 |
Consumer Loans LKR ’000 |
Leasing LKR ’000 |
Housing Loans LKR ’000 |
Pawning LKR ’000 |
Staff Loans LKR ’000 | Total LKR ’000 | |
| As at January 2012 | 1,041,179 | 423,704 | 588,409 | 457,317 | 273,052 | 56,448 | 18,787 | 72 | 5,469 | 2,864,437 |
| Charges/(reversals) for the year | (110,796) | 25,385 | 209,435 | (98,257) | 7,103 | (6,713) | 23,976 | 7,875 | 677 | 58,685 |
| As at 31 December 2012 | 930,383 | 449,089 | 797,844 | 359,060 | 280,155 | 49,735 | 42,763 | 7,947 | 6,146 | 2,923,122 |
| Individual impairment | 245,289 | 210,753 | 371,505 | 148,985 | – | – | – | 2,654 | – | 979,186 |
| Collective impairment | 685,094 | 238,336 | 426,339 | 210,075 | 280,155 | 49,735 | 42,763 | 5,293 | 6,146 | 1,943,936 |
| 930,383 | 449,089 | 797,844 | 359,060 | 280,155 | 49,735 | 42,763 | 7,947 | 6,146 | 2,923,122 | |
| Gross amount of loan individually determined to be impaired, before deduction of individually assessed impairment allowance | 1,620,989 | 571,330 | 500,925 | 345,773 | – | 19,697 | – | 47,869 | – | 3,106,583 |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
19.5.(a) Movements in Individual and Collective Impairment during the year for Loans and Receivables to Other Customers |
||||
| Individual impairment | ||||
| As at 1 January | 979,186 | 987,054 | 979,186 | 987,054 |
| Charge/(reversals) to Income Statement | 1,179,935 | (7,868) | 1,179,935 | (7,868) |
| Write-off during the year | (331,056) | – | (331,056) | – |
| As at 31 December | 1,828,065 | 979,186 | 1,828,065 | 979,186 |
| Collective impairment | ||||
| As at 1 January | 1,943,936 | 1,877,383 | 1,943,936 | 1,877,383 |
| Charge/(reversals) to Income Statement | 415,471 | 66,553 | 415,471 | 66,553 |
| Write-off during the year | – | – | – | – |
| As at 31 December | 2,359,407 | 1,943,936 | 2,359,407 | 1,943,936 |
| Total impairment | 4,187,472 | 2,923,122 | 4,187,472 | 2,923,122 |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
19.6 Lease Rentals Receivable |
||||
| Gross lease rentals receivables | 10,468,941 | 9,764,885 | 10,468,941 | 9,764,885 |
| Less: Unearned income | 2,040,532 | 3,325,314 | 2,040,532 | 3,325,314 |
| Total lease receivables | 8,428,409 | 6,439,571 | 8,428,409 | 6,439,571 |
| (Less): Allowance for impairment charges [Note 19.6. (a)] | 84,441 | 49,734 | 84,441 | 49,734 |
| Net lease rentals receivables | 8,343,968 | 6,389,837 | 8,343,968 | 6,389,837 |
| BANK & GROUP | ||
| 2013 LKR ’000 |
2012 LKR ’000 |
|
19.6.(a) Allowance for Impairment Charges |
||
| As at 1 January | 49,735 | 56,448 |
| Charges/(reversals) for the year | 34,706 | (6,713) |
| As at 31 December | 84,441 | 49,735 |
| Individual impairment | 3,233 | – |
| Collective impairment | 81,208 | 49,735 |
| 84,441 | 49,735 | |
| Gross amount of lease individually determined to be impaired, before deduction of the individually assessed impairment allowance |
178,814 | 19,697 |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
19.6.(b) Movements in Individual and Collective Impairment during the year for Lease Rentals Receivable |
||||
| Individual impairment | ||||
| As at 1 January | – | – | – | – |
| Charge to Income Statement | 3,233 | – | 3,233 | – |
| As at 31 December | 3,233 | – | 3,233 | – |
| Collective impairment | ||||
| As at 1 January | 49,735 | 56,448 | 49,735 | 56,448 |
| Charge/(write back) to Income Statement | 31,473 | (6,713) | 31,473 | (6,713) |
| As at 31 December | 81,208 | 49,735 | 81,208 | 49,735 |
| Total impairment | 84,441 | 49,735 | 84,441 | 49,735 |
19.7 Maturity of Lease Rentals Receivable
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
19.7.(a) Gross Lease Rentals Receivable within One Year |
||||
| Total rental receivables | 412,692 | 867,302 | 412,692 | 867,302 |
| (Less): Allowance for impairment charges | (29,265) | (22,920) | (29,265) | (22,920) |
| Interest in suspense | (68,242) | (57,714) | (68,242) | (57,714) |
| Unearned income | (11,848) | (86,089) | (11,848) | (86,089) |
| Net Rentals Receivable | 303,337 | 700,579 | 303,337 | 700,579 |
19.7.(b) Gross Lease Rentals Receivable after One Year |
||||
| Total rental receivables | 10,164,395 | 8,960,201 | 10,164,395 | 8,960,201 |
| (Less): Allowance for impairment charges | (55,176) | (26,815) | (55,176) | (26,815) |
| Interest in suspense | (39,933) | (4,903) | (39,933) | (4,903) |
| Unearned income | (2,028,655) | (3,239,225) | (2,028,655) | (3,239,225) |
| Net Rentals Receivable | 8,040,631 | 5,689,258 | 8,040,631 | 5,689,258 |
| Total Net Rentals Receivable | 8,343,968 | 6,389,837 | 8,343,968 | 6,389,837 |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
20. Financial Investments - Loans and Receivables |
||||
| Sri Lanka development bonds | 10,781,368 | 2,981,123 | 10,781,369 | 2,981,123 |
| Redeemable cumulative preference shares | 136,262 | 140,040 | 136,262 | 140,040 |
| Investment in securitizations | – | – | 91,698 | 642,862 |
| Investment in quoted debentures | – | – | 854,943 | – |
| Securities purchased under resale agreements | 4,919,825 | 3,324,868 | 4,927,429 | 3,324,868 |
| 15,837,455 | 6,446,031 | 16,791,701 | 7,088,893 | |
The face value of securities purchased under resale agreements which are pledged as collateral for borrowings under repurchase agreements amounted to LKR 4.9 bn (2012 - LKR 3.3 bn).
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
21. Financial Investments - Available-for-Sale |
||||
| Sri Lanka Government Securities - Treasury Bills | 4,889,272 | – | 4,889,272 | – |
| Sri Lanka Government Securities - Treasury Bonds | 582,449 | – | 582,449 | – |
| Sovereign Bonds | 505,939 | – | 505,939 | – |
| Non-quoted ordinary shares | 4,790 | 4,790 | 189,790 | 111,617 |
| Investment Fund Account [Refer Note 21.(a)] | – | 61,924 | – | 61,924 |
| 5,982,450 | 66,714 | 6,167,450 | 173,541 | |
Financial Investments available-for-sale, pledged as collateral amounted to LKR 2,657 mn as at 31 December 2013 (2012 - Nil).
| BANK & GROUP | ||||
| Maturity Date | Rate of Interest % | 2013 LKR ’000 |
2012 LKR ’000 |
|
21.(a) Investment Fund Account |
||||
| Sri Lanka Government Securities - Treasury Bills | Feb - Apr 2013 | 10.5 -13.5 | – | 61,924 |
| – | 61,924 | |||
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
22. Financial Investments Held-to-Maturity |
||||
| Sri Lanka Government Securities - Treasury Bills | 5,620,318 | 3,476,192 | 5,620,318 | 3,500,061 |
| Sri Lanka Government Securities - Treasury Bonds | 10,379,471 | 15,781,079 | 10,379,471 | 15,616,573 |
| Debentures | 1,602,460 | – | 2,460,802 | 106,594 |
| 17,602,249 | 19,257,271 | 18,460,591 | 19,223,228 | |
| Corporate Status | Percentage Holding % | 2013 Cost LKR ’000 | 2013 Directors’ Valuation/ Market Value LKR ’000 | Percentage Holding % | 2012 Cost LKR ’000 | 2012 Directors’ Valuation/ Market Value LKR ’000 | |
23. Investments in Subsidiary Companies |
|||||||
23.1 Bank |
|||||||
| NDB Capital Holdings PLC | Quoted | 99.62 | 1,748,142 | 16,062,148 | 99.62 | 2,330,855 | 19,063,550 |
| Development Holdings (Pvt) Ltd. | Non-quoted | 58.61 | 228,150 | 1,140,651 | 58.61 | 228,150 | 1,072,860 |
| NDB Capital Ltd. | Non-quoted | 77.80 | 130,673 | 61,293 | 77.80 | 130,673 | 82,216 |
| Less: Allowance for impairment of investments (Note 23.2) | (69,380) | – | (48,500) | – | |||
| 2,037,585 | 17,264,092 | 2,641,178 | 20,218,626 | ||||
23.2 Movement in the Impairment of Investments |
2013 LKR ’000 |
2012 LKR ’000 |
|||||
| As at 1 January | 48,500 | – | |||||
| Charge to Income Statement | 20,880 | 48,500 | |||||
| As at 31 December | 69,380 | 48,500 | |||||
23.3 The Bank has a 100% holding in NDB Industrial Estates (Pvt) Ltd., in which company, LKR 30 has been invested as share capital.
The Company is currently under liquidation.
23.4 The Directors' valuation of investments in subsidiary companies has been carried out on a net assets basis except for investments in quoted companies, which are at the Market value as at the date of the Statement of Financial Position.
23.5 As explained in 23.3, NDB Capital Holdings PLC has been valued at the market price as at the Statement of Financial Position date. The Company's shares are traded and the market price is driven by the non-controlling shareholders of only 0.38%.
23.6 On 27 September 2012, the Bank and NDB Capital Holdings PLC (NCAP) entered into a Share Sale and Purchase Agreement with American International Assurance Company Ltd. (AIA) of Hong Kong to divest the 41.56% shareholding in Aviva NDB Holdings and 5% of Aviva NDB Insurance PLC. Accordingly on 5 December 2012 the divestment of these shares resulted in a capital gain of LKR 5.9 bn to the NDB Group during the fourth quarter of 2012. Pursuant to this divestment, the shareholders of NCAP approved a share repurchase plan in March 2013, which resulted in NCAP buying back 25% of its share capital equivalent to LKR 583 mn of cost of investment of the Bank, posting a capital gain of LKR 5.3 bn to the Bank during the first quarter of 2013.
| Corporate Status | Percentage Holding % | 2013 Cost LKR ’000 |
2013 Directors’ Valuation LKR ’000 |
Percentage Holding % | 2012 Cost LKR ’000 |
2012 Directors’ Valuation LKR ’000 |
|
24. Investments in Associate Companies |
|||||||
24.1 Bank |
|||||||
| Maldives Finance Leasing Co. (Pvt) Ltd. | Non-quoted | 35 | 165,462 | 43,443 | 35 | 165,462 | – |
| Ayojana Fund (Pvt) Ltd. | Under liquidation | 50 | 100 | – | 50 | 100 | – |
| NDB Venture Investments (Pvt) Ltd. | Under liquidation | 50 | 18,525 | 33,301 | 50 | 18,525 | 33,301 |
| Less: Allowance for impairment of investments (Note 24.2) | (122,120) | – | (165,562) | – | |||
| 61,967 | 76,744 | 18,525 | 33,301 | ||||
24.2 Movement in the Impairment of Investments |
2013 | 2012 | |||||
| LKR ’000 | LKR ’000 | ||||||
| As at 1 January | 165,562 | 165,562 | |||||
| Reversal to Income Statement | (43,442) | – | |||||
| As at 31 December | 122,120 | 165,562 | |||||
| Corporate Status | Percentage Holding % | As at 01.01.2013 LKR ’000 |
Exchange gain on Valuation LKR ’000 | Profit net of Dividend Received LKR ’000 | As at 31.12.2013 LKR ’000 |
|
24.3 Group |
||||||
| Maldives Finance Leasing Co. (Pvt) Ltd. | Non-Quoted | 35 | – | (5,777) | 49,220 | 43,443 |
| NDB Venture Investments (Pvt) Ltd. | Under Liquidation | 50 | 33,301 | – | – | 33,301 |
| 33,301 | (5,777) | 49,220 | 76,744 | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
|
24.4 Summarized Financial Information of the NDB Group’s Investment in its Associates |
||
| Total assets | 397,232 | 595,148 |
| Total liabilities | 206,497 | 546,359 |
| Net assets | 190,724 | 48,790 |
| Revenue | 116,204 | 134,213 |
| Profits | 49,220 | 438,720 |
| GROUP | ||
| 2013 LKR ’000 |
2012 LKR ’000 |
|
25. Investment Property |
||
| As at 1 January | 1,295,693 | 1,295,693 |
| Change in the fair value during the year | 88,000 | – |
| As at 31 December | 1,383,693 | 1,295,693 |
Development Holdings (Pvt) Ltd., is a subsidiary of the Bank, whose principal activity is renting out premises for commercial use.
Investment properties are stated at fair value, which has been determined based on valuations performed by a professional valuer Mr A A M Fathihu, B.Sc (Hons), EMV, FIV Sri Lanka.
The income approach using the current market rent including passing rents has been used as the methodology by the valuer to value the Investment Property as recommended by LKAS 40 - Investment Property .
