ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANY AND STATEMENT OF COMPLIANCE OF THE CONTENTS OF THE ANNUAL REPORT AS REQUIRED BY SECTION 168 OF THE COMPANIES ACT NO. 07 OF 2007.
The Directors of Commercial Bank of Ceylon PLC have pleasure in presenting to the shareholders this Report together with the Audited Financial Statements and the Audited Consolidated Financial Statements for the year ended December 31, 2012 of the Bank and the Group and the Auditors' Report on those Financial Statements, conforming to the requirements of the Companies Act No. 07 of 2007, Banking Act No. 30 of 1988 and amendments thereto and the Directions issued thereunder.
The Commercial Bank of Ceylon PLC (the Bank) is a licensed commercial bank registered under the Banking Act No. 30 of 1988 and was incorporated as a public limited liability company in Sri Lanka on June 25, 1969 under the Companies Ordinance No. 51 of 1938 and was re-registered as per the requirements of the Companies Act No. 07 of 2007 on January 23, 2008, under the Company Registration No. PQ 116.
The ordinary shares (both voting and non-voting) of the Bank are quoted on the main board of the Colombo Stock Exchange since March 1970. The unsecured subordinated redeemable debentures issued by the Bank are also listed on the Colombo Stock Exchange. Fitch Ratings Lanka has affirmed Bank's National Long Term rating at 'AA(lka)' with a Stable Outlook and subordinated debentures at 'AA-(lka)'. RAM Ratings Lanka has reaffirmed Bank's long and short term financial institution ratings at AA+ and P1, respectively; the long term rating has a stable outlook.
The registered office of the Bank is at No. 21, 'Commercial House', Sir Razik Fareed Mawatha, Colombo 01, at which the Bank's head office too is situated.
This Report provides the information as required by the Companies Act No. 07 of 2007, Banking Act Direction No. 11 of 2007 on 'Corporate Governance for Licensed Commercial Banks' and subsequent amendments thereto, Listing Rules of the Colombo Stock Exchange and the recommended best practices on Corporate Governance. This Report was approved by the Board of Directors on February 27, 2013.
Section 168 of the Companies Act No. 07 of 2007, requires the following information to be published in the Annual Report prepared for the year under review (i.e., for the year ended December 31, 2012):
Information required to be disclosed as per the Companies Act No. 07 of 2007 | Reference to the Companies Act | Extent of Compliance by the Bank |
||
(i) | The nature of the business of the Group and the Bank together with any change thereof during the accounting period |
Section 168 (1) (a) | Refer Item 2.2.1 on this section | |
(ii) | Signed Financial Statements of the Group and the Bank for the accounting period completed |
Section 168 (1) (b) | Refer Item 2.3 on this section | |
(iii) | Auditors' Report on Financial Statements of the Group and the Bank | Section 168 (1) (c) | Refer Item 2.5 on this section | |
(iv) | Accounting Policies and any changes therein (Group also included) | Section 168 (1) (d) | Refer Item 2.6 on on this section | |
(v) | Particulars of the entries made in the Interests Register during the accounting period | Section 168 (1) (e) | Refer Item 2.7 on on this section | |
(vi) | Remuneration and other benefits paid to Directors of the Bank (Subsidiaries also included) during the accounting period | Section 168 (1) (f) | Refer Item 2.8 on this section | |
(vii) | Amount of donations made by the Bank and its (Subsidiaries also included) during the accounting period | Section 168 (1) (g) | Refer Item 2.9 on this section | |
(viii) | Information on Directorate of the Bank and its Subsidiaries during and at the end of the accounting period | Section 168 (1) (h) | Refer Item 11 on this section | |
(ix) | Separate disclosure on amounts payable to the Auditor as Audit Fees and Fees for other services rendered during the accounting period | Section 168 (1) (i) | Refer Item 19 on this section | |
(x) | Auditors' relationship or any interest with the Bank and its Subsidiaries - Audit Fee/ Non-Audit Fee |
Section 168 (1) (j) | Refer Item 19 on this section | |
(xi) | Acknowledgement of the contents of this Report/Signatures on behalf of the Board | Section 168 (1) (k) | Refer Item 27 on this section |
The Bank's Vision and Mission are given on 'Letter from the Chairman' section. The business activities of the Group and the Bank are conducted maintaining the highest level of ethical standards in achieving its Vision and Mission as set out in the Bank's Code of Ethics, which reflects our commitment to high standards of business conduct and ethics. The Bank issues a copy of its Code of Ethics to each and every staff member and employees are required to abide by the Bank's code of conduct.