Significant Assumptions Used for the Valuation
- Outgoing at 40% of estimated rent
- Capitalise YP at 6.35%
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
26. Intangible Assets |
||||
26.1 Computer Software |
||||
| Cost/Valuation | ||||
| As at 1 January | 485,769 | 598,196 | 548,728 | 641,457 |
| Additions during the year | 23,330 | 87,062 | 25,573 | 106,747 |
| Disposals during the year | (1,755) | – | (1,894) | (199,476) |
| Transfers/Adjustments | – | (199,489) | – | – |
| As at 31 December | 507,344 | 485,769 | 572,407 | 548,728 |
| Depreciation/Amortization | ||||
| As at 1 January | 213,455 | 329,984 | 230,004 | 333,530 |
| Charge for the year | 78,807 | 82,783 | 91,068 | 95,786 |
| Disposals during the year | – | – | – | – |
| Transfers/Adjustments | (134) | (199,312) | (134) | (199,312) |
| As at 31 December | 292,128 | 213,455 | 320,938 | 230,004 |
| Net book Value as at 31 December | 215,216 | 272,314 | 251,469 | 318,723 |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
26.2 Software Under Development |
||||
| Cost/Valuation | ||||
| As at 1 January | – | 10,421 | – | 10,421 |
| Additions during the year | 48,285 | 7,935 | 48,285 | 7,935 |
| Transfers/Adjustments | (3,076) | (18,356) | (3,076) | (18,356) |
| As at 31 December | 45,209 | – | 45,209 | – |
| Net Book Value of Total Intangible Assets | 260,425 | 272,314 | 296,678 | 318,723 |
| Freehold Land LKR ’000 |
Freehold Buildings LKR ’000 |
Computer Equipment LKR ’000 |
Motor Vehicles LKR ’000 |
Office Equipment & Furniture LKR ’000 |
Capital Work-in-Progress LKR ’000 |
Total LKR ’000 |
|
27. Property, Plant & Equipment |
|||||||
27.1 Bank |
|||||||
(a) Cost |
|||||||
| As at 1 January 2013 | 165,016 | 618,746 | 540,223 | 172,492 | 453,446 | – | 1,949,923 |
| Additions during the year | – | 50,332 | 56,350 | 53,669 | 76,369 | 46,997 | 283,717 |
| Disposals during the year | – | – | (4,827) | (22,095) | (235) | – | (27,157) |
| Transfers/Adjustments | – | (362) | (136) | – | 2,384 | (43,574) | (41,688) |
| As at 31 December 2013 | 165,016 | 668,716 | 591,610 | 204,066 | 531,964 | 3,423 | 2,164,795 |
(b) Depreciation/Amortization |
|||||||
| As at 1 January 2013 | – | 398,550 | 314,746 | 88,433 | 291,997 | – | 1,093,726 |
| Charge for the year | – | 49,062 | 76,172 | 38,059 | 60,004 | – | 223,297 |
| On disposals | – | – | (5,434) | (20,417) | (209) | – | (26,060) |
| Transfers/Adjustments | – | (502) | (136) | – | 1,580 | – | 942 |
| As at 31 December 2013 | – | 447,110 | 385,348 | 106,075 | 353,372 | – | 1,291,905 |
| Net book value as at 31 December 2013 (a) - (b) |
165,016 | 221,606 | 206,262 | 97,991 | 178,592 | 3,423 | 872,890 |
| Net book value as at 31 December 2012 | 165,016 | 220,196 | 225,477 | 84,058 | 161,448 | – | 856,195 |
| Location | Extent (Perches) | Cost or Revaluation of Land LKR ’000 | Buildings (Square Feet) | Cost or Revaluation of Buildings LKR ’000 | Total Value LKR ’000 | Accumulated Depreciation LKR ’000 | Written down Value LKR ’000 | As a % of Total Cost |
27.2 Freehold Land and Building |
||||||||
| Head Office - Dharmapala Mawatha - No. 103A, Dharmapala Mawatha, Colombo 7 | 20 | 164,857 | 3,766 | 38,145 | 203,002 | 4,636 | 198,366 | 64.5 |
| Head Office - Navam Mawatha - No. 40, Navam Mawatha, Colombo 02 | 1.43 | 159 | 8,842 | 385,339 | 385,498 | 276,309 | 109,189 | 35.5 |
| 21.43 | 165,016 | 12,608 | 423,484 | 588,500 | 280,945 | 307,555 | 100.0 | |
| Add: Improvement to buildings of the Bank branches | 245,232 | 166,165 | 79,067 | |||||
| Net book value as at 31 December 2013 | 833,732 | 447,110 | 386,622 | |||||
| Freehold Land LKR ’000 |
Freehold Buildings LKR ’000 |
Computer Equipment LKR ’000 |
Motor Vehicles LKR ’000 |
Office Equipment & Furniture LKR ’000 |
Capital Work-in-Progress LKR ’000 |
Total LKR ’000 |
|
27.3 Group |
|||||||
(a) Cost |
|||||||
| As at 1 January 2013 | 469,323 | 618,746 | 581,802 | 233,305 | 590,109 | – | 2,493,285 |
| Additions during the year | – | 50,525 | 61,360 | 54,120 | 77,426 | 46,997 | 290,428 |
| Disposals during the year | – | – | (4,827) | (22,095) | (235) | – | (27,157) |
| Transfers/adjustments | – | (362) | (136) | – | 2,375 | (43,574) | (41,697) |
| As at 31 December 2013 | 469,323 | 668,909 | 638,199 | 265,330 | 669,675 | 3,423 | 2,714,859 |
(b) Depreciation/Amortization |
|||||||
| As at 1 January 2013 | – | 398,550 | 347,887 | 117,220 | 407,128 | – | 1,270,785 |
| Charge for the year | – | 50,115 | 81,971 | 47,976 | 113,509 | – | 293,571 |
| On disposals | – | (1,372) | (5,434) | (20,417) | (209) | – | (27,432) |
| Transfers/adjustments | – | – | (136) | – | 1,580 | – | 1,444 |
| As at 31 December 2013 | – | 447,293 | 424,288 | 144,779 | 522,008 | – | 1,538,368 |
| Net book value as at 31 December 2013 (a) - (b) | 469,323 | 221,616 | 213,911 | 120,551 | 147,667 | 3,423 | 1,176,491 |
| Net book value as at 31 December 2012 | 469,323 | 220,196 | 233,915 | 116,085 | 182,981 | – | 1,222,500 |
27.4 Fully Depreciated Property Plant & Equipment - Bank
The initial cost of fully depreciated property, plant & equipment as at 31 December 2013, which are still in use as at the reporting date is as follows:
| BANK | ||
| 2013 LKR ’000 |
2012 LKR ’000 |
|
| Computer equipment | 209,304 | 528,840 |
| Buildings | 195,573 | 189,614 |
| Motor vehicles | 33,758 | 57,449 |
| Office equipment & furniture | 224,555 | 264,143 |
| 791,778 | 1,314,740 | |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
28. Other Assets |
||||
| Sundry receivables | 333,580 | 151,517 | 591,601 | 414,280 |
| Deposits and prepayments | 243,892 | 257,820 | 301,886 | 273,846 |
| Unamortised staff cost (Note 28.1) | 541,525 | 445,842 | 565,249 | 466,562 |
| Employees Share Ownership Plan (ESOP) | 68,747 | 80,205 | – | – |
| Group balance receivable | 1,647 | 1,101 | – | – |
| 1,189,391 | 936,485 | 1,458,737 | 1,154,688 | |
The ESOP represents the written down value of the Bank’s shares issued to a trust for the benefit of the employees. The total cost of
LKR 229 mn is being amortized over a period of 20 years with effect from 1 January 2000.
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
28.1 Unamortized Staff Cost |
||||
| As at 1 January 2013 | 445,842 | 386,366 | 466,562 | 403,248 |
| Add: Adjustment for new grants and settlements | 168,727 | 115,941 | 178,289 | 124,570 |
| Less: Charged to personnel cost | (73,045) | (56,464) | (79,603) | (61,256) |
| As at 31 December 2013 | 541,525 | 445,842 | 565,249 | 466,562 |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
29. Due to Banks |
||||
| Borrowings from local banks | 9,053,574 | 2,187,539 | 9,053,574 | 2,187,539 |
| Due to foreign banks | 1,399,512 | 132,445 | 1,399,512 | 132,445 |
| 10,453,086 | 2,319,984 | 10,453,086 | 2,319,984 | |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
29.1 Due to Banks - By Currency |
||||
| Local Currency | 505,918 | 1,551,026 | 505,918 | 1,551,026 |
| Foreign Currency | 9,947,168 | 768,958 | 9,947,168 | 768,958 |
| Total | 10,453,086 | 2,319,984 | 10,453,086 | 2,319,984 |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
30. Due to Other Customers |
||||
30.1 Due to Other Customers - By Products |
||||
| Savings deposits | 20,737,295 | 18,023,160 | 20,329,079 | 18,023,160 |
| Time deposits | 97,457,473 | 81,648,029 | 97,457,473 | 81,441,312 |
| Demand deposits | 11,099,605 | 7,742,146 | 11,099,605 | 7,742,146 |
| Margins | 489,251 | 143,600 | 489,251 | 143,600 |
| Other deposits | 46,405 | 43,648 | 46,405 | 43,648 |
| 129,830,029 | 107,600,583 | 129,421,813 | 107,393,866 | |
| BANK | GROUP | |||||||
| 2013 LKR ’000 |
% | 2012 LKR ’000 |
% | 2013 LKR ’000 |
% | 2012 LKR ’000 |
% | |
30.2 Due to Other Customers - By Currency |
||||||||
| Local Currency Deposits | ||||||||
| Savings deposits | 14,419,607 | 11 | 10,726,145 | 10 | 14,011,391 | 11 | 10,726,145 | 10 |
| Time deposits | 76,149,198 | 59 | 62,509,647 | 58 | 76,149,198 | 59 | 62,302,930 | 58 |
| Demand deposits | 9,081,419 | 7 | 6,194,524 | 6 | 9,081,419 | 7 | 6,194,524 | 6 |
| Margins | 462,539 | – | 105,440 | – | 462,539 | – | 105,440 | – |
| Other deposits | 16,681 | – | 30,372 | – | 16,681 | – | 30,372 | – |
| 100,129,444 | 77 | 79,566,128 | 74 | 99,721,228 | 77 | 79,359,411 | 74 | |
| Foreign Currency Deposits | ||||||||
| Savings deposits | 6,317,688 | 5 | 7,297,015 | 7 | 6,317,688 | 5 | 7,297,015 | 7 |
| Time deposits | 21,308,275 | 16 | 19,138,382 | 18 | 21,308,275 | 16 | 19,138,382 | 18 |
| Demand deposits | 2,018,186 | 2 | 1,547,622 | 1 | 2,018,186 | 2 | 1,547,622 | 1 |
| Margins | 26,712 | – | 38,160 | – | 26,712 | – | 38,160 | – |
| Other deposits | 29,724 | – | 13,276 | – | 29,724 | – | 13,276 | – |
| 29,700,585 | 23 | 28,034,455 | 26 | 29,700,585 | 23 | 28,034,455 | 26 | |
| Total | 129,830,029 | 100 | 107,600,583 | 100 | 129,421,813 | 100 | 107,393,866 | 100 |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
30.3 Due to Other Customers - By Province |
||||
| Western Province | 118,274,186 | 97,238,538 | 117,865,971 | 97,031,821 |
| North Western Province | 2,819,643 | 2,612,774 | 2,819,643 | 2,612,774 |
| Southern Province | 2,104,254 | 1,960,352 | 2,104,254 | 1,960,352 |
| Central Province | 2,374,189 | 1,780,424 | 2,374,189 | 1,780,424 |
| Sabaragamuwa Province | 1,926,321 | 1,654,511 | 1,926,321 | 1,654,510 |
| Eastern Province | 617,021 | 723,384 | 617,021 | 723,384 |
| Northern Province | 657,371 | 662,464 | 657,371 | 662,465 |
| North Central Province | 544,081 | 500,278 | 544,081 | 500,278 |
| Uva Province | 512,963 | 467,858 | 512,962 | 467,858 |
| 129,830,029 | 107,600,583 | 129,421,813 | 107,393,866 | |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
31. Debt Securities Issued and Other Borrowed Funds |
||||
(a) Bank |
||||
| Concessionary credit lines | 3,553,877 | 7,762,298 | 3,553,877 | 7,762,298 |
| Refinance borrowings | 3,460,599 | 885,011 | 3,460,599 | 885,011 |
| Foreign borrowings | 5,207,343 | 2,690,692 | 5,207,343 | 2,690,692 |
| Reverse repurchase agreements | 11,771,598 | 12,515,861 | 11,771,598 | 12,515,861 |
| Local borrowings | 27,290 | 5,579,551 | 27,290 | 5,569,626 |
| Non-quoted debentures - (Note 31.1) | 400,111 | 924,411 | 370,111 | 894,411 |
| 24,420,818 | 30,357,824 | 24,390,818 | 30,317,899 | |
31.1 Non-quoted Debentures
Non-quoted debentures consist of 400,000 unlisted unsecured redeemable debentures of LKR 1,000/- each issued by the Bank in 2011 of which debts are given below:
| BANK | GROUP | ||||||
| Interest Payable Frequency | Issue Date | Maturity Date | 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
| Floating Rate Debenture | |||||||
| 2011-2016 - 3 month TB rate (Gross) +1% p.a. | Quarterly | 30.06.2011 | 30.06.2016 | 110,000 | 110,000 | 110,000 | 110,000 |
| 2011-2016 - 3 month TB rate (Gross) +1% p.a. | Quarterly | 18.07.2011 | 30.06.2016 | 50,000 | 50,000 | 50,000 | 50,000 |
| 2011-2016 - 3 month TB rate (Gross) +1% p.a. | Quarterly | 19.07.2011 | 30.06.2016 | 40,000 | 40,000 | 40,000 | 40,000 |
| 2011-2016 - 3 month TB rate (Gross) +1% p.a. | Quarterly | 21.07.2011 | 30.06.2016 | 200,111 | 200,140 | 170,111 | 170,140 |
| 400,111 | 400,140 | 370,111 | 370,140 | ||||
| Fixed Rate Debenture | |||||||
| 2005/2013 -10.13 % p.a. | Semi annually | 23.03.2005 | 24.01.2013 | – | 524,271 | – | 524,271 |
| 400,111 | 924,411 | 370,111 | 894,411 | ||||
| Due within one year | – | 524,271 | – | 524,271 | |||
| Due after one year | 400,111 | 400,140 | 370,111 | 370,140 | |||
| 400,111 | 924,411 | 370,111 | 894,411 | ||||
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
32. Deferred Taxation |
||||
| Deferred tax liabilities | ||||
| Accelerated depreciation for tax purposes | 71,502 | 57,013 | 73,334 | 57,335 |
| Finance leases | 350,737 | 238,568 | 350,737 | 238,568 |
| Gains on available-for-sale investments | 41,482 | – | 58,572 | – |
| 463,721 | 295,581 | 482,643 | 295,903 | |
| Deferred tax assets | ||||
| Defined benefit plans | 47,603 | 34,214 | 46,915 | 35,290 |
| Carry forward loss on leasing business | 62,243 | 104,269 | 62,243 | 104,269 |
| Loss on other operations | – | 70,233 | 7,591 | 70,233 |
| Provision for bad and doubtful debts | 41,443 | 6,991 | 41,443 | 6,991 |
| 151,289 | 215,707 | 158,192 | 216,783 | |
| Net deferred tax liability | 312,432 | 79,874 | 324,451 | 79,120 |
| INCOME STATEMENT | OTHER COMPREHENSIVE INCOME | |||||||
| BANK | GROUP | BANK | GROUP | |||||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
| Deferred tax liabilities | ||||||||
| Accelerated depreciation for tax purposes | 14,489 | 16,905 | 15,999 | 16,048 | – | – | – | – |
| Finance leases | 112,169 | 65,758 | 112,169 | 65,758 | – | – | – | – |
| Gains on available-for-sale investments | – | – | – | – | 41,482 | – | 58,572 | – |
| 126,658 | 82,663 | 128,168 | 81,806 | 41,482 | – | 58,572 | – | |
| Deferred tax assets | ||||||||
| Defined benefit plans | (10,017) | (7,864) | (8,253) | (7,008) | (3,372) | – | (3,372) | – |
| Carry forward loss on leasing business | 42,026 | (41,905) | 42,026 | (41,905) | – | – | – | – |
| Loss on other operations | 70,233 | – | 62,642 | – | – | – | – | – |
| Provision for bad and doubtful debts | (34,452) | 5,106 | (34,452) | 5,107 | – | – | – | – |
| 67,790 | (44,663) | 61,963 | (43,806) | (3,372) | – | (3,372) | – | |
| Net impact | 194,448 | 38,000 | 190,131 | 38,000 | 38,110 | – | 55,200 | – |
| BANK | GROUP | ||||
| Note | 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
33. Employee Benefit Liability |
|||||
33.1 Provision for Retirement Gratuity |
|||||
| As at 1 January | 122,191 | 94,107 | 165,633 | 129,889 | |
| Provision made during the year Income Statement | 40,990 | 40,960 | 42,370 | 48,619 | |
| Other comprehensive income | 12,042 | – | 12,042 | – | |
| Contribution made for gratuity liability | 33.3 | 53,032 | 40,960 | 54,412 | 48,619 |
| Benefits paid by the plan | (5,215) | (12,875) | (5,215) | (12,875) | |
| As at 31 December | 170,008 | 122,192 | 214,830 | 165,633 | |
An actuarial valuation of the gratuity fund was carried out as at 31 December 2013 by Messrs Piyal S Goonetilleke Associates, a professional actuary.
The valuation method used by the actuary to value the Fund is the ‘Projected Unit Credit Actuarial Cost Method’, recommended by LKAS 19 - ‘Employee Benefits’.
| 31 December 2013 | 31 December 2012 | |
Actuarial Assumptions |
||
| Discount rate | 11% | 12% |
| Salary increment rate | 8% | 10% |
| Mortality Retirement age |
UP 1984 Mortality Table Normal retirement age or age on valuation date, if greater |
UP 1984 Mortality Table Normal retirement age or age on valuation date, if greater |
Sensitivity of Assumptions Used in the Actuarial Valuation
The following table demonstrates the sensitivity to a reasonably possible change in the key assumptions used 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.
| BANK | |||||
| 2013 | 2012 | ||||
| Increase/(Decrease) in Discount Rate | Increase/(Decrease) in Salary Increment rate | Sensitivity Effect on Income Statement Increase/(Reduction) in Results for the Year LKR mn |
Sensitivity Effect on Employment Benefit Obligation Increase/(Decrease) in the Liability LKR mn |
Sensitivity Effect on Income Statement Increase/(Reduction) in Results for the Year LKR mn |
Sensitivity Effect on Employment Benefit Obligation Increase/(Decrease) in the Liability LKR mn |
| 1% | 15.47 | (15.47) | 14.10 | (14.10) | |
| (-1%) | (17.93) | 17.93 | (16.40) | 16.40 | |
| 1% | (17.75) | 17.75 | (16.10) | 16.10 | |
| (-1%) | 15.58 | (15.58) | 14.10 | (14.10) | |
The expected Benefit Payout in the future years to the defined benefit plan obligation:
| 2013 LKR ’000 |
|
| Within the next 12 months | 15,108 |
| Between 2 and 5 years | 132,492 |
| Beyond 5 years | 278,448 |
The expected benefits are estimated based on the same assumptions used to measure the Bank’s benefit obligation at the end of the year and include benefits attributable to estimated future employee service.
The average duration of the defined benefit obligation is 12.5 years.
33.2 Pension Fund Receivable
The amounts recognized in the Statement of Financial Position are as follows:
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
| Present value of funded obligations as at 31 December | 533,685 | 473,224 | 533,685 | 473,224 |
| Fair value of plan assets as at 31 December | (634,172) | (597,075) | (634,172) | (597,075) |
| (100,487) | (123,851) | (100,487) | (123,851) | |
| Present value of unfunded obligations | – | – | – | |
| Unrecognized actuarial gains/losses | – | (11,857) | – | (11,857) |
| Retirement Benefit (Asset)/Liability | (100,487) | (135,708) | (100,487) | (135,708) |
This over payment is recognized as pre-paid expenses in other assets.
An actuarial valuation of the pension fund was carried out as at 31 December 2013 by Messrs Piyal S Goonetilleke Associates, a professional actuary.
The valuation method used by the actuary to value the Fund is the ‘Projected Unit Credit Actuarial Cost Method’, recommended by LKAS 19 - ‘Employee Benefits’.
| 2013 | 2012 | |
| Actuarial Assumptions | ||
| Discount rate | 11% | 12% |
| Salary increment | 8% | 10% |
| Annual return on assets rate | 10% | 12% |
| Mortality | UP 1984 | UP 1984 |
| Mortality Table | Mortality Table | |
| Retirement age | Normal retirement age | Normal retirement age |
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, salary increment rate and the life expectancy on the profit or loss and employment benefit obligation for the year.
| BANK | |||||
| 2013 | 2012 | ||||
| Increase/(Decrease) in Discount Rate | Increase/(Decrease) in Salary Increment | Sensitivity Effect on Income Statement Increase/(Reduction) in Results for the Year LKR mn |
Sensitivity Effect on Employment Benefit Obligation Increase/(Decrease) in the Liability LKR mn |
Sensitivity Effect on Income Statement Increase/(Reduction) in Results for the Year LKR mn |
Sensitivity Effect on Employment Benefit Obligation Increase/(Decrease) in the Liability LKR mn |
| 1% | 47.87 | (47.87) | 42.30 | (42.30) | |
| (-1%) | (56.13) | 56.13 | (49.60) | 49.60 | |
| 1% | (20.31) | 20.31 | (19.70) | 19.70 | |
| (-1%) | 18.77 | (18.77) | 18.10 | (18.10) | |
| 2013 | ||
| Increase/(Decrease) in Life Expectancy | Sensitivity Effect on Income Statement Increase/(Reduction) in Results for the Year LKR mn |
Sensitivity Effect on Employment Benefit Obligation Increase/(Decrease) in the Liability LKR mn |
| + 1 year | (6.19) | 6.19 |
| -1 Year | 6.43 | (6.43) |
The major categories of plan assets of the fair value of the total plan assets are as follows:
| 2013 LKR ’000 |
2012 LKR ’000 |
|
| Investments in unquoted investments | ||
| Investments in Government Securities | 515,276 | 572,083 |
| Investment in fixed deposit | 112,893 | – |
| 628,169 | 572,083 | |
The expected Benefit Payout in the future years to the defined benefit plan obligation:
| 2013 LKR ’000 |
|
| Within the next 12 months | 33,958 |
| Between 2 and 5 years | 156,983 |
| Beyond 5 years | 321,421 |
The expected benefits are estimated based on the same assumptions used to measure the Bank’s benefit obligation at the end of the year and include benefits attributable to estimated future employee service.
The average duration of the defined benefit obligation is 26.6 years.
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
33.3 Contribution Made for Employee Benefits |
||||
| Contribution made for Gratuity Liability | ||||
| Current service & interest cost (Note 8) | 40,990 | 35,415 | 42,370 | 43,074 |
| Expected return on assets and recognition of actuarial loss/(gain) | – | – | – | – |
| Recognition of actuarial gain/(loss) | – | 1,704 | – | 1,704 |
| Recognition of transitional liability/(asset) | 25,672 | 3,841 | 25,672 | 3,841 |
| Liability experience loss/(gain) | 3,942 | – | 3,942 | – |
| Liability loss/(gain) due to changes in assumptions | (17,572) | – | (17,572) | – |
| Income Statement and Other Comprehensive Income | 53,032 | 40,960 | 54,412 | 48,619 |
| Contribution made to the Pension Fund | ||||
| Current service & interest cost (Note 8) | 5,449 | 70,350 | 5,449 | 70,350 |
| Expected return on assets & recognition of actuarial loss/(gain) | – | (52,964) | – | (52,964) |
| Recognition of actuarial gain/(loss) | 5,928 | 5,320 | 5,928 | 5,320 |
| Liability experience loss/(gain) | 6,313 | – | 6,313 | – |
| Liability loss/(gain) due to changes in assumptions | 11,160 | – | 11,160 | – |
| Income Statement and Other Comprehensive Income | 28,850 | 22,706 | 28,850 | 22,706 |
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
34. Other Liabilities |
||||
| Accrued expenses | 575,079 | 421,203 | 631,942 | 436,911 |
| Provision for deposit insurance | 34,500 | 28,650 | 34,500 | 28,650 |
| Dividend payable (Note 34.1) | 40,656 | 249,201 | 40,656 | 249,201 |
| Other liabilities | 3,035,430 | 2,704,636 | 3,143,191 | 2,776,980 |
| 3,685,665 | 3,403,690 | 3,850,289 | 3,491,742 | |
| BANK & GROUP | ||
| 2013 LKR ’000 |
2012 LKR ’000 |
|
34.1 Dividend Payable |
||
| As at 1 January | 249,201 | 755,381 |
| Interim dividend declared for the prior year | 821,010 | – |
| Final dividend declared for the prior year | 1,642,019 | 656,696 |
| Interim dividend declared for the current year | 823,465 | – |
| Reversal of dividends declared in prior years (34.2) | (64,560) | – |
| Dividend paid | (3,430,479) | (1,162,876) |
| As at 31 December | 40,656 | 249,201 |
34.2 Reversal of Dividends Declared in Prior Years
Certain persons/entities who invested in the ordinary shares of the Bank were not registered as shareholders in the registers of the Bank to ensure compliance with certain provisions of the Banking Act. As such, no dividends were paid to unregistered shareholders. These persons/entities subsequently sold their shares on the trading floor of the Colombo Stock Exchange. As persons/entities who dispose of shares while they are not registered as shareholders are no longer entitled to any past dividend on such shares, the dividends accrued against such persons/entities amounting to LKR 64.56 mn have been credited to retained earnings during the year and presented in the Statement of Changes in Equity.
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
35. Subordinated Term Debts |
||||
| As at 1 January | 2,188,350 | 2,373,300 | 2,188,350 | 2,373,300 |
| Additions during the year | 9,954,542 | – | 9,954,542 | – |
| Redemptions during the year | (511,650) | (184,950) | (511,650) | (184,950) |
| Balance before adjusting for amortized interest | 11,631,242 | 2,188,350 | 11,631,242 | 2,188,350 |
| Net effect on amortized interest payable | 51,432 | 66,349 | 51,432 | 66,349 |
| As at 31 December (Note 35.1) | 11,682,674 | 2,254,699 | 11,682,674 | 2,254,699 |
| BANK | GROUP | ||||||||
| Repayment Terms | Issued Date | Maturity Date | Rate of Interest % | Amount FCY | 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
35.1 Subordinated Term Debts - by Products |
|||||||||
| 35.1 (a) Term Loans Nederland’s Financierings Maatschappij Voor Ontwikkelingslanden N.V. (FMO) | |||||||||
| FMO Loan 1 | Semi annually | 20 Jan. 2006 | 1 Oct. 2015 | AWDR +5% | EUR 7,500,000 | 384,467 | 573,879 | 384,467 | 573,879 |
| FMO Loan 11 | Semi annually | 18 Dec. 2007 | 15 Oct. 2017 | Avg (6 months AWDR, 6 months T Bill rate) + 3% | USD 15,000,000 | 1,343,665 | 1,680,820 | 1,343,665 | 1,680,820 |
| 1,728,132 | 2,254,699 | 1,728,132 | 2,254,699 | ||||||
| BANK | GROUP | ||||||
| Interest Payable Frequency | Issued Date | Maturity Date | 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
35.1 (b) Debentures |
|||||||
| Fixed Rate Debenture | |||||||
| Type A - 13.0% - (60 Months) | Semi annually | 19 December 2013 | 18 December 2018 | 1,237,065 | – | 1,237,065 | – |
| Type B - 13.40% - (60 Months ) | Annually | 19 December 2013 | 18 December 2018 | 1,521,968 | – | 1,521,968 | – |
| Type C - 13.90% - (120 Months ) | Annually | 19 December 2013 | 18 December 2023 | 3,620,995 | – | 3,620,995 | – |
| Type D - 14.00% - (144 Months ) | Annually | 19 December 2013 | 18 December 2025 | 3,574,514 | – | 3,574,514 | – |
| 9,954,542 | – | 9,954,542 | – | ||||
| Total subordinated debts | 11,682,674 | 2,254,699 | 11,682,674 | 2,254,699 | |||
| Due within one year | 511,650 | 511,650 | 511,650 | 511,650 | |||
| Due after one year | 11,171,024 | 1,743,049 | 11,171,024 | 1,743,049 | |||
| 11,682,674 | 2,254,699 | 11,682,674 | 2,254,699 | ||||
| BANK | GROUP | |||||||
| Number | 2013 LKR ’000 |
Number | 2012 LKR ’000 |
Number | 2013 LKR ’000 |
Number | 2012 LKR ’000 |
|
36. Capital |
||||||||
| Capital Comprises of | ||||||||
| Issued and fully paid | 164,201,902 | 1,093,095 | 164,201,902 | 1,093,095 | 164,201,902 | 1,093,095 | 164,201,902 | 1,093,095 |
| Adjustment on consolidation of Employee Share Ownership Plan | – | – | – | – | (4,133,726) | (229,158) | (4,133,726) | (229,158) |
| Issue of shares under the Equity Linked Compensation Plan (Note 36.2) | 491,132 | 79,809 | – | – | 491,132 | 79,809 | – | – |
| 164,693,034 | 1,172,904 | 164,201,902 | 1,093,095 | 160,559,308 | 943,746 | 160,068,176 | 863,937 | |
| BANK & GROUP | ||||
| 2013 Number | 2013 LKR ’000 |
2012 Number | 2012 LKR ’000 |
|
36.1 Stated Capital |
164,693,034 | 1,172,904 | 164,201,902 | 1,093,095 |
36.2 The Bank obtained approval of the shareholders at an Extraordinary General Meeting held in April 2010, to enable the management staff in the rank of Assistant Vice-President and above of the Bank to take part in the voting ordinary share capital of the Bank, subject to certain limits, terms and conditions. Accordingly, the ELCP will create a maximum of 3% of the ordinary voting shares, half of such shares are to be awarded as share options and the other half as share grants in equal proportions. Each of the five tranches would amount to a maximum of 0.6% of the voting shares.
Accordingly on 1 July 2013 , 491,132 ordinary shares were issued to the eligible members of the staff as per the Equity Linked Compensation Plan (ELCP) of the Bank at a price of LKR 162.50 per share. This share issue resulted in the increase of the Stated Capital of the Bank from LKR 1,093.1 mn to LKR 1,172.9 mn, and the number of shares in issue from 164,201,902 to 164,693,034.
37. Statutory Reserve Fund
The Statutory Reserve Fund was created out of revenue reserves to comply with a Direction issued to Licensed Banks by the Monetary Board of the Central Bank of Sri Lanka under Section 76 J (1) and is maintained under Section 20 of the Banking Act No. 30 of 1988.
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
| As at 1 January | 878,718 | 878,718 | 878,718 | 878,718 |
| Transferred from retained earnings (Note 40) | 79,809 | – | 79,809 | – |
| As at 31 December | 958,527 | 878,718 | 958,527 | 878,718 |
38. Investment Fund Account
Transfers to Investment Fund Account
As proposed in the 2011 Government Budget, as and when taxes are paid after 1 January 2011, licensed banks must make transfers to the Investment Fund Account to build up a permanent fund within the Bank: Accordingly, such account has been established and operated based on the guideline on the operation of the investment fund account issued by Central Bank of Sri Lanka on 29 April 2011 and the subsequent amendments there to with the concurrence of the Commissioner General of Inland Revenue .
(i) 8% of the profit calculated for the payment of Value Added Tax (VAT) on Financial Services on dates as specified in the VAT Act for payment of VAT.
(ii) 5% of the profit before tax calculated for payment of income tax purposes on dates specified in Section 113 of the Inland Revenue Act for the self-assessment payment of tax.
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
| As at 1 January | 924,332 | 386,825 | 924,332 | 386,825 |
| Transferred from retained earnings | 782,419 | 537,507 | 782,419 | 537,507 |
| As at 31 December | 1,706,751 | 924,332 | 1,706,751 | 924,332 |
Loans Granted by Utilizing the Funds in the Investment Fund Account
The long-term loans include LKR 1,677 mn of loans disbursed by utilizing the Investment Fund Account balance (refer Note 19.1).
| BANK & GROUP | ||||||||||||
| Interest Rates % | Tenure Years | Number of Loans Granted | 2013 Total LKR '000 | Interest Rates % | Tenure Years | Number of Loans Granted | 2012 Total LKR '000 | |||||
| Sector | ||||||||||||
| a. Cultivation of agriculture/plantation crops |  |
|
29 | 124,039 | |
|
23 | 101,927 | ||||
| b. Factory/mills modernization | 39 | 215,022 | 40 | 217,966 | ||||||||
| c. Small and medium enterprises | 11.0 - 18.0 | 5 - 7 | 253 | 1,226,571 | 11.0 - 18.0 | 5 - 6 | 72 | 369,092 | ||||
| d. Information technology and BPO | 1 | 1,514 | 1 | 2,093 | ||||||||
| e. Infrastructure development | 2 | 3,125 | – | – | ||||||||
| f. Education | 1 | 3,295 | 1 | 4,250 | ||||||||
| i. Construction of hotels | 15 | 103,255 | 14 | 104,042 | ||||||||
| 340 | 1,676,821 | 151 | 799,370 | |||||||||
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
39. Available-for-Sale Reserve |
||||
| As at 1 January | – | – | – | – |
| Net gain on financial investments available-for-sale | 106,669 | – | 150,614 | – |
| As at 31 December | 106,669 | – | 150,614 | – |
| 2013 | 2012 | |||||
| General Reserve LKR ’000 |
Retained Profit LKR ’000 |
Total LKR ’000 |
General Reserve LKR ’000 |
Retained Profit LKR ’000 |
Total LKR ’000 |
|
40. Retained Earnings |
||||||
(a) Bank |
||||||
| As at 1 January | 5,805,707 | 6,240,549 | 12,046,256 | 5,805,707 | 4,510,794 | 10,316,501 |
| Profit for the year | – | 7,691,165 | 7,691,165 | – | 2,923,958 | 2,923,958 |
| Transferred to investment fund | – | (782,419) | (782,419) | – | (537,507) | (537,507) |
| Transferred to statutory reserve fund | – | (79,809) | (79,809) | – | – | – |
| Dividends to equity holders | – | (3,221,933) | (3,221,933) | – | (656,696) | (656,696) |
| As at 31 December | 5,805,707 | 9,847,553 | 15,653,260 | 5,805,707 | 6,240,549 | 12,046,256 |
| 2013 | 2012 | |||||
| General Reserve LKR ’000 |
Retained Profit LKR ’000 |
Total LKR ’000 |
General Reserve LKR ’000 |
Retained Profit LKR ’000 |
Total LKR ’000 |
|
(b) Group |
||||||
| As at 1 January | 5,805,707 | 16,410,347 | 22,216,054 | 5,805,707 | 8,989,942 | 14,795,649 |
| Profit for the year | 2,641,925 | 2,641,925 | – | 8,853,821 | 8,853,821 | |
| Exchange differences on translation of foreign operations | – | (42,017) | (42,017) | – | 18,824 | 18,824 |
| Transferred to investment fund | – | (782,419) | (782,419) | – | (537,507) | (537,507) |
| Effect of change in holding in a group company | – | – | – | – | (258,037) | (258,037) |
| Transferred to statutory reserve fund | – | (79,809) | (79,809) | – | – | – |
| Dividends to equity holders | – | (3,221,933) | (3,221,933) | – | (656,696) | (656,696) |
| As at 31 December | 5,805,707 | 14,926,094 | 20,731,801 | 5,805,707 | 16,410,347 | 22,216,054 |
41. Share Based Payment Reserve
a. Equity Linked Compensation Plan
On 1 July 2010, shareholders of the Bank approved an Equity Linked Compensation Plan (ELCP), to enable the management staff in the rank of Assistant Vice-President and above of the Bank to take part in the voting ordinary share capital of the Bank, subject to certain limits, terms and conditions. A total quantum of 2,455,661 shares of the Bank which is equivalent to a maximum of 3% of the present voting share capital of the Bank is to be issued to the ELCP. Half of such shares are to be awarded as share options and the other half as Share Grants in equal proportions. The issue of shares for the ELCP will take place over five years commencing July 2010. Each of the five tranches would amount to a maximum of 0.6% of the voting shares.