The 'Letter from the Chairman', the "Managing Director's Review" , and the 'Management Discussion and Analysis' , provide an overall assessment on the financial performance and financial position of the Group and the Bank and the state of affairs together with important events that took place during the year in detail as required by the Section 168 of the Companies Act No. 07 of 2007 and the recommended best accounting practices. These Sections form an integral part of the Annual Report.
The nature of the principal business activities of the Group and the Bank as required by the Section 168 (1) (a) of the Companies Act No. 07 of 2007 is given in Note 1.3 to the Financial Statements and are found on Financial Report section. There were no significant changes in the nature of the principal activities of the Group and the Bank during the financial year under review.
The Financial Statements of the Group and the Bank, which are duly certified by the Chief Financial Officer and approved by the Board of Directors and signed by three members of the Board of Directors including the Chairman and the Deputy Chairman, together with the Company Secretary in compliance with the requirements of the Sections 151, 152 and 168 (1) (b) of the Companies Act No. 07 of 2007 are appearing on Financial Reports.
The Directors are responsible for the preparation of the Financial Statements of the Group and the Bank, which reflect a true and fair view of the state of its affairs. The Directors are of the view that the Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flow, Significant Accounting Policies and Notes thereto appearing on Financial Reports have been prepared in conformity with the requirements of the Sri Lanka Accounting Standards as mandated by the Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995 and the Companies Act No. 07 of 2007. Further, these Financial Statements also comply with the requirements of the Banking Act No. 30 of 1988 and amendments thereto and the Listing Rules of the Colombo Stock Exchange. The 'Statement of Directors' Responsibility for Financial Reporting' appearing on Financial Reports forms an integral part of this Report.
The Bank's Auditors, Messrs KPMG performed the audit on the Consolidated Financial Statements for the year ended December 31, 2012, and the Auditors' Report issued thereon is given on Financial Reports as required by the Section 168 (1) (c) of the Companies Act No. 07 of 2007.
The Group and the Bank prepared their Financial Statements for all periods up to and including the year ended December 31, 2011, in accordance with Sri Lanka Accounting Standards which were in effect up to that date. Following the convergence of Sri Lanka Accounting Standards with the International Financial Reporting Standards (IFRSs), all existing/new Sri Lanka Accounting Standards were prefixed as SLFRS and LKAS to represent Sri Lanka Accounting Standards corresponding to International Financial Reporting Standards and Sri Lanka Accounting Standards corresponding to International Accounting Standards (IASs), respectively. Accordingly, the Group and the Bank adopted these new Sri Lanka Accounting Standards (which are commonly known as SLFRSs) applicable for financial periods commencing from January 1, 2012. These Financial Statements for the year ended December 31, 2012 are the first the Group and the Bank prepared in accordance with SLFRS and Sri Lanka Accounting Standard - SLFRS 1 on 'First-time Adoption of Sri Lanka Accounting Standards'. The Significant Accounting Policies adopted in the preparation of the Financial Statements of the Group and the Bank are given on Financial Reports section of the Annual Report.
An Interests Register is maintained by the Bank, as required by the Companies Act No. 07 of 2007. All Directors have made declarations as provided for in the Sections 192 (1) and (2) of the Companies Act aforesaid. All related entries were made in the Interests Register during the year under review. The share ownership of Directors is disclosed on this Stewardship section. The Interests Register is available for inspection by shareholders or their authorised representatives as required by the Section 119 (1) (d) of the Companies Act No. 07 of 2007.
Directors' remuneration and other benefits, in respect of the Group and the Bank for the financial year ended December 31, 2012, are given in Note 14 to the Financial Statements on 'Notes to the Financial Statements' as required by the Section 168 (1) (f) of the Companies Act No. 07 of 2007.