b. The details of the share grant and the share options made available to the relevant staff members are given below:
| 2013 | 2012 | |
| Share Grant | ||
| Award 01 - (01 July 2010) - vested on 30 June 2013 | ||
| Numbers of ordinary shares awarded | 491,132 | 491,132 |
| Award 04 - (01 July 2013) - to be vested on 30 June 2016 | ||
| Numbers of ordinary shares awarded | 491,132 | – |
| Total number of shares granted under share grant scheme | 982,264 | 491,132 |
| Share Option | ||
| Award 01 - (01 July 2010) - exercisable from 1 July 2011 to 30 June 2014 | 491,132 | 491,132 |
| Number of shares allocated at a price of LKR 124.21 | ||
| Award 04 - (01 July 2013)- exercisable from 1 July 2014 to 30 June 2017 | 491,132 | |
| Total number of shares allocated under the share option scheme | 982,264 | 491,132 |
c. Awards 2 and 3 were not granted as the Bank did not meet the necessary criteria for entitlement.
d. At the Annual General Meeting held on 30 March 2011, the shareholders of the Bank approved to increase the number of existing ordinary shares amounting to 82,100,951 by sub dividing the said existing ordinary shares in the proportion of one share for every ordinary share in issue. Accordingly, the number of shares of the share grant and the share option as per award 01, increased by two folds as at 31 December 2011.
e. The share grant of 491,132 shares as per award 04, resulted in the increase of the stated capital of the Bank from LKR 1,093.1 mn as at
31 December 2012 to LKR 1,172.9 mn as at 31 December 2013.
e. Share-based Payment Reserve
The expense recognized for employee services received during the year is shown in the following table:
| 2013 LKR ’000 |
2012 LKR ’000 |
|
| Expense arising from equity-settled share-based payment transactions | 54,690 | 20,055 |
| Total expense arising from share-based payment transactions | 54,690 | 20,055 |
There were no cancellations or modifications to the awards in 2013 or 2012.
Movements During the Year
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the year:
| 2013 Number |
2013 LKR |
2012 Number |
2012 LKR |
|
| Outstanding at 1 January | 491,132 | 124.21 | 491,132 | 124.21 |
| Granted during the year | 491,132 | 222.02 | – | – |
| Outstanding at 31 December | 982,264 | 173.12 | 491,132 | 124.21 |
| Exercisable at 31 December | 491,132 | |||
The following table lists the inputs to the models used for the two plans for the years ended 31 December 2013 and 2012, respectively:
| 2013 | 2012 | |
| Expected volatility (%) | 10 | 10 |
| Risk free interest rate (%) | 7.55 | 7.55 |
| Expected life of share options (years) | 3 | 3 |
| Weighted average share price (LKR) | 160.50 | 137.90 |
42. Measurement of Financial Instruments
| Held-for-Trading LKR ’000 |
Held-to-Maturity LKR ’000 |
Loans and Receivable LKR ’000 |
Available-for-Sale LKR ’000 |
Others LKR ’000 |
Total LKR ’000 |
|
(a) Bank - Current Year (2013) |
||||||
| Assets | ||||||
| Cash and cash equivalents | – | – | 2,611,075 | – | – | 2,611,075 |
| Balances with Central Bank | – | – | 5,339,000 | – | – | 5,339,000 |
| Placements with banks | – | – | 130,751 | – | – | 130,751 |
| Derivative financial instruments | 1,149,541 | – | – | – | – | 1,149,541 |
| Other financial assets held-for-trading | 10,720,689 | – | – | – | – | 10,720,689 |
| Loans and receivables to banks | – | 641,628 | – | – | 641,628 | |
| Loans and receivables to other customers | – | – | 136,821,532 | – | – | 136,821,532 |
| Financial Investments - Loans and receivables | – | – | 15,837,455 | – | – | 15,837,455 |
| Financial investments - Available-for-sale | – | – | – | 5,982,450 | – | 5,982,450 |
| Financial investments - Held-to-maturity | – | 17,602,249 | – | – | – | 17,602,249 |
| Total Financial Assets | 11,870,230 | 17,602,249 | 161,381,441 | 5,982,450 | – | 196,836,370 |
| Investments in subsidiary companies | – | – | – | – | 2,037,585 | 2,037,585 |
| Investments in associate companies | – | – | – | – | 61,967 | 61,967 |
| Investment property | ||||||
| Intangible assets | – | – | – | – | 260,425 | 260,425 |
| Property, plant & equipment | – | – | – | – | 872,890 | 872,890 |
| Other assets | – | – | – | – | 1,189,391 | 1,189,391 |
| Total Assets | 11,870,230 | 17,602,249 | 161,381,441 | 5,982,450 | 4,422,258 | 201,258,628 |
| Held-for-Trading LKR ’000 |
Amortized Cost LKR ’000 |
Others LKR ’000 |
Total LKR ’000 |
|||
| Liabilities | ||||||
| Due to banks | – | 10,453,086 | – | 10,453,086 | ||
| Derivative financial instruments | 817,310 | – | – | 817,310 | ||
| Due to other customers | – | 129,830,029 | – | 129,830,029 | ||
| Debt Securities issued and other borrowed funds | – | 24,420,818 | – | 24,420,818 | ||
| Subordinated term debts | – | 11,682,674 | – | 11,682,674 | ||
| Total Financial Liabilities | 817,310 | 176,386,607 | – | 177,203,917 | ||
| Tax liabilities | – | – | 266,128 | 266,128 | ||
| Deferred tax liabilities | – | – | 312,432 | 312,432 | ||
| Employee benefit liability | – | – | 170,008 | 170,008 | ||
| Other liabilities | – | – | 3,685,665 | 3,685,665 | ||
| Total Liabilities | 817,310 | 176,386,607 | 4,434,233 | 181,638,150 | ||
| Held-for-Trading LKR ’000 |
Held-to-Maturity LKR ’000 |
Loans and Receivable LKR ’000 |
Available-for-Sale LKR ’000 |
Others LKR ’000 |
Total LKR ’000 |
|
(b) Group - Current Year (2013) |
||||||
| Assets | ||||||
| Cash and cash equivalents | – | – | 2,668,262 | – | – | 2,668,262 |
| Balances with Central Bank | – | – | 5,339,000 | – | – | 5,339,000 |
| Placements with banks | – | – | 130,751 | – | – | 130,751 |
| Derivative financial instruments | 1,149,541 | – | – | – | – | 1,149,541 |
| Other financial assets held-for-trading | 14,194,141 | – | – | – | – | 14,194,141 |
| Loans and receivables to banks | – | – | 641,628 | – | – | 641,628 |
| Loans and receivables to other customers | – | – | 136,881,713 | – | – | 136,881,713 |
| Financial Investments - Loans and receivables | – | – | 16,791,701 | – | – | 16,791,701 |
| Financial investments - Available-for-sale | – | – | – | 6,167,450 | – | 6,167,450 |
| Financial investments - Held-to-maturity | – | 18,460,591 | – | – | 18,460,591 | |
| Total Financial Assets | 15,343,682 | 18,460,591 | 162,453,055 | 6,167,450 | – | 202,424,778 |
| Investments in subsidiary companies | – | – | – | – | – | – |
| Investments in associate companies | – | – | – | – | 76,744 | 76,744 |
| Investment property | – | – | – | – | 1,383,693 | 1,383,693 |
| Intangible assets | – | – | – | – | 296,678 | 296,678 |
| Property, plant & equipment | – | – | – | – | 1,176,491 | 1,176,491 |
| Other assets | – | – | – | – | 1,458,737 | 1,458,737 |
| Total Assets | 15,343,682 | 18,460,591 | 162,453,055 | 6,167,450 | 4,392,343 | 206,817,121 |
| Held-for-Trading LKR ’000 |
Amortized Cost LKR ’000 |
Others LKR ’000 |
Total LKR ’000 |
|||
| Liabilities | ||||||
| Due to banks | – | 10,453,086 | – | 10,453,086 | ||
| Derivative financial instruments | 817,310 | – | – | 817,310 | ||
| Due to other customers | – | 129,421,813 | – | 129,421,813 | ||
| Debt Securities issued and other borrowed funds | – | 24,390,819 | – | 24,390,819 | ||
| Subordinated Term debts | – | 11,682,674 | – | 11,682,674 | ||
| Total Financial Liabilities | 817,310 | 175,948,392 | – | 176,765,702 | ||
| Tax liabilities | – | – | 300,196 | 300,196 | ||
| Deferred tax liabilities | – | – | 324,451 | 324,451 | ||
| Employee benefit liability | – | – | 214,830 | 214,830 | ||
| Other liabilities | – | – | 3,850,288 | 3,850,288 | ||
| Total Liabilities | 817,310 | 175,948,392 | 4,689,765 | 181,455,467 | ||
| Held-for-Trading LKR ’000 |
Held-to-Maturity LKR ’000 |
Loans and Receivable LKR ’000 |
Available-for-Sale LKR ’000 |
Others LKR ’000 |
Total LKR ’000 |
|
(a) Bank - Previous Year (2012) |
||||||
| Assets | ||||||
| Cash and cash equivalents | – | – | 3,480,395 | – | – | 3,480,395 |
| Balances with Central Bank | – | – | 6,074,792 | – | – | 6,074,792 |
| Placements with banks | – | – | 3,559,354 | – | – | 3,559,354 |
| Derivative financial instruments | 1,706,372 | – | – | – | – | 1,706,372 |
| Other financial assets held-for-trading | 982,967 | – | – | – | – | 982,967 |
| Loans and receivables to banks | – | – | 1,183,343 | – | – | 1,183,343 |
| Loans and receivables to other customers | – | – | 115,992,359 | – | – | 115,992,359 |
| Financial Investments - Loans and receivables | – | – | 6,446,031 | – | – | 6,446,031 |
| Financial investments - Available-for-sale | – | – | – | 66,714 | – | 66,714 |
| Financial investments - Held-to-maturity | – | 19,257,271 | – | – | – | 19,257,271 |
| Total Financial Assets | 2,689,339 | 19,257,271 | 136,736,274 | 66,714 | – | 158,749,598 |
| Investments in subsidiary companies | – | – | – | – | 2,641,178 | 2,641,178 |
| Investments in associate companies | – | – | – | – | 18,525 | 18,525 |
| Investments property | – | – | – | – | – | – |
| Intangible assets | – | – | – | – | 272,314 | 272,314 |
| Property, plant & equipment | – | – | – | – | 856,195 | 856,195 |
| Other assets | – | – | – | – | 936,486 | 936,486 |
| Total Assets | 2,689,339 | 136,736,274 | 136,736,274 | 66,714 | 4,724,698 | 163,474,296 |
| Held-for-Trading LKR ’000 |
Amortized Cost LKR ’000 |
Others LKR ’000 |
Total LKR ’000 |
|||
| Liabilities | ||||||
| Due to banks | – | 2,319,984 | – | 2,319,984 | ||
| Derivative financial instruments | 1,736,838 | – | – | 1,736,838 | ||
| Due to other customers | – | 107,600,583 | – | 107,600,583 | ||
| Debt Securities issued and other borrowed funds | – | 30,357,824 | – | 30,357,824 | ||
| Subordinated term debts | – | 2,254,699 | – | 2,254,699 | ||
| Total Financial Liabilities | 1,736,838 | 142,533,090 | – | 144,269,928 | ||
| Tax liabilities | – | – | 656,211 | 656,211 | ||
| Deferred tax liabilities | – | – | 79,874 | 79,874 | ||
| Employee benefit liability | – | – | 122,192 | 122,192 | ||
| Other liabilities | – | – | 3,403,690 | 3,403,690 | ||
| Total Liabilities | 1,736,838 | 142,533,090 | 4,261,967 | 148,531,895 | ||
| Held-for-Trading LKR ’000 |
Held-to-Maturity LKR ’000 |
Loans and Receivable LKR ’000 |
Available-for-Sale LKR ’000 |
Others LKR ’000 |
Total LKR ’000 |
|
(b) Group - Previous Year (2012) |
||||||
| Assets | ||||||
| Cash and cash equivalents | – | – | 3,634,983 | – | – | 3,634,983 |
| Balances with Central Bank | – | – | 6,074,792 | – | – | 6,074,792 |
| Placements with banks | – | – | 3,559,354 | – | – | 3,559,354 |
| Derivative financial instruments | 1,706,372 | – | – | – | – | 1,706,372 |
| Other financial assets held-for-trading | 11,394,625 | – | – | – | – | 11,394,625 |
| Loans and receivables to banks | – | – | 1,183,343 | – | – | 1,183,343 |
| Loans and receivables to other customers | – | – | 116,039,035 | – | – | 116,039,035 |
| Financial Investments - Loans and receivables | – | – | 7,088,893 | – | – | 7,088,893 |
| Financial investments - Available-for-sale | – | – | – | 173,541 | – | 173,541 |
| Financial investments - Held-to-maturity | – | 19,223,228 | – | – | – | 19,223,228 |
| Total Financial Assets | 13,100,997 | 19,223,228 | 137,580,400 | 173,541 | – | 170,078,166 |
| Investments in subsidiary companies | – | – | – | – | – | – |
| Investments in associate companies | – | – | – | – | 33,301 | 33,301 |
| Investment property | – | – | – | – | 1,295,693 | 1,295,693 |
| Intangible assets | – | – | – | – | 318,723 | 318,723 |
| Property, plant & equipment | – | – | – | – | 1,222,500 | 1,222,500 |
| Other assets | – | – | – | – | 1,154,688 | 1,154,688 |
| Total Assets | 13,100,997 | 19,223,228 | 137,580,400 | 173,541 | 4,024,905 | 174,103,071 |
| Held-for-Trading LKR ’000 |
Amortized Cost LKR ’000 |
Others LKR ’000 |
Total LKR ’000 |
|||
| Liabilities | ||||||
| Due to banks | – | 2,319,984 | – | 2,319,984 | ||
| Derivative financial instruments | 1,736,838 | – | – | 1,736,838 | ||
| Due to other customers | – | 107,393,866 | – | 107,393,866 | ||
| Debt Securities issued and other borrowed funds | – | 30,317,899 | – | 30,317,899 | ||
| Subordinated term debts | – | 2,254,699 | – | 2,254,699 | ||
| Total Financial Liabilities | 1,736,838 | 142,286,448 | – | 144,023,286 | ||
| Tax liabilities | – | – | 633,838 | 633,838 | ||
| Deferred tax liabilities | – | – | 79,120 | 79,120 | ||
| Employee benefit liability | – | – | 165,633 | 165,633 | ||
| Other liabilities | – | – | 3,491,742 | 3,491,742 | ||
| Total Liabilities | 1,736,838 | 142,286,448 | 4,370,333 | 148,393,619 | ||
43. Fair Value of Financial Instruments
a. Determination of Fair Value of Financial Instruments by Hierarchy
The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy:
| BANK | ||||
| 31 December 2013 | Level 1 LKR ’000 |
Level 2 LKR ’000 |
Level 3 LKR ’000 |
Total LKR ’000 |
| Financial Assets | ||||
| Other financial assets held-for-trading | ||||
| Sri Lanka Government Securities - Treasury Bills | 5,061,675 | – | – | 5,061,675 |
| Sri Lanka Government Securities - Treasury Bonds | 4,053,939 | – | – | 4,053,939 |
| Investment in unit trusts | 1,605,075 | – | – | 1,605,075 |
| Financial Investments - Available-for-sale | ||||
| Sri Lanka Government Securities - Treasury Bills | 4,889,272 | – | – | 4,889,272 |
| Sri Lanka Government Securities - Treasury Bonds | 582,449 | – | – | 582,449 |
| Sovereign Bonds | 505,939 | – | – | 505,939 |
| Non-quoted ordinary shares | – | 4,790 | – | 4,790 |
| Derivative Financial Instruments | ||||
| Currency options | – | 5,895 | – | 5,895 |
| Forward foreign exchange contracts | – | 1,143,646 | – | 1,143,646 |
| Total Financial Assets | 16,698,350 | 1,154,331 | – | 17,852,680 |
| Derivative financial instruments | ||||
| Currency options | – | 5,895 | – | 5,895 |
| Forward foreign exchange contracts | – | 811,415 | – | 811,415 |
| Total Financial Liabilities | – | 817,310 | – | 817,310 |
| BANK | ||||
| 31 December 2012 | Level 1 LKR ’000 |
Level 2 LKR ’000 |
Level 3 LKR ’000 |
Total LKR ’000 |
| Financial Assets | ||||
| Other financial assets held-for-trading | ||||
| Sri Lanka Government Securities - Treasury Bills | 448,489 | – | – | 448,489 |
| Sri Lanka Government Securities - Treasury Bonds | 534,478 | – | – | 534,478 |
| Financial Investments - Available-for-Sale | ||||
| Non-quoted ordinary shares | – | 4,790 | – | 4,790 |
| Investment fund account | 61,924 | – | – | 61,924 |