During the year, the Bank made donations amounting to Rs. 51,066,000/- (Rs. 109,963,728/- in 2011) in terms of the Resolution passed at the last Annual General Meeting. The donations made to Government approved charities out of the above amount was Rs. 435,728/- (Rs. 3,032,000/- in 2011). The information given above on donations forms an integral part of the Report of the Board of Directors as required by the Section 168 (1) (g) of the Companies Act No. 07 of 2007.
During the year, 14 new delivery points were opened (26 in 2011), bringing the total number of delivery points in Sri Lanka to 227 at the end of 2012 (213 at the end of 2011). In addition, the Bank installed 55 new ATMs including the 1st drive through ATM in 2012 (100 in 2011) bringing the total number of ATMs in Sri Lanka to 555 by the end of 2012 (500 at the end of 2011). This is the single largest ATM network in the country. In addition to above, the Bank has 17 delivery points (17 in 2011) and 17 ATMs (17 in 2011), at the end of 2012, in Bangladesh. The Bank also introduced an easy to use internet and Mobile banking and online bill payment features to enable customers' easy access to most banking services anytime.
The Bank intends to expand its network of delivery channels both in Sri Lanka and in Bangladesh by employing client-focused strategy with effective management of capital, liquidity and risk. The Bank will continue to develop its customer-centric model for doing business with the objective of delighting its customers. Please refer Sections on 'Letter from the Chairman', "Managing Director's Review" and the 'Management Discussion and Analysis' for further information on future developments.
The gross income of the Group for 2012 was Rs. 63.373 Bn. (Rs. 45.839 Bn. in 2011), while the Bank's gross income was Rs. 63.395 Bn. (Rs. 45.859 Bn. in 2011).
The sources of external operating income, net operating profit and asset allocation of the Group among substantially different classes of business together with their proportions are given in Note 52 to the Financial Statements on Financial Reports.
The net profit before tax of the Group and the Bank increased by 30.35% and 31.18%, respectively in 2012. Further, net profit after tax of the Group and the Bank increased by 27.09% and 28.10% respectively in 2012.
Details of appropriation of profit- relating to the Bank are given below:
2012 | 2011 | |
Rs. | Rs. | |
Profit for the year after payment of all expenses of management and providing for depreciation, possible loan losses, Financial VAT and contingencies |
14,295,337,395 | 10,987,397,344 |
Less: provision for taxation | (4,197,004,538) | (2,939,567,415) |
Net profit after taxation | 10,098,332,857 | 8,047,829,929 |
Balance brought forward from previous year (net of adjustments arising from conversion to SLFRS) | (318,092,736) | 2,276,961 |
Profit available for appropriation | 9,780,240,121 | 8,050,106,890 |
Less: Appropriations | ||
Transfer to the Statutory Reserve Fund | (504,916,643) | (402,391,496) |
Transfer to Special Risk Reserve of Primary Dealer Unit | (38,172,578) | (16,084,240) |
Transfer to the Special Reserve of Primary Dealer Unit | (114,517,734) | (48,252,720) |
Transfer to the Investment Fund Account | (1,652,606,995) | (1,194,328,492) |
Transfer to General Reserve | (2,045,000,000) | (1,480,000,000) |
Dividends on Ordinary Shares | ||
1st Interim Dividend paid - Rs. 1.50 per share in cash (Rs. 1.50 in 2011) | (1,250,160,393) | (1,226,175,249) |
2nd Interim Dividend paid - Rs. 1.00 per share in cash for 2011 | - | (817,450,166) |
2nd Interim Dividend payable - Rs. 1.00 per share for 2012 | (833,608,537) | - |
Final Dividend - Rs. 2.00 per share in cash (Rs. 1.50 in 2011) | (1,667,217,074) | (1,226,175,249) |
- Rs. 2.00 per share in shares (Rs. 2.00 in 2011) | (1,667,217,074) | (1,634,900,333) |
Balance carried forward | 6,823,093 | 4,348,945 |
On this basis, the cash dividend payout ratio amounts to 37.15% of the profit after tax of 2012, compared to 41.48% for 2011 while the total dividend payout ratio amounts to 53.66% for 2012, compared to 62.26% for 2011. This is well above the minimum dividend payout ratio of 10%, (25% in 2011) stipulated in the Deemed Dividend Tax Rule.