| Derivative Financial Instruments | – | |||
| Forward foreign exchange contracts | – | 1,706,372 | – | 1,706,372 |
| Total Financial Assets | 1,044,891 | 1,711,162 | – | 2,756,053 |
| Derivative financial instruments | ||||
| Forward foreign exchange contracts | – | 1,736,838 | – | 1,736,838 |
| Total Financial Liabilities | – | 1,736,838 | – | 1,736,838 |
| GROUP | ||||
| 31 December 2013 | Level 1 LKR ’000 |
Level 2 LKR ’000 |
Level 3 LKR ’000 |
Total LKR ’000 |
| Financial Assets | ||||
| Other financial assets held-for-trading | ||||
| Sri Lanka Government Securities - Treasury Bills | 5,061,675 | – | – | 5,061,675 |
| Sri Lanka Government Securities - Treasury Bonds | 4,053,939 | – | – | 4,053,939 |
| Equity Securities | 336,293 | – | – | 336,293 |
| Investment in Unit Trusts | 4,742,234 | – | – | 4,742,234 |
| Financial investments - Available-for-sale | – | |||
| Sri Lanka Government Securities - Treasury Bills | 4,889,272 | – | – | 4,889,272 |
| Sri Lanka Government Securities - Treasury Bonds | 582,449 | – | – | 582,449 |
| Sovereign Bonds | 505,939 | – | – | 505,939 |
| Non-quoted ordinary shares | – | 4,790 | 185,000 | 189,790 |
| Derivative financial instruments | ||||
| Currency options | – | 5,895 | – | 5,895 |
| Forward foreign exchange contracts | – | 1,143,646 | – | 1,143,646 |
| Total Financial Assets | 20,171,801 | 1,154,331 | 185,000 | 21,511,132 |
| Derivative financial instruments | ||||
| Currency options | – | 5,895 | – | 5,895 |
| Forward foreign exchange contracts | – | 811,415 | – | 811,415 |
| Total Financial Liabilities | – | 817,310 | – | 817,310 |
| GROUP | ||||
| 31 December 2012 | Level 1 LKR ’000 |
Level 2 LKR ’000 |
Level 3 LKR ’000 |
Total LKR ’000 |
| Financial Assets | ||||
| Other financial assets held-for-trading | ||||
| Sri Lanka Government Securities - Treasury Bills | 448,489 | – | – | 448,489 |
| Sri Lanka Government Securities - Treasury Bonds | 534,478 | – | – | 534,478 |
| Equity Securities | 123,717 | – | – | 123,717 |
| Investment in Unit Trusts | 10,287,941 | – | – | 10,287,941 |
| Financial Investments - Available-for-Sale | ||||
| Non-quoted ordinary shares | – | 4,790 | 106,827 | 111,617 |
| Investment fund account | 61,924 | – | – | 61,924 |
| Derivative financial instruments | ||||
| Forward foreign exchange contracts | – | 1,706,372 | – | 1,706,372 |
| Total Financial Assets | 11,456,549 | 1,711,162 | 106,827 | 13,274,538 |
| Derivative financial instruments | ||||
| Forward foreign exchange contracts | – | 1,736,838 | – | 1,736,838 |
| Total Financial Liabilities | – | 1,736,838 | – | 1,736,838 |
b. Movements in Level 3 Financial Instruments Measured at Fair Value
The level of the fair value hierarchy of financial instruments is determined at the beginning of each reporting period. The following table shows a reconciliation of the opening and closing amounts of Level 3 Financial Assets and Liabilities which are recorded at fair value.
| GROUP | ||||
| 31 December 2013 | At 1 January 2013 LKR ’000 |
Total Gains/(Losses) Recorded in Income Statement LKR ’000 |
Total Gains/(Losses) Recorded in Equity LKR ’000 |
At 31 December 2013
LKR ’000 |
| Financial investments available-for-sale | ||||
| Non-quoted equity securities | 106,827 | 17,138 | 61,035 | 185,000 |
| Total Financial Assets | 106,827 | 17,138 | 61,035 | 185,000 |
| GROUP | ||||
| 31 December 2012 | At 1 January 2012
LKR ’000 |
Total Gains/(Losses) Recorded in Income Statement LKR ’000 |
Total Gains/(Losses) Recorded in Equity LKR ’000 |
At 31 December 2012
LKR ’000 |
| Financial investments available-for-sale | ||||
| Non-quoted equity securities | 106,827 | – | – | 106,827 |
| Total Financial Assets | 106,827 | – | – | 106,827 |
c. Determination of Fair Value of the Financial Assets and Financial Liabilities
Set out below is a comparison, by class, of the carrying amounts and fair values of the Bank’s financial assets and liabilities 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.
| BANK | ||||
| 2013 | 2012 | |||
| Carrying Amount LKR ’000 |
Fair Value LKR ’000 |
Carrying Amount LKR ’000 |
Fair Value LKR ’000 |
|
| Financial Assets | ||||
| Cash and cash equivalents | 2,611,075 | 2,611,075 | 3,480,395 | 3,480,395 |
| Balances with Central Bank | 5,339,000 | 5,339,000 | 6,074,792 | 6,074,792 |
| Placements with banks | 130,751 | 130,751 | 3,559,354 | 3,559,354 |
| Loans and receivable to banks | 641,628 | 650,235 | 1,183,343 | 1,029,596 |
| Loans and receivable to other customers | 136,821,532 | 140,694,797 | 115,992,359 | 111,102,276 |
| Financial investments - Loans and receivable | 15,837,455 | 15,837,455 | 6,446,031 | 6,446,031 |
| Financial investments - Held-to-maturity | 17,602,249 | 17,440,886 | 19,257,271 | 17,346,778 |
| Total Financial Assets | 178,983,690 | 182,704,199 | 155,993,545 | 149,039,222 |
| Financial Liabilities | ||||
| Due to banks | 10,453,086 | 10,453,086 | 2,319,984 | 2,319,984 |
| Due to other customers | 129,830,029 | 130,000,256 | 107,600,583 | 104,231,973 |
| Debt securities issued and other borrowed funds | 24,420,818 | 24,420,818 | 30,357,824 | 30,357,824 |
| Subordinated term debts | 11,682,674 | 11,682,674 | 2,254,699 | 2,254,699 |
| Total Financial Liabilities | 177,203,917 | 177,374,144 | 144,269,928 | 140,901,318 |
| GROUP | ||||
| 2013 | 2012 | |||
| Carrying Amount LKR ’000 |
Fair Value LKR ’000 |
Carrying Amount LKR ’000 |
Fair Value LKR ’000 |
|
| Financial Assets | ||||
| Cash and cash equivalents | 2,668,262 | 2,668,262 | 3,634,983 | 3,634,983 |
| Balances with Central Bank | 5,339,000 | 5,339,000 | 6,074,792 | 6,074,792 |
| Placements with banks | 130,751 | 130,751 | 3,559,354 | 3,559,354 |
| Loans and receivable to banks | 641,628 | 650,235 | 1,183,343 | 1,191,950 |
| Loans and receivable to other customers | 136,881,713 | 140,694,797 | 116,039,035 | 111,148,952 |
| Financial investments - Loans and receivable | 16,791,701 | 16,791,701 | 7,088,893 | 7,088,893 |
| Financial investments - Held-to-maturity | 18,460,591 | 18,421,094 | 19,223,228 | 19,223,228 |
| Total Financial Assets | 180,913,646 | 184,695,840 | 156,803,628 | 154,621,837 |
| Financial Liabilities | ||||
| Due to banks | 10,453,086 | 10,453,086 | 2,319,984 | 2,319,984 |
| Due to customers | 129,421,813 | 130,000,256 | 107,393,866 | 108,179,026 |
| Debt securities issued and other borrowed funds | 24,390,818 | 24,390,819 | 30,317,899 | 30,317,899 |
| Subordinated term debts | 11,682,674 | 11,682,674 | 633,838 | 633,838 |
| Total Financial Liabilities | 175,948,392 | 176,526,835 | 140,665,587 | 141,450,747 |
Fair Value of Financial Assets and Liabilities Not Carried at Fair Value
The following describes the methodologies and assumptions used to determine fair values for those financial instruments which are not already recorded at fair value in the Financial Statements:
Assets for which Fair Value Approximates Carrying Value
For financial assets and financial liabilities that have a short-term maturity (less than three months) it is assumed that the carrying amounts approximate their fair value. This assumption is also applied to demand deposits, and savings accounts without a specific maturity.
Fixed Rate Financial Instruments
The fair value of fixed rate financial assets and liabilities carried at amortised cost are estimated by comparing market interest rates when they were first recognized with current market rates for similar financial instruments. The estimated fair value of fixed interest-bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and maturity. For quoted debt issued the fair values are determined based on quoted market prices. For those notes issued where quoted market prices are not available, a discounted cash flow model is used based on a current interest rate yield curve appropriate for the remaining term to maturity and credit spreads. For other variable rate instruments, an adjustment is also made to reflect the change in required credit spread since the instrument was first recognized.
44. Risk Management
Introduction
Taking risks is inherent in any bank’s strategic plan but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. Bank’s risk strategy focuses on managing principal risks faced by the Bank while striking a fair balance between the risk return trade-off and the efficient capital allocation across the risk exposures.
The Bank is mainly exposed to credit risk, liquidity risk, market risk and operational risk. Market risk could be further subdivided into trading and non-trading risks. Exposure to country risk and any risks due to changes in environment, technology and industry is managed through the Bank’s strategic planning process.
Risk Management Framework
The Board of Directors has overall responsibility for the establishment and oversight of the Bank’s Risk Management Framework. The Board has delegated its authority to the Integrated Risk Management Committee (IRMC) for the overall Risk Management approach and for approving the risk management strategies and principles. IRMC meets quarterly to review and assess the Bank’s overall risks and to focus on policy recommendations and strategies in an integrated manner and the Board of Directors are duly updated of its activities.
The Bank’s risk management policies are established to identify and analyze the risks faced by the Bank/Group to set appropriate risk limits and controls and to monitor adherence to established limits.
The Bank’s Assets and Liabilities Committee (ALCO) reviews all market and liquidity related exposures, excesses on a monthly basis and decisions are made to facilitate the business requirements. These decisions are further reviewed at IRMC and reviewed by the Board.
The Credit and Market Risk Policy Committee and Operational Risk Policy Committee are in operation to formulate policies and to focus more clearly on defined risk areas. The membership of these committees comprises the CEO, CFO, COO, the Heads of Business Units, Treasury and representatives of the Group Risk Management. The Committees meet regularly to review the Bank’s risk policy framework, overall performance and the potential risks faced by specific lines of business and support functions.
The Bank’s Treasury is responsible for managing the Bank’s assets and liabilities and the overall financial structure. It is also primarily responsible for the funding and liquidity risks of the Bank.
Risk Measurement and Reporting
Monitoring and controlling risks is primarily performed based on limits established by the Bank which reflects the business strategy and market environment of the Bank as well as the Bank’s risk appetite.
Information compiled is examined and processed in order to analyze, control and identify risks on a timely basis. The compiled information is presented to the IRMC, Credit and Market Risk Policy Committee, and the Board of Directors receives a risk report once a quarter which covers all necessary information to assess and conclude on the risks of the Bank. The information analyzed include the following:
- Portfolio quality analysis covering, product and business line wise concentration, group/single borrower concentrations, sector concentrations, NPL analysis, watch listed portfolio, details of facilities rescheduled/restructured.
- Reports on impairment.
- Reports on decisions taken by the respective management committees such as Executive Credit Committees, ALCO, Operational Risk Policy Committee, Credit and Market Risk Policy Committee.
- Market and liquidity risk analysis.
Risk Mitigation
As part of its overall risk management, the Bank obtains various types of collateral. Details such as nature of the collateral that could be accepted, required collateral cover are clearly defined in the Credit Policy Manual.
44.1 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/group counterparties and for geographical and industry concentrations, and by monitoring exposures in relation to such limits.
The Bank has established a credit quality review process to provide early identification of possible changes in the creditworthiness of counterparties. Counterparty limits are established by the use of an internally designed Credit Risk classification system, which assigns each counterparty a risk rating. Risk ratings are subject to regular revision. The credit quality review process aims to allow the Bank to assess the potential loss as a result of the risks to which it is exposed and take corrective action.
Credit risk management verifies and manages the credit process from origination to collection. The Bank has a credit policy approved by the Board of Directors. It defines the
- credit culture of the Bank
- specifies target markets for lending
- specifies prohibited lending which the Bank under no circumstances will entertain
- sets acceptable risk parameters
- sets remedial and recovery actions
Impairment Assessment
Impairment of Financial Assets
The Bank has in place a detailed impairment policy which was approved by the Board of Directors.
For accounting purposes, the Bank uses an incurred loss model for the recognition of losses on impaired financial assets. At each reporting date the Bank/Group assesses whether there is objective evidence of a specific loss event.
Individually Assessed Allowances
The Bank determines the allowances appropriate for each individually significant loans or receivables on an individual basis if there is any objective evidence of a loss based on the above. Items considered when determining allowance amounts include the sustainability of the counterparty’s business plan, its ability to improve performance if it is in a financial difficulty, projected receipts and the expected payout should bankruptcy arise, the availability of other financial support, the realizable value of collateral and the timing of the expected cash flows. Impairment allowances are evaluated at each reporting date, unless unforeseen circumstances require more careful attention.
Collectively-Assessed Allowances
Allowances are assessed collectively for losses on loans and receivables that are not individually significant (including personal loans, leases and pawning) and for individually significant loans and receivables that have been assessed individually and found not to be impaired.