The Income tax rate applicable on the profits earned in Sri Lanka (i.e., the profits of both Domestic Banking operation as well as the profits of the Off-Shore Banking Centre) is 28% (28% in 2011). The profit of the Bank's Bangladesh Operation is taxed at 42.5% (42.5% in 2011). The profit of the Sri Lankan Operation of the Bank is also liable for Value Added Tax on Financial Services at the rate of 12% (12% in 2011).
The Group has also provided deferred tax on all known temporary differences under the liability method, as permitted by the Sri Lanka Accounting Standard - LKAS 12 on 'Income Taxes'.
Information on Income Tax Expense and Deferred Taxes of the Group and the Bank is given in Notes 15 and 33 to the Financial Statements on Financial Reports section.
The Directors recommend a dividend of Rs. 4.00 per share as the final dividend for the year 2012 which consists of a cash dividend of Rs. 2.00 per share and the balance entitlement of Rs. 2.00 per share satisfied in the form of issue and allotment of new shares. (The Bank paid a final dividend of Rs. 3.50 per share in 2011 and this was satisfied by way of Rs. 1.50 per share in the form of cash and the balance entitlement of Rs. 2.00 per share in the form of issue and allotment of new shares). The Bank paid two interim dividends i.e., Rs. 1.50 per share and Rs. 1.00 per share each in cash in November 2012 and in February 2013, respectively (two interim dividends of Rs. 1.50 and Rs. 1.00 per share, each in cash were paid in November and December 2011). Details of Information on dividends are given in Note 17 to the Financial Statements on Financial Reports section.
The interim dividends were paid out of the profits of the Bank, hence subject to a 10% withholding tax.
The Directors have proposed to pay Rs. 2.00 out of the proposed final dividend of Rs. 4.00 per share partly out of dividends received and partly out of taxable profits of the Bank. The dividends paid out of taxable profits of the Bank will be subject to a 10% withholding tax. The balance dividend of Rs. 2.00 per share is proposed to be satisfied by issue and allotment of new shares, subject to a 10% withholding tax.
The Board of Directors fulfilled the requirement of the Solvency Test in terms of the Section 31 (3) of the Companies Act No. 07 of 2007 immediately after the payment of interim dividends and would ensure the compliance of Solvency Test after the payment of aforesaid final dividend proposed to be paid in April 2013.
The Board of Directors provided the Statement of Solvency to the Auditors and obtained Certificates of Solvency from the Auditors in respect of each dividend payment conforming to the statutory provision.
A summary of the Group's reserves is given below:
2012 | 2011 | |
Rs. '000 | Rs. '000 | |
Statutory Reserve Fund | 3,245,819 | 2,740,901 |
Special Risk Reserve of Primary Dealer Unit | 187,576 | 149,404 |
Special Reserve of Primary Dealer Unit | 845,683 | 731,165 |
Revaluation Reserve | 4,343,232 | 4,550,838 |
General Reserve | 19,203,304 | 17,158,306 |
Foreign Currency Translation Reserve | (757,894) | (1,302,557) |
Available for Sale Reserve | 475,466 | – |
Investment Fund Reserve | 2,846,935 | 1,194,328 |
Retained Earnings | 4,177,866 | 2,871,411 |
Total | 34,567,987 | 28,093,796 |
Information on the movement of reserves is given in the Statement of Changes in Equity and in Notes 45 and 46 respectively to the Financial Statements on Financial Reports section.
Capital expenditure incurred on Property, Plant & Equipment (including Capital Work-in-Progress), Intangible Assets and Leasehold Property of the Bank amounted to Rs. 1,197,639 Mn., Rs. 203.032 and Rs. 411 Mn., respectively (Rs. 1,379.607 Mn., Rs. 147.523 Mn., and Rs. Nil in 2011), details of which are given in Notes 30.4, 31 and 32 on 'Notes to the Financial Statements'. Capital expenditure approved and contracted for are given in Note 48 to the Financial Statements on Financial Reports section.
All freehold land and buildings of the Bank were revalued by professionally qualified independent valuers as at December 31, 2011, and brought into Financial Statements with the concurrence of the Central Bank of Sri Lanka. The Directors are of the opinion that the revalued amounts are not in excess of the current market values of such properties. The details of freehold properties owned by the Bank are given in Note 30.5 and 30.6 to the Financial Statements on Financial Reports section.
Details of the shares issued by the Bank are given in the table below:
2012 | 2011 | |||||||
Reason for the Issue | Details of the Share Issue | Voting Ordinary Shares | Non-Voting Ordinary Shares | Voting Ordinary Shares | Non-Voting Ordinary Shares | |||
Exercise of options by employees under the Employee Share Option Plans | Number of Shares Issued | 1,341,768 | N/A | 1,457,645 | N/A | |||
Consideration Received (Rs. '000) | 62,942 | N/A | 121,869 | N/A | ||||
Rights issue of ordinary shares | Number of Shares Issued | N/A | N/A | 25,502,433 | 1,745,494 | |||
Consideration Received (Rs. '000) | N/A | N/A | 4,632,517 | 227,141 |
The Subsidiaries and Associates of the Bank did not make any share or debenture issues during the above period.
The Stated Capital as at December 31, 2012 was Rs. 18,008.796 Mn., comprising of 780,014,232 ordinary voting shares and 53,473,748 ordinary non-voting shares (Rs. 16,473.861 Mn. as at December 31, 2011 comprising of 765,085,320 ordinary voting shares and 52,364,846 ordinary non-voting shares). The details of the Stated Capital are given in Note 43 to the Financial Statements on Financial Reports section.
The Bank had in issue 973,210 unsecured, subordinated, redeemable debentures of Rs. 1,000/- each to the value of Rs. 973.210 Mn., as at December 31, 2012 (973,210 debentures to the value of Rs. 973.210 Mn., as at December 31, 2011). The details of debentures redeemed during the year 2012 and those outstanding as at December 31, 2012 are given in Note 42 to the Financial Statements on Financial Reports section.
The debenture issues addressed the current needs in relation to long- term funds required for bridging the maturity gaps and to strengthen the supplementary capital base of the Bank, at the time of issue.
Information relating to earnings, dividend, net assets and market value per share is given in 'Financial Highlights'. Information on the trading of the shares and movement in the number of shares represented by the Stated Capital of the Bank is given in the Section on 'Investor Relations' on this Stewardship section.
Details of the top twenty shareholders for both voting and non-voting ordinary shares, percentages of their respective holdings and percentage holding of the public are given in the Section on 'Investor Relations' on this Stewardship section.
Information on the distribution of shareholding and the respective percentages are given in the Section on 'Investor Relations' on this Stewardship section.
The Board of Directors of the Bank as at December 31, 2012 consisted of eight Directors (seven Directors as at December 31, 2011) with wide financial and commercial knowledge and experience. The qualifications and experience of the Directors are given in the 'Board of Directors - Profiles' on this Stewardship section.
Names of the Directors of the Bank as at the end of 2012, as required by the Section 168 (1) (h) of the Companies Act No. 07 of 2007, are given below:
Name of the Director | Executive/
Non-Executive Status |
Independence/
Non-Independence Status |
||
Mr. D.S. Weerakkody - Chairman | Non-Executive | Independent | ||
Mr. K.G.D.D. Dheerasinghe - Deputy Chairman | Non-Executive | Independent | ||
Mr. W.M.R.S. Dias - Managing Director/CEO | Executive | Non-Independent | ||
Prof. U.P. Liyanage | Non-Executive | Non-Independent | ||
Mr. L. Hulugalle | Non-Executive | Independent | ||
Mr. M.P. Jayawardena | Non-Executive | Non-Independent | ||
Mr. J. Durairatnam (Appointed to the Board as a Board Member w.e.f. April 28, 2012) | Executive | Non-Independent | ||
Mr. S. Swarnajothi (Appointed to the Board as a Board Member w.e.f. August 20, 2012) | Non-Executive | Independent | ||
Mr. A.L. Gooneratne (Former Managing Director) (Resigned w.e.f. from April 27, 2012 upon reaching the age of retirement) |
Executive | Non-Independent |
The information on new appointments and resignations to and from the Board of Directors of the Bank given below forms an integral part of this 'Annual Report of the Board of Directors' in terms of the Section 168 (1) (h) of the Companies Act No. 07 of 2007.