The Bank generally bases its analyses on historical experience and market factors. These factors include, depending on the characteristics of the individual or collective assessment: unemployment rates, current levels of bad debts, changes in laws, changes in regulations and other relevant consumer data. The Bank may use the aforementioned factors as appropriate to adjust the impairment allowances.
Allowances are evaluated separately at each reporting date with each portfolio. The collective assessment is made for groups of assets with similar risk characteristics, in order to determine whether provision should be made due to incurred loss events for which there is objective evidence, but the effects of which are not yet evident in the individual loans assessments. The collective assessment takes account of data from the loan portfolio (such as loan types, industry codes, internal risk ratings and level of arrears).
Credit Related Commitments Risks
To meet the financial needs of customers, the Bank enters into various irrevocable commitments and contingent liabilities. Even though these obligations may not be recognized on the statement of financial position, they do contain credit risk and are therefore part of the overall risk of the Bank.
Collateral and Other Credit Enhancements
The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are in place covering the accessibility and valuation of each type of collateral.
The main types of collateral obtained are as follow:
- for commercial lending - mortgages over immovable and movable fixed assets, inventory, trade receivables, corporate and personal guarantees
- for retail lending- mortgage over residential property, gold stocks, personal guarantees
Credit Quality
Analysis of Gross Exposure on Credit Risk and Impairment
The table below shows the credit quality by class of asset for all financial assets exposed to credit risk, based on the Bank’s classification of assets. The amounts presented are gross of impairment allowances.
The Bank considers that any amount uncollected one day or more beyond their contractual due date is ‘past due’.
Bank
| As at 31st December 2013 - LKR ’000 | |||||||
| Neither Past Due nor Impaired | Past Due but not Impaired | Individually Impaired | Total | ||||
| Products | Special Mention (3-6 months) |
Sub Standard (6-12 months) |
Doubtful (12-18 months) |
Loss (more than 18 months) |
|||
| Cash and cash equivalents | 2,611,075 | – | – | – | – | – | 2,611,075 |
| Balances with Central Bank | 5,339,000 | – | – | – | – | – | 5,339,000 |
| Placements with banks | 130,751 | – | – | – | – | – | 130,751 |
| Derivative financial instruments | 1,149,541 | – | – | – | – | – | 1,149,541 |
| Other financial assets held-for-trading | 10,720,689 | – | – | – | – | – | 10,720,689 |
| Financial investments - loans and receivable | 15,837,455 | – | – | – | – | – | 15,837,455 |
| Loans and receivables to banks | 641,628 | – | – | – | – | – | 641,628 |
| Loans and receivables to other customers | 131,770,586 | 921,357 | 280,821 | 90,329 | 501,225 | 3,257,214 | 136,821,532 |
| Financial investments - held-to-maturity | 17,602,249 | – | – | – | – | – | 17,602,249 |
| Financial investments - available-for-sale | 5,982,450 | – | – | – | – | – | 5,982,450 |
| As at 31st December 2012 - LKR ’000 | |||||||
| Neither Past Due nor Impaired | Past Due but not Impaired | Individually Impaired | Total | ||||
| Products | Special Mention (3-6 months) |
Sub Standard (6-12 months) |
Doubtful (12-18 months) |
Loss (more than 18 months) |
|||
| Cash and cash equivalents | 3,480,395 | – | – | – | – | – | 3,480,395 |
| Balances with Central Bank | 6,074,792 | – | – | – | – | – | 6,074,792 |
| Placements with banks | 3,559,354 | – | – | – | – | – | 3,559,354 |
| Derivative financial instruments | 1,706,372 | – | – | – | – | – | 1,706,372 |
| Other financial assets held-for-trading | 982,967 | – | – | – | – | – | 982,967 |
| Financial Investments - loans and receivable | 6,446,031 | – | – | – | – | – | 6,446,031 |
| Loans and receivables to banks | 1,183,343 | – | – | – | – | – | 1,183,343 |
| Loans and receivables to other customers | 108,609,750 | 655,720 | 2,900,695 | 832,079 | 1,645,519 | 1,348,596 | 115,992,359 |
| Financial investments - held-to-maturity | 19,257,271 | – | – | – | – | – | 19,257,271 |
| Financial investments - available-for-sale | 66,714 | – | – | – | – | – | 66,714 |
Group
| As at 31st December 2013 - LKR ’000 | |||||||
| Neither Past Due nor Impaired | Past Due but not Impaired | Individually Impaired | Total | ||||
| Products | Special Mention (3-6 months) |
Sub Standard (6-12 months) |
Doubtful (12-18 months) |
Loss (more than 18 months) |
|||
| Cash and cash equivalents | 2,668,262 | – | – | – | – | – | 2,668,262 |
| Balances with Central Bank | 5,339,000 | – | – | – | – | – | 5,339,000 |
| Placements with banks | 130,751 | – | – | – | – | – | 130,751 |
| Derivative financial instruments | 1,149,541 | – | – | – | – | – | 1,149,541 |
| Other financial assets held-for-trading | 14,194,141 | – | – | – | – | – | 14,194,141 |
| Financial investments - loans and receivable | 16,791,701 | – | – | – | – | – | 16,791,701 |
| Loans and receivables to banks | 641,628 | – | – | – | – | – | 641,628 |
| Loans and receivables to other customers | 131,830,767 | 921,357 | 280,821 | 90,329 | 501,225 | 3,257,214 | 136,881,713 |
| Financial investments - held-to-maturity | 18,460,591 | – | – | – | – | – | 18,460,591 |
| Financial investments - available-for-sale | 6,167,450 | – | – | – | – | – | 6,167,450 |
| As at 31st December 2012 - LKR ’000 | |||||||
| Neither Past Due nor Impaired | Past Due but not Impaired | Individually Impaired | Total | ||||
| Products | Special Mention (3-6 months) |
Sub Standard (6-12 months) |
Doubtful (12-18 months) |
Loss (more than 18 months) |
|||
| Cash and cash equivalents | 3,634,983 | – | – | – | – | – | 3,634,983 |
| Balances with Central Bank | 6,074,792 | – | – | – | – | – | 6,074,792 |
| Placements with banks | 3,559,354 | – | – | – | – | – | 3,559,354 |
| Derivative financial instruments | 1,706,372 | – | – | – | – | – | 1,706,372 |
| Other financial assets held-for-trading | 11,394,625 | – | – | – | – | – | 11,394,625 |
| Financial investments - loans and receivable | 7,088,893 | – | – | – | – | – | 7,088,893 |
| Loans and receivables to banks | 1,183,343 | – | – | – | – | – | 1,183,343 |
| Loans and receivables to other customers | 108,656,425 | 655,720 | 2,900,695 | 832,079 | 1,645,519 | 1,348,597 | 116,039,035 |
| Financial investments - held-to-maturity | 19,223,228 | – | – | – | – | – | 19,223,228 |
| Financial investments - available-for-sale | 173,541 | – | – | – | – | – | 173,541 |
Types of Collateral
Bank
| As at 31st December 2013 - LKR ’000 | |||
| Products | Maximum Exposure to Credit Risk | Gross Collateral | Net Exposure |
| Cash and cash equivalents | 2,611,075 | – | 2,611,075 |
| Balances with Central Bank | 5,339,000 | – | 5,339,000 |
| Placements with banks | 130,751 | – | 130,751 |
| Derivative financial instruments | 1,149,541 | – | 1,149,541 |
| Other financial assets held-for-trading | 10,720,689 | – | 10,720,689 |
| Financial Investments - loans and receivable | 15,837,455 | – | 15,837,455 |
| Loans and receivables to banks | 641,628 | – | 641,628 |
| Loans and receivables to other customers | |||
| Corporate lending | 88,178,349 | 48,185,498 | 39,992,851 |
| Branch lending | 17,630,781 | 14,721,676 | 2,909,105 |
| Consumer lending | 25,542,828 | 12,787,959 | 12,754,869 |
| Residential mortgages | 4,708,688 | 4,708,688 | – |
| Others | 760,886 | 583,740 | 177,146 |
| 136,821,532 | 80,987,561 | 55,833,971 | |
| Financial investments - held-to-maturity | 17,602,249 | – | 17,602,249 |
| Financial investments - available-for-sale | 5,982,450 | – | 5,982,450 |
Concentrations of Credit Risk
Concentration by Sector
The Bank's analysis of credit risk concentration by sector is shown in the table below:
Bank
| LKR '000 | ||||||||||
| As at 31 December 2013 | Agriculture & Fishing | Food & Beverages | Trading | Metals, Chemicals & Engineering | Retail | Services | Textiles & Garments | Government* | Others | Total |
| Cash and cash equivalents | – | – | – | – | – | 2,611,075 | – | – | – | 2,611,075 |
| Balances with Central Bank | – | – | – | – | – | – | – | 5,339,000 | – | 5,339,000 |
| Placements with banks | – | – | – | – | – | 130,751 | – | – | – | 130,751 |
| Derivative financial instruments | – | – | – | – | – | 1,149,541 | – | – | – | 1,149,541 |
| Other financial assets held-for-trading | – | – | – | – | – | 1,605,075 | – | 9,115,614 | – | 10,720,689 |
| Financial investments - loans and receivables | – | – | – | – | 74,235 | – | – | 15,763,220 | – | 15,837,455 |
| Loans and receivables to banks | – | – | – | – | – | 641,628 | – | – | – | 641,628 |
| Loans and receivables to other customers | 22,609,177 | 6,062,225 | 15,505,743 | 10,318,290 | 29,894,257 | 20,568,529 | 15,542,980 | – | 16,320,331 | 136,821,532 |
| Financial investments - held-to-maturity | – | 520,000 | – | – | – | 842,819 | – | 15,999,789 | 239,641 | 17,602,249 |
| Financial investments - available-for-sale | – | – | – | – | – | 4,790 | – | 5,977,660 | – | 5,982,450 |
*Government refers to the investments held with Central Bank of Sri Lanka.
Group
| LKR '000 | ||||||||||
| As at 31 December 2013 | Agriculture & Fishing | Food & Beverages | Trading | Metals, Chemicals & Engineering | Retail | Services | Textiles & Garments | Government* | Others | Total |
| Cash and cash equivalents | – | – | – | – | – | 2,668,262 | – | – | – | 2,668,262 |
| Balances with Central Bank | – | – | – | – | – | – | 5,339,000 | – | 5,339,000 | |
| Placements with banks | – | – | – | – | – | 130,751 | – | – | – | 130,751 |
| Derivative financial instruments | – | – | – | – | – | 1,149,541 | – | – | – | 1,149,541 |
| Other financial assets held-for-trading | – | – | – | – | – | 5,078,527 | – | 9,115,614 | – | 14,194,141 |
| Financial investments - loans and receivables | – | – | – | – | 74,235 | 91,699 | – | 15,763,220 | 862,547 | 16,791,701 |
| Loans and receivables to banks | – | – | – | – | – | 641,628 | – | – | – | 641,628 |
| Loans and receivables to other customers | 22,609,177 | 6,062,225 | 15,505,743 | 10,318,290 | 29,894,257 | 20,568,529 | 15,542,980 | – | 16,380,512 | 136,881,713 |
| Financial investments - held-to-maturity | – | 520,000 | – | – | – | 842,819 | – | 15,999,789 | 1,097,983 | 18,460,591 |
| Financial investments - available-for-sale | – | – | – | – | – | 4,790 | – | 5,977,660 | 185,000 | 6,167,450 |
Commitments and Guarantees
The table below shows the Bank’s maximum credit risk exposure for commitments and guarantees.
The maximum exposure to credit risk relating to a financial guarantee is the maximum amount the Bank could have to pay if the guarantee is called upon.
| LKR '000 | 2013 | 2012 |
| Guarantees & bonds | 15,529,639 | 9,119,636 |
| Shipping guarantees | 2,162,432 | 3,668,525 |
| Advance docs endorsed | 1,961,540 | 1,571,227 |
| Letters of credit | 7,287,156 | 7,167,961 |
| Acceptances | 6,415,082 | 5,865,916 |
| Undrawn ODs & credit cards | 7,004,968 | 5,838,596 |
| Commitments | 56,994,606 | 43,598,669 |
| Options | – | – |
| Forex | 79,844,817 | 81,910,290 |
| Total | 177,200,240 | 158,740,820 |
44.2 Market Risk
Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rates, foreign exchange rates equity and Commodity prices. The Bank classifies exposures to market risk into either trading or non-trading portfolios and manages each of those portfolios separately. The market risk for the trading portfolio is managed and monitored based on a mark to market computation and duration analysis that reflects the portfolio volatility and the market sensitivity. Non-trading positions are managed and monitored using other sensitivity analyses.
Mark to Market Exercise – Trading
Trading portfolios of Government Securities (Treasury Bills/Bonds) and Foreign Currency Options are subject to mark to market exercise on a daily basis and are monitored against the set stop loss limits. Prompt management action taken where necessary ensuring minimum loss situations to the portfolios.
Mark to Market results are being monitored against the Board approved stop-loss limit on a daily basis and reviewed at monthly ALCO and the Integrated Risk Management committee on a quarterly basis to assess the portfolio performance and investment decisions.
Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments. The Board has established limits on trading and non-trading books of the Bank. The Bank’s policy is to monitor positions on a daily basis and hedging strategies are used to ensure positions are maintained within the established limits.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates of Treasury Bills & Bonds trading and available-for-sale portfolios, with all other variables held constant of the Bank’s Income Statement.
| Increase/Decrease in Basis Points | Sensitivity of Profit or Loss LKR ’000 |
Sensitivity of Equity LKR ’000 |
|
| Trading & AFS Portfolio | +100/(100) | (216,307)/216,307 | (216,307)/216,307 |
The sensitivity of the Income Statement is the effect of the assumed changes in interest rates on the profit or loss for a year, based on the interest rate sensitive assets and liabilities as at 31 December 2013.
Report on Non-Trading Financial Assets and Liabilities
| As at 31 December 2013 | On Demand LKR ’000 |
Less than 3 Months > LKR ’000 |
3 -12 Months LKR ’000 |
1-5 Years LKR ’000 |
Over 5 Years LKR ’000 |
Carrying Amount LKR ’000 |
| Assets | ||||||
| Cash and balances with Central Bank | 7,830,399 | – | – | – | 119,676 | 7,950,075 |
| Placements with banks | – | 130,751 | – | – | – | 130,751 |
| Loans and receivables to banks | 13,617 | 111,837 | 263,486 | 252,643 | 45 | 641,628 |
| Loans and receivables to other customers | 34,798,115 | 47,022,378 | 17,091,779 | 34,870,695 | 7,226,038 | 141,009,004 |
| Financial investments - loans & receivables | – | 5,502,693 | 130,750 | 10,067,750 | 136,262 | 15,837,455 |
| Financial investments - Held-to-maturity | – | 4,992,124 | 4,251,454 | 8,358,671 | – | 17,602,248 |
| Financial investments - Available-for-sale | – | 641,634 | 1,305,810 | 485,103 | 3,549,903 | 5,982,450 |
| Total Financial Assets | 42,642,131 | 58,401,417 | 23,043,279 | 54,034,862 | 11,031,924 | 189,153,613 |
| Financial Liabilities | ||||||
| Due to Banks | – | 8,472,014 | 1,961,250 | – | – | 10,433,264 |
| Due to Customers | 42,950,979 | 39,212,301 | 44,975,018 | 2,691,731 | – | 129,830,021 |
| Debt Securities issued and other borrowed funds | 5,202,125 | 4,524,708 | 3,981,776 | 9,180,630 | 1,531,579 | 24,420,818 |
| Subordinated term debts | – | – | – | 4,435,734 | 7,195,509 | 11,631,243 |
| Total Financial Liabilities | 48,153,104 | 52,228,845 | 50,918,044 | 16,359,526 | 8,727,088 | 176,386,607 |
| Total Interest Sensitivity Gap | 5,510,973 | 6,172,572 | (27,874,765) | 37,675,336 | 2,304,836 | 12,767,006 |
Currency Risk
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Board has set limits on positions by currency. In accordance with the Bank’s policy positions are monitored on a daily basis and hedging strategies are used to ensure positions are maintained within established limits.
The table below indicates the currencies to which the Bank had significant exposure at 31st December 2013 & 2012 on its currency exposures. The analysis calculates the sensitivity of each currency position to the increase in exchange rate against the LKR with all other variables held constant on the income statement and equity. A negative amount in the table reflects a potential net reduction in income statement or equity while a positive amount reflects a net potential increase depending on the side of the currency position.
An equivalent decrease in below currencies against the LKR would have resulted in an equivalent but opposite impact.
Change in Currency Rate in %
| Currency | Spot Rate Shock % | Effect on Profit 2013 LKR ’000 |
Effect on Equity 2013 LKR ’000 |
Effect on Profit 2012 LKR ’000 |
Effect on Equity 2012 LKR ’000 |
| USD | 2.50 | 6,493 | 6,493 | (15,327) | (15,327) |
| GBP | 2.50 | (825) | (825) | (144) | (144) |
| EUR | 2.50 | (544) | (544) | 1,100 | 1,100 |
| JPY | 2.50 | 127 | 127 | 229 | 229 |
| AUD | 2.50 | (1,700) | (1,700) | 521 | 521 |
Prepayment Risk
Prepayment risk is the risk that the Bank will incur a financial loss because its customers and counterparties repay or request repayment earlier or later than expected such as fixed rate mortgages when interest rates fall.
Equity Price Risk
Equity price risk is the risk that the fair value of equities decreases as the result of changes in the level of equity indices and individual stocks. The non-trading equity price risk exposure arises from equity securities classified as available-for-sale.
The Bank was insensitive to the equity price changes since the Bank did not carry any equity portfolio as at 31 December 2013.
Country Risk
Country Risk is the risk that an occurrence within a country could have an adverse affect on the Bank directly by impairing the value of the Bank or indirectly through an obligor’s ability to meet its obligations to the Bank. Generally, these occurrences relate but are not limited to: sovereign events such as defaults or restructuring; political events such as contested elections; restrictions on currency movements; non-market currency convertibility; regional conflicts; economic contagion from other events such as sovereign default issues or regional turmoil; banking and currency crisis; and natural disasters.
Concentration by Country
Geographical Analysis - Bank
| 31 December 2013 | Sri Lanka LKR ’000 |
Europe LKR ’000 |
America LKR ’000 |
Asia LKR ’000 |
Middle East LKR ’000 |
New Zealand LKR ’000 |
Total LKR ’000 |
| Cash and cash equivalents | 1,904,820 | 178,290 | 241,868 | 278,833 | 583 | 6,681 | 2,611,075 |
| Balances with Central Bank | 5,339,000 | – | – | – | – | – | 5,339,000 |
| Placements with banks | 130,751 | – | – | – | – | – | 130,751 |
| Derivative financial instruments | 1,149,541 | – | – | – | – | – | 1,149,541 |
| Other financial assets held-for-trading | 10,720,689 | – | – | – | – | – | 10,720,689 |
| Loans and Receivables to banks | 641,628 | – | – | – | – | – | 641,628 |
| Loans and Receivables to other customer | 136,821,532 | – | – | – | – | – | 136,821,532 |
| Financial Investments - From Loans and receivables | 15,837,455 | – | – | – | – | – | 15,837,455 |
| Financial Investments - Available-for-sale | 5,982,450 | – | – | – | – | – | 5,982,450 |
| Financial Investments - Held-to-maturity | 17,602,249 | – | – | – | – | – | 17,602,249 |
| Total Financial Assets | 196,130,115 | 178,290 | 241,868 | 278,833 | 583 | 6,681 | 196,836,370 |
| Contingent Assets | 169,254,240 | 5,156,000 | 2,422,000 | 368,000 | – | – | 177,200,240 |
Geographical Analysis - Group
| 31 December 2013 | Sri Lanka LKR ’000 |
Europe LKR ’000 |
America LKR ’000 |
Asia LKR ’000 |
Middle East LKR ’000 |
New Zealand LKR ’000 |
Total LKR ’000 |
| Cash and cash equivalents | 1,969,271 | 178,290 | 241,868 | 278,833 | 583 | 6,681 | 2,668,262 |
| Balances with Central Bank | 5,339,000 | – | – | – | – | – | 5,339,000 |
| Placements with banks | 130,751 | – | – | – | – | – | 130,751 |
| Derivative financial instruments | 1,149,541 | – | – | – | – | – | 1,149,541 |
| Other financial assets held for trading | 14,194,141 | – | – | – | – | – | 14,194,141 |
| Loans and Receivables to banks | 641,628 | – | – | – | – | – | 641,628 |
| Loans and Receivables to other customer | 136,881,713 | – | – | – | – | – | 136,881,713 |
| Financial Investments - Loans and receivables | 16,791,701 | – | – | – | – | – | 16,791,701 |
| Financial Investments - Available-for-sale | 6,167,450 | – | – | – | – | – | 6,167,450 |
| Financial Investments - Held-to-maturity | 18,460,591 | – | – | – | – | – | 18,460,591 |
| Total Financial Assets | 201,725,787 | 178,290 | 241,868 | 278,833 | 583 | 6,681 | 202,424,778 |
| Contingent Assets | 169,254,240 | 5,156,000 | 2,422,000 | 368,000 | – | – | 177,200,240 |
44.3 Liquidity Risk and Funding Management
Liquidity risk is defined as the risk that the Bank will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity Risk arises because of the possibility that the Bank might be unable to meet its payment obligations when they fall due under both normal and stress circumstances. To limit this risk management has arranged diversified funding sources in addition to its core deposit base and adopted a policy of managing assets with liquidity in mind and monitoring future cash flows and liquidity on a daily basis.
The Bank has developed internal control processes and is equipped with a comprehensive Liquidity Contingency Funding Plan (LCFP) linked to the Business Continuity Plan which is in line with the regulatory guidelines. The LCFP clearly defines the responsibilities of the Liquidity Management Team and ensures the business continuity through close monitoring of the Bank’s liquidity position against the pre-defined liquidity risk trigger points. Trigger points have been defined taking into consideration the Bank specific and systemic triggers which would cause a liquidity crisis. Action plans are set out under each level of liquidity crisis (Mild, Moderate, Severe) with responsibilities assigned to a Liquidity Management Team nominated from all areas of business to ensure that all stakeholders of the Bank are safeguarded.
The Bank maintains a portfolio of marketable and diverse assets that are assumed to be liquidated in the event of an unforeseen interruption of cash flow. The Bank also has committed lines of credit that it can access to meet liquidity needs. In addition the Bank maintains a statutory deposit with the Central Bank of 6% of customer deposits.
In accordance with the Bank’s policy the liquidity position is assessed/stressed and managed under a variety of scenarios giving due consideration to stress factors relating to both the market in general and specifically to the Bank. The most important of these is to maintain limits on the ratio of net liquid assets to customer liabilities to reflect market conditions. Net liquid assets consist of cash short-term bank deposits and liquid debt securities available for immediate sale.
Liquidity Ratios
Liquid Asset Ratio
The Bank defines liquid assets for the purposes of the liquidity ratio as cash balances short-term interbank deposits and highly rated debt securities available for immediate sale and for which a liquid market exists. The Bank is expected to maintain a minimum liquid asset ratio of 20% on a daily basis.
An internally set prudential liquid asset ratios on top of the regulatory requirement level ensures that the Bank is maintaining adequate liquidity buffer throughout the year.
| Year end | 2013 % |
2012 % |
| Year - end | 27.33 | 24.92 |
| Maximum | 31.32 | 27.67 |
| Minimum | 24.40 | 23.17 |
| Average | 26.86 | 24.35 |
Advances to Deposit Ratio (ADR)
The Bank stresses the importance of current accounts and savings accounts as sources of funds to finance lending to customers. They are monitored using the ADR, which compares loans and receivables to customers as a percentage of core customer current and savings accounts, together with term funding with a remaining term to maturity in excess of one year. Loans to customers that are part of reverse repurchase arrangements, and where the Bank receives securities which are deemed to be liquid are excluded from the advances to deposits ratio.
| Year end | 2013 % |
2012 % |
| Year-end | 105.87 | 108.90 |
| Maximum | 106.20 | 114.29 |
| Minimum | 103.60 | 108.90 |
| Average | 105.00 | 112.10 |
Liquidity Risk and Funding Management
The table below summarises the maturity profile of the undiscounted cash flows of the Bank’s financial assets and liabilities as at 31 December 2013.
Contractual Maturities of Undiscounted Cash Flows of Financial Assets and Liabilities
| As at 31 December 2013 | On Demand LKR ’000 |
Trading Derivatives LKR ’000 |
Less than 3 Months LKR ’000 |
3 -12 Months LKR ’000 |
1-5 Years LKR ’000 |
Over 5 Years LKR ’000 |
Total LKR ’000 |
| Assets | |||||||
| Cash and Bank balances with Central Bank | 7,950,075 | – | – | – | – | – | 7,950,075 |
| Less: Restricted balance | (5,554,021) | – | – | – | – | – | (5,554,021) |
| Placements with banks | – | – | 130,751 | – | – | – | 130,751 |
| Financial assets held-for-trading | – | – | 3,627,615 | 7,492,096 | – | – | 11,119,711 |
| Derivative financial instruments | – | 1,149,541 | – | – | – | – | 1,149,541 |
| Loans and receivables to banks | – | – | 135,990 | 284,635 | 272,450 | 45 | 693,120 |
| Loans and receivables to other customers | 33,889,211 | – | 46,016,531 | 20,745,936 | 47,905,028 | 11,736,540 | 160,293,246 |
| Other financial assets classified as loans and receivables |
– | – | 5,326,689 | 133,103 | 10,248,955 | 136,262 | 15,845,010 |
| Financial assets - Held-to-maturity | – | – | 5,147,025 | 4,782,287 | 9,032,200 | – | 18,961,512 |
| Financial assets - Available-for-sale | – | – | 774,888 | 1,459,526 | 1,699,655 | 4,685,905 | 8,619,974 |
| Total Undiscounted Financial Assets | 36,285,265 | 1,149,541 | 61,159,488 | 34,897,583 | 69,158,288 | 16,558,752 | 219,208,917 |
| Financial Liabilities | |||||||
| Due to banks | 2,891,711 | – | 8,492,120 | 1,987,691 | – | – | 13,371,521 |
| Derivative financial instruments | – | 817,310 | – | – | – | – | 817,310 |
| Due to customers | 39,879,905 | – | 41,028,338 | 49,014,929 | 3,772,088 | – | 133,695,260 |
| Debt Securities issued and other borrowed funds |
– | – | 9,837,505 | 4,083,836 | 9,180,630 | 1,531,579 | 24,633,551 |
| Subordinated term debts | – | – | 123,029 | 1,901,570 | 10,191,683 | 13,215,124 | 25,431,408 |
| Total Undiscounted Financial Liabilities | 42,771,615 | 817,310 | 59,480,993 | 56,988,026 | 23,144,402 | 14,746,704 | 197,949,049 |
| Net Undiscounted Financial Assets and Liabilities | (6,486,351) | 332,231 | 1,678,495 | (22,090,443) | 46,013,887 | 1,812,048 | 21,259,868 |
Contractual Maturities for Contingencies
The table below summarizes the maturity profile of the Bank’s Contingent Liabilities as at 31 December 2013.
| On Demand LKR '000 |
Less than 3 Months LKR '000 |
3-12 Months LKR '000 |
1-5 Years LKR '000 |
Over 5 Years LKR '000 |
Total LKR '000 |
||
| Undisbursed financing commitments | 63,999,574 | – | – | – | – | 63,999,574 | |
| Guarantees | 944,260 | 3,845,894 | 6,814,099 | 3,921,125 | 4,128,232 | 19,653,611 | |
| Commitments on account of Letters of Credit | 736,312 | 5,589,470 | 961,374 | – | – | 7,287,156 | |
| Forward exchange contracts | 9,331,461 | 38,813,787 | 31,699,570 | – | – | 79,844,817 | |
| Acceptances | 230,023 | 4,096,632 | 2,088,427 | – | – | 6,415,082 | |
| 75,241,630 | 52,345,783 | 41,563,470 | 3,921,125 | 4,128,233 | 177,200,240 | ||
45. Maturity Analysis
A maturity analysis of the assets and liabilities of the Bank, based on the remaining period to the contractual maturity date, as at the date of the Statement of Financial Position is as follows:
| Bank | Within 12 Months LKR ’000 |
After 12 Months LKR ’000 |
Total LKR ’000 |
| Assets | |||
| Cash and cash equivalents | 2,611,075 | – | 2,611,075 |
| Balance with Central Bank | 5,226,954 | 112,046 | 5,339,000 |
| Placements with banks | 130,751 | – | 130,751 |
| Derivative financial instruments | 1,149,541 | – | 1,149,541 |
| Other financial assets held-for-trading | 10,720,689 | – | 10,720,689 |
| Loans and receivables to banks | 388,941 | 252,687 | 641,628 |
| Loans and receivables to other customers | 95,959,296 | 40,862,236 | 136,821,532 |
| Financial investments - loans and receivables | 5,633,443 | 10,204,012 | 15,837,455 |
| Financial investments - available-for-sale | 5,982,450 | – | 5,982,450 |
| Financial investments - held-to-maturity | 9,243,577 | 8,358,672 | 17,602,249 |
| Investments in subsidiary companies | – | 2,037,585 | 2,037,585 |
| Investments in associate companies | – | 61,967 | 61,967 |
| Intangible assets | – | 260,425 | 260,425 |
| Property, plant & equipment | – | 872,890 | 872,890 |
| Other assets | 328,865 | 860,526 | 1,189,391 |
| Total Assets | 137,375,581 | 63,883,047 | 201,258,628 |
| Liabilities | |||
| Due to banks | 10,453,086 | – | 10,453,086 |
| Derivative financial instruments | 817,310 | – | 817,310 |
| Due to other customers | 126,919,836 | 2,910,193 | 129,830,029 |
| Debt securities issued and other borrowed funds | 13,762,024 | 10,658,794 | 24,420,818 |
| Tax liabilities | 266,128 | – | 266,128 |
| Deferred tax liabilities | 288,532 | 23,900 | 312,432 |
| Employee benefit liability | – | 170,008 | 170,008 |
| Other liabilities | 1,981,974 | 1,703,691 | 3,685,665 |
| Subordinated term debts | 563,082 | 11,119,592 | 11,682,674 |
| Total Liabilities | 155,051,973 | 26,586,178 | 181,638,150 |
| Equity | |||
| Capital | – | 1,172,904 | 1,172,904 |
| Statutory reserve fund | – | 958,527 | 958,527 |
| Investment fund account | – | 1,706,751 | 1,706,751 |
| Available-for-sale reserve | 106,669 | – | 106,669 |
| Share based payment reserve | – | 22,367 | 22,367 |
| Retained earnings | – | 15,653,260 | 15,653,260 |
| Total Equity to Equity owners of the Bank | 106,669 | 19,513,809 | 19,620,478 |
| Total Liabilities and Equity as at 31 December 2013 | 155,158,641 | 46,099,987 | 201,258,628 |
Maturity Analysis
| Group | Within 12 Months LKR ’000 |
After 12 Months LKR ’000 |
Total LKR ’000 |
| Assets | |||
| Cash and cash equivalents | 2,668,262 | – | 2,668,262 |
| Balance with Central Bank | 5,226,954 | 112,046 | 5,339,000 |
| Placements with banks | 130,751 | – | 130,751 |
| Derivative financial instruments | 1,149,541 | – | 1,149,541 |
| Other financial assets held-for-trading | 14,194,141 | – | 14,194,141 |
| Loans and receivables to banks | 388,941 | 252,687 | 641,628 |
| Loans and receivables to other customers | 96,019,476 | 40,862,237 | 136,881,713 |
| Financial investments - loans and receivables | 6,496,565 | 10,295,136 | 16,791,701 |
| Financial investments - available-for-sale | 6,167,450 | – | 6,167,450 |
| Financial investments - held-to-maturity | 9,261,070 | 9,199,521 | 18,460,591 |
| Investments in subsidiary companies | – | – | – |
| Investments in associate companies | – | 76,744 | 76,744 |
| Investment property | – | 1,383,693 | 1,383,693 |
| Intangible assets | – | 296,678 | 296,678 |
| Property, plant & equipment | – | 1,176,491 | 1,176,491 |
| Other assets | 598,210 | 860,527 | 1,458,737 |
| Total Assets | 142,301,361 | 64,515,760 | 206,817,121 |
| Liabilities | |||
| Due to banks | 10,453,086 | – | 10,453,086 |
| Derivative financial instruments | 817,310 | – | 817,310 |
| Due to other customers | 126,601,031 | 2,820,782 | 129,421,813 |
| Debt securities issued and other borrowed funds | 13,762,025 | 10,628,793 | 24,390,818 |
| Tax liabilities | 300,196 | – | 300,196 |
| Deferred tax | 298,033 | 26,418 | 324,451 |
| Provision | – | 214,830 | 214,830 |
| Other liabilities | 2,146,599 | 1,703,690 | 3,850,289 |
| Subordinated term debts | 563,082 | 11,119,592 | 11,682,674 |
| Total Liabilities | 154,941,360 | 26,514,107 | 181,455,467 |
| Equity | |||
| Capital | – | 943,746 | 943,746 |
| Statutory reserve fund | – | 958,527 | 958,527 |
| Investment fund account | – | 1,706,751 | 1,706,751 |
| Available-for-sale reserve | 150,614 | – | 150,614 |
| Share-based payment reserve | – | 22,367 | 22,367 |
| Retained earnings | – | 20,731,801 | 20,731,801 |
| Minority interests | 847,848 | 847,848 | |
| Total equity | 150,614 | 25,211,040 | 25,361,654 |
| Total Liabilities equity as at 31 December 2013 | 154,941,364 | 51,725,147 | 206,817,121 |
46. Commitments and Contingencies
46.1 Business Commitments
In the normal course of business, the Bank makes various commitments and incurs certain contingent liabilities some of which give rise to legal recourse to its customers. No material losses are anticipated as a result of these transactions. These commitments are quantified below:
| BANK | GROUP | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
| Undisbursed financing commitments | 63,999,574 | 49,437,265 | 63,999,574 | 49,437,265 |
| Guarantees | 15,723,292 | 11,555,442 | 15,723,292 | 11,555,442 |
| Performance bonds and bid bonds | 3,930,319 | 2,803,947 | 3,930,319 | 2,803,947 |
| Letters of credit | 7,287,156 | 7,167,960 | 7,287,156 | 7,167,960 |
| Forward exchange contracts | 79,844,817 | 81,910,290 | 79,844,817 | 81,910,290 |
| Acceptances | 6,415,082 | 5,865,916 | 6,415,082 | 5,865,916 |
| 177,200,240 | 158,740,820 | 177,200,240 | 158,740,820 | |
46.2 Litigation Against the Bank
In the normal course of business, the Bank is a party to various types of litigation, including litigation with borrowers who are in default in terms of their loan agreements. As at the date of The Statement of Financial Position fifteen client companies have filed cases against the Bank, preventing the sale of assets mortgaged to the Bank. The Bank's legal counsel is of the opinion that litigation which is currently pending will not have a material impact on the reported financial results or the future operations of the Bank.