Mr. J. Durairatnam (Appointed w.e.f. April 28, 2012)
Mr. S. Swarnajothi (Appointed w.e.f. August 20, 2012)
There were no direct resignations/relinquishments/cessations during the year. However, Mr. A.L. Gooneratne who was the Managing Director/
Chief Executive of the Bank up to April 27, 2012 resigned from the Board of Directors on April 27, 2012 upon his retirement from the services of
the Bank.
Names of the Directors of all Subsidiaries and Associates of the Bank are given in the Section on 'Group Structure' on Annexes.
Messrs S. Swarnajothi and J. Durairatnam who were appointed to fill casual vacancies on the Board during the year 2012 are permitted to hold office only until the following AGM, hence, they are required to offer themselves for re-election at the next AGM.
Mr. D.S. Weerakkody
Mr. K.G.D.D. Dheerasinghe
Prof. U.P. Liyanage
Mr. L. Hulugalle
Mr. M.P. Jayawardena
The Board recommended the re-election of the following Directors, after considering the contents of the Affidavits and Declarations submitted by them and all other related issues:
(a) Directors to retire by rotation
Mr. K.G.D.D. Dheerasinghe
Prof. U.P. Liyanage
(b) Directors appointed to fill casual vacancies
Mr. S. Swarnajothi
Mr. J. Durairatnam
Details of Directors' meetings which comprised Board meetings and Board Sub-Committee meetings of the Board Human Resources and Remuneration Committee, Board Integrated Risk Management Committee, Board Nomination Committee, Board Audit Committee, Board Credit Committee and Board Technology Committee are presented on this Stewardship section.
The Board of Directors of the Bank formed four mandatory Board Sub-Committees as required by the Banking Act Direction No. 11 of 2007, issued by the Monetary Board on 'Corporate Governance for Licensed Commercial Banks of Sri Lanka'. These Committees play a critical role in order to ensure that the activities of the Bank at all times are conducted with the highest ethical standards and in the best interest of all its stakeholders. The terms of reference of these Sub-Committees conform to the recommendations made by various regulatory bodies such as The Institute of Chartered Accountants of Sri Lanka, the Securities and Exchange Commission of Sri Lanka, the Central Bank of Sri Lanka and the Colombo Stock Exchange.
The composition of these mandatory Sub-Committees as at December 31, 2012, was as follows:
Mr. D.S. Weerakkody - Chairman
Mr. K.G.D.D. Dheerasinghe
Prof. U.P Liyanage
Mr. W.M.R.S. Dias - Managing Director/CEO (By Invitation)
The Report of the Board Human Resources and Remuneration Committee is given on this Stewardship section.
Mr. K.G.D.D. Dheerasinghe - Chairman
Prof. U.P Liyanage
Mr. W.M.R.S. Dias - Managing Director/CEO
Mr. L. Hulugalle
Mr. M.P. Jayawardena
Mr. K.D.N. Buddhipala (Chief Financial Officer/Secretary)
Mr. S.C.U. Manatunge (Chief Risk Officer)
The Report of the Board Integrated Risk Management Committee is given on this Stewardship section.
Mr. D.S. Weerakkody - Chairman
Mr. K.G.D.D. Dheerasinghe
Prof. U.P. Liyanage
Mr. W.M.R.S. Dias - Managing Director/CEO (By Invitation)
The Report of the Board Nomination Committee is given on this Stewardship section.
Mr. S. Swarnajothi - Chairman (Appointed as Chairman w.e.f. August 20, 2012)
Prof. U.P. Liyanage
Mr. L. Hulugalle
Mr. M.P. Jayawardena
Mr. H.M.A. Jayesinghe - Consultant
Mr. W.M.R.S. Dias - Managing Director/CEO (By Invitation)
The Report of the Board Audit Committee is given on this Stewardship Section.
In addition to above mandatory Board Sub-Committees, the Bank has set up the following Board Sub-Committees too.
Mr. K.G.D.D. Dheerasinghe - Chairman
Mr. M.P. Jayawardena
Mr. W.M.R.S. Dias - Managing Director/CEO
Prof. U.P. Liyanage - Chairman
Mr. W.M.R.S. Dias - Managing Director/CEO
Mr. J. Durairatnam (Chief Operating Officer) (Appointed w.e.f. April 28, 2012)
Mr. R. Muttiah (Chief Information Officer)
Mr. L.H. Munasinghe (Deputy General Manager - Marketing)
Mr. M.E.P. Perera (Assistant General Manager - Operations)
Individual ordinary voting shareholdings of Directors were as follows:
As at December 31, | 2012 | 2011 |
Mr. D.S. Weerakkody (Chairman) | 26,017 | 21,564 |
Mr. K.G.D.D. Dheerasinghe (Deputy Chairman) | 20,000 | Nil |
Mr. W.M.R.S. Dias (Managing Director) | 685,123 | 673,174 |
Prof. U.P. Liyanage | Nil | Nil |
Mr. L. Hulugalle | Nil | Nil |
Mr. M.P. Jayawardena | Nil | Nil |
Mr. J. Durairatnam | 309,782 | 344,762 |
Mr. S. Swarnajothi | Nil | Nil |
Percentage Shareholding of the Directors | ||
Ordinary Voting Shares (%) | 0.13 | 0.14 |
Directors' shareholdings in ordinary voting shares have not changed subsequently to the date of the Statement of Financial Position up to February 05, 2013 the date being one month prior to the date of Notice of the Annual General Meeting.
Individual Ordinary Non-Voting shareholdings of Directors were as follows:
As at December 31, | 2012 | 2011 |
Mr. D.S. Weerakkody (Chairman) | 11,981 | Nil |
Mr. K.G.D.D. Dheerasinghe (Deputy Chairman) | Nil | Nil |
Mr. W.M.R.S. Dias (Managing Director) | Nil | Nil |
Prof. U.P. Liyanage | Nil | Nil |
Mr. L. Hulugalle | Nil | Nil |
Mr. M.P. Jayawardena | Nil | Nil |
Mr. J. Durairatnam | Nil | Nil |
Mr. S. Swarnajothi | 8,169 | 8,000 |
Percentage Shareholding of the Directors | ||
Ordinary Non-Voting Shares (%) | 0.04 | 0.02 |
Directors' shareholdings in ordinary non-voting shares have not changed subsequent to the date of the Statement of Financial Position and up to February 05, 2013, the date being one month prior to the date of Notice of the Annual General Meeting.
There were no debentures registered in the name of any Director as at the beginning and at the end of the year.
In 2009, the Bank implemented a new Employee Share Option Plan for the Corporate Management and the Executive Officers in Grade III and above, based on the Bank achieving certain pre-determined performance criteria. The approval of the shareholders was obtained for this scheme to offer share options up to 3% of the ordinary voting shares of the Bank.
The details of the existing Employee Share Option Plans are given in Note 43 to the Financial Statements on Financial Reports section.
The Group and the Bank do not have any employee profit sharing plan, except the Variable Bonus Scheme.
Directors' interests in contracts or proposed contracts with the Company, both direct and indirect are disclosed on 'Directors' Interest in Contracts with the Company' section. These interests have been declared at Directors' meetings. As a practice, Directors have refrained from voting on matters in which they were materially interested. Directors have no direct or indirect interest in any other contract or proposed contract with the Company.
There are no arrangements enabling the Non-Executive Directors of the Group and the Bank to acquire shares or debentures of the Bank or its Subsidiaries, other than via the market.
Directors' remuneration and other benefits, in respect of the Group and the Bank for the financial year ended December 31, 2012 are given in Note 14 to the Financial Statements on Financial Reports section.
There are no restrictions on the approval of loans to Directors in the Bank's ordinary course of business, subject to compliance with all applicable regulations.