47. Events Occurring after the Date of the Statement of Financial Position
47.1 The Board of Directors of DFCC Bank (DFCC) and National Development Bank (the Bank), in pursuance of the policies announced by the Government encouraging the consolidation of certain banking businesses, are about to commence preliminary discussion with a view to achieving such consolidation. The consolidation of the two entities will be dependent on relevant approvals and possibly, passage of facilitative legislation.
47.2 On 13 February 2014, the Board of Directors of the Bank authorized and approved a final dividend of LKR 5.00 per share for the financial year 2013. (2012 - final dividend of LKR 10.00 per share).
This will be paid out of dividend income received by the Bank and from the operational profits, the latter portion being liable to a dividend tax at 10%. (Rs. 4.36 per share will be out of Dividend Income - Net of Tax, and the balance cents 64 will be subject to 10% Withholding Tax).
48. Comparative Information
The classification of following items in the Statement of Financial Position were amended to ensure proper presentation in the Financial Statements.
| BANK | GROUP | BANK | GROUP | |||
| 2013 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
2012 LKR ’000 |
|||
| Assets | ||||||
| As reported Previously: | Current Presentation: | |||||
| Securities purchased under resale agreements | Financial Investments - Loans and Receivables | (Refer Note 20) | 4,919,825 | 4,927,429 | 3,324,868 | 3,324,868 |
| Financial Assets held-for-trading | Other Financial Assets held-for-trading | (Refer Note 17) | 9,115,614 | 9,115,614 | 982,967 | 982,967 |
| Lease rentals receivables | Loans and Receivables to other customers | (Refer Note 19) | 8,428,409 | 8,428,409 | 6,439,571 | 6,439,571 |
| Liabilities | ||||||
| Securities sold under repurchase agreements | Debt Securities issued and other borrowed funds | (Refer Note 31) | 11,771,598 | 11,771,598 | 12,515,861 | 12,515,861 |
49. Segmental Analysis - Group
| Banking | Capital Markets | Property Investment | Others | Consolidated | ||||||
| For the year ended 31 December |
2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
| Revenue | ||||||||||
| External income | 24,559,508 | 19,468,265 | 469,772 | 5,897,725 | 194,756 | 123,646 | – | 610,059 | 25,224,037 | 26,099,695 |
| Inter-segment income | – | – | 23,319 | 51,794 | 55,949 | 41,001 | – | – | 79,268 | 92,795 |
| Total Income | 24,559,508 | 19,468,265 | 493,091 | 5,949,519 | 250,705 | 164,647 | – | 610,059 | 25,303,305 | 26,192,490 |
| Segment Expenses | (19,959,230) | (15,413,846) | (496,230) | (332,705) | (123,442) | (61,300) | – | 6,234 | (20,578,903) | (15,801,617) |
| Segment Results | 4,600,278 | 4,054,419 | (3,141) | 5,616,814 | 127,264 | 103,347 | – | 616,293 | 4,724,401 | 10,390,873 |
| Share of associate companies profit before taxation |
– | – | – | – | – | – | 49,220 | 438,719 | 49,220 | 438,720 |
| Taxation | (1,150,893) | (1,275,368) | ||||||||
| VAT on financial services | (910,500) | (622,286) | ||||||||
| Profit after taxation | 2,712,228 | 8,931,939 | ||||||||
| Other information | ||||||||||
| Segment assets | 201,189,884 | 163,474,297 | 4,091,993 | 8,921,190 | 1,458,500 | 1,674,283 | – | – | 206,740,377 | 174,069,770 |
| Investment in associates | – | – | – | – | – | – | 76,744 | 33,301 | 76,744 | 33,301 |
| Consolidated total assets |
206,817,121 | 174,103,071 | ||||||||
| Segment liabilities | 181,192,251 | 148,283,244 | 207,262 | 73,581 | 55,956 | 36,794 | – | – | 181,455,467 | 148,393,619 |
| Consolidated total liabilities | 181,455,467 | 148,393,619 | ||||||||
| Segmental cash flows | ||||||||||
| Cash Flows from Operating Activities |
4,512,522 | 12,235,016 | (309,949) | (95,356) | 96,878 | (712) | 83,333 | 260,351 | 4,382,784 | 12,399,299 |
| Cash Flows from Investing Activities | (17,739,826) | (154,163) | 271,196 | 196,967 | (60,097) | 37,493 | (81,895) | (1,412,701) | (17,610,622) | (1,332,406) |
| Cash Flows from Financing Activities | 8,193,589 | (6,493,464) | (60,087) | (111,907) | (36,779) | (36,781) | – | (1,193,545) | 8,096,722 | (5,448,607) |
50. Related Party Disclosures
50.1 Parent and Ultimate Control Party
The Bank does not have an identifiable Parent of its own.
50.2 Transactions with Key Management Personnel and their Close Family Members
Related parties include Key Management Personnel defined as persons having authority and responsibility for planning, directing and controlling the activities of the Bank and its subsidiaries. Key Management Personnel include the members of the Board of Directors of the Bank, key employees who are holding directorships in subsidiary companies and other key employees who meet the criteria mentioned above. The Bank carries out transactions with key management and their related concerns in the ordinary course of its business on an arms length basis at commercial rates except the loans that the key management have availed under the loan schemes uniformly applicable to all the staff.
| 2013 LKR ’000 |
2012 LKR ’000 |
|
50.2.1 Compensation to Key Management Personnel of the Bank |
||
| Short-term employee benefits | 248,754 | 193,331 |
| Post-employment benefits (defined benefit plan) | 4,072 | 7,258 |
| Share-based payment transactions | 12,828 | 10,080 |
| 265,654 | 210,669 | |
The amounts disclosed above are the amounts recognized as an expense during the reporting period related to Key Management Personnel .
In addition to the remuneration, the Bank has also provided non-cash benefits such as Vehicle, Insurance for Key Management Personnel in line with the approved benefit plan of the Bank.
| 2013 | 2012 | |
50.2.1.1 Share-Based Payments to Key Management Personnel |
||
| Share Grant | ||
| Award 01 (1 July 2010) | ||
| No. of ordinary shares held | 261,916 | 246,867 |
| No. of cumulative grants allocated under the Equity-Linked Compensation Plan (ELCP) Tranche 1 (1 July 2010) | 261,916 | 246,867 |
| Award 04 (1 July 2013) | ||
| No. of ordinary shares held | 276,212 | – |
| No. of cumulative grants allocated under the Equity-Linked Compensation Plan (ELCP) Tranche 4 (1 July 2013) | 276,212 | – |
Share Options
Share options held by Key Management Personnel under the Equity-Linked Compensation Plan (ELCP) to purchase ordinary shares have the following expiry dates and exercise prices.
| Issue date | Expiry date | Exercise Price LKR |
2013 Number Outstanding |
2012 Number Outstanding |
|
| Award 01 | 1 July 2010 | 30 June 2014 | 124.21 | 261,916 | 246,867 |
| Award 04 | 1 July 2013 | 30 June 2017 | 222.02 | 276,212 | – |
50.2.2 Key Management of the Bank and their close family members had the following facilities with the Bank as at 31 December:
| As at | 31.12.2013 LKR ’000 |
31.12.2012 LKR ’000 |
| Deposits | 312,116 | 228,488 |
| Loans and Receivables | 76,693 | 64,308 |
| Credit cards | 1,759 | 1,042 |
| Investment in debentures | 14,700 | – |
| For the year | ||
| - Interest income | 6,766 | 5,322 |
| - Interest expenses | 32,860 | 23,074 |
50.2.3 Transactions involving entities which are controlled/significantly influenced by Key Management Personnel and their close family members.
| As at | 31.12.2013 LKR ’000 |
31.12.2012 LKR ’000 |
| Loans and Receivables | 1,967,742 | 2,767,736 |
| Commitments and contingencies | 549,317 | 130,830 |
| Forex transactions | 1,307,500 | – |
| Deposits | 685,903 | 2,139,049 |
| For the year | ||
| - Interest income | 234,578 | 361,382 |
| - Interest expenses | 60,989 | 42,053 |
| - Fee and commission Income | 19,134 | 10,536 |
| - Capital expenditure and services rendered | 79,104 | 12,478 |
| 31.12.2013 | 31.12.2012 | |
50.2.4 Direct and Indirect Accommodation to Key Management Personnel and their close family members & Entities that have Significant Influence |
||
| Direct and indirect accommodation as a percentage of the Bank's regulatory capital | 9.54 | 19.82 |
50.3 Transactions with the Government of Sri Lanka and its Related Entities
A number of entities in which the Government of Sri Lanka has an interest have a significant interest in the Bank.
50.3.1 The Bank enters into transactions, arrangements and agreements with the Government of Sri Lanka and its related entities. The significant financial dealings during the year and as of the date of the Statement of Financial Position are as follows:
| As at | 31.12.2013 LKR ’000 |
31.12.2012 LKR ’000 |
| Loans and Receivables | 2,546,153 | 2,579,503 |
| Investments | – | 3,224,905 |
| Deposits | 57,534 | 23,275 |
| Repo borrowings | 2,294,000 | 1,064,215 |
| Borrowings | 1,546,000 | 700,000 |
| Debentures | 2,455,890 | – |
| Concessionary credit lines | 6,946,460 | 8,555,805 |
| Guarantees | 67,066 | 68,468 |
| Forex transactions | 4,214,929 | 9,065,250 |
| For the year | ||
| - Interest income | 1,164,400 | 367,228 |
| - Interest expenses | 1,014,397 | 979,404 |
| - Fee and commission income | 5,466 | 826 |
50.3.2 Further transactions as detail below, relating to the ordinary course of business, are entered into with the Government of Sri Lanka and its related entities:
- Investment in Treasury Bills, Treasury Bonds and Development Bonds
- Payment of statutory rates and taxes
- Payment for utilities mainly comprising of telephone, electricity and water
- Payment for employment retirement benefits - ETF
| 31.12.2013 % |
31.12.2012 % |
|
50.3.3 Direct and Indirect Accommodation to Government of Sri Lanka and its Related Entities |
||
| Direct and indirect accommodation as a percentage of the Bank’s regulatory capital | 9.60 | 17.71 |
50.4 Transactions with Related Entities
50.4.1 The Bank had the under mentioned financial dealings during the year with the following subsidiaries and associates of the Bank:
| Subsidiaries of the Group* | Associates of the Group* | |||
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
| Loans and Receivables | 1 | 4 | – | – |
| Group company receivables | 1,646 | 1,100 | – | – |
| Deposit | 289,937 | 228,502 | – | 1 |
| Other payables | 204 | 2,862 | – | – |
| Investment in ordinary shares net of provisions for impairment | 2,037,585 | 2,641,178 | 61,968 | 18,525 |
| Disposal of investments | 582,714 | 80,862 | – | 268,373 |
| 2013 LKR ’000 |
2012 LKR ’000 |
2013 LKR ’000 |
2012 LKR ’000 |
|
| Income Statement | ||||
| Interest received/(paid) - Net | (44,476) | (48,282) | – | (22,060) |
| Rent and utilities received | 20,136 | 15,477 | – | 2,590 |
| Rent and utilities paid | 18,305 | 18,937 | – | – |
| Management fees received/(paid) - Net | (23,120) | 5,788 | – | – |
| Front end fees received | – | 952 | – | – |
| Bancassurance income | – | – | – | 9,251 |
| Insurance paid | – | – | – | 119,947 |
| Insurance claims received | – | – | – | 25,813 |
| Share Brokerage fees paid | 7,436 | 1,240 | – | – |
| Dividends received | 700,203 | 95,698 | – | – |
| Capital gains | 5,372,060 | 501,759 | – | 33,958 |
* Refer Note 23 and Note 24 for details of Subsidiary and Associate Companies.
50.4.2 The Bank had the undermentioned financial dealings during the year with NDB Provident Fund:
| 2013 LKR ’000 |
2012 LKR ’000 |
|
| Deposits | 51,661 | 22,908 |
| Interest paid on deposits during the year | 2,585 | 2,618 |
| Contribution made by the Bank | 163,732 | 138,864 |
50.4.3 NDB Wealth Management Ltd., a subsidiary of the Bank had the underentioned financial dealings with the NDB Provident Fund:
| 2013 LKR ’000 |
2012 LKR ’000 |
|
| Portfolio under management | 1,340,823 | 933,491 |
50.4.4 The Bank had the undermentioned financial dealings with the NDB Pension Fund during the year.
| 2013 LKR ’000 |
2012 LKR ’000 |
|
| Deposits | 112,893 | – |
| Contribution made by the Bank | 28,850 | 22,706 |
50.4.5 The Bank had the under mentioned financial dealings with the NDB Employee Share Ownership Plan during the year.
| 2013 | 2012 | |
| No. of ordinary shares held | 4,133,726 | 4,133,726 |
| Dividends paid by the Bank (LKR ’000) | 82,675 | 16,535 |
| 31.12.2013 % | 31.12.2012 % | |
50.4.6 Direct and Indirect Accommodation of Related Companies |
||
| Direct and indirect accommodation as a percentage of the Bank's regulatory capital | – | – |