The Group and the Bank have not to the best of their knowledge, engaged in any activity, which was detrimental to the environment. Specific measures taken to protect the environment are given on Management Descussion and Analysis section.
The Directors, to the best of their knowledge and belief are satisfied, that all statutory payments due to the Government, other regulatory institutions and related to the employees have been made in time.
No event of material significance that require adjustments to the Financial Statements, other than those disclosed in Note 54 to the Financial Statements on Financial Reports section, has occurred subsequent to the date of the Statement of Financial Position.
The Board of Directors of the Bank decided to adopt a Policy of rotation of Auditors, once in every five years, in keeping with the principles of good Corporate Governance.
Accordingly, the present Auditors Messrs KPMG were appointed as Auditors of the Bank, at the last Annual General Meeting held in March 2012 to carry out the audit for the year ended December 31, 2012 and will hold office until the conclusion of the next Annual General Meeting of the Bank which is to be held in March 2013. Accordingly, KPMG will serve for a maximum period of five years consecutively, subject to them being re-elected by shareholders, upon a recommendation of the Board of Directors, annually.
The retiring Auditors, Messrs KPMG have signified their willingness to continue functioning as the Auditor to the Bank.
A resolution to re-appoint KPMG as Auditors and granting authority to the Directors to fix their remuneration will be proposed at the forthcoming Annual General Meeting.
The Auditors, Messrs KPMG were paid Rs. 7.955 Mn. for the year ended December 31, 2012 as audit fees by the Bank. In addition, they were paid Rs. 5.138 Mn. by the Bank, for permitted non-audit-related services including tax consultancy services.
As far as the Directors are aware, the Auditors do not have any other relationship or interest in contracts with the Bank, or any of its Subsidiaries or Associates other than being the Auditors for Bank's Subsidiaries and Associates.
The Bank has an ongoing process in place to identify, evaluate and manage the risks that are faced by the Bank. The Directors continuously review this process through the Board Integrated Risk Management Committee. Specific steps taken by the Bank in managing both banking and non-banking risks are detailed in the Section on 'Managing Risk at Commercial Bank' and in the 'Board Integrated Risk Management Committee Report' .
The Directors declare that-
The measures taken and the extent to which the Bank has complied with the Codes of Best Practices on Corporate Governance issued by The Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka, the Colombo Stock Exchange and the Central Bank of Sri Lanka are given in the Section on 'Corporate Governance' on this Stewardship section.
The Bank continues to invest in Human Capital Development and implement effective Human Resource Practices and Policies to improve workforce efficiency, effectiveness and productivity and also to foster collaborative partnerships that enrich the work and learning environment for our staff.
Specific measures taken in this regard are detailed in the 'Human Resources and Remuneration Committee Report' on this Stewardship section.
To increase efficiency and reduce operating cost, the Bank has on-going initiatives to drive policy and process standardisation and to optimise the use of existing technology platforms.
In the opinion of the Directors and in consultation with the Bank's lawyers, litigation currently pending against the Bank will not have a material impact on the reported financial results or future operations of the Bank. Details of litigations pending against the Bank are given on Note 49 to the Financial Statements on Financial Reports section.
Notice relating to the Forty-Fourth Annual General Meeting of the Bank is enclosed herewith.
The Bank has taken the initiative to present its first integrated Annual Report for the year ended December 31, 2012. Integrated reporting brings together material information about the Bank's strategy, governance performance and prospects in a way that reflect the commercial, social and environmental context within which it operates. It provides a clear and concise representation of how the Bank demonstrates stewardship and how it creates and sustains value.
As required by the Section 168 (1) (k) of the Companies Act No. 07 of 2007, the Board of Directors does hereby acknowledge the contents of this Annual Report.
Signed in accordance with a resolution adopted by the Directors.
D.S. Weerakkody Chairman |
K.G.D.D. Dheerasinghe Deputy Chairman |
W.M.R.S. Dias Managing Director/CEO |
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Prof. U.P. Liyanage Director |
L. Hulugalle Director |
M.P. Jayawardena Director |
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S. Swarnajothi Director |
J. Durairatnam Director |
Mrs. R.R. Dunuwille Company Secretary |
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Colombo
February 27, 2013